author: EDWARD WEINFELD, District Judge.

text:
    Harry LEWIS, Plaintiff, v. Douglas H. BRADLEY and Iroquois Brands, Ltd., Defendants.
    No. 83 Civ. 7324 (EW).
    United States District Court, S.D. New York.
    Dec. 18, 1984.

      Levy & Levy, New York City, for plaintiff; Morris J. Levy, New York City, of counsel.
    Reid & Priest, New York City, for defendants; Peter C. Williams, Joseph C. Mitchell, New York City, of counsel.
   OPINION

EDWARD WEINFELD, District Judge.

Plaintiff, Harry Lewis (“Lewis”), brings this action on behalf of Iroquois Brands Ltd. (“Iroquois”) to recover alleged short-swing profits from an insider, defendant Douglas H. Bradley (“Bradley”), pursuant to Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78p(b). Bradley is a former officer and director of Iroquois. He moves to dismiss the complaint for failure to state a claim upon which relief may be granted, pursuant to Fed.R.Civ.P. 12(b)(6); in response, plaintiff cross-moves for summary judgment pursuant to Rule 56, Fed.R.Civ.P. Each party has submitted affidavits in support of his, and in opposition to, the other’s motion. Accordingly, the respective motion of each shall be treated as one for summary judgment.

BACKGROUND

Bradley first became associated with Iroquois in 1968 when the Angostura-Wupperman Corp., of which he was then the President and a large stockholder, merged with Iroquois on a stock per stock basis. Pursuant to the merger, Bradley received almost 100,000 shares of Iroquois stock in exchange for his shares of Angostura-Wupperman. Upon the merger, Bradley was elected a director and officer of Iroquois and remained so until 1983. Thereafter, during his service with Iroquois, he acquired in 1973, 1974 and 1977 under Iroquois’ Stock Option Plan, options to purchase 30,000 shares of Iroquois stock at the market price on the date the option was granted. However, as noted hereafter he did not exercise any of these options prior to May 23, 1983.

In 1981, defendant planned his retirement on a phased-out basis, resigning in that year as Chairman of the Board, and on May 10, 1983 as an officer and Chairman of the Executive Committee of the Board. On May 23, 1983, in accordance with plans previously announced at a Board meeting, Bradley resigned as a director, completely severing his ties with the company. The resignation was submitted at a prearranged conference held that day with Terence J. Fox (“Fox”), Chairman of the Board and Chief Executive officer of Iroquois and Joseph H. Sweeney, its Senior Vice President-Finance. After his resignation, on the same day he sold to Iroquois 74,002 shares of his common stock holdings at $14 per share, the market price on that day. Immediately thereafter, Bradley exercised his options to purchase 30,000 shares of Iroquois common stock at the market price on the respective dates the options were granted, referred to above, which was below the market price on May 23, 1983, paying for the shares with 14,192 shares of Iroquois stock. The stock options, because of Bradley’s retirement and by their terms, were due to expire within 90 days. On June 9, 1983 Bradley filed a Form 4 with the Securities and Exchange Commission, reporting all of the May 23, 1983 transactions.

DISCUSSION

Section 16(b) of the Securities Exchange Act provides, in pertinent part, that a director surrender to the issuer all profits realized “from any purchase and sale, or any sale and purchase, of any equity security of such issuer ... within any period of less than six months.” To recover under Section 16(b), plaintiff must show either a “sale” or a “purchase” was made while Bradley was an Iroquois director. Bradley argues that plaintiff’s Section 16(b) claim is without merit because all “sales” or “purchases” occurred after his resignation as a director on May 23, 1983. Initially, plaintiff in his complaint alleged that on that date Bradley was a director of Iroquois. Apparently recognizing that there is no basis for the application of Section 16(b) solely to the May 23 transactions, the plaintiff on this motion contends that while the “sale” of the 74,002 shares and the “purchase” of the 30,000 shares by the exercise of the options were executed on May 23,1983 subsequent to his resignation, Bradley in fact had contracted to sell the shares earlier, sometime between May 10, 1983 and prior to May 23, 1983, when he was still a director of Iroquois. Here, plaintiff relies upon Bradley’s deposition testimony to the effect that he had orally agreed to sell his shares to the company prior to May 23, in conversations with Fox.

The parties’ contentions leave a discrete question for this Court to decide on these cross-motions for summary judgment: When did Bradley “sell” his stock to Iroquois within the meaning of Section 16(b)? If Bradley sold it prior to May 23, 1983, liability must attach, for there is no dispute that he was a director of the corporation and that by the exercise of his options a corresponding purchase was made by Bradley, within six months thereafter. If not, summary judgment must be granted in Bradley’s favor, for he would have made no purchases or sales while he was a director. Because plaintiff relies solely on Bradley’s deposition testimony to support his position, there is no dispute about the facts underlying this question, and thus, the case is ripe for summary judgment.

Bradley testified that on May 9,1984, the day before he was to announce his complete retirement at a Board meeting, Fox inquired of him whether he would like to sell his shares to Iroquois, in view of the fact that Bradley was no longer going to be employed by the company. Bradley indicated that he did want to sell; and Fox responded that it was possible for the company to purchase the stock pursuant to an outstanding stock repurchase program which authorized purchases up to a certain amount, and that the company had sufficient funds to do so. Sometime thereafter, they had a telephone conversation during which Bradley confirmed that he would sell to Iroquois and Fox said Iroquois wanted to buy the shares. They did not discuss price during these conversations. The substance of these conversations was, in Bradley’s own words, that “the company had agreed to buy my stock” and “I had agreed to sell it to them.” Bradley explicitly stated that “there was no price mentioned until the day that it was sold.” Several days prior to May 23, Bradley called Fox from Canada and informed him that he would be in New York City on May 23, and would be able to complete the transaction then.

On that date, Bradley arrived at Iroquois’ corporate apartment in New York City where he first submitted his resignation as a director, then tendered the certificates for the shares of stock sold to Iroquois and was paid by check which was drawn only after the market price per share on that date had been ascertained. Bradley’s resignation was the first order of business; next, was the sale and delivery of the shares; and finally, the exercise of his option rights. That the sequence of events may have been deliberately designed is of no consequence. There is nothing improper or illegal in seeking to avoid the impact of Section 16(b). Except for Bradley’s transactions on May 23 he did not make any purchases or sales of stock in the six month period before or after May 23, 1983. Upon the totality of undisputed facts this is not a case of speculation “actual or potential” by an insider, “the only vice within the purview of § 16(b).”

The question remains, whether, as plaintiff contends, defendant sold the stock at a point prior to his resignation within the meaning of the statute. Sales covered by Section 16(b) are broadly defined to include “any contract to sell or otherwise dispose of” any security. What constitutes a “contract to sell” is a question of federal law, and therefore, is “not to be limited or defined solely in terms of commercial law of sales and notions of contractual rights and duties.” In keeping with the statute’s purposes, whether a “sale” has occurred depends on whether the insider has incurred an “irrevocable liability” to dispose of the stock so that his “rights and obligations” have become fixed.

The Court finds that prior to May 23, 1983, Bradley did not incur either an “irrevocable liability” to sell his shares, nor were his rights and obligations fixed. In the absence of a fixed price, Bradley’s rights and obligations could not be determined in any meaningful sense, in terms of the statute’s purpose to thwart short-swing speculation based on inside information. What a speculator needs, and what Bradley did not have here, was a “firm assurance that a fixed quantity [of stock] can be acquired or disposed of at a fixed price ...” As the First Circuit has stated:

Not only did [the alleged contract] leave the purchase price unfixed, it provided that the price should be fixed at the closing market quotation on the day prior to closing____ Besides sheltering appellants from the possible advantages or disadvantages of a fluctuating market, this would appear to have made speculation against the contract not only risky but, as appellee contends, virtually impossible.

That Bradley had not irrevocably incurred liability to sell his shares appears from the lack of a price term, but also from the overall tentative nature of the arrangement prior to May 23. Not only was no firm price agreed upon, no documents were exchanged, and no check was prepared until after Bradley had tendered the actual stock certificates and the market price for that day determined. In addition, Bradley’s testimony indicates that neither he nor Fox were of the view that the oral agreement was binding in the absence of some written document. When Bradley arrived at the meeting on May 23, 1983, he had not delivered any of the rights associated with the stock, nor had he received any assurance as to the per share compensation he would receive. Although State law is not determinative in construing the terms of Section 16(b), it is of some significanee that it is unlikely Bradley could have enforced the contract without a writing.

In light of the tentative nature of the agreement and the fact that the price was to be fixed at the market rate on the date of closing, this Court holds that the discussions between Bradley and Fox prior to May 23 did not constitute a “sale” within the meaning of Section 16(b). Accordingly, defendant’s motion for summary judgment is granted, and plaintiff’s cross-motion denied.

So ordered.

      . See Fed.R.Civ.P. 12(b).

      . 15 U.S.C. §*78p(b) (1982).

      . Lewis v. Varnes, 505 F.2d 785, 789 (2d Cir. 1974).

      . See Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 422, 92 S.Ct. 596, 599, 30 L.Ed.2d 575 (1972).

      . It should be noted that Bradley’s wife sold 1500 shares in May of 1983 and 3,000 shares in June of 1983, after Bradley resigned as an Iroquois director.

      . Blau v. Ogsbury, 210 F.2d 426, 427 (2d Cir. 1954).

      . See 15 U.S.C. § 78c(a)(14) (1982).

      . Champion Home Builders Co. v. Jeffress, 490 F.2d 611, 615 (6th Cir.), cert. denied sub nom. Jeffress v. Kramer, 416 U.S. 986, 94 S.Ct. 2390, 40 L.Ed.2d 763 (1974) (quoting Bershad v. McDonough, 428 F.2d 693, 697 (7th Cir.1970), cert. denied, 400 U.S. 992, 91 S.Ct. 458, 27 L.Ed.2d 440 (1971)).

      . Portnoy v. Revlon, Inc., 650 F.2d 895, 898 (7th Cir. 1981); Blau v. Ogsbury, 210 F.2d 426, 427 (2d Cir.1954); see Champion Home Builders Co. v. Jeffress, 490 F.2d 611, 615 (6th Cir.), cert. denied sub nom. Jeffress v. Kramer, 416 U.S. 986, 94 S.Ct. 2390, 40 L.Ed.2d 763 (1974); Stella v. Graham-Paige Motors Corp., 232 F.2d 299, 301 (2d Cir.), cert. denied, 352 U.S. 831, 77 S.Ct. 46, 1 L.Ed.2d 52 (1956).

