author: RICE, District Judge.

text:
    EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, v. DAYTON POWER & LIGHT COMPANY, Defendant.
    No. C-3-83-553.
    United States District Court, S.D. Ohio, W.D.
    July 10, 1984.

      Elliott V. Porter, E.E.O.C. Cleveland Dist. Office, Cleveland, Ohio, for plaintiff.
    David M. Duwel, DP & L Legal Dept., Dayton, Ohio, Thomas J. Manley, Raleigh, N.C., Neil J. Freund, Dayton, Ohio, for defendant.
   DECISION AND ENTRY OVERRULING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

RICE, District Judge.

In this action, Plaintiff Equal Employment Opportunity Commission (“EEOC”) alleges that Defendant Dayton Power & Light (“D.P. & L.”) has violated the Equal Pay Act, 29 U.S.C. § 201 et seq. This cause is now before the Court on D.P. & L.’s motion for summary judgment (doc. # 10), based on the assertion that the EEOC is without lawful authority to enforce the Equal Pay Act.

Before 1978, the authority to bring an action to enforce the Equal Pay Act resided with the Secretary of Labor. See 29 U.S.C. § 216(b) and (c). However, in Reorganization Plan No. 1 of 1978, reprinted in, 1978 U.S.Code & Ad.News 9795, 9799, President Carter transferred that authority to the EEOC.

In shifting the enforcement responsibility to the EEOC, President Carter acted under the authority granted to the President by the Reorganization Act of 1977, 5 U.S.C. § 901 et seq. The Reorganization Act of 1977 authorized the President to develop and to transmit to both Houses of Congress plans for the reorganization of the Executive Branch. 5 U.S.C. § 903. Under that Act, the reorganization plan becomes effective unless within 60 calendar days of continuous sessions of Congress after the plan is transmitted, either House passes a resolution disapproving of the plan. 5 U.S.C. § 906(a).

After President Carter transmitted Reorganization Plan No. 1 of 1978 to the Congress, neither House passed a resolution disapproving of the Plan. The House defeated such a resolution on April 25, 1978. 124 Cong.Rec. 11336-37 (1978). A resolution of disapproval was introduced in the Senate; however, consideration of it was indefinitely postponed. 124 Cong.Rec. 7124 (1978). Thereafter, President Carter ordered Reorganization Plan No. 1 to be implemented. Exec.Order No. 12144, 44 Fed. Reg. 37193 (1979).

D.P. & L. argues that the transfer of authority to enforce the Equal Pay Act from the Secretary of Labor to the EEOC is invalid for three reasons. First, D.P. & L. asserts that the inclusion of the legislative veto in the Reorganization Act of 1977 violates the bicameralism requirement and Presentment Clause of the Constitution. Second, D.P. & L. asserts that the same legislative veto violates the separation of powers doctrine. Third, D.P. & L. contends that the Reorganization Act of 1977 was an unlawful delegation of legislative authority. D.P. & L. concludes that since the transfer of enforcement power to the EEOC was not valid, the EEOC is without authority to enforce the Equal Pay Act.

For the reasons set forth below, this Court concludes that the EEOC has the authority to enforce the Equal Pay Act. In reaching this conclusion, the Court follows the reasoning and result reached by the Fifth Circuit in EEOC v. Hernando Bank, Inc., 724 F.2d 1188 (5th Cir.1984).

Initially, the Court will address the delegation issue, followed by a discussion of the issues related to the inclusion of the legislative veto provision in the Reorganization Act.

A. D.P. & L. argues that the Reorganization Act was an unlawful delegation of legislative authority to the President, by Congress. This Court does not agree.

Not since 1935 has the Supreme Court invalidated a delegation of authority to the Executive Branch by Congress because such delegation constituted an unlawful delegation of legislative power. Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S.Ct. 241, 79 L.Ed. 446 (1935); Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570 (1935). In recent years, the Supreme Court has approved a variety of broad delegations of authority. See e.g., Federal Energy Administration (FEA) v. Algonquin SNG, Inc., 426 U.S. 548, 96 S.Ct. 2295, 49 L.Ed.2d 49 (1976); National Cable Television Ass., Inc. v. United States, 415 U.S. 336, 94 S.Ct. 1146, 39 L.Ed.2d 370 (1974); Lichter v. United States, 334 U.S. 742, 68 S.Ct. 1294, 92 L.Ed. 1694 (1948); National Broadcasting Co. v. United States, 319 U.S. 190, 63 S.Ct. 991, 81 L.Ed. 1344 (1943). See also, 1 K. C. Davis, Administrative Law Treatise 149-77 (2d ed. 1978).

The Supreme Court has set forth a test to determine whether a delegation of legislative power is permissible: “If Congress shall lay down by legislative act an intelligible principle to which the [President] is directed to conform, such legislative action is not a forbidden delegation of legislative power.” FEA v. Algonquin SNG, Inc., supra, 426 U.S. at 559, 96 S.Ct. at 2302 (quoting Hampton & Co. v. United States, 276 U.S. 394, 409, 48 S.Ct. 348, 352, 72 L. Ed. 624 (1928)). In applying this test, courts should recognize that “ ‘[necessity ... fixes a point beyond which it is unreasonable and impracticable to compel Congress to prescribe detailed rules....’ ” Id. 426 U.S. at 600, 96 S.Ct. at 2302 (quoting American Power & Light Co. v. SEC, 329 U.S. 90, 105, 67 S.Ct. 133, 142, 91 L.Ed. 103 (1946)).

Applying these standards to the Reorganization Act of 1977, this Court concludes that the delegation of authority in that act is not a “forbidden delegation of legislative power.” Accord EEOC v. Hernando Bank, supra, 724 F.2d at 1192. The Reorganization Act does provide intelligible principles that govern the President’s exercise of authority. Section 901(a)(1)-(6) set forth the policies that underly the Act. At any time the President determines that changes in the organization of the Executive Branch are necessary to further those policies, the President is to prepare a reorganization plan. 5 U.S.C. § 903(a). The President is to transmit such a plan to Congress together with a declaration that he has found the reorganization necessary to carry out one of the policies set forth in § 901(a). Id. Further, the Act imposed specific limitations upon the President’s authority to develop reorganization plans. 5 U.S.C. § 905.

Based on the foregoing, the Court overrules that branch of D.P. & L.’s motion for summary judgment in which D.P. & L. contends that the Reorganization Act of 1977 constituted an unlawful delegation of the legislative function.

B. The main thrust of D.P. & L.’s motion is that the existence of a legislative veto, whether or not it is exercised, makes the Reorganization Act of 1977 unconstitutional. D.P. & L. asserts two grounds for this premise. First, relying on Immigration and Naturalization Service v. Chadha, 462 U.S. 919, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983), D.P. & L. argues that the legislative veto violates the bicameralism requirement and the Presentment Clauses, Art. I, § 7, els. 2, 3 of the Constitution. Second, D.P. & L. asserts that the legislative veto otherwise violates doctrine of separation of powers.

In Chadha, the Supreme Court held that a one house legislative veto provision contained in § 244(c)(2) of the Immigration and Nationality Act, 8 U.S.C. § 1254(c)(2) was unconstitutional because it violated the bicameralism requirement and Presentment Clauses. Under § 244(a)(1) of the Immigration and Nationality Act, 8 U.S.C. § 1254(a)(1), the Congress granted the Attorney General authority to suspend deportation of certain deportable aliens. Under § 244(c)(1), the Attorney General is to report to Congress whenever he exercises his discretion and decides to suspend the deportation of any alien. Section 244(c)(2) provided that the decision of the Attorney General became final if neither the Senate nor the House of Representatives pass a resolution disapproving of the Attorney General’s decision.

In Chadha, the Attorney General decided to suspend the deportation of Jagdish Rai Chadha, 103 S.Ct. at 2770. The Attorney General conveyed this information to Congress. Id. Subsequently, the House of Representatives passed a resolution opposing the suspension of Chadha’s deportation. Id. 2771-72. Subsequently, Chadha brought suit, claiming that the legislative veto was unconstitutional. The Supreme Court upheld Chadha’s legal position, thus striking down as unconstitutional the legislative veto.

In the present case, the EEOC concedes that the legislative veto in the Reorganization Act of 1977 is invalid under Chadha. Plaintiff’s Memorandum in Opposition to Defendant’s Motion for Summary Judgment (doc. # 24) at 8. Therefore, the Court starts with the premise that the legislative veto herein, even though not exercised, is unconstitutional. Accordingly, the Court need not and does not address D.P. & L.’s contention that the legislative veto in question otherwise violates the separation of powers doctrine. See Ashwander v. TVA, 297 U.S. 288, 347, 56 S.Ct. 466, 483, 80 L.Ed. 688 (1936) (Brandeis J. concurring).

As stated above, the EEOC does not argue that the legislative vetó in the present case is constitutional. However, the EEOC does not concede that it is, therefore, without authority to enforce the Equal Pay Act. Rather, the EEOC argues that it has authority to enforce the Equal Pay Act because the legislative veto is severable from the remainder of the Reorganization Act of 1977, and, in any event, Congress has ratified the transfer of authority to the EEOC. The Court will discuss the question of severability, following which it will address the issue of congressional ratification.

In determining whether a part of a statute is severable from the remainder, the overriding principle to be followed is that the invalid portion of a statute must be severed from the remainder of the statute, “ ‘unless it is evident that the Legislature would not have enacted those provisions that are within its power, independently of that which is not.’ ” Buckley v. Valeo, 424 U.S. 1, 108, 96 S.Ct. 612, 677, 46 L.Ed.2d 659 (1976) (quoting Champlin Refining Co. v. Corporation Commission, 286 U.S. 210, 234, 52 S.Ct. 559, 564, 76 L.Ed. 1062 (1932)). Additionally, the invalid portion of a statute is, “presumed sever-able if what remains after severance ‘is fully operative as a law.’ ” Chadha, supra, 103 S.Ct. at 2775.

The Reorganization Act of 1977 does not have a severability clause. However, although a severability clause may raise a presumption that the invalid portion of a law is severable from that which is not, Chadha, supra, 103 S.Ct. at 2774, “the ultimate determination of severability will rarely turn on the presence or absence of such a clause.” United States v. Jackson, 390 U.S. 570, 585 n. 27, 88 S.Ct. 1209, 1218 n. 27, 20 L.Ed.2d 138 (1968). See also Consumer Energy Council v. FERC, 673 F.2d 425, aff’d mem., — U.S. -, 103 S.Ct. 3556, 77 L.Ed.2d 1402, 1403, 1413 (1983).

