author: HUYETT, District Judge.

text:
    GLEN-GERY CORPORATION v. LOWER HEIDELBERG TOWNSHIP, et al.
    Civ. A. No. 85-907.
    United States District Court, E.D. Pennsylvania.
    April 25, 1985.

      Louis B. Kupperman, Philadelphia, Pa., for plaintiff.
    Richard P. McElroy, Philadelphia, Pa., for defendant.
   MEMORANDUM AND ORDER

HUYETT, District Judge.

Presently before me is defendants’ motion to dismiss. For the reasons set forth below, this motion will be granted and plaintiff’s complaint will be dismissed with prejudice.

Background

Plaintiff in this civil rights suit is a corporation engaged in the manufacturing of bricks. It owns a parcel of land in Lower Heidelberg Township (“Township”), Berks County, Pennsylvania, on which it operates a shale and clay quarry. This quarry is the only one of its kind in the Township.

Plaintiff has owned the land in question for quite some time and has used it for quarrying operations since 1959. In 1973 the Township revised its zoning ordinance and failed to provide for quarrying as a permitted use by right, special exception, or conditional use. Plaintiff continued to mine its property, however, as a prior nonconforming use.

In January 1982, the Township passed another zoning ordinance, the effect of which was to prohibit all quarrying activity in the Township south of Sweitzer Road which bisects plaintiff’s property. Plaintiff and the Township are currently involved in litigation in the Court of Common Pleas of Berks County, Pennsylvania, regarding the validity of the 1982 ordinance and its application to plaintiff.

In its instant complaint, plaintiff alleges that defendants and others engaged in a conspiracy, the object of which was the destruction of plaintiff’s legitimate business. The complaint further alleges that the ordinance was passed and enforced out of personal animus toward plaintiff. GlenGery claims that its rights under the due process and equal protection clauses of the fourteenth amendment have been violated and that its rights under the state constitution have also been violated. The complaint also includes a number of pendent state claims. Defendants have moved to dismiss the complaint arguing that I should abstain from hearing the present controversy, that the defendants are immune from suit, and that plaintiff has failed to state a claim upon which relief can be granted.

Discussion

Defendants’ principal contention in this motion is that I should abstain from exercising jurisdiction over the present suit. I agree.

Abstention is a judicially created doctrine through which federal courts decline to exercise their jurisdiction in order to prevent unnecessary friction between the federal and state governments. It is appropriate only “in the exceptional circumstances where the order to the parties to repair to state court would clearly serve an important countervailing interest.” County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-89, 79 S.Ct. 1060, 1062-63, 3 L.Ed.2d 1163 (1959). Consistent with its perception of abstention as a narrow exception to the general rule that the federal courts should exercise jurisdiction over cases properly before them, the Supreme Court has defined only a limited number of situations in which abstention is appropriate. Colorado River Water Conservation Disk v. United States, 424 U.S. 800, 814, 96 S.Ct. 1236, 1244, 47 L.Ed.2d 483 (1976).

There are three general types of abstention, each motivated by a separate, distinct concern for comity. First, there is so-called Younger abstention under which a federal court will abstain from hearing a case when there is a pending state court criminal or quasi-criminal action. See Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). Second, there is so-called Pullman abstention under which a federal court will abstain when there is an unsettled question of state law the disposition of which may obviate the need to reach a federal constitutional question. See Railroad Comm’n of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941). Third, there is so-called Burford abstention under which a federal court may abstain in order to avoid deciding an issue which would interfere with a state’s attempt to establish or maintain a coherent state policy with respect to a matter of important state concern. See Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Defendants rely on all three strands of the abstention doctrine. I will discuss each of these grounds for abstention in turn.

All parties agree that there are pending state court actions in the Court of Common Pleas of Berks County that arise from the same set of operative facts as the instant case. Defendants characterize one of them as a quasi-criminal action and note that the complaint seeks an injunction against “unlawful” imposition of penalties on plaintiff. This could be construed as a request to enjoin future or threatened criminal or quasi-criminal action in the state court. It is well settled, however, that a federal court cannot abstain merely because there is a threat of pending prosecution in the state court system. Steffel v. Thompson, 415 U.S. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974). In order for Younger to compel abstention, there must be a pending state action.

In order to fully evaluate defendants argument that Younger requires abstention, I must examine the nature of the pending state court proceedings, if any. It does appear that the Township served a “stop order” on plaintiff on October 27, 1983. The Township then filed an action in the Court of Common Pleas of Berks County seeking a declaration of its rights to enforce the ordinance. Thus, defendants argue, there is a pending action that is at least quasi-criminal in nature.

Younger abstention is applicable in situations in which there are pending state court actions of a quasi-criminal nature. See Moore v. Sims, 442 U.S. 415, 99 S.Ct. 2371, 60 L.Ed.2d 994 (1979); Huffman v. Pursue, Ltd,., 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975). In Middlesex Ethics Committee v. Garden State Bar Ass’n, 457 U.S. 423, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982), the Supreme Court recognized that the same principles of comity and federalism that underlay abstention in Younger and its progeny, also militate in favor of abstention in situations in which the pending state action is not strictly criminal in nature. Id. at 432, 102 S.Ct. at 2521. Thus, where important state policies are implicated, and the pending action bears “a close relationship to” a criminal action in nature, abstention may be mandated. Id. Middlesex Ethics identified three factors which must be considered in the decision to abstain. First, there must be a pending state judicial proceeding. Second, the proceedings must implicate important state interests. Third, there must be an adequate opportunity to address the constitutional issues raised in the federal case in the state judicial proceedings. Id.

There can be no serious dispute that the first aspect of Middlestate Ethics is satisfied. There is currently pending a state judicial proceeding involving the same parties which arises from the same set of operative facts as the present case. Admittedly, the issues that are currently being adjudicated in the Berks County proceeding are not precisely the same as those presented in the present case. This fact is not, however, dispositive of defendants’ argument. The fact remains that the Berks County proceeding is judicial in nature and that it arises from the same set of operative facts as the present federal case. cf. Middlesex Ethics (involving ongoing state bar disciplinary proceedings which satisfied the first criterion); Williams v. Carros, 576 F.Supp. 545, 547 (W.D.Pa.1983) (first criterion met when appeal pending in Superior Court of Pennsylvania).

The second aspect of the Middlesex Ethics is more troublesome. In order to satisfy this requirement, the case must implicate important state interests. Defendants have argued that this case is not “just a zoning case” and that it raises issues of unsettled state law. The focus is, however, not the issues raised in the present litigation, but the issues raised in the state court proceedings. Defendants argue forcefully that this case involves novel issues arising from the interaction of the Pennsylvania Surface Mining Conservation and Reclamation Act, 52 P.S. § 1396.1 et seq. (“SMCRA”) and the Municipalities Planning Code, 53 P.S. § 10101 et seq. In a nutshell, defendants argue that plaintiff has contended in the state court proceedings in this case that SMCRA preempts the Township’s ability to enact or enforce the ordinance in question as to plaintiff’s activities because plaintiff has been granted a permit under SMCRA from the state Department of Environmental Resources. Plaintiff denies that this issue is presented in this case and presumably also argues, that it was not an issue in the state court proceedings. It is apparent, however, that this issue has been involved in the state proceedings at various points, and it seems likely from the issues in the underlying zoning dispute between the parties that this issue will remain in dispute.

In the proceedings before the Zoning Hearing Board, plaintiff did, in fact, place at issue the effect of the SMCRA on the municipality’s ordinance. See Defendants’ motion to dismiss, exhibit A, ¶ 9(d). The Zoning Board decision is currently on appeal to the state courts. In its answer and counterclaim to the defendants’ action which seeks to enforce the “stop order” plaintiff once again stated that it had obtained a valid permit from the DER to perform its mining operations. Defendants’ motion to dismiss, Exhibit B ¶ 38. It is unclear, however, whether this particular statement is anything more than a factual averment. The Township has also placed this issue before the state courts in its action to enforce the stop order. Defendants’ motion to dismiss, Exhibit F ¶ 13(b). Although this issue may have been placed into the state court controversy by the defendants, I do not think that the identity of the party creating the issue in the state court proceedings need concern me under Middlesex Ethics. In that case, neither party was responsible for the importance of the proceeding to state interests: it was the nature of the proceeding itself which implicated state interests. Based on the record before me, I have to conclude that the preemption issue was presented in the state court proceedings and that it does present an issue important enough to the interests of the Commonwealth of Pennsylvania to satisfy the second requirement under Middlesex Ethics.

In Blue Cross & Blue Shield of Mich. v. Baerwaldt, 726 F.2d 296, 299 (6th Cir.1984), the Sixth Circuit affirmed a district court's decision to abstain under Middlesex Ethics where the case involved the important state interests surrounding insurance regulation. Like Blue Cross, the present case involves an area of vital state concern: the regulation of surface mining.

Similarly, in Ciaffoni v. Supreme Court of Pennsylvania, 550 F.Supp. 1246 (W.D.Pa.1982), aff'd, 723 F.2d 896 (3d Cir.1983), the plaintiff had filed a suit which alleged that she had been denied a fair hearing in a probate dispute due to the alleged biases and prejudices of various members of the state judiciary. The court dismissed the complaint. One ground for this decision was the court’s determination that abstention under Middlesex Ethics was required. The court held that the concerns raised in the complaint — the administration of the state judiciary and the operation of the state’s probate laws — implicated important state interests. Id. at 1250-51.

The last aspect of the Middlesex Ethics test is the requirement that the state courts provide plaintiff with an adequate opportunity to present all of the constitutional issues raised in the federal lawsuit. Plaintiff and defendants are presently locked in battle in the Common Pleas Court of Berks County. That is a court of general jurisdiction which is fully able to hear all constitutional claims that plaintiff may have. I will not presume that the state courts are unable to safeguard federal constitutional rights. See Middlesex Ethics, 457 U.S. at 431, 102 S.Ct. at 2521. I will therefore conclude that all three elements of Middlesex Ethics have been satisfied.

