author: CARRIGAN, District Judge.

text:
    STATE OF COLORADO; The Water Quality Control Division, Division of Administration, Colorado Department of Health; The Water Quality Control Commission, Colorado Department of Health; The Waste Management Division, Colorado Department of Health; and The Colorado Department of Health, Plaintiffs, v. ASARCO, INCORPORATED, A New Jersey Corporation, Defendant.
    Civ. A. No. 83-C-2383.
    United States District Court, D. Colorado.
    Aug. 29, 1985.

      Howard Kenison, Jacqueline H. Berardini, Denver, Colo., for plaintiffs.
    Harry Hobson, Denver, Colo., for defendant.
   MEMORANDUM OPINION AND ORDER

CARRIGAN, District Judge.

In its first amended complaint, the State of Colorado (“State” or “plaintiff”) alleges that ASARCO is liable under § 107 of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. § 9607, for damages for injury to, destruction of, and/or loss of natural resources caused by releases of hazardous substances from ASARCO’s Globe Plant, and for response costs incurred and to be incurred by the State at the site. The State also asserts pendent state law claims for statutory nuisance, strict liability, and negligence.

ASARCO has moved to dismiss the plaintiff’s CERCLA claims pursuant to Fed.R. Civ.P. 12(b)(6), or, in the alternative, for summary judgment on these claims under Fed.R. Civ.P. 56. The parties have briefed the issues, and oral argument would not assist in resolving them.

I.

ASARCO first argues that the plaintiff’s claims are barred by its failure to present a claim letter to ASARCO sixty days before commencing this action as required by CERCLA § 112(a), 42 U.S.C. § 9612(a). That section provides:

“All claims which may be asserted against the Fund pursuant to section 111 of this title [42 USC § 9611] shall be presented in the first instance to the owner, operator, or guarantor of the vessel or facility from which a hazardous substance has been released, if known to the claimant, and to any other person known to the claimant who may be liable under section 107 of this title [42 USC § 9607], In any case where the claim has not been satisfied within sixty days of presentation in accordance with this subsection, the claimant may elect to commence an action in court against such owner, operator, guarantor, or other person or to present the claim to the Fund for payment.”

A “claim” is defined as a “demand in writing for a sum certain.” 42 U.S.C. § 9601(4). Plaintiff presented to ASARCO a “Notice and Claim Against ASARCO Incorporated for Costs and Damages Pursuant to 42 U.S.C. § 9612,” dated December 2, 1983. In that claim, the plaintiff notified ASARCO that, based upon information and belief, releases of hazardous substances, including arsenic, lead, cadmium, and selenium, had occurred at the Globe Plant facility and had contaminated natural resources of the State, including surface soils, surface water, ground water, and air. The notice concluded, “The state hereby makes its claim pursuant to section 112 of the Act (42 U.S.C. § 9612) and demands that the state be compensated for costs and damages in the amount of $50,000,000 per release, subject to adjustment based on federal regulations and/or assessment of natural resource damage.” The complaint in this action was filed on December 9, 1983.

Indisputably, the State did not present its claim sixty days prior to commencing this action, nor did the claim demand a sum certain. The figure $50,000,000 per release is merely the statutory maximum for liability for damage to natural resources. 42 U.S.C. § 9607(c)(1)(D). The State gave no indication of the number of releases nor even an estimated value of actual damage to natural resources. ASARCO argues that presentment of a claim letter to a potentially responsible party is a condition precedent to bringing a § 107 action and that since the condition was not fulfilled, the claim must be dismissed. See Bulk Distribution Centers, Inc. v. Monsanto Co., 589 F.Supp. 1437 (S.D.Fla.1984) (before a private claimant can commence a cost recovery action against another private party, it must first serve a letter demanding a “sum certain” to cover the costs of the clean-up operation; presentment of a demand letter is a condition precedent to bringing the action.) United States v. Allied Chemical Crop., 587 F.Supp. 1205 (N.D.Cal.1984) (notice of claim pursuant to § 112(a) is a prerequisite to bringing suit under § 107, including actions brought by the government); see also Dedham Water Co. v. Cumberland Farms Dairy, Inc., 588 F.Supp. 515 (D.Mass.1983).

Plaintiff argues that presentation of a claim letter is not a jurisdictional prerequisite to suit under § 107. It bases this argument on the prefatory language of that section which states, “Notwithstanding any other provision or rule of law____” Plaintiff contends that this language means that § 107 stands completely apart from the procedures in § 112 (and from all other provisions of the Act.)

Other courts have relied on this language in holding that § 107 is entirely distinct from other sections of the Act and that § 107 is not subject to the procedures of § 112. See Homart Development Co. v. Bethlehem Steel Corp., 22 E.R.C. 1357, 1367 (N.D.Cal.1984); Pinole Point Properties v. Bethlehem Steel Corp., 596 F.Supp. 283, 288-89 (N.D.Cal.1984); United States v. Wade, 577 F.Supp. 1326, 1334-36 (E.D. Pa.1983); Wehner v. Syntex Corp., 22 E.R.C. 1373, 1375 (E.D.Mo.1983); United States v. Reilly Tar & Chemical Corp., 546 F.Supp. 1100, 1117-18 (D.Minn.1982). In my view, this is not a proper basis for holding § 112 inapplicable to § 107 actions. It is true that many of the provisions of § 112 apply only to claims asserted against the Superfund and have no meaning in a § 107 court action. However, § 112(d) contains the statute of limitations applicable to both court actions and claims against the Fund. The prefatory language of § 107 clearly was not intended to exempt § 107 actions from the statute of limitations. Section 112, therefore, cannot be ignored in its entirety; rather each of its provisions must be analyzed separately to determine its applicability.

While the prefatory language of § 107 does not resolve the issue, the language of § 112 itself suggests that the plaintiffs failure to comply with the notice requirement does not bar this action. Under § 112(a), the notice requirement applies to “All claims which may be asserted against the Fund pursuant to section 111 [42 U.S.C. § 9611]____” The plaintiffs claim in this case is not one which may be asserted against the Fund under § 111. The State could not obtain any money from the Fund for “restoration, rehabilitation, or replacement or acquisition of the equivalent of any natural resources” (§ 107(f)) because the Environmental Protection Agency (“EPA”) and the governor have not developed and adopted any plan for use of such funds as required by § 111(i). Nor can the State’s claim for response costs be asserted against the Fund because the State has not entered into a contract or cooperative agreement with the federal government pursuant to § 104(c)(3), 42 U.S.C. § 9604(c)(3), and 40 C.F.R. § 300.62(c)(1). Indeed, the State’s claims against the Fund under §§ 111 and 112 for natural resource damages at this and other sites were rejected by the EPA. (Letter dated January 27, 1984, from Jack W. McGraw, Acting Assistant Administrator of the Office of Solid Waste and Emergency Response of the EPA to Thomas Looby, Acting Assistant Director of the Colorado Department of Health, attached as Exhibit D to Plaintiff’s Brief in Opposition.)

The preferred interpretation of § 112 was adopted in New York v. General Electric Co., 592 F.Supp. 291 (N.D.N.Y.1984) in which the court decided this issue in a similar factual context. General Electric received a claim letter from New York on November 30, 1983. The letter did not request a sum certain and suit was filed only eight days later. The court there held that failure to comply with the sixty-day notice requirement did not require dismissal of the action. Judge Miner stated:

“First, and perhaps most importantly, defendant’s reliance on the sixty-day notice requirement is misplaced. The first sentence of section 112(a) expressly provides that ‘[a]ll claims which may be asserted against the Fund [the Superfund] pursuant to section 9611 of this title shall be presented in the first instance to the owner____’ 42 U.S.C. § 9612(a). It is clear, therefore, that the notice provision applies only to actions in which a claim is sought to be made against the Fund; it does not apply when a CERCLA case is merely brought against a responsible party such as GE. Notification in Fund cases is a necessary prerequisite aimed at conserving the assets of the Super-fund by encouraging responsible parties to pay clean-up costs before a plaintiff is forced to look to Fund money. Because New York’s suit here involves claims for certain costs which may not be asserted against the Fund, but only against GE, the provisions of section 112(a) are not applicable.
Second, the Court is persuaded that in any event, the sixty-day requirement is not jurisdictional. The cases cited by GE, which arose in the context of suits involving other environmental statutes, embodied interpretations of significantly different statutory mechanisms. Unlike the Clean Water Act and the Clean Air Act, which impose notice requirements that are compatible with those statutes’ preference for initial administrative rather than private action, see Massachusetts v. United States Veterans Administration, 541 F.2d 119, 121 (1st Cir.1976), the purpose of CERCLA seems only to require notice in order to facilitate negotiated settlements. The fact that sixty days elapsed prior to the instant motions comports with the pragmatic approach to the notice requirement, since the parties were afforded adequate time in which to avoid any court intervention.” 592 F.Supp. at 300-01.

Further support for this interpretation of § 112 is found in the legislative history of the Act. Section 112 was adapted from § 6(b)(3)(D) as reported out of the Senate Committee on Environment and Public Works, 126 Cong.Rec. 30914 (Nov. 24, 1980). That section provided:

“All claims shall be presented in the first instance to the owner, operator, or guarantor of the vessel, or facility from which a hazardous substance has been discharged or released, and to any other person liable under section 4. In any case where the claim has not been satisfied in accordance with this paragraph, the claimant may elect to commence an action in court against such owner, operator, or guarantor or other person or to present the claim for payment from the fund under this section.”

The Senate Report’s commentary on this provision is rather brief:

“In all instances the claimant is required to first present his claim to the potentially liable person or persons, if known, prior to pursuing any right under this section. If the claim is not satisfied, the claimant, or in the case of death, the estate of such person, may then elect either to pursue his remedies in the courts or present his claim to the Fund.” S.Rep. No. 96-848, 96th Cong. 2d Sess., 81 (1980) (emphasis added.)

