author: EDWARD WEINFELD, District Judge.

text:
    BRIDGE C.A.T. SCAN ASSOCIATES and Harbor C.A.T. Scan Associates, P.C., Plaintiffs, v. OHIO-NUCLEAR INC. d/b/a Technicare Corporation and Johnson & Johnson, Inc., Defendants. TECHNICARE CORPORATION, Third-Party Plaintiff, v. John E. MURPHY, Sigmund Weiss, Harold Peller, Paul Slotwiner, Morris Goldfarb, Aaron Goldfarb, Zurich Gelender, John R. Jakobson, Peter Jakobson, Bernard Ellman, Daniel Brodsky, Nathan C. Brodsky and Lawrence Helfant, Third-Party Defendants.
    No. 84 Civ. 0539 (EW).
    United States District Court, S.D. New York.
    May 14, 1985.

      Patterson, Belknap, Webb & Tyler, New York City, for defendants and third-party plaintiff; David F. Dobbins, Esther Koslow, Emily R. Remes, Daniel A. Nardello, New York City, of counsel.
    Hurley, Kearney & Lane, Brooklyn, N.Y., for third-party defendant, John E. Murphy; Kevin M. Kearney, Brooklyn, N.Y., of counsel.
   OPINION

EDWARD WEINFELD, District Judge.

Third party defendant John E. Murphy (“Murphy”) moves, pursuant to Rule 12(b)(6) Fed.R.Civ.P., to dismiss the claims of Technicare Corporation (“Technicare”) or, in the alternative, pursuant to Rule 56, for summary judgment. The claims against Murphy are the only ones remaining in this action formerly replete with claims and counterclaims by and against numerous parties. Technicare has settled its differences with all other parties to this lawsuit. It opposes Murphy’s motion for dismissal or summary judgment on the grounds noted hereafter.

BACKGROUND

Technicare is a manufacturer and distributor of medical and diagnostic devices. It seeks recovery against Murphy for: trade libel, intentional interference with business relations and contract, prima facie tort, and civil violations of RICO. Murphy is a former Technicare employee who, prior to his discharge, was responsible for arranging financing for prospective Technicare customers. In essence, Murphy is alleged to have conspired with the other parties to this lawsuit in a campaign to “smear” Technicare’s reputation and that of its products by disseminating false statements to the public about Technicare’s version of a sophisticated item of medical diagnostic equipment known as a C.A.T. Scanner.

A proper understanding of Technicare’s claims against Murphy requires they be placed in context, with a brief history of the litigation between Technicare and one of the original plaintiffs in this action, Bridge C.A.T. Scan Associates (“Bridge”). In essence, Technicare’s present claims are based upon a prior lawsuit brought by Bridge and a series of alleged threats and related conduct which led thereto.

It began with a simple contractual dispute. In October 1980, Bridge contracted to purchase a Technicare Delta Scan 2020 which, like other C.A.T. Scanners, produces an image of internal body organs without invading the body. Bridge, a limited partnership of nonphysicians, purchased the Delta Scan 2020 as a tax shelter and leased it for operation to Harbor C.A.T. Scan Associates, P.C. (“Harbor”). Although Bridge accepted the machine on delivery and Harbor put it to use, Bridge never paid for the Delta Scan 2020. Instead, it complained to Technicare that the machine was defective, caused distorted images, and was not operational for long periods of time (“downtime”) and that its X-ray tubes burned out prematurely.

After various modifications of the initial contract were negotiated, the parties’ dispute reached its peak in the summer of 1982. According to Technicare, Bridge’s management consultant, Harold Peller (“Peller”), and its general partner, Sigmund Weiss (“Weiss”), made oral threats to Technicare’s Vice-President for Sales on at least three occasions. The substance of these purported threats was that unless Technicare agreed to resolve its dispute with Bridge, Bridge would launch a “public relations campaign” against Technicare, utilizing the services of an advertising agency, purchasing advertising space in The Wall Street Journal and other trade publications, and taking whatever steps were necessary to publicize the alleged shortcomings of Technicare’s equipment and service.

On October 12, 1982, Weiss addressed a letter to the Chairman of the Board of Technicare’s parent company, Johnson & Johnson (“J & J”), allegedly repeating and amplifying the prior oral threats (“October 12th letter”). In essence, the letter stated that if the contractual dispute was not resolved, Bridge was prepared to proceed “legally, publicly, and otherwise” in exposing the widespread threat to patient safety caused by Technicare’s C.A.T. Scanners. Claiming that Bridge did not seek to expose these difficulties to the general public and was “only interested in resolving [its] own problem with J & J and minimizing [its] losses,” the letter continues: “as we have stated to Technicare management, if we must do battle we will proceed in a grander scale than Technicare can envision____ We will not stop with public disclosure of our findings, but will institute a class action suite [sic] forthwith.”

Consistent with its promise, Bridge commenced a class action in the Eastern District of New York on March 1, 1983. The complaint alleged various defects in Technicare’s Delta Scan 2020 machines and sought recovery on several different legal bases, including breach of contract, breach of warranty, and negligent design. On March 21st, Bridge filed an amended complaint asserting similar claims with respect to the Delta Scan 2060. On that day, Bridge’s counsel sent a letter to Technicare customers informing them of the pending suit, seeking information as to their difficulties with their machines, and holding out the possibility of the recovery of “substantial damages” to purchasers of a C.A.T. Scanner “with inherent design ... defects.”

At or about the time the original and amended class action complaints were filed, Bridge’s counsel allegedly disseminated them to newspaper reporters. Articles summarizing the complaint’s allegations appeared in the Wall Street Journal and the Columbus Post Dispatch, and in June of 1983, a New York Times article discussed the lawsuit in connection with an FDA investigation of Technicare’s C.A.T. Scanners.

Attached as Exhibit A to the amended complaint was a list of Technicare purchasers and pricing information (“Customer and Pricing List”). Based upon a claim that the Customer and Pricing List incorporated trade secrets and confidential information, Technicare instituted a separate action in the Eastern District (“the trade secret action”) naming not only Bridge and associated individuals but also the movant here, Murphy. Technicare alleged that Murphy, a former Technicare employee, had stolen the pricing and customer list and given it to Bridge and its agents for the purpose of assisting them in injuring Technicare’s business and reputation. That action was ultimately dismissed with prejudice upon consent of the defendants, including Murphy, to an injunction preventing dissemination of the information contained in Exhibit A to the amended class action complaint. A consent judgment was entered on January 19, 1984.

After voluntarily dismissing their class action complaint filed in the Eastern District, Bridge and Harbor instituted this action, asserting once more claims for breach of contract, defective manufacture and design, and fraud, but upon an individual rather than class basis. In response, Technicare asserted counterclaims against the Bridge and Harbor partnerships and third party claims against Bridge’s limited and general partners, Harbor’s President, Bridge’s management consultant, and Murphy (hereinafter the “Bridge defendants”). These Technicare counterclaims and third party claims are the ones at issue on this motion. As noted above, Technicare seeks recovery for trade libel, intentional interference with business relations and/or contract, prima facie tort, and civil violations of RICO.

DISCUSSION

Murphy’s principal argument upon this motion is that Technicare “merely” alleges he misappropriated trade secrets. He contends that such an allegation is insufficient to warrant recovery under any of Technicare’s asserted tort or statutory causes of action, and in any event, any claim based thereon has already been litigated in the prior trade secrets action. Accordingly, Murphy moves to dismiss for failure to state a claim upon which relief may be granted, or for summary judgment on grounds of res judicata.

