author: BRIMMER, District Judge.

text:
    PLATTE PIPE LINE COMPANY, a Delaware corporation, Plaintiff, v. UNITED STATES of America, and Willwood Irrigation District, a Wyoming corporation, Defendants.
    No. C84-0013-B.
    United States District Court, D. Wyoming.
    Aug. 8, 1984.
    Patrick Dixon, Murane & Bostwick, Casper, Wyo., for plaintiff.
    Francis Leland Pico, Asst. U.S. Atty., Cheyenne, Wyo., for defendants.
   ORDER GRANTING DEFENDANT UNITED STATES’ MOTION TO DISMISS

BRIMMER, District Judge.

The above-entitled matter came before the Court upon a motion to dismiss filed by the United States. The plaintiff was represented at oral argument by Patrick Dixon, Esq., the defendant United States by Francis Leland Pico, Esq., and the defendant Willwood Irrigation District was not represented at the hearing. The Court has reviewed the briefs filed in this case and is now fully advised in the premises.

The relevant facts for the purpose of this motion are not disputed. The Department of the Interior entered a contract with the Willwood Irrigation District under which the district would be improved. This work included burying a portion of the plaintiff’s pipeline. An employee of the district subsequently ruptured the plaintiff’s pipeline but at a time when oil was not being transported. When oil was transported, some 3,880 barrels of oil escaped from the pipeline and drained into the Shoshoni River. The plaintiff contends that it spent approximately $425,000 in the containment and cleanup of the oil spill. The plaintiff has alleged three theories against the United States: First, the plaintiff alleges that the United States had a nondelegable duty to the plaintiff because of the ultrahazardous nature of the work at the project and that the government breached this duty; Second, the plaintiff alleges that the government was negligent and that this negligence caused the spill; Third, the plaintiff alleges that the government is responsible under the doctrine of respondeat superior for the negligence of the district in causing the oil spill. The plaintiff contends that jurisdiction for its claims exists under the Federal Tort Claims Act, 28 U.S.C. 1346(b).

The United States has moved to dismiss the entire case on the theory that the Claims Court has exclusive jurisdiction. Section 311(i) of the Federal Water Pollution Control Act (the so-called Clean Water Act) prohibits the discharge of oil in harmful quantities into the navigable waters of the United States. 33 U.S.C. 1321(b)(3). The Clean Water Act also provides that an action for the costs of cleaning up an oil spill may be brought against the United States in the Claims Court if the discharge was caused solely by the negligence of the United States. 33 U.S.C. 1321(i). The United States contends that this provision precludes this Court from exerting jurisdiction over the plaintiffs claims based on the Federal Tort Claims Act. Neither the parties, nor the Court, have been able to discover any Court decisions discussing this question of statutory construction before the Court.

The starting point in every case involving the construction of a statute must be the language itself. Watt v. Alaska, 451 U.S. 259, 265, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). The language of the two statutes in question simply is not dispositive. The plaintiff contends that § 311(i) states that an action may, as opposed to must, be brought against the United States. This reasoning is not persuasive. Many cases have ruled that the context of a statute must be considered in order to determine whether Congress intended to confer a discretionary power or an imperative duty. Thompson v. Clifford, 408 F.2d 154 (D.C. Cir.1968); U.S. v. Reeb, 433 F.2d 381 (9th Cir.1970), cert. denied, 402 U.S. 912, 91 S.Ct. 1391, 28 L.Ed.2d 654 (1971). See Watt v. Alaska, 451 U.S. 259, 266, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). Upon reflection, the Court is of the opinion that it would frustrate Congress’ intent, as displayed by § 311(i) of the Clean Water Act, to allow the plaintiff to bring a negligence action for the costs of the cleanup under the Federal Tort Claims Act.

This conclusion is inevitable because Congress has established a number of hurdles that must be crossed before recovery is possible under the Clean Water Act. These requirements could be avoided completely if, alternatively, an action could be brought under the Federal Tort Claims Act. Under the Clean Water Act, the person seeking recovery has the burden of showing that he took all reasonable care to forestall the possible harm that could result from the negligence of the United States. Union Petroleum Corp. v. United States, 651 F.2d 734 (Ct.Claims 1981, based on the use of the term “solely” in the Act). Unless the party seeking recovery could establish this element, he would be precluded from recovering from the government. If the same party was able to bring his action under the Federal Tort Claims Act, however, such a failure would not be dis-positive, at least in Wyoming. Under the Federal Tort Claims Act, a federal court applies the law of the state in which the alleged act or omission occurred, which means that this Court would apply Wyoming’s law of comparative negligence if the plaintiff proceeded under the Federal Tort Claims Act. 28 U.S.C. 1346(b). It simply would not make sense within the complicated and pervasive structure of the Clean Water Act to allow the plaintiff to alter his burden of proof by the simple allegation that his action is brought under the Federal Tort Claims Act. This proposed construction of the two statutes is also supported by several axioms of statutory construction. This construction gives meaning and purpose to each statute and avoids a conflict. People of Territory of Guam v. Quinata, 704 F.2d 1085 (9th Cir.1983). Under this construction, actions for the recovery of cleanup costs would be governed by the Clean Water Act and other tort actions against the United States would be governed by the Federal Tort Claims Act. The proposed construction also is supported by the axiom that the more recently enacted legislation should control. Travelers Ins. Co. v. Panama-Williams, Inc., 597 F.2d 702 (10th Cir.1979).

The plaintiff contends, however, that language in cases from other circuits implies that a negligence action for cleanup costs can be brought under the jurisdiction of the Federal Tort Claims Act. The plaintiff appears to be referring primarily to Davis v. United States, 722 F.2d 1157 (4th Cir.1983) in which the fourth circuit stated that absent allegations of negligence or wrongful conduct on the part of the United States other than alleged violation of the Clean Water Act, the district court had correctly dismissed a suit under the Clean Water Act when the plaintiff had failed to meet the requirements of the citizen suit provisions. This language is ambiguous. It certainly isn’t clear that the fourth circuit would sanction an action for cleanup costs against the government when the plaintiff simply alleges negligence and seeks to recover costs incurred while cleaning up an oil spill.

In oral argument the plaintiff also argued that it would be unfairly penalized if the Court ruled that the Claims Court had exclusive jurisdiction because it would be forced to litigate its claims against the United States in the Claims Court while it tried its claim against the Willwood Irrigation District in this Court. The plaintiff contends that the interests of judicial economy would be served if it was able to bring its action against the United States in this Court. Regardless of the wisdom of the plaintiff’s argument, neither this Court nor any other federal court has the power to draft legislation to define its own jurisdiction. Therefore, it is

ORDERED that the United States’ Motion to Dismiss the plaintiff’s claims for any expenses incurred in the course of cleaning up the alleged oil spill be, and hereby is, granted. The case is dismissed against the United States of America without prejudice, so that it may be brought by plaintiff in the Claims Court.


source: Caselaw Access Project

author: WARREN, District Judge.

license: Public Domain

text:
    GROB, INC., Plaintiff, v. UNITED STATES of America, Defendant.
    No. 80-C-1115.
    United States District Court, E.D. Wisconsin.
    Aug. 30, 1984.

      Houseman, Feind & Castner, Grafton, Wis., for plaintiff.
    Jeffrey D. Snow, U.S. Dept, of Justice, Tax Div., Washington, D.C., for defendant.
   DECISION AND ORDER

WARREN, District Judge.

I. BACKGROUND

These proceedings began with a letter of April 18, 1979, from the Internal Revenue Service (IRS) to the plaintiff, indicating a needed adjustment to the tax liability of' Grob, Inc. for fiscal year 1976, ending September 30, 1976, and fiscal year 1977, ending September 30, 1977. The taxpayer opposed the assessment, paid the same on April 28, 1980, and filed a claim for refund on May 22, 1980. Following denial of the claim by the Government, this action was commenced on December 10, 1980. Trial was held, and the taxpayer was awarded judgment on April 28, 1983, in the amount of $239,425 plus interest and costs. 565 F.Supp. 391.

Thereafter, on May 27, 1983, the plaintiff filed the present application, pursuant to the provisions of the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(A) & (d)(2)(B), for $27,015.69 in fees and expenses beyond the interest and costs previously awarded. In the interim, the Government has withdrawn its ' appeal of the Court’s decision. The parties have briefed the pending motion, and the matter is now ready for decision.

II. THE STATUTE

This new and relatively uninterpreted law represents an effort by Congress to permit redress by litigants who, in protecting their legal positions, are forced into administrative or judicial proceedings in which they face the considerable power and resources of the federal government. In these situations, where the litigant is within the protected class of citizens and has prevailed in its battle with the Government, Congress has decreed that the Government be held liable, over and above the usual costs and expenses, for attorneys fees and costs — unless, that is, if the Government’s action was substantially justified.

Section 2412(d)(1)(A) of Title 28 of the United States Code provides as follows:

Except as otherwise specifically provided by statute, a court shall award to a prevailing party other than the United States fees and other expenses, in addition to any costs awarded pursuant to subsection (a), incurred by that party in any civil action (other than cases sounding in tort) brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

The statute is plainly a limited waiver of sovereign immunity, and, as such, its limitations and conditions must be strictly observed and exceptions are not to be implied. Rhode Island Committee on Energy v. General Services Administration, 561 F.2d 397, 405 (1st Cir.1977). It reflects the legislative intent that those exceptions to the so-called “American Rule” on attorneys fees, which have become implanted in our common and statutory law, be extended to apply to the Government as a litigant in those circumstances described in 28 U.S.C. § 2412(d)(1)(A). Alspach v. District Director of Internal Revenue, 527 F.Supp. 225, 227 (D.Md.1981). The law has a “sunset provision” and will expire by its own terms on October 1, 1984, unless renewed. It applies to both administrative and judicial proceedings.

The United States, although it does not take issue with the proposition that the plaintiff, Grob, Inc. is the “prevailing party,” does contest the plaintiffs eligibility under the Act; specifically, the Government contends that it has met its burden of showing that the action of the IRS in this instance was “substantially justified.”

III. ELIGIBILITY

The dispute here focuses on the wording of the relevant statute. The Government contends that to qualify under the Act under the facts of a case such as this, a party must be a corporation whose net worth did not exceed $5,000,000 and which did not employ more than 500 employees at the time the civil action was filed. The plaintiff, on the other hand, argues that eligibility attaches if the corporation’s net worth was under $5,000,000 or if it did not have more than 500 employees.

