author: TENNEY, District Judge.

text:
    SOFIA SHIPPING COMPANY, LTD., Petitioner, v. AMOCO TRANSPORT COMPANY, Respondent.
    No. 85 Civ. 5126 (CHT).
    United States District Court, S.D. New York.
    Feb. 6, 1986.

      Poles, Tublin, Patestides & Stratakis, New York City, for petitioner; Christ Stratakis, William J. Brady III, of counsel.
    Kirlin, Campbell & Keating, New York City, for respondent; Armand Maurice Pare, Jr., John P. Sandercock, Arthur E. Hoffmann, Jr., Bradley F. Gandrup, Jr., of counsel.
   TENNEY, District Judge.

In this action, the petitioner, Sofia Shipping Company, Ltd. (“Sofia”), is seeking to confirm an arbitration award which was rendered in its favor. The respondent, Amoco Transport Company (“Amoco”), cross-moves to vacate the award. The petition to confirm is granted.

BACKGROUND

The controversy here arises out of a contract between the petitioner and respondent. Sofia, as the owner of an oil tanker — the T/T ZAKYNTHO — agreed to charter the ship to Amoco for a period of approximately six months. Under the terms of the charter agreement, the transaction was “subject to [Amoco’s] favorable report after inspection of [the] vessel.” Amoco rejected the ship after inspecting it and refused to honor the contract. The question of whether Amoco had wrongfully breached the contract was submitted to arbitration. A panel of three arbitrators concluded that Amoco had acted unreasonably in rejecting the ship, and that Sofia was entitled to damages for breach of contract.

In the petition now before the Court, Amoco argues that: 1) the arbitrators’ decision should be vacated because it violates public policy; 2) the amount of the damages should be modified under Section 11 of the Federal Arbitration Act (“Arbitration Act”); and 3) the decision should be vacated under Section 10 of the Arbitration Act because one of the arbitrators, Alexis Nichols (“Nichols”), failed to disclose certain information. For the reasons set forth below, the Court rejects these arguments.

DISCUSSION

1. Public Policy

The standard of review for scrutinizing an arbitration award is extremely narrow. See United States Steel and Carnegie Pension Fund v. Dickinson, 753 F.2d 250, 252 (2d Cir.1985); Diapulse Corp. v. Carba, Ltd., 626 F.2d 1108, 1110 (2d Cir.1980); I/S Stavborg v. National Metal Converters, Inc., 500 F.2d 424, 429-32 (2d Cir.1974). Courts will not vacate an arbitration award unless the arbitrators acted with a manifest disregard of the law, or the facts of the case do not support the award. See Koch Oil, S.A. v. Transocean Gulf Oil Co., 751 F.2d 551, 554 (2d Cir.1985); Kurt Orban Co. v. Angeles Metal Systems, 573 F.2d 739, 740 (2d Cir.1978). An arbitrator's interpretation of a contract is binding so long as that interpretation is barely colorable. See John T. Brady & Co. v. Form-Eze Systems, Inc., 623 F.2d 261, 264 (2d Cir.1980), cert. denied, 449 U.S. 1062, 101 S.Ct. 786, 66 L.Ed.2d 605 (1980).

Applying this standard, the Court concludes that there is no merit to Amoco’s argument that the arbitrators’ decision should be vacated on public policy grounds. Amoco claims that the arbitrators’ decision contravenes the public policy of preserving maritime safety and preventing pollution. Specifically, Amoco argues that the tanker was in such bad condition that chartering it to transport oil would have posed a serious threat to the environment. Although Amoco characterizes this argument as involving a matter of public policy, Amoco is essentially arguing that its rejection of the tanker was reasonable, and therefore the contract was not wrongfully breached. This argument is simply an attempt to have the award set aside on its merits, which the Court declines to do.

The arbitrators concluded that the tanker was seaworthy. The panel found that Amoco’s grounds for rejecting the ship were invalid and any violations that existed at the time of the inspection were “minor and capable of being rectified in short order.” In addition, the arbitrators concluded that none of the violations reported by Amoco’s inspectors “could be regarded as being serious enough to preclude the Vessel from performing reasonably under the agreed charter party terms.” In- light of the arbitrators’ findings, Amoco’s public policy argument cannot stand.

2. Modifying the Award

It is well established that the court’s power to modify an arbitration award is severely limited. See Kurt Orban v. Angeles Metal Systems, 573 F.2d at 740; UCO Terminals, Inc. v. Apex Oil Co., 583 F.Supp. 1213, 1217 (S.D.N.Y.1984), aff'd mem., 751 F.2d 371 (2d Cir.1984). An award may be modified under Section 11 of the Arbitration Act where the figures have been miscalculated, but that is not the case here. In this instance, the arbitrators clearly articulated the basis for their award and set forth their calculations in detail. There is no evidence that the arbitrators erred.

The measure of damages for breach of contract is the amount necessary to put the injured party in the same economic position as he would have been, if the contract had been fulfilled. See Adams v. Lindblad Travel, Inc., 730 F.2d 89, 92 (2d Cir.1984); Perma Research & Dev. v. Singer Co., 542 F.2d 111, 116 (2d Cir.), cert. denied, 429 U.S. 987, 97 S.Ct. 507, 50 L.Ed.2d 598 (1976). A review of the award indicates that the panel applied this standard.

Amoco claims that the panel based its opinion on erroneous charter rates, and that the panel failed to consider all relevant factors relating to profits and earnings. The panel, however, specifically noted that it was applying “its commercial experience in reviewing [the relevant market conditions] so as to obtain a fair figure of damages[.]” The Court will not substitute its judgment for the panel’s. In light of the limited scope of review, and absent any showing that the panel miscalculated the damages, Amoco’s petition to modify the award is denied.

3. Failure to Disclose

Amoco’s argument that the award should be vacated because Nichols, one of the arbitrators, failed to adequately disclose certain relevant information presents a thornier question. After carefully examining the record, however, the Court is convinced that the arbitration award should not be disturbed.

Amoco argues that the award should be vacated because Nichols did not fully disclose his relationship with Aghelis Boulalis (“Boulalis”) who was an employee of and a witness for Sofia, the petitioner. Nichols failed to disclose that Boulalis was serving as an arbitrator in a number of arbitrations that involved Nichols’ employer.

Section 10 of the Arbitration Act authorizes a district court to vacate an award “[wjhere there was evident partiality or corruption in the arbitrators [.]” The burden of proof in this instance rests on Amoco, as the party asserting the claim of bias. See Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1275 (2d Cir.1971); UCO Terminals Inc. v. Apex Oil Co., 583 F.Supp. at 1214. Courts are reluctant to set aside an award based on a claim of evident partiality, and will do so only if the bias of the arbitrator is direct and definite; mere speculation is not enough. See Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 682 (7th Cir.), cert. denied, 464 U.S. 1009, 104 S.Ct. 529, 78 L.Ed.2d 711 (1983); Sidarma Societa Italiana v. Holt Marine Ind., 515 F.Supp. 1302, 1307 (S.D.N.Y.1981), aff'd mem., 681 F.2d 802 (2d Cir.1981).

The instant matter is governed by International Produce, Inc. v. A/S Rosshavet, 638 F.2d 548 (2d Cir.), cert. denied, 451 U.S. 1017, 101 S.Ct. 3006, 69 L.Ed.2d 389 (1981). In that ease, the Second Circuit held that the mere “appearance of bias” is not sufficient to justify vacating an arbitration award under Section 10. There must be a showing of actual bias on the part of the arbitrator. Id. at 551. The record in this case reveals no evidence of any direct or definite partiality on the part of Nichols.

Indeed, Amoco essentially concedes the absence of actual bias, and argues instead that the Court should adopt and apply the appearance-of-bias standard. See Respondent’s Memorandum of Law at 39-43. Amoco urges the «Court to infer that because Boulalis was acting as an arbitrator in a matter involving Nichols’ employer, Nichols and Boulalis were prepared to exchange favorable decisions. Specifically, Amoco alleges that Nichols cast his vote in favor of the petitioner in order to obtain, or in exchange for, a decision by Boulalis favoring Nichols’ employer.

Amoco’s allegations are based on pure speculation. The portions of the hearing transcript submitted in connection with this petition give no indication that Nichols acted in a partial or biased manner, and Amoco offers no other concrete evidence to support its claim. The circumstances surrounding the arbitration award also undermine Amoco’s theory.

The panel in the instant case did not render its decision until 1985. Boulalis stopped working for the petitioner in 1983, approximately two years before the panel issued its opinion. It would be unreasonable for the Court to assume that Nichols voted for the petitioner in order to curry favor with Boulalis, when Boulalis was not even employed by the petitioner at the time of the decision.

It should also be noted that the award in this case was rendered by a panel of three arbitrators, and the decision was a unanimous one. The panel included an arbitrator appointed by Amoco', and another who was selected by Amoco’s appointee and Nichols. There were no cross-appointments between Boulalis and Nichols. Boúlalis did not appoint Nichols to the panel in the instant case, nor did Nichols appoint Boulalis to any of the panels in the arbitrations involving Nichols’ employer. The appointments were made by the attorneys of the respective parties in each instance.

In addition, Nichols did not have any direct interest, financial or otherwise, in the outcome of any of the arbitrations at issue, nor did Boulalis. See Nichols Aff. 11H 8-9; Boulalis Aff. ¶ 3. Moreover, neither Boulalis nor the petitioner had a business relationship with Nichols. See Nichols Aff. 11 8.

Nichols did disclose a number of relevant facts concerning his relationship to the parties involved. Nichols testified that he knew Boulalis and that they had a professional relationship based on their activities as arbitrators. See Transcript at pp. 7-13. Nichols stated that he and Boulalis were both members of the Society of Maritime Arbitrators and that he had known Boulalis for at least ten years. He also testified that he had worked with Boulalis at the same firm in 1970 or 1971. In addition, Nichols disclosed that he and Boulalis had served together on a number of arbitration panels in the past, and that they were serving together on several panels at the time of the hearing. Despite the information disclosed, Amoco made no objection to Nichols’ appointment to the panel.

