author: SCOTT O. WRIGHT, Chief Judge.

text:
    Lolita B. DEALY, Plaintiff, v. Margaret M. HECKLER, Secretary of the Department of Health and Human Services, Defendant.
    No. 83-1269-CV-W-0-5.
    United States District Court, W.D. Missouri, W.D.
    Oct. 16, 1984.

      James Marshall Smith, Kansas City, Mo., for plaintiff.
    Judith M. Strong, Asst. U.S. Atty., Kansas City, Mo., William Raffel, Disability Litigation Branch, Baltimore, Md., for defendant.
   ORDER

SCOTT O. WRIGHT, Chief Judge.

Plaintiff Lolita Dealy, an unsuccessful Social Security disability applicant, has brought this action seeking relief from an order of the Social Security Administration dismissing her request for a hearing on the basis of res judicata. Proceeding without counsel, the plaintiff filed an application for Social Security benefits on January 11, 1980. This claim was denied by the Secretary, without a hearing, both initially and on reconsideration. On October 26, 1980, the Social Security Administration sent the plaintiff notice of the denial of her request for reconsideration. This notice contained the following language:

If you believe that the reconsideration determination is not correct, you may request a hearing before the Administrative Law Judge of the Bureau of Hearings and Appeals. If you want a hearing, you must request it not later than 60 days from the date you receive this notice. Read the enclosed leaflet BHA-1 for a full explanation of your right to appeal.
If you do not request a hearing within the prescribed time period, you still have the right to file another application at any time.

On the basis of this notice advising her that she could file a new application, the plaintiff decided not to request a hearing and did not seek further review of her initial application.

On October 14, 1982, the plaintiff filed a second application for Social Security benefits, claiming disability due to mental confusion, chronic back pain and cardiovascular and respiratory problems. By notice dated January 30, 1983, the Social Security Administration denied the plaintiff’s second claim for disability benefits. On March 12, 1983, the plaintiff requested an administrative hearing and provided the Administration with additional evidence of her medical problems. . On May 9, 1983, the Office of Hearings and Appeals dismissed the plaintiff’s request for a hearing. The Administrative Law Judge (AU) found that the reconsideration denial of October, 1980, was binding, that there were no grounds for reopening the ease, and that the doctrine of res judicata required dismissal of the case.

In support of her instant request for judicial relief, the plaintiff contends that the notice she received on October 27, 1983 was misleading and violative of due process, because the notice gave the plaintiff the impression that she did not need to request a hearing on her first application as she could file a second application and receive legitimate review of such an application on the merits. In addition, the plaintiff contends that the doctrine of administrative res judicata should not apply where no hearing is held on the initial determination. The Court is in agreement with the plaintiff, and concludes that a remand for the purposes of a hearing on the merits of plaintiffs application is warranted under each of plaintiffs alternative theories.

I. Factual Background

The plaintiff applied for Social Security disability benefits on January 11, 1980. The plaintiff complained of having “down days” at least twice a week, leg weakness, nerves, poor circulation, back problems and high blood pressure. Her application was denied, and she requested reconsideration of the denial on May 9, 1980. By letter dated October 27, 1980, the plaintiffs request for reconsideration was denied. Ms. Dealy did not seek further review.

On October 14, 1982, the plaintiff filed another application for Social Security disability benefits. She stated that she was prevented from working because of allergies, swelling, colon problems, and bloating. She stated that she had been disabled since November 16, 1980. In a disability report dated October 12, 1982, the plaintiff complained of mental confusion, muscle coordination problems, sinus problems, facial swelling, nasal drainage headaches, inability to concentrate, dizziness, loss of balance, chronic low back pain, extreme gas, chronic hypertension, emotional distress, coughing, ringing in her ears, blurred vision, itching of the eyes, numbness, circulatory problems, irregular heart beat, weakness, back pain, breathing difficulty, and allergy problems. She alleged that her problems first began May 8, 1970. She noted that she had been forced to resign from several jobs because of health problems. The plaintiff last attempted to work from August through November, 1980, but again had to resign due to health reasons.

In the report of October 12, 1982, the plaintiff noted that she was able to do household activities only on a very limited basis, and that some days she was unable to perform any household activities. She had not had any regular recreational activities or social contacts.

In a vocational report dated October 12, 1982, the plaintiff listed her past jobs. These included nurse’s aide, food service work, and salesclerk activities. The jobs listed required constant walking or standing, with the exception of the salesclerk job, which allowed one hour per day of sitting.

The plaintiff’s claim for disability benefits was denied and she requested reconsideration on November 29, 1982. In the reconsideration request, she noted that her disability onset date should have been June 15, 1978. In a reconsideration disability report dated November 24, 1982, the plaintiff stated that she had been unable to work after her surgery of June 20, 1978. She stated that after being denied Social Security benefits based upon her application of January 11, 1980, she attempted to return to work. She worked from August 27, 1980 through November 16, 1980 when she left her work because of health reasons. The plaintiff described her work in a work activity report dated November 24, 1982. On November SO, 1982, a Social Security reviewer noted that the work activity constituted an “unsuccessful work attempt.”

By notice dated January 10, 1983, the Social Security Administration denied the plaintiff’s claim for disability benefits. On March 12, 1983, the plaintiff requested an administrative hearing. She provided the Administration with a description of her medical treatment and problems, as well as a list of her medications.

On March 24, 1983, the Office of Hearings and Appeals acknowledged the plaintiff’s request for hearing and indicated that she would be notified of the time and place of her hearing. On May 9,1983, an Administrative Law Judge of the Office of Hearings and Appeals dismissed the plaintiff’s request for hearing. The AU found that the reconsideration decision dated October, 1980, was binding on the Secretary. The AU found no grounds for reopening the case and dismissed the case based upon the doctrine of res judicata.

After receiving the notice of dismissal, the plaintiff requested representation by Legal Aid of Western Missouri. On July 12, 1983, the plaintiff, by counsel, requested review of the AU’s dismissal. By order dated October 5, 1983, the Appeals Council denied the plaintiff’s request for review. The Appeals Council “considered” the statements submitted in connection with the request for review, but concluded that the statements were not relevant to the issue. Plaintiff thereafter sought judicial review in this Court.

II. Opinion

A. Jurisdiction

The plaintiff contends that subject matter jurisdiction lies in this Court pursuant to Section 205(g) of the Social Security Act, 42 U.S.C. § 405(g); mandamus jurisdiction pursuant to 28 U.S.C. § 1361; and federal question jurisdiction pursuant to 28 U.S.C. § 1331.

(1) 42 U.S.C. § 405(g).

Section 405(g) allows district court review of “final decisions” of the Secretary. The Secretary contends that her decision not to reopen this instant case is not a “final decision,” and, therefore, the Court has no jurisdiction to review this action. See Califano v. Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977). In Califano, however, the Supreme Court noted that when constitutional questions are in issue, judicial review pursuant to § 405(g) will be presumed. Id. 97 S.Ct. at 986. Similarly, in Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976), the Supreme Court held that § 405(g) provides a jurisdictional basis when the claimant’s constitutional challenge is collateral to his substantive claim and there is a possibility of irreparable harm. The Eighth Circuit “has followed Eldridge in holding that a federal court has jurisdiction to hear a challenge to a Social Security regulation under § 405(g) as long as the challenge is collateral to the substantive claim and presents a colorable constitutional claim.” Jensen v. Schweiker, 709 F.2d 1227, 1229 (8th Cir. 1983). A due process claim, such as the one raised by the plaintiff in this case, is a colorable constitutional claim on a collateral issue and, therefore, this Court has jurisdiction pursuant to § 405(g). See Jensen, supra, 709 F.2d at 1230 (due process claim in connection with Social Security bénefits subject to Court’s jurisdiction under § 405(g).

(2) Mandamus Jurisdiction under 28 U.S.C. § 1361

In Heckler v. Ringer, 466 U.S. 602, 104 S.Ct. 2013, 2023, 80 L.Ed.2d 622 (1984). The Supreme Court assumed without deciding that 42 U.S.C. § 405(g) “does not foreclose mandamus jurisdiction in all Social Security cases____” Id. The Eighth Circuit has determined that a procedural claim against the Secretary is appropriate for the assertion of mandamus jurisdiction. Mental Health Ass’n of Minnesota v. Heckler, 720 F.2d 965, 971 n. 17 (8th Cir.1983). See also Ellis v. Blum, 643 F.2d 68, 78-82 (2nd Cir.1981) (mandamus jurisdiction to review state policy allegedly conflicting with federal regulations); Dietsch v. Schweiker, 700 F.2d 865 (2nd Cir.1983) (mandamus jurisdiction over challenge to Secretary’s procedure).

“The common law writ of mandamus, as codified in 28 U.S.C. § 1361, is intended to provide a remedy for a plaintiff only if he has exhausted all other avenues of relief and only if the defendant owes him a clear non-discretionary duty.” Heckler v. Ringer, supra, 104 S.Ct. at 2023-24. It is clear that the plaintiff has exhausted her available remedies through her attempts to obtain disability benefits through the administrative process. With respect to her due process claim, mandamus jurisdiction exists. See Soberal-Perez v. Schweiker, 549 F.Supp. 1164 (E.D.N.Y.1982), aff’d 717 F.2d 36 (2nd Cir.1983) (for claim seeking to require the Secretary to provide Social Security notices in Spanish, mandamus jurisdiction available to determine whether constitutional duty exists and to review the agency action within the scope of the Administrative Procedure Act). With respect to the plaintiffs claim that res judicata should not be applied in this case, the Court notes that the Eighth Circuit has twice stated that “the Secretary’s solicitation of a new application, in our view, constitutes [a Social Security Administration] promise that the defenses of res judicata and collateral estoppel under 20 C.F.R. § 404.937(a) and 404.938a (1979) will not be asserted against [a claimant] should she file a new claim for SSA benefits.” Gipson v. Harris, 633 F.2d 120, 122 n. 2 (8th Cir.1980). See also Friddle v. Heckler, 720 F.2d 24, 25 n. 3 (8th Cir.1983). Accordingly, the Court finds that jurisdiction exists pursuant to 28 U.S.C. § 1361.

