author: COUGHENOR, District Judge.

text:
    James R. WILLIAMS, Plaintiff, v. CITY OF SEATTLE, a municipal corporation, and Patrick Fitzsimons, Chief of Police, and Jane Doe Fitzsimons, his wife, Defendants.
    No. C83-935C.
    United States District Court, W.D. Washington.
    May 2, 1985.

      Richard J. Glein, Clinton, Fleck, Glein & Linville, Seattle, Wash., for plaintiff.
    Douglas N. Jewett, City Atty., Philip Mortenson, Gordon Davidson, Asst. City Attys., Seattle, Wash., for defendants.
   MEMORANDUM DECISION

COUGHENOR, District Judge.

This is a civil rights action brought by plaintiff James R. Williams, a retired police officer with the Seattle (Washington) Police Department (“SPD”), against the City of Seattle, Chief of Police Patrick Fitzsimons, and the marital community of Chief and Mrs. Fitzsimons. Plaintiff alleges that his July 3, 1980 demotion from the rank of sergeant to police officer deprived him of a property interest without due process of law, because he was not afforded a pre-de-motion evidentiary hearing as provided by departmental regulations. Pursuant to 42 U.S.C. §§ 1983 and 1988, plaintiff seeks reinstatement to the rank of sergeant, back pay and corresponding retirement benefits, compensatory and punitive damages, and attorneys’ fees.

I.

This matter came on for trial to a jury on March 25, 1985. Viewing the evidence presented at trial in the light most favorable to plaintiff, and without assessing the credibility of the witnesses, the following facts are established.

On November 30, 1979, Captain William Taylor, of the SPD Internal Investigations Section (“IIS”), received a memorandum from Assistant Chief of Police Vern Thomas, requesting an investigation of allegations that Sergeant Williams used excessive force against a prisoner on November 11, 1979. The allegations were made by four junior officers who claimed to have witnessed all or part of the incident. Without Williams’ knowledge, IIS commenced, on December 4, 1979, an investigation of the allegations. In the course of this investigation, IIS obtained statements from the alleged victim, a lay witness, and the four junior officers who had initiated the complaint. These statements supported the allegations that Sergeant Williams used excessive force.

On January 3, 1980, Sergeant Williams applied for, and was granted, a six-month disability leave from his duties due to severe “cluster headaches” he had suffered daily since October of 1979. The headaches commenced quickly, without warning, and produced incapacitating pain usually lasting from 20 minutes to a few hours. After the initial intense pain dissipated, Williams often continued to suffer a dull ache or soreness of less severity. The severity and frequency of the headaches remained relatively constant before, during, and after his six-month disability leave.

Although Williams was also suffering from hypertension, insomnia, and depression, he was not significantly incapacitated during the periods of time between his cluster headache attacks. Both before and after his disability leave, he performed his official duties despite his condition. When an attack occurred while Williams was on duty, however, he was forced to curb his patrol car and wait for the episode of intense pain to pass.

Williams admits receiving notice of the pending IIS investigation on January 12, 1980, when he received a letter from Lieutenant Cary G. Parkes of IIS. This letter set forth the specific allegations concerning the November 11, 1979, incident, and informed plaintiff that statements from both civilians and officers supported those allegations. The letter also directed Williams to respond, in person or in writing, to IIS with a full statement, as required by Section 1.09.030 of the SPD Manual of Rules and Procedures (1980) (the “Manual ”). Williams was explicitly warned that failure to respond would be a violation subject to disciplinary action and would result in his case being submitted “as is” to department command for disposition.

Upon receipt of the letter from Lieutenant Parkes, Williams telephoned Michael Patrick, President of the Seattle Police Officers’ Guild, and requested that Patrick send a letter to IIS stating that plaintiff was physically unable to respond. Due to a breakdown in communications between Patrick and another representative of the Guild, no letter was sent. Williams made no effort to confirm that Patrick had contacted IIS, and was unaware of any problem in this regard until January 24, 1980.

Despite his daily headache attacks, nothing in the record suggests that Williams was physically unable to personally telephone IIS and request additional time to respond. Undisputed testimony indicates that had he done so, IIS would have endeavored to accommodate that request. Moreover, although Williams’ physician advised him not to get involved in an investigation until the headaches were controlled, Williams was physically and mentally able, on January 12, 1980, to draft a written statement and mail it to IIS as directed, but did not do so.

Had Williams responded to the allegations by January 16, 1980, his explanation of the incident would have been included in the IIS “investigation case file.” However, having received no response from Williams on January 17, 1980, IIS personnel concluded that he did not intend to cooperate in the investigation. True to the warning set forth in Lieutenant Parkes’ letter, IIS deemed Williams’ file completed, despite the absence of any statement from Williams concerning the incident.

Pursuant to the “line review” procedure dictated by SPD Manual § 1.09.040, the IIS file was routed through plaintiff’s chain of command for review and recommendation. At the completion of this process, a-majority of Williams’ commanders recommended a finding of “sustained” on two charges: (1) use of excessive force against a prisoner, and (2) failure to cooperate with a departmental investigation. The IIS file, and the commanders’ recommendations, were then forwarded to Chief Fitzsimons for his review and action.

Chief Fitzsimons determined that the sustained allegation of excessive force against a prisoner warranted the demotion of plaintiff from the rank of sergeant to police officer. Chief Fitzsimons’ decision was based largely on his concern for the bad example Williams, in a supervisory capacity as sergeant, had set for other officers in the SPD. Accordingly, on January 24,1980, Chief Fitzsimons issued Personnel Order No. 80-4, which by its terms purported to demote Williams to the rank of police officer effective immediately.

Williams received a letter from Chief Fitzsimons and an SPD Disciplinary Action Report at his home on January 24, 1980, informing him of the demotion and of his right to a departmental disciplinary hearing on the action. Williams timely returned the Disciplinary Action Report to Chief Fitzsimons, having marked the box indicating his desire to exercise his right to a disciplinary hearing. Although Chief Fitz-simons appointed a Disciplinary Hearing Panel on January 31, 1980, that Panel was disbanded due to Williams’ desire to delay the hearing until his physical condition improved.

On March 3, 1980, plaintiff’s counsel wrote to Chief Fitzsimons, arguing that under governing state statutes the Chief had no authority to demote plaintiff during the period of plaintiff’s disability leave. Upon review of the letter and consultation with counsel for the City of Seattle, Chief Fitzsimons agreed. He thereupon entered Personnel Order 80-16, superseding the previous demotion order and reinstating Williams to the rank of sergeant. However, Personnel Order 80-16 also provided that Williams’ demotion would again become effective at the moment his disability leave terminated.

Williams left disability leave and returned to work on July 3, 1980. Although he could have received a disciplinary hearing prior to this date had he requested one, he chose not to do so because of his health. Williams did request such a hearing on July 3, 1980, and asked the Chief to suspend the demotion until the hearing was held. Despite plaintiff’s plea, Chief Fitzsi-mons carried out the demotion order immediately.

For the first time, Williams gave his statement concerning the November 11, 1979 incident to IIS on July 8, 1980. In early August of 1980, a Disciplinary Hearing Panel conducted an evidentiary hearing on the matter. At that hearing, plaintiff called witnesses in his favor, cross-examined adverse witnesses, presented his explanation of the incident, and was represented by counsel. The Panel voted 3-2 to sustain the allegations of unnecessary force against a prisoner and failure to cooperate with a departmental investigation. The Panel recommended, however, that Williams be reinstated to the rank of sergeant. Chief Fitzsimons reviewed the Panel findings and recommendation, and confirmed his demotion order on August 22, 1980.

Williams appealed his demotion to the Seattle Public Safety Civil Service Commission, and participated in an evidentiary hearing before that body. On October 22, 1980, the Commission sustained both allegations of misconduct, and found that the demotion was “made in good faith for cause.” Williams did not seek judicial review of the Commission’s decision in the state courts. He filed the present action on July 1, 1983.

II.

At the close of the plaintiff’s case, and again at the completion of all the evidence, defendants moved for a directed verdict pursuant to Fed.R.Civ.P. 50(a). Defendants contended that the evidence established plaintiff had received all process constitutionally due prior to his demotion on July 3, 1980. Upon consideration of the evidence, the Court found no factual dispute regarding the process afforded plaintiff prior to his demotion. Defendants’ motions therefore turned upon the legal question of what process was due.

The Court denied both motions without prejudice. At the close of the evidence, the Court instructed the jury that plaintiff had been wrongfully denied an evidentiary hearing prior to his demotion, and that plaintiff was to be compensated for any mental or emotional distress he may have suffered as a result. Final determination of the process due plaintiff under the Due Process Clause was reserved pending the jury’s verdict.

The jury returned a verdict in favor of plaintiff in the amount of $10,000. Defendants now move for judgment notwithstanding the verdict, again maintaining that plaintiff received all process constitutionally due.

III.

Plaintiff’s sole claim in this § 1983 action is' that his federal constitutional right to due process was violated when he was demoted without having first been afforded a disciplinary hearing as required by the SPD Manual. Williams did have a constitutionally protected property interest in continued employment as an SPD sergeant. However, as will be demonstrated below, Williams has mistakenly equated his pre-demotion procedural entitlements under departmental regulations with that process constitutionally due him under the Due Process Clause. Because the Court concludes that Williams was afforded all process constitutionally due prior to his demotion, his claim for relief under § 1983 must fail.

Williams relies on Punton v. Seattle Public Safety Commission, 32 Wash.App. 959, 650 P.2d 1138 (1982), petition for review denied, 98 Wash.2d 1014 (1983), for the proposition that violation of his right under the Manual to a pre-demotion disciplinary hearing gives rise to a prima facie deprivation of due process. In Pitnton, the Court of Appeals of Washington reviewed the claim of another Seattle police officer that his termination from the SPD was constitutionally invalid because it was not preceded by a disciplinary hearing. 32 Wash.App. at 961, 650 P.2d at 1139. Upon analysis of the identical SPD Manual at issue in this case, and the collective bargaining agreement between the City of Seattle and the Seattle Police Officers’ Guild, the court concluded that Officer Punton was indeed entitled to a pretermination disciplinary hearing under Manual § 1.09.-040.

