author: WILLIAM C. LEE, District Judge.

text:
    LARTNEC INVESTMENT COMPANY v. FORT WAYNE-ALLEN CO. CONVENTION & TOURISM AUTHORITY; Fort Wayne Center Association, Ltd.; and Atlantic Financial Federal Savings and Loan LARTNEC INVESTMENT COMPANY v. CITY OF FORT WAYNE; Fort Wayne Center Associates, Ltd.; Bank Of America National Trust and Savings Association; and Fort Wayne National Bank.
    Civ. Nos. F 84-162, F 84-163.
    United States District Court, N.D. Indiana, Fort Wayne Division.
    March 8, 1985.

      John C. Theisen, James D. Streit, Gallucci, Hopkins & Theisen, Fort Wayne, Ind., for plaintiff.
    Marvin S. Crell, Fort Wayne, Ind., for defendant Fort Wayne-Alien Co. Convention & Tourism Authority.
    W. Paul Helmke, Jr., Fort Wayne, Ind., for defendant Fort Wayne Center Assoc., Atlantic Financial Federal, Bank of America.
    Paul D. Mathias, Fort Wayne, Ind., for defendant Fort Wayne Nat. Bank.
    Bruce Boxberger, Karen Walker, John J. Wernet, Fort Wayne, Ind., for defendant City of Fort Wayne.
   ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on the motions to dismiss filed by all the defendants in these consolidated actions. The motions have been fully briefed. For the following.reasons, the motions to dismiss will be granted.

These two cases challenge various actions taken in financing the construction of a hotel adjacent to the Grand Wayne Center in downtown Fort Wayne, Indiana. The Grand Wayne Center functions as a convention and exhibition center, and was built under the direction of the Fort Wayne and Allen County Convention and Tourism Authority (“Authority”). The Authority came to believe that construction of a hotel adjacent to the Grand Wayne Center would “greatly improve the economic viability and increase the demand for” the Center’s facilities. Resolution, December 22, 1982. Fort Wayne Center Associates, Ltd. (“Associates”), an Indiana limited partnership, sought financing to build the new hotel, as the cost of construction was estimated to be 18 million dollars.

The City of Fort Wayne (“City”) also desired to have the hotel built, and so became involved in the financing process. According to Special Ordinance No. S-265-83, passed by the Common Council of the City, the financing which was agreed upon had these following elements: 10 million dollars of Economic Development Revenue Bonds were to be issued by the City. E.F. Hutton & Company, Inc. agreed to purchase and/or underwrite the issuance of the Bonds provided the bonds were secured by a letter of credit issued by a AA or AAA rated financial institution. Defendant Bank of America was willing to issue such a letter of credit, but only if a standby letter of credit in the sum of six million dollars was issued and the City issued its guarantee for three million dollars. The standby letter of credit was issued by defendant Atlantic Financial Federal Savings and Loan, and Ordinance S-265-83, passed by the Common Council on December 20, 1983 and signed by the mayor on December 21, 1983, officially issued the City’s Guarantee. The ordinance itself specified that the money backing up the guarantee would come from the City’s Light and Power Utility Fund, a fund generated from revenues paid by a private utility to lease the City-owned utility.

At the same time, the Authority issued a Resolution dated December 22, 1983, in which the Authority agreed to subsidize the principal and interest payments of Associates on a three million dollar mortgage loan from Atlantic. The subsidy payments were to come from revenues generated by a state innkeeper’s tax which the Authority collects and spends pursuant to I.C. 36-10-8-12.

Plaintiff (“Lartnec”) is an Iowa corporation which owns and operates the Fort Wayne Holiday Inn Downtown, located in Fort Wayne, Indiana. Lartnec has filed these two actions seeking declaratory judgments that (1) the City’s guarantee is unconstitutional, invalid and void, and (2) that the Authority’s Resolution and subsidy commitment are unconstitutional, illegal, invalid and void. Lartnec advances two arguments against the City’s guarantee. The first claims that the guarantee constitutes a loaning or pledging of the credit of the City to support a private business enterprise for profit in violation of the Constitution of the State of Indiana, article 11, § 12 and article 10, § 6. The second argues that the guarantee creates a potential obligation, indebtedness and charge against the credit of the City in violation of I.C. 36-7-12-25(b).

Lartnec’s amended complaint urges four grounds for declaring the Authority’s subsidy illegal and void. The first is that the Authority is required by I.C. 36-10-8-12 to spend the innkeeper’s tax revenues on “capital improvements.” Lartnec contends that the new hotel is a private investment and thus is not a “capital improvement.” Second, Lartnec argues that the subsidy violates article 11, § 12 of the Indiana Constitution. Third, Lartnec claims that the Resolution violates the United States and Indiana Constitutions by taking private property (the innkeeper’s tax revenues) for other than a public purpose. Finally, the Resolution is said to violate Lartnec’s equal protection rights by selectively favoring a competitor over Lartnec.

The defendants have all filed motions to dismiss, and each (either originally or by adoption of the other’s arguments) asserts several grounds for dismissal. These various grounds revolve around two basic concepts: (1) justiciability of this action, which involves issues of ripeness, standing, the requirements of diversity jurisdiction, real party in interest, and statute of limitations; and (2) the merits of the claim. The court begins by examining the justiciability issues raised by the motions to dismiss.

I. Justiciability Issues

All of the defendants have raised several common issues in their motions which the court terms “justiciability issues” because they are offered as reasons for dismissal which do not involve the merits of the claim (i.e., they attempt to show that Lartnec cannot bring this action in this court). These common issues are: (1) that Lartnec is not the “real party in interest,” and so cannot pursue this action; (2) the court lacks diversity subject matter jurisdiction because there is no complete diversity between the parties and Lartnec has not met the jurisdictional amount requirement; (3) the matter is not ripe for consideration; (4) Lartnec lacks standing; and (5) the action is barred by a 30 day statute of limitation. The court considers each of these arguments in turn.

1. Real Party in Interest

The defendants argue that Federal Rule of Civil Procedure 17(a) requires that an action be prosecuted in the name of the “real party in interest,” which defendants argue should be the owner of the Holiday Inn/Downtown. They have produced evidence that the record owner of the Holiday Inn is the Central-Walter-Sunbelt (“C-WS”) partnership, an .Indiana general partnership of which Lartnec is a member. Defendants argue that C-W-S is the real party in interest, and thus should be the plaintiff here.

Lartnec responds by producing copies qf agreements whereby the other partners in C-W-S have transferred their interest to Lartnec, and states that the deed showing Lartnec as owner has simply not been recorded yet.

It is clear that these facts, which are necessary to resolve this issue, go beyond the parameters of a motion to dismiss because they involve matters outside the pleadings. When matters outside the pleadings are presented to and not excluded by the court, a motion to dismiss will be converted to a motion for summary judgment under Rule 56. See Fed.R.Civ.P. 12(b)(6). However, this conversion applies only to the real party in interest issue.

Under Rule 56(c), summary judgment can be granted if there is no genuine issue of material fact existing and the moving party is entitled to judgment as a matter of law. Here, neither party disputes that C-W-S is record owner or that Lartnec is the sole remaining partner of C-WS. Under Indiana partnership law, the last surviving partner has the right to wind up the partnership’s affairs. Marksill Specialties, Inc. v. Barger, 428 N.E.2d 65, 68 (Ind.App.1982); I.C. 23-4-1-37. Thus, Lartnec has a right to bring this action on behalf of C-W-S, so that it is the real party in interest, either by virtue of its own ownership rights or as last surviving partner of C-W-S.

2. Diversity Jurisdiction

Defendants argue that this court lacks subject matter jurisdiction because there is no diversity jurisdiction present here. The court notes that Lartnec’s amended complaint in No. F 84-162 alleges two federal constitutional violations, so that this ease has proper federal question subject matter jurisdiction regardless of the citizenship of the parties. Further, the lack of diversity argument is premised on C-W-S being the real party in interest. However, Lartnec is the real party in interest, and as an Iowa corporation poses no problems in terms of diversity. Finally, Lartnec’s allegations concerning lost profits in excess of $10,-000.00 meets the amount in controversy requirements. Thus, to the extent that diversity requirements are relevant in this action, Lartnec has satisfied them.

3. Ripeness

Defendants argue that this matter should be dismissed on the basis of ripeness. This argument is premised on the belief that because Lartnec will not be injured until sometime in the future (if ever), the case is not ripe until such injury occurs. Specifically, the Authority argues that its subsidy Resolution will not become effective unless a Certificate of Occupancy is issued for the hotel — which may never occur.

The doctrine of ripeness arises out of Article Ill’s case or controversy requirements and the related prohibition against rendering advisory opinions. See Wisconsin’s Environmental Decade, Inc. v. State Bar of Wisconsin, 747 F.2d 407, 410 (7th Cir.1984). Although the difference between an abstract question calling for an advisory opinion and a ripe case or controversy is not discernible by any precise test, Babbitt v. United Farm Workers National Union, 442 U.S. 289, 297, 99 S.Ct. 2301, 2308, 60 L.Ed.2d 895 (1979), the basic ripeness inquiry is whether there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality, so as to warrant judicial relief. Babbit, id., 442 U.S. at 298, 99 S.Ct. at 2308; Railway Mail Assn. v. Corsi, 326 U.S. 88, 93, 65 S.Ct. 1483, 1487, 89 L.Ed. 2072 (1945); Wisconsin’s Environmental Decade, 747 F.2d at 411. A plaintiff must demonstrate a “realistic danger of sustaining a direct injury” as a result of the defendant’s action, but need not wait until the injury is consummated if the injury is “certainly impending.” Babbitt, 442 U.S. at 298, 99 S.Ct. at 2308.

