author: GEORGE KENDALL SHARP, District Judge.

text:
    DIVERSIFIED NUMISMATICS, INC., a Florida Corporation, and Richard Eargle, Plaintiffs, v. CITY OF ORLANDO, FLORIDA, a Chartered Municipal Corporation, William L. Koleszar, in his capacity as Chief of Police for the City of Orlando, and Evelyn Sapp in her capacity as City Prosecutor for the City of Orlando, Defendants.
    No. 83-261-CIV-ORL-18.
    United States District Court, M.D. Florida, Orlando Division.
    March 25, 1985.

      Melvin Pearlman, Fern Park, Fla., for plaintiffs.
    Robert L. Hamilton, Jody M. Litchford, Dana Hankins, Asst. City Attys. (co-counsel), Orlando, Fla., for defendants.
   OPINION AND ORDER

GEORGE KENDALL SHARP, District Judge.

Plaintiff, Diversified Numismatics, Inc., brings this suit challenging the constitutionality of an Orlando, Florida City ordinance which restricts the purchase and sale of articles containing certain precious metals. Orlando City Code §§ 43.54-43.59 (1982). The matter came on for trial on the merits to the Court sitting without a jury on December 11 and 12, 1984. At the conclusion of plaintiff’s case, defendants moved for a directed verdict. The Court reserved ruling on defendants’ motion and at the conclusion of defendants’ case took the matter under advisement.

A motion for a directed verdict under Rule 50(a) of the Federal Rules of Civil Procedure is proper only in jury cases. Morris v. Prefabrication Engineering Co., 160 F.2d 779, 782 (5th Cir.1947). See 9 C. Wright & A. Miller, Federal Practice and Procedure §§ 2371, 2523 and 2530 (1971 & Supp.1984). In cases tried without a jury, a defendant may move for involuntary dismissal at the close of plaintiff’s case pursuant to Federal Rule of Civil Procedure 41(b) on the ground that upon the facts and the law plaintiff has shown no right to relief. The facts of this case taken together with the applicable law show that plaintiffs are entitled to relief for the reasons which follow. Accordingly, defendants’ motion for involuntary dismissal is DENIED.

Plaintiffs challenge the constitutional validity of the Orlando ordinance regulating the purchase and sale of precious metals on multiple grounds. As a threshold matter, plaintiffs argue that the ordinance violates the supremacy clause of the United States Constitution, because the area of precious metals has been pre-empted by federal law. Next, the ordinance is facially vague and ambiguous in violation of the Fourteenth Amendment because it does not set forth the acts prohibited and because it impermissibly delegates unrestrained authority and discretion to the Chief of Police and the City Prosecutor. Such indefiniteness and excessive delegation allows for arbitrary, capricious and discriminatory enforcement of the ordinance thereby denying plaintiffs due process and equal protection of the laws. Third, the ordinance impermissibly burdens interstate commerce in violation of the commerce clause of the Constitution. Fourth, the ordinance violates the plaintiffs’ rights to be free from unreasonable searches and seizures as guaranteed by the Fourth, Fifth and Fourteenth Amendments. Fifth, it deprives plaintiffs of the privileges and immunities enjoyed by other citizens of the United States under the Fourteenth Amendment. Sixth, the ten day holding period is a taking of property without compensation or due process of law. Finally, the ordinance deprives the plaintiffs and their customers of their rights of privacy in violation of the Ninth Amendment.

Plaintiffs seek a permanent injunction restraining all defendants or their employees and agents from enforcing compliance with the ordinance. Plaintiffs also seek declaratory relief in the nature of a declaration by the Court that the ordinance is unconstitutional. Defendants contend that the ordinance is a lawful exercise of the City’s police powers, that it serves a legitimate public purpose and that it violates neither federal statutes nor the United States Constitution.

FACTS

Plaintiff, Diversified Numismatics, Inc., is a Florida corporation having its principal place of business in Orlando, Florida. Plaintiff corporation engages in the business of buying and selling items containing gold, silver and other precious metals. Plaintiff also buys and sells numismatic coins. Prior to the enactment of the precious metals ordinance in 1981, a portion of plaintiff’s business was conducted interstate. Plaintiff Richard Eargle, is an officer and employee of Diversified Numismatics, Inc.

Defendant, the City of Orlando, is a municipality of the State of Florida. At the time the complaint was filed, defendant William L. Kolezar was the Chief of Police of the City of Orlando, Florida. The parties agree that Frederick J. Walsh is the successor to Kolezar as chief of police, and is now the appropriate party. At the time the complaint was filed, defendant Evelyn Sapp was the City Prosecutor for the City of Orlando, Florida. The parties agree that John Chandler Ross is the successor to Sapp as City Prosecutor and is now the appropriate party. Walsh and Ross are substituted as defendant parties in accordance with Federal Rule of Civil Procedure 25(d).

The ordinance which is the subject of this litigation was originally enacted in 1981. Thereafter, the ordinance was amended. It is the amended ordinance, sections 43.54 through 43.59 of the City Code of the City of Orlando, Florida, which plaintiffs challenge as constitutionally infirm.

On March 18, 1982 an Orlando Police Officer entered plaintiffs’ premises in an undercover capacity to ascertain if plaintiffs were complying with the provisions of the precious metals ordinance. The officer sought to sell two gold rings to Herbert Eargle, plaintiff Richard Eargle’s father and an employee. Herbert Eargle purchased the items from the officer but did not complete the registration form required by section 43.55(2) of the ordinance. Thereupon, he was informed that his failure to complete the registration form violated the city ordinance. The officer issued Mr. Eargle a notice to appear in court to answer the charges. No custodial arrest ensued. The charges against Mr. Eargle were subsequently nolled; no further charges were filed and none are pending.

Plaintiffs have alleged that the Orlando precious metals ordinance is full of constitutional deficiencies. The Court, having determined that the ordinance is facially invalid for reasons which will appear, does not reach the other constitutional issues raised by the plaintiffs.

PRE-EMPTION

This case arises under the Constitution of the United States, therefore this Court has jurisdiction pursuant to 28 U.S.C. § 1331. A reviewing Court begins with the principle that whenever possible a statute, or as here an ordinance, should be construed to uphold its constitutionality. See U.S. v. National Dairy Products Corp., 372 U.S. 29, 32, 83 S.Ct. 594, 597, 9 L.Ed.2d 561, reh. denied, 372 U.S. 961, 83 S.Ct. 1011, 10 L.Ed.2d 13 (1963).

The ordinance sub judice provides that a dealer may not dispose of articles of gold, silver or platinum for a period of ten days from receipt. This means that an item may not be sold, melted, altered, transferred, given away or otherwise moved from the possession and ownership of the dealer during that period.

Plaintiffs contend that gold ownership and regulation is an area which the Congress has expressed a clear, manifest intent to exclusively control. The uniform control of gold is based upon its essentially national nature. As authority for their position, plaintiffs point to Congress’ repeal of Sections 3 (relating to the acquisition of gold and its use by citizens) and 4 (relating to the forfeiture penalty for violation of the act) of the Gold Reserve Act, Pub.L. 93-110, as amended by the Act of August 14, 1974, Pub.L. 93-373, 88 Stat 445. In pertinent part the 1974 legislation provides:

(b) No provision of any law in effect on the date of enactment of this Act; and no rule, regulation or order in effect on the date subsections (a) and (b) became effective may be construed to prohibit any person from purchasing, holding, selling, or otherwise dealing with gold in the United States or abroad, (emphasis added).

1974 U.S.Code Cong.Ad.News 495, 496, 31 U.S.C. § 442 Repealed, note, (1976).

The ordinance at issue does not prohibit dealers from purchasing, holding, selling or dealing in gold. Its purpose is to regulate the secondhand precious metal market in order to assist law enforcement agencies in locating and identifying stolen property. This provision does not prohibit dealers from engaging in the business of buying and selling precious metals, it merely regulates the conditions under which certain transactions may occur.

VAGUENESS

Plaintiffs attack this ordinance as vague ab initio in violation of the due process clause of the Fourteenth Amendment. In support of this position plaintiffs advance several grounds. First, the ordinance is unclear as to whose conduct is proscribed, which kinds of articles containing precious metal are included within the scope of the ordinance, and whether any minimum quantity of metal must be contained in an article to subject it to regulation by this ordinance. Moreover, the delegation of power to the Chief of Police and the City Prosecutor is so vague and ambiguous that it admits to unbridled discretion in the enforcement and prosecution of those who do not comply with the ordinance. Finally, the ordinance before the Court subjects those who violate it to unspecified criminal sanctions.

