author: GOETTEL, District Judge:

text:
    The AUTHORS LEAGUE OF AMERICA, INC. and Irwin Karp, Plaintiffs, v. The ASSOCIATION OF AMERICAN PUBLISHERS, Plaintiff-Intervenor, v. David L. LADD, Register of Copyrights, James Baker, Secretary of the Treasury, and William Yon Raab, Commissioner, United States Customs Service, Defendants.
    No. 82 Civ. 5731 (GLG).
    United States District Court, S.D. New York.
    Oct. 8, 1985.

      Irwin Karp, Port Chester, N.Y., for plaintiff, The Authors League of America, Inc., and pro se.
    Paskus, Gordon & Mander, New York City, for plaintiff-intervenor; David S. Klafter, of counsel.

      Rudolph W. Giuliani, U.S. Atty. for the S.D. of N.Y., New York City by Frederick M. Lawrence, Jane E. Booth, Asst. U.S. Attys., for defendants.
    Brown, Wood, Ivey, Mitchell & Petty, New York City by James K. Manning, and Loomis, Owen, Fellman & Howe, Washington, D.C. by Stephen F. Owen, Jr., James E. Anderson, Richard B. Fellows, Jr., for amici curiae, Book Mfrs.’ Institute, Inc., Printing Indus, of America, Inc., and Graphic Communications Intern. Union.
   OPINION

GOETTEL, District Judge:

In this action, the plaintiffs seek to challenge the constitutionality of the manufacturing clause of the Copyright Act (“the Act”), 17 U.S.C. §§ 601-603 (1982). That clause forbids the importation or public distribution in the United States of certain copyright publications of American authors or domiciliaries that are manufactured abroad.

The defendants have moved to dismiss the action or, alternatively, for summary judgment. The plaintiffs and plaintiff-in-tervenor have cross-moved for summary judgment. For the reasons set forth below, the Court grants the defendants’ motion for summary judgment and denies the plaintiffs’ and the plaintiff-intervenor’s cross-motion.

I. BACKGROUND

A. Statutory Scheme

The manufacturing clause of the Copyright Act is contained in sections 601 and 603(a) and (c) of Title 17 of the United States Code. Sections 601 and 603(a) and (c) were enacted on October 19, 1976, as part of the Copyright Revision Act, Pub.L. 94-553, 90 Stat. 2588-90 (1976). Section 601 provides:

Prior to July 1, 1986, and except as provided by subsection (b), the importation into or public distribution in the United States of copies of a work consisting preponderantly of nondramatic literary material that is in the English language and is protected under this title is prohibited unless the portions consisting of such material have been manufactured in the United States or Canada.

17 U.S.C. § 601 (1982). This section applies only to nondramatic work that is written mainly in the English language. It does not apply to nondramatic works in other languages, nor does it apply to films, music, plays, art or other categories of nonliterary copyrighted works. Section 601(b) outlines further situations in which the prohibition of section 601(a) does not apply. For example, the prohibition does not apply if the author is a foreigner domiciled abroad or a United States author domiciled abroad for at least a year prior to the importation of the foreign-made copies. 17 U.S.C. § 601(b)(1) (1982). Also, up to 2,000 copies of a nondramatic literary work in English by a United States national or domiciliary can be imported if an import statement is issued by the Copyright Office. 17 U.S.C. § 601(b)(1) (1982).

The prohibition of section 601 is enforced by the provisions of section 603. Section 603(a) authorizes the Secretary of the Treasury to make regulations for the enforcement of the import prohibition. Section 603(c) provides for the disposition of items imported in violation of section 601.

B. Background Facts

In the summer of 1982, plaintiffs The Authors League of America, Inc. (“Authors League”), and Irwin Karp (“Karp”) had 6,000 copies of a pamphlet written by Karp, entitled Fundamental Requirements of the New Copyright Act, printed in England by Collyer MacDonald Limited. The Authors League sent that firm a check for 300 and 50/100 pounds sterling in payment for manufacturing the copies. (The publication was prepared in this fashion to create a test case.)

On August 16,1982, Karp requested that the United States Copyright Office issue import statements to him and the Authors League, each to cover 3,000 copies of the pamphlet. The Copyright Office refused to issue the two import statements because the pamphlet fell into a category of material, the importation or distribution of which was forbidden by the Act.

The 6,000 copies of the pamphlet are being held by an English citizen who is awaiting shipping instructions from the Authors League and Karp. If the copies are shipped to the Authors League and Karp, they will be subject to seizure by the United States Customs Service, pursuant to the provisions of sections 603(a) and (c). They will then be destroyed or returned to England. The Authors League and Karp contend that if the manufacturing clause is declared unconstitutional, they will cause the 6,000 copies to be shipped to them in New York for distribution to members of the Authors League and others. To obtain this result, the Authors League and Karp brought suit for a judgment declaring that section 601 and the enforcement provisions of sections 603(a) and (c) are unconstitutional and seeking an order enjoining the defendants from enforcing the manufacturing clause.

C. The Parties

Karp is counsel to the Authors League, a national society for professional writers and playwrights. The Authors League is a not-for-profit corporation organized under the laws of the State of New York. Its purpose is to protect and advance the rights of American authors with respect to copyright and copyright protection, to preserve their first amendment rights, and to obtain adequate treatment for them under the tax laws.

The Court granted the motion of the Association of American Publishers (“AAP”) to intervene as a plaintiff. The AAP is a national association of about 300 American book publishers which account for between 70% and 75% of the dollar volume of all books published in the United States annually.

The defendants are David L. Ladd, Register of Copyrights, who is responsible for administering provisions of the manufacturing clause, including the issuance of import statements under section 601(b)(2); James Baker, Secretary of the Treasury, who is required by section 603 to enforce the import prohibitions of section 601(a); and William von Raab, Commissioner of the Customs Service, who is responsible for enforcing the import prohibitions of section 601(a) under the Secretary of Treasury’s direction and pursuant to section 601(b)(2) and 603(c).

D. The Pleadings

The Authors League and Karp filed a complaint containing three counts. In Count I, the Authors League asserts that section 601 and related provisions of section 603 are unconstitutional because these sections deprive American authors of copyright protection, discriminate among classes of authors and categories of works protected by the first amendment, and deprive United States publishers of the rights guaranteed by the first amendment. In Count II, the Authors League alleges that the manufacturing clause discriminates against American authors of literary works in English, violating their right to due process under the fifth amendment. Finally, in Count III, Karp and the Authors League allege that they caused 6,000 copies of Fundamental Requirements of the New Copyright Act to be manufactured in England for the purpose of importing and distributing them in the United States and that they were unable to obtain an import statement for these copies. They allege that this denial of an import statement violated their first and fifth amendment rights.

In its complaint, the AAP alleges that section 601 will prevent United States publishers who wish to do so from importing and distributing in the United States foreign-manufactured copies of literary works by United States authors in violation of their constitutional rights under the first and fifth amendments.

E. The Motions

The defendants now move to dismiss the complaint on the grounds that the plaintiffs lack standing to challenge the manufacturing clause and that they fail to raise a justiciable controversy. In the alternative, the defendants move for summary judgment, arguing that the manufacturing clause does not violate the Constitution.

The plaintiffs and the plaintiff-intervenor cross-move for summary judgment. There are no material facts in dispute.

II. DISCUSSION

A. Standing and Justiciability Issues

1. Justiciability

The defendants argue that the Court should abstain from deciding the constitutional issue raised in this action because there is no justiciable controversy. The defendants contend that Karp and the Authors League fail to raise a justiciable controversy because the plaintiffs concede that the pamphlet was published abroad solely to test the constitutionality of the manufacturing clause. In fact, the defendants point out, it was economically disadvantageous to publish the pamphlet abroad. This case, argue the defendants, is not a case or controversy within the meaning of Article III of the United States Constitution which empowers the federal courts to hear suits involving cases or controversies.

The' plaintiffs respond that Article III does not require litigants to demonstrate a practical or compelling motive to test the manufacturing clause’s constitutionality and that first amendment rights cannot be restricted because those asserting them would have fared better economically if they had not exercised their rights.

The Court must agree with the plaintiffs. The cases cited by the defendants are inapposite. The actual question the Court must consider in determining whether this case is justiciable is whether this is a “friendly suit” or one that is “feigned or collusive in nature.” Flast v. Cohen, 392 U.S. 83, 100, 88 S.Ct. 1942, 1952-53, 20 L.Ed.2d 947 (1968). This suit is not friendly or collusive and it is not feigned, i.e., “brought on a pretended right, when the plaintiff has no true cause of action, for an illegal purpose.” Black’s Law Dictionary 355 (5th Ed.1979).

2. Standing

“A legal device crafted in decisional law to implement the case-or-controversy requirement is the doctrine of standing, which places limits on a plaintiff’s ability to invoke the power of the federal courts. Standing asks whether a particular litigant is entitled to invoke the power of the federal court.” Schiavone v. United States, 766 F.2d 70, 73 (2d Cir.1985) (citation omitted).

The standing requirement has both a constitutional and a prudential dimension. Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2204-05, 45 L.Ed.2d 343 (1975). To satisfy the Constitution, the plaintiff must establish (1) that he has suffered some distinct and palpable injury; (2) that the injury was the result of the putatively illegal conduct of the defendant; and (3) that the plaintiff’s injury will be redressed by a favorable court decision. Schiavone v. United, States, supra, 766 F.2d at 73 (citations omitted). Judge-made, prudential limitations further limit the exercise of a federal court’s power by (1) requiring the plaintiff to assert his own legal rights, and not rest on the rights of a third party; (2) requiring the plaintiff’s complaint to fall within the interests to be protected or regulated by the statute or constitutional guarantee in question; and (3) barring adjudication of abstract questions that are no more than generalized grievances. Id. (citations omitted).

