text:
    Leo ROSENGARTEN, Plaintiff, v. J.C. PENNEY COMPANY, INC., Defendant.
    No. 81 CV 3567.
    United States District Court, E.D. New York.
    March 21, 1985.

      Legal Services for Elderly in Queens Rego Park, N.Y. by Marc Finkelstein, New York City, for plaintiff.
    Piper & Marbury by Walter B. Connolly, Jr., Steven C. Kahn, Washington, D.C., Le-Roy Watkins, J.C. Penney Co., Inc., New York City, for defendant.
   MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

Plaintiff brings this discrimination action under the Age Discrimination in Employment Act of 1967, as amended, (the “ADEA”), 29 U.S.C. §§ 621-634, because he was demoted and his salary was reduced. Plaintiff is now seventy years old, and at all times relevant to this action was within the age group protected by the ADEA. A one-day trial was conducted, without a jury, on November 15, 1984. Both sides have submitted briefs, and have furnished proposed Findings of Fact and Conclusions of Law. For the reasons developed below, judgment will be entered for the defendant.

Findings of Fact

On July 19, 1948, plaintiff began his career with J.C. Penney as an architectural draftsman in defendant’s Stores and Facilities Construction Planning Department. Twenty years later he had risen to the first-level management position of architectural squad leader. The duties of a squad leader normally entail supervising the preparation of architectural drawings for the company’s stores and facilities. Plaintiff’s initial responsibility as a squad leader, however, was to ensure that retail store signs were properly delivered and installed.

Defendant contends that, although plaintiff was paid as a squad leader, he never actually performed supervisory functions and was not regarded as a squad leader by management. Plaintiff, on the other hand, claims that no one ever told him that he was not doing squad leader work. Indeed, plaintiff testified that he received only one negative performance evaluation in the thirty-one years prior to his demotion and that evaluation was in 1974. In any event, in January 1974, the functions plaintiff had been performing were reassigned to the project coordinator in charge of architectural drawings.

Plaintiff was assigned to work for a short time under the supervision of another squad leader. Then, in August 1975, he was assigned to serve as an assistant to the Chief Construction Engineer. Plaintiff held this position until November 1, 1979, the date of his demotion. His duties in this position were largely clerical and non-supervisory, and included performing routine cost calculations and drafting functions, checking store leases to ensure conformance with a checklist of requirements, and reviewing files to identify contractors supplying defective roofing materials. Defendant concedes that plaintiff performed these duties satisfactorily and received average salary increases.

On November 1, 1979, the company implemented a reduction in force in the Stores and Facilities Construction Planning Department. The layoffs and demotions that followed were attributable to a reduction in the anticipated expansion of new stores from over six million square feet to approximately three million square feet. Selections for layoffs and demotions were based on an evaluation of the necessity of the functions and the level of performance of the individual employees.

Plaintiff’s position was among those eliminated as part of the reduction in force. Accordingly, plaintiff’s supervisors recommended that plaintiff’s employment be terminated. Ironically, if this recommendation had been implemented it is unlikely that the instant litigation would have ensued. Although the recommendation was initially accepted, management later determined that, in lieu of termination, plaintiff would be demoted. Accordingly, on November 1, 1979, plaintiff was given four hours notice that his position was being eliminated and that he was being demoted to a Grade 6 architectural draftsman with a reduction in salary. No action was taken by the company regarding the employment or pay status of the other five squad leaders, all of whom are younger than plaintiff—and therein lies the rub.

Approximately six months after his demotion, plaintiff was promoted to a Grade 8 draftsman and given a ten percent salary increase. Subsequent appraisals indicated that plaintiff continued to perform satisfactorily at the Grade 8 level. Defendant contends that plaintiff was placed on a “fast track” for salary review so that his salary at the time of his voluntary retirement on March 31, 1983 approximated the level it had reached at the time of his demotion. Plaintiff places a more sinister interpretation upon his recent good fortune. He contends that his promotion and escalated salary increases occurred only after he filed a charge of age discrimination with the Equal Employment Opportunity Commission (“EEOC”). On December 2, 1980, the EEOC decided not to pursue plaintiff’s charge. The present action was commenced on October 30, 1981.

Discussion

Section 623(a)(1) of the ADEA makes it unlawful for an employer “to discharge ... or otherwise discriminate against any individual with respect to his compensation, terms, conditions or privileges of employment, because of such individual’s age.” 29 U.S.C. § 623(a)(1). The ADEA provides further, however, that “it shall not be unlawful ... to take any action otherwise prohibited ... where the differentiation is based on reasonable factors other than age.” 29 U.S.C. § 623(f)(1).

Once plaintiff has established a prima facie case of discrimination, the burden shifts to the defendant to advance a nondiscriminatory justification for the challenged employment decision. Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 253, 101 S.Ct. 1089, 1093, 67 L.Ed.2d 207 (1981). The burden of persuasion, however, remains at all times with the plaintiff. Id. at 254, 101 S.Ct. at 1094. Thus, once the defendant satisfies its limited burden of articulating a non-discriminatory justification for its action, the plaintiff must prove that the proffered justification is pretextual. Id. at 257, 101 S.Ct. at 1095; Furnco Construction Corp. v. Waters, 438 U.S. 567, 578, 98 S.Ct. 2943, 2950, 57 L.Ed.2d 957 (1978).

Plaintiff seeks recovery under a disparate treatment theory, claiming that his demotion and salary reduction were motivated by his age and by defendant’s intention to force him into retirement. In order to establish a claim under a disparate treatment theory, “[p]roof of discriminatory motive is critical, although it can in some situations be inferred from the mere fact of differences in treatment.” Teamsters v. United States, 431 U.S. 324, 335 n. 15, 97 S.Ct. 1843, 1857 n. 15, 52 L.Ed.2d 396 (1977). The Second Circuit, in a case involving an allegedly discriminatory discharge, framed the plaintiff’s burden as follows:

The plaintiff has the burden of proving that “age was the ‘determining factor’ in his discharge in the sense that, ‘but for’ his employer’s motive to discriminate against him because of age, he would not have been discharged.”

Pena v. Brattleboro Retreat, 702 F.2d 322, 223 (2d Cir.1983). (quotations omitted).

Defendant has proffered a legitimate business justification for its actions, viz, that plaintiff’s demotion and corresponding reduction in pay were part of a widespread staff reduction. Plaintiff does not—and cannot—dispute that unfavorable economic conditions required a general reduction in defendant’s work force. Plaintiff alleges, however, that his demotion was nonetheless motivated by age.

Obviously, the existence of a reduction in force scenario does not remove defendant’s actions from the scrutiny of the ADEA. See Hagelthorn v. Kennecott Corp., 710 F.2d 76, 81 (2d Cir.1983); Williams v. General Motors Corp., 656 F.2d 120, 128 (5th Cir.1981). On the other hand, the courts have placed greater emphasis on the requirement that plaintiff prove intent to discriminate where, as here, the employer’s action occurred in the context of a reduction in force. See, e.g., Williams, 656 F.2d at 129; Coburn v. Pan American World Airways, Inc., 711 F.2d 339, 343 (D.C.Cir.), cert. denied, — U.S. -, 104 S.Ct. 488, 78 L.Ed.2d 683 (1983). It is clear that plaintiff has not met this burden.

Having reviewed the entire record in this case, I conclude, initially, that the elimination of plaintiff’s position was not motivated by age. Plaintiff’s job functions were largely clerical and non-supervisory and, thus could be assumed by other employees with minimal disruption. The elimination of his position was appropriate in the context of a widespread staff reduction. Defendant was not obligated to retain plaintiff’s position just because he is within the protected age class. As the Fifth Circuit has stated:

The ADEA mandates that an employer reach employment decisions without regard to age, but it does not place an affirmative duty upon an employer to accord special treatment to members of the protected age group.

Williams, 656 F.2d at 129.

Likewise, having eliminated plaintiff’s position, defendant was not obligated to create another position for plaintiff. Stanojev v. Ebasco Services, Inc., 643 F.2d 914, 920 (2d Cir.1981). Accordingly, as noted earlier, defendant could justifiably have terminated plaintiff’s employment.

In lieu of termination, however, defendant elected to demote plaintiff with a corresponding salary reduction. Plaintiff contends that this disparate treatment was, in fact, a discriminatory attempt to force plaintiff into early retirement. He has not, however, demonstrated this. “The essence of a complaint ... under the ADEA is that the plaintiff has been treated less favorably than others on account of his age.” Stanojev, 643 F.2d at 923 (emphasis added). Again, he has failed to demonstrate that he was treated less favorably than he should have been.

It is also significant that plaintiff has failed to establish that there were any other positions available for which he was qualified. Since plaintiff had not performed the traditional duties of a draftsman for quite some time, the company managers were justifiably uncertain as to plaintiff’s ability to function at the unsupervised level. It is the perception of the decision-maker, and not that of the plaintiff himself, which is relevant. Smith v. Flax, 618 F.2d 1062, 1067 (4th Cir.1980). In any event, defendant’s managers testified that, despite their uncertainties, they examined whether there were any available positions at the squad leader or grade 8 draftsman levels. They concluded there were not.

Accordingly, defendant elected to demote plaintiff to the level of Grade 6 draftsman and to reduce plaintiff’s salary to the starting salary at that level. Given plaintiff’s thirty-one years of employment with the company, defendant’s actions seem callous and shortsighted. Indeed, plaintiff testified that, in hindsight, he might have preferred being terminated, rather than demoted. Nonetheless, as the courts have recognized:

There is no burden upon an employer of proving that a particular employment decision affecting the employee was a matter of sound business judgment. An employer may hire or fire/demote or promote any employee on the basis of purely subjective reasons, even if such reason is shortsighted or narrowminded, as long as age is not a determinative factor in that decision.

Miller v. General Electric Company, 562 F.Supp. 610, 617 (E.D.Pa.1983). See Haskell v. Kaman Corp., 743 F.2d 113, 119 (2d Cir.1984); Stanojev, 643 F.2d at 922. It is telling that, upon realizing plaintiffs displeasure with their actions, management gave him the option of being terminated with accompanying unemployment benefits. Plaintiff elected to continue working.

In short, plaintiff simply has not sustained his burden of proving that age was a determinative factor in his demotion. Hagelthorn, 710 F.2d at 86; Bentley v. Stromberg-Carlson Corp., 638 F.2d 9, 10 (2d Cir.1981).

