author: NANGLE, Chief Judge.

text:
    UNITED STATES of America, Plaintiff, v. MANSION HOUSE CENTER, NORTH REDEVELOPMENT COMPANY, et al., Defendants.
    Nos. 76-20C(1); 79-616C(1) to 79-618C(1); 80-1563C(1).
    United States District Court, E.D. Missouri, E.D.
    April 4, 1985.

      Robert B. Chatz, Arvey, Hodes, Costello & Burman, Chicago, Ill., for Frank-Bkptcy, Chicago, Ill., MHC S. Redevelop. Co., MHC Redevelop. Co., and MHC N. Redevelop. Co.
    Lawrence Sanders, St. Louis, Mo., Trustee in Bankruptcy.
    A. Bruce Schimberg, Sidley & Austin, Chicago, Ill., for Rimmel re bankruptcy in N.Dist.111., E.D.
    Richard S. Bender, David V. Capes, Gene M. Zafft, Merle L. Silverstein, Rosenblum, Goldenhersh, Silverstein & Zafft, Joseph B. Moore, Asst. U.S. Atty. Gen., U.S. Dept, of Justice, St. Louis, Mo., J. Christopher Kohn, David Epstein, Civ. Div., U.S. Dept, of Justice, Washington, D.C., Donald Flint, Area Counsel, Dept, of Housing & Urban Development, Gerald A. Rimmel, Gene M. Zafft, and Merle Silverstein, Rosenblum, Goldenhersh, Silverstein & Zafft, St. Louis, Mo., for receiver Rimmel.
    Eugene Portman, Portman & Portman, St. Louis, Mo., for Tenant Towers Hotel Corp.
    James F. Gunn, Gunn & Gunn, Charles Alan Seigel, Stolar, Heitzmann, Eder, Seig-el & Harris, St. Louis, Mo., for E.J. Ehrlich, MHC Redevelopment Co., N.S. Altman, P.V. Heftier, H. Perry, MHC N. Tower Redevelopment Corp., MHC S. Tower Redevelopment Corp.
    Eugene Portman, Portman & Portman, Robert Hoemeke, Richard A. Wunderlich, John Michael Clear, Michael E. Kohn, Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., Ben Cotten, G. Lindsay Simmons, William J. Slosberg, Cotten, Day & Doyle, Washington, D.C., for Towers Hotel Corp.
   MEMORANDUM

NANGLE, Chief Judge.

This is another chapter in the continuing saga of the Mansion House litigation. On December 17, 1984, the Eighth Circuit Court of Appeals reversed this Court’s order dated September 14, 1982, which order had enjoined closing of the August 18, 1982, foreclosure settlement agreement between HUD and the Owner Partnerships. United States v. Altman, 750 F.2d 684 (8th Cir.1984). The effect of the Eighth Circuit’s decision was to direct this Court to allow consummation of both the foreclosure settlement agreement and the Receiver/Towers’ second restated settlement agreement without the conditions previously imposed by this Court’s order of March 15, 1984. The following passage from the Eighth Circuit’s opinion foreshadowed the present posture of this case:

At orai argument in this matter, we were left with the impression that the passage of time may have caused the parties to the foreclosure litigation to reassess their willingness to abide by the terms of the .settlement agreement. That settlement, it appears, was modified by proposed consent decrees offered to the district court by the owner-partnerships on December 27,1982, and October 19, 1983. If the parties do not immediately proceed to close on the foreclosure settlement agreement, the district court is directed to set the foreclosure matter for a hearing within one hundred and eighty (180) days of the issuance of this mandate and proceed promptly to judgment.

Altman, at 698.

The relevant events that occurred subsequent to the Eighth Circuit’s decision were, as follows: 1) the mandate of the Eighth Circuit was issued on January 10, 1985; 2) pursuant to an amendment, dated January 20, 1985, to the foreclosure settlement agreement between HUD and the Owner Partnerships, the “closing date” under said agreement was modified to mean the “first business day twenty (20) days after there exists no Court Order or judicial impediment enjoining the closing of said agreement”; 3) on January 28,1985, HUD sent a letter to the Owner Partnerships in which HUD notified the Owner Partnerships that it was not going to close under the foreclosure settlement agreement; 4) on the same date, the Owner Partnerships filed a “motion to compel the closing and performance of settlement agreement and request for hearing with respect thereto”; 5) on January 29,1985, HUD filed with the Court a motion for a scheduling conference with respect to pre-trial matters in the foreclosure cases; 6) on January 31, 1985, the Owner Partnerships presented HUD with various closing documents under the foreclosure settlement agreement and HUD refused to consummate said agreement; and 7) on February 14, 1985, this Court held a hearing on the Owner Partnerships’ motion to compel closing and performance of the foreclosure settlement agreement. Thus, the Owner Partnerships’ motion to compel closing and performance of the foreclosure settlement agreement is presently before this Court for decision.

In deciding not to consummate the foreclosure settlement agreement, HUD relied primarily on 1141 of the foreclosure settlement agreement, which provides, as follows:

HUD represents that it has ordered from a title company a title report on the Leasehold Interest. Notwithstanding any other provision of this Agreement, in the event that said title report discloses exceptions, impediments or other clouds on title which, in the opinion of HUD, cause said title to be unmerchantable, this agreement may, at the option of HUD exercised prior to the Closing Date, be declared by HUD to be null and void and held for naught.

The issue presently before this Court is whether HUD properly invoked 1141b in declaring the foreclosure settlement agreement null and void.

HUD exercised 1141 on January 28, 1985, after receiving a title report from Stewart Title Guaranty Company which listed “exceptions” to a prospective title insurance policy on the leasehold interests in the Mansion House Center properties. HUD’s “Memorandum in Opposition to the Owner Partnerships’ Motion to Compel” made it clear that HUD was relying on only eight (8) of these exceptions in declaring the foreclosure settlement agreement null and void. The eight (8) items consisted of: 1) the pendency of three (3) lawsuits seeking damages for torts and employment discrimination; 2) the pendency of the litigation between the Receiver and Towers Hotel Corporation; 3) the uncertainty of the protection that the Receiver will receive upon termination of the receivership; 4) the pendency of the Receiver’s application for approval of the South Tower sublease; 5) the possibility of new investors entering the picture through the South Tower sublease; 6) the possibility that the cash requirements of the settlement agreement will be inadequate at closing; 7) the uncertainty of a “Closing Date”; and 8) the pendency of Mercantile’s appeal from this Court’s Order concerning interest on the Mercantile settlement. The Owner Partnerships attempted to show, at the February 14, 1985 hearing, that none of these items is a cloud on title or an impediment to merchantable title. In the way of evidence, the Owner Partnerships produced a preliminary title binder from Missouri Title Company to demonstrate that Missouri Title would issue a title insurance policy without the eight (8) exceptions relied on by HUD. In addition, the Owner Partnerships submitted the affidavit of John E. O’Brien, an executive with Missouri Title Company, in which Mr. O’Brien expressed his opinion that the exceptions relied on by HUD do not render the title in question unmerchantable.

The Owner Partnerships’ motion to compel closing and performance of the foreclosure settlement agreement is in the nature of an action for specific performance of a settlement agreement. Luker v. Brockmiller, 622 S.W.2d 715 (Mo.App.1981). This Court has inherent power to specifically enforce a valid settlement agreement. Leon Industries, Inc. v. I.C.N. Pharmaceuticals, 472 F.Supp. 1241, 1242 (E.D.Mo.1979); DeWitt v. Lutes, 581 S.W.2d 941 (Mo.App.1979); Southwestern Bell Telephone Co. v. Roussin, 534 S.W.2d 273 (Mo.App.1976). Missouri law provides that the normal rules of contract construction apply to interpretation of settlement agreements. Press Machinery Corporation v. Smith R.P.M. Corporation, 727 F.2d 781, 784 (8th Cir.1984); Roberts v. Browning, 610 F.2d 528, 533 (8th Cir.1979). Accordingly, the intent of the parties is the touchstone in interpreting the provisions of a settlement agreement. Press Machinery Corporation, at 784; J.E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo. banc 1973).

Paragraph 41 is a “powerhouse” provision, because it rests on the “opinion of HUD” and can be invoked “at the option of HUD”. These words are unambiguous and were incorporated into an agreement that was negotiated and drafted by extremely sophisticated parties.

However, this Court agrees with the Owner Partnerships’ argument that 1141 was not intended to give HUD total and unreviewable discretion to determine whether the title in question is merchantable. Paragraph 41 is analogous to provisions found in contracts for the sale of real property which provide that the title must be satisfactory to the purchaser or in other contracts which provide that performance is to be to the satisfaction of the promisor. Cummins v. Dixon, 265 S.W.2d 386 (Mo.1954); Long v. Huffman, 557 S.W.2d 911 (Mo.App.1977). A party relying on such provisions may not act arbitrarily, capriciously or in bad faith. Cummins, 265 S.W.2d at 393. Similarly, it is the opinion of this Court that HUD could not exercise its option under ¶ 41, unless it believed in good faith that the title in question was unmerchantable. This is what the parties intended. Under this standard, the proper focus is on whether HUD’s decision that the title in question was unmerchantable was made in good faith. Moreover, this inquiry must be made as of the time HUD decided to exercise U 41. HUD’s action must not be judged by hindsight.

This Court rejects the Owner Partnerships’ argument that the standard of review should be whether the title in question is in fact and law merchantable. Such an interpretation of II41 is not supported by its terms. Paragraph 41 does not provide that HUD may declare the agreement null and void only if it correctly decides that the title in question is unmerchantable. The analogy to a contract for the sale of real estate is limited. Paragraph 41 is part of an agreement to settle real estate foreclosure litigation. In its broadest terms, the agreement allows HUD to attempt to sell the leasehold interests during a certain period for a certain price. If said effort fails, a workout agreement will take effect. Paragraph 41 gives HUD the option to act on its own opinion as to the merchantability of the title in question, because HUD is the party that will have to try to sell the property. HUD bargained for and obtained the right to act on its own opinion, not that of Mr. O’Brien or Missouri Title Company. Moreover, ¶ 41, by its terms, allowed HUD to form its opinion on the basis of a title “report”, not a final title insurance policy. Under these circumstances, the only limit on HUD’s discretion to rely on H 41 was that HUD could not act in bad faith.

