author: REDDEN, District Judge:

text:
    Edward L. BRABHAM, et al., Plaintiffs, v. PATENTA N.V., a Netherlands Antillies limited liability company, et al., Defendants.
    Civ. No. 83-1248-RE.
    United States District Court, D. Oregon.
    Nov. 5, 1984.
    F. Gordon Allen, Fred L. Kopatich, Allen & Yazbeck, Gary M. Berne, Judith L. Neustadter, Stoll & Stoll, P.C., Portland, Or., for plaintiffs.
    Lois O. Rosenbaum, Joyce Ann Harpole, Stoel, Rives, Boley, Fraser & Wyse, Norman B. Kobin, Jan D. Sokol, Kobin & Meyer, P.C., Portland, Or., Terry E. Thompson, Murray Stakesby-Lewis, Diamond & Sylvester, Seattle, Wash., Frank Langfitt, Lindsay, Hart, Neil & Weigler, Portland, Or., John M. Brickman, Peirez Ackerman & Levine, Great Neck, N.Y., Joe D. Bailey, Landis, Aeibi, Bailey & Mercer, P.C., Michael I. Lilly, Spears, Lubersky, Campbell, Bledsoe, Anderson & Young, Larry Matasar, Hoffman, Matasar & Glaeser, Donald A. Greig, McClaskey & Greig, Portland, Or., for defendants.
   OPINION

REDDEN, District Judge:

Defendants, Laventhol & Horwath and Harold A. First, move the court for an order dismissing Count II and portions of Count VI of plaintiffs’ Second Amended Complaint for failure to state a claim upon which relief can be granted. Count II alleges a violation of § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q. The portions of Count VI defendants seek to have dismissed allege violations of Wash.Rev.Code §§ 21.20.020 and 21.20.030. Defendants also move the court for an order dismissing all claims asserted against defendants John Does. For the reasons set forth below I grant defendants’ motion in its entirety.

DISCUSSION

I. Count VI and Claims Against John Does

Plaintiffs do not contest defendants’ motion in regards to the portions of Count VI which allege violations of Wash.Rev.Code §§ 21.20.020 and 21.20.030. Likewise, plaintiffs do not contest defendants’ motion to dismiss all claims asserted against defendants John Does. Accordingly, I will not consider these issues, and grant defendants’ motion in regards to these claims.

II. Section 17(a) of the Securities Act of 1933

Defendants claim that no private right of action exists under § 17(a). Plaintiffs, on the other hand, argue that the Ninth Circuit has determined that a private right of action exists under § 17(a) in Stephenson v. Calpine Conifers II, Ltd.., 652 F.2d 808 (9th Cir.1981). I do not find the Stephenson case to be dispositive of the issue.

In Stephenson the Court, after raising the issue sua sponte, decided it with reference to dicta in Judge Friendly’s concurrence in SEC v. Texas Gulf Sulphur, 401 F.2d 833 (2d Cir.1968), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969). The Court noted that Judge Friendly had remarked that “there [is] little practical point in denying the existence of a right under § 17 once it is established that an aggrieved buyer has a private action under § 10b of the 1934 Act.” 652 F.2d at 815. The Court then stated that “[i]n light of the minimal differences between § 17(a) of the 1933 Act and § 10b of the 1934 Act, we think the reasoning of the Second Circuit is persuasive____” I find this reasoning to be faulty for three reasons.

First, the Court failed to take note of Judge Friendly’s additional comments in which he indicated that he doubted that a private right of action was ever intended under § 17(a). 401 F.2d at 867. Second, the Court did not apply the judicially mandated test for determining when a private remedy should be implied, which was originally articulated in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975) and modified in Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979), Transamerica Mortgage Advisors v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) and California v. Sierra Club, 451 U.S. 287, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981). Third, the Court focused on the similarity of the language in § 17(a) of the 1933 Act and § 10(b) of the 1934 Act, without considering the differences in the substance and purpose of the two Acts.

The Supreme Court has developed a three part test for determining when a private right of action can be implied. To be considered are: 1) whether plaintiff is a member of a class for whose benefit the statute was enacted; 2) whether there is any indication of the legislature’s intent to create a private remedy; and 3) whether inferring such a right would be in accordance with the overall legislative scheme. The Court has stated that the ultimate issue to be considered under this test is whether Congress intended to create a private cause of action. Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979); California v. Sierra Club, 451 U.S. 287, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981).

Using this analysis, I look first to the language of the statute. Section 17(a) provides that:

It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly—
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or
(3) to engage in any transaction, practice or course of business which operates or would operate as a fraud or deceit upon the purchaser.

A reading of the statute clearly indicates that § 17(a) was not enacted for the special benefit of a succinct class of individuals but rather represents a “general censure of fraudulent practices____” Bruns v. Ledbetter, 583 F.Supp. 1050, [Current] Fed.Sec. L.Rptr. (CCH) 1191,578 at 98,950 (S.D.Cal.1984) citing Landry v. All American Assurance Co., 688 F.2d 381, 389 (5th Cir.1982). Because § 17(a) was not enacted to protect or benefit a particular class of individuals, the first prong of the Cort test has not been met.

The statute itself gives no indication, either explicitly or implicitly, whether the legislature intended to create a private cause of action. Plaintiffs argue that Congress’ intent to create a private cause of action under § 17(a) is manifested by its failure to expressly negate such a remedy when it restructured the Act in 1975. Plaintiffs rely on an observation of the Court in Herman & MacLean v. Huddleston, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983), that a judicially created private cause of action under § 10(b) had not been expressly negated by Congress in 1975, and therefore the Congress must have intended such a private remedy. This analogy to § 10(b) fails, however. As the Court noted in Herman & MacLean, id., in 1975 all but two District Courts had allowed a private remedy under § 10(b), and one had been overruled and the other was not followed by other courts in the District or Circuit. In contrast, § 17(a) did not enjoy such unanimity among the courts in 1975.

Some courts had implied a private cause of action under § 17(a), while others had not. Those allowing a private remedy included: Newman v. Prior, 518 F.2d 97 (4th Cir.1975); Schaefer v. First National Bank of Lincolnwood, 509 F.2d 1287 (7th Cir.1975) cert. denied, 425 U.S. 943, 96 S.Ct. 1682, 48 L.Ed.2d 186 (1976); MacAndrews & Forbes Co. v. American BarMag Corp., 339 F.Supp. 1401 (D.S.C.1972); Corey v. Bache & Co., 355 F.Supp. 1123 (S.D.W.Va.1973); Larson v. Tony’s Investment’s, Inc., 46 F.R.D. 612 (M.D.Ala.1969); Hecht v. Harris Upham & Co., 283 F.Supp. 417 (N.D.Cal.1968), modified, 430 F.2d 1202 (9th Cir.1970). Those denying a private remedy include: Dyer v. Eastern Trust and Banking Co., 336 F.Supp. 890 (D.Me.1971); Ferland v. Orange Groves of Florida, Inc., 377 F.Supp. 690 (M.D.Fla.1974); Trussell v. United Underwriters, Ltd., 228 F.Supp. 757 (D.Colo.1964).

In addition to this basic disagreement, two courts had qualified the remedy, Dorfman v. First Boston Corp., 336 F.Supp. 1089 (E.D.Pa.1972), Greater Iowa Corp. v. McLendon, 378 F.Supp. 783 (8th Cir.1967), and the Second Circuit had declared the issue an open question. Globus v. Law Research Service, Inc., 418 F.2d 1276 (2d Cir.1969).

It can scarcely be said after a review of the case law in existence in 1975 that there was a “judicial construction” of an implied private cause of action under § 17(a). Thus, the second and most important element of the modified Cort test, legislative intent, has not been met.

The third element of the Cort test, whether inferring a private cause of action would be in accordance with the overall legislative scheme, has not been met. In the first instance the 1933 Act contains two express civil liability sections, §§ 11 and 12. A purchaser may bring a private action under these provisions only after adhering to certain procedural requirements which do not apply to § 17(a). Thus the implication of a private cause of action under § 17(a) would frustrate the express procedural safeguards attached to §§ 11 and 12.

Plaintiffs argue that the creation of a private cause of action would not frustrate the overall legislative scheme and point to Herman & MacLean v. Huddleston, supra, as authority for this position. Plaintiffs reason that because the Court in that case held that overlapping remedies in the 1934 Act do not negate the implication of a private cause of action under § 10(b), such should be the ease in § 17(a) actions. This argument is unpersuasive, however, as it fails to consider the basic differences between the two Acts (just as the Ninth Circuit failed to consider these differences in Stephenson).

First to be considered is the fact that the 1933 Act is a much narrower statute addressing only disclosure issues and fraud in the sale of securities, while the 1934 Act possesses an expansive panoply of remedies. See generally, L. Loss Securities Regulation 1784-85 (1961). Another important distinction between the Acts is the requirement of scienter as an essential element of a § 10(b) action, while negligence will suffice under some portions of § 17(a). Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976); Aaron v. SEC, 446 U.S. 680, 695-97, 100 S.Ct. 1945, 1954-56, 64 L.Ed.2d 611 (1980). Further, plaintiffs’ reliance on Herman & MacLean v. Huddleston, supra, to support their contention of an implied private cause of action under § 17(a) is completely unwarranted in light of footnote 2 of that decision, which states: “[w]e have previously reserved decision on whether Section 17(a) [of the 1933 Act] affords a private remedy-(citation omitted), and we do so once again.” Id. 103 S.Ct. at 685.