Punton came before the Court of Appeals of Washington as an action for judicial review of the Seattle Public Safety Civil Service Commission’s affirmance of Officer Punton’s termination. Having concluded that the Manual entitled Officer Punton to a pretermination hearing which he did not receive, the court could have resolved the case on nonconstitutional grounds, holding that the Chief had not effected the termination in the “mode required by law.” Wash.Rev.Code.Ann. § 7.16.120(2) (1961); See Punton, 32 Wash.App. at 965, n. 5, 650 P.2d at 1142. Instead, the court engaged in a federal constitutional analysis of the termination. The court found that the disciplinary hearing procedures required by the Manual constituted “substantive” elements of Officer Punton’s property interest because they limited the Chief’s pre-hearing authority to ordering suspension of the officer. Punton, 32 Wash.App. at 968, 650 P.2d at 1143. Concluding that the failure to follow such procedures “could logically be analyzed as an infringement of a ‘property’ right,” the court held that violation of the procedures gave rise to a -prima facie deprivation of due process. Id. at 967-68, n. 6, 650 P.2d at 1143.

This analysis is misguided. The Due Process Clause protects certain substantive rights — life, liberty, and property — from deprivation except pursuant to constitutionally adequate procedures. Cleveland Board of Education v. Loudermill, — U.S. -, -, 105 S.Ct. 1487, 1493, 84 L.Ed.2d 494 (1985); See U.S. Const. amend XIV, § 1. “The categories of substance and procedure are distinct.” Loudermill, — U.S. at -, 105 S.Ct. at 1493. Procedural rules which impose substantive limitations on the discretion of the decisionmaker are not themselves “property” interests. Rather, such procedures are at most a means by which constitutionally protected interests in substantive entitlements may be created. See, e.g., Goodisman v. Lytle, 724 F.2d 818, 820-21 (9th Cir.1984) (tenure); Parks v. Watson, 716 F.2d 646, 656-57 (9th Cir.1983) (street vacation); Jacobson v. Hannifin, 627 F.2d 177, 180 (9th Cir.1980) (gaming license); But see Loudermill, — U.S. at -, 105 S.Ct. at 1493 (property cannot be defined by the procedures provided for its deprivation).

The constitutionally protected interest in this case is Williams’ substantive property right in continued employment as an SPD sergeant, absent good cause for demotion or discharge. See Seattle Municipal Code § 4.08.100 (1980). The process constitutionally due Williams prior to deprivation of that property interest is determined not by the procedures set forth in the SPD Manual, but rather by the requirements of the Due Process Clause. Loudermill, — U.S. at -, 105 S.Ct. at 1493.

The “root requirement” of the Due Process Clause is that a deprivation of property be preceded by notice and opportunity for hearing appropriate to the nature of the ease. Loudermill, — U.S. at -, 105 S.Ct. at 1493; Board of Regents v. Roth, 408 U.S. 564, 569-70, 92 S.Ct. 2701, 2705-06, 33 L.Ed.2d 548 (1972). The specific dictates of due process are determined by balancing the competing interests at stake in the particular case. Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976). In public employment cases such as this, these interests are (1) plaintiffs private interest in retaining his position of employment, (2) defendants’ governmental interest in expeditious removal or demotion of unsatisfactory employees and in avoidance of administrative burdens, and (3) the risk of erroneous deprivation. Loudermill, — U.S. at -, 105 S.Ct. at 1493; See Mathews, 424 U.S. at 335, 96 S.Ct. at 903.

In the recent Loudermill decision, the Supreme Court considered the process due two Ohio public employees — a security guard and a bus driver — prior to their termination by the defendant school boards. Under Ohio law, the employees could be terminated only for cause, and were entitled to full post-termination evidentiary hearings and judicial review. After balancing the competing interests, the Court concluded that pre-deprivation process in public employment cases need not definitely resolve the propriety of the employer’s action. Loudermill, — U.S. at -, 105 S.Ct. at 1494. Rather, the pre-deprivation process must simply provide an “initial check against mistaken decisions — essentially, a determination of whether there are reasonable grounds to believe that the charges against the employee are true and support the proposed action.” Id. The Court held that where a prompt post-deprivation evidentiary hearing is available, due process requires only that the employee be afforded notice of the charges, an explánation of the employer’s evidence, and an opportunity to present “his side of the story” prior to the deprivation. Id. A pre-deprivation evidentiary hearing is not constitutionally mandated. Id.

Analysis of the three competing interests at stake in the present case confirms that Williams was not constitutionally entitled to an evidentiary hearing prior to his demotion from the rank of sergeant to police officer. . Williams’ private interest in retaining his rank, from a “property” standpoint, is the difference in pay and benefits between sergeants and police officers in the SPD. Although the loss of several hundred dollars in pay per month is substantial, it is less compelling a deprivation than that experienced by the terminated employees in Loudermill. Given the availability of a post-demotion evidentiary hearing within a few months of the deprivation, the pre-hearing financial loss suffered by plaintiff does not justify process beyond that which the Loudermill court deemed due.

The governmental interest, on the other hand, is stronger in this case than in Loud-ermill. The ability of the Chief of Police to maintain the discipline, morale, and effectiveness of the department depends, in no small part, on his demonstration of prompt and direct disciplinary action against supervisory personnel who engage in misconduct. Although these concerns do not entirely excuse the Chief from affording supervisory personnel a pre-disci-pline opportunity to be heard, it does suggest that the extent of pre-discipline process need not be elaborate.

Finally, the insubstantial risk of erroneous disciplinary action by the Chief under the facts of this case also weighs against Williams’ claim of a constitutional entitlement to a pre-demotion evidentiary hearing. Given the extensive IIS investigation — in which Williams had an opportunity to participate by submitting his statement — and the "line review” conducted by Williams’ chain of command prior to submission of the case to Chief Fitzsimons for disposition, the risk of erroneous action by the Chief was slight. Plaintiff’s characterization of these procedures as “summary” ignores the extent of the department’s efforts to discern the facts of the incident in question. The Court cannot conclude that a pre-demotion evidentiary hearing would reduce the likelihood of erroneous action by the Chief to a constitutionally significant degree.

These factors compel the Court to conclude that Williams, like the public employees in Loudermill, was constitutionally entitled only to notice of the charge, an explanation of the evidence against him, and an opportunity to respond prior to the Chief’s disciplinary decision. The undisputed facts of this case indicate that plaintiff received all such process prior to the Chief’s entry of the first demotion order on January 24, 1980. The letter from Lieutenant Parkes of IIS, received by plaintiff at his home on January 12, 1980, fully explained the allegations of excessive force used against a prisoner, and indicated the source of those allegations. The letter further informed Williams of his opportunity, and indeed obligation, to respond to those allegations by January 16, 1980, and the consequences for failing to do so. Having received no response from Williams by January 17, 1980, the IIS appropriately concluded Williams did not wish to participate in the investigation, and forwarded the file for line review and disposition by Chief Fitzsi-mons.

Nothing in the facts of this case excuses Williams’ failure to respond to IIS as directed. Despite Williams’ argument to the contrary, the Court can find no support for the proposition that a policeman on disability leave is somehow “immunized” from his obligation to cooperate with an IIS investigation, if directed to do so. At a minimum, Williams had a personal, non-delegable duty to respond to IIS and request deferral of his participation in the investigation pending improvement of his physical condition. That Williams relied on the Police Officers’ Guild to contact IIS on his behalf does not turn the department’s good-faith completion and disposition of the investigation into a denial of due process. Williams was afforded the opportunity to respond prior to the Chief’s disciplinary decision. Through no fault of the department, he failed to do so.

The Court notes with interest that at no time prior to July 3, 1980, did Williams offer to provide a statement to IIS regarding the incident in question. According to his own testimony, Williams suffered the same physical condition after that date as during his disability leave. Apparently, he concluded — erroneously—that he was free of any departmental obligations while on disability leave.

In summary, the evidence establishes beyond dispute that Williams was afforded notice of the charges, an explanation of the evidence, and an opportunity to respond prior to the Chiefs decision to demote Williams from sergeant to police officer. Due process required nothing more. That Williams’ demotion was not preceded by an evidentiary hearing as required by the SPD Manual does not change this result. Accordingly, his constitutional claim for relief under § 1983 must be denied, and defendants’ motion for judgment notwithstanding the verdict must be GRANTED.

The Clerk of this Court is directed to enter Judgment in favor of defendants dismissing this action with prejudice.

The Clerk is further directed to send uncertified copies of this Memorandum Decision and of the Judgment to all counsel of record.

      . The evidence must be considered in this fashion because this matter is before the Court on defendants’ motion for judgment notwithstanding the verdict. William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014, 1026 (9th Cir.1981), cert. denied, 459 U.S. 825, 103 S.Ct. 57, 74 L.Ed.2d 61 (1982).

      . A factual dispute exists over whether Sergeant Williams became aware of the pending IIS investigation prior to applying for disability leave on January 3, 1980. Defendants contend that Williams was notified of the investigation on January 2, 1980, by means of an IIS memorandum delivered to Williams' station house mailbox. Williams denies ever receiving this memorandum, and contends it is merely a coincidence that he applied for disability leave the day after IIS attempted to notify him of the investigation. For purposes of the present motion, the Court accepts Williams' version of these events.

      . Apparently cognizant of plaintiffs disability status, Lieutenant Parkes informed plaintiff of his right to respond to IIS by mail, if, due to his present condition, plaintiff was unable to respond in person.

      . Plaintiff has never contended, and the evidence does not suggest, that the demotion decision was motivated by any personal animosity harbored against plaintiff by Chief Fitzsimons.