“This section” is section 6 of S. 1480, entitled “Use of Response Fund,” which deals entirely with claims against the Fund. The Senate Report, then, gives some indication that the claim letter requirement applies only to claims against the Fund.

I acknowledge that this interpretation of § 112(a) does not harmonize completely with the later language of that subsection which states, “In any case where the claim has not been satisfied within sixty days of presentation in accordance with this subsection, the claimant may elect to commence an action in court against such owner, operator, guarantor; or other person or to present the claim to the Fund for payment.” (emphasis added.) It is puzzling that Congress included the emphasized language, for it does suggest that a claim letter must precede every court.action. Perhaps the phrase was intended to signify that a claimant still retains the option to sue under § 107 after presenting the claim letter.

For the reasons stated above, I do not believe that the notice requirements of § 112(a) apply to this action. Even if the provision does apply, however, I conclude, based on the intent of Congress as manifested in the Act, that the State’s failure to serve a claim letter on ASARCO sixty days before commencing this action does not require dismissal of the complaint.

It is clear from both the structure of the Act and its legislative history that in enacting CERCLA, Congress sought expeditious clean-up of hazardous waste sites. To that end, Congress established a December 11, 1983 deadline for action on sites where “the loss” had already been discovered at the time of enactment. CERCLA § 112(d), 42 U.S.C. § 9612(d). Section 301(c) of the Act, 42 U.S.C. § 9651(c), required the President to promulgate regulations by December 11, 1982 for the assessment of damages for injury to, destruction of, or loss of natural resources resulting from a release of a hazardous substance. This duty was delegated by the President to the Secretary of the Interior. Exec.Order No. 12316 § 8(e), 46 Fed.Reg. 42237 (August 14, 1981), reprinted in 42 U.S.C.S. § 9615 at 1082-86.

One can readily imagine the scenario envisioned by Congress for suits of this nature. Damage assessment regulations were to be promulgated in December, 1982. The State would then immediately commence assessing damages to natural resources at the Globe Plant. By mid-October, 1983, the State would be able to present a well-documented claim letter to ASARCO detailing the natural resources damaged by releases of hazardous substances and the value of those resources. ASARCO, having notice of the amount for which the state claimed it was liable, and of the strength of the State’s evidence, would then have been able to make a rational decision whether to defend the lawsuit or to negotiate a settlement.

This scenario never materialized, however, because the Secretary of the Interior, James G. Watt, failed to promulgate the damage assessment regulations by December 11, 1982, as required. Indeed, to this date they still have not been promulgated, despite suits by a number of states to require the Secretary to do so. See e.g. Montana v. Clark and Ruckelsaus, No. CV83-318-H (D.Mont. filed December 12, 1983). As a result, the State has been severely disadvantaged in bringing this suit. In May, 1984, the State moved for a stay of proceedings in this case on the ground that it could not effectively prosecute this action until the regulations were promulgated. I denied that motion for stay because I believed that the case could proceed on some issues (e.g., liability), but I granted the State leave to renew the motion in the event certain issues could not be decided pending promulgation of the regulations.

The claim letter, consequently, was less than, fully informative. There was then no real possibility of settlement, regardless of whether the claim letter had been presented one or sixty days before the filing of the complaint for the question of damages was not sufficiently defined. Under such circumstances, I must decide whether the sixty-day notice requirement was deemed by Congress to be so integral to CERCLA’s scheme that Congress would have intended cases to be dismissed even if technical compliance would have been meaningless. I cannot believe that Congress intended or desired such a result. Given CERCLA’s overriding purpose of remedying the very serious problem of improper hazardous waste disposal, I conclude that it would be error to dismiss this suit under these circumstances. Remedial legislation should be construed liberally to effectuate its purposes. Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967). This statute, particularly, should be given a broad application and construction. United States v. Reilly Tar & Chemical Corp., 546 F.Supp. 1100, 1112 (D.Minn.1982).

Furthermore, I am troubled by the fact that this motion was not filed until April 22, 1985. ASARCO asserted failure to comply with § 112(a) as an affirmative defense in its answer filed June 22, 1984 but made no effort to have the matter decided until the April 1985 motion. ASARCO could have moved to dismiss before filing an answer. The State has incurred considerable expense in litigating this action in the meantime. I see no reason why this ground for dismissal could not have been raised more than a year ago. Under these circumstances, I conclude that the defendant has waived this defense by failing to assert it in a timely manner.

II.

ASARCO’s second ground for dismissal is based on that part of § 112(a), 42 U.S.C. § 9612(a) which states that if the owner or operator of a facility fails to pay a claim presented against it, “the claimant may elect to commence an action ... or to present the claim to the Fund for payment.” ASARCO argues that this subsection requires the State to make an irrevocable election between asserting the claim against the Fund or against ASARCO. It is undisputed that the State presented this claim to the Fund for payment the day after this action was filed. ASARCO argues, therefore, that the State’s action is barred by its election of remedies.

ASARCO states that this interpretation of § 112(a) is supported by the EPA, citing a letter from Lee M. Thomas, Assistant Administrator of the Office of Solid Waste and Emergency Response of the EPA. This letter is not a binding interpretation of § 112 for two reasons. First, it does not rise even to the level of rule-making. The letter does not cite any cases to support the position nor does it offer any policy reason behind this interpretation. See Brown v. Porcher, 502 F.Supp. 946, 957, n. 20 (D.S.C.1980). Second, the letter is merely interpretive and not substantive. A court is not required to give effect to an interpretive regulation or general statement of agency policy. Chrysler Corp. v. Brown, 441 U.S. 281, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979).

Once again, the language of § 112 is not entirely clear. As discussed in part I, supra, there is substantial case support for the proposition that the requirements of § 112(a) do not apply to § 107 actions. See page 824, supra. Because these cases rest, in part, on the “Notwithstanding, any other provision of law” language of § 107, I do not follow them unequivocally. Rather, I conclude, based on general principles of law, that the election of remedies provision of § 112(a) does not require dismissal of this case.

The language of § 112(a) suggests that claims cannot be maintained simultaneously against the Fund and against a private party. However, in this case, the State had no valid claim against the Fund. See part I, supra. The State’s claims against the Fund were quickly rejected, and while it appears from the statute that the claim should not have been asserted against the Fund, the only inconvenience was to the EPA in processing the claim. The doctrine of election of remedies does not bar a claim absent some prejudicé to the opposing party. See United States v. Goodman, 572 F.Supp. 1284, 1288 (U.S. Ct.Int.Trade 1983) (“A binding election occurs only where one party pursues a remedy to the point where, in reliance upon such action, the other changes his position to his detriment.”); Dobbs, Remedies, § 1.5 (1973). Here, there has been no showing that ASARCO was prejudiced by the State’s action or that it relied in any way on the State’s claim against the Fund. I cannot believe that Congress would have intended that a State’s pursuit of both claims should result in satisfaction of neither. On these facts, I conclude that the State is not barred from maintaining this suit by its presentation of the claim against the Fund.

III.

ASARCO has moved for dismissal of the State’s claims for removal and response costs on the further ground that the Attorney General of Colorado has not been authorized to bring these claims. Under Colorado law, the Attorney General may bring an action on the State’s behalf only when requested to do so by the Governor or other specified State official. Colo.Rev. Stat. § 24-31-101(1) (1982). By Executive Order no. D0038 83, dated December 9, '1983, Governor Richard D. Lamm authorized the State to proceed with this action, stating as follows:

“WHEREAS, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601, et seq. the State of Colorado is interested in filing claims and/or actions concerning damages to natural resources at the following sites:
Globe Plant Site in Denver County
THEREFORE, I, Richard D. Lamm, Governor of the State of Colorado by the power vested in me by the Constitution and laws of the State of Colorado do hereby order the Attorney General of Colorado to take all necessary actions to initiate and pursue on behalf of the State of Colorado, claims and/or actions as described above.”

The Attorney General possesses only those powers expressly granted by the General Assembly. Colo. Const. Art. IV, § 1. People ex rel. Tooley v. District Court, 190 Colo. 486, 549 P.2d 774 (1974). It is undisputed that the State is authorized to bring an action to recover for damages to natural resources. The issue is whether the Executive Order is the requisite “express command” from the governor to authorize the Attorney General to proceed with claims for costs of removal and remedial action. See People ex rel. Brown v. District Court, 196 Colo. 359, 585 P.2d 593, 595 (1978).

I conclude that it is. The “Whereas” clause of the Executive Order declares that the State is interested in filing actions “concerning damages to natural resources.” It does not limit the Attorney General’s authority to seeking relief for such damages. On the contrary, the operative clause of the Order states that the Attorney General is authorized to “take all necessary actions” to pursue the claims. The Order need not specify each individual claim for relief before the Attorney General can assert that claim. It should be read broadly to effectuate its purpose.

IV.

ASARCO’s final argument is that this action should be dismissed because of the State’s failure to expend funds for clean-up of the Globe Plant site prior to commencing this action. Under § 107(a)(4)(A), the owner or operator of a facility at which hazardous substances have been disposed is liable for “all costs of removal'or remedial action incurred by ... a State.” (emphasis added.) This language has been interpreted to require a plaintiff to “begin the cost of the clean-up and incur some expenses before it can initiate an action.” United States v. Price, 577 F.Supp. 1103, 1110 (D.N.J.1983).

In its first amended complaint, the State alleges the following:

“19. The plaintiff has incurred costs of response to releases and threatened releases from the Globe Plant including “removal” and “remedial actions,” as those terms are defined in sections 101(23) and (24) of CERCLA, 42 U.S.C. 9601(23) and (24), and other necessary costs of response.
20. The costs the State of Colorado has incurred include but are not limited to the following: sampling and analytical services, time of Department of Health personnel, cost for retaining expert consultants, cost of legal representation, cost of identifying potentially responsible parties, and cost of investigation by state personnel.”

