author: LOUIS H. POLLAK, District Judge.

text:
    Stanley S. SMITH and Mary E. Smith, et al. v. CAREY CANADIAN MINES, LTD., et al.
    Civ. A. No. 80-447.
    United States District Court, E.D. Pennsylvania.
    May 2, 1985.

      Lawrence D. Levin, Shor, Levin & Weiss, Philadelphia, Pa., for plaintiffs.
    Fredric L. Goldfein, Ominsky, Joseph & Welsh, P.C., Philadelphia, Pa., for defendants.
   MEMORANDUM

LOUIS H. POLLAK, District Judge.

Defendants in this asbestos case have moved for summary judgment as to fourteen of the plaintiffs, on the ground that those plaintiffs’ claims are barred by the statute of limitations. Each of the relevant plaintiffs is suing as the administrator or administratrix of the estate of a spouse or parent who allegedly died from asbestos-related disease. All fourteen have brought both wrongful death and survival claims. The fourteen decedents, and the dates on which they died, are as follows:

William Henry Butts November 4,1976

Muriel Schantz July 3,1964

William P. Johnson August 20, 1965

Max Bolton February 6,1970

John Bowmon September 10,1970

Harry Brower December 5, 1973

Matthew Alfred Carrithers October 25,1962

Brunson D. Clary October 26,1973

Roger J. MeFadden September 12, 1974

Onofrio Santangelo November 11,1966

John Albert Waters June 17, 1974

Ronald W. Wilmer May 6,1960

Grady Simmons December 15,1971

Sullivan Palatucci October 27,1976

The complaint in this case was filed on December 26, 1979.

I.

The Pennsylvania statute of limitations currently in force provides:

The following actions and proceedings must be commenced within two years:
(2) An action to recover damages for injuries to the person or for the death of an individual caused by the wrongful act or neglect or unlawful violence or negligence of another.

42 Pa.Cons.Stat.Ann. § 5524. The two year period is to be “computed ... from the time the cause of action accrued.” Id. § 5502(a). This statute took effect on June 27, 1978; it does not apply to claims which-were barred as of one day before its effective date. Section 25(b) of Act 1976, July 9, P.L. 586 (reprinted following 42 Pa.Cons. Stat.Ann. § 5524); Ciccarelli v. Carey Canadian Mines, 757 F.2d 548, 552 (3d Cir. 1985); Gravinese v. Johns-Manville Corp., 324 Pa.Super. 432, 471 A.2d 1233, 1236 & n. 4 (1984). Thus, I must first inquire whether the claims of any of the plaintiffs were barred as of June 26, 1978, under the statute of limitations then in force for wrongful death and survival claims.

The statute in force on June 26, 1978 fixed a limitations period of one year for wrongful death actions and two years for survival actions. See 12 P.S. §§ 34, 1603; Anthony v. Koppers Co., 496 Pa. 119, 436 A.2d 181, 183 (1981); Gravinese, supra, 471 A.2d at 1235. Each of the fourteen decedents died more than one year before June 26, 1978; in addition, twelve of the fourteen decedents died more than two years before June 26, 1978. Consequently, unless some equitable defense to the statute is established, all fourteen wrongful death claims and twelve of the fourteen survival claims are barred.

Plaintiffs raise two such defenses. First, plaintiffs argue that the “discovery rule” applies to toll the running of the statute prior to the time when the decedents either knew or reasonably should have known of their asbestos-related injuries. See Cathcart v. Keene Industrial Insulation, 321 Pa.Super. 123, 471 A.2d 493, 500 (1984) (en banc). Second, plaintiffs contend that defendants are guilty of fraudulent concealment of the dangerousness of their asbestos products, and accordingly are estopped from claiming the benefit of the statute of limitations. See Swietlowich v. County of Bucks, 610 F.2d 1157 (3d Cir.1979); McNair v. Weikers, 300 Pa. Super. 379, 446 A.2d 905, 909 (1982).

Neither contention has even arguable merit. The “discovery rule” does not apply to extend the time for filing wrongful death or survival claims under the statute in force prior to June 1978. Ciccarelli v. Carey Canadian Mines, supra, at 553-554; Anthony v. Koppers Co., supra, 436 A.2d at 183-85. And while fraudulent concealment may indeed estop a defendant from invoking the statute of limitations, our Court of Appeals has determined that an offer of proof identical in all respects to the one submitted in this case is insufficient to sustain such a defense. Ciccarelli, supra, at 557. For these reasons, I conclude that (1) the wrongful death claims of all fourteen plaintiffs must be dismissed, and (2) the survival claims of all plaintiffs except Gladys Butts and Lucy Palatucci must also be dismissed.

II.

The survival claims of Ms. Butts and Ms. Palatucci stand on somewhat firmer ground. Both William Henry Butts and Sullivan Palatucci died approximately twenty months prior to the effective date of the statute of limitations currently in force. The survival claims of their representatives were not barred as of the date the current statute went into effect; consequently, the current statute governs the survival claims brought by these decedents’ representatives.

Like its predecessor, the current statute establishes a two-year limitations period for personal injury claims, including those brought as survival actions. 42 Pa.Cons. Stat. § 5524(2). Because both Butts and Palatucci died more than two years before the complaint in this case was filed, the survival claims of their representatives are barred absent some equitable defense.

In McGowan v. University of Scranton, 759 F.2d 287 (3d Cir.1985), the Court of Appeals held that — by contrast with its predecessor statute of limitations, as construed in Anthony v. Koppers Co., supra — section 5524 does incorporate the “discovery rule,” not only as to ordinary personal injury actions but also as to survival and wrongful death actions. In an exhaustive opinion by Judge Becker, the court concluded that the different language and structure of the current statute compelled a different conclusion than the one reached by the Pennsylvania Supreme Court under the old statute. McGowan, supra, at 292-301. Accord Pastierik v. Duquesne Light Co., 491 A.2d 841 (Pa.Super.Ct.1985) (per curiam). Accordingly, if Ms. Butts and Ms. Palatucci have properly alleged that they neither knew nor reasonably should have known of the cause of their decedents’ deaths more than two years prior to December 26, 1979, their survival actions are not barred as a matter of law. Cathcart, supra, 471 A.2d at 500. See also Bickell v. Stein, 291 Pa.Super. 145, 435 A.2d 610, 612-13 (1981).

At oral argument on defendants’ motion, counsel for both sides appeared to assume that the “discovery rule” was properly invoked in the complaint, and confined themselves to arguing whether that rule could apply to the survival claims brought by Ms. Butts and Ms. Palatucci. Counsel’s apparent assumption was not justified. The complaint and plaintiffs’ offer of proof allege (1) that defendants concealed information about the dangers of asbestos, and (2) that plaintiffs and their decedents were consequently unaware of those dangers during the course of their association with asbestos products. See Complaint 32-34. Such allegations do not meet the standard fixed by Pennsylvania appellate decisions for establishing the applicability of the discovery rule. Pocono International Raceway v. Pocono Produce, Inc., 503 Pa. 80, 468 A.2d 468, 471-72 (1983) (plaintiff must establish “the inability of the injured, despite the exercise of due diligence, to know of the injury or its cause”) (emphasis in original); Bickell v. Stein, supra, 435 A.2d at 612-13. Those decisions place “a heavy burden of inquiry upon the party seeking to invoke [the discovery rule].” Lowe v. Johns-Manville Corp., 604 F.Supp. 1123, 1127 (E.D.Pa. 1985) (Luongo, C.J.). See also Ciccarelli, supra, at 553; O’Brien v. Eli Lilly & Co., 668 F.2d 704, 709-11 (3d Cir.1982). A plaintiff must “allege and prove facts which show that he made reasonable efforts to protect his interests and which explain why he was unable to discover the operative facts for his cause of action sooner than he did.” Bickell v. Stein, supra, 435 A.2d at 612. The allegations in the complaint and in plaintiffs’ offer of proof do neither. The generalized concealment allegations may, if buttressed by evidence, support an inference that Messrs. Butts and Palatucci were non-negligent in continuing to expose themselves to asbestos dust over a period of many years. They do not, however, show why the plaintiffs were unable to ascertain that the decedents’ deaths were caused by asbestos-related illnesses. Nor is it sufficient to allege that the decedents or their representatives were, during the relevant time period, unaware of the hazards of asbestos. The discovery rule requires a showing of reasonable ignorance, and not merely subjective lack of knowledge. O’Brien v. Eli Lilly & Co., supra, 668 F.2d at 711; Pocono International Raceway, supra, 468 A.2d at 471-72. For these reasons, I find that, on the record currently before me, plaintiffs have not alleged facts which might justify the application of the discovery rule.

Because the sufficiency of plaintiffs’ allegations of non-discovery was not raised in defendants’ motion, I shall accord plaintiffs the opportunity to supplement the record on that issue. Defendants’ motion for summary judgment as to the survival claims of Ms. Butts and Ms. Palatucci will be denied, on the condition that these plaintiffs file, within ten days of the date of this Memorandum, an offer of proof which, if substantiated by the evidence, would suffice to show their reasonable ignorance of the cause of their decedents’ deaths.

      . Although defendants ostensibly seek summary judgment, defendants have not attached any affidavits or documents in support of their position, except for those portions of the complaint which list the dates on which plaintiffs’ decedents died. Plaintiffs, in response to the motion, have submitted a long and detailed "Offer of Proof" which purports to describe the manner in which defendants have, over the course of this century, concealed from the public the dangerousness of asbestos. For the purpose of deciding the defendants' motion, I accept the allegations of both the complaint and the offer of proof as true.

      . The case was initially brought in the Court of Common Pleas for Montgomery County, Pennsylvania. Defendants subsequently removed to federal court. The parties agree that the Pennsylvania statute of limitations applies to this case.

      . At oral argument, counsel for the plaintiffs conceded that the offer of proof submitted in this case was a xerox copy of the one used in Ciccarelli.

