author: JAMES McGIRR KELLY, District Judge.

text:
    Alex MARKOVICH, et al. v. VASAD CORPORATION, et al.
    Civ. A. No. 84-3636.
    United States District Court, E.D. Pennsylvania.
    Feb. 21, 1985.

      Steven L. Friedman, Philadelphia, Pa., for plaintiffs.
    Stephen P. Patrizio, Philadelphia, Pa., for defendants.
   MEMORANDUM AND ORDER

JAMES McGIRR KELLY, District Judge.

Presently before this court is defendant Hopkins’ motion to dismiss plaintiff’s complaint for failure to state a claim upon which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6) and in the alternative, because the complaint is vague, defendant seeks a more definite statement pursuant to Fed.R.Civ.P. 12(e) and 9(b). Defendant has also requested in his motion, attorney’s fees, since he claims the plaintiffs brought the instant motion with vexatious intent. In an attempt to remedy certain vagueness of their complaint, plaintiffs have motioned this court for leave to amend their pleadings.

I turn first to plaintiffs’ motion for leave to amend their complaint. Rule 15 of the Federal Rules of Civil Procedure states in pertinent part, “[a] party may amend his pleading once as a matter of course at any time before a responsive pleading is served ...”. Because a motion to dismiss is not a responsive pleading, the plaintiffs may amend their pleading once as a matter of course. Bates v. Western Electric, 420 F.Supp. 521 (E.D.Pa.1976); Simmons Co. v. Cantor, 3 F.R.D. 197 (W.D.Pa.1943). Therefore, I do not need to rule upon plaintiffs’ motion.

Because defendant Hopkins has motioned this court to dismiss for failure to state a claim, the plaintiffs’ complaint will be viewed most favorably to them, the non-moving parties. Based upon the pleadings, the alleged facts are as follows.

In the late spring of 1982, plaintiff Markovich met with and was requested to assist Vasad by helping defendant Priljeva, an officer and 50% owner of Vasad, place a substantial medical equipment order for three hospitals in Africa. Plaintiff Markovich was to be compensated on a commission basis. Subsequently defendant Priljeva, after Markovich secured suppliers, was unable to confirm the orders. In the summer of 1982, defendant Hopkins, an officer of Vasad, and defendant Priljeva assured plaintiff Markovich that certain buyers had been secured in Iraq. To process these prospective orders, defendants Hopkins and Priljeva informed plaintiff Markovich that defendant Vasad needed an inventory data processing system to enable it to process the prospective orders. At this time plaintiff Markovich contacted plaintiff Jones and introduced him to defendants Hopkins and Priljeva. Subsequently, defendant Vasad entered into a contract with Jones to design a data processing system. Jones was paid $2,250 initially, with $12,-750 to be paid at a later date. The system was completed by plaintiff Jones by November, 1982; plaintiff demanded the remaining $12,750, but defendant Vasad failed to make payment.

In October of 1982, defendants Hopkins and Priljeva allegedly induced plaintiffs Markovich and Jones to make certain investments in Vasad. This was allegedly accomplished by the defendants Hopkins and Priljeva making representations that Vasad was the only American company to hold a general class import/export license with Iraq, that certain contacts had been made in Iraq, Lebanon, and Saudi Arabia which would result in substantial sales and that defendants Hopkins and Priljeva had already invested $200,000. In consideration of the requested sum of $35,000 from Markovich and Jones, Markovich would receive one-quarter of Vasad’s voting stock and Jones would receive either non-voting stock in Vasad or an interest bearing note.

Markovich and Jones, relying upon defendants' representations, tendered $17,500 each for a total of $35,000. Because of the exigency for the funds, written agreements evidencing the investments were not drawn up at the time the plaintiffs tendered their money, but rather were postponed for a later time. Subsequently, plaintiffs demanded either written memorandum of their investments or the return of their money, but neither was provided.

In January, 1983, defendants Hopkins and Priljeva requested that plaintiff Markovich, acting as an agent for defendant Va-sad, accompany Priljeva on a trip to Yugoslavia to solicit an order for Vasad. Furthermore, Markovich was assured that he would be reimbursed for his travel expenses. Although the trip resulted in a letter of intent to purchase, plaintiff has not been reimbursed for his travel expenses'.

Count I of plaintiffs’ complaint alleges securities fraud. Plaintiffs assert a cause of action upon the authority of Title 15 U.S.C. §§ 111(2), 11 o and 77q(a).

Defendant asserts that the statute of limitation has expired. Defendant claims that paragraph 21 of plaintiffs’ complaint suggests that the plaintiffs had knowledge of the alleged fraud approximately one and one-half years prior to instituting this action. Paragraph 21 states: “Markovich and Jones were unaware of the misrepresentations or could not reasonably have known of the misrepresentations until at least after December 1, 1982.”

Plaintiffs filed the instant action in July of 1984. Because paragraph 21 may be read to infer that plaintiffs had knowledge of the alleged fraud over one year prior to instituting the instant action, defendant Hopkins asserts that the one year statute of limitations has expired. The applicable statute of limitations are:

15 U.S.C. § 77m Limitation of actions

No action shall be maintained to enforce any liability created under section 77k or HI (2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 77i(l) of this title, unless brought within one year after the violation upon which it is based. In no event shall any such action by brought to enforce a liability created under section 77k or 77/ (1) of this title more than three years after the security was bona fide offered to the public, or under section 77/ (2) of this title more than three years after the sale,

and

70 Pa.Stat.Ann. (Purdon Supp.1984-85) § 1-504. Time limitations on rights of action
(a) No action shall be maintained to enforce any liability ... unless brought before the expiration of three years after the act or transaction constituting the violation or the expiration of one year after the plaintiff receives actual notice or upon the exercise of reasonable diligence should have known of the facts constituting the violation, whichever shall first expire. ,

While § 77m, supra, is applicable to Title 15 U.S.C. §§ 77/ (2) and 77o, section 1-504, supra, is applicable to Title 15 U.S.C. § 77q(a). Goodman v. Moyer, 523 F.Supp. 35 (E.D.Pa.1981) (Pennsylvania one year statute of limitations under Pennsylvania Securities Act was applicable to federal claims under 15 U.S.C. § 77q); Newman v. Prior, 518 F.2d 97 (4th Cir.1975) (statute of limitations contained in the Securities Act of 1933, 15 U.S.C. § 77a et seq., does not apply generally to that act’s prohibition against use of fraud in connection with sale of a security, rather federal courts must apply analogous statute of limitations from forum state).

The statute of limitations require plaintiffs to bring an action within one year after learning of the fraud or within one year after they should have discovered the fraud by exercising due diligence. Plaintiffs have left unaccountable a period in excess of 18 months prior to bringing the action when they claimed they learned of the fraud. Indeed, plaintiffs claim it was at least after December, 1982 when they learned of the misrepresentations; the instant action was brought in July, 1984. If the misrepresentations were discovered by the plaintiffs outside the one year period, the plaintiffs’ action should be barred. However, I am unable to uncover the date when plaintiffs learned or should have learned of the misrepresentation. Therefore, in fairness to the defendants, plaintiffs must be required to amend their complaint to disclose the date they learned of or should have learned of the misrepresentations. Kirschner v. Cable/Tel. Corp., 576 F.Supp. 234 (E.D.Pa.1983).

Defendant Hopkins asserts that a Title 15 U.S.C. § 77q(a) (footnote 4, supra) does not support a private cause of action. The Third Circuit has not addressed the question, whether or not section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a), permits a private cause of action, although there is an abundance of authority which permits such a private cause of action. See cases noted in Kimmel v. Peterson, 565 F.Supp. 476, 482, n. 6 (E.D.Pa. 1983). Notwithstanding, the more reasoned analysis was enunciated by Judge Giles in Kimmel, where the court held that a private cause of action does not exist. See also In re Catanella and E.F. Hutton and Company, Inc. Securities Litigation, 583 F.Supp. 1388, 1419 (E.D.Pa.1984); Hill v. Der, 521 F.Supp. 1370 (D.Del.1981); cf. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) (the mere fact that a statute was designed to protect a certain group of class of people does not imply a private cause of action); United States v. City of Philadelphia, 644 F.2d 187 (3d Cir.1981) (the court is reluctant to infer an additional statutory remedy that is significantly broader than those which Congress has explicitly provided). Accordingly, I find that Title 15 U.S.C. § 77q does not provide a private cause of action. Yet, a private cause of action does exist under 15 U.S.C. § 771. Therefore, count I is a viable cause of action.

Defendant argues that count I fails to properly allege a securities transaction, a violation of which could be the basis upon which relief could be granted. Defendant directs this court to state law which requires a writing; 13 Pa.Cons.Stat.Ann. § 8319(1) (Purdon Supp.1984) which states in part:

§ 8319. Statute of frauds
A contract for the sale of securities is not enforceable by way of action or defense unless:
(1) there is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price; ____

The defendant here has failed to direct this court to any authority which requires federal courts to adopt substantive state law where a dispute arises under a federal statute, namely 15 U.S.C. § 111, as is the situation here. Moreover, defendant has failed to read subparagraph (2) of section 8319, supra, which states:

A contract for the sale of securities is not enforceable by way of action or defense unless:
sfc sjs s|c ‡ s{:
(2) delivery of the security has been accepted or payment has been made but the contract is enforceable under this paragraph only to the extent of such delivery or payment; ____(emphasis added)

Thus, the statute of frauds would not apply where a party has performed either by delivering the money or securities, notwithstanding the fact that there is not a writing. The plaintiffs have alleged that they have tendered $35,000. For these reasons defendant’s claim that the transaction must be evidenced in a writing must fail.

Count II of plaintiffs’ complaint asserts a cause of action arising under the Securities Act of 1934 specifically 10(b), 15 U.S.C. § 77j and Rule 10b-5, 17 C.F.R. 240.10b-5 promulgated under it. Defendant asserted the same statute of limitations argument that was asserted to dismiss count one. For the reasons already stated, supra, this argument must fail. Defendant also argues that the statute of frauds, 13 Pa.Cons.Stat.Ann. § 8319, supra, bars plaintiffs’ claim because there is no written document evidencing the securities transaction. However, the fact that plaintiffs delivered $35,000 to the defendants and the fact that the federal courts are not bound by state substantive law where a federal statute is the gravamen of the claim, as is here, disposes of defendant’s argument.

