source: Caselaw Access Project

author: PROPST, District Judge.

license: Public Domain

text:
    LLOYD NOLAND HOSPITAL AND CLINIC, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    Civ. A. No. CV83-PT-0868-S.
    United States District Court, N.D. Alabama, S.D.
    April 5, 1984.

      Eric L. Carlton, Thomas, Taliaferro, Forman, Burr & Murray, Birmingham, Ala., John T. Ward, Leonard C. Homer, Margaret M. Manning, Ober, Grimes & Shriver, Baltimore, Md., for plaintiff.
    Frank W. Donaldson, U.S. Atty., N.D. Ala., Herbert J. Lewis, III, Asst. U.S. Atty.,- Birmingham, Ala., for defendant.
   MEMORANDUM OPINION

PROPST, District Judge.

This cause comes before the court on the parties’ cross motions for summary judgment. Plaintiff seeks a determination that the “malpractice rule,” 42 C.F.R. § 405.-452(b)(1)(ii), is invalid because it was promulgated in violation of the Administrative Procedures Act (A.P.A.), 5 U.S.C. § 701 et seq., and because it is in substantive conflict with the provisions of the Medicare Act, 42 U.S.C. § 1395x(v)(1)(A).

Plaintiff is a “provider of services” as defined in 42 U.S.C. § 1395cc. As such, plaintiff agrees not to charge Medicare patients for services covered by Medicare, and is in return reimbursed for the “reasonable cost” of those services, 42 U.S.C. § 1395f(b)(l)(A). Prior to the promulgation of the “malpractice rule,” plaintiff was reimbursed for the cost of obtaining medical malpractice insurance as part of its administrative and general (A & G) costs. Such costs were reimbursed based on the percentage utilization of the hospital’s facilities by Medicare patients. During the cost year ending in 1980, 32% of the hospital’s services were used by Medicare patients. Prior to the promulgation of the malpractice rule, the hospital would therefore have been entitled to reimbursement of 32% of its medical malpractice insurance costs. The malpractice rule provides that:

For costs reporting periods beginning on or after July 1,1979, costs of malpractice insurance premiums and self-insurance fund contributions must be separately accumulated and directly apportioned to Medicare. The apportionment must be based on the dollar ratio of the provider’s Medicare paid malpractice losses to its total paid malpractice losses for the current cost reporting period and the preceding four year period. If a provider has no malpractice loss experience for the five year period, the costs of malpractice insurance premiums or self-insurance fund contributions must be apportioned to Medicare based on the national ratio of malpractice awards paid to Medicare beneficiaries to malpractice awards paid to all patients. The Health Care Financing Administration will calculate this ratio periodically based on the most recent departmental closed claim study ...

42 C.F.R. § 405.452(a)(1)(ii). The applicable national ratio was initially set at 5.1%. Since plaintiff had no malpractice loss experience for the five year period ending in 1980, its fiscal intermediary determined plaintiff’s reimbursement of malpractice premiums at the 5.1% rate. The difference between the 5.1% national rate and the 32% utilization rate apparently amounts to $13,-191.00. (Complaint at 5). Plaintiff appealed the intermediary settlement for the cost year ending in 1980 to the Provider Reimbursement Review Board (PRRB), which on February 18, 1983, issued a notice that it lacked the authority to determine the validity of the malpractice regulation. Plaintiff filed this action on April 22, 1983, sixty-three days later. Jurisdiction is alleged pursuant to 42 U.S.C. § 1395oo (f)(1) and 28 U.S.C. § 1331.

The court notes at the onset that several other district courts have decided the identical question presented by this case. Five courts have invalidated the malpractice rule. See Abington Memorial Hospital v. Heckler, 576 F.Supp. 1081 (E.D.Pa.1983) (J. Fullam); Mt. Carmel Mercy Hospital v. Heckler, 581 F.Supp. 1311 (E.D.Mich.1983) (J. DeMascio), Chelsea Community Hospital v. Heckler, No. 83CV-6126-AA (E.D. Mich. Dec. 20, 1983) (J. Jointer); St. James Hospital v. Heckler, 579 F.Supp. 757 (N.D. Ill.1984) (J. Will); Humana of Illinois, Inc. v. Heckler, 584 F.Supp. 618 (C.D. Ill.1984). Four courts have upheld the rule. See Athens Community Hospital v. Heckler, 565 F.Supp. 695 (E.D.Tenn.1983) (J. Taylor), appeal docketed, No. 83-5546 (6th Cir. August 5, 1983); Cumberland Medical Center v. Heckler, 578 F.Supp. 39 (M.D. Tenn.1983) (J. Morton), appeal docketed, No. 83-5549 (6th Cir. Aug. 9,1983); Humana of Aurora, Inc., d/b/a Aurora Community Hospital v. Heckler, No. 83-2-70 (D.Colo. Sept. 19, 1983) (J. Weinshienk), appeal docketed, No. 83-2417 (10th Cir. Nov. 4, 1983); Walter O. Boswell Memorial Hospital v. Heckler, 573 F.Supp. 884 (D.D.C.1983) (J. Bryant), appeal docketed, No. 83-2223 (D.C.Cir. Dec. 2, 1983). No circuit court opinions have been brought to the court’s attention.

I. Jurisdiction

The court has raised, ex mero motu, a question regarding its jurisdiction. 42 U.S.C. § 1395oo (f)(1) provides in part:

Providers shall have the right to obtain judicial review of any final decision of the Board, or of any reversal affirmance, or modification by the Secretary, by a civil action commenced within 60 days of the date on which notice of any final decision by the Board or of any reversal, affirmance, or modification by the Secretary is received. Providers shall also have the right to obtain judicial review of any action of the fiscal intermediary which involves a question of law or regulations relevant to the matters in controversy whenever the Board determines (on its own motion or at the request of a provider of services as described in the following sentence) that it is without authority to decide the question, by a civil action commenced within sixty days of the date on which such determination is rendered.

42 U.S.C. § 1395oo(f)(1) (emphasis added). The determination of the PRRB was evidently made pursuant to the expedited procedure provided by the second sentence in the above passage, since its determination was that it “lacked the authority to determine the validity of the malpractice regulation.” (Complaint at 7, ¶ 27). As mentioned earlier, this action was not filed until 63 days after the PRRB’s determination was rendered. It was filed within sixty days of plaintiff’s apparent receipt of the determination on February 24, 1983. (See Appendix to Complaint). The letter from the PRRB informing plaintiff of the Board’s determination states: “The providers have 60 days from the receipt of this letter to institute the appropriate action for judicial review.” (Appendix to Complaint).

Federal courts must scrupulously confine their own jurisdiction to the precise limits that a federal statute has defined. Victory Carriers, Inc. v. Law, 404 U.S. 202, 212, 92 S.Ct. 418, 425, 30 L.Ed.2d 383 (1971); Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978). The parties may not create federal jurisdiction by express consent, by their conduct or even by estoppel. American Fire and Casualty Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 541-42, 95 L.Ed. 702 (1951); Wright, Miller and Cooper, supra, § 3522 at pp. 46-47. The court is persuaded, however that the sixty-day period provided for appeal is in the nature of a statute of limitations and is not a prerequisite to jurisdiction. Because of the similarity between the appeals mechanisms contained in the Social Security and Medicare Acts, decisions interpreting the Social Security Act’s provisions control similar issues arising under the Medicare Act. See V.N.A. of Greater Tift County, Inc. v. Heckler, 711 F.2d 1020, 1024 (11th Cir.), cert. denied, — U.S. —, 104 S.Ct. 1908, 80 L.Ed.2d 457 (1984). The time limitations for filing suit under the Social Security Act are statutes of limitation, and not prerequisites to jurisdiction. Weinberger v. Salfi, 422 U.S. 749, 763-64, 95 S.Ct. 2457, 2465-66, 45 L.Ed.2d 522 (1975); Mathews v. Eldridge, 424 U.S. 319, 328, n. 9, 96 S.Ct. 893, 899, n. 9, 47 L.Ed.2d 18 (1976). The same is therefore true of the sixty-day limitations period in question in this case. Since defendant has not raised this defense in a timely manner, it is waived. Fed.Rule Civ. Pro. 8(c); Salfi, supra, 422 U.S. at 764, 95 S.Ct. at 2466. Even if the statute of limitation was not waived, the court is of the opinion that the letter from the PRRB tolled the statute so that plaintiff’s time for filing this appeal would not expire until 60 days from the receipt of the letter. Accordingly, the court has subject matter jurisdiction over this appeal.

II. Compliance with the Administrative Procedures Act

A. Standard of Review.

Appeals from the decision of the PRRB pursuant to 42 U.S.C. § 1395oo (f) “shall be tried pursuant to the applicable provisions under Chapter 7 of Title 5 [the Administrative Procedures Act]. . . .” 42 U.S.C. § 1395oo (f)(1). Plaintiff’s claims for declaratory relief also allege non-compliance with the Administrative Procedures Act. 5 U.S.C. § 706 provides that a reviewing court shall:

“hold unlawful and set aside agency action, findings, and conclusions found to be—
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; ...
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law;
(E) unsupported by substantial evidence in a case ... otherwise reviewed on the record of an agency hearing provided by statute____

5 U.S.C. § 706. The Supreme Court recently articulated the guidelines which the court must follow in determining whether the malpractice rule was properly promulgated. It stated:

[A] reviewing court may not set aside an agency rule that is rational, based on consideration of the relevant factors and within the scope of the authority delegated to the agency by the statute ... The scope of review under the “arbitrary and capricious” standard is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a “rational connection between the facts found and the choice made.” ... In reviewing that explanation, we must “consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” ... Normally an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress had not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The reviewing court should not attempt itself to make up for such deficiencies: “We may not supply a reasoned basis for the agency’s action that the agency itself has not given.” ... “We will, however, uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned.”

Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 42-43, 103 S.Ct. 2856, 2866-67, 77 L.Ed.2d 443, 457-58 (1983).

