author: H. FRANKLIN WATERS, Chief Judge.

text:
    Bub SNOW d/b/a Bub Snow Water Well Drilling Company, Plaintiff, v. ADMIRAL INSURANCE COMPANY, Defendant.
    Civ. No. 84-3003.
    United States District Court, W.D. Arkansas, Harrison Division.
    June 25, 1985.

      Steven B. Davis, Harrison, Ark., for plaintiff.
    Lynn F. Wade, McAllister & Wade, Fayetteville, Ark., for defendant.
   MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

I. Introduction

The instant action arises from a dispute concerning the correct characterization of a contract of insurance. Plaintiff contends that the policy at issue is a “stated value” policy, under which the defendant is liable for the stated value of plaintiffs burned drilling rig at the time of contracting, less any depreciation thereon. Defendant asserts that the policy is an actual cash value policy, under which it is liable only for the cost to repair or replace the drilling rig which was destroyed by fire.

The parties apparently concede that the policy would be classified as a “stated value” policy under the laws of the state of Missouri, but would be viewed as an actual cash value policy under the laws of the state of Arkansas.

Thus, all agree that the “choice of law” determination largely governs the extent of defendant’s liability on the policy itself. Further enhancement of liability by imposition of prejudgment interest, statutory penalties, and attorney’s fees is also urged.

II. Background

To understand the circumstances surrounding plaintiff’s procurement of the policy at issue, the roles of other participants must be considered, because there were no direct dealings between plaintiff and defendant.

Plaintiff contacted the All Risk Agency (“All Risk”) in May, 1982, in Springfield, Missouri. All Risk is an insurance broker licensed in Missouri with a non-resident license in Arkansas. Plaintiff authorized All Risk to obtain price quotations for all of its insurance needs. After further communication with plaintiff regarding equipment values, All Risk contacted Bohrer, Croxdale & McAdoo, Inc. (“BC & M”), in June, 1982. BC & M is a Missouri corporation and an insurance broker for defendant with authority to accept applications on behalf of the defendant.

After All Risk contacted BC & M, BC & M contacted the defendant by telephone. Defendant approved the risk and set the rate. BC & M then contacted All Risk offering the coverage. All Risk obtained authority to accept the offer, and communicated the approval to BC & M on June 22, 1982.

On June 25,1982, Bub and Thelma Snow, President and Secretary-Treasurer of the plaintiff, visited All Risk’s office in Springfield, Missouri, and signed the contract documents, made a down payment on the premium, and arranged financing of the balance of the premium through the Commerce Bank of Springfield, Missouri, and Premium Finance Specialists of Kansas City.

The policy was prepared on July 23,1982, at BC & M’s offices in Springfield, Missouri, and countersigned with a signature stamp on defendant’s authority. BC & M requested the premium balance from All Risk, and All Risk paid BC & M in Springfield, Missouri, on August 3, 1982. The policy was issued and delivered by BC & M to All Risk in Springfield, Missouri.

This policy was for a period of one year. In March, 1983, BC & M received approval from defendant to renew the policy at the same premium. BC & M conveyed the offer to renew to All Risk in May, 1983. Plaintiff gave All Risk authority to accept the renewal offer, and All Risk did so.

The documents were prepared and countersigned at BC & M’s offices on June 23, 1983. On July 19,1983, the insured drilling rig was destroyed by fire in the state of Kansas. Plaintiff reported the loss to All Risk which reported it to BC & M. BC & M investigated the loss through ParrettHarris, Inc., of Joplin, Missouri. ParrettHarris advised All Risk that the loss was total.

After the instant action was initiated, defendant paid CIT Corporation, a loss payee, the sum of $20,879.60, and deposited $75,400.00 into the registry of the court. Plaintiff was permitted to withdraw this sum by order of this court without prejudice to its claim for additional monies allegedly due under the terms of the policy.

III. Choice of Law

This court must follow the choice of law rules of the state of Arkansas. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 407, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The decisions of the Arkansas Supreme Court have been characterized by a lack of consistency in choice of law rulings regarding contracts. Compare Worthington v. Worthington, 234 Ark. 216, 352 S.W.2d 80 (1962), with Peppers v. Pennsylvania Door & Sash Co., 171 Ark. 521, 285 S.W. 5 (1926).

Traditionally, because there is usually no fixed place for performance of insurance policies, the law of the place of making has been taken as determinative. Leflar, American Conflicts of Law § 153 at 314 (3rd ed. 1977). Where an insurer mails to the applicant a policy issued in accordance with the application, it has been held that the contract is “made” when and where the policy is mailed. State Mutual Fire Ins. Ass’n v. Brinkley Stave & Heading Co., 61 Ark. 1, 31 S.W. 157 (1895).

More recently, however, the Arkansas Supreme Court has applied the “most significant relationship” text to choice of law questions in contract cases. Standard Leasing Corp. v. Schmidt Aviation, 264 Ark. 851, 576 S.W.2d 181 (1979). In Schmidt the court said the place that the contract at issue was “finally consummated” was a “fortuitous fact” and was not of “controlling importance.” Schmidt at 856, 576 S.W.2d 181. The court applied Arkansas law to the contract although the parties had agreed that the law of the state of Tennessee would govern, because the significant “contacts” with the state of Arkansas rendered the contract an “Arkansas contract.”

This court held in Wright v. Newman, 539 F.Supp. 1331 (W.D.Ark.1982), rev’d on other grounds, 735 F.2d 1076 (8th Cir.1984), that the Arkansas courts currently apply the “most significant relationship” test to actions ex contractu. The Court of Appeals for the Eighth Circuit has reaffirmed this position. Tiffany Industries v. Commercial Grain Bin Co., 714 F.2d 799 (8th Cir.1983) (applying Arkansas law).

Although neither the Schmidt, Wright nor Tiffany Industries cases involved contracts of insurance, the court is aware of no overriding consideration which mandates a different choice of law rule in the insurance context herein presented from that applicable to contract actions in general.

Very recently the Arkansas Supreme Court has addressed the choice of law issue with regard to contract cases involving usury. In Snow v. C.I.T. Corp. of the South, 278 Ark. 554, 667 S.W.2d 465 (1983), the court was faced with a transaction which had a direct connection with four states: the state of negotiation; the state wherein the contract documents were signed and the situs of the property; the state where the financier maintained its principal office, whose laws governed by agreement of the parties; and the state where the property was delivered and used. The court ultimately opted to apply the law of the state chosen by agreement because the transaction had significant contacts with all four states and the choice of the parties was not unreasonable.

In Grogg v. Colley Home Center, Inc., 283 Ark. 120, 671 S.W.2d 733 (1984), another usury case, the court found the contract to have “substantial connections” with both Arkansas and Oklahoma. The court applied the law of the state which would uphold the contract, in that case, Oklahoma.

Although usury cases present differing policy considerations from those present here, it is clear that the court has carefully scrutinized the various “contacts” with the different states in making the choice of law determinations.

Similarly, in Yarbrough v. Prentice Lee Tractor Co., 252 Ark. 349, 479 S.W.2d 549 (1972), a usury case, the court held that although the negotiations and execution of the contract took place in the states of Arkansas and Louisiana, and the equipment was delivered and used in Arkansas, none of the particular acts involved would establish one state’s contacts as being more significant than the other. That being the case, the court applied Louisiana law so as to uphold the validity of the contract.

The Yarbrough, Schmidt, Snow and Grogg cases indicate that, regardless of the label applied or terminology employed, the court has first evaluated the nature and quantity of each state’s “contacts” with the transaction at issue. This is also the conclusion of the Eighth Circuit Court of Appeals expressed recently in Williams v. State Farm Mutual Automobile Ins. Co., 737 F.2d 741 (8th Cir.1984) (interpreting Arkansas law).

Thus, where it is not clear which of several states has the “most significant relationship” to the transaction, the Arkansas Supreme Court has resorted to consideration of other factors in making a choice of law determination in contract cases. Yarbrough, supra (upholding validity of contract, presumed intent); Snow, supra (agreement of the parties); Grogg, supra (“sham” agreement to subvert Arkansas’ usury laws, public policy).

With these principles in mind, this court must examine the various “contacts” of the state of Missouri and the state of Arkansas with the instant transaction.

Plaintiff initiated the transaction by contacting All Risk in Springfield, Missouri, in May, 1982. All Risk is a broker licensed in Missouri. All Risk, acting as “agent” for plaintiff, contacted BC & M in June, 1982. BC & M is a Missouri corporation acting as an insurance broker for defendant in Missouri. After defendant approved the issuance of the policy, BC & M contacted All Risk in Missouri to offer the coverage. After All Risk obtained authority to accept the offer, it communicated its acceptance to BC & M in Springfield, Missouri. Shortly thereafter, Bub and Thelma Snow visited All Risk’s office in Springfield and there signed the documents and made a down payment on the premium. The balance of the premium was financed partly by a bank located in Springfield. The policy was prepared by BC & M in Springfield. All Risk paid BC & M the premium balance on August 3, 1982, in Springfield. The policy was issued and delivered by BC & M to All Risk in Springfield. The loss was reported to plaintiffs’ agent in Springfield. A Missouri adjuster investigated the loss. Additionally, the renewal certificate states that the insurance was “procured and developed under the Missouri surplus lines law.”

On the other hand, plaintiff is a resident of Arkansas. Neither party “resides” in Missouri. All Risk contacted plaintiff in Arkansas regarding the equipment values. All Risk later contacted plaintiff in Arkansas to obtain authority to accept the offer. At the time of the contract the insured property was located and inspected in Arkansas. Arkansas personal property tax and surplus lines tax was paid in Arkansas. Bub and Thelma Snow are Arkansas residents.

After careful scrutiny, it appears that the contract was originated in Missouri, negotiated primarily in Missouri, and accepted, processed, executed and renewed in Missouri. The loss was reported in Missouri and investigated by a Missouri company. All of the “actors,” other than the plaintiff and defendant, were Missouri citizens or businesses. The locations of the property at the time of contracting (Arkansas) and at the time of the loss (Kansas) are merely “fortuitous.”

