text:
    OFFICE OF the COMPTROLLER GENERAL OF the REPUBLIC OF BOLIVIA on Behalf of the GENERAL COMMAND OF the BOLIVIAN AIR FORCE, and Central Bank of Bolivia, Plaintiffs, v. INTERNATIONAL PROMOTIONS AND VENTURES, LTD., and Larry Tractman, Defendants.
    No. 83 Civ. 7707 (BN)(RJW).
    United States District Court, S.D. New York.
    Sept. 4, 1985.

      Walter L. Stratton and Mitchell A. Karlan, Gibson, Dunn & Crutcher, New York City, for plaintiffs.
    Thomas Torto, Brooklyn, N.Y., for defendants.
   Opinion and Order On Plaintiffs’ Motion for Summary Judgment

BERNARD NEWMAN, Senior Judge of the United States Court of International Trade,

sitting by designation:

This diversity action has its genesis in two contracts executed in 1981 and 1982 by the plaintiff Bolivian Air Force and defendants, International Promotions and Ventures, Ltd. (“IPVL”) and Larry Tract-man, president of IPVL, concerning the purchase of certain military aircraft, related equipment and services. Plaintiffs sue to recover possession of certain promissory notes delivered to defendants with a face value of $33.01 million, or alternatively for damages equal to the face amount of the notes plus accrued interest. Defendants counterclaim seeking damages for breach of contract and fraudulent misrepresentations, which allegedly frustrated defendants’ efforts in performing the contracts.

Presently before the court is plaintiffs’ motion for summary judgment. In support of their motion, plaintiffs rely upon the stipulated facts in the Joint Pretrial Order of May 23, 1985 and numerous documentary exhibits attached thereto and submitted with plaintiffs’ Notice of Motion. In opposition, defendants contend that there are material issues of fact which must be decided by a trial.

For the reasons that follow, the court holds that there are no genuine or material issues for trial and that plaintiffs are entitled to summary judgment.

The Facts

On September 30, 1981 the Bolivian Air Force and IPVL entered into a contract (“1981 contract”) pursuant to which IPVL agreed to supply the Bolivian Air Force with fifty-two F-104 Starfighter airplanes, related equipment, spare parts, turbines, maintenance and training (exhibits A and B, Joint Pretrial Order). The 1981 contract provided that the Bolivian Air Force was to pay for the Starfighters and related goods and services by issuing to defendants, upon execution of the contract, promissory notes guaranteed by the Central Bank of Bolivia in the principal amount of approximately $69.9 million.

Under the 1981 contract, defendants were to purchase the Starfighters from the Belgium Government. When the 1981 contract was entered into, the parties were aware that Belgium could not sell the aircraft in question unless a transfer license was issued by the United States Government, acting through the State Department. Additionally, the parties recognized that United States Government policy opposed the sale of military equipment to Bolivia. Anticipating the contingency that the required transfer license might not be granted by the United States Government, the parties expressly agreed to condition the 1981 contract upon defendants’ obtaining such license. Hence, so far as pertinent, paragraph Ninth of the 1981 contract provides:

NINTH: DURATION OF THE CONTRACT. — The present contract will become effective once the following requirements ha[ve] been complied with:
******
Four. — The transfer license of the goods, object of the present contract, ha[s] been [obtained] by “THE SELLER” [defendants] in the United States of America, within the maximum deadline of thirty (30) days, computed from the time the present document was subscribed [i.e., September 30, 1981].

On or about September 30, 1981, date of execution of the 1981 contract, twenty-one promissory notes in the amount required by the contract (the September notes) were issued and subsequently delivered to agents of IPVL and to the Republic of Belgium. In conformance with the 1981 contract, the September notes were accompanied by letters of guarantee from the Central Bank. Although the 1981 contract required that plaintiffs deliver the promissory notes to defendants upon execution of the agreement, the contract also expressly stipulated that defendants were to return the notes if the United States did not issue the transfer license. In that regard, paragraph Thirtieth of the 1981 contract provides:

ANNULMENT OF THE PROMISSORY NOTES AND LETTER OF GUARANTEE. — In case that the present Contract would not become in force by failure in obtaining the license of sale or the export permit, the promissory notes and letters of guarantee issued as a consequence of the execution and compliance of the Contract, will become ipso-facto null of full right and therefore without any legal value. “THE SELLER” [defendants] should return them to “LA FAB”[the Bolivian Air Force] within a period of 3 days. [Emphasis added.]

In late 1981, agents of IPVL attempted to discount certain of the September notes and obtain cash from the Bank of Luxembourg, which refused to accept any of the September notes presented by IPVL. It appears that defendants encountered difficulties with the letters of guarantee accompanying the September notes, which letters according to defendants, had been deliberately signed by the representative of the Central Bank in a manner designed to render the notes nonnegotiable. Thereafter, on December 7, 1981 the September notes were replaced by plaintiffs with reissued negotiable promissory notes, numbered 1 through 40, whose face amount totaled $80,953,567 (December notes), also guaranteed by the Central Bank (exhibit H, Joint Pretrial Order). December notes 1 through 10 were issued to the Belgium Air Force and delivered to the Belgium Government at its embassy in Washington, D.C. December notes 11 through 40 were issued to and accepted by IPVL. There is no dispute concerning the validity of the December notes. The September notes were returned to the Bolivian Air Force and destroyed.

Respecting the transfer license upon which the 1981 contract was conditioned, it appears from an affidavit executed on March 18, 1985 (annexed to plaintiffs’ notice of motion) by the Honorable Samuel F. Hart, then United States Ambassador to Ecuador, that in late 1981 or early 1982 Ambassador Hart officially advised the then President of Bolivia, General Torrelio, “that under no circumstances would the United States Government issue a transfer license for authorizing the sale of the Star-fighters by Belgium to Bolivia”. It further appears from Ambassador Hart’s affidavit that in 1982 the Bolivian Ambassador to the United States, Julio Sanjines, raised the matter of a transfer license with Hart on several occasions, that Hart informed the Bolivian Ambassador there was no substance to reports that Mr. Tractman “had sufficient influence [within the State Department] to arrange for the transfer license to be issued,” and further “there would be no change in United States policy on this question”. Moreover, Ambassador Hart states in his affidavit that on April 8, 1982, “to quash any further speculation on the part of Ambassador Sanjines”, Hart confirmed by letter the official decision of the Department of State to “oppose the sale of Belgian F-104 aircraft to the Government of Bolivia, should a formal request for such a sale be received” (exhibit C, Joint Pretrial Order). Lastly, to emphasize the adamant position of the United States Government respecting denial of a transfer license, Ambassador Hart’s affidavit insists that “under no circumstances would the United States Government have issued the transfer license necessary to complete the sale in question. Any representation to the contrary by Mr. Tractman would simply be without basis”.

The short of the matter is that the transfer license, upon which the 1981 contract was expressly conditioned, was not issued by the United States Government within thirty days, as required by paragraph Ninth of the contract, and in point of fact the transfer license has never been issued.

Anticipating that a reversal of United States policy could be achieved, the Bolivian Air Force and defendants entered into an agreement on or about April 27, 1982 (“1982 contract”) supplementing the 1981 contract and modifying some of the original provisions (exhibits D and E, Joint Pretrial Order). However, like the 1981 contract, the 1982 agreement specifically retained the condition that the contract would not become effective unless and until the transfer license was issued, and also stipulated that the promissory notes delivered to defendants must be returned should the transfer license not be issued.

As of June 28, 1983, the position of the United States Government relative to granting a transfer license had not changed. Thus, following inquiries by the Bolivian Comptroller General, the State Department reaffirmed its decision that it would not authorize transfer of the Belgian aircraft to Bolivia; and on that very date, June 28, 1983, the Honorable Edwin G. Corr, United States Ambassador to Bolivia, wrote to the Comptroller General of Bolivia:

[D]uring conversations in 1981 between the United States Government and the Belgian Government, the Government of the United States indicated that it would not give its authorization for the transfer to the Bolivian Air Force of 52 F-104 airplanes, owned by the Belgian Air Force, in accordance with our arms Export Control Law. On several occasions previous to March 23, 1982, the Department of State conveyed verbally this decision also to Mr. Bernard L. Tractman, Manager of International Promotions and Ventures Limited.
To date, there is no reason to modify this judgment and my Government does not deem it feasible to grant the authorization requested of us. [Exhibit G, Joint Pretrial Order.]

After receipt of Ambassador Corr’s June 1983 letter, plaintiffs requested that defendants return the promissory notes in their possession. Similar requests were made to the Belgian Government and defendants’ Bolivian agents, which had also been given several of the notes. In due course, nineteen of the notes (December notes 1-11 and 13-20) were returned by Belgium and defendants’ Bolivian agents. Prior to filing the complaint in this action, plaintiffs demanded from IPVL and Tract-man the return of December notes No. 12 and Nos. 21 through 40 (“outstanding notes”), but defendants refused to return those notes. The principal value of the outstanding notes totals $33.01 million.