      . Wash.Rev.Code Ann. § 41.26.120 (1984) provides, in pertinent part, as follows:
      No disability retirement allowance shall be paid until the expiration of a period of six months after the discontinuance of service during which period the member, if found to be physically or mentally unfit for duty ... shall receive an allowance equal to his full monthly salary.... However, if, at any time during the initial six-month period, the disability board finds the beneficiary is no longer disabled, his disability leave allowance shall be canceled and he shall be restored to duty in the same rank or position ... held ... at the time he became disabled.

      . As the "appointing authority,” Chief Fitzsi-mons is not bound by the recommendations of the Disciplinary Hearing Panel. See Manual of Rules and Procedures § 1.09.030(2)(a) (1980). The Chief’s final disciplinary action is subject to review by the Seattle Public Safety Civil Service Commission, which determines whether the action was "made in good faith for cause.” See Seattle Municipal Code § 4.08.100 (1980).

      . Because plaintiff's demotion was upheld by the Seattle Public Safety Civil Service Commission after a full evidentiary hearing, plaintiff was potentially entitled only to compensation for actual harm resulting directly from the failure to accord him a pre-demotion evidentiary hearing. See Jones v. Los Angeles Community College District, 702 F.2d 203, 207 (9th Cir.1983); Vanelli v. Reynolds School District No. 7, 667 F.2d 773, 781 (9th Cir.1982). Although plaintiff contested the fairness of that hearing, the evidence was totally insufficient to sustain such a charge.

      . The court reached this conclusion despite language in the collective bargaining agreement providing that "notwithstanding the hearing procedure enumerated ... it is understood that if deemed appropriate by the Chief ... discipline or discharge may be implemented immediately." See Trial Exhibit A-l. This Court has serious reservations about the analysis employed in Punton to subjugate the collective bargaining agreement to the Manual, inasmuch as the Manual apparently was drafted to effectuate the terms of the collective bargaining agreement. However, because the issue is one of state law, the Court defers to the Punton decision in this regard.

      . Although property interests “are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law,” Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972), federal constitutional law determines whether those interests are protected by the Due Process Clause. Memphis Light, Gas and Water Division v. Craft, 436 U.S. 1, 9, 98 S.Ct. 1554, 1560, 56 L.Ed.2d 30 (1978). Thus, the Punton court’s charácterization of the hearing procedures as a substantive property interest is not controlling.

      . Plaintiff has not alleged deprivation of a liberty interest.

      . Although the letter did not specifically advise plaintiff that he could be demoted if the allegations were sustained, abusive treatment of prisoners is identified as sufficient cause for demotion and discharge in Rule 13 of the Seattle Public Safety Civil Service Ordinance (1980). Plaintiff has never denied knowledge of the potential disciplinary consequences of prisoner abuse.


source: Caselaw Access Project

author: LYNCH, District Judge.

license: Public Domain

text:
    GIBRALTAR BUILDING AND LOAN ASSOCIATION, INC., a Maryland corporation, Plaintiff, v. STATE SAVINGS AND LOAN ASSOCIATION, a Utah corporation, Investment Mortgage International, Inc., a California corporation, and J. William Oldenburg, Defendants.
    No. C-85-1469 EFL.
    United States District Court, N.D. California.
    May 2, 1985.
    James E. Burns, Jr., Brobeck, Phleger & Harrison, San Francisco, Cal., for plaintiff.
    Michael Traynor, Cooley, Godward, Castro, Huddleson & Tatum, Samuel R. Miller, Morrison & Foerster, San Francisco, Cal., for defendants.
   ORDER RE WRIT OF ATTACHMENT

LYNCH, District Judge.

This motion is before the Court on the plaintiffs ex parte application for a right to attach order and for a writ of attachment.

The plaintiff, Gibraltar Building and Loan Association, Inc. (“Gibraltar”), filed suit on February 8, 1985 against State Savings and Loan Association (“State Savings”), Investment Mortgage International (“IMI”) and J. William Oldenburg. Gibraltar’s complaint charged the defendants with fraud and breach of contract arising from a loan participation agreement entered into by the parties in 1984.

On March 19, 1985, Gibraltar applied for a right to attach order and a writ of attachment or, alternatively, a temporary protective order. The Court granted the plaintiffs request for a protective order. That order prohibited State Savings from transferring any interest in the property covered by the participation agreement and required the defendant bank to segregate those payments from the property’s mortgages and Deeds of Trust. Such payments could not be transferred or made unavailable to levy except as provided by law or other Court order.

On April 12, 1985, the Federal Home Loan Bank Board (“FHLBB”) appointed the Federal Savings and Loan Insurance Corporation (“FSLIC”) as receiver for State Savings pursuant to 12 U.S.C. section 1729(c)(l)(B)(i)(I). As of that date, FSLIC took possession of title to all assets of State Savings. In addition to succeeding to State Saving’s property, FSLIC was empowered under 12 U.S.C. section 1729(c)(1)-(B)(i)(II) to exercise specific receivership powers, including liquidation of assets. See 12 U.S.C. § 1729(b)(l)(A)(v).

FSLIC has elected to liquidate State Savings. It has already transferred the bank’s accounts to two FSLIC-insured institutions and is proceeding expeditiously to liquidate State Saving’s remaining assets.

Five days after the receivership began, the plaintiff Gibraltar filed a second ex parte application to attach the stream of income associated with nine separate properties held by State Savings. This is the application now before the Court. The Court considers this request as a new writ of attachment, not merely an extension of its prior protective order. Seven of the nine properties from which the plaintiff now seeks to attach income were not mentioned in the Court’s March 19 (pre-receiv-ership) order. The vastly expanded scope of this new request makes it impossible for the Court to view this motion as simply a modification or clarification of its earlier order.

The plaintiff Gibraltar, therefore, asks this Court to enter a protective order or writ of attachment against FSLIC, as receiver for State Savings, on that income derived from nine different properties held by the defendants. Such a post-receiver remedy is expressly prohibited by statute. See North Mississippi Savings and Loan Association v. Hudspeth, 756 F.2d 1096, 1103 (5th Cir.1985) (“[WJhere the relief requested would interfere with ... the effect of any exercise of receivership power, the suit must be dismissed in favor of administrative proceedings before the FHLBB.”). As stated in 12 U.S.C. section 1464(d)(6)(C), Congress has prohibited this Court from taking any judicial action in this situation that would impair or effect FSLIC’s power as receiver. Specifically, as to pre-judgment writs of attachment, 12 U.S.C. section 1730(k)(l) bars this Court from issuing any orders or writs of attachment against FSLIC or its property before final judgment in any action.

To avoid judicial interference that might hinder the ability of FSLIC to act quickly and decisively in liquidating State Savings, the Court declines to grant plaintiff the relief sought here. As the plaintiff’s underlying complaint, however, goes to the pre-receivership conduct of the defendants, the legal determination of the debt due under this participation agreement may be judicially established. North Mississippi, 756 F.2d at 1102. The issue of whether this Court has jurisdiction to make such a determination is not yet before it.

Plaintiff’s motion for an order and writ of attachment and for an extension of the protective order is denied.

IT IS SO ORDERED.

      . The single exception to this general prohibition permits an association in receivership to file suit in federal district court to challenge the FHLBB’s appointment of a conservator or receiver. 12 U.S.C. § 1464(d)(6)(A).

      . The Court rejects plaintiffs argument that "Corporation” as defined within section 1730(k)(l) does not include FSLIC when it is acting as a receiver, but instead applies only to the agency in its individual capacity as an insurer. See, e.g., Hancock Fin. Corp. v. Fed. Sav. and Loan Ins. Corp., 492 F.2d 1325 (9th Cir.1974).


author: FOREMAN, Chief Judge:

text:
    Bob ODOM, Plaintiff, v. TERMINAL RAILROAD ASSOCIATION OF ST. LOUIS, a corporation, Defendant.
    Civ. No. 84-3336.
    United States District Court, S.D. Illinois.
    May 2, 1985.

      Cornelius T. Ducey, Sr., Ducey, Feder & Ducey, Ltd., Belleville, Ill., for plaintiff.
    Timothy S. Richards and Richard M. Roessler, Gundlach, Lee, Eggmann, Boyle & Roessler, Belleville, Ill., for defendant.
   MEMORANDUM AND ORDER

FOREMAN, Chief Judge:

Before the Court is plaintiffs Motion to Remand (Document No. 6). On August 15, 1984, plaintiff filed a one count Federal Employers’ Liability Act (FELA) complaint in the Circuit Court, Twentieth Judicial Circuit, St. Clair County, Illinois against his employer for damages resulting from exposure to excessive noise. On October 31, 1984, the plaintiff amended his complaint to allege two counts of retaliatory discharge stemming from his filing of the original complaint. On November 5, 1984, the defendant removed the case on the grounds that the retaliatory discharge claims were federal question claims justifying removal. The plaintiff now seeks remand arguing that the FELA claim is not removable and that the retaliatory discharge claims are based on an independent state tort which does not fall within this Court’s federal question jurisdiction and therefore neither in its removal jurisdiction.

Initially, the Court notes that the plaintiff is correct in his assertion that the FELA claim is not removable. Under 28 U.S.C. § 1445(a), actions brought against a railroad or its receiver in state court for damages for injury to railroad employees under the FELA, 45 U.S.C. § 51 et seq., may not be removed. Kansas City, S.R. Co. v. Leslie, 238 U.S. 599, 35 S.Ct. 844, 59 L.Ed. 1478 (1915). Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3729. Here the plaintiff’s negligence claim against his former railway employer is clearly one recognized under and brought pursuant to the FELA.

However, this does not end the Court’s inquiry since the plaintiff has joined two retaliatory discharge claims against his employer which do not fall with the province of the FELA. The defendant contends that the plaintiff’s joinder of these two claims with the FELA claim, triggers the provisions of 28 U.S.C. § 1441(c). This section states that:

Whenever a separate and independent claim or cause of action, which would be removable if sued upon alone, is joined with one or more otherwise non-removable claims or causes of action, the entire case may be removed and the district court may determine all issues therein, or, in its discretion, may remand all matters not otherwise within its original jurisdiction.

