author: GOETTEL, District Judge:

text:
    UNITED STATES of America v. Ronald Dominic TANA, Defendant.
    No. 85 Cr. 608 (GLG).
    United States District Court, S.D. New York.
    Oct. 7, 1985.

      Rudolph W. Giuliani, U.S. Atty., S.D. N.Y., New York City, for plaintiff; William B. Pollard, Asst. U.S. Atty., of counsel.
    Fischetti, Feigus & Pomerantz, New York City, for defendant; Ronald P. Fischetti, Mark F. Pomerantz, Warren L. Feldman, of counsel.
   OPINION

GOETTEL, District Judge:

The defendant, Ronald Tana (“Tana”), moves to dismiss his indictment, pursuant to Fed.R.Civ.P. 12(b)(2), for failure to allege conduct constituting a crime. For the reasons stated below, the motion is granted.

For purposes of this motion, the factual allegations of the indictment are accepted as true. United States v. Napolitano, 552 F.Supp. 465, 473 (S.D.N.Y.1982). During July 1980, Tana and his associates converted the window production equipment and raw materials of Yonkers Plate Glass, Inc. and its subsidiary Fedentrol, Inc. (collectively “YPG”). With the stolen assets, Tana and his associates started a new company, Associated Window Corporation (“AWC”). YPG had previously pledged all of its assets as security for $1 million in loans from the United States Department of Commerce, Economic Development Administration (“EDA”).

The Government alleges that Tana violated 18 U.S.C. § 641 (“section 641”) by stealing and converting the YPG property. Section 641 provides, in pertinent part,

[w]hoever embezzles, steals, purloins, or knowingly converts to his use or the use of another, or without authority, sells, conveys or disposes of any record, voucher, money, or thing of value of the United States or of any department or agency thereof, or any property made or being made under contract for the United States or any department or agency thereof [shall be guilty of a crime].

18 U.S.C. § 641 (1982). The issue before this Court is whether the EDA’s security interest in YPG’s assets is a “thing of value of the United States” within the meaning of section 641 so that its conversion and use by another company constitutes a crime against the United States. The parties agree that this is an issue of first impression.

The Government contends that its security interest is “a thing of value” and that the removal of the property converted its interests. The Government first seeks to analogize this case to cases concerning the theft of information, e.g., United States v. Girard, 601 F.2d 69 (2d Cir.), cert. denied, 444 U.S. 871, 100 S.Ct. 148, 62 L.Ed.2d 96 (1979) (defendant sold names of drug informants); or services, e.g., United States v. Croft, 750 F.2d 1354 (7th Cir.1984) (defendant used employee paid through a government grant for personal purposes). These cases held that section 641 punishes the theft of intangible as well as tangible property. The Government asserts that a security interest is an intangible property interest, the theft of which is subject to the same proscription. This is plainly wrong.

A security interest is an inchoate interest in property; the property may be tangible or intangible. Cases dealing with the distinction between tangibles and intangibles do not bear on the issue of whether a security interest in property, whether tangible or intangible, constitutes a “thing of value” within the meaning of section 641.

Closer to the matter at bar are the cases cited by the Government that concern the embezzlement of funds paid out by the United States Treasury. In these cases, as here, the Government was unable to claim title in, or possession of the funds in question. The courts focused on the degree of control retained by the federal agencies over the property. In assessing the degree of control retained,

[the courts have gauged] a number of factors including: (1) [the existence of a] specific reversionary interest in the federal government, (2) the statutory requirement that funds be used for the purpose intended, and (3) whether the recipient is required by federal law to maintain financial records, file reports, adopt government methods of management, or submit to federal oversight.

United States v. Barreda, 607 F.Supp. 419, 420 (N.D.Ind.1985). The greater the control, the more likely the courts are to find a violation of section 641. See, e.g., United States v. McIntosh, 655 F.2d 80, 84 (5th Cir.), cert. denied, 455 U.S. 948, 102 S.Ct. 1450, 71 L.Ed.2d 662 (1981) (government regulations and restrictions on the disbursement of Farmer’s Home Administration loans constituted “virtually complete” control over the loans, making them things of value for section 641 purposes); United States v. Barreda, supra, 607 F.Supp. at 422 (Federal revenue sharing funds were subject to section 641. Extensive federal regulation of the handling of the funds, reporting requirements, as well as some restrictions on the use of the funds , constituted sufficient federal control.). Thus, the case law indicates that the federal government must show substantial regulation of the use of, and usually a reversionary interest in, funds it has disbursed in order to claim sufficient control over allegedly diverted funds to invoke section 641.

In a situation close to the case at bar, the United States District Court for the Western District of Michigan held that proceeds of a Small Business Administration (“SBA”) loan were not things of value within the meaning of section 641. United States v. Gavin, 535 F.Supp. 1345 (W.D.Mich.1982). The defendant in that case had embezzled SBA loan proceeds held by his corporation to purchase land and machinery in which the loan agreement gave the federal government a security interest. The court rejected the Government’s argument that it retained a beneficial interest in the funds that it had paid out as part of the loan. The statute authorizing the loan did not grant a specific reversionary interest. “Neither [did] the statute manifest extensive federal control. The borrower [was] not required to maintain certain financial records, file reports, adopt government methods of management, submit to federal oversight or do anything except give security.” Id. at 1348-49. Accordingly, the court held that the loan funds were not things of value within the meaning of section 641 and directed a judgment of acquittal.

In the instant case, EDA regulations and the loan agreement signed by YPG imposed some controls on YPG. Thus, YPG had to maintain business records and was subject to an audit. 13 C.F.R. § 309.9 (1985). Also, YPG could not “sell or transfer all or a substantial part of its assets.” Loan Agreement at 6 (June 5, 1978).

If Tana had embezzled the EDA loan funds, the Government might have argued that it retained sufficient control of the funds to support an indictment under section 641. However, we do not believe this argument would have succeeded. In our view, the Government did not have sufficient control over the assets underlying its security interest to make the theft of those assets actionable under section 641. At no time were these assets United States property. The federal government never had title in, or possession of, or control over them. The Government’s interest was inchoate; it could not subject the pledged assets to substantial federal control unless and until YPG defaulted on the loan.

Moreover, the Government still had the same right to foreclose its security interests on the removed machinery and inventory after it was converted to AWC’s use. The conversion did not legally affect the Government’s security interests in YPL’s assets; it merely impeded their enforcement. (Whether this constituted an attempt to defraud the United States, or some other crime against the Government, is not a matter presently before the Court.)

Finally, it should be noted that the loan funds are not at issue in this case. Rather, it is the security interest that secured the loan of these funds that underlies this indictment. Thus, the embezzlement cases cited by the Government do not control our decision on the motion to dismiss this indictment.

More important, the legislative history of section 641 and of other sections of the federal criminal code indicates that Congress did not intend section 641 to apply to the theft or conversion of property in which the government merely holds a general security interest. The present section 641 originated in 1875 as chapter 144 of volume 18 of the United States Statutes at Large. We have found no instance during the 110 years since this section’s adoption in which someone has been indicted under this statute for converting property in such circumstances. In 1933, Congress included in the Farm Credit Act provisions making actionable embezzlement or conversion of “property mortgaged or pledged to farm credit agencies,” 18 U.S.C. § 658 (1982). In 1948, Congress extended these provisions to cover all federal employees. Had Congress intended or understood section 641 to apply to pledged assets, the enactment of these provisions would have been unnecessary.

Expanding section 641 in the manner urged by the Government would expose vast new areas of conduct to federal criminal prosecution. Anyone, anywhere, who, knowingly or unknowingly, misappropriated property in which the federal government had a security interest, would be subject to federal criminal prosecution. Inevitably, the courts would be forced to draw fine distinctions to delineate the reach of section 641 in this new class of cases. The development of an area of law frought with such fine distinctions can and should be avoided, particularly where, as here, a variety of criminal statutes appear capable of prosecuting the conduct alleged herein.

Utilizing section 641 in this manner also invites a challenge on vagueness grounds. “It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined.” Grayned v. City of Rockford, 408 U.S. 104, 108, 92 S.Ct. 2294, 2298, 33 L.Ed.2d 222 (1972). Of course, language can never provide meaning with mathematical certainty. The test in determining whether or not a statute is unconstitutionally vague is whether “men of common intelligence must necessarily guess at its meaning.” Broadrick v. Oklahoma, 413 U.S. 601, 607, 93 S.Ct. 2908, 2913, 37 L.Ed.2d 830 (1973). “The degree of vagueness that the Constitution tolerates ... depends in part on the nature of the enactment____ Thus, the Court has ... expressed greater tolerance of enactments with civil rather than criminal penalties because the consequences of imprecision are less severe____” Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498, 102 S.Ct. 1186, 1193, 71 L.Ed.2d 362 (1982). The relatively severe criminal penalty to which the plaintiff may be subjected justifies applying some scrutiny to the statute in question.

A statute’s certainty is measured with respect to the actual conduct of the person attacking the statute. diLeo v. Greenfield, 541 F.2d 949, 953 (2d Cir.1976). A fair reading of section 641 does not clearly indicate that the conversion of property in which the federal government holds a security interest violates its provisions. Thus, the statute, as applied, may be void for vagueness.

For all of the reasons noted, the Court concludes that the indictment fails to allege conduct violating 18 U.S.C. § 641 (1982). The motion to dismiss the indictment is granted.

SO ORDERED.

      . Vague laws offend several important values. First, because we assume that man is free to steer between lawful and unlawful conduct, we insist that laws give the person or ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Vague laws may trap the innocent by not providing fair warning. Second, if arbitrary and discriminatory enforcement is to be prevented, laws must provide explicit standards for those who apply them. A vague law impermissibly delegates basic policy matters to policement, judges, and juries for resolution on an ad hoc and subjecfive basis, with the attendant dangers of arbitrary and discriminatory application. Third, but related, where a vague statute “abut[s] upon sensitive areas of basic First Amendment freedoms,” it "operates to inhibit the exercise of [those] freedoms.” Uncertain meanings inevitably lead citizens to “ ‘steer far wider of the unlawful zone' ... than if the boundaries of the forbidden areas were clearly marked.”

