author: PRENTICE H. MARSHALL, District Judge:

text:
    UNITED STATES of America ex rel. Daniel M. ZEMBOWSKI, Petitioner, v. Richard DE ROBERTIS, et al., Respondents.
    No. 83 C 6567.
    United States District Court, N.D. Illinois, E.D.
    Dec. 3, 1984.

      James A. Clark, Schiff, Hardin & Waite, Chicago, Ill., for petitioner.
    Neil F. Hartigan, Atty. Gen., James E. Fitzgerald, Asst. Atty. Gen., Chicago, Ill., for respondents.
   MEMORANDUM ORDER

PRENTICE H. MARSHALL, District Judge:

Petitioner, Daniel M. Zembowski, collaterally challenges his Illinois conviction of armed robbery by way of a petition for writ of habeas corpus pursuant to 28 U.S.C. § 2254. Petitioner has moved for summary judgment. The motion is supported by the state court record, affidavits, depositions and official or business records made contemporaneous with the petitioner’s state court prosecution. Pursuant to our local Rule 12(e), petitioner has submitted a statement of material facts as to which there is no genuine issue and which entitle petitioner to judgment as a matter of law. Finally, petitioner has submitted a comprehensive and articulate brief in support of his summary judgment position.

Respondents have scarcely responded to the motion. They have not filed a response under local Rule 12(f) challenging petitioner’s statement of facts as to which there is no genuine issue. They have not submitted any countervailing evidentiary materials. Their responsive brief is a bare four pages of apologia.

Petitioner’s motion for summary judgment is granted and the writ is issued for the reasons hereinafter stated.

On April 16,1979, petitioner was charged by information filed in the Circuit Court for Lake County, Illinois with armed robbery. Also charged in the same information was Frank W. Kiel, petitioner’s cousin. A second information containing the same charge was filed against Deborah Thomas, an acquaintance of petitioner and Kiel. Both informations alleged the robbery of Society Jewelers, a retail jewelry store in Deerfield, Illinois, on January 4, 1979. Both cases were assigned to the same judge of the circuit court.

At the preliminary hearing and thereafter, all three defendants were represented by Julius L. Sherwin, their retained counsel, who had previously represented Kiel on other criminal charges.

At a hearing on June 11, 1979, assistant state’s attorney Robert Fox moved that the two cases be joined. Sherwin opposed the motion stating, “There are certain defenses, there’s a conflict, there are antagonistic defenses here which would be prejudicial to either one of the defendants by virtue of the fact that she’s joined with the two male defendants, or the male defendants because they’re joined with her.” The court responded that, “Antagonistic defenses would require different attorneys, would they not?” Sherwin agreed, stating that he would “tend to [it] at that time.” The court rejoined, “certainly, at that time. Then, you would point that fact out to the court so that someone here would have different counsel ... If that were the fact, then, that would be the court’s responsibility to make certain.”

The State filed a written motion for joinder, which was set for hearing on July 13. Sherwin responded in writing objecting upon the grounds of antagonistic defenses. At the hearing on the motion for joinder, Sherwin presented a motion to suppress the evidence of the photographic identification of Deborah Thomas, upon the ground that a photograph used in the identification had been obtained illegally. He suggested that the motion for joinder would be mooted if the motion to suppress were granted. Ruling on the motion for joinder was deferred, the court observing that if the motion to suppress were denied, “[The] question ... then will arise whether or not you can, if I consolidate these cases, represent ... all three of the defendants, which is not only your responsibility, but mine, as well.” Sherwin responded, “I will concede to you now that if they’re joined, they’ll have to have other counsel, and arrangements will be made.”

On July 27, following a hearing, the motion to suppress was denied. Sherwin thereupon renewed his opposition to consolidation contending that the defenses conflicted. Thus he argued, “Let’s assume they were jointly indicted, I would be in here quite appropriately, and hopefully competently, to assert antagonistic defenses, and asking for severance. They [i.e., the State] are, in effect, asking for a joinder or consolidation. I submit it would be improper.”

Nonetheless the court joined the eases. During the colloquy which ensued, assistant state’s attorney Fox observed, “If counsel feels that there’s possibly an antagonistic defense, I think he has only one choice. I think he has to withdraw. Then, there has to be shown antagonistic defenses. I see none.”

Despite his repeated admissions that he could not represent all the defendants in a single trial, Sherwin never sought to withdraw, but continued to represent the co-defendants through the trial. And despite the court’s acknowledgment that it had a “responsibility to make certain” that a single attorney could adequately represent the defendants in a joint trial, it failed to conduct an inquiry on that issue.

During the pretrial stages of the consolidated cases, assistant state’s attorney Fox and Sherwin discussed possible plea bargains. During these negotiations Fox made an offer to Sherwin to immunize Deborah Thomas from prosecution in exchange for her testimony against Zembowski and Kiel. At this point Sherwin’s conflict of interest became even more manifest. He simultaneously urged Thomas to accept the state’s offer of immunity and continued to represent Zembowski against whose interest he was negotiating. Even assistant state’s attorney Fox advised Sherwin at this point that Sherwin had a conflict of interest.

The State also offered to enter into a plea agreement in which Zembowski would receive the minimum sentence of six years in exchange for a guilty plea, and, despite a policy against negotiating with “career criminals,” a similar offer was made with regard to Kiel who, because of his extensive prior criminal record, was classified a “career criminal.”

Sherwin represented to Zembowski and Thomas and Kiel (as Sherwin himself stated on the record during the subsequent sentencing hearing) that the State’s plea offers were a “package deal,” all of whose parts had to be accepted in order to make the offer effective. According to Sherwin, Kiel and Zembowski were obligated to plead guilty in order to free Deborah Thomas from criminal liability. However, assistant state’s attorney Fox has testified in this proceeding that the plea offers were not, in fact, a package deal.

All three defendants were released on bail pending trial. Sometime near the end of 1979, Kiel fled. Because they believed the “package deal” to be withdrawn due to Kiel’s absence, petitioner and Thomas felt compelled to persist in their pleas of not guilty and stand trial in January 1980.

The joint trial of petitioner and Deborah Thomas was held January 16-18, 1980. The State called as witnesses the proprietor of Society Jewelers, who identified petitioner; an employee, who identified Thomas; another employee who testified concerning the car used in the robbery and its license number; and several other witnesses. Each defendant testified in their own behalf. Petitioner testified that he was at the home of friends at the time of the robbery and his testimony was corroborated. He also testified that he had left his car in a parking lot following a blizzard on January 1, 1979, that it had been towed, that he had abandoned it because it was not in proper working condition and not worth the towing penalty. Thomas testified that she was at home with her child at the time of the robbery.

During his opening statement to the jury, Sherwin urged that the evidence would suggest that Kiel, the missing co-defendant, had taken petitioner’s car or license plates and perpetrated the crime with two others. This assertion was renewed during Sherwin’s closing argument although no evidence other than Zembowski's testimony that his car had disappeared supported it.

At the close of the State’s case, Sherwin sought a directed verdict for each defendant. In presenting the motion in chambers, however, he argued only on behalf of defendant Thomas, and explicitly contrasted the evidence against the two co-defendants, conceding that the eyewitness identification of petitioner was strong in order to contrast the identification of Thomas, even though each defendant had been similarly identified. Sherwin concluded his argument with the patently duplicitous statement:

But on the whole of the evidence thus far as to Debby Zembowski [sic Thomas] I respectfully urge and submit that there should be a direction of not guilty as to her.
And in doing that, I add this — this is a personal observation — that if the judge dismisses her out and leaves Zembowski, the Jury will come to the conclusion that there must be something about it that makes Zembowski guilty or the Judge would have let him out. I’m offering you a suggestion where you can get the major malfactor.

This was not the only occasion on which Sherwin betrayed his loyalty to petitioner and rested it solely with Thomas, whose youth and gender evidently evoked his sympathy. Even at the preliminary hearing, when Sherwin first appeared on behalf of the co-defendants, he forcefully argued that probable cause was lacking as to Thomas but “wouldn’t insult [his] Honor’s intelligence by going into any [such] arguments on behalf of other defendants.” Indeed, Sherwin in his affidavit has admitted that “At trial it was my strategy and plan that the judge or jury might acquit Thomas if either the judge or jury felt that Thomas had been led astray by Zembowski, who I considered to be the major malfactor.” Thus it was Sherwin’s deliberate strategy to benefit Thomas by persuading the court and jury that petitioner was not only guilty himself but also responsible for Thomas’ involvement.

Sherwin also made comparisons of this kind between petitioner and Thomas before the jury during the trial. Although his ostensible theory of defense was that neither defendant was involved in the crime, he drew comparisons between the conduct of the participants in the armed robbery that would reflect on the defendants should their alibis be disbelieved. For example, in cross-examining one witness about her testimony concerning her confinement in the back room of the jewelry store, Sherwin elicited testimony that the female was less culpable.

While the written record is incapable of capturing the tone of remarks and the demeanor of a speaker, this record reveals that Sherwin’s bearing toward his two clients was not evenly balanced. He was kindly and paternal toward Thomas, calling her “Debbie” and emphasizing her dependence on her parents. By contrast toward petitioner he was sarcastic. Twice when petitioner attempted to clarify a matter on which he was confused, Sherwin publicly scorned him not to interfere because he “didn’t have a license to practice law.” In cross-examining a state witness concerning her identification of petitioner rather than challenging the basis of her recollection, Sherwin jokingly elicited testimony that she remembered the fact because he.reminded her of Burt Reynolds, thereby denegrating his client and strengthening the witness’ testimony.

His conduct of the trial was confused and rambling. In his closing argument Sherwin discussed Miranda warnings and a defendant’s right not to testify, despite the fact neither issue was presented in the case. He also repeated the incorrect argument earlier made in chambers that the eyewitness identification of petitioner was strong in contrast to that of Thomas.

The jury found both defendants guilty.

