author: RAYMOND J. BRODERICK, District Judge.

text:
    Paul DURETT v. Walter S. COHEN, Individually and in his official capacity as Secretary of the Department of Public Welfare, Commonwealth of Pennsylvania, Jennifer L. Howse, Individually and in her official capacity as Deputy Secretary for Mental Retardation for the Pennsylvania Department of Public Welfare, Commonwealth of Pennsylvania, Patricia C. Sweigert, Individually and in her official capacity as the Administrator of the Bucks County Department of Mental Health-Mental Retardation, Commonwealth of Pennsylvania, Elaine P. Zettick, Carl F. Fonash, and Andrew L. Warren, Individually and in their official capacities as the Bucks County Commissioners, Commonwealth of Pennsylvania.
    Civ. A. No. 83-3855.
    United States District Court, E.D. Pennsylvania.
    Aug. 20, 1985.

      Stephen F. Gold, llene W. Shane, Philadelphia, Pa., for plaintiff.
    John G. Knorr, III, Sr. Deputy Atty. Gen., Com. of Pa., Harrisburg, Pa., for defendants.
   MEMORANDUM

RAYMOND J. BRODERICK, District Judge.

In this action, plaintiff Paul Durett alleged that the denial of funding for mental retardation services by Pennsylvania and Bucks County constituted a violation of plaintiffs rights under the fourteenth amendment, the Rehabilitation Act of 1973, 29 U.S.C. § 795 (1985 supp.), federal regulations, 45 C.F.R. § 84.51 et seq. (1985), and the Pennsylvania Mental Health/Mental Retardation Act, 50 P.S. §§ 4301(a) & (d), 4305(2), 4415(b) (1969). Plaintiff sought injunctive relief prohibiting the Pennsylvania and Bucks County defendants’ denial of plaintiff’s residential eligibility for state-funded mental retardation services and a declaratory judgment that Pennsylvania’s policy and practice concerning residency of mentally retarded individuals was unconstitutional and violative of the above-named statutes. This lawsuit was resolved by a settlement under which New Jersey, a non-party to this action, agreed to fund plaintiff’s mental retardation services from February 1, 1984 on and Pennsylvania agreed to pay the major portion of the cost of plaintiff’s care for the year 1983. Now pending before the Court is the petition of plaintiff’s counsel, Stephen F. Gold, Esquire, and llene W. Shane, Esquire, for attorney’s fees under 42 U.S.C. § 1988 and 29 U.S.C. § 794a(b).

The pleadings, affidavits, and evidentiary materials submitted by the parties establish the following facts: The plaintiff, Paul Durett, is a nonambulatory, profoundly mentally retarded man with cerebral palsy characterized by scoliosis and spastic quadriplegia, microcephalia, multiple contractures and associated deformities, and a grand mal seizure disorder. In 1983, the plaintiff at age 37 was diagnosed as having a mental age of 2.5 months, and I.Q. of 10, and as being in need of total physical care. Plaintiff was born on January 27, 1946 in Roselle, New Jersey. In 1957, the Durett family moved to Venezuela because Mr. Durett was transferred there by his employer. The Duretts maintained their New Jersey home and returned to New Jersey for vacations during their stay in Venezuela. Plaintiff lived with his parents until 1961, when they placed plaintiff in Happy Hills, a private residential mental retardation facility in Montgomery County, Pennsylvania. The Duretts chose Happy Hills because they felt it was the only facility in Pennsylvania or New Jersey which could provide the comprehensive care which plaintiff required, and which they could no longer provide at home. After a fire at Happy Hills in 1968, plaintiff was transferred to Pleasant Manor, a residential facility located in Bucks County, Pennsylvania. From 1961 until 1973, the Duretts paid the entire cost of plaintiff’s care and maintenance at Happy Hills and Pleasant Manor.

When the plaintiff’s father died in 1972, the plaintiff’s mother, Mrs. Durett, left Venezuela and moved back to New Jersey. In 1975, Mrs. Durett moved to Nevada, where she lived at the time this action was instituted. In 1973, plaintiff began receiving Social Security Disability and Veterans Assistance benefits, which benefits were used as partial payment for plaintiff’s care. The larger portion of the cost of plaintiff’s care was paid by the Durett family. The total cost of plaintiff’s care for the year 1982 was $27,168.90, of which $5,784.00 was paid from Social Security and Veterans’ benefits, and $21,384.90 from the savings of Mrs. Durett.

In January, 1983, Mrs. Durett informed Pleasant Manor that she was no longer financially able to pay for plaintiff’s care. She continued to forward plaintiff’s benefits check to Pleasant Manor. In March of 1983, Pleasant Manor’s Director of Social Services sought funding on behalf of plaintiff from the Bucks County Mental Health-Mental Retardation Program, the Nevada Developmental Disabilities Office, the New Jersey Department of Human Services, and the Pennsylvania Department of Public Welfare (DPW). Plaintiff’s family also contacted the New Jersey, Nevada, and Bucks County offices. The New Jersey and Nevada offices denied funding on the ground that neither considered plaintiff a resident of its state. By letter dated May 18, 1983, Pleasant Manor notified Mrs. Durett that it would not keep plaintiff on the approximately $500.00 per month which she was providing. Pleasant Manor allowed Mrs. Durett 60 days from the date of that letter within which to balance her account. By letter dated July 13, 1983, defendant Patricia C. Sweigert, the Administrator of the Bucks County Department of Mental Health-Mental Retardation, notified plaintiff’s counsel that plaintiff was ineligible for mental retardation services funding from Bucks County because plaintiff was not a Pennsylvania or a Bucks County resident. This determination was based on a draft regulation providing that for individuals who became incapable of indicating intent before the age of 21, the state of residence is the state in which the parents reside. See Pennsylvania DPW Mental Retardation Bulletin, July, 1983 (Exhibit A to plaintiff’s motion for summary judgment). In July of 1983, plaintiff’s counsel contacted counsel for DPW, Howard Ulan, to request funding for plaintiff’s treatment. This request was denied on the ground that plaintiff was not deemed a resident of Pennsylvania.

On August 10,1983, plaintiff commenced this action against Walter S. Cohen, Secretary of DPW, Jennifer L. Howse, Deputy Secretary for Mental Retardation of the DPW, Patricia C. Sweigert, Administrator of the Bucks County Department of Mental Health-Mental Retardation, and Elaine P. Zettick, Carl F. Fonash, and Andrew L. Warren, Bucks County Commissioners. Plaintiff alleged, inter alia, (1) that because Pennsylvania’s residency standard hinged on the mentally retarded individual’s ability to articulate a subjective intent to be a resident of the state, it discriminated against plaintiff in the provision of mental retardation services on the basis of handicap in violation of the Rehabilitation Act of 1973, supra; (2) that Pennsylvania’s practice, which denied individuals in plaintiff’s position publicly funded mental retardation services, was a penalty and hence unconstitutional discrimination against those who exercise the right of interstate migration; (3) that Pennsylvania’s policy embodied an unjustified irrebuttable presumption in violation of plaintiff’s right to due process; (4) that the arbitrary distinction drawn by Pennsylvania in determining the residency of mentally retarded individuals violated the purpose of the Pennsylvania Mental Health-Mental Retardation Act, supra. Plaintiff requested relief in the form of a temporary restraining order (TRO) and preliminary and permanent injunction against denying mental retardation eligibility and appropriate services to plaintiff and a declaration of the invalidity of Pennsylvania’s residency standard. Plaintiff’s request for a TRO was withdrawn when Pleasant Manor agreed to keep plaintiff until a subsequent conference with the Court. At an in-chambers conference on September 6, 1983, Pleasant Manor agreed to keep plaintiff pending judicial resolution of the matter on an expedited basis. Plaintiff filed a motion for summary judgment on November 22, 1983.

Counsel for DPW told plaintiff’s counsel on more than one occasion that plaintiff was a resident of New Jersey and/or Nevada and that plaintiff had erred in failing to sue one or both of these states. Between September and mid-December 1983, counsel for DPW requested counsel for plaintiff to join New Jersey and Nevada as co-defendants. Although counsel for plaintiff declined to do so, counsel for plaintiff invited DPW to join those states as third-party defendants, if DPW desired their participation. Counsel for DPW concluded that these states could not be joined under Fed. R.Civ.P. 14, 19, or 20.

On November 7, 1983, defendant Dr. Howse, the Deputy Secretary of DPW, contacted Mr. Eddie Moore, the Director of the Division of Mental Retardation of the New Jersey Department of Human Services. Dr. Howse explained plaintiff’s situation to Mr. Moore, and further stated, “The issue of residency of a mentally retarded person and the liability of a state thereafter to assume responsibility for his care is a difficult issue.” Dr. Howse requested Mr. Moore’s New Jersey office to consider assuming responsibility for plaintiff on the ground that the residence of the parents controlled plaintiff’s residence, because plaintiff was incapable of expressing consent. On December 6, 1983, Mr. Moore responded to Dr. Howse, stating that New Jersey would assume the funding of plaintiff’s placement at Pleasant Manor if plaintiff’s parents could verify their residence in New Jersey during their stay in Venezuela. On January 4, 1984, counsel for plaintiff provided DPW with an appropriate affidavit from Mrs. Durett. By letter dated February 16, 1985, Mr. Moore advised Dr. Howse of DPW that New Jersey would provide funding for plaintiff’s care and treatment at Pleasant Manor as of February 1, 1984.

Pleasant Manor, having been apprised of these developments by plaintiff’s counsel, continued to insist on reimbursement for plaintiff’s care and treatment during 1983 and threatened to oppose any settlement which did not include this reimbursement. DWP began negotiating a settlement with Pleasant Manor for the 1983 costs.

