author: CALEB M. WRIGHT, Senior District Judge.

text:
    David STEINBERG, on behalf of himself and all others similarly situated, Plaintiff, v. SHEARSON HAYDEN STONE, INC., and Shearson Loeb Rhoades, Inc., Defendants.
    Civ. A. No. 81-390 CMW.
    United States District Court, D. Delaware.
    Nov. 29, 1984.

      Thomas G. Hughes, and Frank O’Donnell, of O’Donnell & Hughes, Wilmington, Del. (Richard D. Greenfield, and Robert P. Frutkin, of Greenfield, Chimicles & Lewis, Haverford, Pa., of counsel), for plaintiff, David Steinberg and for intervenor plaintiff, Frank Williams.
    Charles F. Richards, Jr. and Stephen E. Herrmann, of Richards, Layton & Finger, Wilmington, Del., for defendants.
   OPINION

CALEB M. WRIGHT, Senior District Judge.

This case arises out of allegations that Shearson Hayden Stone, Inc., and its successor in interest Shearson Loeb Rhoades, Inc. (hereinafter collectively “Shearson”), violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Steinberg’s complaint alleges that Shearson failed to disclose material facts concerning credit terms applicable to its customers’ margin accounts, with the purpose and effect of inducing Steinberg to purchase various securities on margin from Shearson, and that Steinberg suffered damages thereby.

Shearson previously moved for summary judgment on the theory that Rule 10b-16 provided the exclusive remedy for injuries of the type claimed by Steinberg and argued that the documents it had submitted demonstrated its compliance with that rule. This Court denied Shearson’s motion in an opinion reported at 546 F.Supp. 699 (D.Del.1982). Thereafter, Steinberg moved for certification of this case as a class action, and the motion was denied by an Order of the Court dated August 19, 1983, on the ground that the individual issue of whether the statute of limitations had been tolled for each asserted class member predominated over those issues common to the class. Shearson has now moved for summary judgment again, this time on the ground that Steinberg’s claims are barred by the statute of limitations. Steinberg has filed a cross motion for partial summary judgment, and one Frank Williams has filed a motion to intervene as the representative of a newly defined class.

1. SUMMARY JUDGMENT

Because there is no federal statute of limitations for an implied cause of action under Rule 10b-5, the timeliness of such actions must be determined by applying the most closely analogous state law limitations period of the forum state. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n. 29, 96 S.Ct. 1375, 1386 n. 29, 47 L.Ed.2d 668 (1976); Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605 (3d Cir.1980); Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir.1979); Hill v. Equitable Trust, 562 F.Supp. 1324, 1333 (D.Del.1983); Hill v. Der, 521 F.Supp. 1370, 1379 (D.Del.1981). There are two possible limitations statutes available under Delaware law: the two year limitations period for blue sky law violations, 6 Del.C. § 7323(e), or the three year period for common law fraud, 10 Del.C. § 8106. The Third Circuit has adopted neither the blue sky limitations period nor the common law fraud period as exclusively applicable to 10b-5 cases. Rather, it has taken a functional approach aimed at promoting the policy of repose of the forum state and the substantive federal policy advanced by the federal cause of action.

A basic consideration under both these approaches is whether an analogous state statute provides an equivalent remedy to the one sought under federal securities law. Under the Delaware blue sky law, a civil plaintiff’s remedies are limited to injunctive relief, 6 Del.C. § 7320, or rescission, unless he is an injured seller or purchaser who no longer holds the seeurities, in which case damages are available. 6 Del.C. § 7323(a)(2). In Steinberg’s case, these remedies would not be appropriate, since he is not seeking rescission of the sale of securities purchased on margin but damages for excessive interest charges. Furthermore, under 6 Del.C. § 7323(b), a broker-dealer is liable to a purchaser of securities only “to the same extent as the seller.” Because Steinberg has not alleged any fraud on the part of the sellers of the securities he purchased, Shearson would not be liable to Steinberg under § 7323(b). Rather, Steinberg’s analogous state cause of action against Shearson would be for common law fraud, under which damages would be available regardless of whether or not Steinberg still held securities purchased on margin from Shearson. Thus, the applicable state limitations statute is the three year limitations period for common law fraud.

Although state law provides the limitations period for private actions under Rule 10b-5, federal law determines when the limitations period begins to run. See Bailey v. Glover, 21 Wall. 342, 349-50, 88 U.S. 342, 349-50, 22 L.Ed. 636 (1874); Biggans v. Bache Halsey Stuart Shields, Inc., supra, at 607 n. 3; Cook v. Avien, 573 F.2d 685, 694 (1st Cir.1978); Tomera v. Galt, 511 F.2d 504, 509 (7th Cir.1975); Schaefer v. First Nat’l Bank of Lincolnwood, 509 F.2d 1287, 1295 (7th Cir.1975); Hill v. Equitable Trust Co., 562 F.Supp. 1324, 1344 (D.Del.1983); Hill v. Der, 521 F.Supp. 1370, 1387 (D.Del.1981). Under the federal common law doctrine of equitable tolling, “when there has been no negligence or laches on the part of a plaintiff in coming to the knowledge of the fraud which is the foundation of the suit, and when the fraud has been concealed, or is of such character as to conceal itself, the statute does not begin to run until the fraud is discovered by, or becomes known to, the party suing ... ”. Bailey v. Glover, supra, 88 U.S. at 349-50.

A variety of tests have been formulated to implement this standard. Thus, in Tornera v. Galt, supra, at 510, the court stated that two types of circumstances may toll a statute of limitations under the doctrine of Bailey v. Glover: (1) when, as in the most common type of fraudulent behavior, the fraud goes undiscovered, even though the defendant does nothing to conceal it after commission of the wrong, and the plaintiff has diligently inquired into its circumstances; or (2) when the defendant takes positive steps to keep the fraud concealed after it has been committed. Other courts have adopted a modified version of the first branch of the Tornera test. These courts have taken the approach that the plaintiff must be put on notice by “storm warnings” that something is wrong before he is required to make diligent inquiries into the circumstances of the fraudulent transaction. Once the storm warnings appear, the statute continues to be tolled as long as the plaintiff makes diligent inquiries and will only begin to run if the plaintiff ceases to exercise due diligence. See Cook v. Avien, supra, at 696; Hill v. Der, supra, at 1387. As this Court noted in Hill v. Equitable Bank, N.A., No. 82-220, Slip Op. at 23 (D.Del. Aug. 16, 1984), “once a plaintiff becomes aware or should have been aware, of sufficient ‘storm warnings’ of fraud to place the plaintiff on ‘inquiry notice,’ the plaintiff must exercise reasonable diligence in investigating the cause of action for fraud.”

However, rather than regarding these various formulations as mutually exclusive tests of when equitable tolling is available, it is more accurate to view them as alternative formulas for applying a single standard under varying circumstances. When fraud has gone undiscovered for a period longer than the one specified in the applicable limitations statute, the basic issue is whether the plaintiff was negligent in not discovering it, or whether the fraud should have been discovered upon reasonable inquiry. See Buder v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 644 F.2d 690, 692 (8th Cir.1981). As the court in Cook v. Avien, supra, at 696-97 noted, there are a variety of circumstances relevant to this inquiry, including the nature of the misleading statements alleged, the opportunity to discover the misleading nature of the statements and the subsequent actions of the parties. The sound approach is a functional one which balances these, and possibly other factors in light of the particular circumstances of each case. Thus, it may be that “storm warnings” are unnecessary to trigger the due diligence requirement in circumstances where the alleged fraud is particularly easy to discover.

Turning to the application of these principles to the facts of this ease, there are five sets of allegations in Steinberg’s complaint. Steinberg alleges (1) that Shearson failed to disclose the manner in which interest rates on its customers’ margin accounts were calculated; (2) that Shearson failed to disclose that it used a 360-day year for computing interest; (3) that Shearson failed to disclose that amounts credited to customers’ margin accounts would not be considered in computing interest charges; (4) that Shearson failed to disclose that appreciation in the market value of securities purchased on margin would not be considered in determining the extent of credit or in computing interest charges; and (5) that Shearson failed to disclose that its credit terms were negotiable.

The basic facts regarding Steinberg’s behavior are simple and uncontroverted. Steinberg last engaged in margin account activity with Shearson on August 20, 1976. See Steinberg v. Shearson Hayden Stone, Inc., No. 81-390, Slip Op. at 2 (D.Del. Aug. 19, 1983). Steinberg filed the complaint in this action on August 27, 1981. Thus, because the applicable limitations period is three years, Steinberg’s claims will be time-barred unless he can avail himself of the doctrine of equitable tolling. Steinberg has testified at his deposition that he had no suspicion of any fraud on Shearson’s part until 1981, when he read a newspaper article about the large profits brokerage houses make on interest charges applied to their margin accounts. Steinberg argues that the statute of limitations was tolled until he read this article and thus that he brought suit well within the limitations period. However, Steinberg admits that he never made any inquiries of Shearson concerning interest charges, either before or after he read the newspaper article. Steinberg also insists that he never saw a Shearson document entitled “Statement of Credit Terms.” Shearson’s Executive Vice President for Operations has stated in an affidavit that it was Shearson’s policy, at all times relevant to the complaint, to send such a statement to each customer who opened an account. For purposes of Shearson’s motion for summary judgment, the Court will accept as true Steinberg’s testimony that he never saw Shearson’s Statement of Credit Terms.