        Grayned v. City of Rockford, 408 U.S. 104, 108-09, 92 S.Ct. 2294, 2298-99, 33 L.Ed.2d 222 (1972) (footnotes omitted).


source: Caselaw Access Project

author: SPRIZZO, District Judge:

license: Public Domain

text:
    AYERSLEE CORPORATION, N.V., Plaintiff, v. OVERLOOK SPONSOR CORP., Solstead Associates, Trabossom Associates, Bos Holding Corp., First Boston, Inc., G. Ware Travelstead, and Scott Lowry, Defendants.
    No. 82 Civ. 6173 (JES).
    United States District Court, S.D. New York.
    Oct. 7, 1985.
    Coudert Bros., New York City, for plaintiff; Mark D. LeBow, Laurie E. Cohen, New York City, of counsel.

      Robinson, Silverman, Pearce, Aronsohn & Berman, New York City, for defendants Overlook Sponsor Corp. and Solstead Associates; Edward B. Schoen, George B. Yankwitt, Mark J. Sugarman, New York City, of counsel.
    Shearman & Sterling, New York City, for defendants Trabossom Associates, G. Ware Travelstead, Bos Holding Corp., First Boston, Inc. and Solstead Associates; William J.F. Roll, III, New York City, of counsel.
   OPINION AND ORDER

SPRIZZO, District Judge:

Plaintiff Ayerslee Corp., N.V. (“Ayerslee”) and defendant Overlook Sponsor Corp. (“Overlook”) formed Plaza 49 Associates, a limited partnership, for the purpose of constructing an office building in Manhattan called Tower 49. At all relevant times herein, Ayerslee has been the sole limited partner and Overlook has been the sole general partner of Plaza 49 Associates.

Ayerslee sues Overlook and others who, directly or indirectly, are entitled to a share of the profits from the Tower 49 project, seeking a declaratory judgment that Ayerslee’s interest in the proceeds generated by Tower 49 has not been and cannot be reduced below 15%, and demanding both a preliminary and a permanent injunction enjoining the defendants from distributing any proceeds from the Tower 49 project unless 15% of those proceeds are distributed to Ayerslee. Ayerslee bases its claim on the alleged violation by defendants of various provisions of partnership agreements entered into with respect to the development of Tower 49, and the alleged breach by Overlook of its fiduciary duty, as general partner of Plaza 49 Associates, to Ayerslee as limited partner.

The parties filed cross-motions for summary judgment. At oral argument the parties agreed to waive trial on all issues, stating that there was no need for the Court to hear oral testimony. Therefore, the Court decides the case on the merits on the papers filed with respect to the summary judgment motions, and additional materials filed with leave of the Court after oral argument. This Opinion and Order constitute the Court’s findings of fact and conclusions of law in accordance with Fed.R. Civ.P. 52.

FACTS

In mid-1980 Ayerslee entered into a number of land contracts to acquire a group of contiguous properties in midtown Manhattan (“the premises”), paying nearly one million dollars in fees, down payments and deposits. Closings on the various properties were scheduled, commencing in July of 1981 and continuing through 1982, at which times the balances due on the properties had to be paid. Feasibility reports, prepared with respect to developing the premises and constructing Tower 49, indicated that the cost of consummating the land purchase contracts and constructing the building would exceed $108,000,000.00.

In May of 1981, Ayerslee commenced negotiations with Overlook to form a joint venture with respect to the Tower 49 project. On June 30, 1981, Ayerslee and Overlook entered into a limited partnership agreement creating Plaza 49 Associates (the “Plaza 49 Agreement”). The stated purpose of the Plaza 49 Associates partnership was to acquire ownership of the various properties Ayerslee had contracted to purchase and to develop the premises for purposes, inter alia, of sale, lease or conversion into cooperative or condominium ownership. Pursuant to the Plaza 49 Agreement, Ayerslee assigned the land contracts to Plaza 49 Associates. Ayerslee received $500,000.00 from the partnership on account of the deposits and other expenses already paid by Ayerslee, with the balance treated as a loan to the partnership.

Overlook, as general partner, contributed more than $3,000,000.00 to Plaza 49 Associates, and assumed responsibility to supervise the development and to provide or obtain the sums necessary for conducting the partnership business. The Plaza 49 Agreement delegated to Overlook and any future general partners all the rights, powers and privileges of a general partner provided in the Uniform Limited Partnership Act, and “the right in their discretion to do all things and to take all action which they deem in good faith necessary or appropriate to develop the Premises in the manner in which the General Partners believe it most feasible and appropriate.” See Plaza 49 Agreement at 1110(a) (contained in Ex. A to the Affidavit of David S. Solomon (“Solomon Aff.”) in Support of Defendants’ Motion for Summary Judgment). Under the Agreement, Ayerslee consented to “any sale or other disposition, encumbrance, mortgage or lease ... by the General Partners on behalf of the Partnership affecting the Partnership Property or any part thereof on such terms and conditions as may be approved by the General Partners in their sole discretion____” See Plaza 49 Agreement at 1111(b). With respect to distributions and profits, the Plaza 49 Agreement provided that the net profits, cash flow and capital proceeds of the partnership would be distributed to the partners, with 22.5% going to Ayerslee and 77.5% to Overlook.

The Plaza 49 Agreement expressly provided for future financing of the Tower 49 project from sources other than Ayerslee or Overlook, including the introduction of additional partners to Plaza 49 Associates on terms within Overlook’s sole discretion. The Agreement stated at paragraph 5(g) that “the admission of additional ... Partners ... shall not diminish the interest of [Ayerslee] in Partnership capital, income, profits or distributions____” However, it also provided that:

Notwithstanding anything to the contrary contained in Paragraph 5(g) or elsewhere in this Agreement, the General Partners shall have the right in their sole discretion to grant an equity participation to any mortgagee of the Partnership Property, and in such case the interests of the General Partners and the Limited Partners shall each be reduced pro-rata by the percentage of the equity participation. For example, if 50% of the equity in the Partnership is granted to the mortgagee, the interest of the General Partners shall be reduced from 7772% to 38%% and the interest of the Limited Partners shall be reduced from 2272% to 1174%.

Plaza 49 Agreement at If 6(d).

Overlook encountered difficulty in obtaining the funds required for the July, 1981 closings, and postponed those closings until August 20, 1981. On or about August 14, 1981, Overlook forwarded to Ayerslee a proposed partnership agreement between Plaza 49 Associates and defendant Trabossom Associates (the “Solstead Agreement”), whereby Plaza 49 Associates and Trabossom would become the general and limited partners of a new limited partnership, Solstead Associates. The proposal, subsequently adopted without substantive change, provided that Plaza 49 Associates would transfer to Solstead its rights under the various land contracts constituting the partnership property of Plaza 49 Associates, and that Trabossom would provide the funds required for the August 20 closings and would arrange for a $24 million loan to Solstead. Pursuant to the Sol-stead Agreement, Plaza 49 Associates and Trabossom would each receive a 50% equity interest in Solstead. Plaza 49 would no longer have any ownership interest in Tower 49 itself. The Solstead Agreement specifically provided for admission of additional partners into Solstead on the consent of Plaza 49 Associates and Trabossom, for purposes of contributing funds to the Tower 49 development, with pro rata reduction of the percentage interests of all Solstead partners. See Solstead Agreement at ¶ 2.11 (contained in Exhibit B to the Solomon Aff.).

By letter dated August 18, 1981, Overlook notified Ayerslee that Trabossom requested Ayerslee’s consent to the execution of the Solstead Agreement by Plaza 49 Associates, and also advised Ayerslee of Ayerslee’s right, pursuant to paragraph 26 of the Plaza 49 Agreement, to advance the funds necessary for the closings. By letter to Overlook dated August 19, 1981, Ayerslee stated that it would not exercise its right to advance the funds. Rather, Ayerslee agreed to give its consent to the formation of Solstead, as requested by Trabossom, on the condition that Ayerslee’s interest in Plaza 49 Associates be increased, “subject to the unlimited dilution contemplated by the Solstead Agreement.”

On August 20, 1981, Ayerslee and Overlook executed an amendment to the Plaza 49 Agreement (the “Amended Plaza 49 Agreement”), which provided that Ayerslee consented to the formation of Solstead, and that Ayerslee’s interest in profits and distributions under the Plaza 49 Agreement was increased from 22.5% to 30%, while Overlook’s interest was decreased from 77.5% to 70%. Thereafter, also on August 20, 1981, Plaza 49 Associates and Trabossom executed the Solstead Agreement. Ayerslee is not and never has been a party to the Solstead Agreement or a partner in Solstead.

The August 20 closings took place, and at some time thereafter Solstead commenced, negotiations with the Bank of New York (“the Bank”) to make a construction loan to Solstead. The Bank agreed to loan Solstead $100 million if Solstead secured an additional $40 million from another source. Solstead obtained the $40 million by admitting Cultra as a new general and limited partner of Solstead on or about July 1, 1982. Cultra contributed $20 million to Solstead and an affiliate of Cultra loaned Solstead another $20 million. Cultra received a 50% interest in Solstead, and the interests of Trabossom and Plaza 49 Associates in Solstead were each reduced to 25%. See Amended and Restated Agreement of Limited Partnership of Solstead Associates (“the Amended Solstead Agreement”) at 1128 (contained in Ex. D to the Solomon Aff.). The Bank then loaned the $100 million to Solstead.

DISCUSSION

Ayerslee contends that the admission of Cultra as a limited and general partner of Solstead impermissibly reduced Ayerslee’s percentage interest in the proceeds of the Tower 49 project, and that Overlook’s actions with respect to admitting Cultra violated paragraph 5(g) of the Plaza 49 Agreement and Overlook’s fiduciary duties to Ayerslee. Ayerslee also argues that, by admitting Cultra, all defendants violated paragraph 2.11 of the Solstead Agreement.

At oral argument, counsel for plaintiff advised the Court that its claim is simply that any reduction of the amount Plaza 49 Associates receives from Solstead due to the addition of Cultra as a partner must be borne by Overlook, and that Ayerslee is entitled to 15% of the amounts realized by Solstead, or any other entity owning Tower 49, which percentage cannot be reduced by defendants.

The crux of plaintiff’s claim is its contention that pursuant to the Plaza 49 Agreement, Ayerslee was originally entitled to 22.5% of the proceeds from the Tower 49 project, which was increased to 30% by the Amended Plaza 49 Agreement, reduced with Ayerslee’s consent to 15% by the formation of Solstead, and finally wrongfully reduced to 7.5% by the admission of Cultra into Solstead via the Amended Solstead Agreement.

