author: SPIEGEL, District Judge.

text:
    James MEYERS, SSN: [ XXX-XX-XXXX ], Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    No. C-1-84-539.
    United States District Court, S.D. Ohio, W.D.
    Nov. 12, 1985.

      Michael J. Mooney, Cincinnati, Ohio, for plaintiff.
    Joseph E. Kane, Asst. U.S. Atty., Columbus, Ohio, and Pat Hanley, Asst. U.S. Atty., Cincinnati, Ohio, for defendant.
   ORDER GRANTING ATTORNEY’S FEES

SPIEGEL, District Judge.

I. INTRODUCTION

This matter is before the Court on plaintiff’s motion for an award of costs and attorney’s fees pursuant to the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412(d)(1)(A) (docs. 13, 16), in his successful appeal from the Secretary’s denial of disability insurance and Supplemental Security Income (SSI) benefits. Alternatively counsel for plaintiff seeks an award under the Social Security Act (Act), 42 U.S.C. § 406(b)(1) (doc. 18), which permits award of an attorney’s fee of up to twenty-five percent of plaintiff’s past-due benefits. The Secretary opposes an award of attorney’s fees pursuant to the EAJA on the grounds that her position was “substantially justified” (doc. 17), but does not oppose approval of a reasonable fee pursuant to 42 U.S.C. § 406(b)(1) (doc. 19).

In this Social Security case, plaintiff’s counsel seeks fees pursuant both to EAJA, 28 U.S.C. § 2412(d)(1)(A), and the Act, 42 U.S.C. § 406. Although both statutes exists for the purpose of awarding attorney’s fees and costs, they differ substantially in several respects. Briefly, the EAJA provides that the attorney representing a prevailing claimant may recover, on his or her client’s behalf, attorney’s fees and costs in a civil action against the United States unless the position of the United States was “substantially justified” or special circumstances make an award unjust. Fees under the EAJA can only be awarded for services performed before a court, and not for services performed at the administrative level. Miller v. United States, 753 F.2d 270, 275 n. 3 (3d Cir.1985); Guthrie v. Schweiker, 718 F.2d 104, 108 (4th Cir.1983); Berman v. Schweiker, 713 F.2d 1290, 1296 (7th Cir.1983). In contrast, to merit an award of fees under the Act, an attorney need only have represented plaintiff successfully before the district court. Further, the Act, unlike the EAJA, permits an award of fees for work done both at the trial and administrative levels. 42 U.S.C. § 406(a), (b).

The question we must decide initially is whether attorney’s fees may be awarded under both the EAJA and section 406 of the Act. At first blush, an affirmative answer would seem to effect double recovery. Recently, however, Judge Nickerson ruled otherwise in Eustache v. Secretary of Department of Health and Human Services, 601 F.Supp. 176, 178 (E.D.N.Y.1985). He observed a fundamental difference between the awards. Under section 406, the award comes out of the claimant’s disability monies. But in the case of the EAJA, the award is authorized against the public fisc. Id. An application under the EAJA is deemed to be made on behalf of the claimant by counsel, rather than, as with section 406, by counsel “against” his or her client and on his or her own behalf. Id. Accordingly, any funds awarded pursuant to the EAJA serve as a reimbursement to the claimant for fees paid out of his or her disability award to his or her counsel.

Given the purposes of both statutes, we agree with Judge Nickerson’s method of handling concurrent and/or consecutive fee petitions under the EAJA and section 406. To permit a fee award under the EAJA, assuming, of course, that the necessary standard is met, in addition to that allowed by the district court out of a claimant’s past-due benefits, does no more than reimburse the claimant for his or her expenses and results in no windfall to the attorney. Such a scheme facilitates the purposes of the EAJA — that is, shifting a prevailing party’s litigation expenses to the United States that that party has incurred while contesting unreasonable government action. See, e.g., Kerr v. Heckler, 575 F.Supp. 455, 456 (S.D.Ohio 1983).

Our conclusion is fortified by the language inserted by Congress in the newly revised EAJA. See Equal Access to Justice Act, Extension and Amendment, Pub.L. No. 99-80, 99 Stat. 188 (1985). Section 3 of the Act specifically allows for an award of attorney’s fees under both the EAJA and section 406. While that provision temporally is not applicable to the instant case, we nonetheless acknowledge it for purposes of Congressional intent on this question of law.

The obvious financial advantage to the claimant of an award under the EAJA has prompted one court to hold that attorneys must first proceed under the EAJA when appropriate. If the attorneys fail to do so, a reduction in the fee ultimately awarded under the Act is “highly appropriate.” Taylor v. Heckler, 608 F.Supp. 1255, 1259 (D.N.J.1985). As of this writing, and until the Sixth Circuit directs otherwise, this Court will not consider it remiss to proceed under section 406 alone when petitioning for attorney’s fees. We recognized in Kerr that very few cases arise in which the Secretary’s position is not substantially justified. 575 F.Supp. at 458. Therefore, we feel that it is inappropriate at this time to mandate routine applications for fees under the EAJA.

We now proceed to determine whether the EAJA permits recovery of attorney’s fees on these facts. The Court must examine whether the Secretary’s position in the underlying litigation was “substantially justified” within the meaning of 28 U.S.C. § 2412(d)(1)(A). As we indicated in Kerr, the operational standard under the EAJA “is essentially one of reasonableness,” and the pertinent inquiry is whether the position maintained by the Secretary had a reasonable basis in law and fact. 575 F.Supp. at 457. Our finding that the decision of the Administrative Law Judge (ALJ) was not supported by “substantial evidence” does not require automatically that we now find the Secretary’s position not “substantially justified.” Id. at 458. Although both tests are couched in terms of “reasonableness,” an inquiry into “substantial evidence” and “substantial justification” are, without a doubt, distinct. Id.

For an insured claimant to be considered “disabled” within the meaning of the Act, he must be unable “to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” 42 U.S.C. § 423(d)(1)(A). Under the Act, a “physical or mental impairment” is “an impairment that results from anatomical, physiological, or psychological abnormalities which are demonstrable by medically acceptable clinical and laboratory diagnostic techniques.” 42 U.S.C. § 423(d)(3). A person is unable to engage in any substantial gainful activity only if the impairments) is (are) so severe that he is unable to perform his previous work and, considering his age, education, and work experience, also unable to engage in any other kind of substantial gainful work that exists in the national economy. 42 U.S.C. § 423(d)(2)(A) (disability insurance), § 1382c(a)(3)(B) (SSI). 42 U.S.C.

The Sixth Circuit has held that a determination of disability, as defined above, is to be considered pursuant to the following seven-step analysis:

1. Is the claimant currently engaged in substantial gainful activity? If yes, the claimant is not disabled. If no, proceed to Step 2. See 20 C.F.R. § 404.1520(b); 20 C.F.R. § 416.920(b).
2. Does the claimant have any medically determinable physical or mental impairments)? If yes, proceed to Step 3. If no, the claimant is not disabled. See 20 C.F.R. § 404.1508; 20 C.F.R. § 416.908.
3. Does the claimant have severe impairments) — i.e., any impairments) significantly limiting the claimant’s physical or mental ability to do basic work activities? If yes, proceed to Step 4. If no, the claimant is not disabled. See 20 C.F.R. §§ 404.1520(c), 404.1521; 20 C.F.R. §§ 416.920(c), 416.921.
4. Can the claimant’s severe impairments) be expected to result in death or last for a continuous period of at least 12 months? If yes, proceed to Step 5. If no, the claimant is not disabled. See 20 C.F.R. § 404.1509; 20 C.F.R. § 416.909.
5. Does the claimant have any impairment or combination of impairments meeting or equalling in severity an impairment listed in 20 C.F.R. Part 404, Subpart P, Appendix 1 (Listing of Impairments)? If yes, the claimant is disabled. If no, proceed to Step 6. See 20 C.F.R. §§ 404.1520(d), 404.1526(a); 20 C.F.R. §§ 416.920(d), 416.926(a).
6. Can the claimant, despite his impairments), considering his residual functional capacity and the physical and mental demands of the work he has done in the past, still perform this kind of past relevant work? If yes, the claimant is not disabled. If no, proceed to Step 7. See 20 C.F.R. § 404.1520(e); 20 C.F.R. § 416.920(e).
7. Can the claimant, despite his impairments), considering his residual functional capacity, age, education, and past work experience, do other work — i.e., any other substantial gainful activity which exists in the national economy? If yes, the claimant is not disabled. If no, the claimant is disabled. See 20 C.F.R. §§ 404.1505(a), 404.1520(f)(1); 20 C.F.R. §§ 416.905(a), 416.920(f)(1).

Garner v. Heckler, 745 F.2d 383, 387 (6th Cir.1984).

II. FACTUAL AND PROCEDURAL BACKGROUND

At the time of filing his application for disability and SSI benefits on March 21, 1983, plaintiff was fifty-eight years of age. He completed his education through the ninth grade. His past relevant work experience had been as a welding gun repairman at General Motors for twenty years, involving constant walking, standing, bending, reaching, and climbing of ladders. He frequently was required to lift spools of wire weighing between eighty and one hundred pounds (tr. 80-81).

Plaintiff alleged that he had been disabled and unable to work since he quit his job at General Motors on September 18, 1982 because of pain in his back, hip, and leg, and weakness in his right knee occasioned by degenerative joint disease and nerve root disease. The day after plaintiff left his job, extreme pain in his back and leg caused him to be hospitalized for eleven days. Plaintiff’s activities after he left his job were limited to light chores around the house. His testimony before the AU revealed that he needed assistance putting on his socks because he could not bend sufficiently. He was capable at bathing himself, but was required to sit on a bench in the tub, as he was unable to sit all the way down. His sleep often was interrupted by pain, for which he took Tylenol With Codeine. Plaintiff additionally took valium for his nerves, and walked with a cane to take pressure off of his leg (tr. 42-48).

