author: NORMA HOLLOWAY JOHNSON, District Judge.

text:
    Robert HAMMERMAN, Plaintiff and Counter-Defendant, v. Thomas A. PEACOCK, Defendant and Counterclaimant, v. Smith BARNEY, Harris Upham & Company, Additional Defendant on Counterclaim.
    Civ. A. No. 84-2724.
    United States District Court, District of Columbia.
    Feb. 7, 1985.

      Morris Kletzkin, Washington, D.C., for plaintiff and counter-defendant.
    Robert L. Cope, Washington, D.C., for defendant and counterclaimant.
    James H. Schropp, Washington, D.C., for additional defendant on counterclaim.
   MEMORANDUM OPINION

NORMA HOLLOWAY JOHNSON, District Judge.

Plaintiff, Robert Hammerman (Hammer-man), brought this suit against defendant Thomas A. Peacock (Peacock), alleging intentional tort, assault, and battery. Defendant counterclaimed against Hammer-man and also named Smith Barney, Harris Upham & Company (Smith Barney) as an additional defendant on the counterclaim. The counterclaim alleges nine causes of action against Hammerman and Smith Barney charging securities fraud, common law fraud, breach of contract and negligence. Peacock also alleges a claim for punitive damages. The case is presently before the court on the motion of Hammerman and Smith Barney to dismiss the counterclaim, to compel arbitration, and to strike Peacock’s claim for punitive damages.

The pertinent facts giving rise to this suit are that on or about September 30, 1983, Peacock opened a discretionary stock account with Smith Barney. His account was put under the control of Hammerman, an account executive employed by Smith Barney. The account was opened with shares of stock valued at $70,500.00. Over the period ending July 27, 1984, the Peacock account suffered heavy losses estimated at $55,000.00. The counterclaim alleges that on various occasions, when Peacock inquired as to the status of his account, Hammerman assured Peacock that his account was profitable and that it was not suffering losses. When Peacock became aware of the extent of his losses, he allegedly went to the offices of Smith Barney and intentionally struck and battered Ham-merman causing Hammerman to sustain serious physical and psychological injury. Plaintiff Hammerman thereafter commenced his action for assault and battery, and Peacock’s counterclaim followed.

As a basis for the motion to dismiss, Hammerman and Smith Barney contend that Peacock’s claims under Section 17(a) of the Securities Act of 1933 should be dismissed since there is no private remedy under this provision; that the claim under Section 10(b) of the Securities Exchange Act of 1934 and his other fraud-based claims should be dismissed for failure to set forth any factual or legal basis for such claims; that the state law claims should be dismissed because either the court lacks pendent jurisdiction or the common law claims should be severed and referred to arbitration; and finally that punitive damages are not available under federal securities laws and that Peacock is not entitled to punitive damages at common law.

The first issue to be decided in this case is whether section 17(a) of the Federal Securities Act of 1933, 15 U.S.C. § 77q(a), creates a private cause of action. Counts One and Four of defendant's counterclaim are based on section 17(a) which provides as follows:

(a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly—
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

Although the various courts are fragmented as to whether this section implies a private right of action, the weight of authority suggests, however, that an implied private right of action for damages is unavailable under section 17(a). Keys v. Wolfe, 709 F.2d 413, 416 (5th Cir.1983); Landry v. All American Assurance Co., 688 F.2d 381, 384-91 (5th Cir.1982); Summer v. Land & Leisure, Inc., 571 F.Supp. 380, 386-87 (S.D.Fla.1983); Kimmel v. Peterson, 565 F.Supp. 476, 482-88 (E.D.Pa.1983); Hill v. Der, 521 F.Supp. 1370, 1373-78 (D.Del.1981); Woods v. Homes & Structures of Pittsburg, Kansas, 489 F.Supp. 1270, 1284-88 (D.Kan.1980).

In Landry v. All American Assurance Co., supra, the Fifth Circuit, in a scholarly and persuasive opinion, held that no implied right of action exists under section 17(a) of the federal securities laws. In reaching this decision, the Court looked to the criteria set forth by the United States Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), and subsequent cases in which the Supreme Court applied the Cort test to determine whether Congress intended to create a private cause of action under section 17(a). In Cort v. Ash, supra, the Supreme Court outlined four factors which must be considered in determining whether a private right of action is implicit in a statute not expressly providing one:

First, is the plaintiff “one of the class for whose especial benefit the statute was enacted,” — that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law.

Id., at 78, 95 S.Ct. at 2088.

The Landry court applied the four Cort factors to section 17(a) and concluded:

Summarizing, then, it would appear that the Cort test as applied to § 17(a) of the Securities Act of 1933 points away from the implication of a private cause of action. This, together with the Supreme Court’s conservative interpretation of the test in recent years, leads us to the conclusion that the district court correctly dismissed this theory of relief.

While this Court’s research has revealed no binding decision in this jurisdiction on the issue, in Deane v. Thomson McKinnon Securities, Inc., 586 F.Supp. 44 (D.D.C.1984), Judge Barrington D. Parker recently expressed a strong doubt that a private remedy exists under section 17(a). While it was not necessary to decide this issue in that case because pleading deficiencies required dismissal of the complaint in any event, the Court nevertheless noted numerous recent cases holding that no private remedy exists under section 17(a) and observed that “[t]he weight of case authority suggests ... that an implied private right of action is doubtful and unavailable.” 586 F.Supp. at 47.

On the basis of statutory construction and the superior reasoning of those courts who follow the Landry view that a private cause of action is not implied, this Court adopts the holding that under section 17(a) of the Federal Securities Act of 1933, a private cause of action is not implied. Therefore, Counts One and Four of defendant’s counterclaim, which are based on section 17(a) must be dismissed.

Hammerman and Smith Barney next contend that Peacock’s claims under section 10(b) of the Securities Exchange Act and his other fraud-based claims should be dismissed for failure to set forth any factual or legal basis for such claims. Counts Two and Five of the counterclaim allege violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5. Count Six alleges common law fraud.

Allegations of fraud are subject to Rule 9(b) of the Federal Rules of Civil Procedure which states in pertinent part:

In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.

This specificity requirement applies to the anti-fraud provisions of the federal securities laws and the rules thereunder. To establish Securities Exchange Act and Rule 10b-5 violations, the complaint must allege sufficient facts, sources that support the alleged specific fact, and a basis from which an inference of fraud may fairly be taken. Ross v. A.H. Robins Co., 607 F.2d 545, 557-59 (2d Cir.1979), cert. denied 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980); Deane v. Thomson McKinnon Securities, Inc., supra. Compliance with Rule 9(b) insures that the defendant is given adequate information upon which to frame a response.

A plaintiff alleging fraud in connection with a securities transaction must specifically allege the acts or omissions upon which his claim rests. Ross v. A.H. Robins, supra. In essence, he must not only identify the particular statements (or omissions), but also specify in what respects each of the statements were false and misleading and the factual basis for believing that the defendant acted fraudulently and is responsible. He must specify: (1) precisely what statements were made in what documents or oral representations or what omissions were made; (2) the time and place of each such statement and the person responsible for making (or in the case of omissions, not making) the same; (3) the content of such statements and the manner in which they misled the plaintiff; and (4) what the defendants obtained as a consequence of the fraud. Todd v. Oppenheimer, 78 F.R.D. 415, 420-21 (S.D.N.Y.1978).

Moreover, in order for an action to lie under either section 10(b) or Rule 10b-5, the conduct complained of must occur in connection with the purchase or sale of securities. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731-32, 95 S.Ct. 1917, 1923-24, 44 L.Ed.2d 539 (1975); Sacks v. Reynolds Securities, Inc., 593 F.2d 1234, 1239 (D.C.Cir.1978). The defendant must have misrepresented or omitted to state material facts. Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir.1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975). The plaintiff must also allege that he reasonably relied, to his detriment, upon the misrepresentations or omissions. Wilson v. Comtech Telecommunications Corp., 648 F.2d 88, 92 (2d Cir.1981). Further, under section 10(b) and Rule 10b-5, scienter is a basic element of a securities fraud claim. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976); Deane v. Thomson McKinnon Securities, Inc., 586 F.Supp. 44, 47 (D.D.C.1984). And finally, plaintiff must allege that he exercised due diligence in connection with the transactions in question. Hirsch v. Dupont, 553 F.2d 750, 763 (2d Cir.1977).

The gravamen of defendant’s counterclaim is that in reliance on the representations of Hammerman and Smith Barney that they were experts in the securities investment field, Peacock vested Hammer-man and Smith Barney with actual control over a discretionary stock account opened on September 30, 1983; that during the ten month period from September 30, 1983, through July 27, 1984, substantial trading of his account took place. Peacock alleges that during this period his account was turned over more than ten times, and he attaches to his counterclaim a chart which reveals 37 purchases and 35 sales of stock in his account. Peacock further contends that the trading was for the purpose of generating commissions for Hammerman and proceeds for Smith Barney and was in total and complete disregard of the financial and investment needs and objectives of Peacock. Peacock also avers that Ham-merman and Smith Barney made false representations to Peacock with respect to the status of his account; that they engaged in unauthorized transactions with respect to his account; and that they failed to provide him with full and adequate records as to his account.

