author: DOWD, District Judge.

text:
    WARPAR MANUFACTURING CORP., et al., Plaintiffs, v. ASHLAND OIL, INC., et al., Defendants.
    No. C78-1562.
    United States District Court, N.D. Ohio, E.D.
    Dec. 21, 1984.

      See also 102 F.R.D. 749.
    Larry K. Elliott,, Cloyd R. Mellott, Edwin L. Klett, Eckert, Seamans, Cherin, Mellott, Pittsburgh, Pa., for plaintiffs.
    Michael Gallagher, Gallagher, Sharp, Fulton, Norman & Mollison, Cleveland, Ohio, for defendants.
   MEMORANDUM OPINION

DOWD, District Judge.

On July 9,1984, approximately six weeks before this protracted litigation was scheduled for trial on a bifurcated basis, the plaintiffs filed a motion to disqualify defendants’ counsel, Gallagher, Sharp, Fulton and Norman (hereinafter GSFN), from further participation on behalf of defendants.

The motion for disqualification arises from a unique set of circumstances. Stated simply, it is the plaintiffs’ contention that the defense by GSFN of plaintiffs’ counsel in a malpractice action subsequently filed by the plaintiffs against plaintiffs’ counsel requires disqualification of GSFN pursuant to canons 4, 5 and 9 of the Code of Professional Responsibility.

The salient facts are not in dispute. On November 21, 1978, the initial complaint in this action was filed on behalf of the plaintiff Warpar Manufacturing Company (hereinafter Warpar), against the defendant by Warpar’s initial counsel, Mr. Lewis Einbund (hereinafter Einbund) of the law firm of Sindell, Selker and Rubenstein of Cleveland, Ohio. GSFN promptly entered the lawsuit on behalf of the defendants Ash-land Oil Inc., and Ashland Petroleum Company (hereinafter Ashland), obtained leave to move or plead and file an answer for the defendants January 18, 1979. Thereafter, a great deal of pretrial skirmishing ensued including the filing of an amended complaint which named as a new party plaintiff Randustrial Corporation (hereinafter Randustrial).

On June 25, 1981, two and a half years after the complaint was filed, Einbund was granted leave to withdraw as counsel for Warpar and Randustrial. Howard Fishkin, who apparently was initially associated with Einbund in the prosecution of the complaint, withdraw as counsel for plaintiff on November 9, 1982. Attorney Anthony J. DiVenere entered and withdrew as counsel for the plaintiff on March 25,1982. Dan L. McGookey and James E. McGookey of the law-firm of Lucal, Pfefferle and McGookey of Sandusky, Ohio, entered the case on behalf of the plaintiffs in 1982. Later, in 1984, G. Richard Gold of the law firm of Eckert, Seamans, Cherin and Mellott of Pittsburgh, entered the case on behalf of plaintiffs as co-counsel with the McGookey s.

The precipitating action upon which the motion for disqualification is based, commenced on March 8, 1982, when Randustrial, Warpar, and others as plaintiffs filed a complaint in the Common Pleas Court of Cuyahoga County, Ohio, against the law firm of Sindell, Sindell, Selker, Rubenstein, Einbund, & Pavlik, and against Einbund individually. The complaint, while alleging in general terms, negligent representation in numerous legal matters, failed to disclose the pending action against Ashland by Warpar and Randustrial nor was Einbund’s handling of the Ashland case included within the several allegations of misconduct made by the plaintiffs against Einbund.

Einbund’s carrier for malpractice insurance retained GSFN to defend Einbund. George Stuhldreher of GSFN was assigned to Einbund’s defense. The March 2, 1982 malpractice complaint against Einbund was signed as counsel by Dan L. McGookey, who later in September of 1982, became counsel of record for Warpar and Randustrial in the action against Ashland.

On June 1, 1982, Stuhldreher of GSFN filed a motion to make certain in the Einbund litigation and the motion was sustained on June 30, 1982. Subsequently, a definite statement was filed by McGookey which for the first time identified the instant action as included within the broad allegations in the March 8, 1982, complaint. See appendix 2.

The plaintiffs’ initial brief filed in support of the motion to disqualify focuses on the fact that because GSFN represented Einbund in the malpractice action, the firm had access to the plaintiffs’ corporate documents and records, Einbund’s trial strategies, privileged communications between Einbund and plaintiffs’ representatives and Einbund’s work product including his mental impressions, conclusions and opinion, which were instrumental in the conduct and planning of the Ashland case. The plaintiffs contend that there is a taint connected to GSFN’s improper simultaneous representation of Einbund and Ashland Oil and only disqualification and denial of access to GSFN’s firm’s work product can even begin to remove the taint.

It is the duty of a federal district court to supervise the members of its bar. NCR Organization, LTD v. Bregman, 542 F.2d 128, 131 (2d Cir.1976). The Court in the exercise of its duty must support “the strong public interest in preserving client conferences in the integrity of the litigation process.” First Wisconsin Mortgage Trust v. First Wisconsin Corp., 571 F.2d 390, 399 (7th Cir.1978).

In its initial brief and in support of the motion to disqualify, the plaintiff relies heavily upon Hull v. Celanese Corp., 513 F.2d 568 (2d Cir.1975). In Hull a law firm, on behalf of a Celanese employee brought a single sex discrimination suit against Celanese. Donata A. Delulio, an attorney with the corporate legal staff of Celanese was assigned to work on the Hull case. During her participation, Delulio determined that she was also a victim of sex discrimination by the Celanese Corporation and approached the law firm representing Hull and inquired whether the law firm would also represent her. Hull’s law firm then filed a motion seeking permission for Delulio to intervene as a plaintiff in the suit brought against Celanese. Celanese filed a motion to disqualify Hull’s law firm. The trial court denied the motion to intervene and disqualified counsel for Hull. On appeal, the Second Circuit observed that had Delulio changed law firms, that is from the Celanese corporate legal staff to the law firm representing Hull, then counsel for Hull would clearly have been disqualified. The fact that Delulio joined as it were, the law firm as a client, was no less damaging and the Court held that “ ‘where it can be reasonably be said that in the course of the former representation the attorney might have acquired information relating to the subject matter of a subsequent representation,’ it is the Court’s duty to order the attorney disqualified,” Id. at 572, citing Ernie Industries Inc. v. Patentex, Inc., 478 F.2d 562 (2d Cir.1973). It is the plaintiffs’ contention that while the fact situation in this case is novel, it is similar philosophically to the fact situation in Hull and the same results should obtain, i.e., disqualification.

Defendants dispute the Hull application and contend that the decision in Meyerhofer v. Empire Fire & Marine Insurance Co., 497 F.2d 1190 (2d Cir.1974), cert. denied 419 U.S. 998, 95 S.Ct. 314, 42 L.Ed.2d 272 (1974), is the more applicable fact situation to the one at hand. In Meyerhofer, the Second Circuit reversed the trial court’s disqualification of plaintiffs’ counsel in the following fact situation. Plaintiffs Meyerhofer and Federman had purchased stock of the defendant Empire Fire and Marine Insurance Company and subsequently alleged that the registration statement and prospectus under which the Empire stock had been issued was materially false and misleading and filed a suit against Empire and the law firm involved in the public offering of the 500,000 shares of Empire’s stock. Stewart Goldberg, the managing underwriter employed by Empire’s law firm, was named as one of the defendants in the class action brought by Meyerhofer and Federman. Although no service was initially made on Goldberg, he was advised by telephone that he had been made a defendant. Goldberg contacted the law firm representing the plaintiffs and requested an explanation of the nature of the charges against him. Goldberg requested and was given the opportunity to prove to the satisfaction of plaintiffs’ counsel his non-involvement in the arrangements which had led to the flawed issuance of Empire stock as alleged by plaintiffs. Goldberg met with counsel for the plaintiffs and delivered a copy of a lengthy affidavit, that he previously had filed with the Security Exchange Commission, which explained his conduct with the law firm responsible for the registration statement and other forms filed in connection with the public issue of the stock. Goldberg acted after his law firm refused Goldberg’s insistence that a complete disclosure of the attorney fees paid with respect to the Empire offering should be made as subsequently claimed in the class action against Empire.

The law firm representing the plaintiffs, after considering Goldberg’s affidavit, dropped him from the lawsuit. The district court agreed with Empire’s position that Goldberg’s explanation to plaintiffs’ law firm required the barring of further participation in the action by plaintiffs’ law firm given Canons 4 and 9 of the Code of Professional Responsibility.

In reversing the district court with respect to plaintiffs’ law firm’s participation, the court focused on the disciplinary rules in connection with Canon 4 and in particular Rule DR4-101(C)(4) which states:

(C) a lawyer may reveal:
... (4) conferences or secrets necessary to establish or collect his fee or to defend himself or his employees or associates against an accusation of wrongful conduct.

Based upon the foregoing rule, the Second Circuit held that Goldberg had the right to make an appropriate disclosure with respect to his role in the public offering and in so doing, had the right to support his version of the facts with suitable evidence. In sum, the circuit court found that Goldberg, acting with reliance upon Rule DR4-101(C)(4) violated neither Canon 4 or Canon 9 of the Code of Professional Responsibility and concluded:

The burden of the District Court’s order did not fall most harshly on Goldberg; rather its greatest impact has been felt by Bernson, Hoeniger, Freitag & Abbey, plaintiffs’ counsel, which was disqualified from participation in the case. The District Court based its holding, not on the fact that the Bernson firm showed bad faith when it received Goldberg’s affidavit, but rather on the fact that it was involved in a tainted association with Goldberg because his disclosures to them inadvertently violated Canons 4 and 9 of the Code of Professional Responsibility. Because there are no violations of either of these Canons in this case, we can find no basis to hold that the relationship between Goldberg and the Bernson firm was tainted. The District Court was apparently unpersuaded by appellees’ salvo of innuendo to the effect that Goldberg “struck a deal” with the Bernson firm or tried to do more than prove his innocence to them. Since its relationship with Goldberg was not tainted by violations of the Code of Professional Responsibility, there appears to be no warrant for its disqualification from participation in either this or similar actions.

Meyerhofer v. Empire Fire and Marine Insurance Co., 497 F.2d at 1196.