Accordingly, judgment will be entered for the defendant.

SO ORDERED.

      . Plaintiff's salary was reduced by approximately $6,000 from $20,871 to $14,924.

      . Essentially, a Grade 6 draftsman assists in the preparation of sketches and standard details and requires constant supervision. A Grade 8 draftsman, in contrast, develops sketches and standard details with minimum supervision.


source: Caselaw Access Project

author: EDWARD WEINFELD, District Judge.

license: Public Domain

text:
    ROONEY PACE, INC., Plaintiff, v. Thomas W. REID, Armond Zaccaria and Jerry Phillips, Defendants.
    No. 84 Civ. 0471 (EW)
    United States District Court, S.D. New York.
    March 22, 1985.

      Sage, Gray, Todd & Sims, New York City, for plaintiff; John F.X. Peloso, New York City, of counsel.
    Mendes & Mount, New York City, for defendant Jerry Phillips; James A. McGuire, New York City, of counsel.
   OPINION

EDWARD WEINFELD, District Judge.

Plaintiff, Rooney Pace, Inc. (“Rooney Pace”), a brokerage house, brings this action alleging that defendants, Thomas W. Reid (“Reid”), Armond Zacearía (“Zacearía”), and Jerry Phillips (“Phillips”), engaged in a conspiracy to manipulate the market for securities of Threshold Technology, Inc. (“Threshold”) and First City Properties, Inc. (“FCP”) in violation of RICO as well as sections 9 and 10b of the Securities Exchange Act of 1934. The complaint alleges that, as a part of this conspiracy, each of the defendants placed orders to purchase stock through Rooney Pace, that the orders were placed with the intent not to pay for the stock or to pay only if the price rose, and that defendants subsequently refused to pay for the stock.

Defendant Phillips moves to dismiss plaintiff’s claims against him pursuant to Rule 12(b), Fed.R.Civ.P. With respect to the securities law claims, Phillips contends (1) that the sole conduct attributed to him in the complaint—the purchase of 3500 shares of Threshold stock on January 10, 1984, and his subsequent failure to pay for the stock—does not rise to the level of a securities law violation; (2) that the complaint fails to allege fraud with particularity pursuant to Rule 9(b), Fed.R.Civ.P.; and (3) that the stock at issue is not alleged to be traded on a national securities exchange. As for the RICO claim, Phillips contends that plaintiff has neither alleged that he has been convicted of the predicate acts on which the claim is based, nor that Rooney Pace has suffered a distinct racketeering injury by reason of his conduct. If the federal claims are dismissed, Phillips argues, then the state law claims must also fail for lack of subject matter jurisdiction, improper service of process, and lack of personal jurisdiction.

Plaintiff disputes each of these contentions, arguing that it has stated viable claims under the RICO statute and the federal securities laws; that it has stated its securities claims with particularity; and that as a result of stating a federal claim, defendant’s contentions with respect to the state law claims need not be reached.

DISCUSSION

At the outset, it is apparent that plaintiff’s RICO claim against Phillips must be dismissed. As plaintiff concedes, it has not and cannot allege that Phillips has been convicted of any of the predicate acts alleged, a necessary element of a civil RICO claim under our Court of Appeals’ decision in Sedima, S.P.R.L. v. Imrex Co. Plaintiff’s attempts to distinguish Sedima are unavailing in light of Judge Oakes’s explicit holding.

The Court finds, however, that plaintiff has stated a claim against Phillips under the federal securities laws. That claim is based upon a single transaction: on January 10, 1984, Phillips, a Texas resident, is alleged to have placed a purchase order for 3500 shares of Threshold stock through an account opened that day at the New York offices of Rooney Pace, an order for which he subsequently refused to pay. Pointing to the fact that there is only a single transaction alleged, Phillips contends that plaintiff has stated nothing more than a breach of contract claim.

Defendant’s argument ignores the fact that although Phillips is charged with a single transaction, that transaction is claimed to be fraudulent in itself and, furthermore, part of a fraudulent conspiracy to manipulate the market for Threshold stock. The complaint alleges that Phillips acted in concert with co-defendants Reid and Zacearía in coordinating investments for the purpose of inducing others to purchase or sell, thus creating an “artificial market” for the stock. In furtherance of this alleged conspiracy, plaintiff claims that Phillips ordered the Threshold stock on January 10, 1984, not intending to pay for it unless the trading price rose; and that upon his refusal to pay, Rooney Pace liquidated his account at a loss. Similarly, plaintiff alleges that on the same day Phillips placed an order with Rooney Pace for the purchase of 3500 shares of Threshold, co-defendant Zacearía, a New York resident with numerous brokerage accounts, also opened an account at the New York offices of Rooney Pace, ordered 10,000 shares of Threshold, and subsequently failed to pay. Co-defendant Reid, although not charged with any specific purchases of Threshold, is alleged to have provided substantial financing to the company in 1981, and as of September 1982, owned 40.4 percent of its shares. It is further alleged that defendant Reid recommended Threshold as a good but speculative investment to the Rooney Pace broker through whom he and Zacearía placed orders for FPC and Threshold stock.

Reading these allegations as a whole, it appears that plaintiff is claiming that Phillips and his co-defendants concertedly engaged in a “heads I win, tails you lose” scheme. If the purchase price of the stock went up by the date payment was due, the defendants would have purchased, but if the price went down, they would not. Thus, plaintiff alleges that after defendant’s refusal to pay for the shares, Rooney Pace was forced to liquidate into the market, allowing defendants to purchase the same stock at a lower price and create an artificial market. Phillips allegedly participated in this scheme, albeit through a single transaction. The fact that his role in the alleged concerted scheme involved a single transaction or was less than that of the other purported co-conspirators is of no significance. The degree of Phillips’s participation, if in fact he acted in concert with the others as claimed, does not exonerate him from liability. A conspirator who plays a minor role is as responsible as his co-conspirator who is the major actor.

An alleged scheme to manipulate the market for a stock states a claim under both sections 9 and 10(b) of the Securities Exchange Act. In A.T. Brod & Co. v. Perlow, the plaintiff brokerage house made claims similar to those asserted here by Rooney Pace. “Brod’s complaint alleged that the Perlows placed orders ... to purchase securities listed for trading ... with the fraudulent intent of paying for the securities only if their market value had increased by the date payment was due.” Our Court of Appeals found that these allegations stated a claim that defendants’ actions constituted a “manipulative or deceptive device or contrivance.”

The holding of our Court of Appeals in A.T. Brod & Co. applies equally here. While the allegations of the complaint respecting Phillips’s involvement in the purported conspiracy are few, the issue upon a motion to dismiss is not whether plaintiff will ultimately prevail in proving Phillips’s intent not to pay or his participation in the conspiracy, but whether plaintiff is entitled to offer evidence to support its allegations. Drawing all inferences favorable to the pleader, as this Court must on a motion to dismiss, it cannot be said that it is “beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief.” Accordingly, defendant Phillips's motion to dismiss must be denied.

Phillips argues that even if plaintiff has stated a claim, it has not been plead with sufficient particularity to satisfy Rule 9(b), Fed.R.Civ.P. In comparison with the complaint’s factually detailed allegations as to the other defendants’ participation in a conspiracy to manipulate the price of FPC stock, the allegations relating to Phillips and to Threshold securities appear minimal. Nevertheless, the Court finds that the allegations with respect to Phillips are sufficiently particular to satisfy Rule 9(b).

While Phillips contends that “no specific conduct” in furtherance of the claimed conspiracy has been alleged, particular acts have in fact been attributed to him in the complaint, i.e. that he opened an account on January 10, 1984 at the New York offices of Rooney Pace, ordered 3500 shares of Threshold stock through that account on that day, placed that order with the intent not to pay for the shares, and in fact failed to pay for the stock. These allegations “give[ ] ... defendant notice of precisely what he is charged with. No more is required by Rule 9(b).”

Similarly, Phillips’s contention that scienter has not been plead with sufficient particularity is misplaced. Rule 9(b) expressly provides that intent may be plead generally, a fact that our Court of Appeals has noted recently in reversing a dismissal for failure to plead fraud with particularity. Our Court of Appeals has also recognized, however, that claims of fraud may not be stated in conclusory terms. While “great specificity” is not required, some factual basis for an allegation of scienter is necessary to satisfy the purposes of Rule 9(b).

Plaintiff's complaint states more than a simple conclusion that Phillips acted with scienter. Supporting plaintiff’s claim that Phillips ordered the Threshold shares with the intent not to pay or only if the price rose are allegations that he sought to create an appearance of active trading or induce others to purchase or sell; that, in fact, Rooney Pace liquidated the account at a loss; and that Phillips refused to pay. In addition, the complaint alleges that Phillips ordered the stock in furtherance of a conspiracy to manipulate the market, and specifies the particular purchases forming a part of that conspiracy, made not only by Phillips, but also by Zacearía on the same day, through the same New York brokerage house, and in each case with the same subsequent failure to pay and liquidation by Rooney Pace into the market at a loss.

Not “every failure by a customer to pay for securities ordered adds up to a violation of the securities laws. But whether there is actionable fraud or a mere breach of contract depends on the facts and circumstances developed at the trial or on motion for summary judgment.” On this motion, plaintiff is not required to prove its allegations to state a claim or satisfy Rule 9(b). Evidence of fraudulent intent or conspiracy must await discovery, which at the time this motion was submitted had yet to begin. That is particularly true here where the alleged fraudulent conduct— market manipulation—presumably involves clandestine activities knowledge of which would be within defendants’ exclusive control. There is nothing to suggest that plaintiff’s claims were asserted without investigation or for their in terrorem effect, or that they cast “irresponsible and improvident” aspersions of fraud. The overall specificity of the complaint negates such characterizations. Accordingly, the Court finds that plaintiff’s allegations are sufficiently particular to satisfy Rule 9(b).

Finally, Phillips argues that the federal securities law claims must be dismissed because plaintiff has failed to allege that Threshold was traded on a national securities exchange. While section 10(b) does not require that the stock at issue be traded in such a market, section 9 does. However, plaintiff has in fact alleged that Threshold is traded on a national exchange under its claim that the defendants willfully engaged in activities “creating a false or misleading appearance of active trading in securities registered on a national securities exchange.”