Measured against the above standard, the Court determines that Peacock’s fraud claims are deficient. In order to support a fraud-based claim under the federal securities laws, Peacock must identify the particular transactions which form the basis of his claim; he must identify with specificity those trades which he contends were unauthorized. Moreover, he must allege that the conduct complained of occurred in connection with the purchase or sale of securities; that Hammerman and Smith Barney misrepresented or omitted to state material facts; that Peacock reasonably relied, to his detriment, upon the misrepresentations or omissions; that Ham-merman and Smith Barney made the misrepresentations or omissions with “scienter,” that is, with the intent to deceive, manipulate or to defraud Peacock; and that Peacock exercised due diligence in connection with the transactions in question. Instead, Peacock has alleged basically that Hammerman and Smith Barney failed to manage his account in a manner satisfactory to Peacock. As alleged, these claims do not rise to the level of stating a claim under the antifraud provisions of the federal securities laws.

Peacock contends that if the Court finds that his fraud claims are deficient, that his counterclaim should not be dismissed. Rather, Peacock alleges that if his claims are deficient, he should be given the opportunity to amend his counterclaim under Rule 15(a). Under Rule 15(a), leave to amend shall be freely given when justice so requires. The decision to grant or deny leave to amend, however, is vested in the sound discretion of the trial court. Zenith Radio Corf. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 802, 28 L.Ed.2d 77 (1971); Doe v. McMillan, 566 F.2d 713, 720 (D.C.Cir.1977). In exercising its discretion, the trial court may consider, among other factors, undue delay, dilatory motive on the part of the movant, and undue prejudice to the opposing party by virtue of allowing the amendment. Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).

Applying the above factors to the instant case, Hammerman’s complaint for assault and battery was filed on September 5, 1984. Peacock’s answer and counterclaim against Hammerman and Smith Barney were filed on September 28, 1984. The instant motion to dismiss the counterclaim was filed on November 8, 1984. Peacock’s opposition to that motion with his request for leave to amend the counterclaim was filed on November 16, 1984. Pretrial in this case is set for May 9, 1985, and jury trial is scheduled to commence on June 3, 1985. The Court determines that there has been no undue delay or dilatory motive on the part of Peacock. Nor would granting him leave to amend the complaint to cure the deficiencies in his fraud claims cause any undue prejudice to Hammerman and Smith Barney. The trial date of June 3, 1985, would not be disturbed by the amendment of the counterclaim. In view of the general rule of liberality in allowing amendments and because the court determines that there is no strong justification for not permitting the amendment, Peacock will be granted leave to amend his counterclaim in order to cure deficiencies in his fraud-based claims and meet the specificity requirements of Rule 9(b).

The Court next turns its attention to Peacock^ claims under the District of Columbia Code. Counts Three and Seven of the counterclaim allege violations of section 2-2602 of the District of Columbia Code. This statute is the general antifraud provision of the District of Columbia’s blue sky law and provides as follows:

It shall be unlawful for any person, in connection with the offer, sale, or purchase of any security, directly, or indirectly:
(1) To employ any device, scheme, or artifice to defraud;
(2) To make any untrue statement of a material fact, or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they are made, not misleading; or
(3) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

Civil liabilities for violations of the District of Columbia securities code are expressly provided for in section 2-2613 which provides that the District of Columbia’s securities laws shall not create any cause of action not specified in sections 2-2613 or 2604(e). Peacock’s claims are not encompassed by the two specific sections of District of Columbia law which give rise to private remedies. Therefore, because civil liability under section 2-2602 is specifically precluded by the terms of the statute itself, Peacock’s claims under 2-2602 must be dismissed. Therefore, Counts Three and Seven will be dismissed.

Hammerman and Smith Barney next contend that Peacock’s common law claims for breach of contract, common law fraud, and negligence should be severed and referred to arbitration. The Customer’s Agreement executed by Peacock when he opened his account at Smith Barney contained an arbitration provision which states in pertinent part:

... any controversy relating to the account of the undersigned, shall be settled by arbitration in accordance with the rules, then in effect, of the Board of Directors of the American Stock Exchange, Inc., the Board of Directors of the New York Stock Exchange, Inc., or the National Association of Securities Dealers, Inc., as the undersigned may elect.

Hammerman and Smith Barney seek enforcement of this provision. Peacock contends that these claims are inextricably intertwined with the claims under the federal securities laws and, therefore, should not be severed and referred to arbitration.

Assuming that Peacock amends his counterclaim and that the amendment cures any deficiencies in Peacock’s fraud-based claims, the counterclaim, as amended, will contain both common law claims and federal securities law claims. On the face of the complaint, the common law claims are subject to arbitration under the terms of the Customer’s Agreement cited above. Federal securities claims, however, are not arbitrable. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953). This case thus presents a situation involving claims both arbitrable and nonarbitrable. Generally, when a complaint sets forth a combination of claims, the arbitrable claims should be severed from the nonarbitrable ones and the district court should stay judicial proceedings as to the arbitrable claims, thereby allowing arbitration to proceed. Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979). An exception to this rule exists, however, when the arbitrable and nonarbitrable claims are so related that severance is impractical if not impossible. When arbitrable and nonarbitrable claims are inextricably intertwined, the district court should deny arbitration as to the arbitrable claims in order to protect the jurisdiction of the federal court and avoid any possible preclusive effect. Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1026 (11th Cir.1982).

Assuming the amended complaint to be filed by Peacock withstands scrutiny for specificity as discussed above, the Court determines that the facts underlying Peacock’s common law claims are inextricably intertwined with the facts underlying his federal securities claims. The various causes of action raise common issues with respect to Hammerman’s and Smith Barney’s propriety of management of Peacock’s stock portfolio, the care exercised in managing the account in accordance with Peacock’s goals, and the representations made to Peacock with respect to the status of the account. Resolution of these factual issues pervade the various causes of action and will require determinations critical to both the federal claims and the common law claims. Thus, the common law claims cannot be severed for separate resolution.

If, however, Peacock’s amended counterclaim fails to cure the deficiencies and must be dismissed for failure to satisfy Rule 9(b) or for any other reason, then the only claims remaining will be the common law claims which appear to be subject to arbitration under the Customer’s Agreement. In such event, those remaining common law claims will be referred to arbitration pursuant to the agreement of the parties.

And finally, Hammerman and Smith Barney contend that Peacock’s claim for punitive damages should be denied. The Court first looks to Peacock’s claims under the federal securities laws. Section 28(a) of the Securities Exchange Act, 15 U.S.C. § 78bb(a) specifically precludes any recovery of punitive damages:

No person permitted to maintain a suit for damages under the provisions of this chapter shall recover ... a total amount in excess of his actual damages on account of the act complained of.

Because exemplary or punitive damages are not available under the Securities Act of 1933 or the Securities Exchange Act of 1934, Peacock’s claim for punitive damages sought under the federal securities laws must be stricken.

With respect to Peacock’s claim for punitive damages on his common law claims, it is axiomatic in the District of Columbia that punitive damages are not favored. Price v. Griffin, 359 A.2d 582, 589 (D.C.App.1976). In a situation involving a claim alleging tort, it is clear that punitive damages are awardable only where the defendant’s conduct was particularly outrageous, demonstrating reckless disregard for the rights of others, and mere inadvertence or even gross negligence is insufficient. Further, where a claimant seeks punitive damages against a corporation, the claimant must first show that the acts of the agent of the corporation were characterized by willfulness, wantonness, or malice, and then if that test is met, the claimant must also show that the corporation ratified or authorized the acts of the agent. Remeikis v. Boss & Phelps, Inc., 419 A.2d 986, 992 (D.C.App.1980); DeFoe v. PEPCO, 123 A.2d 920 (D.C.Mun.App.1956).

Where the basis of a complaint is a breach of contract, punitive damages will not lie, even if it is proved that the breach was willful, wanton, or malicious. The rule in this jurisdiction is that only where the alleged breach of contract merges with, and assumes the character of, a willful tort will punitive damages be available. Sere v. Group Hospitalization, Inc., 443 A.2d 33, 37 (D.C.App.1982), cert. denied 459 U.S. 912, 103 S.Ct. 221, 74 L.Ed.2d 176 (1982).

Applying the above principles of law to the facts of this case, the Court concludes that Peacock’s allegations do not support the recovery of punitive damages on his common law claims. Therefore, his claim for punitive damages must be stricken.

Based upon the foregoing, the Court will enter an order consistent with this Memorandum Opinion dismissing Counts One and Four of the counterclaim because section 17(a) of the Federal Securities Act of 1933 does not imply a private right of action. The Court will also grant Peacock leave to amend his counterclaim to cure any deficiencies on his fraud-based claims in Counts Two, Five, and Six. In addition, Counts Three and Seven will be dismissed because the District of Columbia Code specifically precludes civil liability. And finally, the Court will order that Peacock’s claim for punitive damages be dismissed.


source: Caselaw Access Project

author: GEORGE HOWARD, Jr., District Judge.

license: Public Domain

text:
    Dr. Wayne SMITH, et al., Plaintiffs, v. CLEBURNE COUNTY HOSPITAL, et al., Defendants.
    No. B-C-77-49.
    United States District Court, E.D. Arkansas, N.D.
    Feb. 14, 1985.

      John Lavey, Little Rock, Ark., for plaintiffs.
    G. Ross Smith, Little Rock, Ark., for defendants.
   MEMORANDUM OPINION AND ORDER

GEORGE HOWARD, Jr., District Judge.

