text:
    Lawrence E. McKEE, et al., Plaintiffs, v. POPE BALLARD SHEPARD & FOWLE, LTD., et al., Defendants.
    No. 84 C 4888.
    United States District Court, N.D. Illinois, E.D.
    Feb. 14, 1985.

      Arnold I. Kramer, Robert E. Cleveland, Chicago, 111., for plaintiffs.
    Mitchell S. Rieger, Barbara E. Herman-sen, Schiff, Hardin & Waite, Raymond J. Smith, Kenneth Lodge, Ellen Robinson, Burke & Smith Chartered, Chicago, 111., Robert A. Frederickson, Jack D. Ward, Reno, Zahm, Folgate, Lindberg & Powell, Rockford, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

GETZENDANNER, District Judge:

This action is before the court on the motions to dismiss of defendants Pope Ballard Shepard & Fowle, Ltd. (“Pope”), Lindgren, Callihan, Weaver, Van Osdol, Ltd. (“Lindgren”), State Bank of Freeport, Northwest Bancorp, Inc., and Dan Heine. Plaintiffs, members of the McKee family, have brought this action under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (“RICO”), and the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (“Exchange Act”). Plaintiffs also allege a pendent state claim of conversion. As the parties are clearly not of diverse citizenship, the court’s subject matter jurisdiction rests on the allegations of fraud under RICO and the Exchange Act.

Allegations

In plaintiffs’ amended complaint they seek damages in excess of five million dollars arising from injuries brought about by defendants’ alleged fraudulent activity. All defendants were involved in a transaction involving the sale of banks of which plaintiffs were the controlling shareholders and of four parcels of land of which plaintiffs were the owners. The defendants are identified as follows: Pope is a professional corporation of attorneys at law; Northwest Bancorp, Inc. is a corporation holding the capital stock of the Bank of Freeport; the Bank of Freeport is a full service bank; Heine is a president and director of Northwest and/or the Bank of Freeport; and Lindgren is a professional corporation of certified accountants. (First Amended Complaint ¶¶ 6-10.)

Plaintiffs list the property that is the subject of this action at ¶¶ 12-13. This property consists of shares of stock in five banks valued at about four million dollars and four parcels of real estate valued at about one and one-half million dollars. Plaintiffs complain generally of having been fraudulently coerced to enter “agreements” that conveyed all of this property to the Bank of Freeport in exchange for release of “defaulted indebtedness” owed by plaintiffs to that bank and others. (Id. at ¶ 18.)

All of the pertinent factual allegations concerning the fraudulent activities of these five defendant persons and entities are found in ¶¶ 14-29. These allegations may be summed as follows: all defendants, along with other persons, coerced plaintiffs into entering into the above-described agreements. However, none of the plaintiffs’ debts was in default and the value of the conveyed property far exceeded plaintiffs’ total debt. The Bank of Freeport unlawfully used plaintiffs’ bookkeeping information in preparing these agreements. (Id. at ¶ 14.) Plaintiffs were clients of Pope and Lindgren. Pope represented Northwest and the Bank of Freeport in preparing the agreements. (Id. at ¶ 15.) Moreover, Lindgren furnished accounting information to Northwest and the Bank of Freeport in furtherance of the preparation of the agreements. (Id. at ¶ 16.)

The Bank of Freeport has not released the debt. (Id. at ¶ 22.) However, the Bank of Freeport has taken control of three banks, and refuses either to return control or to make an accounting for the assets and operations of these banks. It is further alleged that the Bank of Freeport purchased plaintiffs’ debts at a discount, for which it failed to account to plaintiffs. The final allegations are that “defendants” have refused to return the conveyance documents to plaintiffs and to allow plaintiffs to examine the books and records of the conveyed banks.

While these factual allegations are quite broad, the allegations of fraud are broader still. In 111130-37, plaintiffs attempt to set forth a claim under the Exchange Act. Each of defendants, alone or together, allegedly contrived a scheme to defraud plaintiffs. (Id. at 1131.) Regarding the agreements, “each of the Defendants made one or more untrue statements of material fact and/or omitted to state other material facts necessary in order to make the statements ... not misleading____” (Id.) The statements occurred in connection with the Bank of Freeport’s and Northwest’s recommending the sale of securities. Each misrepresentation was made “with knowledge, participation, cooperation, aid, abetment and assistance of each of the Defendants.” (Id. at 1134.) Heine was controlled by the Bank of Freeport and Northwest, which are thus liable jointly and severally with him. (Id. at 1136.)

The RICO allegations are found at 1111 38-45. Plaintiffs allege that the RICO enterprises are Northwest and the association in fact are Northwest, Heine, and the Bank of Freeport. (Id. at ¶ 40.) The predicate acts of mail and wire fraud, 18 U.S.C. §§ 1341, 1343, are alleged broadly: “Defendants on two or more occasions used or caused to be used the United States mails” and “communicated, or caused communications to be made ... by wire ... two or more times” in furtherance of the scheme. {Id. at II 41(a-b).) Securities fraud is also alleged as underlying the RICO violations.

Legal Discussion

Defendants move to dismiss this action under Rules 8, 9(b), and 12(b)(6). The court will address only the arguments under Rule 9(b), as they dispose of the motions to dismiss in full. The court finds that plaintiffs have failed to plead fraud with particularity, as required under Rule 9(b). The first amended complaint is therefore dismissed. Plaintiffs shall file a second amended complaint, following the guidelines set forth in this opinion, by March 15, 1985.

Federal Rule 9(b) requires that in allegations of fraud, “the circumstances constituting fraud or mistake shall be stated with particularity.” The violations of the Exchange Act in question here, which are predicated on fraud, Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), must comply with this special pleading requirement. Tomera v. Galt, 511 F.2d 504 (7th Cir.1975); Zerman v. Ball, 735 F.2d 15, 2 (2d Cir.1984). Similarly, the allegations of fraud underlying a RICO claim must be pled with particularity. Haroco, Inc. v. American National Bank and Trust Company of Chicago, 747 F.2d 384, 405 (7th Cir.1984), cert. granted, — U.S. -, 105 S.Ct. 902, 83 L.Ed.2d 917 (1985). Here, the predicate acts are mail, wire, and securities fraud and all must therefore be pled in compliance with Rule 9(b).

The Seventh Circuit has made clear that Rule 9(b) should be read together with Rule 8. Tomera, 511 F.2d at 508. The Court described the relationship between these two rules as follows:

Rule 8 requires that a plaintiff give through his pleadings notice to defendant of the nature of his claims. [Citations omitted.] It urges the plaintiff to make known his claims simply and concisely in short, plain statements. With these principles in mind, the purpose of rule 9 becomes clear. Rule 9 lists the actions in which slightly more is needed for notice. In a fraud action, a plaintiff need also state “with particularity” the circumstances constituting the fraud.

Id. To determine whether a pleading has satisfied Rule 9(b), the rule’s purposes should be kept in mind:

The rule ... ensures that the allegations are specific enough to inform a defendant of the act of which the plaintiff complains and to enable him to prepare an effective response and defense. [Citations omitted.] Second, it eliminates those complaints filed “as a pretext for discovery of unknown wrongs.” [Citation omitted.] The Second Circuit explained: “A complaint alleging fraud should be filed only after a wrong is reasonably believed to have occurred; it should seek to redress a wrong, not to find one.” [Citation omitted.] ... Third, Rule 9(b) seeks to protect defendants from unfounded charges of wrongdoing which injure their reputations and goodwill. [Citation omitted.]

In re Commonwealth Oil/Tesoro Petroleum Corporation Securities Litigation, 467 F.Supp. 227, 250 (W.D.Tex.1979). See Gross v. Diversified Mortgage Investors, 431 F.Supp. 1080, 1087 (S.D.N.Y.1977), aff'd, 636 F.2d 1201, 1203, 1206 (2 Cir.1980); Baselski v. Paine, Webber, Jackson & Curtis, Inc., 514 F.Supp. 535, 540 (N.D.Ill.1981) (Rule 9(b) should allow framing of responsive pleading and evidence “a reasonable belief on the part of the plaintiff that there is merit to the claim”).

Dozens of courts have attempted to prescribe the more detailed pleading requirements of Rule 9(b), but all have agreed that at the least, a plaintiff pleading fraud must “specify the time, place and contents of any alleged false representations, and the full nature of the transaction.” Lincoln National Bank v. Lampe, 414 F.Supp. 1270, 1279 (N.D.Ill.1976); see Haroco, 747 F.2d at 405. This should include the identity of the person making the misrepresentations, the content of the misrepresentations, and how the misrepresentations were communicated to plaintiff. Zerman, 735 F.2d at 22.

The identity of those making the misrepresentations is crucial. Courts have been quick to reject pleadings in which multiple defendants are “lumped together” and in which

no defendant can determine from the complaint which of the alleged representations it is specifically charged with having made, nor the identity of the individual by whom and to whom the statements were given, nor the situs and circumstances of the conversation, nor ... the date of the utterance.

Lincoln, 414 F.Supp. at 1278. See Adair v. Hunt International Resources Corp., 526 F.Supp. 736, 745 (N.D.Ill.1981). In addition, under Rule 9(b) plaintiffs are expected to allege events from which fraud and other wrongdoing may be inferred. Ross v. A.H. Robins Co., 607 F.2d 545, 558 (2d Cir.1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980) (“It is reasonable to require that the plaintiffs specifically plead those events which they assert give rise to a strong inference that the defendants had knowledge”); Gibbons v. Udaras na Gaeltachta, 549 F.Supp. 1094, 1124 (S.D.N.Y.1982) (“plaintiff must allege some facts from which an inference of scienter can be drawn”); Jacobson v. Peat, Marwick, Mitchell & Co., 445 F.Supp. 518, 522-23 (S.D.N.Y.1977) (plaintiffs failed to allege facts from which alleged overstatement of accounts receivable could be inferred).