Murphy is correct that the only conduct specifically attributed to him in the complaint is the misappropriation of trade secrets. However, this neither entitles him to a dismissal, nor bars Technicare’s claims as a matter of res judicata. Technicare alleges not only that Murphy stole its trade secrets, but also that he was a member of a conspiracy, and acted in concert with the other Bridge defendants, in an attempt to smear the reputation of Technicare and its widely distributed products. The purported conspiracy is based on the dissemination of allegedly libelous statements to the public and Technicare’s customers. That Murphy’s role in this conspiracy may have been limited or slight is of no consequence. A conspirator is liable for the acts of other members of the claimed conspiracy as if they were his own, whether he plays a minor or major role in the common scheme.

Technicare has raised an issue of fact as to Murphy’s participation in the alleged scheme to “smear” its products’ reputation. Murphy’s own deposition testimony indicates that, while at Technicare, he was involved in arranging financing for the Bridge/Harbor project and that, after leaving, he had various meetings with the principals of Bridge and Harbor to discuss possible “business ventures,” and also had meetings with Bridge’s counsel where litigation with Technicare was discussed. Furthermore, Technicare has submitted the deposition of Bridge’s general partner, Sigmund Weiss, who testified that it was Murphy who drafted the October 12th letter threatening that Bridge would proceed “legally, publicly, and otherwise,” and that he did so at the request of Harbor’s President or Bridge’s management consultant. Murphy has submitted no affidavit denying the alleged disloyal conduct.

Recasting his argument, Murphy contends that, in any event, this action is barred by the doctrine of res judicata since Technicare has previously litigated his claimed misappropriation of trade secrets. However, this contention ignores the scope and nature of Technicare’s claims.

“[A] valid, final judgment on the merits is a bar to a subsequent action between the same parties, or those in privity with them, upon the same claim or demand,” which either was or could have been litigated in the prior action. Under New York law, whether an action asserts the “same” claim or demand depends upon whether “the essential facts and issues” in the second action were present in the first; whether the “same evidence is necessary to maintain the second cause of action” as required in the first; and whether a different judgment in the second action would “impair or destroy rights or interests established by the judgment entered in the first.”

The “crucial” factor in determining whether claims are “the same” is the factual predicate underlying them. The facts underlying this action are substantially different from those underlying the prior trade secrets action. The trade secrets action involved a single, discrete factual issue: the dissemination of customer and pricing information. Here, Technicare’s allegations are based on a course of conduct allegedly intended to “smear” its public reputation and that of its products. This course of conduct includes the October 12th letter, the class action complaint, the delivery of the complaint to the press, and the subsequent letter sent by Bridge’s counsel to Technicare’s customers. That some of these facts were also alleged in Technicare’s prior trade secrets appropriation complaint does not render that prior claim “the same” as the instant claim charging trade libel and intentional interference with contractual relations.

Just as the factual predicates differ, the evidence required to prove the present claims differs. A trade secrets claim requires proof of the confidential nature of the information, how the information was obtained, and its dissemination. Technicare’s present claims for trade libel, intentional interference with contract, prima facie tort, and civil violations of RICO are not simply alternative theories for recovery proven by the same evidence on which a trade secrets claim could be based. These claims stand or fall on the Bridge defendants’ motives and justification for the prior class action suit, the delivery of the complaint to the press, and the dissemination of various other communications concerning the suit — issues not requiring proof of, and basically irrelevant to, the confidentiality of the Customer and Pricing List or how Murphy allegedly obtained it from Technicare.

Because of the differing factual predicates and evidence required to prove its present claims, no judgment obtained by Technicare would impair or destroy any of Murphy’s interests under the prior consent decree. Accordingly, the Court finds that res judicata does not bar Technicare from asserting its present claims, and that Murphy is not entitled to summary disposition simply because the complaint specifically attributes a limited amount of conduct to him.

While this disposes of Murphy’s own arguments upon this motion, further consideration of the viability of Technicare’s claims is necessary. In his moving papers, Murphy has incorporated the arguments of other parties to the litigation with whom Technicare has since compromised its claims. The liability of Murphy, who allegedly conspired with others, depends, in addition to his own actions, upon the statements and conduct directly attributed to those other parties. If, as Murphy contends, Technicare’s allegations do not state a claim in tort based on their actions, then the conspiracy allegations against him must fall as well, for conspiracy itself is not a tort but rather a rule of responsibility for the tortious actions of others. Accordingly, the Court addresses the principal contentions previously advanced by the other Bridge defendants, as adopted by Murphy in support of his own motion.

However, before addressing those claims, the Court notes that any RICO cause of action against Murphy must be dismissed. Technicare has neither alleged that Murphy or any other Bridge defendant has been convicted of a predicate act, nor that it has suffered a distinct racketeering injury, both of which allegations are required by the decision of our Court of Appeals in Sedima, S.P.R.L. v. Imrex.

Trade Libel

Technicare’s principal claim is that the Bridge defendants conspiratorially and maliciously disseminated libelous statements to the public and its customers about its C.A.T. Scanners. It charges Murphy and the others with common law disparagement or trade libel based on statements made (1) in the original and amended class action complaints and (2) in a letter to Technicare customers sent by Bridge’s counsel after the initiation of the class action. Each set of statements will be considered separately.

(1) Statements Made in the Amended and Original Complaints.

The allegedly libelous statements contained in the complaints charge that certain C.A.T. Scanners and supplementary equipment manufactured by Technicare are unreliable and pose a health risk to patients. The specific statements relied upon are allegations that the Delta Scan 2020 and 2060 are “defective,” do “not operate properly and efficiently with reliability,” and as a result, patients “received a lesser overall standard of medical care than they would have otherwise received, thereby significantly endangering the health, safety and welfare of a nationally significant portion of the American public.” Technicare charges that these statements were maliciously made and the complaints delivered to the press for the purpose of “smearing” its products’ reputation.

Murphy urges that the statements themselves cannot as a matter of law give rise to a claim for trade libel because they are absolutely protected by the common law privilege afforded statements made during the course of judicial proceedings; and that the delivery of the statements to the press is equally protected by the statutory privilege afforded by Section 74 of New York’s Civil Rights Law for fair and true reports of judicial proceedings.

Statements made in a pleading and fair and true reports of such pleadings are absolutely privileged. However, Technicare claims that the statements were made and delivered to the press by Bridge for the purpose of publicly maligning its products. It has alleged that the complaint was unfounded, instituted with malice, and for the purpose of publicly disseminating libelous statements about its C.A.T. Scanners. In other words, it contends that the judicial process was subverted by the Bridge defendants for the purpose of disseminating false statements. Under New York law, such a claim is barred neither by the absolute privilege afforded statements made in pleadings, nor by the statutory privilege afforded fair and true reports of such statements.

In Williams v. Williams, the New York Court of Appeals faced allegations similar to Technicare’s and declined to dismiss the complaint on grounds of privilege. In Williams, as here, the plaintiff claimed that the defendant had maliciously instituted a prior suit for the purpose of disseminating false statements. Plaintiff had been a co-principal with his brother in the Universal Oven Company, Inc. The brother caused the company to institute an action alleging that plaintiff had conspired with others to misappropriate the company’s trade secrets and assets, and then, circulated copies of the summons and complaint to members of the trade. Defendant moved to dismiss on grounds that the statements made in the prior complaint and disseminated to trade members were absolutely privileged. The Court of Appeals upheld the denial of the motion, reasoning that the malicious institution of a judicial proceeding alleging false and defamatory charges and subsequent circulation of a press release or other communication based thereon was not privileged.