Count III of plaintiffs’ complaint asserts a claim under the Racketeer Influenced Corrupt Organization Act, Title 18 U.S.C. § 1964. However, because plaintiffs fail to allege that defendants have been convicted of two of the acts set out under 18 U.S.C. § 1961 (which is a requirement for showing a, “pattern of racketeering activity”), they have not alleged a claim under 18 U.S.C. § 1964. Viola v. Bensa lem Township, 601 F.Supp. 1086 (E.D.Pa. 1984).

I turn now to defendant’s claim that the plaintiffs have not set out their claims with sufficient particularity as is required under Rule 9(b) and 12(e) of the Federal Rules of Civil Procedure. Except for the ambiguity in paragraph 21 of plaintiffs’ complaint pertaining to the time plaintiffs learned or should have learned of the fraud, which I addressed above, I do not find the complaint vague or ambiguous. Conversely, it is sufficiently particular to place defendants on notice of the fraud that they are to defend against (see the alleged facts, supra). Rule 9(b) of the Federal Rules of Civil Procedure does not require particularity to the degree so as to supplant general discovery methods. Hagstrom v. Breutman, 572 F.Supp. 692 (N.D. Ill.1983). Here plaintiffs put defendants on notice as to the general time period, the nature of the discussions which took place between the parties, and the grounds upon which plaintiffs’ action is based. Although the plaintiffs could have provided more information, I find that the complaint, except for paragraph 21, meets the requirement of Rule 9(b) and 12(e). Accordingly, plaintiffs will be required to provide a more definite statement as to paragraph 21.

Counts IV and V of plaintiffs’ complaint concern common law fraud and breach of contract, respectively. Defendant seeks dismissal of these two counts asserting that since the plaintiffs have failed to set out a claim under the federal statutes alleged in counts I through III, the court must dismiss the state claims. Although I have dismissed count III, I have not dismissed counts I and II, thus I may still exercise pendent jurisdiction. However, I need not rule, at this time, as to whether or not I will exercise pendent jurisdiction. Thus counts IV and V will not be dismissed.

Last, I must address defendant’s request for attorney’s fees. Defendant has not brought to the court’s attention any valid reasons why he is entitled to attorney’s fees. Furthermore, I do not find it proper in the matter before me to grant defendant his attorney’s fees for making the instant motion. The defendant’s motion for attorney’s fees will be denied.

      . Plaintiffs unmeticulously attached this motion to their response to defendants’ motion.

      . As the defendants have not answered plaintiffs’ complaint, the plaintiffs' allegations, for the purpose of this matter now before the court, will be viewed as the facts.

      . Refers to defendant Vasad Corporation and its successor Vasad International, Inc. Vasad is engaged in international commerce as a broker-intermediary between businesses in the United States and businesses overseas.

      . 15 U.S.C. § 77/(2) states:
      § 77/ Civil liabilities arising in connection with prospectuses and communications Any person who—
      ******
      (2) offers or sells a security (whether or not exempted by the provision of section 77c of this title, other than paragraph (2) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.
      15 U.S.C. §77o states:
      § 77o. Liability of controlling persons
      Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency, or otherwise, controls any person liable under sections 77k or 111 of this title, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.
      15 U.S.C. § 77q(a) states:
      § 77q. Use of interstate commerce for purpose of fraud or deceit
      (a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly—
      (1) to employ any device, scheme, or artifice to defraud, or
      (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of circumstances under which they were made, not misleading, or
      (3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

      . The plaintiffs allege that they delivered $35,-000 to the defendants, on an oral understanding that the transaction would be reduced to a writing; the reduction to a writing was never done.

      . Fed.R.Civ.P. 9 states in pertinent part:
      (b) Fraud, Mistake, Condition of the Mind. In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity____
      Fed.R.Civ.P. 12 states in pertinent part:
      (e) Motion for More Definite Statement. If a pleading to which a responsive pleading is permitted is so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading, he may move for a more definite statement before interposing his responsive pleadings____


source: Caselaw Access Project

author: HAIGHT, District Judge:

license: Public Domain

text:
    LEIGH CO., A Limited Partnership, Plaintiff, v. The BANK OF NEW YORK, Corporation, Defendant.
    No. 83 Civ. 1794-CSH.
    United States District Court, S.D. New York.
    Feb. 21, 1985.

      Bornstein & Cohen, Boston, Mass., for plaintiff; Elaine Fagelman, Boston, Mass., of counsel.
    Emmet, Marvin & Martin, New York City, for defendant; Anne T. Schwab, New York City, of counsel.
   MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

The above-captioned action is before this Court as part of a larger diversity action brought by plaintiff, Leigh Company (“Leigh Co.”), a limited partnership based in Boston and formed under Massachusetts law, against several defendants in the United States District Court for the Central District of California. One of the named defendants in that action was the Bank of New York (the “Bank”), a New York corporation. Plaintiff’s claims against the Bank were severed and transferred to this Court on March 9, 1983. The only claims before this Court are those asserted against the defendant Bank in Counts 10 and 11 of plaintiff’s complaint.

The Bank moves, pursuant to Rule 12(b)(6), F.R.Civ.P., to dismiss Count 10 of the complaint, alleging a cause of action for money had and received or for conversion, for failure to state a claim upon which relief can be granted, and Count 11, alleging that the Bank committed what plaintiff calls a tort of “wrongful deposit.” The Bank moves in the alternative for summary judgment on Count 10 alone, pursuant to F.R.Civ.P. 56.

The material facts in this dispute are taken from the complaint, and treated as true for purposes of the motion to dismiss, George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 553 (2d Cir.1977), or are uncontroverted facts contained in the parties’ briefs and pleadings.

Plaintiff Leigh Co. is a Massachusetts limited partnership whose general partners are Jennifer Leighton and her father, Paul Leighton. On November 1,1981, Leigh Co. contracted to purchase a feature film entitled “Super Seal” from Producers Clearing House (“PCH”) pursuant to a Film Purchase Agreement. The deal was arranged by a third party, Robert Dziurgot, known to both PCH and Leigh Co. The terms of the Agreement provided that the total purchase price of the film would be $1,300,000, with $100,000 payable on execution of the Agreement, another $100,000 due on January 15, 1982, and the balance of $1,100,000 to be paid by promissory note.

Accordingly, on the date of the Agreement’s execution, Leigh Co. delivered to PCH and other defendants, through Dziurgot, the promissory note described in the Agreement, and a check drawn on the State Street Bank & Trust Company of Boston, Massachusetts (“State Street Bank”) in the amount of $100,000 dated October 30,1981, made payable to “Producers Clearing House.”

Dziurgot brought the first $100,000 check to the Bank where he opened a partnership checking account on November 4, 1981 in the name of Producers Clearing House. Dziurgot filled out the Bank’s standard form Partnership Account Agreement on which he represented himself to be a general partner of PCH and claimed to be the only partner authorized to sign checks on behalf of the partnership. Dziurgot also filled out a Partnership Authorization Agreement which authorized him to conduct banking transactions on behalf of the partnership. He then deposited the $100,-000 check in the newly-opened account by indorsing it with the typewritten inscription:

For Deposit Only
Producers Clearing House
A/C # 11-6874

Two days later, Dziurgot drew a $60,000 check payable to Leigh Co. on the PCH partnership checking account using blank temporary checks issued by the Bank. Since Dziurgot had previously arranged with Leigh Co. for a company named Aires Limited to purchase a limited partnership interest in Leigh Co., Jennifer Leighton accepted the check believing it to be Aires’ payment in purchase of that interest. Leigh Co. deposited the $60,000 check and received the proceeds thereof.

Leigh Co. received the cancelled $100,000 check in its December 1981 monthly statement from the State Street Bank.

On or about January 15, 1982, Leigh Co. drew another check on the State Street Bank in the amount of $100,000, dated January 15, 1982 and payable to PCH. This check, intended by plaintiff to be the second payment required by the Film Purchase Agreement for purchase of “Super Seal,” was also delivered to Dziurgot. He then deposited this second $100,000 check in the PCH account with the Bank after indorsing it with the typewritten inscription:

For Deposit Only In
Acct. of Producers Clearing House
11 6874

On or before January 31, 1982, Dziurgot withdrew all of the funds in the PCH partnership account and has not been heard from since. He is believed to have left the country after having been sentenced to a jail term on an unrelated criminal matter.

Leigh Co. contends that none of the $200,000 deposited in the PCH partnership account by Dziurgot was ever conveyed to the intended payee, Producers Clearing House, in partial payment toward purchase of the film “Super Seal.” Leigh Co. further contends that Producers Clearing House denies authorizing Dziurgot to indorse on its behalf any checks drawn by Leigh Co. and payable to PCH.

I. Money Had and Received (Count 10)

The question presented by defendant Bank’s motion to dismiss is whether the Bank of New York, a depositary bank, can be held liable on an action for money had and received or for conversion by accepting for deposit, on the basis of Dziurgot’s unauthorized indorsement, the two checks drawn by Leigh Co. and for giving Dziurgot the proceeds of those checks. In the leading New York case on the subject, Underpinning & Foundation Constructors, Inc. v. Chase Manhattan Bank, N.A., 46 N.Y.2d 459, 414 N.Y.S.2d 298, 386 N.E.2d 1319 (1979), the Court of Appeals held that a drawer of a check may sue a depositary bank, either for money had and received or for conversion, if the bank accepts a check and pays out the proceeds in violation of a restrictive indorsement that is forged, yet effective. Underpinning controls this case only if Dziurgot’s indorsement was both forged and effective and if the Bank did not handle the check in accordance with the restrictive indorsement.