It is beyond dispute that the responsibility to disclose all relevant information rested on Nichols as a potential arbitrator. See Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 149, 89 S.Ct. 337, 339, 21 L.Ed.2d 301 (1968). Nichols was clearly at fault for neglecting to disclose the information at issue here. Nichols’ failure to make full disclosure, however, was not so significant that it constituted “evident partiality.” Nichols states in an affidavit — and the Court has no reason to disbelieve him — that he failed to raise the issue of Boulalis’ appointments as an arbitrator simply because he did not think of it. See Nichols Aff. ¶ 12.

In Merit Ins. Co. v. Leatherby, 714 F.2d at 683, the court pointed out that there was ample opportunity for the parties involved to conduct an investigation into the background of the arbitrators prior to or during the arbitration. The court noted that losing parties should not be encouraged to conduct post-arbitration investigations into the background of the arbitrators in the hope of uncovering evidence of some undisclosed fact. Such investigations result in additional costs and litigation, and undermine the finality of arbitration. Id. Losing parties can easily seize upon an undisclosed relationship as a pretext for vacating an award. See Commonwealth Coatings, 393 U.S. at 151, 89 S.Ct. at 340 (White, J., concurring); Andros v. Marc Rich, 579 F.2d 691 at 702 (2d Cir.1978).

In the ease at bar, Amoco did not make an extensive investigation into Nichols’ background, or object to Nichols’ appointment until after a decision was rendered against Amoco, almost three years after the hearing. Although Amoco had no legal obligation to investigate Nichols’ relationship to the petitioner, the information disclosed by Nichols at the hearing was sufficient to alert Amoco to the fact that certain overlapping relationships did exist.

Maritime law is a specialized area and the number of arbitrators in the field is limited. The fact that there is an overlap in the relations of the individuals involved does not in itself provide grounds for vacating an award. It is common practice for maritime arbitrators to participate in numerous maritime disputes. In fact, they often participate not only as arbitrators but also as parties and witnesses. See Rosshavet, 638 F.2d at 552; Andros v. Marc Rich, 579 F.2d at 701; Garfield & Co. v. Wiest, 432 F.2d 849, 853-54 (2d Cir.1970), cert. denied, 401 U.S. 940, 91 S.Ct. 939, 28 L.Ed.2d 220 (1971). Thus, the relationship between Nichols and Boulalis does not provide grounds for vacating the award under the “evident partiality” provision of the Arbitration Act.

For the reasons set forth above, Amoco’s petition to vacate the award is denied, and Sofia’s petition to confirm the award is granted.

So Ordered.

      . Section 11 provides in relevant part that a district court:
      may make an order modifying or correcting the award upon the application of any party to the arbitration ... [w]here there was an evident material miscalculation of figures[.]
      9 U.S.C. § 11.

      . Section 10 provides in relevant part that the court may vacate an award:
      (a) Where the award was procured by corruption, fraud, or undue means [or]
      (b) Where there was evident partiality or corruption in the arbitrators^]
      9 U.S.C. § 10(a), (b).

      . As the Second Circuit noted, "a principal attraction of arbitration is the expertise of those who decide the controversy.” Andros Compania Maritima v. Marc Rich & Co. A.G., 579 F.2d 691, 701 (2d Cir.1978).

      . At the time of the arbitration hearing, Boulalis was the Director and Executive Vice President of Ionian Transport Co., which was the New York agent for the petitioner.

      . Nichols is the President of Brokerage & Management Corporation, a New York corporation, which serves as an agent for foreign vessel owners. Brokerage & Management was engaged by a Liberian corporation, Trade & Transport, which acts as the general agent for several foreign flag vessels. Trade & Transport engaged Brokerage & Management to represent the interests of its principals in the United States, and Boulalis was serving as an arbitrator in a number of disputes involving Trade & Transport. See Nichols Aff. ¶ 3.

      . Nichols stated in relevant part:
      I am the president of Brokers & Management Corporation. Brokers & Management Corporation acts as agent for foreign owners in the United States.
      ******
      I know two executives of Ionian Transport: one is Mr. Spyros Mylonas, who I believe is the president, and Captain Angelo Boulalas, who is the executive vice president.
      ******
      With respect to Captain Boulalas, I also know this gentleman for a good ten years and by virtue of the fact that he is also a maritime arbitrator and a member of the Society of Maritime Arbitrators, we have sat on a number of panels together and we presently sit on several.
      ******
      MR. ROBINSON: Mr. Nichols, how well do you know Captain Boulalas? You said you have known him for ten years.
      MR. NICHOLS: I know Captain Boulalas for about ten years. How well I know him, let me describe first of all the degree of acquaintance.

        He is not what you may call a social friend, although we do see each other at the luncheons of the Society of Maritime Arbitrators and other functions that the Society sponsors.
      Back in 1970 or '71 Captain Boulalas and I were employed by the same firm, meaning LaMorte Burns & Company, Inc.
      At that time Captain Boulalas was a claims adjuster and so was I. I was handling cargo claims and disputes under the FD&D rules of the clubs and Captain Boulalas was in a different department assisting Augie Burns on general agency adjustments.
      At that time, I saw Captain Boulalas, I would say, daily, being that we were working within the same organization.
      Since I left that company in ’72, Captain Boulalas left the same company sometime thereafter and he was a surveyor. However, I never used his services as a surveyor and I would say that the extent of my associations with him are no more or no less than those that one has by virtue of a membership within a society such as the SMA, which is the same degree of closeness that I had with Mr. van Gelder or Mr. Zubrod [the other arbitrators on the panel].
      MR. ROBINSON: How would it affect your impartiality or your ability to render an impartial decision in this matter if I told you that Mr. Boulalas has a very active part in the events transpiring in regard to this dispute?
      MR. NICHOLS: Mr. Robinson, I don’t believe that this will interfere with my ability to evaluate the facts and the circumstances upon which this dispute is based. I think that in the past I have sat on other matters where principals are known to me and did not allow such degree of acquaintance to have interfered with my judgment.
      So to answer your question, the answer is that this association of mine as described will in no way interfere with my ability to evaluate the matters of this case and determination accordingly.
      Transcript at pp. 7-13.

      . The Second Circuit noted that "an arbitrator 'cannot be expected to provide the parties with his complete and unexpurgated business biography.' " Andros v. Marc Rich, 579 F.2d at 701 (quoting Commonwealth Coatings, 393 U.S. at 151, 340 (White, J., concurring)). In Andros, the court affirmed the arbitrators’ award even though one arbitrator failed to disclose that he had served on nineteen arbitration panels with the president of one of the firms involved in the arbitration, and that in more than half of those arbitrations, he had actually been selected by the president.


source: Caselaw Access Project

author: BUA, District Judge.

license: Public Domain

text:
    SEARS, ROEBUCK & COMPANY, Plaintiff, v. The TRAVELERS INDEMNITY COMPANY, Defendant.
    No. 85 C 8700.
    United States District Court, N.D. Illinois, E.D.
    Feb. 6, 1986.
    Michael R. Turoff, Adele Rapport, Arnstein, Gluck, Lehr, Barron & Milligan, Chicago, Ill., for plaintiff.
    Marthe C. Purmal, Chicago, Ill., for defendant.
   ORDER

BUA, District Judge.

Travelers Indemnity Company’s (Travelers) motion to stay is denied.

Generally, federal courts have an obligation to exercise federal jurisdiction. The existence of a state court action is no bar to proceeding concurrently on the same matter in federal court. However, it is well settled that a district court is “under no compulsion to exercise that jurisdiction where the controversy may be settled more expeditiously in the state court.” Microsoftware Computer Systems v. Ontel Corp., 686 F.2d 531, 537 (7th Cir.1982).

Travelers argues that the issues before this Court are substantially similar to the issues before a New York state court. Moreover, Travelers asserts that the action before this Court should be stayed pending the resolution of that New York action. This Court disagrees.

The action before this Court is dissimilar to the state court action for two reasons. First, defendant Travelers is a party in only one of the two cases. Travelers is not a party to the state court action. The resolution of the state court action would not necessarily determine the rights of plaintiff Sears or the duties of Travelers, with respect to Travelers indemnifying Sears.

Second, the issues before both courts are not identical but only casually related. In the federal action, Sears seeks a declaratory judgment that Travelers is obligated to defend and indemnify Sears. Sears alleges it is entitled to be defended and indemnified by Travelers in all suits arising out of Sears’ sales of King-Seeley products. Sears believes Travelers is obligated to defend and indemnify Sears by virtue of an insurance policy Travelers issued to manufacturer King-Seeley.

In the state court action, a Sears customer filed suit against Sears claiming he was injured by one of Sears’ products. Allegedly, the product was originally manufactured by King-Seeley, but sold by Sears. Sears filed a third-party complaint against King-Seeley. Sears claims King-Seeley has a contractual obligation to indemnify Sears for any judgment rendered against Sears that arises out of a customer’s injury from a defective King-Seeley product.

This Court finds that a stay is not warranted. Sears’ contractual obligation claim against King-Seeley is not significantly similar to Sears’ declaratory judgment claim against Travelers.

Finally, Travelers argues that the federal court action should be stayed because no federal question jurisdiction exists. This Court disagrees. It is well settled that federal diversity claimants are not second-class litigants. Therefore, the existence of a federal question is entirely irrelevant to the question of whether to defer to a pending parallel state, case. Evans Transportation Co. v. Scullin Steel Co., 693 F.2d 715, 717 (7th Cir.1982).

Accordingly, Travelers’ motion to stay this proceeding is denied.


author: CURRAN, District Judge.

text:
    Lu Ann SELGADO, Plaintiff, v. AMERICAN FEED & LIVESTOCK CO., INC., Defendant.
    No. 85-C-379.
    United States District Court, E.D. Wisconsin.
    Feb. 7, 1986.

      Joseph Radtke, Milwaukee, Wis., for plaintiff.
    Gary P. Lantzy, Kohner, Mann & Kailas, Milwaukee, Wis., for defendant.
   DECISION AND ORDER

CURRAN, District Judge.

The plaintiff in the above-captioned diversity case is bringing claims for compensatory and statutory damages under theories of negligence and strict liability. The defendant, American Feed and Livestock Company, Inc., removed the case to this court from the Circuit Court of Milwaukee County. The defendant then answered and moved for summary judgment on the ground that the plaintiff has failed to state a claim upon which relief can be granted. See Federal Rules of Civil Procedure 12(b)(6) & 56. This motion is now fully briefed and ready for decision.

