author: RAMSEY, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. SCM CORPORATION, Defendant.
    Civ. A. No. R-85-09.
    United States District Court, D. Maryland.
    Aug. 12, 1985.

      Glenda G. Gordon, Asst. U.S. Atty., Baltimore, Md., James M. Baker, Philadelphia, Pa., Ellen M. Mahan, Judith Katz, Washington, D.C., for plaintiff, U.S.
    Charles Lettow, Washington, D.C., Joseph S. Kaufman, Baltimore, Md., Samuel Friedman, New York City, for defendant SCM Corp.
   MEMORANDUM

RAMSEY, District Judge.

This case presents the issue of whether an enforcement action brought on behalf of the Environmental Protection Agency pursuant to the Clean Air Act should be dismissed or stayed under the “Colorado River doctrine” where the defendant has entered into an administrative consent order with the state agency charged with enforcing the same standards sought to be enforced in the federal action.

The United States brought this action against the SCM Corporation (hereinafter “defendant” or “SCM”) at the request of the Administrator of the Environmental Protection Agency (hereinafter “EPA”). The action, brought pursuant to 42 U.S.C. § 7413(b), seeks injunctive relief and the imposition of civil penalties as a result of defendant’s alleged violations of the Clean Air Act, 42 U.S.C. § 7401 et seq., and the State Implementation Plan approved by EPA pursuant to the Act.

Currently before the Court is SCM’s motion to dismiss the complaint or to stay the proceedings. Defendant’s motion is opposed by the plaintiff, and the issues have been thoroughly briefed by the parties. Despite defendant’s request for a hearing, the Court finds evidence and argument unnecessary and now denies defendant’s motion for the reasons stated below. See Local Rule 6 (D.Md.1985).

I. INTRODUCTION

A. Statutory Framework

The Clean Air Act (hereinafter “the Act”), 42 U.S.C. § 7401 et seq., established programs for pollution control involving state and local governments as well as the EPA. The Act provides, inter alia, that the EPA establish primary and secondary “national ambient air quality standards” (“NAAQS”) for air pollutants having an adverse impact on public health or welfare. 42 U.S.C. § 7409.

The Act also requires that each state adopt and submit to the EPA a “State Implementation Plan” (“SIP”) to attain and maintain the federally promulgated NAAQS. 42 U.S.C. § 7407 and 7410. If a state fails to submit a plan which satisfies the Act’s requirements, EPA is authorized to adopt a substitute SIP for the area involved. 42 U.S.C. § 7410(c). If the state-adopted SIP satisfies the requirements of the Act, it is approved by the EPA and may, thereafter, be enforced by both the state and the EPA.

If the EPA finds that a person is in violation of a federally approved SIP, the EPA must give notice to both the alleged violator and to the state. If the violation extends beyond the thirtieth day following the required notification, the EPA may order compliance or bring a civil enforcement action. 42 U.S.C. § 7413(a)(1). Such a civil action may be brought in the district court of the United States for the district in which the violation occurred, and the court shall have jurisdiction to restrain the violation, to require compliance, and to assess civil penalties of up to $25,000 per day of violation. 42 U.S.C. § 7413(b). If the Court finds that the civil enforcement action was unreasonably brought, it may award defending parties the costs of litigation, including attorney and expert witness fees. Id.

In 1972, the EPA promulgated primary and secondary NAAQS for pai ticulate matter and other air pollutants. See 40 C.F.R. §§ 50.6, and 50.7. Following the promulgation of those standards, Maryland adopted and the EPA approved a Maryland SIP which is published in the Code of Maryland Regulations (COMAR) and in the Code of Federal Regulations. See COMAR 10.18.06; 40 C.F.R. Subpart V §§ 52.1070-52.1117. The Maryland SIP, in pertinent part and with exceptions not here relevant, prohibits the discharge of particulate matter in amounts greater than 0.03 grains per dry standard cubic foot of exhaust gas, COMAR 10.18.06.03B(2)(a) (hereinafter the “particulate-matter standard”), and further prohibits the emission of sulfuric acid mist in a concentration greater than 70 micrograms per cubic meter of exhaust gas. COMAR 10.18.06.05c(2) (the “sulfuric-acid standard”). The violation of these provisions of the Maryland SIP is alleged in the case at bar. The Maryland SIP also prohibits the discharge of emissions, other than water in an uncombined form, that are visible to human observers. COMAR 10.-18.06.02B (the “visible-emission standard”).

The State of Maryland has also enacted air pollution control laws which are codified in Title 2 of Md. Health-Environmental Code Ann. (1982). Under Maryland law, the state’s Department of Health and Mental Hygiene (hereinafter “the Department” or “the state agency”) is required to establish state ambient air quality standards identical to the federal standards unless a political subdivision requests a more restrictive standard. § 2-302(c). The Department must also adopt emission standards to attain and maintain the ambient air quality standards. § 2-302(d). The Department may adopt other rules and regulations for the control of air pollution. § 2-301(a).

Under the enforcement provisions of the Maryland law, the Department may issue show cause and corrective orders, §§ 2-602 to 608, or bring enforcement actions to enjoin alleged violations and impose civil penalties. § 2-609(a). The Department may recover in an enforcement action brought in the circuit court for any county up to $10,000 per violation per day. § 2-610(a). All proceedings under the Maryland air quality control law are to be brought by the Department, and “[n]o person other than [the] State acquires actionable rights by virtue of [that law].” § 2-106.

B. Factual Background,

Defendant SCM operates the Adrian Joyce Works in Baltimore, Maryland, at which plant defendant manufactures titanium dioxide, a white pigment used in paint, plastics, paper and other materials.

In May of 1982, the state agency conducted emission tests at defendant’s plant. On January 5, 1983, a Notice of Violation and Show Cause Order was issued to defendant by the state agency. The notice alleged, based on the May 1982 tests and observations, that defendant was in violation of the state’s particulate-matter, sulfuric-acid, and visible-emission standards. Defendant was informed by that notice of sanctions available under the Health-Environmental Article of the Maryland Code, and was ordered to show cause why a corrective order should not issue. Discussions ensued between the company and the state agency regarding the reliability of the testing procedures and whether defendant’s facilities were in fact in compliance with the state standards.

Meanwhile, on April 20, 1984, the EPA issued a Notice of Violation to the defendant company based on tests conducted in December of 1983. The federal notice alleged that defendant was in violation of the sulfuric-acid and particulate-matter standards in the Maryland SIP which had been federally approved pursuant to the Clean Air Act. The alleged violations concerned the operation of calcining Kilns No. 2 and 3 at defendant’s Adrian Joyce Works. The notice also informed defendant of enforcement actions which could be taken pursuant to the federal Act if the violations continued more than thirty days following the EPA notification.

In December of 1984, the state agency and the company reached an agreement to enter a consent order with regard to the state’s notice of violation. The EPA, aware of the agreement, brought this action on January 2, 1985. The Consent Order between the state agency and the company was executed and effective on January 7, 1985.

