author: JUNE L. GREEN, District Judge.

text:
    Warren R. BITTNER, et al., Plaintiffs, v. SECRETARY OF DEFENSE, et al., Defendants.
    Civ. A. No. 84-1730.
    United States District Court, District of Columbia.
    June 13, 1985.

      Michael J. McDanold, Sidley & Austin and Donald M. Squires, Washington, D.C. (Elizabeth Symonds and Arthur B. Spitzer, ACLU Fund of the Nat. Capital Area, Washington, D.C., of counsel), for plaintiffs.
    Michael L. Martinez, Asst. U.S. Atty., Washington, D.C., for defendants.
   OPINION

JUNE L. GREEN, District Judge.

This matter is before the Court on defendants’ motion to dismiss this action, plaintiffs’ opposition thereto, defendants’ reply to plaintiffs’ opposition, supplemental briefing, oral argument on the motion, and the entire record herein. For the reasons set forth below in detail, the Court denies defendants’ motion, but dismisses some of the named plaintiffs.

On June 5, 1984, eight former service-members of the United States Army, Navy, and Air Force brought suit against the Secretary of Defense and the Secretaries of the United States Navy, Army, and Air Force. Also named in the original complaint were organizations, namely, the Vietnam Veterans of America (“VVA”), and the National Gay Task Force (“NGTF”). By means of an amended complaint filed on August 3, 1984, an additional plaintiff, Warren R. Bittner, was included in the action.

Plaintiffs in this case seek declaratory and injunctive relief for the allegedly illegal and unconstitutional practices and policies with regard to the creation, maintenance, and public disclosure of records reflecting less than honorable discharge of military service. The individually named plaintiffs in this action challenge the less-than-honorable-discharge characterization issued administratively for alleged homosexual acts, homosexual tendencies, or homosexuality . regardless of whether such acts or status as a homosexual had an impact on the servicemembers’ performance of military duties. Eight of the individual plaintiffs not only challenge the character of the discharge itself, but also challenge the administrative decisions of the Discharge Review Boards (“DRB”) and the Boards for Correction of Military Records (“BCMR”) as unlawful within the meaning of the Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2). Plaintiff Bittner’s claim is limited to challenging the characterization of his discharge. The two organizational plaintiffs seek declaratory and injunctive relief to strike down defendants’ current discharge characterization policy because it allegedly is violative of the law and the Constitution.

Defendants seek to dismiss this action on three grounds: lack of standing for the organizational plaintiffs, failure to exhaust administrative remedies for plaintiff Bittner, and statute of limitations for the remaining eight individual plaintiffs.

Upon review of each argument, the Court concludes that plaintiff VVA must be dismissed for lack of standing; that plaintiff Bittner must be dismissed, without prejudice, for failure to exhaust available administrative remedies; and that the remaining eight individual plaintiffs are not barred by the statute of limitations from bringing this action to seek review of the administrative review boards’ decisions, but are barred from seeking review of their original discharge. Some of these eight plaintiffs, however, are dismissed, without prejudice, for failure to exhaust their administrative remedies. Accordingly, only two individual plaintiffs remain to pursue review of the administrative determination, and the NGTF may remain to pursue claims against defendants’ challenged policies and practices. The Court shall review each type of plaintiff sought to be dismissed by defendants.

Organizational Plaintiffs

Plaintiffs VVA and NGTF assert that the military policy regulating the character of discharges issued to homosexuals has caused them “injury in fact” and, therefore, gives standing to these plaintiffs.

A. Vietnam Veterans of America

“[T]he standing inquiry requires careful judicial examination of a complaint’s allegations to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims asserted.” Allen v. Wright, 468 U.S. 737, 104 S.Ct. 3315, 3325, 82 L.Ed.2d 556 (1984). In their complaint plaintiffs assert for the VVA that

[bjecause of defendants’ practices and policies challenged herein, VVA has had and will have to expend considerable financial resources to provide legal representation and legal advice on applications for recharacterization of discharge filed before the Discharge Review Boards and Boards for Correction of Military Records by veterans discharged for homosexual acts, homosexuality, or “homosexual tendencies.” This diversion of financial resources has hindered VVA in accomplishing its organizational goals by assisting veterans on other issues related to their military service.

Complaint at ¶ 11.

In the admittedly broad but unanimous decision in Havens Realty Corp. v. Coleman, 455 U.S. 363, 102 S.Ct. 1114, 71 L.Ed.2d 214 (1982), the Supreme Court outlined the requirements necessary. for an organization to attain standing. In that decision certain individuals and an organization sought to challenge a realty company’s alleged practice of “racial steering.” The organizational plaintiff was “ ‘a nonprofit corporation ... ’ whose purpose was ‘to make equal opportunity in housing a reality in the Richmond Metropolitan Area.’ ... Its activities included the operation of a housing counseling service, and the investigation and referral of complaints concerning housing discrimination.” Id. at 368, 102 S.Ct. at 1118-19. Quoting the complaint, the Court outlined what the organizational plaintiff alleged:

“Plaintiff HOME has been frustrated by defendants’ racial steering practices in its efforts to assist equal access to housing through counseling and other referral services. Plaintiff HOME has had to devote significant resources to identify and counteract the defendant’s [sic ] racially discriminatory steering practices.” App. 17, 1116.

Id. at 379, 102 S.Ct. at 1124. The Court then concluded that

[i]f, as broadly alleged, petitioners’ steering practices have perceptively impaired HOME’S ability to provide counseling and referral services for low- and moderate-income homeseekers, there can be no question that the organization has suffered injury in fact. Such concrete and demonstrable injury to the organization’s activities — with the consequent drain on the organization’s resources — constitutes far more than simply a setback to the organization’s abstract social interests ____

Id.

Courts that have applied the Havens Realty standard have stressed the two-fold nature of organizational standing. The court in Minority Employees v. Tennessee, 573 F.Supp. 1346 (M.D.Tenn.1983), for example, noted that

[wjhen an organization alleges that it has been hindered by a defendant in its efforts to assist others to obtain constitutional or statutory rights and that it has had to devote significant resources to counteract a defendant’s actions, it has alleged a sufficient injury to itself to establish standing.

Id. at 1349 (emphasis added). See also Davis v. Mansards, 597 F.Supp. 334, 343 (N.D.Ind.1984).

Although plaintiff VVA is able to allege that it has incurred a drain on its organizational resources, no allegation is made that it has been hindered in effecting its organizational goals. Actual interference with the implementation of the VVA’s programs must also be claimed before sufficient injury is present for standing purposes. A mere depletion of resources in asserting claims of allegedly illegal activity is not sufficient to confer standing. Accordingly, the Court finds that plaintiff WA does not have standing to pursue this action and must therefore be dismissed.

B. National Gay Task Force

The NGTF asserts in its complaint that it is

a nonprofit organization created for the purpose of advancing the rights and protecting the interests of individuals who are gay or lesbian. There are over 10,-000 members of NGTF, most of whom are homosexual. Members of NGTF are currently members of the U.S. Army, Navy, Marine Corps or Air Force and are, unbeknownst to their commanding officers, gay or lesbian. These members of NGTF are subject to the policy of the military departments to separate homosexual personnel and the policy to issue such personnel less than honorable discharges in circumstances in which their homosexuality has not affected performance of military duties. This policy currently harms these NGTF members psychologically and emotionally because they are aware that a less than honorable discharge, by characterizing the member’s entire period of service, severely stigmatizes an individual, causing loss of self-esteem and loss of reputation, and making it very difficult to obtain employment in civilian society.

Complaint at 1112.

In determining whether the NGTF has standing, the Court looks to the reasoning as set forth in Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). In Warth, the Supreme Court stated that:

The association must allege that its members, or any one of them, are suffering immediate or threatened injury as a result of the challenged action of the sort that would make out a justiciable case had the members themselves brought suit____ So long as this can be established, and so long as the nature of the claim and of the relief sought does not make the individual participation of each injured party indispensible to proper resolution of the cause, the association may be an appropriate representative of its members, entitled to invoke the court’s jurisdiction.

Id. at 511, 95 S.Ct. at 2211 (emphasis added). What plaintiff NGTF has alleged in this action is that its homosexual members presently in the military are threatened with a less than honorable discharge as a direct result of defendants’ policy and practice.

Defendants, in seeking to dismiss this plaintiff, argue that this threatened injury is too speculative and, therefore, not sufficient to establish standing to challenge defendant’s policies and practices. Defendants argue that the injury is speculative because NGTF members have not yet been found by their commanding officers to be homosexual, have not yet been discharged, and have not yet been issued a less than fully honorable discharge.

The Court, however, disagrees with defendants’ “speculative” argument. Surely, it is beyond speculation that NGTF members, if known by their commanding officers to be homosexual, would be discharged. See 32 C.F.R. Part 41, Appendix A, Part 1, Section H 1 (1984) (“Homosexuality is incompatible with military service.”); Dronenburg v. Zech, 741 F.2d 1388 (D.C.Cir.1984). Additionally, it is more than likely that the challenged policy increases the risk that homosexual NGTF members will receive less than fully honorable discharges. The Court finds that this increased risk is sufficient to confer standing for the NGTF. See, e.g., Committee for G.I. Rights v. Callaway, 518 F.2d 466, 471-72 (D.C.Cir.1975).

Individual Plaintiffs

A. Warren R. Bittner

On April 23, 1984, administrative discharge proceedings were initiated by the Air Force against plaintiff Bittner on the grounds that he admitted being homosexual. On May 2, 1984, plaintiff Bittner resigned from the Air Force rather than go through the administrative discharge proceedings. The Air Force accepted his resignation and on July 16, 1984, plaintiff Bittner was issued a general discharge. Plaintiff Bittner never applied to either the Air Force DRB or the Air Force BCMR for an upgrade in the character of his discharge.