The plaintiff, Lu Ann Selgado, claims that she fed the defendant’s feed to 112 calves which subsequently died of malnutrition. She alleges that the feed was defective and that it was negligently prepared or labeled in violation of Agriculture chapter 18 of the Wisconsin Administrative Code. She seeks $100,000.00 damages for lost profits, expenses while attempting to raise the dying calves, and loss of future earnings from damage to her reputation in the veal raising business. She also asks for double damages and reasonable attorney fees pursuant to Wisconsin Statute § 100.-20(5) (1983-1984), which provides:

Methods of competition and trade practices. (1) Methods of competition in business and trade practices in business shall be fair. Unfair methods of competition in business and unfair trade practices in business are hereby prohibited.
(2) The department, after public hearing, may issue general orders forbidding methods of competition in business or trade practices in business which are determined by the department to be unfair. The department, after public hearing, may issue general orders prescribing methods of competition in business or trade practices in business which are determined by the department to be fair.
(3) The department, after public hearing, may issue a special order against any person, enjoining such person from employing any method of competition in business or trade practice in business which is determined by the department to be unfair. The department, after public hearing, may issue a special order against any person, requiring such person to employ the method of competition in business or trade practice in business which is determined by the department to be fair.
(4) The department of justice may file a written complaint with the department alleging that the person named is employing unfair methods of competition in business or unfair trade practices in business or both. Whenever such a complaint is filed it shall be the duty of the department to proceed, after proper notice and in accordance with its rules, to the hearing and adjudication of the matters alleged, and a representative of the department of justice designated by the attorney general may appear before the department in such proceedings. The department of justice shall be entitled to judicial review of the decisions and orders of the department under ch. 227.
(5) Any person suffering pecuniary loss because of a violation by any other person of any order issued under this section may sue for damages therefor in any court of competent jurisdiction and shall recover twice the amount of such pecuniary loss, together with costs, including a reasonable attorney’s fee.
(6) The department may commence an action in circuit court in the name of the state to restrain by temporary or permanent injunction the violation of any order issued under this section. The court may in its discretion, prior to entry of final judgment make such orders or judgments as may be necessary to restore to any person any pecuniary loss suffered because of the acts or practices involved in the action, provided proof thereof is submitted to the satisfaction of the court. The department may use its authority in ss. 93.14 and 93.15 to investigate violations of any order issued under this section.

The court fails to discern how this statute applies to this lawsuit.

American Feed, an Illinois corporation, argues that Selgado did not have any ownership or property interest in the calves and that she was not the purchaser of the feed. Furthermore, she did not suffer any damage to her person or to her own property. Consequently, under Wisconsin law she cannot recover economic losses from the seller of the feed. The defendant has submitted the deposition of the plaintiff in support of its motion and points out that Selgado testified that she is an independent contractor and that she entered into a verbal contract with Dutch Veal Growers to raise its veal calves. American Feed says that, contrary to the allegation in the complaint, the feed was sold and delivered to Dutch Veal Growers not to Selgado. American Feed concludes that under Wisconsin law the plaintiff cannot recover because she was neither the owner of the calves nor the purchaser of the allegedly defective product. See Leadfree Enterprises v. United States Steel Corporation, 711 F.2d 805 (1983).

The plaintiff also relies on her unverified deposition to show that the feed was shipped directly to her. She argues that Wisconsin courts have allowed tenants to collect damages from an architect for defects in a building, see A.E. Investment Corporation v. Link Builders, Inc., 62 Wis.2d 479, 214 N.W.2d 764 (1974), and that pure economic loss from a defective product was also found to be compensable in another case. See La Crosse v. Schubert, Schroeder & Associates, 72 Wis.2d 38, 240 N.W.2d 124 (1976). Selgado maintains that in her case she is not seeking damages for pure economic loss because she is making a claim for injury to her business reputation.

Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment shall be granted if the record shows that “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Korf v. Ball State University, 726 F.2d 1222, 1226 (7th Cir.1984). The party moving for summary judgment has the burden of establishing that there is no genuine issue of material fact. Egger v. Phillips, 710 F.2d 292, 296 (7th Cir.), cert. denied, 464 U.S. 918, 104 S.Ct. 284, 78 L.Ed.2d 262 (1983). For the purpose of determining whether any material fact remains disputed, the inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Fitzsimmons v. Best, 528 F.2d 692, 694 (7th Cir.1976). These inferences must, however, be reasonably drawn. Posey v. Skyline Corporation, 702 F.2d 102, 104 (7th Cir.), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983). Id. at 105 (citations omitted). The existence of a factual dispute does not necessarily preclude summary judgment unless the disputed fact is outcome determinative under the governing law. Egger, 710 F.2d at 296. A “material issue of fact is one that affects the outcome of the litigation and requires a trial to resolve the parties’ differing versions of the truth.” Admiralty Fund v. Hugh Johnson & Co., 677 F.2d 1301, 1306 (9th Cir.1982).

To create a question of fact, an adverse party responding to a properly made and supported summary judgment motion must set forth specific facts showing that there is a genuine issue for trial ... A party may not rest on mere allegations or denials of his pleadings; similarly, a bare contention that an issue of fact exists is insufficient to raise a factual issue.

Applying these principals of law to the facts presented, the court will determine whether Selgado has properly stated a viable negligence or product liability claim under Wisconsin law, which must be applied under the circumstances of this diversity action. Although the question of who bought the feed from American Feed appears to be in dispute, this fact is not material to a resolution of this motion. The injury was to the calves and her complaint does not allege that she owned the calves. Under the uncontested facts established here, liability of the defendant is clearly precluded under either a negligence or product liability theory. In Leadfree Enterprises v. United States Steel Corporation, the Seventh Circuit affirmed an order of the district court dismissing a case against suppliers and builders of a bridge which had to be closed due to defects, thus interrupting the plaintiff’s business. The district court had ruled that “under Wisconsin law a plaintiff cannot recover [in negligence] unless he has suffered physical injury, property damage, or damage to something in which he has at least some ownership or property interest. 711 F.2d at 807. The trial court had also observed that Wisconsin has “adopted section 402A of the Restatement (Second) of Torts, which states that liability extends to bodily injury or damage to property owned by the plaintiff.” Id. at 808. The court of appeals adopted these conclusions and went on to point out that in A.E. Investment the plaintiff-tenants had a leasehold property interest in the damaged building and that in City of LaCrosse v. Schubert the plaintiff-city owned the defective product which was damaged. Id. at 808-09.

In this case the plaintiff did not have a property interest in the calves that were injured. Therefore, the court rules as a matter of law that she cannot recover for damage to these calves or for any injuries flowing therefrom.

Accordingly, the court ORDERS that the Defendant’s Motion for Summary Judgment Pursuant to FRCP 56 (filed October 18, 1985) IS GRANTED.

IT IS FURTHER ORDERED that the defendant’s Motion for Order Barring the Use of Expert Testimony by Plaintiff (filed January 16, 1986) IS DENIED because it is moot.

IT IS FURTHER ORDERED that the plaintiff’s Motion for Modification of Scheduling Order (filed February 3, 1986) IS DENIED because it is moot.

IT IS FURTHER ORDERED that this action IS DISMISSED.

      . The defendant also assumes that the plaintiff is making a breach of warranty claim. The court cannot find any language in the Complaint which supports this assumption, so it will be disregarded. See Brief in Support of Motion for Summary Judgment at 2.

      . This deposition was not submitted by affidavit or other verification, so the court cannot consider its contents as competent evidence in connection with this motion. See Martz v. Union Labor Life Insurance Company, 757 F.2d 135, 138 (7th Cir.1985).


author: ELMO B. HUNTER, Senior District Judge.

text:
    CONTINENTAL ENTERPRISES, INC., Plaintiff, v. The AMERICAN OIL COMPANY and Amoco Oil Company, Defendants.
    No. 85-0767-CV-W-3.
    United States District Court, W.D. Missouri, W.D.
    Feb. 10, 1986.

      Gordon N. Myerson, Kansas City, Mo., for plaintiff.
    William T. Smith, III, Kansas City, Mo., for defendants.
   OPINION AND ORDER GRANTING SUMMARY JUDGMENT

ELMO B. HUNTER, Senior District Judge.

Before the Court is defendant’s motion to dismiss or for summary judgment on plaintiff’s three-count complaint. The complaint, filed in state court on May 23, 1985, and removed to this court July 5, 1985, concerns a business relationship between the parties for the purpose of operating a service station [“gas dispensing Ride through Tunnel Car Wash”] in Independence, Missouri. Plaintiff states in the complaint that the parties entered several agreements in 1971 and in 1980, one of which was a lease by plaintiff to defendant of a lot located on Noland Road in Independence “for a term commencing on June 8, 1971, and for ten subsequent terms, effectively ... for a period of eleven years.” Complaint, at 3. Plaintiff alleges that defendant “cancelled and failed to renew its lease” on June 7, 1980, constituting tortious interference with contract and breach of contract [Counts 1 and 2]. In Count 3, plaintiff alleges that it detrimentally relied on defendants’ representation that it would be able to operate the service station for a period of eleven years and was thereby damaged. For relief, plaintiff seeks actual damages of $300,000 and punitive damages of $5,000,000.

The instant motion cites several defects in plaintiff’s allegations, primarily focusing on the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, et seq. [the Act], as a basis for dismissal of plaintiff’s claims. The Act became law in 1978 and provides “minimum federal standards governing the termination and non-renewal” of franchise relationships between the distributors of petroleum products and the retailers who sell these products to the public. S.Rep.No. 95-731, 95th Con.2d Sess., reprinted in 1978 U.S.Code Cong. & Ad.News 873. The Act prohibits termination or non-renewal without proper grounds and notice, with strict time limitations “to preclude a franchisor from basing termination or non-renewal upon old and long forgotten events.” Id., at 892. The franchisee is also under a time constraint, as the Act imposes a one-year statute of limitations for civil suits against the franchisor. Section 2805(a) provides as follows:

If a franchisor fails to comply with the requirements of section 2802 or 2803 of this title, the franchisee may maintain a civil action against such franchisor____ [N]o such action may be maintained unless commenced within 1 year after the later of—
(1) the date of termination of the franchise or nonrenewal of the franchise relationship; or (2) the date the franchisor fails to comply with the requirements of section 2802 or 2803 of this title.