Essentialy, then, no transfer license for the Belgian Starfighters in question has been issued by the United States Government, and no Starfighters or any of the related goods and services called for by the contracts have ever been provided to the Bolivian Air Force under the 1981 or 1982 contracts.

As of October 1982, IPVL and Tractman had possession of the outstanding notes. This action was commenced in October 1983. On April 5, 1984 Judge Ward enjoined defendants “from negotiating any of the promissory notes that are the subject of this litigation without a further order of this court”. Seven days later, on April 12, 1984, defendants’ counsel wrote to Judge Ward (exhibit 5, plaintiffs’ Notice of Motion) revealing to the court — for the first time — that defendants no longer had possession of the outstanding notes. At that point, Judge Ward was informed by defendants’ counsel that in October 1982 defendants had pledged the outstanding notes to secure loans to defendants, and that the pledgee would not release the notes to defendants until the loans had been repaid. Since April 1984, defendants have maintained that the notes are not within their possession or control.

During pretrial discovery, Tractman refused to answer “any and all questions” on the ground that in October 1983, he was subpoenaed to testify before and produce documents to a Federal Grand Jury sitting in Washington, D.C., and that answering any questions in this civil action might tend to incriminate him in violation of his rights under the Fifth Amendment to the United States Constitution. After being directed by Judge Ward to respond to inquiries relating to the authenticity or admissibility of documents, Tractman (on behalf of IPVL) complied. But IPVL and Tractman have persistently refused to identify the person or entity to whom the outstanding notes were pledged, or to reveal the present holder of such notes, based upon Tractmans’ assertion of his Fifth Amendment rights.

On March 25, 1985 this court granted plaintiffs’ motion for leave to file an amended and supplemental complaint, seeking recovery of damages equal to the face amount of the outstanding notes for tortious conversion and breach of contract in the event that defendants cannot comply with a judgment ordering return of the notes.

Opinion

I.

There is no dispute in this case that both the 1981 and 1982 contracts were subject to the condition that a transfer license be issued by the United States Government; and it is also undisputed that the United States has refused to grant such license. Under paragraph Ninth of the 1981 agreement, the “SELLER” (IPVL) was explicitly obligated to obtain the transfer license within thirty days of the execution of the contract. The 1982 agreement, which amended and supplemented the 1981 contract, did not relieve IPVL of that obligation, but on the contrary recites “[tjhat such license has been in process by “THE SELLER” [IPVL] — with the cooperation of the Bolivian Air Force before the Government of the United States through the official channels”. Although the 1981 contract imposed a thirty-day deadline for obtaining the transfer license, the 1982 agreement eliminated that deadline. Still, the issuance of the transfer license was expressly retained as a condition precedent to the parties’ contractual obligations. Indeed, the transfer license is characterized by the 1982 agreement as its “sine qua non”.

Fundamentally, the parties to a contract may condition the performance of either party, or the validity of the entire contract itself, on the occurrence of an event. Restatement of Contracts (Second) § 224 (1979); 3A Corbin on Contracts §§ 626-28 (1960). If that event does not occur, the contractual obligation does not arise. Restatement, supra, § 225.

Here, the 1981 and 1982 contracts are definitively conditioned upon the State Department’s issuance of the transfer license. Since such event never occurred, plaintiffs’ duty to perform was discharged. Under these circumstances, plaintiffs are entitled to return of the outstanding notes.

A party whose duty of performance ... is discharged as a result of impracticability of performance, frustration of purpose, [or] non-occurrence of a condition ... is entitled to restitution for any benefit that he has conferred on the other party by way of part performance____ Restatement of Contracts (Second) § 377 (1979). See also 6 Corbin § 1368 (1962).

Defendants assert, as an affirmative defense and counterclaim, that the official of the Central Bank who executed the letters of guarantee accompanying the original September notes deliberately distorted his signature on those guarantees, thereby rendering the September notes nonnegotiable. However, pursuant to paragraph Thirtieth, quoted supra, it is clear that defendants had no right whatever to negotiate the promissory notes prior to obtaining the transfer license. Significantly, the parties had agreed that if defendants failed to obtain the license, the promissory notes and letters of guarantee “will become ipso-faeto null of full right and therefore without any legal value, [and] ‘THE SELLER’ [defendants] should return them to ‘LA FAB’ [Bolivian Air Force] within a period of three days.”

In any event, there is no dispute that shortly after defendants complained to the Bolivian officials about the form of the signatures on the letters of guarantee accompanying the September notes, plaintiffs issued and defendants accepted replacement notes (December notes), the validity of which is not in issue.

Additionally, defendants’ affirmative defense and counterclaims predicated upon the unacceptable letters of guarantee accompanying the September notes, must as a matter of law fail inasmuch as defendants’ difficulties in attempting to negotiate the September notes has no bearing on the vital condition in the 1981 and 1982 contracts that a transfer license be issued by the United States Government and the State Department’s refusal to issue such license. Plainly, it was defendants’ failure to obtain the transfer license that precluded performance of the contracts and not the letters of guarantee accompanying the September notes.

Defendants also raise as an affirmative defense plaintiffs’ alleged refusal to cooperate with defendants’ attempt to negotiate the December notes in June 1982. Again, this defense is legally insufficient. After the United States Government communicated its decision that no transfer license would be issued, defendants were required by the terms of the 1981 and 1982 contracts to return the promissory notes to plaintiffs. Absent the issuance of a transfer license, defendants had no right to negotiate the notes. Moreover, the Central Bank’s refusal in June 1982 to acknowledge the validity of the guarantees on the December notes had no causal relevance to the United States policy opposing arms sales to Bolivia, announced many months earlier, and the rejection of Bolivia’s request for a transfer license.

Defendants further assert as an affirmative defense that the Government of Bolivia refused to cooperate with defendants in attempting to obtain a transfer license, and consequently interfered with defendants’ performance under the contracts. The court finds this defense to be utterly without legal merit or factual foundation.

The Hart and Corr communications (exhibits C and G to the Joint Pretrial Order) and the parties’ stipulated facts make it abundantly clear that the Bolivian Government did engage in formal government to government — indeed, face to face — dialogue with United States representatives on the subject of a transfer license. It is also noted that the 1982 contract recites as an historical fact, in the section entitled “Background”, that the transfer “license is being processed by ‘THE SELLER’ [viz., IPVL] with the cooperation of the Bolivian Air Force before the Government of the United States through the official channels” (emphasis added).

The contracts, however, are completely silent as to what specific steps, if any, the Bolivian Government was required to take in cooperation with defendants to obtain a transfer license. Contrary to defendants’ assertion, plaintiffs were not contractually obligated to “formally” request that the United States lift its arms embargo against Bolivia.

In any case, there is nothing in the record to suggest that the State Department’s refusal to lift the arms embargo against Bolivia and issue a transfer license was due to any failure by the Government of Bolivia to make a “formal” request, or that a formal request would have altered the State Department’s decision. The record is crystal clear that the State Department would not have granted a transfer license even if a formal request was made, and that the reason the license was not issued was the Reagan Administration’s unalterably firm unwillingness to issue such license.

Lastly, there is not a scintilla of evidence that the Bolivian Government obstructed defendants’ efforts in obtaining the license nor deterred the State Department from issuing a transfer license. The fact that defendants’ failure to obtain the transfer license was due entirely to the United States Government’s policy respecting arms sales to Bolivia and not to any lack of cooperation by plaintiffs is irrefutable.

Significantly, too, Mr. Tractman’s averments in his opposing affidavit concerning Bolivia’s alleged lack of cooperation are not based upon personal knowledge, but rather on inadmissible hearsay, which may not be considered as a basis for defeating a motion for summary judgment. Rule 56(e) requires, on a motion for summary judgment: “opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein” (emphasis added).

Finally, Tractman’s contention that “[t]he United States stands ready to lift the embargo and issue a transfer license” today, if only Bolivia would make the “appropriate request” (affidavit, paragraph 26, p. 34) is purely surmise and conjecture, which is insufficient to deny a motion for summary judgment. Cf. Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d Cir.1985). Obviously, Tractman cannot speak for the State Department.

In sum, the court concludes that defendants were required by the express terms of the 1981 and 1982 contracts to return December notes 12 and 21 through 40 to plaintiffs since the United States Government would not issue a transfer license authorizing the sale of the Starfighters to Bolivia, a condition precedent to the 1981 and 1982 contracts. Inasmuch as there was no relationship between the unacceptable letters of guarantee accompanying the September notes and the decision of the United States Government, for policy reasons, not to issue a transfer license, the court finds no genuine or material issue of fact for trial arising out of defendants first and second counterclaims for breach of contract and fraudulent misrepresentation. Further, as previously pointed out, plaintiffs issued and defendants accepted the December notes, thus curing any defect in plaintiffs’ compliance with the 1981 contract. In view of the foregoing, it is unnecessary to reach plaintiffs’ contention that the counterclaims must be dismissed as a matter of law because Tractman refused to waive his Fifth Amendment privilege and provide discovery necessary to plaintiffs’ defense to the counterclaims. For the reasons stated above, the court also finds no merit in, or genuine issue of fact for trial relating to, defendants’ affirmative defense that plaintiffs’ refused to cooperate in procuring the transfer license.

