author: SHADUR, District Judge.

text:
    U.S. HOME CORPORATION, Plaintiff, v. GEORGE W. KENNEDY CONSTRUCTION COMPANY, INC., et al., Defendants. MACKIE CONSULTANTS, INC., et al., Third Party Plaintiffs, v. ARMCO, INC., Third Party Defendant.
    No. 82 C 7775.
    United States District Court, N.D. Illinois.
    Sept. 17, 1985.

      Edward M. Crane, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, 111., for Mackie and Lorek.
    Arthur Debofsky, Debofsky & Debofsky, and Ronald S. Fishman, Fishman & Fish-man, Chicago, 111., for Geo. W. Kennedy Const. Co., Inc.
    David J. Gibbons, Edward L. Michael, Chadwell & Kayser, Ltd., Chicago, 111., for Armco, Inc.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

This multiparty litigation was originally launched by U.S. Home Corporation (“U.S. Home”), whose First Amended Complaint (the “Complaint”) runs against George W. Kennedy Construction Company, Inc. (“Kennedy”), Mackie Consultants, Inc. (“Mackie”), William Lorek (“Lorek”) and American States Insurance Company (“American”). U.S. Home charges:

1. Kennedy and Mackie with breach of contract,

2. Kennedy with breach of express and implied warranties and

3. Kennedy, Mackie and Lorek with negligence,

all arising out of the construction of sanitary sewers that serve the single-family Waterford Woods residential development in Lindenhurst, Illinois. Kennedy and Mackie and Lorek have in turn filed two-count Third Party Complaints (the “Kennedy Complaint” and the “Mackie-Lorek Complaint”) against Armco, Inc. (“Armco”), seeking recovery via contribution and indemnity.

Armco now moves to dismiss each of the Kennedy Complaint and the Mackie-Lorek Complaint under Fed.R.Civ.P. (“Rule”) 12(b)(6). For the reasons stated in this memorandum opinion and order, the motion is granted in principal part and denied in part.

Facts

U.S. Home, a real estate developer, suffered more than $450,000 in damages when the sanitary sewer installation for its major single-family residence development in Lindenhurst proved defective and actually collapsed in part. Mackie had designed the system (its employee Lorek was the responsible professional engineer) and Kennedy had installed it, each under a separate contract with U.S. Home. Armco truss pipe and other Armco-manufactured accessory components were used in construction of the system. No contractual arrangement existed between Armco and either Kennedy or Mackie-Lorek.

Kennedy, Mackie and Lorek contend any liability any of them might have to U.S. Home would be occasioned not by their own delinquency but rather by the defective conditions of the Armco products involved. That, they say, entitles each of them to contribution and indemnity. Arm-co retorts none of Kennedy, Mackie and Lorek states a cause of action for either such claim.

Contribution

Section 302(a) of the Illinois Contribution Among Joint Tortfeasors Act (part of the “Act,” Ill.Rev.Stat. ch. 70, §§ 301-305) provides:

Except as otherwise provided in this Act, where 2 or more persons are subject to liability in tort arising out of the same injury to person or property, or the same wrongful death, there is a right of contribution among them, even though judgment has not been entered against any or all of them.

Thus the Act expressly requires each party to the contribution action to be “subject to liability in tort,” and the sensible reading of that phrase connotes liability to the injured party — here U.S. Home. In those terms each of Kennedy, Mackie and Lorek has a viable contribution claim only as to a portion of U.S. Home’s potential sources of recovery.

1. Kennedy’s and Mackie’s Potential Contract Liability to U.S. Home

Armco is quite right in urging no contribution would lie if Kennedy’s or Mackie’s liability to U.S. Home were established on a breach of contract theory. Even were Armco then determined to be a tortfeasor as to U.S. Home, no contribution would be available to Kennedy or Mackie because the requisite “2 or more persons ... subject to liability in tort” would be lacking. Intamin, Inc. v. Figley-Wright Contractors, Inc., 605 F.Supp. 707, 709-10 (N.D.Ill.1985).

Both Kennedy and Mackie purport to find shelter against that fatal conclusion in Maxfield v. Simmons, 96 Ill.2d 81, 70 Ill. Dec. 236, 449 N.E.2d 110 (1983). But Max-field distinguished carefully between claims sounding in contract and those sounding in tort, holding that only the latter would trigger rights of contribution or indemnification. Indeed, the very portion of the Maxfield opinion quoted at Kennedy Mem. 3 makes plain the only predicate for contribution there was that (adapting the quotation to this case) “the liability, if any, imposed on [Kennedy or Mackie] will be the result not of breach of contract, but of tortious conduct” (id. at 87, 70 Ill.Dec. at 238, 449 N.E.2d at 112).

In sum, contribution on any U.S. Home contract-breach recovery is simply unavailable. This opinion turns then to the same question in the tort arena.

2. Kennedy’s, Mackie’s and Lorek’s Potential Tort Liability to U.S. Home

None of the litigants has dealt properly with the tort-contribution subject. Because the Act treats with the topic so plainly (though that could not be guessed from the parties’ memoranda), no extended discussion is required.

Armco really glosses over (or ignores entirely) the negligence theories advanced by U.S. Home against the third-party plaintiffs, as referred to in the two Third Party Complaints. To the extent U.S. Home is successful against any of Kennedy, Mackie and Lorek on such negligence grounds and Armco is also found negligent or strictly liable as to U.S. Home, the “2 or more persons ... subject to liability in tort” would be present. And that of course is all the Act requires for contribution from Armco.

But each of the third-party plaintiffs is equally guilty of glossing over the relevant provision of the Act. As already indicated, what “subject to liability in tort” means is liability to the original plaintiff (here U.S. Home), not liability of the third-party disputants inter sese. Intamin, 605 F.Supp. at 710.

Yet Kennedy’s Complaint sets out a contribution claim full of irrelevant allegations as to Armco’s duty to others than U.S. Home (Count I II 5):

That Armco, Inc. had a duty to Kennedy, Mackie Consultants, Inc. and William F. Lorek and U.S. Home to exercise due care in the design, manufacture and marketing of Armco truss pipe.

And Kennedy’s Count I ¶ 4 asserts various potential strict liability or negligence breaches by Armco, without identifying how any of those violated a duty owed to U.S. Home. Even worse, the Mackie-Lorek Complaint may be searched in vain for any hint of how Armco’s asserted misconduct impinged on a duty running from -it to U.S. Home.

Despite those flaws in the third-party complaints, the fact remains Armco may be subject to contribution. claims for the reason stated at the outset of this section. Consequently it seems most efficient to deny Armco’s motion to dismiss on condition each of the Third Party Complaints is amended on or before September 30, 1985 to conform to this opinion.

Indemnity

As contrasted with contribution and its risk-sharing approach, indemnity is an all- or-nothing concept. Implied (that is, not expressly contractual) indemnity was originally a product of, and largely a judicial response to, the era when the rule against contribution among joint tortfeasors — coupled with a plaintiff’s absolute choice of whom to sue — sometimes left a more culpable party free of liability while a lesser wrongdoer bore the entire cost of plaintiff’s injuries. As to Illinois’ adoption of the indemnity concept in the area of strict products liability, see Suvada v. White Motor Co., 32 Ill.2d 612, 624, 210 N.E.2d 182, 188-89 (1965). And as to the identical rationale for the judicial creation of the active-passive negligence theory of indemnity, see Skinner v. Reed-Prentice Division Package Machinery Co., 70 Ill.2d 1, 12-13, 15 Ill.Dec. 829, 833, 374 N.E.2d 437, 441 (1970).

In this case U.S. Home had originally joined Armco as a defendant on strict liability grounds. After this Court had upheld that cause of action (solely in pleading terms) against Armco’s Rule 12(b)(6) attack, 565 F.Supp. 67 (N.D.Ill.1983), U.S. Home nonetheless dismissed out Armco. Now the third-party plaintiffs, urging Arm-co was the real culprit because of its defective product, seek to shift all their potential liability to Armco.

But it should be obvious from the very origins of implied indemnity that passage of the Act, which removed a good part of the policy underpinnings from the indemnity doctrine, would work some dramatic changes in indemnity as well as contribution. And that has in fact taken place. Earlier this year this Court rejected the Mackie-Lorek cross-claim for indemnity against Kennedy because post-Act case law (most importantly Morizzo v. Laverdure, 127 Ill.App.3d 767, 83 Ill.Dec. 46, 469 N.E.2d 653 (1st Dist.1984)) “has specifically held Illinois’ common-law cause of action for active-passive indemnity has not survived passage of the ... Act.” U.S. Home Corp. v. George W. Kennedy Construction Co., 601 F.Supp. 84, 86 (N.D.Ill.1985).

In an important sense the Kennedy and Mackie-Lorek claims against Armco are, on the third-party plaintiffs’ own characterizations of those claims, of that same active-passive type. And to that extent the logic of this Court’s earlier opinion bars such claims. However, the third-party claimants also urge Armco’s vulnerability in strict liability terms renders it liable in indemnity to them for any exposure they may have to both (1) U.S. Home’s breach of contract and breach of warranty claims and (2) U.S. Home’s negligence claims.

As to contract-type claims (including warranty claims), that is simply wrong. It is based on a flat-out misreading of 1Wax-field, which — after speaking of indemnification (as well as contribution) as being triggered by tortious conduct on the part of the third-party defendants — said, again adapting the quotation to this case (96 Ill.2d at 87, 70 Ill.Dec. at 238, 449 N.E.2d at 112):

The implied contract of indemnity arose from the contractual relationship between the parties, but the liability, if any, imposed on [Kennedy or Mackie] will be the result not of breach of contract, but of tortious conduct.