The Irrebuttable Presumption versus the Rebuttable Presumption Application.

In the Court’s view, this unique set of facts distills to the threshold question of whether the irrebuttable presumption of taint as contended for by the plaintiff should apply or whether the rebuttable presumption of taint as suggested by the defendants should apply to GSFN’s dual relationship with Ashland and Einbund.

It is the position of the plaintiffs that when GSFN undertook the defense of Einbund in the malpractice action, the irrebuttable presumption that confidences passed from Einbund to GSFN as counsel representing Ashland took effect as a matter of law. Consequently, the Court has no obligation to determine or consider what factually happened, but rather is obligated to disqualify. The plaintiffs contend, analogizing the fact situation in Hull v. Celanese Corp., supra, that Einbund switched sides and joined the defense team, having originally been a member of the plaintiffs’ team, and when the switching took place GSFN was tainted by the switch and disqualified. If the irrebuttable presumption argument advanced by the plaintiffs prevails, the result is unequivocal, counsel for the defendants must be disqualified.

While many courts have recognized the irrebuttable presumption rule, it has not been uniformly applied.

As acknowledged by counsel for plaintiffs, the Sixth Circuit has not declared with respect to the irrebuttable presumption rule other than to recognize that district courts within the Sixth Circuit have written conflicting opinions with respect to the application of the irrebuttable presumption rule.

In this Court’s view, based upon the peculiar nature of the unique set of factual circumstances in this case, the issue of whether the presumption should be irrebuttable or rebuttable is a matter of first impression.

In addressing the nature of the presumption to be applied, the Court observes that in this case the normal internal office procedures that are designed to identify potential conflicts would have been unproductive in this factual setting. When the Einbund case was brought to GSFN by Einbund’s carrier, neither Warpar or Randustrial were clients of GSFN. A routine check of GSFN’s client list would not have revealed the potential conflict. Moreover, an examination of the plaintiff’s complaint against Einbund (see appendix 1) would not have triggered any inquiry on behalf of GSFN. Plaintiff’s initial complaint against Einbund failed to disclose that Einbund’s prosecution of Warpar and Randustrial’s case against Ashland was included as a part of the plaintiff’s complaint against Einbund.

In weighing the question of whether the presumption should be irrebuttable or rebuttable, it must be remembered that not only is the public confidence with respect to the nature of representation by counsel involved in cases of this type, but also involved is the right of a client to select and be represented by counsel of its choice. In balancing these two conflicting considerations, it is the Court’s view that application of the irrebuttable presumption rule in the unique factual setting in this case is unrealistic. To do so would be to elevate form over substance. In sum, the better approach in this case under the unique circumstances is to apply the rebuttable presumption rule. The Court takes comfort in this approach by the fact that Dan McGookey, counsel for the plaintiffs who filed the malpractice action against Einbund and also represents the plaintiffs in this action against Ashland, was aware of the dual representation issue as early as September of 1982, but failed to bring the matter to the Court’s attention, but rather acquiesced in a continuation of the relationship.

Applying the rebuttable presumption as the standard, the Court turns now to the affidavits filed by the defendants in support of its opposition to the motion to disqualify.

George Stuhldreher attests that there has never been any contact or communications between Stuhldreher and the attorneys participating in the defense of this action Michael Gallagher and Stephens, and further, that he has never seen or had access to any corporate documents or records of either Randustrial or Warpar, or discussed or had access to any trial strategies. or attorney-client communications from Einbund relating to the Ashland action, or had he any access to any work product, in any form, of the Sindell firm relating to the federal court action. Additionally, Mr. Stuhldreher attests that the claim respecting malpractice on the part of Einbund with respect to the Ashland case involved a single and narrow issue of the failure of Einbund to file an amended complaint to add Randustrial as a party defendant.

Mr. Gallagher, a senior member of GSFN, attests that he was aware that the firm was representing Einbund in the malpractice action but that he had seen only the initial complaint and was unaware of any other pleading in the Einbund action. Mr. Stephens attests that he has not gleaned any knowledge from the Einbund case with respect to the Ashland case.

In the Court’s view, the presumption of taint by virtue of the Einbund representation has been rebutted by the affidavits submitted by Ashland. The plaintiff has not introduced any affidavits or other evidence that would factually demonstrate taint, relying instead upon the application of the irrebuttable presumption rule.

Additionally, Ashland contends that plaintiffs are now estopped at this late date to raise the issue in view of the fact that McGookey knew of the dual representation as of September 28, 1982, when he undertook the prosecution of Warpar and Randustrial’s case against Ashland. There is published authority on both sides of the estoppel issue. In the Court’s view, estoppel is not a defense where the irrebuttable presumption rule applies. On the other hand, where the rebuttable presumption rule applies, estoppel likewise is a defense that can be raised.

The doctrine of equitable estoppel precludes a party from,

asserting rights which might perhaps have otherwise existed, either of property, of contract, or of remedy, as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worst, and who, on his part, acquires some corresponding right, either of property, of contract, or of remedy.

Precious Metals Assoc, v. Commodity Futures, 620 F.2d 900, 908 (1st Cir.1980), citing 2 J. Pomeroy, Equity Jurisprudence, § 804 at 421-22 (3d Ed.1905).

Although McGookey was aware of the dual representation as of September 28, 1982, the motion to disqualify was not filed until July 9, 1984. During that period, a substantial amount of time was expended by attorneys at GSFN on behalf of Ash-land. The time expended by GSFN amounts to detrimental reliance on the part of Ashland. If GSFN is now disqualified, Ashland will have expended a substantial sum of money for attorney’s fees for time which would be of little value. Given this analysis, the Court finds that the plaintiffs are estopped at this late date to raise the issue of the qualification of GSFN based upon the Einbund defense. See Central Milk Producers Co-Op v. Sentry Food Stores, 573 F.2d 988, 992 (8th Cir.1978); Jackson v. J.C. Penney Co., Inc., 521 F.Supp. 1032, 1034 (N.D.Ga.1981); Redd v. Shell Oil Co., 518 F.2d 311, 315-316 (10th Cir.1975).

In opposition to the application of estoppel, plaintiffs contend that the issue was raised as soon as co-counsel from Pittsburgh, which entered the case in 1984, ascertained that the disqualification issue existed because of the Einbund defense by GSFN. In the Court’s view, rebuttal to the defense of estoppel is not accomplished by the claim that the issue was raised as soon as more alert counsel on behalf of the plaintiffs identified the issue. Plaintiffs are bound by the actions of their counsel and cannot take advantage of the insight of new co-counsel.

For the foregoing reasons, the motion to disqualify GSFN is overruled. This case is hereby rescheduled for trial on a standby basis for the two week period beginning on the 25th day of March, 1985. A separate trial schedule shall be issued with which counsel are to comply.

IT IS SO ORDERED.

APPENDIX 1

IN THE COMMON PLEAS COURT OF CUYAHOGA COUNTY, OHIO

Randustrial Corporation, 18311 Union Avenue, Cleveland, Ohio 44120, and War-par Manufacturing Corporation, 13313 Union Avenue, Cleveland, Ohio 44120, and Willard A. Randorf, 34800 Cedar Road, Gates Mills, Ohio 44040, and Andrew J. Randorf, 33265 Wagon Wheel, Solon, Ohio 44139, Plaintiffs vs. Sindell, Sindell, Selker, Rubenstein, Einbund & Pavlik Co., L.P.A., Seventh Floor, Cuyahoga Building, 216 Superi- or Avenue at Public Square, Cleveland, Ohio 44114, and Lewis Einbund, Seventh Floor, Cuyahoga Building, 216 Superior Avenue at Public Square, Cleveland, Ohio 44114, Defendants COMPLAINT:

“JURY DEMAND ENDORSED HEREON”

* * * * * *

COUNT I

1. Plaintiffs, Randustrial Corporation and Warpar Manufacturing Corporation, are corporations duly organized under the laws of the State of Ohio with their principal offices in Cleveland, Ohio.

2. Defendant, Sind, Sind, Selker, Ruben-stein, Einbund & Pavlik Co., L.P.A., is a legal professional association with its principal office in Cleveland, Ohio. Defendant, Einbund, currently is, and has been a stockholder in said association, since approximately 1978.

3. Defendant Einbund is, and at all times hereinafter mentioned was, an attorney at law duly admitted to practice in the State of Ohio.

4. From approximately 1972 through June 1981, Defendant Einbund served as the general corporate counsel for Plaintiffs Randustrial Corporation and Warpar Manufacturing Corporation, handling, either personally or through others under his direction and control, all local civil matters of said Plaintiffs.

5. Throughout the period mentioned in Paragraph 4 hereof, Defendant Einbund served as the personal counsel for Defendants Willard A. Randorf and Andrew J. Randorf.

6. Defendant Einbund, and through him, Defendant Sindell, Sindell, Selker, Rubenstein, Einbund & Pavlik Co., L.P.A. negligently represented Plaintiffs in numerous legal matters, resulting in damages being suffered by Plaintiffs.

COUNT II

7. Plaintiffs restate each and every allegation in Count I as if fully set forth herein.

8. Defendants unilaterally terminated their representation of Plaintiffs in numerous legal matters in June, 1981. Such termination was without the permission of Plaintiffs and was without just cause.

9. As a result of Defendants said unilateral termination, Plaintiffs have suffered substantial injuries.

COUNT III

10. Plaintiffs restate each and every allegation in Counts I and II as if fully set forth herein.

11. Defendant Einbund, while acting as counsel for Plaintiffs, made numerous false material representations to Plaintiffs with regard to legal matters entrusted to him.

12. As a result of Defendant Einbund’s said false representations, Plaintiffs’ have suffered substantial injuries.

COUNT IV

13. Plaintiffs restate each and every allegation in Counts I, II and III as if fully set forth herein.

14. Defendant Einbund by oral agreement, borrowed for his personal use an automobile belonging to Plaintiff Randustrial Corporation, upon his promise to return said automobile within a few weeks time.

15. Defendant Einbund failed to return said automobile as promised, depriving said Plaintiff of the use thereof. When said Defendant returned said automobile, it was in damaged condition and required repairs.