      . In an orthodox transaction, as here, the Court, in light of the statute’s próphylactic purposes, must use an objective standard in determining whether there was a “sale" within the meaning of the statute. Cf. Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973) (unorthodox transaction). However, “where alternative constructions of the terms of § 16(b) are possible, those terms are to be given the construction that best serves the congressional purpose of curbing short-swing speculation by corporate insiders.” Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 424, 92 S.Ct. 596, 600, 30 L.Ed.2d 575 (1972). It is perfectly consistent with an objective standard, [i]n interpreting the terms "purchase" and “sale,” [to] ask[ ] whether the particular type of transaction involved is one that gives rise to speculative abuse.” Id. at 424 n. 4, 92 S.Ct. at 600 n. 4.

      . Blau v. Ogsbury, 210 F.2d 426, 427 (2d Cir. 1954).

      . Booth v. Varian Assoc., 334 F.2d 1, 4 (1st Cir. 1964), cert. denied, 379 U.S. 961, 85 S.Ct. 651, 13 L.Ed.2d 556 (1965).

      . N.Y.U.C.C. § 8-319 (McKinney 1964 & Supp. 1983-84); cf. Morales v. Gould Investors Trust, 445 F.Supp. 1144, 1151 (S.D.N.Y.1977) (fact that agreement might not be enforceable per the Statute of Frauds does not render an otherwise irrevocable transaction, revocable for purposes of § 16(b)), aff’d without opinion 578 F.2d 1369 (2d Cir.1978).


source: Caselaw Access Project

author: DORSEY, District Judge.

license: Public Domain

text:
    Frances THOMAS v. BOARD OF TRUSTEES OF REGIONAL COMMUNITY COLLEGES, et al.
    Civ. No. N-83-214 (PCD).
    United States District Court, D. Connecticut.
    Dec. 19, 1984.

      Frederick W. Krug, Matzkin, Krug & Danen, Waterbury, Conn., for plaintiff.
    Thomas P. Clifford, III, Asst. Atty. Gen., Hartford, Conn., for defendants State of Conn., et al.
    Denise Derby, Moynahan & Ruskin, Waterbury, Conn., for defendant Patricia Yarborough.
   RULING ON PLAINTIFF’S MOTION FOR AWARD OF ATTORNEY’S FEES

DORSEY, District Judge.

Plaintiff has moved for attorney’s fees and costs in this civil rights action on the ground that she is a “prevailing party” entitled thereto under 42 U.S.C. § 1988. For the reasons below, the court finds that plaintiff is a “prevailing party,” notwithstanding the voluntary dismissal of the action after a stipulated settlement. In light of the limited relief secured by the settlement, however, the court finds further that the award sought should be reduced to reflect the partial success and that no “bonus” above the lodestar is warranted. Finally, plaintiff’s request of an award of costs is hereby transmitted to the clerk for processing in the ordinary course, and not under 42 U.S.C. § 1988. An award of attorney’s fees in the amount of $4,837.40 is allowed.

Facts

Plaintiff brought this action in April 1983 alleging employment discrimination on the basis of race in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e, et seq., 42 U.S.C. § 1981 and 42 U.S.C. § 1983, at the hands of defendants, members of the State of Connecticut Board of Trustees of Regional Community Colleges, and certain past and present officials of Mattatuck Community College, all sued in their official and individual capacities. Plaintiff, who is a black, was employed full-time from January 2, 1977, to November 6, 1981, as coordinator/instructor in the Homemaker Training Program at Mattatuck Community College. From November 6, 1981, to the date this action was commenced, plaintiff was employed as a part-time lecturer in the program.

She alleges violation of rights secured to her by the above-noted statutes as well as Mattatuck’s Affirmative Action Plan by failing to promote her to the supervisory position of Statewide Coordinator, Homemaker Home Health and Training Program at Mattatuck in 1980 when the job was created, and again in 1981 when the job became vacant. In each instance, defendants are alleged to have promoted two less-qualified white females. (Complaint 111119-23). Plaintiff further alleges unlawful discrimination in defendants’ delay in acting on a complaint regarding her non-promotion filed with the Board of Trustees in 1982, as to which the Board’s Assistant Executive Director expressed his conclusion that plaintiff’s complaint was meritorious. (Complaint 111127-29).

Plaintiff essentially requested (lj a declaratory judgment that her failure of promotion in 1980 and 1981 and termination from a full-time position in 1981 were a result of discrimination by defendants; (2) an injunction restraining further appointments to the Statewide Coordinator post absent compliance with the Affirmative Action Plan; (3) reinstatement to a full-time position as, or comparable in pay and responsibility to, Statewide Coordinator, with back pay and benefits; and (4) costs, attorney’s fees and such other relief, including damages, as may be just and proper. (Complaint, Prayer for Relief, ¶¶ 1-8).

None of these claims has been adjudicated by the court, which has resolved only defendants’ motion to dismiss and motion for protective order. The motion to dismiss variously attacked the legal sufficiency of her complaint and was resolved against defendants in virtually all regards. See the court’s Ruling on Objection to Magistrate’s Denial of Defendants’ Motion to Dismiss. The motion for protective order was granted in part and denied in part. Neither of these rulings adjudicated the parties’ substantive rights and obligations.

This matter was resolved by a carefully drafted Stipulation of Settlement. Under the settlement, plaintiff was appointed to fill a vacancy as Statewide Coordinator for the period ending June 30, 1985, retaining certain benefits accrued prior to November 6, 1981, with reappointment subject to continued federal funding and to defendants’ compliance with the Mattatuck Affirmative Action Plan. Plaintiff waived all other claims for relief. Plaintiff agreed to withdraw this action and release defendants from any and all further claims. The stipulation provided that it

shall not be construed in any way as an admission of wrongdoing or violation of any of the plaintiff’s rights under federal or state law ... [and] shall pertain only to the facts and issues set forth in the instant complaint and shall not, in any manner, be cited as legal precedent or be involved with precedential value.

Stipulation, 111113, 15. The stipulation reserved to plaintiff the right to seek an award of attorney’s fees. She now so moves.

Discussion

I.

A “prevailing party” in civil rights litigation is entitled to reasonable attorney’s fees under 42 U.S.C. § 1988. A plaintiff will be considered a “prevailing party” entitled to such fees if the plaintiff has succeeded “ ‘on any significant issue in litigation which achieves some of the benefit the part[y] sought in bringing the suit.’ ” Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1983), quoting Nadeau v. Helgemoe, 581 F.2d 275, 278-79 (1st Cir.1978). That a plaintiff prevails through settlement does not preclude her being found entitled to fees, Gagne v. Maher, 594 F.2d 336, 340 (2d Cir.1979), aff'd, 448 U.S. 122, 129, 100 S.Ct. 2570, 2574, 65 L.Ed.2d 653 (1980), so long as through settlement the plaintiff has vindicated one or more of her claims. Illinois Welfare Rights Organization v. Miller, 723 F.2d 564, 566 (7th Cir.1983).

Where litigation has concluded pursuant to a settlement agreement painstakingly drawn to preclude any intimation of concession on the merits upon which an award of fees could easily be predicated, determination as to whether or not a party has “prevailed” has been subjected to a two-fold test:

First, ‘the plaintiff[’s] lawsuit must be causally linked to the achievement of the relief obtained,’ and second, ‘the defendant must not have acted gratuitously, i.e. the plaintiff[’s] claim[], if pressed, cannot have been frivolous, unreasonable, or groundless.’ Harrington v. DeVito, 656 F.2d 264, 266-67 (7th Cir.1981), cert. denied, 455 U.S. 993, 102 S.Ct. 1621, 71 L.Ed.2d 854 (1982).

Illinois Welfare Rights Organization, 723 F.2d at 566. See also Nadeau, 581 F.2d at 280-81 (similar, noting that the key issue on the causation question is the “provocative” or catalytic role of plaintiff’s lawsuit in prompting defendants to take action to meet plaintiff’s claims); Taylor v. Safeway Stores, Inc., 524 F.2d 263 (10th Cir.1975).

Once a plaintiff is found to be a “prevailing party,” it must be determined whether the plaintiff has asserted any unsuccessful claims “distinctly different” from, i.e. based on “different facts and legal theories,” than the successful claims. Hensley, 103 S.Ct. at 1940. Time spent solely in pursuit of unsuccessful claims should be excluded from the fee award. If plaintiff’s successful and unsuccessful claims are a “common core of facts” or are based on “related legal theories,” and if the results obtained are “excellent,” all hours reasonably expended on the litigation are normally compensable, id. at 1941; whereas, if plaintiff has achieved only partial success, the court may reduce the overall award or eliminate specific hours to reflect plaintiffs limited overall success. Id.

II.

Plaintiff is found to be a “prevailing party.” Notwithstanding the apparent coincidence of a vacancy in the position of Statewide Coordinator during the pendency of this litigation, a vacancy causally unrelated to this action, the possibility that plaintiff “could well ... have applied for the position and been appointed in any event” (Memorandum in Opposition, p. 6), is speculative. Instead, it is found that the lawsuit played a sufficiently significant or “provocative” role in the settlement to enable plaintiff to cross Hensley’s “generous formulation,” 103 S.Ct. at 1939, of the statutory threshold for a prevailing party. Plaintiffs have cleared this “low threshold” in a variety of instances. See, e.g., Gingras v. Lloyd, 585 F.Supp. 684, 686 (D.Conn.1983) (wherein the court was persuaded, even though the suit changed nothing, that the “slow-turning wheels of the bureaucracy no doubt moved more quickly and efficiently when subject to the scrutiny of the court-appointed doctors”); Connecticut Coordinating Committee v. Speziale, Civ. No. H-80-573 (D.Conn. Feb. 24, 1983) (awarding fees after settlement since the institution of the action significantly accelerated the deliberate and agonizingly slow pace of bureaucratic action with respect to relocation of the Housing Court); LaCasa de Puerto Rico v. City of Hartford, Civ. No. H-77-459 (D.Conn. Apr. 21, 1983) (fees awarded after stipulation where lawsuit acted as a “catalyst” prompting the city to take additional steps in implementing its affirmative action program).

It is found that plaintiffs lawsuit is causally linked to the relief plaintiff obtained in the settlement and further that defendants offering her the appointment was not gratuitous. Plaintiffs claim if pressed cannot be said to have been frivolous, unreasonable or groundless, Harrington, 656 F.2d at 266-67; Illinois Welfare Rights Organization, 723 F.2d at 566, as would preclude an award of fees notwithstanding the “provocative” role of her lawsuit. By virtue of her appointment to the post of Statewide Coordinator, plaintiff has derived some of the benefit she sought in this action. Hensley, 103 S.Ct. at 1939. She is a “prevailing party” for purposes of § 1988.

III.