II.

As mentioned supra, defendants presently do not have possession of the outstanding promissory notes as they were pledged to an undisclosed third party to secure loans to Mr. Tractman. The court reiterates that until a transfer license was issued, defendants had no right under the 1981 or 1982 contracts to dispose of the notes, and because no transfer license was ever obtained, defendants are required by the contracts to return the notes to plaintiffs. More, plaintiffs are quite correct in their contention that even if plaintiffs had breached the contracts, defendant still would not necessarily be entitled to retain all the outstanding notes, having a face amount of $33.01 million. Indeed, even a “party in breach is entitled to restitution for any benefit that he has conferred by way of part performance * * * in excess of the loss that he has caused by his own breach”. Restatement of Contracts (Second) § 374(1).

Turning to the question of damages for defendants’ breach of contract and conversion of the outstanding promissory notes in the event that defendants are unable to return the notes, plaintiffs claim that defendants must pay an amount equal to the face value of the notes ($33.01 million) plus accrued interest. “The law is well settled that where one converts a note to his own use the measure of damages is prima facie the face value of the note, and it devolves upon the defendant to show that it was in fact of less value.” Allied Building Credits, Inc. v. Grogan Bldrs. Sup. Co., 365 S.W.2d 692 (1963). The same measure of damages is applicable where a plaintiff’s cause of action is predicated on breach of contract. Id., 365 S.W.2d at 696.

While defendants assuredly had the right to adduce evidence that the outstanding notes are worth less than their face value, or are without any value, they submitted no evidence whatever concerning the value of the notes. Admittedly, defendants pledged the notes as security for loans. Moreover, the outstanding notes may be further transferred to a new holder who may seek payment of the notes. There is a presumption that the maker of a note will voluntarily pay it or will be compelled to pay it, and consequently its value is prima facie that which appears on its face. Fourth National Bank v. Dyer, 350 P.2d 481, 85 ALR 2d 1345 (1960); Thayer v. Manley, 73 N.Y. 305 (1878). Plaintiffs, need not establish that they have paid the notes to the holder; it is sufficient that plaintiffs are legally liable for payment of the notes. Thayer v. Manley, supra; Decker v. Mathews, 12 N.Y. 313 (1855). See also M.E.R. Co. v. Kneeland, 120 N.Y. 134, 24 N.E. 381 (1890) and cases cited; Farnham v. Benedict, 107 N.Y. 159, 174, 13 N.E. 784 (1887). If defendants are unable (or unwilling) to return the outstanding notes, absent any showing by defendants that the outstanding notes are worth less than face value or are of no value, plaintiffs are entitled to recover as damages the face amount of the notes ($33.01 million) plus accrued interest. Decker v. Mathews, supra. Thayer v. Manley, supra. See also Western Railroad Co. v. Bayne, 75 N.Y. 1 (1978); and Booth v. Powers, 56 N.Y. 22 (1874).

Finally, defendants’ contention that plaintiffs cannot recover as damages the face value of the notes because they have not reached maturity is without merit. In Hubbard v. State Life Ins. Co. of Indianapolis, Ind., 129 Iowa 13, 105 N.W. 332 (1905), defendant’s agent converted and negotiated before maturity a promissory note that was delivered to him by plaintiff pursuant to negotiations for a contract that was not yet binding on either party and plaintiff had the right to recall the note. As to the measure of damages, the Hubbard court held that inasmuch as it appeared that the note was negotiated before maturity by defendant’s agent (to whom it was made payable), and was an outstanding obligation of plaintiff in the hands of an innocent holder, “there can be no doubt of plaintiff’s right to recover by way of damages the face value of the outstanding obligation” (105 N.W. at 333).

Conclusion

In summary, plaintiffs have presented an unassailable and uncontradicted case on the facts — a devastating case, to be blunt; defendants have interposed merely some sham and feigned defenses and counterclaims — patently inadequate and inapplicable — which do not raise any justiciable or arguable issue of material fact. Accordingly, the court concludes that plaintiffs’ application must be granted; and that summary judgment, an effective arm in the arsenal of judicial economy, is entirely appropriate to obviate the necessity of a trial.

For the foregoing reasons, it is hereby ORDERED:

1) Plaintiffs’ motion for summary judgment dismissing defendants’ first and second counterclaims for breach of contract and fraudulent misrepresentation is granted.

2) Plaintiffs’ motion for summary judgment for restitution of the outstanding December notes is granted; said notes shall be returned to plaintiffs within twenty days of this order.

3) In the event that defendants are unable or unwilling to return the outstanding December notes to plaintiffs in accordance with paragraph 2, supra, plaintiffs are granted summary judgment for damages in the amount of $33.01 million dollars, the face amount of the outstanding notes, plus the accrued interest.

      . Under Bolivian law, the Office of the Comptroller General, an agency of the Government of the Republic of Bolivia, is authorized to prosecute actions on behalf of other government agencies, including the Bolivian Air Force, the Central Bank of Bolivia, and on its own behalf. Stipulated fact No. 1, Joint Pretrial Order dated May 23, 1985.

      . See 22 C.F.R. § 123.10(b) (1981).

      . In 1981 and 1982 Ambassador Hart was the Director of the Office of Andean Affairs, Bureau of Inter-American Affairs, in the Department of State 'of the United States Government.

      . The within case was reassigned from Judge Ward to the writer by order filed on January 14, 1985.

      . Tractman’s affidavit in opposition to plaintiffs’ motion for summary judgment states that in June 1982, in reply to inquiries from Citibank, the Central Bank declined to acknowledge the validity of the guarantees on ten of the replacement December notes. This averment does not appear disputed by plaintiffs. As Comptroller General de Lozada’s deposition testimony makes clear, the Central Bank refused to acknowledge its guarantee of the notes because “by then [we] knew very well the U.S. position, that there will never be the authorization" required before the notes could be negotiated. Tractman affidavit, exhibit H, at p. 335.

      . And with reference to the extensive affidavit submitted by Mr. Tractman, the court must agree with plaintiffs’ characterization that in the main the affidavit is "scurrilous in the extreme”. Tractman’s affidavit is replete with personal attacks on United States and Bolivian governmental officials and others comprising unsubstantiated accusations of perjury, corruption, extortion, solicitation of bribery and common thuggery.

      . At oral argument held on September 25, 1984, Judge Ward dismissed defendants’ third and fourth counterclaims and defendants’ counsel voluntarily withdrew defendants’ fifth, sixth and seventh counterclaims (exhibit 6 to plaintiffs’ Notice of Motion).

      . There is no dispute that the December notes are negotiable promissory notes and bear the guarantee of the Central Bank of Bolivia on their faces. Stipulated fact No. 20, Joint Pre-trial Order.


source: Caselaw Access Project

author: TASHIMA, District Judge.

license: Public Domain

text:
    Ala E. RUSTOM, Plaintiff, v. ATLANTIC RICHFIELD COMPANY, etc., et al., Defendants.
    No. CV 85-4499 AWT.
    United States District Court, C.D. California.
    Sept. 4, 1985.

      John J. Schimmenti, Schimmenti, Mullins & Berberian, El Segundo, Cal., for plaintiff.
    Jerald E. Gale & Stephen B. Maseda, Los Angeles, Cal., for defendants.
   MEMORANDUM OPINION AND ORDER

TASHIMA, District Judge.

This action was commenced in state court in 1981. A Second Amended Complaint was filed in June, 1985 and the removal petition was filed within 30 days after it was received by the petitioner defendants. 28 U.S.C. § 1446(b). The Second Amended Complaint expressly asserted for the first time a claim under Title I of the Petroleum Marketing Practices Act (the “PMPA” or “Act”), 15 U.S.C. § 2801 et seq., arising from the alleged wrongful termination of a franchise relationship by the defendant franchisors, Atlantic Richfield Company and ARCO Petroleum Products Company (collectively “ARCO”). The Court sua sponte issued an Order to Show Cause (“OSC”) why the action should not be remanded to state court for failure to remove it within 30 days of service of the original complaint under 28 U.S.C. § 1446(b) or, alternatively, why the action should not be dismissed for lack of derivative jurisdiction in light of the PMPA’s apparent grant of exclusive jurisdiction to the federal courts, 15 U.S.C. § 2805. The issues raised by the OSC now have been briefed and argued. Because I conclude that the action must be dismissed for lack of derivative jurisdiction, the issue of the timeliness of removal is mooted.