As Middlesex Ethics recognizes, however, there may still be reasons for a federal court to assert jurisdiction in a case in which all three elements are satisfied if there are “exceptional circumstances” dictating this result. Id. at 437, 102 S.Ct. at 2524. The court’s reference here was to the circumstances in which a federal court should not abstain under Younger. Id. That case recognized that there are limited situations in which a federal court could enjoin even ongoing state court criminal prosecutions. Such situations included cases involving prosecution for bad faith, or harassment, or other exceptional circumstances. Younger, 401 U.S. at 54, 91 S.Ct. at 755. cf. Dombrowski v. Pfister, 380 U.S. 479, 85 S.Ct. 1116, 14 L.Ed.2d 22 (1965) (involving alleged use of criminal prosecutions to chill the first amendment rights of civil rights activists).

In the instant case, there are no allegations in plaintiffs complaint which rise to the level of those in Dombrowski. Read liberally, plaintiff alleges that the defendants enacted an ordinance in bad faith and then attempted to enforce it. The motive for this activity was not, as in Dombrowski, an attempt to prevent the exercise of first amendment rights, but rather, at most, a personal animus directed at plaintiff. I do not believe that this rises to the level required under Younger to mandate federal jurisdiction.

Moreover, I believe that abstention in this case is also appropriate under both Pullman and Burford.

As many courts have recognized, the various abstention doctrines tend to “overlap and mix together to form the basis for abstention in particular cases ... This is especially true in cases challenging in federal court state attempts to implement local land use policy.” Kent Island Joint Venture v. Smith, 452 F.Supp. 455, 461 (D.Md.1978). “Land uses cases are not easily susceptible to categorization” into the three particular forms of abstention. Hershey v. Township of Lower Makefield, No. 84-3415, slip op. at 10 (E.D.Pa. Jan. 14, 1985). In the present case, however, I believe that it is clear that absention is appropriate under either Pullman or Burford.

The primary requirement of the Pullman doctrine is that the federal case presents a constitutional question that hinges on an unsettled aspect of state law, which, if decided, could obviate the need to decide a constitutional issue. In the present case, defendants argue that the application of the SMCRA to the Municipalities Planning Code presents such an issue. In order to satisfy Pullman, the issue must not only be present in the case, but also must be unsettled. I have already concluded that the preemption issue has been presented to the state courts. I believe that plaintiff has asserted it in this case as well. In its complaint, plaintiff alleges:

At all times material hereto, both prior and subsequent to December of 1979, the Township was aware and knew that plaintiffs quarrying operations were fully approved and permitted by the Pennsylvania Department of Environmental Resources ... and that plaintiffs quarrying operations were being conducted pursuant to, [state] regulations and supervision.

Complaint, ¶ 31. Thus, plaintiff has alleged that the state (and by implication not the locality) had the authority to regulate its quarrying activity.

Plaintiff argues that even if the preemption issue is presented in the instant lawsuit, it has been “settled” by the Pennsylvania Supreme Court’s decision in Miller & Son Paving, Inc. v. Wrightstown Twp., 499 Pa. 80, 451 A.2d 1002 (1982). In Miller & Son, the court construed sections 17 and 17.1 of the SMCRA in attempting to determine their effect on a local zoning ordinance which imposed different setback requirements for surface mines than did the state surface mining regulations. The issue presented to the court in Miller & Son was not, however, the broad question of the effect of the SMCRA on all zoning ordinances impinging on surface mining, but rather the validity of one local ordinance in light of the SMCRA. I do not believe that in upholding one local ordinance which regulated the terms under which surface mining was to be conducted, and not whether it could be conducted at all, the court specifically addressed the manner in which local ordinances affecting mining are to be harmonized with statewide policy and law. The court took great pains to limit its discussion to the precise issue before it: the effect of SMCRA on local zoning ordinances which antedated its enactment. Thus, I believe that an important unsettled issue of state law is presented by this lawsuit which if resolved would obviate the need to reach the constitutional questions presented.

Moreover, the regulation of surface mining which is formalized in SMCRA bears a striking similarity to the regulation of oil and gas drilling at issue in Burford. The legislative intent in enacting SMCRA was to impose statewide regulation on an industry which has historically been the source of difficult environmental problems. The act was intended to help harmonize the conflicting interests of protecting the environment and of producing coal and other minerals. See 52 P.S. § 1369.1. Such a purpose requires that the regulation be carried out at a statewide level. This purpose is even more manifest in the language of section 17.1 which clearly states the intention of the state to take over much, if not all, regulation of all phases of surface mining. This case involves more than traditionally local issues of land use control. It involves the relationship between a comprehensive set of statewide regulations and local regulation of land use. It would be improvident for this court to step into this area and to determine for the state precisely how comprehensive its system of state regulation is. I believe that this case involves an area the regulation of which “is of vital interest to the general public,” Burford, 319 U.S. at 324, 63 S.Ct. at 1103, which requires abstention.

Plaintiff relies heavily on Heritage Farms, Inc. v. Solebury Twp., 671 F.2d 743 (3d Cir.), cert. denied, 456 U.S. 990, 102 S.Ct. 2270, 73 L.Ed.2d 1285 (1982). I have concluded, however, that the present case is distinguishable from Heritage Farms. In that case the Third Circuit did face a case which has certain similarities to the instant case. Plaintiffs therein brought a civil rights action arising form a local zoning dispute. Defendants moved to dismiss on the grounds of abstention. The district court granted the motion. The Third Circuit reversed.

In its decision the Third Circuit stated that abstention was inappropriate in situations such as the one at issue there. Plaintiff therein had alleged a detailed conspiracy on the part of local legislators to use their position to destroy its business for personal economic gain. The court held that under the circumstances presented therein, abstention under either Pullman or Burford was inappropriate.

In considering the applicability of Pullman abstention, the court noted that the mere presence of a dispositive question of state law was not controlling and found that, in general, local land use law, although controlling, was not unsettled enough to warrant abstention. Id. at 747. Similarly, the court found Burford abstention inappropriate because land use is a local rather than a statewide concern and that there is therefore “no uniform state policy for land use.” Id. at 748. The court further found that there was no question bearing on important state policies presented. Id. at 748-49 (citing Colorado River Water Conservation, 424 U.S. at 816, 96 S.Ct. at 1245).

Because I have concluded that the application of SMCRA to local zoning ordinances is an unsettled question of state law and because I have concluded that this issue is presented in this case, Heritage Farms does not control. Heritage Farms involved allegations of conspiracy in a typical zoning case where the only state law involved was the Municipalities Planning Code and the only question presented under that law was the validity of a zoning action taken by a township. The Third Circuit concluded that under those circumstances, abstention was improper. If the same set of facts were presented in the case before me, I would not hesitate but to agree with the Court of Appeals and deny the instant motion. It appears to me, however, that the present case is so different from Heritage Farms as to make the latter inapplicable here. I therefore hold that abstention is appropriate here where there exists a novel, unsettled issue of state law, and where the case involves a statewide regulatory scheme which is an important state concern.

In its complaint plaintiff has also asserted a number of pendent claims based on state law. Because I have decided to dismiss plaintiff’s federal constitutional claims, I will decline to exercise jurisdiction over the pendent claims. See United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966); Broderick v. Ass’n of Hospital Serv. of Philo., 536 F.2d 1, 8 n. 25 (3d Cir.1976).

For the foregoing reasons, I will grant defendants’ motion to dismiss.

      . Because the motion to dismiss presents matters outside the pleadings, and I have relied on those materials, I will treat this motion as a motion for summary judgment under Fed.R.Civ.P. 56. See Fed.R.Civ.P. 12(b). Summary judgment may be granted where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Inferences to be drawn from the underlying facts contained in the record must be viewed in the light most favorable to the party opposing the motion and doubts regarding the existence of a genuine issue of material fact are to be resolved against the moving party. Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 403 (3d Cir.1981).

      . The Kent Island court, and others, have taken the interwoven nature of abstention decisions in this area and fashioned a hybrid abstention doctrine. I fail to see support for this approach in the prevailing Supreme Court cases and decline to adopt it here. See Colorado River Water Conservation, 424 U.S. at 813-14, 96 S.Ct. at 1244-45.

      . Section 17.1 provides:
      Except with respect to ordinances adopted pursuant to the act of July 31, 1968 (P.L. 805, No. 247), known as the "Pennsylvania Municipalities Planning Code,” all local ordinances and enactments purporting to regulate surface mining are hereby superseded. The Commonwealth by this enactment hereby preempts the regulation of surface mining as herein defined.
      52 P.S. § 1396.17a.

      . Younger abstention was not an issue considered by the Heritage Farms court. 671 F.2d at 746-47.

      . Because I have concluded that I must abstain in this case, I need not consider the remainder of defendants' arguments advanced in support of its motion to dismiss.
      In addition to the pending motion to dismiss, defendants have filed a motion for a protective order. Because I have decided to grant their motion to dismiss, the motion for a protective order is now moot.


source: Caselaw Access Project

author: BARTLETT, District Judge.

license: Public Domain

text:
    Clarence B. BAILEY, Plaintiff, v. FEDERAL INTERMEDIATE CREDIT BANK OF ST. LOUIS, Defendant.
    No. 84-0488-CV-W-6-9.
    United States District Court, W.D. Missouri, W.D.
    April 25, 1985.
    Thomas E. Hankins, Gladstone, Mo., Bruce A. Bailey, Warrensburg, Mo., for plaintiff.
    James W. Byrne, St. Louis, Mo., Donald W. Giffin, Kansas City, Mo., for defendant.
   ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT ON COUNT I AND ORDERING PLAINTIFF TO SHOW CAUSE WHY THE REMAINING COUNTS SHOULD NOT BE DISMISSED FOR LACK OF JURISDICTION

BARTLETT, District Judge.

In Count I of his complaint plaintiff seeks a declaratory judgment that defendant was without legal authority to discharge plaintiff as executive director of the Osage Production Credit Association (the Association). Defendant moved to dismiss Count I on the ground that Count I failed to state a claim upon which relief can be granted because defendant was authorized by Congress to terminate plaintiff. Further, defendant argues that the bylaws of the Association explicitly authorized defendant to terminate the chief executive officer of the Association. In support of its motion to dismiss, defendant filed affidavits and a copy of the Association’s bylaws.

