author: WILKINS, District Judge.

text:
    Rebecca Estelle Pugh WITT, Plaintiff, v. SOUTH CAROLINA NATIONAL BANK, Defendant.
    Civ. A. No. 3:84-2100-14.
    United States District Court, D. South Carolina, Columbia Division.
    June 26, 1985.

      John P. Freeman, Columbia, S.C., for plaintiff.
    Mantón M. Grier, Boyd, Knowlton, Tate & Finlay, L. Henry McKellar, Associate Gen. Counsel, Columbia, S.C., for defendant.
   ORDER

WILKINS, District Judge.

Plaintiffs federal cause of action was brought under the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C.A. §§ 1961-68 (West Supp.1970-1983). Finding that there is an impermissible identity between the RICO defendant and the “enterprises” asserted by Plaintiff, Defendant’s motion for summary judgment is granted.

Plaintiff alleged in her original complaint that from 1973 through 1980 Defendant “operated a scheme and engaged in an illegal and fraudulent course of business which involved the operation of defendant’s trust department through false and deceptive reporting to trust investors of whom plaintiff was one.” Complaint, II36. The RICO enterprises alleged in the initial complaint were “[plaintiff’s revocable trust with defendant and defendant’s trust department” (emphasis added). Id. The complaint alleged that Defendant “conducted the affairs of its trust department and Mrs. Witt’s trust, as enterprises through a pattern of racketeering activity consisting of numerous acts of mail fraud____” Id., ¶ 38.

Plaintiff later filed an amended complaint wherein she alleged that Defendant’s scheme and fraudulent course of business “involved the operation of individual trust accounts, including plaintiff’s and an income common trust fund____” Amended Complaint, H 36. The RICO enterprises alleged in the amended complaint were “[p]laintiff’s revocable trust with defendant and the so-called income common trust fund in which much of the assets of plaintiff’s trust was invested.” Id. Plaintiff’s attorney admitted during oral arguments that the amended complaint was filed because of the decision of the Fourth Circuit Court of Appeals in U.S. v. Computer Sciences Corp., 689 F.2d 1181 (4th Cir.1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 729, 74 L.Ed.2d 953 (1983). Computer Sciences held that there may not be an identity of the RICO defendant and enterprise. Plaintiff has artfully attempted to plead around this controlling precedent.

FACTS

Plaintiff (Mrs. Witt), an elderly, retired schoolteacher, received a sizable estate through inheritance. Defendant, South Carolina National Bank (SCN), is one of the largest banks in South Carolina. SCN’s services include the operation of a trust department, which is an unincorporated division of Defendant housed within the offices of SCN. The trust department conducts the affairs of the trusts it administers as a part of Defendant’s corporate activity. Fees and other income are paid to SCN in return for the services rendered by the trust department. SCN, acting through the employees of the trust department, is the fiduciary of all trusts administered by that department. This suit arises out of the alleged corporate acts or omissions of Mrs. Witt’s trust officers and their failure to adequately apprise her of the true value of her trust assets over a period of years.

In the fall of 1973, Mrs. Witt met with SCN representatives and discussed establishing a trust account. As a result of this initial meeting, Mrs. Witt established a revocable “Generation Skipping” trust, an estate planning device which was to provide a steady flow of income to Mrs. Witt during her lifetime and then to her daughter during her daughter’s lifetime, and the transfer of trust assets to Mrs. Witt’s grandchildren upon her daughter’s death. The parties disagree as to whether the trust was established in October or December of 1973, and the manner of disclosing the value of trust assets. There was clearly, however, some discussion between Mrs. Witt and SCN’s officers concerning the placement of Mrs. Witt’s assets in the Income Common Trust Fund, a bond fund administered by the bank. It appears that there was little discussion which might have advised Mrs. Witt of the potential risks to her capital or of the means by which she could have personally determined the overall performance of the bond market, the Income Common Trust Fund, or her individual trust.

In the years following the establishment of her trust, Mrs. Witt made contributions totalling $96,120.33. SCN and its employees administered the trust until August 1984, when Mrs. Witt terminated her trust after she learned of the true market value of the trust assets and after the assets failed to recover their value after several months. The market value of the assets in August 1984 was $86,678.59 and the carrying or book value was $94,528.00.

During the pendency of the trust, SCN provided Mrs. Witt with semiannual accountings which were generated by a computer software program. The accountings contained a list of trust assets shown at “asset carrying values.” Generally speaking, asset carrying values are merely “book values” or a figure representing dollar amounts deposited into the account. For all practical purposes, the accountings were little more than “receipts” for monies deposited, as the semiannual accountings did not inform Mrs. Witt of the true or current market value of her assets. Moreover, Mrs. Witt was provided with an annual notice informing her of the availability of the annual report of the Income Common Trust Fund. The annual report was available upon request and without charge, and would have informed Mrs. Witt of the current market value of the assets in her trust. However, the notice did not inform Mrs. Witt that the information provided in the annual report would disclose to her the current market value of her trust assets. Further, investment reviews, which also provide the current market value of trust assets, were in fact regularly provided to some trust customers by their administering officers. Mrs. Witt did not receive these investment reviews. However, SCN apparently did provide Mrs. Witt's accountants with information on a regular basis regarding distributions, long term gains and long term losses incurred in administering the trust.

Defendant contends in its motion for summary judgment that there are no questions of material fact that (1) it fully complied with the terms of the trust agreement entered into with Mrs. Witt in 1973 and with its statutory and regulatory duties concerning disclosure; and (2) the enterprises alleged (the Income Common Trust Fund and Mrs. Witt’s trust) share an identity with the named defendant; that is, the “enterprises” alleged are merely a part of SCN’s corporate activity. The Court finds it necessary to address only the last contention of Defendant.

DISCUSSION

The limited question before the Court is whether there exists an issue of material fact that the common trust fund and Plaintiff’s individual trust share a mutual identity with Defendant such that Defendant is entitled to judgment as a matter of law. In other words, does either the common trust fund or Plaintiff’s individual trust constitute an enterprise separate and apart from the RICO defendant, or are they in substance merely a part of SCN’s corporate activity?

The issue of whether a defendant may also be the RICO “enterprise” is controlled in this circuit by U.S. v. Computer Sciences Corp., 689 F.2d 1181 (4th Cir.1982), cert. denied, 459 U.S. 1105, 103 S.Ct. 729, 74 L.Ed.2d 953 (1983). In that case, Computer Sciences Corporation (CSC) was named as a defendant, along with several of its officers, in an indictment alleging RICO violations, mail fraud, wire fraud, and presenting false claims to the United States Government. The “enterprise” alleged in the indictment was the Infonet Division of CSC, an organization which had no corporate existence separate and apart from that of CSC. The district court dismissed portions of the indictment against CSC on grounds, inter alia, of identity of defendant and enterprise. The Fourth Circuit Court of Appeals agreed with the lower court on the “identity” issue:

We conclude that “enterprise” was meant to refer to a being different from, not the same as or part of, the person whose behavior the act was designed to prohibit, and, failing that, to punish. To be sure, the analogy between individuals and fictive persons such as corporations is not exact. Still, we would not take seriously, in the absence, at least, of very explicit statutory language, an assertion that a defendant could conspire with his right arm, which held, aimed and fired the fatal weapon. A corporation, in common parlance, is not regarded as distinct from its unincorporated divisions either.

689 F.2d at 1190.

The decision in Computer Sciences has been relied upon in at least one case in this circuit, Umstead v. Durham Hosiery Mills, Inc., 592 F.Supp. 1269, 1270-71 (M.D.N.C.1984); see also, In re Action Industries Tender Offer, 572 F.Supp. 846, 849 (E.D.Va.1983). The same result has been reached in decisions of other courts. E.g., Haroco, Inc. v. American Nat. Bank and Trust Co. of Chicago, 747 F.2d 384, 400 (7th Cir.1984), cert. granted, — U.S. ---, 105 S.Ct. 902, 83 L.Ed.2d 917 (1985); Rae v. Union Bank, 725 F.2d 478, 481 (9th Cir.1984); Bennett v. Berg, 685 F.2d 1053, 1061-62 (8th Cir.1982), aff'd en banc, 710 F.2d 1361 (8th Cir.1983), cert. denied, — U.S. ---, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983); Lopez v. Dean Witter Reynolds, Inc., 591 F.Supp. 581, 585 (N.D.Cal.1984); Saine v. A.I.A., Inc., 582 F.Supp. 1299, 1306 (D.Colo.1984); Willamette Sav. & Loan v. Blake & Neal Finance Co., 577 F.Supp. 1415, 1427 (D.Ore.1984); Yancoski v. E.F. Hutton & Co., Inc., 581 F.Supp. 88, 97 (E.D.Pa.1983); Bulk Oil (Zug) AG v. Sun Co., Inc., 583 F.Supp. 1134, 1144-45 (S.D.N.Y.1983), aff'd, 742 F.2d 1431 (2d Cir.1984); Barker v. Underwriters at Lloyd’s, London, 564 F.Supp. 352, 357 (E.D.Mich.1983); Bays v. Hunter Savings Assoc., 539 F.Supp. 1020, 1023-24 (S.D.Ohio 1982); Pames v. Heinold Commodities, Inc., 548 F.Supp. 20, 23-24 (N.D.Ill.1982); Van Schaick v. Church of Scientology of Cal., Inc., 535 F.Supp. 1125, 1135-36 (D.Mass.1982).

The decision in Haroco points out that there is now a split in the circuits on the issue of identity of the RICO defendant and enterprise, the majority of circuits following Computer Sciences with the Eleventh Circuit’s opposite holding set forth in U.S. v. Hartley, 678 F.2d 961, 987-90 (11th Cir.1982), cert. denied, 459 U.S. 1170, 103 S.Ct. 815, 74 L.Ed.2d 1014 (1983). 747 F.2d at 399. In Haroco, the Seventh Circuit Court of Appeals, in following Computer Sciences and rejecting Hartley, reasoned as follows:

We do not doubt that a corporation may satisfy the section 1961 definitions of both “person” and “enterprise,” as the court observed in Hartley____ But we focus our attention on the language in section 1962(c) requiring that the liable person be “employed by or associated with any enterprise” which affects interstate or foreign commerce. The use of the terms “employed by” and “associated with” appears to contemplate a person distinct from the enterprise.

Id. at 400.