Sherwin’s strategy to cast Thomas as a hapless victim led astray by the “major malfactor” — petitioner, Sherwin’s other client — was most apparent at sentencing. Sherwin presented several arguments in mitigation on Thomas’ behalf, including the fact that she had a three-year-old child, her father was alcoholic, and she was a first offender. In addition he argued that the State had once been willing to dismiss the charges against her, but misrepresented to the court that the State’s offer was contingent on petitioner pleading guilty. Thus Sherwin urged, “I might indicate to you [the court] without prejudicing the State’s case, that they were willing if the defendants Kiel and Zembowski pleaded guilty ... in a plea bargaining discussion to dismiss Deborah Thomas out of the case. She told me she was not involved, and I couldn’t make that arrangement, and that was the position taken by Mr. Zembowski and Mr. Kiel.”

Of course these remarks further emphasized Sherwin’s strategy that petitioner was responsible for Thomas’ predicament by suggesting that if petitioner had pleaded guilty Thomas would have gone free.

Sherwin made a final unsuccessful appeal to the state’s attorney that the charge against Thomas be reduced to simple robbery in order to make probation an available sentence.

On petitioner’s behalf, by contrast, Sherwin presented no mitigating evidence or argument. Petitioner had a wife and four young children who depended on him for support. He had a history of depression. He had no criminal convictions prior to the armed robbery.

The trial judge responded to Sherwin’s suggestions which had permeated the trial that Thomas was less culpable than her co-defendant. Her sentence was mitigated because she had succumbed to evil influence. Correspondingly petitioner’s sentence was increased because he was responsible both for his own conduct and Thomas’. Thus as to Thomas the court stated, “I sorrow for you, Mrs. Thomas, and as I said, I don’t believe that you were the instigator of this crime. I do not see it in your background. I believe you were led by Daniel Zembowski. But ... our Legislature has declared that [your conduct] must require, at the minimum, a sentence of six years in the Department of Corrections, and it is my duty and obligation, ... to sentence you to at least that term.”

As to petitioner, in contrast, the court stated, “There is nothing in your record to suggest that I ought to be lenient in your case ... Now, there’s another aspect in this case that’s disturbing to the court. I think your case is further aggravated by your involvement of Deborah Ann Thomas. I cannot believe that she instigated this offense, a 24-year-old woman with a 2- or 3-year old child and I believe that you induced her to be an accomplice in your crime of violence and you are largely responsible for her situation today, and I think I must take this into consideration.”

Deborah Thomas was sentenced to six years in custody, petitioner to 15 years.

As previously noted, Frank Kiel, the “career criminal,” was not tried with petitioner and Thomas because he had fled the jurisdiction. He was later apprehended, returned to Lake County, and upon^the advice of counsel other than Sherwin, pleaded guilty pursuant to a negotiated plea bargain. He was sentenced by the same judge to a term of 10 years to run concurrently with 3-year burglary sentence on unrelated matter. Kiel would have been eligible for parole in March 1984 had he not lost good time credits as a result of a fight with a fellow inmate. He was actually released from custody on July 9, 1984. Petitioner remains in custody.

Following her conviction, Deborah Thomas filed a petition for post-conviction relief charging that Sherwin’s conflict of interest denied her effective assistance of counsel. She contended that once the State offered to immunize her in exchange for testimony against petitioner, a conflict of interest arose. At the hearing on the petition, the State did not challenge Thomas’ new counsel’s argument that Sherwin could not effectively represent either Thomas or petitioner. The petition was granted at the conclusion of the hearing. Thomas then entered a negotiated plea of guilty to a lesser charge in exchange for a two-year sentence with credit for time served. She was released from custody on January 29, 1981.

In contrast petitioner was unsuccessful in his state appeal and post-conviction petition in which he charged that Sherwin’s conflict of interest in representing two defendants denied him the effective assistance of counsel guaranteed by the Sixth Amendment to the United States Constitution. People v. Zembowski, 94 Ill.App.3d 1204, 53 Ill.Dec. 813, 424 N.E.2d 448 (2d Dist.1981), pet. for leave to appeal denied, No. 55030 (Ill.Sup.Ct. Oct. 19, 1981). Having-exhausted all available state remedies (which respondents do not dispute), Zembowski filed the instant petition in this court pursuant to 28 U.S.C. § 2254.

The foregoing facts demonstrate that petitioner was more than ineffectively represented. His counsel worked against petitioner’s interests. But counsel’s professional misconduct is not the only factor that leads to the inescapable conclusion that the writ of habeas corpus must issue. The state trial court’s failure to investigate the basis of the asserted conflict also calls for relief.

The right to counsel guaranteed by the sixth amendment embraces representation that is free from conflicts of interest. Wood v. Georgia, 450 U.S. 261, 271, 101 S.Ct. 1097, 1103, 67 L.Ed.2d 220 (1981); Glasser v. United States, 315 U.S. 60, 70, 62 S.Ct. 457, 464, 86 L.Ed. 680 (1942). Joint representation of co-defendants by a single attorney, while regrettably not per se improper, is particularly subject to sixth amendment challenge because of the likelihood that co-defendants’ interests will diverge. Holloway v. Arkansas, 435 U.S. 475, 489-91, 98 S.Ct. 1173, 1181-90, 55 L.Ed.2d 426 (1978).

The Supreme Court has fashioned two separate tests for evaluating claims of conflict of interest arising from joint representation, depending upon whether the conflict issue was brought to the trial court’s attention in a timely fashion. If the conflict issue was raised, and the trial court fails to investigate independently the basis for the claim and satisfy itself that counsel can adequately represent multiple defendants, “reversal is automatic” and does not depend upon a showing that a conflict actually existed. Holloway v. Arkansas, 435 U.S. at 488, 98 S.Ct. at 1180.

On the other hand, if the conflict issue is not raised in the trial court, but is raised only on direct or collateral review, reversal is warranted only on a showing “that an actual conflict of interest adversely affected [the] lawyer’s performance.” Cuyler v. Sullivan, 446 U.S. 335, 348, 100 S.Ct. 1708, 1718, 64 L.Ed.2d 333 (1980). “Actual conflict” means an actual divergence of interests on the part of the defendants, such that pursuing the interest of one would be antagonistic to the interest of the other. However, it is unnecessary under either Holloway or Cuyler to demonstrate that actual prejudice resulted from the joint representation, because prejudice is presumed. Strickland v. Washington, — U.S. —, 104 S.Ct. 2052, 2067, 80 L.Ed.2d 674 (1984); Cuyler v. Sullivan, 446 U.S. at 349-50, 100 S.Ct. at 1718-19; Holloway v. Arkansas, 435 U.S. at 487-89, 98 S.Ct. at 1180-81; Glasser v. United States, 315 U.S. at 75-76, 62 S.Ct. at 467-68.

The Seventh Circuit has discussed the differences between Holloway and Cuyler in several cases. Thus the court said in Wilson v. Morris, 724 F.2d 591, 593 (7th Cir.) (en banc), cert. denied, — U.S. —, 104 S.Ct. 2357, 80 L.Ed.2d 829 (1984),

A Constitutional violation occurs, and proof of an actual conflict is not required when a defendant’s attorney objects to joint representation and the trial court overrules the objection without exploring the basis of the objection or the adequacy of the representation in the face of a potential conflict of interest.

See also United States ex rel. Ballard v. Bengston, 702 F.2d 656, 662 and n. 5 (7th Cir.1983) (per curiam); Dently v. Lane, 665 F.2d 113, 115-16 (7th Cir.1981), appeal after remand 712 F.2d 1172 (7th Cir.), vacated 720 F.2d 472 (7th Cir.1983).

Sherwin raised the conflict issue repeatedly before trial. On numerous occasions he advised the trial court that the defenses were antagonistic, and even though his claims may have lacked specificity, it was the duty of the court to inquire whether Sherwin could represent both defendants adequately. Indeed, the trial judge expressly and repeatedly acknowledged his duty of inquiry, stating to Sherwin that the responsibility of determining whether all defendants could be represented by Sherwin was “not only your responsibility, but mine, as well.” At another point in the pretrial proceedings, when discussing the potential conflict of interest, the trial judge stated that it “would be the court’s responsibility to make certain” that the co-defendants had different attorneys in the event of a conflict.

Even a non-specific indication that defenses may conflict should provoke an inquiry into the adequacy of representation, because the hazards of joint representation are so strong and the policy of avoiding these hazards so important. See A.B.A. Standards for Criminal Justice, Standard 4-3.5(b) (2d Ed.1980) (cautioning against all joint representation and urging prophylactic inquiries' by the trial court in all cases of joint representation); Fed.R.Crim.P. 44(c) and Advisory Committee Notes (same).

Numerous cases have recognized that non-specific objections are sufficient to invoke Holloway. Indeed, in Holloway itself, the Court stated that although “defense counsel might have presented the requests for appointment of separate counsel more vigorously and in greater detail ... [he] was confronted with a risk of violating, by more disclosure, his duty of confidentiality to his clients.” 435 U.S. at 485, 98 S.Ct. at 1179. Furthermore, and particularly apropos here, several courts have held that an objection to consolidation of cases for trial is sufficient to alert a trial judge to the need to investigate whether a conflict of interest exists. Smith v. Anderson, 689 F.2d 59, 64 and n. 4 (6th Cir. 1982); United States ex rel. Vriner v. Hedrick, 500 F.Supp. 977, 982-83 (C.D.Ill.1980).

It is clear from the record that Sherwin repeatedly stated prior to trial that his clients’ interests conflicted. The trial court acknowledged its own obligations in assuring that representation was free from conflict. Regrettably, the trial court failed to investigate the basis for these statements and Sherwin’s ability to represent the co-defendants effectively. The setting aside of petitioner’s conviction is therefore mandated under Holloway.