It is undisputed that when the suit was initiated on December 10, 1980, the plaintiff did not have 500 employees; indeed, it has never had an employment force that large. However, while the plaintiff claims a net worth of $4,873,651.61 at the time of filing (Plaintiff’s Exhibit 15, p. 2), the Government alleges in its responsive brief that the plaintiff was worth $7,288,773 on September 30, 1981. Substantial portions of both parties’ briefs deal with this difference and whether or not the fixed assets of the plaintiff should be carried at acquisition cost, depreciated cost, or replacement value in arriving at net worth. As a result of its interpretation of the statutory language described herein, the Court need not resolve these issues.

The question of whether the net worth and the work force qualification are to be applied conjunctively or disjunctively is best resolved by a clear reading of the statute involved, something other courts have previously undertaken. As Judge Marilyn H. Patel commented in Hoopa Valley Tribe v. Watt, 569 F.Supp. 943, 945-946 (N.D.Cal.1983):

The court is aware that the comparable provision under the Equal Access' for [sic] Justice Act for award of fees and expenses in administrative as opposed to court proceedings defines “party” to exclude both those associations and organizations whose net worth exceeds $5,000,-000 and those who employ more than 500 employees, regardless of net worth. 5 U.S.C. § 504(b)(1)(B)®, (ii). The legislative history of the Act indicates an intention to define “party” identically for both administrative and court proceedings. H.Conf.Rep. No. 96-1434, reprinted in 1980 U.S.Code Cong. & Admin. News 5003, 5011, 5015. Nevertheless, the plain language of the two provisions defining “party” is distinctly different. The provision governing eligibility for fees in civil actions such as this one defines “party” by inclusion, listing three alternative methods of qualification in the disjunctive. By contrast, the provision for fees in administrative proceedings defines party by exclusion, listing two conditions of disqualification in the conjunctive. Congress can speak clearly if it chooses. When the applicable statutory language is clear on its face, as here, it is not for the court to go beyond its terms to search out ambiguity in the legislative history absent rare and exceptional circumstances. See, e.g., Rubin v. United States, 449 U.S. 424, 101 S.Ct. 698, 701, 66 L.Ed.2d 633 (1981) (citations omitted); United States v. Rone, 598 F.2d 564, 569 (9th Cir.1979). No such exceptional circumstances are present here (emphasis supplied in part).

Thus, 5 U.S.C. § 504 relating to adjudications by administrative agencies defines the term “party” so as to include only companies with net worths of $5,000,000 or less and 500 employees or less. At the same time, 28 U.S.C. § 2412, relating to court proceedings, defines the term “party” as a corporation with a net worth not exceeding $5,000,000 or one employing not more than 500 persons.

It is true that the legislative history lends some support to the proposition that the Congress intended to define “party” in the same way for both types of adjudication; yet that is not what it said, and the courts are ill-advised to breathe meaning into a legislative enactment that is absolutely clear on its face. Accordingly, this Court finds Grob, Inc. to be an eligible party under 28 U.S.C. § 2412(d)(2)(B). See also Knights of the Klu Klux Klan Realm of Louisiana v. East Baton Rouge Parish School Board, 679 F.2d 64, 68, rehearing denied, 691 F.2d 502 (5th Cir.1982); S & H Riggers & Erectors, Inc. v. Occupational Safety & Health Review Commission, 672 F.2d 426, 427 fn. 1 (5th Cir.1982); Citizens Bank, Valley Head, Alabama v. United States, 558 F.Supp. 1301, 1302 (N.D.Ala. 1983).

IV. SUBSTANTIAL JUSTIFICATION

Having thus determined that the plaintiff is an eligible prevailing party, the Court is obliged to award it fees, expenses, and costs unless it finds that “the position of the United States was substantially justified or that special circumstances make an award unjust.” 28 U.S.C. § 2412(d)(1)(A). The Government argues both substantial justification and special circumstances.

A. SPECIAL CIRCUMSTANCES

In support of its position that special circumstances make an award here unjust, the Government quotes from the Congressional Committee Reports with respect to this provision:

This “safety valve” helps to insure that the government is not deterred from advancing in good faith the novel but credible extensions and interpretations of the law that often underlie vigorous enforcement efforts. It also gives the Court discretion to deny awards where equitable considerations dictate an award should not be made.

S.Rep. No. 96-253, 96th Cong., 1st Sess. at 7; H.R.Rep. No. 96-1418, 96th Cong., 2d Sess. at 11, U.S.Code Cong. & Admin.News 1980, pp. 4953, 4990. The Government contends that the very nature of this case necessitated certain substantive value judgments and that the plaintiff never provided “more than minimal cooperation to the IRS during the course of its audit” and, hence, cannot be heard to complain that the assessment was unreasonable.

The Court does not find this argument persuasive. The plaintiff did attempt to establish the basis for its projections of anticipated extraordinary needs. The very exhibits which the Government cites to sustain its charge of lack of cooperation— namely, Defendants’ Exhibits C, E, & A— appear to the Court to memorialize the efforts of a taxpayer who simply thinks the Government is wrong in its assessment. Characterization of this disagreement as a “special circumstance” is misconceived, as is the argument that because a taxpayer does not afford the IRS an adequate opportunity to correct its mistake, the taxpayer should be disqualified from recouping the costs of establishing the validity of his or her position. Nor does this case, in the Court’s view, represent an effort by the Government to establish a novel but credible point of law. In short, the Court finds no special circumstances here.

B. SUBSTANTIAL JUSTIFICATION

As to the major issue involved in this motion — namely, whether or not the “position of the United States was substantially justified” under § 2412(d)(1)(A) — several seminal principles warrant exposition. First, it is well established that the burden is on the Government to show that its action was “substantially justified.” Wolverton v. Schweiker, 533 F.Supp. 420, 424-425 (D.Idaho 1982). Second, there is apparently no disagreement that:

[t]he test of whether or not a government action is substantially justified is essentially one of reasonableness. Where the government can show that its case had a reasonable basis both in law and fact, no award may be made.

S.Rep. No. 96-253, 96th Cong., 1st Sess. at 6; H.R.Rep. No. 96-1418, 96th Cong., 1st Sess. at 10, U.S.Code Cong. & Admin. News 1980, p. 4989. The “substantial justification” standard apparently was patterned after the language regarding discovery sanctions in Rule 37 of the Federal Rules of Civil Procedure. Specifically, Rule 37(a)(4) provides that reasonable expenses, including attorneys fees, shall be awarded to the prevailing party on a motion for an order compelling discovery unless the court finds that the position of the losing party was “substantially justified.” Premising its position on language in the Advisory Committee’s Notes to Rule 37, the Government analogizes that under the Equal Access to Justice Act, fees should be awarded only where the Government has insisted in pursuing a case in which “no genuine dispute exists.” This argument was advanced in Nunes-Correia v. Haig, 543 F.Supp. 812 (D.D.C.1982).

In that case, Judge William B. Bryant noted that the Advisory Committee, in discussing cases where “no genuine dispute” exists, referred to “frivolous requests for or objections to discovery.” From this, Judge Bryant inferred that the “substantial justification” standard of Rule 37 may be satisfied more easily than the “substantial justification” standard under the Equal Access to Justice Act:

The aspect of Rule 37 most stressed by the Act’s legislative history is Rule 37’s 1970 amendment encouraging wider use of expense awards and discouraging unnecessary recourse to the courts. See House Report at 18 (4997). See also 4A Moore’s Federal Practice 1137.02(10). The legislative history’s emphasis upon Rule 37’s 1970 amendment suggests that Congress did not wish to restrict fee awards under the Act to only a minute number of cases. Consequently courts applying the Rule 37 precedents to Equal Access to Justice Act cases “should temper them with the clear indications in the Act’s own legislative history that mere absence of bad faith or of deliberate abuse of the legal process is not enough to avoid an award of fees and expenses.”

Nunes-Correia v. Haig, 543 F.Supp. 812, 817 (D.D.C.1982) (emphasis supplied).

Both parties to this action also refer the Court to the learned analysis of the Act in Spencer v. National Labor Relations Board, 712 F.2d 539 (D.C.Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 1908, 80 L.Ed.2d 457 (1984). That case involved a group of nonsupervisory engineers who sought attorneys’ fees from the N.L.R.B. after prevailing in their efforts to obtain a separate representation election at the electric utility company where they worked. Although the district court denied fees, the circuit court seized the opportunity to analyze the historical development and practical application of the Equal Access to Justice Act, as follows:

First, the Act represents a conscious and ■ experimental departure from the so-called “America Rule” that each litigant must pay its own lawyer. Historically, the doctrine had two exceptions — namely, the “bad faith” rule and the “common benefit” rule. Yet even these two exceptions could not be invoked against the Government because of sovereign immunity and because 28 U.S.C. § 2412, the general statute, had, prior to its amendment by the Equal Access to Justice Act, consistently been interpreted to preclude awards of fees against the Government absent some clear or express statutory provision in the law applicable to the particular case.

Although in recent years, the federal courts had begun to chip away at this tough “American” stance, such judicial innovation was halted by the United States Supreme Court’s decision in Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). In that case, the Court stated unequivocally that only the Congress, and not the courts, can authorize an exception to the American Rule. The Equal Access to Justice Act appears to be one of several responses Congress made to the Alyeska holding.

In particular, 28 U.S.C. § 2412(b) codifies and applies to the Government the “bad faith” and “common benefit” exceptions to the American Rule. Yet, as the Court of Appeals for the District of Columbia notes in Spencer, the language of the section of the Act at issue here, 28 U.S.C. § 2412(d)(1)(A), is much broader. It provides that a court “shall” award an eligible prevailing party its attorneys’ fees and expenses unless some other statute provides otherwise or “the court finds that the position of the United States was substantially justified or that special circumstances made an award unjust.” In Spencer, the D.C. Circuit also points out that the Senate Judiciary Committee considered and rejected an amendment that would have changed the phrase “substantially justified” to “reasonably justified”. This historical fact tends to support the conclusion that for the Government to avoid fees and costs, its position must be stronger than that which would merely preclude a characterization of bad faith or prevent an imposition of fees and costs pursuant to Rule 37 of the Federal Rules of Civil Procedure.

If the purpose of the Act is to provide relief to victims of governmental abuse, reduce the incidence of Government error, and refine the administration of federal law, then a policy of granting only “miserly” awards under the Act would prove ineffective. Conversely, the achievement of these ends would necessitate that the Government explain its position by reference to past practices, reasoned legal analyses, or common sense notions about the prosecutions it undertakes.

In its discussion of the Act, the Spencer court ruminates at length over the two phrases in the Act that it describes as “distressingly ambiguous”. These are “the position of the United States” and “substantially justified”. Although there are instances where the position of the Government in the underlying action and its litigation position are distinct and different, this Court feels that in the present matter, the two positions of the United States were essentially identical. Turning then to an analysis of the Government’s claimed “substantial justification,” the Court will examine the present circumstances under the three factors suggested by Spencer. They are as follows:

(1) the clarity of the governing law,
(2) the foreseeable length and complexity of the litigation, and
(3) the consistency of the government’s position.

