author: LYNCH, District Judge.

text:
    George T. ACRI, et al., Plaintiffs, v. INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS, et al., Defendants.
    No. C-82-0340 EFL.
    United States District Court, N.D. California.
    Nov. 23, 1983.
    On Motion To Amend Sept. 5, 1984.

      Dan Siegel, Siegel, Friedman & Dick-stein, Oakland, Cal., for plaintiffs.
    Barry S. Jellison, Davis, Cowell & Bowe, San Francisco, Cal., Burton F. Boltuch, Boltuch & Siegel, Oakland, Cal., for defendants.
   MEMORANDUM OPINION

LYNCH, District Judge.

Plaintiffs, individual members of the International Association of Machinists and Aerospace Workers, originally filed this action on August 6, 1980, alleging breach of the duty of fair representation and breach of contract against the International and Local (collectively, “the Union”) and American Can Company (the “Company”), their employer. The action was dismissed without prejudice as prematurely filed since resolution of the dispute through arbitration was pending; the stipulated dismissal provided that the statute of limitations was tolled as of August 6, 1980 to a date one year from the decision of the arbitrator, but not later than August 6, 1983. This action was refiled in this Court on January 14, 1982, within the time period stipulated to by the dismissal. The new complaint alleged only breach of the duty of fair representation against the Union.

Factual/Procedural Background

The 1974-1977 collective bargaining agreement between the Union and American Can Company contained the following provisions regarding severance pay:

7.0 If the Company (1) Closes the plant or a department or moves the plant or a department outside the present (meaning April 1,1974) geographical jurisdiction of District # 115 and (2) the closing or moving results in the termination of employees, the Company shall pay severance pay to terminated employees as follows:
(a) Less than one (1) year of accredited service — no severance pay;
(b) Over 1 year of accredited service— One (1) full week’s pay (forty (40) hours straight time at the classification rate of pay) for every year of such service.

Section 8 provides in part:

8. FINANCING
Trust Fund
8.0 In accordance with the Plan, the Company will establish a trust fund. The Company will establish this Fund with a bank or banks or a trust company or companies selected by the Company as trustee.
The Company’s contributions will be made into the Fund, the assets of which will be held and invested and applied by the trustee in accordance with the Plan. Benefits will be payable only from such fund.

When the 1974-1977 contract expired, plaintiffs conducted a strike concerning terms of a new agreement. During the strike, negotiations for a new contract were held. Plaintiffs allege that Union representatives stated that the cap on severance pay arguably inherent in the Section 8 Trust Fund provisions quoted above had been removed, although at no time did the Company agree to such a change; that plaintiffs relied on the statements in agreeing to ratify the new contract and return to work from a strike which began May 1, 1977; that the Union continued falsely and deliberately to represent that such a change had been made in the severance pay provisions. When the plant closing was announced in February 1980, Union members were told that there were insufficient funds in the trust fund to pay severance pay at the full amount authorized by Section 7. Plaintiffs argue that they have been injured in relying on the misrepresentations to their detriment and that they are entitled to damages in the amount of the difference between what their severance pay would have been had the contract contained the terms stated in the Union’s misrepresentation and what severance pay was actually paid by the Company.

Defendants filed a motion for summary judgment and to dismiss one plaintiff on September 9, 1983. Oral argument was heard on the motion on October 14, 1983. At that time, this Court granted the motion in part and took the remaining portions of the motion under submission. For the sake of clarity, this opinion will dispose of all parts of the motion.

The Statute of Limitations

Defendants argue that DelCostello v. Teamsters, 462 U.S. 151, 103 S.Ct. 2281, 76 L.Ed.2d 476 (1983) must be applied retroactively to bar plaintiffs’ action. This decision has been applied retroactively in several other circuits. See, e.g., Hand v. International Chemical Workers Union, 712 F.2d 1350 (11th Cir.1983); Metz v. Tootsie Roll Industries, Inc., 715 F.2d 299 (7th Cir.1983); and most recently and compellingly, Perez v. Dana Corporation, 718 F.2d 581 (3d Cir.1983). The Ninth Circuit, however, has not ruled on this matter. Assuming, arguendo, that the six-month statute of limitations established by DelCostello for a § 301 action based on a breach of a duty of fair representation case should be applied retroactively, this Court must nonetheless decide when the statute of limitations began to run for each of the individual plaintiffs.

If this Court were to view this action simply as a common law fraud action, then California law would apply and the statute of limitations would run “only after one ha[d] knowledge of facts sufficient to make a reasonably prudent person suspicious of fraud, thus putting him on inquiry.” Hobart v. Hobart Estate Co., 26 Cal.2d 412, 437, 159 P.2d 958 (1945). See Garter-Bare Co. v. Munsingwear, Inc., 650 F.2d 975 (9th Cir.1980).

However, this matter is a misrepresentation action in the labor relations context. The alleged misrepresentation is also a breach of the duty of fair representation. In the ordinary labor relations matter, “[t]he disposition of an employee’s grievance becomes final at whatever stage of the grievance procedure the union and the employer resolve the grievance or terminate further consideration of it.” McNaughton v. Dillingham, Corp., 707 F.2d 1042, 1046 (9th Cir.1983). The arbitrator in the instant case did not render a decision until October 14, 1981. Furthermore, the Company and the Union moved to dismiss this action when originally filed as premature because the arbitration was pending. Thus, this Court holds that whatever statute applied must run from the date of the arbitrator’s decision. This action was refiled within six months of the arbitrator’s decision. Defendants have not argued in favor of a statute shorter than six months. Thus, defendants’ motion for summary judgment on the ground of the statute of limitations is denied.

Rulings on Summary Judgment or Dismissal as Made at the Hearing

Without regard to the substantive issues supporting the remaining grounds for summary judgment, summary judgment is granted with respect to the following 12 plaintiffs for the reasons stated at the hearing on October 14, 1983. The Court notes both that plaintiffs’ brief did not oppose granting of the motion with respect to these plaintiffs and that plaintiffs declined to argue against the motions at the hearing.

1. The eight plaintiffs who were not employed or members of the Union at the time the alleged misrepresentations were made: i.e., BREGANTE, CHENG, GUAY, HUGHES, LEE, MADISON, MARJAI and SACKLEY.
2. The three plaintiffs who resigned pri- or to the plant closing: i.e., HARRIS, MARKOVICH and WONG.
3. The one plaintiff who refused to comply with discovery orders: i.e., HAL- . MOS.

Similarly, without regard to the remaining grounds for summary judgment, defendants’ motion with respect to deceased plaintiffs FRYDMAN, KESSLER and STARK is denied on the ground of failure to comply with Fed.R.Civ.P. 25(a). Although dismissal appears to be mandatory under this Rule unless a motion to substitute a representative is made within 90 days of a suggestion of death on the record, the incidental mention of the deaths in answers to interrogatories does not appear to this Court to have started the 90-day period running. Federal Form 30 provides an example of the proper suggestion; the answers to interrogatories cited by defendants do not rise to the required level of formality. Furthermore, the suggestion was not served as required by the provisions of the Rule.

Proof of Misrepresentation and Proximate Cause

Defendants also move for summary judgment on the ground that plaintiffs cannot establish that defendants’ alleged actions caused their injuries. Two major cases have been cited to this Court by both parties: Anderson v. United Paperworkers International Union, 641 F.2d 574 (8th Cir.1981) and Deboles v. TransWorld Airlines, Inc., 552 F.2d 1005 (3d Cir.), cert. denied, 434 U.S. 837, 98 S.Ct. 126, 54 L.Ed.2d 98 (1977). In Anderson, a union representative told employee union members that their severance pay was guaranteed by a special security fund, knowing no such fund existed. The members testified at trial that they relied on the representative’s statements in ratifying the contract and would have gone on strike if they had known the truth. The Court of Appeals held that the district court erred in failing to grant judgment for defendants notwithstanding the jury verdict on the ground that “the evidence fails to demonstrate a causal link between Gear’s misrepresentations and the plaintiffs’ injuries.” 641 F.2d at 578-79.

Similarly, in Deboles, following a court trial, the district court found liability for a union’s misrepresentations regarding union efforts to secure seniority provisions without proof that the contract would not have been ratified had the members been told the whole truth. 552 F.2d at 1017. The Third Circuit reversed “because false statements may not create liability under the federal labor laws absent a showing of tangible injury proximately resulting from the falsehood.” Id.

Defendants have urged that the instant case presents the same problem of lack of proof of a causal nexus between the alleged misrepresentation and plaintiffs’ injuries. Plaintiffs’ counsel conceded at oral argument that he could not prove that, absent the alleged misrepresentation, the Company would have acceded to union demands for removal of the severance pay cap. Thus, as even plaintiffs’ counsel concedes, there would be no way to prove that plaintiffs would have received all the severance pay to which they were entitled under the eligibility provisions of Section 7. It is thus further conceded that unless plaintiffs have another theory under which they are entitled to recover, summary judgment must be entered against them.

Promissory Estoppel as a Theory of Recovery

Although this action is framed in terms of breach of the duty of fair representation, plaintiffs urge this Court to grant relief based on a theory of promissory estoppel. Plaintiffs argue that they ratified the new contract and returned to work in reliance upon the Union’s “promise” that the full amount of severance pay without regard to the “cap” of Section 8 was guaranteed.

