author: PETTINE, Senior District Judge.

text:
    Hugo R. MAINELLI, Jr., et al., v. The UNITED STATES of America, et al.
    Civ. A. No. 85-0293 P.
    United States District Court, D. Rhode Island.
    June 6, 1985.

      John Walsh, Joseph Kelly, Alden Harrington, Providence, R.I., for plaintiffs.

      Everett C. Sammartino, Asst. U.S. Atty., Thomas Caruolo, Sp. Asst. Atty. Gen., Providence, R.I., for defendants.
   OPINION AND ORDER

PETTINE, Senior District Judge.

On May 16, 1985, the Federal Highway Administration (“F.H.W.A.”) of the United States Department of Transportation (“U.S.D.O.T.”) suspended from any and all participation in U.S.D.O.T. financial assistance programs plaintiffs Hugo R. Mainelli, Jr., Mariano Jose Brown, Brenda Francis Brown, Aetna Bridge Holding Company (“Holding Company”), Aetna Bridge Company (“Aetna Bridge”), B&F Excavating, Inc., (“B&F”), Aetna Bridge-B&F Excavating Co., Inc., A Joint Venture (“Joint Venture”), and Aetna Bridge-B&F Excavating — Joint Venture II (“Joint Venture II”), who are individuals and corporate entities engaged in the construction industry in Rhode Island. According to the letter suspending the plaintiffs, the U.S.D.O.T. acted in response to a Rhode Island grand jury indictment of the plaintiffs charging fraud in obtaining and performing state construction contracts partially funded by the U.S. D.O.T. On May 21, 1985, the plaintiffs brought suit in this Court, seeking a temporary restraining order, a preliminary injunction, and permanent injunctive and declaratory relief against the suspension and the federal regulations, 49 C.F.R. § 29 et seq. (1984), pursuant to which suspension was ordered. Plaintiffs allege that the regulations violate their Fifth Amendment rights and, by their Amended Complaint filed on May 80, 1985, further allege that the U.S.D.O.T. is barred by the doctrines of res judicata and collateral estoppel from suspending the plaintiffs. No temporary restraining order issued but, in consideration of the exigent circumstances surrounding this matter — circumstances described infra —the Court set the matter down for an expedited hearing on the preliminary injunction. That hearing was held on May 30 and 31, 1985.

1. BACKGROUND

The sequence of events culminating in this lawsuit has been fully set forth in the plaintiffs’ memoranda and at the hearing on the preliminary injunction. In view of the importance of a prompt decision in this matter, and the fact that this case turns largely on questions of law, the Court will recount here only the essential facts as it finds them.

In 1983, plaintiff Mainelli, president of Aetna Bridge, and plaintiff Brown, president of B&F, formed Joint Venture I to bid on, and, if successful, to perform, as a subcontractor, certain construction work on the Capital Center Project in Rhode Island. That project was administered primarily by Rhode Island Department of Transportation (“R.I.D.O.T.”) officials, and was funded partly with federal monies. B&F is a 100% owned and controlled minority business enterprise, and has been certified by the state as a Minority Business Enterprise, (“M.B.E.”), as that term is defined at 49 C.F.R. § 23, et seq. (1984). So certified, B&F is eligible to participate in federally financed projects that require contractors to set aside 10% of the work for such enterprises. Because B&F has a 95% interest, and Aetna Bridge a 5% interest, in the Joint Venture, that Joint Venture itself met federal eligibility requirements as an M.B.E.

In 1983, the Gilbane Construction Co. was awarded the general contract for the Capital Center Project and the Joint Venture was approved as a subcontractor. In early 1985, however, authorities received an anonymous letter suggesting that the Joint Venture had improperly subcontracted work to a non-minority enterprise and had violated federal regulations by so doing. In January, 1985, at the urging of local F.H.W.A. administrator Gordon G. Hoxie, R.I.D.O.T. conducted a review of the allegations in order to determine whether the Joint Venture was a bona fide M.B.E. In particular, R.I.D.O.T. was to determine whether, in light of the subcontracting to a non-minority firm, the Joint Venture was performing, as the federal regulations require, a “commercially useful function,” 49 C.F.R. § 23.47(d)(1). Pursuant to its investigation, R.I.D.O.T. convened hearings, at which the parties were interviewed and documentary evidence was received. On March 8, 1985, R.I.D.O.T. issued its report, concluding that the Joint Venture had violated certain technical aspects of the M.B.E. regulations, and should accordingly be put on probation for a one year period. The panel concluded, however, that, in “reality,” no violation had occurred and decertification would therefore be inappropriate. This report was delivered, inter alia, to Gordon Hoxie. By letter of March 13, 1985, Hoxie responded to the report by stating that he believed it appropriate to place the Joint Venture on probation, but that federal authorities had remaining questions as to certain of R.I.D.O.T.’s findings, as well as to the hearing procedures R.I.D.O.T. employed in its investigation.

On March 22, 1985, a Grand Jury sitting in the Rhode Island Superior Court returned a 59 count indictment against Mainelli, Mariano Brown, Brenda Francis Brown, the Holding Company and B&F. That indictment in substance charged the plaintiffs with creating a false and fraudulent joint M.B.E. in connection with the Capital Center Project, and with falsifying records as part of that fraud.

On May 16, 1985, the U.S.D.O.T., by letter of Rex C. Leathers, Initiating Official, advised the plaintiffs that the F.H.W.A. had determined

that there is adequate evidence that your company committed acts which, under Part 29 of Title 49, Code of Federal Regulations, constitute grounds for suspension and eventual debarment from participation in United States Department of Transportation (DOT) financial assistance programs.
Exhibits B-E to Plaintiffs’ Verified Complaint.

The letter went on to describe the charges contained in the indictment, and to characterize the indictment as “supported by and resulting] from an investigation conducted by the Rhode Island Attorney General’s office in cooperation with the U.S.D.O.T.’s Inspector General’s office.” It further advised plaintiffs of the duration of the suspension and of their right, under 49 C.F.R. § 29.33, to a hearing within 30 days of a written request for same.

Within five days of receiving their respective notices, plaintiffs brought this suit. They sought immediate relief against the suspension because it would prevent them from obtaining other contracts for which R.I.D.O.T. had already found them to be the lowest responsible bidder, but which could not be finally awarded to them absent federal concurrence. In particular, the state was and is prepared to award B&F/Aetna Bridge Joint Venture II, as general contractor, a several-million dollar contract for the Civic Center Interchange Project. Even after the indictment in the Rhode Island Superior Court was returned, R.I.D.O.T. adhered to its belief that Joint Venture II should be awarded this contract and, on April 5, and May 16, 1985, respectively, R.I.D.O.T. wrote to the U.S.D.O.T. seeking the required concurrence. Immediately after suspending the plaintiffs, U.S. D.O.T. formally denied concurrence. R.I. D.O.T. has not yet awarded this contract to the next lowest bidder — whose bid is some $600,000 higher than that of Joint Venture II — but has taken the position throughout this litigation that various circumstances mandate that it award that contract immediately.

Similarly, B&F has also submitted, on its own, a bid to be a subcontractor on the Jamestown Bridge Project, another R.I.D. O.T. project funded partially by U.S.D.O.T. R.I.D.O.T. has approved Clark-Fitzpatrick, Inc., of New York, as the general contractor on that project and, absent this suspension, B&F was to have been an M.B.E. subcontractor for Clark-Fitzpatrick. As with the Interchange Project, R.I.D.O.T. is still prepared to award the contract to Clark-Fitzpatrick, with B&F as a subcontractor. The F.H.W.A., however, has notified R.I.D.O.T. that it will not concur in any award to B&F.

Through their verified complaint and hearing' testimony, the plaintiffs have stated that, given the nature of their work, loss of the two above-described contracts, coupled with loss of the ability to bid on any future contracts, will put each out of business. The Court has no reason to doubt plaintiffs’ estimation of the consequences that will flow from continued suspension.

As these facts demonstrate, this case presents an unusual and anomalous situation — one in which a state agency is urging federal approval of contractors, in the face of a state grand jury indictment that triggered the federal suspension at issue. And this is a situation in which the consequences of federal suspension will be great. If the plaintiffs continue to be suspended, the result will be that the Interchange Project will cost at least an additional $600,000 to complete, and, a minority contractor may meet its demise. On the other hand, the Court must view these circumstances in the context of a federal scheme that is designed to encourage minority contracting, and to protect the integrity of the minority set-aside program. Moreover, in undertaking its duty, this Court is and must be controlled by established legal principles, and required to apply these principles dispassionately.

II. DISCUSSION

The standard that I must apply in determining whether to issue a preliminary injunction is well settled in this Circuit:

‘In the First Circuit, a plaintiff must satisfy four criteria in order to be entitled to a preliminary injunction. The Court must find: (1) that plaintiff will suffer irreparable injury if the injunction is not granted; (2) that such injury outweighs any harm which granting injunctive relief would inflict on the defendant; (3) that plaintiff has exhibited a likelihood of success on the merits; and (4) that the public interest will not be adversely affected by the granting of the injunction.’

LeBeau v. Spirito, 703 F.2d 639, 642 (1st Cir.1983) (quoting Women’s Community Health Center v. Cohen, 477 F.Supp. 542, 544 (D.Me.1979) (citations omitted)).

In the present case, there can be little doubt that plaintiffs have carried their burden to show that irreparable injury will result if the relief they have requested is denied. Given the fact that plaintiffs’ businesses depend so heavily on obtaining U.S. D.O.T.-financed contracts, suspension pending resolution of the state criminal proceedings, or for up to eighteen months, see 49 C.F.R. § 29.27, may well sound the death knell for these enterprises. In view of this threatened injury I likewise conclude that the balance of the equities tips decidedly in plaintiffs’ favor. I am sensitive to the severe hardship that may be visited upon the plaintiffs and, were the preliminary injunctive inquiry to end after consideration of these two factors, I would likely be disposed to issue an injunction. As I have indicated above, however, the inquiry cannot properly be limited to the equities of the situation. Indeed, the First Circuit has made clear that “even where irreparable injury is ‘excruciatingly obvious,’ plaintiffs must show probability of prevailing oh the claims to obtain [a] preliminary injunction.” Id. at 642 (citing and quoting in part Coalition for Basic Human Needs v. King, 654 F.2d 838, 841 (1st Cir.1981)). Having examined the legal bases upon which plaintiffs seek relief, I cannot find here any likelihood that they will succeed on the merits of their claims. I discuss briefly each claim in turn.

