author: AUBREY E. ROBINSON, Jr., Chief Judge.

text:
    COALITION FOR LEGAL SERVICES, et al., Plaintiffs, v. LEGAL SERVICES CORPORATION, Defendant.
    Civ. A. No. 83-3005.
    United States District Court, District of Columbia.
    Oct. 26, 1984.
    Eric R. Glitzenstein, Public Citizens Litigation Group, Washington, D.C., for plaintiffs.

      D. Clifford Crook, II, Washington, D.C., for defendant.
    Barbara Gordon, Asst. U.S. Atty., Washington, D.C., for intervenor.
   MEMORANDUM AND ORDER

AUBREY E. ROBINSON, Jr., Chief Judge.

The matter presently before the Court began with a complaint and motion for temporary restraining order filed by the Coalition for Legal Services (Coalition). The Coalition, Plaintiffs in this action, contended that the Defendant Legal Services Corporation (Corporation), violated the Government in the Sunshine Act (Sunshine Act), 5 U.S.C. § 552b(e), by not .providing at least seven (7) days actual notice to the public of its October 13, 1983 meeting concerning critical policy changes. The Defendant opposed the motion for temporary restraining order arguing that there had been sufficient public announcement of the meeting. A temporary restraining order was entered by Judge Barrington D. Parker on October 12, 1983. Plaintiffs have now filed a motion for summary judgment based upon the same allegation of a Sunshine Act violation. Defendant opposes a summary judgment and argues that the Corporation is entitled to a “declaration of rights” with respect to the manner in which it must announce its meetings.

STATEMENT OF FACTS

On September 16, 1983, the Federal Register published notice that the Corporation would hold a meeting of its Board of Directors on October 4, 1983 in Washington, D.C. 48 Fed.Reg. 41,672 (1983). The notice indicated that the agenda for that meeting would include consideration of several major policy changes. Specifically, the Board was to consider changes in (1) the criteria for determining eligibility to receive the agency’s legal assistance, (2) the procedures regarding the denial of refunding to recipient organizations and (3) the regulation of membership fees and dues paid by local legal services programs to bar associations and other professional groups. These three proposals had been the subject of notice and comment rulemaking and had generated i considerable interest and response from the public. Also scheduled for discussion was a new “instruction” from the Corporation to local legal services organizations regarding the extent to which Corporation funds were to be used to involve the private bar in the provision of legal services to the poor. This “instruction” had not been the subject of notice and comment rulemaking; the October 4, 1983 meeting would have been an opportunity for the public to render comment on the proposed “instruction.” Further, this meeting was to be the public’s last chance to influence the Board’s decision on the other policy proposals concerning the delivery of legal services to the poor.

The meeting scheduled for October 4, 1983 was cancelled on Monday, October 3, 1983. Notice of the cancellation appeared in the Federal Register one day after the scheduled meeting, on Wednesday, October 5, 1983. The cancellation indicated that no new date, time or place had been set for the Board’s consideration of the proposed policy changes. The next day, Thursday, October 6, 1983, a second identical notice was received by the Office of the Federal Register and scheduled for publication in the Wednesday, October 12, 1983 issue of the Federal Register. On the same day, October 6, 1983, the Corporation submitted a notice rescheduling the October 4, 1983 meeting to Thursday, October 13, 1983. Instead of Washington, D.C., the meeting was to be held at 8:00 a.m. in Salt Lake City, Utah. Notice of the rescheduled date, time and place appeared in the Wednesday, October 12, 1983 issue of the Federal Register. 48 Fed.Reg. 46,468 (1983). While Defendant maintains that the second notice of cancellation was published in error, in fact, such a notice did appear in the Federal Register on Tuesday, October 11, 1983. 48 Fed.Reg. 46,130 (1983). The relatively long delay from submission to publication of these two notices was due to the three-day weekend for Columbus Day. On the day following published notice and the day of the rescheduled meeting, Thursday, October 13, 1983, the Federal Register contained a “correction” announcing that the October 11, 1983 notice stating that no new date, time or place had been set for the meeting was a duplicate of the October 5, 1983 notice and should not have been published.

The confusion surrounding notice to the public through the Federal Register is compounded by the fact that many persons receiving the publication by mail subscription receive it with at least one day’s delay. Thus, many subscribers would have received the issue containing the second cancellation notice on October 12, and therefore,- been misled since the meeting had already been scheduled to go forward the next day; these subscribers would have received the issue containing notice of the 8:00 a.m. meeting on the day the meeting was to take place, October 13, 1983.

Although publication in the Federal Register is not an exclusive means for communicating notice of Sunshine Act meetings to the public, it assumes special importance in this instance since the Corporation chose not to take steps it had routinely followed in the past to inform the public of its meetings. In the past the Corporation had (1) mailed notice of meetings to members of the press and (2) directly furnished notice to interested groups. In its opposition to summary judgment the Corporation argues that it had no duty to take these steps. However, the Corporation does have a duty to reasonably and fully inform the public of its meetings. The avenues used in the past had helped the agency fulfill its duty and, with respect to this meeting, might have countered the reliance on the Federal Register announcements.

Moreover, while not exclusive, the contradictory notices which appeared in the Federal Register are at least illustrative of the climate of confusion which surrounded notifying the public of the meeting, cancellation and rescheduling. For example, the Defendant claims to have had notices of the rescheduled meeting date, October 13, 1983 meeting placed on its public bulletin boards on October 6,1983. However, there is no indication that the cancellation notices, posted on October 3, were ever removed. Therefore, persons perusing the bulletin boards could have read the cancellation notice, logically ceased to look further and therefore missed the notice which rescheduled the Board meeting.

It was under these circumstances that the Coalition filed a Motion for Temporary Restraining Order on October 12, 1983. The motion was heard and granted by Judge Barrington D. Parker on that date. The temporary restraining order was scheduled to expire on October 22,1983 but was extended for an additional ten (10) days by this Court. At a status hearing held Tuesday, October 25, 1983, the Court learned that the Defendant would give at least seven (7) days notice to the public and hold its meeting on November 7, 1983 in San Francisco California. Sufficient notice was given; the meeting was held and well attended by the public. Ultimately, the meeting was had, without question, in accordance with the provisions of the Sunshine Act.

DISCUSSION

“In general, a case becomes moot where the activities for which an injunction is sought have already occurred and cannot be undone.” Monzillo v. Biller, 735 F.2d 1456, 1459 (D.C.Cir.1984). Since the meeting upon which this action was predicated has been held in accordance with the statute, this controversy is effectively moot. Remaining for the Court’s consideration is the disposition of the $1,000 security bond posted by Plaintiffs. The security bond was ordered pursuant to Fed.R.Civ.P. 65(c), which provides, in relevant part:

No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the Court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.

In its determination whether the $1,000 injunction bond is to be returned to Plaintiffs or whether liability damages are to be awarded against the bond to Defendant, the Court must consider whether, under the circumstances, the Defendant was “wrongfully enjoined or restrained” from holding its meeting on October 13, 1983.