Although there are without doubt sufficient “contacts” with the state of Arkansas to justify the application of Arkansas law consistently with the requirements of due process (otherwise there would be no “choice of law” question), the state of Missouri has the “most significant relationship” with the instant transaction.

The contract is valid under the laws of both states. The contract contains no choice of law agreement. There is no overriding public policy “compelling” a decision in favor of the law of either state. Neither rule of law is clearly “better” than the other.

Thus, because the contract was “made” in Missouri and because Missouri has the most significant relationship to the entire transaction, the court concludes that the interpretation and effect of the contract should be governed by the laws of the state of Missouri.

Defendant argues that plaintiff should be estopped from asserting that Missouri law should govern because plaintiff accepted the policy without rejection for thirteen months and because the policy is an “actual cash value” policy by its own language.

However, if the applicable law renders the instant policy a “stated value” policy, plaintiff cannot be so estopped because it is well settled that “the laws which subsist at the time and place of the making of a contract ... enter into and form a part of it, as if they were expressly referred to and incorporated in its terms.” McArthur v. Smallwood, 225 Ark. 328, 340, 281 S.W.2d 428 (1955); Kinard v. Shackleford, 209 Ark. 244, 190 S.W.2d 12 (1945); Petty v. Missouri & Arkansas Ry. Co., 205 Ark. 990, 167 S.W.2d 895 (1943).

IV. Missouri Law

Under the law of the state of Missouri it appears that if a policy is a stated value policy, state law governs the measure of damages rather than the language of the parties. Citizens Discount & Investment Corp. v. Dixon, 499 S.W.2d 231 (Mo.App.1973); Stahlberg v. Travelers Indemnity Co., 568 S.W.2d 79 (Mo.App.1978).

Mo.Ann.Stat. § 379.160 (Vernon 1968) provides, inter alia:

... in all suits brought upon policies of insurance against loss or damage by fire hereafter issued or renewed, the defendant shall not be permitted to deny that the property insured thereby was worth at the time of the issuing of the policy the full amount insured thereon on said property covering both real and personal property.

This statute could reasonably be interpreted as allowing the parties to agree that the insurer’s liability is limited to replacement cost so long as the insurer does not contend that the property was initially overvalued. Additionally, the statute could reasonably be interpreted as being inapplicable to fire losses of personal property alone. However, the Missouri courts have addressed both points in recent years.

In Duckworth v. U.S.F. & G., 452 S.W.2d 280 (Mo.App.1970), the Missouri Court of Appeals held:

The value of personal property which is the subject of a suit in a fire loss case against an insurer is fixed by § 379.160 at the full amount of the insurance policy issued on this property as of the time of the issuance of the policy____

This statement does not per se indicate that the parties cannot stipulate to a measure of damages in accordance with replacement costs. However, the court went on to add:

The measure of damages for its total destruction is this value fixed at the date of the policy, less depreciation from that date to time of the fire.

Duckworth at 285.

The Missouri courts have applied the valued policy statute to numerous cases not involving buildings or land. See Duckworth at 283 n. 3.

Citizens Discount, supra, involved facts similar to those herein presented. In that case a truck-mounted feed mill was destroyed by fire. In the instant case a truck-mounted drilling rig was destroyed by fire.

In Citizens Discount the Missouri Court of Appeals held that the replacement value was irrelevant and that the proper measure of damages was the value as fixed by the policy, less depreciation, if any:

The issue was not at what price a truck and mill might be replaced, but by what amount this truck and mill depreciated from a stated value____

Citizens Discount at 234.

The court believes that the instant policy is a stated value policy under Missouri law. One of the endorsements schedules the covered items, listing an amount of insurance for each. The sum of the individual amounts is exactly equal to the total amount of insurance on the face of the policy. The premium charged is based upon a percentage of the dollar amount of insurance. The terminology of the endorsements indicates a specific value for the chassis, rotary drill, and drill stem sections which were destroyed. The values of these individual items were required to be reported to BC & M prior to the preparation of the policy. All Risk has stated that it “believed” the policy was to be a stated value policy (see Greenstreet deposition, p. 16; Keffer deposition, pp. 10-11).

In Huth v. General Accident & Life Assurance Corp., 536 S.W.2d 177 (Mo.App.1976), the above factors were viewed by the court as indicating that the policy therein involved was a valued policy. Although the court was not certain whether the policy was “valued” under the statute since the loss was not a fire loss, the court added: “Fire policies covering personal property are ‘valued’ by the statute.” Huth at 180.

As noted, various aspects of the policy at issue can reasonably be viewed as creating a valued policy, although paragraph 3 of the General Provisions of the policy attempts to limit recovery to the cost of replacement. It is, of course, fundamental that in the event of ambiguity, the contract is to be construed against the preparing party. American Ins. Co. v. First Nat’l Bank, 409 F.2d 1387 (8th Cir.1969) (applying Missouri law).

Defendant has not argued that Missouri law would limit recovery to the cost of replacement as would Arkansas law, and has limited its argument to the choice of law considerations and the applicability of estoppel. As indicated above, the court concludes that the instant policy is a stated value policy under Missouri law, and that the correct measure of damages to be applied is the stated value of the property at the time of renewal of the policy, less depreciation, if any, as of the time of the fire.

Defendant concedes that “application of Missouri law ... would reform [the policy] into a stated value policy.” (Defendant’s Brief in Support of Defendant’s Response to Plaintiff’s Motion for Summary Judgment and Motion by Defendant for Partial Summary Judgment, 7th unnumbered page.) With the exception of the word “reform,” the court agrees and now so holds.

Although defendant has made mention of a possible “salvage value” of the drilling rig, the court believes that it has implicitly conceded that the loss was total. Defendant’s adjuster, James Harris, advised All Risk three days after the loss that the loss was total. Additionally, defendant has not alleged that the “salvage” is marketable or of substantial value. Further, defendant has tendered into the registry of the court the sum that it alleges constitutes the replacement cost. Finally, the court notes that Missouri adheres to the doctrine of “constructive total loss.” Stahlberg, supra.

Plaintiff next argues that defendant' should be estopped from asserting that the property had depreciated subsequent to the renewal. Because the stated value of the property was $202,600.00 on June 22, 1982, and $202,600.00 as of June 23, 1983, plaintiff contends that defendant should not be allowed to claim that the property depreciated in the 26 days that elapsed from the renewal date to the date of the fire.

This argument is insufficient to demonstrate an estoppel. As a matter of “interpolation” it is sound reasoning that the property was worth $202,600.00 at any time between June 22, 1982, and June 23, 1983. However, this will not support the “extrapolation” argument plaintiff urges. Under Missouri law the defendant is entitled to present proof of depreciation regardless of the stated value of the property on any given date. The argument is strong that, in fact, the property did not significantly depreciate in the 26-day period, however, the court is unable to say as a matter of law that the property did not depreciate. There is no reason to preclude defendant’s proof in this regard.

Plaintiff also seeks prejudgment interest and a statutory penalty and attorney’s fee. However, in view of this court’s inability to grant a summary judgment because of the unascertained amount of depreciation, if any, any ruling by the court on these issues would be premature and advisory.

The ruling of the court additionally casts some doubt as to whether the amount of liability is “liquidated” or “readily ascertainable” so as to justify prejudgment interest. It also makes unclear plaintiff’s right to a statutory penalty or attorney’s fee.

V. Conclusion

The court concludes that Missouri law governs the instant contract and that the policy at issue is a “stated value” policy under that law. This being the case, it will be taken as conclusively established that the destroyed property had the value of $202,600.00 as of June 23, 1983. Therefore, the issues to be tried will be limited to the amount of any depreciation of the insured property subsequent to June 23, 1983.

If the defendant will sufficiently document, within two weeks, its contention that the loss was not total, the court will allow it to present evidence as to this at trial as well as with regard to the depreciation issue. Failing in this, the triable issues will be limited to the depreciation, if any.

The court notes that defendant has not briefed any issues pertaining to prejudgment interest, statutory penalties and attorney’s fees. The court directs both parties to brief these issues in light of this memorandum opinion, including choice of law considerations, applicability, and computation methods. Briefs are due within fourteen (14) days.

If the parties can stipulate as to the facts pertaining to the “totality” of the loss and depreciation of the insured property, the court will be able to dispose of the case without the expense and necessity of a trial. If a trial is necessary, the court expects any proof submitted to be significant, real, and substantial with regard to these issues.

Plaintiff’s motion for summary judgment and defendant’s motion for partial summary judgment will be denied, ánd the scope of any further proceedings will be limited as set forth above.

A separate order in accordance herewith will be concurrently entered.


source: Caselaw Access Project

author: WILLIAM C. LEE, District Judge.

license: Public Domain

text:
    Patsy ROSE, Plaintiff, v. SORG PRODUCTS, INC.; David Burns; Dennis Fought; and Robert Kryder, Defendants.
    Civ. No. F 85-11.
    United States District Court, N.D. Indiana, Fort Wayne Division.
    June 25, 1985.

      Stephen P. Rothberg; Rothberg & Chambers, Port Wayne, Ind., Ivan E. Bodensteiner, Valparaiso, Ind., for plaintiff.
    Frederick M. King & Lynn Brundage; Sommer & Barnard, Indianapolis, Ind., John R. Wilks; Wilks & Kimbrough; Fort Wayne, Ind., for defendants.
   ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on defendants’ Motion to Dismiss Individual Defendants and Pendent State Claims, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, filed March 18, 1985. Plaintiff responded in opposition to defendants’ motion to dismiss on May 3, 1985. Defendants replied May 29, 1985. Having examined the submissions of the parties and the applicable law, for the following reasons, defendants’ motion to dismiss the individual defendants and pendent state claims will be granted.