But even if Sherwin had not brought the existence of a conflict to the trial court’s attention in a timely manner, petitioner is entitled to habeas relief because an actual conflict of interest was manifest throughout the trial proceedings. For purposes of the Cuyler test, actual conflict exists “whenever one defendant stands to gain significantly by counsel adducing probative evidence or advancing plausible arguments that are damaging to the cause of a co-defendant whom counsel is also representing.” United States ex rel. Gray v. Director, Department of Corrections, 721 F.2d 586, 596-97 (7th Cir.1983), cert. denied, — U.S. —, 104 S.Ct. 1690, 80 L.Ed.2d 163 (1984), quoting Foxworth v. Wainwright, 516 F.2d 1072, 1076 (5th Cir.1975).

An actual conflict of interest is all the more damaging when it consists, not of failure to take beneficial action that independent counsel might have chosen, but of positive actions that on their face are actually harmful to a defendant. In United States ex rel. Williams v. Franzen, 687 F.2d 944, 949-50 (7th Cir.1982), counsel representing several defendants put one defendant on the stand and elicited testimony that tended to inculpate the co-defendants while exculpating the witness. The Seventh Circuit affirmed the grant of habeas relief because of counsel’s blatant breach of loyalty to the co-defendants.

This kind of palpable conflict of interest permeated the present case. Petitioner’s own counsel, Julius Sherwin, argued to the court that petitioner was the “major malefactor” who should bear primary responsibility for the crime. Sherwin also argued to the court for leniency on behalf of Deborah Thomas on the ground that she would not have been prosecuted at all if petitioner had pleaded guilty. These most glaring lapses of loyalty had their greatest measurable impact on sentencing, when the offending arguments were made to the court.

The trial and sentencing judge adopted the theory advanced by Sherwin that petitioner was the ringleader who led Thomas astray, and considered that theory to be an aggravating factor calling for a significantly increased sentence. By contrast, Kiel, who was sentenced by the same judge for the same crime but in the absence of a suggestion that he was responsible for Thomas’ misconduct, received a 10-year sentence, to run concurrently with a separate burglary sentence, despite his comprehensive criminal record. In the unique circumstances of this case it is, therefore, possible to estimate the minimum amount of prejudice to petitioner resulting from Sherwin’s conflict of interest at the sentencing stage, even apart from the effect of his divided loyalty during other stages of the case. Kiel has now been released from custody. Had petitioner received a sentence equivalent to Kiel’s he would long ago have been released from prison.

But Sherwin was disloyal to petitioner before and during the trial. He contrasted the actions of the participants in the crime, to the disadvantage of petitioner. He falsely contrasted the strength of the evidence against the defendants, again to petitioner’s disadvantage. And his general demeanor toward Thomas was supportive while he was antagonistic toward defendant. Indeed, although more difficult to measure, Sherwin’s representation of his clients during plea negotiations, including not only the odious fact that he was urging Thomas to accept the plea that obligated her to testify against Kiel and petitioner, but also Sherwin’s statement to them that the State’s plea negotiation offers were a “package deal” may have had the greatest impact of all. Had petitioner believed he was free to accept the State’s plea offer and accepted it, he would have received only a six-year sentence, the statutory minimum, and would have been released long ago.

These estimates of the impact of Sherwin’s conflict are, however, quite unnecessary to the question of the necessity for habeas relief. Once it is shown that an actual conflict existed, we should not speculate about the possible consequences.

[I]n a case of joint representation of conflicting interests the evil ... is in what the advocate finds himself compelled to refrain from doing, not only at trial but also as to possible pretrial plea negotiations and in the sentencing process. It may be possible in some cases to identify from the record the prejudice resulting from an attorney’s failure to undertake certain trial tasks, but even with a record of the sentencing hearing available it would be difficult to judge the impact of a conflict on the attorney’s representation of a client. And to assess the impact of a conflict of interests on the attorney’s options, tactics, and decisions in plea negotiations would be virtually impossible.

Holloway, 435 U.S. at 490-91, 98 S.Ct. at 1181-82 (emphasis in original). Accordingly it is unnecessary to demonstrate prejudice where a conflict of interest is shown. Strickland v. Washington, 104 S.Ct. at 2067.

While proof of prejudice is unnecessary, however, the prejudice to petitioner stemming from Sherwin’s conflict of interest is palpable. The conflicting positions which Sherwin took at pretrial, and during the trial and sentencing and the trial judge’s explicit adoption of Sherwin's suggestions that petitioner was responsible for Thomas’ participation in the crime and the increased sentence which petitioner accordingly received render demonstrable that this case is an appropriate one for habeas relief.

Petitioner’s motion for summary judgment is granted. Petitioner’s conviction of the crime of armed robbery in the Circuit Court of Lake County, Illinois under docket No. 79 CF 10 on January 18, 1980 is set aside. Respondents are ordered to release petitioner from custody forthwith. Should respondents appeal from this order, petitioner will be granted bail pending appeal. Should respondents not afford petitioner a new trial within 120 days they will be barred from bringing petitioner to trial on the subject armed robbery charges.

      . Actions taken by counsel as a part of a "sound trial strategy" are not subject to Sixth Amendment challenge. Strickland v. Washington, — U.S. —, 104 S.Ct. 2052, 2066, 80 L.Ed.2d 674 (1984). But of course such strategies do not include deliberate harm to one client for the benefit of another.

      . The assistant state’s attorney who tried the case recorded his incredulity at these remarks in his handwritten notes on Sherwin's closing argument.

      . Any inference drawn by the court about Thomas’ degree of guilt based upon her gender was impermissible. United States v. Maples, 501 F.2d 985, 986-87 (4th Cir.1974) (sentence of male defendant vacated and remanded for re-sentencing when court stated as to female co-defendant that it would not sentence her to a term quite as long as appealing defendant because of her age and gender).


source: Caselaw Access Project

author: BECHTLE, District Judge.

license: Public Domain

text:
    Steven BERNSTEIN, Alan Rubens, and David Chackler v. BANK LEUMI LE-ISRAEL B.M. and James Patterson.
    Civ. A. No. 84-2065.
    United States District Court, E.D. Pennsylvania.
    Dec. 5, 1984.

      Steven Kramer, Philadelphia, Pa., for plaintiffs.
    Edward Ellers, Joan Zubras, Philadelphia, Pa., for Bank Leumi Le-Israel B.M.
    Donald Marino, Philadelphia, Pa., for James Patterson.
   MEMORANDUM AND ORDER

BECHTLE, District Judge.

Presently before the court is defendants’ motion to dismiss. For the reasons stated herein, the motion will be granted.

I. FACTS

Plaintiffs are shareholders of WMOT Enterprises, Inc. (“WEI”). They allege that in their capacities as shareholders of WEI they were defrauded by defendants Bank Leumi Le-Israel B.M. (“Bank”) and James Patterson (“Patterson”) and by Mark Stewart (“Stewart”). Plaintiffs claim that as a result of the fraudulent activity WEI became insolvent.

The chronology of events leading up to the alleged fraudulent activity is as follows. In the Spring of 1980, plaintiffs and WEI entered into a banking relationship with defendant Bank. The relationship consisted of obtaining a line of credit as well as doing general banking business. Plaintiffs personally guaranteed the payment of money borrowed on the line of credit.

In the fall of 1980 WEI was experiencing cash flow problems. At that time plaintiffs made application to defendant Bank for an increase of approximately $25,000.00 in their line of' credit. Plaintiffs offered to secure the increase in credit with accounts receivable exceeding $170,000.00. This application was denied by the Bank through the person of defendant Patterson, an officer of the Bank.

Shortly thereafter, plaintiffs met with Stewart concerning a previous offer by Stewart to buy a percentage of WEI’s stock. During the discussions Stewart represented that he was a wealthy entrepreneur with a number of financially successful companies under his control. In January 1981, an agreement was reached which permitted one of Stewart’s companies to purchase 60% of the stock of WEI in exchange for the obligation of that company to finance the operation of WEI and assume all of WEI’s liabilities.

Plaintiffs allege that contrary to Stewart’s representations, Stewart and his companies were" in poor financial condition. Plaintiffs allege that Stewart and his companies had loans outstanding with defendant Bank in excess of one million dollars and did not have the financial resources to fulfill the obligations of the purchase agreement.

Plaintiffs allege that shortly after the purchase agreement was entered into, defendants permitted Stewart to use as collateral for additional loans to Stewart and his companies the same accounts receivable of WEI that defendants had determined were inadequate to support a credit increase in the fall of 1980. Defendants also permitted Stewart to use the proceeds of WEI’s accounts receivable to reduce the indebtedness of Stewart and his companies to defendant Bank instead of using the proceeds to reduce the indebtedness of plaintiffs. Plaintiffs allege that this conversion of the proceeds was the cause of WEI’s insolvency as well as a judgment by confession and related proceedings instituted against plaintiffs on their personal guarantees.

In their complaint, plaintiffs allege that defendants, through their activities, violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., as well as Pennsylvania law concerning fraud, breach of contract, and breach of fiduciary duty. Defendants now move to dismiss the complaint.

Defendants argue that the RICO count must be dismissed since plaintiffs have failed to allege that defendants have been convicted of any of the predicate acts listed in the RICO statute. See 18 U.S.C. § 1961(1). The court finds this argument persuasive and shall dismiss the complaint on that basis.

II. DISCUSSION

A. RICO

The RICO statute, in pertinent part, provides:

Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit including a reasonable attorney’s fee.

18 U.S.C. § 1964(c).

Section 1962 provides:
(a) It shall be unlawful for any person who has received any income derived directly or indirectly from a pattern of racketeering activity ... to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate, or foreign commerce ...
(b) It shall be unlawful for any person through a pattern of racketeering activity ... to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity ...
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsections (a), (b), or (c) of this section.

Pattern of racketeering activity is defined at 18 U.S.C. § 1961(5):

“Pattern of racketeering activity” requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.

The acts which constitute racketeering activity are set forth at 18 U.S.C. § 1961(1). Plaintiffs allege that the racketeering activity in this case consisted of securities fraud in the sale of WEI stock to Stewart and mail fraud through the conversion of accounts receivable proceeds which were mailed to WEI.