This discussion demonstrates that the first amended complaint is fatally deficient. A review of the allegations reveals that Pope represented Northwest and the Bank of Freeport in the transaction in question. Plaintiffs are allegedly Pope’s clients, but it is not clear that Pope represented plaintiffs in this transaction. Certainly, there are no allegations that Pope had a conflict of interest or divided loyalties in its work on the transaction. Plaintiffs allege that Lindgren is plaintiffs’ accountant and that it delivered documents to Northwest and the Bank of Freeport. The rest of the allegations concern the other defendants. Regarding the banking defendants, they are alleged to have overvalued the extent of plaintiffs’ debt, if any, and received plaintiffs’ property in release of that debt. They then refused to open the conveyed entities’ records to plaintiffs or make an accounting to plaintiffs of those entities’ operating records. In addition, the banking defendants have not disclosed the conveyance documents. These allegations are inadequate to state claims of fraud under Rule 9(b) against any defendant.

First, the pleading fails to identify any activities by Pope and Lindgren that lead to the inference of their participation in fraudulent activity. Their acts, professional representation and the conveyance of documents, are neutral on their face. They may have been totally unrelated to the fraud in question: the overvaluing of the amount of plaintiffs’ alleged debt, the failure to discharge the debt, and the refusal to disclose records of the conveyed corporations. Not a single representation or omission is attributed to these defendants, much less a date on which the representation or omission occurred. Second, the defendants are grouped together indiscriminately, with an inference that each defendant is responsible for the acts of the others. However, there is no support in law for such a finding in a case such as this where scienter is an element of both federal claims and the defendants are apparently not connected by any agency or other relationship. See Adair, 526 F.Supp. at 745 (insufficient to group defendants together as liable for each others’ acts). As to the banking defendants, there is perhaps more reason to suspect wrongdoing; concealment of documents may be interpreted as an act in furtherance of a fraudulent scheme. However, there is still no indication supporting the inference of overvaluing which is the basis of the fraud. The plaintiffs do not describe a single event on which they allegedly relied. The court must have some description of the times, dates, parties, and contents of misrepresentations which underlie the alleged fraudulent scheme. This is especially true in a RICO action, in which two predicate acts must be alleged.

Plaintiffs urge repeatedly that the transaction in question was an important event for all parties involved, and thus “it is inconceivable that any of the Defendants involved in this conspiracy would not be aware of the charges or the nature of their alleged participation in such scheme.” (Plaintiffs’ Response to Lindgren, filed 12/7/84, p. 7.) They indicate that discovery will reveal the finer elements of the scheme. Both arguments are unavailing. To say that a defendant knows the nature of the alleged fraud by having been involved in the underlying transaction proves far too much; any defendant with individual contacts to a plaintiff would have such knowledge. To allow a plaintiff to plead simply, “defendants know what they did,” would render superfluous even the liberal requirements of Rule 8. In any case, such an argument does not satisfy other purposes behind Rule 9(b), namely, that complaints should not be filed as a pretext for discovery and that defendants’ reputations be protected from unfounded charges of fraud.

The suggestion that discovery will cure the evils of an impermissibly vague complaint has likewise been rejected. The court in Lincoln National Bank commented that “[sjurely plaintiff does not require discovery to learn the time, place, circumstances and contents of conversations to which it was a party.” 414 F.Supp. at 1279. The court continued, quoting from Trussell v. United States Underwriters, Ltd., 228 F.Supp. 757, 774 (D.Colo.1964):

It is obvious that a plaintiff may not be privy to the workings of a group of defendants who have acted in concert to defraud him, but he can at least identify the particular defendants who allegedly dealt with him, and he can describe the circumstances under which particular defendants dealt directly with him.

414 F.Supp. at 1279. The requirements of Rule 9(b) are directed in part to preventing use of the liberal discovery procedures as a method for determining whether a fraud occurred at all.

Hence, while plaintiffs repeatedly claim that they have described the “bare bones of a fraudulent scheme,” (Plaintiffs’ Response to Pope Motion, filed 12/7/84, pp. 4, 7; Plaintiffs’ Response to Lindgren Motion, supra, at 4), the court finds that they have not. The first amended complaint fails properly to allege fraud against defendants, and must be dismissed.

The court therefore dismisses this complaint as inadequate under Rule 9(b). Plaintiffs are directed to file a second amended complaint by March 15, 1985, following the standards set forth in this opinion for the pleading of fraud.

It is so ordered.


source: Caselaw Access Project

author: SCOTT O. WRIGHT, Chief Judge.

license: Public Domain

text:
    Bruce A. HONEYWELL, Plaintiff, v. VILLAGE OF LAKESIDE, et al., Defendants.
    No. 84-4047-CV-C-5.
    United States District Court, W.D. Missouri, C.D.
    Feb. 15, 1985.

      Donald J. Lock, Gladstone, Mo., John H. Norton, Norton, Pollard & Norton, Inc., Kansas City, Mo., for plaintiff.

      Robert J. Quigley, Eldon, Mo., for Village of Lakeside.
    Alex Bartlett, John Reed, Jefferson City, Mo., for defendants Lake Ozark, McGrew and Brown.
   ORDER

SCOTT O. WRIGHT, Chief Judge.

Presently before the Court is defendant City of Lake Ozark’s Motion to Strike and Motion to Dismiss Count III of plaintiff’s First Amended Complaint for failure to state a claim upon which relief can be granted. Plaintiff has filed written opposition to both motions. For the following reasons, defendant’s motion to strike will be granted, however, defendant’s motion to dismiss will be denied.

This lawsuit arises out of an incident leading to plaintiff’s arrest which occurred on July 4, 1983. Plaintiff was arrested on that date in the Village of Lakeside for purportedly violating a Village of Lakeside litter ordinance. Arresting officers, defendants Roger Brown and Joe McGrew, were City of Lake Ozark policemen, on duty in and for the Village of Lakeside pursuant to a contractual arrangement between the Village and City of Lake Ozark.

Incident to the arrest, plaintiff maintains that his treatment by the officers gives rise to a cause of action, against them, and the respective municipal corporations, under 42 U.S.C. § 1983; for punitive damages; and a common law assault and battery claim. The incident occurred in the Village of Lakeside, however, plaintiff maintains the City of Lake Ozark is vicariously liable for the actions of their employees (arresting officers) while on duty in, and on behalf of, the Village of Lakeside. At all times, however, it appears the arresting officers were being paid by the City of Lake Ozark.

The question before the Court in considering a motion to dismiss for failure to state a claim upon which relief may be granted is whether, in the light most favorable to the plaintiff, the complaint states any valid claim for relief. Bramlet v. Wilson, 495 F.2d 714, 716 (8th Cir.1974). A complaint will 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, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Moreover, a complaint will not be dismissed merely because the Court doubts that a plaintiff will prevail on the action. Bramlet, supra, 495 F.2d at 716.

Count III of plaintiff’s First Amended Complaint alleges, inter alia, that at the time of the arrest, defendants Joe McGrew and Roger Brown were acting within the course and scope of their employment with the City of Lake Ozark, thereby rendering Lake Ozark vicariously liable for plaintiff’s damages. The defendant-officers were employed by the City of Lake Ozark, presumably paid by that City, yet on duty in the Village of Lakeside, as Lakeside police, pursuant to a contractual arrangement between the two municipalities. Assuming this is true, as this Court must (and defendant does not indicate otherwise), Count III of plaintiff’s complaint states a cause of action against Lake Ozark on a theory of respondeat superior, alleging vicarious liability of an employer for the tortious action of his employee.

Defendant, City of Lake Ozark, maintains that a municipal corporation cannot be held liable on a theory of vicarious liability in a § 1983 case. Insofar as plaintiff’s claim sounds in tort, defendant raises sovereign immunity as a bar to imposing vicarious liability on a municipal corporation for the acts of its employees. Plaintiff maintains that the contracting out of the officers to Lakeside Village represents a proprietary rather than governmental activity, thus stripping the City of Lake Ozark of any sovereign immunity it may otherwise enjoy.

In an action brought under 42 U.S.C. § 1983, no theory of vicarious liability can operate to hold the City of Lake Ozark liable for the [tortious] actions of their employees. Although a municipal corporation certainly does not enjoy complete immunity from liability under § 1983, a municipal corporation cannot be held liable under 42 U.S.C. § 1983 solely because it employs a tortfeasor; a municipal corporation cannot be vicariously liable under 42 U.S.C. § 1983 on a respondeat superior theory. Monell v. Department of Social Services, 436 U.S. 658, 98 S.Ct. 2018, 2036, 56 L.Ed.2d 611 (1978): Herrera v. Valentine, 653 F.2d 1220, 1224 (8th Cir.1981).

Plaintiff maintains, however, that insofar as Count III alleges a common law tort, a city (such as Lake Ozark) cannot raise sovereign immunity as a defense to the tortious actions of its employees in the execution of a proprietary rather than governmental function. Although plaintiff correctly perceives the scope of the immunity afforded a municipal corporation under Missouri law, the lynch-pin of plaintiffs position requires the conclusion that in supplying police services, for a price, to the Village of Lakeside, the City of Lake Ozark engaged in a proprietary rather than governmental function. As sovereign immunity does not insulate a municipal corporation from liability for tortious conduct in the performance of proprietary functions, vicarious liability may attach by reason of an employee’s tortious actions in the execution of proprietary functions. Davis v. City of St. Louis, 612 S.W.2d 812, 815 (Mo.App.,1981).

A city functions as a body politic, as an organ of government, and also as a body corporate, an artificial personality or corporation. Counts v. Morrison-Knudsen, Inc., 663 S.W.2d 357, 362 (Mo.App.1983). Whether a city, under a given set of facts, is performing a proprietary or governmental function is not always easily determined. Indeed, despite frequent reference to the distinction, it is a nebulous concept, often defying understanding and resulting in a “maze of inconsistency.” State ex rel. Allen v. Barker, 581 S.W.2d 818, 825 (Mo. en banc 1979).

Given the fact that a city has these dual obligations and by its nature performs both proprietary and governmental functions, in deciding whether a city or municipal corporation can be sued in a particular instance, a court must look to the nature of the activity performed to determine in which capacity the city has acted. Counts v. Morrison-Knudsen, Inc., supra, 663 S.W.2d at 362. A governmental activity or duty is one which is performed for the common good of all, whereas a proprietary act is one performed for the special benefit or profit of the city as a corporate entity. See, e.g., Dallas v. City of St. Louis, 338 S.W.2d 39, 44 (Mo.1960).

