author: DORSEY, Judge.

text:
    AUTOMATIC COMFORT, CORP. v. D & R SERVICE, INC.
    No. Civ. H-84-1069 (PCD).
    United States District Court, D. Connecticut.
    Oct. 28, 1985.

      Eliot B. Gersten, John K. Atticks, III, Gersten & Gersten, Hartford, Conn., for plaintiff.
    Richard W. Farrell, Farrell & Barr, Stamford, Conn., for defendant.
   MEMORANDUM OF DECISION

DORSEY, Judge.

In order to obtain the clear right to treat as breached two contracts entered into with defendant, plaintiff seeks a judgment declaring defendant’s rights under the contracts null and void. Plaintiff claims it is not limited by the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. § 2801, et seq., and asks for a declaratory judgment to that effect. Defendant claims rights under PMPA to preclude plaintiff’s untrammeled invocation of self-help in response to defendant’s alleged breaches of contract.

Jurisdiction is found. 28 U.S.C. §§ 1331, 1337, 2201 and 2202.

Facts

1. Defendant operates two retail, self-serve gasoline stations under separate, but essentially identical contracts with plaintiff. See Exhibits A and B. Neither station provides ancillary maintenance, inspection or repair services to motorists. Each location’s operating licenses are obtained by and paid for by plaintiff and issued in plaintiff’s name.

2. Plaintiff purchases motor fuel from refiners and suppliers on credit, and resells, either at retail locations operated and owned or leased by it, or to retailers who own their own station locations or lease from third parties or from plaintiff. At the two stations operated by defendant and owned by plaintiff, the latter paid for construction of the structures thereon and all equipment there provided. Plaintiff pays all property and gasoline taxes related to defendant’s locations.

3. Plaintiff’s fuel sources include refiners which use trademarks and trade or brand names in marketing their product, two of which, Texaco and Mobil, are used by defendant with the permission of the trademark owner.

4. Each contract between plaintiff and defendant was for one year, but could be renewed.

5. The contracts vest defendant with the right to operate and manage in New Britain and Southington, two gasoline stations for retail sale of motor fuel under brand names and trademarks as permitted by the respective refiners.

6. Defendant received commissions specified by plaintiff on the sale of the gasoline, antifreeze and cigarettes, all supplied by plaintiff. The contracts characterize defendant as a commission agent. Defendant earns additional income, as allowed under the contracts, from the sale of lottery tickets and “novelties” as authorized by plaintiff.

7. The parties’ mutual interests motivated maximization of sales of all products to the public.

8. The two contracts were drawn by plaintiff. The extent of the negotiations which preceded them is disputed.

9. Defendant is a corporation, the legal alter ego of Donald Longo, defendant’s principal employee, officer and shareholder, and guarantor of defendant’s contract obligations.

10. Each contract was automatically renewable for one year terms unless a party noticed an intention to terminate or not seek renewal at least ninety days before expiration. The relationship was expected to last beyond one year.

11. Plaintiff did not wish nor intend that defendant come within PMPA in order to avoid the rights created by PMPA in a franchisee. Each contract contains an explicit disclaimer of applicability of the franchise law. The contracts were accompanied by the “summary of rights” required by 15 U.S.C. § 2802.

12. In May 1984 plaintiff determined and duly noticed its intention not to renew the contracts. Such notice complied with the contracts and with PMPA without explicit reference to either.

13. The relationship of the parties was the subject of subsequent negotiation, and they have operated under the contract pending resolution of this case. Plaintiff’s position is that the contracts are terminated, it is not obliged under PMPA, and it is entitled to a declaratory judgment. Defendant’s view is that the contracts continue in effect and it is entitled to the rights conferred upon a franchisee by PMPA.

14. Plaintiff was obliged to supply products to defendant for retail sale at prices which plaintiff could set at will. Defendant earned commissions at rates also set by plaintiff. Sales of other products and all signs and displays were subject to plaintiff’s approval. Plaintiff’s obligation to supply products was excused in the event of problems in its obtaining a supply of gasoline. Plaintiff retained title and ownership of the products it supplied until they were sold to retail customers. Plaintiff paid its suppliers for all products delivered to the two stations.

15. Defendant received cash from retail sales and was obliged to deposit the receipts daily, after deduction of its commission, in plaintiff’s bank accounts. The commission was 3.2 cents per gallon. Credit card sales were processed as plaintiff directed. Defendant was subject to backc-harges for any sales wherein defendant failed to follow plaintiffs “credit card guidelines.” Those chargebacks amounted to slightly in excess of $300 for the three year period of the contracts.

16. Defendant was obliged to report and account for all products supplied by plaintiff and thus was responsible and charged for products unpaid for including drive-aways, a risk virtually eliminated by customers’ prepayments for gas. Defendant was responsible for any loss or damage of products from causes within defendant’s control, leaving to plaintiff the risk of loss in any other manner.

17. Plaintiff reserved all rights in the property and fixtures, including determination of the use of the property not involved in gasoline sales. Rebuilding of the structure would be at plaintiff’s determination with a resulting suspension of the operation and defendant’s income.

18. Defendant was to maintain the premises and equipment in good condition and was obliged to save plaintiff harmless from all claims arising from the equipment or its use and to pay for restoration and replacement of the equipment except when required as a result of wear or age. Defendant was to insure plaintiff’s liability to third persons. Defendant was not required to insure the property, equipment or products on hand.

19. Defendant was to provide expeditious and courteous service to customers by clean, neat employees in compliance with standards and requirements of plain-tiff as in the contract and to keep the premises clean, attractive and well lighted. Defendant hired its own employees. Plaintiff supervised the performance of these duties.

20. Defendant was required to provide a security alarm and to remove snow and ice.

21. Defendant was obliged to comply with all laws and regulations pertinent to gasoline sales and to hold plaintiff harmless therefrom.

22. Defendant was deemed “an independent business man for purposes of all laws, federal, state and local.” Defendant was obliged to pay all expense of the operation of the pumps and to employ all persons necessary to operate the business. Defendant was to comply with all laws related to the business, including wage, hour, unemployment, insurance, compensation, occupational hazard, health and tax laws.

23. Defendant supplied a security deposit to insure its contract compliance.

24. Defendant rented brand identification signs and credit card machines which imprinted plaintiff’s name on the charge slips which were processed by plaintiff for its account.

25. Per the disclaimer, defendant was an independent agent of plaintiff for the purpose of operating “the gasoline islands.” The stated purpose was not “to create ... a franchise which would be subject to the provisions of any state or federal law, rule or regulation pertaining to franchises.” Each party was responsible for the other’s costs and attorney’s fees for defense of any assertion of franchise rights.

26. The stations are operated from a booth where an employee of defendant receives money, makes change, controls the flow of gasoline through pumps and sells other items.

27. Defendant pays no rent to plaintiff for or related to the premises.

28. Defendant pays for all utilities.

29. Plaintiff can sell products other than those of Mobil or Texaco, the brands sold at the two locations.

30. Plaintiff wishes to terminate the agreement based on “poor sales performance” allegedly resulting from defendant’s inability to operate the two locations.

31. Defendant claims to have built good will at both locations and plaintiff is alleged to be seeking to capitalize on and acquire that good will by excluding defendant.

Discussion

The Connecticut Petroleum Franchise Law Is Not Before Court

Plaintiff has sought a declaratory judgment that its contracts with defendant are not subject to PMPA and that on the basis solely of the contracts’ language it may terminate them by giving notice as provided for therein without being subject to either the notice requirements or termination restrictions of PMPA. Defendant, without prior assertion of its claim either in the pleadings or in compliance with the court’s Trial Preparation Order, in its post-trial brief, has suggested its right to rely on the Connecticut Petroleum Franchise Law. Conn.Gen.Stat. §§ 42-133j-133n. As this claim is not an issue raised by the complaint or the answer, and was not asserted in the issue framing procedure established by the court’s Trial Preparation Order, the Connecticut statute will not be considered in relation to the respective rights of the parties.

PMPA

Defendant invokes PMPA on essentially two grounds: (1) it is either a distributor or retailer as defined by PMPA and its contracts with plaintiff constitute a franchise; and (2) under a broad construction of PMPA it is an independent business entity, not an employee of plaintiff, with substantial indicia of entrepreneurial responsibility and it is substantially at risk in its operation of the two stations. Thus defendant claims that it is within the contemplation of Congress as an entity intended to be protected by PMPA.

Franchise Status

PMPA was enacted to insure availability of competitive sources of fuel for the public’s motor vehicles and to protect the retail dealers who are at the bargaining mercy of the giants of the oil industry. See Rep. No. 95-731, 95th Cong. 2nd Sess., 30-31, reprinted in 1978 U.S.Code Cong. & Ad. News 873, 888-89. To insure stability in retailing of gasoline, PMPA created certain notice requirements and limitations on the reasons for termination or non-renewal of a dealer’s contract.

Congress did not limit the distribution process to specific, narrowly defined relationships. Instead, it described the characteristics of relationships it intended to cloak with protection. Yet not all relationships would be subject to the terms and conditions of PMPA.

A franchisee is defined as “a retailer or distributor ... authorized or permitted, under a franchise, to use a trademark in connection with the sale, consignment, or distribution of motor fuel.” 15 U.S.C. § 2801(4). Defendant is not a distributor. Though it receives gasoline in a narrow sense of the word, as the custodian while the gasoline is stored for retail sale at the station, it does not sell gasoline to its own accounts. A distributor is defined as

any person ... who—
(A) purchases motor fuel for sale, consignment or distribution to another; or
(B) receives motor fuel on consignment for consignment or distribution to his own motor fuel accounts or to accounts of his supplier, but shall not include a person is an employee of, or merely serves as a common carrier providing transportation for, such supplier.

15 U.S.C. § 2801(6). The contemplation of Congress was that a distributor was a middle man, a jobber, Johnson v. Mobil Oil Corp., 553 F.Supp. 195, 198 (S.D.N.Y.1982), not an alter ego to a retailer. A distributor is “not a dealer selling to the public at retail.” Id. See Checkrite Petroleum, Inc. v. Amoco Oil Co., 678 F.2d 5, 8 (2d Cir.), cert. denied, 459 U.S. 833, 103 S.Ct. 74, 74 L.Ed.2d 73 (1982). If defendant were correct, there would be. no need to define a retailer to fit into the scheme of the act which includes refiners, distributors and retailers. The end of the chain of distribution is a retailer who sells to consumers. Selling fuel to individual customers does not constitute selling to a motor fuel account. The latter connotes a mercantile relationship with volume sales. Defendant cannot cloak itself with PMPA status as a distributor solely on the basis that it “received” motor fuel and at best can claim to be a retailer. See Farm Stores, Inc. v. Texaco, Inc., 763 F.2d 1335 (11th Cir.1985).