The AU found plaintiff not disabled essentially for these reasons: one, that plaintiff could do work categorized as “medium” (tr. 19) and, two, that plaintiff had the Residual Functional Capacity (RFC) to perform his past relevant work as a welding gun repairman (tr. 20). The AU reached his conclusions despite the assessments of Dr. Barry A. Rubin, plaintiffs treating physician for nine years, who opined that plaintiffs condition precluded even sedentary work. The AU justified his denial of plaintiffs benefits as follows;

The objective medical findings in this case confirm that Mr. Meyers is impaired due to arthritis or degenerative joint disease. However, they do not support the extreme limitations imposed on his tolerance for standing and walking mentioned by Dr. Rubin nor do they support any limitations on his ability sit____ His functional capacity appears more consistent with the impression expressed by Gerald W. Klyop, MD, and Katherine Maurath, MD, who examined the medical record for the Ohio Bureau of Disability Determination and who both concluded he remained capable of up to medium work activity, than with the assessment of Dr. Rubin which would have precluded even sedentary work (tr. 17-18).

Before the AU was a report, prepared by Dr. Rubin, that was an update of plaintiffs condition as of October 25, 1983. Dr. Rubin’s report disclosed that plaintiff suffered from, among other things, degenerative joint disease of the lumbar and dorsal spines, chronic lumbosacral and lumbodorsal musculoligamentus strain, lumbar nerve root irritation, and short left leg (tr. 153). In describing the functions that plaintiff could perform in an eight hour day, Dr. Rubin stated that plaintiff could: stand, walk, or sit for one-to-two hours; lift 20-25 pounds on an infrequent basis; lift 5-10 pounds on an occasional, but not frequent, basis; perform repetitive foot movements not greater than one-to-two hours a day; and described his ability to squat, crawl, bend, or climb as “severely] restricted]” (tr. 153). Dr. Rubin concluded that because of the “chronic nature” of plaintiffs degenerative joint disease and osteoarthritis, which was “progressively worsening,” plaintiff was “effectively disabled" (tr. 151).

The Sixth Circuit repeatedly has endorsed the following four legal propositions in addressing the issue of burden of proof in Social Security cases:

1. The burden of proof in a claim for Social Security benefits is upon the claimant to show disability which prevents her from performing any substantial gainful employment for the statutory period. Once, however, a prima facie case that claimant cannot perform her usual work is made, the burden shifts to the Secretary to show that there is work in the national economy which she can perform. Hephner v. Mathews, 574 F.2d 359, 361 (6th Cir.1978); Garrett v. Finch, 436 F.2d 15, 18 (6th Cir.1970).
2. Convincing proof, consisting of lay testimony supported by clinical studies and medical evidence, that pain occasions a claimant’s inability to perform his or her usual work is sufficient to make a prima facie case. Beavers v. Secretary of Health, Education and Welfare, 577 F.2d 383 (6th Cir.1978); Noe v. Weinberger, 512 F.2d 588 (6th Cir.1975).
3. In determining the question of substantiality of evidence, the reports of physicians who have treated a patient over a period of time or who are consulted for purposes of treatment are given greater weight than are reports of physicians employed and paid by the government for the purpose of defending against a disability claim. Whitson v. Finch, 437 F.2d 728, 732 (6th Cir.1971); see also Giddings v. Richardson, 480 F.2d 652 (6th Cir.1973).
4. Substantiality of the evidence must be based upon the record taken as a whole. Futernick v. Richardson, 484 F.2d 647 (6th Cir.1973).

Allen v. Califano, 613 F.2d 139, 145 (6th Cir.1980). Allen’s proposition that the reports of physicians who treated a patient over a period of time are to be accorded greater weight than are the physicians employed and paid by the government for the purpose of defending against a disability claim, has been confirmed time after time. Harris v. Heckler, 756 F.2d 431, 435 (6th Cir.1985); Kirk v. Secretary of Health & Human Services, 667 F.2d 524, 536 (6th Cir.1981), cert. denied, 461 U.S. 957, 103 S.Ct. 2428, 77 L.Ed.2d 1315 (1983). But the rule stands only if the treating physician’s opinion is based on sufficient medical data. See Garner, 745 F.2d at 391; Houston v. Secretary of Health & Human Services, 736 F.2d 365, 367 (6th Cir.1984). Of course, the conclusions of a plaintiff’s physician on the ultimate issue of disability are not binding on the Secretary. 20 C.F.R. § 404.1527 (1985).

In the instant case, Dr. Rubin, as plaintiff’s treating physician, conducted a series of physical exams and observed plaintiff over a period of nine years; therefore, he was in a superior position to evaluate plaintiff’s condition. A treating physician’s opinion in such case may not be discounted when there exists supporting medical evidence. See, e.g., Walston v. Gardner, 381 F.2d 580, 585 (6th Cir.1967). Dr. Rubin’s reasoned opinion, thus, that plaintiff was “effectively disabled,” should have been given significant weight by the ALJ had he followed Sixth Circuit precedent.

Dr. Rubin’s conclusion that plaintiff was disabled is buttressed by an evaluation performed by Dr. Roger Livingston, a vocational expert, on December 10, 1983. Dr. Livingston’s report includes the results of the “Wide Range Achievement Test” that showed that plaintiff has a weakness in mathematical skills. According to Dr. Livingston, “[t]hese results clearly point out that Mr. Meyers’s transferrability [sic] of skills in terms of skill level is seriously compromised and that the skills required for entry level occupational proficiency in skilled occupations that are unfamiliar to Mr. Meyers are absent” (tr. 156). Thus, given all of the medical information Dr. Livingston had before him, he concluded that plaintiff was “totally occupationally disabled at this time” (tr. 159). That the AU had no opportunity to “cross-examine” plaintiff’s vocational expert in no way lessens his credibility as far as this Court is concerned {see doc. 17 p. 5). If the AU was concerned that Dr. Livingston’s report on the subject of transferability in the instant case, he certainly was free to call his own expert. He cannot discount Dr. Livingston’s expert opinion simply on the basis of his own lay opinion. Moreover, as Allen teaches, once plaintiff establishes a prima facie case that he is unable to perform his past relevant work, it is the Secretary’s burden to put on evidence to demonstrate that there exists work that plaintiff can perform. 613 F.2d at 145.

In concluding that plaintiff had the RFC “to engage in jobs where he could be on his feet most of the workday, sit indefinitely, lift up to 50 pounds occasionally or lighter weights more often” (tr. 19), the AU rejected the opinion of a treating physician and instead relied on two non-examining physicians who reviewed the record for the Bureau of Disability Determination. As noted earlier, this Court has refused to find the government’s position was “substantially justified” when the AU has failed to apply the correct legal standard. See Howard v. Heckler, 581 F.Supp. at 1231, 1233-34 (D.C.Ohio 1984). The AU’s reliance on the reports of two non-examining physicians to the exclusion of the report of the treating physician, was clear error. Dr. Rubin’s reports were corroborated adequately by other medical findings, and, in addition, were supported by plaintiff’s own testimony as to his pain and limitations.

The AU’s failure to evaluate the cumulative effects of plaintiff’s impairments contributes to our award of EAJA fees in this case. It is settled law that a claimant may establish disability by proving the existence of a number of impairments, no one which is sufficiently disabling, but when taken together, equal or exceed what is required for a disability. Hurst v. Schweiker, 725 F.2d 53, 55-56 (6th Cir.1984). A claimant is “a human being whose total anatomy must be taken into account in determining whether or not he is disabled from any substantial gainful employment.” Barney v. Secretary of Health & Human Services, 743 F.2d 448, 453 (6th Cir.1984); see also 20 C.F.R. § 404.1523 (1985).

The ALT found that plaintiffs testimony as to the extreme severity and limiting effects of his symptoms were “clearly exaggerated, self-serving and out of all proportion to his objective medical condition,” and therefore was neither persuasive nor credible (tr. 19). But pain alone can be the basis for a finding of disability if plaintiffs subjective claims are corroborated by some medical evidence. See Beavers v. Secretary of Health, Education and Welfare, 577 F.2d at 383, 386 (6th Cir.1978); 20 C.F.R. § 404.1529 (1985). That evidence need not be “objective” evidence of disability. Walters v. Gardner, 397 F.2d 89, 91 (6th Cir.1968). Plaintiffs testimony about pain is not conclusive evidence of disability, but certainly is admissible in relation to his claim. See Stamper v. Harris, 650 F.2d 108, 110 (6th Cir.1981). The medical evidence before the AU established that plaintiff was suffering from degenerative joint disease of the lumbar and dorsal spines and of the right hand, chronic lumbosacral and lumbodorsal musculoligamentus strain, lumbar nerve root irritation, and a short left leg. At the hearing, plaintiff testified that, in an attempt to alleviate the pain, he uses an electric nerve stimulator that has been implanted into his body, takes whirlpool baths three times per day, has purchased a reclining chair equipped with both a heater and a vibrator, and regularly takes pain medication (tr. 39-42, 44-45). Because tolerance for pain is a highly individualized matter, a determination of disability based on pain depends largely on the credibility of the claimant. Houston, 736 F.2d at 367. The AU must determine the claimant’s credibility, but cannot rely solely on his observation of the claimant during the hearing; and, the AU must cite some other evidence for denying a claim for pain in addition to personal observation. Martin v. Secretary of Health & Human Services, 735 F.2d 1008, 1010 (6th Cir.1984) (citing Weaver v. Secretary of Health & Human Services, 722 F.2d 310, 312 (6th Cir.1983)). Permissible bases for the AU to justify dismissal of a claim for pain include evidence of plaintiff’s activities and lack of supporting evidence. See Gist v. Secretary of Health & Human Services, 736 F.2d 352, 358 (6th Cir.1984). The AU relied on neither of these facts.

In this case, the AU applied improper legal standards by failing to give the requisite weight to the treating physician’s testimony and also by failing to consider the cumulative effects of the plaintiff’s impairments, including his pain. Accordingly, the government’s position had no legal basis in law. Because we also found that the AU’s conclusions had no reasonable basis in fact, we hold that the position of the United States was not substantially justified and that an award of fees under the EAJA is merited.