B. Insufficiency of the Notice of Proposed Rule Making (NPRM).

Plaintiff contends that the Notice of Proposed Rule Making (NPRM) published by the Secretary on March 15, 1979 (44 Fed. Reg. 15,744-45; Agency Record at Vol. II, Tab 54) did not comply with the requirements of the Administrative Procedures Act (A.P.A.), 5 U.S.C. § 553. Section 553 states in part:

(b) General notice of proposed rule making shall be published in the Federal Register, unless persons subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with law. The notice shall include—
(1) a statement of the time, place, and nature of public rule making proceedings;
(2) reference to the legal authority under which the rule is proposed; and
(3) either the terms or substance of the proposed rule or a description of the subjects and issues involved. 5 U.S.C. § 553. The leading case concerning this portion of the A.P.A. is Home Box Office, Inc. v. F.C.C., 567 F.2d 9 (D.C.Cir. 1977). The court there held that “the notice required by the A.P.A., or information subsequently supplied to the public, must disclose in detail the thinking that has animated the form of a proposed rule and the data upon which that rule is based. Id. 567 F.2d at 35 (Emphasis added). Plaintiff argues that because the NPRM failed to disclose the name of the study which provided the factual basis for the malpractice rule (the “Westat study”), it was deprived of the opportunity to make informed and intelligent comments and criticisms of the proposed rule, particularly with regard to the statistical validity of the Westat study as it applies to the malpractice rule (See discussion infra at 8). The NPRM provided in relevant part:
A study conducted by an HEW consultant indicates that malpractice awards for Medicare and Medicaid patients are significantly lower in amount than losses for other patient population. The lower awards for these patients result because their income potential and life expectancy are less than the remainder of the patient population. Thus, the use of overall Medicare utilization to allocate malpractice costs results in Medicare paying for a disproportionate amount of malpractice costs.

44 Fed.Reg. 15744, 15745 (March 15, 1979) (emphasis added). It is not disputed that the “study conducted by an HEW consultant” is in fact the Westat study. The Secretary in the preamble to the final rule in fact specifically identified the Westat study as the study relied on. 44 Fed.Reg. 31641 (June 1, 1979).

Defendant contends that although the Westat study was not named in the NPRM, leading hospital organizations were aware that the “study” referred to was the Westat study and in fact made comments to the Secretary prior to the promulgation of the final rule based on the Westat study. See, e.g., comments of the American Hospital Association, Agency Record Vol. 5, Tab A; the Hospital Corporation of America, Vol. 5, Tab H; the Federation of American Hospitals, Vol. 6, Tab F. These organizations apparently represent 6400, 120, and 1000 hospitals, respectively. Id., see also Abington, supra, 576 F.Supp. at 1085. It is thus evident that even though the NPRM may have been technically insufficient, most interested parties had actual notice of the “study” in question. Notice is adequate if “it affords interested parties a reasonable opportunity to participate in the rulemaking process.” Forester v. Consumer Product Safety Comm’n, 559 F.2d 774, 787 (D.C.Cir.1977). Since many interested parties had actual notice of the name of the study in question, the court cannot conclude that the regulation should be invalidated for failure to specifically name the study relied upon. Accord, Abington, supra, 576 F.Supp. at 1085.

A more serious challenge to the sufficiency of the NPRM is the Secretary’s failure to provide access to the data relied upon in the Westat study. An agency has a duty “to'identify and make available technical studies and data that it has employed in reaching the decision to propose particular rules.” Connecticut Light and Power Co. v. Nuclear Regulatory Comm’n, 673 F.2d 525, 531 (D.C.Cir.), cert. denied, 459 U.S. 835, 103 S.Ct. 79, 74 L.Ed.2d 76 (1982) (Emphasis added). Plaintiff asserts in its brief that the data upon which the Westat study was based was not released by the Secretary until sometime in 1980. (Plaintiff’s opposition to Defendant’s brief at 5). Plaintiff contends that until its expert had an opportunity to analyze the data upon which the Westat study relied, they had no basis for criticizing the study’s statistical validity, especially as it applies to hospitals. The court agrees that the data upon which the Westat study was premised should have been made available to the interested parties in time for a proper analysis and meaningful comment to be made regarding the proposed regulation. See U.S. Lines v. Federal Maritime Comm’n, 584 F.2d 519, 534-36 (D.C.Cir.1978). The court cannot say, however, on the record before it, that this was not done. Plaintiff has not cited the court to any evidence of record to indicate when the data was released; its unsubstantiated assertions in its brief will not suffice.

Plaintiff next attacks the sufficiency of the NPRM on the basis that the agency initially gave interested parties 45 days to comment rather than the sixty days required by Executive Order 12044. 43 Fed.Reg. 12661 (March 23, 1978). The agency did extend the period allowed for public comment, but not until May 1, 1979, the final day of the initial forty-five day comment period. 44 Fed.Reg. 25476 (May 1, 1979). Plaintiff argues that most interested parties rushed to submit their comments prior to May 1, and that by implication the comments were not as thorough as they would otherwise have been. Although the court recognizes the inconvenience which may have been caused plaintiff by the agency’s action, the fact remains that a total of sixty days was allowed. The regulation cannot be struck down on this basis. Accord, St. James, supra, 579 F.Supp. at 763; Athens, supra, 565 F.Supp. at 698.

Plaintiff’s final attack on the sufficiency of the NPRM is that it failed to give notice of the “national ratio” element of the final rule. The proposed rule provided for an actuarial estimate to be made of Medicare’s share of malpractice insurance costs and be applied to reimburse hospitals with no malpractice loss over the five-year period in question. The final rule substituted a “national ratio” to be computed by the Health Care Financing Administration for this actuarial estimate. The initial “national ratio” was set at 5.1%, apparently based on an extrapolation from the Westat study data. This change in the final rule does not invalidate the rule, however, unless the interested parties were thereby not adequately appraised of the issues before the agency. See Abington, supra, 576 F.Supp. at 1085. “[T]he submission of a proposed rule for comment does not of necessity bind an agency to undertake a new round of notice and comment before it adopts a rule which is different — even substantially different — from the proposed rule.” American Iron and Steel Institute v. E.P.A., 568 F.2d 284, 293 (3d Cir.1977). The “Supplemental Information” portion of the NPRM hinted at the “national ratio” method, albeit not in connection with the case of a provider without malpractice loss experience. The Secretary stated: “Medicare is aware that other statistics could be used for the apportionment basis, such as: (1) a national ratio of Medicare malpractice paid losses as opposed to a single provider’s malpractice loss experience ...” 44 Fed.Reg. at 15745. The court cannot say that plaintiff was not apprised of the issues before the agency. The NPRM therefore gave plaintiff sufficient notice to justify the addition of the “national ratio” portion of the final rule.

C. Sufficiency of the Basis and Purpose Statement

An agency promulgating a regulation is required to provide a “basis and purpose” statement with the regulation and to respond to the comments received regarding the rule. Plaintiff contends that the Secretary failed to provide such a statement and failed to address several significant criticisms regarding the malpractice .rule. 5 U.S.C. § 553(c) provides in part:

After notice required by this section, the agency shall give interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without opportunity for oral presentation. After consideration of the relevant matter presented the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose

5 U.S.C. § 553(c). This statute requires the agency to consider relevant comments and then incorporate a “concise general statement” of the rule’s “basis and purpose.” The courts have interpreted this “basis and purpose” requirement to mean that the agency must address, and if necessary rebut, significant comments made regarding a proposed rule. “[T]he opportunity to comment is meaningless unless the agency responds to significant points raised by the public.” Home Box Office v. F.C.C., 567 F.2d 9, 35, cert. denied, 434 U.S. 829, 98 S.Ct. 111, 54 L.Ed.2d 89 (1977). “[A]n agency decision may not be reasoned if the agency ignores vital comments regarding relevant factors, rather than providing an adequate rebuttal.” Western Coal Traffic League v. U.S., 677 F.2d 915, 927 (D.C.Cir. 1982), cert. denied 459 U.S. 1086, 103 S.Ct. 568, 74 L.Ed.2d 931 (1982). The purpose of this basis and purpose statement has been said to be to provide a reviewing court sufficiently detailed information to allow it to determine how and why the regulations were adopted. “In particular, the statement must advert to administrative determinations of a factual sort to the extent required for a reviewing court to satisfy itself that none of the regulatory provisions were framed in an ‘arbitrary’ or ‘capricious manner.’ ” National Welfare Rights Organization v. Mathews, 533 F.2d 637, 648 (D.C.Cir.1976), citing Amoco Oil Co. v. E.P.A., 501 F.2d 722, 739 (D.C.Cir. 1974).

The basis and purpose statement was published along with the final rule on June 1, 1979 at 44 Fed.Reg. 31641-42. The statement purported to respond “to the most significant comments” received. It recognized that “All comments received were against the proposal and recommended that we withdraw it entirely.” 44 Fed.Reg. at 31641. The comments were then grouped into four categories: (1) Opposition to the Direct Apportionment of Malpractice Costs; (2) Direct Assignment of Overhead Costs; (3) Cash Flow; and (4) Claims Management. The entire basis and purpose statement is contained in two columns of the Federal Register. The most disturbing aspect of the basis and purpose statement is the total lack of response to the numerous comments which questioned the statistical validity of the Westat study. Accord, Abington, supra, 576 F.Supp. at 1086; St. James, supra, 579 F.Supp. at 764. Among these comments were those of the American Hospital Association, which noted that hospitals which were self-insured were excluded from the study although they constituted 20% of all community hospitals in 1976 and 53% of community hospitals over 500 beds. Agency Record, Vol. 5, Tab A, April 30, 1979 letter of American Hospital Association at 9. The same letter went on to point out that the authors of the Westat study characterized their study as a “census of claims” rather than a “sample” and admitted that “[i]t is probable that the percentages shown in the different categories ... are an underestimate of the actual proportion.” Id. at 9-10. The Hospital Corporation of America’s April 27, 1979, letter similarly noted that “the Westat study itself refers to significant biases that raise profound questions as to whether there is sufficient basis for the proposed rule. The biases include the following: ‘the data base only involved claims closed by 9 of 50 insurance companies over a four month period and is not representative of an adequate sample ... ’” Agency Record, Vol. 6, Tab H, Hospital Corporation of America’s April 27, 1979, letter at 6. The letter also noted the Westat study’s own caution that “conclusions must be drawn very cautiously because of the possibility of biased data.” Id., Westat study at 2-3. In the face of these and other comments challenging the validity of the Westat data, the basis and purpose statement neither acknowledged nor addressed this problem.

The basis and purpose statement also fails to address several other comments critical of the malpractice rule. The American Hospital Association commented, for example, that 30% to 40% of the cost of insurance is attributable to administrative expenses and that reimbursement based on claims paid did not adequately compensate for these expenses. Agency Record, Vol. 5, Tab A, letter of April 30, 1979, at 8. The Hospital Corporation of America in its April 27, 1979, letter quoted a Rand study to the same effect. “Indeed, the legal apparatus required to determine negligence and place blame is so expensive that only about 35 cents of every dollar in malpractice premiums is paid to successful claimants.” Agency Record, Vol. 6, Tab H, letter of April 27, 1979, at 5-6. The basis and purpose statement ignored these and other substantive challenges to the proposed regulation. This is true even though internal agency documents reveal that there was an awareness of the problem. A letter dated May 18, 1979, from the office of the General Counsel for the Department of Health, Education and Welfare stated:

We have technical problems with HCFA-147 ... We do not believe the preamble is adequate. Nor do we believe it is clearly written. HCFA received some 450 public comments on the NPRM. All of the public comments opposed the proposed regulations. Therefore, we believe that HCFA needs to carefully explain why it is rejecting the public comments.

