author: TOM S. LEE, District Judge.

text:
    FOREST OIL CORP., Plaintiff, v. TENNECO, INC., Defendant. J.E. STACK, Jr., Plaintiff, v. TENNECO, INC., Defendant.
    Nos. J84-0084(L), E83-0143(L).
    United States District Court, S.D. Mississippi, Jackson and Eastern Division.
    Oct. 31, 1985.
    Michael S. McKay and Glenn Gates Taylor, Jackson, Miss., for Forest Oil.
    Glenn Gates Taylor, Copeland, Cook, Taylor & Bush, Jackson, Miss., for Stack.
    Peyton S. Irby, Jr., John H. Holloman, III, Ernest G. Taylor, Jr., Watkins, Ludlam & Stennis, and Kathryn H. Hester, Jackson, Miss., for Tenneco.
   MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

Before the court are identical motions filed in the above-referenced causes by Tenneco, Inc. (Tenneco) requesting dismissal or stay of further proceedings pending a referral to and decision by the Federal Energy Regulatory Commission (FERC) on certain matters assertedly central to these lawsuits. Plaintiffs Forest Oil Corp. (Forest) and J.E. Stack, Jr. (Stack) filed timely responses in opposition to the motions, and the parties have supplemented their initial memoranda with frequent submissions to the court concerning the present state of the law in this area. After careful consideration of the updated memoranda with attachments submitted by the parties, and for reasons more fully developed below, this court is of the opinion that the above-referenced causes should not be dismissed or stayed pending a determination by the FERC.

These actions allege a breach by Tenneco of individual gas purchase contracts between Tenneco and Forest and Tenneco and Stack. While there are significant differences between the Forest-Tenneco and Stack-Tenneco contracts, for purposes of this motion the pertinent provisions are sufficiently similar to allow this court to make a single determination on both motions.

Forest and Tenneco executed their gas purchase contract on June 1, 1981. Stack and Tenneco executed their gas purchase contract on March 22, 1982. Under the terms of both contracts, Tenneco agreed to buy all of the gas produced by Forest and Stack from wells in certain fields owned by Forest and Stack in Mississippi. The Forest-Tenneco contract was for a term of ten years. The Stack-Tenneco contract was for a term of fifteen years. Both contracts required Tenneco to pay the respective producer for a minimum quantity of gas on an annual basis. If Tenneco’s needs fell below those required in the contracts, Tenneco was required to make a “take-or-pay” payment to the producer for the amount of gas which the producer could have delivered under the terms of the contract. Neither the Forest-Tenneco nor the Stack-Tenneco contract contained an immediately exercisable market-out clause, which is included in many of Tenneco’s contracts with other producers, giving it the right to unilaterally reduce the contract price payable to the producer whenever Tenneco considers it necessary to do so in order to keep its resale price competitive and maintain its profit margin. Such immediately exercisable market-out clauses are the product of negotiation between the parties.

In late 1982, Tenneco began experiencing increased deliverability capacity of high-cost gas by some of its producer-suppliers, while at the same time experiencing a reduced demand for the gas it was reselling. In light of this increased supply and diminished demand, Tenneco began exercising its rights under the market-out clauses in the vast majority of its contracts. There remained, however, a number of gas purchase contracts which, like Forest’s and Stack’s, contained no market-out clauses and which obligated Tenneco to high take- or-pay agreements negotiated under different market conditions. Thus, on April 29, 1983, Tenneco announced that it was unilaterally abrogating various provisions of some of its gas purchase contracts, including Forest’s and Stack’s, under the terms of its Emergency Gas Purchase Policy (EGPP). Utilizing this EGPP, Tenneco either suspended or construed in its favor contractual provisions concerning price, deliveries, take-or-pay, nomination of gas categories and other related matters. The notices of the implementation of the EGPP that were sent to Forest and Stack contained a further demand that either they accede in writing within one month or Tenneco would terminate their respective contracts. Over the three months following the implementation of the EGPP, some 16 of Tenneco’s approximately 3500 producer-suppliers filed suits against it for breach of contract. On July 14, 1983, Tenneco filed its complaint with the FERC requesting a ruling on the propriety of its EGPP, naming Forest and Stack as respondents in FERC Docket No. 83-109. To date, no action has been taken on this matter by the FERC.

In its instant motions, Tenneco argues that these actions should be dismissed or stayed pending determination by the FERC for the following reasons: (1) the major issues in this litigation are now under review by the FERC; (2) the FERC has plenary jurisdiction over the major issues; (3) the doctrine of primary jurisdiction requires at least a stay of this action. Plaintiffs counter that the substantive claims and defenses in these cases present textbook state law contract disputes concerning inter alia mutual mistake, impossibility and impracticability of performance, failure of consideration, unjust enrichment and lack of mutuality. Furthermore, plaintiffs argue that the FERC cannot have primary jurisdiction over these actions as they concern the sale of deregulated, deep high-cost gas as such is defined in § 601(a)(1) of the Natural Gas Policy Act of 1978, codified at 15 U.S.C. § 3431(a)(1). The overwhelming weight of authority supports plaintiffs’ position.

In Pennzoil Co. v. FERC, 645 F.2d 360 (5th Cir.1981), cert. denied, 454 U.S. 1124, 102 S.Ct. 1000, 71 L.Ed.2d 293 (1982), the Fifth Circuit addressed the issue of the FERC’s primary jurisdiction over contractual disputes arising from the sale of natural gas covered by the Natural Gas Policy Act of 1978 (NGPA). The court held that NGPA § 601(a)(1)(A) removed certain categories of gas sales from the jurisdiction granted to the FERC by the Natural Gas Act, including gas which qualified as high-cost gas under § 107 of the NGPA that was not committed or dedicated to interstate commerce as of November 8, 1978. 645 F.2d at 380. The court further held that the state or federal court which hears a contractual dispute concerning the sale of gas exempted from exclusive FERC jurisdiction by NGPA § 601(a)(1)(A) is competent to interpret and apply any relevant federal regulations without the need to refer all or part of the ease to the FERC. 645 F.2d at 385. This court concludes that the rule announced in Pennzoil disposes of Tenneco’s argument that the FERC has primary jurisdiction over these contract disputes arising from Tenneco’s promulgation of its EGPP. From all that appears in the record before this court, the sale of the gas from the well-heads owned by Forest and Stack falls within the exclusionary language of NGPA § 601(a)(1)(A). Therefore, this court is of the opinion that the FERC has no primary jurisdiction over either of these cases.

Tenneco next argues that even if the FERC is without primary jurisdiction, this court should stay these cases and refer them to the FERC so as to take advantage of the special expertise of the FERC in the area of interstate sale of natural gas. The essence of Tenneco’s argument is that its legal defenses to these breach of contract actions necessarily involve a construction of its EGPP, with the court being faced with the task of determining the propriety of such unilateral action in light of the extensive federal regulations in this area. Tenneco asserts that the necessary construction and interpretation of its EGPP can be best performed by the FERC. In response, Forest and Stack cite a virtual litany of cases in which same or similar motions by Tenneco have been rejected by both state and federal courts. The rationale in these cases is well stated in an unpublished order by Fifth Circuit Judge W. Eugene Davis, sitting by designation in Exxon Corp. v. Tenneco, Inc., No. 83-1640 (W.D.La. December 16, 1983), affirmed sub nom by the Fifth Circuit in In Re: Tenneco, Inc., No. 84-4074 (5th Cir. July 30, 1984):

FERC closely regulates the price and transportation of the gas which is the subject of the take-or-pay contract in dispute here. Tenneco argues that the interpretation and applicability of those regulations are so intertwined with the contractual disputes that this action should be stayed until the alleged disputes over the regulations related to pricing and transportation can be decided by the agency. The fact that federal regulations may be material to the resolution of a contract dispute clearly does not require the court of general jurisdiction to abstain in favor of a state or federal agency, (citations omitted). The central issue in this case is whether the take-or-pay contracts in dispute have been breached without legal justification. The interpretation of FERC regulations is peripheral to that determination.

Furthermore, it appears that the FERC itself is of the opinion that it has no jurisdiction over the contractual disputes. Plaintiffs have submitted a letter written by Christopher J. Warner, Associate General Counsel to the FERC, to Mississippi Congressman G.V. Montgomery in response to an inquiry on behalf of Stack, wherein Warner states, “[a] review of the information supplied by Mr. Stack appears to indicate that the Commission has no jurisdiction to enforce the terms of this contract ... Questions or disputes involving these non-jurisdictional contracts should be taken to the appropriate state or federal court for resolution.” It is undisputed by the parties that the FERC has as yet undertaken no positive action to resolve the issues raised in Tenneco’s complaint, and there is no indication that such action will be undertaken in the immediate future.

The combination of these factors compels this court to conclude that the FERC has no primary jurisdiction over these contract disputes and has no special expertise over these issues sufficient to require referral. Additionally, no recognizable interest will be served by further delaying these proceedings pending an initial determination by the FERC as to its own jurisdiction in the EGPP cases, a determination which the FERC is apparently chary of making. Accordingly, this court is of the opinion that these proceedings should not be dismissed or stayed pending a determination by the FERC in docket No. 83-109.

It is, therefore, ordered that Tenneco’s motion to dismiss or to stay proceedings and refer issues to the FERC is denied in both of the actions before the court.

      . A take-or-pay payment is in the nature of a prepayment for gas made available but not actually taken by Tenneco, calculated at a percentage (90% in the Forest-Tenneco contract; 85% in the Stack-Tenneco contract) of the gas which the producer could have delivered during a contract year, reduced by the amount actually taken by Tenneco, with Tenneco paying the difference to the producer.

