author: JAMES McGIRR KELLY, District Judge.

text:
    ETHANOL PARTNERS ACCREDITED, et al. v. WIENER, ZUCKERBROT, WEISS & BRECHER, et al.
    Civ. A. No. 84-6408.
    United States District Court, E.D. Pennsylvania.
    June 27, 1985.

      Henry H. Janssen, Philadelphia, Pa., for plaintiffs.
    Peter J. Taylor, Pittsburgh, Pa., for Carl E. Wright & Wright, Herfordt & Sanders.
    Abraham C. Reich, Philadelphia, Pa., for Linde, Thomson, Fairchild, Langworthy, Kohn & Van Dyke, P.C., & James O. Selzer.
    Lloyd R. Ziff, Philadelphia, Pa., for John P. Redd & J. Michael Redd.
    Ira P. Tiger, Philadelphia, Pa., for Mormac Ltd., Henry McDonald.
    James M. Kaplan, New York City, for Harold E. Card, Raymond Jallow and Ira Palmer and William Palmer.
   MEMORANDUM AND ORDER NO. I

JAMES McGIRR KELLY, District Judge.

Presently before this court is a motion to dismiss for failure to state a claim filed by Carl E. Wright and Wright, Herfordt & Sanders (WHS), a partnership engaged in public accounting. Defendants here rely upon Fed.R.Civ.P. 12(b)(6) for authority for their motion. Additionally, defendants here argue that this court does not have personal jurisdiction over them, therefore, the court must dismiss pursuant to Fed.R. Civ.P. 12(b)(2).

The plaintiffs have alleged several securities violations, a Racketeer Influenced and Corrupt Organization Act violation (RICO) 18 U.S.C. § 1961, et seq., and several state securities violations. Plaintiffs, two limited partnership organizations, sought the purchase of various investments. In seeking investments plaintiffs purchased six ethanol manufacturing facilities on a “turn key” basis, with management of the facilities being provided for by the seller Midwestern Companies, Inc. (Midwestern) and its subsidiaries. Defendant Carl Wright, besides being the senior partner of WHS was also an officer and director of Midwestern. Plaintiffs, once the ethanol plants were purchased, sold limited partnership interests to investors.

In count I, plaintiffs assert that defendants here used “manipulative and deceptive devices or contrivances which were designed to, and had the effect of generating and receiving millions of dollars in the limited partners’ investments in the ethanol plants ____” Plaintiffs contend that: defendants misrepresented the completion time for the plants to be operational; the defendants misrepresented the total assets in place at each ethanol plant; defendants misrepresented the financial integrity of Midwestern and its ability to construct the plants; defendants misrepresented the fact that a performance bond was secured when in fact no bond had been secured; and defendants misrepresented projected revenues, expenses, cash flows and tax advantages of the ethanol plants. Plaintiffs allege that the defendants WHS and Carl Wright acted in concert with various other individuals, corporations, and partnerships (all of which are defendants in this action) who were involved in other aspects of the transaction of buying the ethanol plants and/or selling the limited partnership interests by plaintiffs.

Plaintiffs in count I of their complaint seek relief pursuant to the Security Act of 1933 (SA) § 17(a), 15 U.S.C. § 77q(a) (1981) which states:

§ 77q. Fraudulent interstate transactions
Use of interstate commerce for purpose of fraud or deceit
(a) It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly—
(1) to employ any device, scheme, or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

Defendants here contend that a private cause of action does not lie from SA § 17(a), supra. I ruled in Markovich v. Vasad Corp., 617 F.Supp. 142, 145-146 (E.D.Pa. Feb. 21, 1985) that SA § 17(a) does not support a private cause of action. Plaintiffs believe that the Supreme Court’s opinion in Herman & MacLean v. Huddleston, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983) requires a contrary result. However, the Huddleston Court was confronted with different questions, namely whether an implied cause of action under the Security and Exchange Act of 1934 (SEA) § 10(b) will lie for conduct subject to an express civil remedy under the SA § 11, and if the implied action does lie, what is the applicable standard of proof required. For the many reasons Judge Giles set out in Kimmel v. Peterson, 565 F.Supp. 476 (E.D.Pa.1983) and for the reasons I set out in Markovich, I do not find the Supreme Court’s opinion in Huddleston controlling here. Accordingly, a private cause of action will not lie under SA § 17(a). Plaintiffs’ action to the extent it relies upon SA § 17(a) must be dismissed. However, to the degree plaintiffs rely upon SA § 12(2), 15 U.S.C. § 77Z(2) (1981) and SEA § 10(b), 15 U.S.C. § 78j(b) (1981) and Rule 10b-5, 17 C.F.R. 240.10b-5 (1984) promulgated thereunder, count I is a viable claim since a private cause of action is permissible under these sections. Moreover, defendants here do not seek dismissal of these claims. Accordingly, count I will not be dismissed as to plaintiffs’ claims which rely upon SA § 12(2), SEA § 10(b), and Rule 10b-5.