Agency Record, Vol. 2, part II, Tab 49.

Since it appears from the record that the basis and purpose statement failed to address several significant and relevant criticisms of the proposed rule, the court is compelled to agree with the Abington and St. James courts that the statement was inadequate. As Judge Fullam noted: “It would have been a miracle of bureaucratic succinctness had the Secretary managed to reply adequately in two scant columns of Federal Register prose to the 600 plus comments that occupy five thick volumes of the administrative record. Unfortunately, no such miracle has been witnessed by this court, which instead finds the Secretary’s response woefully inadequate”. Abington, supra, 576 F.Supp. at 1086.

D. Arbitrary and Capricious.

As noted previously, 5 U.S.C. § 706 provides that a reviewing court shall “hold unlawful and set aside agency action, findings, and conclusions found to be — (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; ...” Plaintiff claims that the malpractice rule was promulgated in an arbitrary and capricious fashion and is therefore due to be set aside.

It appears from the record that the agency decision to implement the malpractice rule was made in response to budgetary pressures well in advance of the formal publication and approval mandated by the A.P.A. An internal agency note on February 22, 1979 summarized the proposed rule and stated:

The regulation results in an estimated $11 million budget savings for the final quarter of FY 79 and $310 million for FY 80.
This regulation conforms with the agreements negotiated during the budget process. It must be published at the beginning of March in order to fulfill our commitment to implement by July 1.

Agency Record, Vol 1, Part I, Tab 29 (emphasis added). The Department’s budget proposals for FY 1980, which were circulated on January 23, 1979, and released on January 22,1979, stated: “The Department will publish regulations that will base Medicare and Medicaid reimbursement for hospital malpractice insurance costs upon the actual experience of Federal beneficiaries, rather than on their rate of utilization of hospital services as is current practice.” Agency Record, Vol. 1, Part I, Tab 25 (Emphasis added). In a memo circulating the NPRM on February 16, 1979, the Administrator of the Health Care Financing Administration stated: “If the direct apportionment of malpractice costs is not implemented ... expenditures would exceed the budgeted amounts for FY’s 1979 and 1980 ... Since final regulations establishing the new apportionment procedure must be effective for part of the FY 1979 ... the (N.P.R.M.) must be published as soon as possible ...” Agency Record, Vol. 1, Part I, Tab 28.

As noted earlier, the Agency initially set a forty-five day period for public comment only to extend it on the last day to the required sixty days. See supra at 6-7. The record reflects, however, that in its attempt to implement the rule in time for the “savings” to be realized in FY 1979, the Agency began the process of finalizing the rule well before the period for comments was closed. The final rule, including the basis and purpose statement which purported to address the public comments, was apparently drafted prior to April 24, 1979 — six days before the end of the abbreviated forty-five day comment period. Agency Record, Vol. 1, Part II, Tab 42. The rule as finally promulgated was circulated on May 15, 1979, the last day of the sixty day period, and contained essentially the same basis and purpose statement as was included in the April 24, 1979, draft. Since the final rule was prepared and circulated before the period for public comment was closed, it is obvious that there was no adequate consideration of those comments. It is similarly obvious from the Agency Record that budget pressure was the overriding consideration in the implementation of the rule. Allowing budgetary pressures to override the A.P. A.’s mandate that public comments be considered is not in keeping with the promulgation of an administrative rule pursuant to a statute requiring the reimbursement of the “reasonable cost” of services. 42 U.S.C. § 1395x(v).

Reliance on faulty data in the promulgation of a rule is also a basis for finding that the rule was issued in an arbitrary manner. The D.C.Circuit in Almay, Inc. v. Califano, 569 F.2d 674, 682 (D.C. Cir.1977), held that agency reliance on a survey which was “flawed” was a clear error of judgment and impermissibly arbitrary. The Westat study, the sole factual basis for the malpractice rule, warned that “conclusions must be drawn very cautiously because of the possibility of biased data.” Agency Record, Vol. 3 at 2-2. A memorandum from senior Westat analysts to the HEW official in charge of the study dated August 17, 1978, stated:

The 1976 study involved a census of claims closed by nine private sector carriers over a four month period. With such a sample design, it was virtually impossible to generalize beyond the sample — to annual totals or national totals, to cite the most elementary limitations. Beyond that, there was no assurance that the sample was in any way representative, of hospitals, of physicians, of injuries, of georgraphic regions, of claimants.

Agency Record, Vol. 4, Tab 37. The same memo went on to say that “a closed claim sample is not a representative sample of physicians or hospitals (i.e. insureds) involved in medical malpractice.” Id. Despite these warnings, the Secretary used the Westat study to attempt to prove exactly what its authors had cautioned against— generalizations about national totals and hospitals. The court recognizes that an agency does not have to have perfect data before taking regulatory action. See Ab-ington, supra, 576 F.Supp. at 1087. However, the court is compelled to conclude that when the agency relies on a study for propositions which the study’s authors specifically note are not supported by its data base, such reliance is an error of judgment and arbitrary. Accord, Abington, supra, 576 F.Supp. at 1087; St. James, supra, 579 F.Supp. at 766.

III. Substantive Conflict with the Medicare Act.

Plaintiff’s final contention is that the malpractice rule is not consistent with and does not further the purposes of the Medicare Act. 42 U.S.C. § 1395f(b) provides that: “The amount paid to any provider of services ... shall be ... the lesser of (A) the reasonable cost of such services ... or (b) the customary charges with respect to such services ...” 42 U.S.C. § 1395f(b)(1). “Reasonable cost” is defined elsewhere as “the cost actually incurred, excluding therefrom any part of incurred cost found to be unnecessary in the efficient delivery of needed health services.” 42 U.S.C. § 1395x(v)(1)(A). The Secretary is authorized to establish regulations to determine “actual costs,” with the limitation that “Such regulations shall (i) take into account both direct and indirect costs of providers of services ... in order that ... the necessary costs of efficiently delivering covered services to individuals covered (by the Medicare Act) will not be borne by individuals not so covered ...” 42 U.S.C. § 1395x(v)(1)(A). The Secretary is further ordered to consider “among other things, the principles generally applied by national organizations or established prepayment organizations ... in computing the amount of payment to be made ... to providers of services ...” Id.

Plaintiff alleges that the malpractice rule runs afoul of the Medicare Act in several respects. First of all, it is argued that by isolating malpractice insurance costs from other General and Administrative (A & G) costs, the “averaging” principle by which such costs have traditionally been reimbursed is defeated and the providers are underpaid for other A & G costs. Under the “averaging” principle, A & G costs are groupled into a “cost center.” Medicare then reimburses the provider for a portion of the total cost center based on the percentage of Medicare patients who utilize the hospital. It is expected that the providers will be overpaid by Medicare for some particular costs and underpaid for others. When all the costs are grouped together, however, these costs are presumed to “average out” so that Medicare actually pays for approximately its share of all A & G expenses. The Secretary maintains that malpractice insurance costs should not be as high for Medicare patients as for other patients, since Medicare patients are older as a group, do not have as great an earning potential, and therefore are not awarded as much in malpractice claims as are other patients. As a result, it is argued that malpractice insurance costs should be singled out for “discrete costing” — in effect removing malpractice insurance costs from the A & G cost center and reimbursing providers for those costs separately, according to the formula laid out in the malpractice rule. The plaintiff on the other hand cites the court to numerous cases in which providers have sought to have various A & G costs which are attributable solely to Medicare discretely costed. In all such cases, the Secretary has denied the providers’ requests, maintaining that “it is impractical to isolate discrete items of general and administrative cost between Medicare and non-Medicare beneficiaries ...” (Methodist Hospital, Brooklyn, N.Y. v. Blue Cross/Blue Shield of Greater New York, [1979-2 Transfer Binder] Medicare and Medicaid Guide (CCH) ¶ 30,086,

PRRB Hearing Dec. No. 79-053, Aug. 17, 1979), and that “[t]he balance of the averaging technique would be distorted if the provider were allowed to discrete cost certain elements of its own choosing.” PRRB Hearing Decision No. 82-D46, Feb. 2, 1982, [1982 Transfer Binder] Medicare and Medicaid Guide (CCH), 1131,810 at 9070. Plaintiff argues that the Secretary is, in effect, discrete costing elements of its own choosing, while denying providers the right to do likewise.

The record reveals that the agency was aware of this objection and had evidence before it indicating that if all items which could be discrete costed were, the net effect would be an increase in the amounts Medicare would be obligated to reimburse. See Agency Record, Vol. 2, Tab 36; Vol. 1, Tab 22; Vol. 1, Tab 19. It also appears that the practice of pooling A & G costs was a traditional practice of the hospital industry and third-party payors prior to the inception of the Medicare program. Agency Record, Vol. 1, Tab 19. The court recognizes that plaintiff’s argument is logically persuasive, however, the court cannot say on the evidence before it at this time that the agency action was unreasonable. There is simply no evidence before the court at this time which would prove that the malpractice rule has disrupted the balance of the averaging scheme. In view of the broad power of the agency to use “different methods in different circumstances,” 42 U.S.C. § 1395x(v)(1)(A), the court likewise cannot say that failure to abide by traditional methods of reimbursement is contrary to the Medicare Act.

Plaintiff also challenges the regulation on the basis of that it fails to reimburse the “cost actually incurred,” 42 U.S.C. § 1395x(v)(1)(A), by providers with respect to malpractice insurance premiums attributable to Medicare patients. Plaintiff illustrates this argument by positing the following admittedly extreme hypotheticals based on the application of the malpractice rule to a hospital with a 60% Medicare utilization rate and annual malpractice premiums of $100,000:

(1) If the hospital, during the relevant five year period specified by the challenged regulation, pays only one malpractice claim, no matter what the amount, to a Medicare recipient, Medicare will reimburse the hospital $100,000 or 100% of its malpractice insurance costs;
(2) If, instead of paying a single malpractice claim to a Medicare recipient, the same amount is paid as the result of a claim by a non-Medicare recipient, Medicare will reimburse the hospital none of its malpractice insurance costs;
(3) If the hospital makes no payments on malpractice claims during the relevant five-year period, Medicare will reimburse the hospital only $5,100 or 5.1% of its malpractice insurance costs.

Plaintiffs Brief at 49. Under the pre-mal-practice rule method of reimbursing providers, each of the hospitals would have been reimbursed $60,000 or 60% of their malpractice insurance costs. Plaintiff cites these incongruous results as evidence of the fallacy of mechanically linking losses paid with actual costs.