      . Both the Forest-Tenneco and the Stack-Tenneco contracts provided, through the language of a "special redetermination” clause, that Tenneco would be protected by an immediately exercisable market-out clause that would only be effective on and after January 1, 1985. As the alleged contract breaches in these actions occurred during 1983, the "special redetermination” clause has no effect.

      . The plaintiffs assert that in late 1982 Tenneco unilaterally modified the price provisions in some 1400 contracts which contained immediately exercisable market-out clauses, leaving some 20 contracts like those with plaintiffs which contained no such clauses.

      . By letter dated August 8, 1985, plaintiffs' counsel submitted the following list of cases in which referral-to-FERC motions in breach of gas purchase contract suits brought by producer-suppliers have been denied:

        1. System Fuels, Inc., et al v. Tenneco, Inc., et al, No. 19,494 in the Chancery Court of Marion County, Mississippi, ruling dated July 23, 1985.
      2. Placid Oil Co. v. Tenneco, Inc., No. 82-3566-E (15th Judicial District of Louisiana), denial of motion affirmed by the Louisiana Court of Appeals and the Supreme Court of Louisiana, order dated March 9, 1984.
      3. Texaco, Inc. v. Tenneco, Inc., No. 83-3211-A (15th Judicial District of Louisiana), denial of motion affirmed by the Louisiana Court of Appeals and the Supreme Court of Louisiana, order dated March 9, 1984.
      4. Amoco Production Co. v. Tenneco, Inc., No. 84-42 (15th Judicial District of Louisiana), denial of motion affirmed by the Louisiana Court of Appeals and the Supreme Court of Louisiana, order dated March 9, 1984.
      5. Shell Oil Co. v. Tenneco, Inc., No. 83-5480-G (15th Judicial District of Louisiana), order dated February 28, 1984.
      6. Exxon Corp. v. Tenneco, Inc., No. 83-1640 (U.S.D.C., W.D.La.), aff’d sub nom, In Re: Tenneco, Inc., No. 84-4074 (5th Cir. July 30, 1984).
      7. Koch Industries, Inc. v. Columbia Gas Transmission Corp., No. 83-990-A (U.S.D.C.M.D. La.), aff’d sub nom, In Re: Columbia Gas Transmission Corp. No. 84-3282 (5th Cir. July 30, 1984).
      8. Sampson Resources v. Northern Natural Gas Co., No. 82-C-1214-E (U.S.D.C.N.D.Okla.), order dated November 21, 1983.
      9. Southport Exploration, Inc. v. Producers Gas Co., No. 83-C-550-BT (U.S.D.C.N.D.Okla.), order dated March 13, 1984.
      10. Sid Richardson Carbon & Gasoline Co. v. Intemorth, Inc., 595 F.Supp. 497 (U.S.D.C.N.D.Texas), order dated September 5, 1984.
      11. Kaiser-Francis Oil Co. v. Producers Gas Co., No. 83-C-400-C (U.S.D.C.N.D.Okla.).
      12. The Superior Oil Co. v. Transco Energy Co., 616 F.Supp. 98 (U.S.D.C.W.D.La.), order dated February 11, 1985.
      13. Exxon Corp. v. Columbia Gas Transmission Corp., No. 83-1586-L (U.S.D.C.W.D.La.), order dated March 26, 1985.
      14. Marion Corp. v. United Gas Pipeline Co., No. 83-1192-C (U.S.D.C.S.D.Ala.), order dated May 2, 1985.
      15. Danden Petroleum v. Northern Natural Gas Co., 615 F.Supp. 1093 (U.S.D.C.N.D.Texas), order dated August 14, 1985.


source: Caselaw Access Project

license: Public Domain

text:
    CORR-WILLIAMS WHOLESALE CO., INC. OF MERIDIAN, Plaintiff, v. STACY WILLIAMS COMPANY, INC., Defendant.
    Civ. A. No. E85-0153(L).
    United States District Court, S.D. Mississippi, E.D.
    Oct. 31, 1985.
    Thomas D. Bourdeaux, Bourdeaux & Jones, Meridian, Miss., for plaintiff.
    William J. Threadgill, Threadgill, Smith, Sanders & Jolly, Columbus, Miss., and Ralph E. Young, Jr., Deen, Cameron, Pritchard, Young & Kittrell, Meridian, Miss., for defendant.
   MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

This cause is before the court on amended motion of defendant Stacy Williams Company, Inc. (Stacy Williams) for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiff Corr-Williams Wholesale Co., Inc. of Meridian (Corr-Williams) filed timely response to the motion, and the court has considered the memoranda with attachments submitted by the parties.

Corr-Williams’ complaint in this cause charges Stacy Williams with willful violation of the provisions of the Mississippi Unfair Cigarette Sales Law, Miss.Code Ann. §§ 75-23-1, -27 (1972). The complaint alleges that Stacy Williams, a wholesale grocery company, engaged in unfair and anti-competitive business practices in violation of the statute by offering retailers in the Meridian area a $.25 rebate on each carton of cigarettes purchased from Stacy Williams, and otherwise selling cigarettes below its cost. Corr-Williams seeks a permanent injunction together with actual damages, punitive damages, attorney fees and costs. Stacy Williams raises as an affirmative defense and as the basis for its motion for summary judgment the asserted unconstitutionality of the Mississippi Unfair Cigarette Sales Law. Specifically, Stacy Williams asserts that (1) the statute is unconstitutional insofar as it prohibits competitive price cutting without requiring proof of intent on the part of the defendant to injure competitors and to destroy or lessen competition by engaging in intentionally destructive price cutting; (2) the statute is patently violative of the Due Process Clause of the Fourteenth Amendment and various sections of the Mississippi Constitution as it regulates competitive pricing in a business not affected with the public interest; and (3) the rebate provision of the Mississippi Unfair Cigarette Sales Law, Miss.Code Ann. § 75-23-7, bears no rational relationship to any legitimate state interest.

Stacy Williams’ first ground of attack on the statute derives from a strained interpretation of Miss.Code Ann. § 75-23-7, which provides in pertinent part:

It shall be unlawful for any wholesaler or retailer, with intent to injure competitors or destroy or substantially lessen competition, to advertise, offer to sell, or sell, at retail or wholesale, cigarettes at less than cost to such wholesaler or retailer, as the case may be. It shall be unlawful for any wholesaler or retailer with intent to injure competitiors or destroy or substantially lessen competition to offer a rebate in price, to give a rebate in price, to offer a concession of any kind or to give a concession of any kind or nature whatsoever in connection with the sale of cigarettes ... (Emphasis by Stacy Williams).

Stacy Williams urges this court to give substantive meaning to the use of the allegedly disjunctive “or” as it appears in the statute. Stacy Williams construes the use of “or” in the statute as requiring proof of intent only in the context of a party charged with injuring competitors and not requiring any further proof that the party charged has the concomitant specific intent of destroying or substantially lessening competition. Insofar as a violation of the statute can be found without proof of specific intent to destroy or lessen competition, and only on proof of intent to injure competitors, Stacy Williams contends that the statute violates the Fourteenth Amendment of the U.S. Constitution and Sections 14 and 17 of Article 3 of the Mississippi Constitution.

Stacy Williams cites Simonetti, Inc. v. State of Alabama, 272 Ala. 398, 132 So.2d 252 (1961), in support of its construction of the Mississippi statute. Simonetti involved a similar constitutional challenge to the Alabama Unfair Cigarette Sales Act, which read in pertinent part:

It shall be unlawful for any wholesaler or retailer, with intent to injure competitors, destroy or substantially lessen competition, to advertise, offer to sale, or sell at wholesale or retail, cigarettes at less than cost to such wholesaler or retailer as the case may be.

132 So.2d at 254.

The Alabama Supreme Court held that the Alabama statute, which mirrors the Mississippi statute in relevant part except for the use of a comma between the words “competitors” and “destroy” where the Mississippi statute uses the word “or”, met constitutional muster. Stacy Williams correctly points out that central to the holding in Simonetti was the court’s finding that the above quoted language required proof of “dual, conjunctive, or cumulative intent to injure competitors and destroy or substantially lessen competition.” 132 So.2d at 263 (emphasis original). This court notes that the constitutional question would be at least closer if competitive price cutting with only the intent to injure competitors were enough to invoke the statutory prohibition of the Mississippi Unfair Cigarette Sales Law. It is only when such intent to injure competitors is coupled with an intent to destroy or substantially lessen competition that the state is justified in exercising its police power in protection of the public welfare. 132 So.2d at 262. However, this court declines to give the use of the word “or” in Miss.Code Ann. § 75-23-7 the substantive interpretation urged by Stacy Williams. Clearly, the statute requires proof of intent to both injure competitors and destroy or substantially lessen competition. Embracing Stacy Williams’ interpretation would be to render the “or destroy or substantially lessen competítion” language of the statute a mere redundancy.

Such interpretation would also make irrelevant the types of “prima facie evidence of intent to injure competitors and to destroy or substantially lessen competition” listed in Miss.Code Ann. § 75-23-7(b) (emphasis added). Simply put, why list the types of prima facie evidence of intent if intent to injure competitors, an undeniably meager proof requirement, were enough to trigger the statutory prohibition? The answer is that proof of intent to injure competitors, standing alone, is expressly insufficient to do so.

This court’s interpretation of the statute to require cumulative intent to injure competitors and destroy or substantially lessen competition is further bolstered by the expression of legislative intent in Miss.Code Ann. § 75-23-3:

It is hereby declared to be the legislative intent to encourage fair and honest competition, and to safeguard the public against unfair, dishonest, deceptive, destructive, and fraudulent business practices existing in transactions involving the sale of, offer to sell, or inducement to sell, cigarettes in the wholesale and retail trades in this state.

In light of the above referenced specific language in the statute and the clear public protection goals of the statute, this court is of the opinion that the Mississippi Unfair Cigarette Sales Law does not violate due process.