In Williams, the Court specifically addressed the question whether the statutory privilege embodied in Section 74 of New York Civil Rights Law precludes a claim such as Technicare’s. Nevertheless, its analysis renders the common law privilege afforded statements made during the course of judicial proceedings equally inapplicable. In considering whether Section 74 barred plaintiff’s claims, the Court implicitly recognized that the defendant’s delivery of a copy of the summons and complaint to members of the trade must be considered separately and apart from the complaint filed in the action. Section 74 is only applicable to fair and true reports of judicial proceedings. If the statutory privilege was to be applicable at all in Williams, it was because the defendant had, in effect, “reported” the statements made in the complaint by delivering a copy to members of the trade.

The delivery of a copy or report of a complaint to the press is not a statement made during the course of judicial proceedings and therefore is not protected by the common law privilege afforded such statements. The common law privilege offers a shield to one who publishes libelous statements in a pleading or in open court for the purpose of protecting litigants’ zeal in furthering their causes. Parties’ interest in furthering their causes may be protected without clothing them with an absolute right to publicly distribute whatever malicious matter they may author. Delivery of a complaint or summary of a complaint to the press is neither essential nor relevant to the judicial proceedings themselves. It in no way aids a party in furthering his or her cause before a judicial tribunal and, hence, must fall outside the privilege afforded statements made during the course of judicial proceedings. Once filed, the complaint is a public document with access to it available to the public and the news media. But for the plaintiff, purposely and maliciously, to stimulate press coverage and wide publicity of a complaint with its allegedly false and malicious statements is beyond the pale of protection. Since the New York courts have found Section 74 inapplicable to allegations such as Technicare’s, the Court finds that neither the common law privilege afforded statements made during the course of judicial proceedings, nor the statutory privilege, bars its claims as a matter of law.

Murphy contends that, even if Technicare has alleged facts which, if proven, would fall within the Williams exception to Section 74, he is still entitled to summary judgment because Technicare has failed to provide any facts to support its claims (1) that Bridge purposefully caused the complaint to be delivered to the press or (2) that the prior class action was brought with malice. To the contrary, the Court finds that Technicare has raised issues of fact both as to Bridge’s purposeful dissemination of the complaint as well as its malice in instituting the prior class action. Accordingly, whether the statements upon which Technicare rely are privileged or whether they fall within the Williams exception may not be resolved upon a motion for summary judgment.

Bridge does not deny that its counsel disseminated the complaint to the press. Rather, it claims its counsel only did so upon reporters’ requests. However, neither Bridge nor Murphy have provided any affidavits to support such a claim. The statements of counsel in a brief are insufficient grounds on which to grant summary judgment. Moreover, Technicare has provided deposition testimony which would support an inference that Bridge’s counsel took an active role in assuring that Bridge’s claims about the C.A.T. Scanner received press coverage. Dr. David Martinez, a dissatisfied C.A.T. Scan owner, testified that one of Bridge’s counsel called him sometime in late January or February 1983 and asked permission to give his name to a reporter. Later, after the initiation of the litigation in March of 1983, articles appeared in the New York Times concerning Technicare’s C.A.T. Scanners under the nephew’s name.

Technicare has also raised an issue of fact as to whether the prior class action complaint was instituted with malice and solely for the purpose of injuring its products’ reputation. The October 12th letter, with its promise of public relations battles and its equation of class action suits with advertising campaigns, raises substantial questions as to the Bridge defendants’ motives in instigating the prior litigation. Moreover, while the Bridge defendants claim there was a substantial basis for the complaint, Technicare has produced affidavits raising questions whether Bridge and Harbor did in fact experience the mechanical difficulties with the C.A.T. Scanner on which the class action complaint was based. These affidavits, submitted by Harbor personnel who were intimately involved with the daily performance of the machine, attested that the C.A.T. Scanner did not experience excessive downtime, that Technicare’s service personnel were competent, that patient safety was not threatened by excessive downtime, and that X-ray tube burnout was no more rapid than expected given the constant use of the machine. For example, Dr. Sanford P. Antin, Harbor’s Chief Radiologist, states that “[tjhere is no basis for saying that our patient population was inadequately diagnosed or unduly inconvenienced because of the Delta Scan 2020 or the Technicare personnel who maintained it” and the “quality of image resolution, and the equipment quality, was well above average.”

If Harbor’s own employees swear that the machine did not experience the type of difficulties alleged in the complaint, a substantial question is raised whether the complaint was instituted without regard for the truth of its allegations and for the purpose of disparaging Technicare’s products. Accordingly, the Court finds that Murphy is not entitled to summary judgment on grounds that the statements made in the complaint and delivered to the press are absolutely privileged. Whether these statements are privileged or not depends upon the resolution of factual issues upon a trial.

(2) Statements Made in the Letter Sent to Technicare Customers.

Technicare claims that shortly after the class action suit was instituted, the Bridge defendants caused a letter to be sent by their counsel to Technicare customers which was used to “further disseminate the false accusations embodied in the class action complaint.” In essence, this March 21, 1983 letter informs Technicare customers of the pendency of a class action suit, summarizes Bridge’s claims as to the inefficiency and unreliability of Technicare’s C.A.T. Scanners, notes the “opportunity” for customers “of recovering substantial damages as a result of receiving a Deltascan machine with inherent design and manufacturing defects,” and requests information concerning possible difficulties with C.A.T. Scanners to “aid in the resolution of a nationally important issue concerning the quality of health care.”

Murphy urges dismissal of Technicare’s claims with respect to the letter on several grounds: that the statements were made by Bridge’s counsel and cannot be imputed to Murphy or others; that the statements are protected as fair and true reports of judicial proceedings; and that the statements are independently protected because they were made during the course of judicial proceedings. That Bridge’s counsel authored the statements contained in the letter does not shield Murphy from liability. If found to be a member of the alleged conspiracy to “smear” the reputation of Technicare’s products, Murphy may be held liable for the acts and statements of his co-conspirators. In turn, Bridge, an alleged co-conspirator, may be held liable for the acts of its counsel. A client and his attorney stand in the relationship of principal and agent. As such, a client may be responsible for statements made for the purpose of aiding, and within the scope of, his legal representation.

Murphy’s reliance on Civil Rights Law Section 74 is equally unavailing. Technicare has alleged that the letter was another means by which the Bridge defendants disseminated the libelous statements contained in the complaint. Their allegations fall within the Williams exception to the protection afforded by Section 74. While in Williams the alleged “fair and true report” was a copy of the complaint itself and, here, Technicare relies upon a letter summarizing the complaint, Williams remains applicable. The Court of Appeals expressly found that the Legislature, in enacting Section 74, did not intend to allow a person to maliciously institute a judicial proceeding “and to then circulate a press release or other communication based thereon and escape liability by invoking the statute.” Technicare has not only made allegations sufficient to rely upon Williams but, as discussed above, has also raised an issue of fact as to its applicability which precludes summary judgment.

However, Murphy argues that, apart from Williams, the statements contained in the letter are independently protected by the common law privilege afforded statements made during the course of judicial proceedings because, unlike a copy of a complaint delivered to the press, the letter was intended to obtain information to assist in the class action litigation. However, upon the present state of the record, it appears that the letter was not made during the course of judicial proceedings and therefore the common law privilege is inapplicable.

While courts have extended the privilege afforded statements made during the course of judicial proceedings to statements made outside the confines of filed documents or in open court — even to the protection of letters written to prospective witnesses — the nature of the communication here does not justify absolute protection. The letter sent was a preliminary inquiry to persons “not yet known to possess information germane to litigation.” (As the letter itself states, some of its addressees may not have had any information concerning the risk of Technicare’s C.A.T. Scanners to patient safety. Bridge and its counsel had no way of knowing which of the entire group had any information concerning the litigation. While the letters were addressed to individuals who would perhaps have become parties to the litigation as class members, at the time they were sent no class had been certified. The recipients’ relationship to the litigation was hypothetical at best.