While the Court agrees that the effect of the Amended Solstead Agreement was to reduce the amount Ayerslee would ultimately realize from the Tower 49 project, it rejects Ayerslee’s contention that the Plaza 49 Agreement entitles plaintiff to any percentage of the proceeds from Tower 49 itself. The Plaza 49 Agreement requires that Ayerslee receive a percentage of the “profits of the Partnership.” See Plaza 49 Agreement at ¶ 7(a). The Plaza 49 Agreement clearly defines “the Partnership” as “Plaza 49 Associates.” See Plaza 49 Agreement at ¶ 2.

The Court rejects plaintiff’s contention that “the Partnership,” as used in the Plaza 49 Agreement, refers to any partnership which owns the Tower 49 premises, and finds no basis to hold that the partnership governed by the Plaza 49 Agreement is any other than Plaza 49 Associates. See, e.g., Goldfeld v. Mattoon Communications Corp., 99 A.D.2d 711, 712, 472 N.Y.S.2d 6, 7 (1st Dept.1984). No other partnership even existed at the time of the execution of the Plaza 49 Agreement. Because the Plaza 49 Agreement is unambiguous as to the partnership referred to therein, the Court cannot rewrite that agreement. See, e.g., Laba v. Carey, 29 N.Y.2d 302, 308, 277 N.E.2d 641, 644, 327 N.Y.S.2d 613, 618 (1971); Rodolitz v. Neptune Paper Products, Inc., 22 N.Y.2d 383, 386-87, 239 N.E.2d 628, 630-31, 292 N.Y.S.2d 878, 881 (1968); Curtin v. Glazier, 94 A.D.2d 434, 438, 464 N.Y.S.2d 899, 902 (4th Dept.1983); Harold J. Rosen Trust v. Rosen, 53 A.D.2d 342, 352, 386 N.Y.S.2d 491, 499 (4th Dept.1976), aff'd on opinion below, 43 N.Y.2d 693, 371 N.E.2d 828, 401 N.Y.S.2d 66 (1977) . Rather, the Court must enforce the plain meaning of the Agreement. See, e.g., Laba, supra, 29 N.Y.2d at 308, 277 N.E.2d at 644-45, 327 N.Y.S.2d at 618; Levine v. Shell Oil Co., 28 N.Y.2d 205, 212, 269 N.E.2d 799, 802-03, 321 N.Y.S.2d 81, 86 (1971); cf. Breed v. Insurance Co. of North America, 46 N.Y.2d 351, 355, 385 N.E.2d 1280, 1282, 413 N.Y.S.2d 352, 355 (1978) .

Therefore, pursuant to the Plaza 49 Agreement, as amended, Ayerslee is entitled to 30% of the profits of Plaza 49 Associates, and has no real property interest in Tower 49 itself, or even in any of the other partnerships created for the purpose of constructing and financing that building. See, e.g., Reiter v. Greenberg, 21 N.Y.2d 388, 391, 235 N.E.2d 118, 120, 288 N.Y.S.2d 57, 60 (1968); Riviera Congress Associates v. Yassky, 25 A.D.2d 291, 296, 268 N.Y.S.2d 854, 859 (1st Dept.), aff'd, 18 N.Y.2d 540, 223 N.E.2d 876, 277 N.Y.S.2d 386 (1966). Indeed, as noted above, the Tower 49 premises were transferred to Solstead with Ayerslee’s consent when Solstead was created, and Plaza 49 Associates — the only partnership to which Ayerslee was a party — no longer has any ownership interest in Tower 49.

Nor does any other provision of the Plaza 49 Agreement give Ayerslee an interest in Tower 49. While paragraph 5(g) of the Plaza 49 Agreement provides that, with the exception of a mortgagee, who pursuant to paragraph 6(d) may be granted equity participation in the Plaza 49 Associates partnership, the addition of new general or limited partners into “the Partnership ... shall not diminish the interest of [Ayerslee] in Partnership capital, income, profits or disbursements____,” this clause only relates to Ayerslee’s interest in Plaza 49 Associates. For the reasons stated above, the Court rejects plaintiff’s contention that this provision refers to whatever partnership owns Tower 49.

The Court also rejects plaintiff’s argument that the amendment to the Plaza 49 Agreement secures to it any interest in Tower 49. Nothing in the amendment so provides. Moreover, counsel for Ayerslee proposed that the amendment include clauses providing that if Plaza 49 Associates’ percentage interest in Solstead was reduced beyond a specified amount due to certain occurrences, including admission of a lending partner into Solstead, Ayerslee’s percentage interest in Plaza 49 Associates would be adjusted to limit the amount of that reduction borne by Ayerslee. These clauses, however, were not included in the Amended Plaza 49 Agreement as executed. Thus it is clear that Ayerslee is now seeking to accomplish by judicial fiat what it was not able to secure by arms-length negotiation. This case, therefore, clearly illustrates the wisdom of the policy reflected in the cases cited above, which precludes a court from re-fashioning a contract at the request of one or the other of the parties, especially since the Solstead Agreement does not purport to grant to Ayerslee any interest in the proceeds of Tower 49, and does not incorporate any provision of the Plaza 49 Agreement which allegedly creates or protects such an interest.

In sum, where, as here, the parties have entered into a complete partnership agreement, the rights of the partners are fixed and controlled by that agreement. See, e.g., Lanier v. Bowdoin, 282 N.Y. 32, 38, 24 N.E.2d 732, 735 (1939); Raymond v. Brimberg, 99 A.D.2d 988, 988-89, 473 N.Y.S.2d 437, 439 (1st Dept.1984), appeal dismissed, 64 N.Y.2d 775 (1985); Riviera, supra, 25 A.D.2d at 295-96, 268 N.Y.S.2d at 858; cf. Audino v. Lincoln First Bank of Rochester, 105 A.D.2d 1091, 1094, 481 N.Y.S.2d 928, 931 (4th Dept.1984). Pursuant to the Plaza 49 Agreement, as amended, the only partnership to which Ayerslee was ever a party, Ayerslee’s only interest is in 30% of the profits and distributions of Plaza 49 Associates. Neither the formation of Solstead nor the addition of Cultra as a partner thereto had any effect on that interest.

Ayerslee’s allegation that, by agreeing to the admission of Cultra as a partner to Solstead, Overlook breached paragraph 5(g) of the Plaza 49 Agreement is likewise without merit. As noted above, that provision relates to the admission of new partners into Plaza 49 Associates, and requires that Ayerslee’s share of Plaza 49 profits not be reduced thereby. It does not apply to any other partnership, and therefore could not be violated by the admission of a partner into Solstead. Nor does the Sol-stead Agreement incorporate paragraph 5(g), or provide for any similar protection of Ayerslee’s rights. Paragraph 5(g) is simply irrelevant to the transaction challenged here.

Nor is there any merit to the claim that Overlook breached any fiduciary duty to Ayerslee. It cannot be disputed that Overlook, as a general partner of Plaza 49 Associates, owed a fiduciary duty to Ayerslee as limited partner. See, e.g., Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1078 (2d Cir.1977), cert. denied, 434 U.S. 1035, 98 S.Ct. 769, 54 L.Ed.2d 782 (1978); Riviera Congress Associates v. Yassky, 18 N.Y.2d 540, 547, 223 N.E.2d 876, 879, 277 N.Y.S.2d 386, 392 (1966); Lichtyger v. Franchard Corp., 18 N.Y.2d 528, 536-37, 223 N.E.2d 869, 873-74, 277 N.Y.S.2d 377, 383-84 (1966); cf. Meinhard v. Salmon, 249 N.Y. 458, 463-64, 164 N.E. 545, 546 (1928). Ayerslee argues that Overlook therefore had a duty to protect Ayerslee’s interest in the proceeds generated by Tower 49, and that, by permitting Plaza 49 Associates to enter into the Amended Solstead Agreement, which admitted Cultra into the Solstead partnership, Overlook breached this duty to Ayerslee.

Once again, the basis of Ayerslee’s claim is its assertion that the Plaza 49 Agreement provides Ayerslee with an undilutable interest in the proceeds of the Tower 49 project itself. The Court has rejected this contention, and has found that Ayerslee’s sole interest is in the proceeds of Plaza 49 Associates. Therefore, it follows that, to the extent that the claim of breach of fiduciary duty is based upon the admission of Cultra, the claim must be rejected.

Nor does the Court find that Overlook breached any fiduciary duty to Ayerslee in any other way. There is no evidence before the Court to support an inference that Overlook may have been guilty of fraud or self-dealing. In fact, the Court finds that whatever Overlook did was reasonably designed in good faith to effectuate the purposes for which Plaza 49 Associates was formed in the first place. Admitting Cultra into Solstead resulted in obtaining the $140 million necessary for the development of Tower 49, which is precisely the goal of Ayerslee’s investment. While this did effectively reduce the amount of money Ayerslee would realize from its investment in Plaza 49 Associates, the dilution of Plaza 49 Associates’ interest in Sol-stead affected Ayerslee and Overlook on a pro rata basis, and the Court rejects Ayerslee’s contention that Overlook is contractually bound to bear the entire reduction itself.

In its complaint, Ayerslee also alleged that the admission of Cultra into Solstead violated paragraph 2.11 of the Solstead Agreement, because paragraph 2.11 provides that additional partners can be admitted into Solstead only if they make a construction loan or a permanent mortgage loan, and Cultra provided neither. In its papers filed on the motion for summary judgment, Ayerslee argued that it has standing to sue for a breach of paragraph 2.11, despite the fact that it is not a party to the Solstead Agreement, because paragraph 2.11 was bargained for and included in the Solstead Agreement for Ayerslee’s benefit and protection, as consideration for Ayerslee’s consent to the execution of the Solstead Agreement by Plaza 49 Associates.

At oral argument plaintiff advised the Court that it is not, in fact, suing on a breach of paragraph 2.11, but is arguing simply that Overlook, in allowing Plaza 49 Associates to breach paragraph 2.11 of the Solstead Agreement, breached both Ayerslee’s rights pursuant to the Plaza 49 Agreement and Overlook’s fiduciary obligations under that Agreement. The Court rejects both arguments.