In count I of the complaint plaintiffs couch a claim upon SA § 15, 15 U.S.C. § 77o and SEA § 20(a) & (b), 15 U.S.C. 78t(a) & (b). In alleging a claim based upon SA § 15 and SEA § 20(a) & (b), plaintiffs contend that defendants here have exercised control over other defendants in this action, who have violated SA § 12, 15 U.S.C. Ill (1981). Because the Federal Rules of Civil Procedure only require notice pleadings, I find that plaintiffs have given sufficient notice to .the defendants here; whether or not defendants here exercised control is a factual question which cannot be resolved on a Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim.

If plaintiffs can establish, inter alia, that defendant here sufficiently controlled or had influence over other defendants in this action who violated either SA §§ 11 or 12, 15 U.S.C. §§ 77k, 111 or those acts which are covered under SEA § 20, 15 U.S.C. § 78t, cf. Sharp v. Cooper & Lybrand, 649 F.2d 175 (3d Cir.1981), cert. denied, 455 U.S. 938, 102 S.Ct. 1427, 71 L.Ed.2d 648 (1982) (The court recognized certain limited situations where an accounting firm may be liable to parties who are persuaded and rely upon their advice) then plaintiffs will be entitled to recover. For all these reasons, I cannot dismiss in total count I of plaintiffs’ complaint.

I turn next to count II of plaintiffs’ complaint, in which they allege a claim under RICO, 18 U.S.C. § 1964; however, plaintiffs fail to allege that defendants here have been convicted of the requisite predicate acts. Conviction of predicate acts are a prerequisite to stating a claim for civil relief under RICO. Sedima S.P. R.L. v. Imrex Company, Inc., 741 F.2d 482 (2d Cir.1984) cert. granted, — U.S.-, 105 S.Ct. 901, 83 L.Ed.2d 917 (1985); Viola v. Bensalem Township, 601 F.Supp. 1086 (E.D.Pa.1984). Without more discussion, I will dismiss count II of plaintiffs’ complaint against these defendants.

Defendants here do not seek dismissal of counts III through IX of plaintiffs complaint. Accordingly, I will not evaluate the allegations for adequateness of stating a claim, sua sponte.

Turning to count X of plaintiffs’ complaint, defendants seek dismissal because they assert that plaintiffs failed to “plead fraud with particularity” and thus contra to Fed.R.Civ.P. 9(b). In' count X plaintiffs allege that defendants here completed the statements of revenues and statements of cash flow for the ethanol plants in a perfunctory manner, notwithstanding the fact that defendants here knew that plaintiffs would rely upon the schedules in making their decisions. Moreover, plaintiffs contend that defendants here negligently relied upon representations and assumptions from other defendants in this action in rendering their opinion. I do not read count X of plaintiffs’ complaint as alleging fraud, but rather find count X alleges a breach of a duty, namely negligence and gross negligence. Accordingly, I find that count X has been sufficiently pleaded in accordance with Fed.R. Civ.P. 8, and that Fed.R.Civ.P. 9(b) is inapplicable to count X.

Last, I address defendants’ assertion that this court does not have jurisdiction over them. Defendants claim that they do not have agents within the Commonwealth of Pennsylvania, nor do they conduct business within the Commonwealth. Defendants here assert that they reside and conduct their business in Missouri. The SA and the SEA each provides for nationwide service of process and further each provides for jurisdiction in any district court. The SA § 22, 15 U.S.C. § 77v (1981) states in pertinent part:

§ 77v. Jurisdiction of offenses and suits
(a) The district courts of the United States, ..., shall have jurisdiction of offenses and violations under this subchapter and under the rules and regulations promulgated by the Commission in respect thereto, and, concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this sub-chapter. Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found____

The SEA § 27, 15 U.S.C. § 78aa (1981) states in pertinent part:

§ 78aa. Jurisdiction of offenses and suits
The district courts of the United States, ... shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder____ Any suit or action to enforce any liability or duty created by this chapter or rules or regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found____

While both SA § 22 and SEA § 27 have a venue provision, the question remains whether or not some due process requirement under the fifth amendment, prohibits this court from exercising jurisdiction over the defendants here. Cf. GRM v. Equine Investment and Management Group, 596 F.Supp. 307 (S.D.Tx.1984) (the court held that the SEA § 27 provides not only for venue, but also personal jurisdiction; however, due process must not be offended). In Fitzsimmons v. Barton, 589 F.2d 330, 333-334 (7th Cir.1979) the court stated:

It is clear, therefore, that the ‘fairness’[] standard imposed by Shaffer relates to the fairness of the exercise of power by a particular sovereign, not the fairness of imposing the burdens of litigating in a distant forum. Applying this standard of fairness, it is clear that this instance of personal service satisfies Due Process. Here the sovereign is the United States, and there can be no question but that the defendant, a resident citizen of the United States, has sufficient contacts with the United States to support the fairness of the exercise of jurisdiction over him by a United States court.