Plaintiff’s complaint asserts liability against the City of Lake Ozark for the actions of Brown and McGrew during the course of their employment with the City of Lake Ozark, yet on duty in and for the Village of Lakeside. Although the Court is inclined to characterize Lake Ozark’s action as proprietary, the context of a motion to dismiss prevents the Court from actually deciding whether the contracting out of Lake Ozark policemen to Lakeside Village is a proprietary or governmental function. Plaintiff has properly pled facts showing defendant was acting in a proprietary function. Defendant’s motion to dismiss and reliance on sovereign immunity, so far as it rests on the ground that Lake Ozark was acting in a governmental capacity must be denied. See, Counts v. Morrison-Knudsen, Inc., supra, 663 S.W.2d at 363. This Court cannot, without speculation, know from the face of the complaint whether the City of Lake Ozark’s actions were proprietary or governmental in nature. Therefore, defendant's motion to dismiss Count III of plaintiff’s First Amended Complaint will be denied.

In their second motion, defendant City of Lake Ozark moves to strike plaintiff’s claim(s) for punitive damages against the City of Lake Ozark. In so requesting, defendant City of Lake Ozark maintains that both Missouri and federal law prohibit recovery of punitive damages against a municipal corporation. Plaintiff acknowledges the well-settled rule that punitive damages may not be recovered under 42 U.S.C. § 1983 against a municipal corporation. See City of Newport, et al. v. Fact Concerts, Inc., 453 U.S. 247, 101 S.Ct. 2748, 69 L.Ed.2d 616 (1981). Plaintiff maintains, however, that the facts of this case remove it from any prohibition of punitive damages against municipal corporations. Plaintiff asserts that where the municipal corporation cannot otherwise avail itself of the shield of sovereign immunity, it likewise loses, its immunity from liability for punitive damages. Necessarily relying on the assumption that the City of Lake Ozark’s actions are proprietary in nature (thereby depriving them of a sovereign immunity tort defense), plaintiff claims that the prohibition on punitive damages against municipal corporations is inapplicable insofar as it relates to plaintiff's common law tort claims.

Assuming without deciding that plaintiff’s assertion is indeed correct, i.e., that defendant’s actions were proprietary rather than governmental, the facts and circumstances of this case do not yet support relaxing the well-settled prohibition on punitive damage awards against municipal corporations. Accordingly, defendant’s motion to strike will be granted. •

In enacting 42 U.S.C. § 1983, Congress expressed no intention to do away with the immunities afforded state officials at common law; indeed, the Supreme Court has consistently declined to construe the general language of 42 U.S.C. § 1983 as automatically abolishing such traditional immunities by implication. City of Newport, supra, 101 S.Ct. at 2755. The 42nd Congress was well aware of common law principles of immunity and at that time the common law immunity a municipal corporation enjoyed from punitive damages was not open to serious question or doubt. Id. at 2756. Admittedly, an incorporation of complete immunity would render § 1983 impotent, however, the United States Supreme Court, after careful inquiry into the history and policy of § 1983, has held that the statute does indeed incorporate the immunity a municipal corporation enjoys from punitive damages. Id. at 2758. These same reasons and policies demand the same result, regardless of whether the claim is founded on 42 U.S.C. § 1983 or common law theories of liability.

Historically, courts have been loathe to attribute the malice of public officials to taxpaying citizens of a community. See Hunt v. City of Booneville, 65 Mo. 620 (1877). Allowing punitive damages to be assessed against a municipal corporation would burden the very taxpayers and citizens for whose benefit the wrongdoer is being chastised. City of Newport, supra, 101 S.Ct. at 2757. Rather than representing an element of compensation, rightly shared by the municipality, punitive damages represent only punishment; which should rightly be borne only by the wrongdoer. See Rest.2d Torts § 908 (1979). Punitive damages are awarded in order to inflict punishment for wrongdoing and as an example and deterrent to similar conduct, not to compensate an injured plaintiff for his loss. Chappell v. City of Springfield, 423 S.W.2d 810, 814 (Mo.1968). It would be anomalous to force the burden of punishment that would result from assessing punitive damages against a municipal corporation on the taxpayer — the very group supposed to benefit from the public example which punitive damages make of the wrongdoer. Chappell, supra, 423 S.W.2d 814. Vindictive damages should not be borne by innocent taxpayers. Id.

Under Missouri law a municipality is not liable for punitive damages when sued for a wrong, committed by an employee or otherwise, absent a statute specifically authorizing such recovery. Chappell v. City of Springfield, 423 S.W.2d at 813, 814-15. Neither does the governmental-proprietary function distinction, assuming it can be made, overshadow the history and/or policy behind the United States Supreme Court’s and Missouri Supreme Court’s refusal to allow punitive damages to be levied against a municipal corporation. Imposing punitive damages against a municipal corporation would bestow a windfall on an already fully compensated plaintiff, and could very likely be accompanied by an increase in taxes or reduction of public services for the citizens ultimately footing the bill. City of Newport, supra, 101 S.Ct. at 2760. Neither reason nor justice demands that such retribution be visited upon the blameless and unknowing taxpayer. Id. A municipal corporation cannot bear malice independent of the malice of its officials. Therefore, punitive damages are not sensibly assessed against a government entity as such, regardless of the characterization of the activity as governmental or proprietary.

Absent a statute specifically authorizing such recovery, punitive damages are not recoverable against a municipal corporation under Missouri law. Chappell v. City of Springfield, 423 S.W.2d at 814. While punitive damages are otherwise available in a § 1983 or common law tort claim against an individual tortfeasor, the justifications and purposes underlying that rule are wholly inapplicable when applied to a municipal corporation such as the City of Lake Ozark. Regardless of any distinctions which may render an activity governmental or proprietary, the net result is the same — a windfall befalls the plaintiff at the certain expense of the innocent taxpayer. History, policy, and state and federal law do not require a different result. Therefore, as it relates to defendant City of Lake Ozark, plaintiff’s claim for punitive damages will be stricken.

Accordingly, it is hereby

ORDERED that defendant City of Lake Ozark’s motion to dismiss Count III of plaintiff’s First Amended Complaint is hereby denied, and it is further

ORDERED that defendant City of Lake Ozark’s motion to strike plaintiff’s claim for punitive damages against the City of Lake Ozark is hereby granted.

      . Such sovereign immunity and/or governmental tort immunity as existed at common law in Missouri prior to September 12, 1977, except to the extent waived, abrogated or modified by prior statutes remains in full force and effect. V.A.M.S. § 537.600 (1978). At common law a municipal corporation was immune from liability for performance of governmental functions, however was liable for tortious actions of their agents, servants, or officers, in the execution of corporate powers and duties. See Cook v. Kansas City, 358 Mo. 296, 214 S.W.2d 430 (1948); State ex rel Askew v. Kopp, 330 S.W.2d 882 (Mo.1960); State ex rel Allen v. Barker, 581 S.W.2d 818, 825 (Mo. en banc 1979).

      . See, Nix v. Sweeney, 573 F.2d 998 (8th Cir.) cert. den. 444 U.S. 929, 100 S.Ct. 271, 62 L.Ed.2d 186 (1978). When the wrong complained of constitutes official action of the city, contrary state immunity defenses cannot, consistent with the supremacy clause, protect the municipal corporation. The Court of Appeals, however carefully distinguishes between official action of the city, on the one hand, and tortious conduct of employees, on the other.

      . See Note 2, supra, and accompanying text. See also Davis v. City of St. Louis, 612 S.W.2d 812, 814 (Mo.App.1981).

      . Deterrence is yet an insufficient justification for imposing punitive damages against a municipal corporation. The wrongdoing officials may not be deterred by an award of damages against a municipal corporation. At most, the impact on the tortfeasor(s) is uncertain. Secondly, there is no reason to assume desired corrective action (sanction or removal of wrongdoing official) will not occur without punitive damages— compensatory damages may be sufficient impetus to corrective action. Third, the threat of punitive damages against the official may be a sufficient and more effective deterrent to official wrongdoing. Fourth, the acts represent a real and serious threat to the financial integrity of the municipal entity in return for dubious benefit, and finally, as evidence of net worth would be admissible and a municipal corporation has unlimited taxing power, the awards would represent an unpredictable, substantial windfall to the plaintiff. See Chappell, supra, 423 S.W.2d at 814; City of Newport, supra, 101 S.Ct. at 2760-61.

      . And, indeed, where statutes have relaxed, waived or abrogated sovereign immunity in some respect, the legislature has carefully retained the prohibition on assessing punitive damages against a municipal corporation. See, e.g., RSMo § 537.610.3.


text:
    Mary HOFEREK, Plaintiff, v. UNIVERSITY OF MISSOURI, and Barbara Uehling, Chancellor, University of Mo.-Columbia Campus, and Alton Zanders, Director of Affirmative Action University of Missouri-Columbia Campus, Defendants.
    No. 84-4119-CV-C-5.
    United States District Court, W.D. Missouri, C.D.
    Feb. 15, 1985.

      Neil MacFarlane, Columbia, Mo., for plaintiff.
    Robert L. Ross, James S. Newberry, Phillip J. Hoskins, William F. Arnet, Columbia, Mo., for defendants.
   ORDER

SCOTT O. WRIGHT, Chief Judge.

Background

Plaintiff has filed a 3-count complaint against the ” above-named defendants. Count 1 alleges violations of Title VII of the Civil Rights Act of 1964 as amended, 42 U.S.C. § 2000e et seq.; Count 2 raises a tort claim against Uehling and Zanders; and Count 3 alleges a breach of contract claim against the same two defendants.

Defendants have moved to dismiss Counts 2 and 3 for failure to state a claim upon which relief may be granted, on the grounds that they are barred by the Eleventh Amendment. Plaintiff maintains that the Eleventh Amendment to the United States Constitution does not bar Counts 2 and 3 and in support thereof insists (1) the University of Missouri cannot claim the protection of the Eleventh Amendment, and even if they can, the State of Missouri has waived such protection as it pertains to the University; (2) Uehling and Zanders violated state law in carrying out their official duties, and thus lose the protection the Eleventh Amendment affords state officials; and finally, plaintiff seems to suggest that (3) Counts 2 and 3 (state law claims) are pendent to the Title VII claim, and asserted against Uehling and Zanders in their individual capacities. For the following reasons, defendants’ motion will be granted.