Plaintiffs urge a novel application of promissory estoppel upon this Court. Plaintiffs conceded and defendants represented at oral argument that such a theory has never been reported in the context of a duty of fair representation case. The theory essentially creates consideration where there is none to permit enforcement of a (usually gratuitous) promise which reasonably can be expected to produce action or forbearance on the part of the promisee and which does so induce action or forbearance. Restatement (Second) of Contracts § 90 (1982). While the doctrine of promissory estoppel has been applied in a variety of contexts, both plaintiffs and defendants acknowledge that promissory estoppel has not been recognized by any court in the context of a breach of the duty of fair representation. See, e.g., Tomerlin v. Canadian Indemnity Co., 61 Cal.2d 638, 39 Cal.Rptr. 731, 394 P.2d 571 (1964) (real estate sale); Drennan v. Star Paving Co., 51 Cal.2d 409, 333 P.2d 757 (1958) (general contractor/subcontractor bidding); Wade v. Markwell & Co., 118 Cal.App.2d 410, 258 P.2d 497 (1953) (mink coat pledge for loan).

This Court hesitates to extend the doctrine of promissory estoppel to the labor relations context. The policies underlying labor relations law strongly support deference to established precedent with respect to the adjudication of a breach of statutory duty such as the duty of fair representation. Furthermore, to permit the use of promissory estoppel in this labor relations context would permit plaintiffs to avoid the conceded difficulties of proof of proximate cause. Indeed, such proof is required by the labor relations misrepresentation cases such as Anderson and Deboles. As the Third Circuit has stated, “the federal courts have consistently required a direct nexus between breach of [the duty of fair representation] and resultant damages ____” Deboles v. TransWorld Airlines, Inc., 552 F.2d 1005, 1018 (3d Cir.1977). In addition, to allow the use of promissory estoppel as a ground for recovery in this type of situation would encourage much litigation which is currently not authorized by statute, recognized by case law, or conceived of by legislative design.

Therefore, in view of the impossibility of plaintiffs being able to prove that the alleged misrepresentation caused their injury, defendants’ motion for summary judgment must be granted.

IT IS SO ORDERED.

ON MOTION TO AMEND

Defendants filed a motion for summary judgment and to dismiss one plaintiff on September 9, 1983. Oral argument was heard on the motion on October 14, 1983. At that time, this Court granted the motion in part and took the remaining portions of the motion under submission. Plaintiffs filed their motion to amend on October 24, 1983 and set December 2, 1983 as the hearing date. On November 23, 1983, this Court granted the remaining portions of the defendants’ motions for summary judgment. The parties were requested by the Court to rebrief the motion to amend in light of the Court’s ruling on summary judgment. The hearing on the motion was continued to January 27, 1984. The motion was argued and submitted by the Court on that date.

On rebriefing of the motion, plaintiffs conceded that a portion of their motion was rendered futile in view of this Court’s opinion that recognition of a cause of action for promissory estoppel in. the labor-relations context was justified neither on the basis of statute, decisional law nor legislative policy. Thus plaintiffs’ motion is reduced to an attempt to add a cause of action stating a violation of Section 101(a)(1) of the Labor-Management Reporting and Disclosure Act of 1959, 29 U.S.C. section 411(a)(1) (“LMRDA”). In the procedural context of this case, the motion is made almost two years after the filing of the complaint, two months after the close of discovery, and almost four years after the case was originally filed in August 1980. Plaintiffs’ motion states that it seeks only “to add two additional causes of action based upon precisely the same facts alleged in the original complaint.”

Standard

Federal Rule of Civil Procedure 15(a) provides that a party in plaintiffs’ position “may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.” This Court has determined in its discretion that justice does not require the granting of plaintiffs’ motion.

Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962), requires this Court to follow Rule 15(a) precisely and grant leave to amend with great liberality. The factors relied upon by the Foman court are the factors to be considered in this circuit: undue delay, bad faith, futility of amendment and prejudice to the opposing party. Howey v. United States, 481 F.2d 1187, 1190 (9th Cir.1973). This circuit has noted other circumstances which may be considered by the court, namely, lack of an adequate explanation by counsel for the delay in bringing the motion to amend, particularly when the facts upon which the proposed amendment is based are known to counsel at the time the original complaint was filed. See, e.g., Jordan v. County of Los Angeles, 669 F.2d 1311, 1324, vacated and remanded on other grounds, 459 U.S. 810, 103 S.Ct. 35, 74 L.Ed.2d 48 (1982), reversing prior decision on other grounds on remand, 713 F.2d 503 (9th Cir.1984). In this case, the motion to amend states that the causes of action sought to be added are based on “precisely the same facts” alleged in the complaint now standing. Furthermore, counsel candidly responded to the Court’s inquiry at argument regarding the reason for the delay in seeking the amendment by replying that prior to the summary judgment motion, he had thought that his original causes of action were a sufficient basis on which to grant relief. Counsel stated further that he was aware of the possible cause of action under LMRDA but chose not to include it at the time he filed his original complaint.

At this point in the litigation, the addition of a cause of action under LMRDA would necessitate further discovery and thus would prejudice the defendants. Plaintiffs’ counsel attempts to circumvent the effect of this prejudice by offering (1) to limit discovery to a questionnaire; (2) to agree that the only facts which will be used to support claims for mental and emotional distress are those already developed in discovery; and (3) to dismiss entirely the claims for punitive damages and mental and emotional distress. But as defendants argue, such offers as (1) and (2) are hollow at best; defendants would be left to proceed on the basis of the unchallenged answers to questionnaires.

Furthermore, defendants’ discovery to date has been tailored to the claims made in plaintiffs’ existing complaint. If plaintiffs’ claims change very far downstream, defendants are almost always prejudiced and certainly are in this case. The Ninth Circuit recently held that it was not an abuse of discretion to deny leave to amend to add a claim “raised at the eleventh hour after discovery was virtually complete and the [defendant’s] motion for summary judgment was pending before the court.” Roberts v. Arizona Board of Regents, 661 F.2d 796, 798 (9th Cir.1981). This procedural posture mirrors the status of the action before us now.

As discussed below, the LMRDA cause of action involves different elements of proof than the causes of action now existing. Certain types of relief may be available under the statute (e.g., punitive damages and attorneys’ fees) which were not available under the causes of action originally pleaded. Defendants suggest that, in fact, no discovery has been had as to any such damages, so that their only recourse would be the inefficient one of challenge at trial. Furthermore, even if plaintiffs dismissed the claims for mental and emotional distress, plaintiffs themselves would have to develop facts concerning their claim for punitive damages.

Futility

As stated above, this Court may consider the question whether the amendment would be futile. The plaintiffs desire to amend their complaint to add a cause of action under Section 101(a)(1) of the Labor-Management Reporting and Disclosure Act, 29 U.S.C. Section 411(a)(1). That section states:

Equal Rights. — Every member of a labor organization shall have equal rights and privileges within such organization to nominate candidates, to vote in elections or referendums of the labor organization, to\ attend membership meetings, and to participate in the deliberations and voting upon the business of such meetings, subject to reasonable rules and regulations in such organization’s constitution and bylaws.

The Supreme Court in Calhoon v. Harvey, 379 U.S. 134, 138-39, 85 S.Ct. 292, 295-96, 13 L.Ed.2d 190 (1964) noted that the language of Section 101(a)(1) “is no more than a command that members and classes of members shall not be discriminated against in their right to nominate and vote.” Consequently, Ninth Circuit eases which have recognized a cause of action for violation of LMRDA section 101(a)(1) have involved a specific instance of discrimination in application of rules or procedures. See, e.g., Stelling v. International Brotherhood of Electrical Workers, 587 F.2d 1379, 1384-85 (1978) cert. denied, 442 U.S. 944, 99 S.Ct. 2890, 61 L.Ed.2d 315 (1979) (failure to submit an agreement to a vote does not assert a denial of a voting right given to any other member); Kupau v. Yamamoto, 622 F.2d 449, 453-54 (1980) (union’s postelection reversal of preelection determination of candidate’s eligibility asserts “uneven” application of eligibility criteria and “that element of discrimination” which states a LRMDA section 101 violation); Lodge 1380, Brotherhood of Railway, Airline and Steamship Clerks, etc. (BRAC) v. Dennis, 625 F.2d 819, 825-26 (1980) (international union’s use of mailing lists absent an allegation that information was mailed to benefit international to detriment of local does not “allege the discrimination necessary to obtain jurisdiction under section 101(a)(1)” ).

The plaintiffs place great reliance on the Fifth Circuit decision in Christopher v. Safeway Stores, 644 F.2d 467 (1981). In that case, the Fifth Circuit found that plaintiffs had stated an LMRDA cause of action by alleging that defendant union had not presented a “major proposition” to the membership for a vote. The union constitution specifically mandated that such propositions be submitted to a vote. The court rejected the union’s argument that LMRDA would not recognize a violation in which all members were “discriminated” against equally by the union and suggested that any action by a union in contravention of a specific constitutional provision would be actionable.