The threshold question is whether Dziurgot’s indorsement of the check is a “forged indorsement.” In its complaint, plaintiff alleges that Dziurgot was a “duly authorized agent” of PCH (Complaint, para. 65) and contends that he had authority, express or implied, to open the PCH account with the Bank, to deposit Leigh Co.’s cheeks therein and to withdraw funds from that account. If true, Dziurgot properly had authority to indorse plaintiff’s checks and, ipso facto, his indorsements were not forged.

Realizing the implications of those pleadings for its claims against the Bank, plaintiff asserts a second theory in its papers in opposition to defendant’s motion. Leigh Co. now contends that the true payee, PCH, never gave Dziurgot authority to indorse and negotiate on its behalf the checks from Leigh Co. Under this theory, Dziurgot’s typewritten indorsement in PCH’s name is a forgery since it was not executed by the intended payee, Producers Clearing House corporation, or one of its authorized agents, but only by one purporting to have authority to act in its behalf.

Ordinarily, a drawer of a check has no cause of action against a depositary bank for acceptance of and payment on a forged indorsement since that bank is deemed not to have dealt with any valuable property of the drawer. A forged indorsement is an “unauthorized signature” that is wholly inoperative to transfer the drawer’s rights in the instrument. N.Y.U.C.C. § 3-404 (1964). It does not authorize the drawee bank to take money from the drawer’s account to pay for the check. Consequently, when the depositary bank seeks to collect from the drawee bank the funds the depositary bank has paid out to its depositor, any funds given by the drawee bank to the depositary bank can only come from the drawee bank itself. Therefore, the depositary bank never has or receives any property of the drawer and has no property to convert. Underpinning, 414 N.Y.S.2d at 300, 386 N.E.2d at 1321.

But this rationale is inapplicable in those cases in which the indorsement is forged, yet effective. The indorsement then validly authorizes the drawee bank to withdraw funds from the drawer’s account to cover the checks. The depositary bank thus has and receives the drawer’s own money wrongfully and may be liable for converting the drawer’s property. 414 N.Y.S.2d at 301, 386 N.E.2d at 1322.

The Uniform Commercial Code provides that a forged indorsement will be effective if:

“(a) an impostor by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee; or
“(b) a person signing as or on behalf of a maker or drawer intends the payee to have no interest in the instrument; or
“(c) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest.”

N.Y.U.C.C. § 3-405.

In each of these circumstancés, the Code views the drawer himself or herself as in the best position, among all innocent parties to the transaction, to prevent or detect the forger’s deception; consequently, the risk of loss due to the forged indorsement is left on the drawer. In each case, it is the relationship between the drawer and the person responsible for the forgery that is critical.

The first situation contemplates those situations in which an impostor induces the drawer to issue the check to a specific payee. The particular payee designated is unimportant; all that is required is that the check be issued in reliance on an “impostor.” The term “impostor” as used here refers to impersonation, and does not extend to a false representation that the party is the authorized agent of the payee. N.Y.U.C.C. § 3-405, official comment no. 2, (McKinney’s 1964) at 256. In the case at bar, there is no allegation that Dziurgot pretended to be anyone but himself — Robert Dziurgot. He did not impersonate anyone else and cannot be an impostor. At most, plaintiff suggests it issued the checks to Dziurgot in reliance on his misrepresention that he was an authorized agent for PCH, but it is clear from the official comment that this allegation is insufficient to bring Dziurgot’s acts within the ambit of section 3-405(l)(a).

In the second situation, the drawer or his authorized signatory must have intended that the named payee have no interest in the check. But there is no question that Jennifer Leighton, who signed the checks at issue on behalf of Leigh Co., fully intended PCH, the named payee, to negotiate and receive the proceeds of the check. Dziurgot’s forged indorsements cannot be deemed effective under section 3-405(b).

If the Bank is to be liable on the theory that the forged indorsement was effective, the facts of this case must fit the third situation described in N.Y.U.C.C. § 3-405(c): “an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest” (in the instrument). Leigh Co. may succeed on this théory only by showing that Dziurgot was its own agent or employee.

In various pleadings, plaintiff has alleged several different theories regarding Dziurgot’s relationship to Leigh Co. In its complaint, plaintiff alleges that Dziurgot was PCH’s agent. If that were true, whether he was PCH’s agent for all purposes or only for limited purposes, the relationship between Leigh Co. and Dziurgot could not be such as to fall within the application of U.C.C. § 3-405(c).

In its first pleading in opposition to the Bank’s motion to dismiss, plaintiff argues that Dziurgot was Leigh Co.’s agent for the limited purpose of accepting the checks for delivery to PCH and for delivery of the contract of purchase back to Leigh Co. However, Leigh Co. asserts that this limited agency relationship did not include authorization for Dziurgot to indorse or otherwise negotiate the checks.

Plaintiff argues that because the status of Dziurgot as an agent of Leigh Co. is unclear, determination of his status raises a disputed issue of material fact that should preclude granting defendant’s motion. However, the agency issue would only be material if clarification of Dziurgot’s status could produce facts sufficient to defeat defendant’s motion. If Dziurgot were PCH’s agent or an independent agent, his forged indorsement could not be effective under U.C.C. § 3-405, and hence plaintiff would have no cause of action against the depositary bank. On the other hand, if Dziurgot were plaintiff’s agent, even for limited purposes, then Dziurgot’s forged indorsement may be effective. However, plaintiff then has a cause of action against the Bank only if the Bank committed one of two errors: (1) dealt with the checks in violation of their restrictive indorsements, Underpinning, 414 N.Y.S.2d at 298, 386 N.E.2d at 1319; § 3-206(3), or (2) did not deal with the checks or their proceeds in accordance with reasonable commercial standards, N.Y.U.C.C. § 3-419(3). For the reasons stated below, I conclude that the Bank has committed neither of these errors. Therefore, no matter whose agent Dziurgot was, plaintiff can raise no material issue of fact sufficient to defeat defendant’s motion for summary judgment.

Since presentation of a check for deposit in violation of a restrictive indorsement ought to put the depositary bank, as first taker, on notice of an irregularity, the bank is considered to be in a better position than the drawer to avoid the loss, even in those situations where the forged indorsement is effective. In such cases, the risk of loss is shifted from the drawer to the bank, and the bank may be held liable by the drawer for payment in violation of the restrictive indorsement.

Both of the checks at issue were payable to “Producers Clearing House” and indorsed “For Deposit Only” to the account of Producers Clearing House. The indorsements directed the Bank to deposit the check into the account of Producers Clearing House. The indorsement further identified the PCH account by number: 11-6874. The checking account bearing that number was the Producers Clearing House partnership account opened by Dziurgot. Pursuant to the restrictive indorsement, the Bank accepted the checks for deposit into that account and credited the proceeds of those checks to that account.

There was nothing on either the face of the check or in the indorsement to put the Bank on notice that the Producers Clearing House partnership, of which Dziurgot claimed to be general partner, was not the payee intended by plaintiff. Plaintiff intended to convey the check and its proceeds to a corporation bearing that name. If plaintiff had made the check payable to the “Producers Clearing House Corporation,” the Bank would clearly have been remiss in permitting Dziurgot to open a partnership account in the firm’s name or to negotiate the check without proper corporate authorization. But Dziurgot’s representations were consistent with the drawer’s designation of PCH as payee and the Bank cannot be said to have handled the checks in violation of their restrictive indorsements. The Bank, having followed the instructions contained in the restrictive indorsement, is not liable to the drawer either for conversion or for money had and received. Spielman v. Manufacturers Hanover Trust, 60 N.Y.2d 221, 469 N.Y.S.2d 69, 72, 456 N.E.2d 1192, 1195 (1983). See also, Fed. Ins. Co. v. First Natl. Bank of Boston, 633 F.2d 978 (1st Cir.1980).

Leigh Co. protests that even if the Bank did not violate the instructions contained on the face of the checks or in the restrictive indorsements, the Bank is nevertheless liable to plaintiff for failure to act “in accordance with reasonable commercial standards applicable to the business” in handling the checks. N.Y.U.C.C. § 3-419(3). Leigh Co. asserts that the determination whether the Bank acted in a commercially reasonable manner is a disputed issue of fact that precludes a grant of summary judgment.

It is true that the determination of commercial reasonableness is usually a factual determination best made by the trier of fact, Holland America Cruises, N.V. v. Carver Federal Sav. & Loan Ass’n, 60 A.D.2d 545, 400 N.Y.S.2d 64, 65 (1977). But where the material facts are undisputed, the Court may decide as a matter of law that the Bank’s actions were commercially reasonable. See, e.g., Belmar Trucking Corp. v. American Trust Co., 65 Misc.2d 31, 316 N.Y.S.2d 247 (1970); Williams Mechanical Corp. v. Manufacturers Hanover Trust Co., 20 U.C.C.Rep.Serv. (Callaghan) 468 (N.Y.Sup.Ct.1976). Furthermore, the burden is on Leigh Co. to present evidence demonstrating what constitutes a commercially reasonable standard for a bank to follow when its customers present checks for deposit and how the Bank failed to meet this standard. Tette v. Marine Midland Bank, 78 A.D.2d 383, 435 N.Y.S.2d 413, 415 (4th Dept.1981).

Leigh Co. alleges three ways in which the Bank’s handling of the checks at issue was commercially unreasonable.

First, plaintiff asserts that the Bank was negligent in giving Dziurgot blank checks' when he opened the account for use in drawing funds. Plaintiff suggests that if the check drawn by Dziurgot on the partnership account payable to Leigh Co. had had the partnership name imprinted upon it, Jennifer Leighton would not have assumed that the check was from Aires Limited and would have been alerted to Dziurgot’s chicanery. While receipt of the check from a PCH account instead of an Aires Limited account might well have led Leighton to make further inquiries of Dziurgot at an earlier date, it cannot be said that the giving of blank checks to an account holder while imprinted cheeks are being prepared is negligent or commercially unreasonable. I take judicial notice that it is common practice for banks to provide temporary checks with only an account number imprinted upon them when an account is first opened, so that the account holder may have access to funds while the checks are being printed. Such a practice seems wholly pragmatic and reasonable, and plaintiff offers no authority or evidence to show that other depositary banks avoid giving new commercial account holders blank temporary checks. No trial is warranted on this issue.