Included in § 2802 are the acceptable grounds for termination or non-renewal of the franchise relationship, and § 2803 deals with trial and interim franchises which are not at issue here. The Act provides for preemption of state law in § 2806:

[N]o State or any political subdivision thereof may adopt, enforce, or continue in effect any provision of any law or regulation (including any remedy or penalty ...) with respect to termination ... of any such franchise or to the nonrenewal ... of any such franchise relationship unless such provision of such law or regulation is the same as the applicable provision of this subchapter.

The Act therefore “preempts state laws to the extent that it applies to termination or nonrenewal,” unless the state law is the same as the provision of the Act. CCH Bus.Franch.Guide ¶ 1550. Regarding potential conflicts in federal and state law, the Senate Report concluded that the courts must use equitable principles “to maximize attainment of the competing statutory objectves [sic] consistently with the supremacy clause of the Constitution and the purposes of the Federal legislation.” 1978 Code Cong. & Ad.News at 901.

The question involved in this case is whether the Act applies to the claims made by plaintiff, thus invoking the one-year statute of limitations, or whether Missouri common law applies. The case law dealing with the Act is somewhat limited due to its recent enactment, and the subject of preemption in § 2806 has not been explored in detail by the courts. In support of its motion, defendant relies on district court cases from the Third and Fourth Circuits. Plaintiff opposes the motion primarily on the basis of two cases, Clark v. Mobil Oil Co., 496 F.Supp. 132 (E.D.Mo.1980), and Bsales v. Texaco, Inc., 516 F.Supp. 655 (D.N.J.1981). An examination of the cases, the statute, and the legislative history leads the Court to agree with defendant that the Act is applicable to the claims made by plaintiff in this case.

Defendant relies most heavily on the case of Huth v. B.P. Oil, Inc., 555 F.Supp. 191, 193 (D.Md.1983), which involved both the preemption and statute of limitations provisions of the Act. Plaintiffs sued defendant following termination of their retail gasoline dealership, alleging Maryland common law breach of contract and fraud claims. Under the Maryland statute of limitations, plaintiffs would have had at least three years within which to bring suit. The court found, however, that § 2806 covered both common law remedies as well as common law rights, and the court therefore ruled that the state’s statute of limitations conflicted with the Act’s provision of a one-year limitations period and was unavailable as a remedy. The remaining cases cited by defendant contain conclusory statements but little insight into the breadth of the statute’s preemption provision. The cases are not quite on point, as the claims presented therein generally were brought under both the Act and state law, and the Act’s statute of limitations was not the instrument of dismissal. An examination of thoses cases is nevertheless helpful in defining the scope of § 2806 in preempting state law.

In Siecko v. Amerada Hess Corp., 569 F.Supp. 768, 773 (E.D.Pa.1983), the court ruled that the Act expressly preempted the common law “in this field” and dismissed plaintiffs’ common law claim for breach of fiduciary duty. In Estate of Mamourian, CCH Bus.Franch.Guide ¶ 8093, 8094 (D.N.J.1983), the court stated in a memorandum opinion that “PMPA preempts the law in this field. Thus, plaintiff may not maintain her common law actions for breach of contract, tortious interference with economic advantage or unjust enrichment.” Meyer v. Amerada Hess Corp., 541 F.Supp. 321 (D.N.J.1982), dealt not with a termination of a franchise relationship but with a second franchise agreement allegedly designed to put plaintiff out of business. The court found the Act applicable nonetheless and, because of § 2806(a), held that “PMPA preempts the law in this field” and granted summary judgment on the counts brought under state statutory and common law, leaving only the count brought pursuant to the Act. Id., at 332. An attempt to distinguish common law claims and thus avoid preemption was made in Lanham v. Amoco Oil Co., 481 F.Supp. 405, 406 (D.Md.1979), where plaintiff argued that the rights of a lessee were separate and distinct from the rights of a franchisee. The court held that the common law claim was preempted, due to the broad definition of “franchise” in § 2801(a)(B)(i). In Nesheiwat v. Mobil Oil Corp., CCH Bus.Franch. Guide U 8282 (C.D.Cal.1984), the court found that “the PMPA constitutes plaintiffs exclusive remedy,” thus barring plaintiffs common law promissory estoppel claim.

In contending that his claims are not covered by the Act, plaintiff opposes summary judgment by arguing that the Act does not apply unless a violation of the notice provisions in § 2805 is alleged; that case law distinguishes his claims from those that fall within the scope of the Act; and that the cases relied on by defendant are distinguishable. In the face of legislative history and available case law, however, plaintiffs arguments fall short. The statutory language expressly regulates termination and nonrenewal in requiring that there be both notice and acceptable reasons to support such termination or nonrenewal. Plaintiffs complaint arises from the cancellation by defendant of a lease involved in the franchise relationship. In Counts 1 and 2 of the complaint, plaintiff alleges that defendant’s failure to renew a lease in 1980 constitutes tortious interference with contract and breach of contract. Clearly, the Act is the exclusive remedy for these claims. It is true that the Act was designed with the protection of the franchisee in mind, but the protection is not without a price, namely, adherence to the statute of limitations found in § 2806(a). Plaintiff’s arguments against applicability of the Act, while stated as an argument against preemption, essentially amount to an argument against the application of the statute of limitations found in the Act. Plaintiff cites Clark v. Mobil Oil Corp., supra, for its contention that the Act simply preempts state common law remedies which would bar termination by the franchisor. This limitation of the scope of the Act is not found in the statute or its legislative history; in fact, the provision in § 2805 for actual and punitive damages as well as equitable relief appears to provide the relief sought by plaintiff. The Clark court discussed a Missouri common law rule providing for damages in certain circumstances following termination of an agency relationship, despite the fact that the relationship could be terminated at will. The court, however, did not state expressly that the common law rule applied to the facts of the case. The court commented that “even if” the rule applied, it did not bar termination but provided only for damages, and, in any event, the plaintiff had not made a case for recovery of damages under the rule. This Court finds no basis in the Clark decision to allow a cause of action for breach of contract or tortious interference. Similarly, in Bsales v. Texaco, Inc., supra, the court mentioned plaintiffs’ common law claims [fraud, misrepresentation, promissory estoppel, quasi contract, and tortious interference with prospective economic advantage] but found them without merit in that either the elements of such claims were not present or, even if proved, such claims could not support the injunctive relief sought by plaintiffs. Rather than read Bsales to infer that common law claims may be brought in the instant case, the Court sees in Bsales only an example that multiple grounds for dismissal often exist, particularly where there is a question of preemption or limitations.

In considering plaintiff’s third count, misrepresentation, the Court is mindful of the language in Clark that “defendant is bound [by oral or written representations], even if the requirements of the PMPA for termination or nonrenewal are less stringent than such representations.” 496 F.Supp. at 135. The Clark court did not elaborate on this finding, however, as the absence of a showing of plaintiffs reliance caused the misrepresentation claim to fail, and the court limited relief to that allowable under the Act. Id. In the instant case, plaintiff alleges in Count 3 that defendant represented that plaintiff would be able to operate the service station for eleven years; that plaintiff relied on such representation in purchasing the land and setting up the service station; and “that as a direct result of such representations Plaintiff was damaged as aforesaid.” Complaint, at 5. Because the basis for plaintiffs case is the termination of its relationship with defendant, it is this Court’s opinion that plaintiff’s exclusive remedy in this situation is found in the Act, and that this remedy is unavailable due to its failure to file suit in a timely manner. Even if the Court accepted plaintiff’s argument that Clark saves the misrepresentation claim from preemption, the allegations supporting this count are inconsistent with the undisputed facts of the case. To prevail on a claim for misrepresentation, plaintiff must be able to show that there was a misrepresentation, that he had a right to and did rely on it, and that he was thereby damaged. Rich v. Eastman Kodak Co., 443 F.Supp. 32, 37 (E.D.Mo.1977). Plaintiff’s complaint, supplemented by exhibits, shows only that, if there was a representation that plaintiff would be able to operate the station for eleven years, such representation was not false and caused no damage. Plaintiff operated the service station from June 1971 until November 1982, approximately eleven and one-half years. Rather than rebut defendant’s arguments against Count 3 or reconcile its complaint with its exhibits, plaintiff states in its opposition simply that the claim for misrepresentation “constitutes a sufficient cause of action in this case,” again citing Clark. The Court finds that Clark, while supportive of an argument against preemption in certain circumstances, clearly does not shield the misrepresentation claim from all attack. Although plaintiff relies on its pleadings, the Court “looks beyond pleading allegations to the true facts involved, in determining whether or not a genuine issue is present for determination by the trier of fact.” Horne v. Federal Reserve Bank, 344 F.2d 725, 729 (8th Cir.1965). The Court does not find in the record any genuine issue of fact in Count 3, either considered as a federal or as a state claim, which would require a trial on the merits. The Court therefore includes Count 3 in its grant of summary judgment.

Accordingly, pursuant to Fed.R.Civ.P. 56, the Court having found that there remains no genuine issue as to any material fact in plaintiff’s three-count complaint and that resolution by summary judgment is appropriate, the Court hereby orders summary judgment in favor of defendant on all three counts of the complaint.

SO ORDERED.

      . The court also remarked that the language of § 2805(a), which confers on the franchisee a right of action, is not so narrowly drawn as to require that there have been a termination or nonrenewal before applying the provisions of the Act. Id., at 329; see also Siecko, supra, at 771 n. 2.


author: TEITELBAUM, District Judge.

text:
    MET-COIL SYSTEMS CORPORATION, Plaintiff, v. KORNERS UNLIMITED, INC. and Ductmate Industries, Inc., Defendants.
    Civ. A. No. 85-370.
    United States District Court, W.D. Pennsylvania.
    Feb. 7, 1986.

      Richard W. Hosking, Kirkpatrick & Lockhart, Pittsburgh, Pa., for plaintiff.
    Stanley J. Price, Jr., John C. Brosky, Price & Adams, Ltd., Pittsburgh, Pa., for Korners.
    Melvin L. Moser, Buchanan & Ingersoll, P.C., Pittsburgh, Pa., for Ductmate.
   MEMORANDUM OPINION

TEITELBAUM, District Judge.

