author: MINER, District Judge.

text:
    Dorlesca SALANGER, Plaintiff, v. U.S. AIR, Defendant.
    No. 81-CV-542.
    United States District Court, N.D. New York.
    April 2, 1985.

      R.J. & P.R. Shanahan, Paul R. Shanahan, Syracuse, N.Y., for plaintiff.
    Hancock & Estabrook, David E. Peebles, Syracuse, N.Y., for defendant.
   MEMORANDUM-DECISION and ORDER

MINER, District Judge.

I

This action arises out of plaintiff Dorlesca Salanger’s allegedly improper discharge from her employment with defendant U.S. Air. Jurisdiction is predicated upon 28 U.S.C. § 1332. A trial to the Court was held on August 7-9, 1984. The final submissions of counsel were filed on November 16, 1984. There follow the findings of fact and conclusions of law mandated by Fed.R.Civ.P. 52(a).

II

In 1967, plaintiff obtained employment with Mohawk Airlines (“Mohawk”) as a salesperson and reservationist. During an initial nonsalaried training period, Ronald Bailey, a Mohawk training instructor, represented to plaintiff that, upon completion of her training, she would have job security and would be terminated only for just cause. Allegedly relying on these statements, plaintiff completed the training program. She then was assigned to Mohawk’s sales office in Syracuse, New York. In 1972, Mohawk merged with Allegheny Airlines (“Allegheny”) and plaintiff continued her employment under the new management. In 1978, at her request, plaintiff was reassigned to the Allegheny ticket counter at Hancock International Airport (“Hancock”) in Syracuse as a “Customer Service Agent.” In October of 1978, defendant acquired Allegheny and subsequently changed the name of the airline to U.S. Air. Plaintiff continued her employment at Hancock as an employee of defendant.

At some point in 1980, defendant, through its Security Department and Customer Service Department, conducted an investigation of plaintiff’s suspected involvement in the misappropriation of company funds. On September 5, 1980, plaintiff was suspended from her position during the pendency of this investigation. Eventually, based upon the findings of the investigation, a criminal complaint was filed charging plaintiff with the crime of grand larceny in the third degree, N.Y. Penal Law § 155.30 (McKinney 1982), and a warrant for plaintiff’s arrest was issued by a Town Justice of the Town of Dewitt. Pursuant to this warrant, plaintiff was arrested on September 10, 1980, and arraigned in the Town of DeWitt Justice Court. Thereafter, on September 24, 1980, plaintiff received a letter from defendant, dated September 19, 1980, notifying her that the investigation had been completed and that her employment was terminated. The letter also informed plaintiff that “[i]f you feel you have received unfair treatment you may pursue the matter through the Grievance Procedure.” Plaintiff’s Exhibit 8.

In accordance with the Personnel Policy Guides and other corporate documents issued by defendant and its predecessors, which expressly provided for a grievance procedure to be available to employees terminated “for cause,” Plaintiff’s Exhibits 1, 2, 3, 4; Defendant’s Exhibit AG, plaintiff exhausted the three grievance steps available to her. At the conclusion of the grievance proceedings, defendant adhered to its original determination to discharge plaintiff. Finally, on March 10, 1981, a grand jury in Onondaga County dismissed the charge of grand larceny in the third degree against plaintiff pursuant to N.Y.Crim.Proc. Law § 190.75 (McKinney 1982). Plaintiff then applied to defendant for reinstatement, but was refused an appointment to her former position or to any other position.

Plaintiff sets forth two claims arising from her termination and defendant’s refusal to reinstate her upon the dismissal of the charges by the grand jury. First, she alleges that, based upon the oral representations of Ronald Bailey and the language of the Personnel Policy Guides outlining a grievance procedure for those employees terminated for cause, a contract existed between her and defendant ensuring that she would be terminated solely for just cause. She contends that since the evidence before defendant was not sufficient to establish that she had misappropriated any funds, no just cause existed, and thus, the contract was breached. Second, plaintiff argues that defendant’s refusal to reinstate her after the criminal charge against her was dismissed violated § 296(16) of the New York Executive Law which prohibits a corporation from “act[ing] upon adversely to the individual involved, any arrest or criminal accusation of such individual not then pending against that individual which was followed by a termination of that criminal action or proceeding in favor of such individual ... in connection with the licensing, employment or providing of credit or insurance to such individual.” N.Y.Exec.Law § 296(16) (McKinney 1982).

Ill

A. Breach of Contract Claim

Under New York law, absent a specific contractual or statutory provision to the contrary, an employer has an unqual-' ified right to terminate an employee at will. Bergamini v. Manhattan and Bronx Surface Transit Operating Authority, 94 A.D.2d 441, 449, 463 N.Y.S.2d 777, 782 (1st Dep’t 1983) (Asch, J., dissenting), reversed, 62 N.Y.2d 897, 478 N.Y.S.2d 857, 467 N.E.2d 521 (1984); Albury v. New York Civil Service Commission, 32 A.D.2d 895, 302 N.Y.S.2d 3, 4 (1st Dep’t), aff'd, 27 N.Y.2d 694, 314 N.Y.S.2d 13, 262 N.E.2d 219 (1969). Plaintiff, however, alleges that a contractual qualification of defendant’s authority to terminate existed in that Bailey’s representations to her and the grievance procedures “recognize[d] the obligation of the defendant not to discharge an employee except for just cause.” Plaintiff’s Trial Brief at 3. Plaintiff relies exclusively on the New York Court of Appeals decision in Weiner v. McGraw-Hill, Inc., 57 N.Y.2d 458, 457 N.Y.S.2d 193, 443 N.E.2d 441 (1982). There, a publishing house employee resigned from his position to accept an employment offer from defendant, a competing publishing house. During negotiations over the position, defendant’s representatives informed plaintiff that company policy permitted termination solely for just cause. A written job application, which plaintiff was required to sign, also stated that termination could occur solely for just cause. After working eight years for defendant and declining several other job offers in that period, plaintiff was terminated for no apparent reason. In holding that the issue whether a contract to terminate solely for just cause was formed presented a question of fact for trial even though no formal employment contract existed, the court noted:

First, plaintiff was induced to leave Prentice-Hall with the assurance that McGraw-Hill would not discharge him without cause. Second, this assurance was incorporated into the employment application. Third, plaintiff rejected other offers of employment in reliance on the assurance. Fourth, appellant alleged that, on several occasions when he had recommended that certain of his subordinates be dismissed, he was instructed by his supervisors to proceed in strict compliance with the handbook and policy manuals because employees could be discharged only for just cause. He also claims that he was told that, if he did not proceed in accordance with the strict procedures set forth in the handbook, McGraw-Hill would be liable for legal action.

57 N.Y.2d at 465-66, 457 N.Y.S.2d at 197, 443 N.E.2d at 445. Here, because defendant’s oral and written representations arguably induced plaintiff to obtain and continue employment with defendant and an express grievance procedure existed for those employees discharged for cause, plaintiff maintains that the Weiner analysis is dispositive.

After careful consideration of the facts and relevant case law, the Court concludes that the Weiner analysis is inapplicable to the present facts, and consequently, defendant’s authority to terminate plaintiff was not contractually limited. Initially, Weiner must be interpreted in light of the New York Court of Appeals decision in Murphy v. American Home Products Corp., 58 N.Y.2d 293, 461 N.Y.S.2d 232, 448 N.E.2d 86 (1983). In Murphy, the court held that contractual provisions limiting the employer’s right to terminate may not be implied in an employment agreement. Id. at 305, 461 N.Y.S.2d at 237, 448 N.E.2d at 91. The court stated:

The parties may by express agreement limit or restrict the employer’s right of discharge, but to imply such a limitation from the existence of an unrestricted right would be internally inconsistent. In sum, under New York law as it now stands, absent a constitutionally impermissible purpose, a statutory proscription, or an express limitation in the individual contract of employment, an employer’s right at any time to terminate an employment at will remains unimpaired.

Id., 461 N.Y.S.2d at 237, 448 N.E.2d at 91; accord Sprott v. Avon Products, Inc., 596 F.Supp. 178, 183-84 (S.D.N.Y.1984); Carlson v. Viacom International Inc., 566 F.Supp. 289, 290-91 (S.D.N.Y.1983).

Here, no such express limitation is apparent. Plaintiff had no written contract of employment limiting defendant’s ability to terminate. While the Personnel Policy Guides and grievance procedures did provide a forum to appeal termination for cause decisions, no language in any corporate document limited defendant’s authority to discharge for any reason. As long as the grievance procedure was made available to plaintiff, all contractual obligations relating to her discharge were met.

In addition, the oral assurances of job security allegedly made by Ronald Bailey are inconclusive. Other than plaintiff’s own testimony, there is no evidence to substantiate these allegations. More important, these allegations are contradicted by the absence of language in the Personnel Policy Guides limiting the grounds for termination. As admitted by plaintiff’s counsel at trial, any contractual limitation of the grounds for plaintiff’s termination must be implied from a reading of various corporate documents. Trial Transcript at 260. Such a contract by implication, however, is not recognized under New York law.

Even assuming that Murphy does not otherwise modify the holding in Weiner, on a factual basis Weiner is distinguishable from the present ease. Here, plaintiff was not induced to leave other employment by assurances of job security. Trial Transcript at 105. Neither did plaintiff decline other job offers to work for defendant. Id. Moreover, while in Weiner the employee’s job application expressly provided that termination would occur solely for just cause, no such express guarantee existed here. Finally, the plaintiff has failed to establish how she relied on any representations made by defendant and its employees relating to job security. Her conclusory statements as to reliance are insufficient to establish this element of her claim. Patrowich v. Chemical Bank, 98 A.D.2d 318, 322-23, 470 N.Y.S.2d 599, 603 (1st Dep’t 1984).

B. New York Executive Law Claim

Section 296(16) of the New York Executive Law prohibits a corporate entity from denying employment to an applicant on the basis of an arrest “which was followed by a termination of that criminal action or proceeding in favor of such individual.” N.Y.Exec.Law § 296(16) (McKinney 1982). It, however, “does not prevent an employer from acting adversely with respect to an employee if such action is motivated by bona fide business reasons not otherwise proscribed by the statute.” Salanger v. U.S. Air, 560 F.Supp. 202, 206 (N.D.N.Y.1983). Here, plaintiff alleges that defendant’s failure to reinstate her upon request after the grand jury had dismissed the charges violated § 296(16). In ruling on defendant’s motion for summary judgment, this Court noted:

Here, this Court cannot say, as a matter of law, that defendant’s failure to rehire plaintiff, after the criminal charges against her were dismissed, was not motivated by plaintiff’s arrest. It well may be that defendant’s decision not to rehire plaintiff was occasioned by the results of its independent, internal investigation into plaintiff’s alleged misconduct. However, defendant’s decision just as easily could have been motivated by the arrest. The need to resolve this factual issue precludes a grant of summary judgment on plaintiff’s Executive Law claim at this time.