A. Res Judicata/Collateral Estoppel

On the first day of the oral hearing on this matter, plaintiffs amended their complaint to supplement their constitutional challenges to the suspension regulations with a claim that the U.S.D.O.T. is barred from suspending the plaintiffs by the doctrines of res judicata and collateral estoppel. Plaintiffs believe that the March 5, 1985 determination by the R.I.D.O.T., finding that the Joint Venture had committed no substantive violation of the M.B.E. regulations through its subcontracting, should be accorded preclusive effect by the U.S.D. O.T. They point to the fact that the issue before the R.I.D.O.T. — whether the Joint Venture was a fraudulent or sham M.B.E. —is the same issue now before the U.S.D. O.T. in its suspension action. The defendant U.S.D.O.T. counters that this Court lacks jurisdiction to decide the res judicata/ collateral estoppel issue because the plaintiffs must first exhaust their administrative remedies.

“It is well settled that before judicial relief can be granted to a party he must have exhausted applicable administrative remedies.” Shick v. Farmers Home Administration of United States Department of Agriculture, 748 F.2d 35 (1st Cir.1984) (citing Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638 (1938)). While the exhaustion requirement is not strictly jurisdictional in nature, see Ezratty v. Commonwealth of Puerto Rico, 648 F.2d 770, 774 (1st Cir.1981) ; Beins v. U.S., 695 F.2d 591 (D.C.Cir.1982) , courts have firmly adhered to the rule and have recognized that “requiring litigants to exhaust ‘prevents the disruption of administrative processes by withholding judicial review until the agency has developed the relevant facts, applied its expertise and exercised the discretion entrusted to it by law,’ ” Strang v. Marsh, 602 F.Supp. 1565, 1575 (D.R.I.1985) (quoting Elton Orchards v. Brennan, 508 F.2d 493, 497 (1st Cir.1974)).

In the present case, the plaintiffs’ claim of res judicata or collateral estoppel is, by its nature, a defense to be properly asserted before the U.S.D.O.T. in the first instance. Indeed, in a similar factual context, the Supreme Court has held that one seeking to enjoin administrative proceedings on the ground that they are barred by res judicata must exhaust administrative remedies before invoking the equitable powers of a federal court. S.E. C. v. Otis & Co., 338 U.S. 843, 70 S.Ct. 89, 94 L.Ed. 516 (1949) (per curiam), rev’g 176 F.2d 34 (D.C.Cir.1949) (summary reversal on authority of Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638 (1938) and other exhaustion cases). The Otis principle must govern here, for it would surely subvert the administrative scheme to allow affected contractors to bypass designated agency processes and litigate their suspensions in federal court in the first instance. See Peter Kiewit Sons’ Co. v. United States Army Corps of Engineers, 714 F.2d 163, 167-68 (D.C.Cir.1983) (ruling that government contractor must exhaust administrative remedies before challenging debarment). Accordingly, I conclude that the exhaustion rule bars judicial review at this point of the res judicata/ collateral estoppel defense.

I recognize that the exhaustion rule is subject to waiver in certain limited, albeit “most exceptional circumstances.” Peter Kiewit Sons’ Co., supra, 714 F.2d at 162-163 (quoting 4 K. Davis, Administrative Law Treatise, § 26.10 at 460 (1983)). Where, for example, a litigant demonstrates that exhaustion would be futile, or work a severe harm upon it, it is within a court’s discretion to decline to apply the rule. See, e.g., Ezratty v. Commonwealth of Puerto Rico, supra, 648 F.2d at 774; Strang v. Marsh, supra, 602 F.Supp. at 1575. Even were I to conclude that the exhaustion rule should not be applied here, however, I could not find that plaintiffs are likely to succeed on the merits of their preclusion claim. While I need not and do not decide whether all the prerequisites for the application of administrative res judicata and/or collateral estoppel could be satisfied on the facts of this case, see United States v. Utah Construction & Mining Co., 384 U.S. 394, 421-22, 86 S.Ct. 1545, 1559-60, 16 L.Ed.2d 642 (1966) (discussing requirements); Restatement (Second) of Judgments, § 83 (1982), I note at least two factors that suggest that the state administrative determination would not likely be found to preclude the federal suspension action.

First, I do not believe that plaintiffs could establish the identity of parties necessary to apply the doctrine of preclusion against the federal government, nor do I believe that they could establish the correlative requirement that the federal government had a full and fair opportunity to litigate their suspension claim in the state decertification proceedings. While plaintiffs have cited cases finding an identity of parties between officials of the “same government,” Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 402-403, 60 5. Ct. 907, 916-917, 84 L.Ed. 1263 (1940), they present no authority for the novel proposition that a state government is identical to the federal government. Nor is this surprising, for to prevent the federal government from exercising its suspension prerogative based on what a state agency has previously found in a decertification investigation would undercut the regulatory scheme — which allows the federal government to proceed whenever there is “adequate evidence” to do so and without regard to whether evidence sufficient to support its suspicion may have been lacking at some prior point. See Restatement (Second) of Judgments, § 83(4)(b) (1982) (no bar to relitigation of issue “if according preclusive effect to [prior administrative] determination of the issue would be incompatible with a legislative policy that ... [t]he tribunal in which the issue subsequently arises be free to make an independent determination of the issue in question”); see also United States v. Lasky, 600 F.2d 765, 768 (9th Cir.1979) (citations omitted) (administrative res judicata and collateral estoppel applied less rigidly than their judicial counterpart and must not be applied where to do so would contravene public policy).

Second, plaintiffs themselves concede that, for purposes of collateral estoppel, a change in the controlling factual circumstances deprives a prior determination of preclusive effect, see Montana v. United States, 440 U.S. 147, 155, 99 S.Ct. 970, 974, 59 L.Ed.2d 210 (1979). Here, in addition' to the possibility that the U.S.D.O.T.’s own investigation uncovered new facts, there is the plain fact that an indictment was returned after R.I.D.O.T.’s decision. In light of the fact that the federal suspension regulations expressly identify an indictment as a circumstance so probative as to itself warrant suspension, it would seem apparent that the fact of an intervening indictment is a changed circumstance rendering collateral estoppel inapplicable.

In light of the foregoing discussion, I cannot find that plaintiffs have a probability of success on their res judicata /collateral estoppel claim.

B. Constitutional Challenge

1. Due Process

Plaintiffs allege that the U.S.D.O.T.’s suspension regulations deprive them of the due process of law guaranteed to them by the Fifth Amendment of the Constitution. I will not describe the regulatory scheme in detail, inasmuch as the regulations are attached as Appendix A to this opinion. The gist of the regulations is, however, that the U.S.D.O.T. may suspend a contractor upon “adequate evidence” that various forms of misconduct have occurred, including “[cjommission of a fraud or any criminal offense as an incident to obtaining ... or performing government business or a public contract,” 49 C.F.R. § 29.23(a)(1); that an outstanding indictment or information shall constitute “adequate evidence of suspected criminal conduct and may be the basis for the imposition of a suspension,” id. at § 29.23(b); that a suspended person is entitled to a hearing within thirty days of its written request for one, id. at § 29.-33(a); and that “[w]here a suspension is based solely upon an indictment ... the suspended person shall be limited to an opportunity to submit documentary evidence and written briefs, except that, where good cause is shown as to why an oral hearing should be held, the hearing officer shall grant a request for such a hearing,” id. at § 29.33(b).

Plaintiffs’ first due process contention is that the regulations are procedurally defective in that they fail to give contractors a hearing before the suspension is ordered.

Any procedural due process inquiry must begin with the question whether the plaintiffs can demonstrate that they have a cognizable property or liberty interest at stake. See, e.g., Cleveland Board of Education v. Loudermill, — U.S. -, -, 105 S.Ct. 1487, 1490-91, 84 L.Ed.2d 494 (1985). On the record of this case, plaintiffs can clearly establish a protected liberty interest. Cases construing analogous federal suspension regulations have uniformly held that the liberty interests of government contractors are implicated where a suspension is based on charges of fraud and dishonesty. See, e.g., A.T.L., Inc. v. United States, 736 F.2d 677, 682-683 (Fed.Cir.1984); Transco Sec., Inc. of Ohio v. Freeman, 639 F.2d 318, 321 (6th Cir.1981); Old Dominion Dairy v. Secretary of Defense, 631 F.2d 953, 961-964 (D.C.Cir.1980); Shermco Industries v. Secretary of the Air Force, 584 F.Supp. 76, 87-88 & n. 7 (N.D.Tex.1984).

Having found a liberty interest at stake here, the next question would be whether plaintiffs were deprived of their liberty without adequate “ ‘notice and opportunity for hearing appropriate to the nature of the case.’ ” Loudermill, supra, — U.S. at-, 105 S.Ct. at 1493 (quoting Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313, 70 S.Ct. 652, 656, 94 L.Ed. 865 (1950)). The process due in a given situation depends upon a balance of the private interest involved, the risk of an erroneous deprivation and the probable value, if any, of additional procedural safeguards. Mathews v. Eldridge, 424 U.S. 319, 334-35, 96 S.Ct. 893, 902-903, 47 L.Ed.2d 18 (1976).

Here, the plaintiffs have not challenged the sufficiency of the notice and, indeed, the notice they received from the U.S.D.O.T. would appear to satisfy constitutional requirements. See Shermco Industries v. Secretary of the Air Force, supra, 584 F.Supp. at 88-89 (discussing notice required where suspended contractor has been indicted). Turning to whether due process required a pre-suspension hearing here, I cannot find plaintiffs likely to succeed on this claim. In a line of decisions concerning the hearing rights of suspended contractors dating back to Judge Leventhal’s opinion for the D.C.Circuit in Horne Brothers v. Laird, 463 F.2d 1268 (D.C.Cir.1972), it has been consistently held that due process is satisfied so long as a contractor who is formally suspended, cf Old Dominion, supra, at 966, has a meaningful rebuttal opportunity — whether it be an oral hearing or otherwise — after the suspension. See, e.g., Horne Bros., supra, at 1270; Transco, supra, at 322-323; Shermco, supra, at 89-90. Indeed, the precise requirement announced in Horne Bros. —that the contractor must receive a rebuttal opportunity within thirty days, so as not to “dangle in suspension for a period of one year or more,” id. at 1271 — appears to have been incorporated into not only U.S.D. O.T.’s suspension regulations, but into government-wide procurement regulations, as well. See 48 C.F.R. 9.407-3(5) (1984). Because prior decisional law has balanced the competing interests and held that a post-suspension hearing within thirty days is sufficient, and because that principle has been incorporated into the suspension regulations challenged here, I cannot find probable success in plaintiffs’ procedural due process claim.

Plaintiffs’ second due process argument is that the regulations are unconstitutional in that the post-suspension hearing provided cannot be meaningful because the government is free to rest a suspension on the basis of an indictment alone, irrespective of the showing made by the contractor at the hearing.