16. As a result of Defendant Einbund’s breach of promise and his failure to return said automobile in undamaged condition, Plaintiff Randustrial Corporation has suffered substantial injuries in excess of Six Thousand Dollars ($6,000.00).

WHEREFORE, Plaintiffs pray for judgment against Defendants for the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) in compensatory damages and for the sum of One Hundred Thousand Dollars ($100,000.00) in punitive damages and for costs and attorney’s fees. Plaintiff Randustrial Corporation further prays for judgment against Defendant, Einbund for the sum of Six Thousand Dollars ($6,000.00) as compensatory damages for injuries sustained as alleged in Count IV hereof.

/s/ Dan L. McGookey Dan L. McGookey, Of Counsel MUEHLHAUSER, LUCAL. & PFEFFERLE P.O. Box 790 Sandusky, Ohio 44870 Attorney for Plaintiffs

JURY DEMAND

Plaintiffs demand a trial by jury in this action.

/s/ Dan L. McGookey Dan L. McGookey, Of Counsel MUEHLHAUSER, LUCAL & PFEFFERLE

APPENDIX 2

IN THE COMMON PLEAS COURT OF CUYAHOGA COUNTY, OHIO

Randustrial Corporation, et al., Plaintiffs vs. Sindell, Sindell, Selker, Rubenstein, Einbund & Pavlik Co., L.P.A., et al., Defendants

CASE NO: 040184

JUDGE JOSEPH F. McMANAMON DEFINITE STATEMENT

* * * * * *

Plaintiffs, pursuant to the Order of this Court entered on June 30, 1982, in which the Motion of Defendants for a definite statement was granted as to various matters therein requested, makes the following averments, in complaince with said Order of the Court:

1. As to Paragraph 6 of Plaintiffs’ Complaint, Plaintiffs state that the following is a list, complete to the best of Plaintiffs’ knowledge and belief, of the matters in which Defendants negligently represented Plaintiffs:

A. Warpar Manufacturing Corporation and Randustrial Corporation v. Ashland Oil Co., Inc. and Ashland Petroleum Company, U.S. District Court, Northern District of Ohio, Eastern Division, Case No. C78-1562.
B. Corondolet Liquidating Trust v. Randustrial Corporation, Common Pleas Court, Cuyahoga County, Case No. 018501.
C. James E. Weist v. Randustrial Corporation, et al., Common Pleas Court, Cuyahoga County, Case No. 010458.
D. Michael Hancock and Cindy Hancock v. Randustrial Corporation, et al., U.S. District Court, Northern District of Ohio, Eastern Division, Case No. C8088.
E. Arthur Washington v. Randustrial Corporation, U.S. District County, Northern District of Ohio, Eastern Division, Case No. C80-2363.
F. Pullman Trailmobile v. Randustrial Corporation, Municipal Court of Garfield Heights, Ohio, Case No. 80-CRF-70.
G. Randustrial Corporation v. Donald G. Stewart, Municipal Court of Cleveland, Ohio, Case No. 81-3-137.
H. Margaret Miller v. Randustrial Corporation, Common Pleas Court, Cuyahoga County, Case No. 25017.
I. Randustrial Corporation v. Insul-All Urethane, Superior Court of Allen County, Indiana, Case No. 574-2214.
J. Lawrence R. McCoy & Company, Inc. v. Randustrial Corporation, Municipal Court of Cleveland, Ohio, Case No. B-100127.
K. Firemans Fund Insurance Co. v. Randustrial Corporation (Case designation unknown at present).
L. Raymond L. Boughner v. Randustrial Corporation, Common Pleas Court, Cuyahoga County, Case No. 79-003-096.
M. Ulmer Berne, Laronge, Glickman & Curtis v. Willard Randorf and Barbara J. Randorf, Municipal Court of Cleveland, Ohio, Case No. 80-CVF-17335.
N. Cooper-Jarrett, Inc. v. Randustrial Corporation, Municipal Court of Cleveland, Ohio, Case No. 79-CVF-29529.
O. Norman E. Weiss, Trustee v. Randustrial Corporation, Common Pleas Court of Luzerne County (Pa.), Case No. 6467.
P. Randustrial Corporation v. Branch Motor Express Co., Municipal Court of Cleveland, Ohio, Case No. 80-CVE-38294.

2. As to Paragraph 8 of Plaintiffs’ Complaint, Plaintiffs state that the following is a list, complete to the best of Plaintiffs’ knowledge and belief, of the matters in which Defendants unilaterally terminated their representation of Plaintiffs:

A. Warpar Manufacturing Corporation and Randustrial Corporation v. Ashland Oil Co., Inc. and Ashland Petroleum Company, U.S. District Court, Northern District of Ohio, Eastern Division, Case No. C78-1562.
B. Norman E. Weiss, Trustee v. Randustrial Corporation, Common Pleas Court of Luzerne County (Pa.), Case No. 6467.
C. Michael Hancock and Cindy Hancock v. Randustrial Corporation, et al., U.S. District Court, Northern District of Ohio, Eastern Division, Case No. C8088.
D. J.M. Mannewitz, d.b.a. Mannewitz Enterprises v. Randustrial Corporation, U.S. District Court, Northern District of Texas, Dallas Division, Case No. CA3-80-1438-D.
E. Randustrial Corporation v. Insul-All Urethane, Superior Court of Allen County, Indiana, Case No. 574-2214.
F. Randustrial Corporation . v. Linda Feigenbaum, Common Pleas Court, Cuyahoga County, Case No. 21785.
G. Randustrial Corporation v. Naomi Peterson, Common Pleas Court, Cuyahoga County, Case No. 028492.
H. Mt. Pleasant Advertising, Inc. v. V.W.R. Scientific, Inc., et al. Common Pleas Court, Cuyahoga County, Case No. 012941.
I. Lawrence R. McCoy & Company, Inc. v. Randustrial Corporation, Municipal Court of Cleveland, Ohio, Case No. B-100127.
J. Raymond L. Boughner v. Randustrial Corporation, Common Pleas Court, Cuyahoga County, Case No. 79-003-096.
K. Warpar Manufacturing Corporation, et al. v. Mineral Fiber Manufacturing Corporation, Common Pleas Court, Coshocton County, Case No. 80-01-399.
L. William Aluise v. Randustrial Corporation, District Court 07-1-03 of Levittown, Pa., Case No. X-80-3-804.
M. Theodore R. Call v. Randustrial Corporation, Municipal Court of Marion, Indiana, Case No. M-780-1604.
N. Randustrial Corporation v. Charles Douglas Clark, Common Pleas Court, Cuyahoga County, Case No. 029983.
O. Richard M. Eskin v. Randustrial Corporation, District Court of Hingham, Mass., Case No. 25252.
P. Thomas C. Glosup v. Randustrial Corporation, County Court at Law # 2 of Dallas, Texas, Case No. CC80-1357B.
Q. Randustrial Corporation v. Michael P. Hayes, Illinois Dept, of Labor, Chicago, Ill., Case No. 80-2165.
R. Randustrial Corporation v. William S. Little, Jr., American Arbitration Association, Cleveland, Ohio, Case No. [ XXX-XX-XXXX ].
S. Robert J. McLelland v. Randustrial Corporation, State Court of Fulton County, New York, Case No. 753401.
T. Randustrial Corporation v. Lewco Products and Lewis Popma, U.S. District Court, Western Division of Michigan, Case No. G80-927-CA1.
U. Randustrial Corporation and Warpar Manufacturing Corporation v. Thomas Seidelson, American Arbitration Association, Cleveland, Ohio (Case no. unknown).
V. Randustrial Corporation v. James R. Stavolo, American Arbitration Association, Cleveland, Ohio, Case No. 5310-015380.
W. Randustrial Corporation v. John McGlynn, Common Pleas Court, Cuyahoga County, Case No. 21600.

3. As to Paragraph 11 of Plaintiffs’ Complaint, Plaintiffs state that the following is a list, complete to the best of Plaintiffs’ knowledge and belief, of the matters in which false representations were made by Defendant Einbund to Plaintiffs, and the nature of such false representations:

A. Warpar Manufacturing Corporation and Randustrial Corporation v. Ash-land Oil Co., Inc. and Ashland Petroleum Company, U.S. District Court, Northern District of Ohio, Eastern Division, Case No. C78-1562 — In this matter, Defendant Einbund falsely represented to Plaintiffs that he talked with other attorneys who might assist as co-counsel in the case after being requested to do so by Plaintiffs, and that said attorneys were unwilling to serve as such co-counsel. Further, Defendant attempted to enter an unauthorized settlement in the case and subsequently denied doing so. Defendant further falsely represented to Plaintiffs that he actively opposed bifurcation of the trial of the case on the liability and damage issues.

Dan L. McGookey, Of Counsel LUCAL, PFEFFERLE & McGOOKEY

502 W. Washington Street P.O. Box 357 Sandusky, Ohio 44870 Attorney for Plaintiffs

CERTIFICATION

This is to certify that a copy of the foregoing Definite Statement was sent by regular U.S. mail to George W. Stuhldreher, Attorney for Defendants, Sixth FloorBulkley Building, 1501 Euclid Avenue, Cleveland, Ohio 44115, this_day of _, 1982.

Dan L. McGookey, Of Counsel LUCAL, PFEFFERLE & McGOOKEY

APPENDIX 3 STATE OF OHIO:

SS:

COUNTY OF CUYAHOGA:

AFFIDAVIT OF GEORGE W. STUHLDREHER

GEORGE W. STUHLDREHER, being first duly sworn according to law, deposes and states that:

1. I am a partner in the law firm of Gallagher, Sharp, Fulton & Norman and am the attorney of record for Lewis Einbund in a legal malpractice claim asserted against him by Randustrial Corporation, Warpar Manufacturing Corporation, and Willard and Andrew Randorf. That malpractice action was originally filed on March 8, 1982 and was captioned Randustrial Corporation, et al., v. Sindell, Sindell, Selker, Rubenstein, Einbund & Pavlik, No. 40184, Court of Common Pleas, Cuyahoga County.