560 F.Supp. at 206.

After careful review of this factual issue, the Court concludes that plaintiff has not established, by a preponderance of the evidence, that defendant’s failure to reinstate her was due to her arrest. In the letter of termination sent by defendant to plaintiff, dated September 19, 1980, defendant indicated that the basis for the initial decision to terminate was an investigation by its Security and Customer Service Departments into an alleged misappropriation of funds. Plaintiff’s Exhibit 8. In a letter from defendant, dated November 3, 1980, notifying plaintiff of the completion of her grievance review, defendant indicated that the grievance was denied because no new information had been uncovered. Plaintiff’s Exhibit 9. It seems clear that defendant’s decision not to reinstate plaintiff was motivated not by her arrest, but rather by defendant’s own investigation. The testimony at trial in fact suggests that plaintiff, at the time of her request for reinstatement, was informed by an employee of defendant that the grand jury’s decision had nothing to do with the decision to terminate her. Trial Transcript at 340. Other than the fact that plaintiff was arrested and later refused reinstatement, no testimony or other evidence adduced at trial substantiates the charge that her arrest triggered the refusal. Even if plaintiff had not been arrested, it is apparent that defendant would have taken the same action since it was convinced, through its internal investigation, that plaintiff had misappropriated company funds. Accordingly, defendant is entitled to judgment on this claim as well.

IV

For all the foregoing reasons, this Court concludes that the plaintiff has failed to establish any claims set forth in her complaint. Accordingly, entry of judgment in favor of defendant is directed.

It is so Ordered.

      . The following witnesses testified at the behest of plaintiff: plaintiff, Dorlesca Salanger, Michael J. Salanger, plaintiffs husband, and Leonard Filippi, a U.S. Air employee. The following witnesses testified at the behest of defendant: Richard Rothery, a U.S. Air management employee, Donald Sansone, a U.S. Air training instructor, and James Riddel, a U.S. Air security investigator.

      . Mr. Bailey is no longer employed by U.S. Air, the successor to Mohawk, and did not testify at trial.

      . The investigation centered around certain airline ticket sales to which, as a Customer Service Agent of U.S. Air, plaintiff was a party. The transactions occurred on February 23, 1980, March 1, 1980, April 13, 1980, and June 11, 1980. In each case, the tickets were paid for in cash by the customers. However, neither the cash nor the portion of the tickets which the ticketing agent ordinarily would retain were included in plaintiffs daily sales reports. Each ticket was used by the purchasing customer.

      . Plaintiff’s request for reinstatement was made in the form of a telephone call to Richard Rothery, a U.S. Air management employee. At that time, Mr. Rothery informed plaintiff that there was no position available for her.

      . On January 7, 1983, this Court issued a Memorandum-Decision and Order granting defendant’s motion for summary judgment as to plaintiffs claim for wrongful discharge. Salanger v. U.S. Air, 560 F.Supp. 202 (N.D.N.Y.1983). That dismissal was premised on the fact that no such claim was recognized by New York law. Id. at 204-05. Since the issuance of that decision, the New York Court of Appeals has unequivocally held that New York “has not and does not now recognize a cause of action in tort for abusive or wrongful discharge of an employee.” Murphy v. American Home Products Corp., 58 N.Y.2d 293, 297, 461 N.Y.S.2d 232, 233, 448 N.E.2d 86, 87 (1983). ”[S]uch recognition must await action of the Legislature." Id., 461 N.Y.S.2d at 233, 448 N.E.2d at 87. This Court, however, granted plaintiff the opportunity to replead her complaint to allege a breach of contract claim. Salanger v. U.S. Air, 560 F.Supp. at 207. On March 14, 1983, plaintiff took advantage of this opportunity and filed an amended complaint.

      . Defendant's suspicions apparently were compounded by the fact that during the period when the improper transactions occurred, plaintiff was having some financial difficulty. Between May of 1979 and March of 1980, plaintiff had cashed 13 checks totaling $780.00 at the U.S. Air cash drawer at Hancock International Airport which were returned for insufficient funds. Defendant’s Exhibit AE. In one four-week period, coinciding with the sale of several of the tickets in question, plaintiff's pay amounted to “very little, if anything,” Trial Transcript at 189, due to deductions from her pay to reimburse defendant for the checks. Id.


source: Caselaw Access Project

author: DUPREE, Senior District Judge.

license: Public Domain

text:
    FACTORY STORAGE CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.
    No. 84-44-CIV-4.
    United States District Court, E.D. North Carolina, New Bern Division.
    April 2, 1985.
    John M. Martin, White, Allen, Hooten & Hodges, Kinston, N.C., for plaintiff.
    Robert L. Welsh, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., for defendant. .
   ORDER

DUPREE, Senior District Judge.

Plaintiff, Factory Storage Corporation, brings this action against the United States pursuant to 26 U.S.C. § 7422 and 28 U.S.C. § 1346(a)(1) seeking recovery of $9,832.23 in taxes paid to the Internal Revenue Service in January of 1983. The case is before the court on cross-motions for summary judgment.

Factory Storage Corporation (Factory Storage) was formerly a limited partner in Associated Catering Enterprises which operated two restaurants in Greenville, North Carolina. The limited partnership was formed in August of 1980 and the restaurants were managed on a day-to-day basis by the general partner. As a result of dissatisfaction with the general partner’s handling of the business affairs of the partnership, the partnership terminated the general partner as general manager on September 15, 1981. A new general partner later joined the partnership and assumed responsibility as general manager of the restaurants. Despite this change in management, the restaurants were unsuccessful and the partnership decided to close them on November 21, 1981.

On September 2,1982, the Internal Revenue Service, through Revenue Officer Michael H. Wills, notified the limited partners in Associated Catering Enterprises, Factory Storage among them, that

[t]he federal tax liability for Associated Catering Enterprises, Federal Employer Identification Number 56-1277233, for the Form 941, Employer’s Quarterly Tax Return, for the quarter ending on June 30, 1981, has an unpaid balance of $9,222.09 which is past due.
You are hereby notified that you, as a partner of Associated Catering Enterprises, are being held liable for the taxes of the partnership. Please remit the above amount within 10 days. Your failure to pay within 10 days will result in enforcement action being taken against you without further notice.

Factory Storage, as holder of a twenty per cent interest in the limited partnership, became concerned over its potential liability for the employment taxes of Associated Catering Enterprises and officials of the corporation met with Wills in an attempt to settle the matter. According to Linwood E. Mercer, President of Factory Storage Corporation, Wills told Factory Storage representatives that the corporation was liable for the employment tax deficiency because it had lost its limited partner status by exercising too much control over the business operations of the limited partnership. A second notice was issued by Wills to Factory Storage and other limited partners on November 5, 1982, in which he again warned the limited partners that

[t]he federal tax liability for Associated Catering Enterprises, Federal Employer Identification Number 56-1277233, for the Form 941, Employer’s Quarterly Tax Return, for the quarter ending on June 30, 1981, has an unpaid balance of $9,536.90 which is past due.
You are hereby notified that you, as a partner of Associated Catering Enterprises, are being held liable for the taxes of the partnership. Please remit the above amount immediately. Your failure to pay will result in enforcement action being taken against you without further notice.

For reasons not clear from the record, Factory Storage in January of 1983 paid the IRS $9,832.23, the entire amount owed by Associated Catering Enterprises for employment taxes for the quarter ending June 30, 1981. Factory Storage thereafter filed a claim for refund with the Internal Revenue Service on May 6, 1983 to recover the employment taxes paid on behalf of Associated Catering Enterprises on the ground that neither it nor any of the other limited partners had participated in the management of the partnership to a degree which would remove the protection from liability afforded them by their “limited partner” status. See N.C.G.S. § 59-7. The IRS failed to acknowledge Factory Storage’s refund claim, and the corporation filed the present action on May 16, 1984 seeking recovery of the $9,832.23.

The government asserts in its motion for summary judgment that the court does not have jurisdiction to hear the case under 26 U.S.C. § '7422 or 28 U.S.C. § 1346(a)(1) because no taxes were actually assessed against Factory Storage and, absent such an assessment, Factory Storage is not a “taxpayer” entitled under these provisions to sue for a refund. See, e.g., Ellison v. United States, 558 F.Supp. 158, 160 (W.D.Mo.1982); Hummell v. United States, 494 F.Supp. 1003, 1004-05 (S.D.Iowa 1980). Factory Storage responds that the court has jurisdiction under these statutes since several courts have so held and allowed actions initiated by someone other than the “taxpayer” to proceed. See, e.g., Parsons v. Anglim, 143 F.2d 534, 535-37 (9th Cir.1944); Noonis v. United States, 576 F.Supp. 853, 856 (W.D.Tex.1983).

Section 7422 of the Internal Revenue Code does not itself serve as an independent jurisdictional basis for lawsuits to recover taxes paid; it only states that as a prerequisite to such a suit the taxpayer must first have filed a claim for the refund with the Internal Revenue Service. The jurisdictional statute through which Section 7422 operates is 28 U.S.C. § 1346(a)(1) which provides

(a) The district courts shall have original jurisdiction, concurrent with the United States Claims Court, of:
(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws____

Factory Storage satisfied Section 7422’s filing requirement by submitting a claim for refund to the IRS in May of 1983. Having done so, the question for the court becomes whether under Section 1346(a)(1) it has subject matter jurisdiction to hear a case filed by a plaintiff who has paid taxes on behalf of a taxpayer who was the actual subject of a tax assessment under-the erroneous belief that the plaintiff would ultimately be personally liable for the taxes.