In determining whether a legislative veto is severable from the remainder of a statute, the Fifth Circuit recently recognized that courts could best glean legislative intent, “by an analysis of the statute in question.” EEOC v. Hernando Bank, supra, 724 F.2d at 1190. Consequently, the Court turns to the Reorganization Act of 1977 to determine such intent. In § 901(a) Congress set forth the purpose of enacting the Reorganization Act:

The Congress declares that it is the policy of the United States—
(1) to promote the better execution of the laws, the more effective management of the executive branch and of its agencies and functions, and the expeditious administration of the public business;
(2) to reduce expenditures and promote economy to the fullest extent consistent with the efficient administration of the Government;
(3) to increase the efficiency of the operations of the Government to the fullest extent practicable;
(4) to group, coordinate, and consolidate agencies and functions of the Government, as nearly as may be, according to major purposes;
(5) to reduce the number of agencies by consolidating those having similar functions under a single head, and to abolish such agencies or functions thereof as may not be necessary for the efficient conduct of the Government; and
(6) to eliminate overlapping and duplication of effort.

Furthermore, Congress declared that these purposes could be carried out most effectively by delegating authority to the President. 5 U.S.C. § 901(b). Strikingly absent from the statements of Congressional purpose is any mention of the legislative veto. Based on an analysis of the face of the statute, this Court cannot conclude that it is evident that Congress would not have enacted the valid portions of the Reorganization Act of 1977 without the legislative veto.

An analysis of the legislative history does not vary this conclusion. In its report, the House Committee on Government Operations recognized the need for the efficient reorganization of the Executive Branch. H.R.Rep. 95-105, reprinted in 1977 U.S.Code Cong. & Admin.News 41, 43-44. In arguing that the legislative veto is not severable, D.P. & L. relies on the comments of Congressman Drinan who noted that the Reorganization Act, “intentionally does not contain a severability clause.” H.R.Rep. 95-105, supra at 69. Thus, he concluded that, “[T]he one House veto provision is deemed to be an integral and necessary part of the legislative scheme for reorganization.” Id.

Notwithstanding Congressman Drinan’s comments, this Court echoes the conclusion of the Fifth Circuit in EEOC v. Hernando Bank, supra:

With the exception of Congressman Drinan’s comments, nothing in the wording of the Act or in its legislative history indicates that Congress would not have enacted the Reorganization Act without the legislative veto provision or that Congress even considered the issue of sever-ability.

724 F.2d at 1191.

Accordingly, this Court concludes that the legislative veto within the Reorganization Act of 1977 is severable from the remainder of that act. In so doing, this Court joins a growing list of courts which have reached the same conclusion. EEOC v. Hernando Bank, supra; Muller Optical Co. v. EEOC, 574 F.Supp. 946, 951-53 (W.D.Tenn.1983), order affirmed, 743 F.2d 380 (6th Cir.1983); EEOC v. U.S. Steel, 34 F.E.P. 1091 (W.D.Pa.1984); EEOC v. Radio Montgomery Inc., 588 F.Supp. 567, 34 F.E.P. 378 (W.D.Va.1984); EEOC v. New York, 590 F.Supp. 37, 34 F.E.P. 379 (N.D.N.Y.1984; EEOC v. Pan American World Airways, 34 F.E.P. 321 (N.D.Ca.1984); EEOC v. C.B.S., Inc., 34 F.E.P. 257 (S.D.N.Y.1984); EEOC v. El Paso National Gas Co., 33 F.E.P. 1837 (W.D.Tex.1984); EEOC v. Jackson County, 33 F.E.P. 963 (W.D.Mo.1983); EEOC v. City of Memphis, 581 F.Supp. 179, 33 F.E.P. 1089 (W.D.Tenn.1983). See also EEOC v. Old Dominion Freight Line, Inc., 587 F.Supp. 1128, 34 F.E.P. 377 (M.D.N.C.1984) (EEOC has authority to enforce ADEA notwithstanding Chadha); EEOC v. Cudahy Foods Co., 588 F.Supp. 13, 33 F.E.P. 1836 (W.D.Wash.1983) (same). This Court notes that other courts have reached the opposite conclusion. EEOC v. Allstate Insurance Co., supra; EEOC v. Westinghouse Electric Corp., 33 F.E.P. 1232 (W.D.Pa.1984); EEOC v. Chrysler Corp., supra.

As stated above, the EEOC also argues that even if the transfer of power to enforce the Equal Pay Act was ineffective because the legislative veto is not severable, it nonetheless has valid authority to enforce the Act, because Congress, by certain actions subsequent to the transfer of authority, ratified the executive reorganization.

It has long been recognized that, by its actions, Congress can ratify an unauthorized but otherwise valid transfer of functions from one department of the Executive Branch to another. See e.g., Isbrandtsen-Moller Co. v. United States, 300 U.S. 139, 57 S.Ct. 407, 81 L.Ed. 562 (1937); Swayne v. Hoyt, Ltd. v. United States, 300 U.S. 297, 57 S.Ct. 478, 81 L.Ed. 659 (1937). As the Supreme Court said in Swayne & Hoyt, Ltd. v. United States, supra, “It is well stated that Congress may, by enactment not otherwise inappropriate, ‘ratify ... acts which it might have authorized,’ see Mattingly v. District of Columbia, 97 U.S. 687, 690, 24 L.Ed. 1098 [1878], and give the force of law to official action unauthorized when taken.” 300 U.S. at 301-02, 57 S.Ct. at 479-80 (citations omitted).

First, the EEOC argues that § 905 of the Civil Service Reform Act of 1978, P.L. 95-454, 92 Stat. 1111, 1224, 5 U.S.C. 1101 note, is evidence of such ratification. That section provides that, “Any provision in ... Reorganization Plan ... 1 of 1978 inconsistent with this Act is hereby suspended.” The EEOC argues that this was implicit ratification of those potions of Reorganization Plan No. 1 of 1978 which were not inconsistent with the Act. The EEOC also points out that Congress has appropriated funds to it in acts that specifically refer to its enforcement power over the ADEA and the Equal Pay Act. P.L. 98-166, 97 Stat. 1071, 1088; P.L. 97-377, 96 Stat. 1830, 1874. See also, P.L. 97-92, 95 Stat. 1183, 1192 (mentioning ADEA).

In arguing that Congress has not ratified the transfer of authority to the EEOC, D.P. & L. relies on Greene v. McElroy, 360 U.S. 474, 79 S.Ct. 1400, 3 L.Ed.2d 1377 (1959). In Greene, the Court said ratification should not be implied from appropriation measures particularly when the subject arguable ratified is in an “area of questionable constitutionality.” Id. at 506, 79 S.Ct. at 1418.

Greene is inapposite. The transfer to the EEOC of enforcement authority over the Equal Pay Act affects no substantive rights; nor does it impinge upon an area of questionable constitutionality. In discussing this transfer of authority, the Fifth Circuit in EEOC v. Hernando Bank, supra, said:

The challenged executive action did nothing more than transfer the federal government’s responsibility for enforcing the Equal Pay Act from one executive agency to another, i.e. from the Secretary of Labor to the EEOC. The reorganization plan effected no substantive change in the applicable substantive legislation; indeed, 5 U.S.C. § 905 forbids any such changes.

724 F.2d at 1192 n. 2.

This Court has analyzed the relevant statutory materials and concludes that Congress has ratified the transfer of authority to the EEOC. Most of the courts which have considered this question have reached the same conclusion. Muller Optical Co. v. EEOC, supra; EEOC v. Radio Montgomery, Inc., supra; EEOC v. State of New York, supra; EEOC v. Pan American World Airways, supra; EEOC v. CBS, Inc., supra; EEOC v. El Paso Natural Gas Co., supra; EEOC v. Jackson County, supra; EEOC v. City of Memphis, supra. However, some courts have reached the opposite conclusion. EEOC v. Allstate Insurance Co., supra; EEOC v. Martin Industries, 581 F.Supp. 1029 (N.D.Ala.1984); EEOC v. Westinghouse Electronic Corp., supra; EEOC v. Chrysler Corp., supra.

In conclusion, the Court has determined that the legislative veto in the Reorganization Act of 1977 is severable from the remainder of that statute and that Congress has ratified the transfer to the EEOC of enforcement authority over the Equal Pay Act. Accordingly, this Court holds that the EEOC has authority to enforce the Equal Pay Act. Therefore, D.P. & L.’s motion for summary judgment is overruled.

      . To the extent that D.P. & L. argues that it is per se unlawful for Congress to delegate to the Executive the authority to reorganize the Executive department of government, this Court rejects such a contention. Throughout the years, courts have not favored challenges to reorganization acts on the basis of unlawful delegation of authority. See, e.g., Federal Trade Commission v. Gibson, 460 F.2d 605, 607 (5th Cir.1972) (Rejecting, as frivolous, argument that Reorganization Act of 1949 was an unlawful delegation of legislative authority.); EEOC v. Hernando Bank, Inc., 724 F.2d 1188, 1192 (5th Cir.1984) (Reorganization Act of 1977 a valid delegation of legislative authority.).

      . The bicameralism requirement is found in Art. I, §§ 1 and 7 of the Constitution.

      . The Court’s holding in Chadha was based on the doctrine of separation of powers. See 103 S.Ct. at 2780-84. Herein, D.P. & L. argues that the legislative veto otherwise violates the separation of powers doctrine because it impairs the right of the judiciary to exercise judicial review and usurps functions central to the Executive Branch. See doc. # 10 at 12-16.

      . The EEOC also argues that Chadha should not be applied retroactively to invalidate the Reorganization Act of 1977. See e.g. Northern Pipeline Construction Co. v. Marathon Pipeline Co., 458 U.S. 50, 87-89, 102 S.Ct. 2858, 2880, 73 L.Ed. 598 (1982). This argument has met with mixed results in the courts. Compare EEOC v. Chrys

        ler Corp., 595 F.Supp. 344, 33 F.E.P. 1838 (E.D. Mich.1984) (Chadha not to be applied retroactively); with EEOC v. Allstate Insurance Co., 570 F.Supp. 1224, 1232-33 (S.D.Miss.1983), appeal dismissed, — U.S. -, 104 S.Ct. 3499, 82 L.Ed.2d 810 (1984). Because this Court concludes that the legislative veto herein is severable and that Congress has ratified the transfer of authority to the EEOC, it would be unnecessary for the Court to address the issue of Chadha's retroactivity. See Ashwander v. TVA, supra.

      . Section 901(b) provides:
      Congress declares that the public interest demands the carrying out of the purposes of subsection (a) of this section and that the purposes may be accomplished in great measure by proceeding under this chapter, and can be accomplished more speedily thereby than by the enactment of specific legislation.