The defendant argues that the retaliatory discharge claims are separate and independent and would be removable if sued upon alone. Therefore, the defendant contends that the Court may retain jurisdiction over all of the claims.

The Court agrees with the defendant that the two retaliatory discharge claims are separate and independent from the FELA claim. See Lewis v. Louisville & Nashville Railroad Co., 758 F.2d 219 (7th Cir.1985). The plaintiff alleges two wrongs: one stemming from the negligence; the other stemming from the bringing of the negligence claim.

The Court does not agree however, that the retaliatory discharge claims would be removable if sued upon alone. The defendant submits that these claims present a federal question since the employment context in question here is governed by the Railway Labor Act. However, the plaintiff has not brought the retaliatory discharge claims pursuant to the Railway Labor Act, but rather bases these claims on an independent state tort action for retaliatory discharge. To support the assertion of these claims the plaintiff cites the recent case of Midgett v. Sackett-Chicago, Inc., 105 Ill.2d 143, 85 Ill.Dec. 475, 473 N.E.2d 1280 (1984), in which the Illinois Supreme Court, in a non-railway labor case, held that a wrongfully discharged employee is not limited to his contractual remedies, but could bring a state tort action for retaliatory discharge.

The defendant, on the other hand, contends that while Illinois may recognize an independent state tort for retaliatory discharge in other labor contexts, the detailed provisions of the Railway Labor Act preempt any state tort for retaliatory discharge in the railway context. The Court agrees that the Railway Labor Act preempts any state tort for retaliatory discharge. In Jackson v. Consolidated Rail Corp., 717 F.2d 1045 (7th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 1000, 79 L.Ed.2d 233 (1984) the Seventh Circuit, in a case very similar to the one before this Court, held that exclusive administrative remedies established by the Railway Labor Act preempted any state court action for retaliatory discharge. Likewise in Daughtery v. Lucky Stores, Inc., 603 F.Supp. 975 (C.D.Ill.1985), the court, while holding that the National Labor Relations Act did not preempt a state tort for retaliatory discharge, recognized that the Railway Labor Act provides a stronger case for preemption than the NLRA.

Holding that such a preemption exists, however, still does not end the Court’s inquiry. Generally, it is improper to invoke federal question removal jurisdiction via a defense such as preemption. See Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3722 and the cases cited therein. But “where the pre-emptive effect of federal legislation is so complete as to exclude from application all state law on the subject, a case is removable regardless of the manner in which it has been alleged in the state court.” Oglesby v. RCA Corporation, 752 F.2d 272, 276 (7th Cir.1985) (citing Avco Corporation v. Aero Lodge No. 735, 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968)). The preemption in question here is not based on federal protection of the conduct in question, in which case the state court would be required to apply federal law, but rather is based on preemption that relates to the subject matter jurisdiction of both this Court and the state court from which this case was removed. Therefore, the preemption effect is complete as contemplated in Oglesby.

Unfortunately for the defendant, not only do the provisions of the Railway Labor Act completely preempt a state tort for retaliatory discharge in a railway context, it provides the exclusive remedy for the claims. This point must be analyzed in light of the fact that this Court’s removal jurisdiction is “derivative” in nature, meaning that the Court acquires jurisdiction from the state court from which the claims were removed. In other words, if the state court lacks jurisdiction over the subject matter, the federal court cannot acquire jurisdiction on removal. People v. State of Ill. v. Kerr-McGee Chemical Corp., 677 F.2d 571, 575 (7th Cir.), cert. denied, 459 U.S. 1049, 103 S.Ct. 469, 74 L.Ed.2d 618 (1982). See also Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3722. Here, the defendant argues correctly that the retaliatory discharge claims are within the exclusive jurisdiction of the National Railway Adjustment Board. Hence, the Illinois court lacked jurisdiction over these claims, and under the derivative jurisdiction doctrine, this Court could not maintain removal jurisdiction over them. As such, they would not be removable claims as contemplated by § 1441(c). Further, this Court must dismiss these claims for lack of jurisdiction rather than remand them back to the state court.

Accordingly, the plaintiff’s Motion to Remand is GRANTED IN PART AND DENIED IN PART. Count I of plaintiff’s complaint is hereby remanded to the Twentieth Judicial Circuit, St. Clair County, Illinois. Counts II and III of plaintiff’s complaint are hereby DISMISSED.

IT IS SO ORDERED.


author: WARREN, District Judge.

text:
    Seymour PIKOFSKY, Alan Lever, Michael Lever, Jack Lever and Celia Lever, Plaintiffs, v. JEM OIL, d/b/a Jem Oil Partnership, Olav E. Jore and Howard Mann, Defendants.
    No. 83-C-1637.
    United States District Court, E.D. Wisconsin.
    May 2, 1985.

      Donald A. Schoenfeld, Habush, Habush & Davis, Milwaukee, Wis., for plaintiffs.
    James Dries, Philipp & Sletteland, Milwaukee, Wis., for defendant O.E. Jore.
    R. Edward Yeltman, Jr., Crain, Cooksey, Veltman & Pursell, Ltd., Centraba, Ill., for defendant H. Mann.
   DECISION AND ORDER

WARREN, District Judge.

There are three motions presently before the Court in this matter — the motion of defendant Howard Mann for a change of venue, the motion of plaintiffs for the entry of default judgment, and the motion of defendant Howard Mann to dismiss the plaintiffs’ complaint for failure to state a claim upon which relief can be granted. The Court, having carefully considered the merits of these several motions, concludes, for the reasons articulated herein, that each must be denied.

BACKGROUND

This action was initiated on September 23, 1983, when the plaintiffs, all citizens of the State of Wisconsin, filed their complaint alleging principally that the defendants, an Illinois partnership and its two chief executive officers, induced them to invest in certain “working interests” in Illinois oil wells, to their eventual financial damage. Specifically, the complaint states that, between October and December of 1981, plaintiffs Seymour Pikofsky, Alan Lever, and Michael Lever entered into a series of agreements with defendant Jem Oil for the purchase of interests in wells numbered 701, 702, and 703; similarly, plaintiffs Jack Lever and Celia Lever purportedly executed an agreement with Jem Oil on or about May 27, 1982, for the purchase of a working interest in well number 704. Subsequently, based on representations allegedly made by the defendants with respect to the presence of commercial quantities of oil in the subject wells, all plaintiffs purchased additional working interests.

The gravamen of the complaint is that the defendants made material misrepresentations with respect to the commercial profitability of the Illinois oil wells to induce the plaintiffs’ investments; that the defendants provided no substantive information about those wells with the exception of a certain drilling prospect report sent to the plaintiffs on or about May 13, 1982; and, significantly, that the defendants failed to warn of substantial dangers and problems attendant upon oil and gas drilling, potentially affecting the profitability of the investments. Despite the defendants’ alleged misrepresentations regarding the financial return on the working interests purchased and the lack of any need for further payments, the wells are either not producing to expected levels or require investments of additional funds to cover expenses, or so the plaintiffs charge.

Alleging violations of Section 12(2) of the Securities Act of 1933, 15 U.S.C. § I'll; Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; and Wis.Stat. § 551.01 et seq., the plaintiffs further contend that the defendants have failed to register the securities offerings with the appropriate federal and state agencies or to obtain registration exemptions; that the defendants engaged in reckless and intentional misconduct in making material omissions and misstatements of fact with respect to the sale of the working interests; and that, as a result of their lack of sophistication and consequent reliance on the materially significant misrepresentations by the defendants, the plaintiffs collectively suffered damages totaling $58,000.00. By the ad damnum clause of their complaint, the plaintiffs also seek punitive damages in the amount of one million dollars, attorneys’ fees and costs, and such other relief as the Court may deem just and equitable.

On November 15, 1983, defendant Olav E. Jore filed his answer to the complaint, denying all material allegations incorporated therein and raising six affirmative defenses — among them, that the plaintiffs’ claims are barred by certain legal and equitable doctrines, including assumption of risk, contributory negligence, estoppel, and laches; that the plaintiffs knew or should have known of any alleged misrepresentations which were, in any event, immaterial to the transactions upon which this action is premised; and that, as one of the three named defendants, he had no knowledge of the purported untruths or omissions and thus played no causative role in the infliction of any injuries suffered by the plaintiffs. Contending that the plaintiffs’ prayer for punitive damages is inappropriate under the circumstances of this action, this defendant seeks judgment dismissing the complaint and awarding him appropriate costs and fees.

On December 15, 1983, nearly three months after the filing of the plaintiffs’ complaint, defendant Howard Mann interposed a motion for transfer of venue to the United States District Court for the Southern District of Illinois. In summary support of his petition, this movant argues that all of the defendants reside in Centra-ba, Illinois, and maintain no residences or offices in Wisconsin; that the transactions upon which this lawsuit are based occurred in the Southern District of Illinois; and that the subject oil wells and all relevant records are located in that region.

Some two months later, on February 14, 1984, the plaintiffs moved for the entry of default judgment against defendant Mann on the basis of his purported failure to answer or enter any appearance in this matter. Invoking the relevant prerequisites to securing relief under Rule 55(b)(2) of the Federal Rules of Civil Procedure, the plaintiffs seek judgment against this defendant for the total amounts of compensatory and punitive damages requested in their complaint, plus interest, reasonable attorneys’ fees, and the costs incurred in the prosecution of the action.

In the wake of these cross-motions for the transfer of venue and the entry of default judgment, the Court conducted a brief status hearing on April 12, 1984. At that time, the Court established a briefing ■schedule on the plaintiffs’ Rule 55(b)(2) petition and indicated that it would schedule further proceedings in this matter, as appropriate, in its order resolving the pending motions.

Pursuant to the established filing deadline, the plaintiffs, on April 23, 1984, filed a memorandum in opposition to the motion for a change of venue and in support of the entry of default judgment against defendant Mann. In their brief, the plaintiffs contend, at the outset, that the request for transfer of venue should be dismissed for failure to comply with Local Rule 6.01, requiring that every motion be accompanied by either a supporting brief and appropriate affidavits or a certificate that the moving party does not intend to file such supporting documents. Based on this procedural deficiency, the plaintiffs ask that the motion be summarily denied and default judgment entered.