Under § 101(23), 42 U.S.C. § 9601(23), “removal” is defined to include “such actions as may be necessary to monitor, assess, and evaluate the threat of releases of hazardous substances into the environment.” The allegation of paragraph 20 of the first amended complaint, in particular with respect to sampling and analytical services, clearly falls within the definition of “removal.” Such costs are recoverable under § 107(a)(4)(A). See New York v. General Electric Co., 592 F.Supp. 291 (N.D.N. Y.1984). The State has adequately pled that it has incurred removal costs.

Accordingly, for the foregoing reasons, it is ordered that ASARCO’s Motion to Dismiss or in the Alternative for Summary Judgment is denied.


source: Caselaw Access Project

author: HADEN, Chief Judge.

license: Public Domain

text:
    Stewart JUSTICE, Sr., Plaintiff, v. UNITED STATES of America, Defendant.
    No. 3:85-0417.
    United States District Court, S.D. West Virginia, Huntington Division.
    Aug. 30, 1985.

      James W. St. Clair, Marshall & St. Clair, Huntington, W.Va., for plaintiff.
    Gary E. Pullen, Asst. U.S. Atty., Huntington, W.Va., Gerard J. Mene, U.S. Dept. of Justice, Trial Atty., Tax Div., Washington, D.C., for defendant.
   MEMORANDUM OPINION AND ORDER

HADEN, Chief Judge.

The Plaintiff, Stewart Justice, Sr., has brought this action seeking refunds of taxes paid for the years 1976, 1977, and 1979. Pending before the Court is the Government’s motion to dismiss a portion of the suit. Specifically, the Government’s motion addresses the refunds sought for 1976 and 1977.

I. Background

Stewart Justice, Sr., is a resident of Delbarton, West Virginia. He is a businessman. According to the Internal Revenue Service, Justice’s normal business activities include general construction work, truck hauling, leasing of trucks for hauling, coal mining partnership activities and, in prior years, buying and selling used ears. In his complaint, the Plaintiff alleges that he is also engaged in the suretyship business. The IRS disputes this allegation.

The dispute over whether the Plaintiff was in the suretyship business is relevant because in 1977 the Plaintiff signed a “Letter of Credit” at the Matewan National Bank in favor of Katron Corporation, a Tennessee based coal company. The IRS asserts that this act was not in the normal course of business, and that the Plaintiff was in fact motivated by his close personal relationship to Lyle Neal, President of Katron Corporation. The Plaintiff, on the other hand, argues that he was motivated by the profit to be made off the transaction. In any event, Katron Corporation experienced severe financial difficulties and filed for bankruptcy in 1978 or 1979. As a consequence, the Plaintiff was forced to pay a sum of $150,000 to the Matewan bank to fulfill his obligations as surety. He thereafter claimed the $150,000 as a deduction for a business bad debt when he filed his tax return on June 30,1980, for the taxable year ending December 31, 1979. This deduction for an alleged business bad debt created a net operating loss (NOL) for 1979. Thereupon, the Plaintiff carried back the NOL to tax years 1976 and 1977. This carryback deduction thus created alleged overpayments of tax of $1,639.00 for 1976 and $61,200.24 for 1977. The Plaintiff filed claims for these amounts on July 9, 1980.

As previously mentioned, the IRS’s position was that the suretyship debt was not a bad debt incurred in the ordinary course of business. Accordingly, on August 9, 1982, the IRS disallowed the refund claims. The denial was based on the determination that the debt was a nonbusiness bad debt within the meaning of 26 U.S.C. § 166. Adding insult to injury, the IRS also determined that the Plaintiff had underreported his 1979 gross income by $39,900.00.

His refund claims thus being denied, the Plaintiff filed another set of refund claims for 1976 and 1977 on March 9, 1983. The basis for this second set of refund claims was essentially the carryback NOL for 1979. In addition, the Plaintiff claimed a reduction in his 1977 gross income in the amount of $54,168.34. The basis for this reduction was that the amount represented the receipts of a loan repayment and, as such, should not have been included in gross income. As a result of the adjustments made to his 1979 income figures and his subsequent liability, the Plaintiff filed a refund claim in the amount of $30,890.97 for the year 1979.

The IRS disallowed this second set of refund claims on the same basis as the first: that the business bad debt deduction for 1979 was disallowed, thus there was no NOL for 1979 and, therefore, no deduction to carry back to 1976 and 1977. The refund claimed for the reduction in 1977 income because of the loan repayment was disallowed because the claim was not filed within the statute of limitations specified in 26 U.S.C. § 6511. Finally, the refund claim for 1979 was denied on the basis that a deficiency assessment had previously been made against the Plaintiff for that year.

Mr. Justice then filed this suit on April 4, 1985. The Government now contends by motion for dismissal that, with the exception of the taxable year ending December 31,1979, his suit is barred by the applicable statute of limitations.

II. Discussion

A. Applicable Statute of Limitations.

The Government contends without objection from the Plaintiff, Justice, that the applicable statute of limitations for judicial review of an administrative denial of a tax refund is two years. This period is found in 26 U.S.C. § 6532(a)(1), which provides, in pertinent part, as follows:

“No suit or proceeding under Section 7422(a) for the recovery of any internal revenue tax, penalty, or other sum, shall be begun ... after the expiration of two years from the date of mailing by certified mail or registered mail by the Secretary or his delegate to the taxpayer of a notice of the disallowance of the part of the claim to which the suit or proceeding relates.”

It must again be noted that the Plaintiff’s first set of refund claims was denied on August 6, 1982; the second set was denied on October 4, 1983. This action was brought on April 4, 1985. Hence, more than two years have passed since the first set of refund claims was denied; however, less than two years have passed since the second set was denied. It is the second set upon which the Plaintiff bases this action.

B. Similarity of Refund Claims.

The Government contends that the refund claims for the years 1976 and 1977 in the second set are identical to the claims for the same years in the first set. It cites ample authority for the proposition that a refiling of a second refund claim on the same basis as an earlier denied claim does not extend the two year statute of limitations period. This point of law advanced by the Government is well taken. The case of Huettl v. U.S., 675 F.2d 239 (9th Cir.1982), provides a helpful summary:

“A taxpayer generally may file more than one administrative refund claim within the statutory period applicable to the filing of claims with the IRS____ However, a second claim for refund on grounds identical to those in the first does not extend the two year limitations period of I.R.C. § 6532(a)(1) for bringing suit in a district court____ For purposes of limitations on suit, it makes no difference that the IRS acted on the second claim ... and this is true even where the taxpayer meets the statute of limitations for filing with the IRS on the second claim____”

Id. at 241-42 (cites omitted).

The Second Circuit had earlier noted the reasoning which supports the rule reannounced in Huettl.

“The thought that the period may be extended or the running of the time interrupted by filing a second claim for refund based on one of the grounds covered by the first claim and already disallowed cannot be countenanced. Such a result would put it in the power of a taxpayer to enlarge the time set by statute for commencing suit and would be a departure from settled rules applicable to statutes of limitations.”

Einson-Freeman Co. v. Corwin, 112 F.2d 683, 684 (2d Cir.) cert. denied 311 U.S. 693, 61 S.Ct. 75, 85 L.Ed. 44 (1940).

Given this state of the law, the Plaintiff has, inter alia, , submitted that the second set of claims for refunds was based on different grounds than the first. He relies upon the case of Charlson Realty Co. v. U.S., 384 F.2d 434, 181 Ct.Cl. 262 (1967). In Charlson, the plaintiff had sold land, arguably worth $90,000.00, to the mother and sister of the sole stockholder for $40,-000.00. The IRS thereafter assessed the plaintiff with an income tax deficiency in the sum of $12,500.00 plus interest. The IRS contended that the sale resulted in a distribution of a taxable dividend to the plaintiffs sole stockholder. The IRS also contended that the plaintiff had realized a gain of $50,000.00. After paying the deficiency, the plaintiff applied for a refund. It assigned as the single ground an argument that the company had not realized a gain on the land sale. While the first refund claim was still pending, the plaintiff filed a second claim for the same amount but assigned additional grounds. The IRS denied both claims on different dates. As in the instant case, the first denial was more than two years prior to the time the plaintiff filed suit, while the second denial was within two years of suit.

The Charlson court noted that simply because the refund claims were for the same amount was not controlling. Rather, the court looked at the grounds assigned in the two sets of refund claims to determine whether they were identical. The court found that the second claim for refund, “[i]n addition to setting forth the above grounds contained in the first claim, alleged various other and different grounds and theories for recovery.” Id. 384 F.2d at 439. Specifically, the Charlson plaintiff, in its second claim for refund, set forth at least nine additional grounds. It is unnecessary to spell out here those nine grounds; it is sufficient to merely note that they were such that the second claim bore little resemblance to the first.

This case, Charlson, is the bridge upon which the Plaintiff hopes to safely cross the troubled waters created by his twice filing refund claims instead of proceeding to Court. There are problems, however, in the Plaintiffs reliance on Charlson. Basically, this Court is unconvinced that the Plaintiff’s second set of refund claims was different than the first set.

Looking first at the initial set of refund claims, it can be seen that the claims of $1,639.00 for 1976 and $61,200.64 for 1977 are both a result of the NOL for 1979 being carried back. The refund claim for 1976 in the second set is $2,095.14. The Plaintiff has pointed out the difference in the figures, but he gives no reasons for the difference. Counsel for the Government, on the other hand, points out that the figures should have been $2,095.14 for both years. Counsel contends that a “typographical error” of $456.14 in “other taxes” should not have reduced the first claim. The Court agrees. Moreover, the Plaintiff does not assert that he assigned different grounds to support his request for a refund of $2,095.14. If refund claims cannot be considered identical merely because they recite the same figures, neither can they be said to be dissimilar merely because of different figures.