A retailer is defined as “any person who purchases motor fuel for sale to the general public for ultimate consumption.” 15 U.S.C. § 2801(7). Defendant does indeed sell to the general public for its ultimate consumption. However, defendant fails to qualify as a purchaser. It does not act as a traditional purchaser. It does not determine what gasoline it will purchase and then make arrangements for the specific purchases. Plaintiff does all of that. It does not negotiate, contract, arrange credit or pay for the gasoline. Plaintiff does all those things in order to supply gasoline to each location. Title to the gasoline is not acquired by defendant, but is reserved exclusively to plaintiff. Defendant stands no risk for the loss of any gasoline except from causes within its control. It neither pays a fixed price for gasoline nor at any specific time in relation to its delivery. Rather, defendant deposits to plaintiff’s account the net sale proceeds, i.e., gross revenue less its commission. Defendant is not affected by any change in the retail price as it may reflect or cause an altered market value. It does not control the retail price and is not at substantial risk in the price fluctuation. Defendant was not required to insure the gasoline inventory and presented no evidence that it deemed itself to be at risk, or that it had an insurable interest, or that it purchased insurance on the gasoline. Defendant pays no taxes related to the gasoline. Its credit is not involved. It is not the licensed retailer. See Farm Stores, Inc., 763 F.2d 1335.

Mere custodianship of the gasoline does not vest defendant with title. As between themselves, the parties clearly could and did reserve, pursuant to the contract, all title in plaintiff. Defendant has not shown, nor does it claim, any right to act- as the owner of the gasoline and to deal with its property as it chooses, free of any intrusion on its rights by others. While ownership may be divided, there is nothing here to show any actual or intended right of ownership in defendant. Defendant was merely and purely a custodian.

As defendant is neither a distributor nor retailer within the specific language of the act, it would not appear to be protected by PMPA. Checkrite Petroleum, Inc., 678 F.2d 5. That result is not inconsistent with the explicit disclaimer of a franchise status in the two contracts. However, by use of titles, status descriptions or disclaimers, neither one party, by the power of its negotiating strength, nor both parties, by agreement, may avoid a public policy where Congress has engrafted, and thus overridden the terms of a contract, those rights deemed necessary to effectuate the policy. “The interests of the government also frequently override agreements that private parties make.” Simpson v. Union Oil Co., 377 U.S. 13, 18, 84 S.Ct. 1051, 1055, 12 L.Ed.2d 98 (1964).

Notwithstanding the seeming clarity in the language of PMPA with which the analysis must start, Lewis v. United States, 445 U.S. 55, 60, 100 S.Ct. 915, 918, 63 L.Ed.2d 198 (1980), the act has been broadly construed, not infrequently using analogous antitrust differentiations such as that between an employee and an independent businessman. Simpson v. Union Oil Co. The contracts in question cloud this issue in referring at once to defendant as “agent,” Exhibits A and B at 1, while disclaiming any authority in defendant to bind plaintiff, but, more significantly, agreeing that defendant “is an independent businessman for purposes of all laws, federal, state and local.” Exhibits A and B at 5. While the parties may not subvert a policy mandated by Congress it is not insignificant, particularly in a close case, that the parties’ bargain did not include nor intend PMPA protection. Defendant, despite its present protest that its disparate bargaining power resulted in a disclaimer of PMPA coverage, cannot, on this claim alone, come within PMPA. Rather, applicability of the PMPA to plaintiffs arrangement with defendant must be assessed according to the nature and character of the relationship. Thus, against the backdrop of the parties’ recitations with respect to their relationship, the question is whether the characteristics of that relationship require defendant to be deemed entitled to the rights and privileges of PMPA.

A determination of whether one is or is not within PMPA depends on the existence of significant indicia of entrepreneurial responsibility in the station operator and a showing that that person is at substantial market risk. The absence of either results in the operator’s being deemed an employee and not an independent businessman.

Station operators such as defendant are either “employees ... or independent businessmen.” Johnson v. Mobil Oil, 553 F.Supp. at 197. The fertile minds of negotiators of contracts similar to that in this case defy that “either or” distinction as they craft relationships for particular advantage and risk a court’s ability to categorize a party readily as either an employee or an independent businessman. The parties’ characterization of defendant’s status is, as a result of the incorporation and inclusion of attributes from both categories, unhelpful and not determinative of the issue. It is sounder to determine whether, on balance, the facts in light of defendant’s burden of proof demonstrate sufficient entrepreneurial responsibility and exposure to market risks to warrant finding defendant to be within Congress’ intended ambit of PMPA protection. Sanna v. Friendly Service Stations, Inc., 593 F.Supp. 493 (D.Conn.1983); Johnson v. Mobil Oil, 553 F.Supp. at 199. The suggested focus is on the presence of financial risk imposed on operators in the operation of their stations absent which employee status has been found “despite significant indicia of independent business status.” Id.

Following Johnson, defendant does indeed have significant indicia of independent business status as follows:

1. Defendant hires and fires employees, sets and pays their salaries, their workers and unemployment compensation, social security and withholding, and all lawful obligations arising from their employment. Those employed at the stations are in name and reality defendant’s employees.

2. Defendant operates the stations in accordance With standards set by plaintiff and is required to employ persons necessary for the operation.

3. Defendant is obliged for the following expenses:

(a) utilities;
(b) liability insurance, including plaintiff’s liability to third persons;
(c) routine daily maintenance of equipment and structures;
(d) equipment restoration or replacement except for that necessitated by normal wear and tear;
(e) snow and ice removal;
(f) pump operation;
(g) lease of brand signs and credit card machines

4. Defendant is obliged to comply with the requirements of law, including zoning, health and occupational hazard requirements.

5. Defendant is obliged to provide a security system.

6. Defendant is obliged for credit card chargebacks if plaintiff’s procedure is not followed.

7. Defendant has no fixed salary. Its compensation is unrelated to the price per gallon of gasoline.

8. Defendant was provided with a “summary of rights,” required by PMPA, along with the contracts. The notice of termination complies with PMPA. This may have been a legitimate hedge to avoid liability which might have been imposed should PMPA be applied, notwithstanding the disclaimer.

9. Defendant is required to make a detailed accounting to plaintiff for the operation of the gas stations, including specifically the sale of gasoline.

In contradiction of the indicia of entrepreneurial responsibility are the following:

1. The contracts disclaim any franchise rights.

2. Plaintiff retained the right of supervision and inspection of the operation of the stations.

3. The operation of the stations was required to meet plaintiff's standards.

4. The station licenses were in plaintiff’s name and paid for by it.

5. Plaintiff had the right to set prices.

6. Plaintiff determined the products which could be sold other than those specified in the contract.

7. Plaintiff determined the use of that part of the property which is not used for gasoline sales.

8. Defendant’s use of the property is restricted, particularly with respect to parking.

9. In the event of a casualty loss or contract termination, defendant appears to have no interest in the gasoline on hand.

10. Plaintiff, as owner, was responsible for gasoline taxes.

11. The charge slips were processed under plaintiff’s name.

12. No payment for the premises or for any of the equipment furnished by plaintiff was designated as rent. Plaintiff’s return on its investment in the land and equipment was to come from its margin on the gas and other products, that is the difference between the costs of the supplies paid to suppliers and the net revenue received from defendant, i.e., the gross sales revenue less defendant’s commission, and less, of course, all of plaintiff’s operating expenses.

On the balance of these factors alone, there are substantial indicia of entrepreneurial responsibility in defendant’s circumstances, yet many of the factors are not inconsistent with the duty that might be imposed upon a management level employee. Even the absence of a fixed salary is not inconsistent with an employee who is paid solely on sales commissions. There are, nonetheless, substantial indicia of defendant’s entrepreneurial responsibilities.

Thus, the degree of financial, sometimes characterized as market, risks to defendant must be considered. It is not merely the risk of loss and the risk of incurring expense by the operator that are to be considered. Rather, the courts have looked to see if an operator is at risk from the market forces which affect every retail business, the cross effects of demand, supply, costs and the myriad of factors which affect the fortunes of retail businesses. In defendant’s case, there are suggestions it is at risk, as follows:

1. Defendant is liable for expenses, even if they exceed the commissions that it receives.

2. Defendant is responsible for drive-away sales from which slightly over $300 was lost over the term of the contract.

3. Product losses from causes in defendant’s control, including employees’ acts, are defendant’s responsibility.

4. The downside risk of diminished income to defendant due to the absence of a minimum or guarantee of payments, resulting from sales volume, i.e., market risk either from general market conditions or price as set by plaintiff, with a downward effect on volume, could result in expenses exceeding income where there is no floor for the expense level or minimum guaranteed income.

Yet, to the contrary, or minimizing the reality of such risks are the following:

1. Defendant’s income is guaranteed to a certain extent, as it is paid a commission on each gallon sold.

2. Defendant is not liable for products purchased and delivered to the stations.

3. Defendant’s payment of revenue (sales receipts) is not required until the gasoline is already sold.

4. Defendant’s commission is independent of the retail price of the gasoline. Its only risk is if volume is affected negatively. As a practical matter, plaintiff is not likely to set a price that is not competitive. No evidence was offered to suggest that plaintiff either had or was likely to do so. The inference is clearly to the contrary, resulting in little or no risk to defendant from this factor.

5. Defendant is at no risk from a fall of the retail price of gasoline.

6. Defendant has none of the risks of ownership of the gasoline, title remaining in plaintiff.

7. Plaintiff has all of the risks to the gasoline except from causes within defendant’s control.

In the final analysis, defendant is theoretically at some risk. Its income from commissions on sales of those products supplied by plaintiff could be less than the expenses for which defendant is obligated. This risk has not been shown to be substantial. Levels of income and expense were not the subject of any evidence. The risks from drive-away (no pay) customers is minimized with customer prepayment and the monitoring of the delivery of gasoline by equipment provided by plaintiff. Such losses and credit card backcharges amounted to $636.20 for three years. Liability for backcharges on credit cards is imposed only upon defendant’s failure to follow procedures prescribed by plaintiff, which, if followed, leave the risks to plaintiff. Losses of gasoline fall to defendant only if the causes of the losses are within defendant’s control, which plaintiff must prove. Absent such proof, the risk falls to plaintiff. Defendant has not shown what such risks might be nor that any significant risks have fallen to it during the life of the contracts. Employees are often held accountable for losses of an employer’s property caused by the employee or factors within the employee’s control. Nor has the risk of loss to defendant from market pricing been shown to be great. Plaintiff will not be presumed to be likely to price its product other than to meet the competition since the self-serve type of operation is highly price competitive.

