author: KRAM, District Judge.

text:
    Enrique F. GITTES, Plaintiff, v. COOK INTERNATIONAL and Edward W. Cook, Defendants.
    No. 82 Civ. 8015 (SWK).
    United States District Court, S.D. New York.
    Nov. 29, 1984.

      Fox, Glynn & Melamed by Joseph D. Becker, Carl L. Distefano, New York City, for plaintiff.
    Fried, Frank, Harris, Shriver & Jacobson by Matthew Gluck, Brian Ochs, New York City, for defendants.
   MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

On October 12, 1984 I issued my decision in the above-captioned matter. It has come to my attention that certain modifications of this Order are necessary. Such modifications are reflected in this amended opinion.

This case was tried in a one-day trial before the bench. In the intervening months, counsel for both sides have prepared and submitted post-trial memoranda. After careful consideration of the evidence adduced at trial and the arguments put forth in the post-trial briefs, and for the reasons set out below, the Court finds for plaintiff in the amount of $250,000.

BACKGROUND

Plaintiff Enrique Foster Gittes (“Gittes”) is a businessman and financial consultant. In 1981, his services as a consultant were retained by an English company, NNC Energy pic (“NCC”), of which he was also a director. NCC’s principal business was as a holding company, investing its capital in other businesses in return for a stake in those businesses. Gittes’ activities for NCC were not made clear at trial; however, NCC believed his services to be useful and worthwhile, and compensated him at the rate of $100,000 per year for his consultancy work.

One of NCC’s investments was a substantial holding of the shares of an American company, Simplicity Pattern, Co. (“Simplicity”). For reasons which are not relevant here, Gittes’ contract to perform consulting services for NCC was assigned to' Simplicity. Prior to that assignment, Gittes was elected to the Board of Directors of Simplicity. It is this dual relationship between Gittes and Simplicity which led to this lawsuit.

In April, 1982, NCC found itself in difficult financial condition and decided to sell its holdings in Simplicity as a means of realizing badly needed cash. To that end, NCC began a search for a purchaser of the Simplicity shares, in which search Gittes was an active participant. The search led to offers to buy from at least two sources, one in New York and one in Europe. NCC apparently decided to accept the offer from the New York purchaser, while holding the European offer in reserve in the event the New York purchaser withdrew or otherwise failed to close the sale.

The sale by NCC of its Simplicity stock apparently made more urgent shortly before the agreement to sell the shares was to be consummated, by the threat of various financial sources to call outstanding debt, thereby forcing NCC into receivership. On May 7, 1982, the sale of the shares to the New York purchaser was scheduled to take place in the offices of the law firm Debevoise & Plimpton. Gittes and the individual defendant, Edward W. Cook, arrived together. At some point after the closing began, it came to Gittes’ attention that the purchaser apparently required the resignation of the four directors of Simplicity who had been elected by NCC as a shareholder of Simplicity. These directors included Gittes and three other directors of NCC; of the four, only Gittes had failed to tender his resignation prior to the closing. Apparently, in fact, only Gittes had not been informed that these resignations were considered a necessary prerequisite to consummation of the purchase of the shares by the New York purchaser. When informed of this fact, Gittes initially flatly refused to tender his resignation from the Simplicity board. There is significant divergence, both of opinion and in the evidence adduced at trial, as to Gittes’ motivation for refusing to resign. His motivation, however, is not relevant here.

Gittes’ refusal to resign created serious problems, jeopardizing the closing. Clearly, some accommodation needed to be made, and eventually one was agreed upon; Gittes would resign from his position on the Simplicity board and his consultancy with Simplicity in return for a five year, $50,000 per year, consultancy contract with Cook International, Inc. (“Cook International”). Cook International, headed by Edward W. Cook and the largest shareholder of NCC, stood to be the greatest loser if the sale of the Simplicity shares failed to occur and resulted in NCC’s going into receivership. Cook International, through its chairman Edward W. Cook, offered to employ Gittes as a financial consultant, an offer which Gittes accepted. Subsequently, however, Gittes was given no responsibilities and was never paid, and on October 12, 1982, Cook International repudiated the contract by letter to Gittes. TR. 48; PE 25. Shortly thereafter, Gittes commenced this action.

DISCUSSION

The issues in this case tend to overlap. Plaintiff claims that Cook’s offer to employ him as a consultant was accepted by him and was sufficiently definite to constitute a contract. Defendants, in response, claim that any alleged contract based on the undisputed facts fails to satisfy the Statute of Frauds because it was never reduced to a writing signed by the party to be charged. Furthermore, defendants argue that the contract, assuming there was one, was made under duress and is therefore voidable. In reply, plaintiff points to several subsequent writings issuing from defendants in which reference is made to the consultancy agreement between Cook International and Gittes, and that these writings satisfy the Statute of Frauds. Furthermore, plaintiff claims that any pressure which Gittes exerted on Cook and Cook International did not rise to the level of duress within the meaning of contract law and that any duty which Gittes owed NCC to facilitate the sale of the Simplicity shares as a means of relieving NCC’s financial difficulty is not assertable by Cook International either independently or as a shareholder of NCC.

1. The Consultancy Agreement

The logical starting place in this analysis is with the question whether there ever was a contract between Cook International and Gittes. It is undisputed that Edward W. Cook acting in his capacity as chairman of Cook International, offered Gittes a consultancy contract with Cook International for a five-year term at an annual compensation of $50,000, and that Gittes accepted the offer. Cook testified that he never intended to honor the offer, and that he had been advised by one of his attorneys, a partner at Debevoise & Plimpton, that such an agreement would be unenforceable in any event. Cook’s lack of intent to honor his offer is relevant on two points: whether there was some fraudulent inducement to Gittes’ in entering the contract, and whether some element of promissory estoppel is present in Gittes’ resigning the directorship and the consultancy which he held with Simplicity in reliance on Cook’s offer of work with Cook International. The fraud issue we put aside for the moment. With respect to promissory estoppel, Gittes clearly relied on Cook’s promise when he resigned from his positions at Simplicity. Furthermore, given the situation, his reliance was reasonable since Gittes had no reason to doubt the sincerity of Cook’s offer. Finally, Gittes’ reasonable reliance was obviously detrimental, entailing as it did the surrender of positions at Simplicity which provided Gittes with compensation in excess of $100,000 per year. Thus far, then, we have offer, acceptance and reasonable, detrimental reliance.

The next point in this contract analysis concerns the degree to which the agreement between Gittes and Cook International was, or needed to be, reduced to writing to satisfy the Statute of Frauds. In New York, the applicable Statute of Frauds is General Obligations Law § 5-701, which states in relevant part that

Every agreement, promise or undertaking is void unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking ... [b]y its terms is not to be performed within one year from the making thereof or the performance of which is not to be completed before the end of a lifetime...

New York General Obligations Law (GOL), § 5-701(a)(l) (McKinney’s 1963). The agreement in question here falls within this section of New York GOL since it was “not to be performed within one year [of its] making.” From this conclusion the issue becomes whether there was a sufficient writing or memorandum of the agreement and whether it was subscribed by the party to be charged.

Both parties agree that, notwithstanding Cook’s assent to Gittes’ suggestion that the agreement be reduced to a written contract, and Gittes’ submission to Cook of a form consulting contract,' there was never executed a document which would serve as a formal agreement between the parties. This fact is only the beginning of the inquiry, however. As case law demonstrates, several writings other than a formal contract can suffice to satisfy the requirement of the Statute of Frauds. In the instant ease, plaintiff proposes that at least two other writings promulgated by the defendant fill this requirement: a Prospectus issued by Cook International, the text of which was approved by Cook and refers to Cook’s agreement to employ Gittes as a consultant for five years at an annual compensation of $50,000 per year (Plaintiff’s Exhibit [PE] 16); and a memorandum signed by Cook which contains substantially the same terms and states flatly that Cook agreed to them as a necessary condition to Gittes’ resignation from the Simplicity Board of Directors. (PE 14). Defendant contends that these documents do not satisfy the threshold requirements of the New York Statute of Frauds, that a writing must contain the essential terms of the agreement. “The concept of essentiality is relative. A term is ‘essential,’ and must thus appear in the ‘memorandum,’ if it seriously affects the rights and obligations of the parties and there is a significant evidentiary dispute as to its content.” Ginsberg Machine Co. v. J. & H. Label Processing Corp., 341 F.2d 825, 828 (2d Cir.1965), citing Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 110 N.E.2d 551 (1953). In the instant case, the writings each contain the duration of the agreement (five years) and the annual compensation (fifty thousand dollars). The Cook International Prospectus makes further reference to employment of Gittes “as a consultant to Cook...” (PE 16 at p. 17). Two of these terms, duration and compensation, are essential within the requirements of the Statute of Frauds because they seriously affect the rights and obligations of the parties.