This analysis and conclusion has been well established since United States v. Union Pacific R.R., 98 U.S. 569 [8 Otto 569], 25 L.Ed. 143 (1878). There the Supreme Court, in upholding the in personam jurisdiction of a circuit court in a federal action against parties residing outside the state in which the circuit court sat, noted:

The jurisdiction of the Supreme Court and the Court of Claims is not confined by geographical boundaries. Each of them, having by the law of its organization jurisdiction of the subject matter of a suit, and of the parties thereto, can, sitting at Washington, exercise its power by appropriate process, served anywhere within the limits of the territory over which the federal government exercises dominion.
* ‡ $
There is, therefore, nothing in the Constitution which forbids Congress to enact that, as to a class of cases or a case of special character, a circuit court-any circuit court-in which the suit may be brought, shall, by process served anywhere in the United States, have the power to bring before it all the parties necessary to its decision.

Id. at 603-04. This conclusion has been specifically applied to uphold the validity of nationwide service of process under § 27 of the 1934 Securities Exchange Act. In Mariash v. Morrill, 496 F.2d 1138 (2d Cir.1974), the Second Circuit upheld under § 27 the jurisdiction of a federal district court in New York over defendants served in Massachusetts stating:

[W]here, as here, the defendants reside within the territorial boundaries of the United States, the ‘minimal contacts’, required to justify the federal government’s exercise of power over them, are present. Indeed, the ‘minimal contacts’ principle does not, in our view, seem particularly relevant in evaluating the constitutionality of in person-am jurisdiction based on nationwide, but not extraterritorial, service of process. It is only the latter, quite simply, which even raises a question of the forum’s power to assert control over the defendant.

Id. at 1143 (emphasis in original).

(Some footnotes omitted). Because the action was under the SEA, thus arising under a federal statute, the Fitzsimmons court had subject matter jurisdiction. The faet that the SEA provided for nationwide service of process coupled with the fact that defendant had minimum contacts with the United States, fifth amendment Due Process was not violated by exercising personal jurisdiction over the defendant.

In Oxford First Corp. v. PNC Liquidating Corp., 372 F.Supp. 191 (E.D.Pa.1974) the district court held that fifth amendment Due Process not only required nationwide service of process where a federal statute was the basis of the claim, but also required a five step analysis to determine the “fairness” of exercising personal jurisdiction over the objecting defendant. Thus, the court held:

The fairness test which we will apply includes consideration of the following matters: First, a court should determine the extent of the defendant’s contacts with the place where the action was brought; i.e., the International Shoe type criteria. Second, a court should weigh the inconvenience to the defendant of having to defend in a jurisdiction other than that of his residence or place of business. Subsidiary considerations here might include the nature and extent and interstate character of the defendant’s business, the defendant’s access to counsel, and the distance from the defendant of the place where the action was brought. Third, the matter of judicial economy should be evaluated. In particular, a court should gauge: (a) the potentiality and extent of any adverse impact upon the litigation that may result from having a part of the action sheared off; and (b) the prospect of duplication of effort by counsel and the courts in conducting two parts of the same lawsuit in different jurisdictions at the same time. As a barometer of the potential scope of the litigation in this regard, a court should also examine whether the case might involve a class action including far flung’plaintiffs or defendants. Fourth, a court should consider the probable situs of the discovery proceedings in the case and the extent to which the discovery proceedings will, in any event, take place outside the state of defendant’s residence or place of business, thus muting the significance of his claim that he is inconvenienced by the distant forum. Fifth, a court should examine the nature of the regulated activity in question and the extent of impact that defendant’s activities have beyond the borders of his state of residence or business.

Id. at 203-204.

The district court in Oxford, supra, would require more than the Court of Appeals for the Seventh Circuit did in Fitzsimmons. Moreover, the court in Fitzsimmons, supra, specifically rejected the five step analysis to evaluate fairness which the Oxford court enunciated. Fitzsimmons, 589 F.2d at 334-335 (7th Cir.1979). Rather, the Fitzsimmons court held that these five factors are more appropriately reviewed on a motion for change of venue because of forum non conveniens. Id. In Staffin v. Greenberg, 509 F.Supp. 825 (E.D.Pa.1981) the court stated:

[Tjhat when a federal court exercises jurisdiction pursuant to a federal statute, it is the United States and not the particular state in which the court is located that is exercising jurisdiction and, therefore, all that is necessary to satisfy Due Process is that the defendants have minimum contacts with the United States.

Id. at 831 (citations omitted).

