author: NEWMAN, Senior Judge:

text:
    NISSHO IWAI AMERICAN CORP., Plaintiff, v. The UNITED STATES, Defendant.
    Court No. 81-7-00992.
    United States Court of International Trade.
    Nov. 7, 1984.

      Sharretts, Paley, Carter & Blauvelt, P.C., New York City (Peter J. Baskin and Ned H. Marshak, New York City, of counsel), for plaintiff.
    Richard K. Willard, Acting Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Attorney in Charge, International Trade Field Office, Commercial Litigation Branch and Judith M. Barzilay, New York City, for defendant.
   NEWMAN, Senior Judge:

This action represents a sequel to The Servco Company v. United States, 68 Cust.Ct. 83, C.D. 4341 (1972), a decision of our predecessor, the United States Customs Court, and affirmed by the Court of Customs and Patent Appeals, 60 CCPA 137, C.A.D. 1098, 477 F.2d 579 (1973).

Background

Plaintiff contests the classification for customs duty purposes of certain metal products imported from Japan in 1979 and 1980, invoiced as “pipe fittings” or “pipe fittings pin and box” and referred to in the complaint as “tool joints”. Customs at the Port of Houston, Texas classified the imports under the provision in item 610.80, Tariff Schedules of the United States (TSUS), as modified by T.D. 68-9, for pipe fittings of iron or steel and assessed duty at the rate of 11 percent ad valorem. Plaintiff claims that the classification of the articles by Customs under item 610.80 is incorrect, and that they are properly dutiable under the provision for parts of boring machinery in item 664.05, TSUS, at the rate of 5 percent ad valorem, or in its superseding provision pursuant to Presidential Proclamation 4707, item 664.08, TSUS at the rate of 4.7 percent ad valorem (depending on the date of entry).

Presently before the Court are: defendant’s motion for judgment on the pleadings pursuant to Rule 12(c) of the rules of the Court and alternative motion for summary judgment under Rule 56; plaintiff’s opposition thereto and cross-motion for summary judgment. Defendant’s reply brief concedes that summary judgment “is the appropriate route for the disposition of this case”.

Statutory Provisions Involved
Classified under.
Schedule 6, Part 2: Metals, their alloys and their basic shapes and forms
Part 2 Headnotes:
1. This part covers ... base metals ... their alloys and their so-called basic shapes and forms ... This part does not include—
*****
(iv) other articles specifically provided for elsewhere in the tariff schedules, or parts of articles. [Emphasis added.]
Subpart B. —Iron or Steel
Subpart B Headnotes:
1. This subpart covers .iron and steel, their alloys, and their so-called basic shapes and forms, and in addition covers iron or steel waste and scrap.
*****
Pipe and tube fittings of iron or steel:
*****
610.80 Other fittings..... 11% ad val.
Claimed under.
Schedule 6, Part 4: Machinery and Mechanical Equipment
Part 4 Headnotes:
1. This part does not cover—
* * » * *
(v) articles and parts of articles specifically provided for elsewhere in the schedules.
* # * * *
Subpart B— ...
* * * * *
[For entries prior to January 1, 1980:]
664.05 Mechanical shovels, coalcutters, excavators, scrapers, bulldozers, and other excavating, levelling, boring, and extracting machinery, all the foregoing, whether stationary or mobile, for earth, minerals, or ores; pile drivers; snowplows, not self-propelled; all the foregoing and parts thereof....... 5% ad val.
[For entries on and after January 1, 1980:]
Mechanical shovels, coalcutters, excavators, scrapers, bulldozers, and other excavating, levelling, boring, and extracting machinery, all the foregoing, whether stationary or mobile, for earth, minerals, or ores; pile drivers; snowplows, not self-propelled; all the foregoing and parts thereof:
* * # * *
664.08 Other.............4.7% ad val.

Issue Presented

Central to this controversy is the question of whether the imported tool joints are excluded from classification under item 610.80, TSUS by virtue of headnote l(iv), schedule 6, part 2, as urged by plaintiff, or whether the imports are excluded from classification under item 664.05 by operation of headnote l(v), schedule 6, part 4, as contended by defendant.

The Facts

The material facts are not in dispute:

The tool joints in issue are parts of a drill stem which is a part of drilling (boring) machinery. ■ Specifically, the imports are used to connect two pieces of drill pipe in a drill string (lengths of drill pipe, each about thirty feet long, connected by tool joints) and are specially designed and constructed to sustain the weight of a drill stem and to withstand the strain of frequent coupling and uncoupling. A “drill string” is the column, or string, of drill pipe with attached tool joints that transmits fluid and rotational power to the drill collars and bit. Based upon their form and general function, the imported merchandise falls within the generic description of “pipe fittings” and the articles were so described on the commercial invoices in the entry papers. After importation, the tool joints are welded to the lengths of drill pipe in order to provide a means of connecting the lengths of pipe in the drill string. Drill collars are also used, but only at the bottom of the drill stem for the purpose of putting weight on the drill bit.

In addition to its statement of material facts — as to which, concededly, there is no genuine issue to be tried — plaintiff submitted an affidavit (with certain attachments) by Raymond W. Kearney, Jr., president of Monarch Metals Corporation, a sales representative for various steel products imported by plaintiff. According to the Kearney affidavit, which is uncontroverted by any evidentiary submission by defendant, the tool joints in question are used solely as parts of drilling (boring) machinery in the drill stem, sustain the weight of the drill stem, and withstand the strain of frequent coupling and uncoupling. Significantly too, the affidavit points up that the tool joints have no other use, as demonstrated by the inability of plaintiffs customers to find alternative uses for excess tool joints imported at the height of the recent oil well drilling boom in the United States.

Annexed to and supportive of Kearney’s affidavit are: Figure 1.1 of the API Specification for Rotary Drilling Equipment, issued by the American Petroleum Institute, Washington, D.C., API Spec. 7, 32d Ed., May 1979, depicting the various components of a drill stem assembly; portions of the Glossary of Terms appearing in A Primer of Oil-Well Drilling published by the Petroleum Extension Service of the University of Texas at Austin (4th Ed. 1979); and a narrative explanation of the components of a drill stem from the Primer. In the Primer, the terms “drill stem”, “drill string” and “tool joint” are defined as follows (at pp. 84 and 93):

drill stem n: all members in the assembly used for drilling by the rotary method from the swivel to the bit, including the kelly, drill pipe and tool joints, drill collars, stabilizers, and various subsequent items. Compare drill string [italics in original].
drill string n: the column, or string, of drill pipe with attached tool joints that transmits fluid and rotational power from the Kelly to the drill collars and bit.
tool joint n: a heavy coupling element for drilling pipe made of special-alloy steel. Tool joints have coarse, tapered threads and seating shoulders designed to sustain the weight of the drill stem, withstand the strain of frequent coupling and uncoupling, and provide a leakproof seal. The male section of the joint, or the pin, is attached to one end of a length of drill pipe, and the female section, or box, is attached to the other end. The tool joint may be welded to the end of the pipe or screwed on or both. A hard-metal facing is often applied in a band around the outside of the tool joint to enable it to resist abrasion from the walls of the borehole.

Given the undisputed facts that the tool joints in issue are generically “pipe fittings” and that they are parts of drilling machinery (viz., the drill stem), the resolution of this case rests upon the applicability of the competing provisions and the pertinent exclusionary headnotes in parts 2 and 4 of schedule 6, TSUS. For the reasons that follow, the Court finds that there is no genuine issue as to any material fact, and that plaintiff is entitled as a matter of law to summary judgment.

Opinion

1.

Briefly, plaintiff contends that notwithstanding the fact the tool joints are generically “pipe fittings,” they are excluded from classification under item 610.80, TSUS by virtue of exclusionary headnote l(iv) of part 2, schedule 6 (excluding “parts of articles”) because the imports concededly are parts of boring machinery. Further, plaintiff argues that since the imports are not provided for by item 610.80, neither exclusionary headnote l(v), part 4, schedule 6 nor General Interpretative Headnote 10(ij) precludes classification of the merchandise as parts of boring machinery under item 664.05, TSUS.

Defendant advances the argument that the imported articles are specifically provided for in item 610.80, TSUS . as “pipe fittings,” and consequently even assuming that they are parts of boring machinery, classification of the articles under item 664.05 is precluded by virtue of exclusionary headnote l(v), part 4, schedule 6 and General Interpretative Rule 10(ij). Moreover, defendant maintains that exclusionary headnote l(iv), part 2, schedule 6 does not preclude classification of the imports under item 610.80 because they are not specifically provided for in item 664.05.

2.

The precedent most directly in point, and heavily relied upon by plaintiff, is The Servco Company v. United States, supra. Servco involved drill collars (a part of the drill stem) consisting of a tube of steel imported in 30 foot lengths and solely used in boring machinery for the purpose of applying weight to the drill bit. Customs classified the drill collars as pipes and tubes of steel under item 610.52 which, like item 610.80 — the “classified” provision in the present case — comes within schedule 6, part 2, subpart B, TSUS. The importer claimed that the drill collars were classifiable as parts of boring machinery under item 664.05—the “claimed” provision here. In support of its classification, the Government stressed that the drill collars are “tubes” within the common meaning of the term, and contended that even assuming the articles are parts of boring machinery, the tariff provision for tubes (item 610.52) is more specific than the tariff provision for parts of boring machinery (item 664.05). Consequently the Government there urged, that the former provision must prevail over the latter by virtue of General Interpretative Rule 10(ij). Further, defendant maintained in Servco that under headnote l(i) and (v), part 4, schedule 6, “tubes” and “parts of articles specifically provided for elsewhere in the schedules” are excluded from classification under item 664.05.