As regards the taxable year 1977, the Plaintiff first requested a refund of $61,200.64. In his second set of refund claims, however, the figure was increased to $77,232.05. There are two factors which increased this figure. Neither negates the underlying reality that the second refund claim for 1977 was the same as the initial one. First, in his second set of refund claims, the Plaintiff claimed an investment tax credit. The tax credit had been unused in 1976 and the Plaintiff attempted to carry it over to 1977. It was unused in 1976 because the NOL carried back from 1979 had eliminated all income for that year. Therefore, the investment tax credit claimed in 1977 was merely a direct outgrowth of the NOL carryback which had been disallowed by the IRS in the first set of refund claims. Such an extension of the claim does not change its foundation. Second, the Plaintiff, in his second set of refund claims, asserts that his income for that year should be reduced by $54,168.34 because that amount represented the repayment of a loan and not taxable income. The Government, however, quite properly points out that the Plaintiff raises this claim some six years after it accrued. Hence, it is barred by the three year statute of limitations for filing an administrative refund claim. 26 U.S.C. § 6511(a). The question thus becomes whether the Plaintiff can extend the limitations period for filing a lawsuit for judicial review by assigning grounds which could not be considered at the administrative level. The Court thinks not. A taxpayer cannot be said to have provided additional grounds if such grounds are unavailable for review on their face.

Therefore, the Court finds that the two sets of refund claims filed by the Plaintiff, in respect to the taxable years 1976 and 1977, are identical. The task does not end here, however, because the Plaintiff is alternatively arguing that the denial letter dated August 6, 1982, was legally insufficient ánd that, in any event, the IRS’s denial letters of October 4, 1983, now estop the Government from asserting the statute of limitations defense.

C. Sufficiency of First Notice of Disallowance.

Turning first to the sufficiency of the August 6, 1982, letter, the Court notes that the Plaintiff is relying upon Treasury Regulations § 301.6532-l(a). That regulation provides, in pertinent part, as follows:

“[N]o suit or proceeding for the recovery of any internal revenue tax, penalty, or other sum may be brought after the expiration of 2 years from the date of mailing by registered mail prior to September 3, 1958, or by either registered or certified mail on or after September 3, 1958, by a district director, a director of an Internal Revenue Service Center, or an assistant regional commissioner to a taxpayer of a notice of disallowance of the part of the claim to which the suit or proceeding relates.”

26 C.F.R. § 301.6532-l(a).

Based on the wording of this regulation, the Plaintiff argues that the August 6, 1982, letter was not signed by the appropriate IRS official. The record shows that the letter was signed by H. Larry Stewart, Associate Chief, Louisville Appeals Office. The Plaintiff contends that to comply with the regulation the letter should have been signed by “a district director, a director of Internal Revenue Service Center, or an assistant regional commissioner.” The Court finds that the Plaintiff reads too much and too little into the regulation. First, nowhere in the regulation is it required that the three designated officials must personally sign the notice of disallowance.' Second, the Plaintiff fails to acknowledge that others in the regional commissioner’s office could act for the assistant regional commissioner. See 26 C.F.R. § 601.106(a)(l)(i). The letter clearly indicates that it is from the regional commissioner’s office, that it deals with the Plaintiff’s claim for a refund and that it pertains to the taxable years 1976 and 1977. The Court finds no violence done to the Treasury Regulation relied upon by the Plaintiff.

D. The Plaintiffs Estoppel Theory.

Finally, the Plaintiff contends that the Government is estopped by the October 4. 1983, letters from the district director. The letters each contained a section which advised the Plaintiff of his rights.

“If you wish to bring suit or proceedings for the recovery of any tax, penalties or other monies for which this disallowance is issued, you may do so by filing such a suit with the United States District Court having jurisdiction, or the United States Claims Court. The law permits you to do this within two years from the mailing date of this letter. However, if you signed a waiver of notice of disallowance (Form 2297), the period for bringing suit begins to run on the date the waiver was filed.”

The. Plaintiff’s argument is not totally without merit. Nonetheless, it fails to persuade here. It must be remembered that the October 4, 1983, letters were the result of the Plaintiff filing a second set of refund claims instead of filing suit. The Court has already concluded that those two sets of refund claims for 1976 and 1977 were basically identical. To allow the Plaintiff to rely upon Government form documents which were generated by his own nonobservance of procedures, would be to allow him to indirectly extend the statute of limitations—an act which is judicially disfavored. Union Commerce Bank v. U.S., 638 F.2d 962 (6th Cir.1981) (Government not estopped from raising the statute of limitations defense because its notice of disallowance of the amended complaint stated that the Plaintiff had two years in which to file suit for a refund).

III. Conclusion

For the reasons given above, the Defendant’s motion is granted. The Court ORDERS that the Plaintiff’s complaint is dismissed with prejudice, with the exception of the claim for relief for the taxable year ending December 31, 1979.

      . Although the Government styled its motion as one to dismiss, it has appended several exhibits to the motion. Both parties refer to the exhibits; neither doubts their veracity. Accordingly, the Court will treat this motion as one for partial summary judgment under Rule 56. See Wright & Miller, Federal Practice and Procedure, § 1366 (1969).

      . Counsel for the Government notes in his brief the substantial effect which this determination had upon Justice’s tax return. A business bad debt is deductible dollar-for-dollar from gross income. 26 U.S.C. § 166(a). Conversely, a non-business bad debt is treated as a short term capital loss and can only be used to reduce capital gains. 26 U.S.C. § 166(d).

      . The courts appear to be in rare agreement on the principle relied upon by the Government. Huettl v. U.S., 675 F.2d 239 (9th Cir.1982); Union Commerce Bank v. U.S., 638 F.2d 962 (6th Cir.1981); Bauer v. U.S., 594 F.2d 44 (5th Cir. 1979); Kelson v. U.S., 503 F.2d 1291 (10th Cir. 1974); Stratmore v. U.S., 463 F.2d 1195 (3d Cir.1972); 18th St. Leader Stores, Inc. v. U.S., 142 F.2d 113 (7th Cir.) cert. denied 323 U.S. 725, 65 S.Ct. 61, 89 L.Ed. 583 (1944); Einson-Freeman Co. v. Corwin, 112 F.2d 683 (2d Cir.) cert. denied 311 U.S. 693, 61 S.Ct. 75, 85 L.Ed. 44 (1940); Allstate Ins. Co. v. U.S., 550 F.2d 629 (Ct.Cl.1977); Smith v. U.S., 539 F.Supp. 137 (D.Neb.1982).

      . Other grounds assigned by the Plaintiff are discussed infra.

      . The Plaintiff points out that the October 4, 1983, letters were signed by a district director.

      . The notice given by the letters of a two year statute of limitations must by necessity apply only to those grounds not previously denied by the IRS. Because of the uniform nature of the grounds assigned by the first and second sets of refund claims for 1976 and 1977, the notice contained in the letter pertaining to those years was left with nothing to act upon in this instance. See Kelson v. U.S., 503 F.2d 1291, 1293 (10th Cir.1974) (fact that IRS acted on the second claim is of no moment).


author: STERN, District Judge.

text:
    Lee DANIELS, Petitioner, v. Gary J. HILTON, Acting Administrator, Trenton State Prison; et als., Respondents.
    Civ. A. No. 85-376.
    United States District Court, D. New Jersey.
    Aug. 30, 1985.
    Lee Daniels, pro se.
    Andrew Christian Rojas, Asst. Pros., Hudson Co. Pros. Office, Jersey City, N.J., for respondents.
   OPINION

STERN, District Judge.

In this petition for a writ of habeas corpus brought pursuant to 28 U.S.C. § 2254 (1982), petitioner Lee Daniels challenges his 1983 conviction for robbery, aggravated assault, criminal restraint, and possession of a weapon for an unlawful purpose. Petitioner’s challenge is grounded on a claim of ineffective assistance of counsel. For reasons presented below, the petition will be dismissed.

FACTS

Petitioner was identified as the man who climbed into the car of Donna Brown on November 18, 1979, as she exited from the Shop-Rite store on Grove Street in Jersey City, New Jersey. According to Brown’s testimony, Daniels pushed her into her car, muffled her screams by force, pressed the blade of a knife against the back of her neck, slapped her several times, and threatened her verbally to reinforce his demands for her car keys. New Jersey v. Daniels, No. 772-79, Tr. of May 31, 1983 at 35-36, 39-40, 43-46. (Sup.Ct. of N.J., Hudson County) (henceforth cited as Tr. of (date)). The struggle in the car was interrupted by Detective Fred Paparteys of the Jersey City Police Department, who was working an off-duty detail at the Shop-Rite. Tr. of May 31, 1983 at 64-65. Paparteys asked Daniels and Brown if there was anything wrong, and when Brown responded that she had been assaulted, Paparteys placed Daniels under arrest. Id. at 65-66. Brown subsequently identified a knife found in her car as the knife Daniels had threatened her with.

For his trial on the charges on which he was ultimately convicted, petitioner was assigned Assistant Public Defender Thomas Kilcoyne to represent him. As Daniels explained to the trial judge before jury selection, Kilcoyne had represented Daniels in connection with an earlier indictment, and Daniels did not like him. Id. at 2. The trial judge responded that he could not control the Public Defender’s Office, id. at 2, that Daniels did not have a right to the attorney of his choice, id. at 10, that he knew Mr. Kilcoyne personally to be an experienced defense attorney, id. at 2-3, and that Daniels could either represent himself or be represented by Kilcoyne, id. at 2-3. Daniels chose to let Kilcoyne represent him but to absent himself from the courtroom during the trial, despite the judge’s warnings of the possible prejudice to his case. After a three-day trial, a jury returned a verdict of guilty of second-degree robbery, criminal restraint, aggravated assault, assault and possession of a knife. Tr. of June 2, 1983 at 2. The judge imposed consecutive terms totaling 171/2 years, to be served consecutive to a 30-year sentence petitioner had recently started serving for other offenses. Tr. of June 3, 1983. Petitioner has exhausted his state remedies.

In the present petition, filed on January 25, 1985, Daniels complains that he was denied effective representation because the trial court refused to give him a new attorney. Daniels further complained that his lawyer “never advised [him] or bothered to interview [him], did not investigate anyone, did not seek input from [him] and did not call any witnesses in [his] behalf.”