It is undisputed that under current insurance practices, insurance premiums are determined primarily by a hospital’s utilization and occupancy rates, and only secondarily by an institution’s loss history. See Chicago Hospital Risk Pooling Program comments, Agency Record, Vol. 5, Tab C. It is similarly undisputed that the ratio between losses paid to Medicare beneficiaries and those paid to non-Medicare patients and the 5.1% “national ratio” have very little, if any, relationship to a hospital’s actual cost of obtaining malpractice insurance. Accord, Abington, supra, 576 F.Supp. at 1089. It is further undisputed that a significant portion of malpractice insurance costs cover expenses unrelated to claims paid, such as the administrative expenses of claims-handling, loss control program expenses, and legal fees. Finally, it is undisputed that maintaining liability insurance is a necessary cost of business for hospitals; they cannot exist without such insurance. {See Medicare Provider Reimbursement Manual, CCH Medicare and Medicaid Guide, paragraph 5999x.) Malpractice insurance premiums are an actual, although indirect, expense to hospitals providing services to Medicare beneficiaries, whether or not any claims are paid. Since the malpractice rule mechanically ties reimbursement to losses paid, a factor which bears little relationship to a hospital’s actual cost of obtaining malpractice insurance, it is inconsistent with the statute’s mandate that the regulations reimburse “the cost actually incurred ...” taking into account “both direct and indirect costs of providers of services ...” 42 U.S.C. § 1395x(v)(1)(A). Similarly, it violates the same statute’s prohibition against non-Medicare beneficiaries bearing costs attributable to providing services to Medicare beneficiaries. The court agrees with the Abington and St. James courts that the Secretary has chosen “an allocation formula which is least likely to reflect reality ... a formula which seemingly guarantees that the statutory mandate will inevitably be violated in most cases.” Abington, supra, 576 F.Supp. at 1089; St. James, supra, 579 F.Supp. at 767.

IV. Conclusion.

For the above-stated reasons, the court finds that the malpractice regulation, 42 C.F.R. § 405.452(b)(1)(ii), is invalid because it lacks an adequate basis and purpose statement and was promulgated in an arbitrary and capricious manner, both of which cause it to violate the Administrative Procedures Act, and because it is in substantive conflict with the provisions of the Medicare Act. Plaintiff’s Motion for Summary Judgment is therefore due to be granted and defendant’s is due to be denied. Within five days after the filing of this Memorandum Opinion, plaintiff will submit a proposed final judgment. Defendant will have five days to file objections as to form.

      . Plaintiff has advised the court that two other decisions invalidating the Malpractice Rule were filed on March 2, 1984, Albany General Hospital v. Heckler, No. 83-357 (D. Oregon) and St. Joseph’s Hospital, Tuscon v. Heckler, No. 82-781 (D.Ariz.) The court has not yet obtained copies of these decisions. The trend in the more recent cases has been to invalidate the Rule. This court agrees with the Abington case’s analysis of the decisions upholding the Rule. See Abington, supra, 576 F.Supp. at 1090.

      . One of the more serious deficiencies in the basis and purpose statement is the failure of the Secretary to address the issue discussed infra at 11-12.


author: FEIKENS, Chief Judge.

text:
    In re AIR CRASH DISASTER AT METROPOLITAN AIRPORT, DETROIT, MICHIGAN ON JANUARY 19, 1979. Margaret MURRAY, Personal Representative of the Estate of William A. Murray, Deceased, Plaintiff, v. MASSEY-FERGUSON, INC., a foreign corporation, Gates Learjet Corporation, a foreign corporation, Duncan Aviation, Inc., a foreign corporation, Management Jets International, Inc., a foreign corporation, and Conrac Corp., a foreign corporation, jointly and severally, Defendants. Margaret MURRAY, Personal Representative of the Estate of William A. Murray, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
    Nos. MDL-505, 80-74787 and 81-74854.
    United States District Court, E.D. Michigan, S.D.
    April 11, 1984.
    Arnold M. Gordon, Southfield, Mich., for Margaret Murray.
    Leonard E. Nagi, Detroit, Mich., for Massey Ferguson.
    David J. Adams, Chicago, Ill., for Gates Learjet.
    Gary A. Maximuik, .Detroit, Mich., for Duncan Aviation.

      Richard G. Santi, Des Moines, Iowa, for Management Jets.
    Kent M. Forney, Des Moines, Iowa, for Conrac Corp.
    Jan VonFlatern, Washington, D.C., for U.S.
   OPINION

FEIKENS, Chief Judge.

A Learjet plane crashed at Detroit Metropolitan Airport on January 19, 1979. William A. Murray, a passenger, was killed and his estate brings this action. Pursuant to a funding agreement, the three parties remaining in this case paid $1,750,000 to the plaintiff in settlement of potential liability. They entered into a memorandum of settlement which permits each party to claim that it is entitled to contribution or indemnity from the other two, and each seeks reimbursement for funds paid to the plaintiff. My duty under the Federal Tort Claims Act (F.T.C.A.) is to decide the liability of the United States. For reasons stated herein, I hold that the United States is not liable for this accident, and is entitled to be reimbursed for funds paid to plaintiff. Heretofore in a jury verdict, the liability of Gates was determined to be 20%, and that of M.F./Management Jets International, 80%.

I. INTRODUCTION

The Learjet N137GL crashed while attempting to land on Runway 9 at Detroit Metropolitan Airport at approximately 7:30 p.m. on January 19, 1979. The flight originated in Des Moines, Iowa, and was destined for Toronto, Canada, with stops scheduled in South Bend and Detroit. After one passenger deplaned in South Bend, the N137GL departed for Detroit. For reasons which are in dispute, the aircraft crashed while attempting to land on Runway 9. Both crew members and all four passengers were killed.

The plane, which was manufactured by Gates, was a Learjet Model 25D, with a Century III wing. The crew of N137GL, Allan Hogue and Craig Barrows, (pilot in command and co-pilot, respectively) were employees of M.F. Management Jets International owned the airplane. On the night of the accident, the Federal Aviation Administration (FAA) provided air traffic control services at Detroit Metropolitan Airport; specifically, Jack DeWolf was working the control position designated “local control.”

Gates, it is claimed, negligently designed the Model 25D aircraft, and breached an implied warranty of its fitness. The pilots, and M.F./Management Jets International through principles of respondeat superior, it is claimed, negligently operated the aircraft. Finally, the United States, it is claimed, negligently provided air traffic control services to the N137GL. This case determines the relative fault, if any, of the parties, and the allocations of liability will fix the obligations of the parties with respect to the settlement amount paid to the Murray Estate. This opinion must be read against the background of jury verdicts already entered against Gates and M.F./Management Jets International.

II. FACTUAL BACKGROUND

The N137GL crossed the threshold of Runway 9 in wings level flight. It appeared to have been landing long, as it was seen airborne several hundred feet past the usual point on the runway that Learjets touch down. Some distance down the runway, the wings on the Learjet began to oscillate; at least two full oscillations were observed. The National Transportation Safety Board accident report shows that the right tip tank struck the runway, and the fatal cartwheel followed shortly thereafter.

The N137GL crashed because of aerodynamic stall. A Learjet Model 25D with a Century III wing modification in a landing configuration (landing gear down and flaps down 40°) will stall at approximately 87 knots. This stall speed, however, assumes a “clean” wing. Flight tests indicate that even a small amount of a foreign material such as ice on the leading edge of the wing could disrupt the air flow over the wing and increase the speed at which the aircraft stalls.

Because the Learjet Model 23 (predecessor of the 25D) did not comply with FAA regulations requiring an airplane to give the pilot adequate warning of an impending stall, the Model 23 and 25D were equipped with an artificial stall warning and stall prevention system. The stall warning system was a stick shaker which warns the pilot of a stall by shaking the control column. The stall prevention system was a stick pusher, which was designed to prevent a stall by pushing forward on the control column. This forces the nose of the aircraft down, decreases the angle of attack, and averts a stall.

The N137GL encountered typical Michigan winter weather on the night of the accident. The temperature at Detroit Metro Airport was twenty degrees (20°) Fahrenheit. The cloud layer was less than 4,000 feet, with a ceiling of 2,200 feet above the ground. There may have been patches of light freezing drizzle below the clouds, although no precipitation was recorded on the ground until a few minutes after the crash. The winds were gusty at 10-15 knots. The visibility was good at 10-12 miles, and Visual Flight Rules (VFR) were in effect.

Due to the wind direction this night, all flights took off from and landed on Runway 9. A North Central 704 plane landed ahead of the N137GL, and a Delta 616 plane was scheduled to land immediately after the Learjet. A Delta 713 plane was cleared to takeoff after the North Central 704 plane landed and before the N137GL touched down.

When both departing and arriving aircraft use the same runway, as on the night of the accident, the air traffic controller has the duty to assure adequate spacing between aircraft. In this case, the FAA Air Traffic Control Manual (1979) § 12 requires a departing DC-9 to be 6,000 feet down the runway and airborne before an arriving Learjet crosses the runway threshold. DeWolf testified that he was using a visual separation standard. That is, he said that a minimum separation of 6,000 feet had been achieved when the departing plane reached a set of lights near the intersection of Runways 9 and 3R before the landing aircraft crossed the runway threshold.

III. DISCUSSION

A. Who is the Factfinder

As a threshold matter, I must consider who the factfinder is for the various claims brought in this lawsuit. The posture in which this case arises presents a somewhat novel question: which claims require a jury determination, and which require a court determination. As the three parties to this case have settled the demands of the original plaintiff, what remains before me are the cross-claims for contribution and indemnity which each party brings against the other two. To settle these cross-claims, the relative fault of each party, if any, must be allocated. The private litigants, Gates and M.F./Management Jets, have demanded a trial by jury to determine their allocation of fault, if any, as is their right under the Seventh Amendment.

Since the United States cannot be sued without its consent, United States v. Sherwood, 312 U.S. 584 (1941), the cross-claims which Gates and M.F./Management Jets bring against the United States arise under the Federal Tort Claims Act, 28 U.S.C. §§ 2671-80 (jurisdiction conferred 28 U.S.C. § 1346). Section 2402 of the United States Code requires a trial by the court without a jury for any action brought under 28 U.S.C. § 1346, including F.T.C.A. claims. The United States’ cross-claims against the other two parties, however, are not under the F.T.C.A., and Gates and M.F./Management Jets demand a jury trial on these claims. Gates argues that where the Government cross-claims for contribution or indemnity, the F.T.C.A. does not require both the court and the jury to act as factfinders. Once the United States assumes the role of a plaintiff, the liability of the joint tortfeasors should be judged by a single factfinder, and under the Seventh Amendment, this must be the jury. Gates relies mainly on Georges v. Hennessey, 545 F.Supp. 1264 (E.D.N.Y.1982). Gates also argues that the jury should be the only factfinder because the factfinder must be able to consider the fault, if any, of all parties in order to determine the pro rata share of liability of any one party. That is, the jury must be able to determine the United States’ liability in order to allocate fault between the two private litigants.