Limiting consideration to this issue, the Court notes that Fed.R.Civ.P. 65(c) requires a bond “in order to ensure that the plaintiff will be able to pay all or at least some of the damages that the defendant incurs from the preliminary injunction if it turns out to have been wrongfully issued.” Coyne Delany Co. v. Capital Development Board of the State of Illinois, 717 F.2d 385 (7th Cir.1983); Page Communications Engineers, Inc. v. Froehlke, 475 F.2d 994 (D.C.Cir.1973). Conversely, when an injunction has been justifiably entered, the injunction bond should be discharged and returned to the party who posted it. With this in mind, the Court will consider the merits of Plaintiffs’ complaint to the extent necessary to determine whether or not the injunction was improvidently entered. The issue is therefore correctly phrased by Plaintiffs as “whether Judge Parker corrected determined that the Legal Services Corporation acted inconsistently with the Sunshine Act, 5 U.S.C. § 552b, by giving the public inadequate notice that an important meeting of the Corporation’s Board of Directors had been rescheduled from October 4, 1983 in Washington, D.C., to October 13, in Salt Lake City, Utah.”

The Sunshine Act requires seven days reasonable notice to the public of meetings such as the one involved here. Specifically, the statute requires that

the agency shall make public announcement, at least one week before the meeting, of the time, place, and subject matter of the meeting____ Such announcement shall be made unless a majority of the members of the agency determines by a recorded vote that agency business requires that such meeting be called at an earlier date, in which the agency shall make public announcement ... at the earliest practicable time.

5 U.S.C. § 552b(e)(1). Similarly, the Corporation’s regulations implement the Sunshine Act and provide that public announcement shall be made of every meeting “at least seven calendar days before the meeting” unless agency business requires a meeting on fewer days notice. 45 C.F.R. § 1622.4 (1983).

The Corporation argues that at least seven days notice was provided. The facts demonstrate otherwise. The Corporation did not “fully inform” the public of the October 13 meeting even assuming that there were notices of the rescheduled information on the appropriate public bulletin boards. The Court notes that the Corporation had not previously handled meeting announcements with only posted notices. Given the recent postponement of this particular meeting and the importance of the issues to be covered, more, not less, announcement was called for.

Alternatively, the Corporation argues that it met all of the requirements for shortened notice under 5 U.S.C. § 552b(e)(1) and 45 C.F.R. § 1622.4(b), this provision in the Sunshine Act and the corresponding regulation allows the agency the flexibility to hold meetings within very short periods of time when “agency business requires.” However, the very language of the statute and regulation indicates that the clause was intended to ensure the flexibility to make those business decisions which must be made within time periods so short that seven days advance notice to the public is impossible. Moreover, “ [legislative history indicates that this ‘escape clause’ allowing for shorter notice is not to be relied upon routinely but should be primarily used to deal with emergency, late-breaking items.” Berg & Klitzman, An Interpretative Guide to the Government in the Sunshine Act 48 (1978). In fact, if an agency may reschedule a meeting for reasons not based upon an emergency situation requiring swift agency decision, then the Sunshine Act loses much of its force. Sensibly, Congress could not have given the public the entitlement to the “fullest practicable information regarding the decisionmaking processes of the Federal Government,” P.L. No. 94-409, § 2, and then in the same penstroke taken that entitlement away by giving the agency the broad “escape clause” which Defendant claims.

Finally, the Court notes that there was nothing about these agenda items which prevented seven days notice to the public in the first instance. While the Corporation justifiably wished to have the matters on its agenda settled, there is nothing on the record to support a claim, nor is a claim made, that agency business “required” an immediate meeting. Therefore, the Court finds that the Defendant violated the Sunshine Act by not providing the public at least seven days advance notice of its October 13, 1983 meeting. Publication in the Federal Register was the method relied upon by the Corporation to notify the public of the change in meeting date, time and place. The Federal Register notices provided confusing and inadequate notice of the October 13, 1983 meeting. An announcement sufficiently in advance of the next meeting date was necessary in order to clear up the confusion. The temporary restraining order was tailored to the situation and therefore enjoined Defendant from holding its meeting, “unless it provided at least seven (7) days, actual notice by publication and circulation of a notice in the Federal Register.” Therefore, the Court finds that Plaintiffs brought the suit in good faith and the injunction was justifiably entered. Plaintiffs’ motion for summary judgment will be granted and the injunction bond discharged.

The Court further finds that, contrary to Defendant’s contentions, the Court has not been called upon to decide the publication and notice rules for the corporation. Therefore, Defendant’s counterclaim for a declaratory judgment presents no “case or controversy.” Defendant asserts that the Court must confront the issue whether publication in the Federal Register at least seven actual days in advance of any meeting is mandated by the Sunshine Act. Plaintiffs have not contended that notice of the Corporation’s meeting must in every instance appear in the Federal Register seven days in advance. Plaintiffs sought to enjoin only the October 13, 1983 meeting until there had been seven days notice to the public. The issue in this case has never been as Defendant alleges; for the foregoing reasons, Defendant’s counterclaim shall be denied.

An appropriate Order accompanies this Memorandum.

ORDER

In accordance with the Memorandum entered this date, it is by the Court this 26th day of October, 1984,

ORDERED, that Plaintiffs’ Motion for Summary Judgment be and hereby is GRANTED; and it is

FURTHER ORDERED, that Defendant’s Counterclaim be and hereby is DENIED; and it is

FURTHER ORDERED, that the injunction bond, in the amount of One Thousand Dollars ($1,000.00) shall be returned to Plaintiffs forthwith.


source: Caselaw Access Project

author: ZAMPANO, Senior District Judge.

license: Public Domain

text:
    John C. SCHIRM III, Plaintiff, v. Randolph AUCLAIR, Co-executor of the Estate of John P. Kinsey, and Jack Bair, Co-executor of the Estate of John P. Kinsey, Defendants.
    Civ. A. No. N-83-341 (RCZ).
    United States District Court, D. Connecticut.
    Oct. 26, 1984.

      Hugh I. Manke, Reif & Manke, P.C., New Haven, Conn., Pat E. Morgenstern-Clarren, Cleveland, Ohio, for plaintiff.
    Robert I. Teicher, Gager, Henry & Nark-is, Waterbury, Conn., for defendants.
   RULING ON MOTION TO DISMISS

ZAMPANO, Senior District Judge.

I. FACTS

Plaintiff John C. Schirm III is the former president of Youngstown Container Corp. (“Youngstown”), an Ohio corporation. The defendants Randolph Auclair and Jack Bair are co-executors of the estate of John P. Kinsey, who was the principal shareholder of Youngstown. The present dispute concerns three cognovit promissory notes made by Youngstown in 1973 and 1974 pursuant to renegotiated loans, signed by plaintiff Schirm in his representative capacity. The original principal amount of the notes totaled $202,464.21. The notes named Northern Ohio Bank (“Bank”) as payee, and were secured by Youngstown’s inventory, equipment, and receivables. Although Schirm signed these notes as president of Youngstown, he was also personally liable on them as co-maker under an “Agreement to be Bound” for Youngstown’s debts that Schirm and the Bank entered into in 1971.