2. This malpractice action was filed by Attorney Dan L. McGookey of the law firm of Lucal, Pfefferle & McGookey of San-dusky, Ohio. Attorney Dan L. McGookey remained counsel for Randustrial in the legal malpractice action until June, 1984. That action was dismissed without prejudice at plaintiffs’ costs by the court on June 12, 1984.

3. I was originally retained by the Sin-dell firm’s professional liability insurance carriers, INAPRO and National Union Insurance Company, to defend the Sindell firm and Mr. Einbund.

4. On behalf of Mr. Einbund and the Sindell firm, I prepared and filed a Motion for Definite Statement under Ohio Civil Rule 12 on June 2, 1982. Thereafter, I prepared and filed an Answer to the Complaint on August 18, 1982. In accordance with the applicable Civil Rules, a copy of the Motion for Definite Statement and the Answer to the Complaint were duly served by regular U.S. mail on plaintiffs’ attorney Dan L. McGookey. A copy of the Complaint is annexed as Attachment 1, a copy of the Motion for Definite Statement as Attachment 2, a copy of the Definite Statement filed by Mr. McGookey as Attachment 3, and a copy of the Answer to the Complaint as Attachment 4.

5. Attorney Einbund has consented to my representation of him and the Sindell firm in the legal malpractice action. I have on more than one occasion met with Attorney Dan McGookey in his representation of Randustrial and Warpar in the malpractice action. He has never, either verbally or in writing, discussed or in any manner objected to my legal representation of Mr. Einbund and the Sindell firm. Mr. McGookey never mentioned or in any manner objected to this law firm’s representation of Ash-land Oil, Inc. in the case of Warpar Manufacturing Corporation, et al., v. Ashland Oil, Inc., Case No. C78-1562, pending before this Court, despite Mr. McGookey’s knowledge of my representation of Mr. Einbund in the malpractice action and Michael R. Gallagher and Alton L. Stephens’ representation of Ashland Oil since the inception of the federal district court litigation.

6. To the best of my knowledge and professional judgment, the legal malpractice action (as it relates to the Ashland case) involved the single and narrow issue of the failure to file an Amended Complaint in the federal court action to add Randustrial Corporation as a party plaintiff. I discussed the plaintiffs’ claims with Mr. McGookey on various occasions and at no time did he state that Mr. Einbund was negligent in any other respect relating to the Ashland case. To the best of my knowledge and professional judgment, the legal malpractice action has not involved and does not involve any factual or legal matter regarding the merits of plaintiffs’ claims in the federal court action.

7. During the course of my representation of Mr. Einbund, I have never seen or had access to any corporate documents or records of Randustrial Corporation or War-par Manufacturing Corporation. At no time have I ever discussed or had access to any trial strategies or attorney-client communications from Mr. Einbund relating to the federal court action. Nor have I seen or had access to any work product in any form of the Sindell firm relating to the federal court action. These matters were not discussed between Mr. Einbund and me. Nor were any such documents ever reviewed. For the reason that it was not deemed necessary by myself or Mr. Einbund to do so in defense of the malpractice action, I do not even know if such documents exist. Such information and documentation are not in any way related to the malpractice claim.

8. At no time have I ever communicated with Attorneys Michael R. Gallagher and/or Alton L. Stephens regarding the factual and legal merits of the malpractice action or of the federal court litigation.

9. No depositions were ever taken in the malpractice action. The only documents I had access to and reviewed in the malpractice action were the billing time slips of Mr. Einbund and the Sindell firm and these were provided to the McGookey firm pursuant to a Request for Production for same. The only other discovery initiated in the malpractice action was two Interrogatories to the defendants filed on or about May 10, 1984 which requested the identity of trial witnesses and the subject matter of their testimony. A copy of such Interrogatories is annexed as Attachment 5.

Further affiant saith not.

/s/ George W. Stuhldreher GEORGE W. STUHLDREHER

. SWORN TO before me and subscribed in my presence this 25th day of July, 1984.

/s/ William H. Cromwell NOTARY PUBLIC

APPENDIX 4 STATE OF OHIO:

SS:

COUNTY OF CUHAHOGA:

AFFIDAVIT OF MICHAEL R.

GALLAGHER

MICHAEL R. GALLAGHER, being first duly sworn according to law, deposes and states that:

1. I am a partner in the law firm of Gallagher, Sharp, Fulton & Norman and am an attorney of record for Ashland Oil, Inc. and the Ashland Petroleum Company in the litigation styled Warpar Manufacturing Corporation, et al, v. Ashland Oil, Inc., et al. I have been an attorney of record for Ashland since the inception of that lawsuit in November, 1978. James E. McGookey and Dan L. McGookey have been attorneys of record for the plaintiff in this action since about September 28, 1982, the date of a letter from the McGookey firm to the Clerk of Courts, a copy of which was sent to me on or about the same date.

2. I have read Plaintiffs’ Motion to disqualify this firm from further representation of Ashland in the Warpar v. Ashland lawsuit, along with the supporting brief.

3. I have been aware of the existence of Randustrial’s lawsuit against Lewis Einbund from the time it was referred to George Stuhldreher of our firm for defense, and I read the complaint when it first came in, in the spring of 1982. I have seen no other pleadings filed in the case. I have not seen any other materials in the Einbund file.

4. I have no recollection of the allegations of the complaint against Mr. Einbund, and do not to this day know what they involve beyond what I have learned from reading plaintiffs’ Motion to disqualify.

5. I have never discussed the substance of or the merits of the plaintiffs’ action against Mr. Einbund with Mr. Stuhldreher or anyone else.

6. I know for a fact that we have learned nothing of plaintiffs’ trial strategies, confidences or attorney work product relating to the Warpar case as a consequence of Mr. Stuhldreher’s representation of Mr. Einbund. There has been no impropriety whatever.

7. There is no basis for plaintiffs’ Motion to disqualify this firm, and to grant that Motion would extremely prejudice our client, Ashland Oil, Inc.

Further affiant saith not.

/s/ Michael R. Gallagher MICHAEL R. GALLAGHER

SWORN TO before me and subscribed in my presence this 25th day of July, 1984.

/s/ William H. Cromwell NOTARY PUBLIC

APPENDIX 5 STATE OF OHIO:

SS:

COUNTY OF CUYAHOGA:

AFFIDAVIT OF ALTON L. STEPHENS

ALTON L. STEPHENS, being first duly sworn according to law, deposes and states that:

1. I am a partner in the law firm of Gallagher, Sharp, Fulton & Norman and am an attorney of record for Ashland Oil, Inc. and the Ashland Petroleum Company in the litigation styled Warpar Manufacturing Corporation, et at, v. Ashland Oil, Inc., et al. I have been an attorney of record for Ashland since the inception of that lawsuit in November, 1978.

2. I have read Plaintiffs’ Motion to disqualify this firm from further representation of Ashland in the Warpar v. Ashland lawsuit, along with the supporting brief.

3. I have been aware for some time that George Stuhldreher of this firm represented Lewis Einbund in a “malpractice” action brought against him by the Randorfs or their companies, Warpar and/or Randustrial.

4. I have never seen the complaint or any other pleading in that “malpractice” action.

5. I do not know what the allegations are in that suit, nor do I know that that lawsuit arose from Mr. Einbund’s representation of the plaintiffs in the Warpar v. Ashland suit, except for what has been stated in plaintiffs’ motion to disqualify. It was and has been my understanding that Mr. Einbund’s firm represented the Randorfs and their companies in other matters, including corporate matters.

6. I have never seen or looked at Mr. Stuhldreher’s file on the Einbund “malpractice” action.

7. I have never discussed the substance of or the merits of the Einbund “malpractice” action with Mr. Stuhldreher or anyone else.

8. The Warpar v. Ashland suit has been an extremely complex one, the preparation of which has included the taking of many technical depositions and the involvement of expert chemists, asphalt emulsion handling and manufacturing experts, accountants and economists. Michael Gallagher and I have been intimately involved in the preparation of this case at all stages. I have checked our billing records and have learned that up to June, 1984, Mr. Gallagher has devoted 354.75 hours to this case, that I have devoted 693.25 hours to this case, and that others in our firm have devoted 403.75 hours.

9. I do not believe that a new firm of attorneys could reasonably be expected to develop the understanding of this case that Mr. Gallagher and I have acquired in the last five and one-half years, and believe further that the prejudice to our client if such were ordered would be extreme.

10. In summary, there has been no impropriety, there is no factual basis for plaintiffs’ motion to disqualify, and there is no justification for subjecting Ashland Oil to the irremediable prejudice which would result from granting plaintiffs' motion.

Further affiant saith not.

/s/ Alton L. Stephens ALTON L. STEPHENS

SWORN TO before me and subscribed in my presence this 24th day of July, 1984.

NOTARY PUBLIC

      . The case was initially assigned to Judge Leroy J. Contie, Jr. On May 22, 1980, Judge Contie reassigned the case to Judge George White. The order reassigning the case to Judge White was the 73rd separately numbered document filed to date in the action. On October 15, 1982, the case was reassigned to this Court and the order of reassignment was numbered 159. The July 9, 1984, motion to disqualify defendant's counsel is numbered 256.

      . A copy of the complaint is attached as appendix 1.

      . The definite statement was filed sometime after June 30, 1982 and before August 17, 1982 when an answer was filed by Stuhldreher on behalf of Einbund.

      . In the hearing conducted on July 26, 1984, Mr. Gold, on behalf of the plaintiffs, declared:
      First of all, if there was any duty on anyone's part to raise this, it was the Gallagher firm’s duty to do this initially. When Mr. Einbund came to them, it’s at that point in time that they should have raised the question. Certainly this was an unusual situation. Here is Mr. Einbund who had represented the plaintiffs for a year and a half.
      The Court: You are saying Mr. Stuhldreher should have recognized it?
      Mr. Gold: Absolutely your honor, he should have recognized it at that time or Mr. Gallagher or someone in the firm.
      The Court: Mr. Gallagher in effect says "I don’t even know the case was in the house.”
      Mr. Gold: That’s an irrelevant inquiry or statement of fact because as the cases show what one lawyer in the firm knows is presumed that the other lawyers in the law firm know. TR. at p. 16.