To avail himself of the doctrine of equitable tolling, Steinberg must not have been negligent in failing to make inquiries concerning the interest terms on Shearson’s margin accounts. Steinberg’s testimony that he never saw Shearson’s Statement of Credit Terms actually counts against him on this score. Had Steinberg seen the Statement, factual issues would have remained as to whether it was accurate, complete or misleading, or whether Shearson’s actual credit practices always agreed with its stated policies. Not having seen the Statement, Steinberg cannot argue that he was lulled to sleep by its misleading nature. During the entire period that Stein-berg maintained a margin account with Shearson he received monthly statements showing the amount and percentage of interest he had been charged. Yet it never occurred to Steinberg to question these amounts, and he never asked Shearson for an explanation of how interest was calculated. He merely assumed that Shearson’s interest charges would be the same as those he would have to pay a bank.

Although issues of negligence usually involve disputes about historical facts, there are no historical facts in dispute here on the issue of equitable tolling. Rather, what is at issue is an “ultimate fact,” the legal inference to be drawn from the admitted and undisputed historical facts. One might well conclude that “storm warnings” were unnecessary to trigger the due diligence requirement for equitable tolling under the present circumstances and that, under the functional approach put forward in Cook v. Avien, supra, Steinberg should have made inquiries concerning interest rates prior to the time he stopped trading with Shearson. Certainly, the nature of the misleading statements was not such as to forestall inquiry — Steinberg has alleged a variety of failures to disclose, but no affirmative misrepresentations. Steinberg had ample opportunity to inquire about credit terms, and Shearson took no affirmative steps to conceal its alleged misstatements after Steinberg’s account had been opened.

Nevertheless, under the standard for summary judgment in the Third Circuit, the Court is not permitted to draw this inference even under admitted factual circumstances as Dorically simple as these. For example, in Goodman v. Mead Johnson & Co., 534 F.2d 566 (1976), a husband and wife brought an action against a manufacturer of birth control pills after the wife became ill and died. Summary judgment was granted on the ground that the statute of limitations had run, but the Third Circuit reversed because the district court had improperly drawn inferences as to the plaintiffs state of knowledge based on the uncontested factual evidence. Because “[inferences to be drawn from the underlying facts contained in the evidential sources submitted to the trial court must be viewed in the light most favorable to the party opposing the motion,” id. at 573, the trial court improperly concluded that the plaintiff knew or should have known that she had a claim before the statute had run. Similarly, in Brown v. Caterpillar Tractor Co., 696 F.2d 246 (3d Cir.1982), an army reservist had sustained injuries allegedly caused by the defective design of a bulldozer manufactured by the defendant for the army. The district court granted summary judgment for the defendant, in part because it determined that the bulldozer met the specifications set out in the defendant’s contract with the government, but the Third Circuit reversed and held that it was a factual issue for the jury to decide what the parties intended by the language of the contract and whether the actual design of the bulldozer conformed to it. Id. at 256. In each of these cases, there was no dispute as to the historical facts, but it was nevertheless held to be improper for the court to draw the inferences as to ultimate facts on which the motions for summary judgment were decided. See Small v. Seldows Stationery, 617 F.2d 992 (3d Cir. 1980); Rosenthal v. Rizzo, 555 F.2d 390 (3d Cir.1977); Tomalewski v. State Farm Life Ins. Co., 494 F.2d 882 (3d Cir.1974); Carpenter Internat’l., Inc. v. Kaiser Jamaica Corp., 369 F.Supp. 1138, 1139 (D.Del.1974). Thus, the Court concludes that, even though there is no dispute as to the historical facts relevant to the issue of equitable tolling in the instant case, the defendant’s motion for summary judgment must be denied. Because there is an issue of ultimate material fact as to whether the statute of limitations was tolled, the plaintiff’s cross motion for partial summary judgment is also denied.

II. INTERVENTION

Frank Williams has filed a motion to intervene of right in this suit under Fed.R.Civ.P. 24(a)(2) or, in the alternative, by permission of the Court under Fed.R.Civ.P. 24(b). Williams’ complaint is virtually identical to Steinberg’s amended complaint, except that Williams seeks to represent a class of Shearson customers who traded on margin between August 28, 1978 and December 31, 1983. Steinberg had originally sought to represent a class of Shearson margin account customers who purchased securities between June 1, 1976 and April 30, 1981. Thus, some of the members of the class that Williams seeks to represent were putative members of Steinberg’s original class. Nevertheless, Williams is in error in believing that this by itself gives him a right to intervene. The cases cited by Williams in support of his view stand for the proposition that the filing of a class action tolls the statute of limitations for all asserted class members who would have been parties had the class been certified. It by no means follows, however, that because intervention will not be barred by the statute of limitations, it must be granted. As the Supreme Court has stated, “[pjutative class members frequently are not entitled to intervene as of right under Fed.Rule Civ.Proc. 24(a), and permissive intervention under Fed.Rule Civ.Proc. 24(b) may be denied in the discretion of the District Court.” Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 103 S.Ct. 2392, 76 L.Ed.2d 628 (1983). Thus, Williams’ petition for intervention of right must be decided by applying the test set out in Fed.R.Civ.P. 24(a)(2).

A. Intervention of Right

There are three requirements for intervention of right under Fed.R.Civ.P. 24(a)(2); (1) the applicant must claim an interest relating to the property or transaction, which is the subject of the action; (2) the applicant must be situated so that disposition of the action could as a practical matter impair his ability to protect his interest, and (3) the applicant’s interest must not be adequately represented by the existing parties.

The transactions at issue in Steinberg’s case occurred no later than August 20, 1976, the last date on which Steinberg engaged in margin account activity with Shearson. Williams’ first margin transaction with Shearson was in February, 1980. Thus, it appears that Williams has no interest in the transactions involved in Stein-berg’s suit and, a fortiori, that no interest of Williams could be impaired by the disposition of Steinberg's casé.

Although this analysis might have been dispositive of Williams’ petition for intervention of right under the pre-1966 version of Fed.R.Civ.P. 24(a)(2), the 1966 amendment of this rule was intended to liberalize the conditions under which intervention of right is available. In particular, it eliminated the requirement that the applicant for intervention be bound by a judgment in the action. Under the pragmatic approach of the 1966 amendment, it is no longer necessary for the applicant to show that he would be barred by res judicata or collateral estoppel from asserting his claim in a subsequent action. Rather, any “practical impairment” of the intervenor’s ability to protect his interest may give him a right to intervene. Even the adverse impact of stare decisis may be enough. See Atlantis Dev. Corp. v. United States, 379 F.2d 818 (5th Cir.1967); Corby Recreation, Inc. v. General Elec. Co., 581 F.2d 175 (8th Cir. 1978); Francis v. Chamber of Commerce of the United States, 481 F.2d 192 (1973); Florida Power Corp. v. Granlund, 78 F.R.D. 441 (D.C.Fla.1978); 3B J. Moore & J. Kennedy, Moore’s Federal Practice 1124.07[3] at 24-65 (2d ed. 1982); 7A C. Wright & A. Miller, Federal Practice and Procedure § 1908, at 515 (1972). Viewed from this broader perspective, Williams may have the requisite interest in the disposition of this suit, for although the transactions of Steinberg and Williams covered different time periods, the allegations involved in the two complaints are otherwise virtually identical. Furthermore, a Shear-son executive has testified that Shearson did not change its policy or practice regarding disclosure of credit terms on margin accounts between June 1, 1976 and April 30,1981, a period that includes both Stein-berg’s and some of Williams’ transactions. Thus, the stare decisis effect of a disposition of Steinberg’s remaining claims could, as a practical matter, impair Williams’ ability to establish the corresponding claims of his complaint.

Admittedly, a finding of impairment of interest in this situation would stretch the meaning of that concept, but the Court need not base its decision regarding intervention of right on a lack of impaired interest, for the third requirement for intervention under Rule 24(a)(2) — that the intervenor’s interest not be adequately represented by the existing parties — provides a clear basis for decision. Even assuming that Williams has a sufficient interest in the transactions involved in Steinberg’s suit and that resolution of this suit would impair Williams’ ability to protect this interest, the Court must also find that Steinberg does not adequately represent Williams’ interest.

The weight of authority holds that the burden of proving inadequacy of representation is on the party seeking intervention, although this burden is a minimal one. See Trbovich v. United Mine Workers, 404 U.S. 528, 538 n. 10, 92 S.Ct. 630, 636 n. 10, 30 L.Ed.2d 686 (1972); Delaware Valley Citizens’ Council v. Pennsylvania, 674 F.2d 970, 974 (3d Cir.1982); Hoots v. Pennsylvania, 672 F.2d 1133, 1135 (3d Cir.1982); Olden v. Hagerstown Cash Register, Inc., 619 F.2d 271, 273 (3d Cir.1980); Pennsylvania v. Rizzo, 530 F.2d 501, 505 (3d Cir.1976); Coca-Cola Bottling Co. v. Coca-Cola Co., 98 F.R.D. 254, 281 (D.Del.1983); Pierson v. United States, 71 F.R.D. 75, 78 (D.Del.1976); 3B J. Moore & J. Kennedy, Moore’s Federal Practice ¶ 24.07[4] at 24-70 (2d ed. 1982).

