author: CASSIBRY, Senior District Judge.

text:
    ELEVATING BOATS, INC. and Meldeans, Inc. v. GULF COAST MARINE, INC., American Bankers Insurance Company of Florida, Manser Insurance Agency and Jersey International, Inc.
    Civ. A. No. 80-1000.
    United States District Court, E.D. Louisiana.
    Aug. 15, 1984.

      Roy A. Raspanti, New Orleans, La., for plaintiffs.
    Mike Maginnis, Timothy P. Hurley, New Orleans, La., for defendants American Bankers Ins. Co. of Fla., Gulf Coast Marine, Inc., and Jersey Intern., Inc.
    John I. Broders, New Orleans, La., for defendant Manser Ins. Agency.
   OPINION

CASSIBRY, Senior District Judge.

This is a suit to enforce a contract of marine insurance and to recover for alleged negligence on the part of three of the defendants who, it is claimed, failed to convey timely notice of plaintiffs’ claim to the underwriters of the policy. Trial was had before the court sitting without a jury on two consecutive days in mid-March of this year. After having heard and considered all of the evidence presented at trial, the court found in favor of the defendants and against the plaintiffs. The court now makes its findings of fact and conclusions of law in support of its judgment.

FINDINGS OF FACT

1. This lawsuit has its antecedents in an earlier state court action. On January 4, 1978, Woodrow W. Rivers filed suit against Elevating Boats, Inc., Meldeans, Inc. and Schlumberger Well Surveying Corp.. (“Schlumberger”), in the 30th Judicial District Court, Parish of Vernon, Louisiana. Rivers was the captain and sole crew member of the M/V BILLIOT ELEVATOR, a vessel owned by plaintiff, Elevating Boats, and operated by plaintiff, Meldeans. Elevating Boats was, at all material times, engaged in the business of building, selling, and/or leasing jack-up or “elevating” boats for use in the offshore oil industry. Meldeans was, at all material times, the operating arm of Elevating Boats and provided the crewmen to serve its vessels.

On January 28, 1977, while in the employ of Meldeans, Rivers fell into a large hole on or near a pier owned or operated by Schlumberger. In his state court action, Rivers sought to recover under the Jones Act and general maritime law for the injuries he sustained in this fall. After a trial held on May 1 and 2, 1979, judgment was rendered in favor of Rivers and against Meldeans in the sum of $229,000.00, with interest at the rate of 7% per annum from the date of judicial demand. Elevating Boats and Schlumberger were exonerated from liability. The judgment was affirmed on appeal. Rivers v. Schlumberger, 389 So.2d 807 (La.App.1980).

2. At the time of Rivers’ injury, Elevating Boats and Meldeans were insured under a policy of marine protection and indemnity coverage issued by defendant American Bankers Insurance Company of Florida (“American Bankers”). The policy, No. 6 MA 1444, provided coverage for claims up to $900,000 with a $100,000 deductible. Under the section of the policy’s Form SP-23 entitled “General Conditions and/or Limitations”, the Notice of Claims provision states as follows:

Warranted that in thé event of any occurrence which may result in loss, damage and/or expense for which this assured is or may become liable, the assured will use due diligence to give prompt notice thereof and forward to the insurer as soon as practicable after receipt thereof, all communications, processes, pleadings and other legal papers or documents relating to such occurrences.

3. Plaintiffs had retained defendant Manser Agency, Inc. (“Manser”), an independent insurance agency, to obtain marine insurance coverage for the vessels owned and operated by them. Manser arranged this coverage for plaintiffs through defendant Gulf Coast Marine, Inc.

4. Gulf Coast Marine was a marine insurance broker which acted in conjunction with defendant Jersey International, Inc. (“Jersey International” or “Jersey”) and American Bankers in obtaining protection and indemnity policy No. 6 MA 1444 from American Bankers.

5. Pursuant to a management agreement between Jersey International and American Bankers, Jersey International acted as the underwriting and servicing arm of American Bankers for its ocean marine insurance and reinsurance business. According to the explanation given by Jere Duffett, senior vice-president for claims of Jersey International, Jersey International was not under the day-to-day supervision of American Bankers. Pursuant to the terms of the managing agreement, Jersey International had no obligation to notify American Bankers of a claim unless it established reserves against liability in excess of $50,000 on the claim.

6. Of these defendants, only American Bankers was an insurer. Jersey International was its underwriting manager, Gulf Coast Marine was an insurance broker and Manser was an independent agent. Jersey had no direct dealings with Manser and Manser had no authority to write a policy for Jersey. Jersey had no written agreement with Gulf Coast Marine and did not consider it to be its agent. Manser was a small agency with no affiliation with Gulf Coast Marine, Jersey or American Bankers.

7. The plaintiffs were aware of the accident and injury to Rivers within a matter of days after the incident occurred. Plaintiffs did not give notice of the occurrence to their insurance agent, Manser.

8. Contrary to plaintiffs’ expectations, Rivers did not return to work after his injury. He continued to receive medical treatment and, in November 1977, underwent back surgery.

9. Plaintiffs had previously been made aware of the possibility that Rivers’ claim might exceed the $100,000.00 deductible under the policy. In June of 1979, Elevating Boats received a letter from Rivers’ attorney indicating that Rivers might be totally and permanently disabled. Plaintiffs neither notified Manser nor initiated their own investigation of the seriousness of Rivers’ injuries at this time.

10. In January 1978, Rivers filed his action against the plaintiffs herein and Schlumberger. After receiving the summons and petition, Elevating Boats and Meldeans engaged George Dowd to represent them. Lynn Dean, president of Meldeans, acted in this case in accordance with his usual practice of not retaining counsel prior to the filing of a lawsuit. Dean mailed Dowd a copy of the petition and informed him that he had notified his insurer. Dowd himself had no contact with Manser or any of the other defendants herein on the Rivers suit.

11. As the scheduled trial date of May 1, 1979 approached, Dean and Dowd conferred as to why the insurer’s lawyers had not yet entered the Rivers case. Since it was not uncommon for plaintiffs’ insurer to remain aloof from the proceedings until shortly before trial, they had not been concerned previously about the insurer’s absence.

12. On or about April 16, 1979, Alvin Pike of Gulf Coast Marine received an undated, handwritten letter from Dean advising him of the scheduled trial date of the Rivers case and enclosing a copy of the petition. The letter was sent as a followup to a telephone conversation between Dean and Pike. Dean testified that since he knew the letter would be postmarked, he saw no reason to date it. Pike turned the letter over to Gulf Coast Marine claims manager, Glenn Calabresi.

13. Calabresi immediately phoned Duffett at Jersey’s offices and advised him of the suit. The following day, Calabresi mailed a copy of Dean’s letter and the accompanying petition to the offices of Jersey. Calabresi also reviewed Gulf Coast Marine’s records and found no indication of prior notice of the suit.

14. On April 26, 1979, Jere Duffett wrote to Dean and Elevating Boats on behalf of American Bankers advising them that the Rivers claim had never been reported to the underwriter and informing them that coverage under Policy No. 6 MA 1444 would be denied.

15. Plaintiffs, upon receipt of the letter denying coverage, took no action to continue the trial or to contest the denial of coverage. Dean had no desire to have the trial delayed. Dowd testified that had the insurer made an effort to obtain a continuance, his clients would have opposed it. Dean testified that he had successfully settled or defended more than two dozen other personal injury claims and that he fully expected to prevail against Rivers as well. Since he expected to win the Rivers case, he saw no need to take any action against his insurer at that time.

16. For the first time in years, however, Elevating Boats and Meldeans did not win. The Rivers court, sitting without a jury, cast Meldeans in judgment for a sum in excess of $200,000. Meldeans appealed and the judgment was affirmed. This suit was filed during the pendency of the appeal.

17. The central question of fact in this case is whether plaintiffs notified Manser when they claim they did, namely shortly after the filing of Rivers’ suit. Dean testified that, in accordance with the procedure he had been accustomed to follow, he notified Manser by telephone in January of 1978 that a suit had been filed. He did not, however, send his agent a copy of the petition. It was Dean’s testimony that, in his dealings with Manser, he had never been asked to provide a copy of the petition or forward communications relating to the case.

In essence, plaintiffs presented a theory of office error. Plaintiffs met the notice requirement of the policy, according to their theory, when Dean telephoned Manser. It was then Manser’s obligation to convey the information along the line of placement to American Bankers. Plaintiffs have identified no break in the chain but implicit in their theory is the notion that Manser failed to notify the other defendants. I find no support for such an inference and no evidence of any negligence on the part of any of the defendants.

18. Defendants’ evidence of their normal operating procedures undercuts the plaintiffs’ explanation for the lack of notice to the insurer prior to mid-April, 1979. Pansy Solberg, vice-president of Manser, had sole responsibility for all claims reported to the office. She was also the Manser representative with whom Dean routinely communicated in connection with plaintiffs’ insurance business. It was Solberg’s practice to make notes of her telephone conversations and to make a request for the pleadings in any suit filed against an insured. She testified that no notification was ever'received by Manser from Dean or anyone else regarding the claim brought by Rivers. In dealing with Dean in the five years that Manser had been plaintiffs insurance agent, Solberg had learned that it was not Dean’s practice to report claims. Manser usually found out about claims against the plaintiffs via reports from third parties, often oil companies named as co-defendants in the actions.

Manser, moreover, was not the only defendant who had experienced notification problems with the plaintiffs. Jersey, too, was “frustrated” by its dealings with Dean. Only two months earlier, Jersey had sent plaintiffs a similar letter denying coverage because of late notice.

