author: ARONOVITZ, District Judge.

text:
    UNIVERSAL CITY STUDIOS, INC., and Merchandising Corporation of America, Inc., Plaintiffs, v. CASEY & CASEY, INC., Defendants.
    No. 85-3505-Civ.
    United States District Court, S.D. Florida, Miami Division.
    Nov. 13, 1985.

      William J. Gallwey, Shutts & Bowen, Miami, Fla., Evan L. Gordon, New York City, for plaintiffs.
    Kenneth D. Stern, Harvey P. Schneider, Boca Raton, Fla., for defendants.
   ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION

ARONOVITZ, District Judge.

THIS CAUSE came before the Court upon the plaintiffs’ Motion for a Preliminary Injunction. The Court has received evidence, taken testimony, heard oral argument of counsel for the parties, reviewed the motion and supporting and opposing memoranda of law, and the affidavits submitted therewith, and being otherwise fully advised in the premises, it is

ORDERED and ADJUDGED, for reasons as are more fully set forth in the Court’s Memorandum Opinion which follows, that the said motion be, and the same is, hereby DENIED.

MEMORANDUM OPINION

The Court has before it the plaintiffs’ Motion for a Preliminary Injunction. Heretofore, the Court held an evidentiary hearing on the afternoon of November 7, 1985 at which it received testimony from the plaintiffs, heard argument from counsel for all parties, and received exhibits from both plaintiffs and defendant. At the outset, the Court observes the following:

The burden of proof of establishing the four requisites for the issuance of a preliminary injunction rests on the plaintiffs. Canal Authority of the State of Florida v. Callaway, 489 F.2d 567 (5th Cir.1974). In the view of the Court, plaintiffs have not met that burden, as will be noted more fully hereafter.

FINDINGS OF FACT

In support of its Order Denying the plaintiffs’ Motion for a Preliminary Injunction, the Court enters the following Findings of Fact:

1. Plaintiff Universal City Studios, Inc., a Delaware corporation with principle place of business in California, is the producer of the television series “Miami Vice”, and holds a copyright on said series. The program has enjoyed a high degree of success and attracts a large audience nationwide.

2. Plaintiff Merchandising Corporation of America, Inc., a California corporation and affiliate of plaintiff Universal, grants licenses to manufacturers and distributors of various products which authorize such licensees to utilize the “Miami Vice” logo, likenesses of the program’s star actors, etc.

3. Plaintiff Universal has applied for a trademark for the series’ logo, which consists of the words “Miami Vice” printed in stylized block letters with the word “Miami” above the word “Vice”, and has likewise obtained a copyright on the television series “Miami Vice”.

4. Defendant Casey & Casey, Inc. is a Florida corporation which manufactures clothing items, posters, and other novelty products. Since February 1985, the defendant has been producing and offering for sale a series of products featuring two cartoon figures under the caption “Miami Mice”. (See Appendix A.) The defendant has applied for a trademark on its “Miami Mice” design (in June, 1985) one month after plaintiff Universal made application for a trademark protecting its “Miami Vice” logo.

5. Plaintiffs now market, or intend to market, various products bearing the trademark “Miami Vice” logo, including clothing, school supplies and posters. The production of “Miami Vice” tee-shirts and other licensed merchandise has not been accomplished on any large scale to date. As herein noted, there was a reasonable overlap in the periods during which each party began licensing and/or producing their respective products. It appears from the evidence presented at the hearing in this matter that the defendant began to manufacture and market its product before the plaintiffs’ products were made available to the public. The plaintiff’s copyright on the “Miami Vice” series, however, predates the defendant’s initial manufacture of “Miami Mice” products. The plaintiffs have no plans at this time to produce, or to authorize the production of, a cartoon version of the television series “Miami Vice”. Defendant Casey & Casey has never manufactured or sold any product bearing the “Miami Vice” logo.

6. The production elements evident to a viewer of plaintiff Universal’s television series “Miami Vice” include the characteristic wardrobe adopted by the two leading characters, the predominate use of pastel colors in the set designs, and the pairing of an intrusive rock music soundtrack with the action scenes of each episode. Similarities in certain of these production details can be seen in a comparison of the “Miami Vice” series with the graphic design of defendant’s “Miami Mice” products.

7. Both plaintiffs and defendant have marketed and plan to continue marketing their respective products both in South Florida and in ther markets across the country.

CONCLUSIONS OF LAW

Initially, the Court finds that it has jurisdiction over the subject matter of this action and personal jurisdiction over the parties pursuant to 15 U.S.C. § 1051, et seq., and 28 U.S.C. §§ 1332, 1338.

Having made that determination, the Court moves to the question of whether a preliminary injunction should issue. The Court recognizes the established case law which holds that, in cases involving copyright or trademark infringement, a plaintiff is not held to the usual requirement of showing irreparable injury if a prima facie case of infringement is made out. As is discussed more fully hereafter, plaintiffs Universal City Studios, Inc. and Merchandising Corporation of America, Inc., having failed to make such a prima facie case, are held to the traditional requirements for obtaining preliminary injunctive relief, as stated in Canal Authority of the State of Florida v. Callaway, 489 F.2d 567 (5th Cir.1974). The four requisites noted in Callaway are:

1. ) a substantial likelihood that plaintiff will prevail on the merits;
2. ) a substantial threat that plaintiff will suffer irreparable injury if the injunction is not granted;
3. ) that the threatened injury to plaintiff outweighs the threatened harm that the injunction may do to the defendant;
4. ) granting the preliminary injunction will not disserve the public interest.

1. Whatever rights flow to plaintiffs from their production and ownership of the television series “Miami Vice” and the licensing rights pertaining thereto predate the first manufacture by defendant of its “Miami Mice” products. While the Court does not conclude that the plaintiffs have asserted their rights in this matter in an untimely fashion, the Court notes that defendants began to pursue an interest in the marketing of its “Miami Mice” products at an earlier date than that at which plaintiffs initiated their own marketing program.

2. Considering that the plaintiffs bear the burden of proving the necessity of the issuance of a preliminary injunction, plaintiffs have failed to adduce sufficient evidence at this time to show that they are likely to succeed on the merits of their complaint, which alleges trademark infringement under both federal statutes and common law, and unfair competition.

3. The test employed to determine whether a party has infringed either a registered trademark or one acquired by use alone is to ascertain whether the allegedly infringing use creates a “likelihood of confusion” in the minds of the consuming public such that potential purchasers are led to believe either that the infringing product is identical to the plaintiff’s, or that the infringing product is sold with the authorization or consent of the plaintiff. Warner Brothers Inc. v. Gay Toys, 658 F.2d 76 (2nd Cir.1981); Dallas Cowboys Cheerleaders v. Scoreboard Posters, 600 F.2d 1184 (5th Cir.1979).

The Court, having examined all of the evidence produced at the evidentiary hearing held in this matter, concludes that while there exist some similarities between the cartoon figures depicted on defendant’s products and the characters featured in the plaintiffs’ television series, the degree of similarity between them is not sufficient to create a likelihood that consumers purchasing defendant’s products would be misled to believe that the “Miami Mice” tee-shirts, posters, etc. are either produced by the plaintiffs or authorized by them. While plaintiffs did not introduce at the November 7, 1985 hearing any samples of their own officially licensed products, the testimony of the plaintiffs’ witnesses in describing these products indicate that all of the plaintiffs’ clothing items are adorned only by the words “Miami Vice” in the configuration identified as the “Miami Vice” logo. They do not include illustrations of the leading characters of the program (although the plaintiffs stationary products, such as posters and notebooks, do apparently feature a photograph of stars Don Johnson and/or Philip Michael Thomas). The defendant’s products, on the other hand, feature a cartoon depiction of two mouse-like figures, attired in casual dress clothing similar to the fashions favored by the two leading characters in the “Miami Vice” series. Above the heads of these figures appear the words “Miami Mice” in block letters, with the words “Miami” and “Mice” printed side-by-side. There is not sufficient similarity between the defendant’s product and the plaintiffs’ “Miami Vice” series and related products to warrant this Court in finding that the plaintiffs are likely to succeed in their trademark infringement claim.

4. The word “Miami” is not a proprietary term, either when used in conjunction with the word “Vice” or in connection with any other element of the plaintiffs’ television series.

5. For the above reasons, the Court concludes that plaintiffs have failed to make a prima facie showing that defendant Casey & Casey, Inc. has infringed their trademark rights in the “Miami Vice” series or logo under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), or under a theory of common law trademark infringement.

6. Although the plaintiffs’ complaint alleges the infringement of property rights protected under copyright and trademark law as well as unfair competition, their motion for injunctive relief recites only trademark and unfair competition grounds. The memorandum of law in support of this motion likewise emphasizes the trademark and unfair competition allegations while omitting discussion of possible copyright infringment. However, at the evidentiary hearing on plaintiff’s motion, counsel for plaintiffs raised the issue of alleged copyright infringement as a basis for injunctive relief. Accordingly, the Court addresses this ground for relief along with the aforementioned stated grounds.

In order to establish a likelihood of success on the merits in a claim for copyright infringment, the plaintiff must show that it owns a copyright on the work at issue, and that the copyrighted work as been copied by the defendant for its own use. Sid & Marty Kroft Television Productions, Inc. v. McDonalds Corporation, 562 F.2d 1157, 1162 (9th Cir.1977). Copying is demonstrated by: 1.) circumstantial evidence of access by the defendant; and, 2.) a substantial similarity between the copyrighted work and the defendant’s work. Id. On the basis of the record before the Court at this time, the plaintiffs have not made out a prima facie case of copyright infringement.

In Warner Brothers v. American Broadcasting Companies, 720 F.2d 231 (2nd Cir.1983), the Second Circuit considered a copyright infringement claim that was, like the instant case, the alleged appropriation of a fictional character along with the “style” of the plaintiff’s motion picture. In this case, the copyrighted character was Superman; the alleged infringer, Ralph Hinkley, the fictional leading character of defendant’s television series “The Greatest American Hero”. While the Court noted a considerable list of similarities between the characters (attire, supernatural powers, even identical phrases), it held that they were not substantially similar, mainly because the Hinkley character was essentially humorous in nature and tone, in contrast to the ever-serious demeanor of the original Man of Steel.

