author: MUIR, District Judge.

text:
    UNITED STATES of America v. William T. SMITH and Alan R. Stoneman.
    Crim. Nos. 84-00156-04, 84-00156-05.
    United States District Court, M.D. Pennsylvania.
    Feb. 15, 1985.

      James J. West, U.S. Atty., David C. Ship-man, Asst. U.S. Atty., Harrisburg, Pa., for the U.S.
    John Rogers Carroll, Thomas Colas Carroll, Carroll & Carroll, Philadelphia, Pa., for defendant Smith.

      John C. Uhler, Uhler & DeLuca, York, Pa., for defendant Stoneman.
    John C. Sullivan, Nauman, Smith, Shissler, & Hall, Harrisburg, Pa., for Patriot News Co.
    Samuel E. Klein, Katherine Hatton, William B. Lytton, Kohn, Savett, Marion & Graf, P.C., Philadelphia, Pa., for Philadelphia Newspapers, Inc.
   AMENDED OPINION

MUIR, District Judge.

I. Introduction.

Presently pending before the Court are motions filed by the Patriot News Company and Philadelphia Newspapers, Inc. seeking access to a document containing the names of unindicted co-conspirators in this case. The Government and Defendant Smith oppose release of the document to the newspapers and Defendant Stoneman does not. The major dispute between the newspapers on the one hand and the government and Defendant Smith on the other hand involves the question of what standard is applicable to the newspapers’ motions.

Background

On October 22, 1984, a Grand Jury returned a 16-count, 39-page indictment charging two corporations and five individuals with violations of federal law in connection with a scheme to obtain lucrative contracts from Pennsylvania state and local governments through bribery of public officials. The indictment charges that the defendants conspired to bribe, among others, R. Budd Dwyer, the Treasurer of the Commonwealth of Pennsylvania, and Leroy Zimmerman, the Attorney General of the Commonwealth of Pennsylvania.

Two of the five individual defendants have pled guilty to a single count of conspiracy to commit mail fraud, see 18 U.S.C. § 1341, and to violate the Interstate Transportation in Aid of Racketeering statute, 18 U.S.C. § 1952(a)(3), in violation of 18 U.S.C. § 371. Defendant David I. Herbert entered his guilty plea on November 9, 1984. Herbert was, at the time of the conspiracy, the state director of the Bureau of Social Security for Public Employees for the Commonwealth of Pennsylvania. Defendant John R. Torquato, Jr. entered his guilty plea on December 17, 1984. Defendant Judy Ellis pled guilty on December 21, 1984 to a single count of Interstate Transportation in Aid of Racketeering. 18 U.S.C. § 1952(a)(3). The remaining individual Defendants, Alan R. Stoneman, a California attorney, and William T. Smith, Jr., a Pennsylvania attorney, have pled not guilty to the charges against them. A jury has been selected for the trial of the case and trial probably will commence within the next month.

Count I of the indictment, the conspiracy charge, states in 112 that the two corporate and five individual Defendants “and others, known and unknown,” conspired to commit the federal offenses noted above. On November 26,1984, Defendant Stoneman filed a motion for a bill of particulars pursuant to Rule 7(f) of the Federal Rules of Criminal Procedure in which he requested that the government disclose to him the names of the persons referred to in II2, Count I of the indictment, i.e., the unindicted co-eonspirators. Defendant Smith filed a parallel request on December 20, 1984. On December 21, 1984, the Government filed a brief in opposition to Stoneman’s motion for a bill of particulars in which the Government indicated that it would provide the Defendants with the names of the unindicted co-conspirators “upon direction of the court” but requested that the Court order that the names of the unindicted co-conspirators be kept confidential and, if filed with the Court, sealed by the Clerk of Court.

On January 8, 1985, the Court ordered the Government to provide the Defendants with the names of the unindicted co-conspirators. The January 8 order also ordered that the information be kept confidential as requested by the Government but contained a provision whereby the public might apply for modification of the confidentiality provisions of the order. The following is the full text of the dispositive portions of the January 8, 1985 order:

1. The Government shall provide to Defendants Stoneman and Smith the names of unindicted co-conspirators referred to in ¶ 2, Count 1 of the indictment in this case.
2. Information provided by the Government pursuant to ¶ 1 above shall not be disclosed by the Defendants or their counsel except upon leave of Court.
3. If information provided by the Government pursuant to U1 above is filed with the Clerk, the Clerk of Court shall seal the documents) containing such information.
4. The provisions of this order relating to confidentiality of the names of unindicted co-conspirators may be modified by the Court on application of any interested person or body upon notice and for good cause shown.

On January 11, 1985, the Government filed the list containing the names of the unindicted co-conspirators with the Clerk of Court and the Clerk placed the document under seal. On January 15, 1985, the Patriot News Company filed an application for modification of the Court’s January 8, 1985 order insofar as it provides for confidentiality of the names of the unindicted co-conspirators. On January 17,1985, Philadelphia Newspapers, Inc. filed a motion requesting access to the document containing the names of the unindicted co-conspirators. In orders dated January 15 and January 21, 1985, the Court scheduled a hearing on the newspapers’ motions and established a schedule for the submission of briefs regarding the newspapers’ motions. On January 29, 1985, the Court granted the newspapers’ motions for leave to intervene in this case for the limited purpose of moving for access to the list of unindicted co-conspirators.

The hearing on the newspapers’ motions was held on Tuesday, January 29, 1985. The parties were allowed to present any evidence they deemed relevant to the newspapers’ motions. The Government presented testimony by Special Agent Donald Jordan of the Federal Bureau of Investigation. The newspapers and Defendant Smith cross-examined Special Agent Jordan.

Following the presentation of evidence, the parties presented oral argument on the question of what standard the Court should apply in ruling on the newspapers’ motions. At the conclusion of the hearing, the Court invited the parties to submit proposed findings of fact and conclusions of law. All interested parties submitted proposed findings and conclusions by February 6, 1985. The following are the Court’s findings of fact, discussion, and conclusions of law. The nature of this matter is such that many of the Court’s findings are not based directly on evidence presented at the hearing but are instead based on matters of public record and inferences drawn from those matters or evidence presented at the hearing or both.

II. Findings of Fact.

1. On October 22, 1984, the indictment in this case was filed charging the named defendants in Count I with conspiring with each other “and others, known and unknown” to commit mail fraud and interstate transportation in aid of racketeering, in violation of 18 U.S.C. § 371.

2. The overt acts alleged in Count I of the indictment refer to several public and elected officials and other individuals who have not been indicted (James Scanlon, James Scanlon’s family, Scott O’Donnell, Robert Rade Stone, Eugene Scanlon, Bob Scanlon, Barbara Scanlon, the wife of David I. Herbert, R. Budd Dwyer, Mark Phencie, Patrick T. Boyle, Michael Trant, Leroy Zimmerman, and unnamed state legislators) but none of them are referred to therein as co-conspirators nor are they alleged therein to have committed criminal conduct.

3. On November 26, 1984, Defendant Stoneman filed a motion for a bill of particulars under Rule 7(f), F.R.Crim.P. requesting the Government to furnish him with responses to, 38 requests for particulars, including the names of all co-conspirators then known to the Government and unidentified in paragraph 2, Count I of the indictment.

4. On December 20, 1984, Defendant Smith filed a motion for a bill of particulars likewise requesting the Government to state the identity of all unindicted co-conspirators referred to in the conspiracy charged.

5. On December 21, 1984, the Government filed a brief in opposition to Stone-man’s motion for a bill of particulars in which it stated, inter alia, that it would identify known unindicted co-conspirators for the defendant upon direction of the Court, but requested that the Court issue a protective order directing the information be kept confidential by defense counsel and be sealed with the Court.

6. The Government gave the following statement of reasons for its request for the protective order:

... so as to avoid the generation of prejudicial pretrial publicity or other abuse of this information. The Government makes this request because the names of some of the unindicted co-conspirators will obviously be elected public officials and public employees who are under active and continuing investigation. If the Defendant Stoneman were to make this information public, it could have an obvious detrimental effect on that continuing investigation.

7. On December 31, 1984, the Government filed a response to Defendant Smith’s consolidated pretrial motions in which it reiterated its position regarding naming of unindicted co-conspirators.

8. On January 7,1985, Defendant Smith filed a reply to the Government’s response in which he stated that he did not oppose the Government’s proposal concerning a protective order provided that he would be permitted to use the information in legitimate pretrial preparation.

9. On January 8, 1985, the Court granted the defendants’ motions for a bill of particulars and the Government’s request for a protective order regarding the names of the unindicted co-conspirators on the stated ground that the parties’ requests appeared to be “reasonable” at that juncture.

10. The Court’s January 8, 1985 order directed the Government to provide the defendants with the names of the unindicted co-conspirators referred to in paragraph 2, Count I of the indictment and further directed that information provided by the Government pursuant to the Court’s order should not be disclosed by the defendants or their counsel except upon leave of Court; that if the information provided by the Government was filed with the Clerk, the Clerk of Court should seal the document(s) containing such information; and that the Court’s order relating to the confidentiality of the information could be modified by the Court upon application of any interested person or body upon notice and for good cause shown.

11. On January 11, 1985, the Government filed a two-page document under seal with the Clerk of Court setting forth the required information in compliance with the Court’s order.

12. The sealed document contains the names of persons who, in the opinion of the United States Attorney, are unindicted co-conspirators in this case or who could conceivably be considered as unindicted co-conspirators due to their alleged involvement in events included in the conspiracy.

13. The document containing the names of the unindicted co-conspirators is the only matter under seal in this case.

14. The persons named in the sealed document have not been found by a grand jury to be unindicted co-conspirators.

15. All of the individuals named in the sealed document are currently under active investigation by the Federal Bureau of Investigation in the Middle District and Western District of Pennsylvania and by the Federal Grand Jury in the Middle District of Pennsylvania.

16. The FBI’s investigation will probably continue for six to nine months.

17. As of January 29,1985, the Government had not made any final decision as to whether or not any of the individuals named in the sealed document will be indicted.