The Court can find no basis to hold that Ayerslee has standing to sue for breach of the Solstead Agreement. Ayerslee admits it is not now and never has been a party to that agreement. Ayerslee argues, however, that at the time the Solstead Agreement was proposed, Ayerslee expressed concern that its return from the Tower 49 project could be further reduced, and that Overlook assured Ayerslee that the creation of Solstead would leave Ayerslee in basically the same position it had enjoyed before. Ayerslee points to a letter, from Overlook to Ayerslee, dated August 18, 1981, wherein Overlook stated that Ayerslee would remain in “substantially the same position as contemplated by Paragraph 6(d) of the Plaza 49 agreement.” Ayerslee contends that this assurance was ultimately reflected in paragraph 2.11 of the Solstead Agreement, and that it consented to the Solstead Agreement only on that basis.

That claim, however, is not supported by the evidence. The evidence shows that paragraph 2.11 was included in the original draft of the proposed Solstead Agreement sent to Ayerslee by Overlook on August 14, 1981, and was not the result or subject of any negotiations with Ayerslee. In fact, protection of Ayerslee’s right to repayment of its loan to Plaza 49 Associates was specifically included in the Sol-stead Agreement at Ayerslee’s insistence. See note 3 supra. The Court can infer from this that if paragraph 2.11 was intended to protect some right of Ayerslee’s, it would have likewise specifically so provided. Moreover, from the unsuccessful efforts to add clauses to the Amended Plaza 49 Agreement limiting the impact on Ayerslee of any reduction in Plaza 49 Associates’ interest in Solstead, made by Ayerslee’s counsel after Ayerslee received the proposed Solstead Agreement, the Court can also infer that paragraph 2.11 did not, in Ayerslee’s understanding, afford such protection. It follows that, because Ayerslee is neither a party to the Solstead Agreement nor the intended beneficiary of paragraph 2.11, it lacks standing to sue for any alleged breach of that agreement.

The Court also finds that plaintiff’s claim of breach of fiduciary duty based on that clause is not supported by the evidence and rejects Ayerslee’s argument that, by allowing Plaza 49 Associates to breach the Sol-stead Agreement, Overlook breached its fiduciary duty and contractual obligations pursuant to the Plaza 49 Agreement because it permitted a reduction of Ayerslee’s interest in Tower 49 proceeds. The Court has' already found that Ayerslee has no direct interest in the proceeds of the development project, and that no breach of any fiduciary obligation can be based upon the mere fact that Ayerslee’s share of those proceeds has been reduced, especially where, as here, the reduction occurred as a consequence of a financial arrangement that was essential in bringing to fruition the construction venture contemplated by the Plaza 49 Agreement.

CONCLUSION

Ayerslee is entitled to 30% of the profits and distribution of Plaza 49 Associates, pursuant to the Plaza 49 Agreement, as amended. Ayerslee is not entitled to any percentage of the proceeds of the Tower 49 project itself, or those of Solstead or any other partnership which may own Tower 49. Ayerslee’s application for both a preliminary and a permanent injunction is denied.

It is SO ORDERED.

      . In addition to Overlook, defendants are Sol-stead Associates ("Solstead"), a limited partnership which owns Tower 49, Trabossom Associates ("Trabossom”), a general and limited partner of Solstead, G. Ware Travelstead, a partner of Trabossom, BOS Holding Corp., also a partner of Trabossom, First Boston, Inc., parent of BOS Holding Corp., and Scott Lowry, United States representative of Cultra Corp., N.V. ("Cultra”), a partner of Solstead.

      . Paragraph 2.11 provides as follows:

        Admission of Additional Partners. Upon joint consent of the General Partners, the General Partners shall have the right, in their sole discretion and without the consent of any Limited Partner to admit as an additional General Partner or Limited Partner, any lender, or its subsidiary, which need not be an institutional lender, which shall make the Construction Loan or a permanent mortgage loan to the Partnership and to grant such equity participation in the Partnership to each such lender as they, in their sole discretion, shall determine. The Percentage Interests of all the General and Limited Partners in the Partnership shall be reduced pro rata by their respective shares of the amount of the Percentage Interest of the lender or its subsidiary. The General Partners shall not have the right to grant such an equity participation in connection with the Land Loan but this shall not affect such right if the Land Loan is included in the Construction Loan provided that such equity participation shall only become effective upon the first funding by the Construction Loan lender under the Construction Loan.
      Solstead Agreement at ¶ 2.11.

      . This clause clearly reflects that dilution of plaintiff's interest in Tower 49 itself was contemplated, and is in itself dispositive of plaintiffs claim that that dilution can be the predicate for any claim against defendants for breach of contract or fiduciary duty. Ayerslee also demanded that the Solstead Agreement provide that Ayerslee’s partnership loan to Plaza 49 Associates, as described in paragraph 26 of the Plaza 49 Agreement, be explicitly described as a "Land Loan reimbursement item under Paragraph 4.1 of the Solstead Agreement____” Paragraph 4.1, as executed, discusses land loans to Solstead and provides, inter alia, that Trabossom, in its capacity as general partner of Sol-stead, would have the primary responsibility for "the payment by [Solstead] of such sums as are required under Paragraph 26 of the Plaza 49 limited partnership agreement to be paid to Ayerslee____” See Solstead Agreement at 1[ 4.1.

      . While the Amended Plaza 49 Agreement is dated August 17, 1981, the parties agree that it was executed on August 20, 1981.

      . Throughout these proceedings, Ayerslee has focused attention on a number of actions by Overlook which it apparently contends constituted a breach of Overlook’s fiduciary duty. However, even assuming arguendo that any of these actions constituted such a breach, none would require a ruling that Ayerslee receive 15% of the proceeds of Solstead, which is the only relief Ayerslee seeks here. For example, Ayerslee contends that the Amended Solstead Agreement deleted Ayerslee’s right, as provided in the Solstead Agreement, to priority repayment of its capital contribution to Plaza 49 Associates, that Overlook failed to inform Ayerslee of the anticipated admission of Cultra as required by the Plaza 49 Agreement and that Ayerslee's consent was required to admit Cultra into Solstead.
      The Court need not reach the merits of any of these contentions, because plaintiff has not in its complaint sought damages for these alleged breaches. Matter of Brandt, 81 A.D.2d 268, 440 N.Y.S.2d 189 (1st Dept.1981), cited by plaintiff, is inapposite. There, the court-held that a cestuis of a trust may sue derivatively on behalf of the trust if the trustees refuse to do so, and that a limited partner could properly sue derivatively the general partners of the partnership to which all were parties, on behalf of the partnership itself, or individually for an accounting. Ayerslee is neither the cestuis of a trust nor a limited partner of Solstead, and therefore Brant has no bearing on Ayerslee’s right to sue for breaches of the Solstead Agreement.


author: WILL, District Judge.

text:
    William G. HERRON, Richard J. Egan, James R. Mc Kenna, William J. Murphy, Bruno Szwarzenski and Jerry A. Valenzio, Plaintiffs, v. CITY OF CHICAGO, an Illinois municipal corporation, Charles A. Pounian, as Commissioner of the Department of Personnel, John Corey, as Commissioner of the Department of Water, Defendants.
    No. 83 C 4259.
    United States District Court, N.D. Illinois, E.D.
    Oct. 7, 1985.

      Diane MacArthur, Edward T. Joyce, Joyce & Kubasiak, Chicago, Ill., for plaintiffs.
    Donald Hubert, James D. Montgomery, Corp. Counsel, City of Chicago, Chicago, Ill., for defendants.
   MEMORANDUM OPINION

WILL, District Judge.

Before the Court are defendants’ motion to enforce the settlement agreement reached in this case, and plaintiffs’ motion to amend their third verified complaint purportedly to conform the pleadings to the evidence adduced at trial. Plaintiffs seek to amend their complaint, pursuant to Fed. R.Civ.P. 15(b), by adding claims under 42 U.S.C. §§ 1983 and 1988. For the reasons stated below, we grant defendants’ motion to enforce the settlement agreement, and deny plaintiffs’ motion to amend the complaint.

The Settlement

In their third verified complaint, plaintiffs sought a finding that the defendants were in contempt of this Court for violating the terms of the consent decree of May 5, 1982, entered in Shakman v. Democratic Organization of Cook County, 69 C 2145. The complaint alleged that three individual defendants, Porche, Miller, and Esteban, were promoted to supervisory positions instead of any of the plaintiffs, due to political considerations. At the close of trial, after a conference in chambers, the Court decided to issue a memorandum opinion holding that the Shakman consent decree prohibited patronage promotions, but that individual city employees seeking a promotion did not violate the decree by soliciting or receiving the help and recommendations of political or other sponsors. Thus, we dismissed the case against the three individual defendants who received promotions which were allegedly based on patronage considerations. See Herron v. City of Chicago, Mem. op. (N.D.Ill. October 3, 1985). The remaining parties and the Court then had extended settlement discussions at the conclusion of which a settlement was reached. The Court then summarized, for the record, the terms of the settlement agreement which had been reached by the remaining parties. Tr. at 429-34.

The terms of that settlement are as follows. The City agreed to pay $70,000 to plaintiffs “in the near future.” That amount explicitly included attorneys’ fees, and any costs or other expenses. Other than the $70,000 payment, each party was to bear its own costs and expenses, including attorneys’ fees. The City also agreed that the next three promotions from Water Rate Taker to Supervisor of Water Rate Takers would be made from the current eligibility list of qualified applicants which includes the six plaintiffs and one other individual. The parties understood that the Court was to enter an opinion making it clear that patronage promotions are prohibited by the Shakman consent decree, that individual employees do not violate the decree by seeking and receiving help in attaining promotions, and that, accordingly, defendants Miller, Esteban, and Porche were dismissed as defendants. Plaintiffs agreed not to appeal the dismissal of those three defendants.

All six plaintiffs were in court when the terms of the settlement were summarized by the Court, and none objected when their attorney, O’Laughlin, agreed to the settlement. Nor did plaintiffs’ co-counsel, MacArthur, object to the settlement. In fact, she thanked the Court for its careful consideration of the case. Now, some of plaintiffs’ attorneys seek to repudiate the settlement. Attorneys Joyce and MacArthur evidently seek an additional $23,000 in fees. Because the City of Chicago refused to acceed to the demand for more money, plaintiffs seek to amend the complaint allegedly to conform the pleadings to the evidence adduced at trial by adding section 1983 and 1988 claims so that they can attempt to recover statutory attorney fees. The relief in the case would not be altered by adding section 1983 and 1988 claims.