In the instant case, it is clear through even a casual comparison of the defendant’s fanciful “Miami Mice” with the serious dramatic characters portrayed in the plaintiffs’ series by actors Don Johnson and Philip Michael Thomas that there is no “substantial similarity” present here. The extensive testimony adduced at the evidentiary hearing concerning the subject of plaintiffs’ copyright reveals that the copyrighted elements of the television series are not minutely reflected in defendant’s products. The “mice” are obviously comical figures, while the “Vice” officers of the television series are portrayed and promoted by plaintiffs as the embodiment of style, courage and determination. The cartoon illustrations clearly differ from the image and characters portrayed in plaintiffs’ television series. “Miami Vice”, as plaintiffs’ witnesses testified, features an “adult theme” — crime, violence and sophisticated dialogue. The comical nature of the “Miami Mice” figures, in contrast, will likely appeal to a younger audience.

7. The plaintiffs’ claim that the defendant’s conduct constitutes unfair competition has likewise not been shown to be likely of success on its merits. The cases construing the common law of Florida regarding the tort of unfair competition invariably focus both on the “likelihood of confusion” test applied in trademark infringement cases and on the risk of harm to the plaintiff’s business which results from the defendant’s unfair conduct. Chemical Corporation of America v. Anheuser-Bush, Inc., 306 F.2d 433 (5th Cir.1962); Tampa Cigar Company, Inc. v. John Walker & Sons, 222 F.2d 460 (5th Cir.1955); Sentco v. McCulloh, 68 So.2d 577 (Fla.1953). No testimony was adduced at the hearing in this matter which would tend to show that the plaintiffs’ reputation, or the esteem in which the “Miami Vice” series is held by viewers, would be harmed or disparaged by the defendant’s conduct. On the contrary, one of the plaintiff’s witnesses stated that the industry ratings, which measure the number of viewers enjoyed by each series episode, has actually been on the increase during the period in which defendant has been marketing the “Miami Mice” products.

8. The plaintiffs have failed to show that irreparable harm will result to them upon the Court’s denial of their motion for injunctive relied. While the plaintiffs did adduce testimony indicating that certain of their licensees had expressed concern about actual or potential losses of proceeds occasioned by the activities of the defendant, such harm, if proven, can fairly be remedied by an award of money damages after complete adjudication of the plaintiff’s claims. No monetary calculations were presented at the hearing on this motion which would tend to show the existence or extent of irreparable harm to plaintiffs traceable to the defendant’s conduct. Such speculative harms do not satisfy the second requirement of Canal Authority, supra, that “irreparable harm” be shown.

9. In concluding that the plaintiffs do not stand to suffer any irreparable harm as a result of the Court’s denial of their motion, we conclude at the same time, under the third requirement of Canal Authority, supra, that the defendant would himself suffer such irreparable harm were the Court to grant the relief sought by plaintiffs. The plaintiff’s complaint was filed in this Court on November 4, barely six weeks before the Christmas and Hannukah holidays with their attendant increase in retail sales activity. An injunction forbidding the defendant to market his inventory during this crucial period would impose an enormous hardship upon it. Thus, this factor militates strongly against the granting of injunctive relief at this point.

10. The last of the Canal Authority factors, whether the granting of an injunction would disserve the public interest, does not weigh heavily in favor of either the plaintiffs or the defendant. The public’s ability to purchase a novelty item in time for holiday gift-giving may be accorded some value, but, had the plaintiffs been able to make a stronger showing of their likelihood to succeed on the merits or the threat of irreparable harm, this factor would not prevent the Court from imposing the desired preliminary injunction.

The foregoing conclusions of law are made and entered in support of a finding that, based on the record before the Court at this time, the plaintiffs have not established the requirements for the issuance of a preliminary injunction as set forth in Canal Authority of the State of Florida, 489 F.2d 567, 572 (5th Cir.1974).

This ruling is based solely upon the record before the Court at this time. This is not to say that after a trial, following full and complete discovery, and when all issues have been developed and heard, that the determination of the Court cannot be different. This Court must rule on the basis of the record presented before it, and this ruling is the result thereof. Thereupon, it is

ORDERED and ADJUDGED that the plaintiffs’ Motion for a Preliminary Injunction is hereby DENIED. Plaintiffs’ Motion for a Temporary Restraining Order was previously denied by this Court without a hearing thereon.

APPENDIX A


source: Caselaw Access Project

author: SPRIZZO, District Judge:

license: Public Domain

text:
    BRADFORD TRUST COMPANY OF BOSTON, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant.
    No. 81 Civ. 3409 (JES).
    United States District Court, S.D. New York.
    Nov. 14, 1985.
    As Amended Dec. 9, 1985.

      Louis J. Maione, New York City, Christopher J. Collins, of counsel.
    William T. Marshall, Jr., Jeffrey T. Letzler, New York City, for defendant.
   OPINION AND ORDER

SPRIZZO, District Judge:

The following Opinion constitutes the Court’s findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52.

BACKGROUND

Plaintiff, Bradford Trust Company of Boston (“Bradford”), is a corporation organized and existing pursuant to the banking laws of Massachusetts, with its principal place of business in Boston. In its regular course of business, Bradford acts as a trust company, custodian, trustee and/or transfer agent for various and sundry mutual funds and money market funds. Defendant, Merrill Lynch, Pierce, Fenner and Smith (“Merrill Lynch”), is a corporation organized under the laws of Delaware, with its principal place of business in New York. It acts as a broker in securities, as a dealer in corporate and municipal securities, and as an investment banking firm.

In 1979, Stanley E. and Marjorie P. Allen (“the Allens”) were the owners of two mutual funds administered by Bradford as shareholder servicing agent for the sponsor of the funds, Massachusetts Financial Services Company. On October 28, 1979, Bradford received a letter from the Allens requesting that, contrary to previous instructions given by them, the dividends accruing in the two mutual funds be reinvested in new shares of the fund. Accompanying the letter was a yellow form which reflected the changed status of the funds. The Allens’ address of record on that date was in Spain. See Pre-Trial Order (“PTO”) at 4, ¶ 8.

On or about November 8, 1979, Bradford received an undated letter, purportedly from the Allens, instructing Bradford to liquidate the funds and remit the entire proceeds therefrom to the Allens at a new address in Geneva, Switzerland. The signatures on the letter were not guaranteed. See id. at ¶ 9. An undated stock power, which purportedly bore the signatures of the Allens and a signature guarantee stamp of Merrill Lynch, and which the plaintiff alleges was endorsed by defendant’s employee, David P. Kleber, was processed with that letter by Bradford. Other than the purported signatures and the guarantee stamp, as well as the pre-printed material on the form, the stock power was blank in all respects. See id. at ¶ 10; Plaintiff’s Exhibit (“PX”) 5. The aforementioned two documents were sequentially numbered and microfilmed when processed by Bradford. See PTO at 5, ¶ 11. Bradford made no effort to verify the requested change of address and the signatures on both the letter and the stock power, or to compare the signatures with other specimens of the Allens’ handwriting which were in its possession. See id. at ¶ 12.

The following day, November 9, 1979, Bradford liquidated the mutual funds, issued two checks, one in respect of each fund, and forwarded the proceeds to the “Allens” at the Swiss address. See id. at 6, ¶ 14.

On or about December 17, 1979, the two checks were presented to Banque Internationale a Luxembourg (“BIL”) by Aris Khavessian, a customer of BIL. The checks were transmitted for collection to First National Bank of Boston (“FNBB”), the correspondent bank of BIL, on or about December 18, 1979. FNBB sent the checks to Bradford, as the drawee bank, for collection on December 24, 1979. See id. at ¶ 17.

On January 4, 1980, an employee of FNBB inquired of Bradford as to why the two checks had not yet been paid. Bradford indicated that the original checks had not been received from FNBB. Photocopies of the checks, with prior endorsements guaranteed by FNBB, were requested and sent to Bradford as replacements. The original checks were subsequently located. See id. at 6-7, ¶¶ 17-18. On January 8, 1980, Bradford paid FNBB the appropriate sums representing the funds and, thereafter, FNBB credited the account of BIL. See id. at 7, ¶ 21.

On January 14, 1980, BIL issued to Khavessian a check, drawn, on Chase Manhattan Bank, New York, New York, in the amount of $181,692.85. Following the receipt of the check, Khavessian requested and received, in lieu of the check, a cash payment of an equivalent amount in Belgian francs. See id. at If 22.

On or about January 17, 1980, Bradford discovered that an apparent imposture had occurred when the “real” Allens made inquiry as to the status of the funds. Bradford then compared the endorsement of the Allens on the FNBB checks to the signatures which Bradford had on file and determined them to be different. Thereafter, Bradford began correspondence with the Allens to determine whether the original redemption request had been a forgery. See id. at 8, ¶ ¶ 23-24. Bradford reimbursed the two funds of the Allens, with interest, in the amount of $212,159.01. See id. at 8, ¶ 27.

On June 3, 1981, Bradford initiated the instant action against Merrill Lynch based on breach of warranty in respect of the signature guarantee, and negligence. This case was tried before the Court without a jury.

DISCUSSION

I.

Bradford alleges that it relied on the signature guarantee of Merrill Lynch and therefore was damaged as a result of the defendant’s negligence, misrepresentation and/or breach of warranty in guaranteeing the purportedly forged signatures on the stock power.

The validity of a security, the effectiveness of registration by the issuer, and the rights and duties of the issuer with respect to registration or transfer are governed by the law (including the conflict of law rules) of the jurisdiction of the issuer. See New York Uniform Commercial Code § 8-106 (McKinney, 1984 Supp.); Mass.Gen.Laws Ann. ch. 106, § 8-106 (“Massachusetts Uniform Commercial Code § 8-106”) (1976). The issuer, Bradford Trust, is organized and exists pursuant to the banking laws of Massachusetts, with its principal place of business in Boston, and the funds were issued in Massachusetts. Hence, because seemingly all of the most significant contacts occurred there, the law of Massachusetts should be applied in this case. See National Shawmut Bank v. International Yarn Corp., 322 F.Supp. 116 (S.D.N.Y.1970); Electric Welding Co. v. Prince, 195 Mass. 242, 255, 81 N.E. 306, 310 (1907).