1. Clarity of the governing law.

This case involved essentially factual determinations. It did not represent an effort by the Government to establish a new but credible position on the law. To the extent that the defendant’s brief on the Equal Access to Justice Act attempts to reargue the case, it is not helpful. The applicability of Sections 531 and 532 of the Code was never in question. Rather, the issues were (a) the intent of the taxpayer, and (b) whether or not the accumulations of earnings and profits exceeded the reasonable needs of the business. The methodology for assessing the reasonable needs of the business, as set forth in the “Bardahl Formula,” was not at issue.

There was, however, an arguable issue on estimated tax payments. At the time of the Bardahl case, corporate payment of estimated taxes was not required. By the time the accumulated earnings assessment was made against Grob, Inc., corporations were required to pay current payments of estimated income taxes, and the characterization of these as anticipated operating expenses was recognized. Yet the Government, in its Bardahl calculations, did not add quarterly payments of estimated taxes as operating expenses for future years but instead made what appears to have been an allowance of an arbitrary amount, in anticipated extraordinary business needs. In justifying this approach, the Government quotes from an out-dated paragraph of the Bardahl decision, see Defendant’s Post-Trial Brief at 22 & 23. The Court sees no justification for this.

In a similar vein, there seems to have been no reason for the Government to have taken the position that it did right up to trial — namely, that the “nest egg” securities that must be considered in arriving at Column 8 of the Bardahl calculation, “Investments in Unrelated Properties,” should be valued at full market. By 1975, the Supreme Court in Ivan Allen Co. v. United States, 422 U.S. 617, 628, 95 S.Ct. 2501, 2507, 45 L.Ed.2d 435 (1975), had already established the propriety of deducting capital gains liability and costs of sale. The Government witness testified that he did not deduct commission costs and capital gains liability in evaluating these securities because he “had no basis for arriving at those numbers to do that.” Transcript at 47. While this may be true, it also means that the Column 8 figure in the Government’s Bardahl calculation was arbitrarily high.

2. Foreseeable length and complexity of the litigation.

It is self-evident that deliberation leading to a decision to assess an accumulated earnings and profit tax is going to be both lengthy and complex. The specialized needs of various industrial enterprises and the intricacies of the Internal Revenue Code virtually insure this. As the plaintiff points out, excess accumulated earnings is a penalty tax that has a considerable effect on the life of a target company. Either the IRS is correct and there exists a conscious effort to avoid income tax by the shareholders, or the IRS is wrong and any change in financial status will result in undercapitalization. It is a situation that permits of little negotiability in which a target taxpayer can easily be put in a “do- or-die” situation. Under such conditions, the Government should do its homework, secure its expert opinions, and know the applicable law before it subjects the taxpayer to a cruel and costly trial by combat of accountants. The Government failed to do this here, convincing the Court that it was not substantially justified in prosecuting this case.

3. Consistency of the Government’s position.

In its discussion of this factor, the Spencer court comments on the legislative history on the enactment of the Equal Access to Justice Act, as follows:

One of the systemic sources of inequity advocates of the Act sought to eliminate was the ability of the government to. use its superior resources to beat into submission the hapless victims of such deviations from customary practice____ In sum, a court reviewing an EAJA petition should demand that the government make a particularly strong showing of justification for its position when there is evidence that the petitioner was subjected to atypically harsh treatment.

Spencer v. National Labor Relations Board, 712 F.2d 539, 560 (D.C.Cir.1983).

This Court, in its judgment opinion of April 28, 1983, noted the shifting positions of the Government with respect to average versus peak inventory on the applicable turnover cycles, the 15 versus 30-day credit cycle calculation, the proper valuation of the “nest egg” of unrelated investments in determining assets available to meet extraordinary needs, and the appropriate treatment of estimated tax payments. All of these issues prompted certain inconsistencies in the Government’s position.

Yet of even greater concern to this Court is the parties’ dispute as to the plaintiff’s intent. That Mr. Grob was unhappy about the Government’s interest and involvement in his business is an understatement. He is an outspoken, independent, strong-willed octogenarian. At trial, the Government read into the record a portion of his deposition:

May I make a statement? When I said I was a tax slave, I’d like to qualify this to reflect I’m running the business not the way I would run it if it was in the tax department.
I make my decisions all relative to tax, relative to tax, and relative to tax all the time. I do not make my decision like we made years ago when we started our business when tax was a relatively small expense. That’s what I mean when I am a tax slave.

To the Government, this demonstrates the plaintiff’s intent to avoid income taxes. To the Court, it demonstrates frustration with an agency whose regulations intrude into nearly every managerial decision he makes and that punishes him for his unorthodox business views by assessing him a penalty tax based on what he views as unrealistic projections. To be opinionated, conservative, and not afraid to speak out is not illegal. Nor does it, by itself, justify Governmental action.

Y. ANTICIPATED EXTRAORDINARY EXPENSES

The Court has discussed several of the aspects of this ease within the context of the criteria set forth in Spencer v. National Labor Relations Board, 712 F.2d 539 (D.C.Cir.1983). However, the most dramatic aspect is exhibited by the conflicting postures of the parties as to the components of anticipated extraordinary needs. In calculating its needs for machinery replacement, self-insurance for products liability, and self-insurance-casualty, the plaintiff necessarily looked forward in the light of its knowledge at the time. The Government had to do likewise in making its allowances.

Yet the plaintiff made its estimate based on years of experience; the Government’s witness, on the other hand, was not particularly knowledgeable in the machine tool business and had no experience dealing with self-insured businesses. Nor had the Government obtained the services of any expert in arriving at its positions in these and other relevant projections. Machinery replacement reserves were merely projected on the basis of what Grob, Inc. had purchased in fiscal years 1976 and 1977. The Court adequately discussed its observations regarding Government Exhibits E & P and, in particular, its concern over thé lack of basis for the Government’s figures in its memorandum decision of April 28, 1983.

In its brief in opposition to the present motion, the Government notes that it never suggested that a reasonable products liability reserve could be arrived at by multiplying a reasonable annual premium by a factor of ten and confesses to being “befuddled” by the Court’s calculation. In response, the Court reaffirms its belief that the amount of one annual premium is not a realistic reserve to self-insure against a products liability claim. The Government suggested multiplying the annual premium by ten to arrive at the reserve for a casualty loss; the Court felt that such an approach would be equally applicable with regard to a products liability reserve, since the incidence of such claims in a machine tool factory is likely to be high.

There may well be, as the Government contends, “murky” waters as one seeks to project reasonable needs for machinery replacement, casualty and liability losses, estimated tax payments, key man replacement, plant expansion, and new product development. Yet if the Government, to prevent income tax avoidance, routinely substitutes its judgment on legitimate future business needs for that of the taxpayer, it is well-advised to be in a position to justify its projections with clarity. Otherwise, it becomes a part of the very problem to which the Equal Access to Justice Act was intended to remedy.

Based upon its belief that the Government’s position in this matter was not substantially justified and that no “special circumstances” exist which would make it unjust for the plaintiff to be awarded its costs of defending this action, the Court concludes that Grob, Inc. should be awarded the sum of $27,015.69. The Clerk of Court shall enter judgment accordingly.


author: ELLISON, District Judge.

text:
    Richard GALE, Plaintiff, v. GREAT SOUTHWESTERN EXPLORATION, et al., Defendant, and Billy W. BRYANT, et al., Plaintiffs, v. GREAT SOUTHWESTERN EXPLORATION CO., INC., et al., Defendants.
    Nos. 83-C-966-E, 83-C-1037-E.
    United States District Court, N.D. Oklahoma.
    Sept. 17, 1984.

      Justus Hefley, Anadarko, Okl., James H. Ivy, Waurika, Okl., Joe Long, Norman, Okl., for plaintiffs.
    Lee I. Levinson, Jeffrey G. Levinson, Tulsa, Okl., for Great Southwestern Exploration, Bruce Fadem and Lloyd Fadem.
    Ronald C. Bennett, Tulsa, Okl., for J.T. Haile.
   ORDER

ELLISON, District Judge.

The Court has before it the motion of Defendants to dismiss counts 1 and 5 of the complaint as barred by § 13 of the Securities Act of 1933 (15 U.S.C. § 77m).

Count 5:

Defendants argue that count 5, alleging violations of § 12(2) of the Securities Act of 1933, 15 U.S.C. § 111 (2), must be dismissed for failure of Plaintiffs to allege facts sufficient to affirmatively show that suit was filed within the limitation period in § 77m. 15 U.S.C. § 77m provides that an action must be brought for a violation of § 111 (2) “within one year after the discovery of the untrue statement, or the omission, or after such discovery should have been made by the exercise of reasonable diligence ...” Specifically, Defendants argue that Plaintiffs are required to set forth the time and circumstances of the discovery of the untrue statements or omissions, the reasons for failure to discover earlier, and the Plaintiffs diligent efforts in making or seeking discovery of them.

Under § 12(2), “the plaintiff-buyer has the burden of proving his excusable ignorance” of the misrepresentation or omission. Gilbert v. Nixon, 429 F.2d 348, 356 (10th Cir.1970). However, Plaintiff does not have to prove that he could not have discovered the falsity upon reasonable investigation. Gilbert, supra. In Rochambeau v. Brent Exploration, Inc., 79 F.R.D. 381 (D.Colo.1978), citing Gilbert, the court held that “although Plaintiff is not under a duty to investigate, he must affirmatively plead that ascertainment of the facts could not with reasonable diligence been made within the one year period.” Id. at page 387. In Woods v. Holmes & Structures of Pittsburg, Kansas, 489 F.Supp. 1270 (D.Kan.1980) the court deemed sufficient a complaint alleging “that plaintiffs were unaware of omissions alleged and could not have reasonably known of the omissions until on or about October 1, 1974.” Id. at page 1289.

Here, in paragraph 54 of the complaint in 83-C-966-E, Plaintiff states that he “did not know and through the exercise of reasonable care could not have discovered the misstatements and omissions outlined until he consulted counsel in the summer of 1983.” The same language appears in paragraph 61 of the complaint in 83-C-1037-E. In view of the Tenth Circuit standards for pleading compliance with the statute of limitations in a § 12(2) action, this Court finds that count 5 of Plaintiffs complaint in the consolidated action should not be dismissed.

Defendant, in addition, argues that the right of action set forth in Count 5 (alleging liability under § 711(2)) is barred by limitations with respect to those claims arising from sales occurring more than three years before the filing of the complaint. The applicable portion of 15 U.S.C. § 77m reads as follows:

In no event shall any such action be brought to enforce a liability created under ... §111(2) more than three years after the sale.