The task before this Court on a motion to dismiss is necessarily a limited one. In so passing on such a motion, whether on the grounds of lack of subject-matter jurisdiction or for failure to state a cause of action, the allegations of the complaint are construed favorably to the pleader. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). A complaint will 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 her claim which would entitle her to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).

The Court discerns only three circumstances under which Counts 2 and 3 are viable: (1) waiver of Eleventh Amendment protections by the State of Missouri; (2) Uehling and Zanders’ actions have operated to strip them of the Eleventh Amendment protections afforded state officials; or (3) the state claims could properly be heard by this Court pendent to the Title VII claims. After analysis of these three alternatives, the Court concludes that Counts 2 and 3 of plaintiffs complaint should indeed be dismissed.

Opinion

As enacted in 1798, and as it remains unchanged today, the Eleventh Amendment to the United States Constitution provides:

The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by citizens of another state or by citizens or subjects of any foreign state.

Although the Amendment, by its terms, does not bar suits against a state by its own citizens, the United States Supreme Court has long and consistently held that an unconsenting state is immune from suits brought in federal court by her own citizens as well as citizens of another state. Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed.2d 842 (1890). Such immunity may be waived, and while the Supreme Court has acknowledged that a state may consent to suit against it in federal court, a state’s consent to suit must be unequivocally expressed. Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 907, 79 L.Ed.2d 67 (1984). A state’s constitutional interest in immunity encompasses not merely whether it may be sued, but where it may be sued. Id. Moreover, a state’s waiver of sovereign immunity in its own courts does not waive the Eleventh Amendment protection it enjoys in the federal courts. See, e.g. Florida Dept. of Health v. Florida Nursing Home Assn., 450 U.S. 147, 101 S.Ct. 1032, 1034, 67 L.Ed.2d 132 (1981).

Plaintiff suggests that the University of Missouri is not an arm of the State of Missouri with the ability to raise the Eleventh Amendment as a bar to Counts 2 and 3 of her complaint. Plaintiff goes on to assert that in the event the Curators of the University of Missouri do otherwise enjoy the protection of the Eleventh Amendment, the Missouri Legislature has waived such protection by the “sue and be sued” language of Mo.Rev.Stat. § 172.020. Plaintiff’s argument is not persuasive.

In a suit against the University of Missouri, more properly the Curators of the University of Missouri, the real party in interest is the State of Missouri. Putting aside the semantics and nuances of University funding, the Curators of the University of Missouri presumptively represent the State of Missouri. Strong v. Curators of the University of Missouri, 575 S.W.2d 812 (Mo.App.1978). The Curators, as representatives of the State, are entitled to the immunity from suit in federal court afforded the State under the Eleventh Amendment.

Once determining that the Curators of the University of Missouri are immune from suit without their consent in federal court, this Court finds nothing to suggest that the State or Curators have subsequently waived that protection. The plaintiff neither advances, nor does the Court find, “explicit” waiver of the Eleventh Amendment. As the statutory grant of power to sue and be sued does not effect a waiver of sovereign immunity, a fortiori, it does not indicate consent to suit in federal court. See State ex rel. Mo. Div. of Family Services v. Moore, 657 S.W.2d 32 (Mo.App.1983).

A State’s consent to suit against it must be unequivocally expressed. See, e.g., Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 1360-61, 39 L.Ed.2d 662 (1974). Plaintiff has not convinced this Court that the Curators of the State of Missouri have even impliedly, much less expressly, consented to tort or contract claims being raised against them in federal court. Plaintiff’s assertion of waiver is without merit.

An unconsenting state is immune from suit brought in federal court by its own citizen or that of another state. Employees v. Missouri Public Health & Welfare Dept., 411 U.S. 279, 93 S.Ct. 1614, 1622-23, 36 L.Ed.2d 251 (1973). Relief nominally sought against officers of a state is yet barred as it actually is brought against the state — insofar as the damages sought operate to the detriment of the state. Hawaii v. Gordon, 373 U.S. 57, 83 S.Ct. 1052, 1053, 10 L.Ed.2d 191 (1963) (per curiam). Thus, suit brought in federal court against Uehling and Zanders, in their capacity as University/State officials, is barred by the Eleventh Amendment just as surely as would asserting these two claims against the University directly.

Plaintiff maintains, however, that the alleged wrongs committed by Uehling and Zanders in the course of their official capacities strip them of the protection of the Eleventh Amendment. See, e.g. Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908) (State official can be sued as private individual per the Eleventh Amendment because unconstitutional actions of State officials are “void,” therefore do not impart to the official any immunity from responsibility to the supreme authority of the United States). Plaintiff’s reliance on Ex parte Young is misplaced. Uehling and Zanders cannot be sued in federal court for alleged violations of state law committed by them as State officials.

Ex parte Young allows limited, prospective relief against state officials who, through their actions, have allegedly violated a plaintiff’s constitutional rights. The federal-law allegation strips the state officer of his official authority, thus facilitating an action in federal court to enjoin further unconstitutional behavior. Pennhurst State School & Hosp., supra, 104 S.Ct. at 909.

Plaintiff’s reliance on Young overlooks the fact that Young has repeatedly been explained as a narrow exception to the operation of the Eleventh Amendment designed to promote the vindication of federal rights through injunctive relief. Id. at 910. By forcing a wrongdoing state official to answer to the supreme authority of the United States in federal court, Ex parte Young reconciles Eleventh Amendment immunity with the supremacy of the rights and powers secured to individuals elsewhere in the Constitution. Young, 28 S.Ct. at 454. This need to reconcile competing interests is wholly absent, however, when, as here, a plaintiff alleges that a state official has violated state law. Pennhurst State School & Hosp., supra, 104 S.Ct. at 911. In cases such as the one at bar, the entire basis for the Young exception disappears — a federal court’s grant of relief against state officials on the basis of [violation of] state law, whether prospective or retroactive, does not vindicate the supreme authority of federal law. Id. Young is inapplicable to plaintiff’s claims against Uehling and Zanders. Counts 2 and 3 allege that Uehling and Zanders violated rights secured to plaintiff under Missouri state law and seek monetary relief; the Court cannot think of a clearer instance in which the Eleventh Amendment deprives the plaintiff of a federal forum.

Finally, were the Court to go so far as to indulge plaintiff’s suggestion that Uehling and Zanders are being sued in their individual capacities, the Court would yet be without jurisdiction to entertain Counts 2 and 3. Plaintiff’s intimation that Uehling and Zanders are being sued in tort and contract in their personal rather than official capacities necessarily seeks to invoke the power of this Court to hear related state law claims pendent to the adjudication of federal claims.

In evaluating whether pendent jurisdiction should be exercised, the Court must initially determine .whether it has Article III power to adjudicate state law claims. United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966). Federal courts have Article III power to entertain pendent state law claims when the federal and state claims form a “common nucleus of operative fact” such that the plaintiff ordinarily would be expected to try them all in a single judicial proceeding. Id. The Court also must consider whether Congress intended state claims to be joined with the substantive federal claim. See Aldinger v. Howard, 427 U.S. 1, 16-19, 96 S.Ct. 2413, 2421-2422, 49 L.Ed.2d 276 (1975). Furthermore, the exercise of pendent jurisdiction is discretionary and “need not be exercised in every case in which it is found to exist.” United Mine Workers v. Gibbs, 383 U.S. at 726-27, 86 S.Ct. at 1139. Thus, assuming that jurisdiction exists, the Court nevertheless must determine if considerations of judicial economy, convenience, and fairness to litigants counsel against entertaining the pendent claim. Id. Finally, the principle of comity enters the case where, as here, the pendent claim may involve unsettled questions concerning the application of state law. Cf. Railroad Comm’n of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941).

After weighing all of these factors, the Court has determined that, under the circumstances of this case, it would be inappropriate to exercise pendent-party jurisdiction over plaintiffs tort and contract claims. At the outset, it is difficult to ascertain how plaintiffs tort and contract claims share a “common nucleus of operative facts” with her Title VII claim. The Title VII claim clearly and necessarily asserts discriminatory treatment with respect to the terms and conditions of her employment. On the other hand, the tort claim basically alleges fraudulent inducements were made in recruiting plaintiff for her position. The breach of contract claim asserts plaintiff was discharged in violation of the terms of her contract, arguably approaching factual and legal issues similar to those of the Title VII claim. The Court, however, finds the factual and legal dissimilarities between plaintiffs federal and state claims to be such that the Court lacks the power to exercise pendent-party jurisdiction in this case.

Moreover, the Court notes that several district courts have held that Congress did not intend to allow the hearing of pendent state claims in a Title VII lawsuit. See, e.g. Bennett v. Southern Marine Management, 531 F.Supp. 115, 117-18 (M.D.Fla.1982); Jong-Yul Lim v. International Inst. of Metro Detroit, Inc., 510 F.Supp. 722, 725-26 (E.D.Mich.1981); Kiss v. Tamarac Utilities, Inc., 463 F.Supp. 951, 954 (S.D.Fla.1978). As these courts have observed, allowance of state law claims would transform the equitable Title VII action into a more complex case. The state law claims would be triable to a jury and would open up issues of compensatory and punitive damages. Accordingly, the exercise of pendent jurisdiction over plaintiffs tort and contract claims is inappropriate as it would conflict with and detract from the procedural and remedial scheme enacted by Congress.

Finally, assuming arguendo that the Court has the power to hear the tort and contract claims, and they are brought against Uehling and Zanders as individuals, the Court nevertheless would decline to exercise pendent jurisdiction. Hearing the state law claims would complicate matters of proof, confuse the issues in this case and unnecessarily involve the Court in a determination of official immunity the defendants may enjoy under Missouri state law.

Conclusion

In accordance with the foregoing discussion of the relevant legal principles, the Court is satisfied that Counts 2 and 3 of plaintiffs complaint are not properly before the Court.

Therefore, it is hereby

ORDERED that the defendant’s motion to dismiss Counts 2 and 3 of plaintiff’s complaint is hereby granted.

