author: HULL, District Judge.

text:
    William Henry ALLEN, Essie Applegate, Linda Earl Baskett, George E. Dowden, Eugene H. Fontaine, Mildred M. Forbes, Robert Goff, Dr. Julian R. Hardaway, Joseph W. Hart, Lucy S. Leonardi, John H. McGehee, Virginia A. Miller, O.W.K.Y. & Company, E. Wayne Pace, Kay McGehee, Lorena S. Richardson, William P. Shumate, Estate of Lucy Smith, Mabel F. Smith & Dorothy L. Smith, Co-Administrators, Mrs. Irene W. Stith, Charles R. Thompson, James R. Watts, Gail H. Witten, Houston C. Woolfolk v. FEDERAL DEPOSIT INSURANCE CORPORATION-CORPORATE CAPACITY; Federal Deposit Insurance Corporation-receiver of United American Bank, Knoxville, First Tennessee Bank, Knoxville; and Billy Adams, Individually and as Commissioner of Financial Institutions.
    No. CIV. 3-84-274.
    United States District Court, E.D. Tennessee, N.D.
    Oct. 24, 1984.
    Bernard Bernstein, Knoxville, Tenn., George W. Miller, Washington, D.C., for plaintiffs.
    G.W. Morton, Jr., Knoxville, Tenn., Kate Eyler, Asst. Atty. Gen., Nashville, Tenn., for defendants.
   MEMORANDUM

HULL, District Judge.

This is a cause of action against the Federal Deposit Insurance Corporation [FDIC] in its corporate capacity pursuant to 12 U.S.C. § 1819. This Court has jurisdiction under 28 U.S.C. § 1331. This cause was tried before this Court without a jury on Thursday, October 11, 1984. Reported below are this Court’s findings of fact and conclusions of law. Fed.R.Civ.P. 52.

On October 15, 1982, plaintiffs, shareholders of the Farmers Deposit Bank of Brandenburg, Kentucky [hereinafter FDB], sold all the outstanding stock in the bank to C.H. Butcher, Jr., and two associates [hereinafter the Butcher group]. [Stipulations, No. 37, ¶ 1-2]. The purchase price for plaintiffs’ stock was $78.82 per share. [Id., 1J 3]. The Butcher group paid plaintiffs $50 per share in cash and C.H. Butcher gave plaintiffs promissory notes for the balance. [Id. & Pltf. Exh. 4]. The promissory notes were secured by irrevocable letters of credit issued by United American Bank [hereinafter UAB] to plaintiffs. [Id.]. A separate letter of credit secured each promissory note. [Id.].

The letters of credit were drafted by C.A. Ridge, an attorney for UAB, and signed by Jack Patrick, a UAB loan officer. [Id., 11 5]. Mr. Ridge also drafted a “Letter of Credit Commitment and Agreement”, dated October 14, 1982, and an accompanying “Promissory Note” dated October 15, 1982, payable to UAB. [Id., 11 6]. On October 15, 1982, the Butcher group signed both the “Letter of Credit Commitment and Agreement” and the “Promissory Note”. [Id.]. In exchange for the signed documents, Mr. Ridge gave the Butcher group the signed letters of credit to be delivered to plaintiffs at the FDB closing. [Id.]. The “Letter of Credit Commitment and Agreement” and “Promissory Note” were delivered by Mr. Ridge to Mr. Patrick at UAB. [Id.].

In accordance with standard UAB practice, on November 5, 1982, C.H. Butcher executed for each plaintiff’s letter of credit a standard three page UAB form titled “Authorization for Standby Letter of Credit”. [Id., 117], Also, in accordance with standard practice, UAB charged a fee in exchange for issuing the letters of credit to plaintiffs. [Id., 118]. This fee, paid by C.H. Butcher, was equal to one percent of the aggregate amount of the letters of credit issued to FDB creditors. [Id.].

UAB at all relevant times was an FDIC-insured state bank. [Id., ¶ 9]. On February 14, 1983, UAB failed and was closed by the Tennessee Commissioner of Financial Institutions. [Id.]. On March 21, 1983, FDIC-receiver sent a letter to each plaintiff disavowing any obligation to fund their Letters of Credit. [Id., H 11]. In October 1983, 23 of the 26 plaintiffs formally attempted to make draws under their letters of credit. [Id.]. By letter dated December 5, 1983, the FDIC advised each such plaintiff that it refused to fund the letters. [Id.].

The entire principal amount of each promissory note issued to plaintiffs by the Butcher group was unpaid as of February 14, 1983, and remains unpaid to date. [Id., If 13]. One interest payment, representing interest accrued through April 15, 1983, has been received by plaintiffs on each of the notes. [Id.]. The entire amount of interest accrued thereafter remains unpaid. [Id.]. All of plaintiffs’ notes are presently in default. The maker, C.H. Butcher, is the subject of an order for relief entered on or about July 17, 1983, in response to an involuntary petition filed under the bankruptcy laws by his creditors. [7d].

The promissory note issued by the Butcher group in exchange for the issuance by UAB of the letters of credit provides as follows:

[The Butcher group] promise to pay to the order of UNITED AMERICAN BANK IN KNOXVILLE, a Tennessee banking corporation (the “Bank”), on demand, such amount(s) as the Bank may be required to disburse on behalf of Borrower on account of Letters of Credit provided by the Bank for the Borrower to the selling shareholders of Farmers Deposit Bank of Brandenburg, up to the aggregate total principal sum of Two Million Seven Hundred Sixty-Eight Thousand Eight Hundred Ninety Dollars ($2,768,890.00), together with interest on sum advanced as drawn from the date of each such advance, at a fluctuating rate equal at all times to the Prime Rate of the Chemical Bank, New York, New York, plus one percent (1%).

[Pltf. Exh. 7].

At the time UAB issued plaintiffs’ letters of credit in October 1982, a pamphlet published by FDIC provided:

What types of deposits are insured?
All types of deposits received by a bank in its usual course of business are insured, including savings deposits, checking deposits, Christmas savings and other open-account time deposits, time certificates of deposits, uninvested trust funds, certified checks, cachiers’ checks, officers’ checks, money orders and drafts, letters of credit, and travelers' checks for which an insured bank is primarily. liable.

Pltf. Exhs. 12 and 13 (emphasis added).

The issue to be decided is whether plaintiffs’ letters of credit are insured deposits within the meaning of 12 U.S.C. § 1813(i)(l). That section provides:

(1) The term “deposit” means—
(1) the unpaid balance of money or its equivalent received or held by a bank in the usual course of business and for which it has given or is obligated to give credit, either conditionally or unconditionally, to a commercial, checking, savings, time, or thrift account, or which is evidenced by its certificate of deposit, or a check or draft drawn against a deposit account and certified by the bank, or a letter of credit or a traveler’s check on which the bank is primarily liable: Provided, That, without limiting the generality of the term “money or its equivalent”, any such account or instrument must be regarded as evidencing the receipt of the equivalent of money when credited or issued in exchange for checks or drafts or for a promissory note upon which the person obtaining any such credit or instrument is primarily or secondarily liable, or for a charge against a deposit account, or in settlement of checks, drafts, or other instruments forwarded to such bank for collection.

Under the plain language of the statute a letter of credit is a deposit if: (1) the issuing bank is primarily liable on the letter of credit and (2) the letter evidences money or its equivalent received or held by the bank in its usual course of business. The statute mandates that a letter of credit must be regarded as evidencing money or its equivalent when given in exchange for a promissory note upon which the person obtaining the letter of credit is primarily or secondarily liable. 12 U.S.C. § 1813(i)(l). Thus, this Court finds that a letter of credit which meets the above-stated requirements is an insured deposit within the meaning of 12 U.S.C. § 1813(1 )(1). See Philadelphia Gear Corp. v. FDIC, Civ. No. 82-1191-W, unpublished slip op. at 18-25 (W.D.Okla. Feb. 9, 1984).

In this case there is no dispute that UAB is primarily liable on the letters of credit and that the Butcher group is primarily liable on the promissory note given in exchange for the letters of credit. The dispute concerns whether the “promissory note” issued by the Butcher group in exchange for the letters of credit was in fact a promissory note.

Defendants theory is that the note given by the Butcher group in exchange for the letters of credit is not a promissory note but a simple contract to reimburse the UAB when and if the bank is called on to pay the letters of credit. Defendants argument can be summarized as follows: A promissory note is: (1) an unconditional promise to pay, (2) a sum certain, and (3) payable on demand or at a time certain. The note in this case fails to meet these requirements because (1) the promise to pay is contingent on the event that drafts are drawn against the letters of credit; (2) the amount payable on the note is not certain because it is dependent on whether and in what amounts drafts are drawn on the letters of credit; and (3) the time for payment is uncertain because payment is due only when and if a draw is made against the letters of credit.