Amending the Complaint

Plaintiffs’ attorneys argue that (1) during the course of the trial the nature of the suit changed from one vindicating the rights of the individual plaintiffs to one vindicating the rights of all city employees; (2) the settlement agreement included fees only for the work done on behalf of the individual plaintiffs, and did not encompass fees for the work allegedly done on behalf of all city employees; (3) evidence was adduced at trial proving a violation of sections 1983 and 1988, and that those claims were tried by implicit agreement of the parties so that plaintiffs have a right to amend their complaint under Fed.R.Civ.P. 15(b) to conform the pleadings to the evidence. Finally, attorneys for plaintiffs argue that (4) they should be compensated as private attorneys general due to the alleged benefit they bestowed on all city employees by getting the Court to clarify that patronage promotions are covered by the Shakman decree.

Plaintiffs’ attorneys are wrong on all four counts. First, what became clear during the course of trial was that at most two defendants were promoted based on political considerations, and that at best only two of the six plaintiffs could get any relief if the case were decided by the Court. Furthermore, since the promoted defendants did not violate the decree, they would not be removed from the supervisor jobs and the plaintiffs would get no immediate promotions. Finally, it appeared that the defendants had a potentially strong legal defense to a finding of contempt, i.e., ambiguity in the decree. For these reasons, plaintiffs’ expectations changed, but the nature of the suit did not.

Second, the settlement agreement encompassed the complete agreement of the parties and no further fees were contemplated. It is absolutely clear that no one in court at the time the settlement agreement was entered contemplated that plaintiffs’ attorneys would seek further attorneys’ fees under any guise. As the Supreme Court recently reiterated in the context of Fed.R.Civ.P. 68 offers of judgment, “[i]f defendants are not allowed to make lump sum offers that would, if accepted, represent their total liability, they would understandably be reluctant to make settlement offers.” Marek v. Chesny, — U.S. -, 105 S.Ct. 3012, 3016, 87 Ed.2d 1 (1985). It is clear that defendants can cut off their liability for section 1988 attorney fees with a successful Rule 68 offer. It ought to be equally clear that defendants can cut off all liability, including attorneys’ fees, by settling a case.

This case would not have been settled if open-ended liability for attorneys’ fees under section 1988 had been contemplated. It was not contemplated, and plaintiffs’ attorneys’ attempt to extract more money from the City by amending the complaint to add a claim that neither the parties, nor the Court, thought was being tried during the trial is a transparent effort to get around the valid and final settlement entered on behalf of their clients.

Third, plaintiffs did not try section 1983 and 1988 claims at all, much less by agreement, explicit or implicit. All of the evidence introduced at trial went to the issues raised in the complaint. Plaintiffs claim that Commissioner Corey’s testimony proves a violation of section 1983. Corey testified that calls from the Mayor’s Office 'were the motivating factor in his decision to promote the two defendants, Miller and Esteban, rather than any of the plaintiffs or other eligible candidates.

This evidence was essential to proving one element of a Shakman decree violation. Plaintiffs had to show that political considerations were a substantial or motivating factor in the decision to promote. Whether Corey’s testimony also goes to prove a violation of section 1983 is irrelevant under Fed.R.Civ.P. 15(b). The situation we are presented with here is summed up very succinctly in 3 Moore’s Federal Practice ¶ 15.13[2] at 15-171:

The purpose of an amendment to conform to proof is to bring the pleadings in line with the actual issues upon which the case was tried; therefore, an amendment after judgment is not permissible which brings in some entirely extrinsic issue or changes the theory on which the case was actually tried, even though there is evidence in the record — introduced as relevant to some other issue— which would support the amendment. This principle is sound since it cannot be fairly stated that there is any implied consent to try an issue where the parties do not squarely recognize it as an issue in the trial.

Plaintiffs point to no evidence which is relevant to their section 1983 claim which is not relevant to another issue in the case. In fact, when they did try to introduce evidence of the number of black supervisors, which was only relevant to a charge of racial discrimination, the evidence was excluded as not relevant to any issue in the case.

More importantly, Rule 15(b) does not provide for amending a complaint after settlement. Plaintiffs cite cases which hold that pleadings can be amended to conform to the evidence by adding related causes of action after judgment on the merits of the ease has been entered. See, e.g., Trapnell v. Riggsby, 622 F.2d 290, 294 (7th Cir.1980). They also cite cases which hold that plaintiffs can be considered to be prevailing parties even though the case was settled, and thus can be entitled to statutory attorney’s fees. See, e.g., Brown v. Culpepper, 559 F.2d 274, 277 (5th Cir.1977). However, plaintiffs cite no cases which hold that Rule 15(b) permits adding a claim for statutory attorneys’ fees after a settlement which explicitly included attorneys’ fees. Apparently, until now, no one has had the requisite chutzpah to urge such contention. At least, no case involving an attempt to collect additional fees after settlement has been brought to the Court’s attention.

Enforcing the Settlement Agreement

Voluntary resolution of litigation, through settlement, is favored by the courts. Victory Beauty Supply Co. v. Lus-ter-oil Beauty Products Co., 562 F.Supp. 786, 789 (N.D.Ill.1983). A settlement agreement is a contract, Reichelt v. Urban Investment and Development Co., 611 F.Supp. 952 (N.D.Ill.1985), which cannot be unilaterally repudiated by any of the parties. Debose v. Mueller, 552 F.Supp. 307, 308 (N.D.Ill.1982); see also Village of Kaktovik v. Watt, 689 F.2d 222, 230 (D.C.Cir.1982). The interpretation of a settlement agreement is controlled by state law governing contracts generally. Air line Stewards & Stewardesses Ass’n Local 550 v. American Airlines Inc., 763 F.2d 875, 877 (7th Cir.1985). The primary objective of construing a contract is to give effect to the intent of the parties. Id. citing Schek v. Chicago Transit Authority, 42 Ill.2d 362, 364, 247 N.E.2d 886, 888 (1969). Here, since the agreement is unambiguous, we need look no further. See J.R. Watkins Co. v. Salyers, 384 Ill. 369, 373, 51 N.E.2d 574, 576 (1943). The settlement agreement was intended by all of the parties, and understood by the Court (which participated in settlement discussions) to be a final and complete resolution of the entire case. Attorneys’ fees were included in the amount the City of Chicago agreed to pay to the plaintiffs. Plaintiffs cannot now seek additional fees based on a theory which was neither tried, nor contemplated during the settlement negotiations.

Courts retain the inherent power to enforce settlement agreements reached in litigation before them, even when the agreements are oral rather than written. See, e.g., Debose, 552 F.Supp. at 308, see also Schneider v. Dumbarton Developers, Inc., 767 F.2d 1007, 1015 (D.C.Cir.1985); Lyles v. Commercial Lovelace Motor Freight, Inc., 684 F.2d 501, 504 (7th Cir.1982); Aro Corp. v. Allied Witan Co., 531 F.2d 1368, 1372 (6th Cir.), cert. denied, 429 U.S. 862 (1976); Meetings & Expositions, Inc. v. Tandy Corp., 490 F.2d 714, 717 (2d Cir.1974); Cummins Diesel Michigan, Inc. v. The Falcon, 305 F.2d 721, 723 (7th Cir.1962). Though a written agreement was contemplated by the parties, it was not executed due to plaintiffs’ recalcitrance. The terms of the settlement, however, are clear from the record, were agreed to by all parties, and cannot now be changed unilaterally.

Conclusion

The section 1983 claims were not tried by agreement, implicitly or explicitly. More importantly, the settlement was considered final by all the parties to it. Additional fees were not contemplated, and will not be allowed. Plaintiffs’ attempt to collect additional fees, or to create an appealable issue to open up the settlement violates the terms of the settlement. Defendants’ motion to enforce the settlement is granted, and plaintiffs’ motion to amend the complaint is denied. An appropriate order will enter.

      . Fed.R.Civ.P. 15(b) provides:
      (b) Amendments to Conform to the Evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence.


author: JAMES R. MILLER, Jr., District Judge.

text:
    In re MARYLAND GLASS CORPORATION NON-SALARIED EMPLOYEES’ PENSION PLAN, Maryland Glass Corporation Salaried Employees’ Pension Plan. PENSION BENEFIT GUARANTY CORPORATION v. MARYLAND GLASS CORPORATION, Dorsey Corporation, Chattanooga Glass Company, American Flint Glass Workers Union, AFL-CIO, and Glass Bottle Blowers Association of the United States and Canada, AFL-CIO.
    Civ. A. No. M-81-1480.
    United States District Court, D. Maryland.
    Oct. 7, 1985.
    Edward R. Mackiewicz, Gen. Counsel, James N. Dulcan, Asst. Gen. Counsel, Stephen D. Schreiber, Trial Atty., Paul Green, Atty., Washington, D.C. (Larry D. Adams, Asst. U.S. Atty., Baltimore, Md., of counsel), for Pension Benefit Guar. Corp.
    Stephen M. Kimatian, Baltimore, Md., Trustee in Bankruptcy for Maryland Glass Corp.
    Michael E. Twomey and Olwine, Connelly, Chase, O’Donnell and Weyher, New York City, George W. White, Jr. and White, Mindel, Clarke & Hill, Towson, Md., for Dorsey Corp. and Chattanooga Glass Co.
    Mary L. Crangle and Temar, Parks, Seliger, Simonoff & Adourian, Haddonfield, N.J., Richard T. Tomar, Rockville, Md., for American Flint Glass Workers Union, AFL-CIO and Glass Bottle Blowers Ass’n of the U.S. and Canada, AFL-CIO.
   MEMORANDUM AND ORDER

JAMES R. MILLER, Jr., District Judge.

On June 11, 1981, Pension Benefit Guaranty Corporation (PBGC) filed an action under Title IV of ERISA, 29 U.S.C. § 1301 et seq., for an order terminating the Maryland Glass Corporation Non-Salaried Employees’ Pension Plan and the Maryland Glass Corporation Salaried Employees’ Pension Plan and appointing PBGC as statutory trustee of the Plans pursuant to 29 U.S.C. § 1341(c). Also named as defendants were Chattanooga Glass, a former owner of Maryland Glass, and Dorsey Corporation which owned Chattanooga Glass (Paper No. 1).