At least one New York court faced with a similar communication to prospective witnesses “not yet known to possess information germane to litigation” has found that the purposes of the common law privilege would not be served by insulating the speaker from liability. In Schulman v. Anderson Russell Kill & Olick, the Court distinguished such statements from communications directed to specific witnesses or parties undertaken during discovery or in preparation for trial, where absolute protection is required to insure litigants’ freedom to urge their causes. These statements are informal inquiries directed to those with potential information. The chilling effect of imposing liability for such statements does not clearly outweigh an individual’s interest in protecting his reputation or a corporation’s interest in protecting the reputation of its products.

The question is not whether the statements deserve any protection at all, but whether they deserve absolute protection. As the Schulman court found, although these statements are not completely irrelevant to the judicial process, the need to protect litigants’ zeal does not justify their absolute protection. The Court need not decide to adopt, as Schulman did, a qualified privilege for such statements. It is enough to find that, upon the present record, the absolute privilege accorded statements made during the course of judicial proceedings does not bar Technicare’s claims.

Finally, Murphy argues he is entitled to summary judgment, both with respect to statements made in the complaint and delivered to the press as well as statements summarizing the complaint and contained in the letter to potential class members, because Technicare has failed to raise an issue of material fact as to whether the statements were made with “actual malice,” as distinguished from the malice necessary to invoke the Williams exception. Murphy contends that Technicare is a “public figure” and, therefore, under the Supreme Court’s decisions construing the limits placed on libel actions by the First Amendment, must show by clear and convincing evidence that the statements were made with reckless disregard of their truth or falsity. Technicare does not dispute that it is a “public figure” but, for purposes of defeating Murphy’s motion for summary judgment on its trade libel claim, claims it has introduced facts from which the existence of actual malice may reasonably be inferred.

Assuming, without deciding, that “actual malice” is required, the Court finds Technicare has raised an issue of fact that precludes summary judgment. To withstand a summary judgment motion where actual malice is at issue requires a showing of facts from which it may reasonably be inferred that the party making the statements was subjectively aware of the probable falsity or had serious doubts about the truth of its statements. The October 12th letter, the oral threats, and the affidavits of Harbor personnel offered by Technicare are facts from which a reasonable jury could infer that the Bridge defendants made their allegations that the Delta Scan 2020 was unreliable and defective with actual malice. If in fact Harbor’s 2020 C.A.T. Scanner was operating properly and performing well as the Harbor affidavits imply, Harbor and Bridge or their principals could have had serious doubts as to the truth of statements that the machine was defective. It is true that the class action complaint was supported by affidavits of persons familiar with the technical aspects of C.A.T. Scanners which support Bridge’s claim that the machine had “design limitations.” However, that fact alone does not conclusively establish the absence of any material issue of fact as to the Bridge defendants’ actual malice. Technicare has offered sworn statements from which actual malice may be inferred. Based upon the entire record presented on this motion, the Court finds that “a reasonable jury could find malice with convincing clarity.” Accordingly, Murphy’s motion with respect to Technicare’s trade libel claims is denied.

Intentional Interference With Contractual Relations

Murphy urges dismissal of Technicare’s claim for intentional interference with contract and/or prospective business relations on grounds it has failed to allege that he or the Bridge defendants had knowledge of the contracts or business relations with which they allegedly interfered. Technicare does not quarrel with this basic legal proposition, but rather relies on allegations in the complaint and documents submitted on this motion from which it claims knowledge may be inferred.

The Court finds that Technicare has alleged sufficient facts, and provided sufficient support therefor, to resist Murphy’s motion either to dismiss or for summary judgment. For example, Murphy’s knowledge may be inferred from the fact, conceded in his deposition, that he was a former employee of Technicare involved in arranging financing for Technicare customers, which afforded him ready access to documents and other materials. Moreover, it is alleged that Murphy and the other Bridge defendants had in their possession a stolen customer list, which is underscored by Judge Bramwell’s finding in the prior trade secrets action that Technicare had “made a substantial showing that Mr. Murphy purloined the information in question after his employment relationship with Technicare soured in June of 1982.” Finally, the October 12th letter, which according to Sigmund Weiss was authored by Murphy, is supportive both of his claimed knowledge and intent. It states:

Until the Tylenol scare, J & J’s stock moved upward on favorable reports____ We are fully prepared to help rewrite these reports____ We believe that based upon corporate performance of your subsidiaries our information will negatively impact customer confidence in your carefully built and excellent image and will cause a long-term erosion in your market.

Murphy has provided no affidavit either denying knowledge of Technicare’s customers or intent to interfere with its existing or potential contractual relations. Accordingly, his motion with respect to these claims is denied.

Prima Facie Tort

Finally, Technicare seeks recovery based on New York’s prima facie tort theory of liability. Murphy contends that the claim must be dismissed, or summary judgment granted, because (1) prima facie tort may not be pleaded alternatively, particularly where recovery would undermine explicit policies limiting recovery under other traditional torts; (2) Technicare has failed to plead or raise an issue of fact that Murphy or the Bridge defendants acted “solely” with “disinterested malevolence,” unjustifiedly, or without legitimate reason; and (3) Technicare has not pleaded special damages with sufficient particularity.

While, contrary to Murphy’s contention, prima facie tort may be pleaded alternatively, nevertheless, the Court finds that Technicare's prima facie tort action should be dismissed. Prima facie tort is not a “catchall” alternative for every cause of action which cannot stand on its legs. It “is designed to provide a remedy for intentional and malicious actions that cause harm and for which no traditional tort provides a remedy.” Here, the gravamen of Technicare’s action sounds in trade libel or product disparagement. The only purpose served by pleading prima facie tort would be to avoid the express restrictions placed on such actions. This is particularly true given that Technicare faces a threshold barrier in Murphy’s claim that the statements it relies upon are privileged. To hurdle that barrier, Technicare must show that the Bridge action was brought with malice and solely for the purpose of disseminating false and disparaging statements concerning its products. “New York courts have consistently refused to allow retaliatory lawsuits based on prima facie tort predicated on the malicious institution of a prior civil action.” The Court finds the reasoning of these cases applicable here as well. Moreover, there are sufficient claims already advanced without confounding the jury with resolution of an additional and at times arcane concept. Accordingly, Technicare’s prima facie tort allegations are dismissed.

So ordered.

      . Originally, Technicare moved, within the class action suit itself, for a protective order enjoining dissemination of the Customer and Pricing List. The order was granted, but reversed on appeal. Bridge C.A.T. Scan Associates v. Technicare Corp., 710 F.2d 940 (2d Cir.1983). Thereafter, and pursuant to the opinion of our Court of Appeals, Technicare instituted a separate action. Judge Bramwell again granted a preliminary injunction which was affirmed by our Court of Appeals in an unreported opinion.

      . Second Amended Third Party Complaint ¶ 80; see also id. at 8-9 (including Murphy among the "Bridge defendants").

      . See, e.g., United States v. Murray, 618 F.2d 892, 902 (2d Cir.1980); see also Rooney Pace, Inc. v. Reid, 605 F.Supp. 158, 161 (S.D.N.Y., 1985); Foreman v. Ambach, 525 F.Supp. 722, 730 (S.D.N.Y.1981) (“A conspirator is a conspirator whether he plays a major role or a minor role in the illicit activity”).

      . N.L.R.B. v. United Technologies Corp., 706 F.2d 1254, 1259 (2d Cir.1983) (quoting 1B J. Moore & T. Currier, Moore’s Federal Practice ¶ 0.411[2] at 1281 n. 1 (2d ed. 1982)).
      It is well-established that a consent judgment entered “with prejudice" operates as a final judgment on the merits. Lawlor v. National Screen Service Corp., 349 U.S. 322, 327, 75 S.Ct. 865, 868, 99 L.Ed. 1122 (1955).