I find the logic of the Seventh Circuit’s holding in Fitzsimmons persuasive. In accord with Fitzsimmons and Staffin, because the action here is brought under a federal statute which provides for nationwide service of process, I hold that this court has personal jurisdiction over the defendants here. Because judicial economy will be afforded if the state claims are litigated with the federal claims, since the claims arise out of the same nucleus of operative facts, I find it judicially prudent to exercise jurisdiction over plaintiffs’ state related claims here. Additionally, because I find that this court has jurisdiction over the defendants here for the federal claims, and since the state claims arise out of the same nucleus of operative facts, I find that this court has personal jurisdiction over the defendants here for the state related claims. See GRM v. Equine Investment and Management Group, 596 F.Supp. at 311 (S.D.Tex.1984) (The SEA personal jurisdiction provision permits the court to exercise jurisdiction over pendent state claims.)

In conclusion, count I, to the extent that plaintiffs rely upon SA § 17, 15 U.S.C. § 77q must be dismissed since SA § 17 cannot support a private cause of action, however, to the degree that count I relies upon SA § 12(2), 15 U.S.C. § 111 (2) (1981) and SEA § 10(b), 15 U.S.C. § 78j(b) (1981) and Rule 10b-5, 17 C.F.R. 240.10b-5 (1984) and SA § 15, 15 U.S.C. § llo and SEA § 20(a) & (b), 15 U.S.C. § 78t(a) & (b), plaintiffs state a cause of action. Count II must be dismissed since plaintiffs fail to allege the requisite conviction of the predicate acts. Count X has been pleaded adequately. And finally, defendants’ allegations that this court does not have personal jurisdiction, while presenting an interesting question, I find that this court does have jurisdiction over defendants here.

      . Ethanol Partners Accredited; Ethanol Energy Partners.

      . 15 U.S.C. § 77/(2) states in pertinent part:
      Civil liabilities arising in connection with prospectuses and communications
      Any person who—
      ******
      (2) offers or sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraph (2) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.
      15 U.S.C. § 78j(b) states in pertinent part:
      Manipulative and deceptive devices
      It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—
      ******
      (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
      17 C.F.R. 240.10b-5 states in pertinent part:
      Employment of manipulative and deceptive devices.
      It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
      (a) To employ any device, scheme, or artifice to defraud,
      (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
      (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
      in connection with the purchase or sale of any security.

      . SA § 15 was incorrectly cited as 15 U.S.C. § 78o in plaintiffs’ complaint, which correctly cited is 15 U.S.C. § llo (1981) which states:.
      Liability of controlling persons
      Every person who, by or through stock ownership, agency, or otherwise, or who, pursuant to or in connection with an agreement or understanding with one or more other persons by or through stock ownership, agency, or otherwise, controls any person liable under sections 77k or 771 of this title, shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.
      15 U.S.C. § 78t states in pertinent part:
      Liability of controlling persons Joint and several liability; good faith defense
      (a) Every person, who directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
      Unlawful activity through or by means of any other person
      (b) It shall be unlawful for any person, directly or indirectly, to do any act or thing which it would be unlawful for such person to do under the provisions of this chapter or any rule or regulation thereunder through or by means of any other person.

      . See Batista, The Uses and Misuses of RICO in Civil Litigation: A Guide for Plaintiffs and Defendants. 8 Del.J. Corp.L. 181 (1983).

      . Since the matter before me is an arising under matter, namely SA and SEA, the due process clause of the fifth amendment is applicable rather than the fourteenth amendment due process clause which is applicable when a state court or a district court, when jurisdiction relies on diversity of the parties, seeks to exercise personal jurisdiction of various parties.

      . The court refers to Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977) which held that Due Process limitations reflected "traditional notions of fair play and substantial justice” rather than a purely territorial analysis.

       This proposition has been frequently reiterated by the Supreme Court. See Mississippi Publishing Co. v. Murphree, 326 U.S. 438, 442, 66 S.Ct. 242 [244], 90 L.Ed. 185 (1946); Robertson v. Railroad Labor Board, 268 U.S. 619, 622, 45 S.Ct. 621 [622], 69 L.Ed. 1119 (1925).

        Mariash v. Morrill, 496 F.2d 1138 (2d Cir. 1974); International Controls Corp. v. Vesco, 490 F.2d 1334 (2d Cir.1974), cert. denied, 434 U.S. 1014, 98 S.Ct. 730, 54 L.Ed.2d 758 (1978) (by implication); Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1340 (2d Cir.1972).
      The defendant’s citation of Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2d Cir.), cert. denied, 423 U.S. 1018, 96 S.Ct. 453, 46 L.Ed.2d 389 (1975), in opposition to this position is completely mistaken. The passages cited by defendant, id. at 998-1000, relating to minimum contacts of a defendant, refer to a Canadian defendant served in Canada. Service beyond the bounds of the territorial United States obviously raises questions as to the contact of the defendant with the United States, questions that are absent when a United States citizen is served within the country.


source: Caselaw Access Project

license: Public Domain

text:
    ETHANOL PARTNERS ACCREDITED, et al. v. WIENER, ZUCKERBROT, WEISS & BRECHER, et al.
    Civ. A. No. 84-6408.
    United States District Court, E.D. Pennsylvania.
    June 27, 1985.