Plaintiff, Dr. Wayne Smith, instituted this proceeding on the 26th day of April, 1977, asserting that the defendants, Cle-burne County Hospital, the Board of Governors — V.H. Dickson, Chairman, County Judge Delane Wright, Ex-Officio Member, Larry Crabtree, Secretary, D.E. Barnett, Thomas Whitaker, J.M. Stuart, B.J. McNair and Oscar Patchell, members — and the Medical Staff consisting of Doctors William M. Wells, Michael E. Barnett, Max Bal-dridge, William H. Nevins, Nathan L. Poff, Donald H. McClanahan, Harral L. Cran-ford, Joe B. Scruggs, Robert Clark, Steve Blackburn, Jim Ashabramer, Robert R. Wilson and H.C. Williams, denied him medical staff privileges at the Cleburne County Arkansas Hospital because of public and private statements he made criticizing the quality of medical service afforded patients at the hospital and recommending that the standard of patient case be improved all in violation of his right to free speech as secured under the First and Fourteenth Amendments to the Federal Constitution.

Defendants, on the other hand, have asserted that Dr. Smith voluntarily withdrew from the medical staff of the hospital and further, pursuant to this Court’s order directing Dr. Smith to invoke available administrative remedies, defendants denied Dr. Smith’s application for reinstatement because of Dr. Smith’s personality conflicts with the medical and nursing staff, and the likelihood that the quality of patient care would be diminished if he were reinstated.

The Court concludes that the termination of Dr.' Smith’s medical staff privileges at the Cleburne County Hospital was not voluntary, but was revoked by defendants because of Dr. Smith’s public criticism of the standard of patient care at the hospital rather than confining his criticism “in house”. In other words, defendants’ action was in direct retaliation against Dr. Smith for engaging in First Amendment protected activity, as hereinafter discussed and analyzed.

Plaintiff has asserted the following jurisdictional grounds: 28 U.S.C. §§ 1343(3) and 1343(4); 42 U.S.C. §§ 1983 and 1985(3). This action was initially instituted as a class action in behalf of doctors, nurses and medical care patients in Cleburne County, but proceeded to trial as an individual action.

RELEVANT FACTS

The Cleburne County Hospital is a facility owned and operated by Cleburne County, Arkansas, and affords extensive medical and surgical services to residents of Cleburne County.

The business affairs of the hospital are under the supervision and control of a Board of Governors consisting of eight persons — a chairman, an ex-officio member who is the incumbent county judge, a secretary and five members. The Board of Governors, pursuant to the by-laws of the Cle-burne County Hospital are appointed by the county judge.

The duties of the Board of Governors are:

(a) To adopt suitable by-laws.
(b) To select a competent hospital administrator and exercise general supervision over his duties.
(c) To approve the policies established by the hospital administrator.
(d) To approve the equipment and facilities necessary for the proper operation of the hospital.
(e) To select and approve competent and qualified medical staff and exercise general supervision over their duties and responsibilities.
(f) To approve the policies and recommendations of the medical staff.
(g) To require accepted recognized professional medical standards in providing health care services.
(h) To require businesslike management of the financial affairs of the hospital and to employ an annual audit and to provide adequate financing by securing sufficient income.
(i) To review and act on the recommendations of all committees.
(j) To cooperate with the medical staff of the Cleburne County Hospital in the adoption and enforcement of the medical staff by-laws which shall contain, among other things, rules for granting and revoking staff appointments, granting, limiting and revoking professional privileges, election of medical staff officers, establishment of departments and committees and meetings thereof, patient care and preparation of patient records and teaching medical personnel.
(k) To attend to all other matters not enumerated but required by the law of the State of Arkansas.

The by-laws of the hospital further authorize the Board of Governors (Board) to establish a Joint Conference Committee consisting of a chairman, vice chairman, secretary of the Board, the chief administrator and the executive officers of the medical staff. The Joint Conference Committee is empowered to review recommendations and hear complaints from hospital personnel and staff physicians and submit to the Board the Committee’s recommendations on those matters submitted for review.

The by-laws divide the medical staff into honorary, consulting, active, courtesy and dental members. The hospital medical staff members are appointed annually by the Board based on the recommendations of the members of the medical staff. The fiscal year of the hospital commences on October 1st and ends September 30th of each year. Thus, appointments to the medical staff are made on October 1st of each year and extends to September 30th.

The plaintiff, Dr. Wayne Smith, commenced the general practice of medicine in July, 1968, in Cleburne County, Arkansas. The Cleburne County Hospital is the only hospital where plaintiff has applied and acquired medical staff privileges.

From October 1, 1972, to September 30, 1973, plaintiff served as Vice Chief of Staff of the hospital; and from October 1, 1973, to September 30, 1974, he served as Chief of the Medical Staff.

On or about July 2, 1976, plaintiff began to criticize the quality of the patient care at the Cleburne County Hospital. Plaintiff's complaints were discussed with the medical staff, the Board, the Chief Administrator of the hospital, citizens of Cleburne County and the local news media.

Plaintiffs public expression, and particularly his statements to the news media, were registered after considerable press coverage was given to public meetings held by concerned citizens and in response to public pronouncements by Board members and members of the medical staff. For example, the Arkansas Sun, in its Wednesday, October 27, 1976, edition reported that “three concerned citizens” advised the Board of a public meeting held. by concerned citizens in Cleburne County “for the purpose of discussing the Cleburne County Hospital.” The matters discussed by the concerned citizens were: (a) complaints regarding the non-enforcement of by-laws with reference to surgical schedule at the hospital, (b) failure of nurses to attend to patients’ needs; (c) concern about the finances of the hospital; (d) the decline in census of the number of patients; (e) concern “over worker morale, lack of communication and employee complaints”; (f) “public opinion of patient treatment which has to do with hospital operations and the medical staff”; (g) concern about “Dr. Smith’s expressed plan to resign from the staff.”

According to the news article, certain Board members acknowledged that there were problems at the hospital, but are “under correction. The reins were down on the ground, they have been picked up.” (PX 69). Other Board members expressed surprise at the group’s “meeting and their alarm.”

The news article of October 27th, as well as other articles on the subject in the Arkansas Sun and the Cleburne Times, generated numerous letters to the editorial section of the local newspapers expressing views supportive of Dr. Smith and equally as many expressing support for the Board. These letters naturally created further interest in the patient care at the hospital resulting in additional meetings between Board members, the administrator and citizens of Cleburne County.

On December 20, 1976, the Board requested the Arkansas State Health Department to conduct an inspection and survey of the hospital facilities and the quality of patient care.

On December 23, 1976, the following statement appeared in the Cleburne County Times which was éndorsed by ten physicians who possessed staff privileges at the hospital:

The Cleburne County Hospital has received criticism from one member of the Medical Staff during recent weeks. We would like to make it clear to our patients, and to all county residents, that we are proud of our hospital and its employees. We feel confident that the majority of the Medical Staff gives their full cooperation and support to the Hospital Board of Governors, the Administrator, and other employees. We feel that our patients receive care that is not only adequate, but in many instances, superior, compared to other hospitals in the state. We feel that the majority of the nursing personnel at Cleburne County Hospital are dedicated, efficient and compassionate human beings. Finding fault is never difficult to do in any institution, and ours is no exception. However, we are determined to see that the faults we find are cured as quickly as possible by working within, the organization, not by withdrawing from it.
We expect our patients to tell us if they find a problem at our hospital which has escaped our attention, secure in the knowledge that we will do our best to keep problems to a minimum and to correct those quickly which are found.
As taxpayers, you have every right to expect that a modern, clean, well-equipped, well-staffed hospital is provided for you, and that that hospital is managed in a business-like, efficient manner. We feel that your expectations are fulfilled in our hospital.

The initial criticism registered by Dr. Smith regarding the inadequacy of patient care at the hospital was between April and July of 1976 when Dr. Smith submitted a statement to' the Board setting forth nineteen items of deficiencies. In November, 1976, Dr. Smith sent a letter to all of his patients and the Board stating that unless the Board conducted a thorough investigation of the hospital’s operations, he would resign from the medical staff in April, 1977. Two of the specific complaints mentioned by Dr. Smith were: (1) The failure of doctors to abide by surgery schedules and (2) poor nursing care.

On December 29,1976, Dr. Smith wrote a letter to Board members Dickson, Reed, Crabtree, Barnett and Whitaker, stating essentially that the hospital is “very inadequate” and that their indifference contributes to the problem and that each, in effect, should resign from the Board.

On January 27,1977, Dr. Smith, during a Board meeting, stated that unless the Board took immediate steps to resolve the problems at the hospital, he would take the matter to court and further indicated his interest in seeking the public office of Cle-burne County Judge.