Against defendant’s theoretical exposure to financial risks are the risks to which plaintiff, not defendant, is exposed. Defendant has no obligation for the cost of the gasoline purchase nor any of the taxes related to it and its ownership or sale. Defendant has no obligation except to turn over the net proceeds when the gasoline is sold. Its payment is not related to the wholesale price, nor to the time of delivery. Defendant’s commission is independent of both the wholesale and retail prices. Defendant is not at risk if, after a purchase, the value of the gasoline drops by reason of a drop in the retail market. Any loss due to reduced market value of the gasoline and the reduced revenue that would result would inure to the detriment of plaintiff, not defendant. If the gasoline were lost, by accident or casualty, plaintiff, not defendant would be at risk. Consistent with the contracts’ explicit reservation of title in plaintiff, defendant has none of the risks of ownership of any gasoline and thus does not insure itself against any such risks.

Accordingly, though there are indi-cia of entrepreneurial responsibility that are not totally insignificant, as well as a minimal degree of risk from market forces, neither has been proven to exist to a sufficient magnitude nor likelihood of occurrence to hold that the circumstances of defendant’s operation of the two stations is within Congress’ intended umbrella of protection under PMPA.

Judgment shall enter for plaintiff declaring that the two contracts, Exhibits A and B, are not creative of a status or relationship in defendant which would permit defendant to claim any of the benefits or protections of PMPA. PLaintiff shall prepare a form of judgment consistent herewith for review by defendant and consideration by the court in anticipation of the entry of a final judgment for plaintiff.

SO ORDERED.


source: Caselaw Access Project

author: RAYMOND J. BRODERICK, District Judge. RICHARD A. POWERS, III, United States Magistrate.

license: Public Domain

text:
    UNITED STATES of America v. Joseph RAWLS.
    Crim. No. 84-74.
    United States District Court, E.D. Pennsylvania.
    Pretrial Detention Order Oct. 17, 1985.
    Oct. 28, 1985.
    Edward S.G. Dennis, Jr., U.S. Atty., Ewald Zittlau, Asst. U.S. Atty., Philadelphia, Pa., for plaintiff.
    Edward H. Weis, Defender Ass’n of Philadelphia, Philadelphia, Pa., for defendant.
   MEMORANDUM

RAYMOND J. BRODERICK, District Judge.

The defendant, Joseph Rawls, has filed a motion for revocation of detention order. The defendant is awaiting trial on a charge of knowingly and intentionally distributing heroin, a Schedule I narcotic controlled substance, in violation of 21 U.S.C. § 841(a)(1). Magistrate Powers ordered, on October 17, 1985, that the defendant be detained pending his trial. The Court held a hearing on October 24, 1985 to consider defendant’s motion.

The Bail Reform Act of 1984, 18 U.S.C. § 3141 et seq., provides for detention of accused persons prior to trial in certain limited circumstances. See 18 U.S.C. § 3142. The Act requires that a hearing be held before a judicial officer to determine if an accused may be held without bail. In the event the magistrate determines that the defendant must be detained pending trial, the defendant has a right of appeal to the district court. In United States of America v. Robert P. Delker, 757 F.2d 1390, 1393 (3d Cir.1985), Judge Adams suggests that the better procedure is for the district court to have a de novo hearing and make an independent determination of the defendant’s eligibility for release on bail.

The burden of proof at the hearing is on the government to prove by clear and convincing evidence that the defendant is likely to flee or that the defendant poses a danger to the safety of any other person or the community if released. See United States v. Curtis Strong, 775 F.2d 504, 506 (3d Cir.1985) (burden of proof shifts to defendant after conviction). See also 18 U.S.C. § 3142(e).

Section 3142(e) of the Act specifies that there is a rebuttable presumption that no condition or combination of conditions will reasonably assure the appearance of the person as required and the safety of the community if the judicial officer finds that there is probable cause to believe that the person committed an offense for which a maximum term of imprisonment of ten years or more is prescribed in the Controlled Substances Act, 21 U.S.C. § 801 et seq. It was stipulated at the hearing that there is probable cause that the defendant committed a violation of the Controlled Substances Act, 21 U.S.C. § 841(a)(1), which carries a maximum term of imprisonment of fifteen years.

The Government introduced into evidence certified copies of three records from the Common Pleas Court of Philadelphia which show:

1. The defendant pled guilty on March 6, 1984 to distribution of heroin on April 26, 1983 and was sentenced on June 5, 1984 to four years probation;
2. The defendant pled guilty on March 22, 1985 to distribution of heroin on April 9, 1984 and was sentenced on May 7, 1985 to two years probation to follow the prison sentence imposed on May 7,1985 in connection with the defendant’s plea of nolo contendere on May 7, 1985;
3. The defendant pled nolo contendere on May 7, 1985 to distribution of heroin on February 2, 1985 and was sentenced on May 7, 1985 to eight to twenty-three months in prison;
4. Defendant’s probation in connection with his guilty plea of March 6, 1984 and sentencing of June 5, 1984 was revoked on September 23, 1985 for violating his probation by distributing heroin on February 2, 1985, and he was sentenced to eleven and one-half to twenty-three months in prison to run consecutive to his prison sentence imposed on May 7, 1985 in connection with his nolo contendere plea of May 7, 1985.

Defendant is currently serving the above state sentences in the Philadelphia House of Correction.

The original indictment in this Court was issued on February 21, 1984 and a bench warrant was issued on the same day. A superseding indictment was issued on May 1, 1984 and another bench warrant was issued in connection with the superseding indictment on May 1, 1984.

In an endeavor to rebut the presumption imposed by section 3142(e) of the Act, the defendant presented the testimony of Ms. Deborah Raddock, Counseling and Group Therapy Director at the Philadelphia House of Correction. Ms. Raddock testified that the defendant voluntarily enrolled in the Therapeutic Community on March 7, 1985, and has made great progress toward rehabilitation in the past seven months. The defendant has had three very recent state court convictions for distributing heroin, violated the state sentence of probation, and although he is presently making progress in the drug program while serving his sentence at the Philadelphia House of Correction, he did not overcome the re-buttable presumption that no condition or combination of conditions will reasonably assure his appearance and the safety of the community.

The Court finds on the basis of clear and convincing evidence that no condition or combination or conditions will reasonably assure the appearance of the defendant as required and the safety of the community. This Court will therefore impose the same order of detention as was imposed by the Magistrate, which order of detention is attached hereto.

The defendant also attacks sections 3142(e) and (f) of the Bail Reform Act of 1984, insofar as they authorize a judicial officer under the circumstances provided in the Act to order pretrial detention. The defendant asserts the provisions are unconstitutional in that they violate the Eighth Amendment.

The Bail Reform Act of 1984 was substantially patterned after the District of Columbia pretrial detention statute, D.C. Code 1973, § 23-1322, which has been held constitutional in United States v. Edwards, 430 A.2d 1321 (D.C.Ct.App.1981) (en banc), cert. denied, 455 U.S. 1022, 102 S.Ct. 1721, 72 L.Ed.2d 141 (1982), wherein it was held that the Act did not violate a defendant’s eighth, fifth, and fourteenth amendment rights. As pointed out in Edwards, pretrial detention is prospective only, and not punishment. 430 A.2d at 1332. The Congressional history of the Bail Reform Act of 1984 makes it abundantly clear that pretrial detention is intended to protect the safety of the community and is not designed to punish a defendant for prior bad acts. Therefore, this Court is of the opinion that the defendant’s eighth amendment rights are not violated by sections 3142(e) and (f) of the Bail Reform Act of 1984.

ORDER

AND NOW, this 28th day of October, 1985, upon consideration of defendant’s motion to revoke the detention order issued by Magistrate Powers on October 17, 1985, pursuant to the Bail Reform Act of 1984, 18 U.S.C. § 3141 et seq., for the reasons stated in the Court’s memorandum of October 28th, 1985, this Court will impose the same order of detention as was imposed by the Magistrate,

IT IS ORDERED: The United States Marshal shall detain the defendant in the House of Correction Therapeutic Community until the charges in this matter are completed. Defendant is to be made available for private consultation with counsel upon request, and be produced for further proceedings in this Court upon request of the United States or upon Order of this Court.

IT IS FURTHER ORDERED: The defendant’s Eighth Amendment rights, for the reasons stated in this Court’s memorandum of October 28th, 1985, are not violated by sections 3142(e) and (f) of the Bail Reform Act of 1984 or by this Court’s Order.

PRETRIAL DETENTION ORDER

RICHARD A. POWERS, III, United States Magistrate.

Now, this 17th day of October, 1985 after hearing held before the undersigned on October 10, 1985, and in accordance with the Bail Reform Act, 18 U.S.Code Section 3142(f), the Court makes the following findings of fact:

1. Defendant has been convicted of state and local offenses that would have been federal offenses on three (3) occasions if circumstances giving rise to federal jurisdiction had existed; that is they are drug offenses.

2. Defendant has been charged with a federal narcotics offense, that carries a possible jail sentence of fifteen (15) years in prison.

3. Probable cause of defendant’s guilt has been shown.

4. Defendant has demonstrated a pattern of drug dealing activity, which due to its frequency and volume raises the presumption that no condition or set of conditions will insure the safety of the community-

5. Defendant has not rebutted that presumption. Also, the defendant has not rebutted the presumption of flight since the probability exists that an extensive sentence could be imposed upon the ultimate conviction in this particular case.

I find, therefore, that the Marshal shall detain the defendant in the House of Correction Therapeutic Community until the charges in this matter are completed. Defendant is to be made available for private consultation with counsel upon request, and that he be produced for further proceedings in this Court upon request of the United States or upon Order of this Court.


author: ROBERT D. POTTER, Chief Judge.

text:
    Clara SANCHEZ-TRUJILLO, Plaintiff, v. The IMMIGRATION AND NATURALIZATION SERVICE OF the UNITED STATES DEPARTMENT OF JUSTICE, and Louis M. Richard, in his official capacity as District Director, Defendants.
    No. C-C-84-593-P.
    United States District Court, W.D. North Carolina, Charlotte Division.
    Oct. 28, 1985.
    Robert Alan Donat, Charlotte, N.C., for plaintiff.
    Terry C. Bird, U.S. Atty., Charles R. Jonas, Federal Bldg., Charlotte, N.C., for defendants.
   ORDER

ROBERT D. POTTER, Chief Judge.

THIS MATTER was heard before the undersigned on September 9, 1985, at Charlotte, North Carolina on the Defendants’ motion to dismiss this action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Defendants were represented by Terry C. Bird. The Plaintiff was represented by Robert A. Donat.