The defendants’ ripeness argument challenges Lartnec's injury alone. They conclude that because Lartnec is not damaged now, the controversy here cannot be ripe. However, the Babbitt Court found that immediate and present injury is not necessary to ripeness if the alleged injury is “certainly impending.” Here, Lartnec alleges two injuries: violation of its rights as a taxpayer of the innkeeper tax, and economic loss from competition with the new hotel. Both of these injuries would occur once the hotel began operating. This court finds that, given the strong public interest and desire in having a hotel adjacent to the Grand Wayne Center, as well as the financial incentive created by the investment and expenditure of the 18 million dollars to build the hotel, such hotel operation is virtually assured so that these injuries are “certainly impending” for ripeness purposes. Thus, the court concludes that this controversy is ripe for adjudication.

4. Standing

As was noted earlier, Article III of the Constitution limits the exercise of judicial power to “cases” and “controversies,” Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239, 57 S.Ct. 461, 463, 81 L.Ed. 617 (1937), and federal courts established pursuant to Article III do not render advisory opinions. Golden v. Zwickler, 394 U.S. 103, 108, 89 S.Ct. 956, 959, 22 L.Ed.2d 113 (1969). Whether a plaintiff has made out a case or controversy between himself and the defendants is a “threshold question in every federal case,” Warth v. Selden, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975), including actions for declaratory judgments. Golden, 394 U.S. at 108, 89 S.Ct. at 959; J.N.S., Inc. v. State of Indiana, 712 F.2d 303, 305 (7th Cir. 1983). In general terms, the question of standing is “whether the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court’s remedial powers on his behalf.” Warth, 422 U.S. at 498-99, 95 S.Ct. at 2205 (emphasis in original); Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663 (1962).

The concept of standing involves both constitutional limitations on federal court jurisdiction and prudential limitations on its exercise. Warth, 422 U.S. at 498, 95 S.Ct. at 2205; Alschuler v. Dept. of Housing and Urban Development, 686 F.2d 472, 476 (7th Cir.1982). The Supreme Court has identified the constitutional limitation as the requirement of “injury in fact” — that the plaintiff must show “that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant.” Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1607, 60 L.Ed.2d 66 (1979). The injury must be “real, not imaginary; concrete, not abstract; apparent, not illusory; and demonstrable, not speculative.” J.N.S., Inc., 712 F.2d at 305; Myron v. Chicoine, 678 F.2d 727, 730 (7th Cir.1982).

Even when a case meets the constitutional requirement of injury in fact, “a plaintiff may still lack standing under the prudential principles by which the judiciary seeks to avoid deciding questions of broad social import where no individual rights would be vindicated and to limit access to the federal courts to those litigants best suited to assert a particular claim.” Gladstone Realtors, 441 U.S. at 99-100, 99 S.Ct. at 1608. The prudential principles cited by courts include: that the plaintiff’s injury must be peculiar to himself or a distinct group, and not shared in equal measure by all or a large group of citizens, Warth, 422 U.S. at 499, 95 S.Ct. at 2205; that a plaintiff must assert his own rights rather than those of third parties, see Village of Arlington Heights v. Metropolitan Housing Dev. Corp., 429 U.S. 252, 263, 97 S.Ct. 555, 561, 50 L.Ed.2d 450 (1977); and that “the interest of the plaintiff, regardless of its nature in the absolute, [must] at least be arguably within the zone of interests to be protected or regulated by the statutory framework within which his claim arises,” Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 39 n. 19, 96 S.Ct. 1917, 1925 n. 19, 48 L.Ed.2d 450 (1976); Data Processing Service v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 829, 25 L.Ed.2d 184 (1969).

Lartnec asserts two injuries which it claims satisfies the injury in fact requirement of Article III. The first involves Lartnec’s status as taxpayer under the innkeeper tax statute. According to Lartnec, the fact that it must pay the tax gives it standing to complain about how the tax money is spent. The second injury alleged is economic. Lartnec claims that the building of the hotel will create competition with Lartnee’s Holiday Inn, thus reducing profits and the Holiday Inn’s ability to compete with what Lartnec views as a publicly assisted, privately-owned hotel-competitor.

As for the injury based on Lartnec’s status as taxpayer, the court finds no injury in fact sufficient to support standing. The court reaches this conclusion because it finds that Lartnec is not the taxpayer of the innkeeper’s tax. According to I.C. 6-9-9-2,

Each year a tax shall be levied on every person engaged in the business of renting or furnishing, for periods of less than thirty days, any room or rooms, lodgings or accomodations in any hotel, motel [or] inn ... The tax shall be imposed, paid and collected in exactly the same manner as the state gross retail tax is imposed, paid and collected ... and all provisions of I.C. 6-2-1, relating to rights, duties, liabilities, procedures, penalties, definitions, and administration shall be applicable to the imposition administration of the tax imposed by this section except to the extent such provisions are in conflict or inconsistent with the specific provisions of this chapter.

While the first sentence of this section indicates that the tax is levied on Lartnec, the section specifies that the tax is to be imposed in the same way the state gross retail tax is imposed. The provision governing the imposition of the state gross retail tax is I.C. 6-2.5-2-l(b), which states:

The person who acquires property in a retail transaction is liable for the tax on the transaction and ... shall pay the tax to the retail merchant as a separate added amount to the consideration in the transaction. The retail merchant shall collect the tax as agent for the state.

Because I.C. 6-9-9-2 requires that the innkeeper tax be collected “in exactly the same manner” as I.C. 6-2.5-2-1, it is obvious that a hotel customer must pay the tax as an added amount to the cost of the hotel room, and the hotel operator is the “retail merchant” who collects the tax “as agent for the state.” As hotel operator, Lartnec does not pay its own funds to cover the tax “levied” against it; it simply acts as the agent by which the state collects its tax from the customer. Thus, Lartnec is not injured by the imposition of the tax.

The second injury — the economic loss occasioned by the competition with the new hotel — is much more troubling. Lartnec argues that this economic loss will occur because the Fort Wayne hotel market is such that Lartnec cannot now maintain occupancy rates at a high enough level to be profitable. According to Lartnec, that is the reason why private investors did not try to build the new hotel on their own— they viewed the site as unprofitable. Only through subsidies and loan guarantees, Lartnec contends, did the site become potentially profitable. With the current market unable to maintain profitable operations, Lartnec believes economic loss is a certainty becaüse there will be even more rooms for the too few occupants which exist now.

The defendants argue that this claim of injury is too remote and speculative to support standing because the Grand Wayne Center will alter the market conditions and serve to attract more hotel patrons to Fort Wayne. Thus, they argue, Lartnec might not suffer a loss at all, but rather gain profits from more patrons. At the very least, defendants contend, Lartnec cannot be sure it will lose money.

The determination of whether Lartnec’s alleged economic loss constitutes sufficient injury in fact is not easy. On the one hand, the Seventh Circuit has made it clear that injuries which are too remote or speculative cannot be sufficient injury in fact. J.N.S., Inc. v. State of Indiana, 712 F.2d 303, 305 (7th Cir.1983). On the other hand, the Seventh Circuit has interpreted the Supreme Court’s Data Processing Services Organization v. Camp opinion as holding that “a loss of competitive advantage, however small that loss may be, is the type of palpable economic injury that is recognized as sufficient to lay a basis for standing.” Hartigan v. Federal Home Loan Bank Board, 746 F.2d 1300, 1309 (7th Cir.1984).

The court notes that, for purposes of a motion to dismiss on the basis of standing, the material allegations of the complaint must be taken as admitted, Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1849, 23 L.Ed.2d 404 (1969), and the complaint should not be dismissed unless it appears that the plaintiff can “prove no set of facts in support of his claim which would entitle him to relief.” Id. 395 U.S. at 422, 89 S.Ct. at 1849; Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). Therefore, although Lartnec’s claims about economic loss in the future are dubious given the change in market conditions which the Grand Wayne Center might produce, the court, for purposes of these motions, accepts as true that Lartnec will suffer some loss of competitive advantage so as to qualify as an injury in fact.

Although this finding clears the first hurdle of standing, the court must still examine the prudential limitations of standing to see if one of them bars Lartnec from having standing to sue. Both sides in this case contest the “zone of interest” limitation. That limitation requires that the plaintiff have suffered the kind of injury “arguably within the zone of interest protected by the statute.” Hartigan, 746 F.2d at 1309. This necessitates a claim by claim analysis of Lartnec’s complaint.

In the No. F 84-163 claim against the City, the first count alleges that the City’s loan guarantee constitutes a loaning or pledging of the credit of the state in violation of article 11, § 12 and article 10, § 6 of the Indiana Constitution. Article 11, § 12 provides that

The State shall not be a stockholder in any bank ... nor shall the credit of the State ever be given, or loaned, in aid of any person, association or corporation....

Article 10, § 6 provides that

No county shall ever subscribe for stock in any incorporated company ... nor shall any county loan its credit to any incorporated company, nor borrow money for the purpose of taking stock in any such company....

All parties agree that the history and intent behind article 11, § 12 is set out in Northern Indiana Bank v. State Bd. of Finance, 457 N.E.2d 527 (Ind.1983). The Indiana Supreme Court found that § 12 was adopted because the speculative activities of the Indiana state bank, as well as the disastrous investment in internal improvement projects such as canals, turnpikes and railroads, had driven the state to near bankruptcy by the time of the Constitutional Convention in 1850. Section 12 was designed to prevent the state from being a partner in speculation on private corporate stocks for the financial well-being of the state. The Constitutional Convention was not concerned about state interference with competition, except insofar as the state bank’s speculative investments hindered the banking industry. This court finds that the zone of interests to be protected by article 11, § 12 is the financial well being of the state and the freedom of the banking industry from competition by a state bank.

Viewed in this light, the zone of interests of § 12 cannot be even arguably extended to Lartnec’s claim of economic loss from increased competition. Under the governing Indiana Supreme Court interpretation of § 12, it is clear that § 12 was not designed to protect competitors (outside the banking industry) from other competitors. Thus, Lartnec’s injury does not fall within the zone of interests to be protected by this provision.