      Henry H. Janssen, Philadelphia, Pa., for plaintiffs.
    Peter J. Taylor, Pittsburgh, Pa., for Carl E. Wright & Wright, Herfordt & Sanders.
    Abraham C. Reich, Philadelphia, Pa., for Linde, Thomson, Fairchild, Langworthy, Kohn & Van Dyke, P.C. & James O. Selzer.
    Lloyd R. Ziff, Philadelphia, Pa., for John P. Redd & J. Michael Redd.
    Ira P. Tiger, Philadelphia, Pa., for Mormac Ltd., Henry McDonald.
    James M. Kaplan, New York City, for Harold E. Card, Raymond Jallow and Ira Palmer and William Palmer.
   MEMORANDUM AND ORDER NO. II

JAMES McGIRR KELLY, District Judge.

Presently before this court is defendants’ motion for change of venue pursuant to Title 28 U.S.C. § 1406(a) which states:

(a) The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought,

and in the alternative, Title 28 U.S.C. § 1404(a) which states:

(a) For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.

It is defendants’ primary argument that venue is not present in the Eastern District of Pennsylvania; therefore, the court should transfer this litigation to the Southern District of New York pursuant to 28 U.S.C. § 1406(a), supra.

Plaintiffs seek relief under the Security Act of 1933 (SA), 15 U.S.C. § 77a, et seq., the Security Exchange Act of 1934 (SEA), 15 U.S.C. § 78a, et seq., the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq. and various state claims. The SA has its own jurisdictional/venue provision which is found at SA § 22, 15 U.S.C. § 77v (1981) and it states in pertinent part:

(a) The district courts of the United States, and the United States courts of any Territory, shall have jurisdiction of offenses and violations under this sub-chapter and under the rules and regulations promulgated by the Commission in respect thereto, and, concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. Any such suit or action may be brought in the district where the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendants participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found____

(emphasis added). The SEA has its own jurisdictional/venue provision which is found at SEA § 27, 15 U.S.C. § 78aa and it states in pertinent part:

§ 78aa. Jurisdiction of offenses and suits
Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.

(emphasis added). It must be noted that both statutes allow a district court to exercise jurisdiction when defendants transact business within the district.

Thus, defendants contend that: they are New York partnerships or citizens who were not served the complaint in Pennsylvania; they do not conduct business or have agents within Pennsylvania; and the transactions which gave rise to this litigation did not take place in Pennsylvania.

Plaintiffs allege in their complaint that defendants here prepared various documents and provided certain advice to plaintiffs during the purchase of certain securities. Plaintiffs contend that because their general partner was and still is located within Philadelphia, and various information was communicated from defendants here to plaintiffs, this constitutes “transacting business” by defendants within this district. Defendants here, to support their motion, offer to the court affidavits of their attorney, James M. Kaplan. However, Kaplan does not aver that he has personal knowledge of the various transactions; rather he admits he is merely familiar with the circumstances because he is the attorney for defendants here. I cannot see how such statements are admissible evidence, thus, I will not consider these affidavits. Crockett v. Johns-Manville Corp., No. 81-1268 (E.D.Pa. Oct. 11, 1984) (court denied consideration of affidavit in summary judgment where the affidavit contained here-say); Copiers Typewriters Calculators, Inc. v. Toshiba Corp., 576 F.Supp. 312 (D.Md.1983). Defendant here, David Haver, a partner in the accounting firm of Haver, Porchenick & Co., submitted an affidavit in support of defendants’ motion here. Haver avers that Haver, Porchenick & Co. does not have any interests in real estate in Pennsylvania, or any business offices or agents within Pennsylvania. However, Haver does aver that he may have sent duplicative copies of various correspondence with plaintiffs to plaintiffs’ Pennsylvania office. Furthermore, Haver states that he may have made telephone calls to plaintiffs’ Pennsylvania offices.

Plaintiffs, in contesting defendants’ motion to transfer this action to the Southern District of New York, have submitted an affidavit of Howard Scherer, the plaintiffs’ managing partner. Scherer avers that plaintiffs received communications in Philadelphia from defendants here concerning the purchase and sale of the securities, namely the ethanol plants. In Hooper v. Mountain States Securities Corp., 282 F.2d 195, 205 (5th Cir.1960) the court held:

It is apparent that the language in § 27, note 11, [15 U.S.C. § 78aa, supra at 3] supra, describing the venue district as ‘the district wherein any act or transaction constituting the violation occurred’ cannot mean the district in which all acts took place, or in which the transaction as a whole was consummated. The statute was one designed to put an end to interstate frauds in the sale and trading of securities. The legislative pattern envisages the likelihood that actions would take place in many places requiring the frequent use of instrumentalities of the mail or of communication. The Act meant to vest jurisdiction in every district where any use of such instrumentalities of the mail or interstate commerce was of material importance to the consummation of the scheme.