19. Thus, I find the greater weight of the credible evidence to be on the side of the defendants. In the course of this trial, it became obvious that Dean, the motive force behind both Elevating Boats and Mel-deans, is a successful independent businessman with little use for insurance companies or lawyers. Dean acted as his own claims manager and took a “dim view” of the disability claims he handled. In this case, Dean expected Rivers to be back on the job in a matter of weeks. But, as he put it, “when attorneys get involved, things change.”

Dean’s antipathy to insurance companies was also evident. Elevating Boats and Meldeans carried insurance primarily at the behest of its oil company clients who required coverage as a condition of doing business. Plaintiffs had cancelled their previous coverage because its insurer had forced settlements on them. Dean had specifically selected a policy with a $100,000 deductible in order to allow him to settle the claims himself and “avoid the little squabbles.” He prided himself on his ability to settle these matters without the necessity of insurance company involvement or trials.

Dean’s policy of fighting suits was well known to his insurance agent and kept costs down in two ways. Elevating Boats and Meldeans maintained a good loss record and thereby kept their premiums low. Dean’s aggressive policy also kept settlement costs down.

Thus, plaintiffs had every reason to delay notifying Manser. They simply did not want their insurer involved. Dean’s success rate in settling and defending claims was high. When the Rivers case went to trial, Dean was confident of yet another successful defense. He just happened to be wrong in this case.

Therefore, I find that defendants first received notification of the Rivers claim in mid-April of 1979 when Dean contacted Gulf Coast Marine. Neither Manser, Gulf Coast Marine, Jersey International nor American Bankers had received any prior notice of the Rivers claim.

20. I have found that plaintiffs gave notice of the Rivers claim long after they first knew of it. It is now obvious that plaintiffs’ late notice caused substantial prejudice to the defendants. The principal consequence of the delayed notice is that defendants were deprived of the opportunity to make their own prompt investigation of the claim, to examine the site of the accident, and to interview witnesses while their recollections were still fresh. In addition, defendants had no opportunity to make their own evaluation of the seriousness of Rivers’ injuries.

The policy, moreover, gave American Bankers the option of appointing its own counsel to represent its interests. It cannot be said that plaintiffs’ attorney conducted a vigorous representation of the insurer’s interest in this case. For example, he never requested that Rivers submit to a medical examination by a doctor selected by the defendants to the personal injury action. During the entire course of the litigation, Dowd never contacted any of the defendants to report on the case.

Finally, I find prejudice because American Bankers lost the opportunity to settle the case for less than the judgment ultimately awarded. The testimony of Rivers’ attorney reveals his client’s readiness to accept a settlement figure approximately half the size of the final judgment.

Taken together, these factors amount to actual prejudice to the insurer as a direct result of the late notice of Rivers’ suit.

CONCLUSIONS OF LAW

1. This is an action on a contract of marine insurance over which the court has jurisdiction pursuant to its admiralty jurisdiction. 28 U.S.C. § 1333; Offshore Logistics Services, Inc. v. Mut. Marine Office, 639 F.2d 1168, 1170 (5th Cir.1981).

2. The interpretation of a policy of marine insurance is a matter of federal law. St. Paul Fire and Marine Insurance v. Vest Transp. Co., 666 F.2d 932, 941 (5th Cir.1982).

3. Plaintiffs have alleged that American Bankers’ denial of coverage under policy No. 6 MA 1444 constituted a breach of the insurance contract. Plaintiffs have not, however, contended that the notice provision in the policy is in any way ambiguous. Nor do I find any ambiguity in the notice provision which would call for interpretation under the facts presented in this case. Absent a latent or patent ambiguity, the meaning of a contract is a matter of law to be decided by the court. Christopher v. Safeway Stores, Inc., 644 F.2d 467, 471 (5th Cir.1981). The question of whether an ambiguity exists which would require a decision by the court in this case is also a question of law. Hicks v. Quaker Oats Co., 662 F.2d 1158, 1175 (5th Cir.1981). Rather than attempting to prove the notice provision ambiguous or otherwise inapplicable, plaintiffs offered testimony to demonstrate their compliance with the notice provision. I have found, however, that plaintiffs did not meet the requirements of prompt notification demanded by their policy of insurance.

I further find that the notice provision is neither unreasonable nor invalid as offensive to public policy. See Scarborough v. Travelers Insurance Co., 718 F.2d 702, 707 (5th Cir.1983). Sound policy supports this notice provision as a reasonable precondition to an insurer’s liability. Without it, an insurer would be handicapped in its investigation of claims and threatened with unexpected exposure to liability with the attendant risk of insufficient reserves to pay claims against it.

4. As a rule, contracts of insurance are to be construed in accordance with general principles of contractual construction. See, e.g., Porter v. American Optical Corp., 641 F.2d 1128, cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981). Thus, any doubt as to the meaning of a disputed provision in an insurance policy must be resolved against the contract’s drafter, the insurer. McDaniels v. Great Atlantic & Pacific Tea Co., 602 F.2d 78, 81 (5th Cir.1979). Here, however, the meaning of the notice provision is clear. It placed upon the insured the obligation of conveying to the insurer prompt notice of legal proceedings which might result in the insurer’s liability. As such, the notice provision in the policy constituted a condition precedent to American Bankers’ obligation to provide coverage for the Rivers claim. See Hague v. Liberty Mutual Ins. Co., 571 F.2d 262, 267 (5th Cir.1978).

5. I have already found that plaintiffs failed to give timely notice to its insurer of the suit against it. I have further found that this failure prejudiced the insurer in responding to the claim. Where actual prejudice is found, a breach of a condition precedent to the insurer’s obligation to provide coverage will excuse the insurer’s duty to provide coverage under the policy. Hague, 571 F.2d 262. Therefore, plaintiffs are not entitled to enforce the contract of insurance and may not recover for American Bankers’ denial of coverage.

6. Plaintiffs have also contended that Manser, Gulf Coast Marine and Jersey were in some manner negligent in failing to notify American Bankers of the plaintiffs’ claim. I have already found that there is no evidence of any such negligence on the part of any of the defendants. Defendants breached no duty owed the plaintiffs because the plaintiffs did not give notice of the Rivers claim to any of the defendants prior to April of 1979. These three defendants did not fail to transmit notice up the line of placement and, thus, can have no liability for negligence.

7. Based on the foregoing findings of fact and conclusions of law, I find that plaintiffs, Elevating Boats and Meldeans, have not proved their entitlement to any recovery from defendants Manser, Gulf Coast Marine, Jersey International or American Bankers. Therefore, defendants are entitled to judgment in their favor and against plaintiffs, dismissing plaintiffs’ claims. Judgment to be entered accordingly.

      . In the ordinary situation, Dean would have been expected to notify Manser of a suit. Manser, however, had gone out of business a short time before. Therefore, Dean reported to Gulf Coast Marine.


source: Caselaw Access Project

author: JAMES McGIRR KELLY, District Judge.

license: Public Domain

text:
    Jay C. BUMPERS v. INTERNATIONAL MILL SERVICES, INC., and Clarence A. Hackett, Inc., and IU International Corporation.
    Civ. A. No. 84-1219.
    United States District Court, E.D. Pennsylvania.
    Aug. 17, 1984.

      George P. Wood, Norristown, Pa., for plaintiff.
    J. Thomas Menaker, Harrisburg, Pa., for defendants.
   MEMORANDUM AND ORDER

JAMES McGIRR KELLY, District Judge.

Defendant’s moved to dismiss plaintiff’s amended complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), (2) and (6). Defendants alleged that this court lacks jurisdiction over the subject matter and over the parties; and the complaint fails to state a claim upon which relief can be granted.

PROCEDURAL HISTORY

The plaintiff, Jay C. Bumpers, was employed by defendant Clarence A. Hackett, Inc. (“Hackett”), a New York corporation with its principal place of business in Philadelphia, since December 1954. In 1981, Hackett was acquired as a subsidiary by defendant, International Mill Services, Inc. (“IMS”), a Pennsylvania corporation. Plaintiff continued to work for both IMS and Hackett until he was terminated on March 15, 1982. On January 1, 1984, Hackett was merged into its parent IMS. Plaintiff also alleged that at the time of his discharge from employment, IMS and Hackett were controlled by their parent corporation IU International Corporation (“IU”), a Maryland corporation. IMS and IU have their corporate headquarters in Philadelphia.

Plaintiff claims that his employment performance was always satisfactory or better, and was never criticized. Plaintiff avers that the determining factor leading to his termination was his age of fifty-six (56) years. Plaintiff alleges that agents of IU, IMS and Hackett informed employees that they could no longer justify employing the older employees with higher salaries. At the time of his termination plaintiff was earning $58,000 per year and was receiving valuable insurance and pension benefits which increased in value annually. Plaintiff further contends that although he was qualified to perform other jobs within IMS and/or Hackett, he was not offered a comparable or lesser position, while younger employees with less service remained employed performing these duties.

Plaintiff filed a claim under the Age Discrimination in Employment Act (“ADEA”) with the Equal Employment Opportunity Commission (“EEOC”), in Florida on September 16, 1982. That office transferred the case to its Philadelphia District Office. The charge, which named defendants IMS and Hackett, is still pending. Plaintiff commenced this action more than sixty (60) days after filing the EEOC charge. On January 13, 1983, the EEOC filed charges with the Pennsylvania Human Relations Commission (“PHRC”).

Plaintiffs complaint alleges seven counts against defendants. Count I is under the ADEA, 29 U.S.C. § 621, et seq. Count II alleges that defendants violated Section 5(a) of the Pennsylvania Human Relations Act, 43 P.S. § 951, et seq. Count III alleges a claim under the Employee Retirement Income Security Act (“ERI-SA”), 29 U.S.C. § 1001, et seq. Counts IV, V, VI, and VII contain allegations of state contract and tort law violations.

