author: SHADUR, District Judge.

text:
    TEAMSTERS LOCAL 282 PENSION TRUST FUND, Plaintiff, v. Anthony G. ANGELOS, et al., Defendants.
    No. 84 C 1312.
    United States District Court, N.D. Illinois, E.D.
    Dec. 20, 1985.

      Sherman Carmell, Carmell, Charone & Widmer, Ltd., Chicago, 111., Thomas R. Manisero, Wilson, Elser, Edelman & Dicker, New York City, for plaintiff.
    Mark E. Ferguson, Bruce A. Feather-stone, Kirkland & Ellis, John Powers Crowley, Matthew Kennedy, Cotsirilos & Crowley, Jerome H. Torshen, Robert J. Slobig, Jerome H. Torshen, Ltd., Ira J. Bornstein, Harvey J. Barnett, Harvey J. Barnett & Associates, Ltd., Julius Lucius Echeles, Chicago, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Teamsters Local 282 Pension Trust Fund (“Fund”) initially brought this action against ten defendants, asserting two counts of securities fraud under federal law and one count each of fraud and negligent misrepresentation under Illinois law. In Teamsters I, 585 F.Supp. at 1405 this Court dismissed the case in its entirety. In “Teamsters II,” 762 F.2d 522 (7th Cir.1985) our Court of Appeals affirmed dismissal of the negligent misrepresentation count but reversed and remanded as to the other three, directing this Court to consider the following questions (id. at 532):

1. whether Fund had brought suit after the expiration of the applicable statute of limitations;
2. whether the transaction in suit involves a security and:
(a) if so, whether defendants had made false statements or material omissions with the degree of scienter required by Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) and Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), cert. denied, 434 U.S. 875, 98 S.Ct. 224, 54 L.Ed.2d 155 (1977), or
(b) if not, whether there is any other basis for federal jurisdiction over the remaining state-law fraud claim.

Howe, Jensen, Karkazis, Kirie and Jenner & Block have now moved under Fed.R. Civ.P. (“Rule”) 56 for summary judgment based on the statute of limitations. For the reasons stated in this memorandum opinion and order, that motion is granted and this action dismissed as to all defendants.

Facts

On March 1, 1979 Fund loaned $2 million (the “Loan”) to Bancorporation, a bank holding company whose principal asset was Des Plaines Bank (“Bank”). That possible borrowing had been broached by Angelos to Fund trustee John Cody (“Cody”) in late January, and' Howe then wrote Cody to outline the terms of the proposed loan and to request a conference about it with Fund’s trustees (“Trustees”) at Trustees’ February 27 meeting. Cody, Howe and Angelos met to review the matter February 26, but it was not until the February 27 Trustees’ meeting that Howe distributed copies of Bank’s and Bancorporation’s financial statements. On that date (when all Trustees other than Cody first learned of the loan application) Howe and Angelos made a two-hour presentation to Trustees, “touch[ing] on the highlights of the [financial] statement.” Katsaros, 568 F.Supp. at 364. Trustees then voted unanimously to approve the Loan.

Bancorporation agreed to make semiannual payments of $125,000 in principal plus accrued interest for 3V2 years, with the entire balance falling due in a balloon payment on the Loan’s fourth anniversary. Bancorporation also agreed to provide updated financial statements to Fund. As security for repayment of the Loan, Ban-corporation pledged all of Bank’s stock and Angelos gave his personal guaranty secured by his interest in a Chicago vacant lot. Bancorporation furnished Jenner & Block’s opinion letter (the “Opinion Letter”) stating there were no actions, suits or proceedings pending against Bancorporation or Bank that would adversely affect the operations of either.

What Bancorporation did not disclose was the fact Bank had been investigated during February 1979 by Federal Deposit Insurance Corporation (“FDIC”). Based upon that investigation, FDIC had concluded (Teamsters II, 762 F.2d at 524):

Bank was inadequately capitalized, had ineffective administration, owned an excessive volume of high-risk loans and was insufficiently liquid, and was in violation of many banking laws and regulations.

Neither the fact nor the results of FDIC’s investigation was disclosed in the Opinion Letter.

Bancorporation made three timely payments on the Loan, the last being an August 30, 1980 payment of $228,374. On March 14, 1981 federal and state regulatory officials closed Bank down. That left the Loan uncollectible.

Certain Fund beneficiaries then brought suit against Trustees under 29 U.S.C. § 1104(a) (“ERISA”) for breach of their fiduciary duty in connection with approval of the Loan. In 1982 the Secretary of Labor also brought suit against Trustees under ERISA. Fund was joined as a defendant in both actions, which were consolidated for trial in the United States District Court for the Eastern District of New York.

In July 1983, following a bench trial, District Judge Jacob Mishler issued findings of fact and conclusions of law in the consolidated cases. Katsaros, 568 F.Supp. at 362-69, 371. In the course of concluding Trustees had violated their ERISA duty to investigate the Loan’s propriety, Judge Mishler found an independent investigation and analysis of the financial statements of Bancorporation, Bank and Angelos would have revealed (id. at 367-69):

1. Bancorporation’s sole source of income was Bank’s earnings.
2. Bancorporation’s stated net worth of $1.8 million included good will valued at $1.3 million, leaving only $500,000 in tangible net worth.
3. Bank’s significant earnings increase in 1978 was due to acquisition of a portfolio of risky loans bearing high interest rates. That increase in loan risk strained Bank’s limited resources.
4. Bank’s capital adequacy ranked 149th out of 151 among similarly-sized Illinois banks.
5. Bank’s loan loss reserve was smaller than conservative (and hence sound) banking practice would require.
6. Bank’s earning power ranked 96th of 151 among similarly-sized Illinois banks and was not stated in a manner reflecting the riskiness of outstanding loans.
7. Bank’s net income in 1978 was $278,000, while the Loan obligated it to repay $250,000 per year in principal alone, plus interest of over $200,000 in each year. Thus Bank would be (to say the least) unable to meet its obligations under the Loan if earnings continued at the 1978 level.
8. Though Trustees were told Bank’s cash-flow problem was the reason for its need of the Loan, the available cash proceeds of the Loan (just $500,000) “could only have had a minimal effect toward solution of the problem” {id. at 368).
9. Bank’s stock was inadequate security for the Loan.
10. Angelos’ asserted $1,386,000 interest in the Chicago vacant lot was unsubstantiated (a later appraisal put its value at $252,000).

Judge Mishler also concluded {id. at 369):

With a minimum of effort the Trustees could have questioned the Central National Bank concerning the history of its loan to the Bank. The unpaid principal amount of the loan at that time was about $1 million and renewal of the loan was refused by Central National. In all probability, inquiry would have led the Trustees to learn that at least five (5) banks in the Chicago area refused to refinance the Central National Bank loan which was due to mature on March 1, 1979. Such inquiry could reasonably have led to a disturbing report issued by the FDIC underscoring the Bank’s under-capitalization, its loan-deposit ratio, and the high percentage of both substandard loans and restaurant loans.

Statute of Limitations Analysis

Fund’s federal claims are asserted under Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (“Section 17(a)”) and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (“Section 10(b)”). Neither Section 17(a) nor Section 10(b) contains its own statute of limitations, and the forum state’s limitations law must be applied. See Hochfelder, 425 U.S. at 210 n. 29, 96 S.Ct. at 1389 n. 29 (Section 10(b)); Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123, 125 (7th Cir.1972) (Section 10(b) and Section 17(a)). In Illinois that limitations period is three years. Parrent, 455 F.2d at 126.

Fund filed this lawsuit February 10, 1984, almost five years after the Loan closed. Movants understandably argue the action is time-barred. Fund retorts it was not aware of any misrepresentations or material omissions until Bank was closed down on March 14, 1981, so the limitations period should be equitably tolled.

No doubt the federal doctrine of equitable tolling applies to Section 10(b) and 17(a) actions (Parrent, 455 F.2d at 128):

[T]he statute does not begin to run until the fraud is discovered where a plaintiff injured by fraud “remains in ignorance of it without any fault or want of diligence or care on his part ... Bailey v. Glover, 21 Wall. [88 U.S.] 342, 348 [22 L.Ed. 636] [ (1875) ].” Holmberg v. Armbrecht, 327 U.S. 392, 397 [66 S.Ct. 582, 585, 90 L.Ed. 743] ... (1946).

Accordingly the issue here is whether Fund’s professed ignorance of the alleged fraud was “without any fault or want of diligence or care on [its] part.” As Hupp v. Gray, 500 F.2d 993, 996 (7th Cir.1974) (citations omitted) put it, after quoting that language from Bailey:

It is well established that a plaintiff may not merely rely on his own unawareness of the facts or law to toll the statute____ The plaintiff, rather, has the burden of showing that he “exercised reasonable care and diligence in seeking to learn the facts which would disclose fraud.” Morgan v. Koch [419 F.2d 993, 997 (7th Cir. 1969) ]. The statutory period “[does] not await appellant’s leisurely discovery of the full details of the alleged scheme.” Klein v. Bower, 421 F.2d 338, 343 (2d Cir.1970).

Fund rests its claim for tolling on the confidentiality of FDIC's February 1979 report on Bank’s problems. But even on the assumption most favorable to Fund (that it could not independently have obtained a copy of FDIC’s report), Judge Mishler’s Katsaros findings establish ordinary diligence on Fund’s part would have alerted it to inadequacies and inconsistencies in Ban-corporation’s disclosure documents.

Teamsters II, 762 F.2d at 528 teaches a securities investor may have a cause of action for fraud under Section 10(b) or 17(a) whether or not he or she has independently investigated the soundness of a seller’s claims, so long as he or she brings the action within the three-year limitations period. But here Fund argues for more than securities-fraud relief in itself: Though it concedes the statute of limitations had run before it filed suit, Fund contends it is entitled to equitable tolling of the statute, and that contention requires its own showing of diligence (Goldstandt v. Bear, Stearns & Co., 522 F.2d 1265, 1269 (7th Cir.1975) (interpreting parallel principles under Securities and Exchange Commission Rule 10b-5)): Thus, while a securities-fraud plaintiff bears no general “due diligence” responsibility as a precondition to suing, any fraud plaintiff (including a securities-fraud plaintiff) seeking to toll the statute of limitations must show he or she did not ignore obvious danger signals: There is “no license to ignore events giving rise to strong suspicion.” McCarthy v. PaineWebber, Inc., 618 F.Supp. 933, 937 (N.D.Ill.1985).

Even if certain investors can rely upon large brokerage houses for legal advice and sue under 10b-5 if such advice is fraudulently given, they cannot necessarily continue to so rely until they find out otherwise and still bring suit years after the statute of limitations has run. Different policy considerations are involved. In the investor-fraud situation there is a congressional intention to prevent all fraudulent misrepresentations involving the sale of stock. This might well include fraudulent legal opinions. But there is also an intention to limit the time in which suits based on such fraud can be brought. If the only concern was preventing fraud we might allow such suits no matter when they are filed. But fairness requires a cut-off point and an exception is made to the cut-off point only when a plaintiff, due to defendant’s fraudulent concealment, could not have known that a wrong occurred. Here, plaintiffs could have known. Their failure to act upon the facts known to them resulted in their suit being time barred.