While recognizing that in common meaning drill collars are generically tubes, the Customs Court nevertheless concluded in Servco that the tariff provision for tubes in item 610.52 does not cover a product solely or chiefly used as part of an article, and that notwithstanding headnote l(v), part 4, schedule 6, the drill collars were properly classifiable as parts of boring machinery under item 664.05, as claimed by plaintiff. The Court pointed out (68 Cust.Ct. at 88):

* * * [P]art 2, subpart B is intended to classify so-called basic shapes and forms of iron or steel, * * *. Schedule 6, part 2, headnote l(iv), * * * which states that it does not include in any of its subparts, * * * other articles specially provided for elsewhere in the tariff schedules, or parts of articles, is obviously intended to exclude basic shapes and forms of metal, * * * that are specially provided for elsewhere in the tariff schedules. The headnote, in our opinion, also excludes identifiable parts of an article solely or chiefly used as a part of an article provided for, with its parts, in a superi- or heading of the tariff schedules. * * [Emphasis added.]

Continuing, the Court added (68 Cust.Ct. at 89):

The Brussels general note on parts [footnote omitted], vis-a-vis pipes and tubes, read with the exclusionary note on heading 73.18 of the Nomenclature confirms our view that, in general, schedule 6, part 2 is intended to include basic shapes and forms of metal including pipes and tubes of iron or steel, which have general use, and to exclude tubes and pipes made up into specific identifiable articles. [Emphasis added.]

In sum, our predecessor court in Servco carefully considered the relationship of headnotes l(iv), part 2, schedule 6 and headnote l(v), part 4, schedule 6 to merchandise included within the common meaning of the terms describing those steel articles classified in part 2, and determined that identifiable parts of boring machinery, such as drill collars, are classifiable under item 664.05 rather than under a provision in part 2, schedule 6.

As noted, supra, the decision of our predecessor court in Servco was affirmed by the Court of Customs and Patent Appeals. While the Appellate Court limited Servco to its own state of facts, this Court sees no material difference between the facts in Servco and those in the present case. “While it is true that a decision in any case rests upon the particular facts thereof, only a material difference in such facts will render the case inapplicable in a subsequent proceeding”. United States v. Esso Standard Oil Co., 42 CCPA 144, 150, C.A.D. 587 (1955).

In both Servco and the instant case, the merchandise was classified by Customs under the provisions of schedule 6, part 2 and generically is described by the provisions of part 2. That the present case involves tool joints used to connect lengths of pipe in a drill string, classified by Customs as pipe fittings under item 610.80, while Servco concerned drill collars used to apply weight to the drilling bit, classified by Customs as pipes and tubes under item 610.52, has no significance from the standpoint of the legal issue presented. Importantly, exclusionary headnote l(iv), part 2, schedule 6 is as applicable to item 610.80 as to item 610.52; and as Servco held, item 610.52 does not embrace identifiable parts of an article provided for in item 664.05. Since the tool joints are identifiable parts of a drill stem, as were the drill collars in Servco, the tool joints are excluded from classification under item 610.80 by virtue of headnote l(iv). In short, with respect to the tool joints at issue, this court reaffirms the soundly reasoned principle of Servco that identifiable parts of boring machinery are excluded from classification in schedule 6, part 2 by virtue of exclusionary headnote l(iv). Cf. John V. Carr & Son, Inc. v. United States, 72 Cust.Ct. 19, C.D. 4500 (1974), also following the reasoning of Servco.

3.

Defendant urges that Servco has no relevance to the current case. In particular, defendant insists that Servco dealt with totally different merchandise than that involved here, and “[a]s a matter of fact, the only similarity between this case and Servco is the claimed provision.” (Deft’s response to plaintiff’s cross-motion for summary judgment, at 2.) Thus, defendant attempts to distinguish the drill collars in Servco from the tool joints in the present case on the ground that “tool joints do not significantly contribute to the boring function of the drill stem,” and they “act as any coupling element would and are not functionally integrated with the drilling bit (as is the drill collar) so as to become a part of it for tariff classification purposes”. (Deft’s response to plaintiff’s cross-motion for summary judgment, at 7.) This “back door” attempt by defendant at this juncture to dispute that the tool joints are parts of boring machinery must be rejected inasmuch as defendant previously admitted that the tool joints are parts of a drill stem which is part of boring machinery. See Defendant’s Response To Plaintiffs Statement Of Material Facts As To Which There Is No Genuine Issue To Be Tried, at paragraph 3. Indeed, Kearney’s uncontroverted affidavit and the attachments thereto leave no doubt that all members of the drill stem assembly from the swivel to the bit, including the tool joints, are integral parts of boring machinery. Hence, there is no genuine issue as to whether the tool joints are parts of boring machinery.

4.

Defendant devotes a substantial portion of its memoranda to its contention that tool joints fall within the common meaning of the term “pipe fittings”. However, as the Customs Court recognized in Servco, the common meaning of a term used in the provisions of part 2, schedule 6 is not dis-positive of classification under part 2 in light of exclusionary headnote l(iv). Therefore, the cases cited by defendant for the common meaning of the term “pipe fittings”, but which did not involve the application of exclusionary headnote l(iv), are inapposite to the present case.

5.

In support of its motion for judgment on the pleadings, defendant relies upon, inter alia, the absence in the complaint of a specific allegation that the tool joints are not pipe fittings, as classified by Customs. This Court does not view the absence of such allegation as fatal to plaintiff. In point of fact, the complaint leaves no doubt as to plaintiff’s position that the imports are not “pipe fittings” for tariff classification purposes, but rather are parts of boring machinery. Moreover, while it is true that the imports are pipe fittings in a generic sense and were so described on the invoices, these facts are not dispositive of the legal issues presented by the exclusionary headnotes in parts 2 and 4, schedule 6, the legislative history of item 664.05, and the Servco decision.

6.

Defendant’s argument that headnote l(iv), part 2, schedule 6 does not exclude the imports from classification under item 610.80 because they are not specifically provided for in item 664.05 may be quickly resolved. Since headnote l(iv) excludes from part 2, schedule 6, “parts of articles” as well as “other articles specially provided for elsewhere in the tariff schedules” (John V. Carr & Son, Inc., supra), it is immaterial whether or not tool joints are specially provided for in item 664.05, or whether boring machinery is merchandise specially provided for within the purview of headnote l(iv). Accordingly, this Court concludes that United States v. Miracle Exclusives, 69 CCPA 42, 668 F.2d 498 (1981) and C.J. Tower & Sons of Buffalo, Inc. v. United States, 69 CCPA 128, 673 F.2d 1268 (1982), cited by defendant, are not pertinent to the issues presented here.

7.

We reach plaintiffs argument that heading 84.23 of the Brussels Nomenclature represents an appropriate source of legislative history for the scope of item 664.05. In Servco, the Customs Court noted that the language of heading 84.23 is substantially the same as that of the superior heading to item 664.05. Heading 84.23 of the Brussels Nomenclature covers:

EXCAVATING, LEVELLING, TAMPING, BORING AND EXTRACTING MACHINERY, STATIONARY OR MOBILE, FOR EARTH, MINERALS OR ORES (FOR EXAMPLE, MECHANICAL SHOVELS, COAL-CUTTERS, EXCAVATORS, SCRAPERS, LEVELLERS AND BULLDOZERS); PILE-DRIVERS; SNOW-PLOUGHS, NOT SELF-PROPELLED (INCLUDING SNOWPLOUGH ATTACHMENTS).

Our predecessor court relied upon the following Explanatory Note to heading 84.23 as directly relevant to its determination:

Subject to the general provisions re- . garding the classification of parts (see General Explanatory Note on Section XVI), other parts of the goods of the present heading are classified here, e.g.:
2) Rotary tables, swivels, kellies, kelly drive bushings, tool-joints, drill collars, subs, drill pipe guides, stop-collars, spider bowls, split bushing slips, beams, swivel sockets, drilling jars and drill stems and pipes, for well drilling machines (rotary or percussion). [Emphasis added.]

Clearly, therefore, the foregoing explanatory note to heading 84.23 of the Brussels Nomenclature indicates that the tool joints were intended to be classified in the same provision as drill collars, viz., item 664.05.

Defendant contends that the merchandise here does not come within heading 84.23 of the Brussels Nomenclature because that heading is subject to the same kind of exclusionary headnote as the TSUS provisions in issue. Also, defendant maintains that the subject tool joints come within heading 73.20 of the Brussels Nomenclature which covers tube and pipe fittings of iron or steel “mainly used for connecting the bores of two tubes together, or for connecting a tube to some other apparatus, or for closing the tube aperture.” But defendant admits that drill collars are not within the purview of heading 73.20 because they are not “mainly used for connecting the bores of two tubes together.” And it is clear that heading 84.23 — the genesis of item 664.05 — was intended to encompass both tool joints and drill collars, since tool joints and drill collars are specifically named in the Explanatory Note as an example of boring machinery parts which come within heading Sj.23. Obviously, if the framers of the Brussels Nomenclature had intended tool joints to come within heading 73.20, rather than heading 84.23, they would not have expressly named tool joints as an example of merchandise to be classified in heading 84.-23.

8.