On February 22, 1984, the Court approved the following Stipulation of Settlement:

SETTLEMENT STIPULATION
WHEREAS Paul Durett instituted action against the defendants for his right to remain at Pleasant Manor, a privately licensed facility for the mentally retarded in Bucks County and the defendants’ refusal to provide reimbursement for his care, treatment and habilitation at Pleasant Manor;
WHEREAS at the request of the Deputy Secretary for Mental Retardation, Department of Public Welfare, the New Jersey Department of Human Services has agreed to pay for Paul Durett’s care, treatment and habilitation at Pleasant Manor;
WHEREAS as a result of said agreement by the New Jersey Department of Human Services, Paul Durett will remain at Pleasant Manor and the costs of his care, treatment and habilitation at Pleasant Manor will be paid by the New Jersey Department of Human Services;
NOW THEREFORE, in order to avoid further litigation, the parties hereby agree to settle the above-captioned action without prejudice to the plaintiff or defendants, on the condition that the New Jersey Department of Human Services pays for Paul Durett’s care, treatment and habilitation at Pleasant Manor, a privately licensed facility for the mentally retarded in Bucks County, Pennsylvania.
This Court shall retain jurisdiction for the purpose of determining whether plaintiff’s counsel are entitled to attorney fees, and, if so, the amount of such entitlement.

By letter dated March 16, 1984, counsel for DPW confirmed with counsel for Pleasant Manor an agreement whereby DPW was to pay $15,000.00 in settlement of Pleasant Manor’s claim for reimbursement of 1983 costs.

ATTORNEYS’ FEES

Plaintiff’s counsel, Stephen F. Gold, Esquire and llene W. Shane, Esquire, request an award of attorneys’ fees pursuant to the Civil Rights Act of 1976, 42 U.S.C. § 1988 and the Rehabilitation Act of 1973, 29 U.S.C. § 794a(b). In the original petition, filed April 6, 1984, Mr. Gold requested a fee measured at the hourly rate of $150.00 for 116.10 hours of work on the case in chief ($17,415.00) and 13.5 hours in the preparation of the fee petition ($2,025.00), a total of $19,440.00. Ms. Shane requested a fee measured at an hourly rate of $100.00 for 136 hours of work on the case in chief ($13,600.00) and 1 hour of work on the fee petition ($100.00), a total of $13,700.00. Thus, the original fee petition requested a lodestar fee of $33,140.00, and costs in the amount of $1,198.00. On July 31,1984, Mr. Gold filed a supplemental petition for an additional 41 hours of work on discovery and research in connection with the attorneys’ fees petition at an hourly rate of $165.00 ($6,765.00), plus an additional $300.00 in costs related to discovery depositions. To the total lodestar figure of $39,-905.00 (Mr. Gold — $26,205.00; Ms. Shane— $13,700.00), plaintiff’s counsel have requested the Court to apply a multiplier of 25% to reflect the contingent nature of the litigation, which would increase the fee award to $49,881.25. The defendants do not dispute the reasonableness of the rates or the amount of hours claimed by plaintiff’s counsel. The Court finds that the hourly rates of $150.00 for Mr. Gold and $100.00 for Ms. Shane and the hours expended are reasonable. See Blum v. Stenson, 465 U.S. 886, -, 104 S.Ct. 1541, 1543-44, 79 L.Ed.2d 891 (1984). However, the defendants do contend that any award of fees would be inappropriate in this case because the plaintiff is not a “prevailing party” vis a vis the defendants within the meaning of section 1988 and 29 U.S.C. § 794a(b). The defendants also oppose the plaintiff’s request for a multiplier. The Court has determined that plaintiff is a prevailing party, and under more typical circumstances, plaintiff’s counsel would be entitled to receive a reasonable fee for the full amount of hours requested, plus a 25% multiplier for those hours expended on the merits of the case. However, for the reasons discussed below, the Court will award plaintiff’s counsel one-fourth of their requested fees on the merits (as augmented by the 25% multiplier) plus the full amount of fees requested for work in connection with the fee petition (at $150.00 per hour for Mr. Gold), plus the full amount of costs, as illustrated below:

Mr. Gold Ms. Shane Costs
Merits 'A x $17,415.00 = $ 4,353.75 X $13,600.00 = $3,400.00 $1,198.00
Multiplier of 25% lk X $ 4,353.75 = $ 1,088.44 Vi x $ 3,400.00 = $ 850.00
Fee petition 54.5 x $ 150.00 = $ 8,175.00 1 X $ 100.00 = $ 100.00 $ 300.00
Total $13,617.19 $4,350.00 $1,498.00

Section 1988 provides that in civil rights actions, the “Court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney’s fee as part of the costs.” See also 29 U.S.C. § 794a(b) (also containing “prevailing party” language). In determining eligibility for attorneys’ fees under section 1988, this Court must determine first, whether a plaintiff is a “prevailing party”, and second, whether there is a causal connection between the litigation and the relief obtained from the defendant. Institutionalized Juveniles v. Secretary of Public Welfare, 758 F.2d 897, 910 (3d Cir.1985) (citations omitted).

The “prevailing party” standard is a “generous formulation” which merely requires a determination of “whether plaintiff has achieved ‘some of the benefit sought’ by the party bringing the suit.” Hensley v. Eckerhart, 461 U.S. 424, 433 & n. 8, 103 S.Ct. 1933, 1939 & n. 8, 76 L.Ed.2d 40 (1983); Institutionalized Juveniles, 758 F.2d at 910 (quoting NAACP v. Wilmington Medical Center, Inc., 689 F.2d 1161, 1167 (3d Cir.1982), cert. denied, 460 U.S. 1052, 103 S.Ct. 1499, 75 L.Ed.2d 930 (1983). In Institutionalized Juveniles, the Third Circuit explained that this determination calls for a commonsense appraisal of the relief actually obtained by the plaintiff, rather than a determination of the success of the legal theories. 758 F.2d at 911 (citing Abraham v. Pekarski, 728 F.2d 167, 175 (3d Cir.1984), cert. denied, — U.S. -, 104 S.Ct. 3513, 82 L.Ed.2d 822 (1984); Bagby v. Beal, 606 F.2d 411, 415 (3d Cir.1979)) (quotations omitted). This instruction is particularly helpful in cases in which a plaintiff’s claims are not resolved through the trial process, such as the present case.

[A] plaintiff is a prevailing party to the extent extrajudicial relief makes legal claims moot. See Ross v. Horn, 598 F.2d 1312, 1322 (3d Cir.1979) (plaintiffs were prevailing parties because changes in the law had mooted their claims), cert. denied, 448 U.S. 906 [100 S.Ct. 3048, 65 L.Ed.2d 1136] (1980); see also Doe v. Busbee, 684 F.2d 1375, 1379 (11th Cir. 1982) (“[A] party may be considered to be ‘prevailing’ if the litigation successfully terminates by a consent decree, an out-of-court settlement, a voluntary cessation of the unlawful practice of the defendant, or other mooting of the case when the plaintiff has vindicated his right.”)____ [Furthermore,] a plaintiff is able to prevail based on relief that the plaintiff may have asserted was inadequate during the course of the litigation. See Wilmington Medical Center, 689 F.2d at 1168-69. Also, a plaintiff may be a prevailing party even though judgment was actually awarded in favor of the defendant. See Ross, 598 F.2d at 1322 (“In assessing who is a prevailing party, we look to the substance of the litigation’s outcome”, and “refuse to given [sic] conclusive weight to the form of the judgment.”)
Finally, plaintiffs will be prevailing parties even though the relief obtained is not identical to the relief they specifically demanded, as long as the relief obtained is of the same general type.

758 F.2d at 911-12 (plaintiffs prevailed in suit against Secretary of DPW and state hospital administrators to the extent legislative enactments addressed plaintiff’s concerns). See also Maher v. Gagne, 448 U.S. 122, 131, 100 S.Ct. 2570, 2575, 65 L.Ed.2d 653 (1980) (legislative history supports award of fees under section 1988 in cases terminating by settlement favorable to plaintiff); Sullivan v. Commonwealth of Pennsylvania Department of Labor, 663 F.2d 443 (3d Cir.1981) (plaintiff deemed to have prevailed in Title VII lawsuit where suit prodded union to demand arbitration, which proved successful); cert. denied, 455 U.S. 1020, 102 S.Ct. 1716, 72 L.Ed.2d 138 (1981); Morrison v. Ayoob, 627 F.2d 669 (3d Cir.1980) (plaintiffs “prevailed” where defendants discontinued the conduct which violated plaintiffs rights, and action was dismissed as moot), cert. denied, 449 U.S. 1102, 101 S.Ct. 898, 66 L.Ed.2d 828 (1981); Ross v. Horn, 598 F.2d 1312 (3d Cir.1979) (plaintiffs prevailed when procedures were changed subsequent to the filing of the lawsuit, despite the fact that no judgment or settlement mandated the changes, and despite the fact that judgment was actually entered against the plaintiffs).

The second determination required under section 1988 is “whether there is a causal connection between the litigation and the relief obtained from the defendant.” 758 F.2d at 910 (citation omitted). Once a court has determined that plaintiff achieved some of the benefit he sought, the question then becomes “whether the plaintiff obtained the relief sought ‘as a result of the civil rights judicial efforts ... or whether these efforts were ‘a material factor’ in bringing about the events which resulted in the obtaining of the desired relief.” Sullivan, 663 F.2d at 449, 452. See also Institutionalized Juveniles, 758 F.2d at 916 (the action need not be the sole cause, it must merely be a material factor; the “most expansive definition” of causation is to be applied). The sequence of events may furnish evidence of the requisite causal nexus. Morrison v. Ayoob, 627 F.2d at 672. Further, fees may be awarded under section 1988 even where the causal nexus between plaintiff’s lawsuit and the remedial action is indirect. See Sullivan, supra (Title VII lawsuit against employer provoked union to demand arbitration of grievance which obviated plaintiff’s need to obtain judicial relief from employer); Thomas v. Honeybrook, 428 F.2d 981 (3d Cir.1970) (because employees’ group’s suit against union provoked successful actions by unions against employers, counsel for employees’ group entitled to fees in latter suits).