It is apparent that if the Cort three pronged analysis is employed, no private right of action can be implied under § 17(a). Moreover, the courts which have applied the test have uniformly held that no private cause of action exists under § 17(a). Landry v. All American Assurance Co., 688 F.2d 381 (5th Cir.1982); Sweeney v. Keystone Provident Life Insurance Co., 578 F.Supp. 31 (D.Mass.1983); Summer v. Land and Leisure, Inc., 571 F.Supp. 380 (S.D.Fla.1983); Kimmel v. Peterson, 565 F.Supp. 476 (E.D.Pa.1983); Gilman v. Shearson/American Express, Inc., 577 F.Supp. 492 (D.N.H.1983); Basile v. Merrill Lynch, Pierce, Fenner & Smith, 551 F.Supp. 580 (S.D.Ohio 1982); Keys v. Wolfe, 540 F.Supp. 1054 (N.D.Tex.1982); Hill v. Der, 521 F.Supp. 1370 (D.Del.1981); Ingram Industries Inc. v. Nowicki, 502 F.Supp. 1060 (E.D.Ky.1980). I note that two District Courts within the Ninth Circuit have adopted this position notwithstanding the Stephenson decision. Bruns v. Ledbetter, 583 F.Supp. 1050, [Current] Fed.Sec.L.Rptr. (CCH) IT 91,978 at 98,950 (S.D.Cal.1984) and Hudson v. Capital Management International, Inc., 565 F.Supp. 615 (N.D.Cal.1983).

CONCLUSION

To imply a private right of action under § 17(a) would frustrate the overall statutory scheme of the securities laws. It would allow plaintiffs to circumvent the more rigorous procedural requirements in §§ 11 and 12 of the 1933 Act, which expressly provide for private actions. Moreover, if an implied private right of action existed under § 17(a), plaintiffs would be excused from proving defendant’s scienter as required under § 10(b) of the 1934 Act. Defendants’ motion to dismiss Count II is granted. Additionally, the motion to dismiss portions of Count VI is granted, as well as the motion to dismiss the defendants John Does.

      . Sections 11 and 12 are subject to the statute of limitations in § 13 and the award of costs and attorney's fees in § 5. Neither of these sections apply to § 17(a).


source: Caselaw Access Project

author: ORRICK, District Judge.

license: Public Domain

text:
    RETIRED PUBLIC EMPLOYEES' ASSOCIATION OF CALIFORNIA, CHAPTER 22; Oakland Retired Employees' Association; and Mrs. Winofred White, Plaintiffs, v. STATE OF CALIFORNIA; State Personnel Board of the State of California; Board of Administration of the Public Employees Retirement System; Retirement Board of the Oakland Municipal Employees' Retirement System; City of Oakland, Defendants. Jacob B. GUNN, on behalf of himself and all other persons similarly situated, Plaintiff, v. STATE OF CALIFORNIA; Board of Administration of the Public Employees' Retirement System; Carl J. Blechinger, Executive Officer of the Public Employees' Retirement System; Kenneth C. Cory, Controller of the State of California, Defendants.
    Nos. C-77-2008 WHO, C-78-2070 WHO.
    United States District Court, N.D. California.
    Nov. 13, 1984.

      Philip Paul Bowe, Davis, Cowell & Bowe, San Francisco, Cal., for plaintiffs.
    Bernard L. Allamano, Philip E. Callis, California State Employees’ Ass’n, Oakland, Cal., for plaintiff Gunn.
    Jeffrey N. Haney, Oakland, Cal., Richard L. Mayers, Deputy Atty. Gen., San Francisco, Cal., for defendants.
   OPINION

ORRICK, District Judge.

In Los Angeles Department of Water & Power v. Manhart, 435 U.S. 702, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978), the Supreme Court held that payment of benefits to retired public employees in amounts that vary according to the sex of the retiree constitutes impermissible sex discrimination prohibited by Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq. The question in these cases presented to the Court by cross-motions for summary judgment in the Retired Public Employees’ case and by plaintiff’s motion for summary judgment in the Gunn case is whether the State of California through its Public Employees Retirement System (“PERS”) can lawfully continue this payment procedure proscribed by the Supreme Court in 1978.

This question, answered in the negative by Judge Ingram of this Court, and affirmed by the United States Court of Appeals for the Ninth Circuit, Retired Public Employees’ Ass’n of California v. State of California, 677 F.2d 733 (9th Cir.1982), vacated, 463 U.S. 1222, 103 S.Ct. 3565, 77 L.Ed.2d 1406 (1983), is again posed to this 'Court for review in light of the Supreme Court’s decision in Arizona Governing Committee for Tax Deferred Annuity & Deferred Compensation Plans v. Norris, 463 U.S. 1073, 103 S.Ct. 3492, 77 L.Ed.2d 1236 (1983). For the reasons that follow, this Court again answers this question in the negative and orders relief to the certified class of those who have been discriminated against since April 25, 1978, the date of the Manhart decision.

I

Before the Court considers the important issues as to the appropriateness of monetary relief to the class retroactive to the date of Manhart, involving the adjustment of past benefits, and an injunction regard- ■ ing future benefit payments, it must first examine the Supreme Court’s holdings in Manhart and Norris.

A

Manhart involved a municipal agency’s retirement plan that required females to contribute more than similarly-situated males because mortality tables indicated that women live longer. Manhart, supra, 435 U.S. at 705, 98 S.Ct. at 1373. The plan was employer-operated and involved no private insurance companies. The plan was funded by employee contributions, employer contributions, and investment income earned on these contributions. Monthly retirement benefits were calculated as a fraction of the employee’s final salary multiplied by years of service. A plaintiff class of female employees brought a Title VII action seeking an injunction and restitution of excess contributions.

Writing for the Court majority, Justice Stevens acknowledged that women, as a class, do live longer than men. Id. at 707, 98 S.Ct. at 1374. But, stressing that Title VII’s focus was on fairness to individuals, the Court held that an employment practice requiring unequal contributions from women simply because of their sex “is in direct conflict with both the language and the policy of the Act.” Id. at 711, 98 S.Ct. at 1377.

The Court did not disturb a preliminary injunction issued by the district court. See id. at 706 n. 9, 98 S.Ct. at 1374 n. 9. However, the Court vacated the district court’s order refunding excess contributions made by the class for two reasons. First, before the decision, pension plan administrators could reasonably have thought that the use of valid actuarial tables was lawful. There was no reason to believe that the threat of a retroactive damage award was necessary to cause pension administrators to conform their plans to the decision. Id. at 719-21, 98 S.Ct. at 1380-82. Second, drastic changes in the legal rules governing pension plans should not be applied retroactively, because the occurence of such major unforeseen contingencies jeopardizes pension fund solvency and threatens the rights of all fund members. Id. at 721-23, 98 S.Ct. at 1382-83.

B

The Supreme Court’s Norris decision involved a deferred compensation plan offered by the State of Arizona but administered by private third-party insurers. An employee’s contributions and the investment income thereon funded an employee’s retirement benefits without any additional contributions from any source. Norris, supra, 103 S.Ct. at 3503 (Marshall, J., dissenting). The private insurance companies discriminated against women by paying males larger monthly benefits than women who deferred the same amount of income, because women as a class live longer.

The Norris district court granted summary judgment to a plaintiff class, ordering the state to cease using sex-based actuarial tables and to equalize benefit payments made after the date of the district court’s judgment. Id. at 3495, 3503. Although seemingly prospective, the relief equalizing benefits was retroactive because of the type of plan involved in Norris. Benefit payments represented a return on an employee’s contributions. In order to raise a retired employee’s benefits, the state would be required to retroactively fund the deficiency in past contributions. Id. at 3509-10 n. 10.

The Supreme Court majority in Norris reaffirmed the Manhart liability holding, stating that “Manhart squarely rejected the notion that, because women as a class live longer than men, an employer may adopt a retirement plan that treats every individual woman less favorably than every individual man.” Norris, supra, 103 S.Ct. at 3498 (Marshall, J., concurring in the judgment in part). Speaking for the Court on retroactivity, Justice Powell declined to make the holding retroactive for two reasons. First, the employer in Norris reasonably could have assumed that the use of private third-party insurers brought the plan out from under the Manhart shadow of illegality. Id. at 3510. Second, imposing such an unanticipated financial burden would have a devastating result on all employer-sponsored plans.

The Norris Court, therefore, modified that part of the district court's order relating to equalization of future benefits. Because the Norris benefits depended upon the amount of an employee’s contributions, the Court held that only benefits derived from contributions collected after the effective date of the judgment need be calculated without regard to the sex of the employee. Id. at 3510 n. 12 (Powell, J., concurring in part).

The Court must apply these rulings to the case at bar.

II

PERS provides pension and retirement benefits to State of California employees and to contracting city, county, and other local government employees. The plan is operated solely by the State without involvement of third-party insurance companies. The plan is funded from three sources. The first is employee contributions that are based on a percentage of an employee’s salary. The salary percentage does not reflect the amount of money needed to fund a particular individual’s benefits. Rather, the contribution percentage reflects the overall needs of the contributions, also pegged to a percentage of salary. The second source of funding is employer contributions, also pegged to a percentage of salary. The third source is investment income earned by PERS.

The benefits paid to an employee under the plan do not depend on the employee’s contributions. They depend on an employee’s years of service and final compensation, varied with respect to age at retirement. Thus, the plan does not simply refund specific contributions made for a specific employee.

In contrast to the equal amounts that similarly-situated males and females contribute, PERS benefit payments vary according to the sex of the recipient. Because women, as a group, live longer than men, a woman retiring after age sixty will receive lower monthly benefits than a similarly-situated man. A man retiring prior to age sixty likewise will receive lower monthly benefits than a similarly-situated woman because of a sex-based actuarial assumption. Plaintiffs contend, and the district court found in the Retired Public Employees’ case, that this practice constitutes impermissible sex- discrimination in violation of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq.