“It remains for the ... court to determine what fee is ‘reasonable,’ ” Hensley at 1939, the number of hours reasonably expended multiplied by a reasonable hourly rate being “[t]he most useful starting point.” Id. In light of the detailed time and expense breakdown presented in plaintiff’s affidavit, counsel’s statement that the same was based on contemporaneously-kept time records, and the absence of objection by defendants to the claimed hours or the documentation thereof, the affidavit is sufficient. New York State Ass’n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1147 (2d Cir.1983) (contemporaneous time records a prerequisite to the award of fees). In light of the effort there reflected and absent any suggestion to the contrary, the time claimed (86V2 hours) is found to have been reasonably expended. As the time claimed for presenting the fee claim (7% hours) appears reasonable and defendants do not suggest to the contrary, the time expended on the fee application shall be included in the basis for calculating an award. See, e.g., Gagne v. Maher, 549 F.2d at 343-44; Torres v. Sachs, 538 F.2d 10 (2d Cir.1976).

An hourly rate of $95 as claimed herein is a reasonable in light of the rate normally charged for similar work by attorneys of like skill in the area. While it is within the court’s discretion to differentiate between categories of work involved and to award lower fees for clerical or certain out-of-court services, see, e.g., Cohen v. West Haven Board of Police Commissioners, 638 F.2d 496, 505, n. 14 (2d Cir.1980), it has been observed that such a differentiation may tend to unduly deprecate counsel’s expenditure of time on preparation and research, both of which contribute significantly to the efficient and effective functioning of the judicial process. Anunziato v. New Haven Board of Alderman, Civ. No. N-82-321 (D.Conn. June 27, 1983). The unitary rate of $95 per hour for the work reflected in the record is reasonable.

Defendants further argue that plaintiff’s hourly fee award should be limited to $47.50, the hourly rate counsel charged plaintiff. Plaintiff’s agreement with counsel provided for unspecified “further compensation depending upon result and the eventual award of attorney’s fees, if she should prevail.” (Plaintiff’s Affidavit in Support, ¶ 4). Thus, the fee was not limited to one-half counsel’s usual rate of $95 per hour. Even were the dictum in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 718 (5th Cir.1974), “in no event should the litigant be awarded a fee greater than he is contractually bound to pay,” not diluted by the Hensley decision, the contingent nature of plaintiff’s arrangement with her counsel would likely place it outside Johnson.

The “lodestar” figure, representing the product of all number of hours expended and the hourly rate normally charged for such work by attorneys of like skill in the area, Cohen, 638 F.2d at 505; City of Detroit v. Grinell Corp., 495 F.2d 448, 470-71 (2d Cir.1974), is thus $8,946.15.

IV.

A reduction in the amount generated by the product of $95 per hour times the full figure for hours claimed is in order, however, in light of Hensley’s teaching. Where plaintiff has been successful on certain claims but unsuccessful on other related claims, and the results or “the significance of the overall relief obtained” are partial or limited, id. at 1940, “the court must explicitly consider whether the fee is a reasonable one in light of the level of plaintiff’s success.” Illinois Welfare Rights Organization, 723 F.2d at 567.

While plaintiff has been appointed to the position principally at issue, she has also waived her claims to substantial aspects of the relief sought. Indeed, while she and her counsel may conceive of some impetus toward or affecting defendants’ future conduct, no such transcendent value appears of record to be well founded either by necessity or clear implication. Plaintiff has derived neither the declaratory nor the injunctive relief she sought, either in her behalf or that of other potentially similarly-situated Mattatuck employees. Accordingly, a one-half reduction of the fees claimed is deemed a reasonable reflection of limited or partial success.

In the absence of any strikingly significant success and any unusual risk or complexity, see, e.g., Bridgeport Guardians, Inc. v. Delmonte, 553 F.Supp. 601 (D.Conn.1983), no multiplier or “bonus” is appropriate. Finally, defendants’ argument on policy grounds that fees should not be awarded to a settling plaintiff on the ground that the fear of a significant fee award may force defendants to continue litigating an issue to escape onerous attorney’s fees “cuts both ways.” Nadeau, 581 F.2d at 282. The flip of the coin is that the award of fees to a plaintiff who has prevailed by settlement may actually encourage defendants to settle in order to avoid or reduce their exposure to a claim for fees. Defendants’ view would encourage plaintiffs to try cases in which reasonable settlement offers have been received, merely to insure a fee award. Gagne, 594 F.2d at 340. Such alleged public policy concerns, which are counter to the law of this circuit, do not warrant a denial of fees to this plaintiff.

V.

To the extent plaintiff’s motion seeks an award of costs, it and the supporting and opposing papers are transmitted herewith for determination by the clerk in the ordinary course. It remains the view of this court that § 1988 does not allow recovery of costs beyond those taxable by other lawful authority, and that costs should be recovered by a prevailing civil rights plaintiff in the ordinary course rather than as an adjunct to a fee application. See Rivera v. Duff, Civ. No. B-81-417 (D.Conn. July 31, 1984).

Attorney’s fees are awarded in the amount of $4,837.40, derived as the product of the $95 lodestar rate and one-half the time reasonably expended on the litigation, plus the time reasonably expended in the fee application, to wit: (86.5 -i- 2 + 7.67) X $95 = $4,837.40.

SO ORDERED.

      . Defendants' assertion in this regard flies in the face of their defense of plaintiffs prior non-appointment based on questions as to her qualifications.


author: SHADUR, District Judge.

text:
    UNITED STATES of America ex rel. Carlos SAUCEDO, Petitioner, v. Michael LANE, Respondent.
    No. 84 C 7206.
    United States District Court, N.D. Illinois, E.D.
    Dec. 19, 1984.
    Thomas F. Bomba, Cook County, Asst. Public Defender, Chicago, 111., for petitioner.
    James E. Fitzgerald, Asst. Atty. Gen., State of 111., Chicago, 111., for respondent.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Carlos Salcido (“Salcido”) brings a habeas corpus action under 28 U.S.C. § 2254 (“Section 2254”) challenging his state court murder conviction because of the allegedly improper admission of his confession at trial. Illinois Department of Corrections Director Michael Lane (“Lane”) has moved for summary judgment. For the reasons stated in this memorandum opinion and order, summary judgment is granted.

Applicable Legal Principles

Ordinarily this Court’s opinions begin with a review of the facts. But because the critical question here is the adequacy of the trial court’s factual finding of an informed and voluntary confession, and because Salcido’s counsel has presented an impermissibly one-sided version of the facts, a brief statement of operative law is appropriate at the outset.

Sumner v. Mata, 449 U.S. 539, 545-47, 101 S.Ct. 764, 768-69, 66 L.Ed.2d 722 (1981) teaches factual determinations by state courts — either at the trial court or appellate level — are presumptively correct in later federal habeas cases, imposing the burden on the petitioner “to establish by convincing evidence that the factual determination by the State court was erroneous” (Section 2254(d)). And the thoughtful analysis in Patterson v. Cuyler, 729 F.2d 925, 930-32 (3d Cir.1984) makes plain that (and why) the Section 2254(d) standards govern habeas determinations as to the validity of a defendant’s waiver of his right to remain silent after Miranda warnings.

Sumner’s reading of Section 2254(d) is of course necessarily subject to that Section’s own internal exceptions (none of which was applicable in Sumner). Salcido claims three of those exceptions bar application of Section 2254(d) to this case:

(2) that the factfinding procedure employed by the State court was not adequate to afford a full and fair hearing;
(3) that the material facts were not adequately developed at the State court hearing;
‡ s¡e sj* H*
(6) that the applicant did not receive a full, fair, and adequate hearing in the State court proceeding____

In fact, however, an objective (rather than monocular) review of the state trial court proceedings demonstrates both (1) the clear inapplicability of any of those exceptions and (2) Salcido’s total inability to show an erroneous factual determination by convincing evidence.

Salcido’s State Court Hearing

At issue before the state trial court, as here, was the sufficiency of the Miranda warnings unquestionably given Salcido both before his initial statement to Investigator Thomas Sherry (“Sherry”) and before his later statement to Assistant State’s Attorney Paul Tsukuno (“Tsukuno”). Both sides agree such sufficiency or insufficiency was dependent on the fact the warnings were given in English, while Salcido asserts Spanish is his native tongue and he had insufficient English to understand the warnings so given. On that score Judge Fred Suria, Jr. found (Tr. 266):

The Court would find as follows: One, that the Miranda warnings were, in fact, given in English by both Detective Sherry and Assistant State’s Attorney Tsukuno.
The Court further finds the defendant did, in fact, respond to those rights that were given in English and that further, during the course of the subsequent interrogation did respond to the questions put to him in English in a^ responsive manner as testified to both by Detective Sherry and Assistant State’s Attorney Tsukuno.
I would, therefore, find that although the defendant is not fluent in the English language, he did freely and voluntarily, knowingly and intelligently waive his Miranda rights and give the statement that the State alleges was given.

That finding was the result of a hearing on Salcido’s motion to suppress, occupying substantial parts of four trial days. Assistant State’s Attorney Stern called both Sherry and Tsukuno to the stand. Each was cross-examined extensively by Salcido’s lawyer (indeed Sherry’s direct examination occupied just six transcript pages, while the cross-examination covered 30 pages, and Tsukuno’s direct examination was but five pages in length, followed by 26 pages of cross-examination). In response Salcido’s counsel was given the untrammeled right to call witnesses, with the hearing being adjourned at one point in part to permit Salcido’s calling of opinion witness James Dominguez (“Dominguez”), employed by the Chicago Board of Education as a guidance counselor assigned to the Cook County Department of Corrections. Dominguez, who had been teaching English to Salcido beginning a year after the disputed Miranda warnings, was permitted to testify as an expert, rendering an opinion as to whether Salcido could communicate in a language other than Spanish and could understand Miranda warnings given in English. And though this is of course not a controlling factor as to the hearing’s fairness, this Court’s reading of the entire hearing transcript discloses that the overwhelming balance of Judge Suria’s evidentiary rulings ran in favor of Salcido and against the State.

In the face of that meticulous respect by Judge Suria for Salcido’s hearing rights, Salcido’s lawyer cannot in good conscience invoke any of the three exceptions he calls on — each of which challenges the adequacy of the hearing. What Salcido’s argument really boils down to is the impermissible one that Judge Suria, despite having conducted a full, fair and adequate hearing, should have resolved the credibility issues posed by that hearing differently. Salcido’s counsel asks this Court to second-guess Judge Suria, substituting its own judgment on a paper record for that arrived at by Judge Suria after seeing and hearing the witnesses.

Just to state that proposition is to reject it in light of Section 2254(d) and Sumner and its progeny. This Court’s role is not to make such a de novo determination. See Sumner, 449 U.S. at 551, 101 S.Ct. at 771:

When it enacted the 1966 amendment to 28 U.S.C. § 2254, Congress specified that in the absence of the previously enumerated factors one through eight, the burden shall rest on the habeas petitioner, whose case by that time had run the entire gamut of a state judicial system, to establish “by convincing evidence that the factual determination of the State court was erroneous.” 28 U.S.C. § 2254(d). Thus, Congress meant to insure that a state finding not be overturned merely on the basis of the usual “preponderance of the evidence” standard in such a situation.