Defendant’s reference to the Summaries of Trade and Tariff Information, schedule 6, volume 4, at 251 (1967) as an indication that pipe fittings for the petroleum industry were intended to be encompassed by item 610.80, TSUS is not helpful in the resolution of the particular issue before the Court. The portion of the Summaries relied upon by defendant reads:

Pipe fittings serve to join lengths of pipe in a straight line and to change the direction of a piping system; they also provide access for cleaning the system and a means for branching the system, as well as of reducing the diameter of its pipe. Pipe fittings are available in a variety of shapes, some of the most common of which are couplings, L’S, T’S, reducers, traps, and caps. The pipe fittings included in this summary are used in a variety of piping systems and in a wide range of other applications. Some are used in conjunction with stove pipes or pipe railings, for example, whereas others meet the rigorous requirements of the gas, oil, chemical and power industries and of the producers of missiles, airplanes, submarines and ships.
Steel fittings, which are by far the principal products included here, are generally used with steel pipes in systems subject to high pressures and temperatures____

Fundamentally, of course, the Summaries do not represent a source of legislative history of the TSUS. Hawaiian Motor Co. v. United States, 67 CCPA 42, 46, C.A.D. 1241, 617 F.2d 286 (1980); Volkswagen of America, Inc. v. United States, 68 Cust.Ct. 122, 128-29, C.D. 4348 (1972), aff'd, 61 CCPA 41, C.A.D. 1115, 494 F.2d 703 (1974). In any event, there is no indication in the Summaries that identifiable parts of boring machinery were intended to be covered by item 610.80 rather than item 664.05.

9.

Defendant’s argument that the subject merchandise must be classified as pipe fittings under item 610.80, rather than as parts of boring machinery under item 664.-05 pursuant to General Interpretative Headnote 10(ij), is likewise without merit. As recently held by our Court of Appeals in E.R. Hawthorne & Co., Inc. v. United States, 730 F.2d 1490, 1491 (Fed.Cir.1984): “The effect of headnote l(iv) of part 2, schedule 6, is to render the Headnote 10(ij) ‘specificity test’ inapplicable to schedule 6, Part 2.” The Appellate Court went on to find in Hawthorne that the articles in controversy were properly classifiable as parts of illuminating articles notwithstanding they were also tubes or pipes.

10.

Finally, we turn to defendant’s contention that headnote l(v) in part 4, schedule 6 compels classification of the tool joints in item 610.80 and precludes their classification under item 664.05. Defendant’s argument assumes that the tool joints are specially provided for as pipe fittings under item 610.80, and hence are excluded from item 664.05 by virtue of headnote l(v).

As previously noted, our predecessor court in Servco held that item 610.52 “is not a specific provision for pipes and tubes which are identifiable parts of articles”. 68 CustCt. at 88. In support of that conclusion, the Court cited headnote l(iv) in part 2 of schedule 6 and the Brussels Nomenclature. By its terms, headnote l(iv) is applicable to all articles classifiable in part 2 and does not distinguish “pipes and tubes” from “pipe and tube fittings”. As we have observed, headnote l(iv) of part 2, schedule 6 expressly excludes “parts of articles” from the purview of the part 2 provisions (which includes item 610.80). See John V. Carr & Son, Inc., supra, 72 Cust.Ct. at 24. Since the tool joints (identifiable parts of a drill stem) are not specially provided for in item 610.80, headnote l(v) of part 4, schedule 6 does not exclude the imports from item 664.05.

Significantly too, the legislative history of item 664.05, as set forth in the Explanatory Notes to heading 84.23 of the Brussels Nomenclature makes it clear that tool joints (as well as drill collars) were intended by the drafters of the tariff schedules to be classified under item 664.05. Plainly, then, headnote l(v) should not be construed or applied in such a manner as to defeat that intent. It should also be stressed that notwithstanding headnote l(v), the drill collars in Servco were held to be properly dutiable under item 664.05, and the same result should be reached in the present case respecting the tool joints. For these reasons, this Court cannot agree with defendant’s contention that headnote l(v) of part 4, schedule 6 excludes tool joints from classification as parts of boring machinery under item 664.05.

11.

In summary, the Court finds that there is no justiciable issue as to any material fact, and that plaintiff is entitled to summary judgment as a matter of law. This Court holds, therefore, that the imported tool joints are classifiable as parts of boring machinery under item 664.05 or item 664.-08, TSUS (depending upon the date of entry), as claimed by plaintiff; and that by virtue of headnote l(iv) of part 2, schedule 6, the imports are excluded from the provisions of item 610.80, TSUS for pipe fittings, as classified by Customs.

Accordingly, it is hereby ordered that:

1) Defendant’s motion for judgment on the pleadings and alternative motion for summary judgment are denied;

2) Plaintiff’s motion for summary judgment is granted.

      . By Presidential Proclamation 4707, item 664.-08 was substituted for item 664.05 for entries on and after January 1, 1980. Hereinafter, referenees to item 664.05 shall mean either item 664.05 or 664.08, depending on date of entry, unless otherwise noted.

      . See note 1, supra.

      . See note 1, supra. What had been item 664.05 became the superior heading to item 664.08 as well as to several other new breakout items.

      . Item 664.08 was not involved in Servco.

      . Rule 10(ij) of the General Headnotes and Rules of Interpretation, TSUS, provides, so far as pertinent, that "a provision for 'parts’ of an article * * * does not prevail over a specific provision”.

      . See Figure 1.1 of the API Specification for Rotary Drilling Equipment, issued by the American Petroleum Institute, API Spec. 7, 32nd Ed., May 1979, depicting the components of a typical drill stem assembly, and showing that tool joints, like drill collars, are integral parts of the same assembly.

      . See e.g. Kyocera Industrial, Inc. v. United States, 2 CIT 91, 527 F.Supp. 337 (1981), aff'd, 69 CCPA 168, 681 F.2d 796 (1982); Schwarz v. United States, 57 CCPA 19, C.A.D. 971, 417 F.2d 1391 (1969) and Toyota Motor Sales, U.S.A. Inc. v. United States, 7 CIT _, 585 F.Supp. 649 (1984), for the proposition that the Brussels Nomenclature is an appropriate source of legislative history of the TSUS where the language of both are similar.

      . See note 5, supra.

      . Defendant’s answer included as a first separate defense a motion to dismiss as to entry 150536 under protest 53019001001 on the ground that the protest concerning this entry was untimely. However, it must be noted that the entry in question was not listed on plaintiffs summons, and is thus not involved in this action. The Court wishes to make clear that since entry 150536 was not listed on the summons, the judgment in this case is inapplicable to that entry.


source: Caselaw Access Project

author: RE, Chief Judge:

license: Public Domain

text:
    MANULI AUTOADESIVI, S.P.A. and Manuli USA, Inc., Plaintiffs, v. The UNITED STATES, Defendants, Minnesota Mining and Manufacturing Company, Applicant for Intervention.
    Court No. 83-9-01285.
    United States Court of International Trade.
    Jan. 17, 1985.

      Barnes, Richardson & Colburn, New York City (Andrew P. Vance, Michael A. Johnson and Carl J. Laurino, New York City), for plaintiffs.
    Richard K. Willard, Acting Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Washington, D.C. (James Kevin Horgan, Washington, D.C.), for defendants.
    Baker & McKenzie, Washington, D.C. (Thomas P. Ondeck and B. Thomas Peele, Washington, D.C.), for proposed intervenor.
   RE, Chief Judge:

Plaintiffs, Manuli Autoadesivi, S.p.A. and Manuli USA, Inc., challenge the final affirmative determination of an administrative review by the Department of Commerce’s International Trade Administration of a dumping finding. The administrative review was conducted pursuant to section 751(a)(1) of the Tariff Act of 1930, 19 U.S.C. § 1675(a)(1) (1982), and pertained to importation of pressure sensitive tape from Italy. 48 Fed.Reg. 3586 (1984). In addition, plaintiffs challenge the validity of the initial dumping finding made by the Department of the Treasury on October 2, 1977. 42 Fed.Reg. 56,110 (1977) (1977 dumping finding).

On December 23, 1983, pursuant to Rule 24(a) of the Rules of this Court and 28 U.S.C. § 2631(j)(l)(B), Minnesota Mining & Manufacturing Company (3M) moved to intervene in this action as a matter of right. By order dated January 16, 1984, this Court partially granted 3M’s motion, allowing intervention only as to that portion of the plaintiffs’ action which challenged the final results of the administrative review. However, that part of 3M’s motion which challenged the 1977 dumping finding was denied.

3M has moved for partial reconsideration of their motion for intervention, urging that 3M should be permitted to intervene in the challenge to the 1977 dumping finding under Rule 24(b)(2) of this Court, which governs permissive intervention. By application of the “transitional” rules of the Trade Agreements Act of 1979, Pub.L.No. 96-39, § 1002(b)(2) 93 Stat. 144, 307, the law to be applied in reviewing the 1977 dumping finding is the Antidumping Act of 1921, which was repealed by the Trade Agreements Act of 1979, § 106(a), 93 Stat. 144, 193. 3M contends that it has a right under the transitional rules to file an “American manufacturer’s protest” to challenge the 1977 finding. This independent action, 3M asserts, could then be consolidated with the plaintiffs’ case pursuant to Rule 42(a) of this Court. Rather than take this circuitous route, 3M argues that judicial economy would be fostered by allowing intervention.

The plaintiffs contend that 3M did not protect its standing under the old law to initiate its own suit, and, therefore, should not be allowed to intervene.

Subject to the statutory provisions of 28 U.S.C. § 2631(j) (1982), permissive intervention is governed by Rule 24(b) of the Rules of this Court. Rule 24(b), in part, provides that:

Upon timely application anyone may be permitted to intervene in an action: ... (2) When an applicant’s claim or defense and the main action have a question of law or fact in common____ In exercising its discretion, the court shall consider whether the intervention will unduly delay or prejudice the rights of the original parties.

That portion of 28 U.S.C. § 2631(j) which governs intervention by leave of court provides:

(1) Any person who would be adversely affected or aggrieved by a decision in civil action pending in the Court of International Trade, may, by leave of court intervene in such action ...
(2) In those civil actions in which intervention is by leave of court, the Court of International Trade shall consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties.