Met-Coil Systems Corporation (Met-Coil) is the owner of a patent relating to a system or method of connecting sections of metal ducts. These ducts are normally used in buildings as part of the heating and air conditioning systems. Under Met-Coil’s system the ends of the metal duct sections are bent to form integral flanges, specially shaped corner pieces are snapped in place and the sections then bolted together. According to Met-Coil’s affidavit the essential parts of this system are the integral flanges and the special corner pieces.

Met-Coil, through a subsidiary and through a licensee, manufactures and sells roll-forming machines. These machines bend the ends of the metal duct sections to form the integral flanges. Met-Coil does not actually form the ducts or form the integral flanges itself. Rather, it is the purchasers of Met-Coil’s roll-forming machines who actually bend the metal to form the ducts and the integral flanges.

Met-Coil, through another subsidiary and through its licensee, also manufactures and sells special corner pieces for use with the integral flanges.

Korners Unlimited, Inc. (Korners) manufactures and sells corner pieces, which it refers to as “C” corners. “C” corners are specifically made for use with the Met-Coil integral flange and are sold only to purchasers of Met-Coil’s roll-forming machines.

Met-Coil alleges Korner’s manufacture and sale of “C” corners infringes its patent. Korners moves for summary judgment.

The elements of infringement are set forth in 35 U.S.C. § 271 which states the following:

271. INFRINGEMENT OF PATENT.
(a) Except as otherwise provided in this title, whoever without authority makes, uses or sells any patented invention, within the United States during the term of the patent therefor, infringes the patent.
(b) Whoever actively induces infringement of a patent shall be liable as an infringer.
(c) Whoever sells a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.

Korners first contends it is not a direct infringer of Met-Coil’s patented system of connecting sections of metal ducts. Although it opposes Korner’s motion for summary judgment, Met-Coil does not assert that Korner’s manufacture and sale of “C” corners directly infringes its patent.

Korners next contends it cannot be held liable for contributing to infringement or inducing infringement because there is no direct infringement. There can be no contributory infringement unless there is direct infringement. Deepsouth Packing Co., Inc. v. Laitram Corp., 406 U.S. 518, 526, 92 S.Ct. 1700, 1706, 32 L.Ed.2d 273 reh. denied, 409 U.S. 902, 93 S.Ct. 94, 34 L.Ed.2d 165 (1972). Similarly, there can be no inducement of infringement without direct infringement. 35 U.S.C. § 271(b). There is no direct infringement, Korners argues, because those to whom Korners sells its “C” corners are the purchasers of Met-Coil’s roll-forming machines and, by selling the roll-forming machines, Met-Coil grants these purchasers an implied license to practice Met-Coil’s patented duct connecting system.

Met-Coil, on the other hand, contends its sale of roll-forming machines does not confer an implied license to purchase “C” corners from Korners.

United States v. Univis Lens Co., 316 U.S. 241, 62 S.Ct. 1088, 86 L.Ed. 1408 (1942) limits a patent owner’s efforts to control his invention after the sale of an essential element. Univis owned a patent covering multifocal eyeglass lenses. Univis manufactured blank lenses and sold them to designated licensees. These licensees then ground and polished the blank lenses. The court stated:

But in any case it is plain that where the sale of the blank is by the patentee or his licensee — here the Lens Company — to a finisher, the only use to which it could be put and the only object of the sale is to enable the latter to grind and polish it for use as a lens by the prospective wearer. An incident to the purchase of any article, whether patented or unpatented, is the right to use and sell it, and upon familiar principles the authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold. Sale of a lens blank by the patentee or by his licensee is thus in itself both a complete transfer of ownership of the blank, which is within the protection of the patent law, and a license to practice the final stage of the patent procedure.

316 U.S. at 249, 62 S.Ct. at 1093 (citations omitted). The court went on:

[WJhere one has sold an uncompleted article which, because it embodies essential features of his patented invention, is within the protection of his patent, and has destined the article to be finished by the purchaser in conformity to the patent, he has sold his invention so far as it is or may be embodied in that particular article.

316 U.S. at 250-51, 62 S.Ct. at 1093-94.

Medeco Security Locks, Inc. v. Lock Technology Corp., 199 U.S.P.Q. 519 (S.D.N.Y.1976) reaches the same result. Medeco manufactured and sold patented locks and patented keys. Medeco also manufactured and sold unpatented key blanks for use in making replacement keys. The defendant manufactured and sold kits to open Medeco’s locks. The kits contained blank keys which had been cut into parts and could be recombined to form a key.

Medeco charged that the defendant’s recombined key infringed its patented key. The court considered whether the defendant had an implied license to practice the patent. The key blanks were purchased by the defendant from Medeco and could only be used with Medeco’s lock. The court found Medeco’s sale of the key blanks constituted the grant of an implied license to the purchaser to make the patented key.

Here Met-Coil sold roll-forming machines to bend the ends of the metal duct sections to form integral flanges. The integral flanges are an essential part of Met-Coil’s patented duct connecting system. The integral flanges have no use other than in the practice of the duct connecting system. Based on Univis and Medeco, Met-Coil’s sale of roll-forming machines is a license to its purchasers to practice the final stage of the patented system.

Leeds & Catlin Co. v. Victor Talking Machine Co., 213 U.S. 325, 29 S.Ct. 503, 53 L.Ed. 816 (1909), relied upon by Met-Coil, is inapposite. Victor was the owner of a patent covering the combination of a phonograph record and a stylus. Leeds & Catlin manufactured and sold phonograph records. The court held Leeds & Catlin’s records infringed Victor’s patented “talking machine.” The court held the purchase of records by owners of the talking machine was the impermissible reconstruction of the patented invention and not the permissible repair of the invention.

The question of whether the purchasers of the talking machine had an implied license was not expressly addressed by the court. Contrary to Met-Coil’s suggestion that Leeds & Catlin rejects the concept of an implied license, Leeds & Catlin at most holds that any implied license granted to the purchasers of the talking machine extends to the repair of the invention, but not to its reconstruction. See Andco Environmental Processes Inc. v. Niagra Environmental Associates, Inc., 206 U.S.P.Q. 656, 664 (W.D.N.Y.1980) (any implied license stemming from the sale of a patented system terminates when the system is reconstructed with infringer’s components).

Leeds & Catlin sheds little light on the present case. Leeds & Catlin dealt with the sale of a completed article, a talking machine, and the purchasers’ right to repair, but not reconstruct, it. The case presently before the court deals with Met-Coil’s sale of a machine which makes integral flanges, one element of a duct connecting system. The teachings of Leeds & Catlin on the repair or reconstruction of a completed article are not relevant to the present sale of an uncompleted article. Rather, it is Univis and Medeco which dealt with the implied license to complete an uncompleted article and which must control the disposition of the present case.

It should be noted, however, that unlike Univis and Medeco, the practice of the final stage of Met-Coil’s patented system requires not just “finishing” the element sold, i.e. forming the integral flanges, but also the purchase of an additional element of the patented system, i.e. the corner pieces. Met-Coil cites no authority which suggests that this difference takes the present case out of the rule of Univis and Medeco. Leeds & Catlin does limit the purchasers’ right to purchase an element of a patented combination, but as explained above, Leeds & Catlin addresses the question in the context of a purchaser who already owns the completed invention.

Because the purchasers of Met-Coil’s roll-forming machines have an implied license to practice the patent and therefore are not direct infringers, Korners cannot be a contributory infringer or induce infringement. Accordingly the motion for summary judgment will be granted.

An appropriate order will be entered.

      . For convenience reference is made to Met-Coil rather than its subsidiaries or its licensee.


author: McLAUGHLIN, District Judge.

text:
    Libertad MORCIGLIO, Plaintiff, v. NEW YORK CITY FIRE DEPARTMENT, Defendant.
    No. 83 CV 3762.
    United States District Court, E.D. New York.
    Feb. 11, 1986.

      Dewey, Ballantine, Bushby, Palmer & Wood, Brooklyn, N.Y. (Saul P. Morgenstern and Deborah Neff, of counsel), for plaintiff.
    Frederick A.O. Schwarz, Jr., Corp. Counsel, New York City (Michele Ovesey, Elizabeth Dale Kendrick, Grace Goodman, of counsel), for defendant.
   ORDER

McLAUGHLIN, District Judge.

The annexed Report and Recommendation of United States Magistrate A. Simon Chrein is hereby adopted as the Opinion of this Court. No objections were filed within the time permitted. Accordingly, defendant’s motion for summary judgment is denied.

SO ORDERED.

REPORT AND RECOMMENDATION

A. SIMON CHREIN, United States Magistrate.

This is an action under 42 U.S.C. § 1983 claiming a violation of due process and equal protection, under Title VII, 42 U.S.C. § 2000e et seq., for a discriminatory demotion, and under the New York State Constitution for a violation of human rights. N.Y. Const., art. 1, §§ 6, 11. This court has jurisdiction under 28 U.S.C. § 1343(a)(3), (4) and under pendent jurisdiction. The plaintiff alleges that she was disciplined without due process and in violation of equal protection when she was removed from a noncivil service, in-house title for racial reasons and without notice and an opportunity to be heard.

BACKGROUND

The plaintiff began working for the Office of the Inspector General of the New York City Fire Department on October 6, 1980. Defendant’s Statement of Material Facts at ¶ 1, Aug. 8, 1984. She worked in the noncompetitive, nontenured civil service position of Confidential Investigator Level I until December 1,1981. Id. at ¶ 2. As of December 1, 1981, Ms. Morciglio was promoted to the noncompetitive, nontenured civil service position of Confidential Investigator Level II. Id. at 113.

In January 1982, the plaintiff was given the noncivil service, in-house title of Chief Investigator. Id. at ¶ 4. As of March 1, 1983, she was promoted to the provisional civil service title of Principal Investigator, a position she continued to hold until her termination on May 17, 1984. Affidavit in Opposition to Application for Preliminary Injunction at 1J 2, Aug. 29, 1983; Affidavit in Support of Defendant’s Motion for Summary Judgment at ¶ 9, Aug. 7, 1984. Defendant’s Memorandum of Law in Opposition to Plaintiff’s Application for a Preliminary Injunction at 2, Sept. 23, 1983 [hereinafter cited as “Memorandum in Opposition to Preliminary Injunction”]; Affidavit of Libertad E. Morciglio at 1118, Dec. 21,1984.