It is beyond dispute that this Circuit has a strong preference for presuit exhaustion of intramilitary administrative remedies. Knehans v. Alexander, 566 F.2d 312 (D.C.Cir.1977), cert. denied, 435 U.S. 995, 98 S.Ct. 1646, 56 L.Ed.2d 83 (1978); accord, Hardison v. Alexander, 655 F.2d 1281, 1285 (D.C.Cir.1981). Although application to the DRB’s and the BCMR’s is not required in order to perfect a right to sue, this Circuit has concluded that “an aggrieved military officer must first exhaust his administrative remedies before his particular service’s Board of Correction of Military Records prior to litigating claims in Federal court.” Knehans v. Alexander, 566 F.2d at 315.

As Judge Gesell has held, in remanding a challenge to an administrative discharge:

The regulatory standards for determining when separation is justified and what type of discharge is warranted are broad and undoubtedly informed by military practices and interpretations of which the Court is unfamiliar. Resolution of plaintiff’s substantive claims, involving ... matters of personnel management is, in the first instance for the military____ Precedent dictates that the case be remanded to the Secretary of the Army for the entry of findings upon which the Court can base its review.

Martin v. Secretary of Army, 455 F.Supp. 634, 639 (D.D.C.1977).

In this case, plaintiff Bittner should first pursue his claims before the Air Force DRB. See 10 U.S.C. § 1553. The DRB, in reviewing plaintiff Bittner’s discharge, is permitted to exercise its discretion on issues of equity by reviewing the individual merits of his claim. See 32 C.F.R. § 865.-120 (1984). If he were unsuccessful before the Air Force DRB, plaintiff Bittner could renew his application before the Air Force BCMR. 10 U.S.C. § 1552; see also 32 C.F.R. § 865.1-19 (1984). Even if plaintiff Bittner were unsuccessful before the Personnel Review Boards, these boards would provide for the Court a complete factual record, as well as give expert consideration to plaintiff Bittner’s claims.

In opposition to defendants’ claim that plaintiff Bittner must first pursue available administrative remedies, plaintiffs claim, inter alia, that these review boards lack the authority to examine constitutional claims, that the review process is too long and time-consuming, and that prior board action with respect to other individual plaintiffs suggests that plaintiff Bittner will also be unsuccessful with his claims.

The Court is not persuaded by plaintiffs’ arguments. The Court should not address constitutional claims where issues may be resolved in plaintiff’s favor at the administrative level on nonconstitutional grounds. Further, as demonstrated by other individual plaintiffs in this action, the administrative review process is not inordinately long. Additionally, it provides the Court with valuable agency expertise and fact finding that could assist the Court in reviewing plaintiff Bittner’s claims. Finally, prior board actions of other plaintiffs in this action are not determinative as to plaintiff Bittner’s claims. The review boards must determine individually the factual basis and propriety of plaintiff Bittner’s general discharge. The Court notes that beyond any information assistance these review boards may render in reviewing plaintiff Bittner’s claims, pursuing administrative remedies within the Air Force affords the defendants the opportunity “to discover and correct its own errors,” if any. Eastmead v. Marsh, 729 F.2d 863, Mem. at 2 (D.C.Cir.1984). Accordingly, the Court determines that plaintiff Bittner must pursue his administrative remedies with , the Personnel Review Boards before pursuing these claims in court and, therefore, his claims are dismissed without prejudice.

B. Eight Remaining Individual Plaintiffs

Defendants seek to dismiss the claims of the eight remaining individual plaintiffs in this action on statute of limitations grounds. These plaintiffs, Harry R. Lorenz, Lilli M. Vincenz, John J. Howard, Albert Thomas DiManno, John Lawrence Mario, John Doe, Jane Roe, and John Wade, each challenge the characteristics of their discharges, as well as the administrative appellate review of their discharges. These individual plaintiffs were discharged more than six years before this action was commenced. The challenged administrative determinations, however, all occurred less than six years prior to the time of suit.

In seeking to dismiss the eight individual plaintiffs on statute of limitations grounds, defendants argue that these plaintiffs’ claims are all barred by the six-year statute of limitations as set forth in section 2401 of Title 28, United States Code. Defendants aver that because plaintiffs are pursuing claims which essentially accrued on the date of their discharge and each of these eight plaintiffs was discharged more than six years before the suit was filed, section 2401 bars these eight plaintiffs from attaining relief in Federal court.

As support for this contention, plaintiffs look to the United States Court of Appeals for the District of Columbia Circuit’s ruling in Walters v. Secretary of Defense, 725 F.2d 107 (D.C.Cir.1983). In that decision the court ruled that “the six-year statute of limitations of section 2401(a) bars [a] civil action for declaratory and injunctive relief brought seven and one-half years after the former servicemember’s discharge.” Id. at 108. The Walters case involved a Marine who was given a general discharge from the service, following an administrative determination of drug abuse. Instead of availing himself of administrative remedies, suit was filed in district court. The district court granted plaintiffs motion for summary judgment. On appeal, the Court of Appeals reversed the district court’s determination. It concluded that the appellant’s “cause of action first accrued at the time when he began to suffer an alleged disadvantage — when he received his less-than-honorable discharge in 1973.” Id. at 114. Because more than six years had elapsed between that appellant’s discharge and his filing suit, the court concluded that the statute of limitations barred him from challenging the discharge in court.

Plaintiffs appear not to contest this analysis of Walters and agree that the eight individual plaintiffs’ challenges of their discharges are barred by the statute of limitations. They argue, however, that this action seeks not only to challenge the initial discharge, but also the administrative review by the DRB and the BCMR. Plaintiffs note that the Court of Appeals left open the question of whether a court may review administrative decisions from review boards of discharges that occurred more than six years after an individual’s discharge. See id. at 115. Although defendants argue that Walters clearly implies that the limitation period of six years must have some meaning and must, therefore, prevent any court review of challenges to a discharge or the administrative review of the discharge, the question remains open. As noted by Judges Wald and Mikva in their concurrence in the denial of the motion for rehearing en banc in Walters:

We want to emphasize the limited reach of the holding in this case. As we read Walters, the panel opinion, 725 F.2d 107 (D.C.Cir.1983), merely holds that, in independent civil actions brought to correct a serviceman’s record, the six-year statute of limitations found in 28 U.S.C. § 2401(a) applies. Walters explicitly does not speak to the altogether distinct question of what time period governs when review is sought of administrative discharge decisions. See [725 F.2d] at 115. (“Nor do we address the reviewability of such an administrative decision in federal court.”) (emphasis added). Congress has granted discharged service members 15 years from discharge to petition a review board for an upgrade, 10 U.S.C. § 1553(a), and this court has expressly held that Congress did not intend to preclude judicial review of decisions reached by those review boards. Van Bourg v. Nitze, 388 F.2d 557, 564 n. 14 (D.C.Cir.1967). As a result, we do not believe Walters in any way limits jurisdiction to review a correction board’s treatment of a petition for a discharge upgrade that is timely filed, under 10 U.S.C. § 1553(a), with the relevant administrative body.

Walters v. Secretary of Defense, 737 F.2d 1038 (D.C.Cir.1984 (emphasis in original).

The majority of courts that have addressed the question of whether individuals may attack review board decisions in Federal court, despite the fact that the original discharge took place more than six years before suit was filed, have concluded that there is no bar. See Weber v. Weinberger, No. K 83-664, (W.D.Mich. Nov. 13, 1984); Schmidt v. United States, No. C-83-3834 JPV, slip op. at 4-5 (N.D.Cal. Apr. 25, 1984); White v. Secretary of Army, 629 F.Supp. 64, 67-69 (D.D.C. 1984); Miskill v. Lehman, 566 F.Supp. 1486, 1489 (D.D.C.1983); but see Geyen v. Marsh, 587 F.Supp. 539 (W.D.La.1984), appeal pending, 775 F.2d 1303 (5th Cir.). If a plaintiff has alleged that when he sought administrative relief for a discharge upgrade and that such relief was arbitrarily and capriciously denied, then there is a strong presumption that this former service member may pursue his claims pursuant to the Administrative Procedure Act, 5 U.S.C. § 706, before a district court. It is undisputed that judicial review of agency action by an aggrieved individual will not be cut off unless there is persuasive proof that Congress intended that result. See Dunlop v. Bachowski, 421 U.S. 560, 567, 95 S.Ct. 1851, 1857-58, 44 L.Ed.2d 377 (1975); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, 91 S.Ct. 814, 820, 28 L.Ed.2d 136 (1971). Further, as this Circuit has stated in Van Bourg v. Nitze, 388 F.2d 557 (D.C.Cir.1967),

[t]he function of the [Discharge] Review Board and the Correction Board is to review the type and nature of discharges in order to correct errors or remove injustices. And it is the duty of the judiciary to inquire into an allegedly wrongful and detrimental refusal to grant deserved relief.

Id. at 563 (footnote omitted). For this reason, the Court concludes that plaintiffs’ challenge of the administrative decisions denying an upgrade in discharge is reviewable in this action despite the fact that the actual discharges occurred more than six years before the action was filed.

The Court must emphasize the fact, however, that it does not and cannot review the actual discharges of these plaintiffs, but only the review boards’ decisions denying a request for upgrade. Defendants argue that applying the six-year limitations period from the date of a review board’s denial of upgrade discharge would render the statute of limitations period meaningless because these boards’ decisions are actually a reconsideration of the decisions made at discharge to characterize it as less than honorable. This claim, however, is not necessarily true. For example, the DRB’s are required to review a discharge based on current policies and procedures and not those which were in effect at the time of discharge. Eg., 32 C.F.R. 70.9(c)(1) (1984). In examining the review boards’ decisions a court determines whether these review boards properly applied current law and current policies and procedures. This examination can only be described as distinct from reviewing the original discharge qualification itself.