There is a split of authority, which has existed for at least forty years, over the jurisdictional reach of 28 U.S.C. § 1346(a)(1). Compare Hofheinz v. United States, 511 F.2d 661, 662, (5th Cir.1975); Eighth Street Baptist Church, Inc. v. United States, 431 F.2d 1193, 1194 (10th Cir.1970); Ellison v. United States, 558 F.Supp. at 160-61; and Hummell v. United States, 494 F.Supp. at 1004-05, with Parsons v. Anglim, 143 F.2d 534, 536-37 (9th Cir.1944); Schoenherr v. United States, 566 F.Supp. 1365, 1367 (E.D.Wis.1983); and McMahon v. United States, 172 F.Supp. 490, 494 (D.R.I.1959). In opinions denying jurisdiction under Section 1346(a)(1), the reason cited for the denial generally has been that since this section constitutes a waiver of sovereign immunity, it must be narrowly construed to allow only those taxpayers who were actually assessed taxes by the IRS to bring suit in federal court to recover the amounts paid. See, e.g., Eighth Street Baptist Church, 431 F.2d at 1194; Ellison v. United States, 558 F.Supp. at 160. Courts extending the jurisdictional purview of the section apparently have done so for equitable reasons to avoid barring a plaintiff from any right of recovery against the United States for taxes erroneously paid. See Parsons, 143 F.2d at 536-37; Schoenherr, 566 F.Supp. at 1367. As far as the court can determine, no court in the Fourth Circuit has spoken on the issue.

After reviewing the applicable case law, the court has concluded that it does not have subject matter jurisdiction to hear Factory Storage’s case against the United States. This appears to be the majority view, and the facts of the present case are strikingly similar to the facts of Ellison v. United States, supra, a case decided by Chief Judge Russell G. Clark of the Western District of Missouri. In Ellison plaintiffs, shareholders in Bilnik’s, Incorporated, brought suit against the Internal Revenue Service alleging that the IRS had misled and misinformed them concerning their potential tax liability for the corporation’s tax debt. Id. at 159. Chief Judge Clark dismissed the case, reasoning that “[i]n order to have the requisite standing to maintain a tax refund suit under § 1346(a)(1), plaintiff must be the one against whom the tax in question was assessed.” Id. at 160. Because the federal tax was assessed only against Bilnik’s, Incorporated, and the “plaintiffs [were] aggrieved only by the manner in which the IRS sought to collect [those] taxes,” the shareholders had no standing to bring suit under Section 1346(a)(1). Id. Similarly, in the present case Factory Storage complains on equitable grounds that the IRS should not be allowed to escape by raising the jurisdictional shield of Section 1346(a)(1), but there is no question that the taxes were actually assessed against Associated Catering Enterprises and only paid by Factory Storage under the mistaken belief that it had lost its limited partner status and was therefore liable for the taxes. As in Ellison, this is not enough to allow Factory Storage to come within the narrow limits for suits under Section 1346(a)(1).

It is not without some misgiving that the court dismisses the case. Accepting Factory Storage’s assertions as true, it appears that Michael H. Wills of the IRS led representatives of Factory Storage to believe that the corporation had lost its limited partnership protection by participating in the management of the partnership. The IRS has not submitted any evidence to support this legal conclusion, and it is unclear from the record whether Wills is a lawyer authorized to draw such a legal conclusion. Moreover, the President of Factory Storage in his affidavit claims that Wills went to branch offices of First Union Bank and Branch Banking and Trust Company in Farmville, North Carolina, and threatened to levy upon Factory Storage’s bank accounts in order to satisfy the employment tax deficiency of Associated Catering Enterprises. If true, these heavy-handed tactics do little to give taxpayers confidence in the integrity of the tax collection process. Were the court not required to give narrow construction to Section 1346(a)(1) and inclined to follow the majority rule that jurisdiction is not proper in cases such as the present one, the court would certainly take a dim view of the IRS’s actions in the case were they eventually proven to be as alleged by Factory Storage in its complaint and in the affidavit of its President.

There being no subject matter jurisdiction in the case, defendant’s motion for summary judgment is granted and the action is dismissed.

SO ORDERED.


author: SHADUR, District Judge.

text:
    MAGNUS ELECTRONICS, INC., Plaintiff, v. ROYAL BANK OF CANADA and Aerolineas Argentinas, Defendants.
    No. 84 C 7630.
    United States District Court, N.D. Illinois, E.D.
    April 8, 1985.
    First Supplemental Opinion May 7, 1985.
    Second Supplemental Opinion May 15, 1985.

      Scott A. Brainerd, Brainerd & Bridges, Chicago, 111., for plaintiff.
    Alan S. Madans, Norman Barry, Rothschild, Barry & Myers, C. Kevin McCabe, Lord, Bissell & Brook, Chicago, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Magnus Electronics, Inc. (“Magnus”) has filed a multi-count First Amended Complaint (the “Complaint”) against Aerolineas Argentinas (“Aerolineas”) and the Royal Bank of Canada (“Bank”) to recover the unpaid portion of the purchase price of two shipments of electronics equipment that, Magnus says, were delivered to the buyer in Argentina in breach of Aerolineas’ and Bank’s obligations to Magnus. Bank has in turn filed a First Amended Cross-claim (the “Cross-claim”) against Aerolineas for indemnity or contribution, asserting the loss was attributable to Aerolineas’ wrongful conduct.

Aerolineas now has moved under Fed.R. Civ.P. (“Rule”) 12(b)(6) to dismiss both the Complaint and the Cross-claim because (1) Aerolíneas’ liability is governed by the terms of the Warsaw Convention (the “Convention,” 49 Stat. 3000 TS 876, reprinted following 49 U.S.C.A. § 1502) and (2) the claims against Aerolineas are barred by the Convention’s two-year limitations period. For the reasons stated in this memorandum opinion and order, Aerolíneas’ motion is granted.

Facts

In October 1981 Magnus contracted to sell three of its “Magnasync” generators to buyer Alfredo Di Lullo (“Di Lullo”) in Buenos Aires. Magnus engaged a freight forwarder to arrange for shipment to Di Lullo, and the freight forwarder then engaged Aerolíneas to transport the generators from Miami to Buenos Aires. According to the Aerolíneas air waybill the generators were to be delivered to Bank (as consignee) in Buenos Aires, with notice to Di Lullo of their arrival. Under the terms of its arrangement with Magnus, Bank was to hold the generators pending Di Lullo’s payment of the full purchase price to Bank (for Magnus’ account). Only upon payment in full was Di Lullo to take delivery of the goods.

Despite those arrangements, either Aerolíneas or Bank (or perhaps the two together in some fashion) permitted delivery of the generators to Di Lullo without Bank’s (and hence Magnus’) receiving payment. Mag-nus has yet to collect any portion of the $68,946 purchase price.

In early March 1982 Magnus entered into a second transaction with Di Lullo, this time involving a shipment of transceivers. Again Aerolíneas was engaged to carry the goods from Miami to Buenos Aires, where Bank was to take delivery as consignee pending payment in full of the $30,831 purchase price. On March 18 Di Lullo telephoned Magnus and said it had received the transceivers in good condition and would shortly tender payment — this despite the fact Di Lullo was not to get delivery before having paid the purchase price. To date Di Lullo has paid $30,000 on the 1982 shipment, leaving an outstanding balance of $831. Again Magnus claims the loss is attributable to either Aerolíneas or Bank or both.

Warsaw Convention

“[A]ll international transportation of persons, baggage, or goods performed by aircraft for hire” (Convention Art. 1(1)) is governed by the Convention, a uniform set of rules drafted at international meetings held in Paris in 1925 and Warsaw in 1929. “International transportation” is defined in relevant part to include (Art. 1(2)):

any transportation in which, according to the contract made by the parties, the place of departure and the place of destination, whether or not there be a break in the transportation or transshipment, are situated-... within the territories of two High Contracting Parties____

Both the United States and Argentina are High Contracting Parties to the Convention.

Probably the most frequently invoked provisions of the Convention, in litigation terms, are those limiting the liability of air carriers for loss or damage to passengers or property in the course of air transportation. However, the focus of the present dispute is the limitations period under Convention Art. 29:

(1) The right to damages shall be extinguished if an action is not brought within 2 years, reckoned from the date of arrival at the destination, or from the date on which the aircraft' ought to have arrived, or from the date on which the transportation stopped.
(2) The method of calculating the period shall be determined by the law of the court to which the case is submitted.

Aerolíneas claims that provision bars the claims of both Magnus and Bank. They respond with several arguments in an effort to avoid dismissal:

1. Based upon the facts as set out in Magnus’ Complaint, it is not clear the loss occurred “during transportation by air,” in which event the Convention and its two-year limitations period would be inapplicable to Magnus’ claim.
2. Bank’s cross-claim is not subject to the Convention in any event.
3. Even if the Convention does apply to the claims, the Complaint’s allegations leave open the possibility the limitations period has not run, at least as to the 1981 shipment.
4. Magnus’ allegations of fraud on Aerolíneas’ part either render the two-year limitations period inapplicable or toll it on a fraudulent concealment theory.
5. Because Aerolíneas is alleged to have engaged in “wilful misconduct,” Convention Art. 25 says Aerolíneas cannot avail itself of the two-year limitations period.

This opinion will deal successively with those contentions.

1. Applicability of the Convention to Both Claims

Article 18 defines the scope of a carrier’s liability under the Convention:

(1) The carrier shall be liable for damages sustained in the event of the destruction or loss of, or damage to, any checked baggage or any goods, if the occurrence which caused the damage so sustained took place during the transportation by air.
(2) The transportation by air within the meaning of the preceding paragraph shall comprise the period during which the baggage or goods are in charge of the carrier, whether in an airport or on board an aircraft, or, in the case of a landing outside an airport, in any place whatsoever.
(3) The period of the transportation by air shall not extend to any transportation by land, by sea, or by river performed outside an airport. If, however, such transportation takes place in the performance of a contract for transportation by air, for the purpose of loading, delivery or transshipment, any damage is presumed, subject to proof to the contrary, to have been the result of an event which took place during the transportation by air.

Article 24(1) then provides that in cases covered by Article 18:

any action for damages, however founded, can only be brought subject to the limits and conditions set out in this convention.

Magnus and Bank argue that, on the basis of the facts alleged in the Complaint, it is not clear the improper delivery of the goods to Di Lullo occurred “during the transportation by air.”

That notion is simply untenable. Mag-nus’ contract with Aerolíneas specifically required delivery of the goods shipped to Bank as Magnus’ consignee. As Complaint ¶ 5 puts it:

AA undertook ... to deliver the goods to and only to the named consignee, RBC, upon the latter’s proper identification or instructions at destination.

For presumptive liability purposes, Article 18(3)’s terms expressly embrace an air carrier’s contractual undertaking for land delivery within “transportation by air” — a term of art. Here Aerolíneas’ contract necessarily called for such “transportation by air” (though non-air transportation in common parlance) by Magnus once the goods arrived at their city of destination.