In Arpet, Ltd. v. Homans, 390 F.Supp. 908, 911 (W.D.Pa.1975) the court stated: “[vjenue is proper under the Securities Exchange Act of 1934 if any act or transaction constituting the violation occurred in the Western District of Pennsylvania.” See also Securities and Exchange Commission v. National Student Marketing Corp., 360 F.Supp. 284, 292 (D.D.C.1973) (“It is well recognized that in multi-defendant and multi-forum securities fraud actions any act committed material to and in furtherance of an alleged fraudulent scheme will satisfy the venue requirement of the Exchange-Act as to all defendants wherever the defendants are found.”)

After considering the affidavit produced by plaintiffs, I find that plaintiffs, for the purpose of venue, have established that purported material misrepresentations were made to plaintiffs in this district. Therefore, I find venue proper within this district and that defendants’ reliance upon 28 U.S.C. § 1406, supra, which is applicable where venue is not found, is misplaced.

Because I find that venue is proper within this district, I must now consider defendants’ alternate argument which requests change of venue because of convenience to the defendants pursuant to 28 U.S.C. § 1404(a) (1981), supra. The affidavit of Scherer, managing partner of plaintiffs, which was offered by plaintiffs to contest a change of venue, states that defendants communicated the purported fraudulent statements to plaintiffs in Philadelphia and that plaintiffs’ managing partner has offices within this district. Additionally, Scherer avers a number of witnesses for plaintiffs reside within this district. The affidavit of Haver, partner of the accounting firm of Haver, Porchenick & Co., which defendants offered to the court in support of their motion, states that defendants do not conduct business, own real estate, or have agents within Pennsylvania. Additionally, Haver avers that bringing their records to this court would be overly burdensome. This court does take notice that none of the defendants in this action reside in, are incorporated in, or have agents within the Eastern District of Pennsylvania.

The defendants’ argument that this action should be transferred to the Southern District of New York is not without merit. But in this circuit, whenever a district court is confronted with a change of venue motion, the forum chosen by the plaintiff must be given paramount consideration. Shutte v. Armco Steel Corp., 431 F.2d 22, 25 (3d Cir.1970). The moving party has the burden to establish that the balancing of interest requires a transfer. Id. The defendants here have not overcome their burden of showing that a transfer is required. In view of the fact that plaintiffs’ general managing partner maintains his office within this district, that purported fraudulent communications were communicated to plaintiffs within this district, and that a number of witnesses of plaintiffs reside within this district, a transfer at this point in time would be improper; therefore, defendants’ motion must be denied.

Last, defendants here contend that venue is improper within this district under the special venue provision of RICO, 18 U.S.C. §§ 1964 and 1965. However, because I find venue proper under SA and SEA, and in light of the fact that I have held that plaintiffs failed to state a claim against other defendants under RICO (See my Memorandum and Order No. I of June 27, 1985), I need not further consider defendants’ contention that venue is improper under the RICO statutes.

An appropriate order follows.

      . Defendants who joined in this motion are: Wiener, Zuckerbrot, Weiss & Brecher (a law partnership), Howell Bramson, Kenneth Zuckerbrot, Amy Meltzer, Linda Lerner, David Haver, and Haver, Porchenick & Co. (an accounting partnership).

      . The "law partnership” provided the Purchase Orders, Sales Agreements, Management Agreements, and Offering Memoranda in connection with the purchase of the six ethanol plants (the ethanol plants constituted one of the securities in this action.)
      The accounting firm provided certain consulting services to the plaintiffs including the review and certification of financial statements and projections in the private offering memoranda and review of the financial soundness of other defendants in this action (not named herein) who were to manage and build the ethanol plants.


author: JOHN GARRETT PENN, District Judge.

text:
    Raymond LEDGERWOOD, et al., Plaintiffs, v. STATE OF IRAN, et al., Defendants.
    Civ. A. No. 81-0554.
    United States District Court, District of Columbia.
    June 27, 1985.

      John P. Coale, Washington, D.C., for plaintiffs.
    Christine Nettesheim and Theodore C. Hirt, Dept, of Justice, Civil Div., Washington, D.C., for defendants.
   MEMORANDUM OPINION

JOHN GARRETT PENN, District Judge.

The plaintiffs, Raymond and Colleen Ledgerwood, filed this action on March 9, 1981. The plaintiffs seek redress in tort for alleged personal injuries and deprivation of civil rights arising out of a February 14, 1979 seizure by Iranian militants of the United States Embassy in Tehran, Iran. Alleging that from February 14, 1979 through February 15, 1979 the state of Iran and ten unidentified “John Doe” defendants unjustly imprisoned and assaulted Raymond Ledgerwood, the plaintiffs now seek fifteen million dollars in damages.