I do not agree that this case can be decided by the jury as the sole factfinder. First, Gates has misapplied Hennessey. There, a motorcycle passenger brought an action against the motorcycle driver (Hen-nessey) and the United States for injuries sustained in a collision between the motorcycle and a U.S. Army vehicle. The jury exonerated the motorcycle driver, and issued an advisory verdict holding the U.S. fully liable. The Court stated:

While the jury determined the non-liability of the [motorcycle driver], the liability of the Government could only be resolved by the Court pursuant to 28 U.S.C. § 2402. This is true in spite of the fact that the jury found the Government 100% liable. The verdict against the Government was merely advisory, to be wholly or partially accepted by the Court or completely rejected.

545 F.Supp. at 1265. The Court went on to hold that once the jury exonerated the private litigant, the Court could not reduce the amount of the Government’s liability by holding the private litigant liable. Reducing the Government’s liability “would completely nullify the collateral estoppel effect of the jury’s verdict as to Hennessey and reduce the amount payable to the plaintiff on the theory that this court could still find Hennessey liable as a joint tortfeasor.” 545 F.Supp. at 1266. This case stands for the limited proposition that a court may not nullify the effect of a jury verdict on co-defendants when deciding the United States’ liability in F.T.C.A. cases. I agree with this proposition and do not intend my finding with respect to the Government’s liability to nullify the jury verdict on the liability of Gates Learjet and M.F./Management Jets.

Second, the law is clear that I must allocate the fault, if any, of the United States. Section 2402 of 28 U.S.C. states: “Any action against the United States under Section 1346 shall be tried by the court without a jury____” (emphasis added). The language of the statute plainly manifests Congress’ intent that the trial judge determine the liability of the Government in cases arising under the F.T.C.A. My conclusion is not altered by the fact that the United States brings cross-claims against Gates and M.F./Management Jets. Poston v. United States, 262 F.Supp. 22, 24 (D.Hawaii 1966) (Overruling United States’ objection to use of advisory jury, the court noted that “the responsibility for the ultimate decision as to liability of the United States never shifts from the shoulders of the judge. . . .”); Honeycutt v. United States, 19 F.R.D. 229, 231 (W.D.La.1956) (In refusing to use an advisory jury, the court stated that under § 2402, Congress “intended that no jury of any kind be used in [F.T.C.A.] cases.”); Terminal Warehouse of New Jersey v. United States, 91 F.Supp. 327, 328 (D.N.J.1950) (“It seems clear that [§§ 1346 and 2402] provide for the trial of a counterclaim [by the government] without a jury in an action of this kind.” The court further stated that the Seventh Amendment did not alter this conclusion.). See also McElrath v. United States, 102 U.S. (12 Otto) 426, 440, 26 L.Ed. 189 (1880) (“Suits against the government in the Court of Claims, whether reference be had to the claimant’s demand, or to the defense, or to any set-off, or counterclaim which the government may assert, are not controlled by the Seventh Amendment.”); Cargill, Inc. v. Commodity Credit Corporation, 275 F.2d 745, 749 (2d Cir.1960) (The court held that it was error to grant private litigant’s motion for a jury trial on the Government’s counterclaim under the Charter Act. In holding that the bench trial provisions of the Charter Act are similar to those under the F.T.C.A., the court stated that “it was plain that a counterclaim in a suit in the District Court under the Tucker Act must be tried to the judge____”) In short, the law is clear that the Court, not the jury, must determine the liability of the United States under the F.T.C.A.

Finally, it is suggested that I use an advisory jury under Rule 39(c) of the Federal Rules of Civil Procedure to aid in my determination of the United States’ liability. The cases disagree on the issue whether a trial court may use an advisory jury in F.T.C.A. cases. Compare Poston v. United States, supra, (holding that the court may order the jury to act as an advisory jury on fact issues pertaining to the United States), with Honeycutt v. United States, supra, (holding that the court had no discretion to order an advisory jury in F.T. C.A. case).

Even if I do possess the discretion to use this jury in an advisory capacity, I exercise that discretion not to do so. I agree with Chief Judge Russell Smith that the use of advisory juries in F.T.C.A. cases creates more problems than it solves. If the advisory jury’s opinion were consistent with mine, it would not be very useful. On the other hand, if the advisory jury’s verdict differed from mine, I would have difficulty giving effect to it. See Wright v. United States, 80 F.R.D. 478 (D.Mont.1978).

In summary, the jury determines the liability of Gates Learjet and M.F./Management Jets as is their right under the Seventh Amendment, and I determine the liability, if any, of the United States, as is my duty under the F.T.C.A. Since the jury has found Gates 20% liable and M.F./Management Jets International 80% liable, and I find the United States not liable, the percentage of liability found by the jury is the final allocation of fault for this accident.

B. The Case Against the United States

Gates Learjet asserts that the air traffic controller breached his duty to assure a minimum separation of 6,000 feet between the Delta 713 plane and the N137GL. Such negligence, it argues, combined with pilot error to proximately cause this accident. The pilot of N137GL decreased his speed before landing in an attempt to increase the inadequate and illegal separation provided by the controller. The pilot allowed the plane to slow too much, and the aircraft reached an aerodynamic stall. Once stalled, the plane could not recover before crashing into the runway.

Under Michigan Law, negligence is conduct involving an unreasonable risk of harm. The elements of a cause of action for negligence are: 1) a duty owed by the defendant to the plaintiff; 2) a breach of that duty; 3) such breach proximately caused the plaintiffs injury; and 4) damages suffered by the plaintiff. Chamberlain v. Bissell, 547 F.Supp. 1067 (W.D. Mich.1982); Knight v. United States, 498 F.Supp. 316 (E.D.Mich.1980); Roulo v. Automobile Club of Mich., 386 Mich. 324, 192 N.W.2d 237 (1971). The claiming party, moreover, has the burden of proving each element of the cause of action by a preponderance of the evidence. Dyer v. United States, 551 F.Supp. 1266, 1276 (W.D.Mich.1982).

In this case, it is clear that DeWolf was under a duty to exercise reasonable care in providing air traffic control services. As to the question of breach, there was abundant expert testimony at trial designed to reconstruct the events of January 19,1979. Specifically, the expert witnesses disagreed over whether the Delta 713 plane was 6,000 feet down the runway and airborne when the N137GL crossed the threshold. Although evidence was offered at trial from which I could conclude that, on the night of the accident, the air traffic controller failed to exercise due care in performing his duties, I need not finally decide this question. I hold that even if the air controller was negligent, the evidence failed to establish that it was more likely so than not that such negligence was a proximate cause of this unfortunate accident.

Michigan law defines “proximate cause” as that which, in a natural and continuous sequence unbroken by any new, independent cause, produces the injury, and without which such injury would not have occurred. Weissert v. City of Escanaba, 298 Mich. 443, 452-53, 299 N.W. 139 (1941). See McKine v. Sydor, 387 Mich. 82, 88, 194 N.W.2d 841 (1972); Michigan Sugar Co. v. Employers Mutual Liability Insurance Co., 107 Mich.App. 9, 14, 308 N.W.2d 684 (1981). See generally Callaghan’s Mich. Civ.Jur. Negligence § 24 (1983).

In order to determine whether a defendant’s negligence proximately caused an injury, the trier of fact must determine whether the injury was reasonably foreseeable in light of attending circumstances. Nielsen v. Henry H. Stevens, Inc., 368 Mich. 216, 220-21, 118 N.W.2d 397 (1962); Nash v. Mayne, 340 Mich. 502, 508-09, 65 N.W.2d 844 (1954); McLean v. Rogers, 100 Mich.App. 734, 736-37, 300 N.W.2d 389 (1980). In this case, the evidence fails to establish that the air controller’s (assumed) failure to provide adequate spacing produced this accident in a natural and continuous sequence, unbroken by any new, independent cause.

The reduction in the N137GL’s speed to the point at which the plane would stall was not a natural, continuous and foreseeable result of the failure to assure minimum separation. Gates argues that the inadequate spacing caused the pilot to slow his aircraft, and that the accident resulted from the combined negligence of the air controller and the pilot. Yet, this causal chain beginning with the controller’s negligence, is too remote to hold the United States liable for this accident. The evidence indicates that the pilot was concerned that the spacing might be a little tight; nonetheless, he elected to land the airplane. Gates’ expert pilot, Carl Snow, testified that a pilot on a two-mile final approach who is concerned about spacing has two options: he could slow the plane in an attempt to increase spacing; or he could execute a missed approach (or go around) and attempt a second landing. The uncon-troverted evidence proved that the pilots could have successfully gone around at any time, even • after N137GL crossed the threshold, and perhaps until the moment the plane stalled. While the lack of spacing may have been the pilot’s motivation to slow the aircraft, it was the pilot who exercised his judgment to slow N137GL to an unsafe speed.

I find that the weather on the night of. the accident did not present a situation in which the pilot was entirely dependent on the controller. To the contrary, visibility was good, and the pilots were flying under VFR. Snow testified, and his videotaped flight tests supported this, that a pilot on a two-mile final approach on the night of the accident would have had a clear view of the runway. He would have been able to see whether the Delta 713 plane was on Runway 9 and in position to take off, or whether the Delta 713 plane was still on the adjacent taxiway. He would also have been able to see whether the Delta 713 plane was “rolling good” as the air controller indicated. If, contrary to the air con-trailer’s calls, the Delta 713 plane was not in position to take off and was not “rolling good” at approximately 0033:39, the pilot would have observed “a complete contradiction.” (Testimony of Snow, transcript p. 421). Yet, armed with his own observations, the pilot failed to go around and continued to fly the N137GL at an unsafe speed. An air traffic controller “is not required to foresee or anticipate the unlawful, negligent, or grossly negligent acts of pilots.” Colorado Flying Academy, Inc. v. United States, 506 F.Supp. 1221, 1228 (D.Colo.1981); Baker v. United States, 417 F.Supp. 471, 486 (W.D.Wash.1975). Because the air controller was not required to anticipate or foresee N137GL’s dangerous decrease in speed, I find that his negligence, if any, did not proximately cause this accident.