The Consent Order entered by the defendant and the state agency, while preserving the parties’ respective positions on the issues of compliance and test validity, provides in part: (1) for the installation of certain equipment by SCM on Calcining Kilns No. 1, 2, and 3 by December 15, 1985; (2) for the performance of stack tests for Kiln No. 1 by April 30, 1985, and for Kilns No. 2 and 3 by December 15, 1985; (3) that in the event that the stack tests fail to demonstrate compliance, the company shall within three months submit a new plan providing for full compliance by July 1, 1986, subject, however, to certain rights reserved to the company; (4) for stipulated penalty payments if the company fails to install the new equipment by the dates specified; and (5) for the payment by SCM of a “compromise civil penalty” in the amount of $5,000 and a donation to the Johns Hopkins University in the amount of $10,000 to be used for consulting services to the state agency.

As noted above, the United States brought this action, at the request of the EPA, on January 2, 1985. Plaintiff seeks injunctive relief and the imposition of civil penalties under the Clean Air Act. The complaint, predicated upon the federal Notice of Violation issued in April of 1984, alleges that the company has continued to violate the sulfuric-acid and particulate-matter standards in the operation of Kilns No. 2 and 3 for more than thirty days after the issuance of the Notice of Violation.

II. DISCUSSION

As discussed in Section I-A above, the Clean Air Act requires a state to adopt a State Implementation Plan (SIP) which will satisfy the National Ambient Air Quality Standards (NAAQS) promulgated by the EPA pursuant to the Act. Once an SIP has been approved by the EPA, as Maryland’s has, it may be enforced by the EPA as well as the state. Maryland law similarly provides for enforcement of the state’s SIP and other pollution control regulations in state administrative proceedings and state-court actions.

This action is brought by the EPA under the federal Act to enforce the EPA-approved SIP. Defendant now moves this Court to dismiss or stay the action because of the administrative consent order agreed to by defendant and the state agency. The consent order was made subsequent to the issuance of EPA’s Notice of Violation and nearly simultaneous to the bringing of the instant federal action. The administrative consent order, and the underlying state violation notice, concern, inter alia, the alleged violations of Maryland’s SIP which are the subject of the present federal enforcement action. Defendant argues that the state administrative consent order precludes, at least for the present, the prosecution of this action to enforce the same SIP violations addressed by that order.

At the outset, it may be well to note the grounds upon which the defendant does not rely. Defendant does not assert that this Court lacks jurisdiction over the instant case, or that plaintiff has failed to meet any of the statutory conditions precedent for the bringing of the action. Defendant does not suggest that this Court should refrain from exercising its jurisdiction under one of the traditional abstention doctrines. Nor does the defendant contend that plaintiff’s action is barred by issue or claim preclusion, the two branches of the doctrine of res judicata.

Instead, defendant SCM urges that the Court should dismiss or stay this action under the doctrine of Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). Defendant maintains that this Court should follow the District of Delaware which relied upon the Colorado River doctrine to stay an EPA action under the Clean Water Act, 33 U.S.C. § 1251 et seq., in United States v. Cargill, Inc., 508 F.Supp. 734 (D.Del.1981) (Latchum, C.J.).

In Colorado River, the United States brought an action in federal court, on its own behalf and on behalf of several Indian tribes, seeking adjudication of water rights based on federal and state law. One of the defendants in that suit thereafter sought in state court to make the United States a party to water-right proceedings in state court, which proceedings are held on a continuous basis. The state-court application by the federal-suit defendant sought to make the United States a state-court party for the purpose of there adjudicating all the claims of the United States, both state and federal, pursuant to the McCarran Amendment which provides the consent of the United States to suits against it in state courts concerning water rights.

After the United States was served with process in the state-court action pursuant to the McCarran Amendment, defendants in the federal action brought by the United States moved to dismiss that action on the ground that the federal court was without jurisdiction in light of the McCarran Amendment. Without reaching the jurisdictional question, the District Court granted defendants’ motion to dismiss on the basis of the abstention doctrine. The Tenth Circuit reversed, holding that jurisdiction was proper and abstention inappropriate. The Supreme Court reversed the Court of Appeals and held that the District Court’s dismissal was justified, albeit for different reasons than those relied upon by the District Court.

Justice Brennan, writing for six members of the Court, held first that the McCarran Amendment in no way diminished federal jurisdiction under 28 U.S.C. § 1345 or § 1331. Colorado River, 424 U.S. at 809, 96 S.Ct. at 1242. That Amendment, held the Court, did allow concurrent jurisdiction over the water rights in question in the state court. Id. at 809-13, 96 S.Ct. at 1242-44. The Court next held that although dismissal could not be supported on the basis of any traditional form of the abstention doctrines, id. at 813-17, 96 S.Ct. at 1244-46, dismissal was justified nonetheless on the basis of “principles governing the contemporaneous exercise of concurrent jurisdiction.” Id. at 817-21, 96 S.Ct. at 1246-48.

The principles governing contemporaneous exercise of concurrent jurisdiction are unrelated to considerations of proper constitutional adjudication or regard for federal-state relations. Id. at 817, 96 S.Ct. at 1246. Instead, they “rest on considerations of ‘[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.’ ” Id. [quoting Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342 U.S. 180, 183, 72 S.Ct. 219, 221, 96 L.Ed. 200 (1952) (affirming Third Circuit decision providing for stay of federal action in one district in favor of a federal action in a second district where all parties’ claims could be adjudicated) ].

The principles governing contemporaneous exercise of concurrent jurisdiction are more deferential when both courts involved are federal than they are when a federal court is asked to stay its hand in favor of a state-court proceeding. Id. at 817, 96 S.Ct. at 1246. As between federal courts, the general principle is to avoid duplicative litigation. Id. A federal court has broad discretion in such a ease to stay its hand pending the outcome of another federal proceeding. See Landis v. North American Co., 299 U.S. 248, 57 S.Ct. 163, 81 L.Ed. 153 (1936); Kerotest, supra, 342 U.S. 180, 72 S.Ct. 219, 96 L.Ed. 200.

As between state and federal courts, however, “the rule is that ‘the pendancy of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction ... ’ [citations omitted]. This difference in general approach between state-federal concurrent jurisdiction and wholly federal concurrent jurisdiction stems from the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.” Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246. Circumstances permitting dismissal of a federal suit in the face of a concurrent state proceeding for reasons of wise judicial administration are more limited than the circumstances apropriate for abstention. Id. at 818, 96 S.Ct. at 1246. The former circumstances must be exceptional, and only the clearest of justifications can warrant dismissal. Id. at 818-19, 96 S.Ct. at 1246-47.

In Colorado River, the Court cited several factors which might in some combination outweigh the obligation of the federal courts to exercise jurisdiction. These factors include 1) the earlier assumption of jurisdiction over property by a state court; 2) the inconvenience of the federal forum; 3) the desirability of avoiding piecemeal litigation; and 4) the order in which jurisdiction was obtained by the concurrent forums. Id. at 819, 96 S.Ct. at 1247.