Because defendant relied on information outside the pleadings, the parties were advised that defendant’s motion to dismiss would be treated as a motion for summary judgment under Rules 12(b) and 56, Fed.R.Civ.P.

Plaintiff opposed defendant’s motion for summary judgment and filed a cross-motion for summary judgment. Plaintiff concedes that defendant may generally supervise the Association, but plaintiff asserts that Congress intended that production credit associations should be locally managed and controlled. Plaintiff argues that local control is thwarted if defendant’s general supervisory power includes the authority to remove the chief executive officer of a production credit association. Plaintiff further argues that the Association’s bylaws authorizing defendant to remove the Association’s chief executive officer are inconsistent with Congress’ intent that associations be locally managed.

The parties agree that the issue raised by the cross motions for summary judgment is whether defendant had the legal authority to remove plaintiff from his position as the chief executive officer of the Association under the provisions of the Farm Credit Act of 1971, as amended, 12 U.S.C. §§ 2001, et seq.

Facts

In February, 1983, the Farm Credit Administration approved revised standard and optional bylaws to be adopted by production credit associations. At defendant’s board meeting on April 21 and 22, 1983, defendant approved the revised bylaws. On June 23, 1983, the board of directors of the Association unanimously adopted the revised bylaws, including certain optional bylaws, subject to certification by defendant. As corporate secretary, plaintiff certified that “the board of directors of the said association duly adopted the foregoing as the bylaws of said association.” The Association’s revised bylaws were approved by defendant on August 8, 1983.

Plaintiff had been employed by the Association since June 10, 1963, and had been the executive director since December 1, 1965. Plaintiff did not have a written employment contract with the Association. There was no agreement between the Association and plaintiff about how or why he could be terminated.

On March 14, 1984, representatives of defendant reported to the Association’s board of directors on the results of the bank’s audit of the Association. Defendant requested that the Association’s board of directors terminate plaintiff as the Association’s chief executive officer. The Association’s board of directors unanimously refused to do so. Therefore, defendant terminated plaintiff as executive director of the Association.

When plaintiff was terminated by defendant, the Association’s bylaws provided in part as follows:

500.2 — Election of Chief Executive Officer and Other Officers
The board shall elect a chief executive officer who shall serve at the pleasure of the board and shall continue in office until a successor is elected and takes office unless the chief executive officer shall resign, die, retire, or be removed by the board or by the bank. Other association officers shall be a secretary, a treasurer, and any other salaried officers provided for by the board____
520 — REMOVAL
The chairman and the vice chairman may be removed from their positions as officers of the board, and the chief executive officer may be removed from office at any time by a majority vote of the entire membership of the board of directors or by the bank.

Discussion

Under the Farm Credit Act of 1971, Congress established:

[A] System of limited-purpose, farmer-owned banks and associations designed to furnish sound, adequate, and constructive credit to farmers and ranchers and their cooperatives. The 1980 Amendments to the Farm Credit Act of 1971 expanded the classes of eligible borrowers to include producers or harvesters of aquatic products, and expanded the lending authority of System institutions to enable them to be more responsive to the credit needs of agriculture.

12 CFR 611.200.

The Farm Credit System is directed by the Farm Credit Administration (FCA) which is “an independent agency in the executive branch of the Government.” 12 U.S.C. § 2241. Below the FCA are twelve farm credit districts. 12 U.S.C. § 2221. Each farm credit district has a federal intermediate credit bank that can loan money to production credit associations or can participate with associations in loaning money to eligible borrowers. 12 U.S.C. § 2074. In each farm credit district there are a number of production credit associations that make loans to eligible borrowers. 12 U.S.C. § 2096.

In 1971, when Congress decided to continue the Farm Credit System, Congress intended that the Farm Credit System furnish American farmers and ranchers “sound, adequate, and constructive credit.”

It is declared to be the policy of the Congress recognizing that a prosperous, productive agriculture is essential to a free nation and recognizing the growing need for credit in rural areas, that the farmer-owned cooperative Farm Credit System be designed to accomplish the objective of improving the income and well-being of American farmers and ranchers by furnishing sound, adequate, and constructive credit and closely related services to them, their cooperatives, and to selected farm-related businesses necessary for efficient farm operations.

12 U.S.C. § 2001(a).

In the same statutory section, Congress stated that an additional objective of the Farm Credit System was “to encourage farmer- and rancher-borrowers participation in the management, control and ownership of a permanent system of credit for agriculture.” 12 U.S.C. § 2001(b).

Various statutory and regulatory provisions implement the objective of borrower participation in the management of the Farm Credit System. For instance, member participation in the affairs of production credit associations is assured by the statutory and regulatory provisions providing that members of an association shall serve on an association’s board. 12 U.S.C. § 2092; 12 CFR 611.1080.

Congressional concern about furnishing “sound, adequate and constructive credit” was reflected in the requirement that the FCA and credit banks regulate and control the organization and operations of associations, the primary lenders in the system. For instance, the FCA

shall have the power, under rules and regulations prescribed by [the FCA] or by prescribing in the terms of the charter or by approval of bylaws of the association, to provide for the organization of the association, the initial amount of stock of the association, the territory within which its operations may be carried on, and to direct at any time such changes in the charter as [the FCA] finds necessary for the accomplishment of the purposes of this chapter.

12 U.S.C. § 2091.

Furthermore, Congress authorized and directed the FCA “to delegate to a Federal intermediate credit bank such of the duties, powers, and authority of the Farm Credit Administration with respect to and over ... production credit associations, their officers and employees ... as may be determined to be in the interest of effective administration." 12 U.S.C. § 2253 [emphasis added]. The board of directors of each farm credit district has the power “to ... [p]rovide rules and regulations, governing ... associations in the district, not inconsistent with law.” 12 U.S.C. § 2227. Federal intermediate credit banks are required to “supervise the exercise by the production credit associations of the functions vested in or delegated to them.” 12 U.S.C. § 2072(15).

Virtually every aspect of an association’s operations are supervised and controlled by the FCA and/or credit banks. For instance, a credit bank, along with the FCA, approves revisions in an association’s bylaws (12 CFR § 611.1010(b)); supervises the associations in the district “to assure that authorized services are available to eligible persons in the most effective and efficient manner” (12 CFR § 611.1010(f)); establishes loan policies for associations in its district (12 CFR § 614.4030); supervises credit operations (12 CFR § 614.4050); conducts regular audits including evaluations of the effectiveness of management (12 U.S.C. § 2254; 12 CFR § 614.4051; 12 CFR § 617.7030); and takes corrective action based on recommendations in examinations and audit reports (12 CFR § 611.1010(i)). If corrective action ordered by the credit bank does not solve the problem, the FCA may declare an association insolvent. 12 CFR § 611.1130. The board of directors of an association cannot liquidate the association without approval from the credit bank’s board and the FCA. Id.

In the personnel area, an “objective appraisal” must be made by the FCA of the “effectiveness” of an association’s management at least once a year. 12 U.S.C. § 2254. Also, a credit bank is authorized to “[ajpprove the salary scale of the officers and employees of” associations in the bank’s district. 12 U.S.C. § 2072(15). Although an association may elect a chief executive officer (12 U.S.C. § 2093(17)), the supervising credit bank is explicitly granted the power to “approve ... the appointment and compensation of the chief executive officer” of the association. 12 U.S.C. § 2072(15) [emphasis supplied].

Neither the FCA, the supervising credit bank, nor the employing association is given explicitly the authority to terminate the association’s executive director. However, implicit in the power to elect an executive is the power to terminate. Therefore, the employing association could terminate its executive director. Likewise, implicit in the statutory scheme is the authority for the FCA and the supervising credit bank to terminate an association’s executive director if the bank believes it is necessary to assure a sound farm credit system. The FCA has the general authority to assure that associations are effectively managed. See, for instance, 12 U.S.C. §§ 2253 and 2254. No limitation is placed on the remedial steps the FCA can take to correct deficiencies in the effectiveness of an association’s management as shown by the statutorily required audit. 12 U.S.C. § 2254. (The FCA may delegate to a credit bank any power over associations that the FCA determines to be in the “interest of effective administration.” 12 U.S.C. § 2253.) Also, Congress expected a credit bank to have control over the executive director of each association in the bank’s district because the bank must approve the appointment and the compensation of the executive director. The refusal of a bank to approve any compensation for the executive director would effectively terminate the executive director’s services.

Furthermore, Congress explicitly authorized the FCA “[w]here necessary and appropriate to carry out the policy and objectives of this chapter, [to] issue and amend or modify Federal charters or the bylaws of institutions of the System.” 12 U.S.C. § 2252(2). By regulation, a farm credit district board acting as such or as the board of a credit bank “shall ... [a]dopt bylaws for each bank and approve bylaws for associations from standard and optional bylaws approved by the Farm Credit Administration.” 12 CFR § 611.1010. Pursuant to this statutory and regulatory authority, the FCA issued, the Association adopted, and defendant’s board approved, bylaws which specifically authorized the bank to remove the Association’s executive director.

Plaintiff has failed to demonstrate that these bylaws are not “appropriate to carry out the policy and objectives of the Farm Credit Act.” 12 U.S.C. § 2252(2). If authorizing the credit bank to remove the executive director conflicts with borrower control over the association, the conflict is inherent in the policy and objectives of the Farm Credit Act. Congress intended that the FCA resolve such conflicts. The FCA did so by requiring associations to adopt bylaws authorizing banks to remove the executive director. Memoralizing in an association’s bylaws the supervising credit bank’s authority to remove the executive director assures that the chief operating officer will follow the operating policies of the FCA and of the supervising credit bank. Compliance with the operating policies of the FCA and the supervising credit bank is entirely consistent with Congress’ interest in providing an effectively managed, sound farm credit system. Therefore, when plaintiff was terminated by the defendant, the action was in accord with the Association’s bylaws which implement the policies and objectives of the Farm Credit Act.