18. The individuals identified in the sealed document may never be indicted.

19. Some of the individuals identified in the sealed document are elected officials and public employees of the Commonwealth of Pennsylvania.

20. The Government has notified three of the persons named in the sealed document by letter that they are targets or subjects of the Grand Jury’s investigation, but has not informed the remainder of them that they are targets, subjects, co-conspirators or possible co-conspirators in connection with the continuing investigation or the indictment in this case.

21. The Government has not publicly identified any of the persons named in the sealed document as unindicted co-conspirators during any proceeding in this case or in any other document filed with the Court.

22. The Government’s opinion concerning the names of persons who are or who could conceivably be considered as unindicted co-conspirators in this case is not currently in the public domain.

23. Permitting media access to the sealed document probably would generate extensive publicity regarding the persons named therein as unindicted co-conspirators, would undoubtedly cause these persons to learn of their status, and would probably cause them to receive inquiries from the media and others about their alleged involvement in the conspiracy.

24. Disclosure of the names of the unindicted co-conspirators could conceivably result in the destruction or suppression of valuable evidence in the investigation, and the manufacture or fabrication of false evidence.

25. The Government’s evidence at the hearing concerning potential detriment to its investigation from release of the sealed information was presented in general terms of necessity because if the Government had elicited specific evidence concerning its investigation to show the degree and likelihood of detriment, it undoubtedly would have been required publicly to reveal the same investigative information it is attempting to protect from public disclosure.

26. No evidence was presented to contradict or impeach the Government’s claim that the release of the names of the unindicted co-conspirators could seriously harm its ongoing investigation.

27. The disclosure of the names of the unindicted co-conspirators to the Patriot News Company and Philadelphia Newspapers, Inc. would subject the unindicted co-conspirators to publicity stigmatizing them as having been named by the United States Attorney as alleged participants in the conspiracy alleged in the indictment at a time when they have not been charged and-would have no judicial forum in which to defend against the accusations.

28. The publicity generated from release of the names to the media would probably subject the persons named therein to embarrassment, annoyance, ridicule, scorn, traduction, and loss of reputation in the community.

29. It is just as likely at this juncture that the Government’s continuing investigation will result in clearing the unindicted co-conspirators of any wrongdoing as it is that they will be indicted for criminal wrongdoing in connection with this conspiracy.

30. The continued ensealing of the information presently under seal will not deprive the press and public of the only source of information concerning the alleged involvement of third persons in the conspiracy charged in the indictment because the press and public will have full access to any testimony admitted at trial in this case concerning the involvement of such third persons in the conspiracy, just as the press and public have had full access to the detailed indictment filed in this case and every court proceeding and every other document filed in this action.

31. Any evidence admitted at trial concerning the involvement of third persons in the alleged conspiracy would undoubtedly consist of factual testimony or other evidence specifically identifying what acts or omissions those persons allegedly committed and in what context.

32. Any argument by counsel or other reference publicly made at trial concerning the alleged involvement of third persons in the conspiracy would be based solely upon evidence identifying what acts or omissions were allegedly committed by those persons and in what context.

33. The document filed under seal by the United States Attorney is not evidence and it is not known at this point whether it will or will not be admitted as evidence at the trial.

34. It is uncertain at this juncture what volume or extent of evidence, argument, or other public reference to the alleged involvement of third persons as unindicted co-conspirators in the conspiracy will be permitted by the Court at trial.

35. Jurors selected for this case have been instructed by the Court to ignore any publicity or conversations regarding this case.

36. There is no evidence indicating that disclosure of the names of the unindicted co-conspirators will endanger the rights of Defendants Smith and Stoneman to a fair trial.

III. Discussion

A. The Applicable Standard.

The parties differ as to the standard to be applied by this Court to the newspapers’ request that the document containing the names of unindicted co-conspirators be unsealed. The newspapers contend that the document may be maintained under seal only if the government and Defendant Smith can show a compelling governmental interest in maintaining the ensealing and that no alternative less restrictive than maintaining the documents under seal is available to serve that governmental interest. The Government and Defendant Smith argue that the press has no right of access to the document or, alternatively, that the document may be maintained under seal on a showing of good cause and that the decision as to whether to maintain the document under seal is a matter largely within the Court’s discretion.

The parties agree that there is no authority which directly addresses the question of what standard should be applied in ruling on the newspapers’ motions in this case. The newspapers rely on the line of cases both in the Supreme Court of the United States and in the Court of Appeals for the Third Circuit relating to the right of the press and the public to access to judicial proceedings. The Government and Defendant Smith rely primarily on the recent United States Supreme Court case of Seattle Times Company v. Rhinehart, _ U.S. _, 104 S.Ct. 2199, 78 L.Ed.2d 629 (1984), a case involving the right of the press to access to documents filed as part of the discovery process in a civil case and sealed at the plaintiffs’ request by order of the trial court.

In Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555, 564, 100 S.Ct. 2814, 2820, 65 L.Ed.2d 973 (1980) the United States Supreme Court held that absent an overriding interest articulated in findings, a criminal trial must be open to the public. The rule of Richmond Newspapers has been extended to the jury selection process in a criminal case, Press-Enterprise Company v. Superior Court of California, 464 U.S. 501, 104 S.Ct. 819, 78 L.Ed.2d 629 (1984) and to a pre-trial suppression hearing in a case where the Defendant objected to closure of the hearing. Waller v. Georgia, _ U.S. _, 104 S.Ct. 2210, 81 L.Ed.2d 31 (1984).

The Court of Appeals for the Third Circuit relied on Richmond Newspapers in holding that the public has a right of access to pre-trial hearings in a criminal case that can be overcome only if (1) the trial court holds a hearing on the motion for closure of the pre-trial hearing, (2) the public has received adequate notice of the hearing and (3) the trial court makes and articulates findings that alternatives to closure would not adequately protect the Defendants’ right to a fair trial. United States v. Criden, 675 F.2d 550 (3d Cir.1982). The Court of Appeals has also held that the press has the right to copy documents or tapes admitted into evidence as well as transcripts of tapes admitted into evidence. United States v. Criden, 648 F.2d 814 (3d Cir.1982); United States v. Martin, 746 F.2d 964 (3d Cir.1984). In dictum in Martin the Court of Appeals stated that there is a strong presumption in favor of access to all judicial records and documents including “transcripts, evidence, pleadings, and other materials submitted by litigants.” Id. at 968 (citations omitted).

The Government and Defendant Smith point to eases involving access to judicial documents as opposed to trial or trial-type courtroom proceedings. They maintain that there is a distinction between “judicial proceedings” and “judicial documents” and that the First Amendment or common law right of access to documents may be overcome more easily than the First Amendment right of access to judicial proceedings. The Government and Smith rely primarily on Seattle Times Company v. Rhinehart, _ U.S. _, 104 S.Ct. 2199, 2207, 81 L.Ed.2d 17 (1984), in support of their argument regarding the distinction between “judicial proceedings” and “judicial documents.” They also point to the statements in Nixon v. Warner Communications, Inc., 435 U.S. 589, 598, 98 S.Ct. 1306, 1312, 55 L.Ed.2d 570 (1978) that “the right to inspect and copy judicial records is not absolute” and that “every court has supervisory power over its own records and files.” See also Seattle Times, 104 S.Ct. at 2207-08, note 19 (“[Ajccess to [courthouse records] customarily is subject to the control of the trial court.”)

Seattle Times held that a protective order prohibiting a newspaper from disseminating information gained by the newspaper through pre-trial discovery in a defamation action did not violate any First Amendment or common law right of the press to disseminate information. The protective order in that case prohibited dissemination of, among other things, names of individuals who had contributed to the Aquarian Foundation, one of the Plaintiffs in the case. Some of the contributors were not parties to the case. The trial court had found “good cause” for the entry of the protective order. The Supreme Court of the State of Washington found that entry of the order was not an abuse of discretion and that dissemination of the information which was the subject of the order would result in “annoyance, embarrassment and even oppression.” See id. 104 S.Ct. at 2209.

The Supreme Court’s holding that entry of the protective order did not violate the First Amendment rested on several factors. First, liberal discovery is available to litigants solely for the purpose of preparation for trial or settlement of a dispute and discovery material is not the sort of information traditionally available to the public. Id. at 2207-08. Second, privacy interests of litigants and third parties may be impinged upon by public release of discovery material. Id. at 2208-09. The Court also noted that the rule of civil procedure authorizing the protective order issued by the trial court, a rule identical to Fed.R.Civ.P. 26(c), furthers a substantial governmental interest unrelated to the suppression of expression and that the Rule therefore “implicates the First Amendment rights of the restricted party to a far lesser extent than would restraints on dissemination of information in a different context.” 104 S.Ct. at 2208.

The question presently before the Court is which of the sources of authority discussed above is more applicable to the circumstances of this case. The newspapers argue that the strict standard favoring press access to judicial proceedings of Richmond Newspapers, Inc. v. Virginia and its progeny applies to the question of access to judicial documents just as much as it applies to access to trial and pre-trial proceedings. The Government and Defendant Smith contend that the less strict standard of Seattle Times v. Rhinehart applies.

In our view, this case resembles the situation presented in Seattle Times more than the situation in Richmond Newspapers and its progeny. Despite the extensions of Richmond Newspapers, the right of access has not yet been extended to encompass materials not involved in a trial or pre-trial hearing. United States v. Martin, 746 F.2d 964 (3d Cir.1984), arguably represents the furthest extension of the Richmond Newspapers rule. Nevertheless, Martin involved press access to transcripts of tape recordings actually introduced into evidence at trial. The Court of Appeals noted in Martin that “the tapes have already been played in open court, and have been widely reported in the media”. Martin, 746 F.2d at 970.

The document involved in this case, in contrast, has not been used in any pre-trial proceeding and it is not clear that it ever will be used in any proceeding. The material involved may prove irrelevant to the issues at trial or in any pre-trial proceedings. While the list was provided in response to the Defendants’ request for a bill of particulars, it is similar or identical to the sort of information that might be obtained by the Defendants through pre-trial discovery under Fed.R.Crim.P. 16. Rule 16(d)(1) provides that a court may make protective orders as appropriate “upon a sufficient showing.” In this respect, Rule 16(d)(1) is similar to Rule 26(c) of the Federal Rules of Civil Procedure, the rule analyzed by the Supreme Court in Seattle Times.