When ruling on a motion to dismiss for lack of standing, the court must accept as true all material allegations of the complaint and must construe the complaint in favor of the complaining party. Warth v. Seldin, supra, 422 U.S. at 501, 95 S.Ct. at 2206. We need not decide whether the litigants will ultimately prevail in order to hold that they have standing. Baker v. Carr, 369 U.S. 186, 208, 82 S.Ct. 691, 705, 7 L.Ed.2d 663 (1961).

The defendants contend that Karp and the Authors League lack standing because neither has been injured. They argue that the plaintiffs did not attempt to import the pamphlets into the United States and that the possibility that the pamphlets would be seized if the plaintiffs attempted to import them is a speculative injury insufficient to confer standing. Karp and the Authors League claim that the manufacturing clause has caused them financial injury by forbidding them from importing 6,000 copies of a pamphlet for which they expended 300 and 50/100 pounds sterling.

Because the injury-in-fact requirement exists to distinguish litigants with a direct stake in the outcome of a suit from those with a mere interest in the problem, the Supreme Court has refused to quantify a standard for demonstrating financial injury. United States v. SCRAP, 412 U.S. 669, 689 n. 14, 93 S.Ct. 2405, 2416-17, n. 14, 37 L.Ed.2d 254 n. 14. “[A]n identifiable trifle is enough for standing to fight out a question of principle; the trifle is the basis for standing and the principle supplies the motivation.” Id. (citation omitted). Thus, Karp’s and the Authors League’s relatively small financial loss is sufficient to establish injury.

Impairment of rights guaranteed by the Constitution may also constitute sufficient injury to confer standing. See Valley Forge College v. Americans United, 454 U.S. 464, 486, 102 S.Ct. 752, 766, 70 L.Ed.2d 700 (1982) (“Standing may be predicated on non-economic injury.”). Karp and the Authors League also allege injury to their constitutional rights. They claim that their first amendment rights to free speech and press are impeded because they cannot import and distribute the pamphlet which Karp wrote and which the Authors League financed, and that their fifth amendment rights to due process are violated because the manufacturing clause discriminates against American authors of literary works in English. Their standing may be predicated on this non-economic injury.

That the plaintiffs have not violated a statute and incurred its penalties does not deprive them of standing. The plaintiffs need only establish that they have taken those steps legally permitted short of the activity the statute prohibits. See Freedman v. Maryland, 380 U.S. 51, 56, 85 S.Ct. 734, 737-38, 13 L.Ed.2d 649 (1965); Beckerman v. City of Tupelo, 664 F.2d 502, 505-06 (5th Cir.1981). The fear of punishment for violation of a statute may inhibit plaintiffs in the exercise of their constitutional rights; this injury is sufficient to confer standing. Beckerman v. City of Tupelo, supra, 664 F.2d at 506.

Karp and the Authors League satisfy the remaining criteria for standing. All their alleged injuries arise from the challenged legislation which prohibits them from importing the copies of the pamphlet. In addition, a favorable ruling will redress their injury. If we declare the manufacturing clause unconstitutional, the plaintiffs will be permitted to import the pamphlet. Having satisfied all of the criteria for standing, Karp and the Authors League may challenge the constitutionality of the manufacturing clause.

Turning to the AAP, the defendants contend that it too lacks standing. However, because both Karp and the Authors League have standing, the suit may proceed whether or not the AAP establishes an independent basis for standing. If a plaintiff establishes standing, the plaintiffintervenor need not demonstrate an independent basis for standing to assert its representative claims. United States Postal Service v. Brennan, 579 F.2d 188, 190 (2d Cir.1978). Nonetheless, we find that the AAP has an independent basis for standing.

An organization may have standing to assert the rights of its members in a representative capacity, even if it has suffered no injury in fact. Warth v. Seldin, supra, 422 U.S. at 511, 95 S.Ct. at 2211-12. The organization must allege (1) that its members would otherwise have standing to sue in their own right; (2) that the interests it seeks to protect are germane to the organization’s purpose; and (3) that neither the claim asserted, nor the relief requested, requires the participation of individual members in the lawsuit. Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 343, 97 S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977). The defendants contend that the AAP does not meet the first or second requirement. We find, however, that the AAP satisfies all three criteria for representative standing.

First, the AAP has demonstrated that its members would otherwise be able to sue in their own right. It points to specific members who were injured financially by paying the requisite fees for import statements. It also alleges injury to constitutional rights of AAP members whom the manufacturing clause prevented from importing foreign-made copies of literary works.

Second, the interests that the AAP seeks to protect in this case are germane to the organization’s purpose. The AAP aims to protect the interests of their author and publisher members in the area of copyright, and to obtain equitable treatment of those interests in copyright legislation and litigation. It has testified repeatedly on behalf of American authors and publishers in congressional and Copyright Office hearings, about the manufacturing clause.

Finally, the claim asserted and the relief requested do not require the participation of individual members in this lawsuit. Whether the manufacturing clause violates the first and fifth amendments does not depend on the identity of the plaintiff challenging the statute. Where, as here, an “association seeks a declaration, injunction, or some other form of prospective relief, it can reasonably be supposed that the remedy, if granted, will inure to the benefit of those members of the association actually injured.” Warth v. Seldin, supra, 422 U.S. at 515, 95 S.Ct. at 2213-14. Thus, the AAP has standing to represent its members.

In summary, the plaintiffs raise a justiciable controversy. They, along with the AAP, have standing to bring the suit.

B. Constitutional Issues

The plaintiffs contend that the manufacturing clause violates the first and fifth amendments. They argue that section 601 and the enforcement provisions of section 603(a) and (c) violate the first amendment by flatly prohibiting United States authors and publishers from exercising their basic first amendment right to import and distribute copies of their copyrighted literary works; by depriving United States authors and publishers of protection for their publishing rights, or of copyright, if they choose to exercise that first amendment right; and by imposing their prohibitions in an underinclusive and discriminatory manner. The plaintiffs also contend that the same provisions violate the fifth amendment because the discrimination of section 601 lacks justification. Finally, they assert that the provisions violate the rights of United States authors and publishers to due process and equal protection.

The defendants contend that neither the “right” to import material nor the “right” to have material printed in a particular location is protected by the first amendment. Any alleged discriminatory impact, argue the defendants, is a reasonable distinction drawn by Congress. Thus, conclude the defendants, the manufacturing clause does not violate the first and fifth amendments and the Court should grant their motion for summary judgment.

The first amendment guarantees that “Congress shall make no law ... abridging the freedom of speech or of the press.” U.S. Const. Amend. I. But “[n]ot every Government action that affects, has an impact on, or indeed inhibits First Amendment activity contributes the kind of ‘abridgment’ condemned by the First Amendment.” Reporters Committee for Freedom of the Press v. American Telephone & Telegraph Co., 593 F.2d 1030, 1052 (D.C.Cir.1978), cert. denied, 440 U.S. 949, 99 S.Ct. 1431, 59 L.Ed.2d 639 (1979).

For example, the first amendment does not preclude the government from imposing conditions on authors who seek copyright protection. The Constitution empowers Congress “[t]o promote the Progress of Science and useful Arts, by securing for limited times to Authors and Inventors the exclusive right to respective Writings and Discoveries.” U.S. Const., art. I, § 8. Although the Constitution empowers Congress to grant patents and copyrights, it does not command Congress to do so. Cali v. Japan Airlines, Inc., 380 F.Supp. 1120 (E.D.N.Y.1974), aff'd, 535 F.2d 1240 (2d Cir.1975). In enacting copyright legislation, Congress may attach to its grant of copyright whatever conditions and restrictions it sees fit. United Dictionary Co. v. G & C Merriam Co., 208 U.S. 260, 264, 28 S.Ct. 290, 290-91, 52 L.Ed. 478 (1908). Thus, a copyright holder has no rights except those bestowed on him by Congress.

There appears to be a tension between the first amendment and the copyright law. The first amendment protects one’s freedom of .expression, while the copyright law grants one the exclusive right to express an idea in a particular form. In infringement cases, the courts have rejected the argument that copyright interferes with the first amendment right to freedom of expression. See, e.g., Sid & Marty Krofft Television v. McDonalds Corp., 562 F.2d 1157 (9th Cir.1977); McGraw Hill, Inc. v. Worth Publishers, Inc., 335 F.Supp. 415, 422 (S.D.N.Y.1971). The copyright laws, the courts reason, protect only the form of expression not its content. The former is not protected by the first amendment. Sid & Marty Krofft Television, supra, 562 F.2d at 1170-71. The line between an “idea” and “expression of an idea” represents “an acceptable definitional balance between copyright and free speech interests.” M.B. Schnapper v. Foley, 471 F.Supp. 426, 428 (D.D.C.1979), aff'd, 667 F.2d 102 (1981), cert, denied, 455 U.S. 948, 102 S.Ct. 1448, 71 L.Ed.2d 661 (1982) (citing Sid & Marty Krofft Television v. McDonalds Corp., supra, 562 F.2d at 1170).

Thus, the right to express an idea in a particular form arises from the copyright law, not from the first amendment. As discussed above, Congress has the authority to attach such conditions as it sees fit to the copyright protection it bestows. By its own language, the manufacturing clause is limited to copyrighted materials. The prohibitions of the clause, noncompliance with which can result in the diminution of protection under the copyright law, are conditions that Congress saw fit to attach to its grant of protection. Such conditions on the manner of expression do not run afoul of the first amendment.