This circuit, however, has not adopted Christopher, nor would Christopher be appropriate authority for the case before us. The specific constitutional provision attached to plaintiffs’ rebriefed papers states only that proposals to settle a strike must be submitted to a vote. The fact that a vote was taken is central to this dispute; the plaintiffs allege that the union misrepresented certain crucial matters to its membership and in reliance thereon, the membership voted to ratify a contract. We seriously question whether the LMRDA or even the rationale of Christopher may be stretched to include a cause of action for misrepresentation such as the one before us in this case. The best theory on which the plaintiffs could proceed on these facts is the theory on which they have already proceeded and lost, namely breach of the duty of fair representation. No evidence appears in the record below which points to a constitutional violation by the union. Moreover, none of the LMRDA cases cited by the plaintiffs, even Christopher, suggest that an alleged misrepresentation by the union to its members in connection with a strike or contract vote states a claim under LMRDA. Accordingly, we find that the addition of such a cause of action to the complaint would be futile.

Conclusion

Finally, we find the words of Judge Renfrew applicable in this matter.

The liberal amendment policy of the Federal Rules was not intended to allow a party to circumvent the effects of summary judgment by amending the complaint every time a termination of the action threatens. The time must arrive in every case when the plaintiff must demonstrate that there is a genuine issue for trial or have summary judgment entered against him.

Glesenkamp v. Nationwide Mutual Insurance Company, 71 F.R.D. 1, 4 (1974); aff'd without opinion, 540 F.2d 458 (9th Cir. 1976); see also Roberts v. Arizona Board of Regents, supra, 661 F.2d 796, 798 (9th Cir.1981); Local 472, et al. v. Georgia Power Company, 684 F.2d 721, 724 (11th Cir. 1982) (no abuse of discretion to deny motion to amend where motion “appears to be nothing more than an effort to avoid an adverse summary judgment ruling.”) Since counsel conceded that the legal basis for this cause of action was known to him at the time the complaint was filed and that the factual basis for the cause of action is also contained in the original complaint, we are forced to conclude that the motion to amend is an attempt to avoid the effects of the summary judgment which we have already granted in this matter. We believe, in any event, that the amendment would be futile under the law of this circuit and of this case, and that permitting an amendment at this time would result in prejudice to the defendants. For these and the reasons contained in the foregoing opinion, plaintiffs’ motion is hereby denied.

IT IS SO ORDERED.

      . The Union argued during the arbitration proceedings that the Company had agreed that Section 8 did not represent a "cap” on the severance pay benefits available under Section 7. The arbitrator, however, in a decision rendered on October 14, 1981, held that the sections had to be read together and thus that Section 8 did provide a limit on the amounts which could be paid out under Section 7. Accordingly, the arbitrator divided the amount in the Section 8 fund pro rata among all those eligible for severance benefits under Section 7, resulting in awards of approximately 50% of what each employee would have received had there been no limit on severance pay other than as stated in Section 7.

      . Defendants argue now that the previously-filed action was premature only with respect to the cause of action against the Company for breach of contract. In defendants’ argument the arbitrator was not presented with the misrepresentation issue nor could he have ever decided it, since it concerned a relationship between the Union and its members and not a dispute between the employees or the Union and the Company.
      This argument is meritless. If the arbitrator had decided in favor of the Union, there would have been no misrepresentation and thus no suit against the Union for breach of the duty of fair representation. Hence, while the arbitrator may not have been squarely faced with the issue of the breach of the duty of fair representation, his decision held the alleged statement to be false.
      Furthermore, it is settled law in this Circuit that the duty of fair representation includes matters involving the negotiation or administration of the collective bargaining agreement. Retana v. Apartment, Motel, Hotel & El. Op. Union, 453 F.2d 1018, 1024-25 (9th Cir.1972); accord, Anderson v. United Paperworkers International Union, 641 F.2d 574, 577-78 (8th Cir.1981).

      . Defendants also imply that the original grievance was not timely filed. See Memorandum of Defendants in Support of Motion for an Order Granting Summary Judgment, filed September 9, 1983, p. 9 n. 6. The record reveals no timeliness objection made at the time the grievance was originally brought. In view of this Court’s position that the arbitration did affect the basis for this litigation, defendants are now equitably estopped from asserting the timeliness of the grievance. See Schultz v. Owens-Illinois, Inc., 696 F.2d 505, 512-13 (7th Cir.1982).

      . Plaintiffs' complaint does not include any cause of action based on promissory estoppel, although plaintiffs argued this issue orally. Plaintiffs also indicated at the hearing that they intended to move to amend their complaint to allege a cause of action based on promissory estoppel. Accordingly, for purposes of this motion, the Court will consider the present complaint as stating a cause of action for promissory estoppel. Plaintiffs' oral and written argument appears to confuse promissory estoppel as a theory of recovery and as a measure of damages. This Court need not reach the damage issue in view of its ruling granting summary judgment.

      . This matter was originally filed on August 6, 1980. The action was dismissed without prejudice as prematurely filed on stipulation of the parties concerning refiling. It is undisputed that neither cause of action sought to be added herein appeared in the original filing nor the complaint filed in this Court in January 1982.

      . Aguirre v. Automotive Teamsters, 633 F.2d 168 (9th Cir.1980) is also inapposite. In Aguirre, a violation of LMRDA was found when votes were weighted during counting in an alleged instance of “ballott stuffing." Even in that case, the union’s unequal treatment of one member's vote vis-a-vis another’s vote resulted in the discrimination actionable under Calhoon.

      . The factual basis for the allegation of the LMRDA cause of action raises an additional question regarding the futility of amendment to add such a cause of action. Summary judgment was granted on the breach of duty of fair representation cause of action on the grounds that plaintiffs could not prove a causal nexus between the defendants’ alleged misrepresentations and plaintiffs' injuries. See Memorandum Opinion filed November 23, 1983 at 8-9. It would appear that the LMRDA cause of action suffers from a similar defect.


source: Caselaw Access Project

author: DUPREE, District Judge.

license: Public Domain

text:
    FORTRESS RE, INC., Penn Re, Inc., and Calvert Insurance Company, Plaintiffs, v. CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, Defendant.
    No. 82-20-CIV-5.
    United States District Court, E.D. North Carolina, Raleigh Division.
    Dec. 16, 1983.

      H. Hugh Stevens, William George Pap-pas, Raleigh, N.C., for plaintiffs.
    Joseph C. Moore, Sr., R. Michael Strickland, Raleigh, N.C., for defendant.
   MEMORANDUM OF DECISION

DUPREE, District Judge.

Plaintiffs brought this diversity action to obtain a declaration of their rights and obligations under a contract of reinsurance issued by them to the defendant. The action is before the court on plaintiffs’ motion for summary judgment to which defendant has responded. After hearing arguments on the motion and considering the submissions of the parties the court is of opinion that the motion should be granted.

On January 8, 1975 the defendant, Central National Insurance Company of Omaha, through its agents in California, called the plaintiff, Penn Re, Inc., in Burlington, North Carolina, by telephone and negotiated a contract of facultative reinsurance. During that conversation, all information necessary to complete the contract was obtained. The contract was later formalized in Certificate No. 13,432 under which plaintiffs were to reinsure one-half of defendant’s liability over $250,000 under a policy of products liability insurance issued by defendant to a manufacturer of swimming pools, with liability under $250,000 to be retained by defendant. After preparation by plaintiffs of the reinsurance certificate, it was forwarded to defendant’s agent in California. The premium was thereafter mailed to plaintiffs in North Carolina.

On September 25, 1978, defendant received a lawsuit filed on behalf of Veronica Lloyd (Lloyd claim) for injuries sustained when diving into a swimming pool manufactured by defendant’s insured. The accident occurred in New Jersey and was accordingly assigned to New Jersey defense counsel in October of that year. Upon preliminary investigation, New Jersey defense counsel discovered that, as a result of the accident, Ms. Lloyd was a quadriplegic. Although liability was not yet established, New Jersey defense counsel was of the opinion that the claim was a serious one and that excess carriers should certainly be notified. Upon this information defendant, notwithstanding a recommendation that a reserve of $100,000 be established, approved an increase in the reserves for this claim from $5,000 to $20,000.

During 1979, discovery pertaining to the Lloyd claim proceeded, and in March of 1980 an increase in the reserve of between $100,000 and $200,000 was suggested by defendant’s claim agent. An increase to $100,000 was approved. This increase in reserves coupled with defendant’s aggregate retained liability of approximately $200,000 clearly would invoke plaintiffs’ liability under the reinsurance certificate.

In April of 1980, New Jersey defense counsel informed defendant that exposure was great and that he was “fearful that we cannot successfully sustain any defense on the grounds that the pool was not manufactured by [the insured].” He was also of the opinion that the action would go to the jury.

In November of 1980, an internal memorandum of defendant indicates that it was aware of the necessity of placing reinsurers on notice of the Lloyd claim. Again in July of 1981, the issue of notice to reinsurers was raised: “[t]hey must be put on notice ... and get notice out to the facultative reinsurers.”