The Glass Bottle Blowers Association of the United States and Canada, AFL-CIO, moved for leave to intervene as a defendant in this action pursuant to Fed.R.Civ.P. 24(a)(2) or (b)(2) (Paper No. 9). American Flint Glass Workers Union, AFL-CIO, also moved for leave to intervene as defendant (Paper No. 12).

On April 7, 1983, this court stayed all proceedings as a result of a suggestion of bankruptcy filed by Maryland Glass (Paper No. 16). On October 10,1984, the stay was lifted and this court granted the right to intervene to Glass Bottle Blowers Association (GBBA) and American Flint Glass Workers Union (AFGWU) (Paper No. 26).

Subsequently, cross-motions for summary judgment were filed by PGBC (Paper Nos. 34 & 40); GBBA and AFGWU (Paper No. 33); and Chattanooga and Dorsey (Paper Nos. 35 & 39). PBGC opposed the motions filed by the other parties (Paper No. 36). Similarly, oppositions to PBGC’s motion for summary judgment were filed by GBBA and AFGWU (Paper No. 37) and by Chattanooga and Dorsey (Paper No. 38). No hearing is necessary to decide the issues presented in the motions. Local Rule 6(G).

Factual Background

The main issue in this case involves the date on which PBGC may terminate retroactively the two pension plans of Maryland Glass Corporation [hereinafter the Union Plan and the Salaried Plan]. The undisputed facts relevant to that issue are set forth here.

Chattonooga Glass Company, a wholly owned subsidiary of Dorsey Corporation, operated a glass container manufacturing plant in Baltimore under the name of Maryland Glass. The GBBA and AFGWU represented bargaining units of employees of the plant under collective bargaining agreements in effect at all pertinent times. In late October, 1978, the assets of Chattanooga’s Baltimore plant were sold to Stephen Kelly, as Kelly Glass. Soon thereafter, the corporate name was changed back to Maryland Glass. The name “Maryland Glass Corp.” hereafter refers to the new Maryland Glass, formed after the Kelly interests acquired the assets of the original Maryland Glass Corp.

Shortly before that sale, Dorsey and PBGC entered into an Indemnity Agreement. Apparently PBGC was concerned at that time about the financial solvency of the two pension plans. The Indemnity Agreement (Paper No. 38, Ex. 2) allowed Chattanooga to sell the Baltimore plant to Maryland Glass; allowed Maryland Glass to adopt the two pension plans; and provided that Dorsey would be liable to PBGC for the combined underfunding of the plans if the date of termination for the plans fell within two years after the closing of Chattanooga’s agreement to sell the Baltimore plant. If the date of termination were to fall after the end of the second year and before the end of the third year after the date of closing, Dorsey would be liable for one-third of the amount of underfunding (Paper No. 38, Ex. 2 at ¶¶ 5-6).

The closing for the sale of the plant took place on or about October 25, 1978. At that time, under the terms of the Sales Agreement, Kelly Glass, subsequently named Maryland Glass, agreed to adopt and continue the Union Plan and the Salaried Plan (Paper No. 34, Ex. C at 8-1). Those plans are tax qualified, defined benefit pension plans covered by Title IV of ERISA (Paper No. 34, Ex. C at 8-1, 8-2 & 8-3). Kelly Glass, subsequently known as Maryland Glass, also agreed, under the terms of the Sales Agreement, that it would not terminate the plans during the Current year or during the next five full years (Paper No. 34, Ex. C at 8-7 & 8-8). Finally, Kelly Glass, subsequently known as Maryland Glass, promised that it would not agree to a termination date for the plans which was retroactive and prior to January 1, 1983 (Paper No. 34, Ex. C at 8-8).

Shortly after the October 25th closing date, extensive plant renovation began. Manufacturing operations began in June, 1979. Suffice it to say that for numerous reasons, the new Maryland Glass experienced setbacks which caused severe financial problems. On October 31, 1979, Maryland Glass filed a petition for arrangement under Chapter 11 of the Bankruptcy Code (Paper No. 34, Ex. H at 10, 11 and Ex. E), and for some time thereafter operated as debtor-in-possession.

Maryland Glass’ financial problems affected its ability to make scheduled contributions to the pension plans. On September 8, 1980, just one week before the September 15th contribution was due for payment, Maryland Glass requested that the Internal Revenue Service waive that contribution requirement because of the financial hardship it would cause the company (Paper No. 34, Ex. F at 5). Maryland Glass did not make the September 15th contribution to the pension plans.

In December, 1980, Maryland Glass began to lay off its union employees (Paper No. 38, Ex. 15). It shut down its furnace and plant operations on February 25, 1981 (Paper No. 35, Affidavit of Twomey ¶124; Paper No. 34, Finkelstein Affidavit If 18). Some salaried employees continued to work at the plant, apparently to supervise the selling of inventory and general plant maintenance (Paper No. 34, Finkelstein Affidavit 1118).

By letter dated April 12, 1981, PBGC suggested to Maryland Glass that the pension plans should be terminated by Maryland Glass voluntarily (Paper No. 38, Ex. 24). Ten days later, on April 24, 1981, the Chapter 11 bankruptcy proceeding was converted to a Chapter 7 liquidation proceeding (Paper No. 34, Ex. E), and Maryland Glass subsequently was adjudicated bankrupt.

Maryland Glass, however, did not voluntarily choose to terminate the pension plans. Therefore, PBGC, by letter of May 15, 1981, notified Maryland Glass, Dorsey, Chattanooga, GBBA, and AFGWU of its intent to seek an involuntary termination of the plans, retroactive to September 15, 1980, the date Maryland Glass failed to pay the pension plans contribution, and to request that the court appoint it as statutory trustee for the pension plans (Paper No. 38, Ex. 27).

The parties do not contest the involuntary termination. They do contest, however, the retroactive date of September 15, 1980 which PBGC set for termination. Dorsey and Chattanooga claim February 25,1981, the date the furnaces at Maryland Glass were shut down and most employees laid off, as the earliest date for retroactive termination. GBBA and AFGWU argue that April 23, 1981, the date the last remaining employees were laid off, should be found to be the date of termination.

Legal Analysis

A. Significance of the Termination Date Dispute

“A plan’s termination date is significant ____ [Termination marks the date on which benefits of plan participants cease to accrue. For involuntary terminations, the date of termination serves an additional purpose. When an employer underfunds its pension plan and is unable to finance a minimum level of benefits, PBGC, pursuant to its statutory guarantee, must pay those benefits. If forced to honor its guarantee, PBGC has the right [under the statute, 29 U.S.C. § 1362(b) ] to recover from the employer the lesser of the amount that the employer underfunded its plan or thirty percent of the employer’s net worth on a date chosen by PBGC within 120 days prior to the plan’s termination date. Because involuntary termination proceedings often involve bankrupt corporations with deteriorating financial resources, the date of termination can significantly affect the extent of PBGC’s recovery from the employer.” Pension Benefit Guaranty Corp. v. Broadway Maintenance Corp., 707 F.2d 647, 649 (2d Cir.1983) [hereinafter Broadway Maintenance ].

In the case at bar, the date of termination specifically affects PBGC’s extent of recovery from Dorsey and Chattanooga. Under the Indemnity Agreement signed by Dorsey and Chattanooga prior to the sale of its plant to the new Maryland Glass, Dorsey assumed liability to PBGC for the combined underfunding of both plans if the date of termination fell within two years of October 25, 1978. If, however, the termination date fell after the end of the second year and before the end of the third year after that October 25, 1978 closing date, Dorsey agreed to pay one-third of the amount of underfunding of both pension plans. PBGC’s proposed termination date of September 15, 1980 falls within two years of October 25, 1978, and would make Dorsey liable for the full amount of the combined underfunding of the plans.

The date proposed by Dorsey and Chattanooga, February 25, 1981, as well as the April 23, 1981 date proposed by the unions, falls after the second but before the end of the third year, limiting Dorsey’s liability to one-third of the combined underfunding. It appears from the record that the combined underfunding is approximately seven million dollars (Paper No. 34, Affidavit of Finkelstein UK 10 & 14; Ex. P).

The date of April 23, 1981 proposed by the two unions maximizes the benefits which accrue to the employees of Maryland Glass under the pension plans. The longer the pension plan is deemed to have been in existence, the higher the benefits will be. In addition, vesting of some participants also will have occurred during the disputed period.

Thus, each party has a strong interest in having its date chosen as the date of termination.

B. Choosing a Termination Date

PBGC, a self-financing insurance program, guarantees pension plan participants a certain minimum level of benefits if their employers terminate pension plans with inadequate funds. See Broadway Maintenance, 707 F.2d at 648, 29 U.S.C. § 1332(a). Pension plans may be terminated voluntarily by the plan administrator, 29 U.S.C. § 1341(a), but ERISA also provides that PBGC may initiate involuntary termination procedures when:

(1) the plan has not met the minimum funding standard required under Section 412 of the Internal Revenue Code,
(2) the plan is unable to pay benefits when due,
(3) a substantial distribution of plan assets was made to a participant who is a subtantial owner of the company sponsoring the plan, and
(4) the BPGC faces an unreasonable increase in its liabilities if the plan is not terminated.

See 29 U.S.C. § 1342(a).

None of the parties herein disputes that PBGC legally is correct to seek involuntary termination in this ease. “But Congress did not give PBGC unilateral authority to set a termination date, even in involuntary proceedings. Under ERISA, if the plan administrator does not agree to the date proposed by PBGC in an involuntary termination proceeding, a federal district court will set the date.” Broadway Maintenance, 707 F.2d at 649; 29 U.S.C. § 1348(a)(3). The plan administrator herein has not agreed to a termination date.

In Pension Benefit Guaranty Corp. v. Heppenstall Co., 633 F.2d 293 (3d Cir.1980) [hereinafter Heppenstall ], the first case to consider and define the analysis a district court should utilize in setting a disputed termination date, the Third Circuit established that “the court must select the date which it determines is most consistent with the purposes of the insurance subtitle.” Id. at 297.

The statute addresses the purposes to be accomplished by involuntary termination— “to protect the interests of the participants or to avoid any unreasonable deterioration of the financial condition of the plan or any unreasonable increase in the liability of the fund.” 29 U.S.C. § 1342(c). Heppenstall set forth an approach by which those purposes could be accomplished.