And see the discussion of Maxfield in Chicago College of Osteopathic Medicine v. George A. Fuller Co., 719 F.2d 1335, 1341 (7th Cir.1983). To that extent too, then, the indemnity claims fail.

That leaves only potential indemnification for U.S. Home’s tort-based claims. On that front Mackie-Lorek seek to urge the active-passive characterization in Morizzo does not apply to a strict liability claim, because the latter concept was developed to avoid the need to measure levels of fault. But that argument misses the real sense of the “active-passive” dichotomy, which simply reflected the idea that (in an era of all-or-nothing rather than shared liability) it was more fair for the principal wrongdoer to bear the total liability than a lesser tortfeasor. And of course the same idea had supported the shifting of total liability from the installer (say) of a dangerous product to its producer, when some third party was injured by the product and sought to recover under strict liability. In both instances the shifting of liability had to take the form of indemnity, simply because the law had developed no technique for divided liability.

Today, with a contribution regime in place, the rationale for any kind of full shifting of responsibility (under any label) has lost much of its force. And so it is that Morizzo, 127 Ill.App.3d at 774, 83 Ill.Dec. at 51, 469 N.E.2d at 658 teaches that, absent an express contract for indemnification (and none is involved here), implied indemnification is not even arguably viable after passage of the Act except perhaps in two situations:

However, none of these [post-Act] cases [including Van Jacobs v. Parikh, 97 Ill. App.3d 610, 52 Ill.Dec. 770, 422 N.E.2d 979 (1st Dist.1981) and Lowe v. Norfolk & Western Railway Co., 124 Ill.App.3d 80, 79 Ill.Dec. 238, 463 N.E.2d 792 (5th Dist.1984) ] addressed the question raised by the failure of the legislature to provide for the specific preservation of the right of express or implied indemnity. As we interpret Van Jacobs, this court held that implied indemnity is not extinguished by the passing of the Contribution Act for cases involving some pre-tort relationship between the parties which gives rise to a duty to indemnify, e.g., in cases involving vicarious liability (lessor-lessee; employer-employee; owner and lessee; master and servant). In Lowe, this court held that implied indemnity was still viable with respect to “upstream” claims in a strict liability action. Except possibly for those causes of action based on the theories of indemnity just enumerated, it is our opinion that the Contribution Act extinguished a cause of action for active-passive indemnity in Illinois.

Morizzo’s reference in that quotation to “active-passive indemnity” is no more than a characterization of the basic concept of indemnification, under which it is thought the substantial difference in degrees of fault means the indemnitee should be wholly freed from liability and the indemnitor should be saddled with the entire liability instead. There is no more and no less reason to apply that all-or-nothing concept in the greater-and-lesser fault situation of the manufacturer and installer of a strict-liability-type product than there is in the active-passive fault situation. Morizzo’s lesson as to the latter type of indemnity is equally applicable to the former.

For the reason stated in its earlier opinion (601 F.Supp. at 86), then, this Court follows Morizzo. Surely no pre-tort relationship of the type identified by Morizzo exists here — U.S. Home’s claims assert direct and not vicarious liability. As for “upstream” claims in strict liability actions, as referred to in Lowe and mentioned in Morizzo, any potential for such indemnification in this case would depend on two things:

1. Kennedy’s or Mackie-Lorek’s liability to U.S. Home on strict liability grounds for incorporation of the defective Armco products into the sewer installation.
2. Imposition of that same liability “upstream” from Kennedy, Mackie or Lorek to Armco.

There is some question whether U.S. Home’s tort claims against Kennedy or Mackie or Lorek fit the first requirement. For analytical purposes, however, this opinion will assume that some — though certainly not all — the allegations of breaches of duty to U.S. Home can be argued to do so:

1. As to Kennedy, Count III ¶ 23 alleges Kennedy “failed to produce completed construction was workmanlike and acceptable in every detail; and failed to fulfill the minimum standards of performance and workmanship for sewer installations in Illinois.”
2. As to Mackie and Lorek, Count VI 1118 is more problematical, but some of its allegations (perhaps subparagraphs (a), (b) and (g)) might arguably meet the description of a strict liability claim.

So each Third Party Complaint for indemnity might partly pass scrutiny at the first step.

But Kennedy, Mackie and Lorek founder on the second requirement in any case. Chicago College, 719 F.2d at 1341-42 parsed the Illinois case law as of late 1983, emphasizing that potentially conflicting cases (including Maxfield) were reconcilable on the ground that the right to indemnification must stem from a contractual relationship (id. at 1342, emphasis added):

As we interpret these cases, we hold that Illinois law as it now stands does allow a third party action for indemnity where the third party plaintiff and the third party defendant were contracting parties and the third party plaintiff bears no independent fault in the harm to the original plaintiff.

That analysis tracks with the Illinois case law since then, for it accounts not only for Maxfield and Lowe (decided before Chicago College, though the Lowe case was not specifically referred to by our Court of Appeals) but also for Anixter Bros., Inc. v. Central Steel & Wire Co., 123 Ill.App.3d 947, 952-53, 79 Ill.Dec. 359, 363, 463 N.E.2d 913, 917 (1st Dist.1984). Each of those Illinois cases upheld “upstream” indemnity actions where, in the language of Chicago College, “the third party plaintiff and the third party defendant were contracting parties.”

In this case, none of Kennedy, Mackie and Lorek had a contractual relationship with Armco, and under the Chicago College analysis that is fatal to their implied indemnity claims. Mackie and Lorek ask this Court to disavow Chicago College and its reading of Illinois law. This Court is not about to do so.

It follows that none of the possible bases for indemnification — for the full shifting of liability to Armco — exists. Armco’s motion to dismiss the indemnity-seeking portions of the Kennedy Complaint and the Mackie-Lorek Complaint is granted.

Conclusion

Armco’s motion is granted in part and denied in part, each to the extent stated in this opinion. Though the Third Party Complaints have thus survived Armco’s current motion, that has been a limited survival. All parties should be mindful of the need, as and when the time for final pretrial order documents arrives in preparation for trial, to prepare suitable special verdict forms (Rule 49(a)) or special interrogatories (Rule 49(b)) to permit ascertainment of whether the jury’s determinations do or do not bring contribution into play.

      . As the text later reflects, Armco was one of the co-defendants originally named by U.S. Home, but in November 1983 it was dismissed out of the litigation without prejudice on U.S. Home’s motion. Its reintroduction via the Third Party Complaints came earlier this year.

      . Because of the .narrow scope of the current motion, only a skeletal outline of its setting is called for. This summary and outline are drawn from U.S. Home’s Complaint and the Third Party Complaints, of course with no implication of any findings for any party.

      . Nothing in this opinion should be understood as expressing any views as to the viability of any such claim.

      . As to contribution under the Act among joint tortfeasors, one of whom is subject to strict products liability, see Coney v. J.L.G. Industries, Inc., 97 Ill.2d 104, 123-24, 73 Ill.Dec. 337, 346, 454 N.E.2d 197, 206 (1983).

      . It is somewhat extraordinary that not one of the four memoranda filed on the current motion sets out the relevant text of Act § 302(a), brief as it is. Nor (as the text of this opinion reflects) do the memoranda give a strong clue that any of the counsel has troubled to read that provision.

      . This lawsuit is, after all, approaching its third anniversary.

      . It may be noted parenthetically that this analysis has given Kennedy and Mackie-Lorek the benefit of the doubt as to current Illinois implied indemnity doctrine. Earlier this year Holmes v. Sahara Coal Co., 131 Ill.App.3d 666, 676, 86 Ill.Dec. 816, 822-23, 475 N.E.2d 1383, 1389-90 (5th Dist.1985) surveyed the field (including extensive law review discussion) and concluded in a split decision "that the Contribution Act has extinguished all actions for implied indemnity____” Holmes obviously felt free to resolve that issue for itself in view of the Illinois Supreme Court’s 1984 declinations of an invitation to do so, awaiting further development in the Appellate Courts. Heinrich v. Peabody International Corp., 99 Ill.2d 344, 350-51, 76 Ill.Dec. 800, 803-04, 459 N.E.2d 935, 938-39 (1984); Simmons v. Union Electric Co., 104 Ill.2d 444, 453, 85 Ill.Dec. 347, 351, 473 N.E.2d 946, 950 (1984). Though Holmes has been questioned even within the Fifth Appellate District (see Allison v. Shell Oil Co., 133 Ill.App.3d 607, 609-11, 612, 88 Ill.Dec. 720, 722-23, 724, 479 N.E.2d 333, 335-36, 337 (5th Dist.1985), which follows the Morizzo analysis), if it were to provide the rule of decision here, the discussion of the indemnity claims in this case would have been reduced to a single sentence rejecting them.


source: Caselaw Access Project

author: RUSSELL E. SMITH, District Judge.

license: Public Domain

text:
    Patricia WILSON, Plaintiff, v. Margaret M. HECKLER, Secretary of the Department of Health and Human Services, Defendant.
    No. CV 84-41-M.
    United States District Court, D. Montana, Missoula Division.
    Sept. 17, 1985.

      Darrell S. Worm, Kalispell, Mont., for plaintiff.
    Allen McKenzie, U.S. Atty., Butte, Mont., for defendant.

       This action is dismissed as to the defendant as an individual.

   OPINION AND ORDER

RUSSELL E. SMITH, District Judge.