      . Many courts have analyzed this issue in the context of the transfer of authority to enforce the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq. to the EEOC. As with the Equal Pay Act, President Carter transferred enforcement authority over the ADEA to the EEOC with Reorganization Plan No. 1 of 1978. Hence, cases arising in the context of the ADEA are analytically indistinct from those in which the EEOC’s authority to enforce the Equal Pay Act is challenged.


source: Caselaw Access Project

author: KINNEARY, District Judge.

license: Public Domain

text:
    GOOD SAMARITAN MEDICAL CENTER, et al., Plaintiffs, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendants.
    No. C-2-84-0336.
    United States District Court, S.D. Ohio, E.D.
    Sept. 20, 1984.

      David J. Young, Peter A. Pavarini, Steven W. Tigges, Murphey, Young & Smith, Columbus, Ohio, for plaintiffs.
    Drake Cutini, U.S. Dept. of Justice, Civ. Div., Washington, D.C., for defendants.
   OPINION AND ORDER

KINNEARY, District Judge.

This matter comes before the Court to consider the defendant’s motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b). Plaintiffs, eleven rural hospitals, challenge the constitutionality of the Social Security Amendments of 1983 which, in relevant part, authorize the Secretary of Health and Human Services to calculate separate schedules for reimbursement of service providers according to whether a hospital is within or without Metropolitan Statistical Areas. Plaintiffs contend that this distinction between rural and urban hospitals for purposes of reimbursement is arbitrary, and violates both the equal protection and due process guarantees of the Fifth Amendment. The defendant has moved to dismiss the complaint for lack of jurisdiction and for failure to state a claim upon which relief can be granted.

I.

This action concerns the statutory scheme under which hospitals that provide services under the Health Insurance for the Aged & Disabled Act (Medicare), 42 U.S.C. §§ 1395 et seq., receive reimbursement from the government. Prior to 1983, reimbursement for services rendered was based upon the reasonable cost or customary charge for the services, whichever was lower. In 1983, the Social Security Amendments of 1983, Pub.L. 98-21, made a major change in this system of payment. Under the new system, reimbursement is based upon the type of case treated, rather than cost of treatment. Cases are categorized into “diagnosis related groups” (DRG’s). To encourage hospitals to provide services more efficiently, a prospective payment system was created which hospitals were reimbursed at predetermined amounts.

At issue in the instant case is the method by which Congress instructed the Secretary of Health and Human Services to calculate these amounts. The details of this calculation are not material to this litigation. What is material is that the Act instructs the Secretary to calculate payments separately for urban and rural hospitals.

The Secretary shall determine a national adjusted DRG prospective payment rate, for each inpatient hospital discharge in fiscal year 1984 ... (S)uch rate shall be determined for hospitals located in urban or rural areas within the United States or within each such region, respectively ...

42 U.S.C. § 1395ww(d)(2). Rural and urban areas are defined as follows:

the term “urban area” means an area within a Standard Metropolitan Statistical Area (as defined by Office of Management and Budget) or within such similar area as the Secretary has recognized ... by regulation; and the term “rural area” means any area outside such an area or similar area.

42 U.S.C. § 1395ww(d)(2)(D). For a three-year transition period, prospective payment rates will be separately calculated for regions of the country. During this transition, reimbursement is based in part upon the historical costs of the provider hospital. 42 U.S.C. § 1395ww(d)(1).

II.

Defendant contends that this Court lacks jurisdiction over the subject matter of this action and, therefore, this action must be dismissed. Plaintiffs ground jurisdiction upon the general federal question statute, 28 U.S.C. § 1331.

Defendant argues that 42 U.S.C. § 405(h) forecloses district court jurisdiction. 42 U.S.C. § 405(g) provides for judicial review in the district courts of a final decision of the Secretary of Health and Human Services made after a hearing. Section 405(h) then provides:

The findings and decision of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this sub-chapter.

42 U.S.C. § 405(h). Defendant points out that 42 U.S.C. § 1395oo establishes the Provider Reimbursement Review Board, makes available hearings for providers dissatisfied with any reimbursement, and provides for judicial review of final decisions of the Board in the district courts. The premise of the defendant’s argument is that the plaintiffs’ claims amount to “a claim arising under this subchapter” within the meaning of section 405(h). If this is so, it follows under the Supreme Court’s decision in Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975) that plaintiffs must exhaust administrative remedies, even though they are also asserting related constitutional claims.

In the recent case of Michigan Academy of Family Physicians v. Blue Cross and Blue Shield of Michigan, 728 F.2d 326 (6th Cir.1984) the Sixth Circuit addressed the jurisdictional issue involved in the instant case. In that case, plaintiffs, who were service providers under Medicare, filed suit challenging the method by which the Department of Health and Human Services determined reimbursement for certain eligible individuals. The complaint alleged that the classification of family physicians separately from other physicians with similar qualifications and together with chiropracters for the purpose of determining reimbursement violated Medicare itself and due process and equal protection rights under the Fifth Amendment. Id. at 327. The defendants argued—as the defendant does in the instant case—that this amounted to an argument for an increase in amounts reimbursed, and therefore could not be brought originally in district court.

The Sixth Circuit stated:

While the eventual result of this suit may cause an increase in amounts of reimbursement, that does not necessarily follow. In some cases the result might be an increased amount of reimbursement, and in others, a reduction in reimbursement could occur. Michigan Academy, at bottom line, is challenging the overall mechanism for determining the amounts of reimbursements, not the actual value of any particular reimbursement.

Id. at 330. The Court held that a constitutional attack upon a regulation establishing procedures for reimbursement lay within the section 1331 jurisdiction of a district court. The Court reasoned:

(T)his dispute involves ... a challenge to a regulation by the Secretary establishing the procedure under which reimbursement schedules should be determined.... Congress did not provide any •mechanism to review such decisions of the Secretary in this type of case. In the absence of federal question jurisdiction, therefore, the Secretary apparently would have unbridled discretion to promulgate any regulation he chose. Courts confronted with this dilemma have held that Congress did not intend to preclude federal jurisdiction over such causes.... (citations omitted) ... Given the presumption favoring judicial review and absent a clear and convincing showing that Congress intended the contrary, we conclude that the district court correctly found federal question jurisdiction under 28 U.S.C. § 1331 to render a decision in this case.

Id. at 331.

Although Michigan Academy is unlike the present case in that it involved a challenge to a regulation rather than a statute, it appears to the Court that both its result and reasoning are applicable to instant case. Indeed, in the instant case there is an additional consideration favoring direct district court review. The Secretary lacks the power to modify the statute, whereas she can modify regulations promulgated under the Act. The Court concludes that Michigan Academy is controlling over the jurisdictional issue presented by this case.

The defendant contends, however, that the reasoning of Michigan Academy has been undermined by the recent decision of the Supreme Court in Heckler v. Ringer, — U.S. -, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984). The Ringer plaintiffs were individual Medicare claimants who challenged a policy of the Secretary denying reimbursement for a particular surgical procedure. The Secretary had made a formal ruling that this particular procedure was not “reasonable and necessary” within the meaning of the Medicare Act because it lacked general acceptance within the medical community and ordered fiscal intermediaries not to reimburse for the procedure. The plaintiffs challenged this ruling both under the Medicare Act and on the ground that it denied them constitutional due process. The issue before the Supreme Court was whether the action was barred by section 405(h).

The Court wrote:

(T)o be true to the language of the statute, the inquiry in determining whether § 405(h) bars federal question jurisdiction must be whether the claim “arises under” the Act, not whether it lends itself to a “substantive” rather than a “procedural” label ... In Weinberger v. Salfi ... we construed the “claim arising under” language quite broadly to include any claims in which “both the standing and the substantive basis for the presentation” of the claims is the Social Security Act.

Id. — U.S. at -, 104 S.Ct. at 2022. The Court then held that the claim of the Ringer plaintiffs arose under the Act, and that the district court lacked jurisdiction.

Having considered defendant’s contention and arguments, this Court concludes that Ringer does not by implication overrule Michigan Academy for the following reasons. Ringer must be read in light of “the well-established principle that when constitutional questions are in issue, the availability of judicial review is presumed ...” Califano v. Sanders, 430 U.S. 99, 109, 97 S.Ct. 980, 986, 51 L.Ed.2d 192 (1977). Although the Supreme Court stated that “arising under” was to be construed broadly, this Court does not construe the decision to foreclose all direct district court review merely because an incidental effect of a favorable decision may be increased benefits to plaintiffs.

This Court perceives a distinction between the claims of the plaintiffs in the instant case and those of the Ringer plaintiffs. In substance, the Ringer plaintiffs were making a claim for benefits, even though they did not expressly request them. The injunctive and declaratory relief that they sought would lead directly and necessarily to payment of benefits to them. In contrast, the relationship between the constitutional claims of the plaintiffs and increased reimbursements in the instant case is much more attenuated. Further, the Ringer plaintiffs had standing to bring their action only virtue of rights created under the Social Security Act. Had the Act not conferred a right to reimbursement upon them, they would have suffered no judicially cognizable injury. The instant plaintiffs have standing independently of any rights created in them by the Medicare Act; they allege an unconstitutional interference with the conduct of their business. Thus, the claims of the instant plaintiffs are “collateral to ... substantive claims of entitlement,” Mathews v. Eldridge, 424 U.S. 319, 330-1, 96 S.Ct. 893, 900-1, 47 L.Ed.2d 18 (1976), whereas the constitutional claims of the Ringer plaintiffs were intertwined with a substantive claim for benefits. Weinberger v. Salfi, supra.

Thus, this Court concludes that the claims of the instant plaintiffs do not arise under the Medicare Act. To hold—as the defendant invites the Court to do—that plaintiff's constitutional attack is barred by section 405(g) would, as a practical matter, bar all direct constitutional attacks upon Social Security. The Court does not believe that Congress intended this “extraordinary step” in section 405(g). Califano v. Sanders, supra, 430 U.S. at 109, 97 S.Ct. at 986. Thus, defendant’s motion to dismiss this action for lack of jurisdiction is DENIED.

III.

Social and economic legislation that does not employ suspect classifications or impinge upon fundamental rights must be upheld under the equal protection component of the Fifth Amendment when the legislative means are rationally related to a legitimate government purpose. U.S. v. Railroad Retirement Bd. v. Fritz, 449 U.S. 166, 101 S.Ct. 453, 66 L.Ed.2d 368 (1980); U.S. v. Carolene Products Co., 304 U.S. 144, 152 n. 4, 58 S.Ct. 778, 783 n. 4, 82 L.Ed. 1234 (1938). In the present case, there is no dispute between the parties that the government is pursuing a legitimate aim: containing costs and increasing efficiency in health care services delivery. The plaintiffs attack one narrow aspect of the means adopted to this end: distinguishing between rural and urban hospitals for purposes of calculating reimbursement.