This Circuit’s leading authority on equitable tolling of fraud claims, Tomera, 511 F.2d at 510, identified two fact paradigms often involved in such cases, each invoking a different principle for tolling purposes:

1. Plaintiff does not discover the fraud even though defendant does nothing to conceal it after commission.
2. Plaintiff does not discover the fraud because defendant has taken positive steps to cover up after commission.

In the first of those situations, “plaintiffs’ due diligence is essential” to toll the statute, while in the second, the statute is tolled until plaintiff actually discovers the fraud (id.). Thus the relevant inquiry looks to defendant’s post-fraud conduct— the presence or absence of an effective coverup.

Here though, Fund does not even allege the existence of any coverup. Instead it simply says Bancorporation’s timely payments through August 30, 1980 lulled Fund into believing all was well and did not alert Fund to the fact investigation was needed.

That argument is many days late — and consequently many dollars short. Bancorporation’s timely compliance with its Loan obligations cannot be equated with fraudulent concealment on its part. Making the payments was not an act that hid facts otherwise available to Fund, see Peoria Union Stock Yards, 698 F.2d at 326:

The statute of limitations in a securities fraud case is tolled if the seller keeps the buyer from learning that the seller used misrepresentation and omission to make the sale.

True enough, Fund may have rested easily while the timely payments were made, and if Fund had brought this action within the prescribed three-year period no more would have been required. But it must be remembered that state of blissful ignorance was the product of Fund’s lack of due diligence from the outset — a lack that has been judicially established and is conclusive on Fund. Nor is this a case where a party’s sense of security (however unjustified) continued until it was too late to' act. Almost exactly an entire year of the three-year period remained open when the regulatory officials actually shut Bank down (the most recent payment on the Loan having been missed two weeks earlier). There was plenty of time left for Fund to launch and complete even a belated investigation and still bring suit well under the three-year wire (or even, if time proved to be tight during the course of such a belated investigation, to shoot first [filing suit to avoid limitations problems] and ask the remaining questions later).

Fund did not do that. Having passively (and unjustifiably) relied on Bancorporation’s initial representations at face value, it continued to do so. Because Bancorporation’s timely payments did not in themselves conceal any of the bells and whistles Fund should have noticed at the outset, Fund cannot gain the benefit of the fraudulent-concealment form of equitable tolling.

In sum, as Judge Mishler’s findings lucidly illustrate, Fund had ample opportunity — and indeed Trustees had the duty —to notice and investigate inconsistencies and inadequacies in Bancorporation’s representations, wholly apart from FDIC’s adverse report. Judge Mishler found specifically, 568 F.Supp. at 369:

In approving the loan of $2 million to Ban corporation the Trustees [and hence, for current purposes, Fund] ... fail[ed] to use that degree of care, skill, prudence and diligence that a prudent man would exercise under the circumstances then prevailing.

It was not an impenetrable secret that something was rotten in Des Plaines. Nor does Fund have any compelling call on the equitable conscience, having slept on its rights well beyond the full year of the limitations period that remained open even after the situation was forcibly called to its attention by Bank’s shutdown. There is thus no predicate here for equitable tolling of the expired statute of limitations, and Fund’s federal securities claims are dismissed as time-barred.

That leaves only Count III, the common-law fraud claim asserted under the doctrine of pendent jurisdiction. At this point there is no longer a federal claim to which the state claim can be pendent, and in such eases the Supreme Court has said (United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966)):

Certainly, if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well.

See also Nemkov v. O’Hare Chicago Corp., 592 F.2d 351, 353 n. 1 (7th Cir.1979) (district court properly dismissed pendent state-law claims where federal securities-fraud claims were dismissed as time-barred). Pendent jurisdiction being a doctrine of discretion (Gibbs, 383 U.S. at 726, 86 S.Ct. at 1139), this Court will dismiss Fund’s common-law fraud claim for lack of subject matter jurisdiction.

Conclusion

Fund’s claims under the federal securities laws were brought after the statute of limitations had run, and Fund has shown no basis for equitable tolling. Those claims are therefore dismissed. Fund’s pendent state-law fraud claim is dismissed for lack of subject matter jurisdiction. Fund’s previously-asserted claim of negligent misrepresentation having earlier been rejected, this action is dismissed in its entirety as to all defendants.

      . Defendants originally comprised nine directors (collectively "Directors") of Des Plaines Bancorporation, Inc. ("Bancorporation”) — Anthony G. Angelos (“Angelos"), CJ. Bassler, Jr., Jonathan T. Howe (“Howe”), Clarence L. Jensen (“Jensen”), Lambrose Karkazis ("Karkazis”), James C. Kirie (“Kirie"), James Kokonas, James Verros ("Verros”) and Herbert C. Wenske ("Wenske") — and the Jenner & Block law firm. As this Court’s opinion in “Teamsters I," 585 F.Supp. 1401, 1402 n. 1 (N.D.Ill.1984) reflects, Fund later elected to dismiss its claims against Verros and Wenske, leaving the other eight defendants still in the case.

      . Angelos’ attorney has only very recently (November 27, 1985) filed his appearance in this matter. Though Angelos did not join in the present motion when originally made, counsel at the time he appeared before this Court announced his intention to do so. Jensen and Karkazis have also moved under Rule 12(b)(6) to be dismissed from the complaint. Because Fund's entire action is time-barred, it is unnecessary to reach the issues presented by the Jensen-Karkazis motion.

      . Rule 56 imposes on the party moving for summary judgment the burden of establishing the lack of a genuine issue of material fact. Korf v. Ball State University, 726 F.2d 1222, 1226 (7th Cir. 1984). For that purpose the court must, in viewing the evidence, draw all reasonable inferences in the light most favorable to the nonmovant — here Fund. Hermes v. Hein, 742 F.2d 350, 353 (7th Cir. 1984). In this case, however, the relevant facts were established in prior litigation involving Fund, Katsaros v. Cody, 568 F.Supp. 360 (E.D.N.Y.1983), aff’d as modified, 744 F.2d 270 (2d Cir.), cert. denied, — U.S. -, 105 S.Ct. 565, 83 L.Ed.2d 506 (1984), and are binding on Fund here according to familiar principles of defensive collateral estoppel. See Teamsters I, 585 F.Supp. at 1403-05. Though our Court of Appeals reversed this Court’s Teamsters I holding as to the legal effect of Katsaros on Fund’s claims here, it did not dispute the applicability of collateral-estoppel principles as to facts found in Katsaros.

      . Judge Mishler’s findings and conclusions were affirmed with a minor modification irrelevant for present purposes, 744 F.2d 270 (2d Cir.), cert. denied, — U.S. -, 105 S.Ct. 565, 83 L.Ed.2d 506 (1984).

      . Judge Mishler also found a "cursory examination” of financial statements submitted by Ban-corporation after the Loan’s closing date "would have revealed that the Bank had discussed corrective measures with [FDIC].” 568 F.Supp. at 365. It is not clear from the context just when Fund received those statements — perhaps that was as late as March 1981.

      . Of course the question whether the Loan is a "security” at all (an issue neither side has briefed) logically precedes the question whether the statute of limitations under the securities laws has run. In view of this Court’s conclusion as to the untimeliness of Fund's action under the securities laws, however, the Loan’s "security” status has been assumed arguendo. If the Loan were not a security, there would of course be no remaining federal cause of action, and the state law fraud claim would be dismissed for the same reason stated at the end of this opinion. Hence there is no jurisprudential drawback to making the arguendo assumption.

      . Parrent held the Illinois Securities Law’s three-year period better effectuated federal policy under Sections 10(b) and 17(a) than Illinois’ five-year period for fraud actions in general. Our Court of Appeals reasoned in part that Section 10(b) and 17(a) liability — like liability under the Illinois Securities Law but unlike common-law fraud liability — did not require proof of scienter. See Tomera v. Galt, 511 F.2d 504, 508-09 (7th Cir.1975) (explaining Parrent’s reasoning). Though that policy rationale is no longer viable after Hochfelder, the applicability of the three-year limitations period has not been questioned in post-Hochfelder cases. See Peoria Union Stock Yards Co. Retirement Plan v. Penn Mutual Life Ins. Co., 698 F.2d 320, 326 (7th Cir.1983) (citing Parrent and reaffirming such applicability).

      . Intermediate cases could perhaps be hypothesized — for example, where defendant engages in an active but ineffectual coverup. Any such possible variant need not be considered here, however.

      . That last possibility, however remote, merits a parenthetical comment. This Court has often spoken to the pre-filing investigative responsibility imposed on litigants and their counsel by Rule 11. If however Rule ll’s "reasonable inquiry" still left counsel faced with a choice between turning over the last few investigative stones and letting a statute of limitations run, no court would consider sanctions for filing suit . without having completed all the spadework.

      . That determination gives the lie to Fund’s argument that issues of fact remain open to preclude summary judgment on limitations grounds. Fund’s last filing (a July 29, 1985 letter memorandum from its counsel) states misleadingly at page three (citing Hupp):
      The Katsaros court’s findings relate to the high duty of care owed by the Trustees, as fiduciaries, to the Fund and its participant's and beneficiaries. In contrast, the due diligence necessary to invoke an equitable toll of the statute of limitations is that required of an ordinary prudent man.
      To the contrary, the quoted language from Katsaros specifically applied the "prudent man" standard and found it had not been met by Fund’s Trustees (who were the Fund for present purposes).

      . It will be recalled our Court of Appeals affirmed this Court's prior dismissal of Complaint Count IV, sounding in negligent misrepresentation under Illinois law. Teamsters II, 762 F.2d at 531-32.

      . See Ill.Rev.Stat. ch. 110, ¶ 13-217 as to the-possibility of Fund’s bringing a state action even now, nearly seven years after the alleged fraud. That provision makes it unnecessary to consider whether federal jurisdiction of the pendent state law claim should (or could) be retained, to avoid Fund’s loss of that claim by the running of limitations while this case has wended its way through an appeal and back again.


source: Caselaw Access Project

author: TERENCE T. EVANS, District Judge.

license: Public Domain

text:
    William E. BROCK, Secretary of Labor, United States Department of Labor, Plaintiff, v. Michael LAURITZEN and Marilyn Lauritzen, individually and doing business as Lauritzen Farms, Defendants.
    Civ. A. No. 84-C-980.
    United States District Court, E.D. Wisconsin.
    Dec. 20, 1985.
    Leonard A. Grossman, U.S. Dept, of Labor, Office of Solicitor, Chicago, 111., for plaintiff.
    Walter A. Urick, Hart, Mich., and Richard Van Orden, Grand Rapids, Mich., for defendants.
   DECISION AND ORDER

TERENCE T. EVANS, District Judge.