In substantive response to the request for transfer of this matter to the Southern District of Illinois, the plaintiffs confess to some confusion as to whether the motion is brought under 28 U.S.C. § 1404(a), authorizing transfer of cases based on the convenience of parties and witnesses and in the interest of justice, or under 28 U.S.C. § 1406(a), mandating dismissal or transfer upon a finding that the action is improperly venued in the original forum. Construing the present motion as a request for transfer under § 1404(a), the plaintiffs urge denial of the motion

on the basis of improper presentation. Under FRCP 12(b), all affirmative defenses must be raised by Answer except those specifically enumerated in that subsection. Among others, the only enumerated exception which is relevant is under FRCP 12(b)(3) which allows the matter of improper venue to be raised by motion in lieu of an Answer....

Plaintiffs’ Memorandum of Law at 5 (April 23,1984). Since defendant Mann has not filed a formal answer to the complaint, the request for entry of default judgment against him should be granted, or so the plaintiffs conclude.

Parenthetically, the plaintiffs contend that, since defendant Mann has failed to assert any facts demonstrating the impropriety — as opposed to mere inconvenience — of venue in this district, the petition for transfer should not be resolved pursuant to 28 U.S.C. § 1406(a). In any event, the movants have appended to their memorandum the affidavit of plaintiff Seymour Pikofsky, arguably establishing a sufficient basis upon which to conclude that the claim arose in the State of Wisconsin and that venue in this district is therefore proper. On this alternative assumption that the defendants’ motion will,, indeed, be construed as a request for relief under § 1406(a), the plaintiffs seek an order of the Court requiring that an answer be filed forthwith and establishing dates for further proceedings in this action.

In the final volley of pretrial motions, defendant Mann, on May 21, 1984, filed a petition to dismiss each of the four counts of the plaintiffs’ complaint on the basis that none fails to state a claim upon which relief can be granted. Presumably invoking Rule 12(b)(6) of the Federal Rules of Civil Procedure, the movant contends, among other things, that the plaintiffs have failed to allege excusable ignorance of the purported misrepresentations; that the alleged omissions partake of general risks attendant upon any investment in the oil industry; that the plaintiffs have failed to assert the material significance of any purported misstatements or that they reasonably relied on them to their detriment; and, in any event, that paragraph 17 of the standard purchase agreement — establishing the Illinois statutes as the body of law governing any transactions between the parties — effectively precludes the plaintiffs from asserting violations of Wisconsin state law. Based on these summary arguments, defendant Mann seeks dismissal of all causes of action against him.

As indicated by the Court’s description of the rather troubled procedural history of this case to date, only the pending motion for transfer of venue has been fully briefed pursuant to Local Rule 6.01; to date, defendant Mann has not submitted a brief in opposition to the request for the entry of default judgment against him, nor have the plaintiffs noticed any formal opposition to this defendant’s dismissal request. Because the Court construes the parties’ respective silence as waivers of their rights to argue further the merits of the pending motions, it now resolves these outstanding matters based solely on the record as compiled to date and recounted above.

DEFENDANT MANN’S MOTION FOR TRANSFER OF VENUE

As the plaintiffs accurately observe, a party to a civil action may properly move for a change of venue under either 28 U.S.C. § 1404(a) or 28 U.S.C. § 1406(a). Pursuant to § 1404(a), the federal trial courts are empowered to “transfer any civil action to any other district or division where it might have been brought” based on “the convenience of the parties and witnesses, in the interest of justice....” The plain purpose of § 1404(a) is to prevent the needless expenditure of time, energy, and money and to protect the litigants, witnesses, and the public at large against unnecessary inconvenience and expense. Monihen v. Oliver Machinery Company, 502 F.Supp. 36, 38 (E.D.Pa.1980).

The burden of establishing that an action should be transferred under this statute rests squarely on the movant. GTE Sylvania, Inc. v. Consumer Products Safety Commission, 438 F.Supp. 208, 210 (D.Del.1977). While it is generally recognized that the plaintiff’s choice of forum is to be favored in resolving disputes under 28 U.S.C. § 1404(a), Burbank International, Limited v. Gulf Consolidated International, Inc., 441 F.Supp. 819, 822 (N.D.Tex.1977), the trial judge may also consider other factors subsummed by the broad, remedial purpose of the statute — among them, the convenience of the parties’ witnesses, the ease of access to relevant sources of proof, the availability of compulsory process to compel the attendance of unwilling witnesses, the amount of expense for willing witnesses, the relative congestion of calendars of potential transferee and transferor courts, and other practical aspects related to the expeditious and convenient conduct of the trial. Securities and Exchange Commission v. Page Airways, Inc., 464 F.Supp. 461, 463 (D.D.C.1978). In assessing the merits of a § 1404(a) request, the district court is vested with broad discretion to weigh all relevant factors and to determine if, on balance, the action would proceed more expeditiously and the ends of justice be better served if transfer were effected. Kline v. Consolidated Rail Corporation, 461 F.Supp. 326, 327 (E.D.Pa.1978).

Based on the considerations advanced by defendant Mann in support of his motion for a change of venue — namely, the location of the defendants’ residences and the situs of those transactions upon which this case is premised — the Court might reasonably construe the motion as one addressed to issues of convenience, properly resolved under 28 U.S.C. § 1404(a). At the same time, the Court cannot conclude that the petition should be resolved in the movant’s favor. The mere fact that all defendants now live and work in the Southern District of Illinois should not disturb the appropriate balance in favor of the plaintiffs’ legitimate choice of forum in the district in which they reside. Moreover, the movant’s contention that all relevant transactions occurred in southern Illinois is strongly disputed by the plaintiffs, who contend both in their complaint and in response to the present motion, that solicitations for investments in the working interests were made within the State of Wisconsin through the United States mail. Plaintiff Seymour Pikofsky also affirms that the plaintiffs’ agreements were signed in the State of Wisconsin and were mailed from this district with accompanying funds; significantly, he also affirms that “on at least one occasion, defendant, Howard Mann, came to Wisconsin to meet with plaintiffs and other investors regarding their existing investments and to solicit additional investments.” Affidavit of Seymour Pikofsky at 1-2 (April 23, 1984).

Under these circumstances, the Court cannot conclude that the relevant transactions are so tied to the actual location of the oil wells in southern Illinois that the parties would be seriously inconvenienced if required to litigate this matter — including the identification of relevant witnesses and the retrieval of pertinent documents— in this district. Nothing in the record, beyond the defendant’s implicit allegations of inconvenience, demonstrates convincingly that the interests of justice would be served if the plaintiff’s selection of forum were now disregarded. See Bussey v. Safeway Stores, Inc., 437 F.Supp. 41, 43 (E.D.Okla.1977) (“... [Ujnless the evidence and circumstances of the case are strongly in favor of transfer, the plaintiff’s choice of forum should not be disturbed”).

While the propriety of this result is plainly established under 28 U.S.C. § 1404(a), the Court notes that the relevant standards for consideration under 28 U.S.C. § 1406(a) likewise compel denial of the transfer motion; that statute requires that the “district court of a district in which is filed a case laying venue in the wrong division or district ... dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” Although both this statute and § 1404(a) are broadly designed to allow transfer of a civil action to another district, § 1406(a) provides for the transfer from forums in which venue is wrongful or improperly layed, whereas § 1404(a) operates on the premise that the plaintiff has properly exercised his or her venue privilege. Van Dusen v. Barrack, 376 U.S. 612, 634, 84 S.Ct. 805, 818, 11 L.Ed.2d 945 (1964).

A judicial district is “wrong” under § 1406(a) whenever there exists some obstacle to the expeditious and orderly adjudication of an action on the merits; the statute is accordingly to be construed to remove such procedural obstacles. Mayo Clinic v. Kaiser, 383 F.2d 653, 654 (8th Cir.1967). Among the generally accepted prerequisites to transfer under § 1406(a) are the transferor court’s subject matter jurisdiction over the action and the propriety of venue in the district to which the matter is transferred. DC Electronics, Inc. v. Schlesinger, 368 F.Supp. 1029, 1033 (N.D.Ill.1974).

In resolving a motion brought under this statute, the trial judge may find it appropriate to invoke the relevant provisions of 28 U.S.C. § 1391, establishing the conditions under which federal actions are properly venued. Subsection (b) of that statute provides as follows:

A civil action wherein jurisdiction is not founded solely on diversity of citizenship may be brought only in the judicial district where all defendants reside, or in which the claim arose, except as otherwise provided by law.

In determining where a “claim arose” for purposes of § 1391(b), the trial judge need not pursue a literalistic search for one judicial forum out of which the plaintiff’s cause of action derived; rather, the court is charged with the responsibility of evaluating the relevant contacts between the forum and the plaintiff’s allegations and weighing that forum’s convenience for all litigants. Thornwell v. United States, 471 F.Supp. 344, 355-356 (D.D.C.1979). It is sometimes said that the place where the claim arose should be ascertained by “ad-vertence to events having operative significance in the case, and a commonsense appraisal of the implications of those events for accessibility to witnesses and records”; thereafter, venue is properly conferred upon that district in which a substantial portion of the acts or omissions giving rise to the lawsuit occurred, notwithstanding that venue might also lie in other forums. Lamont v. Haig, 590 F.2d 1124, 1134 (D.C.Cir.1978).

Based on the jurisdictional averment in the complaint, it is clear that this action is not founded solely on the Court’s diversity jurisdiction but upon its authority to hear claims framed under the federal Securities Act of 1933, 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. The propriety of venue in this forum thus turns on whether all defendants reside in the Eastern District of Wisconsin or the plaintiffs’ claim arose here. 28 U.S.C. § 1391(b). While it is apparently undisputed that each of the named defendants does, indeed, reside in the Southern District of Illinois, the Court finds it reasonable to conclude that the present cause of action did, in fact, arise in the State of Wisconsin.