Defendants agree that duration and compensation are essential and acknowledge that these terms are contained in the proffered writings. The defendants do, however, take issue with whether the nature of the plaintiff’s duties under the alleged contract are an essential term and if so whether those duties are adequately described or are sufficiently determinable by reference to existing external facts as to eliminate any significant evidentiary dispute as to that term of the contract.

Plaintiff argues that his duties under the agreement are not essential terms of a contract within the context of this lawsuit because the significant evidentiary issue is not whether plaintiff performed adequately but rather whether the parties were obligated to perform at all. This argument is well taken and I hold that plaintiff’s duties are not an essential term and therefore need not be reduced to writing. My holding is closely linked to the posture of this case. If defendants had awaited a tender of performance from plaintiff and then rejected it as inadequate and refused to compensate plaintiff, the nature of plaintiff’s duties would clearly be the subject of a significant evidentiary dispute in a suit brought by plaintiff for breach. That is not this case, however, because defendants apparently choose to repudiate any agreement prior to a tender of performance, the precise nature of the required performance is not properly raised.

Furthermore, were the nature of plaintiff’s duties properly before this Court, it appears from the aforementioned writings and a third document introduced at trial, see PE 20 and Transcript (“TR”), Cook Direct Examination, at p. 112, that both parties had a clear idea as to plaintiff’s skills and abilities and the work for which he held himself out as equipped. Defendants’ disclaimers of such knowledge, and their further argument that these duties were not ascertainable by reference to external facts are disingenuous. “Consultant” is a term with significant baggage in this society and especially in the context of business and financial dealings. Finally, it bears noting that defendants used the term to describe plaintiff and were fully aware at that time of his background and the nature of the services he had rendered to his previous employers. Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 110 N.E.2d 551 (1952). In sum, then, there are no missing material terms from the writings memorializing the agreement in question. The writings are either subscribed to or signed by the parties to be charges, to wit, Edward Cook, individually and Cook International, Inc., by Edward Cook, its chairman. The agreement therefore satisfies the Statute of Frauds.

2. Duress and Fiduciary Duty

Defendants, however, assert as a defense to the contract duress in the form of Gittes’ pressure on Cook to make the contract as a condition or prerequisite to Gittes’ resignation from the Simplicity board of directors. Under New York Law, a “contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of free will.” Austin Instrument, Inc. v. Loral Corp., 29 N.Y.2d 124, 130, 324 N.Y.S.2d 22, 272 N.E.2d 533 (1971). In the instant case, defendants claim that Gittes’ refusal to resign from the Simplicity board unless first given a consulting contract with Cook was implicitly a wrongful threat to disrupt NCC’s sale of its Simplicity stock to MCO (the New York Purchaser). That plaintiff’s condition precedent to his resignation was a form of pressure is clear. Plaintiff was aware of the upshot of his refusal to resign, and knew that such a result would harm both defendants and NCC. Defendants and NCC obviously wanted to consummate the sale. Whether that pressure was a wrongful exercise is the crucial issue.

Defendants claim that Gittes had a fidiciary duty as a member of the board of NCC to act in the best interests of NCC. They argue that by “holding up” Cook and Cook International for a consulting agreement as a condition to his resignation from the Simplicity board, Gittes placed his personal interest ahead, and to the jeopardy, of NCC’s best interests and thereby breached his duty to NCC. In defense, plaintiff argues that he had valid reasons for pursuing the agreement he sought with Cook, which made his actions rightful even if they resulted in pressure on NCC and Cook; and that in any event Cook and NCC had viable alternatives to the sale to MCO, so that there was no coercive result from Gittes’ demand.

Plaintiff’s first argument is not well taken. The fiduciary duty which arises from membership on the board of directors of a corporation, or any other context where an individual takes on a fiduciary, duty, always supersedes the private interest of the individual. The private interest in question here is two-fold: Gittes’ desire to improve his personal finances by securing a well-compensated consultant’s position; and his desire to protect his reputation from any adverse inference which might be drawn from his resignation from the Simplicity board during the pendency of a shareholder’s derivative suit against him and other directors. His concerns with respect to each of these was purely personal since neither related, directly or indirectly, to his duties as board member of Simplicity or NCC.

As director of NCC, Gittes clearly owed a duty to act in NCC’s best interests. This duty superseded any personal interests which Gittes had in the conclusion of a consultancy or other contract or in protecting his reputation. However, “to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he fiduciary? What obligations does he owe as a fiduciary?” Securities and Exchange Commission v. Chenery Corp., 318 U.S. 80, 85-86, 63 S.Ct. 454, 458-459, 87 L.Ed. 626 (1943). It is not clear that Gittes’ duty necessarily extended to resigning from the board of Simplicity, unless that resignation was in the best interests of NCC. Furthermore, it is highly questionable whether Cook or Cook International can assert the duty of Gittes to NCC as protection from the enforcement of the consultancy agreement into which they entered.

With respect to the first question, I find that Gittes’ duty as a director of NCC did, at least theoretically, extend to an obligation to resign from the Simplicity board if such a resignation was in the best interests of NCC and did not conflict with a countervailing duty owed to Simplicity. However, the question remains whether Gittes’ duty in fact reached that far given the circumstances present in this case.

The defendants argue that Gittes’ duty did actually extend to an obligation to resign, and base that argument on the claim that the Simplicity sale would have collapsed had the resignation not have been tendered and the collapse would have led inexorably to the demise of NCC. There are two flaws in this argument. First, there was credible testimony that other alternatives to this sale of Simplicity existed. Therefore, the claim that the collapse of this sale meant the collapse of NCC is conjecture at best.

Second, and more fundamental, even assuming the imminent collapse of NCC if the transaction in question failed to close as scheduled, neither of these defendants has the right to assert duties owed to NCC. English company law provides that the duties of a director are to the company, not to individual shareholders, even majority shareholders. L.C.B. Gower, Principles of Modem Company Law, 573 (1979); 1 Palmer’s Company Law, 852 (1982); Gore-Browne on Companies § 27-8 (1982) and cases cited therein. Cook International was a minority shareholder of NCC, and Cook while NCC’s president, was not the alter-ego of NCC. In addition, it appears to this Court that the pressure brought to bear on plaintiff was motivated primarily by a concern on Cook’s part to protect his investment in NCC, and not by any larger concern for the well-being of NCC or the shareholders as a whole.

Furthermore, defendants’ argument that Gittes had, by his own admission at trial, assumed some fiduciary duty to Cook International relative to this transaction is without merit. Based on the evidence adduced at trial relative to this issue, the most that can be said is that Gittes had the impression that the interests of NCC and Cook International were parallel, if not identical. He also apparently felt a desire to avoid harming Cook International and wanted to help them if possible. Some of these desires and goals were undoubtedly motivated by Gittes’ self-interest in maintaining cordial relations with Cook for the future. However, it is not possible to construe any of these motivations or the impression Gittes had of the relationship as creating a duty from him to Cook or Cook International. A fiduciary relationship can be created by law or by contract, and frequently arises from a business relationship. See Scott, The Fiduciary Principle, 37 Calif.L.Rev. 539 (194). There is no evidence here to prove that such a relationship was in fact created between plaintiff and defendant by the operation of law; furthermore, as discussed above, the defendants’ passing argument that Gittes incurred some form of contractual obligation to them in the nature of a fiduciary duty is unsupported by any evidence except for plaintiff’s expressed desire to avoid harming anyone, while protecting his interests. Therefore, Gittes owed the defendants no duty. His refusal to resign from the Simplicity board of directors may well have been a breach of his duty to NCC. However, Cook and Cook International have no right to assert the duty owed by Gittes to NCC as a defense to their contract with Gittes. Neither Cook nor Cook International was Gittes’ principal and neither had any claim on his loyalty prior to the consultancy agreement with him.