The statutory language makes it clear that intervention, by leave of court, is addressed to the sound discretion of the court. 28 U.S.C. § 2631(j); U.S.C.I.T. Rule 24(b). Since the operative language of Fed.R.Civ.Pro. 24(b) is identical to Rule 24(b) of the Rules of this Court, as guidance to the exercise of the Court’s discretion, it is permissible to look to the federal cases that have interpreted the Federal Rule of Civil Procedure governing permissive intervention. See Sumitomo Metal Industries, Ltd. v. Babcock & Wilcox Co., 69 CCPA 75, 78 n. 3, 669 F.2d 703, 705 n. 3 (1982); Vivitar Corp. v. United States, 7 CIT _, 585 F.Supp. 1415, 1417 (1984). It is also noted that intervention by leave of court is wholly discretionary, “even though there is a common question of law or fact, or the requirements of Rule 24(b) are otherwise satisfied.” See New Orleans Public Service, Inc. v. United Gas Pipeline Co., 732 F.2d 452, 471-72 (5th Cir.1984) (en banc), quoting 7A C. Wright & A. Miller, Federal Practice and Procedure: Civil § 1913, at 551 (1972).

In considering an application to intervene by leave of court, the court must weigh three factors: a) whether the intervenor’s claim has a question of law or fact in common with the plaintiffs; b) whether the application is timely; and c) “whether the intervention will unduly delay or prejudice the adjudicative rights of the original parties.” See U.S.C.I.T. Rule 24(b).

In the present case, the action challenged by the intervenor, the 1977 dumping finding, presents a common question of law with the plaintiffs. In addition, the original motion to intervene was filed less than three months after the plaintiffs filed their complaint. The application to intervene, therefore, should be considered timely. Nevertheless, on the facts presented, it is the holding of this Court that the prejudice to the original parties, which would result from the participation of an additional party in the challenge to the 1977 finding, outweighs the considerations in favor of intervention. Consequently, the motion to intervene by leave of court is denied.

The most significant factor that militates against allowing intervention in this case is the likelihood of prejudice to the original parties. Rule 1(a) directs that the Rules of this Court “shall be construed to secure the just, speedy, and inexpensive determination of every action.” The negative effect of certain classes of intervenors on the orderly progress of certain proceedings has been noted in some of the cases. For example, it has been stated that:

Additional parties always take additional time. Even if they have not witnesses of their own, they are the source of additional questions, briefs, arguments, motions and the like which tend to make the proceeding a Donnybrook Fair. ... [A] third party can contribute most efficiently and almost always most expeditiously by a brief amicus curiae and not by intervention.

Crosby Steam Gage & Valve Co. v. Manning, Maxwell & Moore, Inc., 51 F.Supp. 972, 973 (D.Mass.1943), quoted with ap proval in Bush v. Viterna, 740 F.2d 350, 359 (5th Cir.1984); see also British Airways Board v. Port Authority of New York and New Jersey, 71 F.R.D. 583, 585 (S.D.N.Y.1976).

In this case, 3M had the opportunity to contest the 1977 finding by filing a notice to contest the determination under former 19 U.S.C. § 1516(d) (1976). In addition, under the transitional rules, 3M had a right to file an American manufacturer’s protest. 3M did not avail itself of those opportunities. Instead, it seeks to intervene in this action more than six years after the initial dumping finding. Proceeding by intervention as of right, rather than by filing an independent action, is clearly permitted under the present statutory framework. See Ceramica Regiomontana, S.A. v. United States, 8 CIT _, 590 F.Supp. 1260, 1264 (1984). 3M, however, has no statutory right to intervene in the challenge to the 1977 finding. Thus, albeit not dispositive, the six-year lapse of time from the 1977 dumping finding until the current action is significant.

3M’s position in this litigation is essentially adversarial to that of plaintiffs. The involvement of an additional party in the challenge of the 1977 finding will result in a delay in the ultimate resolution of the case. For example, discovery related to the 1977 finding by 3M, which is likely to involve confidential information, will require additional time and expense. Delay in the ultimate resolution of the case constitutes prejudice to the original parties. See Sumitomo Metal Industries, Ltd. v. Babcock & Wilcox Co., 69 CCPA 75, 84, 669 F.2d 703, 709 (1982). Moreover, there is no indication that there would be an inadequate discussion or presentation of the issues without 3M’s participation as a party. See Vivitar Corp. v. United States, 7 CIT _, 585 F.Supp. 1415, 1419 (1984). Hence, since it is the determination of the court that the prejudice to the plaintiffs outweighs the considerations in favor of intervention, intervention is denied.

It should be noted that the effect of this decision is simply to preclude 3M from participating in discovery, trial, and any appeal of an adverse decision only with respect to the 1977 finding. As was the practice under old law, 3M may have its views pertaining to the 1977 finding considered by the Court, if 3M wishes to express them, as amicus curiae.

There is some question as to the plaintiffs’ standing to challenge the 1977 finding. Plaintiffs concede that Manuli Autoadesivi, S.p.A., does not have standing to challenge the 1977 finding. Under the Antidumping Act of 1921, Manuli U.S.A. Inc., has standing to challenge the 1977 finding only if one or more of their entries subject to the dumping duty has been liquidated. See Goldsmith & Eggleton, Inc. v. United States, 5 CIT _, 563 F.Supp. 1377, 1380 (1983). Although, in their brief, the plaintiffs assert that liquidations have occurred, the necessary allegations are not set forth in their complaint. In the interests of justice, the plaintiffs are permitted to amend their complaint to include the necessary jurisdictional allegations.

In view of the foregoing, 3M’s motion for partial reconsideration of their motion for intervention is denied.


text:
    John G. DAY, Plaintiff, v. The VIDEO CONNECTION OF SOLON, OHIO, et al., Defendants.
    Civ. A. No. C82-179.
    United States District Court, N.D. Ohio, E.D.
    July 13, 1982.

      J. Herman Yount, Jr., Regan J. Fay, Yount & Tarolli, Cleveland, Ohio, for plaintiff; David D. Murray, Wilson, Fraser, Barker & Clemens, Toledo, Ohio, of counsel.
    D. Peter Hochberg, Jeffrey A. Wyand, Squire, Sanders & Dempsey, Cleveland, Ohio, for defendants.
   MEMORANDUM AND ORDER

KRUPANSKY, Circuit Judge, Sitting by Designation.

This is a proceeding for service and trademark infringement instituted under the trademark laws of the United States, 15 U.S.C. § 1051 et seq., wherein plaintiff, John Day (Day), prays for injunctive, remunerative and equitable relief against the various defendants. The complaint further alleges violations of Ohio’s Trade and Deceptive Trade Practices Acts, O.R.C. §§ 1329.01 et seq. and 1329.54 et seq., and O.R.C. § 4165.01 et seq. Day’s complaint also presents common law causes of action for service mark and trademark infringement and common law unfair competition and unfair trade practices. Jurisdiction is predicated upon 15 U.S.C. § 1051 and 28 U.S.C. §§ 1331, 1338. The matter in controversy exceeds $10,000.

Plaintiff Day is the owner of a sole proprietorship doing business in Toledo, Ohio as “The Video Connection”. Nine defendants have been named in this action. Defendant “The Video Connection of America, Inc.” (TVC-America), is the franchisor of five named defendants and the employer of two individual defendants. The five franchisor defendants are “The Video Connection of Brookpark” (TVC-Brookpark), “The Video Connection of Stow” (TVC-Stow), “The Video Connection of Parma”, (TVCParma) and “The Video Connection of Willowick” (TVC-Willowick). The employees of TVC-America named as defendants are Bert Tenzer (Tenzer) and John L. Barry (Barry). Both are officers of TVC-America and both are New York State residents. Also named as defendant is Peter Zeleniuch (Zeleniuch), of TVC-Parma.

Currently before the Court are the motions of Day to join additional defendants and for a preliminary injunction against use by the various defendants of the TVC trademark. All defendants have, through their shared counsel, moved the Court for leave to file a second amended joint answer. Defendants Tenzer and Barry have moved for dismissal of the action as against them.

I.

The plaintiff seeks to join seven individuals and three business entities as defendants in this action. Plaintiff asserts such joinder is necessary to ensure the just adjudication of plaintiff’s claims of service mark, trademark, and trade name infringement and unfair competition. Each individual sought to be joined is at least a part owner of a TVC retail store and each business sought to be joined is a TVC retail outlet.

It appears from the pleadings that, in accordance with the provisions of Fed.R. Civ.P. 19(a), these proposed parties are subject to service of process and their joinder will not deprive this Court of jurisdiction. Plaintiff has properly averred that, absent joinder of these proposed party-defendants, complete relief cannot be accorded among those already parties. Accordingly, pursuant to Fed.R.Civ.P. 21, this Court hereby grants the motion by plaintiff for leave to amend the complaint and add Richard A. Sutton, Al Mysinek, Dennis Sheller, Mark Pannent, Michael Slywka, Charles Sanborn and Sandra Sanborn, and the three “The Video Connection” businesses identified by the subject motion, as defendants in this case.

II.

The defendants, through their common counsel, have submitted to the Court a motion to file a second amended joint answer presenting additional affirmative defenses, but otherwise preserving the once amended complaint and counterclaim which has been previously filed, as a matter of right. Fed.R.Civ.P. 15(a). Defendants assert that the additional defenses surfaced during the course of discovery and in researching the law and facts surrounding this controversy.

Rule 15(a) expressly states that leave to file an amended pleading shall be freely given when justice requires. Justice is properly served by giving a party the opportunity to assert a defense discovered in preparation for trial if the opposing party would not thereby be unduly prejudiced.

This action was commenced on January 29, 1982 and the answer and reply were filed in March. Plaintiff has not objected to the instant motion. The Court finds that granting defendant’s motion to amend would not unduly inhibit plaintiff’s preparation of his cause. Therefore in consideration of the foregoing, defendant’s motion to amend the answer to include an additional two affirmative defenses to the action is granted.

III.

