author: HUYETT, District Judge.

text:
    BLACKWOOD COAL COMPANY, INC. v. DEISTER CONCENTRATOR COMPANY, INC.
    Civ. A. No. 84-5104.
    United States District Court, E.D. Pennsylvania.
    Dec. 16, 1985.

      Lawrence R. Scheetz, Richboro, Pa., for plaintiff.
    Frank L. Tamulonis, Pottsville, Pa., for defendant.
   MEMORANDUM OPINION AND ORDER

HUYETT, District Judge.

Plaintiff initiated this action to recover damages allegedly caused by its detrimental reliance on a “performance guarantee” given by defendant Deister Concentrator Co. (“Deister”) to entice plaintiff’s corporate promoters to buy certain equipment manufactured and sold by defendant. Presently pending before me is defendant’s motion for summary judgment or in the alternative for partial summary judgment. For the reasons set forth below, I shall grant the motion for partial summary judgment in part.

Sometime prior to April 1980, Jeffrey Sammak, then owner of a contracting business named SENACO, decided to enter the coal reprocessing business. In April 1980, he attended the “Coal Show” in Chicago at which he met representatives of defendant Deister. On August 15, 1980, Jeffrey Sammak and his brother, Douglas Sammak, formed the proposed coal reprocessing business and registered it under the fictitious name Blackwood Coal Company. A month later, in September, 1980, Douglas Sammak contacted the representatives from Deister and requested information pertaining to the possible purchase of machinery for the coal reprocessing operation.

John A. Christopherson, Director of Engineering at Deister, responded to Sammak's inquiry in a letter addressed to Mr. Douglas Sammak, Blackwood Coal Company, dated September 30, 1985. After citing certain technical data, including the claim that “[e]ach deck would remove approximately 2.25 TPH (tons/hour) of refuse and produce approximately 4 TPH of clean coal product,” the letter stated:

Deister guarantees that for a typical anthracite coal that the combination CONCENCO Refuse Superscalper — CONCENCO “88” Tables — Model HCRD will produce a coal product with an ash content that is within 2% of the theoretical ash of a float product at the intended specific gravity of separation.
The performance figures given in the second paragraph of this letter are realistic and, therefore, considered conservative. The above system could handle a higher feed rate or a feed containing more or less than 50% refuse still produce a product consistent with your requirements.

See, Exhibit A, attached to defendant’s motion for summary judgment. Sometime thereafter, pursuant to further conversations, Jeffrey Sammak verbally submitted the “coal washability data.” Based on these data, John A. Christopherson wrote a second letter to the Blackwood Coal Company in which he stated the performance of the Scalper-Table which Deister guaranteed.

In its complaint, plaintiff contends that it has sustained incidental and consequential damages as the direct result of defendant’s breach of express warranties, including the performance guarantee included in the two letters, as well as implied warranties of merchantability and fitness for a particular purpose under the Uniform Commercial Code. The purchase order for the equipment in question was placed on December 16, 1980. Plaintiff Blackwood Coal Company, Inc. was incorporated on January 21, 1981. Subsequently, on April 3, 1981, plaintiff corporation made a payment in the amount of $38,015 to defendant Deister for the equipment which payment defendant accepted. Plaintiff now seeks damages for the alleged breach of the warranties in excess of three million dollars.

Federal Rule of Civil Procedure 56(c) states that summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Small v. Seldows Stationary, 617 F.2d 992 (3d Cir. 1980). The court does not decide any issues of facts but simply determines if there is an issue of fact to be tried. Ettinger v. Johnson, 556 F.2d 692 (3d Cir.1977). The facts must be viewed in the light most favorable to the opposing party, and any reasonable doubt as to the existence of a genuine issue of fact is to be resolved against the moving parties. Continental Insurance Co. v. Bodie, 682 F.2d 436 (3d Cir.1982).

Standing

Defendant’s motion for summary judgment is based upon the contention that whatever the nature of the warranty or “performance guarantee” given by Deister, it cannot be enforced by plaintiff Black-wood Coal Company, Inc. in this action because plaintiff was not incorporated until January 21, 1981. Defendant contends that the contract and the warranties given, if any, were between Deister and either Jeffrey Sammak, Douglas Sammak, or the Blackwood Coal Company. Because corporate plaintiff was not in existence at the time the September 30, 1980 and November 24, 1980 letters were sent, the warranties contained therein could not have been intended to cover the plaintiff, and therefore, the corporate plaintiff does not have standing to assert the warranty claims.

In further support of this position, defendant provides a lengthy discussion of the law governing third party beneficiaries to warranties under the Uniform Commercial Code. I do not believe it is necessary to reach the merits of defendant’s argument. Plaintiff is entitled to pursue its breach of warranty claims on any of several different theories which negate the necessity of finding it a third party beneficiary to the warranties.

First, for the purposes of this action, Jeffrey and Douglas Sammak should be viewed as pre-incorporation promoters. Generally, a corporation does not exist as a legal entity until it is incorporated, and it, therefore, cannot have agents prior to its organization. 18 Am.Jur.Corporations § 120 (1985). A promoter’s activities, however, may form the basis for corporate liability when pre-incorporation acts have been ratified by post-incorporation acts of the corporation. Harnett v. Ryan Homes, Inc., 360 F.Supp. 878, 893 (E.D.Pa.1973), affd., 496 F.2d 832 (3d Cir.1974); McCloskey v. Charleroi Mountain Club, 390 Pa. 212, 216-17, 134 A.2d 873, 876 (1957). The corporation’s act of ratification relates back to the time of the original activities and establishes an agency relationship permitting the act of the promoters to constitute, in effect, acts done by the corporation. Rees v. Mosaic Technologies, Inc., 742 F.2d 765 (3d Cir.1984); 3 Am.Jur.2d Agency § 160; cf, Comprehensive Group Services Board v. Temple University, 363 F.Supp. 1069 (E.D.Pa.1973).

“Proof of ratification need not be confined to formal acts of the board of directors as shown by the minutes of the meeting. It may be established from actions or from passive acquiescense of the directors if they had full knowledge of the facts____” KoEune v. State Bank of Schuylkill Haven, 134 Pa.Super. 108, 4 A.2d 234 (1939); 19 Am.Jur.2d Corporations § 125 (1985). Thus, some courts have held that even a corporation’s act of suing on a preincorporation contract is in itself an adoption of the contract. K & J Clayton Holding Corp. v. Keuffel & Esser Co., 113 N.J.Super. 50, 272 A.2d 565 (1971); Windsor Hosiery Mills v. Harén, 220 Tenn. 6, 413 S.W.2d 676 (1967).

Blackwood Coal Company, Inc. clearly ratified the acts of Jeffrey Sammak and Douglas Sammak. Prior to January 21, 1981, operating as Blackwood Coal Company, the Sammaks had engaged in all phases of forming the business, including negotiating the contract in dispute here. After January 21, 1982, Blackwood Coal Company, Inc. accepted delivery of the equipment from Deister and paid for it. In addition, on a number of occasions after payment, Blackwood Coal Company, Inc. attempted to enforce the “performance guarantee” and express warranties. These actions reflect ratification, adoption or acceptance of the pre-incorporation contract by the corporation.

Because a corporation can be held liable for a contract which it has ratified, Rees v. Mosaic Technologies, Inc., 742 F.2d 765, 768 (3d Cir.1984), it necessarily follows that the corporation should also have the right to enforce the terms of the contract including any warranties. Therefore, “[a] corporation that has ratified or adopted a contract made for it by its promoters may, after its formation, sue to enforce the contract or to recover for its breach.” 18 Am.Jur.2d Corporations § 130 (1985); K & J Clayton Holding Corp. v. Keuffel & Esser Co., 113 N.J.Super. 50, 272 A.2d 565 (1971); Speedway Realty Co. v. Grasshoff Realty Corp., 248 Ind. 6, 216 N.E.2d 845 (1966); D.D.J. Electrical Contractors, Inc. v. Nanfito & Sons Builders, Inc., 40 Conn. Sup. 50, 479 A.2d 1250 (1984).

Another way of analyzing the situation is in terms of the assignment of rights; under this approach defendant’s contentions again fail. As plaintiff contends, Douglas Sammak, Jeffrey Sammak, and Blackwood Coal Company assigned all of their rights and obligations to and from Deister Concentrator Company to Black-wood Coal Company, Inc. at the time of incorporation. Under 13 Pa.C.S.A. § 1201, “rights” that are assignable include remedies so long as the assignment will not materially change the duty of the other party or materially increase the burden or risk to that party. Assignment of the sales contract here does not increase the obligations of defendant or affect its potential risk and therefore pursuant to § 1201, plaintiff has the right to seek recovery for any breach of warranty.

Finally, I believe that defendant is estopped from raising the issue of whether plaintiff has standing to claim a breach of the warranty. Defendant delivered the equipment to plaintiff and accepted payment from plaintiff without objection. Moreover, after the alleged problems became apparent to plaintiff, defendant contacted plaintiff directly and several of defendant’s representatives visited the plant operated by the incorporated entity. Accordingly, I believe that it is late for defendant to be raising this issue. For all of these reasons, I will deny defendant’s motion for summary judgment based on the standing issue.

Scope of Warranty

Defendant next contends that any express warranty or “performance guarantee” is expressly excluded or limited by the language of the letter of November 24, 1980, the proposal of December 12, 1980, and the acknowledgement of December 30, 1980. The language of these documents when considered together, defendant contends, establishes that the sole remedy for breach of warranty or “performance guarantee” is the return of the equipment, f.o.b. the company’s plant, in exchange for a refund of the purchase price, or in the alternative, the repair and replacement of any part found to be defective. Therefore, defendant contends, plaintiff is not entitled to recover any incidental or consequential damages.

Defendant’s contentions present issues which I do not believe can be resolved at this time in a motion for summary judgment. First, I note that the language in the letter dated November 24, 1980 to Jeffrey Sammak at the Blackwood Coal Company states that items “may be returned to our factory;” it does not include any language to the effect that return is the sole remedy. Therefore, there is a triable issue as to what the relationship is between this letter and other warranties such as that in the document dated December 12, 1980. Moreover, it appears that the Sammaks were not experienced coal operators and defendant knew or had reason to know this. Thus, the correspondence between the parties beginning in the spring of 1980 appears to reflect a course of conduct whereby defendant assured the Sammaks that its product would produce the desired results and that the Sammaks relied upon these assurances in placing their purchase order.