Although the Secretary opposes an award under the EAJA in general, she apparently quarrels not with the number of hours or rate of compensation requested {see doc. 17). Having reviewed the record, we conclude that the hours claimed by plaintiff’s counsel were expended reasonably in this litigation and, furthermore, that the hourly rates requested are comparable to those that would have been charged by attorneys with similar qualifications. See 28 U.S.C. § 2412(d)(2)(A). We conclude that $1,530.00, representing 20.4 hours at $75.00 per hour, is a reasonable fee under all the circumstances.

Counsel, in addition to $1,395.00 under the EAJA, has asked this Court to award him $3,130.00 under section 406(b)(1). It appears that Mr. Mooney has devoted 43.4 hours in total to plaintiff’s case, that the Social Security Administration has withheld $3,912.50, representing twenty-five percent of plaintiff’s past-due benefits out of which a fee award can be made, and that counsel and his client agreed that the former should be awarded twenty percent, the figure requested herein, of the latter’s past-due benefits if successful. The Secretary does not object to an award of $3,130.00 (doc. 19). For cause shown, we conclude that the fee requested, $3,130.00, is reasonable and should be awarded.

Accordingly, it is hereby Ordered that Michael J. Mooney, Esq. be awarded $1,530.00 under the EAJA. Upon receipt of said monies, they are to be forwarded immediately to his client Mr. Meyers, as they represent a reimbursement to plaintiff. It is further Ordered that Michael J. Mooney, Esq. be awarded $3,130.00 under section 406(b)(1). These monies, of course, are to be retained by him, as they are compensation for his services for successful representation in this cause.

SO ORDERED.

      . According to Local Rules, the Secretary’s memorandum contra to plaintiff’s application for attorney’s fees under the EAJA was not filed timely. However, out of an abundance of caution, we considered it before rendering the decision herein.
      The Secretary opens said memorandum contra with this statement:
      The Court is therefore in a position, under 42 U.S.C. § 406(b)(1), to award attorney fees up to 25% of past-due benefits payable as the result of its favorable ruling. That section also specifically provides that "no other fee may be payable or certified for payment for such representation except as provided in this. paragraph.”
      (Doc. 17, p. 1.) To the extent that the Secretary implies that fees should be sought only pursuant to section 406(b)(1), we reject her position outright, as the upcoming text indicates.

        . Although subsection (d) of the EAJA expired on October 1, 1984, plaintiffs motion is properly filed because that subsection "continuéis] to apply through disposition of any action commenced before the date of repeal.” Pub.L. No. 96-481, § 204(c), 94 Stat. 2325, 2327.
      Effective August 5, 1985, the Court observes that the EAJA was reactivated, but with certain amendments. Equal Access to Justice Act, Extension and Amendment, Pub.L. No. 99-80, 99 Stat. 183 (1985).

      . This Court has previously held that section 2412(d)(1)(A) is applicable to Social Security cases. Kerr v. Heckler, 575 F.Supp. 455 (S.D. Ohio 1983).

      . The Act, through section 406, places a ceiling on the fee that may be awarded as a consequence of successful representation of a claimant at the district court level. The statute provides explicitly that an attorney may be awarded no more than twenty-five percent of the past-due benefits by the court. 42 U.S.C. § 406(b)(1); see also Webb v. Richardson, 472 F.2d 529 (6th Cir.1972). In fact, an attorney who "charges, demands, receives, or collects ... any amount in excess of that allowed by the court shall be guilty of a misdemeanor." 42 U.S.C. § 406(b)(2). To a lesser extent, the EAJA also limits a fee award by virtue of a maximum hourly rate recoverable and a proscription against an award for hours spent at the administrative level.
      This Court’s experience with both section 406 and EAJA petitions leads us to conclude that, in most cases, the maximum amount awardable under section 406 will far exceed the maximum amount awardable under the EAJA. In fact, such was the result in Eustache, wherein $2,850 was awarded under section 406 and $2,137.50 was awarded under the EAJA. When the opposite is true, however, a problem arises. Under section 406(b)(2), an attorney could be deemed guilty of a misdemeanor if the award under the EAJA exceeds that allowed under section 406(b)(1). The new amendments to the EAJA directly address this situation, indicating that the ramifications of section 406(b)(2) are avoided if "the claimant’s attorney refunds to the claimant that amount of the smaller fee." Pub.L. No. 99-80, § 7(b), 99 Stat. at 186. See also H.Rep. No. 120, 99th Cong., 1st Sess. 19-20, reprinted in No. 6 August 1985 U.S.Code Cong. & Ad.News 132 at 148-49. We need not make a ruling on this issue as it applies not to the instant case; query, however, whether an attorney would be in jeopardy if he or she accepted an EAJA fee award higher than that authorized pursuant to section 406(b)(1) without protection of the recently enacted EAJA amendments.

      . As to certain prior cases, the amendments apply to causes commenced “on or after October 1, 1984, and finally disposed of before the date of the enactment of this Act." In general, the amendments apply to causes "pending on or commenced on or after" the date of enactment. Pub.L. No. 99-80, § 7(b), 99 Stat. at 186.

      . When we add counsel’s hours, they yield a total of 42.10 rather than 43.4. Because we find the dollar figure requested to be eminently reasonable, we view the discrepancy to be of no ■ concern. Moreover, we would omit the time logged on May 16, 1985 (.8 hr) and 6/19/85 (.3 hr), but again, it makes no real difference in terms of the actual figure award of $3,130.00.


source: Caselaw Access Project

author: McRAE, Chief Judge.

license: Public Domain

text:
    MEDIA GENERAL, INC., Plaintiff, v. William B. TANNER; Earl J. Funk; Louis R. Lucas; Canale, Mitchell, Lucas & Watson; Canale, Lucas, Watson, McLean & Chinn; Robert S. Brown; Brown, Cummins & Brown Co., LPA; First Tennessee Bank, Defendants.
    No. 84-2212-MA.
    United States District Court, W.D. Tennessee, W.D.
    Nov. 13, 1985.

      Thomas R. Prewitt, Edward M. Kaplan, Daniel P. Jaffe, Armstrong, Allen, Braden, Goodman, McBride & Prewitt, Memphis, Tenn., for plaintiff.
    Peter Van N. Lockwood, Graeme W. Bush, Scott D. Michel, Caplin & Drysdale (Chartered), Washington, D.C., James F. Neal, Thomas H. Dundon, Neal & Harwell, Nashville, Tenn., for William B. Tanner.
    Joe Duncan, Memphis, Tenn., for First Tenn. Bank, N.A.
    Jef Feibelman, Burch, Porter & Johnson and Richard Glassman, Memphis, Tenn., for Louis R. Lucas.
    Kemper B. Durand, Thomason, Hendrix, Harvey, Johnson, Mitchell, Blanchard & Adams, Memphis, Tenn., Mark A. Vander, Laan, Lawrence A. Kane, Jr., Cincinnati, Ohio, Philip P. Durand, Ambrose, Wilson & Grimm, Knoxville, Tenn., for Robert S. Brown and Brown, Cummins & Brown Co., L.P.A.

      Albert T. McRae, John W. Leach, Fred Wilson, Wilson, McRae, Ivy, Sevier, McTyier <fe Strain, Memphis, Tenn., for Canale, Mitchell, Lucas & Watson and Canale, Lucas, Watson, McLean <fe Chinn.
    James D. Causey, Memphis, Tenn., for Earl J. Funk.
   ORDER ON PENDING MOTIONS

McRAE, Chief Judge.

Plaintiff, Media General, Inc. (Media General), a Virginia corporation, brought this action seeking a declaratory judgment, monetary awards to compensate for damages allegedly suffered, treble and punitive damages, an award of costs and attorney, fees, the establishment of a constructive trust and such other relief as this Court deems just. In support of its demands for relief, Media General alleges violations of Section 17(a) of the 1933 Securities Act, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, the Racketeer Influenced and Corrupt Organization Act (RICO), 18 U.S.C. § 1961 et seq., and seeks a declaration under the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202. In addition, Media General alleges that various defendants committed fraud under the common law of Tennessee, violated T.C.A. Section 48-2-121 of Tennessee Blue Sky Law, negligently misrepresented facts and breached a contract between several defendants and Media General.

Presently pending before the Court are five motions to dismiss various claims or counts of the complaint for failure to state claims upon which relief can be granted. Additionally, several ancillary motions are currently pending.

The motions are filed in behalf of the defendants William B. Tanner (Tanner); Robert S. Brown (Brown), Brown, Cummins <& Brown Co., L.P.A. (BCB); Canale, Mitchell, Lucas «fe Watson and Canale, Lucas, Watson, McLean «fe Chinn (collectively the Lucas firm); Louis R. Lucas, individually (Lucas); and Earl J. Funk (Funk).

The pending motions will be considered primarily by reference to the alleged substantive law violations from which defendants move for dismissal.

RICO CLAIMS

Media General’s complaint alleges that the defendants have by various means committed violations of RICO. The factual allegations made in the complaint which are relevant to Media General’s RICO claims are summarized below.

In 1981, Media General entered into negotiations with defendants Tanner, Lucas and Funk for the purchase of about 91% of the stock of William B. Tanner Co., Inc., later renamed Media General Broadcast Services, Inc., (the Company). At the time of the negotiations, Tanner individually owned substantially all of the stock of the Company and served as its chief executive officer and director; Funk owned some stock in the Company, served as a director and an officer, and Lucas owned some stock, served as director and officer of the Company. By virtue of his status as a trustee, Lucas also had record title to certain other Company stock.

At all times during the negotiations, the Lucas firm represented Tanner, Funk and Lucas and the Company in connection with the preparation, execution and delivery of an agreement providing for the purchase of stock in the Company by plaintiff Media General (the Purchase Agreement). At the same time, defendants Brown and BCB assisted the Lucas firm with the preparation, execution, and delivery of the Purchase Agreement and the sale of stock.

Media General alleges that to induce it into entering into the Purchase Agreement, Tanner, Funk, Lucas, and the Lucas firm made representations and warranties upon which Media General relied in deciding to enter into the Purchase Agreement and without which Media General would not have entered into the Purchase Agreement. These representations allegedly were either false or failed to disclose material facts.

