author: tCLARKE, District Judge.

text:
    UNITED STATES of America v. Peter Vincent DOUGLAS, et al., Defendants.
    Civ. A. No. 85-436-N.
    United States District Court, E.D. Virginia, Norfolk Division.
    Nov. 5, 1985.

      Russell B. Kinner, Michael F. Hertz, Robert L. Ashbaugh, Dept. of Justice, Civ. Div., Washington, D.C., Raymond A. Jackson, Asst. U.S. Atty., Norfolk, Va., for plaintiffs.
    William O. Snead, III, Cremins, Snead & Annunziata, Fairfax, Va., Stanley E. Sacks, Sacks, Sacks & Larkin, Norfolk, Va., for Emory Worth Brown, Jr.
    Edward M. Medvene, Ronald A. DiNicola, Patricia H. Benson, Mitchell, Silberberg & Knupp, Los Angeles, Cal., Herbert J. Miller, Jr., Jonathan B. Sallet, Miller, Cassidy, Larroca & Lewin, Washington, D.C., Thomas B. Carr, Fairfax, Va., for Peter Vincent Douglas and The Bryna Corp.
    Jerrold G. Weinberg, Ann K. Crenshaw, Weinberg & Stein, Norfolk, Va., Nils Victor Montan, Ward, Lazrus, Grow & Cihlar, Washington, D.C., for Morrison Finance Ltd. & Aspen Productions.
   MEMORANDUM ORDER

tCLARKE, District Judge.

Plaintiff, the United States of America, brought this action seeking $691,105 in damages from five defendants as a result of an allegedly false report submitted to the Navy in connection with the Navy’s participation in the making of the film “The Final Countdown.”

A number of motions have been filed by the defendants. Defendant Cmdr. Emory Worth Brown, Jr., who allegedly submitted the false report, has filed a Motion to Dismiss and a Motion for a More Definite Statement of plaintiff’s claim against him. The remaining four defendants, Peter Vincent Douglas, The Byrna Company, Morrison Finance, Ltd. and Aspen Productions, (the “filmmaker defendants”) have filed a motion to dismiss on jurisdiction and venue grounds, a motion to transfer the action to the Central District of California under 28 U.S.C. § 1404(a), and a motion to dismiss Count II of plaintiff’s complaint. Briefs have been submitted by all the parties and a hearing held on these motions. Accordingly, these issues are ripe for disposition.

FACTS

The facts of this case may be summarized as follows. The filmmaker defendants sought and received the cooperation of the Navy in the filming of “The Final Countdown,” a movie which depicted the transportation back in time of a modern nuclear powered aircraft carrier to a position near Pearl Harbor just prior to the Japanese attack.

In accordance with an agreement between the Navy and the filmmaker defendants reached before the filming began, the Navy was to be reimbursed for certain costs related to its participation, including costs associated with flying scenes filmed using Navy F-14 aircraft. Initially, it was anticipated that thirty hours of flying time would be required, and that the Navy would be reimbursed at a rate of $1,200.00 per hour. This rate was adjusted to $4,126.00 per hour before filming began.

At the time of the filming, defendant Brown was commander of the squadron of F-14 aircraft used to fly scenes for the movie and to requisition military items for use in the movie. In June and July of 1979 the filmmakers filmed movie scenes involving Navy personnel and equipment, with this filming taking place both in and near Norfolk and off the coast of Florida using F-14 aircraft ferried daily to and from Oceana Naval Air Station in Virginia Beach. During this period, it is alleged that Navy fighters were requested by the filmmakers to fly, and did fly, 200 hours in support of the movie. Defendant Brown, however, who was assigned the responsibility of accounting for all hours flown by his squadron in support of the movie, reported that only 32.5 hours were flown in support of the movie.

DEFENDANT BROWN’S MOTION TO DISMISS

The Court first turns to defendant Brown’s motion to dismiss. Brown raises a number of issues, the essence of which is his contention that plaintiffs claim against him sounds in tort, and not -in contract, and is thus barred by the three year statute of limitations on tort claims because it arose over five years ago.

Dismissal for failure to state a claim is appropriate only “when it appears beyond a reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). Such is not the case here. The plaintiff alleges that Brown breached his fiduciary duty owed to the government. This duty, alleged to arise out of a contract implied in law between the government and its employees, Jankowitz v. United States, 533 F.2d 538, 548 (Ct.Cl.1976), would have been breached by Brown’s alleged misreporting of the flight hours he was responsible for tracking. As the statute of limitations applicable to an action by the United States on a contract implied in law is six years, 28 U.S.C. § 2415(a), this action is not time barred.

Whether Brown may ultimately be held liable for $691,105.00, however, presents a more difficult question. Counsel for Brown has argued that Brown’s liability must be limited to the payments of over $6,300.00 and other benefits he allegedly personally received, as opposed to the total damages suffered by the government as a result of his actions. The Court need not reach that question at this time, however, as it is sufficient for the purposes of F.R. C.P. 12(b)(6) that the plaintiff has alleged facts that would allow it to recover some damages on its breach of fiduciary duty claim against Brown. United States v. Carter, 217 U.S. 286, 306, 30 S.Ct. 515, 520, 54 L.Ed. 769 (1910).

BROWN’S MOTION FOR A MORE DEFINITE STATEMENT OF THE CLAIMS AGAINST HIM

Brown’s contention that the plaintiff’s complaint does not sufficiently notify him of the facts underlying the claims against him is simply without merit. To the contrary, paragraphs 7, 15, 18, 19, 25, 30 and 31 of the complaint allege in great detail the facts surrounding the breach of fiduciary duty claim. Plaintiff is, of course, entitled to learn more about plaintiff’s claims through the normal process of discovery.

FILMMAKER’S MOTION TO DISMISS ON JURISDICTION GROUNDS

The filmmaker defendants initial jurisdictional contention is that the Court has no in personam jurisdiction over them. The section of Virginia’s long-arm statute on which plaintiff’s claim of personal jurisdiction is based reads as follows:

A. A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person’s:
1. Transacting any business in this Commonwealth.

Va.Code Ann. § 8.01-328.1.

Consistent with the broad readings of the jurisdictional reach of this statute given by the Supreme Court of Virginia, it has been held that one act of transacting business committed in Virginia by a non-resident may be sufficient to bring the non-resident within the jurisdictional reach of the Court. Jurisdiction will exist with respect to a cause of action arising from the business transaction “if by that one act the non-resident can be said to have engaged in some purposeful activity in Virginia.” Viers v. Mounts, 466 F.Supp. 187, 190 (W.D.Va. 1979). The requirement of purposeful activity in Virginia serves the purpose of ensuring that the constitutional requirements of due process are met, namely, that the defendants have certain “minimum contacts” with the forum state which evince their “[purposeful availment] of the privilege of conducting activities within the forum state____” Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228,1240, 2 L.Ed.2d 1283 (1958).

The Court need not delve into the complexities of the due process limitations on state long-arm jurisdiction, however, as the quantity, quality, and nature of the filmmaker defendants’ contacts with the Commonwealth are more than sufficient to meet the constitutional standard. The most significant of these contacts, which are based primarily on sworn testimony from defendant Brown’s criminal trial, United States v. Brown, Criminal Action Nos. 83-10-N, 83-11-N (E.D.Va., Apr. 21-28, 1983), are:

(1) Mr. Douglas traveled to Virginia to initiate the cooperation of the Navy with the filmmakers;
(2) The filmmakers established a Norfolk, Virginia office to coordinate cooperation with the Navy;
(3) The filmmakers established a corporate bank account in Norfolk in connection with the production of the film;
(4) The filmmakers conducted filming in Virginia; and additional filming took place in Florida using naval aircraft ferried daily to and from the Virginia Beach area;
(5) The filmmakers purchased materials from merchants in the Norfolk area for the production of the film;
(6) Executives travelled to the Norfolk area to coordinate the filming;
(7) The filmmakers leased accommodations for their employees in Virginia;
(8) The filmmakers had written and telephonic communications with Virginia based Naval personnel in connection with the production of the film.

In short, these defendants clearly demonstrated their intent to avail themselves of the benefits and protections of the laws of Virginia through their extensive film operations in connection with the filming of “The Final Countdown.” It is thus hardly unfair to subject these defendants to suit in Virginia.

The filmmaker defendants second jurisdictional contention is that venue in the Eastern District of Virginia is improper. Under the federal venue statute, “a civil action wherein jurisdiction is not founded solely on diversity of citizenship may be brought only in the judicial district where all the defendants reside, or in which the claim arose, except as otherwise provided by law.” 28 U.S.C. § 1391(b). As the four filmmaker defendants reside in California, venue is proper in the Eastern District of Virginia only if the claim arose here.

The defendants correctly point out that the purpose of the venue statutes is to protect the defendant against the risk that a plaintiff will select an “unfair or inconvenient place of trial.” Leroy v. Great Western United Corp., 443 U.S. 173, 184, 99 S.Ct. 2710, 2716, 61 L.Ed.2d 464 (1979). The Eastern District of Virginia, however, is not an unfair place of trial given the scope and quality of the contacts the filmmaker defendants had with Virginia that were directly related to the filming.

This Court recognizes that the tests used to determine the propriety of venue differ somewhat from those tests used in examining questions of personal jurisdiction. Three recent district court decisions from within the Fourth Circuit have reviewed in great detail the caselaw and commentary interpreting the “claim arose” language in the federal venue statutes. Safeco Ins. Co. of America v. Miller, 591 F.Supp. 590 (D.Md.1984); United Coal Co. v. Land Use Corp., 575 F.Supp. 1148 (E.D.Va.1983); Hodso'n v. A.H. Robins Co., 528 F.Supp. 809 (W.D.Va.1981), affd, 715 F.2d 142 (4th Cir.1983). Each has noted that the Fourth Circuit Court of Appeals has not yet prescribed which of the available tests should be used in analyzing venue under 28 U.S.C. § 1391(b), but each has gone on to apply a “weight of contacts” or “substantial contacts” test. E.g., Safeco, 591 F.Supp. at 595.

This Court agrees that a substantial contacts test should be used to determine whether venue is proper. Under this test, the plaintiff must show that a substantial part of the events giving rise to the claim occurred in the district. Thus, neither the place of performance nor the place of contracting are dispositive as to the propriety of venue. Rather, the circumstances of the transaction as a whole must be looked at to ascertain the place or places that are so closely connected with the claim as to provide a fair and convenient trial location.