There is also some dispute as to exactly what the “performance guarantee” was. Was it an express warranty? Is it a separate guarantee of performance? Plaintiff does not claim that the equipment was defective but rather contends that the equipment was incapable of performing to the level defendant claimed it would. The standard warranty would probably cover defects in manufacturing but whether it was intended to cover the performance guarantee is unclear. Again, these are mixed issues of fact and law which cannot be resolved at this stage. Therefore, I will not grant this aspect of defendant’s motion.

Damages

Defendant also contends that as a matter of law, plaintiff is not entitled to recover damages for loss of good will or loss of future profits. I will examine these contentions in seriatim.

In paragraph 18 of its complaint, plaintiff alleges that it has sustained damages in excess of three million ($3,000,000) dollars, including incidental and consequential damages. Under Pennsylvania law, plaintiff may not recover for the loss of good will or customer satisfaction. Kassab v. Central Soya, 432 Pa. 217, 246 A.2d 848 (1968); Harry Rubin & Sons, Inc. v. Consolidated Pipe Co. of America, 396 Pa. 506, 153 A.2d 472 (1959). Defendant contends therefore that it is entitled to judgment as to plaintiff’s claim for loss of good will and that plaintiff should be precluded from introduction of any evidence as to this issue. Plaintiff, in its response to the motion for summary judgment, does not address the issue of loss of good will at all. I agree with defendant’s position and will therefore dismiss plaintiff’s claim for loss of good will damages.

Defendant also asserts that plaintiff’s claim for loss of future profits or future economic damages is speculative as a matter of law because plaintiff was a new and untried corporate entity at the time of the alleged breach giving rise to the damages sought. In support of its position that profits of a new and untried business are too speculative to provide a basis for an award of damages, defendant cites Exton Drive-In, Inc. v. Home Indemnity Co., 436 Pa. 480, 261 A.2d 319 (1970). The Exton court concluded that anticipated profits were too speculative to support an award of damages, but the court carefully limited its holding to the facts of the case. “Under the circumstances of this case, we hold that the anticipated profits of a new and untried business which were attributable solely to the unfinished condition of the business premises were too speculative to provide a basis for an award of damages. Exton, 261 A.2d at 324. Exton arose out of the failure of a contractor to complete the grading and paving of a site for a drive-in motion picture theater within the contracted time period. The court concluded in part that the damages were too speculative because at the time of the completion of the paving work, the movie screen had still not been erected.

More recently in Merion Spring Co. v. Muelles Hnos. Garcia Torees, 315 Pa.Super. 469, 462 A.2d 686 (1983), the court concluded that there have been no Pennsylvania cases in which it has been held that new businesses cannot as a matter of law submit sufficient evidence to obtain an award for lost profits. The court noted that it is often very difficult for a new business to obtain such proof and what is often presented is far too speculative to support an award of damages for future lost profits, but the party seeking the damages should be given an opportunity to present the available evidence. In Exton, the certainty barrier was simply an “insurmountable barrier” which precluded an award for lost anticipated profits.

I believe that Merion Spring Co. suggests the proper approach in cases of this kind. While defendant is correct that plaintiff will have a very difficult path to hoe to establish its claim for damages to lost future profits, I cannot hold as a matter of law that its claim for these damages should be dismissed.


source: Caselaw Access Project

author: McLAUGHLIN, District Judge.

license: Public Domain

text:
    Reinaldo JIMINEZ, Plaintiff, v. SOUTHRIDGE COOPERATIVE, SECTION I, INC., Defendant.
    No. 85 CV 3835.
    United States District Court, E.D. New York.
    Dec. 27, 1985.

      Jose Rivera, Brooklyn, N.Y., for plaintiff.
    Dreyer & Traub, New York City (Noah Nunberg, of counsel), for defendant.
   MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

This is an action for damages and injunctive relief brought under the Civil Rights Act of 1866, 42 U.S.C. §§ 1981-82, the Fair Housing Act of 1968, 42 U.S.C. § 3602 et seq., and the Human Rights Law of the State of New York, Executive Law § 296. Specifically, plaintiff charges that the defendant Southridge Cooperative, Section I, Inc. (“Southridge I”), an apartment cooperative, discriminated against him on the basis of race, color and national origin in disapproving his apartment purchase.

On November 1, 1985, the Court granted plaintiff’s request to consolidate his motion for a preliminary injunction with the trial on the merits of plaintiff’s request for permanent injunctive relief. For the reasons set forth below, the plaintiff’s claim for injunctive relief is denied.

Facts

In April 1985, plaintiff contracted with a shareholder-lessee of Southridge I for the sale of a $30,000 apartment. In accordance with the proprietary lease and the cooperative’s by-laws, plaintiff was required to obtain the defendant’s consent to the sale. Accordingly, plaintiff submitted an application to the defendant’s management office in April 1985.

Southridge I has certain minimum financial requirements that an applicant must satisfy before his application will be processed. See Southridge I Handbook for Cooperators, Defendant’s Exhibit D (Tr. at 9). The applicant is solely responsible for submitting the necessary documentation in support of his application and is informed at the time he submits the application that withholding any material information will cause disapproval. Plaintiff’s Exhibit 2 (Tr. at 48-49). Plaintiff concedes that he read, understood and agreed to be bound by defendant’s terms (Tr. at 48-49).

Plaintiffs April 1985 application was rejected since he failed to meet certain of these minimum requirements. Specifically, plaintiff failed to demonstrate that: (a) he had been continuously employed by the same employer for a one year period, and (b) he had sufficient cash or assets to purchase the apartment (Tr. at 85, 115). His July, 1985 “revised application” was rejected for the same reasons (Tr. at 118).

In August 1985, plaintiff filed a complaint with the New York State Division of Human Rights, alleging that his rejection was due to unlawful discrimination. That complaint is still pending.

Finally, on October 5, 1985, plaintiff submitted a third application for the apartment. Defendant’s representatives refused to consider this application since (a) they had already determined in July that plaintiff did not meet the employment stability requirement, and (b) they had been advised that another individual had applied for the apartment and that his/her application was pending.

This action was filed on October 22, 1985.

Discussion

Injunctive Relief

In order to state a prima facie case of housing discrimination, the plaintiff must establish the following elements:

(1) that he is a member of a protected class;
(2) that he applied for and was qualified to purchase the housing;
(3) that he was rejected; and
(4) that the housing opportunity remained unavailable.

Robinson v. 12 Lofts Realty, Inc., 610 F.2d 1032, 1036 (2d Cir.1979). If the plaintiff can show a prima facie case of discrimination, the burden shifts to the defendant to come forward with a legitimate non-diseriminatory reason for its action. Id. at 1039. If the defendant comes forward with such a reason, then the burden shifts back to the plaintiff to prove that the proffered reason is, in fact, a pretext for discrimination. Id. at 1039-40.

Upon reviewing the record in this ease, I find that, insofar as the April and July applications are concerned, plaintiff has not established that he was qualified to purchase the apartment. Plaintiff admitted at the hearing that when he applied to Southridge I in April 1985, he had worked for his employer for less than one year (Tr. at 67). Moreover, plaintiff admitted that his application did not include proof of sufficient cash or assets to cover the $30,000 purchase price of the apartment (Tr. at 44-45). See Defendant’s Ex. A.

Likewise, plaintiff’s July 1985 “revised application” did not indicate that he had enough assets to purchase the apartment (Tr. at 94-95). See Defendant’s Ex. E. Although this reason alone would have been sufficient for rejecting plaintiff’s application, defendant also determined that plaintiff had not proven that he could meet the job stability requirement. Since this determination proves relevant to the defendant’s refusal to consider plaintiff’s subsequent (October) application, it is appropriate to discuss it at this juncture.

Plaintiff testified that he started working for Rodale Electronics on June 12, 1984 (Tr. at 5). He also testified that from June 17, 1985 until August 23, 1985, he went to work for Grumman Aerospace Corporation (Tr. at 8). Thus, it would seem that in the year prior to July, 1985, plaintiff was not continuously employed by a single employer. Indeed, plaintiff’s July application listed Rodale, Grumman and National Technologies, Inc. as his employers, and included two check stubs from National Technologies. See Defendant’s Exhibit E.

Plaintiff claims, however, that he was merely on loan to Grumman from Rodale during the summer of 1985, and thus, that he had, in fact, been continuously employed by Rodale for over one year. This explanation is belied by the fact, however, that plaintiff admitted that he was paid by another source (Tr. at 63-64), that he advised the broker involved in the underlying housing transaction that he had changed jobs (Tr. at 63; Def.Ex. B) and that he filed a complaint in the State Human Rights Division wherein he stated under oath that he offered to “return to [his] previous job” (Tr. at 69; Def.Ex. C). Accordingly, it appears that, as of July 1985, plaintiff had not demonstrated that he met Southridge I’s employment stability requirement.

Plaintiff contends, however, that, in any event, he was qualified to buy the apartment as of his October application, since that application included a bank statement demonstrating that he had sufficient assets to cover the purchase price, and a letter from Rodale dated September 6, 1985 indicating that he had been in their employ for over one year. See Plaintiff’s Ex. 7.

Even assuming that plaintiff has demonstrated that he was qualified to buy the apartment in October, however, I find that defendant has proffered a legitimate non-discriminatory reason for its action. Defendant has indicated that it refused to consider plaintiff’s October application based upon (1) its previous determination that plaintiff did not meet the employment stability requirement (Tr. at 83) and (2) information it had received regarding a competing applicant (Tr. at 124). Plaintiff has failed to prove that the proffered reasons were a pretext for discrimination.

Accordingly, plaintiff’s request for injunctive relief is denied.

Right to Jury Trial

In a letter to the Court dated November 14, 1985, plaintiff asserts that even if his motion for injunctive relief is denied, he is nonetheless entitled to a jury trial on his damages claim. It appears that plaintiff’s contention is correct.

Clearly, where, as here, a trial by jury is timely and properly demanded on a legal claim for damages, that right remains intact notwithstanding the fact that the legal claim is joined with an equitable claim. See Curtis v. Loether, 415 U.S. 189, 196 n. 11, 94 S.Ct. 1005, 1009 n. 11, 39 L.Ed.2d 260 (1974); Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510-11, 79 S.Ct. 948, 956-57, 3 L.Ed.2d 988 (1959). Moreover, the right to a jury trial on legal claims is not lost by virtue of prior determination of the equitable claims. See Dairy Queen, Inc. v. Wood, 369 U.S. 469, 472-73, 82 S.Ct. 894, 896-97, 8 L.Ed.2d 44 (1962). Indeed, Rule 65(a)(2), which authorizes consolidation of a preliminary injunction hearing with a trial on the merits of equitable claims, states that the rule “shall be so construed and applied as to save to the parties any rights they may have to trial by jury.” Fed.R.Civ.P. 65(a)(2).