DISCUSSION

In Strickland v. Washington, 466 U.S. 668, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984), the Supreme Court set out a two-part test for claims of ineffective assistance of counsel:

A convicted defendant’s claim that counsel’s assistance was so defective as to require reversal of a conviction or death sentence has two components. First, the defendant must show that counsel’s performance was deficient. This requires showing that counsel made errors so serious that counsel was not functioning as the “counsel” guaranteed the defendant by the Sixth Amendment. Second, the defendant must show that the deficient performance prejudiced the defense. This requires showing that counsel’s errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable. Unless a defendant makes both showings, it cannot be said that the conviction or death sentence resulted from a breakdown in the adversary process that renders the result unreliable.

Id., 104 S.Ct. at 2064. Whereas failure of either part of this test is fatal to an ineffectiveness claim, id. at 2069-70, we find that this petition fails both.

Under the first test, the performance standard, the Court sets forth the following requirements among others:

A convicted defendant making a claim of ineffective assistance must identify the acts or omissions of counsel that are alleged not to have been the result of reasonable professional judgment. The court must then determine whether, in light of all the circumstances, the identified acts or omissions were outside the wide range of professionally competent assistance.

Id. at 2066. Most of petitioner’s claims are generalized descriptions of ways in which his trial counsel allegedly failed adequately to prepare his case. But petitioner does not name a witness who might have been called had his attorney been more diligent. Petitioner does not identify a shred of information his attorney might have elicited had he interviewed prosecution witnesses prior to their testifying. Nor does petitioner identify what sort of investigations his attorney might have conducted to aid the preparation of the case. On this kind of showing, no court could possibly find that the trial attorney’s “acts or omissions were outside the wide range of professionally competent assistance.” Id.

Nor is this merely a failing by a pro se petitioner adequately to state his claims. The trial transcript gives no hint of leads the attorney should have followed up but did not.

It is instructive to compare the present case to Morrison v. Kimmelman, 579 F.Supp. 796 (D.N.J.1984), vacated and remanded 752 F.2d 918 (3rd Cir.1985) (remanding for application of new Strickland tests), cert. granted, 54 U.S.L.W. 3223 (U.S. Oct. 8, 1985), where, this Court granted a petition for habeas corpus based on ineffective assistance of counsel. In Morrison, the petitioner was convicted of rape and other sexual crimes very largely on the strength of evidence discovered on a bed sheet seized from an apartment to which the petitioner had access. Morrison, 579 F.Supp. at 798. The sheet contained stains that laboratory technicians testified were sperm traces from a man with type “0” blood. Id. The petitioner had type “0” blood, and hospital tests performed after the alleged rape turned up traces of type “0” blood in the victim’s vagina. Id. The sheet also contained hairs similar to the head hair of Morrison and the victim. Id. The sheet was seized in a warrantless and unconsented search of the apartment. Since petitioner’s trial counsel conducted no discovery, however, he never made a timely motion to suppress. The trial judge therefore admitted the sheet into evidence as well as the testimony of the police about its seizure and of lab technicians about its contents and the analyses they performed. The trial judge noted there would have been a “very valid basis for suppression” had it been timely made, and the judge specifically criticized the defense attorney.

Similarly, in other cases where petitioners have prevailed on claims of ineffective assistance of counsel, they'have identified the evidence or testimony that would have been brought to the attention of the trier of fact but for the acts and omissions of their trial attorneys. See United States v. Baynes, 687 F.2d 659 (3d Cir.1982) (failure to investigate intercepted recording linking petitioner to crime); Moore v. United States, 432 F.2d 730 (3d Cir.1970) (failure to pursue misidentification defense); Taylor v. Hilton, 563 F.Supp. 913 (D.N.J.1982) (failure to request blood tests, subpoena business records and police tape recordings, and file timely notice of alibi).

This Court finds no evidence that petitioner’s trial attorney’s conduct was outside “the wide range of professionally competent assistance.” Strickland, 104 S.Ct. at 2066.

Nor is there any possibility that this petition would satisfy the second Strickland test which requires a demonstration that the trial attorney’s acts and omissions were so prejudicial as “to deprive the defendant of a fair trial.” Id. at 2064. The evidence in this case was overwhelming. The petitioner was caught red-handed in the course of the crimes for which he was convicted. Absent the alleged failings of his counsel, the details of the crimes, as recounted by the victim and by Detective Paparteys were on the record.

Accordingly, the petition for writ of habeas corpus will be dismissed with prejudice.


author: BUA, District Judge.

text:
    Reinhold WEISS, an individual, Plaintiff, v. RIZZOLI INTERNATIONAL PUBLICATIONS, INC., a New York corporation, the Philadelphia Museum of Art, a Pennsylvania not-for-profit corporation, Dieter Rams, Kathryn B. Hiesinger, and Nancy Baxter, individuals, Defendants.
    No. 85 C 0152.
    United States District Court, N.D. Illinois, E.D.
    Sept. 3, 1985.

      Robin M. Richter, Spindell, Kemp, Kimmons & Kimball, Chicago, Ill., for plaintiff.
    James A. Cherney and David S. Foster, Latham & Watkins, Chicago, III., for defendants.
   MEMORANDUM AND ORDER

BUA, District Judge.

Before the Court is defendants’ motion to dismiss based on lack of personal jurisdiction, lack of venue and failure to state a claim upon which relief can be granted. For the reasons stated below, this Court finds that venue is improper under 28 U.S. C.S. § 1391(b) and orders this lawsuit transferred, pursuant to 28 U.S.C.S. § 1406(a), to the District Court for the Eastern District of Pennsylvania.

FACTS

For purposes of this motion, the following facts are assumed true. Plaintiff Reinhold Weiss (“Weiss”) is a consulting industrial designer. In 1965, while employed by Braun Company in Kronberg, Germany, Weiss designed a hand food mixer identified as the M-140. On June 6, 1967, Weiss was issued United States design patent Des. 207,859 for the M-140 mixer design. Weiss resigned from Braun in 1967 and in 1970 established his own design practice in Evanston, Illinois.

On October 16, 1983, defendant Philadelphia Museum of Art, (the “Museum”) presented an exhibition of contemporary industrial design, “Design Since 1945,” which continued through January 8, 1984. In connection with the exhibit, the Museum also published a catalogue, Design Since 1945, which included essays, photographs of the exhibit pieces and biographies of the represented designers. Defendant Kathryn B. Hiesinger, Curator of European Decorative Arts after 1700 at the Museum, conceived, organized and directed the presentation of the exhibit and jointly researched, edited and wrote the accompanying catalogue with co-defendant Nancy Baxter.

Approximately 14,500 soft cover copies of the catalogue were printed and put on sale in the Museum’s bookstore in Philadelphia, Pennsylvania on October 13, 1983, where ultimately 90% of these soft cover copies were sold. In addition, the Museum bookstore sold 803 soft cover copies of the book for resale and 964 soft cover copies by direct mail to ultimate consumers. Between 24-30 copies of the soft cover edition of Design Since 1945 have been sold in Illinois. The Museum sold approximately 3,000 copies of the hard cover edition of Design Since 1945 to defendant Rizzoli International Publications, Inc. (“Rizzoli”) for distribution and sale to the public, and has sold 50 copies of the hard cover edition of Design Since 1945 through the Museum’s bookstore.

Weiss alleges that both the hard and soft cover editions of Design Since 1945 contain incorrect and false attributions which designate design M-140 as the work of defendant Dieter Rams, author and co-editor of portions of Design Since 1945. Because of the alleged false attributions Weiss contends that the continued sale of Design Since 1945 in the Northern District of Illinois and elsewhere has irreparably damaged his reputation and credibility and has been the cause of past and future losses of consulting assignments. Weiss further alleges a violation of Section 43(a) of the Lanham Act in that defendants produced a false designation of origin of design. Weiss’ complaint also contains allegations of defamation, unfair competition, slander of title and negligence.

II. DISCUSSION

Unlike subject matter jurisdiction, personal jurisdiction and venue are privileges of the defendant which may be waived by the parties. Although the question of personal jurisdiction is typically decided in advance of venue, neither personal jurisdiction nor venue are fundamentally preliminary in the sense that subject matter jurisdiction is, and when there is a sound prudential justification for doing so, a court may reverse the normal order of considering personal jurisdiction before venue. Leroy v. Great Western United Corporation, 443 U.S. 173, 180, 99 S.Ct. 2710, 2714, 61 L.Ed.2d 464 (1979). Such a justification exists in this case. Without diminishing the importance of the personal jurisdiction issue, this Court believes that the question of whether personal jurisdiction was properly obtained pursuant to the Illinois long-arm statute requires resolution of a constitutional issue which, as a prudential matter, should be avoided when it is clear that venue is improper under § 1391(b). Id. at 181, 99 S.Ct. at 2715.

Section 1391(b), 28 U.S.C., provides that a civil action not founded solely on diversity may be brought “only in the judicial district where all defendants reside, or in which the claim arose, except as otherwise provided by law.” Because none of the defendants in this case reside in Illinois, the issue is whether the cause of action arose in the Northern District of Illinois.

In Leroy, supra, 443 U.S. 173, 99 S.Ct. at 2710, the plaintiff, a Delaware corporation with executive headquarters in Texas, attempted to make a tender offer to purchase shares of stock of a Washington corporation whose principal business, executive office, and major assets were located in Idaho. After delays caused by complications arising from an Idaho takeover statute, the plaintiff corporation filed an action in the United States District Court for the Northern District of Texas against officials of the Idaho Commission of Finance praying for a declaration that the Idaho statute was invalid. The Fifth Circuit Court of Appeals held that for purposes of a 28 U.S.C. § 1391(b) motion, the alleged invalid restraint against the Texas-based corporation had occurred in the Northern District of Texas and venue was thus proper in that district. The Supreme Court reversed, holding that the claim, for purposes of a § 1391(b) motion, arose only in the District of Idaho, since it was action taken in Idaho by Idaho residents that provided the basis for the Texas-based corporation’s federal claim.