The Court has already recounted, in its evaluation of the motion to transfer under 28 U.S.C. § 1404(a), the several local contacts attendant upon the investment transactions between the parties to this lawsuit. Most notable among those contacts were the defendants’ in-state solicitation of potential investors and the plaintiffs’ execution of the several purchase agreements within this judicial district. See Affidavit of Seymour Pikofsky at 1-2 (April 23, 1984). Recognizing that the transactional basis for this action does not derive solely from the State of Wisconsin but springs, at least in part, from southern Illinois as well, where the subject oil wells are presumably located, the Court nonetheless finds no fundamental unfairness in determining, in the language of § 1391(b), that the Eastern District of Wisconsin is the forum “in which the claim arose.” See Idaho Potato Commission v. Washington Potato Commission, 410 F.Supp. 171, 176 (D.Idaho 1975) (concluding that judicial balancing of contacts is a reasonable manner for determining where claim arose, that the plaintiff’s choice of forum is to be afforded weight, and that it is just and equitable to respect such choice where, on balance, the weight of contacts does not lie in either state).

Because it concludes, as articulated at length above, that this action is not properly transferred to another judicial district under either 28 U.S.C. § 1404(a) or 28 U.S.C. § 1406(a), the Court will deny the motion of defendant Mann for a transfer of venue.

THE PLAINTIFFS’ MOTION FOR DEFAULT JUDGMENT

Pursuant to Rule 55(a) & (b) of the Federal Rules of Civil Procedure, “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise,” the Court may enter default judgment in favor of the moving party. Invocation of the rule not only provides the trial court with a significant tool for enforcing compliance with the other rules of procedure, thereby encouraging an orderly and efficient judicial system, but also serves to protect diligent parties who have acted expeditiously in accordance with those rules. Chandler Leasing Corporation v. UCC, Inc., 91 F.R.D. 81, 83 (N.D.Ill.1981).

At the same time, it is generally held that default judgment is a drastic sanction that should be employed only in extreme situations. Luis C. Forteza e Hijos, Inc. v. Mills, 534 F.2d 415, 419 (1st Cir.1976). The important decision to grant or deny a motion for the entry of default judgment lies within the sound discretion of the trial court, which may deny the request where the movant has neither alleged nor demonstrated any prejudice as a result of his or her opponent’s failure to respond to the complaint. Georgia Power Project v. Georgia Power Company, 409 F.Supp. 332, 334 (N.D.Ga.1975). Because default judgments are not looked upon favorably, particularly when significant damages may be involved, In Re Arthur Treacher’s Franchisee Litigation 92 F.R.D. 398, 415-416 (E.D.Pa.1981), an order granting such relief presumes the absence of some affirmative action, the presence of which would operate as a bar to the satisfaction of the plaintiffs claims. George & Anna Portes Cancer Prevention Center of Chicago, Inc. v. Inexco Oil Company, 76 F.R.D. 216, 217 (E.D.La.1977).

Applying these general touchstones to the circumstances of the present case, the Court cannot conclude that the plaintiffs are entitled to a favorable ruling under Rule 55(b)(2). The Court fully understands and appreciates their legitimate interest in securing damages for the wrongs they allegedly sustained; it also follows their argument that, to the extent that it constitutes a request for relief under 28 U.S.C. § 1404(a), defendant Mann’s motion for a change of venue does not constitute a pleading or other defense properly raised outside the four corners of an answer.

At the same time, the movants themselves concede that a motion challenging venue under 28 U.S.C. § 1406(a) is properly characterized as defensive action sufficient to preclude the entry of default judgment; the mere fact that the Court today finds defendant Mann’s charge of improper venue to be meritless does not perforce lead to the entry of judgment in the plaintiffs’ favor, nor would they likely argue for such a result. Most significantly, however, the Court finds that, throughout the turbulent litigation of this matter, defendant Mann has demonstrated an intention to defend against the allegations of the plaintiffs’ complaint. To date, his attorney has interposed two motions — one procedural and the other substantive — and has appeared on behalf of his client at the Court’s status hearing of April 12, 1984. In the end, defendant Mann’s litigation record simply does not support a characterization as that of a defaulting party. As an aside, the Court notes its inability to identify any significant prejudice that would accrue to the plaintiffs if this defendant were permitted to proceed with his defense.

In the exercise of its considerable discretion under Rule 55(b)(2), the Court opines that no legitimate interest in the resolution of the parties’ claims on the merits would be advanced if the petition for default judgment were granted, particularly since this defendant’s litigation activities fall far short of the level of delinquence typically envisioned under the rule. See Bryant v. Marianna, 532 F.Supp. 133, 137 (N.D.Fla.1982) (finding that default is appropriate where defendants have not taken a single action in lawsuit since filing answer one year earlier). Accordingly, the Court will deny the plaintiffs’ motion for the entry of default judgment.

DEFENDANT MANN’S MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

The Court of Appeals for the Seventh Circuit has recently rearticulated those well-established standards to be applied by the trial judge in resolving a motion, like the present, to dismiss for failure to state a claim:

According to rule 12(b)(6) of the Federal Rules of Civil Procedure, a defendant may make a motion to dismiss asserting a failure by the plaintiff to state a claim upon which relief can be granted. In interpreting this rule, the Supreme Court has held that “a complaint should not be dismissed for failure to - state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 [78 S.Ct. 99, 101-02, 2 L.Ed.2d 80] (1957); Kurek v. Pleasure Driveway and Park District, 557 F.2d 580, 586 (7th Cir.1977), vacated and remanded on other grounds, 435 U.S. 992 [98 S.Ct. 1642, 56 L.Ed.2d 81] (1978), cert. denied, 439 U.S. 1090 [99 S.Ct. 873, 59 L.Ed.2d 57] (1979).... Although we have recognized the Supreme Court’s “exceedingly forgiving attitude” toward pleading deficiencies, we have also held that this lenient attitude has never been taken literally, Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir.1984); Sutliff, Inc. v. Donovan Companies, Inc., 727 F.2d 648, 654 (7th Cir.1984). This circuit has held that a complaint must state either direct or inferential allegations concerning all of the material elements necessary for recovery under the relevant legal theory. Sutliff v. Donovan, 727 F.2d at 654 (quoting In Re Plywood Antitrust Litigation, 655 F.2d 627, 641 (5th Cir.1981), cert. dismissed [462 U.S. 1125] 103 S.Ct. 3100 [77 L.Ed.2d 1358] (1983)).

Carl Sandburg Village Condominium Association No. 1 v. First Condominium Development Company, 758 F.2d 203, 207-208 (7th Cir.1985).

As indicated supra at 729, the plaintiffs have framed their present action under Section 12(2) of the Securities Act of 1933, 15 U.S.C. § 111) Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; and Chapter 551.01 et seq. of the Wisconsin Statutes. The first of these statutes provides, in relevant part, that any person who offers or sells a security through the mails “by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading ... and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing securities from him_” 15 U.S.C. § 111.

Similarly, Section 10(b) of the Securities and Exchange Act of 1934, makes it unlawful for any person by the use of any instrumentality of interstate commerce or of the mails to “use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations ... as [may be] necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j. Finally, Chapter 551.41 of the Wisconsin Statutes provides, in its entirety, as follows:

It is unlawful for any person, in connection with the offer, sale or purchase of any security in this state, directly or indirectly:
(1) To employ any device, scheme or artifice to defraud;
(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
(3) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.

The Court has carefully reviewed the four counts incorporated in the plaintiffs’ complaint and, based on this analysis, concludes that their cause of action under the several federal and state securities statutes is sufficiently well-pled to withstand the present attack under Rule 12(b)(6). None of defendant Mann’s challenges to the legal sufficiency of that pleading — including, as recounted supra at 731, that the plaintiffs have failed to allege that they were excusably ignorant of the claimed misrepresentations, that they reasonably relied on those misstatements and were mislead to their harm, and that the misrepresentations themselves were of significant material facts — none of these challenges is plainly supported by the clear language and import of the complaint; indeed, as to some of the alleged deficiencies, the movant’s position is simply in error. See, e.g., Plaintiffs’ Complaint at 5-6 (September 23, 1983) (pleading, among other things, the defendants’ “omission and misstatements of material facts in their sales materials” and the plaintiffs’ reliance “upon the representations or lack thereof” and their attendant damage). Whether examined with painstaking particularity or considered as a whole, the plaintiffs’ complaint unmistakenly sets forth the basis for a prima facie case of material misrepresentation or omission in the sale of securities under Section 12(2) of the Securities Act of 1933, 15 U.S.C. § 77i; Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 77j;' or Chapter 551.41 of the Wisconsin Statutes. Any deficiencies in the factual basis for the plaintiffs’ claims under those laws will surely be exposed at trial or upon a proper motion for summary judgment; at this stage in the proceedings, however, their several causes of action should not be dismissed based on the movant’s superficial attacks on the language of the complaint.

Likewise, the Court does not view the parties’ stipulation to the application of Illinois law, as set forth in the 17th paragraph of their standard agreement, as a sufficient basis upon which to dismiss the third count in particular. While this significant provision will surely form the basis for heated procedural and substantive disputes between the parties, it is far from clear, based on the limited analysis provided by the movant or the language of the paragraph itself, that it was meant to foreclose invocation of non-Illinois law under all circumstances. The Court’s experience with forum- and law-selection clauses like this is sufficiently rich to demonstrate the impropriety of summary dismissal absent further argument on the import of paragraph 17 to the resolution of particular legal disputes. See generally, § 187(1) Restatement (Second), Conflict of Laws (1971) (“the law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue”). In any event, the Court does not read the plaintiffs’ third cause of action so narrowly as to preclude relief under other state or federal statutes if it is determined that the remedial provisions of Wis.Stat. § 551.01 et seq., are, indeed, unavailable.