The State abandoned its use of sex-based actuarial tables to calculate monthly benefits for PERS members who retired on or after January 1, 1977. Cal.Gov’t Code § 21251.13, which contained the sex-based tables applied to “miscellaneous” PERS members, was amended in 1976 to provide gender-equalized benefit payments to all members who retired after January 1, 1977. The amendment did not change monthly benefits for those members who retired prior to that date. Such members continue to receive different benefits depending on their sex.

On appeal the State continued to assert the legality of its gender-based benefit payments. The State now offers no argument on this issue. Plaintiffs argue that an employer-operated retirement plan that pays individual retirees different benefits based solely on sex clearly violates Title VII under Manhart.

Title VII forbids discrimination against any individual with respect to his “compensation, terms, conditions, or privileges of employment” because of such individual’s sex. 42 U.S.C. § 2000e-2(a)(l). The Man-hart decision applied the statute to a retirement plan very similar to the plan before the Court. The main difference between the Manhart plan and the one here was that in Manhart females were required to contribute more than a similarly-situated male in order to receive the same amount of benefits. The Court noted that Man-hart was the first case asserting a Title VII challenge to valid actuarial tables. Manhart, supra, 435 U.S. at 722, 98 S.Ct. at 1382. Despite the validity of the tables, the Court held that requiring a woman to contribute more than her male counterpart constituted impermissible discrimination, stating that “Congress has decided that classifications based on sex, like those based on national origin or race, are unlawful.” Id. at 709, 98 S.Ct. at 1375. In Norris, the Supreme Court reaffirmed the Manhart liability holding, stating that “the classification of employees on the basis of sex is no more permissible at the pay-out stage of a retirement plan than at the pay-in stage.” Norris, supra, 103 S.Ct. at 3497.

It is undisputed that PERS pays monthly benefits based on sex-segregated actuarial tables to a class of pre-1977 retirees. This benefit calculation method violates Title VII. The Court, therefore, reinstates the prior order certifying a plaintiff class consisting of those members of PERS currently receiving lower monthly benefit payments than a similarly-situated member of the opposite sex, and who retired on or after March 24, 1972 (the date Title VII became applicable to public employees), and before January 1, 1977 (the date that the State abandoned the use of sex-based actuarial tables).

Under 42 U.S.C. § 2000e-5(g), this class is entitled to an injunction prohibiting the State defendants from using the sex-based actuarial tables to calculate monthly benefit payments made to the class. The class is also entitled to other affirmative action and equitable relief “as the court deems appropriate.”

Ill

The Court now turns to the question of whether the relief awarded may be retroactive. In Norris, the Supreme Court majority declined to award relief that was retroactive in nature. See Norris, supra, 103 S.Ct. at 3510 (Powell, J., concurring). As mentioned above, this Court’s prior order directed defendants to raise the benefit levels of disadvantaged plaintiffs retroactively to April 25, 1978, the date of the Manhart decision. Plaintiffs contend that, despite Norris, the Court should order the same relief previously awarded and affirmed because (1) injunctive relief adjusting future benefit payments is wholly prospective; (2) the Norris limits on retroactive relief are inapplicable because no new principle of law was announced in Norris that would affect this litigation; and (3) the State should have known, as of the date of Man-hart, that its benefit payment methods were illegal.

The State’s principal argument is that the right to be free from discrimination vests at the time of contribution to the plan. All plaintiffs’ contributions were made prior to the Manhart and Norris decisions, so the State argues that plaintiffs have no right to equalized benefits. Adopting this argument would mean that plaintiffs must go without any relief, be it prospective or retroactive.

The State’s retroactivity argument starts with the premise that “retroactive damages” here means “an increase in future retirement benefits” for those who retired prior to Norris. The State then argues that Norris flatly prohibits retroactive relief imposed under Title VII against any pension plan. As of January 1, 1977, the State stopped using its sex-based tables to calculate monthly benefits. Because that date predates both Manhart and Norris, the State contends that this Court should not order equalization of future benefits.

A

The Court first considers whether plaintiffs must go without any. relief because their contributions to PERS were made before the Manhart decision. Extrapolating from the emphasis placed on contributions in Manhart and Norris, the State argues that Norris created a “cut-off date” such that only retirement benefits based on post-Norris contributions need be distributed without reference to sex. This argument, previously rejected by the Ninth Circuit, Retired Public Employees’, supra, 677 F.2d at 736, reflects a basic misunderstanding of the two decisions. The Supreme Court in Norris also rejects it.

The Norris Court’s emphasis on the timing of contributions cannot be construed, as urged by the State, to operate as a complete bar to relief. In Norris, the timing of plan contributions was very important because the benefit payments depended upon the amount an employee contributed. An upward adjustment of post-judgment benefits was inequitable because the prejudgment contributions could not support such adjustment. Hence the Supreme Court declared that only benefits based on post-judgment contributions needed to be equalized. Norris, supra, 103 S.Ct. at 3512 (O’Connor, J., concurring).

Likewise, the timing of contributions was very important in Manhart because there the contributions themselves were discriminatory. Manhart, supra, 435 U.S. at 705, 98 S.Ct. at 1373. A retroactive refund of the Manhart plaintiffs’ unequal contributions was inequitable because, until the decision, pension plan administrators reasonably could have assumed that contributions based on the actuarial tables were lawful.

The fact that the Supreme Court emphasized the timing of contributions in its two decisions does not lead to the conclusion that a pension plan member only has Title VII rights at the time the person contributes to a pension fund. Plaintiffs’ contributions were equal, but the State’s benefit payments are discriminatory. The Court, therefore, finds that plaintiffs are entitled to an injunction and appropriate affirmative relief.

B

The Court next considers whether retroactive relief is completely barred in this case. Title 42 U.S.C. § 2000e-5(g) states that the Court may enjoin the defendant from engaging in the unlawful employment practices, “and order such affirmative action as may be appropriate, which may include, but is not limited to, reinstatement or hiring of employees, with or without back pay * * * or any other equitable relief as the court deems appropriate.”

The Norris decision does not completely bar retroactive relief against retirement plans violating Title VII. Rather, the Court set out reasons why retroactive relief was not “appropriate” in that case. Writing for the five-person majority on this issue, Justice Powell plainly identifies two considerations for a retroactive Title VII award against a pension fund: (1) could the employer have reasonably assumed that the plan’s operation was lawful; and (2) would the imposition of an unanticipated financial burden jeopardize the operation of the fund. Norris, supra, 103 S.Ct. at 3510. Justice Powell found that the Norris employer was reasonable in the assumption of the plan’s legality, and that holding an employer liable retroactively despite his reasonableness would have the devastating result of bankrupting apparently legal pension plans. Justice Powell, therefore, concluded that liability should be prospective only. Id. Other courts faced with the issue have not found Norris a complete bar to retroactive relief. See Spirt v. Teachers Insurance & Annuity Ass’n, 735 F.2d 23 (2d Cir.1984); EEOC v. Wooster Brush Co. Employees Relief Ass’n, 727 F.2d 566, 575-76 (6th Cir.1984); cf Colonial Penn Insurance Co. v. Heckler, 721 F.2d 431, 441 (3d Cir.1983) (limited time period and advance knowledge of regulations justified retroactivity under Norris); AFSCME v. State of Washington, 578 F.Supp. 846, 856 (W.D.Wash.1983) (cost is relevant in determining propriety of back-pay award under rationale of Manhart and Norris).

Therefore, the Court must scrutinize the contemplated relief and apply the Norris considerations to relief against PERS that is retroactive in nature. An injunction ordering defendants to increase future benefit payments from judgment forward possibly could be retroactive in nature, as was the case in Norris. Here, it is not.

The Norris Court noted that equalized future annuity payments constituted retroactive relief because of the type of plan involved therein. Norris, supra, 103 S.Ct. at 3503. Under the Norris plan, an employee’s monthly benefits depended upon the amount of compensation that the employee deferred and any earnings thereon. Id. at 3495, 3509-10 n. 10. In order to raise the plaintiffs’ future benefits, the State would have been required to retroactively fund the deficiency in past contributions. Id. at 3509-10 n. 10. Thus, the district court’s “future conduct” injunction in reality ordered defendants to remedy acts that had taken place before the plan’s illegality was known.

In contrast, the PERS benefits do not depend on the amount of an employee’s past contributions. Benefits depend on years of service and final salary, age at retirement, and sex. No segregated accounts are maintained for each employee. An employee could conceivably spend years in one job, advance just prior to retirement, and collect higher monthly benefits based on his or her higher salary at retirement. Where benefit payments do not depend on the specific amount of an employee’s past contributions, an injunction affecting that employee’s future monthly benefits cannot be considered retroactive relief. The relief requires no adjustments to contributions made prior to Manhart because the benefit payments do not depend on the specific amounts each employee has contributed. The Court finds that an injunction ordering defendants to equalize future PERS benefit payments is not precluded by Norris because it is wholly prospective relief. Accordingly, the Court orders the State defendants to equalize all benefit payments to the plaintiff class from the date of judgment forward by raising benefit payments of disadvantaged plaintiffs to those enjoyed by a similarly-situated member of the opposite sex, without reducing any benefits to any PERS member.

C

The Court now considers whether the award of equalized benefits retroactive to the date of the Manhart decision is “appropriate” under 42 U.S.C. § 2000e-5(g). See Manhart, supra, 435 U.S. at 719, 98 S.Ct. at 1380 (stressing that retroactive relief must be appropriate).

The Manhart case condemned the use of sex-based actuarial assumptions in the operation of an employee retirement plan. The State has acknowledged this point in its briefs. Closing Brief at 12. The plan in Manhart was employer-operated, as is the PERS plan. The Manhart plan discriminated in its contribution requirements, whereas the PERS plan discriminates in benefit payments. Nevertheless, Manhart clearly established the principle that the use of sex-based actuarial tables in the operation of a pension plan violates Title VII. See Norris, supra, 103 S.Ct. at 3497 n. 9, and cases cited therein.