This action stems from the rejection by the Immigration and Naturalization Service (“INS”) of a petition for a second preference classification for an immigrant visa filed on January 3, 1977, by the Plaintiff’s late father, Fernando Sanchez, on her behalf. After receiving the petition, the INS returned it to Mr. Sanchez on March 23, 1977, informing him that he would have to furnish the agency with a marriage certificate of himself and the Plaintiff’s mother before it could adjudicate the petition. It explained that if Mr. Sanchez had never been married to the Plaintiff’s mother, he would not be eligible to file a petition in the Plaintiff’s behalf. On April 29, 1977, the INS sent another form to Mr. Sanchez at his last known address, which stated: “Since you have not established that the beneficiary is the legitimate child and no benefits can be bestowed on an illegitimate child by a father, the visa petition is hereby rejected.” This second notice was returned to the INS by the Post Office marked “moved, not forwardable.” The INS allegedly did not ever notify Sanchez of any appeal rights he might have.

The Plaintiff received a letter from the INS in 1977 stating that the petition filed by her father in her behalf had been denied because she was an illegitimate child under California law, but that if the law changed she could perhaps reapply. (Affidavit of Clara Sanchez-Trujillo.) When she entered the United States in 1982, she attempted to get her father to return to California to pursue again the earlier rejected visa petition. Mr. Sanchez was ill at the time and less than a year later committed suicide. He never returned to California prior to his death to pursue the rejected visa petition.

In her Complaint, the Plaintiff seeks reconsideration of the petition on the ground that the INS knew or should have known at the time the petition was filed that the Plaintiff was legitimated under the law of the Plaintiffs residence and/or her father’s residence before her eighteenth birthday and while she was in the custody of her father; therefore, the petition should have been approved pursuant to 8 U.S.C. § 1153(a)(2) and 8 U.S.C. § 1101(b)(1)(C). The Plaintiff alleges that her father would have pursued the visa petition, thus paving the way for the Plaintiff to get permanent residency, but for the misinformation the INS gave him concerning the supposed marriage requirement, the INS’ failure to inform him of any right to appeal he might have, and his illness. Therefore, the Plaintiff prays that this Court declare the petition filed by her father approved as of the date it was filed and that she be allowed to adjust her immigration status to that of a permanent resident.

The Defendants maintain that they cannot be held responsible for Mr. Sanchez’s failure to pursue the petition any further. They allege that the rejection of a petition, as opposed to a denial, did not warrant the furnishing of an appeal form to the petitioner because no decision had actually been made. The basis of their 12(b)(6) motion is that the Plaintiff, as the beneficiary of the petition rather than the petitioner, does not have standing to seek reconsideration of the petition filed and subsequently not pursued by her late father.

Section 10 of the Administrative Procedure Act, 5 U.S.C. § 702, gives any person “suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute” the right to seek federal court review of the agency action. In the context of this statute, the constitutional requirements for Article III standing are satisfied when the following three elements are present:

(1) the party seeking relief must allege an actual injury within the zone of interests protected by the statute;
(2) the injury must be fairly traceable to the specific agency action challenged; and
(3) the alleged injury must be such that it likely would be redressed by a favorable decision.

Motor Coach Industries, Inc. v. Doe, 725 F.2d 958, 963 (4th Cir.1984) (citing Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976)).

Having carefully considered the matter, the Court is of the opinion that the Plaintiff has alleged an actual injury (i.e., inability to obtain preference status for an immigrant visa, a prerequisite to applying for adjustment of status to permanent resident) that is within the zone of interests protected by the relevant statute. See generally Hom Sin v. Esperdy, 239 F.Supp. 903, 905-907 (S.D.N.Y.1965). The immigrant beneficiary is more than just a mere onlooker; it is her own status that is at stake when the agency takes action on a preference classification petition. See id. Indeed, the INS must have recognized that the Plaintiff had an interest in the petition being granted under the statute, as it sent her a letter explaining why her father’s petition had been rejected and that perhaps she could reapply if the law changed. Thus, the Plaintiff may be considered one “adversely affected ... within the meaning of any relevant statute.”

The second element is also present in that the injury the Plaintiff alleges is fairly traceable to the INS’ alleged wrongful rejection of her father’s petition in her behalf.

Whether a favorable decision would likely redress the alleged injury depends on whether the death of the Plaintiff’s father would nullify any retroactive approval of the petition the Court might grant, thereby rendering the Plaintiff ineligible for adjustment of her immigration status to that of permanent resident. 8 C.F.R. § 205.1 provides:

§ 205.1 Automatic Revocation.

■ The approval of a petition made under Section 204 of the Act and in accordance with Part 204 of this chapter is revoked as of the date of approval ... if any of the following circumstances occur ..., if the beneficiary is an applicant for adjustment of status to that of permanent resident, before the decision on his application becomes final:
(a) Relative petitions.
(2) Upon the death of the petitioner or beneficiary.
(3) Upon the death of the petitioner unless the Attorney General in his discretion determines that for humanitarian reasons revocation would be inappropriate.

The statute under which this regulation is promulgated provides:

The Attorney General may, at any time, for what he deems to be good and sufficient cause, revoke the approval of any petition approved by him under Section 204.

8 U.S.C. § 1155.

Although the regulation cited above is entitled “Automatic Revocation,” subsection (a)(2) of that regulation and the statute under which the regulation is promulgated vest the Attorney General with discretion in determining whether revocation should occur. As the Second Circuit has noted, § 1155 “should not be interpreted to authorize the Attorney General’s wooden application of rules' for automatic revocation.” Pierno v. Immigration and Naturalization Service, 397 F.2d 949, 950 (2d Cir.1968). Because of the unusual circumstances of this case, the Court is of the opinion that discretion may be appropriately exercised in this case so as not to apply the rule of automatic revocation. See Leano v. Immigration and Naturalization Service, 460 F.2d 1260 (9th Cir.1972). Had the INS’ alleged misinformation and/or misconduct not have led Mr. Sanchez to believe that any further pursuit of the petition would be fruitless, thereby precluding any possibility that the petition would be approved, the Plaintiff may well have been able to have an application for adjustment of status for permanent residency adjudicated prior to her father’s death six years after the original filing of the rejected petition. Thus, the Court concludes that the third element for the satisfaction of the standing requirement is present.

NOW, THEREFORE, IT IS ORDERED that:

(1) The Plaintiff does have standing to pursue her Complaint; and
(2) The Defendants’ Rule 12(b)(6) motion to dismiss is DENIED.

      . 8 U.S.C. § 1153(a)(2) provides:
      (a) Aliens who are subject to the numerical limitations specified in section 201(a) shall be allotted visas or their conditional entry authorized, as the case may be, as follows:
      (2) Visas shall next be made available ... to qualified immigrants who are the spouse, unmarried sons or unmarried daughters of an alien lawfully admitted for permanent residence.

      . 8 U.S.C. § 1101(b)(1)(C) provides:
      (b) As used in titles I and II—
      (1) The term "child" means an unmarried person under twenty-one years of age who is—
      (C) A child legitimated under the law of the child’s residence or domicile, or under the law of the father’s residence or domicile, whether in or outside the United States, if such legitimation takes place before the child reaches the age of eighteen years and the child is in the legal custody of the legitimating parent or parents at the time of such legitimation.


text:
    Christean M. GRIER, Plaintiff, v. Paul CARLIN, in his official capacity as Postmaster General of the United States Postal Service, Defendant.
    No. C-C-85-246-P.
    United States District Court, W.D. North Carolina, Charlotte Division.
    Oct. 28, 1985.
    Regan A. Miller, James, McElroy & Diehl, Charlotte, N.C., for plaintiff.
    Charles R. Brewer, U.S. Atty., Clifford C. Marshall, Asst. U.S. Atty., Charlotte, N.C., John C. Oldenburg, Sr. Asst. Regional Labor Counsel, U.S. Postal Service, Memphis, Tenn., for defendant.
   ORDER

ROBERT D. POTTER, Chief Judge.

THIS MATTER is before the Court upon Defendant’s Motion to dismiss this action for lack of subject-matter jurisdiction and failure to state a claim upon which relief may be granted. Defendant also requests the United States Postal Service be dismissed as a party Defendant. Alternatively, Defendant has moved for summary judgment.

The case involves an employment discrimination suit against a federal employer under Title VII. The parties have submitted thorough memoranda concerning the issues raised in this matter and the Court has carefully considered each.

With respect to Defendant’s Motion to dismiss the Postal Service as a party Defendant to this action, the Court is of the opinion that the request is uncalled for. The United States Postal Service is referred to in the caption of this case merely to identify the Defendant Paul Carlin and the capacity in which he is being sued. Therefore, Defendant's Motion is DENIED.

Defendant’s Motion to dismiss on the grounds that the Plaintiff failed to file this suit in a timely fashion, thus, precluding this Court from possessing subject-matter jurisdiction presents an interesting question of law for consideration.

The time period in which an aggrieved federal employee must file a civil suit in the district court after receiving notice from the Equal Employment Opportunity Commission of his or her right to file a civil action is 30 days. 42 U.S.C. § 2000e-16(c). The question before this Court is, first, whether this time period is subject to equitable tolling. Second, if the period is subject to equitable tolling, do such grounds exist in this case?

The Defendant asserts that a timely filing is a jurisdictional prerequisite to bring a Title VII action and not subject to equitable tolling. The case law is mixed on the issue. Gaballah v. Johnson, 629 F.2d 1191 (7th Cir.1980) (30-day time period to file suit after receipt of notice of final action taken by Civil Service Commission is jurisdictional); Sims v. Heckler, 725 F.2d 1143 (7th Cir.1984) (30-day time period which to file complaint of alleged incident of discrimination under 29 C.F.R. § 1613.-214(a)(l)(i) is jurisdictional); Rice v. Hamilton Air Force Base Commissary, 720 F.2d 1082 (9th Cir.1983) (30-day time period under 42 U.S.C. § 2000e-16(c) is jurisdictional; but, holding even though plaintiff did not formally file an action within the 30-day limit, where he filed a request for counsel, a description of his claim, and an administrative deposition of his complaint within the 30-day jurisdictional period, § 2000e-16(c) time requirements were satisfied); Cooper v. Bell, 628 F.2d 1208 (9th Cir.1980) (30-day time period with regard to filing civil complaint is jurisdictional; but, holding that at least the first intra-agency filing period for lodging the initial charge is equivalent to a statute of limitation, subject to equitable extension in appropriate cases); but see, Martinez v. Orr, 738 F.2d 1107 (10th Cir.1984) discussed infra, (30-day time limitation of § 2000e-16(c) is not jurisdictional and may be subject to equitable tolling); Zipes v. Trans World Airlines, 455 U.S. 385, 102 S.Ct. 1127, 71 L.Ed.2d 234 (1982) (requirement that a complainant (private sector employee) file a timely administrative charge under 42 U.S.C. § 2000e-5 is not a jurisdictional prerequisite to suit); Saltz v. Leham, 672 F.2d 207 (D.C.Cir.1982) (30-day requirement in which notice must be given to the EEOC during the administrative processing of a claim is not jurisdictional); Ross v. United States Postal Service, 696 F.2d 720 (9th Cir.1983) (there are no more jurisdictional prerequisites for federal employees to file administrative charges than for private sector employees).