This Court finds that HUD’s decision was made in good faith and, therefore, the Owner Partnerships’ motion to compel closing of the settlement must be denied. In Missouri, “good title”, “marketable title” and “merchantable title” are synonymous phrases. Nixon v. Franklin, 289 S.W.2d 82 (Mo.1956). A “merchantable title” is that title which would not only enable the record owner to hold his land but to hold it in peace and, if he wished to sell the land, to be reasonably sure that no flaw or doubt would arise to disturb its market value. Id.; Thomas J. Johnson & Co. v. Mueller, 205 S.W.2d 521 (Mo.1947); Patzman v. Howey, 340 Mo. 11, 100 S.W.2d 851 (1936). This Court need not examine every one of the exceptions relied on by HUD, because this Court is convinced that at least three (3) of them establish that HUD acted in good faith in exercising its ¶ 41 option.

First, even though there is insurance coverage in the three (3) pending damage suits and even though no lis pendens have been filed and no judgment has been rendered, HUD’s reliance on the pendency of said suits was not arbitrary or lacking in good faith. The pendency of said suits certainly has an adverse effect on the market value of the property. Moreover, there is the possibility that a judgment could be entered during the nine (9) month period in which HUD attempts to sell the property and thereby become a lien that could discourage prospective buyers or reduce the property’s market value. This Court is not persuaded that the Owner Partnerships’ authorities support the proposition that a pending damage action does not render title to real estate unmerchantable. See, e.g., Hagemann v. Pinska, 37 S.W.2d 463 (Mo.App.1931).

The second item that justified HUD’s decision was the pendency of the litigation between the Receiver and Towers Hotel Corporation. A cursory review of the pleadings in that case indicate that more than damage relief is sought — it seeks declaratory and injunctive relief with respect to the rental of meeting rooms, the rental of parking spaces, and employee parking. Such claims directly affect the property and, therefore, its market value. Moreover, the settlement of said litigation has not been closed. Said settlement calls for, inter alia, certain capital improvements to be made to the South Tower. The uncertainty of the outcome of both the settlement and the suit adversely affect the marketability of the property. Thus, HUD’s action was not taken in bad faith.

Similarly, the pendency of the Receiver’s application for approval of the South Tower sublease adversely affects the market value of the property. It is another uncertainty that might discourage a reasonable buyer.

In sum, HUD’s decision that the title in question was unmerchantable was made in good faith and HUD was entitled to declare the foreclosure settlement agreement null and void. In reaching this conclusion, this Court relies heavily on the fact that HUD was not merely seeking to hold the property itself, but was seeking a title that it could attempt to sell during the nine (9) month period called for by the foreclosure settlement agreement. Accordingly, the Owner Partnerships’ motion to compel closing of the foreclosure settlement agreement is denied. A scheduling conference shall be set to discuss proceeding with the foreclosure cases.


source: Caselaw Access Project

author: TOM S. LEE, District Judge.

license: Public Domain

text:
    Mrs. Cherry BERRY, General Guardian for the Use and Benefit of Sandy BERRY, Christy Berry, and Amanda Berry, Minors, and Mrs. Cherry Berry, Individually and for the Use and Benefit of All Entitled, Plaintiffs, v. The AETNA CASUALTY AND SURETY COMPANY and Royal Globe Insurance Company, Defendants. Cherry BERRY, et al., Plaintiff, v. AETNA CASUALTY & SURETY COMPANY and Royal Globe Insurance Company, Defendants. (Two Cases)
    Civ. A. Nos. J81-0553(L) to J81-0555(L).
    United States District Court, S.D. Mississippi, Jackson Division.
    April 4, 1985.
    Maryellen Duprel, Roland C. Lewis, Jackson, Miss., Jim Kitchens, Lamar Pickard, Kitchens & Pickard, Hazelhurst, Miss., for plaintiffs.
    Cary E. Bufkin, Shell, Buford, Bufkin, Callicut & Perry, Jackson, Miss., for defendants.
   MEMORANDUM OPINION

TOM S. LEE, District Judge.

On November 14, 1981, H.H. (Jack) Berry sustained fatal injuries in an accident allegedly caused by the negligence of an uninsured motorist. Berry, president and stockholder of Berry-Pontiac-GMC, Inc. (Berry-Pontiac), was a passenger in an automobile driven by his wife and owned by GMAC, Pontiac Motor Division (GMAC). Mrs. Berry, individually and as guardian of her minor children, brought this action against Royal Globe Insurance Company (Royal Globe) and Aetna Casualty and Surety Company (Aetna). Royal Globe had issued an insurance policy providing uninsured motorist coverage for certain automobiles owned by GMAC, the named insured. On previous motion for summary judgment, this court determined that the Mississippi Uninsured Motorist Act, Miss. Code Ann. 83-ll-103(b) (Supp.1984), provides for two classes of insureds, the first class including

“The named insured and, while residents of the same household, the spouse of any such named insured and relatives of either, while in a motor vehicle and otherwise”

and the second class consisting of:

“any person who uses, with the consent, express or implied, of the named insured, the motor vehicle to which the policy applies, and a guest in such motor vehicle to which the policy applies, or the personal representative of any of the above.”

The court concluded that aggregation of coverage was only available to first class insurers, which class under the Royal Globe policy only included GMAC, a corporate entity. Jack Berry, being a second class insured, was not entitled to stack coverage.

The issue before the court now concerns the extent of coverage, if any, provided to Jack Berry by the Aetna policy while he was a passenger in an automobile not owned by Berry-Pontiac. The declaration page of the Aetna policy reflects that the named insured is Berry-Pontiac-GMC, Inc., a corporation. Uninsured motorist coverage, in the amount of $25,000 per accident, is provided, according to the covered automobile designation symbol, for owned automobiles only. Item three of the policy elaborates:

OWNED AUTOS ONLY. Only those autos you own (and for Liability Coverage any trailers you don’t own while attached to power units you own). This includes autos you acquire ownership of after the policy begins.

Jack Berry is not a first class insured under the provisions of the declaration page since the named insured is a corporation, Berry-Pontiac-GMC, Inc. Neither is he a second class insured because he was not riding in a “motor vehicle to which the policy applies.” See Miss.Code Ann. § 83-ll-103(b) (Supp.1984).

Attached to the policy is an endorsement providing “drive other car coverage— broadened coverage for named individuals.” The endorsement changes the uninsured motorist coverage by adding to “who is insured”:

Any individual named in this endorsement [Mr. Berry] and, while a resident in the same 'household, his or her spouse and the family members of either are insureds while occupying or while a pedestrian while being struck by an auto you [Berry-Pontiac-GMC, Inc.] don’t own except:
Any auto owned by that individual, his or her spouse, or by any family member of either.

It is the opinion of this court that the uninsured motorist coverage provided by this endorsement is the only uninsured motorist coverage available to Berry under the Aetna policy for injuries sustained while occupying a vehicle not owned by Berry-Pontiac. The “endorsement changes only those coverages listed below for which a charge is shown below” and no charge is shown for uninsured motorist coverage. Berry did not reject uninsured motorist coverage in writing and, therefore, is entitled to statutory coverage only. See Miss. Code Ann. § 83-11-101 (Supp.1984). Additionally the extent of uninsured motorist coverage is ambiguous since paragraph B entitled “Changes in Auto Medical Payments and Uninsured Motorist Insurance” is not expressly conditioned on the payment of uninsured motorist coverage premiums. This ambiguity in the policy language must be construed in favor of the insured and, for this reason also, Berry is entitled to statutory coverage. See GEICO v. Brown, 446 So.2d 1002 (Miss.1984).

In Allstate Insurance Company v. Randall, 753 F.2d 441 (Fifth Circuit 1985), Allstate brought a declaratory judgment action to determine-its duty to pay uninsured motorist coverage benefits to the daughter of an insured who was injured in an accident with an uninsured motorist when the policy excluded coverage to certain relatives of the insured. The insurance policy covered three vehicles for which separate premiums were paid. The parties agreed, pursuant to the holding of the Mississippi Supreme Court in State Farm Mutual Automobile Insurance Co. v. Nester, 459 So.2d 787, 793 (Miss.1984), “that uninsured motorist coverage is available ... because of the public policy dictates of the Safety Responsibility Act which override any contrary insurance policy language.” Randall, at 443-444. The Fifth Circuit allowed stacking of coverage, citing GEICO v. Brown, 446 So.2d 1002 (Miss.1984): “[a]ny language attempting to limit an insurer’s liability must fail when it deprives the insured of benefits for which a premium was paid.” Id. at 1006. In this case, no premiums for uninsured motorist coverage applying to Berry while occupying an automobile not owned by Berry-Pontiae were paid. Accordingly, Randall is distinguishable on its facts.

It is, therefore, the opinion of this court that uninsured motorist coverage is available under the Aetna endorsement for Berry only in the minimum statutory amount and that stacking is not allowed. A judgment shall be submitted conforming to this memorandum opinion in accordance with the local rules.


author: MOTLEY, Chief Judge.

text:
    Edwin Gregg TILLERY, Plaintiff, v. Jerry H. LYNN, D.D.S., Defendant.
    No. 83 Civ. 2624 (CBM).
    United States District Court, S.D. New York.
    April 4, 1985.

      Edwin J. Zinman, San Francisco, Cal., Goldsmith & Tabak, New York City, for plaintiff.
    Siff & Newman, P.C. by David M. Pollack, New York City, for defendant.
   MEMORANDUM OPINION AND ORDER

MOTLEY, Chief Judge.

Plaintiff Edwin Gregg Tillery has commenced this dental malpractice action pursuant to 28 U.S.C. section 1332, alleging causes of action for negligence, fraudulent misrepresentation and breach of warranty. Plaintiff, as part of his relief for the fraud claims, is seeking punitive damages.

Defendant Dr. Lynn has moved for partial summary judgment dismissing all causes of action grounded in fraud and all claims for punitive damages. In the alternative, defendant moves to stay discovery of his personal assets until such time as the jury determines whether or not plaintiff is entitled to punitive damages. He also seeks to bifurcate the trial, if the jury finds that plaintiff is entitled to punitive damages, as to the amount of such damages which should be awarded. For the following reasons, defendant’s motions for partial for partial summary judgment and to stay discovery are denied. Defendant’s motion for a bifurcated trial is granted.

FACTS

Plaintiff, a resident of North Carolina, sought to have esthetic dental work done and consulted three dentists in North Carolina and Georgia concerning the possibility of having his upper front teeth crowned. Plaintiff was advised by each of these dentists not to have his teeth crowned as there was no dental need for crowning. Plaintiff, in July, 1982, then consulted defendant after reading an article about him in a national magazine. This article also described the difference between crowning and bonding, another dental procedure plaintiff was considering. In addition, plaintiff read a book concerning bonding prior to his consultation with Dr. Lynn.