Accordingly, these eight plaintiffs are not barred from seeking review of denied applications for an upgrade in discharge.

The Court, notes, however, that all but two of these eight individual plaintiffs have failed to pursue all available administrative remedies. With the exception of plaintiffs Yincenz and Doe, the individual plaintiffs have failed to pursue their claims with the various military branches’ BCMR. As Judge Corcoran explained in White v. Secretary of the Army, No. 83-2554,

the statute of limitations of section 2401(a) does not begin to run until plaintiff’s right of action has accrued. “In the agency context, the logical inference is that the cause of action accrues when all statutorily required or permitted agency review has been exhausted.” Impro Products, Inc. v. Block, 722 F.2d 845, 850.

Slip op. at 10. Accordingly, if these plaintiffs wish to seek review of the administrative denials of requests for upgrade in discharge, they must first pursue the administrative avenues available to them. Plaintiffs Lorenz, Howard, DiManno, Mario, Roe, and Wade are therefore dismissed without prejudice for failure to exhaust available administrative remedies.

Plaintiffs’ Class Certification Motion

At the hearing on defendants’ motion to dismiss, the Court stated that it would deny plaintiffs’ motion for class certification “at this time.” The Court reasoned that because it believed that the class certification motion was filed untimely, it had to be denied. Upon review of the parties’ papers, the Court believes that it should have the benefit of further briefing on the issue of class certification before it rules on the motion. Accordingly, plaintiffs’ motion for class certification is not denied, and further briefing shall continue on this motion before a determination is made.

      . Title 28, United States Code, section 2401 provides that “[e]very civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.”

      . Pursuant to defendants’ regulations, applications for correction of records must be made within three years of the alleged error or injustice. 32 C.F.R. § 581.3(c)(2) (1984); 32 C.F.R. § 723.3(b) (1984); 32 C.F.R. § 865.4 (1984). Further, failure to file within that period may be excused by the BCMR, if it finds that it will be in the interests of justice to do so. Id. Because the three-year window had not passed at the time of filing suit, these administrative avenues are still open to these six individual plaintiffs.


source: Caselaw Access Project

author: REDDEN, District Judge:

license: Public Domain

text:
    TUMAC LUMBER COMPANY, INC., et al., Plaintiffs. v. UNITED STATES of America, Defendant.
    Civ. No. 84-435-RE.
    United States District Court, D. Oregon.
    June 25, 1985.
    Curtis W. Cutsforth, G. Todd Norvell, Portland, Or., for plaintiffs.
    Charles H. Turner, U.S. Atty., Portland, Or., Mark E. Nebergall, Trial Atty., Tax Div., U.S. Dept, of Justice, Washington, D.C., for defendant.
   OPINION

REDDEN, District Judge:

Faced with a balance of payments crisis during 1971, Congress enacted legislation to encourage exports by allowing for the establishment of so-called Domestic International Sales Corporations (DISCs). The applicable Internal Revenue Code sections and later Treasury regulations are complex and unclear.

Plaintiff, Tumac Lumber, is suing the government for a refund of $102,605 in taxes it paid when the Internal Revenue Service determined that assignments of export accounts receivable to Tumac Export, a DISC subsidiary of Tumac Lumber, were improper. The government claims Tumac Lumber assigned promissory notes, not export accounts receivable, to Tumac Export. The important distinction is that accounts receivable are “qualified export assets” and entitled to favorable tax treatment while promissory notes are not. Tumac Lumber argues that the promissory notes were not intended to create an obligation or assignment of notes, but merely to evidence an intention to assign export accounts receivable.

Thus, the issue presented in this case is whether Tumac Export satisfied the qualified export asset test set forth in Section 992(a)(1)(B) of the Internal Revenue Code by receiving, through assignment, export accounts receivable from Tumac Lumber. I find that Tumac Export satisfied the qualified export asset test.

I. Background

The DISC provisions enacted by Congress are found in Sections 991 through 997 of the Internal Revenue Code. After the enactment of these provisions the Treasury Department and the Department of Commerce began a program to inform the public of the DISC provisions. They issued a handbook on DISCs which was widely advertised and distributed. Workshops discussing the DISC provisions were held throughout the country.

The general approach, greatly simplified, can be explained as follows. To segregate the income to be accorded favorable tax treatment, Congress required that exporters establish new corporations designated as DISCs. Congress then established two formulas for allocating a portion of income from export sales to the DISC. Following one formula an exporter could allocate 50% of the net income from export transactions to the DISC. Under the other formula the exporter could allocate 4% of gross sales to the DISC. Once the DISC’S income was determined, one-half of the income was effectively exempt from taxation.

Neither Congress nor the Internal Revenue Service intended that the DISC have any real business substance. Its only function was to permit the identification of the income subject to beneficial tax treatment. DISCs were, for all intents and purposes, merely paper corporations. See Revenue Ruling 72-166 (1972).

In establishing a DISC, an exporter would form a corporation under any state law, purchase $2,500 of its stock, open a bank account for the DISC and establish minimal books and records. The exporter would then enter into a short agreement with the DISC whereby income derived from export transactions would be computed under one of the formulas previously described and transferred to the DISC. The parent corporation was intended to do all the actual business including filling orders and collecting bills. DISCs did not and were not intended to have employees. Customers of the parent corporation did not need to know of the existence of the DISC or its participation in the transaction.

Finally, in receiving favorable tax treatment, the DISC had to satisfy the requirements of Code Section 992(a)(1)(B), the “qualified export asset” test. Briefly, the qualified export asset test requires that at the end of each fiscal year of a DISC, 95% or more of its assets must be “qualified export assets” as defined in Code Section 993(b). That section lists seven different kinds of assets in which a DISC may invest in order to continue the exemption from tax of the accumulated income. Included in the list is export accounts receivable. Code Section 993(b)(3).

II. Facts

Tumac Lumber is a duly incorporated Oregon company which has been engaged in the wholesale lumber distribution business since 1959. Because Tumac was engaged in a substantial amount of export business it formed a DISC subsidiary (Tu-mac Export) on February 26, 1973 and the DISC adopted a January 31 fiscal year. Thus, as of January 31, 1974, Tumac Export had to satisfy the requirements of Code Section 992(a)(1)(B), the qualified asset test.

On March 1, 1973, Tumac Lumber (Lumber) and Tumac Export (Export) entered into a sales agreement which named Export as Lumber’s exclusive sales agent for all sales or dispositions of logs, lumber, timber and forest products that produced qualified export receipts as defined in Internal Revenue Code § 993(a). During the years in issue here, 1976-1978, total export accounts receivable payable to Lumber were as follows:

January 31,1976 $180,798.27
January 31,1977 $260,948.20
January 31,1978 $246,861.39

Lumber executed interest bearing promissory notes payable to Export on demand in the following amounts:

January 30,1976 $110,000.00
January 30,1977 $150,000.00
January 30, 1978 $208,000.00

Lumber received from the District Director, Internal Revenue Service, Portland, Oregon, an examination report dated June 3, 1980, proposing adjustments to the reported income for Lumber’s fiscal years 1976 through 1978. The proposed adjustments were based on a finding that Export was not a DISC in those years because it did not hold sufficient qualified export assets. In April 1982, Lumber paid the deficiency judgment in the sum of $122,955.65. Lumber’s subsequent claim for a refund of taxes in the aggregate amount of $102,605 paid as a consequence of the unfavorable determination was disallowed by the Internal Revenue Service in June 1982.

Lumber claims that the preparation of documents purporting to be promissory notes was done to evidence the fact and the amount of the assignments of export accounts receivable. Therefore, at all pertinent times, Export was a properly qualified DISC under the applicable tax laws, including Internal Revenue Code §§ 991-997. At no time was there any intention on the part of Lumber or Export to create an indebtedness from Lumber to Export.

The government argues that Lumber did not assign its export accounts receivable to Export, but rather assigned it promissory notes. Export could not be a qualified DISC because assigned promissory notes are not qualified export assets and Export would thus fail the qualified export asset test of § 992(a)(1)(B). I find the government’s argument to be without merit.

III. Discussion

U.C.C. Claim

The government argues that an assignment of accounts receivable is governed by Article 9 of the Uniform Commercial Code. The government also contends that an assignment of accounts requires a sufficient writing under U.C.C. Section 9-203(l)(a). The government alleges no such writing existed in this case.

It was not the intention of the U.C.C. drafters that the U.C.C. should apply to transactions such as those between Lumber and Export. Article 9 was drafted to cover situations whereby a borrower pledged certain collateral to a lender in the event he should default on the loan. Another purpose was to provide procedures for the lender to secure his interest in the collateral against third parties to whom the borrower might pledge the same collateral. Not all transactions were intended to be covered by Article 9. See Warren Tool Company v. Stephenson, 11 Mich.App. 274, 161 N.W.2d 133 (1968).

In the present case, the assignments of the notes were not to secure any obligation owed by Lumber to Export, nor to protect an interest in the notes. The assignments were performed solely in an attempt to satisfy the requirements of the DISC provisions.

The real question is whether or not the assignments of promissory notes were intended to be assignments of accounts receivable. In Oregon an effective assignment need not be in writing.

An assignment may be oral or written and no special form is necessary provided that the transfer is clearly intended as a present assignment of the interest held by the assignor.

Matter of Estate of Vaughn, 38 Or.App. 29, 588 P.2d 1295 (1979). I find that the necessary element of intent to assign the accounts receivable was present in this case.

