author: LASKER, District Judge.

text:
    Kiyomi OGA, Sako Oga, Ruri Takahasi, and Fumilo Ueda, Plaintiffs, v. Mason LOH and Johnny Loh, Defendants.
    81 Civ. 2856(MEL).
    United States District Court, S.D. New York.
    March 15, 1985.

      Moskowitz, Passman & Edelman, New York City, for plaintiffs; Abraham Pass-man, New York City, of counsel.
    Linden & Gallagher, New York City, for Tokio Fire & Marine Ins. Co.; Leonard J. Linden, (II), New York City, of counsel.
   LASKER, District Judge.

In this personal injury diversity action governed by New York State’s No-Fault Insurance Laws and Workers’ Compensation Laws, Kiyomi Oga seeks to recover from her workers’ compensation carrier for injuries she sustained while riding in a taxicab during the course of her employment. She moves for: 1) a court order approving the $60,000 settlement of this action, nunc pro tunc, pursuant to the New York Workers’ Compensation Law § 29(5) (McKinney 1965); 2) an order directing her workers’ compensation carrier, Tokio Marine & Fire Insurance Company (Tokio) to consent to the settlement; and 3) an order directing Tokio to reimburse plaintiff $5,495 for dental expenses incurred as a result of the accident.

Facts

On January 29, 1982 Oga sustained personal injuries while riding as a passenger in defendants’ taxicab during the course of her employment. Although all motor vehicle accidents in New York State are covered by New York’s no-fault insurance laws, accidents which occur during the course of employment are also covered by the Workers’ Compensation Laws under which the workers’ compensation carrier has primary responsibility for compensation. Subsequent to the accident, Tokio, the compensation carrier, paid plaintiff approximately $3,000 for resulting medical injuries and loss of compensation due to her six week absence from work. In addition, plaintiff required extensive dental work which she claimed amounted to $7,770. Tokio questioned the cost of the dental work, but after examination of the plaintiff by Tokio’s own dentist, authorized performance of dental work for $5,495.

In May 1981 plaintiff also initiated a tort action in this court against the third party, the defendant cab company. In January 1982, shortly before the scheduled start of the trial, the parties settled for $60,000, of which plaintiff received nearly $40,000 after attorneys’ fees and disbursements. Tokio was never informed of the settlement, and neither approved nor consented to it.

Tokio learned of the settlement after having authorized „ but not reimbursed plaintiff for the $5,495 of dental work. On July 28, 1982 Tokio appeared before an Administrative Law Judge who held that under Workers’ Compensation Law § 29(5) Tokio would not be liable for future compensation claims because the settlement of the third party action was made without Tokio’s consent. The Administrative Law Judge closed the case. On October 26, 1983, the Workers’ Compensation Board affirmed the Administrative Law Judge’s ruling and held that the case was properly closed and the carrier could not be held liable for further awards of compensation inasmuch as the third party action between plaintiff and the cab company was settled without the workers’ compensation carrier’s consent. On June 11, 1984, eight months after the Board’s ruling on the consent issue and two and one-half years after the third party claim was settled, the plaintiff filed the instant motion seeking a court order approving the settlement in lieu of the carrier’s consent.

Jurisdiction

The parties agree that inasmuch as there was a prior $60,000 settlement of the third party action in the Southern District of New York, this court has jurisdiction to issue a compromise order pursuant to Workers’ Compensation Law § 29(5). Section 29(5) states that a compromise order may issue “from a justice of the court in which the action was pending.”

Consent/court order requirement

The parties agree that under the Workers’ Compensation Law plaintiff must either obtain written approval (consent) of the third party settlement agreement from Tokio or a compromise order in lieu of consent from the court with jurisdiction. Workers’ Compensation Law § 29(5) states in relevant part:

... A compromise of any such cause of action ... shall be made only with the written approval ... of the insurance carrier. ... However, written approval of ... the insurance carrier need not be obtained if the employee ... obtain[s] a compromise order from a justice of the court in which the third party action was pending.

Failure to obtain either the carrier’s consent or court approval in lieu thereof terminates the carrier’s obligation for future compensation payments. See Castleberry v. Hudson Valley Asphalt Corp., 70 A.D.2d 228, 237, 420 N.Y.S.2d 911, 917 (Second Dept.1979); Kusiak v. Commercial Assurance Cos., 49 A.D.2d 122, 124, 373 N.Y.S.2d 714, 716 (Fourth Dept.1975). Standards for issuing compromise order nunc pro tunc

While the parties agree that the court may issue a compromise order nunc pro tunc, neither party cites standards for issuing such an order.

In Balkam v. Miesemer, 74 A.D.2d 629, 425 N.Y.S.2d 168 (Second Dept.1980) where plaintiff sought judicial approval of a previously agreed compromise and settlement of a third party action, the Appellate Division remanded to the lower court for a full hearing on the reasonableness of the settlement. The court held that after the hearing, the lower court could, in its discretion, issue an order approving the settlement nunc pro tunc. Factors to be considered were: whether the delay in applying for court approval was due to plaintiff’s neglect or fault; whether approval would result in prejudice to the compensation carrier in light of its continued liability to pay future compensation; and whether the settlement was reasonable. These factors were considered as well in Ikewood v. Aetna Life & Casualty of Hartford, 108 Misc.2d 943, 439 N.Y.S.2d 87 (Sup.Ct., Monroe C’nty 1981).

The questions to be considered here are the timeliness of requesting an order at this late date and, if it is timely, whether such an order would be reasonable.

Timeliness

A.

Does plaintiff’s two and one-half year delay between the January 1982 settlement of the third party claim and the June 1984 filing of this motion, or alternatively, the plaintiff’s eight month delay between the October 1983 Board ruling on consent when it closed the case and the June 1984 filing of this motion make the motion untimely?

Under Ikewood and Balkam, supra, the reason for the delay rather than its length, determines the timeliness of the motion for a nunc pro tunc compromise order. The delay must not have been caused by plaintiff’s neglect or fault and the insurance carrier must not have been prejudiced thereby. Balkam, 425 N.Y.S.2d at 169; Ikewood, 439 N.Y.S.2d at 89.

Plaintiff’s attorney affirms that:

With respect to the delay, it is submitted that this was caused solely by the belief that the consent would not be necessary in this case and, by advice of the Compensation attorneys representing the Plaintiff, that it is their opinion that the Board would direct payment of the outstanding bills and that it would rule that consent was not necessary under the circumstances herein where there was no lien and the medical and compensation expenses were nowhere near the limited involved.

Reply Affirmation in Support of Motion, at 4-5. Pursuant to request at oral argument for an affidavit explaining the delay in moving for this relief, counsel submitted an additional affirmation. After reiterating his reliance on plaintiff’s compensation attorneys who represented that consent was not necessary in this case, counsel stated that he first learned of the Board’s decision in April 1984 when he was notified that plaintiff’s dentist had not yet been paid.

It is understandable that defendants challenge the timeliness of the delay. Nevertheless, bearing in mind all the circumstances of the case we conclude that the delay, although at the outer edge of permissibility, is reasonable, and plaintiff’s neglect, if any, is excusable, since it was based on expert advice which on its face the plaintiff had reason to rely on.

B.

Defendant Tokio argues that plaintiff’s motion is untimely under Insurance Law § 671(1) because it was filed more than three years after the date of the accident. Section 671(l)(b), the only section which contains a three year limitation, applies to “loss of earnings from work ... for not more than three years from the date of the accident causing the injury.” Tokio relies on Fellner v. Country Wide Insurance, 95 A.D.2d 106, 466 N.Y.S.2d 766 (Third Dept.1983) which it claims gives Tokio:

a right of credit or offset for all present medical bills and compensation benefits payable subsequent to three years after the accident, and all possible future medical bills and disability benefits for time lost from work, which might develop at a later date.

Memorandum of Law in Support of Affirmation of Leonard J. Linden (II) on behalf of Tokio Fire & Marine Insurance Co., at 8. Since the claims in issue are more than three years old, counsel asserts that Tokio has a right to credit or offset the dental bill against plaintiff’s net $40,000 settlement.

Insurance Law § 671(1) divides basic economic loss into three categories: medical expenses, loss of earnings from work, and other reasonable and necessary expenses. Each category has its own time limitation. Dental expenses, the item in dispute in this case, specifically listed in § 671(l)(a) as a medical expense are:

without limitation as to time provided that within one year after the date of the accident causing the injury it is ascertainable that further expenses may be incurred as a result of the injury.

In this case Tokio authorized $5,495 of dental work in August 1981, well within a year after the accident. Defendant’s reliance on § 671(l)(b) is misplaced because the provision governs loss of earnings which are not at issue here. Fellner is also concerned with loss of earnings, not medical expenses. The three year limitation is not applicable in this case where a medical expense is the subject of the dispute.

Res judicata

Tokio also argues that the court cannot issue a compromise order nunc pro tunc because the Workers’ Compensation Board has held that 1) the Workers’ Compensation carrier had not consented to the settlement, 2) therefore the case was properly closed and the carrier’s obligation to make future payments was terminated and 3) these propositions are now res judicata.

However, the Workers’ Compensation Board did not consider the present issues. The matters now to be determined are first, whether it is appropriate for the court to issue a nunc pro tunc compromise order at this late date and second, whether the merits of the case warrant issuing the order.