In holding that dismissal was appropriate, the Court relied primarily on “the clear federal policy” evinced by the McCarran Amendment to avoid “piecemeal adjudication of water rights.” Id. at 819, 96 S.Ct. at 1247. The Court found this statutory policy “akin to that underlying the rule requiring that jurisdiction be yielded to the court first acquiring control of property.” .The Court also relied upon the extensive involvement in the case of state water rights, the inconvenience of the federal forum, and the fact that the federal government was already participating in other state water-rights proceedings. Id. at 820, 96 S.Ct. at 1247. The Court expressly declined to decide whether even the applicability of the McCarran Amendment would be sufficient to warrant dismissal if the involvement of state water rights were less extensive or if the state proceedings were in some respect inadequate to resolve the federal claims. Id. at 820, 96 S.Ct. at 1247.

The “Colorado River doctrine” governing situations involving the contemporaneous exercise of concurrent jurisdiction by-state and federal courts was clarified in Moses H. Cone Memorail Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). In Cone, the Court held that the District Court abused its discretion in staying a diversity, action to compel arbitration pending a previously filed state-court action which sought, inter alia, a declaratory judgment that there was no right to arbitration.

The Court in Cone reiterated that “only the clearest of justifications” will warrant dismissal under the Colorado River doctrine. Id. at 16, 103 S.Ct. at 937. That doctrine does not rest on considerations of state-federal comity, but on a balancing of the factors discussed in Colorado River, “with the balance heavily weighted in favor of the exercise of jurisdiction.” Id. at 14, 16, 103 S.Ct. at 936, 937. The most important factor in the decision to affirm dismissal in Colorado River was the clear McCarran Amendment policy to avoid piecemeal adjudication of water rights in a river system. Id. at 16, 103 S.Ct. at 937. In addition to the four factors discussed in Colorado River, a court applying the Colorado River “exceptional circumstances” test should consider the fact that federal law provides the rule of decision on the merits as a major factor militating against a stay or dismissal of the federal action. Id. at 23-26, 103 S.Ct. at 941-42.

In reiterating that federal courts have a “virtually unflagging obligation ... to exercise the jurisdiction given them,” the Court made clear that exceptional circumstances are required to support either a stay or a dismissal of the federal action:

... a stay is as much a refusal to exercise federal jurisdiction as a dismissal. When a district court decides to dismiss or stay under Colorado River, it presumably concludes that the parallel state-court litigation will- be an adequate vehicle for the complete and prompt resolution of the issues between the parties. If there is any substantial doubt as to this, it would be a serious abuse of discretion to grant the stay or dismissal at all. [citations omitted]. Thus, the decision to invoke Colorado River necessarily contemplates that the federal court will having nothing further to do in resolving any substantive part of the case, whether it stays or dismisses, [citations omitted].

Id. at 28, 103 S.Ct. at 943.

In this case, defendant argues that the Colorado River doctrine warrants dismissal or, in the alternative, a stay of this action. Defendant maintains that Colorado River is applicable because 1) the instant action is duplicative and redundant in light of the state agency’s consent order; 2) allowing this suit to proceed would undercut state enforcement of air pollution control laws; and 3) the bringing of this action in federal court contravenes a congressional intent that states be the primary enforcers of federal standards.

As should be clear from the extended discussion above of the Colorado River and Moses Cone cases, the Colorado River doctrine does not give federal courts carte blanche to decline to hear cases within their jurisdiction merely because issues or factual disputes in those cases may be addressed in past or pending proceedings before state tribunals. At the outset, a party invoking the Colorado River doctrine must demonstrate, beyond “any substantial doubt,” the existence of parallel state-court litigation that will be an adequate vehicle for the complete and prompt resolution of the issues between the federal-court parties. Moses Cone, 460 U.S. at 28, 103 S.Ct. at 943. The facts of the case at bar fall woefully short of meeting this threshold requirement.

EPA brings this action seeking to impose substantial civil penalties under the federal Act for defendant’s alleged violations of the SIP. Plaintiff also seeks injunctive relief to compel defendant’s compliance. Defendant does not, and cannot, identify what “parallel state-court litigation will be an adequate vehicle” for the resolution of these claims brought by EPA. Indeed, there is no pending litigation whatsoever in state court to which this Court could defer. Nor has it been suggested that EPA could bring an action in state court to obtain the relief it now seeks under the federal Act.

Moreover, the Colorado River doctrine is only implicated in “situations involving the contemporaneous exercise of concurrent jurisdiction” by state and federal courts. Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246. Defendant concedes that what it deems the “parallel state proceedings” have already been concluded. Indeed, defendant argues that the present action involves a wasteful “relitigating [of] issues that have already been resolved in the [state administrative] Consent Order.” Thus, it is apparent from defendant’s own contentions that the present case is not a situation involving the “contemporaneous exercise of concurrent jurisdiction” to which the Colorado River analysis can be applied.

Even if the instant case did concern the contemporaneous exercise of concurrent jurisdiction, defendant’s reliance on Colorado River would be misplaced. It is clear that EPA has a right to press in this Court at some point its claim that substantial civil penalties should be imposed upon defendant for past violations of the federally adopted SIP. Indeed, defendant argues, in support of its request for a stay during performance under the administrative consent order, that its “adherence to the terms and requirements of the [state] Consent Order would surely weigh heavily in this Court’s assessment of whether an additional penalty should be imposed.” The need for this Court to ultimately reach the issue of defendant’s liability under the federal Act precludes any stay or dismissal under the Colorado River doctrine. As the Supreme Court made clear in Moses Cone, application of the doctrine “necessarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case.” Moses Cone, 460 U.S. at 28, 103 S.Ct. at 943.

Ignoring the absence from the case at bar of the threshold requirements for invocation of the Colorado River doctrine, defendant urges the application of that doctrine in order to avoid federal-state friction and the undermining of the state’s enforcement authority. To the extent that defendant’s argument is based on general notions of federalism, it is enough to note that such considerations are not part of the Colorado River analysis. It was not a generalized concern for comity, but rather the specific language of the McCarran Amendment which was the basis for decision in Colorado River. This Court finds no similar expression in the Clean Air Act of a congressional intent to allow state administrative actions to preclude federal enforcement of federal standards.

In support of its contention that the language of the Clean Air Act precludes the bringing of the instant action, defendant leaps from the premise that the Act contemplates state enforcement to the conclusion that state enforcement bars any action by the EPA to enforce federally adopted standards. That conclusion finds no support in logic or the statute.

Congress provided that the EPA may bring actions in the federal courts to enforce federally approved SIP’s. Congress further provided for federal civil penalties of up to $25,000 per day of violation. 42 U.S.C. § 7413. This enforcement scheme, and the significant penalties Congress intended to impose upon air polluters, would be nullified under defendant’s view of the law.

According to defendant’s analysis, any enforcement action brought by a state agency would preclude federal action to enjoin or punish the same violations. Thus, if a state adopted an SIP which was later federally approved, the state could nullify federal enforcement simply by adopting and using a state enforcement scheme which provided for minimal penalties. This Court does not believe that Congress, in enacting stiff penalties for air pollution, meant to have those penalties subject to nullification by the states.