Because the Court sustains the legal sufficiency of plaintiff’s securities law claims against Phillips, it need not reach his contentions as to plaintiff’s state law claims, all of which are premised on the assumption that the federal claims should be dismissed.

Accordingly, defendant Phillips’s motion to dismiss, pursuant to Rule 12(b), is granted as to the RICO claims against him, and denied in all other respects.

So ordered.

      . 18 U.S.C. § 1961 et seq. (1982).

      . 15 U.S.C. §§ 78i, 78j(b) (1982).

      . 741 F.2d 482 (2d Cir.1984), cert. granted, — U.S. -, 105 S.Ct. 901, 83 L.Ed.2d 917 (1985).

      . Even if this were not the case "an allegation— that the defendant’s contractual promises were fraudulent from the inception—clearly distinguishes the present case from an ordinary breach of contract action.” Madison Consultants v. FDIC, 710 F.2d 57, 66 (2d Cir.1983); see also SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1097 n. 19 (2d Cir.1972); Shemtob v. Shearson, Hammill & Co., 448 F.2d 442, 445 (2d Cir.1971).

      . See, e.g., Foreman v. Ambach, 525 F.Supp. 722, 730 (S.D.N.Y.1981) (“A conspirator is a conspirator whether he plays a major role or a minor role in the illicit activity"); H.L. Green Co. v. Childree, 185 F.Supp. 95, 96 (S.D.N.Y.1960).

      . See Chemetron Corp. v. Business Funds, Inc., 682 F.2d 1149 (5th Cir.1982), vacated, 460 U.S. 1007, 103 S.Ct. 1245, 75 L.Ed.2d 476 (mem.), on remand, 718 F.2d 725 (1983); Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787 (2d Cir.1969), cert. denied, 400 U.S. 822, 91 S.Ct. 41, 27 L.Ed.2d 50 (1970); SEC v. Resch-Cassin & Co., Inc., 362 F.Supp. 964 (S.D.N.Y.1973).
      Plaintiff has alleged the elements necessary for recovery under section 9: that Phillips with the other defendants engaged in a series of transactions creating a false or misleading appearance with respect to the market for the securities for the purpose of inducing the purchase and sale of securities by others; that the defendants’ actions were done “willfully;” and that the market price at which Rooney Pace sold the stock was affected by defendants’ conduct. See 15 U.S.C. § 78i (1982).

      . 375 F.2d 393, 395 (2d Cir.1967).

      . Id.; see Walling v. Beverly Enterprises, 476 F.2d 393 (9th Cir.1973); Carroll v. First National Bank of Lincolnwood, 413 F.2d 353 (7th Cir.1969), cert. denied, 396 U.S. 1003, 90 S.Ct. 552, 24 L.Ed.2d 494 (1970); see also Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930, 944 n. 24 (2d Cir.) (noting Brod), cert. denied, — U.S. -, 105 S.Ct. 253, 83 L.Ed.2d 190 (1984).

      . Grand Union Co. v. Cord Meyer Development Corp., 735 F.2d 714, 717 n. 1 (2d Cir.1984) (quoting Lipsky v. Commonwealth United Corp., 551 F.2d 887, 895 (2d Cir.1976) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974))).

      . Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957) (footnote omitted); see Goldman v. Belden, 754 F.2d 1059 at 1065 (2d Cir.1985).

      . Goldman v. Belden, 754 F.2d 1059 at 1069-70 (2d Cir.1985).

      . Rule 9(b) provides: “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed.R.Civ.P. 9(b).

      . Goldman v. Belden, 754 F.2d 1059 at 1070 (2d Cir.1985).

      . Id. at 1070; Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 115 (2d Cir.1982); Denny v. Barber, 576 F.2d 465, 469 (2d Cir.1978); Felton v. Walston & Co., Inc., 508 F.2d 577, 580 (2d Cir.1974); Segal v. Gordon, 467 F.2d 602, 607 (2d Cir.1972).

      . A.T. Brod & Co. v. Perlow, 375 F.2d 393, 398 (2d Cir.1967).

      . See Goldman v. Belden, 754 F.2d 1059 at 1070 (2d Cir.1985); Felton v. Walston & Co., Inc., 508 F.2d 577, 581 (2d Cir.1974) (“It may well be that plaintiffs have no claim against [defendant] but the proper manner in which to determine whether a claim exists is to require an answer, and, if necessary, a trial of those issues"); Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 379 (2d Cir.1974) (“a complainant is not required to plead evidence”), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975).

      . See Billard v. Rockwell Int'l Corp., 683 F.2d 51, 57 (2d Cir.1982).

      . See Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 379 (2d Cir.1974); cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975).

      . See Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 116 (2d Cir.1982) ("Rule 9(b) will have failed in its purpose if conclusory generalizations ... permit a plaintiff to set off on a long and expensive discovery process in the hope of uncovering some sort of wrongdoing or of obtaining a substantial settlement”); Segal v. Gordon, 467 F.2d 602, 608 (2d Cir.1972); Crystal v. Foy, 562 F.Supp. 422, 424, 433 (S.D.N.Y.1983).

      . DuPont v. Wyly, 61 F.R.D. 615, 630 (D.Del.1973) (quoting 1A Barron & Holtzoff, Federal Practice and Procedure § 302 at 225 (Wright ed. 1960)).

      . See 15 U.S.C. § 78j(b) (1982); id. § 78i.

      . Amended Complaint ¶ 66.

      . Phillips's motion to strike paragraph 57(h) of the complaint is deemed moot per the order of this Court of December 11, 1984 striking that allegation.


author: LYNCH, District Judge.

text:
    Anthony Jack PRESTI, Plaintiff, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, INC., et al., Defendants.
    No. C-84-0797 EFL.
    United States District Court, N.D. California.
    March 22, 1985.

      Douglas F. Young, Miller, Perrin, Domino, Giacalone & Ackerman, San Jose, Cal., for plaintiff.
    James Fleming, Adams, Duque & Hazeltine, San Francisco, Cal., for defendants.
   ORDER RE APPLICABLE LAW AND SUMMARY JUDGMENT

LYNCH, District Judge.

This matter is before the Court on the plaintiff’s motion to determine the law applicable to this action and on the defendant’s motion for partial summary judgment.

I. Factual Background

The foundation of this controversy is the decision by Connecticut General Life Insurance Company (“Connecticut General”), as administrator of the Martin Marietta employee benefit plan, to deny long-term disability benefits to the plaintiff, Anthony Prestí (“Prestí”). Prestí began working as a sub-contracted employee of Martin Marietta at the San Jose FMC plant on March 30, 1981. As part of his benefits package, Prestí received group long-term disability coverage through Connecticut General.

Prior to starting work with Martin Marietta, Prestí consulted with several physicians concerning his minor fatigue and the pricking sensation in his legs. As early as January 1981, Prestí consulted with Dr. Chun at the Sunnyvale Medical Clinic. Dr. Chun referred the plaintiff to Dr. Hoffman, a neurologist, who examined him on March 5, 1981. In addition to this examination, Dr. Hoffman conducted several tests to determine the cause of Presti’s symptoms. Before starting work at Martin Marietta, the plaintiff underwent a nerve conduction velocity test and a lumbar spine puncture. On July 26, 1981, Dr. Hoffman diagnosed Presti’s illness as multiple sclerosis.

By the end of 1981, Presti’s fatigue prevented him from working an eight-hour day. Based on Dr. Hoffman’s indication that Prestí was 75% disabled, Martin Marietta reduced the plaintiff’s work day to six hours. Prestí continued to work this reduced schedule until January 30, 1982, when the FMC contract under which he was hired ended. As of this date, Martin Marietta put Prestí on Salary Continuation due to his disability.

Anticipating the expiration of these benefits after six months, Prestí applied to Connecticut General for long-term disability benefits on May 10, 1982. Martin Marietta forwarded Presti’s claim to Connecticut General on June 3, 1982. As part of that application, Prestí stated that he had become totally disabled on February 1, 1982.

On July 15, 1982, Connecticut General denied Presti’s claim. The insurer concluded that the disability policy’s exclusion for preexisting conditions applied to the plaintiff’s claim. As stated under paragraph three of the Martin Marietta policy’s limitations section, a claimant cannot receive benefits for a disability arising within the first twelve months of employment if the employee sought medical attention of any kind for that illness within three months prior to the policy effective date. Under this exclusion, Presti’s pre-employment 1981 examinations would preclude him from recovering under the policy if he were totally disabled on February 1, 1982.

On September 2, 1982, Prestí filed an ERISA appeal. In this appeal, Prestí retracted his earlier disability date and indicated to the insurer that he was not “totally” disabled until April 12, 1982. This second disability date, more than twelve months past the policy’s March 31, 1981 effective date, would allow Prestí to avoid the preexisting conditions exclusion of the policy.

On January 10, 1983, Connecticut General denied Presti’s appeal. In response, on December 28, 1983, the plaintiff filed in state court a civil action against Connecticut General for (1) breach of contract and breach of the covenant of good faith and fair dealing; (2) violation of California Insurance Code section 790.03; and, (3) tortious infliction of emotional distress. Connecticut General subsequently removed the action to federal court based on diversity jurisdiction.

II. Motion to Determine Applicable Law

Before this Court is the plaintiff’s motion to determine that California law, not federal ERISA law, governs this action. As both parties concede that the plaintiff’s claim arose under an ERISA employee benefit plan and that Connecticut General is an ERISA fiduciary, the choice of law issues are controlled by ERISA’s comprehensive preemption provisions.

As an insurance company making final claims decisions on a group employee benefits policy, Connecticut General is subject to ERISA. McLaughlin v. Connecticut General Life Insurance Co., 565 F.Supp. 434, 441 (N.D.Cal.1983); Eversole v. Metropolitan Life Insurance Co., 500 F.Supp. 1162, 1165 (C.D.Cal.1980).

That ERISA applies to this dispute, however, does not resolve the difficult question of ERISA’s effect on Presti’s state law claims against Connecticut General. “Federal regulation should not be deemed to preempt state regulatory powers unless the nature of the regulated subject matter permits no other conclusion or Congress has unmistakably so ordered.” Eversole, 500 F.Supp. at 1166 (citing Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963).