      . Mo.Rev.Stat. § 172.020 (1977) defines the powers of the Curators of the University of Missouri. In relevant part:
      "The University is hereby incorporated and created a body politic and shall be known by the name of ‘The Curators of the University of Missouri,’ and by that name shall have perpetual succession, power to sue and be sued, complain and defend in all courts;”

        . Plaintiffs complaint actually names Uehling and Zanders as "Chancellor" and "Affirmative Action Director" respectively — they are not named as individuals.

      . It was previously thought that once jurisdiction was established on the basis of federal question no further Eleventh Amendment inquiry was necessary regarding all other claims raised by the complaint. See, e.g. Green v.

        Louisville & Interurban Railroad Co., 244 U.S. 499, 37 S.Ct. 673, 61 L.Ed. 1280 (1917). It is now clear, however, that pendent claims brought against state officials for violation of state law in carrying out their official responsibilities are likewise barred by the Eleventh Amendment. See Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 919-920, 79 L.Ed.2d 67 (1984). Thus, Counts 2 and 3 are viable, if at all, only as they may be brought against Uehling and Zanders as individuals.

      . The Court notes that hearing Counts 2 and 3 would involve the joinder of pendent parties -defendant compared to the maintenance of pendent claims. Uehling and Zanders are not proper party-defendants to plaintiffs Title VII claim; they are defendants only insofar as Counts 2 and 3 remain. See 42 U.S.C. § 2000e(b) [“employer” defined]; 42 U.S.C. § 2000e-2(a). Jurisdictional barriers to pendent party jurisdiction are considerably more restrictive than those relating to pendent claim jurisdiction. See Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 2420-21, 49 L.Ed.2d 276 (1976). While the Supreme Court has suggested that the only instance in which pendent-party jurisdiction might properly be exercised is a situation, such as the instant, where the federal courts enjoy exclusive jurisdiction over the main claim, Id., 96 S.Ct. at 2422, such an exercise of jurisdiction would yet require this Court’s conclusion that the exercise of pendent jurisdiction is otherwise constitutionally proper; that is to say, the state and federal claims arise out of a common nucleus of operative fact.


author: SWEET, District Judge.

text:
    MERRITT FORBES & COMPANY INCORPORATED, Plaintiff, v. NEWMAN INVESTMENT SECURITIES, INCORPORATED; Newman and Associates, Inc.; Security Pacific National Bank; and Security Pacific Corporation, Defendants.
    No. 84 Civ. 4618 (RWS).
    United States District Court, S.D. New York.
    Feb. 20, 1985.

      Saterlee & Stephens by James F. Rittinger, New York City, Saidman, Sterne, Kessler & Goldstein, Washington, D.C., for plaintiff; Edward J. Kessler, Robert W. Sacoff, Washington, D.C., of counsel.
    O’Melveny & Myers, New York City, for defendants; Sally A. Treweek, Astrid R. Baumgardner, Lani A. Adler, New York City, of counsel.
   OPINION

SWEET, District Judge.

Plaintiff Merritt Forbes & Co. (“Merritt Forbes”) has brought this action alleging copyright infringement under 17 U.S.C. § 501 et seq., false designation of origin under 15 U.S.C. § 1125(a), common law service mark infringement and unfair competition, and misappropriation. Defendants Newman Investment Securities, Inc., Newman and Associates, Inc., Security Pacific National Bank and Security Pacific Corporation (collectively “Newman”) now move to dismiss the complaint under Rule 12(b)(6) and for summary judgment. Skilled counsel have ably presented this unique issue in which protection is sought for certain bond offering documents. On the facts and conclusions set forth below, the motions are granted in part and denied in part.

Facts

The following facts are not in dispute except where noted. Merritt Forbes and Newman underwrite and market various types of securities, including tax-exempt municipal bonds (“bonds”). Bonds are offered to investors by means of disclosure documents, which may be styled as official statements, offering memoranda, “offering circulars” or “reoffering circulars” (“bond, underwriting documents”). These documents describe the product, the issuer, and the underwriter and are intended to disclose all facts material to an investor’s decision to purchase the bonds.

Between 1981 and 1983 Merritt Forbes developed a municipal bond program involving long-term tax-exempt bonds to which an option is attached giving the bond holder the option to “put” or “tender” the bond back to the seller prior to its stated maturity. According to Newman, similar bonds had previously been offered by several securities firms underwriting municipal issues. Merritt Forbes contends, however, that its bond program was unlike any other known to the bond market at that time because of a combination of unique features.

Merritt Forbes’ program, which it referred to as its Tender Option Program, was described and outlined in three principal documents: the Secondary Reoffering Circular and its associated Supplement, the “Executive Summary of Tender Option Program” (the “Executive Summary”), and the “Presentation to [Name of institution] regarding the TENDER OPTION PROGRAM for the Sale of Below Market Tax-Exempt Securities Portfolios” (the “Presentation Package”). The Secondary Reoffering Circular and its Supplement was publicly distributed without qualification to broker/dealers, institutional investors, and potential seller institutions.

Starting in the fall of 1983, Merritt Forbes employees began to contact major financial institutions that were known to have substantial portfolios of long-term municipal bonds to determine their interest in the program. Those institutions which exhibited an interest in the program were usually sent the Executive Summary upon the approval of an authorized person at Merritt Forbes and, if further interest was shown, were thereafter sent the Presentation Package. According to Merritt Forbes, the Executive Summary and Presentation Package were given to institutions with oral and written understanding that the information therein would be held in confidence.

Between October and December 1983 Merritt Forbes began using the trade identity designations T0P’ssm, TENDER ÓPTI0Nsm, and TENDER OPTION PROGRAM™ (collectively, “the Marks”) to identify the services offered in connection with its new program. All secondary reoffering circulars published by Merritt Forbes in conjunction with this program stated “TOP’S, TENDER OPTION, and TENDER OPTION PROGRAM are service marks of Merritt Forbes & Company Incorporated.” On May 30, 1984, Merritt Forbes filed application with the United States Patent and Trademark Office to secure Federal Service Mark Registrations for each of these marks.

On May 30, 1984 Merritt Forbes also registered a copyright in two Secondary Reoffering Circulars dated February 1 and March 1, 1984 and two associated Supplements dated February 13 and March 1, 1984 (“copyrighted material”) circulated in conjunction with the bond transactions offered to the public in February and March of 1984 and received a certificate of copyright registration. The copyrighted material was originally published without notice of copyright.

At some point between December of 1983 and late February of 1984 Merritt Forbes allegedly held telephone discussions with Dudley E. Stewart, (“Stewart”), and Joseph Irwin, (“Irwin”), both officials of Security Pacific Bank, and Pat Woosley (“Woosley”) and Jeff Dorfman (“Dorfman”), employees of the Bank, about Merritt Forbes’ Tender Option Program. Following these conversations, Merritt Forbes allegedly sent Irwin an Executive Summary and in mid-February 1984 sent Irwin a Presentation Package. According to Merritt Forbes, Security Pacific agreed to keep information about the program confidential. Irwin has no recollection of having requested or received the Executive Summary, although he received a copy of the Presentation Package. According to Irwin, the Presentation Package was only distributed to two members of Security Pacific’s legal department and no one elsel

On April 5, 1984 Newman Investment Securities, Inc. served as underwriter and Newman and Associates Inc. served as marketing agent in a transaction offered to the public on April 5, 1984 by means of Newman’s reoffering circular and supplement. (“Newman’s offering documents”). The bonds in Newman’s transaction were supported by a letter of credit from Security Pacific National Bank. Newman’s securities were called “tender option securities.”

Prior Proceedings

In June 1984 Merritt Forbes initiated this suit alleging copyright infringement, unfair competition, service mark infringement, and misappropriation of proprietary information in connection with the Newman offering. In its complaint, Merritt Forbes claims first that Newman’s Offering Documents were substantially copied from Merritt Forbes’ copyrighted works and therefore infringe Merritt Forbes’ copyright. In addition, Merritt Forbes alleges that Newman made unauthorized use of the service marks adopted and used by Merritt Forbes and that this use constitutes both a violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and common law service mark infringement and unfair competition in violation of the laws of New York. Merritt Forbes also claims that Security Pacific and Newman conspired to violate Merritt Forbes’ rights by misappropriating the confidential information supplied by Merritt Forbes to Security Pacific in Merritt Forbes’ Executive Summary and Presentation Package.

In its motion, Newman contends, first, that the copyright infringement claim must be dismissed because Merritt Forbes does not have a valid copyright in its bond documents; second) that Merritt Forbes’ claims of false designation of origin, service mark infringement, and unfair competition must be dismissed because the term “tender option” is generic; and, third, that Merritt Forbes misappropriation claim must be dismissed because there is no showing that Newman made use of Merritt Forbes’ disclosures.

Copyright Infringement

In order to establish an actionable claim for copyright infringement, a plaintiff bears the burden of establishing both ownership of a valid copyright and actual copying by the defendant. Eden Toys, Inc. v. Marshall Field & Co., 675 F.2d 498, 499 (2d Cir.1982). A copyright registration certificate constitutes prima facie evidence of the validity of the copyright, 17 U.S.C. § 410(c), but validity will not be assumed where other evidence in the record casts doubt on the validity of the copyright. Shapiro & Son Bedspread Corp. v. Royal Mills Associates, 568 F.Supp. 972, 975 (S.D.N.Y.1983). Two of the elements that are necessary for ownership of a valid copyright are copyrightability of the subject matter and originality in the author. 3 Nimmer on Copyright, § 13.01[A] (1984). Newman challenges Merritt Forbes’ claim of a valid copyright on the grounds that as a matter of law Merritt Forbes is unable to establish either of these elements with respect to its copyrighted documents.