At least one court has held that when the same attorney represents both the proposed intervenor and the original plaintiff, adequacy of representation must be presumed. See Carroll v. American Fed. of Musicians, 33 F.R.D. 353 (S.D.N.Y. 1963). Certainly, the fact that an intervenor has retained the same attorney as that of an existing party is a strong factor pointing to adequate representation. However, the better view is that this factor by itself is not dispositive and that adequacy of representation depends on a variety of factors. Thus, in the leading ease of Stadin v. Union Elec. Co., 309 F.2d 912 (8th Cir.1962), cert. denied, 373 U.S. 915, 88 S.Ct. 1298, 10 L.Ed.2d 415 (1963), the court set out three factors pointing to inadequate representation: (1) proof of collusion between the representative and an opposing party; (2) the representative having an interest adverse to the intervenor and (3) the failure of the representative in the fulfillment of his duty. These factors are not exhaustive. As we have noted, the representative and the intervenor having the same counsel would be relevant, as would the incompetence of the representative’s counsel. Nevertheless, the most important factor to consider is the relation of the representative’s interest to that of the proposed intervenor. As a leading treatise has declared,

The most important factor in determining adequacy of representation is how the interest of the absentee compares with the interests of the present parties. If the interest of the absentee is not represented at all, or if all existing parties are adverse to him, then he is not adequately represented. If his interest is identical to that of one of the present parties, or if there is a party charged by law with representing his interest, then a compelling showing should be required to demonstrate why this representation is not adequate. Finally, if his interest is similar to, but not identical with, that of one of the parties, a discriminating judgment is required on the circumstances of the particular case, but he ordinarily should be allowed to intervene unless it is clear that the party will provide adequate representation for the absentee.

7A C. Wright & A. Miller, Federal Practice and Procedure, § 1909 at 524 (1972).

In the instant case, it is appropriate to measure the interests involved by the results that are sought. Steinberg’s interest is to have Shearson found guilty of securities fraud on the ground that Shear-son failed to disclose information concerning interest rates charged to its margin account customers. Insofar as Williams has any interest at all in Steinberg’s case, it is in the stare decisis effect this case may have on Williams’ own subsequent suit. Williams’ interest is in protecting himself against the adverse precedent that would result from a decision against Steinberg. Thus, Williams’ interest is the same as Steinberg’s and will be protected if Stein-berg either settles or diligently prosecutes his own suit.

There is no reason to think that Stein-berg is in collusion with Shearson. Stein-berg has not failed in the fulfillment of his duty nor is he incompetent as a representative. The fact that Steinberg and Williams have the same counsel speaks loudly against any such claims. The Court is compelled to conclude that Williams has not met his burden of showing that his interest in this case is not adequately represented by Steinberg, and Williams’ petition to intervene as of right is denied.

B. Permissive Intervention

Under Fed.R.Civ.P. 24(b) intervention may be permitted in the discretion of the court upon timely application when an applicant’s claim and the main action have a question of law or fact in common, provided intervention will not unduly delay or prejudice the adjudication of the rights of the original parties. While it is true that Williams’ claims contain some issues of law in common with Steinberg’s action, it is also true that there are significant differences between the two sets of claims. In the first place, the factual issues underlying the common legal issue are different for Steinberg and Williams. For example, Steinberg insists that he never received a Statement of Credit Terms from Shear-son, while Williams has affied that he does not recall whether he ever received such a Statement. In the second place, Steinberg still faces the hurdle of the statute of limitations in his action while Williams, who last traded on margin with Shearson in July 1982, falls well within the limitations period. Finally, Williams would also have to litigate any issues arising out of his asserted role as class representative. Adjudication of these additional issues would undoubtedly delay the adjudication of the rights of the original parties.

Although there are common questions of law involved in Williams’ and Steinberg’s claims, this merely satisfies the threshold requirement for permissive intervention and allows the Court to exercise its discretion. Under these circumstances, where the factual issues are different, the legal issues are partially different and intervention would significantly delay the adjudication of Shearson’s rights, it would be inappropriate to permit Williams to intervene. Williams’ motion to intervene is therefore denied.

      . Shearson actually filed a motion to dismiss for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6), but this motion was treated as a motion for summary judgment under Fed.R.Civ.P. 56, since it was accompanied by a supporting affidavit.

        . See Roberts v. Magnetic Metals Co., 611 F.2d 450 (3d Cir.1979). In the Opinion of the Court, Judge Gibbons held that the basic inquiry was whether the suit would be time-barred if brought in state court, while Judge Sloviter, in a concurring opinion, emphasized the importance of selecting the limitations period that best comported with federal policy. However, Judge Gibbons emphasized that he did not disagree with Judge Sloviter’s approach. Id. at 456.

      . See Biggans v. Bache Halsey Stuart Shields, Inc., 638 F.2d 605, 608 (3d Cir.1980).

      . Deposition of David Steinberg, Dkt. No. 54, at 61-62 (Feb. 24, 1983).

      . Deposition of David Steinberg, Dkt. No. 54, at 57, 111 (Feb. 24, 1983).

      . Id. at 108.

      . Affidavit of Leonard Haynes, Dkt. No. 11, at 2 (Dec. 31, 1981).

      . See Deposition of David Steinberg, Dkt. No. 54, at 57 (Feb. 24, 1983).

      . See Asbill & Snell, Summary Judgment Under the Federal Rules — When an Issue of Fact is Presented, 51 Mich.L.Rev. 1143, 1147 (1953) (dispute as to inferences to be drawn from admitted and undisputed facts does not prevent summary judgment); 10A C. Wright, A. Miller & Kane, Civil Practice and Procedure § 2725 (2d ed. 1983) (summary judgment usually should be granted when only question is what legal conclusions are to be drawn from established set of facts).

      . Chardon v. Soto, 462 U.S. 650, 103 S.Ct. 2611, 77 L.Ed.2d 74 (1983); Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 103 S.Ct. 2392, 76 L.Ed.2d 628 (1983); American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1973).

      . Steinberg v. Shearson Hayden Stone, Inc., No. 81-390, Slip Op. at 2 (D.Del. Aug. 19, 1983).

      . Affidavit of Frank Williams, Dkt. No. 73, at 1 (May 4, 1984).

      . Even if Williams were certified as the representative of the class of Shearson customers who purchased securities on margin from August 28, 1978 through December 31, 1983, there would be no overlap between the transactions of any members of this class and those involving Steinberg. Because it is unnecessary in order to decide the issue of intervention, the Court does not decide whether Williams may be certified as class representative.

      . See Fed.R.Civ.P. 24, Committee Note of 1966.

      . See Affidavit of Leonard Haynes, Dkt. No. 11, at 2 (Dec. 31, 1981).

      . But see 7A C. Wright & A. Miller, Federal Practice and Procedure § 1909 at 521 (1972) (burden of showing adequate representation shifted to opposing party by 1966 amendment). Because of the overwhelming weight of authority contra in the Third Circuit, the Court is compelled to reject the view of Wright and Miller.

      . Although Carroll was decided prior to the 1966 amendment of Rule 24, there is general agreement that the amended rule did not change the meaning of "adequate representation." See United States v. I.B.M., 62 F.R.D. 530, 537 n. 13 (S.D.N.Y.1974); 3B J. Moore & J. Kennedy, Moore’s Federal Practice ¶ 24.09 — 1[4] at 24-314 (2d ed. 1982).

      . See 7A C. Wright & A. Miller, Federal Practice and Procedure § 1909 at 523 (1972).

      . See United States v. I.B.M., 62 F.R.D. 530, 538 (S.D.N.Y.1974).

      . See Id. at 536.

      . Deposition of David Steinberg, Dkt. No. 54, at 108 (Feb. 24, 1983).

      . Affidavit of Frank Williams, Dkt. No. 73, Ex.A, at Al (May 4, 1984).

      . These issues include whether Williams may be certified as a class representative and how the class should be defined.

      . See 7A C. Wright & A. Miller, Federal Practice and Procedure § 1911 at 541-42 (1972).

      . Because the Court considers these factors to be dispositive, it is unnecessary to decide whether Williams' motion to intervene was timely.


source: Caselaw Access Project

author: TERRENCE WILLIAM BOYLE, District Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff, v. 18.16 ACRES OF LAND, MORE OR LESS, SITUATE IN GRANVILLE COUNTY, STATE OF NORTH CAROLINA, and Charles R. Wellons, et al., and Unknown Owners, Defendants.
    No. 83-330-CIV-5.
    United States District Court, E.D. North Carolina, Raleigh Division.
    Nov. 29, 1984.