Whether the federal courts have exclusive jurisdiction over actions brought under the PMPA is a matter of first impression— there is no controlling case law in this Circuit. There are only two reported cases on the issue, both of which conclude that there is concurrent jurisdiction over actions brought under the Act. The analysis in Ted’s Tire Service Inc. v. Chevron U.S.A. Inc., 470 F.Supp. 163, 165 (D.Conn.1979), is limited to a brief exegesis of § 2805(a) of the PMPA, noting only that the statutory language is “may be brought” not “must be instituted in federal court.” (Emphasis in the original.) There is reference neither to any other provision of the PMPA nor to its legislative history. In the second case, California ARCO Distrib., Inc. v. Atlantic Richfield Co., 158 Cal.App.3d 349, 364, 204 Cal.Rptr. 743 (1984), the court, in passing dictum, adopts without analysis the holding in Ted’s Tire Service that state courts have concurrent jurisdiction over PMPA claims.

Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 101 S.Ct. 2870, 69 L.Ed.2d 784 (1981), provides the framework for determining the exclusive/concurrent jurisdiction issue. In light of such an analysis, I do not find the reasoning of Ted’s Tire Service to be persuasive. In Gulf Offshore, the Court held that there is a presumption that a state court has concurrent jurisdiction over actions arising under a federal statute. Id. at 478, 101 S.Ct. at 2875. However, that presumption may be rebutted “by unmistakable implication from legislative history, or by a clear incompatibility between state-court jurisdiction and federal interests.” Id. Accord Charles Dowd Box Co. v. Courtney, 368 U.S. 502, 508, 82 S.Ct. 519, 523, 7 L.Ed.2d 483 (1962); Valenzuela v. Kraft, Inc., 739 F.2d 434, 435 (9th Cir.1984).

The PMPA provides that an action “may be brought” in a federal district court to redress a violation of the Act. 15 U.S.C. § 2805(a). As noted in Ted’s Tire Service, 470 F.Supp. at 435, the PMPA does not specifically state that an action under the Act may be brought only in a federal court. This distinction need not detain us long, however, because there are other indications in the legislative history of the PMPA and in the provisions of the Act itself which provide the “unmistakable implication” of Congressional intent that federal courts have exclusive jurisdiction over actions brought under the PMPA.

First, both the Senate and House Reports refer only to the maintenance of an action under the PMPA in federal court; “The provisions of title I are enforceable by private civil action in U.S. District Court.” S.Rep. No. 95-731, 95th Cong., 2d Sess. 16, reprinted in 1978 U.S. Code Cong. & Ad.News 873, 874; H.R.Rep. No. 95-161, 95th Cong., 1st Sess. 14. There is a conspicuous absence in the Reports of any reference to the bringing of PMPA actions in state court. As the court observed in Valenzuela, in holding that federal courts have exclusive jurisdiction over actions under Title VII of the Civil Rights Act of 1964 (“Title VII”); “Although not determinative, the absence of reference to the state courts combined with Congress’ affirmative references to the federal courts suggests an intent to make federal jurisdiction exclusive.” 739 F.2d at 436.

Further, two sections of the PMPA incorporate standards under the Federal Rules of Civil Procedure to the provision of a remedy under the Act. First, § 2805(d)(1)(A) provides that if a franchisee prevails in any action brought to redress a violation of the PMPA, the franchisee shall be entitled “consistent with the Federal Rules of Civil Procedure, to actual damages.” Similarly, § 2805(b)(2) provides that a court shall grant a preliminary injunction in any action brought under the Act if: .

(A) the franchisee shows—
(i) the franchise of which he is a party has been terminated or the franchise relationship of which he is a party has not been renewed, and
(ii) there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation; and
(B) the court determines that, on balance, the hardships imposed upon the franchisor by the issuance of such preliminary injunctive relief will be less than the hardship which would be imposed upon such franchisee if such preliminary injunctive relief were not granted.

This is the standard that is widely applied in the federal courts under Fed.R.Civ.P. 65. See, e.g., Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1421 (9th Cir.1984); Los Angeles Memorial Coliseum Comm’n v. National Football League, 634 F.2d 1197, 1201 (9th Cir.1980); Charlie’s Girls, Inc. v. Revlon, Inc., 483 F.2d 953, 954 (2d Cir.1973) (per curiam).

The application of the Federal Rules of Civil Procedure both for the award of damages and for the issuance of preliminary injunctions demonstrates that Congress must have intended that actions brought under the PMPA be brought in federal court. As the court in Valenzuela held:

Whether congress has the constitutional power to require state courts to follow Fed.R.Civ.P. 65[] and to expedite certain cases is a matter of some doubt____ In any event, we do not believe that Congress attempted in Title VII to regulate the procedures and priorities of the state court.

739 F.2d at 436.

In Valenzuela, the court also was faced with a provision similar to § 2805(a), in that Title VII provides: “Each United States district court ... shall have jurisdiction of actions brought under this subchapter.” 42 U.S.C. § 2000e-5(f)(3). Like the PMPA, Title VII does not specify that actions may be brought only in federal court. Relying to a great extent on the two factors discussed above — the references in the legislative history only to the maintenance of an action in federal court and the incorporation of the standard applied pursuant to F.R.Civ.P. 65 for the issuance of preliminary injunctions under Title VII — the court in Valenzuela held that Congress must have intended to vest the federal courts with exclusive jurisdiction over actions brought under Title VII. See also General Inv. Co. v. Lake Shore & Mich. S. Ry., 260 U.S. 261, 286-87, 43 S.Ct. 106, 116-17, 67 L.Ed. 244 (1922) (federal courts have exclusive jurisdiction over actions under the Sherman and Clayton Acts, although statutes provide only that actions may be brought in federal court); Derish v. San Mateo-Burlingame Bd. of Realtors, 724 F.2d 1347, 1349 (9th Cir.1983) (same).

Although Gulf Offshore and Dowd Box also dealt with statutes which provide only that actions may be brought in a federal court, both cases are distinguishable. In Gulf Offshore, in holding that there is concurrent jurisdiction over actions brought under the Outer Continental Shelf Lands Act, 43 U.S.C. § 1331 et seq., the Court found nothing in the language or the structure of that act, its legislative history or underlying policies to suggest a legislative intent to vest the federal courts with exclusive jurisdiction. 453 U.S. at 482-84, 101 S.Ct. at 2877-78. Similarly, in Dowd Box, in holding that there is concurrent jurisdiction over actions brought pursuant to § 301 of the Labor Management Relations Act, 29 U.S.C. § 185, the Court found that the legislative history clearly demonstrated a Congressional intent to supplement and not to displace the jurisdiction of state courts over actions on contracts made by labor organizations. 368 U.S. at 511-13, 82 S.Ct. at 524-25.

Given the references in the legislative history here only to the maintenance of actions in federal court, the provision in the Act for the application of the Federal Rules of Civil Procedure for the award of damages and the further provision of a standard for the issuance of a preliminary injunction as applied by the federal courts, I hold that Congress intended to vest the federal courts with exclusive jurisdiction over actions brought under the PMPA. It follows that the state court from which this action was removed lacked subject matter jurisdiction over the action. Thus, this court, on removal, lacks derivative jurisdiction requiring dismissal. Lambert Run Coal Co. v. Baltimore & Ohio RR, 258 U.S. 377, 382, 42 S.Ct. 349, 351, 66 L.Ed. 671 (1922); Valenzuela, 739 F.2d at 435.

IT IS ORDERED that the action is dismissed without prejudice.

      . ARCO’s removal petition is timely only if, under § 1446(b), “the case stated by the initial pleading is not removable" and the case became removable by the Second Amended Complaint. However, the state court pleadings disclose that it has always been ARCO’s position that the PMPA preempted all of plaintiffs purported state law claims. If this is so, then under the "artful pleading” rule which applies to preempted claims, the action was removable from its commencement and was or should have been "ascertained” as such by ARCO. See, e.g., Olguin v. Inspiration Consol. Copper Co., 740 F.2d 1468 (9th Cir.1984). It would be fruitless, however, to remand to state court a preempted claim over which federal courts have exclusive jurisdiction.

      . Abadjian v. Gulf Oil Corp., 602 F.Supp. 874 (C.D.Cal.1984), involved an action brought under the PMPA that had been removed from state court. The court there held that it lacked removal jurisdiction because there was no PMPA "franchise” with respect to one defendant and the claim against the former franchisor defendant was not separate and independent. The action was remanded to state court and the issue of derivative jurisdiction was not considered. Id. at 882.