A review of the facts shows that some of the contractual negotiations and most of the contractual performance took place in Virginia. The majority of government witnesses and the bulk of the government’s documentary evidence are also found in this district. Although most of the filmmaker defendants’ non-party witnesses and documentary evidence are located in California, factors that also will be considered in relation to defendants’ motion to transfer this case to the Central District of California, the Court is of the opinion that the balance of the convenience and fairness factors support the conclusion that venue is proper in this district. If it was fair for these defendants to come into the Commonwealth on this money-making venture, it is also fair for them to defend a suit in Virginia arising from that venture.

FILMMAKER’S MOTION TO TRANSFER THIS ACTION

Having found that the Court has jurisdiction over the filmmaker defendants and that venue is proper in this district, the Court now turns to the filmmaker defendants’ motion to transfer the action to the Central District of California under 28 U.S.C. § 1404(a).

Section 1404(a) reads as follows:
For the convenience of the parties and witnesses, and in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.

Because § 1404(a) requires that the transferee district be one where the action could have been brought originally, a preliminary issue is whether this action could have been brought in its current form in the Central District of California. Plaintiff argues that the action could not be brought in its present configuration in that district because defendant Brown would not be subject to the in personam jurisdiction of that Court, nor would he be amenable to service of process there. The filmmaker defendants contend that Brown would be within the jurisdictional reach of the California Court, but base this contention on one trip Brown made to California to discuss filming procedures. Not only is the defendants’ argument here untenable, but it leads this Court to wonder how the filmmaker defendants could question the reach of Virginia’s long-arm statute over them given that their contracts with Virginia were of a much greater magnitude than Brown's contracts with California.

Accordingly, for the Court to transfer the action to the Central District of California, it would have to order that Brown be severed from the action under Rule 21 of the Federal Rules of Civil Procedure prior to the transfer. Although such a severance is within the power of the Court, the practice is generally disfavored:

In view of the fact that the balance of convenience must be strongly in favor of the defendant to upset plaintiff’s choice of venue, and the general preference in the federal courts for unitary adjudication, severance for purposes of transfer under § 1404(a) is rarely appropriate.

3A Moore’s Federal Practice Para. 21.05[2] at 46-47 (2nd ed. 1985).

Severance may be proper where the non-transferred party is only secondarily or peripherally involved in the suit, and where the “administration of justice would be materially advanced by severance and transfer.” Wyndham Assoc, v. Bintliff, 398 F.2d 614, 618-19 (2nd Cir.), cert. denied, 393 U.S. 977, 89 S.Ct. 444, 21 L.Ed.2d 438 (1968). Here, however, severance and transfer is a wholly unappealing alternative as defendant Brown is centrally involved in the litigation. Brown is a major figure in the fraud allegedly perpetrated on the plaintiff, and all indications are that the proof against the filmmakers is identical to the proof against defendant Brown in every major respect. Plaintiff’s Opposition to Motion to Dismiss at 38-39. His severence from the action would result in “unwarranted duplication and complications in discovery” and throughout the cause of litigation. See SEC v. National Student Marketing Corp., 360 F.Supp. 284, 296 (D.D.C.1973).

Moreover, the Court is not convinced that the Central District of California would be the more convenient forum even if it were appropriate to sever defendant Brown from the action. The burden is on the filmmaker defendants to establish that the “circumstances of the case are strongly in favor of the transfer.” Texas Gulf Sulphur Co. v. Ritter, 371 F.2d 145, 147 (10th Cir.1967).

The filmmaker defendants have submitted affidavits which allege that their witnesses would be greatly inconvenienced by a trial in Virginia. The plaintiff has filed similar affidavits concerning a California trial location. Plaintiff listed thirteen witnesses it may call, nine of whom live in Virginia, one who lives in New York, one who is stationed in Japan, and two Navy personnel whose last known addresses were in Virginia. The filmmaker defendants have proferred evidence of seven witnesses they intend to call, each of whom lives in California and would thus be inconvenienced by a trial in Virginia. Upon questioning by the Court, however, counsel for these defendants admitted that only two of these witnesses are not either a defendant in this action or employed by one of the corporate defendants. Thus, as far as the convenience of the parties and their witnesses is concerned, transfer of this action is not warranted.

Similarly, the other factors to be considered do not favor transfer. Documentary evidence is located both here and in California, but as the majority of the relevant events underlying the cause of action occurred here, Virginia is the more convenient forum with respect to the gathering of all the evidence. Also, considering the calendars of the respective courts, the parties are likely to receive a swifter resolution of their dispute here.

In short, the filmmaker defendants have not met their burden of proving that the. Central District of California would be a more convenient forum for this action. Especially where, as here, transfer would result in unwarranted duplication of litigation efforts, the interests of judicial efficiency lead the Court to deny the defendants’ motion to transfer.

FILMMAKER DEFENDANTS’ MOTION TO DISMISS COUNT II OF THE COMPLAINT

The Court now turns to the filmmaker defendants’ motion to dismiss Count II of the Complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Count II alleges that these defendants violated the False Claims Act, which provides a cause of action for damages against any person who “knowingly presents, or causes to be presented, to an officer or employee of the Government or a member of an armed force a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(1), or any person who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid.” 31 U.S.C. § 3729(3).

The issue before the Court is whether the report submitted by defendant Brown that allegedly understated Navy flying time spent on the movie constitutes a “claim for payment or approval” within the meaning of the False Claims Act. Defendants challenge the existence of a claim on two fronts.

First, defendants argue that Brown’s report is not a claim because it “merely stated information subsequently used by the Navy in billing the filmmakers” rather than requesting the government to pay Brown or anyone for services provided. Filmmaker Defendants’ Reply Memorandum at 34. Defendants’ contention is without merit. Viewed in isolation, Brown’s report merely provided information. However, as it allegedly was Brown’s responsibility to keep track of Navy flight hours on the film so that the Navy could be reimbursed at an agreed upon rate, see paragraphs 12, 14, 16 and 18 of the plaintiff's Complaint, the purpose for filing the report was clearly more than informational. Nor does it matter that the filmmakers did not directly deal with the government as far as the allegedly false report is concerned. See, e.g., United States v. Lagerbusch, 361 F.2d 449 (3d Cir.1966).

The filmmakers second, and more significant, contention is that the False Claims Act only applies where an individual falsely convinces the government to pay out funds, or to pay out too much in funds, rather than situations where an individual fraudulently pays too little to the government. Although logically the difference between the two types of fraud seems insignificant, the Supreme Court has not directly addressed this question and the lower federal courts that have considered the issue have split on the appropriateness of drawing such a distinction. The Fourth Circuit Court of Appeals has not yet had an opportunity to address this issue.

Perhaps underlying the disagreement among the lower courts is the fact that the two major Supreme Court cases interpreting the “claim for payment or approval” language in the False Claims Act are not in perfect harmony. Cf United States v. Neifert-White Co., 390 U.S. 228, 88 S.Ct. 959, 19 L.Ed.2d 1061 (1968); United States v. McNinch, 356 U.S. 595, 78 S.Ct. 950, 2 L.Ed.2d 1001 (1958). Despite plaintiffs use of McNinch to support the broad proposition that the False Claims Act was designed to prevent all “plundering of the public treasury” whether it results from the government paying too much or receiving too little, Plaintiff’s Response Memorandum at 10 (quoting McNinch, 356 U.S. at 599, 78 S.Ct. at 952), much of the language in the McNinch opinion undercuts plaintiff’s position.

The issue before the Supreme Court in McNinch was whether an allegedly false application for credit insurance fell within the scope of the False Claims Act. The government argued that such an application was a “claim” in the sense that it allowed an applicant to draw upon the government’s credit.

The Court began its analysis by noting that:

In determining the meaning of the words “claim against the Government” we are actually construing the provisions of a criminal statute. Such provisions must be carefully restricted, not only to their literal terms but to the evident purpose of Congress in using those terms, particularly where they are broad and susceptible to numerous definitions.

Id. at 598, 78 S.Ct. at 952.

The Court went on to examine the brief legislative history of the False Claims Act, concluding that the Act was “not designed to reach every kind of fraud practiced on the government.” Id. at 599, 78 S.Ct. at 953. Rather, the “plundering” of the public treasury that Congress wanted to stop was individuals billing the government for non-existent or worthless goods, or the charging of exorbitant prices for delivered goods. Id. In this light, and considering that a “claim against the government normally connotes a demand for money or some transfer of public property,” id., the Court held that an application for credit insurance was outside the scope of the Act.

Given the Court’s somewhat restrictive interpretation of the False Claims Act in McNinch, defendants’ contention that the Act was not designed to reach their conduct would have more force if McNinch had been the latest Supreme Court case interpreting the relevant portions of the Act. When the Supreme Court decided Neifert-White almost ten years later, however, its approach to the False Claims Act was markedly different.

The facts of Neifert-White were more in line with traditional definitions of false claims than was the case in McNinch. In Neifert-White, the defendant grain dealer deliberately overstated the value of storage bins sold to his customers in order to induce a government agency to make loans to these customers in amounts in excess of its regulations. The Court of Appeals for the Ninth Circuit had held that an application for a loan was not a “claim for payment or approval” within the meaning of the Act. The Supreme Court reversed.

The Supreme Court defined the issue before it as follows:

Does the False Claims Act reach “claims” for favorable action by the Government upon applications for loans or is it confined to “claims” for payments due and owing from the Government? It is respondent’s position that the term “claims” in the Act must be read in its narrow sense to include only a demand based upon the Government’s liability to the claimant. Respondent relies upon United States v. Cohn, 270 U.S. 339 [46 S.Ct. 251, 70 L.Ed. 616] (1926), and United States v. McNinch, 356 U.S. 595 [78 S.Ct. 950, 2 L.Ed.2d 1001] (1958), to support this narrow reading.

390 U.S. at 230, 88 S.Ct. at 960.

The Court then went on to discuss the intended scope of the Act. Evaluating the legislative history that had previously been discussed in McNinch the Court concluded that “the Act was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government” and added that “the Court has refused to accept a rigid, restrictive reading [of the statute].” Id. at 232, 88 S.Ct. at 962. The Court’s broad interpretation was undercut somewhat by its formal holding that “claims” include all fraudulent attempts to cause the Government to pay out money,” id. at 233, 88 S.Ct. at 962, but the overall tenor of the opinion is that the term should be interpreted so as to reach all types of fraud that result in immediate financial loss to the government.

The Supreme Court’s opinions did not directly address the issue before this Court, namely whether the term “claim for payment approval” includes attempts to defraud the government by individuals who fail to reimburse the government for money expended or services rendered by the United States. The lower Court opinions that have addressed this issue must nevertheless be carefully analyzed in light of the McNinch and Neifert-White decisions.

Typical of the cases that favor defendants’ position is United .States v. Howell, 318 F.2d 162 (9th Cir.1963). In Howell a False Claims Act suit was brought against the operators of laundering facilities on armed services bases who had agreed to pay the government a specified percentage of their gross receipts in exchange for the right to operate on a military property. The United States alleged that these operators understated their gross receipts and thereby paid the government less than they should have.