Although no such thorough analysis exists for article 10, § 6, the court finds that its primary purpose is very similar to article 11, § 12: protection of counties from involvement in, or damage from, financial ventures. This conclusion is supported by the rough parallel between the language of § 6 and § 12. The protection of private businesses from competitive effects resulting from a county’s activities is not within the zone of interests to be protected by this provision.

The second count of No. F 84-163 asserts that the City’s guarantee creates a potential obligation, indebtedness and charge against the credit of the City in violation of I.C. 36-7-12-25(b). That section states:

The ordinance [approving the financing of an economic development or pollution control project] may also authorize the issuance of bonds, notes or warrants payable solely from revenues or from payments made under a guaranty agreement by a developer or user or a related person. The bonds, notes, or warrants are not in any respect a general obligation of the unit, nor are they payable in any manner from revenues raised in taxation.

The court concludes protection from economic harm caused by competition from a project financed under the provisions of I.C. 36-7-12-1, et seq. is not even arguably within the zone of interests to be protected by this statute. A reading of the whole chapter, and 36-7-12-25(b) in particular, indicates that this statute is designed to promote economic development projects. It is not concerned with competitive effects; I.C. 36-7-12-18(a) allows direct loans to developers, as well as issuance of notes, bonds or warrants to finance a project, provided that the fiscal body which must approve the financing finds that “the financing approved ... will be of benefit to the health or welfare of the unit proposing to issue the bonds, notes or warrants....” I.C. 36-7-12-25(a). Obviously, such broad power to finance can and will have effects on competitors; yet the statute is silent as to such effects. This court concludes that this statutory chapter, and I.C. 36-7-12-25(b) in particular, are designed to protect the general public, by both guaranteeing that such projects are designed for its “health and welfare,” and by requiring its local governmental machinery to operate within statutory guidelines. It is not designed to protect private competition from new sources of competition. Clearly, Lartnec’s interests fall outside the zone of interests to be protected by this statute.

Thus, the court finds that Lartnec does not have standing to assert either of its claims against the City in No. F 84-163.

The first claim against the Authority in No. F 84-162 is that the subsidy of principal and interest on Associates’ debt obligations constitutes a violation of I.C. 36-10-8-12, which allows a county capital improvement board to use capital development funds to pay for the costs of a “capital improvement.” The definition of a capital improvement, found in I.C. 36-10-1-4 is

[a] building, facilities, or improvements that a capital development board determines will be of general public benefit or welfare, and will promote the cultural, recreational, public or civic well being of the community, including a convention center.

Here again, it is obvious that the intent behind article 10 of Title 36 of the Indiana Code is to promote and protect the interests of the general public by creating local capital improvement boards which can finance or help to finance construction of capital improvements to benefit the general public. The interests of competitors to such capital improvements are not mentioned in the statute, nor are even arguably within the zone of interests which the statute is designed to protect. Lartnec therefore has no standing to raise this issue.

The second claim against the Authority is premised on article 11, § 12 of the Indiana Constitution, which this court previously found Lartnec had no standing to raise. That analysis applies here with equal force.

The third claim against the Authority is a violation of the United States and Indiana Constitutions’ prohibition against taking private property (the innkeeper tax revenues) for other than a public purpose. Here, Lartnec fails to have suffered an injury in fact. The entire harm of this alleged taking is the taking of the tax revenues. Yet those revenues do not come from Lartnec, but from the hotel patrons. Here, the prudential limitation which precludes standing is not the zone of interests test, but rather the prohibition against asserting the rights of third parties. Thus, Lartnec has no standing to assert this third claim.

The last claim in the Amended Complaint is based upon a violation of the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution and article 1, § 23 of the Indiana State Constitution. Lartnec alleges that the Authority’s subsidy violates Lartnec’s rights by selectively favoring a competitor over Lartnec. Here, Lartnec has standing to raise an equal protection claim because the alleged injury (economic loss from competítion) falls within the claimed equal protection right to be treated in the same manner as other competitors in the downtown Fort Wayne hotel market.

The court therefore finds that Lartnec has no standing to pursue any of its claims except its equal protection claim against the defendants in No. F 84-162. Out of an abundance of caution, however, the court continues to analyze the remaining issues of the motion to dismiss.

5. Statute of Limitations

The City argues that the claims of No. F 84-163 are time-barred. The relevant statute of limitations is alleged to be that found in I.C. 36-7-12-27(d), which provides that “[a]n action to contest the validity of bonds, notes, or warrants issued under [I.C. 36-7-12-25] ... may not be commenced more than thirty days after the adoption of the ordinance approving them....” The No. F 84-163 defendants contend that this action, which was commenced on April 25, 1984, was filed more than thirty days after the December 21, 1983 signing of the ordinance approving the loan guarantee.

Lartnec responds by arguing that it is not challenging the validity of the economic development bonds issued to finance the hotel, but rather the three million dollar guarantee used to back up the standby letter of credit of Bank of America. Lartnec argues that the guarantee is not part of the bonds approved in the ordinance, and thus the thirty day limitation for challenging the validity of bonds does not apply. The City contends that the guarantee and the bonds are inextricably tied together because the entire financing package was necessary to issue the bonds, and thus a challenge of the guarantee is a challenge of the bonds themselves.

This court finds that I.C. 36-7-12-27(d) does not apply to this action. That section is limited by its language to contests over the validity of bonds, notes or warrants issued pursuant to I.C. 36-7-12-25. The City’s arguments that the guarantee and the issuance of the bonds constitute one transaction are unpersuasive because the City confuses the process of bond issuance with the success of the process. The Common Council had authority under I.C. 36-7-12-25 to issue bonds without any of the complicated financial arrangements which were in fact adopted. The City’s guarantee was not needed to issue the bonds; rather, its role was in assuring the success of the bond issue by providing the assurance E.F. Hutton and the other financial institutions needed to make purchase of the bonds by E.F. Hutton attractive. Precisely because the guarantee was not necessary to the bond issuance process itself but only to its success, the court finds a fundamental difference between the bond and the guarantee such that a challenge to the validity of the guarantee is not a challenge to the validity of the bond governed by I.C. 36-7-12-27. Whether the ten year limitation period of I.C. 34-1-2-3, or the two year period of I.C. 34-1-2-2(1) applies, an issue not decided here, it is obvious that Lartnec’s filing suit within four months was timely under any statute of limitations which might apply. The claims against the City are therefore not time-barred.

In summary, the court finds that Lartnec lacks standing to assert all of its claims except its allegations of an equal protection violation. The remaining justiciability issues do not support a dismissal of the action. Out of an abundance of caution, however, the court examines the merits of all six of Lartnec’s claims.

II. Merits of the Claim

In deciding a motion to dismiss for failure to state a claim, this court must take the well pleaded factual allegations of plaintiffs complaint as true. Ashbrook v. Hoffman, 617 F.2d 474 (7th Cir.1980). A complaint should be dismissed for failure to state a claim only if it appears “beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). However, Conley has never been interpreted literally. Sutliff, Inc. v. Donovan Companies, 727 F.2d 648, 654 (7th Cir.1984). The test is whether a complaint contains either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.1984). This court must consider the complaint in the light most favorable to the plaintiff and must resolve every reasonable doubt in favor of the claimant. Henry C. Beck Co. v. Fort Wayne Structural Steel, 701 F.2d 1221 (7th Cir.1983). “The heavy costs of modern federal litigation ... counsel, against launching the parties into pretrial discovery if there is no reasonable prospect that the plaintiff can make out a cause of action from the events narrated in the complaint.” Sutliff, 727 F.2d at 654.

With these principles in mind, the court analyzes each of Lartnec’s allegations, beginning with the two counts in No. F 84-163.

1. Violation of Constitutional Prohibitions Against Extending Credit

Lartnec’s first count in No. F 84-163 alleges that the City’s guarantee violates article 11, § 12 and article 10, § 6 of the Indiana Constitution. As was noted earlier, the provisions of article 11, § 12 prohibit the state from loaning or extending its credit to a private corporation, while article 10, § 6 prohibits counties from doing the same. The defendants have argued that (1) these prohibitions do not apply to cities; and (2) no credit is being extended here because the funds being used to back up the guarantee come from the City’s Light and Power Utility Fund. The court finds both of these arguments persuasive.

In interpreting the language of article 11, § 12 and article 10, § 6, the court applies the principles of interpretation established by the Indiana Supreme Court. “Judges must enforce the [Indiana] Constitution as written and intended.” Board of Trustees of the Public Employees’ Retirement Fund v. Pearson, 459 N.E.2d 715 (Ind.1984); the “pole-star in the construction of the constitutions is the intention of the makers and adopters.” State v. Nixon, 384 N.E.2d 152, 157 (Ind.1979).

The court reiterates its finding in the discussion of standing that article 11, § 12 was intended to protect the state from financial ruin, and that article 10, § 6 likewise protects counties. The fact that municipal corporations are discussed in other constitutional provisions (see article 13, § l’s limitations on municipal debt) but not in article 11, § 12 or article 10, § 6 suggests. that the framers of the Indiana Constitution had no intention of applying those provisions to cities. This conclusion is reinforced by at least two Indiana Supreme Court cases which recognized that municipalities could take stock in railroad companies. See City of Aurora v. West, 22 Ind. 88 (1864); Evansville, I. & C. Straight Line R. Co. v. City of Evansville, 15 Ind. 395 (1860). These cases would be incomprehensible if the constitutional prohibitions on “loaning credit” applied to municipalities. This court concludes that neither of these provisions applies to the City in this case.