Subject Matter of Copyright and Fair Use

Section 102 of the Copyright Act of 1976, 17 U.S.C. § 102, confers copyright protection “in original works of authorship fixed in any tangible medium of expression.” The Act lists seven broad categories included within the concept of “works of authorship,” a list which is intended to be “illustrative and not limitative” and provide “sufficient flexibility to free the courts from rigid or outmoded concepts of the scope of particular categories.” House Report on the Copyright Act of 1976, Report No. 94-1476, p. 53 (“House Report”), U.S. Code Cong. & Admin.News 1976, 5659, 5666. Included in that list is the category of “literary works,” a term which “does not connote any criterion of literary merit or qualitative value. It includes catalogs, directories, and similar factual, reference, or instructional works and compilations of data.” House Report, p. 54. Given the breadth of the classification, Merritt Forbes’ bond documents qualify as copyrightable “literary works,” given their similarity in form to other works held to have been so qualified. See Financial Information, Inc. v. Moody’s Investors Service, Inc., 751 F.2d 501 (2d Cir.1984) (daily bond reports); H.C. Wainwright & Co. v. Wall Street Transcript Corp., 418 F.Supp. 620 (S.D.N.Y.1976), aff'd, 558 F.2d 91 (2d Cir.1977), cert. denied, 434 U.S. 1014, 98 S.Ct. 730, 54 L.Ed.2d 759 (1978) (financial research reports); Harcourt, Brace & World, Inc. v. Graphic Controls, 329 F.Supp. 517 (S.D.N.Y.1971) (answer sheets for examinations).

However, copyright may be claimed only in the “expression” of a work of authorship, not in its “idea.” Nimmer on Copyright, § 2.03[0] (1984); Reyher v. Children’s Television Workshop, 387 F.Supp. 869 (S.D.N.Y.1975), aff'd, 533 F.2d 87 (2d Cir.1976). Section 102(b) of the Act provides that “[i]n no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated or embodied in such a work.” Thus, infringement will not be found where the only similarity between two works is that of an abstract idea, rather than a particular method or means of expressing that idea. Eckes v. Card Prices Update, 736 F.2d 859, 862 (2d Cir.1984); Durham Industries v. Tomy Corp., 630 F.2d 905, 912-13 (2d Cir.1980); A.A. Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 978 (2d Cir.1980).

Within the above confines, any original expression qualifies as an appropriate subject for copyright protection, although the degree to which ah actionable infringement will be found may depend on the actual nature of the work. Newman argues, however, that industry convention and public policy require a conclusion that bond underwriting documents are not a proper subject for copyright protection. In support of this proposition, Newman offers the affidavits of two persons knowledgeable in the bond industry that set forth how bond documents are generated and why copyrighting such documents is implausible. They claim that bond documents are generated by marking up precedents from earlier transactions, the persons in the bond industry frequently communicate information among themselves, and that bond documents follow similar form and contain similar language by virtue of legal disclosure requirements, use of boilerplate and standardized language, and industry consensus. They further argue that because standard bond documents can easily be adapted to new concepts, this procedure is followed even with “new” products.

According to Newman, this standardization of bond underwriting documents permits investors to focus on the substantive differences between transactions so that they can meaningfully compare and evaluate different investments. In addition, Newman claims that the industry custom of relying on precedent decreases the cost of bond offerings and thus increases the ability of municipalities to raise funds efficiently and the range of investment opportunities available to the public. Newman argues that if Merritt Forbes were permitted to enforce its copyright with respect to its bond underwriting documents, all other persons wishing to engage in similar bond transactions would be precluded from doing so and that therefore both the vigorous competition in and efficient operation of the bond market would be threatened.

The issue of whether or not bond underwriting documents are the proper subject for copyright protection has apparently never been addressed in this or any other jurisdiction. As noted above, documents of a somewhat similar nature have been considered copyrightable, and the leading copyright commentator notes that “[tjhere appear to be no valid grounds why legal forms such as contracts, insurance policies, pleadings and other legal documents should not be protected under the law of copyright.” 1 Nimmer on Copyright, § 2.18(E). Newman claims, however, that courts in this Circuit have dismissed copyright infringement actions after considering the nature of the particular materials and the policy implications of protecting such materials under the copyright laws, and cites Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 973, 977 (2d Cir.), cert. denied, 449 U.S. 841, 101 S.Ct. 121, 66 L.Ed.2d 49 (1980) (historical works) and Rosemont Enterprises, Inc. v. Random House, Inc., 366 F.2d 303, 307 (2d Cir.1966), cert. denied, 385 U.S. 1009, 87 S.Ct. 714, 17 L.Ed.2d 546 (1967) (biographies) in support of this proposition. In neither of these cases did a court grant summary judgment on the grounds that public policy considerations mandated refusing copyright protection to an otherwise copyrightable category of works. In Hoehling, the Court rejected the argument that historical interpretation deserved copyright protection, a conclusion consistent with the general principle that “[a]n interpretation of fact is itself a fact, or purported fact, deduced from other facts.” 1 Nimmer on Copyright, § 2.11[A]; see also Financial Information, Inc. v. Moody’s Investors Service, Inc., supra, at 504-505; Harper & Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 205 (2d Cir.1983). In Rosemont the issue before the Court involved the applicability of the fair use doctrine as a defense in a copyright infringement case rather than the validity of the copyright in question.

Both cases, however, provide some general support for the proposition that public policy considerations may affect the degree to which the copyright on a particular type of work may be infringed. The Court in Hoehling noted that because “the cause of knowledge is best served when history is the common property of all ... the scope of copyright in historical accounts is narrow indeed, embracing no more than the author’s original expression of particular facts and theories already in the public domain.” 618 F.2d at 974. In Rosemont, the Second Circuit overturned the lower court’s grant of a preliminary injunction on the ground that the defendant might well be entitled to the defense of fair use despite the fact that a substantial portion of his biography of Howard Hughes was closely copied from a series of articles by the plaintiff. The Court based its decision on its desire to insure that the public not be “deprived of an opportunity to become acquainted with the life of a person endowed with extraordinary talents____ ‘Everyone will agree that at some point the public interest in obtaining information becomes dominant over the individuals desire for privacy.’ Thus, in balancing the equities at this time in our opinion the public interest should prevail over the possible damage to the copyright owner.” 366 F.2d at 309. Based on the specific facts of the case, including the nature of the work and the type of alleged infringement, the Court concluded that the defendant might be entitled to rely on the defense of fair use and reversed the grant of a preliminary injunction.

Thus, while no authority has been cited for the proposition that certain types of works may be exempted from the statutory definition of material subject to copyright because of public policy, the cases cited above suggest that courts may base their decision as to what constitutes unjustifiable infringement of a validly copyright work on considerations of policy. If the Rosemont case were read as holding that a court could dictate that the fair use doctrine always provided a defense in infringement cases involving a specific category of works, the end result would, of course, be the same as a holding that exempted that category of material from copyright protection. The Rosemont case has been sharply criticized by the leading commentator in the field of copyright for its suggestion that copying of original expression, not essential to the expression of the unprotected underlying idea, might be appropriate in certain situations, see 1 Nimmer on Copyright, § 1.10[0]. However, Rosemont did not hold that in the future any verbatim copying from biographies would be considered acceptable because of the particular nature of such works, but rather that in the particular situation before the court the balance of equities might support such copying and therefore the preliminary injunction barring dissemination of the work should not have been granted.

While Rosemont does not constitute a precedent which would allow this court to hold all bond documents per se uncopyrightable as a matter of public policy, it does support the conclusion that the specific infringement, if any, by Newman might be justified given the particular nature of the document and of the alleged infringement. But see Sony Corporation of America v. Universal City Studios, 464 U.S. 417, 104 S.Ct. 774, 793, 78 L.Ed.2d 574 (1984) (commercial use of copyrighted material is presumptively unfair use). However, the issue of whether Newman has a valid defense, whether based on public policy or other grounds, for any infringement is not yet before this court, as Newman’s summary judgment motion focused solely on the threshold question of whether Merritt Forbes is entitled to a valid copyright. The analysis which must be undertaken to determine if a defendant is entitled to the defense of fair use is very different than the one undertaken to decide if material is copyrightable. See Sony Corporation of America v. Universal City Studios, supra, 104 S.Ct. at 792. The proof Newman might offer in support of an argument that any infringement of Merritt Forbes’ documents was justified as fair use because of public policy considerations and based upon fair use might well be the same as the proof offered in support of this motion. However, because Merritt Forbes’ response to Newman’s motion focused only on the issue of per se copyrightability, any determination of the validity of Merritt Forbes’ alleged specific infringement must await the presention of that specific issue to this court, no court having concluded that there is a public policy exemption for a particular classification of literary works which would otherwise be subject to copyright protection.

Originality and Functional Expression

Newman also contests the validity of Merritt Forbes’ copyright on the grounds that the requisite originality is missing. Copyright protection under the Act is accorded only to “original works of authorship”, 17 U.S.C. § 102(a) (emphasis added). The originality necessary to support a copyright constitutes only independent creation, not novelty, since “a work is original and may command copyright protection even if it is completely identical with a prior work provided it was not copied from such prior work but is rather a product of the independent efforts of its author.” 1 Nimmer on Copyright, § 2.01[A]; Novelty Textile Mills, Inc. v. Joan Fabrics Corp., 558 F.2d 1090 (2d Cir.1977). All that is needed for a finding of sufficient originality is a “distinguishable variation” that is not merely trivial, even if the copyrighted work is based on prior copyrighted or public domain works. Midway Mfg. Co. v. Bandai-America, Inc., 546 F.Supp. 125, 151 (D.N.J.1982); Durham Industries v. Tomy Corp., supra, 630 F.2d at 910. 1 Nimmer § 3.03. In such a case, however, only new elements are protected by copyright. Originality may also be found in the selection and ordering of particular facts or elements. See Financial Information, Inc. v. Moody’s Investors Service, Inc., supra, at 505; Eckes v. Card Prices Update, supra, 736 F.2d 859 (2d Cir.1984); Roy Export Co. Estab. v. CBS, Inc., 503 F.Supp. 1137 (S.D.N.Y.1980), aff'd, 672 F.2d 1095 (2d Cir.1982).

Where a particular form of expression is dictated solely by functional considerations, the requisite originality may be missing. See, e.g., Kitchens of Sara Lee, Inc. v. Nifty Foods Corporation, 266 F.2d 541, 544 (2d Cir.1959) (list of ingredients on labels of food products). Similarly, where an underlying idea may only be conveyed in a more or less stereotyped manner, duplication of that form of expression does not constitute infringement, even if there is word for word copying. Consumers Union of United States, Inc. v. Hobart Mfg. Co., 199 F.Supp. 860 (S.D.N.Y.1961); Herbert Rosenthal Jewelry Corp. v. Kalpakian, 446 F.2d 738 (9th Cir.1971). But see 3 Nimmer on Copyright § 2.18(c)(2) (“[I]t is factually erroneous to conclude that there is any system or method which can be performed by the use of only one particular form of written expression.”); Sid & Marty Krofft Television Prods., Inc. v. McDonalds Corp., 562 F.2d 1157 (9th Cir.1977) (where idea and expression are indistinguishable, work may be protected as against identical copying only.)