Also before the Court is a motion to dismiss submitted by individual defendants Tenzer and Barry, in which it is asserted that this Court lacks personal jurisdiction over them.

In response, Day proceeds upon an “alter-ego” theory to preserve this Court’s personal jurisdiction over Tenzer and Barry. The burden of establishing facts supportive of the alter-ego allegation rests with Day. The materials sub judice evidence that Day has not sustained the burden of providing the Court with sufficient reason to “pierce the corporate veil” and thereby properly subject Tenzer and Barry to the Court’s jurisdictional reach. Day alleges the need for completion of discovery to establish the jurisdictional basis for the inclusion of Tenzer and Barry individually as defendants. Such request may properly be granted if reasonable and fair.

TVC-America, Tenzer, and Barry have common counsel. Tenzer and Barry have been served with notice of this action. It appearing to the Court that staying its ruling on defendant Tenzer and Barry’s motion until the completion of discovery will not unduly burden Tenzer, Barry and TVC-America, resolution of the instant motion will be reserved pending the completion of discovery. The parties shall file additional briefs addressing this issue within ten days of termination of discovery in this case, which time period will be calculated according to Fed.R.Civ.P. 6.

IV.

Plaintiff Day has petitioned this Court for a preliminary injunction halting defendant’s use of the disputed marks until the litigation on this matter runs its course.

TVC-America is a national corporation involving over 100 retail franchisees who are provided with TVC operations materials. These materials include customized TVC display units, wallpaper, signs, catalogues, promotional items, and advertising materials. Each franchise represents an initial capital investment by its owners of approximately $50,000.

Day’s business is also involved in national trade — through mail order sales resultant from advertisements in specialty magazines with nationwide circulation. Day has two retail outlets, both are in the Toledo area of northwest Ohio. The named defendant TVC franchisees are all northeast Ohio operations. Review of the numerous briefs filed to date indicates that TVC-America does not have any franchise in the Toledo area.

The Sixth Circuit Court has enunciated four standards which must be considered and “carefully balanced” in deciding to grant or withhold a preliminary injunction. Mason County Medical Ass’n. v. Knebel, 563 F.2d 256, 264 (6th Cir.1977). The factors set forth by the Mason County Court are:

1. Whether the plaintiffs have shown a strong or substantial likelihood or probability of success on the merits;
2. Whether the plaintiffs have shown irreparable injury;
3. Whether the issuance of a preliminary injunction would cause substantial harm to others;
4. Whether the public interest would be served by issuing a preliminary injunction.

563 F.2d at 261 (citing cases). See also Mobil Corp. v. Marathon Oil Co., 669 F.2d 366, 368 (6th Cir.1981); EEOC v. Anchor Hocking Corp., 666 F.2d 1037, 1040 (6th Cir.1981); Shawnee Coal Co. v. Andrus, 661 F.2d 1083, 1089 n. 5 (6th Cir.1981).

The availability of a preliminary injunction is in every case intimately bound to the particulars of the situation as it appears to the trial court. The four Mason County factors cannot be endowed with universally applicable weight. The determinate force accorded each element must proceed from the totality of the circumstances presented by the case under consideration. A preliminary injunction necessarily issues prior to a final resolution of the dispute, its inherent threat to the rights of the litigants obligates the court to act with caution and restraint. Before granting a preliminary injunction a court must consider each Mason County test in light of the pertinent factual setting and conclude in favor of the movant on every point. Predication of the preliminary injunction upon a successful showing, within the confines of the case under review, on each factor in the analysis, secures a satisfactory basis for the proper balancing of the equities, law and facts of the case, which is necessary to the protection of the parties’ legitimate claims, rights and property.

In addressing the first of the Mason County standards it is necessary to note that the movant is required to show more than a mere possibility of success — such a burden would render the test meaningless. Here the plaintiff Day must demonstrate a “strong probability of success on the merits.” Mason County Medical Ass’n. v. Knebel, supra, 563 F.2d at 261 n. 4.

The issue of the “success on the merits” test has been joined by the parties as determined by whether Day has made a strong showing that the marks in question are confusingly similar. The burden of this proof is upon Day. Day may succeed in the requisite proof either by showing actual confusion in the marketplace or the likelihood of such confusion. Jewel Companies v. Westhall Company, 413 F.Supp. 994, 1000 (N.D.Ohio 1976), aff'd., 575 F.2d 1176 (6th Cir.1978).

The courts have considered several factors in determining whether the likelihood of confusion exists. The mark disputed herein is "The Video Connection”; obviously both parties use exactly the same words, but confusion does not rest upon this similarity alone. Also to be considered are “such factors as the ... similarity of products, identity of retail outlets and purchasers, identity of advertising media utilized, defendant’s intent, and actual confusion.” Union Carbide Corp. v. Ever-Ready, Inc., 531 F.2d 366, 381 (7th Cir.), cert. denied, 429 U.S. 830, 97 S.Ct. 91, 50 L.Ed.2d 94 (1976) [quoted in Frisch’s Restaurants, Inc. v. Elby’s Big Boy of Steubenville, Inc., 514 F.Supp. 704, 709 (S.D.Ohio 1981) ]. Day has not placed before this Court any probative evidence dealing with the last two elements, intent and actual confusion, accordingly they will not impact on any analysis.

The products offered by plaintiff and defendant can be, as the latter points out, distinguished on narrow factors; however, it is at least arguable thát they may be considered similar for the purposes of this discussion. The Court is amenable, therefore, to grant the similarity of products for the limited purposes of the instant motion. As noted above, both Day and TVC-America claim a nationwide market. TVC-America and its franchisees reach their market through retail outlets while Day’s market is mail order; further, Day’s mail-order business deals exclusively in “classic” type films whereas TVC-America’s “national market” is more a generalized sale of video related items. Although Day is planning expansion, his general retail operation is limited to the Toledo area, where TVC-America does not currently have any franchises. There is, based on the materials sub judice, no identity of retail outlets and purchasers between the defendants and Day.

Day’s advertising, excluding the local Toledo area, is limited to specialized publications. TVC-America and Day do not have substantial identity in the use of advertising media. Although both utilize the print media generally, they do not advertise in substantially similar publications. The exception is the newspaper advertising placed by the TVC franchises in their local markets and that of Day in the Toledo market. The markets are sufficiently distinct so as to remove the superficial identity of media.

In consideration of the foregoing, inasmuch as Day has failed to make a strong showing of the likelihood of confusion, the Court finds that the plaintiff has not sustained the burden imposed by the initial Mason County test — Day has not demonstrated a “strong probability of success on the merits.”

Even assuming arguendo that Day could demonstrate probable success on the merits, the factual structure in this case evidences that substantial harm would be caused to the TVC franchises if the preliminary injunction were granted pending the outcome of the litigation. The totality of the circumstances before the Court in this case compels that great weight be placed upon the third of the four Mason County tests.

Each TVC-America franchise is designed around the TVC identification which pervades every franchise operation. Even limiting an injunction to the named Ohio franchisees would deleteriously affect these individually owned small businesses which represent an initial investment totaling over $400,000. The injunction Day seeks would necessitate a complete revamping of each of these franchise operations and threaten their viability.

Even if plaintiff’s injury was as complete and irreparable as claimed — which is not here decided — it would not justify the severe threat to the continued existence of defendants’ operations which a preliminary injunction would entail. A better result, absent severe alteration in the current situation, inheres with a denial of the preliminary injunction without prejudice to plaintiff’s right to move the Court to enjoin specific acts by defendants pursuant to adjudication of the merits of the complaint.

To summarize the resolutions on the various motions presented to this Court as hereinbefore stated: Plaintiff's motion to amend the complaint, and defendant’s motion to file an additional amended answer, are hereby granted. The ruling on the motion for dismissal, submitted by the individual defendants Terzer and Barry, is withheld pending the completion of discovery, and the submission of additional briefs, based upon matters revealed in discovery, on the motion. Finally, plaintiff’s motion for preliminary injunction is hereby denied.

IT IS SO ORDERED.


author: BRIMMER, Chief Judge.

text:
    RURAL ELECTRIC COMPANY, of Pine Bluffs, Wyoming, A Wyoming Non-Profit Corporation, Plaintiff, v. CHEYENNE LIGHT, FUEL & POWER COMPANY, A Wyoming Corporation, The City of Cheyenne, A Wyoming Municipality, The Cheyenne City Council, Virgil Slough, Ron Rogers, William Anderson, Carol Clark, Jane Crawford, Peter Salas, James Higday, Wanda McCue and Don Erickson, Individually, Defendants.
    No. C82-0416-B.
    United States District Court, D. Wyoming.
    March 11, 1983.
    Henry F. Bailey, Todd S. Welch, Loomis, Lazear, Wilson & Pickett, Cheyenne, Wyo., for plaintiff.
    Paul B. Godfrey, Godfrey & Sundahl, Thomas A. Nicholas, Hirst & Applegate, Cheyenne, Wyo., for defendants.
   MEMORANDUM DECISION AND ORDER OF DISMISSAL

BRIMMER, Chief Judge.

The Plaintiff, Rural Electric Company, of Pine Bluffs, Wyoming, brought suit against the City of Cheyenne, Wyoming, its mayor and city councilmen, and the Cheyenne Light, Fuel & Power Company, a private utility, alleging that (1) Cheyenne Light, Fuel & Power breached a contract dividing the service area in an industrial park near Cheyenne, (2) that the mayor, councilmen and the City, by denying the Plaintiff a franchise for electric service, acted in violation of State law, (3) that the mayor, councilmen and City have illegally granted the Defendant utility a monopoly, (4) that Cheyenne Light, Fuel & Power violated federal antitrust laws by conspiring with the other Defendants to monopolize the electric service area, (5) that the municipal Defendants have engaged in an unlawful conspiracy to monopolize an electric service area in violation of the antitrust laws, and (6) that the Defendant Higday has engaged also in an unlawful conspiracy to violate the antitrust laws. The municipal Defendants (the mayor, councilmen and the City) and the utility Defendants (Cheyenne Light, Fuel & Power and its manager, Higday) have each moved to dismiss Plaintiffs complaint for lack of jurisdiction and failure to state a claim under Rule 12(b)(6), Federal Rules of Civil Procedure.