This case is before me on the Secretary of Labor’s motion for partial summary judgment. The Secretary seeks a declaration that as a matter of law, the migrant farm workers involved in this ease were employees of Lauritzen Farms. Lauritzen argues that the workers, who pick cucumbers during the harvest season, are independent contractors not employees. Analyzing the relevant factors, I believe that the migrant workers were Lauritzen’s employees as a matter of law and therefore, that they are within the protections of the Fair Labor Standards Act, 29 U.S.C. § 201, et seq.

The material facts in this case with reference to the question presented are largely undisputed. Lauritzen is a farmer who grows cucumbers intended for pickling in Waupaca and Waushara, two Wisconsin counties. These cucumbers, or pickles, as they are often called, are not his only crop, but he plants between 100 and 330 acres per year. Lauritzen owns all or most of the land upon which the cucumbers are grown. He determines the type of seed to use in planting and carries out the planting with the help of employees who are paid at the hourly minimum wage. Lauritzen and his employees are responsible for fertilizing and irrigating the crops prior to and throughout the harvest season. Lauritzen is also responsible for the application of pesticides and herbicides to the crops prior to and during the harvest season.

When the harvest season commences, the cucumbers are handpicked by migrant workers. The process is simple: the workers pull the cucumbers off the vine. The harvest season lasts for a month or two, and during that time the same vines are harvested several times. The largest cucumbers are picked first in order to encourage more to grow. Cucumbers which are picked at a smaller size are worth more money because they are better suited to pickling. The migrant workers, therefore, pick the largest cucumbers first, then wait for more to grow and pick them when they reach the appropriate size. The workers thus control their hours to the extent that they are waiting for the cucumbers to reach the appropriate size for picking. The workers determine when the pickles have reached the appropriate size.

Cucumber picking does not require a great deal of equipment. The migrant workers use gloves for picking which they provide for themselves. Some workers also provide rubber trousers and capes for working in wet conditions. The other necessary equipment is a pail in which to place the pickles that have just been picked, a sack in which to place the pickles at the end of the day, and a truck into which the sacks are loaded and driven to the sorting station. The pails, sacks, and trucks are all owned by Lauritzen. Lauritzen also owns the sorting station in which the cucumbers are sorted for the processor who will purchase them.

The price for which the cucumbers are sold is determined by Lauritzen and the pickle processors. This price is set at the beginning of the season. The migrant workers have no control over the price which the processors and Lauritzen agree to buy and sell the cucumbers for. The migrant workers, therefore, control how much money they make solely by the amount and the sizes of cucumbers they pick.

The harvesting of cucumbers begins in July and lasts until approximately early September. Each year migrant worker families arrive at Lauritzen's farm from different parts of the United States. Some of the families working for Lauritzen have worked for him on an annual basis for six or seven years, while some may only come once or twice. The migrant workers provide their own transportation to Wisconsin and are not reimbursed for this expense by Lauritzen.

Once they arrive at Lauritzen Farms, the migrant workers are assigned a house by Lauritzen. They are provided with these houses free of charge (although some labor contracts called for a $30.00 weekly payment if the worker did not earn the weekly minimum wage) and regular workers are generally assigned the same house from year to year. Lauritzen also assigns each family a section of cucumber vines to harvest. The head of each family informs Lauritzen how much acreage they can harvest and Lauritzen assigns them the appropriate number of rows. Upon arrival, the head of each migrant family signs a "Migrant Labor Worker Agreement/Contract” with Lauritzen. The agreement does not always name all of the family members who will be working in the fields. Minor children do not sign separate agreements, although adult children may do . so. The agreement sets forth the applicable wage rate as “50% 3.35 P.H.” This means that workers are to be paid 50% of the gross receipts received for the cucumbers picked. The 3.35 corresponds to the minimum wage prescribed by the FLSA, and appears to be a guarantee of the minimum wage during weeks where 50% of gross receipts is insufficient to provide the minimum wage to all workers. The agreement also provides for a work guarantee of 45 hours per 2-week period and identifies the workers as migrant labor contractors instead of employees.

When signing the agreement, family-heads are generally given a sheet which sets forth six grades of cucumbers and the price that Lauritzen is purportedly to be paid by processors for each grade. The prices are set forth by hundredweight, and in 1984 ranged from $3.00 per hundred pounds for the largest acceptable pickles to $22.00 per hundred pounds for the smallest. Workers are paid by the rate of 50% of the purported gross receipts regardless of whether Lauritzen actually sells all of his pickles. So, if a processor declines to purchase certain pickles, the migrant workers are nevertheless paid according to the price list.

Some workers arrive one or two weeks before the cucumber harvest season is ready to commence. These workers are often permitted to live in Lauritzen’s houses and work for other local farmers. Once the cucumber harvest begins, however, the cucumbers demand the workers’ full attention and workers do not work for other farmers.

During the harvest season, Lauritzen regularly visits his fields. According to . most of the migrant workers deposed, Lauritzen has the power to fire them if he chooses. None of them could remember, however, a situation in which Lauritzen had asked a family to leave. Lauritzen denies that he exercised control or supervision over the migrant workers; he specifically stated that decisions with respect to agricultural husbandry practices, or when and what to pick are decisions made by the migrant 'family.

The decision as to whether workers are employees or independent contractors is based upon the individual facts of a case. However, this question is fundamentally a question of law, highly appropriate for decision on summary judgment. Beliz v. W.H. McLeod & Sons Packing Co., 765 F.2d 1317, 1327 (5th Cir.1985). “Employee” is a term to be liberally construed in order to accomplish the remedial purposes of the FLSA; one such purpose is the cessation of payment of sub-minimum wages. Rutherford Food Corp. v. McComb, 331 U.S. 722, 67 S.Ct. 1473, 91 L.Ed. 1772 (1947). In determining whether a worker is an employee or an independent contractor, courts should consider the degree of control which an employer has over the manner in which work is performed, the opportunities for profit or loss dependent upon the managerial skill of the worker, the worker’s investment in equipment or material, the skill required, the permanence of the working relationship, and whether the service rendered is an integral part of the alleged employer’s business. Real v. Driscoll Strawberry Associates, Inc., 603 F.2d 748, 754 (9th Cir.1979); United States v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947). None of these factors is determinative; rather, all must be weighed in order to decide the economic realities of the situation. Central to the court’s decision is whether the worker is economically dependent upon the business to whom he renders services. Usery v. Pilgrim Equipment Co., Inc., 527 F.2d 1308, 1311 (5th Cir.1976).

The facts of this case support a finding that the workers are employees. First, the workers have little control over the labor process. They do not determine the manner in which seed is planted, fertilized, irrigated, or dusted. They do determine their working hours but within the confines of a crop which must be harvested when it reaches a certain size. The crop itself fundamentally determines their working hours. Moreover, workers are supervised, however minimally, by Lauritzen. Lauritzen also holds the power to discharge workers, although apparently this has not been exercised.

Second, the workers have little opportunity for profit or loss based upon their managerial skills. Workers’ earnings are based upon the amount and grades of the cucumbers picked. “ ‘Profit’ is the gain realized from a business over and above its expenditures. [Citation omitted.] The only ‘expenditures’ from which the ... [workers] obtain a return is their own labor ...” Silent Woman, Ltd. v. Donovan, 585 F.Supp. 447, 451 (E.D.Wis.1984). Like Judge Myron Gordon of this district in the Silent Woman case, I believe that the return on labor is appropriately classified as wages not profit. Id. Furthermore, the workers are paid for the cucumbers picked regardless of whether Lauritzen sells them to a processor; thus, they bear little risk of loss. Lauritzen argues that the workers are risking losses in that they pay for their own transportation to Wisconsin and might risk a bad harvest. This, however, is a common risk undertaken by many migrant agricultural workers and is not the type of investment-related risk which can properly be related to a worker’s managerial skills.

Third, the migrant workers have virtually no investment in equipment or material. Their sole expenses consist of providing transportation and gloves for themselves and their families. Everything else, from housing to sacks, is provided by Lauritzen.

Fourth, little skill is required in the hand harvest of cucumbers. I do not dispute Lauritzen’s statement that workers become more efficient pickers with more experience; this process occurs in almost all jobs. I doubt that it takes a great deal of skill to learn when cucumbers are the proper size to be picked and then pull them off the vines.

Fifth, the migrant workers do not have a permanent relationship with Lauritzen, although many return from year to year. Migrant workers are by definition temporary; they are employed for the duration of a specific harvest. This alone does not make them specialists or independent contractors. Lauritzen additionally argues that both he and the migrant workers regarded the workers to be independent contractors, and that they intended to establish this relationship through the migrant labor contract. I am not willing to give the parties’ state of mind great weight in a case such as this where the totality of the circumstances point strongly to an employer-employee relationship.

Finally, I find that the service rendered by the migrant workers is an integral part of Lauritzen’s business. Without harvest workers, Lauritzen’s crops would rot on the vine. The workers in this case are economically dependent upon Lauritzen’s business for their work during the cucumber harvest season; the fact that they may have other seasonal employment in no way mitigates their temporary economic dependence upon Lauritzen’s business. The economic realities of this situation are those of an employment relationship.

In reaching my decision I note that many courts have found migrant farm workers to be employees within the meaning of the FLSA. See e.g. Beliz v. W.H. McLeod & Sons Packing Co., id., 765 F.2d 1317; Real v. Driscoll Strawberry Associates, Inc., id., 603 F.2d 748; Hodgson v. Griffin & Brand of McAllen, Inc., 471 F.2d 235 (5th Cir.1973), cert. denied, 414 U.S. 819, 94 S.Ct. 43, 38 L.Ed.2d 51; Hodgson v. Okada, 472 F.2d 965 (10th Cir.1973); Donovan v. Gillmor, 535 F.Supp. 154 (N.D.Ohio 1982). In reaching my decision I am also mindful of the recent decision by the United States Court of Appeals for the Sixth Circuit in Donovan v. Brandel, 736 F.2d 1114 (6th Cir.1984). The Brandel court held that agricultural workers who rowed and blocked cucumber vines and then picked the cucumbers were independent contractors. The Brandel workers, like Lauritzen’s workers, contracted to receive 50% of the gross receipts. They were minimally supervised by the farmer, had little opportunity to increase their profit, other than through picking the right cucumbers, and had a minimal investment in equipment, purchasing only pails and gloves. The court relied on these factors, even though it also found that there was little evidence to support the district court’s conclusion that the workers were exposed to a risk of loss, and in spite of their finding that the harvest was an integral part of the farmer’s business. I disagree with the Brandel case because I believe that it disregarded the economic reality of migrant cucumber pickers. The economic realities of this case make the pickers completely dependent upon Lauritzen who plants and cares for the crops, determines the selling price, and provides them with housing. The workers are exposed to little risk, their work requires little skill and almost no investment, and provides little opportunity for profit or gain. I therefore hold that the migrant workers who harvested cucumber for Lauritzen during 1982 to 1984 were employees within the Fair Labor Standards Act. Accordingly, the Secretary's motion for partial summary judgment is GRANTED.