The Court adopts the holding of Computer Sciences and its progeny and concludes that RICO requires that the defendant be an entity separate and apart from the alleged enterprise. Interpretation of this complex statute must begin with the “plain meaning” of the words, which must be liberally construed to effectuate the remedial purposes of RICO. Ora Corp. v. Vinson, 596 F.Supp. 1546, 1547 (D.S.C.1984) (citation omitted). However, a court may do more than “stare at the language,” Haroco, 747 F.2d at 389, and interpretation of these words and their plain meaning may require reaching beyond to the logic of congressional intent. See U.S. v. Turkette, 452 U.S. 576 at 587, 101 S.Ct. 2524, 2530, 69 L.Ed.2d 246. It is apparent that Congress intended that the “enterprise” be separate from the defendant. The conclusion is consistent with RICO’s focus on organized crime, which although need not suggest mobsters or underworld figures, does certainly imply a concert or group of activity. Further, the following which Computer Sciences has gathered in a brief span, and the number of eases which have independently reached the same conclusion, substantiate the soundness of the reasoning of Computer Sciences.

In the instant case, Plaintiff offers no serious challenge to the Computer Sciences decision, nor to its logic. Rather, her efforts have been directed toward “pleading around” the decision by alleging that the “enterprises” are her own trust account and the common trust fund of which it was a part. Plaintiff then argues that a trust is analytically separate from the trustee and Computer Sciences is therefore simply not controlling. Plaintiff contends that her trust, and the Income Common Trust Fund of SCN, satisfy either the “entity” concept or the “association in fact” concept of a RICO enterprise, rendering both sufficiently separate from the Defendant for purposes of RICO. Computer Sciences provided the general principle that a corporation may not engage in conduct actionable under RICO with an unincorporated division thereof, and applied this rule to the situation where the alleged enterprise was plainly a functioning unit of the corporate defendant. The principle enunciated in Computer Sciences is clearly applicable in this case where the defendant bank and its trust department share identity with the trust fund and trust account which are the alleged enterprises.

A number of factors support the conclusion that the trusts alleged herein as enterprises do not enjoy an existence separate and apart from SCN for purposes of RICO. To begin with, the trust estate lacks a separate juristic personality. 76 Am.Jur.2d Trusts § 6 (1975). Moreover, a trustee is a sine qua non to the existence of a trust. Id., § 32, at 279. The trustee is not a mere employee or agent of the trust beneficiaries, but acts for himself in the administration of the trust, under restraint of the instrument’s terms and the law of trusts, and is bound by and liable upon obligations incurred and contracts made by him in the cause of administering the trust. Id., § 351, at 565-66. Further, a trust account such as Plaintiff’s is only a “proportionate undivided interest” in the larger fund. S.C.CODE ANN. § 34-21-330 (Law. Co-op. 1976) (emphasis added). The management and control of such an account is exclusive in the fiduciary (here SCN). S.C.CODE ANN. § 34-21-250 (Law.Co-op.1976). Ownership of the fund’s assets is solely in the fiduciary and they are considered as assets held by it in that capacity. Id. While none of these factors considered alone establishes identity between a bank as a RICO defendant and a trust or trust fund of the bank as an enterprise, together they offer support for the conclusion that a trust and the corporate entity which administers it share a sufficiently mutual identity for purposes of a RICO cause of action. Accordingly, an application of Computer Sciences to this case mandates the entry of summary judgment on the RICO claim.

Many of the cases analyzing the separateness of the enterprise element have done so in the context of distinguishing it from the pattern of racketeering element. See U.S. v. Turkette, 452 U.S. at 583, 101 S.Ct. at 2528; Bennett v. Berg, 685 F.2d at 1059-60; Saine v. A.I.A., Inc., 582 F.Supp. at 1305. However, all of these decisions have required that there be a clearly “separate existence” of the enterprise, that it be a structure separate, distinct and apart from the “pattern of racketeering activity.” Such language is consistent with the conclusion in Computer Sciences, 689 F.2d at 1190.

It is of some significance in analyzing the issue of whether a RICO defendant may be “employed by or associated with” itself as a RICO enterprise, 18 U.S.C.A. § 1962(c), that the United States Supreme Court in Copperweld Corp. v. Independence Tube Corp., — U.S. ---, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), rejected the intra-enterprise conspiracy doctrine and held that a corporation may not conspire with its wholly owned subsidiary, or with a mere corporate division, to violate the Sherman Antitrust Act. Id., 104 S.Ct. at 2742-44. In reaching this conclusion the Court focused upon the unity of interest of the parent company and the other entity in question, their “unity of purpose or common design,” and the guidance of their objectives by a single corporate consciousness. In essence, the intra-enterprise conspiracy doctrine was rejected because it “looks to the form of an enterprise’s structure and ignores the reality.” Id. at 2743. The Copperweld decision lends support to this Court’s conclusion that Plaintiff’s attempted distinction between Defendant and the trusts is artificial.

Although the Court agrees with Defendant’s analysis of the present factual situation, Defendant’s position that a trust could under no circumstances be a RICO enterprise is without basis’ in either the language of the statute, U.S. v. Turkette, 452 U.S. at 576, 580, 101 S.Ct. at 2524, 2527 (“no restriction upon the associations embraced by the definition”), or in the nature of trusts, for “the trust device has been used for many different business purposes in recent years.” Lane Title & Trust Co. v. Brannan, 103 Ariz. 272, 440 P.2d 105, 110 (1968); see also, 13 Am.Jur.2d Business Trusts §§ 3, 4 (1964); Isaacs, Trusteeship in Modern Business, 42 Harvard L.Rev. 1048, 1049 (1929).

Plaintiff’s citation of instances where a trust qualifies as an entity for other purposes is unconvincing. For example, Plaintiff argues that a trust is sometimes viewed as a separate tax entity which is treated as an individual taxpayer for income tax purposes, and that it should therefore follow that a “separate entity” is a “separate entity.” The argument overlooks the obvious preference of the Internal Revenue Code (the Code) for recognition of taxable persons and events, through legal fictions or otherwise. Furthermore, taxation of trusts under the Code “takes cognizance of the identity in interest of trustee and cestui que trust.” Stone v. White, 301 U.S. 532, 537, 57 S.Ct. 851, 853, 81 L.Ed. 1265 (1937). In short, Congress used terms and concepts of breadth in RICO because of the scope of the criminal and economic problems it sought to address. Many of these words have other business and legal applications with a broad history of interpretations in other contexts. In instances where helpful in construing RICO they should be used; where clearly inappropriate because of other particularized concerns, they should not. See Russello v. U.S., 464 U.S. 16, 104 S.Ct. 296, 299-300, 78 L.Ed.2d 17 (1983) (“interest” subject to forfeiture under RICO is not limited to “profits” subject to forfeiture under other criminal statutes).

There is no question of fact as to the nature of the relationship between Defendant and the enterprises in question. The trusts alleged as enterprises had as their trustee the Defendant. Defendant’s employees administered Plaintiff’s trust, and the Income Common Trust Fund, in their capacity as employees of SCN under the aegis of SCN’s corporate consciousness. Their alleged improper failure to disclose an erosion of Plaintiff’s capital provided the basis for Plaintiff’s RICO claim. In substance, the trusts in question came into existence and were administered as a part of Defendant’s corporate activity, and the department which administered it was a functioning unit of Defendant. Looking beyond the form of Plaintiff’s amended allegations to the reality of the issue before the Court, it is clear that Defendant and its trust department, and the two trusts now alleged as enterprises, are not separate and distinct entities from Defendant, but constitute part of Defendant's corporate existence. As such, Defendant as the RICO “person” may not be employed by or associated with itself as the RICO “enterprise,” through the fiction of the trusts it administers, any more than it could be said to conspire with itself, its departments or its other organizational subdivisions.

There being an identity of Defendant and enterprises, summary judgment is granted as to the RICO claim of the complaint. Plaintiff’s pendent state claims are dismissed without prejudice.

AND IT IS SO ORDERED.


source: Caselaw Access Project

author: LAFFITTE, District Judge.

license: Public Domain

text:
    CULEBRA ENTERPRISES CORP., et al., Plaintiffs, v. Miguel A. Rivera RIOS, et al., Defendants.
    Civ. No. 79-425 HL.
    United States District Court, D. Puerto Rico.
    June 27, 1985.

      Jaime Sifre-Rodriguez, Hato Rey, Puerto Rico, for plaintiffs.
    Doris H. Hernandez-Diaz, Atty., Dept, of Justice, John E. Mudd, Federal Litigation Div., Dept, of Justice, San Juan, Puerto Rico, for defendants.
   OPINION AND ORDER

LAFFITTE, District Judge.

This is an action brought under the Federal Civil Rights Act, 42 U.S.C. §§ 1983, 1985(3), 1986, the United States Constitution, and the Constitution and Statutes of Puerto Rico, for injunctive and/or monetary relief. Plaintiffs claim that defendants and others have conspired, under color of state law, to exercise their official authority over land use, planning, development and zoning in the island of Culebra to freeze plaintiffs’ property in its existing state for the purported benefit of the public without having to pay plaintiff.

Defendants argue that there has been no constitutional deprivation, that the injunctive action is barred by the 11th Amendment, and that the plaintiffs have failed to state a claim for relief.

I. Injunction

The pretrial order was entered in this case on January 19, 1984, and the parties were essentially ready for trial at that time. Prior to a trial setting, the parties continued to negotiate a possible settlement, and on August 16, 1984, filed before this Court a Partial Settlement Stipulation. This Stipulation stated that on July 16, 1984, the Planning Board of the Commonwealth of Puerto Rico approved an amendment to the zoning map of the Island of Culebra, to be effective on August 15, 1984. Pursuant to the Stipulation, the parties “expressly agreed ... that plaintiffs’ property currently zoned ‘RO 25-C’ which was previously subdivided in approximately five (5) cuerdas lots, can be sold by plaintiffs and a dwelling built in (sic) each one of the lots, without legal impediment.”

The Stipulation of the parties has mooted any necessity for the injunctive relief sought, and a judgment can be entered on the parties’ stipulation which is hereby approved, and the complaint will be dismissed with prejudice.

II. Damages

As part of their Stipulation, the plaintiffs expressly reserved their right to pursue the remainder of their claims against defendants for damages, costs and attorneys fees.

For the reasons stated below, this Court holds that plaintiffs have failed to state a cognizable claim on which relief can be granted under 42 U.S.C. §§ 1983 and 1985. Hence, their complaint shall be dismissed.

Plaintiffs have alleged that defendants are responsible individually, and in their official capacity for the damages suffered by plaintiffs by virtue of the “freezing” of their property, thus denying plaintiffs of what they term “their clear constitutional right of the reasonable use and enjoyment of their property.” Plaintiffs allege that because defendants promulgated certain land use plans, zoning maps, and zoning ordinances, and denied plaintiffs’ request to develop their land as proposed by plaintiffs in their plan of 1977-1978, plaintiffs were denied the “reasonable” development of their property.