For the reasons stated in this opinion, defendant had the authority to remove plaintiff as executive director of the Association. The parties have agreed that, if defendant had the authority to terminate plaintiff, the issues in Count I must be decided in favor of defendant. Therefore, defendant’s motion for summary judgment on Count I will be granted and plaintiff’s motion for summary judgment will be denied.

It is hereby ORDERED that:

1) summary judgment on Count I is granted in favor of defendant and against plaintiff;

2) plaintiff’s motion for summary judgment on Count I is hereby denied; and

3) within thirty days from the date of this Order plaintiff shall show cause in writing why the remaining counts of his complaint should not be dismissed for lack of jurisdiction.


author: ROBERT D. POTTER, Chief Judge.

text:
    Dwain C. JONES, individually and on behalf of all others similarly situated, Plaintiffs, v. GENERAL TIRE AND RUBBER COMPANY, Defendant. Thaddeus McFADDEN, Plaintiff, v. GENERAL TIRE AND RUBBER COMPANY, Defendant.
    No. C-C-83-927-P, C-C-83-932-P.
    United States District Court, W.D. North Carolina, Charlotte Division.
    April 25, 1985.

      Michael A. Sheely, Charlotte, N.C., for Dwain C. Jones.
    Wayne C. Alexander, Casey, Bishop, Alexander & Murphy, Charlotte, N.C., for Thaddeus McFadden.
    John O. Pollard, Whiteford S. Blakeney, Paul Taylor, Blakeney, Alexander & Machen, Charlotte, N.C., for defendant.
   MEMORANDUM OF DECISION

ROBERT D. POTTER, Chief Judge.

THIS MATTER is a discrimination case based on the disparate impact theory which came on to be heard before the undersigned at Charlotte, North Carolina on February 11, 1985. The Plaintiff, Jones, was represented by Michael A. Sheely, Attorney at Law, and the Plaintiffs McFadden and Bennett were represented by Wayne Alexander, Attorney at Law. The Defendant General Tire Co. (General) was represented by Whitford Blakeney, John O. Pollard, and Paul B. Taylor, Attorneys at Law.

At the hearing both parties agreed that the facts were not in dispute. Briefly, the facts giving rise to this dispute are that in 1982, due to the economic conditions prevailing at that time, the Defendant’s plant on Freedom Drive in Charlotte, North Carolina was closed, with the consequent loss of employment by the Plaintiffs. At the time of the closing there were 16 hourly employees working at the plant of whom 15 were black and one was white. These employees were all members of a bargaining unit, International Union of Operating Engineers Local 465. The Plaintiffs in this action were all long time employees of General at the Freedom Drive Facility, Jones having been hired in May 1979, Bennett in 1976, and McFadden in 1963. There was not any evidence that any of the Plaintiffs had not been good employees. In fact, the only evidence was that they had performed their duties at General in a satisfactory manner.

After their termination at the Freedom Drive Plant, all of the Plaintiffs applied at the other General facility in Mecklenburg County, the Arrowood Facility. The bargaining unit for hourly employees at that facility was Local No. 850 United Rubber, Cork, Linoleum & Plastic Workers of America, AFL-CIO. McFadden applied in November 1982, Jones in December 1982 and January, February, March, and April 1983 and Bennett applied in January and February 1983. All applications were made through the North Carolina Employment Security Commission Office, though there was disputed evidence that one or more of the Plaintiffs applied directly to the Arrowood facility office also. Be that as it may, all three Plaintiffs did apply at General and all three employees were refused employment.

The Defendant contended that the reason for refusing employment to the Plaintiffs was a company policy established in 1971 that employees with one bargaining unit could not be employed at another bargaining unit within the Company. The reason for the policy as articulated by the Defendant’s Vice President and Director of Industrial Relations was that to allow an employee with several years seniority to be employed at another bargaining unit within the Company would result in loss of his seniority under the union contracts and based on his and the Company’s experience it would cause that employee to be disgruntled because he would have less seniority than employees at the bargaining unit to which he transferred, even though the employees at the bargaining unit to which he transferred may have less seniority with the Company, but had been with that particular bargaining unit a greater time than the transferring employee; thus, the employees with the bargaining unit a greater length of time would, for example, have more vacation, job bidding rights ahead of the transferring employees, and would be the last to be laid off. The transferring employee would also lose his Pension Plan benefits and receive less compensation. The union contracts prohibit the transfer of seniority from one bargaining unit to another.

The Defendant’s evidence was that it had closed seven Retread Facilities and the Akron Manufacturing Facility during 1982, affecting 859 white employees and 178 black employees. The Defendant’s evidence was that 22 of the white employees from bargaining units at other locations had applied at the Arrowood Facility and had been denied employment for the same reason that the Plaintiffs had been denied employment.

The Plaintiffs contend that the fact that the policy prohibited 15 black employees and only one white employee at the Freedom Drive facility from being hired at the Arrowood facility had a statistically adverse impact on blacks, and therefore, even though the policy was facially neutral it was in fact discriminatory.

SPECIFIC FINDINGS OF FACTS

(1) Defendant General Tire & Rubber Co. (General) is an employer within the meaning of 42 U.S.C. § 2000-e(b) and is a person within the meaning of 42 U.S.C. § 1981.

(2) The Plaintiffs in their complaints prayed the Court for a declaration that this action could be maintained as a class action. However, the Court finds that there are an insufficient number of persons in the class to meet the requirements of the Federal Rules of Civil Procedures for a class action. Fed.R.Civ.P. 23(a)(1).

(3) In November of 1982 and for sometime prior thereto, the Defendant operated two plants in Charlotte, Mecklenburg County, North Carolina — one a tire retreading facility known as the Charlotte Kraft Retread Plant of the General Tire & Rubber Company, was located on Freedom Drive (the Freedom Drive Plant) and one, a tire manufacturing facility, was on Continental Boulevard in Arrowood Industrial Park in Mecklenburg County, North Carolina (the Arrowood Plant).

(4) The Plaintiffs in these actions were all employees of the Freedom Drive Plant in November 1982 and prior thereto.

(5) In November 1982 the Freedom Drive Plant along with tire retreading plants in Akron, Ohio; Boise, Idaho; Dallas, Texas; Lisle, Illinois; Orlando, Florida; and Elk-ton, Maryland were closed because of a decline in their business.

(6) The hourly employees at the Freedom Drive Plant, including fifteen blacks, among them the Plaintiffs, and one white, were members of a bargaining unit, the International Union of Operating Engineers, Local 465, AFL-CIO. The hourly employees at the Arrowood Plant were members of Local No. 850, United Rubber, Cork, Linoleum & Plastic Workers of America, AFL-CIO.

(7) Defendant’s Exhibit 5, which was admitted into evidence, is a copy of the Agreement between the Union and the Defendant General Tire at the Freedom Drive Plant (Agreement). The Agreement provides in Article I that the term “employee” includes all production and maintenance employees and inspectors, which would include the Plaintiffs.

Article XII, Section 1 reads: “Seniority is defined as continuous service with the Charlotte Kraft Retread Plant (emphasis added) of the General Tire & Rubber Co. and is that time actually spent on the active payroll.

“Section 2. In all filling of vacancies and transfers within the bargaining unit (emphasis added) the principle of seniority shall govern, providing the senior employee possesses the necessary qualifications to become proficient on the job ...

“Section 3. In the event of lay-offs the last man hired shall be the first laid off and recalls shall be in reverse order.”

(7) The Plaintiffs, black members of the bargaining unit, were all laid off in November of 1982, when the Freedom Drive Plant closed, together with the supervisors, other black members, and one white member of the bargaining unit.

(8) Each of the Plaintiffs applied at the Arrowood plant for a job as a laborer or production worker.

(9) Each of the Plaintiffs testified that they would not have insisted on their seniority rights with General if they had been hired at Arrowood, and in fact would waive any seniority rights.

(10) Each Plaintiff filed a charge of discrimination on the grounds of race within the statutory time and each Plaintiff received a right-to-sue letter from the Equal Employment Opportunity Commission, which found in each Plaintiffs case no reasonable cause to believe the allegations made in the charge are true.

(11) All of the Plaintiffs were what would be termed “good workers” and all were experienced in their jobs.

(12) All of the production workers at the Freedom Drive plant including the Plaintiffs were members of the union bargaining unit. The supervisors, McQuain, Kennedy, and Troublefield, were not members of the bargaining unit and McQuain was hired at the Arrowood Plant, Kennedy in the International Division, and Troublefield went to work for another company.

(13) None of the Plaintiffs were hired at the Arrowood Plant, but would have accepted employment if offered.

(14) The hourly employees at the Arrowood Plant were members of a bargaining unit, Local 850 and the International Union of the United Rubber, Cork, Linoleum and Plastic Workers of America.

(15) Defendant’s Exhibit 6 is a copy of the Agreement between the Union and the Defendant General Tire at the Arrowood Plant. This Agreement provides in Article I that the Company recognizes the Union as the exclusive collective bargaining representative of all production and maintenance employees at that location.

(16) That Agreement (Defendant’s Exhibit 6) refers to seniority numerous times.

(17) The Defendant’s stated reason for not hiring the Plaintiffs was that since the Plaintiffs were members of a different union bargaining unit at the Freedom Drive Plant than the union bargaining unit at the Arrowood Plant, to hire them at Arrowood in the jobs they applied for, (production) would have violated a company policy which has been in effect since 1971, prohibiting transfer of employees from one bargaining unit within the Company to another bargaining unit. The Defendant’s evidence was that the purpose of the policy was to avoid having “disgruntled” employees who even though they had been with the Company a number of years (as had Plaintiff McFadden who had been with the Company 19 years) may well be junior in seniority rights to an employee who had only a few months seniority with the Company. As can be seen from Defendant’s Exhibit 6, this would affect such employee rights as bidding on a job, benefits, vacations and compensation, as well as other rights of employees. The collective bargaining contracts at both the Freedom Drive Plant and the Arrowood Plant define seniority in such a way as to prohibit carrying seniority from one bargaining unit to another. The Defendant did not consider allowing the Plaintiffs or other employees who were members of a bargaining unit to transfer to another bargaining unit with the understanding that the transferring employees would waive their seniority rights when transferring because, if the employee waived his rights, he would be a “disgruntled” employee because employees who had been with the Company a shorter length of time would have superior rights as a result of greater seniority with the bargaining unit to which the Plaintiffs or similarly situated employees transferred.