Although there is no Fourth Circuit case on this issue, this Court is of the opinion that Martinez v. Orr, supra, is the better view. The court in that case stated that “Congress intended to give them [federal employees] the same rights and remedies as had been provided employees in the private sector.” Id. 738 F.2d at 1110. (Citing H.R. No. 238, 92d Cong., 2d Sess., U.S.Code Cong. & Admin.News 1972, p. 2137.). In reversing the district court’s dismissal of plaintiff’s action, the court of appeals found that the notice issued by the EEOC informing plaintiff of the 30-day limitations period also contained instructions on how to obtain reconsideration by the administrative agency of its “final” determination which misled and lulled the plaintiff into inaction as he awaited a response to his reconsideration request. The instructions in the notice amounted to “active deception” by the agency and thus provided sufficient equitable grounds to toll the time period.

The purpose of Title VII as a whole is remedial in nature and it is the type of legislation which laymen are more likely to be involved in. By treating the time period of § 2000e-16(c) like a statute of limitations subject to equitable tolling, as the court in Martinez did, this remedial purpose is furthered. This is so especially in cases such as this where the Plaintiff filed her application to proceed in forma pau-peris within the time period.

In holding that the filing limitations of § 2000e-16(c) is subject to equitable tolling, the Court now turns to the question of whether such grounds exist in this case. The Court believes such grounds are present.

Plaintiff received her notice of the final administrative decision on February 27, 1985. She filed her application to proceed in forma pauperis on March 18, having 12 days in which to file suit. Plaintiff received the Court’s denial of her in forma pauperis application on April 4. Therefore, she had until April 16 to file this action, which she did by filing on April 12. There is no indication that Plaintiff sat on her rights nor is there any indication that Defendant will be prejudiced by allowing Plaintiff to proceed with her claim. Compare Rice v. Hamilton Air Force Base Commissary, supra.

Consequently, the Court is of the opinion that Defendant’s Motion to dismiss, or alternatively, for summary judgment, should be DENIED.

IT IS SO ORDERED.


author: WILL, District Judge.

text:
    HOLLYMATIC CORPORATION, Plaintiff, v. HOLLY SYSTEMS, INC., Marvel Inc., and Harry H. Holly, Defendants.
    No. 85 C 2598.
    United States District Court, N.D. Illinois, E.D.
    Oct. 29, 1985.

      Dean A. Dickie, Fay Clayton, Lucy J. Karl, Douglas R. Newkirk, Sachnoff Weaver & Rubenstein, Chicago, Ill., for plaintiff.
    R. Dickey Hamilton, Stephen J. Bisgeier, Barry A. Miller, Catherine H. McMahon, Miller Shakman Nathan & Hamilton, Chicago, Ill., for defendants.
   MEMORANDUM OPINION

WILL, District Judge.

This case involves a commercial dispute between former associates in the meat processing industry. Plaintiff-counterdefen-dant Hollymatic Corporation (“Hollymatic”) filed a complaint alleging unfair competition, breach of contract, trademark infringement, and violations of the Illinois Deceptive Trade Practices, Consumer Fraud, and Anti-Dilution Acts. Defendants-eounterplaintiffs Harry Holly (“Holly”) and Holly Systems, Inc. (“Holly Systems”) countered with charges against Hol-lymatic of breach of contract, fraud, intentional interference with prospective economic advantage, product disparagement, and violation of the Sherman Act and the Illinois Deceptive Trade Practices Act. Both sides seek damages and injunctive relief.

Before us is Hollymatic’s motion to dismiss, under Federal Rule of Civil Procedure 12(b)(6), Counts II (fraud) and V (product disparagement) of the amended counterclaim. For the reasons stated herein, the motion is granted as to Count II and denied as to Count V.

I. Background

In deciding this motion, we must take the facts alleged in the counterclaim as true. Miree v. DeKalb County, 433 U.S. 25, 27 n. 2, 97 S.Ct. 2490, 2492 n. 2, 53 L.Ed.2d 557 (1977). The presentation of the facts is supplemented by the terms of a contract attached to the complaint and by the admissions set forth in the answer to the complaint and reply to the counterclaim. See 5 C. Wright & A. Miller, Federal Practice and Procedure § 1357 (1969).

Hollymatic is engaged in the manufacture, distribution and sale of meat processing, meat handling, and food portioning equipment. Through a network of independent, authorized dealers, Hollymatic sells its products to meat processors, restaurants, supermarkets, institutional food suppliers and wholesale butchers.

From 1946 through 1978, Holly was the chief executive officer, principal engineer and inventor for Hollymatic’s predecessor in interest. Between 1978 and 1982, Holly worked for Hollymatic’s predecessor as an independent consultant pursuant to a number of written agreements. During this period, he developed a new invention, the “Conversion,” which attached to meat patty molding machines, including Hollymatic models, and resulted in a differently formed patty.

On September 29, 1982, Holly entered into a contract with Hollymatic (“Agreement”) whereby Holly agreed to serve as an independent consultant for the year beginning October 15, 1982. Among other provisions, the Agreement stated that Holly was to grant to Hollymatic “the exclusive right to sell the Conversion either as a part of, or for the purpose of later attachment to, any of [Hollymatic’s] newly manufactured food patty molding machines.” Agreement, U 7. It also provided that its terms were to be construed in accordance with Illinois law. Id. II16. Sometime after the Agreement was formed, Holly and his partners established Holly Systems, a corporation engaged in the leasing and sale of food portioning equipment.

II. Count II (Fraud)

Count II of the amended counterclaim begins by incorporating the allegations of Count I, the breach of contract claim. In Count I, the counterplaintiffs allege that Hollymatic failed to perform two implied obligations contained in the Agreement. The first is a duty to make good faith efforts to market the Conversion and is alleged to arise from 11 7 of the Agreement; the second, allegedly arising from 11117.10 and 1.2, is a duty not to interfere with Holly’s right to sell the Conversion.

In Count II, the counterplaintiffs attempt to convert these allegations into a fraud claim by additionally claiming (1) that Hol-lymatic falsely represented its intention to perform its obligations under the Agreement; (2) that Hollymatic’s representations were known by Hollymatic to be false; (3) that Hollymatic made the representations with the intent to induce Holly to enter the Agreement; (4) that Holly reasonably relied on the misrepresentations; and (5) that Holly suffered damages as a result of his reliance. Thus, the allegations of Count II track the five essential elements of common law fraud in Illinois. See, e.g., Soules v. General Motors Corp., 79 Ill.2d 282, 286, 37 Ill.Dec. 597, 599, 402 N.E.2d 599, 601 (1980); Higgins v. Kleronomos, 121 Ill.App.3d 316, 76 Ill.Dec. 913, 917, 459 N.E.2d 1048, 1052 (1984).

Hollymatic argues that the defendants have not stated a cause of action for fraud because the alleged misrepresentations related to future conduct, not a present condition of fact. It is true that, traditionally, Illinois courts have been reluctant to entertain actions for “promissory fraud.” See generally, Pollele, An Illinois Choice: Fossil Law or an Action for Promissory Fraud?, 32 DePaul L.Rev. 565, 578-88 (1983). The general rule is that a promise made without intent to perform it is not a misrepresentation. Roda v. Berko, 401 Ill. 335, 340-41, 81 N.E.2d 912, 915 (1948). A recognized exception exists, however, “where the false promise or representation of intention or of future conduct is the scheme or device to accomplish the fraud.” Id. at 340, 81 N.E.2d 912, 915; Steinberg v. Chicago Medical School, 69 Ill.2d 320, 334, 13 Ill.Dec. 699, 706, 371 N.E.2d 634, 641 (1977); Sommer v. United Savings Life Ins., 128 Ill.App.3d 808, 813-14, 84 Ill.Dec. 77, 82, 471 N.E.2d 606, 611 (1984). The question we must decide is whether the general rule or the exception controls the instant ease.

The Illinois cases are not easily reconciled and the Illinois courts have rarely made more than half-hearted attempts to do so. Certainly the language in which the exception is stated is not illuminating in itself. One court of appeals suggested that a scheme or device was equivalent to a “carefully constructed plan of deceit.” Metropolitan Bank & Trust Co. v. Oliver, 4 Ill.App.3d 975, 978, 283 N.E.2d 62, 64 (Ill.App.Ct.1972); see also Zaborowski v. Hoffman Rosner Corp., 43 Ill.App.3d 21, 24-25, 1 Ill.Dec. 465, 468, 356 N.E.2d 653, 656 (Ill.App.Ct.1976) (total facts must show scheme or device). Another court, acknowledging that “the exception tends to engulf and devour much of the general rule,” recently held that a scheme had been properly alleged when the defendant had done no more than make a promise without intention of performing it. Vance Pearson, Inc. v. Alexander, 86 Ill.App.3d 1105, 1112, 42 Ill.Dec. 204, 209, 408 N.E.2d 782, 787 (1980); see also Brudnicki v. General Elec. Co., 535 F.Supp. 84, 88 (N.D.Ill.1982) (exception applied where misrepresentation was an “integral step in achieving the agreement”). In short, the precedents appear to turn upon a case-by-case weighing of the equities, rather than clearly-defined principles.

We are aware of no Illinois ease in which an alleged or even proven implied promise or representation was found to be a sufficient basis for applying the scheme or device exception. After examining the entire contract in this case, we find that the alleged representations at issue — the duties not to interfere and to make good faith efforts to sell the Conversion — are not expressly stated in the Agreement. Holly and Holly Systems admit as much in their pleadings, where they refer to each of the duties as “implied” duties. Amended Counterclaim, ¶¶ 8, 9. We have some doubt as to whether these obligations can even be implied, but for present purposes we assume they can. Even so, we do not believe an Illinois court would apply the scheme or device exception in this case.