Under the terms of the Purchase Agreement, Media General paid defendants Tanner, Lucas and Funk thirty-six million dollars, and the Company was to redeem from Tanner an additional number of shares. Also, upon the occurrence of certain triggering events based upon the future earnings of the Company, defendants Tanner, Funk and Lucas were to receive additional payments (additional payments). In case the events did not occur, no additional payments would become due.

Defendants Brown and BCB allegedly knew or recklessly disregarded the fact that some of the representations were false and misleading and participated in and benefited from the scheme to defraud Media General.

The Lucas firm allegedly knew that the warranties and representations made were false and misleading and part of a scheme to defraud Media General and was an active participant in the scheme to defraud Media General.

Based on the foregoing, Media General has asserted claims against the defendants under various provisions of the civil portions of RICO, 18 U.S.C. § 1961, et seq. Pending before the Court are motions by: (A) defendants Tanner, Funk and Lucas to dismiss claim 3 of Count I and claims 1 through 5 of Count II; (B) defendants Brown and BCB to dismiss claim 2 of Count IV; and (C) defendant Lucas firm to dismiss claim 2 of Count III.

In support of their motions, defendants present several arguments. First, defendants argue that shareholders cannot as a matter of law conduct or participate in the affairs of an enterprise when the shareholder sells his entire interest in the enterprise; second, that plaintiff has failed to allege a RICO-type injury — an injury different in kind from that occurring as a result of the alleged predicate acts of fraud in the sale of the Company; third, that plaintiffs RICO allegations are premature because none of the defendants have been convicted of a predicate offense; fourth, that plaintiff has alleged no pattern of racketeering activity in connection with its purchase of the Tanner Company; fifth, that plaintiff has failed to adequately allege the existence of a person-enterprise relationship; and finally sixth, that plaintiff lacks standing to recover the business and property damages that were allegedly incurred.

Defendants’ contention that a shareholder does not conduct or participate in the affairs of an enterprise when he sells his interest in the enterprise is based upon the text of the RICO statute and several judicial opinions construing it. Neither the test of § 1962(c) nor the legislative history cited by defendants contain any express limitation barring any RICO claim when the “pattern of racketeering activity” includes fraud by the seller of securities which represent the seller’s entire interest in the “enterprise.” Title 18 U.S.C. § 1962(c) makes it 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 or collection of unlawful debt.”

Media General alleges that through “a pattern of racketeering activity,” defendants Tanner, Lucas, Funk and the Lucas firm have conducted or participated, directly or indirectly, in the conduct of the affairs of either the Company as an “enterprise,” or the association-in-fact enterprise consisting of Tanner, Lucas and Funk, or both. Defendants Tanner, Lucas, Funk, the Lucas firm, and Brown are also alleged to have conspired in violation of 18 U.S.C. § 1962(d) to violate § 1962(c).

Defendants’ basic argument in support of its first proposition for dismissal is that as a matter of law, Media General failed to allege a sufficient nexus between the alleged “pattern of racketeering activity” and the defendants’ use of that activity “to conduct or participate, directly or indirectly, in the conduct of” an enterprise’s affairs.

Preliminarily the Court notes that fraud in the sale of securities is specifically identified as a predicate act for purposes of defining racketeering injury under 18 U.S.C. § 1961(1). Clearly then the fact that an individual commits fraud in the sale of securities and also transfers a business interest in the enterprise does not bar a RICO claim. Defendants’ reliance on the dictum in United States v. Mandel, 591 F.2d 1347, 1376 (4th Cir.1979), cert. denied, 455 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980), that the transfer of an interest in a business is the antithesis of operating it obscures the proper focus of the inquiry which this Court must undertake to conduct.

The federal circuits have formulated a variety of tests by which the sufficiency of an alleged nexus between the pattern of racketeering activity and the RlCO-defendants’ conduction or participation in the conduct of the enterprise can be assessed. In United States v. Scotto, 641 F.2d 47, 57 (2d Cir.1980), cert. denied, 452 U.S. 961, 101 S.Ct. 3109, 69 L.Ed.2d 971 (1981), the court articulated the following test:

“one conducts the activities of an enterprise through a pattern of racketeering when (1) one is enabled to commit the predicate offenses solely by virtue of his position in or control over the affairs of the enterprise, or (2) the predicate offenses are related to the activities of that enterprise. Simply committing predicate acts which are unrelated to the enterprise or one’s position within it would be insufficient.”

See also, United States v. Jannotti, 729 F.2d 213, 226 (3d Cir.1984); accord, United States v. Kovic, 684 F.2d 512, 516 (7th Cir.), cert. denied, 459 U.S. 972, 103 S.Ct. 304, 74 L.Ed.2d 284 (1982). Under this test, there is no requirement that the enterprise benefit from defendant’s activity nor that the enterprise be corrupt, nor that the defendant has enhanced his position in the enterprise thereby. Scotto, 641 F.2d at 54.

A second test adopted by the Fifth Circuit in United States v. Cauble, 706 F.2d 1322, 1332 (1983), provides that:

(a) defendant does not “conduct” or “participate in the conduct” of a lawful enterprise’s affairs, unless (1) the defendant had in fact committed the racketeering acts as alleged; (2) the defendant’s position in the enterprise facilitated his commission of the racketeering acts, and (3) the predicate acts had some effect on the lawful enterprise, (footnote omitted)

In a footnote to the text quoted above, the court noted that the last element of its test, i.e., the predicate acts must affect the enterprise, can be satisfied “if the defendant exercised such control over the legal enterprise as to make his acts the acts of the enterprise____ In that event the defendant’s connection with the racketeering acts is also the enterprise’s connection.” Cauble, 706 F.2d at 1333, n. 24.

Under either the Second Circuit’s test in Scotto or the Fifth Circuit’s test in Cauble, the Court is persuaded that Media General has alleged a sufficient nexus between the activities of the defendants and the affairs of the Company. Tanner, Lucas and Funk were heavily involved in the operation of the Company both prior to and after the sale of the stock to Media General. Their positions within the Company appear from the complaint’s allegations to have facilitated their commission of the racketeering acts and arguably may have been the sole reason they were able to induce Media General’s reliance.

Moreover, it is clear that the alleged association in fact of Tanner, Lucas and Funk was not dissolved by the sale of defendants’ holdings to Media General. The alleged fraudulent pattern of racketeering activity formed the very essence of the affairs of that enterprise and clearly falls within the scope of § 1962(c). By its alleged participation in the affairs of this enterprise, and the Company’s enterprise, the Lucas firm’s activities would also fall within the scope of § 1962(c).

Finally, the sufficiency of the aforementioned § 1962(c) allegations removes any doubts created by defendants’ motions about the viability of Media General’s § 1962(d) claims against Brown, BCB, and other defendants. It follows that defendants’ first argument fails to provide grounds for dismissal of the RICO claims.

Defendants’ second and third arguments urge the Court to dismiss Media General’s RICO claims because the allegations are premature and because Media General has failed to allege a RICO-type injury. Defendants’ arguments were rendered meritless, by the recent Supreme Court decision in Sedima S.P.R.L. v. Imrex Co., et al., — U.S. —, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). See also, American National Bank and Trust Company of Chicago, et al. v. Haroco, Inc., et al., 53 U.S.L.W. 5067, — U.S. -, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). In Sedima, the Supreme Court expressly held that the maintenance of a private cause of action under RICO does not require that a defendant first be convicted of the predicate acts comprising the RICO claim, nor does it require that plaintiff establish a “racketeering injury” beyond any injury resulting from the predicate acts themselves. Accordingly, the RICO counts cannot be dismissed on the basis of defendants’ second and third arguments.

Defendants’ fourth argument— plaintiff has failed to allege a pattern of racketeering activity — is also without merit. Pursuant to § 1961(5), a pattern of racketeering activity is established by alleging at least two acts of racketeering committed within ten years of each other with at least one act occurring after the effective date of the .statute.

Contrary to defendants’ assertions, the pleadings reflect that plaintiff alleges numerous racketeering activities which were both related and continuous. Their alleged racketeering activities commenced before the sale of the Company and continued subsequent thereto. It follows that defendants’ fourth argument fails.

Next, Tanner, Lucas, Funk, Brown and BCB contend that the RICO claims should be dismissed because plaintiff has failed to allege the existence of an enterprise distinct from the liable person. First, turning to defendants Tanner, Lucas, and Funk, the Court finds their argument meritless. In the complaint, Media General clearly alleges that defendants Tanner, Lucas and Funk (culpable persons) acted and conducted the affairs of the Company (enterprise) through a pattern of racketeering activity. The foregoing allegations alone are sufficient to demonstrate the existence of a culpable person distinct from the enterprise. Media General also claims Tanner, Funk and Lucas formed an association-in-fact enterprise. The fraudulent pattern of racketeering activity formed the very essence of the affairs of that enterprise. “Where persons associate ‘in fact’ ... each person may be held liable under RICO for his, her or its participation in fact through a pattern of racketeering activity.” Haroco v. American Nat. B. & T. Co. of Chicago, 747 F.2d 384, 401 (7th Cir.1984), affirmed, — U.S. —, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985). Thus plaintiff’s reference to Tanner, Lucas and Funk as culpable persons in the association “in fact” enterprise satisfies the § 1962(c) requirement that the liable person be employed by or associated with any enterprise which affects interstate or foreign commerce.

Similarly the Court concludes that plaintiff has also alleged the requisite person/enterprise relationship with respect to defendants Brown and BCB. Plaintiff’s complaint, fairly construed, alleges that Brown and BCB were employed by or associated with either the enterprise, the Company, or the association-in-fact enterprise of Tanner, Funk and Lucas, and through a pattern of racketeering activity participated in the conduct of the affairs of said enterprise[s]. Accordingly, defendant’s fifth ground for dismissal fails.

Defendants’ final argument for dismissal addressed to the RICO claims is that Media General lacks standing to sue for the alleged business and property damages.