Nonetheless it is worth rehearsing some of the salient facts underpinning Judge Suria’s resolution of the matter:

1. When Salcido was first stopped by the investigators and told he was under arrest, Sherry believed Salcido responded “What for?” in English (Tr. 38-39).
2. When Salcido was twice advised of his rights in English (first by Sherry, later by Tsukuno), he was asked after each statement of a particular right whether he understood it. Each time he answered yes in English (Tr. 11-12, 42-44, 70), except that one of his four answers to Tsukuno was “Si” (Tr. 70).
3. After Salcido was given his Miranda warnings by Sherry, he said “Yes” to the question whether he wanted to talk about the homicide (Tr. 44). Then he made an oral statement to Sherry in English (Tr. 15, 45), just as he later engaged in an English conversation with Tsukuno (Tr. 71-72). Sherry understood Salcido’s English without difficulty (Tr. 48), and Tsukuno too found Salcido’s “responses to [his] questions appropriate” (Tr. 72) and found “no language difficulty” on Salcido’s part — no indication that Salcido wasn’t following Tsukuno’s questions in English (Tr. 73). On cross-examination Tsukuno specifically testified he had asked Salcido for background information and Salcido had given answers (both of them speaking in English) (Tr. 109), and Tsukuno identified his own questions (the ones Salcido responded to “appropriately]”) as definitely requiring an understanding of English on Salcido’s part (Tr. 116).
4. Importantly corroborative, and really unanswered by Salcido’s counsel in any meaningful way, is the fact Sherry’s fellow investigator Ernest Hernandez (“Hernandez”) was bilingual. Hernandez warned Salcido’s contemporaneously-arrested co-defendant, Artemio Gutierrez (“Gutierrez”), of his rights in Spanish. Then Hernandez conducted an interview with Gutierrez entirely in Spanish. Hernandez was fully available to perform exactly the same function with Salcido had there been any perception that was necessary. All that — the absence of any motive on the investigator’s or Assistant State’s Attorney’s part to risk any potential tainting of any statement obtained from Salcido — strongly supports the existence of a good faith belief by both Sherry and Tsukuno as to Salcido’s comprehension of rights explained to him in English. And though not their belief as such, but rather its accuracy, is at issue, the contrast of Salcido’s handling with the Gutierrez procedure supports Judge Suria’s resolution of the credibility questions.

Against all this Salcido’s counsel tenders principally speculation and surmise (though the Dominguez opinion evidence does support his position). But again what is fully dispositive is that Judge Suria could and did reasonably find as he did: that Salcido had “freely and voluntarily, knowingly and intentionally waivefd] his Miranda rights” (Tr. 266).

Conclusion

In the language of Section 2254(d) this Court “on a consideration ... of the record as a whole concludes that [Judge Suria’s] factual determination is ... fairly supported by the record” (Section 2254(d)(8)) and that Salcido has not “establish[ed] by convincing evidence that the factual determination by the State court was erroneous” (Section 2254(d)). No evidentiary hearing is required. There is no genuine issue of material fact, and Lane is entitled to a judgment as a matter of law. This action is dismissed with prejudice.

      . Though Salcido’s counsel chose to conform the case caption in his Complaint here to the incorrect "Saucedo” spelling employed in the underlying criminal case, this opinion follows Salcido's own spelling as he gave it in the state court suppression hearing.

      . Contrast Brownstein v. Director, Illinois Department of Corrections, 594 F.Supp. 494, 499 (N.D.Ill.1984), where this Court held a state trial judge’s determination was not entitled to deference under Section 2254(d) because it was flawed under each of the subsections of Section 2254(d) relied on by Salcido here.


author: LASKER, District Judge.

text:
    Ethel FISCHER and Herbert Bonime, Plaintiffs, v. CF & I STEEL CORPORATION, Thomas M. Evans, Southern Pacific Company and Southern Pacific Transportation Company, Defendants. Mary MAYER, Plaintiff, v. CF & I STEEL CORPORATION, Thomas M. Evans, Southern Pacific Company and Southern Pacific Transportation Company, Defendants.
    Nos. 82 Civ. 5424(MEL), 82 Civ. 6159(MEL).
    United States District Court, S.D. New York.
    Dec. 20, 1984.

      Lowey, Dannenberg & Knapp, P.C., Wolf, Popper, Ross, Wolf & Jones, Milberg, Weiss, Bershad, Specthrie & Lerach, New York City, for plaintiffs; Henry A. Brachtl, Robert A. Skirnick, Ellen P. Chapnick, Richard M. Meyer, New York City, of counsel.
    Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendants Thomas M. Evans and CF & I Steel Corp.; Edward N. Costikyan, Steven E. Landers, Anne Louise Oates, Steven Gey, New York City, of counsel.
   LASKER, District Judge.

I.

These shareholder double-derivative suits are brought on behalf of the Southern Pacific Transportation Company (“SPTC”), a subsidiary of the Southern Pacific Company (“Southern Pacific”), a Delaware corporation, against defendant Thomas M. Evans, a former Southern Pacific and SPTC director and the owner of a “substantial interest” in defendant CF & I Steel Corp. (“CF & I”). The shareholder plaintiffs allege that defendants violated Section 10 of the Clayton Anti-Trust Act, 15 U.S.C. § 20 (1982), by failing to employ statutorily required competitive bidding procedures for purchases between 1978 and 1981 of over $70 million in rails and rail products by SPTC and CF & I. Section 10 requires common carriers such as SPTC to receive competitive bids from potential vendors if any of its directors held a “substantial interest” in the vendor.

Defendants initially moved to dismiss the amended complaints for failure to make a demand upon the directors of Southern Pacific or SPTC to bring or prosecute an action as required under Federal Rule of Civil Procedure 23.1. Plaintiffs cross-moved for summary judgment and to establish defendants’ liability under Section 10 of the Clayton Act. Due to the merger of Southern Pacific and Santa Fe Industries (“Santa Fe”) creating a new holding company, Santa Fe Southern Pacific Corporation (“SFSP”), defendants subsequently moved to dismiss the complaint on the ground that plaintiffs lack standing to continue these actions. Under the terms of the combination agreement, Santa Fe and Southern Pacific shareholders exchanged their stock for SFSP shares and the two companies became wholly-owned subsidiaries of the new entity. We have reviewed the parties’ submissions and arguments and now hold that plaintiffs no longer have standing to assert their claims due to the Santa Fe-Southern Pacific merger.

II.

Under the terms of the October, 1983 Combination Agreement and Plan of Reorganization, Southern Pacific became a wholly-owned subsidiary of SFSP through a procedure in which SFSP created a wholly-owned subsidiary, SPC (Delaware) Inc., which merged into Southern Pacific which survived. Each share of outstanding Southern Pacific common stock at the time of the merger was converted into 1.543 shares of SFSP common stock. See Combination Agreement and Plan of Reorganization, art. I, para. 2, at 3, reprinted in, Notice of Motion, filed Mar. 8, 1984, at Exhibit A. The Agreement further stated that it was the contracting parties’ intent that the Santa Fe and Southern Pacific SFSP subsidiaries “each continue (so far as practicable and consistent with the basic purposes of [the] Agreement) the separate operations of their respective enterprises” and it provided for an SFSP board of directors composed of premerger directors of both Santa Fe and Southern Pacific. See id., art. 5, at 8-9.

III.

Defendants assert that plaintiffs have lost their standing to continue these double-derivative actions because they are no longer shareholders in Southern Pacific. They contend that plaintiffs have lost their proprietary interest in Southern Pacific because SFSP is now the sole shareholder of Southern Pacific stock, and it makes no difference that this state of affairs came about due to a merger transaction instead of a voluntary sale of stock by the plaintiffs. Defendants rely primarily upon Delaware law to argue that even in situations in which shareholders lose their stock through the merger process, a plaintiff continues to have standing in a derivative action only by owning stock in the relevant corporation throughout the litigation. SFSP, in defendants’ view, is now the shareholder beneficiary of any claims which Southern Pacific or SPTC previously had against the defendants. They assert that plaintiffs’ proper course of conduct as SFSP shareholders is to bring a triple-derivative action on behalf of SFSP after they make a proper demand upon SFSP’s board of directors.

Plaintiffs argue that the Santa Fe-Southern Pacific merger does not deprive them of standing because its only effect upon this litigation was to convert the case from a double-deriyative to a triple-derivative law suit. They claim that as SFSP shareholders they retain their proprietary interest in SPTC because Southern Pacific survived as a corporate entity after the merger and continues to own its claims against the defendants.

This case, plaintiffs contend, is governed by federal as opposed to state law because it is founded upon a federal claim. They argue that federal cases denying standing to derivative shareholder plaintiffs are distinguishable because in those eases the plaintiffs had sold their shares and thereby surrendered their equity interests in the corporations on whose behalf they had sued. Plaintiffs point out that, in contrast, this case involves an exchange of stock for a new third-tier parent, which at least one court in this District has found does not eliminate derivative plaintiff standing because it is not the same as a sale of stock.

Plaintiffs go on to argue that the Delaware cases relied upon by the defendants are also distinguishable because in those cases the plaintiffs were denied standing to represent corporations that were merged out of existence. They note that here, Southern Pacific survived as a corporation after its merger with Santa Fe. In addition, plaintiffs assert that Delaware law permits their actions to go forward because the merger here was, in effect, a nominal reorganization of Southern Pacific which merely led to the creation of a holding company. They note that the composition of Southern Pacific’s board of directors and officers within SFSP remains unchanged since the merger and contend that the liability of the Southern Pacific directors is not removed merely because of a change of hats. Moreover, plaintiffs contend that because of the substantial control which former Southern Pacific officers and directors exert over SFSP and its board, a demand upon the SFSP board of directors to prosecute these actions would be futile. Finally, plaintiffs ask in supplemental letters that they be allowed to continue their suits as a class action on behalf of Southern Pacific shareholders owning stock at the time of the company’s combination with Santa Fe, in the event their amended complaints are dismissed for lack of standing.

IV.