      . See Emle Industries, Inc. v. Patentex, 478 F.2d 562, 570-71 (2d Cir.1973); Pennwalt Corp. v. Plough, Inc., 85 F.R.D. 264, 270-71 (D.Del.1980); In Re Asbestos Cases, 514 F.Supp. 914, 920-21 (E.D.Va.1981); Wilson P. Abraham Construction Corp. v. Armco Steel Corp., 559 F.2d 250, 252 (5th Cir.1977); Trone v. Smith, 621 F.2d 994, 998-999 (9th Cir.1980); Industrial Parts Distributors, Inc. v. Fram Corp., 504 F.Supp. 1194, 1197 (D.Kan.1981).

      . Novo Terapeutisk v. Baxter Travenol Laboratories, 607 F.2d 186 (7th Cir.1979); Freeman v. Chicago Musical Instrument Co., 689 F.2d 715 (7th Cir.1982); City of Cleveland v. Cleveland Electric Illuminating Co., 440 F.Supp. 193, aff’d 573 F.2d 1310 (6th Cir.1977).

      . In General Electric Co. v. Valeron Corp., 608 F.2d 265 (6th Cir.1979), Judge Bailey Brown, writing for the Sixth Circuit recognized the possibility of conflict within the district courts in the circuit respecting whether or not irrebuttable presumption was to apply or not. In General Electric Co., the trial court found such a presumption to apply but Judge Brown referred to the opinion of Judge Robert Krupansky, then a district court judge in the case of City of Cleveland v. Cleveland Electric Illuminating Co., 440 F.Supp. 193 where Judge Krupansky identified the presumption as rebuttable although, as pointed out by Judge Brown, Judge Krupansky’s identification of the rule may well be best characterized as dicta.

      . In support of the opposition to the motion to disqualify, Ashland filed a four page affidavit of George Stuhldreher (appendix 3), a two page affidavit of Michael R. Gallagher (appendix 4), and a three page affidavit of Alton Stephens (appendix 5).

      . The plaintiffs have filed no opposing affidavits but in the briefs accompanying the motion, the plaintiffs have urged a period of discovery if the Court applies the rebuttable presumption rule. Given the Court’s conclusion with respect to estoppel, the Court will not permit discovery at this late date.


source: Caselaw Access Project

license: Public Domain

text:
    WARPAR MANUFACTURING CORP., et al., Plaintiffs, v. ASHLAND OIL, INC., et al., Defendants.
    No. C78-1562.
    United States District Court, N.D. Ohio, E.D.
    Feb. 12, 1985.
    Larry K. Elliott, Cloyd R. Mellott, Edwin L. Klett, Eckert, Seamans, Cherin, Mellott, Pittsburgh, Pa., for plaintiffs.
    Michael Gallagher, Gallagher, Sharp, Fulton, Norman & Mollison, Cleveland, Ohio, for defendants.
   ORDER

DOWD, District Judge.

On July 9, 1984, the plaintiffs filed a motion to disqualify counsel for the defendants, the law firm of Gallagher, Sharp, Fulton and Norman (GSFN), approximately six weeks before the trial in this matter was scheduled to go forward. On December 21, 1984, the Court filed an opinion and order denying plaintiffs’ motion to disqualify defendants’ counsel. 606 F.Supp. 852. On January 8, 1985, the Court denied the plaintiffs’ motion to engage in discovery and to have an evidentiary hearing on the alleged conflict of interest of GSFN. On January 15, 1985, the plaintiffs’ appealed the decisions of this Court dated December 21, 1984 and January 8, 1985.

Subsequently, on February 7, 1985, this case having been scheduled for trial on March 25, 1985, counsel for the plaintiffs filed a motion to stay the proceedings in this case by virtue of the fact that plaintiffs had filed a notice of appeal with the Court of Appeals for the Sixth Circuit. For the reasons which follow, the motion to stay is denied.

The general rule governing district courts is that the filing of a notice of appeal with the district court clerk deprives the district court of jurisdiction in a case regarding matters raised on appeal. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 103 S.Ct. 400, 74 L.Ed.2d 225 (1982); United States v. Holloway, 740 F.2d 1373, 1382 (6th Cir.1984). However, there is a recognized exception to this rule “when the notice of appeal is from a patently non-appealable order.” Holloway, 740 F.2d at 1382; Cochran v. Birkel, 651 F.2d 1219 (6th Cir.1981), cert. denied, 454 U.S. 1152, 102 S.Ct. 1020, 71 L.Ed.2d 307 (1982).

It is well established that the denial of a motion to disqualify counsel is not a final appealable order. Firestone Tire & Rubber Co. v. Risjord, 449 U.S. 368, 101 S.Ct. 669, 66 L.Ed.2d 571 (1981). In Firestone, the Supreme Court reasoned that,

[t]he decision whether to disqualify an attorney ordinarily turns on the peculiar fact situation of the case then at hand, and the order embodying such a decision will rarely, if ever, represent a final rejection of a claim of fundamental right that cannot effectively be reviewed following judgment on the merits____ Permitting wholesale appeals on that ground [that orders may be erroneous] not only would constitute an unjustified waste of scarce judicial resources, but also would transform the limited exception carved out on Cohen into a license for broad disregard of the finality rule imposed by Congress in § 1291.

Id. at 377-78,101 S.Ct. at 675-76. See also United States v. Caggiano, 660 F.2d 184, 189 (6th Cir.1981), cert. denied 455 U.S. 945, 102 S.Ct. 1444, 71 L.Ed.2d 658 (1982) (recognizing and following the rule enunciated in Firestone Tire.)

The Court held an evidentiary hearing on the motion to disqualify GSFN on July 26, 1984. At the hearing the plaintiff was given a full and fair opportunity to present evidence regarding any alleged taint of GSFN. However, counsel for the plaintiff declined to offer any evidence and instead argued that GSFN should be disqualified as a matter of law. It was not until after the Court denied the motion to disqualify GSFN, that plaintiffs requested discovery and an evidentiary hearing on the alleged conflict of interest of GSFN.

Even assuming arguendo that plaintiffs were entitled to conduct discovery and have a second evidentiary hearing following the Court’s denial of the motion to disqualify and assuming arguendo that the discovery would reveal a conflict of interest by GSFN, it would simply amount to an error reviewable on appeal if the defendants prevailed on a trial on the merits. Such an alleged error by this Court would have no greater consequence to the plaintiffs than any other error which would lead to a trial on the merits with plaintiffs having the right to appeal if defendants prevail. As noted by the Supreme Court, conducting the trial with counsel that should have been disqualified does not “indelibl[y] stamp or taint” the proceedings. Firestone Tire, 449 U.S. at 376, 101 S.Ct. at 674.

Consequently, because it is a well established rule that a denial of a motion to disqualify counsel is not a final appealable order and because this case fits squarely within the rule, the Court concludes plaintiffs’ appeal is from a patently nonappealable order. Accordingly, plaintiffs’ motion to stay is denied; this case remains on the trial calendar for March 25, 1985.

IT IS SO ORDERED.

      . In Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), the Court defined a narrow exception to the rule forbidding interlocutory appeals. The Court held a small class of orders which did not end the main litigation were nevertheless final and appealable when the district court’s order constituted a final determination of a claim separate and collateral to the merits of the main proceeding and the determination is important and independent enough to require appellate consideration be deferred until the entire case is adjudicated.

      . 28 U.S.C. § 1291.


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

text:
    Donald A. BOECK and Caroline M. Boeck, Plaintiffs, v. LOGAN 480 DAIRY FARM, a Limited Partnership; California Ranch Properties, Inc.; J.B. Marcus, Inc.; James Schaefer; Sunshine Investments; and First National Bank of Missouri Valley, Defendants.
    Civ. No. 83-61-W.
    United States District Court, S.D. Iowa, W.D.
    Jan. 2, 1985.

      Thomas H. Dahlk, Omaha, Neb., James A. Campbell, Council Bluffs, Iowa, for plaintiffs.
    Gregory Barntsen, Council Bluffs, Iowa, Dwight W. James, Des Moines, Iowa, Kirk S. Blecha, Omaha, Neb., Ronald L. Comes, Council Bluffs, Iowa, for defendants.
   ORDER

DONALD E. O’BRIEN, Chief Judge.

This matter comes before the Court on defendants’ motions to dismiss and for summary judgment. A hearing was held on September 5, 1984, at Council Bluffs, Iowa, at which all parties were present. After carefully considering the briefs and oral arguments of the parties, this Court grants each motion in part and denies it in part.

I. Background.

On December 29, 1981, the plaintiffs and Defendant Logan 480 Dairy Farm entered into a purchase agreement for plaintiffs’ dairy farm for a total purchase price of $1,310,000. The sale included plaintiffs’ livestock, fixtures, equipment, personal residence, buildings, real estate, grain, hay, growing crops, inventory and all other assets used in plaintiffs’ dairy farming business. In exchange for the dairy farm, Defendant Logan 480, the buyer, executed two short-term promissory notes, one for approximately $107,000 bearing 13% interest due on June 1, 1982 and another for $155,000 bearing 11% interest payable annually with full payment on the note due July 15, 1984. The purchase agreement also provided for the assuming of two debt obligations, the first being the payment of $355,038.50 which would be made in installments of approximately $4,000 per month continuing until July 1, 2013 and the other obligation being a $693,000 payment with a fixed schedule of interest and payments over a period of 30 years. The monthly payments for these installment contracts were to be derived from receipts from Defendant Logan 480’s operation of the dairy farm sold by the plaintiffs.

Pursuant to the purchase agreement, plaintiffs were granted a purchase money security interest in the livestock, fixtures, equipment, buildings and crops which were sold to Defendant Logan 480. The purchase agreement provided that the security interest would lapse when the $155,000 promissory note was paid as scheduled. Some of the equipment was subject to a pre-existing security interest granted by plaintiffs to Defendant First National Bank of Missouri Valley.

Plaintiffs claim that Defendant Logan 480 failed to make required payments pursuant to their agreement. As a result, plaintiffs, subsequent to the. filing of this action, on September 19,1983, filed a notice of forfeiture. Defendant Logan 480 responded by filing a motion for a temporary injunction which was denied. On October 24, 1983, plaintiffs filed for record the notice of forfeiture, which when filed and recorded, constituted notice to Defendant Logan of the forfeiture and cancellation of the real estate contract under Iowa law.