(18) Seniority rights of the bargaining unit employees was one of the most important employment rights secured by the union contract, as is obvious from Defendant’s Exhibit 6.

(19) This policy of no transfer/no hire affected more blacks than whites in the particular bargaining unit to which the Plaintiffs belonged simply because there were 15 blacks in the bargaining unit and only one white.

(20) The Defendant’s evidence was that approximately 1,037 employees were laid off when the Defendant closed the eight plants in November 1982. Of these 1,037 employees 859 were white, or 83%, and 178 or 17% were black. All those employees were barred from transferring to or being hired at another bargaining unit in a General Tire facility. The uncontested evidence was that 22 of these employees, all white, who were laid off at other bargaining units applied to the Defendant Arrowood Plant, but were refused employment because of the no transfer/no hire policy.

(21) The Defendant’s policy of not allowing transfers from one bargaining unit to another bargaining unit was unwritten, but has never been breached since it was instituted in 1971.

(22) In the six months following the closing of the Freedom Drive Plant, the Arrowood Plant hired 119 employees, 22.6% of whom were black.

(23) The policy of not hiring employees from one bargaining unit by another bargaining unit was not the result of an intent to discriminate because of race or color.

(24) The policy of not hiring employees from one bargaining unit by another bargaining unit did not have an adverse impact against blacks but against bargaining unit members, black and white.

(25) The Defendant’s concern for maintaining its policy without exceptions was justified in view of the importance the union employees obviously placed on seniority in the contracts negotiated with the Company.

DISCUSSION

The facts of this case present the novel question of whether a company policy against allowing transfers of members from one collective bargaining unit to another in the same company, and which policy affects 100% of the members of a particular bargaining unit composed of 15 blacks and one white; i.e., 100% of the whites and 100% of the blacks, constitutes racial discrimination under Title VII, or 42 U.S.C. Section 1981. This Court finds that on the facts and circumstances in this case it does not.

There is nothing in Title VII which mentions “disparate impact.” However, as Marbury v. Madison lead the way for the Supreme Court to determine the constitutionality of Acts of Congress, so too was Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971) the first in a long line of Supreme Court decisions to apply the disparate impact theory to discrimination cases. Griggs was followed by numerous cases refining the use of statistics in discrimination cases. Among them were Dothard v. Rawlinson, 433 U.S. 321, 97 S.Ct. 2720, 53 L.Ed.2d 786 (1977); Albemarle Paper Co. v. Moody, 422 U.S. 405, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975); Connecticut v. Teal, 457 U.S. 440, 102 S.Ct. 2525, 73 L.Ed.2d 130 (1982); Teamsters v. U.S., 431 U.S. 324, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977); New York City Transit Authority v. Beazer, 440 U.S. 568, 99 S.Ct. 1355, 59 L.Ed.2d 587 (1979); Nashville Gas Co. v. Satty, 434 U.S. 136, 98 S.Ct. 347, 54 L.Ed.2d 356 (1977).

Keeping in mind that statistical evidence is circumstantial in nature, we will now review those cases in relation to the facts and circumstances of the case at bar.

PAST DISCRIMINATION — TESTING

In Griggs the Court cited Section 703 of the Civil Rights Act of 1964:

“Section 703(a). It shall be an unlawful employment practice for an employer—
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(2) to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because (emphasis added) of such individual’s race, color, religion, sex, or national origin...”

In Griggs the Court said on 401 U.S. Page 430, 91 S.Ct. Page 853:

“Under the Act, practices, procedures, or tests, neutral on their face, and even neutral in terms of intent, cannot be maintained if they operate to “freeze” the status quo of prior discriminatory employment practices, (emphasis added). The Court of Appeals’ opinion, and the partial dissent, agreed that, on the record in the present case,
“whites register far better on the company’s alternative requirements than Negroes.” (Adding a footnote that in the North Carolina 1960 census statistics show that, while 34% of white males had completed high schoool, only 12% of Negro males had done so.) Continuing, the court said: “This consequence would appear to be directly traceable to race. Basic intelligence must have the means of articulation to manifest itself fairly in a testing process. Because they are Negroes, petitioners have long received inferior education in segregated schools and this court expressly recognized these differences in Gaston County v. United States, 395 U.S. 285 [89 S.Ct. 1720, 23 L.Ed.2d 309] (1969). There, because of the inferior education received by Negroes in North Carolina, this court barred the institution of a literacy test for voter registration on the ground that the test would abridge the right to vote indirectly on account of race ... Discriminatory preference for any group, minority or majority, is precisely and only what Congress has proscribed. What is required by Congress is the removal of artificial, arbitrary, and unnecessary barriers to employment when the barriers operate individually to discriminate on the basis of racial or other impermissible classification.”

Thus, in Griggs the Court held that because of past discrimination in educational opportunities for Negroes, to require them to pass a facially neutral test would be discrimination because of their inability, due to the poor education Negroes had received in North Carolina, to articulate their basic intelligence. Obviously, this failure rate by Negroes as a result of past discrimination could be proven statistically to have an adverse impact on them and therefore unless the employer could show a job related purpose for the. test, the barrier must fall.

In summary, as the Court held in Griggs, at pp. 429-430, 91 S.Ct. at pp. 852-853

“The objective of Congress in the enactment of Title YII is plain from the statute. It was to achieve equality of employment opportunities and remove barriers that have operated in the past (emphasis added) to favor an identifiable group of white employees over other employees.”

There is no evidence in this record to demonstrate that the statistically higher proportion of blacks in the small bargaining unit at the Freedom Drive Plant was because of past discrimination against blacks which caused them to be members of a union bargaining unit, and therefore, ineligible to apply for employment with another bargaining unit with the Defendant under its policy.

Albemarle Paper Co. v. Moody, 422 U.S. 405, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975) involved the use of two general ability tests. The Court there pointed out that the plant was organized into a number of functional departments, each with one or more distinct lines of progression, the theory being that workers can move up the line as they acquire the necessary skills. For many years, certain lines were themselves more skilled and paid higher wages than others, and until 1964- these skilled lines were expressly reserved for white workers. Albemarle used two general ability tests. Applicants for hire into various skilled lines of progression at the plant were required to score certain percentages on each of the two tests. There was no attempt to validate the tests for job relatedness. After 1964, when it discontinued overt segregation in the lines of progression, the Company allowed Negro workers to transfer to the skilled lines if they could pass the tests, but few succeeded in doing so. Incumbents in the skilled lines, some of whom had been hired before adoption of the tests, were not required to pass them to retain their jobs or their promotion rights. The record showed that a number of white incumbents in high ranking job groups could not pass the tests. The District Court found that the petitioners had “strictly segregated” the plant’s departmental lines of progression prior to January 1, 1964, reserving the higher paying and more skilled lines for whites. The racial identifiability of whole lines of progression persisted until 1968 when the lines were reorganized under a new collective bargaining agreement. The Court found, however, that this reorganization left Negro employees “ ‘locked’ in the lower paying job classifications.” The formerly “Negro” lines of progression had beén merely tacked on to the bottom of the former “white” lines of progression, and promotions, demotions, and layoffs continued to be governed where skills were “relatively equal” by system of “job seniority.” Because of the plant’s previous history of overt segregation, only whites had seniority in the higher job categories. Discrimination was evident here, resulting from past practices.

There is no evidence in the record of the case at bar of a history of overt discrimination by the Defendant against blacks.

In Teamsters v. United States, 431 U.S. 324, 97 S.Ct. 1843, 52 L.Ed.2d 396 (1977), the District Court and the Court of Appeals held that the employer had violated Title VII by engaging in a pattern and practice of employment discrimination against Negroes and Spanish surnamed Americans, and that the union had violated the Act by agreeing with the employer to create and maintain a seniority system that perpetuated the effects of past racial and ethnic discrimination. The Supreme Court vacated and remanded stating:

“Statistics are equally competent in proving employment discrimination____ We caution only that statistics are not irrefutable; they come in an infinite variety and, like any other kind of evidence, they may be rebutted. In short, their usefulness depends on all the surrounding facts and circumstances (emphasis added), citing, Hester v. Southern R. Co., 497 F.2d 1374, 1379-81 (CA5).
“The seniority system in this litigation is entirely bonafide. It applies equally to all races and ethnic groups to the extent that it ‘locks’ employees into non line-driver jobs, it does so for all. The city drivers and servicemen who are discouraged from transferring to linedriver jobs are not all Negroes or Spanish surnamed Americans; to the contrary, the overwhelming majority are white.” Pp. 355-356, 97 S.Ct. pp. 1864-1865.

In the case at bar, the Company policy “locks” all black and all white employees who are members of a bargaining unit into the “non-hire” policy of the Defendant, not just blacks.

SEX DISCRIMINATION

There are a line of sex discrimination eases which further illustrate that surrounding circumstances are an important factor in deciding disparate impact cases, and that statistics alone do not decide the issue.

Nashville Gas Co. v. Satty, 434 U.S. 136, 98 S.Ct. 347, 54 L.Ed.2d 356 (1977), involved the petitioner’s policy of denying employees returning from pregnancy leave their accumulated seniority. The Court held that the policy adversely affected their status as an employee because of their sex. The Court said on page 141: “It is beyond dispute that petitioner’s policy of depriving employees returning from pregnancy leave of their accumulated seniority acts both to deprive them of employment opportunities and to adversely affect their status as an employee. It is apparent from the previous recitation of the events which occurred following respondent’s return from pregnancy leave that petitioner’s policy denied her specific employment opportunities that she otherwise would have obtained.” Obviously, denying accumulated seniority to employees returning from pregnancy leave could only apply to women. There was discrimination therefore because they were women.