Whether this challenge is denominated an additional “procedural due process” claim or a “substantive due process” claim, see Schiller v. Strangis, 540 F.Supp. 605, 613-615 (D.Mass.1982) (discussing differences between two types of due process claims), I do not find it likely to succeed. In essence, the regulations provide that the government has the right to refuse temporarily to deal with a contractor about whom there is suspicion, based on “adequate evidence,” of serious misconduct. The “adequate evidence” showing has been likened to probable cause. See Horne Bros., supra, 463 F.2d at 1271. In the case of an indictment, the very fact that a grand jury has returned an indictment suggests that there is sufficient suspicion to meet this standard. The function of the hearing provided an indicted contractor is, as I read these regulations, to provide for an independent evaluation of the factual basis supporting an indictment and to ensure not that the contractor is guilty, but that the requisite suspicion is present. If the regulations contemplated no such independent review, then no hearing opportunity at all would presumably have been granted. And, as the government concedes in this case, it is the government that bears the burden of making that showing at the hearing. Moreover, according to the suspension notices sent to the plaintiffs, and to the government’s representations in this lawsuit, this suspension was based not on the fact of the indictment alone, but also on evidence gathered in U.S.D.O.T.’s own investigation, conducted in conjunction with the Rhode Island Attorney General. Taking all of these considerations together, I find no probable success on this due process claim. This is especially so because, to the extent that this claim is properly characterized as a substantive due process argument, the standard it must meet to succeed is extremely high. See, e.g., Rochin v. California, 342 U.S. 165, 169, 72 S.Ct. 205, 208, 96 L.Ed. 183 (1952) (where substantive due process alleged to have been violated, conduct must be such as to “shock the conscience”).

2. The Fifth Amendment Privilege Against Self-Incrimination

Plaintiffs’ final claim is that the regulation under which they were suspended violates, on its face, their Fifth Amendment privilege against self-incrimination. They believe it does so by compelling them, on pain of losing their businesses, to participate in a post-suspension hearing and to thereby risk prejudicing their criminal defense. I do not find sufficient merit in this claim to warrant preliminary injunctive relief.

As plaintiffs acknowledge, it is not inherently unconstitutional for the government to proceed with parallel civil and criminal proceedings. See United States v. Kordel, 397 U.S. 1, 90 S.Ct. 763, 25 L.Ed.2d 1 (1970); S.E. C. v. Dresser Industries, 628 F.2d 1368 (D.C.Cir.1980); Arthurs v. Stern, 560 F.2d 477 (1st Cir.1977); Coalition of Black Leadership v. Cianci, 480 F.Supp. 1340 (D.R.I.1979). These cases recognize the principle that protection of the public interest may often require proceeding simultaneously on two fronts, and that it would unduly compromise the public interest to force the government to choose between a civil and criminal course of action. See United States v. Kordel, supra, 397 U.S. at 11, 90 S.Ct. at 769. To be sure, where “special circumstances,” id. at 11, 90 S.Ct. at 769, are present that suggest “agency bad faith or malicious governmental tactics,” S.E.C. v. Dresser, supra, at 1375, parallel proceedings may well be “unconstitutional or improper,” id. at 1375. Indeed, a court always has discretion to stay civil proceedings where it finds that the prejudice to a criminal defendant’s rights warrants such action. Id. at 1375-76 (noting that risk of prejudice is especially high where indicted criminal defendant is required to defend civil or administrative action regarding same matter). That a court retains such discretion, however, does not translate into the mandatory rule that plaintiffs seek — namely, that the government must stay any suspension action against an indicted contractor pending close of the criminal proceedings. This is so for at least two reasons.

First, such a rule would lead to the perverse result that the government could suspend only unindicted contractors — about whom relatively less, or at least less formal, suspicion is harbored than indicted contractors.

Second, such a rule would leave unprotected the public interest in safeguarding the integrity of the public contracting process — and here, the integrity of the laudable minority set-aside program. It would do so by preventing the government from taking any temporary action against indicted contractors. For what plaintiffs urge is not that the suspension hearing be stayed, but that the .suspension itself he stayed. As other courts have recognized, however, from the fact that in a particular case civil proceedings must be stayed in order to protect a criminal defendant’s rights, it does not necessarily follow that “the public must be left without protection.” Silver v. McCamey, 221 F.2d 873, 879 (D.C.Cir.1955). It more likely means that a substitute measure must be utilized — such as a temporary suspension without hearing, id. at 875; cf. Horne Bros. v. Laird, supra, at 1271 (where considerations of public interest are sufficiently weighty, suspended contractor may be denied hearing within one month of its suspension). Indeed, in some way the regulations at issue here attempt to accommodate these competing interests, for they do not literally require that plaintiffs come forward, as in cases where a refusal to speak or produce evidence is itself the cause of the suspension or loss involved. See Lefkowitz v. Cunningham, 431 U.S. 801, 97 S.Ct. 2132, 53 L.Ed.2d 1 (1977); cf Baxter v. Palmigiano, 425 U.S. 308, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976).

In saying this, I do not mean to be formalistic, nor am I blind to the very difficult position in which plaintiffs have been placed as a result of their simultaneous indictment and suspension. If I were writing on a clean slate in this area, I might view plaintiffs’ Fifth Amendment challenge somewhat differently. In light of the cases concerning parallel proceedings, however, as well as those recognizing the importance of the federal interest in this area, I am constrained to find no probable success on plaintiffs’ claim.

For all of the foregoing reasons, plaintiffs’ motion for a preliminary injunction is DENIED.

APPENDIX A

PART 29 — DEBARMENTS, SUSPENSIONS AND VOLUNTARY EXCLUSIONS

Subpart A — General Provisions and Definitions

§ 29.1 Policy.

It is essential to the accomplishment of the Department’s mission that recipients of its financial assistance do business under a DOT financial assistance program only with participants who properly use federal financial assistance program funds. Accordingly, participation in DOT financial assistance programs shall be denied to those participants who have been suspended or debarred under this part.

§ 29.3 Purpose.

This part sets forth rules for the debarment of and other measures against participants or affiliates where it is demonstrated that government funds may not be properly utilized or the federal interest would not be safeguarded. These measures shall be used to protect the public interest and are not intended to be sanctions, penalties, or forms of punishment. These measures do not apply to states, state agencies, local governments or entities which do not act, or intend to act, as contractor or subcontractor to a recipient. These measures do not apply to suspension or debarment with respect to direct government contracting or to a person acting as a DOT grantee or a party to a DOT cooperative agreement. § 29.5 Authority.

This part is issued pursuant to section 322 of Title 49, United States Code, which authorizes the Secretary of Transportation to prescribe regulations to carry out the duties and powers of the Secretary.

§ 29.7 Authorized measures.

This part sets forth rules for the imposition of the following:

(a) Suspension. Suspension is the action taken under Subpart B of this part to disqualify a person temporarily from participation in DOT financial assistance programs.

(b) Debarment. Debarment is the action taken under Subpart C of this part, after opportunity for a hearing, as provided under § 29.51, to deny a person participation in DOT financial assistance programs for a period generally not to exceed three years.

§ 29.9 Voluntary exclusion.

Voluntary exclusion is the denial of participation in any DOT financial assistance program as a result of an agreement voluntarily entered into, under § 29.63 of this part, between the Department and the person to be excluded.

§ 29.11 Applicability.

This part applies to participants or affiliates in any program for which DOT financial assistance is authorized under a law administered by the Department, including, but not limited to, those listed in Appendix A to this part. A person is subject to the measures set forth in this part, if cause for imposing the measures is shown and the procedures provided in this part are followed. A person may be subject to measures under this part whether or not he or she was participating in a DOT financial assistance program at the time of the conduct on which the measure is based and whether or not that person acted individually, in behalf of others, or in a private or public capacity. This part applies to suspensions and debarments of persons doing business with recipients of DOT financial assistance initiated after its effective date regardless of the date of the cause giving rise to the suspension or debarment. Debarments of persons doing business with recipients of the Federal Highway Administration initiated before the effective date of this part shall be governed by 23 CFR Part 16. Where the Department is required by statute, regulation, or Executive Order to follow administrative suspension or debarment procedures that may differ from the requirements of this part, the statutory, regulatory or Executive Order procedures shall take precedence.

§ 29.13 Definitions.

(a) Adequate evidence means information sufficient to support the reasonable belief that a particular act or omission has occurred.

(b) Administrator means the head of an operating administration. With respect to DOT financial assistance programs administered by the Office of the Secretary, administrator means the Assistant Secretary for Administration. An administrator may delegate any of his or her functions under this part and authorize successive redelegations within his or her operating administration. However, the functions of an administrator, under § 29.35 or § 29.53, may not be delegated to an official who has acted as initiating official in the case at hand.

(c) Affiliates. Persons are affiliates if, directly or indirectly, (i) either one controls or can control the other, or (ii) a third controls or can control both.

(d) Day means a calendar day.

(e) Department or DOT means the Department of Transportation or an element of the Department as indicated by the context.

(f) DOT Financial Assistance means any grant, loan, cooperative agreement, contract, or any other arrangement between DOT and a recipient by which the Department provides or otherwise makes available assistance in the form of:

(1) Funds;

(2) Services of federal personnel;

(3) Real or personal property or any interest in or use of such property including:

(i) Transfers or leases of such property for less than fair market value or for reduced consideration; or

(ii) Proceeds from a subsequent transfer or lease of such property if the federal share or its market value is not returned to the federal government; or

(4) Loan Guarantees.

(g) DOT Unified List means a list compiled, maintained, and distributed by the Assistant Secretary for Administration in accordance with Subpart E of this part.

(h) Initiating Official means an employee designated by an administrator.

(i) Notice means notification in writing and sent by registered or certified mail, return receipt requested, to the last known address of the addressee.

(j) Operating Administrations include:

(1) U.S. Coast Guard.

(2) Federal Aviation Administration.

(3) Federal Highway Administration.

(4) Federal Railroad Administration.

(5) National Highway Traffic Safety Administration.

(6) Urban Mass Transportation Administration.

(7) St. Lawrence Seaway Development Corporation.

(8) Maritime Administration.

(9) Research and Special Programs Administration.

(10) The Office of the Secretary.

(k) Participant means a person or an officer or employee of a person who directly or indirectly participates, may participate, or has participated in DOT financial assistance programs through an agreement of that person with a recipient or contractor of any tier. The term includes, but is not limited to, contractors, suppliers, fee appraisers, inspectors, real estate agents and brokers, consultants, architects, engineers, and attorneys.

(Z) Person means an individual, corporation, partnership, unincorporated association, or other public or private entity.

(m) Recipient means any state, territory, possession, the District of Columbia, or the Commonwealth of Puerto Rico, or any political subdivision or instrumentality thereof; any public or private agency, institution, organization, entity, or individual, in any state, territory, possession, the District of Columbia, or the Commonwealth of Puerto Rico, to whom DOT financial assistance is extended, directly or through another recipient, for any program, including any successor, assignee, or transferee thereof.