      . ARCO contends that three cases hold that federal courts have exclusive jurisdiction of actions arising under the PMPA. Two of the cases do not reach the issue, holding only that an action under the PMPA may be brought in federal court. Naso v. Sun Ref. & Mktg. Co., 582 F.Supp. 1566, 1567 (N.D.Ohio 1983); Meyer v. Amerada Hess Corp., 541 F.Supp. 321, 328 (D.N.J.1982). The holding of the third case, Shell Oil Co. v. Nelson Oil Co., 627 F.2d 228 (Temp.Emer.Ct.App.1980), is not entirely clear. The court there stated, "Because federal courts have exclusive jurisdiction over the claims raised by Shell, (Economic Stabilization Act of 1970, § 210, 12 U.S.C. § 1904 note) Shell filed an independent action in federal court following the remand in order to pursue its claims in the proper forum.” Id. at 231 n. 1. Although the parenthetical citation quoted above is only to the Economic Stabilization Act, "the claims raised by Shell” included claims under the PMPA. Id. at 231. It is unclear whether the parenthetical citation is intended as a limitation on the exclusive jurisdiction holding.

      . In fact, Congress expressly "embraced a judicial standard utilized by the Second Circuit.” S.Rep No. 95-731 at 41, 1978 U.S.Cong & Ad. News at 899

      . This discussion is based on the provision in § 706(f)(2) of Title VII, 42 U.S.C. § 2000e-5(f)(2), that "any ... order granting preliminary or temporary relief shall be issued in accordance with Rule 65 of the Federal Rules of Civil Procedure.” However, Rule 65 does not itself establish any standards for the issuance of injunctive relief. Therefore, I construe the court's reference to the requirement to "follow" Rule 65 to include observance of the judicially created standards governing the issuance of injunctive relief. This is the standard, as noted above, incorporated into the PMPA by § 2805(b)(2).

      . Valenzuela also relied on the fact that Title VII provides that actions under that act are subject to appeal as provided in 28 U.S.C. §§ 1291 and 1293. 42 U.S.C. § 2000e-5(j). 739 F.2d 436.

      . It has also been held that federal courts have exclusive jurisdiction over actions under § 101 of the Labor-Management Reporting and Disclosure Act of 1959 (the "LMRDA"), 29 U.S.C. § 411, although § 102 of the Act, 29 U.S.C. § 412, provides only that a suit under the LMRDA may be brought in a federal court. See Thorp v. Serraglio, 464 F.Supp. 149, 151 (N.D.Ohio 1978); Safe Workers’ Org. v. Ballinger, 389 F.Supp. 903, 910 (S.D.Ohio 1974). But see Berg v. Watson, 417 F.Supp. 806, 808 n. 1 (S.D.N.Y.1976) (holding that state courts have concurrent jurisdiction under the LMRDA pursuant to § 102).


author: ROBERT L. CARTER, District Judge.

text:
    UNITED TECHNOLOGIES CORPORATION, Plaintiff, v. GENERAL ELECTRIC COMPANY, Defendant.
    No. 85 Civ. 2181 (RLC).
    United States District Court, S.D. New York.
    Sept. 4, 1985.

      Robert Neuner, Arthur S. Tenser, Robert B. Smith, John D. Murnane, Brumbaugh, Graves, Donohue & Raymond, New York City, for plaintiff; Melvin P. Williams, Robert C. Walker, United Technologies Corp., Hartford, Conn., of counsel.
    Stanley L. Amberg, Davis Hoxie Faith-full & Hapgood, New York City, for defendant; Charles W. Bradley, Peter Bucci, Davis Hoxie Faithfull & Hapgood, New York City, Derek P. Lawrence, Douglas S. Foote, General Elec. Co., of counsel.
   OPINION

ROBERT L. CARTER, District Judge.

This is a civil action for patent infringement. Defendant moves pursuant to Rule 12(b)(3) to dismiss the complaint for improper venue. In the alternative defendant moves pursuant to 28 U.S.C. § 1404(a) or § 1406(a) to transfer the case to the Southern District of Ohio. Plaintiff opposes the motion to dismiss and, alternatively, seeks transfer to the Northern District of New York.

28 U.S.C. § 1400(b), on the basis of which this action was instituted, provides that a civil action for patent infringement may be brought in the judicial district in which the defendant resides or has committed acts of infringement and has a regular place of business. The residence of a corporation is its place of incorporation. Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 226, 77 S.Ct. 787, 790, 1 L.Ed.2d 786 (1957).

Defendant is a New York corporation, incorporated in the Northern District of New York where it maintains its principal place of business. The jet engines which are the basis for the litigation were designed by GE's Aircraft Engine Business Group which maintains its principal place of business in Evendale, Ohio.

Defendant does business in this district. Plaintiff argues that venue is proper here because by the 1948 recodification Congress intended to render a corporation amenable to suit in every district in the state of its incorporation, citing Davis v. Hill Engineering, Inc., 549 F.2d 314 (5th Cir.), reh. denied, 554 F.2d 1065 (5th Cir.1977). While it is true that the Davis case held such to be the effect of the 1948 recodification, it was construing § 1391, the general venue statute and the Jones Act. See also Forbo-Giubiasco, S.A. v. Congoleum Corporation, 463 F.Supp. 1243, 1245 (S.D.N.Y.1979) (Lasker, J.). The Davis analysis, however, has no impact on § 1400(b).

Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561, 566, 62 S.Ct. 780, 782, 86 L.Ed. 1026 (1948) held that § 1400(b) limited venue to the judicial district of defendant’s residence or place of business and place where the infringement occurred. Fourco Glass Co. v. Transmirra Products, Corp., supra 353 U.S. at 228, 77 S.Ct. at 791, distinguished § 1391 from § 1400(b) and held the latter to be “the sole and exclusive provision controlling venue in patent infringement actions ...” Id. at 229, 77 S.Ct. at 792.

It seems clear, therefore, that venue is not appropriate here. It would, however, seem inappropriate to dismiss the action. The court may transfer the action to another district where it might have been brought. The court may do this in the interest of justice even in those cases where personal jurisdiction is lacking. See e.g. Corke v. Sameiet, M.S. Song of Norway, 572 F.2d 77 (2d Cir.1978); ICC Handels, A.G. v. S.S. Seabird, 544 F.Supp. 58 (S.D.N.Y.1982) (Duffy, J.); Metropa Co., Ltd. v. Choi, 458 F.Supp. 1052 (S.D.N.Y.1978) (Weinfeld, J.).

The case may properly be transferred either to the Southern District of Ohio where defendant allegedly committed the infringing act and has a place of business or to the Northern District of New York where defendant resides and maintains its principal place of business. Defendant cannot claim greater inconvenience in being required to defend against litigation brought in the Northern District of New York over being sued in the Southern District of Ohio. Plaintiff prefers the Northern District of New York. Under the circumstances, its preferences should be given weight.

Accordingly, the suit is transferred to the Northern District of New York. The motion to stay all proceedings in this court pending determination of the motions to dismiss or to transfer is granted.

IT IS SO ORDERED.


text:
    UNIQUE FREIGHT LINES COMPANY, INC. and Crum & Forster Insurance Company, Inc. as Subrogee, Plaintiffs, v. WHITE TIGER TRANSPORTATION COMPANY, INC., Defendants.
    No. 84 Civ. 7205 (RLC).
    United States District Court, S.D. New York.
    Sept. 4, 1985.
    Vincent, Berg, Russo & Marcigliano, New York City, for plaintiffs; Dennis A. Cammarano, New York City, of counsel.

      Judith A. Menschik, Tappan, N.Y., Gladstone & Hart, Hackensack, N.J., for defendants; Judith A. Menschik, Hackensack, N.J., of counsel.
   OPINION

ROBERT L. CARTER, District Judge.

Defendant in August, 1982 agreed to deliver for plaintiff a shipment of electronic toys from Salem, Massachusetts to a consignee in Miami, Florida. The delivery was without charge as a favor to plaintiff. When the goods reached the consignee, a number of cartons were reported missing. Plaintiff seeks to recover $13,236.90 plus interest, costs and attorney’s fees. Apparently having paid the claims, Crum & Forster Insurance Company, Inc. appears as plaintiff’s subrogee. Both plaintiff, Unique Freight Lines Co., Inc., and defendant, White Tiger Transportation Co., Inc., are New Jersey corporations. Both maintain their principal offices and places of business on Hackensack Avenue in South Kearney, New Jersey.

Federal jurisdiction in this case cannot be based on diversity since it has long been settled that there must be complete diversity between all the plaintiffs and all the defendants. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806).

Defendant is a common carrier for hire. It claims that since no bill of lading or charge was issued for the shipment, it was not a common carrier for hire as defined in the Interstate Commerce Act, 49 U.S.C. § 10102(13). That argument has no merit. Whether defendant took the instant shipment without charge, it remains a motor vehicle common carrier for hire within the meaning of the statute. While diversity jurisdiction does not exist, subject matter jurisdiction exists under the Interstate Commerce Act, 49 U.S.C. § 11707(4)(d)(l).

Defendant in the alternative moves to transfer the case to the District of New Jersey pursuant to 28 U.S.C. §§ 1404 and 1406. The court, pursuant to 28 U.S.C. §§ 1404 and 1406, may in its discretion order a transfer to the district in which the case could have been brought even in the absence of personal jurisdiction over a defendant. See Corke v. Sameiet M.S. Song of Norway, 572 F.2d 77 (2d Cir.1978); ICC Handels A.G. v. S.S. Seabird, 544 F.Supp. 58 (S.D.N.Y.1982) (Duffy, J.); Metropa Co. Ltd. v. Choi, 458 F.Supp. 1052 (S.D.N.Y.1978) (Weinfeld, J.).