Sometime before his death in 1977, Kinsey allegedly removed to Connecticut certain unspecified Youngstown assets that secured the three notes. Within a few months after Kinsey died on July 15, 1977, Youngstown defaulted on the three notes. In the meantime, the Bank had been placed into receivership by state authorities in 1975, and the Federal Deposit Insurance Corporation (“FDIC”) was assigned the three notes in 1978. In 1978, the FDIC sued Youngstown and Schirm on the notes in an Ohio state court, and, pursuant to the notes’ cognovit clauses, judgment for the outstanding amount of the notes, $138,-920.54 plus interest, was entered against Youngstown and Schirm jointly and severally. The judgment was vacated on May 24, 1978, but was reinstated on July 14, 1978, by agreement of Schirm and the FDIC. In that agreement the FDIC agreed first to attempt to recover the amount of the judgment from the estate of Kinsey, before attempting to recover from Schirm any deficiency.

The FDIC filed an action against Kinsey’s estate in United States District Court in Hartford in 1978 to recover the collateral that Kinsey allegedly removed from Ohio, or for $150,000 in damages. FDIC v. Auclair, Civil No. H-78-464 (D.Conn. filed Sept. 11, 1978). The estate, through Auclair and Bair, settled that litigation for $80,000 on November 13, 1981. The Kinsey estate then sold the collateral, and the proceeds of $39,459.26 were applied toward the estate’s settlement of the action. The FDIC then sought to recover the deficiency from Schirm, and on September 24, 1982, Schirm agreed to pay the FDIC $50,000 plus interest in settlement of FDIC’s claim against him. On January 23, 1983, Schirm presented a claim to Kinsey’s estate for the $50,000 he agreed to pay the FDIC. The claim was denied by the defendants on February 23, 1983.

In this action, plaintiff in the complaint’s three counts (1) seeks a declaratory judgment that the estate owes him $50,000, alleging that an indemnity agreement was breached; (2) claims that plaintiff relied to his detriment on an agreement between Kinsey and plaintiff that plaintiff was not to be bound personally on the notes; and (3) alleges that Kinsey converted the collateral, in which plaintiff claims he had rights, when he brought it to Connecticut. Defendants have moved under Fed.R.Civ.P. 12(b)(6) to dismiss the complaint. As to the first two counts, defendants contend that the Connecticut nonclaim statute, Gen.Stat. § 45-205, bars this action. As to the third count, they argue that it is time-barred under Conn.Gen.Stat. § 52-577, which requires that actions for intentional torts, including conversion, be filed within a three-year limitations period. Further, they state as to count three that Schirm had no possessory right to the collateral in question, therefore it could not have been converted as to Schirm by Kinsey.

II. CHOICE OF LAW ISSUES

In this diversity action, the Court must apply the substantive law of Connecticut, including Connecticut’s conflict of law rules. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Brown v. Merrow Machine Co., 411 F.Supp. 1162, 1163-64 (D.Conn.1976). Connecticut follows the “traditional” choice of law rules, so that in contract actions the law of the place of contracting governs substantive issues, Graham v. Wilkins, 145 Conn. 34, 39-40, 138 A.2d 705, 708 (1958), and in tort actions the law of the place of the injury governs substantive issues. Gibson v. Fullin, 172 Conn. 407, 411, 374 A.2d 1061, 1064 (1977).

Although plaintiff labels count two as a tort action, it is' evident to the Court that plaintiff’s first two counts are pure contract causes of action. Since both contracts at issue — an agreement under the law of suretyship to indemnify plaintiff and Kinsey’s separate agreement to hold plaintiff harmless — were entered into in Ohio, the law of that state must govern certain substantive questions to be resolved in ruling on defendants’ motion to dismiss under the Connecticut nonclaim statute. Plaintiff’s amended count three and his materials responding to the motion to dismiss refer to two allegedly tortious acts by different actors: the conversion of Youngstown’s assets by Kinsey in Ohio prior to 1977, and the estate’s failure to act in a commercially reasonable manner when it sold estate assets, presumably in Connecticut, sometime between November 13, 1981, and September 24, 1982, in order to satisfy the FDIC lawsuit pending against it. Because plaintiff’s brief in opposition to the pending motion refers nearly exclusively to acts in Ohio as the basis of liability for count three, Ohio law governs whether plaintiff may maintain an action for conversion.

III. DISCUSSION

The Connecticut nonclaim statute, Gen.Stat. § 45-205(a), provides that a creditor must present his claim against the estate before the time limit set by the probate court, within the statutory limits of three to twelve months from the date of the probate court’s order, or be barred from presenting the claim later.

The purposes of the nonclaim statute were recently repeated by the state Supreme Court in Breen v. Phelps, 186 Conn. 86, 439 A.2d 1066 (1982). The statute is designed to “inform an administrator or executor of what claims may have to be paid out of the estate [citations omitted]; and thereby to permit the speedy settlement of estates.” Id. at 101, 439 A.2d at 1076.

However, not all claims must be presented within the general period required by § 45-205(a), because actual claims may not exist during that time. Section 45-205(b) governs claims against the estate that were contingent while the estate was open. That section provides in pertinent part:

when a right of action [against an estate] accrues after the time limited for the presentation of claims, it shall be exhibited within four months after such right of action accrues and shall be paid out of the estate remaining after the payment of the debts exhibited within the time limited.

Gen.Stat. § 45-205(b). The rationale of § 45-205(b) is that when the liability of the estate “depends on some future uncertain event the claim is contingent and its presentation would not ‘hasten the final settlement of the estate, or in any way advance the interests of those who are to enjoy the estate.’ ” Breen, 186 Conn. at 103, 439 A.2d at 1077 (quoting Bacon v. Thorp, 27 Conn. 251, 260 (1858)).

For the purpose of determining whether a claim is. contingent under the nonclaim statute, Connecticut courts quite logically equate the word “claim” in § 45-205(b) with the term “cause of action.” Indeed, § 45-205(b) specifically provides that a claimant has four months after “a right of action accrues” in which to present the claim. In Ryder v. Hertz Corporation, 29 Conn.Sup. 9, 269 A.2d 32 (1970), the lessor of an automobile (Hertz) was sued by individuals who were injured while its automobile was being driven by a lessee who died before the injured parties instituted their lawsuit against Hertz. Hertz impleaded the estate of the lessee, but the estate argued that the lessor failed to present its claim in a timely manner under § 45-205(a). The court rejected the estate’s argument, determining that Hertz’ claim for indemnity was not barred by the statutory period of § 45-205(a). The court noted that “[a] right of action does not attach until the cause of action comes into being.” Id. at 12, 269 A.2d 32. The court held that Hertz’ claim was contingent while the estate was open:

It is clear that within the period designated by the Probate Court for the presentation of claims no litigation had been instituted against Hertz by the (injured plaintiffs). While, by virtue of its ownership of the leased vehicle at the time of the accident and within that period, there did exist potential liability on the part of Hertz upon the commencing of a suit ... and, in that event, the further possibility of an assertion of a claim by the Hertz against the executor, the possibility of the occurrence of these , events did not invest Hertz with a ‘claim’ within the meaning of the statute.