As mentioned previously, the promissory notes were not intended by Lumber to secure an obligation or create a debt. See Schandel deposition, pages 33-34. The accountant for Lumber stated that she felt the company needed some sort of a note to evidence that an assignment of accounts receivable to Export had been made. Schandel deposition, pages 17-18. This method had been recommended by another accounting firm because Lumber’s accountant was inexperienced with the formation of DISCs and she wanted to be sure the correct procedures were followed. Schandel deposition, pages 18, 31. The notes were then prepared, at the request of Lumber’s accountant, by an employee of Lumber. The employee also stated that the notes were not intended to create an obligation. Stoinoff deposition, page 10.

The intent to transfer the accounts receivable can also be inferred from the formation of the DISC and the records held by Lumber. Lumber kept records of accounts receivables assigned to Export. Exhibit 8, pages 21-25. Also, Export’s tax return lists assets as export accounts receivable.

Lumber’s transfer of the accounts receivable may not have been structured perfectly, but it was within the intended purpose. Considering the complexity and novelty of the DISC provisions it is not difficult to expect some procedural errors. The errors in this case do not detract from my finding of an effective assignment. There is no indication that Lumber intended to transfer a set of promissory notes to Export as the government contends. Nor has the government provided any convincing evidence of a sham transaction. The government cites CWT Farms Inc. v. C.I.R., 755 F.2d 790 (11th Cir.1985) in support of its argument. That case dealt with producer’s loans. The case does not further the government’s position.

Conclusion

For the years in question, I find that Tumac Lumber assigned export accounts receivable to Tumac Export. Because 95% or more of Tumac Export’s assets were qualified export assets, Tumac Export satisfied the qualified export asset test of section 992(a)(1)(B).


author: RICE, District Judge.

text:
    S & R, INC., et al., Plaintiffs, v. UNLIMITED FINANCING, INC., et al., Defendants.
    No. C-3-88-1270.
    United States District Court, S.D. Ohio, W.D.
    July 31, 1985.

      Kenneth R. West, Bethesda, Md., Konrad Kuczak, Dayton, Ohio, for plaintiffs.
    James H. McGee, Dayton, Ohio, for defendants Unlimited Financing and Charles L. Ellington.
    James F. Barnhart, Dayton, Ohio, for defendants E. James Wampler and Dorfmeier, Stone and Wampler.
   DECISION AND ENTRY ON PENDING MOTIONS; CONFERENCE CALL SET

RICE, District Judge.

The captioned cause is before this Court upon a number of motions. Said motions, the Court’s rulings thereon and, whenever deemed necessary, the reasoning behind said rulings, follow:

1. The Motion of the Plaintiff, seeking an Order of the Court compelling discovery and for costs (Doc. # 14), filed April 27, 1984, is sustained in part and overruled in part at this time, subject to being renewed at a specific point in time in the future.

In April, 1984, the Defendant was convicted of 14 counts of a 15-count Indictment returned against him. Sentence was imposed. The Defendant remains free on appeal bond. An appeal is presently pending before the United States Court of Appeals for the Sixth Circuit. At the time of the dictation of this Entry (July 30, 1985), the Government has filed its brief contra the appeal of the Defendant, Charles Ellington.

Although the facts set forth in the Complaint herein are different from those contained in the Indictment against the Defendant Ellington, upon which he was convicted, the Government has been unable, to this point, to give Court and counsel herein any assurance that it did not contemplate future prosecution of the Defendant Ellington, presumably, inter alia, for the factual scenario set forth in the within Complaint. As a matter of fact, the latest word from the Government (see attached letter) is that it wishes to await the results of the Defendant’s appeal, before deciding whether any further prosecution will be had.

In view of the foregoing, in spite of the fact that the Defendant Ellington’s claim of the fifth amendment is somewhat broader than either the facts or the law would seemingly allow, this Court must overrule the Motion to Compel Discovery (filed as a means of compelling the Defendant Ellington to respond to questions at his deposition) as it applies to Ellington, but to sustain same as it applies to the Defendant Unlimited Financing. While it is clear that an individual has the right to claim the fifth amendment, in certain circumstances, a corporation has no such right.

Accordingly, it is the Order of this Court, since the Plaintiff's Motion to Compel Discovery has been sustained as it applies to the Defendant Unlimited Financing, that to the extent that discovery can be conducted from said Defendant, through the Defendant Ellington, and based upon corporate records, that a deposition be convened as quickly as may be practicable in order that essential pretrial discovery be completed. To the extent that it is impossible, from a practical standpoint, to elicit discovery from the Defendant. Unlimited Financing, without also running the risk of implicating, in a criminal fashion, the Defendant Ellington (really, the sole principal of Unlimited Financing), said deposition may well be less than fruitful for the Plaintiff.

The Plaintiffs request for costs, incurred as a result of out-of-town counsel for the Plaintiff making a special trip to Dayton for an aborted deposition, is deemed by this Court to be not well taken and same is, therefore, overruled in its entirety. It is this Court’s understanding that the aborted deposition took place within a week or two of the beginning of Defendant Ellington’s criminal trial in the United States District Court for the Southern District of Ohio. Based upon that timing, the Defendant Ellington’s taking of the fifth amendment, keeping in mind the practical difficulty of distinguishing between discovery to be conducted from the Defendant Ellington and the Defendant Unlimited Financing, was well taken, given not only the 14 counts of the Indictment upon which the Defendant was to be put to trial (one count was dismissed prior to trial), and further in view of the fact that, even though not part of the indicted counts, the operative facts herein could well have formed the basis for a Government attempt to introduce a like or similar offense, pursuant to Fed.R.Evid. 404(b).

2. The Motion of the Defendant, Dorfmeier, Stone and Wampler, seeking an Order of the Court, pursuant to Fed.R. Civ.P. 21, dismissing said Defendants upon the grounds that they are in effect a nonentity and, therefore, are in no way connected with the facts that gave rise to the Plaintiff’s cause of action (Doc. # 19), filed May 23, 1984, is deemed by this Court to be well taken and same is, therefore, sustained in its entirety, based upon the reasoning set forth in the memorandum filed in support of said motion and the attached excerpts from the deposition of the Defendant E. James Wampler. In short, even though said Defendant, Dorfmeier, Stone and Wampler, has filed an Answer to the Plaintiff’s Complaint, the Court deems said Answer to not preclude a subsequent motion to dismiss a party defendant. This Court is satisfied, there being no evidence to the contrary, that said Defendant is not a legal entity but is, rather, an office-sharing arrangement consisting of four independent practitioners.

The Defendant, Dorfmeier, Stone and Wampler, is hereby ordered dismissed as a party Defendant to this litigation.

3. The Motion of the Defendant, E. James Wampler, seeking an Order of the Court granting summary judgment in his favor and against the Plaintiff herein (Doc. # 20), is not ruled upon at this time, provided that the Plaintiff comply with Fed.R. Civ.P. 56(f), not later than 20 days from date of receipt of notice of this Decision.

Quite aside from the Defendant’s position on the law, to the effect that the moving Defendant cannot be liable under the Plaintiff’s counts for fraud and negligence, this Court will not rule upon the merits of the moving Defendant’s Motion for Summary Judgment, for the reason that this Court is satisfied that a ruling may well be premature, given the fact that discovery has not yet progressed to the point where all of the facts on the relationship of the Defendant Wampler to the Defendant Ellington and Unlimited Financing are known. Accordingly, the Court will defer ruling upon the moving Defendant’s Motion for Summary Judgment, until the close of discovery, provided that the Plaintiff file with this Court, not later than 20 days following date of receipt of notice of this Decision, an affidavit, pursuant to Fed. R.Civ.P. 56(f), setting forth not only what discovery needs to be completed before the moving Defendant’s Motion for Summary Judgment is ruled upon, but also the outstanding legal and factual issues, remaining to be discovered, which prevent this Court’s ruling on this Motion for Summary Judgment at this time. The moving Defendant’s counsel will then have 14 days following date of receipt of the Defendant’s affidavit pursuant to Fed.R.Civ.P. 56(f), within which to file any contra materials deemed necessary.

Assuming, arguendo, that this Court defers its ruling on the moving Defendant’s Motion for Summary Judgment, Plaintiff’s counsel will have 20 days following the discovery cutoff date, within which to file any memorandum contra the moving Defendant’s Motion for Summary Judgment. Plaintiff’s counsel will then have 7 days within which to file any reply memorandum deemed necessary.

4. The Motion of the Defendants, Unlimited Financing, Inc. and Charles L. Ellington, seeking an Order of the Court granting them leave to file and to serve a Third Party Complaint upon Dr. Evelyn Lagrisson and Douglas E. Brooks (Doc. # 21), is deemed by this Court to be well taken and same is, therefore, sustained in its entirety. Said Third Party Complaint is to be filed by the aforementioned Defendants not later than 14 days from date of receipt of notice of this Decision.

Said ruling is made pursuant to Fed.R. Civ.P. 14.

5. Defendant Wampler’s Motion to Dismiss Plaintiff’s Counsel (Doc. # 32) is overruled. DR5-102(A) provides, in relevant part:

If, after undertaking employment in contemplated or pending litigation, a lawyer learns or it is obvious that he or a lawyer in his firm ought to be called as a witness, he shall withdraw from the conduct of the trial and his firm, if any, shall not continue representation in the trial.