The Interstate Commerce Act, 49 U.S.C. § 11707(4)(d)(2)(A)(ii), authorizes litigation against an interstate carrier in the judicial district through which the carrier operates a route. Presumably defendant operates a route through this district.

No reason exists, however, for this case to be brought in this district except that plaintiff subrogee, the insurance company, is here. There is a vague allegation that the route from Salem, Massachusetts to Miami in all likelihood passed through this district. The route probably passed through the District of New Jersey as well. It makes no sense for two neighboring New Jersey corporations to be litigating in New York over a matter which has no real connection with this district or New York. Nothing pertinent to proof of the asserted claims occurred here. The parties should litigate this question in their own home territory where necessary witnesses and records are more accessible than here. The District of New Jersey provides a far more convenient forum.

Accordingly, the court in the exercise of its discretion as authorized by 28 U.S.C. § 1406 transfers this case to the District of New Jersey where it could have been brought.

IT IS SO ORDERED.


author: McKIBBEN, District Judge.

text:
    Robert J. PACHINGER, Plaintiff, v. MGM GRAND HOTEL-LAS VEGAS, INC., and Does I through Does V, inclusive, Defendants.
    No. CVLV 84-769 HDM.
    United States District Court, D. Nevada.
    Sept. 5, 1985.
    Robert J. Handfuss, Las Vegas, Nev., for plaintiff.
    James R. Olson, Rawlings, Olson & Cannon, Las Vegas, Nev., for defendants.
   ORDER

McKIBBEN, District Judge.

Defendant has filed a Motion to Dismiss pursuant to Fed.R.Civ.P. 41 for lack of subject matter jurisdiction under 28 U.S.C. § 1332. It is the defendant’s contention that plaintiff's recovery . under Nevada’s Innkeeper Statute is limited to a sum not in excess of $750. NRS 651.010. Therefore, the amount in controversy does not exceed $10,000 and federal subject matter jurisdiction is lacking. This court agrees.

On June 24, 1983, plaintiff arrived at the MGM Grand Hotel in Las Vegas to attend a jewelry show. When plaintiff arrived a bellman took plaintiff’s luggage and jewelry cases and gave plaintiff a receipt for the luggage and cases. That receipt stated:

Contract. The management assumes no liability in any sum exceeding Two Hundred Fifty Dollars for loss of or damage to any wearing apparel or other personal property — unless at the time of delivery such value in excess of Two Hundred Fifty Dollars shall be declared and a written receipt stating such value shall be issued by this hotel. Safe deposit boxes are available for storage of valuables.

The luggage was then placed in the luggage room of the hotel. Immediately thereafter, plaintiff registered at the check-in desk. At the desk the hotel had posted a notice, clearly visible to the guests, of the liability limitation and availability of safes for deposit of valuables, in compliance with NRS 651.010(2). Plaintiff, after receiving the claim check and checking in, made no request to utilize the safe or submit a declaration of value. Subsequently, plaintiff went to his room where another notice was posted, pursuant to NRS 651.010(2). Plaintiff then requested delivery of his luggage to his room. When the luggage was delivered, plaintiff asserts that one jewelry case was missing and claimed a loss of $20,000. This action followed.

NRS 651.010(2) provides:

If an owner or keeper of any hotel, inn, motel, motor court, boardinghouse or lodginghouse in this state provides a fireproof safe or vault in which guests may deposit property for safekeeping, and notice of this service is personally given to a guest or posted in the office and the guest’s room, the owner or keeper is not liable for the theft, loss, damage or destruetion of any property which is not offered for deposit in the safe or vault by a guest unless the owner or keeper is grossly negligent. An owner or keeper is not obligated to receive property to deposit for safekeeping which exceeds $750 in value or is of a size which cannot easily fit within the safe or vault.

It is undisputed that plaintiff, who was not an unsophisticated traveler, received notice of this statutory limitation and failed to request a deposit of his luggage and cases in defendant’s vault. However, plaintiff contends he was not a guest of the hotel when he checked in with the bellman and received his claim check and the provisions of NRS 651.010(2) are inapplicable to him. This court disagrees. It is not uncommon for a hotel to hold luggage for a guest for a brief period between the time the guest arrives and the time the luggage is delivered to the guest’s room. The legal relationship of innkeeper and guest was established at the time plaintiff checked his luggage with the hotel and received his claim check containing the declaration of liability limitations. At that time, plaintiff had an affirmative duty to declare the extent of his valuables and request immediate deposit of those valuables in the hotel’s safe. His failure to do so limits his recovery to an amount not exceeding $750 as provided for by NRS 651.010(2). Because plaintiff cannot show he is entitled, under Nevada law, to recover at least $10,000, this court lacks subject matter jurisdiction.

Accordingly, defendant’s Motion to Dismiss the complaint is granted.

IT IS SO ORDERED.


author: BARRINGTON D. PARKER, District Judge.

text:
    WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, a body corporate, Plaintiff, v. ONE PARCEL OF LAND IN SQUARE 274 IN the DISTRICT OF COLUMBIA, Theodore J. Scheve, et al., and Unknown Owners, Defendants.
    Civ. A. No. 84-3703.
    United States District Court, District of Columbia.
    Sept. 5, 1985.

      George Ray, U.S. Dept, of Justice, Washington, D.C., for plaintiff.
    Lawrence B. McClafferty, Asst. Corp. Counsel, Washington, D.C., for defendant One Parcel of Land.
    Kurt Berlin, Washington, D.C., for defendants Theodore & Geraldine Scheve.
    George H. Windsor, Washington, D.C., for defendants Jeanne M. Curtis Davis, Gertrude C. and Arthur L. Norris.
    Leonard C. Collins, Washington, D.C., for defendants Austin Curtis Norris, Flemling H. Norris, III.
   ORDER

BARRINGTON D. PARKER, District Judge.

This action began as a condemnation proceeding, brought by the Attorney General of the United States on behalf of the Washington Metropolitan Area Transit Authority for the taking under the power of eminent domain of District of Columbia real property, namely — Lot 116 Square 274. The taking was for purposes of the construction, maintenance and operation of a rapid rail transit system as provided by Federal law, Section 82, Act of November 6, 1966, 80 Stat. 1324 and other statutory authority. The sole issue upon which the jurisdiction of this Court was based, was the taking and the amount of just compensation to be awarded the owners of the property.

The defendants are Jeanne M. Curtis Davis, Austin Curtis Norris, Fleming H. Norris III, and Gertrude C. Norris, the heirs and successors in title to the former owners of record for the property, Austin M. Curtis, Jr. and Merrill Curtis who had died some years before this proceeding commenced. Other defendants are Theodore J. Scheve and Geraldine E. Scheve, who purchased the property for delinquent real estate taxes at a tax sale in January 1978. The Scheves were later issued a tax deed when the heir defendants failed to redeem the property within two years as required by District of Columbia Code § 47-1304 (1981).

On August 7, 1985, the Court entered an order determining that $36,000.00 was just compensation and that amount was deposited in the registry of the court.

The remaining issue in this proceeding is concerned with a determination of the distribution of the $36,000 award amongst those qualified to claim, which brings into play the competing claims of the heirs and the Scheves. That issue is governed by the local law, specifically, the District of Columbia statute governing tax sales of real property. D.C.Code §§ 47:1301-1319 (1981 & Supp.1984).

The heirs and the Scheves have fully briefed the matter and have submitted memoranda of points and authorities and it is otherwise ripe for determination. Only recently the District of Columbia Court of Appeals issued an opinion, Frasssetto v. Barry, et al., 497 A.2d 109 (D.C.Ct.App.1985), which the heir defendants claim fully supports their position that they are the rightful owners. On the other hand, the Scheves argue the contrary and suggest that that opinion is not dispositive nor controlling and further that there are factual differences between the cases. Under the present circumstances, this Court may render an opinion on the relevant statutes and otherwise decide the matter which may very well conflict with the views and interpretations of the statute by the local courts. Such a possibility, of course, should be avoided.

In United Mine Workers v. Gibb, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), the Supreme Court reminded that

[njeedless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer-footed reading of the applicable law. Certainly, if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well.

Id. at 726, 86 S.Ct. at 1139. See also, Financial General Bankshares, Inc. v. Metzger, 680 F.2d 768 (D.C.Cir.1982). In view of that directive, this Court decides that it is prudent to dismiss this case in order that the defendants may pursue their purely local claims in the local court. No inordinate delay will result and a speedy resolution should be guaranteed. The sole remaining issue has been fully briefed and the parties are not disadvantaged. They need only file in the local court dispositive motions for summary judgment along with their original pleadings.