Newman argues that given the nature of the bond market, no bond transaction document can ever be sufficiently original to support a finding of a valid copyright. It then contends that in any event Merritt Forbes’ specific documents lack originality. In its motion papers, Newman suggests that as in all bond documents most of Merritt Forbes’ documents are composed of boilerplate and information required by disclosure laws. It also raises the suggestion that allowing Merritt Forbes a copyright would give it a monopoly on the idea behind the bond offering, because the program or concept can only be expressed in a very limited number of ways. In support of these arguments, Newman presents affidavits stating that the nature of the bond market necessarily requires documents to be cumulative and based on precedent and therefore unoriginal. It offers no specific evidence of earlier documents or sources upon which the various documents in question were allegedly based, nor does it analyze the documents of both parties in detail to support its allegations that the underlying concept is capable of limited expression.

In response, Merritt Forbes has submitted an affidavit by the author of the documents in which he states: “Since the TOP’ssm program was a unique program having no close counterparts among other securities offering programs, I could not rely on precedents developed in other programs, as is often the case in the securities marketing business. Therefore, much of the work for the TOP’ssm program is original to this program____” Horowitz Affidavit, II 5. In addition, Merritt Forbes has submitted an affidavit by a vice president and director of Merritt Forbes in which he states that the particularly original aspect of the TOP’s program is its overall combination of a variety of features. Kolodner Affidavit, 11 6.

Newman claims that Merritt Forbes has failed to raise any triable issues of fact because its sworn statements are too ambiguous and inconclusive to support a conclusion that bond offering documents can be original, in particular because Merritt Forbes itself suggests that many such documents are based on precedent.

In a motion for summary judgment, the court must give full weight to the non-moving party’s evidence and draw every reasonable inference in its favor. Ambook Enterprises v. Time, Inc., 612 F.2d 604 (2d Cir.1979). Merritt Forbes’ contentions that its documents were developed without reliance on precedents and that “much of the work” was original raise a genuine issue of material fact as to the originality of the expression of its program as well as the idea behind it, despite Newman’s claim, which may well turn out to be accurate, that no bond documents which comply with the legal requirements can be original and are merely an expression resulting from function.

While the evidence presented by Merritt Forbes may not be detailed, once Merritt Forbes introduced a properly registered certificate, the burden necessarily shifted to Newman to prove that the documents were not original. Blazon, Inc. v. DeLuxe Game Corp., 268 F.Supp. 416 (S.D.N.Y.1965). Newman’s contentions, absent a more detailed analysis, are not sufficient to overcome its burden. In any event, “[wjhere the evidentiary matter in support of the motion does not establish the absence of a genuine issue, summary judgment must be denied even if no opposing evidentiary matter is presented.” Notes of Advisory Committee on Rules, 28 U.S.C.A. Rule 56 (1963 amendment). The question of whether or not the concept expressed in Merritt Forbes’ document is capable of varied expression similarly raises a threshold issue of fact. The view of the court in Higgins v. Baker applies here:

The Court has considered the extensive affidavits submitted by defendants, and is impressed with the arguments presented therein. However, these affidavits remain untested. That is, whether the allegedly copied passages could only be expressed in a narrowly circumscribed manner will best be determined at trial after testimony is given and subjected to the rigorous scrutiny of cross-examination. Affidavits are obviously incapable of similarly thorough testing and inspection and, therefore, should not be dispositive of central issues of fact.

309 F.Supp. 635, 640 (S.D.N.Y.1969). Because genuine issues of material fact are presented as to the originality of Merritt Forbes’ work, summary judgment is inappropriate.

Section A3(a) of the Lanham Act

In its complaint, Merritt Forbes charges that Newman has used Merritt Forbes’ alleged service marks “tender option,” “tender option program” and “TOP’s” in connection with Newman’s own services to connote a false designation of origin in violation of § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a) (1982) (“Lanham Act”). Asserting that it never used the terms “TOP’s” or “tender option program”, Newman focuses exclusively on the term “tender option” in its papers. Merritt Forbes, however, asserts that the phrase “TOP’s” was verbally used in connection with Newman’s program. The three marks will be dealt with separately for purposes of this motion.

Section 43(a) of the Lanham Act provides in pertinent part:

Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce, ... shall be liable to a civil action ... by any person who believes that he is or is likely to be damaged by the use of any such false description or representation.

The term “service mark” is defined as a “mark used in the sale or advertising of services to identify the services of one person and distinguish them from the services of others.” 15 U.S.C. § 1127.

A claim for false designation of origin requires a showing of a representation which has a tendency to describe or represent falsely the origin of the product. Loctite Corp. v. National Starch & Chemical Corp., 516 F.Supp. 190, 216 (S.D.N.Y.1981). However, no claim for false designation of origin can be stated unless the mark in issue is sufficiently distinctive to merit protection against appropriation or imitation.

Thus, the threshold inquiry in a false designation of origin claim is whether the mark at issue is protected, and if so, to what degree. See Eli Lilly & Co. v. Revlon, Inc., 577 F.Supp. 477, 482 (S.D.N.Y.1983); E.R. Squibb & Sons, Inc. v. Cooper Laboratories, Inc., 536 F.Supp. 523, 527 (S.D.N.Y.1982). The scope of protection afforded the mark is determined by which of four categories of terms it falls into. In ascending order of strength, these are: (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful. Ambercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4 (2d Cir.1976), McGregor-Doniger Inc. v. Drizzle, Inc., 599 F.2d 1126 (2d Cir.1979). A generic term can never become a valid trademark and cannot be registered. Abercrombie & Fitch, 537 F.2d at 9; CES Publishing Corp. v. St. Regis Publications, Inc., 531 F.2d 11, 13 (2d Cir.1975). A descriptive mark is protected only if it has acquired “secondary meaning.” 15 U.S.C. § 1052(f) (1982). Suggestive marks are entitled to registration without proof of secondary meaning, as are fully arbitrary or fanciful terms. Abercrombie & Fitch, 537 F.2d at 9.

In its motion, Newman asserts that Merritt Forbes is not entitled to protection for the mark “tender option” because it is a generic term. A generic mark is not protected under trademark law under any circumstances. As the Second Circuit explained in Abercrombie & Fitch Co. v. Hunting World, Inc.:

[n]o matter how much money and effort the user of a generic term has poured into promoting the sale of its merchandise and what success it has achieved in securing public identification, it cannot deprive competing manufacturers of the product of the right to call an article by its name.

537 F.2d at 9. Courts will not grant trademark protection to generic terms, since to do so would effectively grant the owner of the mark a monopoly because a competitor could not describe his goods as what they are. CES Publishing, 531 F.2d at 13.

Generic marks are the actual names of the products themselves. Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 117-18, 59 S.Ct. 109, 113, 83 L.Ed. 73 (1938) (the words “Shredded Wheat” held to be generic). A generic term is one that refers, or has come to be understood as referring, to the genus or broad classifying term of which the particular product is a species. Abercrombie & Fitch Co., 537 F.2d at 9, E.R. Squibb, 536 F.Supp. at 527. Descriptive marks, on the other hand, are those which refer to any feature of the product or service, including its peculiarities, character or purpose. Typically, a generic term is a noun, referring to an entire class, while a descriptive term is an adjective, identifying the special characteristics of an article. 3 Callmann § 18.03. However, the distinction between the two is very often blurred; it is often far from clear whether a term refers to an entire genus or whether it describes a particular product.

Where a mark is not registered, there is no presumption of the mark’s validity. Accordingly, in the case at hand, the burden is on Merritt Forbes to prove the validity of its marks and to prove that its unregistered marks are not generic. Reese Publishing Co. v. Hampton International Communications, Inc., 620 F.2d 7, 11 (2d Cir.1980). As to the term “tender option,” Merritt Forbes’ evidence falls short of the mark. The term “tender option” in the phrase “tender option bond” or “tender option program” cannot be said to constitute a descriptive adjective describing the peculiar qualities (the option to tender) that make this product different from others in its broad genus, that is, all securities in general. Instead, it is a generic term for a separate genus, that is, all securities or programs that offer the specific feature of allowing the owner to tender them back. The term is generic as it defines the class to which the product in issue belongs. See, e.g., Loctite Corp. v. National Starch & Chemical Corp., 516 F.Supp. 190 (S.D.N.Y.1981) (“Super glue” held generic.) •

The evidence that Merritt Forbes has presented to support the validity of its mark does not affect this determination. Merritt Forbes places great weight on a statement in an Agreement Among Underwriters dated September 14, 1984, apparently used in a recent tender option transaction of its own, to the effect that each participating underwriter acknowledges plaintiff’s ownership of the alleged service marks TOP’S, tender option and tender option program. See Kolodner Aff. ¶ 19 and Ex.MLK-2, ¶ 15.01. The probative value of this “Agreement” is diminished by the fact that any underwriter wishing to participate in the transaction had no choice but to sign the Agreement Among Underwriters. In addition, this Agreement was generated by plaintiff itself and thus lacks probative value as to whether the mark is protectible or generic. See Loctite Corp. v. National Starch & Chemical Corp., 516 F.Supp. 190, 200 (S.D.N.Y.1981).

More important, however, Newman has presented evidence that despite this Agreement, several of the very brokerage houses who have allegedly acknowledged the validity of plaintiff’s service mark “tender option” have recently used that very term in drafting the offering documents for two recent deals. Thus, E.F. Hutton, Craigie Incorporated, Dean Witter Reynolds, Inc. and Paine Webber Incorporated, four of the underwriters listed in the Kolodner affidavit at paragraph 19, as having signed the Agreement Among Underwriters, used the term “tender option” in a Virginia Housing Authority Offering dated October 16, 1984 — a month after the date of plaintiff’s Agreement Among Underwriters. See Waldeck Aff. ¶ 13 and Exh. D thereto. The identical term was also used in a transaction underwritten by E.F. Hutton and L.F. Rothschild, Unterberg & Towbin, another of the underwriters listed in plaintiffs roster. See Waldeek Aff. ¶ 14 Exh. E thereto. This use of the term of underwriters also had recently agreed to acknowledge Merritt Forbes ownership of the term demonstrates the inherent genericness of the term “tender option.”