On February 1,1977, after the requested survey was conducted, the Arkansas Department of Health sent the following communication to the Administrator of the hospital:

Dear Mr. Rector:
Reference is made to an inspection of Cleburne County Hospital on January 31, 1977 by representatives of this Division. The following items are noncompliances with the Rules and Regulations for Hospitals and Related Institutions in Arkansas:
I.Dietetic Services:
1. The hot food for the noon meal of January 31 was prepared too far in advance of the meal to be served.
2. The pot washing procedures were incorrect as only two vats of the three compartment sink were used for wash and rinse. The temperature of water for rinse registered 155°F. and the temperature should be 170°, preferably 180°F.
3. Cartons of milk in the refrigerator were observed to be outdated.
II. Medical Staff:
1. All phone orders are not co-signed within 24 hours. According to Medical Staff by-laws and Arkansas Rules and Regulations for Hospitals all phone orders must be co-signed within 24 hours by the physician making the order.
III. Medical Reports: None
IV. Pharmacy:
1. Drug cabinets and refrigerators on the Nursing Units have not been thoroughly checked by the pharmacist and nurses. Some out-dated drugs were found in each of these drug storage areas: the nurses’ station, Coronary Care crash cart, Operating Room, Emergency Room, and the infant emergency tray for the Delivery Room.
2. Locked storage was not provided for drugs, including some controlled substances, in the Delivery Room and the Operating Room. This is especially important because these areas are unattended two shifts a day.
3. Pharmacy records did not include quantities dispensed as floor stock or as individual patient drugs. Adequate control must be maintained on prescription drugs through complete records.
4. Six of nine current charts reviewed indicated that stop order policies were not being followed. None of the patient charts had notes on the front asking the doctor whether certain drugs were to be discontinued or reordered.
5. The Pharmacy and Therapeutics Committee has held only two of the required quarterly meetings (January and November, 1976).
V. General Administration & Physical Plant:
1. The By-Laws of the Governing Body should be amended by amendment to include an overall statement of an overall admission policy for the facility using part II, Section I, Para C-8, Rules and Regulations for Hospitals in Arkansas as a guideline.
2. There was observed some electrical medical equipment wired with two wire power cords. All equipment wired with two wire power cords should be rewired with a three wire power cord to provide a grounded circuit.
3. There was infant cribs, a stretcher and a crash cart stored in the O.B. area corridor. Egress should not be hampered in any corridor and corridors should be maintained open and unobstructed at all times.
VI. Nursing Service:
1. Unused medications or special prescriptions that do not meet sterile or label requirements shall be returned to the pharmacy or drug room. Several outdated drugs were found in the Emergency Room (Opthalmics) and Operating Room (Pentathol and used I.V. mixtures in the refrigerator). Nursing personnel in these areas should check expiration dates in the future.
2. A registered nurse shall be present as a circulating nurse during each delivery. In the past as indicated by the Delivery Room Register an L.P.N. has functioned in this position. This practice should be corrected in the future.
VII. Laboratory:
1. Refrigerators used for storing blood should be monitored for correct temperature. A refrigerator in surgery, which was sometimes used for storing blood, had no record of the correct storage temperature being verified.
VIII. Respiratory Therapy — None
IX. Infection Control — None
X. Radiology — None
The above deficiencies should be corrected at the earliest possible date in order to provide maximum care and/or safety to the patients in your hospital. It would be appreciated if your comments on the above could be forwarded to this office within the next 60 days or as soon thereafter as may be practicable. Such comments should include any corrective action taken or proposed resulting from our findings.
If we can be of further assistance in respect to the above or in any other way, please let us know.

On February 9, 1977, Dr. Smith announced his candicacy for county judge in the 1978 election. He stated his candidacy would enable him to take the hospital problem to the people. Specifically, Dr. Smith stated that the following matters would be addressed during his candicacy:

1. Why does the County Judge refuse to say publicly what he says privately?
2. Why has the Board refused to investigate very specific allegations?
3. Why does the Board not supervise the hospital as it should?
4. Why does the Board allow the County Judge to run business that is supposed to be the practice of the Board?
5. Why does the Board refuse to supervise the medical staff as it should?
6. Why does the Board not wish the residents of the county to know what goes on?
7. Why does the Board tell residents of the county that the hospital problems are none of their business?
8. Why did the Board hire a man for administrator who is totally without qualifications for the job?
9. Why do these men insist on remaining on the Board when they obviously aren’t doing their job?
10. Why does the administrator insist on staying with the job when he obviously isn’t doing the job?
11. Why has the Board become synonymous with Cleburne County Politics, leaving out the G.F. (Greers Ferry) area?
12. Why does the medical staff not act like a medical staff?
13. Why does the medical staff accept pay from the hospital for E.R. (Emergency Room) coverage, yet not want to cover it?
14. Why can’t the nurses be indoctrinated and properly trained?
15. Why do my critics not speak up officially and do something about me, if I’m so wrong?
16. Why do citizens of the county not speak up?
17. Why do I call his a rotten political mess?

On February 22, 1977, after concluding that the investigation conducted by the Arkansas Department of Health did not support D. Smith’s claims of improper patient care, the medical staff recommended, by way of resolution, to the Board that Dr. Smith’s staff privileges be temporarily suspended pending resolution of the controversy and peer review of Dr. Smith’s conduct by all physicians on the medical staff.

The Board appointed a committee to implement the intent of the resolution, but took no action on the recommendation. The committee requested the Ethics committee of the Arkansas Medical Society to investigate the controversy between Dr. Smith and the defendants. The Society declined to get involved in the controversy concluding that the problem appeared to be essentially a personality conflict.

On March 18,1977, Dr. Smith advised the Administrator that he would not, on advice of counsel, participate in hospital activities, including emergency room duties.

On April 15, 1977, the United States Department of Health, Education and Welfare, Food and Drug Administration informed the Administrator of certain deficiencies of the Hospital’s Blood Bank program. Among other things, the deficiencies consisted of:

1. Failure to test each donation of Whole Blood (Human) for HBsAG by a method of sufficient sensitivity, i.e. third generation sensitivity, in that records to not indicate units drawn from donors #110 and #111 were tested prior or after transfusion.
2. Failure to keep proper blood processing records, including results and interpretation of all tests and retests.
3. Failure to maintain complete records of emergency blood transfusion including complete documentation justifying the emergency action which is signed by the physician requesting the procedure.
4. Failure to maintain complete records in the performance of significant steps in the collection of units of Whole Blood (Human) in that some donor records observed did not contain answers to all medical history questions as well as donor signature at time of each donation.
5. Blood bank personnel were unfamiliar with FDA regulations.
6. Failure of donor records to document questioning donor of exposure within the last six months to an individual having viral hepatitis.
7. Failure to examine donor’s arms and forearms for skin punctures or scars indicative of addiction to self-injected narcotics.
8. Failure to label a Group 0 Blood with a statement indicating whether or not isoagglutinin titers or other tests to exclude so-called “dangerous” Group 0 bloods were performed.
9. Failure to label units collected to indicate the date of expiration.
10. Failure to label emergency collected units that are issued for transfusion to indicate whether or not the sero-logical test for syphilis and the test for hepatitis B surface antigen were performed prior to issue.

On April 26, 1977, plaintiff filed this lawsuit. In 1978, plaintiff moved his medical practice from Heber Springs to Hardy, Arkansas.

The trial of this action was scheduled for September 14, 1981. Defendants persisted that plaintiff had voluntarily abandoned his staff privileges and that defendants were not responsible in way. The Court, over the objections of plaintiff,- stayed the action for sixty days in order to permit plaintiff to exhaust administrative remedies under the by-laws of the Medical Staff.

On October 14, 1981, the Joint Executive Committee of the hospital conducted a hearing to determine whether plaintiff should be granted active staff privileges. The committee, concluding that plaintiff’s criticisms of the patient care at the hospital was detrimental to the interest of the hospital, that there were personality conflicts between plaintiff and the medical and nursing staff, and that the quality of medical services would diminish if plaintiff’s staff privileges were restored, recommended to the Board that plaintiff be denied staff privileges. On November 13, 1981, the Board voted to accept the Joint Committee’s recommendation.

DISCUSSION

The crucial question confronting the Court may be stated as:

Whether the denial of medical staff privileges to the plaintiff on the basis of the facts in this case constituted an infringement of plaintiff’s right to freedom of speech as secured under the First and Fourteenth Amendments to the Federal Constitution.

In analyzing the criticism registered by plaintiff regarding the patient care offered at the hospital, the Court finds that such criticism did not become essentially public in scope until some of the defendants made public statements to the news media and placed advertisement in the local newspapers expressing their views regarding the controversy. Initially, plaintiff voiced his complaints to the Board, medical staff members and his patients either orally or by written communication. Moreover, the thrust of plaintiff’s criticism, both privately and publicly, was to persuade the Board to obtain a full scale investigation by an independent source into his allegations that the hospital was not operating in accordance with the by-laws and, as. such, patient care was on the decline and that services were marginal at best.

Many Board and staff members, while acknowledging the existence of problems at the hospital, were, in essence, critical of plaintiff because the controversy did not remain “in house” as opposed to becoming a public matter and ultimately a political issue.

Defendants’ major concern in seeking to keep the controversy “in house” was the fear that the interest of the hospital would be jeopardized. However, in concluding that plaintiffs staff privileges should not be reinstated, defendants made no effort to determine empirically and objectively, what harm, if any, had accrued to the hospital during the controversy or how plaintiffs reinstatement would cause patient care to diminish. In this regard, the Court notes that the fact that plaintiff became a candidate for county judge in 1978 and was rejected by the people of Cleburne County would indicate that plaintiffs influence in Cleburne County was not as weighty as defendants perceived.

In examining the criticism registered by plaintiff, the findings and recommendations of both the Arkansas State Health Department and the United States Department of Health, Education and Welfare articulating problems and deficiencies at the hospital, the Court is persuaded that it cannot be said categorically that plaintiffs criticism was either false or knowingly or recklessly made. In other words, the complaints were substantially accurate. More importantly, the question whether a county owned and operated hospital is affording maximum patient care to its taxpayers is and should be an issue of public interest and concern.