As to employer-operated pension plans like PERS, Norris established no new principle of law. Id. 3512 (O’Connor, J., concurring) (“Ultimately, I find this case controlled by the same principles of Title VII articulated by the Court in Manhart”). Norris did establish a new principle of law for pension plans involving third-party insurers, as the Norris plan did. This fact militated against retroactive relief in Norris, but it is inapplicable here. After Man-hart, the State could not reasonably have assumed that sex-based PERS benefit payments were lawful, so retroactive relief would not be inequitable on this score. See Colonial Penn Insurance Co. v. Heckler, 721 F.2d 431, 441 (3d Cir.1983) (knowledge of change in regulations weighed in favor of retroactive relief under Manhart).

A retroactive award of sex-equalized pension benefits must not impose an unanticipated financial burden that might jeopardize the pension fund. Norris, supra, 103 S.Ct. at 3510; see id. at 3512 (O’Connor, J., concurring); cf. Spirt, supra, 735 F.2d at 26 (in a case involving third-party insurers, retroactivity inequitable if it imposes heavy financial burden on employers in light of new principle of law). The Court first notes that Justice Powell’s nonretroactivity holding applies to the employer-sponsored type of plan there at issue, as opposed to the employer-operated type of plan addressed in Manhart. Norris, supra, 103 S.Ct. at 3510. Justice Powell could not justify retroactive relief, “particularly in view of the [third-party insurer] question left open in Manhart. Id. This consideration is not present here, so equalizing benefits after the date of Manhart will not impose an “unanticipated” financial burden. See Retired Public Employees, supra, 677 F.2d at 738 (“in view of Manhart, the award [of increased benefits] should have been foreseen and taken into account by administrators, thus lessening the financial impact on the pension plan”), vacated, 463 U.S. 1222, 103 S.Ct. 3565, 77 L.Ed.2d 1406 (1983).

The uncontroverted evidence in the record shows that cost burdens are not prohibitive here. Cf. AFSCME, supra, 578 F.Supp. at 856 (cost is relevant in determining propriety of back-pay award under Manhart and Norris rationale). The PERS plan is a defined benefit plan in which resources may be reallocated between men and women, using existing reserves, without jeopardizing the fund or lowering benefits to any group. See Norris, supra, 103 S.Ct. at 3510 n. 10. The parties do not contend that the PERS plan would require “topping up” by employers in order to fund the increase in benefit payments. Moreover, the PERS reserves are more than adequate to support the increase in benefits formerly ordered by the district court. These factors indicate that no inequitable result will occur if the Court awards increased benefits retroactive to the date of Manhart. After that date, an increase in the plaintiff class’ benefits was more than a contingency — it was an eventuality that pension plan administrators surely contemplated when calculating contributions and appropriate reserves. Cf. Manhart, supra, 435 U.S. at 721, 98 S.Ct. at 1382 (pension plan amounts set aside to cover contingencies reflect assessment of insurer’s likely liability).

In her concurrence, Justice O’Connor applied the three criteria set forth in Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971), to reach her conclusion of nonretroactivity. Norris, supra, 103 S.Ct. at 3512 (O’Connor, J., concurring). One of these criteria is whether retroactivity will further or retard the operation of the statute. Id.; see Chevron, supra, 404 U.S. at 106-07, 92 S.Ct. at 355-56. While noting that one goal of Title VII is to make persons whole for injuries suffered from unlawful employment discrimination, Justice O’Connor thought that a retroactive holding was not necessary to ensure that pension plan administrators would “quickly conform their plans to insure that individual employees are allowed equal monthly benefits regardless of sex.” Norris, supra, 103 S.Ct. at 3512. Here, in contrast, the State has continued to pay pre-1977 employees discriminatory benefits for over six years after the Manhart decision. It is paying such benefits today. Certainly it would be inequitable to require equalization of benefits paid prior to Manhart, but no such inequity results from equalization of post-Manhart benefits. Rather, the adjustment of all post-Manhart benefits makes the plaintiffs whole, encourages prompt compliance with the laws of the United States, and is consistent with the strong presumption in favor of retroactive relief necessary to remedy the effects of past discrimination. See generally Albemarle Paper Co. v. Moody, 422 U.S. 405, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975). Accordingly, the Court finds that a monetary award of equalized benefits retroactive to the date of the Manhart decision is appropriate relief in this case.

IV

A

Based on facts which have recently “come to light,” plaintiffs seek a modification of the class pleaded in the complaints and formerly certified. Plaintiffs argue that in September 1977 the California Legislature amended § 20600.1 of the Government Code to permit the use of sex-based actuarial tables to calculate certain “optional” retirement payments. Plaintiffs state that the discriminatory practices ceased in July, 1982. Citing no authority, plaintiffs request that this Court strike the class closing date of January 1, 1977, which reflected the State’s purported abandonment of all sex-based actuarial tables, and declare the practice illegal.

The trial judge enjoys a wide range of discretion in overseeing all aspects of class action litigation. In re Northern District of California “Dalkon Shield” IUD Products Liability Litigation, 526 F.Supp. 887, 894 (N.D.Cal.1981), citing Price v. Lucky Stores Inc., 501 F.2d 1177, 1182 (9th Cir.1974). Plaintiffs in essence seek to add a subclass of plaintiffs whose existence was never raised during this litigation, despite the fact that the California Legislature acted almost seven years ago to permit the use of sex-based actuarial tables to calculate certain “optional” retirement payments. There is nothing before this Court that indicates that this “new” subclass would meet the requirements for maintenance of a class action. See Officers for Justice v. Civil Service Commission of San Francisco, 688 F.2d 615, 630 (9th Cir.1982) (each subclass must independently meet the requirements for maintenance of a class action), cert. denied, 459 U.S. 1217, 103 S.Ct. 1219, 75 L.Ed.2d 456 (1983). Accordingly, plaintiffs’ motion to amend the class is denied.

B

Plaintiffs’ third claim for relief in the 1977 complaint states that § 21251.13 of the California Government Code requires post-1971 retirees be paid gender-equalized benefits, and states that defendant Board of Administration of the Public Employees Retirement System has a “ministerial duty under the Government Code to compute and pay said retirement benefits in accordance with the Government Code.” Plaintiffs seek a mandatory injunction requiring the Board to comply with the terms of the Code. Defendants argue that under the Eleventh Amendment, as construed in the recent case of Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984), the Court is prohibited from ordering injunctive relief against the State on a pendent state claim. Plaintiffs do not respond to this argument.

Although the Court’s jurisdiction over plaintiffs’ third claim is founded on the doctrine of pendent jurisdiction, the Eleventh Amendment is an explicit limitation on the judicial power of the United States. Id. at 918. In Pennhurst, the Supreme Court overturned an award of injunctive relief against state officials and agencies based on a pendent state law claim. The Court found that the Eleventh Amendment was a constitutional bar to a federal court’s jurisdiction over a pendent state claim against the state and state officials and agencies. Pennhurst is controlling here. Therefore, this Court is without jurisdiction to consider plaintiffs’ third claim for relief in the 1977 complaint.

Accordingly,

IT IS HEREBY ORDERED that in the Retired Public Employees’ case, plaintiffs’ motion for summary judgment is GRANTED, and defendants’ motion for summary judgment is DENIED, and in the Gunn case, plaintiff’s motion for summary judgment is GRANTED. Therefore,

1. The State defendants are enjoined from using sex-based mortality tables to calculate monthly benefit payments to the plaintiff class.

2. From the date of this Opinion forward, the State defendants shall equalize the benefits paid to disadvantaged members of the plaintiff class by raising monthly benefits to the level received by similarly-situated members of the opposite sex without reducing any benefits to any PERS members.

3. The State defendants shall make such payments retroactive to April 25, 1978, the date of the Manhart decision that declared defendants’ practices illegal.

4. Plaintiffs’ motion to amend the class is denied.

5. Plaintiffs’ third claim for relief, set forth in the 1977 complaint, is dismissed without prejudice.

6. Plaintiffs shall submit a detailed request for attorney's fees by a motion noticed in accordance with the Local Rules.

      . In September 1977, plaintiff Retired Public Employees Association of California, Chapter 22, and others filed this class action suit (No. C-77-2008 WHO) to challenge the use of actuarial tables that relied upon the sex of the recipient as a basis for determining monthly benefit payments (the “1977 complaint"). A similar case was filed in September 1978 by Jacob B. Gunn, a retired State of California employee (No. C-78-2070 WHO). The cases were assigned to Judge Ingram, and were consolidated in 1979.
      Plaintiffs’ motion for summary judgment is joined by all plaintiffs. However, named plaintiff Gunn does not join in the plaintiffs’ motion regarding the third claim for relief based upon § 21251.13 of the California Government Code, a claim that was not stated in the complaint he filed.
      Defendants’ motion for summary judgment is brought by the State defendants. The “State defendants” include the State of California, the Personnel Board of the State of California, the Board of Administration of the Public Employees Retirement System (“PERS”), a PERS execufive officer, and the Controller of the State of California.
      Also named as defendants in the 1977 complaint are the City of Oakland and the Retirement Board of the Oakland Municipal Employees Retirement System. The Oakland retirement plan is the subject of plaintiffs’ second claim for relief, a claim that is not now before this Court.

      . Considering cross-motions for summary judgment, Judge Ingram found that the State defendants’ practice of paying monthly retirement benefits according to sex-based actuarial tables violated Title VII under Los Angeles Department of Water & Power v. Manhart, 435 U.S. 702, 98 S.Ct. 1370, 55 L.Ed.2d 657 (1978). He certified a plaintiff class consisting of all persons retired prior to January 1, 1977, who were receiving lower monthly retirement benefits than a similarly-situated member of the opposite sex. On April 25, 1980, the Court ordered the State defendants to raise class benefits to the level received by the opposite sex without reducing any benefits, and ordered the adjustment retroactively to the date of the Manhart decision.