While the actions of the State of Maryland to enforce clean air standards pursuant to state-law enforcement procedures may properly be taken into account by this Court in determining the appropriateness of the relief prayed by the plaintiff, United States v. Harford Sands, Inc., 575 F.Supp. 733, 735 (D.Md.1983) (Young, J.), such state action does not affect defendant’s liability under federal law or preclude this Court from hearing the case on the merits. The Court cannot agree with the defendant that allowing the plaintiff to seek the very penalties imposed by Congress somehow constitutes a “thwarting of federal legislative policy.”

Nor is there any unfairness to the defendant in the Court’s decision that this case may proceed despite defendant’s entering into a consent order with the state agency. In a federal system, each person and entity is subject to simultaneous regulation by state and national authority. The single act of an individual frequently subjects that person to separate and differing legal consequences at the hands of state and national sovereigns. That the same acts by the defendant subject it to state actions under Title 2 of the Maryland Health and Environmental Code as well as EPA actions under the Clean Air Act is no more anomolous than the situation of the bank robber who finds himself simultaneously prosecuted for violations of both federal and state laws arising from a single criminal act. The defendant in this case, moreover, was fully aware of the federal violation notices at the time it decided to enter a consent agreement with the state agency. Defendant and the state agency were also aware, prior to the execution of the consent order, that the EPA did not consider the proposed order a satisfactory remedy for the violations alleged.

For all of these reasons, the Court concludes that neither a stay nor a dismissal of this action is warranted under the Colorado River doctrine.

Accordingly, defendant’s motion will be denied.

      . Primary NAAQS are those "required to protect the public health;” secondary NAAQS are those “requisite to protect the public welfare.” 42 U.S.C. § 7409(b).

      . Compare the provisions of the federal Act which provides for civil penalties of up to $25,-000 per day of violation. 42 U.S.C. § 7413(b).

      . A stack test is a physical sampling and analyzing of the gas stream in an emission stack. It is used to determine compliance with the sulfuric-acid mist and particulate-matter standards at issue in this case.

      . If the stack tests fail to demonstrate compliance,
      the Company reserves the rights (a) to challenge the Department's position regarding conditions for the test, (b) to petition for a rule establishing different test conditions, (c) to petition for a regulation amendment that would relax the applicable emission standards, or (d) a combination of the foregoing. If the stack test for Calincer No. 1 demonstrates a significant improvement resulting in substantial compliance with the Department's standards, then the Department may require the completion of the improvements for the stack on Calciner Nos. 2 and 3 provided that the Department will initiate a regulation amendment that would relax the applicable emission standard.
      Consent Order at p. 8.

      . The traditional abstention doctrines were discussed in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813-16, 96 S.Ct. 1236, 1244-46, 47 L.Ed.2d 483 (1976). See also H. Hart & H. Wechsler, The Federal Courts and the Federal System at 985-1050 (2d ed. 1973).

      . 43 U.S.C. § 666.

      . 28 U.S.C. § 1345 creates federal jurisdiction over actions brought by the federal government. 28 U.S.C. § 1331 provides for the general federal-question jurisdiction of the federal courts.

      . Compare the abstention doctrines discussed in Colorado River, 424 U.S. at 813-16, 96 S.Ct. at 1244-46, which are based on such considerations.

      . This "factor” might be viewed as a restatement of the rule requiring a court to refrain from asserting jurisdiction over a res over which another court has previously assumed jurisdiction. See Princess Lida v. Thompson, 305 U.S. 456, 59 S.Ct. 275, 83 L.Ed. 285 (1939).

      . For a critique of the Court’s invocation of this rule in the circumstances of the Colorado River case, see Justice Stewart’s dissent at 424 U.S. 821, 822-25, 96 S.Ct. at 1248-50.

      . Justice Brennan wrote for a six-member majority. Justice Rehnquist, writing in dissent and joined by two other justices, had no occasion to discuss the propriety of the District Court’s stay order inasmuch as he concluded that the stay order was not appealable.

      . Moses Cone, 460 U.S. at 15, 103 S.Ct. at 936, quoting Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246, which in turn quoted Kerotest Mfg. Co., 342 U.S. at 183, 72 S.Ct. at 221.

      . As discussed above, the state agency issued a notice of violation to defendant pursuant to state law. Thereafter, the state and defendant entered the consent agreement. No enforcement action was ever commenced in state court.

      . SCM Memo in Support of Motion at 27.

      . SCM Memo in Support of Motion at 33.

      . The effect of a final decision by one tribunal upon issues or claims subsequently raised in another tribunal is governed by the traditional doctrines of issue and claim preclusion. The preclusive effect of state-court decisions in subsequent federal actions is statutorily defined in 28 U.S.C. §§ 1738-1739.
      Defendant does not urge that collateral estoppel is a bar to the instant suit but instead relies solely upon the Colorado River doctrine. SCM Reply Memo at 5-6 n. 5.

      . Defendant apparently contests this statement when it asserts in one of its briefs that EPA's seeking in this action penalties over and above those provided for in the state consent order is "not a permissible objective.” This contention cannot be supported by logic or the law.
      The federal Act provides for civil penalties of up to $25,000 per violation per day. EPA is given authority to seek imposition of such penalties in federal district courts. While the Act clearly contemplates enforcement of some of its provisions by state authorities, there is no suggestion in the statute that enactment by states of their own penalty provisions under state law acts to displace the penalties provided for by Congress.

      . The Colorado River principles which govern in situations involving the contemporaneous exercise of concurrent jurisdictions are "unrelated to considerations of proper constitutional adjudication and regard for federal-state relations.” Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246. See also Moses Cone, supra, 460 U.S. at 14-15, 103 S.Ct. at 936-37 (Unlike abstention, the Colorado River doctrine does not rest on considerations of state-federal comity.)

      . Moses Cone, 460 U.S. at 16, 103 S.Ct. at 937.

      . Defendant relies, in a supplemental memorandum, upon the decision of the Chief Judicial Officer of the EPA in In the Matter of BKK Corporation, Docket No. IX-84-0012 (May 10, 1985), in support of defendant’s contention that state enforcement precludes subsequent EPA enforcement. The Court notes, without need for discussing the precedential value of that administrative decision, that BKK did not involve application of the Colorado River doctrine. The federal statute involved in BKK, moreover, was the Resource Conservation and Recovery Act, 42 U.S.C. § 6928, which expressly provides that state programs which are substantially equivalent to federal programs shall be authorized to be conducted "in lieu of the Federal program” on an interim basis. Such authorization to conduct the state program in lieu of the federal program had been granted by the EPA in the BKK case.

      . In the briefing on the instant motion, both sides have presented extensive arguments concerning the sufficiency of the state consent order to remedy the violations alleged. In light of the conclusions reached herein regarding the inapplicability of the Colorado River doctrine, the Court believes that the nature and extent of state administrative action are issues going to the merits of this action which need not be addressed at this juncture.