Under Illinois law, fraud is a conscious, calculated course of behavior designed to induce the victim’s reliance. The continued life of the general rule against promissory fraud demonstrates that it remains a disfavored cause of action, at least in Illinois and a small number of other jurisdictions. See W. Prosser, Handbook on the Law of Torts § 109 (4th ed. 1971). Probably this is because fraud, focusing as it does on a subjective state of mind, can be very easy to allege and very difficult to prove or disprove. See, e.g., Kriegel v. Miedema, 20 Ill.App.2d 235, 241, 155 N.E.2d 815, 818 (1959). In order to survive the pleading stage, a claimant must be able to point to specific, objective manifestations of fraudulent intent — a scheme or device. If he cannot, it is in effect presumed that he cannot prove facts at trial entitling him to relief. If the rule were otherwise, anyone with a breach of contract claim could open the door to tort damages by alleging that the promises broken were never intended to be performed. Presumably, it is this result that the Illinois rule seeks to avoid.

When allegations of fraud rest solely upon implied misrepresentations, the assertion that the defendant never intended to perform is obviously weaker and the case for dismissal is even stronger. In such a case, each of the five elements of the cause of action is impaired: any misrepresentation is less likely to be material, knowingly made, and intended to induce reliance; and any reliance so induced is less likely to be reasonable and to engender damages. In short, the risk that a worthy claim will be quashed at its inception is obviated by the probability that the claim, if allowed to proceed to trial, could never be substantiated. For these reasons, we hold that the threshold for bringing a fraud action under the scheme or device exception is not met where the claimant alleges no more than an implied promise or representation as the predicate for fraud.

Holly and Holly Systems have already been given an opportunity to amend their counterclaim after being notified of Holly-matic’s objections in its first motion to dismiss. (Hollymatic refiled the motion after the amended counterclaim was filed). Under these circumstances, it is clear that Holly and Holly Systems can prove no set of facts that would entitle them to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). The counterplaintiffs have tried to bring their case within the exception by alleging that Hollymatic’s representations “were the scheme used to accomplish a fraud on Holly Systems and Holly.” Amended Counterclaim, Count II, ¶ 20. We are not required to accept legal conclusions stated in a pleading and we decline to do so here. Briscoe v. Lahue, 663 F.2d 713, 723 (7th Cir.1981), aff'd, 460 U.S. 325, 103 S.Ct. 1108, 75 L.Ed.2d 96 (1983); Mitchell v. Archibald & Kendall, Inc., 573 F.2d 429, 432 (7th Cir.1978).

III. Count V (Product Disparagement)

Hollymatic next contends that Count V of the counterclaim must fall because Holly and Holly Systems have failed to allege special damages. According to Hollymatic, special damages are an essential element of a product disparagement claim. The coun-terplaintiffs reply, first, that no allegations of special damages are necessary, and, alternatively, that they have sufficiently pleaded special damages.

It is impossible to determine who has the better of the argument. The parties appear to have assumed that the products disparagement claim would be adjudged according to “general principles,” but this is of course prohibited under Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). We must first determine the law to apply. In so doing, we must apply the choice of law rules that an Illinois court would apply in a products disparagement case. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Although we have found no direct case authority on point, we think it probable that an Illinois court would apply the rule of the Restatement (Second) of Conflicts of Law, which provides that “the local law of the state where the publication occurs determines the rights and liabilities of the parties.” Restatement (Second) of Conflicts of Law § 149 (1971). In cases where the offending communications are published simultaneously in more than one state, “the local law of the state which, with respect to the particular issue, has the most significant relationship” applies. Id. § 150(1). Under the Restatement Second approach, it is even possible, when the same communication is made to different persons in different states, that each communication will be governed by a different law. Id. § 149, comment a.

While the counterclaim is sufficiently informative to satisfy the liberal rules of notice pleading, it does not apprise the Court of the essential facts necessary to making a reasoned choice of law. Count V states in pertinent part that:

Hollymatic has made false statements to Hollymatic dealers and others concerning the purported poor quality of Holly Systems’ conversion devices and products. Hollymatic has also made false statements concerning the purported adverse effect the conversion devices would have on Hollymatic machines to which they are attached.

Amended Counterclaim, Count V, If 70. Nowhere in the pleadings is it stated when, where, or by what means the alleged disparaging comments were communicated; nowhere is it stated by whom or to whom the comments were made, or, indeed, what was said. Under the Restatement Second approach — and, we assume, any other approach that an Illinois court might adopt— it is necessary to know at least where the disparaging comments took place before a court rationally can determine whose law to apply.

We decline to presume that Illinois law would apply to the products disparagement claim. First, there is no indication that any of the disparaging remarks were made in Illinois. Second, the Agreement’s choice of law provision does not govern in an action for products disparagement. While the choice of law provision is pertinent to the breach of contract and fraud claims, both of which are directly predicated on the contract, it cannot extend to claims wholly outside the contract and beyond the reasonable expectation of the parties at the time of contracting. At best, the contractual choice of law would be one factor an Illinois court would consider.

We also decline to presume that all states recognize the same elements of a cause of action for products disparagement. (One district court that made this mistake was reversed in System Operations v. Scientific Games Dev. Corp., 555 F.2d 1131 (3d Cir.1977)). Although the traditional rule is that special damages must be pleaded in every such case, we have located a number of cases calling the traditional rule into question, albeit in dicta. Aerosonic Corp. v. Trodyne Corp., 402 F.2d 223, 231 (5th Cir.1968) (“If the complaint of disparagement is based on unfair competition and not libel, no special damages need by alleged or proved”); Wiegand Co. v. Trent Co., 122 F.2d 920, 924 (3d Cir.1941) (same), cert. denied, 316 U.S. 667, 62 S.Ct. 1033, 86 L.Ed. 1743 (1942); Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 408 F.Supp. 1219, 1235 (D.Colo.1976) (“as a matter of policy there is no reason to require special damages in a business disparagement case”), modified, 561 F.2d 1365 (10th Cir.1977), cert. denied, 434 U.S. 1052, 98 S.Ct. 905, 54 L.Ed.2d 805 (1978); Testing Systems, Inc. v. Magnaflux Corp., 251 F.Supp. 286, 290 (E.D.Pa.1966) (“the rule respecting special damages continued in force long after its raison d’etre had passed”); Royer v. Stoody, 192 F.Supp. 949, 953 (W.D.Okla.1961) (“the trend is toward doing away with the necessity of alleging special damages”).

In light of what appears to be a growing trend of dissatisfaction with the general rule, we think a more searching examination of the applicable law, whatever it may be, is in order. In short, it cannot be said at this stage what law will apply, and it cannot be said that Holly and Holly Systems will be unable to prove facts entitling them to recover in a products disparagement theory under some state’s law. Linder Steel Erection v. Alumisteel Systems, 88 F.R.D. 629, 631 (D.Md.1980). Discovery may fill out the missing facts and Count V will stand or fall on that basis.

IV. Conclusion

Hollymatic’s motion to dismiss Counts II and V of Holly and Holly Systems’ first amended counterclaim is granted as to Count II and denied as to Count V.

An appropriate order will enter.

      . A third defendant, Marvel Inc., is not a party to the counterclaim and is not involved in the motion under consideration.

      . Section 7 provides in pertinent part:
      Holly grants to Buyer [Hollymatic] the exclusive right to sell the Conversion either as a part of, or for the purpose of later attachment to, any of Buyer’s newly manufactured food patty molding machines that the Conversion will attach to and that are first sold and delivered by Buyer during the Distribution Period.

      . Section 7.10 provides that:
      Nothing in this Agreement shall in any manner prevent or limit Holly’s right to sell or exploit Conversions or the Invention in any manner he in his discretion deems appropriate, except that Buyer shall have the exclusive distribution rights with respect to its sale of New Machines expressly set forth in this Section 7.
      Section 1.2 provides that:
      During the Consulting Period, Holly agrees not to enter into an employment or consulting agreement with any other manufacturer of hamburger molding machines sold in the United States ("Other Manufacturer”). However, nothing in this Section 1.2 shall in any manner be deemed to prohibit or restrict Holly from (a) selling or leasing Conversions or any other product to or through any Other Manufacturer, (b) selling or licensing the Invention or any other invention to any Other Manufacturer, or (c) conducting any other business transactions with any Other Manufacturer; nor shall anything in this Section 1.2 be deemed to in any manner prohibit or restrict Holly, in connection with any transactions or business described in (a), (b) or (c) of this Section 1.2, from providing any consultation, advice or other service necessary or appropriate to carry out any such transactions or business. Except as expressly provided in this Section 1.2, nothing contained in this Agreement shall restrict Holly's right to engage in or conduct any other business or activity that he in his sole discretion shall desire, and Holly may serve any corporation, business organization, individual or other party in any capacity whatsoever during the time Holly is providing consulting services under this Agreement.

      . The parties also have briefed the question of whether the counterclaim meets the particularity requirement of Federal Rule of Civil Procedure 9(b) ("In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity_"). Our holding is not based on any failure to comply with that rule. Rather, the defect lies solely in Count II's failure to state a cause of action under Illinois law.

      . Sections 149 and 150 by their terms relate to defamation cases but, as § 151 and its accompanying comment make clear, they are also applicable to product disparagement cases. Restatement (Second) of Conflicts of Laws § 151, comment a; see also System Operations v. Scientific Games Dev. Corp., 555 F.2d 1131, 1136-39 (3d Cir.1977).


author: COPPLE, District Judge.

text:
    FOLSOM INVESTMENTS, INC., a Texas corporation, Plaintiffs, v. CITY OF SCOTTSDALE, a municipal corporation of the State of Arizona; Herbert R. Drinkwater; Jean L. Black, James Bruner, Diane D. Cusack, Billie Axline Gentry, Bill Walton, and Rene Wendell, in their official capacities as duly elected members of the City Council of Scottsdale, Arizona, Defendants.
    No. Civ-85-1078 PHX. WPC.
    United States District Court, D. Arizona.
    Oct. 29, 1985.

      Neil Vincent Wake, Phoenix, Ariz., and Joseph W. Geary, Dallas, Tex., for plaintiffs.
    William E. Farrell, Scottsdale City Atty., Scottsdale, Ariz., for defendants.
   MEMORANDUM AND ORDER

COPPLE, District Judge.

I. FACTS

The following facts are undisputed and are set forth in the Stipulation of Facts.

On December 30, 1983, Folsom Investments purchased a tract of land located within the corporate limits of the City of Scottsdale. At the date of purchase, the land was zoned Rl-43 which allows construction of one single-family home per lot of 43,000 square feet.

On November 1, 1983, the Scottsdale City Council directed the City Planning Staff to begin analysis of planning and zoning for property that included Folsom’s.