Plaintiffs allege that defendants conspired to prevent this “reasonable” use, and did so for the purpose of depriving plaintiffs, directly or indirectly, of their right to the enjoyment of their property in violation of 42 U.S.C.A. § 1985(3). Plaintiffs further allege that defendants acted to so deprive plaintiffs in such a manner as to take their property without due process of law, in violation of the Fifth and Fourteenth Amendments.

In the last several years the First Circuit Court of Appeals has addressed the issues of constitutional violations in the land use area. In Creative Environments, Inc. v. Estabrook, 680 F.2d 822 (1st Cir.1981), cert. denied, 459 U.S. 989, 103 S.Ct. 345, 74 L.Ed.2d 385 (1982), and the line of cases following, the First Circuit held that “property is not denied without due process simply because a local planning board rejects a proposed development for erroneous reasons or makes demands which arguably exceed its authority under relevant state statutes.” Id., at 832. See also, Raskiewizc v. The Town of Boston, et al., 754 F.2d 38 (1st Cir.1985); Chiplin Enterprises v. City of Lebanon, 712 F.2d 1524, 1527-28 (1st Cir.1983).

The two essential elements of a cause of action under 42 U.S.C. § 1983, as stated by the U.S. Supreme Court and the First Circuit Court of Appeals, are: (1) that the conduct complained of was carried out under color of state law, and (2) that this conduct deprived plaintiff of rights, privileges, or immunities secured by the Constitution or laws of the United States. Chiplin Enterprises, supra, 712 F.2d at 1527, referring to Parratt v. Taylor, 451 U.S. 527, 535, 101 S.Ct. 1908, 1912, 68 L.Ed.2d 420 (1981).

The first requirement is met here. But the Court finds that plaintiffs have failed to allege a constitutional right of which they have been deprived. Plaintiffs refer this Court to another recent First Circuit opinion, and argue that their case is in all fours with it, that is, Roy v. City of Augusta, Me., 712 F.2d 1517 (1st Cir.1983). In Roy, supra, the First Circuit held that the plaintiff had an “entitlement” to his renewed license to operate a pool hall, and that the defendant City Board, and the individuals composing the Board, by denying him that renewal, acted to deprive him of his property without due process of law. Plaintiffs argue that by refusing to allow them to develop their property as proposed by plaintiffs in 1977-78, the defendants herein acted to deprive them of their property without due process of law.

What distinguishes Roy from the instant case, and what requires the instant case to be dismissed according to the Rule in Estabrook, supra, is that plaintiffs have failed to allege an “entitlement” to develop their property as proposed, so as to make the defendants’ refusal reach the constitutional dimension.

“The hallmark of property ... is an individual entitlement grounded in state law, which cannot be removed except ‘for cause’.” Roy, supra, 712 F.2d at 1522-23, quoting from Logan v. Zimmerman Brush Co., 455 U.S. 422, 430, 102 S.Ct. 1148, 1155, 71 L.Ed.2d 265 (1982). In Roy, the mandatory entitlement was created by the decision of the Supreme Judicial Court of Maine, who held on the merits of Roy’s own individual appeal of the Board’s refusal that Roy was entitled to the renewed license.

In the instant case the “entitlement” to develop the land as plaintiffs wished in 1977-78, under the zoning ordinances then in effect, has not been clearly identified. Plaintiffs attempt to argue that the Supreme Court of Puerto Rico has held that land use zoning “P” for public use is unconstitutional, and therefore, to use this zoning regulation as the reason for refusal of their plans is a violation of due process. Further, plaintiffs argue that defendants should have known of this unconstitutionality, and are therefore individually liable for conspiring to deprive plaintiffs of the reasonable use of their land, under 42 U.S.C. § 1985(3). Plaintiffs refer this Court to two opinions of the Supreme Court of Puerto Rico for these propositions. However, upon a close reading of these decisions, it is clear that they do not identify the required “entitlement” so as to create a constitutional deprivation in this case.

In Heftler Int’l. Corp. v. Planning Board, 99 PRR 454 (1970), the Supreme Court of Puerto Rico disapproves of the use of “P” zoning as a means for zoning for community benefit. However, the Supreme Court affirms the dismissal of the plaintiff’s allegations of due process violations, brought originally before the Superi- or Court of Puerto Rico. Plaintiff Heftier Corp. had alleged that as owner of a parcel of land in Bayamón, zoned “P” for over seven years, he was deprived of the reasonable use, benefit, enjoyment, and development of that land, without due process of law. Although the Court “sympathized” with plaintiff’s position, it did not agree with the result sought. Heftler, supra, 99 PRR at 457. The Court held that the reasonable use of the land should be just pursued through all administrative appeals, before any constitutional action could be instituted. This case in no way creates a constitutional entitlement to privately develop property zoned “P.”

The second case, Richards Group, Inc. v. Junta De Planification, 108 DPR 23 (1978), also does not create the constitutional entitlement claimed by plaintiffs. In RICHARDS GROUP, the Supreme Court of Puerto Rico held that “freezing” of land for public use depends on a test of reasonableness in each situation. Further, the Supreme Court held that it was for the Planning Board, and the administrative appeal process, to consider the factors outlined by the Court, to make a determination of reasonableness. In RICHARDS GROUP, the Supreme Court discussed, at length, the concept of “property” in our society, and what “property” interests are constitutionally protected. Richards Group, supra, 108 DPR at 34-35. The Court held in the Richards case that the “right to property”, or entitlement, does not include the right to develop land without government authorization, and that this authorization may be subject to some conditions. See, Id., at 35, and cases cited thereat. The Court then went on to enumerate various factors to be considered when making a determination for “reasonable” use of property. Id, at pp. 39-45. The Court concluded that in view of the developments in the field of property rights and of a constitutional violation in this case based on the theories of Monroes v. Pape, 365 U.S. 167, 81 S.Ct. 473, 5 L.Ed.2d 492 (1960), and Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972), would be to “jettison” any hope of maintaining a meaningful separation between federal and state jurisdiction. Estabrook, supra, 680 F.2d at 831. The Roy case, supra, is to be distinguished, because a clear entitlement had been determined by the state Supreme Court, whose mandate was subsequently ignored by the licensing board. Such is not the case here.

Finally, without allegations of something more, such as racial animus, or political discrimination, a charge discrimination under 42 U.S.C. § 1985(3) is inadequate. Chiplin Enterprises, supra, 712 F.2d at 1527; Griffin v. Breckenridge, 403 U.S. 88, 91 S.Ct. 1790, 29 L.Ed.2d 338 (1971); Hanh v. Sargent, 523 F.2d 461, 469 (1st Cir.1975); Enriquez v. Nettleship, 580 F.Supp. 1270 (D.P.R.1984).

WHEREFORE, for the reasons stated above, the Court finds that plaintiffs have failed to allege a claim for which monetary relief can be granted, and their complaint shall be dismissed.

III. Attorney’s Fees

Because plaintiffs have failed to state a cognizable claim on which relief can be granted, their application for attorneys’ fees under 42 U.S.C. § 1988 shall likewise be denied. Plaintiffs anchor their fee request under the “prevailing parties” provision of the Civil Rights Attorneys Fees Act. Plaintiffs assert that they qualify as prevailing parties on the theory that plaintiffs’ lawsuit prompted action by the Planning Board that afforded the injunctive relief sought in the complaint.

Nadeau v. Helgemoe, 581 F.2d 275 (1st Cir.1978), relied upon by plaintiffs, establishes a two-pronged test in determining what constitutes a “prevailing party” when relief is obtained from outside the Courtroom rather than within.

The problem plaintiffs encounter with this argument is that NADEAU applies when one party is successful “on any significant issue in the litigation which achieves some of the benefit the parties sought in bringing suit.” 581 F.2d at 278-79.

“In NADEAU, we had in mind the typical case in which a party wins: winning provides a legal right to the relief sought, and it ordinarily means the winner will receive the relief____ A party, in other words, prevails in a law suit when he establishes a legal entitlement to what he seeks, not when what he seeks is actually delivered.” Coalition for Basic Human Needs v. King, 691 F.2d 597,600 (1st Cir.1982).

Plaintiffs simply did not prevail in this litigation. Neither did they establish an entitlement to some relief on the merits of their claim. Hanrahan v. Hampton, 446 U.S. 754, 100 S.Ct. 1987, 1989, 64 L.Ed.2d 670 (1980). Under Section 1983 a fee recovery is part of the cause of action. Lazer v. Pierce, 757 F.2d 435 (1st Cir.1985). The Court having determined that plaintiffs have no cause of action, it follows that they are not “prevailing parties.” Hence, plaintiffs are not eligible for an allowance of attorney’s fees. Johnston v. Jago, 691 F.2d 283 (6th Cir.1982).

WHEREFORE, pursuant to the Stipulation of the parties filed on August 16, 1984, it is hereby ORDERED that plaintiffs’ complaint for injunctive relief be dismissed with prejudice; and it is further

ORDERED, that plaintiffs’ claims for monetary damages be dismissed for failure to state a claim for relief; and it is further

ORDERED, that plaintiffs' application for attorneys fees be, and hereby is DENIED.

IT IS SO ORDERED.

      . 42 U.S.C. § 1988 provides in relevant part:
      "In any action or proceeding to enforce a provision of [42 U.S.C.] sections 1981, 1982, 1983, 1985, and 1986 ... the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney’s fee as part of the costs.”


author: ELMO B. HUNTER, Senior District Judge.

text:
    Russell MAGGARD, Petitioner, v. Dick MOORE, Respondent.
    No. 83-1313-CV-W-3.
    United States District Court, W.D. Missouri, W.D.
    June 27, 1985.

      Ray Conrad, Kansas City, Mo., for petitioner.
    George Cox, Jefferson City, Mo., for respondent.
   ORDER

ELMO B. HUNTER, Senior District Judge.

Before the Court is petitioner’s pro se petition for writ of habeas corpus, pursuant to 28 U.S.C. § 2254, alleging that his Fifth and Fourteenth Amendment due process rights were violated when he was denied access to his parole files and denied parole. Respondent argues that the Missouri Board of Probation and Parole [Board], under Mo.Rev.Stat. § 217.690 (Supp.1983), acts with absolute discretion in parole determinations, and that the Board’s decisions are not reviewable [except for procedural challenges, § 217.670.3 (Supp. 1983)]. Petitioner claims, however, that his parole eligibility must be considered under § 549.261, which preceded § 217.690 and was in effect at the time of his sentencing, and that not to do so is a violation of the ex post facto clause in Article 1, § 10, cl. 1, of the United States Constitution. Following the initial pleadings, the Court appointed the federal public defender to assist petitioner with his cause of action.