Plaintiff claims this court has jurisdiction over the subject matter under section 7(c)(1) of the ADEA, 29 U.S.C. section 626(c) and under 28 U.S.C. sections 1331, 2201 and pendant jurisdiction over the related state claims under ERISA.

I. ADEA CLAIM

Defendants argue that this court lacks jurisdiction over plaintiff's ADEA claims because plaintiff did not file a state administrative complaint with the Florida Human Relations Commission. The ADEA specifies that an aggrieved individual may bring a civil action in federal court to enforce the Act only after fulfilling certain procedural prerequisites. 29 U.S.C. § 626(d). Those prerequisites specify that a plaintiff must file a notice of intention to sue with the Secretary of Labor within 180 days after the alleged discriminatory incident occurred, and must wait sixty (60) days before instituting an action in federal court, if the alleged discriminatory act occurred in a state which (1) has a law prohibiting age discrimination in employment and (2) a state agency authorized to seek relief for an aggrieved individual. Simpson v. Whirlpool Corp., 604 F.2d 997, 999 (6th Cir.1979). 29 U.S.C. § 633(b). However, the state proceedings need not have been commenced within state time limits. Oscar Mayer & Co. v. Evans, 441 U.S. 750, 99 S.Ct. 2066, 60 L.Ed.2d 609 (1979). “The structure of the ADEA reinforces the conclusion that state procedural defaults do not foreclose federal relief and that state limitation periods cannot govern the efficacy of the federal remedy.” Id. at 762, 99 S.Ct. at 2074.

Plaintiff alleges in the complaint that certain acts of age discrimination occurred in Pennsylvania. Pennsylvania has laws prohibiting age discrimination in employment and has established a state agency to grant or seek relief from discriminatory practices. Accordingly, plaintiff is required to seek redress from this agency before instituting suit in this court. Upon review of the facts it appears that plaintiff has fulfilled the ADEA requirements. Plaintiff filed a timely charge with the EEOC and that Commission filed the charge with the PHRC. In conformity with the United States Supreme Court’s holding in Oscar Mayer, even though plaintiff’s charges were not timely filed with the PHRC, this court still has jurisdiction over the ADEA claims. Therefore, Count I of plaintiff’s complaint will not be dismissed.

II. STATE LAW CLAIMS

Defendants contend that Count II of plaintiff’s complaint should be dismissed because plaintiff failed to initiate an administrative proceeding under state statute. Count II alleges defendants violated Section 5(a) of PHRC, 43 P.S. § 951, et seq. That statute prohibits employment discrimination based upon age, but requires that a written complaint be filed with the PHRC within ninety (90) days of the violation. It appears that the charges filed by the EEOC with the PHRC regarding plaintiff’s claims were untimely filed. The issue is whether plaintiff’s failure to comply with the ninety day filing requirement precludes plaintiff from obtaining relief under the PHRC, either in state or federal court. This very question arose in Wagner v. Sperry Univac, Div. of Sperry Rand Corp., 458 F.Supp. 505 (E.D.Pa.1978). In Wagner the Court noted that because “previous decisions under PHRC shed no light at all on these questions, and [plaintiff] could almost certainly obtain ‘a surer-footed reading of applicable law’ by presenting these issues to the Commission ... and, if need be, to the Pennsylvania courts.” Wagner, 458 F.Supp. at 519. Thus, Count II of plaintiff’s Complaint will be dismissed for want of subject matter jurisdiction.

III. ERISA CLAIM

Defendants contend that plaintiff fails to state a claim under the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001, et seq. Plaintiff has alleged that his employment was terminated to deny him maximum pension benefits. 29 U.S.C. §§ 1140 and 1141. With regard to a motion to dismiss for failure to state a cause of action, plaintiff’s complaint must be construed in the light most favorable to plaintiff accepting as true all allegations made on his part. Bishop v. Wood, 426 U.S. 341, 347 n. 11, 96 S.Ct. 2074, 48 L.Ed.2d 684 (1976); Paolino v. Channel Home Centers, 668 F.2d 721, 722 (3d Cir. 1981).

Section 1140 of ERISA prohibits an employer from discharging an employee “for the purpose of interfering with the attainment of any right to which such [employee] may become entitled under an [employee benefit plan] 29 U.S.C. § 1140. See also Kross v. Western Elec. Co., Inc., 701 F.2d 1238, 1241 (7th Cir.1983).

The limited issue is whether plaintiff’s pension benefits are “rights” protected by section 1140 of ERISA. Plaintiff’s allegations, if proven, could establish that plaintiff was terminated for the purpose of denying him maximum pension benefits. Therefore, defendants’ motion to dismiss Count III is denied.

IV. CONTRACT AND TORT CLAIMS

In Counts IV, V, VI and VII plaintiff alleges various claims of contract and tort violations. Plaintiff contends that this court has jurisdiction over these counts under the doctrine of pendant jurisdiction. I find that because the ADEA, ERISA and the state law claims “derive from a common nucleus of operative fact, ... article III confers on this court the power to hear [the] state law claims.” United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966); see Wagner v. Sperry Univac. Div. of Sperry Rand Corp., 458 F.Supp. 505, 518 (E.D.Pa. 1978); see also Merkel v. Scovill, Inc., 570 F.Supp. 133, 138 (S.D.Ohio 1983). The exercise of pendent jurisdiction is discretionary and should be made after “consideration of judicial economy, convenience, and fairness to litigants.” Wagner v. Sperry, 458 F.Supp. at 518. Upon review of the facts of this case, I conclude that the exercise of pendent jurisdiction is appropriate.

V. FAILURE TO STATE A CLAIM AGAINST DEFENDANT IU

Defendant contends that the complaint fails to state a claim against IU and should be dismissed. Defendant argues that IU was not an employer within the meaning of the ADEA. The ADEA does not impose liability upon parent corporations because of the employment decisions of their subsidiaries, 29 U.S.C. § 623(a)(1). To hold IU responsible as an employer, plaintiff must show that the nexus between IMS, Hackett and IU was greater than a mere parent-sub relationship. Hassel v. Harmon Foods, 336 F.Supp. 432 (W.D. Tenn.1971), aff'd 454 F.2d 199 (6th Cir. 1972).

Plaintiff alleges that IU was an employer within the meaning of the ADEA and that agents of IU ordered its subsidiaries, including defendants IMS and Hackett, to reduce costs by terminating older employees receiving high salaries. Therefore, there exists a factual issue as to whether defendant IU did, in fact, maintain greater control over its subsidiaries IMS and Hackett than a mere parent-sub relationship. Accordingly, I find that plaintiff does state a claim against defendant IU.

VI. FAILURE TO NAME IU AS A RESPONDENT IN THE EEOC CHARGE

Defendants contend that this court lacks jurisdiction over defendant IU because IU was not named in plaintiffs EEOC complaint. Plaintiff did not name defendant IU in the complaint filed with the EEOC. The ADEA requires as a precondition to commencing a civil action against defendants, that the plaintiff first file charges against the defendant with the appropriate state agency, if any, and the EEOC. These requirements are mandatory and not optional. Oscar Mayer & Co. v. Evans, 441 U.S. 750, 758, 99 S.Ct. 2066, 2072, 60 L.Ed.2d 609 (1979). “The general rule is that a party not named in the notice or intent to sue cannot be named as a defendant in a subsequent suit, see 29 U.S.C. § 626(d); Silver v. Mohasco, 602 F.2d 1083, 1086 (2d Cir.1979), rev’d on other grounds, 447 U.S. 807, 100 S.Ct. 2486, 65 L.Ed.2d 532 (1980); Travers v. Corning Glass Works, 76 F.R.D. 431 (S.D.N.Y. 1977).” Allen v. Colgate-Palmolive Co., 539 F.Supp. 57, 69 (S.D.N.Y.1981). The purpose of this requirement is to ensure that each defendant has knowledge of the alleged violation and a chance to resolve the dispute amicably before litigation. Roster v. Chase Manhattan Bank, 554 F.Supp. 285, 288 (S.D.N.Y.1983); Rio v. Presbyterian Hosp. in City of New York, 561 F.Supp. 325, 326 (S.D.N.Y.1983); see also Glus v. G.C. Murphy Co., 562 F.2d 880, 888 (3d Cir.1977). Exceptions to this rule have been made in some courts, and age discrimination suits were allowed to be brought against defendants not named in the prior administrative proceeding. Where “(i) there is substantial identification between the defendants not named in the administrative charge and the defendants who were so named, and (ii) the defendant not named in the administrative charge was aware of the administrative proceedings. See, e.g., Allen v. Colgate Palmolive Co., 539 F.Supp. 57, 69 (S.D.N.Y.1981) ... Vulcan Soc. v. Fire Dep’t, 82 F.R.D. 379, 389 (S.D.N.Y.1979) ... See also Flaherty v. Itek Corp., 500 F.Supp. 309, 311 (D.Mass.1980).” Rio v. Presbyterian Hosp., 561 F.Supp. at 326.

Plaintiff alleges that during the conciliation process he had advised the EEOC of IU’s involvement, and he assumed that they were put on notice as a potential defendant in this litigation. Plaintiff further alleges that IU had greater control over IMS and Hackett than normally found in a parent-subsidiary relationship. Taking plaintiffs allegations as true, defendant IU need not have been named in the EEOC charge to be properly before this court. Therefore, the complaint against IU is not dismissed, defendants motion to dismiss is denied.

An appropriate Order follows.