True enough, if the claimed damages take place during any such non-air leg of the carriage, Article 18(3) leaves open to the carrier the possibility of escaping absolute liability under Article 18(1) by proof that someone else was responsible. But that does not limit the defined scope of “transportation by air.” So long as the goods remain in the air carrier’s actual or constructive possession pursuant to the terms of the carriage contract, the period of “transportation by air” does not end. If Aerolíneas had put the Magnus shipments on (say) a truck and transported them from the airport in Buenos Aires to another location where Di Lullo took possession, neither Magnus nor Aerolíneas would have any basis for claiming “transportation by air” had ceased. Accordingly Article 24(1) makes Magnus’ action for damages subject to the terms of the Convention, including the Article 29(1) limitations period.

Even if the Convention is thus plainly applicable to Magnus’ claim, Bank urges it should not be construed to apply to the Cross-claim. Pointing to language dealing with rights to damages under the Convention, Bank Mem. 8 argues:

This phrasing, like the language in other pertinent Convention provisions, plainly provides rights to, and imposes corresponding burdens upon, only the plaintiff shipper.

Aerolíneas correctly responds that argument reflects only a partial reading of the Convention. As consignee for both the 1981 and 1982 shipments, Bank is a direct beneficiary of the Convention. Article 13 provides in relevant part:

(1) [T]he consignee shall be entitled, on arrival of the goods at the place of destination, to require the carrier to hand over to him the air waybill and to deliver the goods to him____
(3) If the carrier admits the loss of the goods, or if the goods have not arrived at the expiration of seven days after the date on which they ought to have arrived, the consignee shall be entitled to put into force against the carrier the rights which flow from the contract of transportation.

And Article 14 says the consignee may enforce his rights under Article 13 in his own name:

whether he is acting in his own interest or in the interest of another, provided that he carries out the obligations imposed by the contract.

Those provisions squarely gave Bank, in its own right, an action against Aerolíneas under Article 18 for nondelivery or loss of the goods. Just as with Magnus' claim, Article 24(1) rendered Bank’s claim subject to the two-year limitations period, whether filed as a direct action or as a cross-claim. See Husserl v. Swiss Air Transport Co., 388 F.Supp. 1238, 1244-45 (S.D.N.Y.1975); Reiser v. Meloi World Travel Service, 18 Av.Cas. (CCH) 17,208, 17,209-10 (S.D.N.Y.1983), both construing the “however founded” language of Article 24(1) and concluding the Convention establishes “the exclusive relief available for damages resulting from an injury sustained in international transportation” (Husserl, 388 F.Supp. at 1244).

2. Measurement of the Limitations Period under Article 29

Article 29(1) specifies any of three dates as the starting point for the running of the limitations period: the date of arrival at the destination, the date on which the aircraft ought to have arrived or the date on which transportation stopped. Magnus does not challenge the running of the limitations period on the 1982 shipment in those terms (Magnus Mem. 2). As to the 1981 shipment, however, Magnus claims there is as yet no factual basis for concluding the limitations period has run.

Complaint 116 alleges Aerolineas transported the generators to Buenos Aires “[a]t a time unknown to plaintiff.” And Complaint 1120 alleges the wrongful release of the generators to Di Lullo occurred “[a]t some point during November, 1981, or as late as some time in 1983.” Those allegations, Magnus contends, leave open the possibility that the Article 29(1) limitations period did not begin to run until sometime after September 5, 1982, even though Aerolineas unquestionably took control of the generators October 19, 1981.

That argument, in all candor, is a phony. Even putting aside the fact Magnus’ original complaint alleged the generators were shipped on October 20 and delivered to Di Lullo soon thereafter, it is simply unreasonable to infer goods delivered to an air carrier on October 19, 1981 remained in transit until at least September 5, 1982. Indeed, despite its claims to uncertainty about when the goods were shipped, Mag-nus acknowledges the generators arrived in Buenos Aires in November 1981. Complaint Mí 29-30. Moreover Magnus alleges it “has made numerous inquiries ... since 1981 as to the whereabouts of its goods.” Complaint 1133. Plainly Magnus knew in late 1981 something had gone wrong with the shipment. At that point, surely, the limitations period began to run.

In an effort to avoid that result Magnus claims to look to the language of Article 29(1), contending the generators never “arrived at the[ir] destination” and the “transportation [never] stopped” because the goods were never delivered to the proper consignee. If that were an accurate construction of Article 29(1), limitations would never run in cases where goods are somehow lost after they arrive at the airport where the plane touches down but before delivery to the party identified in the carriage contract. Surely the dates set out in Article 29(1) are not intended as alternatives that leave plaintiffs to choose the one that most extends the limitations period. Rather they are obviously designed to provide for the different circumstances under which a claim against an air carrier might arise. Their clear import is that at the latest the limitations period begins to run once a party with enforceable rights under a carriage contract knows or has reason to know something has gone wrong with the shipment, be it misdelivery, loss or delay. See Strygler & Co. v. Pan American Airlines, Inc., 84 Civ. 2652 (JMC), slip op. at 5-6 (S.D.N.Y. Feb. 15, 1985). On that (proper) reading of Article 29(1) and in the circumstances of this case, the only fair conclusion is that Magnus’ and Bank’s causes of action against Aerolineas accrued well before September 5, 1982.

3. Allegations of Aerolíneas’ Fraud and Wilful Misconduct

According to Complaint Count VI, as to both the 1981 and 1982 shipments Aerolineas acted wilfully and fraudulently to release the shipped goods to Di Lullo before payment had been received. In addition, Complaint If 33 alleges Aerolineas has fraudulently concealed its handling of the goods “and thus unreasonably delayed plaintiff in learning of their conversion.” Those allegations of fraud, Magnus asserts, are sufficient to prevent application of the Article 29(1) limitations period to either shipment, or at least to toll the limitations period until such time as Magnus learned what had happened to its goods. Bank launches a related though not identical attack based on Aerolíneas’ alleged misconduct.

In support of those contentions, Magnus and Bank point to two different provisions of the Convention. Neither leads to the claimed destination.

Magnus notes Article 26, which requires a party entitled to delivery to give written notice of any claim it may have against the carrier:

(1) Receipt by the person entitled to delivery of baggage or goods without complaint shall be prima facie evidence that the same have been delivered in good condition and in accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must complain forthwith after discovery of the damage, and at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay the complaint must be made at the latest within 14 days from the date on which the baggage or goods have been placed at his disposal.
♦ # # # * #
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part.

Focusing on the phrase “save in the case of fraud on his part,” Magnus Mem. 6 says:

The Convention’s exception to the time limitation by which notice may be given a carrier lies in the fundamental contractual principle that good faith in the carriage of goods should obtain in the premises, that is, that deliberate fraud and illegal conduct on the part of the carrier will not allow the carrier to avail itself of the two-year time limitation period.

But of course the fraud exception in Article 26(4) is applicable by its express terms only to the notice rules set out in the preceding Article 26 subsections — notice rules that come into play only after the person entitled to delivery has taken possession of the goods. Suspension of that narrow rule in case of fraud surely raises no inference that fraud will also suspend the overall limitations rule of Article 29(1). If anything the inference is precisely the opposite: Inclusion of an express fraud exception in Article 26 negates an implied-in-law fraud exception to Article 29(1).

Bank cites Article 25(1) of the Convention:

(1) The carrier shall not be entitled to avail himself of the provisions of this convention which exclude or limit his liability, if the damage is caused by his wilful misconduct or by such default on his part as, in accordance with the law of the court to which the case is submitted, is considered to be equivalent to wilful misconduct.

Bank contends Article 29(l)’s limitations rule “excludes” or “limits” a carrier’s liability and is thus negated in cases involving wilful or fraudulent misconduct. But Aerolíneas correctly points out an unbroken line of cases says otherwise. As Stone v. Mexicana Airlines, Inc., 610 F.2d 699, 700 (10th Cir.1979) (per curiam) put it, citing earlier cases that had reached the same conclusion:

We do not believe the language of Article 25 was intended to result in periods of limitation differing in accordance with the type of conduct giving rise to the cause of action. .Airplanes travel through many jurisdictions and it is evident that a uniform period of limitations was determined to be desirable.

See also the extended discussion in Bergman v. Pan American World Airways, Inc., 32 A.D.2d 95, 299 N.Y.S.2d 982, 984-85 (1969), cited with approval in Stone and quoted at length (with total agreement) in Kordich v. Butler Aviation Detroit, Inc., 103 Mich.App. 566, 303 N.W.2d 238, 239-40 (1981) (per curiam). All the cases teach the “exclude or limit his liability” language was aimed at the familiar provisions of Article 22, not at Article 29(1) and its limitations provision. In light of the universal body of authority rejecting Bank’s position, it must fail here as well.

Magnus’ fallback argument is that Aerolíneas’ fraudulent concealment of its disposition of the goods tolled the limitations period until Magnus learned what had happened. That tolling has assertedly kept the claim alive. Magnus’ contention is founded on Article 29(2):

The method of calculating the period of limitation shall be determined by the law of the court to which the case is submitted.

On the strength of that provision Magnus invokes the Illinois discovery rule codified at Ill.Rev.Stat. ch. 110, II13-215:

If a person liable to an action fraudulently conceals the cause of such action from the knowledge of the person entitled thereto, the action may be commenced at any time within 5 years after the person entitled to bring the same discovers that he or she has such a cause of action, and not afterwards.

At least two independent reasons defeat Magnus’ contention.

For one thing, the “legislative history” of the Convention demonstrates Article 29(2)’s reference to local law was never intended to bring into consideration the local limitation-tolling principles. On the contrary, the minutes of the Warsaw conference reflect its specific rejection of a provision that would have incorporated the tolling provisions of the forum’s statute of limitations, substituting instead the complete bar of actions after two years had run. R.C. Horner and D. Legrez, Minutes of the Second International Conference on Private Aeronautical Law 110-13. Article 29(2) was designed to look to the law of the forum court only on the question “whether the plaintiff had taken the necessary measures within the two-year period to invoke that particular court’s jurisdiction over the action.” Kahn v. Trans World Airlines, 82 A.D.2d 696, 705, 443 N.Y.S.2d 79, 87 (1981). In this case that issue refers not to Illinois law but to the federal rules, in this instance Rule 3:

A civil action is commenced by filing a complaint with the court.

See also Darghouth v. Swiss Air Transport Co., 18 Av.Cas. 18,536, 18,537.

Second, even were that not the case, the Illinois statute on which Magnus seeks to rely speaks of fraudulent concealment of the “cause of action.” And the Illinois cases teach the provision does not apply where the party affected by that fraud may, with ordinary diligence, discover the claim. Zagar v. Health and Hospital Governing Commission of Cook County, 83 Ill.App.3d 894, 898, 39 Ill.Dec. 112,115-116, 404 N.E.2d 496, 499-500 (1st Dist.1980).