Although the Third Circuit Court of Appeals has not addressed the question of whether a prior criminal conviction is a prerequisite to a civil RICO action, other courts have answered the question in the affirmative. In Sedima, S.P.R.L. v. Imrex Co., Inc., 741 F.2d 482, 496 (2d Cir.1984), the second circuit held that in order to bring a civil RICO action, plaintiffs must establish that defendants have been convicted of the underlying predicate offenses. In a more recent decision, Judge Kelly of this district followed the second circuit’s decision and dismissed a RICO count because of plaintiff’s failure to show defendants had been convicted of the predicate acts. Viola v. Bensalem Township, No. 84-3184 (E.D.Pa. November 8, 1984).

This court agrees with and adopts the Sedima and Viola opinions to the extent they require criminal convictions of the underlying predicate offenses prior to commencement of a civil RICO action. Although Congress has provided a civil remedy to persons injured by prohibited activities set forth at 18 U.S.C. § 1962, the RICO statute is primarily a criminal statute. Seville Industrial Machinery Corp. v. Southmost Machinery Corp., 742 F.2d 786, 789 (3d Cir.1984). The nexus between the statute and criminal activity is evidenced both by the name of the statute and the acts upon which civil liability is premised. The acts which include, inter alia, bribery, securities fraud, mail fraud and wire fraud, are all acts of criminal conduct. Sedima, 741 F.2d at 501.

By limiting the civil remedy provision to those instances where persons are injured by previously determined criminal conduct this court will limit application of the civil RICO statute to those situations Congress intended to address. The civil remedy provision is designed to compensate those persons who have been injured as a result of certain types of criminal conduct. The best method to ensure that only those persons benefit from the relief provided by Congress is to limit the relief to persons who can show that they have been injured by persons who have engaged in the criminal conduct specified in the statute. Thus, plaintiffs must show that defendants have been convicted of the acts upon which plaintiffs base their civil RICO claim.

In this case, plaintiffs claim that defendants engaged in activities which constitute securities fraud and mail fraud. However, plaintiffs do not allege that either defendant has been convicted of these underlying predicate acts. Accordingly, the RICO count against defendants will be dismissed.

B. State Claims

Plaintiffs’ remaining claims of fraud, breach of contract and breach of fiduciary duty are state law claims over which this court has pendent jurisdiction. In situations where a court dismisses all federal claims before trial, as in this case, it is discretionary with the court to proceed with the pendent claims. See United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); Rogers v. Valentine, 426 F.2d 1361 (2d Cir.1970). The court will dismiss the pendent claims without prejudice. See Broderick v. Associated Hosp. Serv. of Philadelphia, 536 F.2d 1, 8 n. 25 (3d Cir.1976); Daley v. St. Agnes Hospital, Inc., 490 F.Supp. 1309, 1320 (E.D.Pa.1980).

An appropriate Order will be entered.

ORDER

AND NOW, TO WIT, , this 5th day of December, 1984, for the reasons stated in the accompanying Memorandum, IT IS ORDERED that:

i

1. Defendants’ motion to dismiss the complaint is granted; and

2. The complaint is dismissed.

      . Plaintiffs allege that Stewart was a co-conspirator but they have not named him as a defendant in this action.

      . For purposes of this motion to dismiss, the allegations of the complaint are taken as true, See Chatterjee v. Due, 511 F.Supp. 183, 185 (E.D.Pa.1981).

      . Having determined that plaintiffs’ failure to allege convictions of the predicate acts requires dismissal of plaintiffs’ RICO claim, the court need not address defendants' other arguments in support of a dismissal of the RICO claim.


author: ALLEN SHARP, Chief Judge.

text:
    William Douglas DAVIDSON, Petitioner, v. UNITED STATES of America, Respondent.
    No. H 84-53.
    United States District Court, N.D. Indiana, Hammond Division.
    Dec. 6, 1984.
    William Douglas Davidson, pro se.
    R. Lawrence Steele, Jr., U.S. Atty’s Office, Hammond, Ind., for respondent.
   MEMORANDUM AND ORDER

ALLEN SHARP, Chief Judge.

This case is before this court on petitioner’s motion under 28 U.S.C. § 2255, to vacate, set aside, or correct sentence by a person in federal prison filed on January 25, 1984. This court ordered the United States Attorney for the Northern District of Indiana to respond to said petition within sixty (60) days of February 14, 1984. There has been no response filed by the United States Attorney’s Office. This court will proceed to rule on this case with the record provided by the petitioner.

Petitioner challenges the computation of time by the Parole Commission concerning his parole revocation. Petitioner never fully alleges a violation of the Parole revocation hearing, nor does he contest the revocation. However, since petitioner does allege that he was innocent of the parole violations, this court will address the validity of the parole revocation hearing.

Petitioner was originally sentenced to serve a fifteen (15) year sentence for conspiracy to distribute heroin and cocaine. Said sentence was to begin on April 25, 1975. Petitioner’s early release date was originally computed to be on May 26, 1984 with a full release date of May 26, 1989. Petitioner was released on parole on November 6, 1980. Petitioner was subsequently arrested in Indiana on January 2, 1983 for state law violations and a federal parole violator warrant was issued on January 5, 1983. The warrant was executed on January 10, 1983 and petitioner was taken into custody. He was provided a copy on January 20, 1983.

The incident giving rise to petitioner's violator warrant issuance was his arrest in Lake County, Indiana for which a probable cause affidavit stated that petitioner was found by police in a parked vehicle with emergency flashers on and engine running. The subject was slumped over the steering wheel and he appeared to be intoxicated.

The Parole Commission held a revocation hearing on April 19, 1984 wherein it was determined that there existed a preponderance of the evidence that petitioner was guilty of (1) possession of a sawed-off shotgun, (2) unauthorized possession of a firearm, and (3) unauthorized use of narcotics/dangerous drugs. A written report explaining the findings was provided to petitioner. The Parole Commission ordered his parole revoked, all time spent on parole shall be credited and continue to a Presumptive Reparole after service of 72 months, January 2, 1989, or continue to expiration, whichever comes first with special drug aftercare condition. The report of the Parole Commission shows that the petitioner was given his procedural rights. Petitioner does not contest this fact. The petitioner appealed the decision which was affirmed by the National Appeals Board several times.

The standard to be applied by this court in reviewing a parole commission revocation hearing has been set forth in Hanahan v. Luther, 693 F.2d 629 (7th Cir.1982), wherein the Court of Appeals for the Seventh Circuit held:

As we said in Luther v. Molina, 627 F.2d 71 (7th Cir.1980) “[i]t is apparent that Congress intended to give the Parole Commission great latitude in making decisions relative to [parole] revocation.” Id. at 75. Although this wide discretion does not eliminate the possibility of habeas corpus relief, it does mean that district courts should grant such relief only in limited circumstances. Id. at 75-76. Thus, when a district court reviews a decision of the Parole Commission on a habeas corpus petition, “[t]he inquiry is not whether the Board is supported by the preponderance of the evidence, or even by substantial evidence, the inquiry is only whether there is a rational basis in the record for the Board’s conclusions embodied in its statement of reasons.” Zannino v. Arnold, 531 F.2d 687, 691 (3d Cir.1976). See DeFillo v. Fitzpatrick, 378 F.2d 85, 87 (2d Cir.1967).

This court finds that the Parole Commission had a rational basis to revoke petitioner’s parole.

In regard to the crux of petitioner’s claim, that being, the Parole Commission computation of his time to be served, which petitioner refers to as a resentencing of his crime, this court finds the Parole Commission’s computation to be correct.

The petitioner claims that the Parole Commission stopped his court sentence at 9x/2 years when they paroled him and now have resentenced him to an additional 5x/2 years. The petitioner has failed to understand the role of the Parole Commission and his obligations under the terms of his parole. Petitioner violated his parole terms and was reincarcerated on the remaining time to be served for the original court sentencing of fifteen (15) years. The Parole Commission merely refigured the mandatory release date and the reparóle date. The Parole Commission calculated the time petitioner spent on parole and credited him with said time. However, the parole guidelines do not allow for petitioner to receive statutory good time credit for the time he spent on parole.

When petitioner was released on parole in 1980 he had 3,123 days remaining to serve on his sentence. He was credited with 794 days for his “street time”. Petitioner thus has 2329 days remaining to serve. Petitioner is being granted statutory good time on the remaining days at the rate of ten days a month for a total of 765 days. The Parole Commission then subtracted the 765 days from his full term date of May 26, 1989 to arrive at his mandatory release date of April 27, 1987.

Petitioner misunderstands the nature of parole. Parole is not a right but only an expectation that may be granted by the Parole Commission. Stroud v. U.S. Parole Commission, 668 F.2d 843 (5th Cir.1982). Parole is only “a correctional device authorizing service of sentence outside the penitentiary.” Morrissey v. Brewer, Warden, et al., 443 F.2d 942, 947 (8th Cir.1971); the parole is still “in custody.”

The Supreme Court of the United States discussed the function of parole in Morrissey v. Brewer, 408 U.S. 471, 477, 92 S.Ct. 2593, 2598, 33 L.Ed.2d 484 and stated:

Before reaching the issue of whether due process applies to the parole system, it is important to recall the function of parole in the correctional process.
During the past 60 years, the practice of releasing prisoners on parole before the end of their sentences has become an integral part of the penological system. Note, Parole Revocation in the Federal System, 56 Geo.L.J. 705 (1968). Rather than being an ad hoc exercise of clemency, parole is an established variation on imprisonment of convicted criminals. Its purpose is to help individuals reintegrate into society as constructive individuals as soon as they are able, without being confined for the full term of the sentence imposed. It also serves to alleviate the costs to society of keeping an individual in prison.2 The essence of parole is release from prison, before the completion of sentence, on the condition that the prisoner abide by certain rules during the balance of the sentence. Under some systems, parole is granted automatically after the service of a certain portion of a prison term. Under others, parole is granted by the discretionary action of a board, which evaluates an array of information about a prisoner and makes a prediction whether he is ready to reintegrate into society.
To accomplish the purpose of parole, those who are allowed to leave prison early are subjected to specified conditions for the duration of their terms. These conditions restrict their activities substantially beyond the ordinary restrictions imposed by law on an individual citizen. ■ Typically, parolees are forbidden to use liquor or to have associations or correspondence with certain categories of undesirable persons. Typically, also they must seek permission from their parole officers before engaging in specified activities, such as changing employment or living quarters, marrying, acquiring or operating a motor vehicle, traveling outside the community, and incurring substantial indebtedness. Additionally, parolees must regularly report to the parole officer to whom they are assigned and sometimes they must make periodic written reports of their activities. Arluke, A Summary of Parole Rules — Thirteen Years Later, 15 Crime & Delin. 267, 272-273 (1969).