Plaintiff asserts that the defendant dentist convinced him to have his entire mouth crowned for “the most esthetic result.” Defendant, however-, maintains that he had tried to discourage plaintiff from the crown work and advised him that his teeth did not need to be crowned. Plaintiff also contends that defendant represented to him that the crowns would last at least twenty years but probably a lifetime. Dr. Lynn also stated, according to plaintiff, that he was the most qualified dentist to perform the dental work and that the prior information plaintiff had received from the other three dentists was not applicable to the type of crown which he utilized. Plaintiff then executed a letter on Dr. Lynn’s letterhead which provided:

I, Gregg Tillery, was advised by Dr. Jerry Lynn against having my whole mouth capped. Since this is a very bad psychological problem with me & I insist on having this work done, I feel that Dr. Lynn is the most qualified dentist to do this work.
/s/ Gregg Tillery 7-12-82.

Plaintiff further claims that after the completion of the crowning of his upper teeth, he was unhappy with their esthetic appearance and told defendant that he no longer wished to have his lower teeth crowned. According to the plaintiff, Dr. Lynn represented to him that the bottom posterior teeth needed to be crowned to insure that the occlusion or bite of the lower teeth would correspond correctly to that of the upper crowns. Additionally plaintiff asserts that within hours after his treatment was completed, the porcelain began to chip off the surface of his crowns. He subsequently learned that all the crowns would require replacement because they allegedly did not fit or function properly. He also claims periodontial treatment now is required to treat inflammation of his gums caused by the ill-fitting caps.

DISCUSSION

When seeking summary judgment, the moving party has the burden of establishing that no genuine issue of material fact remains and that it is entitled to judgment as a matter of law. Fed.R.Civ.Pro., Rule 56; Robertson v. Seidman & Seidman, 609 F.2d 583, 591 (2d Cir.1979). Defendant has failed to meet this burden.

Defendant moves for partial summary judgment dismissing the causes of action grounded in fraud, contending that plaintiff, by his own admission at his deposition, had thoroughly investigated the possibility of crown work and bonding and was fully aware of the ramifications even before consulting with defendant about the dental work he wished to have perform. Dr. Lynn maintains that plaintiff had been advised by three dentists and by him not to have the crowns placed. He notes that plaintiff returned home to North Carolina in between the first consultation with him and the beginning of the dental work, but never sought advice from the other three dentists consulted initially. In addition, defendant points out that the plaintiff is a high school graduate with one year of college education. Accordingly, defendant argues, plaintiff did not rely on any alleged representations made by the defendant.

Defendant also argues that its summary judgment motion should be granted since the plaintiff failed to submit the Rule 3(g) statement required under the Federal Rules of Civil Procedure. Even were the material facts set forth in the defendant’s Rule 3(g) statement deemed not subject to any genuine dispute, however, the plaintiff’s allegations of fraud and claims for punitive damages cannot be dismissed since other facts exist as to which there is a genuine dispute.

For instance, plaintiff urges that it was only upon the representations of Dr. Lynn that he continued to have his bottom teeth capped after he expressed dissatisfaction with the upper crown work. Moreover, plaintiff alleges that defendant fraudulently concealed from him facts which the dentist had a fiduciary duty to disclose concerning the negligent and deficient nature of the crowns placed by him. These are fact issues as to which a genuine dispute exists.

Additionally, it also cannot be said, after carefully reviewing the papers submitted by the parties in connection with this motion and the deposition of plaintiff, that plaintiff had not relied upon the alleged representations made by Dr. Lynn during his initial consultation in New York. Defendant’s contention that plaintiff, a layman, had not relied on Dr. Lynn, but rather on an article in a weekly magazine and a book about bonding, is a finding that cannot be made solely from the affidavits submitted in connection with this motion. Furthermore, whether plaintiff understood the full meaning of the consent form he signed on July 12,1982, also is in issue. These are determinations that are to be made by the trier of fact in this action.

Defendant also argues that as a matter of New York law punitive damages for defendant’s alleged fraud may not be awarded. Under New York law, the standard to award exemplary damages in a fraud action is stringent. Although punitive damages now may be awarded in New York in the absence of a showing of a fraud on the public, the fraud directed against private parties requires “gross, wanton, or willful fraud or other morally cupable conduct to a degree sufficient to justify [such] an award.” Borkowski v. Borkowski, 89 N.Y.2d 982, 983, 387 N.Y.S.2d 233, 355 N.E.2d 287 (1976). Accord, Idrees v. American University of the Caribbean, 546 F.Supp. 1342, 1350-51 (S.D.N.Y.1982); Walker v. Sheldon, 10 N.Y.2d 401, 405, 223 N.Y.S.2d 488, 491, 179 N.E.2d 497, 500 (1961); Farm Stores, Inc. v. School Feeding Corp., 102 A.D.2d 249, 256, 477 N.Y.S.2d 374, 379 (2d Dep’t 1984); Chase Manhattan Bank, N.A. v. Perla, 65 A.D.2d 207, 211-12, 411 N.Y.S.2d 66, 69 (4th Dep’t 1978).

In Greenspan v. Commercial Insurance Company of Newark, New Jersey, 57 A.D.2d 387, 395 N.Y.S.2d 519 (3rd Dep’t 1977), a seriously ill patient defrauded of his insurance benefits also was found to be entitled to an award of punitive damages. The plaintiff was required to undergo hospitalization and further testing by the defendant insurance company even though the defendant was aware that the plaintiff was disabled and entitled to benefits. Additionally, even after one of the insurance company’s own doctors found the plaintiff to be disabled, the company still denied him benefits. The court noted that punitive damages under New York law now may be allowed if the allegations of the complaint set forth conduct which is “ ‘gross, wanton, or willful fraud.’ ” Id. at 389, 395 N.Y.S.2d at 521, quoting Borkowski v. Borkowski, supra, 39 N.Y.2d at 983, 387 N.Y.S.2d at 233, 355 N.E.2d at 287. See also Chase Manhattan Bank, N.A. v. Perla, supra (although generally punitive damages are not available where defendant is found to have fraudulently removed property from reach of judgment creditor, such damages available where defendant, a lawyer, abused his professional status by repeated fraudulent misrepresentations).

In this action, defendant dentist is alleged to have abused his professional status by making repeated misrepresentations to plaintiff, a layman, concerning the appropriateness of having crowns placed on all of his teeth. For instance, when plaintiff sought to stop the dental work, defendant allegedly advised him, with full knowledge that such representation was false, that the remaining teeth needed to be crowned for dental purposes. Defendant is also alleged to have misrepresented his own qualifications to plaintiff and to have knowingly used inappropriate crowns on plaintiff’s teeth. Whether or not such alleged conduct was gross and involved high moral culpability so as to justify the award of punitive damages is a question best resolved at trial. Therefore, plaintiff is entitled to present its proof at the trial as to whether or not defendant has engaged in the sort of morally culpable conduct that would warrant an award of punitive damages and defendant’s motion for summary judgment is denied.

Defendant also has requested that if his motion for summary judgment is denied, discovery concerning his personal assets should not be allowed until such time as a jury verdict as to liability is rendered in the plaintiff’s favor. In that regard, he also seeks a bifurcated trial as to the amount of punitive damages, if any, which should be awarded.

Discovery as to defendant’s personal assets may be undertaken by plaintiff at this time. It would be unduly burdensome to plaintiff, and most particularly a jury and the court, to delay resolution of the issue as to the amount of punitive damages, if any, which should be awarded until discovery as to defendant’s personal assets had been completed. However, as the New York courts have recognized, “defendant’s wealth should not be a weapon to be used by plaintiff to enable him to induce the jury to find the defendant guilty of malice, thus entitling plaintiff to punitive damages.” Rupert v. Sellers, 48 A.D.2d 265, 272, 368 N.Y.S.2d 904, 912 (4th Dep’t 1975). Accord, Chilvers v. New York Magazine Company, Inc., 114 Misc.2d 996, 453 N.Y.S.2d 153 (N.Y.Co.Sup.Ct.1982). Accordingly, in the interest of justice and to avoid any undue prejudice during the liability phase of this action, the trial will be bifurcated. No evidence as to defendant’s financial status may be presented to the jury during the first phase of the trial by either of the parties to this action. The jury first will render a verdict on the merits and on whether or not punitive damages are warranted in this instance. If punitive damages are found to be warranted, evidence as to defendant’s financial status may then, and only then, be presented immediately to the same jury for its consideration as to the amount of punitive damages to be awarded.

Therefore, defendant’s motions for partial summary judgment and to stay discovery as to his financial status are denied. Defendant’s motion for a bifurcated trial is granted.

The next pretrial conference in this matter is scheduled for April 26, 1985, at 11 A.M.

SO ORDERED.


author: STANLEY S. HARRIS, District Judge.

text:
    Edgar M. SKINNER, III, and Esther Skinner, Plaintiffs, v. AETNA LIFE INSURANCE COMPANY, Defendant.
    Civ. A. No. 83-679.
    United States District Court, District of Columbia.
    April 4, 1985.
    Jerome P. Friedlander, II, Arlington, Va., for plaintiffs.

      Thomas M. Hogan, Washington, D.C., for defendant.
   MEMORANDUM OPINION AND ORDER

STANLEY S. HARRIS, District Judge.

The plaintiffs, Edgar and Esther Skinner, brought this action to recover for the denial of coverage and cancellation of a group life and health insurance plan issued by thé defendant, Aetna Life Insurance Co. Now before this Court is defendant’s motion for summary judgment. Upon consideration of the motion, the opposition thereto, the reply, supplemental memoranda, and the entire record herein, the Court concludes that the defendant’s motion should be granted.

I

On July 30, 1981, Mr. Skinner applied for enrollment in the group life and health insurance plan in effect with The Presidential Yacht Trust, of which he was the president. In filling out the application, Mr. Skinner answered “no” to the following question: “During the past 5 years, have you been treated for any sickness, disease or injury, or had any departures from good health not stated elsewhere on this application?” The policy was issued with an effective date of August 1, 1981, and was to cover Mr. Skinner and his wife. On August 20, 1981, Mr. Skinner began a series of tests which resulted in his hospitalization. In January 1982, it was determined that he was in need of an operation for heart disease. When an acknowledgement of health insurance coverage was sought, the defendant asserted that the insurance policy was void or voidable for material misrepresentations of fact.