In their motion to dismiss pursuant to Rule 12(b)(1), the defendants raise two issues. The first issue raised is whether this court has pendent party jurisdiction over the individual defendants who are not named and are not a part of the Title VII cause of action, the federal claim involved in this matter, but are named in the state claims raised in this complaint. The second issue is whether this court should decline to exercise pendent jurisdiction over plaintiff’s state law claims, said claims being brought against the plaintiff’s employer Sorg Products, Inc. and the individual defendants. Because of this court’s resolution of the latter issue raised by the defendants in their motion to dismiss, the court will not address and resolve the former issue of whether this court possesses pendent party jurisdiction over the individual defendants.

The jurisdiction of this court over this case stems from this court’s jurisdiction over plaintiff’s Title VII claim, a federal question claim. Plaintiff asserts, in addition to her Title VII claim, state tort law claims of assault and battery, intentional and negligent infliction of emotional distress, invasion of privacy, and defamation and slander. The basis for this court’s jurisdiction over plaintiff’s state law claims is the doctrine of pendent jurisdiction. “[Pjendent jurisdiction is a judge-made doctrine of expediency and efficiency derived from the general Art. Ill language conferring power to hear all ‘cases’ arising under federal law or between diverse parties. See Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966). See also Hagans v. Lavine, 415 U.S. 528, 545, 94 S.Ct. 1372, 1383, 39 L.Ed.2d 577 (1974) (terming pendent jurisdiction ‘a doctrine of discretion’).” Pennhurst State School & Hospital v. Holderman, 465 U.S. 89,-, 104 S.Ct. 900, 919, 79 L.Ed.2d 67 (1984). The parties do not dispute that the exercise of pendent jurisdiction in a particular case by a district court is a matter of discretion.

The seminal case setting forth the parameters of the doctrine of pendent jurisdiction in federal courts is Mine Workers v. Gibbs. The Gibbs Court held that a federal court could choose in an individual case to exercise pendent jurisdiction where the federal claim has substance sufficient to confer subject matter jurisdiction on the court and where the state and federal claims derive from a common nucleus of operative fact. Gibbs, 383 U.S. at 725, 86 S.Ct. at 1138. In this case the federal claim raised by the plaintiff has substance sufficient to confer subject matter jurisdiction on this court. Further, the state and federal claims in this case do derive from a common nucleus of operative fact, although the facts necessary to prove the state claims are more extensive than the facts needed to prove the Title VII claim. Thus, the court concludes that it has the power to exercise pendent jurisdiction in this case. The real issue is whether this court should exercise that power.

Gibbs provides the analysis which this court must undertake to determine that issue. The justification for the exercise of pendent jurisdiction in a particular case “lies in considerations of judicial economy, convenience and fairness to litigants[.]” Id. at 726, 86 S.Ct. at 1139.

Needless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a sure-footed reading of applicable law____ [I]f it appears that the state issues substantially predominate, whether in terms of proof, of the scope of the issues raised, or of the comprehensiveness of the remedy sought, the state claims may be dismissed without prejudice and left for resolution to state tribunals.

Id. at 726, 726-27, 86 S.Ct. at 1139. Independent of jurisdictional considerations such as substantial hegemony of state law claims, there exist considerations such as the likelihood of jury confusion. Id. at 727, 86 S.Ct. at 1139.

The Gibbs Court specifically noted [Recognition of a federal court’s wide latitude to decide ancillary questions of state law does not imply that it must tolerate a litigant’s effort to impose upon it what is in effect only a state law case. Once it appears that a state claim constitutes the real body of a case, to which the federal claim is only an appendage, the state claim may fairly be dismissed.

Id. at 737, 86 S.Ct. at 1139-40. An examination of the complaint before this court leads this court to the conclusion that this case is a state law claims case to which the federal claim is only an appendage and the pendent state law claims may fairly be dismissed from this suit.

The plaintiff asserts state law claims of assault and battery, intentional and negligent infliction of emotional distress, invasion of privacy, and defamation and slander. All of these state tort claims carry possible damage recoveries of both compensatory and punitive damages. The state law claims also name individual defendants not named and, by law, not a part of the federal claim in this suit, plaintiffs Title VII claim. Plaintiff, in her Title VII claim, can only recover, if successful, back pay and promotion. Plaintiff is still employed at Sorg Products and thus, her back pay award could only be the difference between what she earned at the job she actually held during the relevant time period and what she should have earned at a higher paying job during the relevant time period. See 42 U.S.C. § 2000e-5(g), (k). It is clear that plaintiff’s Title VII recovery would not be even as great as the more typical Title VII recovery which involves an employee who has lost his job as a result of discrimination. If plaintiff were to prevail on her state law claims, she would be entitled to proven damages, in an amount far greater than her potential Title VII recovery. The court concludes that, in terms of the comprehensiveness of the remedies sought, the state claims clearly predominate over the federal claim.

The state law claims raised also clearly predominate in terms of the scope of the issues raised and of the proof needed to carry the burden of proof on the state law claims. It is also possible that, if the plaintiff recovered, in the state court, on her state law claims, the recovery would fully compensate her for any Title VII recovery to which she might be entitled.

The court also concludes that there is a likelihood of jury confusion in this case. Title VII does not carry a right to a jury trial. Grayson v. Wickes Corp., 607 F.2d 1194 (7th Cir.1979). Because there is a common nucleus of operative fact in this suit and because much greater proof is needed to prove the state law claims than is needed to prove the Title VII claim, the court concludes that there is a likelihood the jury would be confused in this suit in treating the various theories of relief and that such likelihood of jury confusion justifies separating the state and federal claims for trial. The state claims constitute the real body of this suit. The doctrine of pendent jurisdiction is not a vehicle by which litigants can attempt to impose upon a federal court what is, in effect, a state law case.

The only real argument the plaintiff articulates in support of her position that this court should exercise its power of pendent jurisdiction to hear the state law claims is the policy considerations of convenience and fairness to the plaintiff as a litigant. The court is not persuaded by this argument, particularly because the third consideration justifying the doctrine of pendent jurisdiction is the consideration of judicial economy. It is uneconomical for this court, sitting as it is as a federal court, to expend valuable judicial resources trying a case which is, in terms of proof, of the scope of the issues raised, and of the comprehensiveness of the remedy sought, a state law case and which is likely to cause jury confusion if the state claims are tried with the federal claim.

Further, the plaintiff’s argument that this court’s failure to exercise pendent jurisdiction over the state law claims would be inconvenient and unfair to the plaintiff is undercut somewhat by the nature of her federal claim. It is an open question in this circuit whether state courts have jurisdiction over Title VII suits. Patzer v. Bd. of Regents of the Univ. of Wisconsin, 763 F.2d 851, 855 (7th Cir. June 4, 1985). In the Patzer case, the Seventh Circuit assumed, without deciding, that state courts have jurisdiction to hear Title VII matters. Id. at n. 4. The jurisdictional statute of Title VII, 42 U.S.C. § 2000e-5, does not speak in terms of exclusive jurisdiction being given to the federal courts to adjudicate civil actions arising out of alleged Title VII violations. An argument can certainly be made that a state court has jurisdiction, as a general jurisdiction court, to hear a Title VII claim because Congress did not specifically provide that the jurisdiction of the federal courts over civil actions arising out of Title VII was exclusive.

Research through the fifty titles of the United States Code revealed that Congress has specifically provided exclusive jurisdiction, using that term, to federal courts seventy-two different times. Clearly, Congress knows how to specify and does specify when jurisdiction over a particular law of the United States is to rest exclusively with the federal court system. Title VII, except where the Title VII matter involves the government, is not such a law of the United States. Plaintiffs argument of inconvenience and unfairness is weakened by the possibility that any inconvenience and unfairness to her could be alleviated if she chose to file her Title VII claim in state court along with the state law claims this court concludes predominate this suit.

Several other courts have declined to exercise pendent jurisdiction over related state claims when the only substantial federal claim arose under Title VII. Bouchet v. National Urban League, Inc., 730 F.2d 799, 805 (D.C.Cir.1984), and cases cited therein. See also Hughes v. Marsh Instrument Co., 28 F.E.P. 702 (N.D.Ill.1981); St. Cyr v. Merrill Lynch, 540 F.Supp. 889 (S.D.Texas 1982). The Hughes case is instructive because it involved a Title VII claim alleging sex discrimination and a state law claim alleging the Illinois common law tort of intentional infliction of emotional distress. In Hughes, Judge Shader concluded that

Hughes’ state theory requires consideration of numerous factual questions irrelvant to her Title VII claim, questions that would significantly prolong the federal litigation. Proof of emotional damage and the specific acts Hughes alleges to have caused such damage would, in terms of time and difficulty, almost certainly “predominate” over Title VII issues. From a judicial economy standpoint, the fact that Hughes’ Title VII claim would be considered by the Court but her state claim by a jury might very well lead to protraction and complexity, avoidable were each claim tried separately-

Hughes, 28 F.E.P. at 703 (footnote omitted). This court concurs in Judge Shader’s reasoning. Hughes is strong support for this court’s conclusion in this case as Hughes involved only one state law claim and this case involves four state law claims.

This court’s decision in Moffett v. Gene B. Glide Co., 604 F.Supp. 229 (N.D.Ind.1984), is inapposite to this court’s resolution of defendants’ motion to dismiss because the issue of whether this court should exercise pendent jurisdiction over the state law claims raised in Moffett was not presented to the court, discussed or resolved by this court in that order. Even if this court had reached that issue in Moffett, it is not an automatic conclusion that this court would have declined to exercise pendent jurisdiction over the state law claims for the reasons articulated here. The exercise of pendent jurisdiction is an individualized decision which must be made in each case, based upon the facts of that particular case. The extensiveness of the federal claim in this case and the federal claims presented in Moffett varies.

Accordingly, on the basis of the foregoing, defendants’ Motion to Dismiss the Pendent State Claims in this case is GRANTED. The exercise of pendent jurisdiction is not warranted in this case. The pendent state claims are DISMISSED WITHOUT PREJUDICE to the reassertion of those claims in a state court of competent jurisdiction.


author: McLAUGHLIN, District Judge.

text:
    Howard REED, Sr., Romaldga Reed and Howard Reed, Jr., Plaintiffs, v. Sergeant Edward SCHNEIDER and Sergeant Joseph De Fina, Individually and as Police Officers in the Police Department of the City of New York and the City of New York, Defendants.
    No. 79 CV 5286.
    United States District Court, E.D. New York.
    June 25, 1985.