Although the record is not clear concerning settlement negotiations between the parties to the Lloyd claim, defendant was of the opinion that a structured settlement should be pursued even though plaintiff in the Lloyd claim was seeking three million dollars to settle.

Defendant’s insured also carried excess liability insurance for losses which the insured might incur in excess of the $1,000,-000 insured by defendant, and in December, 1981, counsel for the excess carriers requested that defendant offer its entire policy limit for settlement purposes.

With trial set for Monday, January 11, 1982, defendant first notified plaintiffs of the Lloyd claim just five days before on Wednesday, January 6.

“Consider this your invitation to attend. We will be in meeting with defense counsel ... in New Jersey on Sunday evening.”

Plaintiffs, however, with only two working days’ notice, understandably did not attend this conference which resulted in a settlement of the Lloyd claim for $923,605.00, but instead chose to institute this declaratory judgment action forthwith alleging a breach by defendant of the notice provisions of their reinsurance policy.

The first question to be decided is what law governs. When sitting in diversity, the court must apply the law of the forum, including its choice-of-law rules. Klaxon Company v. Stentor Electric Manufacturing Company, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In North Carolina, issues of contract construction and interpretation are determined by the law of the state where the contract was made. Tanglewood Land Company, Inc. v. Byrd, 299 N.C. 260, 261 S.E.2d 655 (1980). This rule applies to insurance contracts. Roomy v. Allstate Insurance Company, 256 N.C. 318, 123 S.E.2d 817 (1962). And, “all contracts of insurance the applications for which are taken within the State shall be deemed to have been made within this State and are subject to the laws thereof.” N.C.G.S. § 58-28.

In this instance, application for the insurance was made in this state to a North Carolina corporation. Where the insurance company is a foreign corporation though application for insurance is taken within this state, the laws of North Carolina will apply. Cordell v. Brotherhood of Locomotive Firemen and Enginemen, 208 N.C. 632, 182 S.E. 141 (1935). This rule should apply with equal force where the insurance company is a domestic one. Accordingly, the laws of North Carolina apply.

Turning then to the merits of the controversy, the issues to be resolved are whether defendant failed to comply with the notice provision contained in the reinsurance certificate, and if so, does that failure relieve plaintiff of its obligation under the certificate.

Prior to 1981 the longstanding North Carolina rule had been that a notice clause in a reinsurance certificate was a condition precedent requiring proper notice within a reasonable time, and any unexplained delay in notifying the reinsured negated liability. See Fortress Re, Inc. v. Jefferson Insurance Company of New York, 465 F.Supp. 333 (E.D.N.C.1978), aff'd, 628 F.2d 860 (4th Cir.1980). However, in Great American Insurance Company v. C.G. Tate Construction Compa ny, 303 N.C. 387, 279 S.E.2d 769 (1981), this rule was modified in favor of a more flexible approach. Id. at 399, 279 S.E.2d at 776. To effectuate this change, the court adopted a three-part test.

When faced with a claim that notice was not timely given, the trier of fact must first decide whether the notice was given as soon as practicable. If not, the trier of fact must decide whether the insured has shown that he acted in good faith, e.g., that he had no actual knowledge that a claim might be filed against him. If the good faith test is met the burden then shifts to the insurer to show that its ability to investigate and defend was materially prejudiced by the delay.

Id., 303 N.C. at 399, 279 S.E.2d at 776.

Application of this test to the undisputed facts of this case shows that plaintiffs’ motion must be granted. To begin with it is clear that defendant failed to provide prompt notice. Defendant first became aware of the Lloyd claim in September, 1978, upon receipt of the complaint, yet it waited for over three years before notifying the plaintiffs and then only on the eve of trial. Of course defendant was not required to give notice until it appeared that plaintiffs’ reinsurance was likely to be “involved,” but defendant knew this long before it ever got around to notifying the plaintiffs. Shortly after the case was assigned to him defendant’s counsel advised that the claim was a serious one and that excess carriers should be notified. Defendant's internal memoranda indicate that on at least two occasions — November 12, 1980, and July 27, 1981 — the obligation to notify reinsurers was discussed. And defendant certainly knew that plaintiffs’ reinsurance was involved when its claims paid and its reserves exceeded $250,000. At the latest this was November 12, 1980. Accordingly, defendant failed to give prompt notice of the claim. Fortress Re, Inc. v. Jefferson Insurance Company of New York, supra.

It appears that the issue of whether an insured’s failure to give timely notice was in good faith has yet to be addressed by the courts of North Carolina, and the court’s opinion in Tate is not entirely clear as to the proper construction of the good faith requirement. Defendant contends that to meet its burden of showing it acted in good faith all it must prove is absence of motive or specific intent not to notify the reinsurer. Support for this position can be found in the court’s statement that “[a]nyone who knows that he may be at fault or that others have claimed he is at fault and who purposefully and knowingly fails to notify ought not to recover even if no prejudice results.” 303 N.C. at 399, 279 S.E.2d at 776 (emphasis added). Plaintiffs, on the other hand, contend that something less than an intentional failure to give notice amounts to a lack of good faith. To support their contention, plaintiffs refer to the example of good faith given by the court as lack of actual knowledge that a claim has been filed, id., and to the explanation that the good faith “requirement is in accord with the common law principle that implicit in every contract is the obligation of each party to act in good faith.” Id. The court is of the opinion that plaintiffs’ position is the better of the two.

“The phrase ‘good faith’ is used in a variety of contexts, and its meaning varies somewhat with the context.” Restatement (Second) of Contracts § 205 at 100 (1981). In this instance, the issue is the good faith performance of a contractual provision between two business entities. Under these circumstances, “[sjubterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty.” Id. at 100. A bad motive or specific intent is not required. United Roasters, Inc. v. Colgate-Palmolive Company, 485 F.Supp. 1049 (E.D.N.C.1980), aff'd, 649 F.2d 985 (4th Cir.), cert. denied, 454 U.S. 1054, 102 S.Ct. 599, 70 L.Ed.2d 590 (1981). Depending on the context good faith may mean “an honest intention to abstain from taking any unconscientious advantage of another ... together with the absence of all information, notice, or benefit or belief of facts which could render a transaction unconscientious.” Jaudon v. Swink, 51 N.C. App. 433, 435, 276 S.E.2d 511, 513 (1981). Thus, where two business entities deal at arms length, unreasonable or unfair dealings can amount to a lack of good faith. See United Roasters, Inc., supra; N.C.G.S. § 25-2-103(1)(b).

From this application of these principles it is clear that defendant’s failure to notify plaintiffs of the Lloyd claim lacked good faith. This is not, as defendant attempts to characterize it, a case of mere negligence. From the initial filing of the lawsuit the potential involvement of excess carriers was known, and it will be remembered that the coverage of their policies was not to come into play until a loss had exceeded $1,000,000, long after liability had attached under plaintiffs’ reinsurance contract. Moreover, on at least two occasions defendant was explicitly warned by its own agents of its duty to its reinsurers. The contention that someone in defendant’s claim organization believed automatic notification would be provided is a hollow excuse where, as here, defendant has offered no underlying facts to justify a belief that automatic notice would occur. Instead, the facts reveal that defendant was constantly aware of the notice requirement yet failed to take the first step in complying with its contractual obligation. Under these facts, defendant’s conduct is so lacking in reasonableness and fair dealing that it amounts to a lack of good faith as a matter of law.

Even without a finding of defendant’s lack of good faith, the failure to notify plaintiffs until three working days prior to trial resulted in prejudice thereby voiding the contract. Because the prejudice requirement is a recent development in North Carolina law, the lack of cases interpreting it is understandable. However, the court in Tate did provide some guidance. Thus, in the context of insurance, as opposed to reinsurance, the court discussed the prejudice requirement as follows:

If, under the circumstances of a particular case, the purpose behind the requirement has been met, the insurer will not be relieved of its obligations. If, on the other hand, the purpose of protecting the insurer’s ability to defend has been frustrated, the insurer has no duty under the contract. This equitable approach to the interpretation of notice requirements in insurance contracts has the advantages of providing coverage whenever in the reasonable expectations of the parties it should exist and of protecting the insurer whenever failure strictly to comply with a condition has resulted in material prejudice.

303 N.C. at 396, 279 S.E.2d at 775 (emphasis added).

By looking at the purpose behind the notice requirement, it appears that the Tate court is attempting to protect the bargain of the parties. Although the prejudice was stated in terms of the ability to defend the lawsuit, this type of prejudice makes little sense in the reinsurance context. Rather, prejudice is the irretrievable loss of the bargain. Thus in the ordinary insurance context, prejudice can be equated with the loss of the ability to defend the claim, id., and in the reinsurance context, prejudice would result from the loss of the ability to participate in the defense and control of the claim and its evaluation for settlement purposes. This is what was bargained for in this case, and when plaintiffs failed to get timely notice of the loss for which they are now sought to be held liable, they lost what they bargained for and were prejudiced.

In response to the court’s observation at the hearing that the notice given in this case “was the same as no notice” counsel for defendant with commendable candor said that he agreed. But if a reinsurer who has had no notice at all can still be held liable the question arises as to what purpose the notice provision serves. Surely the parties contemplated that notice should be of some value to the plaintiff reinsurers. The answer is found in the contract itself:

[T]he Reinsurer ... shall ... have the right and be given the opportunity to associate with the Company and its representatives at the Reinsurer’s expense in the defense and control of any claim, suit or proceeding involving this reinsurance, with the full cooperation of the Company.