Moreover, FAA regulations provide that “[t]he pilot in command of an aircraft is directly responsible for, and is the final authority as to, the operation of that aircraft,” 14 C.F.R. § 91.3(a), and that “[n]o person may operate an aircraft in a careless or reckless manner so as to endanger the life or property of another.” 14 C.F.R. § 91.9. The case law clearly indicates that although the air traffic controller has a duty to exercise reasonable care, “under VFR conditions, the primary responsibility for safe operation of the aircraft rests with the pilot, regardless of traffic clearance.” Coatney v. Berkshire, 500 F.2d 290, 292 (8th Cir.1974). See Redhead v. United States, 686 F.2d 178, 183 (3d Cir.1982); In Re Aircrash Disaster at New Orleans (Moisant Field), Louisiana on March 20, 1969, 544 F.2d 270, 276 (6th Cir.1976); Bibler v. Young, 492 F.2d 1351, 1358 (6th Cir.), cert. denied, 419 U.S. 996, 95 S.Ct. 309, 42 L.Ed.2d 269 (1974); Spaulding v. United States, 455 F.2d 222, 226-27 (9th Cir.1972). (“The controller’s duty to warn does not, however, relieve the pilot of his primary duty and responsibility. The pilot has a continuing duty to be aware of danger when he can gather adequate information with his own eyes____”) Holding the air controller liable for this accident would “shift primary responsibility for the operation of an airplane from the pilot who is flying it to the controller on the ground. The total thrust of the applicable FAA Regulations, however, is to the country.” In Re Aircrash Disaster at New Orleans, supra, at 276. In the present case, the crew, not the air controller, bore the ultimate responsibility for the safe operation of N137GL. Accordingly, the controller does not bear responsibility for the consequences of the pilot’s decision to decrease the speed of N137GL.

IV. CONCLUSION

For the reasons stated above, I find that the United States is not liable for this accident. The jury verdict allocating 80% liability to Massey-Ferguson and 20% liability to Gates Learjet is the final allocation of fault.

An appropriate order may be presented.

      . They are: Massey-Ferguson, Inc. (M.F.j/Management Jets International (considered one entity), Gates Learjet Corporation (Gates) and the United States.

        . Michigan Law applies to this case under Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and principles of indemnity, contribution, and comparative negligence apply. M.C.L.A. § 600.2925(a) and (b). See Mayhew v. Berrien County Road Comm’n, 414 Mich. 399, 326 N.W.2d 366 (1982).

      . An aerodynamic stall occurs when the air flow over the wing is disrupted, thereby destroying the lift necessary to sustain flight. The disruption of air flow over the wing is caused by the combination of two factors: the angle of attack, or the angle at which the wing meets the oncoming air, becomes too great, and the speed at which the wing meets the oncoming air becomes too slow.

      . The shaker was activated at 94 knots, or approximately seven knots above the stall speed.

      . The pusher was activated at 88 knots, or approximately one knot above the stall speed.

      . There are three parallel runways that intersect Runway 9: 3 Left, 3 Center, and 3 Right. 3L is the closest to the threshold of Runway 9; 3R is the furthest.

      . Rule 39(c) provides:
      Advisory Jury and Trial by Consent. In all actions not triable of right by a jury the court upon motion or of its own initiative may try any issue with an advisory jury or, except in actions against the United States when a statute of the United States provides for trial without a jury, the court, with the consent of both parties, may order a trial with a jury whose verdict has the same effect as if trial by jury had been a matter of right.

      . M.F./Management Jets International’s theory of the case is that ice accumulated on the leading edge of the wing which increased the actual stall speed above the 87-knot stall speed published in Gates Learjet’s Aircraft Flight Manual. The plane could reach an aerodynamic stall before the stick pusher and shaker were activated. Thus, this condition was a design defect, and was the result of Gates Learjet’s negligence. Whether the plane stalled at the published stall speed of 87 knots or somewhat higher is a question for the jury. I am not concerned with whether the stall occurred due to the negligence of M.F./Management Jets International, Gates Learjet or both. Accordingly, when I refer to the plane stalling or being flown at a dangerously slow speed, I do not mean to imply that one party or the other exclusively was negligent.

      . This portion of the transcript of transmissions between the controller and various planes in the vicinity of Metro Airport begins when Delta 713 first makes radio contact with the local controller (LCL), and ends when the controller tells Delta 616 to go around due to the accident. The times given are Greenwich Mean Time, which is five hours ahead of Detroit local time.
      0031:37 LCL DELTA SEVEN THIRTEEN ARE YOU ON THE FREQUENCY WITH ME
      0031:39 DL713 JUST CHANGED OVER SIR
      0031:41 LCL ALRIGHT AH VERY SLICK THERE
      0031:43 DL713 AH YEAH YES SIR IT SURE IS
      0031:46 LCL ALRIGHT HOLD SHORT THEN I WAS GOING TRY AN SP . . SPACE YOU BETWEEN THESE TWO BUT AH IT'S AH LITTLE TIGHT
      0031:50 UNK * (CONFIRM - UNINTELLIGIBLE - IS CLEARED TO LAND) 0031:53 LCL OKAY YOU WERE BLOCKED THAT TIME UH SEVEN GOLF LIMA CLEARED TO LAND ON RUNWAY NINER
      0031:57 N137GL SEVEN GOLF LIMA
      0031:59 NC704 AND CONFIRM SEVEN OH FOUR IS CLEARED TO LAND
      0032:01 LCL AFFIRMATIVE CLEARED TO LAND NORTH CENTRAL SEVEN OH FOUR
      0032:03 NC704 SEVEN OH FOUR
      0032:20 LCL DELTA SEVEN AH THIRTEEN AH TAXI INTO POSITION HOLD THAT TRAFFIC’S STILL AH THREE AN AH HALF OUT ON FINAL
      0032:28 DL713 OKAY ON TO HOLD DELTA SEVEN THIRTEEN
      0032:30 LCL AND AH SEVEN GOLF LIMA I'M GONNA PUT THAT DELTA OFF IN FRONT OF YOU IT’S VERY SLICK WHERE HE’S TURNING THE CORNER THERE IT LOOKS LIKE IT’S GONNA WORK OUT
      0032:37 N137GL OKAY
      0032:39 LCL NORTH CENTRAL SEVEN OH FOUR LEFT TURN OFF GROUND ONE TWO ONE POINT EIGHT WHEN YOU’RE CLEAR 0032:43 NC704 SEVEN OH FOUR
      0032:44 LCL DELTA SEVEN THIRTEEN FLY HEADING OF ZERO NINER ZERO YOU’RE CLEARED FOR TAKEOFF ON RUNWAY NINER
      0032:48 DL713 ZERO NINE ZERO CLEARED FOR TAKEOFF DELTA SEVEN THIRTEEN
      0032:53 DL616 DELTA SIX ONE SIX WITH YA AH JUST PAST WILLOW RUN
      0032:55 LCL DELTA SIX ONE SIX NUMBER TWO TRAFFIC’S A TWO MILE FINAL AHEAD OF YA
      0032:59 DL616 OKIE DOKE
      0033:37 N137GL AH COULD WE HAVE A WIND CHECK
      0033:39 LCL YES SIR THE WIND IS ONE TWO ZERO AT ONE ONE HE’S ROLLING GOOD NOW LOOKS LIKE SPACINGS GONNA BE ADEQUATE HE’S GOING TO BE AIRBORNE BEFORE YOU CROSS THE THRESHOLD
      0033:47 N137GL OKAY IS HE A TWENTY SEVEN OR A EIGHT 0033:49 LCL IT’S A AH D C NINE

        0034:03 LCL AND THE BRAKING IS GOOD ON THE RUNWAY YOU NEEDN'T ACKNOWLEDGE THAT WIND NOW IS ONE ONE ZERO AT ONE TWO
      0034:08 N137GL THANK YOU
      0034:21 WIS706 WISCONSIN SEVEN OH SIX JUST WENT BY THE V O R
      0034:24 LCL WISCONSIN AH SEVEN OH SIX ROGER NUMBER TWO
      0034:27 WIS706 OKAY
      0034:28 LCL DELTA SEVEN THIRTEEN CONTACT DEPARTURE CONTROL HAVE A GOOD NIGHT SIR
      0034:31 DL713 THANK YOU SIR
      0034:43 LCL AND DELTA SIX ONE SIX GO AROUND


author: RYMER, District Judge.

text:
    In the Matter of the Complaint of PARADISE HOLDINGS, INC., a Hawaii corporation, as owner of, and Paradise Cruise, Limited, a Hawaii corporation, as lessee and charterer of the P/V PEARL KAI, Official Number 527 873, for exoneration from or limitation of liability.
    No. CV 84-0783 PAR.
    United States District Court, C.D. California.
    Dec. 26, 1984.
    David Schutter, Schutter, Cayetano & Playdon, Honolulu, Hawaii, for claimant Terry Stone.
    Robert Frame, Alcantara & Frame, Honolulu, Hawaii, for limitation plaintiffs, Paradise Holdings, Inc. and Paradise Cruise, Ltd.
   MEMORANDUM OF DECISION AND ORDER

RYMER, District Judge.

This case arises from the death of Paul H. Stone who was killed while body surfing near the Kewalo Basin in Honolulu. According to the complaint filed in Hawaii state court by Stone’s widow and minor children, the captain of the Pearl Kai, a commercial cruise ship, piloted the craft in high surf conditions in the vicinity of a number of body surfers. Returning from a Pearl Harbor cruise, the ship was turned broadside to an incoming wave. In order to gain control of the vessel, the captain allegedly reversed the engine, backing the ship into a group of body surfers. The propeller struck Stone repeatedly, killing him instantly.

The state court action names Paradise Holdings Corp., Paradise Cruise Ltd. and the Pearl Kai’s captain, Edward Bruhn, as defendants. It alleges negligence, gross negligence, assault and battery and infliction of emotional distress and seeks $23 million in compensatory and punitive damages.

Pursuant to the Limitation of Liability Act, 46 U.S.C. §§ 183 et seq. (“the Limitation Act”), Paradise Holdings Corp. and Paradise Cruise Ltd. filed a Complaint for Exoneration from and Limitation of Liability in federal district court in Hawaii. The complaint, based on the admiralty jurisdiction of the federal courts, requested a stay of all state court proceedings against Paradise Holding Corp. and Paradise Cruise, Ltd. and the issuance of a restraining order and notice to claimants directing them to file their claims in.the federal court proceeding. District Judge Harold M. Fong ordered the stay and issued the restraining order and notice. Under the Limitation Act, the liability of the ship’s owner for injury or damage cannot exceed the value of the vessel. 46 U.S.C. § 183. In this case, the Pearl Kai is estimated to be worth $625,000, an amount which would also be applied to remedy injuries allegedly sustained by other body surfers and the ship’s passengers. In addition to the claimants’ action, over $1.2 million in claims have been filed by others as a result of the accident.

Decedent’s survivors [hereinafter referred to as claimant] move to dismiss the complaint for limitation of liability on the ground that the death of a body surfer is not within the admiralty jurisdiction of this Court. Alternatively, claimant seeks to modify the restraining order to allow the state court action to proceed against the ship’s captain, on the ground that they have an absolute statutory right to do so under 46 U.S.C. § 187. These issues are considered in turn.