In the action before this Court plaintiffs claim defendants violated provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, the Racketeer Influenced and Corrupt Organizations Act, the Iowa Uniform Securities Act, as well as common law fraud and deceit, breach of indemnity agreement, negligent misrepresentations, breach of contract against defendant bank, and tortious interference with contract against defendant bank.

II. Defendants’ Motion to Dismiss.

Plaintiffs claim that the “sale” of their farm to defendants was in reality an investment by plaintiffs in defendant’s dairy farm, and that the transaction was therefore covered by the Securities Act of 1933, 15 U.S.C. Section 77b, et seq., the Securities Exchange Act of 1934, 15 U.S.C. Section 78c, et seq., and the Iowa Uniform Securities Act, Iowa Code Chapter 502 (1983). According to plaintiffs, they were “solicited to enter into an agreement with Defendant Logan 480 Dairy Farm for the sale of the land and the dairy farm.” The sale of plaintiffs’ property to defendants was contingent upon the simultaneous sale of a limited partner interest in a limited partnership. Plaintiffs claim that the entire transaction can be characterized as an “offering” and that in connection with this “offering,” defendant’s promissory notes and installment contracts fall under the category of “notes” and “evidence of indebtedness” or “investment contracts” which are all covered under the definition of “securities” in the above securities acts.

In its motion to dismiss, defendants argue that the disputed transaction was merely a sale and not an investment in securities by plaintiffs. According to defendants, while circuit courts have found the Supreme Court’s test for determining whether a security exists as set out in S.E.C. v. W.J. Howey, 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), to be inapplicable to note transactions such as the ones in dispute here, the Eighth Circuit has not taken a position on this issue. Defendants state the tests used in other circuits indicate that the transaction here did not involve a type of investment that is covered by the federal and Iowa securities laws.

Courts, in giving effect to congressional concern for investors, should examine circumstances of a subject transaction in order to determine whether said transaction was in “economic reality” entered into for investment purposes, or was primarily commercial in nature and therefore beyond the scope of the securities law. United Housing and Fdn. v. Forman, 421 U.S. 837, 852-53, 95 S.Ct. 2051, 2060-61, 44 L.Ed.2d 621 (1975); Briggs v. Sterner, 529 F.Supp. 1155, 1167 (S.D.Iowa 1981). The key to deciding whether a particular investment is a security is flexibility or an ability “to meet the countless and variable schemes devised by those who seek the use of the money of others on the premise of profits.” Tcherepnin v. Knight, 389 U.S. 332, 338, 88 S.Ct. 548, 554, 19 L.Ed.2d 564 (1967); Briggs v. Sterner, supra, at 1168.

As already pointed out, other circuits have utilized different tests for determining whether a security exists. The most stringent guidelines used for finding that a security does not exist is that of the Second Circuit, which instructs courts to compare transactions to a set of concrete examples and directs that all ambiguous cases (or cases that do not have a “strong family resemblance” to the examples) be resolved in favor of coverage. These examples include:

... the note delivered in consumer financing, the note secured by a mortgage on a home, the short-term note secured by a lien on a small business or some of its assets, the note evidencing a “character” loan to a bank customer, short-term notes secured by an assignment of accounts receivable, or a note which simply formalizes an open account debt incurred in the ordinary course of business____

Exchange Nat’l Bank v. Touche, Ross & Co., 544 F.2d 1126, 1138 (2d Cir.1976).

In reviewing the agreement between the parties, this Court finds that defendant has met the Second Circuit test of “strong family resemblance” to the examples set forth above. It is evident that plaintiffs wanted to sell their farm for cash, but because defendants could not find that feasible, the parties agreed at arms-length to the above-described transaction. Further, since the agreement provided for such things as having the buyer insure the property, allowing the seller a security interest in the property, prohibiting the buyers from removing any of the property until the promissory notes were paid, requiring the seller to deliver the buyer a warranty deed, allowing for both forfeiture and foreclosure, and requiring the sellers to give the buyers advice as to how to run the farm, this Court views their agreement as being in “economic reality” a sale of a dairy business that provided for consumer financing and not an investment in securities. See generally, Altman v. Knight, 431 F.Supp. 309 (S.D.N.Y.1977).

Moreover, when the facts and circumstances here are examined under the Fifth Circuit commercial/investment approach which states that promissory notes contain-1 ing terms indicative of a commercial lending arrangement (e.g., collateralized, short-term, proceeds used for operational expenses, repayable at a fixed rate of interest) are not considered “securities,” see National Bank of Commerce v. All American Assurance Co., 583 F.2d 1295 (5th Cir.1978), this Court is not persuaded that there are “securities” in this case because the loan was collateralized, and it was repayable at a fixed rate of interest. Also, under the Ninth Circuit risk capital approach which states that “securities” are notes representing loans of risk capital, while .those subject to only the normal risks incident to commercial lending are not, see Great Western Bank & Trust Co. v. Kotz, 532 F.2d 1252 (9th Cir.1976), this Court finds that this is not an investment because it is apparent that the risks involved in the transaction in dispute cannot be found to be more than normal risks, considering the fact that the loan agreement provided for such assurances to plaintiffs as a security interest as well as a right of forfeiture and foreclosure.

While the affidavits submitted by both parties indicate that there is a factual dispute over whether defendants told plaintiffs that the transaction was actually an investment in securities, this Court does not find this dispute dispositive of the issue, since the “economic realities” of the transaction indicate that this was a commercial endeavor. See Gordon v. Terry, 684 F.2d 736 (11th Cir.1982). Also, this Court is not persuaded by plaintiff’s argument that the provision in the agreement making the transaction contingent on the simultaneous sale of a limited partnership is evidence of plaintiffs’ investment in securities, since plaintiffs gained nothing from the structure of the business that owned the farm and plaintiffs did not expect any increase or decrease in the agreed value they would receive according to the profits of the limited partnership. Instead, the provision appears to be an avenue of relief available to plaintiffs in the event the defendants could not finance the purchase. Finally, the Court is unpersuaded by plaintiffs’ argument that the fact plaintiffs would not receive their monthly payments unless defendants were a competent and profitable management was evidence of investment in “securites,” since in commercial settings, it is common for payments to a seller to be dependent on a buyer’s success. See generally, C.N.S. Enterprises, Inc. v. G & G Enterprises, 508 F.2d 1354 (7th Cir.1975).

Even if this Court applies the Howey test as plaintiffs urge, a security still cannot be found with respect to the two promissory notes and two debt obligations. Under Howey, a security is (1) an investment (2) in a common venture (3) with a reasonable expectation of profits (4) to be derived from the entrepreneurial or managerial efforts of others. Id,., 328 U.S. at 301, 66 S.Ct. at 1104. As pointed out by the Eighth Circuit in Kansas State Bank of Holton v. Citizens Bank of Windsor, 737 F.2d 1490, 1495 (8th Cir.1984), the presence of an investment presents the task of distinguishing investments from commercial transactions and therefore incorporates the same factors identified in the Second, Fifth and Ninth Circuit approaches (as discussed above). Furthermore, while it is true that some cases, such as Briggs v. Sterner, have found a fixed return to satisfy the third element of the Howey test, which requires the transaction must involve a reasonable expectation of profit, this Court believes that the Kansas State Bank’s finding that a fixed return does not satisfy that element controlling here, since other aspects of the transaction make it apparent that this was a sale. Further, it is far from clear that the profits were to be derived from the entrepreneurial and managerial efforts of others when considering that plaintiffs had the power to forfeit or foreclose the real estate agreement and the agreement required plaintiffs to give advice to defendants on the running of the farm.

Since the Iowa Uniform Securities Act’s definition of “security” is similar to that used by the Securities Act of 1933 and the Securities Exchange Act of 1934, the Court finds that for the above reasons, plaintiffs’ claims pursuant to the Iowa Uniform Securities Act should also be dismissed. See Iowa Code Section 502.102(12) (1983); see also Briggs v. Sterner, supra.

With respect to defendants’ motion to dismiss plaintiffs’ RICO claim, the court, after reviewing plaintiffs’ complaint, finds that plaintiffs’ allegations of mail and wire fraud are not dependent upon plaintiffs’ securities claims and are sufficient to be considered “patterns of racketeering activity.” See United States v. Karas, 624 F.2d 500 (4th Cir.1980). Next, the court considers defendants’ argument that the complaint fails to allege the plaintiffs have suffered an injury “by reason of a violation of section 1962 * * *.” In Alexander Grant & Co., v. Tiffany Industries, 742 F.2d 408 (8th Cir.1984), the Court of Appeals for the Eighth Circuit was faced with a complaint that did not simply allege injury from the underlying predicate acts. Instead, the complaint stated that Tiffany was conducted through a pattern of mail and wire fraud that enabled it to remain in business, and as a result of this extended life, plaintiff continued to provide its services to Tiffany for a greater time than it would have had the fraud not occurred. This also increased the harm resulting to plaintiff’s business reputation. The court concluded that these allegations sufficiently plead an injury “by reason of” a RICO violation. Id., at 413. In this case, however, there is no specific allegation of injury, nor is there any allegations that would allow this court to find such a claim. As a result, plaintiffs’ RICO claim shall be dismissed unless plaintiffs amend their complaint to comply with the above discussion concerning racketeering enterprise injury. Finally, this court, cognizant of the prejudicial problems that can occur in a jury trial where a RICO claim is at issue, will consider a motion to sever the RICO claim from the rest of plaintiffs’ remaining claims and have a trial on the RICO count after a trial on plaintiffs’ remaining claims.

III. Defendants’ Motion for Summary Judgment.

In their motion for summary judgment, defendants claim that plaintiffs’ forfeiture of the real estate contract precludes plaintiffs under the doctrine of election of remedies from bringing, this action against defendants. The plaintiffs, on the other hand, state that their forfeiture of the real estate contract and the return of the farm should be viewed as only mitigating damages and that it did not bar them from recovering on noncontractual claims.

