author: GETZENDANNER, District Judge:

text:
    WATER QUALITY ASSOCIATION EMPLOYEES’ BENEFIT CORP., Plaintiff, v. UNITED STATES of America, Defendant.
    No. 83 C 6048.
    United States District Court, N.D. Illinois, E.D.
    March 28, 1985.

      Robert E. Arroyo, of Keck, Mahin & Cate, Chicago, 111., for plaintiff.
    Terri E. Shapiro, Dept, of Justice, Washington, D.C., Edward J. Moran, Asst. U.S. Atty., Chicago, 111., for defendant.
   MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

This action for a refund of federal taxes, brought pursuant to 28 U.S.C. § 1346(a), is before the court on the cross-motions for summary judgment of plaintiff Water Quality Association Employees’ Benefit Corporation (“the Corporation”) and defendant United States of America. In this action, the Corporation claims entitlement to a tax refund for taxes paid in 1981 by it and its predecessor, the Water Quality Employees’ Benefit Trust (“the Trust”). At issue on these motions is the validity of Treas.Reg. § 1.501(c)(9)-2(a)(l). Should the regulation be found valid, full summary judgment in favor of the government will be warranted. If the regulation is found invalid, however, the Corporation will need to show other facts before prevailing. Hence, the Corporation’s motion for summary judgment is in the nature of a motion for partial summary judgment.

FACTUAL BACKGROUND

The parties agree to the following facts: The Water Quality Association (“WQA”) was founded nearly thirty years ago and is composed of retailers, distributors, suppliers, and manufacturers of point-of-use water conditioning equipment, such as water softeners. WQA’s members are scattered throughout the United States. WQA is a trade association exempt from federal income taxation under 26 U.S.C. § 501(c)(6).

Since each WQA member has on the average of five employees, it was expensive for each member to obtain insurance for its employees. Consequently, WQA established the Trust so that its members could pool their limited insurance premiums and thereby decrease the cost of insurance while increasing the' insurance protection for the member employees. An insurance company was appointed to underwrite the joint purchase of group life and health insurance as well as disability income insurance for WQA member employees and their dependents. The Trust itself has never underwritten the insurance coverage for trust participants, but rather has acted as a conduit, collecting contributions from WQA member participants and paying those contributions to the insurance company as insurance premiums. Only WQA members and their employees were allowed to participate in the Trust.

Over the years, the members benefitted from the underwriting of such a large and homogeneous group. By 1981, over 3,000 individuals were insured through the program. • The Trust paid dividends to participants when the insurance company’s claims and expenses were less than anticipated. Additionally, a portion of the insurance refunds were retained by the Trust and were used to establish a reserve to pay off deficits when they occurred.

Since the trust agreement was drafted to provide for payments only to trust beneficiaries and for necessary administrative expenses, the Trust applied for a federal income tax exemption under 26 U.S.C. § 501(c)(9). Section 501(c)(9) allows an exemption for a “voluntary employees’ beneficiary association” (“VEBA”) established to provide certain insurance benefits. In 1977, the Internal Revenue Service granted the exemption. At that time, the exemption for the Trust was well within the proposed Treasury Regulation defining the scope of VEBAs. On August 1, 1981, the Trust transferred the insurance plan and its assets to the Corporation, which operates the insurance program in exactly the same manner as did the Trust.

The Corporation claims that it, like the Trust, is entitled to the tax exemption provided by § 501(c)(9) since, like the Trust, it is a “voluntary employees’ beneficiary association.” However, on July 17, 1980, the proposed regulation discussed above was withdrawn and on January 8, 1981, a final regulation defining VEBAs was published containing a “same geographic locale” limitation that the parties agree renders the Corporation ineligible for the exemption.

The principal difference between the 1969 proposed regulation (in effect for 12 years) and the 1981 final regulation is the requirement that when employees from employers in the same line of business desire to form a VEBA, the employers must be located in the “same geographic locale.” The Corporation admits that its member employers are not located in the same geographic locale. Hence, if the final regulation is found valid, full summary judgment in the government’s favor would be warranted.

LEGAL DISCUSSION

The question before the court, one of first impression, is whether Treas.Reg. § 1.501(c)(9)-2(a)(l) effectuates the congressional intent of 26 U.S.C. § 501(c)(9). The Internal Revenue Commissioner’s power to prescribe regulations

is not the power to make law — for no such power can be delegated by Congress — but the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. A regulation which does not do this but operates to create a rule out of harmony with a statute is a mere nullity.

Manhattan Co. v. Commissioner, 297 U.S. 129, 134, 56 S.Ct. 397, 399, 80 L.Ed. 528 (1936), quoting, Lynch v. Tilden Produce Co., 265 U.S. 315, 320-22, 44 S.Ct. 488, 489-90, 68 L.Ed. 1034 (1924); Miller v. United States, 294 U.S. 435, 439-40, 55 S.Ct. 440, 441-42, 79 L.Ed. 977 (1935). In Manhattan Co., the Court upheld an amended regulation as effectuating the legislative intent, where the original regulation was “contrary to the intent of the statute.” Id. 297 U.S. at 134, 56 S.Ct. at 399. In the present case, the court must similarly determine whether the “same geographic locale” requirement of Treas. Reg. § 1.501(c)(9)-2(a)(l) effectuates the original congressional intent of 26 U.S.C. § 501(c)(9), or whether it impermissibly exceeds the scope of. that provision by adding “something which is not there.” United States v. Calamaro, 354 U.S. 351, 359, 77 S.Ct. 1138, 1143, 1 L.Ed.2d 1394 (1957).

In determining the validity of a Treasury Regulation, courts have relied on the criteria set forth in National Muffler Dealers Association v. United States, 440 U.S. 472, 99 S.Ct. 1304, 59 L.Ed.2d 519 (1979). See e.g., Strick Corp. v. United States, 714 F.2d 1194, 1197 (3d Cir.1983), cert, denied, — U.S.—, 104 S.Ct. 2345, 80 L.Ed.2d 819 (1984); Max Sobel Wholesale Liquors v. Commissioner, 630 F.2d 670, 672 (9th Cir.1980).

In National Muffler, the Supreme Court considered whether the petitioner was a “business league” within the meaning of 26 U.S.C. § 501(c)(6). The National Muffler Dealers Association claimed that it was a “business league” entitled to tax exempt status. Since the term “business league” had no common definition outside the scope of Treas. Reg. § 1.501(c)(6)-l, the Court determined that the Treasury Regulation “if found ‘to implement the congressional mandate in some reasonable manner’ must be upheld.” National Muffler, 440 U.S. at 476, 99 S.Ct. at 1306, quoting, United States v. Cartwright, 411 U.S. 546, 550, 93 S.Ct. 1713, 1716, 36 L.Ed.2d 528 (1973). This approach recognizes that Congress has delegated to the Secretary of the Treasury and the Commissioner of the IRS, and not to the courts, the task of prescribing all rules and regulations for enforcing the Internal Revenue Code. Among other things, this deference guarantees that rules are written by “masters of the subject” who are responsible for putting the rules into effect. National Muffler, 440 U.S. at 477, 99 S.Ct. at 1307, quoting, United States v. Moore, 5 Otto 760, 763, 95 U.S. 760, 763, 24 L.Ed. 588 (1878).

The National Muffler Court made clear that the central inquiry in determining the validity of a regulation was whether it “carrie[d] out the congressional mandate in a proper manner.” 440 U.S. at 477, 99 S.Ct. at 1307. In making that determination, the Court continued,

we look to see whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose. A regulation may have particular force if it is a substantially contemporaneous construction of the statute by those presumed to have been aware of congressional intent. If the regulation dates from a later period, the manner in which it evolved merits inquiry. Other relevant considerations are the length of time the regulation has been in effect, the reliance placed on it, the consistency of the Commissioner’s interpretation, and the degree of scrutiny Congress has devoted to the regulation during subsequent re-enactments of the statute.

Id. In considering these factors, courts should keep in mind that the Commissioner is the one empowered to makes choices among various reasonable and permissible statutory interpretations. Id. at 488, 99 S.Ct. at 1312. When the Commissioner’s regulation implements the congressional intent behind a provision in “some reasonable manner,” courts are not at liberty to strike down the regulation simply because the taxpayer offers a more attractive statutory interpretation. Rather, Treasury Regulations are normally sustained “unless unreasonable and plainly inconsistent with the revenue statutes.” Commissioner v. South Texas Lumber Co., 333 U.S. 496, 501, 68 S.Ct. 695, 698, 92 L.Ed. 831 (1948) (cited in United States v. Cartwright, 411 U.S. at 557, 93 S.Ct. at 1719).

In National Muffler, the Court upheld the Treasury Regulation in question. In reaching that conclusion, the Court looked at statements submitted in 1913 to the Senate Finance Committee, which drafted the statute which the regulation sought to interpret. Those statements rejected tax-exempt status for organizations like the National Muffler Association. The Supreme Court noted that, while the initial regulation of 1919 could have included appellant, the 1929 regulation made clear that it did not fall within § 501(c)(6). The regulation was viewed as reasonable by the Court, as it simply looked to other enumerated examples of exempt institutions to determine the meaning of “business league.” The Court referred to the admittedly unexplained change in the regulation by noting that

the change in 1929 incorporated an interpretation thought necessary to match the statute’s construction to the original congressional intent. We would be reluctant to adopt the rigid view that an agency may not alter its interpretation in light of administrative experience.

440 U.S. at 486, 99 S.Ct. at 1311. The Court noted further that since 1929, the regulation remained unchanged, despite several reenactments and one amendment of the statute. Id. at 482, 99 S.Ct. at 1309.

The National Muffler Court grappled with the definition of “business league.” In the present case, the court must consider the meaning of “voluntary employees’ beneficiary association.” The Supreme Court was guided in its decision by statutory language and legislative history that provided a reasonable basis for the Commissioner’s regulation. Here, as is revealed by the discussion below, these guides are less clear. Moreover, neither the proposed nor the final regulation can be characterized as a contemporaneous construction entitled to “particular force.”