      Hartman & Lerner, New York City, for plaintiffs; Eugene Axelrod, New York City, of counsel.
    Frederick A.O. Schwarz, Corp. Counsel of City of New York, New York City, for defendants; James F.X. Hiler, of counsel.
   ORDER

McLAUGHLIN, District Judge.

The attached Report and Recommendation of Hon. Shira A. Scheindlin, United States Magistrate, is hereby adopted as the Opinion of this Court. No objections were filed within the time permitted.

It is hereby ORDERED that the complaint is dismissed as against defendant City of New York. Discovery in this case is to proceed forthwith before Magistrate Scheindlin.

SO ORDERED.

REPORT AND RECOMMENDATION

March 12, 1985

SHIRA A. SCHEINDLIN, United States Magistrate.

Plaintiffs, Police Officer Howard Reed, Sr., his wife Romaldga Reed, and their son, Howard Reed, Jr. bring this action seeking damages for the alleged violation of their constitutional right to be free from unreasonable searches under 42 U.S.C. § 1983, the Civil Rights Act (“the Act”). This case was referred to me by the Honorable Joseph M. McLaughlin for a report and recommendation on defendants’ motion for summary judgment.

1. Statement of Facts

On the evening of September 18, 1978, Police Officer Brady, accompanied by defendants, Sergeants Schneider and DeFina, arrived at the home of plaintiff, Police Officer Howard Reed, Sr. Defendants, members of the Internal Affairs Department, were in possession of a Grand Jury subpoena that they planned to serve on Officer Reed that night. (DeFina, 13; Schneider, 13).

Defendants went to plaintiffs’ house to serve the subpoena and, when they discovered that Officer Reed’s car was not parked near the house, they agreed to wait outside the house for him to arrive. Shortly after midnight, as the last light in Officer Reed’s home was extinguished, defendants sought to gain entry into Officer Reed’s home (DeFina, 29-30; Schneider 33). They knocked on the front door, and after several minutes passed without response, they decided that one officer would attempt to telephone the residence to inform its occupants that police officers were waiting at their door. (DeFina, 31; Schneider, 36).

Plaintiff Romaldga Reed, awakened by the knocking, was about to answer the door when the telephone rang. She directed her son, plaintiff Howard Reed, Jr., to “get the door” while she answered the phone. (Reed, Jr., 17). Howard Reed, Jr., looked outside and observed defendants dressed in plain clothes and standing within ten feet of the house. (Reed, Jr., 13). Defendants approached the front door when they saw the activity within the house. (DeFina, 32). Through the closed door, Howard Reed, Jr., asked the police officers to identify themselves. Unable to hear their response, Howard Reed, Jr. opened the door. (Reed, Jr., 17).

While Howard Reed, Jr. was answering the door, his mother was engaged in a telephone conversation with an unidentified Sergeant. The sergeant identified himself as an officer of the medical unit of her husband’s precinct and informed Mrs. Reed that two of his men were at her door. (Mrs. Reed, 18, 20). The sergeant then asked her if she knew where her husband was. When Mrs. Reed replied that she did not know, the sergeant asked her if it was “strange that you don’t know where your husband is?” (Mrs. Reed, 18). Becoming concerned for her husband’s well being, Mrs. Reed asked the sergeant why he was calling at such a late hour, and whether her husband was injured or dead. (Mrs. Reed, 19). The sergeant would not respond to Mrs. Reed’s inquiries about her husband’s condition. At this point the sergeant, calling from a pay phone, was disconnected.

During the course of Mrs. Reed’s telephone conversation Howard Reed, Jr. had opened the front door. Defendants identified themselves as being from the “medical unit” and asked to come inside. (Reed, Jr., 18). Concerned for his father’s well being, Howard Reed, Jr. allowed defendants into the house. (Reed, Jr., 22). Upon entering the house, one of the police officers began interrogating Howard Reed, Jr., with such questions as “where is your father?” (Reed, Jr. 23). Although Howard Reed, Jr. responded that he did not know where his father was, the questioning continued. Howard Reed, Jr. was asked why his father was not at home and if it was unusual for his father to be out at such a late hour. (Reed, Jr., 23). Unable to locate Officer Reed in the house, defendants left without answering Howard Reed, Jr.’s questions concerning the purpose of their visit and the health of his father. (Reed, Jr. 26). The entire incident lasted only a few minutes. Defendants did not display their weapons and did not mention the subpoena. (Reed, Jr. 24-25).

Shortly after defendants had left, Mrs. Reed’s telephone conversation with the sergeant ended. Mrs. Reed later described her condition at that time as “alarmed.” She testified that after the entry she began to shake and her heart was pounding. (Mrs. Reed, 27). Mrs. Reed then called her husband’s precinct for an explanation of the officers’ behavior. Mrs. Reed was told that her husband was not at the precinct and, further, that there was no medical unit. (Mrs. Reed, 31). Mrs. Reed, doubting whether the visitors had been police officers, imagined that they had been “gangsters” seeking retribution against her husband. (Mrs. Reed, 31). Mrs. Reed therefore became afraid for the safety of both her children and her husband. (Id.) Mrs. Reed remained upset until her husband returned home, almost an hour later. (Mrs. Reed, 32).

The next morning, as Officer Reed left his house, he was approached by defendants, the policemen who had attempted to contact him the night before. After identifying themselves as sergeants, defendants spoke to Officer Reed about certain property that the police department had recovered during the city-wide blackout of 1978. They stated that there were allegations that police officers had misappropriated certain “blackout-property.” (Reed, Sr., 15). Defendants then informed Officer Reed that they had a subpoena for him to appear before a Grand Jury investigating the allegations, and reminded him that he could lose his job if he perjured himself before the Grand Jury. (Reed, Sr., 17). Defendants also reminded Officer Reed that one of his automobiles had numerous overdue parking tickets. (Id.) At this point in their conversation defendants offered Officer Reed the option of “working” for their investigation by wearing a hidden tape recorder and generating conversations about the “blackout-property” with other police officers. (Reed, Sr., 18). In return for his cooperation with the Field Internal Affairs Unit, defendants told Officer Reed he would not have to respond to the subpoena (Reed, Sr., 20). Rather than deciding immediately, Officer Reed requested a chance to think over his options. Later that afternoon, after defendants had left, Officer Reed telephoned them and stated that he would not “work” for them by wearing the hidden tape recorder. (Reed, Sr., 26).

Based upon these events, plaintiffs Howard Reed, Sr., Mrs. Romaldga Reed, and Howard Reed, Jr. filed suit against Sergeants Schneider, DeFina, and the City of New York. Plaintiffs allege a violation of their Fourth Amendment right to be free from unreasonable searches. Plaintiffs seek damages as a result of the alleged violation of their civil rights based upon 42 U.S.C. § 1983, the Civil Rights Act (§ 1983).

II. Discussion

A. The Action Against the City of New York

In order to bring a § 1983 suit against a municipality, the United States Supreme Court requires plaintiffs to allege (1) the deprivation of a constitutional right and (2) that the act that deprived plaintiffs of their constitutional right was either the result of an “official policy” of the municipality, or was the “custom” of such municipality, though not formally approved by the official decision making channels. Monell v. Department of Social Services of the City of New York, 436 U.S. 658, 690-91, 98 S.Ct. 2018, 2035-36, 56 L.Ed.2d 611 (1978).

1. Have Plaintiffs Alleged a Fourth Amendment Violation?

The first question that must be addressed is whether a mere entry into a home without a valid consent constitutes an unreasonable search for purposes of the Fourth Amendment. The Sixth Circuit has held that “entry ... is itself a search for purposes of the Fourth Amendment.” United States v. Blue Diamond Coal Co., 667 F.2d 510, 517-18 (6th Cir.1981) cert. denied, 456 U.S. 1007, 102 S.Ct. 2298, 73 L.Ed.2d 1302 (1982). Similarly, a panel consisting of three judges of the Southern District of New York has held that “any unauthorized physical penetration is a search.” James v. Goldberg, 303 F.Supp. 935, 940 (S.D.N.Y.1969), rev'd on other grounds sub nom. Wyman v. James, 400 U.S. 309, 91 S.Ct. 381, 27 L.Ed.2d 408 (1971). In reversing the lower court, the Supreme Court indicated that if the administrative personnel had been police officers, an unreasonable search might have been found. Id. at 322-23, 91 S.Ct. at 388-89. Numerous Supreme Court holdings have emphasized the view that legitimate expectations of privacy may be strongest when the invasion is into one’s own home. Private dwellings are “afforded the most stringent Fourth Amendment protection.” United States v. Martinez-Fuerte, 428 U.S. 543, 561, 96 S.Ct. 3074, 3084, 49 L.Ed.2d 1116 (1976).

In Payton v. New York, 445 U.S. 573, 100 S.Ct. 1371, 63 L.Ed.2d 639 (1980), a case involving the search of a private dwelling pursuant to a warrantless arrest, the Court found that “physical entry of the home is the chief evil against which the wording of the Fourth Amendment is directed.” Id. at 585, 100 S.Ct. at 1379 (quoting United States v. United States District Court, 407 U.S. 297, 313, 92 S.Ct. 2125, 2134, 32 L.Ed.2d 752 (1972)). The Court also noted that “[a] greater burden is placed ... on officials who enter a home or dwelling without consent. Freedom from intrusion into the home or dwelling is the archetype of the privacy protection secured by the Fourth Amendment.” Payton, 445 U.S. at 587, 100 S.Ct. at 1380 (quoting Dorman v. United States, 435 F.2d 385, 389 (D.C.Cir.1970)).