Plaintiffs say that a promissory note is simply a written promise to pay. Further, plaintiffs say that the contingent nature the note may render the note non-negotiable but does not destroy its status as a promissory note. In any event, plaintiffs argue that the note contains an absolute and unconditional promise to pay. of

The term “promissory note” within the meaning of 12 U.S.C. § 1813(i)(l) is not defined by the federal statute. However, a well-accepted principle of statutory construction is that words of a statute will be given their natural and commonly understood meaning. See generally 73 Am. Jur.2d Statutes § 206 (1974). To determine the natural and commonly understood meaning of the term “promissory note”, federal common law must be applied. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979); D’Oench, Duhme & Co. v. Federal Deposit Insurance Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). The Uniform Commercial Code [UCC] as applied by the states and interpreted in the case law, is a recognized source of federal common law. See United States v. Hext, 444 F.2d 804 (5th Cir.1971).

Article 3 of the UCC defines a negotiable promissory note as an instrument signed by the maker which contains an unconditional promise to pay a sum certain in money, payable on demand or at a definite time and payable to order or to bearer. UCC § 3-104(l)(a)-(d) (emphasis supplied). A note which is not payable to order or to bearer but otherwise meets the above definition, although technically nonnegotiable, is treated as a negotiable note. UCC § 3-805.

Defendant argues that the promissory note at issue is conditional and therefore meets neither the definition of promissory note in section 3-104(1) nor the definition in section 3-805. Defendant says a promissory note which meets neither definition is to be treated as a simple contract outside the scope of article 3. Relying on Tennessee common law predating the UCC, defendant concludes that a note such as the one at issue is not a promissory note. See Mason v. Metcalf, 63 Tenn. (4 Baxter) 440 (1874).

Article 3 of the UCC, does not define promissory note for all purposes. See UCC § 3-104(3). Rather, article 3 defines negotiable promissory notes or promissory notes, otherwise non-negotiable, which are to be treated as negotiable notes. Modern case law holds that a promissory note which is non-negotiable within the meaning of article 3 because of an express condition is nevertheless a promissory note. See e.g. Leroux v. Doniphan Retirement Home, Inc., 663 S.W.2d 791 (Mo.App.1984), application to transfer to S.Ct. denied, Id.; Fejta v. Werner Enterprises, Inc., 412 So.2d 155, 158 (La.App.), cert. den. 415 So.2d 953 (La.1982); Reid v. Cramer, 24 Wash.App. 742, 744, 603 P.2d 851, 852, 852-53 (1979).

In determining applicable federal common law, those interpretations and modifications of the UCC which the Court deems reflective of the weight of authority and consistent with the purposes of the federal statute should be followed. Hext, 444 F.2d at 811. The Court finds that the weight of authority is that a promissory note which is non-negotiable within the meaning of article 3 is nevertheless a promissory note. The Court further finds that outside the scope of article 3, the commonly accepted meaning of a “promissory note” is a written promise to pay. This definition is consistent with the plain language of the statute which makes no mention of negotiability. In this case, the promissory note is a written promise to pay upon which those persons who obtained the letters of credit are primarily liable. Thus, under the statute, the letters of credit issued by the bank in exchange for the promissory note are insured deposits. 12 U.S.C. § 1813(i)(l) (1982). The Court believes that this decision is consistent with the purpose of the Federal Deposit Insurance Corporation to instill confidence in the commercial banking system.

Because the Court has found that the note in issue is a promissory note within the meaning of 12 U.S.C. § 1813(i)(l), the Court will not address plaintiffs’ alternative argument that the note contains an unconditional and absolute promise to pay and thus is negotiable under article 3.

For the foregoing reasons, the Court finds that plaintiffs are entitled to judgment in the amount of the principal and interest due under each plaintiff’s promissory note as of July 17,1983, up to the face amount of each plaintiff’s letter(s) of credit or $100,000, whichever is less; plus prejudgment interest on the sum so computed from July 17, 1983, at the rate of ten percent (10%) per annum. Tenn.Code Ann. § 47-14-123; see Tosco Corp. v. FDIC, 723 F.2d 1242, 1249-50 (6th Cir.1983).

      . The complaint alleges a cause of action against both FDIC-corporate and -receiver. However, pursuant to this Court's order entered September 14, 1984, all claims against FDIC-receiver were remanded to state chancery court. [Order No. 33]. Plaintiffs agreed to voluntarily dismiss the claim herein against FDIC-receiver. Id.

      . Defendant says that when read in pari materia with the other terms in the statute, the term "promissory note” must be construed to mean a negotiable instrument. The Court agrees that this maxim of statutory construction is applicable but disagrees that its application requires that "promissory note” be construed to mean “negotiable promissory note.” The other terms of the statute such as check and draft are not by definition negotiable instruments. Rather, they are negotiable instruments only if they meet the requirements of negotiability set forth in the UCC.


source: Caselaw Access Project

author: McLAUGHLIN, District Judge.

license: Public Domain

text:
    AIR LINE PILOTS ASSOCIATION INTERNATIONAL, Plaintiff, v. PAN AMERICAN WORLD AIRWAYS, INC., Defendant. TRANSPORT WORKERS UNION OF AMERICA, AFL-CIO, v. PAN AMERICAN WORLD AIRWAYS, INC., Defendant, v. TRANSPORT WORKERS UNION OF AMERICA, AFL-CIO; John J. Kerrigan, individually and as Director, Air Transport Division TWU; Michael Bakalo, Individually and as International Vice President, TWU; George Roberts, Individually and as International Vice President, TWU; et al., Counter-Defendants. FLIGHT ENGINEERS INTERNATIONAL ASSOCIATION, PAA CHARTER, AFL-CIO, Plaintiff, v. PAN AMERICAN WORLD AIRWAYS, INC., Defendant. INDEPENDENT UNION OF FLIGHT ATTENDANTS, Plaintiff, v. PAN AMERICAN WORLD AIRWAYS, INC., The Cooperative Retirement Income Plan, and Pension Committee Members, Martin Shugrue, Robert Adams, C. Raymond Grebey, Roger Cooke and C.J. David Davies, Defendants.
    Nos. 84 CV 3357, 84 CV 3361, 84 CV 3362 and 84 CV 3626.
    United States District Court, E.D. New York.
    Nov. 1, 1984.

      Asher W. Schwartz, Malcolm A. Gold-stein, New York City, of counsel, O’Donnell & Schwartz, New York City, John F. Henning, Jr., James R. Ritchie, San Francisco, Cal., of counsel, Henning, Walsh & Ritchie, San Francisco, Cal., for plaintiffs.
    Ernest L. Garb, New York City, Harry Rissetto, Tom Reinert, of counsel, Morgan Lewis & Bockius, Washington, D.C., for defendant.
   MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

The unions representing four separate groups of employees at Pan American World Airways, Inc. (“Pan Am”) seek an injunction restraining defendant, Pan Am, from freezing pension benefit accruals in certain employee pension plans. Pan Am, in turn, seeks an injunction against a strike by the Transport Workers Union (“TWU”).

During 1984 Pan Am obtained a conditional waiver of its pension funding obligations from the Internal Revenue Service. As a condition to the waiver, the IRS required Pan Am to freeze all pension benefit accruals retroactive to January 1, 1984. Pan Am commenced negotiations with the unions regarding its proposal to freeze benefit accruals. Those negotiations failed, however, and on August 10, 1984, Pan Am unilaterally implemented the freeze, five days before the IRS-imposed deadline.

The unions contend that Pan Am’s actions violate the collective bargaining agreements among them and thus, give rise to a “major dispute” under the Railway Labor Act. 45 U.S.C. § 151 et seq. Pan Am responds that its actions are at least arguably permitted by the agreements and thus, that the dispute is “minor.”

If a dispute is deemed major, the Act requires the parties to maintain the status quo pending exhaustion of statutory procedure set forth in sections 5 and 6. 45 U.S.C. §§ 155, First, 156, 160. That procedure includes negotiation, mediation, arbitration, and ultimately, in certain instances, resort to a Presidential Emergency Board. See Detroit & Toledo Shore Line Railroad Co. v. United Transportation Union, 396 U.S. 142, 150-51, 90 S.Ct. 294, 299, 24 L.Ed.2d 325 (1969). A minor dispute, on the other hand, is to be referred immediately to binding arbitration by an appropriate Adjustment Board. 45 U.S.C. § 153, First.

On September 6, 1984, this Court held an evidentiary hearing and then consolidated the motions for a preliminary and a permanent injunction. (Tr. 195).

The only issue before this court is whether the controversy generated by Pan Am’s August 10, 1984 actions constitutes a “major dispute” or a “minor dispute” under the RLA. The Second Circuit has observed that “although the distinction between major and minor disputes is central to the RLA, that distinction is imprecise and has plagued courts and commentators over the years.” Local 553, Transport Workers Union v. Eastern Air Lines, Inc., 695 F.2d 668, 673 (2d Cir.1982). See Elgin, Joliet & Eastern Railway Co. v. Burley, 325 U.S. 711, 722-28, 65 S.Ct. 1282, 1289-92, 89 L.Ed. 1886 (1945). It is said that major disputes involve the formation or alteration of agreements, while minor disputes involve questions of interpretation of existing agreements. Id. at 723, 65 S.Ct. at 1289. The distinction can obviously be manipulated to achieve almost any result desired.