Second, Leigh Co. claims that it was commercially unreasonable for the Bank to permit Dziurgot, as general partner, to indorse and deposit the checks merely in the name of the partnership, PCH. Despite the fact that the only named payee was PCH, plaintiff claims Dziurgot’s individual co-indorsement should have been required. Yet plaintiff proffers no evidence showing that the standard of commercial reasonableness within the banking industry requires co-indorsement by an individual partner of a negotiable instrument payable to a partnership and indorsed thereby. Under New York law, a general partner has apparent authority to bind all other partners by signing an instrument solely in the partnership name. Chemical Bank of Rochester v. Haskell, 51 N.Y.2d 85, 432 N.Y.S.2d 478, 480, 411 N.E.2d 1339, 1341 (1980); Meriden Natl. Bank v. Gallaudet, 120 N.Y. 298, 24 N.E. 994 (1890). I find no authority (and plaintiff cites none) requiring indorsement both in the partnership name and by a general partner. As a matter of law, the Bank’s failure to require Dziurgot’s individual indorsement cannot be deemed commercially unreasonable.

Leigh Co. argues in the alternative that at a minimum, Dziurgot should have been required to furnish documentary authorization from the partnership permitting him to indorse checks. In support of this argument, plaintiff cites Belmar Trucking Corp. v. American Trust Co., 65 Misc.2d 31, 316 N.Y.S.2d 247 (Civil Ct.N.Y. County 1970), in which it was held that where a check payable to a corporate payee was indorsed in blank by the corporation’s name and that of its president, and further indorsed to a third party, reasonable commercial practice required the depositary bank to request a certified corporate resolution stating the reason and authority for the indorsement and delivery of the check to the third party. Belmar is inapplicable to the instant action for two reasons: (1) the checks here were indorsed for deposit only to the account of the named partnership payee and not to a third party, and (2) the payee here was a partnership, not a corporation, and for the reasons stated above, Dziurgot as general partner had apparent authority to indorse the checks on behalf of the partnership.

Third, Leigh Co. claims that the Bank did not fulfill its own requirements for establishment of a partnership checking account. In particular, plaintiff notes that neither a Certificate of Limited Partnership nor a list of partners is appended to the Partnership Authorization Agreement as required by paragraph one of that Agreement. Plaintiff argues that although the Bank may accept deposits on such terms as it may prescribe, N.Y. Banking Law § 96(1) (McKinney’s 1971), once it has established those terms and procedures, it may be negligent if it then fails to act in accordance with its own requirements.

Dziurgot did not represent the partnership to be a limited one; therefore, there was no negligence in failing to require Dziurgot to produce a Certificate of Limited Partnership. Dziurgot did represent himself to be the only general partner authorized to act on behalf of the partnership; consequently, requiring Dziurgot to produce a list of unauthorized general partners would have served no valid purpose. Under these circumstances, the Bank’s omissions cannot be said to be commercially unreasonable.

Although I hold as a matter of law that the Bank’s actions in handling plaintiff’s checks were not commercially unreasonable, I note that in any event N.Y.U. C.C. § 3-419(3) limits the Bank’s liability for conversion of plaintiff’s money, in the event that it had failed to handle the checks in a commercially reasonable manner, to the amount of the proceeds remaining in the Bank’s hands. Since Dziurgot withdrew the entire proceeds from the checking account, plaintiff is barred by this defense from asserting any liability on the Bank’s part for acting in a commercially unreasonable manner. Coulter Electronics, Inc. v. Commercial Bank of Cobb County, 727 F.2d 1078, 1079 n. 3 (11th Cir.1984).

Defendant’s motion for summary judgment in its favor on Count 10 is granted.

II. Wrongful Deposit (Count 11)

Plaintiff also alleges a cause of action against the Bank for a tort it terms “wrongful deposit and payment of checks.” The gravamen of this claim, according to the facts alleged in its support, is that the Bank handled plaintiff’s checks in a manner inconsistent with their terms. In response to the Bank’s challenge that no such cause of action is recognized under New York law, Leigh Co. states that the theory of recovery intended by that claim is one for “gross negligence.” Leigh Co. claims Underpinning established a separate cause of action in negligence by a drawer against a depositary bank. Plaintiff’s argument is meritless. At the very outset of its opinion, the Underpinning court stated:

“We are called upon to determine when, if ever, the drawer of a check may sue a depositary bank which accepts the check and pays out the proceeds in violation of a forged restrictive indorsement. We conclude that in such a circumstance the drawer may have a cause of action against the depositary bank, based on either money had and received or conversion, at least in those cases in which the indorsement, albeit forged, is nonetheless ‘effective.’ ”

No separate common law negligence tort against the depositary bank was recognized in Underpinning.

It is clear that any negligent failure by the Bank to handle the checks in accordance with their terms is subsumed in an action for money had and received or for conversion.

Leigh Co.’s loss resulted directly from Dziurgot’s criminal actions. There is no evidence that the Bank had any knowledge of his designs, and it would be unfair to impose on banks a responsibility for preventing such economic crimes. This comports with the common law maxim that generally, “no duty lies to use reasonable care to forestall the consequences of criminal conduct.” Katz v. Friendly Frost, Inc., 33 Misc.2d 220, 226 N.Y.S.2d 655, 658 (Sup. Ct.1962), quoting Campbell v. Cunningham Natural Gas Corp., 164 Misc. 1, 298 N.Y.S. 200, 205 (1937). Count 11 of plaintiff’s complaint is dismissed for failure to state a claim upon which relief can be granted.

The Clerk of the Court is directed to dismiss the complaint as against defendant, The Bank of New York, with prejudice and without costs.

It is SO ORDERED.

      . In its defense, the Bank claims that Leigh Co. was negligent in failing to use due care in examining its bank statement and returned checks which would have put plaintiff on notice of Dziurgot’s activities. Underpinning, 414 N.Y.S.2d at 302, 386 N.E.2d at 1323; Fed. Insurance Co. v. Groveland State Bank, 37 N.Y.2d 252, 372 N.Y.S.2d 18, 21-22, 333 N.E.2d 334, 337-338 (1975). Defendant suggests that such negligence would preclude recovery by plaintiff for the Bank’s negligence. In Underpinning, the New York Court of Appeals left undetermined the question whether in those situations in which both the drawer and the depositary bank may be said to have acted negligently, the Bank’s own negligence may preclude such a defense. 414 N.Y.S.2d at 302. I need not reach the issue either in view of my holding that under any theory advanced by plaintiff, the Bank was not negligent.

      . The Bank also contends that even though it had no duty to investigate the bona fides of Dziurgot’s alleged partnership, there was absolutely no reason for the Bank to be suspicious of Dziurgot since he had a longstanding relationship with the Bank and was considered to be a good customer. Such a relationship will not protect a bank from liability for negligent failure to make inquiries required by reasonable commercial practice, Belmar, supra, 316 N.Y. S.2d at 254; and if a breach of such practice otherwise appeared, the Bank could not escape liability on that ground. But no such breach is demonstrated.


author: JOHN GARRETT PENN, District Judge.

text:
    Robert J. CRANE, Plaintiff, v. Elizabeth DOLE, et al., Defendants.
    Civ. A. No. 81-1081.
    United States District Court, District of Columbia.
    Feb. 26, 1985.
    Marc P. Charmatz, Washington, D.C., for plaintiff.
    Charles F. Flynn, Asst. U.S. Atty., Washington, D.C., James W. Whitlow, Off. Chief Counsel, F.A.A., Washington, D.C., for defendants.
   MEMORANDUM OPINION

JOHN GARRETT PENN, District Judge.

The plaintiff filed this action pursuant to the Rehabilitation Act of 1973 (Act), 29 U.S.C. §§ 791 and 794a and the Administrative Procedure Act (APA), 5 U.S.C. § 501 et seq. He alleges that the defendants violated the Act by discriminating against him based solely on his physical handicap, a hearing loss, and that they violated the APA by treating him in a wholly arbitrary and capricious manner. He contends that he is entitled to placement in a position as an Aeronautical Information Specialist (AIS) in the National Flight Data Center of the Federal Aviation Administration (FAA) with back pay, “including appropriate account taken for step and grade promotions, and attorneys’ fees and costs incurred in this action”. The case came before the Court for a trial de novo. This memorandum opinion constitutes the Court’s findings of fact and conclusions of law. See Fed.R.Civ.P. 52.

I

1. Plaintiff Robert Crane is a hearing-impaired individual. He uses a hearing aid, and at times, hearing aids.

2. From 1966 to 1976, plaintiff was an employee of the FAA. For eight of those ten years he worked as an air traffic control specialist (station), GS-2152, a position in which he provided advice and guidance to general aviation pilots and which required, on certain occasions, in-flight communications with pilots and handling of airborne emergencies. During one two-year period, plaintiff held the position of evaluations, proficiency and development specialist, where his principal task was training others.

3. The medical requirements for the position of air traffic control specialist include the requirement that the incumbent or applicant have no hearing loss of more than 25 decibels in the 500, 1000 or 2000 HZ ranges and must demonstrate no hearing loss in these ranges of more than 20 decibels in the better ear, using ISO (1964) or ANSI (1969) standards.

4. In 1975, a hearing examination routinely conducted by the FAA revealed that plaintiff suffered from a hearing loss which ultimately resulted, in 1976, in a disability retirement from the FAA because he could no longer meet the stringent hearing requirements for the position of air traffic control specialist.

5. Later in 1976, plaintiff applied for another FAA position, as an Aeronautical Information Specialist, GS-1361-12 in the National Flight Data Center in Washington, D.C., FAA headquarters, which is responsible for the collection, verification and distribution of aeronautical data concerning the nation’s airports, navigation system, air space and related subjects. The AIS position involves no in-flight communications with pilots or any other flight-control function.