The alleged actions of the defendants did not constitute a mere technical trespass. Technical trespasses have been found not to constitute unreasonable searches. Hester v. United States, 265 U.S. 57, 44 S.Ct. 445, 68 L.Ed. 898 (1924) (investigation of unlawfully distilled spirits on grounds surrounding house); Air Pollution Variance Board v. Western Alfalfa Corp., 416 U.S. 861, 94 S.Ct. 2114, 40 L.Ed.2d 607 (1974) (health inspector enters outdoor premises to make visual inspection of chimney emissions). In these cases the Supreme Court has applied the “open fields” doctrine and found the Fourth Amendment right to be free from unreasonable searches did not apply to the grounds immediately surrounding a dwelling. Id. In Ehlers v. Bogue, 626 F.2d 1314 (5th Cir.1980), cert. denied 451 U.S. 909, 101 S.Ct. 1979, 68 L.Ed.2d 298 (1981), the Fifth Circuit found that mere visual inspections of the exterior of an apartment building and a nearby refuse dumpster, unaccompanied by any entry into an area from which the general public was excluded, did not constitute an unreasonable search. Id. (citing Western Alfalfa’s “open fields” doctrine).

Similarly, the Court has held that there is no legitimate expectation of privacy in the interior of an automobile that may be viewed from outside the vehicle. Texas v. Brown, 460 U.S. 730, 103 S.Ct. 1535, 75 L.Ed.2d 502 (1983). In Harbulak v. County of Suffolk, 654 F.2d 194 (2d Cir.1981), the Second Circuit found that a motorist who alleged a § 1983 civil rights action based upon a police officer’s reaching into the automobile and placing two unaccepted summonses on the dashboard was frivolous and that it was an abuse of discretion to deny an award of attorney’s fees to the defendant. The court reasoned that the plaintiff was “driving along a public highway in plain view” and thus the officer’s intrusion was not “a substantial one, of a kind that would be highly offensive to the ordinary reasonable man ...” Id. at 196 (quoting Restatement (Second) of Torts § 652B, comment d (1977)).

Here, the alleged actions of the defendants, in gaining entry into a home under false pretenses, exceed the limits of a technical trespass. Thus, in my view, the police officers’ entry into plaintiffs’ home constituted an unreasonable search if the finder of fact concludes that consent to enter was involuntarily obtained.

Viewing all materials submitted in a light most favorable to the plaintiffs, as required for the purposes of this motion, Egelston v. State University College at Geneseo, 535 F.2d 752 (2d Cir.1976), the plaintiffs have proferred sufficient proof that their constitutional right to remain free of unreasonable searches was violated. While defendants maintain that Howard Reed, Jr. consented to the entry of the police officers, Howard Reed, Jr., in his deposition, denies any voluntary consent. The Supreme Court has recently held that, “where the validity of a search rests on consent, the State has the burden of proving that the necessary consent was obtained and that it was freely and voluntarily given, a burden that is not satisfied by showing a mere submission to a claim of lawful authority.” Florida v. Royer, 460 U.S. 491, 497, 103 S.Ct. 1319, 1324, 75 L.Ed.2d 229 (1983). The question of the voluntary nature of Howard Reed, Jr.’s consent constitutes a material fact in issue that can only be decided by the finder of fact. Summary judgment cannot be granted when there exists a genuine issue of material fact. American International Group, Inc. v. London American International Corp., Limited, 664 F.2d 348 (2d Cir.1981); Jaroslawicz v. Seedman, 528 F.2d 727 (2d Cir.1975); Harlee v. Hagen, 538 F.Supp. 389 (E.D.N.Y.1982).

2. Have Plaintiffs Alleged Municipal Liability?

Assuming for the purposes of this summary judgment motion that defendant police officers did violate plaintiffs’ constitutional rights, the second question to be decided is whether the acts that deprived plaintiffs of their constitutional rights were the result of a “policy or custom” of the municipality. Monell, 436 U.S. at 690-91, 98 S.Ct. at 2035-36. Defendant, the City of New York, correctly argues that no evidence has been proffered to show that such a “policy or custom” did exist, and that the City therefore cannot be found liable under § 1983. While plaintiffs have alleged that the City knew of and impliedly sanctioned the strong arm tactics employed by the Internal Affairs officers to coerce the cooperation of fellow police officers, they have not alleged, and discovery has not revealed, any facts that demonstrate the existence of such a custom or policy.

The Second Circuit has stated that an official policy cannot ordinarily be inferred from a single incident of illegality. Turpin v. Mailet, 619 F.2d 196 (2d Cir.), cert. denied sub nom. Turpin v. City of West Haven, 449 U.S. 1016, 101 S.Ct. 577, 66 L.Ed.2d 475 (1980). Had the City announced an illegal policy, either in writing or orally, a single illegal act performed as a result of such policy would be sufficient to state a valid cause of action under the Act. Turpin, 619 F.2d at 199. However, when a plaintiff seeks to infer an official policy from the acquiescence of a municipality, evidence of more than a single incident of illegality is generally required. Id. at 202. See also Batista v. Rodriguez, 702 F.2d 393 (2d Cir.1983).

The Second Circuit has held that under special circumstances a single instance of illegality may be sufficient to infer an official policy from the acquiescence of a municipality in the alleged illegal act. Owens v. Haas, 601 F.2d 1242 (2d Cir.1979), cert. denied, 444 U.S. 980, 100 S.Ct. 483, 62 L.Ed.2d 407 (1979); Cattan v. City of New York, 523 F.Supp. 598 (S.D.N.Y.1981). The circumstances that lead to municipal liability generally involve a failure of supervision or lack of training so severe as to reach the level of gross negligence or deliberate indifference to the deprivation of a plaintiffs constitutional rights. Owens, 601 F.2d at 1246; Turpin, 619 F.2d at 202. The Second Circuit has found that these special circumstances exist when the single incident is an “unusually brutal or egregious beating administered by a group of municipal employees ...” Turpin, 619 F.2d at 202 (emphasis added). The alleged acts of Sergeants Schneider and DeFina do not constitute the special circumstances contemplated by the Second Circuit. A mere entry without consent, though perhaps a constitutional violation, does not rise to the level of gross negligence or deliberate indifference as required by Owens.

The Federal Rules of Civil Procedure require that an adverse party to a summary judgment motion “may not rest upon the mere allegations or denials of his pleading, but his response ... must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e). One of the purposes of summary judgment is to determine whether the parties can provide evidence in support of their version of the facts. Perma Research and Development Co. v. Singer Co., 410 F.2d 572, 578 (2d Cir.1969). In addition, a party must make the existence of credible evidence known if that evidence supports its position. E.P. Hinkel & Co., Inc. v. Manhattan Co., 506 F.2d 201, 205 (D.C.Cir.1974). See also Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir.1980). Plaintiffs have failed to allege any specific facts which demonstrate that the City of New York condones these types of incidents by policy or custom. Nor have plaintiffs shown that the City of New York has acquiesced when presented with similar incidents of illegality on previous occasions. In the absence of such evidence no material issue of fact exists to be tried. Thus, it is respectfully recommended that the motion for summary judgment on behalf of the City of New York be granted.

B. The Action Against the Individuals

1. Sergeant DeFina

Plaintiffs have alleged specific facts which, if established, would constitute a violation of plaintiffs’ Fourth Amendment right to be free from unreasonable searches. Sergeant DeFina, it is alleged, entered the Reed household without first obtaining the valid consent of Howard Reed, Jr. The alleged unlawful entry of Sergeant DeFina cannot be determined on this summary judgment motion because the factual question of consent is pending. Quinn, 613 F.2d at 444-5.

2. Sergeant Schneider

The circumstances of Sergeant Schneider’s alleged entry into the Reed household also remain in dispute. Defendant Sergeant Schneider contends that he was the caller who spoke with Mrs. Reed while Sergeant DeFina was entering the house. (Schneider, 38). Mrs. Reed remains unable to recall the name of the sergeant with whom she spoke. (Mrs. Reed, 18). However, Howard Reed, Jr. identified Sergeant Schneider as the police officer who accompanied Sergeant DeFina into his home. (Reed, Jr., 19). This factual dispute is material and must be resolved by the finder of fact. Summary judgment therefore is inappropriate. Quinn, 613 F.2d at 444-45. Furthermore, with respect to both Sergeant DeFina’s and Sergeant Schneider’s motions for summary judgment, it must be noted that summary judgment is a drastic remedy and should be applied only sparingly. Egelston, 535 F.2d at 754; Auletta v. Tully, 576 F.Supp. 191 (N.D.N.Y.1983), aff'd 732 F.2d 142 (2d Cir.1984); Sobel v. Yeshiva University, 477 F.Supp. 1161 (S.D. N.Y.1979). Here the existence of factual question precludes summary relief.

III. Conclusion

Because plaintiffs have alleged specific acts by Sergeants DeFina and Schneider which, if established, would constitute a violation of plaintiffs’ Fourth Amendment right to be free from unreasonable searches, it is respectfully recommended that Sergeant DeFina’s and Sergeant Schneider’s motions for summary judgment be denied. Because plaintiffs have failed to allege specific facts that demonstrate an official policy or custom on the part of the City of New York to violate plaintiffs’ constitutional rights, it is respectfully recommended that the City of New York’s motion for summary judgment be granted.

A copy of this Report and Recommendation is being mailed today to all parties, who are hereby advised that objections to the report may be served and filed with the district court, with a copy to me, within ten (10) days.

      . The following facts are taken from plaintiffs’ complaint and depositions. As such, they are allegations accepted as true only for purposes of this motion, and do not constitute findings of fact. See Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

      . Citations to individuals’ names refer to that person’s deposition together with the appropriate page number of the deposition transcript.


author: BRITT, Chief Judge.

text:
    Robert P. ALMOND, Jerry A. Calloway, Vernon G. Cox, Allen E. Dail, Janice D. Decker, David W. Guthrie, Brenda M. Herring, Sherman L. Lewis, Janice E. Osborne, Leslie T. Simmons, on Behalf of themselves and all other persons similarly situated, Plaintiffs, v. Harlan E. BOYLES, in his official capacity as Treasurer of the State of North Carolina and as Chairman of the Board of Trustees of the North Carolina Teachers’ and State Employees’ Retirement System; R. Eugene Ballard, Ezra A. Bridges, M.L. Byrd, William C. Covington, Jr., and Withers Davis, in his or her official capacity as a member of the Board of Trustees of the North Carolina Teachers’ and State Employees’ Retirement System, Defendants.
    No. 84-138-Civ-5.
    United States District Court, E.D. North Carolina, Raleigh Division.
    June 25, 1985.