A conference call to schedule proceedings to conclude this case is set for January 21, 1986, at 8:30 a.m.; this call will be initiated by the court.


author: KRAM, District Judge.

text:
    UNITED STATES of America, v. Jose RAMOS, Defendant.
    No. 85 Cr. 4 (SWK).
    United States District Court, S.D. New York.
    Dec. 23, 1985.
    See also, D.C., 613 F.Supp. 115.
    Rudolph W. Giuliani, U.S. Atty. for the S.D. of N.Y., New York City by Beverly Sherman Nash, for the United States.
    The Legal Aid Society, Federal Defender Unit, New York City by Phyllis Skloot Bamberger, for defendant.
   MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

Defendant Jose Ramos was convicted after a bench trial of violating 21 U.S.C. § 841(a)(1) and assessed $50 pursuant to 18 U.S.C. § 3013. Defendant, an indigent, filed a motion challenging the constitutionality of the assessment and the Court stayed imposition of the assessment pending disposition of the motion.

The defendant’s challenge to the statute is twofold. First, he claims that since he cannot pay the assessment immediately interest will accrue on it. Ramos alleges that this augmentation of the assessment, resulting only from his indigency, would Ramos alleges, violate his constitutional rights. Second, Ramos claims that Section 3013 was introduced in the Senate and is a revenue provision. Since the bill did not originate in the House of Representatives, Ramos alleges it was thus passed in violation of Article I, Section 7 of the Constitution of the United States.

Initially, the United States contends that Ramos does not have standing to challenge the imposition of the assessment. It argues that since the government has not yet attempted to collect the assessment, Ramos has not suffered an injury.

To have standing to litigate in federal court, a party must allege personal injury fairly traceable to the defendant’s allegedly unlawful conduct and likely to be redressed by the requested relief. Allen v. Wright, 468 U.S. 737, 104 S.Ct. 3315, 3325, 82 L.Ed.2d 556; reh. den., — U.S. -, 105 S.Ct. 51, 52, 82 L.Ed.2d 942 (1984). The only issue government raises is whether Ramos has suffered an injury in fact.

The government points to two eases in support of its argument. First, in United States v. Brown, 744 F.2d 905 (2d Cir.); cert. den., — U.S. -, 105 S.Ct. 599, 83 L.Ed.2d 708 (1984), the defendant was ordered to pay restitution to his victims pursuant to the Victim and Witness Protection Act, 18 U.S.C. §§ 3579 and 3580. The defendant, alleging that he was indigent and could not pay, claimed the statute was unconstitutional as applied to him. The court ruled that “[constitutional objections would be encountered only if the restitution order were enforced at a time when defendant was unable ... to comply.” Brown, 744 F.2d at 911. Thus, Brown was not injured when the restitution order was imposed, but would be only if it were enforced. Since neither the government nor the victim had attempted to enforce the order, he had no standing to challenge it.

Brown is distinguishable from the instant case. The statute in Brown gave the government and the crime victim discretion to collect the restitution. The statute reads, “An order of restitution may be enforced by the United States or a victim ... in the same manner as a judgment in a civil action.” 18 U.S.C. § 3579(h) (emphasis added). The government is required, however, to collect the assessment under 18 U.S.C. § 3013(b). That statute reads, “Such amount so assessed shall be collected in the manner that fines are collected in criminal cases.” Id. (emphasis added). A federal district court is also required to impose the assessment on any person convicted of a felony. 18 U.S.C. § 3013(a).

The government also relies on United States v. Hutchings, 757 F.2d 11 (2d Cir.); cert. den., — U.S. -, 105 S.Ct. 3511, 87 L.Ed.2d 640 (1985). There the trial judge imposed the costs of the prosecution of a ease on an indigent defendant. The defendant challenged the imposition of the costs as improper because of his indigency. The Second Circuit held that a defendant may assert a constitutional objection to imposition of costs on the ground of indigency only if the government seeks to enforce the trial Court’s order at a time when the defendant is unable to pay. Id. at 14-15.

As with a restitution order, however, collection of costs is also discretionary. Rule 11 of the Civil Rules for the United States District Courts for the Southern and Eastern Districts of New York provides the guidelines for the collection of costs. Id. at 15, n. 4; see 20 U.S.C. §§ 1920-21. If the party who recovered costs wishes to collect them, it must file a request to tax costs with the clerk of the court within thirty days of the final judgment or the disposition of the appeal. Failure to file for costs within thirty days constitutes a waiver of costs. If the prevailing party does seek costs, the adversary may object to particular items or amounts. If the clerk awards the costs, the court may modify the order. F.R.Civ.P. 54(d).

There is no room for conjecture that the assessment will not be enforced. The defendant is obliged to pay as soon as the court orders it. The injuries in Brown and Hutchings, on the other hand, were “abstract ... conjectural ... [and] hypothetical.” Id. The injuries were only speculative, and dependent on the future exercise of discretion. For purposes of standing analysis, the mandatory assessment is a “distinct and palpable” injury. Allen v. Wright, 468 U.S. 737, 104 S.Ct. 3315, 3325, 82 L.Ed.2d 556 (1984).

Turning to the merits, the defendant’s first challenge to the assessment is as follows. Pursuant to 18 U.S.C. § 3013(b), the assessment is to be collected in the manner fines are collected in criminal cases. This procedure is described in 18 U.S.C. § 3565. Section 3565(b)(2) requires that interest of 1.5% per month is to be paid on a fine due in installments, and (c)(1) states interest at the same rate is to be paid on fines that are past due. Since Ramos is not presently able to pay the assessment due to his indigency and since the assessment is mandatory, he claims that the accrual of interest will increase his penalty solely because of his indigency. This would violate the Equal Protection and Due Process Clauses of the Fourteenth Amendment. See Bearden v. Georgia, 461 U.S. 660, 103 S.Ct. 2064, 2068-69, 76 L.Ed.2d 221 (1983).

The Court need not consider this constitutional issue, however, as an examination of the plain language of the assessment and collection statutes indicates that the interest accrual provisions do not apply to unpaid assessments. Section 3013(b) specifies that the assessment shall be collected in the manner that fines are collected in criminal cases. Section 3565 is entitled “Collection and Payment of Fines and Penalties”. Only Section 3565(a) deals with collection of fines. It states that fines may be collected in the same manner as judgments in civil cases. This includes execution by attachment, garnishment, or levy. Sections 3565(b) — (h), however, specifically deal with payment, not collection of fines. They establish the procedure for payment of fines and penalties. These sections require the accrual of interest on unpaid amounts, the defendant to pay the Attorney General or the Clerk of the Court, organizations to pay fines through individuals authorized to make disbursements, the clerk or Attorney General to file a notice of satisfaction of judgment when the defendant pays, and that the obligation to pay a fine ceases if not paid upon death of the defendant or after twenty years.

Thus, when Congress said that the assessment under Section 3013 is to be collected in the same manner as criminal penalties, it meant only that collection of the assessment was to be made according to the procedure for collecting fines,-outlined in 18 U.S.C. § 3565(a), not that payment of the assessment was to be made according to 18 U.S.C § 3565(b)-(h). If Congress had meant that payment of the assessment was to follow the procedures for payment of fines outlined in Section 3565(b)-(h), it would have stated in Section 3013 that the assessment was to be collected and paid in the same manner as in criminal cases.

Besides the plain language of the statute, there is another compelling reason to read Section 3013 as not incorporating the interest accrual provisions of Section 3565. If Section 3013 did, there would be a serious question as to its constitutionality. Augmentation of the assessment because a convicted felon is unable to pay due to indigency would quite possibly violate the Constitution. Since there is a strong presumption of the constitutionality of acts of Congress, and the Court’s strict reading of Section 3013 preserves its validity, the Court feels justified in its narrow construction.

Defendant’s second argument is that 18 U.S.C. § 3013 is a revenue measure that originated in the Senate, and thus violates Article I, Section 7 of the United States Constitution. Defendant’s argument is that since all funds raised by the assessment are to go to a Crime Victims Fund, the assessment is a revenue raising measure. This interpretation of the assessment statute is misplaced. The assessment is imposed as a punishment on a convicted person. See United States v. Mayberry, 774 F.2d 1018, 1021-22 (10th Cir.1985). The fact that it also raises revenue is only incidental to the punishment. That Congress provided means for the disposition of money does not make the assessment a revenue raising measure either. The assessment is not a tax on the public, but only a consequence of being convicted of a crime. Its purpose was to punish convicted criminals. This is shown in that the assessment, like a criminal fine or penalty, increases along with the gravity of the offense. Individual misdemeanants are assessed $25 while felons must pay $50.

Defendant’s motion is denied. The stay of the imposition of the assessment is lifted, and the $50 assessment is imposed on defendant Ramos.

SO ORDERED.

      . The defendant does not claim that the imposition of the assessment on an indigent is itself a violation of the Constitution. Defendant only challenges the imposition of interest on unpaid assessments. The Court thus does not consider that issue.

      . The Government takes the position that interest does not accrue on an assessment.

      . For purposes of this motion, the Court assumes that Section 3013 did originate in the Senate.


author: ASPEN, District Judge:

text:
    AFIRM, INC., a Corporation, Plaintiff, v. FRAZEE PAINT & WALLCOVERING COMPANY, INC., Defendant.
    No. 85 C 8730.
    United States District Court, N.D. Illinois, E.D.
    Dec. 24, 1985.
    R.S. Maione, Drugas, Maione, Morgan & Hyink, Chicago, 111., for plaintiff.
    Jeffrey S. Goldman, William Henry Barrett, Fox & Grove, Chtd., Chicago, 111., for defendant.
   MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

Plaintiff Afirm, Inc. (“Afirm”) brought this diversity suit against defendant Frazee Paint and Wallcovering Company, Inc. (“Frazee”) for breach of an oral contract. Afirm is an Illinois corporation with its principal place of business in Hinsdale, Illinois. Frazee is a California corporation with its principal place of business in San Diego, California. Frazee contends that the court lacks personal jurisdiction over Frazee and has moved to dismiss the suit under 12(b)(2). For the reasons set forth below, the court grants Frazee’s motions.

