author: BULLOCK, District Judge.

text:
    PACIFIC FURNITURE MANUFACTURING CO., Plaintiff, v. PREVIEW FURNITURE CORPORATION, Defendant, and PREVIEW FURNITURE CORPORATION and Eli J. Ehrlich, Counterclaim Plaintiffs, v. PACIFIC FURNITURE MANUFACTURING CO., Counterclaim Defendant, and PACIFIC FURNITURE MANUFACTURING CO., Counterclaim Plaintiff, v. PREVIEW FURNITURE CORPORATION, Furniture Marketing Specialists, Inc., and Eli J. Ehrlich, Counterclaim Defendants.
    No. C-81-111-G.
    United States District Court, M.D. North Carolina, Greensboro Division.
    Nov. 27, 1985.

      Francis M. Pinckney, Charlotte, N.C., Lewis M. Dalgarn, Billy A. Robbins, Nicholas W. Hornberger, Los Angeles, Cal., for Pacific Furniture Mfg. Co.
    Gilbert L. Gates, Jan Samet, High Point, N.C., George T. Mobille, Robert W. Adams, Bryan H. Davidson, Washington, D.C., for Preview Furniture Corp. and Eli J. Ehrlich.
   MEMORANDUM OPINION

BULLOCK, District Judge.

This action arises from the alleged infringement by Preview Furniture Corporation (Preview), Furniture Marketing Specialists, Inc. (FMS), and Eli J. Ehrlich, the owner of both corporations, of two chair design patents held by Pacific Furniture Manufacturing Co. (Pacific). Defendants counter by alleging the invalidity of the patents. The following specific issues came before the court for trial without a jury:

(a) Whether Pacific’s United States Design Patent No. 258,100 (’100 patent), embodied in its model 120 chair, is valid and, if so, whether Defendants infringed it;
(b) Whether Pacific’s United States Design Patent No. 258,101 (’101 patent), embodied in its model 150 chair, is valid and, if so, whether Defendants infringed it;
(c) Whether any infringement by Defendants was willful and deliberate within the meaning of 35 U.S.C. § 284, which permits the court to impose for exemplary purposes up to three times the amount of compensatory damages;
(d) Whether Pacific committed acts of unfair competition, libel, or slander against Defendants by notifying third parties of the alleged infringement; and
(e) Whether the prevailing party in this lawsuit is entitled to attorney’s fees under 35 U.S.C. § 285.

Pacific did not pursue at trial its counterclaim against Defendants for unfair competition. By stipulation of the parties, the issue of damages, if any, was reserved for a subsequent proceeding.

The court shall now enter its Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52:

FINDINGS OF FACT

A. Parties

1. Plaintiff Pacific is a California corporation having its principal place of business in Compton, California.

2. Defendant Preview is a North Carolina corporation having its principal place of business in High Point, North Carolina.

3. FMS is a Connecticut corporation having its principal place of business in High Point, North Carolina. FMS acts as the marketing arm of Preview. In addition, all design work commissioned or done personally by Ehrlich for use by Preview is formally produced for FMS, which in turn transfers it to Preview.

4. Defendant Ehrlich is an individual residing in High Point, North Carolina. Ehrlich is the president and sole owner of Preview. He also owns and controls FMS.

B. Development of the Pacific 120 . and 150 Chairs

5. Pacific has been in the business of manufacturing furniture and selling it, primarily on the wholesale level, for about thirty years. Its products include upholstered furniture for the commercial and residential markets. Pacific seeks to be a design leader in the furniture field, that is, to continually offer innovative furniture designs. For this purpose, it retains the services of freelance furniture designers. They are typically compensated by royalties based on sales and their names used in advertising and promotion programs. Pacific frequently obtains design patents for the purpose of protecting the uniqueness of its designs and its investment in obtaining them. Pacific’s gross sales in 1983 were $20 million.

6. On January 18, 1979, Pacific, as assignee, filed an application for a patent on a chair design which it had commissioned and previously developed into its model 120 chair. On February 3, 1981, design patent no. TOO was issued on the application. The TOO patent depicts a low-back upholstered chair suitable for commercial use.

7. Working from the TOO patent, a different designer employed by Pacific created another chair design which Pacific developed into its model 150 chair. Pacific, as assignee, filed an application for a patent on this design on January 18,1979. On February 3, 1981, design patent no. T01 was issued on the application. The T01 patent shows a chair that is, in effect, a residential version of the chair depicted in patent no. TOO, intended to have a softer and looser appearance.

8. Both the model 120 and model 150 chairs have enjoyed substantial commercial success. Through June 1984 Pacific’s gross sales for its 120 chair were almost $1 million and the gross sales for its 150 chair were almost $900,000.00. In terms of sales the two chairs rank in the top half of the furniture items offered by Pacific.

9. Shortly after April 1980, Pacific was informed by one of its sales representatives, Stanley H. Caplan, that Preview was making and selling two chairs, Preview models 806 and 807, very similar to Pacific’s 120 and 150 models, respectively, and that Ehrlich had told Caplan that they were in fact copies. Ehrlich claimed that Bloomingdale’s department store, one of Preview’s customers, had requested him to make the copies. In response, Pacific notified Bloomingdale’s by letter from its counsel dated May 20, 1980, that it was seeking patent protection on the two chair designs and would take legal action to enforce its patent rights if and when the patents issued. The letter was followed up by a meeting between Pacific’s president, Ca-plan, and Bloomingdale’s vice president, Carl Levine.

10. On September 16, 1980, Pacific’s attorneys wrote to Ehrlich at Preview to advise Preview that design patent applications covering models 120 and 150 had been filed, and that legal action would be forthcoming when the patents were issued. Subsequently, on January 30, 1981, Pacific’s counsel sent another letter to Ehrlich at Preview to advise Preview of the imminent issuance of the ’100 and ’101 patents, and to demand that Preview desist from infringement of such patents. Pacific received no response to either letter. On March 12, 1981, this litigation was commenced. Thereafter, Pacific’s counsel sent letters to distributors which Pacific believed might be selling the purportedly infringing Preview chairs to advise them of Pacific’s patent rights. Preview has continued to make and sell its model 806 and 807 chairs.

C. Development of the Preview 806 and 807 Chairs

11. Ehrlich, who has no formal training as a furniture designer, claims to have been the designer of both the Preview 806 and 807 chairs. According to his testimony, the 806 chair had its genesis in a shopping trip he made to New York in 1979. There he purportedly saw a chair manufactured by Shelby-Williams Industries, Inc., as model 7230-19 (the Shelby-Williams chair) which he thought looked unique. He testified that he then obtained a photograph of the Shelby-Williams chair and developed the 806 chair on behalf of FMS and Preview from this photograph in early 1980. Ehrlich stated that he subsequently decided to develop another chair using the frame of the 806 chair, but having a more casual look that would appeal to a different market. This chair became Preview model 807.

12. Ehrlich claims that at the time he designed the 806 and 807 chairs he was totally unaware of Pacific’s 120 and 150 chairs and therefore could not have copied them. As discussed more fully below, the court does not accept Ehrlich’s testimony as true and finds instead that he copied Preview’s 806 and 807 chairs directly from their respective Pacific counterparts. This finding is supported in part by the fact that the Preview chairs are virtually identical in appearance to the Pacific chairs.

13. Ehrlich acknowledged at trial that both the 806 and 807 chairs have been commercially successful for Preview and both are “certainly in the group of our better selling chairs.”

D. Validity and Infringement of the ’100 Patent

14. A necessary predicate to a finding of patent infringement is a determination that the patent is valid; an invalid patent cannot be infringed. See Medtronic, Inc. v. Cardiac Pacemakers, Inc., 721 F.2d 1563, 1582-83 (Fed.Cir.1983); Stratoflex, Inc. v. Aeroquip Corp., 713 F.2d 1530, 1541 (Fed.Cir.1983). A patent is presumed to be valid, and the patent statute, 35 U.S.C. § 282, “places the burden of proving facts establishing invalidity on the person asserting invalidity. The patent challenger must establish those facts by clear and convincing evidence, and the ultimate burden of persuasion never shifts from the patent challenger.” Jones v. Hardy, 727 F.2d 1524, 1528 (Fed.Cir.1984).

15. The challenger’s burden is to show that “the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.” 35 U.S.C. § 103. In applying this test, the court must determine: (a) the scope and content of the prior art; (b) the differences between the prior art and the patented design; and (c) the level of ordinary skill in the art at the time the invention was made. Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 693, 15 L.Ed.2d 545 (1966); Litton Systems, Inc. v. Whirlpool Corp., 728 F.2d 1423, 1441-43 (Fed.Cir.1984) (hereinafter cited as Litton). Secondary considerations such as commercial success are also relevant to the issue of validity. Graham v. John Deere Co., 383 U.S. at 17-18, 86 S.Ct. at 693-94; Litton, 728 F.2d at 1441.

16. In considering the validity of design patents, emphasis must be placed on a comparison of the patented design as a whole with what is disclosed by the prior art as a whole. The Court of Appeals for the Federal Circuit observed in Litton, 728 F.2d at 1443:

We note that we are not just separating out individual elements used here to create a new, composite design. [Defendant] ..., for example, erroneously uses a piecemeal approach, one in which it takes the individual elements, item by item, and tries to show us that they each exist somewhere in the prior art. ‘That all elements of an invention may have been old (the normal situation), some old and some new, or all new, is[,] however, simply irrelevant.’ Environmental Designs Ltd. v. Union Oil Co. of California, 713 F.2d 693, 698, 218 USPQ 865, 870 (Fed.Cir.1983).

See also Schnadig Corp. v. Gaines Manufacturing Co., 177 U.S.P.Q. 313, 319-20 (W.D.Tenn.1973), affd, 494 F.2d 383 (6th Cir.1974) (design patent on upholstered sofa upheld) (hereinafter cited as Schnadig).

17. In the present case, the principal item of prior art relied upon by Defendants to establish the obviousness of the ’100 patent design is the Shelby-Williams chair which Ehrlich claimed he used in developing the Preview 806 chair. The court finds that the Shelby-Williams chair has a substantially different overall appearance from the ’100 patent design and that the '100 patent design is not an obvious extension of the Shelby-Williams chair’s design.

18. The disparity in overall appearance between the Shelby-Williams chair and the ’100 patent design, as embodied in the Pacific 120 chair, can be traced to no less than eight specific design differences:

(1) the Shelby-Williams chair has a tight seat, whereas the 120 chair has a loose cushion;
(2) the Shelby-Williams chair has an open base beneath the seat, whereas the 120 chair has a closed or filled in base;
(3) the height of the 120 chair is significantly less than that of the Shelby-Williams chair (about 10%);
(4) the width of the 120 chair is significantly greater than that of the Shelby-Williams chair (about 18%);
(5) the depth of the 120 chair is significantly greater than that of the Shelby-Williams chair (about 20%);
(6) the cushion in the 120 chair projects outwardly in front of the arms, whereas in the Shelby-Williams chair the seat is recessed;
(7) the base of the 120 chair also projects outwardly in front of the arms, whereas in the Shelby-Williams chair there is no base; and
(8) the loose cushion in the 120 chair has a curved or bull-nose configuration, whereas the tight seat in the Shelby-Williams chair has a flat appearance.