The matter is now before the Court sua sponte to determine whether this court has jurisdiction over the defendants, and if so, whether the Court should exercise jurisdiction. The plaintiffs filed a motion for entry of a default judgment against Iran. In response, the Department of Justice filed a Statement of Interest on behalf of the United States asserting that the action is barred by both the provisions of the Foreign Sovereign Immunities Act (FSIA) of 1976, 28 U.S.C.A. §§ 1330, 1602 et seq. (1976) and Executive Order 12283, 46 Fed. Reg. 7927 (January 23,1981), along with its implementing Treasury regulations. In a special appearance, counsel for the defendants filed a Statement asserting that paragraph eleven of the Declaration of the Democratic and Popular Republic of Algeria, 20 Int’l L. Materials 224, 227 (1981) obligates the United States to bar this lawsuit.

FLAG, Inc., a non profit organization, filed a brief amicus curiae, urging that jurisdiction would lie in the instant action, as the sovereign immunity of the government of Iran would be waived by virtue of 28 U.S.C. § 1605(a)(5). The plaintiffs advance a similar argument that because the action falls within the section 1605(a)(5) FSIA exception for certain noncommercial acts, Iran is not entitled to immunity. After careful consideration of the record, the arguments, and the applicable law, the Court concludes that the Foreign Sovereign Immunities Act precludes maintenance of this tort action against Iran.

It is well established law that “an action brought in the United States against a foreign sovereign faces two potential obstacles — the Foreign Sovereign Immunities Act and the ‘act of state’ doctrine.” Frolova v. Union of Soviet Socialist Republics, 558 F.Supp. 358, 360 (N.D.Ill.1983). The Foreign Sovereign Immunities Act (FSIA) of 1976, sets forth the sole and exclusive standards for consideration in resolving questions of sovereign immunity raised by foreign states before federal or state courts in the United States. 28 U.S.C. §§ 1602 et seq.; Annot. 25 A.L.R.3d 20 (Supp.1984). Under the FSIA, foreign states are generally immune from the jurisdiction of federal and state courts. Persinger v. Islamic Republic of Iran, 729 F.2d 835, 838 (D.C.Cir.), cert. denied, — U.S. -, 105 S.Ct. 247, 83 L.Ed.2d 185 (1984); (citing The Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116, 136, 3 L.Ed. 287 (1812)). The FSIA expressly deprives a court of jurisdiction over any party entitled to sovereign immunity. Persinger, 729 F.2d at 838.

The FSIA does, however, create certain exceptions where the sovereign nation loses its immunity:

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.

28 U.S.C. § 1604 (emphasis added).

If one of the specified exemptions to sovereign immunity applies, a federal district court may exercise jurisdiction under § 1330(a); but if the claim does not fall within one of the exceptions, federal courts lack subject matter jurisdiction. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486, 103 S.Ct. 1962, 1969, 76 L.Ed.2d 81 (1983).

Section 1605(a)(5) creates one such exception for certain noncommercial (or tortious actions) as follows:

A foreign state shall not be immune from the jurisdictions of courts of the United States in any case ... in which money damages are sought against a foreign state for personal injury or death, or damage to or loss of property, occurring in the United States and caused by the tortious acts or omission of that foreign state or of any official or employee of that foreign state while acting within the scope of his office, or employment; except this paragraph shall not apply to—
(A) any claim based upon the exercise or performance or the failure to exercise or perform a discretionary function regardless of whether the discretion be abused, or
(B) any claim arising out of malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.

Id. (emphasis added). The legislative history of section 1605 clearly establishes that “the tortious act or omission must occur within the jurisdiction of the United States ...” H.R.Rep. No. 1487, 94th Cong., 2d Sess. 21, reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6619. 28 U.S.C. § 1603(c) defines “United States” to include “all territory and waters, continental or insular, subject to the jurisdiction of the United States”.

Resolution of the immunity issue in the instant action therefore, turns upon whether or not the acts complained of occurred within the jurisdiction of the United States. The events in question occurred in the United States Embassy in Tehran, Iran. The plaintiffs would have the Court read the language “occurring in the United States” as encompassing acts occurring in United States embassies abroad. However, a review of the legislative history of the Act and the relevant case law reveals that United States embassy grounds abroad are not subject to the jurisdiction of the United States for purposes of the FSIA.