The Ninth Circuit panel rejected the government’s contention that fraudulently seeking to reduce the amount owed the government is no different from fraudulently demanding money from the government, explaining that the government’s reasoning would only be valid “if we were dealing with a general fraud statute.” Id. at 166. However, this Court is of the opinion that the Howell decision, which was delivered five years before Neifert-White was decided, is out of line with the Supreme Court’s suggestion in that case that the False Claims Act “was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government.” 390 U.S. at 232, 88 S.Ct. at 961.

The Court thus adopts the reasoning of Smith v. United States, 287 F.2d 299 (5th Cir.1961), where a false statement similar to the one in Howell was held to present a cognizable claim under the False Claims Act. In Smith, the defendant was the lessee of a government-owned apartment complex. Under the lease arrangement the lessee paid a specific percentage of rent receipts to the government and the government also agreed to advance funds to cover any operating deficits. The United States alleged that the defendant overstated certain expenses, causing it to underpay rent in one period and to receive funds to cover operating deficits in another.

The Court stated that the false reports violated the False Claims Act because “the inclusion of the items [in the reports] had a direct and immediate impact on the Treasury.” Id. at 300. The Court held that it did not matter whether the false statements caused the government to pay out too much as opposed to receiving less than it deserved, so long as the “expenses were ... ultimately borne by the United States Treasury.” Id. at 304.

The alleged false claim in the case at hand also was ultimately borne by the Treasury. Taking the facts as alleged to be true, the government not only received less than it was entitled to under the contract, it performed services and expended funds (for flight fuel, etc.) for which it was not reimbursed. As a result, the government suffered “immediate financial detriment.” McNinch, 356 U.S. at 599, 78 S.Ct. at 952; Neifert-White, 390 U.S. at 232, 88 S.Ct. at 961. Under these circumstances, both McNinch and Neifert-White compel this Court to hold that the False Claims Act encompasses this behavior.

Viewed in another light this result is equally compelling. Even in its narrowest form, a false claim encompasses a fraudulent request for government funds or property. United States v. Cohn, 270 U.S. 339, 345, 46 S.Ct. 251, 252, 70 L.Ed. 616 (1926). Since Courts have generally held that government property includes government services, e.g., United States v. Alperstein, 183 F.Supp. 548 (S.D.Fla.1960), affd, 291 F.2d 455 (5th Cir.1961), a fraudulent request for government services falls within the scope of the Act as well. The fraudulent transaction allegedly involved here is nothing more than a fraudulent request for government services that took the form of Navy flight time. It cannot make a difference whether the document that represents the alleged false request was received before or shortly after the services were performed. The impact on the government is the same.

The filmmaker defendants’ Motion to Dismiss Count II for failure to state a claim is therefore DENIED.

IT IS SO ORDERED.


source: Caselaw Access Project

author: BULLOCK, District Judge.

license: Public Domain

text:
    Louis P. FORRISI, Plaintiff, v. Margaret HECKLER, Defendant.
    Civ. No. C-84-868-D.
    United States District Court, M.D. North Carolina, Durham Division.
    Nov. 6, 1985.
    Louis L. Lesesne, Jr., Charlotte, N.C., for plaintiff.
    Kenneth W. McAllister, U.S. Atty., Greensboro, N.C., Timothy M. White, Dept. of HHS, Washington, D.C., for defendant.
   MEMORANDUM OPINION

BULLOCK, District Judge.

This case is before the court on Plaintiff's motion for partial summary judgment and Defendant’s cross-motion for summary judgment.

Plaintiff Louis P. Forrisi filed this suit against Margaret Heckler as Secretary of Health and Human Services, alleging that Plaintiff’s discharge from employment with the National Institute of Environmental Health Services (hereafter referred to “NIEHS”), a program within the Department of Health and Human Services, was discriminatory and illegal under Sections 501 and 505 of the Rehabilitation Act of 1973 (as amended), 29 U.S.C. §§ 791, 794a(a)(l).

FACTUAL BACKGROUND

Plaintiff Louis P. Forrisi was employed by the NIEHS in February 1983 to work as a utility systems repairer/operator (hereafter referred to as “USRO”) at its facility in Research Triangle Park, North Carolina. While there is some dispute as to the agreed upon extent and boundaries of his responsibilities, Section 5 (“Physical Effort”) of the job description twice states that the USRO is expected to climb ladders. The document indicates that such climbing is necessary, both during times of emergency and in order to effectuate routine maintenance.

On February 7, 1983, the first day of employment and introduction to his duties, Plaintiff informed his supervisors that his acrophobia would prevent him from climbing to certain heights. As a result, on February 9, Plaintiff was asked to resign or be terminated from his employment. After he refused to resign, Plaintiff worked for NIEHS until he was discharged on April 8, 1983.

Plaintiff initiated administrative proceedings as required in the regulations of the Equal Employment Opportunity Commission, 29 C.F.R. part 1613. He filed the complaint before this court when more than the statutorily required 180 days had elapsed since he had filed the charge with the agency, and no final action had been taken upon his complaint.

DISCUSSION

Federal Rule of Civil Procedure 56(c) permits the court to grant summary judgment only if the pleadings, depositions, interrogatory answers, admissions, affidavits, and other documents show “that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” The burden is on the moving party to make such a showing. The court must assess any inferences from the depositions and other documentary materials in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 944, 8 L.Ed.2d 176 (1962). Even if there is no dispute as to the evidentiary facts, summary judgment is inappropriate if there is a dispute as to the conclusion to be drawn from such facts. Magill v. Gulf & Western Indus., Inc., 736 F.2d 976 (4th Cir.1984).

The issues that Plaintiff presents in his complaint and motion for summary judgment on the issue of liability address the questions of whether Defendant violated Section 501 by discharging Plaintiff “because of his handicap” or by failing to accommodate “his handicap.” Before these claims may be litigated, Plaintiff must satisfy the threshold requirement that his fear of heights (or acrophobia) does qualify him as a handicapped person. This is statutorily defined as one who has a physical or mental impairment which substantially limits one or more of his major life activities, one who has a record of such impairment, or one who is regarded as having such impairment. 29 U.S.C. §§ 706(7)(B)(i), (ii), and (iii).

Plaintiff presents no “record of such impairment” to make applicable Section 706(7)(B)(ii) of the Act. Evidently his previous engineering jobs with the Navy and with Nassau County, New York, as well as his current employment with the Marriott Hotel in Greensboro, North Carolina, have not involved responsibilities that raised the issue of Plaintiffs acrophobia. The only medical record submitted by either party is the result of a February 17,1983, examination which was requested by NIEHS, and performed by the Agency’s physician. This report makes note of Plaintiff’s acrophobia, as described by Plaintiff, under the section asking for the physician’s summary of any conditions which “would limit this person’s performance of the job duties and/or make him a hazard to himself or others,” (even though ultimately the physician does recommend that Plaintiff be “hired or retained”).

Further, Plaintiff does not develop any persuasive argument for defining his aerophobia as a physical or mental impairment which substantially limits one or more major life activities, in order to bring this case under 29 U.S.C. § 706(7)(B)(i). He suggests that the loss of this job should suffice as an “effect” on a major life activity. This approach ignores the statutory language: “substantially limits one or more ... major life activities.” (emphasis added.) This analysis is also inconsistent with the cases that have analyzed the Act’s definition of a handicapped person.

The Supreme Court has articulated the distinction between acts of accommodation and affirmative action required by Section 501 (and now Section 505) and the prohibitions on discrimination set forth in Section 504, as they are applied to handicapped individuals. Southeastern Community College v. Davis, 442 U.S. 397, 410, 99 S.Ct. 2361, 2369, 60 L.Ed.2d 980 (1979). This court agrees with Plaintiff that this distinction should be maintained in evaluating an employer’s obligation of accommodation. However, the threshold question of whether the Plaintiff is handicapped for the purposes of Sections 501, 504, and 505 may be informed by cases dealing with any of these Rehabilitation Act sections. The Fifth Circuit recognized the relationship between Sections 501 and 504 in defining the statute’s reference to an “otherwise qualified handicapped individual.” Prewitt v. U.S. Postal Service, 662 F.2d 292 (1981).

A 1980 district court case has been recognized, by prominent authorities in this area and other courts, as one of the most comprehensive analyses of the Rehabilitation Act’s meaning and requirements. E. E. Black Ltd. v. Marshall, 497 F.Supp. 1088, 23 Fair Empl.Prac.Cas. 1253 (D. Hawaii 1980). The court emphasized the importance of a case-by-case determination of whether the impairment, or perceived impairment, constituted a substantial handicap to employment. Id. at 1100. The court concluded that an impairment which interfered with an individual’s ability to do a particular job, but did not significantly decrease that individual’s ability otherwise to obtain satisfactory employment in his field, was not substantially limiting within the meaning of the statute. Id. at 1099-1100. Indeed, an example used by the court of an individual who was not handicapped within the statute’s meaning was that of an employee whose acrophobia would disqualify him for one job but not for others. Id. at 1099. The Supreme Court of Utah also interpreted identical language in a state statute to mean that “one particular job for one particular employer cannot be a major life activity.” Salt Lake City Corp. v. Confer, 674 P.2d 632, 636-37 (Utah 1983).

A recent Sixth Circuit ease cited by Defendant also follows the principle expressed above. Jasany v. U.S. Postal Service, 755 F.2d 1244 (6th Cir.1985). Plaintiff contends that this case bears no relation to the litigation before this court. However, this court finds that the fact patterns are, indeed, quite similar.

Jasany’s strabismus (crossed-eyes condition) made it impossible for him to perform an essential part of his job with the United States Postal Service. The Sixth Circuit held that this condition “had never had any effect whatsoever on any of his activities, including his past work history and ability to carry out other duties at the post office apart from operation of [the machine which aggravated his condition].” Thus, the court held that the district court had erred as a matter of law in finding that he was handicapped. Jasany at 1250. The court further held that the post office was not required to accommodate Jasany by eliminating one of the essential functions of his job. Id.

In the instant case, the parties agree that Plaintiff Forrisi is unable to climb above a certain height. Such climbing is included in Plaintiffs job description and it appears to be part of the job’s required activities, even though the parties dispute the frequency of such climbing and its circumstances. The Plaintiff admits that he had no difficulty in obtaining other jobs in his field prior to this one, and Defendant’s uncontroverted allegation is that Plaintiff is currently employed once again as an engineer. This court is persuaded by the reasoning of the cases cited and the legislative history of the Act that Plaintiff Forrisi does not qualify as handicapped under 29 U.S.C. § 706(7)(B)(i).