This is an appeal from a final order of the Secretary denying the plaintiffs application for supplemental Social Security income benefits. The Secretary determined that plaintiff was not entitled to the benefits, because she was considered to be married to a man whose resources exceeded the sum of $2,250. 42 U.S.C. § 1382(a)(2)(B). The only question in this case is whether the adjudication that plaintiff was considered to be married was correct. The governing statute, 42 U.S.C. § 1382c(d)(2), reads:

(d) In determining whether two individuals are husband and wife for purposes of this subchapter, appropriate State law shall be applied; except that—
(2) if a man and woman are found to be holding themselves out to the community in which they reside as husband and wife, they shall be so considered for purposes of this subchapter notwithstanding any other provision of this section.

There were two hearings and two orders of the Appeals Council. Following the first hearing, the Administrative Law Judge (AU) decided that plaintiff and one Robert Wilson (Wilson) were considered to be married for the purposes of the Social Security Act and Regulations. Plaintiff requested a review, and on June 30, 1981, notice was given that the request for review was denied. No appeal from that decision was ever taken, but on July 14, 1981, the plaintiff filed a new application. A different AU held a second hearing. It is not claimed that there was any change in the relationship between the dates of the first and second hearings, and the AU found that at the time of the hearing Wilson and plaintiff were living together. On January 31, 1983, the AU made written findings that the plaintiff and Wilson were not considered to be married, and he awarded benefits. More than sixty days later, and on September 28, 1983, the Appeals Council reversed the order of January 31,1983, and again denied benefits. A timely appeal followed.

The AU who held the second hearing treated the application for benefits as a petition to reopen and stated his position with respect to it in this language: “So, what I’m telling you is that as far as changing that decision, the only way it can be changed is if there is new evidence indicating that that decision should have been otherwise.” On the second hearing plaintiff and Wilson took the position that they were not married although the first application showed them to be husband and wife. Plaintiff and Wilson did live together. She did wear a wedding ring. She did use the name “Mrs. Robert Wilson.” She held out to others that she was married. The Appeals Council, being the trier of fact, was not required to believe the plaintiff and her witness, Wilson. There was sufficient evidence on which the Appeals Council could base a finding that plaintiff and Wilson held themselves out to be husband and wife.

The Secretary reopened the case and reversed the determination of the AU under authority of the regulations. The regulations are as follows:

20 C.F.R. § 416.1487(a) and (b) (1983):
(a) General ... However, a determination or a decision made in your case may be reopened and revised. After we reopen your case we may revise the earlier determination or decision.
(b) Procedure for reopening and revision. You may ask that a determination or a decision to which you were a party be revised____
20 C.F.R. § 416.1488 (1983):
A determination, revised determination, decision, or revised decision may be reopened—
(b) Within two years of the date of the notice of the initial determination if we find good cause, as defined in § 416.-1489, to reopen the case____
20 C.F.R. § 416.1489(a)(3) and (b) (1983):
(a) We will find that there is good cause to reopen a determination or decision if—
(3) The evidence that was considered in making the determination or decision clearly shows on its face that an error was made.
(b) We will not find good cause to reopen your case if the only reason for reopening is a change of legal interpretation or administrative ruling upon which the determination or decision was made.

Plaintiff cites 20 C.F.R. § 416.1469 (1983), which reads in part that “[a]nytime within 60 days after the date of a hearing decision or dismissal, the Appeals Council itself may decide to review the action that was taken.” Plaintiff argues that consistency requires that the language of Section 416.1487 be interpreted to apply to plaintiff only. This same contention was made and rejected in Munsinger v. Schweiker, 709 F.2d 1212 (8th Cir.1983). In Munsinger, the court referred to its observation in Oglala Sioux Tribe of Indians v. Andrus, 603 F.2d 707 (8th Cir.1979), that an agency’s interpretation of its own rules is accorded great deference, citing United States v. Larionoff, 431 U.S. 864, 872, 97 S.Ct. 2150, 2155, 53 L.Ed.2d 48 (1977). Munsinger, 709 F.2d at 1214. The court then went on to say:

Section 404.987 does not expressly preclude reopening initiated by the administration, nor does it contain language that inescapably leads to that conclusion. Indeed, section 404.988 contains several conditions upon which a determination can be reopened which one would expect to be raised by the Secretary and not the claimant. See e.g., 20 C.F.R. § 404.-988(c)(1) (1981) (fraud or other fault). Accordingly, we conclude that sections 404.987-.995 permit the appeals council to reopen sua sponte a prior final decision within the circumstances outlined in 20 C.F.R. § 404.988.

Id. at 1215. See Barker v. Mathews, 427 F.Supp. 16 (E.D.Tenn.1976). Despite some cases to the contrary (Marsh v. HHS, No. Civ. S-83-1122-LKK (E.D.Cal., Jan. 23, 1984); Silvis v. Heckler, 578 F.Supp. 1401 (W.D.Pa.1984)), I believe the Appeals Council has the power to reopen.

Was there good cause? I think so. 42 U.S.C. § 405(h) makes the findings of the Secretary after a hearing binding upon the parties to the hearing. The regulations embrace the doctrine of res judicata. 42 C.F.R. §§ 416.1457(c)(1) and 416.1472 (1983). The courts have uniformly held that the doctrine of res judicata applies in Social Security cases. In Stuckey v. Weinberger, 488 F.2d 904 (9th Cir.1973), the Court said:

Given the effect of § 405, the critical issue becomes its scope: exactly which claims for review are beyond the courts’ jurisdiction? The answer is derived from res judicata doctrine, for its limits define the boundaries of the judicial power in cases like this. That doctrine is the vehicle Congress has employed to put some of the Secretary’s decisions beyond review.
When applied to administrative decisions, the res judicata doctrine is not as rigid as it is with courts; there is much flexibility which is intended to adapt the doctrine to the unique problems of administrative justice. See III Davis § 18.-03. Nevertheless, the doctrine retains full force when applied to adjudications of “past facts, where the second proceeding involves the same claim or the same transaction.” Id. In those situations, the findings and decisions are res judicata and “the question whether the (tribunal making the decision is) an agency or a court is immaterial.” Id. There is, therefore, no jurisdiction in the courts to review denials of reopening when the basis for the petition for reopening is an allegedly erroneous factual determination. Reconsideration of those types of issues is barred by § 405, if the Secretary denies reopening.

Id. at 911 (footnote omitted).

In this case there was no claim of a changed condition. The second AU deemed that new and material evidence warranted a change in the findings as to past facts. Where there was substantial evidence to support the initial decision, the record shows on its face that the second AU made an error, and the Appeals Council could correct this error under 20 C.F.R. § 416.1489(a)(3) (1983).

The record here is incomplete because one tape containing a portion of the plaintiff’s evidence is missing. It is urged that, under these circumstances, the court is unable to determine that the AU erred in making his findings. As before stated, neither the second application nor the evidence in support of it reflected a changed condition. If the second application were treated as a petition to reopen, it is apparent that the only ground for reopening was that the first adjudication was wrong. To reach that result the AU had to ignore the admissions made by the plaintiff, resolve the admitted conflicts in the evidence in her favor, and draw different inferences from admitted facts than those drawn by the AU who first made the findings. Were the Appeals Council obliged to weigh the conflicting evidence, as in the case of an appeal from the findings of an AU, there would be merit in plaintiff’s argument. Here, however, the Appeals Council did not need to decide on the weight of plaintiff’s evidence. Once it appeared that there was a conflict in the evidence and that conflicting inferences could be drawn from it, then the initial decision could not be faulted because the principles of res judicata applied.

The judgment is affirmed.

      . The appeal is authorized by 42 U.S.C. § 405g and 42 U.S.C. § 1383(c)(3).

      . LeMaster v. Weinberger, 533 F.2d 337 (6th Cir. 1976). See also Valentine v. Schweiker, 559 F.Supp. 644 (D.Mont.1983).

      . The regulations do rob administrative orders of the finality suggested by 42 U.S.C. § 405(g) and (h), and it might be thought that the regulations, being inconsistent with the statute, are void. See United States v. Larionoff, 431 U.S. 864, 873, 97 S.Ct. 2150, 2156, 53 L.Ed.2d 48 (1977). However, the apparent conflict between the law and the regulations is condoned. See Stuckey v. Weinberger, 488 F.2d 904, 911 (9th Cir.1973).


author: DIANA E. MURPHY, District Judge.

text:
    AGRISTOR LEASING, Plaintiff, v. Michael and Jean GUGGISBERG, Defendants and Third-Party Plaintiffs, v. HAWKE & COMPANY HARVESTORE, INC., A.O. Smith Harvestore Products, Inc., a Delaware corporation, A.O. Smith Corporation, a New York corporation, Third-Party Defendants.
    Civ. No. 4-84-536.
    United States District Court, D. Minnesota, Fourth Division.
    Sept. 17, 1985.

      Boyd Beccue, Schneider, Beccue & Kallestad, Willmar, Minn., for Michael and Jean Guggisberg.
    James B. Wallace, Gislason, Dosland, Hunter & Malecki, New Ulm, Minn., for Hawke & Co. Harvestore, Inc.
    Steven C. Eggimann, Meagher, Geer, Markham, Anderson, Adamson, Flaskamp & Brennan, Minneapolis, Minn., for A.O. Smith Corp. and A.O. Smith Harvestore Products, Inc.
   MEMORANDUM OPINION AND ORDER

DIANA E. MURPHY, District Judge.