Unlike the new parole eligibility statute, the former statute was held to afford “a protected liberty interest, rooted in state law, in parole release” to inmates of Missouri penal institutions. Williams v. Missouri Board of Probation and Parole, 661 F.2d 697, 698 (8th Cir.1981). Section 549.261 provided that:

When in its opinion there is a reasonable probability that the prisoner can be released without detriment to the community or to himself, the board shall release on parole any person confined in any correctional institution administered by state authorities.

(emphasis added). Thus, if the statutory criteria were satisfied (if the Board determined that release would not be detrimental to the prisoner or to the public), the inmate had a recognizable right to parole. The new statute, § 217.690, contains essentially the same criteria. Under the new statute, however, the Board, even if satisfied that the inmate can be released without detriment to himself or the community, “may in its discretion release or parole such person.” This language creates only a possibility of parole once the statutory criteria are satisfied, and therefore the inmate’s interest in parole does not rise to that level entitled to due process protection under the Fourteenth Amendment. Green holtz v. Inmates of the Nebraska Penal and Correctional Complex, 442 U.S. 1, 11, 99 S.Ct. 2100, 2105, 60 L.Ed.2d 668 (1979).

Respondent has submitted numerous arguments as to why the writ of habeas corpus should not be issued: (1) that petitioner was a member of the class in Williams, 661 F.2d at 697, and is barred by the adverse result to the plaintiff class in that case from relitigating issues relating to the old parole statute; (2) that the Court should apply “issue preclusion” to prevent needless relitigation, and find that petitioner had filed a successive petition, warranting dismissal under 28 U.S.C. § 2254, Rule 9; (3) that the parole system is not a part of the prison term so as to be subject to the ex post facto clause; and (4) that there has been no showing of an increase in punishment. The Court agrees with respondent’s last argument, when considered in conjunction with the decision in Weaver v. Graham, 450 U.S. 24, 101 S.Ct. 960, 67 L.Ed.2d 17 (1981), but feels some comment is appropriate in rejecting respondent’s other arguments.

It is clear that petitioner’s habeas action is the proper remedy in this situation, where the end result sought is a release from confinement. Smallwood v. Missouri Board of Probation and Parole, 587 F.2d 369 (8th Cir.1978) (Petitioner sought reconsideration of respondent’s decision denying parole.). In Williams, supra, and several other cases cited by respondent, the causes of action were brought pursuant to 42 U.S.C. § 1983, not as habeas actions. Principles of res judicata may apply to a subsequent § 1983 action brought after the conclusion of an unsuccessful § 1983 action, but not to a habeas proceeding. Burnside v. White, 760 F.2d 217 (8th Cir.1985) [citing Heirens v. Mizell, 729 F.2d 449 (7th Cir.1984) ]. Similarly, a court is warranted in dismissing a successive habeas petition under Rule 9 of 28 U.S.C. § 2254. In the instant case, however, petitioner filed a habeas petition after receiving an adverse judgment as a class member in a § 1983 action. Res judicata is inapplicable, and there is no successive habeas petition. Moreover, the plaintiffs in Williams did not raise the ex post facto argument, which is a major issue in petitioner’s claim for relief. Accordingly, the Court will not construe this action as a successive habeas petition, nor will it apply “issue preclusion” or any other form of res judicata to deny petitioner’s habeas action.

The Court also finds no merit in respondent’s argument that parole determinations cannot be subject to the ex post facto clause because the “parole system” is not part of the prison term. Parole eligibility does constitute part of the punishment, and a retroactive change in eligibility to the prisoner’s disadvantage could, under certain circumstances, violate the ex post facto clause. Breest v. Helgemoe, 579 F.2d 95, 102 (1st Cir.), cert. denied, 439 U.S. 933, 99 S.Ct. 327, 58 L.Ed.2d 329 (1978). The Eighth Circuit has recognized the possibility of unconstitutionality through the use of ex post facto parole guidelines. See, e.g., Rush v. Petrovsky, 756 F.2d 675 (8th Cir.1985); Richardson v. United States Parole Commission, 729 F.2d 1154 (8th Cir.1984); United States v. Miller, 599 F.2d 249 (8th Cir.1979).

The Court’s denial of petitioner’s petition for writ of habeas corpus in this case stems not from the above considerations, but from his failure to satisfy both elements required to prove an ex post facto violation under Weaver v. Graham, 450 U.S. 24,101 S.Ct. 960, 67 L.Ed.2d 17 (1981). In Weaver, the Supreme Court stated the test as follows:

[T]wo critical elements must be present for a criminal or penal law to be ex post facto: it must be retrospective, that is, it must apply to events occurring before its enactment, and it must disadvantage the offender affected by it.

450 U.S. at 29, 101 S.Ct. at 964 (footnotes omitted). Following the Weaver test and the reasoning of Burnside, supra, the Court must conclude that petitioner has failed to satisfy the second prong of the test. Although the new parole statute is clearly retrospective as applied to petitioner, an examination of the Board’s reasons for denying parole in his case shows that petitioner was not disadvantaged under the new statute. Similar to the facts in Burnside, the reasons given for parole denial were:

Because of your having plead [sic] guilty to an offense in which you and your accomplices while attempting to rob a service station in Greene County, Missouri, killed a deputy sheriff during the course of the robbery; release at this time would depreciate the seriousness of the offense committed or promote disrespect of the law.

The Eighth Circuit specifically found that the “seriousness of the offense” was an acceptable reason for denying parole under either statute, § 549.261 or § 217.690. Accordingly, as petitioner would not have been released under the old statute, it follows that the application of the new statute in his case did not operate to his disadvantage and did not violate the ex post facto clause under the Weaver test. Burnside, at 222. The Eighth Circuit referred to a hypothetical situation in which the new statute would violate the ex post facto clause but, as was the case in Burnside, that situation is not before the Court.

Because of the reasons given by the Board in denying parole, and because petitioner is unable to show that § 217.690 violates the ex post facto clause in this situation, the Court finds no basis to grant petitioner's request for access to his parole file (or, “all records that the Board uses in determining my parole eligibility/criteria for release” — Petition at 2). In petitioner’s case, the Board determined that “the seriousness of the offense” warranted further confinement. Under either the old or the new statute, this determination is a sufficient statement by the Board that the statutory criteria are not satisfied, without which the petitioner cannot show his entitlement to a liberty interest in parole even under the old statute, § 549.261. Accordingly, petitioner, having no liberty interest under these circumstances, has no right to examine his parole file. See, e.g., Williams, 661 F.2d at 699; Report and Recommendation of the United States Magistrate in Williams, at 4; Greenholtz, 442 U.S. at 15, 99 S.Ct. at 2107.

On the basis of the foregoing, the Court finds that a hearing on the petition is unwarranted, as petitioner’s allegations, “even if true, fail to state a cognizable constitutional claim.” Wallace v. Lockhart, 701 F.2d 719, 729-30 (8th Cir.1983). Accordingly, the Court hereby orders that the petition for writ of habeas corpus be denied.

SO ORDERED.


author: SWEET, District Judge.

text:
    Jack POLAK, as Trustee for Catharina Polak, and Anthony Polak, Plaintiffs, v. CONTINENTAL HOSTS, LTD., Stanley Lewin, Bruce Lewin, and Marjorie Lewin, Defendants.
    No. 85 Civ. 1154 (RWS).
    United States District Court, S.D. New York.
    June 28, 1985.

      Zissu, Berman, Halper & Gumbinger, New York City, for plaintiffs; Ira W. Berman, of counsel.
    Gordon, Hurwitz, Butowsky, Weitzen, Shalov & Wein, New York City, for defendants; Allan R. Freedman, Robert J. Schechter, of counsel.
   OPINION

SWEET, District Judge.

Defendants Continental Hosts, Ltd. (“Continental”), Stanley Lewin, Bruce Lew-in and Marjorie Lewis (the “individual defendants”), have moved to dismiss the complaint of the two plaintiffs Jack Polak (the “Disclosure Plaintiff”) and Anthony Polak (the “Merger Plaintiff”), shareholders of Continental, pursuant to Rule 12(b)(6), Fed. R.Civ.P. The complaint, in the form of a class action, alleges a violation of Rule 10(b)(5) promulgated pursuant to § 10(b) of the Securities Exchange Act of 1934 (the '“Act”), 15 U.S.C. § 78j. See 17 C.F.R. 240, 10b-5. The motion will be granted for the reasons set forth below.

On or about February 4,1985 the Merger Plaintiff receiyed notice that Continental Hosts Acquisition Corp. (“CHAC”) had been formed and that Continental would be merged into CHAC (the “Merger”). The notice received by the Merger Plaintiff stated that “public shareholders will be paid $12 per share for their shares but that they will have the rights provided under DCL (Delaware Corporate Law), in lieu of acceptance of the $12 offered, to demand an appraisal of the value of CHL (the “Company”) shares and to commence a proceeding for appraisal in the Delaware Chancery Court ...” Complaint, ¶ 32. The Merger Plaintiff purports to represent all current shareholders of the Company who purchased their shares before February 1, 1985 and whose shares are subject to the Merger.

According to the Merger Plaintiff, the $12 price announced under the Merger is “grossly inadequate” (Complaint, ¶ 33) and the appraisal right under Delaware law “presents the public shareholders with an unfair burden.” (Complaint, ¶ 34) and that these allegations state a claim under Rule 10b-5, (Complaint, ¶¶ 32-35).

The Disclosure Plaintiff purports to represent a class of all persons who sold shares of the Company between April 9, 1982 and February 1, 1985. According to the Disclosure Plaintiff, he and the class sold their shares at an artifically low price caused by the defendants’ failure to disseminate “all pertinent financial information respecting the Company.” (Complaint, ¶ 19). The complaint alleges:

Since April 1981, CHL [the Company] and the Individual Defendants have called no annual meeting and have failed and refused to distribute CHL financial and operations information to the public shareholders or to market makers in its securities.

Complaint, 1116.

It is conceded that the Company has been a “non-reporting company” under the Exchange Act since 1976 (Complaint, ¶ 12), and that the defendants had no obligation to call an annual meeting under Delaware law (Complaint, HIT 17-19). The complaint further alleges that Continental purchased approximately 33,000 of its shares between 1979 and 1983. Complaint, 1T 31.

There are no allegations by the Merger Plaintiff of any misrepresentations or material nondisclosures in any material issued by Continental. The Merger Plaintiff contends that offering a “grossly inadequate” price and requiring shareholders in a Delaware corporation to avail themselves of Delaware appraisal procedures constitutes “fraud” or “manipulation” under Rule 10b-5, although no effort to obtain injunctive relief with respect to the Merger was made. The Merger was apparently consummated on February 28, 1985.