In fairness, however, the parties should be given an opportunity to brief the issue. Accordingly, defendant is directed to submit its brief, if any, on or before January 10, 1986. Plaintiff shall submit his responsive papers on or before January 20, 1986. Motions to Dismiss

Defendant contends, however, that, in any event, certain of plaintiff’s claims must be dismissed as a matter of law. First, defendant argues that plaintiff is barred from raising his claims under the Human Rights Law of the State of New York in this court, since he elected to file a complaint with the New York State Division of Human Rights. N.Y. Executive Law § 297(9). See Collins v. Manufacturers Hanover Trust Co., 542 F.Supp. 663, 672-73 (S.D.N.Y.1982). I agree. Accordingly, plaintiff’s state claims are dismissed.

Moreover, defendant contends that plaintiff’s claims under 42 U.S.C. §§ 1981-1982 are insufficient as a matter of law. Defendants assert, correctly, that unlike the Fair Housing Act, which proscribes discrimination on the basis of national origin, sections 1981-1982 encompass only claims for racial discrimination. See Jones v. Alfred H. Mayer Co., 392 U.S. 409, 413, 88 S.Ct. 2186, 2189, 20 L.Ed.2d 1189 (1968). Thus, defendant argues that plaintiff’s “mere assertion” that he was discriminated against because he is Hispanic does not constitute an allegation of racial discrimination under these sections.

However, plaintiff does, in fact, allege discrimination on the basis of his race. Moreover, several courts in this Circuit have held that a person of Hispanic background can state a claim of discrimination based upon race under sections 1981-1982. See e.g., Garcia v. Gardner’s Nurseries, Inc., 585 F.Supp. 369, 375 (D.Conn.1984); Pollard v. City of Hartford, 539 F.Supp. 1156, 1164 (D.Conn.1982). Cf. Khawaja v. Wyatt, 494 F.Supp. 302, 305 (W.D.N.Y. 1980). Although I am not convinced that plaintiff has established a case of racial discrimination, I find that he is entitled to prove his claim at a jury trial. Accordingly, defendant’s motion to dismiss the § 1981-1982 claims is denied.

Conclusion

Plaintiff’s claims under the New York Human Rights Law are dismissed and his request for injunctive relief is denied. In all other respects, defendant’s motion to dismiss is denied. The parties are directed to brief the open issue pursuant to the schedule set forth in this Order. In the event that no settlement has been reached by February 6, 1986, the parties are directed to appear before the Court on that date at 9:30 a.m. for a status conference.

SO ORDERED.


author: DONALD E. O’BRIEN, Chief Judge.

text:
    George GOFF, Terry Schertz, David D. Heaton, Plaintiffs, v. Crispus NIX, et al., Defendants.
    Civ. No. 84-129-E.
    United States District Court, S.D. Iowa, C.D.
    Dec. 21, 1984.

      Barbara Schwartz, Prisoner Assistance Clinic, Iowa City, Iowa, for plaintiffs.
    John Parmeter, Asst. Atty. Gen., Des Moines, Iowa, for defendants.
   FINDINGS OF FACT, CONCLUSIONS OF LAW AND JUDGMENT

DONALD E. O’BRIEN, Chief Judge.

This case was tried to the Court on the grounds of the Iowa State Penitentiary (ISP) at Fort Madison, Iowa. Previously, the Court granted Plaintiff Goff part of his requested preliminary injunction which enjoined certain visual body cavity (vbc) searches at ISP. After trial, the Court permanently enjoins the defendants in substantially the same way as set out in the preliminary injunction order with some modifications.

I. FINDINGS OF FACT

At the beginning of the preliminary injunction evidentiary hearing, the parties stipulated to certain facts. Transcript, March 15, 1984 Hearing pp. 9-12 (hereinafter Tr.-). The Court summarized the stipulated facts in the preliminary injunction order. Goff v. Nix, Civil No. 84-129-E, slip op. 4-9 (S.D.Iowa March 22, 1984). The Court incorporates the summary of stipulated facts by reference with two clarifications.

First, the paragraph enumerated 2 should read as follows:

2. When an inmate from cellhouse 20 is to be taken to the exercise area, he hands his clothes to an officer standing outside his cell. The clothes are then shaken down and handed back. The inmate is then taken to a shower and strip searched.

The testimony at trial shows that strip searches conducted prior to exercise did not include a vbc search.

Second, the paragraph enumerated 12 should read as follows:

12. One tower, Tower 7, has responsibility for viewing the four 319 exercise pens as well as other areas.

The Court will not restate all of the Findings of Fact which it made in the preliminary injunction order. In that Order, the Court reserved the right to make additional findings; thus, the Court supplements those findings as follows:

Plaintiffs do challenge the visual anal cavity search which is set forth in Policy No. 84-3-2-567, Procedure B., 10. This procedure provides that the inmate is to be searched by a member of the same sex in an area as private as is possible, without jeopardizing the safety of the searcher or the effectiveness of the search. The inmate’s anal cavity is not to be physically probed nor is the inmate touched by the searcher during the search.

The Court further finds that a visual body cavity search which requires the inmate to bend over and spread his buttocks so that the anus is visible to the searcher is intrusive, degrading, humiliating, embarrassing, and greatly increases an inmate’s feelings of vulnerability. The Court further finds that these feelings of humiliation, degradation, and vulnerability are increased when a vbc search is accompanied by verbal harassment from the correctional officer(s) conducting the search. Such verbal harassment during a vbc search, including comments with homosexual references or allusion, does not further or promote any institutional security concern and is totally without legitimate purpose. Indeed, verbal harassment during a vbc search has a negative impact upon the security of ISP in that it causes some inmates to become more resentful, more hostile, and more likely to rebel against other assertions of authority. Thus, verbal harassment causes an increase in the tensions at ISP. The evidence and the reasonable inferences therefrom show that many of the correctional officers at ISP perform the vbc searches in an orderly manner without verbal harassment. However, the Court finds that some correctional officers, in some situations, conduct vbc searches in less than an appropriate manner. In other words, the evidence showed that some vbc searches are accompanied by teasing, rude and offensive comments, and other verbal harassment.

In the preliminary injunction Order, the Court granted authority to ISP officials of the status of Security Director or above to conduct a vbc search of an inmate upon “a reasonably clear indication that an inmate is actually concealing something in a body cavity.” To date, the Court has received no notice that this authority has been used despite the injunction.

The Court finds that vbc searches are ineffective in revealing contraband except in cases where a string or part of the item hidden is protruding from the anus or where signs such as excess lubricant, blood or feces are present. Where such signs are observable during a strip search, further inspection including the use of a vbc search would be permitted after approval by the Security Director or higher official. A vbc search will not reveal contraband completely hidden in the rectal cavity.

Security Director John Emmett testified that segregated inmates are vbc searched after, but not before, their exercise. At times during the exercise period, sixteen inmates are in the exercise pens and are watched by two guards, one of whom is in the tower. This occurs when four other guards are escorting inmates to or from the exercise pen. Otherwise, these four guards are observing the exercise pens.

The Court and the parties inspected the penitentiary premises; for an inmate to escape from the new visiting room at ISP, he would have to get by four locked doors, two sliding type and two with guard controlled locks. Four locked doors also protect the infirmary. Inmates taken to the infirmary are under constant supervision and are in restraints unless the treatment requires otherwise. Additionally, segregated inmates are prevented from having access to general population inmates while in the infirmary. The claimed justification for requiring a vbc search after an infirmary visit is that the administration does not have total control over who provides health care because these services are rendered under contract. Defendants are concerned that the company providing health care services may bring in a new doctor or a specialist who does not fully appreciate the security rules. In view of the other security measure surrounding infirmary visits, the Court finds that this security concern is exaggerated and does not justify use of the vbc search before or after such visits.

The justification for vbc searching an inmate before he goes to the visiting room is that he may take a weapon into the visiting room and use the weapon to take a hostage or attack someone. The Court enjoined vbc searches before contact visits with attorneys, legal interns, clergy, the prison chaplain, and the ombudsman. Vbc searches before other contact visits were not enjoined. The Court finds that the chance that an inmate would wish to attack an attorney, chaplain, clergyman or ombudsman is exceedingly remote and the evidence showed no history of any such attack. Second, because of the security measures which are readily apparent to the inmates, the possibility that an inmate would try to take a hostage as a way to escape from the visiting room is also remote. The Court finds the use of a vbc search prior to these visits is an exaggerated response to these security concerns.

The defendants’ justification for searching an inmate after one of these five types of contact visits is that the visitor might give the inmate contraband which the inmate could hide in his rectal cavity and take back into the prison. There is no indication that these types of visitors have attempted smuggling in the past. For this concern to actually happen, the visitor would have to get the contraband into the institution without being detected, the item would have to be removed for its hiding place and then passed to the inmate, and the inmate would have to then conceal it in his rectal cavity. The chances of this sequence of events happening and going undetected is quite remote. First, attorneys, clergy, chaplains, legal interns, and the ombudsman are not the type of people who smuggle contraband to inmates. Second, the surveillance makes it nearly impossible for an item to be hidden by the inmate in his rectal cavity. Inmates do not wear their own prison garb on a visit; they are given “visiting clothing” after the strip search which is conducted prior to the visit. Thus, the clothes worn for a visit will not be split or torn to give the inmate easy access to his rectal cavity. After the visit is over, the prisoners are taken back to a private area, the “visiting clothing” is removed, and they are again strip searched.

Finally, the squat-and-cough search procedure is no longer condoned by the administration of ISP. The Court finds that the squat-and-cough search procedure is an ineffective type of anal body cavity search which accomplishes nothing other than to degrade and humiliate the inmate recipient. See Tr. 210.

II. CONCLUSIONS OF LAW

The Fourth Amendment provides in pertinent part:

The right of the people to be secure in their persons ... against unreasonable searches and seizures, shall not be violated ____

The Fourth Amendment protects people, not places. Katz v. United States, 389 U.S. 347, 351, 88 S.Ct. 507, 511, 19 L.Ed.2d 576 (1967). Thus, individuals retain the right to be free from “unreasonable government intrusions into their legitimate expectations of privacy.” United States v. Chadwick, 433 U.S. 1, 7, 97 S.Ct. 2476, 2481, 53 L.Ed.2d 538 (1977). To pass muster under the Fourth Amendment, a search must be reasonable. “Reasonableness” is determined by balancing the intrusiveness of the search on the individual’s Fourth Amendment interest against the search’s promotion of legitimate government interests. Delaware v. Prouse, 440 U.S. 648, 654, 99 S.Ct. 1391, 1396, 59 L.Ed.2d 660 (1979). In the context of visual body cavity searches, the Supreme Court has stated:

The test of reasonableness under the Fourth Amendment is not capable of precise definition or mechanical application. In each case it requires a balancing of the need for the particular search against the invasion of personal rights that the search entails. Courts must consider the scope of the particular intrusion, the manner in which it is conducted, the justification for initiating it, and the place in which it is conducted.