This case satisfies the first prong of the section 1988 analysis because plaintiff obtained essentially all of the relief he sought, i.e. public funding for his continued placement at Pleasant Manor. The second prong is clearly satisfied with respect to DPW’s reimbursement of Pleasant Manor for the bulk of plaintiff’s 1983 expenses because plaintiff’s suit was a material factor provoking DPW to provide the $15,-000.00 as reimbursement to Pleasant Man- or. In addition, the Court finds that plaintiff’s lawsuit was a material factor in provoking Dr. Howse of DPW to contact New Jersey’s Department of Human Services on plaintiff’s behalf, and that Dr. Howse’s contact was a material factor in obtaining New Jersey’s agreement to provide prospective funding. A mechanical application of the section 1988 analysis, therefore leads to the following conclusions: (1) plaintiff is a prevailing party, (2) plaintiff’s lawsuit was a material factor in obtaining the relief because it provoked a chain of events resulting in Pennsylvania’s agreement to reimburse Pleasant Manor for the bulk of past due expenses and New Jersey’s agreement to provide prospective funding for plaintiff to remain at Pleasant Manor. See Sullivan, supra (indirect causation). These two conclusions are factually valid. With respect to the $15,000.00 provided by DPW in settlement of Pleasant Manor’s claim for 1983 reimbursement, these facts are sufficient to support an award of counsel fees under section 1988.

However, this analysis does not take into account the fact that the prospective relief obtained by plaintiff was provided by a nonparty to the lawsuit. This Court is of the opinion that it would be inequitable to require the defendants to pay the entire amount of attorneys’ fees under the circumstances. This inequity becomes clear when we consider that the DPW defendants took a sympathetic role in this litigation and successfully sought funding on plaintiffs behalf from New Jersey. New Jersey’s readiness to assume responsibility for plaintiff apparently vindicated Pennsylvania’s position that New Jersey, not Pennsylvania, was liable for the cost of plaintiff’s care. At any rate, it would be very bad policy indeed to construe the Pennsylvania defendants’ good faith efforts to resolve plaintiff’s dilemma as an admission on their part that plaintiff’s claim for funding from Pennsylvania was valid. In addition, the Court notes that if New Jersey had been joined as a party defendant, the Court could have awarded the full amount of counsel fees requested, and in so doing assessed a significant portion of those fees against New Jersey.

This Court, in exercising the discretion expressly authorized in section 1988, has taken into account these various equitable considerations and has determined that in this ease, a reasonable fee award against the party defendants is one-fourth of the fees claimed for hours spent on the merits plus the full amount of fees for hours devoted to the fee petition. See Annunziato v. The Gan, Inc., 744 F.2d 244, 253 (2d Cir.1984) (considerations of justice and policy behind section 1933 may inform court in the exercise of its discretion under section 1988). In Nadeau v. Helgemoe, 581 F.2d 275, 281 (1st Cir.1978), the Court held that section 1988 analysis “is not an all or nothing determination. [The court may] reduce an award if the result is found to be jointly attributable to both [plaintiffs and defendants].” Cf. Morrison v. Fox, 660 F.2d 87 (3d Cir.1981) (extent to which plaintiff prevailed against each defendant taken into account in allocation of fees among defendants).

Alternatively, this Court’s fee award can be justified by viewing the plaintiff as only partially successful against the named defendants. See Institutionalized Juveniles, 758 F.2d at 918-21 (citing Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)) (supporting a reduction of the fee award based on the degree of plaintiff’s success). In Hensley, the Supreme Court said that in making a fee determination, “the district court should focus on the significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended on the litigation.” 461 U.S. at 434, 103 S.Ct. at 1940. This case can be viewed as a partial success case because the plaintiff received only a small portion of the relief which he sought against Pennsylvania, and because the relief obtained from New Jersey was obtained largely through the intervention of Dr. Howse of DPW. The reduction for partial success may be accomplished either by disallowing hours spent on claims which did not succeed or by reducing the lodestar to provide a fee which is reasonable in relation to the results obtained. Institutionalized Juveniles, 758 F.2d at 919 (quoting Hensley, 103 S.Ct. at 1943). Where, as here, particular hours of work cannot be identified as either wholly successful or wholly unsuccessful, a general reduction of the lodestar is appropriate. See Institutionalized Juveniles, 758 F.2d at 920.

Although the Court has already indicated its decision to apply a 25% multiplier to the approved fees representing hours spent on the merits of this action, it remains for the Court to state the basis for this decision. See Hall v. Borough of Roselle, 747 F.2d 838, 842-43 (3d Cir.1984). The Third Circuit has stated that the plaintiff has the burden of showing that “an upward adjustment is necessary to the determination of a reasonable fee” based on “the likelihood of success and the risk of nonpayment for counsel, ‘viewed at the time of filing suit.’ ” Id. (quoting Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 540 F.2d 102, 117 (3d Cir.1976) .(Lindy II)). As plaintiff’s counsel has argued, at the time this action was instituted, there was no precedent supporting plaintiff under either the fourteenth amendment or the statutes relied upon in the complaint. Further, as Dr. Howse stated in 1983 (and plaintiff would have had to agree), “The issue of residency of a mentally retarded person and the liability of a state thereafter to assume responsibility for his care and treatment is a difficult issue.” In view of the high degree of uncertainty of payment and the complexity of the legal claims involved, and considering the fact that plaintiff’s counsel will receive compensation for only one quarter of their time spent on the merits, the Court has concluded that a multiplier of 25% should be applied to the fees awarded for work performed on the merits of this case.

An appropriate order follows.


source: Caselaw Access Project

author: BARBOUR, District Judge.

license: Public Domain

text:
    Doris Polk SIMS, Plaintiff, v. INEXCO OIL COMPANY, et al., Defendants.
    Civ. A. No. J83-0438(B).
    United States District Court, S.D. Mississippi, Jackson Division.
    Aug. 21, 1985.
    James Russell Tucker, Kenneth I. Franks, Jackson, Miss., Vernon L. Terrell, Jr., New Orleans, La., for Tomlinson Interests.
    Walker L. Watters, Robert P. Thompson, Jackson, Miss., for Hunt Oil.

      J. Michael Rediker, W. Clark Goodwin, Birmingham, Ala., Allan P. Bennett, Ernest G. Taylor, Jr., Jackson, Miss., for Albert and Burgess Tomasson.
    Harold D. Miller, Jr., Christy D. Jones, Jackson, Miss., for Inexco.
    Alex A. Alston, Jr., Janice Holley Parsons, Jackson, Miss., for defendants.
   MEMORANDUM OPINION AND ORDER

BARBOUR, District Judge.

This matter is before the Court on the Cross-Motions for Partial Summary Judgment of Plaintiff, Doris Polk Sims (“Sims”), and Defendant, Inexco Oil Company (“Inexco”), to determine the extent of liability of an oil, gas and mineral lease lessee [Inexco] to its lessor [Sims].

FACTS

On November 15, 1976, Sims, as Lessor, executed an oil, gas and mineral lease referred to as a PAID UP-MISS. Form lease to Inexco, as Lessee, covering approximately 114.79 acres in Lawrence County, Mississippi. The lease provides that “[t]he rights of the Lessor and Lessee hereunder may be assigned in whole or in part.” The lease also provides that if any or all of the lease is assigned, then no leasehold owner shall be liable for any act or omission of any other leasehold owner.

The Sims lease was pooled with other leases to form drilling units which resulted in three producing oil and/or gas wells— Myers No. 1 Well, Myers No. 2 Well and Jones No. 1 Well. Defendant, Tomlinson Interests, Inc. (“Tomlinson”), was the operator of all three wells. Only the Myers No. 1 Well is involved in the Partial Summary Judgment Motions before the Court.

On August 2, 1979, Inexco entered into a Farmout Agreement with Tomlinson covering the Myers No. 1 Well and others. After completion of the Myers No. 1 Well, the Farmout Agreement was amended on September 24,1979, to include the Myers No. 2 Well. The amendment also gave Tomlin-son permission to assign portions of the Sims lease to Defendants, Hunt Oil Company (“Hunt”), and Albert F. Thomasson and Burgess A. Thomasson (hereinafter collectively referred to as the “Thomassons”), subject to the terms of the Farmout Agreement.

The Farmout Agreement and amendment provided that if a producing well were completed, Tomlinson would become entitled to an assignment of interest in the Sims lease and others. The Farmout Agreement also provided that if Tomlinson earned an interest in the leases, then Tomlinson and Inexco would execute an operating agreement whereby Tomlinson would be entitled to all production from the earning well(s), except for an overriding royalty interest equal to 25% reserved by Inexco for the period from completion of the wells until “payout,” as defined in the Agreement. The two Myers wells were drilled and completed under the Farmout Agreement and amendment.

On September 24, 1979, Inexco, pursuant to the terms of the Farmout Agreement, assigned an interest in the two Myers Wells to Tomlinson. Inexco did not assign its interest in the Jones No. 1 Well. Pursuant to the terms of the assignment, Inexco reserved an overriding royalty interest equal to 25% less existing royalty and overriding royalty burdens. According to the Farmout Agreement between Inexco and Tomlinson, the 25% overriding royalty interest reserved by Inexco

... shall automatically convert into and be exchanged for a fifty percent (50%) working interest therein and in production therefrom, upon payout of the earning well or wells unless within thirty (30) days following notice to [Inexco] of payout [Inexco] exercised its retained option to retain the said overriding royalty interest in lieu of a fifty percent (50%) working interest.

Consequently, under the Farmout Agreement, Tomlinson was entitled to retain 100% of the revenue from the wells until it recouped its drilling and completion expenses but was obligated to pay royalty and overriding royalty owners, including Inexco, during that period. Once the overriding royalty interest retained by Inexco converted to a 50% working interest, it, too, became liable to Sims for royalty payments.

As a royalty interest owner in the Myers No. 1 Well, Sims was entitled to a three-sixteenths (3/i6) royalty on all gas production attributable to lands covered by her lease. The Myers No. 1 Well began producing on May 20, 1981. According to the Farmout Agreement, its amendment and subsequent assignments, Tomlinson, Hunt and the Thomassons were collectively obligated to pay Sims royalties until payout in amounts attributable to their respective interests. Payout on the Myers No. 1 Well occurred on July 14, 1981. According to Inexco, it did not receive written notice of payout on the Myers No. 1 Well until December 3, 1982.

Inexco and Hunt entered into a gas sales contract with Southern Natural Gas Company for the sale of the gas production from the subject wells. Tomlinson and the Thomassons entered into a sales contract with Defendant, Transcontinental Gas Pipeline Corporation (“Transco”), for the sale of their gas produced from the Myers No. 1 Well. Allegedly, the gas sales contract between Tomlinson, the Thomassons and Transco was amended to include a market-out clause which Sims claims diminished her rights under her lease with Inexco.