When an equal protection challenge to the means chosen by the legislature is made in a lawsuit, the role of a court is a very limited one. Schweiker v. Wilson, 450 U.S. 221, 230, 101 S.Ct. 1074, 1080, 67 L.Ed.2d 186 (1981). Economic regulation and social legislation is presumed to be constitutional. U.S. v. Carolene Products, supra, 304 U.S. at 152, 58 S.Ct. at 158. In addition, when the legislation confers monetary benefits, courts should grant a “strong presumption of constitutionality,” because “Congress should have discretion in deciding how to expend necessarily limited resources.” Schweiker v. Wilson, supra, 450 U.S. at 238, 101 S.Ct. at 1084, citing Mathews v. De Castro, 429 U.S. 181 at 185, 97 S.Ct. 431 at 434, 50 L.Ed.2d 389. Because of this presumption of constitutionality, a plaintiff challenging a classification on equal protection grounds must show that the legislative facts on which the classification is apparently based “could not reasonably be conceived to be true by the governmental decisionmaker.” Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 464, 101 S.Ct. 715, 723, 66 L.Ed.2d 659 (1981), citing Vance v. Bradley, 440 U.S. 93 at 111, 99 S.Ct. 939, 949, 59 L.Ed.2d 171 (1979); Western & Southern Life Ins. Co. v. State Bd. of Equalization of California, 451 U.S. 648, 671-4, 101 S.Ct. 2070, 2084-6, 68 S.Ct. 514 (1981).

The narrow scope of judicial review of economic and social legislation substantially narrows the kinds of evidence that are material to the determination of constitutionality. “So long as the classificatory scheme chosen by Congress rationally advances a reasonable and identifiable governmental objective, ... [judges] ... must disregard the existence of other methods of allocation that [they], as individuals, perhaps would have preferred.” Schweiker v. Wilson, supra, 450 U.S. at 235, 101 S.Ct. at 1083. Consequently, the wisdom of the means chosen by Congress is not properly at issue. Vance v. Bradley, 440 U.S. 93, 109, 99 S.Ct. 939, 948, 59 L.Ed.2d 171 (1979). Furthermore, a Court may not properly hear evidence intended to show that the legislature was mistaken in its empirical assumptions. “Where there was evidence before the legislature reasonably supporting the classification, litigants may not procure invalidation of the legislation merely by tendering evidence in court that the legislature was mistaken.” Minnesota v. Clover Leaf Creamery Co., supra, 449 U.S. at 464, 101 S.Ct. at 723.

In a proper case, a motion to dismiss a constitutional attack upon economic or social legislation can be granted. This Court is of the opinion that where “it is evident from all the considerations presented to Congress, and those of which ... [a court] ... may take judicial notice, that the question is at least debatable” a motion to dismiss can properly be granted. United States v. Carolene Products Co., supra, 340 U.S. at 154, 58 S.Ct. at 784; Vance v. Bradley, supra, 440 U.S. at 109-112, 99 S.Ct. at 948-950; Minnesota v. Clover Leaf Creamery Co., supra, 449 U.S. at 464, 101 S.Ct. at 723. If it appears plainly from the challenged statute itself, the accompanying legislative history and from facts of which the Court may take judicial notice that Congress made a deliberate choice and had a reasonable basis for that choice, the complaint should be dismissed. See e.g., Delbay Pharmaceuticals, Inc. v. Dept. of Commerce, 409 F.Supp. 637 (D.D.C.1976); Schweiker v. Wilson, supra, 450 U.S. at 235, 101 S.Ct. at 1083. In these circumstances, in light of well-established legal principles, nothing that the plaintiffs can present in evidence can invalidate the statute.

The Court has examined the statute itself, the accompanying legislative history and considered the arguments of the parties. For the following reasons, the Court concludes that upon the record properly before it, defendant’s motion to dismiss should be granted.

First, “(w)here a legitimate purpose for a statute appears in the legislative history or is implicit in the statutory scheme itself, a court has some assurance that the legislature made a conscious policy choice.” Schweiker v. Wilson, supra, at 244, 101 S.Ct. at 1087 (Powell, J. dissenting). In the instant case, it is plain that Congress drew the challenged distinction in the pursuit of a legitimate objective. The statute itself, 42 U.S.C. § 1395ww(d)(2), is deliberately drafted around a distinction between rural and urban hospitals. It is inconceivable that this distinction is an unintended consequence of the pursuit of other goals, a technical or drafting error, or aberration of the legislative process. The legislative history also makes clear that Congress intended to draw this distinction. See Sen.Rep. 98-23, 98th Cong., 1st Sess., reprinted in 1983 U.S.Code Cong. & Ad.News 143, 189; H.R. 98-25, 98th Cong., 1st Sess., reprinted in 1983 U.S.Code Cong. & Ad.News 219, 353. Thus, there can be no doubt that Congress made a deliberate choice in drawing the rural/urban distinction.

Second, it appears clearly from the legislative history that Congress had a reasonable basis for this choice. As it was originally proposed by the administration, the legislation did not require the calculation of separate averages for rural and urban hospitals. The change was made when Congress was informed by the Congressional Budget Office that the proposed legislation would have very uneven effects on rural and urban hospitals. Medicare Hospital Prospective Payment System: Hearings Before the Subcomm. on Health of the House Comm, on Ways and Means, 98th Cong., 1st Sess. 8-9 (statement of Nancy Gordon, Assistant Director for Human Resources and Community Development, Congressional Budget Office). In addition, Congress had before it statistical projections of the impact of prospective payment upon rural and urban hospitals when it enacted the prospective payment system. See statement of Nancy Gordon, supra, at p. 11, Table 1. Finally, the Secretary was instructed as part of her 1985 Annual Report to Congress to study the feasibility and impact of phasing out or eliminating separate rural and urban prospective payment rates. H.R. 98-25, supra, at 369. The basis for Congress’ action substantially exceeds that required by the equal protection guarantee against arbitrariness. See Vance v. Bradley, supra, 440 U.S. at 110, 99 S.Ct. at 949.

It follows that defendant’s motion to dismiss plaintiffs’ equal protection claim should be GRANTED.

IV.

Plaintiffs also allege that section 1395ww(d)(2) violates their due process rights under the Fifth Amendment because it amounts to an uncompensated taking of property. However, reduced compensation to providers under Medicare does not amount to a taking. Indiana Hospital Ass’n v. Schweiker, 544 F.Supp. 1167, 1183-1185 (S.D.Ind.1982). Defendant’s motion to dismiss this claim is GRANTED.

WHEREUPON, upon consideration and being duly advised, this Court determines that defendant’s motion to dismiss for lack of jurisdiction is without merit and, therefore, is DENIED; the Court further determines that defendant’s motion to dismiss plaintiffs’ constitutional claims is meritorious and, therefore, is GRANTED. This case is dismissed in its entirety.

IT IS SO ORDERED.

      . Section 1872 of the Medicare Act, 42 U.S.C. § 1395ii, incorporates by reference section 405(h) of the Social Security Act.


author: BATTIN, Chief Judge.

text:
    John J. JOHNSTON and Evelyn R. Johnston, Plaintiffs, v. UNITED STATES of America, Defendant.
    No. CV-82-167-H.
    United States District Court, D. Montana, Billings Division.
    Nov. 20, 1984.
    Sol Lovas, Felt & Martin, Billings, Mont., for plaintiffs.

      Lorraine Gallinger, Asst. U.S. Atty., Billings, Mont., John D. Steffan, Tax Div., Dept. of Justice, Washington, D.C., for defendant.
   MEMORANDUM OPINION

BATTIN, Chief Judge.

This ease is before the Court on cross-motions for summary judgment. For the reasons stated below, the plaintiffs’ motion for summary judgment is granted, and the defendant’s motion for summary judgment is denied.

FACTS AND PROCEDURE

DISCUSSION

The legal issue of this case is whether the equipment purchased by plaintiffs qualifies for the investment tax credit under IRC § 48(a)(1)(A) or whether it is excluded by reason of IRC § 48(a)(3) which excludes property which is “used predominantly to furnish lodging or in connection with the furnishing of lodging.” There is also an equity issue in this case, that is, whether the Service should be bound by the position it took in a previous audit of the plaintiffs’ tax returns.

During an audit of the plaintiffs’ returns for 1971 through 1973, the Service took the position that the Leisure Village mobile home park was not “residential rental property,” and therefore its § 1250 property did not qualify for the special accelerated depreciation rates allowed by IRC § 167(j). This position was stated in the 30-day letter sent to the plaintiffs on August 19, 1975. The language of that letter is very important to the resolution of this case. At pages 3 and 4 of the letter the Service states as follows:

Lastly, under depreciation expense, you are depreciating all the real property (Section 1250 property) using the 200% declining-balace method. Regulation Section 1.167(j)-3(a) states that the 200% declining-balance method of depreciation can be used on new “residential rental property.” Regulation Section 1.167(j)-3(b)(i) states “the term ‘residential rental property’ means, for any taxable year, a building or structure used to provide living accommodations on a rental basis. ... Generally, a dwelling unit is a house or an apartment used to provide living accommodations.
Since you are renting trailer spaces and not dwelling units, the 200% declining-balance method of depreciation is not available.

(Emphasis added.) In other words, the Service told the plaintiffs that they were renting mere trailer spaces, not living accommodations. The plaintiffs abided by this determination of the Service and used a different depreciation method. Now the Service is contending that the trailer spaces that the plaintiffs are renting furnish lodging to the renters. The Service might think that the words “living accommodations” and “lodging” have different meanings, but neither this Court nor Webster’s Third New International Dictionary does. Webster’s uses each of the words to define the other.

In tax law there is a doctrine known as the duty of consistency or quasi estoppel. See cases cited at footnote 1 § 60.04, 10 Mertens, Law of Federal Income Taxation (1976). The doctrine is used to prevent a taxpayer or the Service, after taking a position in one year to its advantage and after correction is barred, from shifting to a contrary position in a later year. The elements of the duty of consistency are as follows:

(1) The taxpayer or Service has made a representation of fact or reported an item for tax purposes in one tax year.
(2) The taxpayer or Service has acquiesced or relied on that fact for that year.
(3) The taxpayer or Service desires to change the representation, previously made, in a later tax year.

Alamo National Bank v. Commissioner, 95 F.2d 622 (5th Cir.1938).

These elements are applicable to the facts of the instant case. (1) A representation was made by the Service that the mobile home court did not qualify for § 167(j) depreciation method because the trailer spaces were not living accommodations. (2) The plaintiffs relied on this determination and changed their depreciation method to one acceptable to the Service and less favorable to the plaintiffs. (3) The Service now desires to change that representation and disallow the plaintiffs’ investment tax credit because the plaintiffs are furnishing lodging. The Service cannot have it both ways. The taxpaying public has an interest in seeing its government deal fairly with its citizens. United States v. Wharton, 514 F.2d 406, 412-13 (9th Cir.1975). The plaintiffs’ motion for summary judgment will be granted.