Here there is no need to speculate as to whether the alleged fraud sought to conceal the cause of action or, if so, whether Magnus could have discovered the alleged fraud. As early as 1981 Magnus knew something had gone wrong with the shipment of generators (Complaint ¶ 33). By March 18, 1982 Magnus knew the transceivers had been improperly delivered (Complaint ¶ 23). That takes the discovery rule out of the case entirely. Magnus concededly knew facts on which it could base a claim of nondelivery. It cannot be heard to claim it was unaware it had a cause of action against Aerolíneas, regardless of any alleged fraud on Aerolíneas’ part.

Conclusion

Magnus and Bank have gone to considerable — and less than forthright — efforts to frame their allegations so as to avoid the consequences of having sat on their rights. Nevertheless, even accepting their allegations and reasonable inferences therefrom as true, it is plain they cannot prove any set of facts sufficient to establish the timeliness of their claims. Even under the liberal pleading standard of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957), recently reaffirmed in Hishon v. King & Spalding, - U.S. -, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984), Aerolineas’ motion must be granted as to Magnus’ entire Complaint and Bank’s Cross-claim.

Indeed this is not a case in which pleading over is called for. Magnus has already tried that (in a less-than-candid way). Accordingly not only the present pleadings but Magnus’ and Bank’s actions against Aerolineas are dismissed with prejudice. By a kind of poetic justice, that leaves Magnus and Bank to do battle only with each other.

FIRST SUPPLEMENTAL OPINION

This Court’s April 8, 1985 memorandum opinion and order (the ■ “Opinion”, 611 F.Supp. 436) dismissed the claims of Magnus Electronics, Inc. (“Magnus”) and Royal Bank of Canada (“Bank”) against Aerolineas Argentinas (“Aerolineas”) because those claims antedated the two-year limitations period established by Article 29(1) of the Warsaw Convention (“Convention”). Aerolineas has now moved under Fed.R.Civ.P. (“Rule”) 54(b) for entry of a final judgment in its favor on the Magnus and Bank claims. Magnus opposes that motion with a recital of recently discovered facts (Ex. 1) that, it says, show Aerolineas fraudulently concealed the existence of Magnus’ cause of action. Consequently Magnus claims the commencement of the limitations period was tolled until at least May 1984, the date Magnus says it learned of the fraudulent concealment.

It is unnecessary to detail the bulk of the newly-discovered facts, which bear primarily on the assertedly fraudulent delivery to the Argentine Air Force of the generators shipped by Magnus in October 1981. Even if true, the mere existence of that fraud does not really bear on the present motion. But Magnus also claims Aerolineas concealed the fact of such fraudulent delivery by providing Magnus in late 1982 with a forged document indicating Aerolineas had delivered the generators to the purchaser on the instructions of Bank (the designated consignee). Only in May 1984 did Bank admit to Magnus that, document bore forged signatures. Because of that misrepresentation, Magnus claims it had no reason to suspect Aerolineas might be implicated in the disappearance of the goods.

All those assertions, which for present purposes this Court will accept as true, provide no basis for modifying the analysis set out in the Opinion. At least two reasons compel that conclusion.

First, the Convention itself does not allow for a tolling of limitations because of fraudulent concealment. That tolling doctrine derives from Illinois law, Ill.Rev.Stat. ch. 110, 1113-215. And as Opinion at 15 explained, the legislative history of the Convention shows Article 29(2) was not intended to incorporate the tolling provisions of the forum’s statute of limitations. Though some case law exists to the contrary (see, e.g., Joseph v. Syrian Arab Airlines, 88 F.R.D. 530, 532 (S.D.N.Y.1980)), it does so in a wholly conclusory way, simply assuming that to be a fair reading of Section 29(2). By contrast, the analysis set out in Kahn v. Trans World Airlines, 82 A.D.2d 696, 705, 443 N.Y.S.2d 79, 87 (1981) and Darghouth v. Swiss Air Transport Co., 18 Av.Cas. 18,536, 18,537 (D.C.D.C.1984) stands on the much firmer ground of a careful reading of the Convention’s legislative history. This opinion continues to adhere to this Court’s prior ruling in that respect.

Second, even were the law otherwise— even were the Illinois fraudulent concealment doctrine considered applicable here— the new facts Magnus addresses do not improve its position. Suppose Magnus could prove Aerolineas knew the document issued by Bank had been forged. Nonetheless Magnus — by its own admission— knew as early as sometime in 1982 something had gone awry with the shipment. That knowledge of probable (if not certain) nondelivery was, by definition, knowledge of a probable (if not certain) cause of action against Aerolineas under the Convention. In the face of such knowledge, and given the risk the two-year limitations period might run, it was incumbent on Magnus to act to protect its rights. There was nothing to prevent it from bringing a timely suit against Aerolineas under the Convention, and then carrying on any necessary further investigation in the context of an already-asserted cause of action.

Such is not the stuff of which fraudulent concealment of a “cause of action” is established (see Opinion at 15-16). Nothing in the newly-advanced facts creates even the reasonable inference Magnus was deceived as to the possible existence of a cause of action against Aerolineas (First Amended Complaint 1133). Though it is always a source of distress when fraudulent conduct escapes untouched, that is the inevitable result when the defrauded party permits the limitations period on its claim to run. It is no part of the court’s duty to protect a litigant from the consequences of its own lack of diligence.

That then is the framework for consideration of Aerolineas’ Rule 54(b) motion. On that score Aerolineas is clearly right: Whatever dispute remains between Mag-nus and Bank is unrelated to the now-dismissed claim against Aerolineas, and no piecemeal review of common issues would be caused by entry of a final order as to Aerolineas. Under the type of Rule 54(b) analysis employed (though in a wholly different context) in Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 10, 100 S.Ct. 1460, 1466, 64 L.Ed.2d 1 (1980), Aerolineas is entitled to require the losers to appeal promptly (or, absent such an appeal, it is entitled to the comfort of repose). Curtiss-Wright leaves the certification decision “to the sound judicial discretion of the district court,” subject to disturbance by the court of appeals “only if it can say that the judge’s conclusion was clearly unreasonable.”

Accordingly Aerolíneas’ motion for Rule 54(b) certification is granted. This Court expressly directs entry of a final judgment dismissing all claims against Aerolineas, because this Court determines (also expressly) there is no just reason for delay.

EXHIBIT 1

Honorable Milton I. Shadur

United States District Judge

Room 2357

219 S. Dearborn St.

Chicago, IL 60604

Re: 84 C 7630

Magnus Electronics, Inc. v.

The Royal Bank of Canada

and Aerolíneas Argentinas

Dear Judge Shadur:

I appeared before you on April 11, 1985, in the above-referenced cause. We discussed your Memorandum Opinion and Order regarding the airlines’ dismissal from the case. You suggested that I write to you concerning any portions of your Opinion I request be omitted from publication, given that recently discovered facts have conclusively shown that plaintiff has made no disingenuous or untrue allegation either in its original or amended complaint. In essence, because plaintiff was under a disadvantage in its pleadings, not knowing the mysterious fate of its goods until only last month, plaintiff was in a quandary. It was caught, metaphorically, between the Scylla of pleading fraud with particularity under Rule 9, and the Charybdis of alleging without sufficient factual basis, invoking the spectre of Rule 11.

The evidence now shows that the defendant Argentine Airlines (AA) delivered the goods to the Argentine Air Force, not the ultimate consignee, DiLullo. We therefore respectfully request that footnotes 4 and 5 on pages 9 and 10 of the Memorandum of Opinion be omitted, given that facts do not now justify their inclusion. Pages 16 and 17 of the Opinion should in fairness be modified where it is stated that “Magnus and bank have gone to considerable — and less than forthright — efforts to frame their allegations so as to avoid the consequences of having sat on their rights”.

The following facts have now become known as a result of discovery documents received from the airlines (AA) and The Royal Bank (RBC) in recent weeks:

1. DiLullo never did receive the goods in the first shipment. Instead, AA admitted for the first time in March, 1985, that delivery was made directly to the Argentine Air Force in November, 1981.
2. To thus claim and take the goods at least one, and probably more, forged documents were used bearing fake signature(s) on one or more RBC letterheads. How these documents were obtained is unknown.
3. A A is wholly-owned by the Argentine government, and has been unable to produce documents which by Argentine law it otherwise normally would and legally must retain and be able to produce. Article 846 and 853 of the Argentine Commercial Code. The original AA documents otherwise normally found in AA files (including the missing original airway bill) were apparently removed or destroyed by persons unknown, no doubt in connection with the fraudulent delivery to the Argentine Air Force only now (March, 1985) and for the first time admitted by AA.
4. Documents produced this month by RBC conclusively indicate that indeed there was a fraudulent “cover-up” of the original fraud perpetrated by the government itself. Argentina Central Bank Form 4008A dated August 6, 1982 (a form customarily used by persons applying for foreign exchange), attached hereto as Exhibit A and which has just been produced (April, 1985) by RBC (see pages 105-106, together with English translation thereof), shows on its face that the goods were taken by the Argentine government as WAR SECRET material, but that information to this effect was purposely suppressed for almost one year because .. such information was not to be made publicly known” prior to that date (August 6, 1982). Note that this information never reached Magnus until April, 1985!
5. Although Magnus made inquiry to the airlines in 1982 as to the fate of its goods, because it suspected irregularities, AA gave no official notice or other explanation to either the consignee or consignor pursuant to its obligation under Art. 13(2) of the Warsaw Convention. Magnus received from AA’s Miami office in late 1982, Exhibit “E-l” to the Amended Complaint (the document which in ± May 1984 was for the first time admitted by RBC to bear forged signatures on its letterhead stationery). This document falsely showed that the goods were properly delivered by AA to RBC, thus removing all suspicion from AA inasmuch as that document, regular on its face, clearly indicated that AA was not at fault at all, but that the goods were delivered by AA to the proper, designated consignee. As the evidence now shows, however, not only was that document clearly fraudulent when made, but it was given to Magnus by AA under circumstances (late 1982) when AA well knew that it was perpetrating a further fraud by passing it on to Magnus to advise Magnus that delivery was made to RBC when AA well knew that delivery had been made in November, 1981 not to RBC but to the Argentine Air Force! It thus becomes crystal clear that AA, as an agency of the Argentine government, in conspiracy with other agencies of that government, in late 1982 deliberately and knowingly misrepresented to Magnus the true fate of the goods: By falsely then stating that they had been delivered to RBC (while all the while knowing they had been delivered wrongly a year earlier to the Air Force) Magnus was precluded from even considering any action thereafter against AA until about May of 1984 when Magnus learned for the first time that the “Ex. E-l” document submitted to it in late 1982 by AA, was fraudulent! Moreover, Magnus still did not even learn until March of 1985 that AA had in fact surrendered the goods to anyone other than RBC, the proper consignee! It was only in March, 1985 that Magnus first learned that by its own present admissions, AA had been guilty of two frauds, first, in the wrongful misdelivery of the goods, and second, in deliberately misadvising Magnus as to their fate almost a year later and thus concealing its own wrongdoing by willful deceit.
6. Magnus, although alleging on information and belief in its complaint, that DiLullo had received the goods, actually had no specific information that the buyer had received the goods. DiLullo never positively indicated that he had received possession of the goods, only alluded to the fact that the goods were “there in Argentina”, perhaps still waiting at the airport. (It is not uncommon for Latin American buyers to take months to obtain necessary funds to obtain goods in storage at customs or at the airport because of skyrocketing inflation and restrictive currency exchange problems.) In fact, DiLullo informed Magnus that there were no problems with the goods, but rather with the Central Bank of Argentina which was holding up payments for the Magnus imports because of foreign currency exchange restriction measures, a plausible explanation that persisted at least until late 1982. DiLullo, it is believed, thus conspired with and also acted as an agent of the government.
7. Finally, RBC, who as consignee was entitled to enforce rights against the carrier, although informed never informed Magnus of the goods' misdelivery to the Air Force even though RBC learned of this fact at latest in August, 1982. See Exhibit A attached hereto. RBC concealed this fact and failed to investigate the actual, known misdelivery of same, merely continuing to send out form letters to DiLullo, thereby misleading Magnus totally both as to the true, existing factual situation, and depriving Magnus of its right to timely proceed against the airlines — as well as against RBC itself for its culpable negligence.
8. In sum, the Argentine government’s use of its wholly-owned airlines to illegally acquire goods for military purposes, and its subsequent concealment of that fact aided and abetted by AA, RBC and the buyer, prevented Magnus from vindicating its rights.