      . See Defendant’s Memorandum in Support of SCM’s Motion to Dismiss or Stay Proceedings at 31.

      . See defendant's memorandum in support of its motion to dismiss or to stay at p. 23.

      . To the extent that the rationale of United States v. Cargill, Inc., 508 F.Supp. 734 (D.Del. 1981), would recommend a different result, that case will not be followed.


source: Caselaw Access Project

author: CHARLES R. RICHEY, District Judge.

license: Public Domain

text:
    In the Matter of an Application to Enforce Administrative Subpoenas of the COMMODITY FUTURES TRADING COMMISSION, Applicant, v. Thomas W. HARKER, et al., Respondents.
    Misc. A. No. 85-0170.
    United States District Court, District of Columbia.
    Aug. 12, 1985.

      John C. Winkfield, Dennis M. O’Keefe, and Stephen Hall of the Div. of Enforcement, Commodity Futures Trading Com’n, Washington, D.C., for applicant.
    Constantine John Gekas (argued) and Adrianne S. Harvitt of Harvitt & Gekas, Chicago, Ill., Joseph A. Ingrisano and F. Joseph Warin of Kutak, Rock & Campbell, Washington, D.C., for respondents.
   CHARLES R. RICHEY, District Judge.

The Court has before it an application to enforce administrative subpoenas of the Commodity Futures Trading Commission, and a motion to quash or limit the subpoenas. Respondents have also moved, in the alternative, for discovery and a hearing, and for a change of venue. For the reasons stated herein, the Court denies most of the respondents’ motions. However, the Court imposes some minor limitations on the subpoenas at issue, and enforces those subpoenas as so limited.

BACKGROUND

Most of the facts pertinent to the instant motions are undisputed. The Commodity Futures Trading Commission (“CFTC” or “the Commission”) is an independent federal agency responsible for regulating the nation’s commodity futures markets and enforcing the Commodity Exchange Act, as amended (“the Act”), 7 U.S.C. § 1 et seq. The Commission has its principal office in Washington, D.C., and a branch office in Kansas City, Missouri.

On February 13, 1985, pursuant to 7 U.S.C. § 15, the Commission entered an Order designating persons to issue subpoenas and take testimony in an investigation entitled “In the Matter of Trinity Metals Exchange, Inc.” Trinity Metals Exchange, Inc. (“Trinity”) is a corporation organized under the laws of the State of Florida, with its principal place of business in Blue Springs, Missouri. Trinity is engaged in the business of the cash sale for the forward delivery of certain precious metals to the public. The stated purpose of the CFTC investigation is to determine if Trinity’s sales and marketing practices violate any provisions of the Act.

On February 13, 1985, the Commission entered a separate Order in an investigation entitled “In the Matter of Banks, Barron & Stone, Inc.” The stated purpose of the investigation of Banks, Barron & Stone, Inc. (“Banks”) is identical to that for the investigation of Trinity. The Commission later determined that Banks is now wholly owned by Trinity.

On March 28, 1985, pursuant to the Trinity Order, the Commission issued subpoenas to three of the respondents herein: Thomas W. Barker, the majority shareholder, President, and Chief Executive of Trinity; Benjamin Biber, Trinity’s Executive Vice President and Secretary; and Russell Gose, former Vice President and currently an independent consultant to Trinity. The subpoenas directed the respondents to either produce an extensive list of documents on April 19, 1985 at the Commission’s offices in Washington, D.C., or to appear at those offices and produce the documents on April 22, 23, and 24, 1985.

In early April, 1985, counsel for the respondents met informally with the Commission staff to discuss compliance with the subpoenas. Respondents’ counsel attempted to limit the scope of the subpoenas, contending that they require the production of virtually every document generated by Trinity since January 1, 1983. The Commission asserts that the parties reached certain agreements limiting the scope and affecting the timing of the production of the documents. Respondents assert that no firm agreement was achieved during these negotiations. It is undisputed, however, that respondents sought, and were denied, assurances by the Commission that it would not disseminate any of the documents to other law enforcement agencies, particularly those of several interested state governments. To date, these respondents have refused to honor these subpoenas, and the Commission now seeks enforcement of them as written, without limitation.

On April 4, 1985, the Commission issued a subpoena to respondent A1 Puglia and/or the Custodian of Records for Banks. It appears that respondent Puglia now works for Trimex Corporation, formerly known as Banks, Barron & Stone, and which is now wholly owned by Trinity. The subpoenas required Puglia or the Banks Custodian of Records to appear at designated offices in Miami, Florida, on April 18 (later changed to April 25), 1985. The subpoena required testimony and the production of a collection of documents. To date, respondent Puglia has refused to honor this subpoena, and the Commission seeks judicial enforcement of it.

Respondents contend that prior to and throughout the above-recited events, the Commission has been engaged in a pattern of harassment against them. As early as July, 1984, respondent Biber and Trinity’s then-counsel Mr. Novak spoke to Mr. John A. Field III. Mr. Field is now a lawyer representing other companies in the commodity futures industry, having served for approximately three years as the CFTC Director of Enforcement. Respondents contend that Mr. Field told them that certain people at the Commission had alerted him that the Commission was preparing to bring a Temporary Restraining Order against Trinity and similar firms. See Novak Aff.; Biber Aff. Mr. Field contends that he learned of the Commission’s interest in firms such as Trinity through his representation of similar companies which had been investigated by the Commission; that he related to Mr. Novak his suspicion that the CFTC may take some injunctive action against Trinity, in part because of Trinity’s high-profile advertising campaign; that he was interested in what Trinity’s defensive posture would be in the event litigation took place; and that no CFTC official told him of any particular company, other than Field’s clients, that was under CFTC investigation. Field Aff.

Fearing that the Commission would seek a temporary restraining order against Trinity, respondents’ counsel demanded, and was denied, CFTC assurances that Trinity receive notice before the Commission instituted legal action. Counsel even wrote letters to the Clerk and all judges of the United States District Court for the Southern District of Florida, where counsel expected CFTC to file an action, requesting an opportunity to be heard in the event the Commission sought ex parte relief. The Commission never did institute ex parte legal proceedings.

Respondents have also received investigative demands from various state agencies charged with the investigation of securities registration since July, 1984. Respondents assert that they have uniformly refused to submit confidential business information to these state agencies, contending that the agencies lack jurisdiction over Trinity because Trinity does not offer securities. To date, no state has instituted any formal proceedings against Trinity.

Respondents suspect that these state agencies, and perhaps other state and federal agencies, have already requested or will in the future request access to various Trinity records held by CFTC. Respondents fear that that if they submit the subpoenaed information to CFTC, the Commission will then release the information to other investigative agencies, including several state agencies. Respondents are intimidated by the prospect of several agencies using the information provided to CFTC to contact Trinity’s customers, resulting in harm to Trinity’s good will and, in respondents’ terms, constituting harassment. Additionally, once the information is in their hands, respondents will be unable to contest the jurisdiction of these agencies to obtain the information. As noted, this appears to have been the major sticking point in the respondents’ negotiations with the Commission; when it became clear that the Commission would not agree to withhold the subpoenaed information from state, investigative agencies, the negotiations broke down.