By examining the applicable provisions of the Uniform Commercial Code and relevant case law, it is clear that the threshold issue common to all of the plaintiff’s claims is whether the signatures of the Allens on the blank and undated stock power, see PX 5, were forged. In the present case, Bradford has the burden of establishing that the Allens’ signatures on the stock power were forged. See Watertown Federal Savings & Loan Association v. Spanks, 346 Mass. 398, 193 N.E.2d 333 (1963); 622 West 113th Street Corp. v. Chemical Bank New York Trust Co., 52 Misc.2d 444, 276 N.Y.S.2d 85 (N.Y.Civ.Ct.1966). Indeed, counsel for the plaintiff acknowledged at trial that an essential element of Bradford’s claim was that the purported signatures of the Allens on the stock power were not genuine. See Tr. at 23-24, 29, 30.

Section 3-307(1)(b) of the Massachusetts Uniform Commercial Code provides that “the signature is presumed to be genuine or authorized.” Until some evidence is introduced which would support a finding that the Allens’ signatures on the stock power, purportedly guaranteed by Kleber, were forged or unauthorized, Merrill Lynch, as the alleged guarantor, is not required to prove that the signatures were authentic. See Massachusetts Uniform Commercial Code § 3-307, Official Comment 1 (1976). It is incumbent upon a party claiming the non-genuineness of a signature to produce firsthand proof of the forgery. See, e.g., Freeman Check Cashing, Inc. v. State of New York, 97 Misc.2d 819, 412 N.Y.S.2d 963, (N.Y.Ct.Cl.1979); see also Pee Dee Production Credit Ass’n v. Joye, 284 S.C. 371, 326 S.E.2d 650 (1984).

The record before the Court is devoid of competent evidence as to whether the Allens’ signatures on the stock power are genuine or forged. The plaintiff failed to depose the “real” Allens or to call them at trial as witnesses. A handwriting expert was not called, nor were any handwriting exemplars offered. Apparently there exists only a sworn affidavit, purportedly signed by the “real” Allens, in which they state that they did not authorize the liquidation of their accounts. See PTO at 8, ¶ 25. Although it is questionable whether that hearsay evidence in itself would be sufficient to meet plaintiff’s burden of proof on this issue, the plaintiff did not bring even this affidavit before the Court. Bradford’s failure to prove this essential element of its case is fatal to its claims against Merrill Lynch. See Freeman, supra, 97 Misc.2d at 822, 412 N.Y.S.2d at 966.

II.

Moreover, even assuming arguendo that the Allens’ signatures on the stock power were shown to be forgeries, Bradford has failed to establish that it was reasonable for it to rely upon the signature guarantee on a blank stock power which offers no description of the items to be transferred or liquidated. Although there was testimony by Manuel Hernandez, Senior Vice President in charge of the Massachusetts Financial Service Center, that a stock power in a mutual fund does not normally “come filled in,” see Hernandez deposition at 42, normal procedure in the transferring of securities dictates that the signature of the endorser should appear on the back of the security or on a separate document which “(i) sufficiently describe[s] the security (e.g. by certificate number); and (ii) contain^] words of ‘assignment and transfer,’ ‘power to assign and transfer,’ or both.” See C. Israels and E. Guttman, Modern Securities Transfers, § 5.02 at 67 (1971). The stock power in question, therefore, should have at least included a description of the security to be transferred. Cf. Edgerly v. First National Bank of Boston, 292 Mass. 181, 197 N.E. 518 (1935) (holding that the delivery of a stock certificate, which was endorsed in blank and accompanied by a separate document signed by the owner purporting to assign unnamed stock to an unnamed person, is not valid for transfer to a bank of that stock certificate as security for a loan).

Furthermore, the allegedly forged letter of instruction which supposedly accompanied the stock power did not bear the signature guarantee stamp of Merrill Lynch, and no one compared, as a matter of procedure, the signature on the stock power, which bears what appears to be a signature guarantee stamp, with the letter of instruction. See Hernandez deposition at 40-41. Therefore, it cannot be fairly inferred that, at the time the liquidation was effected, any employee at Bradford had a reasonable basis to believe that the signatures on the allegedly forged letter of instruction and those set forth on the stock power were in fact the same.

III.

Bradford also failed to establish that, in fact, the Merrill Lynch employee, David Kleber, signed the guarantee stamp on behalf of Merrill Lynch, thereby failing to prove that that stamp was genuine and valid. The plaintiff offered two FBI reports, which offered the hearsay opinion that Kleber had indeed signed the guarantee on the stock power and that his fingerprint was also on the stock power. See PX’s 8, 9. At trial, the Court stated that, since it was a non-jury trial, the Court would admit these arguably inadmissible FBI reports into evidence, but stressed that it would give them no weight as competent proof of the genuineness of the Kleber signature on the stock power. See Tr. at 20-21. Notwithstanding the Court’s admonition, plaintiff never called the author of the FBI report as a witness, nor did it secure the testimony of any other expert witness, cf. Amburn v. State of Tennessee, 553 S.W.2d 922, 926 (Tenn.Crim.App.1977). Thus, plaintiff has failed to prove, by a preponderance of the credible evidence, that the signature guarantee stamp was genuine and signed by David Kleber as agent for Merrill Lynch.

IV.

Bradford, in its post-trial submission, has requested, nine months after trial, either a nunc pro tunc amendment of the Pre-Trial Order to reflect as an undisputed fact that a forgery occurred, or a continuance of the trial so that it may offer evidence to prove the non-genuineness of the Allens’ signatures. See Bradford Trust Company of Boston’s Memorandum of Law in Support of Plaintiff’s Contention that a Forgery Occurred (“Bradford Forgery Memo”) at 1-2. In point of fact, the Court recognized the issue of the genuineness of the Allens’ signatures as a disputed issue at the outset of the trial, see Tr. at 2, and that issue was addressed by the Court again during the course of the trial. See id. at 22-24. On neither occasion did counsel for Bradford betray any surprise. Instead, it was readily agreed that forgery was an issue to be tried. See id. at 23-24.

Moreover, even assuming arguendo that the forgery issue was not set forth as disputed issue in the Pre-Trial Order — a view which the Court does not accept— there would be no proper basis for affording the relief requested. Where, as here, one party refers briefly to an issue not contained in the Pre-Trial Order and the opposing party does not object or request adjournment, the Court may properly consider that issue. See Bucky v. Sebo, 208 F.2d 304 (2d Cir.1953). During the trial of the instant case, counsel for the defendant stated clearly that Merrill Lynch had not stipulated that the Allens’ signatures were forged. See Tr. at 23-24. The plaintiff’s counsel failed to object, contradict that statement, or request an adjournment. In addition, counsel for the plaintiff readily agreed with the Court and the defendant that the key issue was forgery. See id. at 23-24, 29-30. Therefore, Bradford can be deemed to have consented to the presentation of this issue. See Bucky, supra, 208 F.2d at 305.

Furthermore, there is no support for plaintiff’s claim that it justifiably believed that the forgery issue was included as an undisputed fact in the Pre-Trial Order. In the Pre-Trial Order, the only undisputed fact that even remotely deals with any alleged forgery of the signatures on the stock power is contained in paragraph 25. A fair reading of that paragraph shows clearly that no stipulation as to the forgery was made, and the Court therefore did not construe that paragraph as such at trial. See Tr. at 23-24. Moreover, other portions of the Pre-Trial Order make it clear beyond any doubt that the forgery issue was the main issue to be tried. For example, in the Pre-Trial Order, the following issue was set forth in the “Factual and Legal Issues” section:

“2. Whether Bradford may seek relief under the signature guarantee in question.”

PTO at 9.

This issue encompasses the question of whether there was a forgery of the Allens’ signatures, and refutes Bradford’s claim that that issue was not in dispute. Plaintiff’s right to recover based upon the defendant’s guarantee of the signatures set forth in the stock power was contingent upon the fact that the signatures guaranteed were not genuine. Plaintiff’s counsel’s claim that he justifiably believed that the issue of the forgery was not a disputed fact at trial is, therefore, untenable.

Plaintiff’s belated request to reopen the trial to present additional evidence on the forgery issue must be denied. The reopening of a case after both sides have rested is a matter within the sound discretion of the trial court. See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). However, the Court should not utilize its discretion to grant such relief unless the interests of justice require it, nor should any party be afforded such relief where it has not carried its burden of establishing that its failure to produce the evidence which it now seeks to offer was not the result of its own lack of diligence. Cf. Reconstruction Finance Corp. v. Commercial Union of America Corp., 123 F.Supp. 748 (S.D.N.Y.1954). Very little purpose would be served by requiring adequate and timely trial preparations and Pre-Trial Orders if a party could be afforded such relief absent a showing of due diligence.

Plaintiff has not discharged that burden. It should have been plain to plaintiff from the outset that the forgery issue was a vital question in this case, for the reasons noted above. However, plaintiff made no effort to depose the Allens prior to trial, nor did Bradford ever seek to obtain the assistance of a handwriting expert to establish the forgery of the Allens’ signatures by competent proof.

Moreover, even though at the trial itself the Court stressed that forgery was a crucial issue, plaintiff never at that time sought an adjournment to submit proof on that issue. This failure is especially telling, since in connection with plaintiff’s purported reliance upon certain FBI reports to establish the genuineness of the signature of defendant’s employee Kleber on the signature guarantee, the Court made it plain to plaintiff that such testimony would not be regarded as persuasive proof.

Given all these circumstances, it would be an abuse of discretion for this Court to allow plaintiff leave to reopen. Plaintiff has failed to show any diligence in procuring evidence of forgery, and its claim of unfair surprise is not supported by the Pre-Trial Order or the record at trial.

CONCLUSION

For all the foregoing reasons, plaintiff has failed to prove that the signatures at issue were forgeries, that it reasonably relied upon the blank stock power, and that the signature guarantee stamp was genuine and valid. Judgment must be entered for the defendant. Leave to reopen is denied. Plaintiff’s complaint is dismissed with prejudice.

It is SO ORDERED.

      . The law of the state with the most significant contacts should be applied. See National Shawmut Bank, supra, 322 F.Supp. at 120. Since the Court has been directed to no recent Massachusetts authority directly applicable to this issue, and because New York has enacted essentially the same relevant provisions of the Uniform Commercial Code, compare Massachusetts U.C.C. §§ 3-307, 8-106 with New York U.C.C. §§ 3-307, 8-106, the Court will refer when necessary to appropriate New York authority.

      . The issuer may recover from the broker who guaranteed the owner’s signature if the signature is not genuine. See Southern Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 478, 479 (6th Cir.1973).

      . At the trial, the following exchange took place:
      THE COURT (addressing plaintiffs counsel): But I take it you would agree that the lack of genuineness — the question of genuineness is relevant to the case because if the signature was in fact genuine, right, then you would have no loss (for which] you could look to them on the guaranty.
      MR. MAIONE: That’s right.