      James S. Perry, Asst. U.S. Atty., Raleigh, N.C., for plaintiff.
    Rudolph L. Edwards, Durham, N.C., for defendants.
   ORDER

TERRENCE WILLIAM BOYLE, District Judge.

The plaintiff in this case, the United States of America, filed a complaint in condemnation and a declaration of taking against defendant Charles R. Wellons for the purpose of condemning 18.16 acres of land located in Granville County, North Carolina, and which belonged to the defendant. The complaint and declaration, along with a notice of condemnation, were filed pursuant to 40 U.S.C. § 258a (1976) and Rule 71A of the Federal Rules of Civil Procedure. Defendant Wellons alleges that the government should be estopped from condemning the entire 18.16 acre tract of land described above and, in the alternative, alleges that the government’s proposed compensation amount is not an accurate and just valuation of the contested property. Pursuant to this court’s order of March 14, 1984, the issue of governmental estoppel was tried separately from and prior to a jury trial on the issue of just compensation. Thus, the only issue presently before this court is whether the government should be estopped from condemning the defendant’s entire 18.16 acre tract of land located in Granville County, North Carolina.

On 30 August, 1984 a trial was held before the court sitting without a jury. From the evidence presented, the court makes the following

I.

FINDINGS OF FACT

1. On July 8, 1980, Charles R. Wellons was informed by letter of the pending government acquisition of Tract 1553 for the Falls Lake Project. Tract 1553 contained 18.16 acres of undeveloped property which was owned by Mr. Wellons. The letter was signed by S.L. Hill, Realty Specialist for the Army Corps of Engineers. This tract was a partial acquisition leaving a severed area comprising 15.51 acres.

2. Wellons and Hill met on August 6, 1980, to discuss the acquisition of Tract 1553. The discussion included the estate to be acquired in fee simple and the highest and best use for the land as determined by appraisal. Wellons inquired at this meeting whether it was necessary to take the entire tract.

3. Hill again met Wellons at the latter’s office on November 6,1980. They proceeded to the site of Tract 1553 and walked the boundary line. Wellons was still not satisfied with the acquisition limits and requested that Hill move the acquisition line downhill so that he could retain a 2.83 acre portion in the southeast corner of the tract.

4. On November 13, 1980, Wellons received a letter from Hill denying the former’s request for acreage reduction. In the letter, Hill explained that the acquisition line had been approved by the appropriate approving authority, in this case the Division Engineer, South Atlantic Division of the Corps of Engineers. Hill stated that the proposed project boundary lines across the 18.16 acre tract were established under contract and that the tract fell within the limiting criteria specified in that contract. Hill also stated that he had discussed the request with the Corps’ North Carolina Real Estate Officer, Charles M. Wash, and that Wash indicated that changes in the acquisition line were not warranted. Other evidence established that the acquisition criteria for the Falls Lake Project is 364 feet in elevation plus 300 linear feet or 369 feet in elevation, whichever encompasses the greater amount of land.

5. Wellons met with Wash on January 27, 1981, at the Corps’ North Carolina Area Real Estate Office in Cary, North Carolina. Wash at that time was head of this Office. He was responsible for all real estate activities in the State of North Carolina, including appraisal, acquisition, management and disposal sections.

The purpose of this meeting was to analyze Wellons’ request for a change in the acquisition line thereby reducing the acreage to be acquired by approximately 2.83 acres. Wash agreed that he would recommend Wellons’ request for an acreage reduction. Wash went on to explain that any changes in acquisition lines must be approved by the Division Engineer in the Corps’ Savannah District Office. Wash indicated that a revised tract map would be prepared in his North Carolina Real Estate Office, and that this map would be submitted to Savannah for approval. Wash also told Wellons that if the recommendation for changes in the acquisition line was approved and finalized, the boundary lines would be changed on the ground.

Wellons requested that he be given a copy of the recommended tract map as soon as it became available. Wash agreed to this request.

6. Wash in fact never recommended the deletion of the 2.83 acres from Tract 1553, and no revised tract map was ever sent to the Division Engineer in Savannah, Georgia. Wellons was unaware of Wash’s failure to submit the revised tract map to Savannah for approval.

7. In late February, 1981, Wellons visited Tract 1553 to determine whether the acquisition line had been changed as per Wash’s recommendation. (See paragraph 6 above.) Wellons could not determine whether any changes had been made in the acquisition line. He then called Wash who stated that the acquisition line change had been staked on the ground from the southernmost concrete monument 400 feet northeast to an iron pin. Wellons returned to Tract 1553 following his conversation with Wash. Wellons found the iron pin at the location Wash had described in their conversation.

8. On March 31,1981, the Corps prepared a tract map revision which deleted approximately 2.83 acres from the 18.16 acre tract. The tract map revision reflected the relocation of acquisition line markers on the ground. (See paragraph 7 above.) In accordance with Wellons’ request, a copy of this proposed revision along with a legal description of the property was submitted to Wellons. Additionally, an offer to sell the remaining 15.33 acres was attached to the revised tract map. A metes and bounds description was also attached to the offer to sell and the revised tract map. The acquisition line described in this metes and bounds description was in accordance with the revised line recently established by the iron pin placement. After receiving these documents, Wellons believed that the Division Engineer in Savannah had approved Wash’s recommendation for changes in the acquisition line of Tract 1553.

9. On May 8, 1981, Wellons met with C.B. Hinesley of C.B.H., Inc., at Tract 1553. Hinesley agreed to clear stump, remove all wood, burn all brush and remove dirt on the 2.83 acre tract for a total price of $22,000.00. Wellons also agreed to provide some of his own equipment and men in order to complete the project by December, 1981. This agreement between Wellons and Hinesley was confirmed in writing on May 15, 1981. C.B.H., Inc. began work at the tract site in late May, 1981. Wellons supplied men and equipment to assist the crew from C.B.H., Inc.

10. Wellons met with Wash at Tract 1553 during the summer of 1981. A short time prior to the meeting, the Falls Lake Project reservoir manager informed Wash that land was being cleared and regraded on Tract 1553. Wash himself observed the regrading work being performed on the tract during his meeting with Wellons. Wash did not comment to Wellons about the work while on the site of Tract 1553. Wash also failed to inform Wellons that the latter’s request for changes in the acquisition line had not been submitted to Savannah for approval.

11. C.B.H., Inc. completed work on Tract 1553 on or about December 1, 1981. Wellons paid the firm a total of $22,000.00 for the work performed on the tract.

12. On February 1, 1982, a letter signed by S.L. Hill was mailed to Wellons advising him of a revision to the original appraisal. Hill stated in the letter that the government would take the entire 18.16 acre tract.

13. On February 10, 1982, Hill confirmed that the government taking would comprise the entire 18.16 acre tract.

14. The last meeting between Wash and Wellons took place on the site of Tract 1553 on March 11, 1982. Wash informed Wellons that the price offered by the government for the 15.33 acre tract would be $3,000.00 per acre and that the government also wished to purchase additional acreage near Wellons’ personal residence. Wellons informed Wash that he could not convey the additional acreage because he no longer owned it and that he would not accept the $3,000.00 per acre figure for the 15.33 acre tract.

15. On July 21, 1982, the government revised its tract map to reflect condemnation of the entire 18.16 acre tract.

16. On September 22,1982, Secretary of the Army John O. Marsh, Jr., signed a declaration of taking encompassing the entire 18.16 acre tract.

APPLICABLE LAW

The issue presently before the court is whether defendant Charles Wellons has successfully established an affirmative defense of estoppel against the United States of America, thereby preventing the latter from condemning and taking his entire 18.-16 acre tract. Because estoppel is an affirmative defense, Wellons has the burden of proving by a preponderance of the evidence that the government should be es-topped. See Fed.R.Civ.P. 8(c).

The court will resolve the governmental estoppel issue by first determining if defendant Wellons has established a traditional estoppel defense, i.e., a defense capable of estopping a private party. Only if the defendant has established a traditional estoppel defense can this court consider whether the United States of America may be estopped. Both the United States Supreme Court and the Fourth Circuit have adopted this methodology for analyzing and deciding issues involving governmental estoppel. See Heckler v. Community Health Services of Crawford County, — U.S. —, 104 S.Ct. 2218, 2224, 81 L.Ed.2d 42 (1984) (private party prevented from es-topping government due to failure to even meet traditional elements of estoppel); West Augusta Development Corp. v. Giuffrida, 717 F.2d 139, 140-41 (4th Cir.1983) (plaintiff precluded from estopping government because of failure to meet traditional threshold requirement of detrimental reliance). For reasons given hereafter, the court finds that defendant Wellons has successfully established a defense of traditional estoppel but has failed to establish a defense of estoppel against the federal government.

A. Traditional Elements of Estoppel

Equitable estoppel is a substantive rule founded in equity which lacks a standard definition. This lack of a hard-and-fast definition promotes a flexible application of the estoppel doctrine in varied factual settings. See Community Health Services, 104 S.Ct. at 2223 (1984). However, a party must specifically establish four elements in order to raise and sustain a defense of estoppel. A party claiming estoppel against a private party must establish that: (1) the party to be estopped knew the true facts; (2) the party to be estopped intended for his conduct to be acted upon or acted in such a way that the party asserting estoppel had a right to believe that it was intended; (3) the party claiming estoppel was ignorant of the true facts; and (4) the misconduct was relied upon to the detriment of the party seeking estoppel. See, e.g., United States v. Ruby Co., 588 F.2d 697 (9th Cir.1978); III J. Pomeroy, Equity Jurisprudence § 805, at 191-92 (S. Symons ed. 1941).