Wright v. Olin Corp., 697 F.2d 1172 (4th Cir.1982) involved a fetal vulnerability policy literally expressed in gender — neutral terms which had the obvious and indisputably intended consequence of imposing upon women workers a ‘‘substantial burden that men need not suffer”. As the Satty Court (Nashville Gas Co. v. Satty, 434 U.S. 136, 98 S.Ct. 347, 54 L.Ed.2d 356 (1977) unhesitatingly applied disparate impact theory to the factual situation there presented, so should it be applied to the generally comparable situations in Burwell v. Eastern Air Lines, Inc., 633 F.2d 361 (4th Cir.1980) (en banc) (mandatory pregnancy leave), cert. denied, 450 U.S. 965, 101 S.Ct. 1480, 67 L.Ed.2d 613; Mitchell v. Board of Trustees of Pickens County School District A, 599 F.2d 582 (4th Cir.1979) mandatory non-renewal for pregnancy; Pennington v. Lexington School District 2, 578 F.2d 546 (4th Cir.1978), denial of reinstatement following pregnancy leave). All of those cases involve policies having a disparate impact on a protected group which has a characteristic peculiar to that group’s sex — pregnancy.

STATISTICAL DISPARATE IMPACT

The disparate impact model applies only when an employer has instituted a specific procedure, usually a selection criteria for employment that can be shown to have a causal connection to a class based imbalance in the eligible applicants in this case. Thus, the disparate impact analysis may be used to challenge, for example, aptitude and intelligence tests, Griggs, supra, or height and weight requirements, Dothard, supra, or any policy which would circumscribe a class of persons characterized by some trait shared by the members of that class which is protected by Title VII.

In the case at bar the Plaintiffs have selected one small bargaining unit of the Defendant with 16 members and is asking the Court to hold that because 15 blacks and one white (100% black and 100% white members of bargaining unit) were affected by the Defendant’s no hire/no transfer policy that the Court should find discrimination because of the statistically disparate impact on the blacks at the one bargaining unit at the Freedom Drive Plant. In no case should there be blind adherence to the position that mere statistical imbalance equals discrimination. Olson v. Philco Ford, 531 F.2d 474 (10th Cir.1976) abd Keyes v. Lenoir Rhyne, 552 F.2d 579, (4th Cir.1977) cert. denied, 434 U.S. 904, 98 S.Ct. 300, 54 L.Ed.2d 190. Morris, Current Trends in the Use (and Misuse) of Statistics in Employment Discrimination Litigation Second Edition 1979 Equal Employment Advisory Council, P. 51.

In EEOC v. Federal Reserve Bank of Richmond, 698 F.2d 633 (4th Cir.1983), quoting from Pope v. City of Hickory, North Carolina, 679 F.2d 20, 22 (4th Cir.1982) the Court said:

“The disparate impact model applies only (emphasis added) when an employer has instituted a specific procedure, usually a selection criteria for employment (such as an aptitude or intelligence test, or height and weight requirements) that can be shown to have a causal connection to a class based imbalance in the (employer’s) work force (emphasis added) and has been said not to be the appropriate vehicle from which to launch a wide ranging attack on the cumulative effect of a company’s employment practices. Pouncy v. Prudential Ins. Co. of America, 668 F.2d 795, 800 (5th Cir.1982).
“It is obvious that the Plaintiffs are not complaining in the case at bar of some employment practice or procedure of the Defendant which, though neutral or fair on its face, has a discriminatory impact on blacks only, and thus the Plaintiffs’ case does not fit within the disparate impact claim.”

The disparate impact of Defendant’s policy is on union members. Membership in union is not limited to blacks, nor is the union membership the result of past discrimination as is an inferior education, Gaston County v. United States, 395 U.S. 285, 89 S.Ct. 1720, 23 L.Ed.2d 309 (1969). Neither is the Defendant’s policy against hiring members of one bargaining unit in another bargaining unit applied only to blacks, nor is there any evidence that there is a causal connection between the Company’s policy and blacks being denied employment.

There was no evidence whatsoever in the case at bar of any physical requirement with respect to height, as in Dothard v. Rawlinson, 433 U.S. 321, 324, 97 S.Ct. 2720, 2724, 53 L.Ed.2d 786 (1977) or a high school diploma, as in Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971) or a minimum passing score on an aptitude test, as in Albemarle Paper Co. v. Moody, 422 U.S. 405, 95 S.Ct. 2362, 45 L.Ed.2d 280 and Connecticut v. Teal, 457 U.S. 440, 102 S.Ct. 2525, 73 L.Ed.2d 130 (1982).

In EEOC v. Federal Reserve, supra, the Court said at Page 646:

“... to sum up, statistical evidence is circumstantial in character (emphasis added) and its acceptability depends on the magnitude of the disparity it reflects, the relevance of its supporting data, and other circumstances in the case supportive of or in rebuttal of a hypothesis of discrimination. (Emphasis added). And, in reviewing statistical evidence, and its supporting data, the Court must give consideration and evaluate fairly such conflicting opinions and hypothesis as may have been presented, tempering its conclusion with what one court has described as a ‘pinch of common sense.’ Otero v. Mesa City Valley School District No. 51, 470 F.Supp. [326] at 335 [ (1979) ]. EEOC v. Federal Reserve Bank of Richmond, supra at pp. 646 and 647.”

After all the technical statistical jargon like “one tail” or “two tail” tests and Chi-Square test (Yates corrected) are placed before the trial judge, it is his job to resolve the issues.

Dothard v. Rawlinson, 433 U.S. 321, 97 S.Ct. 2720, 53 L.Ed.2d 786 (1977) involved a female’s class action suit against appellant correction officials challenging statutory height and weight requirements and a regulation establishing gender criteria for assigning correctional counselors to contact positions. On the basis of national statistics as to the comparative height and weight of men and women indicating that Alabama’s statutory standards would exceed over 40% of the female population but less than 1% of the male population, the Court found that with respect to such standards appellee had made out a prima facie case of unlawful sex discrimination, which appellants had failed to rebut. Women have certain physical characteristics which would preclude them from overcoming the requirements of the Defendant in Dothard. Obviously, this type of statistical evidence is distinguishable from what the Plaintiffs in the case at bar are trying to prove; i.e., Defendant’s no transfer/no hire policy which would prevent any employee of a bargaining unit from transferring to another bargaining unit has a disparate impact on blacks. The Plaintiffs have produced no statistics common to union members which would show a disparate impact on blacks, as a result of Defendant’s no transfer/no hire policy.

As the Plaintiffs contend, the factor to be considered is not the facial neutrality of the policy, it is the impact of the policy. The Plaintiffs’ problem is that the impact of the Defendant’s policy here is adverse to all union members of all bargaining units of the Defendant, both white and black, not simply to blacks. There is nothing in the Defendant’s policy which would circumscribe a class of persons characterized by some trait and therefore it is of no significance in determining discrimination.

The Plaintiff Jones on Page 18 of his Post-Trial Brief points to statistics showing 5,410,699 blacks in bargaining units and 35,372,042 whites who are members of bargaining units nation wide and 180,212 blacks and 566,178 whites who are members of bargaining units state wide (North Carolina). The Plaintiff Jones’ brief states on the same page: “... the application of the defendant’s policy to the national and state workforces would result in fewer blacks being eligible to apply at another unit in a statistically significant manner.” These statistics and the Plaintiff Jones’ contention that application of Defendant’s policy' to the national (and State) workforces would result in fewer blacks being eligible to apply at another unit in a statistically significant manner reinforces the principle there should not be blind adherence to the position that mere statistical imbalance equals discrimination. The Plaintiffs are, in other words, complaining that fewer blacks would be adversely affected by the Defendant’s policy statewide and nationally, and on the other hand by selecting this one small bargaining unit in the case at bar, the Plaintiffs contend that because more blacks than whites are affected by the Defendant’s policy as to the one small bargaining unit involved in this case that they have satisfied the prima facie proof of adverse impact against blacks in the case at bar. Furthermore, not all former union members are barred by Defendant’s policy — only those who worked for the Defendant in another bargaining unit.

In the case at bar, the system of nonhire/nontransfer operated to disqualify all bargaining unit employees of the Defendant equally from transferring between seniority units. The system was facially neutral and was applied equally to all races, black and white.

The union agreements with each bargaining unit have not been shown by the Plaintiffs to be related in any manner to race. Simply because substantially all hourly employees of the one small Freedom Drive Plant bargaining unit were black, it cannot be said there was evidence of past discrimination.

There is no evidence that the seniority system bargained for by the Company in each bargaining unit was in any way the result of racially discriminatory policies or practices. On the contrary, the seniority system was the result of each union’s collective bargaining with the Defendant employer.

The Company’s policy has been in effect since 1971. The Plaintiff’s were members of a bargaining unit where the Company had hired blacks in a 15 to 1 ratio. Simply because the Company has employed an almost completely black work force in one locality, the employer should not now be found to have discriminated against the Plaintiffs because of a policy affecting all union applicants who had been members of other bargaining units of the Company. If substantially all the employees of a particular bargaining unit are black, then it does not require an expert in statistics to show an adverse impact on union members, black and white, if none of the employees of that particular bargaining unit were eligible for reemployment in another bargaining unit of the Company. But, the adverse impact is on all union members, black and white in all bargaining units. The Plaintiffs conceded that not one white from another union bargaining unit was ever re-employed and the evidence is that the policy has been strictly enforced and has never been breached.

The employment practice here is not discriminatory as to blacks. If anything, the practice is discriminatory as to membership of the Union, both black and white. It is the bargaining unit employees who are prohibited from transferring and that has no reference to their color. It just so happens that in this one particular small bargaining unit, there were substantially more negroes hired by the Defendant than there were whites.

Another question, of course, is should the statistical analysis, as contended by the Plaintiffs, be applied only to the bargaining unit of which the Plaintiffs were members, or should the Court consider all employees of the Company affected by the policy on the closing of the plants in November 1982? This Court is of the opinion that all members of a group who were affected by the policy, not just those in one isolated bargaining unit, should be considered in determining the statistical significance of the Company’s policy. Then of the 1,037 employees who were laid off and who were prevented from being rehired only 17% were black and 83% were white. (Finding of Fact No. 16). Thus, there would be no statistically significant ratio of blacks affected by the Company’s policy. The Plaintiffs have taken a little over 1% of the employees of the Defendant affected by the policy in question as a result of the plant closings and presented a distorted picture of the statistically disparate impact on blacks. To give credence to the statistical sample used by the Plaintiffs would penalize the Defendant for hiring blacks in numbers in this particular unit far exceeding the relative work force of blacks and whites in North Carolina (See Defendant’s Exhibit 1).