This court’s review of the statute under the two remaining constitutional challenges asserted by Stacy Williams is limited. At the outset, the court would note that the Fourteenth Amendment substantive due process analysis urged by Stacy Williams has been at least tacitly abandoned by federal courts since the Supreme Court’s decision in Williamson v. Lee Optical Co., 348 U.S. 483, 75 S.Ct. 461, 99 L.Ed. 563 (1955). The standard of judicial review of such state laws regulating business is the “rational basis” test. Vance v. Bradley, 440 U.S. 93, 99 S.Ct. 939, 59 L.Ed.2d 171 (1979); New Orleans v. Dukes, 427 U.S. 297, 96 S.Ct. 2513, 49 L.Ed.2d 511 (1976); Williamson, 348 U.S. at 488, 75 S.Ct. at 464; Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940 (1934). The same standard applies when a statute regulating business is attacked under the due process provisions of the Mississippi Constitution: the legislation must not appear to be arbitrary or capricious and must have a reasonable relation to a legitimate end. Mississippi Milk Commission v. Vance, 240 Miss. 814, 129 So.2d 642, 653 (1961) (quoting Nebbia, 291 U.S. at 507); Craig v. North Mississippi Community Hospital, 206 Miss. 11, 39 So.2d 523, 528 (1949).

Utilizing the analysis discussed above, this court cannot agree with Stacy Williams that the rebate provision of the Mississippi Unfair Cigarette Sales Law bears no rational relation to the state’s legitimate interest in protecting healthy market competition in this state. While the legislature is under no duty to pick the least restrictive means for furthering its legitimate interests, Williamson, 348 U.S. at 487-88, 75 S.Ct. at 464-65, restricting rebates offered to retailers by wholesalers is a reasonable, indeed necessary, way to ensure fair competition in the tobacco market. Furthermore, even if this court were to agree that the rebate provision is unwise and unreasonably restrictive, it could not utilize the Due Process Clause of the Fourteenth Amendment to strike down the state statute. The proper resort for the aggrieved is to the polls, not to the courts. Williamson, 348 U.S. at 488, 75 S.Ct. at 464.

Nor can this court agree with Stacy Williams that the statute cannot withstand constitutional scrutiny because it seeks to regulate prices in a business not affected with the public interest. In Simonetti, cited extensively by Stacy Williams in its brief, the Alabama Supreme Court specifically held,

The selling of cigarettes below cost with intent to injure competitors and thereby destroy or substantially lessen competition may be a practice which tends toward creation of a monopoly, and is within the police power of the state whether or not the business be affected with any public interest as such.

132 So.2d at 262.

Thus, the relevant constitutional inquiry is whether the end sought to be achieved by the legislation is affected with the public interest — here, fair and healthy competition among cigarette retailers and wholesalers — and not the extent to which the regulated product in particular is affected with any public interest. The latter approach would require the reviewing court to make delicate judgments regarding the needs of the people for a particular product, which, under Williamson, is a matter best left to the state legislature. This court is of the opinion that the protection of fair and healthy competition in the cigarette market of this state is a legitimate goal of the legislature and one that obviously affects the public welfare. See Hartsock-Flesher Candy Co. v. Wheeling Wholesale Grocery Co., 328 S.E.2d 144, 151 (W.Va.1984).

In summary, the court concludes that the Mississippi Unfair Cigarette Sales Law is not violative of the due process provisions of the United States Constitution or the Mississippi Constitution. The statute on its face requires proof of intent to both injure competitors and destroy or substantially lessen competition before a violation can be established. Protection of the public from unfair business practices which tend to injure competitors and destroy or substantially lessen competition is necessarily a matter affected with the public interest and is a legitimate goal of legislative action. The rebate prohibition in Miss.Code Ann. § 75-23-7(a) is a reasonable means of furthering that legitimate goal. Therefore, this court concludes that the Mississippi Unfair Cigarette Sales Law is constitutional in each of its challenged aspects.

It is, therefore, ordered that Stacy Williams’ motion for summary judgment is denied.

      . Article 3, Section 14 of the Mississippi Constitution states:
      “No person shall be deprived of life, liberty, or property except by due process of law." Article 3, Section 17 provides:
      Private property shall not be taken or damaged for public use, except on due compensation being first made to the owner and owners thereof, in a manner to be prescribed by law; and whenever an attempt is made to take private property for a use alleged to be public, the question whether the contemplated use be public shall be a judicial question, and, as such, determined without regard to legislative assertion that the use is public.

      . In Williamson, 348 U.S. at 488, 75 S.Ct. at 464, the court declared,

        The day is gone when this court uses the Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought ...
      We emphasize again what Chief Justice Waite said in Munn v. Illinois, 94 U.S. 113, 134 [4 Otto 113, 25 L.Ed. 77], ‘For protection against abuses by legislatures the people must resort to the polls, not to the courts.’


author: SIMMONS, District Judge.

text:
    Harvey J. SMITH, Sr., Plaintiff, v. PRIVATE INDUSTRY COUNCIL OF WESTMORELAND AND FAYETTE COUNTIES, INC., Carl Bartolomucci, Individually, and as Executive Director of the Private Industry Council of Westmoreland and Fayette Counties, Inc., Edward J. Lyons, Individually, and as Chairman of the Private Industry Council of Westmoreland and Fayette Counties, Inc., Defendants.
    Civ. A. No. 85-0274.
    United States District Court, W.D. Pennsylvania, Civil Division.
    Nov. 4, 1985.

      John W. Murtagh, Jr., Greenfield & Murtagh, Pittsburgh, Pa., for plaintiff.

      Albert C. Gaudio, Monessen, Pa., Alex E. Echard, Greensburg, Pa., for defendants.
   MEMORANDUM AND ORDER

SIMMONS, District Judge.

Plaintiff, Harvey J. Smith, Sr., a black adult male, filed a Complaint against the Defendants on February 6, 1985, alleging two separate causes of action under federal law. Count I of the Complaint against Defendant Private Industry Council of Westmoreland and Fayette Counties, Inc. only, was brought under Title VII of the Civil Rights Act of 1964; Count II of the Complaint, against all the Defendants, was brought under 42 U.S.C. § 1985(3).

The Defendants filed a joint Motion to Dismiss, and/or Strike, pursuant to Rule 12 of the Federal Rule of Civil Procedure. The issues raised by the Defendants can be summarized as follows:

1. The Complaint allegedly fails to state a cause of action under 42 U.S.C. § 1985(3), because:
a. Charges of employment discrimination are allegedly cognizable only under 42 U.S.C. § 2000e, et seq.;
b. But in any case, the gravamen of a complaint under 42 U.S.C. § 1985(3) is a conspiracy, and, allegedly, as a matter of law, a conspiracy cannot be made out between a corporation and its directors or officers.
2. The complaint fails to state a cause of action under 42 U.S.C. Section 2000e, et seq. because:
a. The Plaintiff allegedly did not fulfill all of the conditions precedent to filing a complaint under this statute; and
b. In any case, the application of 42 U.S.C. Section 2000e et seq. to the defendants is allegedly a violation of the Eleventh Amendment to the Federal Constitution, and the Supremacy Clause, as well as a violation of principles of federalism.
3. In addition the Defendants have raised, but not briefed, the following issues:
a. The Court allegedly lacks subject matter jurisdiction;
b. The Court allegedly lacks personal jurisdiction;
c. The Complaint allegedly is not timely.

For the reasons hereinafter set forth, Defendants’ Motion to Dismiss and/or Strike is denied.

I. FACTS

The Defendants are described in the Complaint as follows: Defendant Private Industry Council of Westmoreland and Fayette Counties, Inc. (“PIC”), is a non-profit corporation, incorporated under the Laws of Pennsylvania. Defendant Carl Bartolomucci is the Executive Director of Defendant PIC. Defendant Edward J. Lyons was at all times relevant hereto a member of the “New Appointing Council” responsible for selecting the Executive Director of PIC.

The operative factual allegations set forth in Plaintiff’s Complaint are as follows:

10. The Defendant, Private Industry Council, of Westmoreland and Fayette Counties, Inc., has in violation of the provisions of Title VII of the Civil Rights Act of 1964, denied and continues to deny the Plaintiff equal opportunity for employment because of the Plaintiff’s race. In particular, the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., has engaged in the following unlawful practices with the purpose and effect of denying black persons equal opportunity for employment:

a. the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., did not post a position vacancy notice for the position of Executive Director of the Private Industry Council of Westmoreland and Fayette Counties, Inc.;
b. the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., did not advertise a position vacancy notice for the position of Executive Director of the Private Industry Council of Westmoreland and Fayette Counties, Inc.;
c. the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., arbitrarily preselected Defendant, Carl Bartolomucci, for the position of Executive Director without consideration of any comparative qualifications or the utilization of any procedures normally and customarily utilized in the hiring process;
d. the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., denied the Plaintiff, and another black person, a female, an equal opportunity to be hired for the position of Executive Director;
e. the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., failed to provide an opportunity for advancement to Plaintiff and another black person, a female, on the same basis as opportunity for advancement is provided for white persons;
f. the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., failed to interview the Plaintiff and another black person, a female, for the position of Executive Director, despite the superior qualifications of the Plaintiff and the other black person;
g. the Defendant, Private Industry Council of Westmoreland and Fayette Counties, Inc., failed to request the Plaintiff and another black person, a female, to submit a resume for consideration in filling the position of Executive Director; and
h. otherwise discriminated against the Plaintiff on the basis of race.