The three changes in the width, depth and height of the 120 chair are of particular importance because they give it entirely different proportions as compared with the Shelby-Williams chair. Specifically, they provide the 120 chair a lower, wider, and more contemporary look.

19. Defendants have also offered documentary evidence of a Mac brand chair to establish the obviousness of the ’100 patent design. The court finds that the Mac chair is substantially different in overall appearance from the ’100 patent design and that the ’100 patent design is not an obvious adaptation of the Mac’s design. The difference in overall appearance between the Mac design and the ’100 patent design, as embodied in the Pacific 120 chair, is rooted in the following factors:

(1) the 120 chair does not have a wraparound back, whereas a distinctive feature of the Mac chair is such a back having sharply curved end portions that are flush with the sides of the chair;
(2) the seat cushion of the 120 chair is quite thick with a distinctive curved or bull-nose curvature at its front face, whereas the Mac chair has a thin, flat seat cushion that has a distinctive downward taper from front to back and a pointed front face;
(3) the 120 chair is deliberately formed with a tight-fitting or tailored look without any back cushion, whereas in one version of the Mac chair the back includes a thick cushion arrangement having a creased or fluffy look, and the other version of the Mac chair also has a separate back cushion member received within the curvatures of the back of the chair;
(4) the shape of the arms of the 120 chair is tall and narrow with a flat bottom and a curved top, whereas the Mac chairs have sides that are essentially rectangular in shape with flat bottom and top surfaces and have a low and wide appearance;
(5) the seat cushion and base of the 120 chair protrude prominently outwardly in front of the arms, and this feature is not included in the Mac chair.

20. Defendants’ expert witness, whose expertise lies primarily in the interior design field and who has no experience in designing furniture for the mass market, offered some general and uncorroborated testimony to the effect that all of the individual features of the 120 chair, taken in isolation, were known in the prior art. This evidence, too, fails to establish the obviousness of the ’100 patent design. It is of limited probative value on the facts presented because it is unsupported by other evidence. E.I. du Pont de Nemours & Co. v. Berkley & Co., 620 F.2d 1247, 1261 (8th Cir.1980). Moreover, such a piecemeal analysis is of questionable relevance. Litton, 728 F.2d at 1443; Schnadig, 177 U.S. P.Q. at 319-20.

21. The purported obviousness of the ’100 patent design is further undermined by the commercial success of both Pacific’s 120 chair and Preview’s 806. Litton, 728 F.2d at 1441; Schnadig, 177 U.S. P.Q. at 317. Commercial success is a trustworthy indicator of non-obviousness here because undisputed testimony established that the overall appearance of upholstered furniture is the most important factor considered by those purchasing it and therefore largely determinative of its commercial success. See Litton, 728 F.2d at 1443. The fact that the ’100 patent design was imitated also substantiates its non-obviousness. Schnadig, 177 U.S.P.Q. at 317-18. The court concludes that the differences between the ’100 patent design and the prior art are such that the ’100 patent design as a whole would not have been obvious to a person having ordinary skill in the art at the time the design was created.

22. The issue then becomes whether the ’100 patent was infringed. For over 100 years, the test of infringement for a design patent has remained unchanged:

[I]f, in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.

Gorham Co. v. White, 81 U.S. (14 Wall.) 511, 528, 20 L.Ed. 731 (1871); Litton, 728 F.2d at 1444.

23. There is seemingly no dispute in the present case about infringement since all of the witnesses who compared the patented 120 chair with Preview’s 806 chair concluded they were virtually identical. Defendants’ own expert witness affirmed that the two chairs are virtually identical in overall design, and even Ehrlich himself testified that an ordinary purchaser seeing the 806 chair and the 120 chair would be likely to think he was looking at the same chair. This testimony simply confirms what is otherwise apparent from a comparison of the two chairs. The court accordingly finds that the 806 chair constitutes an infringement of the '100 patent.

E. Validity and Infringement of the ’101 Patent

24. Defendants’ attack on the validity of the ’101 patent is similar to that discussed in connection with the ’100 patent; they rely primarily on one or two prior art documents, each of which includes isolated features of the ’101 patent design. The principal prior art reference cited by Defendants is the ’100 patent, the commercial embodiment of which by Pacific (i.e., the 120 chair) was on sale prior to the invention of the 150 chair. The court finds that the ’101 patent design has a substantially different overall appearance from the '100 patent design and is not an obvious extension of the ’100 patent design.

25. The disparity in overall appearance between the ’101 patent design, as embodied in the 150 chair, and the ’100 patent design, as embodied in the 120 chair, can be traced to the following specific design differences:

(1) the seat in the 150 chair has distinctive sewn seams not present in the 120 chair, and the contours of the respective cushions are considerably different;
(2) the 150 chair has a distinctive slit formed in its back through which fabric is drawn to form a crease, whereas the 120 chair has no such slit;
(3) the interior surface of the back of the 150 chair has a rounded contour, whereas the corresponding surface of the 120 chair is flat;
(4) there is a noticeable overhang extending from the top of the back of the 150 chair, whereas the 120 chair back is straight;
(5) there is also a prominent overhang extending outwardly from the top sides of the 150 chair, whereas the side faces of the 120 chair are entirely flat;
(6) the arms of the 150 chair have a distinctive rounded appearance from inside the arm to the outside, whereas the arms of the 120 chair are essentially flat and thicker in overall dimensions;
(7) the top corners on the arms of the 150 chair do not appear rounded, whereas they do appear rounded on the 120 chair;
(8) the 150 chair includes a unique and distinctive combination of complementary pleats which appear in the arm, the seat cushion and the back which, in combination, is a distinctive feature of the 150 chair, whereas the 120 chair has no pleats at all; and
(9) the 150 chair, as a whole, has a loose, fluffy look, whereas the 120 chair, as a whole, has a tight-fitting or tailored look.

26. Defendants also cite an earlier Pacific chair, model 1536, having a back formed with a slit, in order to establish the obviousness of the ’101 patent design. Again, the court finds that the overall design of this chair differs substantially from that depicted in the ’101 patent such that the '101 patent design is not an obvious extension of the model 1536. Among the reasons for the difference in overall appearance between the model 1536 and the ’101 patent design, as embodied in the 150 chair, are the following: the 1536 chair has two sides which aré tilted forward in a distinctive manner; it does not include the above-mentioned distinctive combination of complementary pleats in the seat, back and arms as shown in the 150 chair; it has a distinctive bull-nose seat cushion which is devoid of the seam formed in the flat seat cushion shown in the 150 chair; it does not include the distinctive overhangs at the top of the arms and back found in the 150 chair; and the relative proportions in the model 1536 between the seat cushion and the base are considerably different from the corresponding proportions in the 150 chair. Additionally, as noted by Plaintiff’s expert, the 1536 has exposed wings, is wider, has heavier arms and a heavier seat cushion as compared to the 150 chair.

27. Lastly, Defendants rely on a prior art Clyde Pearson chair model 3018, although the testimony relating to this chair is sparse. Ehrlich testified that if you removed the two cushions on the Pearson chair, it would be “very similar” to the Preview 807 chair. Defendants' expert witness stated that the Preview model 807 is typical of prior art chairs having a protruding base portion and a loose cushion, such as the Pearson chair. The court finds this evidence inadequate to establish that the ’101 patent design is an obvious extension of the Pearson chair design in view of the substantial disparity in overall appearance between the designs.

28. The difference in overall appearance between the Pearson chair and the '101 patent design, as embodied in the 150 chair, derives from the following factors:

(1) the sides and back of the Pearson chair are integrally formed in a U-shape, whereas the 150 chair includes separate sides and a separate back;
(2) the height of the back of the Pearson chair is the same as, and a continuation of, the height of the sides, whereas the separate back in the 150 chair extends substantially above the sides;
(3) the Pearson chair is completely devoid of any prominent slit and pleat arrangement in the back of the chair, and, indeed, the back of the Pearson chair is a pair of juxtaposed loose cushions which constitute a prominent feature of the chair’s design;
(4) the above-discussed complementary arrangement of similar pleats in the arms, back and cushion of the 150 chair are not found in the Pearson chair; and
(5) the Pearson chair does not include the distinctive fluffy treatment provided in the 150 chair at the top of its back and at the tops of the two arms.

29. The purported obviousness of the '101 design also tends to be discredited by the commercial success it has enjoyed through the sale of both the Pacific 150 chair and the Preview 807 chair. In addition, it is significant that Preview, a direct competitor of Pacific, copied the design of the '101 patent, especially since FMS on behalf of Preview maintained under contract a number of its own furniture designers, as did Pacific. The court concludes that the differences between the '101 patent design and the prior art are such that the '101 patent design would not have been obvious to a person having ordinary skill in the art at the time the design was created.

30. Defendants attack the '101 patent on the independent grounds that the application therefor wrongfully failed to disclose the '100 patent design and the Pacific 1536 chair as prior art. They invoke the rule that proof by clear and convincing evidence of inequitable conduct, including fraud and gross negligence, in withholding information from the Patent and Trademark Office can render the patent involved unenforceable if such information is shown by clear and convincing evidence to be material. E.g., J.P. Stevens & Co. v. Lex Tex Ltd,., 747 F.2d 1553, 1559-60 (Fed.Cir.1984), cert. denied, — U.S.-, 106 S.Ct. 73, 88 L.Ed.2d 60 (1985) (hereinafter cited as J.P. Stevens); Driscoll v. Cébalo, 731 F.2d 878, 884 (Fed.Cir.1984). The law permits inequitable conduct to be established by direct or circumstantial evidence. In the case of gross negligence, it is sufficient that the actor, judged by a reasonable person standard, should have known the materiality of the facts withheld. J.P. Stevens, 747 F.2d at 1560; Driscoll v. Cébalo, 731 F.2d at 884. Non-disclosed information is material when, among other circumstances, a reasonable examiner would have considered it important in deciding whether to allow the application to issue as a patent. J.P. Stevens, 747 F.2d at 1559; American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1362 (Fed.Cir.), cert. denied, — U.S. -, 105 S.Ct. 95, 83 L.Ed.2d 41 (1984). Simple negligence or erroneous judgment made in good faith does not render a patent unenforceable. J.P. Stevens, 747 F.2d at 1560; Orthopedic Equipment Co. v. All Orthopedic Appliances, Inc., 707 F.2d 1376, 1383 (Fed.Cir.1983).