CONCLUSION

It is my holding that, since Gittes owed these defendants no duty, he could have breached no duty to them in refusing to resign from NCC’s board unless Cook International employed him as a consultant. It is also my holding that, since these defendants have no defense to the existence of the consultancy agreement, and all the essential elements of that agreement are present, Cook International is liable for the full value of the agreement, Two Hundred Fifty Thousand Dollars ($250,000). Defendants have not shown that plaintiff bore any burden to mitigate these damages, especially in light of Gittes’ freedom to seek employment in addition to his work for Cook.

Finally, with respect to the other claims for damages, Gittes’ claim for damages based on fraud are unsupported by the evidence, although this decision rests on the narrowest of margins. Nonetheless, I find that Gittes failed to demonstrate Cook’s intent to defraud, and therefore deny Gittes damages based on his expectations of remaining on the Simplicity board and employed as a Simplicity consultant. Nor, given my holding that Gittes failed to carry his burden of proof as fraud, are punitive damages justified. However, these denials of special damages are not to be taken as an endorsement of Cook’s policies or practices.

SO ORDERED.

      . This description is taken from the transcript of the trial and the respective exposition of the facts in the parties’ Post-Trial Memoranda.

      . It is unclear whether Gittes tried to perform tasks for which he believed he had been hired. In any event, as discussed below, the repudiation essentially preceded any performance.

      . There is apparently no dispute between the parties, and I furthermore find, that English law governs the issue of the duties of directors of English Companies. Hausman v. Buckley, 299 F.2d 696 (2d Cir.1962), cert. denied, 369 U.S. 885, 82 S.Ct. 1157, 8 L.Ed.2d 286 (1962).


source: Caselaw Access Project

author: GESELL, District Judge.

license: Public Domain

text:
    Peter WEISMAN, et al., Plaintiffs, v. Lewis A. RIVLIN, et al., Defendants.
    Civ. A. No. 84-2614.
    United States District Court, District of Columbia.
    Nov. 29, 1984.

      Philip J. Hirschkop, Bernard J. DiMuro, Alexandria, Va., for plaintiffs.
    Philip L. Cohan, Michael A. Schlanger, John R. Metz, Washington, D.C., for defendants Rivlin and New Venture Capital Corp.
    John T. Coyne, Washington, D.C., for defendant Peabody, Lambert & Meyers.
   MEMORANDUM

GESELL, District Judge.

This case is before the Court on the motion of defendants Rivlin and New Venture Capital Corporation to impose sanctions on plaintiffs under Rule 11 of the Federal Rules of Civil Procedure for filing the complaint in this case when on its face it disclosed a lack of diversity jurisdiction. After dismissing the complaint, the Court heard the arguments of counsel with respect to sanctions and has considered the entire record herein.

The complaint, filed on August 24, 1984, stated only state-law causes of action against the defendants. It claimed federal jurisdiction on the basis of diversity of citizenship, 28 U.S.C. § 1332. It is long settled that diversity must be complete between opposing sides. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). The complaint on its face showed that diversity was not complete: both plaintiff Chromoteeh, Inc., and defendant New Venture Capital Corporation were each incorporated in Delaware and thus were citizens of that state.

Defendant Peabody, Lambert & Meyers, P.C., moved on October 2, 1984 to dismiss the action for lack of diversity. On October 23, 1984, defendants Rivlin and New Venture moved separately to dismiss and for Rule 11 sanctions. On October 25, 1984, the Court, ruling on the Peabody, Lambert motion, dismissed the entire case for lack of jurisdiction. The Court subsequently denied plaintiffs’ motion to reinstate the complaint by dropping the non-diverse defendant when it appeared the non-diverse defendant was a necessary party.

Fed.R.Civ.Pro. 11, as amended in 1983, provides in relevant part:

The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation____ If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney’s fee.

As the Advisory Committee notes to the amended rule make clear, the focus of the rule has shifted from the “good faith” of the attorney or party signing the paper to the necessity of that person to make an objectively “reasonable inquiry” into the factual and legal basis of the paper before filing it. E.g., Zaldivar v. City of Los Angeles, 590 F.Supp. 852, 856 (C.D.Cal. 1984). If it appears to the court upon hearing that the pleading is not well grounded in fact or law and that there was no reasonable inquiry made before filing, the court is required to impose a sanction without regard to whether the failure was willful or inadvertent.

At the hearing on this motion, it became clear that plaintiffs’ counsel made a mistake in overlooking the jurisdictional problem in the complaint. Counsel asserted that he had assumed his client Chromotech was incorporated in Maryland, where it was headquartered, and did not learn of the Delaware incorporation until the last minute. The significance of the Delaware incorporation was noticed by no one, including defendant Rivlin, who was given a copy of the complaint a week before it was filed. The matter was not brought to the plaintiffs’ attention until Peabody, Lambert filed its motion on October 2.

Under the rule, however, counsel’s mistake cannot excuse the failure. Counsel advised the Court that he had considered and rejected making federal-law claims in the complaint. Since the only basis for federal jurisdiction was then to be diverse citizenship, he had an obligation to make a reasonable inquiry into the basis for diversity. The Court finds that it was not reasonable to overlook the citizenship of counsel’s own client, especially when prior to filing, defendant Rivlin as part of settlement discussions urged that the non-diverse defendant New Venture not be named because of the effect on its financial credit.

Accordingly, the Court is obliged to impose a sanction. The issue now is the amount appropriate.

Rivlin and New Venture invoke that portion of Rule 11 providing that an appropriate sanction “may include ... the amount of the reasonable expenses incurred because of the filing ... including a reasonable attorney’s fee.” They thus seek reimbursement from plaintiffs or plaintiffs’ counsel of their entire attorney fees incurred in litigating this case. That includes 32.45 hours, totaling $3,679.25, for “responding to the complaint, including familiarization with the background of the litigation and the evaluation of potential counterclaims.” It also includes another 41.35 hours, totaling $4,179.50, for responding to plaintiffs’ motion to reinstate. There are several reasons the Court regards these amounts as excessive and inappropriate.

First, the hours claimed far exceed the amount of time that should have been necessary to file a pleading responding to the complaint to dispose of the diversity issue. Counsel for Rivlin and New Venture did not enter the case until October 11, after Peabody, Lambert had already filed its motion to dismiss on the same grounds. A few hours at most would have sufficed to prepare a similar motion.

Second, the rule requires that the work expended be causally linked to the improperly filed paper; here, much of the work was linked to learning background and meeting the plaintiffs’ motion to reinstate rather than disputing jurisdiction under the original complaint.

Third, the motion for sanctions asserts that “the most severe sanctions” should be imposed because the complaint is wholly lacking in merit and was filed only for purposes of “extortion” and “defamation.” While the Court cannot be drawn into assessing the merits of the present litigation, it is clear that the strongly worded allegations of the motion are undercut by the actions of defendant Rivlin himself, who made offers of settlement before the lawsuit was filed.

Given all the circumstances, including the fact that there was a showing of negligence but not willfulness in plaintiffs’ action here, the Court finds that the appropriate sanction is $200, to be paid by plaintiffs’ counsel to the moving parties.

      . Defendant Peabody, Lambert did not. join in the motion for sanctions.

      . The old rule made sanctions optional, and then only upon a finding of a "willful violation” of the rule. In addition, neither the rule nor the cases made clear to what extent the attorney was obligated to investigate the legal and factual basis of his client’s case before signing. See 5 C. Wright & A. Miller, Federal Practice and Procedure § 1333 at 499-500 (1969).

      . In addition, Rivlin, an experienced attorney, gave no informal notice to plaintiffs of the jurisdictional defect in their complaint although he continued to negotiate with plaintiffs’ counsel until the motions to dismiss were filed.