The analysis in Seattle Times is directly applicable to this case. The Court in Seattle Times emphasized that material made available through discovery in a civil trial is not the sort of information traditionally available to the public:

Discovery rarely takes place in public ... Rules of civil procedure may require parties to file with the clerk of the court interrogatory answers, responses to requests for admissions, and deposition transcripts____ Jurisdictions that require filing of discovery materials customarily provide that trial courts may order that the materials not be filed or that they be filed under seal ... Federal district courts may adopt local rules providing that the fruits of discovery are not to be filed except on order of the court____ Thus, to the extent that courthouse records could serve as a source of public information, access to that source customarily is subject to the control of the trial court.

104 S.Ct. at 2207-08, note 19. While Seattle Times discussed discovery in civil cases, the newspapers have not argued that material obtained through discovery in a criminal case has traditionally been available to the public and that the Seattle Times rationale is therefore inapplicable to a criminal case.

As in Seattle Times, a protective order regarding the information to which the newspapers now seek access is not a restriction on information that would otherwise have been available to the public. The list of unindicted co-conspirators was provided to the defense solely for the purpose of allowing the Defendants to prepare for trial. The Government was not required to file the list of unindicted co-conspirators with the Court and, had it not done so, the question of whether the press had a right of access to the list probably would not have arisen. (While the Government arguably made the list a judicial document by filing it despite the fact that the Government was not required to do so, it filed the document in partial reliance on the Court’s January 8, 1985 order directing that the document be preliminarily maintained under seal subject to possible modification of the sealing order).

This case is similar to Seattle Times in two other respects. First, the protective order in this case does not prevent dissemination of the information contained in the sealed document if that information is obtained from a source unrelated to the pretrial discovery process in this case. Should the information be disclosed during trial, for example, the newspapers would be free to disseminate it. Second, the information that is the subject of the protective order seriously implicates privacy interests of third parties, i.e., the unindicted co-conspirators.

Finally, we note that several cases decided prior to Seattle Times recognized, in the context of a criminal case, the distinction between “public documents” and documents filed under seal and concluded that the latter were not subject to any presumptive right of public access. See In Re Application of National Broadcasting Company, Inc., 635 F.2d 945, 952, note 4 (2d Cir.1980); Applications of Kansas City Star, 666 F.2d 1168, 1173, note 4 (8th Cir.1981).

In light of all of the foregoing, we conclude that the Government need not show a compelling interest that cannot be served by any alternative less restrictive than sealing of the list of co-conspirators. Rather, the decision as to whether to maintain the document under seal is committed to this Court’s discretion and the document may be maintained under seal provided that the Government shows “good cause” or that the protective order will protect constitutional interests of the parties to this litigation or others.

B. Application of the Standard.

The Government and Defendant Smith maintain that the list of unindicted co-conspirators should be maintained under seal for three reasons. First, disclosure of the list would infringe on the privacy rights of the persons named on the list. Second, disclosure of the names would hamper the Government’s ongoing investigation of matters related to this case. Third, disclosure of the list might generate substantial publicity such that the defendants would be deprived of their right to a fair trial.

The parties presented no evidence regarding the potential for generation of publicity as a result of release of the list that would prejudice the Defendants’ right to a fair trial. The evidence regarding the adverse impact of release of the list on the Government’s continuing investigation into matters related to this case was unpersuasive. Nevertheless, we agree with the Government and Defendant Smith that the privacy rights of the indicted co-conspirators would be violated by disclosure of the list and that the right to privacy of those individuals outweighs any common law or First Amendment right of access to the list.

Release of the list of names of unindicted co-conspirators clearly would invade the privacy rights of those individuals. The list constitutes an informal accusation of wrongdoing by the government to which the unindicted co-conspirators would have no meaningful opportunity to respond. Unlike the Defendants in this case who have been formally charged and have had or will have the opportunity formally to respond to the charges against them or to have their guilt or innocence with respect to the charges formally determined by a jury, the unindicted co-conspirators have no such opportunity.

In recognition of this problem, at least one court has held that individuals named as unindicted co-conspirators in an indictment are entitled to expungement of their names from the indictment in order to protect their right to privacy. See United States v. Briggs, 514 F.2d 794 (5th Cir.1975), cert. denied, sub. nom Miami Herald Publishing Company v. Krentzman, 435 U.S. 968, 98 S.Ct. 1606, 56 L.Ed.2d 59 (1978). Similarly, many courts have sanctioned the sealing of documents on the ground that release of the documents to the public would violate third parties’ privacy interests. See, e.g., United States v. Hubbard, 650 F.2d 293 (D.C.Cir.1980); United States v. Nixon, 418 U.S. 683, 687, note 4, 94 S.Ct. 3090, 3097, note 4, 41 L.Ed.2d 1039; Krause v. Rhodes, 671 F.2d 212 (6th Cir.1982); See also U.S. v. Briggs, 514 F.2d at 805 (5th Cir.1975) (Adverse impact of public disclosure of names of unindicted co-conspirators in a bill of particulars may “at least arguably” be tempered by. protective orders). Thus, protection of the unindicted co-conspirators’ right to privacy constitutes good cause for maintaining the list containing their names under seal.

IY. Conclusions of Law.

1. There is no First Amendment right of access to inspect and copy judicial records and documents that contain information which was produced in pre-trial discovery proceedings.

2. There is a common law right to inspect and copy judicial records and documents.

3. This common law right of access generally creates a strong presumption in favor of access to judicial records and documents but does not apply to documents initially filed with the Court under seal upon a prima facie showing of good cause.

4. Even when documents have been initially filed under seal, a presumption of access generally applies in subsequent determinations of whether the ensealing should be continued when access to the sealed information is sought by third parties.

5. The presumptive right to inspect and copy judicial records is qualified by the Court’s inherent supervisory power to deny public access where dissemination of sealed information will unduly invade privacy interests of third persons or parties to the litigation or will reveal sensitive information detrimental to ongoing criminal investigations being conducted by the Government.

6. The decision whether or not to grant access to judicial records and documents is left to the sound discretion of the trial court to be exercised in light of the relevant facts and circumstances of the particular case and upon a weighing of all pertinent interests involved.

7. Persons who have not been charged as defendants in a criminal case have a recognized right of privacy in not being named as unindicted co-conspirators in an indictment or being identified and accused by the Government of criminal activity where such accusations are not directly relevant to the proceedings.

8. Protective orders entered upon a showing of “good cause” in the context of civil and criminal pretrial discovery which do not restrict the dissemination of discovered information if gained from other sources do not offend the First Amendment or the common law right of access to judicial records.

9. The Government has shown “good cause” in this case to seal the names of unindicted co-conspirators provided by the Government to the Defendants in response to the Defendants’ motions for bills of particular, and to retain this information under seal at the present time, because the public release of this information would unnecessarily damage the reputation and privacy interests of the persons named in the sealed document.

10. In the alternative, assuming that a higher standard must be met in order to justify continued ensealing of the information requested either under the First Amendment or the common law right of access, for example, “an overriding interest” based upon findings that ensealing is necessary to preserve higher values, that it is narrowly tailored to serve that interest and that no less restrictive alternative exists to continue ensealing of the information, the Government has also met that standard in this case.

11. The substantial privacy interests of the unindicted co-conspirators are “overriding interests” the protection of which serves a higher value than the public’s right to access to the sealed information in this case.

12. The continued secrecy of the document sealed in this case is essential to protect the privacy interests of the persons named therein.

13. The Court’s ensealing order is narrowly tailored to serve these interests because it only precludes access to one document, does not prevent the dissemination of the information contained therein if gathered from other sources and will only be maintained so long as necessary to protect the viability of these interests, that is, so long as the individuals named in the sealed document have not been indicted in connection with the conspiracy charged in this case.

An appropriate order will be entered.


source: Caselaw Access Project

author: FOREMAN, Chief Judge:

license: Public Domain

text:
    Carole JONES and T. Russell Jones, Plaintiffs, v. William M. IRVIN, M.D. and K-Mart Corporation, Defendants.
    Civ. No. 84-3222.
    United States District Court, S.D. Illinois, E. St. Louis Division.
    Feb. 15, 1985.
    Richard Shaikewitz, Wiseman, Shaikewitz, McGivern & Wahl, P.C., Alton, for plaintiffs.
    Larry E. Hepler, David A. Bloch, Burroughs, Simpson, Wilson, Hepler, Broom & McCarthy, Edwardsville, Ill., for defendants.
   MEMORANDUM AND ORDER

FOREMAN, Chief Judge:

Before the Court is defendant K-Mart’s Motion to Dismiss (Document No. 5). Plaintiffs bring this action seeking to recover damages for personal injuries and loss of consortium allegedly sustained as a result of plaintiff, Carole Jones’, consumption of an excessive amount of a prescription drug over a period of time and its reaction with other drugs. Counts III and IV allege that defendant K-Mart was negligent in:

(a) That it knew or should have known that placidyl is a drug of abuse and that it was being prescribed in massive amounts; that it should have notified either the plaintiff or the physician prescribing the drug that something was amiss.

(b) That it knew that the plaintiff was being prescribed massive doses of placidyl, along with other drugs, and that it knew or should have known that the plaintiff was being over-medicated and that it had a duty to notify either the plaintiff and/or her physician of this problem.

(c) That it knew or should have known that the various drugs being prescribed for the plaintiff in the quantities in which they were being prescribed could have adverse reactions and it failed to take any action whatsoever to notify the plaintiff or her physician.

K-Mart moves for dismissal of Counts III and IV arguing that it owes no duty to warn the plaintiff or her physician of any danger enumerated above.