At this juncture, it is instructive to note that the state of Florida had a statute regulating the purchase and sale of precious metals, Fla.Stat. § 812.049 and § 812.051 (1981), which was similar to the Orlando ordinance. The Florida statute was the subject of an extensive opinion granting a preliminary injunction. Mid-Fla. Coin Exchange, Inc. v. Griffin, 529 F.Supp. 1006 (M.D.Fla.1981). The constitutionality of the Florida statute, however, was never determined at a trial on the merits. In March 1984, the parties dismissed the case with prejudice following substantial amendment of the statutes by the Florida Legislature. Fla.Stat. §§ 538.-01 and 538.02 (1983).

Finally, the parties did not allege, nor was any testimony elicited at trial, that there are any administrative regulations which bear on the implementation or enforcement of the Orlando ordinance. Accordingly, the Court must proceed to review the ordinance upon its face without benefit of any limiting construction.

Certain principles must guide a court reviewing legislation which has been challenged as impermissibly vague. The Court has determined that the ordinance imposes, at a minimum, quasi-criminal penalties, infra at 147. The ordinance must therefore be reviewed under vagueness standards applicable to criminal or quasi-criminal laws. An unduly vague ordinance is one which does not meet the constitutionally mandated level of notice to citizens and guidance for law enforcement personnel. The Supreme Court recently reiterated the applicable standards:

the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement. Village of Hoffman Estates v. Flipside, 455 US 489 [102 S.Ct. 1186, 71 L.Ed.2d 362] (1982); Smith v. Goguen, [415] US 566 [94 S.Ct. 1242, 39 L.Ed.2d 605] (1974); Grayned v. City of Rockford, 408 US 104, [92 S.Ct. 2294, 33 L.Ed. 222] (1972); Papachristou v. City of Jacksonville, 405 US 156 [92 S.Ct. 839, 31 L.Ed.2d 110] (1972); Connolly v. General Construction Co., 269 US 385, [46 S.Ct. 126, 70 L.Ed. 322] (1926). Although the doctrine focuses both on actual notice to citizens and arbitrary enforcement, we have recognized recently that the more important aspect of vagueness doctrine “is not actual notice, but the other principal element of the doctrine—the requirement that a legislature establish minimal guidelines to govern law enforcement.” Smith, supra, [415] at 574, 39 L Ed 2d 605, 94 S Ct 1242 [at 1248]. Where the legislature fails to provide such minimal guidelines, a criminal statute may permit “a standardless sweep [that] allows policemen, prosecutors, and juries to pursue their personal predilections.” Id., at 575, 39 L Ed 2d 605, 94 S.Ct. 1242 [at 1248].

(footnote omitted). Kolender v. Lawson, 461 U.S. 352, 357-358, 103 S.Ct. 1855, 1858-1859, 75 L.Ed.2d 903 (1983).

DEFINITIONAL DEFECTS

A) What is the Penalty?

The City has asked the Court to view this enactment as an economic regulation and to apply a less strict vagueness test because its subject matter is narrower, Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498-500, 102 S.Ct. 1186, 1193-1194, 71 L.Ed.2d 362 (1982), and its penalties less severe than a criminal statute. The Hoffman Estates case concerned a law which required businesses to obtain licenses in order to sell certain items. The ordinance established the cost of obtaining such a license and provided the range of penalties possible for violation of the ordinance. Id., at 507, 102 S.Ct. at 1197. The penalty provided for a fine between $10 and $500. Even though the penalty was exclusively monetary, the Court noted that the city’s intention to discourage use of the regulated items as well as the availability of customer’s names and addresses to the police made the standard for review that applicable to a quasi-criminal or criminal law, id., at 500, 102 S.Ct. at 1194, not an economic regulation.

Review of the precious metals ordinance reveals that it does not include a section setting forth the penalty for violation of the ordinance. The defendants did not suggest that the penalty is provided elsewhere in the Code of the City of Orlando, nor did defendants provide the Court with a classification of the ordinance and the sanctions which may be imposed for violation there-cf.

During the trial, Bruce Drazen, the Orlando Police Department Investigator who has primary responsibility for the enforcement of this ordinance, testified that a violation of this ordinance could result in the offending party being arrested. Moreover, he was of the opinion that failure to comply with the ordinance constituted a misdemeanor.

B) Who is a Dealer?

The term dealer is defined in the Orlando ordinance as “any person, firm or corporation engaged in the business of purchasing or selling goods at retail or wholesale whether at a fixed place of business or as an itinerant. ‘Dealer’ shall include owner, manager, employee or agent.” § 43.54(a). It purports to include all who engage in the business of buying or selling articles of precious metals.

However, Investigator Drazen testified that while the ordinance by its terms applies to anyone engaged in such a business, it is not enforced against used car dealers who purchase or sell cars containing cataclytic converters, nor against those who purchase or sell used televisions or those who purchase or sell x-rays or photographic precipitations, all of which contain some amount of precious metals. The ordinance is not even enforced against jewelers who take old precious metals and recast them into new pieces of jewelry.

The testimony showed that the ordinance is enforced only against precious metals dealers who purchase jewelry, silver flatware and serving pieces, and similar personal items. In sixteen know instances of non-compliance a notice to appear was issued.

C) Who is in the Precious Metals Business?

The term precious metal is defined to include gold, silver or platinum. § 43.-54(b). Yet Drazen testified that the ordinance was not enforced against businesses, such as medical laboratories, which sell used silver from x-rays or other medical uses.

The Police Department has consistently applied this ordinance only to those who are in the business of buying and selling used personal items of precious metals. Under such a policy, it is more than possible that the very same item could be sold to two different businesses, only one of which would be required to comply with the Orlando ordinance since the Police Department would never inquire of or require compliance by a business other than one regularly engaged in buying and selling used personal items of precious metals.

D) What Constitutes an Article?

Although the registration provision of the ordinance, § 43.55, requires that the dealer keep a register describing any articles made of precious metal which he purchases or receives, the definition section of the ordinance, § 43.54(a)-(f), does not contain any definition of such an article. Drazen testified that in connection with multi-item articles, like a flatware set, only a single registration need be completed listing how many of each sub-classifications were purchased, that is, 11 dinner forks, 13 teaspoons, etc. As a result, a dealer who failed to fill out the register in accordance with an individual officer’s current interpretation of the ordinance could be subjected to unspecified criminal penalties.

E) How Much Metal is Precious?

Further, it is unclear how much precious metal an “article of precious metal” must contain before it falls within the purview of this ordinance. A solid gold ring (24K) certainly is such an article. A 12K ring may be as well. But what if the ring is only 10K gold filled but contains a lk carat diamond or other gemstone? The total amount of precious metal in the 10K gold-filled ring may be negligible, yet the dealer seems bound to complete the registration form on such an article. A jeweler, it seems, need not complete a registration slip because, as Investigator Drazen testified, no compliance with the ordinance would be required of a jeweler for recasting.

F) During What Hours and for What Period Must the Register be Available?

1) Hours for Inspection.

The registration section provides that the register containing the information about the items and the seller “shall at all times be kept open and available for inspection and examination by the Police Department.” § 43.55(1). This provision appears to give carte blanche to any and all sworn law enforcement officers of the Orlando Police Department, § 43.54(f), to review, copy or take the dealer’s register during any hour of the day or night anytime after the purchase of an article containing precious metal. Certainly, this is the broadest reading of the ordinance. Although the Orlando Police Department has not followed such a policy, the plain language of the ordinance admits of such a far-reaching interpretation.

2) Retention of the Records.

Next, section 43.55(1) requires that the dealer keep a register containing information about the items purchased and the seller. The ordinance does not provide how long the dealer must retain these records. Presumably no longer than the statute of limitations period for burglary or theft. But if during a burglary a death occurred, no statute of limitations would attach. Must the dealer then retain all such records as long as he or she is in business? Moreover, since the dealer must furnish the Chief of Police a list of the items purchased or received each day, § 43.56, the need to retain the register for any lengthy period is unclear.

G) The Holding Period

Section 43.57 of the ordinance provides that “no old, ... articles made of precious metals shall be sold, melted, altered, transferred, given away, or otherwise disposed of by any dealer until ten (10) days have elapsed.” The clear import of this section of the ordinance is that no articles shall be sold until ten days after purchase of the item. Although the City does not have an ownership interest in the items, the ordinance, contrary to defendants’ initial position, expressly prohibits plaintiffs from alienating their property for this period of time.

In their memorandum in support of summary judgment, the defendants stated that the ordinance merely prohibits plaintiffs from transfering physical possession of items of precious metals. The ordinance does not restrict the dealers right to alienate his property so long as he retains physical possession of the items for the ten day period. At trial however, defendants argued that the ordinance prohibits any transfer of the property.