      . While it is appropriate in some cases to assess the sanction against the represented party, particularly where the party has withheld the relevant information from his counsel, the Court believes it more appropriate here to assess the attorney who signed the defective complaint. On the evidence before the Court, that is where the fault lies.


author: PETTINE, Senior District Judge.

text:
    Leo D. BLEAU, Plaintiff, v. Mary HACKETT, et al., Defendants, and United States Department of Labor, Defendant-Intervenor.
    Civ. A. No. 83-0327 P.
    United States District Court, D. Rhode Island.
    Nov. 29, 1984.
    Joseph R. DeCiantis, Joseph F. Dugan, Charles H. McLaughlin, Providence, R.I., for defendants.
    Leslie Dellon, U.S. Dept, of Justice, Washington, D.C., Everett C. Sammartino, Asst. U.S. Atty., Providence, R.I., for defendant-intervenor.
   MEMORANDUM DECISION AND ORDER

PETTINE, Senior District Judge.

This suit is before this Court on cross-motions for summary judgment of plaintiff, Leo D. Bleau, defendants Mary Hackett, Director, Rhode Island Department of Employment Security (“DES”); Henry F. Murray, Chairman, Board of Review, DES; E. Rex Coman and Francis P. McEntee, Members, Board of Review, DES; and Defendant-Intervenor United States Department of Labor. The issue presented is whether § 3304(a)(15)(A)(i) of the Federal Unemployment Tax Act, 26 U.S.C. § 3304(a)(15)(A)(i) (“§ (A)(i)”), permits DES to reduce the unemployment compensation of Social Security recipients whose base period employer contributed to Social Security and who became eligible for Social Security benefits as the result of work performed for a non-base period employer. For the reasons below, summary judgment is granted in favor of defendants and denied to plaintiff Bleau.

Facts and Background

Plaintiff Bleau is seventy three years old. He began receiving Social Security retirement payments in 1972, after his retirement from the company where he worked as a truck driver for twenty-three years. Plaintiff and his employer had each contributed 50% of Federal Insurance Contribution (FICA) taxes on plaintiffs behalf. Agreed Statement of Facts ¶¶[ 1, 6-8. On or about November, 1980, plaintiff began working as a janitor. Id. at ¶ 10. The second employer and plaintiff each contributed 50% of FICA taxes on plaintiff’s behalf. Plaintiff had not worked for this employer prior to his retirement. After being laid off in May, 1982, plaintiff applied for unemployment benefits through DES. Id. at ¶1¶ 10-13.

DES concluded that plaintiff was eligible for unemployment benefits, but reduced those payments by his Social Security pension payments, prorated weekly. Id. at ¶ 16. After exhausting his administrative remedies, plaintiff filed suit, contending that the state defendants’ “policy implementing” 26 U.S.C. § 3304(a)(15) violates the equal protection and due process clauses of the fourteenth amendment to the Constitution; 42 U.S.C. § 1983; and the “when due” provision of the Social Security Act, 42 U.S.C. § 503(a)(1). Complaint II29. Plaintiff asks this Court to invalidate the state defendants’ interpretation of the pension offset provision and to pay retroactive unemployment benefits.

On August 5, 1983, this Court certified this suit as a class action consisting of all individuals eligible to receive unemployment benefits since January 1, 1981 through DES, who “have had or will have” those benefits reduced due to the receipt of Social Security retirement payments or Railroad Retirement Act payments “where the receipt of [the retirement payments] is based upon wages paid by an employer ... other than the claimant’s base period employer.” See Order for Class Certification (Aug. 5, 1983).

Statutory Background

Plaintiff challenges the state defendants’ interpretation of § 28-44-19.1 of the Rhode Island General Laws. DES reduces the unemployment compensation payable to a laid-off worker by the amount of pension income the individual receives “when a base period employer has contributed to or maintained the pension program.” DES Memorandum Re: Pension Reduction at 1 (Oct. 22, 1980), Agreed Statement of Facts, Ex. 3. DES implemented this procedure in response to a 1980 amendment to the Federal Unemployment Tax Act, 26 U.S.C. § 3301 et seq. ■

The Federal Unemployment Tax Act (“FUTA”) requires, as a condition for granting federal unemployment tax credits to employers in each state, that the state unemployment compensation law conform to certain minimum federal requirements. See 26 U.S.C. § 3304(a). If a state law meets these requirements, the Secretary of Labor must “approve” that law and “certify” that state to the Secretary of the Treasury. See 26 U.S.C. § 3304(a), (c).

To receive approval, the state law must contain, inter alia, the provision required by 26 U.S.C. § 3304(a)(15). As originally enacted in 1976, but with a deferred effective date, this provision required the states to reduce the amount of a claimant’s unemployment compensation by the amount the individual received from

a governmental or other pension, retirement or retired pay, or any other similar periodic payment which is based on [his] previous work____

P.L. 94-566, Title III, § 314(a); 90 Stat. 2680.

In 1980, Congress modified 26 U.S.C. § 3304(a)(15). P.L. 96-364, Title IV, § 414, 94 Stat. 1310. As amended, the statute requires the states to reduce the amount of a claimant’s unemployment compensation only in certain situations where the

pension, retirement or retired pay, annuity, or similar payment is under a plan maintained (or contributed to) by a base period employer or chargeable employer (as determined by applicable law)____

26 U.S.C. § 3304(a)(15)(A)(i).

The Secretary of Labor, as the administrator of § 3304 of FUTA, has interpreted § 3304(a)(15)(A)(i) as requiring that pension income, including Social Security pension income, must be offset if the unemployment claimant’s base period employer contributes to the pension plan under which the pension is received, subject to the limitation of 26 U.S.C. § 3304(a)(15)(B). DOL’s Employment and Training Administration issued “Unemployment Insurance Program Letter No. 7-81” (“UIPL 7-81”), which described the Secretary’s position as follows:

if an individual retires from company C to collect Social Security and then goes to work for company D where the individual is also covered under the Social Security Act, and thereafter the individual is terminated, the Social Security pension would then be deductible since company D (base period employer) contributed to the same plan as company C.

UIPL 7-81, 47 Fed.Reg. 29904, 29906 (July 9, 1982).

Social Security Offset

By its terms, § (A)(i) requires the offset of a pension payment whenever a base period employer contributes to the same pension plan under which the pension is received. Section (A)(ii) removes from this pension offset requirement all pensions, except for Social Security and Railroad Retirement, that were not enhanced by the base period employment. Section (B) then allows the states to reduce any offset by the amount of the individual’s pension contribution. Rhode Island, however, has not adopted any such limitation.

Plaintiff contends, however, that Congress intended to permit an offset only when the unemployment claimant’s base period employer was also the employer under which he established his eligibility for the pension payments which he receives. Plaintiff attempts to support his construction of the statute with portions of the legislative history which he argues are contrary to the apparent meaning of the statute. The briefs submitted by the parties reveal, however, that the legislative history is, at best, ambiguous. In contrast, the statutory language is clear. When a statute is unambiguous, legislative history generally should not be used to determine its meaning. See Tennessee Valley Authority v. Hill, 437 U.S. 153, 184 n. 29, 98 S.Ct. 2279, 2296 n. 29, 57 L.Ed.2d 117 (1978); Fortin v. Marshall, 608 F.2d 525, 527-28 (1st Cir.1979); United States v. One Clipper Bow Ketsch Nisku, 548 F.2d 8, 11-12 (1st Cir.1977). An exception exists when a statute’s plain meaning “would lead to an unreasonable result ‘plainly at variance with the policy of the legislation as a whole.’ ” Massachusetts Financial Services, Inc. v. Securities Investor Protection Corp., 545 F.2d 754, 756 (1st Cir.1976), cert. denied, 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977), quoting United States v. American Trucking Associations, Inc., 310 U.S. 534, 543, 60 S.Ct. 1059, 1063, 84 L.Ed. 1345 (1940), quoting Ozawa v. United States, 260 U.S. 178, 194, 43 S.Ct. 65, 67, 67 L.Ed. 199 (1922). See Bob Jones University v. United States, 461 U.S. 574, 103 S.Ct. 2017, 2025, 76 L.Ed.2d 157 (1983). This is not the case here.