      . Plaintiffs’ offer of proof contains no information concerning the medical histories of any of the decedents. Without some such information, it is impossible to tell what plaintiffs actually knew, let alone assess the reasonableness of plaintiffs’ ignorance.

      . I do not mean to suggest that plaintiffs were required in the complaint to anticipate defendants’ reliance on the statute of limitations. The statute of limitations is an affirmative defense, and as such need not be addressed in the complaint. Nor are plaintiffs required to file a reply to the answer in order to preserve their claim of non-discovery. The Federal Rules of Civil Procedure do not permit the filing of a reply to an answer except in special circumstances. See Fed.R.Civ.P. 7(a); C. Wright & A. Miller, Federal Practice and Procedure: Civil §§ 1185-1186 (1969). Instead, affirmative defenses raised in the answer, such as the statute of limitations, are presumed denied. Fed.R. Civ.P. 8(d). Plaintiffs were thus within their rights to restrict the complaint to allegations which were necessary to establish the elements of plaintiffs’ claims, and were not required to respond to affirmative defenses which might be raised.
      Nevertheless, once defendants filed the instant motion, plaintiffs were required to submit either evidence or an offer of proof on the discovery issue, as to which plaintiffs have the burden of proof. Bickell v. Stein, supra, 435 A.2d at 612.


source: Caselaw Access Project

author: TROUTMAN, Senior District Judge.

license: Public Domain

text:
    William John LIVINGSTON, a minor, by his parents and natural guardians, William E. LIVINGSTON and Dorothy Livingston, and William E. Livingston and Dorothy Livingston in their own right v. PENNSYLVANIA POWER AND LIGHT COMPANY, et al.
    Civ. A. No. 82-2590.
    United States District Court, E.D. Pennsylvania.
    May 3, 1985.

      James E. Beasley, Philadelphia, Pa., for plaintiff.
    T.R. Cunningham, Joseph H. Foster, Philadelphia, Pa., for Pennsylvania Power & Light Co.
    LeRoy S. Zimmerman, Atty. Gen., Com. of Pa., Harrisburg, Pa., for all Pa. Depts.
   MEMORANDUM AND ORDER

TROUTMAN, Senior District Judge.

Between 1924 and .1926 Pennsylvania Power & Light Company (PP & L) constructed Lake Wallenpaupack on the border of Wayne and Pike Counties in the Commonwealth of Pennsylvania. The lake was created by damming the Wallenpaupack Creek, thereby flooding land which PP & L had acquired specifically for the purpose of generating hydroelectric power. However, its attraction as a resort area, which is actively promoted by PP & L, has largely supplanted that function in recent years. PP & L’s Federal Power Commission (FPC) license specified various conditions in connection with the creation and maintenance of the Wallenpaupack Project Area, including a requirement that some of the land be dedicated to the public. Accordingly, PP & L maintains four recreational areas on land it has retained near the lake. PP & L also kept and maintained a “ribbon” of land around the lake, thus requiring abutting landowners to seek easements across the “ribbon” to gain access to the lake itself. PP & L grants easements in exchange for one-time $15.00 fees, PP & L also grants licenses for placing docks on the lake.

During the summer of 1980, William Livingston, fifteen years of age, plaintiff in this action, traveled by boat from the Tanglewood resort area to a rock near PP & L’s Ledgedale Recreation Area. William’s family owns a home in Tanglewood and docks its boat nearby. William drove the family boat to the rock, accompanied by his grandmother and two younger brothers. In the course of playing on and near the rock, William dove from it, struck something beneath the water and was rendered a quadriplegic. William and his parents subsequently brought this action against PP & L seeking damages for his injuries.

In its motion for summary judgment, the defendant has raised two legal theories, either of which, it contends, renders it immune from liability. If correct, defendant is entitled to summary judgment notwithstanding disputed factual issues in connection with the details of the accident.

PP & L first contends that Pennsylvania’s Recreation Use of Land and Water Act, 68 Pa.Cons.Stat.Ann. § 477-1 to 477-8 applies. Under that Act, landowners who make their premises available to the public free of charge for recreational purposes are under no duty to keep the premises safe or to warn of dangerous conditions, uses, structures of activities thereon. Similarly, the owner extends no assurance that the premises are safe, assumes no duty of care toward recreational users, and incurs no liability for negligent injury to such users. This statutory immunity does not apply if the owner levies a charge upon persons who enter the land for recreational purposes. Similarly, the owner is not relieved of liability for willful or malicious failure to warn or guard against a dangerous condition, use, structure or activity.

Second, PP & L contends that it cannot be held liable for an accident which occurred in the waters of the lake or the lake bed because ownership thereof is vested in the Commonwealth by virtue of the navigability of Lake Wallenpaupack.

To establish that Lake Wallenpaupack is navigable in fact, PP & L describes its length, depth, acreage, the substantial number of annual visitors it attracts, and the commercial activities it supports. Relying upon the case of Conneaut Lake Ice Company v. Quigley, 225 Pa. 65, 74 A. 648 (1909), defendant contends that its description of the lake supports the conclusion that the lake is navigable in fact and thus owned by the Commonwealth. In addition, PP & L buttresses its argument by noting that Wallenpaupack Creek had been legislatively declared a public highway in 1808. Presumably, by including this fact, PP & L is contending that the dammed portion of the Creek, now Lake Wallenpaupack, is ipso facto a public highway.

Although not cited by either party, the Court’s research has revealed that the Conneaut case was explained fifty years later in Lakeside Park Co. v. Fosmark, 396 Pa. 389, 153 A.2d 486 (1959) which appears more applicable than Conneaut. The court in Lakeside first noted that the “... argument ... that the lake is susceptible of navigation in fact and hence that it is navigable in law ... is good law for rivers but must be accepted with caution for lakes”, at 391, 153 A.2d 486. The court then elaborated on the concept of navigability:

Navigation and navigability are portentuous words. They mean more than the flotation of buoyant vessels in water: if it were otherwise, any tarn capable of floating a canoe for which a charge could be made would make the water navigable. They mean more than some commercial use to which collected water is put: if this were not so, every spring-fed pool capable of being bottled and sold for drinking water would be navigable. No single factor can control. Lakeside at 394, 153 A.2d 486.

The Court went on to establish a frame of reference for a decision as to whether a particular body of water should be found navigable:

We think that the concept of navigability should not be limited alone by lake or river, or by commercial use, or by the size of watér or its capacity to float a boat. Rather it should depend upon whether water is used or usable as a broad high road for commerce and the transport in quantity of goods and people, which is the rule naturally applicable to rivers and to large lakes, or whether with all of the mentioned factors counted in the water remains a local focus of attraction, which is the rule sensibly applicable to shallow streams and to small lakes and ponds. The basic difference is that between a trade-route and a point of interest. The first is a public use and the second private. Id. 396,153 A.2d 486

The court concluded that the body of water before it, a 150-acre lake, “... falls far short of qualifying as a highway for commerce or a link of a chain within the reasonable intendment of that phrase. People came to stay and enjoy the lake as an end in itself, not as an incident in a journey along a trade route”. Id. at 392, 153 A.2d 486.

Similarly, we conclude that if the Pennsylvania courts were to pass upon the navigability of Lake Wallenpaupack, they would follow Lakeside and find that it too is a point of interest, more suited to private than public use. The only reason for making a determination as to navigability in this case is to determine ownership of the lake waters and lake bed. Therefore, we hold that PP & L, not the Commonwealth, is the owner of Lake Wallenpaupack, and that summary judgment for the defendant cannot be based upon its lack of ownership of the accident scene.

Nor are we persuaded by PP & L’s argument that the Fish and Boat Code, 30 Pa.Cons.Stat.Ann. § 101, et seq., which empowers the Commonwealth to patrol the lake and enforce state boating and fishing regulations, as well as all state laws, shows that control of the lake was effectively vested in the state. That act is applicable to all waters in the state, including private fishing ponds. It speaks to the state’s ability to enforce its laws and regulate all waters within its boundaries, not to ownership or control thereof.

Having determined the ownership of the lake itself and there being no dispute as to the ownership of the land immediately adjacent to the lake, there are only two issues remaining with respect to the Recreation Use of Land and Water Act. First, does the fact that PP & L admittedly obtained easement fees from abutting landowners and continues to collect license fees from anyone wishing to construct a dock or similar structure upon the land retained by PP & L constitute a “charge” within the meaning of the Act, thus rendering it inapplicable to PP & L? Seeond, did PP & L willfully or maliciously fail to guard or warn against a dangerous use or condition, i.e., diving from a rock in the waters of the lake?

Unfortunately, as both parties to this litigation recognize, there is little appellate authority in Pennsylvania to guide this Court in interpreting the Act. Defendant, consequently, urges us to look to other states for guidance. The plaintiff urges a narrow interpretation and application of the Act which confers immunity and is a departure from usual common law standards of liability.

In discharging our duties as a Court sitting in diversity, we are bound to apply the law of the forum state, and where necessary, to predict its course. Consequently, we will seek guidance from existing Pennsylvania judicial decisions and Pennsylvania’s rules of statutory construction. In that regard, we look first to that portion of the Pennsylvania statutes dealing with statutory construction. Here we are admonished that, “words and phrases shall be construed according to rules of grammar and according to their common and approved usage”; 1 Pa.Cons.Stat.Ann. § 1903(a); “When the words of a statute are clear and free from all ambiguity, the latter is not to be disregarded under the pretext of pursuing its spirit”, 1 Pa.Cons. StatAnn. § 1921(b); “The object of all interpretation and construction of statutes is to ascertain and effectuate the intention of the General Assembly. Every statute shall be construed, if possible to give effect to all its provisions”. § 1921(a) and, finally, “The rule that statutes in derogation of the common law are to be strictly construed, shall have no application to the statutes of this Commonwealth enacted finally after September 1, 1937”, § 1928(a).

The foregoing principles, no less the law of Pennsylvania than the statute itself, combined with prior judicial construction, will guide our decision as to the application of the Act.