Then at 483, 92 S.Ct. at 2601 the Court went on to say:

Release of the parolee before the end of his prison sentence is made with the recognition that with many prisoners there is a risk that they will not be able to live in society without committing additional antisocial acts. Given the previous, conviction and the proper imposition of conditions, the State has an overwhelming interest in being able to return the individual to imprisonment without the burden of a new adversary criminal trial if in fact he has failed to abide by the conditions of his parole.

The petitioner’s full term expiration date was originally on May 26, 1989. Petitioner’s full term expiration date has not changed and cannot be changed due to the revocation of his parole.

This court has addressed the issue petitioner presents here directly on point in Kloner v. Wilkinson, 418 F.Supp. 608 (D.Conn.1976), aff'd in part, revs’d in part on other grounds, 535 F.2d 730 (2d Cir.1976), wherein the petitioner claimed he had served 24 months of a five year sentence, was paroled, rearrested and his parole revoked. The petitioner in that case claimed that after serving an additional 16 months he had served the two-thirds statutory requirement and should be released under § 4206(d) of the Parole Commission and Reorganization Act, 18 U.S.C. § 4201 et seq., Pub.L. 94-233 (Mar. 15,1976). The court held:

The legislative history of the bill demonstrates that petitioner’s claim is without merit. Senator Burdick introduced the conference committee report on the floor of the Senate. Referring to § 4206(d), he said:
The legislation also provides new parole criteria which come into effect when the prisoner has completed two-thirds of his sentence, which are designed to complement the present statutory provisions for good time and assure that prisoners with long sentences have at least some period of supervision in their community before total release from federal custody. For those prisoners whose parole has been revoked and who have been returned to prison, it is intended that the two-thirds be based upon time remaining to be served when they are reimprisoned.
122 Cong.Rec. No. 28 at S2573 (Mar. 2, 1976) (emphasis added). Representative Kastenmeier, who reported the bill to the House of Representatives, reiterated Burdick’s remarks. 122 Cong.Rec. No. 29 at H1500 (Mar. 3,1976). The views of Senator Burdick and Representative Kastenmeier for the Conference Committee on this section clearly comport with the purpose of the Act.
One example will demonstrate the invalidity of petitioner’s claims. An adult offender with very good offender characteristics sentenced to a five-year term of incarceration for extortion could be paroled at 36 months. If he subsequently violated his parole, on petitioner’s reading of this section he could be reincarcerated only for a maximum of four months. In such a situation, the power given the Commission by 18 U.S.C. § 4214(d) & (e) would be rendered largely illusory because the Commission’s continuing authority to incarcerate would be severly limited. Thus it is evident that petitioner’s interpretation of the statute is not only unsupported by the legislative history, but contravenes the purpose of the statute.
Id. at 609.

In light of the foregoing, this court hereby finds that petitioner’s claim is without merit and denies the petition for habeas corpus relief and orders said case DISMISSED. SO ORDERED.


author: NORTHROP, Senior District Judge.

text:
    ELECTRO-TEC CORPORATION v. S/S DART ATLANTICA.
    Civ. A. No. N 83-83.
    United States District Court, D. Maryland.
    Dec. 6, 1984.

      James D. Skeen and Constable, Alexander, Daneker & Skeen, Baltimore, Md., for plaintiff.
    Richard R. Jackson, Jr. and Ober, Kaler, Grimes & Shriver, Baltimore, Md., for defendant.
   MEMORANDUM

NORTHROP, Senior District Judge.

The plaintiff, Electro-Tec Corporation, filed on November 5, 1984, a motion for summary judgment as to liability. No hearing is necessary on this matter. Local Rule 6.

The principle issue in this motion is a legal one, not a factual one. In essence, the plaintiff moves that as a matter of law the above-deck stowage of cargo under a clean bill of lading, or a lading that has not been clearly marked for the freight owner or agent “above deck,” is per se an unreasonable deviation under the Carriage of Goods at Sea Act (COGSA), 46 U.S.C. § 1300 et seq.

This ease arises out of the carriage by defendant of metal working machines owned and shipped by the plaintiff. The machines were packed in three containers and loaded on board the S/S DART ATLANTICA at Southhampton, Great Britain on January 26, 1982. Two of the containers were loaded under the deck but one container was loaded and stowed on deck. The DART ATLANTICA issued bill of lading No. 7001, which contained no notations that any of plaintiffs cargo was stowed on deck. The cargo in the three containers was packed, blocked and braced by Anglia Export Packing, Ltd., in anticipation of normal and usual transit hazards. The plaintiff claims, and the defendant denies, that the cargo was adequately blocked and braced. While on her voyage to Savannah and then Norfolk, the DART ATLANTICA experienced heavy weather, including winds up to Force 11 on the Beaufort Scale. Defendant claims, and plaintiff denies, that the conditions at sea caused the contents of plaintiff’s on-deck cargo to burst through the sides of the allegedly inadequately packed containers, and thus, to subsequently suffer damage.

The principle issue before me is not the resolution of the above factual dispute, but the legal question of the defendant’s potential liability under COGSA.

I. Limitations to Liability under COGSA

The contract between the parties purports to allow the defendant to carry the goods below deck (118 of Terms and Conditions, Plaintiff’s Exhibit A). The bill of lading, however, does not stipulate the actual place of stowage. Where the carrier issues a clean bill of lading, the cargo is considered contracted to be carried below deck. St. John’s N.F. Shipping Corporation v. S.A. Companhia Geral Commercial Do Rio de Janiero, 263 U.S. 119, 124, 44 S.Ct. 30, 31, 68 L.Ed. 201 (1923); Encyclopaedia Britannica, Inc. v. S/S Hong Kong Producer, 422 F.2d 7, 14 (2d Cir. 1969), cert. denied, 397 U.S. 964, 90 S.Ct. 998, 25 L.Ed.2d 255 (1970); Calmaquip Engineering West Hemisphere Corp., 650 F.2d 633, 638-9 (5th Cir.1981). Nothing in the Mormacvega case has altered this rule. DuPont de Nemours International S/A v. S/S Mormacvega, 493 F.2d 97 (2d Cir.1974). Nor did the enactment of COGSA alter this rule. 46 U.S.C. § 1301(c).

For purposes of this motion we will assume that on-deck stowage has not been proven to be usual and customary in this situation. Where a carrier can show that the on-deck stowage is customary, there has been no deviation and the issue of reasonableness does not arise. E.g., American Cyanamid Co. v. Booth S.C. Co., Ltd., 99 F.Supp. 232 (S.D.N.Y.1951), aff'd 195 F.2d 529 (2d Cir.1952); General Traffic Service Co. v. The Cape San Martin, 108 F.Supp. 174 (S.D.N.Y.1952) (the carrying of elephants on deck is customary). The carrier, of course, will have the opportunity to show that carriage of the plaintiff’s machines on deck was the customary carriage of such cargo.

It is likely, however, that the issue of reasonable deviation will arise. Although normally required to carry and stow the cargo below deck, the carrier will not be found in material breach of the contract or the statute if the challenged action is a reasonable deviation. 46 U.S.C. § 1304(4). This may serve to limit his liability. What constitutes a reasonable deviation, therefore, is the central question raised by this motion.

The significance of this question should be fully understood at the outset. The two relevant provisions in COGSA read:

... [A]ny reasonable deviation shall not be deemed to be an infringement or breach of this Chapter or the contract of carriage, and the carrier shall not be liable for any loss or damage resulting therefrom ....

46 U.S.C. § 1304(4), and

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States ... unless the nature of and value of such goods have been declared by the shipper before shipping and inserted in the bill of lading.

46 U.S.C. § 1304(5).

Previous to the passage of COGSA it was a common practice of carriers to insert “all embracing exceptions to liability in the bill of lading.” Encyclopaedia Britannica, Inc. v. S/S Hong Kong Producer, 422 F.2d 7, 14 (2d Cir.1969), cert. denied, 397 U.S. 964, 90 S.Ct. 998, 25 L.Ed.2d 255 (1970). The courts, however, were reluctant to enforce these exceptions in all situations. Where an unjustifiable deviation from the contract was made, the courts would oust the contract and make the carrier responsible for the cargo as an insurer. St. John’s N.F. Shipping Corp. v. S.A. Companhia Geral Commercial do Rio de Janiero, 263 U.S. 119, 44 S.Ct. 30, 68 L.Ed. 201 (1923); Jones v. The Flying Clipper, 116 F.Supp. 386 (S.D.N.Y.1953). As discussed below, COGSA essentially codified the traditional rule that an unreasonable or unjustifiable deviation nullified the liability limitations in the contract or statute.

COGSA also recognizes the inherent unfairness in requiring a carrier to be fully liable for goods when the carrier had no idea as to their value, and therefore, no opportunity to accordingly adjust tariffs or stowage. Thus, the statute limits the liability to $500 per package where the shipper fails to declare the value in the bill of lading before shipping. 46 U.S.C. § 1304(5).'

In reviewing a copy of the bill of lading, I do not find a declaration of value. Although this is not necessarily dispositive of the issue, I will assume for purposes of this motion that no declaration was made. The importance of plaintiffs motion now becomes clear: unless the shipper can “oust” the contractual or statutory limitations to liability by showing an “unreasonable deviation” from the agreed upon voyage, he can, at best, recover only $500 per package. But whether even an unreasonable deviation can remove the statutory limitation is itself a matter of dispute.