The plaintiffs’ other first amendment argument challenges the clause’s distinction with respéct to affected and unaffected materials. The plaintiffs’ argument under the fifth amendment is nothing more than a reformation of their second first amendment argument.

Congress can create regulations and restrictions under the Copyright Act that apply to some materials, but not all, without violating the first amendment. Where, as here, a distinction is not content-based and is necessary for the accomplishment of a valid congressional purpose, it is lawful. United Dictionary Co. v. G & C Meriam Co., supra, 208 U.S. at 264, 28 S.Ct. at 290-91.

In enacting the manufacturing clause, Congress was aiming to encourage and protect domestic printing and publishing. The distinctions embodied in the manufacturing clause are carefully suited to this legitimate congressional objective and are grounded in an explicit constitutional source of legislative authority. In an earlier case dealing with a different issue, Judge Weinfeld stated the following:

[Section 601(a) ] is the latest version in a series of “manufacturing clauses” that have been a part of American copyright law since 1891. From the beginning, the essential purpose of the clause has been “protectionist” — it is designed to protect the American printing industry from the competition of foreign printers. Generally, the legislation has been opposed by writers and publishers.
Section 601(a), which was the subject of considerable attention throughout deliberations on passage of the Copyright Act of 1976, substantially liberalized previous clauses. The hearings before the congressional committee at which were presented the conflicting views of interested parties, indicates that there was an awareness that no sound principle justified permanent continuance of the clause, except its “protectionist” aspect, and that even as to this element its effectiveness was questioned. In consequence, the section was passed in its present form but with an expiration date of July 1, 1982. Presently, the copyright office is studying the clause with a view to guiding Congress on whether to extend it beyond that date. Inasmuch as the clause was the subject of considerable attention by Congress and was passed in order to fulfill its economic objectives and despite the recognized objection that it is a burden on American authors, plaintiffs contention on argument of these motions that the clause should not be enforced is without merit. To accept this position would be tantamount to repeal by judicial decision.

Stonehill Communication, Inc. v. Mar-tuge, 512 F.Supp. 349, 350-51 (S.D.N.Y. 1981) (footnote omitted).

The life of the manufacturing clause has now been extended to July 1, 1986, to give Congress more time to evaluate its merits. In less than one year, Congress will have the opportunity to review the clause. Despite whatever doubts we may have, we again leave it to Congress to evaluate the problem and come up with a solution.

In summary, we find that the manufacturing clause does not violate the first or fifth amendments. It represents a rational means to protect the domestic printing and publishing industry.

III. CONCLUSION

The Court denies the plaintiffs’ motion for summary judgment and the defendants’ motion to dismiss. We grant the defendants’ motion for summary judgment. The Clerk will enter judgment accordingly.

SO ORDERED.

      . Section 601 by its terms expired on July 1, 1982. On July 13, 1982, however, it was retroactively extended until July 1, 1986.

      . Section 601(b) provides in full as follows:
      The provisions of subsection (a) do not apply—
      (1) where, on the date when importation is sought or public distribution in the United States is made, the author of any substantial part of such material is neither a national nor a domiciliary of the United States or, if such author is a national of the United States, he or she has been domiciled outside the United States for a continuous period of at least one year immediately preceding that date; in the case of a work made for hire, the exemption provided by this clause does not apply unless a substantial part of the work was prepared for an employer or other person who is not a national or domiciliary of the United States or a domestic corporation or enterprise;
      (2) where the United States Customs Service is presented with an import statement issued under the seal of the Copyright Office, in which case a total of no more than two thousand copies of any one such work shall be allowed entry; the import statement shall be issued upon request to the copyright owner or to a person designated by such owner at the time of registration for the work under section 408 or at any time thereafter;
      (3) where importation is sought under the authority or for the use, other than in schools, of the Government of the United States or of any State or political subdivision of a State;
      (4) where importation, for use and not for sale, is sought—
      (A) by any person with respect to no more than one copy of any work at any one time;
      (B) by any person arriving from outside the United States, with respect to copies forming part of such person's personal baggage; or
      (C) by an organization operated for scholarly, educational, or religious purposes and not for private gain, with respect to copies intended to form a part of its library;
      (5) where the copies are reproduced in raised characters for the use of the blind; or
      (6) where, in addition to copies imported under clauses (3) and (4) of this subsection, no more than two thousand copies of any one such work, which have not been manufactured in the United States or Canada, are publicly distributed in the United States; or
      (7) where, on the date when importation is sought or public distribution in the United States is made—
      (A) the author of any substantial part of such material is an individual and receives compensation for the transfer or license of the right to distribute the work in the United States; and
      (B) the first publication of the work has previously taken place outside the United States under a transfer or license granted by such author to a transferee or licensee who was not a national or domiciliary of the United States or a domestic corporation or enterprise; and
      (C) there has been no publication of an authorized edition of the work of which the copies were manufactured in the United States; and
      (D) the copies were reproduced under a transfer or license granted by such author or by the transferee or licensee of the right of first publication as mentioned in sub-clause (b), and the transferee or the licensee of the right of reproduction was not a national or domiciliary of the United States or a domestic corporation or enterprise.
      17 U.S.C. § 601(b) (1982).

      . Section 603(a) provides that "[t]he Secretary of Treasury and the United States Postal Service shall separately or jointly make regulations for the enforcement of the provisions of this title prohibiting importation.” 17 U.S.C. § 603(a) (1982).

      . Section 603(c) provides that
      [articles imported in violation of the importation prohibition of this title are subject to seizure and forfeiture in the same manner as property imported in violation of the customs revenue laws. Forfeited articles shall be destroyed as directed by the Secretary of the Treasury or the court, as the case may be; however, the articles may be returned to the country of export whenever it is shown to the satisfaction of the Secretary of the Treasury that the importer had no reasonable grounds for believing that his or her acts constituted a violation of law.
      17 U.S.C. § 603(c) (1982).

      . The Printing Industries of America, Inc., the Book Manufacturers’ Institute, Inc., and the Graphic Communications International Union moved to intervene as defendants. The Court denied this motion ”[s]ince there does not presently appear to be any reason for believing that the present defendants will not vigorously defend this action” and gave the movants permission to participate as amicus curiae.

      . Throughout this opinion, we will refer to Karp, the Authors League, and the AAP collectively as the plaintiffs. Where necessary, we will differentiate between them.

      . Donald T. Regan, who was serving as Secretary of the Treasury when the complaint was originally filed, was then named as a defendant. James Baker has since replaced Mr. Regan in that position. Secretary Baker is hereby ordered substituted as a party pursuant to Fed.R. Civ.P. 25(d) which provides, ”[w]hen a public officer is a party to an action in his official capacity and during its pendency ... ceases to hold office, the action does not abate and his successor is automatically substituted as a party.” Id.

      . As of the time when they made their motion, the defendants had not been served with a copy of the plaintiff-intervenor’s complaint and therefore moved to dismiss that complaint for lack of personal jurisdiction and lack of service of process. The complaint has since been served.

      . "If there is one doctrine more deeply rooted than any other in the process of constitutional adjudication, it is that we ought not to pass on questions of constitutionality ... unless such adjudication is unavoidable.” Spector Motor Service, Inc. v. McLaughlin, 323 U.S. 101, 65 S.Ct. 152, 89 L.Ed. 101 (1944).

      . Moreover, the plaintiffs have not pressed their claim as testers, but rather, as discussed below, they claim to be injured as publishers of the pamphlet. "It is in this capacity that they claim [and we consider their] standing to pursue this litigation.” Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 111, 99 S.Ct. 1601, 60 L.Ed.2d 66 (1979).

      . The Authors League also has standing to sue in its representative capacity. The defendants do not contest this point.

      . No one can deny that when the legislature are about to vest an exclusive right in an author or an inventor, they have the power to prescribe the condition in which such right shall be enjoyed; and that no one can avail himself of such rights who does not substantially comply with the requirements of the law.

        Wheaton v. Peters, 8 Pet. 591, 33 U.S. 591, 663-64, 8 L.Ed. 1055 (1834).

      . [T]he idea-expression line presents an acceptable definitional balance as between copyright and free speech interest. In some degree it encroaches upon freedom of speech in that it abridges the right to reproduce the ‘expressions’ of others, this is justified by the greater public good in the copyright encouragement of creative works. In some degree it encroaches upon the author’s right to control his work in that it renders his ‘ideas' per se unprotectable, but this is justified by the greater public need for free access to ideas as part of the democratic dialogue.

        Nimmer, Does Copyright Abridge the First Amendment Guarantees of Free Speech and Press?, 17 U.C.L.A.L.Rev. 1180, 1192-93 (1970).

      . Section 601(d) provides that
      [¡Importation or public distribution of copies in violation of this section does not invalidate protection for a work under this title. However, in any civil action or criminal proceeding for infringement of the exclusive rights to reproduce and distribute copies of the work, the infringer has a complete defense with respect to all of the non-dramatic literary material comprised in the work and any other parts of the work in which the exclusive rights to reproduce and distribute copies are owned by the same person who owns such exclusive rights in the nondramatic literary material, if the infringer proves—
      (1) that copies of the work have been imported into or publicly distributed in the United States in violation of this section by or with the authority of the owner of such exclusive rights; and
      (2) that the infringing copies were manufactured in the United States or Canada in accordance with the provisions of subsection (c); and
      (3) that the infringement was commenced before the effective date of registration for an authorized edition of the work, the copies of which have been manufactured in the United States or Canada in accordance with the provisions of subsection (c).
      (e) In any action for infringement of the exclusive rights to reproduce and distribute copies of a work containing material required by this section to be manufactured in the United States or Canada, the copyright owner shall set forth in the complaint the names of the persons or organizations who performed the processes specified by subsection (c) with respect to that material, and the places where those processes were performed.
      17 U.S.C. § 601(d) (1982).
      Under the Copyright Act of 1891 and the 1909 Amendment, compliance with the manufacturing requirements was clearly a condition of copyright protection. In response to the concerns of authors and publishers, section 601 no longer divests copyright protection for noncompliance. However, the exclusive right to reproduce and distribute copies are impaired by noncompliance. Moreover, in order to lawfully import copies protected under federal copyright law, the provisions of the manufacturing requirements must be followed.