Sims asserts two basic positions:

(1) She has not been paid all royalties owed her on the three wells; and
(2) She has been deprived of the fair value of her gas royalties for gas sold under the Tomlinson-Thomasson-Transco gas sales contract as a result of the alleged amendment which inserted a market-out clause.

With regard to non-payment of royalties, Sims claims that Tomlinson, Hunt and the Thomassons breached the covenant to pay her royalties attributable to their interest in her lease. She also contends that Inexco is liable for non-payment of royalties on the basis that the assignment from Inexco to Tomlinson is a sublease under which Inexco remains liable to her. Sims also seeks to hold Inexco liable, as sublessor, for the alleged breach of the covenant to market the gas which was allegedly committed by Tomlinson and the Thomassons when the gas sales contract with Transco was amended to insert a market-out clause to allegedly deprive her of the fair value of her gas royalties on gas sold under the Tomlinson-Thomasson-Transco gas sales contract.

Inexco argues that the agreement between it and Tomlinson is an assignment and not a sublease. Accordingly, Inexco contends that it is not liable, as assignor, for the alleged breach by Tomlinson, Hunt and the Thomassons of their duty to pay Sims royalties or for the alleged breach by Tomlinson and the Thomassons of the covenant to market. To the contrary, Inexco argues that its liability to Sims for royalty payments is as follows:

1. JONES NO. 1 WELL — Inexco concedes liability for all royalties attributable to the Sims lease with regard to the Jones No. 1 Well;
2. MYERS NO. 2 WELL — Inexco assumes no responsibility to Sims for royalties attributable to Myers No. 2 Well since it never reached payout; and
3. MYERS NO. 1 WELL^Inexco concedes liabilities for royalties attributable to its retained 50% working interest from and after December 3, 1982 — the day it received notice of payout on the Myers No. 1 Well.

Accordingly, the issues to be decided by this Court on the Cross-Motions of Sims and Inexco for Partial Summary Judgment are:

1. Did Inexco and Tomlinson enter into an assignment or a sublease; and
2. When was Inexco obligated to begin paying Sinus royalties on the Myers No. 1 well attributable to its 50% working interest — upon payout (July 14, 1981) or upon payout and notice thereof (December 3, 1982)?

With regard to the first issue, if the agreement between Inexco and Tomlinson is deemed to be an assignment and not a sublease, then Inexco is only liable to Sims for royalties attributable to its 50% working interest from either July 14, 1981, or December 3, 1982 — whichever this Court ultimately decides. If, on the other hand, the agreement between Inexco and Tomlin-son is a sublease, then Inexco is liable to Sims for all unpaid royalty payments owed by Tomlinson, Hunt and the Thomassons from the date of first production to payout and for royalty payments attributable to its 50% working interest from either July 14, 1981, or December 3, 1982. Inexco, as sublessor, would also be liable for the alleged breach by Tomlinson and the Thomassons of the covenant to market.

If Inexco is deemed to be a sublessor rather than an assignor, then it seeks indemnification from Tomlinson, Hunt and the Thomassons on its cross-claims and third party claims against those parties for breaching the respective agreements between the parties. Since Sims also seeks damages from Transco for its alleged tortious acts in inducing Tomlinson and the Thomassons to breach their obligation to Sims through amendment of the Tomlin-son-Thomasson-Transco gas contract, Inexco also seeks recovery from Transco on the grounds that the alleged tortious actions of Transco would have caused Tomlinson and the Thomassons to breach their contract with Inexco.

ASSIGNMENT OR SUBLEASE

Succinctly stated,

[i]f the transfer is classified as a sublease, the benefit of the covenants made by the lessee [Inexco] do not run to the sublessee [Tomlinson, et al.]; if, however, the transfer is classified as an assignment, both burden and benefit are normally said to run to the transferee.

Williams and Meyers, Oil and Gas Law, § 412.1 at 319.20. In other words, if the transaction is an assignment, then “the duty of the lessee to pay oil and gas royalties, gas well rentals, and additional royalties out of the first production of oil, pass [sic] to the assignee of the lease.” 3 Summers, The Law of Oil and Gas, § 553 at 586. Likewise, the duty to market passes to the assignee upon assignment and remains his responsibility during the time he owns a working interest. Cole Petroleum v. United States Gas and Oil Company, 121 Tex. 59, 41 S.W.2d 414, 416 (1931); Williams and Meyers, supra at § 410.

Sims argues that the transaction between Inexco and Tomlinson is a sublease even though designated an assignment because the transferor (Inexco) reserves an overriding royalty interest (25%), retains a reversionary interest (50% working interest), has the power to terminate the transfer for breach of conditions by the transferee (Tomlinson), transfers less than all of its estate, and retains control over the operations of the transferee. To support her position, Sims relies upon Louisiana decisions and the decisions of other courts which applied the law of landlord and tenant to the field of oil and gas and held that where the above factors exist, the transaction is a sublease and not an assignment. See, e.g., Cockburn v. O’Meara, 155 F.2d 340 (5th Cir.1946) (construing Louisiana law); Iberian Oil Corporation v. Texas Crude Oil Company, 212 F.Supp. 941 (W.D.La.1963); Smith v. Sun Oil Company, 165 La. 907, 116 So. 379 (1928); Saling v. Flesch, 85 Mont. 106, 277 P. 612 (1929); McNamer Realty Company v. Sunburst Oil and Gas Company, 76 Mont. 332, 247 P. 166 (1926); Hartman Ranch v. Associated Oil Company, 10 Cal.2d 232, 73 P.2d 1163 (1937); Shreck v. Coates, 59 Ariz. 269, 126 P.2d 308 (1942).

The argument of Inexco is three-fold. Inexco first argues that this Court should not subvert the clear intent of the parties as revealed by the lease, Farmout Agreement and assignment which was to allow assignments by the lessor or lessee of all or portions of the lease. Inexco also argues that, consistent with industry practices, the lease contemplates that a lessee assigning an interest to others also intends to totally relieve itself of its obligations to the lessor to the extent of the interest assigned.

Next, Inexco argues that the Louisiana oil and gas decisions should not be followed because of the distinctions between the philosophy of oil and gas law in Louisiana and Mississippi and Texas. Inexco notes that Mississippi and Texas follow the “ownership in place” theory in which an oil and gas lease is a conveyance of real property and the transferee obtains a determinable fee in minerals. See, e.g., Doughterty v. Greene, 218 Miss. 250, 67 So.2d 297 (1953); Koenig v. Calcote, 199 Miss. 435, 25 So.2d 763 (1946); Texas Company v. Daugherty, 107 Tex. 226, 176 S.W. 717 (Tex.1915). In Louisiana, there is no absolute ownership of minerals in place under an oil and gas lease since an oil and gas lease conveys only the right to the use or enjoyment of the property. See, e.g., Roberson v. Pioneer Gas Company, 173 La. 313, 137 So. 46, 48 (1931); Prestridge v. Humble Oil and Refining Company, 131 So.2d 810 (La.App.1961).

Finally, Inexco contends that the common law distinction between assignments and subleases applicable to the law of landlord and tenant should not be applied to the oil and gas field. Inexco urges this Court to follow the law of Texas, as Mississippi has done in past, see, e.g., Piney Woods Country Life School v. Shell Oil Company, 539 F.Supp. 957 (S.D.Miss.1982); Berry v. Tide Water Associated Oil Company, 188 F.2d 820 (5th Cir.1951); Carlisle v. Federal Bank of New Orleans, 217 Miss. 289, 64 So.2d 142 (1953); Merrill Engineering Company v. Capital National Bank, 192 Miss. 378, 5 So.2d 666 (1942), and hold that the

common law distinction between assignments and subleases is not applicable to oil and gas leases____

Moore v. Campbell, 267 F.Supp. 126, 135 (N.D.Tex.1967).

In this case of first impression in Mississippi, this Court agrees with Inexco and finds that the intent of the parties should control, that the law of Louisiana is inapplicable because of its unique principles in oil and gas law and that the law of Texas should be used as a guide.

Texas has determined that an assignment of oil and gas rights is an assignment and not a sublease regardless of the reservation and retention by the lessee/assignor of rights and interests under the assignment. In Moore v. Campbell, 267 F.Supp. 126 (N.D.Tex.1967), the United States District Court for the Northern District of Texas determined that, under federal tax law, the assignment of an oil and gas lease was a sublease and that the initial payments to the lessors were ordinary income and not capital gains. In so ruling, the court stated that:

[although this common law distinction between assignments and subleases is not applicable to oil and gas leases in Texas, it is, at least to some extent, applicable nation-wide for tax purposes, as exemplified by the settled tax law that an assignment reserving an overriding royalty is a sublease.

Id. at 135.

However, the court, discussing the law of oil and gas in Texas, noted that:

[a]s far as the state law is concerned, the distinction between assignment and sublease in the law of landlord and tenant has to do with the question of privity between the original lessor and the assignor or sublessee. That distinction is not believed to be applicable to oil and gas leases, which in this state are not really ‘leases, ’ but conveyances of a determinable fee. [citations omitted]. An assignment of an oil and gas lease reserving an overriding royalty, as far as the state law is concerned, is an assignment; and an assignment containing provisions of its own common ly found in oil and gas leases is nonetheless an assignment.

Id. at 134. [emphasis added].

This Court also finds support for its decision among the legal scholars in the oil and gas field who unanimously counsel against application of the sublease theory to oil and gas leases on the basis that this ancient precedent from landlord and tenant law has no real application to oil and gas transactions. 1 Brown, The Law of Oil and Gas Leases, § 11.04 at 11-29. See also, Williams & Meyers, supra at § 414, p. 334.1; Hemingway, The Law of Oil and Gas, § 9.11 at 505; 3 Summers, supra at § 553, p. 602; Merrill, The Partial Assignee— Done in Oil, 20 Tex.L.Rev. 298, 322 (1942). According to these authorities the sublease-assignment distinction drawn from the law of landlord and tenant is

utterly inappropriate to the law of oil and gas____ The oil business simply has no conception of the distinction____ The results which follow from it, particularly with regard to the transferee’s non-liability to the lessor, seem impolitic, contrary to the general understanding of those engaged in the business, and at variance with the practice of the industry. Since the oil and gas lease is not really a lease ..., there is no compulsion to make the distinction. :

Merrill, supra, at 322. Another authority suggests that:

[t]he assignment-sublease distinction should not apply to oil and gas leases. States without authority on the matter should reject it; states that have adopted the distinction should repudiate it.