(3) 28 U.S.C. § 1331.

Generally, 42 U.S.C. § 405(g) precludes federal jurisdiction under § 1331 with respect to claims involving Social Security claims. Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 2462, 45 L.Ed.2d 522 (1974); Jensen v. Schweiker, 709 F.2d 1227, 1229 (8th Cir.1983). The Eighth Circuit has concluded, however, that § 405(g) does not preclude jurisdiction under § 1331 where a due process claim has the primary goal of obtaining a constitutionally adequate hearing before the Secretary, and where there is no adequate alternative means of obtaining judicial review of a due process claim. St. Louis University v. Blue Cross Hospital Services, 537 F.2d 283, 292 (8th Cir.1976). See also Starnes v. Schweiker, 715 F.2d 134, 140 (4th Cir. 1983) (jurisdiction exists pursuant to § 1331 to redress violations by Secretary of rulemaking requirements of APA). Accordingly, the Court finds that jurisdiction lies pursuant to § 1331, as the plaintiff has challenged the res judicata effect of the Secretary’s regulations.

B. Plaintiffs Due Process Claim: Adequacy of the Notice

By notice dated October 27, 1980, the plaintiff was advised that she did not meet the disability requirements of the Social Security Act. She was further advised of her right to request a hearing, but was also advised that if she did not request a hearing she “still had the right to file another application at any time.” The plaintiff, believing a subsequent application would receive a ruling on its merits by the SSA, abandoned her initial application by choosing not to request a hearing or to seek an appeal. Had the plaintiff been aware that her second application would be barred by the doctrine of res judicata, she would have sought a hearing on her initial application.

The requirement of procedural due process imposes constraints on governmental actions which deprive individuals of protected liberty and property interests within the meaning of the Fifth and Fourteenth Amendments. Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 901, 47 L.Ed.2d 18 (1976). “To have a property interest in a benefit, a person clearly must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.” Board of Regents of State Colleges v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). Courts have recognized that the interest of an individual in continued receipt of Social Security benefits is a statutorily created property interest protected by the Fifth Amendment. Mathews, supra, 96 S.Ct. at 901. See also Johnson v. Mathews, 539 F.2d 1111, 1118 (8th Cir.1976).

The Eighth Circuit has not resolved the issue of whether a Social Security applicant has a property interest in disability benefits. In Gipson v. Harris, 633 F.2d 120 (8th Cir.1980), the Court assumed “without deciding that an applicant for Social Security disability benefits has a constitutionally protected ‘property’ interest in such potential benefits,” and held that “the due process clause did not require the SSA to separately notify claimant’s attorney of the reconsideration denial.” Id. at 122 (emphasis original). The Fourth Circuit in Adams v. Harris, 643 F.2d 995 (4th Cir.1981) took a similar approach in upholding form notices to applicants and expressly did not decide whether a Social Security applicant had a protected property interest under the Constitution. Id. at 998.

In a dissenting opinion in Adams, however, Judge Winter concluded that applicants for Social Security benefits have a protected property interest under the due process clause. The Court is in agreement with Judge Winter’s analysis which is fully set out below:

Although the case law on this point is not altogether clear, I think that applicants for Social Security benefits have a property interest cognizable under the due process clause of the Constitution. The district court found such an interest in this case, 474 F.Supp. [974] at 981, and several other lower court decisions, including that of a three-judge district court in this circuit, Randolph v. United States, 274 F.Supp. 200, 203 (M.D.N.C. 1967), aff’d, 389 U.S. 570, 88 S.Ct. 695, 19 L.Ed.2d 785 (1968), have reached that conclusion. See also White v. Mathews, 434 F.Supp. 1252, 1260-61 (D.Conn.1976), aff’d on other grounds, 559 F.2d 852 (2 Cir.1977), cert. denied, 435 U.S. 908, 98 S.Ct. 1458, 55 L.Ed.2d 500 (1978). But see Gendron v. Saxbe, 389 F.Supp. 1303, 1305-06 (C.D.Cal.) (three-judge ct.), aff’d sub nom Gendron v. Levi, 423 U.S. 802, 96 S.Ct. 9, 46 L.Ed.2d 23 (1975). (Fn. omitted)
The Supreme Court’s pronouncements in this area are not conclusive, but they tend to support the plaintiffs’ contention that their claim of entitlement to Social Security benefits is sufficient to invoke the protections of the due process clause. In Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1971), for example, the Court stated:
We may accept the propositions advanced by the claimant, some of them long established, that procedural due process is applicable to the adjudicative administrative proceeding involving “the differing rules of fair play, which through the years, have become associated with differing types of proceedings,” that “the ‘right’ to Social Security benefits is in one sense ‘earned,’ ” and that the “extent to which procedural due process must be afforded the recipient is influenced by the extent to which he may be ‘condemned to suffer grievous loss’ ... Accordingly ... ‘consideration of what procedures due process may require under any given set of circumstances must begin with a determination of the precise nature of the government function involved as well as of the private interest that has been affected by governmental action.’ ” [citations omitted].

Perales involved an application for Social Security disability benefits rather than the termination of such benefits. One year later, in Board of Regents v. Roth, 408 U.S. 564, 576-78, 92 S.Ct. 2701, 2708, 33 L.Ed.2d 548 (1972), the Court reviewed the procedural protection of property afforded by the fourteenth amendment from a more general perspective. Although Roth speaks of the security of interests that a person “has already acquired” in specific benefits, 408 U.S. at 576, 92 S.Ct. at 2708, and explains that to have a property interest in benefits a person must have “more than a unilateral expectation” of that benefit, id. at 577, 92 S.Ct. at 2709, it goes on to suggest that the required “legitimate claim of entitlement” may be grounded in a statute defining eligibility, irrespective of whether the benefit claim arises in the context of an initial application or the termination of benefits which have been the subject of a prior determination of entitlement, id. Most recently, in Lavine v. Milne, 424 U.S. 577, 96 S.Ct. 1010, 47 L.Ed.2d 249 (1976), the Court may have intimated that applicants for statutory (state welfare) benefits are entitled to “less process” than those already receiving benefits, but plainly assumed in its analysis of the available state procedures that such applicants possess an interest protected under the due process clause of the fourteenth amendment.

Adams, supra, 643 at 1001-02 (Winter, J. dissenting). Accordingly, the Court finds that the plaintiff in this case has, as a Social Security applicant, a sufficient claim of entitlement to Social Security benefits to trigger a protected property interest.

Once the Court concludes that the due process clause applies to a particular interest at stake, it proceeds to the second stage, which is the identification of the procedures necessary to safeguard that interest. Vruno v. Schwarzwalder, 600 F.2d 124, 129 (8th Cir.1979). “The extent to which procedural due process must be afforded the recipient is influenced by the extent he may be ‘condemned to suffer grievous loss,’ (cite omitted) and depends on whether the recipient’s interest in avoiding that loss outweighs the governmental interest in summary adjudication.” Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 1917-18, 25 L.Ed.2d 287 (1970). Three factors are to be considered in a determination of the governmental and private interests affected: (1) the private interest that will be affected by the official action; (2) the risk of an erroneous deprivation of such interest through the procedures used and the probable value, if any, of additional procedural safeguards; and (3) the government’s interest, including the function involved and the fiscal and administration burdens that the additional or substitute procedural requirements would entail. Mathews, supra, 96 S.Ct. at 903.

As stated by the Supreme Court, the right to be heard has little reality or worth unless one is informed that the matter is pending and can choose for himself whether to appear or default, acquiesce or contest____
An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated under all the circumstances to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. (citations omitted) The notice must be of such nature as reasonably to convey the required information....

Mullane v. Central Hanover Bank and Trust Co., 339 U.S. 306, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950). Notice should be “tailored to the capacities and circumstances” of their intended recipients. Goldberg v. Kelly, supra, 90 S.Ct. at 1021. Adequate notice requires accuracy in the description of legal rights and options available to parties. See Ellender v. Schweiker, 575 F.Supp. 590 (S.D.N.Y.1983); McCubbrey v. Boise Cascade Home & Land Corp., 71 F.R.D. 62 (N.D.Cal.1976).

As previously noted, the plaintiff, proceeding without counsel and unaware of the doctrine of administrative res judicata, chose not to request a hearing or pursue an appeal of the denial of her initial application for disability benefits. In making this decision, the plaintiff relied on the Secretary’s notice that she had “the right to file another application at any time.” The essential due process issue involvéd is whether the Secretary has an affirmative obligation to avoid providing Social Security applicants with misleading information. Clearly that duty exists.