The relationship between a court’s nunc pro tunc order and a Board decision was considered in Kusiak v. Commercial Assurance Companies, 49 A.D.2d 122, 373 N.Y.S.2d 714 (Fourth Dept.1975), which, like the case at hand, involved a motor vehicle accident during the course of plaintiff’s employment. There the Workers’ Compensation Board denied the petitioner all right to future compensation because he had failed to obtain the carrier’s consent to the settlement. While the issue of res judicata was not raised, nevertheless the court did find that it could issue a nunc pro tunc compromise order even after a Board decision similar to the one in this case. The court held that “the granting of the compromise order permits petitioner to settle the third party action and preserve his rights to subsequent compensation benefits.” Id. 373 N.Y.S.2d at 717-718. We conclude that the decision of the Board did not render the question res judicata. Reasonableness of the settlement and prejudice to the compensation carrier

Having determined that it is not untimely to issue an order, the remaining questions for resolution are whether an order should be issued based upon the reasonableness of the settlement and whether an order would be prejudicial to the compensation carrier.

Plaintiff maintains that the settlement was reasonable because it “was not inadequate nor improvident, nor did it deny the Compensation Carrier [of] [sic] its right to recovery.” Plaintiff’s Memorandum of Law in Support of Motion for Order to Compromise, at 7. In support of the settlement’s adequacy, the memo notes that plaintiff missed only six weeks of work, that she has fully recovered from her injuries, and that she currently suffers no disabilities. Plaintiff supports this argument with the affidavit of Nathaniel Shafer, M.D., who examined plaintiff on July 12, 1984. Shafer states in part:

That from my medical examination of the patient and from this history received, it is my medical opinion that the patient has fully recovered from the injuries sustained in the accident of January 28, 1981. That there are no residuals except the very faint scarring. However, the other injuries to other parts of her body have all healed. That she is under no disability and has no medical complaints at this time. No further medical problems are anticipated with any of the injuries sustained in this accident, nor is there any reasonable possibility of any future related medical condition developing.

In regard to the carrier’s right to recovery, the memo notes that under the no-fault insurance law Tokio has no lien on the first $50,000 net recovery by the plaintiff in her third party action. Since plaintiff received less than $40,000 net from the $60,000 settlement, the carrier’s right to recovery is not a factor. Plaintiff maintains there can be no prejudice to the carrier where its right to recovery is not a factor.

No answering papers were submitted in response to the physician’s affidavit. Accordingly, we find no reason not to accept the physician’s affidavit. In light of its acceptance, we find the settlement to have been reasonable. We recognize that under § 123 of the Workers’ Compensation Law this determination will expose Tokio to possible liability for payments for eighteen years from the date of the accident. However, in the unlikely event that Oga should make a further claim Dr. Shafer’s affidavit would provide very effective evidence to establish that such a further claim would not have been grounded on injuries sustained by her in the accident of January 28, 1981.

The motion is granted.

Submit order on notice.

      . Workers' Compensation Law § 29 (5) does provide that if a case is on trial at the time of the settlement there is a three month time limit for applying for a nunc pro tunc compromise order. However, this limit has not been extended to apply to cases settled before trial.

      . Plaintiff also argues that Tokio is estopped from asserting a timeliness argument because plaintiff could justifiably rely on Tokio to reimburse plaintiff the $5,495 it had authorized for dental work. We find this argument unpersuasive in light of the fact that Tokio's authorization occurred on August 27, 1981, some months prior to plaintiffs settlement of its third party action without notice to or consent of Tokio.


source: Caselaw Access Project

author: LUONGO, Chief Judge.

license: Public Domain

text:
    David PRICE v. TEMPO, INC. and ALB, Inc. v. GOODALL RUBBER COMPANY and Fire Chem, Inc., et al.
    Civ. A. No. 83-0006.
    United States District Court, E.D. Pennsylvania.
    March 18, 1985.
    J. Michael Farrell, Philadelphia, Pa., for plaintiff.
    John P. Penders, Philadelphia, Pa., for Tempo, Inc.
    Walter J. Timby, Jr., Philadelphia, Pa., for Alb, Inc.
    G. Wayne Renneisen, Philadelphia, Pa., for Goodall Rubber Company.
    Alan Belfus, Philadelphia, Pa., for Fire Chem, Inc.
   OPINION

LUONGO, Chief Judge.

This action has been brought by plaintiff David Price for injuries which he sustained while performing his duties as a firefighter with the Philadelphia Fire Department. Plaintiff alleges that he was injured because of defects in his firefighting gloves and coat, manufactured respectively by defendants Tempo, Inc. and Alb, Inc. Currently before me are defendants’ motions for summary judgment under Fed.R.Civ.P. 56.

On January 13, 1981, plaintiff, then an eleven-year veteran of the Philadelphia Fire Department, was called to a residential fire. When he arrived at the scene he was informed that persons might be trapped inside the burning building. In accordance with his duties as “Scott Pak man,” plaintiff entered the building to search for possible victims of the fire. He found no one inside the building. As he was moving on his hands and knees toward the exit, a flash of fire rolled across the ceiling eight to ten feet above him, producing intense heat and smoke. Before he could be rescued by his colleagues, he had sustained second and third degree burns on his face, neck, shoulders, hands and inner thighs.

Plaintiff alleges that he was injured because his gloves, manufactured by defendant Tempo, and his coat, manufactured by defendant Alb, failed to give him adequate protection. According to Dr. Charles Be-roes, a professor of chemical engineering whom plaintiff engaged to test the fire-resistant qualities of the gloves and coat, the products were defectively designed and unreasonably dangerous for their intended and foreseeable uses in firefighting. Dr. Beroes stated that if the gloves had been constructed with a vapor barrier and wool lining they would have prevented the burns to plaintiff’s hands. The coat, according to Dr. Beroes, was unreasonably dangerous because of the material used for its inner lining. The inner lining was composed of a polyester material which burns rapidly and intensely, producing a hot, tarry, molten substance. Dr. Beroes opined that when plaintiff was exposed to the flash of fire the inner lining of his coat began to melt and adhere to his skin, causing the burns to the parts of plaintiff’s body covered by the coat. Dr. Beroes concluded that plaintiff’s injuries could have been prevented had the coat been lined with flame retardant cotton or wool, both readily available substitutes for the material used. Plaintiff also alleges in his complaint that defendants misrepresented the protective capabilities of their products and breached express and implied warranties of fitness.

Defendants have moved for summary judgment. First, they contend that the “government contract defense” insulates them from liability because their products conformed to specifications established by the City of Philadelphia. Second, they invoke the “fireman’s rule,” claiming that plaintiff, while performing his duties as a fireman, assumed the risk of fire-related injury.

I. The Government Contract Defense

The government contract defense “shields a manufacturer from liability if the product causing the injury complied strictly with government contract specifications concerning design.” Koutsoubos v. Boeing Vertol, 553 F.Supp. 340, 342 (E.D.Pa.1982), affd, 755 F.2d 352 (3d Cir.1985). Although the Pennsylvania courts have never decided whether the government contract defense should be available in a strict products liability or breach of warranty action, the Court of Appeals for the Third Circuit has predicted that Pennsylvania would extend the defense to such actions. Brown v. Caterpillar Tractor Co., 696 F.2d 246 (3d Cir.1982). The Third Circuit indicated, however, that courts should be cautious in permitting reliance upon the defense. The court was particularly concerned with the scenario, not present in Brown itself, “in which the [government] specifications are skeletal, the contract is negotiated, and the contractor, knowing of a high risk of serious harm, fails to install a relatively inexpensive safety device.” Id. at 254 n. 17. To deal with such cases, the Third Circuit has recently adopted the approach first announced by Judge Pratt in In re “Agent Orange” Product Liability Litigation, 534 F.Supp. 1046 (E.D.N.Y. 1982). Koutsoubos v. Boeing Vertol, 755 F.2d 352, 355 (3d Cir.1985). Accord In re Air Crash Disaster at Mannheim, Germany, 586 F.Supp. 711, 717 (E.D.Pa.1984); Hubbs v. United Technologies, 574 F.Supp. 96, 98 (E.D.Pa.1983). According to Judge Pratt:

A supplier should not be insulated from liability for damages that would never have occurred if the military had been apprised of hazards known to the supplier. A supplier, therefore, has a duty to inform the military of known risks attendant to a particular weapon that it supplies, so as to provide the military with at least an opportunity fairly to balance the weapon’s risks and benefits ____ [T]he court ... concludes that a defendant in this case will be entitled to judgment dismissing all claims against it based on that defendant’s having supplied “Agent Orange” to the government pursuant to a contract, if the defendant proves:
1. That the government established the specifications for “Agent Orange”;
2. That the “Agent Orange” manufactured by the defendant met the government’s specifications in all material respects; and
3. That the government knew as much as or more than the defendant about the hazards to people that accompanied use of “Agent Orange”.

Id. at 1055, quoted in part in Brown, 696 F.2d at 254 n. 17.