      . The Ninth Circuit upheld the district court's finding of liability. The panel also affirmed the relief ordered by the district court, but modified the order so as to award relief to those class members retiring after March 24, 1972, the date Title VII became applicable to governmental employees. This is the effective date of the Equal Opportunity Act of 1972, which amended 42 U.S.C. § 2000e(a) by expanding the definition of "person" to include governments, governmental agencies, and political subdivisions.

      . On July 6, 1983, the Supreme Court granted certiorari, vacated the judgment of the Ninth Circuit, and remanded the case to that court for further consideration in light of the Arizona Governing Committee for Tax Deferred Annuity & Deferred Compensation Plans v. Norris, 463 U.S. 1073, 103 S.Ct. 3492, 3565, 77 L.Ed.2d 1236 (1983). Thereafter, the Ninth Circuit vacated the district court’s prior judgment and remanded the case. Retired Public Employees’ Ass’n of California v. State of California, 714 F.2d 95 (9th Cir.1983). On March 8, 1984, the case was reassigned to this Court.

      . See 1976 Cal.Stats. ch. 1436. A "miscellaneous" PERS member is a member who is an employee of a contracting agency, except a safety or school worker. See Cal.Gov’t Code § 20018 (West 1980).
      Although the parties acknowledge that other sex-based actuarial tables exist, their whereabouts was not brought to the attention of the Court.

      . The State also argues that rights to pension benefits vest at retirement and cannot be diminished. This misses the mark because plaintiffs’ benefits stand to be enhanced, not diminished, by this litigation.

      . This argument is inconsistent with the State’s position on retroactivity, because it implies approval of relief retroactive to July 6, 1983, the date Norris was decided.

      . The Supreme Court’s reasoning is more fully explored in connection with retroactivity, discussed infra.

      . A "defined benefit” plan is one in which the formula for the employee’s benefits is fixed at the outset (e.g., three percent of the employee's average monthly salary during the last year of employment times the number of years employed. See Sobel v. Yeshiva University, 566 F.Supp. 1166, 1190 n. 59 (S.D.N.Y.1983).

      . According to the PERS 1978 Annual Report and the affidavit of Thomas Crocker, PERS actuary, a sex-equalized increase in benefit payments for pre-1977 "miscellaneous" PERS retirees (the majority of the members affected) would require an annualized outlay" of $1.8 million. Total actuarial reserves equal $3.7 billion. According to Mr. Crocker’s highest estimates, $38 million would be required to increase class benefits retroactively to the date each person retired. However, the relief contemplated here would require retroactive application only to April 25, 1978.


author: ROBERT H. HALL, District Judge.

text:
    Joseph B. MARSHALL, Plaintiff, v. CITY OF ATLANTA, BUREAU OF SERVICES, Chief B.J. Thompson, Chief J.F. Bennett and Captain Bruce Borders, Defendants.
    Civ. A. No. C83-306A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Nov. 20, 1984.

      William F. Rucker, Atlanta, Ga., for plaintiff Joseph B. Marshall.
    Marva Jones Brooks, Malcolm J. Hall, Marion K. Smith, Atlanta, Ga., for defendants.
   ORDER

ROBERT H. HALL, District Judge.

Presently pending in this 42 U.S.C. § 1983 action is defendants’ second renewed motion for summary judgment (filed June 29, 1984).

FACTS

Plaintiff was employed as a firefighter for the Bureau of Fire Services for the City of Atlanta, Georgia, on December 26, 1977. On February 18, 1981, following a conference with his superiors concerning a doctor’s certificate, plaintiff referred to his superiors as “goddam mother fuckers,” “downtown lackeys,” and “sons of bitches” apparently in front of his co-workers. (Bennett Affidavits). Plaintiff contends this language was often used around the fire station in the presence of superior officers. (Marshall Affidavit).

Based on this incident, plaintiff was dismissed on October 19, 1981, for violating Bureau Rule 2.02. That Rule stated:

An employee of the Department shall be civil, orderly, and courteous to the public, co-workers, and supervisors, and shall not use coarse, insensitive, abusive, violent or profane language.
When in public, in an on-duty capacity, supervisors shall be referred to by rank/position/title.

Plaintiff filed the instant action on February 17, 1983, claiming that Rule 2.02 is vague, overbroad and provides a discriminatory, capricious and arbitrary standard of discipline in violation of his First and Fourteenth amendment rights. (Complaint, ¶! 12).

Defendants move for summary judgment on plaintiff’s due process and free speech claims on the grounds that there is no genuine dispute that Rule 2.02 is not vague or overbroad.

DISCUSSION

A. Constitutional protection

The first issue presented by defendants’ motion is whether plaintiff's comments were constitutionally protected. Plaintiff argues that “expressions of general frustration” with his superiors should be constitutionally protected because they do not have a “clear enough connection” with his job.

Resolution of the issue of whether plaintiff’s comments were constitutionally protected requires an application of the balancing test enunciated in Pickering v. Board of Education, 391 U.S. 563, 88 S.Ct. 1731, 20 L.Ed.2d 811 (1968). That test calls for a balancing of the interest of the Bureau of Fire Services in promoting the efficient delivery of fire services and the interest of plaintiff in speaking freely. Id. at 568, 88 S.Ct. at 1734. See Givhan v. Western Line Consolidated School District, 439 U.S. 410, 415, 99 S.Ct. 693, 696, 58 L.Ed.2d 619 (1979); Waters v. Chaffin, 684 F.2d 833 (11th Cir.1982); Wilson v. Taylor, 658 F.2d 1021, 1027 (5th Cir.1981); Bickel v. Burkhart, 632 F.2d 1251, 1256 (5th Cir.1980). Application of the Pickering balancing test is a question of law. Schneider v. City of Atlanta, 628 F.2d 915, 918-19 (5th Cir.1980); Bickel v. Burkhart, supra, 632 F.2d at 1256.

Upon careful consideration of the circumstances involved in this case, the court finds that plaintiff’s comments were not constitutionally protected. The Bureau’s interest in maintaining the authority of the Bureau’s superior officers, and thus order and harmony in the firefighting unit, outweighs plaintiff’s interest in abrasive, offensive criticism of his superiors and/or their, manner of conducting their duties. As the Second Circuit stated in Janusaitis v. Middlebury Volunteer Fire Department, 607 F.2d 17 (2nd Cir.1979), in fighting fires “an esprit de corps is essential” and “[cjarping criticism and abrasive conduct have no place in a small organization that depends upon common loyalty — ‘harmony among coworkers,’____” Id. at 26.

Thus, because operational efficiency and harmony among coworkers are critical to the effective operation of the Bureau of Fire Services, and because lives are at stake when the Bureau is not effective, the court finds that disruptive conduct such as plaintiff’s is not constitutionally protected. Accord Janusaitis, supra (verbal attacks of senior officers and coworkers by firefighter held not protected by Constitution). Cf, Bickel v. Burkhart, supra (remarks directed at the fire department as an institution which were not made in a hostile or threatening manner and which did not interfere with the operation of the fire department held to be constitutionally protected); Waters v. Chaffin, supra (policeman’s criticism while off-duty found constitutionally protected).

B. Vagueness claim

The next issue presented by defendant’s motion is whether the rule pursuant to which plaintiff was dismissed is unconstitutionally vague.

It is well settled that “a statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process law____” Connally v. General Construction Co., 269 U.S. 385, 391, 46 S.Ct. 126, 127, 70 L.Ed. 322 (1926). Stated in other terms, a statute is vague if it fails to “give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly.” Grayned v. City of Rockford, 408 U.S. 104, 105, 108, 92 S.Ct. 2294, 2298, 33 L.Ed.2d 222 (1972). Also see Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982). This standard has also been applied to governmental employment regulations. See, e.g., Bence v. Breier, 501 F.2d 1185, 1188 (7th Cir.1974), cert. denied, 419 U.S. 1121, 95 S.Ct. 804, 42 L.Ed.2d 821 (1975).

Vagueness, obviously, is a matter of degree and context. The court must determine whether the rule pursuant to which plaintiff was fired creates a standard of conduct which is capable of objective interpretation by those firefighters who must abide by it, by those departmental officials who must enforce it, and by any administrative or judicial tribunal which might review any disciplinary proceeding. Id. at 1190.

Considering the limitations of the English language, the court finds that the rule in question does provide such a standard and that plaintiff’s speech was clearly proscribed by the rule. A person of ordinary intelligence would not have to guess whether calling a superior officer a “goddam mother fucker,” a “downtown lackey,” and a “son of a bitch” was “coarse, insensitive, abusive, violent or profane language” or was not “civil, orderly and courteous.”

Plaintiff contends that language similar to that which he was fired for had been often around the fire station by other firefighters in the presence of superior officers without disciplinary action being taken and that this pattern of enforcement presents a fact question as to whether he had a reasonable opportunity to know what was prohibited by Rule 2.02, and thus a fact question as to whether the rule was vague. The court rejects this argument. Given that the rule provides a facially ascertainable standard of conduct, the pattern of enforcement is not relevant to plaintiff’s vagueness claim.

In sum, the court finds the rule in question not unconstitutionally vague as a matter of law.

C. Overbreadth claim

The third issue presented by defendant’s motion is whether Rule 2.02 is unconstitutionally overbroad.