6. The National Flight Data Center is divided into six separate functional areas, some of which are sections and some of which are combined into one section. All are staffed by Specialists in the GS-1361 series. The job descriptions of all sections other than the Notice to Airmen section are identical.

7. One section, the Flight Data Services Section, is responsible exclusively for publishing seven different compilations of data which appear at designated intervals of time and which are designed to keep the aviation community up to date on the status of flight paths, airports, air space, terminology and other relevant flight information. The seven publications are published on a specific schedule, most every 112 days. The shortest publication interval is 28 days, while the longest is quarterly. Specialists in the Flight Data Services Section prepare these publications.

8. Two other functional areas, Navigations Aids and Communications and Airports, are combined in one section and have similar functions. The navigation and communication specialists maintain information on the status of navigational aids and communications mechanisms used in the nation’s air traffic control system. They do this by receiving information on changes in the system, by verifying those changes, obtaining a written record and entering the changes into the data base used by the FAA for such information. Ninety-nine percent of the time this information is received in writing the ordinary course of business; emergency changes would be entered through a different mechanism, through the Notice of Airmen Section described below.

9. The Airports specialists maintain records on all public use of privately owned airports, including such matters as changes in operating hours of runways, services and other aspects of airport operation. They use the same methods to obtain, verify and transfer the information received as the navigations/communications specialists. It takes 15 days to get information from receipt to the data base. As with respect to the navigations and communications specialists, emergencies are handled through the Notice of Airmen Section.

10. Two of the sections, Air Space and Flight Procedures, are responsible for updating information on the routes on which and the procedures by which planes fly. The information for these sections almost always becomes a rulemaking component of the FAA inasmuch as the information received concerning these matters consists of rules or regulations of the agency. These sections receive the rules or regulations in writing and transmit that information in various ways on a specific cycle, such as 56 days for the Airspace Section.

11. The Notice to Airmen Section (NO-TAM) differs from the other sections of the National Flight Data Center, despite the fact that the AIS are in the same job category and Civil Service designation, GS-1361. This section, as the job description states, is responsible for “ensurpng] expeditious receipt, effective processing and dissemination of time-critical” information concerning changes in any aspect of the nation’s flight data. The NOTAM section is divided into two parts, the domestic and international. The domestic section receives information from 371 flight service stations by teletypes in the National Flight Data Center; the international section receives information worldwide. The specialists who work in the NOTAM section receive teletyped pieces of information (NO-TAMs) and, when necessary, verify it by contacting its sources. While, at present, specialists in the domestic part of the NO-TAM section use the telephone to perform this task, this is not the only way in which verification can take place. For example, the international component verifies information by teletype; telephone verification is not used at all in the international section. Other means of verification are possible.

12. At the time plaintiff applied for the position of AIS in the National Flight Data Center, there existed no hearing requirements for the AIS job similar to those which existed for the position of air traffic control specialist. At the time he applied in 1976, the requirement for hearing was that imposed generally on federal employees, that is, the “ability to hear the conversational voice, with or without a hearing aid.” The FAA does not test or otherwise make any effort to ascertain the hearing levels of its AIS in any section.

13. In 1978, Congress amended the Act, 29 U.S.C. § 794a. As a result of that legislation, the Office of Personnel Management revised the hearing requirements for AIS positions so as to provide, as of September 24, 1979, that “in most cases, a specific physical condition or impairment will not automatically disqualify an applicant for appointment.” Rather, the new rule provides that the “loss or impairment of a specific function may be compensated for by the satisfactory use of a prosthesis or mechanical aid. Reasonable accommodation may also be considered in determining an applicant’s ability to perform the duties of a position. Reasonable accommodation may include but is not limited to: the use of assistive devices, job modification or restructuring, provisions of readers and interpreters, or adjusted work schedules.”

14. When plaintiff applied for the position of AIS, GS-13611-112, in 1976, he was found among the “best qualified” by personnel rules, but his name was inadvertently left off the list of best qualified applicants,” the list of names from which a selecting official must make his selection. Thereafter, the agency reconsidered plaintiff for the position. The first time, the agency acknowledged erroneous procedures were used, and agreed to consider plaintiff again. The second time, the Court found the decision to be unlawful and remanded. The third consideration is at issue here.

15. After administrative appeal, the FAA agreed, on August 5, 1977, to give Mr. Crane “priority consideration” for the next AIS position at the National Flight Data Center.

16. Under FAA personnel rules, an applicant granted “priority consideration” must be considered for the next “appropriate” vacancy before other candidates are considered for the position. An “appropriate” vacancy is one which (a) would normally be filled competitively; (b) is at the same grade level as originally applied for; and (c) would be acceptable to the employee.

17. On February 13, 1978, Beauford Bancroft, director of the National Flight Data Center, considered plaintiff solely for a position in the NOTAM section and declined to select plaintiff.

18. The basis for Bancroft’s decision was that plaintiff had been medically retired as a result of his hearing loss from his position as air traffic control specialist.

19. At the time of his decision, Bancroft had no authority to impose medical requirements on the position of AIS, had no knowledge of the extent of plaintiff’s hearing loss and made no inquiries to determine what the extent of plaintiff’s hearing loss was. Nor did Bancroft have any knowledge whether plaintiff had any difficulty using the telephone. He was unaware of any duty toward plaintiff with respect to his hearing impairment. Finally, at the time of the decision in 1978, Bancroft had no knowledge whether plaintiffs hearing loss would affect his ability to perform the essential function of the job of AIS in the NOTAM section of any other National Flight Data Center section. The actions of Bancroft or the agency did not amount to an “intentional” discrimination against the plaintiff. In other words, the action of the agency was not done with bad faith or with the design to discriminate against plaintiff personally, or as the result of his handicap.

20. Plaintiff sought to challenge Bancroft’s decision in ongoing litigation between the plaintiff and the Federal Aviation Administration, but at the suggestion of the Court, see Civil Action No. 77-0895, it was agreed to handle the matter through an administrative grievance. Plaintiff filed a grievance at the FAA. On October 17, 1979, the FAA decided the grievance. It found that Bancroft’s decision “was not completely documented.” The agency decided that it would “re-run” the priority consideration after a determination of applicable medical standards.

21. Pursuant to this decision, plaintiff reapplied and on November 7, 1980, was again turned down by John R. Ryan, the acting chief of the Operations Division, the official who was Bancroft’s direct superior. In his decision, Ryan stated that plaintiff was not medically qualified for employment as an AIS. While the decision made reference to the position of AIS without regard to section, Ryan only considered plaintiff for a position in the domestic portion of the Notice to Airmen Section. He did not consider any other sections.

22. Ryan made no attempt to determine whether plaintiff could actually perform the job as an AIS. Nor did he consider whether reasonable accommodation of plaintiff’s handicap would permit him to be hired as an AIS in the National Flight Data Center.

23. Plaintiff sought reconsideration of Ryan’s decision. He submitted medical evidence, including the results of an examination by R. Emil Hecht, M.D., a board-certified otolaryngologist, a graduate with wings from the Aerospace Medical Institute Flight Surgery Training Program and a former aviation medical examiner.

24. On reconsideration, the agency reaffirmed its original decision. Its chief of the Labor Relations and Career Development Branch, Lionel R. Driscoll, stated, inter alia, that material provided by plaintiff was not relevant and affirmed the original decision.

25. Plaintiff then filed this lawsuit, alleging violations of the Act and the APA. On June 29, 1982, on cross-motions for summary judgment, the Court found that the decisions by Ryan and Driscoll violated the Act because they failed to determine whether plaintiff could perform the job and failed to consider any reasonable accommodations. Crane v. Lewis, 551 F.Supp. 27 (D.D.C.1982). The court also found that the decision of the agency was arbitrary and capricious under the APA in considering medical evidence plaintiff submitted irrelevant and drawing conclusions about plaintiff’s ability to do the job without ascertaining relevant facts.

26. The Court remanded the case to the agency for further administrative consideration, particularly with respect to plaintiff’s ability to perform the essentials of the job of AIS with a hearing aid and with respect to any other accommodations the agency might consider.

27. On remand, Mr. Ryan and the agency’s attorney developed a “test” which purported to ascertain whether Mr. Crane could perform the job of an AIS in the NOTAM Section. In developing the test, however, FAA officials considered only plaintiff’s ability to perform in the domestic side of the Notice to Airmen section.

28. Neither of the individuals who participated in the development of the test had any experience in the development of tests. They had no knowledge of how one develops a valid job-related test. They did not secure available professional advice on how to develop a test from within the agency or from the Office of Personnel Management.

29. The test consisted of reading plaintiff a list of individual pieces of information which come in by teletype to the NOT AM section, called notice to airmen or “NO-TAMs”. Each consisted of a sentence describing a particular aeronautical condition at a particular place and time, e.g., operating hours of the Fort Riley, Kansas tower. Curtis Alms read a series of 15 of these notices to plaintiff without interruption and at a speed of approximately 100 words per minute. Plaintiff was expected to copy the notices to airmen sequentially without error in transcription. Prior to the test, no attempt was made to verify or test it through the use of a control individual or group.

30. The test had a number of very serious deficiencies, including the following: (a) It tested in addition to hearing, the skill of shorthand. Unless one knew some form of shorthand, it was difficult to copy language read at 100 words per minute, the speed at which Mr. Alms read the notices to plaintiff. The federal government requires entry-level stenographers to take shorthand at only 80 words per minute, the same speed as the leading secretarial school in Washington (100 words per minute is considered for an advanced course at that school). Plaintiff noted in his notes his inability to write the NOTAMs down as quickly as they were read. He also objected to the test.

(b) The test was not job-related. The NOTAMs were read sequentially and without interruption, in a form completely unlike the circumstances under which the job would actually be performed. On the job, if an AIS had a question about a NOTAM which arrived by teletype, he would call the originating flight service section on the phone and discuss any clarification he felt was heeded. This would be a normal back- and-forth conversation in which any problems could be discussed, cleared up and verified. No such conversations about a particular notice or series of notices was used in the test given to plaintiff; rather, a list was read to be transcribed. Moreover, whereas in an entire eight-hour shift, a specialist will have received 15 NOTAMs which require clarification, here 15 NO-TAMs were read without interruption in a matter of minutes.