13. From on or about the 1st day of July, 1983, until the present, in the Western District of Pennsylvania, the Defendants, Private Industry Council of Westmoreland and Fayette Counties, Inc., Carl Bartolomucci, individually and as Executive Director of the Private Industry Council of Westmoreland and Fayette Counties, Inc., and Edward J. Lyons, individually and as Chairman of the Private Industry Council of Westmoreland and Fayette Counties, Inc., did conspire for the purpose of directly and/or indirectly depriving the Plaintiff, Harvey J. Smith, Sr., a black citizen of the United States of the equal protection of the laws, or of equal privileges and immunities under the laws and in the furtherance of this conspiracy one or more of the Defendants did, or caused to be done, an act or acts in furtherance of the object of the conspiracy whereby the Plaintiff was injured in his property and deprived of his rights and privileges as a citizen of the United States, all of which is more fully set forth below and all of which was done as the result of a discriminatory racial animus, and all of which was and is in violation of the provisions of Title 42 U.S.C. § 1985(3).

14. The Defendants, and each of them, did conspire to fill the position of Executive Director of the Private Industry Council of Westmoreland and Fayette Counties, Inc., without advertising or posting a notice of vacancy, without soliciting or receiving resumes from qualified and interested candidates, and on the basis of political favoritism and the arbitrary pre-selection of Defendant, Carl Bartolomucci, without regard to the superior qualifications of the Plaintiff and other qualified candidates, all of which was done in a manner, and with the purpose, of depriving the Plaintiff of the equal protection of the laws and for a racially discriminatory reason and motive.

16. The Defendants performed the following overt acts, among others, in furtherance of the conspiracy, that is to say,

a. the Defendants arbitrarily preselected Defendant, Carl Bartolomucci, as Executive Director in an improper manner and on an inappropriate basis, i.e. political favoritism;
b. the Defendants filled the position without advertising;
c. the Defendants filled the position without posting;
d. the Defendants filled the position without soliciting or accepting resumes from qualified candidates;
e. in or about late August, 1983, the Defendant, Edward J. Lyons, advised the Plaintiff that he would not even be considered for the position and that he should apply for a lesser position;
f. the Defendants met and acted in concert, at a location and time and on a date known to them, but unknown to Plaintiff, to preselect the Defendant, Carl Bartolomucci, as Executive Director; and
g. the Defendants refused to consider the Plaintiff for the position in question on the basis of his race.

In appraising the sufficiency of the Complaint this Court follows the accepted rule that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the Plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Polite v. Diehl, 507 F.2d 119, 124 n. 12 (3d Cir.1974); Helstroski v. Goldstein, 552 F.2d 564, 565 (3d Cir.1977). To do substantial justice, reasonable inferences will be drawn to aid the pleader. Fed.R.Civ.P 8(f); 5 Wright, Federal Practice and Procedure, § 1363 at 657.

II. CLAIM UNDER § 1985(3)

The Defendants cite Great American-Federal Savings and Loan Association, et al. v. Novotny, 442 U.S. 366, 99 S.Ct. 2345, 60 L.Ed.2d 957 (1979), for the proposition that violations of Title VII cannot be redressed by a suit under 42 U.S.C. § 1985(3), but only by the procedures outlined in 42 U.S.C. § 2000e et seq. That is not, however, the precise holding of Novotny.

In Novotny, a male officer of a savings and loan institution brought an action'under § 1985(3) alleging he was fired because he had supported females in their efforts to end sex discrimination. Novotny claimed his firing was in violation of Section 704(a) of Title VII of the Civil Rights Act of 1964.

The Supreme Court specifically held that the remedial provisions of Title VII were the exclusive vehicle for the protection of rights which were themselves created by Title VII.

Section 1985(3) provides no substantive rights itself; it merely provides a remedy for violation of the rights it designates. The primary question in the present case, therefore, is whether a person injured by a conspiracy to violate § 704(a) of Title VII of the Civil Rights Act of 1964 is deprived of “the equal protection of the laws, or of equal privileges and immunities under the laws” within the meaning of § 1985(3).

442 U.S. at 372, 99 S.Ct. at 2349.

The Court further stated that:

[Section 1985(3) provides] a civil clause of action when some otherwise defined federal right — to equal protection of the laws of equal privileges and immunities under the laws — is breached by a conspiracy in the manner defined by the section.

442 U.S. at 376, 99 S.Ct. at 2351. (Emphasis added).

In Novotny, the rights asserted “did not even arguably exist before the passage of Title VII.” 442 U.S. at 376-77, 99 S.Ct. at 2351. The only question thus addressed was whether the rights created by Title VII could be asserted within the remedial framework at § 1985(3). In the present action, Plaintiffs claim under § 1985(3) is unequivocably based upon fundamental rights derived from the Constitution.

Congress enacted Title VII “to assure equality of employment opportunities by eliminating those practices and devices that discriminate on the basis of race, color, religion, sex or national origin----”, Johnson v. Railway Express Agency, 421 U.S. 454, 457, 95 S.Ct. 1716, 1719, 44 L.Ed.2d 295 (1975); Alexander v. Gardner-Denver Co., 415 U.S. 36, 44, 95 S.Ct. 1001, 1009, 39 L.Ed.2d 147 (1974). “It creates statutory rights against invidious discrimination in employment.” Johnson v. Railway Express Agency, 421 U.S. at 457-58, 95 S.Ct. at 1719. In contrast, § 1985(3) provides a statutory cause of action for black citizens who have been the victims of conspiratorial, racially discriminatory private action aimed at depriving them of the basisc rights that the law secures to all men — fundamental rights derived from the Constitution. See Griffin v. Breckenridge, 403 U.S. 88, 105-06, 91 S.Ct. 1790, 1799, 29 L.Ed.2d 338 (1971). The distinctly separate nature of the rights accorded under § 1985(3) is not vitiated merely because both § 1985(3) and Title VII were allegedly violated as a result of the same factual occurrence.

Moreover, “the right to be free of the badges of slavery, [is] protected by the Constitution against interference by private action, as well as impairment by state action.” Novotny, 442 U.S. at 383, 99 S.Ct. at 2354. Private conspiracies to deprive individuals of this right are actionable under § 1985(3) without regard to any state involvement. See Griffin v. Breckenridge, 403 U.S. 88, 105, 91 S.Ct. 1790, 1799, 29 L.Ed.2d 388 (1971). (“[T]he Thirteenth Amendment is not a mere prohibition of state laws establishing or upholding slavery, but an absolute declaration that slavery or involuntary servitude shall not exist in any part of the United States.”).

Plaintiff alleges that all three Defendants conspired to deprive the Plaintiff, a black citizen of the United States, of the equal privileges and immunities under the laws. Complaint, paragraphs 13, 14. The Complaint clearly distinguishes between federal rights asserted under § 1985(3) and those rights accorded under Title VII. This Court therefore concludes that Plaintiffs claims in the present action involve two “independent” rights for which redress under § 1985(3) and Title VII is appropriate.

To come within the purview of 42 U.S.C. § 1985, Plaintiffs Complaint must allege that:

The Defendants did (1) ‘conspire or go in disguise on the highway or on the premises of another’ (2) ‘for the purpose of depriving, either directly or indirectly, any person or class of persons of the equal protection of the laws, or of equal privileges and immunities under the laws.’ It must then assert that one or more of the conspirators (3) did, or caused to be done, ‘any act in furtherance of the object of [the] conspiracy,’ whereby another was (4a) ‘injured in his person or property’ or (4b) ‘deprived of having an exercising any right or privilege of a citizen of the United States.’

Griffin v. Breckenridge, 403 U.S. at 102-03, 91 S.Ct. at 1798.

Plaintiff’s Complaint clearly and unequivocally alleges a cause of action under § 1985(3). Plaintiff has alleged with sufficient concreteness the four elements specified in the statute and required under Griffin v. Breckenbridge. Moreover, Plaintiff alleges “special facts” of discrimination, see, e.g., Complaint, paragraphs 10, 16, as well as of a conspiracy, see e.g., paragraphs 13, 14.

Finally, in alleging race-based discrimination, the Complaint clearly charges that Plaintiff was a victim of “invidious, purposeful and intentional discrimination between classes or individuals.” Robinson v. McCorkle, 462, F.2d 111, 113 (3d Cir.) cert. denied, 409 U.S. 1042, 93 S.Ct. 529, 34 L.Ed. 23 492 (1972).

The Defendants further contend that even if a cause of action can be factually made out under 42 U.S.C. § 1985(3), nevertheless the claim must fail because as a matter of law a single corporation and its officers cannot commit a conspiracy. This is not a correct statement of the law in the Third Circuit. The rule in this Circuit has been, and remains, that set forth in Novotny v. Great American Savings & Loan Ass’n., 584 F.2d 1235 (3d Cir.1978) which rejected the assertion made by the Defendants.

Thus, since neither considerations of policy nor force of precedent require adherence to the Defendants’ stance, we do not follow the line of cases adopting the rule that concerted action among corporate officers and directors cannot constitute a conspiracy under § 1985(3).

584 F.2d at 1259 (emphasis added).

On appeal, Novotny was reversed on other grounds, and the Supreme Court noted specifically it was not deciding this issue.

For the purposes of this question, we assume but certainly do not decide that the directors of a single corporation can form a conspiracy within the meaning of § 1985(3).

442 U.S. at 372, n 1, 99 S.Ct. at 2349.

The Defendants’ citations to decisions in other circuits and to the trial court decision in Novotny itself ignores the clear statement by the Third Circuit Court of Appeals that incorporation does not confer immunity to Directors and employees of a corporation for actions that would otherwise constitute a conspiracy. This Court therefore holds that as a matter of both fact and law, Plaintiff’s Complaint states a cause of action against all Defendants under 42 U.S.C. § 1985(3).

III. CLAIM UNDER TITLE VII

The Defendants further claim that the Complaint fails to state a cause of action under Title VII of the Civil Rights Act of 1964, because the Plaintiff did not fulfill all the conditions precedent to filing such a suit: namely, that Defendants Lyons and Bartolomucci were not named as respondents in the administrative proceedings before the Equal Employment Opportunity Commission (EEOC).