Bell v. Wolfish, 441 U.S. 520, 559, 99 S.Ct. 1861, 1884, 60 L.Ed.2d 447 (1979).

The Court adopts the following method of analyzing “reasonableness” under the Fourth Amendment.

1. Does the inmate have a legitimate expectation of privacy?
(a) Have the inmates exhibited an actual (subjective) expectation of privacy?
(b) Is that expectation one which society is prepared to recognize as “reasonable”?
2. Do the challenged searches promote legitimate governmental interests?

See Katz, 389 U.S. at 361, 88 S.Ct. at 516 (Harlan, J., concurring).

Defendants urge this Court to extend the holding in Hudson v. Palmer, 468 U.S. 517, 104 S.Ct. 3194, 82 L.Ed.2d 393 (1984), relating to a prisoner’s cell to a prisoner’s body. In that case the Supreme Court held

that society is not prepared to recognize as legitimate any subjective expectation of privacy that a prisoner might have in his prison cell and that, accordingly, the Fourth Amendment proscription against unreasonable searches does not apply within the confines of the prison cell.

Id. at-, 104 S.Ct. at 3200. Defendants argue that an inmate retains no reasonable expectation of privacy in his body. The Court disagrees. The Court finds that the inmates have an actual expectation of privacy but that their subjective expectations are significantly diminished by the fact that they are incarcerated. Next, the Court concludes that society recognizes a legitimate expectation of inmates that they be free from excessive and unwarranted searches of a highly intrusive nature. The Supreme Court has set forth the general principal that

convicted prisoners do not forfeit all constitutional protections by reason of their conviction and confinement in prison.

Bell v. Wolfish, 441 U.S., at 545, 99 S.Ct., at 1877. Thus, this Court concludes that inmates do retain some of the Fourth Amendment’s protections while incarcerated.

Having concluded that the Fourth Amendment is applicable to protect the integrity of an inmate’s body, the next step is to consider the justifications asserted for the vbc searches. At this point, the Court turns to the amount of deference which the judiciary should accord those officials responsible for the day-to-day operation of a penal institution. In Bell v. Wolfish, supra, the Supreme Court stated:

Prison administrators therefore should be accorded wide-ranging deference in the adoption and execution of policies and practices that in their judgment are needed to preserve internal order and discipline and to maintain institutional security. (Cites and footnote omitted). “Such considerations are peculiarly within the province and professional éxpertise of correction officials and, in the absence of substantial evidence in the record to indicate that the officials have exaggerated their response to these considerations, courts should ordinarily defer to their expert judgment in such matters.” Pell v. Procunier, 417 U.S. 817, 827, 94 S.Ct. 2800, 2806, 41 L.Ed.2d 495.

This idea of judicial deference does not, however, mean that the authority of prison administrators is unchecked by the United States Constitution. Indeed, in Bell v. Wolfish, 441 U.S., at 546, 99 S.Ct., at 1878, Justice Rehnquist stated:

There must be a “mutual accommodation between institutional needs and objectives and the provisions of the Constitution that are of general application.” Wolff v. McDonnell, supra, 418 U.S. 539 at 556, 94 S.Ct. 2963, 2975, 41 L.Ed.2d 935.

While this Court appreciates the policy concerns justifying the idea of judicial deference, the Court also recognizes that the purpose of the Bill of Rights is to enshrine certain fundamental principles beyond the reach of governmental officials or legislative majorities. Hudson v. Palmer, 468 U.S. at-, 104 S.Ct. at 3215 (Stevens, J., dissenting). Furthermore, this Court shares the views of Justice Blackmun when he stated:

I am concerned about the [Supreme] Court’s apparent willingness to substitute the rhetoric of judicial deference for meaningful scrutiny of constitutional claims in the prison setting. See Rhodes v. Chapman, 452 U.S. 337, 369 [101 S.Ct. 2392, 2410, 69 L.Ed.2d 59] (1981) (opinion concurring in the judgment). Courts unquestionably should be reluctant to second-guess prison administrators’ opinions about the need for security measures; when constitutional standards look in whole or in part to the effectiveness of administrative practices, good-faith administrative judgments are entitled to substantial weight. The fact that particular measures advance prison security, however, does not make them ipso-facto constitutional. Cf Bell v. Wolfish, 441 U.S., at 539, n. 20 [99 S.Ct., at 1874 n. 20]. I recognize that constitutional challenges to prison conditions, like similarly expansive challenges to the workings of other institutions, pose a danger of excessive judicial intervention. At the same time, however, careless invocations of “deference” run the risk of returning us to the passivity of several decades ago, when the then-prevailing barbarism and squalor of many prisons were met with a judicial blind eye and a “hands off” approach. As we recognized in Bell v. Wolfish, the fact that initial responsibility for the Nation’s prisons is vested in prison administrators “does not mean that constitutional rights are not to be scrupulously observed.” Id., at 562 [99 S.Ct., at 1886]

Block v. Rutherford, — U.S. -, -, 104 S.Ct. 3227, 3236, 82 L.Ed.2d 438 (1984) (Blackmun, J., concurring in judgment). In short, there is a constitutional line which constrains the discretion of prison administrators.

The Court concludes that consideration of the promotion of legitimate governmental interests should be analyzed in the context of when and where the vbc search is used. In Bell v. Wolfish, the Supreme Court set forth four factors which a court must consider in performing the Fourth Amendment balancing test. The four factors are:

(1) The scope of the particular intrusion,
(2) The manner in which it is conducted,
(3) The justification for initiating it, and
(4) The place in which it is conducted.

These factors indicate that the reasonableness of a given search is dependent upon the facts and circumstances surrounding that search. Thus, the Court concludes that the justifications or governmental interests promoted by a given search must also be considered in their factual context. As a result, the Court rejects defendants’ argument that all situations involving contact visits with individuals from outside the institution should be held to be a categorically reasonable situation permitting a vbc search. Rather, the Court will consider the propriety of the vbc search in a number of separate settings.

1. Attorneys. The use of vbc searches before and after attorney visits is troubling in that an inmate’s fundamental constitutional right of access to the courts is involved in addition to his Fourth Amendment rights. See Simms v. Brierton, 500 F.Supp. 813 (N.D.Ill.1980). In view of recent Eighth Circuit precedent, Hahn v. McLey, 737 F.2d 771 (8th Cir.1984); Nelson v. Redfield Lithograph Printing, 728 F.2d 1003 (8th Cir.1984), inmate-attorney visits will play an important role in the process for vindicating prisoners’ constitutional rights. As previously found, the use of vbc searches before and after attorney visits will have a chilling effect on the assertion of inmates’ legal rights. In balancing the degree to which these searches promote security against the prisoners’ privacy and due process interests, the Court concludes that these searches are unconstitutional unless there is some independent, clear reason to suspect an individual lawyer or intern by reason of his or her past actions or statements.

2. Legal interns. The situation presented by legal intern visitors is similar to attorney visitors. Because of the burden the vbc search places on the right to access to the courts, the Court concludes that vbc searched before and after such visits shall be enjoined.

3. Clergy. Clergy, like attorneys, must produce their credentials before they will be allowed to visit an inmate at ISP. Iowa Administrative Code Chapter 291-20.-3(4). The Court concludes that these searches are unreasonable and, thus, unconstitutional.

4. Prison chaplain. The prison chaplain is hired by the Department of Corrections and is part of the ISP staff. Requiring an inmate to submit to a vbc search before and/or after such a visit is unreasonable and shall be enjoined.

5. Ombudsman. Similarly, the ombudsman is a state employee who presents no real danger of passing or receiving contraband from an inmate. Thus, vbc searches before and after such visits are unreasonable and shall be enjoined.

6. Infirmary. The Court finds the use of vbc searches before and after an inmate visit to the new infirmary area is an exaggerated response to the security needs presented by the situation. Furthermore, the use of vbc searches has the effect of keeping inmates with legitimate medical needs from visiting the infirmary. A prisoner should not have to choose between getting medical relief and submitting to a vbc search. The Court concludes that these searches are unreasonable and shall be enjoined.

7. University of Iowa Hospital. In trips to the University Hospital, the inmates are in the same areas that are open to the general public. In crowded hallways, there may be physical touching between the inmate and someone the guard does not know. Furthermore, the computerized records of the Hospital make it possible for Hospital employees to find out when an inmate will be visiting the Hospital. This information can be passed to friends of the inmate. Some physical examinations of inmates are done outside the presence of a guard. In view of the many variables which may occur during a Hospital visit, the Court will modify the preliminary injunction so that vbc searches can be conducted at the Hospital both on arrival and upon leaving the Hospital. However, the use of the vbc search before leaving the prison on such a trip is unreasonable and shall continue to be enjoined. The Court has distinguished between vbc searches conducted before leaving the prison and those conducted upon arrival at the Hospital to lessen the burden on the right to medical treatment, i.e., to reduce the number of incidences where the records show an inmate refused to submit to a vbc search at the prison before leaving for the Hospital and thus was not allowed to make the trip to the Hospital.

8. Court (on prison grounds). Two trailer houses inside the ISP fences but outside the prison walls serve as court facilities for certain legal proceedings which involve prisoners. This Court conducts its hearings and trials in many civil rights actions in those facilities. While in court, the inmates are always under the observation of at least one — and usually several more — correctional officers. In court the inmates’ handcuffs and belly chains are removed. Leg restraints, if the inmate is in a status which requires them, are left secured. While in the witness room in the trailer house which is adjacent to the court room, the inmates are always under the supervision of one or more correctional officers and they remain in their restraints. In view of the restraints and supervision by correctional officers, the Court is persuaded that, in the context of vbc searches before and after court visits on the prison grounds, the security interests of ISP are not promoted by the use of the vbc search to a degree significant enough to outweigh the privacy interest of the inmates and vbc searches will not be conducted in these situations.

9. Court outside Prison. Inmates on court visits are always in the close presence of at least two security guards and usually several more except when conferring with their attorney and sometimes when the security guard allows them privacy inside a restroom stall. The possibility that an attorney would allow an inmate to place or retrieve an item from his anal cavity is exceedingly remote. Also, the chance that an attorney would give an inmate contraband which he could hide during a later trip to the restroom is minimal and remote. During court visits, the guards are much more in control of what happens with the inmate. This distinguishes court visits from Hospital visits. The Court concludes that vbc searches before and after court visits outside the prison are unreasonable.