Even if those provisions were to apply, Lartnec’s claim would fail because the City is not loaning its credit to a private corporation. Here, the critical fact is conceded by Lartnec: the City’s guarantee is, by the very terms of the ordinance authorizing it, to be funded from the City’s Light and Power Utility Fund. That fund is generated by payments made to the City by a private business to use the City-owned utility company. The fund draws no money from the City’s budget or tax revenues. Under the article 13, § 1 provisions governing municipal debt, the Indiana courts have repeatedly held that bond issues which are to be paid from revenues of a municipal project and not from tax revenues are not an obligation or indebtedness of the city. See Letz. Mfg. Co. v. Public Service Commission of Indiana, 210 Ind. 467, 4 N.E.2d 194 (1936); Underwood v. Fairbanks, Morse & Co., 205 Ind. 316, 185 N.E. 118 (1933); Bollenbacher v. Harris, 196 Ind. 657, 148 N.E. 417 (1925); Fox v. Bicknell, 193 Ind. 537, 141 N.E. 222 (1923). Although not direct precedent here, these cases are indicative of a fundamental distinction between municipal undertakings financed by normal municipal revenues (i.e., taxes) and those financed by a proprietary function which puts no strain on the city’s budget. Here, the Light and Power Utility Fund is a result of the City’s ownership of the utility; funds generated from the lease of the utility to a private company are not funds which might be considered normal municipal revenues because usage of the monies in the Fund would not strain the City’s resources. This conclusion is reinforced by the fact that paragraph 8(c) of the standby financing agreement which effectuates the guarantee makes it clear that the money to back up the guarantee comes only from the Light and Power Utility Fund, so that the City’s financial and credit resources are neither extended to, nor threatened by, the City’s guarantee. The court therefore finds that the City’s guarantee is not a loaning or extending of the City’s credit, so that article 11, § 12 and article 10, § 6 could not be violated by the City’s guarantee.

2. Violation of I.C. 36-7-12-25(b)

Lartnec’s second count in No. F 84-163 alleges that the City’s guarantee violates I.C. 36-7-12-25(b), which was quoted in full earlier in this order. Lartnec argues that the guarantee is an obligation of the City in violation of the section.

The court finds Lartnec’s position legally incorrect for several reasons. First, as was discussed above, the guarantee is not an obligation on the City. Paragraph 8(c) of the standby financing agreement limits funding of the guarantee to the Light and Power Utility Fund, so that the City’s financial and credit resources are not endangered by the guarantee. Second, the premise behind Lartnec’s argument is that I.C. 36-7-12-25(b) prohibits municipal obligations. That premise is false. The language of I.C. 36-7-12-25(b) specifically states that the bonds used to finance an economic development project “are not in any respect a general obligation of the [governmental] unit.” That is not language of prohibition; rather, it is language which exempts municipal financing of economic development projects from being obligations of the City. Lartnec’s premise is also inconsistent with the implication of article 13, § 1 of the Indiana Constitution, which allows for municipal debt. The last phrase of I.C. 36-7-12-25(b), which states: “nor are they [the bonds, notes or warrants] payable in any manner from revenues raised in taxation,” may imply some sort of prohibition, but the language of II 8(c) limiting funds to the Light and Power Utility Fund prevents any violation of this prohibition. Thus, the City’s guarantee does not violate I.C. 36-7-12-25(b).

3. Authority’s Violation of I.C. 36-10-8-12

The first count of No. F 84-162 alleges that the Authority’s spending of the innkeeper tax revenues for subsidizing the principal and interest on Associates’ mortgage loan violates I.C. 36-10-8-12. Lartnec contends that this section requires a capital improvement board (like the Authority) to use capital development funds to pay for the costs of “capital improvements,” and that the Authority’s Resolution and subsidy violate this requirement because the hotel is not a “capital improvement.” A capital improvement is defined in I.C. 36-10-1-4 as

a building, facilities or improvements that the capital development board determines will be of general public benefit or welfare, and will promote the cultural, recreational, public or civic well being of the community, including a convention center. This includes the site, equipment, heating and air-conditioning facilities, sewage disposal facilities, landscaping, walks, drives, parking facilities, and other structures, facilities, appurtenances, materials and supplies that are necessary to make any building, facility or improvement suitable for the use for which it was constructed. (Emphasis added).

The Authority’s Resolution specifically stated that “the Authority believes that the construction of such a hotel will greatly improve the economic viability and increase the demand for the Civic Center’s facilities.” That finding is an adequate determination that the hotel is a capital improvement. The Grand Wayne Center is itself a capital improvement under I.C. 36-10-1-4, and the Authority’s finding that the hotel would improve the Grand Wayne Center indicates that the hotel will be of general public benefit by making a capital improvement better. Further, the Authority found that the hotel will increase demand for the Grand Wayne Center, which in. turn promotes the economic, cultural, recreational and public or civic well-being of the Fort Wayne community. Both of these findings also indicate that the hotel will make the Center “suitable for the use for which it was constructed.” Thus, the hotel is a capital improvement, so that the Authority’s subsidy to help finance its construction is not a violation of I.C. 36-10-8-12’s requirement that capital development funds be used for “capital improvements.”

4- Authority’s Violation of Article 11, § 12

Lartnec’s second count in No. F 84-162 alleges that the Authority’s subsidy violates article 11, § 12’s prohibition against the state loaning or extending its credit to a private corporation. Here, Lartnec has apparently chosen the wrong constitutional provision to sue under. Given the specific language of article 10, § 6’s limitations on counties, this court doubts that § 12's limitations apply to a county capital development board. The court therefore considers Lartnec’s claim under both provisions.

In prior cases, the Indiana Supreme Court has held that a state commission’s financing which was authorized by statute but not issued in the state’s name is not an obligation of the state. See Orbison v. Welsh, 242 Ind. 385, 179 N.E.2d 727 (1961); Book v. State Office Bldg. Commission, 238 Ind. 120, 149 N.E.2d 273 (1958); Ennis v. State Highway Commission, 231 Ind. 311, 108 N.E.2d 687 (1952). Here, the Authority was authorized by statute, but was created by the City and Allen County. As such, it is not a creature of the state, but a creature of the county and City. That fact places the Authority even more removed from the state than were the commissions in the cases cited above. This leads the court to conclude that any obligations assumed by the Authority are not obligations of the state, so that article 11, § 12 does not apply to the Authority.

Article 10, § 6 prevents a county from loaning its credit to any incorporated company. The question thus becomes whether the Authority’s use of hotel tax revenues to subsidize Associates’ mortgage is a “loaning of credit.” The court finds that it is not. What Lartnec challenges here is the Authority’s expenditure of revenues received from the innkeeper’s tax on a capital improvement. Lartnec does not dispute the Authority’s statutorily-created power under I.C. 36-10-8-12 to spend its revenues to pay for part of the cost of capital improvements. If an expenditure of revenues received is a “loaning of credit,” then any legislative action, at both the state and county level, should run afoul of the constitutional prohibitions against loaning credit. The more logical reading of the “loan of credit” prohibition is that it prevents a governmental entity from doing such things as pledging its assets as collateral for a loan to a private corporation. Here, the Authority has simply made a legislative decision as to how best its revenues can be spent. That does not involve a “loan of credit,” so that the Authority’s subsidy does not violate article 10, § 6 of the Indiana Constitution.

5. Taking of Private Property for Other than a Public Purpose

The. thi'rd count of No. F 84-162 alleges that the Authority’s collection of the innkeeper’s-tax revenues, and the subsequent use of those revenues on the hotel, constitutes a taking of private property (the money collected for the tax) for a non-public purpose (the privately-owned hotel) in violation of the United States and Indiana Constitutions. The crucial premise in Lartnec’s argument is that the tax revenues are being used for a “non-public” purpose; Lartnec does not deny that a governmental agency may be able to take private property (via taxation) for a public purpose. See Dortch v. Lugar, 255 Ind. 545, 266 N.E.2d 25, 47 (1971); State ex rel. Jackson v. Middleton, 215 Ind. 219, 19 N.E.2d 470, 475 (1939); Collier Shovel & Stamping Co. v. City of Washington, 38 Ind.App. 370, 76 N.E. 122, 123 (1905).

The Indiana State Legislature has made it clear that “[t]he financing of economic development facilities ... for use by others is a public purpose.” I.C. 36-7-12-3. The statutory authority under which the Authority operates requires that -the Authority determine that the project to be financed be “of general public benefit or welfare” which will “promote the cultural, recreational, public or civic well being of the community,” I.C. 36-10-1-4, a determination which this court has previously ruled was made in the Resolution approving the subsidy. It is therefore clear that the application of the innkeeper’s tax revenues in subsidizing the hotel project is use of those revenues for a public purpose, so that the premise behind Lartnec’s argument fails, and with it the argument as well.

6. Equal Protection

The final count of No. F 84-162 asserts a violation of the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution, as well as the equal protection provisions of article 1, § 23 of the Indiana Constitution. Lartnec argues that the Authority’s subsidy violates Lartnec’s rights by creating an arbitrary classification which selectively favors a competitor over Lartnec.

In examining legislatively-created classifications under federal equal protection principles, a court must first determine the appropriate level of review to be applied. Current constitutional law recognizes three distinct levels of review. The highest and strictest level is known as strict scrutiny. When a legislative classification works to the disadvantage of a constitutionally suspect class — such as race, nationality, alien-age or religious affiliation — or impinges on a fundamental personal right, then a court may only uphold the classification if it is “precisely tailored to serve a compelling governmental interest.” Plyler v. Doe, 457 U.S. 202, 216-17 and n. 14, 102 S.Ct. 2382, 2394-95 and n. 14, 72 L.Ed.2d 786 (1982); Sklar v. Byrne, 727 F.2d 633, 636 (7th Cir.1984). The second level of review is known as the “intermediate level,” and applies to classifications which are not facially invidious but give rise to “recurring constitutional difficulties,” Plyler, 457 U.S. at 217, 102 S.Ct. at 2395. The only kinds of classifications recognized as requiring this intermediate level are those which restrict access to education, Plyler, those based on gender, see Mississippi University for Women v. Hogan, 458 U.S. 718, 723-26, 102 S.Ct. 3331, 3336-37, 73 L.Ed.2d 1090 (1982), and those based on legitimacy, Pickett v. Brown, 462 U.S. 1, 8, 103 S.Ct. 2199, 2204, 76 L.Ed.2d 372 (1983). If a classification does not fall within the parameters of strict scrutiny or intermediate review, the courts will generally uphold the classification if it is rationally related to a legitimate state interest (or as the Plyler Court phrased it, if it “bears some fair relationship to a legitimate public purpose,” 457 U.S. at 216, 102 S.Ct. at 2394). Sklar, 727 F.2d at 636.