The Court emphasizes that this holding is of necessity limited to the unique circumstances of this case. The Court has not ruled upon the legal issue of whether a mobile home park in general furnishes lodging and thus is excluded from using IRC § 48(a)(1)(A) investment tax credits because of the exclusion of IRC § 48(a)(3). That precise question has never been decided by any court, and only two cases even tangentially touch upon the issue. See Aaron Rents, Inc. v. United States, 462 F.Supp. 65 (N.D.Ga.1978); Liebl v. United States, 72-2 U.S.T.C. ¶ 9681 (D.C.S.D.Ohio 1972). The Court is simply holding in the unique facts of this case that the plaintiffs will be permitted to take the investment tax credits based upon the reliance of the Service’s earlier determination.

The Court will issue an order in conformity with this Memorandum Opinion.


author: McCUNE, District Judge.

text:
    George SUTHERLAND, et al., Plaintiff, v. Roscoe L. EGGER, as Commissioner of Internal Revenue for the United States of America and Consolidated Rail Corporation, Defendants.
    Civ. A. 83-1352.
    United States District Court, W.D. Pennsylvania.
    Dec. 11, 1984.

      David A. Jones, Aloysius F. Mahler, Pittsburgh, Pa., David S. Fortney, Philadelphia, Pa., for plaintiff.
    Will E. McLeod, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendants.
   MEMORANDUM

McCUNE, District Judge.

The plaintiffs in this suit are former employees of the co-defendant, Consolidated Rail Corporation (CONRAIL), who accepted a lump sum payment of up to $25,000.00 from CONRAIL as an incentive to elect early retirement.

At issue is whether the IRS may tax this lump sum as ordinary income within the calendar year it is received and whether CONRAIL may lawfully withhold a portion of the sum as if earned as wages.

It is the plaintiff’s contention that the language of the Northeast Rail Service Act of 1981 which states:

... any termination allowance received under § 797(a) of this title shall be considered compensation solely for purposes of—
(1) the Railroad Retirement Act of 1974 ... and
(2) determining the compensation received by such employee in any base year under the Railroad Unemployment Insurance Act ...,

45 U.S.C. § 797d(b), specifically excludes the severance payments from gross income.

The defendants argue, however, that this court may not reach the merits of this claim since it lacks subject matter jurisdiction. They therefore have moved to dismiss the complaint.

For the reasons stated below the defendants’ motion to dismiss will be granted.

Procedural History

Plaintiffs initiated suit by filing a complaint on June 28, 1983. The complaint alleged jurisdiction under 28 U.S.C. § 1346(a)(1) (civil action for recovery of tax erroneously collected) and § 1346(e) (civil action pursuant to 26 U.S.C. § 7426 [action by person other than taxpayer for wrongful levy]).

The plaintiffs sought certification of a class action and relief in the form of a declaratory judgment directing the federal income tax on the lump sum distribution to be apportioned over a period of 20 years, and injunctive relief directing the IRS to refund the excess tax collected and CONRAIL to discontinue withholding the excess tax.

The complaint was amended July 26, 1983, wherein the plaintiffs sought a declaratory judgment that the lump sum was not taxable at all.

The defendants filed a motion to dismiss November 23, 1983, arguing that the court:

1) lacked jurisdiction under 28 U.S.C. § 1346(a)(1) because the complaint failed to allege that claims for refunds were filed with the IRS as required under 26 U.S.C. § 7422;
2) lacked jurisdiction under 28 U.S.C. § 1346(e) because 26 U.S.C. § 7426 is not a remedy available to the taxpayer and the complaint did not allege the IRS had made levies upon property for which a wrongful levy action could be brought;
3) lacked jurisdiction to enjoin CONRAIL from withholding taxes because 26 U.S.C. § 7421 prohibits suits for the purpose of restraining the assessment or collection of any tax; and
4) lacked jurisdiction because 28 U.S.C. § 2201 bars declaratory relief with respect to federal taxes other than an action brought under § 7428 (status and classification of an organization under § 501(c)(3)).

By order dated December 22, 1983, and filed January 4, 1984, Judge Dumbauld dismissed the plaintiffs’ action because the complaint and amended complaint failed to allege that any claims for tax refunds had been filed as required under 26 U.S.C. § 7422. However, Judge Dumbauld dismissed the complaint without prejudice to file an amended complaint because he believed the plaintiffs’ claim was meritorious.

An' amended complaint was filed June 7, 1984, in which the plaintiffs alleged that a “substantial” number of the named plaintiffs had filed refund claims with the IRS as required under § 7422.

In their answer to this amended complaint, the defendants point out that after a claim for a refund has been filed no suit may be commenced before the expiration of 6 months or unless the IRS denies the claim before that. 26 U.S.C. § 6532(a)(1).

Since no allegation was made as to who filed the claims, what date they were filed or what the outcome was, the defendants claim the jurisdictional defect was not cured.

Discussion

The defendants’ first argument concerns whether the proper procedures for maintaining a refund action have been followed. As stated above, the defendants contend that the plaintiffs have yet to meet the requirements of 26 U.S.C. § 7422.

Although the plaintiffs’ amended complaint alleges that a “substantial” number of the plaintiffs have filed refund claims, the defendants are correct that only those who have actually filed refund claims may maintain a refund suit. Tibbetts v. United States, 41 A.F.T.R.2d 1056 (N.D.Tex.1978), Green v. Walters, 32 A.F.T.R.2d 5963 (E.D.Cal.1973).

The amended complaint does not specifically mention which plaintiffs have filed refund claims. Furthermore, since the exact dates of filing these claims were not alleged, it is impossible to determine whether the 6-month waiting requirement of 26 U.S.C. § 6532(a)(1) has been met. The mere allegation in plaintiffs’ complaint that “Counsel for plaintiffs have been advised by counsel for defendants that the Internal Revenue Service will probably reject each amended return ...” is not sufficient to render the refund claims as being denied.

Without knowing which plaintiffs have filed refund claims and when, it is impossible to determine if jurisdiction is proper. Thus the complaint is still jurisdictionally defective as to this claim.

The defendants next argue that the court lacks jurisdiction under 28 U.S.C. § 1346(e) because that section deals with suits brought pursuant to 26 U.S.C. § 7426, and § 7426 is not available to the taxpayer. That section states:

§ 7426 Civil actions by persons other than taxpayers.
(a) Actions permitted.
(1) Wrongful levy. If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States.

Section 7426 is clearly not applicable to the present situation. The plaintiffs have completely misinterpreted this section and jurisdiction therefore is improper under it.

Next the defendants argue that the court lacks jurisdiction to enjoin CONRAIL from withholding taxes from termination benefits because 26 U.S.C. § 7421 prohibits suits for the purpose of restraining the assessment or collection of any tax.

This section, also known as the Anti-Injunction Act, has been interpreted by the United States Supreme Court as prohibiting suits to enjoin collection of taxes unless two conditions are. met.

First, if under no circumstances, under the most liberal view of the law and facts, could the government ultimately prevail, and second, if equitable jurisdiction were present (inadequate remedy at law and irreparable injury). Enochs v. Williams Packing and Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962).

Since no reported case has ever addressed the issue of the proper interpretation of § 797(a) of the Northeast Rail Service Act of 1981, it certainly is possible that the government might ultimately prevail on the merits. Furthermore, it appears the plaintiffs have an adequate remedy at law, a refund suit, to determine whether the severance pay was taxable.

Having failed to demonstrate that the exception to the Anti-Injunction Act exists, the plaintiffs’ prayer for injunctive relief is barred.

Finally, the defendants argue that 28 U.S.C. § 2201 bars any declaratory relief with respect to federal taxes. That section begins:

In a case of actual controversy within its jurisdiction, except with respect to federal taxes ... any court of the United States ... may declare the rights and other legal relations of any interested party ... (emphasis added).

This action clearly seeks declaratory relief with respect to federal taxes. Plaintiffs’ arguments to the contrary are unpersuasive. This claim is therefore barred.

In conclusion, we note that while this court lacks jurisdiction to address the plaintiffs’ claims, it appears nevertheless that the claim does have merit. As the government suggests, however, the proper procedure to reach the merits of their claim would be for the plaintiffs to pursue a refund action after meeting the statutory requirements set forth for such an action.

The complaint will therefore be dismissed as to all defendants without prejudice.

      . Although CONRAIL did not formally join in the United States’ motion to dismiss, it did raise the jurisdiction issue as an affirmative defense in its answer to the plaintiffs’ complaint. Therefore any reference to "defendants” in this memorandum pertains to both the United States and CONRAIL.


author: DOWD, District Judge.

text:
    AMALGAMATED LOCAL 813, INTERNATIONAL UNION, ALLIED INDUSTRIAL WORKERS OF AMERICA, Plaintiff, v. DIEBOLD INCORPORATED, Defendant.
    No. C84-3816A.
    United States District Court, N.D. Ohio, E.D.
    Dec. 17, 1984.
    John R. Doll, Dayton, Ohio, for plaintiff.
    Jeremy P. Sherman, Seyferth, Shaw, Fairweather & Geraldson, Chicago, Ill., Lincoln Oviatt and J. Douglas Drushal, Critchfield, Critchfield, Critchfield & Johnston, Wooster, Ohio, for defendant.
   ORDER

DOWD, District Judge.

Plaintiff, Amalgamated Local 813 (the Union), filed the above-captioned action against defendant Diebold Incorporated (Diebold), seeking injunctive relief for alleged violations of the Labor Management Relations Act, 29 U.S.C. § 141 et seq. Before the Court is the Union’s motion for a preliminary injunction, requesting the Court to enjoin Diebold from laying off employees and transferring production equipment from its Wooster, Ohio facility to its Canton, Ohio facility. For the reasons which follow, the motion for a preliminary injunction is denied.

An evidentiary hearing was held in the above-captioned matter on December 12, 1984. Diebold’s vice president of employee relations and the local Union’s president, among others, were present at the hearing, as well as counsel for the parties. Premised upon the testimony of Charles Scheurer and Henry Varner and the exhibits admitted at trial, the Court makes the following findings of fact and conclusions of law.

In early 1982, the parties participated in collective bargaining for the purpose of continuing their collective bargaining agreement. Among others, Henry Varner, president of Local 813 and chairman of the bargaining committee, negotiated on behalf of the Union and Earl Wearstler, president of Diebold, negotiated on behalf of the company. One of the issues in dispute was whether the parties would enter into a two year or a three year collective bargaining agreement. In the past the parties had limited the collective bargaining agreements to only a two year period, consistent with the Union’s reluctance to enter into contracts for a longer period of time. Wearstler represented to the Union that if the Union would accept a three year collective bargaining agreement, Diebold would add product lines to the Wooster facility and increase the number of employees. On May 23, 1982, the parties entered into a three year collective bargaining agreements. The contract expires on May 22, 1985.