Facts

The parties have submitted conflicting affidavits concerning the material facts. While Afirm carries the burden of producing evidence sufficient to support jurisdiction, see, e.g., Caicos Petroleum Service Corp. v. Hunsaker, 551 F.Supp. 152, 153 (N.D.Ill.1982), it enjoys the concurrent advantage of having factual conflicts resolved in its favor. See Jacobs/Kahan v. Marsh, 740 F.2d 587, 589 (7th Cir.1984); Deluxe Ice Cream v. R.C.H. Tool Corp., 726 F.2d 1209, 1215 (7th Cir.1984). Thus, the factual statement that follows is derived from Afirm’s affidavit and complaint and from Frazee’s affidavits to the extent they are not in conflict with Afirm’s statements.

Frazee is registered to do business in California — not Illinois. Frazee does not maintain or operate any facility in any Illinois county. Nor does Frazee own, use or possess any real property in Illinois. In the past twelve months, Frazee has not made any shipment or sale of any kind whatsoever to any entity, buyer or recipient in Illinois. However, Frazee has had unsolicited business contact and interstate telephone conversations with Afirm in the last two years.

Afirm is an employment agency. Its job is to help businesses find qualified employees and vice versa. If it is successful, the hiring corporation pays it a fee, usually a percentage of the salary of the person hired. In the last two years on several occasions, Afirm made unsolicited interstate calls to Frazee to present applicants for various positions. Frazee never called Afirm, unless Frazee was returning a call. Nor did Frazee ever meet with Afirm or interview applicants in Illinois. However, Afirm alleges that the parties agreed over the phone that if Frazee hired an employee Afirm referred to it, it would pay Afirm 25% of the employee’s first annual salary.

On June 9, 1983, candidate Martin Balow was presented by Afirm to Frazee for a “technical director” position. Per Frazee’s request, Balow’s resume was submitted. In addition, an appointment by telephone was arranged for Balow to be interviewed by Frazee in California in September 1983. But Frazee did not hire Balow then. Instead, Frazee hired Cyriac Alexander, another potential candidate, for the technical director position. Balow then accepted a technical director position with another company.

In May of 1984, Frazee placed an ad for a senior chemist in a trade publication circulated in Illinois. Afirm responded to this ad by placing another unsolicited call to Frazee. Afirm spoke to Cyriac Alexander, now the Senior Vice President of Operations, and presented not Balow but a former applicant, Ray Guchurra. Mr. Alexander never followed up on Afirm’s presentation or returned Afirm’s calls.

The parties did not communicate with each other again until October 15, 1984, the day Afirm found out that Frazee ended up hiring Balow in July 1984 for the technical director position. Afirm contacted Alexander and demanded a placement fee of 25% of Balow’s first year’s salary ($12,-500). Frazee refused to pay such fee. Afirm filed this lawsuit.

Afirm contends that Frazee transacted business in Illinois, thereby rendering Frazee amenable to in personam jurisdiction within Illinois pursuant to the Illinois Long Arm Statute. Ill.Rev.Stat. ch. 110, § 2-209(a)(1) (1983). In addition, Afirm argues that Frazee has been “doing business” in Illinois for the last two years, thereby subjecting Frazee to personal jurisdiction under the doctrine bearing that name. We hold below that personal jurisdiction is lacking under either theory.

Discussion

In a suit based on diversity of citizenship, a federal court has personal jurisdiction only if the forum state court would have jurisdiction. See, Maurice Sternberg v. James, 577 F.Supp. 882, 884 (N.D.Ill. 1984). Therefore, the first step in the analysis is to determine as a statutory matter whether the Illinois long-arm statute reaches the defendant. Id. If so, the court must decide whether the Due Process Clause permits service of process. See, e.g., Deluxe Ice Cream Co. v. R.C.H. Tool Corp., 726 F.2d at 1214. Because we find below that the long-arm statute does not reach the defendant, we will not need to address the constitutional issue.

The only pertinent provisions of the Illinois long-arm statute state:

(a) Any person, whether or not a citizen or resident of this State, who in person or through an agent does any of the acts hereinafter enumerated thereby submits such person and, if an individual, his or her personal representative, to the jurisdiction of the courts of this State as to any cause of action arising from the doing business of any such acts:
(1) The transaction of any business within this State;
j¡c $ % sjs *
(c) Only causes of action arising from acts enumerated herein may be asserted against a defendant in an action in which jurisdiction over him or her is based upon this Section.

Ill.Rev.Stat. ch. 110, § 2-209(a)(l) (1983). Sections 2-209(a)(l) and 2-209(e) essentially create two factors for the court to consider. The first subsection requires us to examine the nature and extent of Frazee’s contacts with Illinois. The second requires that there be some overlap between those contacts and the cause of action alleged in the complaint. In particular, the second subsection requires that the relevant transaction of business “give rise to the plaintiffs’ cause of action; in other words, the plaintiff’s claim must ‘lie in the wake of the commercial activities by which [the] defendant submitted to the jurisdiction of Illinois courts.’ ” Snyder v. Smith, 736 F.2d 409, 416 (7th Cir.1984), cert. denied, — U.S. -, 105 S.Ct. 513, 83 L.Ed.2d 403 (1984), quoting, Loggans v. Jewish Community Center, 113 Ill.App.3d 549, 557, 69 Ill.Dec. 484, 490, 447 N.E.2d 919, 925 (1983); see also Jacobs/Kahan & Co. v. Marsh, 740 F.2d at 591.

The second test enables us to cull out at the outset many of the makeweight facts that Afirm asserts in support of jurisdiction. It alleges making phone calls and employee references for prospective employees other than Balow, the one Frazee hired. While these other contacts are relevant to Afirm’s “doing business” claim, which we discuss below at 11-12, they did not in any way “give rise to” Afirm’s cause of action in this case. Afirm does not and cannot contend otherwise. Thus, they are irrelevant to our analysis under the long-arm statute.

Stripped of its irrelevancies, then, Afirm’s case is based on the following disputed facts which we have construed in its favor:

(1) It called Frazee and sent Balow’s resume;
(2) Frazee agreed over the phone that if it hired Balow for the technical director position, it would pay Afirm a fee.
(3) Balow was interviewed and rejected. Alexander was hired instead, for a reconstituted position. Balow went to work elsewhere.
(4) Some months later, Frazee hired Ba-low, but refused to pay Afirm a fee.

The parties dispute whether Balow filled the same position he was initially interviewed for. Afirm asserts simply that he was, though we wonder how it is competent to allege that fact. In contrast, Frazee’s affidavits describe in detail how Ba-low’s position is much different from the one he originally sought. Indeed, they say that that position was changed in order to woo Alexander, well before Balow applied the second time. Even though Frazee’s version strikes us as more credible, we must resolve this conflict in Afirm’s favor. Even doing so, we think jurisdiction over Frazee is lacking.

First, we have strong doubts whether Frazee’s contacts with Illinois were sufficient to amount to “the transaction of business within” Illinois. At best, we have an unsolicited phone call from an Illinois plaintiff, in which an agreement was reached that called for payment to the Illinois plaintiff for some minimal services rendered within Illinois. Recent cases have held that mere telephone calls alone cannot establish jurisdiction over a foreign defendant. See, e.g., Connolly v. Samuelson, 613 F.Supp. 109, 111 (N.D.Ill.1985) (Aspen, J.); Maurice Sternberg, Inc. v. James, 577 F.Supp. 882, 885 (N.D.Ill.1984) (Grady, J.) (interstate phone calls and mailings cannot themselves satisfy long-arm statute); U.S. Reduction Co. v. Amalgamet, 545 F.Supp. 401, 403 (N.D.Ill.1982) (Aspen, J.) (telephone call not enough where all performance was to be done outside of Illinois); Caicos Petroleum, 551 F.Supp. at 154-55 (Moran, J.) (and cases cited therein). In other recent cases upholding the exercise of jurisdiction, contacts with Illinois were clearly more substantial than those in this case; most of these cases involved at least a visit by defendant into Illinois, or shipment of product here, neither of which is present in this case. See Jacobs/Kahan, 740 F.2d at 590-91 (defendants partially negotiated and executed contract in Illinois); Snyder, 736 F.2d at 416 (contract negotiated in Illinois); Deluxe Ice Cream Co. v. R.C.H. Tool Corp., 726 F.2d 1209, 1214-16 (7th Cir.1983) (discussion in Illinois instrumental to ultimate signing of contract); Met-L-Wood Corp. v. SWS Industries, Inc., 594 F.Supp. 706, 708-09 (N.D.Ill. 1984) (Shadur, J.) (three visits to Illinois, one of which was prelude to contract); Welles Products Corp. v. Plad Equipment Co., Ltd., 563 F.Supp. 446, 447-49 (N.D.Ill. 1983) (Roszkowski, J.) (defendant initiated phone calls and later visited Illinois to oversee some of performance in Illinois); Ronco, Inc. v. Plastics, Inc., 539 F.Supp. 391, 395-97 (N.D.Ill.1982) (Marshall, J.) (defendant visited Illinois to negotiate and make changes in contract and also sent substantial volume of product to Illinois). This case falls between the first and second cluster of cases cited above. Defendant’s only contact with Illinois was via the phone; however, the alleged contract does call for Afirm, the plaintiff, to perform within Illinois. There are cases which uphold exercise of jurisdiction over a non-resident defendant where a plaintiff was to perform in Illinois. See Ward v. Formeso, 27 Ill.App.3d 22, 325 N.E.2d 812 (2d Dist. 1975); Colony Press, Inc. v. Fleeman, 17 Ill.App.3d 14, 308 N.E.2d 78 (1st Dist.1974); Cook Associates, Inc. v. Colonial Broach & Machine Co., 14 Ill.App.3d 965, 304 N.E.2d 27 (1st Dist.1973). However, more recent cases say that the plaintiff’s place of performance is irrelevant for jurisdictional purposes; the focus should be on the acts of the defendant. Maurice Sternberg, 577 F.Supp. at 885; City of East Moline v. Bracker, Hayes & Miller, 133 Ill.App.3d 136, 140, 88 Ill.Dec. 322, 325-26, 478 N.E.2d 637, 640-41 (3d Dist.1985). It is clear that the law in this area is somewhat in disarray.

Afirm relies heavily on the Cook v. Colonial case cited above. Cook v. Colonial also involved a “headhunter” plaintiff. The defendant company called the plaintiff asking it to refer prospective employees. Plaintiff did so, and defendant ultimately hired the employee. Although the company’s only contact with the Illinois plaintiff was via the one phone call it made, the Court held that it had transacted business within Illinois. 14 Ill.App.3d at 969, 304 N.E.2d at 31. It apparently relied on the fact that the defendant there initiated the transaction, and that the contract called for plaintiffs’ performance within Illinois and the payment of a fee to Illinois. Id.