      . The plaintiffs also assert a third argument under the first amendment: that the manufacturing clause works an unconstitutional condition on copyright rights of authors and publishers. This argument is derivative of the plaintiffs’ first argument. Because, as shown above, Congress has the power to attach conditions to the grant of copyright protection, the conditions established by the manufacturing clause on rights under the Copyright Act are not unconstitutional.

      . Whether protectionist legislation serves the national interests is a matter for Congress, not the Courts.


source: Caselaw Access Project

author: CARRIGAN, District Judge.

license: Public Domain

text:
    Frank H. MULLEN, et al., Plaintif[s], v. SWEETWATER DEVELOPMENT CORPORATION, et al., Defendant[s].
    Civ. A. No. 85-C-1121.
    United States District Court, D. Colorado.
    Oct. 8, 1985.

      Gregory R. Piche, Colorado Springs, Colo., Cassandra G. Sasso, Denver, Colo., for plaintiffs.
    Robert E. Warren, Jr., J. Lawrence Ham-il, Denver, Colo., Robert J. Mason, Colorado Springs, Colo., for defendants.
   ORDER

CARRIGAN, District Judge.

Plaintiffs, Rodney Preisser, James Dingeman, Jr., and Frank Mullen filed this action asserting seven claims for relief, two of which arise under the Securities Exchange Act of 1934 (“1934 Act”), 15 U.S.C. § 78a et seq. (1982), one of which arises under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq. (1982), and four of which are state common law claims. Jurisdiction over the federal claims is invoked under 15 U.S.C. § 78aa (1982), 18 U.S.C. §§ 1962 and 1964 (1982), and 28 U.S.C. § 1331 (1982). Pendent jurisdiction is asserted over the state claims.

Before me are the following motions: 1) a motion by all the defendants to dismiss or for judgment on the pleadings for lack of subject matter jurisdiction; 2) a motion by the defendants Western Consortium Inc. and Hydro Transfer Corporation for judgment on the pleadings; 3) a motion by the defendants Thomas Rhoades and the Tian-na Corporation to dismiss; 4) a motion by the defendant Sandia Savings and Loan Association for judgment on the pleadings; 5) a motion by the plaintiffs for appointment of a receiver; 6) a motion by the plaintiffs for an order staying further conveyance of water rights; 7) a petition by the plaintiffs for an order to show cause; and 8) a motion by the defendant Western Consortium to disqualify one of the plaintiffs’ attorneys. By this order, I resolve the first four of those motions. The remaining motions will be decided following a hearing.

I. Motions to Dismiss or for Judgment on the Pleadings for Lack of Subject Matter Jurisdiction.

A. Factual Background

The facts, viewed in a light most favorable to the plaintiffs, as I am bound to view them on these motions, are as follows. In 1981, Joe Farmer and Alexander Kane were the sole stockholders of the defendant, Sweetwater Development Corp. (“Sweetwater”). Farmer owned one-third of the shares of Sweetwater stock, and Kane owned the other two-thirds. Sweet-water held title to approximately ten water rights decrees in El Paso County, Colorado. According to the terms of the corporate charter, any shares of Sweetwater stock offered for sale were subject to a right of first refusal in favor of the corporation, and then to each of the individual shareholders.

In May, 1981, the defendant Samuel Morreale, the president of the defendant Blue Dolphin Investments, Ltd. (“Blue Dolphin”), began negotiations with Kane to acquire Kane’s two-thirds interest in Sweetwater.

Shortly thereafter, on June 11, 1981, Farmer executed a contract with the plaintiffs. Under the terms of that contract, when Kane attempted to sell his stock interest in Sweetwater to Morreale and Blue Dolphin, Farmer would exercise his right of first refusal, obtain Kane’s shares of Sweetwater stock, and then sell one hundred percent of the Sweetwater stock to the plaintiffs.

Farmer allegedly was prevented from exercising his right of first refusal by the operation of a clause in the Sweetwater stockholders’ agreement that stated that a stockholder attempting to exercise a right of first refusal was required to pledge collateral at least equal in value to the collateral pledged by the party attempting to purchase the Sweetwater stock. Morreale and Blue Dolphin had pledged 350 acres of property which they represented to be worth at least $1.4 million. Because Farmer was unable to put up collateral worth $1.4 million to match the collateral value claimed by Blue Dolphin and Morreale, Farmer was not allowed to purchase Kane’s Sweetwater stock.

Plaintiffs contend that the value of Blue Dolphin’s security collateral was “fraudulently and grossly inflated.” Complaint, para. 15. They allege that the land which Morreale and Blue Dolphin valued at $1.4 million was purchased by Morreale for $25,000 in 1978 and was appraised at $70,-000 in 1982. Complaint, para. 16. Had it not been for the fraud perpetrated by Morreale and Blue Dolphin, the plaintiffs assert, Farmer would have successfully exercised his right of first refusal, acquired Kane's two-thirds interest in Sweetwater, and then sold all of the stock to the plaintiffs.

When Farmer’s efforts to purchase the Sweetwater stock owned by Kane failed, he declared that his contract with the plaintiffs was void for failure of a condition precedent. Plaintiffs, in response, waived the condition that Kane’s share of the stock be acquired and sought performance of the rest of the contract (for the remaining shares that Farmer owned outright). Negotiations failed to resolve the matter, and the plaintiffs filed an action in state court for specific performance, subject to a reduction in price to reflect Farmer’s failure to acquire all of the Sweetwater stock. Judgment was entered in favor of the plaintiffs on August 28, 1984. The case is currently on appeal to the Colorado Court of Appeals.

Blue Dolphin appeared in the state suit for specific performance as a third-party defendant and attempted to assert the preemptive right of first refusal it had acquired by purchasing Kane’s stock. The state court rejected Blue Dolphin’s claim on the grounds of waiver and laches. Sweet-water did not appear as a party in the state specific performance action. Therefore, the state court did not rule on whether Sweetwater could exercise its right of first refusal.

On October 10, 1984, Farmer gave notice to Sweetwater of the pending sale of his Sweetwater stock to the plaintiffs. The next day, Sweetwater (controlled by Morr-eale and Blue Dolphin) attempted to exercise its right of first refusal by tendering performance. The tender was refused. In December, 1984, Sweetwater commenced an action in state court to prevent the transfer of Farmer’s stock to the plaintiffs. On March 15,1985, a preliminary injunction was granted in favor of Sweetwater. That injunction is currently on appeal to the Colorado Court of Appeals.

While the plaintiffs' specific performance action concerning Farmer’s one-third interest in Sweetwater was in progress, Blue Dolphin defaulted on a payment of $140,-000 due to the Kanes on June 10, 1982. Kane commenced a breach of contract action in state court. While that action was pending, the majority stockholders of Sweetwater (Morreale and Blue Dolphin), over Farmer’s objections, granted the Tian-na Corporation (“Tianna”) an option to purchase Sweetwater’s water rights for $3.3 million. The option was given in exchange for an unsecured, non-interest bearing promissory note for $33,000 from Tianna.

On August 9, 1983, the terms of the option were modified. The selling price was increased from $3.3 million to $3.7 million, and the terms of purchase were revised. The new terms required a fifteen percent cash down payment at closing and payment of interest only for ten years on a twenty-year promissory note.

On January 5, 1985, under the direction of Morreale and Blue Dolphin, Sweetwater transferred its water rights to Western Consortium, Inc. in exchange for 3.7 million shares, of Western Consortium stock. In addition, 19.3 million shares of Western Consortium stock were transferred to Tian-na in exchange for its release of the option to purchase Sweetwater’s water rights. Sweetwater’s water rights represented 82.6 percent of Western Consortium’s book value, but Sweetwater received only 13.3 percent of Western Consortium’s stock. Tian-na received 68.9 percent of Western Consortium’s stock in exchange for its option to purchase Sweetwater’s water rights. Tianna is owned by Thomas S. Rhoades, the president of Western Consortium.

On August 23, 1984, Western Consortium secured a loan from Sandia Savings and Loan Association (“Sandia”) for $3 million. The loan was secured by a lien on the water rights acquired from Sweetwater and a forty-five percent profit participation by Sandia in any subsequent sale of the water rights. Plaintiffs allege that the proceeds from the loan were used to extinguish Blue Dolphin’s debt to Kane. Kane’s suit against Blue Dolphin was dismissed on August 31, 1984.

On January 23, 1985, Western Consortium transferred the water rights to Hydro Transfer Corporation (“Hydro”), a wholly owned subsidiary of Western Consortium. The transfer was without consideration. The same Rhoades who is the president of Western Consortium and the owner of Tianna is the president of Hydro. Plaintiffs allege that “at some time during April, 1985, Hydro further encumbered the Sweetwater water rights by entering into a Water Purchase and Delivery Contract with Frank Lynch.”