Williams & Meyers, supra at § 414, p. 334.-1.

The Court finds that Inexco and Tomlin-son clearly intended to assign a portion (50%) of the Sims lease to Tomlinson. Surely Inexco would not have agreed to retain only a 25% overriding royalty interest if it were also to be obligated to pay Sims all royalty payments and market the production. Consequently, this Court finds that Inexco is not liable for:

(1) The alleged failure of Tomlinson, Hunt and the Thomassons to pay Sims royalties pursuant to the Farmout Agreement; or
(2) The alleged acts of Tomlinson, the Thomassons and their alleged co-conspirator, Transco, in connection with their gas sales contract.

Accordingly, the Court does not consider whether Inexco is entitled to seek indemnity from Tomlinson, Hunt, the Thomassons and Transco. The Court does find, as Inexco has conceded, that Inexco is liable for royalty payments to Sims on the Myers No. 1 Well attributable to the 50% working interest retained by it under the Farmout Agreement and assignment. The question to be considered next by this Court is when that liability commenced.

PAYOUT OR PAYOUT AND NOTICE OF PAYOUT

Payout on the Myers No. 1 Well occurred on July 14, 1981. Inexco claims it did not receive written notice of payout until December 3,1982, and that its liability for 50% of the royalty payments to Sims did not commence until December 3, 1982, when it received notice of payout. The position of Inexco is without merit. The Farmout Agreement clearly states that:

[Inexco’s] reserved overriding royalty interest in and to said well or wells shall automatically convert into and be exchanged for a 50% working interest ..., upon payout ... unless within thirty days following notice to it of payout [Inexco] exercised its retained option to retain the said overriding royalty interest in lieu of a fifty percent (50%) working interest, [emphasis added].

The Farmout Agreement clearly contemplates that the overriding royalty interest reserved by Inexco “shall automatically convert” to a 50% working interest unless Inexco exercised its option to retain its overriding royalty interest within 30 days of receipt of notice of payout. Consequently, on July 14, 1981, the date of payout on the Myers No. 1 Well, the overriding royalty interest retained by Inexco automatically converted to a 50% working interest and Inexco became liable for royalty payments to Sims attributable to its interest in the Sims lease. On December 3, 1982, the date Inexco alleges it received notice of payout, Inexco had 30 days to notify Tomlinson that it chose to retain its overriding royalty interest. If Inexco chose to retain its overriding royalty interest, it would not be liable for 50% of the royalty payments owed Sims. Since Inexco did not choose to retain its overriding royalty interest within 30 days of December 3, 1982, its overriding royalty interest automatically converted to a 50% working interest and its liability for royalty payments to Sims attributable to its interest commenced at payout — July 14, 1981.

In summary, the Court rules that the Motion of Sims for Partial Summary Judgment is denied in part and granted in part. Likewise, the Motion of Inexco for Partial Summary Judgment is denied in part and granted in part.

      . The automatic stay provisions of 11 U.S.C. § 362 protect Tomlinson as a result of the bankruptcy pending in the Bankruptcy Court for the Southern District of Texas, Houston Division. Consequently, any ruling of this Court as it pertains to Tomlinson is subject to the automatic stay provisions.


author: SWEET, District Judge.

text:
    Kerwin F. McMAHON, Plaintiff, v. RMS ELECTRONICS, INC., Defendant.
    No. 85 Civ. 3799 (RWS).
    United States District Court, S.D. New York.
    Aug. 23, 1985.

      Sage, Gray, Todd & Sims, New York City, for plaintiff; John J. Hathaway, New York City, of counsel.
    Morgan, Lewis & Bockius, New York City, for defendant; John Linsenmeyer, Terri L. Weiss, New York City, of counsel.
   OPINION

SWEET, District Judge.

Defendant RMS Electronics, Inc. (“RMS”) has moved to stay all judicial proceedings under this action pending arbitration of claims asserted by plaintiff Kevin F. McMahon (“McMahon”). RMS asserts that every issue raised by McMahon’s complaint derives from an employment agreement between the two parties and that the arbitration clause provided in the agreement requires a stay of court proceedings pursuant to 9 U.S.C. § 3. In response, McMahon concedes that his five breach of contract claims are subject to arbitration but urges that three claims based on alleged defamatory statements made by RMS and its president are not governed by the arbitration clause and are therefore appropriately raised before this court. For the following reasons RMS’ motion is granted with respect to all of McMahon’s claims except his final defamation claim based on statements made by RMS’ president.

Pleadings

To decide this motion, it is sufficient merely to examine the employment agreement between RMS and McMahon and the claims stated in McMahon’s complaint without determining the validity of the allegations asserted in that complaint.

It is undisputed that on or about March 1, 1981 RMS and McMahon entered into a valid employment agreement (the “Agreement”) which defined the terms and conditions of McMahon’s employment as the director of one of RMS’ operating divisions. The Agreement specified McMahon’s job description, compensation and other benefits. It also provided that RMS could terminate McMahon’s employment only if he committed any act of malfeasance or nonfeasance, including intemperance, dishonesty or the unauthorized pledge of RMS’ credit. Finally, the Agreement included an arbitration clause requiring that “[a]ll disputes and claims arising in connection with this Agreement” shall be settled in arbitration. The Agreement was amended twice, to increase McMahon’s compensation and to extend his term of employment to December 31, 1988. RMS terminated McMahon’s employment on March 20, 1985, over three years before the expiration of the Agreement.

Following his termination, McMahon brought the present action in this court alleging eight causes of action. The first five claims seek damages based on RMS’ alleged breach of contract resulting from the company’s alleged wrongful termination of McMahon. McMahon’s other three claims, however, are not based on the Agreement. These claims seek damages for alleged defamatory statements made by RMS and its president. McMahon alleges that on May 3 and May 9, 1985, RMS published a notice to RMS shareholders and filed a document with the Securities and Exchange Commission which stated that McMahon’s contract had been terminated. McMahon’s complaint alleges that these statements wrongfully injured his reputation and standing. McMahon’s third defamation claim involves a statement made one week before McMahon’s termination by the president of RMS to another employee that McMahon was the “company drunk” and was interfering with the president’s operation of the company. McMahon now asserts that these three tort claims are beyond the scope of the arbitration clause found in the Agreement. Discussion

If the issues raised by plaintiff’s defamation claims are “referable to arbitration under an agreement in writing for such arbitration” then this court, given the motion by RMS, must stay these judicial proceedings as provided in 9 U.S.C. § 3 (1982). Before issuing a stay, this court must determine that the parties have agreed to arbitration and that the present dispute falls within that agreement. See Banque de Paris et Des Pays-Bas v. Amoco Oil Co., 573 F.Supp. 1464 (S.D.N.Y.1983). The resolution of the question of arbitrability turns on an interpretation of the arbitration clause. While such clauses are to be broadly construed, “a party cannot be required to submit to arbitration any dispute which he has not agreed to so submit.” United Steelworkers v. Warrier & Gulf Navigation Co., 363 U.S. 574, 580, 80 S.Ct. 1347, 1351, 4 L.Ed.2d 1409 (1960). Whether a dispute is covered by the arbitration clause is thus an issue for the court to decide. See Prudential Lines Inc. v. Exxon Corp., 704 F.2d 59, 63 (2d Cir.1983).

In this Circuit, agreements to arbitrate disputes arising from a contract do not extend to tort claims that, although factually related, are considered legally distinct from the contractual relationship between the parties. In Old Dutch Farms, Inc. v. Milk Drivers & Dairy Emyloyees Union, 359 F.2d 598 (2d Cir.), cert. denied, 385 U.S. 832, 87 S.Ct. 71, 17 L.Ed.2d 67 (1966), the court refused to stay a tort action brought against a union even though it was connected with the subject matter of the collective bargaining agreement containing the arbitration clause. The court concluded that “absent a clear, explicit statement in the formal contract directing an arbitrator to hear and determine the validity of tort damage claims by one party against another, it must be assumed ... that the parties did not intend to withdraw such disputes from judicial scrutiny.” Id. at 603. Similarly, in Fuller v. Guthrie, 565 F.2d 259, 261 (2d Cir.1977), the court refused to stay a slander claim on the basis of a contractual arbitration clause. The court found that the arbitration clause was intended to cover disputes relating to the performance of the contract but could not be interpreted to extend to “wholly unexpected tortious behavior.” Id.

The tort claims considered in the above authorities are distinguishable from a tort claim which is a reformulation of a breach of contract claim. When a tort claim is based in substantial part on the contractual rights and responsibilities of the two parties, then it must be arbitrated as required by an arbitration clause. Altshul Stern & Co., Inc. v. Mitsui Bussan Kaisha, Ltd., 385 F.2d 158, 159 (2d Cir.1967). Thus, in Tac Travel America Corp. v. World Airways, Inc., 443 F.Supp. 825 (S.D.N.Y.1978), the court stayed a defamation claim for alleged wrongful statements made during the execution of a charter agreement. The court’s decision was based on the “peculiar factual circumstances” of the case in which the charter agreement specifically addressed the liability of the charterer for any statements made during the charter flight. Id. at 827-28. Under these circumstances, the defamation claim was encompassed by contractual agreement between the parties.

The Second Circuit has recently considered a case which both parties agree must be evaluated in light of the issues here. In Coudert v. Paine Webber Jack son & Curtis, 705 F.2d 78 (2d Cir.1983), the court held that a defamation action based on an employer’s statements made after the termination of employment did not constitute a controversy “arising out of the employment or termination of employment” as provided in the arbitration clause covering New York Stock Exchange members and their registered representatives. Notwithstanding the fact that the alleged false statements were related to the employee’s termination of employment, the Court ruled that the tort claim was independent of the employment contract and its arbitration clause. The court reasoned that claims arising after the expiration of an employment agreement containing an arbitration clause are beyond the scope of the arbitration clause. Id. at 81-82.