Id. at 11, 269 A.2d 32.

Other states follow the same approach, holding that a person does not have a “claim” against an estate until he has a “cause of action” against it. See Turner v. Meek, 225 Ark. 744, 284 S.W.2d 848, 850 (1955) (distinguishing feature of contingent claim is that a cause of action has not accrued); In re Shaw’s Estate, 340 So.2d 491, 492 (Fla.App.1976) (claim contingent when liability of estate depends on future event which may or may not happen, and which makes it wholly uncertain whether there will ever be liability); National Bank of Detroit v. Voigt’s Estate, 357 Mich. 647, 99 N.W.2d 504, 507 (1959) (contingent claim is one which does not exist but which may possibly hereafter arise); Helliker v. Bram, 277 S.W.2d 556, 561 (Mo.1955) (distinguishing feature of contingent claim is that cause of action has not yet accrued).

Under this approach, the Court must determine when plaintiff’s various claims first arose, under' Ohio law, in order to apply the Connecticut' nonclaim statute.

1. Count One

Although the complaint in count one does not state explicitly on what legal theory plaintiff is basing his cause of action, the parties have briefed the question as one of indemnification. Therefore, the initial issue to be decided is at what point in time plaintiff first could claim that he had a right to indemnification.

Resolution of this question requires an application of the law of suretyship. Plaintiff Schirm agreed by contract to be primarily liable for Youngstown’s debts, therefore he was Youngstown’s surety. Plaintiff alleges that because Kinsey did not respect corporate formalities, Kinsey was personally responsible for the liabilities. of Youngstown. Therefore, plaintiff contends that he has the same surety-rights against Kinsey’s estate as he had against Youngstown.

As in any surety situation, this case involves three basic contracts: first, the obligation between the debtor (Youngstown and Kinsey) and the creditor (Northern Ohio Bank and the PDIC) based on the debt; second, the surety’s promise to the creditor to back up the underlying obligation of the debtor (plaintiff’s 1971 “Agreement to be Bound”); and third, the promise of the debtor to reimburse the surety if the surety is required to pay the creditor based on the second contract. The Court must assume for the purposes of this motion that plaintiff will be able to show that there was such an agreement between plaintiff and the debtor, either express, implied or created by operation of law.

A surety generally has the right of reimbursement when he pays the debt of another. Under the common law and Ohio case law, until the surety actually pays all or part of the debt, he may not bring an action for indemnification against the debtor. Maryland Casualty Co. v. Gough, 146 Ohio St. 305, 65 N.E.2d 858, 865 (1946); Henderson-Achert Lithographic Co. v. John Shillito Co., 64 Ohio St. 236, 60 N.E. 295, 299 (1899); Barger v. Gething, 39 O.L.A. 221, 42 O.L.A. 485, 52 N.E.2d 94, 95 (1943). See also Wicker v. Hoppock, 6 Wall. 94, 73 U.S. 94, 99, 18 L.Ed. 752 (1867) (surety cannot recover under indemnification contract “until he is actually damnified”); Bishoff v. Fehl, 345 Pa. 539, 543, 29 A.2d 58, 59-60 (1942); Savings Bank of Manchester v. Kane, 35 Conn.Sup. 82, 84, 396 A.2d 952 (C.P.1978). Cf. American Oil Co. v. Valenti, 179 Conn. 349, 394, 426 A.2d 305, 308 (1979) (right of indemnification a separate cause of action for purposes of statute of limitation); Republic-Franklin Ins. Co. v. Progressive Casualty Ins. Co., 45 Ohio St.2d 93, 341 N.E.2d 600, 602 (1976) (surety who actually pays has right to reimbursement). As Stearns notes in Law of Suretyship (J. Elder 5th ed. 1951):

[A] cause of action against the principal does not arise until the promisor [surety] makes payment of the debt. It is not necessary for the surety to pay the entire debt. An indemnity may be enforced upon part payment to the extent of the amount paid, and, if the debt is paid by installments, action may be brought for each installment as it is paid.

Id. § 11.37, at 514. See also Restatement of Security § 104(1).

Two courts have expressly determined, in eases sufficiently similar to this case to be helpful, that a surety’s claim for indemnification against a debtor was merely a “contingent claim” before the surety actually paid the creditor. In Keifer v. Kissell, 83 Ohio App. 133, 75 N.E.2d 692 (1947), the plaintiff estate of an individual paid the amount due on a note on which the individual was a surety for the debtor defendant. The claim for indemnity was presented to the debtor’s estate the day after the surety’s estate paid the creditor, but eight months after the estate was closed. The court held that the surety’s claim for indemnification before he actually paid the debt was contingent, and allowed the claim. The court reasoned, “[n]o cause of action accrued to the plaintiff until payment was made by the [plaintiff surety's] estate.” Id. at 694.

Curley v. Hand’s Estate, 53 Vt. 524 (1881), involved interpretation of a statute that expressly provided for presentation of contingent claims after estates were closed. The statute is not identical to the Connecticut statute, but the court’s definition of “contingent claim” is enlightening.

In Curley an individual made a note payable to the plaintiff, and the plaintiff endorsed the note to Bellows, thereby becoming secondarily .liable on the note. The maker and Bellows then died, but Bellows’ estate did not present the note to the maker’s estate. The plaintiff endorser apparently paid the.note’s holder, Bellow’s estate, and he submitted a claim for indemnity against the maker’s estate. He asked that his liability as an endorser be considered contingent so as to allow consideration of the claim although the estate was closed. The court determined that the plaintiff had a contingent claim that could be presented:

An indorser stands in substantially the same relation to the debt [of a decedent] as a surety so far as concerns the element of contingency. He is liable to the holder, yet has no absolute claim against the estate of the maker until he pays the note. His claim is contingent upon the enforcement of the note against him. Therefore it is plainly within the spirit and the just object of the statute, and within the definition of a contingent claim as given in Sargent’s Adm’r v. Kimball’s Adm’r, 37 Vt. 320, [where it is said], “A contingent claim is where the liability depends upon some future event which may or may not happen, and therefore makes it wholly uncertain whether there ever will be a liability.”

Id. at 525-26. The court explained that “the future event on which the liability depends would be enforcement of the note against the [surety], which may or may not happen. If it does, the indorser should be reimbursed out of the estate.” Id. at 526. The court added that the “principal owes nothing to the surety until the latter has paid the debt. The liability to the surety is contingent upon payment by him.” Id. at 525. For a nearly identical case under the Connecticut nonclaim statute, see Meriden Steam Mill Lumber Co. v. Guy, 40 Conn. 163, 168-69 (1873) (cause of action against maker of note accrued to endorser upon actual payment of note to holder, and action not barred by nonclaim statute).

Applying these principles of surety-ship law to the Connecticut nonclaim statute, plaintiff’s claim was timely presented. Plaintiff’s claim for indemnification against the estate was not only “contingent” prior to September 1982, it was nonexistent. A claim on a right to reimbursement could not have been brought before that date. Before plaintiff could ask the estate to be reimbursed, he must have disbursed some amount, and the fact that plaintiff had a judgment against him in 1978 is not a disbursement that would have given him a right of indemnification.