Respondents were also concerned by one further event. On April 11, 1985, shortly after the subpoenas were issued, two CFTC agents made an unwarranted visit to Trinity’s Kansas City office. The agents demanded access to much of the information sought by the subpoenas. The agents left the premises after respondents’ counsel contacted CFTC personnel in Washington.

On April 25, 1985, respondents filed an action in the Western District of Missouri, seeking to quash or limit the subpoenas on grounds substantially similar to those raised here. Trinity Metals Exchange, Inc., et al. v. CFTC, C.A. No. 85-W-083. Respondents also sought discovery into the circumstances surrounding the issuance of the subpoenas. The Court dismissed the case on two grounds, which were raised by CFTC: (1) that respondents had not filed a complaint, as required by Fed.R.Civ.P. 3; and (2) that, even construing the motion to quash as a complaint, the motion was not ripe because the Commission had not yet sought to enforce the subpoenas pursuant to its authority under 7 U.S.C. § 15.

On June 26, 1985, the Commission filed this action seeking enforcement of the subpoenas. Respondents have opposed the enforcement. Respondents contend that summary enforcement of these proceedings is improper, and seek discovery into the circumstances surrounding the institution of the investigations and the issuance of the subpoenas. Respondents also contend that the CFTC Orders are defective', that the subpoenas are overly broad and should be limited, that the Commission should be enjoined from releasing any of the subpoenaed information to other investigative agencies, and that this case should be transferred to the Eastern District of Missouri pursuant to 28 U.S.C. § 1404(a). On August 5, 1985, the Court held a hearing on these matters. As demonstrated below, the Court must reject most of respondents’ contentions, and the Court enforces the subpoenas with limitations.

RESPONDENTS ARE NOT ENTITLED TO AN EVIDENTIARY HEARING OR TO DISCOVERY

Subpoena enforcement proceedings are generally summary in nature. F.T.C. v. Carter, 636 F.2d 781, 789 (D.C.Cir.1980). A district court has discretion to grant or deny discovery requests, but such “requests are not looked on favorably in subpoena enforcement proceedings.” Id.

In United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-55, 13 L.Ed.2d 112 (1964), the Supreme Court recited the showing that the Internal Revenue Service was obligated to make before it was entitled to enforcement of its summons. The agency must show that the investigation is being conducted pursuant to a legitimate purpose, that the information sought is relevant to that purpose, that the agency does not already have the information, and that the administrative prerequisites have been exhausted. Id.

In the instant case, the Commission has met all of these requirements. The purpose of the investigation is authorized by the provisions of Section 8(a) of the Act, 7 U.S.C. § 12(a), in that the Commission is investigating possible violations of Sections 4(a) and 4b of the Act, 7 U.S.C. §§ 6(a) and 6b, and any other possible violations of the Act. The information sought is relevant to the broad purposes of the investigation. It is undisputed that the Commission does not possess the requested information. Finally, all administrative steps have been taken, and the Act grants the Commission the authority to subpoena witnesses and to seek judicial enforcement of such subpoenas. 7 U.S.C. § 15. Accordingly, CFTC has satisfied the Powell requirements.

Respondents correctly point out that, in certain “extraordinary circumstances”, discovery may be appropriate to examine if the agency has acted in bad faith. Carter, 636 F.2d at 789. Accord, S.E.C. v. Dresser Industries, 628 F.2d 1368, 1388 (D.C.Cir.), cert. denied, 449 U.S. 993, 101 S.Ct. 529, 66 L.Ed.2d 289 (1980); United States v. Exxon Corp., 628 F.2d 70, 77 n. 7 (D.C.Cir.), cert. denied, 446 U.S. 964, 100 S.Ct. 2940, 64 L.Ed.2d 823 (1980). Respondents attempt to bring themselves within this exception to the general “trend” of summary enforcement, see CFTC v. Rosenthal and Co., [1980-1982 Transfer Binder] Comm.Fut.L.Rep. (CCH) ¶ 21,012 (N.D.Ill. 1980), by identifying in the record “special circumstances that raise doubts about the agency’s good faith”, entitling them to discovery. Dresser, 628 F.2d at 1388. As demonstrated below, however, the circumstances identified by respondents are insufficient to justify any discovery.

Respondents state that there is evidence that the Commission “leaked” information about the Trinity investigation to Mr. Field. There is a dispute as to how Mr. Field found out about the Commission’s interest in Trinity, compare Field Aff. with Novak and Biber Aff.s, but this dispute is not significant. The formal Trinity investigation did not begin until February, 1985, so the asserted “confidentiality” provisions of the Act and CFTC regulations did not apply in July, 1984, when the communications with Field took place. See 7 U.S.C. § 12; 17 C.F.R. § 11.3. Moreover, even if these provisions applied to the Trinity investigation in July, 1984, they do not provide respondents with a guarantee of confidentiality. Such a “leak”, if it took place at all, is not the sort of “extraordinary circumstance” justifying discovery under the facts of this case. Carter, 636 F.2d at 789.

Respondents also contend that the burdensome nature of the subpoenas demonstrate agency bad faith. Any indication that the Commission issued subpoenas with a broad scope in an effort to harass respondents is refuted by the subsequent negotiations, in which the Commission agreed to limit the scope of the subpoenas. Additionally, respondents’ argument that the Commission desires to contact Trinity’s customers to interfere with its business relations is mere speculation. Moreover, agency communications with Trinity’s customers is a sign of a thorough investigation, not harassment.

Respondents felt harassed by the appearance of the two CFTC agents at Trinity’s Kansas City office. The parties seem to agree, however, that this awkward episode was caused by inadequate communications within the agency, which certainly is not the sort of intentional harassment which could be considered bad faith. Even if intentional, the agents were not there long, as respondents’ counsel admitted at oral argument that the agents were given coffee and left shortly thereafter.

The Court also finds no evidence of bad faith in the CFTC’s decision to enforce the subpoenas in Washington, D.C., rather than in Kansas City. Similarly, the Commission cannot be faulted for refusing to agree to withhold the information from state investigative agencies. The Act provides for a certain amount of CFTC cooperation with such agencies. See 7 U.S.C. §§ 12(e) and 16(a). The Court will not give any further consideration to respondents’ contention that these sections do not justify the release of information to these other agencies, because this contention is not properly before the Court in this summary enforcement proceeding.

In sum, respondents have attempted to find agency bad faith from a series of mostly innocuous circumstances. These circumstances do not justify a departure from the normal rule that “[djiscovery requests are not looked upon favorably in subpoena enforcement proceedings____” Carter, 636 F.2d at 789. The Court denies the request for discovery in this ease.

THE ORDERS OF INVESTIGATION ARE NOT DEFECTIVE

Respondents assert that the February 13, 1985, Orders of Investigation, which relate to the now-consolidated Banks and Trinity investigations, are defective in that they do not adequately apprise respondents of the investigations’ purposes. This argument is without support.