The purpose of the Legislature in enacting the statute was “... to encourage owners of land to make land and water areas available to the public for recreational purposes by limiting their liability toward persons entering thereon for such purposes”, 68 Pa.Cons.Stat.Ann. § 477-1. Plaintiff first argues that the Act should not apply to defendant in this case because the Lake Wallenpaupack area was open to the public long before the Act was passed in 1966. Thus, the intent of the Legislature would not be effectuated by extending the immunity conferred by the Act to PP & L. However, § 477-4 does not so limit the Recreation Act’s application. It reads as follows:

Except as specifically recognized by or provided in section 6 of this act, an owner of land who either directly or indirectly invites or permits without charge any person to use such property for recreational purposes does not thereby:
(1) Extend any assurance that the premises are safe for any purpose.
(2) Confer upon such person the legal status of invitee or licensee to whom a duty of care is owed.
(3) Assume any responsibility for or incur liability for any injury to persons or property caused by an act or omission of such persons.

Moreover, those few Pennsylvania courts which have considered the Act have applied it literally to owners upon whose land a recreational user was injured, whether or not such landowner was induced to make it available because of the Act. In Wiegand v. Mars National Bank, 308 Pa.Super. 218, 454 A.2d 99 (1982), the court noted that a bank allowing children to use its vacant lot as a baseball field was protected by the Act. In Smith v. Mosier, 29 D & C 3d 660 (1984), there was evidence that the landowner took affirmative steps to prevent people from using his land for recreational purposes, but he nonetheless sought the protection of the Act when sued by an injured swimmer. The court held that the Act applied notwithstanding the defendant’s active attempts to make his land unavailable to the public. Likewise, a federal court sitting in Pennsylvania was unmoved by plaintiff’s argument that because the United States is bound to hold certain lands open to the public, it could not have done so in response to the Recreation Act and so the immunity conferred by the Act should not apply to the Government. Hahn v. United States, 493 F.Supp. 57 (M.D.Pa. 1980). Similarly, we will not here limit the Act’s application to the defendant merely because Lake Wallenpaupack was open to the public before the Act was passed.

Plaintiff’s next argument is that easement fees or license fees paid by the Tanglewood Association, to which plaintiff belonged and where plaintiff owns a house and has access to a Marina where plaintiff’s boat was docked, constitutes a charge for going upon the land, one of the exceptions found in § 477-6 of the Act. Defendant contends that the “charges” it levied were not of the kind contemplated by the Act, were not directly paid by the plaintiff and were, in any event, de minimis. None of the Pennsylvania cases construing the Act which were brought to the Court’s attention by counsel or which we were otherwise able to find speaks directly to this issue as it is presented here. In Hahn, supra, the district court held that tax monies paid by the plaintiff were not such a direct charge as to remove the immunity afforded by the Act. The identical issue with respect to the Commonwealth of Pennsylvania was presented to the Court of Common Pleas of Centre County in a suit arising from the same incident. Hahn v. Commonwealth, 18 D & C 3d 260 (1980). There, however, the court declined to consider it because it had been raised by the plaintiff in a procedurally improper manner, but in a footnote detailing the nature of the impropriety, the court noted that the argument would have been unavailing in any event because the Act defines “charge” as “ ‘the admission price or fee asked in return for invitation or permission to enter or go upon the land ’ ” (Emphasis in 18 D & C 3d at 265). The court noted that such language contemplates a “ ‘quid pro quo’, i.e., a charge in exchange for permission to enter that land at that time”. (Id. Emphasis in original).

Such interpretation conforms to the plain language of the Act if its words are construed “according to their common and approved usage”. See, 1 Pa.Cons.Stat.Ann. § 1903(a). If accepted by this Court, it is obvious that those fees which plaintiff contends constitute a “charge” within the meaning of the Act cannot logically be considered such a “quid pro quo”. First, the easement fees or license fees were paid only indirectly by the plaintiff and, secondly, the payments were far removed in time from the accident. Finally, abrogating PP & L’s statutory immunity on that basis would render uniform enforcement of the Act impossible. The availability of the Recreation Act as a defense would depend upon the unpredictable circumstances of potential accidents. For example, if the injured plaintiff in this case had traveled from his home to the Ledgedale Recreation Area, entered the water there without using the picnic tables or launching a boat, it is obvious that no charge would have been paid by him, even indirectly. The only way to avoid inconsistent application of the Act dependent upon fortuitous circumstances is to interpret the word “charge” as suggested in Hahn v. Commonwealth, supra, i.e., as an actual admission price paid for permission to enter the-land at the time of its use for recreational purposes.

Having held that PP & L is an owner within the meaning of the Recreation Act who holds its land open to the public without charge, the only remaining issue is whether or not there was a “... wilful or malicious failure to guard or warn against a dangerous condition, use, structure or activity”, 68 Pa.Cons.Stat.Ann. § 477-6(1). That section must be read in conjunction with § 477-3, removing liability for failure to warn or to keep the premises safe. Willfulness or malice- are, therefore, necessary elements of a failure to guard or warn so as to remove the Act as a bar to recovery. No argument has been advanced by plaintiff that defendant had the requisite intent to injure implied by the word “malice”. Consequently, the inquiry turns on whether there was a willful failure to guard or warn.

It is clear that PP & L provided no swimming facilities in any of the four recreation areas it maintained. There was one beach maintained by a nearby municipality on land leased from PP & L, which was the only patrolled public swimming facility. Sherwood Krum, employed by PP & L as Lake Superintendent at Wallenpaupack testified in his deposition that although PP & L has a no-swimming policy in its recreation areas, it was neither publicized nor enforced. He also testified that he had seen people swimming and diving in the vicinity of Ledgedale, Plaintiff contends that PP & L’s policy, its non-enforcement thereof and its knowledge that it was regularly violated imposes a duty to make safe or warn of dangerous conditions of which it must have known, e.g., the danger of diving in a rocky area. Plaintiff also argues that since PP & L is responsible for regulating the water level of the lake, it had an even greater duty to control swimming and diving, presumably because fluctuating water levels may affect the dangerousness of such activities.

Defendant’s conduct with respect to swimming and diving, however, falls within the language of § 477-3 of the Act which relieves landowners of any duty to discover, make safe or warn of dangerous activities or conditions on the premises open to the public for recreational purposes. Knowledge that certain activities are occurring or that certain conditions exist cannot impute knowledge of specific dangers inherent in those conditions or activities to a landowner. See, Smith v. Mosier, 29 D & C 3d 660 (1984).

The Pennsylvania Supreme Court has indicated that willful conduct in this context consists of a failure to disclose “dangerous conditions known to it (the possessor of the premises) and not likely to be discovered ”. Kopp v. R.S. Noonan, Inc., 385 Pa. 460, 463,123 A.2d 429 (1956). (Emphasis added). This formulation of the law is the basis for the court’s conclusion in Hahn v. Commonwealth, supra, that the Recreation Act had the effect of limiting a landowner’s specific duty to persons entering his land for recreational purposes to that duty owed to a gratuitous licensee at common law. Thus, willfulness under § 477-6 contains two elements: (1) actual knowledge of a danger (2) that is not obvious to those entering the premises.

Here the record establishes, at the most, that PP & L suspected that swimming and diving in the lake may be dangerous, and for that reason did not encourage those activities. Under the Act it has no duty to take more affirmative action unless such dangers are not obvious. It is obvious, especially to an experienced swimmer and diver, that swimming and diving in an unfamiliar and rocky area is dangerous. Moreover, plaintiff William Livingston’s deposition reveals that he knew the water level of the lake on the day of the accident, and that the depth of the water near the rock varied because he had swum around the rock and investigated the depth of the water before diving from the rock. He also knew that the area was rocky and the water dirty, making it difficult to see, e.g., whether or not there may have been a log submerged in the vicinity of the rock. (Plaintiff’s deposition, pp. 58-69). Livingston also testified that he swam to the rock before taking his younger brothers there specifically to check for dangerous conditions. Although he did not see anything he considered dangerous, he also did not check every point around the rock. (Plaintiff’s deposition, p. 79). Under these circumstances, it cannot be said that a dangerous condition existed, whether or not known to PP & L, which was unlikely to be discovered.

Accordingly, we conclude that summary judgment must be granted in favor of the defendant, PP & L, since it is a landowner holding its premises open to the public within the meaning of the Recreation Use of Land and Water Act and to which none of the exceptions of the Act applies.

      . The Federal Energy Regulatory Commission is the presently existing successor agency to the FPC.

      . Soon after the case was filed, PP & L joined the Commonwealth and certain of its officials as third-party defendants. By order and footnote of December 17, 1982, this Court granted the Commonwealth’s motion to dismiss the case against it and the officers in their official capacities on Eleventh Amendment grounds, but allowed the officials to remain in the case pending discovery to determine whether or not they may be held liable in their individual capacities. On September 24, 1984, those officers again moved for dismissal on the grounds that discovery had not revealed any personal involvement on their part. Unopposed, the motion was granted at oral argument on the instant motion.


author: NORDBERG, District Judge.

text:
    Leonard S. KALISKI, et al., Plaintiffs, v. HUNT INTERNATIONAL RESOURCES CORPORATION, et al., Defendants.
    No. 80 C 2329.
    United States District Court, N.D. Illinois, E.D.
    May 6, 1985.

      Russel Woody, Mardell Nereim, Cotton, Watt, Jones & King, Stephen J. Spitz, Sperling, Slater & Spitz, Chicago, Ill., for plaintiffs.
    Phillip N. Smith, Jr., Eric R. Cromartie, John J. Little, Hughes & Hill, Dallas, Tex., Philip W. Tone, Wm. D. Heinz, Robt. T. Markowski, Jenner & Block, Chicago, Ill., Cary B. Lerman, Los Angeles, Cal., James R. Stinson, Sidley & Austin, Morton Den-low, Sachnoff, Weaver & Rubenstein, Ltd., Chicago, Ill., for defendants.
   MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge.