The court now analyzes the facts before it to determine whether the party seeking estoppel, defendant Charles Wellons, has established these four elements of a traditional estoppel defense. The evidence presented in this case indicates that the party to be estopped, the United States of America, knew the true facts regarding the condemnation and taking of Wellons’ 18.16 acre tract. Charles Wash knew that no change in an acquisition line could be finalized without the approval of the Division Engineer in Savannah. By failing to submit the proposed acquisition line changes, Wash knew that Wellons’ request for acreage reduction could not be approved. Therefore, the Government did indeed have knowledge of the true facts in this case, i.e., that Wellons’ entire 18.16 acre tract would be taken.

Second, defendant Wellons has successfully established that the government, through the conduct of its agent Wash, intended for its conduct to be acted upon or acted in such a way that Wellons had a right to believe such conduct was so intended. The element of intent involves the notion of a misleading communication, either through conduct or silence. D. Dobbs, Handbook on Remedies, § 2.3, at 42 (1973). However, equitable estoppel is not treated like actionable fraud. Thus, there is no requirement of scienter, i.e., an intent to deceive. Id. The party to be estopped must merely intend that his conduct be acted upon, or reasonably expect that his conduct be relied upon by the party seeking estoppel. Id.

The evidence reveals that a misrepresentation occurred through both conduct and silence. Wash promised Wellons that he would submit to Savannah a recommendation for an acreage reduction in the government taking. Wash told Wellons that changes in the acquisition line would be manifested by relocation of the iron pin boundary markers on Tract 1553. Wash later personally informed Wellons that these markers had been relocated. Wash also observed Wellons regrading 2.83 acres of Tract 1553 in 1981, yet failed to inform the latter that Savannah had not approved the proposed elimination of that 2.83 acres from the government taking. Wash’s silence in this regard constitutes a misleading communication. Wash intended that Wellons rely upon his assurances that the recommended changes were being submitted to Savannah. Wash also intended that Wellons rely upon the subsequent relocation of boundary markers as proof that Savannah had approved Wash’s recommendation.

Third, defendant Wellons has also established by a preponderance of the evidence that he was ignorant of the true facts in the case at bar. It is true that Wash told Wellons that the Division Engineer in Savannah had to approve the recommended acreage reduction before the recommendation would be final. However, Wash also told Wellons that the boundary markers would be relocated only following Savannah’s approval of the recommended changes. When Wellons called Wash to ascertain the status of the recommendation, he was informed that these markers had indeed been relocated. Yet Wash failed to inform Wellons that he had not submitted the recommendation to Savannah for approval. Consequently, Wellons did not know, nor should he have known, that Savannah failed to approve the proposed acreage reduction. He was ignorant of the true facts in this case, i.e., that the government never intended to delete a 2.83 acre tract from its proposed taking.

Moreover, Wellons could not have ascertained the true facts in this case by referring to the applicable federal statutes or regulations. Wash had assured defendant Wellons that the recommended acreage reduction was being submitted to Savannah in accordance with governing Army regulations. An independent review of these regulations would merely have revealed that the Division Engineer in Savannah did indeed need to approve any change in acquisition lines. 32 C.F.R. § 644.7(c) (1983). See also 32 C.F.R. §§ 644.81-87. Since Wash assured Wellons that this approval was being sought, the latter did not know that Wash failed to submit the proposed acreage reduction to Savannah for approval.

The facts in this case are markedly different from those found in the recent Community Health Services decision. See 104 S.Ct. at 2226. In that case, the party seeking estoppel failed to establish that defense in part because it did not familiarize itself with the pertinent statutory law and agency regulations. Id. The Supreme Court noted that the party seeking estoppel could have ascertained the true facts by reviewing the applicable agency regulations. Such a review in this case would have been of little value to Wellons.

The last element of any estoppel defense is a showing that the party seeking estoppel reasonably relied on another party’s misleading communication to his detriment. Wellons’ reliance on Wash’s conduct and silence in this case was reasonable. Wellons regraded the 2.83 acre portion of his 18.16 acre tract only after receiving assurances from Wash that the Division Engineer in Savannah would receive and probably approve the recommended acreage reduction. Moreover, Wellons relied on the relocation of the iron pin boundary markers in deciding to regrade and stump the 2.83 acre tract. Wash had assured Wellons that these markers would be moved only if Savannah approved the proposed acreage reduction. Finally, Wash personally observed C.B.H., Inc. regrading the 2.83 acre tract yet failed to inform Wellons that he had not submitted the recommended acreage reduction to Savannah. Wellons reasonably interpreted Wash’s silence as constituting tacit approval of both the recommended acreage reduction and the regrading work being done by C.B.H., Inc.

Wellons’ reliance was detrimental. The evidence clearly indicates that Wellons spent $22,000.00 on the stumping and regrading of the 2.83 acre portion of Tract 1553.

B. Governmental Estoppel

Having determined that defendant Wellons has established the elements of a traditional estoppel defense, the court must now determine: (1) whether a private party can estop the United States from condemning and taking land, and (2) whether Wellons has satisfied the criteria for establishing a governmental estoppel defense, assuming such a defense is available to Wellons.

The Supreme Court has meticulously avoided the question of whether the government may ever be estopped. In those cases in which the Court has considered the> question of governmental estoppel, it has held that the facts alleged did not establish a defense of estoppel against the government. See Community Health Services, 104 S.Ct. 2218 (1984); Schweiker v. Hansen, 450 U.S. 785, 101 S.Ct. 1468, 67 L.Ed.2d 685 (1981); Immigration and Naturalization Service v. Hibi, 414 U.S. 5, 94 S.Ct. 19, 38 L.Ed.2d 7 (1973); Montana v. Kennedy, 366 U.S. 308, 81 S.Ct. 1336, 6 L.Ed.2d 313 (1961). However, the language found in recent Supreme Court and circuit court opinions clearly indicates that the United States may in theory be es-topped. See Community Health Services, 104 S.Ct. at 2226; Hansen, 450 U.S. at 788-90, 101 S.Ct. at 1470-71; Giuffrida, 717 F.2d at 140-41.

1. Affirmative Misconduct

The Supreme Court has indicated in dicta that if the United States may be estopped at all, the party seeking estoppel must show that the traditional elements of estoppel are present and that the government has engaged in affirmative misconduct. Hansen, 450 U.S. at 788-90, 101 S.Ct. at 1470-71; Hibi, 414 U.S. at 8-9, 94 S.Ct. at 21-22; Kennedy, 366 U.S. at 314-15, 81 S.Ct. at 1340-41. Both parties to this action have urged the court to apply an “affirmative misconduct” standard to resolve the estoppel issue raised in this case. However, the court need not concern itself with the issue of affirmative misconduct because estopping the United States in this case would violate a fundamental tenet of our system of government, i.e., the separation of powers doctrine.

2. The Separation of Powers Doctrine

Important separation of powers questions arise when a party cites a government representative’s unauthorized conduct as the basis for its estoppel defense. See Note, Equitable Estoppel of the Government, 79 Colum.L.Rev. 552, 562-63, 565-67 (1979). Using the unauthorized actions of a government representative as the basis for estopping the government effectively circumvents a statutory or regulatory mandate, and can effectively waive a statutory or regulatory requirement. Id. Such a circumvention or waiver is particularly apt to occur when dealing with statutory or regulatory schemes which do not give an agency any discretion in exercising authority delegated to it by the legislative or executive branches. Id. at 565.

While the courts have the power to require the other branches of government to conform to their respective regulations and statutes, our tripartite system of government does not provide the judiciary with the power to rewrite those regulations and statutes. Since a circumvention of a federal statute or regulation constitutes a rewriting of the same (even if only a limited rewriting), courts have long held that a government agent needs actual authority in order to raise the possibility of governmental estoppel. Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947); Urban Data Systems v. United States, 699 F.2d 1147 (Fed.Cir.1983); Goldberg v. Weinberger, 546 F.2d 477 (2d Cir.1976), cert. denied, 431 U.S. 937, 97 S.Ct. 2648, 53 L.Ed.2d 255 (1977). While our nation’s citizens certainly are entitled to decent and reliable treatment by their government, the citizenry is under a duty to ascertain whether the governmental agents with whom it deals are acting within their lawful authority. Community Health Services, 104 S.Ct. at 2225-26 (citizens may not rely on government agent’s conduct which runs contrary to law); Merrill, 332 U.S. at 384, 68 S.Ct. at 3 (“[anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority.”).