The Arkansas Supreme Court in the case of Baxter County Newspaper, Inc. v. Medical Staff of Baxter General Hospital, 273 Ark. 511, 622 S.W.2d 495 (1981), has made it plain that where a hospital is a county owned facility supported by public funds, the proceedings of the Board and its various committees are subject to Arkansas’ Freedom of Information Act and the public possesses an unqualified right to know about the performance and accomplishments of the facility unless the proceedings fall under an exception to the Act. It is plain that had plaintiff elected to remain “in house” with his criticism, the public could not have been legally deprived of his expressed concerns about patient care at the hospital.

More importantly, it must be remembered that the exercise of the First Amendment right of freedom of speech cannot be conditioned, indeed within the context of the factual circumstances of this case, on whether the utterances are good for the community or will likely result in an adverse image to the facility and its person-nal. The thrust of defendants’ argument appears to be that plaintiff was obligated to some degree of personal loyalty to the hospital and medical staff which renders obselete the public’s right to know; that this loyalty is vital to the proper functioning of the medical facility and a failure to adhere to this code of conduct justifies the revocation of plaintiff’s staff privileges. The Court hastens to add that the Court is not convinced that this case involves the type of relationship between plaintiff and defendants that is of such a personal and intimate nature that certain forms of public criticism would likely undermine the effectiveness of the working relationship between them. Where, as here, comments on matters of public concern that are substantially true, such a concept is overshadowed by the force and effect of the First Amendment. See: Pickering v. Board of Education of Township High School District 205, Will County, Illinois, 391 U.S. 563, 88 S.Ct. 1731, 20 L.Ed.2d 811. Moreover, defendants had the privilege, and as a matter of fact did so, to rebut plaintiff’s criticism by stating the facts, as they perceived them publicly. This case does not present an issue in which plaintiff’s criticism is so reckless and without foundation so as to question his fitness to serve on the medical staff at the hospital.

The Court holds that on February 22, 1977, when the medical staff voted to recommend to the Board to suspend the staff privileges of plaintiff pending peer review of his conduct, plaintiff’s staff privileges were constructively revoked in retaliation for engaging in First Amendment protected activity. Plaintiff’s withdrawal from activities at the hospital was involuntary. Moreover, the recommendation of the Joint Executive Committee to the Board not to reinstate plaintiff’s privileges following the October 14, 1981, hearing and the Board’s approval of the recommendation simply reaffirmed defendants’ resistence to plaintiffs exercise of his First Amendment rights. The Court is convinced that plaintiffs conduct in essence incurred the displeasure of the defendants and had a further tendency to cause indignation.

By way of summary, in the factual context of this case, plaintiffs exercise of his right to comment on matters of public importance may not serve as a reason for the revocation or the denial of medical staff privileges at defendants’ hospital. Plaintiff has met the burden of establishing that his conduct was constitutionally protected and that his conduct was the motivating factor in defendants’ action in denying him medical staff privileges. Defendants, acting under color of state law — a county facility and county officials working in close connection with private defendants whose status as officials of the Hospital, Medical Staff membership, and positions on various committees of the Hospital, is authorized by state law — have not demonstrated that they would have denied plaintiff medical staff privileges in the absence of the protected conduct.

The parties are afforded thirty (30) days from the date of this opinion to agree on the relief to be afforded plaintiff. If the parties are unable to agree, a hearing on the question of relief is hereby scheduled on March 29, 1985, at 9:00 a.m. o’clock, at Little Rock, Arkansas.

APPENDIX I

ARKANSAS

DEPARTMENT OF HEALTH

4815 WEST MARKHAM STREET

LITTLE ROCK, ARKANSAS 72201

REX C. RAMSAY, JR., M.D., DIRECTOR

February 1, 1977

Mr. Sam Rector

Administrator

Cleburne County Hospital

P.O. Box 510

Heber Springs, Arkansas 72543

Dear Mr. Rector:

Reference is made to an inspection of Cle-burne County Hospital on January 31, 1977 by representatives of this Division.

The following are item recommendations for your facility:

I.Dietetic Services:

1. The procedural manual of the dietary department should be expanded, reviewed, revised, and to include the following:

a. The preparation of food for mod- ' ified diets.

b. The menu planning should be adapted to present six weeks’ cycle menus.

c. Review and revise the pot washing procedures.

d. Review and revise the orientation of the dietary employee.

e. A policy and procedure should be developed and written pertaining to “left over food”. All left over food should be dated and labeled.

f. A policy and procedure should be developed on the rotation of milk. It is suggested that the milk company should be called in regard to the expiration date of milk as it was hardly visible.

2. The meetings held within the dietary department should be held on a monthly basis, documented as to subject discussed and a signed list of employees who attended these meetings. There was documentation of meetings in 1976 for only January, August, and December.

3. The menus written for the calorie level diets should reflect the preparation as on the day of the visit the vegetables were prepared with fat. The fruit exchanges of calorie controlled diets should be written out consistently in measured amounts.

4. The past four weeks’ menus on file were not signed as approved by the Dietetic Consultant.

5. The wooden surface of cook’s table should be covered with a material which is smooth, non-porous, and easily cleanable.

6. Concentrated inservice should be held on the preparation and serving of modified diets as there were a few errors noted.

II. Medical Staff:

1. Short stay medical records, on patients hospitalized 48 hours or less should be completed as soon as possible following discharge of the patient.

2. Disposition from the Emergency Room must be documented on every Emergency Room medical record.

III. Medical Records:

1. Only ink should be used to document in the medical record.

IV. Pharmacy:

1. Approved floor stock lists for the nurses’ station, back-up stock, and specialty units should be updated to include approximate quantities to be kept. The lists should be approved by the Pharmacy and Therapeutics Committee, posted at the appropriate unit, and kept in the pharmacy manual. Reducing and limiting floor stock will enable better accountability, economics, and control of dated drugs.

2. Serially numbered forms with a perforated or carbon copy top are recommended for better control of scheduled drug disposition sheets. They are checked by the pharmacist and matched with the “stub” when the nurses complete each sheet.

3. Labeling on controlled substance counters is required to include the lot number and expiration date (where applicable).

4. Suggested additions to pharmacy policies and procedures were left with the pharmacist. A detailed policy on drugs for Emergency Room patients should also be included in the ER manual.

5. Each emergency kit or cart should have a list of drugs (with quantities) posted on the outside.

6. According to the Controlled Substances Act, completed Schedule II disposition records must be filed separately from other controlled substance records.

7. A system should be developed for a nurse to sign-out drugs she has administered from the back-up stock (oral drugs in the drawers). Although this is recorded on the chart, the pharmacy has no record of it.

8. All controlled substances (kept as floor stock) must be recorded on disposition sheets and included in the shift change count. Some units had Nalline, Valium, and Leritine which were not recorded or counted. The nurses’ station had quite a few pints of Schedule V liquids which were not being handled as controlled substances; ex. Donnagel PG, Ambenyl, Novahistine expectorant, Novahistine DH, Parepectolin, Dimetane DC, and Phenergan VC with codeine. A procedure should be developed for recording use and wastage (with a witness’ signature on wastage) of Pento-thal in Surgery; the recorded “balance on hand” should be compared with the stock daily and verified as correct by the signatures of two nurses.

9. Because hospital prescription pads have become frequent targets of forgers, try to limit them throughout the hospital, and make them accessible only to physicians and licensed nurses. Pads were observed out on the nurses’ station counter when no one was present at the station.

V. Genera] Administration &' Physical Plant:

1. The Heber Springs Volunteer Fire Department should be contacted and arrangements made for the department to conduct an annual physical inspection of the facility in order to familiarize all members of the department of the potential hazards within the facility and allow for adequate preparation in possible emergency situations.

2. All committee meeting minutes should show the name and title of those appointed to or attending the committee meetings.

3. All organizational charts, job descriptions, fire and disaster plans, operational procedural guidelines and written policy should be dated upon adoption, submitted to a subsequent annual review and any revision noted upon the copy of protocol.

4. The Maintenance Department should be furnished with a library of all current and pertinent NFPA manuals necessary for the operation of the facility. NFPA 101, NFPA 76BM, and NFPA 56A should be secured as soon as possible and all others necessary on a procurement basis.

5. Conductivity testings, while being accomplished in the critical areas of O.B. Delivery and the surgery suite have not been computated in the manner proscribed in NFPA 56A. Therefore, future test readings should be obtained and documented in the manner set out in NFPA 56A and on copies of the example of the form provided.

6. The facility should formulate and initiate a tagging system providing for the removal of deficient, faulty or malfunctioning equipment from the service cycle.

7. All electrical medical equipment available for use in the patient care areas should be placed on a bi-annual leakage test in accordance with NFPA-76BM and the results of the tests maintained.

8. The facility’s Safety Committee should formulate and initiate a written, formal, restricted smoking policy, setting out areas of no smoking, restricted smoking and approved smoking. This guideline should also state upon whom the onus of responsibility is placed for the enforcement of this policy.

9. The facility’s sprinkler system should be inspected and tested on a quarterly basis and a log maintained of the test.

10. The main oxygen supply cut-off valve located at the main oxygen supply storage area should be identified as such by tagging or distinctive painting in order to provide immediate identification in possible emergency situations and to avert possible erroneous cut-offs.