31. The Defendants have failed to meet their burden of proof. They have offered no direct evidence of inequitable conduct. In the case of the Pacific 1536 chair, no inference of such conduct is proper because the lack of similarity between the 1536 chair and the '101 patent design renders the materiality of non-disclosure questionable. In the case of the '100 patent design, inequitable conduct cannot properly be inferred because Pacific had already disclosed the '100 patent design to the Patent and Trademark Office through the application for the '100 patent. In addition, the fact that the same examiner reviewed both the ’100 and ’101 patent applications and that patents on both were issued the same day places in doubt the importance which could reasonably have been attributed to any further disclosure of the ’100 patent design by Pacific. See J.P. Stevens, 747 F.2d at 1559-60; Kimberly-Clark Corp. v. Johnson & Johnson, 745 F.2d 1437, 1456 (Fed.Cir.1984); Orthopedic Equipment Co. v. All Orthopedic Appliances, Inc., 707 F.2d at 1383-84.

32. The question now becomes whether the ’101 patent was infringed. All of the witnesses at trial testifying on the issue, including those of Defendants, acknowledged that Preview’s 807 chair is virtually identical to Pacific’s 150 chair. Ehrlich himself has admitted that an ordinary purchaser, upon seeing the Preview 807 and the Pacific 150, would be confused into thinking they were the same chair. The court, too, finds them to be essentially identical. The court concludes that the 807 chair constitutes an infringement of the ’101 patent.

F. Willful and Deliberate Infringement

33. Having found that the 806 and 807 chairs constitute infringement of the ’100 and ’101 patents, respectively, the next issue to be addressed is whether such infringement was willful and deliberate. If such conduct is found, 35 U.S.C. § 284 permits the court in its discretion to impose for exemplary purposes up to three times the amount of compensatory damages. There is abundant evidence to support Plaintiff’s contention that Defendants’ infringement was willful and deliberate.

34. First, there is the fact that the Preview chairs are virtually identical to their Pacific counterparts. The experts for both Pacific and Preview testified that it would have been very unlikely for a designer working independently and without access to the Pacific 120 chair to develop the Preview 806 chair design. Both experts termed the likelihood of a designer’s developing both the Preview 806 and 807 chairs independently from the Pacific 120 and 150 chairs as significantly more remote.

35. Additionally, there is substantial evidence that Ehrlich, at the time he designed the 806 and 807 chairs on behalf of FMS and Preview, had direct access to Pacific’s chairs. Ehrlich himself, prior to beginning the prototype design of either the 806 or 807 chairs, ordered a Pacific 150 chair from 39 East, Inc., a dealer for both Pacific and Preview in Miami, Florida. The 150 chair was delivered to Preview’s plant in High Point, North Carolina, to the attention of Eli J. Ehrlich. There is no documentation indicating the 150 chair ever left the premises of Preview, although such documentation would normally have been generated if there had been any reshipment of the chair. According to evidence at trial, it is highly unusual for one competitor to purchase a chair manufactured by another competitor, and such orders arouse suspicion because of the inference that the chair is to be copied.

36. Ehrlich may have obtained access to the Pacific 120 chair, as well as the Pacific 150 chair, through his admitted practice of visiting dealers who were displaying Pacific furniture. According to his testimony, he would look at every piece of furniture on the floor during these visits in order to determine what the competition was doing in terms of design. Because the Pacific 120 and 150 chairs were among the better-selling products of Pacific, it is likely that they were on display in showrooms which Ehrlich visited prior to the time he developed the 806 and 807 chairs.

37. In addition, there is ample evidence that Preview knew of Pacific’s patent rights in the 120 and 150 chairs. Such evidence includes the letters from Pacific’s attorneys to Preview dated September 16, 1980, and January 30, 1981, and Ehrlich’s testimony regarding his awareness of these letters.

38. The circumstantial evidence that Ehrlich copied Pacific’s 120 and 150 chairs is confirmed by Ehrlich’s own admission to that effect in his conversation with Caplan. In that conversation, Ehrlich stated that he was not proud of what he had done and that his sales of. the copied chairs would be limited to certain markets. The conversation was witnessed by a disinterested third party, Lionel Asher, who at trial testified to Ehrlich’s inculpatory statements.

39. Although Ehrlich testified that he never made such statements to Caplan, the court discredits this denial. One reason is an inconsistency in his testimony. Ehrlich initially testified in a pre-trial deposition that a Mr. Poverman was also present during the conversation and presumably could verify Ehrlich’s version of what was said. However, at trial Poverman did not appear and Ehrlich changed his testimony by stating that he did not know if Poverman was present. In addition, although Ehrlich was aware through pre-trial depositions that Caplan could testify that Ehrlich admitted copying the Pacific chair, Ehrlich claims that he did not contact Poverman to determine if Poverman could refute Caplan’s story until the day trial began. Given the gravity of Caplan’s potential testimony, it appears highly unlikely that if Ehrlich believed Caplan’s version was false he would have waited until such a late date to make an effort to contact Poverman.

40. Independent of this evidence, the court made a careful evaluation of Ehrlich’s credibility as a witness. His testimony was replete with indicia of unreliability: evasiveness; unforthright demeanor; inconsistencies; self-serving approach; and unreasonableness in many assertions made. These considerations alone compel the court to discount Ehrlich’s testimony regarding his conversation with Caplan, as well as much of his other testimony. The court concludes that Defendants willfully and deliberately copied the patented Pacific 120 and 150 chairs in arriving at the 806 and 807 chair designs. Compensatory damages found by the court to be owing Pacific shall accordingly be trebled.

41. Preview, in trying to avoid a finding of willful and deliberate infringement, contends that it relied upon advice of counsel. However, recent decisions of the U.S. Court of Appeals for the Federal Circuit, Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed.Cir.1983), and Central Soya Co. v. Geo. A. Hormel & Co., 723 F.2d 1573 (Fed.Cir.1983), make it clear that Preview cannot rely on this defense on the facts presented.

42. In Underwater Devices, the court starts with the caveat that a potential infringer with actual notice of another’s patent rights “has an affirmative duty to exercise due care to determine whether or not he is infringing ... [which] duty includes, inter alia, the duty to seek and obtain competent legal advice from counsel before the initiation of any possible infringing activity.” 717 F.2d at 1389-90 (emphasis in original). The potential infringer must then weigh the nature and quality of the legal advice received and the basis upon which the advice is given. In Underwater Devices, the infringer did not establish that the invalidity opinion it obtained was based on a study of file history of the patent in question or demonstrate “to the district court that its counsel’s opinion, without any analysis of the file histories, was in fact thorough and competent.” Id. at 1390. The court indicated that the infringer could have discharged its affirmative duty to exercise due care by obtaining an opinion which “contained within its four corners a patent validity analysis, properly and explicitly predicated on a review of the file histories of the patents at issue, and an infringement analysis.” Id.

43. In the instant case, the only testimony on Preview’s receipt of legal advice came from Ehrlich while under examination by Plaintiff’s counsel. He testified that he did not know whether anyone at Preview ever instructed its attorneys to make a study of the validity of the two Pacific patents and did not recall ever hearing the word “infringement” mentioned. He recalled merely that an officer of Preview had obtained information to the effect “that it was not a valid patent and that was the extent of it.” Moreover, there is no evidence indicating that Preview’s attorney obtained file histories of the two Pacific patents from the Patent and Trademark Office, or that any opinions which may have been rendered on the validity of the Pacific patents were based on a study of these file histories. While Ehrlich did recall that “some people from the attorney's office spent quite a bit of time at the furniture library in High Point,” he did not know whether this visit occurred before or after Preview had been told the patents were invalid. The lack of supporting evidence renders any legal advice Preview received “bald, conclusory and unsupported remarks” inadequate to shield it from willful and deliberate infringement. Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d at 1390; see also Scott Paper Co. v. Moore Business Forms, Inc., 594 F.Supp. 1051, 1084 (D.Del.1984).

G. Unfair Competition

44. Preview and Ehrlich assert in a counterclaim that Pacific engaged in acts of unfair competition. These allegations are based on two sets of correspondence by Pacific’s counsel: their letter to Bloomingdale’s vice president Levine dated May 20, 1980; and their letters after issuance of the patents to potential distributors of the infringing Preview chairs. •

45. The court finds the letter to Bloomingdale’s to be proper. It simply advised Bloomingdale’s of Pacific’s intention to protect its patents if and when they issued. Specifically, the letter sets forth the fact that patent applications had been filed; includes illustrations of the chairs covered by the applications; repeats the substance of Ehrlich’s claim that Bloomingdale’s commissioned him to copy the chairs; and cautions Bloomingdale’s that if these Preview chairs infringe on Pacific’s patents when they issue Pacific will take appropriate legal action. Although evidence suggests that Preview’s business with Bloomingdale’s may have decreased as a result of the letter, that fact alone does not render the letter an act of unfair competition.

46. The court finds that the letters to distributors were also lawful. 35 U.S.C. § 287 sets forth requirements for a patentee who seeks to enforce his right under a patent. The language of this section and applicable case law make clear that it is not only appropriate for a patentee to notify infringers of the applicability of the patent, but may well be mandatory for a patentee to do so. See Airtex Corp. v. Shelley Radiant Ceiling Co., 536 F.2d 145, 155-56 (7th Cir.1976); Original Appalachian Artworks, Inc. v. Toy Loft, Inc., 489 F.Supp. 174, 180 (N.D.Ga.1980), affd, 684 F.2d 821 (11th Cir.1982); Applied Biochemists, Inc. v. A & V, Inc., 353 F.Supp. 949 (E.D.Wis. 1973); FMC Corp. v. City of Greensboro, 208 F.Supp. 494, 503-04 (M.D.N.C.1962) (Hayes, J.), rev’d on other grounds, 326 F.2d 581 (4th Cir.1964).

47. In the present case, the appropriateness of the letters is apparent. They were sent after Pacific had failed on two occasions to receive responses from Preview regarding its patent rights. The letters were all addressed to entities which had been identified through an investigation by Pacific as potential infringers. These potential infringers may or may not have had a product of the patentee to examine for appropriate notices and markings, creating a need for Pacific as the patentee to advise them independently of the patents. In order to accurately identify the chairs, the letters included illustrations of them. Finally, the evidence establishes that the letters were sent in good faith and under the continuing impression that an actual patent infringement had occurred and that further infringement was contemplated. Thus, both of Defendants’ counterclaims for unfair competition must fail.