II

Section 35-414 of the District of Columbia Code provides:

The falsity of a statement in the application for any policy of insurance shall not bar the right to recovery thereunder unless such false statement was made with intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the company.

The negative answer to the above-quoted question undeniably was false in light of Mr. Skinner’s extensive medical history during the five years previous to his enrollment in the plan. His medical records reflect that earlier during the very month in which he applied for insurance, he had been treated four times for chest and abdominal pains, pains in his left lung and shoulder, and breathing difficulties. The previous year, he had been treated several times for chest pains which he described as feeling like a hot iron on his chest. Diagnostic procedures included chest X-rays, a tomogram of the left lung, stress EKGs, and a lung scan. Tentative diagnoses included angina, reflux esophagitis, pulmonary embolism, fluid in his lungs, and pleurisy. In addition, he had been suffering from alcohol-related problems since 1976, and was hospitalized for alcohol detoxification on August 19, 1981, less than a month after the date of application. Finally, the records indicate that he was obese and had smoked two packs of cigarettes a day for 25 years.

These problems were well within a reasonable man’s interpretation of the application’s question seeking information as to treatment “for any sickness, disease, or ... departures from good health.” Mr. Skinner asserts that he considered his medical difficulties to be minor matters, and that he had been told by an agent not to mention minor matters, but that may not control. “It is not for the applicant to decide whether the matter concerning which he has consulted a physician was serious or trivial. The insurance company is entitled to determine that question for itself.” Kavakos v. Equitable Life Assurance Society, 88 F.2d 762, 763 (D.C.Cir.1986).

Ill

The determination that the answer was false leads to the next issue, that is, whether there was an intent to deceive or whether the false answer had a material effect on the acceptance of the risk or the hazard assumed. The Court need not reach the issue of intent to deceive, because the matter is resolved on its conclusion that Mr. Skinner’s false statement was related to a material matter. This is sufficient to defeat a claim under the policy even if the misrepresentation was unintentional. Hill v. Prudential Life Insurance Co. of America, 315 A.2d 146, 148 (D.C.1974).

“The test of materiality is whether the representation would reasonably influence the insurer’s decision as to whether it should insure the applicant.” Jannenga v. Nationwide Life Insurance Co., 288 F.2d 169, 172 (D.C.Cir.1961). The record in this case supports the conclusion that under the facts presented, the defendant would not have issued the policy had the question been answered truthfully. Therefore, the misrepresentation was material. Blair v. Inter-Ocean Insurance Co., 589 F.2d 730, 732 (D.C.Cir.1978). Uncontradicted deposition testimony establishes that the policy would not have been issued had the defendant known of Mr. Skinner’s unresolved and ongoing chest pain of a pleuristic nature associated with shortness of breath and left hilar prominence during the month of application. Furthermore, the defendant’s Underwriting Manual explicitly precludes coverage when the applicant has a history of current or recent alcohol abuse or has had past treatment for alcohol abuse when the period of total abstinence has been less than five years.

IV

In conclusion, the Court finds that the negative answer given by Mr. Skinner in his application for insurance was false. That response was related to a material matter which affected the risk undertaken by the insurer. Therefore, the defendant is entitled to judgment as a matter of law. Accordingly, it hereby is

ORDERED, that defendant’s motion for summary judgment is granted and the case is dismissed.

SO ORDERED.

      . The application contained a clause in large type directly above the signature line stating: "I AGREE THAT: (1) NO ONE BUT AN OFFICER OF AETNA HAS AUTHORITY TO ACCEPT INFORMATION NOT CONTAINED HEREIN, TO MODIFY OR ENLARGE ANY CONTRACT OR TO WAIVE ANY REQUIREMENT.” An insurance company may limit the authority of its soliciting agent and, so limited, an agent cannot bind his company beyond his authority. Kaitlin v. Metropolitan Life Insurance Co., 65 A.2d 188, 190 (D.C.1949).


author: WEBER, District Judge.

text:
    Oren S. GRIFFIN, Plaintiff, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant.
    Civ. A. No. 84-155 ERIE.
    United States District Court, W.D. Pennsylvania.
    April 9, 1985.

      Judith E. Wilson, Northwestern Legal Services, Erie, Pa., for plaintiff.
    J. Alan Johnson, U.S. Atty., Pittsburgh, Pa., and Erie, Pa., for defendant.
   OPINION

WEBER, District Judge.

This case is before the court on cross-motions for summary judgment filed by the parties as part of our review of the Secretary’s final decision denying plaintiffs application for disability insurance and supplemental security income.

Mr. Griffin was born on January 14, 1923 and would have been 58 years old at the alleged onset of his disability in 1981. He has a seventh grade education. He worked as a metal polisher for Erie Plating until 1980 when he underwent a back operation having part of a disc removed. He was on sick leave for approximately one year when he was called back to work. Mr. Griffin continued to work until July 24, 1981 when he was let go because he could not keep up the pace. At that time he was experiencing back pain and fatigue.

Mr. Griffin was diagnosed as suffering from squamous cell carcinoma of the larynx in September 1982. Following two rhonths of chemotherapy, the plaintiff underwent a total larnygectomy on October 18, 1982, and a few months later he began using an electrolarynx machine to speak. Mr. Griffin has difficulty breathing cold air, difficulty swallowing and eating. He has trouble getting people to listen to him because of the laryngectomy and the voice machine which he must use. Further, the voice machine requires the use of one arm thereby limiting his bilateral activity and it was found to be worthless in phone conversations. He has no sense of smell or taste and no saliva in his mouth. He cannot tolerate dust. His wife frequently interprets his speech around others and generally accompanies him when he goes out, although at the time of the hearing he was able to operate an automobile alone and did so infrequently. Mr. Griffin tires easily and gets dizzy if he stands for very long. He can walk only three or four blocks. He requires a humidifier on his furnace at home as well as a portable humidifier in the room with him to prevent him from coughing and choking. In June, 1983, Mr. Griffin was treated for dysphagia and a bougie dilation of the esophagus was performed. The dysphagia has persisted and no further therapy is available. Mr. Griffin also suffers from diabetes which is diet controlled.

Dr. Kirk Steehler, Mr. Griffin’s treating physician, states that Mr. Griffin is a candidate for disability and that his condition restricts his employability. Loret Egelston of the Office of Vocational Rehabilitation, states that Mr. Griffin is unemployable.

Mr. Griffin filed applications for disability insurance and Supplemental Security Income benefits on April 26, 1983. These applications were denied initially and on reconsideration by the Office of Disability Operations. The case was considered de novo by an Administrative Law Judge (ALJ). In a decision dated January 30, 1984 the ALJ decided that the plaintiffs impairment was not severe and benefits were denied. The Appeals Council denied plaintiff’s request for review making the Secretary’s decision final on March 30, 1984.

The issue now before this court on appeal is whether or not the Secretary’s decision is supported by substantial evidence. We find that it is not.

The Secretary’s regulations at 20 C.F.R. § 416.920 provide for the sequential evaluation of a claim for disability. The Administrative Law Judge (AU) must first determine if the claimant is working. Since Mr. Griffin is not working, the next step is to determine whether the impairment is “severe”. A severe impairment under the regulations is described as one which limits physical or mental ability to “do basic work activity.” 20 C.F.R. § 416.920(c). “Basic work activity” is defined as the ability and aptitude necessary to do most jobs, including physical functions such as walking, standing, sitting, lifting, pushing, pulling, reaching, carrying and handling as well as capacities to see, hear and speak. 20 C.F.R. § 416.921(a).

In determining that Mr. Griffin did not have a severe impairment, the AU appears to have ignored medical evidence of record and to have concentrated on the success of Mr. Griffin’s surgery in controlling the cancer and on the fact that there is no evidence of a recurrence of metastasis. The AU indicates that he had no difficulty in understanding the responses made by the claimant, and that the claimant has no ex-ertional restrictions on his ability to stand, walk, lift or carry. (Tr. p. 12). However, the transcript of Mr. Griffin’s testimony shows that his speech was generally unintelligible to the court reporter. The testimony of Mrs. Griffin and Mr. Griffin’s doctor further establishes that Mr. Griffin has considerable difficulty communicating. The evidence also indicates that Mr; Griffin tires easily, gets dizzy if he stands for any length of time, and that he requires a dust-free, moist environment to avoid coughing spells. Mr. Griffin’s back problems have limited his physical functioning and stamina. Mr. Griffin cannot use both hands and talk at the same time since the electrolar-ynx requires the use of one arm. We have no doubt that the evidence establishes that Mr. Griffin’s ability to do basic work activity as it is defined in 20 C.F.R. § 416.921(a) is limited by his physical impairments. This constitutes a severe- impairment. 20 C.F.R. § 416.920(c). The Secretary’s decision that Mr. Griffin’s impairment is not severe is not supported by substantial evidence.

Once the claimant has established that he has a severe impairment, he must either establish that his impairment is listed in Appendix 1 in which case a determination of diability is mandated, or that his severe impairment prevents him from doing his past relevant work. 20 C.F.R. 404.-1520(e). Mr. Griffin’s impairment is not listed in Appendix 1.- However, the AU found that Mr. Griffin should avoid the range of jobs involving constant exposure to dust or fumes. Since Mr. Griffin’s past relevant work was as a metal polisher in which job he was exposed to considerable dust and fumes, this finding by the AU is equivalent to a finding that Mr. Griffin’s severe impairment prevents him from doing his past relevant work.

The next, step in the decision making process requires a showing by the Secretary that the claimant can do less demanding substantial gainful work, given his age, education, and work experience. Heckler v. Campbell, 461 U.S. 458, 103 S.Ct. 1952, 76 L.Ed.2d 66 (1983). In this step, the burden of going forward with the evidence shifts to the Secretary. Thompson v. Schweiker, 665 F.2d 936, 939 (9th Cir.1982). The Secretary can meet this burden by direct testimony of a vocational expert or by use of the medical-vocational guidelines. See 20 C.F.R. Part 404, sub-part P, App. 2. If there are jobs which the claimant can perform then there is no disability. The evidence of record indicates that Loret Egelston, a Rehabilitation Counselor of the Office of Vocational Rehabilitation, evaluated Mr. Griffin’s employment potential. After considering his age, limited education, disability, and lack of transferrable job skills, Ms. Egelston found him unemployable. The Secretary provided no testimony from a vocational expert or otherwise which refutes this evidence.