However, in my view, Coudert is distinguishable. In Coudert, the court found that there was no clear nexis between the employment relationship of the two parties and the defamatory statements made by the employer. In that case, the allegedly defamatory statements were made to co-workers, customers and securities exchanges following plaintiff’s voluntary submittal of her resignation. Here the allegedly defamatory statements are integrally linked to the contractual relationship between the parties. The Agreement carefully specifies the basis on which McMahon could be terminated for cause. The company’s statements regarding McMahon’s termination were required reports that simply stated the actions taken by RMS. McMahon’s defamation claims necessarily turn on whether he was terminated with or without cause, an issue which involves an interpretation of the contractual relationship between the parties. The arbitration clause contained in the Agreement clearly indicates that the parties agreed to arbitrate any dispute which calls into question the validity of McMahon’s termination. Since this issue is integral to McMahon’s first two defamation claims, those claims must be stayed pending arbitration. 9 U.S.C. § 3. The mere fact that these statements were made after McMahon’s termination does not compel a different conclusion since “the temporal aspect is an inevitable consequence” of the company’s reporting an event which terminated the employment agreement. See Downing v. Merrill Lynch, Pierce, Fenner & Smith, 725 F.2d 192, 194-95 (2d Cir.1984).

McMahon’s final claim alleges that RMS’ president stated to another employee, one week before McMahon’s termination, that McMahon was the “company drunk” and that he was interfering with the president’s operation of the company. This defamation claim, unlike the previous two claims, is not encompassed by the arbitration clause in the Agreement. Although the statements regarding McMahon’s drinking habits may be relevant to his claim of wrongful termination, the resolution of the defamation claim does not require reference to the underlying contract. Unlike the previous two claims, the issues underlying this final defamation claim do not require an interpretation of the contractual agreement between the two parties. Furthermore, the defamation claim is not arbitrable simply because the statements were made during the term of McMahon’s employment. While the Coudert opinion implies that such an action would be arbitrable, the arbitration clause at issue here is narrower in scope than the one discussed in the Coudert case. Here the clause governs only those disputes arising in connection with the employment contract, whereas in Coudert, the clause extended to any disputes arising from the employment itself or its termination. See Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163, 1167 (9th Cir.1984).

Finally, the decision not to stay McMahon’s last defamation claim is not altered by the presence of other claims in McMahon’s complaint which are concededly arbitrable. The Supreme Court has recently rejected the argument that a district court may refuse to deny arbitration when arbitrable and nonarbitrable claims arising from the same transaction are factually intertwined. Dean Witter Reynolds Inc. v. Byrd, — U.S. -, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985). See also Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 20, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983) (Federal Arbitration Act “requires piecemeal resolution when necessary to give effect to an arbitration agreement”). A partial stay of plaintiffs complaint is entirely appropriate where the interpretation of the arbitration charge compels the conclusion some of the issues are nonarbitrable. See Fuller, supra, 565 F.2d at 260-61 (affirming district court’s stay of breach of contract claim and retention of tort claim).

Conclusion

Defendant’s motion to stay judicial proceedings in this action is granted with respect to plaintiff’s first seven claims and denied with respect to plaintiff’s final claim.

IT IS SO ORDERED.


author: SPELLMAN, District Judge.

text:
    Richard C. RECHTIEN, Plaintiff, v. RYDER SYSTEM, INC. RETIREMENT PLAN and Ryder System, Inc. Defendants.
    No. 83-2363-Civ.
    United States District Court, S.D. Florida, Miami Division.
    Aug. 28, 1985.
    James E. Tribble, Miami, Fla., for plaintiff.
    Michael S. Olin, Miami, Fla., for defendants.
   MEMORANDUM OPINION & ORDER GRANTING DEFENDANT’S (THE PLAN’S) MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S (RYDER’S) MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

SPELLMAN, District Judge.

I.

This is an action by a retirement plan participant to clarify his rights to future benefits. The facts giving rise to this cause are as follows. Until June 4, 1980, the Plaintiff was a full time employee of Ryder. On that date, he signed an agreement under which he became a consultant to the Company. The “Employment Agreement” provided that the Plaintiff would provide “advisory and consultative services” concerning the business affairs and management of Ryder and its subsidiaries. During the employment period, beginning June 4, 1980 and ending December 31, 1982, Ryder agreed to pay the Plaintiff compensation at the rate of $118,000 per annum in equal semi-monthly installments. The Agreement also provided for benefits: a medical plan, a dental insurance plan, a salary protection plan, an executive accident plan, group life and permanent and total disability insurance plan, and various stock options. For this employment period, Ryder agreed to provide the Plaintiff with a “company car” and assumed responsibility for all maintenance, operating costs, and insurance coverage.

The contract between the Plaintiff and Ryder provided at Section 4E:

Compensation payments under this Agreement will be credited to Rechtien pursuant to the provisions of the Ryder System, Inc. Retirement Plan.

In 1981, the Plaintiff realized that he was not going to perform 1,000 hours of service for the years 1981 or 1982. It also became apparent that since the June 4,1980 Agreement did not provide any service credit under the Plan for 1981, the agreement, as written, would have been ineffective in providing the Plaintiff with any pension benefits from the Plan for the years 1981 and 1982. Ryder proposed to enter into a Supplemental Agreement with the Plaintiff.

The Supplemental Agreement provided the Plaintiff with pension benefits for the years 1981 and 1982 to be paid by Ryder. Under this Agreement, Ryder agreed to pay the Plaintiff the additional benefit he would have accrued for the years 1981 and 1982 outside the structure of the Plan.

In March 1982, after the Plaintiff retired and after he entered into these agreements, Ryder amended the Plan. This “Amendment Five to the Ryder System, Inc. Retirement Plan” at Section 1.1(A)(47)(C) adjusted the benefits to be paid for work performed prior to 1981. The issue presented by the Defendants’ Motion for Summary Judgment is whether the Plaintiff is entitled to the benefit adjustment from either Defendant Ryder or the Plan. For the following reasons, the Plan’s Motion for Summary Judgment is GRANTED.

II.

In order to qualify to receive a benefit adjustment from the Plan, the Plaintiff must satisfy all of the Requirements of Amendment Five. These are delineated by Section 1.1(A)(47)(C). Failure to establish even one requirement of this subsection is fatal to the Plaintiff’s claim against the Plan.

Section 1.1(A)(47)(C)(2) provides, “the Employee is currently accruing benefits in accordance with the other provisions of this section 1.1(A)(47) as of January 1, 1981.” In order to currently accrue benefits under that section, the employee must be performing 1,000 service hours per year. For the purpose of this Motion, the Plaintiff admitted that he failed to establish the 1.000 service hours. In addition, the sworn affidavit of James M. Herron, Executive Vice-president, General Counsel of Ryder, and a Member of the Retirement Committee of the Ryder System, Inc. Retirement Plan, established that the Plaintiff “did not perform 1,000 hours of service in 1981 and thus was not entitled to benefit accrual credit under ... the Plan for any portion of 1981 including January 1, 1981.” In conjunction with his failure to qualify under the terms of the Plan with respect to the 1.000 service hours, the Plaintiff waived in Section 7 of the Supplemental Agreement his entitlement to Plan benefits for 1981 and 1982.

Another factor that militates in favor of Granting the Plan’s Motion for Summary Judgment is the appropriate standard of review which is clarified in Carter v. Cental States, 656 F.2d 575 (10th Cir.1981). In Carter, a retired truck driver sued a pension fund alleging that the fund wrongfully denied his application for benefits. The court, in concluding that the issue presented by such a case could normally be handled by the expedient of Summary Judgment, stated:

[T]he standard of review to be applied is that the trustees’ decision will be overturned by a federal court upon determination of ‘whether the trustees have acted arbitrarily, capriciously, or in bad faith; that is, is the decision of the trustees supported by substantial evidence or have they made an erroneous decision on a question of law.’ Id. at 576 quoting Danti v. Lewis, 312 F.2d 345, 348 (D.C.Cir.1962). Also see Wardle v. Central States Pension Fund, 627 F.2d 820, 823-24 (7th Cir.1980), cert. denied, 449 U.S. 1112 [101 S.Ct. 922, 66 L.Ed.2d 841] (1981); Bayles v. Central States Pension Fund, 602 F.2d 97, 99-100 & n. 3 (5th Cir.1979); Bueneman v. Central States Pension Fund, 572 F.2d 1208, 1209 & n. 3 (8th Cir.1978); Rehmar v. Smith, 555 F.2d 1362, 1371 (9th Cir.1976).

In short, this Court’s function with respect to the Plan’s Motion for Summary Judgment is to focus on the evidence before the Committee at the time of their final decisions. This Court is not to hold a de novo hearing of the circumstances surrounding the Plan’s denial of the benefits, but instead to determine whether the Committee’s actions were arbitrary, capricious, or in bad faith. In light of the absence of the requisite service hours, this Court finds no basis for overturning the Committee’s determination that the Plaintiff has not established entitlement to the special accrued benefit adjustment from the Plan. Therefore, the Plan’s Motion for Summary Judgment is GRANTED.

III.

Lastly, this Court will address the question of whether it has jurisdiction in the action to determine the rights of the Plaintiff against Ryder. At the July 18, 1985 hearing on the Cross Motions for Summary Judgment, this Court raised a question about its jurisdiction with respect to Ryder. Having read the requested memoranda of law on the subject, this Court GRANTS the Defendant Ryder’s Motion to Dismiss for lack of subject matter jurisdiction for the following reasons.

The Plaintiff contends that there is jurisdiction over civil actions brought by a beneficiary to enforce his rights or to clarify future benefits under the terms of an ERI-SA Plan. The Plaintiff then reaches for the dictum in Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976) for the proposition that where a federal statute mandates jurisdiction over the subject matter, pendent party jurisdiction is proper, so long as the statute does not negate that jurisdiction. The Plaintiff seeks to distinguish Aldinger on the basis of the fact that the statute therein expressly negated jurisdiction whereas in the instant case Section 1132(a) and (f) expressly confer it. Since this Court has Granted the Plan’s Motion for Summary Judgment, it elects not to resolve the intricate question of whether Aldinger may be extended to permit non-diverse pendent party jurisdiction over the parties in this action.