ORDER

AND NOW, this 13th day of August, 1984, for the reasons set forth in the foregoing Memorandum, it is hereby ORDERED that:

1. Defendants’ Motion to Dismiss Count I and Counts III through VII of the Amended Complaint is DENIED.

2. Defendants’ Motion to Dismiss Count II of the Amended Complaint is GRANTED.

      . Plaintiff filed an amended complaint in which jurisdiction is based on diversity of citizenship.


author: CASTAGNA, District Judge.

text:
    Philip M. ARCENEAUX and Barbara J. Arceneaux, his wife, Plaintiffs, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, et al., Defendants.
    No. 83-241-Civ-T-15.
    United States District Court, M.D. Florida, Tampa Division.
    Aug. 20, 1984.

      Robert Dyer, David W. Pettis, Jr., Duck-worth, Allen, Dyer & Pettis, P.A., Orlando, Fla., for plaintiffs.
    David G. Hanlon, Shackleford, Farrior, Stallings & Evans, P.A., Tampa, Fla., for Merrill Lynch and Hill.
    William T. Keen, Tampa, Fla., for Ribaudo.
   ORDER

CASTAGNA, District Judge.

The Court has for consideration a number of post-trial motions pending in this case. They include: Plaintiffs’ Renewed Motions for Directed Verdict and Motion to Remove from the Jury’s Consideration Waiver and Ratification Defenses; Defendants’ Motion for Judgment Notwithstanding the Verdict, for a New Trial, or for Remittitur; Plaintiffs’ Motion to Alter or Amend the Judgment to Include an Award of Prejudgment Interest; Defendants’ Objection to Bill of Costs; Plaintiffs’ Petition for Attorneys’ Fees; and Defendants’ Motion to Strike Plaintiffs’ Reply to Merrill Lynch’s Objection to Attorneys’ fees Petition.

Bill of Costs

The Court has examined the costs as taxed by the Clerk, together with Defendants’ objections thereto, and finds well taken the objection to the taxing of the cost of the trial transcript. Plaintiffs have not demonstrated that such transcripts were necessary for use in the case as opposed to convenient. See Studiengesellschaft Kohle MBH v. Eastman Kodak Co., 713 F.2d 128 (5th Cir.1983); Brumley Estate v. Iowa Beef Processors, Inc., 704 F.2d 1362 (5th Cir.1983). Therefore, the amount of $543.50 for these transcripts will not be taxed to Defendants. Otherwise, the costs will remain as taxed by the Clerk, in the total amount of $1,676.27.

Defendants’ Motion for JNOV, New Trial, or Remittitur

Defendants have moved for a Judgment Notwithstanding the Verdict, for a New Trial or for Remittitur. Defendants contend that the jury’s verdict sustaining Plaintiffs’ claims of churning and breach of fiduciary duty and rejecting of the defenses of estoppel, waiver, ratification and comparative negligence was unsupported by any substantial evidence or was against the great weight of the evidence.

The Eleventh Circuit has recently spoken to the role of the trial judge in assessing whether a jury verdict should be set aside or a new trial ordered:

The trial judge’s discretion to set aside a jury verdict based on the great weight of the evidence is very narrow. The trial judge must protect against manifest injustice in the jury’s verdict. Hewitt v. B.F. Goodrich Co., 732 F.2d 1554, 1559 (11th Cir.1984).

The gist of Defendants’ argument is simply that the jury should not have believed Plaintiffs or Plaintiffs’ expert. The jury did, however, choose to believe them, and that choice cannot be disturbed by the trial judge. In reviewing the granting of a new trial in a case that also involved expert testimony, the Eleventh Circuit stated in Hewitt:

When a jury is assembled to decide issues of fact they also decide credibility questions. The most traditional role performed by a jury is determining the weight to be given to each witness’ testimony. The trial judge must see to it that only properly qualified experts present their opinions to the jury and that the rules of evidence are followed. When the resolution of the case boils down to credibility, the trial judge must allow the jury to function. 732 F.2d at 1558.

In this case the Court perceives no basis upon which to set aside the jury’s verdict or to order a new trial.

The Defendants have also moved for a remittitur of the punitive damage awards against Defendants Ribaudo and Merrill Lynch. Defendant Ribaudo argues that punitive damages of $15,000 assessed against him are disproportionate to his net worth of $30,000 and thus are patently excessive. As Plaintiffs point out, however, Ribaudo also testified that his income for the past three years had been between $80,000 and $105,000. The jury, having no evidence before it other than Mr. Ribaudo’s testimony, could well have found not credible that a person whose income was in the $90,000 per year range had a net worth of only $30,000. At any rate, from the evidence before the jury, it cannot be said that the punitive damages were excessive either in terms of Ribaudo’s ability to pay them or in light of his conduct toward Plaintiffs. As for the $300,000 in punitive damages assessed against Merrill Lynch, the Court discerns no basis on which to reduce the award.

Plaintiffs’ Renewed Motion for Directed Verdict

Plaintiffs have moved to renew their motion for directed verdict on the issues of estoppel, waiver, and ratification. Although Plaintiffs at trial moved to strike the defense of estoppel, a motion which was denied, they did not move for directed verdict on this issue or on the issues of waiver or ratification. Therefore, they can not now properly “renew” their motion for directed verdict to include those defenses. Further, even if Plaintiffs could now properly raise such a motion, the motion would be denied.

Plaintiffs’ Motion to Amend Judgment

Plaintiffs have moved to amend the judgment to include an award of prejudgment interest on the sum of $46,675.00 awarded as compensatory damages against Defendants. Although defendants argue that whether prejudgment interest should be awarded should be determined by reference to Florida law, it is clear that “[i]n determining whether prejudgment interest is allowed on damages pursuant to Rule 10b-5, federal law governs.” Wolf v. Frank, 477 F.2d 467, 479 (5th Cir.1973), reh’g denied, 478 F.2d 1403, cert. denied, 414 U.S. 975, 94 S.Ct. 287, 38 L.Ed.2d 218 reh’g denied, 414 U.S. 1104, 94 S.Ct. 739, 38 L.Ed.2d 560, appeal after remand, 555 F.2d 1213 (1977). See also Alley v. Miramon, 614 F.2d 1372, 1381 n. 18 (5th Cir. 1980); Huddleston v. Herman & Mac-Lean, 640 F.2d 534, 554 (5th Cir.1981). It is clear also that “whether prejudgment interest should be awarded on a damage recovery in a Rule 10b-5 action is a question of fairness resting within the District Court’s sound discretion.” Wolf v. Frank, 477 F.2d at 479. As to the state law claims, however, Florida law governs. Plantation Key Developers, Inc. v. Colonial Mortgage Co. of Indiana, Inc., 589 F.2d 164, 170 (5th Cir.1979). In this case, involving unliquidated damages, prejudgment interest would be precluded by the Florida courts. Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879 (11th Cir.1983).

There exists little guidance from the Eleventh Circuit concerning this issue. Cases from other circuits, however, indicate that this case is appropriate for an award of pre-judgment interest. In Myron v. Chicoine, 678 F.2d 727, 733 (7th Cir. 1982), the Court stated that “an award of prejudgment interest is particularly appropriate in cases involving investment fraud. In order to realize the objective of compensatory relief, prejudgment interest is imposed in certain classes of cases in order to make a party whole.” Similarly, the Second Circuit noted in Norte & Co. v. Huffiness, 416 F.2d 1189, 1191 (2d Cir.1969), that “[u]nder the federal cases the award of interest is said to be discretionary, and the authorities indicate that it is customary to award it in cases involving a breach of fiduciary duties.” Therefore, in order to make Plaintiffs whole for the damages suffered as a result of wrongdoing by Defendants Ribaudo and Merrill Lynch, the Court will amend the judgment to reflect this interest.

Plaintiffs’ Motion for Attorneys’ Fees

Plaintiffs have petitioned the Court for attorneys’ fees. This case presents a situation where Plaintiffs sued in federal court under a federal statute for which attorneys fees are not available. Under their pendent Florida Securities Act claim, however, they are entitled, as the prevailing party, to an award of fees. Section 517.211(6) provides:

In any action brought under this section, including an appeal, the court shall award reasonable attorneys’ fees to the prevailing party unless the court finds the award of such fees would be unjust.

Defendants do not contest the applicability of this statute to this case; rather, they contend that the Court lacks jurisdiction to enter an Order granting attorneys’ fees because the Plaintiffs’ motion is untimely. The final judgment in this case was entered on May 2, 1984, but Plaintiffs did not file the instant motion until June 19, 1984. Under Defendants’ theory, an award of attorneys’ fees at this late date would constitute an alteration or amendment of the judgment, which, under Rule 59(e) of the Federal Rules of Civil Procedure, is barred unless the moving party serves his motion for such alteration within ten days of the entry of final judgment.

In support of their position, Defendants have cited several Florida cases in which it was held that failure of the trial court to reserve jurisdiction to enter an attorneys’ fees order constituted a bar to a later entry of that order. See e.g., Church v. Church, 338 So.2d 544 (Fla. 3rd DCA 1976). The clearest case along this line is one in which the statute provides that the attorneys fees award is to be included in the judgment; hence, the trial court must include the fees in the judgment or specifically reserve jurisdiction to do so later. Hartford Accident & Indemnity Co. v. Smith, 366 So.2d 456 (Fla. 4th DCA 1978). The statute involved in the instant case, however, makes no such provision.

A recent Eleventh Circuit case concerning the timing of a motion for attorneys’ fees on appeal under Section 517.211(6), Florida Statutes, is somewhat helpful in resolving this issue. The losing party in Silverberg v. Paine, Webber, Jackson & Curtis, Inc., 724 F.2d 1456 (11th Cir.1983), appealed the award of attorneys’ fees to the prevailing party after entry of final judgment by the Court of Appeals. The prevailing party, it was argued, had not complied with Section 59.46, Florida Statutes, which requires a motion for attorneys’ fees on appeal to be filed with the appellate court at or before the time of filing the party’s first brief. The trial judge, Judge Black of the Middle District of Florida, had previously ruled, in reference to Plaintiff’s timely motion under Rule 59(e) to modify the judgment to include attorneys’ fees, that attorneys’ fees under this statute were an item of costs. The Defendants had not appealed that particular ruling, and it became law of the case. The Silverberg case is the only reported case the Court has uncovered where either a federal or Florida court has specifically held that an attorneys’ fee award pursuant to Section 517.211(6), Florida Statutes, need not be made part of the judgment.