The statute reads that “in any event” the carrier shall not become liable for more than $500 per package. The Seventh Circuit has held that COGSA has thus changed the traditional rule of deviation, and limits liability regardless of the reasonableness of the deviation. Atlantic Mutual Insurance Co. v. Poseidon Schiffahrt G.m.b.H, 313 F.2d 872 (7th Cir.) cert. denied, 375 U.S. 819, 84 S.Ct. 56, 11 L.Ed.2d 53 (1963).

But other circuits have held otherwise. Nemeth v. General S.S. Corp., Ltd., 694 F.2d 609, 612-13 (9th Cir.1982); Spartus Corp. v. S/S Yafo, 590 F.2d 1310, 1316-17 (5th Cir.1979); Encyclopaedia Brittanica, Inc. v. S/S Hong Kong Producer, 422 F.2d 7, 14 (2d Cir.1969), cert. denied, 397 U.S. 964, 90 S.Ct. 998, 25 L.Ed.2d 255 (1970). See also the English case, The Ixia [1932] A.C. 328. The seminal case holding liability limitations ineffective where the carrier unreasonably deviates is Jones v. The Flying Clipper, 116 F.Supp. 386 (S.D.N.Y.1953). In a careful analysis of COGSA’s legislative history, and the overall purpose and balances of the bill, the court concluded that the statute had not been intended to change the traditional effects of unreasonable deviation:

There is nothing in the history of the Act to indicate that Congress by fixing the limitation at $500 intended to displace the doctrine of unjustifiable deviation which was so firmly entrenched in maritime law. Such a drastic change in the existing law, with its far-reaching consequences ... would have been expressed in clear and unmistakable terms. Id. at 389.

and

To uphold the carrier’s contention that the limitation of liability is absolute, regardless of a fundamental breach which goes to the very essence of its undertaking, would permit any carrier with recklessness to violate the terms ... knowing that it cannot be called upon to pay more than $500 per package. Id. at 390.

I find the reasoning in the The Flying Clipper to be persuasive, and accordingly follow that part of the holding finding the limitation on liability not to be absolute, and to be ineffective where the carrier unreasonably deviates from the contract.

I also note that the Act does not necessarily relieve the carrier of all liability even if carrying the cargo on deck is a reasonable deviation. It only relieves the carrier of the “loss or damage resulting” from the unreasonable deviation, namely the forfeiture of all liability limitations. The carrier is not relieved, however, of due care and attention towards the cargo. The Ponce, 67 F.Supp. 725, 728 (D.N.J.1946), aff'd., 160 F.2d 107 (3d Cir.1947). Where the carrier fails to account for the cargo loss and unsuccessfully asserts all defenses except the claimed limitation of liability, the carrier is accordingly liable for $500 per package. S/S Mormacvega, supra, at 100.

II. The Unreasonable Deviation under COGSA

Many courts have almost axiomatically held above-deck carriage to be an unreasonable deviation from the clean bill of lading. E.g., Calmaquip Engineering West Hemisphere v. West Coast Carriers, Ltd., 650 F.2d 633, 638-39 (5th Cir.1981). It is important to know why. It is clear that there is no statutory language, or definition of “reasonable,” that requires this finding. Rather the stowage of cargo above deck was traditionally held to be exposing the goods to a greater risk than had been agreed upon. St. John’s N.F. Shipping Corp., supra. In St. John’s, a leading case, the “greater risk” turned out to be the jettisoning of above-deck cargo to relieve the ship in a storm. Although the Supreme Court found the jettisoning to be a reasonable action by the carrier to save the ship, the stowage above-deck was not a reasonable deviation from the contract with the shipper because the goods were exposed to a greater risk. The carrier was, thus, fully liable for the loss of the goods. This traditional rule was not changed by the passage of COGSA but remained part of the general law interpreting the statute’s proscription of unreasonable deviation. E.g., Encyclopaedia Britannica, Inc. v. S/S Hong Kong Producer, 422 F.2d 7, 14 (2d Cir.1969), cert. denied, 397 U.S. 964, 90 S.Ct. 998, 25 L.Ed.2d 255 (1970); Jones v. The Flying Clipper, 116 F.Supp. 386 (S.D.N.Y.1953).

In 1974, the Second Circuit declined to apply the “traditional rule” as an axiom. In DuPont de Nemours International S.A. v. S/S Mormacvega, 367 F.Supp. 793 (S.D.N.Y.1972), aff'd, 493 F.2d 97 (2d Cir.1974), a container stowed above deck despite a clean bill of lading was lost overboard. Plaintiff urged the court to find an unreasonable deviation from the contract, ousting the contract and leaving the carrier fully liable for the loss. The district court, however, refused “to hold that an unreasonable deviation arises in every case, merely because containerized cargo is carried on the deck of a container ship, exactly in accordance with the method of carriage for which she was designed and built____” Mormacvega, supra, 367 F.Supp. 793, 800 (S.D.N.Y.1972) (emphasis in original). The Court of Appeals for the Second Circuit affirmed, noting that COGSA provides no definition of “reasonable deviation.” Thus, the factual inquiry as to what is “reasonable” was deemed appropriate. Indeed, what was once unreasonable — most on-deck stowage — might no longer be so: “technological innovation and vessel design may justify stowage other than below deck.” Mormacvega, supra, 493 F.2d 97, 102 (2d Cir.1974). Nor would it follow that just because the on-deck stowage was the cause of the loss, would on-deck stowage be necessarily more dangerous. Id.

The Fourth Circuit has not yet specifically considered this issue, but I am certain it would follow the Mormacvega approach to construing a “reasonable deviation” within COGSA. The statute does not offer a definition of “reasonable deviation.” The courts, therefore, have generally relied upon pre-statute cases. I find these cases, however, do not stand for the axiom that on-deck carriage is a per se unreasonable deviation ousting the contract. In The William Crane, 50 Fed. 444 (D.Md.1889), for instance, this Court was urged to hold the carrier in breach of his contract where cotton was stowed on deck despite a clean bill of lading. The carrier was able to show the court, however, that the stowage “upon the main deck in such steamers [is] as safe as [if] placed below, if the space thus used is sufficiently protected ____” Id. at 445. When the Supreme Court’s St. John’s case is carefully read, one must conclude that this approach is not in conflict with the high Court’s analysis. In St. John’s, supra, the Supreme Court found that the above-deck stowage at issue actually exposed the goods to a greater risk than agreed upon.

Furthermore, the position taken by the Second Circuit in Mormacvega, supra, is in accord with the general construction of “deviation” under COGSA. For instance, a deviation from the regular and usual route a ship should take will be found “reasonable” if it is minor and justifiable, American Metal Company v. M/V Belleville, 284 F.Supp. 1002 (S.D.N.Y.1968) (where the vessel deviated 10-15 miles from the regular course in order to drop a pilot off) or where it served to actually shorten the voyage with the intention of benefiting the cargo, American Cyanamid Co. v. Booth S.S. Co., Ltd., 99 F.Supp. 232 (S.D.N.Y.1951), aff'd, 195 F.2d 529 (2d Cir.1952). I cannot find that COGSA, either in its express provisions or the background from which it was enacted, would countenance an inflexible rule requiring the harsh result of making a carrier an insurer of goods he has never agreed to insure because of an immaterial breach of the agreement. COGSA is designed to be a fair balance between the interests of the shipper and the carrier. E.g., Encyclopaedia Britannica, Inc. v. S/S Hong Kong Producer, 422 F.2d 7, 14 (2d Cir.1969), cert. denied, 397 U.S. 964, 90 S.Ct. 998, 25 L.Ed.2d 255 (1970). It would not be in keeping with purposes of the statute to deny a carrier its statutory protections where the carrier’s conduct is, in effect, an immaterial breach.

Finally, I note that this Court, like the Second Circuit in Mormacvega, supra, is willing to consider the effect on COGSA and maritime law of technological innovation and changing vessel design. Commonwealth Petrochemicals, Inc. v. S/S Puerto Rico, 455 F.Supp. 310, 313 (D.Md. 1978), rev’d on other grounds, 607 F.2d 322 (4th Cir.1979). What was unreasonable yesterday may be reasonable today. Thus, the carrier will be given the opportunity to show that stowage on deck of the cargo was only a reasonable deviation from the contract.

A separate Order confirming this ruling will be entered.


author: ROBERT H. HALL, District Judge.

text:
    ALIMENTA (U.S.A.), INC., Plaintiff, v. Larry R. STAUFFER, West Texas Cottonseed Products, Inc., Amarillo Agri-Products Export, Inc., Lisa Voyles, Jim Moore, a/k/a Jimmy J. Moore and Jimmy Jack Moore, Jerry Hayes and Brazos Valley Industries, Inc., Defendants. WY-TEX LIVESTOCK, INC., Plaintiff, v. The FIRST NATIONAL BANK OF ATLANTA, Defendant, v. ALIMENTA (U.S.A.), INC., Third-Party Defendant. SOFICO, INC., Plaintiff, v. ALIMENTA (U.S.A.), INC., Defendant and Third-Party Plaintiff, v. Larry R. STAUFFER, Third-Party Defendant.
    Civ. A. Nos. C81-251A, C81-1385A and C82-0855A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Dec. 6, 1984.

      Vickie Ciufo, Houston, Tex., for Alimenta (U.S.A.), Inc. in Civ. A. No. C81-251A.
    Larry Stauffer, Taylor, Tex., pro se. Stephen M. Collins, Alston & Bird, Atlanta, Ga., John T. Huffaker, Gibson, Ochsner & Adkins, Amarillo, Tex., for Wy-Tex-Livestock, Inc., Agri Products Export, Inc. and Jerry Hayes.
    Marilyn D. Britwar, Atlanta, Ga., for First Nat’l Bank.
    John G. Parker, W. Lyman Dillon, Han-sell, Post, Brandon & Dorsey, Atlanta, Ga., for Alimenta (USA) Inc. in Civ. A. No. C81-1385A.
    C.L. Wagner Jr., Atlanta, Ga., C. Bradford Foster, III, Memphis, Tenn., for Sofico, Inc.
   ORDER

ROBERT H. HALL, District Judge.