§ 29.15 Hearing Officer.

Judges of the DOT Board of Contract Appeals, augmented by administrative law judges as necessary, are designated as hearing officers for purposes of this part. § 29.17 Initiation of measures.

(a) Anyone may contact the appropriate operating administration concerning the existence of a cause under Subpart B or C. An initiating official shall review the matter and may also refer the matter to the DOT Inspector General for further investigation. If, after his or her review, the initiating official reasonably believes that a cause exists under Subpart B or C, he or she may proceed in accordance with the appropriate subpart.

(b) Recipients shall advise the appropriate operating administration concerning the existence of a cause under Subpart B or C. Failure to do so may result in loss or impairment of DOT financial assistance.

Subpart B — Suspension

§ 29.21 Initiation of suspension.

The initiating official may suspend any participant or affiliate pursuant to this sub-part after coordination with the appropriate DOT legal office.

§ 29.23 Ground for suspension.

(a) The initiating official may suspend any participant or affiliate upon adequate evidence for any of the following causes:

(1) Commission of fraud or any criminal offense as an incident to obtaining, seeking to obtain, or performing government business or a public contract;

(2) Commission of any criminal offense indicating a lack of business integrity or business honesty that seriously and directly affects the question of present responsibility including, but not limited to, embezzlement, theft, forgery, bribery, falsification or destruction of records, false statement, fraud, receiving stolen property, violation of the Organized Crime Control Act. of 1970, or violation of federal or state antitrust statutes arising out of submission of bids or proposals;

(3) Violation of any agreement for voluntary exclusion or any settlement made under this part; or

(4) Commission or omission of an act of such serious or compelling nature that the act indicates a serious lack of business integrity or honesty. Such commissions or omissions include, but are not limited to:

(i) The violation of any applicable law, regulation, or obligation relating to the performance of obligations incurred pursuant to an agreement with a recipient under a DOT financial assistance program; or

(ii) Making, or procuring to be made, any false statement or using deceit for the purpose of influencing in any way any action of the government.

(b) An outstanding indictment or information is adequate evidence of suspected criminal conduct and may be the basis for the imposition of a suspension.

§ 29.25 Suspension of affiliates.

(a) General. Suspension may include any affiliate of a participant. A determination to include an affiliate in a particular suspension must be made on a case-by-case basis. Among the factors to be considered in making this determination are the affiliate’s knowledge of or participation in the conduct which is the basis for the suspension.

(b) Notice and procedure. Where an affiliate is suspended, the affiliate shall be afforded the rights pertaining to notice and hearing provided in this subpart. In addition, when notice of suspension is given under § 29.31 to two or more persons who are affiliates of one another, each affiliate shall be provided the notice given to any other affiliate.

§ 29.27 Period of Suspension.

(a) Temporary period. A suspension shall be for a temporary period pending the completion of any investigation or any administrative or judicial proceedings as may ensue.

(b) Time limitation on decision to suspend. In any case involving a suspected violation of federal or state law where prosecutive action has not been initiated within twelve months from the date of the notice of suspension, the suspension shall be terminated unless the prosecuting official requests an extension of the suspension. Notice of the proposed termination of the suspension shall be given to the prosecuting official not less than thirty days prior to the expiration of the twelve-month period. In no event shall a suspension exceed eighteen months unless prosecutive action has been initiated within that period.

(c) Waiver of time limitation. The time limitation for suspension contained in this section may be waived by the affected party-

§ 29.29 Items to be considered.

Suspension is a drastic action and, as such, shall not be based on an unsupported accusation. In each case the decision of the initiating official to suspend shall be discretionary and shall be in the public interest, including the interest in doing business with participants who are presently responsible and the interest in preserving adequate competition.

§ 29.31 Notice of suspension.

Immediately after the suspension decision, the suspended person shall be furnished notice of the suspension by the initiating official. The notice shall include the following information:

(a) The specific acts or omissions on which the suspension is based. These may be described in general terms without disclosing the government’s evidence, if greater specificity would: (1) interfere with enforcement proceedings; (2) deprive a person of a right to a fair trial or an impartial adjudication; (3) constitute an unwarranted invasion of personal privacy; (4) disclose the identity of or information furnished solely by a confidential source; (5) disclose investigative techniques and procedures; or (6) endanger the life or physical safety of law enforcement personnel.

(b) The provisions of §§ 29.27 and 29.33 regarding period of suspension and right to a hearing; and

(c) A statement that the participant may be represented by counsel, if desired.

§ 29.33 Hearing.

(a) Request for hearing. Upon written request, a suspended person is entitled to a hearing, on the suspension, before a hearing officer, as provided under subsection (b) of this section. A suspended person is entitled to a hearing within 30 days of receipt of the written request by DOT. The request may be made at any time during the period of suspension. The location of the hearing shall be determined by the hearing officer, in consideration of the convenience of the parties and the public interest. The hearing officer shall conduct proceedings and issue a decision under this section in an expeditious manner.

(b) Hearing procedures. (1) Where a suspension is based solely upon an indictment or information, the suspended person shall be limited to an opportunity to submit documentary evidence and written briefs, except that, where good cause is shown as to why an oral hearing should be held, the hearing officer shall grant a request for such a hearing.

(2) When an official with appropriate authority in the Department of Justice, the DOT Office of Inspector General, the Federal Bureau of Investigation, or other investigative or law enforcement agency of the federal or a state government establishes, by affidavit or sworn testimony, that disclosure of evidence which is the basis for a suspension would result in significant harm to other litigation or proceedings or to an investigation of allegations which, if proven, would constitute a violation of a criminal statute, the evidence may be presented to the hearing officer in camera. In such circumstances, the hearing officer shall determine whether any disclosure to the suspended person would be in the public interest and whether an opportunity to respond may be granted to the suspended person. The Department shall retain the right to withdraw such evidence from the record after the hearing officer’s in camera determination in order to avoid disclosure to the suspended person.

(3) All witnesses shall testify under oath or affirmation. Department witnesses, if any, shall be called first and may be cross-examined by the suspended person. The person’s witnesses may also be cross-examined by any party.

(4) A record shall be made of the proceeding. A transcription of the record shall be made available to a party at the expense of the requesting party.

(5) Where appropriate, and if the parties agree, a suspension hearing may be consolidated with a debarment hearing involving the same issues.

(6) The hearing officer shall sustain the suspension if he or she finds: (i) that there is adequate evidence of a cause listed in § 29.23 and (ii) that the suspension complies with § 29.27. The hearing officer shall provide notice of his or her determination to all parties.

§ 29.35 Review by Administrator.

Within fifteen days after receipt of the notice of the determination under § 29.-33(b)(6), the suspended person may file a request for review by the administrator. If the administrator, within his or her discretion, denies the request for review, the determination of the hearing officer shall be final. Where a review is granted, the determination by the administrator shall be final. The administrator’s determination shall be made within sixty days after he or she receives the request for review. The administrator’s determination shall recite the grounds upon which it is made. Notice of the decision shall be sent to all parties.

Subpart C — Debarment

§ 29.41 Grounds for debarment.

Debarment may be imposed on any participant or affiliate for any of the following causes:

(a) Conviction for any cause which is a ground for suspension as ■ set forth in § 29.23(a)(1) or § 29.23(a)(2);

(b) For any cause which is a ground for suspension as set forth in § 29.23(a)(3) or § 29.23(a)(4);

(c) Violation of a law or regulation relating to personal or organizational conflicts of interest as an incident to obtaining, attempting to obtain, or in the performance of a contract under a DOT financial assistance program;

(d) A willful or serious failure to perform or a record of unsatisfactory performance, in accordance with the terms of one or more agreements with a recipient of DOT financial assistance, provided that such failure or unsatisfactory performance has occurred within a reasonable period of time preceding the determination to debar;

(e) Violation of any contractual provision against receipt of contingent fees;

(f) Entering into an agreement with a person named on the DOT Unified List so as to cause the listed person to become, directly or indirectly, a participant in a DOT financial assistance program where it is known, or should have been known, that the person was on the list; or

(g) Disqualification from participation in direct or indirect contracting by any federal agency.

§ 29.43 Debarment of affiliates.

(a) General. Debarment may include any affiliate of a participant. A determination to include an affiliate in a particular debarment shall be made on a case-by-case basis. Among the factors to be considered in making this determination are the affiliate’s knowledge of or participation in the conduct which is the basis for the debarment.

(b) Notice and procedure. Where debarment of an affiliate is proposed, the affiliate shall be afforded the rights pertaining to notice and hearing provided in this subpart. In addition, when notice of proposed debarment is given under § 29.-49(a) to two or more persons who are affiliates of one another, each affiliate shall be provided the notice given to any other affiliate.

§ 29.45 Decision to debar.

(a) Whether to debar. An initiating official may propose the debarment of a participant or affiliate for any cause set forth in § 29.41 after coordination with the appropriate DOT legal office. However, the existence of any of these causes does not necessarily require that a party be excluded from DOT financial assistance programs. In each case, even if the offense or violation is of a criminal, fraudulent, or other serious nature, the proposal to debar shall be discretionary and shall be in the public interest, including the interest in doing business with participants who are presently responsible and the interest in preserving adequate competition.

(b) Seriousness of the cause for debarment. Among the factors to be considered in determining the seriousness of an offense or the failure or inadequacy of performance are whether the cause for debarment is based on a criminal conviction and whether the acts or omissions to act were willful. For purposes of this part, willfulness includes conduct that the person knew was in violation of applicable rules, statutes, regulations, or contract provisions.

      . Although Dominion Rebar Company, a steel supply corporation in which plaintiff Hugo R. Mainelli is a principal, is also named as a plaintiff, the defendant U.S.D.O.T. has stated on the record that Dominion Rebar is not suspended from participation in U.S.D.O.T. assisted projects. Indeed, Dominion Rebar was sent no suspension notice.

        . In pertinent part, the U.S.D.O.T.'s regulations regarding suspension of contractors are attached to this opinion as Appendix A.

      . It was established early in this litigation, by agreement of the parties, that the suspension would not apply to contracts already in progress, such as the Capital Center Project.

      . By agreement of the parties, Clark-Fitzpatrick will be allowed to proceed with the Jamestown Bridge Project at this point, without an approved M.B.E. subcontractor, and to substitute another M.B.E. at a later point if B&F’s suspension continues in force.