ERISA delineates its preemption provisions in four subsections of 29 U.S.C. section 1144. Subsection (a) provides that all state laws are superseded insofar as they “relate to” employee benefit plans. Ever-sole, 500 F.Supp. at 1167. This sweeping language is limited by subsection (b)(2)(A), ERISA’s savings clause, which excludes from preemption state laws which regulate insurance. Id. The savings clause is, in turn, limited by subsection (b)(2)(B), the “deemer clause,” which provides that self-insured pension plans shall not be deemed insurance companies subject to state law. Id. Finally, subsection (d) prevents ERISA from impairing or superseding any other federal law, for example, the McCarranFerguson Act. Id.

Both parties concede that the plaintiff's state law claims “relate to” the Martin Marietta employee benefit plan. Thus, unless expressly excluded under the savings clause, Presti’s claims would be preempted by ERISA. The controversy, therefore, centers on the scope of the ERISA savings clause and whether, as the plaintiff argues, it reaches far enough to preserve his state claims against Connecticut General.

The plaintiff urges the Court to construe ERISA’s savings clause broadly. Citing Eversole and McLaughlin, Presti asserts that the savings clause preserves that statutory and case law that directly regulate pension plan insurers, even when these regulations indirectly affect the operation of ERISA plans by insurer-fiduciaries.

Conversely, the defendant argues that indirect insurance regulations have the same effect as direct state regulation of ERISA benefit plans prohibited by the statute’s preemption provisions. See Alessi v. Raybestos Manhattan, 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981). Citing Congressional, intent to ensure plan uniformity, the defendant contends that the only indirect regulation of ERISA insurers that can survive is that which does not “relate to” pension plans. For example, liquidity and underwriting requirements by state insurance commissions to insure financial soundness of pension plan insurers would be allowed under the savings clause, but state laws controlling contract interpretation and insurer obligations to policyholders would not.

In determining the scope of ERISA’s savings clause, the Court is faced with the difficult task of balancing two competing legislative purposes. On one side is the articulated intention of the Congress to establish a uniform regulatory mechanism for employee benefit and pension plans. See Report of the Congressional Pension Task Force for the House Subcommittee on Labor Standards, Committee on Education & Labor, U.S. House of Representatives, 94th Congress, 2d Sess. (January 3, 1977) at 8. On the other is the longstanding primacy of state insurance regulation, as evidenced by the McCarran-Ferguson Act, 15 U.S.C. sections 1011-1015. (“No act of Congress shall be construed to invalidate, impair or supersede any law enacted by any state for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance.”)

While neither the United States Supreme Court or the Ninth Circuit has reviewed the scope of ERISA’s savings clause, both have soundly rejected direct state regulation of pension plans. See Alessi v. RaybestosManhattan, 451 U.S. 504, 101 S.Ct. 1895, 68 L.Ed.2d 402 (1981); Hewlett-Packard v. Barnes, 571 F.2d 502 (9th Cir.1978), cert. denied, 439 U.S. 831, 99 S.Ct. 108, 58 L.Ed.2d 125 (1978). Whether or not these courts will view indirect regulation of ERI-SA plans by way of state insurance laws with equal hostility is uncertain. See Attorney General v. Travelers Insurance Co., 391 Mass. 730, 463 N.E.2d 548, prob. juris, noted, Metropolitan Life Insurance v. Massachusetts, — U.S. -, 105 S.Ct. 320, 83 L.Ed.2d 258 (1984).

Unlike Alessi and the cases that followed, Presti’s claims do not invite state interference with the content of ERISA plans. The plaintiff here is not relying on insurance regulations that impose benefit requirements on Connecticut General’s policy. Such direct, content-based requirements are clearly antithetical to ERISA’s stated purpose of plan uniformity. Instead, Presti’s claims rely on state insurance regulations and decisional law that govern the relationship between an insurer and its policyholder. Such fiduciary relations have traditionally been the exclusive preserve of state insurance laws. See SEC v. National Securities, Inc., 393 U.S. 453, 459-60, 89 S.Ct. 564, 568-69, 21 L.Ed.2d 668 (1969) (defining McCarran-Ferguson’s preservation of state laws regulating the “business of insurance” as those statutes aimed at protecting this fiduciary relationship.)

Two district courts within this Circuit have held that this important and recognized tradition of federal deference to state insurance regulation survives under ERI-SA’s savings clause. In Eversole v. Metropolitan Life Insurance Co., 500 F.Supp. 1162 (C.D.Cal.1980), Judge Pfaelzer held that a plaintiff could sue under California law the insurer-fiduciary of her employee benefit plan for its bad faith denial of a claim for medical benefits. As excepted under ERISA's savings clause, the plaintiff’s claims for: 1) breach of the duty of good faith and fair dealing; 2) common law fraud; 3) breach of California Insurance Code section 790.03 (unfair insurance practices); and 4) breach of fiduciary duty were not preempted.

In determining the scope of the savings clause, the court in Eversole interpreted ERISA’s exclusion of laws “that regulate insurance” by looking at the “laws regulating the business of insurance” language of McCarran-Ferguson. Eversole, 500 F.Supp. at 1168 (The two statutes are in pari materia and should, therefore, be construed consistently.) As defined in SEC v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969), laws “regulating the business of insurance” are those state statutes and laws of general application aimed at protecting or regulating the relationship between the insurance company and the policyholder. Id. Thus, these state laws, although indirect restraints on employee benefit plans, are not preempted.

The Northern District adopted the rule of Eversole in McLaughlin v. Connecticut General Life Insurance Co., 565 F.Supp. 434, 439 (N.D.Cal.1983). In that case, an insured brought an action against the employee benefit insurer after it denied the plaintiffs claim for medical expenses incurred for experimental cancer therapy. Judge Patel, accepting both the reasoning and ruling of Eversole, held that California’s rules of insurance contract construction and the implied covenant of good faith and fair dealing were not preempted under ERISA since they were state laws which “regulate insurance.” McLaughlin, 565 F.Supp. at 443.

This Court accepts the rationales and holdings of these cases and thereby concludes that Presti’s state law claims for breach of contract, breach of the covenant of good faith and fair dealing, violation of Insurance Code section 790.03 and tortious infliction of emotional distress are within the scope of the savings clause. The Court cannot believe that the consumer protections afforded California policyholders were meant to be withdrawn from those persons whose coverage was provided under an employee benefit plan. The interest in ERISA plan uniformity cannot be secured at the expense of the uniform state regulation of those insurers chosing to write policies in California. As noted in Eversole, to the extent that dual obligations may be encountered by insurance companies when they assume the responsibilities of an ERISA fiduciary, this result is necessary to “harmonize the divergent goals of ERISA’s preemption provisions: to establish regulation of employee benefit plans while simultaneously maintaining the ascendancy of state regulation of insurance matters.” Eversole, 500 F.Supp. at 1170.

While further clarification in this area is undoubtedly needed, the current law in this District accords with this Court’s position. As there is nothing in the ERISA “savings clause” to limit it further, this Court holds that the plaintiff’s actions under California’s laws regulating insurance are not preempted. The plaintiff’s motion, therefore, is granted.

III. Motion for Summary Judgment

Also before the Court is the defendant’s motion for partial summary judgment on the tort, insurance code and punitive damages aspects of Presti’s claims. Specifically, Connecticut General contends that its treatment of Prestí and its claims activities have been fair and in good faith. Thus, as a matter of law, its conduct cannot constitute either a tortious breach of the covenant of good faith or a violation of the California Insurance Code. Nor can it have acted oppressively or maliciously, as required for punitive damages.

California has developed a vast body of statutory and common law regulating the obligations of an insurance company to its policyholders. Under California’s Insurance Code section 790.03 an insured can sue his insurer for deceptive insurance claims practices. See Royal Globe Insurance Co. v. Superior Court, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 (1979). In addition, the implied covenant of good faith and fair dealing protects an insured against the tortious refusal of an insurer to pay benefits due under the policy. Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 575, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973). As is available for all actions in tort, where the defendant’s conduct is oppressive or outrageous, a plaintiff can recover punitive as well as consequential damages. Silberg v. California Life Insurance Co., 11 Cal.3d 452, 462, 113 Cal.Rptr. 711, 521 P.2d 1103 (1974).

The requisite element for these actions is an insurer’s unreasonable denial of policy benefits. When a genuine controversy concerning legal liability exists, the Court may rule, as a matter of law, that the insurer’s denial of the claim was not unreasonable. Safeco Insurance Co. v. Guyton, 692 F.2d 551, 557 (9th Cir.1982).

The defendant contends that it denied Presti’s claim based on a genuine question of its liability under the policy. In addition, Connecticut General notes that it has taken affirmative efforts to secure extra-contractual benefits for Prestí as evidence of their reasonable and fair approach toward the plaintiff. Connecticut General, therefore, cannot be held liable for bad faith damages in tort or under section 790.03. Nor can it be liable for punitive damages.

The claims dispute in this case centers on the date Prestí became totally disabled. Two different dates have been submitted to Connecticut General. On his first claim application, Prestí indicated that he was totally disabled as of February 1, 1982. This remained the operative disability date until September 2, 1982, when Prestí amended his claim to show April 12, 1982 as the date he became totally disabled.

Under the first date, a reasonable reading of the policy’s preexisting condition exclusion would appear to bar Prestí from recovery. At a minimum, a genuine dispute about Connecticut General’s liability exists sufficient to find, as a matter of law, that the insurer did not breach its statutory or common law duties to Presti. Therefore, the Court holds that until September 2, 1982, the actions of Connecticut General cannot be determined unreasonable. Nor can they be viewed as malicious or oppressive.

After September 2, 1982, however, the company faced a different disability date. Under an April 12 disability date, Presti would no longer be excluded under the preexisting conditions clause. Connecticut General argues that Presti is still not covered since its disability coverage requires that a claimant be in active service with Martin Marietta when the disability begins.

Presti, however, contends that his coverage did not terminate when he stopped working in February. Instead, he relies on paragraph one of the certificate’s “Termination of Insurance” section that extends coverage to employees whose active service terminates because of their disabling illness. For these individuals, the insurance continues during the period for which monthly income is payable.

On these facts, the Court is unwilling to hold, as a matter of law, that Connecticut General is entitled to summary judgment after September 2, 1982. It is not clear or uncontroverted that Connecticut General’s denial of Presti’s ERISA appeal was reasonable or made in good faith. Nor can the Court hold on these facts that no malicious or oppressive conduct occurred.