The Third Circuit in a later opinion stated, “Heppenstall proposed a three part analysis for ascertaining the termination date: ‘[first] identify the interests of all the plan participants and the PBGC, [second] establish the parameters which maximize those respective interests, and [third, within the limits of the statute] set the termination date accordingly.’ ” United Steelworkers of America v. Harris & Sons Steel Co., 706 F.2d 1289, 1296 (3d Cir.1983) (quoting In re Braniff Airways, Inc., 24 B.R. 466, 472 (Bankr.N.D.Tex.1982), which utilized the Heppenstall approach).

This court will adopt the Heppenstall approach as have other courts facing the issue of setting a termination date. See, e.g., Broadway Maintenance, 707 F.2d at 652-53; In re Braniff Airways, Inc., 24 B.R. at 472; Pension Benefit Guaranty Corp. v. Dickens, 535 F.Supp. 922, 925-26 (W.D.Mich.1982), aff'd. sub. nom. on other grounds, In Re Challenge Stamping & Porcelain Co., 719 F.2d 146 (6th Cir.1983).

1) Interests of Participants and PBGC

The interest of PBGC can be identified briefly as protecting its resources against increased liability. Clearly, if Dorsey were made to pay the full amount by which the plan is underfunded, PBGC’s interest would be fully satisfied.

On the other hand, the interests of the participants are more varied. As pointed out in Heppenstall, both retirees’ and employees’ interests must be considered. Heppenstall, 633 F.2d at 301.

“The termination date affects retirees only to the extent that the payments guaranteed under ERISA [may be] less than they are currently receiving, or to the extent that benefits already received may be recaptured under 29 U.S.C. § 1345.” Id. As of January 1, 1979, of the 493 participants in the Union Plan, 152 were retirees receiving benefits (Paper No. 38, Ex. 25 at 2). In the Salaried Plan, 56 of the 100 participants were retirees (Paper No. 38, Ex. 26 at 2).

There is no evidence in the record regarding the impact of PBGC’s proposed termination on retirees, but it can be assumed that those 208 retirees will feel some greater or lesser financial impact depending on the termination date chosen. The later the date chosen, the less the impact. “The termination date affects employees in ... a different way [from retirees] by fixing the date beyond which, whether or not they continue to work, they no longer accrue additional vested pension rights.” Heppenstall, 633 F.2d at 301.

As of January 1, 1979, all but 42 employees of the 493 participants in the Union Plan were vested (Paper No. 38, Ex. 25 at 30-44; Paper No. 34, Affidavit of Finkelstein ¶ 16). According to PBGC, between 7 to 9 of those 42 participants would vest between September 15, 1980 and April 23, 1981 (Paper No. 34 at 30-31; Affidavit of Finkelstein ¶¶ 15, 16). Because, under ER-ISA, only vested benefits are guaranteed by PBGC, 29 U.S.C. § 1322(a), those 7 to 9 employees would not be covered by PBGC if the September 15, 1980 date were chosen.

Under the Salaried Plan, PBGC states that none of the approximately 13 nonnested participants would vest between September 15, 1980 and April 23, 1981 (Paper No. 34 at 31; Affidavit of Finkelstein ¶¶115, 16). Thus, choosing the September 15, 1980 date as the termination date would not affect participants of the Salaried Plan.

Participants of both plans continued to work for Maryland Glass from September 15, 1980 to April 23, 1981, although that work force was reduced considerably on February 25, 1981 when the furnaces were shut down. Use of the September 15, 1980 date would mean that pension benefits of those employees would be computed without regard to that additional period of employment (Paper No. 34, Affidavit of Finkelstein ¶ 15).

2) Setting the Parameters

When the Heppenstall court considered the interests of the employees, it focused not merely on the extent of the monetary impact on employees of a termination date, but looked closely at the expectation and reliance interest of the employees in the pension plan. As the court pointed out, as vested employees work they accrue additional vested pension rights which are insured to them under ERISA. 633 F.2d at 301. Thus, Heppenstall concluded that “the earliest date which could properly be selected by the court is that date on which participant employees had some reasonable notice that PBGC was seeking termination and thus they no longer had a justifiable expectation in the accrual of vested pension rights.” 633 F.2d at 302.

The three proposed dates should be examined, therefore, to determine the earliest date on which the employees received some reasonable notice of plan termination. PBGC’s date of September 15, 1980, the date on which Maryland Glass failed to pay the required pension plan contributions, does not appear to be an appropriate date of notice to employees. While there is some indication in the record that the unions were notified orally that Maryland Glass had not made the contribution {see Paper No. 38, Finkelstein Deposition 140-42, 150-55), that event, absent more, would not be expected to alert employees that their pension plans would be terminated.

The Internal Revenue Code specifically provides a procedure by which payment of the plan contribution for reasons of substantial business hardship can be waived. 26 U.S.C. § 412(d). In fact, when Maryland Glass requested the waiver, it stated in its request to the IRS, “The imposition of the funding standard would likely result in a termination of the Plan.” (Paper No. 34, Ex. F at 5).

Therefore, even if the unions were told of the waiver request and the failure to pay the required contribution, they could not have been put on notice that such failure would precipitate plan termination, particularly given Maryland Glass’ representation to the IRS that payment of the funding standard amount could result in termination.

On the February 25, 1981 date proposed by Dorsey and Chattanooga, Maryland Glass shut down its furnace and plant operations. By that date, most of the union employees had been laid off (Paper No. 38, Ex. 15 showing 24 union employees working as of 12/29/80). Salaried employees, apparently, remained on staff and working.

Several courts have held that the employees have at least constructive notice of plan termination on the date the employer ceases operation. See, e.g., In Re Syntex Fabrics, Inc. Pension Plan, 698 F.2d 199, 201 (3rd Cir.1983); Heppenstall, 633 F.2d at 301; Pension Benefit Guaranty Corp. v. Dickens, 535 F.Supp. at 925. Whether cessation must be total in the fullest sense of that word has not been addressed by those courts.

In the case at bar, although the February 25th shutdown did not represent complete cessation of company operations, plant production obviously was brought to a standstill. The remaining salaried employees, it appears, supervised the sale of inventory and plant maintenance (Paper No. 34, Finkelstein Affidavit ¶ 18).

The union argues that it was not until April 23,1981 when all employees were laid off and liquidation of Maryland Glass became a fact that employees received actual notice of plan termination. Under the circumstances, however, it appears that February 25, 1981 represents the date the company ceased production. When the furnace shut down so too did Maryland Glass, for all intents and purposes relevant to the notice issue. Therefore, the court will establish February 25, 1981 as the date on which the employees had notice of plan termination.

3) Setting the Date

Having established that employees had notice of plan termination no earlier than February 25, 1981, Heppenstall compels the conclusion that no earlier date, for example PBGC’s September 15, 1980 date, can be set for termination. It further follows that setting a date later than February 25, 1981 would adversely affect PBGC’s interests by exposing it to increased liability.

The date of February 25, 1981 considers and balances the competing interests of the plan participants and PBGC as effectively as possible.

The court recognizes that setting that date for plan termination exposes PBGC to liability for two-thirds of the underfunding of the plans. That represents a significant sum of money, but protection of plan participants is the central focus of ERISA. This court agrees with Heppenstall and the cases applying Heppenstall that protection of plan participants requires reasonable notice to them of plan termination.

C. Plan Trustee

Dorsey and Chattanooga object to the appointment of PBGC as trustee of the pension plans.

Whenever PBGC seeks involuntary termination of a pension plan, it may apply to the district court for appointment of a trustee. 29 U.S.C. § 1342(b)(1). PBGC has petitioned that it be appointed trustee of the plans.

Objection to such appointment rests on the dispute herein over the termination date. Because a trustee must serve the interests of the plan participants, 29 U.S.C. § 1342(b)(2), Dorsey and Chattanooga conclude that PBGC’s interest in an earlier termination date puts it in conflict with the plan participants. Those respondents, however, state in a later motion that “until a termination date is established by this court, the PBGC is incapable of adequately representing the interests of the ... plan participants and should not be appointed trustee of the Plans.” (Paper No. 38 at 27).

This court, having established a termination date, and thus having eliminated the sole source of conflict between the participants and PBGC, will appoint PBGC as trustee of the Plans.

Accordingly, it is this 7th day of October, 1985, by the United States District Court for the District of Maryland, ORDERED:

1. That the termination date of the pension plans herein is set as February 25, 1981.

2. That PBGC is appointed trustee of those pension plans.

3. That the above decisions represent a granting in part and a denial in part of all summary judgment motions filed herein.

4. That the Clerk enter a judgment order closing this case.

      . At the time Heppenstall was decided, the statute was written using the conjunctive "and,” i.e., “to protect the interests of the participants and to avoid any further deterioration____” Heppenstall, 633 F.2d at 300 (emphasis added). The use of the disjunctive "or” in the amended § 1342(c) may indicate that Congress was aware that the interests of the participants would sometimes be in conflict with the interests of PBGC. Such is the case herein.


author: KRAM, District Judge.

text:
    Lydia PENZES, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    No. 82 Civ. 8530 (SWK).
    United States District Court, S.D. New York.
    Oct. 7, 1985.
    Meltzer & Fishman, New York City, for plaintiff.
    Rudolph W. Giuliani, U.S. Atty. for Southern Dist. of New York, New York City, for defendant.
   MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

This is an action brought pursuant to Section 205(g) of the Social Security Act (the “Act”) as amended, 42 U.S.C. § 405(g), to review a final determination of the Secretary of Health and Human Services (the “Secretary”). The Secretary denied plaintiff’s application for federal disability insurance benefits. Plaintiff, after filing the instant action, moved for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c).

Before the plaintiff’s motion for judgment on the pleadings was decided, Judge Lasker issued his decision in Dixon v. Heckler, 589 F.Supp. 1494 (S.D.N.Y.1984). In Dixon, the court held that the “severity regulations” traditionally used by the Secretary in evaluating a claimant’s disability were invalid. The court ordered the Secretary to consent to remand or to move to remand all cases where these regulations were used to deny disability benefits. Since the Secretary had used these severity regulations to deny the instant plaintiff disability benefits, the Secretary, in accordance with Dixon, moved to remand.

Plaintiff opposed the Secretary’s motion to remand, claiming that the record developed in proceedings before the Social Security Administration established a sufficient basis for reversing the Secretary’s decision. Alternatively, plaintiff argues that the Court should remand with specific instructions to correct the legal errors committed below. The Court accepts the plaintiff’s alternative argument and remands this case to the Secretary for proceedings consistent with the instructions set forth in this opinion.