The Court believes that the partnership relationship of Kenneth West and Ronald West which existed at the time that Defendant’s motion was filed and briefed would have required Kenneth West’s disqualification as counsel for Plaintiff, given the importance of Ronald West’s testimony in developing the factual scenario surrounding the transaction at issue in this case and the inapplicability of the exceptions to DR5-102(A). The'firm in which Kenneth West and Ronald West practiced has since dissolved, however, and both men now practice with different law firms. William Remley, of course, is a former associate of that now-dissolved firm. The Court is not persuaded that DR5-102(A) requires disqualification of counsel when it is “obvious” that a former partner or associate “ought” to be called as a witness on behalf of his client. The Second Circuit has observed that “the literal language of DR5101(B) and 5-102 does not specifically prohibit a firm from appearing as trial counsel where a former partner may be a witness. The thrust is to the contrary: or a lawyer in his firm.” International Electronics v. Flamer, 527 F.2d 1288, 1294 (2d Cir.1975) (emphasis in original) (disqualification not required where former partner is party defendant). In General Mill Supply Co. v. SCA Services, Inc., 697 F.2d 704 (6th Cir.1982), the Sixth Circuit balanced the following three factors in its evaluation of a disqualification motion: the interest of the public in the proper safeguarding of the judicial process, the interests Of Defendant, and the interests of Plaintiff. Consideration of these factors leads the Court to conclude that Defendant’s motion to dismiss or to disqualify Plaintiff’s counsel is not well taken.

The interest of the public, as explained by the General Mill Court and Professor Wigmore, turns on the concern that the public may think that the advocate who is also his client’s witness is distorting the truth for the sake of his client. The advocate who is able to vouch for his own credibility in summing up before the jury is seen as having a powerful advantage. Settlement and negotiation are also believed to be impeded by the presence of an advocate-witness. As transposed to the situation in this case, the latter three concerns are not implicated, and the issue remaining is whether the public might think that Remley and Ronald West were distorting the truth for the benefit of their former client or, indeed, for their own benefit. Herein, however, vigorous cross-examination by defense counsel would certainly be available for impeachment purposes.

In considering the interest of Defendants, General Mill establishes that the benefit to defendant which would be obtained if they prevailed upon a disqualification motion is not itself a reason against disqualification. It is also possible that effective cross-examination could turn the former professional relationship between Kenneth West and his witnesses into prejudice against Kenneth West himself instead of working in his favor.

The Court does not believe, and Plaintiff has not argued, that this is the kind of case in which disqualification of Kenneth West would work a substantial hardship on Plaintiff due to the distinctive value of his services. Plainly, Plaintiff has the right to pick his own counsel, a right stressed by Judge Engel in the General Mill concurrence and one highlighted by the ABA’s Model Rules of Professional Conduct. While the consent of Plaintiff alone would not be sufficient to circumvent the actual strictures of DR5-102(A), in this case, Plaintiff is aware of his counsel’s relationship with Ronald West and Remley and apparently has no objections to same.

In sum, a weighing of the relevant factors fails to persuade the Court that disqualification of Plaintiff’s counsel is warranted. Accordingly, Defendant’s Motion to Dismiss Plaintiff’s Counsel is overruled.

Counsel listed below will take note that a conference call will be had at 5:15 p.m. on Wednesday, August 14, 1985, in order to discuss the viability of the trial date of September 16, 1985.

APPENDIX

U.S. Department of Justice

April 20, 1985

Honorable Walter H. Rice

U.S. District Court Judge

Federal Building

200 W. Second Street

Dayton, Ohio 45202

RE: Charles Ellington

Dear Judge Rice:

Jerry Burke of your office called April 22, 1985 to inquire about the status of a federal investigation of Charles Ellington. The investigation is still in progress. I do not expect to make a determination until the case you tried is resolved by the Sixth Circuit on appeal. (I submitted the appellee brief yesterday).

I will certainly advise your office of any change in status.

Sincerely,

Christopher K. Barnes

United States Attorney

/s/ Ann Marie Tracey

Ann Marie Tracey

Assistant U.S. Attorney

AMT/jmh

      . Whether the original escrow agent’s responsibility is measured by a standard of negligence or merely scienter, the relationship between the Defendant Wampler and the Defendants Ellington and Unlimited Financing must be explored in order to determine whether the Defendant Wampler acted negligently or with scienter. Moreover, as to the fraud count, further discovery on the aforementioned relationship will determine whether the Defendant Wampler knew that what he was representing was false or acted in disregard of its truth or falsity.

      . During the deposition of Defendant Wampler, defense counsel contended that disqualification of Kenneth West is required since (1) it is likely that Plaintiff Rankin will sue Remley for malpractice, and (2) such a malpractice action would also be directed at the now-defunct firm of Kenneth West (Doc. #32, Exh. A at 70-71). To date, the Court has not been apprised of any such malpractice action by Plaintiff.

      . General Mill teaches that embitterment between counsel impedes the speedy and just resolution of disputes, and that such embitterment is likely to occur when one counsel undertakes to impeach the credibility of opposing counsel in his capacity as witness. 697 F.2d at 712. Defendant urges that the sibling relationship between Kenneth West and Ronald West creates the likelihood of Ronald West’s lack of objectivity as a witness. While the Court is not unduly concerned with the latter, given the availability of cross-examination, its confidence in the professionalism of both Kenneth West and Ronald West leads it the availability of cross-examination, its confidence in the professionalism of both Kenneth West and Ronald West leads it also to dispose of the possibility that impeachment of Ronald West would inflame Kenneth West to the extent that damage would occur to the speedy and just resolution of this matter. Defendant cites no section of the Code of Professional Responsibility in support of its concern. The Model Rules, to the extent that they touch upon familial relationships, only provide in Rule 1.8(i) that siblings ought not to represent clients who are directly adverse to one another without the consent of those clients.


text:
    Shirley PHIPPS, Plaintiff, v. The METROPOLITAN LIFE INSURANCE COMPANY, et al., Defendants.
    No. C-3-84-962.
    United States District Court, S.D. Ohio, W.D.
    Aug. 9, 1985.
    James D. Ruppert, John D. Smith, Franklin, Ohio, for plaintiff.
    Gary L. Greenberg, Cincinnati, Ohio, for defendants.
    Alvin Pasternak, New York City, for defendant Metropolitan Life Ins. Co.
    Richard J. Paulter, St. Louis, Mo., for defendant Monsanto Research.
   DECISION AND ENTRY SUSTAINING DEFENDANTS’ MOTION TO DISMISS; TERMINATION ENTRY

RICE, District Judge.

This matter comes before the Court for resolution of Defendants’ Motion to Dismiss or, in the Alternative, Motion to Strike Certain of Plaintiff’s Claims in the Amended Complaint. (Doc. # 11).

I. Facts

Plaintiff was first employed by Defendant Monsanto Research Corporation (Monsanto) as a security guard in 1974. She was injured in a car accident in 1979. Plaintiff filed a claim for disability benefits with Defendant Metropolitan Life Insurance Company (Metropolitan), the administrator of Monsanto’s insurance plan for its employees, on December 22, 1980. Metropolitan denied her application on April 11, 1980. Plaintiff was terminated by Monsanto on December 23, 1981.

On January 27, 1983, Plaintiff inquired of Monsanto, through counsel, about the possibility of obtaining disability benefits from Monsanto’s insurance plan. Plaintiff filed another application for disability benefits on March 16, 1983. Metropolitan requested additional information from Plaintiff as to her medical condition, arid arranged an independent medical examination for Plaintiff with Dr. J.B. Paley. Dr. Paley informed Metropolitan on September 15, 1983 of the results of his examination of Plaintiff. Metropolitan told Plaintiff on November 16, 1983 that she did not qualify as totally and permanently disabled and thus was not entitled to benefits. Metropolitan’s letter also included an explanation of the internal appeals procedure to which Plaintiff was entitled. Plaintiff appealed her denial of benefits on December 1, 1983.

The appeals procedure in the relevant plan administered by Metropolitan provides as follows:

In the event of a dispute as to whether the Employe is totally and permanently disabled and therefore entitled to receive payment in accordance with the foregoing provisions, the Insurance Company, the Employer and the Employe, shall jointly select a licensed medical practitioner or practitioners to examine the Employe and the decision of such medical practitioner or practitioners so jointly selected shall be binding on the Insurance Company, the Employer, and the Employe. One half the fee for such medical review shall be borne by the Employe.

(Rev. Plan A-13435-G, Sec. VI, Part 11(A)).

On March 1, 1984, Metropolitan proposed the names of three physicians it believed acceptable to provide the examination and binding decision as to Plaintiff’s disability. Plaintiff responded on April 17, 1984 that none of these three were acceptable, and proposed Dr. Hasam Mehbod as the physician to be jointly selected. Plaintiff also requested a copy of Dr. Paley’s report. On April 27,1984, Defendant rejected Dr. Mehbod, pointing out that Plaintiff’s medical difficulties were orthopedic in nature and that Dr. Mehbod had no expertise in that area. Defendant also agreed to send Dr. Paley’s report to Plaintiff upon receipt of written authorization from both Plaintiff and Dr. Paley.

Plaintiff agreed that her problems were orthopedic in nature but, in her letter of May 3, 1984, asserted that an evaluation of the “total functioning ability of the body” was required. Plaintiff then renewed her request for the selection of Dr. Mehbod. On May 8, 1984, Metropolitan wrote to Dr. Paley and requested his written authorization to release his report to Plaintiff. On May 23, 1984, Metropolitan informed Plaintiff that Dr. Mehbod, a nephrologist, was not acceptable to perform her medical examination. It suggested that, in line with her desire for a review of the total body, an internist be jointly selected. It then proposed the names of three internists, and suggested that Plaintiff select one.