11. It is recommended that the Maintenance Engineer be allowed to apprentice for instructional purposes with a skilled Hospital Engineer in order to establish and effect a preventive maintenance program, preparation of procedural guidelines and a system of maintenance documentation for the facility.

VI. Nursing Services:

1. The wastage of controlled drugs is not being recorded properly. Nursing personnel should be instructed to record the amount of the drug wasted and the amount given, to indicate the patient the wastage is in reference to and two signatures (the person wasting the drug and the person witnessing the wastage).

2. When sterile supplies are sent back to central supply to be reautoclaved the item should be properly wrapped, new tape applied and marked with the date of expiration.

3. Humidifier bottles for oxygen should be dated when hung. After 48 hours the humidifier bottle should be disposed of and replaced with a new bottle.

4. Gas autoclaved, plastic wrapped, and heat sealed items should be resteri-lized every 90 days.

5. Night-time nourishments for therapeutic diets should be charted in the nurses notes or on the activity sheet. The charting should include whether or not the patient received the nourishment and the amount of food the patient actually ate.

6. Needles and syringes should be properly disposed of by clipping the needles at the hub and clipping the tip of the syringe. This practice insures infection control for your employees and discourages non-medical usage.

7. Fruit juices should not be stored in open metal cans in the nourishment refrigerator. These juices should be placed in plastic or glass containers and properly labeled.

8. Nursing personnel should check the nourishment refrigerator for outdated milk. Several containers of outdated milk were noted in this area.

VII. Laboratory:

1. A written policy is needed that forbids smoking in the laboratory. Smoking is hazardous in that it tends to promote transmission of infectious bacteria and creates a fire hazard.

2. Monthly voltage checks should be made in the laboratory. This provides early warning to electrical problems.

3. Blood should be centrifuged with the stopper or some cover on the tube. Erroneous test results can be minimized particularly with electrolyte testing.

4. Strong acids and bases should not be pipetted by mouth. A procedure should be developed and personnel should be oriented to the hazards of acid reagents.

5. A written procedure should be developed for resolving Quality Control problems. This can save time and effort of personnel.

6. A written procedure should be developed for determining the calibration of the microhematocrit centrifuge (i.e. maximum packing time).

7. New reagents in serology should be verified for sensitivity against old reagents. This provides continuity in reporting.

      . The issues have been bifurcated. Accordihgly, the Court will address the question of liability in this memorandum opinion and after affording the parties an opportunity to stipulate to the relief to be afforded, the Court will, if necessary, schedule a hearing on the question of relief to be accorded Dr. Smith.

      . The Board of Governors derives its authority from the laws of the State of Arkansas (Ark.Stat. Ann. §§ 17-1501 through 17-1506) and the constitution and bylaws of the Cleburne County Hospital.
      The administrator is the chief executive officer who is responsible for the management and day to day operation of the hospital.

      . The Cleburne County Hospital is the successor to the Heber Springs Hospital. The facility was renamed Cleburne County Hospital sometime after 1968.

      . On January 26, 1977, Dr. Smith issued the following statement:
      It is with deep disappointment that I see this Board acting in a manner that is detrimental to this hospital and to the health and well-being of the citizens of this county. I have expressed my opinion to the Board and individual members in the past, so will not belabor the point now. I do wish to assure you and the people of this county that I have only just begun to fight. I will not resign from the medical staff, and I will use every legal means that are available to me to insure that the hospital becomes a properly managed institution. I still hope that this Board or Judge Wright will correct problems that exist. Believe me, they will be corrected — through legal action by civil suit if necessary.

      . The Director of the Division of Hospitals also sent to the administrator, under separate cover, written recommendations to be implemented at the hospital. The recommendations are attached to this opinion and designated as Appendix I.

      . The Department’s Report and the Hospital’s response indicating that correctional measures had been taken are attached to this opinion and designated as Appendix II.

      . According to plaintiff’s Exhibit 125 which was introduced by agreement of counsel, during the weeks of January 11th, February 8th, March 8th, April 11th, May 9th, June 13th, July 11th, August 15th, September 12th, October 10th, November 14th, December 12th, 1976, and January 9th and February 13th, 1977, the following occurred at the emergency room of the hospital:

        1. 47 percent of the patients did not see a doctor.
      2. 34.4 percent of the patients were not administered to by a registered nurse.
      3. 97.3 percent of the patients were not processed by a representative of the administration.
      4. 15 percent of the patients were not seen either by a doctor or registered nurse.
      5. 1.4 percent of the patients were processed by a representative of the administration, administered to by a registered nurse and seen by a doctor.

      . For example, plaintiff placed an advertisement in the local newspaper on June 15, 1978, stating:
      In an ad which appeared in this paper recently, it was said I quit the medical staff at the Cleburne County Hospital of my own free will. That ad, as presented, was a lie — the seven physicians and two dentists who signed it certainly know that I left the staff after it was recommended by the other doctors and dentists that I be suspended. That recommendation came as a result of my insisting on good care for patients. The hospital administrator and board never did what they are required to do by law — if they had, the problem would have been quickly resolved and I could have returned to the hospital. Not to this day have they done what they were required to do within ten days. These actions by the other doctors, hospital administrator and board resulted in a lawsuit which is pending. I was denied my rights and this is the only means to get them. I look forward to my day in court, for then I will have the opportunity to prove what I said.


author: PIERAS, District Judge.

text:
    MICRO-MEDICAL INDUSTRIES, INC., Plaintiff, v. Robert HATTON, Industrial Care Corporation, Hospital Marketing Systems, Inc. and Hospital & Surgical Systems, Inc., Defendants.
    Civ. No. 84-3055 (JP).
    United States District Court, D. Puerto Rico.
    Feb. 19, 1985.

      Roberto Boneta, Hato Rey, P.R., for plaintiff.
    Frank Dalmau, Hato Rey, P.R., Harold D. Vicente, Santurce, P.R., for defendants.
   OPINION AND ORDER

PIERAS, District Judge.

This case is before the Court on defendants’ Motion to Dismiss for Lack of Jurisdiction filed January 3, 1985, together with the transcript of a hearing on jurisdiction held before this Court on January 4, 1985, defendants’ Motion filed January 18, 1985, (Document No. 16) and Plaintiff’s Opposition with attached Affidavit, filed January 18,1985 (Document No. 16(a). Defendant’s Reply to Plaintiff’s Opposition (Document No. 18), filed January 30, 1985, is not before the consideration of the Court since a Reply was not requested by the Court. In its Order of January 4, 1985, the Court ordered the parties to file briefs simultaneously, after which the matter would stand submitted to this Court for decision.

Defendants have attacked plaintiff’s first three causes of action under F.R.C.P. 12(b)(1) for lack of subject matter jurisdiction based on diversity of citizenship under 28 U.S.C. § 1332, and have moved to dismiss plaintiff’s fourth cause of action under F.R.C.P. 12(b)(6) for failure to state a claim under the Racketeer Influenced and Corrupt Organization (“RICO”) Act, 18 U.S.C. §§ 1961 et seq.

This Opinion and Order is entered pursuant to this Court’s finding of diversity jurisdiction on January 30, 1985 and the denial of defendant’s Motion to Dismiss on January 31,1985. For purposes of evaluating defendant’s factual attack on the existence of diversity jurisdiction, this Court is free to weigh the evidence and satisfy itself as to the existence in fact of subject matter jurisdiction; even so, the allegations of the complaint will be construed favorably to the plaintiff. 27 Fed.Proc., L.Ed. § 62:453 (T. Goger ed. 1984). However, with regard to the Court's evaluation of the Rule 12(b)(6) motion to dismiss the RICO claim, plaintiff’s allegations must be taken as true. Radovich v. National Football League, 352 U.S. 445, 77 S.Ct. 390, 1 L.Ed.2d 456 (1956).

1. Motion to Dismiss for Lack of Jurisdiction

This is a case seeking damages and in-junctive relief for alleged breach of contract, breach of warranty, and fraud in connection with plaintiffs purchase of certain assets from defendants under the terms and conditions of an Asset Purchase Agreement and Consulting Agreement, both executed September 19, 1984. The Asset Purchase Agreement was signed by plaintiff Micro-Medical Industries, Inc. through its then Vice-President, Ralph A. Sair, and by Robert Hatton, individually and as president of each of the defendant corporations, Industrial Care Corporation (ICC), Hospital Marketing Systems, Inc. (HMS) and Hospital and Surgical Systems, Inc. (HSS). The signatories to the Consulting Agreement were plaintiff Micro-Medical through its then Vice-President Ralph A. Sair, plaintiff’s subsidiary, Micro-Scientific Corporation through its President Ralph A. Sair, and defendant Robert Hat-ton.

Diversity of citizenship between the named plaintiffs in this case is not in dispute. Plaintiff Micro-Medical claims to be a corporation incorporated in Delaware with its principal place of business in Illinois. Defendants, although initially raising the defense that Micro-Medical may have its principal place of business in Puerto Rico, have offered no evidence to contradict plaintiff’s allegation, which is supported by the testimony and affidavits of Ralph Sair and accepted by the Court. Plaintiffs have also alleged that codefendants ICC, HMS and HSS are corporations organized and existing under the laws of the Commonwealth of Puerto Rico with principal places of business located within Puerto Rico, and that defendant Robert Hatton is a resident and citizen of Puerto Rico. Defendants have admitted that ICC, HMS and HSS are domestic corporations and, Robert Hatton has stated, by affidavit, that he was a resident of Puerto Rico.