The stated purpose of this legislation is to inhibit the ease with which stolen items are disposed and to assist law enforcement efforts in identifying both the perpetrators of such thefts and the items taken. During closing argument defendants conceded that the City would be willing to alter the statutory language so as to allow the sale of items during the ten day holding period.

Though the City has decided that the holding provision does in fact mean what it says, its offer to alter this provision to allow the free alienation of property during the holding period is not sufficient to rectify the facial vagueness of the ordinance as a whole.

CONCLUSION

The Orlando precious metals ordinance as now written fails to provide adequate notice to persons who may fall within the purview of the ordinance. Additionally, the ordinance does not provide minimal guidelines to govern law enforcement. Kolender v. Lawson, 461 U.S. at 357-358, 103 S.Ct. at 1858-1859. The ordinance is impermissibly vague in all of its putative applications. As such, the Court declares the ordinance unconstitutional in toto. See Steffel v. Thompson, 415 U.S. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974). The defendants or their agents or employees are therefore permanently ENJOINED from enforcing §§ 43.54 through 43.59 of the City Code of the City of Orlando.

The Court cannot help but notice the similarities between §§ 43.54-43.59 and the Florida statute as originally enacted, Fla. Stat. §§ 812.049 and 812.051 (1981). The amended Florida statute, Fla.Stat. §§ 538.-01 and 538.02 (1983), addresses with greater specifity a number of the areas which this Court finds unduly vague in the Orlando ordinance.

Costs are taxed to defendants. Fed.R. Civ.P. 54(d).

      . [Precious Metals Ordinance]
      Sec. 43.54. Dealing in precious metals-Definitions. For the purposes of Sections 43.54 through and including 43.59 the following definitions shall apply:
      (a) Dealer. The term “dealer” shall mean any person, firm or corporation engaged in the business of purchasing or selling goods at retail or wholesale whether at a fixed place of business or as an itinerant. “Dealer” shall include owner, manager, employee or agent.
      (b) Precious metal. The term “precious metal” shall mean gold, silver or platinum.
      (c) Bullion coins. The term "bullion coins” shall mean fungible coins with intrinsic value greater than the numismatic value.
      (d) Chief of Police. The term "Chief of Police” shall mean the Chief of the Orlando Police Department or his duly authorized designee.
      (e) Orlando Police Department. The term “Orlando Police Department" shall mean any sworn law enforcement officer of the Police Department of the City of Orlando.
      (f) Coins of numismatic value. The term “coins of numismatic value” shall mean coins with intrinsic value less than the numismatic value.
      Sec. 43.55. Same—Registration of transactions.
      (1) Any dealer shall keep a register in connection with the purchase or receipt of any old, used, or secondhand article made of precious metal, said register to be approved as to type and form by the Chief of Police. At the time of each such transaction, the dealer shall enter or cause to be entered therein an accurate description of the person from whom the article made of precious metal is purchased or received, said description to include, but not to be limited to, the name, date of birth, sex, race, place of residence, place of employment, and driver’s license number, or, if none, other government identification numbers of the person, together with an accurate description of the article made of precious metal so purchase or received, which description shall contain any mark, brand, monogram, hallmark, word or letters which may be engraved, stamped, etched or otherwise permanently marked upon the article. The description of bullion coins shall be adequate if it provides the total dollar amount of each denomination. The register shall at all times be kept open and available for inspection and examination by the Police Department.

        (2) Any dealer shall, in keeping the register required in paragraph (A) above, require every person from whom the article made of precious metal is purchased or received to:
      (a) Sign his name on the registration form;
      (b) Submit reasonable proof of identity. That proof may include, but is not limited to, display of a driver’s license or other governmental identification card or certificate; and
      (c) Provide a legible thumbprint on the registration form.
      (3) It shall be unlawful for any person to give or display false identification to a dealer or to sign a false name.
      Sec. 43.56. Same—Daily list to Chief of Police of articles purchased or received.
      All dealers shall furnish to the Chief of Police a complete list each day of every old, used or secondhand article of precious metal purchased or received by such dealer, giving a full description of each such article, including any mark, brand, monogram, hallmark, and any words or letters which may be engraved, stamped, etched or otherwise permanently marked upon the article, together with the name and address of the person from whom the article was purchased or received, the name of the person purchasing or receiving the property and the name of the person completing the report. Said list shall be mailed or otherwise delivered to the Police Department by not later than 12:00 Noon of the next working day following the purchase or receipt of the article.
      Sec. 43.57. Same—Retention of articles purchase or received.
      Except for the exempt transactions hereinafter provided, no old, used or secondhand articles made of precious metals shall be sold, melted, altered, transferred, given away, or otherwise disposed of by any dealer until ten (10) days have elapsed from the date that the article was purchased or received by the dealer.
      Sec. 43.58. Same—Dealing with minors prohibited.
      It shall be unlawful for any dealer to buy, take or receive, by way of purchase or exchange, any old, used or secondhand articles made of precious metals from any person under the age of eighteen (18) years.
      43.59. Same—Exclusions.
      The following transactions shall be exempt from the provisions of Sections 43.55 through 43.58 of this Chapter:
      (1) Articles repurchased by a dealer, provided the dealer repurchases from the same person and maintains a record of the prior sale and repurchase;
      (2) Transactions between dealers, provided the article has been registered in accordance with Section 43.55 of this Chapter and held in possession of any dealer within the City for the period set forth in Section 43.57 of this Chapter;
      (3) Transactions other than those in which the seller or transferor of the article appears in person at the dealer’s place of business.
      (4) The purchase or receipt of any U.S. currency, bullion coins, or coins of numismatic value.

      . Dade County, Florida also has an ordinance regulating the sale and purchase of second-hand articles containing precious metals. Code of Metropolitan Dade County § 21.29. The Third District Court of Appeals of the State of Florida upheld the constitutionality of the Dade County ordinance. Jones v. Gray, 430 So.2d 8, 9 (3d Fla.Dist.Ct.App.1983). The provisions of the ordinance were not quoted in the Court’s opinion. However, the Court describes the ordinance as requiring that records containing a description of the item and the seller be kept open for inspection by law enforcement officials as well as submitted to them. There are other similarities including the prohibition of the purchase of such goods from minors and a fifteen day holding period.
      The Dade County ordinance appears in many respects to contain provisions much like those in the Orlando ordinance. The challenge in Jones, however, was limited to determining whether the ordinance, specifically the fifteen day holding period, was a valid exercise of the police power under Florida law and whether it constituted an impermissable burden on interstate commerce. The Court concluded that the ordinance was a valid exercise of the police power and that it was not an impermissable burden on interstate commerce. Neither Mid-Ida. Coin nor Jones, however, is binding precedent because they do not pertain to the Orlando ordinance.

      . Because the Court concludes that the ordinance is void for vagueness, the search and seizure issues necessarily implicated in the execution of the registration provision are not reached. See Mid-Fla. Coin, 529 F.Supp. at 1018-1027.


source: Caselaw Access Project

author: LYNCH, District Judge.

license: Public Domain

text:
    M.G.M. CONSTRUCTION COMPANY, a California Corporation, Plaintiff, v. ALAMEDA COUNTY, et al., Defendants.
    No. C-83-6049 EFL.
    United States District Court, N.D. California.
    March 29, 1985.
    Thomas J. Madden, Kaye, Scholer, Fierman, Hayes & Handler, Washington, D.C., Charles R. Breyer, Coblentz, Cahen, McCage & Breyer, San Francisco, Cal., for plaintiff.

      Timothy J. Murphy, Crosby, Heafey, Roach & May, Oakland, Cal., for defendants.
   ORDER RE SUMMARY JUDGMENT

LYNCH, District Judge.

This action involves a challenge to an affirmative action program adopted by Alameda County which requires that bidders for public contracts make a good-faith effort to achieve ten percent participation in their bids by minority subcontractors (See “Affirmative Action Plan for Minority-Owned Businesses,” Alameda County Resolution 16966, attached as Exhibit H to the Joint Statement of Material Facts). Plaintiff MGM Construction Company submitted the lowest bid to construct the Dougherty Reservoir and Pipeline Project. The total dollar amount of work to be performed by minority subcontractors comprised less than one percent of the plaintiff’s bid. After the bid was submitted, the plaintiff was notified by the the Alameda County Public Works Agency, which has responsibility for soliciting bids on public construction projects, that there was a question as to whether the plaintiff had complied with the good-faith requirement imposed by the County’s affirmative action program and included in the bid specifications for this project. The plaintiff’s representative, Mr. Lowe, was invited to appear before the Alameda County Flood Control and Water Conservation District’s Board of Supervisors to present evidence, which he did, to contest the Agency’s recommendation that the Board accept the bid of Underground Construction Company. Underground submitted the second-lowest bid on the project, which included thirteen percent minority subcontractor participation. At its meeting on July 26, 1984, the Board rejected the plaintiff’s bid as nonresponsive to the affirmative action requirement and accepted the bid of Underground. Although the Board apparently considered the evidence presented by the plaintiff, it declined to amend its resolution awarding the contract to the next-lowest bidder.