A review of the cases reveals that the courts have consistently construed the language of § 77m to bar all claims which occurred more than three years previous to the filing of the complaint. See Engl v. Berg, 511 F.Supp. 1146 (E.D.Pa.1981); Benoway v. Decker, 517 F.Supp. 490 (E.D. Mich.1981); Shonts v. Hirliman, 28 F.Supp. 478 (S.D.Calif.1939).

Plaintiff urges this Court to apply the equitable tolling doctrine to this three year limitations period, arguing that defendants had fraudulently concealed their misrepresentations and omissions.

The complaints herein allege the failure of defendants to disclose to the plaintiffs certain information about the securities purchased, and failure to disclose the true nature of the relationship between plaintiffs and defendants. Nowhere in the complaint do Plaintiffs specifically allege a course of fraudulent conduct on the part of the Defendants with the purpose of concealing violations of § 12(2) to thereby avoid suit during the limitations period. This district has held that the equitable tolling doctrine applies to the three year limitations period of § 12(2) in the case of In re Homestake Production Co., 76 F.R.D. 337 (1975). That case, however, must be distinguished on its facts. The Court found the arguments of Defendants that the three year limit is absolute and that fraudulent concealment does not toll the statute unpersuasive “in the light of the alleged extensive and continuing fraud perpetrated upon Homestake investors, the SEC and the courts for more than a decade, which fraudulent concealment did not cease until Homestake collapsed in September, 1973 and the facts of the fraudulent scheme were publicly revealed.” Home-stake, supra at p. 345. Plaintiffs herein have failed to allege the type of fraud which could arguably fit under the Home-stake doctrine. Under Rule 9(b) of the Federal Rules of Civil Procedure, in all averments of fraud the circumstances constituting fraud shall be stated with particularity. Plaintiffs argue in their briefs that Defendants concealed their alleged violations, but have not properly pled such in the complaint. The Court must, therefore, dismiss count 5 of the complaint as to all sales occurring more than three years previous to the filing of the respective complaints, with leave to amend to properly allege fraudulent concealment, only if such fraud does in fact exist. In regard to the complaint filed in case number 83-C-1037-E, all sales occurring prior to December 16, 1980 cannot be the basis of a complaint under § 12(2).

Count 1:

Defendants argue that this Court should dismiss count 1, alleging the sale of an unregistered security in violation of § 12(1) of the Securities Act of 1933, 15 U.S.C. § 77 Z (1), for failure to bring the action within the limitation period in § 77m. The applicable portion of 15 U.S.C. § 77m provides as follows:

... If the action is to enforce a liability created under § 77Z(1) of this Title, [no action shall be maintained] unless brought within one year after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under § 77Z (1) of this Title more than three years after the security was bona fide offered to the public ...

Plaintiffs argue that the “absolute” language of the three year limitations statute can be tolled by fraudulent concealment.

The federal cause of action alleged in count 1 is a new right created by statute. Where a new right is qualified by a statute of limitations the qualification is substantive, not procedural, therefore failure to meet the jurisdictional requirement ousts the court of subject matter jurisdiction. Mathney v. Porter, 158 F.2d 478 (10th Cir. 1946); Rochambeau v. Brent, supra.

It has been held that the doctrine of equitable tolling does not apply to federal limitations periods where “Congress has provided for such by clear unambiguous language.” Brick v. Dominion Mortgage and Realty Trust, 442 F.Supp. 283, 291 (W.D.N.Y.1977). The court in Cook v. Avien, Inc., 573 F.2d 685, 691 (1st Cir. 1978), stated:

We hold that, under the explicit language of § 13, the limitations period runs from the date of the violation irrespective of whether the plaintiff knew of the violation.

See also Engl v. Berg, 511 F.Supp. 1146 (E.D.Pa.1981); Benoay v. Decker, 517 F.Supp. 490 (D.C.Mich.1981).

The Plaintiff cites In re Homestake Production Co., 76 F.R.D. 337 (N.D.Okla.1975) for the proposition, that the equitable tolling doctrine should be applied herein. The Homestake case, however, concerned a fraud perpetrated on the public, the Securities and Exchange Commission, and even the federal courts over a 10-year period. In addition, the court concerned itself with violations of the anti-fraud provisions of the Securities Act codified under § 77Z (2). The court in Engl, supra at 1151, in refusing to toll the limitations provisions applicable to § 77Z (1) stated:

However, Homestake is the sole exception to the otherwise unbroken line of cases holding § 13 time limitation absolute, has been ignored in numerous subsequent opinions, and is factually distinguishable from the case at bar in light of the extent and duration of the concealment there involved.

This Court declines to extend the holding in Homestake to a cause of action under §77Z (1). Therefore an action based upon that section must be brought within one year of the violation. The sales alleged in case number 83-C-966 occurred between the 22nd of November, 1980 and the 12th of March, 1981. The complaint was filed November 22, 1983, more than one year after the last sale. The complaint in case number 83-G-1037 alleges sales from the 8th of June, 1980 through the 21st of April, 1981. The complaint was filed December 16, 1983, more than one year after the last sale. In view of the applicable limitations period and the failure of all Plaintiffs to bring their cause of action under § 77i(l) within one year of the alleged violation, this Court finds that count 1 of the consolidated complaint must be dismissed.

This Court is not unaware of Plaintiffs’ arguments that the separate sales should be considered “integrated offerings” under SEC Securities Act Releases no. 4434 and 4552 and 17 CFR § 231.4552, and that additional contributions for completion costs and other costs constituted a separate “sale” for purposes of the Securities Act. The Court however finds that these arguments are not well taken and do not dissuade it from dismissing count 1 for failure of subject matter jurisdiction.

IT IS THEREFORE ORDERED AND ADJUDGED that the motion of Defendants be and the same is hereby granted in the following respects: The Court hereby dismisses count 1 of the consolidated complaints.

The Court hereby dismisses the complaint in count 5 of the consolidated actions in regard to those sales occurring prior to December 16, 1980 pled in case no. 83-C-1037-E.

IT IS FURTHER ORDERED that the motion of Defendants to dismiss be and hereby is denied in part in the following respect: Count 5 of the complaint which alleges that violations could not have reasonably been discovered prior to one year before the institution of the action will be allowed to stand with the exception of those sales occurring more than three years prior to the filing of the complaints.


author: HULL, District Judge.

text:
    Fred HAYNES, Ralph Stonecipher, Jack Wagner, Ramsey Dougherty, Luther Wilson and Gaynes Burton By and Through his widow Raye Burton v. John J. O’CONNELL and Paul R. Dean, Trustees, UMWA Health and Retirement Funds (Formerly UMWA Welfare and Retirement Fund), Robert T. Boylan, Director and Agent for Service of Legal Process.
    Civ. No. 3-84-391.
    United States District Court, E.D. Tennessee, N.D.
    Sept. 17, 1984.

      Dorothy B. Stulberg, Oak Ridge, Tenn., for plaintiffs.
    E.H. Rayson, Knoxville, Tenn., for defendants.
   MEMORANDUM

HULL, District Judge.

This is an action alleging wrongful denial of pension benefits under the Employment Retirement Security Act of 1974 [ERISA], 29 U.S.C. §§ 1001 et seq. and the Labor-Management Relations Act [LMRA], 29 U.S.C. §§ 141 et seq. The case is before the Court on defendants’ motion to dismiss and plaintiff Faye Burton’s motion to non-suit.

Plaintiffs, excluding Faye Burton, are five living retired coal industry employees and one deceased coal industry employee. Defendants are Trustees of the United Mineworkers of America [UMWA] Health and Retirements Funds [Funds], four employee benefit trusts established by a collective bargaining agreement — the National Bituminous Coal Wage Agreement [Wage Agreement] of 1974. (See 1974 Wage Agreement, p. 27, defendants’ Exhibit A). Plaintiffs made application for benefits under the Funds and were denied benefits. Plaintiffs claim the denial of benefits violates 29 U.S.C. § 1132 [ERISA] and 29 U.S.C. § 186 [LMRA]. Defendants say plaintiffs’ claims are barred by the statute of limitation.

Neither 29 U.S.C. § 1132 nor 29 U.S.C. § 186 contains a statute of limitations. Therefore, the Court must look to the most analogous state statute of limitations. See Johnson v. Railway Express, 421 U.S. 454, 95 S.Ct. 1716, 44 L.Ed.2d 295 (1975). Defendants say that the 90-day statute of limitations for vacation of arbitration awards, Tennessee Code Annotated § 29-5-313(b), is the most analogous statute of limitations. Plaintiffs say that the six year statute of limitations for contract actions, Tennessee Code Annotated § 28-3-109, is the most analogous statute of limitations.

In determining the most appropriate state statute of limitations, the Court must consider the nature of the federal claim and the federal policies involved. United Parcel Service Inc. v. Mitchell, 451 U.S. 56, 60-61, 101 S.Ct. 1559, 1562-63, 67 L.Ed.2d 732 (1981). The federal policy embodied in section 1132 of ERISA is to protect the interests of participants in employee benefit plans by providing ready access to federal courts to redress violations of the Act. 29 U.S.C. § 1001(b); 1974 U.S. Code Cong. fe'Ad.News 4639, 5188 (Statement by the Hon. Harrison A. Williams, Jr.j. The federal policy embodied in section 186 of the LMRA is to prevent corruption by labor and management, see J.P. Stevens & Co. Inc. v. NLRB, 623 F.2d 322 (4th Cir.1980), cert. den. 449 U.S. 1077, 101 S.Ct. 856, 66 L.Ed.2d 800 (1981), and the section has been applied to protect the interests of participants in employee benefit plans. See e.g. Valle v. Joint Plumbing Industry Bd., 623 F.2d 196 (2nd Cir.1980). Thus, both statutes seek to promote the identical federal policy: to protect the interests of participants in employee benefit plans. Given this federal policy, it is difficult to fathom how the short statute of limitations proposed by defendants could promote this policy. Indeed, in similar actions the majority of courts have allowed substantially longer statute of limitations. See e.g., Jenkins v. Local 705 Int’l Broth. of Teamsters Pension Plan, 713 F.2d 247, 252 (7th Cir.1983) (six year contract statute of limitations); Miles v. New York State Teamsters Conf. Pension and Retirement Fund, 698 F.2d 593, 598 (2d Cir.1983), cert. den. — U.S. -, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983) (six year contract statute of limitations); Ballinger v. Perkins, 515 F.Supp. 673, 676 (W.D.Va.1981) (six year statute of limitations for breach of fiduciary duty); Morgan v. Laborers Pension Trust Fund for N. Cal., 433 F.Supp. 518, 526 (N.D.Cal.1977) (four year contract statute of limitations).