Moreover, application of the nonclaim statute in a situation involving the potential liability of a debtor’s estate for indemnity on a surety contract would not further the statute’s aims, which are “to inform an administrator or executor of what claims may have to be paid out of an estate [citations omitted]; and thereby to permit the speedy settlement of an estate.” Breen, 186 Conn. at 101, 439 A.2d at 1076. Before plaintiff paid the creditor in 1982, the estate’s potential liability in an action for indemnification might have been as little as nothing, or as high as $138,920.54. If plaintiff had submitted a claim encompassing that range before 1982, a “speedy resolution” of the estate would have been impossible, because the claim was not “sufficiently definite and appreciable to be capable of a just adjudication.” Bacon, 27 Conn. at 260. As the Connecticut Supreme Court noted in Breen, permitting this action might require redistribution of the estate, but “[t]he distribution of an estate would not be an insurmountable barrier to a recovery on an after-accruing claim.” 186 Conn. at 104, 439 A.2d at 1077.

Plaintiffs claim for indemnification arose on September 22, 1982, and it was timely presented to the estate within four months pursuant to § 45-205(b). Defendants’ motion to dismiss count one must be denied.

2. Count Two

In count two plaintiff alleges that Kinsey agreed in 1973 or 1974 to hold plaintiff harmless for any personal liability that plaintiff might incur on the notes, and that plaintiff “relied to his detriment on Kinsey’s representation____” Plaintiff refers to this count as based on a tort cause of action, perhaps to take advantage of the tort exception to the nonelaim statute; § 45-205(f). However count two in fact sets forth a contract cause of action. It seems clear that plaintiff is relying on the “promissory estoppel” or “detrimental reliance” theories of contract formation. See Restatement (Second) of Contracts § 90 & comment b. Insofar as plaintiff is alleging an action for breach of contract, it must be determined when the cause of action, if any, arose.

Although Kinsey’s alleged promise was made nearly ten years before plaintiff’s claim on the estate, a breach of contract action may not be maintained on the promise alone. Rather, there must be a breach of the contract before an action will lie. In this case, it could be determined that the estate breached the contract between Kinsey and plaintiff on February 23, 1983, when defendants disallowed plaintiff’s claim. Until plaintiff was refused the benefit of his purported agreement with Kinsey, he could not have maintained a breach of contract action. Therefore count two also is not barred by the Connecticut nonclaim statute, § 45-205(b).

3. Count Three

The basis of count three appears to be plaintiff’s contention that Kinsey wrongfully converted, or “took dominion and control over Youngstown’s assets,” sometime before 1977. Those assets, of course, were the security for the three notes. Plaintiff claims that he had a “superior property right with respect to said collateral since he personally guaranteed the payment of said loans,” therefore he should be able to maintain a conversion action. The issue the Court must consider is what rights, if any, plaintiff as a surety had in the debtor Youngstown’s assets before he paid part of the debt.

All parties agree that under Ohio law the plaintiff in a conversion action must show that he had the right to present possession of the property in question. See General Motors Acceptance Corp. v. Birkett L. Williams Co., 17 Ohio Misc. 219, 243 N.E.2d 882, 891 (1969). Plaintiff contends he had the right of possession on September 24, 1982, when he paid the creditor FDIC and was subrogated to the creditor’s rights against the collateral.

As discussed above, plaintiff must be considered a surety. The 1971 “Agreement to be Bound” did not expressly give plaintiff rights in Youngstown’s assets. If plaintiff ever had any rights to the eollateral, his rights were those of a common law surety.

If a surety pays part or all of a debt to a. creditor, the surety is subrogated to the creditor’s rights in any collateral that secures the debt. See Stearns, supra, § 11.4. In this case, at the time plaintiff claims he was subrogated to the creditor’s interest in the collateral, the creditor had no interest in it whatsoever. Apparently the creditor had previously consented to a sale of all of the collateral between November 13, 1981, and September 24, 1982, in order to help pay off the debt.

Plaintiff alleges that the sale of the collateral by the estate was “commercially unreasonable.” If that is so, his claim that the collateral was impaired should have been against the creditor to be released from his suretyship. Id. § 6.49. Plaintiff has no tort remedy or subrogation remedy against the debtor under suretyship law on the facts that he has alleged. Plaintiff’s amended count three, therefore, must be dismissed.

IV. ORDER

Defendants’ motion to dismiss counts one and two of the complaint is DENIED. Defendants’ motion to dismiss count three of the complaint as amended is' GRANTED.

      . In a suit in connection with this matter filed by the FDIC in United States District Court in Connecticut in 1978, the FDIC alleged that Kinsey removed the assets to Connecticut in 1975. See FDIC v. Auclair, Civil No. H-78-464, complaint at ¶ 16 (D.Conn. filed Sept. 11, 1978).

      . Under his agreement with the FDIC, Schirm was to pay $20,000 at the time he accepted the FDIC’s settlement offer, and $1,454.60 monthly for 24 months. Under the terms of the agreement Schirm will have fully paid in October 1984.

      . In addition, plaintiff contends in count three that the estate failed to sell those assets in a commercially reasonable manner in satisfying the settlement of the 1978 judgment.

      . Ohio law makes an exception to this rule in certain circumstances not relevant here. See Ohio Rev.Code Ann. § 1341.20 (Page 1979).

      . Plaintiff did not have a right of indemnification until September 1982, but he may have had the statutory and equitable right under Ohio law to compel the debtor to pay the debt when it became due. See Williamson v. Rubich, 79 O.L.A. 405, 156 N.E.2d 138, 140 (1957); Ohio Rev.Code Ann. § 1341.19 (Page 1979). This is the familiar common law right of exoneration. See Restatement of Security § 112. Sureties, however, have rights to both indemnification and exoneration; they are by no means exclusive.
      Defendants’ reliance on Roth v. Ravich, 111 Conn. 649, 151 A. 179 (1930) in support of their argument that plaintiffs indemnification claim was not contingent after the 1978 action brought by the FDIC was resolved, is misplaced. The court in Roth determined that a note for a sum certain due on a particular date was an existing claim, rather than a contingent claim, against the estate of the maker’s successors. The court determined that unmatured debts were “existing obligations and capable of proof.” Id. at 652, 151 A. at 180.
      Plaintiff Schirm’s claim for indemnification was not an existing obligation and was not capable of proof before he actually paid the FDIC pursuant to his surety contract. Therefore plaintiff’s claim was not an "unmatured debt" within the ambit of Roth. Defendants are incorrect when they contend that because plaintiff was primarily liable to the debtor following the 1978 judgment, "the liability of Kinsey’s estate to Schirm also became certain on that date.” From April 1978 until September 1982, there was no more than a possibility that Schirm would actually pay the FDIC pursuant to the surety contract.

      . It should be noted, for the sake of consistency, that plaintiff did not "guarantee” payment of the notes; he was primarily liable on the notes, therefore he was a surety.