The amended complaints allege that jurisdiction is based upon 28 U.S.C. § 1337 (1982), which grants original jurisdiction to the federal courts in any action arising under the federal antitrust laws. Since plaintiffs assert causes of action based solely upon violations of the Clayton Anti-Trust Act, it appears that for the reasons set forth in Drachman v. Harvey, 453 F.2d 722, 725-30 (2d Cir.1971), the question of derivative shareholder standing under Federal Rule of Civil Procedure 23.1 is controlled by federal law. See also Orenstein v. Compusamp, Inc., 19 Fed.R. Serv.2d (Callaghan) 466, 467 (S.D.N.Y. 1974). Plaintiffs seek to vindicate federally-created rights through derivative actions which were within the historic equity jurisdiction of the federal courts. See Drachman v. Harvey, supra, 453 F.2d at 728-29, citing, Dodge v. Woolsey, 59 U.S. (18 How.) 331, 15 L.Ed. 401 (1855); Hawes v. City of Oakland, 104 U.S. 450, 26 L.Ed. 827 (1882). It is appropriate for the federal courts to apply a uniform standard for determining shareholder standing in derivative suits founded upon federal claims. See Drachman v. Harvey, supra, 453 F.2d at 729; Arnett v. Gerber Scientific, Inc., 566 F.Supp. 1270, 1272-73 (S.D.N.Y.1983). Accordingly, the issue to be resolved is how does federal law view the standing of shareholders who, through no action on their part, no longer own the stock of the corporation on whose behalf they sue?

The application of the Drachman rule does not fully answer the question posed by defendants’ motion. Defendants point out that in Rothenberg v. United Brands Co., [1977-78 Transfer Binder] Fed.Sec.L. Rep. (CCH) ¶ 96,045 (S.D.N.Y.), aff'd mem., 573 F.2d 1295 (2d Cir.1977), Judge Brieant found that a plaintiff who received cash for his stock from a tender offer lacked standing under Rule 23.1 to bring a shareholder derivative suit alleging violations of Section 16(b) of the Exchange Act. 15 U.S.C. § 78p(b) (1982). He noted that while Rule 23.1 does not specifically require a shareholder to retain his or her stock throughout the litigation, the requirement is implied, id. at 91,692, quoting, Orenstein v. Compusamp, Inc., supra, 19 Fed.R.Serv.2d at 468, because

the shareholders will receive an indirect benefit (in terms of increased shareholder equity) from any corporate recovery, they are protecting their own interests as well as those of the corporation. Conversely, a non-shareholder, or one who loses his status as a shareholder during the course of the litigation, can gain no possible advantage, either directly or indirectly, from a corporate recovery. And this is so whether the corporate recovery is based upon [Section 16(b) ] ... or any other corporate claim capable of being enforced derivatively.

Rothenberg v. United Brands, supra, [1977-78 Transfer Binder] Fed.Sec.L.Rep. at 91,692. Accord, Portnoy v. Kawecki Berylco Industries, Inc., 607 F.2d 765, 767 (7th Cir.1979); Orenstein v. Compusamp, supra, 19 Fed.R.Serv.2d at 468; Werfel v. Kramarsky, 61 F.R.D. 674, 679 (S.D.N.Y. 1974).

Plaintiffs make the serious point that these cases are distinguishable because the plaintiffs here retain their proprietary interest in Southern Pacific. They argue that the continuous ownership of stock rationale simply does not support a finding that they are without standing because even as SFSP shareholders, they are still in a position to benefit indirectly from a recovery against the defendants. “[A]n exchange of stock compelled by a merger can[not] be equated with the sale of stock discussed in” the cases cited above denying standing. Abrams v. Occidental Petroleum Corp., supra, 20 Fed.R.Serv.2d (Callaghan) at 172 (discussing Delaware and New York cases); see also Schreiber v. Carney, 447 A.2d 17, 22 (Del.Ch.1982) (making same distinction). Nevertheless, we are not convinced that the inapplicability of the distinguished decisions is enough reason to find that plaintiffs continue to have standing to pursue their claims.

While plaintiffs’ arguments are not without merit, plaintiffs have not cited any cases which persuasively develop a rationale for finding continuing shareholder derivative standing following an exchange of shares. On the other hand, the Delaware cases cited by defendants, although neither precisely on point nor controlling, contain a number of arguments which lead us to conclude that plaintiffs can no longer sue on behalf of Southern Pacific. In Lewis v. Anderson, supra, 453 A.2d 474, aff'd, 477 A.2d 1040, a derivative shareholder plaintiff was denied standing to continue his suit on behalf of Conoco, Inc. against the company’s former managers, who allegedly arranged “golden parachute” employment agreements in anticipation of a takeover by outside interests, after the company merged into Du Pont Holdings, Inc., a wholly-owned subsidiary of E.I. Du Pont de Nemours and Company (“Du Pont”). Under the merger’s terms, Conoco, Inc. ceased to exist, Du Pont Holdings acquired its assets and assumed the company’s name (hereafter referred to as “New Conoco”), plaintiff’s Conoco stock was exchanged for common stock of Du Pont, and Du Pont became the sole shareholder of New Conoco. See id., 477 A.2d at 1042. Plaintiff did not challenge these terms, only the actions of Conoco’s former management. See id.

In a decision upheld by the Delaware Supreme Court the Court of Chancery found that under Delaware law plaintiff no longer had standing to continue his cause of action following Conoco’s merger with Du Pont because, inter alia,

,[T]he right to a pending cause of action is an asset of a merged corporation which passes to the corporation surviving the merger. Under the facts of this case, any right to equitable relief possessed by the original Conoco against the individual defendants, as its officers and directors, passed to Du Pont Holdings, and thus to the present Conoco, by virtue of the merger. Likewise, by the terms of the same merger, the plaintiff Lewis ceased to be a shareholder of Conoco — either new or old — and instead became a shareholder of Du Pont. The company of which the plaintiff is now a shareholder, Du Pont, now owns all of the stock of the present Conoco and, if the original Conoco had a claim for relief against its former officers and directors for the reasons set forth in the complaint in this action, that claim is now owned by the present Conoco. The shareholder beneficiary of such a claim is now Du Pont, and not the plaintiff Lewis and the other shareholders of the original Conoco as was the situation when the suit was filed.
Given this scenario brought about by the merger, what logical justification can there be for permitting the plaintiff Lewis, who is no longer a shareholder of the entity possessing the claim, to continue to prosecute the action on behalf of the new Conoco without regard to the feelings of its present 100 percent shareholder, Du Pont? Offhand, I can think of none.

Id., 453 A.2d at 479, quoted in, id., 477 A.2d at 1043.

Plaintiffs attempt to distinguish Lewis on the ground that Southern Pacific, unlike Conoco, survived as a corporation after its merger with Santa Fe. This distinction, however, is not of controlling significance. The facts here establish that although Southern Pacific was not merged out of existence, it now functions as a wholly-owned subsidiary of SFSP, with SFSP as its sole shareholder. Under such circumstances, the right to continue these suits has passed to SFSP under Delaware law and that company’s board of directors should have the opportunity, in the first instance, to decide whether or not to take over the actions. See generally Kaster v. Modification Systems, Inc., 731 F.2d 1014, 1017 (2d Cir.1984); Lewis v. Graves, 701 F.2d 245, 247-48 (2d Cir.1983). We believe that this view is supported by the underlying philosophy of Federal Rule of Civil Procedure 23.1, to give a company’s board of directors first priority in deciding whether or not to pursue a cause of action.

Plaintiffs challenge the above rationale on the ground that the Southern Pacific-Santa Fe combination has little real meaning in this instance because it was, according to them, merely a nominal reorganization leading to the creation of a holding company which even the Delaware courts consider to be an exception to their rules of standing. See Lewis v. Anderson, supra, 477 A.2d at 1046 & n. 10; Schreiber v. Carney, supra, 447 A.2d 17, 21-22. In Schreiber v. Carney, the Chancery Court found that an exchange of shares leading to the creation of a holding company did not defeat a derivative plaintiff’s standing to continue his action in part because the reorganization was a share for share merger and the structure of the old and new companies was “virtually identical.” Schreiber v. Carney, supra, 477 A.2d at 22. In this case, by way of contrast, the SFSP board of directors consists not only of pre-merger directors from Southern Pacific but also from Santa Fe. We therefore find, as did the Delaware Chancery Court which considered the identical issue, that the Santa Fe-Southern Pacific combination was more than simply “window dressing” but was in fact a significant reorganization of the two companies. See Bonime v. Biaggini, supra, slip op. at 5-7; see also Lewis v. Anderson, supra, 477 A.2d at 1046 n. 10.

Plaintiffs’ final argument is that there is little to be served by giving the SFSP board of directors an opportunity to prosecute this action because it is futile to expect them to authorize a derivative suit on behalf of the Southern Pacific Transportation Company. They point to the substantial influence which Southern Pacific’s premerger directors exert on the SFSP board, the fact that the former president of SPTC is now the president and chief operating officer of SFSP and that one of the vice chairmen of SFSP is Southern Pacific’s former president.

The parties have addressed the futility issue at least in part in their voluminous submissions relating to defendants’ motion to dismiss for failure to make a demand upon Southern Pacific’s directors. While we need not decide the question, at first reading it appears far from obvious from the facts alleged in the amended complaints that a demand upon Southern Pacific’s board of directors would have been futile. To the extent that this question influences a decision on the present motion, we take notice of the fact that Southern Pacific’s board of directors remained relatively static between the time an earlier demand alleging violations of the Clayton Act was rejected in May of 1981 and the time the amended complaints were filed in September of 1983. See Amended Complaints, 111125-32, reprinted in, Supplemental Affidavit, filed September 26, 1983, at Exhibits A & B. At the present time, however, it cannot be said that a demand upon the SFSP board of directors would necessarily be futile, given the change in the cast of players brought about by the consolidation of the Santa Fe and Southern Pacific boards. See Raster v. Modifications Systems, Inc., supra, 731 F.2d at 1018 (“determination of the sufficiency of allegations of futility depends on the circumstances of the individual case and is within the discretion of the district court.”).

Accordingly, we conclude that plaintiffs no longer have standing to continue their double-derivative suits on behalf of Southern Pacific because the right to prosecute this action has vested with SFSP, the sole Southern Pacific shareholder. This is not a situation in which plaintiffs are left high and dry without an ultimate remedy. If the SFSP board of directors refuses to pursue their claims after a demand is made upon it, it appears that plaintiffs could then take appropriate action. However, in any event, the rationale supporting Rule 23.1 strongly favors the proposition that the newly-constituted SFSP board should be given the opportunity to take a fresh look at the issues raised by plaintiffs and to decide whether or not it wishes to pursue the claims.

Defendants’ motion to dismiss the amended complaints for lack of standing is granted subject to a short stay for the purpose of discussing at a conference to be held as soon as possible plaintiffs’ letter requests that the suits be permitted to continue as class actions. The imposition of a stay does not indicate any position as to the merits of the plaintiffs’ requests. Defendants’ motion to dismiss for plaintiffs’ failure to make a demand upon the directors is denied as moot. Decision on plaintiffs’ motion for summary judgment is reserved pending the outcome of the conference to be held with counsel.

It is so ordered.

      . The amended complaints allege that Evans is the chairman of the board of directors and owner of ten percent of the common stock of Crane Company, which in turn owns over ninety six percent of CF & I, and that Evans' son is CF & I’s chief executive officer.