The private interest involved is both significant and obvious. The plaintiff, who has paid into the Social Security program for many years, may be entitled to receive disability benefits. Moreover, plaintiff’s current financial situation indicates a need for additional financial support. With respect to the risk of error factor, it is apparent that had the plaintiff been adequately notified of the preclusive effect of res judicata, she would have chosen to contest the denial of her initial application. Finally, there is no significant financial or administrative burden associated with the requirement that the government supply the plaintiff with accurate information.

Recently, the United States District Court for the Eastern District of New York held Medicare review determination notices sent to beneficiaries to be constitutionally inadequate and ordered that the notices be changed to provide claimants with comprehensible explanations of the actual reason full reimbursement was denied. David v. Heckler, 591 F.Supp. 1033, (E.D.N.Y.1984). The Court noted that the “recipients of the review letters may think they understand or be hesitant to admit they do not understand them. The fact is that the letters are written at a level well beyond most in this segment of the population, with no discernible added benefit from complexity of information provided. The language used is bureaucratic gobbledegook, jargon, doubletalk, a form of officialese, federalese and insuranceese, and double speak. It does not qualify as English.” Id. at 1043. The language in the instant case, although not complex or confusing, is more offensive than the notice discussed in David because it serves to mislead and deceive the disability applicant and denies the applicant the right to make an intelligent and informed decision.

Accordingly, because the notice given the plaintiff is constitutionally deficient, the Court will order that the Secretary afford the plaintiff a full, fair and complete administrative hearing on the plaintiffs second application without regard to the decision made with respect to the first application.

C. The Application of Administrative Res Judicata Without a Prior Administrative Hearing

The Secretary dismissed the plaintiffs application without a hearing based upon the following regulations.

20 C.F.R. § 404.918 Reconsidered determination.

After you or another person requests a reconsideration, we shall review the evidence considered in making the initial determination and any other evidence we receive. We shall make our determination based on this evidence.

20 C.F.R. § 404.920 Effect of a reconsidered determination.

The reconsidered determination is binding unless—(a) You or any other party to the reconsideration requests a hearing within the stated time period and a decision is made; ...

20 C.F.R. § 404.957 Dismissal of a request for a hearing.

An administrative law judge may dismiss a request for a hearing under any of the following conditions:
******
(c) The administrative law judge decides that there is cause to dismiss a hearing request entirely or to refuse to consider any one or more of the issues because—(1) the doctrine of res judicata applies in that we have made a previous determination or decision under this sub-part about your rights on the same facts and on the same issue or issues, and this previous determination or decision has become final by either administrative or judicial action; ...

Several courts have stated that the doctrine of administrative res judicata may be applied to a second administrative proceeding even in the absence of a hearing on the initial determination. See Gaston v. Richardson, 451 F.2d 461, 465 (6th Cir.1971); Leviner v. Richardson, 443 F.2d 1338, 1342 (4th Cir.1971). On the other hand, some district courts refuse to apply res judicata where there has been no hearing. See Gilliam v. Gardner, 284 F.Supp. 529 (D.S. C.1968); Townend v. Cohen, 296 F.Supp. 789 (W.D.Pa.1969).

None of these courts, however, have sufficiently addressed the issue of whether the practice of invoking res judicata is consistent with the statutory framework of the Social Security Act and with the principles underlying the doctrine of res judicata. Recently, the Eighth Circuit has stated:

We agree with Professor Davis that the mere fact that Social Security proceedings, strictly speaking, do not involve “opposing parties” and are not “adversarial” should not bar application of the doctrine of administrative res judicata. 4 Davis, Administrative Law Treatise § 21:3, at 53-55 (2d ed. 1983). Where a hearing is held, the claimant is entitled to be accompanied by an attorney, evidence is introduced, and parties are subject to examination, we believe that the proceeding is sufficiently “judicial” to justify according preclusive effect to the outcome. The question whether the same result would obtain where the prior determination of disability was made without a hearing is not before us, and we do not decide it. For a cause holding the doctrine of administrative res judicata inapplicable in such a situation, see Delamater v. Schweiker, 721 F.2d 50 (2d Cir. 1983).

Rush v. Secretary of HEW, 738 F.2d 909, 914 n. 4 No. 83-2695 (8th Cir. 1984).

The practice of administrative res judicata has been approved by the Supreme Court in United States v. Utah Construction & Mining Co., 384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642 (1966). “When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose.” Id. 86 S.Ct. at 1560 (cites omitted). If “an administrative proceeding has not been of an adjudicative nature, a decision arrived at by the administrative agency cannot have res judicata effect.” Delamater v. Schweiker, supra, 721 F.2d at 53. Only what is adjudicated can be res judicata, and administrative action other than adjudication cannot be res judicata. Associated Industries of New York State, Inc. v. United States Department of Labor, 487 F.2d 342, 350 n. 10 (2d Cir.1973). “An action taken by an administrative agency to grant or deny a benefit is not an adjudicated action unless the agency has made its decision using procedures substantially similar to those employed by the courts.” Delamater, supra, 721 F.2d at 53. Use of adjudicative procedure is necessary to produce an adjudication that is binding under the rules of res judicata; where there is no hearing, no testimony, no subpoenaed evidence, no argument, and no opportunity to test any contention by confrontation, the doctrine of administrative res judicata has no application. Id. at 53-54. “Although application of the doctrine of res judicata to administrative decisions serves a useful purpose in preventing relitigation, it is not applied with the same rigidity as its judicial counterpart.” Brinker v. Weinberger, 522 F.2d 13, 15 (8th Cir.1975).

Moreover, it is apparent that the regulations pertaining to res judicata adopted by the Secretary are in conflict with the Social Security Act itself. Pursuant to 42 U.S.C. § 405(a), the Secretary has the “full power and authority to make rules and regulations and to establish procedures, not inconsistent with the provisions of this subchapter____” Id. See McCoy v. Schweiker, 683 F.2d 1138, 1143 (8th Cir.1982) (the Secretary is empowered to make rules and regulations so long as they are not inconsistent with the provisions of the Act). Where a regulation “is inconsistent with the [Social Security] statute it must, of course, give way.” Marion v. Gardner, 359 F.2d 175, 181 (8th Cir. 1966).

According to 42 U.S.C. § 405(h), the “finding and decision of the Secretary after a hearing shall be binding upon all individuals who are parties to such hearings. Id. (emphasis added). It is apparent that the language of § 405 suggests that for a Social Security proceeding to be of an “adjudicative nature,” there must be a hearing resolving the contested issues. Because the regulations allow for the dismissal of an application without the necessity of a hearing in the first instance, the regulations are inconsistent with the Social Security Act and “must, of course, give way.” Marion, supra, 359 F.2d at 181.

Accordingly, it is hereby

ORDERED that the defendant’s motion to dismiss is denied.

It is further

ORDERED that, with respect to the issues contained in this order, the plaintiff’s motion for summary judgment is granted. It is further

ORDERED that the plaintiff’s motion for remand is granted, and the Secretary is to promptly afford the plaintiff a full hearing on all issues involved relating to her second application for Social Security Disability benefits. This hearing is to be held without regard to the principle of res judicata, and without regard to the issue of whether the plaintiff has submitted “new and material evidence.”

      . Plaintiff and her husband, who also is disabled, must survive on $665 per month in disability benefits received by her husband. Because of her husband’s income, she is not entitied for other need-based programs. During the past year, plaintiff and her husband have accumulated over $4,000 in unpaid medical expenses not covered by insurance.

      . Even if the regulations cannot generally be classified as inconsistent with the Social Security Act, the Court concludes that the doctrine of res judicata cannot be applied under the specific facts of this case because the plaintiff was advised, though incorrectly, that she could file a second application and forego a hearing on her first application. The subsequent application of res judicata in the instant case must be reversed because "the Secretary’s solicitation of a new application, in our view, constitutes [a] promise that the defense of res judicata and collateral estoppel under 20 C.F.R. § 404.937(a) and 404.-938(a) (1979) will not be asserted against [a claimant] should she file a new claim for SSA benefits.” Gipson, supra, 633 F.2d at 122 n. 2; Friddle supra, 720 F.2d at 25 n. 3.


source: Caselaw Access Project

author: JOYCE HENS GREEN, District Judge.

license: Public Domain

text:
    NATIONAL WILDLIFE FEDERATION, et al., Plaintiffs, v. DEPARTMENT OF INTERIOR, et al., Defendants.
    Civ. A. No. 83-3586.
    United States District Court, District of Columbia.
    Oct. 23, 1984.

      John E. Bonine, Michael D. Axline, Eugene, Or., Thomas France, Missoula, Mont., for plaintiffs.
    David Burwell, Washington, D.C., Barbara Gordon, Catherine J. Lanctot, Civil Div., U.S. Dept. of Justice, Washington, D.C., for defendants.
   MEMORANDUM OPINION AND ORDER

JOYCE HENS GREEN, District Judge.

This case is now before the Court on cross-motions for summary judgment and defendants’ motion to dismiss. Plaintiffs National Wildlife Federation (NWF) and Northern Plains Resource Council (NPRC) filed this suit in December of 1983 to recover search and duplication fees after their request for a fee waiver under the Freedom of Information Act (FOIA) was denied by the Department of Interior. In their complaint, the plaintiffs sought injunctive relief requiring the defendants to refund fees that had been paid, and declaratory relief clarifying the meaning of the FOIA fee waiver provision (5 U.S.C. § 552(a)(4)(A)). Shortly after the suit was filed, the defendants refunded the full amount of the costs that had been assessed against the plaintiffs and moved to dismiss on the ground that the case had become moot. In the alternative, the defendants argued that the agency guidelines used to deny the fee waiver were consistent with FOIA and that, therefore, summary judgment should be granted in their favor. The plaintiffs disagreed, insisting that a “continuing controversy” existed before the Court and that summary judgment awarding the declaratory relief sought should be granted.