In accord with the above, it is this 4th day of September, 1985,

ORDERED

That this proceeding is dismissed without prejudice and the parties in interest may seek appropriate relief in the local courts for the District of Columbia.

That the Court will otherwise retain jurisdiction for purposes of transferring the funds now held in the Registry to the parties so designated by an appropriate order of the local District of Columbia court.


author: WARREN, District Judge.

text:
    Gwendolyne DEROUIN and Aurelia Luedke, Plaintiffs, v. LOUIS ALLIS DIVISION, a DIVISION OF LITTON INDUSTRIAL PRODUCTS, INC., a foreign corporation, Defendant.
    No. 81-C-270.
    United States District Court, E.D. Wisconsin.
    Sept. 6, 1984.

      Thomas D. Jacobs, Gray & End, Milwaukee, Wis., for plaintiffs.
    Dennis M. White, Madison, Wis., for defendant.
   DECISION AND ORDER

WARREN, District Judge.

Plaintiff employees have brought this action under the Equal Pay Act, 29 U.S.C. § 206(d), and Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-2, against the defendant employer. The plaintiffs allege that the defendant has discriminated upon the basis of sex in the payment of plaintiffs’ salaries while they were supervisors at Louis Allis. Plaintiffs further claim that the pension benefits which they have accumulated are based upon unlawfully discriminatory salaries.

The parties have stipulated that the plaintiffs performed “equal work” within the meaning of the Equal Pay Act in comparison to male supervisors within their respective departments. The record further shows that the plaintiffs did not receive the same wages as male supervisors in their respective departments. Thus, there are no material facts in dispute, and both parties have moved for summary judgment. Defendant has moved for summary judgment as to the entire matter, and the plaintiffs have moved for summary judgment as to a finding of discrimination.

I. BACKGROUND

Plaintiff Gwendolyn Derouin began work at the Milwaukee plant of Louis Allis as a technical clerk junior (essentially a secretarial position) on December 1, 1967. On February 17, 1975, she was promoted to dispatcher, and on April 12, 1976, she was promoted to the position of Supervisor II in Department 1280. She became the first female supervisor in the manufacturing operations of Louis Allis.

Plaintiff Aurelia Luedke was hired by Louis Allis as a secretary on February 6, 1962. She held the job of clerk senior from March 1, 1968, until November 14, 1978. On the latter date, she was promoted to the position of Supervisor III in Department 1492, and became the second female supervisor at Louis Allis. Plaintiff Luedke officially retired in September, 1981, and is currently on pension from Louis Allis.

Plaintiffs filed their complaint in this action on March 20, 1981, alleging Equal Pay Act violations. On April 13, 1981, plaintiff Derouin filed a charge with the Equal Employment Opportunity Commission (EEOC), and plaintiff Luedke did the same on April 15, 1981. The EEOC issued Right to Sue Notices to the plaintiffs on May 13, 1981, and April 17, 1981, respectively. On July 14, 1981, plaintiffs filed an amended complaint setting forth a Title VII cause of action in addition to their claims under the Equal Pay Act. Plaintiffs’ theory of liability and operative facts are the same under both statutes.

II. DEFENDANT’S SALARY POLICY: POLICY IRr-2

The plaintiffs have alleged facts which defendant has not contested and which demonstrate substantial disparities among the salaries paid to supervisors in the plaintiffs’ respective departments. The salary-disparities are a result of defendant’s Policy IR-2, which states that a promotional salary increase should be within a specified percentage (10%-20%) of the employee’s present salary. Policy IR-2 also requires that any “merit” increase in salary should range between 5% and 10% of that employee’s current base salary. In other words, the salary and merit increases paid to a supervisor would be largely dependent upon that employee’s salary in his previous position. There is, however, a specified minimum monthly salary, as well as a midpoint and maximum salary.

As a result of Policy IR-2, not all supervisors are paid alike: those who are promoted from lower paying positions will receive lower salaries and merit increases than those who are promoted from higher paying positions. Plaintiffs contend that this payment scheme perpetuates the low salaries paid for traditional “women’s jobs”, such as those from which they were promoted. Defendant contends that the plan is a bona fide merit plan which follows structured guidelines and which applies to men and women alike. The Court must decide whether the plan violates the Equal Pay Act and/or Title VII.

III. STATUTE OF LIMITATIONS

Before considering the merits of plaintiffs’ claims, the Court must address defendant’s argument that plaintiffs’ claims are barred by the applicable statutes of limitation. Under 29 U.S.C. § 255(a), a claim under the Equal Pay Act must be commenced within two years after the cause of action accrued, or within three years after the'cause of action accrued if the alleged violation was willful. Pursuant to 42 U.S.C. § 2000e-5(e), the case must be commenced within 300 days of the cause of action if a charge is filed with a state agency.

Since the complaint in this case was filed on March 25, 1981, defendant contends that all of the plaintiffs’ claims must be dismissed. Defendant states that the low salaries of which plaintiffs complain are based upon their entering salaries upon promotion in 1976 and 1978, both events having occurred more than two years before the complaint was filed.

At the outset, the Court notes that the mere fact that plaintiffs continued to be employed by defendant is, without more, insufficient to sustain a cause of action for employment discrimination. Delaware State College v. Ricks, 449 U.S. 250, 257, 101 S.Ct. 498, 503, 66 L.Ed.2d 431 (1980). However, the cause of action is prolonged even where the alleged act of discrimination is beyond the statute of limitations if the initial act continues to manifest itself throughout the period of employment. Jenkins v. Home Insurance Co., 635 F.2d 310 (4th Cir.1980). In particular, the act of paying a discriminatorily low wage occurs not only when the pay level is set, but continues as long as the discriminatory pay differential continues. Id.; Satz v. ITT Financial Corp., 619 F.2d 738, 743 (8th Cir.1980).

From these cases, it follows that the plaintiffs’ cause of action would continue as long as they were employed and/or receiving pension benefits based upon a salary that was set through discriminatory procedures. Since the differential in pay has been a continuing one, the respective statutes of limitation are no bar to plaintiffs’ claims.

IV. PLAINTIFFS’ EQUAL PAY ACT AND TITLE VII CLAIMS

Section 2000e-2(a)(2) of Title 42, United States Code states:

(a) Employers. It shall be an unlawful employment practice for an employer— ... (2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin.

Specific prohibitions pertaining to payment differentials between employees of different sexes are covered in 29 U.S.C. § 206(d)(1):

(d)(1) No employer having employees subject to any provisions of this section shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex: Provided, That an employer who is paying a wage rate differential in violation of this subsection shall not, in order to comply with the provisions of this subsection reduce the wage rate of any employee.

As such, the Equal Pay Act precludes unequal pay for equal work, unless the payment falls under one of the four enumerated exceptions.

The burdens of proof in a case under Title VII are essentially the same as those in a case under the Equal Pay Act. The plaintiff has the burden of making a prima facie case of discrimination. Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 252-58, 101 S.Ct. 1089, 1093, 67 L.Ed.2d 207 (1981); Johnson v. Uncle Ben’s, 628 F.2d 419, 421 (5th Cir.1980). A prima facie case can be established by proof of “policies or practices which are neutral on their face and in intent but that nonetheless discriminate in effect against a particular group.” International Brotherhood of Teamsters v. United States, 431 U.S. 324, 349, 97 S.Ct. 1843, 1861, 52 L.Ed.2d 396 (1977). In this case, plaintiffs burden is to show that they were paid lower wages than male employees while performing substantially the same work.

Once the plaintiff has proved his prima facie case, the burden shifts to the defendant to “articulate some legitimate, nondiscriminatory reason” for the unequal treatment. Burdine, 450 U.S. at 253, 101 S.Ct. at 1093. One of the four exceptions specified under the Equal Pay Act would justify the disparate treatment. Corning Glass Works v. Brennan, 417 U.S. 188, 196, 94 S.Ct. 2223, 2229, 41 L.Ed.2d 1 (1974). If the defendant meets his burden, the plaintiff must then prove by a preponderance of the evidence that the reasons offered by the defendant are not legitimate, but serve merely as a cover for a policy of discrimination. Burdine, 450 U.S. at 253, 101 S.Ct. at 1093.

The plaintiffs have established their prima facie case. First, the parties have stipulated that supervisors in the respective departments do “equal work”. Second, the plaintiffs have submitted unrebutted evidence that payment disparities exist between the supervisors within their respective departments. While certain male supervisors are paid lower salaries than each plaintiff, the facts as stated by the plaintiffs indicate that they are (or, in Ms. Luedke’s case, were) at or near the bottom of their department’s payment scales.

In response, defendant states that Policy IR-2 is a bona fide merit system which qualifies as one of the four exceptions under 29 U.S.C. § 206(d)(1). Defendant also contends that a merit plan can be lawful even though it is based upon a salary set years earlier which was unlawfully low.