The argument advanced by the Merger Plaintiff was rejected by the Supreme Court in its landmark decision, Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977), which specifically held that no claim under Rule 10b-5 was stated by a shareholder of a Delaware corporation confronted with a merger, regardless of the alleged inadequacy of the price being offered pursuant to the merger. The Supreme Court held that the shareholder’s sole remedy was to pursue appraisal rights under Delaware law. 430 U.S. at 477-80, 97 S.Ct. at 1302. It further held that the shareholder had not made out a claim for either “fraud” or “manipulation” under Rule 10b-5. Id. at 472-77, 97 S.Ct. at 1300-03.

As to the failure to disclose in connection with the merger, Rule 10b-5 is violated only if non-disclosure violates a recognized duty of disclosure. As the Supreme Court has stated:

The cases have emphasized, in accordance with the common-law rule, that “[t]he party charged with failing to disclose market information must be under a duty to disclose it.” Frigitemp Corp. v. Financial Dynamics Fund, Inc., 524 F.2d 275, 282 (2d Cir.1975). Accordingly, a purchaser of stock who has no duty to a prospective seller ... has been held to have no obligation to reveal material facts. See General Time Corp. v. Talley Industries, Inc., 403 F.2d 159, 164 (2d Cir.1968), cert. denied, 393 U.S. 1026, 89 S.Ct. 631, 21 L.Ed.2d 570 (1969).

Chiarella v. United States, 445 U.S. 222, 229, 100 S.Ct. 1108, 1115, 63 L.Ed.2d 348 (1980). See also Laventhall v. General Dynamics Corp., 704 F.2d 407, 412 (8th Cir.), cert. denied, — U.S. ---, 104 S.Ct. 150, 78 L.Ed.2d 140 (1983). (“It is important, however, to emphasize that no cause of action arises under Section 10(b) or Rule 10b-5 simply because an insider has inside information and fails to disclose it”); Staffin v. Greenberg, 672 F.2d 1196, 1202 (3d Cir.1982) (if “no duty to disclose exists,” then there can be no rule 10b-5 liability, even if undisclosed facts are material).

In the present case, the defendants had no duty to hold annual meetings or to disclose information relating to the Company’s financial status, Continental having become a non-reporting company.

While material inside information may be assumed, the mere possession of such information does not create a duty to disclose. See e.g., State Teachers Retirement Bd. v. Fluor Corp., 654 F.2d 843, 850 (2d Cir.1981); Laventhall v. General Dynamics Corp., supra, 704 F.2d at 412 (“it is important, however, to emphasize that no cause of action arises under Section 10(b) or Rule 10b-5 simply because an insider has inside information and fails to disclose it”). Absent a specific duty to disclose, even the most material information imaginable may be withheld from the public. See Chiarella v. United States, supra, 445 U.S. at 229, 100 S.Ct. at 1115.

The Disclosure Plaintiff seeks to establish a duty to call annual meetings after April 1981 to provide information informally requested by the Disclosure Plaintiff and his attorneys. No affirmative misrepresentations are alleged.

The Disclosure Plaintiff alleges that the individual defendants caused the Company “to purchase in the public market approximately 33,000 of its shares between 1979 and 1983 without disclosure thereof____” (Complaint, H 31). The “disclose or abstain” rule was announced by the Second Circuit in SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir.1968) (en banc), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969):

[AJnyone in possession of material inside information must either disclose it to the investing public, or, if he is disabled from disclosing it ..., or he chooses not to do so, must abstain from trading it or recommending the securities concerned while such inside information remains undisclosed.

Id. at 848. However, the Second Circuit has limited standing to assert “disclose or abstain” violations to plaintiffs who traded contemporaneously with the defendant:

In Shapiro [v. Merrill Lynch, Pierce Fenner & Smith, Inc., 495 F.2d 228, 236 (2d Cir.1974) ], this court held inside sellers subject to a duty to disclose only to those who purchased the stock “during the same period” as the insiders’ sales____ Any duty of disclosure is owed only to those investors trading contemporaneously with the insider; non-contemporaneous traders do not require the protection of the “disclose or abstain” rule because they do not suffer the disadvantage of trading with someone who has superior access to information.

Wilson v. Comtech Telecommunications Corp., 648 F.2d 88, 94-95 (2d Cir.1981); see also Fridrich v. Bradford, 542 F.2d 307, 326 (6th Cir.1976) (Celebrezze,' J., concurring), cert. denied, 429 U.S. 1053, 97 S.Ct. 767, 50 L.Ed.2d 769 (1977).

In the present case, the Disclosure Plaintiff does not claim that he sold any stock contemporaneously with Continental’s purchases of such stock. The complaint itself maintains that the Disclosure Plaintiff sold all his stock on April 3, 1984. It further alleges that Continental purchased its own stock “between 1979 and 1983.” Id. at ¶ 31. Thus, the Disclosure Plaintiff has failed to allege that he traded “contemporaneously with the insider,” 648 F.2d at 94.

The failure to call meetings and failure to provide financial information to a shareholder who made a series of informal requests is all expressly authorized under Delaware corporate law. Such conduct, therefore, cannot violate Rule 10b-5, since any other result would federalize state regulation of corporations. As the Supreme Court held in Santa Fe Industries, Inc. v. Green, supra.

Absent a clear indication of congressional intent, we are reluctant to federalize the substantial portion of the law of corporations that deals with transactions in securities, particularly where established state policies of corporate regulation would be overriden. As the Court stated in Cort v. Ash [422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975)], supra: “Corporations are creatures of state law, and investors commit their funds to corporate directors on the understanding that, except where federal law expressly requires certain responsibilities of directors with respect to stockholders, state law will govern the internal affairs of the corporation.” 422 U.S. at 84 [95 S.Ct. at 2091] (emphasis added).

430 U.S. at 479, 97 S.Ct. at 1302.

Further, Delaware law provides a familiar procedure whereby shareholders can demand to inspect the books and records of a corporation. Delaware General Corporation Law (“DCL”) § 220. Under § 220, a shareholder desiring to inspect the books and records must make a demand under oath, stating the purpose for which inspection is sought. If the corporation refused the demand, the shareholder’s sole remedy is in the Delaware Chancery Court. Id. To hold that rule 10b-5 required the defendants to provide financial information in response to informal requests would override DCL § 220 and improperly create a federal rule for shareholder inspection of books and records. As the Supreme Court held in Santa Fe Industries, Inc. v. Green, supra, Rule 10b-5 should not be used in such a fashion.

Finally, the Disclosure Plaintiff has not even attempted to allege that any of the individual defendants violated duty of disclosure. All allegations of nondisclosure are directed against the Company {e.g., failure to call meetings, failure to disseminate financial information). There are no allegations of insider trading by any individual defendant, nor are there any allegations from which a duty to disclose can be inferred.

Similarly, the Merger Plaintiff has complained about the inadequacy of the price being offered under the Merger. There are no allegations that any of the individual defendants did anything, said anything, or failed to say anything in connection with the Merger. The plaintiffs also assert that the obligation to disseminate financial information survived the de-registration of CHL’s stock in 1976. Under section 13 of the Securities Exchange Act of 1934 (the “Act”), every issuer of securities “registered pursuant to section 12 of this title” must file a variety of financial disclosures. When CHL registered its shares under section 12 of the Act in 1969, it therefore represented that it would disseminate financial information as required. Once the shares were no longer registered under section 12 of the Act, the section 13 obligation evaporated. No authority has been cited for the proposition that a company whose stock used to be registered under section 12 has a continuing obligation under section 13, even after de-registration, to disseminate financial information.

As shown above, the plaintiffs have failed to state claims under Rule 10b-5. Under established rules of pendent jurisdiction, dismissal of the Rule 10b-5 claim would require dismissal of the pendent state law claims as well. See, e.g., United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966); Kavit v. A.L. Stamm & Co., 491 F.2d 1176, 1180 (2d Cir.1974); In re Investors Funding Sec. Lit, 523 F.Supp. 550, 560 (S.D.N.Y.1980).

The defendants’ motion to dismiss the complaint is granted.

IT IS SO ORDERED.


author: REGAN, District Judge.

text:
    LOCAL 257, INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO, et al., Plaintiffs, v. William J. GRIMM and Carolyn Grimm, d/b/a Grimm Electric, Defendants.
    No. 84-1340C(B).
    United States District Court, E.D. Missouri, E.D.
    June 28, 1985.

      James I. Singer, St. Louis, Mo., for plaintiffs.
    John W. Ellinger, Jefferson City, Mo., for defendants.
   MEMORANDUM AND OPINION EMBODYING FINDINGS OF FACT AND CONCLUSIONS OF LAW

REGAN, District Judge.

In this action tried to the Court, the trustees of five employee benefit trust funds seek to recover delinquent contributions to said funds (and to another fund) allegedly required to be made by defendants pursuant to collective bargaining agreements, together with liquidated damages, interest, attorney’s fees, and costs.

Venue as to the claims of the trustees of the five trust funds is proper in this district because such funds are administered in this district. 29 U.S.C. § 1132. However, the other employee benefit fund, the National Electrical Benefit Fund (NEBF) is administered in Washington, D.C., so that unless waived, as we deem it to be with respect to said claim, venue in this district would be improper.

As of and prior and subsequent to October 12, 1977, the St. Louis Chapter, Central Missouri Division, National Electrical Contractors Association (Association) was the bargaining representative for its members on whose behalf from time to time it entered into collective bargaining agreements with Local Union 257, International Brotherhood of Electrical Workers (Local 257), the bargaining representative of various employees employed by electrical contractors in Central Missouri. Each of the bargaining agreements contain provisions for employer contributions to the six employee benefit funds.

Neither William J. Grimm nor his wife Carolyn Grimm were at any time members of the Association. However, as owner of Grimm Electric Company, a sole proprietorship doing business in Jefferson City, Missouri, Mr. Grimm signed a Letter of Assent on October 12, 1977, which authorized the Association to act as his bargaining representative “for all matters contained in or pertaining to the current approved inside labor agreement between the Association and Local Union 257.” Plaintiffs allege that defendants failed to pay contributions allegedly owing by them during the period January, 1982 to June, 1984, the date suit was filed.

There is an entire want of evidence as to what specific matters were contained in the then “current” (that is, as of October 12, 1977) approved labor agreement. The only evidence as to its effective period is the affidavit of defendant William Grimm (which plaintiffs placed in evidence) wherein he states that the collective bargaining agreement to which he became bound by the Letter of Assent was for a two year period from March 1, 1977 through February 28, 1979, and from year to year thereafter unless changed or terminated as therein provided.