“[A]n agency will be deemed to have given adequate notice of the purposes of an investigation by reciting its statutory duties when the statutes themselves alert the parties to the purposes of the investigation.” Carter, 636 F.2d at 787. The Orders begin by reciting the Commission’s statutory duties. Although the Orders contain some insignificant erroneous citations, the first sentence of each of the Orders in this case clearly states that the Commission is proceeding under the authority granted to it by Section 6(b) of the Act. Respondents suggest that the Trinity Order, which contains a typographical error in its citation to a statutory section, is fatally defective. The Trinity Order, however, further indicates that the Commission is investigating possible “violations of Sections 4(a) and 4(b) [sic] of the Act, 7 U.S.C. §§ 6(a) and 6b (1982), or practices in violation of other provisions of the Act and the Commission’s Regulations.” (Emphasis supplied). The underscored language makes clear that any erroneous citation is insignificant, particularly where, as here, it appears that there is no doubt about which of Trinity practices are under agency investigation. By the plain terms of the Orders, respondents had adequate notice. Carter, 636 F.2d at 787. These Orders are not defective.

THE COURT MUST IMPOSE MINOR LIMITATIONS ON THE SCOPE OF THE SUBPOENAS

“The test for the relevancy of an administrative subpoena ... is whether the information sought is ‘reasonably relevant’ to the agency’s inquiry.” F.T.C. v. Anderson, 631 F.2d 741, 745 (D.C.Cir.1979). The relevance of the requests must be measured against the purposes of the agency’s investigation. F.T.C. v. Texaco, Inc., 555 F.2d 862, 874 (D.C.Cir.) (en banc), cert. denied, 431 U.S. 974, 97 S.Ct. 2939, 53 L.Ed.2d 1072 (1977). Respondents state that the Commission’s subpoenas cannot meet this standard. Respondents also state that the subpoenas are overbroad, and that compliance would substantially interfere with Trinity’s business. For the reasons developed below, the Court holds that the subpoenas are not so broad as to be fatally defective, but the Court will restrict their scope to a limited extent.

The purposes of the Trinity investigation, as stated in the February 13, 1985, Order, are very broad. Anderson and Texaco teach that the information sought by these subpoenas must be reasonably relevant to these purposes. Measured against the Trinity Order alone, conceivably every document at Trinity could be considered reasonably relevant. In this case, however, the Commission has represented to the Court that, during the April, 1985, negotiations with respondents’ counsel, the Commission agreed to certain scope limitations. The Court can only conclude, therefore, that not everything sought on the face of these subpoenas is “reasonably relevant”. Anderson, 631 F.2d at 745. Accordingly, the Court will enforce agreed-to limitations, as those have been represented to the Court by the Commission, through counsel.

Respondents need not submit original documents; copies will suffice. CFTC’s Reply Memorandum at 4. Respondents must provide only one set of the requested documents. Id. At oral argument, the Commission indicated that it agreed to accept a representative sampling of one-tenth of customer names, so respondents will not be obligated to submit more than that. The Court will also give respondents one week to comply with the subpoenas, as limited herein. These limitations apply to the subpoenas to all four respondents. Aside from these limitations, the Court enforces the subpoenas as drafted by the Commission.

THIS CASE WILL NOT BE TRANSFERRED

This is a summary proceeding for the enforcement of administrative subpoenas. The Court has denied respondents’ requests for discovery and an evidentiary hearing. Accordingly, there is no need to transfer this case to Missouri, and the Court denies respondents’ request therefor.

CONCLUSION

The Court finds insufficient indicia of bad faith or harassment on the part of the Commission to justify granting respondents any discovery. The Court has declined to rule on the question, apparently never before adjudicated, of whether the CFTC may grant access to the subpoenaed information to other investigative agencies. The Court finds that the Orders of Investigation are valid, and the Court enforces the subpoenas with certain limitations. In light of this result, there is no reason to transfer this case to another district. An appropriate Order has been issued.


author: SWEET, District Judge.

text:
    ALLY & GARGANO, INC., Plaintiff, v. COMPREHENSIVE ACCOUNTING CORP., Defendant.
    No. 84 Civ. 7928 (RWS).
    United States District Court, S.D. New York.
    Aug. 12, 1985.

      Davis & Gilbert, New York City, for plaintiff (Miles Baum, New York City, of counsel).
    Burke & Burke, New York City, for defendant (Michael A. McElroy, Robert J. Marvin, New York City, of counsel).
   OPINION

SWEET, District Judge.

Plaintiff Ally & Gargano, Inc. (“Ally”), a New York advertising agency, commenced this diversity suit against defendant Comprehensive Accounting Corp. (“Comprehensive”) to recover the balance allegedly due to Ally for advertising services rendered and monies expended on behalf of their client Comprehensive. Ally has now moved for summary judgment under Rule 56, Fed.R.Civ.P. On the following findings and conclusions, the motion is granted.

Pursuant to an agreement dated on June 3, 1981 (the “Agreement”), between 1981 and 1984 Ally performed a variety of advertising services for Comprehensive including the creation and production of three television commercials. Ally periodically provided Comprehensive with estimates of anticipated costs to Comprehensive of commercials. According to Comprehensive, based on its prior experience with another advertising agency, it understood that the estimates included the cost of talent for the production of the commercials. Employees of Comprehensive inquired about whether additional payments might be required to enable Comprehensive to broadcast the commercials and they were told by Ally that any payments would be insignificant. According to employees of Comprehensive, no one from Ally advised Comprehensive that they would have to pay holding fees to each actor in each commercial if the commercial was not aired to prevent her or him from appearing in a commercial for a competitor and residual fees to each actor in each commercial every time the commercial was aired. In reliance on the estimates provided by Ally, Comprehensive approved the production of the commercials.

In December 1981, Comprehensive first received notice that it would have to pay holding fees and residual fees. According to employees of Comprehensive, they repeatedly questioned various employees of Ally regarding the amounts of the notices. Apparently Ally suggested that if Comprehensive did not pay the fees it would not be able to air the commercials and would risk losing its entire investment in the commercials. According to Comprehensive, it made a business decision to pay the fees rather than lose its investment.

Ally and Comprehensive continued their advertising relationship over the next three years during which Comprehensive paid over $200,000.00 in holding fees and residual fees for the commercials produced by Ally. Ally received a 17.65% commission on all of the fees billed.

By a letter dated September 25, 1984, Amil Gargano (“Gargano”), President and Chief Executive Officer of Ally, informed Comprehensive that it was terminating the Agreement. Ally then sent Comprehensive a statement of account dated September 30, 1984 indicating that Comprehensive had a balance due of $88,633.69. On October 4, 1984, Leo Lauzen (“Lauzen”), Chairman of the Board of Directors and Chief Executive Officer of Comprehensive, wrote Gargano a letter stating that he understood Ally’s decision to terminate their relationship, that he regretted that Comprehensive had fallen delinquent and that their delinquency was due to the fact that they had been too lenient in collecting receivables from their franchisees. He also suggested that Comprehensive pay an interest rate of 10% effective as of that date on the balance due, and indicated that the earliest that Comprehensive could start payments would be January or February, 1985 and that they planned to pay off the balance and the interest in twelve months.