Plaintiff sent Metropolitan her written authorization for release of Dr. Paley’s report on May 24, 1983. Metropolitan responded on June 7, stating that it had not yet secured Dr. Paley’s written authorization and that release of the report would be forthcoming upon such authorization. On June 21, 1984, Plaintiff informed Metropolitan that Dr. Paley’s report was essential to the proper selection of an examining physician. On July 24, 1984 Plaintiff declared the appeals procedure at a standstill. La-belling the provisions for the internal appeal as “vague,” Plaintiff advised Metropolitan that she would file a lawsuit within thirty days unless all issues were resolved.

Metropolitan wrote Dr. Paley on October 22, 1984, to request written authorization to release his report to Plaintiff. Plaintiff filed her Complaint in this action on October 26, 1984. Dr. Paley responded to Metropolitan’s letter on October 29, 1984, requesting a written release from Plaintiff.

II. Exhaustion of Administrative Remedies

In Counts I and II of her Amended Complaint, Plaintiff seeks relief for Metropolitan’s arbitrary and capricious denial of benefits and its failure to provide her with a full and fair review of said denial. 29 U.S.C. §§ 1132(a)(1)(B), 1133(2). Defendants seek dismissal due to Plaintiff’s failure to exhaust her administrative remedies prior to instituting suit in this Court. Kross v. Western Electric Co., Inc., 701 F.2d 1238, 1243-46 (7th Cir.1983); Amato v. Bernard, 618 F.2d 559, 568 (9th Cir.1980). Plaintiff does not dispute the applicability of the exhaustion doctrine to matters governed by the Employment Retirement Income Security Act of 1974 (ERISA), or that she has failed to exhaust her internal remedies. Rather, she contends that exhaustion would be futile or inadequate in this case. This Court cannot agree.

Since the filing of the memoranda in this ease, the Supreme Court has issued an opinion in Massachusetts Mut. Life Ins. Co. v. Russell, — U.S. -, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985), which has considerable bearing upon this case. Russell involved a claim for extra-contractual and punitive damages under 29 U.S.C. § 1109 due to the 132-day delay of a plan fiduciary in processing a request to review a termination of disability benefits. In analyzing the case, the Supreme Court noted that 29 U.S.C. § 1133, in its discussion of review of claims which have been denied, merely specifies that every plan shall comply with certain regulations promulgated by the Secretary of Commerce. The Court then went on to observe:

The Secretary’s regulations contemplate that claims “shall be made promptly, and shall not ordinarily be made later than 60 days after the plan’s receipt of a request for review, unless special circumstances ... require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review.” 29 CFR § 2560.-503-l(h)(l)(i) (1984). Nothing in the regulations or in the statute, however, expressly provides for a recovery from either the plan itself or from its administrators if greater time is required to determine the merits of an application for benefits. Rather, the regulations merely state that a claim may be treated as having been denied after the 60, or 120, day period has elapsed. See § 2560.503-1(h)(4) (“If the decision on review is not furnished within such time, the claim shall be deemed denied on review” (emphasis added)). This provision therefore enables a claimant to bring a civil action to have the merits of his application determined, just as he may bring an action to challenge an outright denial of benefits.

— U.S. at-, 105 S.Ct. at 3092.

With this observation of the Supreme Court in mind, the Court turns to the content of the Secretary’s regulations under Section 1133. The key regulation for purposes of this case is 29 C.F.R. § 2560.503-l(h)(l)(i), which provides:

A decision by an appropriate named fiduciary shall be made promptly, and shall not ordinarily be made later than 60 days after the plan’s receipt of a request for review, unless special circumstances (such as the need to hold a hearing, if the plan procedure provides for a hearing) require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review.

As noted by the Court in Russell, a claim is deemed denied on review if the decision on review is not furnished within 60 or 120 days. 29 C.F.R. § 2560.503-l(h)(4). An “appropriate named fiduciary” is defined in 29 C.F.R. § 2560.503-l(g)(2) as “the plan administrator or any other person designated by the plan, provided that such plan administrator or other person is either named in the plan instrument or is identified pursuant to a procedure set forth in the plan as the person who reviews and makes decisions on claim denials.”

The regulations of the Secretary contemplate, in their definition of an “appropriate named fiduciary,” that a plan may seek to invoke the expertise of persons other than the plan administrator in the review and decision on appeals from claim denials. In the Monsanto plan administered by Metropolitan, that fiduciary is the physician jointly selected by the parties. Were this a case where the jointly selected physician had failed to issue a decision within 60 days or 120 days, then the Court would believe Russell to strongly suggest that exhaustion of administrative remedies would no longer be appropriate. This is not such a case. Rather, this is a case where the request for review became bogged down in the selection of the “appropriate named fiduciary.”

Plainly the selection of an “appropriate named fiduciary,” other than the plan administrator, requires at least some modicum of additional time to elapse in the review process. It is also plain in Russell that the majority of the Court was in favor of prompt processing of requests for review. However, under plans requiring cooperation between the parties in the selection of a medical arbitrator, a hard and fast rule waiving the exhaustion doctrine after 60 or 120 days would simply guarantee that claimants who wished to do so could avoid internal reviewing by deliberately refusing to cooperate. The Court does not see in the Russell opinion a desire of the Supreme Court to undermine internal arbitration procedures or a dissatisfaction with the Secretary’s apparent legitimization of such decision-making. Nor does the Court see in Russell any policies contradicting the long-held policy of judicial deference in the ERISA area to the expertise of plan administrators and their fact-finding procedures. See Amato, 618 F.2d at 567-68. Thus the Court turns to consideration of the appropriateness of the exhaustion doctrine in this case.

Plaintiff insists that only this Court can ensure that she will receive the information to which she is entitled in the review of the denial of her claim. Other than Dr. Paley’s report, the Court is unaware of any information requested by Plaintiff which was not made available by Defendant. The Court would agree with Plaintiff that her review of said report is required under the “full and fair” claims procedure envisioned by 29 U.S.C. § 1133(2). Grossmuller v. International Union, 715 F.2d 853, 857-58 (8th Cir.1983). The facts reveal that Metropolitan, while it did make attempts to secure Dr. Paley’s authorization to release the report to Plaintiff, likely should have proceeded with greater alacrity or persistence. Defendants have informed the Court that a copy of Dr. Paley’s report is now in Plaintiff’s possession, having been provided to her in approximately December, 1984 after Dr. Paley authorized its release. (Doc. # 14 at 4).

Plaintiff’s interest in the contents of Dr. Paley’s report was certainly understandable. Scrutiny of the correspondence between Plaintiff’s counsel and Metropolitan, however, reveals the issue of the report’s release to have been basically independent of and rather subsidiary to the inability of the parties to jointly agree on a doctor to perform another evaluation of Plaintiff. This appears to have been the central conflict of the parties during the pendency of Plaintiff's internal appeal. In this Court’s opinion, the standstill declared by Plaintiff was due largely to Plaintiff’s insistence upon Dr. Mehbod despite Defendants’ proffer of six physicians with specialities more suitable to the case. Plaintiff’s counsel did not appear to link his position with respect to Dr. Mehbod and the need to obtain Dr. Paley’s report until after several exchanges of letters and offers by Defendant had taken place.

In short, Plaintiff has not made a sufficient showing that resort to the internal appeals procedure would be futile or inadequate, despite the inability to immediately procure Dr. Paley’s report on request. Amato, 618 F.2d at 568-69; see Lieske v. Morlock, 570 F.Supp. 1426, 1430 (N.D.Ill.1983) (delineating circumstances under which futility found). Nor does the Court believe Plaintiff to have shown a wrongful denial of access to Defendants’ internal procedures. Lucas v. Warner & Swasey Co., 475 F.Supp. 1071, 1075 (E.D.Pa.1979). The Court believes that Plaintiff’s own reluctance to compromise, under the particular facts and circumstances of this case, ought not to permit her to prematurely seek this Court’s involvement in the merits of her entitlement to benefits.

Holmstrom v. PPG Industries, Inc., 512 F.Supp. 552 (W.D.Pa.1981), relied upon by the Plaintiff, is distinguishable from the instant case. In Holmstrom, plaintiff and his former employer, the defendant, had agreed that plaintiff was to be paid in Swiss francs while stationed in Switzerland. Id. at 554-55. Plaintiff later claimed that this agreement was also applicable to the pension benefits to be paid to him under an ERISA-covered plan maintained by Defendant. The dispute thus turned on the relationship of various written contracts entered into by the parties. The Holmstrom court accordingly rejected the applicability of the exhaustion doctrine on the grounds that the case involved only questions of law and the interpretation of written documents, matters well within the expertise of courts rather than plan administrators. The focus in this case, on the other hand, is upon the correctness of the initial denial of benefits to Plaintiff based upon her medical condition. Such a matter is best committed at this stage of review to the plan fiduciary rather than to this Court.

For these reasons, the Court agrees with Defendants that Counts I and II of Plaintiff’s Amended Complaint are not ripe for review and should be dismissed, without prejudice, in order that Plaintiff exhaust her administrative remedies.

III. Metropolitan’s Duty to Supply Plaintiff with Dr. Paley’s Report

29 U.S.C. § 1132(c) provides as follows:

Any administrator who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper.

In Grossmuller v. International Union, 715 F.2d at 858, the Third Circuit found the “full and fair review” required by 29 U.S.C. § 1133(2) to place upon the plan fiduciary a duty to allow the plan participant the opportunity to review the evidence upon which the denial of benefits was based. The relief accorded in Grossmuller was a remand for a new determination of the claimant’s entitlement to benefits. In Count III, however, Plaintiff instead seeks damages under Section 1132(e) for Metropolitan’s delay in making Dr. Paley’s report available for her review. Defendants seek dismissal of Count III under Fed.R.Civ.P. 12(b)(6), their position being that Section 1132(c) does not embrace violations of Section 1133(2).