The Defendants cite no authority for this statement. Neither Defendant Lyons nor Defendant Bartolomucci is named as a Defendant in Count I (Title VII) of the Plaintiff’s Complaint. Defendant Private Industry Council of Westmoreland and Fayette Counties, Inc., is the sole Defendant as to this Count as it was the sole respondent before the EEOC. Defendants’ contention is therefore meritless.

Plaintiff has further met the prima facie test promulgated in McDonnell Douglas v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973):

a. Mr. Smith is a member of a protected class — he is a Black male citizen of the United States.
b. Plaintiff Smith was the object of adverse employment action — the Defendand Corporation refused to permit him to apply for the position of executive director.
c There was a casual relationship between his membership in the protected class and that refusal.

Parts (a) and (b) are beyond dispute. Part (c) is fully and fairly alleged in the Complaint in great detail in paragraph 10(a)-(h) and these allegations stand unrefuted by the Defendant Corporation. This Court therefore holds that Plaintiff’s Complaint states a cause of action against Defendant Private Industry Council of Westmoreland and Fayette Counties, Inc. under Title VII of the Civil Rights Act of 1964.

The Defendants further contend that the substantive provisions of Title VII which enable employees to sue a state, its institutions or officials in federal court, are founded upon an improper exercise of congressional authority under § 5 of the Fourteenth Amendment. Specifically, Defendants argue that the 1972 Amendments are prohibited by the Eleventh Amendments, the Supremacy Clause, and principles of federalism.

Whatever the merits of this issue it is not properly before this Court. Defendants lack standing to raise this Constitutional challenge because they are not a State agency and they are not employees of a State Agency. The Defendant PIC is not an agency of the State, it is a non-profit corporation, functioning as an independent contractor of the State. Defendants Lyons and Bartolomucci are not State officials, they are private persons employed by a private corporation.

IV. MISCELLANEOUS CONTENTIONS

The remainder of the contentions raised by the Defendants are without merit, and require brief comment only. The Defendants assert that 1) The Court lacks subject matter jurisdiction, 2) The Court lacks personal jurisdiction, and 3) The Complaint was not timely.

Subject matter jurisdiction for this action is conferred upon the Court by 28 U.S.C. § 1343.

This Court has in personam jurisdiction of all the Defendants by virtue of the fact that both the individual and corporate Defendants are domicilaries resident in the Western District of Pennsylvania and were served with process pursuant to Rule 4(c)(2)(C)(i) of the Federal Rules of Civil Procedure.

A properly verified Return of Service of Summons, Complaint, Notice and Acknowledgment was filed in this Court by Plaintiff as to each Defendant. Consequently, personal jurisdiction has been perfected as to each of the Defendants.

The Complaint in the present action was timely. The acts complained of allegedly occurred in September of 1983. The Complaint was filed on February 5, 1985.

The Statute of Limitations for actions filed under 42 U.S.C. § 1985(3) is not specified by federal law. The rule, under these circumstances, is that the most analogous Statute of Limitations of the State from which the claim arose governs. Wilson v. Garcia, — U.S. -, 105 S.Ct. 1938, 85 L.Ed.2d 254 (1985); Johnson v. Railway Express Agency, 421 U.S. 454, 95 S.Ct 1716, 44 L.Ed.2d 295 (1975); Liotta v. National Forge Co., 629 F.2d 903 (3d Cir.1980).

The law on this issue is in a state of flux. The applicable Statute of Limitations for a § 1985(3) action may be as short as Pennsylvania’s two-year Statute of Limitations for personal injury actions, 42 Pa.C.S.A. § 5524(2), see Garcia — U.S. at-, 105 S.Ct. at 1947-49 (“Among the potential analogies, Congress unquestionably would have considered the remedies established in the Civil Rights Act to be more analogous to tort claims for personal injury than, for example, to claims for damages to property or breach of contract.”), or the six-year residual limitations period for any civil action not subject to another limitation, 42 Pa.C.S.A. § 5527(6). See Al Khazrani v Saint Francis College, 523 F.Supp. 386, 389 (W.D.Pa.1981) (Allegations of racial discrimination in employment are analogous to a claim for “an unlawful breach of an existing at-will employment contract.”)

The Complaint in the present action was filed within seventeen months and fell well within either Statute of Limitations.

The Statute of Limitations for filing Complaints under Title VII is much more specific. Pursuant to 42 U.S.C. § 2000e-5(f)(3) certain time requirements must be met both for administrative purposes as well as filing the Complaint. Paragraphs 2 of the Complaint, as well as Exhibits “A”, “B”, and “C” attached thereto, demonstrate that Plaintiff met all of the time prerequisities for filing a timely Complaint under Title VII. The Defendants assertion that the Complaint was not timely filed is unsupported by any factual statements and is thus dismissed as meritless.

Accordingly, the Defendants' Motion to Dismiss will be denied.

An appropriate Order will be granted.

      . 42 U.S.C. § 1985(3) reads as follows:
      If two or more persons in any State or Territory conspire or go in disguise on the highway or, on the premises of another, for the purpose of depriving, either directly or indirectly, any person or class of persons of the equal protection of the laws, or of equal privileges and immunities under the laws; ... (and) in any case of conspiracy set forth in this section, if one or more persons engaged therein do, or cause, to be done, any act in furtherance of the object of such conspiracy, whereby another is injured in his person or property; or deprived of having and exercising any right or privilege of a citizen of the United States, the party so injured or deprived may have an action for the recovery of damages, occasioned by such injury or deprivation, against any one or more of the conspirators.

        . Robinson v. McCorkle, 462 F.2d 111, 113 (3d Cir.) cert. denied, 409 U.S. 1042, 93 S.Ct. 529, 34 L.Ed.2d 492 (1972).

      . See Robinson v. McCorkle, 462 F.2d at 113.

      . As relevant here, the definition of "person” in § 701(a) of the 1964 Act, 78 Stat 253, 42 U.S.C. § 2000e (a) [42 U.S.C.S. § 2000e(a) ], was amended by § 2(1) of the Equal Employment Opportunity Act of 1972 (hereinafter the 1972 Amendments), 86 Stat 103, 42 U.S.C. § 2000e(a), (1970 ed. Supp IV) [42 U.S.C.S. § 2000e(a) ], to include “governments, governmental agencies, [and] political subdivisions.”
      The express exclusion of "a State or political subdivision thereof’ provided in § 701(b) of the former was stricken by § 2(2) of the latter, 86 State 103, 42 U.S.C. § 2000e(b) (1970 ed, Supp. IV) [42 U.S.C.S. § 2000e(b) ]. Section 2(5) of the 1972 Amendments, 86 Stat 103, 42 U.S.C. § 2000e(f) (1970 ed, Supp. IV) [42 U.S.C. § 2000e(f) ], amended § 701 (f) of the 1964 Act, 42 U.S.C. § 2000e(f) [42 U.S.C.S. § 2000e(f) ], to include within the definition of "employee” those individuals "subject to the civil service laws of a State government, governmental agency or political subdivision.”

      . 28 U.S.C. § 1343 Civil Rights and Elective Franchise
      The district courts shall have original jurisdiction of any civil action authorized by law to be commenced by any person:
      (1) To recover damages for injury to his person or property; or because of the deprivation of any right or privilege of a citizen of the United States, by any act done in furtherance of any conspiracy mentioned in section 1985 of Title 42 [42 USCS § 1985];
      (2) To recover damages from any person who fails to prevent or to aid in preventing any wrongs mentioned in section 1985 of Title 42 which he had knowledge were about to occur and power to prevent;
      (3) To redress the deprivation, under color of any State law, statute, ordinance, regulation, custom or usage, of any right, privilege, or immunity secured by the Constitution of the United States or by any Act of Congress providing for equal rights of citizens or of all persons within the jurisdiction of the United States.
      (4) To recover damages or to secure equitable or other relief under any Act of Congress providing for the protection of civil rights, including the right to vote.


author: RUSSELL G. CLARK, District Judge.

text:
    LaSALLE MUSIC PUBLISHERS, INC., T.B. Harms Co. and Milene Opreland Music, Inc., Plaintiffs, v. Roy F. HIGHFILL, Defendant. FOURTH FLOOR MUSIC, INC., Terraform Music, Prater Music and Milene Music, Inc., Plaintiffs, v. Roy F. HIGHFILL, Defendant.
    Nos. 85-3388-CV-S-4, 85-0729-CV-S-4.
    United States District Court, W.D. Missouri, S.D.
    Nov. 4, 1985.
    Stacy R. Obenhaus, Stinson, Mag & Fizzell, Kansas City, Mo., for plaintiffs.
    Ralph Weatherwax, Springfield, Mo., for defendant.
   ORDER

RUSSELL G. CLARK, District Judge.

On October 1, 1985, this Court issued an order directing the plaintiffs to show cause why their complaints should not be dismissed for failure to state a claim for which relief can be granted. On October 21, 1985, the plaintiffs replied to the show cause order. The defendant’s motion to dismiss will be denied.

The essential question presented by the motion to dismiss is whether, in a copyright action, the plaintiff must plead and prove that the performance of the copyrighted work by the defendant was “for profit.” It is the plaintiffs’ position that such an allegation need not be made. Plaintiffs further state that if the performance was not “for profit” the defendant is obligated to raise this exemption as an affirmative defense to the plaintiffs’ complaints.