The Plaintiff most accurately brings forth United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966) for the analysis of when the relationship between a federal claim and a state claim is such that the entire action before the court comprises but one case. Id. at 725, 86 S.Ct. at 1138. Since this Court has Granted the Plan’s Motion for Summary Judgment, there is no need to apply the Gibbs standard or attempt to discern whether there is a “common nucleus of operative facts” to warrant the conclusion that the claims be tried in a single suit. Id Undoubtedly, judicial economy and fairness to litigants do not require the exercise of jurisdiction over a non-diverse pendent claim when the federal claim is no longer before the court. Therefore, the claim against Ryder is dismissed for lack of subject matter jurisdiction without prejudice to the' Plaintiff to refile in state court.

      . In the Defendants’ memorandum, the Defendants argue that the Plaintiff failed to establish other requirements of Subsection 1.1(A)(47)(C). They contend that the Plaintiff was not an "employee" under either of the agreements and that he was not “actively or actually" employed on January 1, 1981. With respect to these requirements, there remain genuine issues of material fact. However, this does not preclude the granting of the Plan’s Motion for Summary Judgment since the Plan has sufficiently shown the absence of the 1,000 service hours.

      . The language of Section 7 of the Supplemental Benefit Agreement dated as of September 18, 1981 by and between Ryder System and the Plaintiff reads:
      Rechtien agrees, on behalf of himself and his estate, beneficiaries, executors and assigns to waive any and all rights he may now or hereafter have to participate in the TRASOP for the calendar years 1980, 1981 and 1982 or to receive any benefit accrual credit under the Retirement Plan for the period January 1, 1981 — December 31, 1982 or for any payments made under the 1980 Agreement. If this waiver provision for any reason becomes unenforceable, Rechtien (or his beneficiary) shall not have any right hereunder to receive the supplemental benefits described herein and shall be required to repay to the Comany any supplemental benefits previously paid under the terms of this Agreement.

      . Defendants are directed, within ten (10) days from the date of this Order, to submit to this Court a Proposed Final Judgment in accordance with this Order.


author: CLARKSON S. FISHER, Chief Judge.

text:
    The STATE OF NEW JERSEY on the Relation of Alan E. KUDISCH on the Behalf of Julio VARGAS, Petitioner, v. Albert A. OVERBECK, Warden, Hudson County Jail, and Irwin I. Kimmelman, Attorney General of the State of New Jersey, Respondents.
    Civ. A. No. 85-1714.
    United States District Court, D. New Jersey.
    Sept. 4, 1985.

      Fishman & Kudisch by Alan E. Kudisch, Kew Gardens, N.Y., for petitioner.
    Irwin I. Kimmelman, Atty. Gen. of N.J. by Mildred Vallerini Spiller, Deputy Atty. Gen., Trenton, N.J., for respondents.
   OPINION

CLARKSON S. FISHER, Chief Judge.

Julio Vargas, convicted of conspiracy to commit aggravated arson, making payment for the purpose of starting a fire, and reckless endangerment by arson, has filed a petition for a writ of habeas corpus. Although the petition is grounded on three arguments, the parties and the court have focused on the issue of whether the prosecutor’s failure to inform the Grand Jury of exculpatory evidence of which he was aware violated the defendant’s guarantees of due process under the Fifth and Fourteenth Amendments. After consideration of the papers filed and oral argument, this court concludes that the prosecutor committed error that rose to a level of constitutional magnitude. Accordingly, the petition for a writ of habeas corpus is granted.

After the Hoboken police department and fire marshals investigated a fire that destroyed Julio Vargas’ grocery store, a Hudson County Grand Jury returned an indictment naming five men, including Vargas, as defendants. Upon reading the minutes of the Grand Jury proceedings, Vargas’ attorney, Mr. Kudisch, filed a motion in limine to dismiss the indictment on the grounds that the prosecutor failed to inform the Grand Jury of exculpatory evidence and that the evidence presented to the Grand Jury was insufficient to sustain the indictment. The Superior Court of New Jersey, Law Division, however, denied defendant’s motion, and Vargas was tried before a jury in that court in June 1982. On June 24, 1982, the jury returned verdicts of guilty on the charges mentioned above, and on October 15, 1982, the Superi- or Court sentenced Vargas to a term of 15 years with 5 years of parole ineligibility. The other four defendants had entered into plea negotiations with the State, and in return for the State’s willingness to plea bargain, each of the other four defendants, all of whom received lighter sentences than Vargas, agreed to testify against any defendant who proceeded to trial.

Immediately after the sentencing, Vargas appealed to the Appellate Division of the Superior Court. He raised the same arguments in the Appellate Division as are pressed now in the petition for a writ of habeas corpus. Vargas argued that the prosecutor violated his due process rights by withholding exculpatory evidence from the Grand Jury, that his attorney was not informed until late in the trial that the fire marshal’s report revealed that no accelerant was found at the scene of the fire, and that one attorney’s representation of two alleged co-conspirators created a patent conflict of interest. In an unpublished per curiam opinion filed February 14, 1984, the Appellate Division rejected these contentions and affirmed the conviction. A petition for certification to the New Jersey Supreme Court raising these same arguments was filed, but it was denied on May 16, 1984. State v. Vargas, 97 N.J. 602, 483 A.2d 140 (1984). Vargas’ claims before this court are those that were raised in the state courts. He has therefore exhausted his state remedies and his habeas petition is properly before this court. See Santana v. Fenton, 685 F.2d 71, 73-74 (3d Cir.1982), cert. denied, 459 U.S. 1115, 103 S.Ct. 750, 74 L.Ed.2d 968 (1983).

The relevant facts of the alleged crime were set forth succinctly by the Appellate Division in its decision affirming the conviction:

Defendant operated a small supermarket which was substantially insured when destroyed by fire of suspicious origin. The co-conspirator Santos owed a debt to defendant and in order to obtain forgiveness of the debt he was allegedly induced by defendant to solicit the other three co-conspirators to burn the business. When implicated by the co-conspirators Santos confessed to his involvement and outlined the entire scheme inculpating this defendant. After he had given the statement however he refused to sign it stating it was not true and that he only made it in order to obtain his release from police custody and to protect his family. Thereafter Santos once more reversed his position, cooperated with law enforcement officials, and testified against defendant at trial.

State v. Vargas, No. A-638-82T4, slip op. at 2 (App.Div., Superior Court of New Jersey, February 14,1984). The parties are in agreement that the evidence presented to the Grand Jury supporting the indictment consisted principally of the fact that Vargas’ grocery store, which was suffering financially, burned by non-accidental means, and of co-conspirator Santos’ statement to the police that he was induced by Vargas to solicit the other co-conspirators to set fire to the grocery store. It is uncontested that immediately after Santos made a statement to the police implicating himself and Vargas, the police told Santos that they were going to type the statement so he could sign it, but Santos refused, insisting that the statement was false and was made only so that he would be released and able to rejoin his family. There is no dispute that Officer O’Neill, who testified before the Grand Jury, and the prosecutor, were aware of Santos’ recantation, but the Grand Jury was never informed of this fact.

Contesting Vargas’ due process claim, the State has posited two arguments. First, the State has cited a line of cases for the proposition that the prosecutor had no duty to inform the Grand Jury of Santos’ recantation. Second, the State has observed that the petit jury, after defense counsel had an opportunity to examine and cross-examine at trial, found Vargas guilty beyond a reasonable doubt. Therefore, the State has asserted that, even if the prosecutor erred, such error was “harmless.” These arguments shall be considered seriatim.

It is undisputed, as the State maintains, that the Grand Jury proceeding is not an adversarial hearing to determine guilt or innocence, and an indictment, which is not evidence of guilt, is a finding that probable cause exists that a crime has been committed by the accused, United States v. Romano, 706 F.2d 370, 374 (2d Cir.1983); United States v. Ciambrone, 601 F.2d 616, 622 (2d Cir.1979). Respecting the Grand Jury proceedings, the prosecutor may exercise considerable discretion in determining what should be presented to the Grand Jury, and the prosecutor is not obligated “to search for and submit to a grand jury evidence favorable to the defense or negating guilt, when it has not been requested by the Grand Jury.” Ciambrone, 601 F.2d at 622; United States v. Litman, 547 F.Supp. 645, 649 (W.D.Pa.1982). In addition, the prosecutor’s discretion in this regard is generally circumscribed only if it appears that the prosecutor “knowingly” used perjurious testimony to secure the indictment, or substantial evidence negating guilt was not presented to the Grand Jury. See Romano, 706 F.2d at 374; United States v. Purvis, 544 F.Supp. 68, 72 (S.D.N.Y.1982). The State thus concludes from these cases that Officer O’Neill’s testimony before the Grand Jury was truthful, the prosecutor did not refuse willfully to disclose material information sought by the Grand Jury, and that the thrust of Vargas’ claim, that the prosecutor has a duty to search for and present to the Grand Jury any and all evidence favorable to the accused, is unsupported by law.

The material fallacy in the State’s argument is that no searching for exculpatory evidence was required in the instant case. The fact that Santos recanted his statement was readily apparent to the prosecutor, as he and Officer O’Neill had this information in their possession. Although Officer O’Neill’s testimony before the Grand Jury respecting Santos’ confession was true, given Santos’ immediate recantation, of which the Grand Jury was not informed, the evidence presented to the Grand Jury constituted merely a half-truth. By failing to furnish the exculpatory evidence of which he was aware, the prosecutor presented a case to the Grand Jury that was incomplete and misleading.