As for the medical-vocational guidelines, the evidence indicates that Mr. Griffin was 58 years old at the time of the onset of disability and therefore is of advanced age, 20 C.F.R. § '404.1563(d); and that he had limited education, 20 C.F.R. § 404.1564(b)(3). Due to the moist, dust-free environment which Mr. Griffin requires, his inability to communicate and use both hands at the same time, and the fact that he tires easily and becomes dizzy while standing, it appears that whatever skills or semi-skills he acquired as a metal polisher would be nontransferable. Part 404, Subpart P, Appendix 2, § 201.00(f) and (g). These three traits of advanced age, limited education and nontransferable skills normally warrant a finding of disability under the medical-vocational guidelines. Id. The evidence establishes that Mr. Griffin met this criteria as of September, 1982 when he was diagnosed as having squamous cell carcinoma of the larynx. There is insufficient evidence prior to that date to carry plaintiffs burden to establish that Mr. Griffin’s skills were not transferable, and we cannot say that such a decision by the Secretary would have been unsupported by the evidence.

Therefore, the plaintiff’s motion for summary judgment will be granted to the extent that plaintiff is awarded benefits as of September, 1982. The Secretary’s motion for summary judgment will be denied. An appropriate order will issue. ■


author: SHADUR, District Judge.

text:
    UNITED STATES of America ex rel. Kurt BARTALL, Petitioner, v. Michael P. LANE, Respondent.
    No. 84 C 4497.
    United States District Court, N.D. Illinois, E.D.
    April 9, 1985.

      John T. Theis, Chicago, Ill., for petitioner.
    Neil F. Hartigan, Atty. Gen., State of Illinois, James Fitzgerald, Asst. Atty. Gen., Chicago, Ill., for respondent.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Kurt Bartall (“Bartall”) sues under 28 U.S.C. § 2254 (“Section 2254”) for habeas corpus relief from his Illinois state court conviction for murder and the resulting 20-year sentence. For the reasons stated in this memorandum opinion and order, Bartall’s petition is denied.

Background

At 2:30 a.m. December 30, 1979 Bartall fired two shots from his automobile while he was driving along Milwaukee Avenue in Chicago. Bartall’s second shot killed Betty Quinn (“Quinn”), who was standing in a nearby parking lot. At trial Bartall conceded he had fired the fatal shot (though he had initially given a sharply different account). Thus essentially confronted with a choice between murder and involuntary manslaughter, the jury found Bartall guilty of murder and armed violence.

Bartall obtained a 2-1 reversal of his conviction from the Illinois Appellate Court, 105 Ill.App.3d 867, 61 Ill.Dec. 663, 435 N.E.2d 152 (1st Dist.1982). On further appeal the Illinois Supreme Court unanimously reversed the Appellate Court and affirmed the conviction, 98 Ill.2d 294, 298, 74 Ill.Dec. 557, 456 N.E.2d 59 (1983).

Evidence at Trial

Because the two reported opinions on Bartall’s appeals afford a thorough statement of the evidence, a summary will suffice here. Other critical facts will be dealt with at appropriate places in this opinion.

On the evening of December 29, 1979 Quinn had visited a tavern on Milwaukee Avenue with her friend Eileen Kampwirth (“Kampwirth”). Quinn had parked her car in a lighted grocery-store parking lot about a half block from the bar.

At about 2:30 a.m. Quinn, Kampwirth, Bill Will (“Will”) and another friend of Kampwirth left the bar and went to put some gasoline in the empty tank of Quinn’s car, which was parked about 12 feet from the Milwaukee Avenue curb. Will and Kampwirth testified there were no other cars or people in the lot or along the Milwaukee Avenue curb. There is no wall, fence or other obstruction between the parking lot and Milwaukee Avenue.

While the four were gathered next to Quinn’s car, Will heard two loud bangs no more than 45 seconds apart. After the second bang he looked out and saw an automobile traveling down Milwaukee Avenue, away from the lot, at a normal rate of speed. Will then looked down and saw Quinn lying on the ground, bleeding profusely from her face. Kampwirth, a nurse, tried to revive Quinn, but Quinn was pronounced dead at a nearby hospital.

Over Bartall’s objection the trial court admitted testimony of a later shooting incident as evidence bearing on Bartall’s intent in the Quinn homicide. Kathy Preze (“Preze”) testified that some 20 hours after the Quinn shooting she was driving down Milwaukee Avenue, not far from the site of the shooting, when a car suddenly pulled in front of her and slammed on its brakes. She swerved around it, heard a loud bang and continued on. Then the car pulled up even with her again. Its driver, whom she later identified as Bartall, made an obscene gesture and pointed a gun at her. When she saw the gun she swerved into oncoming traffic and heard another bang. Bar-tall’s car sped away with its lights out.

Preze drove immediately to a police station to report the incident. Bartall was arrested a few hours later, and a gun and shoulder holster in his possession were seized. Initial examination of Preze’s car disclosed a bullet hole just above the left rear tire, and about two months later Preze discovered a bullet lodged in a box in the car’s trunk. Ballistics testing confirmed the bullet had been fired from. Bartall’s gun.

When Bartall was first questioned by Detective Frank Capitelli the night of his arrest, he claimed (1) he had been in Wisconsin the previous night (when Quinn was shot) and (2) he had bought his gun in Wisconsin the morning after the shooting. Later he changed his story, admitting:

1. He had gone to Wisconsin only after, not before, the shooting.
2. He had driven down Milwaukee Avenue the morning of December 30 with his girlfriend Cindy Kerstein (“Ker-stein”) and fired two shots out of his open window.

That last admission was significantly tempered by two claims: one, that he had looked around and had not seen anyone on the street or in the parking lot before he fired; and the other, that he had fired his gun in an upward direction. When pressed by Capitelli on the latter score, however, Bartall admitted he may not have fired upward.

Bartall’s theory at trial was that he had merely been out taking potshots, that he had not seen Quinn or the others and that the bullet that struck Quinn probably ricocheted off some higher object in the parking lot. To rebut that “accident” scenario the state presented:

1. testimony by Will and Capitelli that the parking lot was well lighted (the jury was also given the opportunity to view the scene at night); and
2. evidence of two kinds that the bullets had traveled in a horizontal line:
(a) Capitelli testified a bullet fired from Bartall’s gun (the first shot heard by Will) had been recovered from Rose Cleaners a few doors away from the parking lot. That bullet entered the shop’s front window six feet above the ground.
(b) Testimony by the medical examiner who had performed Quinn’s autopsy stated:
(1) He had recovered two bullet fragments from her head that were traced to Bartall’s gun. Undoubtedly anticipating Bartall’s arguments that the separated fragments may have resulted from a ricochet, the state also elicited the medical examiner’s testimony that fragmentation could have resulted from the bullet’s impact with Quinn’s skull.
(2) Bartall’s fatal bullet had traveled in a horizontal line from the back of Quinn’s head through her brain and exited just above her right eye. After that testimony the jury was shown a picture of Quinn’s face, revealing the exit wound above the right eye.

Bartall’s only witness was Kerstein, who had accompanied him during both shooting incidents. Kerstein testified at a preliminary hearing she had seen people on the sidewalk just after Bartall fired the shot that killed Quinn. At trial, however, she testified the windows had been so covered with dirt and slush that she could not see out of them. Nevertheless, on cross-examination she admitted she had seen people on the sidewalk a few blocks farther down Milwaukee Avenue after the shooting.

Kerstein also testified she was asleep in the car the evening of the Preze incident when Bartall slammed on his brakes. She awoke to hear him say angrily, “She cut me off. She cut me off” (R. 440). She testified Bartall then said he was going to shoot the tires out of the other car, but that remark was stricken from the record after the prosecutor’s objection.

Bartall lists no fewer than sixteen grounds for habeas relief. Because a number of them may conveniently be grouped together, his objections can be summarized in these terms:

1. insufficiency of the evidence as a whole;
2. improper admission of the evidence about the Preze incident;
3. failure of the trial court to give proper limiting instructions as to the Preze evidence;
4. striking of Kerstein’s testimony that Bartall said he would shoot out Preze’s tires; .
5. numerous incidents of prosecutorial misconduct;
6. admission of highly prejudicial evidence: the photograph of Quinn; Kamp-wirth’s testimony about her attempt to revive Quinn; Bartall’s gun and holster; and Capitelli’s testimony that he twice read Bartall his Miranda rights; and
7. bias of the trial judge in favor of the State.

Sufficiency of the Evidence

Bartall asserts the evidence was insufficient to prove him guilty beyond a reasonable doubt. That familiar claim evokes the by-now familiar response from Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979) recently quoted in United States ex rel. Foster v. DeRobertis, 741 F.2d 1007, 1012 (7th Cir.1984):

[T]he federal formulation of review of the sufficiency of the evidence is whether “after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the'essential elements of the crime beyond a reasonable doubt.”

Ill.Rev.Stat. ch. 38, ¶ 9-l(a)(2) provides a person commits murder if,

in performing the acts which cause the death ... he knows that such acts create a strong probability of death or great bodily harm to that individual or another.

Under that standard the State was not required to prove Bartall had a specific intent to kill Quinn. It had to show (beyond a reasonable doubt, of course) only (98 Ill.2d at 307-09, 74 Ill.Dec. at 563-564, 456 N.E.2d at 65-66):

1. Bartall saw a group of people standing in the parking lot.
2. He voluntarily fired a gun in their direction.

There was ample evidence in the record from which the jury could rationally infer both those elements.

As to whether Bartall saw Quinn and her friends, there was direct evidence — both testimony and the jury’s own observation of the parking lot — proving the lot was well lighted. Both testimonial and photographic evidence demonstrated Bartall’s view of the lot was unobstructed. Although Bartall claimed he did not see the group of people, his statement acknowledged his window was open and he looked into the lot before he fired. Kerstein’s testimony that the windows were dirty is not only suspect (given her contradictory statements and the photographs indicating the windows were clean) but also immaterial because Bartall’s window was down. Unquestionably the jury could reasonably infer Bartall saw the group.

As to whether Bartall voluntarily shot in the direction of the group (rather than, as he claimed, into the air or at another object), all the objective evidence proves- both bullets traveled horizontally. One struck Rose Cleaners’ window only six feet above the ground, and the fatal bullet traveled horizontally through Quinn’s head. Indeed, although Bartall at first told Capitelli he had fired in an upward direction, he later admitted he may not have done so. Finally, the jury could have considered Bar-tail’s flight to Wisconsin after the Quinn shooting, with his initial false statement to the police, as indicating he knew he had shot more than just a store window.