H. Libel and Slander

48. Preview and Ehrlich also claim that the letters by Pacific’s counsel to Bloomingdale’s and the distributors constitute libel and slander. The claim lacks merit. As the court has previously discussed, the letters were truthful. Moreover, Preview’s actions implicated legally cognizable interests of Pacific’s which it had a qualified privilege to protect. See Goforth v. Avemco Life Insurance Co., 368 F.2d 25, 31 (4th Cir.1966); see generally W. Prosser, Handbook of the Law of Torts § 115, at 789-91 (4th ed. 1971).

49. Finally, Preview and Ehrlich contend that certain correspondence directed by Pacific’s counsel to attorneys and previous owners of 39 East, Inc., constitute acts of libel and slander. This claim also has no merit. Pacific’s counsel undertook this correspondence in good faith for the purpose of obtaining supporting evidence for use in this action that Ehrlich had purchased a Pacific 150 chair from 39 East, as was reported to Pacific by personnel at 39 East. The correspondence was accordingly privileged as having been made by an attorney incident to litigation. See Hoover v. Van Stone, 540 F.Supp. 1118 (D.Del.1982); Restatement (Second) of Torts § 586 & comment a (1976).

I. Attorney’s Fees

50. Under the provisions of 35 U.S.C. § 285, “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.” The award is discretionary with the trial court and may be properly made where there is a “determination that the infringer had no reasonable basis for believing it had a right to do the acts,” including a failure to meet the affirmative “duty ... to obtain competent legal advice before initiating possibly infringing action.” Rosemount, Inc. v. Beckman Instruments, Inc., 727 F.2d 1540, 1548 (Fed.Cir.1984) (emphasis added).

51. As discussed above, Preview’s president Ehrlich, acting on behalf of Preview and FMS, deliberately copied Pacific’s patented chair designs. No evidence has been presented which indicates that there was a substantial basis for any Defendant’s believing it had a right to proceed withsuch willful and deliberate infringement. For these reasons alone, an award of reasonable attorney’s fees is warranted in this case. Milgo Electronic Corp. v. United Business Communications, Inc., 623 F.2d 645, 667 (10th Cir.), cert. denied, 449 U.S. 1066,101 S.Ct. 794, 66 L.Ed.2d 611 (1980).

52. Additionally, the bad faith exhibited by the Defendants during the course of this litigation provides a separate and distinct basis upon which attorney’s fees should be awarded. See id.; Landes Manufacturing Co. v. Chromodem Chair Co., 203 U.S.P.Q. 337, 341 (C.D.Cal.1978). Throughout this entire litigation, Preview and Ehrlich have consistently denied that the 806 and 807 chairs were copied directly from the 120 and 150 chairs and even provided Plaintiff, early in the litigation, with an interrogatory answer that was admittedly false. It stated that Preview first learned of Pacific’s 150 chair on September 16, 1980 (the date it received the initial notice letter from Pacific), when in fact Ehrlich had ordered a 150 chair from 39 East in late 1979, several months prior to the time he began to build the prototype for the 806 and 807 chairs. As the court noted in an order dated May 4, 1984, granting a motion by Pacific to compel, “[t]he responses of defendant to plaintiff’s interrogatories demonstrate an unwillingness to participate in discovery as is required by the rules.” Ehrlich’s intransigence in refusing to acknowledge what the evidence in this case clearly establishes, namely that Ehrlich not only had direct access to the 120 and 150 chairs but also copied them, and the acts of Preview in supplying Plaintiff with misleading and false discovery information, combined to require Plaintiff to go to substantial expense in pursuing the evidence that would establish the actual facts.

53. While it is true that some of the legal expenses incurred by Plaintiff in this case were expended in connection with the counterclaims of Preview and Ehrlich based on Plaintiff’s alleged libel and slander, the claim of libel and slander itself was the direct result of Plaintiff’s efforts to obtain evidence of Ehrlich’s access to, and copying of, Plaintiff’s chairs. Had Preview and Ehrlich proceeded with the patent infringement claim in good faith the alleged libel and slander would never had occurred. Moreover, as discussed above, there was no proper basis for the libel and slander claim in any event. Accordingly, the court concludes that this is an exceptional case under 35 U.S.C. § 285 and that Plaintiff is entitled to reasonable attorney’s fees in connection with this litigation.

For the foregoing reasons, the court makes the following

CONCLUSIONS OF LAW

1. The court has subject matter jurisdiction pursuant to 28 U.S.C. § 1338 and personal jurisdiction over all parties.

2. Plaintiff's ’100 and ’Í.01 design patents are valid, covering inventions which were novel and which, when compared to the prior art, would not have been obvious to a person having ordinary skill in the art at the time the inventions were made.

3. Preview’s 806 chair is an infringement of the ’100 patent and Preview’s 807 chair is an infringement of the ’101 patent in that an ordinary purchaser seeing the respective chairs of Preview and Pacific would have been deceived into believing they were the same chair.

4. Defendants’ infringement of the ’100 and ’101 patents was willful and deliberate, entitling Pacific to treble the amount of compensatory damages under 35 U.S.C. § 284.

5. Pacific is entitled to an injunction against Defendants to prevent further infringement of the ’100 and ’101 patents.

6. Pacific is entitled to compensatory damages against Defendants in an amount to be determined in a separate proceeding, if necessary.

7. By reason of the willful and deliberate infringement by Defendants and the improper conduct of Preview and Ehrlich during the course of this litigation, this is an exceptional case under 35 U.S.C. § 285 and Pacific is entitled to reasonable attorney’s fees. The amount of such fees shall be determined by the court in a separate proceeding, if necessary.

8. Pacific did not commit unfair competition, and libel and slander against Preview, and Preview’s counterclaims alleging such conduct shall be dismissed.

9. Pacific shall be awarded its costs in connection with this litigation.

Within thirty (30) days of the date of this memorandum opinion, the parties are directed to confer and attempt in good faith to reach an agreement regarding the amount of compensatory damages and attorney’s fees ánd expenses to which Pacific is entitled. Pacific shall notify the Clerk’s Office promptly if such agreement is reached. If no agreement is reached, the parties shall file with the court a report of their efforts to reach agreement. The court shall thereafter schedule a hearing on any unresolved matters.

A judgment for Pacific shall be entered contemporaneously herewith.

JUDGMENT

This case came before the court for trial without a jury. For reasons set forth in an opinion filed contemporaneously herewith, the court has determined that judgment should be entered for Plaintiff on its infringement claims and that all other claims should be dismissed;

NOW, THEREFORE, IT IS ORDERED, ADJUDGED, AND DECREED that the model 806 and 807 chairs of Defendant Preview Furniture Corporation constitute willful and deliberate infringement by Defendants, that is, Preview Furniture Corporation, Furniture Marketing Specialists, Inc., and Eli J. Ehrlich, of United States Design Patent Nos. 258,100 and 258,101 held by Plaintiff Pacific Furniture Manufacturing Co.; and

IT IS FURTHER ORDERED that Defendants shall pay Plaintiff treble the amount of compensatory damages owing for such infringement plus attorney's fees and expenses, which amounts shall be determined by the court in a subsequent proceeding absent agreement by the parties on such amounts; and

IT IS FURTHER ORDERED that Defendants are ENJOINED from any further acts constituting infringement of the aforementioned design patents; and

IT IS FURTHER ORDERED that all claims for which relief has not been granted herein are DISMISSED with prejudice.

All costs shall be taxed to Defendants.


source: Caselaw Access Project

author: GRADY, District Judge.

license: Public Domain

text:
    FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. MM & S PARTNERS, et al., Defendants.
    No. 84 C 9392.
    United States District Court, N.D. Illinois, E.D.
    Dec. 6, 1985.
    Thomas B. McNeill, Patricia R. McMillen, Mayer Brown Platt, Chicago, Ill., for plaintiff.
    John P. Lynch, David F. Pursel, Latham & Watkins, Chicago, Ill., for defendants.
   MEMORANDUM OPINION

GRADY, District Judge.

In September 1984, Continental Illinois National Bank & Trust Co. of Chicago (“Continental”) conveyed its interest under certain loan documents to the Federal Deposit Insurance Corporation (“FDIC”). The FDIC acquired these documents pursuant to 12 U.S.C. § 1823(c)(1)(A) as part of a plan of assistance to prevent Continental’s demise. See Memorandum of Plaintiff FDIC in Support of Motion for Summary Judgment, Exh. H.

In the instant ease, the FDIC seeks to recover on a note and guaranty signed by the defendants which the FDIC acquired as a part of this plan of assistance. The defendants have raised six affirmative defenses and a five-count counterclaim, generally premised on the argument that Continental agreed to alter the terms of the written note, or by its conduct waived certain terms, and, therefore, the FDIC, as Continental’s assignee, is estopped from enforcing the written terms of the loan documents. In response, the FDIC argues that under 12 U.S.C. § 1823(e), the doctrine announced in D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and federal common law, the defendants may not assert these defenses against it. Because the FDIC is immune to such defenses, it argues that summary judgment should be granted in its favor on both its action and defendants’ counterclaim against it and Continental. For the reasons given below, we agree that the defendants may not assert these defenses against the FDIC, but continue its motion for summary judgment.

FACTS

The FDIC and defendants agree to the following facts. There are six defendants: (1) MM & S Partners (“MM & S”), a general partnership; MM & S’ three general partners, (2) Mehl MM & S Limited, (3) Smith MM & S Limited, and (4) Patrick D. Maher, (5) Robert L. Mehl, and (6) Jordan Smith. On or about May 7, 1980, MM & S entered into a credit agreement with Continental, by which the bank provided the partnership with a line of credit not to exceed $10 million. Pursuant to that 1980 credit agreement, the partnership executed a promissory note, and, subsequently, MM & S drew upon the line of credit. Two years later, the credit agreement was amended to increase the line of credit to $20 million; MM & S executed another promissory note and drew on the line of credit. Finally, on or about March 22, 1983, the 1982 credit agreement was further amended by an agreement titled Amended and Restated Agreement (“Restated Agreement”). Pursuant to the Restated Agreement, MM & S executed a promissory note in the amount of $23 million, and the partnership’s line of credit was again increased. On the same day, defendants Maher, Mehl and Smith executed a guaranty by which they guaranteed the full and prompt payment of all of MM & S’ obligations to the bank.

Since that date, MM & S has not paid the amounts stated in the Restated Agreement to be due on certain dates, and Continental has declared the outstanding principal of and all accrued interest on the 1983 note to be immediately due and payable. It notified the partnership of its alleged default, has demanded payment in full, and MM & S has not paid the sum declared to be owing. Continental has also notified the guarantors of MM & S’ default and the acceleration of the partnership’s indebtedness and have demanded payment in full, but the guarantors have not paid.