In the case at bar, the policy complained of was applicable to all bargaining unit employees of the Company, including the other six which were closed, not just to the employees in the Freedom Drive Plant. It affected directly the 22 whites from other bargaining units who applied as well as the three black Plaintiffs and both the 3 black Plaintiffs and the 22 whites who applied were denied employment. The policy was not arbitrarily applied to the employees of the bargaining unit where the Plaintiffs were employed at the moment they were terminated, but was a company-wide policy which had been in effect since 1971. There was no selection of the one bargaining unit where the 15 blacks were employed to apply the policy and the blacks who are Plaintiffs in this action were not treated any differently than the whites from other bargaining units who applied.

Finally, proof of adverse impact in employment is a necessary element of every disparate impact case. Employers are not required to justify every employment practice or qualification. It is only after the Plaintiffs have made a prima facie showing of discrimination that the employer is required to go forward with evidence to justify the practice as job related and racially neutral; i.e., when the employer selects applicants for hire or promotion in a racial pattern significantly different from that of the pool of applicants. Equal Employment Opportunity v. Greyhound Lines, 635 F.2d 188 (3rd Cir.1980).

All employees in the case at bar who were members of all union bargaining units were treated the same whenever they applied at another bargaining unit of the Defendant, whatever their sex, race, ethnic origin, or religion. Title VII does not extend its coverage to discrimination against union members.

In conclusion, the Plaintiffs have demonstrated to this Court that in the small bargaining unit in which the Plaintiffs were employed there were 16 employees, 15 blacks and one white which obviously would statistically show a racial imbalance when the Company policy of no hire/no transfer is applied to that one bargaining unit. In short, the Plaintiffs have shown that the employees, 100% white and 100% black, of one bargaining unit could not obtain employment at another bargaining unit plant because of the Defendant’s no hire/transfer policy, but, neither could employees, both black and white, from other bargaining units of the Defendant. The Plaintiffs are now asking this Court to find discrimination by Defendant as a result of a business policy of the Defendant as to union members in existence since 1971. The Plaintiffs concede they have not found a breach of that policy. There is not any evidence the Plaintiffs have been treated any differently than white employees under either the disparate treatment theory or disparate impact theory. The Plaintiffs in this case have failed to show:

(1) Purposeful racial discrimination by the Defendant;
(2) Past discrimination by the Defendant;
(3) Aptitude or intelligence tests which caused the imbalance in the Defendant’s work force in favor of whites;
(4) Height or weight requirements which was favorable to whites;
(5) High school diploma or other educational requirements;
(6) Any other requirement or policy by the Defendant which has a causal connection with the rejection of the Plaintiffs’ applications for employment in the Arrowood Plant because of race; and
(7) Finally, the statistics in this case are not sufficient circumstantial evidence of adverse impact by the Defendant’s policy against a protected group, since union members are not a “protected group”, under Title VII.

CONCLUSIONS OF LAW

The Plaintiffs have failed to make a prima facie case of racial discrimination under Title VII, or 42 U.S.C. Section 1981.

The Court will enter judgment for the Defendant.


author: PLATT, District Judge.

text:
    Michael ABATEMARCO, Plaintiff, v. COPYTELE, INC., Bradford Trust Company, Denis Krusos and Frank DiSanto, Defendants.
    No. 85 CV 1103.
    United States District Court, E.D. New York.
    April 26, 1985.
    Polstein, Ferrara & Campriello, New York City by Robert Polstein, Austin V. Campriello, New York City, for plaintiff.
    Satterlee & Stephens, New York City by Henry J. Formon, James F. Rittinger, New York City, for defendants CopyTele, Krusos and DiSanto.
   MEMORANDUM AND ORDER

PLATT, District Judge.

By an order to show cause with an affidavit of the plaintiff and exhibits annexed, plaintiff moves pursuant to Rule 65 of the Federal Rules of Civil Procedure for an order (i) enjoining each of the defendants from taking any action which would in any way interfere with (a) plaintiff’s selling the 14,000 shares of CopyTele, Inc. stock that he owns, and (b) the transfer of the registered ownership of any of the 14,000 shares of CopyTele, Inc. stock owned by plaintiff to a third party; or, alternatively, (ii) permitting plaintiff to sell his 14,000 shares of CopyTele, Inc. stock and to place the proceeds of such sale in an interest-bearing account subject to the further order of this Court.

After the parties appeared on April 1 and 2, 1985, to argue the merits of plaintiff’s motion, an evidentiary hearing was held on April 12, 15, and 16, 1985. Plaintiff testified in his own behalf and was also called as a witness. No other witnesses were called by the plaintiff or the defendants.

Plaintiff said that he was a “manufacturing engineer” without an engineering degree; that he had worked over the years for companies such as Burroughs, Sperry, Litton and Kollsman; and that he decided in 1979 that he wished to come back to Long Island and called the defendant Frank DiSanto with respect to the availability of a job; that as a result of such call in 1980 he went to work for Visual Sciences and that in August 1982 he started to work for the defendant CopyTele, Inc.; that in November 1982 he purchased 14,000 shares of CopyTele stock at 10 cents a share which was part of a sale of 390,000 shares of such stock to 17 individuals at such price; that the only restriction of which he was aware when he purchased the stock was that it was not “registered” under the Federal securities laws; that in October 1983 CopyTele had a public offering of its shares pursuant to a registration statement; that as a result of this public offering it became possible for him to utilize the provisions of Rule 144 promulgated under the Securities Act of 1933 to sell his CopyTele stock after he had held it for two years; that in December of 1984 three other individuals, G. Thomas Catherines, Allen J. Hammer and Georgia State Senator Haskew Brantley tried to sell their stock in CopyTele, and when the defendants refused to permit them to do so brought suit in this Court for an order permitting them so to do; and that in December 1984, pursuant to a subpoena, he testified at a hearing in connection with that suit that there was no agreement which prohibited the sale of the stock sold to the various individuals such as himself in the Fall of 1982 at 10 cents a share.

At the outset of the hearing in the ease at bar, the attorneys for the defendants stipulated that they would not contest in this hearing the findings and conclusions in such prior hearing which are set forth in this Court’s Memorandum and Order dated February 14, 1985, Catherines, et al. v. CopyTele, Inc., et al., 602 F.Supp. 1019 (E.D.N.Y.1985), and that the only issue for this Court’s determination was whether the plaintiff at this juncture is an insider who was cognizant of facts “which are essentially extraordinary in nature and which are reasonably certain to have a substantial effect on the market price of the security if [the extraordinary facts are] disclosed.” Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968).

On his return to work at CopyTele after testifying in the Catherines case before this Court, the defendants reduced plaintiff’s salary, deprived him of the use of a company car and moved his office from the engineering and work areas to the executive and administration area, apparently in order to be sure that he would not directly or indirectly have access to any such facts or information of a sensitive, proprietary and confidential nature intended to be available only to the corporation and not the public. In addition, plaintiff was deprived of a telephone and the locks and combinations permitting access to the engineering and work areas were changed so that he might not walk into the same without a proper escort.

On April 1, 1985, plaintiff resigned his position with CopyTele and is no longer an employee thereof.

Plaintiff has testified, and his testimony is uncontradicted, that he had no access to or knowledge of any information which is not already in the public domain.

CopyTele’s product, still in the research and development stage, which allegedly contains material information which precludes its present and former employees, including plaintiff, from trading in its stock, is a flat-panel display which will “have a built-in memory in the sense that the images created by the display do not have to be refreshed as do images produced by cathode ray tubes (‘CRTs’) and other commonly used display devices.” Plaintiff’s Exhibit 11, CopyTele’s Form 10K for Fiscal Year ended 10/31/84 dated January 28, 1985. It was stipulated in the course of the hearing that no prototype of this system (called the CT-100 system) has yet been produced. The fact that no prototype has been produced has been noted in several recent publications which plaintiff introduced as exhibits, not for the truth asserted in them, but to confirm information asserted to be in the public domain. Kindel, et al., “Flat-Panel Display Remembers Images When It’s Turned Off,” Popular Science, August 1984 at 58 (Ex. 1) (a copy is annexed to this Memorandum and Order); Petre, “The Mystifying Business Behind a Magical Stock,” Fortune, June 11, 1984 at 55 (Ex. 2); Andrew, “Heard on the Street: CopyTele’s Stock Performs Like a Champion, Considering Firm Hasn’t Closed a Single Sale,” Wall St. J., Nov. 1, 1984 at 63 (Ex. 3); Dorfman, “SEC is Probing CopyTele,” N.Y. Daily News, Nov. 7, 1984 (Ex. 4); Marcial, “The Year’s Most Overpriced Stock?,” Business Week, April 15, 1985 at 144 (Ex. 12); and Benway, “Magnificent Obsession? Don McShane Has a Thing for CopyTele,” Barron’s, April 15, 1985 at 13 (Ex. 13).

In defendants’ aforesaid Form 10K it is stated that:

“The company has been developing a suspension consisting of submicron particles of suitable color pigments suspended in solvents. Each of these particles is surrounded by a charge control and a wetting agent which essentially coat the particle and enable it to retain an electrical charge and remain in suspension. The company has been mainly using a yellow pigment which is suspended in a dark dye solution. The company has used various fluids in its test panels and is continuing its efforts to improve the characteristics of the fluid, including other color combinations.
“Additional development of the structure, chip carrier drive system and fluid is required in connection with the completion of the flat-panel display. Upon completion of these efforts, if successful, the flat-panel display must be tested and modified as required prior to manufacturing.”