As Chief Investigator, Ms. Morciglio was given supervisory duties in addition to her investigative duties. Her promotion in civil service status to Principal Investigator was intended to provide her accordingly with a salary increase to compensate her for these additional duties. Defendant’s Statement of Material Facts at § 5. This salary increase was retroactive to January 1982, the date she actually began her supervisory duties. Affidavit in Support of Preliminary Injunction at ¶ 4, Aug. 30, 1983.

The plaintiff was suspended from her in-house title of Chief Investigator on August 11, 1983 and, although retaining her civil service position as Principal Investigator, was relieved of her supervisory duties. Defendant’s Statement of Material Facts at U 6; Complaint at ¶[¶ 5, 7, 8. The plaintiff brought this action on August 25, 1983 challenging the removal of her title of Chief Investigator.

Nine months after this action was brought, the plaintiff’s employment with the New York City Fire Department was terminated. Affidavit of Libertad E. Morciglio at ¶ 18, Dec. 21, 1984.

The plaintiff alleges in her first claim that her suspension as Chief Investigator violated her due process and equal protection rights in violation of 42 U.S.C. § 1983 since she was suspended with no notice or hearing and for racially discriminatory reasons. Complaint at 111115-18, 20. In her second claim, the plaintiff alleges a denial of equal employment opportunity in violation of Title VII since she was suspended for racial reasons. Id. at fl 21. The plaintiff also alleges a violation of her due process and equal protection rights under the New York State Constitution as a pendent claim. Id. at 11 22.

The plaintiff seeks damages, equitable relief, and attorney’s fees. Id. at 4-5.

While the defendant has moved for summary judgment of this action, it challenges only the claim under 42 U.S.C. § 1983. The question articulated by the defendant in its motion for summary judgment, i.e., whether or not the plaintiff’s position as Chief Investigator is entitled to the protections of New York Civil Service law, pertains solely to the first cause of action and does not affect the basis for her other claims. See Defendant’s Statement of Material Facts at H 13. See also Defendant’s Memorandum of Law in Support of its Motion for Summary Judgment at 3, Aug. 15, 1984 [hereinafter cited as “Memorandum in Support”] (defendant argues that the plaintiff alleges no protected property or liberty interest in her position as Chief Investigator and, therefore, has no due process right to notice and a hearing before suspension).

For this reason, it is my opinion that this motion should be treated as one for partial summary judgment, i.e., summary judgment on the plaintiff’s cause of action under 42 U.S.C. § 1983.

Discussion

The plaintiff raises a claim that she was denied procedural due process in her suspension as Chief Investigator. Procedural due process is required only where there was a “deprivation of interests encompassed by the Fourteenth Amendment’s protection of liberty and property.” Bd of Regents v. Roth, 408 U.S. 564, 569, 92 S.Ct. 2701, 2705, 33 L.Ed.2d 548 (1972). The plaintiff has alleged no protected property interest but does raise a valid deprivation of liberty claim.

The plaintiff alleges that she is entitled to the protections of New York Civil Service Law since she was a permanent civil servant at the time of her supervision. Complaint at If 13. In fact, the plaintiff’s position as Chief Investigator was not a civil service position and as such, enjoyed no civil service protections. It was merely an in-house title from which she could be removed at will by the Inspector General. A public employee does not have a constitutionally-protected property interest in employment unless state law or an implied contract establishes a legitimate entitlement to continued employment. Bishop v. Wood, 426 U.S. 341, 344, 96 S.Ct. 2074, 2077, 48 L.Ed.2d 684 (1976), citing Perry v. Sindermann, 408 U.S. 593, 601, 92 S.Ct. 2694, 2699, 33 L.Ed.2d 570 (1972) and Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972).

Ms. Morciglio, therefore, had no property interest in her Chief Investigator title that would be protected by 42 U.S.C. § 1983 and, accordingly, had no right to due process before being suspended. (The plaintiff’s complaint and subsequent submissions make no allegations concerning her subsequent termination from her civil service position as a Principal Investigator.)

While the plaintiff had no property interest in her position as Chief Investigator, she alleges a valid liberty interest protected by 42 U.S.C. § 1983. The plaintiff alleges that the defendant’s decision to discipline her without notice and an opportunity to be heard has stigmatized and continues to stigmatize her as she seeks other employment. Plaintiff’s Memorandum of Law in Opposition to Defendant’s Motion for Summary Judgment at 4, Dec. 21, 1984. [hereinafter cited as “Memorandum in Opposition”]. See Affidavit of Libertad E. Morciglio at ¶¶15, 18, 20.

A state infringes an employee’s liberty interest when in terminating him, it makes charges “that might seriously damage his standing and associations in his community” or it “impose[s] on him a stigma or other disability that foreclosed his freedom to take advantage of other employment opportunities.” Bd. of Regents v. Roth, 408 U.S. 564, 573, 92 S.Ct. 2701, 2707, 33 L.Ed.2d 548 (1972); Longarzo v. Anker, 578 F.2d 469, 472 (2d Cir.1978). The state must also have publicized the stigmatizing reasons for its termination in order to have infringed his liberty interest. Bd. of Curators of the Univ. of Missouri v. Horowitz, 435 U.S. 78, 83, 98 S.Ct. 948, 951, 55 L.Ed.2d 124 (1978); Longarzo, 578 F.2d at 472.

The plaintiff alleges that she was falsely accused by her employer of having disclosed confidential material regarding a pending confidential investigation. See Affidavit in Opposition to Application for Preliminary Injunction at ¶¶ 7-9, Aug. 29, 1983 [hereinafter cited as “Affidavit in Opposition”]; Affidavit of Libertad E. Morciglio at ¶¶7-13; Memorandum in Opposition at 2. The Inspector General maintains that the plaintiff’s actions “constituted unprofessional conduct and a grievous breach of her obligations to maintain the confidentiality of all investigations conducted “by his office,” warranting dismissal. Affidavit in Opposition at ¶ 10.

The plaintiff, in later submissions, alleges that these reasons were communicated to prospective employers to whom she applied for a position and who, as a result, did not hire her. Affidavit of Libertad E. Morciglio at ¶¶ 15-20. Memorandum in Opposition at 4-5. Ms. Morciglio asserts that her employer’s charges of a breach of confidentiality threaten her ability to seek and obtain employment since her occupation as a confidential investigator “is one in which confidentiality is of paramount importance.” Memorandum in Opposition at 4. See Capers v. Long Island Railroad, 429 F.Supp. 1359, 1368 (S.D.N.Y.1977) (a stigma of moral turpitude infringes the liberty interest while a charge of incompetence or inability to get along with coworkers does not).

Since these stigmatizing reasons may restrict her ability to seek and obtain future employment in her profession or occupation, their communication by her employer may violate her liberty interest. See Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 446 (2d Cir.1980).

Although the plaintiff does not allege in her complaint that the stigmatizing reasons were publicized outside the Inspector General’s Office at the time of her demotion, she alleges in subsequent submissions that they were communicated to prospective employers two months after her suspension and will continue to be so communicated in the future. Memorandum in Opposition at 2, 3, 5; Affidavit of Libertad E. Morciglio at ¶¶ 15, 17, 20.

The fact that the stigmatizing remarks were not made simultaneously with the suspension does not preclude a § 1983 action since “[t]he damage to the individual is the same whether the defamatory information is released simultaneously with the firing or some period of time afterwards.” Holly v. City of Naperville, 571 F.Supp. 668, 676 (N.D.Ill.1983).

While the defendant is correct that a plaintiff’s claim must be based upon facts in existence at the time the complaint was filed, it is my view that the fact that the stigmatizing reasons offered by her employer were made known to her at the time of her suspension, and the fact that the employer did not have the opportunity to publicize these reasons to a prospective employer until a later period of time should not preclude the plaintiff’s claim of a liberty violation.

It would be a mere technicality and an inefficient use of the court’s time to dismiss this claim for failure to allege a publication in the complaint and require the plaintiff to refile the action with this additional allegation. Instead, since, as here, the subsequent defamatory remarks relate to the suspension and since this is a motion for summary judgment where the court may consider all. premotion submissions in determining its ruling, it is my view that the plaintiff has made out a prima facie case for a violation of her liberty interest.

The defendant has failed its burden to show that there are no material issues of fact in dispute since the parties disagree on the remarks, if any, actually communicated to prospective employers as well as on their stigmatizing effect.

For the foregoing reasons, I respectfully recommend that the defendant’s motion for summary judgment on the plaintiff’s claim under 42 U.S.C. § 1983 be denied.

SO ORDERED.


author: MORAN, District Judge.

text:
    Arthur SALKIN, Plaintiff, v. Harold WASHINGTON, Mayor, the City of Chicago, a municipal corporation, and Eugene Barnes, Defendants.
    No. 84 C 10667.
    United States District Court, N.D. Illinois, E.D.
    Feb. 12, 1986.

      Lawrence W. Leek, Lawrence W. Leek and Associates, Ltd:, Chicago, Ill., for plaintiff.
    Arthur N. Christie, Asst. Corp. Counsel, City of Chicago, Chicago, Ill., for defendants.
   MEMORANDUM AND ORDER

MORAN, District Judge.

On April 12, 1983, Harold Washington was elected Mayor of the City of Chicago. On November 11, 1983, plaintiff was fired from his job as the chief engineer of the City of Chicago’s Department of Sewers. About a year later he filed this suit under § 1983 and the 1972 Shakman consent judgment. The complaint has been amended three times and plaintiff now presents the following claims.

In count I plaintiff claims the defendants’ actions deprived him of his job without a hearing, in violation of the Fifth and Fourteenth Amendments. In count II he claims the defendants' actions were motivated by concerns over his political affiliation, in violation of his First and Fourteenth Amendment rights. In count III he claims the defendants violated the 1972 Shakman consent judgment. See Shakman v. Democratic Organization of Cook County, 481 F.Supp. 1315, 1356-59 (N.D.Ill.1979), as amended, 569 F.Supp. 177 (N.D.Ill.1983). Count IV explains that defendant Barnes was acting director of the Department of Sewers when plaintiff was terminated and was directly responsible for his termination, in violation of his First Amendment rights.

Defendants have moved to dismiss the complaint, arguing that the first count has no substantive merit, the second and fourth counts suffocate in the quicksand of § 1983 pleading requirements, and the third count fails to follow the timetable set out in the Shakman decree. We agree with defendants as to the first and third counts, and accordingly dismiss those from the complaint. However, because we disagree with the defendants on the second and fourth counts, the suit survives on these claims.