The plaintiffs draw this Court’s attention to the legislative history of the copyright laws. Apparently, the 1909 Copyright Act contained a “for profit” requirement. Accordingly, courts have in the past required plaintiffs to allege that the copyright infringement was “for profit.” See, Fourth Floor Music, Inc. v. Der Place, Inc., 572 F.Supp. 41, 43 (D.Neb.1983). In 1976, the Copyright Act was amended. 17 U.S.C. § 106 sets forth the “bundle of rights” given to copyright holders. The “for profit” requirement has been removed from the section granting the bundle of rights and instead has been placed among the exemptions from § 106. A “not for profit” exemption is now included in 17 U.S.C. § 110(4). As the plaintiffs point out, the omission of the “for profit” language was an intentional change.

The right of public performance under § 106(4) extends to “literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works and sound recordings” and, unlike the equivalent provisions now in effect, is not limited by any “for profit” requirement. The approach of the bill, as in many foreign laws, is first to state the public performance right in broad terms, and then to provide specific exemptions for educational and other nonprofit uses.

H.R.Rep. No. 1486, 94th Cong., 2d Sess. 200 (1976). This Court does not believe that Rule 8 would require the pleader to specifically allege the absence of the exemptions contained in 17 U.S.C. § 107 through 118. Instead, those exemptions, if they exist, should be raised by the defendant as an affirmative defense.

Accordingly, and for the foregoing reasons, it is hereby

ORDERED that the defendant’s motion to dismiss is denied.


author: ROBERT J. WARD, District Judge.

text:
    Gertrude Brooks SCHUYT, Plaintiff, v. ROWE PRICE PRIME RESERVE FUND, INC., T. Rowe Price Associates, Inc., Carter O. Hoffman, Edward A. Taber III and George J. Collins, Defendants.
    No. 80 Civ. 506 (RJW).
    United States District Court, S.D. New York.
    Nov. 5, 1985.

      Wolf Haldenstein Adler Freeman & Herz, Stull, Stull & Brody, New York City, for plaintiff; Daniel W. Krasner, Jeffrey G. Smith, Robert Stull, of counsel.
    Pollack & Kaminsky, New York City, for defendants T. Rowe Price Associates, Inc., Carter O. Hoffman, Edward A. Taber III, and George J. Collins; Daniel A. Pollack, Martin I. Kaminsky, Edward T. McDermott, Frederick P. Schaffer, of counsel.
   OPINION

ROBERT J. WARD, District Judge.

This is an action brought pursuant to the Investment Company Act of 1940, as amended, 15 U.S.C. § 80a-1 et seq. (“ICA”). Defendants T. Rowe Price Associates, Inc. (“Price Associates”), Carter O. Hoffman, Edward A. Taber III and George J. Collins move pursuant to Rule 12(b)(6), Fed.R. Civ.P., for an order dismissing Count III of the Third Amended Complaint. Defendants argue that Count III, which purports to assert a claim under § 20(a) of the ICA, 15 U.S.C. § 80a-20(a), fails to state a claim upon which relief can be granted in that § 36(b) of the ICA, 15 U.S.C. § 80a-35(b), provides the exclusive federal statutory remedy for a claim of excessive investment adviser fees. For the reasons hereinafter stated, defendants’ motion is denied.

BACKGROUND

The original complaint in this action was filed on January 25, 1980. In the original pleading, plaintiff alleged that she was a shareholder in the Rowe Price Prime Reserve Fund, Inc. (the “Fund”), a no load, diversified, open-end investment company incorporated and doing business in Maryland. The complaint further alleged that defendant Price Associates, also incorporated and doing business in Maryland, was serving as an investment adviser to the Fund under the terms of an investment advisory agreement dated May 1, 1976. Defendants Hoffman, Taber and Collins, the complaint alleged, were serving, respectively, as chairman of the board of directors of the Fund as well as vice president and director of Price Associates, president and director of the Fund in addition to vice president of Price Associates, and vice president and director of the Fund as well as vice president of Price Associates.

In the original complaint, brought derivatively on behalf of the Fund, plaintiff alleged that the fees paid by the Fund to Price Associates for services rendered in 1978 had been excessive and unreasonable. This excessive compensation, plaintiff asserted, constituted violations of §§ 1(b)(2), 10, 15, 36 and 37 of the ICA, as well as a breach of fiduciary duty under state law. Plaintiff therefore sought from defendants Price Associates, Hoffman, Taber and Collins an accounting and repayment of all excessive advisory fees paid by the Fund to Price Associates, as well as an injunction against Price Associates from “continuing its unlawful contract.” Complaint at 8.

On July 14,1980, the Court dismissed the original complaint with respect to all claims asserted under sections of the ICA other than § 36, and with respect to all pendent state law claims against the individual defendants. At the same time, the Court granted plaintiff leave to serve and file an amended complaint. On August 18, 1980, plaintiff filed an amended complaint asserting three claims against some or all of the original defendants: first, against Price Associates for excessive fees under § 36(b) of the ICA; second, against all defendants for breach of fiduciary duty under §§ 1(b)(2) and 15 of the ICA; and third, against all defendants for breach of fiduciary duty under state law. In a stipulation and order filed on January 23, 1981, plaintiff withdrew the second claim without prejudice. The parties subsequently entered into a stipulation to the filing of a second amended complaint, which was signed by the Court and filed on March 2, 1981. A copy of the proposed amended pleading, annexed to the stipulation filed on March 2,1981, indicated that the second amended pleading was to contain two claims, one against Price Associates for excessive fees under § 36(b) of the ICA, the other against all defendants for breach of a state law fiduciary duty. The case subsequently was placed on the suspense calendar by stipulation of the parties, and was restored to the active docket by stipulation on January 13, 1984. Some months later, plaintiff moved for leave to file a third amended complaint. In a memorandum endorsement dated June 28, 1984, the Court granted plaintiff leave to file an amended complaint asserting an additional claim of violation of the proxy rules. Plaintiff filed her Third Amended Complaint on July 2, 1984.

The amended pleading now before the Court asserts three claims for relief. Count I, asserted against Price Associates, raises a claim for excessive fees under § 36(b) of the ICA. Count II, brought against all defendants, is based on diversity of citizenship and alleges breach of fiduciary duty under state law. Count III, also asserted against all defendants, alleges violations of § 20(a) of the ICA and Rule 20a-1 promulgated thereunder, 17 C.F.R. § 270.20a-1, in connection with proxy statements disseminated to Fund shareholders to solicit their approval of proposed investment advisory agreements for 1980 and 1981 (the “1980 and 1981 Agreements”). In connection with the three claims asserted, plaintiff seeks various forms of monetary relief, including repayment to the Fund of excessive fees under Count I, payment to the Fund of defendants’ profits and/or the Fund’s damages under Counts II and III, and reimbursement to the Fund under Count III of all payments made to defendants under the 1980 and 1981 Agreements. In addition, plaintiff seeks under Count I to enjoin the Fund from payment of excessive fees to Price Associates, and seeks under all three counts a declaration that the 1980 and 1981 Agreements are void as a consequence of defendants’ violations of statute and common law.

Defendants Price Associates, Hoffman, Taber and Collins now move to dismiss Count III of the Third Amended Complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P. Defendants contend in the instant motion that, inasmuch as “the essence of [plaintiff’s § 20(a)] claim is a charge of excessive fees,” Defendants’ Reply Memorandum at 3, § 36(b) of the ICA provides “the sole, exclusive and complete federal statutory remedy” for such an alleged wrong, Defendants’ Memorandum at 1.

DISCUSSION

The Investment Company Act of 1940 comprehends a broad regulatory scheme, and was enacted to address Congress’ concern about “the potential for abuse inherent in the structure of investment companies.” Burks v. Lasker, 441 U.S. 471, 480, 99 S.Ct. 1831, 1838, 60 L.Ed.2d 404 (1979). Section 20 of the ICA, which was part of the original statute enacted in 1940, provides in relevant part:

It shall be unlawful for any person, by use of the mails or any means or instrumentality of interstate commerce or otherwise, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security of which a registered investment company is the issuer in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 80a-20(a). As both plaintiff and defendants acknowledge, the courts of this circuit have implied a private right of action under § 20(a) for shareholders of mutual funds who seek to redress violations of the proxy rules promulgated by the SEC. See, e.g., Tannenbaum v. Zeller, 552 F.2d 402 (2d Cir.1977); Galfand v. Chestnutt Corp., 545 F.2d 807 (2d Cir.1976).

Section 36(b) of the ICA was added to the statute as part of the Investment Company Amendments Act of 1970, and provides in pertinent part:

For the purposes of this subsection, the investment adviser of a registered investment company shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered investment company, or by the security holders thereof, to such investment adviser or any affiliated person of such investment adviser. An action may be brought under this subsection by the Commission, or by a security holder of such registered investment company on behalf of such company, against such investment adviser, or any affiliated person of such investment adviser, or any other person enumerated in subsection (a) of this section who has a fiduciary duty concerning such compensation or payments, for breach of fiduciary duty in respect of such compensation or payments paid by such registered investment company or by the security holders thereof to such investment adviser or person. With respect to any such action the following provisions shall apply:
(1) It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty.
(2) In any such action approval by the board of directors of such investment company of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, and ratification or approval of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, by the shareholders of such investment company, shall be given such consideration by the court as is deemed appropriate under all the circumstances.
(3) No such action shall be brought or maintained against any persons other than the recipient of such compensation or payments, and no damages or other relief shall be granted against any person other than the recipient of such compensation or payments. No award of damages shall be recoverable for any period prior to one year before the action was instituted. Any award of damages against such recipient shall be limited to the actual damages resulting from the breach of fiduciary duty and shall in no event exceed the amount of compensation or payments received from such investment company, or the security holders thereof, by such recipient.