The key men in the company and the co-inventors of the system are the defendants Krusos and DiSanto, the latter of whom was interviewed by Popular Science magazine writers in preparation for an article on the system which appeared in the August 1984 edition. Pl.Ex. 1. Mr. DiSanto is quoted in that article as saying, among other things, about perfecting electrophoretic technology within the panel:

“It’s sort of an art ... You need exactly the right balance in the specific gravity of the particles and the specific gravity of the fluid ...
“It’s a true suspension ... You can leave those pigment particles in that solvent indefinitely, and the particles will never sink.
“The major problem is a tendency of the particles to attach to each other and form globs.”

In the article, a “diagram” of the system is exhibited with a caveat at the foot thereof which states that “CopyTele has made some technical changes in this design.” Plaintiff testified at the hearing that at the time of this interview the defendant had an early working model of the display but that the photo area of such model was only 2" X 2" and that the scaling up of this photo area presented substantial problems which to his knowledge have not yet been overcome.

There are other aspects of the system which CopyTele claims to be sensitive, confidential and proprietary but from all the evidence, including the uncontradicted testimony of the plaintiff on the subject, the stumbling block between success and failure in making electrophoresis (as the process is called) work is to prevent the particles from tending to glom together, which apparently ruins the display.

In a very recent article on the subject, dated April 15, 1985, Barron’s (which but for the fact that it confirms the statements attributed to Mr. DiSanto above, might not be admissible herein) reported that:

“Several companies, Matsushita and Xerox among them, have tried to make electrophoresis work, only to give up on it long ago. And Matsushita invented it. The ink particles tend to glom together, ruining the display. Millions and millions of dollars have been thrown at the effort. ‘Every major lab in the U.S. and Japan has attempted it’, says Dr. Christopher King, a scientist with Planar Sytems, a Tektronix spinoff working on another approach: electroluminescent flat panels.”

Ex. 13 at 19 (emphasis added).

There is no doubt but that the plaintiff knows that the stumbling block is in the development and improvement (i) of a solution or (ii) in the composition of the panel or (iii) in the chip carrier drive system or (iv) a combination of two or more of the same, so as to eliminate the tendency of the particles to glob or glom, but as indicated above, this is public knowledge.

While it is true that in June of 1983, as evidenced by defendant’s Exhibit C, which he prepared at that time, plaintiff had some exposure or involvement in the composition of the panel, his uncontradicted testimony is that he had no knowledge, exposure to or involvement with the development or improvement of the solution: His uncontradicted testimony and other evidence also make it clear that subsequent to June of 1983, there were changes in the design and composition of the panel as to which he has no knowledge.

Plaintiff readily agreed that he was aware of and involved in the development and alleged improvement of the flat-panel chip carrier drive system from one which involved 32 drivers to one which involves 64 drivers but testified, again without contradiction, that a 64-drive carrier was a catalogue or shelf item and that any experienced engineer could make the conversion from a 32 to a 64-drive carrier without any difficulty.

Defendant claims that because plaintiff designed and constructed the framework necessary for the mounting of the display panel and the creation of electrical contacts and designed and drew various other parts of the system (although concededly he never prepared designs or drawings for the proposed CT-100 panel), he necessarily falls within the “tainted” insider category.

The test, however, is not as defendant argues whether plaintiff designed, drew and had knowledge of all of the interfacing and interoperative parts with the panel, nor whether he was privy to the fact that the system had not yet been perfected in one or more significant aspects (as indicated above, the public is fully aware of this), but rather whether he is cognizant of facts “which are essentially extraordinary in nature and which are reasonably certain to have a substantial effect on the market price of the security if [the extraordinary facts are] disclosed.” Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d at 848.

There is no question at this point about the fact that the hoped for “technological breakthrough” has not yet been achieved and this fact is no secret. It is widely known. Moreover, it is not sufficient to argue that plaintiff, regardless of whether he has knowledge of the possible “breakthrough”, must be prohibited from selling because one or more other owners of the stock might misconstrue his action as a former employee as evidence of lack of capacity of the defendant successfully to make its product. Any such per se rule would effectively prohibit all officers and employees of public companies from trading in their company’s stock if any research and development work was being done by the company. The law, to date, has not gone so far.

Given the evidence presented to us at the hearing, and post-trial memoranda submitted by both parties, it seems clear that the plaintiff is not in the possession of or aware of any such facts and hence may not be foreclosed from investing in or selling stock in his former company merely because he may be more familiar with the company’s general operations than are outside investors. Id.

Accordingly, plaintiff’s motion is granted to the extent that he is hereby permitted to sell his 14,000 shares of CopyTele stock and to place the proceeds of such sale in an interest-bearing escrow account pending the outcome of the trial on the merits of the other issues in this case and subject to the further order of this Court. Defendant is given two business days from the date of this Order to obtain a stay of this Order from the Court of Appeals.

SO ORDERED.

      . Mr. DiSanto made the decision to change from a 32 to a 64-driver carrier system and to place the order for the same with Texas Instruments. Moreover, in January of this year, Mr. Lewit took over the development of the 64-driv-er system and thereafter plaintiff did no further work on the same.
      The plaintiffs uncontradicted testimony throughout the proceeding was that during the course of his employment with CopyTele, he prepared designs and drawings for all parts of the system except the panel assembly which, as indicated above, was the crucial or key part of the system and with which he repeatedly said he had no familiarity or knowledge. He identified the individuals who had such knowledge to be Messrs. Krusos, DiSanto, Lespina, Schnarde and Dykstra.


text:
    G. Thomas CATHERINES, Allan J. Hammer and Haskew Brantley, Plaintiffs, v. COPYTELE, INC., Bradford Trust Company, Denis Krusos and Frank DiSanto, Defendants. Michael ABATEMARCO, Plaintiff, v. COPYTELE, INC., Bradford Trust Company, Denis Krusos and Frank DiSanto, Defendants.
    Nos. 84 CV 4746, 85 CV 1103.
    United States District Court, E.D. New York.
    April 30, 1985.
    Reavis & McGrath by John A. Lowe, Glen Banks, New York City, for plaintiffs.
    Polstein, Ferrara & Campriello by Robert Polstein, Austin V. Campriello, New York City, for plaintiff.
    Satterlee & Stephens by Henry J. Formon, Jr., James F. Rittinger, New York City, for defendants CopyTele, Krusos and DiSanto.
    Bradford Trust Company by Louis J. Maione, Christopher J. Collins, Associate Counsel, Litigation, New York City, for defendants.
   MEMORANDUM AND ORDER

PLATT, District Judge.

The first of the above-captioned actions was commenced with the filing of a summons and complaint on December 6, 1984, and the second by a similar filing on March 22, 1985.

A hearing on plaintiffs’ motion for a preliminary injunction was held in the first action on December 11, 21, and 27, 1984, and January 3, 1985, and the undersigned rendered a decision from the bench on January 9, 1985 which was followed by a formal Memorandum and Order dated and filed February 14, 1985. 620 F.Supp. 1019.

A hearing was held on plaintiff’s application for a preliminary injunction in the second action on April 12, 15, and 16, 1985 and the Court issued and filed a formal Memorandum and Order on April 26, 1985. 608 F.Supp. 1024.

On April 29,1985 the Court received in Chambers a letter dated April 25, 1985 from Christopher J. Collins, Esq., Assistant Counsel for “Fidata Corporation”, regarding the second of the above-captioned actions and in which he refers to his client “Bradford Trust Company”, one of the defendants named in each of the above-captioned actions.

Approximately a year ago the undersigned purchased some shares of the common stock of the Bradford National Corporation, understanding at the time that the latter corporation was a supplier of computer services and equipment to banks throughout the country. The undersigned had no knowledge or information at that time or at any time prior to the receipt of the aforesaid letter that Bradford National Corporation had any connection with or relation to the defendant Bradford Trust Company.

The undersigned did receive in the mail a few weeks ago a copy of a notice from Bradford National Corporation that it had changed its name to Fidata Corporation, and on receipt of the aforesaid letter we immediately commenced an inquiry to determine whether there was any relationship between the defendant Bradford Trust Company and Fidata Corporation.

Upon inquiry re same an officer of Paine Webber Inc. advised, after an investigation of records issued by Standard & Poors Corporation, that he was unable to determine any relationship between the two other than the fact that Bradford Trust Company was the transfer agent of Bradford National Corporation.

Upon telephone inquiry this morning by one of my law clerks of Mr. Collins, we determined for the first time that Bradford Trust Company is a wholly-owned subsidiary of Fidata Corporation (formerly Bradford National Corporation).

Section 455 of Title 28, United States Code, requires any judge of the United States to disqualify himself where “he knows that he, individually ... has a financial interest in the subject matter in controversy or in a party to the proceeding ...” and a financial interest is defined as meaning “ownership of a legal or equitable interest, however small ... of a party.” Since the undersigned now knows for the first time that he falls within the provisions of such statute, he must forthwith recuse himself in this case.

The Court does note, however, that the defendant Bradford, as its counsel states in the aforesaid letter, “has [had] a de mini-mus [sic] role in this [matter]” and has not been directly affected to date by any action taken by the Court.

The Court does wish to call to the attention of not only the attorneys in these cases but in all cases that there is a continuing obligation on the attorneys to apprise the judges of this and all courts of the true and correct names of all parties in all proceedings and the identities of all affiliated parties and institutions. Rule 9 of the General Rules of this Court and the Southern District of New York specifically requires the following:

“To enable judges and magistrates of the court to evaluate possible disqualification or recusal, counsel for a private (non-governmental) party shall submit at the time of initial pleading a certificate of identification of any corporate parents, subsidiaries, or affiliates of that party.”

Needless to say, had counsel for Bradford Trust Company advised the Court that such company was a wholly-owned subsidiary of Bradford National Corporation, or indeed, if he had (as he should have) advised this Court that Bradford Trust Company’s name was changed to Fidata Trust Company New York, several weeks ago, the undersigned would have immediately recused himself and not participated any further in these cases.

No such advice was ever given to this Court nor did this Court have any knowledge or information or any hint of any such relationship prior to April 29, 1985. Hence, it knew of no reason why it shouldn’t proceed in these matters as it did.

Accordingly, the Clerk of Court is hereby directed to reassign the above-captioned actions by random selection to another judge of this Court.

SO ORDERED.