Cook v. Colonial is arguably distinguishable because the defendant there initiated the transaction, while the plaintiff here did so. While some courts make much of who called whom first, see Ciacos Petroleum, 551 F.Supp. at 155 (citing cases), we do not see why this fact alone deserves much importance. Cf. Maurice Sternberg, 577 F.Supp. at 885 (phone calls insufficient regardless of who phones first). In any event, we have previously expressed doubt about the current viability of Cook v. Colonial. See U.S. Reduction, 545 F.Supp. at 403. Like some of the other cases cited above, Cook was decided under the regime of Nelson v. Miler, which fastened interpretation of the long-arm statute to construction of the Due Process Clause. However, in 1981, the Illinois Supreme Court cast the long-arm statute adrift from the Due Process Clause. See n. 4 above. Thus, interpretation of the long-arm statute might be stricter since Green than it was in 1973 when Cook v. Colonial was decided. Indeed, cases like Maurice Sternberg and City of East Moline implicitly hold that Cook v. Colonial is dead when they state that mere phone calls are per se insufficient to constitute the transaction of business within Illinois even where plaintiffs are to perform in Illinois. And the recent City of East Moline case casts doubt in general on the precedential value of decisions interpreting the long-arm statute under the Nelson v. Miller regime. See 133 Ill.App.3d at 139, 478 N.E.2d at 639-40; also Petty v. Cadwallader, 135 Ill.App.3d 695, 696-97, 90 Ill.Dec. 518, 520, 482 N.E.2d 225, 227 (4th Dist.1985).

We need not examine Cook v. Colonial any further for signs of life. For whether or not Cook v. Colonial lives, we think that a case involving the same employment agency, and decided by the Illinois Supreme Court, Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d 190, 57 Ill. Dec. 730, 429 N.E.2d 847 (1981), controls this case. Regardless of whether the phone call here constituted the “transaction of business within Illinois” under Cook v. Colonial, the hiring of Balow does not “lie in the wake” of that one phone call, under Cook v. Lexington.

In that case one of Cook’s managers referred a prospective employee to defendant Lexington, a Missouri corporation. Lexington had initiated the transaction by calling Cook for an employee. Lexington interviewed the applicant in Chicago, but that applicant rejected the job because the salary was too low. Communication between the two stopped for several months. Lexington then contacted Cook’s manager, who at the time was in business in Massachusetts for herself. Lexington was seeking an employee for a similar position, but at a higher salary. The manager submitted the name of the previous applicant, among others. Lexington eventually hired the applicant and paid Cook’s former manager a fee. Cook found out about this, also demanded a fee, and then sued when Lexington refused to pay. After first reaffirming Green’s decision to sever § 2-209 from the Due Process Clause, the Supreme Court of Illinois held, among other things, that the initial reference and interview did not lead to the applicant’s hiring, and therefore the cause of action did not arise from the Illinois contact. Because the applicant had rejected the first position and was hired for a different one, and the record did not show that the initial interview had any influence on the ultimate hiring, the Court held that the ultimate hiring was too remote from the initial reference to conclude that the cause of action arose from that initial business transaction.

The same conclusion follows for this case. Like the Cook v. Lexington case, here the initial reference resulted in no job for the applicant. Frazee rejected Balow and hired Alexander. Balow went to work elsewhere and several months passed. Even though Balow was eventually hired, like the situation in Cook v. Lexington the record here does not suggest that the initial reference was at all related to the ultimate hiring of Balow. In fact, the uncontradicted evidence in the record reveals that the hiring was completely unrelated to the reference. Under these facts, the ultimate hiring was far too remote from, if connected at all to, the asserted Illinois contact (which was tenuous itself) to fairly conclude that the cause of action “lies in the wake” of that transaction. We therefore hold that Afirm has failed to satisfy the long-arm statute.

It is easy to conclude next that Afirm fails to satisfy the alternative “doing business” test as well. A remnant of the times preceding the modern “minimum contacts” era, the “doing business” doctrine examines a defendant’s contacts with a forum state to determine whether he or she is fictionally “present” for jurisdictional purposes. See generally Maunder v. DeHavilland Aircraft of Canada, Ltd., 102 Ill.2d 342, 349-52, 80 Ill.Dec. 765, 768-71, 466 N.E.2d 217, 220-23 (1984), cert. denied, — U.S. -, 105 S.Ct. 511, 83 L.Ed.2d 401 (1984); Cook Associates v. Lexington, 87 Ill.2d at 199-204, 57 Ill.Dec. at 734-36, 429 N.E.2d at 851-53. If a defendant is “doing business” in Illinois, he or she is amenable to jurisdiction even for causes of action not arising from the transaction of business in Illinois. See, e.g., Cook v. Lexington, 87 Ill.2d at 200, 57 Ill.Dec. at 735, 429 N.E.2d at 852. Although the Illinois Supreme Court has fashioned no precise standard for “doing business,” it has elaborated a general test. A defendant’s business contacts with Illinois must be “continuous and systematic.” Maunder, 102 Ill.2d at 349, 80 Ill.Dec. at 769, 466 N.E.2d at 221. Put another way, doing business means acting within Illinois “ ‘not occasionally or casually, but with a fair measure of permanence and continuity.’ ” Id. at 351, 80 Ill.Dec. at 769, 466 N.E.2d at 221, quoting, Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267, 115 N.E. 915, 917 (Cardozo, J.). Frazee’s activities plainly fall far short of this measure of “doing business.” Taking Afirm’s affidavit as true, Afirm tried to refer several applicants to Frazee, and Frazee agreed generally to pay Afirm a fee if it hired one of these employees. But Frazee has no office or employee in Illinois, sells no product here and has no other contact with the state. At most, its contacts are sporadic and few, not continuous and systematic. It is not in any sense regularly doing business in Illinois; it at most has done a little business with one Illinois employment agency. The defendant’s Illinois activities were more extensive in Cook v. Lexington than here, and the Illinois Supreme Court rejected plaintiff’s “doing business” claim in that case. 87 Ill.2d at 203, 57 Ill.Dec. at 736, 429 N.E.2d at 853. We do the same here.

D. Conclusion

For the foregoing reasons, we hold that Afirm has not satisfied the requirements of the long-arm statute or the doing business doctrine. Thus, we grant Frazee’s motion to dismiss for lack of personal jurisdiction. It is so ordered.

      . Afirm’s motion to strike the affidavit of Cyriac Alexander is denied. We will consider it for what it is worth.

      . Frazee's uncontradicted affidavits establish that the technical director position which Balow had applied for had been upgraded before Alexander was hired to fill it. Alexander assumed some hiring duties in this position. See n. 7 below.

      . There is a dispute between the parties regarding the position Balow filled. Frazee claims that Balow was hired for a completely different job from the first one. In addition, Frazee has alleged facts indicating that Balow was hired as a result of Mr. Alexander's contacts and efforts — not Afirm’s prior efforts. We discuss this in greater detail below.

      . Until 1981, the Illinois Supreme Court had fused interpretation of the long-arm statute with construction of the Due Process Clause. See Nelson v. Miller, 11 Ill.2d 378, 143 N.E.2d 673 (1957). However, in Green v. Advance Ross Electronics Corp., 86 Ill.2d 431, 56 Ill.Dec. 657, 427 N.E.2d 1203 (1981), the Supreme Court held that the meaning of § 2-209 should be fixed and therefore separate from changing concepts of due process. Accord, Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d 190, 57 Ill.Dec. 730, 429 N.E.2d 847 (1981). Thus, it will generally be necessary to bifurcate the analysis and decide whether the long-arm statute is satisfied before reaching the constitutional issue.

      . Of course, these cases would still have value as precedent for interpreting the Due Process Clause. It should be noted that not everyone agrees that the long-arm statute is now narrower than the Due Process Clause. In Ronco, supra, Judge Marshall states that the Green case perhaps only severed the two lines of analysis without narrowing the scope of the statute. In other words, it might be that the Supreme Court merely held that the meaning of the statute should remain fixed, not be narrowed; thus, if the contours of the Due Process Clause have not changed since 1981, the long-arm statute would still coincide with that clause for jurisdictional purposes. See 539 F.Supp. at 398.

      . There is no question that in the earlier case, Cook v. Colonial, the cause of action "lay in the wake” of the transaction in issue.

      . Frazee’s affidavits detail the following facts, which Afirm has not contested. Thus, we take them as true. See Caicos Petroleum, 551 F.Supp. at 153. After Frazee rejected Balow in 1983 and hired Alexander instead, Alexander took responsibility for, among other things, future hiring for the position relevant to this case. The people who hired Alexander had nothing to do with the later hiring. Afirm never referred Balow to Alexander. Alexander placed an ad in trade journals for the position. A third party recommended Balow to Alexander. This was the first time Alexander had ever heard of Ba-low. Alexander interviewed Balow and made an offer to him, and only later found out about Balow’s previous application.


author: SWEET, District Judge.

text:
    CHEMICAL BANK, Plaintiff, v. SOCIETY BRAND INDUSTRIES, INC., Society Brand International, Inc., Sew & Sew, Inc., Kelly Sportswear, Inc., Frank J. Novoson, Joel Rappaport, SBI Acquisition Corporation and Porsche, Inc., Defendants.
    No. 84 Civ. 1763 (RWS).
    United States District Court, S.D. New York.
    Dec. 24, 1985.
    Zalkin, Rodin & Goodman, New York City by Andrew D. Gottfried, Menachem 0. Zelmanovitz, Peter M. Levine, of counsel, for plaintiff.
    Willkie Farr & Gallagher, New York City by Robert J. Kheel, Kim Sperduto, Richard Schirtzer, of counsel, for defendants.
   SWEET, District Judge.

Defendants SBI Acquisition Corporation (“SBI”) and Porsche, Inc. (“Porsche”) have brought a motion seeking dismissal of the amended and supplemental complaint of the Chemical Bank (“Chemical”) as against them. Chemical has sought relief against SBI and Porsche based on the defendants’ alleged violation of the Bulk Sales Article of the U.C.C., N.Y.U.C.C. §§ 6-101 et seq., and for common law conversion of property. For the following reasons, the defendants’ motions are denied.

Prior Proceedings

Chemical commenced this action on March 13, 1984, alleging the willful conversion of plaintiff’s collateral by Society Brands Industries, Inc. (“Society Brand”), Society Brand International, Inc. (“International”), Sew & Sew, Inc. (“Sew”), and Kelly Sportswear, Inc. ("Sportswear”). Chemical amended its complaint by adding claims for relief based upon the alleged failure of the original corporate defendants and SBI and Porsche to heed the prescriptions of the Bulk Transfer Article of the U.C.C. and upon the alleged conversion of Chemical’s collateral by SBI. The original corporate defendants filed an amended answer and counterclaims, and Chemical filed a reply. SBI and Porsche have moved to dismiss the amended and supplemental complaint, contending Chemical does not hold a claim against Society Brand or its subsidiaries cognizable under the Bulk Transfer Article of the New York U.C.C. and therefore is not a “creditor” of those corporations and not entitled to notice of the bulk transfer of their assets. The moving defendants also contend that Chemical has not properly pleaded a conversion claim against SBI, because of Chemical’s failure to allege it demanded a return of its collateral.