After the effective date of the collective bargaining agreement, but before November, 1983, Diebold added product lines and employees at the Wooster facility. One of the product lines added to the Wooster facility was the safety deposit box line. On November 9, 1983, Wearstler met with the Union leaders and asked the Union for immediate contract concessions. Wearstler told the Union that there was a decline in demand for the traditional security systems manufactured at the Wooster plant. Die-bold’s traditional customers, such as banks and other financial institutions, were increasing the use of electronic transfer devices and decreasing the use of security devices which store money and other valuables. Diebold submitted an outline of the causes of the company’s financial problems to the Union. (See plaintiff’s exhibit 2.) The Union rejected the request for concessions.

The employees at Diebold’s Canton facility are represented by the International Brotherhood of Boilermakers, Local 1191. In May of 1984, Diebold entered into a five year collective bargaining agreement with Local 1191, which expires in May, 1989. Charles B. Scheurer, vice president of employee relations for Diebold, testified that Local 1191 agreed to substantial concessions in the area of labor costs in the collective bargaining agreement of May, 1984.

In a letter of November 16, 1984, Diebold informed the Union of its intent to close the manufacturing facility in Wooster, Ohio and to consolidate production with Die-bold’s facility in Canton, Ohio. (See plaintiff’s exhibit 3.) Diebold informed the Union the consolidation process would begin December 1, 1984 and would be completed by May 1, 1985. On November 29, 1984, Union officials met with Diebold officials to discuss the procedures for the closing. At the meeting the Union requested the company to reconsider its position on closing the Wooster facility and requested collective bargaining on the issue. Company officials replied that the decision was a business judgment made by Diebold executives and the company would not reconsider its position. On December 6, 1984, Union officials again met with Diebold officials to discuss the procedures for the closing. Union officials again requested Die-bold to reconsider its position; however, the company declined.

On December 10, 1984, approximately thirty-five employees were laid off when a production line was terminated at the Wooster facility. The Union filed a grievance alleging the lay off and termination of the production line violates the collective bargaining agreement. (See plaintiff’s exhibit 4.) On December 11, 1984, Union officials asked Diebold officials not to move any of the equipment from the Wooster facility until the grievance was processed. The company refused and told the Union it intended to proceed with the transfer to the Canton facility as scheduled.

On December 12, 1984, the Union filed the action before the Court requesting, among other things, a temporary restraining order to enjoin the lay off of employees and the removal of production equipment until the grievance is processed through arbitration as provided in the collective bargaining agreement. A hearing was held on the Union’s request for immediate injunctive relief on December 12, 1984 at 5:30 p.m. in the United States Courthouse in Akron, Ohio. At the hearing the parties consented to conduct the hearing on the motion for a preliminary injunction.

The primary legal authority guiding federal courts when considering whether to issue injunctions in federal labor disputes is the Norris-La Guardia Act. 29 U.S.C. § 101 et seq. In the Norris-La Guardia Act Congress provided as follows:

No Court of the United States, as defined in this chapter, shall have jurisdiction to issue any restraining order or temporary or permanent injunction in a case involving or growing out of a labor dispute, except in strict conformity with the provisions of this chapter; nor shall any such restraining order or temporary or permanent injunction be issued contrary to the public policy declared in this chapter.

29 U.S.C. § 101. Congress provided further that federal courts may only issue injunctions in labor disputes after a hearing has been held on the matter, with the opportunity to present testimony and evidence, and after the court makes specific findings of fact. 29 U.S.C. § 107. Prior to issuing an injunction, the court must find that unlawful acts have been threatened and will be committed unless restrained, that substantial and irreparable harm will occur to the plaintiff, that the injury inflicted upon the plaintiff by denial of the injunction will be greater than the injury inflicted upon the defendant by granting the injunction, and that there is no adequate remedy at law. 29 U.S.C. § 107(a)-(d). There is a strong federal policy against federal courts issuing injunctions in labor disputes as evidenced by the Norris-La Guardia Act.

Equally strong as the federal policy against the issuance of injunctions in labor disputes, is the policy in favor of arbitration of labor disputes. The Supreme Court has held, “[t]he federal labor policy is to promote industrial stabilization through the Collective Bargaining Agreement. A major factor in achieving industrial peace is the inclusion of a provision for arbitration of grievances in the Collective Bargaining Agreement.” United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 578, 80 S.Ct. 1347, 1351, 4 L.Ed.2d 1409 (1960); see also, Canton Printing Pressmen v. Canton Repository, 577 F.Supp. 455, 457 (N.D.Ohio 1983). The collective bargaining agreement in effect between the Union and Diebold provides for arbitration of unsettled grievances. The Union filed a grievance, which is proceeding to arbitration, alleging the closing of the Wooster plant violates the collective bargaining agreement.

The Union asserts that if Diebold is permitted to lay off the employees in the Wooster facility and remove all of the equipment, an award in the Union’s favor by the arbitrator will be a hollow victory, considering that it will not be possible to recommence operations at the Wooster facility. The Union asserts that the arbitration process will be in vain, thereby defeating the federal policy in favor of arbitration for labor disputes. Diebold asserts that the issuance of a preliminary injunction in this matter will defeat the federal policy against federal courts issuing injunctions in federal labor disputes. In the action sub judice, the Court is presented with the conflicting interests of the federal policy against injunctions and in favor of arbitrations in labor disputes.

In the case of Boys Markets, Inc. v. Retail Clerks Union, Local 770, 398 U.S. 235, 90 S.Ct. 1583, 26 L.Ed.2d 199 (1970), the Supreme Court held that federal courts may issue injunctions in federal labor disputes to enforce arbitration provisions in collective bargaining agreements, but the Court must first comply with the requirements of the Norris-La Guardia Act. The Boys Markets case involved a request to restrain a union from striking over a dispute arising under the collective bargaining agreement, which provided for arbitration of such disputes. In the case of Buffalo Forge Co. v. United Steelworkers of America, 428 U.S. 397, 96 S.Ct. 3141, 49 L.Ed.2d 1022 (1976), the Supreme Court reaffirmed its holding in Boys Markets, holding that injunctions may only be issued to prevent a strike when the dispute in question is subject to arbitration. Id. at 407, 96 S.Ct. at 3147.

Although the Supreme Court dealt with injunctions against strikes by Unions in the Boys Markets and Buffalo Forge cases, courts have recognized that such injunctions may be issued against employers to enforce the arbitration provision of a collective bargaining agreement if the requirements of the Norris-La Guardia Act are satisfied. Aluminum Workers International Union v. Consolidated Aluminum Corp., 696 F.2d 437 (6th Cir.1982); LaSalle Machine Tool, Inc. v. International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, 696 F.2d 452 (6th Cir.1982).

Primarily, the Court must determine if the underlying grievance is one which the parties are bound to arbitrate. At the hearing in this matter, counsel for Diebold conceded that the issue of whether the termination of operations and the lay off all employees at the Wooster facility is a violation of the collective bargaining agreement is an arbitrable issue. The Court must also determine whether the alleged breach of the collective bargaining agreement is an ongoing breach. It is also undisputed that if Diebold terminates operations at the Wooster facility and such termination is a breach of the collective bargaining agreement, the breach will be ongoing.

The issue of primary dispute between the parties is whether the termination of operations at the Wooster facility, the removal of production equipment, and the lay off of employees will constitute irreparable harm to the Union, which cannot be remedied if the Union is successful in arbitration. “Irreparable harm is injury so great that an arbitrator’s award, if forthcoming, would be inadequate to fully recompense the injured party. It renders the award an ‘empty victory.’ ” Aluminum Workers International Union v. Consolidated Aluminum Corp., 696 F.2d at 443 citing Local Lodge No. 1266 v. Panoramic Corp., 668 F.2d 276, 286 (7th Cir.1981) and Brotherhood of Locomotive Engineers v. Missouri-Kansas-Texas Railroad, 363 U.S. 528, 534, 80 S.Ct. 1326, 1330, 4 L.Ed.2d 1379 (1960).

In the Aluminum Workers case, the court held that the loss of employment for sixteen persons as the result of job eliminations by a solvent employer is not irreparable harm under the Norris-La Guardia Act, absent an indication that the employer could not reinstate the employees or pay them wages for the period of unemployment if the Union is successful at arbitration. Aluminum Workers, 696 F.2d at 443. However, while not finding irreparable harm on the facts before the Court, the Court agreed with the finding of irreparable harm by the Fourth Circuit in the case of Lever Brothers Co. v. International Chemical Workers Union, 554 F.2d 115 (4th Cir.1976).

In Lever Brothers, the court affirmed the issuance of an injunction to maintain the status quo pending the outcome of arbitration, when the employer was closing a plant in Maryland and moving all the equipment to a plant in Indiana. The court held that by the time the Union proceeded to arbitration, it would be trying to persuade the arbitrator that the company could not move to Indiana, an action which had already been irreversibly accomplished. See also Teamsters Local 71 v. Akers Motorlines, Inc., 582 F.2d 1336 (4th Cir.1978), cert. denied, 440 U.S. 929, 99 S.Ct. 1266, 59 L.Ed.2d 485 (1979) (irreparable harm exists when an employer is closing and liquidating the assets of the business); Detroit Newspaper Publishers Association v. Detroit Typographical Union No. 18, 471 F.2d 872 (6th Cir.1972) (irreparable harm does not exist when the dispute involves the replacement of an editing device for a newspaper with electronic editing equipment which will not be operated by Union employees.)

At the hearing in this matter, counsel for Diebold argued that the facts in this case are analogous to the Aluminum Workers case. Counsel for Diebold argued that currently one production line is being moved to Canton and only approximately thirty-five employees have been laid off. However, Charles B. Scheurer, vice president of employee relations for Diebold testified that by May 1, 1985, the entire Wooster facility will be closed, all the equipment will be removed, and all the employees would be laid off. Consequently, the facts of this case are more analogous to the facts in Lever Brothers, than in Aluminum Workers because the case involves a permanent lay off and a permanent termination of operations at Wooster.

Counsel for Diebold argued further that unlike the facts in Lever Brothers, Die-bold’s production facility is being moved a relatively short distance from Wooster to Canton. In Lever Brothers the equipment was being moved from Maryland to Indiana. Counsel for Diebold represented that, if ordered by the arbitrator, Diebold could move all the equipment back to the Wooster facility and re-hire all the Wooster employees, providing for full back-pay. Although counsel for the plaintiff argued such a proposition, when questioned, Scheurer testified that he did not know if Diebold could reassemble the Wooster plant and recommence operations once all production equipment had been removed. Although the burden remains on the Union to show irreparable harm, the Court will not assume that Diebold can reassemble the Wooster facility without any showing of such by Diebold.