The plaintiff challenges the affirmative action program on federal and state grounds. The First, Second, and Fifth causes of action state equal protection and due process claims under 42 U.S.C. sections 1981 and 1983. The Fourth and Six causes of action assert pendent state claims for an alleged violation of California Public Contract Code section 20128 (formerly California Government Code section 900.4) and for alleged denial of equal protection and due process rights. The complaint requests declaratory relief and damages. The parties have filed cross-motions for summary judgment as to all causes of action.

In addressing the motions for summary judgment, the Court deems it prudent to consider the state law claims first, since that course may render it unnecessary to reach the federal constitutional issues. See Schmidt v. Oakland Unified School District, 457 U.S. 594, 102 S.Ct. 2612, 73 L.Ed.2d 245 (1982). The plaintiff claims that the District’s affirmative action program violates California Public Contract Code section 20128, which instructs local government entities to award public contracts to the “lowest responsible bidder.” The California Supreme Court has construed section 20128 to require that public contracts be “awarded to the lowest responsible bidder unless it is found that he is not responsible, i.e., not qualified to do the particular work under consideration.” Inglewood-Los Angeles County Civic Center Authority v. Superior Court, 7 Cal.3d 861, 867, 103 Cal.Rptr. 689, 500 P.2d 601 (1972). Relying on Inglewood, the Ninth Circuit held invalid a virtually identical provision in the state code, Cal.Education Code § 39640, to prohibit school boards from denying construction contracts to the lowest bidder solely because that bidder did not meet a school board requirement to utilize a certain percentage of minority-owned firms in performing the contract. Assoc. General Contractors of Calif., v. San Francisco Unified School District, 616 F.2d 1381, 1385 (9th Cir.), cert. denied, 449 U.S. 1061, 101 S.Ct. 783, 66 L.Ed.2d 603 (1980). Under the decisions cited above, this Court has no difficulty concluding that the action of the Board in denying the Dougherty Reservoir contract to the plaintiff violated state law. Moreover, to the extent the County’s affirmative action program purports to authorize the rejection of low bids on the basis of the bidder’s failure to comply with the ten percent goal for minority subcontractor participation, the program is illegal under California Public Contract Code section 20128.

The defendants do not attempt to argue this state law claim on the merits. Instead the defendants contend that the plaintiff’s claim is barred because of the plaintiff’s failure to comply with California’s “notice of claim” statute, which precludes a suit from being brought against a public entity unless the litigant has first presented his claim to the public entity for administrative resolution. Cal.Government Code §§ 945.4, 950.2. It is conceded that no formal claim was presented in this case. However, the plaintiff offers a number of reasons for why the notice of claims requirement should not serve to bar the present action.

In particular, the Court is persuaded by the plaintiff’s argument that the notice of claims provision should not apply to this suit since the primary relief sought is a declaration that the County’s affirmative action program violates state law. The notice of claims statute applies only to claims “for money or damages.” Cal. Government Code § 905. It does not apply to actions brought primarily for declaratory or injunctive relief, even though incidental money damages are sought. Snipes v. City of Bakersfield, 145 Cal.App.3d 861, 193 Cal.Rptr. 760 (1983); Van Alstyne, California Government Tort Liability Practice, § 5.23 (1980). In this case, the damages available to the plaintiff from the unlawful denial of the Dougherty Reservoir contract are relatively small. The plaintiff is only entitled to recover the expenses incurred in the preparation and submission of its bid. Swinerton & Wallberg Co. v. City of Inglewood-Los Angeles Civic Center Authority, 40 Cal.App.3d 98, 105, 114 Cal.Rptr. 834 (1974). The more significant relief sought here is a declaration that the defendants’ rule regarding minority business participation may no longer be used to deny public contracts to the plaintiff and other potential bidders. None of the recognized purposes of the notice of claims statute are implicated by a suit in which a formal policy of the locality must be declared illegal in order for the plaintiff to prevail. The Court therefore declines to hold that plaintiff’s state law claim is barred.

Summary judgment is hereby granted in favor of the plaintiff. Declaratory relief shall be as set forth above. The plaintiff is also entitled to collect damages from the defendants in an amount not to exceed the expenses incurred by the plaintiff in its bid preparation and submission.

The Court assumes the parties can reach an agreement on the amount of damages in light of this Order. Final judgment will be entered in this case 60 days hence, unless the parties require further intervention by the Court.

IT IS SO ORDERED.


author: DITTER, District Judge.

text:
    Margaret J. O’Neill QUINN On behalf of herself and all others similarly situated v. A.I. CREDIT CORPORATION.
    Civ. A. No. 83-1617.
    United States District Court, E.D. Pennsylvania.
    April 9, 1985.

      Anthony B. Quinn, Philadelphia, Pa., for plaintiff.
    Rudolph Garcia, Philadelphia, Pa., for defendant.
   MEMORANDUM AND ORDER

DITTER, District Judge.

Plaintiff brings this action on behalf of herself and all others similarly situated to recover for defendant’s alleged violation of the Truth in Lending Act (The “Act”). It is alleged that defendant, in connection with a loan to plaintiff, failed to make the disclosures required by the Act. Presently before me is defendant’s motion for summary judgment. In this motion defendant asserts the transaction of which plaintiff complains was not “in connection with a consumer credit transaction” and is therefore exempt from the Truth in Lending Act. Plaintiff responds that the defense of exemption has been waived and alternatively, if it has not been waived, it is simply not available in this situation.

Initially, I find plaintiff’s waiver argument must fail. Defendant’s answer to the complaint denied that the disputed transaction was subject to the strictures of the Act and also raised lack of subject matter jurisdiction as a defense. As stated by the Third Circuit, to qualify for the Act’s protection, plaintiff must show that the disputed transaction was “a consumer credit transaction, not a business transaction.” Katz v. Carte Blanche Corp., 496 F.2d 747, 751 (3d Cir.), cert. denied, 419 U.S. 885, 95 S.Ct. 152, 42 L.Ed.2d 125 (1974). In fact, this court’s “jurisdiction depends upon an extension of credit, wherein the underlying transaction qualifies as a consumer credit transaction and not one for business or commercial purposes.” Gerasta v. Hibernia National Bank, 411 F.Supp. 176, 185 (E.D.La.1976), rev’d on other grounds, 575 F.2d 580 (5th Cir.1978); 15 U.S.C. §§ 1601, 1602(h) (1982). Subject matter jurisdiction is something that can never be waived.

Turning to the merits I find there exists no genuine issue as to any material fact, Federal Rule of Civil Procedure 56, and that even when viewed in the light most favorable to plaintiff, the facts lead to the inescapable conclusion that this was not a consumer credit transaction. A brief recitation of the undisputed factual background is necessary.

The financing transaction forming the basis of this suit was intended, and did in fact finance a commercial fire insurance policy. This insurance policy is written in the name of the plaintiff, Margaret O’Neill, on a form used “exclusively for writing commercial insurance policies.” Affidavit of William Kronenberg, Assistant Vice President of National Union Fire Insurance Co. The insured premises were two adjacent row houses, 3540-42 Kensington Ave., Philadelphia, Pa.

In the application for insurance received by the underwriter, Johnson Excess, Ltd. (“Johnson”), on behalf of plaintiff, the “insured’s operations” are described as “Hobby Shop & Apt.” Similarly, in the “remarks” section of the application the following appears: “Owner occupied 2 Apts. & Hobby Shop.” Upon receipt of this application Johnson issued a commercial fire insurance policy “because the application described the insured’s operations as a hobby shop and apartments.” Affidavit of Edward S. Johnson, president of Johnson Excess, Ltd. Furthermore, in an inspection report prepared by O’Hanlon Reports, Inc., at the request of Johnson, the following appears: “This building is a 2 story brick constructed row type building____ There are 2 apartments on upper floors. The 1st floor is a hobby shop with stock and fixtures in good order. The interior is well kept, ood [sic] floors in good order. Caters to a working class clientel.” Id. The above described use of the subject premises is in keeping with the description given in the body of the insurance policy itself which states the building is “occupied as Hobby Shop and Apartments.” Id.; affidavit of William Kronenberg.

Plaintiff has not refuted any of the above contentions. For example, in her affidavit she confirms that her business operations and two rental apartments are located in the insured premises. She also confirms that the building is owner occupied. Affidavit of Margaret J. O’Neill Quinn, at ¶¶ 14-16. Finally, she admitted that she deducted the entire 1982 fire insurance premium as a business expense on her 1982 tax return and fully intended to deduct the 1983 premium as a business expense on that years tax return. Deposition of Margaret J. O’Neill Quinn at 41.