Section 3304(a)(15) clearly provides that Social Security pensions must be offset against unemployment benefits whenever a claimant’s base period employer contributes to the Social Security plan. The Secretary of Labor’s construction has been upheld by the United States Courts of Appeals which have considered the issue, and by other district courts. Bowman v. Stumbo, 735 F.2d 192 (6th Cir.1984); Rivera v. Becerra, 714 F.2d 887 (9th Cir.1983), cert. denied sub nom. International Union, UAW v. Donovan, — U.S. —, 104 S.Ct. 1591, 80 L.Ed.2d 124 (1984); Peare v. McFarland, 577 F.Supp. 791 (N.D.Ind. 1984), appeal pending, Civ. No. 84-1360 (7th Cir.); Duso v. Adams, 600 F.Supp. 3 (D.N.H.1983). The Ninth Circuit’s rejection of the very construction advocated by plaintiff Bleau is equally applicable here:

Section 3304(a)(15)(A)(i) says that if a base period employer contributes to social security, then the unemployment benefits must be offset by the social security benefits. The statutory language does not permit another interpretation. The offset applies under section 3304(a)(15)(A)(i) if the base period employer “contributed” to the “plan” from which the pension benefits are derived. Unlike section 3304(a)(15)(A)(ii), which does not apply to social security benefits, section 3304(a)(15)(A)(i) does not say the offset will not apply if the base period contributions did not affect eligibility for or the amount of the pension benefits.

Rivera, 714 F.2d at 892 (first emphasis added, second emphasis in original). The Sixth Circuit also was “convinced that the plain language of the offset provision renders all such Social Security benefits applicable to reduce the unemployment benefits where, as here, both the former and the base period employers contributed to the Social Security system.” Bowman, 735 F.2d at 196.

The district courts similarly upheld the Secretary’s construction on the basis of the statutory language alone. As the Peare court stated,

Section (A)(i) plainly states that social security benefits offset unemployment benefits if the base period employer makes social security contributions. The language of the statute is so lucid on this particular issue it would be inappropriate to resort to legislative history.

Peare, 577 F.Supp. at 794 (emphasis added). See Duso, slip op. at 7, quoting Rivera, 714 F.2d at 893 (§ (A)(i) “says and means that Social Security benefits offset unemployment benefits if the base period employer makes Social Security contributions”).

Resort to the legislative history is clearly inappropriate as the statute is unambiguous and its plain meaning is consistent with the policy of the legislation. Congress amended § 3304(a)(15) in 1980 to permit the states to reduce the dollar-for-dollar offset of all pension income which would have been required under the 1976 law. Rivera, 714 F.2d at 892; Peare, 577 F.Supp. at 795. Congress also intended to conserve unemployment compensation funds by relieving employers from concurrent liability when they have contributed funds to a pension plan which is already benefiting eligible workers. See Rivera, 714 F.2d at 895.

Plaintiff’s contention that statements by individual legislators take precedence over the plain meaning of the statute is without merit. A Conference Committee adopted the current language of § 3304(a)(15) as a compromise. See H.R. (Conf.) Rep. No. 96-1343, 96th Cong., 2d Sess. (Sept. 18, 1980), U.S.Code Cong. & Admin.News 1980, 2918. Plaintiff relies primarily upon an example by Senator Bradley, made on the day the Conference Report was adopted:

[A]n individual at company A retires and begins to collect Social Security. For whatever reason, this person then goes to work for company B and, after six months there, is terminated. Assuming the individual is eligible for unemployment insurance because of the work done at company B, the level of unemployment insurance compensation will not be reduced at all. This is because the base period employer is not the same as the social security employer. The offset would apply, however, if the individual had returned to work for company A instead of working for company B. Under those circumstances, the base period employer and the social security employer would be the same.

126 Cong.Rec. 26041 (1980). Plaintiff argued that this example was a clear statement of congressional intent. The Department of Labor responded that Senator Bradley was either mistaken or was referring to a situation in which the base period employer did not contribute to Social Security. The Department of Labor also stated that a remark by one legislator would not control over the plain meaning of the statute. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 26, 97 S.Ct. 926, 941, 51 L.Ed.2d 124 (1977). The Ninth Circuit concluded, and the Sixth Circuit concurred, that statements by Senator Bradley “cannot replace the interpretation compelled by the statutory language.” Rivera, 714 F.2d at 893. See Bowman, 735 F.2d at 198.

As to the other statements cited by plaintiff Bleau and previous plaintiffs, these courts concluded that those statements were also ambiguous and could be reconciled with the plain meaning of the statute as either referring to pensions other than Social Security and Railroad Retirement or to § (B). Bowman, 735 F.2d at 198; Rivera, 714 F.2d at 893. This Court concurs in their judgment that these statements cannot supersede an unambiguous statute. “The proper function of legislative history is to solve, and not create, an ambiguity.” United States v. Rone, 598 F.2d 564, 569 (9th Cir.1979), cert. denied, 445 U.S. 946, 100 S.Ct. 1345, 63 L.Ed.2d 780 (1980). The plain language of § (A)(i) conclusively establishes congressional intent. Section (A)(i) unequivocally means that Social Security payments must be offset against unemployment compensation when an unemployment claimant’s base period employer contributed to Social Security.

Rhode Island’s Dollar-For-Dollar Offset Is Consistent With Federal Law

Despite the 1980 amendment to § 3304(a)(15), Rhode Island continues to offset Social Security pension payments dollar-for-dollar against unemployment compensation. The United States Courts of Appeals for this Circuit and for the Fourth Circuit have both held that § 3304(a)(15) establishes minimum requirements for pension offsets which the states remain free to exceed. Mayberry v. Adams, 745 F.2d 729 (1st Cir.1984) aff'g per curiam, Civ. No. 84-147-D (D.N.H. May 8, 1984); Watkins v. Cantrell, 736 F.2d 933, 939, 944 (4th Cir.1984). Furthermore, the District Court for the District of New Hampshire specifically upheld a dollar-for-dollar offset of Social Security pension payments against unemployment compensation in Duso v. Adams, Civ. No. 83-221-D (D.N.H. Dec. 28, 1983). This Court now holds that Rhode Island’s dollar-for-dollar offset of Social Security pension payments against unemployment compensation is authorized by, and consistent with, 26 U.S.C. § 3304(a)(15).

Congress has generally given the states substantial discretion in the structure and operation of their unemployment insurance programs, particularly with regard to establishing benefit structures and eligibility requirements. New York Telephone Co. v. New York State Department of Labor, 440 U.S. 519, 537-40, 99 S.Ct. 1328, 1339-41, 59 L.Ed.2d 553 (1979). States that participate in FUTA, however, must meet certain “fundamental standards” in order to have their unemployment compensation law approved and certified by the Secretary of Labor, including the pension offset requirement of § 3304(a)(15). See Cabais v. Egger, 690 F.2d 234, 240 (D.C.Cir.1982); McKay v. Horn, 529 F.Supp. 847, 850 n. 4 (D.N.J.1981). While this statute requires that states offset pension benefits under certain circumstances, Congress did not limit pension offsets to those circumstances alone.

Furthermore, the Secretary of Labor has consistently interpreted § 3304(a)(15) as setting only minimum offset requirements. UIPL No. 7-81, 47 Fed.Reg. 29904, 29906 (July 9, 1982) and Change 2, 48 Fed.Reg. 37740 (Aug. 19, 1983). While recommending that states “take advantage of the less stringent condition under which pensions must be deducted” under the 1980 amendment, the Secretary of Labor recognized that the amendment “reflects only the minimum conditions under which deduction must be required by State law for certification under FUTA.” UIPL No. 7-81, 47 Fed.Reg. at 29906. Indeed, the Secretary specifically advised the states that laws, such as Rhode Island’s, which already provided for offset in accordance with the prior (1976) statute, did not have to be changed to satisfy the new requirements. Id. The Secretary’s interpretation is entitled to deference. See Miller v. Youakim, 440 U.S. 125, 145 n. 25, 99 S.Ct. 957, 969 n. 25, 59 L.Ed.2d 194 (1979); Watkins, 736 F.2d at 945-946.