Nonetheless, the Court concludes there is no irreparable harm to the Union. But for the collective bargaining agreement under which the parties are operating, the Union would not have a cause of action in this Court or a grievance for arbitration regarding Diebold’s decision to permanently terminate operations at the Wooster facility. The collective bargaining agreement between the parties expires on May 22, 1985. Following the expiration of the collective bargaining agreement, the company has a right to terminate operations at the Wooster facility. The company must participate in collective bargaining regarding the effects of the termination of operations at Wooster, but not the decision to terminate operations. First National Maintenance Corporation v. NLRB, 452 U.S. 666, 101 S.Ct. 2573, 69 L.Ed.2d 318 (1981). Consequently, the issue before the arbitrator will be whether it is a breach of the collective bargaining agreement for the company to terminate operations at the Wooster facility between December 1, 1984 and May 22, 1985. The arbitrator will not have the power to order Diebold to recommence production operations at the Wooster facility after May 22, 1985. Therefore, if the Union is successful, the arbitrator could provide the Union complete relief by awarding back-pay until May 22, 1985. If the arbitrator were to make an award in favor of the Union prior to May 22, 1985, he could order front-pay until May 22, 1985.

At the hearing in this matter, counsel for the Union argued that collective bargaining on a new contract may result in a continuation of operations at the Wooster facility. Counsel for the Union speculated that the Union may agree to substantial concessions in order to keep the Wooster facility operating. However, Scheurer testified that Diebold had made a business decision to terminate operations at the Wooster facility and that the company would not negotiate whether to close the plant. Scheurer testified that even if the employees were willing to work for minimum wage, Diebold was going to close the Wooster facility. The unyielding position of the company is buttressed by the fact that when Diebold informed the Union in late November and early December of 1984 of the intention to close the Wooster facility, Diebold twice refused to negotiate the issue with the Union. Without a collective bargaining agreement in effect after May 22, 1985, the only remedy available to the arbitrator will be back-pay and front-pay; consequently, there is no irreparable harm to the Union by the termination of the operations at the Wooster facility.

The Court’s holding is limited to the peculiar facts of this case. The Court intimates no view on the result if there was a showing by the Union that Diebold was experiencing financial difficulties and could not pay an award as issued by an arbitrator for back-pay or front-pay. In the action before the Court, there is less than six months between the time the Union was informed of the intent to shut down the Wooster facility and the termination of the collective bargaining agreement. The Court intimates no view on the result if the collective bargaining agreement was going to be in effect for a longer period of time. The Court recognizes that the holding in this case does not resolve a significant issue i.e. at what point during the term of a collective bargaining agreement does a plant shut-down become irreparable harm to the Union. However, the Court’s holding is limited to the facts in this case when the Union was informed of the intent to terminate the operations at the plant within six months of the termination of the collective bargaining agreement and the possibility of persuading the employer not to terminate operations at the plant is de minim-is.

The Union also asserts this Court has the power to enjoin Diebold from terminating operations at the Wooster facility premised upon a promissory estoppel theory. The Union asserts that in May, 1982, Wearstler represented that production would be increased at Wooster and employees would be added if the Union accepted a three year collective bargaining agreement. The Union asserts that Wearstler’s representations, at a minimum, infer that the Wooster facility would not be closed. The Union asserts that it relied on Wearstler’s representations when it accepted the three year collective bargaining agreement. The Union asserts that Diebold should be es-topped from terminating operations at the Wooster facility because of the Union’s reliance on Wearstler’s representations.

The Union has provided no authority to support the proposition that this Court can enjoin an employer from closing a plant premised upon a promissory estoppel theory. The Union cites the case of Local 1330, United Steelworkers v. U.S. Steel, 631 F.2d 1264 (6th Cir.1980) to support the proposition that this Court can enjoin Die-bold. The Court does not read Local 1330 to support the Union’s position. In Local 1330, the Court specifically held “complete analysis of plaintiffs-appellants’ promissory estoppel claims against the back drop of the collective bargaining agreement and Section 301 of the National Labor Relations Act would be a formidable task. We decline to undertake it....” Id. at 1279. In Boys Markets, 398 U.S. 235, 90 S.Ct. 1583, 26 L.Ed.2d 199 and Buffalo Forge, 428 U.S. 397, 96 S.Ct. 3141, 49 L.Ed.2d 1022, the Supreme Court set forth the limited circumstances when a federal court should issue an injunction in a labor dispute. The Union cannot circumvent federal labor law by alleging promissory estoppel under state law.

Accordingly, the Court finds the Union fails to establish irreparable harm to warrant the issuance of a preliminary injunction against Diebold.

Although the Court need not address the issue once it has found there is no irreparable harm to the Union, in the interest of judicial economy, the Court will decide whether the issuance of the injunction will harm Diebold greater than the failure to issue the injunction will harm the Union.

In an affidavit filed with the Court on December 12, 1984, Scheurer attests that if the company is prevented from proceeding with the termination of operations at the Wooster facility it will suffer significant financial losses. Scheurer estimates that the loss in production will cost Diebold approximately $150,000.00 per week. However, at the hearing, Scheurer testified that Diebold could continue production at Wooster and not lose profits from the failure to produce the safety deposit box line. Diebold would only lose $150,000.00 a week if the safety deposit boxes are not manufactured anywhere, rather than if they are manufactured at the Wooster facility.

Scheurer testified further that Diebold will lose the costs associated with the contractors who have been hired to move the safety deposit box production line from Wooster to Canton. However, the harm to Diebold from the loss of the costs associated with relocation are not as severe as the loss to the three hundred employees who will be permanently discharged. Consequently, the injury inflicted upon the Union by the denial of the injunction will be greater than the injury inflicted upon Diebold by granting the injunction.

Pursuant to the reasons set forth above, the Union’s motion for a preliminary injunction is denied.

IT IS SO ORDERED.

      . Jurisdiction is invoked pursuant to § 301 of the Labor Management Relations Act, 29 U.S.C. § 185. The Union also alleges a promissory estoppel claim.

      . See Article XIX, Section 3 of the collective bargaining agreement (plaintiff’s exhibit 1.)

      . See article V, Step 5 of the collective bargaining agreement.

      . The Court must also find that the public officers charged with the duty to protect the plaintiffs property are unwilling or unable to furnish adequate protection. 29 U.S.C. § 107(e). However, such a requirement applies to strike situations and not the action before the Court.

      . In the grievance the Union alleges the company violated Article XIX of the collective bargaining agreement which provides in pertinent part “that neither party shall resort to strike, lockout or stoppage or impeding of work to enforce any demands____"

      . The Court takes judicial notice of the fact that Canton and Wooster are the county seats of adjoining counties, Stark and Wayne, and are located approximately 35 miles apart.

      . This case is distinguishable from a pure relocation case when an employer is simply relocating its facilities from one location to another location where no plant of the employer currently exists. In First National Maintenance, the Supreme Court expressly declined to decide whether an employer had to collectively bargain a management decision to relocate a plant. 452 U.S. at 686, n. 22, 101 S.Ct. at 2584, n. 22. In the case before the Court, Diebold is closing down its Wooster facility and consolidating operations with the Canton facility. There will be approximately 300 employees laid off at the Wooster facility and approximately 100 employees currently laid off will be recalled at the Canton facility. Because of a declining market for the products Diebold manufactures in Northern Ohio, the company no longer needs two plants.


author: VAN SICKLE, District Judge.

text:
    W.F.J., INC., Plaintiff, v. The BANK OF TIOGA, Defendant, The BANK OF TIOGA, Plaintiff, v. W.F.J., INC.; Waconia Manufacturing Industries, Inc.; and Tioga Air Heaters, Inc., Defendants.
    Civ. Nos. A4-84-62, A4-84-70.
    United States District Court, D. North Dakota, Northwestern Division.
    Dec. 18, 1984.
    Malcolm H. Brown, Bair, Brown & Kautzmann, Mandan, N.D., for Bank of Tioga.
    John C. Thomas, Mark P. Wine, Oppenheimer, Wolff, Foster, Shepard & Donnelly, Minneapolis, Minn., Richard P. Olson, Minot, N.D., for W.F.J., Inc. and Waconia Mfg. Industries, Inc.
   MEMORANDUM AND ORDER

VAN SICKLE, District Judge.

The above-captioned cases were consolidated by order dated May 2, 1984. Pursuant to F.R.Civ.P. 56, The Bank of Tioga has moved for summary judgment in its favor. W.F.J., Inc. (W.F.J.) and Waconia Manufacturing Industries, Inc. (Waconia) have also moved for summary judgment in their favor.

FACTS

The sole issue in this controversy is which party has the superior security interest in equipment, valued at approximately $350,000, owned by Tioga Air Heaters, Inc. (Tioga Inc.), a corporation which is now inactive. Both parties seek declaratory relief on the issue of priority of security interests.

Tioga Inc. was formed in March, 1979 when Tioga Air Heaters Co. (Tioga Co.) and Flame Industries of North Dakota, Inc. (Flame-North Dakota) merged. (Nelson Affidavit, Ex. L). Flame-North Dakota was the sole stockholder of Tioga Inc. at the time of the merger. Flame-North Dakota’s sole stockholder at the time of the merger was Flame Industries, Inc. (Flame-Minnesota), a Minnesota corporation.

This dispute follows a series of transactions among the various parties. On April 29, 1977, Flame-Minnesota and The First National Bank of St. Paul (First St. Paul) entered into an agreement entitled “$750,-000 Term Loan Agreement”. Terms of that agreement prohibited Flame-Minnesota from incurring any liens or encumbrances on its property (other than that granted to First St. Paul), from incurring debt in excess of $100,000 in any year without prior written consent of First St. Paul, and from guaranteeing the obligations of any person or corporation. (Serviss Affidavit, Ex. A).

On July 26, 1979, First St. Paul and Tioga Co. entered into a security agreement. (Nelson Affidavit, Ex. J). Even though this followed Tioga Co.’s merger into Tioga Inc., both the security agreement and the financing statement referred to the debtor as Tioga Co. The security agreement was a printed form, which at the top was captioned:

SECURITY AGREEMENT

Equipment

The agreement then recited that:

The undersigned (hereinafter called “Borrower”) hereby grants to The First National Bank of Saint Paul—Saint Paul, Minnesota (hereinafter called “Bank”) a Security Interest in the following described property (hereinafter called “Collateral”):
[BLANK]
together with ... all other Equipment (as that term is defined in the Uniform Commercial Code) hereinafter at any time acquired by Borrower or in which Borrower obtains rights;
All property of every kind and description in which the Borrower has or may acquire any interest now or hereafter at any time in the possession or control of the Bank for any reason ... and

All Proceeds of all of the foregoing.... (Nelson Affidavit, Ex. J). On August 10, 1979, First St. Paul filed a financing statement with the North Dakota Secretary of State in which First St. Paul claimed a security interest in “[a]ll [equipment now owned and hereafter acquired” by Tioga Co. (Nelson Affidavit, Ex. A).