In reviewing the financing transaction as a whole in light of “the entire surrounding factual circumstances,” Tower v. Moss, 625 F.2d 1161, 1166 n. 4 (5th Cir.1980), it is beyond question that this transaction was not “primarily for personal, family, or household purposes.” 15 U.S.C. § 1602(h). If anything, the transaction was primarily commercial. 15 U.S.C. § 1603(1). Therefore, the Act is inapplicable and plaintiff may not invoke its protections. See American Express Co. v. Koerner, 452 U.S. 233, 245, 101 S.Ct. 2281, 2288, 68 L.Ed.2d 803 (1981) (“overall purpose” of the transaction underlying the financing must be personal).

One last point bears mention. Plaintiff, in what can be characterized as an implicit recognition of the weakness of her position, has advanced the untenable argument that when a transaction is for both personal and business purposes, it must be deemed personal. In other words, plaintiff takes the position that the statute, which exempts transactions that are “primarily” commercial, really should be read as excluding only those transactions which are “exclusively” commercial. Not only is such a reading contrary to the express wording of the statute, but it is one which has been, without exception, resoundly rejected by both federal and state courts. See American Express Co. v. Koerner, 452 U.S. 233, 101 S.Ct. 2281, 68 L.Ed.2d 803 (1981) (despite the fact that it is often difficult “to characterize the overall purpose” of an account, the Act “requires creditors and the courts to undertake this task”); Smith v. Chapman, 436 F.Supp. 58 (W.D.Tex.1977), “aff’d, 614 F.2d 968 (5th Cir.1980) (transaction need not be entirely personal but must be primarily so). See also, Gallegos v. Stokes, 593 F.2d 372 (10th Cir.1979); Anderson v. Foothill Industrial Bank, 674 P.2d 232 (Wyo.1984); First National Bank of Belleville v. Skidis, 82 Ill.App.3d 602, 38 Ill.Dec. 41, 403 N.E.2d 56 (1980).

For all the above reasons, defendant’s motion for summary judgment must be granted.

      . Because this case was filed as a class action, I found the following exchange at plaintiffs deposition interesting.
      Q Do you know what a class action is?
      A No.
      Q Do you understand that in this case an effort is being made to have you be a representative of a class of lots of people and that you would be acting for them in this case? Was that ever explained to you?
      A No.
      Q Do you know that substantial expense could be involved in notifying possibly hundreds of thousands of people who might be members of the class and that you would have to pay for those expenses?
      A No.
      MR. QUINN: If ordered by the Court; right?
      BY MR. GARCIA:
      Q Are you willing to pay substantial amounts of money for expenses involved in conducting this as a class action, if necessary?
      A No, not right now.
      Q Are you willing to testify in court for several days, if necessary, at a trial in this case?
      A Well, I work every day.
      Q So you wouldn't want to do that?
      A No.
      Q If it becomes necessary to spend a few thousand dollars ...
      MR. QUINN: Objection. Asked and answered, but the witness may answer again.
      BY MR. GARCIA:
      Q ... for expenses in this case, are you willing to spend that money?
      A No, I'm not.
      Q Do you have an agreement with your attorneys about their fees in this case?
      A No, we don’t. No.
      Q You have never discussed fees with them?
      A No, I haven’t.
      Deposition of Margaret J. O’Neill Quinn at 8-9 7 42-43.

      . As a corollary to plaintiff’s waiver argument she asserts summary judgment on the "business transaction” defense is inappropriate because plaintiff was unfairly surprised and as such unable to challenge the argument properly. She apparently intended to refute the argument by presentation “as soon as possible” of the "affidavit of the insurance salesman involved in this transaction.” However, defendant submitted its affidavits on May 30, 1984, and in the intervening time plaintiff has neither requested a stay nor submitted any additional affidavits.


author: GILES, District Judge.

text:
    Dennis BURNS v. SUPERMARKETS GENERAL CORPORATION, et al.
    Civ. A. No. 83-6054.
    United States District Court, E.D. Pennsylvania.
    April 23, 1985.

      Neil Jokelson, Philadelphia, Pa., for plaintiff.
    Michael F. Kraemer, Philadelphia, Pa., for Supermarkets General Corp.
    Margaret A. Browning, Philadelphia, Pa., Ira B. Silverstein, Atlantic City, N.J., for Retail, Wholesale & Dept. Store Union, Local 1034.
   MEMORANDUM

GILES, District Judge.

Dennis Burns was employed as a produce clerk at one of Supermarkets General Corporation’s Pathmark stores (“Path-mark”). His duties included surveying the fruit and vegetable displays and reducing the price of produce that was no longer first quality. He was discharged by Path-mark because allegedly he was improperly reducing the price of first quality produce. The produce supervisor, Mr. McGuigan, informed the lead produce clerk, Mr. Reeser, of the discharge, reviewed with him what Burns had or had not done relative to procedures or standards for reducing the price of produce and commented that reducing merchandise improperly “is like stealing.” Mr. Burns filed a grievance consistent with the subsisting collective bargaining agreement claiming that his discharge was not for just cause. The grievance was processed in accordance with established procedures under the labor agreement. The company and union worked out a settlement proposal which the union presented to Mr. Burns. He claims that he never accepted it. The other parties contend otherwise.

Jurisdiction is founded upon diversity of citizenship. 28 U.S.C. § 1332. Plaintiff is a citizen of Pennsylvania. Pathmark is a Delaware corporation, although the Path-mark store in question is located in Philadelphia, Pennsylvania. Mr. Burns brought this action against the company claiming defamation under Pennsylvania law, breach of the collective bargaining agreement and unlawful discrimination under the National Labor Relations Act. He filed no claim against the union. However, Pathmark filed a third party action against the union alleging that if it had any legal responsibility to plaintiff under the labor agreement that the union was liable to it for indemnification or contribution because the union had breached the duty of fair representation owed to plaintiff. The union has joined in Pathmark’s motion for summary judgment and has moved for summary judgment on the third party complaint asserting, by affidavit of the union attorney handling the grievance and related settlement negotiations, that the union met its duty of fair representation as a matter of law.

A. The Defamation Claim

Pathmark argues that the statement, paraphrased, “Burns was discharged for improperly reducing the price of produce which is like stealing,” is incapable of a defamatory meaning. Assuming that the statement is defamatory, Pathmark alternatively contends that the statement was conditionally privileged, having been uttered by one of its agents to a Pathmark employee to whom there was a duty to report the basis for the termination.

Under Pennsylvania law, a plaintiff has the burden of proving the defamatory character of the communication, its publication by the defendant, its application to the plaintiff, and the understanding by the recipient of its defamatory meaning. 42 Pa.C.S.A. § 8343(a). This court must make a preliminary determination whether the statement in question “is capable of a defamatory meaning.” Agriss v. Roadway Express, Inc., 334 Pa.Super. 295, 483 A.2d 456, 461 (1984). Only if the court finds that the statement may be understood as defamatory, is it “for the jury to determine whether it was so understood by the recipient.” Id., citing Corabi v. Curtis Publishing Co., 441 Pa. 432, 273 A.2d 899 (1971); Dunlap v. Philadelphia Newspapers, Inc., 301 Pa.Super. 475, 448 A.2d 6 (1982). A communication is defamatory if it tends to harm the reputation of another and “ ‘to lower him in the estimation of the community or to deter third persons from associating or dealing with him.’ ” Thomas Merton Center v. Rockwell International Corp., 497 Pa. 460, 464, 442 A.2d 213 (1981), cert. denied, 457 U.S. 1134, 102 S.Ct. 2961, 73 L.Ed.2d 1351 (1982), quoting Birl v. Philadelphia Electric Co., 402 Pa. 297, 303, 167 A.2d 472 (1960). The test for determining whether the communication complained of is capable of a defamatory meaning is the effect that the statement taken as a whole “would fairly produce, or the impression it would naturally engender, ‘in the minds of the average persons among whom it is intended to circulate.’ ” Rybas v. Wapner, 311 Pa.Super. 50, 457 A.2d 108, 110 (1983), quoting, Corabi, supra, 441 Pa. at 447, 273 A.2d 899. “[T]he nature of the audience hearing the remark [or statement] is a critical factor in considering whether” the communication is defamatory. Beckman v. Dunn, 276 Pa.Super. 527, 534, 419 A.2d 583 (1980).