In Local 553, the Second Circuit articulated the applicable legal standards for distinguishing major disputes from minor disputes:

To resolve this dilemma, courts have looked to the collective bargaining agreement to determine whether a plausible interpretation would justify the carrier’s action. A dispute is major if the carrier’s contractual justification for its actions is “obviously insubstantial.” On the other hand, a dispute is minor if the contract is “reasonably susceptible” to the carrier’s interpretation.

695 F.2d at 673 (citations omitted).

Guided by Local 553, I find that Pan Am’s interpretation of the collective bargaining agreement is at least plausible and, accordingly, that the dispute between the parties is a minor dispute over contract interpretation that lies within the jurisdiction of the Adjustment Board. As there are slight differences in the factual underpinnings of the various disputes, they are now discussed separately.

TWU and IUFA

Both the Transport Workers Union (“TWU”) and the Independent Union of Flight Attendants (“IUFA”) are covered by the Cooperative Retirement Income Plan (“CRIP”). Article VIII of the CRIP provides as follows:

The Board of Directors shall have the right at any time to amend the Plan in whole or in part, by an instrument in writing, effective retroactively or otherwise to the extend permitted by law____

Defendant Ex. 9, at VIII-1.

Moreover, Article IX of the CRIP states:

Right of the Company to Terminate Plan
The company has established the plan as a permanent plan with a bona fide intention and expectation that from year to year it will be able to and will deem it advisable to continue it in effect. However, the Company reserves the right to completely or partially terminate the Plan at any time by an instrument in writing delivered to the Pension Committee.

Defendant Ex. 9, at IX-1. Thus, Pan Am maintains that the Plan language expressly permits it to freeze pension accruals, as it did.

The unions contend, as an initial proposition, that the Plan is not an agreement, and, hence, its provisions are not especially relevant. Rather, they maintain that only those amendments to the Plan that have been incorporated into subsequent collective bargaining agreements constitute “agreements” between the parties.

Pan Am, however, notes that the Plan itself has been incorporated by reference into the agreements between the parties. Cf. United Steelworkers v. Fort Pitt Steel Casting Division—Conval-Penn, Inc., 635 F.2d 1071, 1080 (3d Cir.1980), cert. denied, 451 U.S. 985, 101 S.Ct. 2319, 68 L.Ed.2d 843 (1981) (“The pension and insurance benefits are alluded to in the 1975 Agreement, and thus arguably are incorporated by reference.”). Pan Am specifically points to provisions in the collective bargaining agreements indicating that Plan benefits “are as set forth in” the summary plan description booklets. TWU Supplement IV, Defendant Ex. 20, at 153; IUFA, Supplement IX, Defendant Ex. 25. Pan Am also notes provisions setting forth Pan Am’s purported pledge “to continue” the Plan provisions that form the basis of the union’s argument discussed below.

The unions argue that Pan Am has directly violated at least two provisions of the collective bargaining agreement. First, the two unions rely on nearly identical language from their respective agreements:

Except as required to qualify the Plan under the Internal Revenue Code, and modifications required by the Employee Retirement Income Security Act of 1974 (ERISA) or any other pertinent law, there will be no other amendments to the Plan during the term of this Agreement and the term of the Agreement next following.

IUFA Paragraph 15, Supplement IX, Def. Ex. 25, at 251. Cf. TWU Letter Agreement, Defendant Ex. 25, at 255. It is the unions’ position that “no amendments” means no amendments, and thus, that the pension freeze is a Plan amendment in violation of the contract, leading to a “major dispute.”

Pan Am contends, however, that the provision cited above is no longer in effect, since there have been two agreements subsequent to the 1980 agreement. Moreover, even if the provision remains effective, Pan Am contends that it does not limit its authority to freeze accruals. It is Pan Am’s position that the provision must be read in context: the language (which, incidentally, was proposed by Pan Am) followed the granting of several union requests for “improvements” in the Plan. Accordingly, Pan Am maintains that the “no amendment” language really meant that no further union requests for amendments would be granted during the tesm of the Agreements described therein.

The unions also rely on certain contract provisions in which Pan Am purportedly agreed “to continue” the Plan during the period of the Agreement. See Plaintiff’s Ex. 4, pp. 4-5; Defendant Ex. 25, at 255. The unions assert that such language constituted a positive commitment on the part of Pan Am to continue the accrual of pension benefits. Pan Am argues that the language referred to its agreement to continue the method of calculating benefits that had accrued. Pan Am reasons, moreover, that an interpretation that the provision constituted an obligation to continue the entire Plan would provide further support for its position, since the Plan contained Pan Am’s reservation of its right to make Plan amendments.

Pan Am has presented a “plausible” or “not obviously insubstantial” contractual justification for its position. In short, I am faced with a dispute involving several questions of contractual interpretation, i.e., a minor dispute. Accordingly, the issues that have been raised are appropriate for, and indeed lie within the exclusive jurisdiction of, the Adjustment Board.

FEIA

Those employees belonging to the Flight Engineers’ International Association are covered by a separate pension plan known as the Cooperative Retirement Income Trust Plan for ’ Flight Engineers (“CRITFE”). The chairman of the Flight Engineers’ Negotiating Committee testified at the hearing that the CRITFE has been a collectively bargained plan. Tr. 73-76. (Budd). Otherwise, the issues are essentially identical to those discussed above.

In section 17.1 of the CRITFE Pan Am reserves the right to terminate or amend the Plan. Defendant Ex. 10, at XVII-1. In Article 28(J) of the 1983 collective bargaining agreement the Company agrees “to continue” the Plan during the term of the agreement. Defendant Ex. 27 at 139. And, a June 19, 1981 Memorandum of Understanding, which Pan Am contends is no longer in effect, contains language to the effect that, except as required by law, “there will be no other improvements to the Plan____” Defendant Ex. 28. Thus, the questions of contractual interpretation in the FEIA’s dispute with Pan Am are nearly identical to those existing in the disputes with the TWU and the IUFA. Accordingly, I also deem this dispute to be “minor” within the framework of the RLA. OTI

The FEIA also represents certain Pan Am employees known collectively as the Operations Training Instructors (“OTI”). The OTI, like the TWU and the IUFA, are covered under CRIP,, and thus, the company’s reservation of rights in that plan applies equally to the OTI. Moreover, Article 25(L) of the 1981 collective bargaining agreement states:

The Company intends to continue the Cooperative Retirement Income Plan indefinitely, but necessarily reserves the right to modify, suspend, or discontinue it at any time after August 1, 1984.

Defendant Ex. 29. In short, Pan Am can certainly present a plausible contractual justification for its action.

There is, however, a feature of the OTI dispute requiring special discussion. The agreement between Pan Am and OTI expired on August 1, 1984. Prior to August 1, the parties exchanged notices in accord with § 6 of the RLA indicating their intent to renegotiate the Agreement. The freeze of the pension accruals, it is to be remembered, took place on August 10, 1984, after the contract had expired.

In Detroit & Toledo Shoreline Railway Co. v. United Transportation Union, the Supreme Court discussed the effect of § 6 notices on the parties’ obligations:

The obligation of both parties during a period in which any of these status quo provisions is properly invoked is to preserve and maintain unchanged those actual, objective working conditions and practices, broadly conceived, which were in effect prior to the time the pending dispute arose and which are involved in or related to that dispute.

396 U.S. 142, 152-3, 90 S.Ct. 294, 300-1 (1969). The unions rely on Toledo Shoreline for the proposition that the filing of § 6 notices precludes Pan Am from freezing pension accruals and, consequently, the dispute cannot be minor.

Significantly, it should be noted that in Toledo Shoreline the contract was silent as to the carrier’s authority to take the actions that gave rise to the dispute. Id. at 153-54, 90 S.Ct. at 301. Here, Pan Am can point to a specific grant of authority in the contract, as well as to the language of the Plan itself, a document with no expiration date. There is, therefore, every indication that the “status quo” included Pan Am’s authority to amend the Plan. Moreover, the § 6 notice served by Pan Am contained a reservation of its right to contest the interpretation of the existing agreement. See Plaintiff’s Ex. 15.

The Second Circuit’s decision in Local 553 involved a situation similar to this one in which the agreement had expired and notices had been exchanged. 695 F.2d at 671. Nonetheless, the Court employed a “plausible interpretation” analysis as to whether the dispute was minor and thus, appropriate for the Adjustment Board. In short, minor disputes can arise despite the invocation of the status quo provision. Indeed, one court has pointed out the anomalous result of the unions’ contention:

Plaintiff eontend[s] ... that the existence of Section 6 negotiations at the time a court is asked to invoke its injunctive power somehow alters the analytical framework outlined above. This cannot be the case since a party could make any dispute major (thereby triggering the settlement procedures for that type of dispute enforceable by the special statutory injunction) by merely filing notice of Section 6 negotiations.