Defendants Tempo and Alb argue that the government contract defense protects them because they manufactured the firefighting gloves and coat in accordance with specifications provided by the City of Philadelphia. Appended to Tempo’s memorandum in support of its motion for summary judgment is a copy of the city’s purchase order for Tempo gloves. The purchase order sets forth “General Specifications” relating to materials, construction, size and stitching. The affidavit of Melvin Cohen, Tempo’s president, asserts that he personally examined the gloves which plaintiff was wearing when he was injured, and that those gloves complied in every respect with the city’s specifications as described in the purchase order. Tempo alleges in its memorandum that it never represented to the fire department that the gloves would 'protect firefighters from every conceivable fire-related injury, and that the fire department never expected absolute protection. Tempo relies upon the deposition of Captain James L. Brown of the Philadelphia Fire Department to establish that the fire department chose Tempo gloves on the basis of its own field tests, not on the basis of representations made by Tempo. Tempo also cites plaintiff’s deposition, in which plaintiff stated that he had never received any information or representations from Tempo concerning the gloves.

Defendant Alb also contends that the design of the firefighting coat was established by the city. Attached to its memorandum is a document entitled “Philadelphia Fire Department Running Coat with Detachable Liner Specifications.” This document specifies the materials, construction and labelling of both the coat and its inner lining. According to the affidavit of Albert L. Bartolucci, Jr., Alb’s president, Alb received these specifications from the city. Alb manufactured the coats in strict accordance with the city’s design, with the exception that the coats had raglan sleeves rather than the specified set-in sleeves. The affidavit states that Alb never supplied the city with any specifications and that the city’s specifications did not incorporate Alb’s design for firefighting coats. Alb further claims it never warranted that the coat would provide absolute protection, and in fact it specifically warned the city that the coat was not a proximity or fire entry suit and should not be in direct contact with flames. Pursuant to the city’s specifications, a warning label to that effect was sewn inside each coat.

Plaintiff, in his memorandum opposing defendants’ motions for summary judgment, recognizes that Captain Brown recommended defendants’ products on the basis of his own experience, department field tests, and general product literature. Captain Brown has asserted by affidavit, however, that the city, pursuant to his recommendation, adopted Tempo’s glove specifications and incorporated those specifications in its invoice. According to plaintiff, Captain Brown’s deposition testimony shows that the city also adopted Alb’s coat specifications rather than develop its own. Plaintiff argues that if the manufacturers had changed the product designs the city’s specifications would have changed accordingly. The city would therefore have accepted gloves with a vapor barrier or a coat with a less, flammable inner lining had the manufacturers.disclosed the need for such safety features. Plaintiff claims that the city ultimately relied upon the manufacturers’ expertise in assuming that the products were reasonably safe as designed. Plaintiff further contends that his deposition and the testimony of Captain Brown demonstrate that the manufacturers did not fully disclose the dangers associated with the use of their products. Thus, according to plaintiff, the government contract defense should not insulate the manufacturers from liability for their defectively designed products.

The government contract defense is an affirmative defense, and defendants bear the burden of showing that its elements are satisfied. Hubbs v. United Technologies, 574 F.Supp. 96, 98 (E.D.Pa.1983); Koutsoubos v. Boeing Vertol, 553 F.Supp. 340, 343 (E.D.Pa.1982), aff’d, 755 F.2d 352, (3d Cir.1985). Moreover, in a motion for summary judgment, the moving parties must demonstrate that there is “no genuine issue as to any material fact” and that they are “entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). Defendant Tempo has not discharged its burden with respect to any of the elements of the government contract defense, and defendant Alb has not satisfied the third element.

As to the first element of the defense, Tempo has not clearly established that the specifications for its product originated with the government. In In re Air Crash Disaster at Mannheim, Germany, 586 F.Supp. 711, 717 (E.D.Pa.1984), Judge Weiner held that the government contract defense is inapplicable where the government merely approves a manufacturer’s design as opposed to actually establishing specifications. Judge Weiner acknowledged the Third Circuit’s refusal in Brown to require that a contractor prove it was compelled to follow precise government specifications. He relied, however, upon the Brown court’s indication that it would not permit a contractor to invoke the defense when the government set only general performance standards, leaving the details to the contractor. Id. at 716 (citing Brown, 696 F.2d at 254 n. 17). See also Agent Orange, 534 F.Supp. at 1056.

I agree with Judge Weiner’s holding that a manufacturer should not be protected by the government contract defense unless the government played a significant role in establishing the allegedly defective design. See Koutsoubos, at 355. With respect to the design of the firefighting gloves, the extent of the government’s role is open to dispute. Captain Brown’s affidavit states that the city adopted Tempo’s specifications pursuant to his recommendation.. Plaintiff is entitled to present evidence at trial that Tempo, not the government, was primarily responsible for the allegedly defective design of the gloves. If Tempo does succeed in establishing the first element of the government contract defense by proving that the government provided the specifications for the gloves, plaintiff may still present evidence that Tempo gloves did not conform to the government’s specifications.

Defendant Alb, unlike Tempo, has established that there are no issues of material fact as to the first and second elements of the Agent Orange test. Alb’s president has submitted an affidavit stating that Alb had originally contracted with Goodall Rubber Company to manufacture coats for the Philadelphia Fire Department. Alb received specifications from the city, either directly or through Goodall, and manufactured the coats in substantial conformity with those specifications. The affidavit states that Alb played no role in establishing the specifications.

The facts alleged in this affidavit, if true, establish sufficient government participation to satisfy the first two elements of the government contract defense. See Koutsoubos, at 355. According to the Court of Appeals for the Third Circuit:

Once the moving party has supplied sufficient affidavits in support of its motion, the opposing party must respond by supplementing the record in some manner— whether by its own affidavits or otherwise — setting forth specific facts demonstrating that there is a genuinely disputed factual issue for trial.

Fireman’s Insurance Co. v. DuFresne, 676 F.2d 965, 969 (3d Cir.1982).

Plaintiff has submitted nothing since Alb filed the affidavit of its president. He has previously asserted that the testimony of Captain Brown raises an inference that the city adopted Alb’s specifications rather than establish its own. An examination of Captain Brown’s depositions demonstrates that the only possible basis for such an inference is that Brown did not clearly state how the city developed its specifications. Such speculation is an inadequate response to Alb’s unequivocal affidavit. Plaintiff has presented no affirmative evidence to support his contention that the city adopted Alb’s specifications. Although I recognize that plaintiff is entitled to the benefit of any reasonable inference, “Rule 56(e) does not allow a party to rely merely upon bare assertions, conclusory allegations or suspicions.” Id. Accord Walker v. Skyclimber, Inc., 571 F.Supp. 1176, 1179-80 (D.V.I.1983); Goodman v. DeAzoulay, 554 F.Supp. 1029, 1031 (E.D.Pa.1983). I will thus grant Alb’s motion for summary judgment as to the first two elements of the Agent Orange test. See Koutsoubos v. Boeing Vertol, 553 F.Supp. 340 (E.D.Pa.1982), aff’d, 755 F.2d 352 (3d Cir.1985) (granting partial summary judgment on the ground that two out of the three elements of the test were established).

Neither Tempo nor Alb has discharged its burden as to the third element of the test, under which they must prove that “the government knew as much as or more than [defendants] about the hazards” of the products. Koutsoubos, at 354. Plaintiff Price has raised a genuine issue concerning whether defendants failed to disclose relevant product safety information to the city. Although defendants deny having misrepresented the protective qualities of their products either directly or by omission, it appears from Captain Brown’s deposition that defendants may have possessed relevant safety information which they did not reveal to the city. Defendants themselves stress that they made only limited representations to the city concerning product safety, and that the city decided to purchase Tempo gloves and Alb coats solely on the basis of the Fire Department’s independent tests. Captain Brown’s deposition shows, however, that the department’s tests were limited to field testing of the gloves and visual inspection of the coat. All laboratory tests were conducted by the manufacturers. Plaintiff can reasonably argue on these facts that the city, lacking comprehensive information concerning the products’ safety, relied upon the manufacturers to ensure that the products were fit for their intended use. Plaintiff must be permitted to present evidence at trial that the defendants knew more than did the city concerning possible defects in their products’ designs, and that they failed to disclose such information.

II. The Fireman’s Rule

The fireman’s rule “insulate[s] one whose negligence causes a fire from liability for injuries sustained by a firefighter while extinguishing the blaze.” Berko v. Freda, 93 N.J. 81, 83, 459 A.2d 663, 664 (1983). Defendants’ claim that the rule shields them from liability to plaintiff in this case is without merit. The fireman’s rule is based upon the precept that a fireman assumes the risks normally incident to firefighting. Since negligence in starting a fire creates the occasion for firefighters to perform the duties for which they are trained and paid, courts have held as a matter of public policy that firefighters should not recover for such negligence. Herman v. Welland Chemical, Ltd., 580 F.Supp. 823, 831-32 (M.D.Pa.1984). In Herman, the district court for the Middle District of Pennsylvania held that the Pennsylvania Supreme Court, which has not considered whether to adopt the fireman’s rule, would not accept “the position that firemen assume the risk of any and all injuries that may befall them while they are on duty.” Id. at 831. The court therefore decided that firemen who were hit by a car while directing traffic around a chemical spill had not assumed the risk of such injury and were not barred from recovery by the fireman’s rule. Id. at 825, 832-33. Similarly, the New Jersey Supreme Court has noted that the fireman’s rule “speaks only to the negligence that started the fire. Case law draws a distinction between injuries stemming from the negligence that brought the firefighters or police to the scene in the first place and injuries suffered from independent causes that may follow.” Berko, 93 N.J. at 85, 459 A.2d at 665.