Chapter 656 of the Iowa Code provides for the forfeiture of real estate contracts. While the statutory right to forfeiture is similar to the doctrine of rescission in that they both cause the contract to terminate, the Court is not convinced that the cases defendants cite involving rescission of contracts are controlling in determining whether plaintiffs’ forfeiture of the real estate contract precludes plaintiffs from any additional relief. A major distinction between the two types of relief is that forfeiture does not require that the parties be restored to the status quo which is a major element of rescission. See Garnatz v. Stifel, Nicolaus & Co., 559 F.2d 1357 (8th Cir.1977), cert. denied, 435 U.S. 951, 98 S.Ct. 1578, 55 L.Ed.2d 801 (1978). The Iowa Supreme Court has apparently recognized this distinction when it listed forfeiture and rescission as separate and independent remedies available to a vendor in the event of a vendee’s default. Abodeely v. Cavras, 221 N.W.2d 494, 497 (Iowa 1974); see also First Nat’l Bank of Shenandoah v. LaBarron, 201 Iowa 853, 208 N.W. 364 (1926). Moreover, the fact that the parties are to be restored to the same position as they were in prior to entering a contractual relationship appears to be an important factor in cases which have barred a vendor from pursuing additional claims. See Estate Counseling Service, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 303 F.2d 527 (10th Cir.1962); Young v. Main, 72 F.2d 640 (8th Cir.1934); Albert Lea Foundry Co. v. Iowa Sav. Bank, 21 F.2d 515 (8th Cir.1927); Bain v. Ullerich, 189 Iowa 149, 177 N.W. 61 (1920). In the case before this Court, it is clear that by reason of the forfeiture the plaintiffs were not placed in the same position that they were in prior to entering this transaction with defendants. When the dairy farm was returned to plaintiffs, it was no longer operational as it was when plaintiffs sold it.

Nevertheless, the Court recognizes that forfeiting a real estate contract does preclude actions on the contract. Where a vendor exercises a right of forfeiture against a defaulting vendee, the liability of the latter for the unpaid purchase price is extinguished and, therefore, a vendor may not proceed on a theory based on affirmance of the contract by suing for damages for breach of contract or for specific performance since they are considered inconsistent remedies in which the vendor is precluded from pursuing. Abodeely v. Cavras, supra, at 498. Thus, the Iowa Supreme Court has found that where a vendor forfeited a real estate contract, he could not recover on a separate note and mortgage which were considered “additional security” for the real estate transaction though the parties agreed that even if the vendor exercised his right to forfeiture or foreclosure on the real estate contracts, payments on the notes would still be required. Gray v. Bowers, 332 N.W.2d 323 (Iowa 1983).

In reviewing plaintiffs’ claims, the Court finds that their assertion of a cause of action based on breach of the indemnity agreement is a claim on the contract and that under Gray v. Bowers, plaintiffs are barred from prevailing on it. However, the Court views plaintiffs’ other claims: fraud, RICO, negligent misrepresentations, breach of contract against defendant bank, and tortious interference with contract against defendant bank as not being actions on the contract, and are therefore not barred by plaintiffs’ forfeiture of the real estate contract to the extent they do not allow plaintiffs double recovery. Thus, this Court finds that forfeiture of the real estate contracts only precludes plaintiffs’ claim based on breach of an indemnity agreement.

IV. Defendant First National Bank of Missouri Valley.

This Court notes that Defendant First National Bank of Missouri Valley was not part of either the motion to dismiss or the motion for summary judgment. However, with respect to defendants’ motion to dismiss, this Court finds that its sustaining of defendants’ — except for Defendant First National Bank of Missouri Valley — motion to dismiss plaintiffs’ security claims shall also be considered a dismissal of plaintiffs’ securities claims against Defendant First National Bank of Missouri Valley.

IT IS THEREFORE ORDERED that defendants’ motion to dismiss be granted to the extent that plaintiffs’ claims based on the Securities Act of 1933, the Securities Exchange Act of 1934, and the Iowa Uniform Securities Act be dismissed. Plaintiffs claim based on RICO shall be dismissed unless plaintiffs amend their complaint within twenty days of this Order to comply with the pleading requirements of RICO as discussed above.

IT IS FURTHER ORDERED that defendants’ motion for summary judgment be granted only to the extent that plaintiffs’ claim of breach of indemnity agreement be dismissed.

      . Defendant First National Bank did not take part in either of the motions.

      . Defendants were successful in setting aside plaintiffs’ earlier notice of forfeiture because it did not properly apprise defendants of what action would be necessary on its part to avoid forfeiture.

      . The Court notes that the definition of "securities” in the 1933 and 1934 acts, 15 U.S.C. § 77b(l) and § 78c(a)(10), have been viewed by courts to be functional equivalents. See United Housing and Fdn. v. Forman, 421 U.S. 837, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975).


author: VanARTSDALEN, District Judge.

text:
    Steven A. MADREPERLA v. The WILLIARD CO., et al.
    Civ. A. No. 82-3505.
    United States District Court, E.D. Pennsylvania.
    Jan. 3, 1985.

      Leigh P. Narducci, Norristown, Pa., for plaintiff.

      Frank C. Sabatino, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for defendant.
   MEMORANDUM AND ORDER

VanARTSDALEN, District Judge.

This case presents a dispute concerning the termination of plaintiffs employment as president of one of the defendant corporations, Fire Control, Inc. Plaintiffs amended complaint asserts three basis for liability: age discrimination; breach of employment contract, and intentional infliction of emotional distress. Defendants have moved for summary judgment on all three counts.

In deciding a motion for summary judgment the court must determine whether the moving party has carried its burden of showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. See Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 405 (3d Cir.1981). All reasonable inferences from the evidentiary material of record must be drawn in favor of the non-moving party. Small v. Seldows Stationery, 617 F.2d 992, 994 (3d Cir.1980). A response to a properly supported summary judgment motion may not rest upon the allegations of the pleading but must present, by affidavit or otherwise, specific facts sufficient to create a genuine issue of material fact. Fed.R.Civ.P. 56(e); Sunshine Books, Ltd. v. Temple University, 697 F.2d 90, 96 (3d Cir.1982).

In the present case, defendants are corporations engaged in the fire control sprinkler industry: The Williard Company (Williard); Fire Control, Inc. (FCI); Fire Protection Industries (FPI), and Worsham Sprinkler Company, Inc. (Worsham). During the time relevant to this case, Williard owned all the stock in FCI, and FCI was the parent company of both FPI and Worsham.

Plaintiff, Steven A. Madreperla (Madreperla) had been the president of FPI before it was acquired by Williard. FCI was set up by Williard to oversee the operations of both FPI and Worsham. Madreperla was given a five-year contract as president of FCI.

During the summer of 1981, new management took control of Williard and its subsidiaries. Bernard Jourdan became president of Williard in November 1981. There was a considerable degree of friction between Madreperla and Jourdan concerning the operation of FCI, FPI and Worsham. Eventually, Madreperla’s employment was terminated, and he brought this action.

I. Age Discrimination Claim

The Age Discrimination in Employment Act (ADEA) makes it unlawful for an employer “to discharge any individual 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). To recover under the ADEA, a plaintiff must prove by a preponderance of evidence that age was “a determinative factor” in the employer’s decision. See Smithers v. Bailar, 629 F.2d 892 (3d Cir.1980). Plaintiff need not prove that age was the employer’s sole or exclusive consideration but must prove that “age made a difference” in that decision. Id. at 898.

A plaintiff can establish a prima facie case of age discrimination using statistical information, direct evidence of discrimination and/or circumstantial evidence. Miller v. General Electric Co., 562 F.Supp. 610 (E.D.Pa.1983). A prima facie case can be established by showing: (1) that the plaintiff was within the protected age group; (2) that the plaintiff was qualified for the position; (3) that the plaintiff was removed from the position; and (4) that the position was filled by a younger person. Smithers, 629 F.2d at 894-95. These guidelines are borrowed from the Supreme Court’s Title VII decision in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S.Ct. 1817, 1824, 36 L.Ed.2d 668 (1973).

If the plaintiff succeeds in establishing a prima facie case, the burden shifts to the employer “to articulate some legitimate, nondiscriminatory reason for the employee’s rejection.” Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 253, 101 S.Ct. 1089, 1093, 67 L.Ed.2d 207 (1981). If the defendant satisfies that burden of production, the inference or presumption of discrimination dissolves, and the plaintiff must satisfy its burden of persuasion by convincing the trier of fact that (1) a discriminatory reason actually motivated the employer or (2) the employer’s proffered explanation is unworthy of credence. Miller v. General Electric Co., 562 F.Supp. at 617; see also Blackwell v. Sun Electric Corp., 696 F.2d 1176 (6th Cir.1983).

Simply establishing a prima facie case is not necessarily sufficient to survive a summary judgment motion. The prima facie showing establishes a presumption which is destroyed upon defendant’s satisfaction of its burden of production. Reeves v. General Foods Corp., 682 F.2d 515 (5th Cir.1982). “The initial evidence introduced to support the prima facie case may or may not be adequate, after the presumption has disappeared, for a jury to draw a permissible inference of intentional discrimination.” Id. (citing Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 255 n. 10, 101 S.Ct. 1089, 1095 n. 10, 67 L.Ed.2d 207 (1981)).

In the present case, defendants claim that plaintiff has not established a prima facie case of age discrimination. They claim that Madreperla was not removed from his position and replaced by a younger person. Rather, they assert that Madreperla’s position was effectively eliminated and that he refused the offered replacement position.

There is no dispute that Madreperla is in the protected age group or that he was qualified for the position he held. Plaintiff asserts he was removed from his position as president of FCI when he received a letter of termination on June 2, 1982, and that his duties were taken over by newly appointed presidents for FCI and FPI and a vice president of Williard; namely Robert Rambo, Joseph Doody and Ed Caplan, all of whom are significantly younger than Madreperla. Defendants characterize plaintiff’s termination differently. They claim that labor disputes and Jourdan’s policy of retrenchment to reduce losses made it necessary for FCI to cease its function of controlling the operations of FPI and Worsham. Consequently, defendants “eliminated the essence of the FCI presidency” and offered the successor position, the presidency of FPI, to Madreperla.