Air Line Pilots Ass’n v. Northwest Airlines, 444 F.Supp. 838, 840 (D.Minn.1977), aff'd 570 F.2d 257 (8th Cir.1978). Accordingly, the expiration of the collective bargaining agreement does not require a different treatment of the OTI.

Conclusion

Because all the disputes are minor, the entire matter should be referred to the Adjustment Board for arbitration. Injunctive relief is appropriate “only in those instances when it appears that its absence would prevent the Adjustment Board from giving a significant remedy to the side that prevails before the Board.” Local 553, 695 F.2d at 675.

Thus, the courts may enjoin strikes because they wreak irreparable harm that the Adjustment Board cannot undo. Id. On the other hand, actions by Pan Am should be enjoined only to prevent “injury so irreparable that a decision of the Board in the unions’ favor would be but an empty victory.” Id. (quoting Brotherhood of Locomotive Engineers v. Missouri-Kansas-Texas Railroad Co., 363 U.S. 528, 534, 80 S.Ct. 1326, 1330, 4 L.Ed.2d 1379 (1960)). In this case, an Adjustment Board decision for the unions could easily be effectuated by simple accounting adjustments since the workers entitled to pension accruals can be readily identified. Accordingly, Pan Am’s request to enjoin a strike by the TWU is granted and the unions’ requests for injunctive relief are denied.

The parties are directed to settle a form of judgment consistent with the foregoing decision, on notice.

The Clerk is directed to mail a copy of this opinion to the attorneys for both sides.

SO ORDERED.

      . A fifth union, the Air Line Pilots Association, withdrew its motion for a preliminary injunction at a hearing on August 14, 1984, and the Court ordered expedited arbitration on the underlying dispute.

      . The Transport Workers Union represents mechanic and related ground employees, port stewards, commissary employees, flight dispatchers and flight simulator technicians. (Tr. 20) (Kerrigan).

      . In addition to the Railway Labor Act claims, the International Union of Flight Attendants (“IUFA") alone has challenged Pan Am’s action under the Employee Retirement Income Security Act of 1974 (“ERISA”). Tr. 128-129 (Henning). It appears, however, that a labor organization lacks standing to maintain an action under ERISA. See, e.g., District 65, UAW v. Harper & Row Publishers, Inc., 576 F.Supp. 1468, 1476 (S.D.N.Y.1983). Nor does it appear that the IUFA can succeed in its efforts to claim to represent the employees in a class action. See Drywall Tapers and Pointers, Local 1974 v. Local 530, Plasterers and Cement Masons, 91 F.R.D. 216, 217-18 (E.D.N.Y.1981). At the very least, a determination as to class action status should await the filing of a motion by the plaintiffs for a determination under Rule 23(c)(1), Federal Rules of Civil Procedure. Local Rule 4(c). Accordingly, I decline to address the merits of the ERISA claim.

      . Since the statutory scheme regarding minor disputes contains no requirement that the parties maintain the status quo pending arbitration, an injunction may issue in a case involving a minor dispute “only in those instances when it appears that its absence would prevent the Adjustment Board from giving a significant remedy to the side that prevails before the Board.” Local 553. 695 F.2d at 675.


author: COHN, District Judge.

text:
    Arthur Jackson BURTON, Plaintiff, v. Dale FOLTZ, Defendant.
    Civ. No. 83-CV-1647-DT.
    United States District Court, E.D. Michigan, S.D.
    Nov. 9, 1984.
    Glenn Brown of the firm of Kohl, Sec-rest, Wardle, Lynch, Clark & Hampton, Farmington Hills, Mich., for plaintiff.
    Eric Eggan, Asst. Atty. Gen., Lansing, Mich., for defendant.
   MEMORANDUM AND ORDER

COHN, District Judge.

This is a prisoner civil rights case, 42 U.S.C. § 1983, challenging the constitutionality of administrative regulations of the Michigan Department of Corrections (department) which allows department personnel to inspect mail from residents in administrative segregation (segregation) sent to media representatives. (The relevant regulations are reprinted in Appendix A.) Plaintiff initially sought injunctive and monetary relief. The Court found plaintiff was not entitled to money damages on April 6, 1984 and directed defendant, warden at the State Prison of Southern Michigan, a department facility, to explain why the media mail of residents in segregation should be inspected when the media mail of residents in the general population was not inspected. Defendant filed a supplemental affidavit on April 27, 1984 explaining the reasons and plaintiff now moves for summary judgment. For the reasons that follow, plaintiffs motion is GRANTED.

I.

Plaintiff, while in segregation, sent a sealed letter to an investigative reporter for a Detroit newspaper. The letter was returned with a note stating that outgoing mail was required to be unsealed with certain exceptions not including mail sent to the media. Plaintiff contends this restriction, as applied to media mail, impermissibly infringes on his right to free speech protected under the First Amendment of the United States Constitution.

Department regulations, as reflected in Appendix A, limit confidential communications from a resident in segregation to mail sent to courts, designated attorneys, public officials, and specified personnel of the department. In contrast, residents in the general population are specifically allowed to send uncensored correspondence to media representatives. Residents may be placed in segregation for a limited number of reasons; they have either demonstrated an inability to be managed with group privileges, need protection, are a threat to the physical safety of others or present a serious threat of escape. Defendant says the regulation requiring most mail from residents in segregation, including media mail, to be unsealed is necessary for three reasons: 1) to check for contraband; 2) to prevent the making of escape plans or plans to cause physical injury to a staff member, a resident, or a member of the general public; and, 3) to check for depressive or suicidal tendencies.

II.

The court recognizes that department officials should be accorded substantial deference over matters that in

“their judgment are needed to preserve internal order and discipline and to maintain institutional security. ‘Such considerations are peculiarly within the province and professional expertise of correctional officials, and, in the absence of substantial evidence in the record to indicate that the officials have exaggerated their response to these considerations, courts should ordinarily defer to their expert judgment in such matters.’ ”

Bell v. Wolfish, 441 U.S. 520, 547-48, 99 S.Ct. 1861, 1878-79, 60 L.Ed.2d 447 (1979) (quoting Pell v. Procunier, 417 U.S. 817, 822, 827, 94 S.Ct. 2800, 2804, 2806, 41 L.Ed.2d 495 (1974)). However, it is also clear that a prisoner is not stripped of all constitutional protection by his or her status, and retains those rights that are “not inconsistent with his status as a prisoner or with the legitimate penalogical objectives of the corrections system.” Pell v. Procunier, 417 U.S. 817, 822, 94 S.Ct. 2800, 2804, 41 L.Ed.2d 495 (1974). The court, therefore, has the obligation to determine the proper accommodation between institutional needs and plaintiff’s constitutional rights. Bell, 441 U.S. at 546, 99 S.Ct. at 1877.

III.

Here the court must find a balance between the needs of the department to maintain institutional security and internal order with the right of inmates and the press to exercise free speech. Not only do inmates have a First Amendment right to uncensored communication by letter, Procunier v. Martinez, 416 U.S. 396, 94 S.Ct. 1800, 40 L.Ed.2d 224 (1974), the media has “a First Amendment right to receive letters from inmates criticizing jail officials and reporting on conditions.” Houchins v. KQED, Inc., 438 U.S. 1, 15, 98 S.Ct. 2588, 2597, 57 L.Ed.2d 553 (1978). The inspection of mail from residents to the media infringes on both the rights of residents and the press because it raises the possibility of censorship. See Martinez, 416 U.S. at 408, 94 S.Ct. at 1808-09.

In Martinez the Supreme Court described the standard by which regulations limiting the use of the mail under the circumstances here described should be judged:

“[Prison officials] must show that a regulation authorizing mail censorship furthers one or more of the substantial governmental interests of security, order, and rehabilitation. Second, the limitation of First Amendment freedoms must be no greater than is necessary or essential to the protection of the particular governmental interest involved.”

416 U.S. at 397, 94 S.Ct. at 1803. The regulations in this case provide for “inspection” rather than censorship. Functionally, however; it is not possible to separate the two. Unless department personnel intend to stop certain kinds of communications from going out, inspection would hardly be necessary.

A.

Defendant, as mentioned, offers three justifications for requiring mail sent to the media to be unsealed. The first proferred reason, to check for contraband, simply does not wash. Contraband is certainly a serious problem in a correctional setting, but the main problem is to keep it from entering, rather than leaving, the correctional facility. See Martinez, 416 U.S. at 424, 94 S.Ct. at 1816. (Justice Marshall, concurring). Defendant offers no support for the proposition that residents in segregation, given the variety of reasons for their being there, are more likely to run drug rings offering their services to members of the media than residents in the general population. Media representatives, should they desire drugs for some reason, would hardly look to residents in segregation as a source.