The Plaintiff is a nonprofit Wyoming public utility company furnishing electric service to rural residents in southeastern Wyoming, northeastern Colorado and western Nebraska. The Defendant Cheyenne Light, Fuel & Power is a Wyoming intrastate public utility company serving the City of Cheyenne and specified rural areas adjacent thereto with electric and gas utility service. Jurisdiction is claimed under 28 U.S.C. § 1331, relating to federal questions, and § 1337 relating to Acts of Congress regulating commerce and protecting trade and commerce against restraints and monopolies.

The first cause of action for breach of contract is a pendant jurisdiction claim, as are the second and third causes of action, claiming that the municipal Defendants acted in violation of State statutes and the Wyoming Constitution. Whether or not this Court has jurisdiction of the remaining three causes of action, which allege that the Defendants engaged in an unlawful combination or conspiracy to restrain trade in violation of 15 U.S.C. §§ 1-30, is the issue presented by Defendants’ motions.

The facts alleged by the Plaintiff’s complaint, and which are assumed to be true for the purposes of these motions, are that Plaintiff and Cheyenne Light, Fuel & Power Company on December 7, 1953 by written contract, thereafter approved by the Public Service Commission, agreed that what is now Lot 24 of Rocky Mountain Industrial Park would be part of the Plaintiff’s certificated service area. In December 1978 the Rocky Mountain Industrial Park was annexed to the City of Cheyenne. Prior to March 11, 1982 the Defendants had numerous meetings with Quanex Corporation, a large industrial company, concerning location of an industrial facility on Lot 24 and utility service to it, but at a meeting with Plaintiff’s representatives on March 11,1982 the Plaintiff refused to give up this portion of its certificated area. The Plaintiff then asked the municipal Defendants to grant it a franchise to serve Lot 24 but on April 16, 1982 the Cheyenne City Council refused to grant Plaintiff a franchise and by resolution asked the Wyoming Public Service Commission to grant Cheyenne Light, Fuel & Power the right to serve Quanex Corporation. The Plaintiff’s subsequent efforts to secure a franchise from the City failed. On August 2, 1982 the Wyoming Public Service Commission held a public hearing, at which the Plaintiff, the City of Cheyenne and Cheyenne Light, Fuel & Power were present, on the application of Defendant Cheyenne Light, Fuel & Power to serve the disputed area, and on September 27, 1982 the Public Service Commission of Wyoming by order granted Cheyenne Light, Fuel & Power authority to serve the Quanex Corporation. Cheyenne Light, Fuel & Power is the only utility company serving the City of Cheyenne and has a monopoly on the electric and gas utility business therein.

Paragraphs 43(a) and 43(b) of the Plaintiff’s Complaint allege that Cheyenne Light, Fuel & Power has appeared three times before the Cheyenne City Council and that its agents have contacted members of the City Council to keep the Plaintiff from obtaining a franchise for electric service within the City. Plaintiff also alleges that the municipal defendants as well as the Defendant Higday have engaged “in an unlawful combination and conspiracy” to restrain and monopolize interstate trade. In argument Plaintiffs counsel stated that he hoped to discover proof of such allegations in the course of discovery.

Mr. Justice Cardozo observed, in his dissent in U.S. v. Constantine, 296 U.S. 287, 299, 56 S.Ct. 223, 228, 80 L.Ed. 233 (1935), “There is a wise and ancient doctrine that a Court will not inquire into the motives of a legislative body or assume them to be wrongful.” Alexander M. Bickel in “The Least Dangerous Branch” cites this as the established view (p. 208). Areeda & Turner on Antitrust, Vol. II, p. 36, summarize their conclusions respecting efforts of collaborators to use the machinery of government to maintain or strengthen market power as follows:

“(1) A specific purpose to secure anti-competitive governmental action and to burden rivals cannot itself make activities wrongful. Monopolists or collaborators are privileged to pursue their private and selfish objectives through legislation, adjudication, or executive and administrative machinery.
(2) Conduct thus immune from antitrust attack would not be immune when the governmental action is a “mere sham” or in bad faith. In the legislative context, however, such bad faith is virtually beyond proof and should ignored, at least presumptively and perhaps conclusively. It will also be difficult to prove in dealings with the executive or administrative arms of government. Bad faith is more readily detected, though still elusive in the context of administrative adjudication.
(3) The employment of improper means in dealing with government is not privileged. The courts, however, hesitate to use anti-trust law to define what is proper in the political arena, although this hesitation need not have the effect of immunizing from antitrust challenge conduct that is already “legally proscribed” apart from antitrust law. The criteria of impropriety varies according to the governmental body involved; there is, for example, very wide latitude for questionable activity in the legislative context. Moreover, there are significant doubts about the causal connection between the impropriety and the anticompetitive results of government action. Such doubts are great enough to warrant antitrust law’s ignoring improprieties altogether in the legislative context. In other contexts, improprieties may be considered by the antitrust tribunal, subject to the cautions slated elsewhere about significance and causation.”

In United Mine Workers v. Pennington, 381 U.S. 657, 670, 85 S.Ct. 1585, 1593, 14 L.Ed.2d 626 (1965) the Supreme Court held that,

“Joint efforts to influence public officials do not violate the antitrust laws even though intended to eliminate competition. Such conduct is not illegal either standing alone or as a part of a broader scheme itself violative of the Sherman Act.”

The Supreme Court held in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943) that a state marketing program did not violate the Sherman Act because it derived its authority from the “legislative command of the state” and the Court found nothing in the Sherman Act or its history suggesting that its purpose was to restrain a state or its agents. Article XIII, Section 4 of the Wyoming Constitution provides

“No street passenger railway, telegraph or electric light line shall be constructed within the limits of any municipal organization without the consent of its local authorities.”

The Wyoming Supreme Court in Tri-County Electrical Association Inc. v. City of Gillette, 584 P.2d 995 (Wyo., 1978), held that this provision gave cities extensive control over electric utilities within their boundaries. Here, the Plaintiff alleges (1) that the disputed area is within the city’s boundaries, and (2) that the City Council wanted to keep the City of Cheyenne “under one power company” (Complaint, paragraph 15). The State Legislature in § 37-2-205(b), W.S.1977, provided further that no public utility shall exercise a right or franchise without first obtaining from the Public Service Commission a certificate of convenience and necessity.

We must conclude that the action of the City of Cheyenne as well as of the Public Service Commission of Wyoming, is immune from suit under the Sherman Act. Under the “state action” doctrine enunciated in Parker, the actions of the City of Cheyenne, the Cheyenne City Council, and the Public Service Commission are immune from liability under the antitrust laws if they were taken pursuant to state policy. Pueblo Aircraft Service, Inc. v. City of Pueblo, Colo., 679 F.2d 805 (10th Cir.1982); Lafayette v. Louisiana Power and Light Company, 435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978).

This does not mean, however, that a political subdivision necessarily must be able to point to a specific, detailed legislative authorization before it properly may assert a Parker defense to an antitrust suit____ [A]n adequate state mandate for anticompetitive activities of cities and other subordinate governmental units exists when it is found ‘from the authority given a governmental entity to operate in a particular area, that the legislature contemplated the kind of action complained of.’ Lafayette, supra, p. 415, 98 S.Ct. at 1138.

To be exempt from antitrust scrutiny the municipal action must be “in furtherance or implementation of clearly articulated and affirmatively expressed state policy.” Community Communications Co. v. City of Boulder, 455 U.S. 40, 55, 102 S.Ct. 835, 842, 70 L.Ed.2d 810 (1982).

In Tri-County Electrical Association, Inc., supra, p. 1001, the Wyoming Supreme Court recognized the broad powers conferred upon municipal governments to grant franchises to utility companies, and noted that “franchises are special privileges conferred by the government on individuals, which do not belong to the citizens of the country generally of common right; no franchise can be held which is not derived from the law of the state.” It appears from an application of the state action doctrine to the laws of the State of Wyoming, as found in Article XIII of the Wyoming Supreme Court in Tri-County, that the City of Cheyenne is immune from antitrust liability in this matter, and the causes of action against it on this basis must be dismissed.

Even if the Plaintiff’s allegations that various of the Defendants collaborated to influence the decision-making of public bodies are true, such activity would not amount to a violation of the antitrust laws. “[N]o violation of the [Sherman] Act can be predicated upon mere attempts to influence the passage or enforcement of laws.” Eastern Railroad Presidents Conference v. Noerr Motor Freight, 365 U.S. 127, 135, 81 S.Ct. 523, 528, 5 L.Ed.2d 464 (1961). Neither does the Sherman Act “prohibit two or more persons from associating together in an attempt to persuade the legislature or the executive to take particular action with respect to a law that would produce a restraint or a monopoly.” Noerr, supra, p. 136, 81 S.Ct. at 529.

The only exception to this general principle recognized by the Noerr court is when the action complained of is not legitimately directed at influencing official action, but is instead a mere “sham,” frivolous in its nature, designed solely to have a detrimental effect upon the business of a competitor or potential competitor. Noerr, p. 144, 81 S.Ct. at 533. Areeda and Turner point out, however, that such allegations are virtually impossible to prove, and may, for practical purposes, be ignored. Areeda and Turner, supra, paragraph 203. They also point out an obvious fact of significance in this action. In attempting to categorize an activity as merely a “sham” lobbying, hiding behind the most frivolous of contentions, it must be remembered that “in a political forum, almost no contention can be characterized categorically as frivolous____ [A] contention cannot, by definition, be frivolous when it is actually adopted by a legislature, administrator, or court.” Id., paragraph 203(c). See also Franchise Realty Interstate Corp. v. San Francisco Local Joint Executive Board of Culinary Workers, 542 F.2d 1076, 1079 (9th Cir.1976).