Lartnec argues for strict scrutiny review of the Authority’s subsidy, claiming that the “fundamental right” to have taxes used for public purposes is violated by financing a project which Lartnec believes is primarily a private business. However, Lartnec’s argument fails on three levels. First, the right to complain about the use of taxes inheres in the taxpayer; as was established earlier, Lartnec is not the taxpayer of the tax funds being used by the Authority, so that Lartnec would have no standing to complaint about this “fundamental right.” Second, the use of taxes (and the rights, if any, of taxpayers to complain of that use) has never been recognized as one of the fundamental personal rights mandating strict scrutiny. See e.g., Regan v. Taxation with Representation of Washington, 461 U.S. 540, 547-51, 103 S.Ct. 1997, 2002-03, 76 L.Ed.2d 129 (1983). Finally, even if there were some special right to have tax revenues used for public purposes, Lartnec could not complain of any violation of that particular right, for it is abundantly clear that the subsidy in question is use of tax revenues for a legislatively-determined public purpose. The fact that Lartnec is upset by a policy decision by the Authority to help finance the new hotel does not alter the public purpose behind the expenditure. Lartnec’s claim is, quite simply, a challenge to an economic policy decision of the Authority, and is therefore entitled only to the lowest level of equal protection scrutiny.

Under that standard, the Authority’s subsidy need only be rationally related to a legitimate state interest. Here, the state interest is the promotion of local economic development. The statutory machinery creating “capital improvement boards” (see I.C. 36-10-1-1, et seq.) such as the Authority makes this abundantly clear. The Authority’s Resolution approving the subsidy specifically found that the hotel would enhance the economic development of the downtown Fort Wayne area, and that the subsidy would assist in that enhancement. The court finds that the Authority’s subsidy is rationally related to Indiana’s legitimate interest in promoting local economic development. The subsidy therefore does not violate Lartnec’s federal equal protection rights.

Under Indiana court interpretations of article 1, § 23 of the Indiana Constitution, the result is the same. In Winney v. Board of Commissioners of the County of Vigo, 174 Ind.App. 624, 369 N.E.2d 661 (1977), the court stated: “Absent a showing by the plaintiff that a fundamental right is involved, a statute will be declared to violate the equal protection clause because it contains some type of classification only if it is shown that the classification is arbitrary or 'capricious or does not bear a reasonable relation to the legislative objective.” Id., 369 N.E.2d at 665. See Forks v. City of Warsaw, 257 Ind. 237, 273 N.E.2d 856, cert. denied, 409 U.S. 841, 93 S.Ct. 39, 34 L.Ed.2d 80 (1971). The analysis above establishes that there is a reasonable relation between the use of the subsidy and the legislative objective of encouraging economic development in downtown Fort Wayne. It is also clear that the alleged classification here is not arbitrary or capricious, as the Authority determined that a hotel adjacent to the Grand Wayne Center would be a good way to increase use of the Center itself. Thus, the subsidy does not violate Indiana equal protection law.

The court therefore concludes that Lartnec has no standing to assert any of its claims except its equal protection claim, and that all of its claims (including the equal protection count) fail on their merits. The complaints fail to allege a viable legal theory under which Lartnec could recover. Lartnec has attempted to translate its fears about a new competitor in the-downtown Fort Wayne market into a legal battle over the propriety of the actions of local governmental agencies committed to improving the economic development of Fort Wayne. That translation fails in all respects, and the motions to dismiss by all of the defendants will therefore be granted.

For the above stated reasons, the motions to dismiss of all defendants are hereby GRANTED.

      . Defendants Bank of America National Trust and Savings Association and Atlantic Financial have moved to dismiss under Rule 12(b)(2), claiming a lack of personal jurisdiction over them. Because the court decides the motions to dismiss in favor of the defendants, the court does not analyze or rule on the merits of the personal jurisdiction arguments of these defendants.

      . The court notes that this distinction is necessarily critical to Lartnec’s position, for Lartnec is itself a beneficiary of the City’s largesse. According to documents submitted by the City for purposes of its estoppel argument, Lartnec was awarded 1.7 million dollars in economic development bonds when the Holiday Inn Downtown was built. Although the court concludes that a guarantee is not part of the bond process, so that estoppel does not apply, it pauses to point out that Lartnec's analogous financing might be subject to at least some of the same attacks leveled against the current hotel project.

      . The court notes that Lartnec’s allegation that taking of private property for a non-public purpose cannot be the basis for a cause of action under the fifth amendment to the United States Constitution. The fifth amendment is, by its language, concerned with governmental taking of property for public purposes. Thus, concerns about taking for non-public purposes do not implicate the fifth amendment. Taxation does not generally implicate the fifth amendment, except perhaps in the case of a tax so burdensome as to ruin a business. See Bayside Enterprises, Inc. v. Carson, 450 F.Supp. 696, 704 (M.D.Fla.1978). Even then, "ihe taxing authority may exercise a broad range of powers consistent with that constitutional provision.” Id. The court therefore centers its attention on the Indiana constitutional violation.

      . Although a legislative classification is an essential element of an equal protection claim, Lartnec has never made clear what the classification here really is. The court can detect only one real possibility. Because the act complained of is the subsidy, Lartnec must be complaining that the classification here is in terms of who received the subsidy money, and the complaint here boils down to the fact that Associates gets subsidy money while Lartnec does not. This, of course, bears little logical relevance to Lartnec’s complaints about the “fundamental right” to have public funds used for public purposes, which sounds more like a substantive due process claim than an equal protection claim. Lartnec’s arguments fail to make this legal distinction. The court here continues to speak in equal protection terms because the legal analysis of a substantive due process claim would involve the same strict scrutiny/rational relationship tests.


source: Caselaw Access Project

author: BRIEANT, District Judge.

license: Public Domain

text:
    Terence P. NEILAN, on behalf of himself and all others similarly situated, Plaintiffs, v. VALUE VACATIONS, INC., David Kols d/b/a Value Vacations, Northwestern National Insurance Company, Connecticut National Bank, Arrow Airways and Southeast Bank, N.A. d/b/a Southeast National Bank, Defendants.
    No. 84 Civ. 6672-CLB.
    United States District Court, S.D. New York.
    March 8, 1985.

      Thomas A. Dickerson, New York City, for plaintiffs.
    Robert Keilson and Clayton P. Knowles, Jr., New York City, for defendants Northwestern National Ins. Co., David Kols and Value Vacations, Inc.
    Erskine D. Henderson, Skadden, Arps, Slate, Meagher & Flom, New York City, for Connecticut National Bank.
    George Berkowitz, P.C., New York City, for defendant Arrow Airways.
    Darrell Fennell, Owen & Fennell, New York City and Alvin B. Davis, Miami, Fla., for defendant Southeast Bank, N.A.
   MEMORANDUM AND ORDER

BRIEANT, District Judge.

Plaintiff commenced this class action originally in New York State Supreme Court in August, 1984. On September 17, 1984, defendant Connecticut National Bank (“CNB”) removed the action to this Court pursuant to 28 U.S.C. § 1441(a) based on a federal question and diversity. All of the defendants except David Kols have filed cross-claims against one another.

By motion dated January 9, 1985, which was argued and fully submitted as of January 28, 1985, defendants Southeast Bank (“SEB”) and Arrow Airways (“Arrow”) move this Court to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted or, in the alternative, to remand the action to the state court.

Plaintiff’s claims arise out of the alleged default by Value Vacations Inc. (“Value”) which “stranded” Mr. Neilan and other passengers who had contracted with Value for charter travel services. According to the complaint and as represented to the Court by counsel at oral argument, Value was in the business of selling travel services as a Public Charter Tour Operator. These services included primarily air transportation for which Value would enter into bulk purchase contracts with air carriers for flights to- be performed on certain dates. In this case, Value contracted with Arrow for such flights and then marketed them, directly and through travel agents, to consumers. Mr. Neilan and the customers of Value he seeks to represent as a class allegedly lost their prepayments for charter flights which were never delivered. The complaint alleges that the actions of all of the defendants violated federal regulations governing public charter operations. In addition there are pendent state law claims pleaded, sounding in breach of contract, breach of fiduciary duties, conversion, and violation of New York General Business Law §§ 349, 350, et seq.

In order to understand the interrelationship of the named defendants, it is necessary to consider pertinent federal regulations promulgated under the Federal Aviation Act (“FAA”), 49 U.S.C. § 1301 et seq. These regulations in substance require a "tour operator” such as Value to file with the Civil Aeronautics Board (“CAB”) a prospectus, a surety bond, and a depository agreement executed by a federally insured bank. 14 C.F.R. §§ 380.25, 380.34 (1984). The regulations also govern the terms of the contract between the tour operator and passengers, and require that the consumer payments be deposited into escrow accounts from which the bank may pay the air carrier only fixed amounts at fixed dates referent to the date of the flight(s). 14 C.F.R. §§ 380.32, 380.34(b)(2), 380.35 (1984). Thus the depository bank or banks assume the duties of escrowee pursuant to complex CAB regulations, our description of which has been greatly abbreviated. According to the FAA, this regulatory scheme was established “in order to protect travelers and shippers by aircraft operated by (charter operators).” 49 U.S.C. § 1371(n)(2).