I. Admiralty Jurisdiction.

Federal admiralty jurisdiction over maritime torts is provided by 28 U.S.C. § 1333 which states:

“The district courts shall have original jurisdiction, exclusive of the courts of the States, of: (1) Any civil case of admiralty or maritime jurisdiction, saving to suitor in all cases all other remedies to which they are otherwise entitled.”

Congress has specifically extended admiralty jurisdiction to cases arising from injuries suffered on navigable waters. In the Extension of Admiralty Jurisdiction Act, Congress provided:

“The admiralty and maritime jurisdiction of the United States shall extend to and include all cases of damage or injury, to person or property, caused by a vessel on navigable water, notwithstanding that such damage or injury be done or consummated on land.”

46 U.S.C. § 740.

Prior to the Supreme Court’s decision in Executive Jet Aviation, Inc. v. City of Cleveland, 409 U.S. 249, 93 S.Ct. 493, 34 L.Ed.2d 454 (1972), admiralty jurisdiction would have almost certainly covered this suit. Before Executive Jet, admiralty jurisdiction over tort cases traditionally depended on the locality of the wrong. If the wrong took place in navigable waters, admiralty jurisdiction was properly invoked. If the wrong occurred on land or in non-navigable waters, admiralty jurisdiction was lacking. Although there existed authority to the contrary, the general rule was that any tort occurring on the high seas or navigable waters was cognizable in admiralty jurisdiction. See 1 Benedict, Admiralty, § 2.

However, the unanimous decision in Executive Jet held that, at least with respect to aviation torts, the locality of the wrong in itself was not sufficient to invoke admiralty jurisdiction. Id. at 261, 93 S.Ct. at 501. Executive Jet involved the crash of a jet aircraft on takeoff into the navigable waters of Lake Erie. The Court reviewed the criticism of the locality rule to admiralty jurisdiction and noted the “absurd” results that the locality rule would yield when applied mechanically. For example, the Court observed that “if a swimmer at a public beach is injured by another swimmer or by a submerged object on the bottom, ... a literal application of the locality test invokes not only the jurisdiction of the federal courts, but the full panoply of the substantive admiralty law as well.” Id. at 255, 93 S.Ct. at 498. The Court held that with respect to claims arising from airplane accidents, the alleged wrong must occur in navigable waters and “bear a significant relationship to traditional maritime activity.” Id. at 267, 93 S.Ct. at 504.

While Executive Jet was limited on its facts to aviation accidents, in Foremost Ins. Co. v. Richardson, 457 U.S. 668, 102 S.Ct. 2654, 73 L.Ed.2d 300 (1982), the Court considered whether admiralty jurisdiction could be properly asserted in an action to recover for a death resulting from the collision on a navigable river of two boats used exclusively for recreational use. The Court extended the holding of Executive Jet to torts in a maritime context, concluding that “[bjecause the ‘wrong’ here involves the negligent operation of a vessel on navigable waters, we believe that it has a sufficient nexus to traditional maritime activity to sustain admiralty jurisdiction in the District Court.” Id. at 2658. The Court also held, despite a sharp dissent, that “there is no requirement that ‘the maritime activity be an exclusively commercial one.’ ” Id. at 2658.

In applying the Foremost test here, the parties initially dispute whether the wrong complained of occurred in navigable waters. Claimant contends that the body surfing area known as Point Panic, where Stone’s death is alleged to have occurred, is not in navigable waters because it is a recreational area and not “an artery of commerce.” Point Panic is immediately adjacent to the channel leading into the Kew-alo Basin and is reserved by the State of Hawaii as a site primarily for swimming and body surfing. See Hawaii Admin. Rules § 19-85-14. The Kewalo Basin is used as a harbor by private pleasure boats as well as commercial cruise ships. A dredged channel approximately 210 feet in width leads from the Pacific Ocean through the coral reefs to the Basin. (Gray Decl., ¶ 4.) The channel is marked by navigational aids maintained by the United States Coast Guard. (Richards Decl., 115.) According to claimant’s state court complaint, the Pearl Kai was swept broadside by a large wave while entering the Kewalo Basin channel. Its captain then backed the vessel into the body surfing area where the accident occurred.

A. Navigability of the Point Panic Area.

For purposes of admiralty jurisdiction, navigable waters include those which are “used or susceptible of being used as an artery of commerce.” The Propeller Genesee Chief v. Fitzhugh, 12 How. 443, 13 L.Ed. 1058 (1852); Kaiser Aetna v. United States, 444 U.S. 164, 172 n. 7,100 S.Ct. 383, 389 n. 7, 62 L.Ed.2d 332 (1979); Adams v. Montana Power Co., 528 F.2d 437 (9th Cir.1975) citing The Daniel Ball, 77 U.S. (10 Wall.) 557, 19 L.Ed. 999 (1871). In this country’s early history and perhaps owing to the British heritage of our jurisprudence, admiralty jurisdiction was determined by whether the waters were subject to the ebb and flow of the tides. See e.g. The Steamboat Thomas Jefferson, 23 U.S. (10 Wheat.) 428, 6 L.Ed. 358 (1825). Although The Propellor Genesee Chief and The Daniel Ball have been read to overrule the ebb-and-flow test, there is some question whether that test is truly extinct today. In United States v. Stoeco Homes, Inc., the Third Circuit held that in tidal water, the test for admiralty jurisdiction remains the ebb and flow of the tide. 498 F.2d 597, 610 (3d Cir.1974). See also Otto v. Alper, 489 F.Supp. 953, 954 n. * (D.Del. 1980) (“In tidal waters no showing of actual or potential navigability is required.”)

However, under either definition the allegedly tortious conduct occurred in navigable waters. Clearly, the waters in question, in the Pacific Ocean approximately 70 yards from the shoreline, are subject to the ebb and flow of the tides. In addition, the area’s proximity to the channel and oceangoing traffic makes it susceptible to commercial use, particularly during high surf conditions.

Claimant relies on Adams v. Montana Power Co., supra, for the proposition that waters which are used, as a practical matter, for recreational purposes cannot support admiralty jurisdiction. In Adams, the court considered whether a portion of the Missouri River wholly within Montana and dammed at both ends was navigable water for purposes of admiralty jurisdiction. The trial court found that the section of the river in question was used only by non-commercial fishermen, water skiers and pleasure boaters. Adams, supra at 439. Of paramount importance to the Ninth Circuit was the fact that there was no federal interest where the body of water lacked commercial activity. The court observed:

“The purpose behind the grant of admiralty jurisdiction was the protection and promotion of the maritime shipping industry through the development and application, by neutral federal courts, of a uniform and specialized body of federal law. [citation, footnote omitted] The strong federal interest in fostering commercial maritime activity outweighed the interest of any state in providing a forum and applying its own law to regulate conduct within its borders. It follows that admiralty jurisdiction need and should extend only to those waters traversed or susceptible of being traversed by commercial craft. In the absence of commercial activity, present or potential, there is no ascertainable federal interest justifying the frustration of legitimate state interests.” 528 F.2d at 439.

Because the river had no commercial activity, present or potential, there was no federal interest in exercising admiralty jurisdiction. Id. at 440.

Here, the accident which gave rise to this lawsuit amply demonstrates that the Point Panic waters are capable of being used by commercial traffic under some circumstances. That the Point Panic area is an area reserved primarily for recreational water sports does not alter the fact that it is used or susceptible to use as a commercial waterway at certain times. The efforts of the United States Coast Guard to maintain the navigability of the channel leading to the Kewalo Basin as well as other harbor areas in Honolulu is further evidence of the strong federal interest in uniform rules of navigation in a commercial maritime context. (See Gray, Richards Decls.)

Adams has been construed by some courts as requiring present, actual commercial activity before admiralty jurisdiction is properly invoked. See Livingston v. United States, 627 F.2d 165 (8th Cir.1980); Chapman v. United States, 575 F.2d 147 (7th Cir.1978) (en banc) cert. denied 439 U.S. 893, 99 S.Ct. 251, 58 L.Ed.2d 239 (1978). But Adams does not require systematic commercial traffic before admiralty jurisdiction will attach. The circuit’s decision clearly allows for the exercise of admiralty jurisdiction where there is “potential” commercial activity. In this case, the proximity of Point Panic to the Kewalo Basin and a busy harbor which routinely convey commercial transportation provides the requisite “potential” or “susceptibility” to warrant admiralty jurisdiction.

Moreover, it is consistent with the federal interest in uniform rules of conduct and liability that admiralty jurisdiction not depend on the actual presence of commercial shipping. To do so would subject shipping interests to varying rules and standards of liability depending only on whether commercial vessels traverse an area routinely. The .federal interest in uniform maritime transportation would depend to a large extent on traffic patterns of commercial vessels. “Finding admiralty jurisdiction ... where the water bodies are potential ... highways of commerce because they are susceptible to or capable of such use, serves the purpose of making uniform rules of conduct, including the navigational rules, ‘Rules of the Road,’ light requirements, etc., applicable to all interstate maritime traffic, whether commercial or pleasure.” Finneseth v. Carter, 712 F.2d 1041, 1046-47 (6th Cir.1983). Because the Point Panic area has been used on at least this occasion and is susceptible to use by commercial maritime traffic, it constitutes navigable waters for purposes of admiralty jurisdiction.

B. Relationship Between the Wrong and Traditional Maritime Activities.

The second prong of the Foremost test is also met here. By analyzing the relationship of the “wrong” to “traditional maritime activity,” the Foremost test focuses the inquiry on the allegedly tortious conduct. But see Union Oil Co. v. Oppen, 501 F.2d 558, 561 (9th Cir.1974) (“the ‘activity’ whose relationship to traditional maritime activity was to be examined was that of the injured party, not that of the tort-feasor.”) In Foremost, the wrong was the negligent operation of a recreational vessel on navigable waters and it was held to have a sufficient nexus to traditional maritime activity to justify admiralty jurisdiction. Here, the wrong complained of is the allegedly negligent operation of a commercial cruise ship returning to its harbor. As in Foremost, such conduct is a traditional maritime activity and admiralty jurisdiction is therefore properly invoked.

In Owens-Illinois, Inc. v. United States District Court, the Ninth Circuit considered four factors to determine if an alleged tort bears a significant relationship to traditional maritime activity: (1) traditional concepts of the role of admiralty law; (2) the function and role of the parties; (3) the types of vehicles and instrumentalities involved; (4) the causation and nature of the injury suffered. 698 F.2d 967, 970 (9th Cir.1983).