On July 3,1985, Western and Hydro filed with this court a notice of their intention to further encumber the Sweetwater water rights by using them a security for a $6.8 million loan.

B. Standing.

Defendants have moved for judgment on the pleadings under Fed.R.Civ.P. 12(c) asserting that the plaintiffs have no standing to file this action. The parties have treated this action as if it were simply a shareholder derivative action and have argued the issue in those terms. Review of the complaint, however, reveals that this is both a direct and a derivative action. The First Claim for Relief alleges that the defendants violated federal securities law in connection with the transfer of the Sweetwa-ter water rights for Western Consortium stock. This is clearly a derivative action. The alleged injury from this asserted conduct clearly would be to the corporation. The Second Claim for Relief alleges that the same conduct violated state securities law. This too is a derivative claim, as is the Fourth Claim which alleges that the defendants have wrongfully converted water rights owned by Sweetwater.

The Third and Fifth Claims for Relief, however, are direct claims. The Third Claim alleges that the defendants were fiduciaries vis-a-vis the plaintiffs and that the defendants breached their fiduciary duties by manipulating Sweetwater solely for their own personal benefit. The injuries allegedly caused would fall directly on the plaintiffs, not the corporation. The Fifth Claim alleges that the defendants violated Rule 10b-5 in connection with Kane’s sale of Sweetwater stock to Blue Dolphin. Plaintiffs contend in this Claim that they are entitled to exercise a right of first refusal over this transaction. This also is a direct claim, because the plaintiffs are seeking recovery of stock that allegedly belongs to them.

The Sixth Claim for Relief is actually a prayer for relief; it probably should be stricken as a claim. On motion by any party, after I have had the opportunity to consider any objections the plaintiffs may have, I will take appropriate action. The Seventh Claim for Relief is a hybrid. In it, the plaintiffs allege violations of RICO, 18 U.S.C. § 1961 et seq. (1982), and seek both the restoration of the Sweetwater water rights and transfer to the plaintiffs of the majority two-thirds interest in Sweetwater.

1. Direct Claims

Plaintiffs’ Fifth Claim for Relief is based on Rule 10b-5, 17 C.F.R. § 240.10b-5, which was promulgated under § 10(b) of the 1934 Act, 15 U.S.C. § 78j (1982). Rule 10b-5 states:

“It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security.”

The right to bring a private action under the 1934 Act is limited to actual purchasers and sellers of securities. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). However, the requirement that a party be a purchaser or seller must be read flexibly. In re Penn Central Securities Litigation, 357 F.Supp. 869 (D.Pa.1973), aff'd 494 F.2d 528 (3d Cir.1974); Garner v. Pearson, 374 F.Supp. 591 (D.Fla.1974). A purchase or sale within the meaning of the 1934 Act is not necessarily a technical purchase or sale in the common law sense. Broad v. Rockwell International Corp., 614 F.2d 418 (5th Cir.1980), reh’g granted, 618 F.2d 396 (5th Cir.1980), on reh’g, 642 F.2d 929 (5th Cir.1981), cert, denied, 454 U.S. 965, 102 S.Ct. 506, 70 L.Ed.2d 380 (1981). Furthermore, “[t]he terms ‘buy’ and ‘purchase’ each include any contract to buy, purchase, or otherwise acquire.” 15 U.S.C. § 78c(a)(13) (1982). And, “[t]he terms ‘sale’ and ‘sell’ each include any contract to sell or otherwise dispose of.” 15 U.S.C. § 78c(a)(14) (1982).

Plaintiffs in this case admit that they are not record holders of shares of Sweetwater stock and do not have an unqualified contractual right to the stock. Their right to Sweetwater stock is currently being litigated, both here and in state court. Plaintiffs claim, however, that they have an equitable interest sufficient to give them standing to pursue their direct claims. Defendants, on the other hand, citing Blue Chip Stamps and Birnbaum v. Newport Steel Corp, 193 F.2d 461 (2d Cir.1952), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952), argue that the plaintiffs were neither purchasers nor sellers of securities because their interest in Sweetwater stock at all times has been too contingent. These arguments can be resolved only by analyzing the “purchaser or seller” requirement as it has been explained in Blue Chip Stamps and Birnbaum.

In Birnbaum, the president and chairman of the board of directors of Newport Steel Corp. rejected a proposed merger with Follansbee Steel Corp., a transaction that would have been advantageous to Newport’s stockholders. Instead, he arranged to sell his controlling block of shares to Follansbee at twice the market price. The Second Circuit, in an opinion by Judge Augustus N. Hand, concluded that the 1934 Act “was directed solely at that type of misrepresentation or fraudulent practice usually associated with the sale or purchase of securities rather than at fraudulent mismanagement of corporate affairs.” Birnbaum, 193 F.2d at 464. The court therefore held that Rule 10b-5 “extended protection only to the defrauded purchaser or seller,” Id., and affirmed the trial court’s dismissal of the action for failure to state a claim upon which relief could be granted.

In Blue Chip Stamps, the plaintiff was offered stock in Blue Chip Corp. under an antitrust reorganization plan mandated by the federal government. Under the plan, a select group was first offered the stock. The stock that was not purchased by this group was then sold through a public offering. Plaintiff in the case was a member of the select group but failed to purchase any Blue Chip stock, allegedly because the prospectus prepared by Blue Chip was “materially misleading in its overly pessimistic appraisal of Blue Chip’s status and future prospects.” 421 U.S. at 726, 95 S.Ct. at 1921. The complaint asserted that the prospectus was intentionally misleading in order to discourage the parties from buying so that the rejected stock could be sold to the public at a higher price. In its decision, the Supreme Court endorsed the “Birn-baum rule” and held that “the plaintiff class for purposes of a private damages action under § 10(b) and Rule 10b-5 was limited to actual purchasers and sellers of securities.” Id. at 730, 95 S.Ct. at 1923.

The primary benefit that the court found in the Birnbaum rule was that it enhanced judicial certainty, “permit[ting] exclusion prior to trial of those plaintiffs who were not themselves purchasers or sellers of the stock in question.” Id. at 742, 95 S.Ct. at 1928. The Court contemplated three classes of potential plaintiffs that would be barred by the Birnbaum rule. The first class would be those parties (such as the plaintiffs in Blue Chip) who had decided not to purchase because of “an unduly gloomy representation.” Id. at 737, 95 S.Ct. at 1926. The second class would be those who had decided not to sell their shares “because of an unduly rosy representation.” Id. at 737-38, 95 S.Ct. at 1926. The third class would be shareholders who had suffered loss in the value of their investment because of corporate or insider activities in connection with the purchase or sale of securities in violation of Rule 10b-5 (as occurred in Birnbaum). Id. at 738, 95 S.Ct. at 1926. While the Supreme Court recognized that the Birnbaum rule might “unreasonably [prevent] some deserving plaintiffs from recovering damages which have in fact been caused by violations of Rule 10b-5,” Id. at 738, 95 S.Ct. at 1926, the Court concluded that a rejection of the Birnbaum rule would be even more disadvantageous. In particular, the Court was concerned with two possible consequences of any repudiation of the Birn-baum rule. First, the Court noted that any judgment for a plaintiff who neither purchased nor sold securities would be a “largely conjectural and speculative recovery in which the number of shares involved [would] depend on the plaintiff’s subjective hypothesis.” Id. at 735, 95 S.Ct. at 1925. Such a situation would subject companies to vexatious litigation pursued only for its settlement value. Second, the Court worried that elimination of the Birnbaum rule would allow an “inexorable broadening of the class of plaintiffs who may sue in this area of law, [resulting] in more harm than good.” Id. at 747-48, 95 S.Ct. at 1931.

The policy considerations expressed in Blue Chip do not apply in the present case. First, the amount of stock here in controversy is not conjectural. Plaintiffs’ claims arise out of a written contract, the terms of which are not in dispute. The number of shares involved, therefore, does not depend on the plaintiffs’ “subjective hypothesis.” Second, a decision to classify the plaintiffs as purchasers on the basis of their contract with Farmer would not “inexorably” expand the class of plaintiffs who could bring an action under the 1934 Act. In fact, such a decision would maintain the Act’s integrity. The 1934 Act specifically includes any contract to sell or purchase within the definition of the terms “sale” and “purchase.” To exclude a contract to purchase stock on the ground that its enforceability is disputed would allow a party to defeat any claim asserted against it merely by challenging the' validity of the contract. Furthermore, when the defendants’ fraud allegedly is responsible for the contract’s questionable validity, as in this case, barring the plaintiffs’ claim would tend to reward fraud.

Consequently, I find and conclude that the plaintiffs, as parties to a contract for the sale of stock, the validity of which is uncertain, have standing to bring a direct action under § 10(b) of the 1934 Act, 15 U.S.C. § 78j (1982) and Rule 10b-5 when the reason for the contract’s questionable validity also forms the basis for the plaintiffs’ § 10(b) claim. See International Controls Corp. v. Vesco, 593 F.2d 166, 181, n. 18 (2d Cir.1979), cert. denied, 442 U.S. 941, 99 S.Ct. 2884, 61 L.Ed.2d 311 (1979) (When a complaint sufficiently pleads fraud pertaining to a contract or option to purchase shares, the plaintiffs have standing to sue under the 1934 Act.); Brooks v. Land Drilling Co., 564 F.Supp. 1518 (D.Colo.1983) (A merger agreement that was rescinded before performance constituted a purchase or sale of a security within the meaning of § 10(b).); Commerce Reporting Co. v. Puretec, Inc., 290 F.Supp. 715 (S.D.N.Y.1968) (A suit under § 10(b) may be founded upon an aborted agreement to buy or sell securities.); Goodman v. H. Hentz & Co., 265 F.Supp. 440 (N.D.Ill. 1967) (Where the plaintiffs were actual parties to transactions that, except for the fraud of one of the defendants, would have resulted in actual purchases or sales of securities by the plaintiffs, they have standing to maintain an action under § 10(b).)