There are two categories of defamatory words, those which are actionable, per se, on their face without need of extrinsic proof, and those which are actionable per quod, that is, words that by surrounding circumstances can be shown to be slanderous. Mumma v. Pomeroy’s Inc., 38 D. & C.2d 594, 596-97 (1965). In this case, the communication in question is alleged to have accused plaintiff of the crime of stealing. To be actionable the statement must impute directly or indirectly the commission of a criminal offense chargeable by indictment and punishable by imprisonment. See Williams v. Kroger Grocery & Baking Co., 337 Pa. 17, 10 A.2d 8 (1940); Grund v. Bethlehem Globe Pub. Co., 23 D. & C.3d 371, 377 (1982); Mumma, supra, 38 D. & C.2d at 597. Certainly, a statement that one is a thief is actionable per se.

Here, there was no statement that plaintiff was guilty of stealing produce. Therefore, the issue becomes whether under the circumstances the statement “reducing the price of good produce improperly is like stealing” is reasonably capable of being understood as an imputation of the commission of a crime. It seems rather unreasonable for anyone to interpret a statement that a produce clerk’s mistake of judgment in not following established store procedures for merchandise price reduction equates to actual stealing by him from the store. However, plaintiff has produced evidence of at least one person, Mr. Reeser, who claims that he interpreted Mr. McGuigan’s statement in just such a manner. Mr. Reeser stated in his deposition that he “understood it as they were saying that he was stealing.” (Reeser Dep. N.T. 30). He also answered the question, “[d]id you hear anybody accuse Dennis Burns of stealing?” in the affirmative. Upon further questioning it became clear that Mr. Reeser was referring to the allegedly defamatory remark. Mr. Reeser also testified at his deposition that he told his family and friends that Mr. McGuigan had said that what plaintiff did was just like stealing because “the man [Burns] was fired for stealing, and he wasn’t stealing.” (Reeser Dep. N.T. 33).

Nevertheless, under Pennsylvania law, Mr. Reeser’s reiteration of Mr. McGuigan’s communication is insufficient to establish defamation. Pennsylvania has adopted the relevant sections of the Restatement (Second) of Torts. Redco Corp. v. CBS, Inc., et al., 758 F.2d 970, 971 (3d Cir.1985); see Braig v. Field Communications, 310 Pa.Super. 569, 456 A.2d 1366, 1372-73 (1983). Under Restatement (Second) of Torts § 566 “[a] defamatory communication may consist of a statement in the form of an opinion, but a statement of this nature is actionable only if it implies the allegation of undisclosed facts as the basis for the opinion.” As the Third Circuit explained:

Although there may be no such thing as a false opinion, an opinion which is unfounded reveals its lack of merit when the opinion-holder discloses the factual basis for the idea. If the disclosed facts are true and the opinion is defamatory, a listener may choose to accept or reject it on the basis of an independent evaluation of the facts. However, if an opinion is stated in a manner that implies that it draws upon unstated facts for its basis, the listener is unable to make an evaluation of the soundness of the opinion. In such circumstances, if the underlying facts are false, the Constitution does not protect the opinion.

Redco Corp., supra, 758 F.2d at 972. Here, Mr. Reeser knew that plaintiff was suspended and then terminated for reducing merchandise improperly. (Reeser Dep. N.T. 30). The reason for plaintiff’s suspension was made known to Mr. Reeser by Mr. McGuigan, the utterer of the allegedly defamatory statement. (Reeser Dep. N.T. 27). Mr. Reeser also knew that plaintiff had not stolen anything. (Reeser Dep. N.T. 30). Mr. McGuigan, in stating that reducing merchandise improperly is like stealing, was simply expressing his opinion. Mr. Reeser, having been given the underlying facts, was able to draw his own conclusion:

It wasn’t just like stealing. Stealing is when you put something in your pocket, and you walk out of the store. Putting merchandise in the bag, and putting a price right on it, and customers are coming in and buying it up—they consider stealing, as I know the way they were looking at it, was completely wrong. They were just looking at it, because there was good merchandise in the bags, and the company is losing money, you know. And that wasn’t stealing. The man was just doing what he thought was right.

(Reeser Dep. N.T. 34).

Even if it is assumed that Mr. McGuigan’s statement was defamatory, a conditional privilege attaches which defeats plaintiff’s defamation claim. A conditional privilege applies “ ‘when the circumstances are such as to lead any one of several persons having a common interest in a particular subject matter correctly or reasonably to believe that facts exist which another sharing such common interest is entitled to know.’ ” Beckman, supra, 276 Pa.Super. at 536, 419 A.2d 583, quoting Rankin v. Phillippe, 206 Pa.Super. 27, 30, 211 A.2d 56, 58 (1965) (citation omitted). To be privileged, the communication must be “made on a proper occasion, from a proper motive, in a proper manner, and based upon reasonable cause.” Id., citing Baird v. Dun & Bradstreet, Inc., 446 Pa. 266, 285 A.2d 166 (1971); Dempsky v. Double, 386 Pa. 542, 126 A.2d 915 (1956). There are three proper occasions which give rise to a conditional privilege: when “(1) some interest of the person who publishes defamatory matter is involved; (2) some interest of the person to whom the matter is published or some other third person is involved; or (3) a recognized interest of the public is involved.” Beckman, supra, 276 Pa.Super. at 536, 419 A.2d 583, citing Keddie v. Pennsylvania State University, 412 F.Supp. 1264, 1277 n. 7 (M.D.Pa.1976); MacRae v. Afro-American Co., 172 F.Supp. 184 (E.D.Pa.1959), aff’d, 274 F.2d 287 (3d Cir.1960). Mr. Reeser held a position which required management to inform him of the reasons for discipline of employees within his department. (Reeser Dep. N.T. 17, 45-46). He therefore had a direct interest in the matter. Thus the motive for telling Reeser of the suspension was proper and the statement was made on a proper occasion. The manner in which Mr. Reeser was informed of the suspension was proper as well. Mr. McGuigan’s statement was, as previously discussed, a matter of his opinion and was stated by him only to those who had a need to know of why plaintiff was being suspended.

A conditional privilege can be defeated by a showing that the privilege was abused. Abuse can be shown:

when the publication is actuated by malice or negligence, ... is made for a purpose other than that for which the privilege is given, ... or to a person not reasonably believed to be necessary for the accomplishment of the purpose of the privilege, ... or includes defamatory matter not reasonably believed to be necessary for the accomplishment of the purpose.

Beckman, supra, 276 Pa.Super. at 587, 419 A.2d 583 (citations and footnote omitted). Plaintiff has not shown abuse of this privilege by defendant. There is no evidence that management employees communicated the alleged defamatory statement beyond the privileged disciplinary discussions among interested persons. Mr. Reeser stated that he told plaintiff that what he was doing (reducing good produce improperly) was said to be like stealing and that he may have told friends and members of his family (Reeser Dep. N.T. 33). He told no one that plaintiff had stolen but rather that, contrary to the company’s analogy to stealing, plaintiff had not stolen anything. He repeated the statement to emphasize that plaintiff’s only mistake in judgment was reducing the price of good produce improperly. (Reeser Dep. N.T. 33). Accordingly, for this separate reason, the plaintiff’s defamation action fails. 42 Pa.C. S.A. § 8343(a)(7).

B. The Section 301 Claim

Plaintiff claims that the employer breached the collective bargaining agreement by discharging him for improperly reducing the price of produce. He chose not to sue the union for breach of the duty of fair representation. In order for a union member to maintain an action against the employer, he must show that the union breached a duty of fair representation in the handling of the employee’s grievance. Vaca v. Sipes, 386 U.S. 171, 87 S.Ct. 903, 17 L.Ed.2d 842 (1967). This requirement is to ensure that the employee does not circumvent established grievance resolution mechanisms of collectively bargained agreements or attempt to circumvent the agency of the union by trying to deal directly with management. Republic Steel Corp. v. Maddox, 379 U.S. 650, 85 S.Ct. 614, 13 L.Ed.2d 580 (1965).

Plaintiff contends that the failure of the union to take his grievance to arbitration was arbitrary. The union, by affidavit of its attorney, contends that while its initial decision was to demand arbitration, it subsequently entered into negotiations with the company which resulted in a settlement of the grievance. The union and company reached an agreement, which was to become final if approved by plaintiff. The union contends that the final settlement of the grievance provided plaintiff with a greater sum of unemployment compensation, back pay and damages than he could have received had the grievance been pursued to arbitration. The plaintiff’s acceptance of the settlement was communicated to the company. It appears that the plaintiff had obtained another job while the negotiations were ongoing and as of the time he allegedly approved the settlement in a conversation with the union attorney. Therefore, reinstatement at Pathmark was not part of the settlement package. He apparently lost that position prior to the date in August 1983 when the settlement check and release were presented to him, the latter for his signature. The union concluded that the settlement as proferred to Mr. Burns was fair, reasonable and warranted his acceptance in lieu of arbitration. The union maintains that there was a settlement binding upon Mr. Burns and the company. The union claims that it learned that plaintiff’s new job had fallen through at a date considerably after this lawsuit was brought.