Here the plaintiffs were denied this right. As a matter of law this constituted prejudice and relieved plaintiffs of liability under their policy. Great American Insurance Company v. C.G. Tate Construction Company, supra.

Judgment accordingly shall be entered.

      . The upper limit of defendant’s policy was $1,000,000, and the amount retained by defendant was an “aggregate” retention such that plaintiffs’ liability for its one-half of the $750,-000 reinsured attached when total claims paid and reserved by defendant exceeded the $250,-000 limit.

      . The excess carriers had obtained independent notice of the Lloyd claim, and based upon that notice, they monitored its handling.

      . In Roomy v. Allstate Insurance Company, supra, the court adopted the general rule that insurance contracts are to be interpreted by the place where the policy is delivered. In North Carolina, delivery is complete where there is "issuance of a policy in accordance with the terms agreed on, and ... transmission” to the insured or its agent for unconditional delivery. Hardy v. Aetna Life Insurance Company, 154 N.C. 430, 440, 70 S.E. 828, 832 (1911). Actual delivery to the insured is unnecessary. Id.

      With the contract completed, issued and forwarded in North Carolina to defendant, or its agent, unconditional delivery occurred in this state, and the laws of North Carolina apply.

      . The notice provision provides:
      "Prompt notice shall be given to the Reinsurer by the Company of any occurrence or accident which appears likely to involve this reinsurance and while the Reinsurer does not undertake to investigate or defend claims or suits it shall nevertheless have the right and be given the opportunity to associate with the Company and its representatives at the Reinsurer’s expense in the defense and control of any claim, suit or proceeding involving this reinsurance, with the full cooperation of the Company.”


author: JOHN A. REED, Jr., District Judge.

text:
    IC INDUSTRIES, Plaintiff, v. I.C. INDUSTRIES, Defendant.
    No. 80-275-Orl-Civ-R.
    United States District Court, M.D. Florida, Orlando Division.
    Dec. 27, 1983.
    Henry S. Kaplan and Evan M. Kent of Dressier, Goldsmith, Shore, Sutker & Milnamow, Ltd., Lawrence Lawless, Chicago, 111., James F. Page, Jr. and Stephen A. Hilger of Gray, Harris & Robinson, Orlando, Fla., for plaintiff.
    Herbert L. Allen of Duckworth, Allen, Dyer & Pettis, Orlando, Fla., for defendant.
   FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER

JOHN A. REED, Jr., District Judge.

Based on the evidence presented at the trial of this case, the court makes the following:

Findings of Fact

1. The plaintiff is a holding company which owns six major subsidiaries. They are: Pet Incorporated, acquired in 1978; Pepsi Cola General Bottlers, Inc., acquired in 1970; Abex Corporation, acquired in 1968; Midas International Corporation, acquired in 1972; Illinois Central Gulf Railroad, acquired in 1972, and The Hussman Corporation, acquired in 1978. The activities of these subsidiaries are described in “fact files” introduced in evidence as a composite exhibit. See plaintiffs exhibit 6 and particularly pages 30-31 of the 1983 edition.

2. The name of the plaintiff before 1975 was “Illinois Central Industries, Inc.”. That name was formally changed in 1975 to “IC Industries, Inc.”. Prior to the name change, the plaintiff used the name “IC Industries” as a trade name and as a trade and service mark. See for example the letter bearing date 6 September 1972 from the plaintiff’s chief executive officer to the former shareholders of Illinois Central Railroad welcoming them to the “IC Industries” family. (Plaintiff’s exhibit 9).

3. The name “IC Industries” has been registered by the plaintiff as a trade or a service mark to identify a broad array of products and services manufactured and sold by the subsidiaries of the plaintiff. (Plaintiff’s exhibit 55-68).

4. Plaintiff’s registration no. 1095465 (contained in plaintiff’s exhibit 55) indicates that the mark was first used as a service mark in 1962 in connection with railway and motor truck transportation services.

5. The name “IC Industries” was derived from the words “Illinois Central” in the defendant’s former trade name. The name “IC Industries” has been used by the plaintiff as a trademark to identify the goods of its subsidiaries. The mark has been placed directly on products of the subsidiaries and on the advertising therefor as well as on containers of the subsidiaries’ various products. See plaintiff’s exhibit 36, § 4.5; plaintiff’s exhibit 37b (packaging for products from Pet Inc.); plaintiff’s exhibits 39a (stationery), 39b and 40b (soft drink containers) and plaintiff’s exhibit 41b (which includes a name plate designed to be affixed directly to an aircraft access ramp).

6. From 1972 to 1974 the plaintiff used the name “IC Industries” in connection with the sale of interest in real estate in Broward County, Florida. See plaintiff’s exhibit 49-51. Similar use of the name was made in 1975 or 1976 in connection with an industrial park in Broward County, Florida.

7. Since 1973 the plaintiff has extensively advertised its name in connection with the name of its subsidiaries and their goods and services. See plaintiff’s exhibit 10, 13, 16, 20, 31, 34, 35 and 35(a). Plaintiff’s advertisements have appeared in various publications including the Wall Street Journal, Fortune, Barrons, and Pensions & Investment Age. In addition the plaintiff’s name and its relation to its subsidiaries and their products is exposed to the public through the distribution of about 10.000 annual reports each year to the customers of plaintiff’s subsidiaries, banks and portfolio managers. Approximately 100.000 of plaintiff’s annual reports are printed in English for distribution in the United States and 25,000 are printed in French for distribution in Europe. From 1975 through 1983, the plaintiff has budgeted and spent approximately $5,000,000.00 for advertising.

8. After the plaintiff’s name was changed in 1975, the plaintiff standardized its use of the name “IC Industries” by the adoption of guidelines which the plaintiff and its subsidiaries follow for purposes of advertising and identification. See plaintiff’s exhibit 36.

9. Lawrence Lawless, a corporate counsel for the plaintiff, testified that he is unaware of any “overlapping customers” of the parties or any “overlapping advertising media”. Jerome Glass, a regional manager with the Aerospace Division of Abex Inc., did testify that Abex sells some of its products to the Martin Marietta Corporation in Orlando, Florida. These products are used by Martin on what is known as the Patriarch missile system. The defendant’s President, Seymore Lenz, testified that the defendant also sells to Martin Marietta Corporation but defendant’s products do not compete with those sold to Martin by the plaintiff. The evidence before the court does not indicate that the plaintiff and the defendant compete with one another or sell to the same customers, with the exception noted above. The evidence likewise indicates and the court finds that the parties do not advertise in the same media.

10. The defendant is a relatively small Florida corporation which began its corporate existence in May 1976 under the name “I.C. Industries Inc.” The defendant has seven employees and, in 1982, sales of $250,000.00. The defendant manufactures equipment to test the functioning of integrated circuits. The defendant’s first sales in commerce under the trademark of “I.C. Industries, Inc.” occurred in late 1976 after plaintiff’s first use of its trademark and name in Florida. A portion of the defendant’s product line is illustrated in defendant’s exhibit 16, an advertising brochure published by the defendant. Defendant’s exhibits 7, 8, 9, 10, 12 and 13 are also product bulletins which the defendant has used for advertising purposes since 1977. In these bulletins, the defendant is variously referred to as “ici”, “I.C. Industries, Inc.”, and “IC Industries Incorporated”. Defendant’s exhibit 6 is an advertising piece which is currently in use by the defendant. It shows in the lower righthand corner a Probe Card which has embossed on it the ri^me “IC Industries Inc.”

11. The defendant’s equipment is generally marketed by direct negotiation with a consumer, but some of the defendant’s sales are effected through manufacturers representatives and, in Europe, through distributors. About fifty percent of the defendant’s products are custom made for a specific consumer. The defendant sells throughout the world, but most of its domestic sales are to customers in California, New England and Texas. Approximately one percent of the defendant’s sales are to Florida customers. The defendant has no specific plans for expanding its business beyond the manufacture of test equipment for electronic circuits.

12. The defendant advertises through technical trade journals. An example is defendant’s exhibit 17, the April 1983 edition of Electronic Packaging & Production. This magazine contains an article dealing with test probes. On the second page of the article under photo no. 4 a reference to the defendant is found in the following language:

Laser trimming is the most common user or probing in hybrid circuit manufacturing at present. Pictured is a card with adjustable probes manufactured by IC Industries for use on an ESI laser trimmer. (Emphasis added.)

The style in which IC Industries is written is quite similar to the style utilized by the plaintiff to publish its mark. See plaintiff’s exhibit 36 for comparison.