      . Plaintiff claims that even if the property was converted before 1977, which would seem to prevent a conversion action due to the three-year statute of limitation for torts, Gen.Stat. § 52-577, conversion is a "continuing course of conduct" that tolls operation of the statute. The Court does not need to consider that argument in order to rule on this motion.


author: LYNCH, District Judge.

text:
    Robert JONES, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    No. C-84-0605 EFL.
    United States District Court, N.D. California.
    Oct. 26, 1984.
    Kim Malcheski, Malcheski, Parker & Randolph, San Francisco, Cal., for plaintiff.
    George C. Stoll, Asst. U.S. Atty., San Francisco, Cal., for defendant.
   MEMORANDUM DECISION

LYNCH, District Judge.

Claimant brought this action, pursuant to sections 205(g) and 1631(c)(3) of the Social Security Act, 42 U.S.C. §§ 405(g), 1383(c)(3), to review the final decision of the Secretary of Health and Human Services (“Secretary”) denying claimant’s application for disability benefits. This matter is before the Court on claimant’s motion for summary judgment or remand, and defendant’s cross-motion for summary judgment.

On May 29, 1981, claimant filed applications for disability insurance benefits and supplemental security income benefits (TR: 71-74, 82-83). The applications were denied initially and on reconsideration by the Social Security Administration. On July 8, 1983 the Administrative Law Judge (“ALJ”) issued a written decision affirming the Secretary’s denial of benefits. The AU’s decision became the final decision of the Secretary when it was approved by the Appeals Council on January 20, 1984.

STATEMENT OF FACTS

Claimant was born on June 24, 1934. From 1957 to 1978 he held a number of different positions, including assistant foreman of shipping and receiving at Blue Ribbon Coffee Company, and order filler, coffee roaster, and forklift operator at Superi- or Coffee Company.

Mr. Jones’ physiological problems are the result of two serious accidents. In 1977, he suffered a slipped disc at work when he lost his balance while lifting. His physician prescribed drug and physical therapy in lieu of surgical treatment. As a result of this injury, Mr. Jones did not work between October 1977 and May 1978. He returned to work briefly in May 1978 but left after two months because of continuing disabling pain. The claimant’s second accident, in May 1981, was in an automobile. Mr. Jones seriously fractured his left knee and tore his medial collateral ligament. His injuries required surgery on both his knee and hip.

Mr. Jones’ injuries continue to cause him significant pain and discomfort. During the hearing, he testified that his back injury still causes numbness in his legs (TR: 51) and makes it difficult for him to stand or walk (TR: 50). He also stated that he can only sit for one hour and stand for thirty minutes before his back and left knee become stiff and painful (TR: 63). In addition, he complained of trouble sleeping, and constant depression.

The medical evidence presented at the hearing consisted of three reports: an orthopedic evaluation, a psychological evaluation, and a Social Security Disability Determination.

On August 26, 1981, Dr. William Ross conducted an orthopedic evaluation. This examination revealed that the claimant walked with a slight limp and that he had tenderness in the lower lumbosacral region with no muscle spasm or abnormal curvature (TR: 154). Dr. Ross also found that claimant suffered from a decreased range of motion in his knee, secondary to pain from approximately zero degrees to ninety-five degrees. He concluded that the claimant would require a cane or crutches for not more than ten to twelve months from the time of his knee surgery. He felt that with rehabilitation, his knee and back could “conceivably” become functional within six months. He recommended that Mr. Jones be reevaluated in six months to determine his employability status. From the record before the court, it appears that the claimant never received a reevaluation.

Mr. Jones underwent a psychological evaluation on November 12, 1982 by Dr. Stephen Karr, a licensed psychologist. Dr. Karr stated that the claimant has a full scale IQ of 76, placing him in the borderline range of intelligence. Results of projective testing showed a depressive, neurosis with alcohol addiction and soft signs of an organic brain syndrome. Performance on the Bender-Gestalt test suggested a minimal cerebral dysfunction. Dr. Karr gave a “guarded” prognosis (TR: 167) and stated that “independent employment would likely be difficult in view of the complex nature of this man’s difficulties.” (TR: 167).

The Social Security reviewing physician stated on January 19, 1982 that claimant’s condition allowed him to perform only sedentary work, as he could lift a maximum of ten pounds and stand and walk only occasionally. This physician further noted that claimant could no longer perform his former job as a forklift operator and laborer (TR: 92).

After reviewing the medical records and claimant’s testimony, the ALJ made the following findings and conclusions in pertinent part:

(3) The claimant has the following impairments): chronic low back pain, status post surgery for a left knee fracture, and depressive neurosis.

(4) The claimant’s allegations of disabling pain are found not credible.

(5) The claimant does not have any impairment or impairments which significantly limit his ability to perform basic work-related functions; therefore, the claimant does not have a severe impairment. (20 C.F.R. 404.1521 and 416.921)

(6) The claimant can perform his past work as a forklift operator.

(7) The claimant was not under a “disability” as defined in the Social Security Act, at any time through the date of this decision. (20 C.F.R. 404.1520(c) and 416.-920(c))

DISCUSSION

The issue before this Court is whether the AU’s finding that claimant’s disability was not severe is supported by substantial evidence. “The findings of the Secretary are subject to reversal or remand if they are not supported by such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1971) (quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 216, 83 L.Ed. 126 (1938)). Moreover, even though the findings may be supported by substantial evidence, the Court must consider whether the ALT applied the proper legal standards in weighing the evidence and making the decision. Flake v. Gardner, 399 F.2d 532, 540 (9th Cir.1968); Karp v. Schweiker, 539 F.Supp. 217, 219 (N.D.Cal.1982).

The AU found that the claimant’s impairments were not “severe” based on the medical evidence presented at the hearing. According to 20 C.F.R. §§ 404.1521 and 416.921, an impairment falls within the category of “not severe” only if it does not significantly limit claimant’s physical or mental abilities to do basic work activities. Basic work activities are defined as the abilities and aptitudes necessary to do most jobs. Examples of these abilities include physical functions such as walking, standing, sitting, lifting, pushing, pulling, and carrying; as well as mental functions such as understanding and carrying out simple instructions, use of judgment, and responding appropriately to work situations.

The “non-severe” regulation is extremely limited in scope. The 1980 recodification of the severity regulation does not change earlier expressions of the Secretary’s intent as to the level of severity needed for a finding of not disabled on the basis of medical considerations only. Brady v. Heckler, 724 F.2d 914, 920 (11th Cir.1984). The 1980 regulation only clarifies the previous regulatory terms “slight neurosis, slight impairment of sight or hearing, or other slight abnormalities or combination of abnormalities.” 43 Fed.Reg. 55,357-58 (1978). In other words, “an impairment can be considered as ‘not severe’ only if it is a slight abnormality which has such a minimal effect on the individual that it would not be expected to interfere with the individual’s ability to work, irrespective of age, education, or work experience.” Brady, 724 F.2d at 920 (quoting a document promulgated by the Social Security Appeals Council entitled Appeals Council Review and Sequential Evaluation Under Expanded Vocational Regulations (1980)).