A liberal reading of Section 1132(c) renders Plaintiff’s theory plausible. Section 1132(c) refers to requests for any information “required by this subehapter,” and Section 1133, like Section 1132, is included in Subchapter I of ERISA. Yet, in contrast to the mandatory duties contained elsewhere in Subchapter I as to specific pieces of information to be furnished by the plan administrator to participants, see 29 U.S.C. §§ 1022, 1024, 1025, Section 1133(2) does not itself require that any particular information be furnished to participants by the relevant plan fiduciary. Section 1133(2) simply states that denials of claims are to be handled in accordance with the Secretary’s regulations. See footnote 1, infra. The Secretary’s regulations, however, only provide in 29 C.F.R. § 2560.5031(g)(ii) that a “full and fair review” of a denial of benefits must include the claimant’s ability to “review pertinent documents.”

The Court finds little guidance in the legislative history of ERISA, see 1974 U.S. Code Cong, and Adm.News, p. 4639 et seq., and has found no case in which a violation of Section 1133(2) has been found to state a claim under Section 1132(c).

Finally, the Court notes the tension between Plaintiff’s attempt to enhance the potency of Section 1133(2) and the restrictive reading given Section 1133 by a majority of the Supreme Court in Russell. Justice Stevens, writing for the Court, took the view that the requirements of Section 1133 with respect to claims processing did not rise to the level of the fiduciary duties in the disclosure of information set forth elsewhere in Title I of ERISA:

It is of course true that the fiduciary obligations of plan administrators are to serve the interest of participants and beneficiaries and, specifically, to provide them with the benefits authorized by the plan. But the principal statutory duties imposed on the trustees relate to the proper management, administration, and investment of fund assets, the maintenance of proper records, the disclosure of specified information, and the avoidance of conflicts of interest. Those duties are described in Part 4 of Title 1 of the Act, which is entitled “Fiduciary Responsibility,” see §§ 401-414, 88 Stat. 874-890, 29 U.S.C. §§ 1101-1114, whereas the statutory provisions relating to claim procedures are found in Part 5, dealing with “Administration and Enforcement.” §§ 502(a), 503, 88 Stat. 891, 893, 29 U.S.C. §§ 1132(a), 1133. The only section that concerns review of a claim that has been denied — § 503 — merely specifies that every plan shall comply with certain regulations promulgated by the Secretary of Commerce.

— U.S. at-, 105 S.Ct. at 3092.

Justice Brennan, joined by three other Justices in his concurrence in the judgment in Russell, strongly disagreed with this passage in Russell and its apparent suggestion that plan administrators might not be fully subject to strict fiduciary duties to participants in the processing of their claims. He provided this reading of the above-quoted passage in Justice Stevens’ opinion:

The Court apparently thinks there might be some significance in the fact that an administrator’s fiduciary duties “are described in Part 4 of Title 1 of the Act ... whereas the statutory provisions relating to claim procedures are found in Part 5.” Ante, at- [105 S.Ct. at 3091]. Accordingly, the Court seems to believe that the duties and remedies associated with claims processing might be restricted to those explicitly spelled out in §§ 502(a)(1)(B) and 503. [29 U.S.C. §§ 1132(a)(1)(B) and 1133].

— U.S. at-, 105 S.Ct. at 3095. Later in his concurrence, Justice Brennan spoke out for a broader reading of both Section 1132’s enforcement provisions and Section 1133’s claims procedures, concluding: “[A]n administrator’s claims-processing duties and a beneficiary’s corresponding remedies are not at all limited to the terms of §§ 502(a)(1)(B) and 503.” Id.

In light of the opinion of the Court in Russell and the light shed on it by the concurrence in that judgment, the Court is persuaded that Plaintiffs construction of Section 1132(c) cannot prevail. Accordingly, the Court sustains that portion of Defendants’ Motion to Dismiss applicable to Count III of Plaintiff’s Amended Complaint on the grounds that said count fails to state a claim upon which relief may be granted.

IV. Extracontractual Damages for Delays in Processing.

In Count IV of her Amended Complaint, Plaintiff seeks damages for emotional distress as well as punitive damages for Metropolitan’s failure to substantiate its denial of her claim for benefits and its undue delay in the processing of her claim. In her memorandum, filed with this Court (Doc. # 13), Plaintiff cites 29 U.S.C. § 1109’s provision of liability for breach of fiduciary duty as the basis for her cause of action for delay.

To the extent that Count IV focuses upon Metropolitan’s denial of benefits to Plaintiff, that portion of Count IV must be dismissed under the doctrine of exhaustion discussed in Part II of this opinion. Plaintiff’s cause of action for delay must also be dismissed for failure to state a claim upon which relief may be granted. In Russell, all nine Justices agreed that there is no private right of action for' a beneficiary or participant under Section 1109 for a plan administrator’s delay in processing a claim for benefits. — U.S. at-, 105 S.Ct. at 3093-94. This decision overturned the decision of the Ninth Circuit in Russell v. Massachusetts Mutual Life Ins. Co., 722 F.2d 482 (9th Cir.1983), relied upon by Plaintiff.

V. Conclusion

In summary, Counts I and II are dismissed without prejudice due to Plaintiff’s failure to exhaust her administrative remedies. Count III is dismissed for failure to state a claim upon which relief may be granted. Count IV is dismissed under both the doctrine of exhaustion and for the reason that it fails to state a claim upon which relief may be granted.

The above captioned matter is hereby ordered terminated upon the docket records of the United States District Court for the Southern District of Ohio, Western Division, at Dayton.

      . 29 U.S.C. § 1133 provides as follows:
      In accordance with regulations of the Secretary, every employee benefit plan shall—
      (1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and
      (2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

      . In Clouatre v. Lockwood, 593 F.Supp. 1136 (M.D.La.1984), the court considered whether Section 1132(c) provided a remedy for violation of Section 1133. While the court appeared to have no difficulty with the possibility that Section 1132(c) embraces violations of Section 1133, it found plaintiff therein not to have made a request for the Section 1133 information from the plan administrator. As Section 1132(c), unlike Section 1133, specifically requires that a request be made in order to trigger the administrator's duty, the Clouatre court found plaintiff to have failed to state a claim under Section 1132(c).


author: BEAM, District Judge.

text:
    THOMAS JACKSON PUBLISHING, INC., Plaintiff, v. Gerald Martin BUCKNER, et al., Defendants.
    No. CV 84-0-630.
    United States District Court, D. Nebraska.
    Aug. 12, 1985.

      Ron Ellis, E. Robert Newman, P.C., Omaha, Neb., for plaintiff.
    Allen E. Daubman, McGill, Koley, Omaha, Neb., for BGO and CBS.
    Laura V. Jones, New York City, for CBS.
   ORDER

BEAM, District Judge.

This matter is before the Court upon the motion of defendants Gerald Martin Buckner and Gary Lee Garcia to dismiss the amended complaint (filing 22). Specifically, defendants seek dismissal for lack of personal jurisdiction, Fed.R.Civ.P. 12(b)(2), and for improper venue, Fed.R.Civ.P. 12(b)(3).

As against defendants Buckner and Garcia, the amended complaint alleges infringement of plaintiff’s federally registered copyrights to a musical composition entitled “PAC MAN”, in violation of the Federal Copyright Act, 17 U.S.C. §§ 101, et seq. The complaint specifically alleges that defendants, who perform as a musical group, infringed such copyrights “by arranging for the publication and placing upon the market of and by publicly performing a musical composition entitled ‘PAC MAN FEVER’.”

In support of their motion to dismiss for lack of personal jurisdiction, defendants argue that plaintiff has failed to establish sufficient “minimum contacts” with the State of Nebraska so as to comport with due process. Plaintiff is a Nebraska corporation. Defendants are residents of the State of Georgia and were served with process in that state.

Plaintiff invokes the Court’s original jurisdiction over copyright disputes pursuant to 28 U.S.C. § 1338(a), and claims that the Court has personal jurisdiction over defendants pursuant to Nebraska’s long-arm statute, Neb.Rev.Stat. § 25-536(2) (1983 Supp.). Section 25-536(2) provides that a court may exercise personal jurisdiction over a person “[w]ho has any other contact with or maintains any other relation to this state to afford a basis for the exercise of personal jurisdiction consistent with the Constitution of the United States.” Plaintiff claims that “this Section extends the reach of in personam jurisdiction to the limits authorized by due process.” Brief at 4.

To determine whether the Court has personal jurisdiction over defendants in this instance, the Court has considered the due process/minimum contacts analysis recently set forth in Burger King Corp. v. Rudzewicz, — U.S.---, 105 S.Ct. 2174, 2181-84, 85 L.Ed.2d 528 (1985).

Applying that analysis to the alleged facts of this case, the Court concludes that it may properly exercise personal jurisdiction over the defendants. The complaint alleges that defendants infringed plaintiff’s copyrights to “PÁC MAN” by performing, and arranging for the publication and marketing of, a musical composition entitled “PAC-MAN FEVER”; that “[t]he words, music, and performance of ‘PAC-MAN FEVER’ is represented as being written and created by [defendants] but the words, music, and performance were in fact copied largely from plaintiff’s copyrighted musical composition and sound recording entitled ‘PAC MAN’ ”; and that, “as a consequence thereof, a false notice of copyright was placed ... and false registrations of copyrights were effected” on the musical composition “PAC-MAN FEVER” by defendants. Thomas A. Jackson, President of the plaintiff corporation, further alleges by sworn affidavit that he has observed the distribution of sheet music and phonograph recordings entitled “PAC-MAN FEVER”, displaying the names of defendants as authors and performers, in retail stores throughout the State of Nebraska, and that he has purchased a copy of each in Omaha, Nebraska. Mr. Jackson further alleges that in the spring of 1982 he observed defendants perform the song “PAC-MAN FEVER” on the national television programs “American Bandstand” and “Solid Gold”, broadcast in Omaha, Nebraska. He also alleges that while in Omaha during the summer of 1982 he observed either defendant Buckner or Garcia in a personal interview conducted over national cable network television (WTBS of Atlanta, Georgia), during which the defendant described himself as an author, producer and performer of “PAC-MAN FEVER.” Mr. Jackson further claims that he has heard “PAC-MAN FEVER”, sung by defendants, broadcast on the radio in Nebraska.