Accordingly, the defendant is entitled to summary judgment on its conduct until September 2, 1982. The Court finds, as a matter of law, that Connecticut General acted reasonably in relying on the disability date provided by Presti and that there exists a reasonable dispute surrounding Pres-ti’s coverage given the policy’s preexisting condition exclusion. Until September 2, the defendant cannot be held liable for: violations of Insurance Code section 790.03; breach of the covenant of good faith and fair dealing; or punitive damages. As to this first period, therefore, only the breach of contract cause of action remains.

For those actions of the defendant after September 2, 1982, the Court denies defendant’s motion for summary judgment. As there exists a genuine and material issue of fact as to whether Connecticut General wrongfully and unreasonably denied Presti’s claim, summary judgment cannot be granted. As to this second period, therefore, the remaining causes of action are: breach of contract; breach of covenant of good faith; violation of the California Insurance Code section 790.03; and punitive damages.

IT IS SO ORDERED.

      . It is fair to say that the scope and impact of ERISA on state law is highly unsettled. See, e.g., Russell v. Massachusetts Life Insurance Co., 722 F.2d 482 (9th Cir.1983), cert. granted, — U.S. -, 105 S.Ct. 81, 83 L.Ed.2d 29 (1984); Attorney General v. Travelers Insurance Co., 391 Mass. 730, 463 N.E.2d 548, prob. juris, noted, Metropolitan Life Insurance v. Massachusetts,U.S.-, 105 S.Ct. 320, 83 L.Ed.2d 258 (1984).

      . The defendant validly asserts that the line between content regulation and fiduciary requirements is not a clear one, particularly when contract terms are inserted by courts under the guise of construction. While this may create a conflict in some future case, it is not now before this Court. The contract exclusion upon which Connecticut General relies to exclude Presti is unambiguous and not subject to judicial contraction or expansion. Instead, the breach of contract claim will succeed or fail based upon the date that Presti became totally disabled, not upon a rule of contract interpretation.


author: TURK, Chief Judge.

text:
    UNITED TRANSPORTATION UNION, Plaintiff, v. NORFOLK AND WESTERN RAILWAY COMPANY, Defendant.
    Civ. A. No. 85-0105.
    United States District Court, W.D. Virginia.
    March 22, 1985.

      Lawrence M. Mann, Deborah E. Reiser, Alper, Mann & Reiser, Washington, D.C., Gary E. Tegenkamp, Woodward, Fox, Wooten & Hart, Roanoke, Va., for plaintiff.
    Richard A. Keeney, William B. Poff, Ba-yard E. Harris, Woods, Rogers & Hazlegrove, Roanoke, Va., for defendant.
   MEMORANDUM OPINION

TURK, Chief Judge.

This case is before the court on the Motion for Summary Judgment filed by the defendant, Norfolk and Western Railway Company (hereafter the N & W). Jurisdiction of this court is invoked pursuant to 28 U.S.C. §§ 1331, 1337, and 2201. A hearing was held on February 27, 1985, at which time evidence was presented and arguments were made. The parties have submitted briefs, and the matter is now ripe for a decision by this court.

I.

The plaintiff, United Transportation Union (hereafter UTU), is a labor organization within the meaning of the Railway Labor Act, 45 U.S.C. § 151 et seq. The defendant, N & W, is a carrier within the meaning of the same act. There exists between the parties a collective bargaining agreement which provides for circumstances where a run is “materially changed.” The agreement defines “material change” to include instances where the terminal of a run is changed. See Plaintiffs Exhibit #3, specifically Article 26(2)(d).

As of November 12, 1984, the Dismal Mine Runs working out of a home terminal at Weller Yard were unilaterally abolished by the N & W and four Dismal Mine Runs were unilaterally established to work from a new home terminal at Dismal Yard. The total distance involved in the change is about fifteen (15) miles.

The plaintiff union filed this action seeking declaratory and injunctive relief. The plaintiff contends that the actions of the defendant railroad should not be taken unilaterally, but must instead be negotiated with the plaintiff prior to cancelling one terminal and establishing another.

II.

The issue to be decided by this court is whether the establishment of the new terminal at Dismal is a “major” or a “minor” dispute. The United States Supreme Court in Elgin, Joliet & Eastern Railway v. Burley, 325 U.S. 711, 65 S.Ct. 1282, 89 L.Ed. 1886 (1945) distinguished between major and minor disputes. According to the Court, major disputes are those

over the formation of collective agreements or efforts to secure them. They arise where there is no such agreement or where it is sought to change the terms of one, and therefore the issue is not whether an existing agreement controls the controversy. They look to the acquisition of rights claimed to have vested in the past.

Id. at 723, 65 S.Ct. at 1290.

Minor disputes, on the other hand, are those which contemplate

the existence of a collective agreement already concluded or, at any rate, a situation at which no effort is made to bring about a formal change in the terms or to create a new one. The dispute relates either to the meaning or proper application of a particular provision with reference to a specific situation or to an omitted case ... the claim is to rights accrued, not merely to have new ones created for the future.

Id. (emphasis added)

Therefore, if the dispute related to actions arguably taken pursuant to an already existing collective bargaining agreement, it is considered a “minor” dispute.

III.

In the ease at bar, the change in the terminals caused by the establishment of the new terminal is arguably covered by Article 26 of the existing collective bargaining agreement between the parties. The plaintiff concedes that a change from one terminal to another is a minor dispute. See Norfolk and Portsmouth Belt Line Railroad Company v. Brotherhood of Railroad Trainmen, Lodge No. 514, 248 F.2d 34 (4th Cir.1957). The plaintiff contends, however, that there is a distinction between a change from one terminal to another and a change from an existing terminal to a newly established one. The agreement itself makes no such distinction and, more importantly, even though such a distinction may exist, the change from an existing terminal to a newly established one is still arguably covered by Article 26 of the collective bargaining agreement. See, e.g., Local 1477 United Transportation Union v. Baker, 482 F.2d 228 (6th Cir.1973). It is also reasonable to consider the creation of a new terminal as an “omitted case” as discussed in the Elgin case, supra. Therefore, it is the holding of this court that the dispute in this case is a “minor” dispute.

The importance of the distinction between major and minor disputes is that minor disputes, such as the one in this case, are subject to the exclusive arbitration jurisdiction of the National Railroad Adjustment Board, 45 U.S.C. § 153. See also, United Transportation Union v. Penn Central Transportation, 505 F.2d 542 (3d Cir.1974). A second effect of characterizing a dispute as minor is that a party may act

unilaterally upon its interpretation of the contract pending exhaustion of the grievance procedures.

Brotherhood of Locomotive Firemen and Enginemen v. Southern Pacific Company, 447 F.2d 1127, 1132 (5th Cir.1971).

Therefore, pending arbitration of the dispute before the adjustment board, injunctive relief to “preserve the status quo” would be inappropriate.

IV.

Having determined that the dispute involved in this case is a “minor” dispute, the appropriate procedure is arbitration before the National Railroad Adjustment Board. Therefore, the defendant’s motion for summary judgment should be GRANTED.

An appropriate order consistent with this memorandum opinion shall be entered this date. The Clerk of Court is directed to send certified copies of this opinion to counsel of record.

      . In the absence of an arguably applicable contract provision, the past practices of the parties becomes an important consideration. In fact, much evidence was presented by both sides tending to establish what the past practices of the parties indicated. However, it is unnecessary to consider the past practices in this case, as the court finds that there is at least arguably an applicable provision of the collective bargaining agreement.


author: STAFFORD, Chief Judge.

text:
    Esther C. REEDY, Plaintiff, v. STATE OF FLORIDA, DEPARTMENT OF EDUCATION, A STATE GOVERNMENTAL AGENCY, Defendant.
    No. TCA 83-7351-WS.
    United States District Court, N.D. Florida, Tallahassee Division.
    March 23, 1985.
    L. Fred Reedy, Tallahassee, Fla., for plaintiff.
    Gene T. Sellers, State Board of Educ., Tallahassee, Fla., for defendant.
   ORDER

STAFFORD, Chief Judge.

Before the court is defendant’s motion for summary judgment (document 17) and Memorandum in support (document 18). Having reviewed the relevant documents, plaintiff’s memorandum in opposition (document 19) and the case law, the court has determined that defendant’s motion should be denied for the following reasons.

At issue here is. whether an unappealed decision by the Florida Commission on Human Relations (FCHR) in favor of defendant should be accorded preclusive effect in this court under the doctrine of res judicata or collateral estoppel. Because this is purely a question of law, there being no genuine issue as to any material fact, summary judgment is appropriate. Rule 56, Federal Rules of Civil Procedure.

Plaintiff filed a charge with the FCHR on April 16, 1979, alleging unlawful acts of discrimination on the part of the State of Florida, Department of Education. Specifically, plaintiff claimed she was not hired as an Educational Data Analyst I because of her age and national origin. Plaintiff filed the same charge with the EEOC on July 26, 1979, under Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e, et seq.).

Florida Commission on Human Relations is a deferral agency under Title VII. See, Fla.Stat. § 760.06(11) (1983). Florida Commission on Human Relations investigated plaintiff’s charge and referred it to the Division of Administrative Hearings. The formal evidentiary hearing under the Florida Administrative Code, at which plaintiff was represented by counsel, was held on December 8, 1981. On August 31, 1982, the hearing officer rendered a recommended order in favor of defendant. After oral argument before FCHR, that agency entered an order on February 21, 1983, dismissing the petition with prejudice. Although the order advised plaintiff of her right to appeal, she chose not to avail herself of that opportunity. On June 30, 1983, the EEOC issued a notice of right to sue finding no reasonable cause in reliance on the investigative record of the FEP. Plaintiff filed suit in this court on October 1, 1983.

This case is governed by Kremer v. Chemical Construction Corp., 456 U.S. 461, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982) wherein the Supreme Court held that a federal court in a Title VII case must give preclusive effect to a state court decision when that decision would be res judicata in the state’s own courts. Defendant seeks to apply Kremer to the instant case even though there has been no state court decision rendered.