Certainly the danger that a firefighter’s safety equipment may be defective is “not an inherent part of the job and is not a risk the firefighter[ ] knowingly and voluntarily assumed.” Id. at 86, 459 A.2d at 665. In fact, plaintiff relied upon his gloves and coat to protect him from the risks inherent in firefighting. Defendants cannot transform the fireman’s rule into an absolute bar to a firefighter’s recovery for any injury sustained during a fire. Herman, 580 F.Supp. at 831-32; Ruhl v. City of Philadelphia, 346 Pa. 214, 221, 29 A.2d 784, 787 (1943) (“It is one thing to say that a fireman who has gone into a danger zone must take what he gets, and quite another to say that a person who stops short of the danger zone [or who, as here, takes proper safety precautions] cannot recover because he is a fireman.”)

III. Conclusion

Because defendant Alb has met its burden with respect to the first and second elements of the government contract defense, I will grant partial summary judgment in Alb’s favor. Summary judgment will be denied as to the third element. Defendant Tempo has not established any of the elements of the defense, and its motion for summary judgment will be denied. Defendants’ argument under the fireman’s rule is without merit as a matter of law.

      . A Scott Air Pak is a self-contained breathing apparatus, consisting of a tank, mask and regulator, which is strapped to a firefighter’s back. The firefighter assigned to wear the Scott Pak is responsible to search for and rescue possible victims inside a burning building. Deposition of Plaintiff David Price at 58-59.

      . The Pennsylvania Supreme Court first accepted the government contract defense in Ference v. Booth & Flinn Co., 370 Pa. 400, 88 A.2d 413 (1952), refusing to hold a government contractor liable for property damage caused while the contractor was building a highway according to government specifications. Later state court cases have arisen only in the context of government construction projects. See Lobozzo v. Adam Eidemiller, Inc., 437 Pa. 360, 263 A.2d 432 (1970); Valley Forge Gardens, Inc. v. James D. Morrissey, Inc., 385 Pa. 477, 123 A.2d 888 (1956).

      . Agent Orange, Brown, Koutsoubos and the cases in the Eastern District of Pennsylvania involved contracts for the manufacture of military equipment. The Third Circuit has specifically reserved judgment as to what form the government contract defense might take in a non-military context. Koutsoubos, at 355. Some courts have indicated that the defense might be appropriate only "with respect to products specifically designed by the government for a unique military use.” In re All Maine Asbestos Litigation, 575 F.Supp. 1375, 1378 (D.Me.1983). Accord McKay v. Rockwell Int’l Corp., 704 F.2d 444, 451 (9th Cir.1983). Courts holding the defense available in the military context have expressed a number of concerns. First, to impose liability upon military contractors could subvert the Feres-Stencel doctrine, which immunizes the United States from liability to servicemen injured by defective military products. See Stencel Aero Engineering Corp. v. United States, 431 U.S. 666, 97 S.Ct. 2054, 52 L.Ed.2d 665 (1977); Feres v. United States, 340 U.S. 135, 71 S.Ct. 153, 95 L.Ed. 152 (1950). Second, the military tends to have more expertise than other government entities concerning necessary equipment. In addition, military contractors are more likely than other government contractors to be under compulsion with respect to product specifications. It would be unfair to hold a contractor liable for defects in a product which the government forced him to make. Finally, courts seek to avoid interference with military decisionmaking. See Koutsoubos, at 354-355; McKay, 704 F.2d at 449-51; Johnston v. United States, 568 F.Supp. 351, 356-58 (D.Kan.1983).
      Arguably, these justifications for the government contract defense effectively distinguish contracts for military equipment from other government contracts. I am not persuaded, however, that I should thus hold that a contractor who manufactures products for a government entity other than the military can never invoke the government contract defense. Brown did not limit its holding to contracts for military equipment, and the court’s reasoning is apposite outside the military context. First, the Brown court expressly noted that the government contract defense in Pennsylvania is distinct from the issue of sovereign immunity. Thus, the fact that the government may not be immune from liability in certain non-military contexts does not foreclose recourse to the government contract defense. Brown, 696 F.2d at 251. Second, the Agent Orange test specifically requires a government contractor to prove it did not have more knowledge concerning possible product defects than the government. Agent Orange, 534 F.Supp. at 1055. If it is true that military contractors have less discretion and knowledge relative to the government than their non-military counterparts, the latter will find it more difficult to invoke the defense. Fairness in individual cases should thus be achieved without the necessity of abrogating the defense. Third, although the fact that there is no danger of interfering with military decisions may support a decision not to shield a contractor from liability in an individual case, it does not justify a blanket refusal to consider the government contract defense outside of a military context.
      Although the arguments outlined above do not persuade me that the government contract defense should never be available in non-military products liability cases, they do reinforce my conclusion that summary judgment is inappropriate as to most of the issues in this case. My conclusion is further reinforced by the reluctance of courts in this circuit and district to grant summary judgment even to a military contractor on the basis of the government contract defense. Koutsoubos, at 355; Brown, 696 F.2d at 247; Hubbs, 574 F.Supp. at 100. See also In re Air Crash Disaster, 586 F.Supp. at 715 (refusing to grant defendant’s motion for a judgment n.o.v.).

      . In response to Dr. Beroes’ contention that the gloves should have had a wool liner, Mr. Cohen asserts that city specifications required and plaintiff's gloves in fact had such a liner.

      . In considering a motion for summary judgment, a court must construe all facts and inferences drawn from the evidence in favor of the party opposing the motion, and summary judgment “may not be granted if there is 'the slightest doubt' about material facts.” Brown v. Caterpillar Tractor. Co., 696 F.2d 246, 255 n. 19 (3d Cir.1982) (quoting Tomalewski v. State Farm Life Insurance Co., 494 F.2d 882, 884 (3d Cir. 1974)).

      . The statements which Captain Brown did make about the city’s specification process demonstrate how speculative plaintiffs argument is. Captain Brown asserted, “I’ve never had any direct dealings with [Alb]. We specify a coat and it goes out on a bid process. In general, I wouldn’t even know what company would get the contract. Each year it would change. It’s a different type of an operation than it is with the gloves.” Deposition of Captain James L. Brown at 31 (Oct. 4, 1983). As noted earlier in this opinion, Captain Brown has stated in an affidavit that the city did not develop specifications for firefighting gloves, but adopted the glove manufacturer’s specifications.


author: SPIEGEL, District Judge.

text:
    Sarah McCLURE, et al., Plaintiff, v. MIDDLETOWN HOSPITAL ASSOCIATION, et al., Defendants.
    No. C-1-83-1692.
    United States District Court, S.D. Ohio, W.D.
    March 20, 1985.

      James D. Ruppert, Ronald L. Burdge, Franklin, Ohio, for plaintiff.
    Leo J. Breslin, Cincinnati, Ohio, Thomas W. Baden, Hamilton, Ohio, Thomas E. Jenks, Dayton, Ohio, for defendants.
   OPINION AND ORDER DENYING DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT

SPIEGEL, District Judge.

This matter is before the Court on the motions of all defendants for summary judgment (docs. 14, 21 & 30), plaintiffs’, memorandum in opposition (doc. 28), to which defendants have replied (docs. 32 & 33). We also have the benefit of oral arguments of counsel, as well as plaintiffs’ filing of supplemental authority (doc. 38). As developed below, we conclude that defendants’ motions for summary judgment should be denied.

Plaintiffs Kathy and Gary McClure, the parents of Sarah McClure, bring this action on behalf of themselves and their daughter Sarah. Plaintiff Sarah McClure’s claim concerns the alleged medical malpractice of the defendants in the delivery of Sarah McClure. Kathy and Gary McClure seek damages for the loss of services of their daughter, medical expenses involved in her care, and for emotional distress. All acts of the defendants now alleged to have been negligent occurred prior to or during January and February of 1978. This action was brought on October 18, 1983, more than five years after the acts constituting the alleged malpractice occurred.

Defendants contend that plaintiffs’ claims are barred by the applicable statutes of limitations. Specifically, defendants assert that Sarah McClure’s medical malpractice claim is defeated by application of the four-year statute of limitations contained in Ohio Rev.Code § 2305.11(B). In addition, defendants contend that Kathy and Gary McClure’s claims for loss of services, medical expenses and emotional distress are barred by the four-year catch-all statute of limitations embodied in Ohio Rev.Code § 2305.09(D), and that the discovery rule, applicable to medical malpractice claims pursuant to Oliver v. Kaiser Community Health Foundation, 5 Ohio St.3d 111, 449 N.E.2d 438 (1983), is not applicable to the parents’ claims.