Defendants argue, however, that because plaintiffs’ entitlement to pension benefits was created pursuant to a collective bargaining agreement, which provides a final and binding resolution procedure for pension claims, the federal policy embodied in the LMRA to promote private, expeditious settlement of labor disputes requires a short statute of limitations. Defendants further say that ERISA’s funding provisions, 29 U.S.C. § 1082, reveal a Congressional intent favoring a short statute of limitations. Finally, defendants say the Court of Appeals for the Sixth Circuit has held that in an action for wrongful denial of pension benefits, the most analogous state statute of limitations is that for vacation of arbitration awards. Citing Badon v. General Motors Corp., 679 F.2d 93 (6th Cir.1982).

The Court finds that the federal policy favoring expedient resolution of labor disputes is inapplicable in the instant case because plaintiffs’ claims for denial of benefits are “creatures of contract law not labor law.” Jenkins v. Local 705 Intern’l Broth. of Teamsters, 713 F.2d 247, 252 (7th Cir.1983). Although plaintiffs’ entitlement to benefits was created by a collective bargaining agreement, the agreement does not require arbitration of pension disputes. Rather, the trustees are given authority to make final and binding decisions regarding eligibility for benefits and an applicant is provided with notice that his claim has been denied and is entitled to administrative review by the trustees of his claim, (defendants’ Exhibit C at 13-14). If plaintiffs’ benefits are wrongfully denied, they may seek relief in federal district court under 29 U.S.C. § 1132; 29 U.S.C. § 186. In contrast, disputes subject to arbitration under a collective bargaining agreement often proceed through several stages of review at which the employee is represented by the union and there is a greater opportunity to gather research, to refine arguments, and to bargain for relief. See Jenkins, 713 F.2d at 252. More importantly, plaintiffs may seek relief in federal district court only by proving both breach of the collective bargaining agreement and breach of the duty of fair representation. Vaca v. Sipes, 386 U.S. 171, 87 S.Ct. 903, 17 L.Ed.2d 842 (1967). The requirement of proving breach of the duty of fair representation distinguishes a labor law action from an action under traditional contract law. See United Parcel Service v. Mitchell, 451 U.S. 56, 62, 101 S.Ct. 1559, 1563, 67 L.Ed.2d 732 (1981). There is no requirement in this case that plaintiffs prove breach of the duty of fair representation to prevail on their claims. For this reason, Badon v. General Motors Corp., 679 F.2d 93 (6th Cir.1982) is inapposite.

Based on the foregoing, the Court concludes that the six-year contract statute of limitations, Tennessee Code Annotated § 28-3-109, is the most analogous state statute of limitations. Although the Court recognizes that the stability of the pension fund is an important interest, the Court finds that the federal policy to protect the interests of participants in employee benefit plans by providing ready access to federal courts would not be served by the short statute of limitations advocated by defendants.

Having decided that a six-year statute of limitations is applicable, the question is whether plaintiffs’ claims are barred. An action for pension benefits accrues when a plaintiff’s application for benefits is denied. Paris v. Profit Sharing Plan for Employees of Howard B. Wolf, 637 F.2d 357, 361 (5th Cir.), cert. den. 454 U.S. 836, 102 S.Ct. 140, 70 L.Ed.2d 117 (1981). Plaintiffs and defendants dispute when the applications were denied. Defendants’ records indicate that plaintiff Burton received a notice of denial of pension dated November 17, 1965 (defendants’ Exhibit J); plaintiff Burton’s records indicate that he received from defendants letter dated December 22, 1975, setting a date for a hearing on an appeal from the denial, (plaintiffs’ Exhibit B). Defendants’ records indicate that plaintiff Haynes was denied benefits on August 27,1974 (defendants’ Exhibit I); plaintiff Haynes’ records indicate that in September 1977 defendants notified him that any additional evidence he could submit to establish his entitlement to benefits would be considered, (plaintiffs’ Exhibit C). Defendants’ records indicate that plaintiff Stonecipher was denied benefits on March 26, 1974 (defendants’ Exhibit H); plaintiff’s records indicate that in March 1979 he submitted an application for benefits and in June 1980 he requested a hearing to appeal denial of his application (plaintiffs’ Exhibits E, F). Defendants’ records indicate that plaintiff Wilson was denied benefits on March 12, 1975 (defendants’ Exhibit G); plaintiff Wilson’s records indicate he reapplied for benefits and was notified by defendants on September 24, 1981, that based on the information on file, his application for benefits must remain denied (plaintiffs’ Exhibit H). Defendants’ records indicate that plaintiff Dougherty was denied benefits on January 31, 1976 (defendants’ Exhibit F); plaintiff Dougherty’s records indicate that in 1979 and 1980, his representative requested that defendants reopen his case (plaintiffs’ Exhibit I, J). There appears to be no dispute that denial of plaintiff Wagner’s application for benefits became final in August 1983 (defendants’ Exhibit E).

Thus defendants contend that, with the exception of plaintiff Wagner’s claim, all plaintiffs’ claims are barred by the six-year statute of limitations. Plaintiffs contend that disputed issues of fact exist concerning whether plaintiffs’ claims were reopened and whether defendants took action on the claims within the statutory period.

It has been held that trustees of a pension fund may be equitably estopped from relying on the bar of the statute of limitations if, after denial of benefits, further communications occurred which could be read to have altered the earlier denial. Valle v. Joint Plumbing Industry Bd., 623 F.2d 196, 202 n. 10 (2d Cir.1980). The Court believes that it would be in the interests of justice to allow plaintiffs to pursue further discovery and to allow both parties an opportunity to submit briefs on the issue whether the further communications reasonably could be read to have altered the earlier denial.

Therefore, defendants’ motion to dismiss the claims of plaintiffs Burton, Haynes, Stonecipher, Wilson and Dougherty is DENIED without prejudice to renew after completion of discovery. Defendants’ motion to dismiss the claim of plaintiff Wagner is DENIED with prejudice. Plaintiff Faye Burton’s motion to voluntarily non-suit her claim is GRANTED.

Order Accordingly.

      . Plaintiffs retired prior to 1976, thus they are covered under the 1950 Pension Plan, which governs eligibility for benefits under the 1950 Pension Trust, one of the four Trusts administered by Trustees. (See 1979 Wage Agreement, Article XX, p. 27, defendants’ Exhibit A; 1981 Wage Agreement, Article XX(b), p. 14, defendants’ Exhibit B). The 1950 Pension Plan has a rather convoluted history. The UMWA Welfare and Retirement Fund of 1950 [1950 Fund] was established by the 1950 Wage Agreement. (Defendants’ Exhibit D). The 1974 Wage Agreement changed the name of the 1950 Fund to the 1950 Pension Trust. (Defendants’ Exhibit A at 27). The terms of the 1950 Pension Plan and 1950 Pension Trust were substituted for those of the 1950 Fund. (Id.). The 1950 Pension Plan is an employee benefit plan within the meaning of ERISA, 29 U.S.C. § 1002(3).

      . Badon involved a hybrid breach of contract-breach of fair representation claim. The Court held that in a "hybrid" action, the state statute of limitations for vacation of arbitration awards was to be utilized. However, the court applied the six month statute of limitations found in 29 U.S.C. § 160(b) because, by its terms, the state statute of limitations for vacation of arbitration awards was inapplicable to labor contracts. 679 F.2d at 98-99. Subsequently, the U.S. Supreme Court held that the applicable statute of limitations for “hybrid” actions is the six-month period for filing unfair labor practice charges under 29 U.S.C. § 160(b). Del Costello v. Intern'l Broth. of Teamsters, 462 U.S. 151, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983).


author: CAHILL, District Judge.

text:
    Dalton LANE, Jr., and Bess L. Lane, Plaintiffs, v. Gerald C. UNGER, Ardis E. Unger, Clifford A. Falzone, Hugh Kelly Real Estate Company, The United States of America (FmHA), and Connecticut General Life Insurance Co., Defendants.
    No. N81-074C.
    United States District Court, E.D. Missouri.
    Sept. 25, 1984.
    On Motion to Alter or Amend Judgment Nov. 21, 1984.

      D. Eric Sowers, Charles, Mo., Gary L. Lewis, Lilbourn, Mo., for plaintiffs.
    Daniel T. Rabitt, St. Louis, Mo., Dan Bollow and Cynthia Bitting, Shelbina, Mo., David L. Knight, Columbia, Mo., Robert M. Clayton, Hannibal, Mo., E. Rex Bradley, Louisiana Mo., Klamen & Danna, Joseph Moore, Asst. U.S. Atty., St. Louis, Mo., for defendants.
   MEMORANDUM OPINION

CAHILL, District Judge.

This matter having been tried to the Court, the Court now makes and enters its findings of fact and conclusions of law in support of its judgment.

Findings of Fact.

1. Plaintiffs Dalton and Bess Lane are citizens and residents of the State of Ohio.

2. Defendants Gerald and Ardis Unger are citizens and residents of the State of Missouri.

3. Defendant attorney Clifford Falzone is a citizen and resident of the State of Missouri.

4. Defendant Hugh Kelly Real Estate Company is a corporation incorporated under the laws of the State of Missouri with its principal place of business in Moberly, Missouri.

5. Defendant Farmers Home Administration (FmHA) is an agency of the United States Government.

6. The amount in controversy, exclusive of interest and costs, exceeds the sum of $10,000.

7. On April 16 and 17, 1981, the Lanes contracted to purchase a 755 acre farm in Monroe County, Missouri, from the Ungers for $912,000. This contract was contingent upon the Lanes obtaining a tax-free exchange for their 400 acre farm in Ohio. The contract provided that the Lanes would assume a first deed of trust by Connecticut General Life Insurance Company and that the Ungers would carry a $380,000 note secured by a deed of trust at nine (9) percent interest payable over a period of 10 years, with $4,000 payable on the principal each year.

8. Hugh Kelly Real Estate Company served as the selling agents in the Unger/Lane transaction.

9. Attorney Clifford A. Falzone was hired by the Lanes to represent them through the closing of the transaction.

10. Some time after mid-April 1981, the Ungers applied to the FmHA for a loan which would be secured by a second deed of trust on their farm.

11. In early May 1981, Hugh Kelly Real Estate and Falzone learned of the Ungers’ loan application. Hugh Kelly Real Estate then directed the Lanes to record their sales contract.

12. The Lanes went to the Office of the Recorder of Deeds but decided against recording their contract. Falzone later advised the Lanes of their options, but then told them that the decision of whether to record was theirs. Both Hugh Kelly Real Estate and Falzone advised the Lanes, however, that if they recorded the contract for sale the FmHA loan may not be approved, and hence the Ungers probably would not go through with the sale. The Lanes did not record their contract.