The statutory provision itself refers simply to “voluntary employees’ beneficiary associations.” Alone, the phrase does not support any geographical limitation, hence the 1969 regulation, which defines a § 501(c)(9) VEBA as members of a “common working unit” such as a “single employer, the employees of one industry, or the members of one labor union.” The absence óf a geographical limitation should be contrasted with the inclusion of such a limitation in § 501(c)(4) (“local associations of employees”), § 501(e)(ll) (retirement funds of “a purely local character”), and § 501(c)(12) (“[bjenevolent life insurance associations of a purely local character”). These provisions suggest that Congress expressly excluded the geographical limitation in § 501(c)(9). However, as is discussed below, the “same geographic locale” limitation does not apply to all VEBAs and hence does not. serve to add a term otherwise missing in § 501(e)(9).

The legislative history of § 501(c)(9) is ambiguous. The predecessor to § 501(c)(9) was enacted in 1928. Revenue Act of 1928, § 103(16), 45 Stat. 814. The court agrees with the Corporation that since that passage, Congress has acted to liberalize the definition of VEBAs. For example, in 1942, Congress allowed both employer and employee contributions to be counted toward satisfying the then-applicable 85% requirement. In 1969, Congress eliminated the 85% requirement and combined § 501(c)(9) and (10). At that time, § 501(c)(10) allowed tax exemptions to VEBAs consisting of officers and employees of the United States. Congress recognized that after the elimination of the 85% requirement in § 501(c)(9), not included at any time in subsection (cj(10), subsection (c)(10) became in fact a subset of (c)(9), and the two could be combined. S.Rep. No. 552, 91st Cong., 1st Sess., reprinted in [1969] U.S.Code Cong. & Ad.News 1645, 2027, at 2098. These changes do not indicate that Congress wanted the most expansive possible definition of VEBA.

The Corporation points out that since 1969, as discussed above, the proposed regulation allowed exemptions for VEBAs composed of “the employees of one industry” and the Trust was found exempt thereunder. Also since 1969, Congress has amended § 501 ten times, without changing § 501(c)(9) or casting doubt on the proposed regulation. Not until 1981 did the “same geographic locale” limitation become law.

The Corporation argues that congressional silence over the 12 year existence of the proposed regulation impliedly affirms that regulation’s validity. However, the government points out similar evidence of congressional acquiescence in the final regulation. In the legislative history of the Tax Reform Act of 1984, the House Report contains a discussion of the current eligibility requirements of VEBAs. The discussion essentially tracks the present language of the final regulation, including the conclusion that an employment-related bond will be found in the case of “employment by one or more employers in the same line of business in the same geographic locale.” H.R.Rep. No. 432, 98th Cong., 2d Sess. 1285 (1984), U.S.Code Cong. & Admin.News 1984, pp. 697, 945. The Report provides the following example: “Under these standards ..., a group of car dealers in the same city or other similarly restricted discrete geographical locale could form a VEBA to provide permissible benefits to their employees.” Id. Neither the Senate nor the Conference Report contains a contrary statement, and the Conference Report generally follows the House Report’s provisions. H.R.Rep. No. 861, 98th Cong., 2d Sess. 1154, 1164 (1984), U.S.Code Cong. & Admin.News 1984, pp. 697, 1445. According to the government, this discussion of the final regulation, while not in the context of an amendment or reenactment of § 501(c)(9), constitutes an implied approval of the Commissioner’s method of implementing § 501(c)(9).

At this point, the court should note that even if congressional inaction and statutory ambiguity support the proposed regulation, that alone would not resolve the question of whether the final regulation is invalid. The Commissioner is empowered to make choices among various permissible regulations. The National Muffler Court clearly pointed out that the Commissioner is held to a standard of implementing the statute in some reasonable manner. An argument that one permissible interpretation is better than another is properly directed not to the courts, but to the agency itself or to Congress. Instead, this court must determine if the final regulation is consistent with congressional intent as expressed in the statute, or if it is inconsistent or otherwise “unreasonable.” The court finds that it is not, and hence the government’s motion for summary judgment is granted.

The final regulation provides that membership in a VEBA must be defined by reference to an “employment-related common bond” among the members. The Corporation does not contest that a test for finding an “employment-related common bond” would be an appropriate method for determining the existence of a VEBA. The court agrees that the finding of an appropriate bond would provide a reasonable method of determining the nature of an “employees’ beneficiary association.” In defining the bond, the final regulation proceeds by example, noting that a common employer or affiliated employers provides such a bond. Additionally, coverage under a common collective bargaining contract or membership in one or more locals of a national or international union provide that employment-related bond. Finally, employees of one or more employers engaged in the same line of business in the same geographic locale share a sufficient bond for purposes of the VEBA exemption. Superficially, these descriptions of bonds sufficient to create an employee beneficiary association are reasonable.

The Corporation argues, however, that there is no justification for the distinction between unionized employees of multiple employers and nonunionized employees of multiple employers. However, the government adequately responds to this distinction. The regulation is directed to drawing a line between memberships with strong employment-related bonds and memberships most strongly related by a desire to obtain insurance rather than a preexisting employment relation. Membership in a union is a strong, preexisting employment-related bond which may be unrelated to the VEBA exemption and thus the desire to obtain lower-cost insurance benefits. However, the employment bond between employees of different employers is much weaker; there may be no bond between them except the desire for insurance. The government may legitimately draw a reasonable line in determining the strength of the employment bond necessary to establish VEBA membership.

The government draws another line, however, that appears more difficult to measure, and that is the line between various nonunionized multiple-employer VEBAs. The final regulation basically recognizes that such a VEBA with employers of the same geographic locale has a membership with a sufficiently strong employment-related bond as to qualify for the exemption. (This tends to undercut the government’s argument that a multiple-employer VEBA is more like a taxable insurance company. The court rejects this argument, at any rate, because the regulations provide the basis for distinguishing between entities that are truly VEBAs and those that are more like insurance companies. See 26 C.F.R. § 1.501(c)(9)-2(c)(3) & 4 [Example 3].) The question before the court thus becomes whether the Commissioner may distinguish among VEBAs based on geography.

The government argues that “[a]t least where employees work for employers engaged in the same geographic locale, they are likely to have something employment related in common other than a mere desire for insurance.” (United States’ Memorandum, filed 6/24/84, p. 14.) It is not clear why living in a similar locality renders two employees of different employers somehow more related in their employment than they would be if employed in different localities. Fortunately for the government, this is not the sole justification for the limitation. The government argues additionally that as a VEBA such as the Corporation gets larger, the interests of third parties in providing administrative services for the provision of insurance coverage increase, and private interests motivated by the desire for profits are thus promoted. The argument continues that a tax exemption should not be employed to benefit private interests motivated by the quest for profits.

The VEBA regulation applicable to multiple-employer employees, thus, seeks to establish among members an employment-related bond that is strong enough to bind members into a true “employees’ association” and that does not provide tax exempt status to organizations constituted substantially of unrelated parties that provide insurance coverage. It may be argued that the regulation’s geographic limitation is an imprecise way to accomplish these twin goals. For example, the bonds among participants in national and local nonunionized multiple-employer VEBAs are probably similar. It is possible that large national employers or employer associations operating under a national collective bargaining contract utilize the services of third-party insurance providers. However, the Commissioner is entitled to make these decisions as long as they reasonably implement the statutory definition of a VEBA. The Commissioner is not required to issue regulations that are the most precise, only those that implement the statute in “some reasonable manner.”

Viewed in this light, the “same geographic locale” limitation is not an impermissible narrowing of the statute. The limit applies only to multiple employer VEBAs that do not have the additional employment-related bond common to co-employees or union members. Hence, the requirement does not limit the scope of all possible VEBAs in a way that the statute limits the scope of all benevolent life insurance companies, for example. Additionally, the geographic limitation does not unduly narrow the scope of § 501(c)(9). The government points out that the Commissioner could have adopted any number of permissible definitions of VEBAs. One of those definitions might have limited VEBAs to employees of one employer. The final regulation, like the proposed regulation, accepts a broader definition of a sufficient employment-related bond, albeit with a geographic limitation on the nonunionized, nonaffiliated multiple employer association. Hence, the regulation does not impermissibly narrow the statute’s scope. Rather, the final regulation is consistent with the statutory language of § 501(c).

CONCLUSION

The government’s motion for summary judgment is granted in full. The Corporation’s motion for summary judgment is denied. The case is dismissed.

It is so ordered.

      . Section 501(c)(9) reads in full as follows: Voluntary employees’ beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents or designated beneficiaries, if no part of the net earnings of such association inures (other than through such payments) to the benefit of any private shareholder or individual.

      . Section 1.501(c)(9)-l(b)(l) of the Treasury Department’s Proposed Regulations, published on January 23, 1969, reads in part as follows:
      An organization described in section 501(c)(9) must be composed of individuals who are entitled to participate in the association by reason of their status as employees who are members of a common working unit. The members of a common working unit include, for example, the employees of a single employer, the employees of one industry, or the members of one labor union.

      . Section 1.501(c)(9)-2(a)(l) of the Final Treasury Regulations, published on January 7, 1981, reads in part as follows:
      The membership of an organization described in section 501(c)(9) must consist of individuals who become entitled to participate by reason of their being employees and whose eligibility for membership is defined by reference to objective standards that constitute an employment-related common bond among such individuals. Typically, those eligible for membership in an organization described in Section 501(c)(9) are defined by reference to á common employer (or affiliated employers), to coverage under one or more collective bargaining agreements (with respect to benefits provided by reason of such agreement(s)), to membership in a labor union, or to membership in one or more locals of a national or international labor union * *. In addition, employees of one or more employers engaged in the same line of business in the same geographic locale will be considered to share an employment-related bond for purposes of an' organization through which their employers provide benefits. [Emphasis added.]

      . The government denies that this was a liberalization because the omission of the 85% requirement occurred at the same time as the extension to these organizations of the tax on unrelated business income. However, it is not disputed that the amendment made VEBA status more widely available, although the VEBA’s tax burden would increase with its unrelated business income.