The other two direct claims in this case, the Third and Seventh Claims for Relief, present no standing issues.

2. Derivative Claims.

Defendants have moved to dismiss, or for judgment on the pleadings, on the derivative claims on the ground that the plaintiffs are not, and never have been, “shareholders” of Sweetwater. The shareholder status requirement derives from Fed.R.Civ.P. 23.1 which states:

“In a derivative action brought by one or more shareholders ... to enforce a right of a corporation ..., the corporation ... having failed to enforce a right which may properly be asserted by it, the complaint shall be verified and shall allege (1) that the plaintiff was a shareholder ... at the time of the transaction of which he complains or that his share ... devolved on him by operation of law, and (2) that the action is not a collusive one to confer jurisdiction on a court of the United States which it would not otherwise have. The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority and, if necessary, from the shareholders ..., and the reasons for his failure to obtain the action or for not making the effort.”

Fed.R.Civ.P. 23.1 leaves open both the issue of who is a “shareholder” and the issue of what law controls this determination. As for the latter issue, the majority position seems to be that standing to sue on state derivative claims is determined by state substantive law, while for federal claims, federal substantive law controls. Drachman v. Harvey, 453 F.2d 722 (2d Cir.1972); 3B Moore’s Federal Practice, para. 23.1.17 (1985).

With respect to the federal derivative claims, it is clear that in order to bring such a claim, a plaintiff need not always be a record shareholder during the entire pendency of the lawsuit. In DeHaas v. Empire Petroleum Corp., 435 F.2d 1223 (10th Cir.1970), the court allowed an action by a plaintiff who had never owned stock in the corporation for whose benefit he brought suit but who had the absolute right to obtain the stock through an exchange. The court found this equitable ownership to be sufficient under Fed.R. Civ.P. 23.1.

Defendants rightly observe that this case is clearly distinguishable from DeHaas. Here, the plaintiffs have not and cannot now demonstrate that they are absolutely entitled to any shares of Sweetwater stock. Rather, they claim that through the defendants’ fraud, they were prevented from obtaining the stock. Proof of their fraud claim is therefore necessary in order for them to be shareholders.

My research has revealed only one similar case. In Willcox v. Harriman Securi ties Corp., 10 F.Supp. 532 (S.D.N.Y.1933), the plaintiffs were former stockholders of the Liberty National Bank & Trust Company. They alleged in their complaint that they were fraudulently induced by the defendants to exchange their Liberty Bank stock for stock in the Harriman Company. They further alleged that the defendants had wrongfully interfered with Liberty Mutual’s assets and they demanded that redress be given to Liberty Mutual. In denying a motion to dismiss, the court stated:

“The only claim asserted against [these defendants] is a claim of the Liberty Bank which the plaintiff seek to avail themselves of along the lines of a ‘stockholder’s suit.’ The bill in such a suit must ordinarily cover two things: First, a cause of action in favor of the corporation; and, second, the facts entitling the plaintiff to sue in place of the corporation, that he is a stockholder, and that the corporation has refused or unreasonably failed to bring the suit____ Here, the plaintiffs confess that they are not stockholders in the legal sense of the word. The question is whether they have shown enough to permit them to sue in the corporation’s right.
In the present case the plaintiffs are equitable owners of Liberty stock if the facts stated in the bill can be established as true. They show that they formerly held shares of stock but were induced by fraud to transfer the legal title to anoth-er____ I am satisfied that such an equitable interest in shares of stock suffices to permit the institution of a ‘stockholders suit.’ ” Id. at 535-36.

I find and conclude for the reasons expressed in Willcox that despite the fact that the plaintiffs have never actually owned shares in Sweetwater, they have standing to bring their federal derivative claims. As is the case with their direct claim under § 10(b), the plaintiffs’ standing is conditional upon a finding at trial that but for the defendants fraud, the plaintiffs would have become owners of Sweetwater stock. See Land v. Dollar, 330 U.S. 731, 67 S.Ct. 1009, 91 L.Ed. 1209 (1947) (When the issue of subject matter jurisdiction is so inextricably linked to the merits of the case that the court must determine the merits in order to decide jurisdiction, the court has jurisdiction to determine its jurisdiction by proceeding to a decision on the merits.) To rule otherwise would be to require these plaintiffs to bring two separate actions, one to establish their fraud case and one to recover for injury to the corporation. Considerations of judicial economy counsel against such a ruling.

With respect to the state derivative claims, there appears to be no Colorado law on the issue of who is a shareholder for purposes of bringing such claims. However, Colo.Rev.Stat. § 7-4-121 (1973) states that “no action shall be brought ... in the right of a corporation ... unless plaintiff was a holder of shares ...” at the time of the wrong. This contrasts with Colo.Rev. Stat. § 7-1-102(11) (1973) which defines a shareholder as a “holder of record of shares.” (emphasis added). I find and conclude that the absence of the qualification “of record” from § 7-4-121 is significant, and suggests that a plaintiff in a derivative claim based on state law need not be a record owner of shares throughout the pendency of the lawsuit. I further find and conclude that in the absence of further Colorado law on the issue, the Colorado Supreme Court would follow the substantive law as it has developed in regard to federal claims under Rule 23.1. Accordingly, I find and conclude that the plaintiffs have standing to bring both their state and federal derivative claims.

Counsel should note, however, that the issue of standing may be decided in the state courts in this case. The parties should be prepared to argue the res judica-ta effect of any state court judgment that determines whether the plaintiffs are entitled to any Sweetwater stock.

II. Motion by Defendants Western Consortium, Inc. and Hydro Transfer Corp. for Judgment on the Pleadings.

Defendants Western Consortium, Inc. (“Western Consortium”) and Hydro Transfer Corp. (“Hydro”) have moved for judgment on the pleadings on several additional grounds. First, they argue that the plaintiffs have not sufficiently alleged that they have attempted to obtain the desired relief from the corporation before filing this action, or their reasons for failing to do so. See Fed.R.Civ.P. 23.1. The issue of whether proper demand has been made on the corporation is “one for the court, and-its determination lies within the sound discretion of the court. Courts have generally been lenient in excusing demand.” De-Haas v. Empire Petroleum Co., 435 F.2d 1223, 1228 (10th Cir.1970).

In their complaint, the plaintiffs stated:

“The Plaintiffs have made no demands upon Sweetwater, its board of directors or Blue Dolphin, its controlling shareholder, to bring any action in the premises aforesaid for the reason that all of said parties, excluding the Defendant Farmer, are liable with respect to the transaction complained of herein, and any demand that should be brought on the transaction herein alleged would be useless and futile.” Complaint, para. 45.

I find and conclude that the plaintiffs have sufficiently pleaded compliance with Fed.R.Civ.P. 23.1. A plaintiff need not make demand on the corporation when to do so would be futile. Brooks v. Land Drilling Co., 564 F.Supp. 1518 (D.Colo. 1983); Van Schaack v. Phipps, 38 Colo. App. 140, 558 P.2d 581 (1976). It adequately appears from the face of the complaint that any demand would have been futile in this case.

These defendants further argue that all of the plaintiffs’ state law claims should be dismissed because they are pendent state claims. Exercise of pendent jurisdiction over claims which arise out of a common nucleus of operative facts as the federal claims is within the discretion of the trial court. United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). In light of the interrelationship between the plaintiffs’ state law claims and their standing to bring their federal claims, I find and conclude that the state claims should not be dismissed in this case.

Western and Hydro have also moved to dismiss the plaintiffs’ First, Fifth, and Seventh Claims for Relief on the ground that they fail to state claims upon which relief can be granted. “[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). Keeping this high burden in mind, I will address these claims for relief.

The First Claim for Relief alleges that the defendants have conspired to and have employed a manipulative or deceptive device to defraud the plaintiffs in connection with the exchange of Western Consortium stock for the Sweetwater water rights, in violation of § 10(b) of the 1934 Act. Defendants, citing Santa Fe Industries v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977), argue that the plaintiffs have failed to state a claim upon which relief can be granted because this claim concerns only an alleged breach of fiduciary duty which, without any factual support that the defendants employed a “manipulative or deceptive device,” is not cognizable under § 10(b).

I agree with the defendants that the plaintiffs have not adequately pleaded a § 10(b) claim in their First Claim for Relief. Plaintiffs have alleged only in conelusory terms that the defendants employed a manipulative and deceptive device in connection with the transfer of the Sweetwater water rights. There can be no § 10(b) claim arising out of this transaction unless such manipulation and deception occurred. While the complaint does allege that the transfer was made over the objections of Farmer, there is no allegation that Farmer, or anyone else, was subject to a manipulative or deceptive device in conjunction with the transfer. Plaintiffs may file an amended complaint within twenty days to cure this deficiency, if they can do so consistently with Fed.R.Civ.P. 11.

With respect to the Fifth Claim for Relief, the defendants correctly point out that the plaintiffs have failed to allege that the defendants used any means or instrumentality of interstate commerce. Plaintiffs may amend their complaint within twenty days to so allege, if the facts support such an allegation.