Applying these factors, it is beyond doubt that one role of admiralty law is to redress injuries caused by the navigation of a commercial ship in navigable waters. The negligent piloting of a commercial craft has the “maritime flavor” necessary to support admiralty jurisdiction. Owens-Illinois, 698 F.2d at 970. Also, the role of the ship, its owners and pilot is wholly of a maritime character. Similarly, the cruise ship and the instrumentality of the injury, its propellor, are maritime in nature. Although the decedent was not on a ship, his purposeful presence in navigable waters adds to the maritime character of the accident. Finally, the nature of the injury, contact with the propellor, and its alleged cause, the negligent operation of the Pearl Kai, have a substantial maritime connection. Thus, under the four part test articulated in Owens-Illinois, the tort alleged bears a relationship to traditional maritime activity sufficient to establish admiralty jurisdiction.

Cases where injuries to swimmers were held to be inappropriate to sustain admiralty jurisdiction, see Crosson v. Vance, 484 F.2d 840 (4th Cir.1973); Marroni v. Matey, 492 F.Supp. 340 (E.D.Pa.1980); Jorsch v. LeBeau, 449 F.Supp. 485 (N.D.Ill.1978); Webster v. Roberts, 417 F.Supp. 346 (E.D. Tenn.1976); Medina v. Perez, 575 F.Supp. 168 (D.P.R.1983) rev’d 733 F.2d 170 (1st Cir.1984), involved collisions between a swimmer and pleasure boat and were decided before Foremost made clear that noncommercial, recreational vessels could be subject to admiralty jurisdiction. “There is no requirement that two vessels be involved in order to create admiralty jurisdiction ... The actor in this case was a vessel, and that is enough. Once given that defendant’s boat is not excluded because non-commercial, it should make no difference that plaintiffs were in navigable waters rather than on them.” Medina, 733 F.2d at 171. See also Kuntz v. Windjammer Cruises, Ltd., 573 F.Supp. 1277 (D.Pa. 1983) (admiralty jurisdiction appropriate where civil action arose from negligence of crew of a commercial vessel leading to death of fee paying passenger); Moye v. Henderson, 496 F.2d 973 (8th Cir.1974) (the operation of a boat on navigable waters, no matter what its size or activity, is a traditional maritime activity to which admiralty jurisdiction attaches).

II. Modification of the Restraining Order.

On July 17, 1984, Judge Fong issued the stay and restraining order enjoining prosecution of suits against plaintiffs Paradise Holdings, Inc. and Paradise Cruise, Ltd. arising from the accident. The court ordered:

“that the continued prosecution of any and all suits, actions and proceedings which may have already begun against the Plaintiffs in any Court whatsoever to recover damages arising out of, or occasioned by, or consequent upon, the aforesaid accident or otherwise arising during the voyage in which the P/V Pearl Kai was then engaged, and the institution and prosecution of any suits, action or legal proceedings of any nature or description whatsoever in any court whatsoever, except in this proceeding for exoneration from or limitation of liability, against Plaintiffs with respect to any claim or claims arising out of the aforesaid accident or otherwise arising during the voyage on which the P/V Pearl Kai was then engaged, or otherwise subject to limitation in this proceeding, be, and the same hereby are stayed and restrained ...”

Pending in state court is the action filed by claimant against the captain of the Pearl Kai, Edward Bruhn, and Paradise Holdings, Inc. and Paradise Cruise, Ltd. The ship’s captain is not a plaintiff in the limitation proceeding in federal court and, literally read, the restraining order is inapplicable to him. Nevertheless, claimant believes the restraining order to be susceptible to an interpretation that would restrain all actions arising from the accident and would therefore bar their suit against the captain. Moreover, claimant asserts that § 187 of the Limitation Act provides a statutory right to proceed against the captain in state court. Section 187 states:

“Nothing in sections 182, 183, 184, 185 and 186 of this title shall be construed to take away or affect the remedy to which any party may be entitled, against the master, officers, or seamen, for or on account of any embezzlement, injury, loss, or destruction of merchandise, or property, put on board any vessel, or on account of any negligence, fraud, or other malversation of such master, officers, or seamen, respectively, nor to lessen or take away responsibility to which any master or seaman of any vessel may by law be liable, notwithstanding such master or seaman may be an owner or part owner of the vessel.”

46 U.S.C. 187.

On the other hand, plaintiffs contend that for policy reasons underlying the Limitation Act, the restraining order must apply to the state court action against the captain. Specifically, plaintiffs argue that to allow the state court to decide issues of liability and damages would defeat the purpose and effectiveness of the Limitation Act as a whole. This case is complicated by two factors: first, there are multiple claims which exceed both the value of the ship and the amount of insurance available; and second, claimant indicates that plaintiffs carried $3 million in liability insurance which names the captain as an insured.

Read in isolation, § 187 indicates that the action in state court against the captain of the Pearl Kai should not be enjoined. Staying the state court action “affects” the remedy to which claimant may be entitled in two ways. First, it would delay the resolution of the state court proceeding. Second, claimant might be collaterally estopped from the opportunity to try the issue of the captain’s liability before a jury by virtue of findings made in the limitation proceeding.

However, § 187 must be construed in concert with the Limitation Act and its purposes. The Limitation Act furthers several purposes. In addition to limiting the liability of shipowners, the Limitation Act aims “to ensure the prompt and economical disposition of controversies in which there are often a multitude of claimants.” Maryland Casualty Co. v. Cushing, 347 U.S. 409, 415, 74 S.Ct. 608, 611, 98 L.Ed. 806 (1954). It does so by collecting all claims before one tribunal to be adjudicated on one set of facts. In the process, repetitive litigation and inconsistent results are avoided. Id. Even more importantly, the limitation proceeding allows the equitable distribution of an inadequate fund among claimants by marshalling assets. Maryland Casualty Co. v. Cushing, 347 U.S. 409, 417, 74 S.Ct. 608, 612, 98 L.Ed. 806 (1954); Pershing Auto Rentals, Inc. v. Gaffney, 279 F.2d 546, 551 (5th Cir.1960).

To allow the claimant to sue the captain in state court would adversely affect the limitation proceeding in several ways. First, if the captain is indeed a named insured under the plaintiffs’ liability insurance, a judgment against the captain could endanger the insurance fund to the detriment of those claimants whose rights will be determined in the limitation proceeding. See In the matter of Spanier Marine Corp., 1983 A.M.C. 2441 (E.D.La.1983) (pursuing the insurance carrier could indirectly exhaust the vessel owner’s insurance and interfere with and possibly defeat the whole limitation proceeding); Olympic Towing Corp. v. Nebel Towing Co., 419 F.2d 230, 235 n. 17 (5th Cir.1969) (“the reason for requiring the limitation proceeding to be completed first is to permit the vessel owner to receive the benefit of his insurance.”)

In this case, claimant seeks damages in excess of $24 million. Other claimants in the limitation proceeding have asserted over $1.2 million in claims. Were the insurance proceeds to be depleted by the claimant in the state court action against the captain, all other claimants would be confined to the limitation proceeding and a fund not greater than the estimated $625,000 value of the Pearl Kai. Additionally, the claimant in state court would have her case tried before a jury under principles of tort law. The limitation proceeding would presumably be tried to the court under rules of admiralty. The differences between the two forums and the amounts of relief available in each might induce some claimants to also seek recovery against the captain in state court. The end result would be to relegate the limitation proceeding to a role of secondary importance rather than the central adjudication it was intended to be. See Pershing Auto Rentals, Inc. v. Gaffney, 279 F.2d 546, 549 (5th Cir.1960). Moreover, those claimants who depended on the limitation action for redress of their injuries would be at a disadvantage compared to those who proceeded against the captain under principles of tort law in state court and recovered from the insurance proceeds. Such a result would obviously defeat the equitable marshalling of assets that the Limitation Act contemplates.

Second, allowing claimant to proceed against the captain in state court could subject the limitation action to collateral estoppel effects resulting from the state court adjudication. Guillot v. Cenac Towing Co., 366 F.2d 898, 907 (5th Cir.1966). At this point it is not possible to tell whether principles of collateral estoppel will definitely apply to the limitation proceeding following a state court trial of the captain’s liability. However, the role of the admiralty proceedings as the central adjudicator would be diminished if it were bound by findings made in another forum. Even if the limitation proceeding were not so constrained, trying the same issues for a second time would result in the inefficient use of judicial resources which the Limitation Act seeks to prevent.

On balance, the purposes of the Limitation Act require that the claimant’s action against the captain in state court be stayed pending the outcome of the limitation proceedings. To adhere to a literal reading of § 187 would, in this case, greatly compromise the purposes of the Limitation Act. Concededly, the stay affects claimant’s remedies against the captain but to an extent not inconsistent with the underlying aims of the Limitation Act as a whole. Upon completion of the limitation action, claimant will be free to pursue its rights against the captain and the insurance proceeds, if applicable, in state court.

It is therefore ordered that:

1. Claimant’s motion to dismiss for lack of subject matter jurisdiction is denied;

2. The restraining order is extended to stay any actions against the captain in state court pending the completion of the proceedings in admiralty.


author: NEALON, Chief Judge.

text:
    Bernard J. WOODMANSEE, Sr., Petitioner, v. Harold MILLER, Warden, et al., Respondents.
    Civ. No. 84-0979.
    United States District Court, M.D. Pennsylvania.
    Jan. 11, 1985.
    Bernard J. Woodmansee, pro se.
    Holly Harris, Asst. U.S. Atty., Rutland, Vt., for respondents.
   ORDER

NEALON, Chief Judge.

After carefully and independently reviewing the record and exceptions in this case, the court has decided to adopt the Report of Magistrate Raymond J. Durkin dated November 14, 1984 to the extent that it recommends a finding that no ex post facto violation occurred and that the Motion to Dismiss should be granted. Parole Guidelines in effect at the time of the offense are to be employed. See Metzer v. United States Parole Commission, Civ. No. 84-0256 (M.D.Pa.1984). Petitioner was found guilty of new criminal conduct, an assault, in 1983. Thus, the Guidelines in effect in 1983, the time of petitioner’s offense, were properly applied to petitioner in calculating his reparóle date. Petitioner’s contention that the Parole Commission may not rely on any offense or information that has not resulted in petitioner’s conviction is without merit. See 18 U.S.C. § 4214; Campbell v. United States Parole Commission, 704 F.2d 106, 109-110 (3d Cir. 1983).

NOW, this 11th day of January, 1985, IT IS HEREBY ORDERED THAT:

(1) The Motion to Dismiss is granted.
(2) The petition is dismissed.
(3) Any appeal from this Order will be deemed frivolous, lacking in probable cause and not in good faith.
(4) The Clerk of Court is directed to close this case.

      . Petitioner submitted to this court a copy of the denial of his appeal to the National Appeals Board. Thus, petitioner did exhaust his administrative remedies. The court also notes that petitioner, in his exceptions to the Magistrate's Report, argues that 28 C.F.R. §§ 2.1-2.60 are unconstitutional on their face. See Document 11 of the Record. That issue, however, was argued by petitioner for the first time in his exceptions. Thus, the issue is not properly before the court and will not be addressed.