Defendant’s second justification, to check for escape plans or plans to harm someone, also bears no rational relationship to media mail. While certain residents in segregation present threats of escape or physical harm to others, this is not true of all residents in segregation. Also, it is highly unlikely members of the media would aid residents in segregation in an escape plan or in a plan to injure or kill some individual. This justification simply does not warrant the inspection of media mail of all residents in segregation. Defendant’s third justification, to check for suicidal tendencies, is the only one possibly furthered by inspecting media mail. However, the regulation is broader than necessary to further this rehabilitative interest. Department regulations allow communications to courts, designated attorneys and certain department officials to be sealed. Including mail to the media in this listing would have little, if any, effect on legitimate institutional needs. It will, however, protect the substantial First Amendment rights of residents in segregation to send, and the media to receive, letters criticizing conditions of confinement. See Houchins, supra.

B.

The reasoning in Guajardo v. Estelle, 580 F.2d 748 (5th Cir.1978), is persuasive. There the Fifth Circuit affirmed a district judge’s decision that persons in custody and the media have a constitutional right to have mail to members of the media sent unopened. The Fifth Circuit said: Id. at 759. As the Fifth Circuit noted in Guajardo, the Supreme Court decision in Pell v. Procunier, supra, supports this holding. In Pell the Supreme Court held that media representatives who had the opportunity to receive and send mail to persons in custody virtually without interference could be constitutionally barred from conducting unhindered personal interviews with them. Institutional regulations in Pell allowed mail to the media to be sent without inspection, and mail from the media was only checked for contraband. Since the media enjoyed these broad rights, the Supreme Court found the restrictions on personal interviews to be reasonable. See 417 U.S. at 823-824, 94 S.Ct. at 2804-05. The logical implication of the decision is that unrestricted media correspondence is important to protect the First Amendment rights of residents and the media.

“An informed public depends upon accurate effective reporting by news media. In refusing to block inmates’ press correspondence and in protecting it from censorship we protect not only the interests of the inmates, but of the public at large...”

Defendant’s concern for internal security and order is hardly hindered by adding media mail to the categories of mail from residents in segregation allowed to be sent without inspection. See R791.6605, Appendix A. If department personnel fear residents will designate mail as media mail as a subterfuge to send out escape plans or other communications injurious to the security and order of the institution, such letters can be held long enough to verify that the addressee is indeed a member of the. media. Guajardo, supra, at 759. Furthermore, if department personnel suspect some member of the media is aiding a resident in some illegal plan, they may hold the letter and obtain a search warrant. Id.

Apart from these minor restrictions letters from residents to the media cannot be constitutionally inspected. Totally unhindered communication between residents and the media protects important interests of the resident, the press and the general public. The primary reason residents communicate with the press is to criticize institutional conditions. Residents in segregation, with its severe restrictions, are even more likely to criticize the conditions in which they are confined than residents in the general population. Allowing inspection of media mail will chill open communication by these residents with the media, since it allows critics to be identified, creating fear of reprisals. Martinez, 416 U.S. at 424, 94 S.Ct. at 1816. (Justice Marshall, concurring). Furthermore, uninhibited correspondence between residents and the media helps keep the debate over institutional conditions in the public arena where it belongs. See Guajardo, supra, at 759.

III.

Accordingly, plaintiff’s motion for summary judgment is GRANTED. The parties shall submit an appropriate order within ten (10) days.

APPENDIX A

R 791.6603. Mail rights; writing materials and postage; incoming mail; inspection; limitations; legal correspondence; notice of rejection; violation of rules; hearing.

Rule 603. (1) A resident in general population status shall be permitted to send uncensored letters to any person or organization, subject to the limitations of subrules (5) to (8). Mail of a resident in segregation status shall be subject to inspection, except for correspondence to persons enumerated in R 791.6615(2).

(5) The following shall be considered violations of the department’s mail rules:

(a) Correspondence which contravenes federal or state law.
(b) Correspondence which violates postal regulations.
(c) Correspondence containing contraband.
(d) Correspondence containing a criminal plan or conspiracy.
(e) Threatening correspondence.
(f) Correspondence addressed to any party who expressly objects to receiving mail from a resident, if sent after the resident has been notified of the objection.

(6) The department may intercept, open, inspect, and refuse to transmit mail when there are reasonable grounds to believe the mail is being sent contrary to department mail rules. This provision shall not apply to clearly identified correspondence to courts, attorneys of record, public officials, the corrections ombudsman, and members of the department’s central office staff.

(7) Whenever the department does not transmit first class mail, it shall notify the sender of the rejection, including the reasons therefor.

(8) A resident charged with violating department mail rules shall be afforded an appropriate hearing, pursuant to procedures established in R 791.3305, R 791.-3310, and R 791-3315, before any disciplinary action is taken.

R 791.6605. Access to the media, publishers, and interviews; suspension of right during emergencies.

Rule 605. (1) General population residents shall be allowed uncensored correspondence with, and telephone access to, media representatives, subject to reasonable regulation as to time and frequency.

R 791.6615. Access to courts; confidential communications.

Rule 615. (1) Residents shall have reasonable access to the courts for the resolution of legal grievances, including, but not limited to:

(a) Challenges to the legality of conviction or confinement.
(b) Suits for redress or allegedly illegal conditions of confinement or treatment while incarcerated or under correctional control.
(c) Suits in connection with civil legal problems.
(d) Asserting any other constitutional or statutory rights against a governmental authority.

(2) A communication between a resident and the following persons or agencies shall be confidential:

(a) Designated attorneys.
(b) Courts.
(c) Public officials.

(d) The director of the department of corrections.

(e) The corrections commission.
(f) The corrections ombudsman.

(3) A legal document filed in court by a resident shall not be included in the resident’s case history files at any level.

(4) A resident shall not be punished in any way for exercising the right of access to the courts.

R 791.If 05. Administrative segregation status; criteria for imposition; hearing; status review; monthly report; privileges; showers; daily inspection.

Rule 405. (1) Administrative segregation may be imposed only when:

(a) A resident demonstrates inability to be managed with group privileges.
(b) A resident needs protection from other prisoners.
(c) A resident is a serious threat to the physical safety of staff or other residents or to the good order of the facility.
(d) A resident is a serious escape threat.

      . See Administrative Regulation R 791.4405 Appendix A.


text:
    John B. HILL, Jr., Plaintiff, v. UNITED STATES of America, et al., Defendants.
    Civ. A. No. 3:84-0722.
    United States District Court, M.D. Tennessee, Nashville Division.
    Nov. 13, 1984.

      John B. Hill, Jr., pro se.
    Gregory L. Nelson, Tax Div., U.S. Dept, of Justice, Washington, D.C., for defendants.
   MEMORANDA OPINIONS AND ORDERS

NEESE, Senior District Judge, Sitting by Designation.

This is a pro se civil action by him for the judicial review of an assessment by the Internal Revenue Service (IRS) of a civil penalty against the plaintiff and his spouse for filing a “frivolous” tax return. 28 U.S.C. §§ 1340, 1346(a); 26 U.S.C. §§ 6703(c), 7422(a). The defendants moved for a summary judgment, contending that, as a matter of law, such assessment was proper. Rule 56(b), F.R.Civ.P. Such motion has merit.

I.

The material facts are not in genuine dispute, see Rule 56(c), F.R.Civ.P.: The plaintiff Mr. John B. Hill, Jr. and his wife Deborah filed with the IRS an “Amended U.S. Individual Income Tax Return” (Form 1040X) on which they sought to reduce their federal income-tax liability for the calendar year 1980 by decreasing substantially the amount they had reported as taxable-income on their original return for that year. In support of their amended return and claim for a refund, Mr. and Mrs. Hill resurrected the long-defunct argument that wages (that is, monetary compensation received in return for personal services rendered) did not constitute “income” and therefore were not subject to the federal income tax.

Not surprisingly, the IRS disagreed with the view of Mr. and Mrs. Hill that their wages were not taxable; it disallowed their claimed refund and assessed them in addition with a civil-penalty in the amount of $500 for filing a “frivolous” tax-return. See 26 U.S.C. § 6702. The required 15% thereof was paid by the taxpayers, and Mr. Hill commenced this action to abate the assessment and recover the amount paid. 26 U.S.C. § 6703(c).