This court acknowledges that there are cases holding that the prosecutor does not have a duty to present any exculpatory evidence to the Grand Jury. United States v. Sears, Roebuck & Co., Inc., 719 F.2d 1386, 1390-91, 1394 (9th Cir.1983), cert. denied, 465 U.S. 1079, 104 S.Ct. 1441, 79 L.Ed.2d 762 (1984); United States v. Al Mudarris, 695 F.2d 1182, 1185 (9th Cir.1983); United States v. Cederquist, 641 F.2d 1347, 1353 n. 3 (9th Cir.1981). Other courts tend to the view that although an indictment may be dismissed if the prosecutor fails to present exculpatory evidence to the Grand Jury, at least if the circumstances are egregious, an accused’s liberties are adequately safeguarded by the petit jury. If the petit jury finds the accused guilty beyond a reasonable doubt and convicts, then the accused cannot claim prejudice by virtue of an impropriety at the Grand Jury stage, and a court should not overturn the conviction. See Ciambrone, 601 F.2d at 625; United States v. Polizzi, 500 F.2d 856, 888 (9th Cir.1974), cert. denied, 419 U.S. 1120, 95 S.Ct. 802, 42 L.Ed.2d 820 (1975). See also United States v. Kennedy, 564 F.2d 1329, 1338 (9th Cir.1977), cert. denied, 435 U.S. 944, 98 S.Ct. 1526, 55 L.Ed.2d 541 (1978). Moreover, there is a line of authority holding that a prosecutor does have a duty to present exculpatory evidence of which he is aware to the Grand Jury. Ciambrone, 601 F.2d at 623; Litman, 547 F.Supp. at 649; United States v. Gold, 470 F.Supp. 1336, 1353 (N.D.Ill.1979); United States v. Phillips Petroleum Co., 435 F.Supp. 610, 619-22 (N.D.Okla.1977). These cases emphasize that while the Grand Jury proceeding is not a mini-trial to determine guilt or innocence where the accused is given an opportunity as of right to present his case, a prosecutor who withholds exculpatory evidence destroys the existence of an independent and informed jury. Without information material to its determination, the Grand Jury cannot protect citizens from malicious prosecution, and the interests of justice are not served. See Ciambrone, 601 F.2d at 623, and at 628-29 (Friendly, J. dissenting); Gold, 470 F.Supp. at 1353; Phillips Petroleum Co., 435 F.Supp. at 618-21. In fact, the Third Circuit, in addition to the Second and Ninth Circuits, has stated that an indictment may be dismissed “in the exercise of the [court’s] supervisory power ... to correct flagrant or persistent abuse, despite absence of prejudice to the defendant____” United States v. Serubo, 604 F.2d 807, 817 (3d Cir.1979). Accord United States v. Hogan, 712 F.2d 757, 761 (2d Cir.1983); United States v. Fields, 592 F.2d 638, 647 (2d Cir.1978), cert. denied, 442 U.S. 917, 99 S.Ct. 2838, 61 L.Ed.2d 284 (1979); Cederquist, 641 F.2d at 1352-53.

In order to prevail on the merits of his petition, Vargas must demonstrate that

at the time the Government presented its case to the grand jury, the prosecutor was aware of the existence of exculpatory evidence which could reasonably lead the grand jury not to indict and that he deliberately failed to include it or, at a minimum, to notify the grand jury of its existence.

hitman, 547 F.Supp. at 650. At the time the prosecutor presented his case against Vargas to the Grand Jury, Santos’ confession was a principal piece of evidence. Had the Grand Jury been informed of Santos’ recantation, the Grand Jury, in this court’s view, reasonably could have given little or no weight to the confession in which Vargas was implicated, and concluded that there was no probable cause to charge Vargas. The State has responded by pointing to the fact that even if the prosecutor misled the Grand Jury by failing to present exculpatory evidence, any error must be “harmless” in light of the petit jury’s finding that Vargas was guilty beyond a reasonable doubt. At the trial, Santos, who by that time had pleaded guilty, testified against Vargas. In addition, Officer O’Neill also testified that Santos recanted his original statement implicating himself and Vargas. Therefore, the State has urged, citing Ciambrone, if the petit jury found Vargas guilty beyond a reasonable doubt, then there cannot be a reasonable probability that the Grand Jury would not have found probable cause to charge Vargas.

The defendant in Ciambrone was charged with perjuring himself under oath while testifying as a witness in a criminal case. Ciambrone, 601 F.2d at 618. Defendant’s defense was that he “had been coerced by threats against his life into giving the alleged perjurious testimony at the Blasich trial____” Id. Defendant claimed that the prosecution was well aware of these threats but refused to present this information to the Grand Jury, instead intimating to the Grand Jury that defendant “was motivated to testify falsely at the Blasich trial because of his friendship with Blasich.” Id. at 618, 622. Although the trial judge instructed the petit jury “that coercion or compulsion may constitute a legal excuse”, the judge refused to dismiss the indictment. Id. at 621. Affirming the district court, the Second Circuit concluded from its examination of the record that the prosecutor who presented the case to the Grand Jury was unaware that other government employees had information that defendant had been threatened, and that the prosecutor’s responses to the grand jurors’ inquiries were his honest views, and “[fell] far short of misleading conduct or deception that would call for dismissal of the indictment in the present case.” Id. at 623-24. The Second Circuit buttressed its conclusion that there was no deliberate omission on the prosecutor's part by pointing out that defendant was invited to testify before the Grand Jury, and his lawyer was invited to submit his contentions. Id. at 625. Finally, the Second Circuit held that any error would not warrant dismissal of the indictment, because if the petit jury rejected defendant’s duress and coercion defenses and found him guilty beyond a reasonable doubt, then “the grand jury would surely have found probable cause to charge him with perjury”. Id.

In a strong dissent, Judge Friendly wrote that not only was the prosecutor who presented the case to the Grand Jury aware that threats had been made against defendant, but also that in any event other members of the prosecution team were aware of the threats, and the prosecutor before the Grand Jury “cannot be insulated from the rest of the prosecution team____” Ciambrone, 601 F.2d at 627-28 (Friendly, J., dissenting). The record, according to Judge Friendly, indicated that the prosecutor evaded the grand jurors’ questions, and failed to respond fully and fairly to their requests for advice. Id. at 628-29. He concluded that if the prosecutor had disclosed the threats made to defendant, then “even with all the qualifications which the Government was entitled to put forward,” there was a “strong prospect” that the Grand Jury would not have found probable cause, and that “[a] substantial possibility of this is all that is needed to warrant our quashing the indictment.” Id. at 629.

This court agrees with the position espoused by Judge Friendly, and adopts the view also that although a petit jury convicted an accused is relevant to an enquiry of whether a Grand Jury would have indicted, that fact is not conclusive. It does not follow necessarily that the Grand Jury would have indicted merely because the petit jury convicted, the higher burden of proof required for a conviction notwithstanding. It is true that Santos testified at trial, that his testimony was corroborated by a co-indictee, that the petit jury was informed of Santos’ recantation, and that the petit jury found Vargas guilty beyond a reasonable doubt. Nonetheless, the issue before this court is not whether the evidence at trial supported the conviction. Rather, the relevant inquiry, as noted in hitman, is whether “at the time the Government presented its case to the grand jury, the prosecutor was aware of the existence of exculpatory evidence which could reasonably [have led] the grand jury not to indict____” Litman, 547 F.Supp. at 650 (emphasis supplied).

It may be argued that the prosecution had a plethora of evidence supporting a conviction by the time Vargas was tried, but at the time of the Grand Jury proceeding, Santos’ confession was a crucial piece of evidence. Cf. United States v. Dunham Concrete Products, Inc. 475 F.2d 1241, 1248-49 (5th Cir.1973) (indictment not dismissed because even if some of the testimony presented to grand jury was improper, that testimony constituted only a small portion of the evidence presented, “and appellants cannot, and in fact do not, dispute that at least some competent evidence was presented to the grand jury”): Romano, 706 F.2d at 374 (appellants never contended that entrapment defense, labeled “frivolous” by the trial judge, would have caused the Grand Jury not to indict if defense had been presented); United States v. Purvis, 544 F.Supp. 68, 72 (S.D.N.Y.1982) (tape calling into doubt defendants’ involvement in an unidentified drug sale, trial judge held, would not have led Grand Jury not to indict because the tape “[did] not counter [defendant’s] original enlistment in the conspiracy charged”). It is this court’s conclusion that had the Grand Jury been informed of Santos’ repudiation, there would be a reasonable probability or substantial possibility that Vargas never would have been indicted.

The view that an accused cannot claim error respecting improprieties at the Grand Jury proceeding if the petit jury in fact convicts is unsupportable. If courts take the position that the petit jury affords an accused adequate safeguards against constitutional violations, then it is unclear what purpose the Grand Jury serves. See Note, “Grand Jury Proceedings: The Prosecutor, the Trial Judge and Undue Influence,” 39 U.Chi.L.Rev. 761, 775 (1972). See also Polizzi, 500 F.2d at 888. If the modern Grand Jury has no reason for being, then the burden is on the people and their legislatures, by statute and constitutional provision, to do away with the Grand Jury. It is not the courts’ function to eviscerate the Grand Jury’s role of “protect[ing] citizens from malicious prosecutions____” Gold, 470 F.Supp. at 1353; Note, 39 U.Chi.L.Rev. 761, 775.

Vargas has met his burden of establishing that the prosecutor failed to present exculpatory evidence of which he was aware, and that there is a reasonable probability that had the Grand Jury considered that information, it would not have returned an indictment. Vargas’ due process rights have been violated. The violation is of constitutional magnitude, and therefore, the petition for a writ of habeas corpus is granted and the indictment against petitioner is dismissed.

      . The trial judge in Litman refused to dismiss the indictment against defendants, whose appeal was dismissed by the Third Circuit on the grounds that the district court’s refusal to grant the motion was not an appealable order. United States v. Litman, 661 F.2d 17, 18-19 (3d Cir.1981). Rather than holding "that denial of a motion to dismiss an indictment on grounds of gross prosecutorial misconduct may never be immediately appealable,” id. at 19, the Third Circuit noted that a prior panel had rejected the merits of defendants’ claims in their petition for a writ of mandamus or prohibition, and, therefore, the prior panel’s disposition rendered it inappropriate for the court to consider the merits of defendants' arguments. The Third Circuit cited the prior panel's disposition as Litman and Portnoy v. Weber, No. 81-1526 (3d Cir. April 23, 1981). See 661 F.2d at 18 n. 1. On January 11, 1982, the Supreme Court denied certiorari. 454 U.S. 1150, 102 S.Ct. 1016, 71 L.Ed.2d 304 (1982).