Finally, these defendants argue that the Seventh Claim for Relief, for violation of RICO, has not been pleaded with sufficient particularity. Inasmuch as RICO claims are based on fraud, they must be pleaded with the specificity demanded by Fed.R.Civ.P. 9(b). Saine v. A.I.A., Inc., 582 F.Supp. 1299 (D.Colo.1984); Noland v. Gurley, 566 F.Supp. 210 (D.Colo.1983); Haroco, Inc. v. American National Bank and Trust Co. of Chicago, 747 F.2d 384 (7th Cir.1984). In their complaint, the plaintiffs have not even stated the particular subsection of 18 U.S.C. § 1962 (1982) under which they are proceeding. Neither have they alleged with any particularity the nature of the pattern of racketeering alleged to have violated RICO. This claim is subject to dismissal, but the plaintiffs may amend their complaint within twenty days to specifically allege the particular acts which constitute “racketeering activity” and the “enterprise” through which the pattern of racketeering was carried out. See Sedima, S.P.R.L. v. Imrex Co., — U.S. —, 105 S.Ct. 3275, 87 L.Ed.2d 346, (1985). If the plaintiffs intend to plead and prove violations of any subsection of 18 U.S.C. § 1962 other than subsection (c), they shall so state in their amended complaint and shall plead that violation with particularity as well.

With respect to the argument that the statute of limitations bars the plaintiffs’ RICO claim, I reserve ruling until this issue has been more fully briefed.

III. Motion by the Defendants Thomas Rhoades and the Tianna Corporation to Dismiss.

The motion to dismiss filed by the defendants Rhoades and the Tianna Corporation is denied. With the exceptions noted above, the plaintiffs have adequately pleaded claims for relief for violation of federal and state securities laws and RICO. The amendments suggested with respect to Western and Hydro should cure any pleading deficiency as to these defendants as well. Whether the plaintiffs can prove their allegations is an issue to be resolved at trial. I reserve ruling on the issue of whether the statute of limitations has run on any of the plaintiffs’ claims until the issue has been more fully briefed.

IV. Motion by the Defendant Sandia Savings and Loan Association for Judgment on the Pleadings.

Defendant Sandia Savings and Loan Association has raised one additional issue not raised by the other defendants. Sandia argues that the Fourth Claim for Relief, for conversion, fails for two reasons to state a claim upon which relief can be granted. It argues first that the mere taking of a security interest in property does not give rise to a claim for conversion. It further argues that the claim must be dismissed because under Colorado law, the right to use water is real property, and there can be no conversion of real property.

I agree with Sandia’s second argument, and therefore dismiss the conversion claim as against this and all defendants. It is clear that under Colorado law, the right to use water is an interest in real property. West End Irrigation Co. v. Garvey, 117 Colo. 109, 184 P.2d 476 (1947). The Fourth Claim for Relief seeks recovery of the Sweetwater water rights free and clear of all encumbrances. Clearly, this is a claim for recovery of a usufructory right in water which is real property. An action for conversion will not lie for damage to real property. Prosser and Keeton, Torts, § 15 (5th Ed.1984).

Accordingly, it is ordered that the defendants’ motions for judgment on the pleadings or to dismiss for lack of subject matter jurisdiction are denied. Plaintiffs are granted twenty days to amend their complaint to conform with the requirements of this order. Failure to do so will result in dismissal of the First, Fifth, and Seventh Claims for Relief. Defendants Western Consortium Inc., Hydro Transfer Inc., Thomas Rhoades, and the Tianna Corporation’s motions for judgment on the pleadings are denied. The plaintiffs’ Fourth Claim for Relief is dismissed with prejudice. A hearing on all remaining motions will be held on Wednesday, October 30 at 10:00.


author: MORAN, District Judge.

text:
    FIRST NATIONAL BANK OF DWIGHT, A National Banking Corporation as Guardian of the Estate of Jeramie Ai-mone, a Minor, Plaintiff, v. REGENT SPORTS CORPORATION, Defendant. REGENT SPORTS CORPORATION, Counterplaintiff, v. Mary Ann AIMONE, Counterdefendant. REGENT SPORTS CORPORATION, Third party plaintiff, v. George AIMONE, Third party defendant. Wayne BRADFORD and Paula Bradford, Third party counterplaintiffs, v. REGENT SPORTS CORPORATION, Third party Counterdefendant.
    No. 83 C 4724.
    United States District Court, N.D. Illinois, E.D.
    Oct. 8, 1985.

      Paul E. Root, Gomien & Root, Morris, 111., for plaintiff.
    Robert J. Labate, McKenna, Storer, Rowe, White & Farrug, Chicago, 111., for third party counterplaintiffs.
    Robert D. Kolar, John R. Fanone, Robert D. Kolar & Associates, Ltd., Chicago, 111., for defendant-counterplaintiff-third-party-plaintiff-third-party-counterdefendant.
    Ronald V. Hirst, Callahan, Fitzpatrick & Hirst, Oak Lawn, 111., for counterdefendant and third-party-defendant.
   MEMORANDUM AND ORDER

MORAN, District Judge.

At Wayne and Paula Bradford’s Fourth of July picnic near Coal City in 1982, a group of children played “Slider Jarts.” “Jarts” is a lawn dart game manufactured by defendant Regent Sports Corporation. Paula Bradford’s mother had purchased the game at a Walgreen’s in Joliet. One of the darts, tossed by an eight-year-old girl, lodged itself in the skull of toddler Jeramie Aimone when he wandered into its path. Allegedly he suffered paralysis on his right side at the time and still has not regained use of his right arm.

From that tragic incident 26 counts worth of claims, counterclaims and cross-claims have come before this court. Jera-mie, originally through his mother and now through the First National Bank of Dwight as guardian of his estate, sued the Brad-fords, Walgreen’s and Regent. The Brad-fords, if found liable, claimed contribution from Walgreen’s, Regent and from George and Mary Ann Aimone for failure to supervise their child. Walgreen’s and Regent each sought contribution from the Brad-fords for entrusting the game to children and from the Aimones for failure to supervise. The Aimones countered with claims on their own behalf against the Bradfords, Walgreen’s and Regent for Jeramie’s medical expenses and the loss of jeramie’s society.

Today only seven counts remain. This court granted summary judgment for Regent on two of Jeramie’s claims: one for an alleged violation of 15 U.S.C. § 2072, the Consumer Product Safety Act, and the other in strict liability. Aimone v. Walgreen’s Corp., 601 F.Supp. 507 (N.D.Ill.1985). A motion to reconsider was denied and the Aimones’ cross-claims against Regent on the identical theories were dismissed for the same reasons. First National Bank of Dwight v. Regent Sports Corp., No. 83 C 4724 (N.D.Ill. May 7, 1985 and June 28, 1985). One count of the Bradfords’ claim against Walgreen’s was also dismissed. The very substantial settlements which Jeramie, George and Mary Ann Aimone reached with both the Bradfords and Walgreen’s extinguished 14 counts. Still before the court are two claims against Regent from Jeramie’s amended complaint: one on a theory of breach of warranty of merchantability and the other on negligence; claims by Jeramie’s parents against Regent on the same two theories; claims by Regent for contribution from each of Jeramie’s parents; and a claim by the Bradfords for contribution from Regent (which has not been vigorously pursued). Regent has moved to dismiss all the counts outstanding against it at one time or another.

This court disposes of all those remaining counts today by finding as a matter of law that Regent is not liable for the injury to Jeramie. When depositions and other evidentiary materials are before the court, Rule 12(b) of the Federal Rules of Civil Procedure requires treating a motion to dismiss as one for summary judgment under Fed.R.Civ.P. 56. Under its standard, no genuine issue of material fact remains and Regent is entitled to judgment on all counts against it as a matter of law. The result on these counts of breach of warranty and negligence follows logically from the earlier summary judgment for Regent on the counts of marketing a hazardous product and of strict liability. Since Regent is not liable, its claim against the Aimones is also extinguished.

On the warranty claims, this court first of all is not sure that Jeramie was in privity with Regent. To succeed on a claim of breach of the implied warranty of merchantability imposed by the Uniform Commercial Code, Ill.Rev.Stat. ch. 26, 112-314, one first must demonstrate privity of contract with the defendant. Illinois has chosen to limit horizontal privity to a family member, household member, household guest or employee of the purchaser. Ill. Rev.Stat. ch. 26, II2-318; Boddie v. Litton Unit Handling Systems, 118 Ill.App.3d 520, 455 N.E.2d 142, 74 Ill.Dec. 112 (1st Dist.1983). Here, Mrs. Bradford’s mother was the purchaser and Jeramie was neither her guest nor related to her. There is some evidence tending to indicate that she could be characterized as Mrs. Bradford’s agent for the transaction, since Mrs. Bradford may have directed the purchase and reimbursed her for it. If not, the claim faces difficulties. Illinois definitely does not extend the warranty to bailees, borrowers or persons in analogous positions. Zanzig v. H.P.M. Corp., 134 Ill.App.3d 617, 480 N.E.2d 1204, 89 Ill.Dec. 461 (1st Dist. 1985); Knox v. North American Car Corp., 80 Ill.App.3d 683, 399 N.E.2d 1355, 35 Ill.Dec. 827 (1st Dist.1980).