Federal regulations clearly indicate that Wash lacked actual authority to finalize changes in acquisition lines. 32 C.F.R. § 644.7 in pertinent part reads: “The Division Engineer is authorized to approve final acquisition lines, but shall not delegate this responsibility to District Engineers.” As Wash was not a Division Engineer in the Corps, he simply lacked actual authority to approve any changes in Tract 1553’s acquisition line. Moreover, this regulation is mandatory — the Division Engineer in Savannah could not authorize Wash to approve alterations in existing acquisition lines. Therefore, Wash’s relocation of the iron pin boundary markers was clearly unauthorized; the Division Engineer in Savannah did not receive, much less approve, Wash’s recommended change in Tract 1553’s acquisition line.

Estopping the Government in this case would effectively finalize Tract 1553’s acquisition line without the Division Engineer’s approval. Such a result directly contravenes a federal regulation issued by the executive branch, i.e., 32 C.F.R. § 644.7. Since defendant Wellons has not challenged the validity or constitutionality of either 32 C.F.R. § 644.7 or its authorizing statute, the court considers the regulation to be validly authorized and properly issued. Consequently, the court is asked to grant relief, in the form of estoppel, which would directly contravene a federal regulation validly authorized and properly issued by the legislative and executive branches, respectively.

Constitutional limitations on this court’s authority, as articulated in the separation of powers doctrine, prevent it from granting the requested relief. Judicial respect for congressional and executive intent within our constitutional system of allocated powers underlies judicial restrictions on the application of promissory estoppel against federal entities. See McCauley v. Thygerson, 732 F.2d 978 (D.C.Cir.1984); Note, Equitable Estoppel of the Government, 79 Colum.L.Rev. 552, 565-67 (1979). In this case the court must refrain from interfering with co-equal branches of the sovereign which are discharging a validly authorized and promulgated regulation.

If the court were to make an order in contravention to the authorized acquisition line for Tract 1553, such an order would constitute an unconstitutional intervention by the judicial branch in the proper discharge of a duty validly apportioned to the executive branch by the legislative branch of the sovereign. In short, judicial circumvention of 32 C.F.R. § 644.7 would amount to an unconstitutional infringement on the power of co-equal branches of our government and would constitute a violation of the separation of powers doctrine.

Consequently, Wash’s unauthorized conduct is not a basis on which to estop the government. Although Wellons has successfully established a traditional estoppel defense, the separation of powers doctrine prevents the court from estopping the government in this case.

This discussion of pertinent legal principles leads the court to draw the following

CONCLUSIONS OF LAW

1. The court has jurisdiction over this action pursuant to 40 U.S.C. § 258a (1976).

2. Defendant Charles R. Wellons has successfully established a traditional estoppel defense in that he has proven:

(a) That the government, through its agent Charles M. Wash, knew the true facts in the case at bar, i.e., that Wellons’ proposed acreage reduction would not be approved;

(b) That the government, through its agent Wash, intended for its conduct to be acted upon by Wellons;

(c) That he, Charles Wellons, was ignorant of the true facts in this case, and

(d) That he, Charles Wellons, reasonably relied on the government agent’s (Wash) misconduct to his detriment.

3. An agent of the United States must be acting within his actual authority if his conduct is to provide the basis for estopping the government.

4. Wash did not possess the authority to approve any changes in Tract 1553’s acquisition line.

5. Wash was not acting with actual authority when he relocated the iron pin boundary markers on Tract 1553.

6. Wash was not acting within his actual authority when, during an on-site visit at Tract 1553 in the summer of 1981, he failed to inform Wellons that the Division Engineer had not approved the proposed changes in Tract 1553’s acquisition line.

7. The separation of powers doctrine prevents Wellons from using Wash’s unauthorized conduct as a basis on which to estop the government.

8. Therefore Wellons’ reliance on Wash’s unauthorized conduct, as summarized in paragraphs six and seven, supra, is an insufficient basis for estopping the United States.

9. The United States is not to be es-topped from condemning and taking the entire 18.16 acre tract comprising Tract 1553.

AND IT IS SO ORDERED.


author: JOE J. FISHER, District Judge.

text:
    Olen Ward MURFF, et al., Plaintiffs v. UNITED STATES of America, Defendant, National Aviation Underwriters, Inc. and National General Insurance Company, Intervenors.
    Civ. A. No. B-83-54-CA.
    United States District Court, E.D. Texas, Beaumont Division.
    Nov. 29, 1984.

      Kenneth D. McConnico, McConnico, Pegues & Slaughter, Houston, Tex., John A. Betts, Fleming, Betts & Cooke, Houston, Tex., for plaintiffs.
    James P. Piper, James S. Dillman, Sr. Aviation Counsel, Torts Branch, Civ. Div., U.S. Dept, of Justice, Washington, D.C., Ruth Harris, Asst. U.S. Atty., Beaumont, Tex., for defendant.
    Charles H. Smith, John R. Browning, Shank, Irwin & Conant, Dallas, Tex., for intervenors.
   MEMORANDUM OPINION

JOE J. FISHER, District Judge.

This Federal Tort Claims Action arises from a tragic mid-air collision on August 6, 1980. A Cessna 172 occupied by the plaintiffs’ decedents collided with a Fairchild F-27 at 6600 feet near Bridgeport on the northwest fringe of the Dallas-Fort Worth air traffic control area. Although damaged by the collision, the F-27 airliner landed safely nearby without injury to its occupants. Absent its left wing the Cessna plunged to earth. Flight instructor John L. Fitzgerald, and his student, Dan A. Murff, did not survive the crash.

The survivors of the two men sued the United States of America under the Federal Tort Claims Act, 28 U.S.C. 2671, et seq., alleging that the negligence of air traffic controllers caused the crash and deaths. The case was tried to the Court.

Messrs. Murff and Fitzgerald were on an instrument training flight in weather offering 15 miles visibility with scattered cloud cover. Murff, 19, already licensed as a pilot of some fixed wing and rotorwing aircraft, was near completion of training for an instrument rating under the tutelage of Fitzgerald. Fitzgerald, 37, an experienced pilot and instructor, had flown light airliners and was soon to begin work as a pilot for the Government. Messrs. Murff and Fitzgerald began their last flight from Meacham Field in Fort Worth around 11:00 a.m. (1700 hr. G.M.T.) under visual flight rules (VFR) with notice from an air traffic control center that the radar signal from the Cessna’s transponder was “weak,” but apparently discernible. A combination of oversights and omissions by both men, as well as the defendant, brought an untimely end to the flight and the men’s lives.

Murff and Fitzgerald neglected to file a flight plan and did not request flight following or radar service from air traffic control once airborne. Apparently, they did not take the precaution of burning the Cessna's landing light as encouraged by the FAA’s “lights on program.” Supposedly, because of the temperature, Fitzgerald decided to fly above the 5000 foot ceiling recommended by his employer, Acme School of Aviation. Fitzgerald also apparently directed Murff to maneuver near the Bridgeport VOR Station, a frequent intersection point for instrument flight rules (IFR) traffic. Finally, while it is uncertain whether the pilots failed to monitor the radio channel used by IFR traffic in the vicinity, they at least failed to notify the controllers of their location and intentions.

The F-27, a twin engined turbo-prop plane, left Rapid City, South Dakota with 17 people aboard for a direct flight to Dallas’ Love Field. Approaching the Bridgeport VOR, the F-27 reported at 1720:55 its location and altitude of 19,000 feet. The pilot apparently turned east and was told at 1725:12 to descend to 10,000 feet. Six minutes later, at 1731:49, air traffic control instructed the F-27 to go 10 miles east of Bridgeport at and maintain 6,000 feet. Throughout its flight and until the collision, the F-27 crew was flying a course and altitude approved, if not entirely prescribed, by FAA controllers.

At 1735:48, still descending and flying at c. 200kts., the F-27 crew received it’s only warning of nearby traffic:

Fairchild seven whiskey alpha: VFR traffic at one o’clock. Ah, four miles, southeast bound, slow moving, altitude unknown.

Responding to the traffic advisory, an F-27 crewman answered:

Ah, whiskey alpha; lookinfg] ah, no joy (sic).
We’re above a cloud deck here.

“No joy,” although not “approved phraseology,” is airman slang for no contact or no sighting. The controllers understood the F-27’s message. He was looking for the plane at one o’clock, but did not see it. Perhaps it was below the clouds to which the Fairchild was descending. The planes, although approaching one another, did not then appear to be on collision courses.

At about this time, the Court finds, the 172 was maneuvering somewhere in the vicinity of the Bridgeport VOR under visual flight rules (VFR). The altitude of the Cessna, like its precise location in the minutes before the collision, is unknown. Presumably, student Murff was wearing a “hood” which restricted his vision to the instruments. However, Murff’s instructor, Fitzgerald, should have been on the lookout for other planes while Murff was under the hood, flying by the instruments.

The radar target detected by the controller and reported to the F-27 was not enhanced by a transponder signal, indicating the plane was flying VFR and had no working transponder turned on. Had it been an IFR target, the controller would have known at least the plane’s reported altitude and speed and could have inquired as to its course. The same would have been true had its crew merely contacted the controller and so advised him. Such was not the case.

It appears that the Cessna pilot changed course shortly after the traffic advisory. Perhaps he was already turning when the controller called the F-27. In any event, the Cessna ultimately was on a converging course 143 degrees from the F-27’s heading. The planes’ closing speed was approximately 500 feet per second, or about 285 kts.