There is no evidence as to whether the 1977 collective bargaining agreement remained in effect after February 28,1979 by virtue of the year to year provision, or if so, for what period of time. We do know, however, that whatever agreement may have been in effect in February, 1981 was superseded by an entirely new labor agreement between the Association and Local 257, complete within itself, which became effective March 1, 1981 for a period of two years, with the year to year provision, and that agreement was in turn superseded by subsequent, similar (but not identical), agreements in March, 1983 and March, 1984.

Plaintiffs’ theory as asserted in their complaint is that by the Letter of Assent defendants authorized the Association to act as its collective bargaining representative in all matters pertaining to the labor agreements between the Association and Local 257. Or, as counsel put it in his opening statement, the Letter of Assent bound Grimm Electric Company not only to the then current approved collective bargaining agreement but also “delegated to the (Association) Grimm Electric’s bargaining rights in the future.”

We do not so read the Letter of Assent. No language therein relates to any collective bargaining agreement other than the one then current. The plural is nowhere used. To the contrary, emphasis is placed on the singular in narrowing the scope of the authority delegated to the Association. There is no reference, directly or indirectly, to any future labor agreements. Thus, the Association is authorized to represent the signer of the Letter of Assent only in all matters relating to the current approved labor agreement.

That the words “current approved” agreement in the context in which they are used could only mean the then current agreement which had theretofore been approved is made perfectly clear by the language which follows, namely, that the authorization shall become effective on October 12, 1977 “in compliance with the current approved labor agreeent.” And by way of further emphasizing that the authorization pertains only to the then current labor agreement is the provision for termination of the authorization on 150 days notice “prior to the then current anniversary date of the aforementioned approved labor agreement.” The only “aforementioned” agreement is the one in effect on October 12, 1977, the date of the Letter of Assent.

It follows that the authority granted by the Letter of Assent automatically ceased to exist no later and probably earlier than the effective date of the new 1981 labor agreement. The result is that defendants are not bound by any of the provisions agreed to by the Association in the 1981 and subsequent labor agreements.

That such is consistent with the intention of the drafter of the Letter of Assent is clear from the prefatory language of the 1981 agreement between Local 257 and the Association (and the comparable language in the 1983 and 1984 agreements) to the effect that such Agreement is applicable not only to the Association’s members but “shall also apply to all firms and employers who sign [not ‘have signed’] a Letter of Assent to be bound by this Agreement.” Unquestionably, William Grimm never signed a Letter of Assent to be bound by the 1981, 1983 and 1984 Agreements or any of them. We add that even if there were any ambiguity in its language (and we find none), the Letter of Assent having been drafted by the Union and the Association, would be construed against them.

Plaintiffs having failed to prove their claim based on the Letter of Assent by the preponderance of the evidence, they are not entitled to the entry of judgment in their favor. In view of the foregoing ruling, it is unnecessary to separately consider the claim asserted against Carolyn Grimm based on the contention that she jointly with William Grimm owned, operated or controlled Grimm Electric Company with the result that she, too, was bound by the Letter of Assent signed by her husband. Nevertheless, we deem it desirable to make clear our finding that under any view of the preponderance of the credible evidence, Carolyn Grimm would not be liable to plaintiffs without regard to the merits of plaintiffs’ claim against her husband.

Mrs. Grimm had and has no financial interest in the business and assets of Grimm Electric Company. As a good helpmate, she assisted her husband by performing the office work (secretarial, bookkeeping, billing and receptionist). However, she neither hired nor fired any employee, entered into contracts, borrowed money on its behalf, nor exercised any other control over the operation of the business, or participated in any managerial decisions, and there is no evidence that she had any authority to do so. All of her actions were done at the direction of her husband. Although Mrs. Grimm was not paid a salary for her work, it is equally true that she did not share in the profits (if any) of the business, except to the extent that as the wife of William she used part of his weekly draw to pay household and personal expenses. In our judgment Carolyn Grimm did no more than any good wife would do under the circumstances in assisting her husband. That is a far cry from having an ownership or partnership interest in the business or its assets and operations. The mere fact that Mrs. Grimm occasionally referred to “our” business or used the word “we” in reference thereto (as wives are frequently wont to do) does not suffice to negate the clear and convincing evidence that the business and its assets belonged solely to her husband as a matter of law. We add that this is not a case in which the union or the trustees were deceived and acted to their detriment in reliance on any representations of Mrs. Grimm. To the contrary, plaintiffs were fully aware that the only responsible employer and owner of the business was William Grimm. The attempt to tie in Mrs. Grimm is an afterthought solely because she is the wife of William and not a paid employee performing identical services.

The foregoing Memorandum and Opinion constitutes our findings of fact and conclusions of law. Judgment will be entered for defendants in accordance herewith.

      . The full text of the Letter of Assent is as follows:
      In signing this letter of assent, the undersigned firm does hereby authorize St. Louis Chapter, Central Missouri Division, ÑECA as its collective bargaining representative for all matters contained in or pertaining to the current approved inside labor agreement between the St. Louis Chapter, Central Missouri Division, National Electrical Contractors Association and Local Union 257, IBEW. This authorization, in compliance with the current approved labor agreement, shall become effective on the 12th day of October, 1977. It shall remain in effect until terminated by the undersigned employer giving written notice to the St. Louis Chapter, Central Missouri Division, ÑECA and to the Local Union at least one hundred fifty (150) days prior to the then current anniversary date of the aforementioned approved labor agreement.

      . It may reasonably be inferred from the bargaining history of the parties that they entered into a new collective bargaining agreement covering the two year period between March 1, 1979 and February 28, 1981. Whether this is so or not does not necessarily affect Grimm’s liability, inasmuch as plaintiffs’ claim is for contributions allegedly owing for the subsequent periods commencing January 1, 1982. We add that plaintiffs make no contention that the 1977 agreement was in effect in 1982.

      . We find it unnecessary to rely on footnote 2 of the Letter of Assent which provides, inter alia, that “(t)he Local Union must obtain separate assent to each agreement the employer is assenting to.” This provision refers to “each agreement”, as distinguished from "each type of agreement.”

      . Plaintiffs have cited a group of cases to the effect that dominant corporate officers-stockholders may be held jointly liable with the corporation for pension fund contributions owing by the corporation. We fail to see the relevancy of these cases. Although Grimm Electric Company was, as of September, 1974, a corporation (of which William Grimm was the sole stockholder), it proved unsuccessful and its charter was forfeited on January 1, 1978 (when Mr. Grimm was operating the business as a sole proprietorship). The present case does not, however, involve any contributions allegedly owing by the corporation prior to or subsequent to the forfeiture.


author: DOUMAR, District Judge.

text:
    Harold L. BOHLINGER, Plaintiff, v. ALLIED TANKSHIPS, INC., Allied Marine Industries, Inc., Atlantic Company Limited Partnership, and Allied Repair Service, Inc., Defendants.
    Civ. A. No. 84-427-N.
    United States District Court, E.D. Virginia, Norfolk Division.
    July 1, 1985.
    Marlene Woodall, Virginia Beach, Va., Michael J. Pangia, Smiley, Olson, Gilman & Pangia, Washington, D.C., for plaintiff.
    Morton H. Clark, Vandeventer, Black, Meredith & Martin, William Peck, Seawell, Dalton, Hughes & Timms, Norfolk, Va., for defendants.
   OPINION

DOUMAR, District Judge.

This matter is before the Court on defendants’ pretrial motion for partial summary judgment. On June 22, 1983 the plaintiff, Harold L. Bohlinger, allegedly injured his knee while working on the M/V Sea Venture, a reconstructed motor vessel. Relying on the Jones Act, 46 U.S.C. § 688, and general admiralty and maritime law, the plaintiff brings suit against the defendants, who are responsible for either the operation, ownership or repair of the vessel.

The immediate motion before the Court concerns the plaintiff’s Jones Act claim. The plaintiff alleges that while employed as a seaman, he injured his knee when inspecting the vessel’s “double bottoms” in an attempt to determine if the rebuilding work was complete. He maintains that the defendants’ joint and several negligence caused his injury. The defendants claim that the vessel was not “in navigation” and therefore the plaintiff could not be a seaman as required by the Jones Act. The plaintiff, however, is of the opinion that whether the vessel was “in navigation” is a factual dispute which must be decided by a jury.

The Court, for the reasons developed below, holds that the M/V Sea Venture was not “in navigation” under the Jones Act at the time of plaintiff’s injury and therefore the plaintiff was not “a seaman” within the contemplation of the Jones Act. Accordingly, the defendants' motion for partial summary judgment is GRANTED and Count I brought pursuant to the Jones Act is DISMISSED. The Court indicated it would issue a detailed opinion on this particular ruling after the trial and said opinion follows.

I. BACKGROUND

The M/V Sea Venture is a reconstructed chemical tanker presently engaged in service around the United States. The vessel’s genesis traces back to a maritime collision between its predecessor, the Hellenic Carrier and the LASH Atlántico. As a result of the collision, the Hellenic Carrier was sliced into two hulks. The Sea Venture’s aft and bow sections came from the salvaged Hellenic Carrier and its midsection was manufactured anew. The rebuilding began July 17, 1981, in Norfolk, Virginia. The three sections were completely welded and the Sea Venture was afloat by February 21, 1983. Under various contracts involving one or more of the defendants, the renovation was supposed to be completed by July 1, 1983. The rebuilding was completed by codefendant Allied Repair Service, (Deposition of O.B. Jones at 7-8), sometime during the summer of 1983.

Following an earlier position with Allied Towing Corporation as a field representative, the plaintiff was hired by codefendant Allied Tankships, Inc. in June, 1983. Evidence of plaintiff’s hiring may be found in a verified handwritten note sent by an agent of Allied Tankships to a bookkeeper of said codefendant. The note reads as follows:

TO:' Connie Davis
FROM: Denny Harrison
SUBJECT: New Employee Sea Venture Please place Harold Bohlinger on ATI Payroll as Able Seaman. Annual Salary $24,000. I will pay day for day on payroll book. Start date 6/21/83.
Thank you,
Denny
All paperwork attached

The plaintiff stated in his deposition that upon being hired on June 21 he began stenciling life rings, life jackets, etc. with the name M/V Sea Venture. This apparently required the plaintiff to board the vessel and remove the equipment to an adjacent warehouse. (Deposition of plaintiff at 23-24). The plaintiff claims that he was injured the next day. The plaintiff alleges that on June 22, 1983 his supervisor, O.B. Jones, ordered him to inspect the vessel’s “double bottoms”. (Id. at 17). As outlined in the complaint:

3. At all pertinent times, plaintiff was an able-bodied seaman employed by the defendants to perform work traditionally performed by seamen particularly on and about the M/V Sea Venture.
4. On or about June 22, 1983, while the M/V Sea Venture was docked in Norfolk, Virginia, the plaintiff was ordered to climb down into the double bottoms, an area of approximately three to four feet high above the very bottom of the ship and below the cargo tanks, to check for debris and to clean up any loose matter prior to sealing that area.
5. While performing his assigned task, which required him to pass through “manholes” in the longitudinal bulkheads within the double bottoms intended for such access, he became trapped in one of the manholes which was insufficient and defective in size and design, thus seriously and permanently injuring the plaintiffs knee.