In sum, both factors called for by the Illinois statute were more than amply supported. As both Illinois appeals courts concluded, there was more than sufficient evidence for a rational jury to find Bartall guilty of murder beyond a reasonable doubt.

Fairness of the Trial

Bartall charges his trial was tainted by improper evidentiary rulings and prosecutorial misconduct. Of course this Court does not sit as a super-appellate court for such claims:

1. Because the evidentiary rulings were matters of state law, they may not serve as a basis for habeas corpus relief unless they resulted in denial of a specific constitutional right or a denial of a fundamentally fair trial. Foster, 741 F.2d at 1014. Improper admission of evidence may rise to the level of a due process violation only if the probative value of the evidence is greatly outweighed by prejudice to the defendant. United States ex rel. Bibbs v. Twomey, 506 F.2d 1220, 1222 (7th Cir.1974).

2. Precisely the same due process analysis applies to allegations of prosecu-torial misconduct. United States ex rel. Crist v. Lane, 745 F.2d 476, 482 (7th Cir.1984) (citations omitted) stated the standard:

The focus of federal due process review is to ensure that alleged improper prosecutorial argument does not warp the factfinding function of the jury by deflecting its attention away from consideration of the evidence presented at trial.... The essence of due process is fundamental fairness. The Constitution guarantees a fair trial, not a per-feet one_ A trial is fundamentally fair if it results in a verdict reached through consideration of evidence properly admitted and which is untainted by improper influences. Thus, it is the totality of the effect of the alleged errors, not their mere presence or their number, which gives rise to, or defeats, a due process claim.

Even after errors in the trial have been demonstrated, sharply different tests may apply, depending on whether or not those errors implicate the violation of a specific provision of the Bill of Rights. Phelps v. Duckworth, 757 F.2d 811, 820 (7th Cir.1985) reaffirms the teaching of Chapman v. California, 386 U.S. 18, 24, 87 S.Ct. 824, 828, 17 L.Ed.2d 705 (1967): Such a Bill of Rights violation infects a conviction unless the reviewing court is satisfied the error was harmless beyond a reasonable doubt. Conversely, an error such as prosecutorial misconduct that undermines a trial’s fairness and implicates the Fourteenth Amendment directly, rather than via a Bill of Rights guaranty, will justify habeas corpus relief only if the petitioner shows that error likely affected the trial’s outcome. United States ex rel. Shaw v. DeRobertis, 755 F.2d 1279, 1281 n. 1 (7th Cir.1985).

In every case of this nature, the trial must be viewed in its totality. But just as the jigsaw puzzle that makes up the trial evidence can come in only one piece at a time, this Court must examine the claims of error one by one. Given the Phelps-Shaw dichotomy, it is appropriate to deal with the most serious evidentiary claim first, then turn to the unquestionable misconduct of Assistant State’s Attorney Goggin.

1. Evidence of the Preze Incident

Under both Fed.R.Evid. 404(b) and Illinois law, evidence of other crimes may be introduced to indicate motive, intent, pattern or some other element of the crime at issue, unless the probative value of the evidence is significantly outweighed by its prejudicial effect. People v. McKibbins, 96 Ill.2d 176, 182, 70 Ill.Dec. 474, 476-77, 449 N.E.2d 821, 823-24 (1983) (approved and quoted by the Illinois Supreme Court in Bartall, 98 Ill.2d at 309-10, 74 Ill.Dec. at 564, 456 N.E.2d at 66); United States ex rel. Durso v. Pate, 426 F.2d 1083, 1086 (7th Cir.1970). Here the State claims evidence of the Preze incident was properly admitted to show Bartall’s intent or design when he shot Quinn.

Bartall says admission of that evidence was prejudicial error. In his view the Preze incident was so dissimilar to the Quinn shooting it was in no way probative of Bartall’s state of mind when he shot Quinn. Bartall points out Betty Quinn was a complete stranger to him, her shooting was unprovoked and he drove away from the scene at a normal speed. In contrast, he says:

1. Kerstein’s testimony would indicate the Preze incident was provoked when Preze cut Bartall off in traffic.
2. Both the bullet hole above Preze’s tire and Kerstein’s stricken testimony suggest Bartall shot at the tire, not at Preze.
3. Bartall fled from the Preze scene at high speed with his lights off.

Although Bartall’s version of the Preze incident would distinguish it significantly from that involving Quinn, that ignores the Jackson standard. Preze testified to exactly the opposite: She did not provoke Bar-tall, who without warning or cause pointed the gun at her face. Thus the jury could reasonably have believed Bartall attempted to shoot Preze, not her tire, but was thrown off when she swerved into oncoming traffic. From that perspective the jury could rationally have found the incidents strikingly similar, as did the Illinois Supreme Court. As Justice Simon put it (98 Ill.2d at 311-12, 74 Ill.Dec. at 565, 456 N.E.2d at 67):

The evidence of the Preze shooting showed more than the defendant’s general propensity to commit crime; it established that on at least two occasions within 24 hours the defendant had acted as a roving, mobile sniper.

Thus (id.) the Preze evidence “could provide the basis for an inference that [Bar-tall] had the criminal intent required for murder” the night of the Quinn shooting. Hence admission of the Preze episode raises no due process concerns.

It is true the jury was not tendered all possible evidence bearing on the Preze incident. Judge O’Malley erred in excluding Kerstein’s testimony that Bartall “said he was going to shoot [Preze’s] tires out.” That statement, the Illinois Supreme Court correctly found, was admissible as a “statement of intent” exception to the hearsay rule (98 Ill.2d at 319, 74 Ill.Dec. at 569, 456 N.E.2d at 71). Nevertheless the Supreme Court viewed exclusion of the statement as harmless error, because it would have been merely cumulative of the evidence already in the record that the bullet had struck Preze’s car just above the tire (id.).

That analysis is flawed in evidentiary terms (perhaps an illustration of hard cases making bad law?). After all, location of the bullet hole was merely circumstantial evidence, subject to the inference it resulted not from Bartall’s aim but rather from Preze’s evasive tactics. By contrast Ker-stein’s statement was direct evidence on the sole issue for which evidence of the Preze incident was admitted: Bartall’s intent. Kerstein’s statement was probative evidence, and its significance cannot be entirely dismissed (as the- Supreme Court, id., suggested) because the prosecution had attacked Kerstein’s credibility on cross-examination.

Again however the issue for this Court differs from that facing the Illinois Supreme Court: Here the question is not simply whether the Kerstein ruling was incorrect, but rather whether, in light of the entire record (Phelps, at 820), it so prejudiced Bartall as to deprive him of a fair trial in violation of the Fourteenth Amendment. It did not Even though exclusion of the testimony was erroneous and even though the ruling somewhat limited Bar-tall’s defense on the issue of intent, it did not prevent Bartall from presenting his defense or arguing from the circumstantial evidence that he had shot at the tire. In summary, Kerstein’s testimony was more than cumulative, but not so crucial that it would likely have affected the jury’s verdict.

That conclusion is reinforced by the strength of the State’s case against Bartall. When the Illinois Appellate Court said the “jury was presented with a very close case” (105 Ill.App.3d at 873, 61 Ill.Dec. at 668, 435 N.E.2d at 157), it had found the Preze incident wholly inadmissible. Without any evidence of that episode, the Appellate Court’s characterization of the case might well be accurate, forcing close scrutiny of any other errors. Shaw, at 1281, 1284. But the Preze incident clearly tips the balance heavily in favor of the State, so that only truly egregious errors in eviden-tiary rulings would pose the risk of violating Bartall’s due process rights. United States ex rel. Palmer v. DeRobertis, 738 F.2d 168, 170 (7th Cir.1984).

As this opinion observed immediately before launching this discussion of the Preze incident, this Court’s inquiry is not ended by its conclusion that exclusion of the Ker-stein statement does not in itself violate Bartall’s due process rights. This Court must still consider “the totality of the effect of the alleged errors” (Crist, 745 F.2d at 482). Accordingly this opinion turns to an examination of whether the prosecutor’s activities so tainted the jury’s verdict as to render it constitutionally infirm.

2. Prosecutorial Misconduct

To the Supreme Court prosecutor Goggin’s closing statements were “improper, inexcusable and unprofessional” (98 Ill.2d at 323, 74 Ill.Dec. at 571, 456 N.E.2d at 73). Those accurate pejoratives might well be supplemented by “shocking” and “deliberate.” For convenience in discussion the improper statements may be grouped in three categories.

(a) Ad hominem attacks on Bartall

See, he’s a punk (R. 512).
# * He * * *
[Bartall] made a mistake because he fired at Kathy Preze the next day like the jerk he is and got caught (R. 515).
sjs * >H * sis
This is what he was wearing, the big man that he thought he was wearing-a shoulder holster. Walking into a pizza place with the holster and the gun on. What kind of person is that? (R. 515)
* * >¡í * % *
And then the responsibility of the defense attorney. The responsibility of the defense attorney is to represent the man who pays him. That man. The man who now hangs his head and sniffles in the courtroom, the same man that was arrested in his T-shirt with his tattoos and his beard and long hair, with a shoulder holster and his .9 millimeter semi-automatic fully loaded weapon in Niles after almost blowing away Kathy Preze. He’s got a suit on now and cries periodically (R. 543).

All those comments are obvious attempts to prejudice the jury and convince it to convict Bartall because he is a bad man. Their intended effect is clearly to focus the jury’s attention on impermissible considerations, not the evidence.

(b) Prosecutorial testimony

Bartall argues prosecutor Goggin twice commented on matters outside of the record. As to the illumination in the parking lot, Goggin stated in rebuttal (R. 554):

I stood on the street last night. I could see. It’s illuminated on this side of the street and illuminated on that side of the street_ I’m from Chicago. That’s one of the most well lighted streets I’ve ever been on.

As to Kerstein’s credibility, Goggin said (also on rebuttal, R. 546-47) (emphasis added to focus Bartall’s objection):

What else did she lie about? And this is the part that blows your mind when you are the prosecutor and you know all the facts in the case, this is the part that really gets to me. I talked to that girl in Branch 66. He brought her in to me. The defense, who’s representing the defendant, to my office. I talked to her. I had the photographs then. . These photographs were taken the night of the crime, and that girl has the audacity to swear to God to tell the truth, to get on that witness stand and tells you that those windows were clouded with slush because it had been snowing out and slush and all that nonsense.