Kremer clearly applies only to state court decisions. Id. at 469, 102 S.Ct. at 1891 (“While we have interpreted the ‘civil action’ authorized to follow consideration by federal and state administrative agencies to be ‘trial de novo,’ neither the statute nor our decisions indicate that the final judgment of a state court is subject to redetermination at such a trial”) (emphasis in original; citation omitted). In footnote 7, the Court states: “Since it is settled that decisions by the EEOC do not preclude a trial de novo in federal court, it is clear that unreviewed administrative determinations by state agencies also should not preclude such review even if such a decision were to be afforded preclusive effect in a state’s own courts.” Id.

The Court was aware of the procedural loophole created by the decision, the loophole plaintiff has taken advantage of in the case at bar. The Court noted that “no provision of Title VII requires claimants to pursue in state court an unfavorable state administrative action.” Id. at 469, 102 S.Ct. at 1891. The dissent highlights the problem with the majority opinion by declaring that the lesson of Kremer is that “an unsuccessful state discrimination complainant should not seek state judicial review.” Id. at 504, 102 S.Ct. at 1908. The dissent suggests that bypassing judicial review is the prudent course. Id. The majority responds in footnote 19, by saying that plaintiffs are unlikely to avoid a state court decision, but the majority does not say that such forebearance would preclude federal review.

Two federal district courts have recently addressed this precise issue. In Buckhalter v. Pepsi-Cola General Bottlers, 590 F.Supp. 1146 (N.D.Ill.1984), the court approved the position advanced by defendant and gave preclusive effect to an unreviewed agency decision. The court relied on United States v. Utah Construction & Mining Co., 384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642 (1966) to reach the conclusion that when an administrative agency acts in a judicial capacity, its judgment is res judicata under Kremer. Buckhalter at 1148. The Court read footnote 7 in Kremer to apply “only to those administrative decisions which are investigatory or otherwise purely administrative in nature and not to determinations in which the administrative agency was empowered to and indeed acted in a judicial capacity.” Id. at 1149. Because Illinois’ Human Rights Commission afforded plaintiff the full panoply of judicial process, the court concluded that its findings were res judicata.

In Jones v. Progress Lighting Corp., 595 F.Supp. 1031 (E.D.Pa.1984), the court reached the opposite conclusion and expressly declined to adopt the analysis in Buckhalter. The court felt that the result in Buckhalter “directly contravenes the Supreme Court’s clear admonition” that unreviewed agency determinations do not preclude de novo review in federal court. Id. at 1034.

This court too declines to follow Buck-halter. The Buckhalter court’s interpretation of Kremer—that it applies to unreviewed administrative agency’s decisions rendered in a judicial capacity—is unconvincing in light of the debate between the majority and the dissent on the prudence of foregoing state court review. The Buck- halter court’s reading of footnote 7 is unconvincing because the New York agency under review in Kremer also had judicial powers, and yet the majority still conceded the possibility that litigants could end-run Kremer by foregoing state review. Furthermore, the reasoning in Jones, that the dicta in Utah Construction has no application to the Title VII statutory scheme, is persuasive because Congress clearly contemplated that employment discrimination claims could be litigated in several forums. 42 U.S.C. § 2000e et seq.

This court expresses no view as to the merits of plaintiff’s claim but merely holds that plaintiff’s suit in this court is not barred by res judicata under Kremer. Accordingly, it is ORDERED:

1. Defendant’s motion for summary judgment (document 17) is DENIED.

2. The Clerk is directed to schedule this case for pre-trial conference.


author: McLAUGHLIN, District Judge.

text:
    In re GRAND JURY SUBPOENA DUCES TECUM Dated November 13, 1984 (John DOE, Petitioner).
    No. 84 CV 4756.
    United States District Court, E.D. New York.
    March 25, 1985.
    Lawrence S. Goldman, New York City, for petitioner.

      Edward A. McDonald, U.S. Dept. of Justice, Organized Crime Strike Force, Bruce Maffeo, Sp. Atty., Brooklyn, N.Y., for U.S.A.
   MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

This is a motion by petitioner, John Doe, one of two partners in a consulting firm, to quash a grand jury subpoena duces tecum. Fed.R.Crim.P. 17(c). The subpoena is directed to petitioner as custodian of partnership records, and commands production of books and records from January 1, 1981 to the present, including cash receipts and disbursements, general ledgers, cancelled checks, bank statements and partnership tax returns. For the reasons developed below, the Court will conduct a hearing on the applicability of the act of production doctrine.

Facts

Petitioner and his wife are sole partners in a consulting firm. The partnership was established in December 1980; prior to that time petitioner operated the business as a sole proprietorship. The firm has no employees, and no office outside petitioner’s home. Its annual gross receipts from 1981 through 1983 averaged approximately $85,-000, and average annual net income was approximately $44,000. The partnership files the required federal and state income tax returns separate from those filed by the two partners.

Discussion

Petitioner initially contended that his refusal to produce the subpoenaed documents is privileged under the act of production doctrine, which is grounded in the Fifth Amendment privilege against self-incrimination. United States v. Doe, — U.S. -, 104 S.Ct. 1237, 1242, 79 L.Ed.2d 552 (1984); Fisher v. United States, 425 U.S. 391, 410, 96 S.Ct. 1569, 1580, 48 L.Ed.2d 39 (1976). As petitioner conceded at oral argument, however, the threshold question is whether petitioner, as partner, has a Fifth Amendment privilege to assert at all. Transcript of Dec. 18, 1984 at 9-10.

The Fifth Amendment privilege against self-incrimination is purely personal. Couch v. United States, 409 U.S. 322, 328, 93 S.Ct. 611, 615, 34 L.Ed.2d 548 (1972). It is not available to individuals possessing records of a corporation in a representative capacity, United States v. White, 322 U.S. 694, 699-700, 64 S.Ct. 1248, 1251, 88 L.Ed. 1542 (1944), even if that individual is the sole shareholder of the corporation whose records are subpoenaed. Hair Industry, Ltd. v. United States, 340 F.2d 510, 511 (2d Cir.), cert. denied, 381 U.S. 950, 85 S.Ct. 1804, 14 L.Ed.2d 724 (1965). On the other hand, an individual, as sole proprietor of a business, may assert a Fifth Amendment privilege even with respect to business records. Bellis v. United States, 417 U.S. 85, 87-88, 94 S.Ct. 2179, 2182, 40 L.Ed.2d 678 (1974).

Whether a partnership should be treated as a corporation or a sole proprietorship for Fifth Amendment purposes has been a troublesome question. In Bellis v. United States, 417 U.S. 85, 94 S.Ct. 2179, 40 L.Ed.2d 678 (1974), a partner in a three-member law firm claimed a Fifth Amendment privilege to refuse to produce partnership records in his possession. The Court rejected his argument that the law firm represented nothing more than the personal legal practices of its partners. It held that when a partnership has “an established institutional identity independent of its individual partners,” id. at 95, 94 S.Ct. at 2187, an individual partner may not withhold subpoenaed partnership records that he possesses in a representative capacity. Id. at 95-97, 94 S.Ct. at 2186-2187.

Analogizing the three-member law partnership to a corporation, which clearly has a distinct institutional identity, see United States v. White, 322 U.S. 694, 64 S.Ct. 1248, 88 L.Ed. 1542 (1944), the Bellis Court placed great emphasis on the extent to which a partnership, like a corporation, is regulated by state law, and on the fact that a partnership, like a corporation, must file a tax return separate from that filed by its individual partners, officers or employees. Bellis v. United States, supra, 417 U.S. at 95-97, 94 S.Ct. at 2186-2187.

The Bellis Court specifically refused to hold, however, that a partner could never invoke the Fifth Amendment privilege with respect to partnership records. Indeed, the Court noted, in the last paragraph of its opinion, that “[t]his might be a different case if it involved a small family partnership, see United States v. Slutsky, 352 F.Supp. 1105 (S.D.N.Y.1972) ... or ... if there were some other pre-existing relationship of confidentiality among the partners.” Id. 417 U.S. at 101, 94 S.Ct. at 2189 (citations omitted).

Bellis established a twofold inquiry for determining whether the privilege applies. First, does the partnership have a distinct institutional identity? Second, does the partner claiming the privilege hold the requested records in a personal or in a representative capacity? If the partnership has achieved an institutional identity and if the partner holds the records in a representative capacity, then Bellis denies Fifth Amendment protection to the partnership, and to its partners as well.

In considering the first question, Bellis instructs us to examine structure of the firm, i.e., whether it is merely an informal or temporary agreement, how the firm is regulated by state law, how it holds itself out to third parties, and whether it files separate income tax returns. Id. at 96-97, 94 S.Ct. at 2187. This analysis would lead to the conclusion that the partnership here has an established institutional identity distinct from petitioner and his wife.

The partnership has existed since it was converted from a sole proprietorship in December 1980; it is not a temporary, informal arrangement. By choosing to conduct business in partnership form, petitioner acquired numerous rights and obligations under New York law. E.g., N.Y. Partnership Law § 20 (McKinney 1948) (partners agents of partnership for purposes of partnership business); id. § 40 (partners have equal rights in management and conduct of partnership business); id. § 41 (partners have equal right to inspect all partnership books); id. § 51 (partners are co-owners of specific partnership property). Additionally, when petitioner conducts business with third parties he binds the partnership by his conduct. Id. §§ 20, 24, 25. Finally, this partnership filed the required federal and state income tax returns separate from those of its principals. See Bellis v. United States, supra, 417 U.S. at 97, 94 S.Ct. at 2187.

The second question posed by Bellis is whether petitioner holds the subpoenaed records in a personal or representative capacity. As discussed supra, the subpoena is directed to financial records, bank statements and tax returns. Petitioner’s subjective claim that he holds these records “only for his and his wife’s personal and private business use,” Petitioner’s Memorandum of Law at 5, does not withstand the objective analysis required by Bellis. The documents subpoenaed are “merely the financial books and records of the partnership.” Bellis v. United States, supra, 417 U.S. at 98, 94 S.Ct. at 2188 (footnote omitted). Petitioner holds them subject to rights granted other partners under New York law. He has no direct ownership interest in the records; under state law they are partnership property. Id.; New York Partnership Law § 41 (McKinney 1948). Petitioner thus holds these records in a representative capacity.

That said, it becomes obvious to the Court that a ritualistic, mechanical application of the Bellis test will almost invariably result in a holding that partnership records are never privileged. The reasons for this are clear.