This action is before the court on motion of three defendants, N.B. Hunt, W.H. Hunt and Hunt International Resources Corp. (“HIRCO”), for partial, summary judgment. For the reasons’ set forth below, defendants’ motion is granted.

FACTS

Plaintiffs have sued numerous defendants under section 10(b) of the Securities Exchange Act of 1934 (“1934 Act), 15 U.S.C. § 78j, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240; Section 17 of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. § 77q, Section 12 of the 1933 Act, 15 U.S.C. § 77i; and sections 1406, 1408 and 1410 of the Interstate Land Sales Full Disclosure Act (“ILSFDA”) 15 U.S.C. §§ 1705, 1707 and 1709. Plaintiffs allege that defendants operated a real estate fraud scheme by making misrepresentations and omissions to deceive plaintiffs into purchasing and making a series of payments on land located in Colorado City, Colorado.

In the mid-1960’s, Colorado City was developed by the Colorado City Development Company (“CCDC”). In 1969, CCDC was purchased by Great Western United Corp. (“GWU”). Five years later, in November, 1974, defendants N.B. Hunt and W.H. Hunt each purchased approximately 30% shares of GWU and became members of the Board of Directors of GWU. In February, 1978, HIRCO acquired all of the stock of GWU.

The five plaintiffs in this case are all purchasers of property at Colorado City. It is undisputed that each of the land sales to these plaintiffs took place before February 1, 1969, over 6 years before the Hunts acquired their GWU stock. The two lots purchased by the Kaliskis and the three lots purchased by the plaintiff Carole Kovich were fully paid and deeded prior to 1974. The two lots of the two remaining plaintiffs, the Housers, were fully paid and deeded as of October, 1976 and March, 1978.

In their motion for partial summary judgment, the Hunt defendants and HIR-CO ask for judgment on all claims relating to contracts entered or payments made pri- or to November, 1977 for the Hunt defendants, and prior to February, 1978 for HIR-CO. Defendants essentially assert that they cannot be held liable for acts committed before they had any interest in or control over the Great Western Companies.

SUMMARY JUDGMENT

On a motion for summary judgment, the moving party has the burden of establishing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Cedillo v. International Association of Bridge and Structural Iron Workers, 603 F.2d 7, 10 (7th Cir.1979). The nonmoving party is entitled to all reasonable inferences that can be made in its favor. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). However, a plaintiff may not merely rely on conclusory pleadings to withstand summary judgment. In responding to a motion for summary judgment, a plaintiff must set forth specific facts in affidavits or otherwise showing that there are genuine issues that must be decided at trial. First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968); Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.1983).

The purpose of the summary judgment procedure is to eliminate a trial in cases where a trial is unnecessary and results in delay and expense. Mintz v. Mathers Fund, Inc., 463 F.2d 495, 498 (7th Cir. 1972). As the Seventh Circuit Court of Appeals has noted, with the ever-increasing burden upon the judiciary, persuasive reasons exist for the utilization of summary judgment procedures whenever possible, Kirk v. Home Indemnity Co., 431 F.2d 554, 559-60 (7th Cir.1970). Courts therefore will not strain to find the existence of a genuine issue where none exists. Id.

Securities Law CLaims

First, with respect to the claims under the securities acts, defendants argue that they cannot be held liable for violation of the securities laws because the land sales to all the plaintiffs were made long before 1974. It is uncontroverted that the Hunts and HIRCO had no involvement in any activities relating to Colorado City until November 1, 1974 at the earliest. They therefore assert that they can have no liability for any payments made before that time.

As defendants point out, it is well established that a person may not be held liable as a control person for acts occurring before that person took control. See, e.g., Sennott v. Rodman & Renshaw, 474 F.2d 32 (7th Cir.1973), cert, denied, 414 U.S. 926, 94 S.Ct. 224, 38 L.Ed.2d 160 (1973). Plaintiffs do not contest this point. Instead, they assert that these defendants are liable for acts performed before they acquired their interest in GWC as aiders and abettors and co-conspirators.

First, plaintiffs assert that the Hunt defendants are liable as aiders and abettors for all acts of the alleged scheme to defraud. They argue that, since under federal criminal law, aiders and abettors are punished as principals, by analogy, one who aids and abets a civil securities violation is also liable for all the acts of other participants in the scheme, even if those acts occurred before the defendant entered the scheme. Plaintiffs cite no authority for this proposition, and no authority has been uncovered by the court. To the contrary, courts have held that a person may not be held liable as an aider and abettor when the acts constituting the alleged aiding and abetting occur after the fraudulent transaction is completed.

For example, in Mendelsohn v. Capital Underwriters, Inc., 490 F.Supp. 1069 (N.D. Cal.), the court found that no aiding and abetting violation occurred when the alleged aiding and abetting occurred after the alleged fraudulent transaction was complete. The court observed that to hold a person liable for aiding and abetting, the plaintiff must plead and prove: (1) the primary party’s violation of the securities law; (2) the alleged aider and abettor’s knowledge of the primary violation; and (3) the performance of acts that substantially assist the violation. 490 F.Supp. at 1079. To satisfy the “substantial assistance” element, the,court held that a plaintiff must establish a “substantial causal connection between the culpable conduct of the alleged aider and abettor and the harm suffered by the plaintiffs.” Id. at 1084. The court concluded that this causal connection cannot exist when the alleged aiding and abetting occurs after the completion of the fraudulent transaction. Id. at 1088.

In Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38, 49 (2nd Cir.1978), the court implicitly adopted the same rule by limiting damages in a securities fraud case against an aider and abettor to those incurred while the defendant was actually aiding and abetting the violations. See also Rolf v. Blyth Eastman Dillon & Co., Inc., 637 F.2d 77 (2nd Cir.1980) (appeal after remand). Similarly, in Brennan v. Midwestern United Life Insurance Co., 286 F.Supp. 702 (N.D.Ind.1968) (Esbach, J.), affirmed, 417 F.2d 147 (7th Cir.1969), cert, denied, 397 U.S. 989, 90 S.Ct. 1122, 25 L.Ed.2d 397 (1970), the court limited aider and abettor liability to the time during which the defendants took an active part in the fraud. 286 F.Supp. at 728. The court relied on common law tort principles to limit aider and abettor liability, allowing recovery only when the defendant’s conduct was a substantial factor in bringing about the loss. 286 F.Supp. at 725.

Each of these decisions implicitly applies a fundamental principle of our jurisprudence, that civil liability does not normally attach unless a defendant’s acts have somehow caused the injuries of the plaintiff. This necessary causal link is lacking for all claims of plaintiffs for injuries arising before the moving defendants had any interest or control over the Colorado City development. Absent such a link, the court must reject plaintiffs’ attempt to hold these defendants as aiders and abettors for payments made before they acquired their interests in GWU.

For similar reasons, the court also rejects plaintiffs’ argument that defendants are liable as co-conspirators for acts committed before they acquired their interest in GWU. Again, plaintiffs cite only criminal cases to support this theory of liability. And, as defendants aptly point out, in criminal law, the very act of conspiracy alone is condemned and punishable as a criminal offense. However, no independent cause of action exists under the securities laws relied on by plaintiffs for civil conspiracy; plaintiffs must prove either direct primary liability or liability as an aider and abettor. A causation element is incorporated into both of these theories of civil liability so that a victim may be compensated only for injuries caused by a defendant. To hold these defendants liable under plaintiffs’ conspiracy theory would violate fundamental concepts of civil law by imposing liability for injuries not caused by them. The court therefore rejects plaintiffs’ conspiracy theory as a basis for holding the moving defendants liable for acts performed by others or payments made before they acquired their respective interests in GWU.

After the issues discussed above were fully briefed and presented to the court, the plaintiffs in the Adair v. Hunt case, 79 C 4206, requested and were granted leave to file an amicus brief on the issues raised in defendants’ motion. In their memoranda, the Adair plaintiffs assert an additional basis for holding the moving defendants liable for acts or payments made before they acquired their interests in GWU. They contend that these defendants “lulled” the plaintiffs through misrepresentations and deception after they assumed control of GWU, and, on the basis of this lulling activity, are fully liable as primary wrongdoers for all damages incurred by the Kaliski and Adair plaintiffs.

As factual support for this theory, the Adair plaintiffs describe at length evidence they contend demonstrates that the Hunts had knowledge of the alleged fraud bút failed to communicate this knowledge to the plaintiffs, and instead covered up the fraud and lulled plaintiffs into not asserting their rights. As legal support for their “lulling” theory, the Adair plaintiffs rely on a number of cases in which the defendants, having perpetrated an original fraud, were also held liable for lulling activities occurring after the original fraudulent transaction. See, e.g., Peoria Union Stockyards Co. v. Penn Mutual Life Ins. Co., 698 F.2d 320, 326 (7th Cir.1983); SEC v. Holschuh, 694 F.2d 130, 142-44 (7th Cir. 1982); US. v. Shelton, 669 F.2d 446, 458 (7th Cir.1982); Hoglund v. Covington County Bank [1977 Transfer Binder] Fed. Sec.L.Rep. (CCH) ¶95,910 (M.D.Ala.1977), affirmed on rehearing, [1977 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶96,003 (M.D.Ala.1973). These cases do not support the proposition that a defendant involved in later lulling activities can be held primarily responsible for the acts of other parties who committed the original acts of fraud, when there 'was no connection between the defendants and the original defrauders at the time the original fraudulent acts were committed. No support for such sweeping civil liability has been cited or found, and, as discussed above with respect to the plaintiffs’ aiding and abetting and conspiracy theories, to uphold the plaintiffs’ theory would impose liability when there is no causal link between the acts of the defendants and the injuries actually suffered.