        See Tr. at 29.

      . The evidence needed to prove that a forgery occurred could have been provided by the testimony of a qualified expert or by a witness to the execution of the endorsement. See Freeman, supra, 97 Misc.2d at 822, 412 N.Y.S.2d at 965.

      . The following exchange took place at the Hernandez deposition:
      Q: Normally it comes filled in?
      A: No. In a mutual fund, unlike stock transfer, you don’t transfer. In order to sell you

        don’t have to transfer from one individual to another. In a mutual fund the company buys back a stock or its shares, the mutual fund itself, that is why it doesn’t have to be filled, it just has to be signed and guaranteed.
      Hernandez deposition at 42.

      . THE COURT: I can tell you right now I am not disposed to give very much weight and we are at trial so I can tell you, lam not disposed to give very much weight to the opinion of an expert, even if I admit it, which is not subject to cross-examination____ So I think you need not worry about the hearsay objection for the moment. It’s overruled. I think the rules permit me to take it in my discretion and I will take it in my discretion, but I note for the record that I will not give it very much weight. In fact, I don’t think I’ll give it any weight.

        See Tr. at 20-21 (emphasis added).

      . Expert witnesses may compare authenticated specimens of handwriting with disputed writings to determine whether the disputed writing has been forged. If the expert concludes that the document is a forgery, the expert can compare it with authenticated writings to determine the identity of the person who forged it. The expert's testimony in both instances is admissible in evidence to prove not only that the document was a forgery, but the identity of the forger. See Amburn, supra, 553 S.W.2d at 926.

      . Paragraph 25 of the Pre-Trial Order reads: Affidavits of forgery were apparently later executed by the Allens, averring that the two checks which were endorsed and, thereafter collected through FNBB and presented to Bradford for collection by FNBB, were never received by either of the Allens, (emphasis added).

      . THE COURT: Well, that’s a legal question. I mean, I take it an element of your case is, is it not, that there was a forgery here?
      MR. COLLINS: Yes
      THE COURT: The guaranty—
      MR. MARSHALL: That has not been stipulated to.
      THE COURT: I didn’t read that as a stipulation. What’s stipulated to is the fact that someone claimed there was a forgery.

        See Tr. at 23-24.

      . Moreover, even assuming arguendo that the plaintiff is given leave to establish the forgery of the Allens' signatures, it would not inevitably follow that plaintiff would be entitled to relief against defendant. While it is true that a person to whom a signature guarantee has been given ordinarily has the right to rely upon that signature guarantee, it is not entirely clear that such reliance is sufficient to justify a verdict for a plaintiff under circumstances such as those presented in this case. "The underlying theory which justifies reliance on the guarantee of signature is that while the issuer cannot verify the genuiness of a signature ... the guarantor of signature will be someone sufficiently familiar with it____” Israels and Guttman, supra, § 11.01 at 158 (emphasis added).
      In the usual situation in which a signature guarantee is relied upon, the plaintiff has no other basis upon which to test the genuineness of the signature. In this case, the Allens were plaintiffs own customers and, indeed, their genuine signature specimens were on file and accessible to plaintiff. The plaintiff made no effort to compare the Allens’ purported signatures on the instruction letter or the stock power with their presumably valid signatures contained in its own file. In fact, barely one week before its receipt of the allegedly forged letter, plaintiff had received and processed papers which bore the Allens' valid signatures and indicated their new address in Spain. See PTO at 5, ¶ 12. Under these circumstances, notwithstanding the general proposition of law with respect to signature guarantees referred to above, it appears to this Court that plaintiff’s injury resulted more from its own negligence than from any conduct of the defendant.
      Thus, the Court is not persuaded that the interests of justice require that plaintiff be afforded the relief requested because, even assuming that Bradford is given leave to prove the forgery, it appears that plaintiff may well have failed to sustain its burden of establishing by a preponderance of the evidence that defendant’s conduct was the proximate cause of its injury.


author: SHADUR, District Judge.

text:
    William J. DARRAS and Violet W. Darras, Plaintiffs, v. TRANS WORLD AIRLINES, INC. and Cove Travel, Inc., Defendants.
    No. 85 C 8453.
    United States District Court, N.D. Illinois, E.D.
    Nov. 14, 1985.
    Kenneth C. Miller, Corboy & Demetrio, P.C., Chicago, 111., for Darras.
    John W. Adler, James F. Murphy, Conklin & Adler, Ltd., Chicago, 111., John Romans, Curtis, Mallet-Prevost, Colt & Mosle, New York City, for TWA.
    Scantlebury & Marcanti, P.C., Chicago, 111., for Cove.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

William Darras (“William”) and his wife Violet (collectively “Darrases”) originally sued Trans World Airlines, Inc. (“TWA”) and Cove Travel, Inc. (“Cove”) in the Circuit Court of Cook County, claiming damages suffered because William was a passenger on TWA’s aircraft hijacked at the Athens airport June 14, 1985. Initially TWA sought to remove the case to this District Court, and this Court’s September 30, 1985 memorandum opinion and order (the “Opinion”) sua sponte remanded the action for lack of subject matter jurisdiction. Then on October 3, 1985 — still within the original 30-day removal period — both TWA and Cove joined in a second removal, curing the jurisdictional flaw found by the Opinion.

Now Darrases move for a second remand, asserting the federal-question jurisdiction relied on by defendants and adverted to in the Opinion is nonexistent. Resolution of that question turns on whether William’s claim in reliance on the “Montreal Agreement” is a “civil action[] arising under the ... treaties of the United States” (28 U.S.C. § 1331) (as is true of any suit under the Warsaw Convention, see Dorizas v. K.L.M. Royal Dutch Airlines, 606 F.Supp. 97 (N.D.Ill.1984)).

There is no question as to the status of the Warsaw Convention (the “Convention”) as a treaty, which defines the rights and duties of international air carriers in transporting passengers and personal property. As for the Montreal Agreement (the “Agreement”), its origin traces back to the 1965 announcement by the United States of its impending denunciation of the Convention (the United States’ notice of denunciation had emphasized its action was attributable to the Convention’s low limits of liability for personal injury or death to passengers, see 31 Fed.Reg. 7302 (May 19, 1966)). O’Rourke v. Eastern Airlines, Inc., 730 F.2d 842, 851 (2d Cir.1984). To avoid that result, representatives of the United States and the principal international air carriers (including TWA) invoked Convention Art. 22(1), which allows carriers and passengers to agree by “special contract” to increase the liability limitations established by the Convention. On May 13, 1966, with Civil Aeronautics Board approval, the International Air Transport Association and the various carriers (including TWA) entered into the Agreement increasing those liability limits, and the United States withdrew its notice of denunciation of the Convention.

Darrases seek to characterize William’s claim against TWA as brought under the Agreement rather than the Convention— but that is really a mischaracterization. All the Agreement did was to increase the liability limits of the Convention, leaving the Convention’s substantive provisions intact. It is the Convention, not the Agreement, that creates William’s cause of action (Art. 17), and several other Convention Articles (such as Arts. 25, 28 and 29) define terms and conditions of that cause of action. See Air France v. Saks, — U.S. -, 105 S.Ct. 1338, 1341-47, 84 L.Ed.2d 289 (1985).

Accordingly William’s claim must be viewed as “arising under” the Convention as modified by the Agreement, not under the Agreement alone. That conclusion follows readily from Justice Holmes’ classic and often-reaffirmed definition in American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 586, 60 L.Ed. 987 (1916):

A suit arises under the law that creates the cause of action.

Indeed, later cases interpreting 28 U.S.C. § 1331 in the removal context have defined “arising under” even more broadly. See, e.g., Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 8-9, 103 S.Ct. 2841, 2845-46, 77 L.Ed.2d 420 (1983) and this Court’s opinion in Frye v. General Finance Cory., 35 B.R. 742, 744-45 (N.D.Ill.1983).

That conclusion brings into play the principle expressed by this Court in Dorizas. Because federal-question jurisdiction exists, Darrases’ motion to remand is denied.

      . Because Darrases and Cove are Illinois citizens, diversity of citizenship is lacking.


author: ROBERT D. POTTER, Chief Judge.

text:
    In the Matter of Labor Arbitration Between GENCORP, INC., Petitioner, and LOCAL 850, UNITED RUBBER, CORK, LINOLEUM, AND PLASTIC WORKERS OF AMERICA, AFL-CIO, Respondent.
    No. C-C-85-348-P.
    United States District Court, W.D. North Carolina, Charlotte Division.
    Nov. 15, 1985.

      John 0. Pollard, Blakeney, Alexander & Machen, Charlotte, N.C., for petitioner.
    Charles R. Armstrong, URW Asst. Gen. Counsel, Akron, Ohio, Michael Okum, Smith, Patterson, Follín, Curtis, James & Harkavy, Raleigh, N.C., for respondent.
   ORDER

ROBERT D. POTTER, Chief Judge.

THIS MATTER is before the Court upon Respondent’s Motion for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. Counsel for both parties have submitted thorough memoranda on the matter which the Court has carefully considered in rendering its opinion that Respondent’s Motion should be DENIED.

The Petitioner, Gencorp, Inc., discharged two employees. Respondent, Local 850, represented the employees in an arbitration proceeding conducted pursuant to a collective bargaining agreement entered into by Petitioner and Respondent. On February 26, 1985, the arbitrator issued an award reinstating the two employees. Petitioner received its copy of the award the next day, February 27, 1985. Ninety days later, on May 28, 1985, Petitioner filed in this Court its Petition to vacate the arbitrator’s award under Section 301 of the Labor Management Relations Act of 1947, as amended, 29 U.S.C. § 185. Petitioner’s grounds for its action to vacate are that the arbitrator acted arbitrarily and capriciously in refusing to consider Petitioner’s evidence on an issue, assuring Petitioner that such issue would have no bearing on the arbitrator’s decision; and the arbitrator thereafter based his decision squarely upon the disputed issue without the benefit of having considered Petitioner’s evidence. Respondent’s Motion is based on the allegation that the Petition was untimely filed under the appropriate state statute of limitations.

The single issue raised by this Motion, in the opinion of the Court, is whether the statute of limitations urged by Petitioner, N.C.Gen.Stat. § 1-567.13(b), or that urged by Respondent, N.C.Gen.Stat. § 95-36.9(c), should control this case.