Plaintiff, AgriStor Leasing (AgriStor), brought this action for damages, a writ of replevin, and attorney’s fees and costs against defendants, Michael Guggisberg and Jean Guggisberg, alleging breach of lease and wrongful detention of property. Jurisdiction is alleged under 28 U.S.C. § 1332. Defendants have counterclaimed, alleging strict liability, negligence, breach of warranty, and misrepresentation. They seek compensatory and punitive damages, as well as attorney’s fees. Defendants have also brought a third-party complaint against A.O. Smith (Smith), A.O. Smith Harvestore Products, Inc. (AOSHPI), and Hawke and Company Harvestore, Inc. (Hawke) and assert the same allegations as in the counterclaim against these parties. They also seek contribution or indemnity. The matter is now before the court upon the motions of Smith, AOSHPI and Hawke for summary judgment on all counts of the third-party complaint. Hawke has also moved, in the alternative, for summary judgment for indemnity against AOSHPI.

BACKGROUND

Michael and Jean Guggisberg are farmers residing near Lake Benton, Minnesota. Smith is a New York corporation currently engaged in the manufacture and sale of automotive frames, water heaters, and electric motors. In the late 1940’s, Smith began to develop a line of agricultural equipment used to store animal feed. This equipment was eventually marketed by Smith under the name Harvestore. In 1961, third-party defendant AOSHPI, a Delaware corporation, was incorporated to develop, manufacture, and distribute Harvestore equipment. AOSHPI is a wholly-owned subsidiary of Smith. Hawke is an independent dealership selling, installing and servicing primarily products made by AOSHPI.

On March 19, 1982, the Guggisbergs entered into a contract with Hawke to purchase a Harvestore system. Before the sale, Jerry Teigland, a salesperson for Hawke, prepared projections of the savings and advantages which third-party plaintiffs would enjoy if the Harvestore were used effectively. These projections were based on information Teigland gathered mainly from A.O. Smith and AOSHPI publications. The Guggisbergs have submitted copies of brochures about the Harvestore system which were given to them by Teigland before the sale. Michael Guggisberg states that he relied on the representations in these brochures that the Harvestore was oxygen-limiting in deciding whether to buy the Harvestore. Installation of the Harvestore was completed by May 25, 1982. The Guggisbergs allege that they began to notice problems with the feed stored in the Harvestore structure immediately.

The Guggisbergs contend that the Harvestore has been sold for more than thirty years under the claim that it is oxygen-limiting, even though Smith and AOSHPI were aware that it is not. They rely on several types of documents besides advertisements to support their fraud claim. They charge that various patents issued to Smith and AOSHPI admit that the structures do not limit oxygen. Several devices have been developed by Smith and AOSHPI to control the problem of air entry, but according to the Guggisbergs, these have not been offered for sale. The Guggisbergs also cite several reports written by AOSHPI engineers, one of whom worked for Smith in the late 60s on an air control project. They claim that these reports and interoffice memoranda show that Smith and AOSHPI have chosen to ignore data contrary to their claims and to conceal it from the public.

The Guggisbergs also note that James N. Johnson, chief corporate counsel for Smith, wrote a memorandum dated January 3, 1968 entitled “Continuing Harvestore Difficulties.” In the memo, he suggested that to avoid creating more “damning evidence”, writings concerning the Harvestore problems be kept to a minimum and addressed to the Law Department as well as the interested party. Then, in litigation, the lawyer-client privilege could be invoked. Johnson has subsequently admitted that the memo was genuine, but has asserted that no documents were handled in this manner.

Finally, the Guggisbergs state that an engineer, Robert Zoyiopoulos, will testify that the Harvestore does not control access of oxygen as well as conventional concrete silos. He will also testify as he has in several other cases, that Smith and AOSHPI knew that the structure was not oxygen-limiting.

Discussion

In passing upon a motion for summary judgment, the court is required to view the facts in the light most favorable to the party opposing the motion and to give that party the benefit of all reasonable inferences to be drawn from the underlying facts disclosed in pleadings and affidavits. Fields v. Gander, 734 F.2d 1313, 1314 (8th Cir.1984); Butter v. Buechler, 706 F.2d 844, 846 (8th Cir.1983). Thus, these movants must establish their right to judgment as a matter of law; there must be no genuine issue of fact and no room for doubt or controversy.

A. Statute of Limitations

The third-party defendants argue that Minn.Stat. § 541.051 bars the third-party claims entirely. They contend that the Harvestore is an improvement to realty and that the Guggisbergs failed to bring their action within two years after they discovered the defect. The Guggisbergs respond by noting, among other things, that the terms of the purchase order specifically provides that the Harvestore “shall at all times be and remain personalty which is severable from the Buyer’s farm.” Moreover, even if the statute were somehow applicable, the Guggisbergs claim that they did not discover the defect until within the two-year time period.

Minn.Stat. § 541.051 provides:

Except where fraud is involved, no action by any person in contract, tort, or otherwise to recover damages for any injury to the property, real or personal, or of bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property ... shall be brought against any person performing or furnishing the design, planning, supervision, material, or observation of construction for construction of the improvement to real property ... more than two years after the discovery thereof ... Minn.Stat. § 541.051, subd. 1 (1980).

The Minnesota Supreme Court in Pacific Indemnity Co. v. Thompson-Yaeger, Inc., 260 N.W.2d 548 (Minn.1977) previously defined an “improvement to property” as:

[A] permanent addition to or betterment of real property that enhances its capital value and that involves the expenditure of labor or money and is designed to make the property more useful or valuable as distinguished from ordinary repairs.

In the instant case Minn.Stat. § 541.051 is inapplicable because the parties to the sales agreement specifically agreed that the equipment would “at all times” be considered severable personalty. Third-party defendants argue that this language was only intended to be controlling under Article 9 of the Uniform Commercial Code, but their argument is unpersuasive. Nowhere in the agreement does such a limited intent appear. Moreover, the statute on its face does not apply to cases where fraud is involved. The third-party claims are therefore not barred by Minn.Stat. § 541.051.

B. The Liability of Smith

Smith argues that the Guggisbergs have advanced no legal theory upon which to base their claims. It relies on this court’s dismissal of Smith in a similar case, AgriStor Leasing v. Kjergaard, Civ. No. 4-83-756 (D.Minn. March 20, 1985), and an affidavit of a company employee, Joseph Michael-Kenney, to assert that the separate corporate existence of Smith should not be disregarded. The Guggisbergs, by contrast, stress that Smith is responsible for much of the Harvestore’s design work, even after 1961 when AOSHPI was formed, and for its part in the concealment of the Harvestore’s alleged defects. In particular, they rely on the deposition testimony of Rick Jones, a Smith engineer, to show that Smith engaged in ongoing design work on the Harvestore. They also cite the memorandum of James Johnson, chief corporate counsel for Smith, which discusses the handling of memoranda concerning Harvestore difficulties.

Smith argues that such evidence is not sufficient to pierce the corporate veil. It concedes that AOSHPI occasionally requested the use of its in-house legal counsel and research and development staff, but asserts that AOSHPI was always charged for such use.

The record shows that AOSHPI was incorporated in 1961 to take control over all phases of the production and sale of Harvestore structures and related products. The Guggisbergs have not shown that this incorporation was wrongful or that separate corporate formalities have not been followed. There has been no showing that AOSHPI was or is undercapitalized, for example. Nor have the Guggisbergs shown that Smith failed to distinguish between its facilities and AOSHPI’s property. They have not demonstrated that Smith’s staff was performing work for AOSHPI at Smith’s instigation or expense. The testimony of Jones indicates that Smith’s research and development staff was working on an intake control project at the specific request of AOSHPI. Jones depo. at 18 (cross examination). Under Minnesota law, the corporate veil is not lightly pierced. See, e.g., Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d 509 (Minn.1979). The Guggisbergs have not shown that AOSHPI has been operated in an unjust manner or that it is an alter-ego of Smith. In the absence of such a showing, AOSHPI must be treated as a legal entity separate and apart from Smith. See, Di Re v. Central Livestock Order Buying Co., 246 Minn. 279, 74 N.W.2d 518 (1956). Accordingly, Smith’s motion for summary judgment should be granted as to all claims against it.

C. Fraud

Third-party defendants AOSHPI and Hawke state that the Guggisbergs have failed to allege facts which would support their claims of fraud or misrepresentation. They claim that the statements cited in the Guggisbergs’ third-party complaint are merely predictions of future events, opinions, or “puffery.” They further claim that the record shows that the Guggisbergs did not rely on the advertising or statements, or did so unreasonably. Alternatively, Hawke seeks summary judgment on its indemnity claim against AOSHPI.

The Guggisbergs, on the other hand, contend that AOSHPI and Hawke claimed the Harvestore was oxygen-limiting, a fact that is false and susceptible of knowledge. They claim that they were entitled to rely on that representation.

In Minnesota, the elements of fraud require the making of representation that is false, pertaining to a past or present fact which is material; the fact must be susceptible of knowledge; the representor must know it to be false or must assert it as of his own knowledge without knowing whether it is true or false; the representor must intend to have the other person induced to act; that person must be so induced to act or justified in acting; the action must be in reliance upon the representation; and the person must suffer damage which is attributable to the misrepresentation. See Midland National Bank v. Perranoski, 299 N.W.2d 404 (Minn.1980); Berg v. Xerxes-Southdale Office Building Company, 290 N.W.2d 612 (Minn.1980).

Viewing the facts in a light most favorable to plaintiff, as the court is required to do, the court finds that issues of material fact remain as to the fraud claims. The Guggisbergs have produced brochures which they received before deciding to purchase the Harvestore, along with various advertisements that they may also have seen at that time. These brochures and advertisements represent that the structure is oxygen-limiting, a fact “susceptible of knowledge.” The record shows that genuine issues exist as to whether these representations were false and whether the Guggisbergs justifiably relied upon these representations. Summary judgment is thus inappropriate.