Facts

The facts contained in the amended complaint for the purpose of this motion are accepted as true. On or about December 14, 1984, after the filing of the complaint in this action, SBI and Porsche purchased substantially all of the assets of Society Brand, International, Sew, and Sportswear, the original corporate defendants. At the time of the bulk transfers, Society Brand, International, Sew, and Sportswear were in possession of a portion of Chemical’s collateral, which was then included among the assets conveyed in the bulk transfers. Chemical had no prior notice of the transactions.

Neither Society Brand and its subsidiaries nor SBI and Porsche complied with the provisions of the bulk sales statutes of any jurisdiction. In the asset purchase agreement among SBI, International, Sew, Sportswear and in the asset purchase agreement between Porsche and Society Brand the parties expressly waived compliance by the others with the provisions of the Bulk Sales Law of any jurisdiction. Counsel for the transactions confirmed that no party had complied with the Bulk Sales Law. Both SBI and Porsche knew of Chemical’s claims prior to the bulk transfers. In its agreement with International, Sew, and Sportswear, SBI agreed to assume the liabilities of those corporations. Expressly excluded from such assumption, however, were “all litigation claims by Chemical Bank.”

II. New York Bulk Sales Law

With respect to Chemical’s claims for relief based on the Bulk Transfer Article of the U.C.C., the only issue presented by the motion of SBI and Porsche is whether the nature of the claim Chemical holds against Society Brand and its subsidiaries places Chemical within the class of creditors entitled to notice of the bulk transfer of the assets of those corporations pursuant to the bulk transfer article of the New York Uniform Commercial Code. N.Y.U. C.C. §§ 6-101 et seq. (McKinney 1964).

SBI and Porsche contend that Chemical does not stand within the class of protected creditors. Defendants’ rely largely on an interpretation of creditor enunciated by cases construing the Bulk Sales Act (the “Prior Act”) which was superseded by Article Six of the Uniform Commercial Code in 1964. N.Y.U.C.C. §§ 13-101 Article Six, however, was not a mere recodification of the Prior Act, and because of the changes wrought by the U.C.C., defendants’ argument and motion, must be denied.

Section 6-109 of the U.C.C. describes those entitled to the benefit of the statute:

The creditors of the transferor mentioned in this Article are those holding claims based on transactions or events

occurring before the bulk transfer ... N.Y.U.C.C. § 6-109. Under Section 6-105, a bulk transfer is “ineffective against any creditor of the transferor unless ... the transferee gives notice of the transfer in the manner and to the persons hereafter provided (Section 6-107).” N.Y.U.C.C. § 6-105. Section 6-107(3) states that notice of the bulk transfer must be given “to all persons shown on the list of creditors furnished by the transferor (Section 6-104) and to all other persons who are known to the transferee to hold or assert claims against the transferor.” N.Y.U.C.C. § 6-107(3). Under section 6-104(2), the listed creditors must include “all persons who are known to the transferor to assert claims against him even though such claims are disputed.” N.Y.U.C.C. § 6-104(2).

Chemical falls within the language of Article Six of the U.C.C. Chemical held, before the bulk transfer, claims against Society Brand and its subsidiaries based on events occurring before the bulk transfer of their assets. Chemical asserted those disputed claims in this litigation, and the moving defendants knew that plaintiff had asserted those claims at the time of the bulk transfer. The U.C.C. does not specify the type of claim a person must hold or assert to be a creditor under the Bulk Transfer Article. Nothing limits the breadth of the class of protected creditors in any way. Miller, The Effect of the Bulk Transfer Article on Existing Commercial Practices, 16 Law & Contemporary Problems 267, 280 (1951).

The Bulk Transfer Article of the U.C.C. provides for a broader definition of “creditor” than did the Prior Act. Since the Prior Act did not refer to a “person” who “holds” or “asserts” a “claim” but instead spoke only of “the creditors of the seller, transferrer or assignor.” According to the Prior Act, a bulk sale would be:

void as against the creditors of the seller, transferrer or assignor unless ... the purchaser, transferee or assignee demand and receive from the seller, transferrer or assignor a written list of names and addresses of the creditors of the seller, transferrer or assignor ...; and unless the purchaser, transferee or assignee shall notify ... every creditor whose name and address are stated in said list, or of which he has knowledge, of the proposed sale and of the price, terms and conditions thereof.

New York Personal Property Law, § 44 (repealed effective 1964). The Bulk Transfer Article of the U.C.C., on the other hand, reaches to “those holding claims” (§ 6-109) and “all persons who ... assert claims” (§§ 6-104(2) and 6-107(3)). The difference in the language of the two statutes evinces the intent of the legislature to broaden the definition of “creditor” to include those in the position of Chemical in the circumstances of this case.

Since the Prior Act was strictly construed, Apex Leasing Co., Inc. v. Litke, 173 App.Div. 323, 159 N.Y.S. 707 (1st Dept. 1916), aff'd, 225 N.Y. 625, 121 N.E. 853 (1918), "creditor” was given the narrow definition of one who holds a demand that is certain and liquidated. Black’s Law Dictionary, 441-42 (4th ed. 1968). Under the U.C.C.’s liberal construction, N.Y.U.C.C. § 1-102; Chrysler Credit Corp. v. Sharp, 56 Misc.2d 261, 265, 288 N.Y.S.2d 525, 529 (Sup.Ct.1968), “creditor” may include anyone having a legal right to damages growing out of contract or tort. Black’s Law Dictionary, supra.

The Official Comments and the New York Annotations to the U.C.C. explain the changes wrought by the enactment of that statute. See In re Yale Express System, Inc., 370 F.2d 433, 435, 437 (2d Cir. 1966). The New York Annotations to section 6-101 state:

Article 6 would replace the New York bulk sales statute. Personal Property Law, § 44 ... For the most part the Article is substantially declaratory of existing law. Its innovations include ... the expansion of the class of protected creditors in Section 6-109.

McKinney’s Consol. Laws, Vol. 62V2, Part 2, Uniform Commercial Code (hereafter “McKinney’s”), New York Annotations under § 6-101, at 719.

The implications of the broad language of section 6-109 were noted in the New York Annotations:

To the extent that this section defines the creditors who are protected as those existing at the time of the bulk transfer, it is declaratory of the New York law. But to the extent — as suggested in 16 Law & Contempt.Prob. 267, 280 (1951)— that the word “claims” is broad enough to include claims whether they are in tort or contract, are liquidated or unliquidated, are secured or unsecured, are contingent or fixed, are presently due or not,” this section changes the law.

McKinney’s, New York Annotations under § 6-109, at 747.

The New York Annotations also noted the change section 6-104(2) effective in pri- or New York law:

This [§ 6-104(2)] is new to the extent that it adds to “creditor” persons “who are known to the transferor to assert claims against him even though such claims are disputed” ____ Under the New York statute [Personal Property Law, § 44] one is not a creditor if the amount of the debt is not liquidated.

McKinney’s, New York Annotations under § 6-104, at 734-35.

This legislative history fully comports with the interpretation of “creditor” urged by Chemical. The only New York precedent on this issue brought to the court’s attention is the case of Sado v. Sado, 4 U.C.C. Rptr. 213 (N.Y.Sup.Ct.1967). In a fraud action alleged in Sado, the plaintiff moved for leave to serve a supplemental summons and complaint based upon the bulk transfer of the business and assets of a corporation and to name two corporations as additional parties defendant, the very relief plaintiff has obtained here. Like plaintiff here, the plaintiff in Sado had already asserted a tort claim against the transferor at the time of the bulk transfer. The Sado Court deemed the plaintiff to be a creditor of the transferor under section 6-109.

Finally, the pleadings meet the restricted application of the U.C.C. Bulk Sales Article to transferees who have actual knowledge of the creditor. Chemical has alleged that the defendants learned of its claims against Society Brand and subsidiaries prior to the consummation of the bulk transfer. Despite the prescription of section 6-107(3) that notice of a bulk transfer be sent to all “persons who are known to the transferee to hold or assert claims against the transferor,” the moving defendants allegedly chose to purchase the assets of Society brand and its subsidiaries without notifying plaintiff.

III. The Conversion Claim

The defendants assert that Chemical’s claim based upon conversion by SBI is improperly pled because of the omission of any demand for the return of Chemical’s collateral. Assuming the necessity for such a demand, Chemical has already met that requirement. Bringing an action for conversion serves as notice of an adverse claim. Schanbarger v. Dott’s Garage, 61 A.D.2d 243, 402 N.Y.S.2d 72 (3d Dept.1978). A motion to dismiss should not be granted because of a failure to allege demand and refusal. 7A Weinstein-Korn-Miller, New York Practice, ¶ 7101.09 (1978).

The defendants citation to Kunstsammlungen zu Weimar v. Elicofon, 678 F.2d 1150 (2d Cir.1982) in support of their demand theory is not controlling here since the nature of the conversion claims in Elicofon is different from that presented in this case. Unlike the defendant in Elicofon, the moving defendants cannot be characterized as “innocent” purchasers. The defendant in Elicofon purchased two paintings by Albrecht Duerer, but did not learn of the identity of the paintings until twenty years later. The defendant made no effort during that 20-year period to hide the fact that he owned the two paintings, displaying them in his home; where he sponsored several parties for the art community. In stark contrast, the moving defendants allegedly knew of Chemical’s claim against the original corporate defendants. As the New York Court of Appeals stated in Employers’ Fire Insurance Co. v. Cotten, 245 N.Y. 102, 156 N.E. 629 (1927):

No precedent imposes such a useless procedure upon one whose property has been stolen and is in the possession of another who, before the institution of the action acquired knowledge that it had been stolen yet claimed to be “the true owner” and continued to assert dominion over it.

245 N.Y. at 104, 156 N.E. 629. The rationale for requiring a demand is to apprise the innocent purchaser of his defective title and to give him the opportunity to deliver the property to the true owner before he is made liable as a tortfeasor. Id. at 105. Since the moving defendants knew of Chemical’s security interest in some of the assets they purchased, this rationale has no application here. Mullen v. Quinlan, 195 N.Y. 109, 115 (1909); Schanbarger v. Dott’s Garage, supra.

Second, the cases distinguish between conversion based upon a wrongful taking and conversion based upon wrongful detention. As to the wrongful taking, there need not be a demand. Schanbarger v. Dott’s Garage, supra, citing Ely v. Ehle, 3 N.Y. 506 (1850). Since Chemical predicates its conversion claim on a wrongful taking and does not seek the return of any property, Chemical did not have to make demand upon SBI for the return of its collateral. Finally, demand on SBI under the circumstances of this case apparently would have been useless. By the time Chemical learned of the bulk transfer, its collateral allegedly had been liquidated or commingled with property from other sources and could not have been returned. Under such circumstances, no demand is required. Heller v. Gerry, 40 A.D.2d 236, 339 N.Y. S.2d 18 (3d Dept.1972).