Presently pending in this action is plaintiff Alimenta (U.S.A.), Inc.’s (“Alimenta’s”) motion in limine. Alimenta seeks an Order excluding from evidence

any testimony, documents, or other evidence relating to the Fifth Defense asserted by defendants Wy-Tex Livestock, Inc., Agri-Products, Export, Inc., and Jerry Hayes (collectively, the “Wy-Tex defendants”) that any damage suffered by Alimenta resulted from Alimenta’s alleged negligence in failing to review and monitor properly the transactions involved in this action, in failing to supervise the activities of defendant Larry Stauffer, and in failing to keep adequate business records.

Within the scope of the evidence sought to be excluded is a written report prepared by Price Waterhouse & Co. for Alimenta.

The motion in limine is based on the grounds that: (1) any such evidence is irrelevant to any cognizable defense to this action; (2) even if such evidence were otherwise relevant, the Price Waterhouse report should be excluded under Fed.R.Evid. 407; and (3) even if such evidence is otherwise relevant, and even if the Price Water-house Report is not excluded under Fed.R. Evid. 407, the report should be excluded under Fed.R.Evid. 403. The court addresses each argument seriatim following a review of the facts relevant to disposition of the motion in limine.

FACTS

This case concerns cash commodities trading (as opposed to futures) and principally involves trading in cottonseed oil and meal. Alimenta’s action revolves around the activities of Larry Stauffer, who was employed by Alimenta from July 1, 1979, through December 31, 1980. Throughout that period, Stauffer had formal ties with all of the defendants except Wy-Tex Livestock, Inc. (“Wy-Tex”). At that same time, however, Stauffer was linked to Wy-Tex through common ownership of defendant Amarillo Agri-Products Export, Inc. (“AgriProducts”) and by virtue of a longstanding business and personal relationship with defendant Jerry Hayes, the Vice President and General Manager of Wy-Tex.

Alimenta claims that the defendants assisted Stauffer and conspired with him to breach his fiduciary duties and to defraud Alimenta while Stauffer was serving as Alimenta’s principal trader in cottonseed commodities. Alimenta contends that Stauffer, with the knowledge, consent, and active participation of the other defendants, but unknown to Alimenta, set up and managed a competing commodities organization, known as West Texas Cottonseed Products, Inc. (“WTCSP”), and arranged trades between Alimenta and that organization on terms disadvantageous to Alimenta. In addition, Alimenta contends that Stauffer arranged trades with Wy-Tex and Agri-Products, both of which had direct or indirect ties to WTCSP and whose trading activities with Alimenta through Stauffer worked greatly to their benefit. In short, Alimenta contends that Stauffer acted as a “double agent”, without Alimenta’s knowledge, and in concert with his co-defendants betrayed Alimenta’s trust.

The Wy-Tex defendants assert as their Fifth Defense that:

Without waiver of any of the above and foregoing responses, Defendants state that to the extent, if any, to which Alimenta has been damaged through the execution of any business transactions with Defendants, or any other entities, and in the event any such transactions are not simply due to bad business judgment on the part of Alimenta, that Alimenta was negligent in failing to properly review such transactions, in failing to properly monitor the performance of such transactions, in failing to supervise the activities of Larry Stauffer and in failing to keep reasonable and proper business records.

Alimenta expects the Wy-Tex defendants to examine witnesses and introduce evidence at trial in support of this defense, including, in particular, a report prepared by Price Waterhouse & Co. which made certain recommendations regarding Alimenta’s trading practices and procedures subsequent to the actions of the defendants which allegedly defrauded Alimenta. The Price Waterhouse report consists of a three-page introductory letter to Alimenta’s President, Mourad Y. Bebawi, followed by twenty-five pages of text consisting of fifty separate recommendations. It is loosely organized into eight topics: general, commodity contract administration, accounts payable and cash disbursements, cash, sales and accounts receivable, payroll and employee benefits, data processing, and inventories. The fifty recommendations deal with such diverse topics as job descriptions, weekly meetings of department heads, file maintenance procedures, billing of third parties, cash deposits, foreign bank accounts, personnel policies and evaluation, and written instructions for training data processing personnel.

DISCUSSION

A. Availability of negligence or lack of diligence as an affirmative defense to Alimenta’s conspiracy to defraud claim

As the Wy-Tex defendants’ Fifth Defense can be read to assert a type of “contributory negligence” defense to Alimenta’s conspiracy to defraud claim, the first question presented by Alimenta’s motion in limine is whether Georgia law recognizes as a defense to a conspiracy to defraud claim negligence or lack of diligence on the part of the allegedly defrauded party where the allegedly defrauded party had a fiduciary relationship with one of the alleged conspirators during the time period in question.

Alimenta argues that “it is well-established under Georgia law that the usual rule that a party must use reasonable diligence to anticipate and discover fraud is not applicable to cases involving [confidential] relationships, including, of course, the relationship of principal and agent____” (memorandum in support of motion in limine, pp. 5-6), and that the “confidential relationship exception” extends to claims of conspiratorial fraud (reply brief in support of motion in limine, pp. 9-13).

The Wy-Tex defendants, on the other hand, argue that: (1) negligence or lack of diligence is a defense to fiduciary fraud under Georgia law (response of Wy-Tex defendants to motion in limine, pp. 26-29) and is a question for the jury (Wy-Tex defendants’ response, pp. 29-31); (2) alternatively, even if negligence or lack of diligence is not a defense to fiduciary fraud, there is no evidence that a fiduciary relationship existed between Alimenta and the Wy-Tex defendants and Alimenta has not yet proved the alleged conspiracy (Wy-Tex defendants’ response, pp. 31-38); and (3) even if the “confidential relationship exception” exists and applies to conspiratorial fraud, the exception does not completely vitiate the duty to exercise diligence, but merely lessens the duty (Wy-Tex defendants’ response, pp. 38-40).

Alimenta and the Wy-Tex defendants present two obviously divergent interpretations of Georgia law regarding the role of negligence and lack of diligence in a fraud conspiracy claim involving a fiduciary relationship between the allegedly defrauded party and one of the alleged conspirators. The divergence is understandable considering the case law applicable to this issue. However, regardless of the inconsistencies in and ambiguities arising from that case law, it is this court’s responsibility to determine to the best of its ability how the Georgia courts would rule on the question before the court. With that qualified preface, the court finds, after carefully considering the relevant case authority, that in Georgia negligence and/or lack of diligence is not an affirmative defense to a fraud conspiracy claim where one of the alleged conspirators had a fiduciary relationship with the allegedly defrauded party during the relevant time period.

The court begins its analysis with a discussion of Crosby v. Rogers, 197 Ga. 616, 30 S.E.2d 248 (1944). In that case, the jury had returned a verdict for the plaintiff on a fraud claim brought against plaintiff’s partner. The defendant appealed essentially on the ground that the plaintiff had the opportunity to discover and prevent the fraud and was “estopped” from recovering on that fraud. Id. at 622, 30 S.E.2d 248. The Georgia Supreme Court rejected that argument, saying “[the] argument ... might be potent [except for] the fact that the parties, being partners, stood in a confidential relationship to each other____ Hence, because of this relationship, the [plaintiff] was justified in relying upon his partner, the defendant, and because of this reliance, he was justified in [not discovering the fraud].” Id. at 622-23, 30 S.E.2d 248.

The Crosby case effectively held that where there is a fiduciary relationship between two parties, there is no duty to watch for fraud. This rule was stated more directly in a case which followed Crosby by two years, Johnson v. Bogdis, 205 Ga. 535, 54 S.E.2d 620 (1949). In Johnson, legatees under a will sued on grounds of fraud to set aside a judgment awarding a year’s support to the decedent’s wife. The court rejected the wife’s defense that the plaintiffs were barred by their own negligence in failing to discover the alleged fraud on the ground that a confidential relationship existed between the wife, as executrix of her husband’s will, and the plaintiffs/legatees:

There is no merit in the contention that the plaintiffs are barred by their own negligence____ There being between the parties a relationship of trust and confidence, no duty rested upon the plaintiffs to anticipate and watch for fraud. They should not be required to presume that one occupying a confidential relationship to them would perpetuate upon them a fraud. The same degree of diligence in detecting fraud is not required where the parties are dealing at arm’s length.

Id. at 541, 54 S.E.2d 620. Accord Lewis v. Lewis, 228 Ga. 703, 187 S.E.2d 872, (1972) (rule that equity will not set aside judgment entered by fraud if complaining party could have prevented its entry by due diligence “ ‘is not applicable where there is a confidential or fiduciary relation between the parties; in such a case the law requires the utmost good faith, and the parties are not required to anticipate or watch for fraud.’ ”); Hogg v. Hogg, 206 Ga. 691, 58 S.E.2d 403 (1950) (same as Lewis).

The Georgia Supreme Court subsequently adopted the same rule in the principal-agent context. In Harrison v. Harrison, 214 Ga. 393, 105 S.E.2d 214 (1958), the plaintiff, a widow and an executrix of her husband’s estate, sued the defendant for defrauding both the estate and the plaintiff herself. The plaintiff alleged that the defendant was an agent of the executors to the estate and also her own agent in her individual capacity. Because of the fiduciary nature of the agency relationship, the court rejected the defendant’s contention that the plaintiff was barred from recovery by her failure to discover and prevent the fraud by reading the defrauding documents:

Because of [the agency relationship], the [plaintiff] was.justified in relying upon the representations of her agent---The numerous decisions cited ... to the effect that a party who can read must read, and that fraud which will relieve a party who can read must be such as prevents him from reading, apply to situations where the parties are dealing with each other at arm’s length, and have no application to a situation such as that disclosed by the present petition, where the confidential and fiduciary relation of principal and agent is involved.

Id. at 393-94, 105 S.E.2d 214.