The cases cited by the Adair plaintiffs do, however, provide some support for plaintiffs’ assertion that the moving defendants can be held primarily liable for damages incurred as a direct result of their lulling activities, i.e., for payments received after they assumed control of GWU, learned of the alleged fraud, and took action to perpetuate the fraud to induce continuation of payments by plaintiffs for their own benefit. In Peoria Union, the plaintiff purchased a pension plan from defendant Penn Mutual under which the plaintiff was required to make annual contributions. The plaintiff alleged that Penn Mutual had made misrepresentations in connection with the original purchase of the plan and in yearly deposit fund summaries. The court rejected Penn Mutual’s statute of limitations defense, finding that the misleading statements and omissions in the annual summaries prevented the plaintiff from becoming aware of the fraud and therefore tolled the statute of limitations. The court then stated:

These “lulling activities” would be actionable as part of the original sale of the group deposit administration’s annuity even if that sale had otherwise been complete in 1971, see SEC v. Holschuh, 694 F.2d 130, 143-44 (7th Cir.1982), but in fact the contract called for periodic contributions and was therefore a continuing contract. To keep these contributions coming through fraud was fraud in connection with the continuing sale of a security.

698 F.2d at 326.

Although the above-quoted language is dicta, it indicates that lulling activities which induce the continuation of installment payments is primary fraud actionable under the securities acts. As noted above, the same defendant in Peoria Union who perpetrated the original fraud through the “sale” of the annuity also performed the lulling activities. However, this distinction does not affect the conclusion that, under the language quoted above and basic principles of fairness, the defendants could be held primarily liable for fraud resulting from their own knowledge and actions after they acquired control of GWU. If the defendants’ acts after they assumed control of GWU constitute fraud from which they profited, and as a result of this fraud, the plaintiffs were directly injured by being induced to continue payments on the land contracts, the defendants’ acts would be the proximate cause of the plaintiffs’ injuries. Defendants could then fairly be held liable for these acts. The court therefore concludes that, although the moving defendants cannot be liable by virtue of the alleged “lulling” activities for the acts of others before they acquired their respective interests in GWU, they may be held liable for these lulling activities to the extent they fraudulently induced continuation of payments by the plaintiffs after they gained control of GWU.

Since the court has rejected all the bases proffered by plaintiffs for holding these defendants liable for acts committed or payments made before they acquired their respective interests in GWU, summary judgment is appropriate on plaintiffs’ securities claims to the extent they allege injuries arising before November, 1974 with respect to the Hunts, and before February, 1978 with respect to HIRCO. Accordingly, the court hereby grants summary judgment in favor of the moving defendants on all the claims under the securities acts of the Kaliskis and Carole Kovich, and on the claims under the securities acts of the Housers against N.B. Hunt and W.H. Hunt for payments made prior to November, 1974, and against HIRCO for payments made prior to February, 1978.

Interstate Land Sales Full Disclosure Act

Defendants also seek summary judgment on all of plaintiffs’ claims under the ILSFDA. The ILSFDA was enacted on October 1, 1968, but did not become effective until April 28, 1969, almost three months after the last land sales contract entered by any of the plaintiffs in this case was signed. Defendants contend that the Act should not be given retroactive effect, and that it is therefore inapplicable to the plaintiffs’ contracts. Defendants rely on Davis v. Rio Rancho Estates, Inc., 401 F.Supp. 1045 (S.D.N.Y.1975). In Davis, the court examined the ILSFDA and its legislative history, and determined that, since there is no indication of a legislative intent that the Act apply retroactively, it should not be given retroactive effect. The court therefore held the Act inapplicable to a real estate sales contract entered before the effective date of the act, even though the contract called for installment payments for a substantial period of time later than the effective date of the Act. The court reasoned that, upon execution of an installment land contract, equitable title vests immediately in the purchaser, and the agreement is binding and complete at that •time. 401 F.Supp. at 1048. The court therefore refused to apply the Act despite the fact that continuing payments were required under the contract after the effective date of the Act.

Defendants assert that, under Davis, since plaintiffs’ sales contracts were executed before the ILSFDA was effective, the act is inapplicable to their claims. This court concurs in the reasoning and general conclusion of the Davis court that the Act was not intended to be given retroactive effect. As plaintiffs assert, however, a later decision distinguished Davis on the basis that the plaintiff in Davis did not allege continuing misrepresentations and omissions after the effective date of the Act. Husted v. Amrep. Corporation, 429 F.Supp. 298 (S.D.N.Y.1977). Although the Husted court did not specifically address the retroactivity issue presently before this court, its analysis is relevant.

The plaintiffs in Husted sued the sellers of undeveloped land for, among other things, misrepresentations made to induce continued payments under the installment land sales contracts. The court noted that § 1703(a)(2)(B) of the ILSFDA, 15 U.S.C. § 1703(a)(2)(B), makes it unlawful “in selling or leasing ... to obtain money or property” by means of misrepresentations on which the purchaser relies. The court concluded that, in light of the remedial purpose of the entire ILSFDA, and the common practice of selling undeveloped land by conditional sales contracts in which the seller retains a substantial incentive to induce continued payments, a defendant can be held liable under § 1703(a)(2)(B) for making misrepresentations to purchasers to induce continuing payments and additional purchases. 429 F.2d at 308.

This court agrees that § 1703(a)(2)(B) applies to this type of misrepresentations made after an installment contract is entered to induce continued payments under the contract. Although the act cannot be given retroactive effect to cover any alleged misrepresentations made to induce plaintiffs in this case to execute their contracts, to hold defendants liable for any misrepresentations made by them after the effective date of the act to induce continuation of payments does not apply the act retroactively. The plaintiffs’ allegations of misrepresentations made by defendants to induce continued payments may therefore be actionable under the act. The court therefore cannot dismiss all of plaintiffs’ claims under the ILSFDA as requested by defendants.

However, nothing in the ILSFDA and no theory espoused by plaintiffs supports imposition of liability on defendants under the act for alleged fraud committed by others with whom the defendants had no connection until after they purchased their respective interests in GWU. Defendants are therefore entitled to judgment on plaintiffs’ claims under the ILSFDA for all payments made before November, 1974 with respect to N.B. Hunt and W.B. Hunt, and for all payments made before February, 1978 with respect to HIRCO.

Since the Kaliskis and Carole Kovich made all payments under their contracts prior to November, 1974, the moving defendants are entitled to summary judgment on all of their claims under the ISFDA. In addition, N.B. Hunt and W.H. Hunt are entitled to summary judgment for claims of the Housers under the ILSFDA for payments made prior to November, 1974, and HIRCO is entitled to summary judgment for all claims of the Housers under the ILSFDA for all payments made prior to February, 1978.

Conclusion

Accordingly, summary judgment is granted in favor of all moving defendants on the claims of the Kaliskis and Carole Kovich under the securities acts and the ILSFDA. Summary judgment is granted in favor of N.B. Hunt and W.H. Hunt on all claims of the Housers under the securities acts and the ILSFDA for payments made prior to November, 1974. Summary judgment is granted in favor of HIRCO on all claims of the Housers under the securities acts and the ILSFDA for payments made prior to February, 1978.

      . Defendants do not concede liability for any payments made after they purchased their respective interests in GWU. They merely limit this motion to issues relating to liability for payments before that time.

      . The plaintiffs in Adair are a group of approximately 2,000 Colorado City land owners joined in a virtually identical action against the same defendants.


author: BUA, District Judge.

text:
    UNITED STATES ex rel. Leroy SMITH, Jr., Petitioner, v. Michael P. LANE, Respondent.
    No. 83 C 5826.
    United States District Court, N.D. Illinois, E.D.
    May 6, 1985.
    Louis B. Garippo, Susan G. Feibus, Louis B. Garippo, Chicago, Ill., for petitioner.
    Sally L. Dilgart, Asst. Atty. Gen., State of Illinois, Chicago, Ill., for respondent.
   BUA, District Judge.

ORDER

Before the Court are petitioner’s and respondent’s objections to the Magistrate’s Report and Recommendation. For the reasons stated herein, the Court agrees with their objections and disagrees with the Magistrate’s finding that an evidentiary hearing is necessary in this habeas corpus action. However, the Court adopts the thorough factual and legal analysis contained in the Magistrate’s Report and Recommendation, which is attached hereto. Finally, the Court denies the petition for a writ of habeas corpus.

I. FACTS

This habeas corpus petition, brought pursuant to 28 U.S.C. § 2254, is based on a theory of court-induced ineffective assistance of counsel in violation of petitioner’s Sixth Amendment rights. The parties filed cross-motions for summary judgment. In her Report and Recommendation dated April 2, 1985, Magistrate Joan B. Gottschall denied the cross-motions for summary judgment and determined that a hearing on the petition should be held. Specifically, Magistrate Gottschall found factual issues regarding why petitioner’s attorney Alan Blumenthal failed to interview and call certain witnesses, what if any working relationship existed between Blumenthal and attorneys Sam Adam and Laurence Levin and the likely effect on petitioner’s trial had the witnesses testified.

II. DISCUSSION

A. Need For An Evidentiary Hearing

In their objections to the Magistrate’s Report and Recommendation, both petitioner and respondent agree that no evidentiary hearing is necessary to resolve the cross-motions for summary judgment.

In determining whether an evidentiary hearing is necessary in this habeas corpus action, the Court finds Dillon v. Duckworth, 751 F.2d 895 (7th Cir.1984) to be dispositive. In Dillon, the petitioner asserted an ineffective assistance of counsel claim. While the Seventh Circuit Court of Appeals found a Sixth Amendment violation based on ineffective assistance of counsel, the court rejected petitioner’s alternative argument that the district court erred in denying an evidentiary hearing. The petitioner alleged newly-discovered facts which supported his ineffective assistance of counsel claim.