Because no material facts remain in dispute, the parties’ respective motions are now ready for adjudication. Two issues rest before the Court: have the plaintiffs satisfied the “case or controversy” requirement of Article III and, if so, are the guidelines and regulations used by the defendants to deny the fee waiver supported by FOIA.

I.

On March 11, 1983, the National Wildlife Federation filed a FOIA request with the Montana State Director of the Bureau of Land Management (BLM). The purpose of the request was to obtain information about “the wildlife impacts associated with The Fort Union Local Lease Sale and Meridian Coal Exchange.” NWF hoped to “garner a full understanding of the nature and extent of the proposed lease sale and exchange, and its effect on wildlife." NWF intended to share any information it received with the Northern Plains Resource Council.

5 U.S.C. § 552(a)(4)(A) empowers government agencies to charge FOIA requesters a fee to cover the cost of locating specific records and duplicating documents:

In order to carry out the provisons of this section, each agency shall promulgate regulations, pursuant to notice and receipt of public comment, specifying a uniform schedule of fees applicable to all constituent units of such agency. Such fees shall be limited to reasonable standard charges for document search and duplication and provide for recovery of only the direct costs of such search and duplication.

The section also provides that fees may be waived or reduced if the information requested “can be considered as primarily benefiting the general public”:

Documents shall be furnished without charge or at a reduced charge where the agency determines that waiver or reduction of the fee is in the public interest because furnishing the information can be considered as primarily benefiting the general public.

5 U.S.C. § 552(a)(4)(A). Because NWF and NPRC are both non-profit organizations dedicated to the promotion of conservation principles on behalf of large national and statewide constituencies respectively, NWF requested a fee waiver for the search and duplication costs under this “public interest” clause. The request was summarily denied by the BLM. In order to expedite review of the documents, the plaintiffs proceeded to pay for the costs of the search and copying, but after the documents were received an appeal of the waiver decision was promptly made to the Department of Interior (DOI).

Before the appeal was actually filed, the plaintiffs wrote to the BLM to request an explanation of the denial and a refund of the $113.30 that had been paid. BLM responded only by stating that the request had failed to meet Department of Justice (DOJ) guidelines for granting fee waivers. Those guidelines require an agency to evaluate five factors before ruling on a fee waiver request:

(1) whether there is a genuine public interest in the subject matter of the documents for which a fee waiver is sought;
(2) whether the disclosable contents of the records are informative on an issue of public interest;
(3) whether the requested information is already available in the public domain;
(4) the level of expertise possessed by the requester in the subject area of the request, and the strength of the requester’s intention to disseminate the information to the public;
(5) the existence of any personal interest on the part of the requester in the disclosure.

DOI and BLM regulations state that the agency handling the FOIA request retains discretion to determine whether the request is in the public interest, see 43 C.F.R. 2.19(c)(1) (1984); Manual of the Bureau of Land Management § 1372.3(B)(3), but only these DOJ guidelines set out with any degree of specificity the approach an agency should take in attempting to define the meaning of “public interest”.

On appeal, DOI upheld BLM’s ruling. Like BLM, DOI concluded that the plaintiffs had not satisfied the DOJ guidelines. Specifically, DOI noted that the plaintiff had failed to establish that the disclosure would serve a “general public interest”, or provide information “on any plan or program for disseminaton of the material.”

Seven months after the DOI’s decision, the plaintiffs filed this suit. In their prayer for relief, the plaintiffs asked this Court to: (1) declare that the denial violates 5 U.S.C. § 552(a)(4)(A) and order a refund of the fee; (2) declare that the guidelines set forth in the DOJ memorandum of January 7, 1983 violate 5 U.S.C. § 552(a)(4)(A); (3) declare that BLM Manual Section 1372.-3(B)(3) is “not in accordance” with federal law; (4) declare that 43 C.F.R. § 2.19(c)(1) is invalid; (5) declare that the requester will be presumptively entitled to a fee waiver if the request has been made by “a registered non-profit organization seeking information pertaining to that organization’s area of expertise, for the purpose of affecting government policy or educating the public”; and (6) award the plaintiffs costs and reasonable attorneys fees pursuant to 5 U.S.C. § 552(a)(4)(E).

Two months after the complaint was filed DOI reconsidered its ruling and decided to grant the fee waiver. By letter dated February 9, 1984, DOI instructed BLM to refund the plaintiffs the full amount of the search and duplication charges they had previously paid to obtain the documents. That amount has now been received by the plaintiffs.

II.

The doctrines of “mootness” and “standing” are inextricably intertwined. As a general matter, federal court jurisdiction can only be invoked to decide questions of law that arise in a “case or controversy.” Moot cases lie beyond the judicial power because the case or controversy ceases to exist once the matter has been resolved. See C. Wright, Law of Federal Courts, 38-39 (3d ed. 1976). Establishing federal jurisdiction, however, requires more than a showing that a “case or controversy” exists. The plaintiff must make out a “case or controversy” between himself and. the defendant; that is, the plaintiff must allege “a distinct and palpable injury to himself” such as to “warrant his invocation of federal-court jurisdiction.” Warth v. Seldin, 422 U.S. 490, 498-501, 95 S.Ct. 2197, 2204-06, 45 L.Ed.2d 343 (1975). Clearly, once a case has become moot or otherwise been resolved, a plaintiff no longer possesses standing because he cannot claim to suffer from “some threatened or actual injury resulting from the putatively illegal action.” Warth, 422 U.S. at 499, 95 S.Ct. at 2205, quoting Linda R.S. v. Richard D., 410 U.S. 614, 93 S.Ct. 1146, 35 L.Ed.2d 536 (1973).

In the present case plaintiff NWF has failed to demonstrate either that a controversy remains before this Court, or that it possesses the requisite standing to litigate its claims. At the time NWF filed its complaint the sole injury it had suffered as a direct result of the defendants’ actions was the loss of the $113.30 fee paid to BLM for duplication and search costs. Once that money was refunded, NWF could no longer point to a “distinct and palpable” injury requiring redress. In effect, the refund relegated NWF’s position to that of a potential plaintiff who, like any other member of the public, might voice concern over future harm that could be inflicted as a result of the DOJ’s new FOIA guidelines, but who lacked the standing needed to have a federal court decide the merits of a particular and immediate dispute.

To the extent that the refund removed the plaintiffs’ standing to sue, it also terminated the “case or controversy” at issue in this case. Had the defendants denied fee waivers to a number of plaintiffs, the loss of standing as to one party would not necessarily have made the entire controversy moot. But here the sole basis for the initial filing of the complaint was the denial of a single fee waiver to NWF. Once that money was returned, the dispute took on a “hypothetical character,” C. Wright, Law of Federal Courts at 38, and the plaintiffs became indistinguishable from any other citizen or group that might wish to have a clarification of law from an Article III court—not for the purpose of redressing a particular harm—but for mere “convenience”.

Without the ability to place a legal dispute in a factual context involving adverse parties, any decision issued by this Court would be purely advisory. The federal law of justiciability, as embodied in the doctrines of mootness and standing, has historically frowned on advisory opinions because of the need “to assure that the federal courts will not intrude into areas committed to the other branches of government.” Wright, Federal Courts at 38. Indeed, the rule against advisory opinions has roots deep in Anglo-American jurisprudence. Secretary of State Jefferson first voiced the fear that advisory opinions would violate the doctrine of separation of powers contemplated by the Constitution in 1793. 3 Correspondence and Public Papers of John Jay, 488-89 (1890). Shortly thereafter, in Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803), Chief Justice Marshall wove the rule into his newly formed doctrine of judicial review by holding that the Supreme Court had the power to declare a statute unconstitutional only if the ease was susceptible of judicial determination. Implicit in this ruling was the recognition that the power of the judiciary would best be preserved against encroachment if the judiciary itself did not overreach and was careful to avoid deciding cases not properly before it. Since that time the Supreme Court has, on numerous occasions, “recognized the risk that comes from passing on abstract questions rather than limiting decision to concrete eases in which a question is precisely framed by a clash of genuine adversary argument exploring every aspect of the issue.” Wright, Federal Courts at 41. See Golden v. Zwickler, 394 U.S. 103, 89 S.Ct. 956, 22 L.Ed.2d 113 (1969); Flast v. Cohen, 392 U.S. 83, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968); U.S. v. Fruehauf, 365 U.S. 146, 81 S.Ct. 547, 5 L.Ed.2d 476 (1961).

This case involves precisely the same concerns that the mootness doctrine has historically been invoked to avoid. To grant additional relief to that already volunteered by the defendants in this case— without any showing of further specific harm—would require this Court “to decide questions of law in a vacuum.” The harm alleged by the plaintiffs is purely speculative. It is a matter to be addressed by prophylactic legislation, not by litigation. However legitimate they may be, the plaintiffs’ concerns, standing on their own, cannot be resolved by this Court without usurping the role of the legislative and executive branches.