Accordingly, for the several reasons set forth above, the Court will deny defendant Mann’s motion to dismiss the action for failure to state a claim, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

CONCLUSION

For the reasons set forth above, the Court hereby DENIES defendant Howard Mann’s motion for a change of venue pursuant to 28 U.S.C. § 1404(a) and § 1406(a); DENIES the plaintiffs’ motion for default judgment pursuant to Rule 55(b)(2) of the Federal Rules of Civil Procedure; and DENIES defendant Howard Mann’s motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

In order to ensure that the prosecution and defense of this action now proceed apace, the Court will conduct a status conference at 1:30 p.m., on Tuesday, May 28, 1985. Counsel for all parties should come to that hearing fully prepared to discuss their expectations for the. further litigation of this matter.

      . At the status conference of April 12, 1984, the Court was also advised that defendants Jem Oil and Olav E. Jore are now involved in bankruptcy proceedings. Accordingly, pursuant to 11 U.S.C. § 362(a), all further action against them in this case was stayed.


author: MILES W. LORD, Chief Judge.

text:
    SIERRA CLUB and Defenders of Wildlife, Plaintiffs, v. William P. CLARK as Secretary of the Interior, and The Department of Interior, Defendants. The FUND FOR ANIMALS, INC., Friends of Animals and Their Environment, Wild Canid Research and Survival Center, Wildlife Education Program for a Living Future, North American Wildlife Park Foundation, Inc., Sierra Club, Help Our Wolves Live, Inc., International Fund for Animal Welfare, Defenders of Wildlife, Animal Welfare Institute, Humane Society of the United States, Friends of the Boundary Waters Wilderness, International Ecology Society, Animal Rights Coalition, and National Audubon Society, Plaintiffs, v. William P. CLARK as Secretary of the Interior, G. Ray Arnett as Assistant Secretary for Fish and Wildlife and Parks, Robert A. Jantzen as Director, United States Fish and Wildlife Service, Harvey K. Nelson as Regional Director, United States Fish and Wildlife Service, The Department of Interior and The United States of America, Defendants.
    Civ. Nos. 5-83-254, 5-78-66.
    United States District Court, D. Minnesota, Fifth Division.
    May 2, 1985.
    Brian B. O’Neill and Amy B. Bromberg, Faegre & Benson, Minneapolis, Minn., for plaintiffs.
    James M. Rosenbaum, U.S. Atty. by Jon M. Hopeman, Asst. U.S. Atty., Minneapolis, Minn., for defendants.
   CONSENT DECREE AND ORDER FOR JUDGMENT

MILES W. LORD, Chief Judge.

On January 5, 1984, this court granted plaintiffs’ motion for summary judgment, thereby preventing the implementation of new government regulations allowing a sport season on the Minnesota gray wolf. In addition, the court blocked the implementation of new federal regulations published August 10, 1983, 48 Fed.Reg. 36256, expanding the current livestock depredation control program. Sierra Club and Defenders of Wildlife v. Clark, 577 F.Supp. 783 (D.Minn.1984).

On February 19, 1985, the United States Court of Appeals for the Eighth Circuit affirmed this court’s decision on the illegality of the sport season but remanded for further consideration this court’s conclusion as to the regulations involving depredation control. Sierra Club and Defend ers of Wildlife v. Clark, 755 F.2d 608 (8th Cir.1985).

After a hearing on May 2, 1985, upon the consent of the parties, and after being fully advised in the premises, the court hereby orders that the defendants amend their regulations to prohibit:

1. With regard to their depredation control program, the defendants from trapping and killing Minnesota gray wolves in Minnesota or authorizing others to do so, except when such action is necessary and is directed to the removal from a farm, ranch, or other privately owned lands of a specific wolf or wolves when reasonable cause exists to believe that said wolf or wolves have committed a significant depredation upon domestic animals lawfully present in said areas. Any such trapping or killing shall be done in a humane manner. Any young of the year trapped on or before August 1 of any year shall not be killed but shall be released.

2. With regard to the depredation control program, the defendants from trapping and killing Minnesota gray wolves on public lands in Minnesota or authorizing others to do so, save and except for that portion of public lands that immediately border and abut upon such privately owned lands, for a distance not to exceed one-half mile from said border, upon which said significant depredation has occurred.

3. The sale or export in interstate or international commerce of Minnesota gray wolves.

There is no just reason for delay. Let judgment be entered accordingly.


author: EDWARD WEINFELD, District Judge.

text:
    AVIN INTERNATIONAL BUNKERS SUPPLY, S.A., Plaintiff, v. WELLRUN MANAGEMENT, Wellrun Marine Transport S.A. Ltd., Wellrun Maritime S.A. Ltd., Wellrun Shipping Company, Ltd., Bailee Marine S.A., Kinyard Enterprise Co., Ltd., Fritz Steamship Corp. and Orient Leasing (ASIA) Ltd., Defendants. BRIDGE OIL LIMITED, Plaintiff, v. WELLRUN MANAGEMENT INC. S.A., Wellrun Marine Transport S.A. Ltd., Wellrun Maritime S.A. Ltd., Wellrun Shipping Company, Ltd., Bailee Marine S.A., Kinyard Enterprise Co., Ltd., Fritz Steamship Corp. and Orient Leasing (ASIA) Ltd., Defendants.
    Nos. 84 Civ. 2591 (EW), 84 Civ. 7554 (EW).
    United States District Court, S.D. New York.
    May 3, 1985.

      Nourse & Bowles, New York City, for plaintiffs Avin International Bunkers Supply S.A. and Bridge Oil Limited; Ruby H. Melton, John E. Bradley, New York City, of counsel.
    Burlingham Underwood & Lord, New York City, for defendants Orient Leasing (Asia) Ltd. and Fritz Steamship Corp.; Robert J. Zapf, Lizabeth L. Burrell, New York City, of counsel.
   OPINION

EDWARD WEINFELD, District Judge.

Plaintiffs, Avin International Bunkers Supply, S.A. (“Avin”) and Bridge Oil Limited (“Bridge”), bring these consolidated actions to recover for payments allegedly due for, fuel and diesel oil supplied to the M/V Bailee, a vessel owned by defendant, Fritz Steamship Corporation (“Fritz”), and its affiliate, Orient Leasing (Asia) Ltd. (“OLA”). OLA and Fritz move for summary judgment pursuant to Rule 56, Fed.R.Civ.P., claiming it is not they, but the bareboat charterers of the vessel, defendants Bailee Marine S.A. and its associated entities (collectively referred to as the “Wellrun Group”), who are responsible for any bunkers supplied to the M/V Bailee. In addition, defendants OLA and Fritz move to vacate an attachment of insurance proceeds arising from the loss of the vessel.

BACKGROUND

On June 14, 1982, Fritz purchased the M/V Bailee with funds advanced from OLA, and simultaneously leased it for a term of 48 months to Bailee Marine pursuant to a “Bareboat Lease Agreement.” The profitability of this lease arrangement was questionable from the start. Bailee Marine duly paid the first and second rent installments, but thereafter defaulted on its obligations, never making any full rental payments during the year and one half of the vessel’s operation.

Bailee’s default resulted in a series of financial actions by the parties to secure their respective interests while maintaining the vessel in operation. In August of 1982, the Wellrun Group sought a one-year moratorium on its rental obligations. Although OLA and Fritz considered repossessing the vessel, they decided not to do so because of its limited scrap value and because its then operating revenues exceeded its costs. They agreed to renegotiate, but to secure its interest, and “[i]n order to resist arrest of the chartered ship[] by a third party,” OLA placed an “in house” mortgage on the vessel by agreement with Fritz dated October 20, 1982. Thereafter, Bailee only partially fulfilled the terms of the renegotiated contract, and a second renegotiation followed, pursuant to which Bailee made no payments at all.

During the course of renegotiations, Bailee Marine submitted to OLA budget information, voyage accountings, cargo bookings, and financial statements. Based on this information, OLA and Fritz became aware that Bailee was unable to pay for the vessel’s supplies. Accordingly, OLA entered into an arrangement with Nordic Asia Limited (“Nordic”), which owned other vessels in the Wellrun Group that also were experiencing financial difficulties, whereby Nordic paid for the supplies by advancing necessary sums to Bailee Marine, in return for which Nordic collected the freights earned by the vessel.

Avin and Bridge allege that on October 4, 1983 and August 13, 1983, respectively, they furnished fuel to the M/V Bailee pursuant to contracts with the Wellrun Group. On November 22, 1983, the vessel sank. Plaintiffs now assert claims against OLA and Fritz in personam for sums due on the contracts to supply fuel to the vessel, based on theories of express or implied contract, unjust enrichment, and estoppel.

DISCUSSION

In support of their motion for summary judgment, defendants contend that plaintiffs must look to the bareboat charterer, Bailee Marine, for recovery of debts arising from supplies furnished to the vessel; that neither OLA nor Fritz contracted to purchase the fuel supplied by Avin or Bridge; and that they never took any actions or derived any unjust benefit which would entitle plaintiffs to equitable relief. In essence, defendants contend that the bare-boat charter agreement with Bailee Marine insulates them from in personam liability. Plaintiffs respond that defendants’ conduct was inconsistent with and impliedly modified the bareboat lease arrangement so that the relationship between Fritz and OLA, on the one hand, and Bailee, on the other, was at the time the fuel was supplied that of owner/operator, and not that of registered owner/bareboat charterer.

“It has long been the maritime law that the owners of a vessel are not personally liable for goods or services furnished to the vessel on order of a bare boat charterer of the vessel.” A bareboat charterer is the “owner pro hac vice ” of the vessel, and as such bears all in personam liabilities arising out of the ship’s operation. “The vessel, so far as third persons are concerned, is his vessel.”

The vital distinction between a bareboat charter (also termed a demise), and other charter parties, is the exclusive control of the vessel by the charterer. To create a bareboat charter or a demise of the vessel, the owner must completely and exclusively relinquish possession, command, and navigation to the demisee. It is “tantamount to, though just short of, an outright transfer of ownership.”