      . That the new causes of action might have been joined in the prior action is not determinative. See Board of Educ. v. Hufstedler, 641 F.2d 68, 71 (2d Cir.1981). However, res judicata does bar the assertion of "new ground[s] for recovery,” see Brown v. Felsen, 442 U.S. 127, 133, 99 S.Ct. 2205, 2210, 60 L.Ed.2d 767 (1979), for "[n]ew legal theories do not amount to a new cause of action.” In re Teltronics Services, Inc., 762 F.2d 185, 193 (2d Cir.1985).

      . Board of Educ. v. Hufstedler, 641 F.2d 68, 71 (2d Cir.1981) (quoting Herendeen v. Champion Int’l Corp., 525 F.2d 130, 133-34 (2d Cir.1975)).

      . Expert Electric, Inc. v. Levine, 554 F.2d 1227, 1234 (2d Cir.), cert. denied, 434 U.S. 903, 98 S.Ct. 300, 54 L.Ed.2d 190 (1977).

      . N.L.R.B. v. United Technologies Corp., 706 F.2d 1254, 1259-60 (2d Cir.1983) ("But the circumstance that several operative facts may be common to successive actions between the same parties does not mean that the claim asserted in the second is the same claim that was litigated in the first, and that litigation of the second is therefore precluded by the judgment in the first.").

      . See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475-76, 94 S.Ct. 1879, 1883-84, 40 L.Ed.2d 315 (1974); Bridge C.A.T. Scan Assoc. v. Technicare Corp., 710 F.2d 940, 946-47 (2d Cir.1983); Heyman v. Ar. Winarick, Inc., 207 F.Supp. 78, 81-84 (S.D.N.Y.1962), aff'd, 325 F.2d 584 (2d Cir.1963); Restatement of Torts § 757(b) (1939); 60 N.Y.Jur. § 109 (1968).

      . See infra text accompanying notes 17-19.

      . A conspiracy allegation broadens the reach of traditional torts by "connect[ing] a defendant with the acts and declarations of his co-conspirators, where otherwise he could not have been implicated." Glaser v. Kaplan, 5 A.D.2d 829, 830, 170 N.Y.S.2d 522, 525 (2d Dep’t 1958). Liability of a civil conspirator depends upon whether the overt acts alleged are actionable under traditional tort theories of recovery, or whether a lawful end has been effected in an unlawful manner. See Arlinghaus v. Ritenour, 622 F.2d 629, 639 (2d Cir.), cert. denied, 449 U.S. 1013, 101 S.Ct. 570, 66 L.Ed.2d 471 (1980); Danahy v. Meese, 84 A.D.2d 670, 672, 446 N.Y.S.2d 611, 614 (4th Dep’t 1981).

      . 18 U.S.C. § 1964(c) (1982).

      . 741 F.2d 482, 496 (2d Cir.1984), cert. granted, — U.S. -, 105 S.Ct. 901, 83 L.Ed.2d 917 (1985).

      . Technicare makes no claim that the October 12th letter in and of itself gives rise to a claim of trade libel and does not dispute that the statute of limitations would bar any such claim. See N.Y.Civ.Prac. § 215(3) (McKinney 1972).

      . While Technicare refers to its factual allegations as constituting a claim for "common law disparagement” or “trade libel," it also repeatedly alleges that Bridge's purportedly false statements damaged Technicare’s reputation, as opposed to the reputation of its products. An action for trade libel only protects Technicare’s interest in the vendibility of its products, not its general reputation. Whatever differences, if any, exist as to the elements required to recover for injuries to those different interests, they are not relevant here. Murphy's claims of privilege are equally applicable to both; and Technicare has not disputed, for the purposes of this motion, the necessary state of mind it must allege. or provide facts in support of, to survive Murphy’s motion. See infra text accompanying note 37-38.

      . Section 74 provides that "[a] civil action cannot be maintained against any person, firm or corporation, for the publication of a fair and true report of any judicial proceeding____” N.Y.Civ.Rights § 74 (McKinney 1976).

      . See, e.g., The Savage Is Loose Co. v. United Artists Theatre Circuit, 413 F.Supp. 555 (S.D.N.Y.1976); Feldman v. Bernham, 6 A.D.2d 498, 500, 179 N.Y.S.2d 881, 883 (1st Dep’t 1958) (per curiam), aff’d, 7 N.Y.2d 772, 163 N.E.2d 145, 194 N.Y.S.2d 41 (1959) (mem.); see also Seltzer v. Fields, 20 A.D.2d 60, 244 N.Y.S.2d 792 (1st Dep’t 1963).

      . 23 N.Y.2d 592, 246 N.E.2d 333, 298 N.Y.S.2d 473 (1969).

      . Id. at 595, 599, 246 N.E.2d at 334-35, 337, 298 N.Y.S.2d at 475-76, 479.

      . See id. at 596-97, 246 N.E.2d at 335-36, 298 N.Y.S.2d at 477.

      . See id. at 597, 246 N.E.2d at 336, 298 N.Y. S.2d at 477.

      . See Seltzer v. Fields, 20 A.D.2d 60, 63, 244 N.Y.S.2d 792, 796 (1st Dep’t 1963) ("communications unconnected with the judicial proceeding are not cloaked with the absolute privilege"); see also Schulman v. Anderson Russell Kill & Olick, 117 Misc.2d 162, 458 N.Y.S.2d 448 (Sup.Ct.N.Y.Co.1982).

      . [T]he law offers a shield to the one who in legal proceedings publishes a libel, not because it wishes to encourage libel, but because if men were afraid to set forth their rights in legal proceedings for fear of liability to libel suits, greater harm would result, in the suppression of the truth.

        Williams, 23 N.Y.2d at 600, 246 N.E.2d at 338, 298 N.Y.S.2d at 480 (Burke, J., concurring) (quoting 1 Seelman, The Law of Libel and Slander in the State of New York ¶ 191 (1933 ed.)) (emphasis deleted); see Park Knoll Assoc. v. Schmidt, 59 N.Y.2d 205, 209, 451 N.E.2d 182, 184, 464 N.Y.S.2d 424, 426 (1983) (in judicial proceedings, an absolute privilege is intended to promote the administration of justice and only incidentally protect the participants).

      . Williams, 23 N.Y.2d at 603, 246 N.E.2d at 340, 298 N.Y.S.2d at 482 (Burke, J., concurring).

      . See Schulman v. Anderson Russell Kill & Olick, 117 Misc.2d 162, 458 N.Y.S.2d 448 (Sup.Ct.N.Y.Co.1982). The New York Courts have resisted the application of an absolute privilege where the purpose of that privilege would not be served. See Park Knoll Assoc. v. Schmidt, 59 N.Y.2d 205, 210, 451 N.E.2d 182, 185, 464 N.Y. S.2d 424, 427 (1983); Stukuls v. State of New York, 42 N.Y.2d 272, 277, 366 N.E.2d 829, 832, 397 N.Y.S.2d 740, 743 (1977).

      . The Williams exception may only be invoked where the defendant has purposefully initiated widespread publication of the statements. See The Savage Is Loose, Co. v. United Artists Theatre Circuit, Inc., 413 F.Supp. 555, 561 (S.D.N.Y. 1976); Weissman v. Mogol, 118 Misc.2d 911, 919, 462 N.Y.S.2d 383, 388 (Sup.Ct.Nassau Co. 1983).