Even were we to conclude that a live controversy did exist and that the plaintiffs possessed the necessary standing, this case would still not be ripe for adjudication. In Webb. v. Dep’t of Health and Human Services, 696 F.2d 101 (D.C.Cir.1982), the D.C. Circuit held that a federal court lacked jurisdiction under the “ripeness doctrine” to review a regulation where voluntary action by the defendant had mooted the specific dispute between the parties. Plaintiff Webb had requested information under FOIA from the FDA about a new drug. Webb’s request was denied. Webb then challenged the validity of the regulation that had been used as the basis for the denial. After Webb had filed suit against the government, the party in possession of the information agreed to release it voluntarily. Relying on the two-prong “ripeness test” set out by the Supreme Court in Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967), the Court ruled that in the absence of a particularized FOIA request the validity of the challenged regulation was not ripe for judicial review.

The facts of this case are surprisingly similar to those in Webb. By their voluntary payment of the fee waiver the defendants have mooted the specific request that formed the basis of the plaintiffs’ claim of injury. Thus, delaying review will certainly not create undue “hardship” for the plaintiff. Abbott, 387 U.S. at 149, 87 S.Ct. at 1515. More important, as in Webb, the generalized nature of the plaintiffs’ challenge makes the issues placed before the Court unfit for decision:

Since ‘judicial appraisal of [the issue] is likely to stand on a much surer footing in the context of a specific application of this regulation than could be the case in the framework of [a] generalized challenge’ we conclude that the issue is not fit for judicial review.

Webb, 696 F.2d at 107, quoting Toilet Goods Ass’n, Inc. v. Gardner, 387 U.S. 158, 164, 87 S.Ct. 1520, 1523, 18 L.Ed.2d 697 (1967). See Abbott, 387 U.S. at 149, 87 S.Ct. at 1515 (second prong of ripeness test concerns fitness of issue for judicial decision).

NWF insists that the lack of a case or controversy should not preclude the Court from asserting jurisdiction because the issue is one that is “capable of repetition, yet evading review.” Roe v. Wade, 410 U.S. 113, 125, 93 S.Ct. 705, 713, 35 L.Ed.2d 147 (1973); Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310 (1911). Clearly, the injury initially suffered by the plaintiffs is capable of repetition. At any time in the future BLM or DOI could deny a request for a fee waiver.

There is nothing to suggest, however, that the issue is one that by its very nature will evade review. In Roe v. Wade, the Supreme Court refused to apply the mootness doctrine because the condition or injury that had to be shown in order to file the suit—pregnancy—terminated as a matter of course before the case could reach a stage of finality. Similarly, in Defenders of Wildlife v. Endangered Species, etc., 659 F.2d 168 (D.C.Cir.1981) a challenge to the Fish and Wildlife Service’s regulations governing the export of bobcats was not held moot when the bobcat export season ended because “there was a reasonable expectation that the same complaining party would be subjected to the same action again”, and “the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration.” Defenders, 659 F.2d at 175. In the instant case the dispute has been mooted not by the occurrence of events outside the control of the plaintiffs or simply by the passage of time, but rather the controversy has been terminated because the defendants agreed to redress the full extent of the plaintiffs’ injury. A matter does not “evade review” under Roe because the harm alleged has been abated. To the contrary, to invoke the doctrine the plaintiffs must be able to point to continuing concrete harm that has not been redressed. Here, no such harm exists.

The plaintiffs may in fact be correct in pointing out that the government decided to pay the refund in order to avoid further litigation and a ruling on the validity of the guidelines. Nevertheless, the DOI’s reasons for granting the waiver are irrelevant to the question of justiciability. The decision of this Court would be the same whether DOI had reviewed the request against the guidelines and initially decided to grant the fee waiver, or whether the DOI waived the fee only as a matter of litigation strategy. In either case the sole question before the Court would be “whether the short-term nature of [the] action makes the issues presented here ‘capable of repetition, yet evading review,’ so that petitioners are adversely affected by government ‘without a chance of redress.’ ” Super Tire Eng’g Co. v. McCorkle, 416 U.S. 115, 123, 94 S.Ct. 1694, 1698, 40 L.Ed.2d 1, quoting Southern Pac. Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 283, 55 L.Ed. 310 (1911) (emphasis added). Here, the only concrete injury suffered by the plaintiffs has been entirely abated by the refund. Nothing in the declaratory relief that the plaintiffs still insist upon receiving will contribute to the redress of the specific harm suffered. Cf. McCorkle, 416 U.S. 115, 94 S.Ct. 1694, 40 L.Ed.2d 1 (1974) (grant of injunctive relief did not moot case because declaratory relief still needed to redress specific injury that had been alleged).

Of course, to the extent that NWF has not received the advisory opinion on the validity of the guidelines that it persists in seeking, it has not received the “full redress” that it wants. But the “evading review” doctrine was not designed to insure that type of relief.

While the Court understands the concern over the prospect of having to resort to litigation at some point again in the future if a fee waiver should be denied, the plaintiffs have every reason to be gratified at the outcome of this litigation. The fee waiver that they sought has been granted. Accordingly, the litigation that they have undertaken has served its purpose well. If waivers are denied in the future, the plaintiffs will once again be able to turn to litigation to protect what they believe are their legal rights. It is the function of litigation to protect rights on a case by case basis in this manner.

Although the litigation that may be required in the future to win additional fee waivers may not be the most “efficient” means of insuring that rights are protected, “inefficiency” is not a reason to depart from the ease by case approach to adjudication that lies at the heart of our legal system. Advisory opinions might, indeed, be more “efficient” in the long run, but that is not the course that our judicial forefathers chose to follow.

III.

Having concluded that the threshold Article III justiciability requirements have not been met, the plaintiffs’ claims on the merits need not be addressed. Attorneys fees, however, are a different matter.

The FOIA provides that “[t]he Court may assess against the United States reasonable attorneys fees and other litigation costs reasonably incurred in any case under this section in which the complainant has substantially prevailed.” 5 U.S.C. § 552(a)(4)(E). Because the institution of this suit has resulted in the granting of a fee waiver to NWF, the plaintiffs have substantially prevailed on the central claim of the lawsuit. Accordingly, the plaintiffs are entitled to attorneys’ fees for time spent preparing this litigation up until the point that the refund was granted. The precise amount of the award shall be determined only after the Court has an opportunity to review prompt submissions of the plaintiffs addressing the specific elements of their requests. Those submissions must be filed within twenty-five days from this date; opposition, if any, shall be filed twenty-five days thereafter.

For the foregoing reasons the defendants’ motion for dismissal is, this 23rd day of October, 1984, hereby granted. Accordingly, all outstanding motions, including the cross-motions for summary judgment, are hereby dismissed.

IT IS SO ORDERED.

      . The guidelines referred to by the BLM were set out in a January 7, 1983 memorandum from Jonathan C. Rose, Assistant Attorney General in the Office of Legal Policy, to the heads of all federal departments and agencies. The memorandum was sent by the BLM to the plaintiffs at the time the plaintiffs requested an explanation for the denial of a fee waiver.

      . Under the Abbott test a court must "evaluate both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration” in order to determine the ripeness of an issue. 387 U.S. at 149, 87 S.Ct. at 1515.

      . The plaintiffs rely on three recent cases, Montgomery Environmental Coalition v. Costle, 646 F.2d 568 (D.C.Cir.1980); Environmental Defense Fund v. Gorsuch, 713 F.2d 802 (D.C.Cir.1983); Doe v. Harris, 696 F.2d 109 (D.C.Cir.1982), to argue that this case is "capable of repetition, yet evading review.” All of these cases are distinguishable from the one at bar. In Costle and Gorsuch the D.C. Circuit held that the challenge to agency action was not moot, in part because the action was capable of repetition, but also in part because the action involved a challenge to the defendant agency’s permit process—a process that the defendant in Gorsuch conceded was only temporary in duration and would, by its very nature, continually evade review. 696 F.2d at 810. As noted above, this case does not involve a challenge to action that by its very nature is too short ever to permit review. Nor does the present case involve a situation as in Gorsuch where relief, if voluntarily granted by the defendant, will automatically lapse after a statutory period has elapsed. Unlike the permit suspension in Gorsuch, the refund here represents complete and final redress to the specific harm alleged.
      In Doe the District Court had ruled that the challenged action was not capable of repetition based on assurances made in court by the defendants. On appeal, the D.C. Circuit found that these assurances constituted an inadequate foundation upon which to conclude that the action was incapable of repetition. The Court did not, however, alter in any form the requirement that the action also be too short in duration to permit final review. Rather, the Court limited its ruling to the "capable of repetition” prong of the test. There is no question, as noted above, that this action is capable of repetition. It is only the “evading review” part of the test that has not been met. Doe, therefore, is inapplicable.

      . The Court’s ruling on the Article III question also obviates the need for a ruling on the plaintiffs’ motion to Supplement the Record which was filed after the cross-motions for summary judgment.

      . Attorneys’ fees are proper in this instance even though the fee refund had the effect of mooting the plaintiffs’ case. See Nationwide Bldg. Maintenance, Inc. v. Sampson, 559 F.2d 704 (D.C.Cir. 1977).


author: McDONALD, District Judge.

text:
    Jo Ann GORE, Plaintiff, v. James C. STENSON, Interests and James C. Stenson, Individually, Defendants.
    Civ. A. No. H-84-1162.
    United States District Court, S.D. Texas, Houston Division.
    Dec. 7, 1984.

      Daniel F. Prashner, Vela & Prashner, Houston, Tex., for plaintiff.
    Michael D. Cucullu, Michael D. Cucullu, P.C., Houston, Tex., for defendants.
   ORDER

McDONALD, District Judge.