Initially, the Court notes that the precise issue before it is a narrow one. The plaintiff is not alleging that the pharmacist negligently filled the prescription; or that the pharmacist negligently substituted another drug for the prescribed drug; or that the pharmacist negligently gave the wrong instructions on the use of the drug. In each of these situations it is quite clear that the plaintiff would have a legal claim against the pharmacist. See Annot., 79 A.L.R.2d 301. Nor is the plaintiff seeking to hold the pharmacist liable under a strict product liability theory. Recent cases have uniformly held that a pharmacist is not strictly liable under a products liability theory since he is not a retailer. See Murphy v. E.R. Squibb & Sons, Inc., 156 Cal. App.3d 589, 202 Cal.Rptr. 802 (1984); Bichler v. Willing, 58 A.D.2d 331, 397 N.Y.S.2d 57 (1977); Ullman v. Grant, 114 Misc.2d 220, 450 N.Y.S.2d 955 (1982); Batiste v. American Home Products Corp., 32 N.C.App. 1, 231 S.E.2d 269 (1977). The precise issue before this Court is whether a pharmacist, who correctly fills a prescription, is negligent for failing to warn the customer or notify the physician that the drug is being prescribed in dangerous amounts, that the customer is being over medicated, or that the various drugs in their prescribed quantities could cause adverse reactions to the customer.

Since jurisdiction of this action is based on diversity, the Court is obligated to apply Illinois law to resolve this issue. Plaintiff has cited, and this Court could find, only one Illinois decision defining the duty a pharmacist owes to his customer. In Jones v. Walgreen Co., 265 Ill.App. 308 (1932), the court stated:

“There is no conflict of authority as to the duty required of a druggist in his dealings with his customers. All the decisions support the principle enunciated in Tremblay v. Kimball, that while the law requires of a druggist only reasonable and ordinary care in compounding prescriptions, in selling medicines, and in performing the other duties of his profession, such care with reference to him means the highest degree of prudence, thoughtfulness, and diligence, and is proportioned to the danger involved; and that a breach of such duty would be negligence rendering him liable for injuries resulting therefrom.” _

Id. at 315-16 (emphasis in original). Applying this standard, the Jones court held that the pharmacist’s legal duty goes further than merely dispensing the identical substance which a prescription calls for since “[a]s a chemist he may know that the physician has erred in his prescription and that to fill it might cause death or serious injury to the patient.” Id. at 320. Although the language in Jones seems controlling, the case dealt with a situation in which the pharmacist filled the prescription with a different and stronger brand of the drug than that prescribed by the physician, apparently because he could not make out the name of the brand on the prescription. The Jones court pinpointed its holding by stating that

If a prescription is doubtful as to what drug is really intended it is the duty of the pharmacist to be alert to avoid a mistake, and if there is any reasonable doubt as to the identical thing ordered, it is his duty to take all reasonable precaution to be certain that he does not sell one thing when another is called for.

Id. at 321. Therefore, in as much as Jones was addressing a different factual situation, it is not controlling in this case.

Hence, as is so often the case when Illinois law is silent on the subject, this Court must put on its soothsayer hat and predict what the Illinois Supreme Court would decide if it were faced with this issue. Amfac Mortgage Corp. v. Arizona Mall of Tempe, Inc., 583 F.2d 426 (9th Cir.1978). Cf. Lamb v. Briggs, Mfg., A Division of Celotex Corp., 700 F.2d 1092 (7th Cir.1983).

Other state court opinions, while not in agreement, shed light on the issue. In an early Maryland case, the court held that a druggist was not liable for failing to make an inquiry of the physician regarding the prescription calling for poison, where the result would have been to confirm the prescription. People’s Service Drug Stores, Inc. v. Somerville, 161 Md. 662, 158 A. 12 (1932). The court stated that “[i]t would be a dangerous principle to establish that a druggist cannot safely fill a prescription merely because it is out of the ordinary. If that were done, many patients might die from being denied unusual remedies in extreme cases.” 158 A. at 13. The court added, however, that “[o]f course this does not mean that pharmacists can safely fill prescriptions calling for doses that are obviously fatal; or that where the doses prescribed appear to be unusual the prescription can be safely filled without inquiry of the physician to make sure there has been no error.” Id. at 14.

Other early cases hold that a druggist, knowing that the drug, harmless in itself, is to be mixed, or used in conjunction with another which would then have an injurious effect, of which the customer has no knowledge, should advise the customer of the danger, and failure to do so would make the druggist liable. See Fuhs v. Barber, 140 Kan. 373, 36 P.2d 962 (1934); Krueger v. Knutson, 261 Minn. 144, 111 N.W.2d 526 (1961). However, these cases dealt with situations in which the druggist was selling a non-prescription drug knowing either that the patient would be taking it in conjunction with a prescribed drug or other non-prescribed drugs. In the present case, all the drugs the plaintiff was taking were prescribed.

The overwhelming majority of recent state cases stand for the proposition that the pharmacist has no duty to warn. Some cases hold generally that a druggist cannot be held liable for correctly filling a prescription. Lemire v. Garrard Drugs, 95 Mich.App. 520, 291 N.W.2d 103 (1980); Bichler v. Willing, 58 A.D.2d 331, 397 N.Y.S.2d 57 (1977). Others, more precisely on point, hold that the pharmacist has no duty to warn. In Batiste v. American Home Products Corp., 32 N.C.App. 1, 231 S.E.2d 269 (1977), the plaintiff alleged that pharmacist failed to warn the plaintiff of the many dangers associated with the use of an oral contraceptive drug. The court, in upholding the lower court’s dismissal of this claim, stated:

Here plaintiff alleges that she had consulted a physician, obtained a prescription and carried it to defendant Pike’s Drug Store, Inc., to be filled. The prescription was filled as directed. There is no allegation that the product was other than it was supposed to be. There is no allegation that the druggist did any compounding or added to or took from the product as prepared and contained in the sealed container, or that the druggist did anything to change the prescription given him, or that the drug delivered- to plaintiff was in any way different than the drug prescribed by plaintiffs physician, or contained any foreign material. Certainly defendant is not qualified or licensed to advise plaintiff with respect to the best oral contraceptive for her to use to prevent pregnancy. Defendant is not a physician. Perhaps had a druggist employed by defendant undertaken to prescribe the oral contraceptive she took or to advise her concerning it, the result might be different. That question is not before us.

231 S.E.2d at 274. Likewise, in Ullman v. Grant, 114 Misc.2d 220, 450 N.Y.S.2d 955 (1982), the court held that it is not the duty of the pharmacist to warn the customer of the possible side effects in the use of the drug. See also Kinney v. Hutchinson, 449 So.2d 696 (La.Ct.App.1984) (burden to warn of prescription drug’s adverse effects is placed upon the prescribing physician).

Finally, in a very recent case, a Florida court held that a pharmacist who properly fills a prescription has no duty to warn the customer of the dangerous propensities of the prescription drug, or in the alternative to notify the physician of the dangerous propensities of the drug and/or the effect it is having on his patient. Pysz v. Henry’s Drug Store, 457 So.2d 561 (Fla.Dist.Ct.App.1984). In Pysz, the pharmacist filled a Quaalude prescription for more than nine years. The court stated:

Appellant suggests that the pharmaceutical business has changed drastically in the past twenty years and therefore this court should take a new look at the duty of a druggist to either warn the customer of the dangerous propensities of a drug prescribed by a licensed physician or in the alternative, to notify the physician of the dangerous propensities of the drug and/or the effect that it is having on his patient. Appellant argues that a pharmacist has greater knowledge of the propensity of drugs than that of the physician. Although this may be factually true in some instances, it is the physician who has the duty to know the drug that he is prescribing and to properly monitor the patient.

Id. at 562.

The only recent case this Court could find upholding a pharmacist’s duty to warn is Hand v. Krakowski, 89 A.D.2d 650, 453 N.Y.S.2d 121 (1982), where a New York court found a druggist potentially liable for failure to warn a customer of the possible side effects of taking the prescribed drug with alcohol, where it was shown that the druggist knew the customer personally, knew he was an alcoholic, and knew the drug in question was contraindicated for alcoholics. Clearly, such specific facts are not alleged in the instant case.

Based on the Court’s analysis of the foregoing cases and general policy concerns, the Court holds that a pharmacist has no duty to warn the customer or notify the physician that the drug is being prescribed in dangerous amounts, that the customer is being over medicated, or that the various drugs in their prescribed quantities could cause adverse reactions to the customer. It is the duty of the prescribing physician to know the characteristics of the drug he is prescribing, to know how much of the drug he can give his patient, to elicit from the patient what other drugs the patient is taking, to properly prescribe various combinations of drugs, to warn the patient of any dangers associated with taking the drug, to monitor the patient’s dependence on the drug, and to tell the patient when and how to take the drug. Further, it is the duty of the patient to notify the physician of the other drugs the patient is taking. Finally, it is the duty of the drug manufacturer to notify the physician of any adverse effects or other precautions that must be taken in administering the drug. Cf. Cruz v. Texaco, Inc., 589 F.Supp. 777 (S.D.Ill.1984). Placing these duties to warn on the pharmacist would only serve to compel the pharmacist to second guess every prescription a doctor orders in an attempt to escape liability.

The Court emphasizes, however, that its holding is a narrow one. A pharmacist still owes the customer the “highest degree of prudence, thoughtfulness, and diligence,” as expressed in Jones, in filling a prescription. Further, the Court expresses no view on whether a pharmacist owes a duty to warn the customer of side reactions, over dependence, misuse, or restrictions on use, associated with non-prescribed drugs he dispenses.

Accordingly, the defendant K-Mart’s Motion to Dismiss (Document No. 5) is hereby GRANTED. Counts III and IV of the plaintiffs’ complaint are hereby DISMISSED.