15 U.S.C. § 80a-35(b). In its report on the proposed 1970 amendments to the ICA, the Senate Committee on Banking and Currency explained that § 36(b) had been drafted in response to Congress’ recognition that the original statutory framework “did not provide any mechanism by which the fairness of management contracts [between mutual funds and their investment advisers] could be tested in court.” S.Rep. No. 91-184, 91st Cong., 2d Sess., reprinted in 1970 U.S.Code Cong. & Ad.News 4897, 4901. Congress’ particular goal in adding § 36(b) was “to specify that the adviser has a fiduciary duty with respect to compensation for services or other payments paid by the fund or its shareholders to the advisers or to affiliated persons of the adviser.” Id. at 4902.

In the context of an action brought by mutual fund shareholders against an investment adviser and its directors for breach of fiduciary duty under the ICA, the Second Circuit has observed in passing that § 36(b) may properly “constitute[ ] the exclusive remedy insofar as a private claim alleges solely that compensation of an adviser ... is so excessive in the sense of surpassing any reasonable relation to the services rendered that its payment is a breach of fiduciary duty.” Fogel v. Chestnutt, 668 F.2d 100, 112 (2d Cir.1981), cert. denied, 459 U.S. 828, 103 S.Ct. 65, 74 L.Ed.2d 66 (1982). Notwithstanding the circuit panel’s dictum in Fogel v. Chestnutt, however, it is clear that at least in some circumstances a claim under § 20(a) of the ICA, alleging material misstatements or omissions in a proxy statement distributed to mutual fund shareholders, may be joined with a claim for breach of fiduciary duty by an investment adviser with respect to its compensation for services under § 36(b). See, e.g., Gartenberg v. Merrill Lynch Asset Mgt., Inc., 573 F.Supp. 1293 (S.D.N.Y.1983), aff'd, 740 F.2d 190 (2d Cir.1984) (“Gartenberg II”); Galfand v. Chestnutt, supra; see also Meyer v. Oppenheimer Mgt. Corp., 764 F.2d 76, 81 (2d Cir.1985) (claim under § 20 of the ICA and § 14(a) of the SEA reinstated along with claim for excessive fees under § 36(b) of the ICA).

In the instant motion to dismiss, defendants contend that Count III of the Third Amended Complaint, which asserts a claim under § 20(a) for violation of the SEC’s proxy rules, “is merely an excessive fee claim dressed in slightly different clothes.” Defendants’ Memorandum at 4. Therefore, under their reading of the Second Circuit’s dictum in Fogel v. Chestnutt and of other decisions rendered by courts of this circuit on claims brought under the ICA, defendants argue that Count III of the amended pleading must fail because “§ 36(b) [already asserted as the ground for relief in Count I of the Third Amended Complaint] provides the complete and exclusive remedy under the [ICA] for a claim of excessive advisory fees.” Defendants’ Memorandum at 6. Because the Court accepts neither defendants’ characterization of the amended claim at issue nor defendants’ application of the relevant case law and legislative history to that claim, the Court concludes that defendants’ motion must be denied.

Characterization of Plaintiff s § 20(a) Claim

Defendants’ reading of Count III as essentially a claim for excessive fees appears to arise from the fact that Count III rests in part on the same factual allegations that underlie plaintiff’s § 36(b) claim stated in Count I. See Third Amended Complaint at ¶ 34. In addition, defendants note that the relief sought under Count III includes the return of all payments made to defendants under the 1980 and 1981 Agreements. Id. at 18; Defendants’ Reply Memorandum at 2. Such relief, defendants suggest, is nothing more or less than the repayment of excessive fees, which plaintiff already demands in connection with her § 36(b) claim. See Third Amended Complaint at 17.

Defendants’ reading of Count III, however, is incomplete. In that claim, plaintiff reiterates allegations made earlier in the amended complaint in connection with both her § 36(b) claim and state law claim for breach of fiduciary duty. In addition, however, plaintiff raises distinct allegations not previously asserted concerning omissions of material information in proxy statements circulated to Fund shareholders in 1980 and 1981. See Third Amended Complaint at ¶¶ 35-50. Furthermore, as to the relief sought under Count III, it must be noted that plaintiff seeks the return of all payments made to defendants under the 1980 and 1981 Agreements, not just those payments or portions of payments that a finder of fact might determine to be excessive. See id. at 18. In addition, plaintiff seeks an award of defendants’ profits and damages to the Fund resulting from the alleged proxy violations, as well as a declaration that the 1980 and 1981 Agreements have been rendered void as a consequence of defendants’ alleged § 20(a) violations. Id. at 18-19.

Count III of the Third Amended Complaint thus does not allege solely that advisory fees paid by the Fund to Price Associates were excessive. The § 20(a) claim raised in Count III advances distinct factual allegations of material nondisclosures in particular proxy statements, and seeks legal and equitable relief beyond the mere recapture of excessive advisory fees. Because it cannot fairly be characterized as a claim that alleges solely a breach of fiduciary duty arising from excessive compensation paid to an investment adviser, plaintiff’s § 20(a) claim does not fall within the narrow category of claims that the Second Circuit panel in Fogel v. Chestnutt, supra, thought might properly be brought only under § 36(b). See 668 F.2d at 112. Thus, even if this Court treats the circuit panel’s dictum in Fogel v. Chestnutt as binding authority in the instant case, it does not mandate dismissal of the § 20(a) claim asserted here.

Relevance of Gartenberg I and II

Nonetheless, defendants assert that Count III is not substantially different from the § 20(a) claim dismissed by the district court in Gartenberg v. Merrill Lynch Asset Mgt., Inc., 528 F.Supp. 1038 (S.D.N.Y.1981), aff'd, 694 F.2d 923 (2d Cir.1982), cert. denied, 461 U.S. 906, 103 S.Ct. 1877, 76 L.Ed.2d 808 (1983) (“Gartenberg I”). In view of the circuit court affirmance of Judge Pollack’s dismissal of the § 20(a) claim raised in Gartenberg I, 694 F.2d at 933-34, defendants argue that the § 20(a) claim advanced in the instant case must likewise be dismissed. This Court reads Gartenberg I more narrowly than defendants, however, and in fact finds support in Gartenberg II for permitting plaintiff’s § 20(a) claim to stand.

The sole claim alleged in the complaints in Gartenberg I was for breach of fiduciary duty under § 36(b) of the ICA. After the close of plaintiffs’ case, however, one of the plaintiffs, Simone C. Andre, sought to “suggest” additional claims before the district court, including a claim that misleading and insufficient materials had been disseminated to shareholders of the mutual fund at issue in violation of § 20(a). 548 F.Supp. at 1065-66. Judge Pollack dismissed Andre’s “belated” claims at the close of the case “as lacking merit, not asserted and not proved,” but discussed them briefly “for the sake of completeness” in the text of his opinion. Id.

Characterizing Andre’s § 20(a) claim as “the product of a fertile imagination,” Judge Pollack found that the alleged omissions had not been material because mutual fund shareholders would not have changed their votes if the proxy statements sent to them had included additional “details of costs.” Id. at 1066-67; see also TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). “In any event,” the district court observed, § 20(a) “[was] not intended to and [does] not establish a private right of action in the context of a claim such as here for recovery of compensation under Section 36(b).” 528 F.Supp. at 1067.

The Second Circuit Court of Appeals, affirming Judge Pollack’s decision, noted that the only claim that had been raised in the complaint and tried to the district court had been the claim of excessive fees under § 36(b). The circuit panel therefore affirmed the dismissal of Andre’s “belated post-trial” claims on the ground that they had not properly been presented to the district court for adjudication. 694 F.2d at 933-34. “In any event,” the court of appeals agreed with the district court that plaintiff’s additional claims were meritless. Id. at 934.

Both the district and circuit court opinions in Gartenberg I suggest that plaintiff Andre’s § 20(a) claim was dismissed because it had not been raised properly in the district court and because, in any event, the omissions alleged had not been material. Judge Pollack’s additional observations about the viability of claims asserted under other sections of the ICA “in the context of” a § 36(b) claim represent, at most, an alternative holding. Even if treated as a holding, however, Judge Pollack’s comments must be viewed in the context of the case before him. The only claim plaintiffs had raised in the pleadings and attempted to prove at trial was one for excessive fees under § 36(b). At the close of plaintiffs’ case, then, Gartenberg I involved only a claim of excessive fees. Under the Second Circuit’s dictum in Fogel v. Chestnutt, supra, 668 F.2d at 112, Judge Pollack could have concluded that § 36(b) was the exclusive remedy available to plaintiffs insofar as the proof adduced at trial had related “solely” to the reasonableness or excessiveness of an investment adviser’s fees. Indeed, Judge Pollack quoted the relevant language from the circuit court’s opinion in Fogel v. Chestnutt to support his conclusion that plaintiff Andre’s “latterly constructed claims” must fail. See 528 F.Supp. at 1067.

This Court is further persuaded that Judge Pollack’s “alternative holding” in Gartenberg I must be confined to the particular facts of that case by the district court’s treatment of the § 20(a) claims asserted in Gartenberg II. In the second action, which the same plaintiffs commenced following the dismissal of their complaints in Gartenberg I, both Gartenberg and Andre asserted, inter alia, claims under §§ 20(a) and 36(b) of the ICA. See Gartenberg II, supra, 573 F.Supp. at 1296-97 & n. 1. In Gartenberg II, Judge Pollack struck Andre’s § 20(a) claim as “having been found in the earlier litigation to be devoid of legal merit and as having been asserted in bad faith,” and assessed Andre’s counsel $5,000.00 for having reasserted that and other claims frivolously. Id. at 1297 n. 1. However, the Court dealt differently with Gartenberg’s § 20(a) claim. Judge Pollack did not strike the claim as “devoid of legal merit,” but allowed plaintiff to proceed with it to trial. In his written opinion in Gartenberg II, issued after a bench trial, Judge Pollack considered the merits of the material omissions plaintiff Gartenberg had alleged as they pertained to both his § 20(a) and § 36(b) claims. See id. at 1307.