Because it appears that the final settlement was contingent upon the plaintiff executing a release and, in declining to do so, he rejected the offer, it cannot be said that there was an agreement binding upon plaintiff. However, the employer cannot at this stage be found to have breached the labor contract. Pathmark would have proceeded to arbitration upon the union’s demand but was specifically informed by the union that there was a settlement, plaintiff having verbally agreed to the same. Further, the company was led by the union to believe that the settlement offer should be continued indefinitely so that plaintiff could accept it should he have a change of heart. This is evidenced by Ms. Browning’s letter of May 8, 1984, directed to the company accompanying the return of the checks for safekeeping but clarifying that their return would not in any way affect the settlement agreement reached.

The court having now determined that there was no settlement by and between plaintiff, the company and the union, the union must now be given the opportunity to demand arbitration under the labor agreement or to explain why it exercises its judgment not to do so. In view of the settlement discussions that were had and tentative agreement reached on plaintiff’s behalf by the union, it cannot be said on this record that the union acted arbitrarily in its representation of plaintiff. Thus, the requisite showing of exhaustion of internal contractual remedies that must be made before this court can consider plaintiff’s § 301 claim is lacking. Accordingly, the section 301 action shall be dismissed without prejudice.

C. The Unfair Labor Practice Claim

The National Labor Relations Board has exclusive jurisdiction of this claim and it must be dismissed here for lack of subject matter jurisdiction.

An appropriate order follows.

ORDER

AND NOW, this 23rd day of April, 1985, for the reasons stated in the accompanying memorandum, it is hereby ORDERED that:

1. Pathmark’s motion for summary judgment is GRANTED as to plaintiff’s defamation claim.

2. The § 301 claims by plaintiff against Pathmark and by Pathmark against the union are DISMISSED for lack of subject matter jurisdiction. The parties are directed to exhaust the grievance and/or arbitration provisions of the collective bargaining agreement.

3. Plaintiff’s unfair labor practice claim is DISMISSED for lack of subject matter jurisdiction.

      . The requirement enuniciated in Mumma that a plaintiff must prove special damages or harm in order to recover in a libel action was recently overruled in Agriss, supra, 483 A.2d at 474. Nevertheless, this overruling did not affect the fact that Pennsylvania courts recognize two categories of defamatory expressions—those which are defamatory on their face and those which are found to be defamatory through extrinsic facts and evidence.


author: SCOTT REED, District Judge.

text:
    Maurice W. MILLER, Jr. and Lucinda C. Miller v. UNITED STATES of America, Defendant.
    Civ. A. No. 80-151.
    United States District Court, E.D. Kentucky.
    May 21, 1985.

      George F. Rabe, William C. Clay, Jr., Clay, Williamson & Rabe, Lexington, Ky., for plaintiffs.
    U.S. Atty., Lexington, Ky., for defendant.
   MEMORANDUM OPINION

SCOTT REED, District Judge.

This matter is before the Court on the defendant’s motion for summary judgment and on the plaintiffs’ motion for partial summary judgment as to the statute in question in this action. The defendant has filed a memorandum and exhibits supporting its motion for summary judgment, to which the plaintiffs have responded.

A review of the record indicates that this action is appropriate for resolution by summary judgment, pursuant to FRCP 56, since it appears that there are no genuine issues of material fact in dispute. The factual background giving rise to this tax refund suit may be briefly summarized as follows:

1. In September of 1975, plaintiffs’ breeding cattle were diagnosed as having brucellosis (commonly known as “bang’s disease”) and became unsuitable for breeding purposes.

2. Consequently, plaintiffs sold their breeding cattle for slaughter and recovered a gain of $42,708.50, which was treated as ordinary income on the plaintiffs’ 1976 U.S. individual income tax return.

3. Subsequently, based on §' 1033(f) of the Internal Revenue Code, the plaintiffs concluded that said proceeds of $42,708.50 from the sale of the diseased cattle should not have been recognized as ordinary income, and the plaintiffs filed an amended U.S. individual tax return for 1976, wherein they deferred recognition of the cattle proceeds of $42,708.50 and sought a refund of $27,713.00 from the Internal Revenue Service (hereinafter “IRS”).

4. The IRS reviewed plaintiffs’ amended tax return for 1976, and determined that brucellosis, the disease affecting plaintiffs’ cattle, did not qualify for the special tax treatment set forth in § 1033(f) of the Internal Revenue Code, and denied plaintiffs’ claim for a tax refund of $27,713.00, which precipitated the filing of this action.

Therefore, the Court is of the opinion that the resolution of this action turns on an interpretation of §§ 1033(a), (d) and (f) of the Internal Revenue Code (Title 26) concerning “involuntary conversions,” as applied to the plaintiffs’ situation.

In reviewing the aforementioned provisions of the Internal Revenue Code, the Court notes that § 1033(a). sets out the general rule that, to paraphrase, if property is compulsorily or involuntarily converted (as a result of its destruction in whole or in part, theft, seizure, requisition, condemnation or threat or imminence thereof) and converted into property similar or related in service or use to the property so converted, no gain shall be recognized by the taxpayer. Subsections (d) and (f) are expansions of the general rule laid down in subsection (a).

Section 1033(d) provides that:

For purposes of this subtitle, if livestock are destroyed by or on account of disease, or are sold or exchanged because of disease, such destruction or such sale or exchange shall be treated as an involuntary conversion to which this section applies.

26 U.S.C. § 1033(f) addresses the tax treatment of livestock that has been exposed to environmental contamination and provides that:

For purposes of subsection (a), if, because of soil contamination or other environmental contamination, it is not feasible for the taxpayer to reinvest the proceeds from compulsorily or involuntarily converted livestock in property similar or related in use to the livestock so converted, other property (including real property) used for farming purposes shall be treated as property similar or related in service or use to the livestock so converted.

From a reading of subsections (a) and (d), it appears to the Court that if a taxpayer’s livestock is sold or exchanged because of disease, an “involuntary conversion” has occurred, and the taxpayer may reinvest the proceeds from the sale of the diseased livestock into “similar property” (e.g., livestock) and defer recognition of any gain realized on the sale of the diseased livestock.

In construing subsections (a), (d) and (f) together, it seems that a taxpayer who has suffered an “involuntary conversion” of his livestock due to an environmental or soil contamination or pollution is afforded the opportunity to also invest the proceeds from such an “involuntary conversion” in other property used for farming purposes (including real property), rather than reinvesting in the proceeds in “similar property” (e.g., livestock), if such reinvestment in replacement livestock would not be feasible at the time for the taxpayer. For example, if the environmental or soil contamination could not be eliminated within the period of time in which the taxpayer had to reinvest the proceeds from the “involuntarily converted” livestock, as prescribed by the Internal Revenue Code, without having to recognize the proceeds as ordinary income, then the taxpayer could elect to invest said proceeds in other property used for farming purposes, in lieu of purchasing replacement livestock. In this particular situation, such investment in “other” property would be classified as an investment in “similar property,” and the taxpayer would not have to recognize any gain on the “involuntary conversion” of the contaminated livestock.

The defendant’s position is that § 1033(d) governs the situation where a taxpayer experiences an involuntary conversion of diseased cattle, and that § 1033(f) only applies to the situation where the involuntary conversion of the livestock is due to an environmental or soil contamination.

The defendant submits that when a § 1033(d) situation occurs, to defer recognition on the gain of the sale of the diseased cattle, the taxpayer must reinvest the proceeds in “similar property” (i.e., cattle), and that when a § 1033(f) occurs, to defer recognition on the gain of the sale of the cattle, the taxpayer may elect to reinvest the proceeds in “similar property” (i.e., cattle) or other property (including real property) to be used for farming purposes.

In support of its analysis and applicability of § 1033(d) and (f), the defendant delves into the legislative history of the two subsections and advises the Court that § 1033(d) has been a part of the Internal Revenue Code since 1954, whereas § 1033(f) is a relatively new provision in the Code, having been enacted in 1978.

The legislative history indicates that the final draft of § 1033(f) was quite different from the original proposal, which was introduced by Senator Griffin of Michigan and provided as follows:

If the proceeds from livestock which is compulsorily or involuntarily converted are reinvested in other property (including real property) to be used for farming purposes, the property shall be treated as property similar or related in service or use to the livestock so converted.

Amendment 4152,124 Cong.Rec. 35298 (October 10, 1978).