With regard to the “injury to business” claims, defendants contend that Media General is not the party suffering injury; that the alleged bribery and kickback schemes could only have injured those customers of the Company whose employees were bribed. The Court’s review of the pleadings, however, reflects that Media General was a duly organized corporation at the time it purchased the Company. Upon said purchase, Media General renamed the Company, Media General Broadcast Services, Inc. It is this affiliation that plaintiff alleges harmed its business after the public disclosure of the alleged fraudulent activities of the defendants. Proceeding under the premise that a Court considering a motion to dismiss must construe the complaint in a light most favorable to the plaintiff, the Court concludes that plaintiff’s “injury to business” claim cannot be dismissed at this juncture of the lawsuit. While plaintiff will have to prove the alleged damages at trial, the allegations as set forth in the complaint, if proven, would clearly entitle plaintiff to relief.

Plaintiff’s “property damage” claims are founded upon damage which Media General allegedly sustained to its property because of the damage to its subsidiary. Here, Media General is claiming damages for diminution in the value of its capital stock because of defendants’ alleged fraudulent conduct. Defendants assert that “property damage” claims of RICO violations committed by agents of a subsidiary may not provide the basis of a civil action for damages by its stockholder parent. The Court agrees with this proposition. Plaintiff’s property damage claims, though constructed in terms of an injury to plaintiff, actually reflect injury incurred by the Company, plaintiff’s subsidiary. An action to redress injuries to a corporation cannot be maintained by a shareholder in his or its own name, but must be brought in the name of the corporation. Warren v. Manufacturers National Bank of Detroit, 759 F.2d 542 (6th Cir.1985). Moreover in Warren, the Sixth Circuit Court of Appeals expressly held that diminution in value of the corporate assets is insufficient direct harm to give the shareholder standing to sue in his own name. Id. at 544, citing Stevens v. Lowder, 643 F.2d 1078, 1080 (5th Cir.) (citation omitted), reh’g den., 652 F.2d 1001 (1981). Accordingly, plaintiff’s claims for damage to its “property” are hereby dismissed. In sum all of plaintiff’s RICO claims remain except that part of the complaint alleging property damages for diminution in the value of the Company’s stock.

FEDERAL AND STATE SECURITY LAW CLAIMS

In its complaint, Media General alleges violations of Section 17(a) of the 1933 Securities Act, Section 10(b) of the 1934 Securities Exchange Act, Rule 10b-5 promulgated thereunder, and the Tennessee Blue Sky Laws, T.C.A. § 48-2-121. These claims incorporate the factual allegations in the complaint relating to fraudulent misrepresentation and omission of material facts by defendants prior to Media General’s entry into the Purchase Agreement.

Presently pending before the Court are several motions for dismissal of the security law claims. These motions include the Tanner, Funk and Lucas motions to dismiss claims 1 and 2 of Count I; defendants Brown and BCB motion to dismiss claims 1 and 3 of Count IV; and the Lucas firm’s motion to dismiss claims 1 and 3 of Count III.

Defendant’s first argument is that the security claims should be dismissed because the transaction upon which this lawsuit is based does not involve “securities” within the meaning of the anti-fraud provisions of the state and federal securities laws. Specifically defendants would have the Court apply the sale of business doctrine which provides that the sale of a business in which most or all of the company’s stock is transferred merely as an indicia of ownership and where the purchaser intends to control the operations of the company purchased does not involve the sale of securities.

Defendants’ argument must be rejected in view of the recent Supreme Court decision in Landreth Timber Co. v. Landreth, — U.S. -, 105 S.Ct. 2312, 85 L.Ed.2d 692 (1985); See also Gould v. Rue fenacht, — U.S.-, 105 S.Ct. 2308, 85 L.Ed.2d 708 (1985). In Landreth the Supreme Court expressly rejected the proposition that the application of the sale of business doctrine is mandatory when a purchaser buys most or all of a company’s stock. Justice Powell opined that where an instrument bears the label “stock” and possesses all of the characteristics typically associated with stock, a court will not be required to look beyond the character of the instrument to the economic substance of the transaction to determine whether the stock is a security within the meaning of the Acts. 105 S.Ct. at 2310. In this case, it appears that the stock possessed those typical stock characteristics identified by the Supreme Court as traditionally associated with common stock — (i) the right to receive dividends contingent upon an apportionment of profits, (ii) negotiability, (iii) the ability to be pledged or hypothecated, (iv) voting rights in proportion of the number of shares owned, and (v) the capacity to appreciate in value. Therefore, defendants’ first argument for dismissal of the security claims must fail.

Second, defendants move for dismissal of the security claims filed pursuant to § 17(a) of the 1933 Securities Act on the ground that § 17(a) does not provide for a private cause of action.

At least twice, the Supreme Court has reserved decision on whether 17(a) affords a private cause of action, Herman & Maclean v. Huddleston, 459 U.S. 375, 378 n. 2, 103 S.Ct. 683, 685 n. 2, 74 L.Ed.2d 548 (1983); Teamsters v. Daniel, 439 U.S. 551, 557 n. 9, 99 S.Ct. 790, 795 n. 9, 58 L.Ed.2d 808 (1979) and the Sixth Circuit has not definitively decided the question. See Herm v. Stafford, 663 F.2d 669, 678 n. 12 (6th Cir.1981) (assuming without deciding that a private right of action exists); Nickels v. Koehler Management Corp., 541 F.2d 611 (6th Cir.1976), cert. denied, 429 U.S. 1074, 97 S.Ct. 813, 50 L.Ed.2d 792 (1977) (issue not raised); But cf., Jones v. First Equity Corp. of Florida, 607 F.Supp. 350, 355 (E.D.Tenn.1985); Basile v. Merrill, Lynch, Pierce, Fenner & Smith, 551 F.Supp. 580, 585-87 (S.D.Ohio 1982) (Congress did not intend to imply a private cause of action).

This Court is persuaded by the reasoning underlying the decisions in Jones and Basile and therefore concludes that Section 17(a) does not afford a private cause of action. Accordingly defendants’ motion to dismiss is granted with respect to plaintiff’s claim alleged under Section 17(a) of the Securities Act of 1933.

Next, defendant Funk, separately, moves for a ruling that T.C.A. § 48-2-122(h), which provides the statute of limitations applicable to actions under Tennessee’s Blue Sky Law, also applies to plaintiff’s claims under section 10(b) and Rule 10b-5 and for a determination that as applied, these limitation periods bar the plaintiff’s claims arising under the federal and state securities laws. For the reasons stated below, the Court concludes that T.C.A. § 48-2-122(h) does not provide the statute of limitations applicable to plaintiff’s claims under 10(b) and 10b-5.

Neither 10(b) nor 10b-5 provides a statute of limitations governing private causes of action brought under their provisions. Carothers v. Rice, 633 F.2d 7, 8 (6th Cir. 1980), cert. denied, 450 U.S. 998, 101 S.Ct. 1702, 68 L.Ed.2d 199 (1981). Moreover federal courts have refused to adopt a uniform nationwide statute of limitations for actions under 10(b) or 10b-5. Instead the courts uniformly resort to state law to select the applicable limitations period. The law of Tennessee, therefore, provides the statute of limitations applicable to this case. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n. 29, 96 S.Ct. 1375, 1389 n. 9, 47 L.Ed.2d 668 (1976); Nickels v. Koehler Management Corp., 541 F.2d 611, 613 (6th Cir.1976), cert. denied, 429 U.S. 1074, 97 S.Ct. 813, 50 L.Ed.2d 792 (1977).

To determine the applicable statute of limitations arising under these provisions, federal courts borrow the state statute of limitation which best serves the purposes of the federal securities laws. Ernst & Ernst v. Hochfelder, supra; Herm v. Stafford, 663 F.2d at 677. The choice of the applicable time period is a question of federal law. See, e.g., McNeal v. Paine, Webber, Jackson & Curtis, Inc., 598 F.2d 888, 891 (5th Cir.1979).

The Sixth Circuit has considered the question of which state statutory period applies to actions under 10(b) and 10b-5 in a number of cases, although never, apparently, in a case for which Tennessee law provided the array of limitation periods. Nevertheless the reasoning of these Sixth Circuit opinions forms the basis for the Court’s analysis of the question at bar. Typically, the federal courts select the governing period from either the period governing actions for fraud under a state’s Blue Sky Law or the period applicable to claims under a state’s common law or the period applicable to claims under a state’s common law action for fraud. See Carothers, 633 F.2d at 13. However, this Court is faced with a third choice — Tennessee’s catch-all statute of limitations provisions which apply to any cause of action not covered by some other limitation period. In the only decision to date wherein the limitation period for a 10(b) and 10b-5 action has been taken from Tennessee law, the Middle District of Tennessee held that the applicable statute of limitations for a 10(b) or 10b-5 action was ten (10) years citing what is now T.C.A. § 28-3-110(3). Denny v. Performance Systems, Inc., [1971 Transfer Binder] Fed.Sec.L.Rep. (CCH) paragraph 93,387 at 81-981 (M.D.Tenn.1971).

Where two or more state law remedies are similar but not identical to a 10(b) and 10b-5 action, courts adopt the statute of limitations that provides a longer, as opposed to shorter limitations period. See, e.g., Herm, 663 F.2d at 678; Nickels, 541 F.2d at 618; Carothers, 633 F.2d at 14; Basile v. Merrill, Lynch, Pierce, Fenner & Smith, 551 F.Supp. 580, 592 (S.D.Ohio 1982).

Preliminarily this Court rejects the ten-year statute of limitations period chosen in Denny. Denny was decided prior to recent amendments in Tennessee’s Blue Sky Law antifraud provisions which, since amended, is very similar in its language to that found in Rule 10b-5. Additionally, Denny was decided prior to the Tennessee Supreme Court’s decision in Vance v. Schulder, 547 S.W.2d 927 (Tenn.1977) which held that the applicable statute of limitations for an action sounding in deceit is three years.