In reaching that conclusion, the Leroy Court reasoned that the purpose of statutorily specified venue is to protect the defendant against the risk that a plaintiff will select an unfair or inconvenient place of trial. The Court further noted that the amendment to § 1391 providing for venue where the claim arose was designed to close the “venue gaps” that existed under earlier versions of the statute in situations in which joint tort feasors, or other multiple defendants who contributed to a single injurious act, could not be sued jointly because they resided in different districts. See also Brunette Machine Works v. Kockum Industries, 406 U.S. 706, 710, 92 S.Ct. 1936, 1938, 32 L.Ed.2d 428 (1936).

Clearly, this justification for the application of § 1391(b) venue does not exist in the present case. All of the moving defendants, with the exception of Rizzoli, reside in the Eastern District of Pennsylvania. Also, Design Since 1945, the subject matter of this lawsuit, was researched, written, edited, published and distributed in Philadelphia. Hence, the overwhelming majority of witnesses and evidence with respect to the alleged infringement would be located in and around the Philadelphia area. Compelling this litigation in the Northern District of Illinois disregards the specific suggestion of the Leroy Court that the availability of witnesses, the accessibility of evidence and the convenience of defendants be the persuasive elements when choosing proper venue for purposes of § 1391(b). Leroy, supra, 443 U.S. at 185, 99 S.Ct. at 2717. Further, the application of plaintiffs theory that the claim arose in the Northern District of Illinois because the alleged harm to his reputation occurred in this district would render venue proper in conceivably every district where plaintiffs work was recognized. As noted by the Leroy Court, “such a reading of § 1391(b) is inconsistent with the underlying purpose of the provision, for it would leave the venue decision entirely in the hands of the plaintiffs, rather than making it ‘primarily a matter of convenience of litigants and witnesses.’ ” Id. at 186-87, 99 S.Ct. at 2718.

Additionally, this Court is persuaded by the holding in Seabrook Foods, Inc. v. Seabrook Brothers & Sons, Inc., 495 F.Supp. 792 (S.D.N.Y.1980). In Seabrook, the plaintiff alleged that the defendants’ use of the trademark and trade name “Seabrook Brothers and Sons” to market frozen food amounted to trademark infringement in violation of the Lanham Act as well as New York Statutes regulating unfair competition. Seabrook, supra, 495 F.Supp. at 793. Defendants moved to dismiss on ground of improper venue, or, alternatively, to transfer to the District of New Jersey. The court held that, pursuant to § 1391(b), defendants’ contacts with the Southern District of New York were insufficient to support the proposition that plaintiff’s claim arose in that district. Id. at 794. This finding was based on the court’s adoption of the “weight of contacts” test which provides that:

[I]n determining where ‘the claim arose,’ the weight defendants’ contacts in the various districts concerned must be compared and the claim must be deemed to have arisen in the district where the contacts had been most significant.

Id. at 794 (quoting Honda Associates, Inc. v. Nozawa Trading, Inc., 374 F.Supp. 886 (S.D.N.Y.1974)). The court in Seabrook reasoned that because less than one sixth of the sales of the corporate defendant were made in the Southern District of New York, but instead approximately one half of its sales occurred in New Jersey and the remainders throughout eastern United States, and that the defendants had no employees, agents or officers in the Southern District of New York, clearly defendant’s “weight of contacts” were not the most significant in the Southern District of New York. Seabrook, supra, 495 F.Supp. at 792.

Measured against the standard set forth in Seabrook, this Court reaches the conclusion that defendants’ contacts with this district are not “substantial.” As in Sea-brook, the defendants here have no employees, agents or offices in this district. Although defendants distributed roughly 30 soft cover copies of Design Since 1945 in this district, that number amounts to only 0.2 percent of the total 14,500 soft cover copies printed. Such contacts cannot be characterized as substantial and hence cannot be the basis for proper venue in this district.

Weiss argues that venue is proper in the Northern District of Illinois based on the theory that his cause of action “arose” at the place of Weiss’ injury. In support of this theory, Weiss relies in part on the reasoning of the court in Chicago Reader, Inc. v. Metro College Publishings, Inc., 495 F.Supp. 441 (N.D.Ill.1980).

In Chicago Reader, the plaintiff, a publisher of a weekly newspaper under its registered trademark “Reader” brought suit against the defendant, Metro College Publications, Inc., a Minneapolis publisher of a weekly newspaper, for publishing a similar newspaper under the name “Twin Cities Reader.” The suit alleged that defendant Metro intentionally deceived the public as to the nature and quality of the defendant’s newspaper. The complaint also alleged, as in this case, violations of the Lanham Act. Chicago Reader, supra, 495 F.Supp. at 442.

The court in Chicago Reader noted that even though defendant’s only place of business and all its assets were in Minnesota, that the defendant’s weekly paper was printed in Minnesota, and that articles, editorial comments and advertising material published in the paper were directed toward local Minnesota readers, venue was proper in the Northern District of Illinois based on other significant activities’ of the defendants. Specifically, the court found that the defendant had conducted negotiations by mail and telephone with potential Illinois advertisers, had attended two Illinois trade shows during which sales for advertising space in defendant’s newspaper were made, and had circulated its newspaper within Illinois. The court concluded that these activities constituted more than a “mere vesting of venue.” Id. at 443.

Based on the findings of the court in Chicago Reader, Weiss argues that because defendants distributed copies of the catalogue Design Since 1945 in the Northern District of Illinois, venue must also be proper in this district. This court disagrees. When measured against the activities of the defendants in Chicago Reader, it is clear that the activities of defendants in this case within the Northern District of Illinois are miniscule.

The vast majority of activities leading up to and surrounding the action that is the basis of this lawsuit took place at the Museum in Philadelphia, Pennsylvania, where the catalogue was researched, written, edited and published by Museum employees. More importantly, by virtue of its composition alone, the publication in this case differs significantly from that in Chicago Reader, the effect of which is seen through the activities of the defendants. Unlike the weekly distribution in question in Chicago Reader, the distribution of Design Since 1945 was the result of a publication surrounding a singular event. Defendants in this case did not advertise or solicit advertisers from the Northern District of Illinois in anticipation of the distribution of Design Since 1945. By distributing their catalogue, the defendants had no hopes of establishing a market of Illinois subscribers, as was the intent of the defendants in Chicago Reader. As the court in Chicago Reader noted at the onset of its discussion, “[i]t is well settled that the mere fact that an infringer has sent goods or sales literature bearing the infringing mark in the district cannot be the basis of venue, and that ... venue is proper only in those districts in which the trademark infringer has had significant activities.” Id. at 443. Clearly, defendants’ activities in this district cannot be characterized as significant.

Equally unpersuasive is Weiss’ argument based on Pennwalt Corp. v. Horton Co., 582 F.Supp. 438 (E.D.Pa.1984), in which the plaintiff sought a declaratory judgment that defendant’s patent was invalid and that plaintiff had not infringed the claims of the patent. The Pennwalt court held that a declaratory judgment action seeking to invalidate a patent, and a declaration of noninfringement arises where “the alleged infringer is located, receives the damaging charges of infringement or suffers economic injury as a result of the charges.” Pennwalt, supra, 582 F.Supp. at 440. The court determined that the claim arose in the district where the plaintiff was located in large part because the plaintiff allegedly suffered economic injury in the form of lost customers and damage to reputation because of the charges of infringement. Id.

Weiss argues that based on the findings in Pennwalt, venue is proper in this district because of the alleged damage to plaintiff’s reputation in this district. However, because Pennwalt was a declaratory judgment action, plaintiff has overlooked the fact that, in essence, the plaintiff in Pennwalt was a prospective defendant. Thus, even applying the Pennwalt criteria to the case at hand, the proper district for venue becomes the Eastern District of Pennsylvania, the site where the Museum and its employees, as the infringers, are located and where they received the damaging charges of infringement.

Plaintiff also relies on Stabler v. New York Times Company, 569 F.Supp. 1131 (S.D.Tex.1983). The plaintiff in Stabler brought a libel action in the District Court for the Southern District of Texas against the New York Times. The newspaper moved to dismiss based on improper venue, or, in the alternative, to transfer the case to the Southern District of New York. Upon review of Stabler, however, it is clear that the venue issues raised are unrelated to those in this case. Specifically, the motions to dismiss for improper venue in Stabler were based on the assertion that the plaintiff was not a resident of the State of Texas and therefore pursuant to 28 U.S.C. § 1391(a) and (c) venue was improper. Stabler, supra, 569 F.Supp. at 1137. The Stabler court, however, held that the evidence warranted a finding that the plaintiff was a resident of Texas. Id. Further, the defendaiit in Stabler requested a transfer pursuant to 28 U.S.C.A. § 1404(a). On the basis of that motion, the court determined that because plaintiff’s home and business were located in Texas and because the vast majority of witnesses called to testify resided in the southwestern and western United States, the convenience of the parties and witnesses and the interest of justice would be best served by denying defendant’s motion to transfer. Id. at 1137-38. Weiss appears to base his argument that venue is proper in the Northern District of Illinois on the court’s holding in Stabler with respect to the defendant’s § 1404(a) motion. This is clearly not the venue issue at issue in this case.

In sum, the Court finds that defendants’ contacts with this district are insufficient to support the proposition that plaintiff’s claim “arose” in this district for the purposes of 28 U.S.C. § 1391(b). Accordingly, venue is not proper in the Northern District of Illinois. However, in the interests of justice it appears that the case should not be dismissed but rather transferred to the Eastern District of Pennsylvania pursuant to 28 U.S.C. § 1406(a). Defendants’ motion to dismiss for lack of personal jurisdiction need not be decided because, even assuming this Court lacks personal jurisdiction over defendants, the Court has the power to transfer the case to a district where venue is proper and the transferee court has jurisdiction over the defendants. See, e.g., CES Publishing Corp. v. Dealerscope, Inc., 544 F.Supp. 656, 659 n. 1 (E.D.Pa.1982); Seabrook Foods, Inc. v. Seabrook Brothers & Sons, Inc., 495 F.Supp. 792, 794 (S.D.N.Y.1980). Furthermore, having determined that a transfer of this case to the Eastern District of Pennsylvania is proper, the Court declines the opportunity to consider defendants’ motion to dismiss for failure to state a claim and will leave that matter to the transferee court for its consideration. See Midwest Precision Services, Inc. v. PTM Industries Corp., 574 F.Supp. 657 (N.D.Ill. 1983).