By letter dated October 25, 1984, Harold Weston (“Weston”), the Chief Financial Officer of Ally, confirmed a conversation that he had with Paul Peterik (“Peterik”), the Chief Financial Officer of Comprehensive regarding the unpaid balance. In the letter, Weston proposed specific terms by which Comprehensive might pay the balance due. He informed Comprehensive that if it could not agree to these terms and did not send the initial payment by bank wire to Ally’s bank account, Ally would withdraw the proposal and would commence suit to collect the balance due.

Peterik responded by letter dated October 30, 1984, informing Weston that Comprehensive would not be able to meet the terms of the proposal. However, he also told Weston that he had wired $3,000.00 into Ally’s bank account as a good faith payment and that Comprehensive planned on making weekly payments. This payment reduced the balance due to $85,-633.69, the total sum which Ally now wishes to receive from Comprehensive.

In November 1984, Ally commenced this suit against Comprehensive seeking to recover $88,663.69. (Thereafter, Ally received the $3,000.00 payment from Comprehensive reducing the balance to $85,633.69.) In response to Ally’s motion, Comprehensive asserts that the money is not due because Ally withheld information from Comprehensive, thus misrepresenting the situation regarding the production and cost of the television commercials and breaching the Agreement. Comprehensive claims to have raised questions of material fact as to Ally’s performance under the Agreement sufficient to defeat the motion for summary judgment.

An examination of the course of business relations between Ally and Comprehensive indicates that Ally is entitled to judgment under an “account stated” theory. Under federal and New York law, an “ ‘account stated’ refers to a promise by a debtor to pay a stated sum of money which the parties had agreed upon as the amount due.....The promise may be either express or implied but it ‘must be founded on previous transactions creating the relationship of debtor and creditor’.” Luckenbach Steamship Company v. United States, 189 F.Supp. 309, 311 (1960). See also Wayne County Vinegar & Cider Corp. v. Schorr’s Famous Pickled Products, Inc., 118 Misc.2d 52, 460 N.Y.S.2d 209, 213 (1983).

An account stated may be implied when a creditor sends a statement of an account to a debtor and the debtor, who has a duty to examine the statement to ascertain whether it is correct or not, keeps it for a reasonable time without objecting to the correctness of the account. Rosenman Colin Freund Lewis & Cohen v. Neuman, 93 App.Div.2d 745, 461 N.Y.S.2d 297 (1983); Boston & Maine Railroad v. Lehigh New England Railroad Co., 188 F.Supp. 486 (1960). An agreement may also be implied from the fact that the debt- or makes a partial payment towards reducing the balance of the account. Chisholm-Ryder Company, Inc. v. Sommer & Sommer, 70 App.Div.2d 429, 421 N.Y.S.2d 455 (1979).

If an account stated can be established, the agreement is binding on both parties and must be enforced at law unless the debtor can show that some or all of the accounts stated are fraudulent or erroneous. If the debtor can establish that he was misled as to the amount properly due by the creditor’s actions or by anything in the statements of account, he will not be bound by the agreement. Four Star Comics Corp., v. Kable News Company, 224 F.Supp. 108 (1963), affirmed, 327 F.2d 287 (2d Cir.1963); Rosenman Colin Freund Lewis & Cohen v. Neuman, supra.

The undisputed facts presented here indicate that an account stated was established between Ally and Comprehensive. When Ally terminated the Agreement it forwarded a statement of account to Comprehensive indicating the balance owed on its account with Ally. In the series of letters which Comprehensive subsequently sent to Ally, Comprehensive never objected to the accuracy of the statement of account or the adequacy of the services and information provided by Comprehensive over the past three years. Indeed, Comprehensive expressed assurances that it would try to pay the balance due and made a partial payment towards reducing this balance, thereby openly acknowledging that it owed Ally the balance due. See Rosenman Colin Freund Lewis & Cohen v. Neuman, supra.

Comprehensive now claims, however, that it challenged several of the estimates and notices that Ally provided during the course of its business relations with Ally and that Ally withheld crucial information regarding the production and cost of the television commercials. Comprehensive argues that Ally misled Comprehensive and breached the Agreement and that therefore Comprehensive is not bound to pay the balance due.

However, even though Comprehensive may have questioned the accuracy of the estimates and notices before the final statement of account was submitted by Ally to Comprehensive, this is not enough to avoid liability under an account stated theory. Comprehensive had received and questioned previous estimates and notices and was fully aware that the final statement of account included payments due for holding fees and residual fees Ally’s commissions on those fees. Despite this knowledge, Comprehensive openly acknowledged that it owed Ally the balance due upon receipt of the final statement.

Further, there is no suggestion that Comprehensive received additional information after the account stated was established which indicated to Comprehensive that the account was fraudulent or erroneous or that Ally had otherwise mislead Comprehensive. Because Comprehensive agreed to pay the balance due with full knowledge of the basis for that balance, it cannot now raise the defense that Ally withheld information and misled Comprehensive as to the charges included in that statement. See Rosenman Colin Freund Lewis & Cohen v. Neuman, supra. See also Kohl Madden Printing Ink v. Goshen Litho, Inc., 94 App.Div.2d 660, 462 N.Y. S.2d 462 (1983). Comprehensive claims that it objected to the estimates and notices prior to receipt and acquiescence to the statement of account are not sufficient to rebut the showing that an account stated existed.

For the reasons discussed above, Ally’s motion for summary judgment is granted and the case is dismissed in its entirety. Submit judgment within ten (10) days.

IT IS SO ORDERED.

      . The October 25, 1984 letter from Weston referred to the unpaid balance as $88,583.57. However, the statement of account submitted by Ally, as well as papers submitted in this case, refer to the balance due prior to the $3,000.00 payment as $88,633.69 and Comprehensive has not contested the amount in its papers.

      . Although the "account stated” theory is not delineated as such in the parties’ papers, the papers raise the issues relevant to the theory and it was specifically raised and argued at oral argument by both parties.

      . In an affidavit submitted in opposition to the present motion, Peterik asserts that when he spoke with Weston in October of 1984 and subsequently made the $3,000.00 payment he was unaware of the fact that there had been objections raised as to Ally’s billing. In another affidavit, however, Peterik’s superior, Lauzen, stated that he was fully aware of Comprehensive’s objections at the time he wrote the October 4, 1984 letter indicating Comprehensive’s intention of paying the balance due. Even assuming that knowledge of the objections of various Comprehensive employees, including its chief executive officer, should not be attributed to Peterik, his ignorance of Comprehensive’s position does not affect either the creation of the account stated or Comprehensive’s claims of fraud, since Lauzen’s letter in and of itself establishes that Comprehensive agreed to pay while fully aware of the basis for the statement.