Under this definition of non-severe impairment, it is clear that the AU’s determination that Mr. Jones was not suffering from a severe impairment is not supported by substantial evidence. The medical reports submitted in this case indicate that several of claimant’s basic abilities, i.e., lifting, walking, bending, and concentrating, are significantly limited. Dr. Karr’s psychological report notes that Mr. Jones has “minimal insight”, difficulties in both concentration and attention, depression, alcohol addiction, and a possible cerebral dysfunction (TR: 166-67). Dr. Ross’ medical report states that claimant has chronic low back pain, a decreased range of motion in his back and knee, and experiences pain at the extremes of motion (TR: 154-55). Even the Secretary’s reviewing physician states that claimant can lift a maximum of ten pounds and can only walk or stand occasionally. He concludes that Mr. Jones can no longer do his past work and would be limited to sedentary work (TR: 92).

These assessments of Mr. Jones’ impairments show that they significantly limit his physical and mental abilities to do basic work activities. Under the regulations, as articulated by Brady, Mr. Jones must be considered severely impaired. The AU's conclusion to the contrary is not supported by substantial medical evidence.

The decision of the AU was based on his erroneous finding of non-severity. Questions relating to actual disability, therefore, were not reached. We find that the AU’s finding of a non-severe impairment is not supported by substantial evidence and on this basis the finding is reversed. Further, the case is remanded to the Secretary to evaluate the claim under the remaining steps in the sequential evaluation mandated by the regulations. In particular, the AU should consider whether the evidence is sufficient to support a conclusion that Mr. Jones’ impairments preclude him from performing his past work, and, if so, whether the Secretary carried the burden of showing that there is work available in the national economy that Mr. Jones can perform.

IT IS SO ORDERED.


author: GENE CARTER, District Judge.

text:
    John F. XAPHES, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC., Tucker Anthony & R.L. Day, Inc. and Mark B. Billings, Defendants.
    Civ. No. 80-0132-P.
    United States District Court, D. Maine.
    Oct. 29, 1984.
    See also, D.C., 102 F.R.D. 545; D.C., 102 F.R.D. 962.

      John J. O’Leary, John S. Upton, Jeffrey D. Curtis, Kevin Gordon, Portland, Me., for plaintiff.
    Thomas H. Allen, Richard A. Carriuolo, Drummond, Woodsum, Plimpton & MacMahon, Portland, Me., for Merrill Lynch, Pierce.
    P. Benjamin Zuckerman, Charles Kadish, Verrill & Dana, Portland, Me., James E. McGuire, Warren D. Hutchinson, Brown, Rudnick, Freed & Gesmer, Boston, Mass., for Tucker, Anthony & R.L. Day, Inc.
    Thomas Schulten, Priscilla F. Gray, Thomas Wheatley, Perkins, Thompson, Hinckley & Keddy, Portland, Me., for Mark B. Billings.
   MEMORANDUM AND ORDER ON DEFENDANTS’ JOINT MOTION TO DISMISS MAINE BLUE SKY CLAIMS, 1933 ACT SALES CLAIMS, AND SECTION 17(a) CLAIMS

GENE CARTER, District Judge.

With this motion Defendants seek to dismiss (1) the Maine blue sky law claims asserted in Counts III, IV and XIV; (2) the claims brought under § 12(2) of the Securities Act of 1933 (15 U.S.C. § 111 (2)) set forth in Counts I and II insofar as they are based on sales by Plaintiff of options and other securities; and (3) the claims under § 17(a) of the 1933 Act (15 U.S.C. § 77q(a)) asserted in Count XIII; and, in the alternative, the claims under the Maine blue sky law and § 17(a) of the 1933 Act insofar as they are based on sales by Plaintiff of options or other securities.

A. The Blue Sky Claims

Defendants argue first that the Maine blue sky law, as it existed in the periods relevant to this action, 32 M.R.S.A. § 881 (1978), did not provide a cause of action by customers against their brokers. The actions of Defendants allegedly violating the blue sky law span the period from 1976-1980. During that time the blue sky law provided civil liability as follows:

1. Liabilities. Any person who
B. Offers or sells a security ... by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, the buyer not knowing of the untruth or omission, and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission, is liable to the person buying the security from him____

Defendants argue that any person who “[ojffers or sells” did not encompass brokers. In support of their argument they point to the subsection of § 881 added by the 1981 amendment, which provides:

Every person who directly or indirectly controls the seller liable under paragraph A or B, every partner, officer or director of the seller, every person occupying a similar status or performing similar functions, every employee of the seller who materially aids in the sale, and every dealer or agent who materially aids in the sale is also liable jointly and severally with and to the same extent as the seller, unless the non-seller who is so liable sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.

Defendants contend that the specific addition of a section detailing liability for persons who had not been specifically named before is evidence that such liability was not. previously available. The Court agrees with this analysis. Contrary to Plaintiff’s assertion that the new section merely added a defense, the statement of fact accompanying Pub.L.1981, ch. 448, § 24, which is codified as the 1981 amendment to § 881, explicitly states that

The law regarding civil liabilities would be amended to broaden the section by spelling out that persons controlling the issuer or seller may also be liable. This is essentially Uniform Securities Act language.

L.D. 841, Statement of Fact, § 24 (110th Legis.1981) (emphasis added). Because the amendment represents a specific broadening of the previous section, it is fair to assume too that no such liability for dealers previously existed.

This conclusion is bolstered by the language of the amendment itself. That language demonstrates that previous liability had extended to sellers: “Every person who directly or indirectly controls the seller liable under paragraph A or B.” While Plaintiff invites the Court to use the statutory definitions to squeeze brokers into the category of sellers, the amendment makes clear that such liability was not previously intended. After its listing of persons now liable, including “a dealer or agent who materially aids in the sale,” the statute refers to the enumerated persons as “the nonseller so liable.” Since the statute refers to a dealer in this context as a nonseller, he cannot at the same time be “a seller liable under paragraph A or B.”

Plaintiff argues that this Court’s decision in Murphy v. Cady, 30 F.Supp. 466 (D.Me.1939), aff'd 113 F.2d 988 (1st Cir.1940), demonstrates that brokers are subject to civil liability for violations of the blue sky law. In Murphy, the Court determined that language in Section 12(2) of the 1933 Securities Act, which is very similar to that of the pre-amendment blue sky law, set forth a cause of action against brokers. Although this Court would, of course, follow its determination in Murphy concerning liability in cases brought under Section 12(2) of the federal act, it cannot accept Plaintiff’s assertion that construction of a federal act compels the same construction of a similar state statute. This is particularly so where the language of the statute and the legislative documents surrounding it suggest that the federal construction does not apply.

Since brokers were not subject to civil liability for violation of the Maine blue sky law before 1981, Plaintiff’s allegations of dealer violations between 1976 and 1980 fail to state a claim for which relief can be granted under that statute. Therefore, the blue sky claims asserted in Counts III, IV, and XIV must be dismissed.