The crux of defendant’s jurisdictional attack lies in the assertion that plaintiff’s Puerto Rican subsidiary, Micro-Scientific, is an indispensable party whose joinder to this action would destroy diversity and in whose absence this action should not proceed in equity and good conscience. F.R. C.P. 19(a) and 19(b). The identity and Puerto Rican citizenship of Micro-Scientific are not in dispute. The fact that Micro-Scientific is a wholly-owned subsidiary of the holding company Micro-Medical Industries, and a Delaware corporation with its principal place of business in Puerto Rico was confirmed by the testimony of Ralph Sair, President of Micro-Scientific. The issue before us is whether Micro-Scientific is an indispensable party and, if so, whether in equity and good conscience, this action should proceed among the parties before us nonetheless.

(a) Whether Micro-Scientific should be joined to this action if feasible.

Rule 19(a) of the Federal Rules of Civil Procedure provides a three-part test for determining whether the public and private interests in effective and efficient litigation require a person to be joined as a party if feasible. Under this test, Micro-Scientific must be joined if, in its absence, (1) complete relief cannot be accorded the present parties, (2) the disposition of the action would prejudice, as a practical matter, its ability to protect its own interest, or (3) any of the present parties, would be subject to a substantial risk of multiple or inconsistent obligations by reason of its absence. F.R.C.P. 19(a); see Acton Co., Inc. of Mass. v. Bachman Foods, Inc., 668 F.2d 76, 78 (1st Cir.1982).

We do not find that any of these factors mandate the joinder of Micro-Scientific to the present action. As the Sair affidavit and Exhibit 1 to plaintiff’s Opposition reveal, Micro-Scientific had no role in negotiating the Asset Purchase Agreement. After the signing of the Letter of Intent by plaintiff’s parent’s parent, Griffith Laboratories, Inc. (Griffith) and defendant Hatton, Micro-Medical was formed, in part to proceed with the asset purchase at issue. Micro-Medical alone signed the Asset Purchase Agreement and alone bears the purchaser’s obligations, detailed therein, including payment of the purchase price. After being purchased from defendants, certain of the assets were then transferred from Micro-Medical to Micro-Scientific, as a contribution to capital. However, the rights given to Micro-Medical in the Asset Purchase Agreement are not shared by Micro-Scientific , as for example, the right to set off the purchase price with any idemni-fiable damages, including those from a breach of the Consulting Agreement. On the other.hand, in the Consulting Agreement, the rights to injunctive relief and damages for breach of the covenant not to compete contained in the Consulting Agreement, as well as other remedies not sought in this suit, are shared equally by the “Mi: cro Companies” signatory to that agreement. From the foregoing, it appears that whatever rights of action Micro-Scientific may have as a signatory to the Consulting Agreement or even as a third party beneficiary to the Asset Purchase Agreement are shared by its parent Micro-Medical.

Being thus situated as parent and wholly owned subsidiary, members of a single enterprise engaged in a common business venture, it appears to us that the interests of the parent in this suit encompass those of the subsidiary. The close interrelationship between the subsidiary and its parent is evident. The subsidiary is wholly-owned by the parent. The president of the subsidiary is also president of the parent and one of three members of the parent’s Board of Directors. From the close relationship between those closely-held companies and their shared interests in this cause of action, we cannot see how, as a practical matter, the disposition of this action would prejudice the subsidiary’s interest. Furthermore, any relief granted the parent would likewise benefit the subsidiary. See Gadd v. Pearson, 351 F.Supp. 895 (M.D.Fla.1972).

In addition, we can find no substantial risk of prejudice to defendant as a result of Micro-Scientific’s absence. As a wholly-owned subsidiary of plaintiff, Micro-Scientific most likely would be bound by Micro-Medical’s suit under the rule that res judi-cata applies not only to actual parties, but also to those in privity with the parties. See Pan American Match Inc. v. Sears, Roebuck & Co., 454 F.2d 871 (1st Cir.), cert. denied, 409 U.S. 892, 93 S.Ct. 113, 34 L.Ed.2d 149 (1972). A finding of privity in a later suit would likely result from an evidentiary examination into the actual participation or control by Micro-Medical of the subsidiary’s litigation. See, e.g., International Telephone & Telegraph Corp. v. General Telephone & Electric Corp., 380 F.Supp. 976 (M.D.N.C.1974), rev’d on other grounds per curiam, 527 F.2d 1162 (4th Cir.1975). Furthermore, any claim brought by Micro-Scientific pursuant to the contract with the defendants would necessarily meet the second essential element of res judicata; namely, that the claim be identical or closely related.

The existence of closely-related claims, the parent’s control of any subsequent suit, and the identity of interest between the parent and its subsidiary would all mandate a later finding that Micro-Scientific has had its day in Court through this present action. Cf. Acton Co. v. Bach- man Foods, supra, 668 F.2d at 78. We therefore find that Micro-Scientific is not a party to be joined under Rule 19(a).

(b) Assuming Micro-Scientific should be joined, whether the action should proceed in equity and good conscience without Micro-Medical.

Assuming, arguendo, that Micro-Scientific qualifies as a party to be joined under Rule 19(a), we note that there is no dispute among the parties that its joinder would not be feasible since it would destroy diversity. We find, nonetheless, that this action should proceed without the subsidiary under the considerations included in Rule 19(b).

Under Rule 19(b), the Court enjoys a substantial discretion to consider the facts and circumstances within the particular litigation before it; there is no prescribed formula to follow. Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 118, 88 S.Ct. 733, 742, 19 L.Ed.2d 936 (1968). However, the Rule sets forth four factors to be included in the analysis:

“[Fjirst, to what extent a judgment rendered in the person’s absence might be prejudicial to him or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person’s absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.”

In regard to the first factor, our view of the lack of prejudice to Micro-Scientific tracks our earlier discussion of the identity of interests and closeness of interrelationship between plaintiff and its subsidiary. The prejudice to defendants also appears insubstantial in light of our earlier analysis under the doctrine of res judicata. Secondly, any relief granted plaintiff would not only inure to the benefit of Micro-Scientific, but could also be conditioned upon appropriate provisions protecting defendants. See McCormick & Co. v. Bedford Industries, Inc., 301 F.Supp. 29 (D.Md.1969). Furthermore, a judgment rendered in the absence of Micro-Scientific would likely prove binding on a later Court under the doctrines of issue and claim preclusion, thus avoiding piecemeal litigation, an interest which has been identified with the third factor. Acton Co., 668 F.2d at 81. Finally, although dismissal of this action for non-joinder does not preclude a subsequent suit in state court by Micro-Scientific, we note that the plaintiff here, as purchaser of the assets and signatory to the agreements, would likely be required to join with Micro-Scientific as plaintiff, thus creating the situation of a foreign-plaintiff sought to be avoided under the policy of our diversity jurisdiction statute. Cf. Acton Co., 668 F.2d at 81 (adequate alternative forum exists in ongoing state action to which all interested parties had already been joined).

For all the foregoing reasons, the Court concludes that Micro-Scientific is not an indispensable party within the meaning of F.R.C.P. 19. Accordingly, this portion of defendant’s Motion to Dismiss has been denied.

2. Motion to Dismiss for Failure to State RICO Claim:

Before addressing the specific issues raised by defendants in • their motion to dismiss the RICO count, we must first sketch the framework for analysis of a civil RICO claim. The analysis begins with 18 U.S.C. § 1964(c), which provides for a private right of action under RICO for “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter.” In this case, plaintiff alleges violations of both 18 U.S.C. § 1962(a) and 18 U.S.C. § 1962(c), which provide in pertinent part:

“(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.... (c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity”.

We next turn to § 1961, which provides definitions for key terms in § 1962 which defendants have placed at issue in the documents before the Court. The definition of “racketeering activity” in § 1961(1) includes mail and wire fraud under 18 U.S.C. § 1341 and 18 U.S.C.A. § 1343, respectively. 18 U.S.C. § 1961(1)(B). A “pattern of racketeering activity”, as defined in § 1961(5), requires at least two acts of racketeering activity within a 10 year period. The individual acts of racketeering activity, which in this case are alleged to be mail and wire fraud, are referred to as “predicate acts.”

(a) Plaintiffs Allegations of Predicate Acts

Defendants argue that plaintiff has failed to adequately allege the predicate acts as required by 18 U.S.C. § 1341 and § 1343, and by F.R.C.P. 9(b). Plaintiff bases its causes of action under RICO on an alleged scheme by defendants to defraud plaintiff by selling the assets of ICC at an inflated and unjustifiable price. The predicate acts alleged are two-fold: (1) use of the U.S. mails and interstate telephone lines between March 1982 and October 1982 by sending invoices charging customers of ICC with a higher quantity or quality of goods than was actually shipped, and by receiving payments for said invoices, all of which resulted in a representation to plaintiff that ICC’s cost of raw materiáls was lower, and ICC’s profit higher, than they legitimately were; (2) telephone communications between defendant Hatton and Donald Alquire, officer of plaintiff, on July 26, 1984 and August 2, 1984, wherein defendant Hatton allegedly falsely -represented that plaintiff must sign an asset purchase agreement or he would agree to sell the assets to a competitor who had offered to buy them.