In White v. New Hampshire, 455 U.S. 445, 102 S.Ct. 1162, 71 L.Ed.2d 325 (1982), the Supreme Court held that a motion for attorneys fees under § 1988 raised issues collateral to the main action and that therefore the time constraints of Rule 59(e) did not apply to the filing of the motion. Like 42 U.S.C. § 1988, Section 517.211(6), Fla.Stat. provides for an award of fees only to the “prevailing party.” Thus, “[rjegardless of when attorney’s fees are requested, the court’s decision of entitlement to fees will therefore require an inquiry separate from the decision on the merits — an inquiry that cannot even commence until one party has ‘prevailed.’ ” 455 U.S. at 451-52, 102 S.Ct. at 1166. The White Court went on to cite with favor the following language from Knighton v. Watkins, 616 F.2d 795, 797 (5th Cir.1980):

[A] motion for attorney’s fees is unlike a motion to alter or amend a judgment. It does not imply a change in the judgment, but merely seeks what is due because of the judgment. It is, therefore, not governed by the provisions of Rule 59(e).

Having considered all of the authorities cited to the Court by both parties, and the Court’s independent research having uncovered no cases more persuasive than those cited herein, the Court has concluded that Plaintiff’s Petition for Attorneys’ Fees is not barred on the basis of untimeliness, and it will therefore consider the merits of the motion.

Defendants first urge the Court to deny Plaintiffs’ attorneys’ fees petition because “the award of such fees would be unjust” and therefore prohibited by Section 517.211(6), Fla.Stat. The Court is not persuaded by this argument. The Court recognizes that such an award will indeed impose an additional burden upon Defendants, but the fact is that the jury found that these Defendants violated the Florida Securities Laws. No circumstances peculiar to them have been pointed out by Defendants that would cause the Court to believe the statutory award of attorneys’ fees is unjust.

The Court will examine the Plaintiffs’ request for attorneys’ fees in light of the factors set out in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.1974). Although Defendants contend that the Court should award attorneys’ fees utilizing the same considerations as would a Florida court, the Johnson guidelines “are equally useful whenever the award of attorneys’ fee is authorized by statute.” In Re First Colonial Corp. of America, 544 F.2d 1291, 1299 (5th Cir. 1977). Furthermore, the factors used by the Florida courts in assessing attorneys’ fees are based on Canon 2 of the Code of Professional Responsibility, Rule 2-106, and these criteria are essentially subsumed by the Johnson factors. See Florida Medical Center, Inc. v. Von Stetina, 436 So.2d 1022, 1031 (Fla. 4th DCA 1983). Defendants will suffer no prejudice from this Court’s use of the Johnson criteria, which the Eleventh Circuit has mandated to facilitate its review of district court attorneys’ fees orders.

(1) The time and labor required.

A “useful starting point” in assessing attorneys’ fees is to multiply the hours reasonably expended by a reasonable hourly rate. See Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1983); Blum v. Stenson, — U.S.-, 104 S.Ct. 1541, 1543-44, 79 L.Ed.2d 891, (1984). Defendants contend that this initial calculation is muddied by the fact that Plaintiffs are entitled to attorneys’ fees only for their Florida Securities Act claim; no such entitlement exists for Rule 10b-5 or common law fraud, negligence, and breach of fiduciary duties. Plaintiffs themselves recognize this and have discounted 31.2 hours for noncompensable claims out of the total of 556.5 spent on this matter (exclusive of travel). Defendants contend that this figure is unrealistic and have requested that the Court hold an evidentiary hearing.

This issue becomes less complicated, however, by the fact that Plaintiffs prevailed on every claim asserted. Had they brought this matter in state court under the Florida Securities Act, their manner of proceeding on the securities law violations would not have differed in any significant way. Work on the federal securities claims simply cannot be severed from work on the Florida claims. The Court has reached this conclusion from an examination of the time records submitted by Plaintiffs. And the Court agrees with Plaintiffs’ assertion that relatively little time in this case was spent on preparing the common law claims. Therefore, a “useful starting point” in this case is the total of 556 hours. Plaintiffs’ primary counsel, Mr. Dyer, spent a total of 343.9 hours, his associate, Ms. Dierking, spent 172.3 hours, and the paralegal, Ms. Kirsch, spent 40.3. The Defendants have not contested the reasonableness of these figures, and the Court regards this factor of prime importance in computation of the award.

(2) The novelty and difficulty of the questions.

This case was tried to a jury. The claim of “churning,” with the necessity of proving each element, although not a novel issue is, in the Court’s view, of some difficulty. Plaintiffs’ success in this area was relevant to the Court’s determination of a reasonable hourly rate.

(3) The skill required to perform the legal service properly.

The Defendants have not questioned the skill of Plaintiffs’ attorneys in conducting any aspect of their services to their clients, and the Court finds they possessed the requisite skills. This factor was of importance to the Court in its determination of a reasonable hourly rate.

(4) The preclusion of other employment by the attorney due to acceptance of this case.

Plaintiffs’ attorneys did not discuss this factor and it therefore was of no relevance in the Court’s assessment.

(5) The customary fee.

Attorney Dyer’s fee is $125.00 per hour; Ms. Dierking’s fee is $60.00 per hour; and the fee for the paralegal is $25.00 per hour. Plaintiffs have submitted the Affidavits of attorneys Davisson F. Dunlap and Egerton K. van den Berg attesting that these are customary and reasonable hourly rates, and the Court finds that the rates charged are reasonable. Defendants have not contested these charges, and the fact that these fees are customary was of great weight in the Court’s determination of a reasonable hourly rate.

(6) Whether the fee is fixed or contingent.

Plaintiffs’ attorneys took this case on a wholly contingent basis. When a fee is entirely contingent and the attorney will be paid only in the event of success, the risk of undertaking representation of the client increases. To compensate for such risk-taking, the district court may enhance a compensatory fee. Jones v. Diamond, 636 F.2d 1364 (5th Cir.1981) (en banc). See also Blum v. Stenson, 104 S.Ct. at 1550 (Brennan, J., concurring). The Eleventh Circuit, however, has “specifically reject[ed] the contention that there must be enhancement in every case in which the fee is contingent.” Yates v. Mobile County Personnel Bd., 719 F.2d 1530, 1534 (11th Cir.1983) (citing Marion v. Barrier, 694 F.2d 229, 231 (11th Cir.1982).

Plaintiffs' attorneys have urged that, primarily because of the contingent nature of this case, their basic fee should be augmerited by a multiplier — perhaps two or three — so that they will be fully compensated. In a recent discussion of the use of a multiplier for a fee request under 42 U.S.C. § 1988, the Supreme Court in Blum v. Stenson stated that “[t]he burden of proving that such an adjustment is necessary to the determination of a reasonable fee is on the fee applicant.” 104 S.Ct. at 1548. The Court concluded:

In sum, we reiterate what was said in Hensley: “where a plaintiff has obtained excellent results, his attorney should recover a fully compensatory fee. Normally this will encompass all hours reasonably expended on the litigation, and indeed in some cases of exceptional success an enhancement award may be justified.” 104 S.Ct. at 1550 (citing Hensley, 461 U.S. at 435, 103 S.Ct. at 1940).

This case, where attorneys’ fees are sought under a Florida statute, is unlike the situation where attorneys’ fees are sought under 42 U.S.C. § 1988. There, according to Justice Brennan in Blum v. Stenson, “Congress has clearly indicated that the risk of not prevailing, and therefore the risk of not recovering any attorney’s fee, is a proper basis on which a district court may award an upward adjustment to an otherwise compensatory fee.” 104 S.Ct. at 1550 (Brennan, J., concurring). No such intention of the Florida legislature is evident to the Court, nor can it be presumed, because cases involving securities fraud simply are not analogous to civil rights cases in terms of the types of litigants involved and the rights which those litigants seek to vindicate. The Plaintiffs have not carried the burden of proving that the contingent nature of the representation in this case, or any other exceptional circumstance, should cause the Court to enhance what it feels is a fully compensatory fee based on hourly rate times hours worked.

(7) Time limitations imposed by the client or the circumstances.

Plaintiffs’ attorney has not discussed this factor and the Court finds it not relevant.

(8) The amount involved and the results obtained.

The Hensley Court has recently held that it is appropriate to focus on the “significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended on the litigation.” 103 S.Ct. at 1940. In this case Plaintiffs achieved virtually all that they sought in compensatory damages as well as substantial punitive damages against Defendants Ribaudo and Merrill Lynch. The Court recognizes that this was not an “open-and-shut” case, and the success factor was relevant to the Court’s determination that Plaintiffs should be compensated for all attorney time spent on this matter.

(9) The experience, reputation, and ability of the attorneys.

Attorney Robert Dyer is a graduate of Harvard Law School. He has practiced primarily in Orlando, Florida for over twenty years, and he devotes most of his time to commercial litigation. He has been a member and chairman of the Commercial Litigation Section of the Academy of Florida Trial Lawyers. The Court is satisfied that Mr. Dyer is an experienced, reputable, and able advocate, and this factor was relevant to the Court’s determination of a reasonable hourly rate.

(10) The undesirability of the case.

Except for the fact that this was not an easy case to prove, Plaintiffs’ counsel did not specifically comment on this point. As this is the type of case in which Plaintiffs’ counsel specializes, the Court found this factor of no relevance.