Under the aforementioned facts, Magnus proposes on May 9, at the regularly scheduled status hearing, to do the following:

1. Join the Argentine government pursuant to 28 U.S.C. 1605(a)(3);
2. Oppose AA’s motion for final judgment on the basis that AA fraudulently concealed plaintiff’s cause of action against the airlines, with the participation of the Argentine government; and
3. Outline its arguments against the Royal Bank of Canada under the Warsaw Convention, the Uniform Rules for Collections, I.C.C. Publication No. 322, and normal trade and business customs.

Magnus will also present a brief Memorandum of Law in support of its position with translated documents supporting the aforesaid contentions enumerated above. Certainly if any fact stated above is inaccurate counsel for the defendants, to whom I am addressing a copy of this letter, will point it out to the Court.

Yours truly,

/s/ Scott A. Brainerd

Scott A. Brainerd

cc: Kevin McCabe

Alan Madans

SECOND SUPPLEMENTAL OPINION

On May 7, 1985 this Court announced its memorandum opinion and order (“Opinion II”) in open court and distributed copies to counsel. At that time counsel for Magnus Electronics, Inc. (“Magnus”) tendered an affidavit to support the assertions in his April 30 letter (assertions this Court had accepted purely arguendo in any event, attaching the letter as an exhibit to Opinion II).

By chance this Court has just encountered a recent decision under the Tucker Act by the Court of Appeals for the Federal Circuit, which illustrates graphically the distinction between (1) knowledge of the existence of the cause of action (in the present case the fact of nondelivery of the generators) — knowledge that triggers the running of a statute of limitations in all events — and (2) knowledge of the particulars of how the wrong was committed. As the Court said in Welcker v. United States, 752 F.2d 1577, 1580 (C.A.F.C.1985) (emphasis added):

Cases from our predecessor court and other circuits firmly establish that the statute of limitations is tolled only so long as the plaintiff is unaware of the wrong committed. “Defendant is not required to wait until plaintiff has started substantiating his claims by the discovery of evidence. Once plaintiff is on inquiry that it has a potential claim, the statute can start to run.”

That led the Court of Appeals to hold “as a matter of law,” as this Court has done here, plaintiff had sufficient notice to start the limitations clock running.

It is again important to recall the terms of the Warsaw Convention. Article 29(1) establishes certain dates as the alternative starting points for the running of the limitations period: the date of arrival at the destination, the date on which the aircraft ought to have arrived or the date on which transportation stopped. Because nondelivery by any of those dates creates a res ipsa loquitur case (or, more accurately, a prima facie cause of action), only the arrival of the relevant date is needed to start the running of limitations. Thus if fraudulent concealment has any place in the limitations equation at all, it could only be by “concealment” of those dates or of the fact of nondelivery of the goods.

Magnus’ First Amended Complaint sought to bring itself within those narrow lines — on plainly insupportable grounds, as revealed in this Court’s “Opinion I” of April 8, 1985. When that did not work, Magnus most recently sought to shift ground by an equally impermissible effort that strays even farther from any conceivably relevant “fraudulent concealment” theory, dealt with in Opinion II. Welcker and like opinions simply fortify the results reached in Opinions I and II.

      . As with any motion to dismiss, the well-pleaded factual allegations of the Complaint (as to Aerolíneas) and the Cross-complaint are taken as true, with all reasonable factual inferences drawn in favor of Magnus and Bank respectively. Wolf oik v. Rivera, 729 F.2d 1114, 1116 (7th Cir.1984). That approach of course involves no actual findings of fact.

      . Di Lullo is identified as an individual in Complaint ¶ 3, while the documentary exhibits to the Complaint refer to a firm or corporation: "Alfredo Di Lullo e Hijo” or "Alfredo Di Lullo e Hijo, S.A.” For current purposes it is irrelevant which designation is right.

      . In effect the Magnus-Bank position would take the Convention entirely out of play for nondelivery claims (within the scope of the air carrier's contract) unless the air carrier dropped goods by parachute as its flight passed over the party to whom delivery was specified. Of course that could not be the case. It must be remembered the Convention was the product of extensive negotiation and draftsmanship, not simply an exculpatory treaty for the benefit of air carriers. As the text discussion next reflects, one of the Convention’s effects was to provide the shipper with a prima facie case if the goods failed to reach their ultimate destination for any reason, thus placing the burden of proof on the carrier (for example, in cases of mysterious disappearance).

      . When Di Lullo telephoned Magnus in the middle of March 1982, Magnus plainly knew Aerolíneas had not complied with its duty to deliver the goods only to Bank pending full payment. Even Magnus acknowledges the limitations period began to run at that point and (absent tolling for any reason) expired sometime during March 1984 — before this suit was filed September 5, 1984. Apparently Magnus thus does not recognize that the logic (or rather illogic) of its argument as to the 1981 shipment, treated next in the text, should also lead it to challenge the limitations defense as to the 1982 shipment. This opinion will not pause for the analysis that demonstrates such is the case, but that nonrecognition on Magnus' part ought to tell us something about the weakness of its 1981-shipment argument.

      . Aerolineas Mem. [8] says the Amended Complaint was filed after its counsel had discussed the Convention and its two-year limitations period with Magnus’ lawyer. That makes the revised allegations about time of delivery smack of disingenuousness rather than ingenuity — the kind of conduct that could well trigger Rule 11 sanctions. On the current motion, though, this Court (consistently with Rule 12(b)(6) principles) will indulge the reasonable inferences in Magnus’ favor.

      . That conclusion, grounded in common sense, is also reflected in Article 13(3), which allows the consignee to enforce its rights flowing from the contract either ’’[i]f the carrier admits the loss of the goods, or if the goods have not arrived at the expiration of seven days after the date on which they ought to have arrived.” That provision operates on the obvious premise that the parties to a carriage contract will have reason to know within a short period of time whether or not the shipment has been properly delivered.

      . To provide itself with the repose of a final judgment, Aerolineas may want to consider a motion under Rule 54(b). If so, its attention is • called to the standards set by the Supreme Court . in Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 7-12, 100 S.Ct. 1460, 1464-1467, 64 L.Ed.2d 1 (1980) and by our Court of Appeals in such cases as Bank of Lincoln-wood v. Federal Leasing, Inc., 622 F.2d 944, 947-52 (7th Cir.1980) and id. at 952-56 (Swygert, J., dissenting); U.S. General, Inc. v. City of Joliet, 598 F.2d 1050, 1051 n. 1 (7th Cir.1979).

      . As in the Opinion, relevant provisions of the Convention are cited simply "Article — ."

      . Magnus has offered nothing specific showing Aerolineas knew the document from Bank had been forged. Absent such knowledge, of course, Aerolineas’ presentation of the document could hardly be fraudulent. However, such knowledge will be assumed arguendo here.

      . Exhibit 1 ¶ 5 says in part:
      Magnus made inquiry to the airlines in 1982 as to the fate of its goods, because it suspected irregularities____
      That reference to "fate of its goods” confirms Magnus by then clearly knew the goods had not gone to their designated destination — else no such inquiry would have been required.

      . Again it should be stressed this opinion neither makes nor implies any findings in that respect. It simply accepts for argument’s sake the Magnus assertions, recognizing Aerolineas has had no chance to answer them.

      . One issue remains. As Exhibit 1 reflects, in part Magnus’ counsel asks for deletion of Opinion nn. 4 and 5 and modification of Opinion at 443. But nothing in Magnus’ current submission even begins to deal with the non-forthright Amended Complaint allegations criticized in the Opinion — allegations that Aerolineas transported the generators to Buenos Aires “[a]t a time unknown to plaintiff” and that the wrongful release of the generators occurred "as late as some time in 1983." Those allegations were disingenuous when tendered, and they are no less so now. To the extent counsel believes the newly-tendered information excuses the earlier conduct (it does not), publication of this supplemental opinion and Exhibit 1 together with the Opinion will suffice.

      . Given the structure of the Convention, it is understandable why the existence of any "fraudulent concealment" notion is doubtful at best. After all, it would be an extraordinary situation in which the fact of nondelivery of the goods or the passage of the Article 29(1) dates could be “concealed” — fraudulently or otherwise.


author: SANDERS, District Judge.

text:
    Paul A. BOSCO, Individually and Paul A. Bosco & Sons Contracting Corporation, Plaintiffs, v. U.S. ARMY CORPS OF ENGINEERS, FORT WORTH DISTRICT, et al., Defendants.
    Civ. A. No. 3-84-1459-H.
    United States District Court, N.D. Texas, Dallas Division.
    April 9, 1985.