IT IS SO ORDERED.


author: JOHN P. MOORE, District Judge.

text:
    Edmond H. MASRI, Plaintiff, v. Gray WAKEFIELD, Fred S. Schwend, Tom W. Sigler, Johnie M. Ouzts, Paul D. Meadows, Gerald B. Haeckel, Joseph P.D. Hull, Jarl P. Johnson, Joel L. Reed, Charles F. Savage, Robert E. Kellerman, William E. Macaulay, Ensource, Inc., The First Boston Corporation, E.F. Hutton & Company, Inc., Odyssey Partners, and Oppenheimer & Co., Inc., Defendants. Charles RUBENSTEIN, Plaintiff, v. Gray WAKEFIELD, Fred S. Schwend, Tom W. Sigler, Johnie M. Ouzts, Paul D. Meadows, Gerald B. Haeckel, Joseph P.D. Hull, Jarl P. Johnson, Joel L. Reed, Charles F. Savage, Robert E. Kellerman, William E. Macaulay, Ensource, Inc., the First Boston Corporation, E.F. Hutton & Company, Inc., Odyssey Partners, and Oppenheimer & Co., Inc., Defendants.
    Civ. A. Nos. 82-JM-862, 82-JM-863.
    United States District Court, D. Colorado.
    July 28, 1983.
    Sheldon E. Friedman, Denver, Colo., Richard D. Greenfield, Nicholas E. Chúmeles, Carole A. Broderick, Bala Cynwyd, Pa., Seymour L. Kurland, Ian A.L. Strogatz, M. Norman Goldberger, Philadelphia, Pa., William Jarblum & James Fornari, Barry J. Pinkowitz, New York City, for plaintiff.
    Richard L. Schrepferman and Charles J. Kali, Denver, Colo., John C. Snodgrass and Donald T. Hedges, Jr., Houston, Tex., Michael W. Mitchell and Deborah Lin Smith, New York City, George Miller, Denver, Colo., Paul C. Saunders, Jeanne Edna Thelwell, Joseph F. Tringali and Robert A. Wallner, New York City, Harry L. Hobson and Wm. J. Baum, Jr., Denver, Colo., Dennis J. Block and H. Adam Prussin, New York City, Donald McKinlay, Denver, Colo., C. Michael Buxton and Charles D. Tetrault, Washington, D.C., for defendants.
   ORDER

JOHN P. MOORE, District Judge.

This matter is before me upon the defendants’ motions to dismiss, the plaintiffs’ motion to reconsider a magistrate’s order and a motion to strike the plaintiffs’ reconsideration motion. These civil actions were consolidated as the cases present related claims for damages under the securities laws of the United States. I ordered that the defendants’ motions to dismiss be considered first while the plaintiffs be permitted to proceed with discovery in order to respond to the defendants’ motions for summary judgment. Subsequently, a dispute over the discovery questions arose, and plaintiffs’ motion for reconsideration of the magistrate’s order was filed.

Jurisdiction to consider the matters presented is asserted pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, 15 U.S.C. §§ 77v and 78aa. The plaintiffs in these consolidated cases challenge the Prospectus/Proxy Statement dated June 1, 1981, issued by the defendant Ensource in alleged association with other defendants. The plaintiffs assert violations of various securities laws and regulations promulgated thereunder. These suits are styled as class actions.

There are two issues raised by the defendants’ motions to dismiss: whether Section 14(a), 15 U.S.G. § 78n is applicable to these cases and whether Section 17(a), 15 U.S.C. § 77q, provides for a private right of action. With regard to the Section 14(a) issue, the plaintiffs contend that discovery is needed to clarify whether a claim under Section 14 is appropriate. While I will address the discovery problem infra, suffice to say, discovery should go forward in this matter so that the plaintiffs can determine the dimensions of their case. I trust, that at an appropriate time, should the plaintiffs determine that Section 14 is inapplicable to the facts of this case, they will dismiss this claim on their own volition. Furthermore, I am mindful that motions to dismiss which are considered before the plaintiff has had a chance for discovery are subject to rigorous scrutiny. See generally Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738, 746, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1975). Accordingly, the motions to dismiss the Section 14(a) claims must be denied at this time.

The issue of whether an implied private right of action exists under Section 17(a) of the Securities Act of 1933 is one which has been presented to but not decided by the Supreme Court and over which the circuits are divided. In three cases, the Supreme Court has declined to express an opinion on the implied private right of action question. See Aaron v. SEC, 446 U.S. 680, 689, 100 S.Ct. 1945, 1951, 64 L.Ed.2d 611 (1980); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 733 n. 6, 95 S.Ct. 1917, 1924 n. 6, 44 L.Ed.2d 539 (1975); and most recently, Herman & MacLean v. Huddleston, 459 U.S. 375, 103 S.Ct. 683, 685 n. 2, 74 L.Ed.2d 548 (1983). In Herman, the Supreme Court expressly reserved ruling on whether Section 17(a) affords a private remedy. The Court did not decide the question because the plaintiffs in that case had abandoned their 17(a) claim, thus mooting the issue.

Among the circuits, a slim majority of those who have considered the question find an implied private right of action. These include the Second Circuit in Kirshner v. United States, 603 F.2d 234, 241 (2nd Cir.1978), cert. denied, 442 U.S. 909, 99 S.Ct. 2821, 61 L.Ed.2d 274 (1979); the Fourth Circuit in Newman v. Prior, 518 F.2d 97, 99 (4th Cir.1975); the Seventh Circuit in Lincoln National Bank v. Herber, 604 F.2d 1038, 1040 n. 2 (7th Cir.1979); and the Ninth Circuit in Stephenson v. Calpine Conifer II, Ltd., 652 F.2d 808, 815 (9th Cir.1981). The converse is found by the recent Fifth Circuit decision Landry v. All American Assurance Co., 688 F.2d 381, 387 (5th Cir.1982). The Fifth Circuit joins the Eighth Circuit in rejecting the private right of action concept. See Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 159 (8th Cir.1977), cert. denied 434 U.S. 1086, 98 S.Ct. 1281, 55 L.Ed.2d 792 (1978). The Tenth Circuit observed that there is “considerable doubt” as to whether there exists an implied private right of action under Section 17(a) in Ohio v. Peterson, 651 F.2d 687, 689 n. 1 (10th Cir.1981). This comment followed the pronouncement by Chief Judge Finesilver in Ohio v. Peterson, 472 F.Supp. 402, 404 n. 3 (D.Colo.1979), that “this court and other courts within this district have uniformly held that § 17 of the 1933 Act creates no private cause of action.”

Judge Finesilver’s view is consistent with that held by Judge Doyle during his tenure on the trial court. See Trussell v. United Underwriters, Ltd., 228 F.Supp. 757, 767-769 (D.Colo.1964). However, at least one of the currently sitting members of this court seems to have questions concerning the existence of the implied private right of action. Judge Kane has recently reserved ruling on this question pending the outcome of discovery in the cases he was considering. See Sterling Recreation Organization Co. v. Seagel, 537 F.Supp. 1024, 1029 (D.Colo.1982); Noland v. Gurley, 566 F.Supp. 210, 213-214. Philbosian v. First Financial Securities Corp., 550 F.Supp. 61, 63 (D.Colo.1982). Yet, other trial judges in this circuit have tackled the question directly and determined that no private right of action is implied by the statute. See Woods v. Homes & Structures, 489 F.Supp. 1270, 1284-1288 (D.Kan.1980).

Section 17 of the 1933 Act provides, in pertinent part, as follows:

(a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce, or by use of the mails, directly or indirectly — (1) to employ any device, scheme or artifice to defraud; or (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (3) to engage in any transaction, practive, or course of business which operates or would operate as a fraud or deceit upon the purchaser.
15 U.S.C. § 77q.

In reviewing this statute I have taken into consideration the four factors used by the Supreme Court in determining whether a federal statute provides a private remedy.

(1) Is the plaintiff ‘one of the class for whose especial benefit the statute was enacted’ — that is, does the statute create a federal right in favor of the plaintiff? (2) Is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? (3) Is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? (4) Is the cause of action one traditionally relegated to state law, in any area basically the concern of the states so that it would be inappropriate to infer a cause of action based solely on federal law?

See Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 2087, 45 L.Ed.2d 26 (1975). I find the reasoning of the Fifth Circuit in Landry, supra, persuasive. “[I]t would appear that the Cort test as applied to § 17(a) of the Securities Act of 1933 points away from the implication of a private cause of action.” 688 F.2d at 391. This, together with the Supreme Court’s conservative interpretation of the test in recent years, prompted the Fifth Circuit to affirm the dismissal of a § 17(a) claim. I find the analysis of Judge O’Connor in Woods, and of the Fifth Circuit in Landry, compelling and thus conclude that no private right of action exists under § 17(a).

This particular question is, however, one which obviously is consuming a great deal of court time and litigation expense and effort. I would be grateful to have the circuit’s guidance on the issue. Several years ago a visiting judge declined to set the rule in this circuit on the § 17(a) question. He merely observed that “there is considerable doubt as to whether a private right of action exists under § 17(a).” State of Ohio v. Peterson, 651 F.2d 687, 689 n. 1 (10th Cir.1981) (Palmieri, J.). Accordingly, through this order I will certify the question to the circuit so that the parties may present this question to the court under 28 U.S.C. § 1292(b) as this is a “question of law as to which there is substantial ground for difference of opinion” and an appeal “may materially advance the ultimate termination of the litigation.”

The cloud over the discovery proceedings in this matter can be handled best by vacating the Order of the Magistrate dated December 29, 1982, and by permitting the parties discovery so that the summary judgment motions pending in this matter can be resolved against a full and complete factual record. The parties shall reconvene with the magistrate at his earliest convenience for a further discovery conference at which time a final briefing schedule for the summary judgment motions will be established.

Accordingly, it is

ORDERED that the defendants’ motions to dismiss the plaintiffs’ claims under § 17(a) of the Securities Act of 1933 are granted; the motions to dismiss the plaintiffs’ claims under § 14 are denied without prejudice; the Order of the Magistrate of December 29, 1982, is vacated; the Motion for Reconsideration and the Motion to Strike are moot; the question of whether there exists a private right of action under § 17(a) of the Securities Act of 1933 is certified for interlocutory appeal pursuant to 28 U.S.C. § 1292(b); the Court will defer ruling on the motion for class certification pending resolution of the summary judgment motions.


author: ARONOVITZ, District Judge.

text:
    ATLAS PUBLISHING, INC., Ion Publishing, Inc., d/b/a The World Wide Telex Directory, Plaintiffs, v. UNITED STATES POSTAL SERVICE, Postmaster, Miami, Florida 33101; Postmaster, Coral Gables, Florida 33114, Defendants.
    No. 82-1904-Civ-SMA.
    United States District Court, S.D. Florida.
    Aug. 30, 1983.
    Pamela Hornett, Asst. U.S. Atty., Miami, Fla., for defendants.
    Andrew C. Hall, Miami, Fla., for plaintiffs.
   ORDER GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

ARONOVITZ, District Judge.