I. Medical Malpractice Claims of Sarah McClure

Ohio’s statute of limitations governing medical malpractice claims reads as follows:

(A) An action for libel, slander, assault, battery, malicious prosecution, false imprisonment, or malpractice, including an action for malpractice against a physician, podiatrist, hospital, or dentist, or upon a statute for a penalty or forfeiture, shall be brought within one year after the cause thereof accrued, provided that an action by an employee for the payment of unpaid minimum wages, unpaid overtime compensation, or liquidated damages by reason of the nonpayment of minimum wages or overtime compensation, shall be brought within two years after the cause thereof accrued.
If a written notice, prior to the expiration of time contained in this division, is given to any person in a medical claim that an individual is presently considering bringing an action against that person relating to professional services provided to that individual, then an action by that individual against that person may be commenced at any time within one hundred eighty days after that notice is given.
(B) In no event shall any medical claim against a physician, podiatrist, or a hospital or a dental claim against a dentist be brought more than four years after the act or omission constituting the alleged malpractice occurred. The limitations in this section for filing such a malpractice action against a physician, podiatrist, hospital, or dentist apply to all persons regardless of legal disability and notwithstanding section 2305.16 of the Revised Code, provided that a minor who has not attained his tenth birthday shall have until his fourteenth birthday in which to file an action for malpractice against a physician or hospital.

Ohio Rev.Code § 2305.11(A) & (B) (Page’s 1983 Supp.). At issue in this case is the proper construction of Ohio Rev.Code § 2305.11(B), not only as written, but also as it has evolved through judicial interpretation both before and after this action was filed.

As the statute is written, Sarah McClure, who was 0 years of age (or several days/weeks old at most) had until her fourteenth birthday to file suit. However, less than two months before the McClures filed suit, the Ohio Supreme Court struck down as violative of the Ohio Constitution the distinction in Ohio Rev.Code § 2305.11(B) between minors younger than ten years of age and minors ten years of age or older. Schwan v. Riverside Methodist Hospital, 6 Ohio St.3d 300, 452 N.E.2d 1337 (1983). The precise holding of the Ohio Supreme Court was:

R.C. § 2305.11(B) is unconstitutional with respect to malpractice litigants who are minors.

As mentioned above, plaintiffs filed suit on October 18, 1983, less than two months after Schwan was decided. At this time it was an open question how the statute of limitations for medical malpractice litigation involving minors would be calculated as Schwan provided no clear direction on the issue. Thereafter, on January 25,1984, the' Ohio Supreme Court answered the question in Opalko v. Marymount Hospital, Inc., 9 Ohio St.3d 63, 458 N.E.2d 847 (1984). There, the Court clarified the Schwan holding and stated that the initial portion of section 2305.11(B) remained in full force and effect notwithstanding the unconstitutionality of the portion drawing a distinction between minors under ten years of age and those aged ten years and older. In light of Opalko, section 2305.11(B), as limited by the Ohio Supreme Court, reads as follows:

In no event shall any medical claim against a physician, podiatrist, or a hospital or a dental claim against a dentist be brought more than four years after the act or omission constituting the alleged malpractice occurred. The limitations in this section for filing such a malpractice action against a physician, podiatrist, hospital or dentist apply to all persons regardless of legal disability and notwithstanding section 2305.16 of the Revised Code.

See Opalko, 9 Ohio St.3d at 64, 458 N.E.2d at 849.

We do not believe that Sarah McClure’s malpractice claim is barred by the absolute four-year limitation enunciated in Opalko. This conclusion is based upon the inappropriateness of retroactive application of the Opalko decision and upon an exception to the rule that unconstitutional statutes are entitled to no legal effect.

Defendants contend that even if Opalko is not applied retroactively, plaintiffs are still precluded from relying on § 2305.11(B) as written because the defective portion of that was void ab initio. We accept the proposition that unconstitutional statutes are generally void ab initio, and as such, may not be relied upon to justify acts performed under them. See e.g., Primes v. Tyler, 43 Ohio St.2d 195, 197, 331 N.E.2d 723, 725 (1975) (citing Norton v. Shelby County, 118 U.S. 425, 65 S.Ct. 1121, 30 L.Ed. 178 (1886)). However, section 2305.-11(B) should not be considered void ab initio for two reasons. First, the voidness ab initio doctrine does not apply to destroy contractual rights which have arisen or vested rights acquired under the prior state of the law. Peerless Electric Co. v. Bowers, 164 Ohio St. 209, 129 N.E.2d 467 (1955), accord State, ex rel. Bosch v. Industrial Commission, 1 Ohio St.3d 94, 438 N.E.2d 415 (1982). Sarah McClure’s rights vested upon the existence of her right'to sue, that is, upon her birth. At that time, section 2305.11(B) provided a fourteen-year limitation on Sarah McClure’s exercise of that right. The subsequent declaration of unconstitutionality cannot divest Sarah McClure of that right.

The second reason that the ab initio doctrine is inapplicable in this case is the peculiar nature of statutes of limitations. Such statutes derive their force by the mere fact of their enactment. 51 Am. Jur.2d Limitations of Actions § 13 at 599. They do not confer or extinguish substantive rights, but extinguish the remedy for violation of independent substantive rights. Id. 322 at 606 (citing Kerper v. Wood, 48 Ohio St. 613, 29 N.E. 501 (1891)). A primary purpose of statutes of limitations must be to reduce to a fixed interval the time between the accrual of a right of action' and the commencement of the action, and to put all on notice as to that interval. 51 Am.Jur.2d Limitation of Actions, § 13 at 599. The interval chosen is arbitrary and rests alone on a state’s judgment as to what will promote the interests of its citizens. Id. § 17 at 603 (citing Tioga R. Co. v. Blossberg & C.R. Co., 20 Wall (87 U.S.) 131, 22 L.Ed. 331 (1874)). Finally, statutes of limitations are designed to protect persons from the burden of having to defend against stale claims.

These objectives demonstrate why section 2305.11(B) should not be considered void ab initio on the facts of the instant case. Plaintiffs are not relying on unconstitutional statutes for the creation of rights which would not have existed but for the enactment of the unconstitutional statute. Rather, plaintiffs merely rely upon the arbitrary fixed interval for the assertion of previously existing rights as that fixed interval was written. The arbitrary fixed interval of fourteen years was initially set by the Ohio General Assembly. That interval was thought to adequately protect the interests of Ohio citizens. Sarah McClure’s action was brought well within that interval, so that defendants cannot claim surprise at being called upon to defend against her claim. Ultimately, section 2305.11(B) has failed miserably its purpose of establishing a fixed interval within which minor medical malpractice litigant’s claims must be brought. Given the arbitrary nature of statutes of limitations and the fact that plaintiffs do not assert rights created by an unconstitutional statute, we are reluctant to allow that failure to work an injustice on the plaintiff.

Since, on the acts presented here, section 2305.11(B) should not be considered void ab initio, plaintiff’s action is entitled to proceed unless the Opalko decision is applied retroactively. Retroactive application of Opalko is rejected under the reasoning of Cook v. Matvejs, 56 Ohio St.2d 234, 383 N.E.2d 601 (1978) and Gregory v. Flowers, 32 Ohio St.2d 48, 290 N.E.2d 181 (1972). The rule of these cases is that amendment of a statute of limitations conforms with the Ohio Constitution where it merely shortens the applicable period and still affords a litigant a reasonable opportunity in which to enforce his rights. See Cook, 56 Ohio St.2d 234, 237, 383 N.E.2d 601 (cited in Opalko, 9 Ohio St.3d at 65, 458 N.E.2d 847). Conversely, retroactive application of an amended statute of limitations violates the Ohio Constitution if it totally obliterates an existing substantive right. Clearly, application of Opalko (or of Schwan should it be read independently to mean what it is viewed to mean in light of Opalko) would obliterate Sarah McClure’s existing substantive right. By fair analogy from the legislative act of amendment to the judicial act of interpretation, we hold that the Ohio Constitution prohibits the application of the four year period to bar actions brought before Opalko, provided such actions were brought within the time period provided for in the statute as written. Hence, defendants’ motion for summary judgment on this issue must be denied. This result is in accord with two Ohio Courts of Common Pleas who have decided the issue. Beaver-Isenbarger v. Burt, 81 CV-10-5854 (C.P. Franklin Cty. April 1984); Taylor v. Steinhilber, 83-631 (C.P., Montgomery Cty., May 31, 1984).

II. Claims of Kathy and Gary McClure

We view the issues surrounding the claims of Kathy and Gary McClure much less troubling than those discussed above. Defendants contend that these claims for loss of services and medical expenses are barred by Ohio’s four-year catch-all statute of limitations, Ohio Rev. Code § 2305.09(D). Plaintiffs take no issue with this, but contend that the discovery rule, rendered applicable to medical malpractice actions in Oliver v. Kaiser Community Health Foundation, 5 Ohio St.3d 111, 449 N.E.2d 438 (1983), applies to all consequential damages claims attendant to a medical malpractice claim. The statute of limitations applicable to the McClures’ emotional distress claim is also at issue; however, the four-year statute in section 2305.09(D) applies under the reasoning of Yeager v. Local Union 20, 6 Ohio St.3d 369, 453 N.E.2d 666 (1983). Thus, the sole issue before us is whether the discovery rule applies, to the consequential damages claims. We conclude that it does.