13. Seymore Lenz organized and is president of the defendant. Mr. Lenz initially desired to call the defendant “Integrated Circuits Industries”, but avoided that name upon learning that it was in use by another company. Mr. Lenz adopted the name “I.C. Industries, Inc.” without knowledge the name was in use by the plaintiff. The “I.C.” in the defendant’s name was chosen by Mr. Lenz because he believed those letters are widely understood by people in the microelectronics industry to refer to integrated circuits. Mr. Lenz learned of the plaintiff’s name two to three months after the defendant was incorporated. He did not change the defendant’s name upon learning of the plaintiff because he did not believe there was any likelihood of confusion. Mr. Lenz testified and the court finds that he adopted the name “I.C. Industries, Inc.” without any intent to trade upon or denigrate the good will of the plaintiff.

14. In 1978 the defendant attempted to register as a trademark the name “I.C. Industries” in conjunction with the initials “ICI”. See plaintiff’s exhibit 50. On 23 May 1979 an examiner in the Patent and Trademark Office advised the defendant by an office action dated 23 May 1979:

Applicant is advised that an application is pending in this Office for the registration of a mark which so resembles applicant’s mark as to be likely, as used in connection with the goods and/or services, to cause confusion, or to cause mistake, or to deceive. Since the filing date of the instant application is subsequent to the filing date of the other pending application, the latter, if and when it matures into a registration, will be cited against the instant application.

The subject of the examiner’s reference was an application which had theretofore been filed by the plaintiff. See plaintiff's exhibit 61.

15. The defendant filed a new application for the trademark using the letters “ICI” in a stylized form. See defendant’s exhibit 51. This application generated an opposition from Imperial Chemical Industries Ltd. which had registered the mark “I.C.I.” in 1957. In order to settle its dispute with Imperial Chemical, the defendant has agreed to use the letters ICI together with another word or letter to distinguish its mark from that of Imperial.

16. The plaintiff has admitted by a response to a request for admission filed on 3 February 1982 that it (the plaintiff) has no evidence of actual confusion caused by the defendant’s use of the name “I.C. Industries, Inc.” The plaintiff also admitted that neither it nor its subsidiaries manufacture test probes for electronic equipment.

17. Lawrence Lawless testified that he knows of no company other than the plaintiff and defendant which uses the name “IC Industries Inc.” as a trade name or mark.

18. The plaintiff’s mark has no inherent relationship to the plaintiff’s products and services. The mark does not suggest or describe any product or service offered by the plaintiff, although the letters “IC” in isolation may to some persons involved in the electronics industry suggest an integrated circuit. Since 1975 the plaintiff has spent large sums of money advertising its trademark and its relationship to its various subsidiaries. The evidence indicates no third party use of the plaintiff’s mark. The plaintiff’s mark is a strong mark. See John H. Harland Co. v. Clarke Checks Inc., 711 F.2d 966 (11th Cir.1983), and 3A Callmann, Unfair Competition Trademarks and Monopolies. The plaintiff’s and defendant’s marks are virtually indistinguishable in design and are indistinguishable in sound. This was conceded by defense counsel in his closing argument. A member of the public seeing a product such as that depicted in the lower right quarter of defendant’s exhibit 6 could reasonably assume the plaintiff was the source of the product. The plaintiff and the defendant do not manufacture similar products. The plaintiff, however, through its subsidiaries makes a vast array of products and is known to some members of the public as a broadly based holding company. At least one trademark examiner has expressed the opinion that the use of the mark “I.C. Industries” by the defendant would likely cause confusion, mistake or deception. See defendant’s exhibit 50. The plaintiff and defendant do not generally sell to the same customers or utilize common advertising media. Likewise they do not sell through the same outlets. Despite the foregoing and the lack of any evidence showing intent on the defendant’s part to deceive, the court finds that the defendant’s continued use of the name “I.C. Industries” or any similar series of words and letters as a trademark or trade name is likely to cause mistake or confusion in the mind of at least some members of the public as to the source of the defendant’s products or the corporate relationship between the plaintiff and the defendant or both. This conclusion is an inference drawn primarily from the evidence relating to the strength of the plaintiff’s mark, the broad variety of products and services offered by the plaintiff, and the virtual identity in appearance of the competing marks.. It is corroborated by the opinion of the trademark examiner cited supra.

Conclusions of Law

1. This court has subject matter jurisdiction over the plaintiff’s claims by reason of the provisions of 15 U.S.C. § 1121, 28 U.S.C. § 1338, and the doctrine of pendent jurisdiction.

2. Under §§ 1114 and 1116 of Title 15, United States Code, the plaintiff is entitled to injunctive relief on its claim asserted in Count One of the complaint for trademark and service mark infringement. See John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966 (11th Cir.1983), and Burger King Corp. v. Mason, 710 F.2d 1480 (11th Cir. 1983).

3. Under the common law of unfair competition and under the provisions of § 1125, Title 15, U.S.Code, the plaintiff is entitled to similar relief on the claim asserted in Counts Two and Three of the complaint. See Sun-Fun Products, Inc. v. Suntan Research & Development, 656 F.2d 186 (5th Cir. Unit B, 1981), and Chevron Chemical Company v. Voluntary Group Purchasing Groups, 659 F.2d 695 (5th Cir. Unit A, 1981), cert. denied, 457 U.S. 1126, 102 S.Ct. 2947, 73 L.Ed.2d 1342 (1982).

4. On the claim asserted in Count Four of the complaint the plaintiff is also entitled to injunctive relief under the provisions of § 495.151, Fla.Stat.1983. See Safeway Stores Inc. v. Safeway Discount Drugs, 675 F.2d 1160, 1167 (11th Cir.1982), and Community Federal Sav. and Loan Ass’n v. Orondorff 678 F.2d 1034, 1035 (11th Cir.1982).

5. The plaintiff is not entitled to relief on the claim asserted in Count Five of the complaint. It is the opinion of this court that trademark and trade name infringement is not actionable under § 501.211, Fla.Stat.1983. See §§ 501.212(3) and 501.203(1), Fla.Stat. 1983.

Therefore, it is

ORDERED:

1. The defendant’s motion for judgment at the close of the plaintiff’s case is granted as to Count Five of the complaint. The motion is denied as to the claims asserted in Counts One through Four of the complaint.

2. Within thirty days from the date of this order, counsel for the plaintiff is directed to submit to the court a proposed final judgment for injunctive relief. To minimize the impact of the judgment, it should provide a reasonable period within which the defendant shall terminate the use of the name and mark “I.C. Industries” and any confusingly similar name or mark. Prior to the submission of the proposed final judgment, the attorneys for the parties shall confer in a good faith attempt to agree on the form of the final judgment. When the proposed form is submitted to the court, it shall be accompanied by a stipulation indicating such agreement or a specification of defendant’s objection(s).

3. If the plaintiff deems itself entitled to a judgment for costs or an award of attorneys’ fees, or both, the plaintiff shall file a bill of costs within twenty days after the date of this order. If applicable, plaintiff within the same period shall file a motion for attorneys’ fees with supporting affidavits in conformity with Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974).


author: PHILIP PRATT, District Judge.

text:
    EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, v. CHRYSLER CORPORATION, Defendant.
    Civ. A. No. 81-72347.
    United States District Court, E.D. Michigan, S.D.
    Jan. 24, 1984.

      See also 546 F.Supp. 54.

      Dorothy M. Smith, Jan C. Leventer, Emory J. Bailey, Detroit, Mich., for plaintiff.
    Thomas G. Kienbaum, Joseph C. Marshall, III, Detroit, Mich., for defendant.
   MEMORANDUM OPINION AND ORDER

PHILIP PRATT, District Judge.

Plaintiff Equal Employment Opportunity Commission (“EEOC”) brought this action against defendant Chrysler Corporation (“Chrysler”), alleging violations of the Age Discrimination in Employment Act (“ADEA”), 29 U.S.C. § 621 et seq. This matter is now before the Court on Chrysler’s motion to dismiss or for summary judgment. The parties have extensively briefed the issues and presented oral argument to the Court. For the following reasons, Chrysler’s motion is hereby denied.

Chrysler’s motion is based on the recent decision of the Supreme Court in I.N.S. v. Chadha, 462 U.S. 919, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983), in which the Court held that a legislative device known as the legislative veto is unconstitutional. Plaintiff Chadha was an East Indian who was in the United States on a student visa. An immigration judge held that he was deportable for having remained in the United States beyond the expiration of his visa, but permitted him to apply to the Attorney General for a suspension of his deportation. The Attorney General was authorized to grant such a suspension under 8 U.S.C. § 1254(a)(1), and did grant a suspension to Chadha.

Under 8 U.S.C. § 1254(c)(1), the Attorney General was required to report to Congress each time he exercised his power to suspend a deportation. Under § 1254(c)(2), either House of Congress was authorized to pass a resolution stating that it did not concur with the Attorney General’s decision; upon passage of such a resolution, the Attorney General was required to deport the alien.

The House of Representatives did pass a resolution disapproving the Attorney General’s decision not to deport Chadha, and the I.N.S. instituted deportation proceedings. Chadha appealed his deportation order to the Court of Appeals for the Ninth Circuit, arguing that the legislative veto by the House was unconstitutional. The Ninth Circuit agreed, holding that the action of the House was unconstitutional, and ordered the Attorney General to cease and desist in the deportation proceedings. Chadha v. I.N.S., 634 F.2d 408 (9th Cir. 1980).