      . At one point, the government offers a study published in 1931 by the National Industrial Conference Board, Inc. as evidence that such a limited regulation would be a permissible interpretation of congressional intent in passing the predecessor to § 501(c)(9) in 1928. According to the government, the study, entitled The Present Status of Mutual Benefit Associations, refers with one exception to VEBAs composed of employees of one employer. Only one VEBA was a multiple-employer association, and that was limited to employees in a specific geographic locale. Assuming that the study is a complete and accurate survey of the VEBAs extant in 1931 — which the Corporation disputes — at best the study illustrates the type of VEBA with which Congress was likely familiar at the time of enactment. Without more, it does not indicate that Congress would not have approved of extending VEBAs to groups with weaker employment-related bonds. However, the court agrees that had the Commissioner adopted a strict single employer requirement for VEBAs, it would likely be a permissible exercise of regulatory authority.

      . The Corporation does not contest the government's procedures in changing the regulation. For example, there is no claim that whatever procedures were required to be followed in modifying a proposed regulation were not in fact followed. The Corporation does point to the delay between the proposed and final regulation, although the delay of 12 years is similar to the delay of 10 years involved in the National Muffler facts. As the National Muffler Court noted, agencies may change their administrative interpretations in the light of experience. 440 U.S. at 486, 99 S.Ct. at 1311.


source: Caselaw Access Project

license: Public Domain

text:
    UNITED STATES of America, Plaintiff, v. MEDICO INDUSTRIES, INC., Defendant.
    No. 80 C 6434.
    United States District Court, N.D. Illinois, E.D.
    March 28, 1985.

      Frank Rapoport, Washington, D.C., for plaintiff.
    ' Glade F. Flake & Associates, Washington, D.C., Arnold H. Craine, Levy & Craine, Chicago, Ill., for defendant.
   MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

This is a civil action brought by the United States of America for declaratory judgment under 28 U.S.C. § 2201. Specifically, the United States alleges that Edward F. Hill, a former government employee, violated the conflict of interest prohibition contained in 18 U.S.C. § 207 by representing Medico in negotiating a contract on which Medico is currently pressing a claim for equitable adjustments before the Armed Services Board of Contract Appeals (ASBCA). The government therefore seeks to declare the contract void and unenforceable. The facts are undisputed and the matter is currently before the court on the cross-motions of both parties for summary judgment. For the reasons stated below, the court enters judgment for the plaintiff.

Facts

Hill was a contracting officer for the United States Army Munitions. Command (ARMCOM) from 1967 until his resignation in August 1973. On May 31,1973, Hill was the contracting officer for two government contracts, (Nos. DAAA09-72C-0055 and DAAA09-73-C-0259), awarded to defendant Medico Industries, Inc. for the manufacture and delivery of M49A3 60mm projectiles. Hill was also the contract officer for Contract No. DAAA09-73-C-0115, under which the government agreed to purchase a different quantity of M49A3 60mm projectiles from Airport Machining Corporation. On both of these contracts, Hill was assisted by Mrs. Donna Freels.

When Hill left the government in August 1973, he formed a consulting firm offering consulting services and claims preparation assistance for contractors who deal with the government. Sometime shortly thereafter, Medico and its subcontractor, National Extruded Metal Products Co. (NEMPCO), retained Hill to prepare their requests for Extraordinary Relief in connection with Contract Nos. 0259 and 0055. (Defendant’s Response 66 to Plaintiff’s First Set of Requests for Admissions). Hill consulted with both Medico and NEMPCO and aided them in preparing requests for relief which were presented to the government in September and October of 1973.

In December 1973, before the deliveries for contract 0259 were completed, Hill assisted Medico in preparing an unsolicited proposal for further production of M49A3 projectiles in response to Invitation for Bid DAAA09-73-B-0149. (Plaintiffs Appendix, p. 7). As explained in the proposal, Medico was concerned by the adverse financial impact of a break in production between Contract 0259 and a new contract, and therefore submitted an unsolicited proposal. Medico was also aware of an urgent government need for 60 mm projectiles due to the Vietnam war effort and shortages caused by repeated defaults on the part of Airport Machining Corporation, which had entered bankruptcy in June 1973. (Defendant’s Response 89 to Plaintiff’s First Set of Admissions; Hill Deposition p. 122-23). The December 1973 proposal incorporated all terms and conditions of contract 0259 except where expressly revised.

During late December 1973 and January 1974, Hill negotiated the Medico proposal by telephone with Freels, his former subordinate, and with Marv Jothen, the successor contracting officer. (Hill Dep. 124-25). They discussed matters such as quantities, monthly rates, and equipment availability. Hill was the chief spokesman on behalf of Medico in all areas except delivery schedules. (Hill Dep. 125-26). Throughout these negotiations, Hill was careful to avoid all discussion of the existing contract.

On January 23, 1974, the Government terminated for default its contract with Airport Machining Corporation. On January 31,1974, Medico was awarded a portion of Airport Machining’s terminated requirements. As evidenced by the initial proposal and the minutes of a January 29, 1974 ARMCOM Board of Awards meeting, the government considered Medico’s request as a new contract proposal. However, due to the time and costs which would be incurred in drafting a new contract, the procurement was executed as a Modification (P0002) to the already existing contract. (Defendant’s Exhibit G). The Modification was for 1,815,000 projectiles at a unit price different from that of Contract 0259, with deliveries to begin on June 30, 1974.

Throughout the period of the negotiations over the Modification, Medico was still making deliveries on Contract 0259. The final deliveries under that original contract were made on February 5, 1974.

On June 14, 1974, Hill wrote a letter to the Commanding General of the Army Armament Command explaining Hill’s new employment and soliciting the General’s opinion regarding possible conflicts of interest in the Medico transactions. The government never responded.

On November 25, 1974, Medico filed with the government a claim, amended February 20, 1975, requesting equitable adjustment for additional costs incurred in the performance of its obligations under the Modification. This claim, which Hill helped prepare, alleged that the government specifications, identical to those contained in Contracts No. 0055 and 0259, were defective, in breach of the government’s implied warranty, and commercially impracticable to produce. The claim listed Vertex Consultants, Hill’s company, as Medico’s representative. On June 10, 1977, the government denied Medico’s claim and Medico appealed that denial to the Armed Services Board of Contract Appeals. This suit followed sometime thereafter.

Conflict of Interest Under § 207

The chief question for resolution is whether Hill violated the conflict of interest provisions of 18 U.S.C. § 207 in representing Medico with respect to a Modification P0002. The applicable statutory provision in effect at the time of the events underlying this lawsuit reads as follows:

Whoever, having been an officer or employee of the executive branch of the United States Government ... after his employment has ceased, knowingly acts as agent or attorney for anyone other than the United States in connection with any judicial or other proceeding, application, request for a ruling or other determination, contract, claim, controversy, charge, accusation, arrest, or other particular matter involving a specific party or parties in which the United States is a party or has a direct and substantial interest and in which he participated personally and substantially as an officer or employee ...
Shall be fined not more than $10,000 or imprisoned for not more than two years, or both____

As indicated by the legislative history, § 207 was aimed at lessening the “unconscionable use of inside information against the Government by a present or former employee” while simultaneously easing some of the deterrents to government service that the predecessor statute imposed. S.Rep. No. 2213, 87th Cong., 2d Sess., reprinted in 1962 U.S.Code Cong. & Ad. News 3852, -3854. Specifically, Congress eased the ban on former public employees appearing before the government in connection with matters unrelated to the employee’s particular area but expanded the range of activities otherwise subject to the prohibition. In addition, Congress created a lifetime ban on former government employees representing private interests against the government with respect to matters in which the employees had directly participated while in public service.

The parties do not dispute that the effect of a § 207 violation is to render any contract tainted with such conflict unenforceable. Kearney & Trecker Corp. v. Giddings & Lewis, 452 F.2d 579 (7th Cir. 1971), cert, denied, 405 U.S. 1066, 92 S.Ct. 1500, 31 L.Ed.2d 796 (1972). Medico has argued, however, that the statute is inapplicable because Modification P0002 was in substance and effect a separate and distinct procurement from Contract 0259. This court has already determined that a violation of § 207 may not be predicated on the technicality that the Modification is part of the Contract, but depends on the materiality of the original contract provisions incorporated by reference in the Modification. United States v. Medico Industries, Inc., No. 80 C 6434 (N.D.Ill. January 4, 1984). In other words, the question is whether the Contract and Modification are sufficiently similar that Hill’s participation in both on opposite sides of the fence presents the sort of danger § 207 was meant to address. .

As explained in this court’s January 4, 1984 opinion, the differences between the Modification and the Contract are in many ways substantial. The Modification was in effect a new agreement to purchase a substantial additional quantity of projectiles at a different unit price. Only due to the exigencies of time and money did the parties forego the execution of a new contract. On the other hand, the Contract and Modification both concern identical products, plans, specifications, and Government-furnished equipment. These production related matters — not the quantity, price, or delivery terms — form the subject of Medico’s claim for equitable adjustment. The government therefore argues that even if the Modification is a separate contract for § 207 purposes, it nonetheless involves the same “particular matter” as the Contract, and that Hill’s involvement in both therefore violates the statute.

The case law under § 207 is unclear on the precise construction to be afforded the words “particular matter.” Medico argues that § 207 is a penal statute and therefore must be narrowly construed. The government, on the other hand, argues that “even penal statutes should be ‘given their fair meaning in accord with the evident intent of Congress.’ ” United States v. Mississippi Valley Co., 364 U.S. 520, 552, 81 S.Ct. 294, 310, 5 L.Ed.2d 268 (1938), quoting United States v. Raynor, 302 U.S. 540, 552, 58 S.Ct. 353, 359, 82 L.Ed. 413 (1938) (discussing 18 U.S.C. § 284, and predecessor conflict-of-interest provision). That intent, as discussed earlier, was to prevent the public employee “from ‘switching sides’ to the detriment of his Government-employer.” H.R.Rep. No. 748, 87th Cong., 2d Sess. at 11. Given that § 207 was enacted to broaden the range of proceedings to which the conflict-of-interest provision applies, the term “particular matter” may well have been intended as a catch-all phrase to cover the situation where a former government employee uses inside government information for private gain in breach of the public trust and principles of free competition.