Plaintiff commenced an action in the District Court of Harris County, Texas, seeking recovery for damages resulting from an alleged breach of a limited partnership agreement between herself and the defendant. Defendant answered by way of general denial in state court and then filed a petition for removal to this Court in accordance with 28 U.S.C. § 1446. Plaintiff now requests a remand to the State Court, alleging that: 1) defendant’s answer in state court resulted in a waiver of his right to remove; and 2) that the defendant-partnership, James C. Stenson Interests, a citizen of Texas, diversity of citizenship is lacking. This Court denies the motion on each of these grounds.

I. The Statutory Language

An action brought in state court over which federal district courts also have original jurisdiction may be removed under 28 U.S.C. § 1441(a). This statute reflects a longstanding Congressional policy of providing defendants as well as plaintiffs access to a federal forum in cases of concurrent state and federal jurisdiction. Congress created the statutory right of removal to federal court in the Judiciary Act of 1789, and this right has been restricted to defendants and based on original jurisdiction in the federal courts since the Judiciary Act of 1887, which set the framework for modern removal statutes. Haun v. Retail Credit Co., 420 F.Supp. 859, 861 (W.D. Pa.1976), citing 1A Moore’s Federal Practice § 0.156 (1974).

Procedure for removal is spelled out in 28 U.S.C. § 1446(a) and (b). A defendant who files a verified petition to remove within thirty days of receiving plaintiff’s original complaint has properly affected removal, the propriety of which may be tested by motion to remand in the federal court. See C.A. Wright, Law of Federal Courts, § 40 (3d ed. 1976).

II. Waiver

The first issue presented in the case at bar is whether defendant waived his right to remove by filing an answer in state court, notwithstanding compliance with removal procedures set out above.

The record reflects that the defendant was served with the original complaint on February 14, 1984. He was required to answer in state court 20 days from that date. Tex.R.Civ.P. 101. His answer was filed on February 29, 1984, which was fifteen days after he was served, and was therefore timely. Additionally, he filed a petition for removal in this Court on March 13, 1984, which was within the 30-day time period required by 28 U.S.C. § 1446(b).

Plaintiff claims that the defendant waived his right to remove by answering in state court prior to seeking to remove the suit to this Court. The Court rejects this allegation. A defendant may lose or waive the right to remove by taking some substantial defensive action in the state court before petitioning for removal. 14 Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3721. And it is true that if a party has good ground to remove a case to federal court, he cannot experiment on his case in state court before removing the case to federal court. Carpenter v. Illinois Cent. Gulf R. Co., 524 F.Supp. 249, 251 (M.D.La.1981), citing Rosenthal v. Coates, 148 U.S. 142, 13 S.Ct. 576, 37 L.Ed.; 399 (1893). Such is not the case here, however. Filing of an answer asserting a general denial cannot be deemed experimentation in state court. It has been recognized on numerous occasions that actions which are preliminary and nonconclusive in character and which do not actually submit the merits of a claim for a binding decision do not waive defendant’s right to remove. Beasley v. Union Pacific Railroad Company, 497 F.Supp. 213, 216 (D.Neb.1980). In Beasley, the defendant sought to dissolve a temporary restraining order which had been issued ex parte. The Court found these actions to be preliminary in nature. “The right of removal is not lost by action in state court short of proceeding to an adjudication on the merits.” Id. at 217. An intent to waive the right to remove to federal court and submit to the jurisdiction of the state court must be clear and unequivocal, and the waiving party’s actions must be inconsistent with his right to remove. Carpenter, 524 F.Supp. at 251; Markantonatos v. Maryland Drydock Co., 110 F.Supp. 862 (S.D.N.Y.1953); Hildreth v. General Instrument, Inc., 258 F.Supp. 29 (D.S.C. 1966). Therefore, the Court finds that the defendants’, answer in state court does not amount to a waiver of the right to remove to federal court and that all removal requirements have been met.

III. Diversity

The plaintiff additionally contends that diversity jurisdiction is lacking. One defendant, James C. Stenson Interests, is a limited partnership organized under the laws of the state of Texas; the other defendant, James C. Stenson, is the partnership’s general partner and it is undisputed that he is domiciled in Georgia. Plaintiff argues that because the limited partnership was formed in Houston, Texas, and had its principal and sole place of business in Houston, Texas, that it is a citizen of the State of Texas, thereby destroying diversity jurisdiction in this Court. The Court also rejects this argument.

Resolution of the specific question presented, i.e., whether a partnership has a legal existence as an entity separate from its members, rests upon two well-established tenets regarding diversity jurisdiction.

The first of these is the rule delineated in Strawbridge v. Curtiss, 7 U.S. (3 Cranch.) 267, 2 L.Ed. 435 (1806). For almost two centuries Strawbridge has stood for the proposition that, for diversity jurisdiction to attach, all parties on one side of a litigation must be of a different citizenship from all of those on the other. In other words, complete diversity is required between all parties opposed in interest if jurisdiction is to obtain. Carlsberg Resources Corp. v. Cambria Savings and Loan Ass’n, 554 F.2d 1254, 1257-58 (3d Cir.1977).

The second principle which hears on the Court’s inquiry concerns the traditional treatment of partnership and unincorporated associations for diversity purposes. In an extruded line of cases the Supreme Court has held that where noncorporate entities including partnerships, are concerned, the courts should look to the citizenship of the persons comprising such organizations in order to determine whether there is compliance with the diversity standard. Id. at 1258; United Steelworkers of America v. R.H. Bouligny, Inc., 382 U.S. 145, 86 S.Ct. 272, 15 L.Ed.2d 217 (1965); Thomas v. Board of Trustees, 195 U.S. 207, 25 S.Ct. 24, 49 L.Ed. 160 (1904); Great Southern Fireproof Hotel Co. v. Jones, 177 U.S. 449, 20 S.Ct. 690, 44 L.Ed. 842 (1900); Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889). An unincorporated association is not a jural person for purposes of diversity jurisdiction, even when it has the capacity to sue or be sued in the association name. Calagaz v. Calhoon, 309 F.2d 248, 251-52 (5th Cir.1962). Great Southern Fireproof is pertinent here. In that case, a limited partnership maintained that for jurisdictional purposes, it should be treated as a citizen of the state whose laws authorized its criteria. The Supreme Court rejected this contention and held that the citizenship of the persons composing such association was the citizenship of the partnership. Id., 177 U.S. at 456, 20 S.Ct. at 693. The Court also rejected the argument that a state-created right enabling a partnership to sue and be sued in the name of the partnership makes that entity, for diversity purpose, a citizen of the State creating it. Id. at 457, 20 S.Ct. at 693.

Chapman v. Barney, 129 U.S. 677, 9 S.Ct. 426, 32 L.Ed. 800 (1889) was the first case in which the Supreme Court dealt expressly with the jurisdictional question and raised the matter sua sponte in that case. The Chapman Court held that the plaintiff could not sue in federal court as a citizen of New York unless it was a corporation; however, by its own allegations, the plaintiff was a joint stock company, a “mere partnership.” Id. at 682, 9 S.Ct. at 427. Therefore, “although it may be authorized by the laws of New York to bring suit, that fact cannot give the company power to sue in federal court [since] all the members of it may not be citizens of that state.” Id. In other words, the citizenship of association members is determinative as to whether diversity jurisdiction obtains.

The Supreme Court has continued to adhere to the treatment of noncorporate enterprises that Great Southern Fireproof and Chapman mandate. In United Steelworkers of America v. R.H. Bouligny, Inc., the Court reaffirmed the proposition that the citizenship of an unincorporated association, for jurisdictional purposes, is deemed to be that of each of its members. Similarly, in Navarro Savings Ass’n v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), the Court held that the individual trustees of a business trust may invoke federal diversity jurisdiction on the basis of their own citizenship rather than the citizenship of the beneficial stockholders. And the Fifth Circuit held in Village Fair Shopping Center Company v. Broadhead, 588 F.2d 431 (5th Cir.1979), that for purposes of federal diversity jurisdiction, the citizenship of a partnership depends on the citizenship of each of its partners.

The Court recognizes that the Supreme Court and Fifth Circuit cases discussed above do not squarely address the issue presented here; that is, how are limited partnerships to be treated for diversity purposes?

In a recent Seventh Circuit case, Elston Investment, Ltd. v. David Altman Leasing Corp., 731 F.2d 436 (7th Cir.1984), the defendant urged the Court to adopt an exception to what it called “long-established rule for limited partnership,” under which the citizenship of limited partnerships would be based only on the citizenship of the general partners. Id. at 438. The argument for the exception was based on an analogy between a limited partnership and an express business trust. See Navarro Savings Ass’n, discussed above. The Seventh Circuit rejected the argument that limited partners are not real parties to controversies, and held that all association members’ citizenship is relevant to a determination of diversity. Id. at 439. Similarly, the Third Circuit held in Carlsberg Resources that all members of limited partnership, general partners and limited partners both, are to be considered when determining the partnership’s citizenship for diversity purposes. The Third Circuit viewed its opinion in Carlsberg as an extension of the Supreme Court’s decision in Bouliguy. 554 F.2d at 1259.