Defendant’s second contention goes against the cases previously cited which state that an unlawful act of discrimination, if perpetuated through further actions by the employer, gives rise to subsequent causes of action. See Jenkins, supra, and Satz, supra. Simply stated, if the plaintiffs’ salaries upon promotion were established through a discriminatory policy, then the practice of basing merit increases upon that initial salary is also discriminatory.

The threshhold issue in this case, then, is whether Policy IR-2’s requirement that salaries upon promotion be based on salaries before promotion is a sex-based factor which violates the Equal Pay Act and Title VII. As to this issue, the Court believes that defendant has met its burden of demonstrating some nondiscriminatory reason for its payment policy. Under the Equal Pay Act, disparities in payment are allowed where the differential is “based on any other factor other than sex.” 29 U.S.C. § 206(d)(1). In the Stipulated Statement of Proposed Facts, proposed fact number 20 lists the following objectives sought through Policy IR-2:

“(1) budgetary control, by setting a minimum and maximum amount for a salary range;
(2) incentive for employee performance, by virtue of merit increases within the salary range;
(3) ability to compete with other employers for new hires, since the salary range permits competitive salaries for applicants with needed experience or skills rather than requiring that they start at the minimum rate; ability to pay competitive salaries for incumbent employees;
(4) ability to provide some distinctions in supervisory salaries between supervisors in different departments, to reflect differences in work performed and in working conditions and/or in skills acquired;
(5) equitable considerations between incumbent employees, in that:
a. the salary range permits supervisors with longer supervisory service to be rewarded for their service by possibly having higher salaries than newly promoted or newly hired supervisors;
b. supervisors are rewarded for the possession of greater technical skills than other supervisors have;
c. the salary range encourages non-supervisory production employees with high wage rates to apply for supervisory positions without taking pay cuts, rather than having to start at the minimum supervisory rate;
d. incentive for non-supervisory production employees with lower wage rates to apply for supervisory positions, by ensuring that they are paid at least the minimum rate; and
e. in the event that a supervisor is demoted from one supervisory job to another, the supervisor will not fall below the minimum salary rate.”

Stipulated Statement of Proposed Facts, pages 7-8, February 3, 1982.

These objectives are sufficient, non-discriminatory reasons why defendant established Policy IR-2 and clearly explain the reasons for the income disparities which exist between supervisors. Therefore, the burden passes back to plaintiffs to prove that these reasons are not legitimate, and that they serve merely as a cover for sex-based discrimination. Burdine, 450 U.S. at 253, 101 S.Ct. at 1093.

The plaintiffs have not met this burden of proof. The evidence of salary differentials they submitted proves their prima facie case, but they have not refuted defendant’s proof that the reasons for the policy are legitimate. On the contrary, the evidence shows that Policy IR-2 operates as defendant says it does, and that it is applied to males and females equally without regard to sex. Although plaintiffs’ salaries were lower than those of most other supervisors, plaintiff Derouin was not the lowest paid supervisor in her department, nor did she receive the lowest starting salary upon promotion. As for plaintiff Luedke, she was the lowest paid supervisor in her department and received the lowest salary upon promotion. However, only four other supervisors worked in her department. The Court does not consider this to be a statistically significant sampling, and it certainly does not disprove defendant’s contention that the salary differences are due to non-sex related factors.

At most, plaintiffs have shown that Policy IR-2 works to the disadvantage of those who are hired by Louis Allis at lower salaries and who are hampered by those initially low salaries throughout their careers with the Company. The evidence demonstrates, however, that the policy is applied equally to males and females, and that both have been adversely affected by it. Plaintiffs cannot meet their burden of proof through inconclusive or inapposite statistical information, nor through questionable intimations that only those doing “women’s work” have suffered as a result of Policy IR-2.

The Court finds that Policy IR-2 is not a sex-based plan of discrimination and that plaintiffs do not have a claim under either the Equal Pay Act or Title VII.

V. FAILURE TO FOLLOW PROPER PROCEDURE UNDER TITLE VII

Defendant alleges that the plaintiffs did not follow the proper procedure for bringing their Title VII claims, and as a result the Court does not have jurisdiction to decide these claims. As defendant acknowledges, this issue may have little import since there is no juridictional problem as to the Equal Pay Act claims. However, the Court believes that the issue should be addressed and that defendant’s argument has merit.

As defendant correctly states, a plaintiff must obtain a proper Notice of Right to Sue from the EEOC before bringing a court action under Title VII. Before the Notice of Right to Sue may be issued, the EEOC must have jurisdiction by virtue of a properly filed charge. Pursuant to 42 U.S.C. § 2000e-5(d), a charge cannot properly be filed with the EEOC until the charge has been deferred to the appropriate state agency for at least 60 days:

(d) Time for action under State or local law. In the case of any charge filed by a member of the Commission alleging an unlawful employment practice occurring in a State or political subdivision of a State which has a State or local law prohibiting the practice alleged and establishing or authorizing a State or local authority to grant or seek relief from such practice or to institute criminal proceedings with respect thereto upon receiving notice thereof, the Commission shall, before taking any action with respect to such charge, notify the appropriate State or local officials and, upon request, afford them a reasonable time, but not less than sixty days (provided that such sixty-day period shall be extended to one hundred and twenty days during the first year after the effective day of such State or local law), unless a shorter period is requested, to act under such State or local law to remedy the practice alleged.

In plaintiff Luedke’s case, the EEOC received the charge on April 15, 1981, and issued a Notice of Right to Sue on the charge two days later. The appropriate Wisconsin state agency, the Department of Industry, Labor and Human Relations (DILHR), did not receive the charge until April 20, 1981, after the Notice of Right to Sue had been issued.

In plaintiff Derouin’s case, the EEOC received the charge on April 7, 1981, and issued a Notice of Right to Sue 36 days later, on May 13, 1981. Apparently, the DILHR had received the charge in plaintiff Derouin’s case before the EEOC issued the Notice of Right to Sue. However, 60 days had not elapsed since the charge was referred to the state agency.

Plaintiffs claim that they are not in violation of the statute because the Equal Rights Division of the DILHR typically waives jurisdiction over some cases, thereby giving the EEOC jurisdiction before 60 days have elapsed. Defendant contends that this “work-sharing agreement” was expressly approved in Love v. Pullman, 404 U.S. 522, 92 S.Ct. 616, 30 L.Ed.2d 679 (1972).

The procedure followed by the EEOC in the case of both plaintiffs is not the type approved by the Supreme Court in Love v. Pullman. In Love, the Court held that it was acceptable for the EEOC to orally refer a charge to the appropriate state agency, and wait until that agency had terminated its jurisdiction before the EEOC acted on the charge. In essence, the Court stated that a plaintiff need not file a written charge with both the EEOC and the state agency, and that it was proper for the EEOC to hold the written charge in abeyance until the state agency had terminated its proceedings. 404 U.S. at 525-26, 92 S.Ct. at 618.

In plaintiff Luedke’s case, however, the EEOC issued a Notice of Right to Sue before the charge was even referred to the. DILHR. There is no support for this procedure in the statute or in Love. In the case of plaintiff Derouin, the DILHR issued a finding on September 30, 1981, that there was no probable cause to believe that defendant had discriminated against plaintiff Derouin based upon her sex. Therefore, it is evident that the DILHR had not terminated its jurisdiction prior to the time the EEOC issued the Notice of Right to Sue in Derouin’s case. Its jurisdiction may have been temporarily “waived”, but it was not terminated as contemplated by the Supreme Court in Love.

In Mahasco Corporation v. Silver, 447 U.S. 807, 100 S.Ct. 2486, 65 L.Ed.2d 532 (1980), the Supreme Court stated that the purpose of the sixty-day waiting period in § 2000e-5(d) was “... to give state agencies an opportunity to redress the evil at which the federal legislation was aimed, and to avoid federal intervention unless its need was demonstrated.” Id. at 821, 100 S.Ct. at 2495. Furthermore, the Court declared that the EEOC was not at liberty to follow its interpretation of the statute rather than the plain meaning of “the language chosen by Congress.” Id. at 825, 100 S.Ct. at 2497.

It is apparent from the language in Mahasco that legitimate reasons exist for requiring compliance with the statutory mandate. While the Court has not based its decision in this case upon the jurisdictional defect, it will not hesitate to do so in the future if the EEOC and the DILHR continue to follow their unlawful procedure.

For the reasons stated in part IV of this decision, defendant’s motion for summary judgment is Granted.

      . For the purpose of this discussion, the Court will assume that the alleged violation was not willful and that the relevant period under the Title VII statute of limitations is two years. Plaintiffs claim that the violation was willful, and that the three-year period applies. The Court renders no decision as to this particular dispute, since it decides that the statute of limitations is no bar to recovery in either event.

      . The differences in salaries between the plaintiffs and male supervisors in their departments are included in Plaintiffs’ Brief In Support of Motion For Partial Summary Judgment, February 5, 1982, p. 4-6 and Appendices I and II.