Facts

The facts as set out in plaintiff’s amended complaint are these. He began working for the City in 1949. From his first job as a sewer draftsman, he gradually moved up in the engineering division at the Department of Sewers. In 1967 he was made assistant chief engineer for the Department of Sewers, and in 1976 he was promoted to chief engineer. He occupied this position until he was fired. His duties included supervising construction programs and recommending new projects to the Commissioner or Assistant Commissioner of Sewers. Plaintiff states his termination was unrelated to his job performance.

Since 1957 the basic standard used to dismiss a complaint has been “only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Hishon v. King & Spaulding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984). This standard guides our analysis of plaintiff’s complaint set out below.

Count I: Deprivation of Property Without Due Process of Law

Plaintiff claims defendants wrongfully deprived him of his job by failing to provide a hearing either prior to or upon discharge. This claim can stand only if the plaintiff has a property right protected by the Constitution's due process guarantee. Although jobs are deemed property, they are so only if the jobholder has a legitimate claim of entitlement to the position. Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972). In the plaintiff’s case he would have to allege he had an entitlement to retain his job because of an official or unofficial state rule or policy that created the entitlement. Id.; Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972). Plaintiff has alleged neither.

Plaintiff alleges he was a “senior executive service” employee, as opposed to a “career service” employee. As defendants point out, only the latter are entitled by ordinance to discharge only for cause after a hearing. See Municipal Code of Chicago, §§ 25.1-5(12), 25.1-6. Plaintiff admits the same in his briefs. Given these circumstances plaintiff has no property right under an explicit state rule or policy.

Plaintiff’s contention that he has an expectation of continued employment, based on years of service, also does him no good. See Hadley v. County of DuPage, 715 F.2d 1238, 1244 (7th Cir.1983), cert. denied, 465 U.S. 1006, 104 S.Ct. 1000, 79 L.Ed.2d 232 (1984). He has failed to allege an implicit rule or policy which would create a property right. Instead, he alleges that the City “had a policy of not providing hearings prior to and upon discharge of senior executive service employees” (plaintiff's third amended complaint, ¶ 17). This cuts directly against his due process claim. Because no set of facts consistent with this allegation could create a property right, we must dismiss count I. Given plaintiff’s three chances to amend his complaint, we dismiss this count with prejudice.

Count II: Discharge in Retaliation for Political Association

In count II plaintiff sues the City and Mayor Washington, in his individual and official capacity, for discharging him because he refused to politically support the Mayor. Rather than contest plaintiff’s contention that his First Amendment rights were violated, defendants argue that this claim cannot withstand the pleading requirements of § 1983 actions.

In order to successfully impose liability on a municipality like the City under § 1983, the requirements of Monell v. Department of Social Services, 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978), must be met. In Monell the court determined that a city’s liability cannot be based simply on the fact that it hired someone who in turn violated another’s constitutional rights (the doctrine of respondeat superior). Rather, the city itself must have acted to cause the deprivation. Thus, the court held that “it is when execution of a government’s policy or custom ... by those whose edicts or acts may fairly be said to represent official policy inflicts the injury that the government as an entity is responsible under § 1983.” Id. at 694, 98 S.Ct. at 2037. As the Supreme Court recently stated, “Monell’s ‘policy or custom’ requirement should make clear that, at the least, that requirement was intended to prevent the imposition of municipal liability under circumstances where no wrong could be ascribed to municipal decisionmakers.” City of Oklahoma City v. Tuttle, 471 U.S. —, —, 105 S.Ct. 2427, 2435, 85 L.Ed.2d 791 (1985) (city police officer shot and killed suspect without reasonable belief that suspect was armed and dangerous).

The Seventh Circuit has applied Monell at the pleading stage. In Powe v. City of Chicago, 664 F.2d 639, 650 (7th Cir.1981), the court held that “[t]he allegation of a single incident of unconstitutional conduct by a municipal employee usually does not establish a sufficient basis for suing a municipality.” While this seemed to suggest that plaintiffs must also allege that a municipality’s practice, policy or custom caused the unconstitutional conduct of its employees, the court has recently stated that even this is not enough to withstand dismissal in some circumstances. Strauss v. City of Chicago, 760 F.2d 765 (7th Cir. 1985). Strauss involved a single incident of unlawful arrest and injury. The plaintiff, to support his § 1983 claim, identified several “customs and practices” of the City which caused the unlawful police conduct. The lower court dismissed the suit and the Seventh Circuit upheld the dismissal because plaintiff had alleged “no facts to suggest that the policies of which he [the plaintiff] complains actually exist.” Id. at 767. The court further held that “a complaint that tracks Monell’s requirement of official policy with bare allegations cannot stand when the policy identified is nothing more than acquiescence in prior misconduct.” Id. at 767.

Defendants rely on Strauss to argue for dismissal in this case. Plaintiffs complaint alleges that “the defendant City of Chicago, a municipal corporation, and its Mayor, Harold Washington, had a policy of discharging from employment senior executive service employees who had no identifiable political affiliation” (count II, § 18) and “the defendant City of Chicago had a policy of discharging from employment those senior executive service employees who were not identified by the City of Chicago through its agents, employees and servants, and/or Mayor Harold Washington, as being politically supportive of the defendant Harold Washington” (count II, § 19). Defendants argue that plaintiff's allegations cannot stand because he has not pled any facts to support them, as required by Strauss.

We find defendants’ reliance upon Strauss misplaced for several reasons. Strauss involves an occasion of police brutality against one individual. That situation poses two Monell -based problems not present in the instant case. First, the policy or custom which might cause the illegal conduct is hard to define. In Strauss, the plaintiff pled that the City had a custom and practice of hiring people for police jobs who were prone to brutality, and then encouraging that tendency by failing to discipline them. See id. at 766. Second, the policy is defined in negative terms: what the City didn’t do, as opposed to what it did. Both these problems make the Strauss -like policy hard to “attribute to a municipal policymaker,” Tuttle at 2436, rendering the causality factor required in Monell difficult to prove.

In the instant case the policy is clearly articulated, “ring out the old, bring in the new,” and clearly attributable to certain policymakers, namely the Mayor. Further, plaintiff is claiming that his injury was caused by “faults systemic in nature,” rather than by the “isolated independent tort of an individual employee.” Strauss 760 F.2d at 770. Of course, plaintiff must still prove the policy existed, but surely we shouldn’t dismiss his complaint because he has yet to prove its allegations. Means v. City of Chicago, 535 F.Supp. 455, 459 (N.D.Ill.1982).

Strauss also recognized that the facts it called for need not be elaborate and well developed. Id. at 769. The minimum standard it set is: “... some fact indicating the existence of some such policy must be pled. Without some evidence apart from the fact of employment, regardless how slight, that a policy causing plaintiff’s injury might exist, the plaintiff simply cannot proceed in court against the municipality.” Id. at 768 (emphasis added).

Plaintiff here has pled such a fact by alleging that his dismissal had nothing to do with job performance. This fact raises the reasonable inference that some other cause, mainly the policy of discharging those not politically aligned with the May- or, was at work in plaintiff’s case. We find this fact meets Strauss’ pleading requirement.

Plaintiff’s claim lies not only against the City but also against the Mayor in his official capacity. Washington’s acts “may fairly be said to represent official policy.” Monell, 436 U.S. at 694, 98 S.Ct. at 2037; see also Tuttle, 105 S.Ct. at 2440 n. 5 (Brennan, J, concurring); Kentucky v. Graham, 473 U.S. —, 105 S.Ct. 3099, 3105, 87 L.Ed.2d 114 (1985). Whether the claim will also lie against Washington in his individual capacity is determined by whether the complaint alleged “any personal involvement” on his part in the illegal conduct. Shashoua v. Quern, 612 F.2d 282, 284 (7th Cir.1979). See also Rizzo v. Goode, 423 U.S. 362, 370-71, 96 S.Ct. 598, 603-04, 46 L.Ed.2d 561 (1976). In paragraph 19 of his amended complaint, plaintiff alleges that the Mayor personally identified those senior executive service employees who were not his political supporters. This allegation of personal involvement satisfies the requirement of Shashoua and so the claim will lie against Washington in his individual capacity as well.

Count III: Violation of the Shakman Decree

In count III plaintiff claims his discharge violated the 1972 Shakman consent judgment (decree). The decree resolved the voting rights claims brought by plaintiffs by prohibiting patronage in the City’s employment decisions except for those positions which “by their nature involve policy-making to such a degree or are so confidential in nature as to require that discharge from such positions be exempt.” Shakman v. Democratic Organization of Cook County, 481 F.Supp. 1315, 1358 (N.D.Ill.1979). Plaintiff’s position is in this exempt category (and the nature of his position may ultimately be fatal to plaintiff’s § 1983 claims, but those cannot be determined in a motion to dismiss). See Shakment, 569 F.Supp. 177, 201 (N.D.Ill.1983). Plaintiff claims he should be excluded from this policymaking category because his job was primarily ministerial. However, the decree has a 90-day limitation on actions challenging exempt status. Shakman, 569 F.Supp. at 207. Plaintiff was fired on November 11, 1983, and brought suit alleging, inter alia, the Shakman violation on December 13, 1984, more than 90 days after his discharge. Plaintiff’s Shakman claim must therefore be dismissed.

Count IV: Liability of Eugene Barnes

Defendant Eugene Barnes, as acting director of the Department of Sewers, terminated plaintiff on November 11, 1983. Count IV claims Barnes’ actions violated plaintiff’s First Amendment rights. Plaintiff does not specify whether count IV is brought against Barnes in his official or individual capacity, but the court assumes the claim is against Barnes in his official capacity. Such a suit against Barnes is equivalent to a suit against the City because the “real party in interest is the entity.” Kentucky v. Graham, 473 U.S. at —, 105 S.Ct. at 3105. As we have already determined, plaintiff’s First Amendment suit will lie against the City. It will therefore also lie against Barnes in his official capacity.

Conclusion

Defendants’ motion to dismiss plaintiff’s complaint is granted as to counts I and III, and denied as to counts II and IV.