A comparison of the elements that must be proven to establish a 10(b) or 10b-5 cause of action with those required to establish a common law action for deceit (fraud) and, an action under Tennessee’s Blue Sky Law antifraud provision, reveals that the elements of a claim for common law deceit under Tennessee law more closely resembles the elements of a 10(b) and 10b-5 action than do those required under the Blue Sky Law.

Generally, to state a private cause of action under 10(b) and 10b-5, the claimant must establish the following elements:

1) the use of jurisdictional means 2) to implement a deceptive or manipulative practice (with the requisite scienter) 3) in connection with 4) the purchase or sale 5) of a security 6) causing 7) damages.

Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017, 1026 (6th Cir.1979).

Typically in an action under 10(b) and 1 Ob-5, damages are measured by the difference between the fair value of all that the defrauded purchaser received and the amount that the defrauded purchaser paid. Nickels v. Koehler Management Corp., 541 F.2d 611, 617 (6th Cir.1976).

Tennessee’s common law action for deceit requires proof of almost identical elements. Tennessee law recognizes two distinct types of fraud (deceit): intentional fraud and negligent fraud. See Union Planters National Bank of Memphis v. Commercial Credit Business Loans, Inc., 651 F.2d 1174, 1186 (6th Cir.1981). However, for purposes of the issues at bar, this Court need only consider the elements of an action for intentional fraud (deceit).

At common law, an action for deceit is established by proof:

(1) that a false misrepresentation has been made knowingly, without belief in its truth or recklessly (whether it be true or false) [This requirement is equivalent to Rule 10b-5’s scienter requirement. See, Union Planters, 651 F.2d at 1186 n. 17.];

(2) of an existing or past material fact;
(3) which induces reasonable reliance; and
(4) results in damages.

Edwards v. Travelers Ins. of Hartford, Connecticut, 563 F.2d 105, 110-13 (6th Cir. 1977). An award of damages for deceit under Tennessee law is measured by the difference between the actual value of the property received at the time of the making of the contract and the value that the property would have had if the representations had been true. Haynes v. Cumberland, Inc., 546 S.W.2d 228, 233 (Tenn.Ct.App.1976).

The nearly, if not entirely, identical elements of a common law deceit action and a 10(b)/10b-5 action provide a distinct contrast to the results of a comparison of the elements of a 10(b)/10b-5 and a Tennessee Blue Sky Law cause of action. First, although no court appears to have interpreted § 48-2-121, it is clear from the text of the statute, that § 48-2-122(a)(2) makes any person who sells a security in violation of § 48-2-121(a) liable for damages. However, unlike an action under 10(b) and 10b-5 which generally authorizes a court to award damages measured by the difference between the value of the security purchased and the amount paid, T.C.A. § 48-2-122(a)(2) authorizes an action for rescission to recover the consideration paid after intentional or negligent fraud.

In addition, under § 48-2-122(c), a person who “willfully engages in any act or conduct” which violates § 48-2-121 shall be liable for damages. The meaning of “willfully” is not clear in this context but appears to mean intentionally. So construed, the elements of a cause of action under this provision differ from those of a 10(b) and 10b-5 action in at least one respect — a 10(b) and 10b-5 action can be established where a seller acts recklessly as well as intentionally. See, Mansbach, 598 F.2d at 1026.

In view of the differences between causes of action under 10(b) and 10b-5 and the Tennessee Blue Sky Laws, and the similarities between actions under the federal laws and Tennessee common law action of deceit, the Court concludes that the three-year statute of limitations period governing common law deceit claims is the applicable state statutory period. Accordingly, defendant Funk’s motion for application of the Tennessee Blue Sky Law statute of limitations period to the federal securities claims is hereby denied.

Defendant Funk also moves for dismissal of plaintiff’s claims alleged under the Tennessee Blue Sky Law because they were filed more than one year after plaintiff should have discovered defendant’s alleged fraudulent wrongdoings. Plaintiff avers that it did not and should not suspect and discover the fraud until August 11, 1984. This sufficiently creates a factual issue on whether plaintiff should have discovered the fraud within one year from the filing of this suit on March 9, 1984.

Furthermore another time period for filing under the Blue Sky Law statute is two years after the act or transaction constituting the violation. Inasmuch as plaintiff’s complaint was filed less than two years after the date of the sale of the stock, May 15, 1982, defendant’s motion to dismiss the claims under the Tennessee Blue Sky Law for untimeliness must be denied.

DECLARATORY JUDGMENT CLAIMS

The tenth claim of Count I of the complaint seeks a declaratory judgment pursuant to 28 U.S.C. §§ 2201 and 2202 that: (A) Media General’s obligation for certain additional payments under the Purchase Agreement is independent of and severable from Media General’s other obligations; (B) Media General has no obligation to make any additional payments; and (C) Media General is entitled to reformation or rescission of part or all of the Purchase Agreement.

Defendants Tanner, Lucas, and Funk have moved to dismiss the tenth claim. In support of their motions, defendants argue that under Tennessee law a contract may not be rescinded in part, that reformation is available under Tennessee law only where mistake or the existence of an alternative, antecedent agreement is plead, and that no actual controversy exists.

In its reply to these motions, Media General apparently concedes that under Tennessee law it had no right to a declaratory judgment that its obligations under the Purchase Agreement are severable or that it is entitled to reformation or rescission. Media General, however, continues to assert that it is entitled to a declaratory judgment that it has no obligation to make any additional payments. For the reasons stated below, the Court disagrees.

Under Tennessee law, a party induced by fraud to enter into a contract may treat the contract as voidable and sue for rescission and restitution, or affirm the contract and bring an action for damages. See, e.g., Vance v. Schulder, 547 S.W.2d 927 (Tenn. 1977). Where the fraudulent misrepresentation relates to the contents or effect of a writing evidencing or embodying an agreement, reformation may be appropriate. See generally, 13 Tenn. Jurisprudence Fraud and Deceit, Section 28 at 232-33 (1984); Restatement (Second) of Contracts, Section 166 (1981).

Where, as here, the purchaser elects to affirm the contract and sue for damages in an action for deceit, he is foreclosed from obtaining relief in the form of a total or partial rescission since granting the declaration requested would effectively constitute a partial rescission of the Purchase Agreement and, possibly, permit an improper recovery on behalf of the plaintiff.

A declaratory judgment has the force and effect of a final judgment. 28 U.S.C. § 2201. As such, a judgment that Media General owes no additional payments under the Purchase Agreement would preclude defendants from receiving any portion of these payments even if the fraudulent acts they allegedly committed caused plaintiff damages in an amount less than the total amount of additional payments which would otherwise be due in the future. In addition, the declaration requested by plaintiff effectively serves as a partial rescission of a contract which is forbidden by Tennessee law. See Baird v. McDaniel Printing Co., 25 Tenn.App. 144, 153 S.W.2d 135 (1941).

For the foregoing reasons, defendants’ motions to dismiss claim 10 of Count I is hereby granted.

COUNT FIVE (EQUITABLE CLAIMS)

' In its First Amendment to the Complaint, Media General added two paragraphs of allegations, a “Count V,” and a prayer for equitable remedies, including a constructive trust, equitable lien, and accounting, as well as preliminary and permanent injunctive relief. Defendants moved to dismiss these claims for two reasons: 1) the restitution and rescission claims alleged in Count V are inconsistent with the affirmation of the contract manifested by the claims for legal damages in the original complaint; and 2) the factual allegations underlying Count V fail to state an independent claim for which any relief, legal or equitable, can be granted.

Turning to defendants’ argument on election of remedies, this Court is obliged to apply Tennessee law. Arber v. Essex Wire Corporation, 490 F.2d 414, 422 (6th Cir. 1974). Tennessee law has expressly defined election of remedies as follows:

An election of remedies in a fact situation must contain: (a) factors making more than one remedial form available; (b) the forms must in their theory, be inconsistent or repugnant; (c) the choice must be a willful one, consciously made; and (d) the remedy chosen must be pursued so as to clearly indicate an irrevocable election. Barger v. Webb [216 Tenn. 275] 391 S.W.2d 664, 666 (1965)

Plaintiff contends that the relief sought in the amended complaint is not inconsistent because it is not seeking to rescind the contract and that even if the remedies were inconsistent, it has made no irrevocable election of the legal remedy. The test of inconsistency in the election is whether the assertion of one remedy necessarily involves the negation or repudiation of the other. Clarke v. Ripley Savings Bank & Trust Co., 181 S.W.2d 386, 27 Tenn.App. 387 (1943). Thus, the Court must determine whether the facts relied on to support plaintiff’s equitable claims are repugnant to or negate the facts relied on as a basis for the legal remedies. Applying this standard, the Court is persuaded that it should not dismiss plaintiff’s fifth count of the complaint. Plaintiff’s pleadings reflect that plaintiff is not attempting to rescind the contract. In Count V, plaintiff seeks to establish an equitable lien for proceeds in excess of the 39-million-dollar purchase price. This claim is clearly one that is consistent with an affirmance of the contract, since plaintiff is not attempting to recover the purchase price but rather secure funds that actually belong to Media General because of defendants’ allegedly fraudulent behavior. Plaintiff has not, therefore, chosen to pursue inconsistent remedies and the case will not be dismissed on that basis.

Even assuming arguendo, that plaintiff’s equitable and legal claims were inconsistent, dismissal of Count V would not be warranted at this junctui’e of the proceedings. Though Tennessee law is not concise as to what point in the litigation a party would have to elect between inconsistent remedies, the law is clear that “election” does not take place at the pleading stage. Barnes v. Walker, 234 S.W.2d 648, 191 Tenn. 364 (1950); Barger v. Webb, 391 S.W.2d 664, 216 Tenn. 275 (1965). Further this Court is persuaded by the reasoning in Petty v. Darin 675 S.W.2d 714 (Tenn.App.1984) that “under our modern rules of pleading and discovery, a party may not know the facts until discovery is completed, or even later, and to require a party to elect between inconsistent theories before the facts in the case are developed would work a great injustice.” (p. 717). Thus the Court concludes dismissal would not be appropriate, due to failure to elect, at this stage of the proceedings.