(c) The conditions of the test were uncontrolled, without an attempt to ascertain whether the telephone was operating properly.

(d) The text was not validated to determine whether an AIS who was not hearing-impaired could pass.

31. On remand, the agency was also required by the Court to give consideration to reasonable accommodation, but none of the officials involved in the decision was even aware that reasonable accommodation was necessary to plaintiff and apparently all were unsure what it meant. The deciding official, again Mr. Ryan, was unaware that he had to consider reasonable accommodation for plaintiff and did not know how he would go about considering such reasonable accommodations.

32. Neither Mr. Ryan nor Mr. Bancroft were able to say whether any accommodations to plaintiffs handicap were possible in the National Flight Data Center.

33. The Director of Personnel for the Washington headquarters of the FAA, Mr. Driscoll, similarly never considered whether reasonable accommodations were possible for plaintiff, notwithstanding the requirements of the Court’s order.

34. Numerous publications of the Office of Personnel Management provide guidance to federal management officials responsible for complying with the duty of reasonable accommodation. These include a Handbook of Reasonable Accommodation, a Handbook of Job Analysis for a Reasonable Accommodation and specific publication concerning Reasonable Accommodation for Deaf Employees in White-Collar Jobs. These publications were not consulted by any FAA officials responsible for the decision not to hire the plaintiff.

35. The evidence demonstrates that, even without any accommodation by the agency, but with the use of a hearing aid which plaintiff has obtained and is willing to use, he may be able to perform the essential functions of the AIS job in the domestic Notice to Airmen section. Since the other jobs require less use of the telephone, he would be able to do those jobs. The tests performed by the audiologist at the Gallaudet College demonstrate that, in a variety of circumstances, including the introduction of significant background noises, plaintiff can hear and receive messages over the telephone.

36. Alternatively, plaintiff can perform the job of an AIS with reasonable accommodation.

37. It may be that accommodations are possible which would enable plaintiff to perform the job of an AIS in the domestic NOTAM section competently and efficiently, without hazard to anyone.

38. Unfortunately, the “test” conducted by the agency did not have adequate controls. First, as noted, see Finding No. 30, the test was given in such a way, that it not only tested hearing, but the skill of the plaintiff in recording the information read over the telephone as well. Nothing in the record indicates that speed writing or shorthand are requirements of the job. Second, the agency did not conduct a controlled test, that is, the agency did not give the test to one or more other persons so as to have the results of those tests as a gauge for the performance of the plaintiff. Third, the agency did not take action to preserve the test, for example, the agency could have recorded the test so that the actual statements of the reader could be played back at a later date. The agency should have recorded the message received over the telephone so that it would have been clear to the finder of fact what the plaintiff should have heard. Such action would also have conclusively established the speed at which the test was given, any problem in the method the NOTAMs were read, any problems with the telephone, and any comments made by the reader and the plaintiff. Such action also may have assisted the agency to determine whether a reasonable accommodation could be made if the plaintiff is assigned to work in the domestic NOTAM section.

39. In the event the plaintiff is unable to “pass” the test, the agency could have considered the accommodation which would be to assign the plaintiff to the international NOTAM section, where little telephone communication is used.

II

1. At all times relevant to this action, that is, from 1978 to the present, plaintiff has been a qualified handicapped individual within the meaning of Act, 29 U.S.C. § 791, and 29 C.F.R. 1613.702(f).

2. Under FAA regulations, plaintiffs entitlement to “priority consideration” pursuant to the 1977 decision of the agency, entitled him to be considered for the “next appropriate vacancy” defined by regulation as one which (a) would normally be filled by competitive promotion procedures, or by other placement action, including outside recruitment; (b) which is the same grade or level as that to which the employee was not promoted or given proper consideration because of the violation; and (c) which would be acceptable to the employee if selected.

3. To the extent that the FAA, throughout the proceedings in this case, considered plaintiff only for a position in the domestic Notice to Airmen section when it believed plaintiff was not medically qualified for employment in that section as a result of his hearing loss, the agency has never considered plaintiff for the next “appropriate” vacancy, in violation of the FAA’s own regulations, when construed in conjunction with the requirements of the Act.

4. The decision in 1978 not to hire plaintiff violated the Act by discriminating against plaintiff solely on the basis of his hearing loss and his disability retirement, where the selecting official made no attempt to find out the extent of plaintiffs hearing loss or whether that hearing loss interfered with his ability to perform the job.

5. The decision of Bancroft in 1978 not to hire plaintiff was arbitrary and capricious in violation of the APA, because the selecting official made no attempt to find out the extent of plaintiffs hearing loss or whether that hearing loss interfered with his ability to perform the job.

6. The decision of the FAA in 1980, reaffirmed on reconsideration in 1981, not to hire plaintiff for a position as an AIS violated the Act insofar as it did not consider plaintiffs ability to perform the job with or without reasonable accommodation. This conclusion is the law of the case pursuant to the Court’s order of June 29, 1982. See Crane v. Lewis, supra.

7. The decision of the FAA in 1980, reaffirmed on consideration in 1981, not to hire plaintiff for a position as an AIS was arbitrary and capricious in violation of the APA insofar as it did not consider plaintiff’s ability to perform the essential functions of the job with or without reasonable accommodation, rendered medical conclusions without medical knowledge and deemed plaintiff’s evidence irrelevant. This conclusion is the law of the case pursuant to the Court’s order of June 29, 1982.

8. The agency’s decision on remand from this Court violated the Act in using a test for job performance which was not valid, which was not administered fairly or under controlled conditions and which was not job-related. 29 C.F.R. 1613.705(a).

9. The agency’s decision on remand from this Court was arbitrary and capricious under the APA in using a test for job performance which was not valid, which was not administered fairly or under controlled conditions and which was not job-related.

10. The agency’s decision on remand from this Court violated the Act by failing to consider reasonable accommodations to plaintiff which would enable him to perform the essential functions of the job of AIS in the domestic NOTAM section, despite a specific order from this Court to consider such accommodations.

11. The agency’s decision on remand from this Court was arbitrary and capricious in violation of the APA by failing to consider reasonable accommodations to plaintiff which would enable him to perform the essential functions of a job of AIS in the domestic NOTAM section.

12. Reasonable accommodations the agency could have considered, and which it is required to consider as a matter of law, include making facilities usable by handicapped persons, 29 C.F.R. 1613.704(b)(1); and modification of equipment or devices, 29 C.F.R. 1613.704(b)(2). The agency never considered any of these possible accommodations.

13. Some of the accommodations proposed by plaintiff could be accomplished without undue hardship on the operation of the agency, considering the size of the National Flight Data Center, the number of employees, the resources of the FAA; the nature of the agency’s operation, including the composition and structure of the work force and the nature and cost of the accommodations suggested.

14. As a result of the violation of law described, plaintiff is entitled to back pay to February 1978 at the level of GS-12, with all statutory pay increases, grade increases and promotions.

15. Insofar as plaintiff’s hearing loss complaint is concerned, and as a result of the violations of law described, plaintiff is entitled to placement in the position of AIS in the National Flight Data Center, GS-1361-13 in the next vacancy which arises in the Center. Until such vacancy occurs, plaintiff is entitled to “front pay” from the date of the Court’s decision to the date of placement in a position.

16. Plaintiff is entitled to reasonable attorney’s fees and costs. 29 U.S.C. § 794a(a).

Ill

In this part, the Court briefly amplifies what it has stated in Parts I and II. It is clear that the defendants have not complied with the direction given by this Court in Crane v. Lewis, supra. The Court noted the difficulty it had in deciding this case on the cross-motions because the agency’s decision to reject the plaintiff lacked an evidentiary basis. 551 F.Supp. at 32. It was for this reason that the case was remanded to the agency with direction that the hearing capability of the plaintiff be tested. In Findings Numbered 30 and 38, Part I, supra, the Court has noted the deficiencies apparent in the test given the plaintiff. The Court now concludes that the defendants could have reached a reasonable accommodation by placing the plaintiff in the next appropriate vacancy in the International NOTAM Section. See Southeastern Community College v. Davis, 442 U.S. 397, 99 S.Ct. 2361, 60 L.Ed.2d 980 (1979); Treadwell v. Alexander, 707 F.2d 473 (11th Cir.1983). For this reason, the Court’s decision is a final one and a final order has been entered. Notwithstanding this fact, the defendants may give further consideration to placing the plaintiff in the domestic NOTAM section either with or without making an accommodation. In short, the agency may retest the plaintiff one more time having in mind the defects found in the earlier test. If such a test is given, the agency shall “preserve” the test as suggested by the Court. If the plaintiff passes the test, then the agency shall take action to place the plaintiff in the next appropriate vacancy in the domestic NO-TAM section. If the plaintiff fails the test, the agency may consider whether there are reasonable accommodations which can be made to permit the plaintiff to work in the domestic NOTAM section. Such accommodations may include, but are not limited to, a phone designed to amplify voices, however, the agency is not required to hire additional personnel or to make scheduling changes which would decrease, in any way, the operations of the important services the agency renders.

The plaintiff brought this action pursuant to the Rehabilitation Act of 1973 and the Administrative Procedures Act. While the Court finds that the agency has acted arbitrarily and capriciously in considering plaintiff’s application for employment, the relief it grants is solely based upon that afforded under the Rehabilitation Act of 1973.

An appropriate order has been issued.


author: McDONALD, District Judge.

text:
    Clifton Earl CLARK, Petitioner, v. Raymond PROCUNIER, et al., Respondents.
    Civ. A. No. H-83-6540.
    United States District Court, S.D. Texas, Houston Division.
    March 5, 1985.

      Clifton Earl Clark, pro se.
    Jim Mattox, Atty. Gen. of Texas, Austin, Tex., for respondents.
   ORDER

McDONALD, District Judge.