Defendants’ reliance on Neilsen v. Barberton Citizens Hospital, 4 Ohio App.3d 18, 446 N.E.2d 209 (1982) and Amer v. Akron City Hospital, 47 Ohio St.2d 85, 351 N.E.2d 479 (1976) is misplaced in light of the Ohio Supreme Court’s holding in Oliver, 5 Ohio St.3d 111, 449 N.E.2d 438 (1983). As we read Oliver, the Court’s opinion was premised in large part on distaste for the absurdity of a statute of limitations which expires before a reasonably diligent person is aware of a violation the underlying right. We are convinced that the Ohio Supreme Court would find that absurdity no less distasteful here, in the context of consequential damages claims attendant to a medical malpractice claim. Indeed, in Oliver, the Court noted the adoption of the discovery rule in other areas of law. 5 Ohio St.3d at 117, 449 N.E.2d 438 (citing Kunz v. Buckeye Union Ins. Co., 1 Ohio St.3d 79, 437 N.E.2d 1194 (1982); Velotta v. Leo, 69 Ohio St.2d 376, 433 N.E.2d 147 (1982)). Therefore, we conclude that the Ohio Supreme Court would apply the discovery rule to consequential damages claims brought attendant to a medical malpractice claim.

Factual issues prevent the application of the discovery rule to this case on the record as it now stands. Therefore, defendants’ motion for summary judgment must be denied on this point as well.

Accordingly, defendants’ motion for summary judgment is, at this time, in all respects denied.

SO ORDERED.

      . Schwan was fourteen and one-half years of age when treated by defendant, and filed suit nearly two and one-half years after treatment, when he was nearly seventeen years of age. The practical effect of the Ohio Supreme Court’s decision was to uphold the Court of Appeals' reversal of the trial court's grant of summary judgment, and to allow Schwan’s suit to proceed. Ohio Rev.Code § 2305.11(B) became effective on July 28, 1975 and had been in effect for over four years at the time Schwan brought suit, and had been in effect for just under two years when Schwan was treated by the defendant. See 6 Ohio St.3d 300, 452 N.E.2d 1337 and Ohio Rev.Code § 2305.11(B).

      . Plaintiff in Opalko was nine years of age when treated by defendant in late summer and early fall of 1974, roughly one year before section 2305.11(B) took effect. Plaintiff filed his action after Opalko had reached age fourteen, some five and one-half years after the cause of action accrued and nearly five years after the enactment of the statute. Thus, Opalko was neither within the four years provided for in the statute as interpreted nor within the fourteenth birthday upper limit provided by the statute as written.


author: KERR, District Judge.

text:
    H.A. TRUE, Jr. and Jean D. True, Plaintiffs, v. UNITED STATES of America, Defendant. Henry A. TRUE, III and Karen S. True, Plaintiffs, v. UNITED STATES of America, Defendant. David L. TRUE and Melanie A. True, Plaintiffs, v. UNITED STATES of America, Defendant. Donald G. HATTEN and Tamma T. Hatten, Plaintiffs, v. UNITED STATES of America, Defendant. Diemer D. TRUE and Susan L. True, Plaintiffs, v. UNITED STATES of America, Defendant.
    Nos. C82-052 to C82-056.
    United States District Court, D. Wyoming.
    March 20, 1985.

      R. Stanley Lowe, William H. Brown, Casper, Wyo., Claude M. Maer, Jr. and Fred M. Winner, Denver, Colo., for plaintiffs.
    Dennis Donohue and Michael Lichtenberg, trial attys. for the Tax Div., Dept, of Justice, Washington, D.C., for defendant.
   ORDER RULING ON MOTIONS FOR PARTIAL SUMMARY JUDGMENT

KERR, District Judge.

The above-entitled matter having come on regularly for hearing before the court upon plaintiffs’ (cross) motion for partial summary judgment and the defendant’s cross-motion for partial summary judgment; plaintiffs appearing by and through their counsel, William Brown, Claude Maer, Fred Winner, Stanley Lowe, and Ron Morris, and the defendant appearing by and through its counsel, Dennis Donohue, Tax Division, United States Department of Justice, and Michael Lichtenberg, Tax Division, United States Department of Justice, and the court having heard the arguments of counsel and having fully and carefully reviewed the motions, briefs, stipulation of facts, exhibits and all matters pertinent thereto, and being fully advised in the premises; FINDS:

The questions presented for summary adjudication are:

1. Whether civil penalties imposed under 33 U.S.C. § 1321(b)(6) are deductible. Application of 26 U.S.C. § 162(f).
2. Whether surface damage payments are a cost of construction of an oil pipeline and, therefore, eligible for the investment tax credit.
3. Treatment of Guaranteed Minimum Overriding Royalties as advanced royalties.

The last issue will not be determined by the Court at this time as the matter is presently being considered by the Joint Committee on Taxation as the Internal Revenue Service has conceded the issue. The court, therefore, renders a decision only on the first and second issues.

As the parties have stipulated to the relevant facts and as it appears to the court that there is no dispute as to any material fact with respect to these issues, the same are ripe for summary judgment.

FACTS COMMON TO BOTH ISSUES

This case arises as the plaintiffs, taxpayers, seek a tax refund for the years 1973, 1974, and 1975. Each of the separate taxpayer cases have been consolidated because the facts, issues, and legal questions are the same in each case. This court has jurisdiction pursuant to 28 U.S.C. § 1346(a)(1).

Belle Fourche Pipeline Company (Belle Fourche) is a corporation engaged in the pipeline transportation of crude oil. During the years in question, 1973 through 1975, Belle Fourche was an electing corporation under Subchapter S of the Internal Revenue Code of 1954, as amended; § 1371 et seq. The plaintiffs in this case are the shareholders of Belle Fourche and as such, all adjustments made by the Internal Revenue Service to the corporation’s net income flow through to the individual shareholders, thereby affecting the tax liability of each of the plaintiffs.

DEDUCTIBILITY OF OIL SPILL PENALTY

During the fiscal year ending March 31, 1975, Belle Fourche paid civil penalties in the amount of $1,200.00 to the United States Coast Guard. This penalty was assessed pursuant to 33 U.S.C. § 1321(b)(6), (§ 311(b)(6) of the Federal Water Pollution Control Act (FWPCA)). The penalty was imposed as a result of oil leakage from some Belle Fourche pipelines.

The Commissioner disallowed the deduction of the penalty in reliance on 26 U.S.C. § 162(f) which prohibits the deduction of “fines and similar penalties.”

Code section 162(f) was enacted as part of the Tax Reform Act of 1969. The section provides that: “No deduction shall be allowed under subsection (a) [deductions allowed for ordinary and necessary business expense] for any fine or similar penalty paid to a government for violation of any law.”

Prior to the enactment of this code section, the United States Supreme Court had held that taxpayers could not take deductions for fines paid for violations of state penal laws even if the violations were not willfully or knowingly committed. The United States Supreme Court reasoned that such a deduction would severely frustrate public policy and reduce the “sting” of the penalties where the fines had been levied for punitive purposes. See Truck Rentals, Inc. v. Commissioner, 356 U.S. 30, 36, 78 S.Ct. 507, 510, 2 L.Ed.2d 562 (1958) and Hoover Motor Express Co. v. United States, 356 U.S. 38, 78 S.Ct. 511, 2 L.Ed.2d 568 (1958) where fines paid to states for violation of the maximum weight limits on highways were not allowed as deductions for ordinary and necessary business expenses.

The Senate Finance Committee in its report on the 1969 Tax Reform Act acknowledged this existing case law disallowing deductions for fines and indicated that the enactment of § 162(f) was a codification of prior public policy.

The committee report states:

At the present time there is no statutory provision setting forth a general ‘public policy’ basis for denying deductions which are ‘ordinary and necessary’ business deductions. Nevertheless, a number of business expenses have been disallowed on the ground that the allowance of these deductions would be contrary to Federal or State ‘public policy.’ This has been true, for example, in the case of fines. S.REP. No. 552, 91st Cong., 1st Sess. 273 (1969), reprinted in 1969 U.S. CODE CONG. & AD.NEWS 1645, 2027, 2310.

Following the 1969 enactment of § 162, the Internal Revenue Service issued proposed regulations on May 27, 1971. The regulations relating to § 162(f) suggested that all fines and penalties, whether criminal or civil, were not deductible.

The Senate Finance Committee in its Report on the Revenue Act of 1971 took an unusual step to comment on the proposed regulations and clarify the legislative intent behind § 162(f). The relevant portion of the report states:

In connection with the proposed regulations relating to the disallowance of deductions for fines and similar penalties (sec. 162(f)) questions have been raised as to whether the provision applies only to criminal ‘penalties’ or also to civil penalties as well. In approving the provisions dealing with fines and similar penalties in 1969, it was the intention of the committee to disallow deductions for payments of sanctions which are imposed under civil statutes but which in general terms serve the same purpose as a fine exacted under a criminal statute. The provision was intended to apply, for example, to penalties provided for under the Internal Revenue Code in the form of assessable penalties (subchapter B of chapter 68) as well as to additions to tax under the internal revenue laws (sub-chapter A of chapter 68) in those cases where the government has the fraud burden of proof (i.e., proof by clear and convincing evidence). It was also intended that this rule should apply to similar type payments under the laws of a State or other jurisdiction.
On the other hand, it was not intended that deductions be denied in the case of sanctions imposed to encourage prompt compliance with requirements of law. Thus, many jurisdictions impose ‘penalties’ to encourage prompt compliance with filing or other requirements which are really more in the nature of late filing charges or interest charges than they are fines. It was not intended that this type of sanction be disallowed under the 1969 action. Basically, in this area, the committee did not intend to liberalize the law in the case of fines and penalties, (emphasis added). S.REP. No. 437, 92nd Cong., 1st Sess. 73 (1971), reprinted in 1971 U.S.CODE CONG. & AD.NEWS 1825, 1918, 1979-1980.