13. On May 11, 1981, the Ungers and the Lanes entered into a contract for the exchange of the real property. This contract provided for the exchange of lands in Ohio to the Ungers for a portion of the Missouri land and the Ungers’ conveyance of two tracts of the Ohio land to other individuals.

14. Subsequently, the Ungers’ loan application for $111,950 was approved by the FmHA. On May 14, 1981, the Ungers’ second deed of trust to the FmHA was recorded. The Lanes were informed by attorney Falzone that the FmHA deed of trust was recorded.

15. Falzone informed the Lanes that the FmHA deed had a “due on sale clause” which might cause problems. Lawrence Remole, an agent at Hugh Kelly Real Estate, made a few calls and informed the Lanes that the FmHA loan was assumable.

16. The Lanes decided to assume the loan if possible. At that time, attorney Falzone discussed the possibility of obtaining concessions from the Ungers for their having placed a second deed of trust on the property.

17. On May 22, 1981, Vicky Caywood, an agent at Hugh Kelly Real Estate, took the Lanes to the FmHA office in Paris, Missouri. On June 15, 1981, Vicky Cay-wood and Bess Lane again visited the FmHA offices. Charles Grace, the FmHA Monroe County Supervisor, informed the Lanes that because of their financial position they were ineligible to simply assume the Ungers’ note. The Lanes were, however, eligible to assume or refinance the note on different terms. Grace informed the Lanes they could assume the note by making a 10 percent down payment, with the remaining balance being subject to a 13V4 annual percentage rate.

18. The Lanes completed some of the preliminary FmHA forms, but did not complete the entire application process. At the time of closing, the Lanes, knowing that additional forms had to be completed prior to obtaining FmHA approval, closed without approval of the assumption.

19. Prior to or at the time of closing, the Lanes and the Ungers signed an addendum to their contract wherein the Ungers made certain concessions to the Lanes because of the FmHA second deed of trust. The concessions included a reduction in the Ungers’ note from $380,000 to $257,577, a reduction in the interest rate from nine (9) percent to seven (7) percent, and a reduction in the annual principal payment from $4,000 to $1,400.

20. On June 26, 1981, the Unger/Lane transaction was closed at the office of Hugh Kelly Real Estate. Present at the closing were the Lanes, three representatives from Spencer Real Estate of Lima, Ohio, the Ungers, and representatives of Hugh Kelly Real Estate. The Ungers executed and delivered to the Lanes a warranty deed conveying the property, which provided that the Lanes would assume both the Connecticut General and FmHA deeds of trust. The Lanes signed and delivered to the Ungers a promissory note for $257,-500 which was secured by a deed of trust to the Ungers.

21. Hugh Kelly Real Estate knowing that the Lanes had not completed the FmHA application went ahead with the closing. Although aware that prior FmHA approval was required for assumption of the second mortgage, both Hugh Kelly Real Estate and attorney Falzone failed to obtain written authority prior to the closing on June 26, 1981. Also, neither Hugh Kelly Real Estate nor attorney Falzone notified the FmHA of the closing. The closing took place late in the evening on June 26, 1981. The Lanes were to complete the FmHA application process on the following business day, but they failed to do so.

22. The Ungers failed to disclose certain obligations to the Lanes at the closing, including outstanding FmHA interest and a payment of $24,230.50 due to Connecticut General in approximately two months. The buyers’ statement, signed by the Lanes at the closing, did not refer to any FmHA interest owed and accruing; nor did it refer to $14,672 in interest owed to Connecticut General. This $14,672 was, however, included within the balance of the total amount due to Connecticut General.

23. After the closing, the Lanes took possession of the farm, planted additional crops, and harvested and sold crops. The growing wheat crop was allocated to the Lanes by letter agreement with the Ungers to provide a source of funds for the required ten (10) percent cash payment that was needed to obtain FmHA refinancing of the Unger FmHA loan.

24. The Lanes visited the FmHA office approximately five times and had at least five telephone conversations with the FmHA regarding the assumption. Subsequent to closing the transaction, the Lanes were contacted by Vicky Caywood who urged them to complete the required FmHA documentation for the approval of the assumption. The Lanes failed or refused to complete the FmHA loan assumption process.

25. During late summer and early fall of 1981, there was a general decline in the value and marketability of agricultural lands in the area. Also, the Lanes’ crop yield failed to meet their expectations.

26. In September 1981 the Lanes received an unexpected bill for $24,230.50 representing an interest payment due Connecticut General Life Insurance Company. They had expected a bill for about $8,000, which they knew to be due every six months.

27. The Lanes made no payments on the first deed of trust to Connecticut General, the second deed of trust to the FmHA, or the third deed of trust to the Ungers.

28. In September 1981 the Lanes informed FmHA County Supervisor Grace that they did not intend to assume the Ungers’ FmHA loan. At that time Grace informed them that he would not recommend approval of the assumption. Until this time there had been no indication that the FmHA would not approve the loan assumption.

29. Approval by the state office of the FmHA was necessary to complete the FmHA loan assumption. The state office of the FmHA never had the opportunity to rule upon the loan assumption because of the Lane’s failure to complete the documents necessary to obtain such a ruling.

30. The Lanes advised the Ungers by letter dated November 30, 1981, of their intent to rescind and vacate the property. The Lanes then returned to Ohio in early December.

31. On January 22, 1982, the FmHA gave formal notice to the Ungers of its intent to foreclose on the second mortgage because the Ungers had sold the property without obtaining the necessary prior written approval. On February 22, 1982, the FmHA provided the Ungers a formal appeal hearing.

32. Subsequently, on February 26,1982, the Ungers foreclosed on their third deed of trust. The Ungers purchased their own deed for $500.

33. Connecticut General, the holder of the first deed of trust, foreclosed on March 31, 1982. The FmHA bought the farm at this sale.

34. Subsequent to filing this action, the Lanes settled their complaint against the FmHA.

Conclusions of Law.

1. This Court has diversity jurisdiction of this matter pursuant to 28 U.S.C. § 1332.

2. The law of the state of Missouri governs this diversity action.

3. The Lanes waived any cause of action against the Ungers for their placing a second deed of trust on the property by obtaining concessions from the Ungers therefor in an addendum contract and by closing the transaction with full knowledge of the FmHA second deed.

4. Even if Hugh Kelly Real Estate Company falsely represented that the FmHA loan was automatically assumable, the Lanes could not have reasonably relied on such a statement. Neither was such a representation the proximate cause of the Lane’s failure or inability to assume the FmHA mortgage. Under Missouri law, the plaintiffs must prove, inter alia, that they have a right to rely on such a statement and that the statement consequently and proximately caused the injury. Walsh v. Ingersoll-Rand Co., 656 F.2d 367 (8th Cir. 1981). There must be causation in fact. St. Louis U. Trust Co. v. Merrill Lynch, 562 F.2d 1040 (8th Cir.1977). Although Hugh Kelly Real Estate and attorney Falzone could have taken actions which would have prevented this situation from arising, their acts did not cause the Lanes’ failure to assume the FmHA mortgage.

5. The cause for the Lanes’ failure or inability to assume the FmHA loan was their refusal to complete the application process. Their delay in completing the application process initially decreased the likelihood of assumption approval. Their subsequent refusal to complete the application process prevented the FmHA from ruling on the assumption.

6. The Lanes have not met their burden of proving that Gerald Unger slandered them. See, e.g., Brown v. Kitterman, 443 S.W.2d 146 (Mo.1969).

7. That $24,230.50 was due to Connecticut General in September was a material fact. The test of materiality is objective, not subjective. Osterberger v. Hites Const. Co., 599 S.W.2d 221 (Mo.App. 1980). The Court concludes that this fact would have affected the conduct of a reasonably prudent buyer. Considering that the buyer had to pay roughly $11,000 to the FmHA for an assumption, the Court finds that a reasonably prudent buyer would have altered his conduct in this real estate transaction had he known that an additional $24,230.50 payment was due shortly.

8. The Ungers and their agent Hugh Kelly Real Estate had a duty to disclose this material fact. Although the Lanes were represented by counsel, they dealt directly and frequently with Hugh Kelly Real Estate. The evidence shows that the Lanes relied on Hugh Kelly Real Estate for assistance in this transaction. In this instance, regarding the nature of what was owed and when, the Lanes reasonably relied on Hugh Kelly Real Estate and the Ungers’ assertions or lack thereof. The Ungers and Hugh Kelly Real Estate had superior knowledge and due to their partial disclosures, the Lanes were led to believe their representations. Furthermore, a relationship of confidence existed between the parties.

9. The Ungers and Hugh Kelly Real Estate failed to disclose a material obligation to the Lanes. “Missouri recognizes that fraud may also arise by concealment where one party breaches a duty to disclose certain information to the other.” Slater v. KFC Corp., 621 F.2d 932, 936 (8th Cir.1980). The concealment served as a substitute element for an affirmative false misrepresentation. Osterberger v. Hites-Constr. Co., 599 S.W.2d at 227. Even if innocently made, this omission will support the remedy of rescission. Id., at 229. Further, the defendants having partially informed the Lanes by including this sum in the total amount owed Connecticut General does not absolve them of liability. Partial information may be as misleading and deceptive as active misrepresentation. Id., at 227; Schechter v. Brewer, 344 S.W.2d 784 (Mo.App.1961).

10. The Lanes were falsely induced into the contract by the concealment of this material fact. Under Missouri law, one falsely induced into a contract may either affirm the contract and sue for damages or disaffirm the contract, return the property, and seek restitution of any funds paid for the purchase of the property. Slater v. KFC Corp., 621 F.2d at 935; Timmons v. Bender, 601 S.W.2d 688 (Mo.App. 1980). The Lanes informed the Ungers that they were not going through with the deal and returned the property to them.

11. Even assuming that the lack of disclosure by the Ungers and Hugh Kelly . Real Estate was negligent, the result is the same. See Ligon Specialized Hauler, Inc. v. Inland Container Corp., 581 S.W.2d 906, 908-09 (Mo.App.1979).

12. The sale and conveyance of the Ungers’ farm is rescinded and cancelled. This includes the plaintiffs’ promissory notes to General Connecticut and the Ungers, the warranty deed conveying the property, and the deeds securing the promissory notes.

13. The Court has inherent equitable power to shape the remedy so as to render substantial justice between the parties. See, e.g., Osterberger v. Hites Constr. Co., 599 S.W.2d at 229-31 (equity may shape the remedy to meet the demands of justice). In this regard, the Court believes that the Lanes are not entitled to the return of their down payment from the Ungers. The Ungers are entitled to compensation for the Lanes’ use of the property from May to December, 1981. The Lanes’ down payment sufficiently meets this requirement. Furthermore, the Court feels that the Lanes are not entitled to recover their attorney fees and moving expenses in this matter.