During the time between the traffic advisory at 1735:48 and the report of the collision at 1737:14, the traffic in the controllers’ sector was light. Controller Williams observed no other VFR traffic near the F-27 in the minutes preceding the collision. The transcript of the controller’s radio transmissions shows he was working only three IFR planes in his sector. No radar malfunction was reported that day. Although Williams and his co-worker, Harrell, had other duties besides monitoring the radar screen, such as reviewing flight “strips” as to incoming IFR traffic and time monitoring, these tasks were neither pressing nor of higher priority. While they had the ability to monitor the radar screen in the time preceding the crash — during which the radar displayed six “updates”— the controllers did not apprehend the convergence of the two aircraft.

At 1737:14, the F-27 told the controller about the collision:

Ah, center: Fairchild 707 whiskey alpha.
We’ve just had a mid-air.

The Cessna and the F-27 collided, damaging the latter’s stabilizer and the left wing and wing strut of the former. Fortunately, the airliner’s crew made a safe emergency landing nearby. The Cessna crashed and Messrs. Murff and Fitzgerald were killed.

Apparently, the Fairchild crew never saw the Cessna, and obviously the decedents did not see the F-27 in time to avoid it. Both planes were painted white and likely both had clouds behind. Moreover, even a diligent scanning by the pilots might not have detected the others’ plane in time to avoid it. The court heard testimony, for example, that the customary scanning of the horizon by a pilot — observing the sky from one side of the windshield to the other — can take as long as 15 seconds. At their estimated closure speed of 500 feet per second, the planes could move 1.25 miles closer between observations through a particular 10 degree arc of the windshield. Given the pilots’ failure, perhaps inability, to see and avoid the other’s plane, the radar screen of the FAA offered the only remaining means of perceiving the impending collision and of preventing it.

The United States may be liable under the Federal Tort Claims Act for negligently providing services upon which the public relies. • The duty of the government to advise and assist pilots rests both upon the regulations of the FAA and the general reliance of pilots on the government for a given service. Gill v. United States, 429 F.2d 1072 (5th Cir.1970); citing Hartz v. United States, 387 F.2d 870 (5th Cir.1968). Here, the pilots relied on the government— as all pilots must — to provide safety advisories and directions to avoid collisions.

The plaintiffs insist, and the Court agrees, that in the circumstances of this case, the FAA controllers had a duty to warn about a possible collision and to act to prevent it. That duty is inherent to the mission of air traffic control: “to provide for the safe, orderly, and expeditious flow of air traffic.” See 14 C.F.R. 65.45(a). FAA manuals further emphasize that controllers should be “intimately and continuously concerned with safety and the protection of life and property.” Moreover, controllers are specifically advised to “continually issue instructions to pilots on what headings to follow to maintain separation, what altitudes to fly to remain clear of traffic...”

The general duty of the FAA is modified, however, by specific directives which set priorities as to different types of air traffic. The primary concern of the FAA is the direction of the IFR traffic, consisting mostly of commercial airline flights. Workload permitting, controllers advise and otherwise assist VFR traffic. One might say the FAA has a “higher” duty to IFR than to VFR pilots, but that is not correct. Rather, the FAA has an “earlier” duty thereto. But once a controller has directed his IFR pilots, his duty to VFR pilots arises — and rises to the same level of care for the “safety and protection of life and property” of VFR as of IFR pilots. In particular, those duties include issuing traffic advisories to converging aircraft and vectoring aircraft to maintain safe separation between them.

In the context of this case, the two FAA controllers directing the crash sector clearly had a duty to protect the F-27’s occupants. And if their workload permitted, the controllers were duty bound to protect the plaintiffs’ decedents. The evidence is uncontroverted that the controllers’ workload was light at that time. Only three IFR planes were in their sector and radio transmissions were few. Moreover, radar showed no other traffic near the converging aircraft. The court finds that the flight activity in the sector in the critical minutes preceding the crash was sparse. Inasmuch as not one, but two controllers were working the crash sector then, there can be no doubt that they had the time and ability to protect the crew of the Cessna.

The radar did not malfunction that afternoon, and the two controllers, both seated closely to the screen, could see the two targets coming together. The planes’ increasing proximity caused controller Williams to warn the Fairchild when the aircraft were about four miles apart, but he and his co-worker, Harrell, apparently failed to look again at the screen in the next minute and a half. In that interval, the radar displayed six new views of the aircrafts’ relative positions. In addition, the controllers had the ability to display the past four “hits” on the screen and therefore see the Cessna’s course change. Neither man observed the continuing convergence of the aircraft. Neither tried to contact the VFR target by radio so as to ascertain its altitude and heading. And, as a result, neither controller warned of the impending disaster. Only after the report of the “mid-air” did Williams offer a vector to the Fairchild. Had he done so earlier, the crash would not have occurred.

Asked what the controllers were doing in the crucial interval, Williams replied, “Other control functions associated with the Bridgeport radar positions.” No radio calls distracted the controllers during the interval and neither could remember any other events which prevented them from watching and warning the pilots. “Other control functions,” the court finds, were merely lower priority tasks.

The court finds that no higher priority tasks required the controllers’ attention then, and they therefore owed a duty to Murff and Fitzgerald as well as the occupants of the Fairchild. That duty was to exercise reasonable care in advising and directing the pilots to prevent the loss of life and property. Under these circumstances and considering the light radar and radio traffic at the time, the two controllers failed to act in a reasonable manner. Their failure to watch, to warn, and to maintain “separation” of the aircraft was negligence, for which the Defendant is liable. Indeed, had they simply told the Fairchild to briefly alter course, the tragedy would have been averted.

To say the co'ntrollers caused the collision seems, at first glance, to go too far. True, they ordered the F-27 to fly that heading. But the Cessna moved beyond their control, apparently incommunicado, and it turned unwittingly into the path of the F-27. But because the pilots could not see the others’ plane, the controllers were the only people who, during the final eighty seconds, had available the knowledge, the means, and the power to prevent the crash.

The government insisted that the pilots alone were at fault in failing to “see and avoid” each other. Such a rule, so broadly applied, subsumes all collisions. Obviously the pilots failed to see and avoid; their planes collided. Was it possible for them to see the others’ plane in time to avoid? The court finds it was not. The evidence indicates that the F-27 was descending toward a cloud deck and would not have been visible to the 172 until after it emerged from the clouds. Moreover, there were likely clouds below the Cessna, as well. Both planes were white and would be hard to see with clouds behind them. The Cessna may have been as little as 500 feet below the cloud from which the Fairchild emerged. Moreover, the 172 was turning to the left when it struck the F-27. With his left wing down, the pilot of the 172 had an obstructed view. And the planes’ closing speed of 500 feet per second gave the pilots precious little time to react. The court finds, therefore, that the negligence of the controllers was a proximate cause of the crash.

The victims themselves, however, were not without fault. As noted above, both were experienced pilots, presumably familiar with safety procedures. Both men failed to exercise reasonable care by advising controllers of their location and intentions, by not requesting flight following or radar service, and by not burning the landing light. Fitzgerald, as the instructor, had an additional responsibility to Murff who, necessarily, was relying on Fitzgerald to keep a lookout while Murff wore the hood. Moreover, Fitzgerald was further negligent in choosing to fly at the collision altitude while near the Bridgeport radial. He further erred in continuing the flight after he learned of the 172’s weak transponder signal.

For the above reasons, the Court finds JOHN LEE FITZGERALD, deceased, and DAN ALLAN MURFF, deceased, to be contributorily negligent and their comparative fault to be fifteen (15%) percent, respectively, for a total of thirty (30%) percent, and the comparative fault of the controllers to be seventy (70%) percent.

When the unfortunate accident occurred, Mr. Fitzgerald was thirty-seven (37) years old, in good health, with a work life expectancy of some twenty-two (22) years. He was an experienced commercial pilot and instructor and he had a large earning potential. He is survived by a widow and young daughter, both of whom suffered severe mental anguish due to their husband and father’s death. They also lost the love, affection and companionship of their husband and father, which loss affects them for years to come. Finally, the Court finds that Mr. Fitzgerald endured considerable mental suffering from the time of the collision until he finally met his death. The aggregate damage with respect to Mr. Fitzgerald, considering the reasonable amount of money which he would have spent on his own maintenance, and discounting to present value all future damages as required by Culver v. Slater Boat, 722 F.2d 114 (5th Cir.1983), and deducting said amount thirty (30%) percent of the comparative fault attributable to the deceased and seventy (70%) percent of the comparative fault attributable to the Defendant, the Court finds the total damages to be Seven Hundred Fifty Thousand ($750,000.00) Dollars.