As the Fourth Circuit concluded
Section 3304(a)(15) nowhere explicitly prohibits states from offsetting from unemployment insurance compensation pension or retirements payments in excess of the mandated offset. The absence of such an explicit prohibition in the language of the statute clearly indicates that no such prohibition was intended by Congress.

Watkins, 736 F.2d at 939.

Conclusion

Section (A)(i) requires an offset of Social Security pension payments whenever an unemployment claimant’s base period employer has contributed to the Social Security retirement plan. Rhode Island is authorized, under 26 U.S.C. § 3304(a)(15), to take a dollar-for-dollar offset of Social Security pension payments against unemployment compensation. Accordingly, there being no genuine issue of material fact now before this Court, it is the Order of this Court that the motions for summary judgment of the state defendants and defendant-intervenor United States Department of Labor be, and hereby are, granted; and that the motion for summary judgment of plaintiff Leo D. Bleau is denied. Since the motion for summary judgment effectively moots any claim by plaintiff against the state defendants, this case is dismissed. It is further ordered that the effective date of this decision shall be stayed for ten days to permit counsel for plaintiff Bleau to notify the named plaintiff, and any other members of the class of whom he has personal knowledge, by letter, of this decision.

      . The "base period” is the period of employment during which eligibility for unemployment compensation is accrued. In Rhode Island, the base period for a claimant who files a valid claim is defined as the "fifty-two (52) consecutive calendar weeks, the first of which shall be the week containing the day as of which (s)he first files such valid claim____” R.I.G.L. 1956 (1979 Reenactment) § 28-42-3(10). The chargeable or base period employer is the employer for whom the claimant worked during this time period. Employers are charged in reverse chronological order and the charges are based upon the number of weeks the claimant was employed during the base year. R.I.G.L. 1956 (1979 Reenactment) § 28-43-3(b)(2).

      . As enacted, the Rhode Island unemployment law offset provision conformed to the original requirement of § 3304(a)(15).
      28-44-19.1. Disqualifying income. — An individual shall be disqualified from receiving benefits for any week of his unemployment within any period with respect to which such individual is currently receiving or has received retirement income in accordance with the following provisions:
      (1) The amount of compensation payable to an individual for any week which begins after March 31, 1980, and which begins in a period with respect to which such individual is receiving a governmental or other pension, retirement or retired pay, annuity, or any other similar periodic payment which is based on the previous work of such individual shall be reduced (but not below zero) by an amount equal to the amount of such pension, retirement or retired pay, annuity, or other payment, which is reasonably attributed to such week, if such deduction is required as a condition for full tax credit against the tax imposed by the Federal Unemployment Tax Act.
      R.I.G.L. § 28-44-19.1(1). DES continues to offset one hundred percent of the pension payment. For the reasons explained infra, this offset is consistent with the 1980 amendment of § (A)(i).

      . The Secretary’s interpretation is also set forth in Cabais v. Egger, 690 F.2d 234, 241-43 (D.C.Cir.1983).

      . Plaintiffs brief in support of his motion for summary judgment focused on statements by Senators Bradley, Dole, Moynihan and Boren.
      As to case law, plaintiff relied on Bowman v. Stumbo, Civ. No. 82-0244-L(A) (W.D.Ky. June 29, 1983); Rivera v. Patino, 543 F.Supp. 1160 (N.D.Cal.1982); and Cullen v. Roberts, 93 A.D.2d 907, 461 N.Y.S.2d 592 (1983). As discussed above, both the Bowman and Rivera decisions have been reversed. Bowman v. Stumbo, 735 F.2d 192 (6th Cir.1984); Rivera v. Becerra, 714 F.2d 887 (9th Cir.1983), cert. denied sub nom. International Union, UAW v. Donovan, -U.S. -, 104 S.Ct. 1591, 80 L.Ed.2d 124 (1984). The authority of Cullen is questionable since it relied exclusively on the district court decision in Rivera.

      . The term "plan” in § (A)(i) was added by § 414 of the Multiemployer Act, 94 Stat. 1310, and thus undoubtedly has a meaning consistent with other federal definitions of pension plans. Although the Social Security retirement system is not subject to ERISA, it resembles the normal multiemployer private pension defined benefit plans generally subject to ERISA, rather than the more rare individual account plans where the accrued benefit is always the balance of the individual’s account. See Connolly v. Pension Benefit Guar. Corp., 581 F.2d 729, 733 (9th Cir.1978), cert. denied, 440 U.S. 935, 99 S.Ct. 1278, 59 L.Ed.2d 492 (1979). See Bowman v. Stumbo, 735 F.2d 192, 197 (6th Cir.1984) ("the Court is satisfied that the Social Security ... system[ ] must be deemed to be a ‘plan’ to which a base period employer ‘contributes’ through payment of the FICA ... taxes”); Peare v. McFarland, 577 F.Supp. 791, 794 n. 4 (N.D.Ind.1984), appeal pending (plaintiff’s contention that payment of taxes into the Social Security System does not constitute contributions to a pension plan "is without merit”).

      . As explained infra, Rhode Island’s decision to offset one hundred percent of the Social Security pension is consistent with the federal statute, as § 3304(a)(15) establishes a minimum offset requirement.

      . Plaintiffs claim that the Secretary of Labor’s construction of § (A)(i) violates the equal protection clause is without merit. The courts have soundly rejected this contention, concluding that the statute, when construed on its face, is rationally based. See, e.g., McKay v. Horn, 529 F.Supp. 847, 863 (D.N.J.1981); Cabais v. Egger, 527 F.Supp. 498, 502-03 (D.D.C.1981), rev'd in part, aff'd in part on other grounds, 690 F.2d 234 (D.C.Cir.1982). See also Rivera v. Patino, 524 F.Supp. 136, 144-47 (N.D.Cal.1981), rev'd on other grounds sub nom. Rivera v. Becerra, 714 F.2d 887 (9th Cir.1983) (Congress had a rational basis for its treatment of Social Security and other pensions in § 3304(a)(15)).

      . The House had sought to eliminate required offset of Social Security and Railroad Retirement pensions, and to limit required offset of other pensions to those that were enhanced by base period employment. See H.R. 3904, § 414 (House amendment), 126 Cong.Rec. 23008, 23038 (1980). The Senate rejected this proposal and substituted its own amendment. 126 Cong. Rec. 23280, 23282 (1980). The Conference Report notes that the Conference “generally” follows the Senate amendment.
      The Conference Committee eliminated the proposed House exemption for Social Security, retained the language of both houses in sections (A)(i) and (B), and adopted the House language in section (A)(ii) for pensions other than Social Security and Railroad Retirement.

      . The Department of Labor also pointed out that Senator Bradley was not a member of the Conference Committee and made no contribution to the present wording of the statute.

      . Mayberry involved the dollar-for-dollar offset of a military pension when plaintiff filed for unemployment benefits after being laid-off from a post-retirement job in the private sector. Watkins involved the dollar-for-dollar offset of a civil service disability retirement pension when plaintiff filed for unemployment benefits after losing a post-retirement job in the private sector. In both cases, plaintiffs argued that the offsets were not authorized by § 3304(a)(15).

      . While the Secretary modified, but subsequently reaffirmed UIPL No. 7-81, with regard to the authority of states to limit the pension offset requirement with regard to employee contributions under § (B), the Secretary has uniformly maintained that § 3304(a)(15) sets minimum offset requirements, which states may exceed. Id.; UIPL No. 7-81, Change 1, 47 Fed. Reg. 29908 (June 9, 1981); Change 2, 48 Fed. Reg. 37740 (Aug. 19, 1983). A state can limit the offset of an employee-contributed pension, such as Social Security, only if it follows the terms of § (B). The reduction permitted by § (B) does not alter the offset requirement of § (A)(i). Rather than limit the offset, Rhode Island has chosen to exceed these minimum offset requirements.


author: SHADUR, District Judge.

text:
    CLUB ASSISTANCE PROGRAM, INC., Plaintiff, v. Jack J. ZUKERMAN, et al., Defendants.
    No. 84 C 1699.
    United States District Court, N.D. Illinois, E.D.
    Nov. 29, 1984.