Bartall plainly overstates the significance of the first comment. On the night before closing argument (the night referred to by Goggin), the jury had accompanied the judge, the prosecutor, defense counsel and Bartall to the parking lot and viewed the lighting conditions for itself. Goggin’s statement, cast by Bartall as prosecutorial testimony, may more accurately be viewed as commentary on the evidence already before the jury (and hence permissible).

But Bartall urges that the second comment must be construed as a violation of “the fundamental rule, known to every lawyer, that argument is limited to the facts in evidence.” Shaw, at 1281. Such a characterization would require the jury to have understood Goggin as saying his position gave him access to prejudicial facts, beyond those in evidence, that undermined Kerstein’s testimony and therefore reinforced Bartall’s guilt. Were that true, Goggin’s statement would be akin to the one that prompted Shaw’s affirmance of the granting of a writ of habeas corpus.

Shaw had been a close case on the merits, and the prosecutor had said in closing argument (at 1281):

Finally they would have you be misled by the police report in this case. You’re not going to get those police reports. They’re hearsay evidence. You can’t have them. If you had them, you would see the truth.

Our Court of Appeals found “grossly improper and wholly avoidable” (at 1282) the prosecutor’s blatant insinuation that he knew prejudicial facts unavailable to the jury. Because the jury had dealt with such a close case, the court determined there was a substantial likelihood the comment changed the result of the trial.

But this opinion has already found Bar-tail’s case was not a close one, as was Shaw. At least equally significant, the two prosecutorial comments are very different indeed. In Shaw the prosecutor unquestionably told the jury he had personal knowledge of facts beyond the record that clearly determined defendant’s guilt. Here Goggin’s self-description — “when you are the prosecutor and you know all the facts of the case” — cannot fairly (at least without a real stretching of the language) be perceived in the same terms. There is no reason for the jury to have believed “all the facts of the cas.e” meant anything other than the very facts that were before the jury itself for decision. Goggin referred to only one kind of evidence (“the photographs”), and those were obviously the photographs of Bartall’s car windows admitted in evidence. Accordingly the reasonable jury would have understood Gog-gin as commenting only on the evidence it was to evaluate for itself. If that were improper at all, it does not in any case (unlike Shaw) pose serious due process problems.

(e) References to Quinn’s family and jurors ’ relatives

Goggin’s rebuttal contained several improper and inflammatory references to Quinn’s family. All were patently designed to “warp the factfinding function of the jury by deflecting its attention away from consideration of the evidence presented at trial” (Crist, 745 F.2d at 482):

She has brothers and sisters and a mom and dad. They don’t have Betty anymore. They don’t talk to Betty anymore. They buried her in the ground last year because he killed her (R. 549).
* * * * * *
Let’s talk about this girl’s [Quinn’s] rights. To say good night to your Grandma “Good night, I’m going, be back. Can I borrow your car? Can I go back to school in a couple of days? Can I say goodbye to my brothers and sisters?” Does she have any more rights? (R. 556)
******
You decide, ladies and gentlemen, what’s it all about, you take the law, you take the evidence, you say if somebody shoots this thing it’s a reckless act at four peo-pie, and then you tell the Quinns what you decided (R. 557) (emphasis added).

Judge O’Malley denied Bartall’s motion for mistrial based on the last statement.

Goggin’s rebuttal also included an inflammatory argument intended to stimulate the jurors’ own fears:

For you now to come in here and buy some cocking [sic] bull story about a ricochet, some story about an accident, some story about the gun being up like that belies common sense, it belies common sense and it says to the People of the State of Illinois, well, someone else put another one over on a jury. Let’s give him another shot, give him another shot. Maybe he’ll blow Preze away, maybe he’ll blow one of your relatives away next (R. 556).

When defense counsel objected to the last comment, Judge O’Malley ordered the prosecutor to “decease [sic] and desist from any such inferences or remarks.”

As the quoted remarks indicate, the tone of Goggin’s closing argument was outrageously unprofessional — and, more to the current point, prejudicial. Goggin’s misconduct was not cured by Judge O’Malley, largely because defense counsel failed to object to all but the last-quoted remark. And the prejudicial effect of Goggin’s statements was intensified by their placement in rebuttal — in final closing argument — thus ensuring they would be fresh in the jury’s mind as deliberations began.

Donnelly v. DeChristoforo, 416 U.S. 687, 643, 94 S.Ct. 1868, 1871, 40 L.Ed.2d 431 (1974) defines the yardstick for measuring such misconduct by state prosecutors. This Court has applied that yardstick more strictly than our Court of Appeals has found appropriate: It granted habeas relief in Crist, 577 F.Supp. 504 (N.D.Ill.1983), because it considered Crist was entitled to a trial untainted by the prosecutor’s serious improprieties. Our Court of Appeals disagreed, 745 F.2d 482-84, both because it focused more heavily on Crist’s patent guilt and because it considered most of the improprieties had been waived by defense counsel’s failure to" object.

Shaw reached a different result from Crist, but it does not bespeak a change in doctrine. Shaw was an exceptional case because it was so close and because the prosecutor’s reference to his personal knowledge of defendant’s guilt so directly distorted the jury process and deprived the defendant of his specific Sixth Amendment right to confrontation. In this case Gog-gin’s misconduct was not as damaging as that in Shaw and not materially different in seriousness from that in Crist.

As in Crist, the evidence of Bartall’s guilt was so convincing it cannot be said there is a substantial likelihood the prosecutor’s misconduct changed the jury’s verdict. Crist not Shaw controls here, and the remedy for Goggin’s improprieties is not a new trial for Bartall but possible discipline for Goggin (see Crist, 745 F.2d at 482).

3. Other Alleged Errors

Bartall asserts other claimed errors, including allegedly prejudicial comments by Judge O’Malley and the admission of what Bartall considers overly prejudicial photographic and testimonial evidence of Quinn’s wounds. But Judge O’Malley’s comments exhibit none of the asserted bias, and much of the evidence of Quinn’s wounds, although perhaps arguably excludable, was merely cumulative of the medical examiner’s justifiably detailed and graphic testimony. Neither any of those matters nor any of the other claimed errors advanced by Bartall raises a significant due process concern.

Conclusion

There is no genuine issue of material fact, and no evidentiary hearing is required. Rule 8(a) following Section 2254. Prosecutorial misconduct and the other matters discussed in this opinion did not deprive Bartall of a fair trial in violation of his Fourteenth Amendment due process rights. Because it is unlikely the errors changed the jury’s verdict, Bartall’s petition for a writ of habeas corpus is denied. This action is dismissed with prejudice.

APPENDIX

As another string to its bow on the prosecutorial misconduct issue, the State invokes Engle v. Isaac, 456 U.S. 107, 102 S.Ct. 1558, 71 L.Ed.2d 783 (1982) to contend Bartall waived most of his objections in that area by failing to present contemporaneous objections at trial. But the cause- and-prejudice test in Engle (or perhaps more accurately Wainwright v. Sykes, 433 U.S. 72, 97 S.Ct. 2497, 53 L.Ed.2d 594 (1977)) does not apply where, as here, the state appellate court overlooks the waiver and addresses the merits of the claim. Crist, 745 F.2d at 482; United States ex rel. Williams v. Franzen, 687 F.2d 944, 951 (7th Cir.1982).

In reply the State argues the Illinois Supreme Court did not overlook the waiver here but instead ruled against Bar-tall on both procedural and substantive grounds. Where a state court relies on such twin grounds, the claim may be barred on habeas corpus review. Farmer v. Prast, 721 F.2d 602, 605 (7th Cir.1983).

But the short answer is that the Supreme Court did not rule against Bartall on procedural grounds. After pointing out that Bartall failed to raise a contemporaneous objection to most of the prosecutor’s improper comments, the Court stated (98 Ill.2d at 321, 74 Ill.Dec. at 570, 456 N.E.2d at 72) (citations omitted):

Even when no objection is made, however, inflammatory rhetoric warrants reversal when it prevents the defendant from receiving a fair trial or causes substantial interference with the fundamental integrity of the judicial process.

Thus the Supreme Court considered itself bound to examine the merits. It did so, rendering Farmer inapplicable here. This opinion has perforce dealt with the same “inflammatory rhetoric.”

      . Bartall also makes much of the fact that in his opening statement the prosecutor misled the jury about the purpose of the Preze evidence when he told the jury that evidence would offer “insight into [Bartall’s] character and his personality" (R. 55). But neither that comment— distant in time from presentation of the evidence — nor Judge O'Malley’s refusal to give a limiting instruction at the time the evidence was presented created any problem that was not entirely cured by Judge O’Malley’s giving IPI limiting instruction 3.15 in his charge to the jury. Moreover, the limiting instruction's reference — to which Bartall also objects — to the non-issues of "presence” and "identity” (issues really conceded by Bartall) cannot possibly have prejudiced Bartall.

      . Most of the prosecutorial misconduct was that of Goggin, who was the last lawyer to speak to the jury. His co-prosecutor was responsible only for the first three statements next quoted in the text (those were made as part of the State’s initial closing argument).

      . See Appendix as to the State's claim of waiver on that score.

      . As this Court had pointed out (577 F.Supp. at 513), Illinois Supreme Court doctrine calls for the review of unobjected-to prosecutorial improprieties under the circumstances presented by Crist. Indeed precisely that was done by the Supreme Court in this very case (see Appendix).


author: MOODY, District Judge.

text:
    UNITED STATES of America v. Antonio BARREDA and Maria Barreda.
    Crim. No. HCR 85-1.
    United States District Court, N.D. Indiana, Hammond Division.
    April 9, 1985.

      Gregory A. Vega, Asst. U.S. Atty., R. Lawrence Steele Jr., U.S. Atty., Hammond, Ind., for plaintiff.
    Nick J. Thiros, Cohen & Thiros, Merrill-ville, Ind., for defendants.
   ORDER

MOODY, District Judge.

This matter is before the Court on the Defendants’, Antonio Barreda and Maria Barreda, Motion to Dismiss Indictment filed on March 1, 1985. The Government filed a response on March 15, 1985. On March 28,1985 a hearing was held in which the parties had the opportunity to expound on their respective positions.