The two established elements of mail and wire fraud, as articulated by the First Circuit, are: “(1) a scheme conceived ... for the purpose of defrauding ... by means of false pretenses, representations or promises and (2) use of the United States mails [or interstate wire communications] in furtherance of that scheme.” United States v. Brien, 617 F.2d 299 (1st Cir.1980) (citations omitted). Construing the complaint the most favorably to plaintiff, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), we find that plaintiff’s pleadings meet this standard.

Defendants further argue that plaintiffs have not plead the circumstances of fraud with the particularity required by F.R.C.P. 9(b). See McGinty v. Beranger Volkswagen, 633 F.2d 226, 228 (1st Cir.1980). (requiring specification of time, place, and content of alleged false representation, but not pleading of circumstances or evidence from which fraudulent intent inferred). The purpose of Rule 9(b) is to place defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants from spurious charges of fraudulent behavior. Seville Industrial Machinery Corp. v. Southmost Machinery Corp., et al, 742 F.2d 786 (3d Cir., 1984). We note that this Rule must be read together with the modern rule of notice pleading, F.R.C.P. 8(a), which mandates short and plain statements sufficient to place the defendant on notice. In this case, we find plaintiff has met its burden of pleading under Rules 9(b) and 8(a) and has sufficiently specified the time, context and nature of the alleged misrepresentations. Further information with regard to particular customers and shipments requires discovery. See Eaby v. Richmond, 561 F.Supp. 131, 137 (E.D.Pa.1983).

(b) Plaintiffs allegation of a RICO Injury

'Defendants have raised several challenges to the actionability of plaintiffs claimed injury under RICO. The gravamen of defendants’ argument appears to be that plaintiffs injury is outside the scope of § 1964(c) because it is not a “direct commercial injury” caused by reason of racketeering activity, but is rather injury caused by garden-variety fraud of a type not intended to be heard under RICO. In this regard, defendants argue that RICO was intended to combat the infiltration of legitimate business by organized crime and that plaintiffs RICO claim should be dismissed for failure to allege any connection between defendants and organized crime.

Section 1964(c) grants a private right of action to “[a]ny person injured in his business or property by reason of violation of section 1962 of this chapter”. Exactly what sort of injury is required to meet this statutory language is presently the subject of much debate and confusion among the circuits. Compare, e.g., Sedima, S.P.R.L., v. Imrex Co., Inc., 741 F.2d 482 (2d Cir.1984) with Haroco v. American National Bank & Trust Co. of Chicago, et al., 747 F.2d 384, (7th Cir.1984).

After due consideration of the challenges raised by defendants, it appears to us that plaintiff has alleged an injury actionable under RICO in a manner sufficient to withstand a Motion to Dismiss. With regard to the requirement of “direct commercial injury” alleged by defendants, we find none. The term “direct injury” has been discussed in some civil RICO decisions, but the position in those cases has been that, to be actionable under RICO, an injury must be indirect. A few cases require competitive or commercial injury like that required under the antitrust laws prior to the finding that a plaintiff has standing. See, e.g., North Barrington Development, Inc. v. Fanslow, 547 F.Supp. 207 (N.D.Ill.1980); Van Schaick v. Church of Scientology, 535 F.Supp. 1125, (D.Mass.1982). In other eases, the injury claimed by plaintiff must be something more than that resulting from the individual predicate acts alone. See, e.g., Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir.1984), Harper v. New Japan Securities International, Inc., 545 F.Supp. 1002 (C.D.Cal.1982).

Because of the contradictory effects posed by defendant’s articulation of a “direct commercial injury” requirement, we assess the terms individually. With regard to defendants’ argument that plaintiff’s injury must be “commercial,” a term used synonymously with “competitive” for purposes of a RICO injury requirement, Alexander Grant & Co. v. Tiffany Industries, 742 F.2d 408, 411 n. 7 (8th Cir.1984), we find that the better view and the weight of judicial authority favors rejection of this argument. See, e.g., Bennett v. Berg, 685 F.2d 1053, 1055 (8th Cir.1982); Haroco v. American National Bank, supra, 747 F.2d 384; Furman v. Cirrito, 741 F.2d 524 (2d Cir.1984) (criticizing the antitrust analogy).

With regard to defendants’ assertion that the injury alleged must be “direct,” we note that a view restricting the application of RICO would require the opposite argument, i.e. that the injury must be indirect. In any event, plaintiff’s claim of injury arising from an alleged pattern of fraudulent acts appears to satisfy the narrower view that the injury be different from that suffered directly as a result of the predicate acts, e.g. Bankers Trust Co. v. Rhoades, supra, 741 F.2d at 517 (but for the pattern of racketeering activity no injury would occur). Cf. Haroco v. America National Bank, supra, 747 F.2d at 398 (the criminal conduct in violation of section 1962 must, directly or indirectly have injured the plaintiff’s business or property); Alexander Grant v. Tiffany, supra, 742 F.2d 408. Therefore, with regard to the issue of direct injury raised by defendants and without need to further define our position on the matter, we conclude that defendant’s allegation is without support in law.

Defendants also argue for dismissal of the RICO claim on the ground that plaintiff has failed to allege any connection between defendants and organized crime. This argument is based on the assumption that more than ordinary fraud is required to state a claim for treble damages under RICO. Such an argument has been advanced and, in some cases, accepted by the courts as a way of limiting the Draconian effect of a literal reading of RICO’s broad provisions. See, e.g., Aliberti v. E.F. Hutton & Co., Inc., 591 F.Supp. 632 (D.Mass.1984). Supporters of this position look to the stated purpose of the statute, that of “eradication of organized crime in the U.S ”, 116 Cong.Rec. 35191 (1970), to conclude that the courts must restrict the plain meaning of the statute. E.g., Sedima v. Imrex, supra, 741 F.2d 482.

Opponents agree as to the purpose, of the statute, but assert that, in the absence of clearly expressed legislative intent limiting the statutory language, the judiciary is not free to restrict the statute’s meaning. See, e.g., Alexander Grant v. Tiffany, supra, 742 F.2d 408; Owl Construction Co., Inc. v. Ronald Adams Contractor, Inc., 727 F.2d 540, 542 (5th Cir.1984); Haroco v. American National Bank, supra, 747 F.2d 384. See also United States v. Turkette, 452 U.S. 576, 586-7, 101 S.Ct. 2524, 2530-1, 69 L.Ed.2d 246 (1981) (in absence of legislative restriction, RICO term “enterprise” applies to legitimate as well as illegitimate groups). Under this view, even if Congress had meant to allow for narrower judicial interpretations, “no legitimate principled criterion” exists for accomplishing that task. Haroco v. American National Bank, supra, 747 F.2d at 391, (citation omitted). As illustration, these proponents point to the various inconsistent standards of restriction advanced by other courts. Id., at 398.

It has been noted, furthermore, that by defining racketeering activity in functional rather than status terms, Congress sought to avoid serious constitutional hazards. Furman v. Cirrito, 741 F.2d 524, 530 (2d Cir.1984). This deferential view accepts that Congress chose to enact the statute as written, with full knowledge of its sweeping effects as argued by the bill’s opponents, see, e.g., 116 Cong.Rec. 35204-05 (1970) (remarks of Rep. Mikva); it is not the role of the Courts to rewrite the statute’s provisions. See Moss v. Morgan Stanley, Inc., 719 F.2d 5, 21 (2d Cir.1983).

This Court agrees that, upon a Motion to Dismiss for failure to state a claim, it is not for us to rein in the deliberately broad swath of the brush chosen by Congress to blot out the activities of organized crime in the United States. As stated by the Supreme Court:

“... Congress was well aware of the fear that RICO would ‘mov[e] large substantive areas formerly totally within the police power of the State into the Federal realm.’ ... Congress nonetheless proceeded to enact the measure ... There is no argument that Congress acted beyond its power in so doing. That being the case, the courts are without authority to restrict the application of the statute.”

United States v. Turkette, supra, 452 U.S. at 586-87, 101 S.Ct. at 2530-31. For the foregoing reasons, this Court concludes that plaintiff’s allegations of mail and wire fraud resulting in an inflated purchase price state a claim under RICO.

The Court having decided that joinder of plaintiff’s subsidiary is not needed for just adjudication, and that the complaint sufficiently states a claim under the RICO Act, defendant’s Motion to Dismiss is DENIED.

IT IS SO ORDERED.

      . Griffith executed a limited guarantee on September 19, 1984 in form of the Sellers to guarantee the Minimum Installment Amount identified in Section 2.2(e) of the Asset Purchase Agreement. Exhibit 2 to plaintiff's Opposition.

      . It is true, as defendants agree, that Micro-Scientific may receive a right of action under the Asset Purchase Agreement as a third party beneficiary. Even if Micro-Scientific was qualified to sue under the contract by having met the conditions of acceptance and notice required by Article 1209 of the Civil Code, 31 L.P.R.A. 3374, such a right serves only to make Micro-Scientific a real party in interest under F.R.C.P. 17(a). The Court must still determine that Micro-Scientific is an indispensable party under the standards of Rule 19(a) as set forth supra.

      .Even if Micro-Scientific would not be bound by res judicata, an adverse ruling in this action would certainly make a subsequent suit more difficult because of the likely applications of collateral estoppel. See Allen v. McCurry, 449 U.S. 90, 92, 94-96, 101 S.Ct. 411, 413, 414-416, 66 L.Ed.2d 308 (1980). For a discussion of collateral estoppel in the context of corporate affiliation, see Philip Blumberg, The Law of Corporate Groups, at § 11.03 (1983).