      . In the prior trade secrets action, Judge Bramwell found that "the menacing tone of the correspondence exchanged between the parties before inception of the case manifests in the clearest manner, defendants' ill-will toward plaintiff," and that “John Murphy via the duplicitous and vindictive conduct evidenced thus far, has, in this Court’s opinion, undertaken a calculated and ill-disguised effort to damage Technicare’s relationship with its customers.” Similarly, in recommending that Judge Bramwell deny class certification, Magistrate Scheindlin found that Bridge “has attempted to use the threat of a class action to enhance its bargaining power in its own dispute with [Technicare]." Bridge Defendants' Exhibits E at 3, F at 37.

      . Affidavit of Dr. Sanford P. Antin, ¶¶ 7, 13; but see Amended Class Action Complaint ¶ 24. Compare Affidavit of Dr. Morton A. Jaffe (part-time radiologist at Harbor) ¶¶ 8, 9; Affidavit of Peter Gibbons (Harbor x-ray technician) ¶¶ 6, 7, 9, 11; Affidavit of Dr. Sanford P. Antin, ¶¶ 8, 10, 12, 13, with Amended Class Action Complaint ¶¶ 18-20, 24, 28, 31-33, 35-37, 43, 46, 60, 64, 67, 77.

      . See Farr v. Newman, 14 N.Y.2d 183, 199 N.E.2d 369, 250 N.Y.S.2d 272 (1964); Poucher v. Blanchard, 86 N.Y. 256, 260 (1881); Chase Manhattan Bank, N.A. v. Perla, 65 A.D.2d 207, 211, 411 N.Y.S.2d 66, 69 (4th Dep’t 1978); Racoosin v. LeSchack & Grodensky, P.C., 103 Misc.2d 629, 634, 426 N.Y.S.2d 707, 711 (Sup.Ct.N.Y.Co.1980).

      . See Chase Manhattan Bank, N.A. v. Perla, 65 A.D.2d 207, 411 N.Y.S.2d 66, 69 (4th Dep’t 1978); Montagnino v. Brojer, 29 Misc.2d 651, 653, 214 N.Y.S.2d 208, 211 (Muni.Ct.N.Y.Bronx Co.1960); Restatement (Second) of Agency §§ 247, 254 (1958); see also American Soc’y of Mechanical Engineers Inc. v. Hydrolevel Corp., 456 U.S. 556, 566, 102 S.Ct. 1935, 1942, 72 L.Ed.2d 330 (1982); Farr v. Newman, 14 N.Y.2d 183, 199 N.E.2d 369, 250 N.Y.S.2d 272 (1964) (imputing knowledge); Restatement (Second) of Agency § 253 (1958).

      . Williams, 23 N.Y.2d at 599, 246 N.E.2d at 337, 298 N.Y.S.2d at 479.

      . See, e.g., Youmans v. Smith, 153 N.Y. 214, 47 N.E. 265 (1897) (statements made in letter to subpoenaed witness).

      . Schulman v. Anderson Russell Kill & Olick, 117 Misc.2d 162, 168, 458 N.Y.S.2d 448, 453 (Sup.Ct.N.Y.Co.1982).

      . 117 Misc.2d 162, 458 N.Y.S.2d 448 (Sup.Ct.N.Y.Co.1982).

      . Id. at 168, 458 N.Y.S.2d at 453.

      . Id.

      . See Gertz v. Robert Welch, Inc., 418 U.S. 323, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974); New York Times Co. v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964).

      . Because an issue of fact would necessarily be raised as to any lesser standard if an issue exists as to "actual malice," the Court does not decide whether or not Technicare is a public figure.

      . See Simmons Ford, Inc. v. Consumers Union of the United States, 516 F.Supp. 742, 747 (S.D.N.Y.1981).

      . Yiamouyiannis v. Consumers Union of the United States, 619 F.2d 932, 940 (2d Cir.) (emphasis deleted), cert. denied, 449 U.S. 839, 101 S.Ct. 117, 66 L.Ed.2d 46 (1980); see Herbert v. Lando, 568 F.2d 974, 980 (2d Cir.1977), rev’d, 441 U.S. 153, 99 S.Ct. 1635, 60 L.Ed.2d 115 (1979).

      . See Israel v. Wood Dolson Co., 1 N.Y.2d 116, 134 N.E.2d 97, 151 N.Y.S.2d 1 (1956); AA Tube Testing Co. v. Sohne, 20 A.D.2d 639, 246 N.Y.S.2d 247 (2d Dep't 1964).

      . Cf. Burns Jackson Miller Summit & Spitzer v. Lindner, 88 A.D.2d 50, 452 N.Y.S.2d 80 (2d Dep’t 1982), aff'd, 59 N.Y.2d 314, 451 N.E.2d 459, 464 N.Y.S.2d 712 (1983) (conclusory allegations that institution of illegal transit strike interfered with contractual relations between plaintiff law firm and its clients).

      . Kalso Systemet, Inc. v. Jacobs, 474 F.Supp. 666, 671 (S.D.N.Y.1979); see Murphy v. American Home Products Corp., 58 N.Y.2d 293, 448 N.E.2d 86, 461 N.Y.S.2d 232 (1983); Belsky v. Lowenthal, 62 A.D.2d 319, 405 N.Y.S.2d 62 (1st Dep’t 1978), aff’d, 47 N.Y.2d 820, 392 N.E.2d 560, 418 N.Y.S.2d 573 (1979).

      . Curiano v. Suozzi, 63 N.Y.2d 113, 118, 469 N.E.2d 1324, 1327, 480 N.Y.S.2d 466, 469 (1984); see Belsky v. Lowenthal, 62 A.D.2d 319, 405 N.Y.S.2d 62 (1st Dep’t 1978), aff'd, 47 N.Y.2d 820, 392 N.E.2d 560, 418 N.Y.S.2d 573 (1979).

      . See supra text accompanying notes 16-17; see also National Nutritional Foods Ass'n v. Whelan, 492 F.Supp. 374 (S.D.N.Y.1980).

      . Curiano v. Suozzi, 63 N.Y.2d 113, 118, 469 N.E.2d 1324, 1327, 480 N.Y.S.2d 466, 469 (1984); see id. at 118, 469 N.E.2d at 1328, 480 N.Y.S.2d at 470 (”[E]ven assuming an action for malicious prosecution lies after the [underlying] case is completed, plaintiffs should not be allowed to plead prima facie tort in the alternative”).

      . See Rosemont Enterprises, Inc. v. Random House, Inc., 261 F.Supp. 691, 697 (S.D.N.Y.1966).


source: Caselaw Access Project

author: PATRICK F. KELLY, District Judge.

license: Public Domain

text:
    Bobby J. HAWKINS, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services of the United States, Defendant.
    No. 83-1845.
    United States District Court, D. Kansas.
    May 14, 1985.

      David Gray, Wichita, Kan., for plaintiff.
    Stephen K. Lester, Asst. U.S. Atty., Wichita, Kan., for defendant.
   MEMORANDUM OPINION AND ORDER

PATRICK F. KELLY, District Judge.

Plaintiff has filed an application for attorney fees pursuant to 28 U.S.C. § 2412 et seq., commonly known as the Equal Access to Justice Act (EAJA). The procedural status of this case is best summarized in this Court’s Memorandum and Order of January 22, 1985 granting summary judgment to Plaintiff:

This is an action under 42 U.S.C. § 405(g) for judicial review of the decision of the Secretary of Health and Human Services terminating Plaintiff’s entitlement to disability benefits under the Social Security Act. This matter originally came before this Court on Plaintiff’s motion for summary judgment and alternative motion for remand, and the Secretary’s motion to affirm the Secretary’s decision. In a ruling filed September 24, 1984 this Court denied both motions for summary judgment and remanded the ease to the Secretary with instructions to effectuate reconsideration by the Administrative Law Judge (ALJ). The Appeals Council submitted a Clarifying Order of Appeals Council dated October 19, 1984 in which it again reaffirmed the termination of Plaintiff’s period of disability but failed to obtain reconsideration by the ALJ. 600 F.Supp. 832.