Against this background, it appears that CNB and SEB both acted as depository banks pursuant to federal law. Arrow contracted with SEB in order to comply with CAB rules concerning the deposit of customer prepayments to Arrow for air transportation. Value contracted with CNB for the same purpose of compliance. In the Value-CNB agreement (Public Charter Depository Agreement dated February 28, 1983), CNB agreed to disburse funds from its escrow account to Arrow’s depository bank, SEB. It is alleged that CNB disbursed funds to SEB for scheduled charter flights that were subsequently cancelled, but that neither SEB nor Arrow has refunded these funds to CNB. CNB currently holds a stake of approximately $600,-000.00 which it is willing to refund to the proper plaintiffs. (Hearing Transcript, January 23, 1985, p. 17). Value appears to be insolvent.

Defendant Northwestern National Insurance Company (“Northwestern”) acted as a guarantor or surety of Value’s contracts with its customers, issuing a bond in the amount of $200,000.00 as required by the FAA, 49 U.S.C. § 1371(n)(2) and by CAB regulation, 14 C.F.R. § 380.34(b)(1). The importance of the claims against the several defendants becomes clear when the amount of the bond is compared to claimed damages which are in excess of two million dollars.

Although the disputed liabilities of the defendants other than Northwestern constitute the real grievances pleaded by Neil-an for himself and the proposed consumer class, the instant motion to dismiss or remand requires resolution first of jurisdictional issues as to which the claim against Northwestern possesses great significance. The Court must determine whether it has federal subject matter jurisdiction before it entertains a motion to dismiss based upon Rule 12(b)(6), F.R.Civ.P. for failure to state a claim. If there is no jurisdictional power to hear the case, it would be improvident for the district court to enter final judgment for the defendant on the ground that plaintiff has failed to state a claim only to have it determined upon appeal that plaintiff has stated, a claim but that it is a nonfederal cause of action which belongs in state court. See generally, 14 C. Wright & A. Miller, Fed.Prac. & Procedure § 3739 at 757-63 (1976). Furthermore, the removal statute dictates remand rather than dismissal in such a case: “If at any time before final judgment it appears that the case was removed improvidently and without jurisdiction, the district court shall remand the case....” 28 U.S.C. § 1447(c). Thus the issue before the Court is whether there is federal subject matter jurisdiction over any of plaintiff’s claims, and more specifically, whether there is pendent or ancillary jurisdiction over nonfederal claims or nonfederal defendants.

The removal petition asserts that this Court has original jurisdiction under 28 U.S.C. §§ 1331 and 1332. Reliance upon § 1331 raises the problem, discussed below, of whether the FAA confers a private right of action for plaintiff on the facts pleaded. Section 1332 might have supported removal since the plaintiff and all of the defendants appear to be diverse, but the ten thousand dollar requirement is absent. Although the complaint seeks over ten thousand dollars in damages, these damages represent an aggregate of the proposed class injuries; Mr. Neilan’s damages amount to only a few hundred dollars. Under the rule of Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973), this does not satisfy the jurisdictional amount for diversity suits.

There does exist one clear jurisdictional grant applicable to this case. Section 1352 of Title 28 provides that “[t]he district courts shall have original jurisdiction, concurrent with State courts, of any action on a bond executed under any law of the United States, except matters within the jurisdiction of the Court of International Trade under section 1582 of this title.” As plaintiff is suing on the required statutory bond issued by Northwestern to Value, a bond which states that it “shall inure to the benefit of any and all charter participants to whom [Value] may be held legally liable,” plaintiff’s “Third Cause of Action” could have been filed originally in federal court. Since 28 U.S.C. § 1352 would have provided original federal subject matter jurisdiction, removal would be proper under 28 U.S.C. § 1441(a). The problem with relying on § 1352 is that it embraces one federal claim against only three of the named defendants, Value, Northwestern, and Kols d/b/a Value. A suit on the bond does not relate automatically to defendants SEB, CNB and Arrow. Therefore we face the issue of whether plaintiff, having federal subject matter jurisdiction over Northwestern, Value and Kols pursuant to § 1352, can also assert nonfederal claims arising out of related events against non-federal parties in one federal court action by means of ancillary or pendent party jurisdiction.

When and how a federal judicial forum can entertain state law claims which are pendent or ancillary to a federal claim presents an intricate query. Add to this the question of whether the principles governing pendent jurisdiction extend to “confer jurisdiction over a party as to whom no independent basis of federal jurisdiction exists” and you have a “subtle and complex question with far-reaching implications.” Aldinger v. Howard, 427 U.S. 1, 2-3, 96 S.Ct. 2413, 2415, 49 L.Ed.2d 276 (1976).

Before the Supreme Court’s decision in Aldinger, the law in this Circuit held clearly that a district court had the power to hear a state claim against a party not liable on the federal claim, provided that the “common nucleus” test of United Mineworkers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966) was satisfied. See generally Leather’s Best v. S.S. Mormaclynx, 451 F.2d 800 (2d Cir.1971); Astor-Honor, Inc. v. Grosset & Dunlap, Inc., 441 F.2d 627 (1971); and Uniroyal, Inc. v. Heller, 65 F.R.D. 83 (S.D.N.Y.1974). In Leather’s Best the Court of Appeals held that a plaintiff properly in federal court by virtue of admiralty jurisdiction could litigate a factually related state tort claim against an additional defendant pier operator or warehouseman who was named only with respect to the state claim. This conclusion rested on the identical nature of the facts underlying the state and federal claims, what the Gibbs Court had referred to in a now familiar phrase, “common nucleus of operative fact.” 451 F.2d at 809-811. The Leather’s Best opinion also reasoned by analogy from the federal court’s ancillary jurisdiction to hear compulsory counterclaims and third-party claims pursuant to Rules 13(a) and 14(a), F.R.Civ.P., id. at 809-11, because no purpose would be served for a district court to dismiss a nonfederal defendant if that same party thereafter could be impleaded properly under Rule 14.

However, in Aldinger v. Howard, supra, the Supreme Court cast considerable doubt on the rule of the Second Circuit. Aldinger held that in the context of a Title 42 § 1983 civil rights action, no pendent or ancillary jurisdiction exists as to a defendant who would not otherwise be a party in federal court to the federal question claim. Conceding that the principles governing pendent jurisdiction and ancillary jurisdiction had been, in effect, bridged by the Court’s decision in Moore v. N.Y. Cotton Exchange, 270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926), together with adoption of the kind of “transactional” test enunciated in Gibbs, the Aldinger Court nevertheless declined to exercise the kind of pendent or ancillary party jurisdiction that previously had developed in the lower courts.

The opinion in Aldinger asserts two separate reasons for refusing to permit pendent party jurisdiction in the case before it. First, the court stated that the addition of a nonfederal party against whom plaintiff can assert only a nonfederal claim “would run counter to the well established principle that federal courts, as opposed to state trial courts of general jurisdiction, are courts of limited jurisdiction marked out by Congress.” 427 U.S. at 15, 96 S.Ct. at 2420. Distinguishing the approved jurisdiction over pendent claims, from jurisdiction over pendent or ancillary parties, the Court stated:

“The situation with respect to the joining of a new party, however, strikes us as being both factually and legally different from the situation facing the Court in Gibbs and its predecessors. From a purely factual point of view, it is one thing to authorize two parties, already present in federal court by virtue of a case over which the court has jurisdiction, to litigate in addition to their federal claim a state-law claim over which there is no independent basis of federal jurisdiction. But is is quite another thing to permit a plaintiff, who has asserted a claim against one defendant with respect to which there is federal jurisdiction, to join an entirely different defendant on the basis of a state-law claim over which there is no independent basis of federal jurisdiction, simply because his claim against the first defendant and his claim against the second defendant ‘derive from a common nucleus of operative fact.’ ” Id. at 14, 96 S.Ct. at 2420.

Thus while Gibbs and its predecessor cases were consistent with the Constitution’s Article III grant of judicial power, those cases did not involve the additional question presented in Aldinger — “whether a nonfederal claim could in turn be the basis for joining a party over whom no independent federal jurisdiction exists, simply because that claim could be derived from the ‘common nucleus of operative fact’ giving rise to the dispute between the parties to the federal claim.” Id. at 9, 96 S.Ct. at 2418.

Accordingly, the Aldinger standard now requires this Court to evaluate whether it has the constitutional power to exercise pendent party jurisdiction. In Gibbs, where a nonfederal claim was at issue, one constitutional “case” existed; in Aldinger, where the addition of a nonfederal party complicated the issue, the Supreme Court considered the situation “both factually and legally different.”

For its second reason, the Supreme Court in Aldinger stated that the exercise of pendent party jurisdiction must also be judged by “whether by virtue of the statutory grant of subject matter jurisdiction, upon which [plaintiffs] principal claim against the [federal defendant] rests, Congress had addressed itself to the party as to whom jurisdiction pendent to the principal claim is sought.” Id. at 16, 96 S.Ct. at 2421. In Aldinger, Congress had addressed itself to this subject and had excluded the defendant, Spokane County, as a municipality, from the “persons” answerable in a § 1983 suit such as the one filed by Aldinger. In the face of this kind of negative Congressional intent, pendent party jurisdiction could not be asserted. The Court’s second reason in Aldinger for refusing pendent party jurisdiction, applicable where there is a discernible statutory direction that requires a court to refrain from using its constitutional power even where it would seem available under the Gibbs test, was amplified further in Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978). There the Court again emphasized the statutory limits on federal court jurisdiction, stating that “[constitutional power is merely the first hurdle that must be overcome in determining that a federal court has jurisdiction over a particular controversy.” Id. at 372, 98 S.Ct. at 2401. The limiting statute in Owen Equipment was a jurisdictional statute, 28 U.S.C. § 1332. The court held that the district court had no jurisdiction over a plaintiff’s independent state law claim against a non-diverse third party defendant. To permit plaintiff to circumvent the requirement of complete diversity “would simply flout the congressional command.” Id. at 377, 98 S.Ct. at 2404.