THIS MATTER comes before the Court upon Defendants’. Motion for Summary Judgment (docket nos. 19 & 20). The Court has reviewed the record, submissions of counsel, the applicable law, and has heard the argument of counsel, and being otherwise fully advised in the premises, it is thereupon

ORDERED AND ADJUDGED that Defendants’ Motion for Summary Judgment be, and the same is,- hereby GRANTED.

It is well established that the granting of summary judgment is appropriate where there is no genuine issue of material fact and the law is on the side of the moving party. Creel v. Lone Star Defense Corp., 171 F.2d 964, 969 (5th Cir.1949), rev’d on other grounds, 339 U.S. 497, 70 S.Ct. 755, 94 L.Ed. 1017 (1950). The Court’s Order of October 21, 1982, granting a preliminary injunction (docket no. 17) is hereby receded from insofar as it conflicts with the holdings that shall be more fully set forth herein.

In this action, Plaintiffs sought injunctive relief, through the entry of a preliminary injunction, from a “stop mail” order issued on August 24,1982, and amended on August 30, 1982, by James A. Cohen, Judicial Officer of the United States Postal Service, pursuant to 39 U.S.C. Section 3005. Subject matter jurisdiction exists pursuant to 39 U.S.C. Section 409, and the Court has jurisdiction over the parties. As noted above, an Order Granting Preliminary Injunction was entered on October 21, 1982.

Plaintiffs, Atlas Publishing, Inc. and Ion Publishing, Inc. are engaged in international publishing and distribution of a worldwide directory of telex users. They publish and distribute, free of charge to those who request it and to libraries and communications centers, a world-wide directory, listed by country, of all persons and businesses that are telex users. The directory published by the plaintiffs is a combined yellow and white pages. All users are listed in the white pages, but only those who pay the plaintiffs’ fee have an advertisement appear in the yellow pages section. Plaintiffs solicit advertisement subscriptions from international telex users through the use of a “pro forma” invoice; i.e., an invoice that appears to reflect an existing charge, but actually is an offer soliciting the placement of an advertisement. “Pro forma" invoices are apparently used in international publication as a means of facilitating international payments, particularly in countries that have restrictions on currency transfers.

On November 13, 1981, the Consumer Protection Division; Law Department, United States Postal Service (“U.S.P.S.”), filed a Complaint alleging that the Plaintiffs in the instant case, by mailing their “pro for-ma” invoices, were engaged in a violation of 39 U.S.C. Sections 3001(d) and 3005(a).

Section 3001 designates certain matter as “non-mailable.” The statute provides:

Matter otherwise legally acceptable in the mails which—
(1) is in the form of, and reasonably could be construed as, a bill, invoice, or statement of account due;
but
(2) constitutes, in fact, a solicitation of the order by the addressee of goods or services, or both;
is non-mailable matter, shall not be carried or delivered by mail____

39 U.S.C. § 3001(d). Moreover, the U.S. P.S. sought the issuance of a “stop mail” order against the plaintiffs pursuant to 39 U.S.C. Section 3005(a), which provides that “the mailing of matter which is non-mailable ... shall constitute prima facie evidence that such person is engaged in conducting a scheme or device for obtaining money or property through the mail by false representations____” The statutory “stop mail” order requires the postmaster to return the mail to the sender marked so as to indicate a violation of the statute.

Pursuant to 39 C.F.R. Section 952, a full evidentiary hearing was held with regard to the U.S.P.S. Complaint on January 22-23, 1983, before Administrative Law Judge (“A.L.J.”) William A. Duvall. The A.L.J. held that although plaintiffs’ solicitations were non-mailable matter under 39 U.S.C. § 3001(d), the U.S.P.S. failed to establish that a sufficient basis existed for the issuance of a False Representations “Stop Mail” order under 39 U.S.C. § 3005.

The A.L.J.’s initial decision was appealed by the U.S.P.S. to the Judicial Officer of the Postal Service pursuant to 39 C.F.R. Section 952.25. The Judicial Officer then reversed the initial decision with respect to section 3005, and entered a “stop mail” order on August 24, 1982. On August 30, 1982, the order was amended to provide for the holding of mail, rather than its return, pending the result of this appeal.

This Court’s Order Granting Preliminary Injunction of October 21, 1982 was predicated upon a conclusion that the Plaintiffs met the four requirements for the issuance of a preliminary injunction in this circuit. See Canal Authority of Florida v. Callaway, 489 F.2d 567, 572 (5th Cir.1974). Upon consideration of the motion for summary judgment and argument thereon, the Court has determined that it should recede from its preliminary rulings in the order granting the preliminary injunction. Specifically, the Court now holds that, under the Administrative Procedure Act, the Judicial Officer’s review and reversal of the A.L.J.’s findings was proper, that there was “substantial evidence” in the record to support the Judicial Officer’s opinion, and that the “ordinary mind” test is appropriately applied to the circumstances of this case. These determinations having now been made, it is apparent, as a matter of both law and fact, that the granting of summary judgment in the Defendants’ favor is proper, and accordingly, that the “stop mail” order, issued by the Judicial Officer of the Postal Service on August 24, 1982, should be, and hereby is, reinstated.

The gravamen of this case is in the power of the Judicial Officer under 5 U.S.C. Section 557(b) to render a “final agency decision” of the United States Postal Service, and in the limited power of this Court, under 5 U.S.C. Section 704, to review that decision. The scope of the Court’s review of agency actions is limited to a determination of whether the Judicial Officer’s findings are arbitrary, capricious, an abuse of discretion, not in accordance with the laws or unsupported by substantial evidence in the record as a whole. 5 U.S.C. §§ 706(2)(A)-(E); Missouri-Kansas-Texas R.R. Co. v. United States, 632 F.2d 392 (5th Cir.1980) cert. denied 451 U.S. 1017, 101 S.Ct. 3004, 69 L.Ed.2d 388 (1981). In this context, the substantial evidence test provides a narrow standard of review. Substantial evidence is “such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” McHenry v. Bond, 668 F.2d 1185, 1190 (11th Cir.1982), quoting Refrigerated Transport Co. v. ICC, 616 F.2d 748, 751 (5th Cir.1980). It is axiomatic that a reviewing court in these circumstances does not impose its own decision on final agency action that is supported by substantial evidence. National Broadcasting Co., Inc. v. F.C.C., 516 F.2d 1101, 1122 (D.C.Cir.1974).

Under Title 5, United States Code, Section 557(d), a hearing officer or Administrative Law Judge makes an initial decision that becomes the decision of the agency “without further proceedings unless there is an appeal to, or review on motion of, the agency within time provided by rule. On appeal from or review of the initial decision, the agency has all the powers which it would have in making the initial decision except as it may limit the issues on notice or by rule.” Id. [emphasis added].

The regulations dealing with the Postal Service are codified in Title 39, Code of Federal Regulations; 39 C.F.R. Section 952.17 provides that the presiding officer at any hearing shall be an Administrative Law Judge or the Judicial Officer of the Postal Service. The Administrative Law Judge is given the power, under section 952.24, to render an initial decision on the matter submitted to him. Under that same section, such initial decision is contemplated to become the final agency decision, if no appeal is taken in accordance with 39 C.F.R. § 952.25. See 5 U.S.C. § 557(b).

In this case, an appeal under section 952.25 was taken to the Judicial Officer, who rendered a lengthy written opinion, reversing the Administrative Law Judge’s finding that there had been no violation of 39 U.S.C. § 3005, and entered a “stop mail” order pursuant to that section. Therefore, it is incontrovertible that the Judicial Officer’s decision was a “final Agency decision,” 39 C.F.R. § 952.26(c), for the purpose of review by this Court under Title 5, U.S.C., Sections 704 and 706.

As a “final Agency decision,” the Judicial Officer’s opinion is entitled to review under the “substantial evidence” test. And, under Steadman v. SEC, 450 U.S. 91, 101 S.Ct. 999, 67 L.Ed.2d 69 (1981), the Judicial Officer’s standard of proof is “preponderance of the evidene.” Id. at 102, 101 S.Ct. at 1007. Having determined that the A.L.J.’s decision was not supported by a preponderance of the evidence, the Judicial Officer reversed the A.L.J. and found that “false representations” had been made. This Court can only review that decision under the substantial evidence test, and it is apparent from the Judicial Officer’s lengthy analysis of the evidence that there is more than sufficient relevant evidence available to support a conclusion that might be drawn by a reasonable man. See McHenry v. Bond, supra. This conclusion is well supported in administrative law. The decision of the A.L.J. is entirely equivalent to the initial decision of a hearing examiner pursuant to 5 U.S.C. § 557. The initial decision is merely a recommendation, and does not withdraw any power from the agency, here the Judicial Officer, to modify or reverse it, inasmuch as the agéney/Judicial Officer has all the powers which it would have originally had in making the initial decision. See Davis, Administrative Law Text, § 10.04 at 221 (1972).