      . At a conference on October 13, 1983, we held that defendants’ motion to dismiss would be decided first and that, in the event it was denied, defendants would have 20 days to answer plaintiffs' motion.

      . Because this ground alone is sufficient to dismiss the amended complaints, and given the volume of submissions by the parties as to whether the suits should be dismissed for failure to make a demand upon the directors, we do not address defendants’ alternative ground for dismissal.

      . An identical procedure was employed for making Santa Fe a wholly-owned SFSP subsidiary. See Combination Agreement, art. I, para. 1, at 2.

      . See Basch v. Talley Industries, Inc., 53 F.R.D. 9, 11-12 (S.D.N.Y.1971); Heit v. Tenneco, Inc., 319 F.Supp. 884, 886-88 (D.Del.1970); Lewis v. Anderson, 453 A.2d 474 (Del.Ch.1982), aff'd, 477 A.2d 1040 (Del.1984).

      . See Abrams v. Occidental Petroleum Corp., 20 Fed.R.Serv.2d (Callaghan) 170 (S.D.N.Y.1975).

      . While these cases were concerned with alleged violations of the federal securities laws, we see no reason to distinguish between a complaint based upon Clayton Act violations and one alleging violations of Section 10(b) of the Securities Exchange Act of 1934. 15 U.S.C. § 78j(b) (1982).

      . We note that the Delaware courts have definitively answered this question. In Bonime v. Biaggini, Nos. 6925 & 6980, slip op., (Del.Ch. Dec. 7, 1984), the Court of Chancery denied standing to the plaintiffs in this action to continue their companion Delaware state court case on the ground that “where a plaintiff loses his status as a shareholder due to a merger which occurs after the suit is instituted he also loses his ability to maintain his derivative suit." Id., slip op. at 5, citing, Lewis v. Anderson, supra, 477 A.2d 1040; Dell v. Grimm, No. 5784, slip op. (Del.Ch. July 17, 1979).

        . Although continued shareholder standing following such an exchange was found to exist in Abrams v. Occidental Petroleum Corp., supra, 20 Fed.R.Serv.2d 170, that decision was based in large part upon an interpretation of Delaware law recently disapproved of by the Supreme Court of Delaware in Lewis v. Anderson, supra, 477 A.2d at 1046, 1048 nn. 11 & 17 (Del.1984). Arnett v. Gerber Scientific, Inc., supra, 566 F.Supp. at 1273, a case in which shareholders were found to have standing following a merger because “(1) plaintiffs’ disposition of stock was involuntary; (2) the disposition was related to allegedly illegal acts of defendants; and (3) the remedy sought [ (recission of the merger) ] would result in plaintiffs regaining their shareholder status” (footnote omitted), is distinguishable because factors (2) and (3) are not found here. Plaintiffs’ argument, that they continue to have standing because the combination of Southern Pacific and Santa Fe was in reality a reorganization which did not affect their ownership of Southern Pacific is discussed infra.

      . See note 3 supra.

      . In a letter dated December 18, 1984, plaintiffs argue, as we understand it, that we should take into account in determining whether they continue to have standing the larger public interest supporting enforcement of Section 10 of the Clayton Act. This issue is addressed in detail by plaintiffs in their summary judgment motion which defendants have not been obliged to answer. See note 2 supra. We do not believe that the merits of a complaint, however important, can establish the necessary standing to continue a cause of action. In any event, we note, while expressing no view on these matters, that it might be possible for plaintiffs to continue their actions in guise of a class action, as they request, a suit by the SFSP board of directors, or a suit against the SFSP board to secure relief if it refuses to act upon plaintiffs’ demands.


author: NANGLE, Chief Judge.

text:
    Raymond BRUDER, et al., Plaintiffs, v. PENSION PLAN FOR EMPLOYEES OF HOLSCHER-WERNIG, INC., Defendant.
    No. 84-1569C(1).
    United States District Court, E.D. Missouri, E.D.
    Dec. 21, 1984.

      James E. Heckel, St. Louis, Mo., for plaintiffs.
    Richard J. Pautler, St. Louis, Mo., for defendant.
   MEMORANDUM

NANGLE, Chief Judge.

Plaintiffs, Raymond Bruder and his wife Louise, brought this action under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., to challenge the interpretation of a pension plan.

The case was submitted to the Court upon stipulations of the parties. The Court having considered the pleadings, the documents in evidence and the stipulations of the parties, and being fully advised in the premises, hereby makes the following findings of facts and conclusions of law, as required by Rule 52 of the Federal Rules of Civil Procedure. Fed.R.Civ.P. 52.

A. FINDINGS OF FACTS

1. Plaintiff Raymond Bruder is a former employee of Holscher-Wernig, Inc., and plaintiff Louise A. Bruder is his wife.

2. Defendant Pension Plan for Employees of Holscher-Wernig, Inc., is an employee benefit plan established and maintained by Holscher-Wernig, Inc. (Holscher-Wernig), in the City of St. Louis, Missouri.

3. Mr. Bruder became an employee of Holscher-Wernig on January 1, 1965. He was continuously employed by Holscher-Wernig until February 1982, when he retired.

4. Throughout his employment with Holscher-Wernig, Bruder received a guaranteed monthly draw of $550. In addition, from 1965 through 1980, he was entitled to a check at the end of each year equaling the amount by which his commissions during that year exceeded his draw. When his commissions for a year did not exceed his annual draw, he did not receive a commissions check. Bruder did not receive his commissions for his first two years of employment with Holscher-Wernig.

5. In January, 1981, Holscher-Wernig changed its system of compensation. Instead of awarding Bruder a commissions check on an annual basis, commission entitlement was calculated on a monthly basis. From January 1981, through January 1982, there were four months in which Bruder did not receive commissions checks.

6. After his retirement, Bruder applied for pension benefits from defendant. As a result, he received a monthly Pension Plan Retirement Benefit of $68.80 from defendant. Bruder contested the decision to exclude commissions from his pension benefit calculation. He brought his case to the Pension Plan Administrator, who denied his claim. Bruder appealed to the Pension Plan, but was likewise unsuccessful.

7. At the time of his retirement, Holscher-Wernig employees were included under a pension plan which became effective in August 1979.

8. Under the 1979 Plan, pension benefits were determined according to the “average monthly earnings” of the employees. Monthly earnings and average monthly earnings were defined in the Plan as follows:

MONTHLY EARNINGS — as of any January 1, one twelfth of a Participant’s annualized basic rate of compensation payable by the Employer, exclusive of overtime, bonuses, and other non-recurring compensation assuming full-time employment.
AVERAGE MONTHLY EARNINGS— the sum of all the Participant’s Monthly Earnings during the Participant’s Service after the later of December 31, 1978 and his Effective Date of Participation divided by the number of Monthly Earnings taken into consideration.

9. Prior to the 1979 Plan, Holscher-Wernig employees were covered by a 1976 Pension Plan, and prior to that by a 1965 Pension Plan. Under the terms of both the 1965 and 1976 Plans, benefits were calculated from the employees’ compensation. Compensation was defined as “the basic salary, or drawing account, received by a Participant from the Company: it does not include any overtime pay, bonus, commission, or other non-basic remuneration.”

10. Only one Holscher-Wernig employee, had retired from the Company before Bruder. This was Raymond Lehenbauer who retired in 1974. Mr. Lehenbauer’s compensation was strictly from commissions. Holscher-Wernig never paid him a guaranteed monthly salary, but he did receive pension benefits upon his retirement. The Pension Plan Administrator assigned a base salary to Mr. Lehenbauer for the purpose of qualifying him for pension benefits.

B. CONCLUSIONS OF LAW

This Court has jurisdiction of this case pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e). Plaintiff claims that defendant is liable to him under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., for additional pension benefits. Plaintiff maintains that the Plan Administrator misinterpreted the Pension Plan by not including his commissions in the calculation of his pension benefits.

The sole issue for the Court is whether or not the Plan Administrator’s interpretation of the 1979 Pension Plan should be upheld. Once this Court renders a decision, the parties have agreed to determine for themselves the actual figures which plaintiffs are entitled to receive.

The standard of this Court’s review is whether the Plan Administrator’s interpretation of the term “monthly earnings” is arbitrary and capricious. Govoni v. Bricklayers, Masons and Plasterers International Union of America, Local No. 5 Pension Fund, 732 F.2d 250, 252 (1st Cir. 1984); Miles v. New York State Teamsters Conference Pension and Retirement Fund Employee Benefit Plan, 698 F.2d 593, 601 (2d Cir.1983), cert. denied, — U.S. - 104 S.Ct. 105, 78 L.Ed.2d 108 (1983). It is not sufficient for plaintiffs to establish that their interpretation of the Plan is as reasonable as the Plan Administrator’s. Miles v. New York State Teamsters Conference Pension and Retirement Fund Employee Benefit Plan, 698 F.2d at 601; Lowenstem v. International Association of Machinists and Aerospace Workers, 479 F.2d 1211, 1213 (D.C.Cir.1973).

This Court concludes that the Plan Administrator’s interpretation of the 1979 Pension Plan is not arbitrary or capricious. The Plan provides that Bruder’s “basic rate of compensation” shall constitute his monthly earnings. Defendant’s interpretation was not unreasonable because Bruder received commissions sporadically and in varying amounts. He received no commissions during his first two years of employment with Holscher-Wernig and during four months of his final year of employment. Commissions more closely resemble bonuses and overtime pay than a monthly salary because they are received sporadically and in varying amounts. Furthermore, neither commissions nor bonuses nor overtime pay are guaranteed in the same manner as monthly salaries.

Plaintiffs maintain that the Plan Administrator was not consistent in refusing to include commissions within the definition of monthly earnings because Mr. Lehenbauer’s pension benefits were based solely on commissions. This Court disagrees. Only a portion of Lehenbauer’s commissions were converted to monthly earnings for pension plan purposes. Furthermore, an exception was created for Mr. Lehenbauer solely to allow him to receive some pension benefits. Bruder qualified for pension benefits without the inclusion of commissions in his monthly earnings.

Finally, plaintiffs point out that commissions were specifically excluded from monthly earnings in the 1965 and 1976 Plans along with bonuses and overtime pay, whereas only bonuses and overtime pay were specifically excluded in the 1979 Plan. They maintain that this shows an intent to include commissions within the 1979 definition of monthly earnings. Although plaintiffs’ argument is indeed rational, defendant’s position that use of the term “basic rate of compensation” exhibits an intent to exclude commissions from monthly earnings, is likewise rational. Because this Court concludes that the interpretation of the Plan Administrator is not arbitrary or capricious, it is unnecessary to decide whether evidence regarding the intent of the drafters of the Plan is admissible.


text:
    Steven SINGER and Dulce Reyes Singer, Plaintiffs, v. Emily Singer BELL; Michael Bell; Sheldon M. Liebowitz; Liebowitz, Liebowitz and Clark, Esqs., A Partnership; Ron Bellistri; Gary “Doe”; “Richard Roe”; “John Doe # 1”; “John Doe # 2”; and the Sheriff's Department of Bergen County, New Jersey, Defendants.
    No. 83 Civ. 5765 (EW).
    United States District Court, S.D. New York.
    Dec. 21, 1984.