The rights and obligations of partners under New York law, discussed above, are enumerated in the Uniform Partnership Act. The Act is presently in effect in 48 States as well as the District of Columbia, and its provisions were discussed at length in Bellis. In all but two states, therefore, partnerships are heavily regulated by state law, which creates rights and obligations among partners that do not vary with the size of the partnership.

Similarly, all partnerships, no matter their size, must file income tax returns qua partnership, 26 U.S.C. § 6031 (1980 & Supp.1984). The Bellis Court emphasized this in its discussion of a partnership as a distinct entity. Bellis v. United States, supra, 417 U.S. at 97, 94 S.Ct. at 2187.

Finally, it is impossible to imagine a partner who will be able to demonstrate, under the Bellis test, that he holds subpoenaed records in a personal capacity. As discussed above, and as was emphasized in Bellis, partnership records are partnership property; access to them, and control over them, is regulated by state partnership law. Id. at 98-99, 94 S.Ct. at 2187-2188. This, coupled with an artfully drawn subpoena, effectively precludes any partner from claiming he holds subpoenaed records in a personal capacity.

Given the difficulties inherent in satisfying the Bellis test, it comes as no surprise that neither the parties nor the Court could discover a reported post-Bellis case in which a partner successfully invoked the Fifth Amendment to block access to partnership records. Indeed, one district court has held that a husband-wife partnership conducting a mobile home business—arguably the type of partnership the Bellis Court may have intended to protect—could not invoke the Fifth Amendment to quash a subpoena duces tecum. In re September, 1975 Special Grand Jury, 435 F.Supp. 538 (N.D.Ind.1977). The Court reached that result by engaging in the precise analysis mandated by Bellis.

Nevertheless, it cannot be gainsaid that the Bellis Court envisioned some partners who could invoke the Fifth Amendment with respect to partnership records. Bellis v. United States, supra, 417 U.S. at 101, 94 S.Ct. at 2189. Indeed, the Court cited United States v. Slutsky, 352 F.Supp. 1105 (S.D.N.Y.1972) as an illustration of such a partnership.

In Slutsky, the government subpoenaed the business records of a two-man family partnership. The partners were brothers who operated a resort country club, where they lived and which they managed full-time with their sons. The business had a $1,000,000 payroll, gross receipts of $4,000,000, and owned buildings worth $4,400,000. Among the full-time employees were an accountant and a bookkeeper. Id. at 1107.

The Court quashed the subpoena, emphasizing that “[t]his small family partnership is not so impersonal in the scope of its membership and activities that it cannot represent the purely private or personal interests of its constituents.” Id. at 1108. In so holding, the Court carefully distinguished the two-brother partnership from a larger “impersonal and detached business owned by absentees with all the aspects of a corporation.” Id.

If, as Bellis suggests, there exists a partnership whose records are protected by the Fifth Amendment from compelled disclosure, petitioner’s husband-wife consulting firm is it. The two criteria suggested in Bellis for the exception, a small family partnership, or one with a pre-existing relationship of confidentiality between partners, are both satisfied here. There are no employees, and no office outside the partners’ home. It is a legal fiction to characterize this partnership as having an “established institutional identity independent of its individual partners.” Bellis v. United States, supra, 417 U.S. at 95, 94 S.Ct. at 2187. It is equally a fiction to suggest that petitioner holds these subpoenaed records in a representative capacity, as suggested by Bellis. Although they are financial records, they “are not kept in any representative capacity, but only for the personal and private business use of the general partners.” United States v. Slutsky, supra, 352 F.Supp. at 1109.

It seems clear that the Bellis Court contemplated that individual owners of the proverbial “Mom and Pop” stores would continue to enjoy the protection of the Fifth Amendment even though they elected to conduct business as a partnership. If the Bellis Court intended to hold that no partners could ever invoke the Fifth Amendment with respect to partnership records, it could easily have said so.

Permitting petitioner to assert a Fifth Amendment privilege in this instance is entirely consistent with United States v. White, 322 U.S. 694, 64 S.Ct. 1248, 88 L.Ed. 1542 (1944), where the Supreme Court refused to permit a labor union, through its officer, to invoke the Fifth Amendment to quash a subpoena duces tecum. After discussing at length the history of the Fifth Amendment as a personal privilege, the Court stated:

The test ... is whether one can fairly say under all the circumstances that a particular type of organization has a character so impersonal in the scope of its membership and activities that it cannot be said to embody or represent the purely private or personal interests of its constituents, but rather to embody their common or group interests only. If so, the privilege cannot be invoked on behalf of the organization or its representatives in their official capacity.

Id. at 701, 64 S.Ct. at 1252. Under this test, a “Mom and Pop” partnership such as exists here is entitled to invoke the privilege.

Accordingly, I hold that Bellis is no bar to petitioner’s assertion of the Fifth Amendment in opposition to this subpoena. The final question, therefore, is whether the claim of privilege covers the particular documents sought.

The Fifth Amendment protects against compelled testimonial self-incrimination. United States v. Doe, — U.S. -, 104 S.Ct. 1237, 1241, 79 L.Ed.2d 552 (1984); Fisher v. United States, 425 U.S. 391, 396, 96 S.Ct. 1569, 1573, 48 L.Ed.2d 39 (1976). When the creation of business records is voluntary, there is obviously no compulsion. United States v. Doe, supra, 104 S.Ct. at 1241. And a subpoena to produce documents “does not compel oral testimony; nor would it ordinarily compel [petitioner] to restate, repeat, or affirm the truth of the contents of the documents sought.” Id. (quoting Fisher v. United States, 425 U.S. 391, 409, 96 S.Ct. 1569, 1580, 48 L.Ed.2d 39 (1976)).

Petitioner has not contended that he prepared these documents involuntarily, and nothing in the record suggests as much. Nor has petitioner contended that the subpoena would force him to restate, repeat, or affirm the truth of their contents. Accordingly, Doe and Fisher direct a holding that the contents of the records are not privileged. See United States v. Doe, supra, 104 S.Ct. at 1242.

Although the contents of the documents are not privileged, the act of producing them may be. Id.; Fisher v. United States, supra, 425 U.S. at 410, 96 S.Ct. at 1580. While the Court is doubtful these records deserve act-of-production protection, there is not a sufficient basis in the record for such" a holding at this time, and the parties have not briefed the question to the Court’s satisfaction.

Accordingly, the Court will conduct an evidentiary hearing on the applicability of the Fisher doctrine on April 11, 1985 at 10:00 a.m. The parties are directed to submit briefs on this issue not later than April 4, 1985.

SO ORDERED.

      . See N.Y. Partnership Law, Supp. 1984-85 1-2 (McKinney 1984) When Bellis was decided in 1974, that Act was in force in 41 States and the District of Columbia. Bellis v. United States,
        417 U.S. 85, 96 n. 5, 94 S.Ct. 2179, 2187 n. 5, 40 L.Ed.2d 678 (1974).

      . At this point the Bettis Court's comparison of partnerships to corporations becomes chimerical. Unlike corporations, partnerships are not taxed in their institutional capacity. 26 U.S.C. § 701 (1982). The partnership "is merely the conduit through which income passes to the taxpaying partners.” Bettis v. United. States, 417 U.S. 85, 103-04, 94 S.Ct. 2179, 91, 40 L.Ed.2d 678 (1974) (Douglas J., dissenting) (citing 26 U.S.C. §§ 701, 702 (1982 & Supp.1984)).


author: DAN M. RUSSELL, District Judge.

text:
    George JONES, Plaintiff, v. BENEFIT TRUST LIFE INSURANCE COMPANY, Defendant.
    Civ. A. No. S83-0606(R).
    United States District Court, S.D. Mississippi, S.D.
    March 25, 1985.
    Wynn E. Clark, Pascagoula, Miss., for plaintiff.
    Raymond L. Brown, John M. Kinard, Pascagoula, Miss., for defendant.
   MEMORANDUM OPINION

DAN M. RUSSELL, District Judge.

This cause is presently before the Court on three motions. The defendant, Benefit Trust Life Insurance Company (Benefit Trust), has filed a motion for summary judgment. The plaintiff has filed a cross motion for summary judgment and a motion to strike certain affidavits accompanying the defendant’s motion. The plaintiff’s motion for summary judgment asks the Court to reconsider its previous denial of partial summary judgment on May 26, 1984. Fed.R.Civ.P. 54(b). After hearing oral argument and after careful review of the court file, the briefs of both parties, the supporting affidavits, and all other attached material, the Court is now of the opinion that the plaintiffs motion for partial summary judgment should be granted.

INTRODUCTION

The plaintiff brought this action for breach of contract and tortious breach of contract alleging that the defendant has failed to pay to the plaintiff proper disability benefits due under a group long term disability policy. The defendant counterclaimed for declaratory relief alleging that the sole dispute in this cause related to the parties’ respective rights under the policy, a matter of contract interpretation for the Court.

The following facts appear without dispute. The plaintiff began employment with the Mississippi Chemical Corporation in 1961. On July 1, 1971, Mississippi Chemical Corporation employees became “insureds” under a group long term disability policy issued by the defendant. The plaintiff thus became an insured under that policy. Mississippi Chemical Corporation made all premium payments on behalf of their employees. In 1975 the plaintiff suffered a sickness within the meaning of the policy which resulted in the plaintiff’s total disability. The insurance contract provides for monthly disability benefits on account of total disability resulting from a non-occupational injury or sickness. The plaintiff gave notice to the defendant of his claim and made demand for payment under the terms of the insurance contract.

In February, 1976, the plaintiff was awarded a Social Security disability benefit. The plaintiff’s wife, Juanita Jones, was also awarded Social Security benefits in February, 1976. The plaintiff’s children were awarded children’s benefits in February, 1976, by the Social Security Administration. The benefits for the three children of George Jones were paid to Juanita Jones, as representative payee for the children. In computing the disability benefits payable to George Jones under Benefit Trust’s long term disability policy, the defendant deducted the Social Security benefits awarded to the plaintiff, his wife and his children from the group long term disability benefits payable to the plaintiff.

At issue in this action is the contract provision upon which the defendant relies to deduct those amounts awarded by the Social Security Administration to the plaintiff’s wife and children from the group long term disability benefits payable to George Jones. The plaintiff does not contest the offset of those amounts awarded to him by the Social Security Administration.