Although no physical ties to Nebraska can be attributed to defendants, the “minimum contacts” test has been satisfied in this instance. Assuming the alleged acts of copyright infringement to be true, the Court finds that defendants’ conduct and connection with the state of Nebraska were such that they should reasonably have anticipated being sued in this forum. Defendants’ activities were “purposefully directed” at plaintiff, a resident of this forum, and the likelihood of such acts causing injury to plaintiff in this state was both foreseeable and highly probable. Thus, defendants cannot argue that they had no “fair warning” that their activities would render them liable to suit here. See Burger King Corp., 105 S.Ct. at 2182-83.

The Court now turns to the issue of whether the complaint should be dismissed for improper venue, pursuant to Fed.R. Civ.P. 12(b)(3). The basis for venue alleged in the amended complaint is 28 U.S.C. § 1400(a), the federal copyright venue statute, which provides:

Civil actions, suits, or proceedings arising under any Act of Congress relating to copyrights may be instituted in the district in which the defendant or his agent resides or may be found.

In construing this section, courts have generally held that a defendant may be “found” in any district in which personal jurisdiction may be obtained over the defendant. See, e.g., Donner v. Tams-Witmark Music Library, Inc., 480 F.Supp. 1229, 1234-35 (E.D.Pa.1979); Mode Art Jewelers Co. v. Expansion Jewelry Ltd., 409 F.Supp. 921, 923 (S.D.N.Y.1976). Thus, venue is proper in any district in which the court has personal jurisdiction over a nonresident defendant pursuant to a state’s long-arm statute. See Testa v. Janssen, 482 F.Supp. 1195, 1197 (W.D.Pa.1980); Battle Creek Equipment Co. v. Roberts Manufacturing Co., 460 F.Supp. 18, 21-22 (W.D.Mich.1978). Having already determined, supra, that the Court has personal jurisdiction over defendants, the Court must also conclude that venue is proper in this district.

Accordingly,

IT IS ORDERED that defendants Buckner and Garcia’s motion to dismiss the amended complaint for lack of personal jurisdiction and improper venue (filing 22) should be and the same is hereby denied.

IT IS FURTHER ORDERED that defendants Buckner and Garcia shall file and serve their answers to the amended complaint within twenty (20) days of the date of this Order.

On Motion to Dismiss

This matter is before the Court upon defendants BGO Music, Inc. and BGO Records, Inc.’s motion to dismiss the original complaint (filing 7), and motion to dismiss the amended complaint (filing 19). Both motions seek dismissal for lack of personal jurisdiction, Fed.R. Civ.P. 12(b)(2), and for improper venue, Fed.R.Civ.P. 12(b)(3). Filing 7 also seeks dismissal for insufficiency of process, Fed.R.Civ.P. 12(b)(4), and for insufficiency of service of process, Fed.R.Civ.P. 12(b)(5).

As against defendants BGO Music, Inc. and BGO Records, Inc., the amended complaint alleges infringement of plaintiff’s federally registered copyrights to a musical composition entitled “PAC MAN”, in violation of the Federal Copyright Act, 17 U.S.C. §§ 101, et seq. The complaint specifically alleges that defendants, which promote and produce various forms of entertainment, infringed such copyrights “by arranging for the publication, promotion, production, manufacturing, distribution and sale of the musical composition entitled ‘PAC MAN FEVER’ in the form of sheet music and in the form of phonograph records and tapes.” The complaint further alleges that defendants “placed false notices of copyrights on copies and recordings of said works and effected false registrations thereof.”

In support of their motion to dismiss for lack of personal jurisdiction, defendants argue that plaintiff has failed to establish sufficient “minimum contacts” with the State of Nebraska so as to comport with due process. Plaintiff is a corporation incorporated under the laws of Nebraska. Defendants are independent corporations incorporated under the laws of Georgia and having their principle places of business in Doraville, Georgia.

Plaintiff invokes the Court’s original jurisdiction over copyright disputes pursuant to 28 U.S.C. § 1338(a). Defendants acknowledge that the Court’s exercise of personal jurisdiction, if at all, is dependent upon Nebraska’s long-arm statute, Neb. Rev.Stat. 25-536(2) (1983 Supp.). Section 25-536(2) provides that a court may exercise personal jurisdiction over a person “[w]ho has any other contact with or maintains any other relation to this state to afford a basis for the exercise of personal jurisdiction consistent with the Constitution' of the United States.”

To determine whether the Court has personal jurisdiction over defendants in this instance, the Court has considered the due process/minimum contacts analysis recently set forth in Burger King Corp. v. Rudzewicz, — U.S.---, 105 S.Ct. 2174, 2181-84, 85 L.Ed.2d 528 (1985).

Applying that analysis to the alleged facts of this case, the Court concludes that it may properly exercise personal jurisdiction over the defendants. In addition to the alleged infringing activities of defendants, the complaint alleges that defendants have profited as a result of such infringing activities. Further, Thomas A. Jackson, President of the plaintiff corporation, alleges by sworn affidavit that he has observed the distribution of sheet music for the infringing words and music entitled “PAC-MAN FEVER”, bearing the copyright notice of defendant BGO Music, Inc., in retail stores throughout the State of Nebraska, and that he has purchased a copy of the same in Omaha, Nebraska. Mr. Jackson further alleges that he has observed the distribution of phonograph recordings for “PAC-MAN FEVER”, bearing the notice: “Produced by Buckner & Garcia for the Buie-Geller Organization,” in retail stores throughout the state of Nebraska, and that he has purchased a copy of the same in Omaha, Nebraska. Mr. Jackson states that he believes Buie-Geller Organization is a predecessor in interest to and/or a trademark of defendants BGO Music, Inc. and/or BGO Records, Inc.

Assuming the alleged acts of copyright infringement to be true, the Court finds that defendants’ distribution and sales of sheet music and phonograph recordings throughout the State of Nebraska are sufficient to support plaintiffs assertion of personal jurisdiction in this action. Presumably, such distribution was purposefully directed at residents of Nebraska and, as a result, has affected plaintiff, a resident corporation of this state. Regular distribution and sales of these items by defendants cannot be characterized as “random, isolated or fortuitous.” See Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 1478, 79 L.Ed.2d 790 (1984). The Court concludes that defendants’ conduct and connection with the State of Nebraska were such that they should reasonably have anticipated being sued in this forum, and that the “minimum contacts” test has been satisfied in this instance.

The Court now turns to the issue of whether the complaint should be dismissed for improper venue, pursuant to Fed.R. Civ.P. 12(b)(3). The basis for venue alleged in the amended complaint is 28 U.S.C. § 1400(a), the federal copyright venue statute, which provides:

Civil actions, suits, or proceedings arising under any Act of Congress relating to copyrights may be instituted in the district in which the defendant or his agent resides or may be found.

In construing this section, courts have generally held that a defendant may be “found” in any district in which personal jurisdiction may be obtained over the defendant. See, e.g., Donner v. Tams-Wit-mark Music Library, Inc., 480 F.Supp. 1229, 1234-35 (E.D.Pa.1979); Mode Art Jewelers Co. v. Expansion Jewelry Ltd., 409 F.Supp. 921, 923 (S.D.N.Y.1976). Thus, venue is proper in any district in which the court has personal jurisdiction over a nonresident defendant pursuant to a state’s long-arm statute. See Testa v. Janssen, 482 F.Supp. 1195, 1197 (W.D.Pa.1980); Battle Creek Equipment Co. v. Roberts Manufacturing Co., 460 F.Supp. 18, 21-22 (W.D.Mich.1978). Having already determined, supra, that the Court- has personal jurisdiction over defendants, the Court must also conclude that venue is proper in this district.

With regard to defendants’ motion to dismiss for insufficiency of service and insufficiency of service of process, Fed.R. Civ.P. 12(b)(4) and (5), the Court notes that the amended complaint and corrected summonses have remedied the inconsistencies complained of, therefore, these issues have been rendered moot.

Accordingly,

IT IS ORDERED that defendants BGO Music, Inc. and BGO Records, Inc.’s motion to dismiss the amended complaint for lack of personal jurisdiction and improper venue (filing 19) should be and the same is hereby denied.

IT IS FURTHER ORDERED that defendants’ motion to dismiss the original complaint (filing 7) should be and the same is hereby denied as moot.

IT IS FURTHER ORDERED that defendants BGO Music, Inc. and BGO Records, Inc. shall file and serve their answers to the amended complaint within twenty (20) days of the date of this Order.

      . Defendants do not dispute plaintiffs claim that section 25-536(2) provides for personal jurisdiction over nonresidents within the limits of due process.
      The Court notes that the Nebraska Supreme Court recently interpreted section 25-536(2) to provide for "the broadest allowable [personal] jurisdiction over nonresidents.” York v. York, 219 Neb. 883, 367 N.W.2d 133, 135 (1985). In that case, the Court held that personal jurisdiction over the nonresident defendant, pursuant to section 25-536(2), was proper because sufficient minimum contacts had been established to satisfy due process. Id. 367 N.W.2d at 136.