The key point it seems in determining whether or not a civil penalty is deductible turns on the nature of the penalty; that is, whether the penalty serves a purpose similar to a criminal fine or penalty.

This is the view which has been expressed in the case law following the enactment of § 162(f). These later cases have developed certain criteria for determining whether or not a civil penalty is similar in purpose to a criminal fine or penalty. Specifically, a penalty is criminal in nature and, therefore, not deductible if its purpose is to punish and/or deter, but a penalty is not criminal in nature and, therefore, deductible if the purpose which it serves is to encourage compliance with the law or if it is remedial or compensatory in nature. Middle Atlantic Distributors v. Commissioner, 72 T.C. 1136, 1143 (1979); Southern Pacific Transportation Co. v. Commissioner, 75 T.C. 497, 652 (1980); Huff v. Commissioner, 80 T.C. 804, 824 (1983).

In Southern Pacific Transportation Co. v. Commissioner, 75 T.C. 497, 652 (1980) the court relying on Middle Atlantic held that:

[c]ongress, by use of the word ‘similar,’ was not intending to distinguish between criminal and civil sanctions, but rather was intending to make a distinction between different types of civil penalties. If a civil penalty is imposed for purposes of enforcing the law and as punishment for the violation thereof, its purpose is the same as a fine exacted under a criminal statute and it is ‘similar’ to a fine. However, if the civil penalty is imposed to encourage prompt compliance with a requirement of the law, or as a remedial measure to compensate another party for expenses incurred as a result of the violation, it does not serve the same purpose as a criminal fine and is not ‘similar’ to a fine within the meaning of section 162(f).

The court further held that in deciding if a civil penalty is criminal in nature, “[t]he appropriate consideration is not the type of conduct which gives rise to the violation resulting in the penal imposition but is the purpose which the statutory penalty is to serve.” Id. at 653.

The real determination that must be made in the case at hand, then, is whether the penalty imposed under 33 U.S.C. § 1321(b)(6) is criminal in nature.

There is no doubt that this section is a civil penalty. In United States v. Ward, 448 U.S. 242, 100 S.Ct. 2636, 65 L.Ed.2d 742 (1980), the Supreme Court determined that 33 U.S.C. § 1321(b)(6) was civil and did not require the constitutional safeguards and privileges, such as protection against self-incrimination, normally available under a criminal statute.

Justice Blackmun in his concurrence stated that:

[although the fines conceivably could be used to promote primarily deterrent or retributive ends, the fact that collected assessments are deposited in a revolving fund used to defray the expense of cleanup operations is a strong indicator of the pervasively civil and compensatory thrust óf the statutory scheme.... 33 U.S.C. § 1321(k). Id. at 256, 100 S.Ct. at 2645.

The funds received under § 1321(b)(6) are “[deposited in a revolving fund to pay the costs of administering the act and to finance cleanup of oil spills when the costs are not otherwise recoverable.” United States v. Texas Pipeline Co., 611 F.2d 345, 347 (10th Cir.1979).

In addition to the funds being used for remedial purposes, .the statute is one which imposes strict liability on an operator for a discharge of harmful substances, regardless of fault. Because strict liability involves the shifting of fault to the one most able to bear the cost and insure against the risk, it has been held that the FWPCA is a means of transferring the risk from the public to the operator of the facility causing a harmful discharge. Ward v. Coleman, 423 F.Supp. 1352, 1357 (W.D. Okla.1976); rev’d 598 F.2d 1187 (10th Cir. 1979); rev’d United States v. Ward, 448 U.S. 242, 100 S.Ct. 2636, 65 L.Ed.2d 742 (1980).

In United States v. Marathon Pipeline Co., 589 F.2d 1305 (7th Cir.1978), the court there found that:

[sjtrict liability, though performing a residual deterrent function, is based on the economic premise that certain enterprises ought to bear the social costs of their activities. In the FWPCA in general, Congress has made a legislative determination that polluters rather than the public should bear the costs of water pollution.... Id. at 1309; See also United States v. Tex-Tow, Inc., 589 F.2d 1310, 1315 (7th Cir.1978).

This court agrees with the holdings in the above cases and finds that the purpose behind 33 U.S.C. § 1321(b)(6) of the FWPCA is remedial and compensatory in nature, as the penalty is imposed irregardless of fault, with proceeds being used for costs of administration and clean-up. The penalty is not criminal in nature and does not serve the same purpose as a criminal fine; therefore, the penalty does not fall within the scope of § 162(f). The penalty is, therefore, deductible and should be allowed by the commissioner. The plaintiffs’ motion for partial summary judgment should be granted.

INVESTMENT TAX CREDIT ON SURFACE DAMAGE PAYMENTS

During the years 1973, 1974, and 1975, Belle Fourche Pipeline Company acquired easements from landowners for the purpose of constructing pipelines for the transportation of oil from producing wells to main transmission lines.

In acquiring these easements, Belle Fourche paid a purchase price or “roddage fees” to each landowner based on a per rod figure. The easement contract among other things provided that Belle Fourche would be liable for all damages caused by the construction of the pipeline.

At the same time that these easement contracts were entered into, Belle Fourche negotiated with the landowners for prepayment of any damages. These damage contracts, entitled “Release and Agreement,” provided that the landowner would release and discharge Belle Fourche from all liability of damage claims which might arise prior to and including the completion date of the pipeline in exchange for a settlement payment for damages. The amount of these surface damage payments for the three years totaled $123,494.59 (1973 — $31,620.92; 1974 — $18,991.04; and 1975 — $72,882.63). While both agreements were executed at approximately the same time and one draft was used to pay both the “roddage fees” and the “surface damage payments,” the contracts were separate agreements, apparently negotiated independently.

Originally Belle Fourche did not claim that these damage payments were eligible for the investment tax credit as part of the cost of constructing the pipeline. See 26 U.S.C. §§ 38, 46, 47, and 48. After an audit of the plaintiffs’ returns for the years in question, plaintiffs filed amended returns seeking a refund for those amounts connected with the surface damage payments. These refunds were denied and the plaintiffs seek a determination by this court as to the treatment of the surface damage payments.

This court must decide whether the surface damage payments made by Belle Fourche to landowners are eligible for investment tax credit treatment. It is, therefore, necessary to determine if the damage payments were actually part of the acquisition costs of the easements OR were a part of the cost of constructing the pipelines.

The investment tax credit is allowed on “section 38 property” which includes “other tangible property ... but only if such property — (1) is used as an integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services....” § 48(a)(1). Treasury Regulation § 1.48-1(d)(3) states that “examples of transportation businesses include ... oil pipeline companies.” Treasury Regulation § 1.48-1(d)(4) provides that, “specific examples of property which normally would be used as an integral part of one of the specific activities are blast furnaces, oil and gas pipelines....” It is, therefore, apparent that the pipelines of Belle Fourche are generally considered qualifying property under the investment tax credit provisions.

There is no dispute that the acquisition costs of the easements are not to be given investment tax credit treatment as they are intangible property and -not tangible property within the contemplation of the investment tax credit provisions.

The case law is split on the issue of whether surface damages paid in connection with the construction of a pipeline are éligible for investment tax credit treatment. In 1970, the Fifth Circuit decided the case of Tenneco, Inc. v. United States, 433 F.2d 1345 (5th Cir.1970), wherein the court there determined that the damage payments were really a cost of acquiring the easement for the pipeline. The court stated that the payments [were] “primarily easement costs and only secondarily costs of the construction of the pipeline.” Id. at 1349.

Later, however, in 1977, the United States Court of Claims decided Mapco, Inc. v. United States, 556 F.2d 1107, 214 Ct.Cl. 389 (1977). The court there respectfully disagreed with the Fifth Circuit decision in Tenneco and held that “[d]amage payments are an integral part of the cost of constructing a pipeline, rather than part of the cost involved in acquiring right-of-way easements for the pipeline.” Id. at 1114.

The damage payments are made to the landowners to relieve the easement holder (Belle Fourche) from future liability for damages caused in the construction and laying of the pipeline. With all due respect to the Fifth Circuit, we agree with the reasoning of the court in Mapco and find that the damage payments made in this case were a part of the cost of constructing the pipeline, not a cost of acquiring the easement.

Logically, it seems that such damage payments are as much a part of the cost of constructing the pipeline as is the expense in purchasing pipe for the pipeline. Mapco v. United States, 556 F.2d at 1114.

The court notes that in the present case, Belle Fourche made damage payments pri- or to the actual occurrence of damages and at the same time that payments were made for the “roddage fees”, while in Mapco, the damage payments were made after the damage occurred. This court thinks that the time for the payment of damages is irrelevant and it is enough that the payments were made to compensate the landowners for any harm done to their land in the construction of the pipeline.