As it did in its earlier motion for summary judgment, the government continues to rely on Kearney & Trecker Corp v. Giddings & Lewis, Inc., 452 F.2d 579 (7th Cir.1971), cert, denied, 405 U.S. 1066, 92 S.Ct. 1500, 31 L.Ed.2d 796 (1972). In that case, the Court of Appeals examined the legality of a former patent examiner’s involvement in preparing reissue applications of a patent the original issue of which he had handled while still with the Government. The Court began by noting that the legal nature of a patent reissue requires that the reissue contain no new matter, and therefore concluded that the examiner’s participation in the reissue application involved the same conflict of interest “as if he had transferred his allegiance while the original application was still pending.” Id. at 594.

The Court in Kearney & Trecker may have been particularly concerned with the factual relationship between the original patent application and the reissue.. The patent reissue involved an analysis of the relationship between the plaintiff’s patent and a prior patent distinguished in the original file wrapper. The patent examiner, who went to work for the plaintiff almost immediately after leaving government service, concluded that the plaintiff’s invention involved a much broader concept than was described in the allowed claims, helped draft plaintiff’s reissue application to broaden those claims, and discussed the matters with his former subordinate. The Court found the patent examiner’s conduct indefensible.

A case coming out the opposite way is CACI, Inc.-Federal v. United States, 719 F.2d 1567 (Fed.Cir.1983). In that case, a former member of the Antitrust Division’s Bid Evaluation Committee represented Sterling System's, Inc., in a subsequent competitive bidding process for automated data processing and litigation support services. The Court found that although the employee had worked on prior data processing contracts while in government service, those prior contracts did not involve the same “particular matter” as the new contract. However, in that case the new proposal did not involve the same parties, was much broader in scope, and was found to be fundamentally different in concept than the prior service contracts. Id. at 1576. Although the Court did not discuss the standard in depth, it may be inferred that the Court found these discrepancies necessary to its conclusion that § 207 had not been violated. There was also apparently a greater lapse of time between the employee’s government service and his appearance in a private capacity than exists here.

The present case involves a greater danger of abusing the public trust than does CACI, Inc.-Federal. As an Army contract officer, Hill was responsible for all government purchases- of 60mm M49A3 projectiles. Hill participated in the negotiating of not only Medico’s prior contracts but also the Airport Machining Corporation contract whose default led to Modification P0002. Finally, Hill represented the government in several meetings that addressed NEMPCO’s problems in complying with the specifications on Contract Nos. 0055 and 0259, including a high scrap rate and difficulties with the Government-furnished equipment.

These problems were among the claims raised in Medico’s request for equitable adjustment. Medico’s November 25, 1974 letter, which Hill helped prepare, alleges that the Government withheld technical problems from Medico at the pre-award survey prior to the award of initial contract 0055. Medico’s ASBCA complaint further asserts that the Government knew Contract 0259 would be commercially impracticable to perform at the time it was awarded. Although there is no evidence that Medico based these claims on information acquired from Hill, Hill’s inside position as an official contract officer on contracts which he now attacks as inequitable presents exactly the sort of impropriety § 207 was intended to address.

That Hill may have acted improperly in pressing Medico’s claim for adjustment does not. necessarily dictate a conclusion that his negotiation of Modification P0002 also violated the statute. In its earlier opinion denying summary judgment, this court assumed, by virtue of the government’s failure to rebut Medico’s version of the facts, that the contract provisions incorporated in the Modification were merely boilerplate. Insofar as the specifications were developed by officers other than Hill and were not within his particular area of expertise, Hill’s violation may be less egregious than the government suggests in its brief. Nonetheless, unlike the new proposal in CACI, Inc.-Federal, the procurement under Modification P0002 was not fundamentally different in scope or character than the earlier procurements which Hill was responsible for negotiating, and the incorporated provisions from the earlier contract were material to what subsequently happened.

Hill’s inside knowledge of Airport Machining’s difficulties and of NEMPCO’s problems with specifications present further reasons that he should not have turned around and switched sides by negotiating new. contracts on Medico’s and NEMPCO’s behalf. Finally, Hill’s negotiating these contracts with his former subordinate, as occurred in Kearney & Trecker, presents a further danger of undue influence which Congress also sought to avoid through enactment of § 207. Considering the entire factual context, the court finds that Hill violated § 207 just as if he had switched sides in the original contract, and that the Modification is therefore unenforceable.

Estoppel and Unclean Hands

Having determined that the contract is unenforceable, the court must determine the merits of Medico’s estoppel and unclean hands defenses. Medico bases these defenses on the inequity which would result from allowing the government to void a contract which it entered into knowing of potential conflicts. Medico further complains that ARMCOM’s failure to respond to Hill’s request for advice regarding the potential conflict of interest defeats the government’s claim. Both arguments, however, are' unavailable as a matter of law.

The question as to when equitable estoppel is available against the government has received less than comprehensive treatment from the Supreme Court. See Schweiker v. Hansen, 450 U.S. 785, 791-92, 101 S.Ct. 1468, 1472-73, 67 L.Ed.2d 685 (1981) (Marshall, J., dissenting). Nonetheless, the general tenor of the Supreme Court opinions in this area is that estoppel shall not apply against the government where the public fisc is threatened and the government is charged with less than affirmative misconduct. Id. at 788-89, 101 S.Ct. at 1470-71 (per curiam opinion).

In United States v. Mississippi Valley Co., 364 U.S. 520, 81 S.Ct. 294, 5 L.Ed.2d 268 (1961), the Court addressed this issue in the context of a similar conflict-of-interest provision regarding public employees and concluded that estoppel could not apply:

In any event, the knowledge of Wenzell’s superiors and their approval of his activities do not suffice to exempt Wenzell from the coverage of the statute. Neither Section 434 nor any other statute empowered his superiors to exempt him from the statute, and we are convinced that it would be contrary to the purpose of the statute for this Court to bestow such a power upon those whom Congress has not seen fit to so authorize. Congress undoubtedly had a very specific reason for not conferring such a power upon high-level administrators. It recognized that an agent’s superiors may not appreciate the nature of an agent’s conflict, or that the superiors might, in fact, share the agent’s conflict, of interest. The prohibition was therefore designed to protect the United States, as a Government, from the mistakes, as well as the connivance, of its own officers and agents.

Id. at 561, 81 S.Ct. at 315. Given this general rule, and Medico’s failure to point to any misconduct on the Government’s part other than silent acquiescence in Hill’s violation of § 207, the court finds Medico’s defenses legally unavailable to defeat the government’s claim that the contract is unenforceable.

Conclusion

The defendant’s motion for summary judgment is denied, and the cross-motion of the plaintiff for summary judgment is granted.

It is so ordered.

      . Medico argues from the deposition of Freels that deliveries under Contract 0259 were completed in December 1973 or early January 1974. (Freels Dep. at 15.) However, Medico previously admitted that the deliveries continued into February 1974, as is confirmed by a Medico telegram sent on January 17, 1974. (Defs Response 102 to First Set of Requests for Admissions; Plaintiffs Appendix at 14.) The court finds that Freels’ recollection as to when deliveries were completed does not create a genuine dispute of material fact in light of defendant’s previous admission. In any event, the question of exactly when deliveries terminated is not crucial to the court’s decision.

      , Section 207 was amended as part of the Ethics in Government Act, Pub.L. No. 95-521, 92 Stat. 1824 (Oct. 26, 1978), to restrict further the activities in which a former- government official could become involved after leaving federal service.


author: BARRINGTON D. PARKER, District. Judge.

text:
    The PROVISIONAL GOVERNMENT OF the REPUBLIC OF NEW AFRIKA, et al., Plaintiffs, v. AMERICAN BROADCASTING COMPANIES, INC., et al., Defendants.
    Civ. A. No. 84-1231.
    United States District Court, District of Columbia.
    April 12, 1985.

      Milele Archibald, Washington, D.C., for plaintiffs.
    Michael J. Calvey, Mark D. Herlach, Washington, D.C., for defendants.
   MEMORANDUM ORDER

BARRINGTON D. PARKER, District. Judge.

This matter comes before the Court on the motion to dismiss the complaint against all defendants for failure to state a claim upon which relief may be granted. In addition, the motion seeks dismissal of the complaint against several defendants for insufficient service of process.

The plaintiffs are the Provisional Government of the Republic of New Afrika (“Provisional Government” or “Republic”) and its co-presidents, Imari Abubakari Obadele and Dara Abubakari. They allege that the Provisional Government represents the “elected group of persons exercising sovereignty for that portion of the New Afrikan nation in North America which seeks independence and that portion which would choose independence if they were apprised of their right to an independent nation-state and knew of the struggle to win independence____” Complaint at f 2. The defendants American Broadcasting Companies, Inc. (“ABC”), two of its unincorporated divisions, WJLA-TV, Inc. (“WJLA”) and several individuals are charged with defaming the Provisional Government during news broadcasts and deliberately éxcluding references to activities surrounding its “campaign for independence.” The defendants are collectively referred to as ABC, where appropriate.

The complaint is based in large part on defamation claims, in addition to alleged violations of the First and Thirteenth Amendments, and invasion of rights protected by 42 U.S.C. §§ 1981 and 1985(3). For the reasons stated below, the Court determines that the complaint should be dismissed as to all claims other than allegations of common law defamation against defendants ABC and WJLA arising from a television news broadcast on April 20,1983. Accordingly, the defendants’ motion is granted in part and denied in part.

FACTUAL BACKGROUND

The plaintiffs filed this action on April 19,1984. The major focus of the complaint is the charge that on or about April 20 or 21, 1983, ABC broadcast a news story which associated the Provisional Government with the 1981 Brinks robbery, and thus linked it “to a pattern of criminality and terrorism.” Complaint at H 4. The plaintiffs now apparently conclude that the broadcast occurred on April 20, 1983. Opposition to Motion to Dismiss at 1, 8, filed June 25, 1984. ABC agrees that on that date its reporter, Ms. Hilary Brown, commented on the Brinks robbery on a broadcast of “World News Tonight”. A transcript of the broadcast is attached as Ex. A to the Affidavit of Donald Martin, filed May 29, 1984 (“Transcript”). The complaint also states that ABC has at other times defamed the Provisional Government, including but not limited to October and November of 1981. The substance of these alleged defamations is not specified in the complaint.