(11) The nature and length of the professional relationship with the client.

This factor was not relevant.

(12) Awards in similar cases.

Plaintiffs’ attorney offered no examples of attorneys’ fees awards in securities cases. Although the Court has not previously awarded attorneys’ fees under Section 517.211(6), Florida Statutes, it has considered awards of attorneys’ fees made pursuant to various statutes, and the Court drew on this experience in assessing the reasonableness of the hours expended, the hourly rate, and the skill and experience of Plaintiffs’ attorneys.

The Award

Having examined the parties’ arguments and the Plaintiffs’ affidavits in light of the Johnson factors, the Court has concluded that the following represents the reasonable number of hours spent on this litigation, to be compensated at reasonable and customary hourly rates:

344 hours at $125.00 per hour (Mr. Dyer)

172 hours at $ 60.00 per hour (Ms. Dierking)

40 hours at $ 25.00 per hour (paralegal)

Total = $54,320.00.

The Court thus finds that a reasonable attorneys’ fee due Plaintiffs is $54,320.00.

In accordance with all of the above, it is

ORDERED:

1. Plaintiffs’ Renewed Motions for Directed Verdict and Motion to Remove from the Jury’s Consideration Waiver and Ratification Defenses are denied.

2. Defendants’ Motion for Judgment Notwithstanding the Verdict, for a New Trial, or for Remittitur is denied.

3. Plaintiffs’ Motion to Alter or Amend the Judgment to Include an Award of Prejudgment Interest is granted, and an Amended Judgment shall be entered.

4. The Clerk shall amend the Bill of Costs to delete the sum of $543.50, and the total costs taxed against Defendants are $1,676.27.

5. Defendants’ Motion to Strike Plaintiffs’ Reply to Merrill Lynch’s Objection to Attorneys’ Fees is denied.

6. Plaintiffs’ Petition for Attorneys’ Fees is granted.

7. Plaintiff shall recover of Defendants the sum of $54,320.00 as attorneys’ fees.


author: KATZ, District Judge.

text:
    Marvin E. ARONSON, M.D. v. UNITED STATES of America. Marvin E. ARONSON, M.D. v. Griffin B. BELL, et al.
    Civ. A. Nos. 82-2876, 82-4329.
    United States District Court, E.D. Pennsylvania.
    Aug. 21, 1984.

      Bruce, Thall, M. Richard Komins, Sprague, Levinson & Thall, Philadelphia, Pa., for plaintiff.
    Alexander Ewing, Jr., Asst. U.S. Atty., Philadelphia, Pa., and Gordon W. Daiger, Timothy P. Garren, Torts Branch, Civ. Div., U.S. Dept, of Justice, Washington, D.C., for defendants.
   MEMORANDUM

KATZ, District Judge.

Dr. Marvin Aronson has sued the United States and six government lawyers for naming him as a defendant in the case of U.S. v. City of Philadelphia, and for statements made to the press in connection with that suit. The City of Philadelphia litigation sought broad declaratory and equitable relief against an allegedly pervasive pattern of police abuse denying federal constitutional rights to Philadelphia citizens, particularly minorities. The suit named Dr. Aronson, the City Medical Examiner, among other defendants. The Court dismissed the complaint for lack of standing except to the extent the suit attacked discrimination on the basis of race, color or national origin in administering federally funded programs. 482 F.Supp. 1248 (E.D.Pa. October 30, 1979). The Court then dismissed the remainder of the complaint for failure to plead with sufficient specificity. 482 F.Supp. 1274 (E.D.Pa. December 13, 1979). These rulings were affirmed. 644 F.2d 187 (3d Cir. 1980), reh. en banc denied, 644 F.2d 206 (3d Cir.1981). Dr. Aronson now claims malicious prosecution and abuse of process against all defendants; invasion of privacy, negligent investigation and intentional infliction of emotional distress against the United States; and deprivation of due process against the individual defendants.

Defendants initially moved to dismiss these cases. These motions were dismissed without prejudice on October 11, 1983, and the parties were granted leave to conduct discovery on the issues raised. Defendants’ renewed motions are now before the Court.

I. Aronson v. U.S.

Plaintiff’s suit against the United States is brought under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671-80 (“FTCA”). His claims of malicious prosecution and abuse of process are barred by the discretionary function and intentional torts exceptions to the FTCA’s waiver of sovereign immunity.

The discretionary function exception preserves sovereign immunity for “any claim ... based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.” The decision to file the City of Philadelphia suit involved policy judgments of the kind Congress intended to shield from tort liability. U.S. v. S.A. Empresa de Viacao Aerea Rio Grandense (Varig Airlines), — U.S.-,-, 104 S.Ct. 2755, 2764, 81 L.Ed.2d 660 (1984); Dahelite v. U.S., 346 U.S. 15, 73 S.Ct. 956, 97 L.Ed. 1427 (1953); Griffin v. U.S., 500 F.2d 1059, 1064 (3d Cir.1974).

Congress has granted broad powers to the Justice Department to conduct litigation. This legislative grant includes discretion as to naming Dr. Aronson a defendant in this civil suit. In Gray v. Bell, 712 F.2d 490, 513 (D.C.Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 1593, 80 L.Ed.2d 125 (1984), a suit for malicious prosecution based on an indictment on criminal charges was dismissed under the discretionary function exception on the following basis:

It is plain that Gray’s FTCA claim was properly dismissed as it incorporates the malicious prosecution claim and thus challenges the actual decision to institute prosecution against him. Prosecutorial decisions as to whether, when and against whom to initiate prosecution are quintessential examples of government discretion in enforcing the criminal law, and, accordingly, courts have uniformly found them to be immune under the discretionary function exception.

There is no distinction in principle between the discretion involved in making the decision to bring the civil suit against plaintiff here and the discretion involved in making the decision to indict in Gray. See Smith v. U.S., 375 F.2d 243, 246-47 (5th Cir.), cert. denied, 389 U.S. 841, 88 S.Ct. 76, 19 L.Ed.2d 106 (1967).

The intentional torts exception to the waiver of sovereign immunity in the FTCA also bars plaintiff’s malicious prosecution and abuse of process claims. The government attorneys are not empowered to execute searches, seize evidence and make arrests within the meaning of the provision allowing suits for designated intentional torts against such agents. U.S. v. Rubin, 573 F.Supp. 1123, 1124-25 (D.Col. 1983).

Plaintiff’s claims against the United States based on conduct before August 25, 1979 are also barred by the two-year statute of limitations, 28 U.S.C. § 2401(b). Dr. Aronson filed his administrative claim on August 25, 1981. Claims for negligent investigation, invasion of privacy and intentional infliction of emotional distress based on events occurring before August 25, 1979, including press statements before that date, are barred. U.S. v. Kubrick, 444 U.S. 111, 121, 100 S.Ct. 352, 359, 62 L.Ed.2d 259 (1979); Diminnie v. U.S., 728 F.2d 301 (6th Cir.1984) (per curiam). The City of Philadelphia lawsuit of which plaintiff complains was filed on August 13, 1979. Since plaintiffs contention at the oral argument of these motions was that the only press statements on which he relied were on August 13, 1979 and August 14, 1979, the statute of limitations bars claims based on the press statements. See Exhibits B (pp. 21-24) and C attached to Renewed Motion to Dismiss or In the Alternative for Summary Judgment.

II. Aronson v. Bell, et al.

The individual defendants are immune from liability for the claims based on the filing of the City of Philadelphia suit. The doctrine of official immunity protects the government lawers’ decision to institute that suit. Imbler v. Pachtman, 424 U.S. 409, 96 S.Ct. 984, 47 L.Ed.2d 128 (1976); Gray v. Bell, supra, 714 F.2d at 497-505; Butz v. Economou, 438 U.S. 478, 511-512, 98 S.Ct. 2894, 2913-2914, 57 L.Ed.2d 895 (1978); Bulloch v. Pearson, No. C-82-0230 W (D. Utah June 21, 1983). Defendants’ conduct in filing suit was a discretionary act within the perimeter of their authority. Barr v. Matteo, 360 U.S. 564, 79 S.Ct. 1335, 3 L.Ed.2d 1434 (1954); 28 U.S.C. §§ 515(a), 516. The decision to sue Dr. Aronson as a necessary party, in his official capacity, was also an act not violating clearly established constitutional rights of which defendants should have known. Deposition of Louis Thrasher, pp. 13-19; Harlow v. Fitzgerald, 457 U.S. 800, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982). Plaintiff’s malicious prosecution and abuse of process claims are barred in their entirety. His deprivation of due process claims are also dismissed to the extent that they rest on defendant’s filing of the City of Philadelphia suit.

Plaintiff’s claim for deprivation of liberty without due process is barred by the applicable statute of limitations. Knoll v. Springfield Township School District, 699 F.2d 137 (3d Cir.1983), cert. granted, — U.S. -, 104 S.Ct. 3571, 82 L.Ed.2d 870 (1984). Plaintiff’s liberty claim alleges the publication of false, stigmatizing reports which caused him to lose prospective consulting fees. The state torts of defamation and invasion of privacy are the most closely identified to this claim. These torts are governed by a one-year statute of limitations. 42 Pa. Const.Stat.Ann. § 5523(1). All the reports of which plaintiff complains are beyond the one year period.

Plaintiff’s due process claims also fail because he has not shown any facts amounting to a deprivation of a protected liberty or property interest from the filing of the City of Philadelphia suit or the two press statements identified at the oral argument as the basis for his claims. Neither the lawsuit nor the two press statements, based on allegations of the City of Philadelphia complaint, invade constitutionally protected interests. Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 L.Ed.2d 405 (1976); Green v. DeCamp, 612 F.2d 368, 369-70 (8th Cir.1980); Cook v. Houston Post, 616 F.2d 791, 794 (5th Cir.1980); Williams v. West Jordan City, 714 F.2d 1017 (10th Cir.1983); Durham v. Jones, 698 F.2d 1179 (11th Cir.1983) (per curiam).