The Supreme Court, in altering its traditional rules of standing, has held that an individual may attack an overly broad statute on First Amendment grounds without demonstrating that his or her own conduct could not be regulated by a statute drawn with the requisite narrow specificity. Coates v. City of Cincinnati, 402 U.S. 611, 91 S.Ct. 1686, 29 L.Ed.2d 214 (1971); Dombrowski v. Pfister, 380 U.S. 479, 486, 85 S.Ct. 1116, 1120, 14 L.Ed.2d 22 (1965). “Litigants, therefore, are permitted to challenge a statute not because their own rights of free expression are violated, but because of a judicial predication or assumption that the statute's very existence may cause others not before the court to refrain from constitutionally protected speech or expression.” Broadrick v. Oklahoma, 413 U.S. 601, 612, 93 S.Ct. 2908, 2915, 37 L.Ed.2d 830 (1973). “Facial overbreadth claims” have been entertained in cases such as the instant one where governmental employment regulations, by their terms, purport to regulate the time, place, and manner of expressive conduct. See, e.g., Waters v. Chaffin, supra; Davis v. Williams, 617 F.2d 1100 (5th Cir.), cert. denied, 449 U.S. 937, 101 S.Ct. 336, 66 L.Ed.2d 160 (1980).

Under the overbreadth doctrine, a regulation will not be unconstitutionally broad if a limiting construction or partial invalidation can be made to remove the seeming threat or deterrence to constitutionally protected expression. See Dombrowski, supra, 380 U.S. at 491, 85 S.Ct. at 1123. As the Supreme Court has said, “application of the overbreadth doctrine ... is, manifestly, strong medicine. It has been employed by the Court sparingly and only as a last resort.” Broaderick v. Oklahoma, supra, 413 U.S. at 613, 93 S.Ct. at 2916. See also New York v. Ferber, 458 U.S. 747, 769, 102 S.Ct. 3348, 3361, 73 L.Ed.2d 1113 (1982) (child pornography case).

Turning to the instant case, the court does not find Rule 2.02 unconstitutionally overbroad. Construing it to only apply to conduct while on-duty, the proscription is constitutionally warranted. See discussion supra. The rule, limited to on-duty conduct and speech, does not cause the firefighters to refrain from constitutionally protected speech or expression. Cf. Waters v. Chaffin, supra (policeman’s off-duty conduct constitutionally protected). CONCLUSION

In sum, the court GRANTS defendant’s motion for summary judgment, finding no constitutional violation on the face of Rule 2.02 and no constitutional violation in the disciplinary action taken against plaintiff.

This Order terminates this action.


author: BISSELL, District Judge.

text:
    Garry DONAGHY and Joan Donaghy, his wife, Plaintiffs, v. Richard L. ROUDEBUSH, as Administrator of Veteran’s Affairs, an Officer of the United States of America, Ray W. Reichenbach, Assistant Loan Guaranty Officer, his Attorney in Fact, Donald J. Volkert, Jr., Assistant United States Attorney, Chief, Civil Division, Philip P. Caruso, Loan Guaranty Officer, Midlantic National Bank and Broad National Bank, Defendants.
    Civ. No. 82-3597.
    United States District Court, D. New Jersey.
    Feb. 15, 1985.

      Fred S. Dubowsky, Melody Moskowitz, Edison, N.J., for plaintiffs.
    W. Hunt Dumont, U.S. Atty. by William S. Halsch, Asst. U.S. Atty., Newark, N.J., for Government defendants.
    Donald M. Karp, Newark, N.J., for defendant Broad Nat. Bank.
   OPINION

BISSELL, District Judge.

On October 27, 1982 plaintiffs Garry and Joan Donaghy filed a Complaint seeking to clear the title to certain property and to recover damages. Named as defendants are the United States of America, through its agency the Veterans Administration, certain administrators and employees of the Veterans Administration, an Assistant United States Attorney, Midlantic National Bank, and Broad National Bank. Jurisdiction of this Court is predicated upon 5 U.S.C. §§ 702 and 703, as well as 28 U.S.C. §§ 2002, 2409a(a) and (c), and 1346(c) and (f).

The matter is presently before the Court on plaintiffs’ motion to amend the Complaint and defendants’ motion to dismiss the Complaint, or, in the alternative, for summary judgment. The facts of this case are not in dispute. In 1971 the Veterans Administration conveyed the property at 16 Duelos Lane, Edison, New Jersey to Rocco and Loretta Flammia. When the Flammias defaulted on their mortgage payments owed to the V.A. the matter was referred to the United States Attorney’s Office with instructions to pursue foreclosure. On March 21, 1974 the United States filed a Complaint in the United States District Court to foreclose the mortgage. After that Complaint was filed, title searches disclosed the liens of defendants Midlantic National Bank (“MNB”) and Broad National Bank (“BNB”). Paragraph 3 of the present Complaint describes those liens as follows:

3. The defendant, Midlantic National Bank, is named by virtue of Judgment DJ-576-73, recovered against Rocco and Loretta Flammia, and recorded in Superi- or Court of New Jersey on September 13th, 1973, in the sum of $2,076.46.... [A]nd the defendant, Broad National Bank, is named by virtue of the following:
(a) Judgment J-ll, 843-72, Superior Court of New Jersey, entered on August 14, 1973, in the sum of $25,087.93, against Loretta R. Flammia and others,
(b) A mortgage dated August 27th, 1971, given this defendant by Rocco and Loretta Flammia, in the sum of $7,800.00, recorded September 1st, 1971, in Book 2230, in page 205 of the Middle-sex County Clerk’s Office, Book of Mortgages, and
(c) A mortgage dated June 10th, 1972, given this defendant by Rocco and Loretta Flammia, in the sum of $22,815.00, recorded on June 14th, 1972, in Book 2261, page 1138, Middlesex County Clerk’s Office, Book of Mortgages.....

On June 10, 1974 an order was entered permitting an amendment to the foreclosure complaint naming these additional defendants. Subsequently, both banks were served by the United States Marshal and both defaulted. On November 4, 1974 a motion for default and summary judgment was filed. Judgment was granted and entered on November 21, 1974. The judgment specifically names MNB and BNB, and orders and adjudges that the named defendants “stand absolutely debarred and foreclosed of any and all equity and redemption of, in and to so much of the said mortgaged premises as shall be sold as aforesaid under this judgment.”

Pursuant to that judgment a writ of execution was entered on December 31, 1974 naming all of the defendants in the original Complaint, but failing to list MNB and BNB. A Marshal’s Sale was held on February 20, 1975, at which the V.A. was the successful bidder. A Marshal’s Deed was recorded on March 14,1975 in Book 2884 of Deeds of Middlesex County. That deed failed to name defendants MNB and BNB.

The V.A. subsequently conveyed the property by warranty deed to plaintiffs herein on June 23, 1975 and recorded the deed on July 1, 1975 in Book 2895 of Deeds of Middlesex County, subject to a purchase money mortgage of $17,000 to be held by the V.A. In April 1981 plaintiffs applied for another mortgage through the V.A. from Money America, Inc. A title search conducted by Berks Title Company revealed the existence of outstanding liens held by BNB and MNB. Plaintiffs, after unsuccessful attempts to get the V.A. to defend or clear their title, filed suit.

The Court first addresses plaintiffs’ motion to amend the Complaint under Fed.R. Civ.P. 15(a). The basic reason for this amendment appears to be in order to properly designate the United States as a defendant. Since there is no opposition to the wording of the Amended Complaint, the Court will grant plaintiffs’ motion to amend.

The Court now turns its attention to defendants’ motion to dismiss. Defendants seek to dismiss for plaintiffs’ failure to serve the summons and Complaint upon defendants within 120 days of filing of the Complaint, pursuant to Fed.R.Civ.P. 4(j). Defendants argue that the action was filed on October 27, 1982 and service was not attempted until August 5, 1983, well beyond the 120-day limit. However, defendants fail to mention that Rule 4(j) did not become effective until February 26, 1983, four months after plaintiffs filed their Complaint. This Court will not dismiss plaintiffs’ Complaint for failure to comply with a rule which was not in existence at the time plaintiffs commenced this action. See United States v. Bluewater-Toltec Irrigation District, 100 F.R.D. 687 (D.N.M.1983) (holding that the date that the summons was issued, not the date it was actually served, controls in determining whether the old or new version of Rule 4 applies). Accordingly, defendants’ motion to dismiss for failure to comply with Fed.R. Civ.P. 4(j) is denied.

Defendants next seek to dismiss the Complaint for failure to serve the defendants properly under Fed.R.Civ.P. 4(d)(4) and (5). Defendants contend that neither the United States Attorney nor the Attorney General have been served with a copy of the summons and Complaint. Plaintiffs contend, although without documentary evidence, that the United States Attorney was served on August 5, 1983. Regardless of who is correct, the Court finds that any error in service would be harmless error. The necessary persons within the Government had actual notice of the suit and suffered no prejudice from any technical defect in service. Jordan v. United States, 694 F.2d 833 (D.C.Cir.1982).

Finally, the defendants contend that plaintiffs have failed to state a legitimate claim against the federal defendants and, accordingly, their action should either be dismissed or summarily decided against them. Defendants contend that the liens plaintiffs complain of were properly foreclosed and that plaintiffs were provided with marketable and insurable title. They contend that all necessary procedural steps were taken for the purpose of joining, serving, and foreclosing the rights of MNB and BNB, which were, in any case, junior to the mortgage foreclosed. Plaintiffs answer that the defects in the Flammia foreclosure action, namely the failure of the lis pen-dens, writ of execution, advertisement of the terms and conditions of the sale, and, most importantly, the Marshal’s Deed, to include MNB and BNB as defendants created a cloud on plaintiffs’ title which renders it uninsurable and thus unmarketable.