      . This is especially so here, where plaintiffs do not and cannot know, without resort to an agency hearing, whether the U.S.D.O.T. has acquired, through its Inspector General’s investigation, new evidence supporting a finding of fraud — evidence that was not previously available to the R.I.D.O.T. If such new evidence were available, the prior determination would likely lack preclusive force. See Safir v. Gibson, 432 F.2d 137, 144 (2nd Cir.1970), cert. den., 400 U.S. 850, 91 S.Ct. 57, 27 L.Ed.2d 88 (1970); cf. Springfield Television Corp. v. F.C.C., 609 F.2d 1014, 1019 (1st Cir.1979). While it is true that the U.S.D.O.T. need not disclose all the evidence it has during its hearing proceedings, it is nevertheless the case, as the U.S.D.O.T. has conceded in this action, that it will bear the burden of proving that it has "adequate evidence" to warrant suspension.

      . As a factual matter, while the record in this case bears out plaintiffs' claim that the federal government initially urged R.I.D.O.T. to investigate the allegations of fraud, it does not support the claim that the U.S.D.O.T. in any way participated in or controlled the investigation, nor does it demonstrate that U.S.D.O.T. fully endorsed or acquiesced in R.I.D.O.T.’s findings. To the contrary, on the Court’s reading, Gordon Hoxie’s March 13 letter to Joseph Pezza of R.I. D.O.T. suggests that the U.S.D.O.T. had a number of difficulties with R.I.D.O.T.’s factual findings, as well as the hearing procedures it employed.

      . I do not find meritorious plaintiffs’ argument that the particular facts of this case establish a property, not only liberty, interest. Plaintiffs believe that because they have already been found by the state to be lowest responsible bidders on the Interchange and Jamestown Bridge Projects, they have acquired a property interest in those contracts. I cannot agree because, as plaintiffs acknowledge, no "entitlement" can arise where the interest claimed remains subject to conditions. PI. Trial Memorandum, at 31 (citing Reed v. Village of Shorewood, 704 F.2d 943, 948 (7th Cir.1983)). Here, the state’s readiness to award the contract to plaintiffs, no matter how sincere, is wholly conditional on federal concurrence — which, of course, the U.S.D.O.T. has denied.

      . Indeed, the Court expressly inquired in open court whether the U.S.D.O.T.'s Inspector General’s Report, upon which the plaintiffs' suspension was partially based, contained evidence of acts of misconduct other than those charged in the indictment. Had the Report contained such charges, there might well have been a notice problem here, because the suspension letter sent to plaintiffs referred only to the allegations of fraud encompassed in the indictment. See Transco Sec., Inc., supra, at 323 (notice must apprise affected party of charges so as to permit adequate preparation for hearing).

      . Of course, only the individual, and not the corporate, plaintiffs enjoy the protection of the Fifth Amendment privilege. See, e.g., United States V. Kordel, 397 U.S. 1, 8 & fn. 9, 90 S.Ct. 763, 767 & fn. 9, 25 L.Ed.2d 1 (1970) (collecting cases).


source: Caselaw Access Project

author: DAVID L. RUSSELL, District Judge.

license: Public Domain

text:
    Richard K. WILSON; Francis R. Caplan; E. Joyce Caplan; and the Karchmer Company, a Missouri general partnership, Plaintiffs, Christine J. Wilson, Intervenor, v. AL McCORD INCORPORATED, an Oklahoma corporation; Al McCord a/k/a L.A. McCord; and Rosemary McCord, Defendants
    Civ. No. 82-1077-R.
    United States District Court, W.D. Oklahoma.
    June 6, 1985.

      Kirk D. Fredrickson, Fredrickson, Merrick & Patton, Oklahoma City, Okl., for plaintiffs.
    T.R. Benedum, Benedum, Benedum & Barr, Norman, Okl., John T. Edwards, Monnett, Hayes, Bullis, Thompson & Edwards, Oklahoma City, Okl., for defendants.
   ORDER

DAVID L. RUSSELL, District Judge.

Currently pending in this action is the Plaintiffs’ Motion for Judgment Notwithstanding the Verdict and for New Trial, made pursuant to Fed.R.Civ.P. 50(b) and Fed.R.Civ.P. 59(a). The Plaintiffs urge therein that the Court erred in refusing to direct a verdict in their favor on their claims for sale of an unregistered security, as proscribed by Oklahoma “Blue Sky” law, 71 O.S.1981 § 1 — § 703. See 71 O.S. 1981 § 408(a)(1). The Defendants responded in opposition to the Plaintiffs’ motion, and the Court permitted the Oklahoma Department of Securities to file a brief amicus curiae to assist the Court in interpreting Oklahoma law. The Defendants have motioned the Court to reconsider its ruling allowing the amicus curiae brief, which the Court now denies because it finds the brief helpful in resolving the issues now before the Court. Cf Clinkenbeard v. Frazier, 582 P.2d 413, 414-5 (Okla.Ct.App.1978) (Interpretation of a statute by the agency charged with its enforcement is always persuasive of the statute’s meaning). Thus, the Plaintiffs’ motion has been fully briefed by the parties and amicus curiae, and the Court is prepared to dispose of it at this time.

The controversy in this case is whether the fractional working interests sold by the Defendants to the Plaintiffs fall within the so-called “oil and gas” exemption, 71 O.S. 1981 § 401(b)(15), to the general requirement of registration of securities. 71 .O.S. 1981 § 301. At trial, the Court submitted this issue to the jury, which concluded that the interests sold were exempt from the registration requirement. The Plaintiffs argue that, as a matter of law, the interests sold by the Defendants were subject to the registration requirement, and that the Court therefore erred in failing to direct a verdict in the Plaintiffs’ favor.

Specifically, the Plaintiffs contend that the defendants failed to raise jury questions with regard to three of the essential elements of the § 401(b)(15) transactional exemption. The Court has rejected this argument thrice before in this action; the last such rejection occurred when the Court denied the Plaintiffs’ Motion for Directed Verdict. With regard to the elements set forth in § 401(b)(15)(A)(l) and § 401(b)(15)(A)(4), it is sufficient to state that the Court did find and still finds that questions of fact necessitated submitting those matters to the jury. Thus, the Court will not elaborate further on those issues in this Order. However, the Court will specifically address the Plaintiffs’ contention that the Court misinterpreted § 401(b)(15)(A)(2).

One of the essential elements to be proven by a seller of an unregistered security seeking to avoid liability under § 408(a)(1) is as follows:

[N]o commission [may be] paid or given directly or indirectly for the solicitation of any such sale excluding any commission paid or given by and between parties each of whom is engaged in the business of exploring for or producing oil and gas or other valuable minerals;

71 O.S.1981 § 401(b)(15)(A)(2) [emphasis added]. As the language indicates, the oil and gas exemption from the § 301 requirement of registration is denied to one who pays a commission to another to solicit purchasers for an interest sold. In this case, the Defendants do not deny that they paid such a commission, in the form of a fractional mineral interest, to one A.R. Ellison for the solicitation of the sales to the Plaintiffs. Thus, unless the commission paid by the Defendants is in some way excepted from the § 401(b)(15)(A)(2) proscription against such payment, the Defendants would not be entitled to the oil and gas exemption from the registration requirement.

The exclusionary language of § 401(b)(15)(A)(2), highlighted above, would seem to provide the necessary exception. The fractional mineral interest transferred to Ellison by the Defendants was “given by and between parties each of whom is engaged in the business of exploring for or producing oil and gas.” 71 O.S.1981 § 401(b)(15)(A)(2). However, despite the apparent facial applicability of this provision, the Plaintiffs, and amicus curiae as well, contend that the exclusionary language does not aid the Defendants in this case. In support of this contention, they make two arguments: (1) That application of the exclusionary language to the facts of this case would permit a seller to obtain the exemption simply by hiring another oilman, rather than the typical broker, to solicit sales, a result contrary to the intent of the legislature and the purposes of the Securities Act; and, (2) that the exclusion applies only to transactions involving buyers and sellers in the oil and gas industry. Thus, the Plaintiffs and amicus curiae argue for an interpretation of § 401(b)(15)(A)(2) that is somewhat different than that called for by the clear language of the statute. Unfortunately, there is no case law to support such an interpretation; while § 401(b)(15)(A)(2) has been addressed by the Oklahoma courts, see Grisham v. PIC Oil Co., Inc., 702 P.2d 28, 56 O.B.A.J. 1021, 1023 (Okla.1985); Petroleum Resources Development Corp. v. State, 585 P.2d 346, 347-8 (Okla.1978), the exclusionary language at issue in this case has never been interpreted. Thus, the Court must decide a case of first impression under Oklahoma law.

The first argument advanced by the Plaintiffs and amicus curiae is that the Court should not apply the exclusion to the facts of this case because to do so would frustrate the intent of the legislature and the purposes of the Securities Act. The Court does not agree. In determining the intent of the legislature in promulgating a statute, the inquiry begins with the language employed in the legislation. Seventeen Hundred Peoria, Inc. v. City of Tulsa, 422 P.2d 840, 843-4 (Okla.1966) (Statutory construction “should ordinarily be done by a consideration of the language of the statute.”), quoting City of Bristow v. Groom, 194 Okla. 384, 151 P.2d 936, 940 (1944). “Where the language of a statute is plain and unambiguous, and its meaning is clear ... the statute will be accorded the meaning as expressed by the language therein employed.” Cave Springs Public School District v. Blair, 613 P.2d 1046, 1048 (Okla.1980). The plain language of § 401(b)(15)(A)(2) indicates that the exclusion is applicable to the facts of this case, and “there is no room for construction.” Cavett v. Geary Board of Education, 587 P.2d 991, 993 (Okla.1978). To conclude otherwise would be to ignore the language of the exclusionary provision, and a court is “not justified in ignoring the plain words of a statute.” Allgood v. Allgood, 626 P.2d 1323, 1327 (Okla.1981). Thus, the first argument advanced by the Plaintiffs and amicus curiae fails to persuade the Court that the exclusion contained in § 401(b)(15)(A)(2) does not apply to the facts of this case.

The second argument fares no better. The exclusion cannot be interpreted to apply only to transactions between parties in the oil and gas industry, because such an interpretation would render the exclusion meaningless, mere surplus language. See Anderson v. O’Donoghue, 677 P.2d 648, 651 (Okla.1983) (“Statutes must be construed to give meaning to each portion thereof ... ”). Cf. Cowart v. Piper Aircraft Corp., 665 P.2d 315, 317 (Okla.1983) (“It is presumed that each portion ... was intended to be operative and not surplus language.”). Under 71 O.S.1981 § 2(20)(R), sales of mineral interests between parties in the oil and gas industry are by express mention excluded from coverage under the Act. As such interests are not securities, there is no registration requirement and therefore no need for an exemption from the registration requirement premised on the industry status of the parties. The exclusion contained in § 401(b)(15)(A)(2) cannot be interpreted as urged by the Plaintiffs, as it would thereby become superfluous in light of § 2(20)(R). See Anderson, 677 P.2d at 651 (Statutes cannot be construed “so that a statute is rendered superfluous.”).