Came on to be heard the Motion to Dismiss of Respondent Raymond Procunier. Having considered the arguments of the parties and the applicable law, the Court is of the opinion that the Motion should be GRANTED.

I. Background

Petitioner Clifton Earl Clark brings the instant Application for Writ of Habeas Corpus under 28 U.S.C. § 2254. The Application challenges Clark’s March 26, 1980 conviction for aggravated robbery in the 184th District Court of Harris County, Texas in Cause No. 307,851. As a result of that conviction, enhanced by prior felony convictions, Petitioner is currently serving a life sentence in the Texas Department of Corrections (Retrieve Unit). Petitioner did not directly appeal his conviction, but his State Petitions for Writ of Habeas Corpus were denied by the Texas courts.

II. Discussion

The Application at bar raises two grounds on which habeas corpus relief can be granted. First, Petitioner alleges that the evidence in support of his conviction was insufficient as a matter of law. In addition, he claims that the jury charge in his March, 1980 trial was erroneous.

A. Insufficient evidence — Respondent claims initially that Petitioner’s failure to appeal the conviction on the grounds of insufficient evidence of aggravated robbery waived the arguments advanced in the instant Application. Respondent claims that the failure to appeal precluded the state courts from reviewing the insufficient evidence on state petition for habeas corpus, and that consequently review by way of federal habeas corpus is also barred. Respondent cites as authority for his contention O’Bryan v. Estelle, 714 F.2d 365 (5th Cir.1983) and Preston v. Maggio, 705 F.2d 113 (5th Cir.1983).

It is undisputed that failure to appeal directly a claim that the evidence in a criminal proceeding was insufficient to support a conviction waives the claim for purposes of review by habeas corpus petition in Texas. Ex parte Coleman, 599 S.W.2d 305, 306-07 (Tex.Crim.App.1979) and cases cited infra. In other words, Petitioner’s failure to present this argument to the Texas courts on appeal constitutes a procedural default on that point. Ex Parte Easter, 615 S.W.2d 719, 721 (Tex. Cr.App.1981) (en banc); Ex Parte Dunn, 571 S.W.2d 928, 929 (Tex.Cr.App.1978); Ex Parte Dantzler, 571 S.W.2d 536 (Tex.Cr. App.1978). Equally undisputed is that O’Bryan and Preston follow the rule enunciated in Wainwright v. Sykes, 433 U.S. 72, 97 S.Ct. 2497, 53 L.Ed.2d 594 (1977). In Sykes, the Supreme Court held that a state defendant procedurally defaults a claim by failing to comply with the state’s contemporaneous objection rule, and that this procedural default “precludes consideration of the claim in a federal habeas corpus proceeding absent a showing of cause and prejudice.” Weaver v. McKaskle, 733 F.2d 1103, 1104 (5th Cir.1984), citing Sykes, 433 U.S. at 87, 97 S.Ct. at 2506. However, in the case at bar, whether Petitioner failed to object contemporaneously is unknown. Thus, the question before the Court is whether a procedural default of failing to appeal a conviction directly also waives a ground for purposes of federal habeas review. Respondent does not brief this question. The Court has therefore undertaken the inquiry, and determined that it should be answered in the affirmative.

First, the Supreme Court recently applied the Sykes test to a claim that the district court had held was waived due to the petitioner’s failure to except to constitutionally infirm jury instructions and then appeal the claim directly. See Reed v. Ross, — U.S.-, 104 S.Ct. 2901, 2906, 82 L.Ed.2d 1 (1984) {Sykes test applied where petitioner failed to appeal on grounds that jury instruction unconstitutionally shifted burden of proof on defenses of self-defense and lack of malice). Thus Sykes need not be limited to contemporaneous objection rules. Admittedly, the Reed court did not have before it the question of the propriety of applying the Sykes test to failures to appeal as opposed to failures to object contemporaneously, which is the specific inquiry this Court must make. However, this Court has examined the record and the pertinent case law and concluded that to apply Sykes in a situation such as the one at bar is appropriate.

Sykes, as noted above, involved the contemporaneous objections. Sykes was tried for murder in a Florida court; part of the evidence leading to his conviction was a confession to which no objection was lodged at trial. Florida’s law required that defendants challenge the voluntariness of confessions at trial or waive arguments of voluntariness in state appellate and habeas corpus proceedings. Sykes subsequently complained in a federal habeas petition that he had not understood his constitutional rights before confessing. Justice Rehnquist, writing for a plurality of the Court , concluded that

Florida procedure did, consistently with the United States Constitution, require that respondents’ confession be challenged at trial or not at all, and thus his failure to timely object to its admission amounted to an independent and adequate state procedural ground which would have prevented direct review here. See Henry v. Mississippi, 379 U.S. 443, 85 S.Ct. 564, 13 L.Ed.2d 408 (1965). We thus come to the crux of this case. Shall the rule of Francis v. Henderson, [425 U.S. 536, 96 S.Ct. 1708, 48 L.Ed.2d 149 (1976)], supra, barring federal habeas review absent a showing “cause” and “prejudice” attendant to a state procedural waiver, be applied to a waived objection to the admission of a confession at trial? We answer that question in the affirmative.

Id., 433 U.S. at 86-87, 97 S.Ct. at 2506 (footnote omitted). The plurality based its opinion on the “well-established principle of federalism that a state decision resting on an adequate foundation of state substantive law is immune from review in the federal courts,” id. at 81, 97 S.Ct. at 2503 (citations omitted), and extended that ground in the case before it to encompass procedural defaults. Justice Rehnquist’s opinion rejected dicta in Fay v. Noia, 372 U.S. 391, 83 S.Ct. 822, 9 L.Ed.2d 837 (1963) which “may be thought to have laid down an all-inclusive rule rendering state contemporaneous-objection rules ineffective to bar review of underlying federal claims in federal habeas proceedings” except in limited cases. Sykes, 433 U.S. at 85, 97 S.Ct. at 2505. Purportedly, the reasons for that rejection were “several,” id. at 88, 97 S.Ct. at 2507, but all related to the need for enforceable contemporaneous objection rules. Id. at 85-90, 97 S.Ct. at 2505-2508.

Turning to the case at bar, the Court considers that for two reasons Sykes’ waiver applies to the instant situation. First, the reasons for respecting Texas’ direct appeal rule resemble those the Supreme Court outlined in Sykes. For example, direct appeal, which is relatively immediate after a trial, provides for review of a sufficiency of the evidence claim, and makes the state criminal system the “ ‘main event,’ so to speak, rather than a ‘tryout on the road’ for what will later be the determinative federal habeas hearing.” Id. at 88, 90, 97 S.Ct. at 2507, 2508. See also Engle v. Isaac, 456 U.S. 107, 128, 131, 102 S.Ct. 1558, 1572, 1573, 71 L.Ed.2d 783 (1982), citing Schneckloth v. Bustamonte, 412 U.S. 218, 263-65, 93 S.Ct. 2041, 2066-67, 36 L.Ed.2d 854 (1973) (Powell, J. concurring) (“Federal intrusions into state criminal trials frustrate both the States’ sovereign power to punish offenders and their good faith attempts to honor constitutional rights.”). Moreover, the Supreme Court has painted its ruling in Sykes with a broad brush:

These considerations supported our Sykes ruling that, when a procedural default bars state litigation of a constitutional claim, a state prisoner may not obtain federal habeas relief absent a showing of cause and actual prejudice.

456 U.S. at 129, 102 S.Ct. at 1572 (emphasis added).

Accordingly, Petitioner Clark having procedurally defaulted on his sufficiency of the evidence claim in the state courts, the Court must examine the question for whether he has justified that default with a showing of cause for the default. Nothing in the record suggests such a cause, and thus the Court will not consider the claim.

Overall, Petitioner’s procedural default on his claim regarding the sufficiency of the evidence precludes the Court from considering that claim.

B. Jury Charge — The Court can, though, reach the merits of Petitioner’s argument regarding the charge to the jury. Petitioner claims that the charge authorized conviction on a theory not alleged in the indictment. Specifically, Clark contends that he was indicted for robbing one Edward Garza Rojas, but that the charge stated that Anthony Wade Sams actually robbed Rojas while Clark aided or attempted to aid Sams. The Court has examined the charge and determined that Petitioner’s complaint is without merit, because the charge was legally correct.

The charge in Clark’s case stated that:

Our law provides that person commits robbery if, in the course of committing theft and with intent to obtain or maintain control of the property of another, he intentionally or knowingly threatens or places another in fear of imminent bodily injury or death.
The offense is aggravated robbery if the person committing robbery uses or exhibits a deadly weapon.

Statement of Facts (“S.O.F. ”), p. 19.

All persons are parties to an offense who are guilty of acting together in the commission of the offense. A person is criminally responsible, or both.
A person is criminally responsible for an offense committed by the conduct of another if, acting with intent to promote or assist the commission of the offense, he solicits, encourages, directs, aids, or attempts to aid the other person to commit the offense. Mere presence alone will not constitute one a party to an offense.

S.O.F., pp. 20-21. See Tex.Penal Code Ann. §§ 7.01, 7.02 (Vernon 1974).

The charge also made clear that Clark knew of Anthony Sams’ intent to rob Rojas and acted with that intent to promote or assist that robbery:

Now, if you find from the evidence beyond a reasonable doubt that on or about the 29th day of December, 1979 in Harris county, Texas, ANTHONY WADE SAMS, while in the course of committing theft and with intent to obtain and maintain control of property of EDWARD GARZA ROJAS, to wit, money, without the effective consent of the said EDWARD GARZA ROJAS, the owner, and with intent to deprive the said EDWARD GARZA ROJAS of said property, did then and there, by using or exhibiting a deadly weapon, to wit, a firearm, intentionally or knowingly threaten or place EDWARD GARZA ROJAS in fear of imminent bodily injury or death, and if you further find from the evidence beyond a reasonable doubt that the Defendant, CLIFTON EARL CLARK, knew of the intent of ANTHONY WADE SAMS, if any there was, to rob the said EDWARD GARZA ROJAS of his money, and he, CLIFTON EARL CLARK, acted with intent to promote or assist the commission of the offense by ANTHONY WADE SAMS by aiding or attempting to aid ANTHONY WADE SAMS to commit the robbery with a firearm, if any, then you will find the Defendant, CLIFTON EARL CLARK, guilty of aggravated robbery as charged in the indictment.