B. Claims Brought Under § 12(2) of the Securities Act of 1933

Defendants contend that Plaintiff may not sue under Section 12(2) of the 1933 Act for fraud alleged in sales by him. They rely on Dyer v. Eastern Trust & Banking Co., 336 F.Supp. 890, 910 (D.Me.1971), in which Judge Gignoux stated that “[o]nly purchasers have standing to sue for violations of Section 12(2) of the Securities Act.” The instant complaint alleges both purchases and sales of securities. Plaintiff asserts instead that he purchased investment contracts from Defendants, which consisted of discretionary options trading accounts, by means of which, in turn, securities were both bought and sold. As purchaser of an investment contract, which is defined in 15 U.S.C. § 77b as a security, he contends that he may bring suit under § 12(2), which provides for liability for fraud for “any person who ... (2) offers or sells a security.”

In order to determine whether an options trading account is an investment contract, the parties agree that the Court must apply the three-part test first enunciated by the Supreme Court in Securities and Exchange Commission v. Howey Co., 328 U.S. 293, 301, 66 S.Ct. 1100, 1104, 90 L.Ed. 1244 (1946) and determine “whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.”

The parts of the test requiring that there be an investment of money and that the profits come solely from the efforts of others are clear-cut and in general require just an application of the facts of the particular case. The element requiring that there be a common enterprise has engendered considerable litigation and is the primary element of dispute in this case. Some courts have required that for a common enterprise to exist there must be horizontal commonality,, or a pooling of the interests of investors. See, e.g., Milnarik v. M-S Commodities, Inc., 457 F.2d 274 (7th Cir.1972); Curran v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 622 F.2d 216 (6th Cir.1980). There has been no allegation of such a pooling of interests in this case. Another line of cases requires vertical commonality. Relying on Alvord v. Shearson Hayden Stone, Inc., 485 F.Supp. 848 (D.Conn.1980), Plaintiff contends that vertical commonality requires only that there be a one-to-one relationship between an investor and an investment manager. He states that such a relationship meets the requirement established by the majority of other courts, that vertical commonality is present when the “fortunes of the investor are interwoven with and dependent upon the efforts and success of those making the investment.” Holtzman v. Proctor, Cook & Co., Inc., 528 F.Supp. 9 (D.Mass.1981) (quoting Securities and Exchange Commission v. Glenn Turner Enterprises, Inc., 474 F.2d 476, 482, n. 7 (9th Cir.1973); see also Brodt v. Bache & Co., Inc., 595 F.2d 459, 461 (9th Cir.1978); Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. 1225 (S.D.N.Y.1981). Although the First Circuit has not spoken on the issue, the District Court for Massachusetts has adopted a narrower view of vertical commonality, finding that the broader view urged by Plaintiff here “eliminates the common enterprise element from the Howey test.” Holtzman, 528 F.Supp. at 16; see also Kaufman v. Magid, 539 F.Supp. 1088 (D.Mass.1982). This Court agrees with that assessment and with the conclusions of the Massachusetts court in those two cases that investment on a commission basis alone is not enough to establish vertical commonality. See Brodt v. Bache & Co., Inc., 595 F.2d at 461. Plaintiff here has alleged that he paid commissions and interest on his accounts to Merrill Lynch and Tucker Anthony. He has not alleged anything else which demonstrates that his fortunes were in any way interwoven with those of his brokers. He cannot, therefore, establish vertical commonality. Since Plaintiff cannot meet the common enterprise requirement set forth in Howey, he has not shown that he bought an investment contract, or security, from. Defendants as required by the statute. Therefore, to the extent that Plaintiff’s complaint alleges transactions that were sales by him rather than purchases, he has failed to state a claim against Defendants under Section 12(2) of the 1933 Act.

C. The Claims Brought Under § 17(a) of the 1933 Act

Finally, Defendants contend that the claims made in Count XIII under Section 17(a) of the 1933 Act should be dismissed because there is no private cause of action under that section. In 1971 this Court found that

[t]he argument, based upon legislative history and statutory construction, is persuasive that Section 17(a) was intended only to afford a basis for injunctive relief and, if willfulness is present, for criminal liability, and was not intended to provide a civil remedy for damages supplementing that afforded by Section 12(2).

Dyer v. Eastern Trust and Banking Co., 336 F.Supp. 890, 904 (D.Me.1971) (Gignoux, J.). Since 1971 other district courts in the First Circuit have similarly found no private right of action under Section 17(a), Kaufman v. Magid, 539 F.Supp. 1088, 1097-98 (D.Mass.1982); Manchester Bank v. Connecticut Bank & Trust Co., 497 F.Supp. 1304, 1314 (D.N.H.1980), but the First Circuit has expressly declined to decide the issue, noting the split among the circuits.

Although well aware of the conflicting views concerning this important question, the Court is unpersuaded that there is adequate reason to abandon Judge Gignoux’s well-reasoned conclusion in Dyer. The rationale for that conclusion was recently reiterated approvingly by Professor Loss in his new treatise, Fundamentals of Securities Regulation, at 1148 (1983). The Court holds that the parts of Count XIII alleging claims against Defendant under Section 17(a) must be dismissed.

Accordingly, it is ORDERED that:

(1) Defendants’ joint motion to dismiss the blue sky law claims set forth in Counts III, IV and XIV be, and is hereby, GRANTED, and Counts III, IV, and XIV are hereby DISMISSED;
(2) Defendants’ motion to dismiss those claims in Counts I and II, brought under Section 12(2) of the 1933 Act which pertain to sales by Plaintiff, be, and is hereby, GRANTED, and those claims are hereby DISMISSED; and
(3) Defendants’ motion to dismiss those claims in Count XIII brought under Section 17(a) of the 1933 Act be, and is hereby, GRANTED, and those claims are hereby DISMISSED.

So ORDERED.

      . As Defendants explain, and Plaintiff apparently concedes, the statute in effect at the time of the alleged violations governs this action. Although the 1981 amendment specifically includes dealers, that provision should not be applied retroactively since it affects substantive rights and there is no expressed intent of the legislature to have it so apply. See Michaud v. Northern Maine Medical Center, 436 A.2d 398 (Me.1981); Opinion of the Justices, 370 A.2d 654, 668 (Me.1977).

      . Plaintiff has argued that Defendants failed to assert as an affirmative defense that dealers are exempted from liability under the statute and that they have, therefore, waived that defense. To call Defendants' response an affirmative defense is a mischaracterization, however. Defendants properly asserted in their answer that the complaint failed to state a claim upon which relief could be granted, and the Court has so found.

      . The First Circuit has not yet expressed its view on the proper test for a common enterprise under Howey. Since the Court finds that Plaintiff could meet neither, it is not necessary to decide the issue.

      . Plaintiff contends that the holding of Dyer is narrower and that Judge Gignoux held only that there was no private right of action under the circumstances of that case. Although the case is susceptible to that reading, the long and involved discussion of the possibility of a private right of action makes clear that the broader interpretation is correct. Moreover, the First Circuit has cited Dyer for the proposition that no private right of action exists. Cleary v. Perfectune, Inc., 700 F.2d 774, 779 (1st Cir.1983).