      John Q. Beard, Robert W. Spearman, Steven J. Levitas, Charles R. Hassell, Jr., Raleigh, N.C., for plaintiffs.
    William F. Briley, Reginald L. Watkins, Norma S. Harrell, Raleigh, N.C., for defendants.
   MEMORANDUM OPINION AND ORDER

BRITT, Chief Judge.

This action is brought pursuant to the Randolph-Sheppard Act (Act) by visually handicapped persons who operate vending stands in North Carolina. See 20 U.S.C. §§ 107-107Í. They filed the action on 17 February 1984 against officials of the North Carolina Department of Human Resources (DHR) and the North Carolina Teachers’ and State Employees’ Retirement System (Retirement System). Plaintiffs allege that the defendants have violated their constitutional and statutory rights by unlawfully deducting the “employer” contributions to the Retirement System from vending stand proceeds, and by refusing to return the “employer” contributions to the plaintiffs in 1983 when they were given the option to withdraw from the Retirement System. Plaintiffs seek declaratory and injunctive relief on behalf of themselves and all similarly situated Randolph-Sheppard vendors to recover all monies that they were forced to contribute to the System. The matter is before the court on the plaintiffs’ motions for summary judgment and class certification and the defendants’ motions to dismiss and for summary judgment.

The Randolph-Sheppard Act was enacted in 1936 to provide business opportunities for the visually handicapped. Since 1955 DHR and its predecessor agencies have administered the Randolph-Sheppard vending stand program in North Carolina. This program has been funded primarily by the federal government. Pursuant to the Vocational Rehabilitation Act, the federal government matches at a rate of 4 to 1 non-federal funding for purposes of vocational rehabilitation. See 29 U.S.C. §§ 701 et seq. The non-federal share of the vending program budget has come primarily from vending stands proceeds. In applying for designation as a Randolph-Sheppard licensing agency, and in exchange for the federal grants it received to operate the program, DHR agreed to administer the program in accordance with the Randolph-Sheppard Act and regulations promulgated thereunder.

Prior to 1974 the Randolph-Sheppard Act provided that deductions from the “proceeds” of vending facilities could be “set aside” for only four purposes:

1. Maintenance and replacement of equipment;
2. The purchase of new equipment;
3. Management services; and
4. Assuring a fair minimum return to operators of vending stands.

The Act further provided that “in no event shall the amount of such funds to be aside from the proceeds of a vending stand exceed a reasonable amount which shall be determined by the Secretary.” See 20 U.S.C. § 107b(3). In 1974 Congress amended the Act to provide that vending stand proceeds could be set aside for the purchase of retirement benefits and other fringe benefits for the vendors, but only after full disclosure and a majority vote by the vendors. The 1974 amendments further provided that deductions for any of the five purposes allowed by the Act were to be made from the vending stands’ net proceeds, rather than the gross proceeds. Id.

The Act’s language and legislative history indicate that Congress intended for the Randolph-Sheppard vendors to be treated as self-employed independent contractors. Nevertheless, in North Carolina DHR has in many ways treated the vendors like they were state employees. Since 1971 DHR has collected the vending stands’ gross proceeds, made deductions therefrom, and then distributed the balance to the vendors. Prior to 1971, however, vending stand operators were paid a weekly salary and bonuses. DHR kept the surplus proceeds in a special reserve account. As a result, DHR accumulated $300,000 in reserves from vending stand proceeds. These funds were transferred to the state’s general fund in 1971. At that time the North Carolina General Assembly decided to examine the retirement benefits available to the vendors. The vendors had set up a private retirement program, though it was clearly inadequate to meet their needs. The General Assembly hired an actuarial firm to conduct a study to examine the vendors’ retirement program and determine the best way to provide the vendors with adequate retirement benefits. The actuarial firm concluded that the vendors should be brought into the North Carolina Teachers’ and State Employees’ Retirement System. Thus, all Randolph-Sheppard vendors in North Carolina became members of the state Retirement System. The vendors’ private retirement, plan assets of $163,-490.09 and an additional one-time state appropriation of $145,000 were transferred to the Retirement System.

The Retirement System provides benefits for the employees of state agencies and the employees of several non-state entities, such as county and city school boards. Under state law, funding for the Retirement System is divided into two parts, the “employer” contribution (9.12%) and the “employee” contribution (6%). The “employer” contribution is paid by the state agency employer or non-state employer. In the case of Randolph-Sheppard vendors, however, both the “employer” and “employee” contributions were deducted from vending stand proceeds.

In 1983 the General Assembly finally came to realize that Randolph-Sheppard vendors were properly classified as self-employed individuals rather than state employees. On 30 September 1983 the General Assembly passed an act which provided that Randolph-Sheppard vendors licensed in the future would not be allowed to participate in the Retirement System. Furthermore, all licensed vendors who had been participating in the Retirement System were required to make an irrevocable election to: (1) Continue contributing both the “employer” and “employee” shares to the Retirement System; or (2) cease contributing to the System and (a) receive a refund of “employee” contributions plus statutory interest; (b) apply for and commence receiving a monthly retirement allowance; or (c) leave accumulated contributions in the System and retain the right to receive an actuarially reduced pension at some future date. The vendors were not given the option to withdraw both the “employer” and “employee” contributions from the System.

On 17 February 1984 plaintiffs filed this action on behalf of themselves and all similarly-situated Randolph-Sheppard vendors, seeking both declaratory and injunctive relief. In effect, plaintiffs want the Retirement System to give them the option to withdraw from the Retirement System and receive a refund of all the money they were required to contribute to the System. This court finds that the plaintiffs were wrongfully required to pay both the “employer” and “employee” contributions to the Retirement System and are entitled to the relief requested.

RANDOLPH-SHEPPARD ACT VIOLATION

There was clearly a violation of the Randolph-Sheppard Act in this case. Prior to 1974 the establishment of retirement or fringe benefit programs was not one of the four purposes for which vending stand proceeds could be set aside. See 20 U.S.C. § 107b(3). In 1974 Congress added a fifth purpose, retirement or fringe benefit programs, for which state licensing agencies could set aside vending stand proceeds. After the 1974 amendments, state licensing agencies could set aside vending stand proceeds for retirement benefits, but only “after a majority vote of blind licensees licensed by such State agency.” Id. DHR never gave the vendors an opportunity to vote on whether they wanted to join the Retirement System. This court does not doubt the General Assembly’s good faith in attempting to provide for the vendors’ retirement needs. Nor does this court doubt DHR’s contention that many vendors were happy to be included in the state’s Retirement System. Nevertheless, because of the fiduciary duty which DHR owes to the vendors, the Randolph-Sheppard Act requires a majority vote by the vendors before vending stand proceeds can be set aside for retirement benefits. The only equitable solution at this point is to give the vendors the option to withdraw from the Retirement System and receive a refund of their “employer” and “employee” contributions to the Retirement System plus statutory interest.

There is no merit to the Retirement System’s argument that it cannot be compelled to refund the vendors’ “employer” contributions because the Retirement System played no part in wrongfully diverting the vendors’ money. It would be ridiculous to suggest that one state agency can take a person’s property, give it to another state agency, and thereby prevent the wronged person from recovering his property. The principle of equitable restitution is to “deprive the defendant of benefits that in equity and good conscience he ought not to keep, even though he may have received those benefits quite honestly in the first instance____” D. Dobbs, Handbook on the Law of Remedies, § 4.1 at 224 (1978).

ELEVENTH AMENDMENT IMMUNITY

The eleventh amendment does not permit private parties to obtain retrospective monetary relief which “must inevitably come from the general revenues” of a state. See Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974). Describing the requested relief as “equitable restitution” does not avoid the eleventh amendment barrier. Thus, the critical question in this lawsuit is whether requiring the Retirement System to refund the vendors’ “employer” contributions would in effect be the same as a retroactive award of monetary damages against the state. Although state decisions and legislation dealing with the character and status of state agencies will influence federal courts, the question of eleventh amendment immunity is ultimately one of federal law. See 13 C. Wright, A. Miller & F. Cooper, Federal Practice and Procedure, § 3524 at 137-38, and n. 32 (1984) (hereinafter referred to as Federal Practice and Procedure). The North Carolina Court of Appeals recently opined that an award of monetary damages against the Retirement System would be barred by the eleventh amendment. See Stanley v. Retirement and Health Benefits Division, 66 N.C.App. 122, 310 S.E.2d 637 (1984). On the facts of this case, this court respectfully disagrees.

The two most important factors in analyzing the eleventh amendment question are (1) the degree of autonomy given to the agency and (2) whether recovery against it would come from state funds. See 13 Federal Practice and Procedure at 135-36. The “autonomy” factor does not weigh heavily in favor of either party in this case. The defendants emphasize the control which the state exercises over the Retirement System through the detailed statutory provisions governing the Retirement System, appointment of members of the board of trustees, performance of numerous management and administrative functions by the treasurer’s department, and subjection of the Retirement System to numerous laws governing state agencies and their employees. On the other hand, the plaintiffs emphasize that the Retirement System is vested with the “power and privileges of a corporation,” it is administered by a board of trustees which has the right to sue and be sued and to acquire and dispose of real and personal property, and all property acquired is held in the corporate name.