For the following reasons, SBI and Porsche’s motions are denied.

IT IS SO ORDERED.


text:
    Joseph POGGI, Plaintiff, v. NEW YORK SHIPPING ASSOCIATION-INTERNATIONAL LONGSHOREMEN’S ASSOCIATION PENSION TRUST FUND; New York Shipping Association-International Longshoremen’s Association Pension Trust Fund Trustees; John Bowers, Donald Carson, Anthony Pimpinella, James G. Costello, Louis W. Macijiski and Michael E. Maher; and Anthony Aurigemma, Pension Director, Defendants.
    No. 85 Civ. 881 (RWS).
    United States District Court, S.D. New York.
    Dec. 24, 1985.

      Edward J. Quinlan, New York City, for plaintiff.
    Lambos, Flynn, Nyland & Giardino, New York City (William M. Spelman, of counsel), Thomas W. Gleason, New York City (Andre Mazzola, of counsel), for defendants.
   OPINION

SWEET, District Judge.

Plaintiff Joseph Poggi (“Poggi”) has moved under Rule 56, Fed.R.Civ.P., for summary judgment directing the defendants New York Shipping Association-International Longshoremen's Association (“NYSA-ILA”) Pension Trust Fund (the “Fund”), John Bowers, Donald Carson, Anthony Pimpinella, James G. Costello, Louis W. Macijiski and Michael E. Maher and Anthony Aurigemma (collectively the “Trustees”) to pay a disability benefit effective July 1, 1984, and declaring him to be entitled to a retirement pension on his sixty-fifty birthday and a ten-year pension as of November, 1977. The Fund and the Trustees have cross-moved to dismiss the complaint. All parties agree that no factual issue is presented. For the reasons set forth below, the cross-motion is granted and summary judgment will be entered dismissing the complaint.

Poggi, a longshoreman, by 1972 had sixteen years of credited service, thirteen of which from 1957 to 1969 were credited for actual work performed. The NYSA-ILA collective bargaining agreement of 1971 and subsequent agreements have provided for a longshoreman to receive Guaranteed Annual Income (“GAI”) benefits under certain conditions. Poggi obtained GAI credits from 1969.

On August 21, 1972, Poggi became employed full-time as an investigator, for the Legal Aid Society and has continued such full-time employment to date. On June 5, 1984, Poggi applied for a disability pension to be paid from the fund, and based on Poggi’s file, the Trustees ratified the Fund Directors’ recommendation that such pension be granted effective July 1, 1984. Pri- or to the July 1, 1984 effective date, Poggi’s eligibility was questioned on the basis of outside employment and payment of the pension was suspended. After confirmation of Poggi’s employment by Legal Aid on August 3, 1984 he was denied his pension.

Poggi appealed his denial, the denial was affirmed on January 6, 1985, and this action followed.

The Facts

Poggi did not file a Rule 3(g) statement and does not contest the defendants’ statement which is thereby undisputed and annexed as Appendix A, constituting the findings of fact.

Conclusions

Simply stated, Poggi’s position is that the NYSLA-ILA Pension Trust and Plan under which the Fund operates contains no provision against outside employment, that the Trustees improperly followed the direction of the contract board, and that section 203 of the Employment Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1053, applied retroactively, shields him from the pre-ERISA break in service provision contained in the pension plan.

Poggi could only qualify for a disability pension if he met each of the following three independent conditions set forth in the pension plan:

1. he was forty years old;
2. he was employed in the industry for a continuous period of fifteen years immediately prior to his application; and
3. he was employed in the industry at the time he became disabled.

In light of the above eligibility requirements, Poggi was not qualified for a disability pension if (1) he was not employed in the industry for fifteen (15) continuous years immediately prior to his application in June of 1984; and (2) he was not employed in the industry at the time he became disabled in 1984; and (3) if by virtue of his pre-ERISA break in service he had no years of credited service at the time he applied for a disability pension.

It is axiomatic that decisions made by trustees of a joint labor-management pension plan should not be reversed unless the trustees have acted in an arbitrary or capricious manner. Building Trades Employers Association v. New York State Teamsters Conference Pension and Retirement Fund, 761 F.2d 115, 117 (2d Cir.1985); Miles v. New York State Teamsters Conference Pension and Retirement Fund, 698 F.2d 593, 599 (2d Cir.), cert. denied, 464 U.S. 829, 104 S.Ct. 105, 78 L.Ed.2d 108 (1983); Lageoles v. Retirement Fund of the Fur Manufacturing Industry, No. 82-7033 (S.D.N.Y. June 25, 1985). Actions of trustees may be arbitrary and capricious if the trustees impose requirements for benefits not required by the particular plan, interpret the plan in a manner inconsistent with the plan’s plain words or interpret the plan in a manner which renders some provisions superfluous. Miles v. New York State Teamsters Conference Pension and Retirement Fund, 698 F.2d at 599. Unless it can be shown that the trustees acted in bad faith, their discretionary decisions should not be disturbed. Id. at 599; Pompano v. Michael Schiavone & Sons, Inc., 680 F.2d 911, 915 (2d Cir.), cert. denied, 459 U.S. 1039, 103 S.Ct. 454, 74 L.Ed.2d 607 (1982). Even in a situation where the trustees and an applicant for benefits offer rational, though conflicting interpretations of the provisions of the plan, the trustees’ interpretation must be upheld. Miles v. New York State Teamsters Conference Pension and Retirement Fund, 698 F.2d at 601.

Poggi’s allegation of capricious and arbitrary conduct is based initially on the fact that at a meeting of the Pension Fund Trustees, the Trustees noted that the NYSA-ILA Contract Board had ordered the suspension of plaintiff’s pension payments. However, it was the Trustees of the Pension Fund who first suspended Poggi’s disability pension on June 26,1984, and reconsidered and denied the application in light of his employment with the Legal Aid Society. It was the Pension Fund Trustees who heard Poggi’s appeal of their initial determination. Finally, it was the Pension Fund Trustees who affirmed their denial of Poggi’s application.

Poggi also contends it was arbitrary and capricious for the Trustees to deny his twenty years of credited service towards his pension resulting from GAI benefits received while employed outside the longshore industry since there was no express prohibition against outside employment in the pension plan. However, the prohibition against outside employment is expressly set forth in the collective bargaining agreement under which the trust was established and specifically states that GAI hours will be applied towards eligibility for all fringe benefits — including pension benefits. Moreover, the Trustees are required to interpret questions of eligibility even if the plan contains no specific provision addressing a particular factor of eligibility.

Here, the Trustees reviewed a unique situation wherein Poggi had received over $232,000 to which it was alleged he was not entitled and that the receipt of benefits determined whether he was entitled to receive a disability pension. It became the Trustees’ obligation and duty as fiduciaries to determine eligibility under the circumstances present in this case. The key legal issue is whether or not § 1053 can be applied retroactively to events which occurred prior to the effective date of ERISA, January 1, 1976.. Section 1053 provides for nonforfeitability of pensions in spite of a break in services. If § 1053 cannot be applied retroactively, then Poggi does not enjoy the protection of § 1053 and his forfeiture of years of credited service on account of his pre-ERISA break in service was not violative of ERISA and Poggi is thus entitled to no pension whatsoever.

Our Court of Appeals has determined that § 1053 cannot be applied retroactively to prevent the termination of a party’s credited service prior to the effective date of ERISA. Haeberle v. Board of Trustees of Buffalo Carpenters, 624 F.2d 1132, 1137 (2d Cir.1980); see also Cohen v. Martin’s, 694 F.2d 296, 298-300 (2d Cir.1982). In Haeberle, the plaintiff alleged that he was wrongfully denied a pension on account of the trustees’ application of a break in service . provision by which plaintiff had forfeited all prior years of credit towards a pension. The trustees ruled that plaintiff had failed to work the requisite number of hours in each year of a three year period from June 1, 1973 to May 31, 1976, thereby suffering a break in service as of May 31, 1976. Under the express provisions of the plan, the trustees determined that plaintiff forfeited all previous credits toward his pension as of May 31, 1976.

The plaintiff in Haeberle claimed that the break in service provision could not be invoked by the trustees because of § 1053, which, according to plaintiff, prevented the trustees from stripping plaintiff of his pri- or years of credited service even though the facts which constituted the break in service occurred prior to the effective date of § 1053. The Court, however, specifically rejected the plaintiff’s claim. It noted that § 1053 becomes binding on a pension plan at the beginning of the plan year that commences after December 31, 1975. Id. at 1137. Thus, § 1053 did not become effective vis-a-vis the pension plan in Haeberle until June 1, 1976, the beginning of the plan year that occurred after December 31, 1975. The court held that § 1053 could not be utilized to protect interests that were terminated prior to the date on which § 1053 became applicable to the pension plan therein:

Appellant’s [plaintiff’s] first claim that he was wrongfully denied ERISA pension benefits to which he was allegedly entitled pursuant to 29 U.S.C. § 1053, is without merit for two reasons. First, the decision of the trustees, properly undisturbed by the District Court, was that plaintiff could not invoke 29 U.S.C. § 1053 since that section did not become effective until June 1, 1976, after plaintiff had forfeited all previously earned pension credits. In Schlansky v. United Merchants & Manufacturers, Inc., 443 F.Supp. 1054 (S.D.N.Y.1977), the court rejected a claim that ERISA’s vesting provision protected the pension rights of an employee who was discharged prior to the effective date of § 1053(a). Id. at 1064. The court’s reasoning that ERISA did not apply retroactively is equally applicable to the instant situation in which Haeberle forfeited all previously earned pension credits on May 31, 1976 — one day prior to the effective date of ERI-SA’s vesting provision. Other courts have uniformly rejected claims seeking to invoke ERISA’s vesting provision when employees’ interests have been terminated prior to the effective date of § 1053(a).

Id. at 1137.

In light of the holding in Haeberle, Poggi herein cannot invoke § 1053 to prevent the forfeiture of his years of service which occurred in 1975. Like the plan in Haeberle, the pension plan herein includes a break in service provision. The provision states that any participant who failed to have 400 hours per year of credited service for a period of more than two years shall forfeit all years of credited service.

Poggi’s last year of credited service was for the period from October 1, 1971 to September 30, 1972. Stripped of his improperly credited GAI hours received after August 21, 1972, he failed to have the hours necessary to obtain a year of credited service in any year thereafter. This conclusion is further supported by the statutory provision which explicitly permits the exclusion of any credit for the years of service prior to the effective date of ERISA which could be excluded “under the rules of a plan with regard to breaks in service, as in effect on the applicable date.” 29 U.S.C. § 1053(b)(1)(F).

The defendants’ cross-motion will be granted, the complaint will be dismissed with costs awarded to the defendants.

IT IS SO ORDERED.