Since the decisions in Aldinger and Owen Equipment, some district courts of this Circuit have continued to find that pendent party jurisdiction is proper in a variety of cases. In Independent Bankers Association of New York State Inc. v. Marine Midland Bank, N.A., 575 F.Supp. 1425 (W.D.N.Y.1983) Judge Telesca considered both reasons asserted in Aldinger inapplicable to his case, and found that “under the right circumstances, a federal court does indeed have the power under Article III to exercise pendent party jurisdiction.” Id. at 1429 (citations omitted). Concluding that the statute which created the federal banking law claim involved in the Independent Bankers case, 12 U.S.C. § 36, did not evidence Congressional intent to negate jurisdiction over the nonfederal defendant against whom a state banking law claim had been asserted out of the same nucleus of fact, Judge Telesca concluded that exercise of pendent party jurisdiction was proper. Thus the Court obtained subject matter jurisdiction over plaintiff's federal allegations under the National Bank Act against the federally chartered Marine Midland Bank, as well as plaintiff’s state law claim against the owner of a chain of supermarkets which had acted in concert with the national bank and in violation of paralled state regulations, but was a party not otherwise subject to federal jurisdiction.

Similarly in DeBellas v. United States, 542 F.Supp. 999 (S.D.N.Y.1982), and in Maltais v. United States, 439 F.Supp. 540 (N.D.N.Y.1977), the courts assumed pendent party jurisdiction on the theory of a common nucleus over nonfederal claims and nonfederal parties in suits to recover for personal injuries brought under the Federal Tort Claims Act, 28 U.S.C. § 2671, et seq. and 28 U.S.C. § 1346(b). In DeBellas, the court relied largely on the fact that the federal forum is exclusive as to tort claims against the United States, and that the defendant United States Government had filed cross claims against the building contractors, nonfederal defendants, charged with negligence arising out of a common nucleus. Aldinger was distinguished at least in part in that Congress was said to have authorized impleader by the Government of such nonfederal parties. Id. 542 F.Supp. at 1006. See Sorrentino v. United States, 344 F.Supp. 1308, 1309 (E.D.N.Y.1972). The rationale of Maltais and Sorrentino is essentially to the same effect.

In DeMaio v. Consolidated Rail Corp., 489 F.Supp. 315 (S.D.N.Y.1980), another personal injury action, this one instituted in federal court by a railroad employee suing his employer under the Federal Employers’ Liability Act (“FELA”), 45 U.S.C. § 51, et seq., Judge Knapp of this Court held that pendent party jurisdiction could be asserted over the operator of a taxi hired by the railroad, a non-diverse defendant against whom the plaintiff had brought state law claims for negligence. Aldinger was distinguished solely on the second ground, the Court finding no congressional intent to preclude trying the entire controversy in a federal forum. But see Shields v. Consolidated Rail Corp., 530 F.Supp. 400 (S.D.N.Y.1981) (Motley, J.) (FELA action, no pendent party jurisdiction exists as to non-diverse party on a purely state law claim, where railroad’s motor truck collided with another vehicle injuring railroad employee).

As a final example of district court decisions, in United States v. Bedford Associates, 491 F.Supp. 848 (S.D.N.Y.1980), aff’d in part, rev’d in part on other grounds, 657 F.2d 1300 (2d Cir.1981), cert. denied 456 U.S. 914, 102 S.Ct. 1767, 72 L.Ed.2d 173 (1982), a real property dispute between the Government and its lessor of office space, presented circumstances warranting pendent party jurisdiction. There the Bowery Savings Bank, an intervening plaintiff mortgagee, was permitted to assert subject matter jurisdiction over the United States pursuant to 28 U.S.C. §§ 2409a and 1346(f) pleading a claim to quiet title. In addition the Bank was permitted in the same suit to foreclose against the owners of the property, although no independent basis for federal jurisdiction existed as to the property-owner defendants.

The Court of Appeals for the Second Circuit has not had occasion to rule directly on the post-Aldinger status of pendent party jurisdictional principles, except under a limited set of circumstances involving pendent plaintiffs. In Weinberger v. Kendrick, 698 F.2d 61 (2d Cir.1982), cert. denied — U.S. —, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983), the court noted in dictum that Aldinger’s holding was limited to cases brought under 42 U.S.C. § 1983 and 28 U.S.C. § 1343(3). In Weinberger the pendent party issue was not only outside the context of a § 1983 case, but it also involved a principal claim under the Securities Exchange Act of 1934, of which the federal courts have exclusive jurisdiction. 698 F.2d at 76. Clearly this is the strongest case for retaining ancillary jurisdiction over a nonfederal party since the exclusivity prohibits a plaintiff from suing all the defendants in state court, and as a consequence presents risks of duplication, issue preclusion, or inconsistent results. See 15 U.S.C. § 78aa. Plaintiffs in Weinberger also alleged state common law violations arising out of the common nucleus, but some plaintiff class members had purchased the securities prior to the class period, and therefore lacked a federal claim necessary for pendent claim jurisdiction. Since the same state law claims were already before the federal court as pendent claims of other class member plaintiffs who did purchase during the class period, and because the federal claims could be resolved only in the federal court, the court stated that “the circumstances here are about as powerful for the exercise of pendent party jurisdiction as can be imagined. The exclusivity of federal jurisdiction ... makes a federal court the only one where a complete disposition of federal and related state claims can be rendered.” 698 F.2d at 76. To make the case even stronger for the assertion of pendent party jurisdiction, the facts in Weinberger involved the addition of a new group of pendent plaintiffs, not defendants. Thus, there was no concern that a party not otherwise amenable to suit in federal court would be forced unwillingly to defend in that forum. Id. at 77.

In addition to Weinberger, one other appellate decision has mentioned the impact of the Aldinger rule upon the former rule of Leather’s Best, supra. In Grimes v. Chrysler Motors Corp., 565 F.2d 841 (2d Cir.1977), the court found that jurisdiction over a dispute about the distribution of settlement funds could be sustained under traditional principles of ancillary jurisdiction, but that Aldinger had cast doubt on the limits of pendent jurisdiction. “While the Court’s negative answer in Aldinger was specifically limited to cases in which federal jurisdiction was based solely on a civil rights claim brought under 42 U.S.C. § 1983, the decision makes it difficult to determine in which situations joinder of pendent parties should be permitted.” Id. at 844 (footnote omitted).

This Court’s analysis of the current state of the law in this Circuit does not persuade it that Leather’s Best has in fact survived Aldinger and Owen Equipment. However, we need not resolve this difficult question, because here it appears that plaintiff cannot even satisfy the initial threshold of Leather’s Best by defining a common nucleus of operative fact under the Gibbs test.

If plaintiff were to use § 1352 as his principal basis for federal subject matter jurisdiction, that statute would permit litigation of the travel customers’ claims (the “nucleus”) against the surety, Northwestern, and its principal, Value. See Irving Trust Co. v. Nationwide Leisure Corp., 95 F.R.D. 51, 60 (S.D.N.Y.1982). However, the pendent state law claims pleaded are based upon a theory that the defendant banks, SEB and CNB, owed some duty to the travel customers. This is quite remote from the nucleus.

In the case of SEB, the Court cannot understand how the customer-plaintiffs have any state law claim for relief against a depository bank which contracted only with the air carrier, Arrow. The SEB-Arrow contract, filed with the CAB, expressly rules out the creation of any third-party beneficiary rights. Although plaintiff contends that the banks were fiduciaries who mishandled the escrow accounts, unsupported allegations of fiduciary relationship, without more, will not state a claim for relief against SEB by customers who were not in privity with either the bank or Arrow. If there is no duty running from the banks to the plaintiffs, then, a fortiori, there can be no breach. And if the duty arises only from the escrow, not from the surety bond, then where is the commonality of nucleus?

Neither do the third-party practice rules provide any easy answer to this dilemma. SEB insists that it owes no duty to indemnify Northwestern and that SEB could not be impleaded by Value or Northwestern on a tort theory of contribution. Even assuming that the travel customers could frame a state law claim against the banks and Arrow, clearly it would not derive from the same nucleus of operative facts needed to prove the suit on the bond.

In the federal suit plaintiffs would seek to prove that Value breached its duties to its customers, converting their money and/or failing to deliver the agreed upon flights or other travel services. In the allegedly pendent state claims for relief, plaintiffs would seek to prove that the depository banks somehow breached a contract term or a federal regulation governing the transfer of funds among the escrow accounts and to the airline. These two suits do not depend upon an identity of underlying facts; nor do they together constitute “one constitutional case” within the meaning of Gibbs.

Having concluded that 28 U.S.C. § 1352 would not authorize federal subject matter jurisdiction over all of the defendants named in the complaint, we turn to plaintiff’s next argument in opposition to remand. Plaintiff contends that he is properly in federal court due to “arising under” jurisdiction, 28 U.S.C. § 1337 in conjunction with 49 U.S.C. § 1371(n)(2). This Court agrees.

The precise question of whether there is a private right of action under this section of the FAA was addressed in Bratton v. Shiffrin, 585 F.2d 223 (7th Cir.1978), vacated and remanded 443 U.S. 903, 99 S.Ct. 3094, 61 L.Ed.2d 871 (1979), reaffirmed on remand 635 F.2d 1228 (7th Cir.1980), cert. denied 449 U.S. 1123, 101 S.Ct. 939, 67 L.Ed.2d 109 (1981). In the Seventh Circuit’s initial opinion in Bratton, written for the court by Judge Leonard P. Moore of the Second Circuit who was sitting by designation, it was held that plaintiff travelers do have an implied remedy for damages under § 1371(n)(2) of the FAA. Like the present case, Bratton v. Shiffrin was brought by a group of individual travelers against the charter tour operator, the depository bank, and the surety. As here, plaintiffs alleged that the depository bank violated the FAA and the CAB regulations by mismanaging funds collected from travel customers. And as here, the bank had insufficient funds in its accounts to refund monies to the many travelers who claimed to have prepaid for cancelled charter tours. Judge Moore found that Congress had not provided an explicit cause of action to remedy violations of the nature alleged, but that plaintiffs could enforce compliance with the CAB regulations by implication. 585 F.2d at 228. In reaching this conclusion, the court considered the four factors of Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). Applying these factors to the FAA suit, the court found that (1) the statute was enacted to provide adequate security arrangements for the “especial benefit” of travelers such as the plaintiffs; (2) although silent on the question, Congress did not intend to deny private enforcement of the charter regulations; (3) implication of a private remedy in this one small part of the FAA (“the single goal of which is to assure relief to a traveler whose travel plans are thwarted”) would be consistent with the underlying purposes of the statute; and (4) the matter of adherence of federal CAB regulations was not one traditionally relegated to state law. This Court cannot improve on Judge Moore’s analysis.