Since the “autonomy” factor is not decisive, the critical factor becomes whether recovery against the Retirement System would come from the state's general revenue funds. This factor weighs in favor of the plaintiffs. The case which may be most instructive on this question is Blake v. Kline, 612 F.2d 718 (3d Cir.1979), cert. denied, 447 U.S. 921, 100 S.Ct. 3011, 65 L.Ed.2d 1112 (1980). In Blake the district court dismissed the action prior to discovery and held that the Public School Employees’ Retirement Board (PSERB) was an “alter-ego” of the state and enjoyed sovereign immunity. The court relied on a state court case that had held that a related agency, the State Employees’ Retirement Board, was an “alter-ego” of the state. The district court found that PSERB was also an “alter-ego” of the state because it was exempted from both municipal and state taxation, and that the payment of benefits was expressly made an obligation of the state. The Third Circuit reversed and remanded, holding that the district court had relied too heavily on the state court’s decision and the vague statutory language. Of particular interest in the Blake opinion is the Third Circuit’s emphasis that for eleventh amendment purposes, the “nature” of the state’s obligation to contribute to an award of monetary damages may be more important than the size of the contribution. See Blake v. Kline, 612 F.2d at 723.

There are three reasons why this court believes that an award of monetary relief in this case would not infringe upon the state’s “general revenue funds.” First, a substantial portion of the money held by the Retirement System was not appropriated by the General Assembly. Contributors to the Retirement System include state employees, non-state employers, the employees of these non-state entities, and investment income. Second, state funds appropriated to the Retirement System lose their identity as “general revenue funds” and become earmarked for a particular purpose. At the 4 April 1985 hearing, defense counsel argued that the state should not be “punished” for ensuring that Retirement System funds were not used for any other purpose. While the state’s efforts to ensure the financial integrity of the Retirement System are laudable, the law is clear that the isolation of Retirement System funds from the state’s general revenues weighs heavily against the Retirement System’s eleventh amendment argument. See Blake v. Kline, 612 F.2d at 724.

Third, and most importantly, the defendants have not shown the court that the relief requested by the plaintiffs would inevitably lead to an additional appropriation of state funds. The facts of this case are very different from the facts in Fitzpatrick v. Bitzer, 519 F.2d 559 (2d Cir.1975), rev’d on other grounds, 427 U.S. 445, 96 S.Ct. 2666, 49 L.Ed.2d 614 (1976). In Fitzpatrick, the state was required to appropriate funds to the Connecticut State Employees’ Retirement Commission annually on an actuarial basis such that at least 75% of the total retirement income payment for each year had to be made by the state. The court found that “[a] judgment against the fund would thus automatically increase the obligations of the general state treasury and amount to a judgment against the state.” See Fitzpatrick v. Bitzer, 519 F.2d at 565. In this case, although the State of North Carolina has not expressly immunized itself from the Retirement System’s general or specific liabilities, the defendants have put forth no evidence to rebut plaintiffs’ contention that the requested relief may be satisfied by investment income or a slight decrease in the amount of benefits paid to other beneficiaries of the Retirement System. Therefore, the relief requested by the plaintiffs is not barred by the eleventh amendment.

STATUTE OF LIMITATIONS

North Carolina’s three-year statute of limitations for liabilities created by a statute applies to this action. See N.C.Gen. Stat. § 1-52(2). Therefore, the claims of vendors who withdrew from the Retirement System more than three years before this action was commenced are time-barred. In addition, the defendants argue that the statute of limitations limits plaintiffs’ recovery to those contributions paid in within three years of the date this action was filed. This court disagrees. The defendants’ deduction of “employer” contributions was a continuing wrong for which the statute of limitations did not begin to run until the defendants stopped making the deductions in 1983. See Taylor v. Meirick, 712 F.2d 1112, 1118-19 (7th Cir.1983). Noting that statutes of limitations serve a dual purpose of precluding claims brought on stale evidence and providing repose, the Seventh Circuit explained that “the defendant’s uncertainty as to whether he will be sued at all will be confined to the statutory period. His uncertainty about the extent of his liability may be greater, but that is often true in litigation.” Id. at 1119. The “continuing wrong” doctrine is especially appropriate in cases such as this one where there is a “special relationship between the plaintiff and defendant which offers the possibility of correction of the injury.” See Lewis v. Local No. 100 of the Laborers’ International Union of North America, 750 F.2d 1368, 1379 (7th Cir.1984). Thus, plaintiffs’ recovery is not limited to those contributions paid in within three years of the date this action was filed.

EXTENT OF RELIEF

Plaintiffs’ recovery should be reduced by the amount of benefits they have actually received from the Retirement System in the form of disability retirement, disability salary continuation, or death benefits. The defendants argue that plaintiffs’ recovery should also be reduced by the value of

[T]he protection of disability retirement provisions for those employees with more than five years, the protection of disability salary continuation provisions for those employees with more than one year, the protection of the death benefit for those employees with more than one year membership service, and the right to participate in the group health insurance plan for teachers and state employees at a favorable rate and benefit level.

In addition to the fact that these benefits are not readily quantifiable, courts have held in analogous situations that the intangible value of lost “protection” is not recoverable. See Spagnuolo v. Whirlpool Corp., 550 F.Supp. 432, 433 (W.D.N.C. 1982), rev’d on other grounds, 717 F.2d 114 (4th Cir.1983). Therefore, plaintiffs’ recovery shall not be reduced by the value of the “protection” provided by the Retirement System.

CLASS CERTIFICATION

This court finds that the requirements for maintaining a class action set forth in

Rules 23(a) and 23(b)(2) have been met in this ease. The relief sought by plaintiffs is injunctive in nature, and the defendants’ liability is rooted in grounds applicable to all members of the class. See Brown v. Porcker, 502 F.Supp. 946 (D.S.C.1980), aff'd 660 F.2d 1001 (4th Cir.1981), cert. denied, 459 U.S. 1150, 103 S.Ct. 796, 74 L.Ed.2d 1000 (1983). Thus, plaintiffs’ motion for class certification is allowed. The class shall consist of

all persons licensed at any time since 1 July 1971 as vending stand operators under the North Carolina Randolph-Sheppard Program, except those who have retired or died, who have been forced to make both ‘employer’ and ‘employee’ contributions to the North Carolina Teachers’ and State Employees’ Retirement System and have not been allowed to withdraw from the Retirement System and receive a refund of all their contributions to the System.

Pursuant to Rule 23(d)(2) the defendants shall give personal notice of this order to members of the plaintiff class. The cost of mailing the class action notices shall be borne by the defendants. See Meadows v. Ford Motor Co., 62 F.R.D. 98, 101-02 (W.D.Ky.1973).

STIPULATED DISMISSALS

Pursuant to the parties’ 4 April 1985 stipulation, defendants Thomas Z. Osborne and the Board of Trustees of the Retirement System are dismissed from this action. This dismissal does not pertain to the individual members of said Board, who have been sued in their official capacities.

CONCLUSION

The plaintiffs’ motions for class certification and summary judgment are granted. The defendants’ motions to dismiss and for summary judgment are denied. The North Carolina State Commission for the Blind, from 1 July 1971 through 30 June 1973, and the Department of Human Resources, from 1 July 1973 through 30 September 1983, unlawfully deducted both the “employer” and “employee” contributions to the Retirement System from the plaintiffs’ vending stand proceeds in violation of the Randolph-Sheppard Act. The plaintiffs are entitled to a refund of all funds held by the Retirement System which were contributed by the plaintiffs either as “employer” or “employee” shares.

It is hereby ORDERED that:

1. Within twenty (20) days from the filing date of this order, the parties shall file with this court a proposed notice to be mailed to members of the plaintiff class concerning the terms of this order. Specifically, the notice shall contain a brief description of the parties, the background of the case, and the relief granted by this order.

2. The defendants provide the plaintiffs with a full and complete accounting of all funds that have been contributed to the Retirement System as “employer” contributions; and

3. The Retirement System shall give members of the plaintiff class the option of receiving an immediate refund of both the “employer” and “employee” contributions to the Retirement System, reduced by the amount of benefits actually received, plus four per cent (4%) interest.


author: PLATT, District Judge.

text:
    The BOARD OF EDUCATION OF the CITY OF NEW YORK, Plaintiff, v. Gordon AMBACH, Commissioner of Education for the State of New York, and Atara J., as guardian-parent and next friend of Asher J., a handicapped child, Defendants.
    No. 84 CV 3217.
    United States District Court, E.D. New York.
    June 25, 1985.

      Frederick A.O. Schwarz, Jr., Corp. Counsel, City of New York by Paul Marks, Asst. Corp. Counsel, New York City, for plaintiff.
    Robert D. Stone, New York State Educ. Dept, by James H. Whitney, Albany, N.Y., for defendant Ambach.
    Weil, Gotshal & Manges by Myron J. Meadow, New York City, for defendant Atara J.
   MEMORANDUM AND ORDER

PLATT, District Judge.

This action arises under the Education for All Handicapped Children Act (“ERA”), 20 U.S.C. § 1401 et seq., and turns on a dispute over whether the private school in which a handicapped child was enrolled pursuant to a Court’s order issued in Jose P. v. Ambach, et al., 3 E.H.L.R. 553:299 (E.D.N.Y.1982) (Nickerson, J.), became his “current education placement” under 20 U.S.C. § 1415(e)(3) until proceedings reviewing placement recommendations made by the Board of Education of New York City concluded that a proper placement recommendation had been made.

If the'private school was the child’s “current placement” as defendant New York State Commissioner found, then the City’s Board of Education is liable for the child’s tuition up and until its placement recommendation was confirmed as proper. Plaintiff, the City’s Board of Education, maintains that the private school in which defendant Atara J.’s son was placed never became his current placement and further maintains that it should not be liable for his school tuition after it had made an appropriate placement recommendation for 1983-84 in May of 1983.

To side with the City Board of Education’s position would eviscerate the meaning and intent of the procedural safeguards embodied in 20 U.S.C. § 1415(b)-(e), the purpose of which was to ensure some stability in a handicapped child’s school placement during the pendency of impartial review proceedings of the school agency’s placement recommendation. A recent Supreme Court case confirms the importance of these safeguards, but its ruling does not directly help us in this case. Town of Burlington v. Dep’t of Education of the Commonwealth of Massachusetts, — U.S.-, 105 S.Ct. 1996, 2002, 85 L.Ed.2d 385 (1985). Because of the interpretation of these statutory safeguards is of some importance, this Court takes the time to address the present case.