“Title is not rendered unmarketable by an alleged defect which is not reasonably debatable or by the threat of litigation which has no rational justification.” Gaub v. Nassau Homes, Inc., 53 N.J.Super. 209, 223, 147 A.2d 73 (App.Div.1958); Javna v. D.J. Fredericks, Inc., 41 NJ.Super. 353, 357; 125 A.2d 227 (App.Div.1956); United States v. Roebling, 244 F.Supp. 736, 740 (D.N.J.1965). Any title challenge “must have some substance”; it cannot be based on “remote hypothetical or unfounded doubts ...” Gaub, supra, 53 NJ.Super., at 223, 147 A.2d 73. The Court finds that plaintiffs have failed to prove that their title is unmarketable or that BNB is going to foreclose on their property. While it is undisputed that there technically remain prior liens of record against the subject property, this does not necessarily lead to the conclusion that the title is unmarketable. Those liens of MNB and BNB were effectively foreclosed and removed from the property by the judgment of November 21, 1974. Failure to include those defendants in later papers did not revive the liens in question. Significantly, both banks are defendants in the present action and neither has responded to these motions despite having been properly served with copies of the Complaint and moving papers.

Furthermore, in a letter dated February 2, 1982 from John J. Hibbits of Markland Title Services, Inc. to Donald J. Volkert, Assistant United States Attorney {see Plaintiffs’ Brief, Exhibit 3), Mr. Hibbits states:

[T]his Company is of the opinion that the U.S. Marshall's [sic] Deed dated March 13, 1975, recorded March 19, 1975 in the office of the Clerk of Middlesex County in Deed Book 2884, page 761 conveyed clear and marketable title to the premises described therein subject only to such matters as a search prior to June 5, 1973 (see report of Chicago Title Insurance Company dated May 23, 1974) would reveal and such facts as a search from the date of recording of the said Sheriff’s Deed would reveal. Accordingly, upon completion of all necessary searches and payment of appropriate premiums and fees, this company would issue Title Insurance Policy of Lawyers Title Insurance Corporation without any exception to any right, title, interest or equity of redemption of Broad National Bank.

Accordingly, there is at least one title insurer who would insure plaintiffs’ title without excepting the liens in question.

Plaintiffs’ mere assertions that their title is uninsurable, without documentary proof, are not sufficient to convince this Court of such. Plaintiffs do bring to the Court’s attention the letter from Donald M. Karp, counsel for BNB, dated April 28, 1982 to support their claim that BNB intends to “imminent[ly]” foreclose on their property. However, a reading of that letter fails to convince the Court that BNB is threatening to foreclose. Also, more than two and one-half years have elapsed since the date of that letter and no such foreclosure proceedings have begun.

Because plaintiffs cannot establish that their title is uninsurable or truly “clouded”, or that BNB is going to foreclose on their property, summary judgment will be entered declaring plaintiffs’ title to be free of such “liens” and dismissing the Amended Complaint against the United States. Counsel for the plaintiffs is hereby requested to prepare and submit a form of judgment reflecting this decision, including therewith an Amended Complaint to be filed concurrently with the judgment.


author: KENYON, District Judge.

text:
    Donald R. MacPHERSON, Plaintiff, v. UNITED STATES of America, Defendant.
    No. CV 84-2678-KN (Px).
    United States District Court, C.D. California.
    Feb. 21, 1985.
    Hillel Chodos, Justin L. Goldner, Trachman & Goldner, Beverly Hills, Cal., for plaintiff.
    Mason C. Lewis, Asst. U.S. Atty., Los Angeles, Cal., Daniel R. Ross, Janice Brown Teague, Trial Attys., Tax Div., U.S. Dept, of Justice, Washington, D.C., for defendant.
   ORDER

KENYON, District Judge.

The Court, having heard argument from counsel on December 10, 1984, and having considered the papers filed with respect to Plaintiffs Motion for Summary Judgment, including the briefs and exhibits filed after the hearing at the Court’s request, hereby makes the following findings and order:

Plaintiff MacPherson, as a general partner of National Petroleum Associates (“NPA”), seeks a refund of taxes paid under the Windfall Profit Tax on Domestic Crude Oil. I.R.C. §§ 4986-4998. The claim for refund concerns oil removed from certain properties in 1980. During 1980, the properties in question were subject to litigation. This litigation arose from an agreement entered into on or about October 12, 1973, whereby MacPherson, as the nominee for NPA, agreed to purchase the oil properties in question from James C. Thomas. Thomas apparently refused to sell the properties after the execution of this agreement. Thus, in April 1974, MacPherson and NPA brought an action for specific performance against Thomas and others. See Case No. 127414, Superior Court of the State of California for the County of Kern. In the course of this litigation, the parties entered into a stipulation on September 22, 1978. Said stipula-tion placed the disputed properties under the joint control of the litigants, with the operation and income to be supervised by the court. Pursuant to the stipulation, Frank Mondary was appointed as a neutral third-party to operate the properties on behalf of the state court. Judgment was entered in favor of MacPherson and NPA on February 11, 1982. The judgment provided that plaintiffs were entitled to the properties and the assets of the joint operation if they tendered $790,017.17 plus interest within 30 days of notice of the entry of judgment. Plaintiffs did tender the requisite amount within the 30-day period and assumed ownership of the properties.

Pursuant to § 4995(a)(1), the first purchaser of the crude oil removed in 1980 from the disputed properties, namely Witco Chemical Corporation (see Declaration of Joseph Russo, Exhibit B-l to Supplement to Plaintiffs Reply to Defendant’s Supplemental Brief), withheld the taxes for which the producer of the oil is held responsible under § 4986(b). It is clear, however, that the income obtained from Witco’s purchase of the crude oil was held in custodia legis under the September 22, 1978 stipulation. See Referee’s Findings of Fact and Conclusions of Law, Exhibit C to Declaration of Janice Brown Teague, ¶¶ 7, 57. Thus, MacPherson contends that since he did not have access to the income derived from the properties in 1980, his income from the properties during that year should have been $0. Believing himself to have been a producer of the crude oil in 1980, MacPherson asserts that the proper calculation of the net income limitation provided in § 4988 would necessitate a finding that he is not liable for any windfall profits tax during that year.

This claim presents three issues for resolution. All three can be resolved on this motion for summary judgment. First, did MacPherson earn any income from the properties in 1980? Second, assuming the first question is answered in the negative, is MacPherson a producer under the terms of the code and was any windfall profits tax paid on his behalf? Third, assuming the second question is answered in the positive, is MacPherson entitled to a refund of 34% of the taxes paid on behalf of NPA?

I. Net Income

Section 4986 imposes an excise tax “on the windfall profit from taxable crude oil removed from the premises during each taxable period.” Windfall profit is determined pursuant to the formula prescribed in § 4988(a), but in no event shall the windfall profit “exceed 90 percent of the net income attributable to [each] barrel [of crude oil].” § 4988(b)(1). Crucial to the determination of the net income attributable to each barrel is the “taxable income from the property for the taxable year attributable to taxable crude oil.” § 4988(b)(2)(A). This taxable income shall be determined under section 613(a). § 4988(b)(3)(A). The first question presented in this case is whether MacPherson had any taxable income under § 613(a).

In North American Oil Consolidated v. Burnet, 286 U.S. 417, 52 S.Ct. 613, 76 L.Ed. 1197 (1932), the ownership of a section of oil land was in dispute. In 1916, a receiver was appointed to operate the property and to retain the net income. The company eventually received this net income from the receiver in 1917. The Court found that the income was not taxable in 1916 “because at no time during the year was there a right in the company to demand that the receiver pay over the money.” Id. at 423, 52 S.Ct. at 615. Instead, the funds were taxable as income in 1917 “when [the company] first became entitled to them and when it actually received them.” Id. at 424, 52 S.Ct. at 615. Similar reasoning regarding impounded or escrowed funds was applied to the determination of allowable deductions from taxable income for purposes of the oil depletion allowance. In Crews v. Commissioner, 30 B.T.A. 615 (1934), aff'd, 89 F.2d 412 (10th Cir.1937), the Board of Tax Appeals found that “[s]ince there was no liability for tax until the date of the settlement which released the impounded funds, it follows, of course, that all deductions in connection with the taxability of the income involved are allowable in the year of the release of the impounded funds.” Id. at 618. This ruling was made pursuant to § 114(b)(3) of the Revenue Act of 1928, which is the predecessor provision to § 613.

These decisions compel the conclusion that MacPherson did not have an accession to wealth from the oil properties in 1980 and thus did not have taxable income in that year for purposes of assessing a windfall profits tax. As was the situation in North American Oil and Crews, MacPherson and the other partners of NPA did not have a right to the income derived from the properties in 1980. Only in 1982, when the state court rendered its judgment and the purchase money was tendered, did the partners of NPA first become entitled to the money and actually received such money. Moreover, the code provides that taxable income for purposes of the windfall profits tax shall be determined under § 613(a), the successor provision to the one relied upon in Crews. Thus, this Court finds that under § 613(a), and therefore under the windfall profits tax pursuant to § 4988(b)(3)(A), a taxpayer has received no taxable income if the funds were being held in custodia legis.

Congressional intent does not appear to be to the contrary. Defendant’s only evidence of such contrary intent is § 4996(g), which provides in pertinent part that no exemptions from the windfall profits tax shall be allowed “except to the extent provided in this chapter____” This Court finds that, through reference to § 613(a) for purposes of defining taxable income, the chapter incorporates the principles articulated in North American Oil and Crews with respect to impounded or es-crowed funds. Without a stronger showing that Congress did not intend to follow these principles, this Court cannot find that the net income limitation provided in § 4988 requires the funds in dispute to be taxable in 1980.

Thus far, this ruling merely indicates that MacPherson was not obligated to pay any windfall profits tax in 1980. The question still remains whether such a tax was paid on his behalf.

II. “Producer”

As stated above, the windfall profit tax is to be paid by the “producer of the crude oil.” § 4986(b). The producer of the oil is “the holder of the economic interest with respect to the crude oil.” § 4996(a)(1)(A). Thus, this Court must focus upon the economic interests in the oil removed from the disputed properties in 1980 since “Congress, by defining ‘producers’ as the holders of the economic interest in the oil, has, in effect, made ‘economic interest’ the touchstone of the [windfall profits tax].” Lewis v. Reagan, 516 F.Supp. 548, 552 (D.D.C.1981).