Merritt Forbes also relies on an October 1984 newspaper article, which, it claims, establishes press recognition of the service mark “tender option” since that article capitalized the term “tender option.” See Kolodner Aff 1121 and Ex. MLK-3. Yet that same article referred to the bonds as “such” tender option bonds, suggesting that the term is generic. In any event, as Newman has pointed out, numerous media articles in the same time period have continued to use the term “tender option” and its synonyms generically. See Waldeek Aff. 111112, 15 and Exh. F thereto.

There appears to be nothing about a security described as including a “tender option” which distinguishes it from any other security including those described as “option tender bonds,” “put bonds,” “option bonds” or “put option bonds,” to which a right to tender is attached. Newman has confirmed by its affidavits that a common understanding exists with respect to such classification of securities. A security which offers a tender option is understood to be one to which an option is attached giving the holder the option to tender the bond prior to its stated maturity.

In CES Publishing Corp. v. St. Regis Publications, Inc., 531 F.2d 11 (2d Cir.1975), the Court of Appeals held that the case was dismissable because the alleged trademark Consumer Electronics, part of the title of a monthly magazine called Consumer Electronics Monthly about electronic products for consumers, was generic. The Court noted:

It is hard to think of a name for a magazine, directed deliberately and effectively to industry personnel, which more accurately names the class of trade magazines within that industry than one which simply gives itself the name of the trade plus the word “monthly.”

531 F.2d at 15. While the case at hand does not present as clear example of genericness, I am willing as a matter of law to hold that the term “tender option” is generic, despite the conflicting evidence as to the manner in which portions of the securities industry view the term.

The identical reasoning applies to Merritt Forbes’ claim that the term “tender option program” represents a valid service mark. Merritt Forbes is not entitled to more protection for the term tender option program than it is for the term tender option simply because the common place and non-distinctive word “program” is added to it. While several generic or descriptive words together may constitute a protectable mark, see 3 Callmann at § 18.04, in this case the phrase taken in its entirety represents a generic term. The word “program” in this context is merely a method of conveying the information that a mechanism exists whereby an investor can take advantage of a tender option function. It does not add enough to the generic term tender option to create a new and distinctive term that identifies the services of one person and distinguishes them from another. Because the terms are inherently generic, Newman’s motion for summary judgment is granted as to “tender option” and “tender option program.”

The mark TOP’s, on the other hand, presents a more difficult question. The threshold issue that must be resolved is whether Merritt Forbes has sufficiently alleged use of this mark by Newman. In its complaint, Merritt Forbes alleges “upon information and belief” that defendants “in their oral sales and marketing presentations have used the mark and designation TOP’s in reference to and to designate their own services and securities.” Complaint, ¶ 24. In its papers submitted in response to this motion, Merritt Forbes offered the affidavit of William Hudson (“Hudson”), a senior vice-president of Marine Midland Bank in Buffalo, New York, who states that in April of 1984 he received a phone call from a man at First Interstate Bank who inquired as to whether Marine Midland “was interested in purchasing bonds offered under the TOP’s securities program” and that after Marine Midland expressed interest they received Newman’s offering documents.

In its motion papers, however, Newman focused only on the term tender option, contending that “[s]ince defendant’s documents upon which plaintiff has sued do not use the terms “tender option program” or TOP’s” ..., the only term about which plaintiff can complain is “tender option.” Defendants memorandum, p. 22.

The mere fact that Newman’s alleged use of the term “TOP’s” was in an oral sales presentation rather than in its actual papers does not insulate Newman from claims of infringement. Any form of use that could lead to consumer confusion may constitute infringement. 3A Callmann § 21.07 at p. 25. Because the Hudson affidavit alleges that a Newman salesman used the term “TOP’s” in connection with its own tender option program, it is sufficient to state a claim for service mark infringement unless the term is inherently generic.

Unlike the terms “tender option” and “tender option program,” “TOP’s” may conceivably constitute a valid and protectible service mark. The fact that it is an acronym for the generic term “tender option program” does not necessarily make it in itself generic. 3 Callmann at § 18.04. If an abbreviation'is fanciful or arbitrary, it may be entitled to full service mark protection. See Chanel, Inc. v. Suttner, 109 U.S.P.Q. 493 (S.D.N.Y.1956). Commonly understood abbreviations have been held descriptive, see Programmed Tax Systems, Inc. v. Raytheon Co., 419 F.Supp. 1251 (S.D.N.Y.1976), Santa FePomeroy, Inc. v. P & Z Co., Inc. 569 F.2d 1084 (9th Cir.1978), and in certain situations courts have recognized secondary significance. See Great Atlantic & Pacific Tea Co. v. A & P Radio Stores, 20 F.Supp. 703 (E.D.Pa.1937). If an abbreviation has become generic by virtue of common use, it is not entitled to any protection.

Because I cannot rule as a matter of law that the term “TOP’s” is not inherently generic, the degree to which it is entitled to protection is a factual question inappropriate for summary judgment. Dan Robbins and Associates, Inc. v. Questor Corp., 599 F.2d 1009 (C.C.P.A.1979); Stix Products, Inc. v. United Merchants & Manufacturers, Inc., 295 F.Supp. 479 (S.D.N.Y.1968). Because genuine issues of material fact remain to be resolved, Newman’s motion for summary judgment is denied as to the term “TOP’s.”

Common Law Service Mark Infringement and Unfair Competition

Newman has also moved to dismiss Merritt Forbes’ common law service mark infringement and unfair competition claims on the grounds that the terms at issue are generic. The test for common law service mark infringement is the same as the test under the Lanham Act: the likelihood that the consuming public will be confused as to the source of the allegedly infringing product. American Footwear Corp. v. General Footwear Co., 609 F.2d 655, 664 (2d Cir.1979), cert. denied, 445 U.S. 951, 100 S.Ct. 1601, 63 L.Ed.2d 787 (1980). A claim of unfair competition based on a violation of property rights requires a similar showing as to the product in general. Id. at 662; James Laboratories, Ltd. v. Approved Pharmaceutical Corp., 438 F.Supp. 1061 (N.D.N.Y.1977). In both cases, a threshold issue is the degree to which a mark is entitled to protection. Because I have determined that the marks “tender option” and “tender option program” are generic, they are not entitled to protection, and Newman’s motion to dismiss Merritt Forbes’ common law service mark infringement and unfair competition claims as to those terms is granted. Because genuine issues of material fact remain, the motion is denied as to the term “TOP’s.”

Misappropriation

In its complaint, Merritt Forbes contends that the defendants misappropriated “confidential and proprietary information,” claiming that certain allegedly confidential documents sent from Merritt Forbes to Security Pacific were used by Newman. To establish a claim of unfair competition based on misappropriation, a plaintiff must show that a confidential relationship existed between the parties, that disclosures of what amounted to trade secrets were made by the plaintiff to the defendants and that the defendants made use of those disclosures. Heyman v. Winarick, Inc., 325 F.2d 584, 586 (2d Cir.1963); Speedry Chemical Prods., Inc. v. Carter’s Ink Co., 306 F.2d 328, 331 (2d Cir.1962). Newman now contends that the misappropriation claim must be dismissed because Newman did not have access to the documents in question and therefore did not make use of them.

In support of its motion, Newman submitted affidavits asserting that the copy of Merritt Forbes’ presentation package received by an officer at Security Pacific was disclosed only to two lawyers at Security Pacific who did not disclose it to anyone else and that there is no record of an Executive Summary having been received. In response, Merritt Forbes has submitted affidavits asserting that both the presentation package and Executive Summary were sent to various employees of Security Pacific on the understanding that the information in the documents would remain confidential and that several telephone conversations about Merritt Forbes’ program took place between Security Pacific and Merritt Forbes, and suggesting that the documents or the information contained therein was transmitted from Security Pacific to Newman.

Newman contends that the evidence submitted by Merritt Forbes is not sufficient to create a general issue of material fact as to whether or not Newman used Merritt Forbes’ documents or information. In support, it cites Vantage Point, Inc. v. Parker Bros., Inc., 529 F.Supp. 1204 (E.D.N.Y.1981), aff'd 697 F.2d 301 (2d Cir.1982), a case involving the misappropriation of a game idea in which the question of access was in issue. The court in Vantage Point granted summary judgment on one claim of misappropriation on the grounds that the plaintiff had completely failed to contravert the defendant’s evidence of lack of access. The defendants had submitted affidavits from each person involved with game development asserting that they had never seen plaintiff’s submission and that their product was developed independently; the plaintiff was unable to submit any factual evidence tending to discredit these affidavits or permitting a reasonable inference of access to be drawn. The court specifically noted, however, that the plaintiff had had “extended opportunity for discovery.” Id. at 1214.

The evidence submitted by Newman may well be sufficient to overcome the prima facie case of access that Merritt Forbes may establish by showing corporate receipt, and to therefore shift the burden of production back to Merritt Forbes. See Bevan v. Columbia Broadcasting System, Inc., 329 F.Supp. 601, 609-10 (S.D.N.Y.1971). If Merritt Forbes’ is unable to produce any further evidence, the evidence submitted by Newman may be dispositive. In the case at hand, however, the parties have had limited opportunity for discovery. Given the difficulty of an outsider establishing that ideas or documents flowed from one area of a firm to another, Merritt Forbes’ should be afforded a full opportunity to develop evidence in support of its position. See Bevan v. CBS, Inc., 329 F.Supp. at 610. Because this case is still in its preliminary stages, a summary judgment motion is premature and I cannot rule as a matter of law that no genuine issue of material fact is presented.

For the reasons discussed above, Newman’s motions to dismiss and for summary judgment are denied as to the copyright claim and the service mark claim relating to the term “TOP’s”, denied with leave to renew at the conclusion of discovery as to the misappropriation claim, and granted as to the service mark claims relating to the terms “tender option” and “tender option program.”

IT IS SO ORDERED.