A review of the record, and in particular, composite exhibit 7 [letters in response to the “pro forma” invoices], reveals that there is “substantial evidence” in the entire record to support the Judicial Officer’s conclusion that the “ordinary mind” test for “false representations” should control and that reversal of the A.L.J.’s decision as to section 3005 was warranted. Accordingly, as stated earlier, the decision of the Judicial Officer is hereby affirmed, and the “stop mail” order of August 24, 1982 reinstated.


author: SENTER, Chief Judge.

text:
    Johanna W. NELSON, Individually and as Representative of a Bondholder Class, Plaintiff v. Roanne WARING, Jr., Robert Cox, Erich James, Jerald Sklar, Lewis Allen, Individually, and Waring, Cox, James, Sklar & Allen, A Partnership; Lifemark Corporation, Lifemark Hospital Management, Inc., and Jimmy L. Moore; Otis B. Crocker, Jr., Dr. Charles H. Crocker, Jon A. Crocker, Samuel K. Crocker, Inez H. Crocker, Calhoun County Hospital, Inc., and Calhoun County Hospital, A Partnership; Bullington-Schas & Co., Inc., A. Dulaney Tipton, Jr., Juanita Cox, and Terry Allen Frost; Lane, W.G.E.S. & Gotten and William M. Gotten; Goodman & Company, and Grenada Banking System, Defendants.
    Civ. A. No. WC 81-63-LS-P.
    United States District Court, N.D. Mississippi, W.D.
    Dec. 21, 1983.
    On Attorney’s Fees Jan. 10, 1984.

      R. Alan Stotsenburg, P.C., R. Alan Stotsenburg and David C. Harrison, New York City, Gen. Counsel for the Class.
    Freeland & Gafford, T.H. Freeland, III, Oxford, Miss., Gen. Counsel for the Class.
    Butler, Snow, O’Mara, Stevens & Cannada, Alan W. Perry, Jackson, Miss., for defendants Lifemark Corp., Lifemark Hosp. Management, Inc., and J.L. Moore.
    Campbell & DeLong, Fred C. DeLong, Jr., Greenville, Miss., for defendants Waring, Cox, James, Sklar & Allen, and Jerald H. Sklar. J
    Fullbright & Jaworski, Blake Tartt, Houston^ Tex., for defendants Lifemark Co'rpQ.' Lifemark Hosp. Management, Inc., and JX. Moore.
    Gilbert & Powell, A. Spencer Gilbert, III, Jackson, Miss., for defendant Grenada Banking System.
   MEMORANDUM ORDER UNDERTAKING ANALYSIS OF FACTS AND LAW RELEVANT TO PROPOSED COMPROMISE AND SETTLEMENT AND EMBODYING FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL ORDER APPROVING SETTLEMENT

SENTER, Chief Judge.

THIS MATTER having come on for hearing on December 21, 1983, pursuant to notice to the parties, Johanna W. Nelson, individually and as representative of a bondholder class [“Plaintiff”], Roanne Waring, Jr., Robert Cox, Erich James, Jerald Sklar, Lewis Allen, individually, and Waring, Cox, James, Sklar & Allen, a partnership [“Bond Counsel Defendants”]; Lifemark Corporation, Lifemark Hospital Management, Inc. and Jimmy L. Moore [“Hospital Manager Defendants”]; Ottis B. Crocker, Jr., Dr. Charles H. Crocker, Jon A. Crocker, Samuel K. Crocker, Inez H. Crocker, Calhoun County Hospital, Inc. and Calhoun County Hospital, a partnership [“Crocker Defendants”]; Bullington-Schas & Co., Inc., A. Dulaney Tipton, Jr., Juanita Cox and Terry Allen Frost [“Underwriter Defendants”]; Lane, Wages & Gotten and William M. Gotten [“Gotten Defendants”]; Goodman & Company [“Goodman Defendant”] and Grenada Banking System [“Bank Defendant”] [all Defendants collectively referred to as “Settling Defendants”] and class members to determine the fairness, reasonableness, and adequacy of the proposed compromise and settlement of this action as embodied in the Settlement Agreement dated October 17, 1983, and the Amendment to Settlement Agreement to Add Additional Defendants dated October 27, 1983 (collectively “Settlement Agreement as Amended”), Plaintiff and the Settling Defendants having requested the approval of the Court of the terms and conditions of the Settlement Agreement as Amended pursuant to Rule 23(e) Fed.R. Civ.P. and appropriate notice having been given to the class thereof, the Court having considered the entire court file, including the pleadings, extensive discovery including numerous depositions, voluminous documents and records produced, all motions previously decided or presently before the Court, any affidavits, exhibits, testimony and arguments of counsel submitted in connection herewith, having heard from or offered an opportunity to all interested persons who appeared at the hearing or who have made written submissions to the Court, does hereby make the following findings of fact and conclusions of law pursuant to Rule 52, Fed.R.Civ.P., and enters the following final order approving settlement and, by separate instrument, the contemporaneous Final Judgment and Dismissal, as follows:

1.

The settlement of this class action reached among Plaintiff and Settling Defendants which we review for approval is embodied in the Settlement Agreement as Amended. Under Rule 23(e) Fed.R.Civ.P., this class action cannot be dismissed or compromised without the approval of the Court. Pursuant to this rule, the authority to approve the settlement is left to the sound discretion of the trial court. Cotton v. U.S. Pipe & Foundry Coke Biproducts Plant, 559 F.2d 1326 (5th Cir.1977); Girsh v. Jepson, 521 F.2d 153, 156 (3d Cir.1975).

2.

The Fifth Circuit has recently delineated the guidelines for determining the adequacy of settlement terms in a class action in Corrugated Container Anti-Trust Litigation, 643 F.2d 195 (5th Cir.1981):

Case law provides us with general ground rules: “The settlement terms should be compared with the likely rewards the class would have received following a successful trial.” Cotton v. Hinton, 559 F.2d at 1330. And: “The strength of the case for plaintiffs [must be] balanced against the amount offered in settlement.” [Citations omitted.] We think this requires a three-step process. First, the district court must evaluate the likelihood that plaintiffs would prevail at trial. Second, the district court must establish a range of possible recovery that plaintiffs would realize if they prevailed at trial. And third, guided by its findings on plaintiffs’ likelihood of prevailing on the merits and such other facts as may be relevant, the district court must establish, in effect, the point on, or if appropriate, below, the range of possible recovery at which a settlement is fair and adequate.
We note that this type of evaluation is not and cannot involve a trial on the merits. “[T]he very uncertainty of outcome in litigation, as well as the avoidance of wasteful litigation and expense, laid behind the Congressional infusion of a power to compromise. This is a recognition of the policy of the law generally to encourage settlements. This could hardly be achieved if the test on hearing for approval meant establishing success or failure to a certainty.” Florida Trailer & Equipment Co. v. Deal, 284 F.2d 567, 571 (5th Cir.1960). Nor could it be achieved if the range of possible recovery had to be chartered with precision. But the district judge must “undertake an analysis of the facts and the law relevant to the proposed compromise,” and he must “support his conclusions by memorandum.” Cotton v. Hinton, 559 F.2d at 1330. “A ‘mere boilerplate approval phrased in appropriate language but unsupported by evaluation of the facts or analysis of the law’ will not suffice. [Citations omitted.] This is because ‘[a]n appellate court ... must have a basis for judging the exercise of the trial court’s discretion.’ ” [Citations omitted.]

643 F.2d at 212 [emphasis added].

3.

Some of the “other factors” which should be considered in evaluating the fairness of a proposed settlement were articulated in Girsh v. Jepson, supra, at 157 and City of Detroit v. Grinnell, supra, at 463 as follows:

“... (1) The complexity, expense and likely duration of the litigation ...; (2) the reaction of the class to the settlement ...; (3) the stage of the proceedings and the amount of discovery completed ...; (4) the risk of establishing liability ...; (5) the risk of establishing damages ...; (6) the risk of maintaining the class action through the trial ...; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery ...; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation....”

4.

In applying the above factors to this proposed settlement, the Court has also considered the judgment of experienced counsel and the presence of good faith bargaining among the contending parties. Cotton, supra. Courts have consistently refused to substitute their business judgment for that of counsel absent evidence of fraud or overreaching. Zerkle v. Cleveland-Cliffs Iron Co., 52 F.R.D. 151, 159 (S.D.N.Y.1971). Compromise is the essence of settlement and the Court should not make the proponents of a proposed settlement justify each term of settlement against a hypothetical or speculative measure of which concessions might have been gained; inherent in compromise is a yielding of absolutes and abandoning of highest hopes. Cotton, supra.

5.

However, “In examining a proposed compromise ... the Court does not try the case. The very purpose of compromise is to avoid the delay and expense of such a trial.” Young v. Katz, 447 F.2d 431, 433 (5th Cir.1971). As more recently stated, “The trial court in approving the settlement ... [does not] have the right or the duty to reach any ultimate conclusions on the issues of fact and law which underlie the merits of the dispute....” City of Detroit v. Grinnell Corp., 495 F.2d 448, 456 (2d Cir.1974). A settlement hearing is not a “rehearsal of the trial.” Newman v. Stein, 464 F.2d 689, 692 (2d Cir.1972).

6.

We undertake such an analysis, guided by Corrugated Container Anti-Trust Litigation, of the facts and law relevant to the proposed compromise and herewith support our conclusions by this memorandum evaluating these facts and disclosing our analysis of the law as it specifically relates to the compromise and settlement herein presented.

7.

We begin our analysis with the first step, i.e., the likelihood that Plaintiff would prevail at trial or, as otherwise termed, the risk of litigation. Extensive detailed discovery has been taken. Numerous motions going to the merits of the claims sought to be proved have been decided or are awaiting decision after thorough briefing by the parties to the Court. Boiled down, the gravamen of the Plaintiffs claim is embodied in the emerging doctrine of fraud on the market. Shores v. Sklar, 647 F.2d 462 (5th Cir.1981) [en banc], cert. denied 103 U.S. 722, 103 S.Ct. 722, 74 L.Ed.2d 949 (1983). Whether Plaintiff would ultimately establish the existence of such a claim is hotly contested, the subject of good faith dispute and protracted litigation, and an issue the ultimate resolution of which cannot be accurately predicted. The possibility that the Plaintiff class would make no recovery is a substantial factor which cannot be ignored. The Court finds that the likelihood of recovery is far from certain, honestly disputed and subject to the usual hazards of contested, complex litigation.

8.