      Anthony C. Valiulis, Kenneth A. Wexler, Much, Shelist, Freed, Denenberg, Ament & Eiger, Chicago, Ill., for plaintiff.
    Anthony J. Pauletto, Chicago, Ill., for defendants.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

This Court’s September 10, 1984 memorandum opinion and order (the “Opinion,” 594 F.Supp. 341) (1) denied as untimely the motion of defendants Jack Zukerman (“Zukerman”), William Feldstein, Jr. and Murray Scheer to transfer venue under Fed.R.Civ.P. (“Rule”) 12(b)(3) and (2) granted in part and denied in part defendants’ Rule 12(b)(2) motion to dismiss the various counts of the Complaint. Now defendants move under 28 U.S.C. § 1404(a) (“Section 1404(a)”) for transfer to the Central District of California. For the reasons stated briefly in this memorandum opinion and order, the motion is granted.

Nature of the Case

Defendants are officers and directors of Delaware Genesis, Inc. (“Genesis”), a Los Angeles-based company “in the business of warehousing, marketing, and selling weight control products, diets, food packages, behavior modification programs, and other health related plans and items” (Complaint ¶ 6). On May 27, 1983 Genesis, acting through defendants, entered into an agreement (the “Contract”) with Club Assistance Program, Inc. (“CAP”) for marketing-consultant services to help promote sales of Genesis’ products in Illinois. Since that time Genesis has not paid CAP all money due, or delivered any of the Genesis stock to which CAP is entitled, under the Contract. On February 29, 1984 Genesis filed a petition for Chapter 11 bankruptcy reorganization in the Central District of California.

CAP claims defendants are responsible for Genesis’ incomplete performance of the Contract because they looted, and generally took unreasonable profits from, Genesis. CAP asserts defendants acted against it specifically in an effort to hide their wrongdoing by deliberately misinterpreting the Contract, then by lulling CAP into a false sense of security by misrepresenting to CAP that Genesis would be able to pay its debts.

After the Opinion, CAP remains with three surviving claims. They charge defendants with having:

1. violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968 (Count I);
2. tortiously interfered with the Contract by inducing Genesis to breach it (Count II); and
3. committed fraud by (a) looting Genesis and (b) misrepresenting its financial condition to CAP (Count III).

Section HOJfa) Transfer

Section 1404(a) permits transfer “[f]or the convenience of parties and witnesses, in the interest of justice,” to any district where an action “might have been brought.” Because defendants are California domiciliaries, this action could unquestionably have been brought in the Central District of California (28 U.S.C. § 1391(a)). There is similarly no doubt the action should be transferred there.

Section 1404(a) calls for a balancing exercise, with the burden on defendants to show a significant tipping in their favor. Among the relevant factors are those described in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947) for deciding forum non conveniens cases. But (despite CAP’s erroneous assertion to the contrary) this Court may grant transfers more freely under Section 1404(a) than under the older forum non conveniens doctrine. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 253, 102 S.Ct. 252, 264, 70 L.Ed.2d 419 (1981); Norwood v. Kirkpatrick, 349 U.S. 29, 30-32, 95 S.Ct. 544, 545-46, 99 L.Ed. 789 (1955).

Only one factor weighs in CAP’s favor here: its choice of an Illinois forum. As this Court reconfirmed in Associated Mills, Inc. v. Rush Hampton Industries, Inc., 588 F.Supp. 1164, 1165-66 (N.D.Ill.1984), that choice is simply one factor among many to be considered. Associated Mills, however, went on to echo the teaching of Norwood, 349 U.S. at 32, 75 S.Ct. at 546 that plaintiff’s forum selection is significantly less weighty under Section 1404(a) than under forum non conveniens.

Here CAP’s choice of forum is heavily outweighed by considerations of the convenience of witnesses and (less importantly) the location of relevant documents. CAP’s case is based entirely on actions that took place in California in the context of Genesis’ business operations. Genesis’ sole office is in California and all of its employees and outside accountants reside there (Zukerman Aff. ¶¶12-8). If defendants in fact looted Genesis, they did so in California before California witnesses. They took California assets and concealed their looting from California accountants by means of California documents. Their asserted misrepresentations of Genesis’ financial condition took place during two long-distance calls (with Zukerman on one end of the telephone line — in California), and their alleged inducement of Genesis’ breach of its contract took place there. California sources of proof are obvioüsly the key (if not indeed the sole) elements of CAP’s case on liability.

According to Zukerman Aff. 115, Genesis has 146 California employees (this does not take into account its outside accountants). Among the likely witnesses as to Genesis’ finances — all California residents — are the three defendants, the outside accountants, Genesis’ Vice-President of Finance and at least some of the 14 employees of Genesis’ Finance/Accounting Division. Moreover, a great number of Genesis’ business records may be relevant, because CAP charges an elaborate scheme involving millions of dollars and covering seven or eight months.

On the Illinois side of the balance, CAP can suggest only five potential Illinois witnesses (Weiner Aff. ¶¶ 7-8). Even at that, it fails to explain the importance or relevance of the testimony of three of those witnesses — Art Shay, David Parsons and Chuck Leve (Weiner Aff. ¶¶ 7-8) — or even to identify them. This Court can only assume their testimony (even if presumed relevant) is less significant than the testimony of the numerous essential California witnesses. Even on a different assumption, however, the balance remains substantially in defendants’ favor. Finally, CAP also says it will introduce its Illinois business records to prove damages, but it gives no indication those records are voluminous or would be difficult to transport.

Clearly, then, convenience of witnesses weighs heavily in favor of California. And that balance is tipped even more strongly in the same direction by the location of most of the relevant documents.

CAP’s various untenable arguments contest among themselves for the label of “least persuasive.” At least a strong contender is its suggestion that the interest of justice militates against transfer because Hokama v. E.F. Hutton & Co., 566 F.Supp. 636, 643-44 (C.D.Cal.1983) indicates “the Central District of California” is misinterpreting RICO and might thus force CAP into a wasteful appeal of an adverse ruling. That contention has two certain flaws and the intriguing possibility of a. ■third:

1. To construe a single decision by a single judge as the position of an entire court of 22 judges is of course nonsense. Absent a Ninth Circuit decision on point, judges there are no different from judges here in feeling free to reach their own decisions independently. In fact Hokama reflects very much a minority view of a still-unsettled area in civil RICO, though some aspects of the Second Circuit’s recent opinion in Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir.1984) come close to espousing the Hokama result. Simply in terms of probability, CAP would appear no more or less likely to encounter an adverse decision on the legal issue in California than here (and who is to say at this point, with any degree of certainty, how the issue will ultimately be resolved by the Supreme Court?).
2. CAP would have this Court engage in two entirely impermissible actions:
(a) predict this Court’s findings on the legal sufficiency of CAP’s RICO claim without the benefit of argument, and
(b) render an advisory opinion as to another court’s hypothetical disposition of the same claim.

Article III constraints, as well as other jurisprudential considerations, compel rejection of that proposal.

3. Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964) held a Section 1404(a) transfer should not trigger a change in the applicable substantive law. As the Court said {id. at 635-37, 84 S.Ct. at 818-19, footnotes omitted):

The legislative history of § 1404(a) certainly does not justify the rather startling conclusion that one might “get a change of law as a bonus for a change of venue.” Indeed, an interpretation accepting such a rule would go far to frustrate the remedial purposes of § 1404(a). If a change of law were in the offing, the parties might well regard the section primarily as a forum-shopping instrument. And, more importantly, courts would at least be reluctant to grant transfers, despite considerations of convenience, if to do so might conceivably prejudice the claim of a plaintiff who had initially selected a permissible forum. We believe, therefore, that both the history and purposes of § 1404(a) indicate that it should be regarded as a federal judicial housekeeping measure, dealing with the placement of litigation in the federal courts and generally intended, on the basis of convenience and fairness, simply to authorize a change of courtrooms.

Though Van Dusen addressed the question in the context of a diversity ease (and thus made the choice between potentially applicable state laws), it is a neat question whether the same reasoning would govern a federal-question claim, so as to carry with the case the transferor court’s law on that subject. Given the overwhelming balance in favor of transfer in this case, that potential question (and all others) will be left to the transferee court.