In rejecting petitioner’s argument that the newly-discovered facts mandated an evidentiary hearing, the Seventh Circuit noted that these facts related to the ineffective assistance of counsel claim which the petitioner had raised in the state court proceedings. In addition, the newly-discovered facts were known to the petitioner prior to his filing for post-conviction relief, and therefore “the evidence he cites is not of a character which would justify an evidentiary hearing.” Id. at 902. Finally, the Seventh Circuit rejected petitioner’s argument that Strickland v. Washington, — U.S. —, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984), established new standards for evaluating Sixth Amendment ineffective assistance of counsel claims that would require a hearing. Dillon v. Duckworth, supra, 751 F.2d at 902.

In the present case, petitioner’s newly-discovered evidence consists of affidavits from nine witnesses who were neither interviewed prior to nor called to testify at trial. While petitioner filed this habeas action in August of 1983 prior to filing his post-conviction petition for relief in December of 1983, the dismissal of the post-conviction petition for relief occurred on January 26, 1984. Therefore, since the petitioner’s newly-discovered facts have been reviewed and considered by the state court, the Court believes that this case falls within the Dillon rule: a hearing is not mandated to consider newly-discovered facts already presented to and considered by the state court.

B. Court-Induced Ineffective Assistance of Counsel

The petitioner contends that, by denying Blumenthal a continuance when he was retained “only two working days” prior to trial, the trial court “caused” Blumenthal’s representation of the petitioner to be ineffective because Blumenthal was not afforded sufficient time to investigate and prepare the case. He argues that, if Blumenthal had sufficient time to prepare and investigate as he would have with the requested continuance, he would have secured at trial the testimony of witnesses who would have helped petitioner’s case.

Petitioner further asserts that, while there were many witnesses, including persons in the house and neighbors, his entire defense consisted only of his own and his mother’s testimony. Petitioner contends that these other witnesses would have corroborated his contention that he did not know the attackers were the police. He concludes that this “court induced” ineffective assistance prejudiced him in the outcome of the trial.

Respondent argues that the trial court did not abuse its discretion when it denied petitioner’s request for a continuance, in light of the fact that it was thé twenty-third continuance in a two-year-old case. In addition, respondent contends that the petitioner cannot show that Blumenthal’s actions fell outside the range of reasonable competence for an attorney. To support this contention, respondent points to Blumenthal’s association with Adam and Levin, who had handled the ease for two years.

Respondent also notes that Blumenthal knew of the existence of the family witnesses and therefore chose not to call them at trial. In support of this contention, respondent points to Blumenthal’s agreement to “second chair” the case one week before he filed his substitution notice as petitioner’s attorney. Finally, respondent argues that any potential counsel error would not, with reasonable probability, have affected the outcome of the state criminal trial.

Due to the broad discretion that a trial court must exercise in scheduling trials, the grant or denial of a continuance is subject to appellate review only for an abuse of discretion. Morris v. Slappy, 461 U.S. 1, 103 S.Ct. 1610, 75 L.Ed.2d 610 (1983); United States v. Davis, 604 F.2d 474, 480 (7th Cir.1979). Moreover, in order to establish this abuse of discretion, a party normally must make some showing of actual prejudice resulting from the trial court’s ruling. See United States v. Aviles, 623 F.2d 1192, 1196 (7th Cir.1980); United States v. Miller, 573 F.2d 388, 395 (7th Cir.1978).

A defendant appealing from the denial of a continuance in a criminal case typically will claim prejudice in the form of ineffective assistance of counsel. See, e.g. United States v. Cronic, — U.S. —, 104 S.Ct. 2039, 80 L.Ed.2d 657 (1984); Morris v. Slappy, 103 S.Ct. at 1610; United States v. Phillips, 640 F.2d 87 (7th Cir.), cert, denied, 451 U.S. 991, 101 S.Ct. 2331, 68 L.Ed.2d 851 (1981). In evaluating such a claim, an appellate court generally must inquire into counsel’s actual performance at trial. United States v. Cronic, 104 S.Ct. at 2047-48; Strickland v. Washington, 104 S.Ct. 2052, 2064-65 (1984). In rare cases, the refusal to allow counsel additional time to prepare might occur in circumstances so egregious. that “the likelihood that any lawyer, even a fully competent one, could provide effective assistance is so small that a presumption of prejudice is appropriate without inquiry into the actual conduct of the trial.” See Cronic, 104 S.Ct. at 2047. In essence, the denial of a continuance can sometimes be tantamount to the denial of counsel.

A recent decision from the Seventh Circuit Court of Appeals addressed the question of whether a denial of continuance constituted court-induced ineffective assistance of counsel without a determination of actual prejudice. United States v. Rodgers, 755 F.2d 533 (7th Cir.1985). In Rodgers, the defense attorney had “preparation time of only two days for jury selection and two more days for the beginning of the trial.” Id. at 540. The Seventh Circuit concluded that this preparation time was not so restrictive to warrant an assumption of unfairness without considering whether there was actual prejudice. In support of its conclusion, the Rodgers court noted that the defense attorney had been prepared by previous counsel, had only to read and familiarize himself with the case file, and had to prepare notes for trial. In addition, the court noted that the case was not so com-, plicated that counsel required a great amount of time or expert assistance to understand the pertinent issues.

Since the facts in Rodgers are factually inapposite, the result in Rodgers controls here. In this case, Blumenthal met with petitioner on February 23, 1977, and on February 24, petitioner agreed to have Blumenthal represent him. On February 25, Blumenthal filed his motion to substitute, but stated that while he was representing petitioner, he was “not prepared to go to trial” because he had not been “involved in this case in any way prior to one week ago.” He stated that Levin had prepared the ease and “presumably was prepared to go to trial last week.” Blumenthal stated that he had reviewed the case file during the previous week because he planned to “second chair” the trial with Levin. Blumenthal moved for a continuance, arguing that his trial strategy would differ from Levin’s and that he disagreed with the petitioner’s jury waiver. He also wished to obtain unspecified physical evidence and witnesses.

Judge Wexler denied Blumenthal’s motion for a continuance, stating:

Let the record show that this case has dragged on in this court almost two years. There were approximately thirty [sic] continuances. That the last six or seven continuances were with subpoenas for trial. There has been an appearance in the file in the name of Levin who denies that is his signature. When Mr. Levin ... appeared in this court, he indicated to the Court he is not the attorney, that he would have cleared it with Mr. Adam [] who is the attorney of record. That the court inquired of the defendant as to whom he retained and he indicated Mr. Adam [], and the Court endeavored to get Mr. Adam [] to begin since the 15th of February when the case was set here with subpoenaes, and Mr. Adam [ ] chose not to come in.
That Mr. Blumenthal indicated he was willing to file an appearance in the case and the Court suggested that the only way- he would accept the appearance would be with a substitution of attorneys, and that substitution of attorneys was presented to this Court this morning, and that the Court granted defendant leave to withdraw his waiver of trial by jury and agreed to give the defendant a trial by jury.
Because of numerous delays in this case, the Court refuses to grant any further continuances and the Court is holding this case for trial now. There is a jury out there. Let the record show Mr. Blumenthal is out of the same offices with Mr. Adam [ ] and Mr. Levin.

Blumenthal renewed his motion for a continuance of 21 days, which Judge Wexler denied but agreed to a continuance until Monday, February 28, 1977. Blumenthal agreed that starting on Monday would be “more advantageous,” as he “believe[d] [he] would be much more prepared given two days on the weekend than [he] [would] be [that] [] day.”

On Tuesday, March 1, Blumenthal filed motions to suppress physical evidence and statements made after petitioner’s arrest, but Judge Wexler denied them as untimely. During the trial, from Monday, February 28 through Tuesday, March 8, by petitioner’s own concession, Blumenthal was an able and zealous advocate.

In light of the above facts, the Court, as the Seventh Circuit did in Rodgers, does not find the circumstances surrounding Judge Wexler’s denial of the continuance on the eve of trial to be so horrendous as to raise a presumption of prejudice to the petitioner. In addition, the Court finds that the trial court did not abuse its discretion when it denied the continuance and that the denial did not prejudice the petitioner in any way.

In making its determination of no actual prejudice to the petitioner from the denial of Blumenthal’s motion for a continuance, the Court follows the analysis of actual prejudice set forth in Rodgers. The Seventh Circuit in Rodgers first held that “the denial of the continuance had no significant adverse impact on counsel’s performance at trial.” 755 F.2d at 540. In support of this first holding, the Seventh Circuit cited the defense attorney’s motion to suppress at the beginning of trial, incisive cross-examination of government witnesses, and timely objections to the government’s direct examination as evidence of his professional and zealous representation during the trial.

In the present case, Blumenthal made a motion to suppress physical evidence as well as the petitioner’s statement taken after his arrest. In addition, Blumenthal’s attempts to impeach Officers Bokowski and Patterson through the use of prior police reports and the complaint sworn by Patterson in the ease against Edwin Anderson illustrate Blumenthal’s familiarity with the details of defense counsel’s theory and investigation, as well as with the facts of the case. Therefore, the Court finds that Judge Wexler’s denial of the continuance had no significant adverse impact on counsel’s performance at trial.

Finally, the Seventh Circuit in Rodgers addressed the petitioner’s contention that denial of the continuance prejudiced him by denying him the opportunity to subpoena and interview potential witnesses. The Seventh Circuit adopted the general test set forth by the Fifth Circuit Court of Appeals:

A movant [for a continuance] must show that due diligence has been exercised to obtain the attendance of the witness, that substantial favorable evidence would be tendered by the witness, that the witness is available and willing to testify, and that the denial of a continuance would materially prejudice the defendant. United States v. Miller, 513 F.2d 791, 793 (5th Cir.1975).

Id. at 541. The Seventh Circuit noted that the strict requirements of this test reflect the policy against the petitioner delaying trial indefinitely on the speculation that some distant witness might provide favorable evidence. Id.