Plaintiff bases his claim for protection under the Act primarily upon 29 U.S.C. § 706(7)(B)(iii). This is the portion of the definition that includes those persons who are “regarded as having such impairment.” Plaintiff’s focus on the words “regarded as” in this third clause ignores the fact that the individual who does not technically come within the first clause, § 706(7)(B)(i), must still be “regarded as having such impairment" or be regarded as handicapped. (emphasis added.) Application of this clause requires a definition of “handicapped” or “impairment.” In order to maintain the internal coherence of subsection 706(7)(B), this definition must be synonymous with the definition of “impairment” developed for § 706(7)(B)(i). Thus, since Plaintiff does not allege a condition which could be regarded as substantially limiting a major life activity, which in this case would be obtaining employment in his chosen field, he may not base his claim upon § 706(7)(B)(iii).

For the foregoing reasons this court will deny Plaintiff’s motion for partial summary judgment and grant Defendant’s motion for summary judgment.

      . The court’s summary of the factual background is taken from the pleadings, briefs, and depositions of the parties.

      . Section 505(a)(1), 29 U.S.C. § 794a(a)(l), makes available to federal employees claiming a violation of § 501, 29 U.S.C. § 791, the remedies and procedures available under § 717 of Title VII, 42 U.S.C. § 2000e-16.

      . Even if Plaintiff could claim protection of this Act as a handicapped individual, this court would not grant him summary judgment on the "accommodation" issue, as Defendant’s responsive pleading and the depositions submitted raise genuine issues of material fact in this regard. However, this court need not address the accommodation issues.


author: PLATT, District Judge.

text:
    Larry E. BLASSINGAME, Plaintiff, v. SECRETARY OF the NAVY, Naval Discharge Review Board, and Board For the Correction of Naval Records, Defendants.
    No. 84 CV 4104.
    United States District Court, E.D. New York.
    Nov. 14, 1985.

      Jules F. Simon, New York City, pro bono, for plaintiff.
    Raymond J. Dearie, U.S. Atty., E.D. of N.Y., Brooklyn, N.Y., for defendants; Patricia T. Galvin, Asst. U.S. Atty., Commander Richard Philpott, JAGC, USN, Alexandria, Va., of counsel.
   PLATT, District Judge.

NATURE OF THE CASE

Plaintiff filed this suit to compel defendants to upgrade plaintiff’s undesirable discharge from the Marine Corps to honorable status with credit for time served. In addition he demanded monetary damages in the amount of Thirty Million ($30,000,000) Dollars. The allegations in his pro se complaint were for erroneous enlistment, wrongful discharge and racial discrimination. A Court-ordered attorney subsequently amended the pleadings, requesting “equitable relief to address [sic] legal wrongs suffered by plaintiff as the result of actions taken by the defendants.” (Amended Complt. at ¶ 3.) Jurisdiction was predicated on the Tucker Act, codified at 28 U.S.C. § 1346(a)(2), and the Administrative Procedures Act, codified at 5 U.S.C. § 701 et seq.

A. Procedural History

After numerous adjournments, the case came before this Court on August 30,1985, on defendants’ motion to dismiss for lack of subject matter jurisdiction and failure to state a claim upon which relief may be granted; alternatively, defendants requested a more definite statement with respect to plaintiff’s claims. After hearing the arguments the Court reserved decision on the motion.

While the case was under advisement the Court received a letter from plaintiff’s attorney dated September 5, 1985 which introduced a matter that was not raised at the oral argument, specifically, that plaintiff was wrongfully enlisted into the Marine Corps and did not learn of the fact until 1982 when he obtained competent pro bono legal assistance from the National Veterans Law Center in Washington, D.C. Such a claim, if substantiated, would not entitle plaintiff to the equitable relief requested in his complaint because a prerequisite for an honorable discharge is a valid enlistment. See Judge Advocate Division Comment, Defs. Reply Mem.App. V at pp. 2-3. Nevertheless, it would at least warrant removal of the undesirable discharge from plaintiffs record. Because this claim was not embodied in the amended complaint (although it was asserted in the pro se complaint) this Court requested a reply brief from the government.

After receiving the government’s response, which included a motion to strike the contents of the September 5 letter, the Court received a second letter from the plaintiff’s attorney. Attached to it were several recent cases supporting the proposition that judicial review of a military board proceeding, pursuant to the Administrative Procedures Act (“APA”), is a distinct cause of action from review of the discharge itself and triggers its own statute of limitations period. The government again responded with a supplemental brief. Thus, to date plaintiff has alleged three distinct claims for relief. After briefly sketching the factual context of the case, the Court will address each of plaintiff’s arguments in turn.

B. Background

The plaintiff, Larry Blassingame, enlisted in the United States Marine Corps on July 9, 1969 at the age of 17 years, 19 days old. Plaintiff had only a tenth grade education and his test results placed him in Group IV, the lowest mental category the Navy allows to enlist.

Within a two-year period Mr. Blassingame’s persistent pattern of misconduct provoked a number of nonjudicial punishments for disrespectful conduct, failure to obey orders, unauthorized absence, and sleeping on watch in a hostile fire area. (Defs. Reply Mem.App. I.) The culmination of these repeated incidents came in June 1971 when plaintiff received an undesirable discharge due to frequent involvement of a discreditable nature with the military authorities.

In 1973 and again in 1977, plaintiff petitioned the Naval Discharge Review Board (“NDRB”), pursuant to 10 U.S.C. § 1553(a), to upgrade his Undesirable Discharge to an Honorable Discharge. On both occasions plaintiff was represented by counsel and in both instances the NDRB denied his request.

In 1979, six years after the NDRB first denied plaintiff relief, he petitioned the Board for the Correction of Naval Records (“BCNR”) to upgrade his discharge. Normally, review by the BCNR occurs within three years after a claimant discovers an error or injustice, but in certain cases the Board may excuse the failure to timely file if it is in the interest of justice. 10 U.S.C. § 1552(b) (1982). The BCNR denied Mr. Blassingame’s request in April 1981. In November of that year, plaintiff repetitioned the NDRB for a discharge upgrade. Relief was denied in February 1983 and again in December 1983 when the NDRB reconsidered the matter at plaintiff’s request. The decision by the NDRB was approximately 30 pages in length and responded to each of plaintiff’s 56 material contentions.

Finally, in February 1984 plaintiff repetitioned the BCNR. The BCNR referred the matter to the Judge Advocate General, who furnished an advisory legal opinion. That opinion, along with plaintiff’s counsel’s comments thereto, was resubmitted to the BCNR and once again relief was denied in June 1984. Ultimately, on October 11, 1984, Mr. Blassingame filed suit in federal court for monetary and equitable relief to redress the wrongs allegedly committed against him during his tenure and discharge from the United States Marine Corps.

DISCUSSION

Although plaintiff in the time since the filing of the amended complaint has continued to add claims and jurisdictional allegations with procedural abandon, in the interest of judicial efficiency this Court will address all of plaintiff’s cumulative arguments.

I. Wrongful Discharge

A. Subject Matter Jurisdiction

The amended complaint characterizes plaintiff’s claim as one for equitable relief, predicating jurisdiction on the Tucker Act and the APA. The Memorandum of Law Opposing Defendants’ Motion to Dismiss tacks on the federal question statute, 28 U.S.C. § 1331, the mandamus statute, 28 U.S.C. § 1361, and the declaratory judgment statute, 28 U.S.C. § 2201, as additional jurisdictional bases. Upon reviewing the legal arguments presented by both parties, this Court concludes that it lacks subject matter jurisdiction over this claim.

1. The Tucker Act

The amended complaint states that “[tjhis is an action for equitable relief to address [sic] legal wrongs suffered by plaintiff as the result of actions taken by the defendants.” (Amended Complt. at 113). Jurisdiction will not lie under the Tucker Act because that statute does not authorize suits where the primary relief sought is equitable and monetary relief is merely an adjunct thereto. Larionoff v. United States, 533 F.2d 1167, 1181 (D.C. Cir.1976), affd, 431 U.S. 864, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977).

Alternatively, the Court could re-characterize this matter as a monetary claim because plaintiff, in addition to requesting the upgrading of his discharge status, also demands “credit for time served and such other and further relief as this Court shall deem just and proper.” (Amended Complt. at 11 3). The Tucker Act, however, limits the jurisdiction of the district courts in monetary actions to claims of $10,000 or less. If awarded, the amount owing plaintiff as credit for time served would easily exceed that ceiling. Indeed, in his original filing, plaintiff, proceeding pro se, demanded money damages in the amount of Five Million Dollars and punitive damages totalling Twenty-five Million Dollars. Because the plaintiff has not waived the right to any damages in excess of the jurisdictional limit, only the Court of Claims is empowered to hear his case. Sprecher v. Graber, 716 F.2d 968 (2d Cir. 1983); Insurance Company of North America v. United States, 561 F.Supp. 106, 117 (E.D.Pa.1983).

2. The Administrative Procedures Act

For the purposes of this claim, the APA will not confer subject matter jurisdiction on the Court because while the statute waives sovereign immunity for equitable claims, 5 U.S.C. § 702, it does not alter the existing limitations on district court jurisdiction established by the Tucker Act. Lee v. Blumenthal, 588 F.2d 1281 (9th Cir. 1979). An independent basis for subject matter jurisdiction must exist apart from 5 U.S.C. § 702. See Califano v. Sanders, 430 U.S. 99, 107, 97 S.Ct. 980, 985, 51 L.Ed.2d 192 (1977) (APA “does not afford an implied grant of subject matter jurisdiction permitting federal judicial review of agency action.”); Smith v. Lehman, 533 F.Supp. 1015 (E.D.N.Y.), affd, 689 F.2d 342 (2d Cir.1982).

3. Other Statutes

Initially, the Court notes that properly to include the three additional jurisdictional allegations which appear in plaintiffs Memorandum of Law requires leave of the Court pursuant to Fed.R.Civ.P. 15(a). Nevertheless, the Court chooses to dispose of these grounds on the merits and not on a procedural technicality. Neither the federal question statute, nor the mandamus power, nor the Declaratory Judgment Act contain the requisite waiver of sovereign immunity for a suit such as this to proceed. See Smith v. Lehman, 689 F.2d 342, 344 & nn. 5, 6 (2d Cir.1982) (declaratory judgment and mandamus statutes do not confer jurisdiction); Doe v. Civiletti, 635 F.2d 88, 94 (2d Cir.1980) (“Section 1331 is in no way a general waiver of sovereign immunity____ Nor is the Mandamus Statute an all-purpose waiver of the Government’s immunity from suit.”); Lutz v. United States Postal Service, 538 F.Supp. 1129 (E.D.N.Y.1982) (the Declaratory Judgment Act. “ ‘does not provide an independent basis for federal jurisdiction but simply increases the remedies available to a litigant’ ”) (quoting Estate of Watson v. Blumenthal, 586 F.2d 925, 928 (2d Cir. 1978)).