CONCLUSION

Pursuant to 28 U.S.C. § 1406(a), this cause is transferred to the United States District Court for the Eastern District of Pennsylvania.

IT IS SO ORDERED.


author: DAVID V. O'BRIEN, Judge.

text:
    Margaret L. CREQUE, and Benjamin Banks, Petitioners, v. Hon. Juan LUIS, Victor G. Schneider, Stephanos O’Reilly, Cecil George, Willem Westerbaan and John Harvey, Respondents.
    Civ. No. 1985/212.
    District Court, Virgin Islands, D. St. Croix.
    Sept. 4, 1985.
    Edith L. Bornn and David A. Bornn, Charlotte Amalie, St. Thomas, V.I. for petitioners.
    Leroy Mercer, Dept. of Law, Charlotte Amalie, St. Thomas, V.I., for Juan Luis.
    Samuel H. Hall Jr., Charlotte Amalie, St. Thomas, V.I. for respondents Schneider, O’Reilly, George, Westerbaan and Harvey.
   MEMORANDUM OPINION

DAVID V. O'BRIEN, Judge.

THIS CASE is before the Court on the application of the plaintiffs Margaret L. Creque, (“Creque”), and Benjamin Banks, (“Banks”), for preliminary and permanent injunctive relief. It was consolidated for hearing purposes with Caribbean Energy Co., Inc. v. South Shore Alumina, Inc. et al., Civil No. 1985/202 and General Engineering Corp. v. V.I. Water and Power Authority, Civil No. 1985/182. After a hearing, advanced for a final hearing on the merits on the issues discussed in this opinion, the Court made Findings of Fact and Conclusions of Law which granted permanent injunctive relief to Creque and Banks barring any interference with their rights and obligations as members of the board of the V.I. Water and Power Authority (“WAPA”). We held that they were legal members of the board, and we further ordered that any action taken by WAPA or its committees during the time Creque and Banks were barred from participation would be without legal effect.

Because the decision herein is precedential, a written opinion is being issued.

FACTS

Both Creque and Banks were confirmed by the Legislature for terms on the WAPA board effective May 5, 1981, she for a one year term and he for a three year term. Although Creque was also renominated for a full three year term, the Legislature never acted on the renomination. After the expiration of their terms, they both continued to sit as board members and participate in board decisions. On May 23, 1985, both of them were present when the WAPA board met to consider a proposal from Caribbean Energy Co., Inc. to supply power and water to WAPA for resale to consumers on St. Croix. By a vote of a majority of the board members present, such a proposal was accepted and the board chairman was authorized to sign an agreement which embodied the proposal. This he did immediately after the meeting. Both Creque and Banks supported the agreement with Caribbean Energy Co., Inc., and Creque placed her signature on the document as secretary.

The agreement did not meet with favor from the Governor, Hon. Juan Luis.

Between May 23, 1985 and August 8, 1985, board members were subjected to heavy pressure from the Governor and others, seeking board approval of an arrangement with South Shore Alumina, Inc. for the supply of water and power on St. Croix. All parties agree that WAPA could not have two contracts for the supply of water and power. South Shore Alumina, Inc. is a Virgin Islands corporation whose principals are prominent St. Croix natives and/or residents. Caribbean Energy Co., Inc. is a wholly owned subsidiary of Donaldson, Lufkin and Jenrette, a large financial and investment firm based in New York.

Creque and Banks opposed the arrangement with South Shore, on grounds a contract already existed with Caribbean Energy Co., Inc. After their opposition to South Shore was expressed, they were informed by the Governor’s acting attorney general on August 8, 1985, that they were not validly sitting as WAPA board members by reason of the expiration of their terms. On the same day, the WAPA board conducted a meeting. Creque and Banks were not permitted from that time forward to participate in the meeting as members of the board. The Governor, pursuant to his authority under 30 V.I.C. Section 103, had replaced the designated governmental members with Messrs. O’Reilly, Schneider and George, who are members of his administration. With their votes now dominant in the absence of Creque and Banks, O’Reilly was elected chairman of the WAPA board.

This action resulted, and the Court granted the motion of Creque and Banks to consolidate the hearing with a trial on the merits pursuant to Fed.R.Civ.P. 65(a)(2).

DISCUSSION

The central issue we must decide is whether Creque and Banks, whose terms had expired, continued to validly hold their seats pending appointment and confirmation of their respective successors. The parties agree that no successors have been nominated and confirmed. To decide this issue, the Court must decide whether 30 V.I.C. Section 103(a) or 3 V.I.C. Section 65a applies to WAPA board members who hold over after expiration of their terms. A discussion of the history of each of these sections is required. Title 30, Virgin Islands Code, Section 101 et seq. created WAPA in 1964, as an autonomous instrumentality of the Government of the Virgin Islands, having a personality and legal existence separate and apart from the Government of the Virgin Islands. (Section 103(a) and (b)). It took the form of a public corporation with a perpetual existence, to be governed by a Governing Board comprised of both governmental and nongovernmental members. The non-governmental members were appointed by the governor subject to the advice and consent of the Legislature. Contained within the section providing for appointment of nongovernmental members was. this language:

Each appointed member shall serve until the appointment and qualification of his successor. Section 103(a)

In 1978, the Legislature adopted, and the governor signed, legislation amending Section 103(a) and making other changes in the full section. The only change pertinent to this case was the substitution of the following language for that cited above in the original statute:

... provided, however, that each member shall serve until the appointment and confirmation of his successor.

Act No. 4108, March 14, 1978, Session Laws, 1978, p. 42.

Again, in 1980, the Governor sought to reorganize the Governing Board of WAPA and he sent to the Legislature a bill to accomplish that effect. Included in the proposed legislation, which was adopted by the Legislature and then signed by the Governor, was a reaffirmation of the language contained in the 1978 legislation and cited immediately above. Act. No. 4497, October 23, 1980, Session Laws, 1980, p. 224.

On'each of the occasions when Section 103(a) was amended, in 1978 and 1980, the present governor was territorial chief executive.

In 1974, the Legislature approved and the governor signed, legislation creating 3 V.I.C. Section 65a, which was included in the general statutory provisions dealing with departments and agencies of the Virgin Islands government. Act. No. 3554, April 10, 1974, Session Laws, 1974, p. 80.

Section 65a, as pertinent to our consideration, states:

(a) Notwithstanding any other provision of law, whenever a vacancy occurs in the membership of any board, commission or governing board of any authority within a department, office or other instrumentality of the Government of the Virgin Islands, by virtue of the expiration of term of a member, said vacancy shall be filled in the manner provided by law within sixty (60) days after the date of occurrence of the expiration of the term.
(b) If the vacancy is not filled within the sixty (60) day period required by subsection (a) of this section, and the result is that the number of current board members is insufficient to constitute a quorum of that board, commission or governing board, all official actions of said board, commission or governing board shall be null and void, and of no force and effect, from the expiration date of said sixty (60) day period until such time as a quorum of members is established by the filling of the vacancy or vacancies as provided by law.

It is the position of the respondents that Section 65a applies, and that Creque and Banks could not hold their positions longer than the sixty days provided for in that legislation. Petitioners argue that the specific legislation which provides for appointment and holdover of the WAPA board members (Section 103(a) of Title 30) applies as to them, and that they continue in office until the Governor nominates, and the Legislature confirms, their respective successors.

It is a fundamental principal of statutory construction that when two statutes are in apparent conflict, a specific statute will be given precedence over a more general one. Busic v. United States, 446 U.S. 398, 406, 100 S.Ct. 1747, 1752, 64 L.Ed.2d 381 (1980); Preiser v. Rodriguez, 411 U.S. 475, 93 S.Ct. 1827, 36 L.Ed.2d 439 (1973); West v. Keve, 721 F.2d 91 (3d Cir.1983); Matter of Morristown & Erie R. Co., 677 F.2d 360 (3d Cir.1982); Saludes v. Ramos, 19 V.I. 544 (D.V.I.1983) (reversed on other grounds).

We view Sections 103(a) and 65a as in apparent conflict, because the former views holdover board members as retaining their positions until a successor is appointed and confirmed, while the latter appears to treat a holdover board member as automatically ousted after sixty days beyond expiration of a term of office, or at the very least places limitations on the exercise of the office after sixty days.

We adopt the holding that Section 103(a) governs the holdover status of WAPA board members for several reasons, not least of which being we believe that it fits precisely into the specific legislation described in the cases cited above. We are strengthened in this view by the fact that Governor Juan Luis on two occasions after the adoption of Section 65a in 1974 sought and obtained a careful refinement to Section 103(a). Certainly the 1978 amendment and the 1980 reaffirmation of the language of Section 103(a) would not have been sought if it was thought that Section 65a was the governing statute as to WAPA members. Further to that point, he took no' action in conformity with Section 65a to obtain legislative confirmation of Creque and Banks. He did send Creque’s name to the Legislature for reconfirmation, but did nothing when the Legislature failed to act. Likewise, he did nothing with respect to Banks. He only became exercised about thejr status when they acted against his wishes.

It was urged at oral argument that the sequence of adoption of the general and specific statutes was important. But Busic held that a more specific statute would be given precedence over a more general one “regardless of their temporal sequence.” Busic, supra, 446 U.S. at 406, 100 S.Ct. at 1753.