DAN ALLAN MURFF was nineteen (19) years of age at the time of his death and was a single man. However, he was a valuable producer on the family farm and was a vital family member from an emotional standpoint. Mr. Murff had a work life expectancy of some thirty-eight (38) years when he died, and he had a promising income potential. Already licensed as a helicopter pilot, he worked as a pilot part-time and also worked regularly on the family rice farm. The Court finds that Mr. Murff would have continued to work in the family enterprise in the future, and would continue to provide economic support to the family as he grew older. Because of his closeness to his family, the Court finds his parents suffered severe mental anguish upon his death and are further deprived of Mr. Murff’s future love, affection, and support. Like Mr. Fitzgerald, he suffered severe mental anguish while falling to his death. The aggregate damage with respect to Mr. Murff, considering the reasonable amount of money which he would have spent on his own maintenance, and discounting to present value all future damages as required by Culver v. Slater Boat, 722 F.2d 114 (5th Cir.1983), and deducting said amount thirty (30%) percent of the comparative fault attributable to the deceased and seventy (70%) percent of the comparative fault attributable to the Defendant, the Court finds the total damages to be Seven Hundred Thousand ($700,000.00) Dollars.

Accordingly, judgment will be entered in favor of the Fitzgerald plaintiffs and against the Defendant in the amount of Seven Hundred Fifty Thousand ($750,-000.00) Dollars, and judgment will be entered in favor of the Murff Plaintiffs and against the Defendant in the amount of Seven Hundred Thousand ($700,000.00) Dollars.

However, the parties have stipulated that the intervenors, NATIONAL AVIATION UNDERWRITERS, INC. and NATIONAL GENERAL INSURANCE COMPANY, have a worker’s compensation lien on damages awarded to the Fitzgerald plaintiffs in the amount of Seventeen Thousand Eight Hundred Seventy-four and 89/100 ($17,874.89) Dollars as of August 15, 1984. Any additional amounts of worker’s compensation payments paid will be added to this amount and will be deducted from the total amount of damages awarded to the Fitzgerald plaintiffs and paid directly to the Intervenors, NATIONAL AVIATION UNDERWRITERS, INC. and NATIONAL GENERAL INSURANCE COMPANY.


author: SHABAZ, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. Wesley ANDREWS, Defendant.
    No. 84-CR-31-S.
    United States District Court, W.D. Wisconsin.
    Nov. 30, 1984.

      Grant C. Johnson, Asst. U.S. Atty., Madison, Wis., for plaintiff.
    Peter Sullivan, Rockford, Ill., for defendant.
   MEMORANDUM AND ORDER

SHABAZ, District Judge.

On November 26, 1984 the Court denied the defendant’s motions for judgment of acquittal and/or a new trial. The following supplements and expands those remarks set forth on the record by the Court in its denial of those motions.

Defendant Andrews makes three post-trial motions: a motion for judgment of acquittal, a motion for a new trial, and a motion to renew the motions for judgment of acquittal previously made at the close of the government’s case-in-chief and at the close of all evidence. In support of those motions, he chose to brief two issues: Whether the government proved that the offenses occurred in the Western District of Wisconsin and whether venue was therefore proper here, and whether he received a fair trial in light of the testimony of informant Armstrong that appeared to violate the Court’s order in limine excluding evidence regarding the defendant’s alleged drug and gun transactions unrelated to the offenses charged in the indictment.

The defendant raises numerous other grounds for a new trial or judgment of acquittal, but most simply renew matters previously raised at or prior to trial and will not be discussed again here.

Venue

Both the Sixth Amendment and F.R. Cr.P. Rule 18 place venue for criminal prosecutions in the state and district where the offense is committed.

Defendant Andrews was convicted of three counts of violating 21 U.S.C. § 843(b), which states:

It shall be unlawful for any person knowingly or intentionally to use any communication facility in committing or ... facilitating the commission of any act or acts constituting a felony under any provision of this subchapter or subchapter II of this chapter.

The question presented is where use of a telephone for the proscribed purposes occurs, and where the offense itself is thereby committed.

Defendant maintains that because he was not physically present in the Western District of Wisconsin during any of the telephone conversations in evidence and did not initiate the telephone calls himself, he could not have been found to have used communication facilities in the Western District of Wisconsin nor to have committed the offenses here, in which case venue was improper. In contrast, the government contends that a § 843(b) violation is in the nature of a continuous offense, for which venue would be proper under 18 U.S.C. § 3237(a) in both the district in which the call originated and the district in which it was received. Both logic and precedent support the government’s position.

In the first place, the unlawful use of a communication facility is necessarily a continuous offense because it involves communication across both. time and space between or among persons at different locations like unlawful use of the mails, the classic continuous offense. The only difference between the communication involved in unlawful use of the mails and that involved in unlawful use of a communication facility is that the latter occurs much faster. Moreover, because a person in the position of defendant Andrews knows that the person on the other end of the line is somewhere other than the place where he himself is physically present, he must know that his unlawful conduct could have an effect in that other place, wherever it may be, and he might, therefore, be deemed to have taken the risk that the effect might include criminal liability.

The only court of appeals decision commenting on the nature of a § 843(b) defense for venue purposes supports the proposition that it is a continuing offense. United States v. Barnes, 681 F.2d 717 (11th Cir.1982) involved the successful prosecution in the Middle District of Florida of a suspected drug dealer on several conspiracy counts, as well as on a § 843(b) count for his use of a telephone to facilitate the conspiracies. The evidence revealed that the defendant had called an undercover agent in the Middle District of Florida from a telephone located in North Carolina to arrange for delivery of an amount of cocaine that was supposed to have been smuggled into the United States by confederates. In response to the defendant’s challenge to the sufficiency of the evidence on the ground that the offense could not have been committed in the Middle District of Florida as charged in the indictment, the Eleventh Circuit reasoned by analogy from cases involving unlawful use of the mails to the holding that a § 843(b) offense is “committed for venue purposes both in the district where the call is made and in the district where the call is received.” Id. at 724. Because the defendant's call was received in the Middle District of Florida, venue was proper in that district.

Defendant Andrews attempts to distinguish this case from Barnes by pointing out that unlike the defendant in Barnes he did not call government informant Armstrong in Wisconsin, but merely received a call from Armstrong in his home in the Northern District of Illinois. The Court views this distinction as insignificant. After all, it is not the act of making a telephone call for unlawful purposes that is proscribed in the Statute, but rather the use of the telephone for unlawful purposes.

The First Circuit Court of Appeals faced a similar argument in the case of United States v. Cordero, 668 F.2d 32 (1st Cir.1981). There, two co-conspirators challenged their § 843(b) convictions in Puerto Rico District Court on the ground that venue was improper because they themselves had not committed any acts in furtherance of the conspiracy in Puerto Rico. As an alternative basis for denying their venue challenge, the First Circuit held that even though the defendants had never been physically present in Puerto Rico, they committed an act in Puerto Rico when they provided information key to the conspiracy to an undercover agent who had .telephoned them from the island.

Thus, it makes no difference for venue purposes whether the defendant or some other person initially placed the telephone call that eventually led to a § 843(b) prosecution. Venue is proper both in the district where the call is placed and in the district where it is received.

Defendant raises the speetor of a nationwide government forum-shopping spree to avoid the effect of that holding. The evidence in this case certainly cannot support such a theory. The jury could have reasonably believed from the evidence that defendant Andrews knew both that informant Armstrong lived in Wisconsin and (as defendant concedes in his brief) that he was, in fact, in Wisconsin when he called Andrews at his Illinois home pursuant to their earlier agreements. Moreover, even if this were a case where the facts suggested blatant forum shopping, it appears to the Court that a Rule 21 transfer to a more reasonable forum would be a more appropriate action than dismissal for improper venue.

Violation of the Court’s Order in Limine

The second contention raised here is that informant Armstrong’s references to his prior contacts with defendant Andrews deprived Andrews of a fair trial.

The Court granted defendant’s motion in limine excluding such testimony-prior to trial because it had agreed with his contention that references to criminal conduct outside the scope of the acts alleged in the indictment could be highly prejudicial to his defense. The Court cannot grant defendant’s motion for a new trial on the basis of any violation of the Court’s order in this regard, however, because it believes defendant’s counsel consciously chose to waive the protections of that order throughout the trial.

First, he objected to attempts by government counsel to keep the testimony of Armstrong within the parameters set by the Court through use of leading questions. An order in limine is an artificial limitation on the trial process and often necessitates some bending of evidentiary rules. The objections of counsel for the defendant carried with them the risk that nonleading questions would open up areas of testimony that could be prejudicial to his case and, indeed, some of Armstrong’s answers to nonleading questions on direct examination inferred the existence of facts prejudicial to Andrews that were not properly before the jury. In these circumstances the Court believes the responsibility for those answers must be placed at the feet of the defendant, not the government.

Second, on cross-examination defendant's counsel chose to fully explore the nature of the financial arrangements between informant Armstrong and the government. Again, that course of action carried with it the risk that Armstrong’s answers and his explanation on redirect of the services he provided the government could lead to adverse inferences about defendant Andrews’ conduct that would have otherwise not been before the jury.

The benefits obtained from the course of conduct chosen by defendant’s counsel may or may not have been worth the risk, but that is not for the Court to decide. Defendant, through his counsel, made his choices and now must abide by their consequences.

Accordingly,

ORDER

IT IS ORDERED that the motions of defendant Wesley Andrews for judgment of acquittal or a new trial are DENIED.