The omissions from a proxy statement of which plaintiff Gartenberg complained in Gartenberg II involved in large part information about the investment adviser’s expenses and the fact that those expenses had been declining as a percentage of revenue. 573 F.Supp. at 1307. Viewing the alleged omissions in light of his earlier finding in Gartenberg I, that mutual fund shareholders most likely would not have voted differently if certain proxy statements had contained additional information on costs, Judge Pollack concluded that Gartenberg’s allegations lacked merit under both § 20(a) and § 36(b). See id. Significantly, Judge Pollack did not refer in Gartenberg II to his earlier statements in Gartenberg I concerning the availability of relief under other sections of the ICA “in the context of a claim ... for recovery of compensation under Section 36(b).” 528 F.Supp. at 1067. Similarly, the Second Circuit’s affirmance of the district court in Gartenberg II makes no reference to that portion of Judge Pollack’s prior decision. See 740 F.2d at 194.

Judge Pollack’s strikingly different treatment of the two § 20(a) claims raised in Gartenberg II strongly suggests that his rejection of Andre’s § 20(a) claim in both Gartenberg I and II resulted from defects peculiar to that claim and not from a defect generic to all § 20(a) claims joined with a claim for excessive fees. This Court therefore rejects defendants’ argument that Gartenberg I mandates dismissal of the § 20(a) claim asserted in this action. In contrast to the situation presented in Gartenberg I, the amended complaint in this case includes a separate claim for relief under § 20(a) based upon distinct factual allegations of material omissions in two proxy statements sent to Fund shareholders. Like plaintiff Gartenberg in Gartenberg II, plaintiff here complains that certain financial information was omitted from proxy statements sent to Fund shareholders in violation of the SEC’s proxy rules. As the district court’s opinion in Gartenberg II makes clear, the nondisclosure to shareholders of information concerning, for example, the calculation of an investment adviser’s expenses, may be relevant to a court’s appraisal both of the reasonableness of the adviser’s fee under § 36(b) and of the adequacy of information disseminated to shareholders under § 20(a). However, as the opinion in Gartenberg II suggests, this potential for some overlap in proof should not bar a mutual fund shareholder from presenting evidence at trial on claims of both excessive fees arid proxy rule violations.

Legislative History of § 36(b)

Contrary to defendants’ arguments, the legislative history of § 36(b) does not militate in favor of limiting plaintiff to a claim under that section for excessive fees. As stated earlier, Congress’ intent in adding § 36(b) to the ICA was to make clear that investment advisers have a separate fiduciary duty to mutual funds and to their shareholders with respect to their compensation for services. See supra at 173. The specific provisions of § 36(b) were designed to “provide a mechanism for court enforcement of this duty.” S.Rep. No. 91-184, supra, 1970 U.S.Code Cong. & Ad. News at 4902. Congress’ overall purpose in enacting § 36(b) therefore appears to have been to enhance and expand rather than restrict mutual fund shareholders’ rights and remedies under the ICA.

The Supreme Court has characterized the statute section as conferring “a narrowly circumscribed right of action for damages against investment advisers to registered investment companies.” Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 22-23 n. 13,100 S.Ct. 242, 248-49, n. 13, 62 L.Ed.2d 146 (1979). Indeed, the Court recently held that the statute implies no private right of action by which a mutual fund itself may recover excessive fees from its investment adviser. See Daily Income Fund, Inc. v. Fox, supra. However, neither the express provisions of § 36(b), nor the legislative history of the Investment Company Amendments Act of 1970, suggests that by adding § 36(b), Congress intended implicitly to extinguish all private rights of action previously recognized for other breaches of fiduciary duty or other violations of the ICA. See Fogel v. Chestnutt, supra, 668 F.2d at 111-12; Tannenbaum v. Zeller, supra, 552 F.2d at 417; cf. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982) (implied private right of action under Commodities Exchange Act held available to investors notwithstanding 1974 amendments to the Act, where legislative history of amendments indicated Congress’ intent to supplement rather than supplant implied judicial remedies). Similarly, nothing in the statute or legislative history indicates that Congress intended to preclude a mutual fund shareholder from joining a § 36(b) claim for excessive fees with claims for breach of other fiduciary duties or for other distinct violations of the ICA.

Particularly where, as here, the challenged claim involves alleged violations of the SEG’s proxy rules, it would be imprudent and unrealistic to view § 36(b) as a substitute for the implied right of action previously recognized by the Second Circuit under § 20(a). Both the terms of the statute and the case law interpreting it demonstrate that § 36(b) was not designed to provide redress to mutual fund shareholders for material misstatements in or omissions from proxy statements. Section 36(b)(2) provides that a court reviewing a claim brought under that section may “give[] such consideration [to shareholder approval of investment advisory agreements] as is deemed appropriate under all the circumstances.” 15 U.S.C. § 80a-35(b)(2). However, as both the district and circuit court opinions in Gartenberg I, supra, make clear, the validity of shareholders’ votes on a particular advisory agreement may well be accorded “no significant weight” under § 36(b) because “the Investment Company Act contemplates that the primary responsibility for ascertaining the most significant matters is laid on the [mutual fund] Trustees.” Gartenberg I, supra, 528 F.Supp. at 1065; see also 694 F.2d at 933. Thus, if the mutual fund shareholder is to be afforded a meaningful remedy for violations of the proxy rules by the fund’s managers, directors and/or advisers, it will not be by way of a claim for excessive fees under § 36(b), but must be through an implied right of action under § 20(a).

CONCLUSION

The Court finds that Count III of the Third Amended Complaint raises independent allegations of proxy rule violations under § 20(a) of the Investment Company Act of 1940. Because the Court concludes that neither the statute nor relevant case law precludes plaintiff from joining such a claim with a claim for excessive fees under § 36(b) of the ICA, defendants’ motion to dismiss Count III must be denied. The parties are directed to communicate with the Court within ten days of the date of this Opinion and Order concerning their readiness for trial.

It is so ordered.

      . In a recent case involving the applicability of the demand requirement of Rule 23.1, Fed.R.Civ.P., to actions brought by mutual fund shareholders to recover excessive fees under § 36(b) of the ICA, the Supreme Court held that a mutu- . al company itself possesses neither an express nor implied right to sue under that statute section. Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 104 S.Ct. 831, 838-42, 78 L.Ed.2d 645 (1984). Therefore, the Court concluded, the demand requirement of Rule 23.1, which applies only to derivative actions brought by shareholders to enforce a right of a corporation that the corporation itself has failed to enforce, does not apply to § 36(b) actions. Id. 104 S.Ct. at 842. The Court observed, nonetheless, that a suit brought by mutual fund shareholders under § 36(b) is "undeniably ‘derivative’ in the broad sense of that word” because ‘‘[t]he legislative history ... makes clear that Congress intended the perhaps unique 'right of a corporation’ established by § 36(b) to be asserted by the company’s security holders and not by the company, itself.” Id. 104 S.Ct. at 838 n. 11.

      . The stipulation further provided that plaintiff and her counsel would not assert the claims stated in Count II in any other action, nor encourage or assist others in asserting such claims in any other case.

      . The records of the Clerk of the Court do not indicate that a second amended complaint ever was filed as a separate court document. Any such oversight was rendered inconsequential, however, by the plaintiffs filing of a third amended complaint on July 2, 1984.

      . Section 20(a) prohibits any person from using a means of interstate commerce to solicit proxies or other authorizations from holders of registered investment company securities in violation of applicable rules and regulations of the Securities and Exchange Commission ("SEC”). See infra at 4. Rule 20a-1 makes applicable to such solicitation all rules and regulations promulgated by the SEC pursuant to § 14(a) of the Securities Exchange Act of 1934 ("SEA"), 15 U.S.C. § 78n.

      . Another district court in this circuit, relying upon Judge Pollack’s statements in Gartenberg I, has held that no private right of action exists under § 20(a) "where the alleged violation concerns excessive advisors fees.” Tarlov v. Paine Webber Cashfund, Inc., 559 F.Supp. 429, 439 (D.Conn.1983). As explained above, this Court concludes that Judge Pollack’s alternative holding in Gartenberg I should be confined to the particular § 20(a) claim asserted by plaintiff Andre there and in Gartenberg II. To the extent the district court’s holding in Tarlov may fairly be interpreted to apply to any allegation of material omissions in a proxy statement that could also be relevant to a claim of excessive fees under § 36(b), this Court respectfully takes a different view.
      By holding here that plaintiff should have the opportunity to present evidence at trial on her claim of proxy rule violations, the Court of course makes no finding as to the strength or weakness of plaintiffs § 20(a) claim. Moreover, the Court finds it unnecessary at this time to reach plaintiffs contention that, if she were able to prove at trial that defendants had violated Rule 12b-1, 17 C.F.R. § 270.12b-1, she would be entitled to rescission of the 1980 and 1981 Agreements under § 47(b) of the ICA, 15 U.S.C. § 80a-46(b). See Plaintiffs Memorandum in Opposition at 17-19. The Court notes, however, that the Second Circuit recently expressed doubt as to whether a private right of action exists for any violation of Rule 12b-1. See Meyer v. Oppenheimer Mgt. Corp., supra, at 85.

      . The Court’s consideration in the instant case is limited to the availability of a right of action under § 20(a) when brought in conjunction with a claim for excessive fees under § 36(b). As previously stated, the Court concludes that Count III of the Third Amended Complaint asserts a claim of proxy rule violations under § 20(a) that is distinct from the excessive fee claim stated in Count I. See supra at 174-75. The Court does not reach the question of whether, under other circumstances, a claim asserted under § 20(a) or another section of the ICA might not properly be dismissed because, for example, it functioned merely as a "bootstrap" to a claim for excessive fees under § 36(b).