      . We are not holding here that plaintiffs allegations were not enough, but rather that they were the wrong ones. An allegation of a custom or unofficial policy which creates a property interest is enough to survive a motion to dismiss. See Auriemma v. City of Chicago, 601 F.Supp. 1080, 1083 (N.D.Ill.1982).

        . The court in Tuttle was faced with a similarly amorphous policy of "inadequate training.” Tuttle, 105 S.Ct. at 2436. The overriding concern of the Justices in that case, as in Strauss, was with the problem of establishing an affirmative causal link between the City's conduct and the plaintiff’s injury, when a single incident is the only evidence of such an amorphous policy. Id. at 2437 and 2440-41 (Brennan, J, concurring).

      . Although not cited by the defendants, the court notes that Judge Holderman recently held the other way in a similar case. See William Adrian v. Anthony Gibbs, 85 C 5446, slip op. (N.D.Ill. Oct. 28, 1985). We differ with the reasoning in that case and also note that the opinion fails to mention whether the plaintiff in that case alleged that his job performance was never an issue in his discharge.

      . Plaintiff argues that the 90-day limitation should be tolled by promises he received from the City about another position in the government. However, plaintiff fails to allege when those promises were made or what time span they cover. Without this information the court assumes they were made shortly after he was fired and did not extend the ten months necessary to bring the claim within the 90-day limit.


author: LASKER, District Judge.

text:
    Phyllis CHAPLIN, on behalf of herself and all others similarly situated; and Epilepsy Foundation of America, Plaintiffs, v. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.; Charles Luce, individually and in his capacity as Chairman of The Board of Trustees of Consolidated Edison Company of New York, Inc.; Arthur Hauspurg, individually and in his capacity as President of Consolidated Edison Company of New York, Inc.; Regina Frederickson, individually and in her capacity as Director of Personnel of Consolidated Edison Company of New York, Inc.; Thomas M. O’Sullivan, individually and in his capacity as Assistant Director of Personnel of Consolidated Edison Company of New York, Inc.; John Holbrook, individually and in his capacity as a Personnel Representative of Consolidated Edison Company of New York, Inc.; Herman Halpern, individually and in his capacity as Medical Director of Consolidated Edison Company of New York, Inc.; and Jane Doctor and John Doctor, individually and in their capacities as unknown and unnamed physicians of the Medical Department of Consolidated Edison Company of New York, Inc., Defendants.
    No. 79 Civ. 730(MEL).
    United States District Court, S.D. New York.
    Feb. 13, 1986.
    See also 537 F.Supp. 1224.
    John E. Kirklin, Director of Litigation, Civil Appeals & Law Reform Unit, The Legal Aid Soc., New York City, Jeffrey G. Abrandt, Attorney-in-Charge (Jonathan Ben-Asher, of counsel), Office for the Aging, Brooklyn, N.Y., for plaintiffs.
    Ernest J. Williams, New York City, for defendants; Barry S. Goldstein, Geraldine O’Donnell, of counsel.
   LASKER, District Judge.

In this action based on Section 504 of the Rehabilitation Act of 1973 (“the Act”), 29 U.S.C. § 794, Phyllis Chaplin, on behalf of herself and all others who, like her, suffer from epilepsy, and the Epilepsy Foundation of America, seek compensatory and injunctive relief from Consolidated Edison Company of New York and various employees (collectively referred to as “Con Ed”), based on Con Ed’s refusal to hire Ms. Chaplin and other qualified job applicants. As originally filed, the complaint alleged a cause of action based on Section 503 of the Act, as well as a cause of action based on Section 504. However, in an opinion reported at 579 F.Supp. 1470 (S.D.N.Y.1984), this Court granted Con Ed’s motion to dismiss the Section 503 claims, and with regard to the Section 504 claims, granted plaintiffs’ motion to compel discovery on the subject of the nature of the federal assistance received by Con Ed and the way in which that assistance is used in Con Ed’s operations.

After complying with plaintiffs’ discovery requests, Con Ed moves for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons set forth below, Con Ed’s motion is granted. # * * * * *

Section 504 of the Act provides in pertinent part:

No otherwise qualified handicapped individual ... shall, solely by reason of his handicap, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance____

As the language of the statute makes clear, a prerequisite to the application of this provision is that the program or activity from which plaintiff complains it has been discriminatorily excluded be the recipient of federal financial assistance.

Ms. Chaplin applied for a customer field representative position with Con Ed in August of 1978 without being referred by any outside agency. At that time, Con Ed’s Specialized Training Department was under contract with the federal government through CETA (Comprehensive Employment Training Act) and WIN (Work Incentive Program) to conduct training programs. These programs were under the administrative control of several local and state agencies. Con Ed would train candidates that were referred to it by those local agencies and then its Specialized Training Department would be reimbursed for the costs incurred in implementing the program. The parties are in basic agreement as to these facts. It is only their legal implications that are in dispute.

Plaintiffs argue that the CETA and WIN funds constitute a benefit not only to the program or activity at Con Ed that directly received them (the Specialized Training Department) but also to all units or programs which subsequently employed any of the people trained in the federally funded program. Plaintiffs contend that when Ms. Chaplin was turned down, because of her handicap, for a position as a customer field representative, the division or program that turned her down (Department of Division Operations) was the recipient of federal financial assistance in the form of the benefit of having employees who were trained at federal expense. .

In the alternative, plaintiffs argue that the tax credits received by Con Ed for capital expenditures on tangible property constitute federal financial assistance to all programs and divisions within the organization, since all divisions purchase items subject to the credit.

Con Ed responds that only the training division receives federal assistance under the CETA and WIN programs, and since Ms. Chaplin did not apply to the training division through a local agency referral, but only applied through ordinary, off-the-street channels for employment and not training, the federal financial assistance Con Ed receives is insufficient to support a Section 504 claim. Con Ed further argues that the program-specific nature of Section 504 renders it inconceivable that an across-the-board investment tax credit is sufficient to trigger Section 504 coverage.

* * * * * *

In Grove City College v. Bell, 465 U.S. 555, 104 S.Ct. 1211, 79 L.Ed.2d 516 (1984), the Supreme Court addressed, in the context of Title IX, protection against discrimination in education, the issue of what constitutes a “program or activity receiving federal financial assistance.” In that case, several students in a private college received direct grants which they used to pay the college tuition. The Court held that such federal assistance was sufficient only to trigger Title IX coverage in the program receiving the funds — the college’s financial aid department, but not sufficient to effect coverage of all of the college’s activities. The Court stated:

Most federal educational assistance has economic ripple effects throughout the aided institution, and it would be difficult, if not impossible, to determine which programs or activities derive such indirect benefits____
... [W]e have found no persuasive evidence suggesting that Congress intended that the Department’s regulatory authority follow federally aided students from classroom to classroom, building to building, or activity to activity.

Id. at 572-73,104 S.Ct. at 1221-22.

Plaintiffs argue that the federal funding of Con Ed’s CETA and WIN trainees triggers application of Section 504 to the entire Con Ed operation. The contention is directly contrary to Grove City’s holding.

Plaintiffs claim that two cases decided since Grove City compel an outcome in their favor. In United States v. Baylor University Medical Center, 736 F.2d 1039 (5th Cir.1984), cert. denied, — U.S. —, 105 S.Ct. 958, 83 L.Ed.2d 964 (1985), it was held that medicare/medicaid payments to a hospital’s in-patient and emergency services was sufficient federal financial assistance to entitle the Department of Health and Human Services to investigate a discrimination claim from a patient not a recipient of federal funds. The holding was based, however, on a specific provision in the legislative history of the medicare/medicaid legislation, id. at 1044-46, which has no bearing on the instant case. Moreover, in Baylor, supra, the in-patient service received the federal aid and plaintiff was an in-patient, therefore clearly subject to that Act’s coverage.

In Paralyzed Veterans of America v. Civil Aeronautics Board, 752 F.2d 694 (D.C.Cir.), cert. granted sub nom. Department of Transportation v. Paralyzed Veterans of America, — U.S. —, 106 S.Ct. 244, 88 L.Ed.2d 253 (1985), regulation of airlines was held to be authorized because airports and the air traffic control system in question receive direct federal financing. Again, as in Baylor, the holding was based on the specific provisions of the Act being construed: The Airport and Airway Development Act of 1970, 49 U.S.C. § 1714, as amended, id. at 712-13, so that the decision is inapplicable to the present case. Plaintiffs have made no showing that the CETA or WIN funds distributed to Con Ed's training department were intended by Congress to have effects as far-reaching on all of Con Ed’s operations as do the medicare and aviation statutes specified for hospitals and airports.

We conclude that to hold that the federal funds used to subsidize training programs within Con Ed for those unemployable candidates referred by local community organizations is enough of a nexus to require all of Con Ed to be regulated would be contrary to the program specificity of Section 504.

Plaintiffs argue in the alternative that tax credits applied by Con Ed to capital investments constitute federal financial assistance to a program that discriminated against the handicapped. This argument also contradicts the program-specific nature of Section 504. The tax credits plaintiffs rely on to show federal financial assistance were taken on capital investments purchased by many, if not all, the divisions in Con Ed. See Paralyzed Veterans of America, 752 F.2d at 709, and in the context of Title IX application, Stewart v. New York University, 430 F.Supp. 1305 (S.D.N.Y.1976).

The Supreme Court’s decision in Bob Jones University v. United States, 461 U.S. 574, 103 S.Ct. 2017, 76 L.Ed.2d 157 (1983), does not compel a contrary result. In that case, the Supreme Court held that in determining the tax status of institutions, i.e., whether they qualify for tax exempt status as charities, their discriminatory policies must be considered, to ensure that the government is not excusing from payment of taxes an institution which, because of its policy of discrimination, is not serving a truly public and charitable purpose. Con Edison, however, is not seeking the tax benefits of a charitable institution, nor is it a lobbying organization seeking tax exempt status as a charitable organization, as was the case in Regan v. Taxation with Representation, 461 U.S. 540, 103 S.Ct. 1997, 76 L.Ed.2d 129 (1983). The investment tax credit does not subject Con Ed to the in-depth regulation plaintiffs propose.

For the reasons stated, the defendants’ motion for summary judgment is granted and the complaint is dismissed. In view of this disposition of the motion for summary judgment, the motion for class certification filed by plaintiffs is moot and is therefore denied.

It is so ordered.