The Supreme Court, in California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972) reiterated its earlier stances in Noerr and Pennington.

We conclude that it would be destructive of rights of association and of petition to hold that groups with common interests may not, without violating the antitrust laws, use the channels and procedures of state and federal agencies and courts to advocate their causes and points of view respecting resolution of their business and economic interests vis-a-vis their competitors. Id., p. 510-511, 92 S.Ct. p. 611-612.

In California Motor Transport, supra, the Supreme Court also held that the exercise of the above rights could not be taken in such a manner as was designed to foreclose one’s competitors from meaningful access to the same public bodies. Plaintiff herein has raised no such issue, and cannot be heard to complain that it was unable to petition the same public officials as certain of the Defendants. To the contrary, the Plaintiff is merely dissatisfied with the actions taken by those public bodies.

“To be sure, the legislature may be mistaken or unaware of the consequences of its actions, or it may be responding to political pressures not truly reflecting ‘the public interest,’ but the antitrust court may not reappraise the legislature’s assessment of the public welfare.” Areeda and Turner, supra, paragraph 202b. This sound advice, concurring as it does with the wisdom of Justice Cardozo, will be heeded by this Court. The allegedly violative activities of the Defendants in influencing the granting of a franchise to the Defendant Cheyenne Light, Fuel & Power were apparently successful attempts to persuade a public body to exercise its powers in a particular way. Such activities, even if selfishly motivated, do not violate the Sherman Act if endorsed ultimately by a public body. This Court will not endeavor to speculate upon the motivations of the City Council, the City of Cheyenne, or the Public Service Commission in acting as they did. Even if the conduct of various of the Defendants was unethical in interacting as it is alleged they did in influencing the City Council, such activity is also immune from suit under the antitrust laws when conducted in the context of lobbying the City Council as a legislative body. Metro Cable Co. v. CATV of Rockford, 516 F.2d 220 (7th Cir.1975).

It is clear that the fourth, fifth, and sixth claims of the Plaintiff’s complaint fail to state a claim upon . which relief can be granted by this Court. Pursuant to Federal Rules of Civil Procedure 12(b)(6), these claims are properly dismissed from this action. Since the only basis of jurisdiction in this Court rests upon these claims, the pendant state claims contained in the first, second, and third causes of action must also be dismissed for lack of subject matter jurisdiction.


author: DEVITT, District Judge.

text:
    LAKE REGION HOSPITAL CORPORATION, a Minnesota non-profit corporation, Provider No. 24-0052, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.

    Civ. No. 6-82-1052.
    United States District Court, D. Minnesota, Third Division.
    Dec. 30, 1983.

      Richard L. Pemberton, Rufer, Hefte, Pemberton, Schultze, Sorlie, Sefkow & Kershner, Fergus Falls, Minn., for plaintiff.
    James M. Rosenbaum, U.S. Atty. by Mary L. Egan, Asst. U.S. Atty., Minneapolis, Minn., Eve C. Epstein, Asst. Regional Atty., U.S. Dept, of Health & Human Services, for defendant.

       The court substitutes Margaret M. Heckler, Secretary of Health and Human Services as the real party in interest in place of all other individuals named by plaintiff as defendants. Fed.R.Civ.P. 25(d)(1); 42 C.F.R. § 405.1877 (1982).

   MEMORANDUM & ORDER

DEVITT, District Judge.

This is an action for judicial review of a final decision of the Secretary of Health and Human Services (“Secretary”) denying reimbursement of certain costs under the Medicare Act. 42 U.S.C. § 1395 et seq. The parties have filed cross motions for summary judgment. For reasons discussed below, the Secretary’s decision is affirmed and summary judgment is granted in favor of defendant.

Background

This case stems from plaintiff hospital’s practice of charging area clinics less for laboratory and radiology services rendered to clinic patients than it charges its own patients. The dispute concerns the Secretary’s methodology of apportioning the costs of health care services between Medicare and non-Medicare patients to determine the amount of cost reimbursement due plaintiff for its fiscal years ending September 30, 1978 and September 30, 1979. The hospital seeks additional reimbursement on the grounds that the Secretary improperly increased (“grossed up”) the laboratory and radiology charges contained in its cost reports. It claims the Secretary distorted the cost apportionment process in violation of the Medicare Act and regulations which require that charges for services be related to the cost of providing those services. Accordingly, plaintiff contends that it is entitled to use a hybrid grossing up method, or in the alternative, to use the revenue offset method in its cost reporting. An overview of the Medicare Act and applicable statutory provisions is needed to properly assess the issues before the court.

The Medicare Act

The Medicare Act, enacted in 1965 to provide medical benefits to the elderly and disabled, includes a program of hospital insurance benefits for eligible recipients. 42 U.S.C. §§ 1395c-1395i (Part A 1976 & Supp. II 1978). A hospital participating in the program as a “provider of services” is entitled to reimbursement of the costs of hospital services it renders to Medicare beneficiaries. 42 U.S.C. §§ 1395f(b), 1395x(u).

Reimbursement is based on the lesser of the provider’s “reasonable cost” incurred or its “customary charges” for the services. 42 U.S.C. § 1395f(b). The “reasonable cost” of any service is the direct and indirect cost actually incurred, and is determined according to regulations promulgated by the Secretary. 42 U.S.C. § 1395x(v)(l)(A). “Customary charges” are not at issue in this case.

Providers may be reimbursed directly from the Secretary but more commonly seek reimbursement from organizations under contract with the Secretary to act as “fiscal intermediaries,” 42 U.S.C. § 1395h, by filing with the intermediary a fiscal year-end cost report. 42 C.F.R. § 405.-406(b). The intermediary reviews and if necessary audits the report to determine the reasonable cost of reimbursable services. Id. A provider that is dissatisfied with its intermediary’s determination may obtain a hearing before the Secretary’s Provider Reimbursement Review Board (the “Board”). 42 U.S.C. § 1395oo(a). The Board’s ruling becomes the agency’s final decision unless the Secretary on her own motion and within sixty days, reverses, affirms or modifies the ruling. 42 U.S.C. § 1395oo (f)(1). The provider may then seek judicial review of a final adverse agency decision according to the applicable provisions of the Administrative Procedure Act. Id.; 5 U.S.C. § 701-706 (1976).

The regulations governing provider reimbursement are codified at 42 C.F.R. § 405.-401-405.488 (1979). They establish a two step process for determining reimbursement: 1) cost finding, which involves identification of health care services covered by the Medicare Act and a determination of the associated costs (“allowable costs”) of rendering those services; and 2) cost apportionment, which requires allocation of the allowable costs between Medicare and non-Medicare patients. 42 U.S.C. § 13951(b); 42 C.F.R. § 405.401 et seq. (1979). See Research Medical Center v. Schweiker, 684 F.2d 599, 602 (8th Cir.1982).

The cost apportionment formula applicable to plaintiff for the fiscal years at issue, 1978 and 1979, is the “Departmental Method” which requires that each department determine its reimbursable costs. 42 C.F.R. §§ 405.404(b), 404.452(c)(2). A provider’s total Medicare reimbursement is the sum of the reimbursable department costs. Because of the difficulty in accurately determining the costs of Medicare beneficiary services from a department’s total costs of providing services, they are derived by a ratio of beneficiary charges to the department’s total charges for the services. “Charges” are the regular rates billed for the services. Id. Roughly, apportionment for a department is accomplished as follows:

Cost of Medicare Beneficiary _ Charges to Beneficiaries Total
Services (reimbursable — _ Costs
costs) Total Charges

42 C.F.R. § 405.452. Although a provider may sell its services at a discount, the regulations require that charges are reported at their pre-discount rates for Medicare apportionment purposes because the charge figure affects the amount of cost reimbursement. Although the regulations allow a provider to use a more sophisticated method of cost allocation, 42 C.F.R. § 405.453(h), the burden of proof lies with the provider. See Doctors Hospital, Inc. v. Califano, 459 F.Supp. 201, 215 (D.D.C.1978).

Facts/Claims of the Parties

Plaintiff is a Minnesota nonprofit corporation that operates a general short term acute care hospital and a skilled nursing facility in Fergus Falls, Minnesota. It is a “provider of services” under the Medicare Act. See 42 U.S.C. § 1395x(u). The hospital includes a laboratory and a radiology department which it operates 24 hours a day. Because much of the departments’ equipment and personnel are underutilized, the hospital provides laboratory and x-ray services to area clinics in order to reduce the cost of operating the departments. Hearing Transcript 393-94 (“Tr.”). The hospital sells its technical pathology services to Orandi Medical, P.A. and its technical radiology services to Fergus Falls Medical Group. Tr. 439, 441. It charges the clinics for the laboratory and x-ray work rather than the clinic patients (“non-provider” patients). The hospital pathologists or radiologists do not interpret the clinic tests, however, nor does the hospital charge the clinics for such services. The clinics have independent billing arrangements with the hospital pathologists and radiologists when nonprovider patients seek their professional interpretive services. Tr. 404.

The hospital charges the area clinics less for laboratory and radiology services rendered to clinic patients than it charges hospital patients for the services. It contends the dual pricing structure is justified on a cost basis because the services rendered to nonprovider patients are far less extensive than those provided hospital patients. The parties agree that the actual laboratory tests and x-rays, without considering pretest and post-test procedures, involve the same costs for hospital and clinic patients.