10. Exercise. The Court appreciates the frankness of the defendants’ statement that:

Candidly, the Penitentiary policy of giving visual body cavity searches before and after segregated inmate’s exercise is not as obviously constitutional as is the policy of requiring such searches in the cases previously described since infirmary visits and exercise do not require the inmate to leave the prison and do not bring him into contact with people from outside the institution.

Defendant’s Trial Brief, p. 19. Also, the testimony of Dr. Mintzes, formerly the warden at State Prison in Jackson, Michigan, and Warden Armontrout supports the conclusion that these searches do not advance the security of ISP to any significant degree. Given the surveillance of the exercise pens by correctional officers, the use of restraints to and from the exercise pens, the number of guards performing the escort, and the physical make up of the pens, the Court finds the use of vbc searches upon return from exercise is an exaggerated response to the perceived security needs of ISP. Consequently, these searches are unreasonable.

With respect to verbal harassment during those vbc searches not prohibited by this Court’s injunction, the Court concludes that verbal abuse and harassment can render an otherwise constitutional vbc search unconstitutional. In Bell v. Wolfish, 441 U.S., at 560, 99 S.Ct., at 1885, the Court stated:

Nor do we doubt, as the District Court noted, that on occasion a security guard may conduct the search in an abusive fashion. [Wolfish v. Levi,] 439 F.Supp. [114], at 147 [(1977)]. Such abuse cannot be condoned. The searches must be conducted in a reasonable manner. Schmerber v. California, supra [384 U.S. 575], at 771-772 [86 S.Ct. 1826,1836, 16 L.Ed. 908 (1966) ]. But we deal here with the question whether visual body-cavity inspections as contemplated by the MCC rules can ever be conducted on less than probable cause.

(emphasis in original). In light of this language and the second of the four factors set forth on page 12 above, it appears that conduct by guards which increases the humiliation and degradation inherent in a vbc search and which does not promote institutional security cannot be tolerated. Consequently, this Court will enjoin correctional officers and other officials of ISP from teasing, making abusive or rude comments, or otherwise verbally harassing inmates during a vbc search.

HI.

A. Evidence and Procedure. On July 20, 1984, the plaintiffs filed a motion for leave to file amended and supplemented complaints. During the course of the trial, defendants made various motions to dismiss and strike evidence based on the assertion that the matters presented were not raised by the pleadings. The Court reserved ruling on defendants’ motions to strike and motions to dismiss subject to the plaintiffs filing a motion for leave to amend. Under Fed.R.Civ.P. 15 and the Eighth Circuit precedent interpreting that rule, E.g. Asay v. Hallmark Cards, Inc., 594 F.2d 692 (8th Cir.1979), leave to amend shall be freely given. The Court will grant plaintiffs leave to amend. The Court finds the defendants were not prejudiced by the amendment because this Court’s preliminary injunction order entered well before trial clearly defined the various categories of vbc searches which were to be considered. The defendants were, at the time of trial, clearly prepared to address the various categories of vbc searches which were enjoined by the preliminary injunction. During the trial, the defendants moved to strike the testimony of Inmate Deri Sharp and moved to strike the testimony of Plaintiff Heaton. The Court reserved ruling on those motions and gave the defendants the opportunity to reassert their motions to strike after plaintiffs had amended their complaint. The defendants have not reasserted these motions to strike although given ample opportunity to do so. The Court will overrule the motions to strike and the testimony of Inmate Sharp and Plaintiff Heaton will be received as relevant evidence.

Defendants called as a witness Warden Bill Armontrout of the Missouri State Penitentiary which is located in Jefferson City, Missouri. Warden Armontrout testified, over the objections of the plaintiffs, about what two inmates had told him regarding knives which they kept hidden in their rectal cavities. The plaintiffs assert that this testimony should be excluded because, first, defendants failed to comply with requests for discovery regarding experts and, thus, said testimony should be excluded under Fed.R.Civ.P. 37(b)(2)(B) as a sanction for such failure and, second, the testimony of Warden Armontrout was hearsay that did not fall within one of the recognized exceptions to the hearsay rule.

The Court is not persuaded that it should exclude this testimony on the basis of discovery rule violations even though the rule was violated.

As to the hearsay objection, despite defendants’ contention, the Court concludes that the testimony was offered for the truth of the matter asserted. The Notes of Advisory Committee to Rule 801 state:

If the significance of an offered statement lies solely in the fact it was made, no issue is raised as to the truth of anything asserted, and the statement is not hearsay.

The practical thrust of Warden Armontrout’s testimony was not that inmates say they hide knives in their anal cavity, but that inmates actually do hide knives in such a fashion.

Next, the Court concludes that the statement by the inmate about where he hid the knife is not a statement against interest as that phrase is used in Fed.R. Evid. 804(b)(3). The evidence does not show that the exact hiding place of the weapon is something which could subject the declarant to greater criminal or penal sanctions. Furthermore, the inmate declarants could easily have had a motive to deceive Warden Armontrout in an effort to preserve the secrecy of what the inmate regarded as a better hiding place. Consequently, the Court concludes that the statements by the two inmates to Warden Armontrout do not fall within the hearsay exceptions '«set forth in Fed.R.Evid. 804(b)(3), 804(b)(5), or 803(24). Thus, plaintiffs’ objections to the testimony by Warden Armontrout about statements made to him by inmates shall be sustained and that testimony shall be stricken from the record.

The practical effect of this hearsay ruling upon the defendants’ case is minimal because the Court recognizes that it is possible for an inmate to conceal a properly wrapped weapon in his anal cavity. In addition, the plaintiffs do not contend that it is impossible to conceal a dangerous weapon in the anal cavity.

B. Standing. The defendants contend that none of the three named plaintiffs have standing to challenge the visual body cavity searches before or after visits to the University of Iowa Hospital, or before or after visits from an attorney, clergyman, or the prison ombudsman. Defendants’ contention is premised upon the argument that the plaintiffs must have been subjected to a vbc search in making that particular type of visit before the plaintiffs would be entitled to a permanent injunction which prevents a vbc search before or after that type of visit.

Plaintiff Goff has standing to challenge the vbc searches before or after visits with an attorney. Plaintiff Goff’s suit was initiated because he was required to submit to an anal body cavity search before being allowed to see his attorney. Plaintiff Goff refused to submit to the search procedures which were used at that time and, thus, was not allowed to see his attorney. Furthermore, the Court finds that the challenged vbc searches, if not enjoined, pose a threat of injury which is both real and immediate, as opposed to merely conjectural or hypothetical. The test for an actual “case or controversy” which the United States Supreme Court has adopted is that there be a threat of injury which is real and immediate, and not merely speculative. See City of Los Angeles v. Lyons, 461 U.S. 95, 102, 103 S.Ct. 1660, 1665, 75 L.Ed.2d 675, 684 (1983). Defendants argue that plaintiffs’ claim is based on “the speculative assertion that at some time in the future they may wish to engage in some of the activities covered by the visual body cavity search policy and upon that occurrence may be subject to a visual body cavity search.” Defendants Post-Trial Brief, p. 18. First, part of the reasoning behind the present vbc search policy is that it is mandatory in certain situations and therefore does not give the prison guards the opportunity to exercise their discretion in an arbitrary or discriminatory manner. Second, plaintiffs cannot control when they will need the services of the University of Iowa Hospital. Also, plaintiffs are unable to control all the situations in which it would be desirable to speak directly with an attorney. Finally, and most importantly, plaintiffs should not be forced to choose between having their Fourth Amendment rights violated by an unconstitutional vbc search and foregoing a visit with an attorney (Due Process — access to the courts), a clergyman (First Amendment — freedom of religion), or the prison ombudsman (while access to the ombudsman may not implicate a fundamental constitutional right, it is important to inmates as a way to bring problems inside ISP to the attention of someone who is outside the institution).

C. Report. At the close of the evidence presented on July 16, 1984, the Court directed counsel for the defendants to report to the Court on the effect that the issuance of the preliminary injunction had on inmates who had been disciplined for refusing to submit to the squat and cough procedure. In part, the Court was concerned with whether the sanctions for refusing to submit to that anal body cavity search were suspended or eliminated by the administration after the injunction was issued. In a letter dated December 11, 1984, the Court was informed by defense counsel that the disciplinary segregation being served by Goff and Schertz was not suspended. Heaton was reported to not have received a disciplinary report as a result of the refusal to squat and cough.

D. Damages. The issue of damages was entertained at the trial. The Court requests the input of counsel regarding the manner in which that question should be handled; specifically, is there a need for a further hearing on damages?

IT IS THEREFORE ORDERED that defendants are hereby permanently enjoined from conducting visual anal body cavity searches in the following situations:

1. Before or after contact visits with attorneys, legal interns with a notarized letter of introduction from a licensed attorney, clergy, the prison chaplain, or representatives of the prison ombudsman’s office.

2. Before going to or after coming from the prison infirmary.

3. Before leaving the prison on a trip to University of Iowa Hospitals. However, as a modification of the preliminary injunction, vbc searches can be conducted upon arrival at the Hospital and before leaving the Hospital.

4. Before or after attendance by inmates at court dates, whether on the prison grounds or in any other location, unless the inmate is out of restraints and actually beyond the visual supervision of ISP correctional officers. Private visits with attorneys shall not be considered as being outside the visual supervision or out of restraints.

5. Before going to or after coming from the exercise areas.

IT IS FURTHER ORDERED that the practice known as “squat-and-cough” shall be permanently enjoined from being used under any circumstances at ISP.

IT IS FURTHER ORDERED that correctional officers and other ISP officials shall be enjoined from teasing, making abusive or rude comments, or otherwise verbally harassing inmates during a vbc search.

IT IS FURTHER ORDERED that this Order does NOT prevent the defendants from conducting visual body cavity searches in the following situations:

(a) Before or after “contact” visits with any visitors coming to the prison except a set out above.

(b) Upon initial admission to the prison or before or after being outside the prison on furlough, transfer or work release.

(c) Before or after a segregated prisoner has mixed with the “general population” without supervision or restraints.

(d) Before or after an inmate, in any set of circumstances, has demonstrated activity which would give an official of the penitentiary of the status of Security Director or above a reasonably clear indication that an inmate is actually concealing something in his anal cavity. In any such situations, the burden will be on the Warden to show that the use of this exception was reasonable.

IT IS FURTHER ORDERED that this Order shall apply to all inmates at the Iowa State Penitentiary, not only to cellhouse 20 and 319 inmates.

IT IS FURTHER ORDERED that plaintiffs shall submit their pleadings setting out their position on damages within twelve days from the date this Order is filed. Defendants shall respond in six days.