Second Amended Complaint filed December 11, 1984. His immediate supervisor, Mr. Jones, claims no injury report was filed and no notification concerning plaintiffs injury was given on or about that date. (Deposition of O.B. Jones at 25).

The plaintiff maintains that his knee injury was later aggravated when he subsequently went to sea with the Sea Venture. Redress for the alleged subsequent injury is in no way affected by this order.

The events which transpired after the initial alleged injury leading to the M/V Sea Venture’s maiden voyage are, however, critical to the three prong analysis required to determine if the plaintiff was a seaman under the Jones Act.

The plaintiff asserts that on June 22, 1983 the vessel was under its own displacement, had a captain, and was “functionally able to navigate.” It would appear that at that time there also existed a crew of eight men. The defendants claim, however, that the engines, steering gear, engine telegraph system and electric generators were not operable until July 30, 1983. Richard T. Waida, Vice President of Operations for Allied Tankships, admitted at deposition that these dates were “approximations”. (Deposition at 26). Unsurprisingly, the plaintiff disputes the defendants’ contention. The plaintiff claims that the vessel was launched into navigable waters with machinery that was functional prior to June 22, 1983.

Ottis B. Jones, Jr. was a port engineer for Allied Tankship, and by June 21, 1983 was employed to be a mate on the Sea Venture and was the plaintiff’s supervisor. Jones stated that two sea trials of a day’s duration were conducted prior to the Sea Venture’s maiden voyage. He says the first sea trial of the rebuilt vessel occurred on August 9, 10 or 11, 1983. He recalls that a second sea trial took place “a couple days later” and lasted “ten or twelve hours.” These dates are not disputed.

Later, on August 15, 1983 the vessel was documented by the U.S. Coast Guard as a chemical tanker. The vessel was registered with Lloyds of London and accepted by its agents on August 15, 1983. The plaintiff signed “shipping articles” as a crew member for the first time on or about August 15,1983, and the vessel commenced coastwide services on or about the same date. (Plaintiff’s Answers to Defendants’ Request for Admissions, January 4, 1985). These dates are also undisputed. The plaintiff at his deposition claimed that signing of articles was only significant in that “everybody would begin to accrue ... for every day worked ... a day off with pay, at that point in time____” (Plaintiff's Deposition at 4).

According to the plaintiff, the crew which sailed consisted of somewhere between 15 and 32 members, whereas it consisted of about 8 members on the alleged injury date. The vessel was neither accepted by the owners nor in any way in commerce on June 22, 1983, although, for purposes of this motion, it was in navigable waters with machinery which could have conceivably been operated on June 22, 1983.

II. ANALYSIS

The plaintiff pursues his Jones Act negligence claim pursuant to 46 U.S.C. § 688, which reads in pertinent part:

§ 688. Recovery for injury to or death of seaman, (a) Any seaman who shall suffer personal injury in the course of his employment may, at his election, maintain an action for damages at law, with the right of trial by jury, and in such action all statutes of the United States modifying or extending the common-law right or remedy in cases of personal injury to railway employees shall apply; and in case of the death of any seaman as a result of any such personal injury the personal representative of such seaman may maintain an action for damages at law with the right of trial by jury, and in such action all statutes of the United States conferring or regulating the right of action for death in the case of railway employees shall be applicable. Jurisdiction in such actions shall be under the court of the district in which the defendant employer resides or in which his principal office is located.

Id. The determination of whether an employee has attained “seaman” status under the Act is steeped in years of Supreme Court case law. See, e.g., Desper v. Starved Rock Ferry Co., 342 U.S. 187, 72 S.Ct. 216, 96 L.Ed. 205 (1951); Gianfala v. Texas Co., 350 U.S. 879, 76 S.Ct. 141, 100 L.Ed. 775 (1955); Senko v. LaCrosse Dredging Corp., 352 U.S. 370, 77 S.Ct. 415, 1 L.Ed.2d 404 (1957) reh’g denied, 353 U.S. 931, 77 S.Ct. 716, 1 L.Ed.2d 724 (1957); Butler v. Whiteman, 356 U.S. 271, 78 S.Ct. 734, 2 L.Ed.2d 754 (1958).

As a result of the many Supreme Court cases, there has evolved a “three prong test for determining seaman status that has been cited and restated by virtually every court that has subsequently considered this issue.” IB Benedict on Admiralty, § 11a, at 2-5 (7th Ed.) The Fifth Circuit in Offshore Co. v. Robison, 266 F.2d 769 (5th Cir.1959) is credited as a progenitor of this distilled three prong test which inquires whether:

(1) the employee was working on or in connection with a vessel in navigation;
(2) the employee had a more or less permanent connection with that vessel; and
(3) the employee was aboard the vessel primarily to aid in navigation [footnote omitted].

IB Benedict on Admiralty, § 11a at 2-5.

In Williams v. Avondale Shipyards, Inc., 452 F.2d 955 (5th Cir.1971) (Brown, C.J.), the plaintiff was an engineering draftsman for a shipyard. He was assigned to go aboard the newly constructed U.S. Coast Guard Cutter Hamilton’s first sea trials, as a data-taker and gauge monitor. The remainder of the crew were shipyard employees. Id. at 957. The Court briefly cited the traditional Jones Act three prong analysis, supra, and then stated:

As to the first of those three elements, we hold that Hamilton was not “in navigation” as that term has been defined by the courts at the time of Williams’ injuries. It is true that Hamilton was at sea and underweigh at that time, but “it is fallacious to assume that whenever a tort occurs on navigable waters, the person injured will automatically avail himself of the Jones Act.”
The term “in navigation” means “engaged in an instrument of commerce and transportation on navigable waters.”
For there to be a seaman, there must first be a ship. And an incompleted vessel not yet delivered by the builder is not such a ship. Ship and seaman, ship and seaworthiness are mutual reflexes.

Id. at 958 (citations omitted). The instant plaintiff’s alleged initial injury occurred over a month before any sea trials took place. Only a skeletal crew of eight persons had been assembled by June 22, 1983. Furthermore, delivery of the completed vessel by the contractor, and acceptance by the owners and its insurers, did not occur until around mid-August. The stenciling of life jackets with the rebuilt vessel’s new name and the other similar activities taking place in June were all preliminary to the vessel’s commencement “in navigation”, despite the fact that the alleged injury occurred while the plaintiff was inspecting the vessel’s bottoms.

There is also substantial authority, with respect to a motor vessel, “that one becomes a seaman from the time of signing the articles and that his status and obligations are determined thereby.” Bodden v. Coordinated Caribbean Transp., 369 F.2d 273, 275 (5th Cir.1966) (Bell, C.J.) (citations omitted). In the instant case, the signing of articles did not occur until August 1983.

The Court finds that despite the fact that the plaintiff was hired as a “able seaman” on June 21, 1983, the vessel was not “in navigation” as defined by the Jones Act on June 22, 1983. As of June 22, 1983 all efforts of the crew members including the plaintiff were designed to place the M/V Sea Venture “in navigation,” and to bring the vessel to a seaworthy condition. Those very activities performed by the plaintiff which resulted in his alleged injury had to be completed prior to the vessel being placed in navigation.

Perhaps it is a corollary concept that where a contractor takes efforts, such as sea trials and the like, to ascertain any additional work required to deliver a vessel undergoing repairs to its owner, no warranty of seaworthiness attaches. Williams, supra, 452 F.2d at 957. Such efforts by their nature are to determine what work is required to make a vessel fully fit. Id.

In the instant case, the M/V Sea Venture, was not in navigation on June 22, 1983. It had “yet to take her place in commerce and navigation____” Frankel v. Bethlehem-Fairfield Shipyard, 132 F.2d 634, 635 (4th Cir.1942), cert. denied, 319 U.S. 746, 63 S.Ct. 1030, 87 L.Ed. 1702 (1943).

The Court therefore holds that at the time of the plaintiff’s alleged injuries, the vessel was not “in navigation” as defined by the Jones Act. The plaintiff was therefore not a seaman for the purposes of the Jones Act. Accordingly, the defendants’ partial summary judgment motion is GRANTED and the Jones Act claim is DISMISSED.

IT IS SO ORDERED.


author: ALLEN SHARP, Chief Judge.

text:
    Ebony D. WILLIAMS by Linda S. ELLIS, Next Friend, Plaintiff, v. Margaret HECKLER, Secretary of Health and Human Services, Defendant.
    No. S 84-416.
    United States District Court, N.D. Indiana, South Bend Division.
    July 2, 1985.

      Aladean M. DeRose, South Bend, Ind., for plaintiff.
    David H. Kreider, Asst. U.S. Atty., South Bend, Ind., for defendant.
   MEMORANDUM AND ORDER

ALLEN SHARP, Chief Judge.

This case is brought pursuant to Section 205(g) of the Social Security Act, 42 U.S.C. § 405(g) for judicial review of the Secretary’s final decision denying plaintiff’s claim for surviving child’s insurance benefits under Title II of the Social Security Act, 42 U.S.C. § 402(d)(1). Both parties have filed motions for summary judgment and the matter is ripe for ruling. The parties have stipulated to the findings of fact set forth in the decision of the Administrative Law Judge (AU) rendered January 24, 1984. Plaintiff only disputes the AU’s conclusions of law that plaintiff is not the “child” of the deceased wage earner, Michael Williams, under 42 U.S.C. §§ 416(h)(2)(A) or 416(h)(3)(C).

The following facts are undisputed. The wage earner, Michael Williams, died domiciled in Indiana on December 31, 1981. The plaintiff, Ebony Williams, was born to Linda Ellis on January 16, 1982, sixteen (16) days later. The plaintiff’s mother and Mr. Williams had never gone through a marriage ceremony and were not married at the time of Mr. William’s death. Linda Ellis, her doctor’s assistant and the wage earner’s friends and relatives, including his sister, indicated that the wage earner orally acknowledged that Ebony Williams, who had not yet been born, was his child. The wage earner never acknowledged in writing, however, that plaintiff was his child. The ALJ found satisfactory evidence that the wage earner was plaintiff’s biological father.