      Lee C. Davis, Griffin Cochrane & Marshall, Atlanta, Ga., Marc R. Stanley, Strasburger & Price, Dallas, Tex., for plaintiffs.
    Charles Ory, Asst. U.S. Atty., Dallas, Tex., Rupert M. Mitsch, Trial Atty., Torts Branch, Civ. Div., U.S. Dept. of Justice, Washington, D.C., for defendants.
   MEMORANDUM OPINION AND ORDER

SANDERS, District Judge.

Before the Court are the following pleadings:

Defendants’ Motion to Dismiss and Memorandum in Support, filed December 11, 1984;
Plaintiffs’ Memorandum in Opposition, filed January 22, 1985;
Defendants’ Reply to Plaintiffs’ Opposition, filed February 12, 1985;
Plaintiffs’ Response to Defendants’ Reply, filed March 4, 1985;
Defendants’ Supplement to Motion to Dismiss, filed March 13, 1985;
Defendants’ Motion to Dismiss, and Memorandum in Support (Amended Complaint), filed February 12, 1985;
Plaintiffs’ Memorandum in Opposition (Amended Complaint), filed March 4, 1985.

Factual Background

The current dispute between the parties has its roots in the solicitation and award of the Lakeview Lake Embankment Project in Mountain Creek, Texas. When bids were opened by the United States Army Corps of Engineers (“Corps”) on August 12, 1981, John Carlo, Inc. (“Carlo”) was determined to be the low bidder. During the pre-award survey, the Corps discovered that Carlo anticipated using Paul A. Bosco & Sons Contracting Corporation as a subcontractor on the project. Based on information gathered in the survey, the contracting officer concluded that the subcontractor lacked a satisfactory record of integrity. The contracting officer considered Carlo’s association with Bosco and Paul A. Bosco & Sons Contracting Corporation (hereinafter collectively referred to as “Bosco”) and decided he could not make an affirmative determination of contractor responsibility, as required by law. As a result, the contract for the project was awarded to the second low bidder.

Bosco filed a Complaint against the Corps, claiming de facto debarment, tortious interference with business relations and violations of procedural due process. Paul A. Bosco & Sons Contracting Corporation and Paul A. Bosco v. The United States Army Corps of Engineers, Fort Worth Division and the Secretary of the United States Army, No. 3-82-0457-H (N.D.Tex. filed March 24,1982) (hereinafter “Bosco I”). By Memorandum Opinion and Order, filed April 27, 1983, this Court dismissed, without prejudice, Bosco’s contract and tort claims, leaving only the claims seeking declaratory and injunctive relief for the alleged due process violations.

Bosco pursued its tort claims by filing an administrative claim with the Corps on September 15, 1983. See Amended Complaint, Exhibit A. The claim was denied on February 29, 1984. On May 22, 1984, the parties settled Bosco I. The settlement agreement included assurances that Bosco would be permitted to bid on government construction projects. See Defendants’ Memorandum in Support, Exhibit 3.

On August 29, 1984, Bosco filed this action based on its administrative claim. The Original Complaint alleged damages resulting from

(1) denial of due process under the Fifth Amendment of the United States Constitution (Counts I and II);
(2) de facto debarment (Count III);
(3) libel and slander (Count IV);
(4) tortious interference with business relations (Count V).

In response to Defendants’ Motion to Dismiss, Plaintiffs amended their Complaint to add the tort of false light invasion of privacy (Count VI). Plaintiffs claim two million dollars of damages relating to the Carlo contract and an additional five million dollars relating to other government and private contracts lost “as a result of Defendants’ determination that Bosco ‘lacked integrity’ ”. Amended Complaint, at 9, 10.

In their Motions to Dismiss, Defendants urge dismissal of Plaintiffs’ Complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). Defendants argue that the waiver of sovereign immunity in the Federal Tort Claims Act, 28 U.S.C. § 2671 et seq. (hereinafter “FTCA”), is limited by the express provisions of the statute. Defendants maintain that Plaintiffs’ Complaint must fail because it contains claims expressly excluded by the statute or which are not cognizable under the law of the state of Texas.

The Section 2680(h) Exceptions

The United States District Court is given jurisdiction of tort claims for money damages against the federal government in 28 U.S.C. § 1346(b), which provides:

... the district courts ... shall have exclusive jurisdiction of civil actions on claims against the United States for money damages ... for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the government while acting within the scope of his office or employment, under circumstances where the United States, if a private person would be liable to the claimant in accordance with the law of the place where the act or omission occurred.

The FTCA defines the tort liability of the United States as follows:

The United States shall be liable, respecting the provisions of this title relating to tort claims, in the same manner and to the same extent as a private individual under like circumstances, but shall not be liable for interest prior to judgment or for punitive damages.

28 U.S.C. § 2674.

While this waiver of sovereign immunity is couched in broad terms, Congress explicitly preserved the immunity of the United States in several areas. Defendants focus on the exception appearing in 28 U.S.C. § 2680(h) which precludes recovery against the United States for various intentional torts, including “[a]ny claim arising out of ... libel, slander, ... or interference with contract rights.” Defendants argue that Plaintiffs’ claims for libel, slander, false light invasion of privacy and tortious interference with business relations are barred by section 2680(h).

Certainly Plaintiffs’ libel and slander claims fall squarely within the exceptions in subsection (h) and must be dismissed. The question upon which the Court must focus is whether the language of 2680(h) encompasses the claims of false light invasion of privacy and tortious interference with business relations.

In construing the provisions of the FTCA, the Court is guided by the general principle that the United States may be liable for the torts of its employees only where there has been a “clear relinquishment of sovereign immunity”. Dalehite v. United States, 346 U.S. 15, 73 S.Ct. 956, 97 L.Ed. 1427 (1953). As stated more recently by the United States Supreme Court, “the proper objective of a court attempting to construe one of the subsections of 2680 is to identify ‘those circumstances which are within the words and reason of the exception’ — no less and no more”. Kosak v. United States, 465 U.S. 848, 104 S.Ct. 1519,1523 n. 9, 79 L.Ed.2d 860 (1984) (,quoting Dalehite, 346 U.S. at 31, 73 S.Ct. at 965). Clearly, the Court’s inquiry must extend beyond a superficial review of the pleadings before the Court. United States v. Neustadt, 366 U.S. 696, 703, 81 S.Ct. 1294; 1298, 6 L.Ed.2d 614 (1961).

In their Amended Complaint, Plaintiffs allege that they were determined by Defendants to lack integrity on the basis of a report that is “derogatory” because of its allegations which “tend to stigmatize both Bosco and Bosco Corp.” Amended Complaint, at 5. Plaintiffs assert that Defendants informed the news media of their determination, and that, as a result, Plaintiffs “have been saddled with the stigma of a contractor who ‘lacks integrity’ in the construction industry____” Id. at 7, 8. The Administrative Claim filed by Bosco Corporation states that “[t]he Corps has thus used the report to besmirch Bosco’s reputation” and concludes that “the Corps’ actions have ruined Bosco’s reputation____” Id., Exhibit A, at 3, 5. It is clear from such allegations that the gravamen of Plaintiffs’ complaint is injury to reputation which is the interest protected by the law of defamation. See Restatement (Second) of Torts § 558 (1979).

While it is true that false light invasion of privacy is a distinct tort from libel or slander, the Court notes that Plaintiffs’ Complaint was amended to add the theory only after Defendants’ Motion to Dismiss the libel and slander claims. Indeed, Plaintiffs’ Memorandum in Support of Motion for Leave to File Amended Complaint states that “plaintiffs believe that the amended complaint will more adequately respond to Defendants’ Motion to Dismiss and will more accurately present to the Court the controversy between the parties.” Memorandum, at 1. While Plaintiffs maintained that their “original complaint does not accurately reflect Plaintiffs’ claims”, the general allegations in Paragraphs 7 through 39, which provide the basis for the claims, are identical in both the Original and Amended Complaints.

The Court cannot permit the obvious attempt by Plaintiffs to circumvent the bar of 2680(h) by merely relabeling the theory upon which they seek recovery. Hernandez v. United States, 465 F.Supp. 1071 (D.C.Kan.1979). As stated by one court, “[i]n determining the applicability of the § 2680(h) exception a court must look not to the theory upon which the plaintiff elects to proceed, but rather to the substance of the claim which he asserts”. Lambertson v. United States, 528 F.2d 441, 443 (2d Cir.1976). See also Johnson v. United States, 547 F.2d 688, 691 (D.C.Cir.1976); Blitz v. Boog, 328 F.2d 596, 598 (2d Cir.1964), cert. denied, 379 U.S. 855, 85 5. Ct. 106, 13 L.Ed.2d 58 (1964). The substance of Plaintiffs’ complaint here is defamation which is barred under the FTCA.

Defendants also argue that the claim of tortious interference with business relations is barred, since it arises from an alleged interference .with contract rights. Plaintiffs respond that, under Texas law, they have alleged a tort distinct from that barred by the FTCA. It is true that Texas law recognizes a cause of action for tortious interference with business relations even in the absence of a contract. Martin v. Phillips Petroleum Co., 455 S.W.2d 429, 435 (Tex.Civ.App. — Houston [14th Dist.] 1970, no writ). The distinction is one “without a difference”, however, for purposes of the FTCA exceptions.

Plaintiffs allege that Defendants have interfered with their business relations with third parties. Such an alleged breach of duty is the same as that resulting from an interference with contract rights. As described in the Restatement, “[t]here is a general duty not to interfere intentionally with another’s reasonable business expectancies of trade with third persons, whether or not they are secured by contract, unless the interference is not improper under the circumstances”. Restatement (Second) of Torts § 766 comment 6.

The construction proposed by Plaintiffs subjects the United States to liability for the speculative claim of interference with potential contracts while precluding recovery for the more tangible claim of interference with existing contracts. The Court declines to adopt such an illogical construction. See Art-Metal U.S.A., Inc. v. United States of America, 753 F.2d 1151, 1154, 1155 (D.C.Cir.1985) (courts have consistently held that claims for interference with prospective advantage barred as claims arising out of interference with contract rights) and cases cited at n. 5 of the slip opinion. Count V of Plaintiffs’ Complaint must therefore be dismissed.

De facto Debarment

Defendants argue that Plaintiffs’ debarment claim must also be dismissed for failure to state a claim for relief. Fed.R.Civ.P. 12(b)(6). Defendants support their argument on the basis of the limitation in the FTCA that the liability of the United States exists only “in the same manner and to the same extent as a private individual under like circumstances”. 28 U.S.C. § 2674. The “manner and extent” of liability is to be determined “in accordance with the law of the place where the act or omission-occurred”. 28 U.S.C. § 1346(b). It is undisputed that Texas law governs.