The indictment charges the Defendants with a violation of 18 U.S.C. § 371 and multiple violations of 18 U.S.C. § 641. Briefly, the indictment alleges that the Defendants embezzled, stole and converted, to their own use, property of the United States, namely federal revenue sharing funds. The Defendants contend that the indictment must be dismissed because federal revenue sharing funds within the control of a state or local government unit are not the property of the United States Government but are the property of the state or local government unit. Therefore, they contend the indictment fails to allege an offense against the United States and consequently this Court lacks jurisdiction to hear this cause.

18 U.S.C. § 641 provides in relevant part:
sf: s}! ^ 4s si5
Whoever receives, conceals, or retains [any record, voucher, money, or thing of value of the United States] with intent to convert it to his own use or gain, knowing it to have been embezzled,. stolen, purloined or converted ...

18 U.S.C. § 641. Thus, an essential element of any prosecution under Section 641 is that the particular defendant embezzled ... federal “things of value.” The Seventh Circuit has consistently held that the proper test for determining whether funds have retained a sufficient federal character to sustain jurisdiction under Title 18 is to look at the supervision and control over the federal funds contemplated and manifested by the federal government. See United States v. Mitchell, 625 F.2d 158 (7th Cir.1980) cert. denied 449 U.S. 984, 101 S.Ct. 402, 66 L.Ed.2d 247 (1980) (18 U.S.C. § 641); United States v. Hamilton, 726 F.2d 317 (7th Cir.1984) (18 U.S.C. § 665(a)); United States v. Harris, 729 F.2d 441 (7th Cir.1984) (18 U.S.C. § 657); United States v. Bailey, 734 F.2d 296 (7th Cir.1984) (18 U.S.C. § 641); United States v. Maxwell, 588 F.2d 568 (7th Cir.1978) cert. denied 444 U.S. 877, 100 S.Ct. 163, 62 L.Ed.2d 106 (1979) (18 U.S.C. § 641). In order to determine whether this test has been met the courts have applied a number of factors including: (1) specific reversionary interest in the federal government, (2) the statutory requirement that funds be used for the purpose intended, and (3) whether the recipient is required by federal law to maintain financial records, file reports, adopt government methods of management, or submit to federal oversight. See generally United States v. Gavin, 535 F.Supp. 1345 (W.D.Mich.1982).

In United States v. Mitchell, 625 F.2d 158 (7th Cir.1980) cert. denied 449 U.S. 984, 101 S.Ct. 402, 66 L.Ed.2d 247 (1980), the Defendant was convicted of violating 18 U.S.C. § 641 by unlawfully attempting to convert a stolen Illinois Public Aid Warrant. A percentage of money in the state’s public aid account was granted to the state by the federal government under 42 U.S.C. § 603. On appeal to the Seventh Circuit, the defendant argued that the warrant was not “money, or a thing of value of the United States” within the meaning of Section 641. Disagreeing, the Seventh Circuit in Mitchell affirmed the defendant’s conviction by finding that the warrant in question was a “thing of value of the United States.” The court reviewed the pertinent statute, 42 U.S.C. § 603 and its implementing regulations at 45 C.F.R. § 200 et seq., and found substantial and sufficient federal supervision and control over the funds granted by the federal government to the state program. More specifically, the court stated:

As previously stated, this supervision includes quarterly federal reviews and annual audits and state • reports with the ultimate sanction for discrepancies in the reports or misuse of the funds being reclamation of the money by the federal government. The fact that this reclamation is normally or even always enforced on an installment basis by reductions in future allotments does not, we believe, remove the funds allotted from the protection provided by § 641. The installment method seems simply the most convenient means to accomplish the reclamation and we find, similarly to the Court’s statement in United States ex rel. Marcus v. Hess, 317 U.S. 537, 544, 63 S.Ct. 379, 384, 87 L.Ed. 443 (1943), that the statute “does not make the extent of [the fund’s] safeguard depend upon the bookkeeping devices used for [its] distribution.”

Id. at 161.

31 U.S.C. § 6701 et seq. is the implementing statute for the federal revenue sharing scheme. The intent of this statute is to return to the states and local communities revenues collected by the federal government so that the state and local governments can spend these funds according to their own perceived demands and objectives and not those of the federal government. Carolina Action v. Simon, 389 F.Supp. 1244 (M.D.N.C.1975). As the Defendants state, this scheme has been referred to as a “no federal strings” approach to federal monetary assistance. See Carolina Action, 389 F.Supp. at 1248, see generally Goolsby v. Blumenthal, 590 F.2d 1369 (5th Cir.1979). The Defendants’ argument is basically that once federal revenue sharing funds are disbursed they become the property of the recipient state or local government and are no longer property of the federal government. As mentioned previously, this is not the proper test. While some courts focus on the federal government’s property interest in embezzled funds, see United States v. Collins, 464 F.2d 1163, 1165 (9th Cir.1972), the courts in this circuit look to the degree of supervision and control contemplated and manifested by the federal government.

In the case sub judice the Court finds that the funds in question, federal revenue sharing funds, are a “thing of value of the United States” within the meaning of 18 U.S.C. § 641. That is, the federal government retains sufficient supervision and control over federal revenue sharing funds after they are distributed to the state or local government thus constituting the basis for criminal prosecutions under Title 18 of the United States Code. More specifically, a state or local government which receives federal revenue sharing funds is required by the federal government to establish a trust fund in which the entity must deposit all revenue sharing funds received. 31 U.S.C. § 6704(a)(1). The federal statute requires the state or municipality to comply with auditing, accounting and fiscal control procedures conforming to guidelines prescribed by the Secretary of the Treasury (“Secretary”). 31 U.S.C. § 6704(a)(6); 31 C.F.R. § 51.101-109. 31 U.S.C. § 6724(b)(1) requires the recipient entity to submit a year-end report to the Secretary. These reports must contain (1) the amount and purposes for which funds have been expended, and (2) the difference between the actual and proposed use of the payment. See also 31 C.F.R. § 51.12. The federal statute also places certain prohibitions and restrictions on the use of federal revenue sharing funds. Those prohibitions forbid (1) the using of federal revenue sharing funds for payments to influence legislation, and (2) the using of federal revenue sharing funds for discriminatory purposes in violation of the Age Discrimination Act of 1975, the Rehabilitation Act of 1973, and the Civil Rights Act of 1964. 31 U.S.C. §§ 6715 and 6716; 31 C.F.R. §§ 51.52 to 51.58. Finally, the federal government retáins the power to reduce, withhold, or suspend revenue sharing funds from a state or municipality if said entity violates any of the prohibitions imposed by the federal government. 31 U.S.C. § 6718; 31 C.F.R. § 51.-218(3)(b)(c)(d). When all the above-mentioned restrictions and requirements are examined together, the conclusion is inescapable that the level of supervision and control the federal government has over federal revenue sharing funds is sufficient for these funds to retain their federal character. Consequently, this Court has subject matter jurisdiction over this cause.

There are no reported cases which discuss whether or not federal revenue sharing funds can form the basis for a federal criminal indictment. The Seventh Circuit has found the requirements of the supervision and control test satisfied for federal funds originating from the Farmers Home Administration, the Comprehensive Employment and Training Act (“CETA”), the Department of Housing and Urban Development, the Social Security Act, and the Higher Education Act of 1965. See United States v. Bailey, supra at 300-301 (where checks received from Farmers Home Administration are endorsed by borrowers and given to defendant as loan closing attorney, and defendant was given written instructions regarding transactions by Farmers Home Administration, funds in possession of attorney were “money of the united States” within meaning of statute prohibiting embezzling public property); United States v. Hamilton, supra at 321 (we continue in our view that the nexus between federal funds in the hands of a non-federal agency and the impact of a federal funding program is found in the federal program’s continuing responsibility to see that the federal funds are spent as Congress intended); United States v. Harris, supra at 446. (The CHA had to obtain HUD’s approval for every specific use that it proposed to make of the grant funds, had to maintain and make available to HUD detailed records of expenditures, and had to repay any expenditures that it made and HUD disapproved as well as repay all unexpended funds. The CHA kept the funds in a separate bank account and HUD bought the tiles ... The retention of control gave HUD a sufficient interest in the funds to support a prosecution under section 657); United States v. Mitchell, supra at 161 (... supervision includes quarterly federal reviews and annual audits and state reports with the ultimate sanction for discrepancies in the reports or misuse of the funds being reclamation of the money by the federal government); see also United States v. Maxwell, supra at 572-573. The Court acknowledges that the federal supervision and control over the funds in the aforementioned cases were much more substantial than in the case sub judice. The difference, however, between the contacts in those cases and the federal control over the federal revenue sharing funds in the case sub judice, is a mere difference in degree that in no way rises to a difference in kind. The Court is confident in its conclusion that federal revenue sharing funds retain their federal character in the hands of the recipient state or local governmental entity.

Our conclusion is buttressed by the fact that it was the Secretary’s intent in enacting the regulations to the revenue sharing statute that the Criminal Code of the United States (Title 18, U.S.C.) shall be applicable to all criminal offenses relating to the expenditure, accounting or reporting of revenue sharing funds. 31 C.F.R. § 51.6. Clearly, in the present case, the charges, conspiracy and conversion of federal funds, fall within the intent of the regulations which allow federal criminal charges to be brought for the illegal expenditure of federal revenue sharing funds. In passing, the Court also notes that the misapplication of federal revenue sharing funds has indeed formed the basis for criminal prosecutions of Title 18 violations. See United States v. Sorrow, 732 F.2d 176, 177 (11th Cir.1984) and United States v. L’Hoste, 609 F.2d 796, 800 (5th Cir.1980). The Court being duly advised, it is therefore ORDERED that the Defendants’ Motion to Dismiss Indictment be and it is hereby DENIED.

      . The instant case should be contrasted with United States v. Gavin, 535 F.Supp. 1345 (W.D.Mich.1982) in which the court found that funds loaned by the Small Business Administration do not retain their federal character in the hands of the borrower. More specifically, the court stated:
      Neither does the statute manifest extensive federal control. The borrower is not required to maintain certain financial records, file reports, adopt government methods of management, submit to federal oversight or do anything except give security. There was no evidence that either Stokes or the SBA had anything further to do with respect to this transaction. Stokes did exactly as required and became fully obligated to the Government long before Gavin’s involvement. Further Government control was neither warranted nor authorized.

        Absence of these factors leads the Court to conclude, as a matter of law, that this statute does not provide for continued federal ownership of the loaned funds. This essential element of a § 641 violation not having been proven, the conviction cannot stand.

        Id. at 1349. Certainly, the federal control and supervision over federal revenue sharing funds is much more extensive. The difference is such that no reasonable comparison can be made.