The plaintiffs have since clarified the nature of defamatory allegations concerning the April 20 broadcast. They concede that although the April 20 broadcast did not refer to the Provisional Government by name, the defamation was accomplished by a combination of “words and [] graphic illustration.” Id. Opposition at 8. They assert that the broadcast pictured a streamer with the name “Republic of New Africa” at the same time Ms. Brown, in referring to the Brinks robbery, stated

that because of one vicious bungled crime a year and a half ago, some of the most radical, most violent protest groups of the ’60’s are being brought to trial as common criminals.

Id. at 9; Transcript at 9-10. The defendants disagree with this characterization of the timing of the appearance of the streamer. ABC states that the streamer flashed across the screen earlier in the broadcast, when Ms. Brown stated that:

[t]he Brinks holdup came to be seen by the FBI as part of a complex pattern of racketeering involving a very mixed bag of people who differed widely in background and political affiliation and whose activities range from running drugs and prostitution rings to preaching revolution and radical feminism.

Defendants’ Reply at 2; Transcript at 9. The parties have not stated whether any members of the Provisional Government were in fact defendants in the Brinks trial.

LEGAL ANALYSIS

The defendants invoke a number of grounds for dismissal of the complaint. Their arguments are premised on the plaintiffs’ alleged failure to effect service of process on all defendants save ABC, the statute of limitations, the sufficiency of the defamatory allegations, the protection of the First Amendment, and the adequacy of the claims stated under the Thirteenth Amendment and sections 1981 and 1985(3). These allegations are discussed in turn.

Service of Process

The defendants have filed an affidavit which states that neither WJLA, the unincorporated divisions of ABC, nor the individual defendants were properly served. Affidavit of Jerry Dawson at 118, filed May 29, 1984. They have moved to dismiss the complaint against these entities pursuant to Fed.R.Civ.P. 12(b)(4). The plaintiffs admit that the individual defendants and the ABC divisions have not been served, but contend that on June 11, 1984, WJLA was served through its registered agent, the CT Corporation System. Affidavit of Belal Shabazz, filed June 29, 1984; Plaintiffs’ Opposition at 23. Dawson states that the CT Corporation System is in fact the registered agent for WJLA. Dawson Aff. at 115. In view of these uncontested assertions, the Court dismisses this action with respect to the individual defend-' ants and the ABC divisions. The Court denies the motion without prejudice as to WJLA. An evidentiary hearing may be held if WJLA intends to further pursue this defense.

Statute of Limitations and the Sufficiency of the Defamatory Allegations

The Court dismisses any defamation allegations based on events which occurred prior to April 19, 1983, one year before the complaint was filed. These allegations are barred by the relevant statute of limitations. D.C.Code § 12-301(4).

The defendants also raise several challenges to the sufficiency of the plaintiffs’ remaining defamatory allegations. They argue that the complaint fails to state a cause of action based on ABC’s coverage of the plaintiffs’ activities, does not allege the substance of any defamatory statements, and is not defamatory with respect to the Provisional Government’s officials. The Court agrees that the complaint is deficient in all of these respects, but will permit the plaintiffs to file an amended complaint which succinctly states the substance of the defamation alleged in the April 20 broadcast. However, the complaint is dismissed as to the claims concerning the adequacy of ABC’s media coverage and the claims of the individual plaintiffs.

The plaintiffs criticize ABC’s media coverage on the grounds that it has not adequately publicized the Provisional Government’s activities or its relationship with the United States government. This claim is not premised on the content of ABC’s coverage of the plaintiffs, but rather on the alleged lack of coverage. To the extent that this claim is premised on the United States Constitution, the Court is unaware of any constitutional doctrine which imposes an affirmative duty on the media to report about the activities of any individual. To the extent the complaint is rooted in the fairness doctrine, which has been given statutory recognition in the Federal Communications Act of 1935, 47 U.S.C. § 315(a), it must fail because the statute does not provide a private right of action for damages. Daly v. CBS, Inc., 309 F.2d 83, 86 (7th Cir.1962).

Moreover, neither the complaint nor the transcript of the broadcast affords any basis for finding that the Provisional Government’s officials have been defamed. Defamation is personal; a plaintiff who alleges defamation “must show that [the statement] was published ‘of and concerning’ him.” Summerlin v. Washington Star, 7 Media L.Rep. 2460, 2461 (D.D.C. 1981). Allegations of defamation by an organization and its members are not interchangeable. Statements which refer to individual members of an organization do not implicate the organization. Church of Scientology of California v. Flynn, 578 F.Supp. 266, 269 (D.Mass.1984). By the same reasoning, statements which refer to an organization do not implicate its members.

This conclusion is reinforced by the limitations the concept of group libel imposes on actions for defamation. A defamatory statement directed against a group or class does not generally give rise to a cause of action on behalf of its individual members. Fowler v. Curtis Publishing Co., 182 F.2d 377, 378 (D.C.Cir.1950). In order to be actionable by an individual, the publication must contain “statements that are reasonably susceptible of application” to the individual. Gintert v. Howard Publications, Inc., 565 F.Supp. 829, 835 (N.D.Ind.1983). Here, the statements in the April 20 broadcast contain no explicit references to the officers of the Provisional Government, and the surrounding circumstances do not implicate them in any fashion. Thus, the complaint must be dismissed as to plaintiffs’ Obadele and Abubakari, suing on their own behalf.

The Court also agrees that the complaint, as filed, is inadequate because it is “devoid of specific defamatory comments.” See Leo Winter Associates, Inc. v. HHS, 497 F.Supp. 429, 432 (D.D.C.1980). Rather than dismissing the complaint, however, the Court will permit the Provisional Government to specifically set forth the alleged defamatory statements and relevant circumstances. This description shall include a precise statement of the point at which the Republic of New Afrika streamer appeared on the broadcast.

Thirteenth Amendment and Sections 1981 and 1985(3)

The Thirteenth Amendment is an “absolute declaration that slavery or involuntary servitude shall not exist in any part of the United States.” Jones v. Alfred H. Mayer Co., 392 U.S. 409, 438, 88 S.Ct. 2186, 2202, 20 L.Ed.2d 1189 (1968) (citing Civil Rights Cases, 109 U.S. 3, 20, 3 S.Ct. 18, 27, 27 L.Ed. 835 (1883)). Although the Supreme Court has never decided whether the Thirteenth Amendment provides a direct cause of action to eradicate the vestiges of slavery, the better view is that the Thirteenth Amendment, standing alone, does not give such rights. Alma Society, Inc. v. Mellon, 601 F.2d 1225, 1236-38 (2d Cir.), cert, denied, 444 U.S. 995, 100 S.Ct. 531, 62 L.Ed.2d 426 (1979). Congress, of course, is empowered to pass laws to eradicate the badges and incidents of slavery. Palmer v. Thompson, 403 U.S. 217, 227, 91 S.Ct. 1940, 1946, 29 L.Ed.2d 438 (1971). It is to this question that we now turn.

Both of the statutory sections on which plaintiffs rely, 42 U.S.C. §§ 1981 and 1985(3), were passed pursuant to the Thirteenth Amendment. Runyon v. McCrary, 427 U.S. 160, 170-71, 96 S.Ct. 2586, 2594-95, 49 L.Ed.2d 415 (1976) (section 1981); Griffin v. Breckenridge, 403 U.S. 88, 105, 91 S.Ct. 1790, 1799, 29 L.Ed.2d 338 (1971) (section 1985(3)). Section 1981 provides in relevant part that:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens.

The two major clauses — the contracts clause and the equal benefits clause — are intended to enforce two distinct sets of rights. Mahone v. Waddle, 564 F.2d 1018, 1029 (3d Cir.1977), cert, denied, 438 U.S. 904, 98 S.Ct. 3122, 57 L.Ed.2d 1147 (1978).

The specific assertions in plaintiffs’ complaint show that their claims arise under the equal benefits clause. Complaint at 1115. Because this clause does not reach purely private discrimination, the element of state action must be alleged and proved. Mahone, 564 F.2d at 1029. Here, the plaintiffs’ vague allegations of state action rest on the fact that the federal government regulates the broadcasting industry. The fact that the government has granted NBC a broadcast license is not sufficient to constitute state action, see CBS v. DNC, 412 U.S. 94, 119-121, 93 S.Ct. 2080, 2094-2096, 36 L.Ed.2d 772 (1973), and the plaintiffs’ claim under § 1981 must be dismissed.

The plaintiffs’ claims under section 1985(3) are also inadequate in the absence of the requisite element of state action. Section 1985(3) protects persons injured by conspiracies formed

for the purpose of depriving, either directly or indirectly, any person or class of persons of the equal protection of the laws, or of equal privileges and immunities under the laws____

The Provisional Government asserts a conspiracy to infringe its First Amendment rights, alleging that the defendants have conspired “to defame plaintiffs because of plaintiffs’ race, New Afrikan nationality, and political beliefs____” Complaint at 1114. In order to support this claim, the plaintiffs must prove

that the state is involved in the conspiracy or that the aim of the conspiracy is to influence the activity of the state.

United Brotherhood of Carpenters and Joiners of America, Local 610, AFL-CIO v. Scott, 463 U.S. 825, 103 S.Ct. 3352, 3356-57, 77 L.Ed.2d 1049 (1983). Once again, the government’s role in regulating the broadcasting industry is too minimal to constitute state action, and the plaintiffs’ claim under section 1985(3) must be dismissed.

Absolute Privilege

Lastly, the defendants assert that the plaintiffs’ common law defamation claims should be dismissed because impersonal criticisms of government are absolutely privileged. The defendants correctly state that New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), stands for the proposition that the Constitution forbids the government from prosecuting its citizens for libel. See Rosenblatt v. Baer, 383 U.S. 75, 81, 86 S.Ct. 669, 673, 15 L.Ed.2d 597 (1966) (citing Sullivan, 376 U.S. at 273-276, 290-92, 84 S.Ct. at 722-724, 731-33). Sullivan, however, is inapposite to nontraditional governments such as the Republic of New Africa.