Title 29 U.S.C. § 185, which governs suits for violations of contracts between employers and labor organizations, provides no statute of limitations for actions to vacate or declare unenforceable arbitration awards. In such cases, the settled rule is that the timeliness of such a suit is to be governed by the most clearly analagous statute of limitations under state law. International Union, UAW v. Hoosier Cardinal Corp., 383 U.S. 696, 704-05, 86 S.Ct. 1107, 1112-13, 16 L.Ed.2d 192 (1966); Del Costello v. International Brotherhood of Teamsters, 462 U.S. 151, 103 S.Ct. 2281, 2287, 76 L.Ed.2d 476 (1983).

The North Carolina General Assembly has provided two statutes which are both argued as the most analogous. The Respondent’s position is that the most analogous statute which should determine the limitations period here is N.C.Gen.Stat. § 95-36.9, entitled “Stay of proceedings,” which provides, at subsection (c)

Any party against whom an arbitration award has been issued may, within 10 days after receiving written notice of such award, apply to any judge of the superior court having jurisdiction in any county where the dispute arose for a stay of the award upon the ground that it exceeds the authority conferred by the arbitration agreement. (Emphasis added).

The most analogous statute according to Petitioner, on the other hand, is N.C.Gen.Stat. § l-567.13(a)(4) and (b) which provides

§ 1-567.13. Vacating an award.
(a) Upon application of a party, the court shall vacate an award where:
(4) The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of G.S. 1-567.6 as to the prejudice substantially the rights of a party;
(b) An application under this section shall be made within 90 days after delivery of a copy of the award to the applicant except that, if predicated upon corruption, fraud or other undue means, it shall be made within 90 days after such grounds are known or should have been known. (Emphasis added).

In arguing that Petitioner’s action is time-barred by the 10-day limitations period of North Carolina’s Voluntary Arbitration of Labor Disputes Act, Respondent states that Act is most analogous since it specifically addresses the arbitration of labor disputes covered by collective bargaining contracts and, its purpose for enactment was to assist in the prompt resolution of labor disputes as set out in the Act’s “Declaration of Policy.”

Respondent further argues that the 90-day limitation period of the Uniform Arbitration Act specifically provides that it shall not apply to “arbitration agreements between employers and employees or between their respective representatives unless the agreement provides that this article shall apply.” N.C.Gen.Stat. § 1-567.2. Thus, because the collective bargaining agreement at the base of this dispute does not specifically provide that the Uniform Arbitration Act shall apply, its limitation period is inappropriate for this determination.

Respondent notes also that the Uniform Arbitration Act was intended to cover commercial and property litigation whereas the Voluntary Arbitration of Labor Disputes Statute was intended to cover labor disputes to avoid industrial strife.

Further, Respondent cites United States Postal Service v. American Postal Worker’s Union, AFL-CIO, No. 84-437-CIV-5 (E.D.N.C. Jan. 7, 1985) as support for the proposition that N.C.Gen.Stat. § 95-36.9(c) is the appropriate statute. In that case, the Court held the Plaintiff’s action barred under N.C.Gen.Stat. § 95-36.9(b), finding that it was the most analogous statute. The Court rejected the use of N.C.GemStat. § 1-567.2(b)(2) because of the specific provision of nonapplieability unless specifically provided otherwise. The Court further rejected plaintiff’s argument to use the United States Arbitration Act, 9 U.S.C. § 12, as the determining statute to provide a uniform limitations period; the Court saw no such need.

This Court does not agree with either Respondent or the Court’s decision in United States Postal Service v. American Postal Worker’s Union, AFL-CIO, supra, that the most analogous statute in such cases is N.C.Gen.Stat. § 95-36.9. First, the issue which must be addressed is which limitations statute is most analogous for the determination of timeliness, not which Act to apply to the dispute. Neither Act need be applied to the underlying dispute since the controversy here rests solely on the problem of the absence of a limitations period in the Labor Management Relations Act, and the need for an analogous limitations period provided by a state statute.

The most analogous limitations period is set forth in N.C.Gen.Stat. § 1-567.-13(a)(4) and (b) which sets forth a 90-day period after delivery of a copy of an award during which a party must file an action to vacate an award on the ground that the arbitrator “refused to hear evidence material to the controversy.” That is the precise situation before the Court and less analogous is N.C.Gen.Stat. § 95-36.9(c) setting forth a 10-day period after receiving written notice of an award during which to apply for a “stay ... upon the grounds that [the award] exceeds the authority conferred by the arbitration agreement.” Petitioner applied to the Court to vacate the award ninety days after receiving a copy of the award, and thus, met the limitations period of N.C.Gen.Stat. § l-567.13(b), the most analogous statute determinative of this case.

IT IS, THEREFORE, ORDERED that Respondent’s Motion is DENIED.

      . Other matters raised by the parties are not necessary to consider in light of the Court’s decision on the issue of which state statute of limitations should govern.


author: GENE CARTER, District Judge.

text:
    Edward Patrick KENNEY [Taxpayer], Petitioner, v. UNITED STATES of America, [Internal Revenue Service], Defendant.
    Civ. No. 85-0142 P.
    United States District Court, D.C. Maine.
    Nov. 15, 1985.

      Judy Potter, University of Southern Maine Law School, Portland, Me., for petitioner.
    Richard S. Cohen, U.S. Atty., Joseph H. Groff, III, Asst. U.S. Atty., Portland, Me., Thomas R. Jones, Asst. U.S. Atty., Tax Div., U.S. Dept, of Justice, Washington, D.C., for defendant.
   ORDER DENYING IN PART AND GRANTING IN PART TAXPAYER’S PETITION FOR JUDICIAL REVIEW OF JEOPARDY ASSESSMENT

GENE CARTER, District Judge.

Petitioner, Taxpayer Edward Patrick Kenney seeks review of a jeopardy assessment made against him by the Internal Revenue Service pursuant to 26 U.S.C. § 6861(a) (1983). In reviewing a jeopardy assessment, this Court is required to determine (1) whether the making of an assessment is reasonable under the circumstances and (2) whether the amount assessed is appropriate under the circumstances. 26 U.S.C. § 7429(b)(2) (1983).

Reasonableness of the Jeopardy Assessment

The reasonableness standard has been defined as “something more than not arbitrary or capricious and something less than supported by substantial evidence.” Loretto v. United States, 440 F.Supp. 1168, 1172 (E.D.Pa.1977). The assessment is reasonable when at least one of the following three conditions are present:

1. The taxpayer is, or appears to be, designing quickly to depart from the United States or to conceal himself;
2. The taxpayer is, or appears to be, designing quickly to place his property beyond the reach of the Government either by removing it from the United States or by concealing it or by transferring it to other persons or by dissipating it;
3. The taxpayer’s financial solvency appears to be imperiled.

Clarendon Ltd. v. United States, 573 F.Supp. 106, 107 (S.D.N.Y.1983); Nolan v. United States, 539 F.Supp. 788, 790 (D.Ariz.1982). The burden is on the United States to establish that the making of an assessment was reasonable. 26 U.S.C. § 7429(g)(1) (1983).

The Court finds that the United States has met its burden in this case. The Notice of Jeopardy Assessment to Mr. Kenney states that a jeopardy assessment was made against him based on a finding that he was “designing to quickly place [his] property beyond the reach of the Government.” The notice indicates that the United States relied on the following findings in its assessment determination: that the taxpayer (1) “willfully failed to file federal income tax returns for each of the taxable years 1982 and 1983;” (2) has been convicted of violation of federal narcotics laws; (3) has “used cash in [his] narcotics activity attempting to conceal the true nature and extent of income;” and (4) did not maintain “bank accounts or other assets sufficient and readily available for the payment of ... personal expenses or ... federal income tax liabilities.” In regard to the reasonableness of the assessment, Mr. Kenney disputes that he did not file federal income tax returns in 1982 and 1983, that his plea of guilty to federal narcotics law violations is an admission of liability, or that the United States has evidence supporting its assertion that Mr. Kenney earned taxable income as a result of drug-related transactions.

There exists a sufficient basis for making an assessment even if the IRS had not relied on a failure to file income tax returns. Mr. Kenney was indicted and ultimately pleaded guilty to conspiring to possess with the intent to distribute cocaine. United States v. Edward Patrick Kenney, Criminal No. 84-00008-P (D.Me. March 29, 1985) (plea of guilty entered and accepted). The indictment to which Mr. Kenney pleaded guilty enumerated at least four transactions resulting from the conspiracy, each involving a pound or more of cocaine. Evidence presented at the trial, which ended in a mistrial because of statements made by the prosecutor regarding Mr. Kenney’s failure to testify, supported Mr. Kenney’s involvement in these transactions. The evidence further indicated that Mr. Kenney received “payment” for his participation in the form of relatively small amounts of cocaine. Since Mr. Kenney ultimately pleaded guilty to the conspiracy, failed to file a timely income tax return for the year 1983 and, the evidence suggests, received some remuneration for his participation in the conspiracy not included in his 1983 tax return, the Internal Revenue Service was reasonable in believing that Mr. Kenney was designing quickly to place his property beyond the reach of the government by concealing it. See also Rogers v. United States, 511 F.Supp. 82 (D.Minn.1980) (Court found assessment reasonable where taxpayer’s apparent means of making a living was drug trafficking, taxpayer had access to a large amount of cash and had failed to file income tax returns).

Other evidence in this case supports the Internal Revenue Service’s conclusion. Mr. Kenney’s 1983 tax return indicates a Federal Adjusted Gross Income of $2,942.48. Pursuant to a valid warrant issued and executed on January 12, 1984, $2,800 in United States currency and a safe deposit box key were seized in a search of Mr. Kenney’s home. A search of the safe deposit box revealed $14,000 in United States currency. All of this evidence supports the reasonableness of the Secretary’s conclusion that a jeopardy assessment was warranted under the circumstances.

Appropriateness of Amount Assessed

The burden of proof in respect to this issue is upon the taxpayer. 26 U.S.C. § 7429(g)(2) (1983). The Court finds that Mr. Kenney has sustained his burden of proof in establishing that the amount assessed against him is inappropriate under the circumstances.