Based on Crosby, Johnson, and Harrison, the court finds that in Georgia, negligence or lack of diligence is not a defense to fiduciary fraud, including fraud committed by an agent upon a principal. In so ruling, the court necessarily rejects the clear implications of the former Fifth Circuit’s decision in Hannah v. Belger, 436 F.2d 96 (5th Cir.1971), heavily relied on by the Wy-Tex defendants.

In Hannah, the court considered a diversity action involving allegations of fraud and conspiracy to defraud. Plaintiffs had alleged that they were defrauded by a conspiracy between a co-investor in a business venture and the banker who arranged a line of credit for the defendant co-investor. A jury verdict was returned against the defendants. The Fifth Circuit reversed the judgment of the trial court reflecting that verdict on the ground that plaintiffs failed to protect their own interest and could not recover:

In Georgia one who fails to investigate or use ordinary care to verify a statement made by another may not recover even if the statement is later found to be an intentional misrepresentation and fraud is proven____ In the instant case it is perfectly plain that the plaintiffs made no attempt to verify the capital investment allegedly made by [the defendant co-investor]. They made no attempt to exercise even the most perfunctory supervision over the business even though they were aware that the reports submitted to them by [the co-investor] were incomplete.
[E]ven assuming a conspiracy between [the co-investor and the banker], ..., the plaintiffs still could not recover because they utterly failed to take reasonable steps to protect themselves as required by Georgia law, even though there were no inhibitions to investigation. The Georgia law protects the diligent, but is not the constant guardian of the supine. Here even an iota of economic curiosity on the part of the investors could have secured the stable before the horse galloped out____

Id. at 98-99.

The Fifth Circuit did not discuss the “confidential relationship” exception to the duty to exercise diligence to protect against fraud despite the apparent existence of a fiduciary relationship, and thus is arguable authority for the proposition that no such exception exists under Georgia law. Nonetheless, this court cannot ignore Crosby, Johnson, and Harrison, which clearly establish such an exception. The court declines to follow the literal implications of Hannah, assuming that the Fifth Circuit was either unaware of the Cross-Johnson-Harrison line of cases or was not persuaded that a partnership relationship existed between the plaintiffs and the defendant co-investor.

Finding that negligence or lack of diligence is not an affirmative defense for fiduciary fraud, the court now turns to the issue of whether a fiduciary relationship must exist between the allegedly defrauded party and each defendant named in a conspiracy to defraud or with just one of the alleged conspirators. The court answers this question in the negative. The Wy-Tex defendants cite no case suggesting that a defrauded party must show a confidential relationship with each of the alleged conspirators to invoke the “confidential relationship exception.” Cf. Simpson v. Georgia State Bank, 159 Ga.App. 310, 283 S.E.2d 278 (1981) (where claim is against defendants as independent tortfeasors, plaintiff must prove a confidential relationship with each tortfeasor). As each conspirator is liable for the acts done by his or her co-conspirators, there is no justification for not invoking the “confidential relationship exception” against all the alleged conspirators where one of the alleged conspirators had a confidential relationship with the allegedly defrauded party.

In sum, the court holds that negligence or lack of diligence is not an affirmative defense to a conspiracy to defraud claim where one of the alleged conspirators had a confidential relationship with the allegedly defrauded party. There being no dispute that Stauffer and Alimenta had a fiduciary relationship, the effect of this holding is that the Wy-Tex defendants will not be allowed to assert this defense at the trial of this case.

This ruling, however, does not dispose of the Wy-Tex defendants’ argument that certain evidence of Alimenta’s negligence and lack of diligence is admissible because it is relevant for a purpose unrelated to such an affirmative defense. The court reaches that argument next.

B. Relevancy of evidence showing that “any damage suffered by Alimenta resulted from Alimenta’s alleged negligence in failing to review and monitor properly the transactions involved in this action, in failing to supervise the activities of defendant Larry Stauffer, and in failing to keep adequate business records.

Based on its conclusions in section A, supra, the court finds that the evidence which Alimenta attempts to exclude is inadmissible for the purpose of establishing a “contributory negligence” defense to the conspiracy to defraud claim.

However, evidence of Alimenta’s operating procedures and business records is admissible on relevancy grounds for the purpose of establishing that the occurrences in question “were not the result of an intentional conspiracy, but were the result of (1) sloppy paperwork unilaterally performed by Mr. Stauffer, or (2) sloppy bookkeeping, file practices performed internally at Alimenta, which led to Alimenta’s inability to keep up with the accurate dates of their contracts, the proper filing of confirming contracts, the amounts shipped pursuant to contracts, the proper allocation of amounts shipped to the contracts in question and to an overall inability at Alimenta to ship in a timely manner.” (Wy-Tex defendants’ response, pp. 6-7). Alimenta admits as much in its reply brief, when it says it is not seeking to bar the introduction of evidence to prove that Alimenta’s records contain mistaken contract dates, prices, quantities, or “the like.” (Alimenta’s reply in support of motion in limine, p. 14).

The court, accordingly, declines to exclude, on relevancy grounds, the broad categories of evidence sought to be excluded by Alimenta, but limits the introduction of that evidence for the above-stated purpose. The court now turns to Alimenta’s arguments for exclusion under the Federal Rules of Evidence.

C. Admissibility of the Price Water-house report under Fed.R.Evid. 407

Alimenta alternatively seeks to exclude the Price Waterhouse report under Rule 407 of the Federal Rules of Evidence, which provides:

When, after an event, measures are taken which, if taken previously, would have made the event less likely to occur, evidence of the subsequent measures is not admissible to prove negligence or culpable conduct in connection with the event____

The Price Waterhouse report, says Alimenta, is a “subsequent remedial measure” which falls under this evidentiary rule.

The Wy-Tex defendants respond that, not only is the report not a “subsequent remedial measure” taken by Alimenta, it is “offered for another purpose” unrelated to proving Alimenta’s negligence and admissible under the stated exception to the rule:

This rule does not require the exclusion of evidence of subsequent measures when offered for another purpose, such as proving ownership, control, or feasibility of precautionary measures, if controverted, or impeachment.

The “other purposes” identified by the WyTex defendants are: (1) to demonstrate conditions existing at the time of the events in question; (2) to disprove Alimenta’s claim of “fraudulent concealment” and show “feasibility of repair”; (3) to show Alimenta’s control over Stauffer’s actions and rebut Alimenta’s allegation that Stauffer was a “secret agent” of the Wy-Tex defendants; and (4) to show Alimenta’s failure to exercise due care.

The court rejects the Wy-Tex defendants’ arguments and finds that the Price Water-house report is excludable under Fed.R. Evid. 407. The report is a “subsequent remedial measure” taken by Alimenta as it was prepared at the request of Alimenta’s president for the purpose of improving the procedures and controls relating to Alimenta’s transaction systems following Stauffer’s departure from Alimenta. The report does not demonstrate the conditions existing at the time of the transactions in question as it was prepared two months after Stauffer’s departure, nor does the report show that Stauffer was not a “secret, agent” of the Wy-Tex defendants. As for offering the report to disprove Alimenta’s claim of “fraudulent concealment” and show “feasibility of repair,” feasibility of repair is not at issue in this case. Finally, the report is not admissible to show “failure to exercise due care” as such a purpose is expressly prohibited by Rule 407.

D. Admissibility of Price Waterhouse report under Fed.R.Evid. 403

While the court need not reach Alimenta’s argument for exclusion of the Price Waterhouse report under Rule 403 of the Federal Rules of Evidence in light of its ruling above, the court offers Rule 403 as an alternative justification for exclusion of the report. That rule provides:

Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.

Alimenta argues, and the court agrees, that the probative value of the Price Water-house report, assuming there is any, is substantially outweighed by the prejudice to Alimenta that would result from the “lengthy ‘official’ looking document,” the confusion of the issues that would result from placing undue emphasis on Alimenta’s accounting and other business practices, the undue delay that would result from the need to call expert witnesses to explain the technical language of the report, and the presentation of cumulative evidence that would result from introducing the report in addition to the testimony of the author of the report.

Thus, the Price Waterhouse report is ex-cludable under Rule 403 as well as under Rule 407.

CONCLUSION

In sum, the court PARTIALLY GRANTS AND PARTIALLY DENIES Alimenta’s motion in limine as follows:

(1) the Price Waterhouse report will be excluded at trial and no reference to the report will be allowed;
(2) all evidence for the sole purpose of establishing a “contributory negligence” defense to the conspiracy to defraud claim will be excluded at trial, including:
a. evidence that Alimenta should have discovered and prevented Stauffer’s conflicts of interest and breaches of fiduciary duty;
b. evidence that Alimenta knew or should have known that existing controls were being circumvented or ignored;
c. evidence of the feasibility of additional controls which might have caused Stauffer’s malfeasance to be discovered earlier;
d. evidence that Alimenta failed “to utilize reasonable business practices”;
e. evidence of a warning to Alimenta’s president that Alimenta was experiencing large losses in trading cottonseed commodities; and
f. evidence that Alimenta’s president learned, while Stauffer was at Alimenta, that Stauffer had left his previous employer’s paperwork “in a mess”;
(3) all evidence which arguably establishes an alternative explanation for the circumstantial evidence used by Alimenta to show a conspiracy to defraud will be allowed. (In the court’s view, items a. through f., above do not fall within this category of evidence.)

      . The Hannah court, in support of its'holding, quoted from a concurring opinion entered by the undersigned judge while he was sitting on the Georgia Court of Appeals. 436 F.2d at 99 (" in seeking to choose between a fraud feasor and a negligent party, the Georgia law unfortunately goes with the alleged crook.’ Cole v. Cates, 113 Ga.App. 540, 545, 149 S.E.2d 165, 169."). The undersigned judge has not changed his view of Georgia law, rather the Hannah court misapplied that view if it in fact consciously ignored a fiduciary relationship; Cole v. Cates did not involve a fiduciary relationship, but an arms-length transaction, in which case Georgia law does go with the “alleged crook.”