The privilege afforded to commentary on matters of public importance is grounded in

a profound national commitment to the principle that debate on public issues should be uninhibited, robust and wide-open, and that it may well include vehement, caustic, and sometimes unpleasantly sharp attacks on government....

Sullivan, 376 U.S. at 270, 84 S.Ct. at 720. The same philosophy undergirds the court’s attack on the Sedition Act and other attempts to silence critics of government. Since a state could not constitutionally impose criminal penalties on good-faith critics of government operations, such a result “is likewise beyond the reach of its civil law of libel.” Id. at 277, 84 S.Ct. at 724. The absolute protection afforded attacks on government, as distinguished from attacks on government officials, are grounded in a fear that the government will utilize all of its power and resources to stifle public debate, and thus jeopardize the very tenets of a democratic society.

The Provisional Government is not a government in the traditional sense. Indeed, if it is a government at all, it bears no resemblance to federal or state government. Since the Provisional Government exercises no sovereignty over ABC or any of the other defendants, this libel suit threatens democracy no more than a libel suit filed by any kind of political organization. While it is likely that the Provisional Government may have to prove actual malice in order to ultimately prevail in this lawsuit,, id. at 283, 84 S.Ct. at 727, that question is not now before the Court. The Court holds only that defamatory statements about the Provisional Government are not absolutely protected by the First Amendment.

CONCLUSION

The complaint survives the motion to dismiss solely with respect to the plaintiff Provisional Government’s claim that it was defamed by the broadcast of April 20, 1983. The remaining allegations of the complaint asserting claims under the Thirteenth Amendment and 42 U.S.C. §§ 1981 and 1985(3) fail to state a cause of action.

On the basis of the above, it is this 12th day of April, 1985,

ORDERED

That the plaintiffs’ claims under the Thirteenth'Amendment and 42 U.S.C. §§ 1981 and 1985(3) are dismissed with prejudice for failure to state a cause of action.

That the complaint is dismissed as to plaintiffs Obadele and Abubakari, and defendants American Broadcasting Company Television, American Broadcasting Company News, Pierce, Antar, Brown and Cookerly.

That the plaintiff Provisional Government is granted leave to file an amended complaint consistent with the above ruling. The filing and service of the amended complaint on the two remaining defendants, ABC and WJLA, shall be completed by May 3, 1985.

That a status call will be held in this proceeding on May 9, 1985 at 9:00 o’clock a.m. for purposes of entering a scheduling order. Trial counsel for the parties are required to be present.

      . The unincorporated divisions of ABC are known as American Broadcasting Company Television and American Broadcasting Company News. The individual defendants are Frederick. Pierce (President of ABC), Sam Antar (Vice-president and- Director of Legal and Business Affairs, ABC News), Hilary Brown (ABC correspondent), and Thomas Cookerly (President of WJLA).

      . According to this Circuit, the fairness doctrine ensures that:
      the public is not to be confined to hearing only the views approved by [the broadcast press], but is entitled to be informed of the diversity of opinion in the land____ NBC v. FCC, 516 F.2d 1101, 1111 (D.C.Cir.1974), cert, denied, 424 U.S. 910, 96 S.Ct. 1105, 47 L.Ed.2d 313 (1976).


author: MacLAUGHLIN, District Judge.

text:
    Kathleen SPIELMAN, Plaintiff, v. FEDERAL EMERGENCY MANAGEMENT AGENCY, Defendant.
    No. Civ. 4-84-1349.
    United States District Court, D. Minnesota, Fourth Division.
    April 16, 1985.
    Patrick H. Doherty, St. Paul, Minn., for plaintiff.
    James M. Rosenbaum, U.S. Atty., and Elissa G. Mautner, Asst. U.S. Atty., Minneapolis, Minn., for defendant.
   MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on defendant’s motion to dismiss for lack of subject matter jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(1). Defendant’s motion will be granted.

FACTS

On March 15, 1983, water from a public lake adjacent to plaintiff’s property in Prior Lake, Scott County, Minnesota, began to flood plaintiff’s property. The flooding continued for several months, and according to plaintiff caused $55,659 in damage to her property. Plaintiff seeks damages against defendant Federal Emergency Management Agency (FEMHA) as a result of defendant’s alleged failure to comply with the terms of a flood insurance policy which plaintiff claims was issued by the defendant.

Plaintiff filed a summons and complaint in Scott County District Court, Minnesota on or about December 5, 1984. On December 21, 1984, defendant removed the action to the United States District Court for the District of Minnesota, on the ground that the Court has original exclusive jurisdiction of the action pursuant to 42 U.S.C. § 4072. Defendant now moves to dismiss plaintiff’s complaint pursuant to Fed.R.Civ.P. 12(b)(1).

DISCUSSION

The National Flood Insurance Program, 42 U.S.C. §§ 4001-4128, is a plan designed to provide flood insurance protection to property owners in flood-prone areas. See 42 U.S.C. § 4002. The Federal Emergency Management Agency is the federal agency which administers the Flood Insurance Program. While plaintiff's complaint in the instant case does not specify a specific statutory offense, plaintiff does not dispute defendant’s contention that the action arises under the National Flood Insurance Act, 42 U.S.C. § 4001 et seq. The jurisdictional section of that Act provides as follows:

In the event the program is carried out as provided in section 4071 of this title, the Director shall be authorized to adjust and make payment of any claims for proved and approved losses covered by flood insurance, and upon the disallowance by the Director of any such claim, or upon the refusal of the claimant to accept the amount allowed upon any such claim, the claimant, within one year after the date of mailing of notice of disallowance or partial disallowance by the Director, may institute an action against the Director on such claim in the United States district court for the district in which the insured property or the major part thereof shall have been situated, and original exclusive jurisdiction is hereby conferred upon such court to hear and determine such action without regard to the amount in controversy.

Id. § 4072 (emphasis added). It is clear from the plain language of this statute that the United States district courts have original and exclusive jurisdiction over claims against FEMA under the National Flood Insurance Act. A number of federal courts have held that federal jurisdiction in claims for flood insurance under the National Flood Insurance Program is exclusive. Siekmann v. Kirk Mortgage Co., 548 F.Supp. 50 (E.D.Pa.1982); Possessky v. National Flood Insurers Association, 507 F.Supp. 913 (D.N.J.1981); Brumfield v. National Flood Insurance Program, 492 F.Supp. 1043 (M.D.La.1980).

In removal cases, federal courts only acquire jurisdiction over actions that also are within the jurisdiction of the state court from which they are removed. Lambert Run Coal Co. v. Baltimore and Ohio Railroad Co., 258 U.S. 377, 42 S.Ct. 349, 66 L.Ed. 671 (1922); Koppers Co. v. Continental Casualty Co., 337 F.2d 499 (8th Cir.1964). This rule is known as the “derivative jurisdiction” doctrine. While this doctrine often produces harsh results, and has been sharply criticized, it is without question the applicable rule. 14 C. Wright & A. Miller, Federal Practice and Procedure, § 3722, at 576. In the instant case, then, defendant’s motion to dismiss must be granted. The Scott County District Court lacked jurisdiction over plaintiff’s action, since the federal courts have exclusive jurisdiction over claims for flood insurance under section 4072. Accordingly, under the derivative jurisdiction doctrine, the Court does not have jurisdiction of the removed action. Plaintiff correctly cites several cases which have held that similar claims under the National Flood Insurance Act which were initially filed in the state court and then removed to federal court must be dismissed for lack of jurisdiction. South Shaver Investment Group II v. Federal Emergency Management Agency, No. 84-3808 (S.D.Tex. Dec. 13, 1984); Szulborski v. Federal Emergency Management, No. 84-476 (N.D.Ind. Nov. 14, 1984); Siekmann v. Kirk Mortgage Co., 548 F.Supp. 50 (E.D.Pa.1982); Possessky v. National Flood Insurers Association, 507 F.Supp. 913 (D.N.J.1981); Brumfield v. National Flood Insurance Program, 492 F.Supp. 1043 (M.D.La.1980). The United States Court of Appeals for the Eighth Circuit has recently recognized that removal followed by a motion to dismiss is the appropriate procedure in actions of this type. Johnson v. Showers, 747 F.2d 1228, 1229 (1984).

Based on the foregoing, IT IS ORDERED that defendant’s motion to dismiss plaintiff’s complaint for lack of subject matter jurisdiction is granted.

LET JUDGMENT BE ENTERED ACCORDINGLY.

      . See State of Washington v. American League of Professional Baseball Clubs, 460 F.2d 654, 658-59 (9th Cir.1972):
      This is the kind of legal tour de force that most laymen cannot understand, particularly in a case where the federal court not only has subject matter jurisdiction, but has exclusive subject matter jurisdiction. One would have thought that the purpose of removal in such a case is to get the case out of the court that lacks jurisdiction to hear it and into the court that has jurisdiction, and to keep it in the latter court, so that it can be tried and a valid judgment can be entered.


author: WILLIAM C. CONNER, District Judge.

text:
    CINE 42ND STREET THEATER CORPORATION, Leonard Clark and the Brandt Organization, Inc., Plaintiffs, v. The NEDERLANDER ORGANIZATION, INC., Harris Nederlander, Inc., New Amsterdam Nederlander, Inc., Jujamcyn Company, Inc., Cambridge Investment Group, Ltd., Park Tower Realty Corp., the New York State Urban Development Corporation, Times Square Redevelopment Corporation and the City of New York, Defendants.
    No. 84 Civ. 7595 (WCC).
    United States District Court, S.D. New York.
    April 17, 1985.
    Warshaw, Burstein, Cohen, Schlesinger & Kuh, New York City, for plaintiffs Cine 42nd St. Theater Corp. and Leonard Clark; James E. Daniels, New York City, of counsel.
    Rubin, Baum, Levin, Constant & Friedman, New York City, for plaintiff The Brandt Organization, Inc.; Martin J. Schwartz, New York City, of counsel.
    Leahey & Johnson, P.C., Susan M. Heilbron, Vice President, Legal Dept. N.Y. State Urban Development Corp. and Times Square Redevelopment Corp., New York City, for defendants N.Y. State Urban Development Corp. and Times Square Redevelopment Corp.; Peter J. Johnson, New York City, of counsel.
    Weil, Gotshal & Manges, New York City, for defendants The Nederlander Organization, Inc., Harris Nederlander, Inc., and New Amsterdam Nederlander, Inc.; Irving Scher, New York City, of counsel.
    Frederick A.O. Schwarz, Jr., Corp. Counsel of the City of New York, New York City, for defendant The City of New York; Jeffrey Schanback, New York City, of counsel.
    Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant Park Tower Realty; Gerald Gobel, New York City, of counsel.
    Breed, Abbott & Morgan, New York City, for defendants Jujamcyn Co., Inc. and Cambridge Inv. Group, Ltd.; Robert A. Bicks, New York City, of counsel.
    Schapiro, Wisan & Krassner, New York City, for defendant Jujamcyn Co., Inc.; Seth L. Schapiro, New York City, of counsel.
    Craig L. Tessler, Gen. Counsel, New York City, for Cambridge Investment Group, Ltd.
   OPINION AND ORDER

WILLIAM C. CONNER, District Judge.