Undoubtedly, Mr. and Mrs. Hill received some rather poor tax-advice; for, if anything in our tax law is clear, it is that: “ * * * WAGES ARE INCOME. * * * ” United States v. Koliboski, 732 F.2d 1328, 1329, n. 1 (7th Cir.1984). The Supreme Court of the United States upheld in 1926 the application of the federal income tax to “ * * * items of income [which] were received by the taxpayers as compensation for their services as consulting engineers * * *,” Metcalf & Eddy v. Mitchell, 269 U.S. 514, 519, 46 S.Ct. 172, 173, 70 L.Ed. 384 (1926), and no Court of the land has ever held or suggested that the Congress could not tax constitutionally wages as income. The Court of Appeals for this Circuit (with a retired Associate Justice of the United States Supreme Court participating) rejected flatly this argument only a few days ago and, in so doing, assessed sanctions for taking a “frivolous appeal” against a taxpayer who contended differently in his suit for a refund. Perkins v. Commissioner of Internal Revenue Service, 746 F.2d 1187, 1188 (6th Cir.1984).

“ * * * Compensation for labor or services, paid in the form of wages or salary, has been universally held by the courts of this republic to be income, subject to the income tax laws currently applicable. * * * ” United States v. Romero, 640 F.2d 1014, 1016 (9th Cir.1981). On this point, the courts are in unanimous agreement, and any contention to the contrary is patently frivolous. Davis v. United States Government, 742 F.2d 171, 172 (5th Cir. 1984); Funk v. C.I.R., 687 F.2d 264, 265[1, 2] (8th Cir.1982) (contrary contention “is clearly frivolous”); United States v. Moore, 692 F.2d 95, 97[4] (10th Cir.1979); United States v. Lawson, 670 F.2d 923, 925[1] (10th Cir.1982) (contrary contention “is specious”); Lonsdale v. C.I.R., 661 F.2d 71, 72[2] (5th Cir.1981) (contrary contentions “are stale ones, long settled against them. As such, they are frivolous.”); United States v. Buras, 633 F.2d 1356, 1361[11], [12] (9th Cir.1980); Broughton v. United States, 632 F.2d 706, 707[2] (8th Cir.1980), cert. den., 450 U.S. 930, 101 S.Ct. 1390, 67 L.Ed.2d 363 (1981) (contrary contention “is frivolous and totally devoid of merit”); Hayward v. Day, 619 F.2d 716, 717 (8th Cir.1980), cert. den., 446 U.S. 969, 100 S.Ct. 2951, 64 L.Ed.2d 830 (1980) (contrary claims are frivolous); United States v. Francisco, 614 F.2d 617, 619[9] (8th Cir. 1980), cert. den., 446 U.S. 922, 100 S.Ct. 1861, 64 L.Ed.2d 278 (1980); Adams v. United States, 585 F.2d 1060, 1063[2], 288 Ct.Cl. 322 (1978); United States v. Russell, 585 F.2d 368, 370[5] (8th Cir.1978); Wilson v. United States, 412 F.2d 694, 695[1] (1st Cir.1969); Marks v. United States, 391 F.2d 210, 211[8] (9th Cir.1968), cert. den., 393 U.S. 839, 89 S.Ct. 116, 21 L.Ed.2d 109 (1968); C.I.R. v. Daehler, 281 F.2d 823, 825[2] (5th Cir.1960); see Lucas v. Earl, 281 U.S. 111, 114, 50 S.Ct. 241, 74 L.Ed. 731 (1930) (“There is no doubt that the statute could tax salaries to those who earned them * * *.”); Stratton’s Independence, Ltd. v. Howbert, 231 U.S. 399, 415, 34 S.Ct. 136, 140-141, 58 L.Ed. 285 (1913) (“the earnings of the human brain and hand when unaided by capital * * * are commonly dealt with in legislation as income.”).

II.

In 1982, the Congress amended the Internal Revenue Code to provide that an individual shall pay a civil-penalty of $500 if he or she files “what purports to be” a tax-return which (1) contains information that on it's face indicates that the self-assessment of tax due is substantially incor- ' rect, and (2) is based on a position which is frivolous. 26 U.S.C. § 6702(a)(1)(B), (2)(B). Whether a document filed with the IRS falls within the scope of this statute is a question of law for the Court to decide. Holker v. United States, 737 F.2d 751, 752 (8th Cir.1984). This Court concludes, as a matter of law, that the amended tax-return, filed by Mr. and Mrs. Hill for the calendar-year 1980, was a frivolous return within the purview of § 6702(a), supra.

The document filed by the Hills purported clearly to a tax-return and, specifically, purported to be an “Amended U.S. Individual Income Tax Return” (Form 1040X). Additionally, their amended return (together with the documents submitted therewith) contained information which, on its face, indicated that their self-assessment of tax-due was substantially incorrect, in that it reflected they had earned wages of $18,646 but had asserted no tax was owed thereon. Davis v. United States Government, supra. Lastly, the amended return was based on a position— that wages were not taxable-income— which was frivolous, as the many cases cited, supra, have held.

The Secretary of the Treasury met his burden of demonstrating that the plaintiff is liable for the penalty assessed under § 6702, supra. See 26 U.S.C. § 6703(a). The motion of the defendant for a summary judgment hereby is

GRANTED, and judgment will enter that the plaintiff hereby is

DENIED all relief herein.

III.

The defendant moved the Court also to award it a reasonable attorney’s fee under the provisions of 28 U.S.C. § 1927. That statute, however, “ * * * permits assessing fees against lawyers, not litigants * * Knorr Brake Corp. v. Harbil, Inc., 556 F.Supp. 484, 486[1], n. 3 (D.C.Ill. 1983), rev’d. (on other grounds) 738 F.2d 223 (7th Cir.1984); accord: Chicago Regional Port Dist. v. Ferroslag, Inc., 531 F.Supp. 401, 402 n. 3 (D.C.Ill.1982); see United States v. Ross, 535 F.2d 346, 349 (6th Cir.1976) (“the statute employs the unusual approach of requiring an attorney personally to pay costs instead of the customary one of placing the responsibility for them upon a litigant”). Since the plaintiff is not represented by a lawyer herein, § 1927 simply has no application.

The motion of the defendant for an attorney’s fee under 28 U.S.C. § 1927 hereby is

DENIED.

Although attorney’s-fees are not being awarded herein, litigants who continue to assert that wages are not taxable-income are forewarned that, in future cases of this nature (including those pending), the United States may well be entitled to recover its attorney’s-fees. Even where such fees are not authorized by statute, “ * * * it is unquestioned that a federal court may award counsel fees to a successful party when his opponent has acted ‘in bad faith, vexatiously, wantonly, or for oppressive reasons’. * * * ” Hall v. Cole, 412 U.S. 1, 5, 93 S.Ct. 1943, 1946[3], 36 L.Ed.2d 702 (1973).

This Court has now ruled that wages and salaries are taxable-income; that any contention to the contrary is patently frivolous; that any document which purports to be a federal income-tax return (or an amended return) and which attempts to reduce one’s tax-liability by excluding wages or salaries from taxable-income, on the ground that they do not constitute taxable-income, is frivolous within the meaning of 26 U.S.C. § 6702(a); and that, where one has filed such a document with the IRS, the assessment of the $500 civil-penalty mandated by § 6702(a), supra, is proper. Under these circumstances, it is highly unlikely that any similar lawsuit could be maintained in anything other than bad-faith. See United States v. Koliboski, su pra (“Any reading of tax cases by would-be tax protesters now should preclude a claim of good-faith belief that wages — or salaries — are not taxable.”)

The Court of Appeals for this Circuit has warned litigants that, in future cases which assert the frivolous claim that wages are not taxable-income, it will not hesitate to award attorneys’ fees to the United States, Perkins v. Commissioner of Internal Revenue, supra, 746 F.2d at 1188, and this Court now sounds a similar warning. When our government is forced to expend the dollars of those who pay their taxes, to defend itself against the meritless lawsuits of those who seek to avoid paying their taxes through the assertion of wholly frivolous positions, reimbursement by those who have put their fellow citizens to such an unwarranted expense is entirely warranted.

      . The Commissioner of Internal Revenue is not a proper defendant herein. 26 U.S.C. § 7422(f). Accordingly, as to such defendant, this action hereby is DISMISSED sua sponte for the failure of the plaintiff to state a claim upon which relief could be granted. Myers v. Davis, 467 F.Supp. 8, 9, n. 2[2] (D.C.Tenn.1978).

      . Mrs. Hill is not a party to this action.

      . Specifically, Mr. and Mrs. Hill sought to reduce their taxable-income from $18,646 to "0" and their corresponding tax-liability from $2,186 to “0”.

      . The Sixteenth Amendment to our Constitution, which was ratified on February 3, 1913, empowered the Congress " * * * to lay and collect taxes on incomes, from whatever source derived, * * * ” without the necessity of apportioning such taxes among the states according to census or enumeration of population. Many years ago, the Supreme Court defined “income”, as that term is used in the Sixteenth Amendment, " * * * ‘as the gain derived from capital, from labor, or from both combined’ * * Eisner v. Macomber, 252 U.S. 189, 207, 40 S.Ct. 189, 193[6], 64 L.Ed. 521 (1920).
      Seizing upon this definition, the anti-tax forces argue: “ * * * Wages cannot be taxed because the wage earner enjoys no gain from that source. Since the wage earner exchanges his labor and personal time for its equivalent in money, he derives no gain and therefore cannot be taxed." United States v. Buras, infra, 633 F.2d at 1361. Stated in slightly different language: "They argue that compensation for labor is not constitutionally subject to the federal income tax, that an individual’s labor is capital in which he or she possesses a property right, that an individual has the right to exchange that property for other property, i.e. money, and that such a transaction is an equal exchange which does not give rise to any profit.” Funk v. C.I.R., infra, 687 F.2d at 265.