The defendants add to this scenario two disputed fact assertions: Continental, either by agreement or conduct, excused the defendants from meeting certain terms in the Restated Agreement, and the FDIC was aware of this excuse when it purchased the loan documents. Specifically, the defendants allege that Continental “understood” that defendants would be using the money to purchase oil and gas properties, and “represented” to defendants that it would not require MM & S to make payments at the times or in the amounts stated in the Restated Agreement. First Affirmative Defense, ¶ 2. Continental further “represented” that it would accept, in full satisfaction of MM & S’ obligations under the Restated Agreement, the proceeds of sales of MM & S’ assets. Id., ¶ 3.

Relying on Continental’s understandings, agreements and representations, defendants allege that they performed certain acts, such as selling the partnership’s assets and providing Continental with additional collateral. Id., ¶¶ 4, 5. Continental has accepted defendants’ payments not made in accordance with the terms of the Restated Agreement, and the FDIC “had knowledge” of Continental’s conduct. Id., ¶ 8.

Based on these additional fact allegations, defendants argue that Continental waived MM & S’ compliance with the written terms of the Restated Agreement, and the FDIC is barred by Continental’s waiver. Id. This waiver concept is rephrased in defendants’ other affirmative defenses and counterclaim counts to allege estoppel and breach of contract.

DISCUSSION

The FDIC argues that even if defendants’ additional factual allegations are true (which it disputes), it cannot be bound by Continental’s agreements or conduct for two reasons. First, 12 U.S.C. § 1823(e) prevents a debtor from asserting an agreement between him and the bank from which the FDIC purchased the note unless certain requirements are met, and these requirements were' admittedly not met here. Second, even if § 1823(e) does not apply, under D’Oench, the defendants still cannot utilize these defenses, even if the FDIC knew of Continental’s conduct.

In response, the defendants argue that § 1823(e) does not apply because their defenses are based on Continental’s conduct, not an “agreement,” and, under federal common law, they may assert such a defense if the FDIC had actual knowledge of the defenses when it purchased the defendants’ note. Because recent cases on these two points are somewhat contradictory, we must look at the law in some detail. D’Oench, § 1823(e) and Federal Common Law

In 1942, the Supreme Court decided D’Oench. There, the FDIC sought to enforce a note, and the maker argued that he was not liable because the note was an accommodation paper, given without consideration and upon an understanding that it would not be collected. Applying federal common law, the Court held that the maker could not use this defense, because, although he had not known that the note would be used to deceive the FDIC, by his actions he had “lent himself” to the bank’s scheme to make the FDIC believe that the note was good and owing. Since it is a federal policy to protect the institution of banking from secret agreements, the maker could not assert the agreement not to pay and lack of consideration as defenses. D’Oench, 315 U.S. at 461-62, 62 S.Ct. at 681.

Subsequent to this decision, Congress codified the case in § 1823(e). FDIC v. Van Laanen, 769 F.2d 666, 667 (10th Cir.1985) (§ 1823(e) codification of D’Oench); FDIC v. Blue Rock Shopping Center, 766 F.2d 744, 753 (3d Cir.1985) (same); Howell v. Continental Credit Corp., 655 F.2d 743, 746 (7th Cir.1981) (same). Section 1823(e) states:

(e) Agreements against interests of Corporation
No agreement which tends to diminish or defeat the right, title or interest of the Corporation in any asset acquired by it under this section, either as security for a loan or by purchase, shall be valid against the Corporation unless such agreement (1) shall be in writing, (2) shall have been executed by the bank and the person or persons claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the bank, (3) shall have been approved by the board of directors of the bank or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (4) shall have been, continuously, from the time of its execution, an official record of the bank.

Thus, if a maker tries to defend by asserting an agreement between him and the bank altering the written terms of a note, unless that agreement meets all four requirements of § 1823(e), the defense is so frivolous as to merit the sanction of attorney’s fees. Van Laanen, 769 F.2d at 667.

Under § 1823(e) and D’Oench it is irrelevant whether the FDIC actually knows that an agreement not meeting the section’s four requirements exists. FDIC v. Investors Associates X., Ltd.., 775 F.2d 152, 155-56 (6th Cir. Oct. 23, 1985); FDIC v. Merchants National Bank of Mobile, 725 F.2d 634, 640 (11th Cir.), cert. denied, — U.S. -, 105 S.Ct. 114, 83 L.Ed.2d 57 (1984); FDIC v. de Jesus Velez, 678 F.2d 371, 375 (1st Cir.1982); FDIC v. First Mortgage Investors, 485 F.Supp. 445, 451 (E.D.Wis. 1980). This is because D’Oench is “essentially premised upon the proposition that a wrongdoer or one who lends himself to aid a fraudulent scheme should not be able to defend his actions based upon events emanating out of a transaction which violates public policy.” Investors Associates, at 155-56. Therefore, “[rjegardless of the FDIC’s knowledge of the circumstances surrounding the transaction, the fraudulent scheme is still contrary to public policy and the wrongdoer still should not be able to benefit from something that transpired during the course of such a scheme.” Id. at 6. See also First Mortgage Investors, 485 F.Supp. at 451.

Also, usually the FDIC open-bank division examiners visit insured banks, especially failing ones. If the closed-bank division, which determines whether to purchase failing banks’ assets, were held to the open-bank division’s knowledge, “the protection of Sec. 1823(e) would be lost____ The resulting uncertainty would undercut FDIC’s ability to value assets quickly and precisely____” Merchants National Bank, 725 F.2d at 640.

Thus, the need for certainty and the conclusive presumption of maker knowledge that he is deceiving the FDIC when he knows his collateral agreement has not met § 1823(e) standards makes FDIC knowledge irrelevant, and, therefore, if a maker’s defenses are based on a collateral agreement, the defenses must fail. In contrast, § 1823(e) does not apply if the defenses do not arise out of such an agreement. FDIC v. Leach, 772 F.2d 1262, 1267 (6th Cir.1985); Blue Rock, 766 F.2d at 753; FDIC v. Hatmaker, 756 F.2d 34 (6th Cir. 1985); FDIC v. Gulf Life, 737 F.2d 1513 (11th Cir.1984); Howell, 655 F.2d at 746. As to defenses not arising out of a collateral agreement, general federal common law appears to apply, and there is support for the proposition that actual FDIC knowledge can permit a maker to raise the defenses. Gulf Life, 737 F.2d at 1513. See FDIC v. Wood, 758 F.2d 156, 162 (6th Cir. 1985); Gunter v. Hutchinson, 674 F.2d 862, 873 (11th Cir.1982), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982).

Therefore, the fundamental issue in this case is whether the defendants’ defenses arise out of a collateral agreement they made with Continental (known or unknown to the FDIC at the time of purchase), or whether the defenses are sufficiently removed from any agreement to permit their assertion.

Agreement or conduct

Defendants argue that at least their waiver and estoppel defenses are outside the collateral agreement they allegedly made with Continental (they therefore appear to concede that that part of their defenses and counterclaim based upon the agreement are barred). They reason that because these two defenses do not depend on mutual assent, but rather focus on Continental’s conduct, the defenses are not agreement based, and, therefore, are not precluded. Gulf Life appears to be squarely on point and supports their position.

In Gulf Life, the defendant issued two creditor life insurance policies to two banks which insured the bank’s borrowers, with the banks as beneficiaries. The banks paid the defendant premiums out of the money they received from the debtors. In practice, the defendant only received 35 percent of the premiums, with the rest distributed among the bank officers and employees who sold the insurance to the debtors. The policies, however, indicated that the bank would refund 100 percent of the premiums if the loans were terminated before all the premiums were paid. The FDIC was appointed receiver for the banks and purchased in its corporate capacity certain of the banks’ assets, including the two policies. It then sued the defendant for 100 percent of the amount of unearned premiums due the debtors on approximately 300 prematurely terminated loans. The defendant argued that it was liable for only 35 percent of the refunds, since it received only 35 percent of the premiums. Gulf Life, 737 F.2d at 1516.

The defendant apparently had no documents meeting § 1823(e)’s requirements supporting its position, but the court stated that § 1823(e) did not apply to its waiver, estoppel and unjust enrichment defenses:

Section 1823(e) by its terms protects the FDIC from “agreement[s]” not satisfying the section’s requirements. Because Gulf Life’s theories of waiver, estoppel, and unjust enrichment are not doctrines based on the parties’ mutual assent, section 1823(e) is inapplicable to these defenses.

Id.

In reaching this conclusion, the court relied upon an earlier Eleventh Circuit decision, Gunter. In Gunter, the plaintiffs took out a loan with a bank and executed a promissory note. They then used the funds to purchase a controlling interest in a second bank, which failed. The lending bank also failed, and the FDIC purchased the note. The plaintiffs sued the FDIC for rescission, claiming that their purchase of the stock and consequent execution of the note were induced by the lending bank’s fraudulent misrepresentations concerning the financial health of the second bank. The FDIC counterclaimed for payment on the note. The court stated that § 1823(e) did not apply because the default did not arise from an agreement: the plaintiffs were not asserting a modifying side agreement, but rather were claiming that the original loan agreement was invalid. Gunter, 674 F.2d at 867. See also Howell, 655 F.2d at 747 (when maker’s defense is based on original terms of written agreement, defense not barred).

Here, the FDIC tries to distinguish Gulf Life by arguing that the waiver and estoppel defenses here are based on mutual assent, since Continental’s ■ conduct flows directly from an alleged understanding or agreement to alter the terms of the written loan agreement. It distinguishes Gunter by pointing out that the defendants here are not claiming that the original terms of the Restated Agreement were invalid at the time they were agreed to, but only that subsequent conduct altered those terms.

We agree that Gunter (and Howell) are distinguishable because the defenses here are not based upon the terms contained in the Restated Agreement. Gulf Life, however, is not distinguishable: defendants here are claiming waiver and estoppel, just as the defendant did in Gulf Life. The FDIC’s argument here that defendants’ assertion of these defenses is just a specious rephrasing of their agreement-based defense would be equally applicable to the defendant in Gulf Life. While the court in Gulf Life never discussed this point, obviously the banks’ retention of 65 percent of the premiums resulted from an unwritten agreement with the defendant permitting them to do so. Therefore, if Gulf Life was decided correctly, defendants here should be permitted to raise defenses based upon Continental’s conduct.

We believe that Gulf Life was incorrectly decided. Under the circumstances of these note enforcement cases, waiver and estoppel theories, although technically based on the banks’ conduct, really are arguments that a partially performed agreement should lie outside the reach of § 1823(e). The defendants’ answer and counterclaim here are, as is indicated supra at 3, filled with references to Continental’s “representations,” “understandings,” and unwritten “agreements” not to enforce the written terms of the Restated Agreement. Their “conduct” based allegations are merely assertions that Continental and defendants performed part of their oral agreement.