D. Strict Liability and Negligence

AOSHPI and Hawke claim that the damages which third-party plaintiffs seek under strict liability and negligence theories are economic losses arising out of a commercial transaction. They contend that Superwood Corp. v. Siempelkamp Corp., 311 N.W.2d 159 (Minn.1981) precludes any tort recovery for such losses and limits the Guggisbergs to contract remedies.

Superwood was an action for losses sustained by a manufacturing business as a result of the failure of a cylinder in a hot plate press. The plaintiff in Superwood sought damages under theories of warranty, contract, negligence, and strict tort liability. The court held that the plaintiffs tort theories were precluded, stated:

[Economic losses that arise out of commercial transactions, except those involving personal injury or damage to other property, are not recoverable under the tort theories of negligence or strict products liability. 311 N.W.2d at 162.

The court pointed out that the Uniform Commercial Code (U.C.C.) governs the rights and remedies of parties to commercial transactions. “[T]o allow tort liability in commercial transactions would totally emasculate the [warranty and liability limitations] provisions of the U.C.C.”, it reasoned. 311 N.W.2d at 162.

The Guggisbergs seek to avoid the force of Superwood by asserting that their alfalfa haylage and Holstein cows are “other property” which is specifically exempted from the doctrine. Superwood provides little guidance in construing the term “other property,” but subsequent cases shed some light on the issue.

In Minnesota Society of Fine Arts v. Parker-Klein, 354 N.W.2d 816 (Minn.1984), the court held that in a commercial transaction a purchaser of allegedly defective brick could not recover in negligence or strict liability, from defendant brick manufacturer, the cost of repairing and replacing a portion of the structure in which the brick was incorporated. The court refused to hold that the building was “other property” because to do so would “effectively overrule Superwood as to every seller of basic materials such as concrete, brick or steel ...” 354 N.W.2d at 816. The court stated that non-recoverable “economic loss’ has been defined as that

resulting from the failure of the product to perform to the level expected by the buyer and commonly has been measured by the cost of repairing or replacing the product and the consequent loss of profits, or by the diminution in value of the product because it does not work for the general purposes for which it was manufactured and sold. Id at 820-821.

The court also noted that other courts have focused not on whether damage has occurred to “other property”, but instead on the nature of the defect and the manner in which the damage occurred. Where damage results from deterioration, internal breakage, or failure to live up to expectation, recovery is allowed only on a contract or warranty theory. On the other hand, where the damage is sustained from hazardous conditions or a sudden, calamitous occurrence, courts would allow recover under a tort theory. 354 N.W.2d at 821.

In American Home Assurance Co. v. Major Tool and Machine, Inc., 767 F.2d 446 (8th Cir.1985), the court also examined the question of “other property” under Superwood. The court noted that Super-wood expressly aligned itself with the philosophy of California strict liability law as set forth in Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). (In Seely, the plaintiff-purchaser claimed economic losses from the manufacturer of a truck alleging that it bounced violently and that its brakes were defective. The California Supreme Court refused to apply the strict liability doctrine to economic losses.) The Court of Appeals concluded that when Superwood speaks of damage to “other property,” it envisions “such damage as would have occurred in Seely, if the truck’s defective brakes had caused it to run into and damage a home.” 767 F.2d at 447.

Applying these principles to the instant case, the court concludes as a matter of law that the alleged damage to the alfalfa feed and the Holstein cows is non-recoverable economic loss. The Harvestore structure in question was purchased for the purpose of storing feed for the Guggisbergs’ dairy operation, a commercial venture. The essence of their complaint is that the Harvestore failed to perform as expected, and they seek to recover the resulting losses to their dairy farm, the loss of the benefit of their bargain. Under such circumstances, the court concludes, as a matter of law, that the Guggisbergs’ alleged damage is an economic loss which is not exempted by the “other property” language of Superwood. Thus, their claims for negligence and strict liability cannot be maintained.

E. Disclaimers of Warranty and Consequential Damage

AOSHPI and Hawke argue that the Guggisbergs may not recover any consequential damages or any damages based on an express or implied warranty since the purchase agreement specifically disclaimed such warranties and damages. The Guggisbergs assert that AOSHPI is not a seller within the meaning of the U.C.C. and thus cannot disclaim liability, that the purchase agreement was not properly executed, that the disclaimers were not conspicuous, and that the disclaimers are unconscionable.

Minn.Stat. § 336.2-316 governs the exclusion or modification of warranties. Section 2 of that provision specifies the requirements that must be followed to negate implied warranties:

Subject to subsection 3, to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous____

Minn.Stat. § 336.1-201(10) defines a conspicuous clause or term as one which is so written that:

a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals ... is conspicuous. Language in the body of the form is ‘conspicuous’ if it is in larger or other contrasting type or color. But in a telegram any stated term is ‘conspicuous’. Whether a term or clause is ‘conspicuous’ or not is for decision by the court.

Comment 10 to subsection 10 emphasizes that the bottom line is “whether attention can reasonably be expected to be called to ... [the term in question].” Courts have considered capitalization, typeface, contrasting color, and location of the clause in determining whether it is conspicuous. See generally, White & Summers, Uniform Commercial Code, § 12-5 (2d Ed.1980).

In the instant case, the disclaimers in question appeared on the back of the purchase agreement. The front page of the purchase agreement contains blank spaces on which the name of the parties, the quantity, the description of product, the price, the terms of payment, the desired delivery date and the installation date were filled in. The Guggisbergs signed this form near the top directly under language which conditioned their purchase upon their obtaining from AgriStor Leasing acceptable financing or a lease agreement. Toward the bottom, appearing between an empty line and a capitalized statement is a small notice which states: “NOTICE: Conditions of Sale are on the reverse side of this form and are a part of this order.” On the reverse side, the disclaimers are set off in bold type with distinct headings and are capitalized. They appear over an area which is captioned “ACKNOWLEDGEMENT AND RELIANCE.” This section states that the buyer has read and understood the terms, accepts them and relies on no others. A box to the right side of this section specifically requires the buyer’s initials; below is a space for the buyer’s signature. Neither the initials nor the signatures of the Guggisbergs appear here. Just below the space for the signatures of the sales person and buyer is the sentence “The above contract is subject to approval and acceptance by the Seller, and must be manually signed to complete contract.” The salesperson Teigland did sign this space.

The critical question before the court is whether the disclaimer provisions here can be considered conspicuous. After carefully considering the matter, the court finds that the notice provision on the front of the purchase order is insufficient to bring to the attention of a reasonable buyer the presence of the disclaimers on back. See Massey Ferguson v. Utley, 439 S.W.2d 57 (Ky.Ct.App.1969); see also General Elec. Credit Corp. v. Hoey, 7 UCC 156 (N.Y.Sup.Ct.1970); Williams v. College Dodge, Inc., 11 UCC 958 (Mich.Dist.Ct. 1972). While the word “notice” is capitalized, the rest of the sentence, apart form two letters, is not. The words forming the rest of the sentence are smaller than any others which appear on the page. The notice provision is underlined, but this merely causes it to blend in with the other lines and boxes. Viewed as a whole, the provision does not stand out sufficiently. “A provision is not conspicuous when there is only a slight contrast with the balance of the instrument.” Greenspun v. American Adhesives, Inc., 320 F.Supp. 442, 444 (E.D. Pa.1970). Accordingly, the court will not enforce either of the disclaimers.

F. Indemnification for Hawke

Hawke argues that it is entitled to indemnification against AOSHPI for any liability it might incur because of breach of warranty or because of the statements of its salesperson, Teigland. It contends that any statements or projections Teigland made were based on information and figures provided by AOSHPI. AOSHPI has not opposed such indemnification.

In Tolbert v. Gerber Industries, Inc., 255 N.W.2d 362 (Minn.1977), the Minnesota Supreme Court modified the rules pertaining to indemnity which were first set forth in Hendrickson v. Minnesota Power & Light Co., 258 Minn. 368, 372, 104 N.W.2d 843, 848 (1960). The Tolbert Court held that indemnity is to be limited to those situations where the party seeking indemnity is not at fault (Rule 1-3 in Hendrickson ) or where the parties have contractually agreed to indemnity (Rule 5 in Hendrickson). Thus, under Tolbert, a tortfeasor must accept responsibility for damages commensurate with its own relative culpability; the allocation of loss between joint tortfeasors takes place under the doctrine of contribution. 255 N.W.2d at 367.

Upon the current record, the court cannot find, as a matter of law, that Hawke is free from any fault with respect to the fraud and misrepresentation claims. Material questions of fact remain as to whether Hawke knew of the alleged Harvestore defects or whether it justifiably relied on the information it received from AOSHPI. Nor has Hawke shown that indemnity is appropriate on the breach of warranty issue. Summary judgment on the indemnity issue is inappropriate at this time.

G. Punitive Damages

Third-party defendants argue that the circumstances of this case do not allow the recovery of punitive damages. The Guggisbergs respond that punitive damages under Minn.Stat. § 549.20 are available in cases of fraud.

Minn.Stat. § 549.20(1) allows for an award of punitive damages when the acts of defendants show a willful indifference to the rights or safety of others. Upon the current record, third-party defendants have not shown as a matter of law that the Guggisbergs’ claims of fraud are insufficient to support a claim for punitive damages. Summary judgment as to the punitive damage claim must be denied at this time.

ORDER

Accordingly, based on the above and all the files, records, and proceedings herein,

IT IS HEREBY ORDERED that

1. The motion of A.O. Smith Corporation for summary judgment on all third-party claims is granted.

2. The motion of Hawke and Company Harvestore, Inc. for summary judgment on the third-party claims is granted with respect to that part of the third-party complaint which alleges negligence and strict liability, and denied with respect to the remaining third-party claims.