On September 27, 1984, Folsom submitted a preliminary plat application to the City of Scottsdale. The application satisfied all existing zoning and legal requirements, with the exception of drainage problems. Any potential drainage concerns with the preliminary plat would not have delayed the preliminary or final plat approval. By letter dated October 26, 1984, plaintiff was notified that the Project Review Director for the City of Scottsdale recommended denial of the preliminary plat application pursuant to Section 12-220(b)(2) of the Scottsdale City Code, which provides for denial based upon “existing and proposed zoning and land use of the tract and its environs.” Plaintiff appealed to the Scottsdale Zoning and Planning Commission and the Scottsdale City Council. The Scottsdale Planning Commission denied the appeal on November 13, 1984 and the Scottsdale City Council on November 20, 1984 based upon the recommendation of the Project Review Director that the plat did not conform with proposed zoning.

On December 17, 1984, the Scottsdale City Council adopted Resolution 2518, amending the Scottsdale General Plan for the relevant area. The amendment recommended a less dense zoning for the area. On March 15, 1985, the Scottsdale City Council adopted Ordinance No. 1699, which decreased the density of residential development from one single-family home per 43,000 square feet to one single-family home per 70,000 square feet.

If plaintiffs preliminary plat application had been approved when initially applied for, plaintiff would have begun construction on the property within eight to twelve weeks of November 20, 1984 (January 16 or February 13 of 1985).

Plaintiff and defendants have both filed motions for partial summary judgment. Plaintiffs motion for partial summary judgment is addressed only to the Arizona zoning/subdivision regulation law theories and due process theories of relief and requests a declaratory judgment and permanent injunction. Plaintiff does not address the equal protection theories of relief and the amount of damages that may be owing. Defendants are asking for partial summary judgment on the due process and equal protection theories of relief.

II. DISCUSSION

A. Plaintiffs Motion for Partial Summary Judgment Predicated upon Arizo na Zoning and Subdivision Regulation Law

The City’s denial of plaintiffs plat application on November 20, 1985, was based upon the Scottsdale City Code § 12-220(b)(2), which provides in pertinent part:

B. The Department shall distribute copies of the plat to the following reviewing offices:
* * * * * *
2.Plan Director for compliance to public objectives, giving special attention to design principles and standards as set forth in Chapter 3 of this title; street and thoroughfares as related to the City streets and highway plans and to neighborhood circulation; utility methods and systems; existing and proposed zoning and land use of the tract and its environs; and, land required for schools, parks and other public facilities.

Id. (emphasis added).

The preliminary plat application was denied because the Project Review Director determined that the plat did not conform with proposed zoning. Statement of Stipulated Facts at Í! 5.

Plaintiff argues that it was entitled to approval of its preliminary plat application as a matter of Arizona zoning and subdivision regulation law. Plaintiff argues that Section 12-220(b)(2) exceeds the authority delegated to the City by the State and conflicts with controlling state statutes. The regulation is therefore argued to be void.

The municipal power to zone land and to regulate the subdivision of land exists by virtue of state enabling legislation. City of Scottsdale v. Superior Court in and for Maricopa County, 103 Ariz. 204, 439 P.2d 290, 293 (1968). The state enabling act for municipal subdivision regulations is Ariz.Rev.Stat.Ann. § 9-463 et seq. Municipal subdivision regulation must be authorized by Section 9-463 et seq. to be valid. Bella Vista Ranches, Inc. v. City of Sierra Vista, 126 Ariz. 142, 613 P.2d 302, 303 (Ct.App.1980). Section 9-463.01 provides the relevant enabling municipal authority provisions:

A. Pursuant to the provisions of this article, the legislative body of every municipality shall regulate the subdivision of all lands within its corporate limits.
B. The legislative body of a municipality shall exercise the authority granted in subsection A by ordinance prescribing:
******
2. Standard governing the design of subdivision plats.
3. Minimum requirements and standards for the installation of subdivision streets, sewer and water utilities and improvements as a condition of final plat approval.
C. By ordinance, the legislative body of any municipality shall:
******
3. Make requirements as to form and content of preliminary plats.
4. Determine that certain lands may either not be subdivided, by reason of adverse topography, periodic inundation, adverse soils, subsidence of the earth’s surface, high water table, lack of water or other natural or man-made hazard to life or property, or control the lot size, establish special grading and drainage requirements, and impose other regulations deemed reasonable and necessary for the public health, safety or general welfare on any lands to be subdivided affected by such characteristics.

Id. (emphasis added).

There appears to be no specific grant of authority allowing denial of subdivision based upon proposed zoning.

Defendants argue that Ariz.Rev. Stat.Ann. § 9—463.01(C)(4) gives municipalities the right to impose such regulations as are deemed reasonable and necessary for the public health, safety or general welfare. Defendants’ Response at 2. Defendants neglect to read the whole of section 9-463.01(C)(4); it is clear that the grant of authority to impose such reasonable and necessary regulations is limited to the certain lands that may not be subdivided due to certain explicitly enunciated characteristics (that is, by reason of adverse topography, periodic inundation, etc.). Plaintiffs land does not fall under Ariz.Rev.Stat.Ann. § 9-463.01(C)(4).

Defendants’ next argument has merit. Defendants argue that 9-463.01 constitutes a broad grant of power to the cities. Defendants’ Response at 2. The courts are to interfere only when the ordinance enacted pursuant to the grant is arbitrary and unreasonable. City of Tucson v. Arizona Mortuary, 37 Ariz. 495, 272 P. 923 (1928). See also Cardon Oil Co. v. City of Phoenix, 122 Ariz. 102, 593 P.2d 656 (1979) (the principal constitutional test applied to zoning decisions is whether a zoning ordinance bears any substantial relationship to public health, safety, morals or general welfare). Defendants argue that the Scottsdale ordinance is not arbitrary or unreasonable. If the only legislative provisions to be considered were Sections 9-463 et seq. and the Scottsdale City Code provision, defendants’ argument would be dispositive.

There are other enabling statutes to be considered. Ariz.Rev.Stat.Ann. § 9-462 et seq. applies to municipal zoning. If a municipality decides to regulate land use, it must comply with Ariz.Rev.Stat.Ann. § 9-462.04 which requires certain procedures such as a hearing before the planning commission, notice of hearing by publication or posting 15 days before the hearing, etc. Ariz.Rev.Stat.Ann. § 9-462.03 is of special interest to the instant case:

A zoning ordinance which changes any property from one zone to another, imposes any regulation not previously imposed or which removes or modifies any such regulation previously imposed shall be adopted in the manner set forth in § 9-462.04.

Id.

In reality, Scottsdale imposed new zoning restrictions on plaintiff’s land when it denied the plat application for the sole reason that the plat did not conform with proposed zoning. Scottsdale effectively changed the property from one zone to another without following the requirements of Section 9-462.04. Assuming that defendants had the broad grant of power argued for, that grant of power does not include the power to overrule specific statutory enabling zoning provisions such as Ariz.Rev.Stat.Ann. §§ 9-462.03 and 9-462.04. That portion of Scottsdale City Code § 12-220(b)(2) which allows the denial of subdivision plats solely upon “proposed” zoning conflicts with the controlling state statute on amendments of zoning and is therefore void. See City of Scottsdale v. Scottsdale Associated Merchants, Inc., 120 Ariz. 4, 583 P.2d 891 (1978) (ordinance of charter city concerning nonconforming signs conflicted with controlling state statute and was therefore void).

Defendants argue that plaintiff has no vested rights entitled to protection. They rely upon City of Tucson v. Arizona Mortuary, 37 Ariz. 511, 293 P. 923 (1928), arguing that like the defendant in Arizona Mortuary, Folsom had knowledge of the pending change in the ordinance before any material amount of construction had actually been done. Id. at 928-29. Folsom’s situation is distinguishable from Arizona Mortuary, as the Arizona Mortuary court recognized:

If plaintiff’s business had been an established, long-continuing one, acquiesced in with full knowledge of the facts by the city authorities, or if mortuaries had been permitted at the location in question on May 12th [the date of purchase of the land] by express ordinance, and not merely because the city had not as yet found if necessary to act at all on the subject, the situation would have been very different, and an estoppel might be entitled to consideration.

Id. at 928.

In the instant case, single-family homes per lot of 43,000 square feet were permitted by express ordinance at the date Folsom purchased the land. The instant situation is different, as pointed out by the Arizona Mortuary court.

The mere filing of a plat does not vest rights to develop property in a certain zoning category. Dawe v. City of Scottsdale, 119 Ariz. 486, 581 P.2d 1136 (1978). Where the amount of work done toward construction is of small consequence, the holder of a building permit has acquired no vested right to complete the construction if the property is rezoned and the permit revoked. Verner v. Redman, 77 Ariz. 310, 271 P.2d 468 (1954) (cited in Dawe, 581 P.2d at 1138). To have a vested right to develop property in accordance with the prior zoning, a permit must have been legitimately issued, and the permittee must have incurred substantial expenses in reliance on the permit. Town of Paradise Valley v. Gulf Leisure Cory., 27 Ariz.App. 600, 557 P.2d 532 (1976). No actual physical construction need be commenced but substantial money expenditures, considerable contractual commitments,and extensive preparation is necessary to vest a protectible interest. Id. at 540.

If Folsom’s preliminary plat application had been approved when it was wrongfully rejected, “Folsom would then have applied for and obtained Final Plat approval and would have applied for and obtained all necessary permits within eight to twelve weeks of November 20, 1984, and Folsom would have begun construction at that time.” Statement of Stipulated Facts at ¶ 8. With a project of this scope and size, see Attatchment # 3 of Statement of Stipulated Facts, substantial monetary expenditure, considerable contractual commitments, and extensive preparations would have given rise to vested rights before the March 5, 1985 zoning change.

“Where a building permit ... is issued by a county or a city and the permitee acts upon it and incurs obligations, or in good faith commences construction, his rights become vested and the governmental body is thereafter estopped to set up a zoning ordinance subsequently enacted.” Phoenix City Council v. Canyon Ford, Inc., 12 Ariz.App. 595, 473 P.2d 797, 802 (1970) (quoting from Anderson v. City Council of City of Pleasant Hill, 229 Cal.App.2d 79, 40 Cal.Rptr. 41 (1964)). In the instant case, but for the wrongful act of denial of the preliminary plat application, plaintiff would have been issued a permit, would have incurred obligations upon it, and would have commenced construction before the zoning change. The City of Scottsdale is thereby estopped from denying plaintiff use of its property in accordance with the Rl-43 zoning in effect prior to March 5, 1985.