Statute of Limitations B.

Even if this Court did have subject matter jurisdiction over the wrongful discharge claim, the applicable statute of limitations, 28 U.S.C. § 2401(a), would be an insurmountable bar. The limitation period in § 2401(a) on actions against the United States is six years after the accrual of the right of action. The remedies plaintiff requests are to redress alleged injuries resulting from his separation from the Marine Corps in 1971. It is well settled that “[a] cause of action is deemed to have accrued when facts exist which enable one party to maintain an action against another.” Great American Ins. Co. v. Louis Lesser Enterprises, Inc., 353 F.2d 997, 1001 (8th Cir.1965). In discharge review cases “the strong weight of authority is that the § 2401(a) limitations period begins to run when the service member’s administrative discharge is final.” Walters v. Secretary of Defense, 725 F.2d 107, 114 (D.C. Cir.1983), reh’g denied, 737 F.2d 1038 (D.C. Cir.1984). Nor does the filing of related administrative proceedings toll the period. Geyen v. Marsh, 587 F.Supp. 539 (W.D. La.), affirmed in part and reversed in part by the Court of Appeals, 775 F.2d 1303 (5th Cir.1985); June v. Secretary of the Navy, 557 F.Supp. 144, 149 (M.D.Pa.1982).

Thus, the time in which plaintiff could seek judicial relief expired in 1977. To decide otherwise “would permit a plaintiff to have the power to avoid the jurisdictional bar every time he submitted an application which was considered by the Board.” Pacyna v. Marsh, 617 F.Supp. 101, 103 (W.D.N.Y.1984), affd mem., 751 F.2d 374 (2d Cir.1984) (affirming on the record below).

II. Erroneous Enlistment

Six days after the oral argument in this case plaintiffs attorney submitted a letter to the Court which in essence presented a new cause of action for erroneous enlistment. Plaintiff stated that Navy regulations required enlistees in plaintiffs mental category to be at least 17 years, 8 months old, while plaintiff was only 17 years, 19 days old. “This was a non-waivabie bar to his enlistment which rendered the exercise of military authority over him improper.” (Pl.’s Letter at 2). According to the letter the claim was not time barred because Mr. Blassingame did not discover the injury until 1982 when he obtained competent pro bono assistance. “Mr. Blassingame’s claim is within the settled construction of § 2401 that a claim does not accrue until ‘the plaintiff has or with reasonable diligence should have discovered the critical facts of both his injury and its cause.’ ” Id. (citation omitted).

Because plaintiff’s contentions lack factual and legal merit, the Court dismisses plaintiff’s tardy assertion of wrongful enlistment. The record indicates that plaintiff raised the issue of his age and low intelligence level before the NDRB in 1977. Plaintiff was present at a hearing at which his counsel

stated that [plaintiff] joined the Marine Corps at age 17, went to Vietnam at age 18 and was discharged when he was 19. The representative requested that [plaintiff’s] age during his service be considered as well as [that plaintiff] only had a 10th grade education____
Upon questioning of [plaintiff] by the members of the Board, [plaintiff] was asked if he had been counselled concerning his conduct prior to the Admin [sic] Discharge proceedings. [Plaintiff] denied he had been, but upon showing [plaintiff] an entry in his SRB on page 11A concerning his counselling and his signature acknowledging this fact, [plaintiff] then recalled this incident.

(Defs. Reply Mem.App. I at p. 2.)

Plaintiff’s assertion that he did not discover the facts until 1982 is not only belied by the record, but it carries no legal weight. The “diligent discovery” exception is used in medical malpractice cases, such as the. two cited in plaintiff’s letter, or fraud cases where a diligent plaintiff could not have discovered the source and existence of his injury because the defendant affirmatively concealed the necessary facts. Plaintiff has not shown that he faced a similar situation involving affirmative concealment.

Substantively, as well as factually and procedurally, this cause of action warrants dismissal. The governing statute, 10 U.S.C. § 505, authorizes the armed services to accept qualified enlistees between the ages of 17 and 35. Persons under 18 must also have the written consent of a parent or guardian.

Mr. Blassingame had the requisite parental consent. The only possible irregularity was that persons with plaintiffs low test scores were by general regulatory guidelines required to be 17 years, 8 months of age at enlistment. Contrary to plaintiff’s contention, however, that requirement was waivable when such persons enlisted for three years or when they enlisted under the “Buddy” program; plaintiff enlisted under both of these conditions. See App. IV to Defs. Reply Mem.

Furthermore, the law with regard to defective enlistments is clear: voluntary continuation on active duty (i.e., beyond the regulatory age requirement) waives any such defect, whether that regulation constituted a waivable or nonwaivable enlistment defect. See, e.g., United States v. Harrison, 5 M.J. 476 (C.M.A.1978); United States v. Catlow, 47 C.M.R. 617 (C.M.A. 1973). See also In re Grimley, 137 U.S. 147,153,11 S.Ct. 54, 55, 34 L.Ed. 636 (1890) (when an enlistee takes the oath of allegiance his status changes from civilian to soldier and “[ujnless there be in the nature of things some inherent vice in the existence of the relation, or natural wrong in the manner in which it is established, public policy requires that it should not be disturbed.”).

In contrast, United States v. Brown, 48 C.M.R. 778 (C.M.A.1974), the case cited by plaintiff as authority for the proposition that erroneous enlistment renders imposition of military authority improper, involved a 16 year old recruit who was assisted in enlisting by a recruiter who falsified the required parental consent. Then, before turning 17, the soldier advised his company commander of the deception and requested a discharge. In the case at bar the plaintiff continued in the Marine Corps voluntarily after attaining the age of 17 years, 8 months old. Thus, the cause of action for erroneous enlistment warrants dismissal.

III. Arbitrary and Capricious Agency Decisions

Although plaintiff in the amended complaint does not distinguish between the claim for wrongful discharge and a claim of entitlement to judicial review of an arbitrary and capricious administrative decision pursuant to 5 U.S.C. § 706(2), the Court has chosen to address them separately because ostensibly they are different causes of action. The first necessitates a de novo review of the facts of the discharge, the second requires an examination of two agency decisions to determine whether they were arbitrary, capricious, in bad faith, contrary to law, of unsubstantiated by the evidence. Moreover, the issue of agency review raises anew the application of the § 2401 statute of limitations period.

A. The Statute of Limitations

The Walters case did not decide whether review of agency discharge decisions must fall within six years of the date of discharge, but two Judges concurring in the denial of the motion for rehearing en banc took pains to note:

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

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

Since the Walters decision issued, the reviewability of a military board decision has come before several district courts producing a split in authority. See, e.g., Bitt nery. Sec’y of Defense, 625 F.Supp. 1022, (D.D.C.1985) (plaintiffs’ challenge of administrative decisions denying discharge upgrade reviewable despite fact that actual discharges occurred more than six years before action filed); see also White v. Sec’y of the Army, 629 F.Supp. 64, 12 Mil.L.Rep. 2449, 2451 (D.D.C.1984); Weber v. Weinberger, No. K 83-644, transcript at 12 (W.D. Mich. November 13, 1984) (transcript of court’s oral hearing).

The Bittner court relied heavily on the D.C. Circuit’s opinion in Van Bourg v. Nitze, 388 F.2d 557 (D.C.Cir.1967), where the court emphasized that,

[t]he function of the [Discharge] Review Board and the Correction Board is to review the type and nature of discharges '■ in order to correct errors or remove injustices. And it is the duty of the judiciary to inquire into an allegedly wrongful and detrimental refusal to grant deserved relief.

Id. at 563 (footnote omitted). (In Van Bourg plaintiff’s discharge occurred in 1951; plaintiff exhausted his administrative remedies in 1963 and then sought judicial review in 1965. Neither the statute of limitations nor laches were deemed a bar to review.)

In the Bittner opinion Judge Green stressed, however, that the court could not review the actual discharges but only the review boards’ decisions denying a request for an upgrade: “In examining the review boards’ decisions a court determines whether these review boards properly applied current law and current policies and procedures. This examination can only be described as distinct from reviewing the original discharge qualification itself.” Bittner, at 1029.

In considering the same issue several other district courts have reached the opposite conclusion. In Long v. United States, 616 F.Supp. 1280 (E.D.N.Y.1985), appeal pending, No. 85-6270 (2d Cir.1985), the plaintiff was discharged from the Army in 1960 and sought relief from the Army Discharge Review Board (“ADRB”) in 1960, ’69 and ’79, and from the Army Board for Correction of Military Records (“ABCMR”) in 1981 before filing suit for wrongful discharge. Judge Glasser of this Court denied plaintiff leave to amend the original complaint to allege that the decisions of the ADRB and ABCMR were arbitrary and capricious, reasoning that “even if leave to amend ... were granted, plaintiff’s claim would still be barred by the statute of limitations.”, at 1284 (footnote omitted). See also Geyen v. Marsh, 587 F.Supp. 539 (W.D.La.1984), affirmed in part and reversed in part by the Court of Appeals, 775 F.2d 1303 (5th Cir.1985) (where plaintiff brought claims of an invalid discharge in 1972 and arbitrary and capricious denial of relief in 1982 by ABCMR, district court dismissed on all claims stating that “Congress allowed applicants to petition the ADRB within 15 years, but absolutely has not waived sovereign immunity for the same period.”) Id. at 541.

Policy considerations, as well as legal precedents, can be marshalled in support of both sides. On the one hand there is the idea that access to the courts should be freely available for review of administrative agencies’ decisions. See, e.g., Seepe v. Dep’t of the Navy, 518 F.2d 760, 763 (6th Cir.1975) (“It is clear, however, that Congress did not intend to deprive the District Courts of subsequent review of Board for Correction of Naval Records decisions.”). Conversely the courts have

... emphasized that a statute which limits the time for commencing a suit against the United States is not merely an instrument of repose. It is also one of the conditions imposed upon those plaintiffs who would benefit from a waiver of sovereign immunity. United States v. Kubrick, 444 U.S. Ill, 117, 100 S.Ct. 352, 356, 62 L.Ed.2d 259 (1979). At the same time, it is a limitation upon the jurisdiction of the courts. Since it is Congress, not the judiciary, which has the power to waive sovereign immunity, the courts must be careful not to extend such a waiver beyond the scope intended by Congress. Id., see United States v. Sherwood, 312 U.S. 584, 587-88, 61 S.Ct. 767, 770, 85 L.Ed. 1058 (1941).