On July 14, 1982, a court order of the St. Joseph County Probate Court in South Bend, Indiana was entered determining that Michael Williams was the natural father of plaintiff. Accordingly, plaintiff’s birth certificate was amended to show the wage earner and Linda Ellis as being plaintiff’s natural parents.

At the time of his death, Michael Williams was not living with plaintiff’s mother on a regular basis. He did, however, stay overnight with plaintiff’s mother from time to time and brought her some food. He did not make regular and substantial contributions to her support. Further, Michael Williams did not make any financial arrangements regarding the birth of the child.

Section 202(d) of the Social Security Act, 42 U.S.C. § 402(d), provides for survivor’s benefits for a “child” of a deceased wage earner if such “child” is under 18, is unmarried, and was “dependent” upon the wage earner at the time of his death. The legitimate child of a wage earner is deemed to have been “dependent” upon the wage earner at the time of the latter’s death. 42 U.S.C. § 402(d)(8)(A). However, a claimant may also be considered the dependent “child” of a wage earner for purposes of entitlement to benefits if he or she would have the status of the wage earner’s child under the intestate succession laws of the state in which the wage earner was domiciled at the time of his death. 42 U.S.C. § 416(h)(2)(A); Mathews v. Lucas, 427 U.S. 495, 499 n. 2, 96 S.Ct. 2755, 2759 n. 2, 49 L.Ed.2d 651 (1976). A claimant who is not considered the “child” of the wage earner under the preceding provision may nevertheless be entitled to surviving child’s benefits if he or she is the wage earner’s son or daughter and the wage earner, prior to his death, acknowledged his paternity in writing, had been decreed by a court to be the claimant’s father or mother, or had been ordered by a court to contribute to the support of the claimant based on a finding of paternity. 42 U.S.C. § 416(h)(3)(C)(i). A claimant who satisfies any of these tests is also deemed to have been “dependent” upon the wage earner for purposes of entitlement to benefits. 42 U.S.C. § 402(d)(3). A claimant who does not satisfy any of these tests may still be entitled to benefits as a surviving dependent child of the wage earner if the wage earner is shown by “satisfactory evidence” to have been the claimant’s father and the wage earner was either living with or contributing to the claimant’s support when he died. 42 U.S.C. § 416(h)(3)(C)(ii).

In this case, the plaintiff maintains that she is entitled to Social Security survivor benefits either under 42 U.S.C. § 416(h)(2)(A) or 42 U.S.C. § 416(h)(3)(C)(ii). Plaintiff argues that contributions of food to plaintiff’s mother constitutes support within the meaning of 42 U.S.C. § 416(h)(3)(C) and that the Indiana intestate inheritance law as applied under 42 U.S.C. § 416(h)(2)(A) to illegimate posthumously born survivor claimants is unconstitutional.

Under 42 U.S.C. § 416(h)(3)(C), an applicant may be deemed to be a child of insured individual if the insured individual “is shown by evidence satisfactory to the Secretary to have been the mother or father of the applicant, and such individual was living with or contributing to the support of the applicant at the time of such insured individual died.” In this case, there is no dispute that Michael Williams was the natural father of the plaintiff, Ebony Williams. Therefore, the only issue is whether the father was contributing sufficient support to his unborn illegitimate child to render the child eligible for benefits under Section 416(h)(3)(C)(ii). The plaintiff maintains that Michael William’s contribution of food to her mother before her birth was sufficient support to render her eligible.

The Social Security Act is remedial and should be construed liberally. See, e.g., Doran v. Schweiker, 681 F.2d 605 (9th Cir.1982); Adams v. Weinberger, 521 F.2d 656 (2d Cir.1975); Morgan v. Schweiker, 558 F.Supp. 331 (S.D.Ohio 1983). The primary purpose of the sections of the Act involved here is to provide support to children who have lost either the actual support of an insured parent or the anticipated support which that parent would have expected to give had his death not intervened. Jiminez v. Weinberger, 417 U.S. 628, 94 S.Ct. 2496, 41 L.Ed.2d 363 (1974); Doran v. Schweiker, supra; Adams v. Weinberger, supra. Accordingly, the terms of the Act requiring a potential claimant to show dependency should not be construed in such a manner as to withhold benefits in marginal cases. Adams v. Weinberger, supra. However, the qualifying sections of the Act were included to sift out and reject “spurious” claims and must be considered in evaluating a claim for children’s survivor benefits. See Jiminez v. Weinberger, supra; Adams v. Weinberger, supra. With this background in mind, this court must evaluate plaintiff’s claim.

The statute is silent on the issue of the required amount of support. It contains no language suggesting how much or how often the father must contribute support to render his child eligible for survivor benefits. In implementing this section, the Secretary promulgated the following regulation:

The insured makes a contribution for your support if the following conditions are met:
(1) The insured gives some of his or her own cash or goods to help support you. Support includes food, shelter, routine medical care, and other ordinary and customary items needed for your maintenance. The value of any goods the insured contributes is the same as the cost of the goods when he or she gave them for your support. If the insured provides services for you that would otherwise have to be paid for, the cash value of his or her services may be considered a contribution for your support. An example of this would be work the insured does to repair your home. The insured person is making a contribution for your support if you receive an allotment, allowance, or benefit based upon his or her military pay, veterans’ pension or compensation, or social security earnings. (2) Contributions must be made regularly and must be large enough to meet an important part of your ordinary living costs. Ordinary living costs are the costs for your food, shelter, routine medical care, and similar necessities. If the insured person only provides gifts or donations once in a while for special purposes, they will not be considered contributions for your support. Although the insured’s contributions must be made on a regular basis, temporary interruptions caused by circumstances beyond the insured person’s control, such as illness or unemployment, will be disregarded unless during this interruption someone else takes over responsibility for supporting you on a permanent basis.

20 C.F.R. § 404.366(a) (1984). However, the application of the “regular and substantial” test outlined above is inappropriate in the case of an unborn child since an unborn child is totally dependent upon its mother. Courts which have addressed the issue of support under section 416(h)(3)(C) in the case of an unborn child have held that the support requirement must be considered in light of the actual needs of the child and the father’s ability to contribute. See Doran v. Schweiker, supra; Adams v. Weinberger, supra; Gay on Behalf of McBride, 583 F.Supp. 499 (N.D.Ga.1984); Morgan v. Schweiker, 558 F.Supp. 331 (S.D.Ohio 1983); see also Parker v. Schweiker, 673 F.2d 160 (6th Cir.1982). This court finds that this is an appropriate test for determining whether a father was contributing sufficient support to his unborn illegitimate child to render the child eligible for benefits under 42 U.S.C. § 416(h)(3)(C)(ii).

In this case, the AU found that Michael Williams brought plaintiff’s mother some food. It is not clear from the AU’s findings when or how often he brought food or whether those contributions were comensurate with the father’s ability to contribute. Since the AU’s denial was based on the application of an incorrect standard, this case must be remanded for an evaluation in light of the proper standard as outlined above.

For the foregoing reasons, this case is REMANDED to the Secretary for the taking of additional evidence as is necessary to evaluate this case under the proper standard.

SO ORDERED.

      . The plaintiff maintains that the Indiana inheritance statute is unconstitutional as applied by the Social Security Administration in denying her benefits. When the constitutionality of an act or statute is questioned, a court must first ascertain whether a construction of the statute is fairly possible by which the question may be avoided. Crowell v. Benson, 285 U.S. 22, 52 S.Ct. 285, 76 L.Ed. 598 (1932). Since the plaintiff may be entitled to benefits under 42 U.S.C. § 416(h)(3)(C)(ii), this court need not address the constitutional question at this time.


author: BATTIN, Chief Judge.

text:
    Robert B. TROMBETTA, Mitsie M. Trombetta, and Anthony Trombetta, Plaintiffs, v. UNITED STATES of America, Defendant.
    No. CV-84-176-BLG.
    United States District Court, D. Montana, Billings Division.
    July 2, 1985.
    Bert W. Kronmiller, Dunaway, O’Connor & Moe, P.C., Billings, Mont., for plaintiffs.
    Lorraine Gallinger, Asst. U.S. Atty., Billings, Mont., Collette Winston, Asst. U.S. Atty., Civ. Div., Washington, D.C., for defendant.
   OPINION AND ORDER

BATTIN, Chief Judge.

This case is before the Court on defendant’s motion to reconsider the Court’s order denying defendant’s motion to dismiss Count One of plaintiffs’ complaint. Upon reconsideration, defendant’s motion to dismiss Count One is granted.

In this Court’s opinion of January 9, 1985, the Court held that plaintiffs’ claim was not barred by the exceptions to the Federal Torts Claims Act (FTCA). That position is supported by the Supreme Court’s holding in Block v. Neal, 460 U.S. 289, 103 S.Ct. 1089, 75 L.Ed.2d 67 (1983). However, upon reconsideration, the Court finds that there was no duty on the part of the defendant, and therefore the analysis of the case need not proceed to the question of whether the exceptions to the FTCA apply.

The FTCA waives, with certain exceptions, the government’s traditional sovereign immunity from suit for eommonlaw torts committed by government agents, 28 U.S.C. § 2674, but the source of the claim for relief must be the law of the state where the act or omission complained of occurred. 28 U.S.C. § 1346(b); Lutz v. United States, 685 F.2d 1178 (9th Cir.1982). Montana recognizes the eommonlaw tort embodied in the good Samaritan doctrine as set out in § 323 of the Restatement (Second) of Torts (1965), Jeffries v. United States, 477 F.2d 52 (9th Cir.1973). Section 323 states as follows:

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other’s person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if
(a) his failure to exercise such care increases the risk of such harm, or
(b) the harm is suffered because of the other’s reliance upon the undertaking.

As counsel for defendant pointed out, even where the government conducts inspections, it is not undertaking a legal duty to render services as required by the good Samaritan doctrine. Jeffries v. United States, 477 F.2d 52 (9th Cir.1973); Roberson v. United States, 382 F.2d 714 (9th Cir.1967). There is no Montana case law that would hold a private person in the same position as the government in this case (for example, a bank or savings and loan which had lent money to build a home and had inspected the construction) responsible for negligent construction on the part of the person or company building the home. Therefore, without a duty owed by the defendant FmHA to the plaintiffs, there can be no breach of duty and thus no claim for relief. Therefore,

IT IS ORDERED that Count One of plaintiffs’ complaint is dismissed for failure to state a claim. Count Two having been dismissed previously,

IT IS FURTHER ORDERED that the plaintiffs’ complaint is dismissed.

The Clerk is directed to enter judgment in favor of the defendant and against the plaintiffs.

The Clerk is further directed forthwith to notify counsel for the respective parties of the making of this order.