Accordingly,

IT IS ORDERED:

1. Plaintiff’s Motion for Partial Summary Judgment based upon Arizona zoning and subdivision regulation law is GRANTED.

2. Plaintiff is ordered to submit a drainage report and grading plan if requested by the City of Scottsdale.

3. Defendants are ordered to approve plaintiff’s preliminary plat application and any later final plat, building permits and other permits required by plaintiff which are in conformity with the preliminary plat. To the extent otherwise proper under the law in effect on November 20, 1985, the City of Scottsdale may require adjustments to the Final Plat to accommodate any legitimate drainage concerns.

4. Plaintiff may develop the property herein in accordance with the Rl-43 zoning in effect prior to the March 5, 1985 down-zoning.

5. Defendants are to make all appropriate changes in the zoning map to reflect plaintiff’s property as adjudicated herein.

6. Defendants are not to enforce Scottsdale Ordinance No. 1699 as against plaintiff’s property involved herein.

7. Plaintiff is awarded reasonable fees and other expenses pursuant to Ariz.Rev. Stat.Ann. § 12-2030.

8. Further proceedings will be allowed to determine any damages for temporary interruption of plaintiff’s lawful use of its property.


author: GUNN, District Judge.

text:
    SHAPPERT ENGINEERING COMPANY, a corporation, Plaintiff, v. STEEL CITY MARINE TRANSPORT, INC., a corporation, in personam; and the M/V MAGNOLIA, her tackle, gear, engines, et cetera, in rem, Defendant.
    No. 85-379A(6).
    United States District Court, E.D. Missouri, E.D.
    Oct. 30, 1985.
    Raymond L. Massey, Nicholas H. Ores, St. Louis, Mo., for plaintiff.

      Daryl F. Sohn, St. Louis, Mo., for defendant.
   MEMORANDUM OPINION

GUNN, District Judge.

This matter is before the Court for a decision on the merits after trial to the Court sitting in Admiralty. Plaintiff brought this action to recover for damage to its cofferdam protection system allegedly caused when a tow owned and operated by defendant abided with the system as it navigated through Lock No. 19 on the upper Mississippi River on Sunday, March 4, 1984. After consideration of the testimony and exhibits introduced at trial, and the parties’ briefs and post-trial material, the Court makes the following findings of fact and conclusions of law in accordance with Rule 52, Fed.R.Civ.P.

Defendant, Steel City Marine Transport, Inc., is a corporation duly organized and existing under law and is the owner and/or operator of the M/Y MAGNOLIA, a steel-hulled, diesel powered river towboat. Plaintiff, Shappert Engineering, Inc. (Shap-pert) is a corporation duly organized and existing under law. In 1983 Shappert entered into a contract with the Iowa Department of Transportation to construct a new bridge across the upper Mississippi River at Keokuk, Iowa, downstream of Lock and Dam No. 19. The main lock chamber of Lock 19 is 1200 feet long and 110 feet wide. There are two concrete guidewalls on either side of the lock extending downriver below the lower lock gates. The Shappert project required the installation in the river of several concrete piers, one of which was to be located approximately 30 feet downriver from the bullnose of Lock 19’s river-ward guidewall. In order to provide a dry site on which to build the pier, Shappert constructed a rectangular cofferdam, approximately 100 feet long.

To protect this relatively fragile structure, Shappert erected two rectangular “cribs,” one at the upriver end and one at the downriver end of the cofferdam. The cribs, consisting of interlocking sheet pilings driven vertically into the river bottom were each filled with approximately 1,000 cubic yards of rock. Between the downriver crib and the bullnose of the existing riverward guidewall, Shappert placed six vertical steel beams along the channelward side of the cofferdam and attached two horizontal “rub-rails,” each consisting of five lengths of steel welded together end-to-end, to the channelward face of these vertical beams. The entire protection system was designed as a buffer in the event of an impact from a passing tow, thereby protecting the integrity of the cofferdam itself. The protection system encroached about two feet into the navigable channel, approval for which was granted by the Coast Guard and the Army Corps of Engineers.

Construction of the cofferdam with its protection system was completed by January 1984. Lock 19 was opened for river traffic following the winter season on February 22, 1984. On March 1, 1984 an empty barge in tow of an upbound vessel rode up on top of the upstream crib as it navigated along the protection system. The following day a civil engineer employed by Shappert was sent to check the extent of the damage to the structure. Part of this inspection included walking along the top horizontal rub-rail, which was above water, while dragging an aluminum pole across the channelward face of the lower rub-rail, which was below water, to detect any protrusions into the channel. The engineer reported that the system was intact, and the lock was reopened for traffic. Thereafter, on March 2, 1984 and March 3, 1984, a number of vessels navigated through Lock 19 past the protection system without any difficulty.

At 6:44 a.m. on Sunday, March 4, 1984, the M/V MAGNOLIA with a tow of 12 loaded barges, arranged 4 long and 3 wide, entered the upstream end of Lock 19 and began locking downstream. The MAGNOLIA and its tow proceeded to navigate out of the lock chamber past the cofferdam and protection system site. The captain of the MAGNOLIA was aware of the construction and its encroachment into the channel. The tow was approximately 105 feet wide leaving a clearance of 3 feet between the rub-rails and the concrete guidewall on the opposite side of the channel. When the head of the tow was roughly one barge length past the the construction, some of the vertical beams and the downriver rock-filled crib fell over.

The facts thus related are virtually undisputed by the parties. The crux of the dispute in the present case is whether the damage to the protection system was caused by the MAGNOLIA or its tow making direct contact with the downstream crib and/or the rub-rails, as plaintiff claims, or by the MAGNOLIA or its tow catching on an underwater protrusion from the protection system, as defendant claims.

The Court finds that the MAGNOLIA or its tow directly struck the protection system causing the damage. Plaintiffs expert engineer testified that the nature and extent of damage involved in this case could not have resulted from indirect pressure to the system such as would have been exerted had the vessel hooked on an underwater protrusion. Plaintiff’s civil engineer who inspected the protection system on March 2, 1984, for the specific purpose of determining whether there were any protrusions into the channel, testified that his inspection revealed that the channel-ward side of the system was intact and that there were no protrusions. It was unrefuted that in the two days between the civil engineer’s inspection and the MAGNOLIA’S accident a number of essels navigated safely past the construction site. The pilot of a vessel with a tow as wide as and longer than the MAGNOLIA’S testified by deposition that he navigated downriver past the construction site without difficulty on March 4, 1984 at about 2:00 a.m. The Court finds all the foregoing testimony credible.

Although the captain and two deck hands of the MAGNOLIA testified that the tow maintained a distance of IV2 feet from the protection system at all times, they all testified that they never felt the tow catch on any obstruction. Defendant’s other evidence included testimony by a marine surveyor who speculated that there must have been an underwater protrusion which caught the tow. There was also deposition testimony by a witness that immediately before the damage occurred, the tow was approximately three feet away from the protection work.

The Court would be less than candid if it did not state that resolution of this case presented close questions of fact. The Court concludes, however, that defendant’s evidence was insufficient to rebut the strong inference that the MAGNOLIA or its tow directly hit and damaged the protection system. The Court further concludes that plaintiff sustained its burden of proof in establishing defendant’s negligence in that defendant breached the duty to exercise such reasonable care and maritime skill that prudent navigators employ for the performance of similar services. See Mid-America Transp. Co. v. Nat’l Marine Service, Inc., 497 F.2d 776 (8th Cir.1974) (standard of care in admiralty; burden of ultimate persuasion remains with party asserting negligence).

Damages

Under general admiralty law, a vessel owner at fault in a maritime collision is responsible for the full cost of necessary and reasonable repairs to the damaged structure and for the loss of earnings while the repairs are being made. Marathon Pipe Line Co. v. Drilling Rig Rowan/Odessa, 761 F.2d 229, 233 (5th Cir.1985); Delta Marine Drilling Co. v. M/V Baroid Ranger, 454 F.2d 128, 129 (5th Cir.1972). The burden is on the plaintiff to prove that the amount claimed to repair the damages is fair and reasonably related to actual damages incurred. United States v. M/V Gopher State, 472 F.Supp. 556, 559 (E.D.Mo.1979), aff'd, 614 F.2d 1186 (8th Cir.1980). In the present case repairs to the protection system were done by plaintiff. The Court first finds that the repair method chosen was reasonable. The costs claimed by plaintiff for the repairs are as follows:

Labor $14,610.16
General Liability & Umbrella 584.41
Workers’ Compensation 2,775.93
FICA 1,022.71
Federal Unemployment Comp. 204.54
State Unemployment Comp. 1,373.36
SUBTOTAL Labor $20,571.11
Plus Overhead 6,574.57
TOTAL Labor $27,145.68
Equipment 28,276.29
Materials 20,996.30
Plus Overhead TOTAL Materials 2,099.63 23,095.93
TOTAL DAMAGES $78,517.90

The amount of $20,571.11 for labor is found to be an appropriate charge. It is supported by testimony that the figure is derived from time cards for the time Shappert employees devoted to the repair project. The Court finds that the amount of $6,574.57 for overhead on the labor cost is unreasonable. The Court recognizes that reasonable overhead expenses can be included in the cost of repairs even if the injured party makes the repairs itself. See United States v. Peavey Barge Line, 748 F.2d 395, 399 (7th Cir.1984). The overhead figure $6,574.57 was derived by applying to the basic labor cost a 20.3% factor for general and administrative overhead and a 12.1% factor for indirect project overhead. The Court concludes that while both types of overhead charges may be permissible, see id. at 400 n. 7, an overhead charge of 33% on labor costs is unreasonable and excessive. The evidence does not indicate how these percentage figures were derived. In United States v. Peavey Barge Line, 748 F.2d at 401 n. 12, the overhead charge which included both types of overhead claimed here represented 9.066% of the total award. The Court exercises its discretion based on principles of equity and justice in allowing plaintiff 10% of its direct labor costs or $2,057.11, as labor overhead.

Finally, the Court concludes that plaintiff met its burden of proving that $28,276.29 for equipment and $23,095.93 for materials, including overhead at 10%, constitute fair and reasonable charges for repairs to its damaged structure.

Plaintiff has also asked for an award of pre-judgment interest which is customarily awarded in admiralty cases unless there are exceptional or peculiar circumstances. See United States v. M/V Gopher State, 614 F.2d at 1190. The Court finds that plaintiff is entitled to prejudgment interest from March 4, 1984 at the rate of 10.11% per annum. This is the judgment rate prevailing at the time repairs were undertaken and as such, the appropriate rate to apply. See id.; United States v. Peavey Barge Line, 748 F.2d at 401-02.

Judgment is accordingly entered in favor of plaintiff, Shappert Engineering Co., in the amount of $74,000.44 plus pre-judgment interest from March 4, 1984 at the rate of 10.11% per annum.