The Court notes that if Congress had enacted § 1033(f) as it was originally proposed, the effect would have been to nullify § 1033(d), since the proposed § 1033(f) dealt with all compulsory or involuntary conversions, regardless of the reason, and gave the taxpayer the option to reinvest the proceeds therefrom in other property besides livestock.

Apparently, Congress recognized the consequences of enacting § 1033(f) as it was proposed, inasmuch as Congress redesigned § 1033(f) to allow for the discretionary reinvestment in other farm property only in cases where the involuntary conversion was due to environmental or soil contamination. This rationale is evidenced by the Conference Report, which stated:

Conference agreement.—The conference agreement follows the Senate, amendment, except that gain realized from the involuntary conversion of livestock can be rolled over into other farming property only if the conversion of the livestock was due to environmental contamination. In all other cases, [sic] the provisions of present law would continue to apply with respect to gain realized on the involuntary conversion of livestock. (Emphasis supplied).

H.R.Rep. 95-1800, 95th Cong. 2nd Sess., page 291.

Since Congress did not repeal § 1033(d) at the time it enacted § 1033(f), the legislative history implies that Congress intended that only in cases of environmental contamination, rather than disease, would the taxpayer have the discretion to replace involuntarily converted livestock with other farm property.

The plaintiffs contend that brucellosis, the disease affecting their cattle, should be classified as an “other environmental contamination” under the purview of § 1033(f), since the bacteria or organisms which cause the disease are transmitted to the animal from its environment. Such a classification of “disease” would allow the plaintiffs to take advantage of the preferential tax treatment afforded by § 1033(f).

While it is without doubt that a disease may be transmitted to an animal through its environment, such a communicable disease is not tantamount to an “environmental contaminant.” Plaintiffs’ proposition that they are one and the same is too strained to hold water. If a disease were deemed to be an environmental contaminant, the end result would, for all intents arid purposes, render § 1033(d) impotent. The Court is of the opinion that Congress intended for § 1033(d) to remain a viable part of the Internal Revenue Code.

As the defendant points out, the law is well settled that, as “a basic principle of statutory construction ..., a specific statute controls over a general provision ..., particularly when the two are interrelated and closely positioned____” HCSC-Laundry v. United States, 450 U.S. 1, 6, 101 S.Ct. 836, 839, 67 L.Ed.2d 1 (1980). Additionally, closely positioned parts of the same statute are to be construed harmoniously. C.D. Sands (ed.), 2A Sutherland Statutes and Statutory Construction, Section 51.02 (4th Ed.1973).

In conclusion, in reviewing this record, the Court concludes that this matter is ripe for disposition by summary judgment, as all parties agree that there are no genuine issues of material fact. Furthermore, the Court is of the opinion that the defendant is entitled to summary judgment as a matter of law, and that plaintiffs’ complaint must be dismissed.

A separate Order in conformity with the Court’s opinion shall be entered in conjunction with this memorandum opinion.


author: PAINE, District Judge.

text:
    Tony CARVALHO, Plaintiff, v. MacARTHUR CORPORATION, Defendant.
    No. 83-8280-Civ-JCP.
    United States District Court, S.D. Florida.
    May 24, 1985.
    Evan I. Fetterman, Law Offices of Fetterman & Assoc., North Palm Beach, Fla., for plaintiff.
    Paul C. Heidmann, Herbert Mintz, Muller, Mintz, Kornreich, Caldwell, Casey, Crosland & Bramnick, P.A., Miami, Fla., David Bradford, Niles, Ill., for MacArthur Corp.
   ORDER

PAINE, District Judge.

THIS CAUSE is before the Court on a motion for summary judgment, filed on behalf of the defendant, MacArthur Corporation [D.E. 16]. That motion claims that the plaintiff, whose action was brought under the Age Discrimination in Employment Act [hereafter ADEA], Title 29 U.S.C. § 621 et seq., is not entitled to either compensatory or punitive damages under the Act. Therefore, defendant argues, that portion of plaintiff’s Count II, whereby he sought damages for “... extreme embarrassment and humiliation, and irreparable injury to his employment record ...” and Count III of the complaint, which sought punitive damages, should be adjudged summarily in defendant’s favor.

This seemingly straightforward motion has spawned a heated and protracted series of pleadings:

D.E. 19—Memo in opposition to motion for summary judgment [filed by plaintiff];
D.E. 20—Motion to strike opposition memo [filed by defendant]
D.E. 21—Supplementary motion to strike and reply memo to opposition memo [filed by defendant]
D.E. 22—Memo in opposition to motion to strike [filed by plaintiff]
D.E. 24—Reply memo in support of motion to strike opposition mem [filed by defendant]

This Court has considered each of these filings, not because such a plethora of memos is in the least appropriate to such a motion, but in its desire to, fairly and finally, put the matter to rest.

The legal issue is quite clear to this Court. Under the holding of Dean v. American Security Insurance Co., 559 F.2d 1036 (5th Cir.1977), cert. denied 434 U.S. 1066, 98 S.Ct. 1243, 55 L.Ed.2d 767 (1978), which is binding upon this Court under the holding of Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir.1981), the plaintiff is not entitled to either compensatory or punitive damages under the ADEA. Plaintiffs untimely proffer of legal authority to the contrary (Brenimer v. Great Western Sugar Co., 567 F.Supp. 218 (D.Colo.1983); Wise v. Olan Mills, Inc., of Texas, 485 F.Supp. 542 (D.Colo.1980); and Kennedy v. Mountain States Tel. & Tel. Co., 449 F.Supp. 1008 (D.Colo.1978)) is wholly without even academic merit, much less persuasive or binding effect on this Court, in light of the decision rendered in Perrell v. FinanceAmerica Corp., 726 F.2d 654 (10th Cir.1984). Therefore, this court finds that, as a matter of law, the defendant is entitled to partial summary judgment on plaintiff’s claim in Count II for compensatory damages and in Count III for punitive damages.

The other issue, which seems to have overshadowed the substantive legal issue presented by the motion, is whether the plaintiff’s legally untenable damages claims, his unorthodox opposition to the defendant’s motion for summary judgment, and the filings which defendant feels were unnecessarily required by virtue thereof, warrant the awarding of costs to the defendant. This Court feels they do warrant an award of costs which the defendant has incurred in connection with the filings listed at the beginning of this order.

The defendant’s motion to strike and reply memorandum in support thereof [D.E. 20 & 24] offer a straightforward recitation of the grounds which justify the imposition of costs on the plaintiff. Of these, this Court is most concerned with the plaintiff’s transparent attempt to avoid addressing the legal issue of damages under the ADEA by arguing that one of the counts was not brought under the ADEA, but was a pendent claim for conspiracy. This, the Court finds specious, in the face of a complaint which expressly states that it is brought under the ADEA, whose only jurisdictional bases pertain to federal civil rights claims and the ADEA, and which is wholly devoid of any reference to Florida law or conspiracy. Moreover, when the defendant first raised the impropriety of the compensatory and punitive damages sought by affirmative defense, and plaintiff responded to the affirmative defenses, plaintiff did not argue that Count III was intended to state a pendent state claim. To add insult to injury, five months after the motion to strike was filed by the defendant, the plaintiff changed its tack and attempted to offer District Court cases from Colorado, to argue that punitive and compensatory damages were permitted under the ADEA. This untimely, unpersuasive, and borderline unethical act of the plaintiff simply underscores the inappropriateness of the matter. This the Court will not condone. This is not vigorous advocacy on behalf of one’s client, but legal folly. It has cost each client money, has delayed the progress of the case and, no doubt, has eroded working relations between counsel for the parties concerned.

As to the pleadings here concerned, this Court finds that they were not well-grounded in fact or warranted by existing law. Indeed, they could not even be said to constitute a good faith argument for the modification or reversal of existing law. As such, they are in violation of Rule 11, Fed.R.Civ.P. and subject to sanction.

It is hereby

ORDERED and ADJUDGED that the motion for partial summary judgment of the defendant, MacARTHUR CORPORATION, is granted, and this Court will not consider compensatory or punitive damages under plaintiff’s claims;

FURTHER ORDERED and ADJUDGED that, as a sanction under Rule 11, FED.R. CIV.P., plaintiff’s counsel shall pay the defendant the amount of the reasonable expenses incurred because of the filings necessitated, as well as a reasonable attorney’s fee. Defendant is directed to file with the Court within twenty days of the date of this order an affidavit as to attorney’s fees and a bill of costs on the appropriate federal form, which may be obtained from the Clerk of the Court;

FURTHER ORDERED and ADJUDGED that the Clerk of the Court change the docket sheet in this case to reflect only McArthur Corporation as a party plaintiff, as Holiday Inns, Inc. was previously dismissed from the case. All future filings by the parties shall be styled accordingly.