In support of their motion, defendants rely primarily upon the charter itself. On its face and by its terms, the charter party is a bareboat lease of the vessel vesting control in Bailee Marine. It expressly provides that “[t]he Vessel shall during the Lease Period be in the full possession and at the disposal for all purposes of the Lessee and under its complete control in every respect”; and further, that the responsibility to victual, navigate, man, supply, fuel, repair, and provide insurance coverage for the vessel was Bailee’s “at its own expense.” However, the agreement by itself does not satisfy defendants’ burden on this motion. The question whether a demise has been effected sufficient to insulate a registered owner from liability to third parties is a factual one which depends upon all the circumstances of the case, including not only the terms of the contract, but also the conduct of the parties under the arrangement. The parties to a charter may not “by the choice of a label determine ... questions of responsibility to third persons.” While a “charter may describe the duties of the parties and provide for the shifting of risks between them ... in general, control entails responsibility....”

Because a demise insulates a registered owner from liability vis-a-vis third parties, “the party attempting to show that the owner of the vessel has been relieved” of his legal obligations “must bear the heavy burden of establishing the facts which prove his point.” “We start ... with the general presumption that the owner does not mean to put his vessels into the possession of the charterer.” As the Supreme Court has stated;

[A]nything short of ... a complete transfer is a time or voyage charter party or not a charter party at all_ [Assuming ... a demise ... would isolate the owner from liability, the owner has the burden of showing such a charter. This burden is heavy, for courts are reluctant to find a demise when the dealings between the parties are consistent with any lesser relationship.

To sustain their position, defendants, in addition to reliance upon the charter itself, also rely upon affidavits by directors of OLA and Fritz disclaiming any actual control over the M/V Bailee. In response, plaintiffs have submitted various documents evidencing the parties’ conduct after the lease was signed which plaintiffs contend negate defendants’ claim that they are not liable for the fuel furnished to the vessel. Among other matters, they contend substantial issues of fact are raised by documents produced thus far as to (1) the arrangements between OLA and Nordic to bunker the Bailee and other vessels in the Wellrun Group; (2) OLA’s participation in the manning of the Bailee; (3) OLA’s plan to replace Wellrun’s crew with a crew of its own choosing; (4) OLA’s payment of Bailee’s crew claims; and (5) in general, OLA’s involvement with the management and operation of the Bailee.

The documents offered by plaintiffs are sufficient to raise an issue of fact whether during the period when the vessel was operating, OLA and Fritz effectively relieved Bailee Marine of major financial responsibilities under the lease agreement. While Bailee Marine was responsible for making rental payments under the lease, neither OLA nor Fritz demanded full payment during the entire period of the vessel’s operation. Moreover, while it was Bailee’s responsibility to pay for the vessel’s supplies “at its own expense,” OLA arranged payment for supplies through the agreement with Nordic.

Plaintiffs assert these arrangements resulted in a substantial measure of supervision and effective control over the M/V Bailee’s operations. For example, the agreement between OLA and Nordic, whereby Nordic was to advance sums for supplies and receive freights, provided that each advance was subject to OLA’s consent. As OLA itself seems to concede in one document: “This is apparently an intervention in internal affairs.” Plaintiffs contend that as a result of this arrangement, whether the vessel had enough funds to maintain its day-to-day operations was dependent upon and subject to OLA’s control, and that OLA effectively paid for the supplies since by allowing Nordic to recover freights, it subordinated its own right to them, given Bailee Marine’s default. ■

Also it appears from the documents submitted in opposition to this motion that OLA and Fritz had plans to directly control operations by placing their own master on the M/V Bailee. While unimplemented because the vessel was lost, it is argued that these plans indicate that OLA and Fritz viewed direct operation as the means to recoup its losses, rather than foreclosure and recharter of the vessel to another operator. Such an inference, in turn, would tend to support an interpretation of the prior activities of OLA and Fritz as attempts to assert some level of control over the operation of the M/V Bailee, as opposed to a “mere” arm’s length financing relationship.

Drawing all inferences most favorable to the nonmovant, the Court finds that plaintiffs have raised issues of fact as to whether the parties’ conduct was inconsistent with an exclusive transfer of control over the M/V Bailee and impliedly modified the prior bareboat lease agreement. Neither Fritz nor OLA are entitled to summary judgment on the ground that the bareboat lease agreement insulates them from liability.

However, defendants argue that even if plaintiffs have raised issues of fact concerning the charter arrangement, they are nevertheless entitled to summary judgment because plaintiffs have failed to raise an issue of fact that OLA and/or Fritz are liable, under an agency, quasi-contract or estoppel theory, for bunkers that concededly were ordered by neither Fritz nor OLA, but instead by Bailee Marine. While defendants are correct that plaintiffs must show more than the lack of a true demise to warrant recovery from Fritz and/or OLA, summary disposition of plaintiffs’ claims is inappropriate. It is evident that discovery thus far has altered plaintiffs’ own view of the case, and has raised various questions as to the precise relationship of the parties, and in particular, as to the arrangement made with a third party, Nordic, to collect freights and disburse funds for supplies, which may bear upon defendants’ liability.

Without passing upon the ultimate merits of plaintiffs’ claims, the Court grants their motion, pursuant to Rule 56(f), Fed.R. Civ.P., for further party and nonparty discovery. Accordingly, defendants’ motion for summary judgment is denied. In view of the Court’s disposition, defendants’ motion to vacate the attachment of insurance proceeds is also denied. All discovery is to be completed within twenty days from date.

So ordered.

      . Defendants OLA and Fritz concede they are "affiliated" companies and therefore they shall be treated as essentially one entity for the purposes of this motion.

      . Plaintiffs' Exhibit 4, p. 5.

      . This mortgage was formally executed by Fritz and Orient Leasing (Antilles) N.V., not Orient Leasing (Asia) Ltd. (“OLA”). However, the parties have referred to it generally as OLA's mortgage, see Defendants’ Reply Brief at 5, although defendants have also produced an affidavit disclaiming that OLA was in fact the mortgagee. Whether or not OLA is technically the mortgagee, the Court follows the defendants’ own practice in referring to it as such.

      . Pierside Terminal Operators, Inc. v. M/V Floridian, 1974 A.M.C. 1954, 1954 (E.D.Va.1974).

      . See Reed v. The Yaka, 373 U.S. 410, 412-13, 83 S.Ct. 1349, 1351-52, 10 L.Ed.2d 448 (1963); Guzman v. Pichirilo, 369 U.S. 698, 699-700, 82 S.Ct. 1095, 1096-1097, 8 L.Ed.2d 205 (1962); Fitzgerald v. A.L. Burbank & Co., Ltd., 451 F.2d 670, 676 (2d Cir.1971).

      . Offshore Telephone Co. v. M/V Waterbuck, 465 F.Supp. 1160, 1164 (E.D.La.1979) (quoting G. Gilmore & C. Black, The Law of Admiralty 218-19 (2d ed. 1975)).

      . Guzman v. Pichirilo, 369 U.S. 698, 699, 82 S.Ct. 1095, 1096, 8 L.Ed.2d 205 (1962); accord Federal Barge Lines, Inc. v. SCNO Barge Lines, Inc., 711 F.2d 110, 111 (8th Cir.1983); Fitzgerald v. A.L. Burbank & Co., Ltd., 451 F.2d 670, 676 (2d Cir.1971); Gaspard v. Diamond M. Drilling Co., 593 F.2d 605, 606 (5th Cir.1979).

      . Guzman v. Pichirilo, 369 U.S. 698, 700, 82 S.Ct. 1095, 1096, 8 L.Ed.2d 205 (1962).

      . See Hust v. Moore-McCormack Lines, Inc., 328 U.S. 707, 734, 66 S.Ct. 1218, 1231, 90 L.Ed. 1534 (1946) (Douglas, J., concurring); United States v. Shea, 152 U.S. 178, 190-91, 14 S.Ct. 519, 522-23, 38 L.Ed. 403 (1894); see also Federal Barge Lines, Inc. v. SCNO Barge Lines, Inc., 711 F.2d 110, 112 (8th Cir.1983); Loose v. Offshore Navigation, Inc., 670 F.2d 493, 498 & n. 8 (5th Cir.1982); Ross Indus., Inc. v. M/V Gretke Oldendorff, 483 F.Supp. 195, 198 (E.D.Tex.1980).

      . Hust v. Moore-McCormack Lines, Inc., 328 U.S. 707, 736, 66 S.Ct. 1218, 1232, 90 L.Ed. 1534 (1946) (Douglas, L, concurring) (“The fact that the parties say it is the enterprise of one, not the other, is not decisive.”)

      . Agrico Chemical Co. v. M/V Ben W. Martin, 664 F.2d 85, 91 (5th Cir.1982).

      . Fitzgerald v. A.L. Burbank & Co., Ltd., 451 F.2d 670, 676 (2d Cir.1971) (quoting Hansen v. E.I. DuPont de Nemours & Co., 33 F.2d 94, 96 (2d Cir.) cert. denied, 280 U.S. 589, 50 S.Ct. 37, 74 L.Ed. 638 (1929) (L. Hand, J.)).

      . Id.

      . Guzman v. Pichirilo, 369 U.S. 698, 700, 82 S.Ct. 1095, 1097, 8 L.Ed.2d 205 (1962).

      . Plaintiffs’ Exhibit 4, p. 3; see Plaintiffs’ Exhibit 13, p. 2; see also Ross Indus., Inc. v. M/V Gretke Oldendorff, 483 F.Supp. 195, 200 (E.D.Tex.1980) (while charter party purported to be a bareboat charter, its provision that the charterer was to obtain prior approval from the owner for all important business and legal decisions was inconsistent with a true demise).

      . Where the owner places his own crew on the vessel, it is extremely unlikely that there has been a true demise of the vessel. See Fitzgerald v. A.L. Burbank & Co., Ltd., 451 F.2d 670, 676 (2d Cir.1971).