This suit is one of many to arise out of the recent efforts by the State and City of New York to redevelop the Times Square area of Manhattan. As part of that project, the New York State Urban Development Corporation (“the UDC”) and the City of New York (“the City”) decided to acquire, by negotiation or if necessary by condemnation, five movie theaters in the area and to lease them to private developers in hopes that they would be restored and operated as legitimate Broadway theaters. In anticipation of acquiring the theaters, the UDC and the City conditionally designated three Broadway theater operators, the Nederlander Organization, Inc. (“Nederlander”), Jujamcyn Company, Inc. (“Jujamcyn”), and Cambridge Investment Group, Ltd. (“Cambridge”) to receive the leases and development rights to the five theaters. The UDC and the City also designated Park Tower Realty Corporation (“Park Tower”) to provide the funds to acquire and restore the theaters.

Plaintiffs, who own and operate theaters in the Times Square area, brought suit against the UDC, the City, and the conditionally designated developers, alleging that the conditional designations of those developers substantially lessen competition in the Broadway theater industry. In particular, they contend that the designations violate Section 7 of the Clayton Act, 15 U.S.C. § 18, and § 340 et seq. of the New General Business Law, known as the Donnelly Act.

The case is now before the Court on the motions of all defendants to dismiss plaintiffs’ complaint under Rule 12(b)(6), F.R. Civ.P. Defendants contend that plaintiffs’ Clayton Act claim must be dismissed because: (1) the conditional designations are immune from federal antitrust scrutiny under the state action doctrine; (2) the effect of the designations is pro-competitive; and (3) plaintiffs have not suffered an antitrust injury. Defendants also argue that if the Clayton Act claim is dismissed, the pendent Donnelly Act claim must be dismissed as well.

For the reasons stated below, defendants’ motion is granted. I agree with defendants that plaintiffs’ federal antitrust claim is barred by the state action doctrine, and that the pendent state claim must be dismissed for lack of subject matter jurisdiction. I need not and do not address defendants’ other contentions.

Background

In 1968, the New York State legislature created the Urban Development Corporation in hopes of reversing the deterioration of many municipalities in the state. See New York Unconsolidated Laws § 6254(1) (hereinafter the “UDC Act”). The legislature declared the new entity “a corporate governmental agency of the state, constituting a political subdivision and public benefit corporation.” Id.

Among the many problems the legislature sought to remedy through the UDC was “a serious need throughout the state for educational, recreational, cultural and other community facilities, the lack of which threatens and adversely affects the health, safety, morals and welfare of the people of the state.” Id. at § 6252. In this regard, the legislature declared that it is a

policy of the state to promote the safety, health, morals and welfare of the people of the state and to promote the sound growth and development of our municipalities through the correction of such substandard, insanitary, blighted, deteriorated or deteriorating conditions, factors and characteristics by the clearance, replanning, reconstruction, .redevelopment, rehabilitation, restoration or conservation of such areas, and of areas reasonably accessible thereto the undertaking of public and private improvement programs related thereto, including the provision of educational, recreational and cultural facilities, and the encouragement of participation in these programs by private enterprise.

Id.

To enable the UDC to achieve these goals, the legislature granted the agency far-reaching powers. These include, inter alia, the broad powers enumerated in Section 6255 of the Act:

(3) To make and execute contracts and all othér instruments____
******
(7) To acquire or contract to acquire ... by grant, purchase, condemnation or otherwise, leaseholds, real, personal or mixed property or any interest therein; to own, hold, clear, improve and rehabilitate, and sell, assign, exchange, transfer, convey, lease, mortgage, or otherwise dispose of or encumber the same.
(8) To create subsidiaries,____
(9) To acquire, construct, reconstruct, rehabilitate, improve, alter or repair or provide for the construction, reconstruction, improvement, alteration or repair of any project. ******
(11) To sell, lease, assign, transfer, convey, exchange, mortgage, or otherwise ... dispose of or encumber any project,____
******
(14) To manage any project, whether then owned or leased by the corporation, and to enter into agreements ... for the purpose of causing any project to be managed. ******
(24) To engage the services of consultants ... for rendering professional and technical assistance and advice.
******
(29) ... to enter into agreements .to pay annual sums in lieu of taxes to any municipality or political subdivision of the state, in respect of any real property which is owned by the corporation or any subsidiary thereof and is located in such municipality or political subdivision.

See also UDC Act § 6263.

In addition to these general powers, the legislature granted the UDC specific powers in connection with “land use improvement projects” such as the Times Square project at issue here. The powers allow the UDC to

sell or lease for a term not exceeding ninety-nine years all or any portion of the real or personal property constituting a land use improvement project to any person, firm, partnership or corporation, either public or private, upon such terms and conditions as may be approved by the corporation, whenever the corporation shall find that such sale or lease is in conformity with a plan or undertaking for the clearance, replanning, reconstruction or rehabilitation of sub-standard and insanitary areas in the municipality in which the project is located. Such sale or lease may be made:
* sfc sfc * s¡£ *
(c) to any other person, firm, partnership or corporation, without public bidding or public sale____

UDC Act § 6256(l)(emphasis added).

The legislature made clear that both the general and specific powers it granted to the UDC should be broadly construed. For example, in Section 6255(26), the legislature authorized the UDC “[t]o do any and all things necessary or convenient to carry out its purposes and exercise the powers given and granted in [the UDC Act].” In addition, Section 6283 declares that whenever the provisions of the UDC Act “are inconsistent with the provisions of any other law, general, special or local, the provisions of this act shall be controlling.” Finally, Section 6284 provides that the Act “should be liberally construed so as to effectuate its purposes.”

The legislature gave similarly broad powers to municipalities, with which the UDC is to work closely in formulating and executing redevelopment projects. See UDC Act § 6266(1). The UDC Act provides:

In carrying out any project, the corporation and its subsidiaries shall be empowered to enter into contractual agreements with municipalities and public corporations with respect to the furnishing of any community, municipal or public facilities or services necessary or desirable for such project, and any municipality or public corporation is hereby authorized and empowered, notwithstanding any other law, to enter into such contractual agreements with the corporation and its subsidiaries and to do all things necessary to carry out its obligations under the same.

UDC Act § 6266(6) (emphasis added).

Pursuant to the powers granted to them, in June 1980 the UDC and the City of New York undertook to rehabilitate the blighted Times Square area of midtown Manhattan. The collaborative effort was named the 42nd Street Redevelopment Project (the “Project”). Complaint at MI 10, 11, 20-23, 27 and 28.

As part of the Project, the UDC and the City decided to acquire, by negotiation or if necessary by condemnation, five movie houses in the redevelopment area. The five theaters are the Harris and New Amsterdam Theaters, both on the south side of 42nd Street between 7th and 8th Avenues, and the Apollo, Selwyn, and Lyric Theaters, all on the north side of 42nd Street between 7th and 8th Avenues. Complaint at MI 21-22. After acquiring these theaters, the UDC and the City would lease them to private developers for 99 years in exchange for a promise that the theaters would be restored and operated as legitimate Broadway theaters. Complaint at MI 21-23.

In June 1981, the UDC and the City invited selected developers, including plaintiffs Cine 42nd Street Theater Corporation (“Cine 42”) and The Brandt Organization (“Brandt”), to submit proposals for development of the five theaters. Complaint at MI 23-27. A number of developers, including Cine 42, Brandt, and the defendant theater operators, submitted plans.

In April 1982, the UDC and the City “conditionally designated” defendant Nederlander to develop the Harris and New Amsterdam Theaters, Complaint at H 25, and in August 1984, they “conditionally designated” defendants Jujamcyn and Cambridge to develop jointly the Apollo, Selwyn and Lyric Theaters. Id. at ÍI26. The UDC and the City also announced in August 1984 that defendant Park Tower would provide a major share of the funds to acquire and renovate the theaters. Id. Plaintiffs were not selected to participate in the redevelopment project.

Plaintiffs contend that the conditional designations of the defendant theater operators substantially lessen competition in the Broadway Theater industry. They allege that Nederlander and Jujamcyn are among the largest Broadway Theater operators, and that they are rapidly increasing their control of the industry. Complaint at ¶ ¶ 16-17. In plaintiffs’ view, the conditional designations of those operators to develop the Times Square theaters further magnify their dominance of the business. Thus, they assert that the designations violate Section 7 of the Clayton Act and the New York Donnelly Act.

Discussion

As I have noted, all defendants have moved pursuant to Rule 12(b)(6), F.R. Civ.P., to dismiss plaintiffs’ complaint. Accordingly, my task is a limited one. My role at this stage of the litigation is not to assess the strength or weakness of plaintiffs’ case, but only to determine whether plaintiffs are entitled to offer evidence to support their claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). I may not dismiss the complaint unless, taking the allegations pleaded as true, it appears beyond doubt that plaintiffs could prove no set of facts in support of their claims that would entitle them to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). I have accepted plaintiffs’ allegations here as true, but I must conclude that they do not state a claim upon which relief can be granted.