The authorities are in accord that EAJA applies to Social- Security cases. This district has recently found that the EAJA does apply to Social Security cases. See, for example: Laine v. Heckler, 602 F.Supp. 333 (D.Kan.1985); Guthrie v. Schweiker, 718 F.2d 104 (4th Cir.1983); Watkins v. Harris, 566 F.Supp. 493 (E.D.Pa.1983); Jones v. Schweiker, 565 F.Supp. 52 (W.D.Mich.1983); Hornal v. Schweiker, 551 F.Supp. 612 (M.D.Tenn.1982); McDonald v. Schweiker, 551 F.Supp. 327 (N.D.Ind.1982); Moholland v. Schweiker, 546 F.Supp. 383 (D.N.H.1982); Shumate v. Harris, 544 F.Supp. 779 (W.D.N.C.1982); Ocasio v. Schweiker, 540 F.Supp. 1320 (S.D.N.Y.1982); Wolverton v. Schweiker, 533 F.Supp. 420 (D.Id.1982); Berman v. Schweiker, 531 F.Supp. 1149 (N.D.Ill.1982); Berman v. Schweiker, 713 F.2d 1290, 1295 (7th Cir.1983); McGill v. Secretary of Health and Human Services, 712 F.2d 28, 30 (2d Cir.1983); and Ceglia v. Schweiker, 566 F.Supp. 118, 123 (E.D.N.Y.1983).

The authors of 6 R.I.A. Social Security Coordinator, at § 51,285, further explain:

EAJA applications for attorney fees in social security cases before courts have been consistently opposed by the SSA on the ground that the Social Security Act provides the sole means by which a court may award attorneys’ fees. Just as consistently, courts addressing the issue have rejected the SSA’s position. The SSA bases its contention upon the EAJA language authorizing fees ‘except as otherwise specifically provided by statute.’ Courts analyzing the statutory provisions, however, have noted that the SSA’s authority to award fees in social security cases is an exercise in limiting the amount of fee that an attorney may charge a claimant and is not an authorization to award fees against the government. Thus, the statutory language, limiting the applicability of fee shifting under the EAJA to cases not already provided by statute, is not applicable, and the jurisdiction conferred upon courts by the Act applies to social security cases.

The EAJA provides for an award of fees to the prevailing party unless the government can prove that its action was “substantially justified.” The burden of proof is on the government to establish that its action was substantially justified. United States v. 2,116 Boxes of Boned Beef, 726 F.2d 1481, 1487 (10th Cir.1984), and Dougherty v. Lehman, 711 F.2d 555 (3rd Cir.1983).

The term “substantially justified” has been defined in this circuit in United States v. 2,116 Boxes of Boned Beef, supra at pages 1486-1487:

The law is clear that the test of substantial justification is essentially one of reasonableness in both law and fact, (citations omitted)
* Jjc * * *
The government must therefore show that there is a reasonable basis in truth for the facts alleged in the pleadings; that there exists a reasonable basis in law for the theory it propounds; and that the facts alleged will reasonably support the legal theory advanced.

See also Laine v. Heckler, supra, where this district applied this standard in awarding attorney fees in a Social Security disability case.

Courts reviewing EAJA petitions for attorney fees have based their determinations of “substantial justification” on the factors and reasoning found in the opinions of the deciding courts as well as examinations of the relevant documents filed by the parties. See: Spencer v. NLRB, 548 F.Supp. 256, 262 (D.D.C.1982); Moholland v. Schweiker, 546 F.Supp. 383, 386 (D.N.H.1982); Nunes-Correia v. Haig, 543 F.Supp. 812, 818-819 (D.D.C.1982); Wolverton v. Schweiker, supra; Photo Data, Inc. v. Sawyer, 533 F.Supp. 348, 352 (D.D.C.1982); and Dougherty, supra.

In Hornal v. Schweiker, 551 F.Supp. 612 (M.D.Tenn.1982) the court awarded attorney fees under the EAJA to the plaintiff, finding that the defendant had relied upon a physician’s examination that was incomplete as a basis for its denial of benefits and stated:

Given the previous findings by this Court and applying the standards set forth in the EAJA, the Court holds that the government has failed to carry its burden of showing substantial justification for its position.

In Ceglia v. Schweiker, 566 F.Supp. 118 (E.D.N.Y.1983), the plaintiff had provided considerable evidence proving her total disability. Notwithstanding, the government denied her benefits relying upon a consultative report of a physician who did not examine the plaintiff but reviewed the medical evidence of record. The Court stated:

The law is clear that the opinion of a physician who has never treated or examined the claimant is entitled to little weight, and generally cannot serve as substantial evidence supporting a finding of nondisability when the record contains detailed contradictory opinions by physicians who have examined or treated the claimant. See, e.g., Allen v. Weinberger, 552 F.2d 781 (7th Cir.1977); Landess v. Weinberger, 490 F.2d 1187 (8th Cir.1974); Browne v. Richardson, 468 F.2d 1003 (1st Cir.1972); Gudlis v. Califano, 452 F.Supp. 401 (N.D.Ill.1978). In the light of this clear precedent, the decision of the Secretary, resting as it did solely on the contradictory opinion of a non-examining physician, was patently unsupported by substantial evidence. This obvious defect in the Secretary’s determination rendered the position of the United States in this litigation unreasonable, and hence not substantially justified.

In the present case, the Appeals Council refused to grant Plaintiff’s request for review of the AU’s decision. This Court ruled in its Memorandum and Order of September 24, 1984 that the Appeals Council’s refusal to review in the face of the substantial new evidence presented to it was error. At that time this Court had no doubt that Plaintiff was disabled and that there was no substantial evidence to the contrary. However, this Court out of deference to the agency wanted to give the Secretary the opportunity to make a proper determination of its own rather than simply reverse the agency’s ruling at that time. In the Memorandum and Order of January 22, 1985, this Court stated:

It was hoped that with the instructions contained in the remand of this case that the Secretary would reconsider this case in the proper and legal perspective. Instead, the Secretary has turned a deaf ear to a case of obvious disability. This attitude is shocking enough. But the Secretary has shown this Court no more respect nor concern for following the law than it has shown Plaintiff. This Court ordered the Secretary to include reconsideration by the AU as part of its proceedings pursuant to the remand of this case. The Secretary instead defied this order by conducting the reconsideration only through the Appeals Council. This defiance of the Court’s order did not enter into the deliberations of the merits of this case, but this Court can not refrain from observing that such defiance indicates an arrogant administrative attitude that is either bent upon denying benefits no matter how meritorious the claim or a callousness and indifference that amounts to the same thing.

The Secretary’s position lacks substantial justification first in her opposition in this court to Plaintiff’s just claim after having knowledge of the new evidence that was presented to the Appeals Council and second in disobeying this court’s order to refer the case to the AU for a new hearing. The Secretary's actions in this case are if anything more contemptuous than her actions in Ornelas v. Heckler, Unpublished Case No. 81-K-2049 (D.Colo.1984) where that court stated at 1-2:

If this were anything other than an agency of the United States government, I would have every one of those people [the Appeals Council] in here for contempt of court. I think their conduct is unconscionable and it’s despicable. This case is one of the most outrageous examples of the abuse of governmental authority that I have encountered, not only since I have been on the bench but in 25 years in the law. It is an outrage. There is no evidence, there is no authority for what they have done.
The evidence shows neurological damage, mental retardation, pain, motor instability, [and] vocational incapacity. Two of their own hearing officers have come to the same conclusion and yet they base their decision out of thin air. The appeals council has no right in the face of the record that was made to make any finding on credibility, to make any finding of vocational capacity. It is dishonest, cynical and mendacious.