It may well be, as is suggested by the Plaintiffs and amicus curiae, that the legislature did not contemplate that an oilman could avoid the registration requirement simply by employing a fellow oilman, rather than a typical securities broker, to solicit purchasers. Nevertheless, the plain language of § 4()l(b)(15)(A)(2) mandates that result on the facts of this case. Given such clear language, it would be extremely unfair to adopt an esoteric construction such as that urged by the Plaintiffs and amicus curiae. The Defendants were entitled to rely on the clear, unambiguous language which told them it was unnecessary to register the working interest securities that they sold. For the Court to now tell them that the statute does not mean what it plainly says would be a clear miscarriage of justice, and the Court declines to do so.

Accordingly, the Court concludes that the exclusionary language of § 401(b)(15)(A)(2) is applicable to the Defendants in this case. The issues were therefore properly submitted to the jury, and the Plaintiffs' Motion for Judgment Notwithstanding the Verdict is denied. This denial obviates the need to consider the Plaintiffs’ request for a new trial on the issue of Rosemary McCord’s derivative liability, as the Court finds the jury’s verdict in favor of the Defendants correct in all respects.

The final motion pending in this action is the Defendants’ Motion for Attorney’s Fee. Because the Court finds that the Plaintiffs’ claims were not “without substantial merit,” that motion is denied. See 71 O.S.1981 § 408(f).

In summary, the Court reaches the following conclusions:

1. The Defendants’ Motion to Reconsider is denied.
2. The Plaintiffs’ Motion for Judgment Notwithstanding the Verdict and for New Trial is denied.
3. The Defendants’ Motion for Attorney’s Fee is denied.


author: SHADUR, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. Louis GOLDSTEIN, Defendant.
    No. 85 CR 87.
    United States District Court, N.D. Illinois, E.D.
    June 7, 1985.

      Sheldon T. Zenner, Asst. U.S. Atty., Chicago, 111., for plaintiff.
    Susan G. Feibus, Louis B. Garippo, Ltd., Chicago, 111., for defendant.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Louis Goldstein (“Goldstein”) has been charged under 18 U.S.C. § 659 with possession of gold salts and an emerald stolen from a Federal Express facility while in interstate commerce, knowing the items to have been stolen. Goldstein now moves to suppress the emerald, which federal agents seized at his home. For the reasons stated in this memorandum opinion and order, the motion is denied.

Facts

Goldstein (a Chicago jeweler) bought the emerald from co-defendant and long time acquaintance Louis Cane for $3,500. Later Cane began cooperating with federal law enforcement officials and agreed to help the government retrieve the emerald from Goldstein.

On December 21, 1983 Cane went to Goldstein’s store and offered to buy back the emerald on behalf of an undisclosed buyer. Goldstein told Cane he had given the emerald to his wife. When Goldstein then called her on the telephone, she expressed an unwillingness to sell it.

On January 31, 1984 Cane returned to the store and again offered to buy the emerald, this time talking directly with both Goldstein and his wife. Again Mrs. Goldstein said she was unwilling to part with the stone, but Cane offered her $9,500 and asked her to think about it for a few days.

On February 3, 1984 Cane and FBI agent A1 Jennerich (“Jennerich”) went directly to the Goldsteins’ home. Goldstein was at the store, but Mrs. Goldstein was at home. Cane introduced Jennerich to Mrs. Gold-stein as the prospective buyer of the emerald and she allowed them to enter the house. Once more she explained her reluctance to sell the emerald, but at Cane’s urging she agreed at least to show it to them. When she did so Jennerich identified himself as an FBI agent and seized the emerald.

Fourth Amendment Standards

Goldstein argues the emerald should be suppressed because Jennerich’s deceit in gaining entrance to the home and persuading Mrs. Goldstein to show him the emerald:

1. unreasonably violated Goldstein’s expectation that the emerald would remain private in his home; and
2. vitiated Mrs. Goldstein’s consent to allow Cane and Jennerich into the home.

Those arguments miss the constitutional mark by a wide margin.

Goldstein’s arguments are premised on an incorrect categorization of Jennerich’s actions as a consent search of the Goldstein home. Goldstein first invokes United States v. Dichiarante, 445 F.2d 126,129-30 (7th Cir. 1971) for the unimpeachable proposition that consent searches are reasonable only if kept within the bounds of the actual consent. Then he cites numerous decisions suppressing evidence obtained by deceit when law enforcement officers, acting in their official capacity, obtained consent for limited searches and then searched for and seized items beyond the scope of the consent.

Those cases are inapposite here because Jennerich was acting in an undercover capacity rather than in his official capacity. Hoff a v. United States, 385 U.S. 293, 301-02, 87 S.Ct. 408, 413-414, 17 L.Ed.2d 374 (1966) explained the Fourth Amendment is not implicated when a person invites an undercover agent into his or her home and voluntarily divulges incriminating information or evidence. In that circumstance the person relies not on the security interest protected by the Fourth Amendment (“unwarranted governmental intrusion,” id. at 301, 87 S.Ct. at 413), but rather on his or her “misplaced confidence” the invitee (unknown to be a government agent) will not reveal his or her wrongdoing (id. at 302, 87 S.Ct. at 413).

Looked at in a slightly different way, the cases on which Goldstein relies involve deceit as to the object of the entry or search by a person known to be a government agent — and to whom consent was given based on that knowledge. But Jennerich’s deceit concerned only his identity as an agent. Entry of an undercover agent is not illegal if he enters a home for the “very purposes contemplated by the occupant.” United States v. Ressler, 536 F.2d 208, 211 (7th Cir.1976) (quoting Lewis v. United States, 385 U.S. 206, 211, 87 S.Ct. 424, 427, 17 L.Ed.2d 312 (1966)). If the occupant reveals private information to the visitor under such circumstances, he or she assumes the risk the visitor will reveal it. United States v. Jacobsen, 466 U.S. 109, 104 S.Ct 1652, 1658, 80 L.Ed.2d 85 (1984).

And that rule is not altered by the fact the visitor is (without the knowledge of the occupant) a government agent. Goldstein cannot possibly argue Jennerich’s deceit as to his identity was constitutionally infirm, in light of the approval of comparable undercover operations in Hoffa and more recent cases such as United States v. Walker, 760 F.2d 144, 147 (7th Cir.1985).

Cane and Jennerich unquestionably gained entrance to the Goldstein home for the purpose understood by Mrs. Goldstein: to discuss the possible purchase of the emerald. She voluntarily showed them the stone as a result of her misplaced trust in them. No Fourth Amendment privacy interest was implicated in those actions.

Conclusion

This Court rejects Goldstein’s effort to suppress the emerald. His motion is denied.


text:
    UNITED STATES of America, Plaintiff, v. Louis GOLDSTEIN, Defendant.
    No. 85 CR 87.
    United States District Court, N.D. Illinois, E.D.
    June 17, 1985.

      Sheldon T. Zenner, Asst. U.S. Atty., Chicago, 111., for plaintiff.
    Susan G. Feibus, Louis B. Garippo, Ltd., Chicago, 111., for defendant.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Louis Goldstein (“Goldstein”) has been charged under 18 U.S.C. § 659 with possession of gold salts and an emerald stolen from a Federal Express facility while in interstate commerce, knowing the items to have been stolen. Goldstein now moves to suppress incriminating statements he made to FBI agents. For the reasons stated in this memorandum opinion and order, the motion is granted.

Facts

In early 1984 Louis Cane (“Cane”) told the FBI he had sold Goldstein the stolen gold salts and emerald. On February 3, 1984 FBI agents Andy Caster (“Caster”) and James Kuntzelman (“Kuntzelman”) entered Goldstein’s store, Lucky Lou’s Coin Shop, to question him about Cane’s assertions. Caster wore a Nagra body recorder and taped the entire conversation, during which Goldstein admitted purchasing the stolen goods. For present purposes the most significant parts of the conversation involve the agents’ representations (or more accurately misrepresentations) about Goldstein’s status as a potential witness rather than as a target of their investigation.

Caster and Kuntzelman identified themselves to Goldstein as FBI agents as soon as they entered the store. Caster told Goldstein they were investigating a theft of jewelry and gold items and asked whether anyone had attempted to fence any gold jewelry, gems or gold salts to Goldstein. He responded that as a respectable businessman he tried to avoid any such activity. When the agents shifted to asking about Cane and whether Goldstein had bought any such items from him, Goldstein said he knew Cane but denied purchasing anything but a few small pieces of gold jewelry from him.

At that point the agents played for Gold-stein a tape of a conversation recorded ten days earlier, in which Cane and. Goldstein had discussed Cane’s sale to Goldstein of the gold salts and emerald. Caster then said (Tr. 14):

Lou, I think that at this point and time you wanna evaluate what you’ve told us, okay? And seriously consider what’s gonna be to your advantage. And disadvantage. Denying what has actually happened is not gonna help you.
!}! $ $ s}: #
That conversation, you confirmed in fact that you had purchased an emerald from Cane. We know for a fact that, that emerald was stolen from Federal Express. Okay? You had mentioned earlier that you have never purchased stones from him, from from Cane. That’s not true. Okay? Stop the lying now, and let’s start talking the truth.

Once more Goldstein denied any recollection of buying gold salts or an emerald from Cane. Caster again pushed him (Tr. 16):

... you won’t gain anything by following the path, other than just being straight out with us, okay, as to what’s taken place. Alright. Cause we’re investigating the the thefts from the Federal Express.