June v. Secretary of the Navy, 557 F.Supp. 144, 149 (M.D.Pa.1982).

After searching consideration, this Court finds itself in accord with the decisions in Long and Geyen. After exhausting the available administrative remedies, review of the bases of the agency decisions may be had in district court provided it is timely, i.e., within the § 2401 period which accrues on the date of discharge. In reaching this decision the Court relied on a leading case in the Court of Claims, Friedman v. United States, 310 F.2d 381, 159 Ct.Cl. 1 (1962), cert. denied sub nom. Lipp v. United States, 373 U.S. 932, 83 S.Ct. 1540, 10 L.Ed.2d 691 (1963). The Friedman court asserted that:

[I]t does not follow from the general existence of judicial review for Correction Board decisions that those decisions create a new substantive cause of action which has its own, new, limitations period. That a tribunal’s rulings are subject to judicial review means that the administrative decision is open to scrutiny by a court, if a timely judicial proceeding is filed — not that the administrative tribunal’s decision, in itself, becomes the new measure and the new beginning of the plaintiff’s judicial rights.
... All that the existence of judicial review means is that the Board’s decision will be reviewed, in a proper case if a timely suit is brought.

310 F.2d at 397 (emphasis in original). The opinion emphasized that the legislative history of 10 U.S.C. § 1552 stated that “the courts would not be precluded from reviewing Correction Board cases ‘under appropriate circumstances,’ ” which it construed to mean, inter alia, when the statutory limitations period had not run on the underlying substantive cause of action.

B. The Agency Decision Was Reasonable and Should Be Affirmed

As a final matter, the Court has reviewed the merits of the 1983 and 1984 NDRB and BCNR decisions (apparently plaintiff does not contest the validity of the three prior dispositions). Unless they are arbitrary, capricious, unsupported by the evidence or contrary to law, the Court is bound to uphold the administrative verdicts. See, e.g., Nethery v. Orr, 566 F.Supp. 804, 807-08 (D.D.C.1983); deCicco v. United States, 677 F.2d 66, 70 (Ct.Cl. 1982). After considering the facts and the record it appears that the discharge status assigned to the plaintiff was fully warranted by his conduct as a member of the United States Marine Corps. “The NDRB’s most recent decision consists of 18 pages in the original decision, with two Amendments of 9 and 2 pages respectively. In those Opinions, NDRB answered line by line, point by point all 56 ‘material contentions of fact, law or discretion’ asserted by plaintiff. The BCNR decision, although less lengthy, addressed every one of the contentions expressed in the brief of plaintiff’s counsel to that Board.” (Defs. Reply Mem. at 14).

Thus, this Court finds that the decisions rendered by the military authorities in this case withstand the Court’s scrutiny under the APA. The decisions were neither arbitrary, capricious, contrary to law or unsupported by evidence. The denials of relief were rendered only after a complete presentation of the facts and a correct application of law to facts. Consequently, even if the final claim were not barred by the statute of limitations or the doctrine of laches, this Court concludes that the administrative decisions should be affirmed.

CONCLUSION

For all of the reasons stated herein, the Court hereby grants defendants’ motion for summary judgment.

SO ORDERED; submit judgment on notice.

      . At the time of plaintiffs separation additional charges were pending against him for assault. (Defs. Reply Mem.App. V at 4.)

      . Under 10 U.S.C. § 1553 a former member of the armed services can petition a discharge review board at any time within 15 years of the date of discharge or dismissal.

      . "Naval Regulations, published in Bureau of Naval Personnel Manual, Part C-10311, prescribe five types of discharges: (1) honorable,
      (2) general (under honorable conditions), (3) undesirable (the equivalent for officers is a discharge ‘under other than honorable conditions’),
      (4) bad conduct (never issued to officers), and
      (5) dishonorable (a ‘dismissal’ for officers). Since the vast majority of discharges from the armed forces are honorable, anything less than an honorable discharge stigmatizes the recipient and is punitive in nature." Van Bourg v. Nitze, 388 F.2d 557, 559 n. 1 (D.C.Cir.1967) (footnote omitted).

      . There is a narrow exception to this limitation which permits a court to apply equitable concepts such as recission or reformation in aid of a monetary judgment, but it is inapplicable to the case at bar where plaintiff is demanding specific performance in the form of a discharge upgrade. See Quinalt Allottee Assoc, v. United States, 453 F.2d 1272, 1274 & n. 1, 197 Ct.Cl. 134 (1972).

      . Courts have recognized a plaintiffs right to remain in district court by waiving damages in excess of $10,000. See, e.g., Goble v. Marsh, 684 F.2d 12 (D.C.Cir.1982); Wolak v. United States, 366 F.Supp. 1106, 1110 (D.Conn.1973).

      . Under the terms of section 702 of the APA, claims for money damages are expressly barred by the doctrine of sovereign immunity.

      . An additional problem from the plaintjff s perspective is that 28 U.S.C. § 1331 would not accord him the relief he seeks because "absent an express waiver of sovereign immunity, 28 U.S.C. § 1331 does not provide jurisdiction over actions against the government and its officers that in effect seek disbursements from the public treasury or decrees affecting public administration.” Boyce v. United States, 523 F.Supp. 1012, 1016 (E.D.N.Y.1981).

      . Title 28 U.S.C. § 2401(a) reads:
      § 2401. Time for commencing action against United States
      (a) except as provided by the Contract Disputes Act of 1978, every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues. The action of any person under legal disability or beyond the seas at the time the claim accrues may be commenced within three years after the disability ceases.

      . The Court here notes an additional technical defect in plaintiff’s pleadings. The amended complaint names as parties the BCNR and the NDRB. However, they are unincorporated federal agencies which Congress has not authorized to be sued either explicitly by statute, or implicitly as the result of being the offspring of a suable entity. Helash v. Ballard, 638 F.2d 74, 76 (9th Cir.1980). A suit which involves the agency actions should be brought against the individual officers involved. Blackmar v. Guerre, 342 U.S. 512, 72 S.Ct. 410, 96 L.Ed. 534 (1952).

      . Defendants argue that a distinction between judicial review of an administrative decision denying an upgrade and review of the underlying decision to award the discharge is specious. In this case it is especially true because plaintiff has "never claimed a right to upgrade under some new regulatory procedure or under some new standard created for persons in his particular situation.” (Defs. Supp.Mem. at 17). Cf. ■ Bittner v. Secretary of Defense, 625 F.Supp. 1022, 1029 (D.D.C.1985).

      . The Court acknowledges that there may be situations where a change in the law or applicable standards may warrant a review after six years have elapsed from the date of discharge, see, e.g., White v. Secretary of the Army, 12 Mil.L.Rep. 2449 (D.D.C. April 10, 1984). Such is not the situation in the case at bar.

      . In addition to finding that this case is barred by the statute of limitations, the Court concludes that the equitable doctrine of laches is also applicable in this case. Laches requires "(1) lack of diligence by the party against whom the defense is asserted, and (2) prejudice to the party asserting the defense.” Costello v. United States, 365 U.S. 265, 282, 81 S.Ct. 534, 543, 5 L.Ed.2d 551 (1961). See also Majorica, S.A. v. R.H. Macy & Co., Inc., 762 F.2d 7 (2d Cir.1985). Where the delay is prolonged, there is less need to search for specific prejudice and a greater burden on the plaintiff to demonstrate lack of prejudice. Cason v. United States, 471 F.2d 1225, 1229, 200 Ct.Cl. 424 (1973).
      Generally, any delay in excess of the statute of limitations period raises a presumption that the delay is inexcusable. Mosley v. Secretary of the Navy, 522 F.Supp. 1165, 1166-67 (E.D.Pa.1981). In this case although plaintiff has been litigious-minded, he nevertheless delayed filing suit for 14 years after the date of his discharge. Plaintiff provides no explanation or justification for this delay, such as a change in the applicable standards, and so the presumption operates against him. Moreover, the government would certainly be prejudiced if this case were to proceed to trial. Witnesses would be difficult to locate and even if they were traced memories of events and facts fade after 14 years. See Long v. United States, at n. 5. Thus, this Court would consider plaintiffs claim barred by the Saches doctrine as well as the limitations statute.


author: MAZZONE, District Judge.

text:
    Harvey PRAWER, Plaintiff, v. DEAN WITTER REYNOLDS, INC. and Lawrence J. Canavan, Defendants.
    Civ. A. 85-2630-MA.
    United States District Court, D. Massachusetts.
    Nov. 18, 1985.

      Nancy E. Watters, Nutter, McClennen & Fish, Boston, Mass., for plaintiff.
    Gerald F. Rath, David C. Boch, Herrick & Smith, Boston, Mass., for defendants.
   MEMORANDUM AND ORDER

MAZZONE, District Judge.

This matter is before the Court on a motion to dismiss and to compel arbitration filed by the defendants, Dean Witter Reynolds, Inc. (Dean Witter) and Lawrence J. Canavan. Dean Witter is a securities broker-dealer; Canavan is a Dean Witter account executive who handled Prawer’s margin account beginning in February, 1983. The plaintiff, Harvey Prawer, opened a non-margin brokerage account in December 1980 and in May 1981, he opened a margin account. Claiming that Dean Witter traded his account without his prior consent, that Dean Witter made inappropriately speculative investments on his behalf, and that the value of the account declined by some $250,000 between July 1983 and March 1985, Prawer filed a complaint alleging a violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, of section 12(2) of the Securities Act of 1933, 15 U.S.C. § 111 (2), and of various state securities and common law provisions.

I.

When Prawer invested his funds in a Dean Witter margin account in May 1981, he signed a “Customer’s Agreement” providing that any controversy between Dean Witter and Prawer “arising out of or relating to this contract or the breach thereof, shall be settled by arbitration ...” Prawer has agreed to submit his state law claims to arbitration. Dean Witter seeks an order compelling arbitration of Prawer’s section 10(b) and Rule 10b-5 claim. Prawer opposes the motion, asserting that a pre-dispute agreement to arbitrate claims that arise under the Securities Exchange Act of 1934 is unenforceable. Dean Witter has also moved to dismiss the section 12(2) claim, arguing it fails to state a claim and is untimely. For the reasons stated below, this Court finds that the arbitration agreement is enforceable. The section 12(2) claim, however, is not subject to arbitration and will not be dismissed.

II.

Dean Witter contends that the section 12(2) claim is untimely and, in any event, fails to state a claim.

Claims arising under section 12(2) must be brought within one year after the discovery of an untrue statement or omission in the sale of the security. 15 U.S.C. § 77m. The most recent securities purchase for Prawer’s account apparently occurred no later than July 1983. This action was filed in June 1985, almost two years later. Prawer’s claim would appear to be time-barred.