      Eagle & Fein P.C., New York City, for plaintiffs; Patrick J. Carr, New York City, of counsel.
    McGovern, Bombara & Claire, New York City, for defendants John Doe # 1, John Doe # 2, and the Sheriff’s Dept, of Bergen County, N.J.; Charles E. O’Bryan, New York City, of counsel.
   OPINION

EDWARD WEINFELD, District Judge.

This case has its origin in a decree of divorce entered in the Superior Court of New Jersey in November 1972 which directed plaintiff, Steven Singer (“Singer”), to pay his divorced wife, Emily Singer Bell, one of the defendants herein, support for the benefit of their three children. Upon his default in payments due over a substantial period, which totalled in excess of $48,-000 by 1980, his former wife applied for and was granted a warrant for his arrest by the Honorable Harvey Sorkow, Judge of the Superior Court of New Jersey. There is no issue that the warrant was properly issued. Subsequently, Singer was arrested in the State of New Jersey and after a hearing before Judge Sorkow was released upon a finding, based upon a stipulation by his former wife, that she had lured him into New Jersey to effect execution of the warrant.

Thereafter plaintiff commenced this action against his former wife and her current husband, Michael Bell; the attorneys who represented her in the New Jersey action; Ron Bellistri, Gary “Doe,” and “Richard Roe”; and “John Doe # 1,” “John Doe # 2,” and the Sheriff’s Department of Bergen County, New Jersey.

In general, Singer alleges that after the warrant was issued, defendant Ron Bellistri contacted Singer about a possible business opportunity and invited him to a meeting in Weehawken, New Jersey to discuss the transaction. Bellistri and defendant Gary Doe then allegedly met Singer in New York, following which defendant Richard Roe drove Singer, Bellistri, and Gary Doe to New Jersey for the purported meeting. Upon their arrival at the meeting place in Weehawken, Singer further alleges, he was met by John Doe # 1 and John Doe # 2 who stated they were deputies of the Bergen County Sheriff’s Department and then arrested and searched him. Singer was jailed overnight but released by Judge Sorkow the next morning after Emily Singer Bell admitted that she had lured her former husband into New Jersey.

Singer, and his present wife Dulce Reyes Singer, a co-plaintiff, allege that defendants’ conduct subjected him to an unreasonable search and seizure, in violation of the Fourth and Fourteenth Amendments to the United States Constitution; deprived him of life, liberty, and property without due process, in violation of the Fifth and Fourteenth Amendments; and denied him equal protection of the laws, in violation of the Fourteenth Amendment. They allege that the defendants conspired so to deprive plaintiffs of their civil rights, in violation of 42 U.S.C. § 1985, and that they acted under color of state law in depriving plaintiffs of their civil rights, in violation of 42 U.S.C. § 1983. Singer seeks compensatory and punitive damages, and his wife seeks compensatory damages for emotional distress and loss of consortium.

Heretofore the attorneys who were named as defendants moved to dismiss the complaint against them upon the grounds that they were not subject to personal jurisdiction in the State of New York because (1) they do no business in New York and had no contacts within this state with respect to the action and (2) none of them participated in luring Singer into New Jersey or even learned of the alleged scheme until after Singer’s arrest. Plaintiff opposed the motion, arguing that the attorneys were subject to jurisdiction under New York Civ.Prac.Law § 302(a)(2) or (3) because they conspired with defendants Bellistri, Gary Doe, and Richard Roe, who allegedly committed acts in furtherance of the conspiracy in New York. Familiarity is assumed with this Court’s opinion which granted the attorneys’ motion to dismiss the action against them for lack of personal jurisdiction.

The instant motion is by the defendants John Doe # 1, John Doe # 2, and the Sheriff’s Department of Bergen County, New Jersey (the “Sheriff defendants”) to dismiss the action against them on the grounds that they are residents of New Jersey, conduct their business within that state, and are not subject to service of process in New Jersey so as to render them subject to the jurisdiction of this Court. The motion is supported by the affidavit of Allen Gonzalez who states he is “one of the defendants in the above entitled action” (it is clear from his affidavit that he is either John Doe # 1 or John Doe # 2). He states that he is employed by the County of Bergen as an investigator for the Bergen County Sheriff’s Department; that prior to August 10, 1982 that office received a warrant for the arrest of plaintiff Steven Singer from the attorneys who represented Singer’s former wife and which had previously been issued by the Superior Court of New Jersey; and that on August 10, 1982 the Sheriff’s office was informed by Michael Bell that plaintiff would be coming into the State of New Jersey and arriving in a silver limousine at the Silver Fox Restaurant in Weekawken at about 12:30 p.m. on that day. Gonzalez further states that

[u]pon arriving at the aforementioned address, we were met by Mr. Bell who brought along a picture of the plaintiff and pointed him out to us. Mr. Singer was then arrested. The arrest was in accordance with the standard practice and procedures of the Bergen County Sheriff’s Department.
At no point prior to August 10, 1982 did I or any other officer of this Department engage in any conversations with either Emily Bell or Michael Bell regarding Steven Singer.
The normal procedures and daily practices of this office do not entail any contact with the State of New York apart from standard extradition proceedings and the like.

Plaintiffs oppose the motion on the ground that the movants were engaged in the conspiracy charged in the complaint. Plaintiffs do not claim, nor do they offer any proof, that either John Doe # 1 or John Doe # 2, or any other member of the Sheriff’s Department, was present in New York or personally committed any act in New York in furtherance of the alleged conspir-. acy. What they rely upon are the acts and conduct of the defendants Bellistri, Gary Doe, and Richard Roe, named as members of the conspiracy, who allegedly committed acts in New York that falsely induced Singer to go with them to New Jersey to consummate a transaction there, whereupon he was arrested under the circumstances referred to above. Thus, the acts attributed to Bellistri, Gary Doe, and Richard Roe are the meeting with Singer in New York where they discussed the fictitious deal and arranged to transport him to New Jersey. In the absence of any act or conduct by the Sheriff defendants in New York State, plaintiffs

allege a conspiracy or agency theory of jurisdiction with respect to the Sheriff of Bergen County. If we presume the connection, concert or conspiracy for substantive purposes among the Sheriff, the arresting uniformed deputies in Weehawken and the persons (Bellistri and Roe) acting in New York State to deliver Singer to Weehawken, the jurisdictional requirements of the New York long-arm statute are satisfied in two respects. CPLR 302 provides for jurisdiction of out-of-state defendants who transact any business in New York (CPLR § 302(a)(1)), and who commit tortious conduct in New York (CPLR § 302(a)(2)).

However, for plaintiffs to “presume the connection, concert or conspiracy” to include the Sheriff defendants is a quantum leap forward that assumes the very fact to be established, without the slightest evidential support of any fact which permits an inference that, assuming the existence of the conspiracy as alleged, the Sheriff defendants were knowing participants. This Court “is fully aware that conspiracies are rarely established by direct evidence; that usually they are spelled out by independent circumstantial evidence and the reasonable inferences to be drawn therefrom. However, there must be a fact basis upon which the sought-for inferences of conspiracy and knowing participation therein must rest.”

As this Court noted in dismissing plaintiffs’ complaint against the attorneys who were named as defendants,

[i]t is well established that “the acts of a co-conspirator may be attributed to a defendant for the purpose of obtaining personal jurisdiction over the defendant.” However, “the bland assertion of conspiracy or agency is insufficient to establish jurisdiction.” Instead, plaintiffs must make a prima facie showing of conspiracy. They must allege specific facts warranting the inference that the defendants were members of the conspiracy, and “come forward with some definite evidentiary facts to connect the defendants] with transactions occurring in New York.”

Here plaintiffs have failed to set forth some evidentiary fact to sustain their claim of jurisdiction, as to which they have the burden of proof. Plaintiffs’ conjectural projections and broadside ad hominem attack on the Sheriff and other law enforcement officers are no substitute for proving the threshold requirement that jurisdiction exists. The failure to set forth a single evidentiary fact upon which an inference of knowing attachment to a conspiracy by the Sheriff defendants can reasonably be drawn is highlighted by the fact that, although this action has been pending for more than a year and plaintiffs’ complaint against the attorneys was dismissed more than eight months ago, during which plaintiffs were fully aware of the factual shortcomings of their claim against the Sheriff defendants, they failed to depose the Sheriff defendants or other persons on the issue.

The motion of the Sheriff defendants to dismiss the action against them for lack of in personam jurisdiction is granted.

So ordered.

      . In releasing Singer, Judge Sorkow stated that "rather a defaulting and absconding debtor be free than this court become a party to participation in a scheme based on 'dirty tricks[.]'” Singer v. Singer, No. M-10581-72, slip op. at 2-3 (N.J.Super.Ct.Ch.Div. Aug. 11, 1982).

      . Singer v. Bell, 585 F.Supp. 300 (S.D.N.Y.1984).

      . Gonzalez aff., at ¶¶ 5-7.

      . Plaintiffs’ Memorandum of Law at 2; see N.Y. Civ.Prac.Law § 302(a)(l)(2) (McKinneys 1972 & Supp.1983).

      . Miller v. Schweikart, 413 F.Supp. 1062, 1065 (S.D.N.Y.1976) (citing United States v. Kahaner, 203 F.Supp. 78, 84 (S.D.N.Y.1962); Morgan v. Sylvester; 125 F.Supp. 380, 389 (S.D.N.Y.1954), aff’d, 220 F.2d 758 (2d Cir.), cert. denied, 350 U.S. 867, 76 S.Ct. 112, 100 L.Ed. 768 (1955)).

      . Singer, slip op. at 3-4 (quoting various cases; footnotes omitted).

      . See Visual Sciences, Inc. v. Integrated Communications, Inc., 660 F.2d 56, 58 (2d Cir.1981); Raskin v. Compania de Vapores Realma, S.P., 521 F.Supp. 337, 339 (S.D.N.Y.1981).


author: RYAN, District Judge.

text:
    Vanetta PEFFERS, et al., Plaintiffs, v. Rose BOWMAN, in her official capacity as Director of Department of Health and Welfare, State of Idaho, et al., Defendants.
    Civ. No. 84-3017.
    United States District Court, D. Idaho.
    Dec. 26, 1984.

      Randall Robinson, Lewiston, Idaho, Jane Newby, Caldwell, Idaho, Idaho Legal Aid Services, Inc., for plaintiffs.
    Jeffrey Howe, Asst. U.S. Atty., Boise, Idaho, for Federal defendant.
    Janice Kroeger, Deputy Atty. Gen., Dept, of Health & Welfare, Coeur d’Alene, Idaho, for State defendant.
   MEMORANDUM OPINION

RYAN, District Judge.