Conclusion

This Court’s observation in the Opinion, 594 F.Supp. at 351 bears repeating:

Any business person — indeed anyone other than lawyers trained in spinning out the legal fictions that dominate so much of legal “reasoning” — would unquestionably view this as a California case. Defendants’ asserted Illinois contacts allegedly resulted only from their desire to preserve the ill-gotten gains they had already appropriated. And if in fact defendants did not loot Genesis, but only presided over a failed business, it is even more anomalous they would have to defend this action in Illinois.

CAP’s choice of an Illinois forum is heavily outweighed by the location of the majority of the key witnesses and key documents in California. Defendants’ Section 1404(a) motion to transfer to the Central District of California is therefore granted.

      . Counts IV and V were dismissed, and portions of Count I were stricken. Counts II and III and portions of Count I survived the motion.

      . This statement is taken from the Opinion, with footnotes omitted.

      . Unfortunately CAP’s Memorandum is often wholly unreliable in its statements of law. For example, it astonishingly cites Norwood (cited at the end of this paragraph of the text) for the proposition that "the analysis [by Gulf Oil under the forum non conveniens doctrine] has not changed” since Section 1404(a) was enacted. In fact Norwood (at the very page cited by CAP, 349 U.S. at 32!) announced exactly the opposite rule: that Section 1404(a) has changed the analysis by making "the discretion to be exercised ... broader" in "permitting] courts to grant transfers upon a lesser showing of inconvenience.”

      . Convenience of the parties appears to be a standoff. All three defendants are California residents, while CAP’s two principals (Alan Schwartz and David Weiner) reside in Illinois. Neither CAP nor Genesis has an office outside its home state. Thus each party would be equally inconvenienced by litigating on the other’s home turf.

      . CAP's argument that Genesis had a number of out-of-California distributors misses the point (though to be fair, CAP sought to respond to defendants’ assertion that most of its distributors were in California). Neither party has identified any in-state or out-of-state distributor involved in, or even with knowledge of, defendants' allegedly fraudulent activities. Distributors appear to play no role in the case, and even if they did, non-Illinois distributors would scarcely render Illinois a more convenient forum.

      . This Court has had occasion to remark in other Section 1404(a) cases that in these days of massive document discovery and photocopying the need to transport copies of documents from a party’s home base to a distant forum weighs less heavily in the scales. But where as here the relevant document location appears so one-sided, it remains a consideration having some significance. This is so despite CAP’s stated willingness to conduct discovery on site in California.

      . That deficiency in CAP’s affidavit reinforces the adage that people who file glass affidavits should not throw stones. CAP Mem. 7 criticizes Genesis’ affidavit for similar (though less serious) inadequacies.

      . In addition to the misstatements referred to in nn. 3, 10 and 11, for example, CAP Mem. 3 cites “Reyno v. Piper Aircraft Co., 630 F.2d 149, 156 (3d Cir.1980), rev’d on other grounds, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981)” for the obviously incorrect proposition that "[a]ll three parts of the test [convenience of parties and witnesses and the interest of justice] must be satisfied before a case can be transferred to a different district” under Section 1404(a). CAP was safe in saying the Supreme Court disposed of the appeal "on other grounds,” because the case was a forum non conveniens (not a Section 1404(a)) case, and the Court of Appeals’ cryptic passing comment to which CAP appears to refer did not focus on the application of the Section 1404(a) tests at all. To return to CAP’s overall presentation in its Memorandum, its manifold deficiencies might well be viewed as raising Rule 11 concerns. But it may rather be that CAP’s counsel can do the first part of research— finding cases — but not the second — applying them. That possibility is at least preferable to the far more unlikely alternative of intended misstatements of law. In part for that reason (even though the Rule 11 standard is objective, not subjective), no Rule 11 inquiry will be launched.

      . That number reflects the size of the court after full implementation of the Bankruptcy Amendments and Federal Judgeship Act of 1984 § 202(e), Pub.L. No. 98-353. Even at the court's prior authorized complement of 17, the chance of this case (after transfer) drawing the District Judge who decided Hokama was about 6%.

      . CAP Mem. 11 disingenuously suggests the Hokama court deliberately refused to follow a decision of its own Court of Appeals that had rejected the requirement of a nexus to organized crime in RICO cases. In fact the Hokama court accurately said (566 F.Supp. at 643) the cited case, United States v. Campanale, 518 F.2d 352, 363 (9th Cir.1975), cert. denied sub nom. Arthur Andersen & Co. v. Schacht, — U.S. —, 104 S.Ct. 508, 78 L.Ed.2d 698 (1983), had dealt only with criminal RICO and not with whether the "nexus” concept applies in civil RICO actions. CAP Mem. 11 does however accurately report some of the numerous cases going the other way.

      . Here too CAP’S counsel did their homework in locating a case (they cited and discussed Van Dusen at Mem. 13-14), then proceeded to misstate its significance: They said (Mem. 13) the Court "appl[ied] the common law doctrine of forum non conveniens,” when the first sentence of Justice Goldberg’s opinion for a unanimous Court made just the opposite plain (376 U.S. at 613, 84 S.Ct. at 807):
      This case involves the construction and application of § 1404(a) of the Judicial Code of 1948.
      Indeed the entire gravamen of the opinion was the difference in operative rules occasioned by the new concept of transfer under Section 1404(a) instead of the dismissals forced by the forum non conveniens rule.

      . CAP Mem. 13-14 does discuss the dictum in a pre-Van Dusen case, H.L. Green Co. v. MacMahon, 312 F.2d 650, 652 (2d Cir.1962), cert. denied, 372 U.S. 928, 83 S.Ct. 876, 372 U.S. 928 (1963), suggesting the choice-of-law rule might be different in a federal-question situation: However, the post-Green definitive announcement of principle in Van Dusen at least requires a fresh look at the issue. And on the precise argument now advanced by CAP, Green did say (312 F.2d at 652):
      A plaintiff may not resist the transfer of his action to another district court on the ground that the transferee court will or may interpret federal law in a manner less favorable to him.


author: FILIPPINE, District Judge.

text:
    Lillian HARVEY, Plaintiff, v. THREE DOCTORS FROM INDIA and Dr. George Grossberg at Wohl Institute, and Mr. Riley at Marymount Manor, Defendants.
    No. 84-2456C(2).
    United States District Court, E.D. Missouri St. Louis Division.
    Nov. 29, 1984.
    Lillian Harvey, pro se.
   MEMORANDUM

FILIPPINE, District Judge.

This matter is before the Court for a determination of whether process should issue. Plaintiff is proceeding in forma pauperis and is pro se.

Under 28 U.S.C. § 1915 an action is frivolous and may be dismissed pursuant to § 1915(d) if it fails to state a claim upon which relief can be granted under Martin-Trigona v. Stewart, 691 F.2d 856, 858 (8th Cir.1982); Matz v. Kelsch, 638 F.2d 48, 49 n. 2 (8th Cir.1981). A pro se civil rights complaint is held to less stringent standards than those required of complaints drafted by an attorney, Hughes v. Rowe, 449 U.S. 5, 9, 101 S.Ct. 173, 175, 66 L.Ed.2d 163 (1980) (per curiam); McNally v. Pulitzer Publishing Company, 532 F.2d 69, 73 n. 3 (8th Cir.1976) cert. denied, 429 U.S. 855, 97 S.Ct. 150, 50 L.Ed.2d 131 (1976), and can be dismissed for failure to state a claim only if it appears beyond doubt that the plaintiff could prove no set of facts supporting a claim for relief. Estelle v. Gamble, 429 U.S. 97, 106, 97 S.Ct. 285, 292, 50 L.Ed.2d 251 (1976); Guy v. Swift and Company, 612 F.2d 383 (8th Cir.1980) (per curiam).

After careful consideration of the matter the Court determines that plaintiff’s claim fails to state a claim for relief. Even if her claim is arguably under 42 U.S.C. § 1983, plaintiff fails to allege that defendants were acting under color of state law, an essential element of a § 1983 claim. Gomez v. Toledo, 446 U.S. 635, 640, 100 S.Ct. 1920, 1923, 64 L.Ed.2d 572 (1980). Accordingly, plaintiffs complaint will be dismissed and the Clerk ordered not to issue process.