Even if that hurdle could be met, there is no evidence that the lawn darts were unmerchantable. The issue in a products liability suit brought on breach of warranty of merchantability is essentially the same as one brought on a strict liability theory. Nave v. Rainbo Tire Service, Inc., 123 Ill.App.3d 585, 462 N.E.2d 620, 78 Ill. Dec. 501 (2d Dist.1984). Goods may be unmerchantable because they are defective in some way or otherwise not fit for the ordinary uses to which such goods are put. The inquiry is nearly identical to that which determines whether an item was a “defective product unreasonably dangerous.” Rainbo Tire, 123 Ill.App.3d at 592, 462 N.E.2d at 625, 78 Ill.Dec. at 506; White and Summers, Handbook of the Law under the Uniform Commercial Code, 351-356 (2d ed. 1980). This court has already determined that under Illinois law the “Slider Jart” was not unreasonably dangerous— the danger of injury is obvious to anyone who looks at one. Aimone, 601 F.Supp. at 515; cf. Pitts v. Basile, 35 Ill.2d 49, 219 N.E.2d 472 (1966) (target darts). Plaintiff has not cited and this court has not found any Illinois cases in which users of toys or games sought recovery on a warranty theory, but the Supreme Court of Oklahoma in Atkins v. Arlans Department Store, 522 P.2d 1020 (Okla.1974), a case cited in our previous memorandum, specifically held that lawn darts made by Regent did not breach any implied warranty. Its analysis was the same for both strict liability and warranty claims and it included a finding that “the dart was not dangerous to the extent beyond that which would be contemplated by the ordinary consumer with the ordinary knowledge common to the community as to its characteristics.” Id. at 1022. Cf. Landrine v. Mego Corp., 95 A.D.2d 759, 464 N.Y.S.2d 516 (N.Y.App.Div.1983) (balloon).

Neither does this case present any of the other aspects which have sometimes led to warranty liability in other jurisdictions. One possible difference between warranty and strict liability is that, at warranty, a plaintiff may recover when injury is caused by a defect in product, whether it was unreasonably dangerous or not. White and Summers, supra, at 355. Jeramie’s injuries, however, were not caused by the darts breaking apart or exploding or otherwise proving defective, as did the suction cup dart in Gobin v. Avenue Food Mart, 178 Cal.App.2d 345, 2 Cal.Rptr. 822 (1960); reh’g of 345 P.2d 89 (Cal.App.1959). Cf. Strahlendorf v. Walgreen Co., 16 Wis.2d 421, 114 N.W.2d 823 (1962) (toy airplane); Hartsook v. Owl Drug Co., 182 Cal.App.2d 150, 5 Cal.Rptr. 835 (1960) (plastic top). Nor did Regent expressly or impliedly warrant that their darts were safe for children, or fail to warn that the darts could cause injury in the hands of children. Cf. Kelly v. Hanscom Bros., Inc., 231 Pa.Super. 357, 331 A.2d 737 (1974) (squeeze toy); Tirino v. Kenner Products Co., 72 Misc.2d 1094, 341 N.Y.S.2d 61 (Civ.Ct.City N.Y.1973) (“glow juice”); Crist v. Art Metal Works, 230 A.D. 114, 243 N.Y.S. 496 (1930), aff'd 255 N.Y. 624, 175 N.E. 341 (1931) (toy revolver). See generally Annot., 95 A.L.R.3d 390 (1979) (products liability: toys and games). Indeed, Regent went to considerable lengths to make clear to purchasers that the darts were not safe for children. Immediately below “Slider Jarts,” on the box, appeared in large letters, “a game for adults.” Specific warnings against allowing children to use the darts appeared on the box, on the instruction sheet and on each dart. First National, No. 83 C 4724, mem. op. at 5 (May 7, 1985). There is simply no warranty that has been breached.

The result does not differ if the theory is shifted to negligence. In opposing Regent’s motion, both Jeramie and his parents argue that Regent generally owed a duty to consumers and other persons potentially affected by the use of their product — a class of persons into which Jeramie falls. The question of whether it breached that duty relates to the standard of care, they maintain, and only a trier of fact can decide a reasonable standard of care. A jury, they argue, might decide that since Regent created the risk by marketing the darts, Regent should have supervised the conduct of its retailers, making periodic cheeks to ensure that no “Jarts” were being sold with toys. Therefore, they assert, their claim must go to trial. Summary judgment is indeed not often granted in negligence cases. However, it can and should be granted when as a matter of law a party cannot be found liable, for example, when no legal duty exists or when the party’s conduct cannot be the proximate cause of the injury. Estrada v. Schmutz Manufacturing Co., Inc., 734 F.2d 1218 (7th Cir.1984); Collins v. American Optometric Ass’n, 693 F.2d 636 (7th Cir.1982); 10A Wright, Miller and Kane, Federal Practice and Procedure: Civil, § 2729 (2d ed. 1983). The facts here present intervening causes which, thanks to the settlement, will not be litigated: Walgreen’s alleged improper marketing of the darts, the Bradfords’ allowing children access to the game, and the Aimones’ apparent failure to keep Jeramie away from the area where it was played. Any of these could be grounds for finding that Regent’s acts could not legally have caused the child’s injuries. This court need not reach that issue, however, since in this factual situation Regent owed no duty to Jeramie.

Legal duty “is dictated and measured by the occasion or situation and varies in each case with the facts and circumstances.” Glenview Park District v. Melhus, 540 F.2d 1321, 1328 (7th Cir.1976), cert. denied 429 U.S. 1094, 97 S.Ct. 1109, 51 L.Ed.2d 541 (1977). In Illinois, whether the law imposes a duty depends on such factors as the foreseeability of an occurrence, the likelihood of injury from that occurrence, the magnitude of the burden of guarding against it, and the consequences of placing that burden on the defendant. Duty and proximate cause are related through the concept of foreseeability. No duty exists where it is not foreseeable that the actor’s conduct would create a risk of harm to the victim. Osborne v. Sprowls, 84 U1.2d 390, 419 N.E.2d 913, 50 Ill.Dec. 645 (1981) (game of “tackle-the-football”); Keller v. Mols, 129 Ill.App.3d 208, 472 N.E.2d 161, 84 Ill.Dec. 411 (1st Dist.1984) (plastic floor hockey set). If Jeramie’s injuries had stemmed from the unreasonable dangers of the product, or a defect in the product, he would have been a foreseeable victim of the act of manufacturing and thus would have been owed a duty not to manufacture negligently. But Regent did not negligently place a dangerous or defective item on the market because the lawn darts are not unreasonably dangerous under Illinois law and were not defective. Cf. Pitts, 35 Ill.2d at 51-52, 219 N.E.2d at 474. See also Maramba v. Neuman, 82 Ill.App.2d 95, 227 N.E.2d 80 (1st Dist.1967) (boomerang); Miller v. Sears, Roebuck & Co., 250 Ill.App. 340 (1st Dist.1928) (toy pistol).

Regent also had no duty to warn of the dangers of the darts in the hands of children under Illinois law, since the dangers were obvious. First National, No. 83 C 4724, mem. op. at 5 (May 7, 1985); compare Atkins, 522 P.2d at 1022. Regent nevertheless did warn. Illinois might impose a duty on Regent here if it had marketed its lawn darts directly to children or packaged them in ways designed to appeal to children. Pitts, 35 I11.2d at 54, 219 N.E.2d at 475 (dictum); contra: Maramba, 82 Ill.App.2d at 104, 227 N.E.2d at 81 (retailer not liable though it knew ten-year-old was intended user of boomerang). Compare Moning v. Alfono, 400 Mich. 425, 254 N.W.2d 759 (1977) (slingshot, duty imposed) with Bojorquez v. House of Toys, Inc., 62 Cal.App.3d 930, 133 Cal.Rptr. 483 (1976) (slingshot, duty not imposed). But in the present case, Regent structured its conduct actively to avoid sales to children. In addition to the warnings on the item itself, mentioned above, it did not sell “Slider Jarts” to toy stores, identified them in its catalog to retailers as “not a toy — not to be sold in toy departments,” and. on each invoice accompanying a sale of “Jarts” placed a reminder notice to the same effect. Aimone, 601 F.Supp. at 513-514. It is difficult to see what else Regent could reasonably have done except stop making lawn darts, and this court has already determined in ruling on the consumer safety and strict liability counts that making lawn darts is a permissible activity.

Regent took enough precautions to legally shift the responsibility for Jeramie’s injuries to others. As a matter of law, Illinois would not impose a burden of constant surveillance of retailing practices on a manufacturer under these circumstances. Compare Martin v. Harrington and Richardson, Inc., 743 F.2d 1200 (7th Cir.1984) (manufacturer not liable for injuries inflicted by nondefeetive handgun in hands of criminal); Keller, 129 Ill.App.3d at 211, 472 N.E.2d at 163, 84 Ill.Dec. at 413 (no duty to oversee game where players or their parents are capable of assessing risk); Lance v. Senior, 36 Ill.2d 516, 224 N.E.2d 231 (1967) (host not required to constantly monitor activities of hemophiliac child house guest). In this factual situation Regent’s only duty to Jeramie was to refrain from negligence in the production of the darts. The Aimones do not allege that it breached that duty.

Reaching these legal conclusions makes it possible to find summary judgment for Regent on all counts outstanding against it. The surviving claims of both Jeramie and his parents are on the warranty and negligence theories discussed above. The counterclaim by the Bradfords alleged violation of the Consumer Product Safety Act, negligence, and strict liability, all of which are controlled by this or a previous finding of this court. Since Regent is not liable its claims for contribution are extinguished. All 26 counts are finally at rest.

CONCLUSION

For the foregoing reasons, defendant Regent is granted summary judgment on counts VII and VIII of plaintiff First National’s amended complaint on behalf of Jeramie Aimone, on counts V and VII of the complaints of George and Mary Ann Aimone, and on the counterclaim of Wayne and Paula Bradford. Counts I and II of Regent’s counterclaim against George and Mary Ann Aimone are dismissed.