Section 51.4996-l(b)(l) of the Excise Tax Regulations Under The Crude Oil Windfall Profit Tax Act of 1980, 26 C.F.R. § 51.-4996-l(b)(l), states in pertinent part: “[T]he term ‘economic interest’ has the same meaning as it has for purposes of Subtitle A of the Code.” Subtitle A defines “economic interest” as follows:

An economic interest is possessed in every case in which the taxpayer has acquired by investment any interest in mineral in place or standing timber and secures, by any form of legal relationship, income derived from the extraction of the mineral or severance of the timber, to which he must look for a return of his capital ... A person who has no capital investment in the mineral deposit or standing timber does not possess an economic interest merely because through a contractual relation he possesses a mere economic or pecuniary advantage derived from production.

Treas.Reg. § 1.611 — 1(b)(1). This term “economic interest” has been analyzed in great detail by the Supreme Court and lower federal courts. Such analysis has been in the context of the depletion allowance provided in § 611, in which the allowance was designed to restore the taxpayer’s capital investment in the oil as the oil is depleted. Anderson v. Helvering, 310 U.S. 404, 407-08, 60 S.Ct. 952, 953-54, 84 L.Ed. 1277 (1940). The Supreme Court further explained:

It follows from this theory that only a taxpayer with an economic interest in the asset, here the oil, is entitled to the depletion. By this is meant only that under his contract he must look to the oil in place as the source of the return of his capital investment. The technical title to the oil in place is not important____ The test of the right to depletion is whether the taxpayer has a capital investment in the oil in place which is necessarily reduced as the oil is extracted.

Kirby Petroleum Co. v. Commissioner, 326 U.S. 599, 603, 66 S.Ct. 409, 411, 90 L.Ed. 343 (1946) (citations omitted). See also United States v. Thomas, 329 F.2d 119, 129-30 (9th Cir.1964).

The question thus presented is whether MacPherson had a sufficient interest in the oil in place in 1980. Given the litigation in state court following Thomas’ refusal to close the deal for the oil properties, it is clear that MacPherson and NPA did not hold legal title to the properties. As noted above, however, the Supreme Court in Kirby Petroleum made clear that technical title to the property is not necessary to hold the requisite economic interest. In this case, although MacPherson did not hold legal title to the property in 1980, he did hold equitable title to the property under the doctrine of equitable conversion. Upon the signing of the binding executory contract for the sale of the oil properties, an equitable conversion occurred under which MacPherson, as the nominee of NPA, is deemed to be the equitable owner of the properties and Thomas the equitable owner of the purchase money. See In re Dwyer’s Estate, 159 Cal. 664, 115 P. 242 (1911); Mamula v. McCulloch, 275 Cal.App.2d 184, 193, 79 Cal.Rptr. 571 (1969). This equitable ownership exists regardless of whether the conversion is absolute, that is, whether the terms of the contract are subsequently complied with. Id. In this instance, MacPherson and NPA held equitable title to the properties in 1980, and such title was made absolute within 30 days after the state court’s entry of judgment in February 1982. The issue presented is whether this equitable interest in the properties provides the requisite economic interest for MacPherson to be held to be a “producer” of the oil.

In Mamula v. McCulloch, supra, the court stated:

The fact that the vendor may refuse to perform his part of the agreement and refrain from making the conveyance to which the purchaser is entitled on complianee with the provisions of the contract will not affect the status of the parties or their rights in the property, for when a purchaser has performed or offered to perform his covenants, at the time provided in the contract for the conveyance of the property, he will be treated in equity from that time on as the owner of the property, and the vendor will be regarded as merely holding the legal title thereto in trust for him.

275 Cal.App.2d at 194, 79 Cal.Rptr. 571. The state court’s judgment granting plaintiffs the specific performance requested makes this statement in Mamula fully applicable to the case at bar. Thus, in 1980, Thomas (the vendor) was merely holding the legal title in trust for MacPherson (the purchaser). The Supreme Court has indicated that when a taxpayer holds an equitable interest in the property through the existence of a trust, such an interest would suffice for purposes of creating an economic interest in the mineral in place. In Helvering v. O’Donnell, 303 U.S. 370, 58 S.Ct. 619, 82 L.Ed. 903 (1938), the taxpayer sold stock in a company which owned certain oil and gas properties and, in return, the taxpayer received one-third of the net profits derived from the development and operation of said properties. In deciding that this agreement gave the taxpayer an economic advantage but not an economic interest in the properties, the Court also stated: “No trust was declared by which respondent could claim an equitable interest in the res.” Id. at 372, 58 S.Ct. at 620. This statement clearly implies that if an equitable interest in the oil properties was created through a trust, the requisite economic interest would exist. This is the situation presented here. The doctrine of equitable conversion creates a trust, whereby the vendor (Thomas) serves as trustee for the equitable owner (MacPherson). Additionally, such an interpretation of “economic interest” is consistent with the pri- or development of that term. As the oil was extracted from the properties in question in 1980, it is clear that the value of MacPherson’s equitable interest was diminished. Thus, this Court finds that MacPherson, as the nominee of NPA, was the holder of an economic interest in the properties and was thereby a “producer” of the oil removed from the premises in 1980. §§ 4986, 4996.

With respect to defendant’s contention that the joint operation created through the September 22, 1978 stipulation constituted a trust which is taxable under § 641, the Court finds that neither Frank' Mondary nor the joint operation as a whole had the requisite fiduciary responsibilities in connection with MacPherson’s economic interest. The Internal Revenue Code clearly distinguishes between a “producer” who holds the economic interest in the property and an “operator” who assumes primary responsibility for management and operation of the crude oil production. Compare § 4996(a)(1)(A) with § 4996(a)(2)(A). Whereas the producer assumes the windfall profits tax liability, see § 4986(b), the operator may be substituted for the first purchaser and pays the tax on behalf of the producer. See § 4995(a)(7). The stipulation of September 22,1978 plainly created a joint operation that was to manage and operate the properties, not hold the economic interest in trust. Paragraph three of the February 11, 1982 Referee’s Findings of Fact and Conclusions of Law states: “When the stipulation of September 22, 1978, and the order of the Court thereon were signed and filed, the operation of all of the oil-producing leases which are the subject of this controversy was turned over to the joint control of the parties under supervision of the undersigned.” (Emphasis added.) Paragraph seven of these findings indicates that while “all expenses pertaining to the operation of the subject properties have been paid or are owed by the joint operation,” the “assets and amounts remaining after payment of the expenses are currently retained in custodia legis.... ” Furthermore, as explained in the Declaration of Donald R. MacPherson, Jr., Mondary was solely responsible for operational decisions, and those decisions are subject to review by both litigants. It is evident that the joint operation was designed and functioned as an operator under § 4996(a)(2)(A), and was not a holder, through trust or otherwise, of any economic interest in the oil. To the extent that a third-party did assume certain responsibilities over the income and economic interest, that third-party would be the Superior Court. The Superior Court’s role in holding the disputed funds, however, did not create an obligation to file a return with respect to the 1980 windfall profits tax. See, e.g., Lee McRitchie, 27 T.C. 65 (1956).

Finally, defendant asserts that plaintiff has not sufficiently demonstrated that he was the producer on behalf of whom the 1980 windfall profits tax was paid. The Court disagrees. First, MacPherson attached as Exhibit A-l to his complaint the refund claim he filed with the Internal Revenue Service. This refund claim was signed under penalty of perjury and states: “Data showing the correct windfall profits tax is contained in the accompanying attachments.” Included in the accompanying attachments are the Forms 6248, the accuracy of which the defendant challenges. These forms indicate that Witco (the first purchaser) withheld the taxes on behalf of Thomas Oil. Exhibit C to Memorandum of Points and Authorities in Support of Motion for Summary Judgment (“Moving Papers”). In turn, Thomas Oil withheld the taxes on behalf of NPA. Exhibit B to Moving Papers. Finally, NPA withheld a portion of the taxes on behalf of MacPherson. Exhibit A to Moving Papers. The Declaration of Joseph Russo makes clear that Witco did withhold the stated tax and made payment to the Internal Revenue Service. Since this Court has determined that MacPherson is a holder of an economic interest in the oil, and since these Forms 6248 and claim for refund have been unchallenged by contrary evidence, the Court finds that certain windfall profits taxes were paid on behalf of MacPherson.

III. Amount of Refund

Section 4996(a)(l)(B)(i)(II) provides that each partner shall be treated as a producer of the crude oil. Section 4996(a)(l)(B)(ii) further provides that the oil shall be allocated among the partners “on the basis of a person’s proportionate share of the income of the partnership.” See also 26 C.F.R. § 51.4996-l(b)(2). It is clear that the focus of the allocation is on the income received by the partnership. Under North American Oil and Crews, NPA did not receive any income from the oil properties until 1982. Thus, the relevant time period for determining the proportionate share of an NPA partner’s income would be 1982. At that time, it is undisputed that MacPherson would be entitled to 34% of the income. Consequently, MacPherson is entitled to 34% of the refund, or $196,050.00 plus interest thereon.

Since no genuine issues of material fact remain, the Court finds as a matter of law that plaintiff is entitled to the refund sought. The Court requests plaintiff to prepare proposed findings of fact and conclusions of law consistent with this order by March 6, 1985.

      . Although under the doctrine of equitable conversion Thomas was serving as a trustee, he would not be responsible for the payment of the 1980 windfall profits tax under § 641. Since the income from the properties was being held in custodia legis, North American Oil, supra, and Crews, supra, apply with equal force to Thomas as trustee as they do to MacPherson as a partner of NPA.