Prawer, however, contends that the statutory limitations period was tolled because Dean Witter purposely kept information from him. Prawer alleges that no Dean Witter representative told him that Canavan, his account representative, personally held interests in several of the securities he had recommended to Prawer. Apparently Prawer also contends that Dean Witter held interests in these securities. Prawer did not discover Canavan’s or Dean Witter’s securities holdings until March 1985.

Assuming that Prawer satisfies his due diligence burden, see Cook v. Avien, 573 F.2d 685 (1st Cir.1978), the question is whether this omission states a claim for relief under section 12(2). There are two issues: (1) was the failure to disclose Canavan’s personal holdings or Dean Witter’s holdings an omission of material facts; and (2) even if it was, can Dean Witter be liable under section 12(2) as a person who offered or sold a security by means of a prospectus or oral communication.

It was deceptive not to disclose Canavan’s personal holdings or Dean Witter’s holdings, Prawer argues, both when Canavan convinced Prawer to buy the securities and when Canavan recommended against selling those securities to cover margin calls. It is difficult to see how knowledge of Canavan’s personal holdings would have affected Prawer’s decision to sell other securities to pay for margin calls, even though it is, perhaps, obvious that Canavan might have had a self-interested motive for making that recommendation. See TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). However, knowing that Canavan and Dean Witter had interests in the securities whose purchase Canavan was recommending could well have influenced Prawer’s decision whether to follow Canavan’s recommendation to buy those securities. Leib v. Merrill Lynch, Pierce, Fenner & Smith, 461 F.Supp. 951, 953 (E.D.Mich.1978) (among broker’s duties to customer is to “refrain from self-dealing or refusing to disclose any personal interest the broker may have in a particular recommended security”). Prawer might perhaps have suspected that Canavan was hoping to stimulate market activity in those securities for his own benefit, and was not giving the disinterested advice he hoped to receive from his account executive. It would certainly have been material if Dean Witter was making a market in the securities, acting in the transactions as a principal rather than simply an agent for Prawer. See, e.g., Mcllroy v. Dittmer, 732 F.2d 98, 103 (8th Cir.1984); Zweig v. Hearst Corp., 594 F.2d 1261,1268 (9th Cir.1979); Chasins v. Smith, Barney & Co., 438 F.2d 1167, 1172 (2d Cir.1970). Taking all the factual assertions in Prawer’s complaint as true, and drawing all reasonable factual inferences in Prawer’s favor as this Court must do, Kennedy v. Josephthal & Co., ¶ 99,204 Fed.Sec.L.Rep. (CCH) (D.Mass.1983), there are allegations in the complaint to support either theory.

Dean Witter also contends that Prawer’s section 12(2) claim must be dismissed because Dean Witter acted merely as an agent for Prawer and so did not offer or sell any securities to him. The amended complaint, in other words, fails to establish the requisite buyer-seller privity. If Dean Witter was acting as a principal — buying securities and remarketing them to its customers — any misrepresentations or omissions it made would have been made in connection with the sale of securities. It is possible to find that allegation in Prawer’s amended complaint. Prawer avers that he bought the securities “from” Dean Witter, Amended Complaint at 11 22, and that Dean Witter offered and “sold” the securities to Prawer, Amended Complaint at II46. See In re Catanella & E.F. Hutton & Company, 583 F.Supp. 1388 (E.D.Pa.l984)(finding nearly identical language of a complaint “susceptible to the interpretation” that a broker offered and sold securities “to plaintiffs, rather than just purchasing stock on the open market for their accounts”). While Prawer’s allegation “may simply parrot the statutory language,” id. at 1418, on a motion to dismiss, all inferences must be drawn in favor of the non-moving party. I am unable to conclude “beyond doubt that the plaintiff can prove no set of facts.. .which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). Accordingly, Dean Witter’s motion to dismiss Prawer’s section 12(2) claim must be denied.

III.

The issue of whether to enforce agreements to arbitrate claims arising under section 10(b) and Rule 10b-5 has never been definitively decided by the Supreme Court. In Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1983), the Court held unenforceable an agreement to arbitrate claims arising under section 12(2) of the Securities Act of 1933, 15 U.S.C. § 711 (2). The plaintiff in Wilko had signed an agreement containing a pre-dispute arbitration clause. The Court determined that to order arbitration would contradict section 14 of the Securities Act, 15 U.S.C. § 77n, which voids “any condition, stipulation, or provision binding any person...to waive compliance with any provision” of the Securities Act. In Scherk v. Alberto Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974), the Court questioned Wilko’s application to a claim arising under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Securities Exchange Act of 1934 does “not establish the ‘special right’ that the Court in Wilko found significant.” Scherk, 417 U.S. at 514, 94 S.Ct. at 2454. Unlike section 12(2) of the 1933 Act, section 10(b) and Rule 10b-5 do not expressly provide a right of action; instead a private right of action has been implied by the courts. The Scherk Court also noted that jurisdiction under the 1934 Act is narrower than under the 1933 Act, being restricted to the federal courts, 15 U.S.C. § 78aa, while the 1933 Act allows suit in any state or federal court of competent jurisdiction and provides for nationwide service of process. 15 U.S.C: §§ 77n, 111 (2), 77v. Id.

In March 1985, in Dean Witter Reynolds, Inc. v. Byrd, — U.S.-, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), the Supreme Court repeated these doubts about the scope of the Wilko doctrine. In Byrd, the Court held that when a complaint raises both federal securities law claims and pendent state claims, and the parties have signed an agreement to arbitrate their disputes, the Federal Arbitration Act, 9 U.S.C. §§ 1-14, requires the district court to compel arbitration of pendent arbitrable claims even when the result would be the possibly inefficient maintenance of separate proceedings in different forums. However, the Byrd Court, though it noted that it had recently “questioned the applicability of Wilko to a claim arising under § 10(b) of the Securities Exchange Act of 1934,” Byrd, 105 S.Ct. at 1240 n. 1, specifically declined to consider the issue of whether section 10(b) and Rule 10b-5 violations which are subject to an arbitration agreement, should be referred to arbitration. Id. Dean Witter, apparently assuming that the federal securities law claim was not subject to the arbitration provision of the contract, had not asked the district court to compel arbitration of that claim.

Justice White, however, in a concurring opinion, went further. Stating that “Wilko ’s reasoning cannot be mechanically transplanted to the 1934 Act,” id. at 1244, he emphasized that the question “remains open and the contrary holdings of the lower courts must be viewed with some doubt.” Id. Wilko relied on three statutory provisions of the 1933 Act: the non-waiver provision which voids any “stipulation.. .binding any person acquiring any security to waive compliance with any provision” of the Act, 15 U.S.C. § 77n; the “special right to recover for misrepresentation,” 15 U.S.C. § 111 (2); and, the broad jurisdictional provision which allows suit in any state or federal court of competent jurisdiction, 15 U.S.C. § 77v. While the 1934 Act has a comparable non-waiver provision, 15 U.S.C. § 78cc(a), there are no counterparts to the other two provisions. Because the cause of action for section 10(b) and Rule 10b-5 violations is judicially implied and not expressly created by a statutory provision, the “phrase ‘waive compliance with any provision of this chapter,’ 15 U.S.C. § 78cc(a) (emphasis added), is thus literally inapplicable.” Byrd, 105 S.Ct. at 1244. Finally, Justice White suggested that “Wilko’s solicitude for the federal cause of action — the “special right” established by Congress — is not necessarily appropriate where the cause of action is judicially implied and not so different from the common law action.” Id.

Dean Witter contends that this language means that claims brought under the implied remedy provisions of the federal securities laws stand on an entirely different footing than claims brought under the express remedy of section 12(2) of the Securities Act of 1933. In support of this Dean Witter calls this Court’s attention to a number of district court decisions since Byrd holding that claims such as Prawer’s, brought pursuant to the implied remedy provisions of section 10(b) and Rule 10b-5 of the Securities Exchange Act, must be arbitrated if they are subject to an arbitration agreement. Though these decisions are not, of course, controlling on this Court, they are nonetheless instructive. See McMahon v. Shear son/American Express, Inc., 618 F.Supp. 384 (S.D.N.Y.1985); Ross v. Mathis, 624 F.Supp. 110 (N.D.Ga. 1985); Land v. Dean Witter Reynolds, Inc., 617 F.Supp. 52 (E.D.Va.1985); West v. Drexel Burnham Lambert, Inc., 623 F.Supp. 26 (W.D.Wash.1985); Jarvis v. Dean Witter Reynolds, Inc., 614 F.Supp. 1146 (D.Vt.1985); Johnson v. Kidder Peabody & Co., Inc., No. 85 CV-178 (N.D.N.Y. July 30, 1985); Mowbray v. Moseley, Hallgarten, Estabrook & Weeden, Inc., No. 83-2851-C (D.Mass. July 16,1985); Finn v. Davis, 610 F.Supp. 1079 (S.D.Fla.1985); Mann v. Foster & Marshall/American Express, Inc., No. C84-925D (W.D.Wash. June 3, 1985); Raiford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 83-685-A (N.D.Ga. May 16, 1985); Greenstein v. First Biscayne Corp., No. 82-0584-Civ-Hastings (S.D.Fla. May 16, 1985); Niven v. Dean Witter Reynolds, Inc., No. 84-1594-Civ-T-10 (M.D.Fla. Mar. 28, 1985); Gregory v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 84-1647-Civ-T-10 (M.D. Fla. Mar. 9, 1985).

Unlike several other circuits, the First Circuit has never applied Wilko to a claim arising under section 10(b) of the Securities Exchange Act of 1934, and never held that agreements to arbitrate such claims are therefore unenforceable. In Ingbar v. Drexel Burnham Lambert, Inc., 683 F.2d 603 (1st Cir.1982), the First Circuit rejected the argument that Wilko makes unenforceable predispute broker-customer arbitration agreements covering claims arising under the Commodity Exchange Act, 7 U.S.C. §§ 1-24. If the Ingbar court observed that the Wilko doctrine had been extended to claims under the Securities Exchange Act of 1934 by other circuits, id. at 605, it also cited the Supreme Court’s skeptical and cautionary language in Scherk. Id. Wilko, the Ingbar court reasoned, turned on specific statutory provisions of the Securities Act of 1933; the 1934 Act contains a “similar anti-waiver provision.”. Id. In contrast, the Commodity Exchange Act has no provisions similar to the 1933 Act. I cannot agree with Prawer that Ingbar endorsed the expansion of the Wilko doctrine to section 10(b) or Rule 10b-5 claims. First, it is simply dicta. More important, it is certainly not an unambiguous and ringing endorsement. The careful citation to Scherk suggests that, at a minimum, the First Circuit recognized that Wilko’s reasoning cannot be, as Justice White wrote in Byrd, “mechanically transplanted to the 1934 Act.” Byrd, 105 S.Ct. at 1244.