Upon review in the United States Supreme Court, the Bratton ease was remanded with directions to consider the decision further in light of Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979), which had refused to imply a private remedy from § 17(a) of the Securities Exchange Act of 1934. The Seventh Circuit thereafter reconsidered its decision and adhered to its prior opinion per Judge Moore, that Congress had intended “to provide an enforceable remedy to individual air charter travelers against insolvent tour operators by providing compensation for their loss from a financially responsible third party.” 635 F.2d at 1230 (Swygert, J.). In this second opinion, the court focused specifically on the issue of Congressional intent, the touchstone of both Touche Ross, supra, and Cannon v. University of Chicago, 441 U.S. 677, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979), and explained why it had found a positive implication in favor of a private cause of action. Following the second opinion in Bratton, the Supreme Court declined to grant certiorari. 449 U.S. 1123, 101 S.Ct. 939, 67 L.Ed.2d 109 (1981).

SEB argues that in the Second Circuit no private right of action can be implied because of the Court of Appeals decision in Caceres Agency, Inc. v. Trans World Airways, 594 F.2d 932 (2d Cir.1979). Caceres declined to find an implied private right of action in favor of travel agents, not travelers like Bratton, who sought damages under § 1374(b) of the FAA because of alleged preferential commissions paid by defendant airlines to other travel agents. That provision of the FAA has the purpose of preventing discrimination against the traveling public, and passengers have been permitted to sue air carriers thereunder. See, e.g., Fitzgerald v. Pan American World Airways, Inc., 229 F.2d 499 (2d Cir. 1956); Karp v. North Central Air Lines, Inc., 583 F.2d 364 (7th Cir.1978); Archibald v. Pan American World Airways, Inc., 460 F.2d 14 (9th Cir.1972); Mahaney v. Air France, 474 F.Supp. 532 (S.D.N.Y. 1979). However, that section was not enacted for the benefit of travel agents such as the plaintiffs in Caceres and, accordingly, their complaints were dismissed.

Although Caceres concerned itself only with § 1374(b) of the FAA, SEB relies upon the following portion of the Caceres opinion to support its position that no private right of action may be implied under FAA § 1371(n)(2):

“Even if section [1374(b)] could be so construed as to include travel agents among its beneficiaries, there is no indication of a congressional intent to give them a private right to recover damages for violations of the section. The only provision in the Act authorizing a private action is in section 1007(a), 49 U.S.C. § 1487(a). That section authorizes any party in interest to apply to a district court for the enforcement of section 401(a), 49 U:S.C. § 1371(a), which prohibits persons from engaging in air transportation without a C.A.B. certificate. The C.A.B. or the Federal Aviation Administration initiates, pursuant to section 1007(a), all enforcement proceedings for other violations of the Act. Congress having thus specifically prescribed the remedies it deems appropriate, courts should not alter the congressional design with remedies of their own choosing.” 594 F.2d at 933 (citations omitted).

Under SEB’s interpretation, literally “all enforcement proceedings” other than applications under § 1487(a) must be initiated by the administrative agency. This Court believes that the far reaching dictum in Caceres cannot be taken literally as a definitive ruling that travelers may not sue in federal court under § 1371(n), this especially in light of the citation of Fitzgerald, supra with approval in Caceres at p. 933.

Since the Supreme Court’s, decision in Touche Ross, and more recently in Middlesex County Sewerage Authority v. National Sea Clammers Association, 453 U.S. 1, 101 S.Ct. 2615, 69 L.Ed.2d 435 (1981), the pivotal issue in implying a private right of action is whether Congress so intended. As is fully explained in the successive opinions of Judge Moore and Judge Swygert in Bratton v. Shiffrin, this particular subchapter of the FAA has as its foundation a consumer protection policy, and Congress intended to give rights to consumers who had suffered from tour operator defaults. 635 F.2d at 1232. It appears clear to this Court that the purpose of the statute’s required depository bank system is to provide for independent banking institutions to account for consumer deposits and keep them segregated as to flight and destination, thereby removing the risk of defaulting tour operators or airlines. The role of the banks is to give the public assurance that the tour operator and the air carrier, or their creditors attaching general assets, will not misappropriate or divert consumer advance payments for services to be rendered in the future.

If the federal regulations had been adhered to, it would logically follow that a total escrow deposit would exist which, together with the surety bond, would equal amounts prepaid by consumers who never received flights, and who have not received a refund from a travel agency. Taking plaintiff’s allegations as true, there is no such financial support available, and the plaintiff class members were injured as a direct result of the defendants’ failure to comply with the closely regulated system of fund transfers prescribed by the FAA and the CAB. This states a claim for relief under a central theory of nonadherence to the federal regulatory scheme, a scheme promulgated under an Act of Congress which requires supplemental air carriers to post a performance bond or equivalent security arrangement “in order to protect travelers ... to be conditioned upon' such supplemental air carrier’s making appropriate compensation to such travelers....” Plaintiff class of travelers clearly belong to the class for whose benefit Congress enacted this portion of the FAA and to whose benefit inure the related CAB regulations. Under the reasoning and authority of Bratton v. Shiffrin, supra, plaintiffs here have an implied federal right of action against Value, Kols, SEB, CNB and Arrow, as well as the statutory surety, Northwestern.

Accordingly, defendants’ motion to dismiss the complaint, or in the alternative to remand the action to the state court, is denied. All of the pending motions to dismiss cross-claims by any defendant are denied. Having assumed federal question jurisdiction under 49 U.S.C. § 1371(n)(2) and 28 U.S.C. § 1337, this Court has subject matter jurisdiction over all of the defendants and over any pendent state law claims arising out of the conduct alleged to have violated federal law. As a final matter of judicial discretion, the Court finds that it would be more efficient for one court to resolve issues as to the respective rights and liabilities of the six defendants, all of whom are answerable in the action for damages implied under the FAA.

The only other outstanding motion is plaintiff’s motion for class certification which is granted for the following reasons: The requirement of numerosity is satisfied because CNB has stated to the Court that it already has received over eight thousand individual claims. The named plaintiff’s claims are typical of the class in that he paid for travel services and did not receive them. We agree with defendants that the class definition must be narrowly drawn in order to limit recovery to travelers who received neither a refund nor adequate substitute travel services. However, this foreseeable variation in the facts surrounding some of the individual claims does not defeat the commonality of legal and factual questions concerning the applicable CAB regulations and whether their alleged violation injured the plaintiff class, which latter issues predominate. Although individual damages may differ, the issues concerning the duties and obligations owed by the defendants are common to the class. The Court finds that these common questions unite the class and that, furthermore, the relatively small size of the individual claims also makes the class action device superior to other methods for litigating the aggregate amount of damages sustained by the class members and owed by one or more of the defendants.

The class shall consist of all persons who contracted with Value Vacations, Inc. and/or its agents for the delivery of charter air transportation and other travel services which were to have been delivered on or about August 10, 1984 and on various subsequent dates up to and including January 1, 1985, and which were not delivered, in whole or in part by any airline, and for which no full refunds have been paid.

A formal order defining the class consistently with the foregoing, providing for notice and an opportunity to opt out, and containing such other provisions which may be deemed appropriate, shall be settled on five (5) days notice.

Counsel shall appear for a status and scheduling conference on April 18, 1985 at 9:30 A.M. in Courtroom 705.

So Ordered.

      . In Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976), plaintiff had been discharged from her job in the Spokane County treasurer’s office. She filed suit in federal district court against the County treasurer, Howard, his wife, other county commissioners, and the county itself. At the time of the Supreme Court’s decision, existing law held that local governments were not amenable to suit under 42 U.S.C. § 1983. Monroe v. Pape, 365 U.S. 167, 187-91, 81 S.Ct. 473, 484-86, 5 L.Ed.2d 492 (1961). Since that time, Monroe v. Pape has been overruled by Monell v. New York City Dept. of Social Services, 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978). However, Monell in no way qualified Aldinger's holding that the within jurisdictional questions are “statutory as well as constitutional.” Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 372-73, n. 12, 98 S.Ct. 2396, 2401-02 n. 12, 57 L.Ed.2d 274 (1978).

      . So many cases have involved litigation of the private right of action issue under discrete portions of the Federal Aviation Act that we cannot perceive the existence of such a blanket prohibition as that suggested by defendant here. See, e.g., In re Mexico City Aircrash of October 31, 1979, 708 F.2d 400 (9th Cir.1983) (no private remedy under the FAA for wrongful death); Chumney v. Nixon, 615 F.2d 389 (6th Cir.1980) (FAA creates private right of action against airline for failing to prevent assault by passenger); Diefenthal v. CAB, 681 F.2d 1039 (5th Cir.1982), cert, denied, 459 U.S. 1107, 103 S.Ct. 732, 74 L.Ed.2d 956 (1983) (no private remedy under FAA for challenge to airline's smoking regulation); Danna v. Air France, 463 F.2d 407 (2d Cir.1972) (FAA creates no private right to challenge fare discrimination absent prior CAB ruling on the fare practice).