      . The new generation of those who assert the wages-are-not-income theory " * * * seem[s] to have been inspired by various tax protesting groups across the land who postulate weird and illogical theories of tax avoidance, all to the detriment of the common weal of themselves.” United States v. Romero, infra, 640 F.2d at 1016. " * * * In our system of government, one is free to speak out in open opposition to the provisions of the tax laws, but such opposition does not relieve a citizen of his [or her] obligation to pay taxes.” Id., 640 F.2d at 1017.

      . Mr. Koliboski’s bullheaded insistence that his wages were not taxable-income resulted in his conviction by a jury of his peers on 5 federal-criminal charges. Id., 732 F.2d at 1329.

        " * * * If—
      (1) any individual files what purports to be a return of the tax imposed by subtitle A but which—
      (A) does not contain information on which the substantial correctness of the self-assessment may be judged, or
      (B) contains information that on its face indicates that the self-assessment is substantially incorrect; and
      (2) the conduct referred to in paragraph (1) is due to—
      (A) a position which is frivolous, or
      (B) a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws,
      then such individual shall pay a penalty of $500. * * * " 26 U.S.C. § 6702(a).

      . The plaintiff’s argument, that what he and his wife filed did not constitute a tax return, is irrelevant; the statute is concerned with any document that "purports" to be a tax-return regardless of whether it actually amounts to a tax-return.

      . The clerk will prepare, sign, and enter such judgment. Rule 58(1), F.R.Civ.P.

      . "Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct." 28 U.S.C. § 1927.


author: TENNEY, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. 14.54 ACRES OF LAND, MORE OR LESS, SITUATED IN the TOWN OF WASHINGTON, COUNTY OF DUTCHESS, STATE OF NEW YORK, Leonard J. Massello, the Federal Land Bank of Springfield, Hudson Valley Production Credit Association, the State of New York and Unknown Others, Defendants.
    No. 78 Civ. 2786 (CHT).
    United States District Court, S.D. New York.
    Nov. 16, 1984.

      Rudolph W. Giuliani, U.S. Atty., S.D. N.Y., New York City, for the Government; Bernard W. Bell, Asst. U.S. Atty., New York City, of counsel.
    Searles & Sackman, P.C., New York City, Slavitt, Connery & Vardamis, Norwalk, Conn., for defendant Leonard J. Massello; Sidney Z. Searles, New York City, Robert A. Slavitt, Norwalk, Conn., of counsel.
   OPINION

TENNEY, District Judge.

This case is a condemnation action involving land located in the Town of Washington, Dutchess County, New York. In addition to seeking compensation for the value of the land taken, the defendant landowner, Leonard J. Massello, claims that the Government is liable for (1) rent for the use and occupancy of the land from July 1, 1977, after the lease expired, to June 16, 1978, when the Government filed its declaration of taking, and (2) damages arising from the Government’s failure to restore the land to its original condition upon expiration of the lease.

The Government now moves for partial summary judgment dismissing the defendant’s claims for rent, and for damages for the cost of restoring the land. For the reasons stated below, the motion for partial summary judgment is granted.

Background

Prior to the condemnation, the Government leased the land at issue under a ten-year lease that expired on June 30, 1977. During the term of the lease, the Government erected a VORTAC facility on the property. A VORTAC facility is a structure used for guiding aircraft. When the lease expired, the Government was unable to reach an agreement with the defendant concerning new leasing terms and therefore exercised its power of eminent domain. Although the Government remained in possession of the land after the lease expired in June 1977, it did not file its declaration of taking until June 16, 1978. An Order for Delivery of Possession, filed by this Court on September 26, 1978, provided that the condemnation was effective as of July 1, 1977, the day after the lease expired.

Discussion

Fed.R.Civ.P. 56(c) provides that a motion for summary judgment may be granted only if “there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” See generally 6 J. Moore, W. Taggart & J. Wicker, Moore’s Federal Practice ¶ 56.15[l.-0] (2d ed. 1983). The party moving for summary judgment must show that there are no material facts in dispute. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 444 (2d Cir. 1980). Summary judgment, however, will not be denied merely because of conclusory allegations or denials made by the opposing party; supporting facts or arguments must be set forth. See SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir. 1978).

A. Rent

The defendant argues that because the Government did not vacate the property when the lease expired on June 30, 1977, the Government was a holdover tenant and therefore owes rent from July 1, 1977 to June 16, 1978 when a declaration of taking was filed. In opposition to the Government’s motion for partial summary judgment on this issue, the defendant argues that “at least one factual issue [exists, which is] the effective date of the ‘taking.’ ” This is the only issue identified by the defendant as a factual question requiring trial.

Under United States v. Dow, 357 U.S. 17, 78 S.Ct. 1039, 2 L.Ed.2d 1109 (1958), however, the effective date of taking is a question of law, not fact. In Dow, the Supreme Court held that the Government may exercise its power of eminent domain by taking physical possession of the designated property, without first obtaining a court order. Thus, if the Government seizes a tract of land prior to filing a declaration of taking, the date of the actual physical possession constitutes the date of the taking. Id. at 21, 78 S.Ct. at 1044.

In the case at bar, it is undisputed that the Government retained physical possession of the property after the lease expired on June 30, 1977 and continued to use the land after that date. Thus, no genuine issue of fact exists and the question of the Government’s liability for rent is ripe for summary judgment.

Because the date of physical possession fixes the date of taking, the property in this case was seized as of July 1, 1977, when the lease expired. See United States v. Herrero, 416 F.2d 945, 946 (9th Cir.1969), cert. denied, 397 U.S. 973, 90 S.Ct. 1090, 25 L.Ed. 267 (1970) (holding that even though the Government did not file a declaration of taking until three years after the lease expired, the Government’s continued possession of the land constituted a taking by seizure under United States v. Dow). Because the taking occurred as of July 1, 1977, the defendant’s claim for rent subsequent to that date must fail as a matter of law. The Government’s motion for summary judgment on this question is therefore granted.

B. Cost of Restoring the Property

The defendant also seeks payment for the costs that would have been incurred in restoring the property to its original condition if the Government had vacated the premises. The Government has moved for summary judgment dismissing this claim. The Government’s motion is granted.

The facts pertaining to this issue are undisputed. The defendant bases his claim on paragraph 8 of the lease in effect between 1967 and 1977 which provides in relevant part:

The Government shall surrender possession of the premises upon the expiration or termination of this lease and, ... shall ... return the premises in as good condition as that existing at the time of entering upon the same under this lease [or] the Government shall have the right and privilege of making a cash settlement with.the Lessor in lieu of performance of its obligation, :.. to restore the real estate.

Because the Government exercised its power of eminent domain as soon as the lease expired, possession of the land was never returned to the property owner.

The Government argues that it was not obligated to restore the property to its original condition since it did not surrender possession of the premises. The Court agrees. After the lease expired, the defendant did not have the power to demand that the Government tear down any structure or building erected on the tract since the defendant no longer owned the land. It follows that, absent a duty to restore the land, there was no obligation on the part of the Government to make a cash payment in lieu of such restoration.

The Government’s obligation to restore the premises or make a cash settlement was conditioned on the surrender of possession of the land. A condition has been defined as being an event that must take place before the promissor can be obligated to perform. See Restatement (Second) of Contracts § 224 (1979). In the case at bar, the land had to be returned to the defendant before any obligation arose on the part of the Government to restore the land or pay for the cost of such work. The language of paragraph 8 makes it clear that surrender of the property was necessary before the Government was required to perform. Paragraph 8 specifically provides that the Government “shall ... return the premises in ... good condition.” The Government’s obligation to ensure that the premises were in good condition, therefore, did not arise until the premises were, in fact, returned to the defendant.

In sum, the Government has no obligation to pay the costs that would have resulted from returning the land in its original condition, since the Government never returned the land. The motion for summary judgment to dismiss the restoration claim is therefore granted.

Conclusion

The Government’s motion for partial summary judgment is hereby granted for the reasons stated above.

So ordered.

      . The land was taken under the Government’s power of eminent domain pursuant to 40 U.S.C. §§ 257-258a (1982) and 49 U.S.C. § 1344 (1982).

      . The Government also argues that the defendant’s claim for payment of the cost of restoring the property should be severed from the other claims made by the defendant, if it is not dismissed by summary judgment, and should be determined by the Court. The severance issue need not be addressed since this claim is disposed of by the present motion.