Previously, the court entered an order granting the plaintiff class’s requested preliminary injunction. The court enjoined Defendant Rose Bowman, Director of. the State of Idaho Department of Health and Welfare (the State), from implementing eligibility regulations for the Medicaid program which take into account reimbursements of unusual medical expenses paid by the Veterans Administration (VA) to members of the plaintiff class in the form of increased pension benefits pursuant to 38 U.S.C. § 503(a)(8) and 38 C.F.R. § 3.272(g)(2) (1980).

Following the entry of the preliminary injunction, plaintiff class moved the court for an order granting summary judgment and an order entering a permanent injunction. The federal defendant, Margaret Heckler, Secretary of the United States Department of Health and Human Services (Secretary), opposed plaintiffs’ motion and filed her cross-motion for summary judgment. The State has not filed any motions or responded to the plaintiff class’s motion for summary judgment and permanent injunction. The State has, in the past, acquiesced in and adopted the position asserted by the Secretary. Oral argument on these pending motions was scheduled and entertained by the court. The court has reviewed the pleadings, briefing and affidavits on file and has fully considered the arguments of counsel.

The issue before the court, simply stated, is whether reimbursed unusual medical expenses paid to members of the plaintiff class by the YA as part of their VA pension should be counted as “income” for purposes of Medicaid eligibility. The resolution of this issue is dictated by the Secretary’s regulations and by Ninth Circuit case law.

The Secretary’s regulations provide that income that would be disregarded in determining eligibility for Supplemental Security Income (SSI) must also be disregarded when determining Medicaid eligibility. 42 C.F.R. § 435.722(b) (1983). If an income source is not counted as “income” for the SSI program, then it may not be counted as “income” for the Medicaid program. In Summy v. Schweiker, 688 F.2d 1233 (9th Cir.1982), the Ninth Circuit addressed the issue of whether identical reimbursed unusual medical expenses were income for purposes of the SSI program. The Ninth Circuit, relying upon the congressional purpose and intent behind the SSI program and upon the definition of what is “not income” as promulgated by the Secretary in 20 C.F.R. § 416.1109(a) (1980), determined that these reimbursed medical expense payments were “not income” for purposes of SSI eligibility. Given the Secretarys regulation imputing the SSI program’s definition of income to the Medicaid program, the court must hold that these reimbursed unusual medical expenses are “not income” for purposes of determining Medicaid eligibility.

The Secretary, though conceding the holding in Summy, argues that Summy is inapplicable to the case at hand. Specifically, the Secretary maintains that the Sum-my decision turned upon a prior definition of what did not constitute income for purposes of SSI eligibility. The Secretary argues that this regulation has been substantially changed and recodified. Since the Summy decision construed the meaning of the prior regulation, the Secretary argues that its analysis is inapplicable to the facts presently before the court and should be narrowly confined to the circumstances surrounding Summy. While the court is aware that the regulation in question has been changed, the court has reviewed that change and determines that it has not altered the definition of what does not constitute income for purposes of SSI eligibility. Apparently, the Secretary is in agreement with this interpretation. She stated in the preamble to the new codification of the income regulation:

The legal aid group questioned § 416.-1103(a) and (b) which explain when medical care and services and social services were not income. They believe we have made the revised rules more restrictive. This was not our intent and we have rewritten these provisions to make it clear that the policy has not been changed.

45 Fed.Reg. 65543 (1980).

Based on the foregoing, it is clear that the Secretary’s own interpretation of her regulations is consistent with a holding finding that the reimbursed unusual medical expenses are “not income” for purposes of Medicaid eligibility. They would not have been under the Summy rationale. Since it is the Secretary’s position that her “policy” has not changed, it follows that reimbursed unusual medical expenses must remain not includable as an income source for purposes of either SSI or Medicaid eligibility.

Based on the foregoing, this court finds that a permanent injunction prohibiting the State from implementing eligibility regulations for Medicaid inconsistent with this opinion, should issue.

Turning now to the Secretary’s motion for summary judgment, the issue is somewhat different. ' At issue here is whether the court’s injunctive power should be exercised to restrain the Secretary from requiring, as a condition precedent to financial assistance, the State’s adoption of the eligibility criteria urged by the Secretary. Presently, only the plaintiff class seeks such an injunction. The State has not sought such relief.

In support of their position, plaintiff class cites League to Save Lake Tahoe v. Tahoe Regional Planning Agency, 558 F.2d 914 (9th Cir.1977), for the proposition that the Secretary is correctly joined as a party defendant. In addition, plaintiff class cites Kozera v. Spirito, 723 F.2d 1003 (1st Cir.1983), for the proposition that this court may issue the requested injunction under the facts at bar. This court has no quarrel over the joinder of the Secretary as a party defendant. The Federal Rules of Civil Procedure encourage liberal joinder of parties to effectuate judicial economy and to allow courts to fashion complete relief. However, the question of whether the Secretary has been misjoined is fundamentally distinguishable from whether this court should exercise its equitable power to enjoin the Secretary. That issue was more specifically dealt with in the Spirito case.

The court has reviewed Spirito and finds that it is distinguishable from the facts at bar. In Spirito, though the underlying facts were somewhat similar in nature to the facts presently before the court, it should be noted that it was the State defendant who filed a third-party complaint requesting injunctive relief against the federal defendant. Such a course of action was only proper since it was the State who ultimately would be harmed if the federal government halted funding for the State-administered program. In this case, the court has determined to enjoin the State from adopting the eligibility regulations pressed by the Secretary. Having so done, the State will be required to provide the benefits authorized by the Medicaid program. If the Secretary chooses to undertake a compliance review of the State’s program with an eye towards halting federal funding, it is the State who would then be in the best position to pursue equitable relief against the Secretary. In this situation, it would be the State who ran the risk of financial injury. Members of the plaintiff class would run only an indirect risk of financial distress.

In addition, the court notes that only the State defendant has been preliminarily enjoined under the provisions of the preliminary injunction. The Secretary has been free since that date to initiate a compliance review of the State’s program. There is nothing before the court which indicates that the Secretary has undertaken such a course of action. It would be mere speculation at this point to assume the Secretary will undertake a compliance review. Under these circumstances, the court would be in error in finding that the alleged threat of the Secretary has the immediacy required to allow this court to grant the requested injunction against the Secretary. In the event the Secretary moves to halt State funding, the State will be in an adequate position to protect its interests. An order consistent with the foregoing will be entered.

      . In 1980, the Secretary’s regulations found at 20 C.F.R. § 416.1109(a) (1980) read as follows:

        Medical services. The term "income” does not include the value of any third-party payment for medical care or medical services furnished to a beneficiary. This exclusion from income also applies to room and board furnished during medical confinement and paid for by such third party.
      In 1981, the Secretary promulgated new regulations defining what was “not income” for purposes of SSI eligibility. The new regulations were codified at 20 C.F.R. § 416.1103, and provided:
      Some things you receive are not income because you cannot use them as food, clothing, or shelter, or use them to obtain food, clothing, or shelter. In addition, what you receive from the sale or exchange of your own property is not income; it remains a resource. The following are some items that are not income:
      (a) Medical care and services. Medical care and services are not income if they are any of the following:
      (1) given to you free of charge or paid for directly to the provider by someone else;
      (2) Room and board you receive during a medical confinement;
      (3) Assistance provided in cash or in kind (including food, clothing, or shelter) under a Federal, State, or local government program, whose purpose is to provide medical care or services (including vocational rehabilitation);
      (4) In-kind assistance (except food, clothing, or shelter) provided under a nongovernmental program whose purpose is to provide medical care or medical services;
      (5) Cash provided by any nongovernmental medical care or medical services program or under a health insurance policy (except cash to cover food, clothing or shelter) if the cash is either:
      (i) Repayment for program-approved services you have already paid for; or
      (ii) A payment restricted to the future purchase of a program-approved service.


author: CAFFREY, Chief Judge.

text:
    Rose GAVRILLES, Plaintiff, v. Daniel O’CONNOR, Manson Hall, Frank Peros, and Watertown School Committee, Defendants.
    Civ. A. No. 83-0006-C.
    United States District Court, D. Massachusetts.
    Dec. 28, 1984.
    See also, D.C., 579 F.Supp. 301.
    Anne M. Vohl, Burlington, Mass., Betty A. Gittes, Shaevel, Shaevel & Gittes, Boston, Mass., for plaintiff.
    Loretta T. Attardo, Duane R. Batista, Nutter, McClennen & Fish, Boston, Mass., for defendants.
   MEMORANDUM

CAFFREY, Chief Judge.

This is a civil action brought pursuant to 42 U.S.C. § 1983 on behalf of Rose Gavrilles, a tenured teacher in the Watertown, Massachusetts School System.

Named as defendants in the second amended complaint are Daniel O’Connor, Superintendent of Schools, Manson Hall, Headmaster of Watertown High School, Frank Peros, Director of art education for the Watertown School System and the Watertown School Committee. The matter is before the Court on defendants motion for summary judgment, which has been briefed and argued by the parties. The individual defendants base their motion on a claim that, as government officials performing discretionary functions, they have a qualified immunity which shields them from liability for civil damages because their conduct did not clearly violate established statutory or constitutional rights of which a reasonable person would have known. Plaintiff has challenged the claim that her constitutional rights allegedly violated herein were not clearly established so that a reasonable person would have known of them at the time the conduct in question took place.

In Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 2739, 73 L.Ed.2d 396 (1982), the Supreme Court stated that an issue of this type may be determined on summary judgment. However, in the in-, stant case, I believe that the record leaves a mixed question of fact and law as to whether or not the claimed right was in fact so clearly established that a reasonable person would have known of it at the relevant time. Consequently, the Court will hear counsel on this issue with or without evidence at the option of counsel at 11:00 a.m. on January 28, 1985.

With regard to that portion of the motion for summary judgment brought on behalf of the School Committee, I rule that the School Committee should be dismissed as a party defendant in this case on two separate grounds. First, the most analogous statute of limitations for application to a 42 U.S.C. § 1983 is either the 30 day period set out in M.G.L. c. 71 § 43A or the sixth month period set out in M.G.L. c. 150E. In the instant case, the claim against the School Committee was not made until more than one year after the February 16, 1983 suspension, which is the basis of plaintiffs complaint.

A second ground for dismissing the School Committee is the well established principle that in a case under § 1983 a municipality is not liable on the basis of the doctrine of respondeat superior for the allegedly wrongful acts of municipal employees. In this case I rule the complaint is fatally defective as against the School Committee because it does not allege that the employees were acting pursuant to either a policy or a custom established by the School Committee.

Order accordingly.