When Goldstein hesitated again, Caster pursued the issue (Tr. 16-18):

CASTER: (Sighs). In order to make this recording [of the Cane-Goldstein conversation], we had to have somebody’s consent. Since it wasn’t yours, it had to have been his. Okay? Now if he’s telling me that he sold to you, five pounds of gold salts on one occasion, and 20 pounds on another occasion, since this has been proven true and confirmed by yourself and your wife, I can only assume that he’s accurate and that he’s told us the truth about him selling you gold salts.
GOLDSTEIN: What you’re saying makes sense.
CASTER: So as I told you before, I’d just like to finish this out, and you be straightforward with us. We’re trying to solve it. I wanna know ...
GOLDSTEIN: Okay..
CASTER: .. how often, the amount you paid and what you did with the items? Okay?
GOLDSTEIN: Okay, ah, now, what’s, what’s my best (inaudible). Ah, I see where I sit now. Ah, I don’t know if I’m in deep trouble or no trouble or what?
CASTER: We don’t know how deep the water is. I agree with you.
GOLDSTEIN: Okay, ah, do I need a lawyer at this point or or ah, am I candid to talk to ya. I mean what position am I in? Ah, to do, if, if, if, you say I if I did everything that you’ve said I did, ah, am I ah, ah, an accomplice to anything? Ah, what what, what is my ah, situation in this ah ...
CASTER: (Clears throat)..
GOLDSTEIN: And Lou Lou Cane, ah, ah, he came in here, the other day ... with your knowledge..
CASTER: Uh hum.
GOLDSTEIN: Ah, and ah, what he’s saving his own neck to trap me? Or or ah, I just don’t understand that.
CASTER: I, I don’t, I can’t explain what anybody’s motives are. Okay? We happen to know that the thefts took place. We’re now trying to solve the crime.
GOLDSTEIN: Sure..
CASTER: We believe we have solved it. We’re now trying to find out who eventually got the gold salts, so that we can make proper restitution to the rightful owners. Okay? That’s, that’s what it’s all about. Okay, so whether you want, need an attorney, that’s something that you can decide and that’s something that we aren’t really allowed to advise or suggest to you..
CASTER: One of the things that we’re interested in knowing, was who was responsible for orchestrating the thefts..
GOLDSTEIN: Oh, well..
CASTER: Cause you said you weren’t a thief. Now, in in your own behalf, maybe you can, let’s talk about that for a minute. Did you have anything to do in organizing the the thefts of these items?
GOLDSTEIN: I ... I ...
CASTER: Did you know where they came from?
GOLDSTEIN: I, ah, I swear on a pile of bibles that I had nothing to do with any thefts.

Only a few minutes after that colloquy, Goldstein admitted he had bought the contraband from Cane and resold it (Tr. 23). He then gave some details of his transactions with Cane.

During the remainder of the interview Goldstein periodically asked whether he was in serious trouble and whether he needed an attorney. As in the quoted language, the agents consistently refused to advise Goldstein whether he needed a lawyer. However, at several times they stressed the benefits of cooperation with them, and they stated both directly and indirectly that Cane was their real target and they did not regard Goldstein as a criminal.

Goldstein’s Contentions

Goldstein argues all his statements to the FBI agents should be suppressed because they violated his Fifth and Sixth Amendment rights in two ways:

1. They failed to give Goldstein Miranda warnings.
2. They tricked him into making an involuntary confession by falsely suggesting:
(a) Their investigation was of a civil rather than criminal nature.
(b) Goldstein was in less serious trouble than Cane.
(c) Goldstein was not a target of the investigation.
(d) Goldstein’s cooperation would ultimately work in his favor. •

Each of those contentions will be dealt with in turn.

1. Need for Miranda Warnings

Goldstein contends the agents were required to advise him of his Miranda rights before questioning him because (Mem. 6):

the investigative machinery of the government was attempting to develop evidence for the purpose of possible criminal prosecution and conviction.

But Minnesota v. Murphy, 465 U.S. 420, 104 S.Ct. 1136, 1144-45, 79 L.Ed.2d 409 (1984) has reaffirmed the well-established rule that Miranda warnings are not triggered by the government’s mere focusing of its investigation on a suspect. Instead the key to Miranda's coming into play is whether the interrogation occurred in a custodial setting. And on that score California v. Beheler, 463 U.S. 1121, 103 S.Ct. 3517, 3520, 77 L.Ed.2d 1275 (1983) (quoting Oregon v. Mathiason, 429 U.S. 492, 495, 97 S.Ct. 711, 714, 50 L.Ed.2d 714 (1977)) stated the test:

[T]he ultimate inquiry is simply whether there is a “formal arrest or restraint on freedom of movement” of the degree associated with a formal arrest.

Goldstein’s interrogation was assuredly non-custodial. His interview took place at his store, not a police station or FBI office; he was not placed under arrest; and nothing the agents said or did either restrained him or reasonably led him to believe he was under restraint. To the contrary, at one point the agents made it plain they were merely investigators and that any decision whether to prosecute was in the hands of the United States Attorney (Tr. 36). Significantly, Goldstein’s own sense of freedom during the interview is reflected by his having interrupted the conversation on several occasions to wait on customers and answer telephone calls while the agents were in the store.

In sum, the custodial environment required to invoke Miranda was wholly absent. And if more particularized precedent is needed (as it is not), this ease falls squarely within Sicilia, 475 F.2d at 310-11, holding Miranda warnings unnecessary when FBI agents conducted a non-custodial interview of an interstate theft suspect at his place of business.

2. Voluntariness of Goldstein’s Confession

Resolution of the Miranda issue against Goldstein does not, however, dispose of his Fifth and Sixth Amendment challenges. This Court must still determine whether Goldstein’s confession was voluntary. And the lack of Miranda warnings — though not of itself fatal for the reason already discussed — is a “significant factor” in that analysis. Davis v. North Carolina, 384 U.S. 737, 740, 86 S.Ct. 1761, 1764, 16 L.Ed.2d 895 (1966).

Culombe v. Connecticut, 367 U.S. 568, 602-06, 81 S.Ct. 1860. 1879-81. 6 L.Ed.2d 1037 (1961) (opinion of Frankfurter, J.), while recognizing the difficulty of coining an all-purpose definition of voluntariness, framed the voluntariness inquiry in terms that continue to state the standard {id. at 602, 81 S.Ct. at 1879):

Is the confession the product of an essentially free and unconstrained choice by its maker? If it is, if he has willed to confess, it may be used against him. If it is not, if his will has been overborne and his capacity for self-determination critically impaired, the use of his confession offends due process.

Courts have consistently required a careful case-by-case analysis, based on “the totality of the circumstances” surrounding an individual’s statement to the authorities. Schneckloth v. Bustamonte, 412 U.S. 218, 226, 93 S.Ct. 2041, 2047, 36 L.Ed.2d 854 (1973); Holleman v. Duckworth, 700 F.2d 391, 396 (7th Cir.1983).

a. Goldstein’s State of Mind

Goldstein was not at all inclined to make incriminating statements to the agents during the early stages of the interview. He repeatedly denied any knowledge of or involvement with the stolen emerald and gold salts. Moreover, his reticence was not just prompted by the belief he could conceal the truth from the agents. After the agents made plain — by playing the tape of the Cane-Goldstein conversation — they knew Goldstein had bought the stolen goods from Cane, Goldstein continued to deny it (Tr. 14-16). Even after Goldstein realized he could not convince the agents of his noninvolvement (or of his total innocence), his first instinct was not to confess, but rather to inquire whether he needed a lawyer (Tr. 17). And that inquiry was coupled with questions and expressions of concern about his possible culpability {id.):

GOLDSTEIN: .... Ah, I don’t know if I’m in deep trouble or no trouble or what?
* * * * * *
GOLDSTEIN: ____I mean what position am I in? Ah, to do, if, if, if, you say I if I did everything that you’ve said I did, ah, am I ah, ah, an accomplice to anything? Ah, what what, what is my ah, situation in this ah____

Agent Caster’s response was eloquent and informative: He cleared his throat, then proceeded down a misleading path.

Plainly this is not a case like the government-tendered (Supp.Mem. 7) Bachlin v. United States, 723 F.2d 1373, 1377-78 (8th Cir.1983), in which the agents acted as midwives, assisting in the delivery of a confession compelled by a deep sense of guilt. Goldstein clearly did not want to confess, but what the agents said served to change his mind during the exchange at Tr. 16-19. That exchange must be carefully examined for the sorts of threats or promises that render a confession involuntary. United States v. Costello, 750 F.2d 553, 555 (7th Cir.1984).

b. Implied Promises of Leniency

Costello, 750 F.2d at 555 (quoting Bram v. United States, 168 U.S. 532, 542-43, 18 S.Ct. 183, 186-87, 42 L.Ed. 568 (1897)) reaffirmed the nearly-century-old rule that an interrogator’s “direct or implied promise, however slight” renders any subsequent confession involuntary and hence excludable. True enough, an interrogator may discuss the possibility of cooperation with the suspect (United States v. Guido, 704 F.2d 675, 677 (2d Cir.1983)) or may promise to inform the prosecutor of the suspect’s cooperation (Costello, 750 F.2d at 555-56), as long as the interrogator makes it clear he himself has no power to grant immunity or confer other benefits.

Though such was not entirely the case with Goldstein’s questioners, any departure from that part of the relevant standard was not fatal in Costello terms. In response to Goldstein’s reticence, Caster suggested to Goldstein he would benefit by cooperation:

And and seriously consider what’s gonna be to your advantage. And disadvantage. Denying what has actually happened is not gonna help you. (Tr. 14)
* * * * % *
You won’t gain anything by following the path, other than just being straight out with us, okay, as to what’s taken place. (Tr. 16).

Goldstein’s first incriminating statements occurred soon afterward.

Those statements by Caster were plainly intended to persuade Goldstein to cooperate. But it would take some stretching to read them as implied promises of leniency. Caster’s main thrust seemed to be simply that denials would be futile. Those statements alone do not appear to be the sort of promises or threats condemned by Costello.

But another of Caster’s statements during that same pivotal exchange was plainly such an impermissible implied promise. Goldstein had explicitly asked Caster whether he was “in deep trouble or no trouble or what” (Tr. 17) and — if that were not enough — went on to ask his status in terms of criminal responsibility vel non (id.):

Okay, ah, do I need a lawyer at this point or or ah, am I candid to talk to ya. I mean what position am I in? Ah, to do, if, if, if, you say I if I did everything that you’ve said I did, ah, am I ah, ah, an accomplice to anything? Ah, what what, what is my ah, situation in this ah ...

Caster’s direct response falsely indicated the criminal investigation had been completed and he was interested in Goldstein’s answers only for the purpose of recovering the goods to make restitution to the theft victims (Tr. 18):

CASTER: ... We happen to know that the thefts took place. We’re now trying to solve the crime.
GOLDSTEIN: Sure..
CASTER: We believe we have solved it. We’re now trying to find out who eventually got the gold salts, so that we can make proper restitution to the rightful owners. Okay? That’s, that’s what it’s all about. Okay, so whether you want, need an attorney, that’s something that you can decide and that’s something that we aren’t really allowed to advise or suggest to you..

That statement — that “restitution” was “what it’s all about” — clearly and deliberately misrepresented Goldstein’s status as a criminal target. It was an implied assurance that the actual thief and Cane were the only criminal targets, carrying the reasonable implication to non-lawyer Goldstein that his statements would not be used against him in a criminal prosecution. Certainly the strong likelihood is that Gold-stein understood Caster’s statement as such an assurance; there is no other plausible explanation for his having so quickly then abandoned his initial stance of denial of his involvement. But it is unnecessary to probe Goldstein’s mind in any depth because {Bram, 168 U.S. at 543, 18 S.Ct. at 187):

[T]he law cannot measure the force of the influence used, or decide its effect upon the mind of the [accused], and therefore excludes the declaration if any. degree of influence has been exerted.