The basis of the Secretary’s determination of the amount of the assessment against Mr. Kenney, is evidence that he had received $237,550 over the course of four cocaine transactions in 1983. The evidence does not support a conclusion that Mr. Kenney received these funds for his own use. Rather, the testimony of the Government’s witness indicates that this money was passed to a supplier and that Mr. Kenney received payment for his services in the form of small quantities of cocaine. The observations of the Probation Officer in the Presentence Report and of this Court in the sentencing hearing in this matter reflect that the evidence did not demonstrate that Mr. Kenney realized a substantial income from drug trafficking. Under these circumstances, the amount of income the Secretary attributed to Mr. Kenney and corresponding jeopardy assessment is inappropriate.

Accordingly, it is hereby ORDERED that the Taxpayer’s Petition seeking review of the jeopardy assessment against him is DENIED insofar as it seeks a determination that a jeopardy assessment against his is unreasonable, and GRANTED as to that portion seeking a determination that the amount assessed is inappropriate. It is FURTHER ORDERED that this matter be REMANDED to the Secretary of the Treasury for redetermination of the amount of income on which the assessments are based.

      . Mr. Kenney’s 1983 and 1984 Federal Income Tax Returns, which he contends are the relevant years, were submitted with his reply memorandum. The tax returns are dated April 15, 1985, the same date as the Notice to Mr. Kenney of the assessment. The assessment was actually made on April 11, 1985.

      . Mr. Kenney also asserts that the United States is estopped from enforcing or assessing any penalties against him because it facilitated the conspiracy and was the proximate cause of income generated, and prevented Mr. Kenney from obtaining beneficial use of the income. This argument is not supported by the evidence since, at most, it applies to only one of the transactions included in the indictment to which Mr. Kenney pleaded guilty.

      . The United States agreed to dismiss the civil action against the $14,000, United States v. $14,-000 in United States Currency, No. 85-0074-P (D.Me., filed March 19, 1985), as part of the plea agreement with Mr. Kenney.

      . Accordingly, the Secretary assessed a tax of $111,086 for 1983, plus interest and penalties of $55,543, under Code Section 6653(b)(2) and $6,802 under Code Section 6654(a).


author: CALDWELL, District Judge.

text:
    Raymond KOSLOP, Plaintiff, v. CABOT CORPORATION, Defendant. John HLUDZIK, Plaintiff, v. CABOT CORPORATION, Defendant. Charles TRUSKY, Plaintiff, v. CABOT CORPORATION, Defendant. Robert P. DUNSTAN, Plaintiff, v. CABOT CORPORATION, Defendant. Raymond PETRUNCIO, Plaintiff, v. CABOT CORPORATION, Defendant. Alfred F. MATUSICK, Plaintiff, v. CABOT CORPORATION, Defendant.
    Civ. A. Nos. 85-0936 to 85-0940 and 85-1267.
    United States District Court, M.D. Pennsylvania.
    Nov. 18, 1985.

      Anthony J. Miernicki, Nicholas M. Panko, Anthony J. Miernicki, P.C., Shenandoah, Pa., Jerry S. Cohen, Michael D. Hausfeld, Kohn, Milstein, Cohen & Hausfeld, Washington, D.C., Richard J. Lippes, Allen, Lippes & Shonn, Buffalo, N.Y., for plaintiffs.
    Thomas E. Wood, Harrisburg, Pa., Tyson W. Coughlin, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., for defendant; William S. Richardson, Reading, Pa., A. James Johnston, Post & Schell, Philadelphia, Pa., of counsel.
   MEMORANDUM

CALDWELL, District Judge.

I. Introduction.

Defendant has moved pursuant to Fed.R.Civ.P. 12(b) to dismiss plaintiffs’ complaints. Plaintiffs, former employees of defendant, Cabot Corporation, brought this action against defendant for damages allegedly resulting from the contraction of berylliosis during their employment. The complaint is divided into four counts alleging (1) strict liability, (2) wanton and reckless conduct, (3) products liability and (4) intentional conduct. Defendant argues that this action is barred by the exclusive remedy provisions of the Pennsylvania Occupational Disease Act, 77 P.S. § 1208 and the Workmen’s Compensation Act, 77 P.S. § 481(a). Plaintiffs maintain that their action is not barred because it states a cause of action (1) under the intentional tort exception to the Workmen’s Compensation Act and (2) under the dual capacity doctrine.

II. Background.

Plaintiffs are former employees of Cabot Corporation and its predecessor Kawecki Berylco Industries and have been diagnosed as suffering from berylliosis. Plaintiffs contend that their condition is the direct result of having been exposed to beryllium while employed by defendant. Generally, plaintiffs allege that defendant was aware of dangers connected with the use of beryllium and failed to take appropriate safety measures to protect its employees. More specifically, they contend that defendants (1) were in violation of health and safety standards regarding the processing of beryllium, (2) failed to warn plaintiffs of the known health risks of beryllium and (3) ignored certain health and safety recommendations made by hired consultants.

III. Discussion.

When considering a motion to dismiss pursuant to Fed.R.Civ.P. 12(b), we must accept all allegations in the complaint as true, and construe the facts set forth in the light most favorable to plaintiff. Gomez v. Toledo, 446 U.S. 635, 636 n. 3, 100 S.Ct. 1920, 1921 n. 3, 64 L.Ed.2d 572, 575 n. 3 (1980); Jennings v. Shuman, 567 F.2d 1213, 1216 (3d Cir.1977). With this in mind we will address the issues raised by defendant.

A. The Intentional Tort Exception.

Plaintiff asserts the complaint states a cause of action under the intentional tort exception. Defendant argues that the remedy provided in the Pennsylvania Workmen’s Compensation Act is plaintiffs’ exclusive remedy and that 1972 amendments to the Act eliminated the intentional tort exception. We disagree.

The Workmen’s Compensation Act provides in pertinent part:

(a) The liability of an employer under this act shall be exclusive and in place of any and all other liability to such employes, his legal representative, husband or wife, parents, dependents, next of kin or anyone otherwise entitled to damages in any action at law or otherwise on account of any injury or death as defined in section 301(c)(1) and (2) or occupational disease as defined in section 108. (footnotes omitted)

77 P.S. § 481(a).

Despite the apparent intent of this section to exclude other remedies, a narrow exception for intentional torts was carved out. In Readinger v. Gottschall, 201 Pa.Super. 134, 191 A.2d 694 (1963) an employee, who was attacked by his employer, was permitted to bring an action against his employer because intentional torts were not within the purview of the Workmen’s Compensation Act. The continued validity of the Readinger exception was called into question when the Workmen’s Compensation Act was amended in 1972. Defendant, citing Glendening v. United Parcel Service, Inc., 11 Phila. County Rptr. 246 (1984); Hogey v. Morello Excavating Co., 28 D & C 3d 451 (1984), Davis v. Dow Chemical Co., 24 D & C 3d 321 (1981), contends that the 1972 amendments eliminated the intentional tort exception.

While we recognize that defendant’s position has some merit, we find that the weight of authority supports the continued recognition of the intentional tort exception. At least one Pennsylvania appellate court has continued to apply this exception. In Jones v. P.M.A. Insurance Co., 343 Pa.Super. 411, 495 A.2d 203 (1985), the court stated that “the exclusive protection provided by the [Workmen’s Compensation] Act does not exclude a suit for an intentional tort.” Id. at —, 495 A.2d at 204. Additionally, several trial courts have recognized the exception. In Getz v. Rohm & Haas, No. 576 (C.P.Phila. County, Oct. 24, 1984) the court, after a lengthy discussion of the evolution of the intentional tort exception, found that the exception survived the 1972 amendments. See also Schneider v. Rohm & Haas Co., 23 D & C 3d 428 (1982).

Consistent and strong support for the exception is found in the Third Circuit. This is illustrated by Neal v. Carey Canadian Mines, Ltd., 548 F.Supp. 357 (E.D.Pa.1982), aff'd sub nom. Van Buskirk v. Carey Canadian Mines, Ltd., 760 F.2d 481 (3d Cir.1985). In Neal, the defendant company hired a physician to examine its employees. The doctor informed the defendant that certain employees were suffering from asbestosis and advised that the employees be told about the risks. The defendant ignored the doctor’s recommendations and eventually fired him after he urged that certain safety precautions be adopted. The Court found that under these circumstances plaintiffs could sue under the intentional tort exception. This rationale has been applied by other courts in this circuit. See Kohr v. Raybestos-Manhattan, Inc., 626 F.Supp. 20 (E.D.Pa.1985); Tysenn v. Johns-Manville Corp., 517 F.Supp. 1290 (E.D.Pa.1981).

B. The Specificity Requirement.

Having concluded that the intentional tort exception survived the 1972 amendments we turn to defendant’s argument that the complaint fails to state a claim under said exception. Defendant contends that this claim should be dismissed for failure to plead with the required specificity. Plaintiffs acknowledge the specificity requirement but nevertheless assert that they should be granted leave to file an amended complaint in the event we conclude that the complaint is insufficiently pleaded.

As defendant correctly points out, complaints attempting to state a cause of action under the intentional tort exception must be pleaded with specific facts. Shelly v. Johns-Manville Corp., No. 82-2730 (E.D.Pa. Oct. 28,1985); Kohr, supra. This requirement is similar to the strict pleading standard employed in civil rights actions and is designed to prevent the expansion of this narrow exception to the exclusive remedies provided in the Workmen’s Compensation Act.

In order to survive the motion to dismiss, plaintiffs must demonstrate that the “employer desired to cause the injury or believed that the injury was substantially certain to result.” Kohr, slip op. at 4-5. This burden can only be met by alleging facts which demonstrate this intent and can not be satisfied by alleging that the employer had a general awareness of hazardous conditions at the worksite. Shelly slip op. at 8.

Applying this standard, we conclude that plaintiffs’ claims that defendant (1) acted wantonly and recklessly, (2) failed to warn plaintiffs of the dangers of beryllium and (3) failed to abide by safety standards must be dismissed. These claims rise to nothing more than a claim that defendant was aware of a hazardous condition. See Kohr, supra, (claims substantially identical to these did not state a cause of action). Plaintiffs’ claim that defendant hired a safety consultant whose recommendations were ignored cannot be dismissed as easily. We find that this claim is comparable to the one made in Neal and could be sufficient to state a cause of action if pleaded with specific facts. Therefore, we will grant plaintiffs leave to file an amended complaint setting forth in detail the facts pertaining only to their claim that defendant ignored safety recommendations of the consultant. Allegations not related to this claim will not be considered.