Defendant’s evidence bears on the motivation for Madreperla’s termination, not on the adequacy of plaintiff’s prima facie showing. Madreperla was removed from his position by defendants, and he has submitted sufficient evidence to find that he was replaced by younger persons. Whether Madreperla’s “position” is viewed formalistically (as the presidency of FCI) or functionally (as responsibility for the operation of FCI, FPI and Worsham), there is sufficient evidence to find that the prima facie case has been established.

Moreover, despite defendants’ evidence that there were legitimate business reasons for Madreperla’s discharge, they are not entitled to summary judgment on the ADEA claim. Plaintiff has submitted sufficient evidence to create an issue of fact whether age was “a determinative factor” in the decision to discharge.

In addition to the evidence bearing on the prima facie case, plaintiff has presented circumstantial and statistical evidence of age discrimination. Plaintiff has submitted handwritten memoranda and notes and one oral statement of Bernard Jourdan indicating consciousness of and concern about the age of management personnel. Although this evidence by itself is of doubtful weight, see Stendebach v. CPC International, Inc., 691 F.2d 735 (5th Cir.1982), cert. denied, 461 U.S. 944, 103 S.Ct. 2122, 77 L.Ed.2d 1302 (1983), it must be taken in conjunction with all of the evidence of record and every inference must be drawn in favor of the plaintiff on the motion for summary judgment. Plaintiff has also submitted evidence that, shortly after new management took over Williard, Larry Shprintz, president of Williard, and George Meany, president of PSG, were also replaced by younger people. In addition, plaintiff claims that of thirteen individuals in the officer/manager category of employment at FCI, FPI and Worsham only two are above the age of forty.

Defendants vigorously contest the significance of all of this evidence. Taken as a whole with every inference drawn in plaintiffs favor, the evidence creates an issue whether age was a determinative factor in Madreperla’s discharge. Defendants are not entitled to summary judgment on the ADEA claim.

II. Contract Claim

Madreperla had a five-year employment contract as president of FCI that was due to expire on June 1, 1986. He was discharged from employment on June 2, 1982. Despite these undisputed facts, defendants seek summary judgment on the contract claim. They assert two basis for summary judgment: first, that Madreperla breached the contract and released defendants from any obligations; and second, that the contract claim is barred by the doctrine of frustration of purpose.

A. The “Best Efforts” Clause

Madreperla’s contract required him “to use his best efforts” in carrying out his duties as president of FCI. It further provided that he could be discharged for cause upon “failure ... to perform or observe any of the terms or provisions of [the] Agreement.” Defendants claim that Madreperla failed to use his best efforts in carrying out his duties as president and, therefore, that they were permitted under the contract to discharge him.

Whether someone has used his best efforts in carrying out his duties is an inherently factual determination depending on all of the circumstances. Cf. Commonwealth Department of Property & Supplies v. Berger, 11 Pa.Commw. 332, 312 A.2d 100 (1973) (whether there is a basis for dissatisfaction with performance of a contract is properly a question for the finder of fact). See generally Lowell v. Twin Disc, Inc., 527 F.2d 767, 771-72 (2d Cir.1975) (noting that the issue whether plaintiff satisfied “best efforts” provision of contract was submitted to jury). On the basis of the evidence of record, defendants are not entitled to summary judgment on grounds of breach of contract by the plaintiff. Plaintiff has submitted substantial evidence indicating that he satisfied the “best efforts” clause. Such evidence includes Madreperla’s eight-page memo of December 4, 1981 to Jourdan answering point-for-point each of the concerns raised by Jourdan and various other memos from Madreperla memorializing his activities, directing action from his subordinates and reporting to his superiors. See Exhibits E and F in the Appendix to Plaintiff’s Brief Contra Defendants’ Motion for Summary Judgment.

B. Frustration of Purpose

The defendants assert that Madreperla’s contract claim is barred by the doctrine of frustration of purpose. That doctrine is defined in the Restatement (Second) of Contracts § 261 (1979):

Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render performance is discharged, unless the language or the circumstances indicate the contrary.

Pennsylvania law accepts the principle of frustration of purpose. Alvino v. Carraccio, 400 Pa. 477, 162 A.2d 358 (1960); Greek Catholic Congregation of Olyphant v. Plummer, 338 Pa. 373, 382, 12 A.2d 435, 439 (1940).

Defendants claim that the change in the operation of FCI, FPI and Worsham that took place contemporaneously with Madreperla’s discharge frustrated the purpose of Madreperla’s employment contract. FCI was created in order to operate jointly FPI and Worsham. This arrangement was required by the labor laws because FPI is a union company and Worsham is nonunion. The union labor at FPI was unhappy with this double-breasted operation and sought to force the sale of Worsham. Jourdan planned to operate FPI and Worsham independently of each other and reduce FCI to a financial holding company performing only accounting and financial services for FPI and Worsham. Labor apparently agreed to this compromise, and it is the structure now existing. Jourdan viewed Madreperla’s role as the responsibility for operation of FPI and so tried to get him to resign the FCI presidency and accept the presidency of FPL Madreperla opted to remain president of FCI under his existing contract rather than accept the presidency of FPI under a contract with less favorable terms. Madreperla was then discharged from his position as president of FCI and was replaced by Robert Rambo. FCI continues to exist with Rambo as its president.

Defendants cite several cases for the proposition that the obligations of an employment contract cease when the employer ceases to exist. McKinney v. National Dairy Council, 491 F.Supp. 1108, 1111 (D.Mass.1980); Alabama Football, Inc. v. Wright, 452 F.Supp. 182, 185 (N.D.Tex.1977), aff'd, mem., 607 F.2d 1004 (5th Cir.1979). In the present case, however, FCI continues to exist, and it still has a president. Moreover, if frustration of purpose were the only objection to continuing performance of the contract, the equity of the situation would suggest that Madreperla, at least, ought to have been offered the presidency of FPI under terms identical to his existing FCI contract.

Madreperla’s contract for the presidency of FCI, after all, was approved by Williard and signed by Lawrence Shprintz as president of Williard. Williard has not ceased to exist. The business operations continued; only the structure and operation of the corporate entities was altered. Williard has not established that it could not have foreseen potential labor difficulties when it set up the double-breasted operation. A business with a complicated corporate structure cannot avoid the obligations of an employment contract by simply shuffling jobs from one subsidiary to another. Defendants have not established that Madreperla’s contract claim was barred by frustration of purpose. Summary judgment on plaintiff’s contract claim will be denied.

III. Emotional Distress

In the third count of the amended complaint, Madreperla claims that the events surrounding his discharge constituted intentional infliction of emotional distress. The Restatement (Second) of Torts § 46(1) describes the tort of intentional infliction of emotional distress:

One who by extreme and outrageous conduct intentionally or recklessly causes severe emotional distress to another is subject to liability for such emotional distress, and if bodily harm to the other results from it, for such bodily harm.

The courts of Pennsylvania have accepted the general principles of § 46 of the Restatement, Papieves v. Lawrence, 437 Pa. 373, 263 A.2d 118 (1970); Jones v. Nissenbaum, Rudolph & Seidner, 244 Pa.Super. 377, 368 A.2d 770 (1976).

The Third Circuit has noted that there are four elements to an action for intentional infliction of emotional distress: “(1) the conduct must be extreme and outrageous; (2) the conduct must be intentional or reckless; (3) it must cause emotional distress; and (4) the distress must be severe.” Chuy v. Philadelphia Eagles Football Club, 595 F.2d 1265, 1273 (3d Cir.1979). Before submitting a claim for intentional infliction of emotional distress to a jury the “court must determine, as a matter of law, whether there is sufficient evidence for reasonable persons to find extreme or outrageous conduct.” Id. at 1274. See also Restatement (Second) of Torts § 46 comment h.

Intentional infliction of emotional distress is not a novel claim in the context of employment contract disputes. A premeditated plan to force an employee to resign by making employment conditions difficult typically does not amount to extreme or outrageous conduct sufficient to sustain a cause of action for intentional infliction of emotional distress. Wells v. Thomas, 569 F.Supp. 426 (E.D.Pa.1983); Beidler v. W.R. Grace, 461 F.Supp. 1013 (E.D.Pa.1978), aff'd mem., 609 F.2d 500 (3d Cir.1979). Certain types of conduct by employers, however, such as sexual harassment, can constitute extreme or outrageous conduct. E.g., Shaffer v. National Can Corp., 565 F.Supp. 909, 914-16 (E.D.Pa.1983). In Cautilli v. GAF Corp., 531 F.Supp. 71, 74 (E.D.Pa.1982), the court held that “[c]onduct by an employer inducing an employee into committing himself to continued employment, while the employer knows that a change in circumstances may require the employee to relocate his home” did not amount to extreme or outrageous conduct sufficient to support a claim for intentional infliction of emotional distress. Judge Becker noted that he did “not believe that [the courts of Pennsylvania] would extend this tort to cover an employment contract dispute such as that before us.” Id.

In the present case there is no conduct sufficiently extreme or outrageous to support a claim for intentional infliction of emotional distress. The facts taken in a light most favorable to the plaintiff might permit the inference that defendants offered him a lesser contract in an intentional effort to force him to resign. Moreover, according to the plaintiff, defendants offered plaintiff the choice of the FPI presidency under a lesser contract or continuation of the FCI presidency under his current contract. When the plaintiff chose to remain under his current contract he was discharged. This case presents an employment dispute with a notable paucity of harassment. The defendants confronted the plaintiff with a problem and, when that problem could not be worked out, terminated his employment. That termination may or may not have violated certain legal rights of the plaintiff, but it does not amount to conduct “so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.” Restatement (Second) of Torts § 46 comment d (1965).

For the reasons expressed above, defendants’ motion for summary judgment will be granted as to plaintiff’s claims for intentional infliction of emotional distress and denied as to plaintiff’s claims for age discrimination and breach of contract.

      . PSG is a company that was acquired by the new management at the same time they acquired Williard and FCI. Plaintiff refers to PSG as "Philadelphia Suburban Group,” but Jourdan has identified PSG as “Professional Services Group.” Needless to say, this discrepancy does not present a dispute as to a material issue of fact.