The defendant argues that because the damage payments were not refundable to Belle Fourche if the pipelines were not constructed, that the damage payments would then become an acquisition cost. This court will not concern itself with possibilities which are irrelevant in this case. The facts clearly show that in all instances, the pipelines were built on the acquired easements.

' This court sees no reason to punish the plaintiffs for shrewd business practices whereby the plaintiffs chose to save both time and money by negotiating for acquisition of the easement and for damage settlement at the same time.

There is no evidence of fraud that the plaintiffs attempted to disguise easement acquisition payments as damage payments, particularly as plaintiffs did not even attempt to apply the investment tax credit to the damage payments until sometime later after the Mapco case was decided.

This court again reiterates its agreement with the Mapco court and holds that the damage payments made to landowners in the amount of $123,494.59 for the years 1973, 1974, and 1975 are costs of constructing the pipeline and, therefore, eligible for investment tax credit treatment. Plaintiffs’ motion for partial summary judgment should, therefore, be granted.

NOW, THEREFORE, IT IS

ORDERED that plaintiffs’ motion for partial summary judgment on the issues of oil spill penalty deductions and investment tax credit treatment for surface damage payments be, and the same are, hereby granted; it is

FURTHER ORDERED that defendant’s cross-motion for partial summary judgment be, and the same is, hereby denied.


author: RENNER, District Judge.

text:
    AMERICAN TELEVISION & COMMUNICATIONS CORPORATION, d/b/a Monte Cable, Plaintiff, v. CITY OF MONTEVIDEO, MINNESOTA, Defendant.
    Civ. No. 3-85-13.
    United States District Court, D. Minnesota, Third Division.
    March 22, 1985.

      Alan M. Anderson and Steven C. Shroer of Faegre & Benson, Minneapolis, Minn., for plaintiff.
    Janice M. Nelson of Nelson, Oyen, Tor-vile, Minge, Christopherson & Gilbertson, Montevideo, Minn., for defendant.
   MEMORANDUM AND ORDER

RENNER, District Judge.

Before the Court is a trial on the merits based upon a stipulation of facts and documents pursuant to Federal Rule of Civil Procedure 65(a)(2). Because there is no material factual dispute, the Court has considered the matter as cross motions for summary judgment. See Fed.R.Civ.P. 56. On February 27, 1985 the court issued a bench ruling in favor of ATC. Apparently, this is the first decision construing the Cable Communications Policy Act of 1984, therefore the Court issues this Memorandum Order to explain its oral ruling.

American Television & Communications Corporation (“ATC”) brings this action against the City of Montevideo (“the City”). ATC seeks a declaration that a five percent (5%) rate increase imposed on its subscribers January 1, 1985 is valid under its franchise agreement with the City (“the City Franchise”), and that a City resolution attempting to prevent the rate increase is invalid under the City Franchise and the Cable Communications Policy Act of 1984 (“the Cable Act”).

FACTS

In February 1972, ATC was assigned the twenty-five (25) year cable television Franchise the City had granted to another franchisee in 1962. Pursuant to the City Franchise, ATC has continuously operated a cable television system since the assignment. In October 1984, Congress enacted the Cable Communications Policy Act, Pub.L. No. 98-549, 1984 U.S.Code Cong. & Ad.News (98 Stat.) 2779 (to be codified at 47 U.S.C. §§ 601-639). The Cable Act established a uniform federal policy for the provision and regulation of cable television services, and preempted inconsistent state and local regulations. See 47 U.S.C. §§ 601, 623(a). In addition, the Cable Act authorized a cable franchisee to increase its rates up to five percent (5%) per year as follows:

In addition to any other rate increase which is subject to the approval of a franchising authority, any rate subject to regulation pursuant to this section may be increased after the effective date of this title at the discretion of the cable operator by an amount not to exceed 5 percent per year if the franchise (as in effect on the effective date of this title) does not specify a fixed rate or rates for basic cable service for a specified period or periods which would be exceeded if such increase took effect.

47 U.S.C. § 623(e)(1). The Cable Act took effect on December 29, 1984.

The parties agree that the franchise in effect through December 17, 1984 permitted ATC to increase unilaterally its rates by five percent (5%), as authorized by section 623(e)(1). In early December 1984, ATC informed the City that it planned to increase rates for basic cable service by five percent (5%) effective January 1, 1985. The City responded by adopting Resolution No. 1150 (the “Resolution”) on December 17, 1984 over ATC’s objections. The Resolution provided that the existing rates for basic cable service were to remain in effect for two years or until the City Council approved an increase. The City thereafter informed ATC that it would consider ATC to have breached the City Franchise if ATC increased its rates. This litigation ensued.

ANALYSIS

Resolution No. 1150 states that basic cable service rates are to “continue in effect for a period of two years from the date of this resolution or until an increase is approved by the City council.” This Resolution can be construed as merely requiring City Council approval of a new rate increase, something the City Franchise already required. If this is its only effect, the Resolution would be valid but ineffective in its attempt to preclude plaintiff’s proposed rate increase. As previously mentioned, the Cable Act permits ATC’s rates to be increased after December 29, 1984, “at the discretion of the cable operator.” The Cable Act gives the franchisee (ATC) rather than the franchisor (the City) discretion to make the five percent (5%) rate increase. Therefore, unless the resolution amended the City Franchise to revoke ATC’s discretion by providing for a fixed rate over a specified period of time, ATC’s rate increase was valid.

The City concededly passed the Resolution in an attempt to prevent ATC from increasing its rates under the Cable Act by fixing the cable rates for the next two years. ATC argues that the City Franchise did not specify a fixed rate for a specified period of time as required by the Cable Act. The Court agrees.

Under the plain meaning of the Cable Act, the Resolution, by its own terms, did not preclude ATC’s rate increase. The Cable Act expressly requires that a franchise set forth a fixed rate for a specified period of time. Resolution No. 1150 provided that the rate would be set for two years or “until an increase is. approved by the City Council.” By permitting an increase upon approval of the City Council, the Resolution provided for increases at future unspecified times. Consequently, Resolution No. 1150 did not deprive ATC of its discretion to increase its rates under the Cable Act.

The legislative history supports this result. The House Report accompanying the Cable Act provides:

[According to Subsection (e) unless the franchise agreement provides that a rate will be frozen at a particular level or levels for a specified period or periods, the cable operator may automatically increase any rate by 5 percent each year. Thus, franchise provisions which specify, for example, that “basic service rates shall be $10 in 1984” or that “basic service rates shall be $10 until 1986” shall preclude the operator from taking advantage of the statutory, automatic increase. Similarly, a franchise which specified that “basic service rates shall be $9 in 1984 and $10 in 1985” would preclude use of the automatic increase. However, franchise provisions which allow for the franchising authority to consider adjustments to a specified rate or do not fix rates for a specified period of time will not preclude exercise of the automatic increase provided under this section. For example, a franchise provision which states that “basic service rates shall be $10” would not be sufficient to preclude the availability of the automatic increase if the provision did not specify a fixed period of time for which the rate applied.

H.R.Rep. No. 934, 98th Cong. 2d Sess. 67 (1984), reprinted in 1984 U.S.Code Cong. & Ad.News 4655, 4704 (emphasis supplied). By allowing the franchising authority to consider adjustments to the rates, the City Council did not set the rate for a specified period of time as required by the Cable Act. Therefore, plaintiff lawfully implemented its five percent (5%) basic cable service rate increase.

ORDER

Based upon the foregoing and the entire file, the Court finds in favor of plaintiff ATC and against defendant City of Montevideo.

IT IS DECLARED that plaintiff ATC is authorized under section 623(e) of the Cable Communications Policy Act of 1984 to increase its rates for basic cable services by five percent effective January 1, 1985.

IT IS FURTHER DECLARED that City of Montevideo Resolution Number 1150 is of no effect in its attempt to preclude such an increase.

IT IS ORDERED that the case be dismissed with prejudice.

LET JUDGMENT BE ENTERED ACCORDINGLY.

      . Section 7-16-3 of the City Franchise, as codified and amended, incorporates by reference sections 82 through 89 of Chapter 10 of the 1947 Montevideo City Charter (the "1947 Charter”). Section 86 of the 1947 Charter establishes an arbitration procedure to be followed if the City and ATC fail to agree, "by direct negotiation,” on rates for cable services. Although the 1947 Charter was suspended in 1969 by a new charter which omitted the arbitration provision, the City Franchise was never amended to incorporated the 1969 Charter. Until the instant dispute, ATC and the City had had no disagreements which would have required arbitration under the 1947 Charter. Since the Court finds that, under federal law, the Resolution in question did not preclude plaintiffs rate increase, it does not decide whether the Resolution was passed in violation of the City Franchise.

      . "Franchise" as defined in the Cable Act is: an initial authorization or renewal thereof, including a renewal of an authorization which has been granted subject to section 626 issued by a franchising authority, whether such authorization is designated as a franchise, permit, license, resolution, contract, certificate, agreement or otherwise, which authorizes the construction or operation of the cable system.
      47 U.S.C. § 602(8) (emphasis supplied). Assuming the Resolution was validly enacted, it became a part of the City Franchise authorizing the operation of ATC’s cable system.