      . On April 16, 1984, Judge Stuart ordered that three cases before him concerning anal body cavity searches be consolidated with this case, Goff v. Nix, Civil No. 84-129-E. The three cases were Schertz v. Nix, Civil No. 84-212-A; Heaton v. Nix, Civil No. 84-214-A; and Sharp v. Nix, Civil No. 84-61-A. After input from the attorneys, the Court decided to address squat-and-cough cases with claimed money damages separately. Consequently, this Court severed the case of Deri Sharp v. Nix, Civil No. 84-61-A, which Judge Stuart had consolidated with this action.

      . It is important to note what procedures are not being challenged in this lawsuit. The bend- and-spread procedure is set forth in ISP Policy No. 84-3-2-567 entitled "Strip Search: Inmates.” Plaintiffs Exhibit 1. The use of strip searches is not challenged. Furthermore, the procedure which requires guards to

        Have subject lift penis and scrotum to inspect the crotch area.
      Policy No. 84-3-2-567, Procedure B., 8, is not challenged.

      . Page ll, i[(d).

      . The defendants contend that the new infirmary area is poorly constructed and that reasonableness requires that a vbc search is therefore necessary on said visits. The thorough view of the premises made by this Court persuaded the Court that the chances of escaping from this area were very slim and none. They do have a very few “inside" room walls that would be considered "weak” when compared to a maximum security wall, but even if one of these could be "kicked” through, the prisoner would not be in any open area. Further, any such "kicking” in could be done, if it is possible, whether your anus had been checked or not.

      . It should be remembered that the prisoners in this situation have leg irons, handcuffs and belly chains on and can hardly move their hands. In open court, with many persons watching in close proximity, usually one hand is freed to allow the prisoner to write.

      . The exercise log sheets, as provided to the Court by counsel for the defendants, clearly demonstrate that many prisoners were refusing to go to exercise "DUE TO VIOLATIONS OF FOURTH, EIGHTH AND FOURTEENTH AMENDMENT RIGHTS, I.E. RECTAL SEARCH REQUIREMENTS."


author: STUART, District Judge.

text:
    ILLINOIS CENTRAL GULF RAILROAD COMPANY, Plaintiff, v. Gerald D. BAIR, Director of the Department of Revenue of Iowa, Defendant.
    Civ. No. 83-147-C.
    United States District Court, S.D. Iowa.
    Dec. 20, 1985.

      Frank W. Davis, Jr., Gamble, Riepe, Webster, Davis & Green, Des Moines, Iowa, for plaintiff.
    . Thomas Miller, Iowa Atty. Gen., Gerald A. Kuehn, Asst. Atty. Gen., for defendant.
   FINDINGS OF FACT, CONCLUSIONS OF LAW, DECLARATORY JUDGMENT, PERMANENT INJUNCTION AND ANCILLARY RELIEF

STUART, District Judge.

This matter is before the Court on the request of the parties for final relief in this case based upon prior .decisions of this Court in the case of Burlington N. R.R. v. Bair, Civil No. 83-100-A [BN case]. See, 584 F.Supp. 1229 (S.D.Iowa 1984), affd. and remanded, 766 F.2d 1222 (8 Cir.1985). The issue in this case is the personal property tax issue involved in the BN case. Plaintiff Illinois Central Gulf Railroad Company [ICG] seeks declaratory and injunctive relief. The parties have submitted their Stipulation of Relevant Facts which is attached hereto and marked Appendix 1.

Based upon the pleadings and the Stipulation, the Court makes the following findings of fact:

Findings of Fact

1. The Court accepts and finds as facts herein the facts contained in Appendix 1. Appendix 1 is incorporated herein by reference.

2. The Court finds that, based upon the findings and conclusions in the BN case, the correct 1983 assessment and actual value for the rail transportation property of the ICG which is subject to valuation and assessment by the Director should be and is $8,886,160.

3. The Court finds that, based upon the findings and conclusions in the BN case, the correct 1984 assessment and actual value for the rail transportation property of the ICG which is subject to valuation and assessment by the Director should be and is $13,255,699.

Based upon the foregoing, the Court makes the following conclusions of law:

Conclusions of Law

1. The Court has jurisdiction over the subject matter hereof pursuant to the provisions of 49 U.S.C. § 11503, 28 U.S.C. § 1337 and 28 U.S.C. § 1331.

2. The Court has jurisdiction over the parties hereto.

3. The ICG is a “rail carrier providing transportation subject to the jurisdiction of the Commission under subchapter I of Chapter 105” of the Interstate Commerce Act, 49 U.S.C. §§ 10101, et seq.

4. The real and personal property of the ICG which is subject to valuation and assessment by the Director pursuant to the provisions of Iowa Code ch. 434 is “rail transportation property”, as that phrase is defined in 49 U.S.C. § 11503; the Director performs an “assessment”, as that word is defined in 49 U.S.C. § 11503, with respect to such property; and the State of Iowa is an “assessment jurisdiction”, as that phrase is defined in 49 U.S.C. § 11503, with respect to such property.

5. For the reasons stated in the Ruling and Order on Personal Property Taxation Issue entered by this Court on April 20, 1984, in the BN case, [584 F.Supp. 1229], the Court concludes that, to the extent that the 1983 assessment of the rail transportation property of the ICG by the Director exceeds $8,886,160, the same unreasonably burdens and discriminates against interstate commerce in violation of 49 U.S.C. § 11503(b) and results in the imposition of a tax that discriminates against the ICG in violation of 49 U.S.C. § 11503(b)(4).

6. For the reasons stated in the Ruling and Order on Personal Property Taxation Issue entered by the Court on April 20, 1984, in the BN case [584 F.Supp. 1229], the Court concludes that, to the extent the 1984 assessment of the rail transportation property of the ICG by the Director exceeds $13,255,699, the same unreasonably burdens and discriminates against interstate commerce in violation of 49 U.S.C. § 11503(b) and results in the imposition of a tax that discriminates against the ICG in violation of 49 U.S.C. § 11503(b)(4).

Based upon the foregoing, the Court enters the following declaratory judgment herein:

Declaratory Judgment

IT IS ORDERED, ADJUDGED, DECREED AND DECLARED as follows:

1. To the extent that the 1983 assessment of the rail transportation property of the ICG by the Director exceeds $8,886,160, the same is null, void and of no force and effect. The 1983 revised assessment of the rail transportation property of the ICG is declared to be $8,886,160.

2. To the extent that the 1984 assessment of the rail transportation property of the ICG by the Director exceeds $13,255,-699, the same is null, void and of no force and effect. The 1984 revised assessment of the rail transportation property of the ICG is declared to be $13,255,699.

Based on the foregoing, the Court enters the following permanent injunction herein:

Permanent Injunction

IT IS ORDERED, ADJUDGED AND DECREED as follows:

1. The Director is permanently enjoined from doing, or causing to be done, any act under the provisions of Iowa Code ch. 434 which would result in the valuation and/or assessment of the rail transportation property of the ICG for the year 1983 in excess of the amount of $8,886,160 or which would result in the valuation and/or assessment of the rail transportation property of the ICG for the year 1984 in excess of the amount of $13,255,699.

2. The Director shall forthwith transmit to the County Auditor of each county in which the rail transportation property of the ICG was located for the assessment year 1983 a revised statement showing the length of the main track within each such county, and the assessed value per mile of the same, as fixed by a ratable distribution per mile of an assessed value of the whole property of ICG.

3. The Director shall forthwith transmit to the County Auditor of each county in which the rail transportation property of the ICG was located for the assessment year 1984 a revised statement showing the length of the main track within each such county, and the assessed value per mile of the same, as fixed by a ratable distribution per mile of an assessed value of the whole property of ICG.

4. Upon receipt by the County Auditors of the revised statements required by paragraphs 2 and 3 hereof, they will forthwith present the same to their respective boards of supervisors in accordance with the provisions of Iowa Code § 434.22 and cause the same to be transmitted to their respective County Treasurers in accordance with the provisions of Iowa Code § 331.512(7).

5. Upon receipt by the County Treasurers of the revised statements required by paragraphs 2 and 3 hereof in accordance with the procedures described in paragraph 4 hereof, the County Treasurers shall forthwith cause to be prepared revised tax statements for the rail transportation property of the ICG located within their county for first half 1983 taxes, second half 1983 taxes and first half 1984 taxes. In no event shall the revised tax statements for 1983 taxes show amounts due in excess of 63.51% of the amounts originally billed, nor shall the revised tax statements for 1984 show amounts due in excess of 72.08% of the amounts originally billed. All revised tax statements shall reflect credits for amounts previously paid by the ICG. No revised tax statement shall contain any claim for interest or penalty. Revised tax statements for second half 1984 taxes shall be prepared and rendered in similar fashion.

6. The County Treasurers of each county in which rail transportation property of the ICG was located for the years 1983 and 1984 are permanently enjoined from doing, or causing to be done, any act which would result in the collection, or claim for collection, of any taxes on the rail transportation property of the ICG located in their respective counties in excess of 63.51% of the amounts originally billed for 1983 or 72.08% of the amounts originally billed for 1984. The County Treasurers are further permanently enjoined from doing, or causing to be done, any act which would result in the collection, or claim for collection, of any interest or penalty on any of the taxes specified herein except for the collection of interest on funds deposited in the Registry of the Court as hereinafter provided.

Based on the foregoing, the Court enters the following orders pertaining to ancillary relief herein.

Ancillary Relief

IT IS ORDERED, ADJUDGED AND DECREED THAT:

1. The Clerk of this Court is directed to make the following disposition of monies deposited in the Registry of the Court:

a. Monies presently invested in certificates of deposit will not be reinvested and will be returned to the Registry at maturity-

b. Monies deposited in the Registry pursuant to the Consent Preliminary Injunction entered herein on September 20, 1984, shall be distributed as follows:

i. At maturity, the Clerk shall pay $27,-005.50 in principal and $2,851.26 in accrued interest thereon to the ICG to be distributed to the County Treasurers.

ii. At maturity, the Clerk shall distribute $53,109.08 in principal and $5,607.27 in accrued interest thereon to the ICG. A check in the amount of $58,716.35 payable to the ICG shall be delivered to its counsel of record.

c. Monies deposited in the Registry pursuant to the Consent Preliminary Injunction entered herein on March 20,1985, shall be distributed as follows:

i. At maturity, the Clerk shall pay $27,-005.50 in principal and $1,519.92 in accrued interest thereon to the ICG to be distributed to the County Treasurers.

ii. At maturity, the Clerk shall distribute $53,109.08 in principal and $2,989.09 in accrued interest thereon to the ICG. A check in the amount of $56,098.17 payable to the ICG shall be delivered to its counsel of record.

d. Monies deposited in the Registry pursuant to the Consent Preliminary Injunction entered herein on September 27, 1985, shall be distributed as follows:

i. At maturity, the Clerk shall pay $15,-111.07 in principal and $266.62 in accrued interest thereon to the ICG to be distributed to the County Treasurers.

ii. At maturity, the Clerk shall distribute $50,669.93 in principal and $894.01 in accrued interest thereon to the ICG. A check in the amount of $51,563.94 payable to the ICG shall be delivered to its counsel of record.

e. The money paid by the ICG to the County Treasurers shall be subject to the following:

i. All taxes paid shall be considered to be timely paid pursuant to Iowa Code ch. 445 with no interest or penalty due or claimed thereon.

ii. All taxes paid shall not be considered to be delinquent for purposes of Iowa Code § 307.29 or any other purpose.

iii. The County Treasurers shall issue to the ICG receipts which show that all taxes for the period or periods involved are paid in full.

iv. The County Treasurers shall release any liens asserted by reason of the nonpayment or partial payment of taxes for the period or periods involved.