S.O.F., p. 21.

Thus, the charge correctly allowed the jury to convict Petitioner for aggravated robbery. Accord, Pitts v. Texas, 569 S.W.2d 898 (Tex.Crim.App.1978). In Pitts, the defendant was charged with attempted capital murder. The charge allowed the jury to find Pitts guilty either if he fired the shot allegedly meant to cause the death of the intended victim or if defendant’s companion fired the shot and defendant was merely a party to the offense. The indictment had simply charged Pitts with attempted capital murder, failing to mention the role of Pitts’ companion. The defendant argued “that since the indictment failed to allege he was a party to the offense and criminally responsible for the conduct of another, the court erred in submitting the charge to the jury which allowed his conviction on that theory.” Id. at 899. The Court of Criminal Appeals squarely rejected that argument:

We hold [that] a party to an offense may be charged with the offense without alleging the facts which make the defendant a party to the offense and criminally responsible for the conduct of another. If the evidence supports a charge on the law of parties, as it does here, the court may charge on the law of parties even though there is no such allegation in the indictment.

Id. at 900. Thus, in the case at bar, the charge given to the jury that convicted Petitioner does not authorize a conviction on a theory not alleged in the indictment.

Accordingly, it is ORDERED, ADJUDGED, and DECREED that the Motion be and hereby is GRANTED.

The Clerk shall file this Order and provide a true copy to counsel for all parties.

      . Chief Justice Burger and Justice Stevens each wrote separate concurrences. Justice White concurred in the judgment. Justices Brennan and Marshall dissented.

      . Petitioner does not allege that the charge on parties’ culpability for the acts of others is legalIy unsound.


author: GASCH, District Judge.

text:
    Jake LAPIN, Plaintiff, v. UNITED STATES of America, Defendant.
    Civ. A. No. 82-1932.
    United States District Court, District of Columbia.
    March 5, 1985.

      Jake Lapin, pro se.
    D. French Slaughter, III, U.S. Dept, of Justice, Washington, D.C., for defendant.
   MEMORANDUM

GASCH, District Judge.

This is an action for a refund of federal income taxes paid for the taxable years 1975 and 1977 through 1980. Plaintiff has moved for summary judgment only as to his claim for a tax refund from the year 1975 for the amount of state taxes he paid on a federal cost of living allowance that he contends was exempt from federal income tax. For the reasons set forth below, plaintiff’s motion is denied, and judgment is entered for the United States of America.

BACKGROUND

In 1975 plaintiff was a civilian employee of the United States Government in Honolulu, Hawaii. In addition to his salary, plaintiff received in 1975 a cost of living allowance (“COLA”) in the amount of $3,898.40. A cost of living allowance is paid to employees of the United States government whose basic salary is fixed by statute and who are stationed in Hawaii or certain other areas outside the continental United States. The allowance is given for living costs that are substantially higher than in the District of Columbia. See S.Rep. No. 627, 78th Cong., 1st Sess., 24 (1944); C.B. 1944, 973 at 992; Rev.Rul. 59-407, 1959-2 C.B. 19-21.

Although such COLA is exempt from federal income tax, it is taxable by the State of Hawaii. Accordingly, plaintiff paid Hawaii income taxes on the $3,898.40 COLA for the taxable year 1975. Plaintiff then claimed a deduction on his 1975 federal income tax return for the amount of Hawaii state taxes he paid on the COLA. In April 1979, plaintiff received a notice of deficiency in the amount of $1,335.00 plus interest on his 1975 federal tax return. The Internal Revenue Service determined that $203 of that deficiency represented the amount of state income tax plaintiff paid on the COLA which plaintiff deducted on his federal return and which the IRS disallowed pursuant to I.R.C. § 265 and Rev. Rui. 74-140.

DISCUSSION

Plaintiff contends that he is entitled to a deduction on his 1975 federal income taxes for the amount of income tax he paid to the State of Hawaii on the COLA. He relies on I.R.C. § 164, which generally allows a deduction for state income taxes paid. Alternatively, plaintiff argues that because of its noncompensatory character, the COLA is not “income” and thus not within a class of income wholly exempt from tax within the meaning of I.R.C. § 265(1), which bars deductions for amounts allocable to a class of income wholly exempt from federal gross income. Plaintiffs arguments are without merit.

Section 265(1) of the Internal Revenue Code disallows deductions on income that is not subject to federal income tax. The section provides:

No deduction shall be allowed for—
(1) Expenses — Any amount otherwise allowable as a deduction which is allocable to one or more classes of income other than interest (whether or not any amount of income of that class or classes is received or accrued) wholly exempt from the taxes imposed by this subtitle, or any amount otherwise allowable under Section 212 (relating to expenses for production of income) which is allocable to interest (whether or not any amount of such interest is received or accrued) wholly exempt from the taxes imposed by this subtitle.

It is well settled that Section 265(1) takes precedence over I.R.C. § 164, which authorizes deductions on federal income taxes for state income taxes paid. Section 161 expressly provides that deductions specified in Part VI of Subchapter B of Subtitle A of the Internal Revenue Service Code of 1954, which includes Section 164, is “subject to the exceptions provided in Part IX,” which includes Section 265(1). See also Commissioner v. Idaho Power Company, 418 U.S. 1, 17, 94 S.Ct. 2757, 2767, 41 L.Ed.2d 535 (1974). Accordingly, plaintiff is not entitled to deduct from his federal income the amount of Hawaii state taxes that he paid on the 1975 COLA.

Plaintiff contends, however, that the COLA is not income within the meaning of Section 265(1) because it is noncompensatory in character. Plaintiff relies principally on a Senate report concerning the exemption from federal income tax of certain COLAs granted to federal employees. There is nothing in the report, however, that even suggests that COLAs are not considered income. Under the Internal Revenue Code, gross income means all income from whatever source derived, unless excluded by law. Treas.Reg. 1.61. The COLA at issue in this case is a class of income excluded by I.R.C. § 912 from gross income.

Plaintiffs reliance on Manocchio v. Commissioner, 710 F.2d 1400 (9th Cir. 1983), is misplaced. In that case, the court held that an airline pilot could not deduct from his federal income tax flight training expenses for which he was reimbursed by the Veterans Administration because reimbursed expenses are not deductible under I.R.C. § 162(a). Significantly, Manocchio concerned a direct reimbursement, not a flat living stipend as the COLA in this case. Furthermore, in view of its reliance on Section 162(a), the court in Manocchio expressly declined to reach the question of whether the deduction was disallowed under I.R.C. § 265(1) as the Tax Court had found. The Tax Court reasoned that the reimbursement received by the airline pilot qualified as a class of income exempt from gross income and thus I.R.C. § 265 disallowed any deduction for such exempt income. 78 T.C. 989 (1982). Similarly, the COLA at issue in this case is a class of income exempt from gross income and Section 265(1) bars plaintiff from taking any deduction for the COLA, including a deduction for the amount of state taxes paid on the COLA.

There being no material issues of fact in dispute, the Court denies plaintiffs motion for summary judgment. Plaintiff is not entitled to deduct from his 1975 federal income tax the amount of State of Hawaii income taxes paid by plaintiff on the COLA.

      . Plaintiffs motion for summary judgment also seeks a refund for taxes paid on the cost of living allowance at issue for as far back as 1943. The only taxable year in issue as to this motion for summary judgment is 1975. Indeed, plaintiff so admits in his reply to defendants' opposition to plaintiff’s motion for summary judgment.
      Plaintiff also seeks to maintain a class action on behalf of all federal employees in Hawaii who received the cost of living allowance since 1943. The plaintiff, however, has not complied with the prerequisites for class certification contained in Rule 23 of the Federal Rules of Civil Procedure or with the class certification provisions of Local Rule 1 — 13(b). Neither his original complaint nor his “first supplemental complaint” mentions a class action. Plaintiffs action is simply a tax refund action for taxes paid by him for the taxable years 1975 and 1977 through 1980.

      . To determine the amount of State of Hawaii income taxes plaintiff paid on the $3,898.40 COLA, the IRS first determined the percentage of plaintiffs adjusted gross income the COLA represented and then applied that percentage to the amount of Hawaii income taxes plaintiff paid. The formula is set forth below:

        $3,898.40 (COLA)_
      $3,898.40 (COLA) 4 $37,136.88 (adjusted gross income)
      X $2,144.79 (total Hawaii income taxes paid) = $203 (tax attributable to COLA)

      . Senate Rep. No. 627, 78th Cong., 1st Sess. 24 (1943); C.B. 1944, 973 at 992 states:
      The personnel of the Government do not choose the posts to which they are assigned, and they have no control over the costs which there are experienced. They are sent to the posts because highly important duties of the Government must there be accomplished. Payment of allowances to meet the extra costs of living at individual posts is indistinguishable from the payment of allowances to defray the expenses of operation of the establishment, the official entertainment which is necessarily undertaken, the travel personnel is ordered to perform or the rental paid for quarters appropriate to house essential activities.

      . In his "supplemental motion for summary judgment," plaintiff also claims that the State of Hawaii unlawfully taxed the COLA which is exempt from federal income tax. He seeks for all federal employees affected a refund of income taxes paid to the State of Hawaii on the COLA. The State of Hawaii is not a party to this action. Accordingly, plaintiffs claim is not properly before the Court.

      . Plaintiff challenges the formula used by the Internal Revenue Service to determine the amount of State of Hawaii income taxes paid by him on the COLA because it ignores the fact that the plaintiff included as income on his 1975 federal tax return a state income tax refund of $1,662. While this is true, the failure to consider the income tax refund reduced rather than increased the amount of taxes allocable to the COLA.