JUDGMENT

In accordance with the memorandum opinion filed this day and incorporated herein,

IT IS HEREBY ADJUDGED, DECLARED, AND DECREED that judgment is entered in favor of the defendants and against the plaintiffs on Counts I, II, III, IV, V, VII, and VIII of the complaint.

IT IS ADJUDGED, DECLARED, AND DECREED that judgment is entered in favor of the plaintiffs and against the defendants on Count VI of the complaint, with the exception that no restitution is warranted under the- facts of this case.

IT IS ADJUDGED, DECLARED, AND DECREED that judgment is entered in favor of the plaintiffs and against defendants Unger on their counterclaim.

IT IS ORDERED that the sale and conveyance of the Unger’s property to the Lanes is rescinded and vacated.

IT IS FURTHER ORDERED that all outstanding motions to dismiss and for directed verdicts, previously stayed by the Court, are DENIED AS MOOT in light of this judgment.


author: KENYON, District Judge.

text:
    AMINOIL, INC., et al., Plaintiffs, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, et al., Defendants. McAULEY OIL COMPANY, etc., Plaintiff, v. UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, et al., Defendants.
    Nos. Cv. 84-5853 Kn (Px), Cv. 84-5863 Kn (Px).
    United States District Court, C.D. California.
    Sept. 28, 1984.

      Edward S. Renwick, Cynthia L. Burch, Hanna & Morton, Los Angeles, Cal., for plaintiffs Aminoil Inc., Atlantic Richfield Co., Getty Oil Co., and Union Oil Co. of Calif.
    Pachter, Gold & Schaffer, Los Angeles, Cal., for plaintiff McAuley Oil Co.
    Robert C. Bonner, U.S. Atty., Joseph F. Butler, Asst. U.S. Atty., Los Angeles, Cal., for Federal defendants.
    John K. Van de Kamp, Atty. Gen., of State of Cal., Susan L. Durbin, Deputy Atty. Gen., Los Angeles, Cal., for State defendants.
   ORDER

KENYON, District Judge.

The Court, having heard argument from counsel on September 11, 1984, with respeet to plaintiffs’ motions for a preliminary injunction, and having considered the papers filed thereon, including the additional briefing submitted in response to this Court’s minute orders of September 11, 1984 and September 13, 1984, makes the following findings and order:

The Court makes no ruling with respect to McAuley Oil’s request for a preliminary injunction concerning the federal access order. Since the state and federal governments can gain access to the site under state law, the issue of access under federal law is moot. The Court, therefore, is making no ruling as to whether the access issues raised by McAuley Oil are subject to pre-enforcement determination and, if so, whether McAuley Oil is likely to prevail under this Circuit’s preliminary injunction tests. If a state appellate court reverses the lower court’s decision with regard to the state preliminary injunction, or if the appellate court grants a temporary stay, this Court may then have to address these issues.

Since the federal access order is not before the Court at this time, the issue of pre-enforcement review is limited to the context of administrative orders which request alleged responsible parties to submit a response plan and to implement such a plan upon approval by the EPA. Plaintiffs have not argued that, absent the daily penalties and treble damages provisions, the lack of pre-enforcement review of such orders violates their constitutional rights. Rather, the issue of pre-enforcement review that is in dispute is the narrower question of Congress’ intent with respect to review of this type of administrative order.

Pre-enforcement review of administrative orders requiring the submission of response plans and the implementation of such plans issued pursuant to the emergency provisions articulated in the last sentence of § 106(a) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9606(a), is not expressly prohibited by the statute. This Court finds, however, that the structure of the statute, its legislative history and cases construing it, see Block v. Community Nutrition Institute, — U.S. -, 104 S.Ct. 2450, 2454, 81 L.Ed.2d 270 (1984), demonstrate that Congress did not intend to allow judicial review of such orders prior to the commencement of either an enforcement action under § 106(b), 42 U.S.C. § 9606(b), or a recovery action under § 107(c)(3), 42 U.S.C. § 9607(c)(3). Congress plainly gave the President authority to address situations endangering “public health and welfare and the environment,” 42 U.S.C. § 9606(a), and such authority necessitates broad flexibility in promptly and effectively responding to the emergency. See United States v. Reilly Tar & Chemical Corp., 546 F.Supp. 1100, 1112 (D.C.Minn.1982). Allowing an alleged responsible party to challenge the merits of the § 106(a) administrative order prior to an enforcement or recovery action would handcuff the Environmental Protection Agency (EPA) by delaying effective responses to emergency situations. Congress could not have intended this contradictory scheme. In fact, the legislative history of CERCLA indicates that courts should not engage in premature analysis of issues lying within the expertise of the EPA, including such issues as whether an emergency exists and, if so, whether the particular response action is necessary and proper.

[EJmergency action will often be required prior to the receipt of evidence which conclusively establishes an emergency. Because delay will often exacerbate an already serious situation, the bill authorizes the Administrator to take action when an imminent and substantial endangerment may exist.

H.R.Rep. No. 96-1016, Part I, 96th Cong., 2nd Sess. 28, reprinted in [1980] U.S.Code Cong. & Ad.News 6119, 6131. Thus, to the extent that pre-enforcement review of the merits of the administrative order is sought, this Court lacks jurisdiction to hear the arguments raised by plaintiffs.

Contrary to the arguments alluded to above, for which this Court lacks subject matter jurisdiction, the issues of the daily penalties, 42 U.S.C. § 9606(b), and the treble damage provision, 42 U.S.C. § 9607(c)(3), do not involve the merits of the particular administrative order at issue here. Rather, these penalty provisions raise a controversy involving the constitutionality of the statutory scheme. This Court, therefore, has jurisdiction over this controversy arising under CERCLA pursuant to § 113(b), 42 U.S.C. § 9613(b), provided that the controversy is ripe for review. Under the test articulated by the Supreme Court in Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967), the constitutional challenges to the daily penalty and treble.damage provisions are ripe for review. Whether these sanctions deny plaintiffs their due process rights is a “purely legal” question that is fit for judicial determination. Id. at 149, 87 S.Ct. at 1515. Further, the threat of statutory sanctions has a direct and immediate impact on whether plaintiffs will comply with the administrative order. Id. at 152, 87 S.Ct. at 1517. Unlike the situation presented to the Third Circuit in West Penn Power Co. v. Train, 522 F.2d 302 (1975), where plaintiff did not'claim “that it has been denied due process”, id. at 311 (emphasis in original), in this case plaintiffs are claiming that the effect of the sanctions is to presently deny them their due process rights because it is coercing plaintiffs into foregoing their legal challenge to the administrative order. If this Court were to withhold its consideration of the issue, plaintiffs will suffer the hardship of having to make a decision that may foreclose their access to a legal forum without the aid of a judicial determination clarifying the constitutionality of the parameters within which such a decision must be made. Id. 387 U.S. at 149, 87 S.Ct. at 1515.

In deciding whether this Court should preliminarily enjoin the federal government from imposing the daily penalties and the treble damage provision of CERCLA, this Court must determine whether plaintiffs have met their burden of proof under either of the tests set forth by the Ninth Circuit. Under the first test, the Court is instructed to consider the following factors: (1) whether the moving party will suffer irreparable injury if injunctive relief is not granted, (2) the probability of success on the merits, (3) whether, in balancing the equities, the nonmoving party is harmed more by the injunction than the moving party is helped, and (4) whether granting the injunction is in the public interest. Sierra Club v. Hickel, 433 F.2d 24, 33 (9th Cir.1970), aff'd, 405 U.S. 727, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972). More recently, the Ninth Circuit has articulated an alternative test which requires the moving party to meet the burden of demonstrating either: (1) a combination of probable success on the merits and the possibility of irreparable injury, or (2) that serious questions are raised and the balance of hardships tips sharply in the moving party’s favor. William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 526 F.2d 86 (9th Cir.1975); Lopez v. Heckler, 725 F.2d 1489 (9th Cir.1984). These two strands of this alternative test are not separate, but represent the “outer reaches of ‘a single continuum.’ ” Los Angeles Memorial Coliseum Commission v. National Football League, 634 F.2d 1197, 1201 (9th Cir.1980), quoting Benda v. Grand Lodge of International Association of Machinists and Aerospace Workers, 584 F.2d 308, 315 (9th Cir.1978), cert. dismissed, 441 U.S. 937, 99 S.Ct. 2065, 60 L.Ed.2d 667 (1979).

Before applying the preliminary injunction tests to the facts presented, however, a brief overview of the applicable provisions of CERCLA is helpful. CERCLA was enacted by Congress in response to growing concern about the severe environmental and public health effects resulting from improper handling and disposal of hazardous wastes. In responding to a hazardous waste situation, CERCLA provides the EPA with three alternatives:

(1) EPA may clean up the site themselves using Superfund money as provided for in 42 U.S.C. § 9631 and seek recovery from responsible parties for the cost incurred under 42 U.S.C. § 9607;
(2) EPA may seek injunctive relief under 42 U.S.C. § 9606(a);
(3) EPA may issue an administrative order under 42 U.S.C. § 9606(a) ordering the responsible parties to clean up the site, if such order is necessary to protect public health and welfare and the environment.

Pursuant to § 9606(a), EPA issued ah administrative order directing plaintiffs to submit a plan to clean up the site and then to implement such plan. This order became effective August 10, 1984. This Court, therefore, is concerned with the provisions of CERCLA only insofar as they relate to an administrative order issued by EPA pursuant to § 9606(a).

A responsible party, defined in § 9601(20)(A) as an owner or operator of a facility where hazardous wastes have been deposited, may refuse to comply with the administrative order. If the responsible party so refuses, or otherwise fails to comply with the order, it may, in an action brought by EPA to enforce the order, be fined an amount not to exceed $5,000 for each day its failure or refusal continues. 42 U.S.C. § 9606(b). Nothing in the statute precludes EPA from waiting an extended period of time before bringing an enforcement action. If the alleged responsible parties unsuccessfully challenge the administrative order in the enforcement action, the daily penalties will have accrued between the time of the responsible parties’ noncompliance with the order and the actual enforcement proceeding. Alternatively, if EPA chooses not to enforce the order and instead cleans up the site itself, the responsible parties may be held liable for punitive damages up to three times the amount of the clean-up cost incurred by EPA, 42 U.S.C. § 9607(c)(3). Section 9607(c)(3) provides for treble damages for any violation of § 9606, including the failure to comply with an administrative order. CERCLA does not provide for a judicial or administrative hearing prior to the accrual of the aforementioned sanctions.