On review, the Supreme Court affirmed. The Court held that the House’s action constituted legislative action, and could be effected only by passage of legislation by both Houses of Congress and presentment to the President. The Court found it “crystal clear” that under the Constitution, any legislative action was invalid unless this procedure was followed. 103 S.Ct. at 2788. Defining legislative action as “action which had the purpose and effect of altering the legal rights, duties, and relations of persons, including the Attorney General, Executive Branch officials and Chadha, all outside the legislative branch”, the Court found that the one-House veto was legislative in character. Id. at 2784. The Court noted that in the absence of the legislative veto provision, neither House would have been able to order the deportation of an alien without passage by the other House and presentment to the President. The Court held not only that the House’s exercise of the legislative veto was unconstitutional, but also that the mere enactment of a statute which conferred a legislative veto power was unconstitutional as well:

We hold that the Congressional veto provision in § 244(c)(2) is severable from the Act and that it is unconstitutional.

Id. at 2788 (emphasis added).

The statutory scheme which is at issue on this motion is nearly identical to that involved in Chadha. When originally enacted, the ADEA was to be enforced by the Department of Labor, not the EEOC. Pub.L. 90-202, 81 Stat. 602, 29 U.S.C. § 621 et seq. (1967). The Reorganization Act of 1977, 5 U.S.C. § 901 et seq., conferred upon the President the authority to formulate plans for reorganizing the structure and functions of federal agencies. The Act required the President to submit every reorganization plan to Congress. Upon submission of a plan, a resolution disapproving the plan was to be introduced automatically in both the House and Senate. 5 U.S.C. §§ 909, 910. A designated committee in each House was required to make recommendations on the resolution within 45 days. Id. If a committee failed to make a recommendation within this period, the resolution of disapproval was to be placed automatically on the calendar of the respective House; thereafter, any member of that House could move to consider the resolution. If neither House passed the resolution of disapproval within 60 days after submission of the proposal, the proposal became law. 5 U.S.C. § 906. Conversely, either House could veto the President’s plan by passing the resolution. Id.

In President Carter’s Reorganization Plan No. 1 of 1978, enforcement of the ADEA and the Equal Pay Act, 29 U.S.C. § 206, was transferred from the Department of Labor to the EEOC. The purpose of this reorganization was to place the enforcement power for all antidiscrimination statutes in the same agency. Pursuant to the statute, resolutions of disapproval were introduced in the House and the Senate. The House voted on the resolution, but it was overwhelmingly defeated. The Senate never voted on the resolution. Accordingly, the President’s plan was implemented, and the EEOC ultimately brought this action seeking to enforce the ADEA.

Chrysler now argues that it is unconstitutional for the EEOC to enforce the Act and bring this action. It argues that under Chadha, it was an unconstitutional act for Congress to reserve a legislative veto power in § 906 of the Reorganization Act. It further argues that because of the legislative history of the Reorganization Act, § 906 cannot be severed from the remainder of the Act. Therefore, defendant argues, the entire Reorganization Act is unconstitutional, there was no constitutional basis for the President’s plan transferring enforcement of the ADEA to the EEOC, and the EEOC has no power to prosecute this lawsuit.

After Chadha, it is indeed “crystal clear” that the legislative veto provision in the Reorganization Act is unconstitutional; the EEOC does not even argue to the contrary. The EEOC makes four arguments, however, in opposition to defendant’s motion to dismiss this action. The EEOC asserts that:

A. The legislative veto provision is severable from the remainder of the Reorganization Act;
B. Defendant has no standing to challenge the EEOC’s power to prosecute this action;
C. Even if the President’s transfer of enforcement power to the EEOC was unconstitutional, Congress has cured this defect by ratifying the transfer through subsequent legislation which was passed by both Houses and presented to the President; and
D. Chadha should not be applied retroactively to invalidate legislative actions which occurred before that decision.

Any one of these arguments, if sustained, would require that defendant’s motion be denied.

A. SEVERABILITY

If § 906 is severable from the remainder of the Reorganization Act, then the transfer of enforcement power pursuant to § 903 is arguably not tainted by its unconstitutionality. If, on the other hand, § 906 is inseverable, then the entire Reorganization Act is unconstitutional. There is a presumption that an unconstitutional portion of a statute should be severed from the rest of the statute. Buckley v. Valeo, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976). The fundamental consideration in determining whether § 906 is severable, however, is congressional intent. The Court must determine whether “the Legislature would ... have enacted those provisions that are within its power, independently of that which is not.” Id. at 108, 96 S.Ct. at 677.

The EEOC argues that Congress would have enacted the Reorganization Act even if no legislative veto provision had been present in the Act. It argues that Congress clearly recognized the need for executive reorganization, and that it enacted this Act despite its apprehension that the legislative veto provision might well be unconstitutional. It notes that Congress had earlier (in 1933) enacted a similar Reorganization Act without reserving any legislative veto power. It further notes that the Reorganization Act of 1977 also included other provisions which placed limits on the power conferred on the President. 5 U.S.C. § 905. The EEOC concludes that Congress did not intend that all reorganizations which occurred under the President’s plans should later be undone by the courts if the legislative veto provision was found to be unconstitutional.

This conclusion does not fairly state the issue to be resolved, however. The issue is whether Congress would have enacted this statute without including § 906. Chrysler has presented persuasive evidence that it would not have, and the Court finds that § 906 is not severable from the remainder of the Act.

The Reorganization Act which was finally enacted was a compromise between a bill sponsored by the Administration and a bill which was initially introduced in the House. The Administration bill provided for a legislative veto by either House of Congress of any plan proposed by the President. The original House bill, on the other hand, provided that no reorganization plan would be given effect unless both Houses approved it and it was presented to the President for signature. The House bill, patterned after “traditional” Article I mandates, was designed to alleviate fears that a legislative veto was unconstitutional. The compromise bill included the legislative veto proposed by the Administration, but gave Congress greater control over the President’s proposals. Unlike the Administration bill, it provided that resolutions of disapproval would automatically be introduced in both Houses each time the President submitted a plan to Congress. It provided that these resolutions would automatically be placed on the calendar of each House, and that any member could move for consideration of the resolution. The legislative history of the Act indicates that this provision was of critical importance to many members of Congress. Indeed, Representative Brooks, the sponsor of the original House bill, stated:

... I have chosen to support (the compromise bill), however, because 1 believe the new voting procedure — which was taken from my bill — and the limitations on the use of reorganization authority to which the committee agreed, will pro vide Congress with far more control over reorganization than would have been the case if the President’s proposals had gone through unchallenged.

123 Cong.Rec. 9344 (emphasis added). Although this does not conclusively establish that Congress would not have enacted the Reorganization Act without the legislative veto provision, the views of the bill’s sponsor “(deserve) to be accorded substantial weight in interpreting the statute.” Federal Engineering Administration v. Algonquin SNG, Inc., 426 U.S. 548, 564, 96 S.Ct. 2295, 2304, 49 L.Ed.2d 49 (1976).

It is absolutely clear that Congress wanted to retain the power to disapprove every plan submitted by the President, and that the legislative veto provision was an indispensable part of the statute which was finally enacted. Although Congress recognized the need for administrative reorganization, it appears highly improbable that Congress would have enacted the remainder of the Reorganization Act if the legislative veto provision had not been present. Accordingly, the veto provision is not severable from the remainder of the Act, and the entire Act is, therefore, unconstitutional.

B. STANDING

The EEOC contends that defendant has no standing to challenge the constitutionality of the Reorganization Act. The Court initially notes that doctrines of standing normally apply only to a plaintiffs right to bring suit, while the EEOC is now challenging a defendant’s right to assert a defense. The cases cited by the EEOC in this regard are inapposite. In Brown v. U.S., 411 U.S. 223, 93 S.Ct. 1565, 36 L.Ed.2d 208 (1973), for example, the Court merely held that a criminal defendant has no “standing” to claim a Fourth Amendment violation when he did not own the items which were seized. That case does not involve an issue of standing to sue; it is actually a limitation on the substantive law under the Fourth Amendment. It is axiomatic that every defendant has the right to challenge the plaintiff’s right to sue; the EEOC’s argument to the contrary is without merit.

In any event, the EEOC argues that Chrysler lacks standing for three reasons. First, the EEOC argues that defendant has suffered no “injury in fact” because neither House actually exercised the legislative veto power which was reserved in the Reorganization Act. This argument misperceives the scope of the Court’s holding in Chadha. As noted above, the Court did not hold merely that it was unconstitutional for the House to exercise the legislative veto. The Court held that it was unconstitutional for Congress to reserve a legislative veto power, whether or not it was exercised. Therefore, § 906 of the Reorganization is unconstitutional on its face; it is irrelevant that neither House actually exercised the veto power. Because § 906 is not severable from the remainder of the Act, the entire Act is unconstitutional. It is clear that defendant has suffered “injury in fact” under the statute as a whole. It is the defendant in a lawsuit which was brought by an agency with no constitutional power to prosecute the suit. It is faced with the certain prospect that it will incur additional attorney fees and costs, and the possibility that it will be subject to substantial liability. It surely has suffered “injury in fact” sufficient to challenge the EEOC’s authority to sue.