2. Upon the filing hereof, the Director shall cause each of the counties affected hereby of the entry hereof by mailing a copy hereof to the County Treasurers of such counties.

3. Upon the filing hereof, the Clerk shall enter final judgment on the Declaratory Judgment and the Permanent Injunction provided herein. No costs will be taxed to any party.

4. To the extent that the contents hereof are inconsistent with the Consent Preliminary Injunctions previously entered herein, said Consent Preliminary Injunctions are hereby modified accordingly.

APPENDIX 1

STIPULATION OF RELEVANT FACTS

COME NOW the parties hereto, by their respective counsel of record, and, for purposes of the pending litigation only, stipulate and agree as follows:

General

1. At all times material, the Illinois Central Gulf Railroad Company [ICG] was a common carrier by railroad engaged in the interstate and intrastate transportation of freight for hire and the furnishing of services in connection therewith.

2. At all times material, the ICG was subject to the provisions of the Interstate Commerce Act, 49 U.S.C. §§ 10101, et seq., and, in particular, the provisions of 49 U.S.C. § 11503, also known as “Section 306”.

3. At all times material, the ICG owned or used real and personal property which was “rail transportation property” under Section 306.

4. At all times material, certain rail transportation property of the ICG was subject to “assessment”, as that word is defined in Section 306, by the Iowa Department of Revenue [Department], acting as an “assessment jurisdiction”, as that phrase is defined in Section 306, pursuant to the provisions of Iowa Code ch. 434.

5. At all times material, the Director of the Department [Director] was responsible for determining the actual value of the rail transportation property of the ICG which was subject to taxation within the State of Iowa in accordance with the provisions of Iowa Code ch. 434 and, in particular, the provisions of Iowa Code § 434.15.

6. At all times material, the valuation of the real rail transportation property of the ICG subject to assessment by the Director was subject to the limitation contained in Iowa Code § 441.21(6). In 1983, that limitation was 91.7230% and, in 1984, that limitation was 95.4242%.

7. At all times material, the valuation of the personal rail transportation property of the ICG subject to assessment by the Director was subject to the valuation limitation contained in Iowa Code § 427A.11. For the years 1983 and 1984, that limitation was 33% of actual value.

8. At all times material, the assessed value of the personal rail transportation property of the ICG subject to assessment by the Director was eligible for the personal property tax credit provided in Iowa Code ch. 427A. In the years 1983 and 1984, the available personal property tax credit was $175,000.

1983 Assessment

9. The Director, acting under the provisions of Iowa Code ch. 434, determined that the 1983 actual value of the rail transportation property of the ICG subject to assessment in the State of Iowa was $15,254,000 before equalization. In determining the 1983 assessment, the Director did not distinguish between real and personal rail transportation property.

10. In 1983, the rail transportation property of the ICG which was subject to valuation and assessment by the Director was composed of 44.96% real property, or $6,858,198, and 55.04% personal property, or $8,395,802.

11. Application of the limitation contained in Iowa Code § 441.21(6) to the actual value of the real property of the ICG would reduce the 1983 actual value thereof to $6,290,545.

12. Application of the valuation limitation contained in Iowa Code § 427A.11, and the personal property tax credit contained in Iowa Code ch. 427A, to the actual value of the personal property of the ICG would reduce the 1983 actual value thereof to $2,595,615.

13. The combination of the reduced 1983 actual values of the ICG real and personal property would result in a revised 1983 assessment for the ICG of $8,886,160.

First Half 1983 Taxes

14. On September 26, 1984, the Court entered its Consent Preliminary Injunction and Order Granting Leave to Deposit Money into the Registry of Court in this case enjoining the County Treasurers of the counties in which the ICG operated from collecting more than 44.96% of the first half 1983 taxes (based on the 1983 assessment) due on or before September 30,1984, and directing the ICG to deposit the balance of said taxes in the Registry of the Court.

15. Under the Consent Preliminary Injunction, the ICG paid $65,442.50 to the County Treasurers and $80,114.58 to the Registry.

16. The County Treasurers billed the ICG a total of $145,557.08 for first half 1983 taxes based on the 1983 assessment. In the event that the revised 1983 assessment is approved, the revised 1983 first half taxes due from the ICG will be $92,-448.00. First half 1983 taxes originally billed by the County Treasurers, but not owed under the 1983 revised assessment, would be $53,109.08. The ICG has already paid $65,442.50 of the revised amount to the County Treasurers and there would be a balance due to the County Treasurers of $27,005.50 on account of first half 1983 taxes from funds in the Registry, plus an allocated share of the interest accrued thereon equal to $2,851.26. The ICG would be entitled to the remaining $53,109.08 in the Registry, plus the balance of the interest in the amount of $5,607.27, or a total of $58,716.35.

Second Half 1983 Taxes

17. On March 20, 1985, the Court entered its Consent Preliminary Injunction and Order Granting Leave to Deposit Money into the Registry of Court in this case enjoining the County Treasurers of the counties in which the ICG operated from collecting more than 44.96% of the second half 1983 taxes (based on the 1983 assessment) due on or before March 31, 1985, and directing the ICG to deposit the balance of said taxes in the Registry of the Court.

18. Under the Consent Preliminary Injunction, the ICG paid $65,442.50 to the County Treasurers and $80,114.58 to the Registry.

19. The County Treasurers billed the ICG a total of $145,557.08 for second half 1983 taxes based on the 1983 assessment. In the event that the revised 1983 assessment is approved, the revised 1983 second half taxes due from the ICG will be $92,-448.00. Second half 1983 taxes originally billed by the County Treasurers, but not owed under the 1983 revised assessment, would be $53,109.08. The ICG has already paid $65,442.50 of the revised amount to the County Treasurers and there would be a balance due to the County Treasurers of $27,005.50 on account of second half 1983 taxes from funds in the Registry, plus an allocated share of the interest accrued thereon equal to $1,519.92. The ICG would be entitled to the remaining $53,109.08 in the Registry, plus the balance of the interest in the amount of $2,989.09, or a total of $56,098.17.

198k Assessment

20. The Director, acting under the provisions of Iowa Code ch. 434, determined the 1984 actual value of the rail transportation property of the ICG subject to assessment in the State of Iowa was $19,254,000 before equalization. In determining the 1984 assessment, the Director did not distinguish between real and personal rail transportation property.

21. In 1984, the rail transportation property of the ICG which was subject to valuation and assessment by the Director was composed of 58.88% real property or $11,336,755, and 41.12% personal property, or $7,917,245.

22. Application of the limitation contained in Iowa Code § 441.21(6) to the actual value of the real property of the ICG would reduce the 1984 actual value thereof to $10,818,008.

23. Application of the valuation limitation contained in Iowa Code § 427A.11, and the personal property tax credit contained in Iowa Code ch. 427A, to the actual value of the personal property of the ICG would reduce the 1984 actual value thereof to $2,437,691.

24. The combination of the reduced 1984 actual values of the ICG real and personal property would result in a revised 1984 assessment for the ICG of $13,255,-699.

First Half 198k Taxes

25. On September 27, 1985, the Court entered its Consent Preliminary Injunction and Order Granting Leave to Deposit Money into the Registry of Court in this case enjoining the County Treasurers of the counties in which the ICG operated from collecting more than 64.13% of the first half 1984 taxes (based on the 1984 assessment) due on or before September 30, 1985, and directing the ICG to deposit the balance of said taxes in the Registry of the Court.

26. Under the Consent Preliminary Injunction, the ICG paid $120,865.18 to the County Treasurers and $65,781.00 to the Registry.

27. The County Treasurers billed the ICG a total of $188,649.00 for first half 1984 taxes based on the 1984 assessment. In the event that the revised 1984 assessment is approved, the revised 1984 first half taxes due from the ICG will be $135,-976.25. First half 1984 taxes originally billed by the County Treasurers, but not owed under the 1984 revised assessment, would be $52,672.75, less an adjustment of $2,002.82, or $50,669.93. The ICG has already paid $120,865.18 of the revised amount to the County Treasurers and there would be a balance due to the County Treasurers of $15,111.07 on account of first half 1984 taxes, plus an allocated share of the interest accrued thereon of $266.62. The ICG would be entitled to the remaining $50,669.93 deposited in the Registry, together with the interest accrued thereon of $894.01, or a total of $51,563.94.

Second Half 198k Taxes

28. The County Treasurers have or will bill the ICG a total of $188,649.00 for second half 1984 taxes due on or before March 31,1986, based on the 1984 assessment. In the event that the revised 1984 assessment is approved, the revised 1984 second half taxes due from the ICG will be $135,976.25. Second half 1984 taxes originally billed by the County Treasurers, but not owed under the 1984 revised assessment, would be $52,-672.75. The ICG would owe the County Treasurers second half 1984 taxes of $135,-976.25 on or before March 31, 1986.

29. Appendix A, including Exhibits A, B, C, D and E attached thereto, is attached hereto and incorporated herein by reference. Appendix A, including its exhibits, shows the computations for the figures used herein.