3. The motion of Hawke and Company Harvestore, Inc. for summary judgment for indemnity against A.O. Smith Harvestore Products, Inc. is denied.

4. The motion of A.O. Smith Harvestore Products, Inc. for summary judgment on the third-party claims is granted with respect to the third-party claims alleging negligence and strict liability, and denied as to all the remaining third-party claims.

LET JUDGMENT BE ENTERED ACCORDINGLY.

      . On October 16, 1984, based upon the parties’ stipulation, this court ordered that AgriStor was entitled to repossess the 18B 2588 Harvestore System with 25' Goliath Unloader.

      . AgriStor also filed a motion for summary judgment, but the court was informed before the hearing that AgriStor and the Guggisbergs had resolved their disputes. The Guggisbergs have apparently signed a confession of judgment.

      . This motion will be discussed infra at pp. 909-910.

      . This result is further supported by the holding of the court in Purvis v. Consolidated Energy Products Co., 674 F.2d 217 (4th Cir.1982), a case involving a similar factual situation. In Purvis, the court refused to allow the plaintiff to recover under a strict liability theory damages to his tobacco crop caused by a defect in the ventilating system of a curing barn. Citing Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965), the court held that a showing of physical injury to the tobacco did not establish that the barns were unreasonably dangerous to property or that they posed a safety hazard. Because an ordinary commercial risk of product ineffectiveness caused the plaintiffs loss, the court concluded that the remedy would lie in contract, not tort. 674 F.2d at 223.
      In the instant case, the alleged damage was not caused by a sudden calamitous occurrence, but was a rise of product ineffectiveness.

      . It could be argued that the form was devised to assure that the rear side was specifically pointed out by the seller. In this case, however, the buyers have not signed the rear of the form and there is no indication that the disclaimer provisions were actually brought to their attention.

      . The Court in Hendrickson stated that a joint tortfeasor may recover indemnity only in the following situations:
      (1) Where the one seeking indemnity has only a derivative or vicarious liability for damage caused by the one sought to be charged.
      (2) Where the one seeking indemnity has in-cured liability by action at the direction, in the interest of, and in reliance upon the one sought to be charged.
      (3) Where the one seeking indemnity has incurred liability because of a breach of duty owned to him by the one sought to be charged.
      (4) Where the one seeking indemnity has incurred a liability merely because of a failure, even though negligent, to discover or prevent the misconduct of the one sought to be charged.
      (5) Where there is an express contract between the parties containing an explicit undertaking to reimburse for liability for the character involved. Hendrickson 104 N.W.2d at 848. The court in Tolbert overruled the fourth category.


author: STEWART, District Judge:

text:
    SPRAGUE & RHODES COMMODITY CORPORATION, Plaintiff, v. M/V PROCER FULGENCIO YEGROS, her engines, boilers, etc., Fulmar Paraguaya Line, Fulmar Paraguaya, S.A. Consultora Fulmar Paraguaya S.R.L., Defendants. FULMAR PARAGUAYA S.A., Third-Party Plaintiff, v. UNIVERSAL MARITIME SERVICE CORP., Third-Party Defendant.
    No. 83 Civ. 5619 (CES).
    United States District Court, S.D. New York.
    Sept. 17, 1985.
    Donovan, Maloof, Walsh & Kennedy, New York City, for plaintiff; James W. Carbin, New York City, of counsel.
    Dougherty, Ryan, Mahoney, Pellegrino, Giuffra & Zambito, New York City, for defendant; Peter J. Zambito, Grainger & Tesoriero, William E. Bell, New York City, of counsel.
   MEMORANDUM DECISION

STEWART, District Judge:

Plaintiff Sprague & Rhodes Commodity Corporation (“Sprague & Rhodes”) brings this action against defendants Fulmar Paraguaya Line (“Fulmar Line”), Fulmar Paraguaya, S.A. (“Fulmar, S.A.”) and Consultora Fulmar Paraguaya S.R.L. (“Fulmar S.R. L.”) for short delivery of a shipment of coffee. Following defendant Fulmar S.A.’s failure to respond to plaintiff’s motion for summary judgment, we entered a default judgment in favor of plaintiff. Fulmar S.A. moves to set aside the default judgment and now answers the summary judgment motion. Although we exercise our discretion to set aside the judgment, we now grant plaintiff’s motion on the merits.

The facts are as follows: Plaintiff purchased 3,000 bags of coffee. On April 7, 1982 at Asuncion, Paraguay, defendants’ vessel, the S.S. Procer Fulgencio Yegros (“Yegros”), loaded a total of 14,212 bags of coffee, 3,000 bags of which were owned by plaintiff. The vessel arrived in New York, the port of discharge, on May 10, 1982. Pursuant to a stevedoring contract with defendants, Universal Maritime Service Corporation (“Universal”) discharged, stored and agreed to deliver the vessel’s cargo. Throughout the free time period (i.e., the period of time that cargo can remain on the pier without charge), the shipment of coffee was available for delivery. Plaintiff’s consignee picked up some of the shipment between May 21 and May 28. On May 28, the free time period expired. Plaintiff’s consignee continued to accept delivery of the shipment and by June 8, the consignee had accepted 2,500 of the 3,000 bags of coffee.

It was also on June 8 that plaintiff first noted that 287 bags of coffee were missing. In addition, plaintiff asserts that 97 of the bags were underweight. Plaintiff sued Yegros, Fulmar Lines, Fulmar, S.A., and Fulmar S.R.L. Fulmar S.A. filed a third-party complaint against Universal. We have already severed and transferred plaintiff’s suit against Yegros. On March 14, 1984, plaintiff moved for summary judgment. As noted above, when defendants failed to answer, we entered a default judgment for plaintiff.

“For good cause shown, the court may set aside an entry of default.” Fed.R. Civ.P. 55(c). Moreover, “the court may relieve a party ... from a final judgment ... [because of] ... mistake, inadvertence, surprise or excusable neglect.” Fed.R. Civ.P. 60(b)(1). Attorneys for defendant Fulmar S.A. assert that they were asked to represent the interests of the P & I Club, which initially represented Fulmar S.A. The P & I Club was unable to meet its obligations because it went into receivership in Bermuda. We find that this circumstance satisfies the good cause showing and/or excusable neglect standards set forth in the Federal Rules. Therefore, we set aside the default judgment.

Turning to the merits of plaintiff’s motion, records kept by vessel personnel indicate that of the total of 14,212 bags of coffee loaded in Paraguay, only 14,183 bags were unloaded in New York. Thus Fulmar S.A. admits liability for 29 of the missing bags of coffee but denies liability for the remaining 258 missing bags as well as the 97 underweight bags. The duty of the ocean carrier extends to the period after discharge, but before delivery. David Crystal, Inc. v. Cunard Steamship Co., Ltd., 339 F.2d 295 (2d Cir.1964), cert. denied, 380 U.S. 976, 85 S.Ct. 1339, 14 L.Ed.2d 271 (1965). A carrier is liable for the damage caused by its own negligence or that of a stevedore acting as its agent. Id. at 298. “The carrier ... is in a better position than the cargo owner to insure against risk of loss or damage through the careful selection of responsible agents____” Amtraco Corp. v. S.S. Snow Storm, 1978 A.M.C. 1007, 1016 (S.D.N.Y. 1978).

Defendants’ relief from liability rests on whether defendants “delivered” the shipment of coffee. Fulmar S.A. relies solely on Philipp Bros. Metal Corp. v. S.S. Rio Iguazu, 658 F.2d 30 (2d Cir.1981), for support that it did deliver the shipment. In Philipp Bros., a carrier transported 233 bundles of tin and a stevedore discharged, stored and agreed to deliver the shipment. Rather than pick up the shipment during the free time period, the consignee hired an independent company to count and weigh the bundles. Following the independent company’s certification that all of the shipment was present, the consignee sold the goods and arranged for truckers to pick up the goods in installments, one-half of which were picked up months after the free time period had expired. Although five bundles were missing, the court held that the carrier was not liable for the missing goods.

Fulmar S.A. asserts that Philipp Bros. stands for the proposition that a carrier is not liable for a short shipment when, after the expiration of the free time period, the owner or consignee accepts some of the shipment and the stevedore retains the remainder of the goods. Defendant argues that under these facts, the owner/consignee passively manifests his intent to select the stevedore as his personal warehouseman. As a result, there is a constructive delivery and/or the termination of the relationship between owner/consignee and carrier. In its place, a new bailee relationship is created between owner/consignee and stevedore, thereby relieving the carrier of any liability for the transported shipment. Applying Fulmar S.A.’s reasoning to the instant case, defendant argues that plaintiff accepted 83% of the shipment and Universal retained the remainder of the goods. There was delivery and the termination of a relationship between Sprague & Rhodes and Fulmar S.A. Therefore Fulmar S.A. is relieved of liability.

Contrary to defendants’ emphasis on what the owner/consignee failed to do pri- or to the expiration of the free time period, the court reasoned that “delivery to [the consignee] had been completed at the time [the consignee] caused the cargo to be counted and weighed.” Id. at 32. Unlike the consignee in Philipp Bros., plaintiff in the instant case never took total possession, actual or constructive, by hiring an independent company to act on its behalf. Thus there was no delivery and the relationship between carrier and owner remained intact.