-BACKGROUND-

Plaintiff is a 59 year old female who lives with her husband in Putnam Valley, New York. After graduating from high school, she attended college at night while living in her native country, Hungary. She moved to the United States in 1956.

Plaintiff states that in approximately 1957 she was employed as a haircutter in a beauty parlor. Upon the recommendation of her physician, plaintiff left her job in 1969 because of extreme pain in her hands. She then obtained a secretarial position which included typing and clerical duties until 1978, when she had a carpal tunnel syndrome operation to alleviate the pain in her right hand. She has not been hospitalized since this operation. Thereafter, plaintiff worked part-time until March 27, 1981, when she stopped working, even on a part-time basis, due to extreme pain and swelling in her hands.

Plaintiff applied for disability insurance benefits on July 22, 1981. Her application was denied initially and after reconsideration. She obtained a hearing on June 22, 1982 before Administrative Law Judge Emanuel Tannenbaum (hereinafter “AU”). In his opinion of August 12, 1982, the AU found that plaintiff did not have a “severe impairment.” See p. 12 of Administrative Record. The AU stated that plaintiff did not have an impairment which significantly limited her ability to perform work-related functions. Although he found that plaintiff could not return to work as a typist, he stated she “can perform as a secretary doing clerical work.” See p. 12 of Administrative Record.

The AU also evaluated plaintiff’s allegations of pain, after considering her symptoms, appearance, demeanor, credibility, and description of her daily activities. The AU ruled that the totality of the evidence did not establish that the claimant was experiencing pain of such severity and frequency as to prevent her from engaging in substantial gainful activity. See p. 12 of Administrative Record. The AU’s decision became final when the Appeals Council denied plaintiff’s request for review.

-DISCUSSION-

Since the claimant falls within the parameters of Dixon v. Heckler, 589 F.Supp. 1494 (S.D.N.Y.1984), this case is remanded to the Secretary for reconsideration. Upon remand, the severity of the plaintiff’s impairment will be determined after considering her age, education and work experience.

In reconsidering the plaintiff’s disability, the AU must follow the analytical framework outlined by the Second Circuit:

Initially, the AU should see whether the treating physician has determined that the claimant is disabled. He should then examine the record for conflicting evidence. Upon finding conflicting evidence, he should compare the probative value of the treating physician’s opinion with the probative value of the conflicting evidence. He should do so with the recognition that the treating physician’s determination is generally “entitled to more weight than that of a doctor who has only seen the claimant once ...”.

Bluvband v. Heckler, 730 F.2d 886, 893 (2d Cir.1984) (citation omitted).

In this Circuit, the opinions of a treating physician as to the existence of a disability are binding on the factfinder unless contradicted by substantial evidence. Bluvband v. Heckler, 730 F.2d 886, 892 (2d Cir.1984); Donato v. Secretary of Health & Human Services, 721 F.2d 414, 419 (2d Cir.1983) (“we have regarded a treating physician’s diagnosis, to the extent it is uncontradicted, as binding”). This is particularly true where, as here, other medical experts concur with the opinion of the treating physician. See Carrillo v. Heckler, 599 F.Supp. 1164, 1169 (S.D.N.Y.1984). Additionally, there is no requirement that the physician’s medical testimony be supported by objective clinical or laboratory findings. Bluvband, 730 F.2d at 893.

In his decision, the AD referred to various parts of the plaintiffs treating physician’s (Dr. Alexander S. Sebo) reports. However, he never mentioned the treating physician’s conclusion that claimant was “disabled” and “unable to continue her job.” See p. 93-94 of Administrative Record. This conclusion was reinforced by Dr. Milford Blackwell, who stated, “In my opinion, the patient is totally disabled.” See p. 95 of Administrative Record. Thus, in reconsidering the plaintiff’s claims, the Secretary is instructed to follow the analytical framework set forth in Bluvband and to accord the treating physician’s opinion the appropriate weight.

-CON CLUSION-

For the reasons set forth above, plaintiff’s motion for a judgment on the pleadings is denied and defendant’s motion to remand the instant case is granted. The instant case is remanded to the Secretary for a redetermination, consistent with this opinion, of the claimant’s eligibility for disability benefits.

SO ORDERED.

      . 20 C.F.R. §§ 404.1520(c), 416.920(c) (1983). Under these regulations, claims for disability benefit programs were denied if the claimant’s impairment was judged to be "not severe” based on medical criteria alone. The Second Circuit has reserved decision on the legality of these regulations on at least two occasions. See Keith v. Heckler, 732 F.2d 1089, 1093-94 (2d Cir.1984); Chico v. Schweiker, 710 F.2d 947, 952-53 (2d Cir.1983).

      . Under the severity regulations, claimant’s initial burden was to show that her impairment was severe. By failing to satisfy this standard, the claimant could not be found to be disabled. 20 C.F.R. § 404.1520(c)(1983).


author: WARRINER, District Judge.

text:
    UNITED STATES of America v. Thomas K. WILLIAMS, et al.
    Crim. 83-00103-R.
    United States District Court, E.D. Virginia, Richmond Division.
    Oct. 7, 1985.

      Gregory Welsh, Joseph Aronica, Asst. U.S. Atty., Richmond, Va., for plaintiff.
    Thomas K. Williams, pro se.
   ORDER

WARRINER, District Judge.

Defendant Thomas K. Williams has moved the Court pursuant to Fed.R.Crim.P. 32(c)(3)(D) for a finding as to allegations of factual inaccuracies “in the presentence investigation report or the summary of the report or part thereof.”

I believe subsection (D) is intended to require findings from the bench prior to sentencing. Subsection (ii) thereof clearly indicates that contentions with respect to inaccuracies in the presentence report are to be dealt with and disposed of before the Court imposes sentence. This requirement serves the double purpose of requiring the judge to resolve the dispute in his own mind before he imposes sentence and of requiring the judge to resolve the dispute .while the matter is still fresh in mind.

The last sentence of subsection (D) shows that the effect of any such findings are intended to apply beyond sentencing, specifically, they are to be considered by the Bureau of Prisons and by the Parole Commission. Thus I can understand why a prisoner who later discovers matter which is subject to dispute in his presentence report would want to correct the record. I do not believe subsection (D) gives him that vehicle, however, and I know of no other authority for the trial judge to make findings of fact months after the sentencing hearing when the issues of a case, once bright, may have become dull or may have completely faded.

Perhaps if a court had had “any factual inaccuracy” presented to it at sentencing which it had failed to make rulings with respect to, a subsequent motion would be in order. Frankly, I doubt even this since the rule contemplates the court making the finding prior to sentence and the court’s neglect to do this should be called to its attention at that time. A defendant’s failure to request the resolution of a factual inaccuracy until months later has precisely the same defects as noted above, the court’s memory simply cannot be depended upon.

But in this case, the transcript of sentencing does not disclose any “comments of the defendant and his counsel or testimony or other information introduced by them” alleging any factual inaccuracy. I was not asked then to focus on the current issue and so I am even less able now to reconstruct an issue of fact which was not then presented.

It is true, as defendant argues, that the defense was not in orderly array on the morning of sentencing. After a hearing on the causes, I sought to resolve the problem. It was my impression at the time, and still is, that the resolution arrived at was reasonably satisfactory to defense counsel and to the Williams defendants.

Whatever the degree of satisfaction, the confusion was not brought about by any act or omission of the government or of the Court. To the contrary, the disarray was brought about by a decision of the defendants Williams to fire their lawyers on the eve of sentencing. As I recall, the decision to fire the lawyers resulted from some fundamental disagreement as to tactics. Mr. Williams states in a brief that the lawyers were fired because they had lied to him. I accepted the truth of the assertions which were made at the time of the hearing and concluded that the unilateral decision on the part of the defendants Williams could not properly be permitted to alter the long-set time for sentencing.

Thus the excuse for not calling any inaccuracies to my attention, i.e., the state of confusion, is an excuse for which the Williams derived whatever benefit they sought; they must also suffer whatever detriment resulted.

Finally, because I was concerned that no one, neither defendants nor counsel, had concentrated on the presentence report pri- or to sentencing, I recessed in order to afford counsel and defendants an opportunity to review the reports. I am satisfied that experienced and resourceful counsel would have called any pertinent inaccuracy to my attention. I am even more satisfied that the resourceful defendants, themselves, would have called any inaccuracy to my attention. None did so.

For the foregoing reasons, the motion must be DISMISSED as timely and insofar as it may not be timely, it is DENIED.

Defendant Thomas K. Williams has also moved the Court for a new trial. The government’s reply brief has met the motion on its merits but the Court is unable to rule on the merits of the motion. Fed.R. Crim.P. 33 provides that a motion for a new trial based on newly discovered evidence filed while an appeal is pending may be granted by the trial court only on remand of the case. The appeal may render the motion for a new trial moot. If after remand defendant Thomas Williams still wants to pursue his motion for a new trial, this Court would then be permitted under Rule 33 to consider it on its merits.

The Court will not dismiss the motion since the two-year time limit set by Rule 33 does not appear to be tolled pending appeal. The Court will simply defer ruling until the matter is again brought to the attention of the Court by defendant Thomas Williams upon remand.

And it is so ORDERED.

      . Tr. sentencing, 29 Nov. 1984, p. 16-59.

      . Indeed, the issue raised by defendant Thomas Williams’ motion was of marginal interest to the Court at sentencing, whatever its weight may be before the Parole Commission. Had it been seriously questioned by defendant Williams I simply would have disregarded it rather than waste time with the extensive evidentiary hearing the resolution of such a dispute would have entailed.

      . Tr. sentencing 29 Nov. 1984, p. 18-19.

      . Tr. motions hearing, 27 Nov. 1984, p. 8, 18.

      . Tr. motions hearing, 27 Nov. 1984, p. 14.

      . Counsel for Mrs. Williams indicated he hesitated even to review her presentence report when it was furnished to him prior to the sentencing date because of the questions surrounding his continued representation of Mrs. Williams. Tr. motions hearing, 27 Nov. 1984 p. 27.

      . Tr. motions hearing, 29 Nov. 1984 p. 52.

      . The allocution was extraordinarily lengthy, running from p. 16 through p. 59, Tr. sentencing, 29 Nov. 1984.