      . As indicated earlier, the defendant argues that a trial is necessary to determine the "factual" question of the date of taking. The defendant contends that if the date of taking is found to be prior to or concurrent with the expiration of the lease, his claim for restoration costs will be affected. Because it has been determined as a matter of law that July 1, 1977 — the day after the lease expired — is the date of taking, the defendant’s argument concerning this issue has no merit.


author: JOHN V. PARKER, Chief Judge.

text:
    George E. McKINNEY, Sr. v. Donald REGAN, Secretary of the Treasury, et al.
    Civ. A. No. 84-470-A.
    United States District Court, M.D. Louisiana.
    Nov. 19, 1984.

      George E. McKinney, Sr., pro se.
    Merrick J. Norman, Asst. U.S. Atty., Baton Rouge, La., William Holmes, Dept, of Justice, Washington, D.C., for defendants.
   JOHN V. PARKER, Chief Judge.

This matter is before the court on a motion to dismiss and for payment of expenses filed by defendant, Donald Regan, Secretary of the Treasury, and other officials of the United States of America.. Plaintiff has opposed the motion. Oral argument is not necessary.

Pro se plaintiff has filed what he styles a “Petition for Writ of Prohibition and Mandamus Against Representatives of the Internal Revenue Service and the Department of the Treasury,” one apparent purpose of which is to obtain the “issuance of a Writ of Prohibition by this court directed to respondents to stop and desist in any action to confiscate any additional properties of the petitioner until such time as there has been oral arguments, (sic.) according to the rules of the Common Law of the United States of America, a Republic.” Although the complaint (which petitioner insists is not a complaint) is so obscure as to be well-nigh incomprehensible, it can be gleaned that petitioner, having wrapped himself in the protective mantle of the “Common Law of the United States of America, a Republic” as a “Sovereign Indi-. vidual” now asserts absolute immunity from payment of federal income taxes to which ordinary mortals are subjected. Accordingly, petitioner declares that civil penalties assessed against him by the Internal Revenue Service under Sections 6702 and 6682 of Title 26 for filing frivolous tax forms are unlawful, along with that agency’s attempt' to collect either income taxes or penalties from him.

The allegations of the complaint and attachments indicate that plaintiff filed forms seeking to recover taxes paid for the years 1979, 1980, and 1981 based on the view that his wages and salary did not constitute taxable income. In July of 1983, plaintiff was assessed a penalty of $500.00 for filing a frivolous tax return. In December of 1983, the plaintiff was informed that his withholding form (W-4) dated April 4, 1983, in which he claimed an exempt status, did not meet the requirements of the Internal Revenue Code because plaintiff had not provided requested information, that his employer had been instructed to withhold income tax from his wages anyway, and that the Internal Revenue Service was assessing a $500.00 penalty under Internal Revenue Code Section 6682. A notice of federal tax lien was received by the plaintiff in February of 1984 pertaining to the assessment of the $500.00 civil penalty for filing a frivolous return.

Although it is not made completely clear by the pleadings on either side, at least one of the civil penalties has apparently been levied upon and collected, for petitioner prays that the defendants be enjoined from collecting any more and he may also be demanding return of that which has been collected.

Petitioner requires that the Secretary of the Treasury and the other defendants personally respond to his complaint noting that—

As an unenfranchised Sovrerign (sic.) Individual of the United States of America, a Republic, I DEMAND that no person who is an officer of this court show their face or answer any paper of mine and as such the bar of equity has no jurisdiction in this court.

Defendants have filed through counsel, a motion to dismiss arguing that the action is barred by sovereign immunity, there is no subject matter jurisdiction, plaintiff’s claim for injunctive relief is barred by 26 U.S.C. § 7421, plaintiff’s claim for declaratory relief is barred by 28 U.S.C. § 2201, plaintiff has failed to state a claim upon which relief can be granted and that defendants have not been properly served.

Plaintiff has filed an opposition to the motion and. a motion for default judgment, apparently predicated upon his singular notion that because defendants have appeared through counsel, their pleadings may be ignored. That motion, clearly frivolous, is hereby DENIED.

The complaint may certainly be construed as demanding injunctive relief which is prohibited by the Anti-Injunctive Act, 26 U.S.C. § 7421(a), “no suit for purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person____” The Supreme Court has created an exception where the taxpayer demonstrates that (1) under no circumstances can the government defendant prevail on its claim for taxes, and (2) the taxpayer will be irreparably harmed if the injunction is not granted. Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 82 S.Ct. 1125, 1129, 8 L.Ed.2d 292 (1962).

Plaintiff declares that he is immune from taxation because he does not consider his wages to be taxable income and because he is a “Merchant and Trader at Law on a Cash Basis.” I have news for petitioner: even such a “Merchant and Trader” who is an “unfranchised Sovereign Individual of the United States of America, a Republic” proceeding under the “Common Law of the United States of America, a Republic,” rather than the “inferior” jurisdiction of “Equity and/or Admiralty Law,” is bound, along with the rest of us, to pay the income taxes levied by that republic. Thus, accepting plaintiff’s allegations as true, he has advanced no valid reason why portions of his income are not owed as taxes and there is not the slightest doubt that the government will ultimately prevail.

Further it is clear that § 7421(a) bars suit to enjoin the recovery of withholding. Zernial v. United States, 714 F.2d 431 (5th Cir.1983); Stonecipher v. Bray, 653 F.2d 398 (9th Cir.1981), cert. denied, 454 U.S. 1145, 102 S.Ct. 1006, 71 L.Ed.2d 297 (1982). The court has no jurisdiction to entertain plaintiffs request for injunctive relief.

Plaintiff is not entitled to declaratory relief since the Declaratory Judgment Act, 28 U.S.C. § 2201, specifically exempts from coverage controversies “with respect to Federal Taxes.”

Plaintiff also seems to argue that his property should not have been taken without a hearing based on procedural due process. However, the government’s need for revenue justifies the use of summary procedures to collect money, followed by a later hearing on the seizure. Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289 (1931); Zernial v. United States, supra. Plaintiff’s due process rights are protected by his right to sue for a refund under 26 U.S.C. § 7422.

The government argues that plaintiff’s suit, if one for a refund, is not within the court’s jurisdiction, because there have been no allegations that the liability in question has been fully paid or that plaintiff has filed a claim for a refund as required by 26 U.S.C. § 7422(a). However, after reviewing the allegations of the plaintiff’s “petition” and its attachments, it appears that plaintiff did ask for a refund of taxes paid in 1979-1981 and an adjustment of the civil penalty assessed.

Since plaintiff now asks for the return of the properties confiscated, his complaint could be construed as a suit for a refund. Assuming that plaintiff’s suit for refund is properly before the court, the only reason advanced by the plaintiff as to why a refund of taxes or any assessed ■penalty should be granted is that he is not liable “under any mercantile equity jurisdiction” and that he is exercising his “common-law (of the United States of America only) right to work and said right does not involve any granted privilege to which a federal excise tax may be levied.” On these pleadings, there is no set of facts on which plaintiff may be able to recover. If plaintiff’s suit is one seeking a refund of withholding or a penalty, it fails to state a claim.

Petitioner’s shield of the “Common Law” as an “Unenfranchised Sovereign Individual of the United States of America, a Republic,” provides him with precisely the same degree of protection from federal income taxation as did the Ghost Dance of the Sioux warrior from the repeating rifles of the federal CaJ/^ry — ZERO.

Accordingly, the motion of defendants, whether brought in the “Common Law” or in the “inferior” jurisdiction of “Equity and/or Admiralty Law” is clearly meritorious. The motion is hereby GRANTED and this action will be DISMISSED.

The defendants, not content with throwing petitioner’s claims out of court, also ask for the assessment of attorney’s fees and expenses. The filing of frivolous lawsuits merely to protest the assessment of federal income tax has become a new and unpleasant indoor sport, particularly at a time when court dockets are crowded with cases of merit. The issues raised by the plaintiff in this action have been raised and adversely decided many times before. While consideration is given to the fact that the plaintiff in this proceeding is representing himself, the filing of a suit pro se does not give the plaintiff the right to proceed frivolously. Parties may be assessed reasonable expenses and attorney’s fees under Fed.R.Civ.P. rule 11 and 28 U.S.C. § 2412 and the court finds that such an award is appropriate in this case. See Meyers v. United States, Civil No. 83-1044-B (M.D.La.1984). Defendants are entitled to such an award for the time, trouble and expense which petitioner’s frivolous action has put them to. Would that law, common or otherwise, also authorize assessment of a penalty upon plaintiff for the time and trouble to which his frivolous action has subjected the court.

IT IS FURTHER ORDERED that the defendants recover all reasonable costs, including reasonable attorney’s fees, as provided by law. The defendants shall file with the court within thirty days of the date of this order a list of such costs and judgment will be entered upon court approval of the amount of costs.