BACKGROUND

Asher J. is an emotionally handicapped child whose parents enrolled him in the Alternative School in June of 1982 pursuant to the memorandum and order of Judge Nickerson of the Eastern District of New York in January 1982. This order which specifically incorporated the Special Master’s Report No. 8 and appeared as Jose P. v. Ambach, et al., 3 E.H.L.R. 553:299, was directed at overcoming the enormous delays by the City of New York in moving towards offering every handicapped child within its jurisdiction a “free appropriate education,” the right to which was mandated by the Education for All Handicapped Children Act, 20 U.S.C. § 1401 et seq. The order authorized parents of handicapped children for whom an appropriate placement was not recommended by plaintiff’s Committee on the Handicapped (“COH”) within 60 days after the referral to the COH for classification and placement to enroll that child in a private school approved by plaintiff at plaintiff’s expense.

After Asher's parents had enrolled him at the Alternative School pursuant to the Court order, plaintiff’s COH recommended that Asher be classified as emotionally handicapped and placed in a class for such children at P.S. 99. Asher’s mother, defendant Atara J., decided to avail herself of the right to apply for a review of the COH’s recommendation by an impartial hearing officer as is accorded under 20 U.S.C. § 1415(b)(2).

By a decision dated March 8, 1983, plaintiff's hearing officer determined that the COH had not been properly constituted, nor had it followed proper procedures when it had made its initial placement recommendation; for example, no physician or parent of another handicapped child was present and Atara J. was found not to have consciously waived her right to the presence of either of these parties. Plaintiffs Rule 3(g) Statement, Exhibit 4 at 2-3. More importantly, the hearing officer concluded that the COH had failed to demonstrate the appropriateness of the placement it had offered Asher for the 1982-83 school year and that the Alternative School was Ash-er’s “current placement” and “an appropriate placement for Asher, with continued public funding, until and unless a suitable substitute is provided.” Id. at 10. Accordingly, the officer ordered plaintiff to fund Asher’s attendance at the Alternative School for the 1982-83 school year.

In May of 1983, plaintiff’s COH reviewed Asher’s case, again identified him as an emotionally handicapped child, and recommended that he be placed in a class for emotionally handicapped children at J.H.S. 303, a public school, for 1983-84. Again, Asher’s mother sought review by an impartial hearing officer. This time, in a decision dated December 28, 1983, the hearing officer found that the proposed placement had been appropriate and also denied the parent’s request for tuition reimbursement. Plaintiff’s Rule 3(g) Statement, Ex. 6. Subsequently, Asher’s mother appealed to the State Commissioner of Education for a review of this decision, a right accorded under 20 U.S.C. § 1415(b)(2).

By a decision dated April 2, 1984, the State Commissioner upheld the hearing officer’s finding that the recommended placement was appropriate but reversed his ruling on the question of tuition reimbursement. Plaintiff’s Rule 3(g) Statement, Ex. 1. The Commissioner held that since the Alternative School was Asher’s “current placement” under 20 U.S.C. § 1415(e)(3) and New York Education Law § 4404(4), the equivalent of the federal law section, the Board of Education was responsible for Asher’s tuition until its proposed placement was finally confirmed as appropriate by the Commissioner’s April 2, 1984 decision. In this action, plaintiff seeks a reversal of the Commissioner’s decision concerning its liability for Asher's tuition.

STATUTORY SCHEME

Section 1415(a) of 20 U.S.C. states that any local educational agency receiving assistance under the EHA must “establish and maintain procedures in accordance with” § 1415(b)-(e) which “assure that handicapped children and their parents or guardians are guaranteed procedural safeguards with respect to the provision of free appropriate public education by such agencies or units.”

One of these safeguards is the right given in 20 U.S.C. § 1415(b)(2) to seek review of a school agency’s proposed placement. Another safeguard, provided in 20 U.S.C. § 1415(e)(3), is intended to maintain some stability and continuity in a child’s school placement during the pendency of review proceedings; this section states:

During the pendency of any proceedings conducted pursuant to this section, unless the State or local educational agency and the parents or guardian otherwise agree, the child shall remain in the then current educational placement of such child, or, if applying for initial admission to a public school, shall, with the consent of the parents or guardian, be placed in the public school program until all such proceedings have been completed.

The language of the above section creates a duty on the part of the parents who avail themselves of the hearing and review provisions to maintain their handicapped child’s current or “status quo” placement during the pendency of such proceedings. Stemple v. Board of Education of Prince George’s County, 623 F.2d 893, 897 (4th Cir.1980). Maintenance of the status quo requires not only that the child remain in the same placement, but also that no change in financing of that placement occur during the pendency of the proceedings. Monahan v. State of Nebraska, 645 F.2d 592, 597-98 (8th Cir.1981). Thus, a public school agency must maintain its financial commitment to continue to fund an educational placement prior to the commencement of proceedings. Stacey G. v. Pasadena Independent School District, 695 F.2d 949, 953 (5th Cir.1983).

Section 1415(e)(3) does not act to preclude parents from removing their child from an arguably inappropriate placement, but if the parents do violate the status quo provisions of Section 1414(e)(3) and place their child in a private school without the consent of the school agency, they do so at their own risk. See, e.g., Rowe v. Henry County School Board, 718 F.2d 115, 119 (4th Cir.1983); Doe v. Brookline School Committee, 722 F.2d 910, 918 (1st Cir.1983); Zvi D. v. Ambach, 694 F.2d 904, 908 (2d Cir.1982); Stacey G., 695 F.2d at 955. However, as the Supreme Court recently held, if during the review proceedings it is determined that the parents selected placement if appropriate under the Act, a district court is given the power under § 1415(e)(2) to grant such relief as it deems appropriate which “includes the power to order school authorities to reimburse parents for their expenditures.” Town of Burlington, 105 S.Ct. at 2003.

DISCUSSION

Plaintiffs argument that it should be relieved from the State Commissioner’s ruling of liability for Asher’s tuition for 1983-84 is predicated on several assertions. First, it asserts that the mere fact that the hearing officer ruled that Asher’s mother was entitled to reimbursement for the 1982-83 school year did not make the Alternative School his current educational placement. This first assertion is based on its second assertion that since Asher was “applying for initial admission to a public school,” his current placement should have been the placement initially offered. The Board’s third assertion is that because the COH’s recommendation should have been Asher’s current placement, Asher’s parent, by re-enrolling her son in the Alternative School, “unilaterally” rejected his current placement for 1983-84 and therefore assumed responsibility for financing his tuition for that school year.

Taking plaintiff’s first two assertions, the Court finds that Asher’s mother acted under the authority of the Jose P. order when she placed her child in a private school program approved by the City’s Board of Education when the Board had failed to offer a public placement within 60 days of her application. Thus, because Asher’s initial application for admission to public school was not acted upon soon enough, his initial placement was his “current placement” until the Board of Education offered Asher an “appropriate free program.” Whether the Board of Education describes Asher’s mother’s action as “unilateral” or not, the description offers no relief. The fact remains she acted pursuant to an order directed at speeding up the Board of Education’s processing of placements into appropriate public placement by forcing the Board to shoulder the burden of paying private school tuition for handicapped children in all cases where the Board had failed to place initially within 60 days.

Turning to plaintiff’s third contention that Asher’s mother assumed responsibility for the financing of her son’s education for the year 1983-84 by rejecting the appropriate placement proposed in May of 1983, the Court finds this argument is simply contrary to the case law previously cited. Plaintiff’s reliance on Zvi D. v. Ambach, 694 F.2d 904, and attempt to characterize Asher’s mother’s actions as unilateral are simply misplaced.

For the duration of the review proceedings, the Alternative School also became Asher’s current placement. Had Asher’s mother placed him in a school other than the Alternative School for 1983-84, she would have risked being held liable for the tuition, but this is not the situation here. Under § 1415(e)(3), Asher had a right to remain in the school placement he had prior to and during the review proceedings. Because the Board had been paying for his tuition prior to the review proceedings, under present case law the Board was required to continue paying in order to maintain Asher’s current placement.

While the Board finally made an appropriate placement recommendation on its second attempt in May of 1983, it was not relieved of the duty to finance Asher’s schooling until the review proceedings were completed in April of 1984. As defined in Zvi D. v. Ambach,

[t]he time frame of the administrative ... proceedings under § 1415(e)(3) is not necessarily coterminous with the limits of the school year. Rather, it includes the time necessary to review and adjudicate the merits of a single “complaint” regarding evaluation or placement of the child.

694 F.2d at 908. Thus, the State Commissioner correctly held that the Board was liable not for the entire school year but only until the date of decision.

For the reasons given above, the Court hereby affirms the ruling of the State Commissioner and grants summary judgment in favor of the defendants.

SO ORDERED.

      . The equivalent of this section is found in New York’s Education Law § 4404(4), which similarly states, ”[d]uring the pendency of any proceedings [including both initial placements and appeals] ... the child shall remain in the then current educational placement of such child.”

      . Even though the Court finds herein that his current placement was neither the first placement offered by the Board in the summer of 1982, nor the placement offered in May of 1983, the federal statute, 20 U.S.C. § 1415(e)(3) would also prevent the Court from finding that either of the placements offered Asher could have become his "initial placement” without his mother’s consent. Notably the New York State law equivalent of the federal statute upon which the Board of Education relies does not contain this consent requirement. New York Education Law § 4404(4) provides that "if [a handicapped child is] applying for initial admission to a public school, [the child] shall, be placed in the public school program until all such [placement evaluations and appeal] proceedings have been completed.” Section 1415(e)(3) of 20 U.S.C. contains essentially the same language with the proviso that the child shall be placed "with the consent of the parents or guardian.” To the extent that the New York statute’s lack of the consent provision is a material variation from the federal version, the federal version must control because it sets forth the minimum procedural safeguards intended by Congress to be followed by State and local agencies receiving federal assistance when making educational placements for handicapped children.