Finally defendants argue that dismissal of Count V is warranted because plaintiff has alleged no new wrongdoings to support its request for equitable relief. Defendants argue that plaintiff’s pleadings fail to demonstrate that Media General as a potential judgment creditor will in any way be harmed by defendants’ investment of the proceeds of the sale. The Court cannot accept defendants’ constrained reading of plaintiff’s complaint. To reemphasize in a motion to dismiss, the complaint must be construed in the light most favorable to the plaintiff and its allegations must be accepted as true. Plaintiff’s pleadings and memoranda, when liberally construed, clearly express concern that defendants would attempt to conceal assets so as to hinder plaintiff’s judgment rights. Accordingly, defendant’s proposition fails and Count V remains.

FRAUD CLAIMS

The Brown defendants seek dismissal of Count IV on the grounds that the five claims alleged against them therein are premised upon fraud and that plaintiff has failed to plead the allegedly fraudulent transactions with particularity, pursuant to Fed.R.Civ.P. 9(b).

Precisely, the Brown defendants contend that the fraud claims in Count IV are vague, uninformative and nowhere identify the time, place or the maker of the alleged representations and statements made to Media General by the Brown defendants. To support their contention, defendants direct the Court’s attention to paragraphs 25 through 27 and 34 of the complaint.

Rule 9(b) of the Federal Rules of Civil Procedure is explicit in its mandate that “in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Courts have construed the language of Rule 9(b) “circumstances constituting fraud” to require particularized pleadings of the alleged falsehood as well as defendants’ alleged knowledge of the falsehood. Additionally pleading of matters such as the time, place and content of the alleged false representations is required. Wayne Inc. v. Gulf Oil Corp., 739 F.2d 11, 12 (1st Cir.1984); McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 228 (1st Cir.1980); Reliman v. Ics., Inc., 447 F.2d 1305 (6th Cir. 1971).

Upon review of the complaint, the Court concludes that plaintiff has alleged with sufficient particularity what defendants’ alleged wrongdoings included. The complaint, however, is lacking with regard to pleading those facts that would demonstrate defendants had knowledge of the wrongdoings.

Inasmuch as plaintiff’s complaint surpasses all other aspects of particularized pleading requirements of Rule 9(b), the Court concludes that dismissal is not warranted at this juncture of the proceeding. Rather, plaintiff is hereby ordered to file a more definite statement alleging with particularity defendants’ knowledge of the alleged fraudulent wrongdoings.

Defendant Funk moves the Court for an order directing the plaintiff to file a more definite statement of the time, place and circumstances of the fraud alleged in the original complaint. Additionally, Funk moves the Court to order plaintiff to plead with more particularity all such aspects of plaintiff’s efforts or attempts to discover defendant’s alleged fraudulent wrongdoings.

The first part of defendant Funk’s motion is directed at defendant’s lack of knowledge with regard to the charges and the basis of the charges asserted against him. This portion of the motion is merit-less. Upon review of the pleadings and complaint filed herein, the Court finds that plaintiff has set forth with particularity the time, place and content of defendant’s wrongdoing so as to apprise Funk explicitly of the claims against him. Accordingly, defendant’s motion with respect to the time, place and circumstances of the fraud is denied.

In the second part defendant moves the Court to order plaintiff to plead with more particularity the steps plaintiff took in the exercise of due diligence to discover the alleged fraudulent wrongdoings. Defendant Funk argues such particularity in the pleading is required to establish the fraudulent concealment and plaintiff’s due diligence to discover the fraud.

Plaintiff, however, would have the Court find that such particularity is not required in the case at bar. Plaintiff argues that this Case is distinguishable from those cases that require specific pleadings of fraudulent concealment in that the statute in the instant case has a “discoverability” provision whereas the statutes in the cases requiring fraudulent concealment pleading have no such “discoverability” provision.

T.C.A. § 48-2-122(h) provides in pertinent part:

No action shall be maintained under this section unless commenced before ... one (1) year after the discovery of the facts constituting the violation, or after such discovery should have been made by the exercise of reasonable diligence, whichever first expires.

(emphasis added). The “discoverability” language emphasized above was included by an amendment in 1980. It is true that the cases articulating a fraudulent concealment standard of pleading predate the 1980 amendment of T.C.A. § 48-2-122(h), or did not involve statutes with language like the “one year from date of discoverability” portion of T.C.A. § 48-2-122(h). See, e.g., Campbell v. Upjohn Co., 676 F.2d 1122 (6th Cir.1982); Herm v. Stafford, 663 F.2d 669 (6th Cir.1981); Dayco Corporation v. Goodyear Tire & Rubber Co., 523 F.2d 389 (6th Cir.1975).

This Court, however, does not find this fact alone persuasive so as to conclude that Media General need not allege with particularity the actions surrounding its exercise of due diligence. Especially where as here, T.C.A. § 48-2-122(h) expressly states that failure to plead within the one year “after such discovery should have been made by the exercise of reasonable diligence” will bar actions under the statute on the grounds of untimeliness. It follows that it is only logical that a party would need to plead beyond the technical pleading requirement of “reasonable diligence.”

In the instant action, however, the Court finds that Media General has sufficiently alleged actions surrounding its use of reasonable diligence to discover defendant’s fraudulent wrongdoings. In its pleadings Media General alleged: acts of concealment by defendant; that it failed to discover defendant’s wrongful acts until after August 11, 1983; and that its failure to detect the fraud was due to defendant’s control, management and operation of the Company as a fiduciary to plaintiff.

Accordingly, defendant’s motion for a more definite statement is hereby denied.

COSTS AND FEES

Defendant Funk requests the Court to require an undertaking by plaintiff for costs, fees, and other litigation expenses of defendant Funk. This motion is filed pursuant to 15 U.S.C. § 77k(e), of the Securities Act of 1933, which provides in pertinent part:

“In any suit under this or any other section of this subchapter the court may, in its discretion, require an undertaking for the payment of the costs of such suit, including reasonable attorney’s fees, and if judgment shall be rendered against a party litigant, upon motion of the other litigant, such costs may be assessed in favor of such party litigant (whether or not such undertaking has been required) if the court believes the suit or the defense to have been without merit____”

Defendant Funk concedes that the motion is not yet timely, but rather contends that his intent is to preserve this relief for the appropriate state of litigation.

The Court hereby notes receipt of defendant’s motion and will reserve disposition until a later stage of the litigation.

MOTION FOR STAY

Defendant Funk requests the Court to certify, pursuant to 28 U.S.C. § 1292(b) certain issues to the Court of Appeals for the Sixth Circuit, and moves the Court to stay the present proceedings pending a ruling on the issues so certified. The Court’s review of the issues present in this action, and the factual allegations asserted by the parties reveals that none of the issues presented warrant certification.

It is this Court’s duty to decide issues of law which are presented to it and only in novel circumstances will this Court be justified in certifying issues to the court of appeals. The pertinent claims, although difficult and open to dispute, do not merit certification.

Accordingly, defendant’s motion to stay is hereby denied.

CONCLUSION

To summarize, the Court orders dismissal of:

(1) Alleged violations of Section 17(a) of the 1933 Securities Act;

(2) Alleged claims of property damage under 18 U.S.C. § 1962. (This does not include alleged damages to business); and

(3) claim for declaratory relief under 28 U.S.C. §§ 2201 and 2202.

The Court further orders:

(1) plaintiff to allege with more particularity claims against Brown and BCB; and

(2) that decision on defendant Funk’s motion for undertaking of costs and fees is hereby reserved.

Finally, all other motions addressed in this Order are denied.

ALL OF THE ABOVE IS SO ORDERED.


author: GESELL, District Judge.

text:
    Phillip E. PENDER, Plaintiff, v. NATIONAL RAILROAD PASSENGER CORPORATION, Defendant.
    Civ. A. No. 85-1833.
    United States District Court, District of Columbia.
    Nov. 14, 1985.

      H. Vincent McKnight, Jr., Washington, D.C., for plaintiff.
    Theodore M. Kerrine, Sally D. Garr, Washington, D.C., for defendant.
   MEMORANDUM

GESELL, District Judge.

The Court has before it defendant’s motion to dismiss the complaint, plaintiff’s opposition, replies filed by plaintiff and defendant and defendant’s motion for security for costs. For reasons stated below, the Court determines that the complaint should be dismissed and the motion for security for costs dismissed as moot.

The Complaint

Plaintiff, a black man, was employed by defendant as an Assistant Train Director responsible for directing train traffic in and out of Union Station. On March 21, 1984 plaintiff’s supervisor instructed him to take a track out of service to permit workmen to do maintenance and repair work. Plaintiff failed to do so and a train advanced onto the track where workers were eating lunch but the workers were able to move out of the way in time to avert injury. Plaintiff was immediately suspended. After a hearing conducted by the company plaintiff was disqualified from working as an Assistant Train Director, and demoted to a position in another department at lower pay on April 25, 1984. Plaintiff's suspension and demotion was unsuccessfully appealed by his union. Plaintiff did not pursue an appeal to the National Railroad Adjustment Board (NRAB). Plaintiff filed this action on June 5, 1985.

In Count I plaintiff alleges that defendant discriminated against him in violation of 42 U.S.C. § 1981 because at least two white employees who committed the same error were never suspended or demoted. In Count II plaintiff alleges that defendant inflicted emotional distress upon him by suspending and demoting him and by conducting the hearing on plaintiff’s demotion in a manner which prevented his representatives from presenting the unfairness of defendant’s treatment.

Defendant maintains that the complaint must be dismissed because plaintiff’s claims are preempted by The Railway Labor Act and barred by the applicable statute of limitations. We discuss each of these contentions in turn.