In February, 1980, Bank of Tioga began providing financing to Tioga Inc. A February 15, 1980 security agreement between Bank of Tioga and Tioga Inc., by its terms, gave Bank of Tioga a security interest in “[a]ll equipment and machinery, including power-driven machinery and equipment ... now owned or hereafter acquired, together with all replacements thereof, all attachments, accessories, parts and tools belonging thereto or for use in connection therewith.” (Nelson Affidavit, Ex. B, see Appendix A attached hereto). On February 22, 1980, Bank of Tioga filed a financing statement with the North Dakota Secretary of State, claiming a security interest in “all equipment and machinery” of Tioga Inc., as described in the February 15, 1980 security agreement. (Nelson Affidavit, Ex. C).

A letter dated March 25, 1980, from First St. Paul to Flame-Minnesota included the following statement with respect to provisions of First St. Paul’s April 29, 1977 loan agreement with Flame-Minnesota:

We hereby agree to waive Section 4A and 4B of the loan agreement dated April 29, 1977, as amended March 28, 1980, between Flame Industries, Inc. (Flame) and the First National Bank of St. Paul on the following terms:
We agree to a waiver of Flame[Minnesota] granting a First Security Interest to the Bank of Tioga, Tioga, North Dakota and the Small Business Administration and certain collateral described in the loan agreement with a total transaction cost of $350,000.

(Nelson Affidavit, Ex. E). Section 4A of the April 29, 1977 loan agreement is Flame-Minnesota’s covenant not to incur any liens or encumbrances upon any of its property, other than its lien to First St. Paul or properly perfected purchase money security interests in equipment. (Serviss Affidavit, Ex. A at 13). Section 4B is Flame-Minnesota’s covenant not to incur outstanding indebtedness in excess of $100,000 in any one fiscal year without prior written consent of First St. Paul. (Serviss Affidavit, Ex. A at 14).

Bank of Tioga asserts the March 25, 1980 letter was a waiver of First St. Paul’s priority lien. W.F.J. and Waconia assert it was merely a waiver of the restrictions of the First St. Paul/Flame-Minnesota loan agreement in which Flame-Minnesota agreed not to incur, assume, or guarantee any debts other than those to First St. Paul. W.F.J. and Waconia argue this waiver was necessary because Tioga Inc., as a wholly owned subsidiary of Flame-Minnesota, was an asset of Flame-Minnesota. W.F.J. and Waconia contend that the reference to granting a first security interest to Bank of Tioga was a reference to allowing Tioga Inc. to grant a purchase money security interest to Bank of Tioga for specific equipment purchased with the $350,000 loan from Bank of Tioga.

In May, 1982, First St. Paul acquired a security interest in certain property of Tioga Inc. On May 19, 1982, First St. Paul filed a financing statement with the North Dakota Secretary of State, claiming a security interest in that property specifically described in an attachment to the financing statement. (Nelson Affidavit, Ex. K). The May 19, 1982 financing statement is not involved in the current dispute.

By notice dated January 18, 1984, First St. Paul notified Bank of Tioga that, because of Tioga Inc.’s default on its obligations, First St. Paul would dispose of the collateral in which it claimed a security interest. (Nelson Affidavit, Ex. F). W.F.J., a new corporation formed to purchase Tioga Inc.’s assets, purchased the property (accounts receivable, inventory, and general tangibles) of Tioga Inc. from First St. Paul on January 31, 1984 for $650,000. (Nelson Affidavit, Ex. O, HV). Waconia is a successor transferee of W.F.J.

DISCUSSION

Because they succeeded to First St. Paul’s interest, the rights of W.F.J. and Waconia to the property of Tioga Inc. are wholly dependent on the rights of First St. Paul. The respective rights of Bank of Tioga and First St. Paul are dependent on the validity of the 1979 security agreement and financing statement.

Bank of Tioga argues that the 1979 financing statement was deficient because it was based on a security agreement which did not adequately describe the secured property. N.D.Cent.Code § 41-09-10 (1983) provides:

[A]ny description of personal property ... whether or not it is specific is sufficient for purposes of this chapter if it reasonably identifies what is described.

N.D.Cent.Code § 41-09-16 (1983) provides that a security interest is not enforceable unless, inter alia:

[T]he debtor has signed a security agreement which contains a description of the collateral....

First St. Paul asserts that the 1979 security agreement’s caption “Equipment” was sufficient description under these statutes.

It is clear that the security agreement form used in the 1979 security agreement was designed to accommodate an individualized description of the secured property. It is also clear that First St. Paul made no attempt to give a specific description of the property in the security agreement. But that security agreement can be examined together with the financing statement to determine sufficiency of description. It is the purpose of the financing statement to give notice to other parties of the security interest claimed by the creditor. In the 1979 financing statement at issue here, First St. Paul claimed a security interest in “[a]ll equipment now owned or hereafter acquired.” That description was sufficient to give notice of First St. Paul’s claim to interested parties. See U.S. v. First National Bank in Ogallala, Neb., 470 F.2d 944 (8th Cir.1973) (“all farm and other equipment now owned or hereafter acquired” was sufficient description in security agreement); In Re Sarex Corp., 509 F.2d 689 (2d Cir.1975) (“machinery and equipment” was sufficient description of collateral in security agreement). Indeed, Bank of Tioga was aware of First St. Paul’s claimed security interest at the time it made the 1980 loan to Tioga Inc. (Nelson Affidavit). The security agreement and financing statement reasonably identified what was described.

Bank of Tioga also argues that the 1979 financing statement and security agreement were deficient because both listed the debtor as “Tioga Air Heaters Co.” rather than “Tioga Air Heaters, Inc.” N.D.Cent.Code § 41-09-41(8) (1983), governing the formal requisites of financing statements, provides:

A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.

Since both “Tioga Air Heaters Co.” and “Tioga Air Heaters, Inc.” had been used as corporate names, use of the wrong corporate name was potentially misleading. It is clear, however, that Bank of Tioga was not misled. Bank of Tioga was familiar with the formation of Tioga Inc. and with the history of Tioga Co. More importantly, Bank of Tioga was aware of the financing statement. Under these circumstances, this Court cannot find the financing statement deficient for use of the name “Tioga Air Heaters Co.” rather than “Tioga Air Heaters, Inc.” See, e.g., In Re Colorado Mercantile Company, 299 F.Supp. 55 (D.Colo.1969) (financing statement identifying creditor as “O.M. Scott Credit Corporation” rather than “O.M. Scott & Sons Co.” was not seriously misleading).

This Court finds that the 1979 security agreement and financing statement gave First St. Paul a perfected security interest in the equipment of Tioga Inc. Since Bank of Tioga acquired its interest subsequent in time, First St. Paul’s security interest had priority over Bank of Tioga’s.

Bank of Tioga argues that if First St. Paul had a valid security interest in the equipment of Tioga Inc., Bank of Tioga should nonetheless prevail because First St. Paul subordinated its interest to Bank of Tioga. Bank of Tioga bases its subordination argument on the March 25, 1980 letter from First St. Paul to Flame-Minnesota. That letter by itself is not, however, sufficient to support Bank of Tioga’s position.

The March 25, 1980 letter from First St. Paul to Flame-Minnesota unambiguously refers to Sections 4A and 4B of the parties’ April 29, 1977 loan agreement. The letter was an effective waiver of certain restrictions on Flame-Minnesota’s financial dealings imposed by the loan agreement. The letter, though it refers to granting a first security interest to Bank of Tioga and the Small Business Administration, is not sufficient to constitute a subordination of First St. Paul’s first lien in all equipment of Tioga Inc. The second portion of the letter states:

We agree to a waiver of Flame[Minnesota] granting a First Security Interest to the Bank of Tioga, Tioga, North Dakota and the Small Business Administration and certain collateral described in the loan agreement with a total transaction cost of $350,000.

(Nelson Affidavit, Ex. E, see Appendix B attached hereto).

The letter is addressed to Flame-Minnesota and gives Flame-Minnesota permission to grant a first lien in certain collateral to Bank of Tioga. The second portion of the letter specifies terms of First St. Paul’s waiver of the restrictions imposed on Flame-Minnesota by the April 29, 1977 loan agreement. The plain language of the letter allows Flame-Minnesota to allow Tioga Inc. to grant a purchase money security interest in equipment valued at $350,000 to Bank of Tioga. The phrase “certain collateral described in the loan agreement with a total transaction cost of $350,000” cannot encompass the entire collateral pledged in the First St. Paul security agreement because that security agreement envisioned a $750,000 line of collateral, and the scope of the waiver in favor of Bank of Tioga is limited to $350,000. Bank of Tioga does not argue that it actually perfected a purchase money security interest in specified equipment; a selection of specific equipment of a value not to exceed $350,000 would have been necessary in order for Bank of Tioga to effectively exercise the option given it by the plain language of the letter. The March 25, 1980 letter does not subordinate First St. Paul’s security interest to Bank of Tioga.

This Court concludes that First St. Paul held a valid security interest superior to that of Bank of Tioga and that that security interest was not subordinated. Since W.F.J. and Waconia succeeded to the rights of First St. Paul, W.F.J.’s and Waconia’s interests in the equipment of Tioga Inc. are superior to that of Bank of Tioga.

CONCLUSION

For the foregoing reasons, IT IS ORDERED:

1). That the motion for summary judgment in favor of The Bank of Tioga is denied.
2). That the motion for summary judgment in favor of W.F.J., Inc. and Waconia Manufacturing Industries, Inc. is granted.

APPENDIX A

APPENDIX B

The First National Bank of Saint Paul

332 Minnesota Street

Saint Paul, Minnesota 55101

Wholesale Banking Group—Division A

Loans and Account Relationships

Metropolitan Twin Cities Area and

Midwestern United States

March 25, 1980

Mr. Calvin C. Serviss

Vice President—Finance Flame Industries, Inc.

122 Columbia Court North

Jonathan Industrial Park

Chaska, Minnesota 55318

Dear Cal:

We hereby agree to waive Section 4A and 4B of the loan agreement dated April 29, 1977, as amended March 28, 1980, between Flame Industries, Inc. (Flame) and The First National Bank of St. Paul on the following terms:

We agree to a waiver of Flame granting a First Security Interest to the Bank of Tioga, Tioga, North Dakota and the Small Business Administration and certain collateral described in the loan agreement with a total transaction cost of $350,000.

Sincerely,

/s/ Dennis K. Dingman

Dennis K. Dingman

Assistant Vice President

DKD/ml

      . Bank of Tioga, by affidavit, stated that it "had telephone conversations with personnel at [First] St. Paul regarding their subordinating their security interest in equipment and machinery to The Bank of Tioga.” The affidavit does not, however, actually state that an agreement to subordinate was reached.