      . Plaintiff's claims against the individual defendants for negligent invstigation and intentional infliction of emotional distress were stipulated to be barred by the statute of limitations. Stipulated Order of November 3, 1983.

      . In view of this holding, the matter of document production is moot because the documents bear only on the exercise of discretion in starting the City of Philadelphia suit as to the issue of the government's standing to sue, based on the Court’s examination of the papers.

      . The Attorney General or Justice Department attorneys "may, when specifically directed by the Attorney General, conduct any kind of legal proceeding, civil or criminal ... which United States attorneys are authorized by law to conduct 28 U.S.C. § 515(a) (1966). In addition, "[e]xcept as otherwise authorized by law, the conduct of litigation in which the United States, an agency, or officer thereof is a party, or is interested, and securing evidence therefor, is reserved to officers of the Department of Justice, under the direction of the Attorney General.” 28 U.S.C. § 516 (1966).

      . The provisions of this chapter and section 1346(b) of this title shall not apply to—
      (h) Any claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights: Provided, That, with regard to acts or omissions of investigative or law enforcement officers of the United States Government, the provisions of this chapter and section 1346(b) of this title shall apply to any claim arising ... out of assault, battery, false imprisonment, false arrest, abuse of process, or malicious prosecution. For purposes of this subsection, "investigative or law enforcement officer” means any officer of the United States who is empowered by law to execute searches, to seize evidence, or to make arrests for violations of Federal law.
      28 U.S.C. § 2680(h) (1974).


author: REGAN, District Judge.

text:
    Dr. Donald C. CORBIN and Bonnie Sue Corbin, Plaintiffs, v. UNITED STATES of America, Defendant.
    No. 83-2619C(B).
    United States District Court, E.D. Missouri, E.D.
    Aug. 22, 1984.
    Order Overruling Motion For New Trial Sept. 7, 1984.

      Michael M. Sayers, St. Louis, Mo., for plaintiffs.
    Bruce D. White, St. Louis, Mo., Ludwig Adams, Trial Tax Dept., Dept, of Justice, Washington, D.C., for defendant.
   MEMORANDUM AND OPINION

REGAN, District Judge.

In this action for refund of $710 in individual income taxes paid by plaintiffs for the year 1982, the essential facts have been stipulated. The issue is one of law, namely, whether plaintiffs are entitled under 26 U.S.C. § 403(b)(1) to exclude from their 1982 gross income amounts contributed for their benefit by Dr. Corbin’s employer, pursuant to a salary reduction agreement, to a non-transferable, nonforfeitable, credit union special account.

As stipulated by the parties, we make the following findings of fact:

1. At all times relevant herein, Plaintiff Dr. Donald D. Corbin (the Employee) was a full-time common-law employee of and performed services for the Fox C-6 School District of Jefferson County, Missouri (the Employer).

2. The Employer is an educational organization as described in Section 170(b)(1)(A)(ii) of the Internal Revenue Code of 1954 as amended (“IRC”), and, as a public school district is an agency or instrumentality of the State of Missouri.

3. The Educational Employees Credit Union (“EECU”) is qualified to operate in the State of Missouri as a credit union under Chapter 370 R.S.Mo., and is exempt from federal income tax under IRC Section 501(c)(14)(A).

4. EECU is a federally insured credit union (within the meaning of the Federal Credit Union Act, 12 U.S.C. Section 1751 et seq.) with each share account being insured up to $100,000.

5. Prior to 1982, EECU began administering an arrangement pursuant to which an eligible employer could make a contribution on behalf of a qualified employee of an amount determined according to a salary reduction agreement with such employee to a separate nonforfeitable special share account maintained by EECU. The eligibility of the employer, the qualification of the employee, and the nature of such special share account are determined according to the rules and regulations of EECU entitled “Rules and Regulations of Educational Employees Credit Union Tax-Sheltered Annuity Special Share Accounts Class XI”.

6. By resolution of May 18, 1982, Employer approved and adopted said EECU’s Rules and Regulations, and approved the execution of a salary reduction agreement with participating employees.

7. Ten days later, on May 28, 1982, Employee entered into a salary reduction agreement with Employer. In accordance therewith, Employer contributed the sum of $2,100 during 1982 to a non-transferable, nonforfeitable EECU Special Share Account Class XI held by EECU for the benefit of Employee. The Special Share Account was intended by the parties to qualify as the purchase of an annuity under IRC Section 403(b). However, both EECU and Employer specifically disclaimed guaranteeing the tax status of the account.

8. The foregoing contributions made by Employer during 1982 on behalf of Employee did not constitute the purchase of an annuity contract referred to in subsection (a) of IRC Section 403. They did not exceed Employee’s applicable exclusion allowance for 1982, as defined in IRC Section 403(b)(2). During said year, Employee was not a participant in any plan which would qualify under IRC Section 403(b).

9. Plaintiffs timely filed their Form 1040 U.S. Individual Income Tax Return for the year ending December 31,1982, and paid all federal income taxes due, including the $710 in dispute.

10. On May 4, 1983, plaintiffs filed a claim for refund of $710 in 1982 income tax, based upon their contention that under IRC Section 403(b) they were entitled to exclude from their gross income the $2,100 contributed by Employer to the EECU Special Share Account.

11. By letter dated September 15, 1983, the Internal Revenue Service disallowed plaintiffs’ claim.

12. This suit, as was that of Accord v. US., 532 F.Supp. 22, is directed and financed by EECU as a test case to obtain a judicial determination of the contentions asserted herein.

Section 403(b)(1) provides in relevant part that if an annuity contract is purchased for an employee who performs services for an educational organization (such as the Fox C-6 School District), and the employee’s rights under the contract are nonforfeitable, except for failure to pay future premiums, then amounts contributed by such employer for such annuity contract are excluded from the gross income of the employee for the taxable year.

The major controverted issue is whether the employer school district purchased for its employee an annuity contract as that term is used in Section 403(b) by causing the EECU special share account to be opened in the name and for the benefit of Dr. Corbin and making contributions thereto pursuant to their salary reduction agreement. It is the position of the Internal Revenue Service (IRS), unequivocally set forth in Revenue Ruling 82-102, that the special share account in the credit union does not qualify as an “annuity contract” entitled to tax deferred benefits under Section 403(b) of the Internal Revenue Code, because it is not funded by or purchased from an insurance company. Relying on Accord v. U.S., 532 F.Supp. 22 (D.C.E.D. Mo.1981) plaintiffs contend that for purposes of Section 403(b) annuity contracts may be issued by entities other than insurance companies, that a state regulated, federally insured credit union such as EECU is one of such entities, and that the EECU special share account constitutes an annuity.

An annuity, as commonly understood, is a sum paid to an annuitant in periodic installments either for life or for a certain period. Although the special share account has a provision for such payments, it further authorizes the employee, on sixty days notice, to obtain distribution in whole or in part of the amount in his account, a provision which is inconsistent with the basic concept of providing a retirement income.

Acord concluded that in view of the fact (1) that in Revenue Rulings 67-361 and 67-387 (which, at that time had not been revoked), the Internal Revenue Service sanctioned certain self-funded employer retirement plans, and thus by implication ruled that Section 403(b) plans need not be funded by insurance companies, and (2) that “(a) federally insured, state chartered credit union (such as EECU) provides greater security than an insurance company which is subject only to the regulation of a state insurance department”, such a credit union may issue annuities for purposes of Section 403(b)(1).

Subsequent to Acord, the Internal Revenue Service revoked Revenue Rulings 67-361 and 67-387, and issued Revenue Ruling 82-102 which expressly holds that arrangements qualifying under Section 403(b)(1) must be funded by insurance company annuity contracts. By revoking Revenue Rulings 67-361 and 67-387, the IRS destroyed the linch-pin of Acord.

With all due respect to the learned author of Acord, it is our view that the mere fact, if so, that a federally insured state chartered credit union provides greater security for depositors than at least some insurance companies is irrelevant. If Section 403(b)(1) be construed to make no requirement that an annuity contract be funded by an insurance company, it necessarily follows that any nonforfeitable contract to provide an annuity would be permissible, irrespective of the amount of security the issuing entity affords. In our judgment, this is an all or none situation; else who would be authorized to draw the line as to who may issue such annuities, and what criteria would be used? We do not believe that the courts have the power to examine into the financial and management soundness of a particular entity to determine whether tax deferments should be granted with respect to that entity’s annuity contracts.

As Acord pointed out, “annuity contracts have been historically issued by insurance companies”, and in our view that is the context in which Section 403(b)(1) was drafted. Although the statute does not in terms so provide, the absence of any language listing entities other than insurance companies as qualified to issue these annuities convinces us that Congress did not intend to grant carte blanche authority to any and all entities to deal in Section 403(b) annuities, with possible disastrous results to the beneficiaries. We add that the provision requiring that the employee’s rights under the annuity contract be nonforfeitable “except for failure to pay future premiums” is a further indication of the Congressional intent that Section 403(b) arrangements be funded by insurance company annuity contracts.