In FDIC v. Vogel, 437 F.Supp. 660' (E.D. Wis.1977) (cited with approval in Howell, 655 F.2d at 747), the court stated that partial performance cannot be used to make an agreement enforceable under § 1823(e): “To judicially engraft an exception based on partial performance of an oral contract with the closed bank or detrimental reliance on an oral promise made by the closed bank is simply to ignore the clear phrasing of the statute.” Vogel, 437 F.Supp. at 663. In First Mortgage Investors, the court held that the defendant could not raise against the FDIC estoppel and waiver defenses based on the bank’s conduct:

To permit the wrongdoing or waiver of [the bank] to affect the FDIC would deprive the FDIC of the benefits of section 1823(e). This Court will not and does not interpret section 1823(e) to give effect to the validity of secret agreements when the party bank acts wrongfully or in contravention of the agreement____ The

defense of estoppel is purely specious. First Mortgage Investors, 485 F.Supp. at 454.

We believe that the best explanation of which defenses are barred by § 1823(e) is found in Hatmaker. There, the court found that the defendant could not use a fraud in the inducement defense under § 1823(e) because, unlike Gunter, the bank’s fraud went to its future conduct. When a bank makes false statements, not related to a promise, to induce a party to execute a note, such as misrepresenting that it is in sound financial condition, then no side agreement exists, and § 1823(e) is inapplicable. When, however, the bank promises to perform in the future, for example, promising to lend the maker more money in the future, the promise does constitute a side agreement, governed by § 1823(e). The court must look at the “essence” of the maker’s defense to determine whether the defense really involves a side agreement:

We would be allowing [the defendant] to make an “end run” around section 1823(e) if we allowed him to avoid the effect of section 1823(e) by dressing his breach of the oral agreement up in the garb of fraud in the inducement.

Hatmaker, 756 F.2d at 37.

Here, defendants are dressing their breach of oral agreement defense up in the garb of waiver and estoppel. The essence of their defense is that Continental collaterally agreed not to enforce the written terms of the Restated Agreement. See First Affirmative Defense, Till 2, 3, 5; Counterclaim, 11119, 10, 14, 19, 23. That is why one of their affirmative defenses (Third) and three of their four counterclaim counts (Counts I — III) are based explicitly on Continental’s alleged breach of their collateral agreement. Defendants have relied upon the same facts to support their breach of contract claims and to support their waiver and estoppel claims. See First through Third Affirmative Defense (all rely exclusively on factual allegations asserted in 11111-8 of the First Affirmative Defense). Therefore, we hold as a matter of law that defendants cannot use any of these three defenses (breach of the collateral agreement, waiver or estoppel), whether raised as affirmative defenses or in their counterclaim.

Federal Common Law

Alternatively, even if technically § 1823(e) or D’Oench does not apply to the fact situation alleged by defendants, we believe that federal common law and the federal banking policy evinced in § 1823(e) and D’Oench would preclude assertion of the defendants’ defenses under the circumstances of this case.

D’Oench and § 1823(e) demonstrate that there is a policy in federal banking law to the effect that the FDIC should not be bound by anything outside a bank’s loan documents when it purchases those documents. See D’Oench, 315 U.S. at 457, 62 S.Ct. at 679 (federal policy to protect FDIC and the public funds which it administers against misrepresentations in the portfolio of banks); Van Laanen, 769 F.2d at 667 (same). Typically, the FDIC must move quickly in buying a bank’s assets, and it should not be obliged to rummage through a bank’s records to find the hidden value of the notes. See Wood, 758 F.2d at 161. See also Harrison, 735 F.2d at 412-13 n. 6 (federal policy to promote stability of nation’s banking system by facilitating FDIC’s smooth acquisition of assets). Therefore, the policy supporting FDIC protection in collateral agreement situations applies equally to all situations in which the maker’s defense is based on something, representations or conduct, outside of the note itself.

From one perspective, it may seem harsh to charge a debtor with obligations his lender cannot enforce against him, especially when the debtor acted in good faith and the FDIC knew of the actual facts when it purchased his note. But the inequity of this result in a non-agreement situation is no more inequitable than in an agreement or scheme situation. Yet, under D’Oench and § 1823(e), FDIC knowledge and maker good faith are irrelevant.

Here, just as in D’Oench and § 1823(e) situations, the defendants knew that their claim not to be bound by the written terms of the Restated Agreement was not supported or memorialized in any loan document meeting § 1823(e)’s requirements. We believe the principles behind D’Oench and § 1823(e) extend beyond agreement situations and cover bank conduct situations as well.

Effect of Bar of Defense

Since defendants cannot use breach of collateral agreement, waiver or estoppel arguments against the FDIC’s enforcement of their note and guaranty, and they have admitted that the agreement, note and guaranty sued upon is genuine and outstanding, it appears not only that their defenses and counterclaim should be dismissed, but that summary judgment should be granted in the FDIC’s favor as well. But we will give the defendants a last opportunity to raise any defense outside the three barred by our ruling today.

CONCLUSION

Summary judgment is granted in favor of the FDIC to the extent that defendants seek to assert defenses or claims based upon a collateral agreement with Continental, waiver or estoppel. Defendants are given until December 23, 1985, to file a memorandum pointing out what fact issues remain which preclude complete summary judgment in the FDIC’s favor. If defendants do not file a memorandum by December 23, 1985, the FDIC will be granted summary judgment on its claim, and the FDIC should submit an order to that effect by January 9, 1986, indicating the amount owed by the defendants, including any interest and attorneys fees due. If fees are claimed, a separate fee petition should be filed by January 9, 1986. Defendants will have until January 21,1986, to file a memorandum contesting the amount asserted to be due in the FDIC’s order. A status hearing will be set to discuss any remaining claims by the defendants against Continental.

      . If the FDIC goes beyond mere knowledge and actually approves of the bank's collateral agreement, then there is some support for the position that a maker can assert an estoppel defense against the FDIC’s enforcement of his note. See Investors Associates, at 155, n. 5; FDIC v. Harrison, 735 F.2d 408 (11th Cir.1984); FDIC v. Leach, 772 F.2d 1262, 1268 (Morton, J., concurrence). Even if we accept this position, here, the defendants only allege knowledge. First Affirmative Defense ¶ 8. Moreover, it appears that by “approval," courts mean positive FDIC conduct, probably limited to the time after the FDIC purchases the note. See Harrison, 735 F.2d at 412-13 n. 6. Here, defendants have alleged no post-acquisition conduct on the part of the FDIC at all, and at most, have alleged only pre-acquisition FDIC acquiescence. They assert that a Continental second vice president who worked on the restructuring of defendants’ loan also acted as a spokesperson for the FDIC after the transfer. Defendants’ Memorandum in Opposition at 5, Exh. H. But they have not alleged a defense based upon FDIC conduct. Even if the second vice president’s conduct after acquisition can be imputed to the FDIC, the defendants’ defense is only based on a pre-acquisition conduct, and we believe that a ratification theory cannot be asserted against the FDIC, at least under the circumstances of this case. In the absence of actual positive conduct beyond acquiescence, we believe that § 1823(e) or D’Oench still bars assertion of an estoppel defense.

      . It is unclear whether D'Oench itself is limited to agreement situations, and, therefore, whether D’Oench could be used to bar defenses even where the FDIC has knowledge in non-agreement situations. See FDIC v. Powers, 576 F.Supp. 1167, 1171, 1172 n. 2, aff'd mem., 753 F.2d 1076 (7th Cir.1984). D’Oench referred to secret agreements. But the court in Powers states that the D’Oench doctrine "seems more flexible than § 1823(e), and it has been applied to a wide range of defenses." Powers, 576 F.Supp. at 1171. In Leach, the defendant raised the defense of lack of consideration. The court found that § 1823(e) did not apply because the defendant's claim was not based upon a collateral agreement. Yet the court held that the defense was barred by D’Oench. It may be, therefore, that some courts find that D’Oench covers more situations than § 1823(e): § 1823(e) covers collateral agreements only, while D’Oench covers any defense related to a "scheme.” See Hatmaker, 756 F.2d at 35.

        Whether or not D’Oench goes beyond agreement situations, the result in this case is the same, since we hold that this is an agreement situation. See infra at 10. However, alternatively, if this is not an agreement situation, we hold that it is a "scheme” situation, and the defendants’ defenses are still barred under D’Oench.

      . The FDIC also notes that in both Gulf Life and Gunter the courts ultimately held in favor of the FDIC, basing their rulings on federal common law, and, therefore, their statements on § 1823(e) are mere dicta.

      . The defendants argue that this policy is not furthered in the instant case, because the FDIC's acquisition of Continental’s loans was not a typical "purchase and assumption” agreement, and courts, applying federal common law and discussing the need for speed have only considered such transactions. Because the considerations favoring FDIC protection in purchase and assumption agreements also are present in this acquisition, we find this distinction immaterial.
      Purchase and assumption transactions occur when a bank actually fails, and the FDIC purchases the assets of the failed bank that no other bank wishes to buy. See Merchants National Bank, 725 F.2d at 637-38. Here, Continental did not actually fail. Rather, the FDIC bought the bank's assets to avoid failure. See Plaintiff's Memorandum in Support, Exh. H. We fail to see the significant conceptual or practical difference between these two types of purchases for the purpose of determining the amount of protection the FDIC should receive in purchasing the assets. Both are designed to stabilize the banking industry, protect investors and public funds, and both must be carried out with speed. The Continental assistance plan involved the FDIC’s acquisition of $3 billion (book value) of troubled loans (involving approximately 800 separate loans) over a course of weeks. Reply Memorandum of FDIC at 15-16. The policy allowing the FDIC to rely on loan documents in purchase and assumption transactions should therefore also apply to the instant acquisition.


author: McMILLAN, District Judge.

text:
    Ruby L. WILLIAMS, S.S. # [ XXX-XX-XXXX ], Plaintiff, v. Margaret M. HECKLER, Secretary, United States Department of Health and Human Services, Defendant.
    No. ST-C-85-12.
    United States District Court, W.D. North Carolina, Statesville Division.
    Dec. 6, 1985.

      George L. Fitzgerald, Charlotte, N.C., for plaintiff.
    Kenneth D. Bell, Asst. U.S. Atty., Ashe-ville, N.C., for defendant.
   ORDER

McMILLAN, District Judge.

Ruby L. Williams was born January 12, 1928, and has a second grade education. She last worked as a winder in a textile plant.

On November 16, 1983, plaintiff filed an application for Social Security disability benefits and for supplemental security income. She alleged a disability due to emphysema. After a hearing, an administrative law judge (AU) denied the application on October 15, 1984. On December 31, 1984, the Appeals Council denied review.

Plaintiff filed suit in this court on January 11, 1985, seeking judicial review of the final decision of the Secretary of Health and Human Services. Pursuant to 42 U.S.C. § 405(g), this court has jurisdiction to review the final decision by the Secretary to see if it is supported by substantial evidence.