In its reply memorandum the government cites Oregon v. Elstad, — U.S.-, 105 S.Ct. 1285, 1297, 84 L.Ed.2d 222 (1985) for the proposition that “a defendant’s ignorance of the full consequences of his decision” to confess does not of itself render the confession involuntary. But the cited portion of Elstad addresses only the question whether— Miranda considerations aside — the government has an affirmative duty to inform a defendant of the consequences of a confession. What is at issue here is not the government’s failure to inform Goldstein, but rather its deliberate misrepresentations to Goldstein of his status. And when the government misleads a suspect concerning the consequences of a confession, his statements are regarded as having been unconstitutionally induced by a prohibited direct or implied promise. Grades v. Boles, 398 F.2d 409, 411-14 (4th Cir.1968).

Goldstein’s incriminating statements beginning at Tr. 23 must therefore be regarded as involuntary. And his statements in later portions of the interview were even further tainted by the agents’ increasingly explicit promises and misrepresentations (and in one instance even an implied threat). As to the advisability of cooperation Caster said further:

[People who do not cooperate] end up ah, how they say, ah sliding up the saw backwards the whole way through (Tr. 31).
The one thing we can say is this ... That by returning those items to us today your showing your ah, good faith. Okay? (Tr. 48).
So in that regard [Goldstein’s willingness to return stolen merchandise to the agents] I think that you’re ah, you’re helping yourself, ah, ah, by doing that ... (Tr. 49).

And as to Goldstein’s status vis-a-vis Cane, each of Caster and Kuntzelman misled him:

CASTER: But you didn’t initiate it. That’s what, I mean.
GOLDSTEIN: No, (inaudible)..
CASTER: .. that’s what makes a big difference (Tr. 38).
******
KUNTZELMAN: .. it’s obvious that we’re not looking at you as a criminal right now.
******
The, the things that I want is to go back on the police officer ... I’m looking at him as a criminal here. He’s instigated this as far as I’m concerned ... why should you have to worry about it? (Tr. 51-52).

Those later representations only confirmed (or compounded) the infirmities in Gold-stein’s confession.

Conclusion

Under all the circumstances of the interview Goldstein’s confession cannot be deemed voluntary in the sense defined by the cases. His February 3, 1984 statements to Caster and Kuntzelman must therefore be suppressed. Goldstein’s motion to suppress those statements is granted.

      . Cane was named as a co-defendant in the current indictment. This Court has sentenced him under 18 U.S.C. § 659 following his guilty plea to two counts.

      . All references to the taped conversation, which has been transcribed and furnished to this Court, will take the form "Tr. — ."

      . Because this is the first point preceding Gold-stein's significant admissions at which Goldstein sought assurance as to his place in the investigation, it serves as one of the focal points of the current motion. After the initial memoranda had been submitted by the parties, this Court requested further briefing. In response the government’s Supp.Mem. 1-2 identified Tr. 36 as Goldstein's "first inquiry ... as to his status,” but that is clearly wrong and was so labeled at Goldstein’s R.Mem. 1-2.

      . Caster and Kuntzelman were joined midway through the interview by FBI agent Al Jennerich, who had just visited Goldstein’s home and seized the stolen emerald from his wife.

      . Goldstein argues United States v. Dickerson, 413 F.2d 1111 (7th Cir.1969) states the opposite rule. In fact United States v. Sicilia, 475 F.2d 308, 310-11 (7th Cir.), cert. denied, 414 U.S. 865, 94 S.Ct. 123, 38 L.Ed.2d 117 (1973) explicitly narrowed Dickerson to the special case of IRS investigations and rejected its extension to FBI interrogations.

      . Well after Goldstein’s first incriminating statements, the agents said they were only investigators and it was up to the United States Attorney to decide whether to prosecute (Tr. 36). But they never indicated they had no significant influence over that decision or other decisions involving leniency for Goldstein.

      . That message was strongly reinforced during the exchange immediately following Caster's “restitution” remark (Tr. 19):
      CASTER: One of the things that we’re interested in knowing, was who was responsible for orchestrating the thefts..
      GOLDSTEIN: Oh, well..
      CASTER: Cause you said you weren’t a thief. Now, in in your own behalf, maybe you can, let’s talk about that for a minute. Did you have anything to do in organizing the the thefts of these items?
      GOLDSTEIN: I ... I ...
      CASTER: Did you know where they came from?
      GOLDSTEIN: I, ah, I swear on a pile of bibles that I had nothing to do with any thefts.
      CASTER: But did you know about, or how to get them? Did you, did you tell Cane.
      GOLDSTEIN: No.
      CASTER: You know, ah, this, this company has shipments of this or that?
      GOLDSTEIN: Yes but listen.
      CASTER: Tell me how it happened? That’s what we’re interested in knowing?
      GOLDSTEIN: I don’t know how, I don’t know how, I don’t know.


author: EDWARD C. REED, Jr., District Judge.

text:
    Tim TRALMER, Terry Tralmer, Sharon A. Gilson, A. Kay Saunders, Individually, and A. Kay Saunders, Executrix of the Estate of Howard Tralmer, Deceased; Estate of Howard Tralmer; A. Kay Saunders, Executrix of the Estate of Alice Tralmer, Deceased; and the Estate of Alice Tralmer, Plaintiffs, v. GALAXY AIRLINES, INC., a Florida corporation; Lockheed Corporation, a California corporation; Detroit Diesel Allison Division of General Motors Corporation, a Delaware corporation; Hamilton Standard, a Division of United Technologies, a Delaware corporation; Caesars World, Inc., a Florida corporation; Caesars Desert Palace, Inc., dba Caesars Tahoe, a Nevada corporation; Hy Thayer, an individual; # 1 Club, a business entity; and Does One through One Hundred, Defendants.
    No. CV-R-85-133-ECR.
    United States District Court, D. Nevada.
    June 7, 1985.

      John Echeverría, San Francisco, Cal., and Ron Bath, Reno, Nev., for plaintiffs.
    Walter J. Lack, Los Angeles, Cal., and Bruce R. Laxalt, of Beckley, Singleton, De-Lanoy & Jemison, Chartered, Reno, Nev., for Galaxy Airlines, Inc., Caesars World, Inc., Desert Palace, Inc., dba Caesars Tahoe, Hy Thayer, an individual, and # 1 Club, a business entity.
    William G. Cobb, Reno, Nev., for Allison Gas Turbine Div. of Gen. Motors Corp. (defendant’s name was incorrectly set forth in the complaint as Detroit Diesel Allison Division of General Motors Corporation, a Delaware corporation)
    Allan Shamberger, Reno, Nev., for Hamilton Standard.
    Lockheed Corp., a California corp., has not entered an appearance in the case.
   MEMORANDUM DECISION AND ORDER

EDWARD C. REED, Jr., District Judge.

This diversity case was removed to this Court from the Second Judicial District Court of the State of Nevada, in and for the County , of Washoe, on petition of defendants Galaxy Airlines, Inc., Caesars World, Inc., and Caesars Desert Palace, Inc., dba Caesars Tahoe. A timely motion for remand has been filed by the plaintiffs. The grounds for the motion are that the removal was improvident and the Court lacks jurisdiction because: (1) defendant Caesars Desert Palace, Inc., is a citizen of Nevada, since it is incorporated and has its principal place of business here, and (2) all the named and served defendants did not join in the petition to remove. The record reveals that defendant Lockheed Corporation, which was served with summons and complaint on February 27, 1985, and defendant Hamilton Standard, which was served on March 5, 1985, have not joined in the removal petition.

The removal statute, 28 U.S.C. § 1441, provides in subsection (b) thereof that a diversity action “shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.” In turn, 28 U.S.C. § 1382(c) prescribes that, for the purposes of § 1441, “a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business:...” The petition for removal, itself, acknowledges that defendant Caesars Desert Palace, Inc., dba Caesars Tahoe, is a Nevada corporation. As a result, § 1441(b) precludes removal. 1A Moore’s Fed.Prac. ¶ 0.168[3.-2-2], at p. 548.

All defendants who have been served and may properly join in the removal petition must join in order to avoid the plaintiffs’ choice of a state forum. Id. at pp. 548-551; Ely Valley Mines, Inc. v. Hartford Accident & Indemnity Co., 644 F.2d 1310, 1314 (9th Cir.1981). Defendants Lockheed Corporation and Hamilton Standard were served and could properly have joined in the removal petition, but did not.

The plaintiffs request that the removing defendants be ordered to pay the plaintiffs’ costs incurred by reason of the removal proceedings. They contend that such an order would be just because the legal defects in the removal petition appeared right on the face of the document.

28 U.S.C. § 1447(c) authorizes the district court to order the payment of just costs where “it appears that the case was removed improvidently and without jurisdiction____” “Improvidently” has been defined to mean “legally defective.” Sheet Metal Workers Intern. Ass’n, AFL-CIO v. Seay, 693 F.2d 1000, 1005 n. 7 (10th Cir.1982); Kaib v. Pennzoil Co., 545 F.Supp. 1267, 1269 (W.D.Pa.1982); see also Haelan Laboratories, Inc. v. Topps Chewing Gum, Inc., 131 F.Supp. 262, 263 (E.D.N.Y.1955). A case has been “improvidently” removed if one of the statutory requirements for removal has not been satisfied. In re Merrimack Mut. Fire Ins. Co., 587 F.2d 642, 647 n. 8 (5th Cir.1978). The instant case was removed improvidently.

Although the ordering of payment of costs is discretionary under § 1447(c), costs generally are awarded where the nonremovability of the action is obvious. Pack v. Rich Terminal Company, 502 F.Supp. 58, 60 (S.D.Ohio 1980); Dunkin Donuts of America v. Family Enterprises, Inc., 381 F.Supp. 371, 373 (D.Md.1974); Grodeck v. Jung, 582 F.Supp. 544, 544 (W.D.Va.1984). Such is the case here.

IT IS, THEREFORE, HEREBY ORDERED that defendants Galaxy Airlines, Inc., Caesars World, Inc., and Caesars Desert Palace, Inc., dba Caesars Tahoe, shall pay to the plaintiffs all costs and disbursements incurred by the plaintiffs by reason of the removal proceedings. In furtherance thereof, within fourteen (14) days of the date hereof the plaintiffs shall serve on the attorneys for said removing defendants, and file with the Clerk of this Court, an application for the taxation of those costs and disbursements. The application and procedure shall conform with Rule 20 of the Local Rules of Practice.

IT IS FURTHER ORDERED that, after said costs and disbursements have been taxed by the Clerk, the case shall be remanded to the Second Judicial District Court of the State of Nevada, in and for the County of Washoe.