The standards for summary judgment under Fed.R.Civ.P. 56(c) are well established. The burden is on the moving party to “ ‘demonstrate the absence of any material factual issue genuinely in dispute.’ ” American International Group, Inc. v. London American International Corp., 664 F.2d 348, 351 (2d Cir.1981), quoting Heyman v. Commerce and Industry Insurance, 524 F.2d 1317, 1319-20 (2d Cir. 1975). Fulmar S.A. asserts that the issue of delivery is a factual issue in dispute. Because we find that as a matter of law there was no delivery, we grant plaintiff’s motion for summary judgment.

SO ORDERED.


author: LAFFITTE, District Judge.

text:
    ROIG COMMERCIAL BANK, Plaintiff, v. Jose Torres DUEÑO, Internal Revenue Director for Puerto Rico, and Ramon D’Ambrose. Internal Revenue Service Special Procedures Officer, Defendants, and Julio Rodriguez Gomez and wife Genoveva Cuadrado, Jose R. Crespo and wife Gladys Lopez Rosario, Co-defendants.
    Civ. No. 82-2524 HL.
    United States District Court, D. Puerto Rico.
    Sept. 17, 1985.

      Julio C. Rivera-Velázquez, Humacao, P.R., for plaintiff.
    Víctor M. Agrait Defilló, Hato Rey, P.R., for José R. Crespo & Gladys Rodriguez.
    Paige E. Reffe, Trial Atty. Tax Div., Edward J. Snyder, Asst. U.S. Atty., U.S. Dept, of Justice, Washington, D.C., for Internal Revenue.
   OPINION AND ORDER

LAFFITTE, District Judge.

Plaintiff, Roig Commercial Bank, instituted the present action predicated on an asserted right to redeem, pursuant to Section 6337, Title 26 U.S.C. The relevant stipulated facts are as follows:

On November 29, 1979, Julio Rodriguez Gómez and his wife Genoveva Cuadrado issued a note for $13,000 secured by a mortgage on their property at Las Piedras, Puerto Rico. Plaintiff is the holder of said mortgage note. The mortgage deed was presented for recording, but was subsequently withdrawn in February 1980. Meanwhile, prior to December 29, 1981, the Internal Revenue Service (IRS) registered the seizure of the property in the Book of Federal Seizures. On December 29, 1981, the IRS sold said property at public auction to José R. Crespo and his wife Gladys López Rosario, and issued them a Certificate of Sale of Seized Property. Plaintiffs mortgage deed was finally recorded on January 22, 1982. On April 27, 1982, within the period allowed for redemption, plaintiff filed a petition to redeem at IRS and deposited $7,575.00 after a tender to codefendant José R. Crespo was refused.

On October 12, 1982, the IRS executed a Suit Claim Deed in favor of co-defendant José R. Crespo and his wife Gladys López, mentioning that the property had not been redeemed. On October 20, 1982, IRS returned a check for $7,575.00 with a letter stating that, in its opinion, plaintiff was not a party in interest and therefore could not exercise any redemption rights.

The issue before this Court is whether plaintiff is a party in interest with a right to redeem the property. To put it differently, whether plaintiffs filing and recording a mortgage deed after the property has been seized and sold at public auction, makes it a party in interest for redemption purposes. The Court is persuaded by the IRS interpretation of Section 6338 of the Internal Revenue Code of 1955, that plaintiff is not a party in interest and therefore has no right to redeem the property in question. We proceed to explain our decision.

An examination of Section 6337(b)(1), Title 26 of the United States Code, shows that redemption of real property after a sale can be done by: (1) the owner, his heirs, executors, or administrators; (2) any person having an interest therein; (3) any person having a lien thereon. Plaintiffs argue they had a lien or at least had an interest in that property. We disagree. Plaintiff failed to record the mortgage in the Registry of Property until after the public sale to the codefendants José Crespo and his wife. Under 30 L.P.R.A. § 2607, a mortgage must be recorded in order to exist. Recording is essential to the validity of a mortgage. This so-called lien did not come into being until after the sale, therefore plaintiff was not a lien holder either at the time of the IRS seizure or at the time of sale.

We note that although federal law exclusively regulates the order of priority of liens when there is a federal tax lien, local law dictates the transfer of title and perfection of liens, as long as it does not affect the federal tax lien. 26 U.S.C.S. §§ 301, 7425, 7426; Central Mercedita, Inc. v. Picart, 85 P.R.R. 237 (1962).

A seizure of a property by the 1. R.S. operates as a transfer to it and precludes other parties from gaining any rights to the property. American Acceptance Corp. v. Glendora Builders, Inc., 550 F.2d 1220, 1222-23 (9th Cir.1977). The effect of a tax-sale is that the purchaser receives title to the real property he purchases. De La Haba v. Tax Court, 76 PRR 865 (1954), affirmed, 233 F.2d 126. A tax-sale certificate transfers title to the purchaser from the moment of the sale. S.R.A. v. State of Minnesota, 327 U.S. 558, 567, 66 S.Ct. 749, 755, 90 L.Ed. 851 (1946); National City Bank of N.Y. v. Registrar, 46 P.R.R. 79 (1934).

The subsequent registration (after the sale) of the mortgage deed failed to constitute a lien or an interest therein, since the property had transferred to codefendant José Crespo and his wife through the IRS tax sale.

The Court agrees with plaintiff that its promissory note was personal property, but we disagree, even after searching through Titles 30 and 31 LPRA, that it became “an interest [in the real property ] therein” at the time of the sale. Failure to promptly record the mortgage deed turned the promissory note into a personal obligation, unsecured, solely enforceable against the maker. It betrays logic to interpret the federal statute, 26 U.S.C. § 6337(b)(2), as allowing the attachment subsequent to a tax sale of the purchaser’s property which consequently strips the purchaser of its acquired rights to that property. The statute is intended to allow those parties which had an interest in the property before the tax sale to redeem the property. Plaintiff’s interest in the property before the federal tax sale was a mere desire to have its promissory note guaranteed by an unrecorded mortgage, which is not possible under local law. Had plaintiff diligently recorded its mortgage in the Registry of Property before the tax sale, there would be no doubt of its lien or interest in that property and its entitlement to redeem it.

Furthermore, the Court disagrees with plaintiff’s characterization of U.S. v. Lowe, 268 F.Supp. 190 (N.D.Ga.1966), affirmed, 379 F.2d 555, C.A. 5th Cir.1967, and DiFoggio v. United States, 484 F.Supp. 233 (1979). Lowe supports the undeniable contention that a co-owner has the right to redeem the property after it has been sold at a federal tax-sale. However, plaintiff has never alleged to be a co-owner of the property and therefore, this case hardly supports its argument. In DiFoggio, the Court held that a sole owner of the beneficial interest in a land trust had a right to redeem her property despite Illinois’ peculiar classification of a beneficial interest as personal property. The above ownership interest is a far cry from plaintiff’s personal right to collect on the unsecured promissory note.

In line with the foregoing, the complaint shall be dismissed and the mortgage deed number 263, executed in Humacao, Puerto Rico, on November 29, 1979 before Notary Public Luz E. Santana Peña, recorded at page 177, volume 99 of Las Piedras Property Registry, property number 4828, fourth inscription, is hereby ordered cancelled.

The Clerk shall enter judgment dismissing the complaint and shall issue a writ in accordance with this opinion.

IT IS SO ORDERED.

      . See 30 L.P.R.A. 921 et seq.

      . 26 U.S.C. § 6323; United States v. Brosnan, 363 U.S. 237, 80 S.Ct. 1108, 4 L.Ed.2d 1192 (1960); Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960).

      . Commissioner v. Stern, 357 U.S. 39, 78 S.Ct. 1047, 2 L.Ed.2d 1126 (1958); United States v. New Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954); United States v. Valley Nat. Bank, 524 F.2d 199 (9th Cir.1975).

      . 30 L.P.R.A. § 2607; In Re Colinas, Inc., 426 F.2d 1005, 1016 (1st Cir.1970), cert. denied, 405 U.S. 1067, 92 S.Ct. 1502, 31 L.Ed.2d 797 (1972); Gaztambide v. Heirs Of Ortiz, 70 P.R.R. 338 (1970).


author: SPELLMAN, District Judge.

text:
    Frank GUZZI, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    No. 85-204-CIV-SPELLMAN.
    United States District Court, S.D. Florida, Miami Division.
    Sept. 17, 1985.
    Gregory Martin, Miami, Fla., for plaintiff.
    Martha Fleetwood, Asst. U.S. Atty., Miami, Fla., for defendant.
   MEMORANDUM OPINION

SPELLMAN, District Judge.

ORDER DENYING PETITION FOR WRIT OF MANDAMUS, ORDER OF REMAND DIRECTING SECRETARY TO CONDUCT DE NOVO HEARING, AND ORDER OF DISMISSAL

Plaintiff in this case filed an application for retirement insurance benefits on February 1, 1976. The Social Security Administration (“SSA”), through an Administrative Law Judge (“ALJ”) denied Guzzi benefits on March 30, 1978. Guzzi then filed another application for benefits on April 20, 1983. On June 7, 1983, Guzzi was sent a letter denying his claim and advising him that a hearing must be requested within sixty (60) days. Guzzi requested a hearing on June 8, 1983. On December 20, 1983, the ALJ issued a Notice of Dismissal on the grounds of res judicata. A Request for Review of Hearing Decision/Order was filed on February 15, 1984 by Guzzi. By letter dated May 7, 1984, Guzzi’s attorney notified the Appeals Council of his appointment and requested copies of all evidence on which the dismissal was based. On November 20, 1984, the Associate Commissioner of the Office of Hearings and Appeals notified counsel that his client’s file “had not been located,” and that the SSA would need Guzzi’s assistance to construct a new file.