Plaintiffs propose that “[t]he fact that Texas courts have not ruled, in a published opinion, on debarment as a tort under state law is not fatal to plaintiffs’ cause of action under the FTCA, based on the Corps’ debarment of plaintiffs in violation of applicable regulations.” Memorandum in Opposition, at 8. Plaintiffs argue that it is sufficient to identify an analogous form of liability which is recognized under state law. Since Texas law permits tort recovery under a negligence per se theory where a statutory or regulatory provision is violated, Plaintiffs reason that Defendants’ failure to follow regulations constitute a cause of action under the FTCA.

The Court is not persuaded by Plaintiffs’ reasoning. It is clear that the violation of a federal statute or regulation by a federal employee does not in and of itself create a cause of action under the FTCA. See United States v. Smith, 324 F.2d 622, 624, 625 (5th Cir.1963) (FTCA not applicable where claimed negligence arises out of failure of United States to carry out a statutory duty in the conduct of its own affairs, in view of section 1346(b) language). As explained by the Smith court, “[t]his is so because it is impossible to equate the relationship of the parties in such a situation to any state law relationship where the person sought to be bound is a ‘private person’ who would be liable to the claimant in accordance with the law of the state”. Id. at 625. Since Plaintiffs' have failed to demonstrate that Texas law recognizes a tort action for de facto debarment, Plaintiffs’ allegations fail to state a cause of action cognizable under the FTCA. See Dugan v. United States, No. 81-1635, slip op. (E.D.Pa. Nov. 19, 1982), aff'd without opinion, 722 F.2d 731 (3d Cir.1983) (where no cause of action recognized for debarment without opportunity to be heard under Pennsylvania law, United States immune under FTCA).

Plaintiffs assert that “[ejven if the Government has not waived immunity for claims of libel, slander, and interference with contract, it is plain that the corps, by depriving plaintiffs of process, has injured a recognized liberty interest.” Memorandum in Opposition, at 11. Such an argument is of no avail, since constitutional torts are outside the purview of the FTCA. Brown v. United States, 653 F.2d 196, 201 (5th Cir.1981), cert. denied, 456 U.S. 925, 102 S.Ct. 1970, 72 L.Ed.2d 440 (1982) citing Birnbaum v. United States, 588 F.2d 319, 327 (2d. Cir.1978) (“We do not believe that the Federal Tort Claims Act comprehends federal constitutional torts in its reference to the ‘law of the place’ under § 1346(b).”). Since the Fifth Amendment rights asserted by Plaintiffs are guaranteed under federal law, not local law, the violations alleged are not remedial under the FTCA. See Art-Metal, at 1160 (“FTCA’s local law requirement may not be circumvented merely by casting alleged constitutional wrong as negligence”.)

The Discretionary Function Exception

Finally the Court also finds merit in Defendants’ argument that the actions of which Plaintiffs complain fall within the scope of the discretionary function exception. The. exception appears in section 2680(a) and preserves the sovereign immunity of the federal government with respect to “any claim ... based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the government, whether or not the discretion involved be abused.” 28 U.S.C. § 2680(a). The purpose of the exception is to shield essential governmental decisionmaking from disruptive and unreasonable challenges in the courts. Dalehite v. United States, 346 U.S. 15, 73 S.Ct. 956, 97 L.Ed. 1427 (1953). As elaborated upon by the Dalehite court, the exception encompasses “more than the initiation of programs and activities. It also includes determinations made by executives or administrators in establishing plans, specifications, or schedules of operations. Where there is room for policy judgment and decision there is discretion”. Id. at 35, 36, 73 S.Ct. at 968.

The Supreme Court’s most recent effort to delineate the reach of the discretionary function exception focuses on the conduct being challenged. United States v. S.A. Empresa de Viacao Area Rio Grandense (“VARIG”), — U.S.-, 104 S.Ct. 2755, 81 L.Ed.2d 660 (1984). In VARIG, the Court stated that “the basic inquiry ... is whether the challenged acts of a Government employee — whatever his or her rank — are of the nature and quality that Congress intended to shield from tort liability ... [to avoid] judicial ‘second guessing’ of legislative and administrative decisions grounded in social, economic, and political policy through the medium of an action in tort.” Id. at 2675. This Court is persuaded that Plaintiffs’ complaint regarding Defendants’ contract procurement process involves the type of activity shielded by section 2680(a). See Scanwell Laboratories v. Thomas, 521 F.2d 941, 948 (D.C.Cir.1975) (discretionary function applies where contracting officer’s obligation not purely ministerial, notwithstanding possible abuse of discretion in ignoring bidding regulations).

As stated earlier, the Corps was required to make a determination whether or not Carlo was a responsible contractor. See DAR 1-904.1. In making his determination of responsibility, the contracting officer must consider the records of any concerns who may influence the bidder’s performance, including subcontractors. See DAR 1-906. Based on the information gathered in the pre-award survey, the contracting officer determined Bosco lacked a satisfactory record of integrity which was imputed to Carlo. See Memorandum Opinion and Order, filed April 27,1983, in Bosco I.

Certainly the federal actions challenged by Plaintiffs required the exercise of judgment and discretion. Lipka v. United States, 249 F.Supp. 213, 216, 217 (N.D.N.Y.1965), aff'd on other grounds, 396 F.2d 288 (2d Cir.1966), cert. denied, 388 U.S. 925, 87 S.Ct. 2129, 18 L.Ed.2d 1381 (1967) (“[T]he picking and choosing involved in the selection process is the very essence of a discretionary function”). The Court must conclude, then, that section 2680(a) bars the claims raised by Plaintiffs in this case. See Dugan v. United States, No. 81-1635, slip op. (E.D.Pa. Nov. 19, 1982), aff'd without opinion, 722 F.2d 731 (3d Cir.1983) (since agency responsible for choosing training programs based on standards requiring exercise of reasonable inquiry into various areas, award of outside contracts to provide training necessarily discretionary).

Conclusion

Based on the foregoing, the Court is of the opinion that Plaintiffs’ Complaint should be, and it is hereby, DISMISSED.

SO ORDERED.

      . The determination by the Corps that Bosco lacked integrity was based primarily upon a report authored by the Nashville Division of the Corps. The report was a summary of an internal agency investigation and contained details of a criminal investigation against Bosco. The report also included an evaluation of Bosco’s performance on the Tennessee-Tombigee Waterway project. Defendants' Memorandum in Support, at 3.

        . The Defense Acquisition Regulations ("DAR”) require that “[p]urchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only____ The contracting officer shall make a determination of nonresponsibility if, after compliance with 1-905 and 1-906, the information thus obtained does not indicate clearly that the prospective contractor is responsible.” DAR 1-902 (1976 ed.). For full text of DAR 1-902, see infra note 9.

      . Even a cursory reading of the statute should have made it equally clear to the Plaintiffs that this Court is without jurisdiction to hear any claims against the United States arising from libel or slander. Indeed, in their Memorandum in Opposition to Defendants’ Motion to Dismiss, filed simultaneously with a Motion to Amend, Plaintiffs conclude that "aside from libel and slander, Plaintiffs' causes are not excepted by § 2680(h).” Memorandum, at 20. Having noted the exclusion, Plaintiffs persisted in maintaining libel and slander claims in their Amended Complaint. See Amended Complaint, Count IV.

      . See, e.g., Wood v. Hustler Magazine, 736 F.2d 1084, 1087 (5th Cir.1984) (Texas law recognizes cause of action for invasion of privacy). The Wood court also noted, however, that the principal element of injury in a defamation action is damage to reputation while a privacy action is founded on mental anguish. Id.

      . The Court notes the holdings in other cases that 2680(h) does not preclude a cause of action against the United States for invasion of privacy. See Bimbaum v. United States, 588 F.2d 319, 328 (2d Cir.1978); Black v. Sheraton Corp., 564 F.2d 531, 539-41 (D.C.Cir.1977). The Court does not take issue with those cases, but merely concludes that the specific allegations raised by Plaintiffs here arise from libel and slander rather than an invasion of privacy.

      . See, e.g., C.F. & 1. Steel Corp. v. Peter Sublett and Co., 623 S.W.2d 709, 715 (Tex.Civ.App.— Houston [1st Dist.] 1981, writ refd n.r.e.) (recognizing the similarities between interference with a business relationship and contract interference).

      . The regulation allegedly breached by the Corps is DAR 1-605.3 which requires notice and an opportunity to be heard prior to debarment.

      . Myers & Myers, Inc. v. United States Postal Service, 527 F.2d 1252 (2d Cir.1975) lacks the precedential value proposed by Plaintiffs. In remanding the case for further proceedings, the Myers court merely suggested that “[i]t is also possible that the failure of the Postal Service to comply with its own regulations, or with constitutional requirements, to provide a hearing before taking action constituting debarment may be treated under state law as negligence per se.” Id. at 1261.

      . DAR 1-902, General Policy, elaborates on the meaning of "responsible”:
      Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only. A responsible prospective contractor is one which meets the standards set forth in 1-903.1 and 1-903.2, and such special standards as may be prescribed in accordance with 1-903.3 and by overseas commanders. The award of a contract to a supplier based on lowest evaluated price alone can be false economy if there is subsequent default, late deliveries, or other unsatisfactory performance resulting in additional procurement or administrative costs. While it is important that Government purchases be made at the lowest price, this does not require an award to a supplier solely because he submits the lowest bid or offer. A prospective contractor must demonstrate affirmatively his responsibility, including, when necessary, that of his proposed subcontractors. The contracting officer shall make a determination of non-responsibility if, after compliance with 1-905 and 1-906, the information thus obtained does not indicate clearly that the prospective contractor is responsible.

      . DAR 1-906, Subcontractor Responsibility, provides:
      (b) Notwithstanding the general responsibility of a prospective contractor to demonstrate the responsibility of his prospective subcontractors, it may be in the Government’s best interest to make a direct determination of the responsibility of one or more prospective subcontractors prior to award of the prime contract.

      . Section 2680(a) provides immunity to the federal government even where the discretion exercised has been abused. 28 U.S.C. § 2680(a). See also Scanwell, 521 F.2d at 948 (even though regulations ignored by contracting officer, possible abuse of discretion did not render 2680(a) inapplicable). Cf. Myers, 527 F.2d at 1261 (the discretionary function exception does not apply where government acts unconstitutionally or in contravention of own regulations).