This Court recognizes that the penalty provisions of § 9606(b) and § 9607(c)(3) would not apply to a party who could demonstrate that “sufficient cause” existed for noncompliance with a § 9606(a) administrative order. Such a defense can be raised at either the § 9606 enforcement action or the § 9607 recovery action. However, such a defense appears to be extremely limited. After examination of the legislative intent behind CERCLA, it appears that “sufficient cause” as used in the statute is to be narrowly construed. In the Senate debate of CERCLA, Senator Stafford, who introduced the bill, described this defense in the following terms:

We intended that the phrase “sufficient cause” would encompass defenses such as the defense that the person who was the subject of the President’s order was not the party responsible under the Act for the release of the hazardous substance---- There could also be “sufficient cause” for not complying with the order if the party subject to the order did not at the time have the financial or technical resources to comply or if no technological means for complying was available____

126 Cong.Rec. at 30986 (Nov. 24, 1980). “Sufficient cause” does not appear to apply to situations in which alleged responsible parties in good faith assert a reasonable defense that is ultimately rejected by the Court.

Additionally, if the alleged responsible parties choose to comply with the administrative order under protest, there does not appear to be an adequate remedy at law for such parties to seek reimbursement from the federal government should it later be found that the administrative order was arbitrary or otherwise inconsistent with the law. This Court requested additional briefing on this point and no party was able to demonstrate that a sufficient reimbursement action would be available.

In approaching plaintiffs’ probability of success on their due process challenge, the Supreme Court has instructed that three distinct factors should be considered: (1) the private interest at stake, (2) the risk of erroneous deprivation through the present procedures, and (3) the government and public interest at stake. Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976). Generally, notice and a hearing prior to the government’s action is the constitutional prerequisite. Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970). In extraordinary or emergency situations, however, due process may only require a hearing after the government action is taken. Mathews, 424 U.S. at 349, 96 S.Ct. at 909. In the case at bar, this Court must weigh: (1) plaintiffs’ interest in seeking judicial review of the administrative order without the deterrent effect of significant sanctions if they are ultimately unsuccessful, (2) the risk that plaintiffs may be coerced into complying with the administrative order and be precluded from asserting what may have been meritorious defenses, and (3) the government’s and public’s interest in addressing emergency hazardous waste situations promptly and effectively.

The private interest at stake rests on the fundamental due process requirement of an opportunity to be heard. Grannis v. Ordean, 234 U.S. 385, 394, 34 S.Ct. 779, 783, 58 L.Ed. 1363 (1914). It is an opportunity which must be granted at a meaningful time and in a meaningful manner. Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62 (1965). Specifically, the private interest before this Court is the due process infringement arising from the § 9606(b) daily penalties and the § 9607(c)(3) assessment of treble damages.

Seventy-six years ago, the Supreme Court addressed a statutory scheme that assessed penalties for noncompliance in the landmark case of Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). In that case, maximum rail rates were established by state law and no opportunity was provided to challenge the validity of those rates except at the risk of incurring heavy penalties and criminal liability. The Court held that statutory provisions “imposing such enormous fines and possible imprisonment as a result of an unsuccessful effort to test the validity of the laws themselves, are unconstitutional on their face, without regard to the question of the insufficiency of those rates.” Id. at 148, 28 S.Ct. at 449. The Court gave further clarification of this due process limitation in St. Louis, Iron Mountain and Southern Railway Co. v. Williams, 251 U.S. 63, 40 S.Ct. 71, 64 L.Ed. 139 (1919).

[Ijmposition of severe penalties as a means of enforcing a rate ... is in contravention of due process of law, where no adequate opportunity is afforded ... for safely testing in an appropriate judicial proceeding, the validity of the rate ... before any liability for the penalty attaches. Id. at 64-65, 40 S.Ct. at 72. Where such an opportunity is afforded and the rate is adjudged valid or the carrier fails to avail itself of the opportunity [to contest the validity], it is then admissible, so far as due process is concerned for the state to enforce adherence to the rate by imposing penalties for deviation from it. [Emphasis added.]

Id. at 65, 40 S.Ct. at 72. See also Oklahoma Operating Co. v. Love, 252 U.S. 331, 336-37, 40 S.Ct. 338, 340, 64 L.Ed. 596 (1919) (“But the penalties which may possibly be imposed, if he pursues this course without success, are such as might well deter even the boldest and most confident____ Obviously a judicial review beset by such deterrents does not satisfy the constitutional requirements____”) More recently, the Second Circuit relied on this early line of cases in Brown & Williamson Tobacco Corp. v. Engman, 527 F.2d 1115 (1975), and stated:

[O]ne has a due process right to contest the validity of a legislative or administrative Order affecting his affairs without necessarily having to face ruinous penalties if the suit is lost. The constitutional requirement is satisfied by a statutory scheme which provides an opportunity for testing the validity of statutes or administrative orders without incurring the prospect of debilitating or confiscatory penalties.

Id. at 1119 (emphasis in original). The court ultimately rejected the due process challenge because, unlike the case presented here, the legality of the administrative order had already been determined. Id. at 1120. Also, the Supreme Court had previously upheld the constitutionality of the penalties at issue in Brown & Williamson. Id.

The daily penalty and treble damage scheme set forth in CERCLA clearly falls within the scope of this due process limitation. No opportunity is provided for a hearing involving the alleged responsible parties prior to the issuance of the administrative order. More importantly, no procedure is provided through which an alleged responsible party promptly could challenge the validity of the administrative order or the assessment of penalties. These parties are left to await an enforcement or recovery action, which may occur at some indefinite time in the future. In the meantime, the daily penalties continue to accrue. Furthermore, no clear right exists for these alleged responsible parties to comply with the administrative order and then challenge its validity and seek reimbursement from the government. The threat of excessive penalties and treble damages may appear so debilitating to alleged responsible parties that compliance with the administrative order is the only feasible alternative. As such, this scheme clearly falls within the due process proscription articulated by the Supreme Court in Wadley Southern Railway Co. v. Georgia, 235 U.S. 651, 35 S.Ct. 214, 59 L.Ed. 405 (1915). “[T]hat right [to judicial review] is merely nominal and illusory if the party affected can appeal to the courts only at the risk of having to pay penalties so great that it is better to yield to orders of uncertain legality rather than to ask for the protection of the law.” Id. at 661, 35 S.Ct. at 217. Hence, the private interest at stake here is the valued right to a fair hearing unencumbered by the chilling effect of excessive sanctions if one were to obtain such a hearing and lose on the merits.

Plaintiffs will be erroneously deprived of their response costs and a hearing on the merits if they succumb to the coercive effects of excessive sanctions and, in so doing, forego challenging the order with a defense that would have been successful. A serious risk that plaintiffs will erroneously lose their property interest in the funds expended in complying with the order must be included in the Mathews calculus.

The government’s interest in the threat of significant sanctions also deserves serious consideration. By creating an emergency administrative mechanism in § 9606(a) to direct the alleged responsible parties to plan and conduct the clean-up operations, Congress was clearly unwilling to fund all emergency response actions with Superfund resources. In order to limit the expenditure of these resources to those situations in which such funds are most needed, namely, when responsible parties cannot be located or cannot afford the costs of clean-up, Congress needed to encourage responsible parties with sufficient financial capabilities to begin clean-up operations in emergency situations immediately. The Supreme Court has made clear that the fiscal burdens placed on the government is a legitimate concern in due process analysis. Mathews, 424 U.S. at 335, 96 S.Ct. at 903. Without the threat of daily penalties or treble damages, responsible parties would have the incentive not to comply with the administrative order, thereby delaying the payment of costs for which Congress has determined they should be held liable.

In weighing these three Mathews factors, this Court concludes that plaintiffs are likely to succeed in showing that the present scheme violates their due process rights. Although the government’s interest in handling emergency waste situations in an efficacious manner is significant, this Court is not convinced that this interest could not be addressed through a scheme that nevertheless provides the most rudimentary elements necessary to satisfy due process. "Under the present scheme set forth in CERCLA, no attempt is made to protect an alleged responsible party’s due process rights in emergency situations. In so doing, CERCLA creates a substantial risk that these alleged responsible parties will erroneously be deprived of significant protected interests.

Plaintiffs also confront the distinct possibility of irreparable injury. If they are coerced into complying with the administrative order, it appears likely that they will lose all legal recourse to challenging the government’s actions. Similarly, plaintiffs have demonstrated that the balance of hardships tips sharply in their favor. The state and federal governments apparently are willing and prepared to go forward with the clean-up themselves, funded by federal Superfund resources. Thus, the harm to the government appears to be minimal in this instance, especially given their § 9607 right to seek reimbursement from the responsible parties. The harm to the plaintiffs is the significant threat to their due process rights. This Court finds, therefore, that plaintiffs have met their burden under this circuit’s preliminary injunction tests.

Under the present statutory and regulatory scheme, defendants are hereby enjoined from assessing daily penalties pursuant to § 106(b), 42 U.S.C. § 9606(b), or the treble damage provision of § 107(c)(3), 42 U.S.C. § 9607(c)(3).

Counsel for the government is requested to prepare proposed findings of fact and conclusions of law consistent with all of the findings and rulings contained in this order by October 12, 1984. Duplicate copies should be provided for each case.

      . This Court is cognizant of the limited pre-en.forcement review allowed by the Northern District of Ohio in J. V Peters & Co. v. Ruckelshaus, 584 F.Supp. 1005, 20 E.R.C. 2222 (D.C.1984). The Court notes that J. V. Peters did not involve a § 9606(a) administrative order. Rather, that court addressed a conclusory challenge to a response action EPA was planning to implement. In any event, this Court questions whether federal courts should engage in a preliminary “rational basis” analysis, at least in situations involving § 9606(a) administrative orders requiring alleged responsible parties to submit and then implement a response plan. To the extent, however, that such review may be available, plaintiffs have failed to demonstrate that EPA’s findings and order lack a rational basis.

      . The Court takes note of the fact that both the Clean Air Act, 42 U.S.C. § 7401 et seq. and the Surface Mining Control & Reclamation Act of 1977, 30 U.S.C. § 1201 et seq., provide the alleged responsible party with a hearing in those instances of alleged noncompliance with the statute. Section 7420(b)(4)(B) of the Clean Air Act allows the party against whom noncompliance penalties are sought to submit a petition within forty-five days after the issuance of a noncompliance notice challenging the notice of noncompliance. The Administrator then must provide petitioner with a hearing on the record to determine the validity of the challenge. Similarly, 30 U.S.C. § 1268(b) of the Surface Mining Act provides that a civil penalty shall be assessed for violations of the act only after the person charged with a violation has been given an opportunity for a public hearing. See B & M Coal Corp. v. Office of Surface Mining Reclamation and Enforcement, 531 F.Supp. 677 (S.D.Ind. 1982). Though not dispositive of the issue of due process in the case at bar, it is interesting that two other environmental statutes have made provision to address due process requirements, whereas the language of CERCLA is silent on the point.