Review of Testimony at the Hearing

At the hearing, plaintiff testified that she was unable to read and write and lived alone (Tr. 30). She stated that she worked as a winder in the textile industry from 1961 through 1981. She then drew unemployment compensation until November 1983. When she attempted to return to work as a winder, she was unable to pass the breathing test (Tr. 31).

Plaintiff testified that her nerves make her “wiggle around so much” that she gets tired even while sitting in a chair (Tr. 32). She said she lies down about half of the day (Tr. 34). Plaintiff said she has pain in the back of her neck and shoulders (Tr. 35) and wears a girdle and a back brace (Tr. 39). Whenever she tries to lift anything, she has a “big hurt” in her back (Tr. 36). When asked what she could lift during an 8-hour workday, she said she could not lift anything (Tr. 36-37).

Plaintiff said that she gets dizzy spells and headaches whenever she exerts herself too much (Tr. 37). Her concentration and memory are poor and because of that she sometimes loses her pills or forgets whether she has taken them (Tr. 38). She said she gets depressed and cries two to three times a day. She thinks she is getting worse. Plaintiff said her left foot hurts “like a toothache” (Tr. 35) and her right leg and arm get numb sometimes (Tr. 40). She also said she has trouble picking up small things with her hands (id.).

Plaintiffs son testified that plaintiff gets out of breath walking from one end of her trailer home to the other and that she has bad nerves and a poor memory (Tr. 44). He said that plaintiff is “just like a child” and people “have to lead her around” (Tr. 45). On being questioned by the AU as to whether plaintiff had not been equally in need of help when she worked, the son testified that plaintiff had gotten much worse in the last year because of her increasing memory loss (Tr. 46).

A neighbor of plaintiff also testified about plaintiff’s pains, shortness of breath, and poor memory (Tr. 47). The neighbor testified that plaintiff could not lift a three-months-old baby (Tr. 48).

The AU found these witnesses credible (Tr. 49).

The next witness was a vocational expert. The AU asked him what jobs existed for the plaintiff if the plaintiff could do medium work but required a dust-free environment (Tr. 50). The expert said that plaintiff could be a cafeteria attendant, hand packager, or order culler in a warehouse, and that the same would be true if the AU found plaintiff could only do light work (Tr. 51). When the AU added the plaintiff was illiterate, cafeteria attendant was the only job the expert could come up with for plaintiff (Tr. 54).

When questioned by the attorney, the expert testified that if plaintiff’s testimony about her nervous problems — depression, crying, memory and concentration difficulties — were true, there would be no job plaintiff could do (Tr. 59-60). In addition, the expert agreed that if her testimony about pain were true, there would be no job she could do (Tr. 60).

Review of the Medical Evidence

In 1983 Dr. M.A. Cronland treated the plaintiff twice for mild hypertension and for superficial phlebitis. The hypertension was controlled by medication (Tr. 118).

On December 9, 1983, plaintiff underwent consultative examination at the Shelby Medical Associates (Tr. 122). The physician noted a mild chronic bronchitis with a mild obstruction to airflow (Tr. 126). He found that plaintiff developed shortness of breath with exertion and when exposed to dust (Tr. 121). He stated that plaintiff would not be hired in the textile industry because her pulmonary studies were abnormal (Tr. 126). He determined that she was capable only of sedentary, light, and moderate activities in a dust-free atmosphere (Tr. 126).

Plaintiff is also a patient at the Mental Health Clinic where she has been treated for anxiety and depression (Tr. 146). Dr. Malti Mehta there observed a “very poor” memory (Tr. 147). Functionally, doctors at the clinic found that plaintiff had a moderate impairment of her ability to relate to others; a moderately severe impairment of her ability to comprehend and follow instructions; a mild to moderate impairment of her ability to perform simple tasks; a moderately severe impairment of her ability to perform complex tasks; a mild to moderate impairment of her ability to perform repetitive tasks; and a moderately severe impairment of her ability to perform varied tasks (Tr. 145-46). The doctors also noted that plaintiff had a major limitation of her intellectual functioning: “she cannot read or write and repeatedly confuses simple instructions, such as medication instructions, even when instructions are demonstrated and verbalized several times”; these limitations “impair conceptualization, insight and judgment” (Tr. 146).

After the hearing but before the ALJ’s decision, the plaintiff underwent a consultative psychological evaluation (Tr. 149). The examiner found that she appeared to have a “diminished energy level and related to him in a vague manner” (Tr. 150). She “had considerable difficulty in following simple directions ...” and could not identify the month or date (Tr. 150). Plaintiff was given a WAIS-R IQ test and attained a verbal score of 67 and a performance IQ of 71. The full-scale score was 68 (Tr. 151). Achievement testing confirmed that plaintiff is illiterate. Bender-Gestalt testing indicated poor planning but no significant impairment of visual motor integration (id.). The Rorschach and Draw-a-person tests and the clinical interview indicated that plaintiff exhibited concrete thought processes but related to others in a “rather vague manner” (Tr. 152). Further, the plaintiff was suffering from a moderate level of depression and anxiety which was masked partially by medication. She also showed little confidence in her abilities (id.). The doctor concluded that plaintiff could follow simple directions “with some repetition in a structured setting” (Tr. 152 & 154), and that her recent and remote memory are mildly impaired (Tr. 152).

Summary of ALJ’s Decision

The AU found that plaintiff’s testimony as to her medically-imposed limitations of functioning was “grossly disproportionate to the symptoms reported to and abnormalities noted by examining physicians” (Tr. 11). He felt, in contrast to what he stated at the hearing (Tr. 49), the plaintiff was not credible and that her “testimony was exaggerated and tailored to obtain disability benefits ...” (Tr. 12).

Nevertheless, the AU found that the plaintiff had “severe” impairments within the regulatory definition. He was not persuaded, however, that the plaintiff had “a mental or physical impairment or combination of impairments which meets, or is the medical equivalent of, an impairment listed in Appendix 1 ...” (Tr. 12). He thus con-eluded that plaintiff did not meet the requirements of listing 12.05 C.

The ALJ next considered whether the plaintiff could work despite her impairments. He found that plaintiff could not return to her old job and that because of her intellectual deficit and her mild impairment of recent and remote memory, she could perform only jobs involving simple instructions (Tr. 13). He found that the plaintiff could perform jobs of “medium” work as defined in the regulations. He found that plaintiff had the “ability to understand and remember simple instructions and otherwise possesses the psychological characteristics to perform unskilled work” (id.). He stated that his assessment was “bolstered by the claimant’s nearly 20 year work history as a winder in the textile industry, an unskilled occupation, [and the fact that] the claimant was prepared to return to this work but could not pass a breathing test” (id.).

The AU went to the grids and found that the plaintiff was not disabled. He further relied on the vocational expert’s testimony though he did not go into what that testimony was.

Discussion

The plaintiff has an I.Q. of 68; consequently the relevant listing is Section 12.05 C:

Mental Retardation. As manifested by:
j(< * s|< # * #
C. IQ of 60 to 69 inclusive (see 12.00B4) and a physical or other mental impairment imposing additional and significant work-related limitation of function.

20 C.F.R. 404, Subpart P, App. 1, § 12.05 C (1985). Thus, if the plaintiff has a “physical or other mental impairment imposing additional and significant work-related limitation of function,” she is disabled and qualifies for benefits.

The ALJ found that plaintiff did not satisfy this second part of Section 12.05 C. He reached this conclusion despite finding in the previous sentence that the plaintiff’s impairments were “ ‘severe’ within the regulatory definition” (Tr. 12).

The regulatory definition of a severe impairment is an impairment which “significantly limits your physical or mental ability to do basic work activity.” 20 C.F.R. 404.-1520(c). It is clearly impossible for plaintiff to have “severe” impairments and not have a “significant work-related limitation of function.”

The court has considered the evidence carefully and finds that plaintiff is disabled under Section 12.05 C. The evidence shows that, in addition to low intelligence, plaintiff has work-related impairments that are “severe.” She has emphysema that prevents her from returning to her old job; her memory has recently deteriorated; her concentration is poor; and she has difficulty relating to others. In addition, the plaintiff cannot lift even a three-months-old baby. These “severe” impairments impose “additional and significant work-related limitation of function.” Plaintiff therefore is disabled under Section 12.05 C.

ORDER

IT IS THEREFORE ORDERED:

1. That the plaintiff’s motion for summary judgment is GRANTED.

2. That the case is REMANDED to the Secretary for computation and payment of benefits.

This 5 day of December, 1985.


author: DUMBAULD, Senior District Judge.

text:
    Linda MIEZIO, Petitioner, v. COMMONWEALTH OF PENNSYLVANIA, et al., Respondents.
    Civ. A. No. 85-2054.
    United States District Court, W.D. Pennsylvania.
    Dec. 9, 1985.

      Thomas A. Livingston, Pittsburgh, Pa., for petitioner.
    John Lee Brown, Asst. Dist. Atty., Beaver County, Beaver, Pa., for respondents.
   OPINION AND JUDGMENT

DUMBAULD, Senior District Judge.

Alleging denial of federal due process under the 14th Amendment, plaintiff, whose conviction of voluntary manslaughter in the Court of Common Pleas of Beaver County, Pennsylvania, has been affirmed by the Superior Court, seeks habeas corpus in this Court. Exceptions have been filed to Magistrate Sensenich’s report recommending denial of the writ.

Plaintiff relies on In re Winship, 397 U.S. 358, 364, 90 S.Ct. 1068, 1072-73, 25 L.Ed.2d 368 (1970) and Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979). Plaintiff contends that there was no proof of “passion” or “provocation” which are elements of voluntary manslaughter as defined in 18 Pa.C. S.A. § 2503(a).

To elucidate this issue it will be necessary to review the facts of the case and the novel statutory scheme in force in Pennsylvania with respect to the law of homicide.

The facts are well summarized in the Magistrate’s report as follows:

It was stipulated at trial that petitioner’s husband had died from a single gunshot wound to the head fired from his own rifle which was admitted into evidence without objection. The remaining evidence consisted primarily of the testimony of petitioner herself regarding the circumstances of the shooting, and of the testimony of police officers describing the scene and recounting Mrs. Miezio’s statements at the scene of the shooting and later the same evening at the police barracks. The evidence established that on the evening of September 29, 1981, Mr. Miezo returned home at approximately 9:30 p.m. in a state of intoxication. He and Mrs. Miezo began arguing and at some point he proceeded to load with at least one bullet. On three separate occasions the victim held the barrel of the rifle to his head and invited petitioner to pull the trigger. On the third occasion the two were sitting beside one another on the living room couch, continuing to argue, with the barrel of the rifle to the victim’s head and petitioner’s hand resting on the rifle butt which was in her lap. After the victim’s third invitation to petitioner to pull the trigger, the rifle discharged killing the victim. All of the testimony establishes that Mrs. Miezio was calm and coherent by the time police arrived on the scene. As to her state of mind immediately prior to the shooting police testimony was that on the evening of the victim’s death Mrs. Miezio told police twice that at her husband’s third invitation she “reached over and pulled the trigger.” (Tr. 23-24) Mrs. Miezio testified that she turned to look at her three year old daughter who had entered the room whereupon the rifle discharged. She testified that she had no personal recollection of pulling the trigger but that she recalled telling police she must have because she believed her husband could not have reached it. The police dispatcher to whom Mrs. Miezo reported the occurrence read a transcript of that telephone report in which Mrs. Miezio had said, “I killed my husband.”