On January 25, 1985, the Plaintiff filed this action under 28 U.S.C. § 1361, requesting that this Court issue a writ of mandamus, compelling the Secretary to conduct a de novo hearing. The Secretary moved to dismiss the Complaint on May 24, 1985. This Court need not venture too far in its analysis in this case, since the Secretary has filed a Notice of Intent to Conduct a De Novo Hearing on August 27, 1985. It is not clear at this point whether or not mandamus would be proper in circumstances such as those before us. See Lopez v. Heckler, 725 F.2d 1489, 1507 (9th Cir.1984) (“mandamus jurisdiction is available in cases challenging the procedures used in administering social security benefits”). Yet, the Supreme Court has made it quite clear that district courts do not have the authority to infringe upon the internal mechanisms of the SSA regarding deadlines within which to hold hearings or the like. Heckler v. Day, 467 U.S. 104, 104 S.Ct. 2249, 81 L.Ed.2d 88 (1984). Fortunately for plaintiffs such as Guzzi, the Supreme Court addressed its opinion primarily to the sweeping gestures made by one disgruntled district court judge, who was affirmed on appeal. In fact, the Court stated that “We make clear that nothing in this opinion precludes the proper use of injunctive relief to remedy individual violations of § 405(b).” Id., 104 S.Ct. at 2258 n. 33.

This Court finds that, although it is clearly not within the province of this Court’s powers to mandate across the board time limits by which the SSA must abide, it is within this Court’s power to direct the Office of Hearings and Appeals to give the plaintiff in this case a de novo hearing within one hundred and twenty days from the date of this Order.

Based on the above and foregoing, it is hereby

ORDERED AND ADJUDGED that this ease is REMANDED to the Secretary for further proceedings not inconsistent with this Order.

      . The case Heckler v. Day, 467 U.S. 104, 104 S.Ct. 2249, 81 L.Ed.2d 88 (1984) dealt with an order entered by a district court judge certifying a statewide class of:
      "All present and future Vermont residents seeking to secure Social Security disability benefits who, following an initial determination by the defendant that no disability exists, experience an unreasonable delay in the scheduling of and/or issuance of decisions in reconsiderations and fair hearings.”
      Plaintiff, who fell into that category thereupon asserted his rights, and the district court concluded that, as a rule, delays of more than 90 days in making reconsideration determinations were unreasonable and violated the claimant’s statutory rights. This ruling was made in the absence of actual statutory limitations or definitions concerning what is a “reasonable” length of time. Moreover, there is no requirement in § 405 that a hearing must be held within a reasonable time frame. The Second Circuit Court of Appeals affirmed the district court’s ruling in Day v. Schweiker, 685 F.2d 19 (2d Cir.1982), nonetheless.
      Although the case at issue does not really raise any claims under § 405, the Court finds the situation before it somewhat analagous. Here, the claimant was denied benefits; twice, as a matter of fact. The claimant sought review, and was faced with the ultimate in delay, to wit, no record from his case could be located. Thus, the Court is inclined to do what it can within its power to avoid harmful delay, and urges this case, and others similarly situated, to go forward.

      . In the event that a hearing is not commenced within one hundred twenty days from the date of this Order, this Court will issue an Order to Show Cause why the Secretary should not be held in contempt of this Court, and a hearing on the matter shall be held within fifteen days from the issuance of said Order to Show Cause.

      . Accordingly, the petition for writ of mandamus is denied, and this cause is dismissed, there being no further action contemplated.


author: SWEET, District Judge.

text:
    Robert C. GUCCIONE, Plaintiff, v. Larry C. FLYNT, Hustler Magazine and Flynt Distributing Company, Inc., Defendants.
    No. 83 Civ. 8020(RWS).
    United States District Court, S.D. New York.
    Sept. 17, 1985.
   MEMORANDUM OPINION

SWEET, District Judge.

Defendants Larry Flynt (“Flynt”) and Flynt Distributing Company (“FDC”) have moved for reconsideration of this court’s opinion dated August 16, 1985 denying Flynt’s motion to dismiss the charges against him for lack of personal jurisdiction and FDC’s motion for summary judgment, familiarity with which is assumed. FDC has also moved in the alternative to exclude certain evidence at trial. For the following reasons, Flynt’s motion to reargue and for summary judgment is granted upon the papers submitted. FDC’s motions are denied with leave to renew at trial.

Flynt’s Motion to Dismiss

In the August 16, 1985 opinion, 618 F.Supp. 164 (S.D.N.Y.1985), Flynt’s motion to dismiss was denied on the grounds that he had waived this defense under Fed.R. Civ.P. 12(g) and (h) when he failed to raise it in the first motion he filed challenging the sufficiency of service of process. Upon examination of the authorities cited on the motion to reargue, I conclude that Flynt’s motion to dismiss for lack of jurisdiction was also appropriately before this court and should have been addressed. Flynt both raised and briefed the defense of lack of personal jurisdiction in the January 16, 1984 motion which was filed and fully submitted before this court ruled on the December 12, 1983 motion. In Sunrise Toyota, Ltd. v. Toyota Motor Co., 55 F.R.D. 519 (S.D.N.Y.1972), the court recognized the inapplicability of the waiver provisions of Rule 12(g) and (h) in a similar situation:

Plaintiff has asserted that because defendants did not join their motions in one set of motion papers they must be deemed to have waived their second set of motions under rule 12(g). Plaintiff did enter into two stipulations adjourning both motions. (Stipulations filed and so ordered May 12, 1971 and May 25, 1971). Moreover, both motions were heard at the same time on June 8, 1971 (motions 78 and 80 on Motion Calendar). Had plaintiff wished to urge waiver it should have done so at once. Since both motions were argued together and are jointly submitted to the court, there is no issue of dilatory motion practice or unfairness to plaintiff, and the policy of Rule 12(g) is in no way frustrated. As Judge Bonsai observed in Silver v. Countrywide Realty, Inc., 39 F.R.D. 596, 599 (S.D.N.Y.1966), “[N]o waiver will result where the new ground is raised shortly after the Notice of Motion and well before the hearing.” See also MacNeil v. Whittemore, 254 F.2d 820, 821 (2d Cir.1958). Accordingly, both motions are timely and properly before the court.

55 F.R.D. at 528 n. 4. This reasoning is equally applicable in the present situation, despite the fact that the two motions were separately submitted without argument.

Guccione did not raise the issue of waiver at the time of the January 16, 1985 motion when Flynt first asserted the jurisdictional defense, but instead chose to address the merits of the defense. The waiver argument was not raised until Flynt renewed his motion to dismiss at the conclusion of discovery. Even assuming that raising the defense in the January 16 motion did not “cure” any waiver, Guccione’s failure to raise the waiver argument in itself constitutes a “waiver of these technical objections” under Rule 12(g) and (h), Mutual Life Ins. Co. v. Egeline, 30 F.Supp. 738, 740 (N.D.Cal.1939), particularly in light of the fact that when the court ruled on the motions in the April 27, 1984 opinion, Flynt was expressly granted leave to renew his motion at the close of discovery.

Because upon reconsideration Flynt did not waive his right to raise the issue of lack of jurisdiction, the merits of his renewed motion to dismiss must be addressed. In the April 27 opinion, this court found that personal jurisdiction over Flynt was appropriate under N.Y.C.P.L.R. § 302(a)(2) and (3) with respect to Guccione’s claim of invasion of privacy and Penthouse’s copyright infringement claim. Because these claims were subsequently dismissed, however, the grounds set out in the opinion for maintaining jurisdiction over Flynt no longer exist, since CPLR § 302(a)(2) and (3) are expressly inapplicable to a defamation action. The April 27 opinion also held' that on the basis of the record presented it was not possible to determine if Flynt transacted business as an individual in New York and was thus subject to jurisdiction under § 302(a)(1). Discovery was therefore permitted to determine whether the plaintiffs could establish sufficient facts to justify the exercise of personal jurisdiction over Flynt.

Although Guccione bears the burden of establishing jurisdiction, Beacon Enterprises, Inc. v. Menzies, 715 F.2d 757, 762 (2d Cir.1983), he did not present any arguments challenging the merits of Flynt’s renewed motion, choosing instead to rely on the defense of waiver. Based on the information submitted by both parties at the time of the original motion to dismiss and by Flynt in support of the present motion, this court does not have personal jurisdiction over Flynt under New York’s long-arm statute.

As noted in the April opinion, unless sufficient factá ¿ire established to justify piercing the corporate veil for jurisdictional purposes, personal jurisdiction may not be exercised over Fl^nt as a result of the activities of FDG and Hustler in New York, since Flynt’s alleged status as sole shareholder is not -enough. See Ferrante Equipment Co. v. Lasker-Goldman, 26 N.Y.2d 280, 309 N.Y.S.2d 913, 258 N.E.2d 202 (Ct.App.1970). Guccione has made no showing upon this motion for summary judgment that would justify piercing the corporate veil. Although he asserts that both Hustler and FDC are essentially shell corporations completely dominated by Flynt, he has failed to produce sufficient facts to support this claim. Because jurisdiction over Flynt as an individual may not be premised on. any actions taken by the corporations with, which he is allegedly involved, Guccione has failed to establish any basis for the exercise of personal jurisdiction over Flynt. ' Accordingly, Flynt’s renewed motion for summary judgment dismissing the complaint for lack of personal jurisdiction is granted.

The issue of the admissibility of the evidence submitted by Guccione on the question of FDC’s liability based upon Flynt’s control will be reserved for trial. FDC’s motions to exclude evidence and for summary judgment are therefore denied with leave to renew upon trial.

IT IS SO ORDERED.