The Court holds that the petitioner has failed to meet his burden under the Rodgers test for two reasons. First, while the petitioner submits affidavits of witnesses who would offer favorable testimony and who would be willing and available to testify, he fails to show that due diligence was exercised to obtain the attendance of these witnesses, even though six of the nine witnesses were relatives living in his house at the time of the incident and therefore were known to the petitioner. In support of its finding, the Court notes that this case was pending from May 8, 1975 to February 28, 1977, during which time either the petitioner did not notify his defense attorneys of the existence of these family witnesses or the attorneys knew of the witnesses and decided not to call them at trial. In either event, the petitioner has failed to show due diligence was exercised to obtain the attendance of these witnesses.

Second, the Court finds that the petitioner has failed to show that the failure to call the witnesses prejudiced him. In support of its finding, the Court notes that the witnesses’ testimony is cumulative, that his mother testified to the same facts and theory of defense as the family witnesses now presented, and that Blumenthal, and his predecessors, probably knew of the witnesses’ existence from the petitioner after a year and one half of trial investigation and preparation. If Blumenthal knew about these witnesses and did not call them, he could have done so to avoid cumulative, identical testimony and to focus instead on thorough cross-examination of the government’s witnesses, which he did do. In light of the fact that Blumenthal had the benefit of prior investigation and preparation by Levin and Adam, his decision not to call these witnesses was sound trial strategy, as opposed to a failure to investigate.

Since petitioner has failed to “overcome the presumption that, under the circumstances, the challenged action ‘might be considered sound trial strategy.’ ” United States v. Curtis, 742 F.2d 1070, 1074 (7th Cir.1984) (quoting Strickland v. Washington, supra, 104 S.Ct. at '2066), he has failed to prove that he was prejudiced by Blumenthal’s failure to call these witnesses at trial. While this analysis overlaps the Rodgers and Strickland tests, the Court believes that a determination of Blumenthal’s sound trial strategy under the Strickland test is relevant to and weakens petitioner’s claim of prejudice based on the denial of a continuance under the Rodgers test. Therefore, petitioner has failed to show court-induced ineffective assistance of counsel under the Rodgers test.

III. CONCLUSION

Since the petitioner has failed to show ineffective assistance of counsel under the Rodgers and Strickland tests, his petition for a writ of habeas corpus must be denied.

IT IS SO ORDERED.


author: SWEET, District Judge.

text:
    Joseph MORAN, Plaintiff, v. KIDDER PEABODY & CO., a corporation, and Bruce Barbers, an individual, Defendants.
    No. 84 Civ. 9110 (RWS).
    United States District Court, S.D. New York.
    May 7, 1985.

      Felix T. Gilroy, Staten Island, N.Y., for plaintiff.
    Shanley & Fisher, P.C., New York City, for defendants; Matthew Farley, New York City, of counsel.
   OPINION

SWEET, District Judge.

Plaintiff Joseph Moran (“Moran”) commenced this action against defendants Kidder, Peabody & Co. (“Kidder Peabody”) and Bruce Barbers (“Barbers”) alleging violations of the federal securities laws and common law fraud. Kidder Peabody now moves this court to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) or in the alternative for partial summary judgment on the grounds that certain claims are barred by the applicable statute of limitations, and for an order compelling arbitration of any remaining claims. For the reasons discussed below, the motions to dismiss the federal claims and to compel arbitration are granted.

Facts

Moran is an individual investor who was a customer of Kidder Peabody, a large investment concern located in New York, between June and December of 1983. Barbers was an employee of Kidder Peabody who acted as Moran’s representative and account manager at Kidder Peabody. Between June and December 10, 1983, Kidder Peabody acted as broker for the execution of purchase and sale orders of stocks and stock options on behalf of Moran’s account. Upon transferring his account to Kidder Peabody, Moran signed a form agreeing to arbitrate any claims against the firm.

In his complaint, Moran alleges that Barbers engaged in a course of fraudulent and deceitful activities with regard to Moran’s account that resulted in the liquidation of the account and the loss of $90,000.00. In his first cause of action for fraud, Moran claims that “on various and diverse occasions,” between June 24, 1983 and September 29, 1983 Barbers falsely reported that certain items were purchased or that certain purchases were a mistake, reprinted inaccurate price quotes, purchased items without Moran’s authorization and made false representations to Moran in an effort to induce him to purchase certain stocks and stock options. In his second cause of action, Moran alleges that Barbers’ activities violated Sections 10(b), 7 and 18 of the Securities Exchange Act of 1934, and Sections 12 and 17(a) of the Securities Act of 1933. He claims that Kidder Peabody credited his account with $55,000.00 without his knowledge and subsequently traded the account as if that sum were deposited therein, that Kidder Peabody unlawfully extended him credit and that Barbers made false representations to induce Moran to make additional cash payments. As further evidence of a general scheme of securities fraud, he states that a copy of a Kidder Peabody form, Form 412 (Members Authority to Transfer and Receive Account), signed by Moran, was materially altered as to the type and amount of the account. In count three of the complaint, Moran contends that Kidder Peabody exercised control over his account and that his account was traded excessively for the sole purpose of generating commission. In his final count, Moran charges Barbers and Kidder Peabody with breach of professional responsibility and negligence. On the basis of these claims, Moran claims damages in the amount of $90,000.00 and punitive damages in the amount of $500,000.00.

Jurisdiction in this action is asserted pursuant to both the federal securities laws and 28 U.S.C. § 1332.

Discussion

In its motion, Kidder Peabody moves for dismissal of the federal claims for failure to state a cause of action. In the alternative, it moves for partial summary judgment dismissing the securities claim brought under § 12 of the Securities Act as time barred. It also moves for an order compelling arbitration of its claims pursuant to the written agreements between the parties.

Federal Securities Claims

In determining the sufficiency of a complaint pursuant to a motion under Fed.R. Civ.P. 12(b)(6), a court must accept the plaintiff’s allegations in the complaint as true and resolve every doubt in favor of the plaintiff. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Jenkins v. McKeithen, 395 U.S. 411, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969). A complaint should not be dismissed for failure to state a claim “unless 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, supra, 355 U.S. at 45-46, 78 S.Ct. at 101-102.

In his complaint, Moran repeatedly asserts that Barbers and Kidder Peabody defrauded him in violation of the federal securities laws. He supports this claim with general allegations that the defendants engaged in fraudulent and deceitful activity such as reporting price quotes inaccurately and making unauthorized purchases.

Whether or not these allegations are sufficient to state a cause of action under the federal securities laws, they fail to meet the requirements of Fed.R.Civ.P. 9(b) as to pleading fraud with particularity. Fed.R.Civ.P. 9(b) requires that:

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.

Under Rule 9(b), “mere conclusory allegations to the effect that defendant’s conduct was fraudulent or in violation of Rule 10b-5 are insufficient.” Shemtob v. Shearson, Hamill & Co., Inc., 448 F.2d 442, 444 (2d Cir.1971). The requirement that fraud be pleaded with specificity serves several purposes. First, it inhibits the filing of a complaint as a pretext for the discovery of unknown wrongs. Gross v. Diversified Mortg. Investors, 431 F.Supp. 1080, 1087 (S.D.N.Y.1977), affd, 636 F.2d 1201 (2d Cir.1980). Second, it serves to place defendants on notice of the exact misconduct with which they are charged and enables them to prepare a defense. Rich v. Touche Ross & Co., 68 F.R.D. 243, 245 (S.D.N.Y,1975). Finally, the requirement protects defendants from the harm that comes to their reputations when they are charged with the commission of acts involving moral turpitude. Gross v. Diversified Mortg. Investors, supra, 431 F.Supp. at 1087; Segal v. Gorden, 467 F.2d 602, 607 (2d Cir.1972).

Moran’s allegations do no more than state generally that a fraud or misrepresentation was committed. Such all encompassing claims as “almost all of the representations made by Defendant Bruce Barbers ... were untrue statements of material facts upon which plaintiff relied” (Complaint, j| 10), do not provide the specificity required by the rule. While the papers submitted by Moran in connection with this motion provide some greater degree of specificity with respect to some of the claims, such statements cannot fulfill the pleading requirements. It is well established in this Circuit that when pleading misrepresentations:

[P]laintiff must specify: (1) precisely what statements were made in what documents or oral misrepresentations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) the same, (3) the context of such statements and the manner in which they misled the plaintiffs, and (4) what the defendants obtained as a consequence of the fraud.

Todd v. Oppenheimer & Co., Inc., 78 F.R.D. 415, 420-21 (S.D.N.Y.1978) (citations omitted). See also Goldman v. Belden, 754 F.2d 1059 (2d Cir.1985). Moran’s allegations fail to meet this standard. The general statements that Barbers misrepresented price quotations or purchased items without authorization do not provide the defendants with adequate notice of the alleged fraud.

Similarly, Moran’s allegations as to the existence of a scheme to defraud Moran are also too vague. The only specific evidence of fraud to which Moran directly refers relates to alleged alterations of the so-called Form 412, and the subsequent treatment of his account as if it contained an additional. sum of $55,000.00. While these allegation are significantly more concrete and specific than the other generalized claims of fraud, it still fails to meet the requirements of Rule 9. The complaint fails to show how this alteration or the crediting of additional sums acted as a fraud. From the motion papers it appears that the alterations consist of notations changing a credit of $19,000 to be transferred to Kidder Peabody to a charge of $25,-000. The complaint makes clear that Moran did not discover the alterations until after trading was completed; there is no suggestion that he made any investment decision or acted in any manner in reliance on the form. Merely stating that based on the notations on the form and conversations with Barbers “it then became apparent that a scheme of fraud or deceit was at work” (Complaint, ¶ 21), is not sufficient to indicate what the nature of that fraud was or how it affected him. As to the allegation that the defendants caused him to be credited with $55,000.00 that did not exist in violation of the margin requirements, Moran does not reveal the manner in which this action affected him. To meet the requirements of Rule 9(b) a plaintiff must show the manner in which he was damaged by the implementation of a deceptive or manipulative practice or by a misrepresentation or omission. Quintel Corp., N. V. v. Citibank, N.A., 589 F.Supp. 1235, 1243 (S.D.N.Y.1984); Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. 1225, 1232 (S.D.N.Y. 1981). While it might be possible to speculate from the limited information available in the complaint that Moran was injured by having to cover greater than anticipated losses due to the greater sum being traded, Moran has failed to lay out this alleged injury with sufficient particularity to allow the defendants to defend against it.