Second, the EEOC makes the related argument that the defendant’s challenge is not ripe for adjudication, because neither House exercised the legislative veto here. The EEOC relies on Clark v. Valeo, 559 F.2d 642 (D.C.Cir.1977). This was a preChadha case, of course, and the Court found that the question was not ripe there because “the one-house veto is (not) so patently unconstitutional that nothing more is needed to inform the judgment of the court.” Id. at 649. After Chadha, § 906 is patently unconstitutional, and the EEOC’s reliance on Clark is misplaced.

Finally, the EEOC argues that defendant cannot show that this action would have been prosecuted any differently by the Department of Labor. The EEOC argues that defendant would still be subject to suit, no matter what federal agency brought suit. Chrysler argues that there is reason to believe that this action would have been prosecuted differently by the Department of Labor, both because of the difference in policy views between the Department of Labor and the EEOC, and because of the actions of the attorneys prosecuting this case for the EEOC. The Court finds this dispute to be immaterial. If the EEOC has no constitutional power to prosecute this lawsuit, it is irrelevant whether an agency with such power would have proceeded in the same or a different manner. In sum, none of the EEOC’s arguments on standing have merit. Defendant is clearly entitled to challenge the EEOC’s authority to prosecute this suit.

C. LEGISLATIVE RATIFICATION

The EEOC argues that even if the transfer of enforcement power under the Reorganization Act was unconstitutional, this defect has been cured by subsequent legislation, passed by both Houses and presented to the President, which ratified the transfer. The EEOC points out that in the Civil Service Reform Act of 1978, 5 U.S.C. § 1101 note, Congress enacted a provision that “any provision in either Reorganization Plan Numbered 1 or 2 of 1978 inconsistent with any provision in this Act is hereby superseded.” The EEOC argues that this Act ratified the. validity of the reorganizations which occurred under the President’s plans; otherwise, it would not have been necessary to provide that inconsistent portions of those plans would be superseded.

The EEOC also points out that Congress has subsequently passed appropriations bills which appropriate funds to the EEOC to enforce the ADEA. The EEOC argues that this also reflects Congressional approval of the transfer of enforcement power.

The Court cannot accept these arguments. It is well settled that there is no ratification unless the subsequent legislation plainly shows an intent to ratify the transfer. Ratification will not lightly be inferred from subsequent legislation, especially from appropriations alone. See Greene v. McElroy, 360 U.S. 474, 507, 79 S.Ct. 1400, 1419, 3 L.Ed.2d 1377 (1959):

[I]t must be made clear that the President or Congress, within their respective constitutional powers, specifically has decided that the imposed procedures are necessary and warranted and has authorized their use____ Such decisions cannot be assumed by acquiescence or non-action — They must be made explicitly ... because explicit action, especially in areas of doubtful constitutionality, requires careful and purposeful consideration by those responsible for enacting and implementing our laws.

The Civil Service Reform Act of 1978 made no reference to a transfer of enforcement power to the EEOC; it merely referred generally to prior Reorganization Plans. Moreover, appropriations bills do not provide a basis for ratification of earlier acts. Tennessee Valley Authority v. Hill, 437 U.S. 153, 98 S.Ct. 2279, 57 L.Ed.2d 117 (1978). The subsequent legislation here was clearly insufficient to ratify the transfer of enforcement power to the EEOC.

D. RETROACTIVE APPLICATION

Finally, the EEOC argues that Chadha should not be applied retroactively to invalidate legislation which was enacted prior to that decision. The Court did not state explicitly in Chadha whether its decision was to be applied prospectively only. It is apparent that at least two Justices believed that Chadha would be applied retroactively:

The Court’s decision ... apparently will invalidate every use of the legislative veto. The breadth of this holding gives one pause. Congress has included the veto in literally hundreds of statutes, dating back to the 1930s.

103 S.Ct. at 2788 (Powell, J. concurring)

Today the Court ... sounds the death knell for nearly 200 other statutory provisions in which Congress has reserved a “legislative veto”. For this reason, the Court’s decision is of surpassing importance.
Today’s decision strikes down in one fell swoop provisions in more laws enacted by Congress than the Court has cumulatively invalidated in its history.

103 S.Ct. at 2792, 2810 (White, J. dissenting). Nevertheless, because the Court’s opinion did not address the issue, the question of whether the decision is to be applied retroactively must be determined by reference to the general principles applied in other cases.

There is a presumption that decisions will be applied retroactively. Chevron Oil Co. v. Huson, 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296 (1971). Three separate factors must be considered in determining whether to apply a decision prospectively only. First, prospective-only application is proper only if the decision either overruled past precedent or decided an issue of first impression whose resolution was not clearly foreshadowed. Second, it must be determined whether retroactive application will further the purpose of the decision. Third, the Court must determine whether retroactive application would cause an inequitable result. Id. The EEOC bears the burden here of showing that all three of these factors favor prospective-only application. Valencia v. Anderson Bros. Ford, 617 F.2d 1278 (7th Cir.1980), rev’d on other grounds, 452 U.S. 205, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981).

The first requirement is satisfied here. The Supreme Court had never before ruled on the constitutionality of the legislative veto, and Chadha therefore did not overrule any precedent. While it was “clearly foreshadowed” that the Court would eventually be faced with the issue presented in Chadha, it cannot be said that the Court’s resolution of that issue was clearly foreshadowed. See Buckley v. Valeo, supra.

The second requirement is satisfied as well. It can be assumed that after Chadha, Congress will no longer enact legislation reserving a legislative veto power. If the EEOC were to file a new complaint under the ADEA, it might be proper to hold that it has no authority to do so. Where the action has been pending for two years, however, the Court cannot conclude that the action must be dismissed to ensure that Congress will comply with the mandates of Chadha in the future.

The most compelling reason to deny retroactive application is that it would be extremely unfair to the individual claimants in this suit to do so. Chrysler suggests that if its motion is granted, the claimants will merely be represented by the Department of Labor rather than by the EEOC. Chrysler, however, has provided no authority for its argument that this would be the result; it is also possible that the claimants could be left with no remedy at all. Chrysler apparently recognizes this possibility as well; it states in its reply brief that “whatever ‘substantive inequitable results’ may flow from the retroactive application of Chadha in this case will be on the hands of the Executive and Legislative Branches, not the Judiciary.” Id. 424 U.S. at 56, 96 S.Ct. at 652. This hardly constitutes a reason to apply Chadha retroactively. Retroactive application would be unfair to these innocent claimants who filed claims with the EEOC under the then-correct belief that the EEOC was the proper agency to enforce the ADEA. Because this and the other factors of Chevron are satisfied, the Court will not apply Chadha retroactively to dismiss the EEOC as a plaintiff.

In sum, the legislative veto provision in § 906 of the Reorganization Act is unconstitutional. It cannot be severed from the remainder of the Act, and the entire Act is therefore unconstitutional. Chrysler clearly has standing to raise this defense, and Congress has not ratified the transfer of enforcement power through subsequent legislation. It would not be proper to apply Chadha retroactively to dismiss the EEOC as a plaintiff, however, primarily because it would be unfair to the claimants in the suit. For that reason, defendant’s motion to dismiss is hereby denied.

IT IS SO ORDERED.

      . The Court did note that the Constitution provides explicitly for four legislative actions which can be performed by one House alone, without presentment to the President. Id. at 2786. The Court found that the one-House veto was not one of these acts, and noted that when the drafters of the Constitution intended to confer legislative power on one House alone, they had done so in unambiguous terms.

      . Only two other district courts have assessed the constitutionality of the Reorganization Act since Chadha was decided. In EEOC v. Allstate Ins. Co., 32 FEP Cases 1337 (S.D.Miss.1983), the court granted summary judgment to the defendant in an action brought by the EEOC to enforce the Equal Pay Act. The court found that the one-House veto provision in the Act was clearly unconstitutional under Chadha, and rejected all of the similar arguments which were made by the EEOC.
      In Muller Optical Co. v. EEOC, 574 F.Supp. 946 (W.D.Tenn.1983), on the other hand, the court denied a preliminary injunction prohibiting the EEOC from enforcing the ADEA. The court held that the plaintiff did have standing to assert the constitutional argument, but held that the legislative veto provision was severable from the remainder of the Act and that Congress had ratified the transfer of enforcement power through subsequent legislation.

      . The EEOC, in fact, argues that no one has standing to challenge the constitutionality of the Reorganization Act. The Court cannot accept this novel argument, as it is unsupported by any authority and is patently illogical.

      . It appears that the Court implicitly recognized that the issue of retroactive application should be decided on a case-by-case basis. Because each statute affected by Chadha presents a unique problem, it would be difficult to formulate a rule which could be uniformly applied to each such statute.

      . Chrysler has made the independent argument that the Reorganization Act was unconstitutional because it constituted a standardless delegation of power. This is a rather bold argument, as the Court has not set aside a delegation of legislative power on this basis since the New Deal cases of Schecter Poultry Corp. v. United States, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570 (1935) and Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S.Ct. 241, 79 L.Ed. 446 (1935). In any event, the delegation of power in the Reorganization Act was accompanied by a clear recitation of several factors which the President was to consider in formulating reorganization plans. 5 U.S.C. § 901.