There is a public policy argument to be made for holding that Section 103(a) prevails. WAPA is a public corporation, an autonomous instrumentality of the Government of the Virgin Islands, with a perpetual existence. Its Governing Board, unlike the vast majority of other boards within the government, makes short and long range policy decisions which have a vital affect on the lives of the people of the Virgin Islands. Ostensibly, the board does not have to look to any other entity for approval in carrying out its functions.

If the Governing Board of WAPA was subject to the limitations of Section 65a, a scenario can be envisioned whereby the board would be powerless to act for long periods of time. This may be bothersome and inconvenient when other boards of the territorial government face such a problem, but for WAPA and the public, it would be catastrophic. The WAPA board must have continuity, and it is Section 103(a) which provides that continuity. The elected officials of the government recognized this when .they enacted the special provisions as to WAPA board members. They cannot be permitted to turn their backs on their own enactments, and the valid reasons actuating that behavior, because two WAPA board members have joined in voting for a project which does not meet their approval.

What was sound and logical in 1964,1978 and 1980, is as valid and vital today as then. For the reasons cited herein, a permanent injunction will issue in favor of Creque and Banks.


author: CAFFREY, Chief Judge.

text:
    LUSO-AMERICAN CREDIT UNION, Plaintiff, v. CUMIS INSURANCE SOCIETY, INC., Defendant.
    Civ. A. No. 84-3785-C.
    United States District Court, D. Massachusetts.
    Sept. 5, 1985.

      William M. O’Brien, Beane, Fine, Counihan & O’Brien, Cambridge, Mass., for plaintiff.
    Harvey Weiner, Peabody & Arnold, Boston, Mass., for defendant.
   MEMORANDUM

CAFFREY, Chief Judge.

This is a diversity action brought by Luso-American Credit Union (“Credit Union”), a Massachusetts corporation, against Cumis Insurance Society, Inc., (“Cumis”), a Wisconsin corporation, to recover monies allegedly owed to Credit Union by Cumis. The action was initiated in Massachusetts Superior Court, and was removed to this Court by defendant, pursuant to 28 U.S.C. § 1441. The case is now before the court on defendant’s motion for summary judgment. The parties agree that any substantive legal questions which the case presents must be resolved according to Massachusetts law.

At issue in this motion is the legal nature of a contract into which the parties have entered. The contract, which was drafted by defendant, is denominated a “bond.” Under Clause A of the bond, defendant agrees to provide coverage to plaintiff:

For direct loss of, or damage to, any property, as defined herein, caused by the fraud or dishonesty of any of the Insured’s employees, as herein defined, and directors, committed anywhere, whether acting alone or in collusion with others, or through the failure on the part of such employee, excluding directors acting as directors except for fraud or dishonesty, to well and faithfully perform his duties.

Other clauses in the bond protect plaintiff from loss resulting from fire, burglary and other casualties. The bond also contains certain general conditions, including the following requirement:

The insured shall give to the Society or any of its authorized agents written notice of any loss under this Bond as soon as possible, and in any event not more than 20 days, after the Insured shall learn of such loss, provided that in the event the failure to give such notice within such 20-day period does not prejudice the Society, the Insured may give such notice to the Society within a reasonable time after the Insured shall learn of such loss, and within 120 days after giving such notice the Insured shall file with the Society, an itemized proof of claim duly sworn to.
The Society shall have 60 days after proof of claim is filed in which to investigate the claim. No action shall be brought against the Society under this Bond unless begun within twelve months after the Insured shall learn of the loss____

The specific facts giving rise to the present suit are not in dispute. On December 19, 1982, Credit Union discovered that it had sustained losses totaling $169,922.08 as a result of the failure of its treasurer to faithfully perform his duties. Plaintiff thereafter submitted to defendant on March 31, 1983 a proof of loss in the amount of $9,151.59. On September 13, 1983, plaintiff submitted a second proof of loss in the amount of $160,770.49. On August 1, 1983 defendant issued plaintiff a check for $9,151.59, the amount claimed by plaintiff in its first proof of loss. Defendant, however, rejected plaintiff’s second claim for $160,770.49. Credit Union therefore sought to recover its losses by filing the present suit.

In support of its motion for summary judgment, defendant argues that plaintiff failed to comply with the bond’s general condition mandating that “no action shall be brought against the Society under this Bond unless begun within twelve months after the Insured shall learn of the loss____” Because Credit Union discovered its losses on December 19, 1982 and did not file suit until November 5, 1984, Cumis asserts that this action is untimely and should be dismissed.

Plaintiff, for its part, contends that the bond’s condition, set forth above, violates M.G.L. c. 175, § 22 and is therefore unenforceable. M.G.L. c. 175, § 22 provides, in relevant part:

No company and no officer or agent thereof shall make, issue or deliver any policy of insurance ... containing any condition, stipulation or agreement ... limiting the time for commencing actions against it to a period of less than two years from the time when the cause of action accrues; ... Any such condition, stipulation or agreement shall be void____

Defendant accurately notes, however, that § 22, by its own terms, applies only to policies of insurance and not to surety bonds, which are not subject to the State’s insurance laws. See M.G.L. c. 175, § 107 (stating that surety bonds “shall not be deemed insurance contracts ... ”); General Electric Co. v. Lexington Contracting Corp., 363 Mass. 122, 292 N.E.2d 874 (1973) (holding that condition in a surety bond requiring any action on the bond to be brought within one year “ ‘following the date on which the Principal ceased work ...’” did not contravene the provisions of M.G.L. c. 175, § 22, which applies only to insurance policies.)

The only issue now before the Court, therefore, is whether Clause A of the contract between Cumis and Credit Union constitutes an insurance policy or a surety bond. The parties agree that if the contract provision constitutes an insurance policy, then plaintiff may properly maintain its suit, but if the clause creates a surety-ship, then plaintiff’s action should be dismissed. In resolving this question the standard rule of construction that ambiguous language in a contract should be construed against the drafter applies. See Merrimack Valley National Bank v. Baird, 372 Mass. 721, 725, 363 N.E.2d 688 (1977).

Although there is authority for defendant’s position that a fidelity bond purchased by a corporation to protect itself from financial wrongdoing by its employees is a contract of suretyship, e.g. Restatement of Security, § 82, comment 1, Illustration 6 (1941); Madison County Farmers Association v. American Employers’ Insurance Co., 209 F.2d 581 (8th Cir.1954); the more persuasive view, and that adopted in recent cases and commentaries, is that a fidelity bond should be treated as insurance. In Ronnau v. Caravan International Corp., 205 Kan. 154, 468 P.2d 118, 122 (1970), for example, the court considered the nature of contract provisions closely akin to those at issue in this case. The court declared:

A fidelity bond is an indemnity insurance contract whereby one for consideration agrees to indemnify the insured against loss arising from the want of integrity, fidelity or honesty of employees or other persons holding positions of trust____ It is direct insurance procured by him in favor of himself,....

Likewise in Fidelity & Deposit Co. of Maryland v. Smith, 730 F.2d 1026 (5th Cir.1984), the Court of Appeals for the Fifth Circuit concluded that one who insures the fidelity of a corporation’s employees does so as an insurer, not as a surety. The court stated: “The protection against the acts of a group of unnamed employees has been called both ‘fidelity insurance’ and ‘fidelity suretyship’ but ... the contract is more properly denominated insurance.” Id. at 1030, quoting Slovenko, Suretyship, 39 Tul.L.Rev. 427, 434 (1967). A host of other legal authority supports the statements set forth above. See, e.g., Western National Bank of Casper v. Hawkeye-Security Insurance Co., 380 F.Supp. 508, 511 (D.Wyo.1974); Bank of Acworth v. Firemen’s Insurance Co. of Newark, New Jersey, 339 F.Supp. 1229, 1230 (N.D.Ga.1972); Town of Troy v. American Fidelity Co., 120 Vt. 410,143 A.2d 469, 474 (1958); 9A J. Appleman, Insurance Law and Practice §§ 5661, 5701 (rev. ed. 1981); 13 Couch on Insurance 2d §§ 46.1, 46.2 (rev. ed. 1982).

Defendant, in support of its contention that its contract with plaintiff is a surety bond, directs this Court’s attention to certain provisions of M.G.L. c. 171, § 15. This statute states, in relevant part:

The treasurer and all other officers and employees of a credit union having access to its cash or negotiable securities shall give bond to the credit union at its expense in such amounts and with such surety or sureties and conditions as the commissioner [of banking] may prescribe. The directors may require bonds of such other officers, employees or agents as they deem advisable. The persons required to give bond may be included in one or more blanket or schedule bonds; provided that such bonds are approved by the commissioner as to the amounts and the conditions thereof and as to the sureties thereon____

Defendant contends that this statute’s repeated references to “bonds” and “sureties” demonstrate that surety bonds are specifically required for officers of credit unions, and that policies of fidelity insurance are unacceptable. Defendant’s argument is unpersuasive. As defendant itself recognizes, “[t]he clear intent of this statute is to protect credit unions and their members from defalcations by officers or employees who have access to cash or negotiable securities.” (Memorandum in support of defendant’s motion for summary judgment, p. 8.) Since a credit union’s procurement of fidelity insurance achieves this objective, there is no reason to conclude that any contract executed by a credit union in satisfaction of this statutory mandate must necessarily be a surety bond. Furthermore, adoption of defendant’s strained interpretation of the statute would, in this instance, defeat the very purpose of the law by barring Credit Union’s action against Cumis for the amount of Credit Union’s misappropriated funds. In light of the discussion set forth above, I rule that Clause A of the bond issued to plaintiff by defendant constitutes fidelity insurance. I further rule, therefore, that the clause is subject to the restrictions of M.G.L. c. 175, § 22, and that the one-year limitation period contained in the contract’s general conditions is invalid and unenforceable with respect to this clause. Because plaintiff’s suit was properly initiated within the two-year limitation period mandated by M.G.L. c. 175, § 22, I rule that defendant’s motion for summary judgment should be denied.

Order accordingly.