An additional claim under the anti-fraud provisions of the securities laws advanced by Moran is his allegation as to “churning.” Churning occurs when a securities dealer creates commissions “by inducing transactions in the customer’s account which are disproportionate to the size and character of the account.” Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1069 (2d Cir.1977). To establish a claim for churning a plaintiff must plead and prove (1) that the trading in the account was excessive in light of his investment objectives, (2) that the broker exercised control over the account, and (3) that the broker acted with intent to defraud or with willful and reckless disregard for the interests of his client. See Rush v. Oppenheimer & Co., Inc., 592 F.Supp. 1108, 1112 (S.D.N.Y.1984); Mihara v. Dean Witter & Co., Inc., 619 F.2d 814, 821 (9th Cir.1980). A plaintiff must set forth facts that allow the determination of whether or not trading was excessive. Excessive trading is generally held to exist when there is an annual turnover rate in an account in excess of six. See Rush v. Oppenheimer & Co., Inc., supra, 592 F.Supp. at 1112.

In count three, Moran alleges that the “[djefendants exercised control over plaintiff’s account,” that the defendants “made an excessive number of trades in Plaintiff’s account” between June 24, 1983 and September 29, 1983, and that “[defendant's commissions and profits were excessive.” (Complaint, ¶’s 31-33). He also states that “[p]laintiff believes he was charged approximately nineteen thousand ($19,000.00) dollars in various fees on a total loss in his account of approximately Ninety Thousand ($90,000.00) dollars.” (Complaint, ¶ 32). Although Moran appends his monthly account statements to the complaint, it does not appear that these statements or his estimate satisfy the requirement that a plaintiff set forth facts that would permit the calculation of the turnover ratio of the account and/or the percentage of the account value paid in brokerage commissions. Hagstrom v. Breutman, 580 F.Supp. 773, 775 (N.D.Ill. 1984). The complaint does not make clear exactly how much Moran actually invested. A plaintiff must provide enough information to permit calculation of the defendants’ commissions as a percentage of account equity in either a monthly or year-to-date basis. Polera v. Altorfer, Podesta, Woolard & Co., 503 F.Supp. 116, 119 (N.D. Ill.1980); Carroll v. Bear Stem, 416 F.Supp. 998, 1000-01 (S.D.N.Y.1976).

In any event, Moran’s allegations fail to meet the pleading requirement as to the trading being excessive in light of the plaintiff’s investment objectives. Moran has failed to address the issue of investment objectives, and his conclusory statements as to the excessiveness of the trading and commissions are not enough to overcome this requirement. Hagstrom v. Breutman, supra. Furthermore, Moran has not successfully alleged that Barbers had discretionary control over his account. Where a customer has the independent capacity to accept or reject his brokers’ recommendations, he cannot accuse his broker of having control of his account even if he habitually follows his broker’s recommendations. Follansbee v. Davis, Skaggs & Co., 681 F.2d 673 (9th Cir.1982). In this case, Moran states that on at least one occasion he refused to follow Barbers’ advice or recommendation. (Complaint ¶ 8). Given his failure to clearly set forth the degree of excess trading or the nature of his investment objectives, and his contradictory assertions as to control, Moran’s complaint fails to adequately state a claim for churning under the securities laws.

Moran also alleges a violation of § 12 of the Securities Act, 15 U.S.C. § 77/ (2). Section 12(2) imposes liability on any person offering or selling a security by means of a prospectus or oral communication containing a material misstatement of fact. To the extent that the claim under § 12 sounds in fraud, a conclusion which may be assumed if the alleged misstatements are those generally referred to earlier in the complaint, that is, Barbers’ allegedly fraudulent representations as to price and other matters, Rule 9(b) is applicable. Because the relevant section of the complaint does nothing more than restate the statute, it also fails to meet the requirements of stating fraud with particularity. (Complaint ¶ 17). As noted above, Moran has not identified what oral communication or statement in a prospectus was misleading, nor has he pled any of the factual circumstances of the fraud with specificity. See Todd v. Oppenheimer & Co., Inc., supra, 78 F.R.D. at 422-23. Even if it is assumed that the mistatement referred to concerns the alleged alteration in Form 412, Moran has failed to meet the requirements necessary to state a claim under § 12. Moran has not laid out any connection between Form 412 and the sale of securities. He has failed to allege, and on the facts set forth in the complaint could not allege, that Form 412 was used as a means to offer or sell a security. From the complaint it appears that Form 412 is merely a form authorizing Kidder Peabody to receive an account from another firm. Moran also contends that he did not discover the alteration until December of 1983. Given these facts, Moran has failed to adequately allege that the defendants’ offered to sell or sold any securities by means of any statement in the form. Since he has failed to state a claim under § 12, there is no need to address Kidder Peabody’s alternative motion to dismiss the claim as barred by the statute of limitations.

Moran also advances a claim under § 18 of the Securities Exchange Act of 1934, which provides for liability for persons making a material misstatement in any document filed with the SEC. Because Moran has failed to identify any application, report or document filed with the SEC containing untrue statements, the claim is dismissed.

As to Moran’s claim under § 7 of the 1934 Act as to Kidder Peabody’s allegedly inappropriate extension of margin credit under the pertinent federal and industry regulations, a review of the applicable law suggests that no private right of action should be implied under this section. As originally enacted, § 7 prohibited brokers from extending credit in violation of Federal Reserve rules. Responsibility for compliance was placed on brokers, rather than on customers. In Pearlstein v. Scudder & German, 429 F.2d 1136, (2d Cir. 1970), cert, denied, 401 U.S. 1013, 91 S.Ct. 1250, 28 L.Ed.2d 550 (1971) (“Pearlstein I ”), the Second Circuit held, over the strenuous dissent of Judge Friendly, that an investor could bring a private cause of action under § 7. Since that time, however, § 7 was amended by Congress passing § 7(f), which made the investor equally responsible with his broker for the observance of the margin requirements of § 7. In a subsequent decision in the Pearlstein case (dealing solely with damages) the Second Circuit admitted that “the addition of § 7(f) to the Exchange Act ... cast(s) doubt upon the continued viability of the rationale of our prior holding.” Pearlstein v. Scudder & German, 527 F.2d 1141, 1145 n. 3 (2d Cir.1975) (“Pearlstein II”). Subsequent district court decisions have declined to apply Pearlstein I to permit an implied private right of action for alleged margin violations. See Zerman v. Jacobs, 510 F.Supp. 132,135 n. 10 (S.D.N.Y.1981), affd, 672 F.2d 901 (2d Cir.1982); Schy v. Federal Deposit Ins. Co., 465 F.Supp. 766, 773-75 (E.D.N.Y.1977); Establissement Tomis v. Shearson Hayden Stone, 459 F.Supp. 1355, 1358-60 (S.D.N.Y.1978). Given the Supreme Court’s reasoning in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977), in which they noted that a person whose own conduct was meant to be regulated “can scarcely lay claims to the status of ‘beneficiary’ whom Congress considered in need of protection,” id. at 37, 97 S.Ct. at 947, it would not be consistent with the policy set forth in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975) of only implying private rights of action where Congress intended to provide protection for a group of individuals to allow a private investor to seek the protection of § 7. Moran’s claim under § 7 is therefore dismissed.

Because Moran has failed to properly plead any of his federal claims, the claims are dismissed, with the understanding that Moran may amend the complaint as to all the claims except that those brought under § 7-

State Law Claims

In its motion, Kidder Peabody seeks arbitration of the claims brought under state law. Upon opening his account at Kidder Peabody, Moran executed a Customer Agreement containing the following arbitration clause:

Any controversy arising out of or relating to accounts of or transactions with or for the undersigned or to this agreement or the breach thereof shall be settled by arbitration in accordance with the rules of either the American Arbitration Association or the New York Stock Exchange as the undersigned may elect. If the undersigned does not make such election by registered mail addressed to you at your main office in New York within five days after demand by you that such election be made, then you may make such election. Judgment upon any award may be made in any court having jurisdiction thereof.

(Ex. A to Farley affidavit).

All of Moran’s state law claims appear to fall within the language of this provision. Given the Supreme Court’s opinion in Dean Witter Reynolds, Inc. v. Byrd, — U.S. —, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985) in which they held that the Arbitration Act requires district courts to compel arbitration of arbitable state law claims, even where such claims are intertwined factually and legally with non-arbitable federal securities claims, there is no reason not to compel arbitration of these claims. Even if Moran takes advantage of his opportunity to replead his federal claims and successfully states a claim under the federal securities laws, the holding in Byrd would require that the arbitration agreement be enforced with respect to the state law claims.

For the reasons discussed above, the defendants’ motions to dismiss the federal securities claims and to compel arbitration of the state law claims are granted. Leave is hereby granted to file an amended complaint within thirty (30) days of this opinion. In the absence of such a filing judgment will be entered dismissing the action.

IT IS SO ORDERED.

      . Moran also asserts a claim for relief under § 17 of the 1933 Act, 15 U.S.C. § 77q(a)(1-3), a claim which the defendants contend must fail on the grounds that no private cause of action should be implied under § 17. Whether or not such a cause of action exists, however, a question which was left open by the Second Circuit in Zerman v. Ball, 735 F.2d 15 (2d Cir.1984), need not be resolved at this stage since the essential element of a § 17(a) claim, like its counterpart section 10(b), is fraud. As noted above, Moran has failed to meet the requirements of Rule 9(b) with respect to his fraud claims.

      . Although Kidder Peabody also seeks arbitration of the federal securities laws claims under Byrd v. Dean .Witter Reynolds, Inc., — U.S. —, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), the dismissal above of all of the federal claims makes such a determination unnecessary.