I. Preemption of § 1981 Action by the Railway Labor Act.

The exclusive remedy for wrongful discharge or other minor disputes under a railroad collective bargaining agreement is the federal dispute settlement procedures provided by the Railway Labor Act, which provides for an appeal to the NRAB and limited judicial review of the NRAB’s decision. 45 U.S.C. § 153; Union Pacific Railroad v. Sheehan, 439 U.S. 89, 99 S.Ct. 399, 58 L.Ed.2d 354 (1978); Andrews v. Louisville & Nashville Railroad Co., 406 U.S. 320, 92 S.Ct. 1562, 32 L.Ed.2d 95 (1972). The Supreme Court has left open the question of whether railroad employees must exhaust their administrative remedies under the act before bringing a § 1981 claim against their employer. Johnson v. Railway Express Agency, 421 U.S. 454, 457 n. 3, 95 S.Ct. 1716, 1718 n. 3, 44 L.Ed.2d 295 (1975).

The Court rejects defendant’s argument that the Railway Labor Act requires exhaustion and preemption, and holds that the Act does not prevent railway employees from bringing civil rights suits under § 1981. The purpose of vesting the NRAB with exclusive jurisdiction over disputes which arise out of a collective bargaining agreement or are so closely related that there is a realistic threat that concurrent state court jurisdiction would interfere with the federal regulatory scheme is to create a single administrative forum for resolving collective bargaining disputes. Union Pacific, 439 U.S. at 94, 99 S.Ct. at 402; Andrews, 406 U.S. at 324, 92 S.Ct. at 1565; Farmer v. United States Brotherhood of Carpenters & Joiners of America, 430 U.S. 290, 305, 97 S.Ct. 1056, 1066, 51 L.Ed.2d 338 (1977). However, railway employees’ federal statutory remedy for violations of § 1981 is independent of their collective bargaining rights. The preemption of this civil rights remedy cannot lightly be assumed. Even the closely analogous remedies provided under Title VII do not preempt or restrict this independent remedy for discrimination in employment. Johnson v. Railway Express, 421 U.S. at 460, 95 S.Ct. at 1720. There is no basis for concluding that the collective bargaining remedies provided by the Railway Labor Act should do so.

Moreover, courts have repeatedly emphasized that statutory civil rights employment remedies supplement existing remedies under employment statutes and collective bargaining agreements. Alexander v. Gardner-Denver Co., 415 U.S. 36, 47-48, 94 S.Ct. 1011, 1019, 39 L.Ed.2d 147 (1973); Laffey v. Northwest Airlines, Inc., 567 F.2d 429, 445 (D.C.Cir.1976), cert. denied, 434 U.S. 1086, 98 S.Ct. 1281, 55 L.Ed.2d 792 (1978). In addition, employees need not exhaust administrative remedies under a collective bargaining agreement or federal labor laws before bringing a civil rights action — even if the collective bargaining grievance procedure provides a remedy for discrimination. See Alexander, 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147; Guerra v. Manchester Terminal Corp., 498 F.2d 641, 658, rehearing denied, 503 F.2d 567 (5th Cir.1974) (interpreting National Labor Relations Act). “Both rights have legally independent origins and are equally available to the aggrieved employee.” 415 U.S. at 52, 94 S.Ct. at 1022. The same principles apply to the Railway Labor Act, which does not indicate any Congressional intent to preempt or alter the remedies created by federal civil rights statutes. The Court concludes that § 1981 provides a parallel and overlapping cause of action, with its own procedures and remedies, which is not displaced by the Railway Labor Act.

II. Statute of Limitations for § 1981.

Since Congress provided no statute of limitations for § 1981 actions, federal courts must adopt an appropriate limitations period from local law. 42 U.S.C. § 1988; Johnson v. Railway Express, 421 U.S. at 462, 95 S.Ct. at 1721. Defendant argues that a one-year period of limitations applies because plaintiff’s allegations essentially state a cause of action for intentional infliction of emotional distress that is much like the intentional torts enumerated in D.C.Code § 12-301(4), which provides for a one year period of limitations. Hanock Tel-Oren v. Libyan Arab Republic, 517 F.Supp. 542, 550 (D.D.C.1981). Moreover, defendant argues, plaintiff’s allegations are directly analogous to the District of Columbia’s Human Rights Law which also provides a one year limitations period. Davis v. Potomac Electric and Power Co., 449 A.2d 278 (D.C.App.1982).

Whatever the merits of defendant’s conclusion, defendant’s analysis of how to select the appropriate statute of limitations is incorrect in light of the Supreme Court’s decision in Wilson v. Garcia, — U.S. -, 105 S.Ct. 1938, 85 L.Ed.2d 254 (1985). In analyzing the “appropriate” local limitations period for § 1983 claims the Court stated that predicating “the choice of the correct statute on an analysis of each claim ... inevitably breeds uncertainty and time consuming litigation that is foreign to the central purposes of § 1983 ... Moreover, under such an approach different statutes of limitations would be applied to the the various § 1983 claims arising in the same State, and multiple periods of limitations would often apply to the same case.” 105 S.Ct. at 1945-46. (footnotes omitted). Instead, the Court concluded that 42 U.S.C. § 1988 “is fairly construed as a directive to select, in each State, the one most appropriate statute of limitations for all § 1983 claims.” 105 S.Ct. at 1947. A single, uniform limitations period for all causes of action brought under § 1983 serves the federal interests in uniformity, certainty, and minimization of unnecessary litigation. This approach to § 1988 applies to choosing the appropriate limitations period for § 1981 claims as well.

Initially, the Court finds that the statute of limitations for § 1981 actions need not be the same as that for actions under § 1983 or other Reconstruction civil rights statutes. See Burnett v. Grattan, 468 U.S. 42, -n. 11, 104 S.Ct. 2924, 2929 n. 11, 82 L.Ed.2d 36 (1984) (deciding not to address the issue). Uniformity and certainty do not require that all § 1981 and § 1983 actions be governed by one limitation period. These statutes were passed at different times and seek to remedy different types of civil rights violations. Section 1981 prohibits racial discrimination by public officials or private individuals in specific activities, such as making contracts and bringing suit. In contrast, § 1983 only applies to state actors, but addresses “deprivation of any rights, privileges or immunities secured by the Constitution and laws.” 42 U.S.C. § 1981. The Supreme Court’s analysis in Wilson implies that § 1983 is to be separately analyzed in choosing the most appropriate statute. Unlike § 1983, the remedies established by § 1981 are not “more analogous to tort claims for personal injury than, for example, to claims for damages to property or breach of contract.” Wilson, 105 S.Ct. at 1948.

Applying the analysis in Wilson to § 1981 indicates that a one-year limitations period is appropriate. The causes of action that may be brought under § 1981 are most analogous to breach of contract actions, employment grievances, and complaints for denial of the right to use public accomodations. The most appropriate local cause of action from which to adopt a single limitations period for these actions is the District of Columbia Human Rights Act. D.C.Code §§ 1-2501 — 1-2557. That statute provides for private civil causes of action for discrimination in employment, id. § 1-2512, discrimination in real estate transactions, id. § 1-2515, acts of discrimination by brokers or salesmen, id. § 1-2517, and discriminatory practices in public accommodations and educational institutions, id. §§ 1-2519, 1-2520. These remedies substantially overlap or duplicate the remedies provided by § 1981. In setting the one year limitation period for the Human Rights Act the local legislature necessarily took “into account the practicalities that are involved in litigating federal rights claims and policies that are analogous to the goals of the Civil Rights Acts.” Burnett v. Grattan, 468 U.S. at-, 104 S.Ct. at 2930 (1984). Adopting the one-year limitations period for Human Rights Act actions as the appropriate local limitations period is in accord with prior decisions of this Court. Foster v. National Railroad Passenger Corp., 610 F.Supp. 881 (D.D.C. 1985); Blake v. American College of Obstetricians and Gynecologists, 608 F.Supp. 1239, 1242-1243 (1985); Parker v. B & O Railroad Co., 555 F.Supp. 1182, 1187 (1983).

Plaintiff’s contention that the one-year limitations period of the Human Rights Act is inappropriate because the same limitations period applies to administrative remedies under the statute is without merit. Court actions under the statute, involving all the practical difficulties and burdens involved in § 1981 litigation, are subject to the one-year limitations period. See Burnett, 468 U.S. at-, 104 S.Ct. at -. The presence of a less burdensome, parallel administrative remedy with the same limitations period does not make adopting the time period for judicial actions inappropriate. Plaintiff’s argument that his demotion involves a “continuing violation” is also without merit. The continuing impact of his demotion over a year ago does not establish the present violation necessary to avoid the statute of limitations. See United Air Lines v. Evans, 431 U.S. 553, 97 S.Ct. 1885, 52 L.Ed.2d 571 (1977).

Accordingly, plaintiff’s § 1981 claim must be dismissed as barred by the one-year limitations period.

III. Emotional Distress Claims.

Plaintiff’s complaint, at best, only invokes the federal question jurisdiction of the Court for actions brought under § 1981. Since his federal claims have, been dismissed before trial his pendent state common law claims should also be dismissed at this stage.

Moreover, plaintiff’s allegations fail to state a claim upon which relief can be granted. The allegation that plaintiff’s demotion was discriminatory because white employees were treated differently, absent any indication of harassment or outrageous conduct, fails to state a claim for intentional infliction of emotional distress. See Howard University v. Best, 484 A.2d 958 (D.C.App.1984). His allegation that the hearing on his demotion was improperly conducted is merely a challenge to the adequacy of remedies provided under the Railway Labor Act, which plaintiff did not pursue, and is under the exclusive jurisdiction of the NRAB. Plaintiff’s claim is not independent of the collective bargaining agreement since the demotion and plaintiff’s right to a proper hearing are governed by the agreement and the federal statutory scheme. See Farmer, 430 U.S. 290, 97 S.Ct. 1056, 51 L.Ed.2d 338; Magnuson v. Burlington Northern, Inc., 576 F.2d 1367, 1369 (9th Cir.1978), cert. denied, 439 U.S. 930, 99 S.Ct. 318, 58 L.Ed.2d 323 (1978).

Accordingly, plaintiff’s complaint shall be dismissed in its entirety. Each side shall bear its own costs. Defendant’s motion for security for costs is dismissed as moot. An appropriate order is filed contemporaneous with this memorandum.