The hospital asserts that in order to remain competitive it must keep its clinic charges low, and that it is entitled to report the lesser clinic charges for Medicare reimbursement purposes or that it must increase the clinic charges on its cost report only to the extent that the charges bear the same percentage markup over the underlying costs as hospital patient charges bear to the costs of providing hospital patient services. Based on its claim that the costs differ, the hospital contends the Medicare regulations do not authorize it to gross up the clinic charges to equal the same dollar rates charged to hospital patient patients for laboratory and x-ray services. See 42 C.F.R. § 405.452(d)(4) (requires that charges for services “be related to the cost of the services.”).

The hospital commissioned a pricing study for fiscal year 1978 to document and quantify the alleged cost differences. It claims the study supports its position that the lower clinic charges are not discounts but properly reflect the lesser costs involved in rendering outside laboratory and radiology services. For example, the hospital contends that a great deal of personnel time is spent preparing hospital patients for tests and collecting laboratory specimens, transporting patients for x-rays and processing and billing hospital patients. These procedures are either absent or simplified in the case of clinic patients: the clinic provides the laboratory specimen, no transportation is provided by the hospital to clinic patients, and billing of the clinics for the nonprovider services involves little time or expense. Additionally, plaintiff asserts that care to hospital in-patients is particularly costly because they are usually less healthy than hospital out-patients or clinic patients and cannot appreciably assist hospital staff regarding the laboratory or radiology procedures. While the hospital does not seek to distinguish its costs for rendering the services to in-patients from out-patients for cost reimbursement purposes, it does argue that services rendered to hospital patients as a class are different services for pricing purposes than the services rendered to clinic patients.

Plaintiffs fiscal intermediary, Blue Cross Association through Blue Cross-Blue Shield of Minnesota, rejected the study and adjusted the hospital’s 1978 and 1979 cost reports to reflect uniform charges for laboratory and radiology services because:

1) plaintiff failed to demonstrate a real difference in the cost of a given service when rendered to a hospital patient as opposed to a clinic patient; and
2) irrespective of any cost difference associated with providing the services, Medicare law and program policy require the use of uniform charges in the cost apportionment determination.

See Tr. 12, 742. The cost report adjustments were accomplished by increasing or “grossing up” plaintiff’s reported clinic charges to the same rate charged to hospital patients. Thus, Blue Cross increased the outside charges for technical laboratory and x-ray services and added a charge for professional services. As a result, the denominator of the charge ratio used in the cost apportionment formula,

Medicare _ Charges to Beneficiaries Total
Costs Total Charges Costs,

was increased which thereby decreased the fraction of the total costs reimbursable under the Medicare Act by approximately $81,000 for 1978 and $40,000 for 1979.

Plaintiff appealed the 1978 and 1979 adjustments to the Provider Reimbursement Review Board which held a consolidated hearing on March 23 and 24, 1982. The Board issued its decision on June 16, 1982 affirming the intermediary’s adjustments for the fiscal year ending 1978, and implicitly affirmed the intermediary’s 1979 adjustments. See Tr. 574-75. It held that plaintiff’s study failed to substantiate a cost difference between services provided to hospital and clinic patients since 1) the study may contain an error rate of as much as 25 percent, and 2) significant portions of the study were not capable of verification as required by the regulations. Tr. 14. Accordingly, it held that plaintiff failed to satisfy its burden of proof — to show why the Secretary’s methodology of uniform charges, as opposed to the hospital’s hybrid grossing up method, should not be followed. Id. Additionally, the Board refused to consider plaintiff’s alternate reimbursement method because the study did not clearly support a “charging differential” nor were the study’s cost computations for the services rendered to nonprovider patients accurate and verifiable. Id.

The Board’s ruling became the Secretary’s final decision on July 26, 1982. Plaintiff filed this action for judicial review on August 4, 1982. The parties have filed cross motions for summary judgment.

Issue

The issue before the court is whether the Secretary’s decision 1) is supported by substantial evidence, 2) is in excess of statutory authority, or 3) is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2).

Discussion

Plaintiff has made a reasoned argument, based on its study, regarding claimed costs differences in provider and nonprovider patient services. However, the Board properly concluded that the study lacked the reliability necessary to quantify the alleged cost differences for Medicare reimbursement purposes. This court finds that the Board’s determination rejecting the study is supported by substantial evidence in the record when viewed as a whole and is otherwise in accordance with law.

While the intermediary cited many reasons to reject the study, the Board was concerned at the hearing only with those underlying reasons which significantly affect the validity of the study. Of the significant problems, the Board sought to determine if the flaws could be corrected or resolved. E.g., Tr. 320-35, 330-42. The intermediary’s expert, Blue Cross Senior Auditor Norris Waalen, a certified public accountant, identified only two significant problems but testified that the problems could not be overcome such that the study could be used to reasonably estimate departmental cost differences.

The study’s cost data was derived from the statistical data gathered annually by the hospital with some modification. Tr. 677. Data for the laboratory department was modified for the study to distinguish laboratory tests by the type of patient (hospital in-patient, out-patient or clinic patient) and the frequency of tests and related procedures was estimated by laboratory personnel. (The annual statistical data included tallies only on a chargeable test by test basis even though one chargeable test may involve two or more tests in addition to other procedures). A “workload unit” was assigned to each test procedure according to values established by the College of American Pathologists (“CAP” values) in order to account for the effort and supplies needed to complete each procedure.

Regarding the radiology department, statistical data concerning the type of patient and the number of test procedures were already documented by the hospital, and a relative value system for determining the effort and supplies expended was also in use. Tr. 677-78, 755-57.

Auditor Waalen testified that the cost data relating to the laboratory department could not be audited or verified, as required by the regulations, since the frequency of tests and procedures was estimated without documentation rather than tallied by actual counts. E.g., Tr. 324-25. Aside from the inability to check these approximate values, the estimates formed the basis of the CAP workload values which, in turn, were central to the cost determination. Thus, the intermediary could not verify whether the hospital properly allocated the costs between the provider and non-provider laboratory work. Tr. 321-25, 332.

According to Waalen, the radiology cost data was irretrievably skewed because the relative value units used in determining the x-ray technicians’ salaries, a large component of the departments’ costs (Tr. 763), were distributed only between the amount of time required to take x-rays of hospital patients versus the time involved with clinic patients. He testified that, in addition to the time spent handling patients, there should also have been consideration of the time spent on non-patient work. Waalen said he was unable to estimate the cost distortion but that it could be substantial. Tr. 341.

Plaintiff contends that the intermediary’s criticisms are unfounded and are only a diversion for its real reason for rejecting the study: that uniform charges are required under the Medicare Act. Tr. 39. The hospital claims that the intermediary’s objections have been soundly rebutted by its hospital management engineer, Everett Janssen, who designed and supervised the study. Tr. 51-56.

In response to Janssen’s rebuttal testimony, Waalen further explained his objections and reasserted his professional opinion, as an auditor and certified public accountant, that the study is not auditable and its flaws cannot be corrected for Medicare reimbursement purposes. Tr. 128-35.

The regulations require that a provider’s cost data “must be based on financial and statistical records which must be capable of verification by qualified auditors____” 42 C.F.R. § 405.453(a). Based on the conflicting testimony in the record, this court finds that the Board’s reliance on Waalen’s testimony rather than Janssen’s, who is not an auditor or certified public accountant, is reasonable and is supported by substantial evidence. “Substantial evidence” in this context means that the evidence as a whole is adequate to support the conclusion drawn. Consolo v. Federal Maritime Commission, 383 U.S. 607, 619-20, 86 S.Ct. 1018, 1026-27, 16 L.Ed.2d 131 (1966). Additionally, the court defers to the Board’s expertise in reviewing and weighing the technical evidence before it. Each Board member is knowledgeable in the field of cost reimbursement and at least one member is a certified public accountant. 42 U.S.C. § 1395oo (h).

Plaintiff’s claims in this case rest wholly on its study. Tr. 191, 255-57, 565, 568. Accordingly, because the Secretary has appropriately rejected the study, plaintiff has failed to sustain its burden of proving the impropriety of the Secretary’s apportionment method of requiring uniform charges as it is applied to the hospital’s laboratory and radiology departments.

We need not address plaintiff’s alternate claim that its cost reimbursement should be determined according to the “revenue offset” method. This method is applicable, if at all, only when costs are shown to approximate revenues. Tr. 200, 292-93. Due to the study’s unacceptability, there is no evidence in the record to suggest that plaintiff’s laboratory and radiology costs associated with clinic patient services approximate its revenues from such services.

Conclusion

The Secretary’s “departmental method” appears to reasonably advance the purposes of the Medicare Act, and there is nothing inherently arbitrary or capricious in the Secretary’s decision. The agency’s ruling is not in excess of statutory authority, and is supported by substantial evidence. The ruling must be upheld. See, e.g., Research Medical Center v. Schweiker, 684 F.2d 599, 606 (8th Cir.1982).

Therefore, based on the court’s de novo review, and all files, records and proceedings herein,

IT IS ORDERED that the Secretary’s motion for summary judgment is GRANTED and plaintiff’s motion for summary judgment is DENIED.

      . Health Insurance for the Aged Act, Pub.L. No. 89-87, tit. I, 79 Stat. 286 (1965) (codified in sections of titles 26, 42 and 45 U.S.C.).

      . Board members expressed repeated concern that addition of a professional service charge was improper. The parties, however, agree that the Secretary’s cost adjustments are properly calculated according to the regulations. Tr. 308.

      . The Board was not impressed with the intermediary's view that the Medicare Act requires a uniform charge structure regardless of the study’s validity. Rather, a Board member noted that the underlying purpose of Medicare cost reimbursement is that the program pay for the cost of services rendered to Medicare beneficiaries. Tr. 318, 326-30.