Evidencing Congressional belief that under Section 403(b)(1) contributions to such plans “may be invested only in insurance contracts” is the statement to that effect in H.R.Rep. 93-807, 93rd Cong. 2d Sess. 162 (1974), U.S.Code Cong. & Admin.News 1974, 4639, 4827. Based on that understanding, Congress added Section 403(b)(7) to the statute in connection with its comprehensive revision of the law relating to employee retirement plans in ERISA. In Section 403(b)(7), Congress expanded the original concept of Section 403(b) by providing that employer contributions placed in qualified custodial accounts and invested in mutual funds (regulated investment) stock may be treated as contributions for an annuity contract.. What this enactment evidences is the Congressional intent that it would provide more flexibility in the Section 403(b) area only to the extent and under the conditions specifically authorized by the statute.

Plaintiffs make the alternative contention that in any event they are entitled to the tax refund on the ground that defendant is estopped from denying their claim. They base this contention on the theory that the IRS discriminatorily exercised its discretion in denying Dr. Corbin the benefit of the retroactive relief granted to others in Revenue Ruling 82-102. We find no estoppel.

Revenue Ruling 82-102 unequivocally (and publicly) announced the position of the IRS that the arrangement here involved does not meet the requirements of Section 403(b) because it is not funded by insurance contracts (nor invested in regulated investment company stock), and for such reason the contributions administered by the credit union do not constitute the purchase of an annuity contract for purposes of the statute and so are not excludable from the gross income of the employee.

However, taking note that the prior Revenue Rulings 67-361 and 67-387 which had authorized certain arrangements not funded by insurance contracts to be treated as annuities had been relied on by various employers, Revenue Ruling 82-102 specified pursuant to 26 U.S.C. Section 7805(b) that it would not be applied to contracts entered into by an employer on or before the date the Ruling was published (May 17, 1982) if the contract would have met the requirements of section 403(b) but for the fact that it was not purchased from an insurance company, and the contract only covers current and future employees of that employer.

Excepted from the broad scope of this relief were employees who became covered for the first time under such contracts after (May 17, 1982) if the I.R.S. had theretofore issued a written communication to the effect that the program under which the contract was issued did not meet the requirements of section 403(b) because it was liot purchased from an insurance company. Thus, the Ruling totally exempted from its application arrangements adopted by an employer prior to May 17, 1982, with the exception of employees who became covered for the first time after May 17, 1982 under a program which the IRS had theretofore ruled did not qualify for tax deferment benefits.

Dr. Corbin’s employer, the Fox C-6 School District, “purchased” or became a party to what it was told by EECU was an “annuity contract’’ for the benefit of Dr. Corbin subsequent to May 17, 1982. It had not theretofore, prior to May 17, 1982, participated in any such arrangement or contract not funded by an insurance company which covered any of its employees, much less Dr. Corbin. Hence, the Ruling operates prospectively only as to the Fox C-6 School District and its employees.

Insofar as Dr. Corbin is concerned there can be and is no issue of retroactivity. The relief from retroactive application of Revenue Ruling 82-102 is granted to those employers and employees who prior to May 17, 1982 had presumptively acted in reliance on the subsequently revoked Revenue Rulings. The sole purpose of granting the retroactive relief was to avoid possible injustice to those employers and the employees who unlike Fox C-6 School District and Dr. Corbin had theretofore in good faith entered into plans which did not meet the requirements of Section 403(b). Plaintiffs are without standing to complain of any adverse effect of the Ruling upon the future business of EECU.

It follows from the foregoing, and we conclude as a matter of law

(1) that by establishing a special share account on behalf of Dr. Corbin at EECU in accordance with the latter’s Rules and Regulations, the Fox C-6 School District did not purchase an annuity contract for purposes of 26 U.S.C. Section 403(b)(1),

(2) that the arrangement involving EECU, the Fox C-6 School District and Dr. Corbin does not qualify as a tax-deferred annuity contract within the meaning of 26 U.S.C. Section 403(b);

(3) that the $2,100 contribution by the Fox C-6 School District to the Special Share Account is not excludible from plaintiffs’ gross income for the 1982 calendar tax year;

(4) that defendant is not estopped from applying Revenue Ruling 82-102 to plaintiff Dr. Donald D. Corbin as a basis for denying plaintiffs’ claim for refund; and

(5) that plaintiffs are not entitled to the refund of the $710 in dispute or any portion thereof and that their complaint should be dismissed with prejudice.

The foregoing memorandum and opinion constitutes our findings of fact and conclusions of law.

ORDER OVERRULING MOTION FOR NEW TRIAL

Before us is plaintiffs’ motion for a new trial.

The sole basis of the motion is plaintiffs’ contention that in finding that Section 403 (b) annuity contracts must be funded by or purchased from insurance companies, the Court has drawn a factual distinction between the withdrawal provisions of “annuity contracts” purchased from or funded by insurance companies and the EECU arrangement. No such factual distinction was made or intended.

What we held was simply that an “annuity contract” which is not funded by or purchased from an insurance company is not entitled to tax deferment benefits under Section 403(b) of the Internal Revenue Code, and for that reason, the employer contributions administered by EECU do not constitute the purchase of an annuity contract for purposes of the statute.

We drew no other distinction between annuity contracts funded by or purchased from insurance companies and the EECU arrangement. Our ruling would be precisely the same whether or not “annuities” funded by or purchased from some insurance companies also permit the employee to obtain early lump sum distributions in whole or in part upon sixty days notice, as does the EECU arrangement. Our comment during the course of our opinion that we believe such early withdrawal provision in the EECU special share account is inconsistent with the basic concept of providing a retirement income upon which Section 403(b) is premised was not a basis for our holding that the EECU arrangement did not qualify for tax deferment benefits, and was not so intended.

We add that if the early distribution provision would of itself invalidate the EECU arrangement, the validity of any similar provision in an insurance company annuity contract for purposed of tax deferment benefits would also be affected. However, the issue of whether any Section 403(b) annuity contracts (including those of insurance companies) may permissibly contain early distribution provisions was neither tried, submitted, nor decided.

Plaintiffs’ motion for a new trial is without merit. It should be and it is HEREBY OVERRULED.


author: ASPEN, District Judge:

text:
    UNITED STATES of America, Plaintiff, v. Alfred TROIANI, Robert Wilson, Marshall DeFrank, John Hadala, Robert Hucek, Sam Marciareillo and Anthony Pinto, Defendants.
    No. 83 CR 650.
    United States District Court, N.D. Illinois, E.D.
    Aug. 24, 1984.
    See also, 581 F.Supp. 379, 384.

      John Evon/Mitchell Mars, Asst. U.S. Attys., Chicago Strike Force, Chicago, 111., for plaintiff.
    Santo Volpe, Chicago, 111., for Troiani.
    Alan Brunell, Olympia Fields, 111., for Wilson.
    Gerald Nussbaum, Chicago, 111., for DeFrank.
    Glenn Seiden, Chicago, 111., for Marciareillo.
    David Mejia, Chicago, 111., for Pinto.
    Ronald Rascia, Chicago, 111., for Hucek.
    Robert A. Novelle, Chicago, 111., for Hadala.
   MEMORANDUM ORDER

ASPEN, District Judge:

On April 12, 1984, the defendants were acquitted of felony charges of conspiracy and operation of an illegal gambling business under 18 U.S.C. §§ 371 and 1955, but were convicted of misdemeanor tax law violations related to gambling under 26 U.S.C. § 7203. Presently before the Court is the government’s motion for the costs of prosecution pursuant to 26 U.S.C. § 7203, in the amount of $13,981.12. For the reasons set forth below, the government’s motion is granted in part and denied in part.

It is clear that defendants must be taxed for some amount of costs under Section 7203. The statute states in no uncertain terms that any person convicted of willfully failing to pay taxes or file returns shall incur certain penalties “together with the costs of prosecution.” The Court may not ignore this statutory mandate. United States v. Wyman, 724 F.2d 684, 688 (8th Cir.1984); United States v. Chavez, 627 F.2d 953, 954 (9th Cir.1980), cert. denied, 450 U.S. 924, 101 S.Ct. 1376, 67 L.Ed.2d 353 (1981).

However, disposition of the government’s motion is complicated by the fact that the government prosecuted defendants not only for violations of Section 7203, but also on felony charges on which defendants were acquitted. Several courts have held that a defendant convicted on fewer than all the counts of an indictment cannot be properly taxed with the costs of the counts on which he was acquitted or otherwise discharged. E.g., United States v. DeBrouse, 652 F.2d 383 (4th Cir.1981); United States v. Miller, 223 F. 183 (S.D.Ga.1915); State v. Faulkner, 75 Wyo. 104, 292 P.2d 1045 (1956); Commonwealth v. Smith, 239 Pa.Super. 440, 361 A.2d 881 (1976). Thus, the Court is faced with the question of which costs should be attributed to the prosecution of the Section 7203 violations and which should be attributed to the felony prosecution.

Defendants argue that almost none of the costs requested by the government were needed for the Section 7203 prosecution, but rather were related solely to the felony charges. The government, on the other hand, claims that essentially the same evidence was required for both the felony and the misdemeanor counts, and that each element contained in the motion for costs was necessary to prove violations of Section 7203. We believe the reality lies somewhere between these two positions. Because it would be impossible to determine precisely how each cost item should be allocated between the felony and misdemeanor charges, we hold that the government is entitled to recover one half the amount of costs it has requested. Accordingly, defendants will be taxed for costs totalling $6,990.56. It is so ordered.

      . We note that where defendants are jointly indicted, tried and convicted, each one is jointly and severally liable to pay the entire amount of costs. United States v. Jemison, 14 F.2d 755 (S.D.Ala.1926); Kennedy v. People, 122 Ill. 649, 13 N.E. 213 (1887). Any defendant paying more than his pro rata share of costs is entitled to contribution from his co-defendants. E.g., Newman v. State, 160 Ala. 102, 49 So. 786 (1909). The Court assumes the parties in this case will attempt to ensure that each defendant pays his portion of the costs, thus making any action for contribution unnecessary.