This Court finds the above views to be consonant with Supreme Court precedent. Applying these precedents to the case at bar depends, however, on the argument asserted by plaintiff, which is unclear from the pleadings. Plaintiff is apparently asserting one of two possible positions: 1) that diversity is destroyed because the partnership was organized under the laws of the State of Texas and is therefore a Texas citizen, or 2) that diversity is destroyed because the Courts, in applying Supreme Court precedent, look to the membership of unincorporated associations to determine if diversity jurisdiction obtains, hence, since plaintiff is a Texas citizen and the sole limited partner, diversity is destroyed. The Court finds that both of these arguments must fail.

The first contention fails in light of Supreme Court decisions discussed above; that is, generally, unincorporated associations are not jural persons for purposes of diversity jurisdiction, even when they have the capacity to sue or be sued in the association name. The courts look to the citizenship of the persons comprising such organizations. Therefore, it is clear in this case that plaintiff cannot sue the entity, James C. Stenson Interests, and thereby destroy diversity. The Court will here look to the citizenship of the persons composing James C. Stenson Interests to determine if diversity obtains.

This leads to the second contention which likewise must fail; plaintiff cannot assert her own Texas citizenship as the sole limited partner, thereby aligning herself as a defendant and destroying diversity. In this light, her claim becomes one against the sole general partner, whose domicile is Georgia. The Court finds, therefore, that diversity is present in this case.

In so holding, it should be made clear that the limited partnership in the case at bar is composed of only two persons, the defendant-general partner, and the plaintiff-limited partner. The Court adheres otherwise to the views expressed by the Seventh and Third Circuits which have been discussed above.

Accordingly, it is ORDERED, ADJUDGED, and DECREED that Plaintiffs Motion to Remand be and hereby is DENIED.

      . That statute provides in pertinent part that:
      (a) Except as otherwise expressly proved by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

      . (a) A defendant or defendants desiring to remove any civil action or criminal prosecution from a State court shall file in the district court of the United States for the district and division within which such action is pending a verified petition containing a short and plain statement of the facts which entitle him or them to removal; together with a copy of all process, pleadings and orders served upon him or them in such action.
      (b) The petition for removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has been filed in court and is not required to be served on the defendant, whichever period is shorter.

      . Defendant must also file the appropriate bond, give written notice of removal to plaintiff, and file a copy of the petition with the state court. 28 U.S.C. § 1446.

      . 382 U.S. 145, 86 S.Ct. 272, 15 L.Ed.2d 217 (1965).


author: KEETON, District Judge.

text:
    Jack H. SHAPIRO, et al., Plaintiffs, v. AMERICAN HOME ASSURANCE COMPANY, Pacific Indemnity Company, Certain Underwriters at Lloyds of London, and Surplus Lines Insurance Company, Defendants and Third-Party Plaintiffs, v. Clinton W. BENNETT, et al., Third-Party Defendants.
    Civ. A. No. 75-2728-K.
    United States District Court, D. Massachusetts.
    Dec. 31, 1984.
    As Modified Jan. 31, 1985.

      Edward J. Barshak, Jeffrey Somers, Alexander E. Finger, William A. Zucker, Boston, Mass., Oscar Wasserman, Newton, Mass., for plaintiffs.
    Garrick F. Cole, G. Richard Snell, Daniel B. Bickford, Robert City, Boston, Mass., for defendants.
    Mark A. Michaelson, Boston, Mass., for third-party defendants.
   Opinion

KEETON, District Judge.

Plaintiffs in this action, Mario DePalo and Alfred Bloom, are former officers and directors of Giant Stores Corp. (“Giant”). They seek a declaration that they are covered under three Securities Act Liability policies issued to Giant by defendants Pacific Indemnity Company (“Pacific”), Lloyds of London, and International Surplus Lines Insurance Company. Pursuant to Fed.R.Civ.P. 42(b), the trial of this case was divided into phases. The first phase, concerning whether plaintiffs’ claims to coverage are barred because of the fraudulent activities of other insured officers and directors of Giant, was heard during a two-day bench trial on November 27-28, 1984.

I. Findings of Fact

On or about December 19, 1972, Pacific Indemnity Company issued a Securities Act Liability policy to Giant. The policy covered three separate stock registrations, “[a]s per Registrants’ Forms A, B and C.” The registrations, numbered # 2-33436, # 2-41555, and # 2-44905, took place in 1969, 1971, and 1972, respectively. The public offering of the stock involved in the third registration occurred on August 24, 1972. The policy provides that:

The Declarations together with the policy wording attached and Addendum No. 1 shall constitute the contract between the Insured and the Insurer. Subject to Endorsement # 1 to Registrants’ Forms A, B and C attached.

Registrants’ Form A is applicable only to Giant’s 1969 stock registration. Registrants’ Form C is applicable to Giant’s registration and offering of August 24, 1972. The insuring clause of Registrants’ Form C provides that, in consideration of the premium paid, Pacific “agrees to indemnify each insured described in Addendum No. 1 (all of whom are hereinafter collectively called ‘Insured’)” within the limits of the policy, from any loss, liability, cost or expense incurred by reason of any claim with respect to the purchase or sale of Giant securities,

but only to the extent that such loss, liability, cost or expense is incurred or sustained by reason of any claim or claims that the Registration Statement, any Preliminary Prospectus or the Prospectus in the form filed with the Securities and Exchange Commission at or about the time the Registration Statement becomes effective or as thereafter amended or supplemented, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

Registrants’ Form C contains a clause under the caption “Exclusions,” in paragraph 11(b), providing that the insurance does not cover

any Insured for any loss, liability, cost or expense arising by reason of dishonest or criminal act, or by reason of an actual or willful intent to defraud on the part of, any such Insured or of any director, officer, partner, employees or trustee thereof, or of any person who controls any such Insured within the meaning of Section 15 of the Securities Act, whether acting alone or in collusion with others or within or without the usual scope of his duties.

Under the caption “Conditions,” in Paragraph 111(h) Registrants’ Form C provides that:

If any Insured shall make any claim for reimbursement of loss, liability, cost or expense, knowing the same to be false or fraudulent in any material respect, this Insurance shall be void as to such Insured (and any person who controls such Insured within the meaning of Section 15 of the Securities Act) and all rights of such Insured (and such controlling person) hereunder shall terminate, but no such termination shall affect this Insurance as to any other Insured.

Addendum No. 1 contains a severability clause at paragraph 2, which provides that:

Except for the provisions of Condition (b) of this Insurance, this Insurance shall be construed as a separate contract with each Insured so that except as aforesaid, as to each Insured, the reference in this Insurance to the Insured shall be construed as referring only to that particular Insured, and the liability of the Insurer to such Insured shall be independent of, its liability to any other Insured.

Lloyds of London issued an Excess Securities Act Liability policy to Giant covering the three offerings of stock described above. The Lloyds policy provides at paragraph 3:

Apart from being excess insurance and except as otherwise provided herein, this Policy is subject to the same terms, clauses, conditions and exclusions as are or may be contained in the Primary Policy and attaches only after the Underlying insurers shall have paid or admitted the full amount of their liability.

International Surplus Lines Insurance Company issued an excess insurance policy to Giant which also covered the three stock offerings. That policy provides in Part 1, paragraph 1:

The provisions of the immediate underlying policy are incorporated as a part of this policy except for any obligation to investigate and defend and pay for costs and expenses incident to the same, the amount of the limits of liability, any “other insurance” provision and any other provisions therein which are inconsistent with the provisions of this policy.

During the period of 1971-72, Mario De-Palo was assistant treasurer of Giant, and Alfred Bloom was executive vice president and a director. As of August 24, 1972, Bloom was Giant’s largest shareholder. Both DePalo and Bloom were individuals included in the coverage for insureds under the three insurance policies. The underwriters of the various securities offerings were among the named insureds under the policies.

DePalo acted on behalf of Giant in coordinating the procurement of Securities Act Liability coverage. He provided the broker, Joseph J. Rice, Ltd., with copies of Giant’s Form S-l Registration Statement filed with the Securities and Exchange Commission (“SEC”) on June 30, 1972, Giant’s amendment to the registration statement filed with the SEC on August 24, 1972, and the agreement among the underwriters, dated August 24, 1972. Joseph J. Rice, Ltd., secured a binder for the insurance on August 8, 1972.

It is undisputed that the registration materials provided the insurers by DePalo contained false financial statements for the years 1971 and 1972 furnished by Giant. Those false financial statements were contained in the registration statement and prospectus filed by Giant with the SEC.

DePalo and Bloom, along with other officers and directors of Giant and Giant itself, have been named as defendants in five securities fraud cases in this district and the Southern District of New York. These cases allege in particular that the plaintiffs relied to their detriment on the false financial statements. The lawsuits allege facts against DePalo and Bloom which, if proved, would be within the scope of coverage of the defendants’ policies, if DePalo and Bloom are entitled to coverage under the policies. They have also been named as third-party defendants in a case in the New Jersey Superior Court. The insurers were provided with due notice in a timely fashion of the various circumstances giving rise to litigation against DePalo and Bloom, but they have refused to defend or to acknowledge coverage as to a duty to indemnify DePalo and Bloom.

II. Conclusions of Law

The sole issue for determination at this phase of the trial is whether plaintiffs’ claim to coverage under the Securities Act Liability policies is barred by the fraudulent activities of insured directors and officers other than DePalo and Bloom. The defendant insurers argue that the policies are void ab initio as to DePalo and Bloom because the insurance was procured by means of the fraudulent financial statements of Giant submitted in connection with the procurement of the insurance and, in any event, that the policies do not cover the plaintiffs for any loss, liability, cost or expense arising by reason of the fraudulent financial statements. The parties agree that any conclusion regarding the applicability of the Pacific policy to DePalo and Bloom will apply to the other two policies as well, except as to the contention that the Pacific policy provides sufficient coverage so that the other two policies do not come into play.