Under the foregoing state of the record, it is clear that there was sufficient evidence to submit to the jury the issue of defendant’s guilt or innocence of first degree murder (an intentional killing) 18 Pa.C. S.A. § 2502(a) [1974 to 1982] Supplementary Pamphlet; and a rational trier of the facts could (if accepting the Commonwealth’s evidence at its strongest, but probably would not) under Winship and Jackson, supra, find defendant guilty of that offense. •

That being the case, it follows under the law of Pennsylvania (which we confess is “fearfully and wonderfully made” by the 1972 codification and decisions of the Pennsylvania Supreme Court with the help of the Third Circuit in U.S. ex rel. Matthews v. Johnson, 503 F.2d 339 (C.A.3, 1974) that the jury in its traditional mercy dispensing power or prerogative may find the defend ant guilty of any lesser-included offense regardless of the evidence presented or of his defense, and accordingly that the trial judge must charge on all such offenses in order that the jury may be aware of its power. The various types of criminal homicide, “classified” as first, second, or third degree murder and voluntary and involuntary manslaughter, are per se to be treated as “lesser included offenses,” even though logically they do not measure up to the description of “necessarily included offenses” which historically gave rise to the jury’s mercy-dispensing power.

That must be recognized as the substantive criminal law of Pennsylvania. (Perhaps the situation may give rise to the “distinct question,” mentioned in Jackson, 443 U.S. at 324 n. 16^ 99 S.Ct. at 2791-92 n. 16, “whether the State could constitutionally make the conduct at issue criminal at all”).

It would be interesting and perhaps also of some historical and practical importance to trace the development of the doctrine of lesser included offenses from its origin to the latest Janus-faced pronouncements óf the Supreme Court of Pennsylvania.

However, I shall profit by the wisdom learned at a recent Federal Judicial Center conference for the Second and Third Circuits, where a District Judge from the Second Circuit whose name I did not catch set forth substantially as follows his customary formula of apprising counsel: “I know you are not interested in what I think, but in what the Court of Appeals thinks; so I will assist you in obtaining their view as promptly as possible by denying the writ.”

Such a ruling is sufficiently supported, we believe, by the opinion of Mr. Justice Pomeroy in Polimeni (see note 5, supra) and also his opinion in Com. v. Manning, 477 Pa. 495, 499, 384 A.2d 1197 (1978), stating that the trial judge’s ruling that the evidence in the case did not warrant a charge on voluntary manslaughter

would have been acceptable under the law prior to this Court’s decision in Commonwealth v. Jones, 457 Pa. 563, 319 A.2d 142, cert. den., 419 U.S. 1000, 95 S.Ct. 316, 42 L.Ed.2d 274 (1974), and the decision of the Court of Appeals for the Third Circuit in United States ex rel. Matthews v. Johnson, 503 F.2d 339 (3rd Cir.1974), cert. denied sub nom Cuyler v. Matthews, 420 U.S. 952, 95 S.Ct. 1336, 43 L.Ed.2d 430 (1975). Both of these cases hold, in essence, that a trial judge has or should have no discretion to deny a defendant charged with criminal homicide a requested charge on voluntary manslaughter. See also Commonwealth v. Cain, 471 Pa. 140, 369 A.2d 1234 (opinions in support of affirmance); Commonwealth v. Hilliard, 471 Pa. 318, 370 A.2d 322 (1977). From the premise that a defendant charged with murder has a clear right to receive such an instruction on request, whatever the nature of the evidence presented or of his defense, it follows that he has an unconditional right on request to an instruction on the complete statutory definition of the offense of voluntary manslaughter. (Italics supplied)

Moreover, Chief Justice O’Brien in Com. v. Shatter, 493 Pa. 426, 435-36, 426 A.2d 1090, explained that

Under the Crimes Code, murder and voluntary manslaughter are both classifications of criminal homicide. 18 Pa.C. S.A. § 2501. Section 2501 supports the view that voluntary manslaughter continues to be a lesser included offense of the crime of murder and thus, a permissible verdict when murder is charged even in the absence of evidence of passion, provocation or imperfect self-defense. The jury’s inherent power to dispense mercy by convicting defendant of a lesser included offense was not affected by the Crimes Code. Thus, the jury should be informed of its power to enter such a verdict by being given a requested instruction on the complete statutory definition of manslaughter.

The charge of the learned trial judge in the case covered all five classifications of lesser included offenses, in conformity with the above-quoted Supreme Court pronouncements.

We also note that in U.S. ex rel. Matthews v. Johnson, 503 F.2d 339, 340, n. 3 (C.A.3, 1974), now Chief Judge Aldisert, a former Common Pleas Judge in Pennsylvania, noted with no indicia of disapproval, that “Pennsylvania trial judges must now grant the request for a voluntary manslaughter charge in all murder cases being tried on or after May 2, 1974.” [503 F.2d at 341 n. 6]. He likewise noted that “where the evidence would be sufficient to support a conviction of murder, the return of a verdict of voluntary manslaughter is strictly within the jury’s prerogative even in the absence of provocation and passion,” citing Com. v. Hoffman, 439 Pa. 348, 356-59, 266 A.2d 726 (1970). This is likewise an opinion by Mr. Justice Pomeroy.

We conclude that the jury’s mercy-dispensing power is in favorem vitae and for the benefit of defendants. It persists after the 1972 codification. Hence plaintiff’s conviction is valid. The writ must be denied.

As a further independent ground for denying the writ, we hold that the evidence in the record did sufficiently prove “passion” and “provocation.” Certainly the action of plaintiff’s husband in repeatedly handing her a weapon and taunting her to pull the trigger constitutes provocation. The emotional disturbance generated by such conduct may properly be described as “passion.” Passion need not necessarily be anger or uncontrollable hostility. And provocation need not be a threat directed at the person endangered by it. It is not stretching the terms of 18 Pa.C.S.A. § 2503(a) to conclude that it covers the facts of record in the case at bar.

JUDGMENT

For the foregoing reasons the report of the magistrate is confirmed and adopted by, this Court, and the writ of habeas corpus sought by plaintiff is denied, and final judgment is rendered against plaintiff Linda Miezio and in favor of defendant Commonwealth of Pennsylvania (and the writ is dismissed against the other “fifth wheel” defendants, all of whom probably have absolute or qualified immunity).

      . The claim arises directly under the Fourteenth Amendment itself. No "selective incorporation” applying against the States other fundamental rights guaranteed against the federal government by the federal Bill of Rights is involved. See Henkin, "Selective Incorporation in the Fourteenth Amendment," 73 Yale LJ. (1963) 743; Frankfurter, "Memorandum on “Incorporation of the Bill of Rights into the Due Process Clause of the Fourteenth Amendment,” 78 Harv. L.R. 747 (1963).

      . "The Due Process Clause protects the accused against conviction except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged.” In Winship a juvenile court adjudged a boy guilty of delinquency (defined as an act which if done by an adult would be a crime) upon a preponderance of the evidence pursuant to a New York statute. The judge acknowledged that the proof might not establish guilt under the "beyond a reasonable doubt” standard, 397 U.S. at 359-60, 90 S.Ct. at 1070. The Supreme Court held that delinquency must be proved beyond a reasonable doubt. Ibid., at 365, 368, 90 S.Ct. at 1073, 1075.

      . The question is “whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” The Court further said: "the applicant is entitled to habeas corpus relief if it is found that upon the record evidence adduced at the trial no rational trier of fact could have found proof of guilt beyond a reasonable doubt." 443 U.S. at 324, 99 S.Ct. at 2792. The standard must be applied with "explicit reference to the substantive elements of the criminal offense as defined by state law. Whether the State could constitutionally make the conduct at issue criminal at all is, of course, a distinct question.” Ibid., at 324, 99 S.Ct. at 2792. The question in Jackson was whether the petitioner was sufficiently sober to form a specific intent to kill, required under Virginia law for first degree murder. Ibid., at 309, 325, 99 S.Ct. at 2783-84, '2792.

      . “A person who kills a person without lawful justification commits voluntary manslaughter if at the time of the killing he is acting under a sudden and intense passion resulting from serious provocation by ... the individual killed."

      . As explained in a scholarly opinion by Mr. Justice Pomeroy in Com. v. Polimeni, 474 Pa. 430, 437-42, 378 A.2d 1189 (1974) the 1972 Crimes Code created one major offense yclept criminal homicide classified into three kinds of murder and two kinds of manslaughter, which are "constituent subsidiary offenses within the single major offense. All grades of unlawful killing thus have been made lesser included offenses of the overall crime of criminal homicide. The differences between the classifications are largely a function of the state of mind of the perpetrator.” (Italics supplied). So far as I know, however, it has never been held that defendants must be indicted for "criminal homicide, that is to say murder of the first degree, in that he did feloniously and maliciously wilfully and intentionally, with premeditation and malice prepense, kill and slay &c.”

      . Beck v. Alabama, 447 U.S. 625, 632-38, 100 S.Ct. 2382, 2387-90, 65 L.Ed.2d 392 (1980) explains the development of the rule and accords it constitutional sanction as required by due process. See also Keeble v. U.S., 412 U.S. 205, 208, 93 S.Ct. 1993, 1995-96, 36 L.Ed.2d 844 (1973); but cf. Sparfv. U.S., 156 U.S. 51, 63-64, 15 S.Ct. 273, 278, 39 L.Ed. 343 (1895).

      . There are 200 pages of case law on the homicide provisions of the 1972 code contained in the 1974 to 1982 Supplemental Pamphlet in Purdon’s Consolidated Statutes Annotated. The cases cited hereafter suffice, in our judgment, to dispose of the case at bar.

      . Though the Court pointed out that second degree murder (i.e., felony murder, under 18 Pa.C. S.A. § 2502(b)) could have no possible application to the facts in the case at bar, yet he made clear that the jury had power to convict of that offense.

      . Hoffman was decided before the Crimes Code of 1972, but passion and provocations were part of the common law definition of voluntary manslaughter. Codification did not affect the jury’s prerogative of mercy. See Schaller, supra, 493 Pa. at 436, 426 A.2d 1090.