I turn first to the Clayton Act claim and the state action doctrine. As the Supreme Court has recently instructed, see Town of Hallie v. City of Eau Claire, — U.S. —,—, 105 S.Ct. 1713, 1715, 85 L.Ed.2d 24 (U.S. Mar. 27, 1985), the starting point for any analysis of the state action doctrine is Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). In Parker, the California legislature authorized the establishment of an agricultural marketing program that restricted competition among growers and stabilized prices. Brown, a farmer affected by the program, sought to enjoin enforcement of the statute on the ground that it violated the Sherman Act. In passing on the legislation, the Supreme Court expressly assumed that the program would violate the federal antitrust laws if it “were organized and made effective solely by virtue of a contract, combination or conspiracy of private persons, individual or corporate.” Id. at 350, 63 S.Ct. at 313. The Court held, however, that the program was immune from federal antitrust attack because “it derived its authority and efficacy from the legislative command of the state.” Id. Relying on principles of federalism and state sovereignty, the Court concluded that the Sherman Act was not intended to prohibit state action. Id. at 351, 63 S.Ct. at 313.

In recent years, the Supreme Court has reaffirmed the Parker state action doctrine while refining its scope. In one of its latest decisions, Hoover v. Ronwin, — U.S. -, 104 S.Ct. 1989, 80 L.Ed.2d 590 (1984), the Court carefully explained the contours of the state action doctrine. In Hoover, an unsuccessful applicant for admission to the Arizona. Bar sued individual, members of the Arizona Supreme Court’s Committee on Examinations and Admissions; he alleged that they had conspired to restrain trade in violation of the federal antitrust laws “by artificially reducing the number of competing attorneys in the State of Arizona.” Id., 104 S.Ct. at 1994. The Arizona Supreme Court Rules delegated certain responsibilities to the Committee, such as the administration and grading of examinations, while reserving to the court the ultimate authority to grant or deny admission. Since they were acting pursuant to these rules, the Committee members contended that their conduct was immune from federal antitrust scrutiny under the state action doctrine. The Supreme Court agreed.

The Court explained that when a legislature or state supreme court adopts legislation or rules, its actions “constitute those of the state, ... and ipso facto are exempt from the operation of the antitrust laws.” Id. at 1995. No further inquiry need be made as to whether the state intended to act in an anti-competitive way; it is sufficient that the state itself chose to act. Id. at 1998. The Court further explained, however, that

[c]loser analysis is required when the activity at issue is not directly that of the legislature or supreme court, but is carried out by others pursuant to state authorization. ... In such cases, it becomes important to ensure that the anti-competitive conduct of the State’s representative was contemplated by the State.

Id. at 1995 (citations omitted). In these circumstances, the Court said, there must be a showing that the state’s representative was acting “pursuant to a ‘clearly articulated and affirmatively expressed state policy’ to replace competition with regulation.” Id. (quoting Community Communications Co. v. City of Boulder, 455 U.S. 40, 54, 102 S.Ct. 835, 842, 70 L.Ed.2d 810 (1982)).

In Hoover, the Court concluded that the actions of the Committee were in essence the actions of the Arizona Supreme Court itself. The Court emphasized the close supervision the Arizona Supreme Court exercised over the Committee; it noted that the court approved the particular grading formula in question and that it retained sole authority to determine who should be admitted to practice. Id., 104 S.Ct. at 1998. Thus; the Supreme Court found that the Committee’s actions were those of the state, and that it need not look for an expressed state policy to replace competition with regulation.

In this case, it is not as clear that the UDC acts as the state itself. While the state legislature did create the agency, it does not appear to exercise the same degree of control over the UDC that the Arizona Supreme Court exercised over its Committee on Examinations and Admissions. Thus, this case is one of the second type of cases discussed in Hoover — one where a representative of the state, as opposed to the state itself, engages in anti-competitive conduct. Therefore, in order for the UDC to be shielded by the state action doctrine, it must show that the legislature clearly and affirmatively authorized it to engage in the anti-competitive conduct at issue here.

The City must make a similar showing to receive the benefit of the state action doctrine. Just weeks ago, in Town of Hallie v. City of Eau Claire, — U.S. —, 105 S.Ct. 1713, 85 L.Ed.2d 24 (1985), the Supreme Court held that a municipality must demonstrate that it has acted pursuant to a clearly expressed state policy in order to be entitled to the protection of the state action doctrine. The Court stated that this “clear articulation” requirement did not require the municipality to show that the state compelled it to act. Id. at-, 105 S.Ct. at 1719. Indeed, the Court said that the legislature need not even expressly state that it intends the policy to have anti-competitive effects. Id. The municipality need only show that “ ‘the legislature contemplated the kind of action complained of.’ ” Id. (quoting City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 415, 98 S.Ct. 1123, 1138, 55 L.Ed.2d 364 (1978)).

Turning, then, to the UDC Act, I think it unquestionable that the legislature contemplated that the UDC and the City would engage in the conduct plaintiffs complain of here. As I described earlier, the legislature granted the UDC and the City extraordinarily broad powers to eradicate blight in urban areas. The UDC was granted the power “[t]o do any and all things necessary or convenient to carry out its purposes.” UDC Act § 6255(26). Similarly, the City was authorized, “notwithstanding any other law, to enter into such agreements with the [UDC] and its subsidiaries and to do all things necessary to carry out its obligations under the- same.” UDC Act § 6266(6).

If these broad statements are not enough, the legislature appears to have specifically authorized the anti-competitive actions plaintiffs complain of. In UDC Act § 6256(1), the legislature empowered the UDC to sell or lease “all or any portion of the real or personal property constituting a land use improvement project to any person, firm, partnership or corporation, either public or private.” Subsection (c) of that provision states that such a sale or lease may be “without public bidding or public sale” (Emphasis added). Obviously, since the legislature itself authorized the UDC to allocate development opportunities without competitive bidding, it foresaw that the UDC and municipalities working in cooperation with it might engage in anti-competitive conduct.

Notwithstanding the state’s clear authorization of the actions complained of, plaintiffs contend that the UDC and the City are not entitled to immunity under the state action doctrine because the state did not compel them to take the anti-competitive actions they did. Plaintiffs point out that the UDC and the City have not contended that participation by designated theater operators is necessary to the Project’s success. Be that as it may, the Supreme Court made it clear in Town of Hallie v. City of Eau Claire, — U.S. —, 105 5. Ct. 1713, 85 L.Ed.2d 24 (1985), that a state agency or municipality need not show that it was compelled by the state to act in order to receive the immunity of the state action doctrine. The Court stated that “although compulsion affirmatively expressed may be the best evidence of state policy, it is by no means a prerequisite to a finding that a municipality acted pursuant to clearly articulated state policy.” Id. at —, 105 S.Ct. at 1719. Even though the state did not compel their actions here, I am fully satisfied, for the reasons stated above, that the UDC and the City acted pursuant to a clearly articulated state policy when they designated the defendant theater operators to develop the five Times Square theaters.

Accordingly, I conclude that the conditional designations of the defendant theater operators to develop the five Times Square theaters are exempt from the operation of the antitrust laws. This conclusion leads me to dismiss plaintiffs' Clayton Act claim against not only the UDC and the City, but the other defendants as well. It would be anomalous indeed to hold that the UDC and the City are exempt from antitrust scrutiny because they made their conditional designations pursuant to state authorization, and to hold at the same time that the developers who merely applied for and received, those designations are not. See Caribe Trailer Systems, Inc. v. Puerto Rico Maritime Shipping Authority, 475 F.Supp. 711, 724 (D.D.C.1979), affd per curiam, No. 79-1658 (D.C.Cir.1980), cert, denied, 450 U.S. 914, 101 S.Ct. 1355, 67 L.Ed.2d 339 (1981). Therefore, defendants’ motion to dismiss the Clayton Act claim is granted.

That leaves only plaintiffs’ pendent Donnelly Act claim. When a case presents both federal and pendent state claims, and the federal claims are dismissed, the pendent state claims must be dismissed as well. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). Simply put, once the federal claims are dismissed, the federal court has no subject matter jurisdiction over the pendent claims. Accordingly, I grant defendants’ motion to dismiss plaintiffs’ Donnelly Act claim.

For the reasons stated above, plaintiffs’ complaint is hereby dismissed, and the Clerk of the Court is directed to enter judgment in favor of defendants.

SO ORDERED.

      . In addition to the UDC, the City, Nederlander, Jujamcyn, Cambridge, and Park Tower, the complaint also names Harris Nederlander, Inc., New Amsterdam Nederlander, Inc., and the Times Square Redevelopment Corporation as defendants. Harris Nederlander, Inc. and New Amsterdam Nederlander, Inc. are both owned and controlled by the Nederlander Organization, Inc. Accordingly, I have referred to all three as “Nederlander." The Times Square Redevelopment Corporation is a subsidiary of the UDC created pursuant to § 6262 of the New York Unconsolidated Laws.

      . Defendant Park Tower has also moved for an award of attorney’s fees. Plaintiffs and Park Tower have agreed, however, that the Court should not address this issue until after the instant motion to dismiss is resolved.

      . UDC Act § 6253(b)(c) defines a "Land Use Improvement Project” as a "plan or undertaking for the clearance, replanning, reconstruction and rehabilitation or a combination of these and other methods, of a substandard and insanitary area, and for recreational or other facilities incidental or appurtenant thereto."

        . Plaintiff Leonard Clark is president of Cine 42nd Street Theater Corporation.

      . Plaintiffs have advised the Court that the UDC Board of Directors and the City’s Board of Estimate subsequently approved the conditional designations.

      . Although Parker, Hoover, and Town of Hallie were all Sherman Act cases, there is little doubt that the state action doctrine applies to Clayton Act suits as well. Thus, the Supreme Court has broadly and repeatedly declared that "the federal antitrust laws do not prohibit a State 'as sovereign’ from imposing certain anticompetitive restraints.” City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 391, 98 S.Ct. 1123, 1125, 55 L.Ed.2d 364 (1978)(citing Parker v. Brown). See also Community Communications Co. v. City of Boulder, 455 U.S. 40, 52 n. 15, 102 S.Ct. 835, 841 n. 15, 70 L.Ed.2d 810 (1982) ("Parker affords an exemption from federal antitrust laws, based upon Congress’ intention respecting the scope of those laws”).