In order to determine whether plaintiffs are covered under the insurance policies, I must interpret the provisions of the Pacific policy and determine the manifested intent of the parties in entering into the insurance contract. The Pacific policy contains a clear severability provision in Addendum No. 1, paragraph 2. This provision indicates that when the claim of any insured is considered, all other insureds must be disregarded and not treated as insureds for the purpose of that claim. In applying the severability provision to plaintiffs’ claims, I must focus only on DePalo and Bloom and ignore all other insureds. Therefore, plaintiffs cannot be barred from coverage under the policy solely on the basis of the fraudulent acts of other insureds unless some other language in the policy so commands. The existence of a clear severability provision distinguishes this policy from the directors’ and officers’ liability insurance policy issued to Giant, which I previously held was voidable even as to innocent officers and directors because of misrepresentations made in the application for insurance by Shapiro, who was Giant’s president and one of the insureds. Shapiro v. American Home Assurance Company, 584 F.Supp. 1245 (D.Mass.1984).

Defendants correctly argue that even if the severability provision requires that each insured be treated as having a separate policy, coverage under such a policy is limited by the other provisions in the policy. They further argue that paragraph 11(b) under the caption “Exclusions” should be interpreted to bar payment to any insured on the basis of prohibited conduct by other insureds, such as is shown here.

Defendants’ interpretation of the exclusion must be rejected. Reading together the severability clause and paragraph 11(b), I interpret the policy to mean that each insured must be treated separately with respect to a defense of fraud as well as in other respects. If the insured making the particular claim of coverage willfully defrauded, then the exclusion applies and coverage for that insured is defeated. But if only some other insured willfully defrauded, the exclusion and severability clauses taken together plainly say the insured who is not guilty of the willful fraud is covered. The exclusion clause itself indicates that each insured must be treated separately. The clause provides that the policy does not cover “any insured for any loss, liability, cost, or expense” arising by reason of prohibited conduct “on the part of, any such insured____” The phrase “any such insured” refers to the antecedent phrase “any insured” and, contrary to defendants' contentions, “any” is singular and in both phrases refers to a particular insured. The phrase which follows, “or of any director, officer, partner, employees or trustee thereof,” also has a clear meaning. The policy does not cover the insured corporation for prohibited acts of its directors or officers. It does not cover partners for prohibited conduct of their fellow partners or an individual insured for prohibited conduct of employees who act for that individual. Such a reading makes perfect sense of the exclusion in paragraph 11(b) and is compatible with the severability clause. Moreover, if it were not compatible, the severability clause should be taken as the manifested intent of the parties since it appears in an addendum to the policy and thus may be inferred to have been intended to modify in some way the terms of the policy as otherwise stated.

Defendants further argue that the policy is void ab initio as to DePalo and Bloom because it was procured on the basis of the SEC registration materials submitted to Pacific, which included false financial statements. Plaintiffs argue that barring coverage for DePalo and Bloom on the basis of fraud by other insureds would make the insurance coverage illusory and worthless, since the policies are supposed to cover liability for misrepresentations in materials filed with the SEC. Defendants respond that their commitment to coverage is not illusory, since they have agreed affirmatively to insure against non-fraudulent misrepresentations (even though in the absence of such agreement innocent, material misrepresentation may be a defense to an insurance contract) but are here disclaiming on the basis of intentional fraud.

The severability provision in the Pacific policy does not explicitly address the question whether a false representation by one insured in applying for such insurance (either willfully false or unintentionally false) would bar all other insureds. Defendants’ proposed interpretation, however, does not withstand close scrutiny. Their interpretation would mean that if one person among all the insureds intentionally deceived not only the insurers but also all other insureds, the other severable insureds would not be covered under the policy. Under this interpretation, underwriters who have no control over or intimate knowledge of the actions of the corporations whose securities they underwrite, and who purchase Securities Act Liability insurance specifically to guard against misrepresentations by those corporations, would not be protected in cases of such intentional deception. This would be true under defendant’s interpretation even if the underwriter could not possibly determine the existence of any intentional deception. Such an interpretation would be contrary to the manifested intent of the entire transaction, given the well-understood source and motivation of the initiative for obtaining insurance coverage in this case—the demand of the underwriters for insurance protection. Such an interpretation would undermine securities underwriting practices and the customary relationships among corporations, those who underwrite securities for them, and the individuals acting for the parties in the transactions.

I conclude, based on a reading of the entire policy applicable to the 1972 registration, including the severability clause, that the manifest intent of the insurers and the insureds in this case was to provide coverage for underwriters, directors, officers, and other insureds separately as to each insured, unless that insured participated in an intentional fraud. Since it is assumed at this phase of trial that neither DePalo nor Bloom was involved in any intentional deception, I conclude that Pacific’s defense based on intentional fraud has not been established.

Defendants argue also that neither De-Palo nor Bloom is covered under the policy even under the policy interpretation I have adopted above.

They first assert that DePalo’s submission of the registration materials which included the false financial statements amounts to an innocent material misrepresentation, allowing the insurers to disclaim coverage against him under common law. This argument has facial appeal, and especially so in view of the ordinarily applicable rule that proof of a material, false representation is a defense, even if the representation was not intentionally false. On closer examination, however, the argument must be rejected. DePalo testified that he was acting on behalf of Giant in obtaining Securities Act Liability insurance. He neither prepared nor signed the registration statements submitted to the insurers, and made no personal representation as to the truth of their contents. It would be inappropriate to void the policy as to DePalo, and not as to other innocent insureds, merely because of the circumstance that DePalo happened to be the person physically delivering the registration materials to the insurers. In doing so, he was merely transmitting information for his employer. I therefore conclude that, under a fair and reasonable interpretation of the severability clause, DePalo’s submission of the registration materials does not bar coverage for him.

Defendants assert that Bloom is not entitled to coverage under paragraph 111(h) of the policy, the false claims exclusion. They argue that, as an officer, director, and largest shareholder of Giant, Bloom is a control person for the purposes of this clause and any fraudulent claims made under the policy by Giant may be attributed to Bloom. This contention must be rejected. No proof was offered that Giant made a false claim under the policy. In fact, for practical purposes Giant was defunct at the time this action was commenced. In making this argument, defendant insurers misconstrue the purpose of this clause, which is to protect the insurers against claims which themselves are false. I assume the submission of false financial statements to be fraudulent, but the mere fact of Giant’s fraud in obtaining the insurance policies does not by itself turn any subsequent claims by other named insureds into false ones so as to bar coverage under paragraph 111(h). In view of this point, taken together with the severability clause in the Pacific policy, I conclude that paragraph 111(h) does not bar coverage for Bloom.

Defendants argue, next, that the deletion from Registrants’ Forms B and C of terms more favorable to plaintiffs that appeared in Registrants’ Form A manifests an intent contrary to the foregoing interpretation of the severability clause. It is true that paragraph X under the caption “Fraudulent Claims” in Registrants’ Form A included language more explicitly compatible with severability than the language of paragraph 11(b) and paragraph 111(h) in Registrants’ Form C, which apply to the 1972 registration. In Form A, paragraph X was as follows:

If any Insured shall make any claim knowing the same to be false or fraudulent as regards amount or otherwise this Insurance shall become void as to such Insured and all rights hereunder shall be forfeited by such Insured, but no statement by or on behalf of any of the Insured, whether contained in any application or otherwise, shall be deemed to be a warranty of anything except that it is true to the best of the knowledge and belief of the person making the statement, and no breach of warranty by any one of the Insured shall void this Insurance as to the remaining Insured insured hereunder.

This provision in the Registrants’ Form applicable to the 1969 registration is awkwardly drafted. References to “warranty” and to statements contained in an “application,” are out of place when appearing in a clause captioned “Fraudulent Claims.” “Application” is a term customarily used to refer to the process of making the contract rather than the process of making a claim. Also, all of the various trade usages relating to “warranty” in insurance transactions refer either to statements made in negotiating the contract or to conditions stated in the contract itself. Using “warranty” to refer instead to fraud or concealment in making a claim goes beyond usage customary in the industry. Thus, either “warranty” is used here by the drafter in an idiosyncratic sense unlikely to manifest the mutual intent of the insurers and insureds or else the text of this clause goes beyond its caption, stating conditions of coverage that relate to making the contract rather than making a claim under the contract. In either event, in the policy in question here, issued in 1972, paragraphs 11(b) and 111(h), along with the severability clause in addendum No. 1, adequately express the independence of each insured’s rights of coverage from fraud against the insurer committed by another insured. In this context, the change of paragraph X in the insurer’s Registrants’ Form from the text of Form A, used in 1969, to the texts of Forms B and C, used in later years, is readily understood as improved drafting rather than a manifestation of changed intent as to the independence of one insured’s claim from another insured’s fraud against the insurer. Thus, I must reject the defendants’ argument that this change in drafting manifested an intent contrary to the interpretation adopted here.

Given the conclusion that coverage for DePalo and Bloom is not barred under the policies, judgment cannot be entered on behalf of the excess insurers since the exact sum which the various insurers must provide DePalo and Bloom cannot as yet be determined.

For the foregoing reasons, plaintiffs’ claim to coverage under the three Securities Act Liability policies is not barred by the fraudulent activities of other named insureds. It is so ordered.