In the absence of controlling First Circuit precedent, this Court must decide on its own the applicability of Wilko to these claims under section 10(b) and Rule 10b-5. Given the strong federal policy in favor of arbitration agreements, Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. — U.S.-, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), Justice White’s concurring opinion in Byrd, the Supreme Court’s reservations in Scherk and the host of lower federal court decisions since Byrd, this Court believes there is ample authority on which to base a decision requiring Prawer to arbitrate his section 10(b) and Rule 10b-5 claims against Dean Witter. The district court cases decided after Byrd declining to compel arbitration of section 10(b) and Rule 10b-5 claims do not persuade me otherwise.

Conclusion

In light of the foregoing, Dean Witter’s motion to dismiss Prawer’s section 12(2) claim is denied. The motion to compel arbitration of the section 10(b) and Rule 10b-5 claim is granted.

SO ORDERED.

      . Prawer calls this Court’s attention to a number of post -Byrd lower federal court decisions refusing to compel arbitration of section 10(b) and Rule 10b-5 claims. See, e.g., Webb v. R. Rowland & Co., Inc., 613 F.Supp. 1123 (E.D.Mo. 1985); Rojas Cancanon v. Smith Barney, Harris Upham & Co., 612 F.Supp. 996 (S.D.Fla.1985); Gorman v. Merill Lynch, Pierce, Fenner & Smith, Inc., 609 F.Supp. 1054 (S.D.Fla.1985); Green v. Shearson Lehman/American Express, Inc., No. 85-1368 (E.D.Pa. Sept. 10, 1985); Scharp v. Cralin, 617 F.Supp. 476 (S.D.Fla.1985); Gibson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 84 C 7542 (N.D.Ill. June 18, 1985); Dini v. Dean Witter Reynolds, Inc., No. CA 84-4138-T (D.Mass. May 22, 1985). With the exception of Dini, each of these cases turned on pre-Byrd controlling precedent from the circuit court. As the Supreme Court noted in Byrd, the Fifth, Seventh, Ninth and Tenth Circuits have all extended the Wilko doctrine to predispute agreements to arbitrate claims arising under section 10(b) and Rule 10b-5. In the cases cited by Prawer, the courts acknowledged the strong federal policy in favor of arbitration and the Supreme Court’s hints that the Wilko doctrine might be limited to section 12(2) claims, but concluded that Byrd did not overrule the controlling circuit court precedents. While these cases might support the proposition that Byrd has not overruled these circuit court opinions extending Wilko, they do not provide support for the position that the Wilko doctrine is applicable to section 10(b) and Rule 10b-5 claims. To the extent that these opinions do discuss the applicability of Wilko, they support Dean Witter’s position. They are not apposite here, however, because the First Circuit never extended the Wilko doctrine to section 10(b) and Rule 10b-5 claims, and so there is no controlling precedent waiting to be overruled.


author: DONALD E. O’BRIEN, Chief Judge.

text:
    Ernest M. KERSTEN and the Pioneer Protection Group (a/k/a Kent A. Coxe and Wade S. Leathers), Plaintiffs, v. PIONEER HI-BRED INTERNATIONAL, INC., an Iowa Corporation, Defendant.
    No. C 85-257.
    United States District Court, N.D. Iowa, Cedar Rapids Division.
    Nov. 18, 1985.
    Ernest M. Kersten, pro se.
    Grefe & Sidney, Des Moines, Iowa, for defendant.
   ORDER

DONALD E. O’BRIEN, Chief Judge.

The court has before it plaintiffs’ motion for a temporary restraining order. A hearing was held on this matter on November 11, 1985, at which two of the plaintiffs (Ernest Kersten and Kent Coxe), proceeding pro se, and counsel for defendant were present. At the hearing, the court ordered that because of its time constraints, a temporary restraining order would issue until November 14, 1985, by which time the court would make its formal determination on plaintiffs’ motion. After carefully considering the briefs and oral arguments of all parties, the court denies plaintiffs’ motion. The temporary restraining order is terminated.

In their motion for a temporary restraining order, plaintiffs argued that defendant’s incumbent management was violating 15 U.S.C. §§ 77q(a)(l)-(3) and 78i(g)(l) as well as Iowa Code §§ 496A.14 and 496A.15 by submitting a proposed amendment to the articles of incorporation to be voted on by defendant's shareholders at a meeting to be held on November 12, 1985. Said amendment permits “old” stock to have five votes per share while “new” stock would only have one vote per share until it has been held for three years. . The plaintiffs contend that to do this violates both federal and state laws. At the November 11 hearing, the court ordered that the meeting could be held and that the voting could proceed, but that defendant was restrained, if the amendment passed, from filing the amendment with the Secretary of State as required by law. Said vote occurred and the defendant has reported to this court that it was approved by the shareholders.

In determining whether a injunction should be issued, the court is guided by Dataphase Systems, Inc. v. C L Systems, 640 F.2d 109 (8th Cir.1981), where the Eighth Circuit Court of Appeals set out the test:

Whether a(n) ... injunction should issue involves consideration of (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on the other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest. Id., at 113.

As a general rule, a movant has not established irreparable harm where damages would adequately compensate the movant for the asserted harm. See ABA Distributors, Inc. v. Adolph Coors Co., 661 F.2d 712, 714 (8th Cir.1981). It is the position of the Court that the damages likely to be suffered by plaintiffs, should they prevail at a trial on the merits, are monetary and, therefore, plaintiff has failed to make a showing of irreparable harm. A showing of no irreperable harm is sufficient reason to deny an injunction. See Dataphase, supra at 114 n. 9. Nevertheless, even if plaintiffs could not be adequately compensated for harm suffered, a review of the other Dataphase factors indicates that the injunction should be terminated.

Defendant argues that it will be injured if an injunction is issued in that it would be required to revise, reprint, and redistribute proxy materials, plus reincurring major legal expenses that in all likelihood could not be recovered from plaintiffs. Further, Pioneer argues that by delaying the filing of the amendment, there would be a greater risk of an intrusion of the type of hostile takeover that Pioneer is trying to avoid by raising a red flag of potential trouble. While the court is not persuaded that Pioneer should prevail because it might have to incur major expenses by delaying the effective date of the amendment, the court does find Pioneer could be substantially harmed by the uncertainty any further delay would cause whether an attempt of hostile takeover surfaced or not. Thus, the court concludes that the injury to defendant if the injunction were to continue is greater than the harm suffered by plaintiffs if the injunction is terminated.

With respect to the third factor to be considered, the probability of whether or not plaintiff will succeed on the merits, the Court notes that it is given little guidance from the Iowa Supreme Court, which has not dealt with the legal issue before this court. The language of Iowa Code § 496A. 14, standing by itself, neither permits nor prohibits the type of voting restrictions being challenged. Faced with a similar problem, the Delaware Supreme Court, in Providence and Worcester Co. v. Baker, 378 A.2d 121 (Del.Supr.1977), found that its task was one of statutory construction. Id. at 122. After reviewing a Delaware statutory section similar to Iowa Code § 496A.14, the Delaware court found it proper to read another Delaware section, which is similar to Iowa Code § 496A.32, in conjunction with the first Delaware section. The Delaware court in Providence concluded that it was reasonable to assume that if there was a legislative intent to bar disproportionate voting, it would have been expressed in the statute, and since the court could find no such expression, it found that such amendment was not a violation of the Delaware Code. Id. at 124. Still, at least one other court has taken the position that equality of voting power among stockholders of the same class is a basic concept in corporate law. See Asarco Incorp. v. Court, 611 F.Supp. 468, 477 (D.C.N.J.1985). Furthermore, there is language in Iowa Code § 496A.15 which appears to support plaintiffs. However, that section concerns the issuance of shares or special classes in series, which is not occurring in the case at bar.

After reviewing the eases cited by both parties, the court finds that many courts have found disproportionate voting in the same class of stock to be prohibited when it has been implemented by the board of directors as opposed to the shareholders. See Unilever Acquisition Corp. v. Richardson-Vicks, Inc., 618 F.Supp. 407 (S.D.N. Y.1985); Ministar Acquiring Corp. v. A.M.F. Incorp., No. 85-3800 (S.D.N.Y. June 7, 1985); Asarco Incorp. v. Court, 611 F.Supp. 468 (D.C.N.J.1985). Furthermore, in the comment section for Iowa Code § 496A.14, it is stated that:

[ejxcept as limited by considerations of public policy or by express statutory provisions, articles may contain any provision of a regulatory or contractual nature which can be agreed upon by the shareholders concerned.

The court finds that since the amendment was approved by vote of the shareholders of defendant, and since the court is unable, at this point, to find express statutory prohibition or violation of public policy, the court is of the present position that the amendment is not specifically prohibited by the Iowa securities laws.

The court notes that there are federal claims also being asserted by plaintiffs. However, at the hearing on this matter, plaintiffs asked to restrict the arguments to their state claims and, therefore, no evidence was taken on the federal claims. As a result, the court is not prepared to make a ruling as to those claims. This court’s ruling should in no manner be considered as a determination by the court as to those claims.

The court also finds that any public interest that may be served by granting an injunction is clearly outweighed by the other factors.

While this court denies plaintiffs’ motion for a temporary restraining order, the court may find as this case develops that the defendant’s actions have violated Iowa and/or federal laws.

IT IS HEREBY ORDERED that the temporary restraining order heretofore issued is hereby terminated and canceled.

IT IS FURTHER HEREBY ORDERED that the plaintiffs’ bond is released.

IT IS FURTHER HEREBY ORDERED that U.S. Magistrate James Hodges shall promptly set short deadlines for discovery and the filing of additional pleadings and that thereafter this cause shall be promptly heard on the merits.

      . The court has since been informed by counsel for defendant that they received a telegram from plaintiffs now alleging that the vote on this matter was a violation of § 14(a) of the Securities Exchange Act of 1934.

      . Iowa Code § 496A.32 states in part:
      Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders, except as may be otherwise provided in the articles of incorporation (emphasis added).

      . Iowa Code § 496A.15 states in part:
      1. If the articles of incorporation so provide, the shares of any preferred or special class may be divided into and issued in series. If the shares of any stock class are to be issued in series, then each series shall be so designated as to distinguish the shares thereof
      from the shares of all other series and classes. Any or all of the series of any such class and the variations and the relative rights and preferences between different series may be fixed and determined by the articles of incorporation, but all shares of the same class shall be identical except as to the following relative rights and preferences, as to which there may be variations between different series: ******
      g. Voting rights, if any.
      (Emphasis added).