C. Dual Capacity Doctrine.

Plaintiffs, relying upon Tatrai v. Presbyterian University Hospital, 497 Pa. 247, 439 A.2d 1162 (1982) are also attempting to assert claims for strict liability and products liability under the so-called “dual capacity doctrine.” This doctrine was summarized in Kohr v. Raybestos-Manhattan, Inc., 522 F.Supp. 1070, 1073 (E.D.Pa.1981) as follows:

[The] dual capacity theory states, with the advent of products liability, an employer, in its capacity as a manufacturer, owes an additional, and independent, legal obligation to its employees, as users of the employer-manufacturer’s product, beyond that which it owes to its employees solely as a result of their employment relationship, and that additional obligation may give rise to product liability actions despite the exclusivity provisions of the Workmen’s Compensation Act.

The facts of Tatrai are clearly distinguishable from the instant case. In Tatrai, the plaintiff became ill while at work and sought medical assistance in the emergency room of the defendant employer. While under the care of defendant she was injured and subsequently brought suit against the defendant. The court, noting that, the emergency room was open to the public, concluded that her injury at defendant’s hands was extraneous to her employment by the defendant, and that her action was not barred by the Workmen’s Compensation Act. In the present case, defendant’s business and plaintiff’s claims are intimately related to each other. Plaintiffs were injured during the course of their employment and not under circumstances that originated or existed outside their employment. Thus there is no basis in this case for concluding that defendant acted in an additional and separate capacity from that of plaintiffs’ employer. Plaintiff has cited no authority which supports extending Tatrai to the present case. To the contrary, Tatrai has been consistently limited to its facts. See Weldon v. Celotex Corf., 695 F.2d 67 (3d Cir.1982); Oyster v. Johns-Manville Corp., 568 F.Supp. 83 (E.D.Pa.1983); Budzichowski v. Bell Telephone Co. of Pa., 503 Pa. 160, 469 A.2d 111 (1983). We will dismiss plaintiffs’ claims for strict liability and products liability.

An appropriate order will be issued.

      . The Occupational Disease Act was incorporated into the Workmen’s Compensation Act in 1972. See 77 P.S. §§ 411(2) and 481(a). Therefore, we will only refer to the Workmen’s Compensation Act.

      . Prior to 1972, the Workmen’s Compensation Act covered only “accidents” in the workplace. As amended, the Act’s scope was expanded to cover all injuries occurring in the course of employment. 77 P.S. § 411(1).

      . Allegations of wanton or reckless conduct are clearly insufficient to state a cause of action for intentional conduct.

      . As we previously noted in Neal, the court found that plaintiffs could sue their employer under the intentional tort exception where the employer ignored the recommendations of a physician hired by the employer to examine its employees and make safety recommendations. See also Getz v. Rohm & Haas Co., supra, (allegations similar to those in Neal sufficient to state a cause of action.)


author: WILKINS, District Judge.

text:
    The SOUTH CAROLINA NATIONAL BANK, Plaintiff, v. Virginia L. DARMSTADTER, Defendant.
    Civ. A. No. 6:84-2466-14.
    United States District Court, D. South Carolina, Greenville Division.
    Nov. 18, 1985.
    Jennings L. Graves, Jr., Love, Thornton, Arnold & Thomason, Greenville, S.C., for plaintiff.
    James R. Gilreath, Greenville, S.C., for defendant.
   ORDER

WILKINS, District Judge.

This matter is before the Court upon the parties’ motions for summary judgment. For the reasons set forth below, the Court finds that the December 1978 loan transaction between the parties does not involve or constitute a security. Further, the Court finds that Plaintiff was not a responsible party in the transaction between Defendant and the National Railway Utilization Corporation (NRUC) in that Plaintiff did not breach any fiduciary duty owed Defendant. Accordingly, Plaintiffs motion for summary judgment on these issues is granted. The remaining issues contained in Plaintiffs motion and Defendant’s motion for summary judgment are denied.

The threshold question to be addressed is whether the loan of Plaintiff, The South Carolina National Bank (SCN), to Defendant and the receipt by SCN of a secured note from Defendant in December 1978 constitute a security. If the secured note received by SCN in exchange for the loan, in the context of the overall transaction, and in the context of the intent of the federal and state securities laws, is a security, additional questions would arise; but if the loan transaction does not involve a security, the Court need not further consider Defendant’s allegations of securities violations. A related question which must be addressed, although summarily, is whether SCN’s financing of Defendant’s investment transaction with NRUC implicates SCN in the issuance, sale or purchase of a security by NRUC. If the loan transaction does not involve a security, the remaining issues for the Court are Defendant’s allegations of breach of fiduciary duty and the amount of damages, if any, due the prevailing party.

FINDINGS OF FACT

The transaction in question originated December 27, 1978 when Defendant purchased two railroad boxcars pursuant to a business venture with NRUC. Defendant financed the purchase price by receiving a secured loan from SCN, and SCN secured the loan with the assets purchased and all of Defendant’s rights arising thereunder. An earlier identical transaction occurred in June 1978.

During 1978 NRUC was engaged in, among other things, the business of supplying and managing general purpose railroad boxcars for its own account and for others to be used in the railroad interchange system. NRUC was and continues to be a common carrier subject to regulation by the Interstate Commerce Commission. NRUC’s corporate headquarters and executive offices were and are located in Philadelphia, Pennsylvania. In December 1978 Defendant was the eighth largest stockholder in NRUC. Defendant was employed as the director of the Washington, D.C. office of NRUC in September 1977.

During 1977 the concept of the sale of railroad boxcars to individual owners and the management of those boxcars by NRUC originated within the management of NRUC. As the development of the managed boxcar concept progressed, certain members of NRUC management realized that an investment in boxcars to be managed by NRUC might be an attractive fringe benefit for NRUC management, stockholders and other insiders. However, during the period of 1977 and 1978, the demand for boxcars far exceeded the supply and the number of boxcars available for purchase by what came to be known as the “management group” was limited.

Defendant attacks the loan transactions which accompanied the sales of boxcars to Defendant and other members of the management group in June and December of 1978, but attempts to escape liability under only the December 1978 note. The sales transactions involved duplicate sets of documents, which included a Secured Note, Security Agreement, Agency Agreement, and Management Agreement. Several members of the management group negotiated the terms of the purchases and of the management of the boxcars and also arranged for loans for individual members of the management group from commercial lenders. SCN was one of several lenders approached regarding loans and at least one other bank was prepared to make loans to the management group. At the time that the participating members of the management group were chosen, no lender had been selected. It is clear that the impetus for the loan transactions came from Defendant’s fellow members of the management group, and not from SCN. It is also clear that the terms of the loans were negotiated on behalf of the individual members of the management group by fellow members of the management group.

Likewise, the purchases of the boxcars, including the price, and the terms of the Management Agreement, including management duties and management and maintenance fees, between NRUC and the purchasers, were negotiated directly between NRUC and the management group thereof. NRUC and the management group determined that the revenues earned by the boxcars should be pooled in order to provide each of the members of the management group with equal treatment. The Management Agreement also provided that any member of the management group could elect to withdraw from the pooling arrangement at any time. Further, the agreement provided that the management and maintenance fees payable to NRUC would not be paid if revenues were insufficient to first pay the loan installments to SCN. SCN did not establish the terms of the purchase and management documents between the individual members of the management group and NRUC. SCN’s involvement in the overall transaction was limited to the structuring of the financing of the transaction and the documents establishing and/or affecting the financing.

SCN loaned the individual members of the management group 90% of the purchase prices of the boxcars. As a secured lender, SCN participated in the structure of the loans and collateral documents. SCN required that each of its loans be collateralized and took security interests in the boxcars purchased, and in the revenues generated by the boxcars and the individual borrowers’ contract rights under the Management Agreement with NRUC. The Court is aware that commercial lenders often play an active role in the determination of the terms of any loan documentation and in the terms of collateral documentation, with particular concern toward protection of the lender’s position. The participation of SCN in the loan transactions herein demonstrates that it, to the extent that the superi- or bargaining power of any lender allows, dictated the terms of the notes and related agreements, including specific terms concerning the collateral.

The Secured Note issued by Defendant to SCN in exchange for the loan from SCN provided for a fixed principal amount, interest fixed at the rate of 12% per annum, fixed periodic principal and interest payments, and a fixed balloon payment in July 1984. The note and security agreement also provided for standard default terms, for acceleration in the event of default and for attorney’s fees and costs of collection in the event that legal action was necessary. SCN further required that its collateral be properly insured and required financial statements from the borrowers prior to the closing of the loan transactions, and on an annual basis thereafter. SCN made a determination that certain of the borrowers in the management group were required to provide additional collateral, in addition to the boxcars and the proceeds of the boxcars. The note further provided that the borrower could prepay the note in full anytime upon the payment of a prepayment fee amounting to 3% of the then outstanding loan balance.

The Agency Agreement between each individual borrower and the SCN Trust Department provided that NRUC, once it allocated the revenues to the individual boxcar owners, would pay the net revenues to the SCN Trust Department and further provided that the SCN Trust Department would, to the extent that funds were available in the account of each individual borrower, make the quarterly principal and interest payments to the SCN commercial loan department. Any excess revenues were to be invested in a consumer passbook savings account for the benefit of each investor, and were to be retained in the savings account until the loan was paid in full. Each individual borrower was to be responsible, however, for any deficiency in the quarterly principal and interest payments. SCN therefore acted as an escrow agent for the collection of revenues, application thereof to the debt and retention of excess revenues. SCN received a deposit of $4,000.00 per boxcar toward the purchase of each boxcar.

A careful review of the Secured Note of Defendant demonstrates that the quarterly principal and interest payments were determined on the basis of a 12-year amortization schedule and that the full remaining balance on the note was due to SCN five and one-half years after funding. Obviously, there would remain a substantial balloon payment due at maturity of the Secured Note, and SCN required as security for the full amount of the note that the revenues generated by the boxcars, to the extent that the revenues exceeded the quarterly principal and interest payments, be retained in an escrow savings account. While this feature may not accompany every commercial loan, it is consistent with SCN’s desire to be as fully protected as possible, particularly in light of the balloon payment feature of the note. Defendant contends that this structure evidences the intent by SCN to participate in the profits to be derived solely from the efforts of others, but logic and common sense dictate that such was more likely the action of a prudent lender attempting to protect its loan repayment as securely as practicably possible. Other than rights to its collateral and to repayment in accordance with the terms of the financing documents, SCN had no right to control NRUC or Defendant and had no right to share in the profits of either.

Further, there is no evidence of any role played by SCN in inducing Defendant to purchase the boxcars.