The second required step is to establish the range of probable recovery that plaintiff class would realize if it had prevailed at trial. Unless the RICO Amendment is granted or- companion state law claims survive presently undecided motions to dismiss, it is likely Plaintiff would be limited to recovering the face amount of the bonds with accrued and unpaid interest. Since the accrued interest is likely to be largely offset by the continuing expense including attorney’s fees generated by this litigation were it to proceed to the pretrial and trial stages (see discussion below), the recovery for the bondholder class from this settlement, including that from the receivership, i.e., $1,850,000.00, in fact exceeds both the face amount of the bonds which is only $1,800,000.00 and, as set out in the Report to the Court on Review of Proofs of Claim filed December 15, 1983, the total of approved claims which is $1,676,355.80. Given this offset, the range of probable net recovery after trial, assuming Plaintiff were to prevail on the merits, would realistically be in the neighborhood of no more than $2,000,000.00.

9.

The third factor is establishment, being guided by findings on plaintiffs’ likelihood of prevailing on the merits and other factors as may be relevant, of the point on, or if appropriate, below, the range of possible recovery at which a settlement is fair and adequate. Here, the settlement offer of $1,850,000.00 is 93% of the high end of the likely net recovery at trial were Plaintiff to prevail, 103% of the face amount of the defaulted bonds and 110% of the total of approved claims — an “A” in anyone’s book.

10.

While the Court has sketched the basic reasoning for the third step in its analysis, it is not confined to the mechanistic process of comparing the settlement to the best probable recovery times the multiplier derived from the likelihood of prevailing on the merits. We are also guided by other factors, the relevancy of which to this case we shall discuss below:

(a) Circumstances of the settlement. Our review indicates the settlement negotiations were conducted in an adversarial and noncollusive manner. In fact, the Court had an opportunity at the preliminary settlement hearing on October 20, 1983, to observe certain negotiations firsthand. While the proponents of the settlement have not attempted to persuade the Court in the preeminence or efficacy of any particular strategy, they have established the fact that the negotiations were conducted at arm’s length, in the best interest of the class, and were clearly reasonable and adequate under the circumstances.

(b) Complexity, expense and possible duration of litigation. All parties concede and the Court so finds this litigation will require complicated, expensive and lengthy prosecution, particularly at the pretrial hearing and trial stages. Such expense has a direct bearing on any net recovery to the class.

(c) Stage of the proceedings. This litigation was settled at or very near a point of greatest savings of time and expense for the class relative to full-term prosecution. Extensive discovery has allowed the Court an excellent evidentiary basis upon which to decide whether the settlement is fair; but settlement at this point obviates the necessity of very lengthy and expensive pretrial and trial proceedings which might well diminish any net recovery to the class.

(d) Risk of establishing damages. While Plaintiff can easily establish the loss of the principal amount of bonds and any accrued and unpaid interest, any further damages involve disputed questions of law and fact, e.g., RICO claims and claims for punitive damages under the Mississippi Blue Sky Law, which are yet unresolved.

(e) Reaction of the class to the settlement proposal. No class members have objected to the settlement, and there have been no elections to exclude other than one technical opt-out. Thus, the Court can conclude that the class strongly favors the proposed settlement. See Cotton v. Hinton, 559 F.2d at 1331. The Court does not place undue reliance on the class’ acquiescence, but was impressed at the class hearing held November 5, 1982, that there was a concerted and coordinated effort among certain bondholders to protect their interests. Thus, the failure of the class to interpose objections may be fairly read to a reasonable degree as affirmance of the Settlement Agreement as Amended.

11.

The Court finds that the proposed compromise and settlement was the result of good faith bargaining and negotiations by adversarial counsel who are eminently familiar with the strengths and weaknesses of the case and who are skilled and experienced in litigation of this kind.

12.

The Defendants have denied any liability whatsoever and have entered into this settlement solely to terminate all controversy concerning the matters settled and to avoid the expense, inconvenience and distraction of further expensive and protracted litigation without any admission of any liability whatsoever by any of them.

SO ORDERED that:

(a) The terms, including each and every one, of the Settlement Agreement as Amended are fair, reasonable, adequate, and not the product of collusion among the parties hereto, and are in the best interests of the class;

(b) The Settling Defendants shall execute and deliver, inter sese, no later than the expiration of the time for any appeal of the contemporaneously entered Final Judgment and Dismissal or any affirmance of same, the release in the form attached hereto as Exhibit 1 (which is substantially Exhibit “C” to the Settlement Agreement as Amended);

(c) Any and all cross-claims which are, have been, or could have been asserted by or among any Settling Defendant against any other Settling Defendant are hereby dismissed with full prejudice on the merits, with each Settling Defendant to bear its own costs.

ON ATTORNEY’S FEES

This matter came on for hearing on the motion of the firms of Freeland and Gafford and R. Alan Stotsenburg, P.C., for an award of attorney’s fees and expenses. The court, having considered the motion together with the affidavits, briefs in support thereof, and the record in this action, does hereby make the following findings of fact and conclusions of law:

1. R. Alan Stotsenburg, P.C., and Free-land and Gafford, attorneys for the plaintiff class in this action, moved for an allowance of attorney’s fees in the total sum of $450,000.00 and out-of-pocket expenses in the total sum of $68,551.94, all to be paid out of the total sum of $1,350,000.00 recovered for the plaintiff class in this action by way of settlement.

2. This civil action for violation of the Securities Acts was filed in the United States District Court for the State of Nevada' in September, 1980, by R. Alan Stotsenburg, of the New York Bar, and Brown, Welles, Beller & Kravitz, Chtd. (the Kravitz firm), of the Nevada Bar. Thereafter, in May of 1981, the action was transferred from the Nevada Court to the United States District Court for the Northern District of Mississippi. R. Alan Stotsenburg continued as counsel for plaintiff, the Kravitz firm withdrew, and the firm of Freeland and Gafford was associated as counsel for the plaintiff.

3. Following extensive discovery, plaintiff’s motion for class certification was heard by this court on November 5, 1982. The motion was vigorously resisted by all defendants. By order dated August 5, 1983, a Rule 23(b)(3) class was certified consisting of all persons (except defendants) who purchased first mortgage revenue bonds, Series A, issued by Calhoun County Medical Facility, Inc., and dated September 1, 1977. The same order named the law firms of R. Alan Stotsenburg, P.C., of New York, New York, and Freeland and Gafford, of Oxford, Mississippi, as general counsel for the class. Any fee to be paid counsel was contingent upon the results attained and was subject to court approval.

4. After notice to all members of the class, in which they were advised that counsel for the class intended to request fees totaling $450,000.00 as well as out-of-pocket expenses, no class member elected to oppose the proposed fee request.

5. The time and labor necessarily required of the counsel for the class to adequately represent the class is detailed in the Stotsenburg and Freeland and Gafford affidavits accompanying the motion for attorney’s fees. In addition to the various pleadings represented by more than 350 docket entries, plaintiffs deposed twenty-seven witnesses at widely separated locations. These depositions total more than 6,500 pages of transcript. Complex, novel, and difficult questions of fact and law were involved based primarily on the “fraud on the market” theory. Defendants, represented by highly competent counsel, denied all material allegations of the complaint and the amended complaint. All defendants have vigorously litigated this case throughout. A high degree of skill and intensive effort was required of counsel for plaintiff. At the outset, the position of defendants was that the case had little or no value and that the possibility of a substantial recovery appeared to be remote. At stake was $1,800,000.00, the principal amount of the bond issue plus accrued interest, less the proceeds realized from foreclosure of the property which secured the bonds. As the case progressed and following certification of the class, a settlement of $1,350,000.00 was submitted to the court and tentatively approved on October 20, 1983. This sum, together with the sum of $500,000.00 paid (or to be paid) to the bondholder class by virtue of the foreclosure of the hospital property which secured the bond issue, represents $50,000.00 more than the total bond issue of $1,800,000.00. This total sum, before deduction for fees and expenses, represents 103% of the total amount of the bond issue. This settlement represents an outstanding result, one that could not have occurred without the efforts of plaintiff’s counsel. While this was a desirable case from the standpoint of the possible recovery, the amount of effort required in the relatively short time interval in which this effort had to be expended, thus precluding counsel from accepting other employment, and the very real risk that no payment would be forthcoming imposed a tremendous risk factor on counsel for the plaintiffs. Counsel for plaintiffs, as described in their affidavits, are quite experienced in handling complex litigation. The fee requested is consistent with fees requested and allowed in similar litigation for the reasons set forth in the Stotsenburg, Freeland, Foley, Eskridge, and Drinkwater affidavits.

6. The time charges of the firms representing the plaintiff, detailed in the affidavits and exhibits, contain detailed accounts of the time expended in this case. This time expenditure was reasonable and was required by the complex nature of this case.

7. Due to the substantial risk undertaken in this contingent fee litigation, plaintiff’s counsel are entitled to recover a fee at a rate that compensates them for that additional risk. The hourly rates ordinarily charged by Mississippi counsel do not provide adequate compensation for such a risk.

8. This court is familiar with the factors to be applied in awarding attorney’s fees. As the foregoing findings detail, this case was novel and difficult, requiring a high level of skill on the part of plaintiff’s counsel. In agreeing to represent the plaintiff, counsel undertook a risk of nonrecovery. Furthermore, the amount involved and the results obtained were substantial. Consideration of these factors leads this court to the conclusion that the hourly rates and time charges requested by plaintiff’s counsel are reasonable.

9. The court has also reviewed the schedules of expenses submitted with the affidavits of plaintiff’s counsel. These expenses are in the amount of $68,551.94 and include a sum of $1,187.45 representing expenses incurred by Nevada counsel prior to a transfer of this action. These expenses are reasonable and constitute expenses ordinarily awarded as a part of an attorney’s fee award.

10. Plaintiff’s counsel have cited several cases with respect to awards in similar cases in support of the motion for attorney’s fees. The court has considered Graves v. Barnes, 700 F.2d 220 (5th Cir.1983), and Wolf v. Frank, 555 F.2d 1213 (5th Cir.). These cases clearly support this court’s finding that the fee request in this action is reasonable.

Having considered the foregoing facts relevant to attorney’s fee awards, the court is of the opinion that a fair and reasonable attorney’s fee in this matter is $450,000.00 plus attorney-related expenses in the sum of $68,551.94. An order consistent with this opinion shall issue.