In Ornelas, the Appeals Council had reversed the AU’s findings of disability, which the Appeals Council has the regulatory authority to do. In the present case, the Appeals Council disobeyed this court’s direct order to obtain a new hearing of this case by the AU.

This Court has observed the same persistence in disregarding the law in this district as was noted by the court in Ornelas. This Court has been inundated with Social Security appeals most of which require either reversal or remand with appropriate instructions to follow the law.

This Court is not unmindful of the Tenth Circuit’s ruling in United States v. 2,116 Boxes of Boned Beef, supra, in which this Court’s ruling denying EAJA fees was upheld. However, as the court stated in Ornelas, at page 2:

The government cannot limit its position during the course of litigation to statements made by the United States attorney in the courtroom. Certainly the EAJA contemplates that agency activities in response to in court motions and orders reflect upon the position of the government. All actions taken by the secretary following my remand of March 23, 1982 were subject to the supervisory authority of this court and constitute the government’s position during litigation.

Thus the Appeals Council’s disregard of this Court’s order is the government’s position, and I find that that position was not substantially justified.

The government’s position on the merits lacked substantial justification as well. This finding does not run afoul of the ruling in United States v. 2,116 Boxes of Boned Beef, supra, for, as stated in Blanchette v. Heckler, 586 F.Supp. 903 (D.Colo.1984):

In this circuit, the test of ‘substantial justification is essentially one of reasonableness in both law and fact.’ United States v. 2,116 Boxes of Boned Beef, 726 F.2d 1481, 1486 (10th Cir.1984). The position of the government under § 2412(d) refers to ‘the arguments relied on by the government in litigation’ as opposed to the actions or behavior which precipitated the litigation. 726 F.2d at 1487. This makes ‘no functional difference’ however, since in most cases the government’s litigation position will be that its ‘underlying action was legally justifiable.’ 726 F.2d at 1487.

The government’s position in this case was to oppose Plaintiff’s complaint and to oppose Plaintiff’s motion for appropriate relief after the agency had long since received and had knowledge of evidence that established Plaintiff’s claim beyond any doubt.

Although Plaintiff’s evidence at the time of the original hearing may have justified the Secretary’s position when considered in isolation, the evidence presented to the Appeals Council established Plaintiff’s disability beyond any reasonable doubt. By relying on the evidence as presented to the ALJ as a basis for the Secretary’s ruling, and by arguing that the new evidence was not supported by clinical findings the Secretary was presenting spurious arguments. The new evidence was not only the result of clinical observations over a period of time, but it also put the prior evidence in a perspective which the Appeals Council and the Secretary in argument to this Court ignored. When all of the evidence is considered, there was no shred of evidence supporting the Secretary’s position. This opinion should not be interpreted as authorizing EAJA fees whenever the Secretary’s position is found to lack substantial evidence to support it. A reversal of the Secretary does not dictate a finding that the Secretary acted unreasonably. However, in this case, when all the evidence is considered as a whole, it can be said that the Secretary’s position is even more patently unsupported by substantial evidence than it was in Ceglia v. Schweiker, supra. Certainly no reasonable person would have asserted the position the Secretary took in this case.

It was intolerable when the Appeals Council disobeyed this Court’s order to remand the case to the ALJ for further consideration in light of the new evidence. The Secretary’s unreasonableness here goes beyond that in Laine v. Heckler, supra, where the court noted that the Secretary opposed remand even after being informed of the new evidence. The present case is one, like Laine v. Heckler, in which the Secretary’s denial of benefits is patently unsupported by substantial evidence. In addition, the Secretary has indulged in misbehavior, as this Court noted, which demonstrates a malevolence or a callousness that amounts to the same thing. The Secretary cannot indulge in such contemptuous behavior and still successfully claim her position was substantially justified. Thus, the Secretary’s position was not substantially justified even if the court considers only the Secretary’s behavior after litigation began. The Secretary’s defiance of this Court’s order is symptomatic of her attitude throughout the entire handling of this case. No clearer case for the Secretary’s lack of substantial justification can be made than to show defiance of a federal court judge. This decision should not reflect adversely on the United States Attorney. This Court is aware that the U.S. Attorney is required to represent the Secretary in these matters. The U.S. Attorney’s behavior, in contrast to the Secretary’s, has been above reproach in this case. It would, however, behoove the Secretary to solicit the guidance of the U.S. Attorney about the advisability of opposing each appeal. It would also be appropriate for the U.S. Attorney to offer such advice whether or not it is solicited, for “[tjhere comes a time when even a government attorney must say, ‘No!’ to a client.” Blanchette v. Heckler, 586 F.Supp. at 906.

The U.S. Attorney argued in oral argument that EAJA is no longer in force because it expired by virtue of a sunset clause. It did not expire, however, before this action was filed. The act, therefore, does apply to this case.

The fee provision of the EAJA provides that:

The amount of fees awarded under this subsection shall be based upon prevailing market rates for the kind and quality of the services furnished, except that (i) no expert witness shall be compensated at a rate in excess of the highest rate of compensation for expert witnesses paid by the United States, and (ii) attorney fees shall not be awarded in excess of $75 per hour unless the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceedings involved, justifies a higher fee.

This Court is persuaded by Judge Bazelon’s ruling in Action on Smoking and Health v. C.A.B., 724 F.2d 211 (D.C.Cir.1984) that the contingency nature of this case, the delay in payment of fees, the successful result, and the quality of Plaintiffs representation are all factors that can be considered to justify awarding a fee in excess of $75.00 per hour. Plaintiffs attorney has undertaken representation of this indigent Plaintiff on a contingency basis. This case has been pending since September 15, 1983. Because of repeated extensions of time in which to plead granted to the Secretary and occasioned partly by the Secretary’s inability to find the record, no answer was filed by the Secretary until April 9, 1984. Plaintiff’s attorney obtained a successful result for Plaintiff. I find the quality of this representation to be diligent, innovative, and of exceptionally high quality-

Plaintiffs attorney has filed an Affidavit detailing hours spent in representing Plaintiff in federal court. The court finds this time spent to be reasonable. Though other attorneys may well have expended less time on a case such as this, the exhaustiveness with which Plaintiff’s attorney briefed and argued this case was of great assistance to the Court. Quality legal work demands time, and it is a necessary concomitant to the high quality of Plaintiff’s representation that this time was expended.

This Court, therefore, finds that the conditions for granting a fee in excess of $75.00 per hour have been met. Plaintiff’s attorney is awarded fees at the hourly rate of $100.00 per hour in a total amount of $2,185.00. The Secretary is ordered to pay this amount to Plaintiff’s attorney within sixty (60) days of the filing of this order.

Plaintiff's attorney has also filed a motion for approval of attorney fees pursuant to section 1631(d)(2) of the Social Security Act (42 U.S.C. 1383(d)(2). Such fees are withheld by the Secretary from the lump sum benefits that have been accruing which Plaintiff would have been receiving had Plaintiff's benefits not been terminated. This request for fees is reasonable, and Plaintiff’s attorney is awarded these fees in the amount of $4,711.50, subject to the following provisions. The Secretary is ordered to forward such fees to Plaintiff’s attorney within sixty (60) days of the filing of this order. Plaintiff’s attorney is ordered to refund the amount of $1,575.00 to Plaintiff. This amount represents the amount of attorney fees awarded Plaintiff’s attorney under EAJA, less those fees attributable to the preparation and argument of the application for fees under EAJA.