CONCLUSIONS OF LAW

The definitions of “security” under the Securities Act of 1933, 15 U.S.C.A. § 77b(1) (West Supp.1985), and the Securities Exchange Act of 1934, 15 U.S.C.A. § 78c(a)(10) (West Supp.1985), as well as under the South Carolina Blue Sky Laws, S.C.CODE ANN. § 35-1-20(12) (Law.Co-op. 1976 & Supp.1984), are essentially identical and provide that the term “security” includes any note unless the context otherwise requires.

Where the South Carolina securities law is substantially identical to the federal provisions, South Carolina courts will ordinarily follow the federal court’s interpretations of federal securities laws. Bradley v. Hullander, 272 S.C. 6, 249 S.E.2d 486, 494 (1978). Since South Carolina courts have not construed the term “security” and the term “note” within the context of a security, a discussion must necessarily deal with the federal securities laws.

The Fourth Circuit Court of Appeals utilized the following definition in determining whether a note constituted a security in Lawler v. Gilliam, 569 F.2d 1283, 1287 (4th Cir.1978):

In United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 852 [95 S.Ct. 2051, 2060, 44 L.Ed.2d 621] (1975), the Court, reviewing its decisions that have examined the statutory definition of a security, said: “The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”

Although the Fourth Circuit has yet to characterize the test it uses in considering the constitution of a “security,” this language indicates that the Fourth Circuit would adopt the “commercial vs. investment” test employed by the First, Third, Fifth, Seventh and Eleventh Circuits. Oliver v. Bostetter, 426 F.Supp. 1082, 1085 (D.Md.1977). Factors to consider in determining whether a given commercial instrument constitutes a security include:

[T]he size of the offering; whether there is, by necessity, reliance on the expertise of the issuer; the purpose of the issuer in executing the note and the payee in accepting the note; and the economic inducements held out to the prospect[;] ... the degree to which the profit on the note is in the hands of the maker rather than the payee; whether the object of the holder was to acquire an interest in the property or enterprise; whether the note was primarily commercial because it was serving as a “cash substitute” for the purchase price; and whether the return on the note was predetermined or could reasonably be anticipated, or was subject to the managerial efforts of the maker.

Futura Development Corp. v. Centex Corp., 761 F.2d 33, 41 (1st Cir.1985). All of these factors should be considered in their combined effect to determine the constitution of a particular transaction. See Amfac Mortgage Corp. v. Arizona Mall of Tempe, Inc., 583 F.2d 426, 432 (9th Cir.1978).

The facts of this case establish that the loan transactions did not constitute or involve securities. First, Defendant could have obtained alternative financing for the purchases or could have paid for the boxcars in cash. Second, the notes herein were issued by Defendant within the context of a commercial loan transaction and not within the context of a “purchase” of a security by SCN. The loan was represented by a promissory note and related documents, providing SCN with collateral in all of Defendant’s rights in the assets purchased, including the right to income earned by the assets. The note was for a fixed sum and provided for interest at a fixed rate and for payments in fixed amounts and at fixed dates. It contained standard default provisions, including the right to accelerate the due date of payments upon default, and to pursue the borrower and the collateral in the event of default. SCN’s requirement that it retain any excess revenues during the term of the note was reasonable within the context of the security concerns of a commercial lender, given the balloon payment feature of the note. Moreover, the note provided that Defendant could prepay the debt at any time, thereby avoiding the requirement that SCN hold any excess revenues earned.

Further, SCN did not look to the managerial or entrepreneurial abilities of NRUC or to the success of Defendant’s investment for repayment. It analyzed the credit position of Defendant prior to the loan transaction and determined that she had sufficient assets for repayment of the loan, aside from her purchase of the boxcars. Defendant was also specifically responsible for any deficiency in the quarterly payments.

The facts that SCN could potentially use any excess revenues it held in its passbook savings account for bank purposes and that SCN received a fee for its escrow functions does not turn this otherwise commercial loan into an investment by SCN. Every loan transaction, savings account system, or banking function of a commercial bank constitutes a form of investment, in that the bank will receive some form of profit or remuneration in return for its services, such as interest, the use of funds deposited, or fees. See Futura Development Corp. v. Centex Corp., 761 F.2d at 41-42; Thorp Commercial Corp. v. Northgate Industries, Inc., 1974-1975 Fed.Sec.L.Rep. (CCH) 1194, 929. In the present case SCN’s right to the interest earned or to the use of any funds on deposit was subject to the borrower’s right to prepay the loan, thereby detracting from any investment purpose of SCN. The purpose of the present loan was to provide Defendant with the necessary funds to utilize in a business venture. SCN did not induce Defendant to undertake the venture, as SCN was not selected as the financing institution until after the decision to invest was made, SCN was one of several institutions considered, and Defendant was a majority shareholder of the corporation with which she entrusted her funds. SCN was not attempting to participate in the boxcar venture, as it merely supplied the cash for an investment and received tailor-made security in return therefor. Indeed, Defendant could have financed the transaction by the use of another lender or by the payment of cash. Last, regardless of whether the subordination of NRUC’s fees was the result of SCN’s demands or of NRUC’s drafting, this factor when considered in the totality of the circumstances does not render the loan transaction a security.

Several courts have addressed the issue of whether a note or loan transaction constitutes a security in factual situations somewhat similar to the one present here. One of these factual situations is found in Davis v. Avco Financial Services, Inc., 739 F.2d 1057, 1063 (6th Cir.1984). In Davis, the Sixth Circuit held, inter alia, that promissory notes executed to a finance company in the ordinary course of the finance company’s business, the proceeds of which were to be used to pay for an investment in a “Dare to Be Great” pyramidal scheme, were not securities. Further, in Amfac Mtg. Corp. v. Arizona Mall of Tempe, Inc., 583 F.2d at 433, the court held, under a test somewhat different from that used in this circuit, that a promissory note and related security documents received by a finance company to finance the borrower’s investment in the construction of a shopping center were not securities under the federal securities laws. The court recognized that federal securities laws do not afford relief when commercial ventures prove to be unwisely made. Id. at 428. See also Futura Development Corp. v. Centex Corp., 761 F.2d at 38-42, Thorp Commercial Corp. v. Northgate Industries, Inc., 1974-1975 Fed.Sec.L.Rep. (CCH) ¶ 94,929.

Further, the Fourth Circuit’s opinion in Lawler v. Gilliam, 569 F.2d at 1287, is supportive of the conclusion that the present loan transaction did not involve or constitute a security. The Court in Lawler held, inter alia, that promissory notes issued by a business, in exchange for investments of money, which were accompanied by contracts guaranteeing a specific rate of return on the investment, and which were used as collateral for bank loans, constituted securities. Although not specifically addressed, the Court did not treat the bank loan transactions which provided the funds to invest as securities. Applying Lawler to the present case, the management agreement and related agreements which Defendant entered into with NRUC are analogous to the notes and guarantee contracts that the investor received in Lawler, as both constituted investments dependent upon the managerial skills of third parties, and both were used as collateral for bank loans. However, the bank loans providing the funds with which to invest were not treated as securities in Lawler, and are not securities in the present case. Accordingly, the Court finds that the loan transaction between SCN and Defendant did not constitute or involve a security as defined in state or federal securities laws.

Because the loan transaction accompanied a more complicated investment scheme, the Court must address SCN’s involvement in the overall transaction between Defendant and NRUC. The Court finds that SCN is not liable as a participant in the sale of securities or investment contracts by NRUC to Defendant. Defendant’s attempt to taint SCN with the characteristics of the transaction between Defendant and NRUC is unavailing. While the Court acknowledges that SCN necessarily became involved in the transaction between Defendant and NRUC to the extent necessary to fully document and protect its loans and collateral, there is no evidence that SCN thereby intended to be making an investment or that it took any steps to induce any investment by Defendant with NRUC. Defendant has overlooked the role played by her peers in the management group at NRUC and has attempted to blame SCN for her reliance upon her associates in the management group. Further, the Court notes that Defendant was a majority shareholder of the managing agent, NRUC, and that Defendant was an educated, sophisticated businessperson well within her area of business expertise. The securities laws were not intended to relieve sophisticated investors of ill-conceived investments.

In Getz v. Central National Bank of Greencastle, 147 Ind.App. 356, 261 N.E.2d 81, 85 (1970), the court ruled that the involvement of the bank, which was in many ways similar to SCN’s position here, “did not constitute direct or indirect participation in the distribution” of an investment contract. This Court is persuaded by the conclusions drawn by the court in Getz, which, while it dealt with this issue as opposed to the issue of whether the note issued by the borrower to Central National Bank was a security, uses a similar approach in determining that the lender was not a participant in the distribution of an investment contract. In light of the court’s finding that a commercial lender, by agreeing to perform its normal banking functions, cannot be classified as a participant in the sale of a security, the Court concludes that SCN’s role in the overall transaction was that of a lender and not an investor or participant in the distribution of investment contracts or securities.

The Court must next address the Defendant’s claims of breach of fiduciary duties. Defendant contends that SCN “agreed and purported to hold Defendant’s equity and interest in the investment for the benefit of Defendant” and that SCN “had statutory and common law fiduciary duties to protect and promote Defendant’s equity and interest in the investment on behalf of Defendant.” (Answer and Counterclaim, ¶ 37.)

The Secured Note and the Security Agreement provided only for the provisions concerning the loan and collateral for the loan. The Court notes that the evidence submitted clearly shows that SCN fulfilled any fiduciary obligations which may have arisen under these documents, as SCN dealt fairly and responsibly in an arm’s length loan transaction with a sophisticated borrower. The only duties of SCN, other than the duties of a secured lender, were set out in the Agency Agreement. The Court finds that the evidence clearly establishes that SCN fulfilled its duties under the Agency Agreement and that no breach of duty occurred thereunder. The materials submitted unquestionably establish that SCN did not breach any duties owed Defendant.

Accordingly, the Court grants Plaintiff’s motion for summary judgment as to the issues of whether the December 1978 loan transaction constituted or involved a security, whether SCN was a responsible participant of the overall transaction, and whether SCN breached any fiduciary duties owed Defendant. Plaintiff’s other grounds and Defendant’s motion for summary judgment are accordingly denied.

The Court will address the issue of damages in a later order. The parties are directed to file any submissions on the issue of the amount Plaintiff is due under the note no later than December 2, 1985.

AND IT IS SO ORDERED.