THE LAW

Under Rule 56 summary judgment may be granted “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(e). Since the matter before the Court concerns the interpretation of a contract summary judgment is an appropriate remedy in this motion. Strachan Shipping Co. v. Dresser Industries, Inc., 701 F.2d 483, 486 (5th Cir.1983); Dobson v. Masonite Corporation, 359 F.2d 921 (5th Cir.1966).

The pertinent contract provision of the master policy is the “Nonduplication of Benefits” provision which reads as follows:

The monthly benefits otherwise provided under this contract for any calendar month shall be reduced by any amount paid or payable to the Insured upon making proper claim therefor during the same calendar month from the following sources: (1) Full Social Security benefits provided under the Federal Social Security Act together with amendments thereto. * * * (emphasis added).

The plaintiff contends that since the above provision specifically and unambiguously allows an offset of those amounts paid or payable to the insured, any Social Security benefits paid or payable to the plaintiff’s wife and children under the Social Security Act were not and are not benefits paid or payable to the insured, George Jones.

The defendant presents three arguments to the Court in support of their position. Firstly, the defendant contends that while it is true that the nonduplication of benefits refers only to an insured, the Social Security provision provides for an offset of “Full Social Security benefits”. The defendant asserts that the only logical reason for use of the word “full” is to indicate all Social Security benefits from whatever source derived. The defendant, however, has admitted, and the plaintiff agrees, that the contract provision is unambiguous. Defendant’s Brief in Opposition to Plaintiff’s previous Motion for Summary Judgment, p. 3. The interpretation of an unclear, ambiguous contract generally involves questions of fact which preclude the granting of summary judgment. However, where the contract is unambiguous the contract interpretation becomes a matter of law. Strachan Shipping Company, supra; First National Bank of Miami v. Insurance Company of North America, 495 F.2d 519, 522 (5th Cir.1974); Thornton v. Bean Contracting Co., Inc., 592 F.2d 1287, 1290 (5th Cir.1979). See also Dobson v. Masonite Corporation, 359 F.2d 921 (5th Cir.1966); Dennis v. Searle, 457 So.2d 941, 945 (Miss.1984). Given the fact that the contract is unambiguous, the Court is left to interpret the contract from the four corners of the instrument and the language appearing therein. Smith v. First Federal Savings & Loan Ass’n, 460 So.2d 786, 790 (Miss.1984). Pfisterer v. Noble, 320 So.2d 383 (Miss.1975).

The Court has carefully reviewed the language of the contract in question. The disputed contract provision provides for a reduction in the monthly benefits by any amount paid or payable to the insured and makes no reference to the insured’s dependents or family. Further, the Court cannot accept the argument that the word “Full” modifies “Social Security benefits” in such a way as to force the conclusion that the benefits paid or payable to the insured’s dependents were includible in the offset calculation.

The defendant’s second contention is that the plaintiff was aware of the insurance company’s interpretation and inclusion of the insured’s dependents’ Social Security benefits as part of the offset amount. The defendant allegedly provided the plaintiff with a summary plan description which is a summary of the group long term disability policy in laymen’s language. Specifically, the summary plan description provided in pertinent part as follows:

Your LTD benefit will be coordinated with other disability income payments made to you during your period of disability. This means if you receive other income benefits because of your disability, your LTD benefit from this Plan may be reduced by the amounts you receive from other sources.
Disability income benefits paid to you from the following may reduce your LTD benefit: * * *
g. any disability or retirement benefits (Primary and Family Benefits) under the United States Social Security Act, ...

Summary Plan Description, p. 2. (emphasis added). Thus, the defendant contends that the plaintiff had before him the notice and knowledge that family benefits under the Social Security Act would also be subjected to an offset by the defendant.

The Court believes that the plaintiff’s primary argument adequately dispels the defendant’s second contention. The plaintiff seeks application of the parol evidence rule. The parol evidence rule provides that “parol or extrinsic evidence is not admissible to add to, subtract from, vary or contradict ... written instruments which ... are contractual in nature and which are valid, complete, unambiguous and unaffected by accident or mistake.” Valley Mills, Div. of Merchants Company v. Southeastern Hatcheries of Mississippi, Inc., 245 Miss. 71, 145 So.2d 698, 701-2 (1962); Freeman v. Continental Gin Company, 381 F.2d 459 (5th Cir.1967). Mississippi recognizes three exceptions to the parol evidence rule: (1) extrinsic evidence will be admitted to show the intent of the parties if the contract is ambiguous or indefinite; (2) parol evidence of a distinct, valid, contemporaneous agreement between the parties, not reduced to writing is admissible if the evidence is not in conflict with the written agreement; and (3) if the written agreement by its own terms refers to discussions between the parties, those discussions are generally admissible. Valley Mills, supra, 245 Miss, at 79-82, 145 So.2d at 702-3.

The disputed contract before the Court is not ambiguous nor have there been any allegations of accident or mistake. The provision of the summary plan description which the defendant seeks to impose on the plaintiff was not a contemporaneous writing and there were no discussions between the plaintiff and defendant as to what the contract should contain. The contract also contains a merger clause which provides that what is stated within the contract is the entire contract between the parties. In sum, the summary plan description contradicts the unambiguous contract and any consideration by the Court of the summary plan description violates the parol evidence rule. Therefore, the Court is inclined to disregard the language of the summary plan description.

The defendant’s third and final contention relies upon a theory of agency for support. Benefit Trust Life Insurance Company contends that Mississippi Chemical Corporation was the plaintiff’s agent for the purpose of securing the group insurance coverage. The defendant contends that Benefit Trust and Mississippi Chemical knew of and negotiated for the contract interpretation which allowed the Benefit Trust Life Insurance Company to deduct from the plaintiff’s benefits those amounts payable to the plaintiff’s wife and children by the Social Security Administration. Thus, the defendant asserts that that knowledge and those negotiations are imputed to the plaintiff as principal of Mississippi Chemical Corporation; the agent for the plaintiff for purposes of securing the group coverage. The defendant cites for authority Home Life Insurance Co. v. Chandler, 402 So.2d 356 (Miss.1981) and Peel v. American Fidelity Assurance Co., 680 F.2d 374 (5th Cir.1982).

In Chandler, the Mississippi Supreme Court was faced with the issue of whether or not the employer under the group policy was an agent of the insurance company and whether the employer can waive or alter coverage requirements. The Court did not reach a definitive holding but instead took the position that “each case should stand on its own base.” Chandler, supra, 402 So.2d at 360. The Court did, however, set out the majority rule which holds that the employer is not the insurer’s agent. Id. at 359. Citing Boseman v. Connecticut General Life Ins. Co., 301 U.S. 196, 57 S.Ct. 686, 81 L.Ed. 1036 (1937).

In Peel v. American Fidelity Assurance Co., supra, the plaintiff, a former school teacher, brought suit for the wrongful termination of her disability benefits. Prior to the plaintiff’s disabling injury, American Fidelity and the Mississippi Education Association (MEA) changed the terms of the group policy. Mrs. Peel complained that she did not receive notice of a change which materially affected her coverage.

The Fifth Circuit found the key issue in this situation to be one of agency. “If the MEA was Mrs. Peel’s agent when it negotiated policy coverage, knowledge of the change in coverage was imputed to her as principal.” Peel, supra, 680 F.2d at 377. The Court of Appeals found as a matter of law that the MEA acted as the plaintiffs agent in the negotiations concerning coverage, and analogized the relationship between the plaintiff and MEA to that of union member and union, “a relationship long described in terms of agency.” Peel, supra, 680 F.2d at 378. The Fifth Circuit held that since the MEA was Mrs. Peel’s agent, the MEA’s knowledge of changes in the policy was imputed to the plaintiff, relieving American Fidelity of the duty to notify the plaintiff directly of policy changes. Id.

The Court cannot, equate the facts of Peel with the facts sub judice. For instance, in Peel the plaintiff was part of the MEA, a voluntary association delegated the power to negotiate for their members. The plaintiff in the case at bar, as an employee of Mississippi Chemical Corporation, did not delegate his negotiating power. In fact, the plaintiff lacked the power to negotiate with Benefit Trust concerning his group long term disability policy. The negotiations were performed without any employee representation. The group long term disability policy was merely a benefit or inducement to an employee’s employment. Furthermore, as the Fifth Circuit recognized the relationship between union member and union is one which has been traditionally described in terms of agency. The relationship between George Jones and Mississippi Chemical does not rise to the fiduciary level of responsibility which is so much a part of the union member and union relationship. See e.g. Brink v. DaLesio, 453 F.Supp. 272, 278 (D.C.Md.1978); 29 U.S.C. § 501(a).

Therefore, the defendant’s argument that Mississippi Chemical Corporation was an agent of the plaintiff, and that the knowledge of the negotiations between Benefit Trust and Mississippi Chemical would be imputed to the plaintiff, must fail.

In conclusion, the defendant’s motion for summary judgment is hereby DENIED. The Court also dismisses the defendant’s counterclaim for declaratory judgment. Instead the Court grants the plaintiff’s motion for summary judgment and holds that the defendant was not, and is not entitled to an offset of all Social Security benefits paid to the plaintiff’s wife and children against benefits otherwise due the plaintiff under the defendant’s long term disability policy. In light of the foregoing, it is unnecessary for the Court to discuss the merits of the plaintiff’s motion to strike.

The Court directs the parties to submit an Agreed Order setting out the total amount of Social Security benefits paid to the plaintiff’s wife and children which offset and reduced the amount which the plaintiff was to receivé under the group long term disability policy. An Order in accordance with this Opinion and the Local Rules should also be submitted.

      . The merger clause, labelled as "ENTIRE CONTRACT; CHANGES" provides:
      This Contract and the application of the Assured, and the individual applications, if any, of the Persons insured, shall constitute the entire contract between the parties, and all statements made by the Assured or any executive officer or trustee in behalf of the group to be insured, or by the individual Persons to be insured shall, in the absence of fraud, be deemed representations and not warranties, and no such statements shall be used in defense to a claim under the contract unless it is contained in the written application. No change in this Contract shall be valid until approved by an executive officer of the Company and unless such approval be endorsed hereon or attached hereto. No agent has authority to change this Contract or to waive any of its provisions.