Dated this 20 day of December, 1985.
/s/ Frank W. Davis, Jr.
FRANK W. DAVIS, JR.
2600 Ruan Center
Des Moines, Iowa 50309
Attorney for Plaintiff
/s/ Harry M. Griger Attorney for Defendant
Assistant Attorney General
Hoover State Office Building
Des Moines, Iowa 50319

APPENDIX A

ILLINOIS CENTRAL GULF RAILROAD COMPANY

A. First Half 1983 Taxes Due September 30, 1984

1. Taxes Originally Levied (Shown in Connection with Exhibit A, Line 5 + 2).* $145,557.08

2. Less: Revised Tax Due (Exhibit A, Line 6 -f- 2). $ 92,448.00

3. Taxes Not Owed (Line A.I., Less Line A.2.). $ 53,109.08

4. Revised Tax Due (Line A.2.)'. $ 92,448.00

5. Less: Paid to Counties (Exhibit A, Line 7a ~ 2). $ 65,442.50

6. Due to Counties (Line A.4., less Line A.5.). $ 27,005.50

7. Paid to Court Registry September 28, 1984 80,114.58

8. Plus: Interest Accrued on Registry Funds to December 28, 1985 (Exhibit B). 8,458.53

9. Total Registry Funds to be Accounted For (Line A.7., plus Line A.8.). 88,573.11

10. Less: Due to Counties from Court Registry:

a. Taxes Due (Line A.6.). $27,005.50

b. Plus: Share of Accrued Interest (33.71%) [$27,005.50 h- $80,114.58 x $8,458.53], $ 2,851.26

c. Due Counties $29,856.76 $ 29,856.76

11. Due to ICG:

a. Taxes Not Due (Line A.3.). $53,109.08

b. Plus: Share of Accrued Interest (66.29%) [$53,109.08 h- $80,114.58 x $8,458.53]. $ 5,607.27

c. Due ICG: $58,716.35 $ 58,716.35

B. Second Half 1983 Taxes Due March 31, 1985

1. Taxes Originally Levied (See, Line A.I.). $145,557.08

2. Less: Revised Tax Due (See, Line A.2.). $ 92,448.00

3. Taxes Not Owed (See, Line A.3.). $ 53,109.08

4. Revised Tax Due (Line B.2.). $ 92,448.00

5. Less: Paid to Counties

(Exhibit A, Line 7a -f- 2). $ 65,442.50

6. Due to Counties

(Line B.4., less Line B.5.). $ 27,005.50

7. Paid to Court Registry March 29, 1985

(Exhibit C). $ 80,114.58

8. Plus: Interest Accrued on Registry Funds to

December 29, 1985

(Exhibit C). $ 4,509.01

9. Total Registry Funds to be Accounted For

(Line B.7., plus Line B.8.). $ 84,623.59

10. Less: Due to Counties from Court Registry:

a. Taxes Due

(Line B.6.). $27,005.50

b. Plus: Share of Accrued Interest (33.71%)

[$27,005.50 + $80,114.58 X $4,509.01]. $ 1,519.92

c. Due Counties $28,525.42 $ 28,525.42

11. Due to ICG:

a. Taxes Not Due

(Line B.3.). $53,109.08

b. Plus: Share of Accrued Interest (66.29%)

[$53,109.08 -f- $80,114.58 x $4,509.01], $ 2,989.09

c. Due ICG: $56,098.17 $ 56,098.17

C. First Half 1984 Taxes Due September 30, 1985

1. Taxes Originally Levied $188,649.00

2. Less: Revised Tax Due

(Exhibit D, Line 6 -r 2). $135,976.25

3. Taxes Not Due

(Line C.I., less Line C.2.). $ 52,672.75

4. Revised Tax Due

(Line C.2.). $135,976.25

5. Less: Paid to Counties

(Per Statements). $120,865.18

6. Due to Counties

(Line C.4., less Line C.5.). $ 15,111.07

7. Paid to Court Registry September 30, 1985

(Exhibit E). $ 65,781.00

8. Plus: Interest Accrued on Registry Funds to

January 1, 1986

(Exhibit E). $ 1,160.63

9. Total Registry Funds to be Accounted for

(Line C.4., plus Line C.5.). $ 66,941.63

10. Less: Due to Counties from Court Registry

Taxes Due

(Line C.6.) $15,111.07

b. Plus: Share of Accrued Interest (22.97%)

[$15,111.07 + $65,781.00 x $1,160.63] $ 266.62

c. Due Counties: $15,377.69 $ 15,377.69

11. Due to ICG:

a. Taxes Not Due

(Line C.3.-$2,002.82 $50,699.93

b. Plus: Share of Accrued Interest (77.03%)

[$50,669.93 + $65,781.00 X $1,160.63]. $ 894.01

c. Due ICG: $51,563.94 $ 51,563.94

Summary

Due to Counties:

(Line A.IO.c., plus

Line B.lO.c., plus Line C.lO.c.). $ 73,759.87

Due to ICG:

(Line A.ll.c., plus

Line B.ll.c., plus Line C.ll.c.). $166,378.46

Total in Court Registry as of January 1, 1986:

(Line A.9., plus

Line B.9., plus Line C.9.). $240,138.33

* Exhibit A shows number rounded.

EXHIBIT A

ILLINOIS CENTRAL GULP

1983 Revised Iowa Railroad Operating Property Assessment

RE: Personal Property Relief In The Staté of Iowa

1. 1983 Assessment (Before Equalization) $15,254,000

Personal Property % (See Attached Exhibit) 55.04%

Personalty $ 8,395,802

Realty 6,858,198

Total $15,254,000

2. Personalty With Rollback $ 8,395,802

(100%-67%=33%) _33%

$ 2,770,615

Less: Exemption (175,000)

Taxable Personalty $ 2,595,615

3. Real Property $ 6,858,198

Assessment Limitation 91.7230%

Taxable Real Property $ 6,290,545

4. Personalty (Prom No. 2) $ 2,595,615

Realty (From No. 3) 6,290,545

Revised Assessment $ 8,886,160

5. Effective Tax Rate 2.08072%

Total Taxes Levied by Counties, divided by

Total Assessed Value taxed by Counties

(291,114 -h- 13,991,000)

6. Revised Tax (No. 4 x No. 5) $ 184,896

7. Taxes Paid:

a. Counties $ 130,885

b. Court 160,229

c. Total Taxes Paid $ 291,114

8. Refund Due

a. Court Registry (No. 7(b)) $ 160,229

Less: Paid to Counties (No. 7(a)) _

Subtotal $ 54,011

b. Less: Due to Counties (No. 6 — No. 7(a))

c. Refundable $ 106,218

ASSESSMENT YEAR 1983

ILLINOIS CENTRAL GULF

Real vs. Personal Property

Allocation Using Schedules 200, 335 and 352 A and B

(Figures Expressed in Thousands)

Investment Schedule (1) Depreciation Depreciated Costs % of Total

I. Total Original Cost

A. Road and Equipment $ 1,512,141 $ 320,054 $ 1,192,087

B. Materials and Supplies (Account 712) 57,083 0 57.083

C. Leased Equipment (2) 463,480 89,606 373.874

TOTAL PROPERTY 2,032,704 409,660 $ 1,623,044

II. Personal Property Included in Above

A. Equipment (Accounts 52-58) 551,866 172,860 $ 379,006 23.4%

B. Materials and Supplies (Account 712) 57,083 0 57.083 3.5%

C. Leased Equipment (2) 463,480 89,606 373.874 23.0%

D. Fences, Snowsheds and Signs (Account 13) 2,808 2,719 89 0.0%

E. Communication Systems (Account 26) 45,565 9,005 36,560 2.2%

F. Signals and Interlockers (Account 27) 33,747 13,227 20,520 1.3%

G. Roadway Machines (Account 37) 20,803 10,667 10,136 0.6%

H. Shop Machinery (Account 44) 21,412 5,205 16,207 1.0%

I. Power Plant Machinery (Account 45) 1,712 1,792 (80) 0.0

TOTAL PERSONALTY $ 1,198,476 $ 305,081 $ 893,395

PERSONAL PROPERTY 55.04 %

REAL PROPERTY 44.96 %

NOTES: (1) Includes property owned, leased from others and excludes property leased to others.

(2) Obtained from Assessment Data Report.

EXHIBIT D

ILLINOIS CENTRAL GULF

1984 Revised Iowa Railroad Operating Property Assessment

RE: Personal Property Relief In The State of Iowa

1. 1984 Assessment (Before Equalization) $19,254,000

Personal Property % (See Attached Exhibit) 41.12%

Personalty $ 7,917,245

Realty 11,336,755

Total $19,254,000

2. Personalty With Rollback $ 7,917,245

(100%-67%=33%) 33%

$ 2,612,691

Less: Exemption (175,000)

Taxable Personalty $ 2,437,691

3. Real Property $11,336,755

Assessment Limitation 95.4242%

Taxable Real Property $10,818,008

4. Personalty (From No. 2) $ 2,437,691

Realty (From No. 3) 10,818,008

Revised Assessment $13,255,699

5. Effective Tax Rate 2.0515893%

Total Taxes Levied by Counties, divided by

Total Assessed Value taxed by Counties

(376,938 -t- 18,372,975)

6. Revised Tax (No. 4 X No. 5) $271,952.50

7. First Half 1984 Taxes

Billed and Due September 30, 1985 $188,649.00

8. Revised First Half 1984 Taxes Due

September 30, 1985 Qk of No. 6) $135,976.25

9. September 30, 1985 Payments

a. To Counties $120,865.18

b. To Court 65,781.00

c. Total $186,646.18

ASSESSMENT YEAR 1984

ILLINOIS CENTRAL GULF

Real vs. Personal Property

Allocation Using Schedules 200, 335 and 352 A and B

(Figures Expressed in Thousands)

Investment Schedule (1) Depreciation Depreciated % of Costs Total

I. Total Original Cost

A. Road and Equipment 2,506,128 $ 802,425 $ 1,703,703

B. Materials and Supplies

(Account 712) 48,236 0 48,236

C. Leased Equipment (2) 475,331 136,071 339,260

TOTAL PROPERTY $ 3,029,695 $ 938,496 $ 2,091,199

II. Personal Property Included in Above

A. Equipment (Accounts 52-58) 535,938 165,310. 370,628 17.7%

B. Materials and Supplies

(Account 712) 48,236 0 48,236 2.3%

C. Leased Equipment (2) 475,331 136,071 339,260 16.2%

D. Fences, Snowsheds and 3,020 2,791 229 0.0%

Signs (Account 13)

E. Communication Systems 50,503 7,121 43,382 2.1%

(Account 26)

F. Signals and Interlockers ■ 46,570 16,367 30,203 1.4%

(Account 27)

G. Roadway Machines 19,525 8,878 10,647 0.5%

(Account 37)

H. Shop Machinery 22,827 5,565 17,262 0.8%

(Account 44)

I. Power Plant Machinery

(Account 45) 1,819 1,859 (39) 0.0%

TOTAL PERSONALTY $. 1,203,769 $ 343,961 $ 859,808

PERSONAL PROPERTY 41.12%

REAL PROPERTY 58.88%

NOTES: (1) Includes property owned, leased from others and excludes property leased to others.

(2) Obtained from Assessment Data Report.