This circuit and the ninth circuit have recently addressed the jurisdictional issue and congressional intent regarding the scope of section 1605(a)(5). Persinger v. Islamic Republic of Iran, 729 F.2d 835 (D.C.Cir.), cert. denied, — U.S.-, 105 S.Ct. 247, 83 L.Ed.2d 81 (1984) involved a virtually identical fact situation. In Per-singer, a former hostage and his parents brought an action against Iran for injuries inflicted in the seizure and detention of American hostages at the United States Embassy in Tehran. One issue before the court was “whether Congress, in enacting the FSIA intended its jurisdiction to give courts in this country competence to hear suits against foreign states for torts committed on United States embassy premises abroad.” Id. at 839. Concluding that “a state loses its sovereign immunity for tortious acts only where they occur in the territory of the forum state,” the court dismissed the action for lack of jurisdiction. The court found itself persuaded by the language of the statute, its legislative history, and the consequences of adopting a contrary position, that “section 1605(a)(5) was not intended to abrogate the immunity generally enjoyed by a foreign sovereign for tortious acts at embassies within its own territory.” Id. at 842.

The court added that the series of unhappy consequences that would follow, if section 1603(c) were read broadly to cover areas in which the United States had jurisdiction, constituted yet another reason for finding the existence of sovereign immunity in this context. These consequences might entail not only serious inconvenience and injustice, but also embarrassment to our foreign relations. Id. at 841. For example,

[foreign states might hesitate in providing services to U.S. embassies or consulates, were they to be subject to suit in U.S. courts for negligent acts or omissions on those premises ... if Congress had meant to remove sovereign immunity for governments acting on their own territory, with all the potential for international discord and for foreign government retaliation that that involves, it is hardly likely that Congress would have ignored these topics and discussed instead automobile accidents occurring in this country.

Id.

Similarly, Williams v. Iran, 692 F.2d 151 (D.C.Cir.1982) and Lauterbach v. Iran, 692 F.2d 150 (D.C.Cir.1982), two actions brought by former hostages held in the United States Embassy in Iran, also support the argument set forth in the government’s Statement of Interest. In affirming the District Court’s dismissal of both of these actions under an applicable executive agreement, the D.C. Circuit Court of Appeals noted that lack of jurisdiction under the FSIA constituted an alternative basis for dismissing the actions. Id. at 837, 838 and n. 3.

The ninth circuit considered the jurisdictional issue in a similar factual context in McKeel v. Islamic Republic of Iran, 722 F.2d 582 (9th Cir.1983), cert. denied, — U.S. -, 105 S.Ct. 243, 83 L.Ed.2d 182 (1984). In McKeel, twelve former hostages and the wives of two ex-hostages sought redress for damages suffered during their Iranian captivity. The hostages were held in the United States embassy for more than fourteen months. In affirming the lower court’s dismissal, the ninth circuit held that federal diversity jurisdiction does not extend to suits against a foreign state, and that there was no basis under sections 1331 and 1332 for jurisdiction over Iran. Id. at 585. Turning to the plaintiff’s argument under the FSIA, the court held that the United States Embassy of Iran is not “territory of the United States” for purposes of the section 1605(a)(5) waiver of sovereign immunity. Id. at 589.

In a similar factual setting, the wife and children of an American citizen murdered in Iran brought an action against Iran, and Kavir, an Iranian revolutionary group, as its agent. Berkovitz et. al. v. Islamic Republic of Iran, et. al., 735 F.2d 329 (9th Cir.), cert. denied, — U.S.-, 105 S.Ct. 510, 83 L.Ed.2d 401 (1984). Iran argued that it was immune from suit and that the Algerian Declaration, the agreement which led to the release of the American hostages in Iran, settled this wrongful death claim. The Court stated that “sovereign immunity is not merely a defense under the FSIA, its absence is a jurisdictional requirement.” Id. at 331. The Court explained that jurisdiction in actions against foreign states is comprehensively treated in 28 U.S.C. § 1330. Section 1330(a) provides:

district courts shall have original jurisdiction ... of any nonjury civil action against a foreign state ... as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.

Id. The court concluded that neither the FSIA nor the Treaty of Amity provided an exception to sovereign immunity that would sustain jurisdiction under 28 U.S.C. § 1330. Because the court held that the district court lacked jurisdiction, it did not reach the question whether the Algerian Declaration also precluded the heirs’ suit.

In their response to the United States’ Statement of Interest, plaintiffs assert, for the first time, an alternative basis for jurisdiction. Plaintiffs contend that they are entitled to base their claims upon two federal criminal statutes and “ordinary principles of international law.” Relying upon 18 U.S.C. Section 1201 (Supp.1980) and 18 U.S.C. § 112 (Supp.1980), the plaintiffs maintain that they may bring a private cause of action on their behalf. However, even if plaintiffs satisfy the requirements for implication of a private cause of action, this argument must be rejected.

As previously stated Congress has vested exclusive jurisdiction over suits against foreign state defendants in the FSIA. The FSIA sets forth the sole and exclusive standards involved in resolving questions of sovereign immunity raised by foreign states before federal or state courts in the United States. McKeel, 722 F.2d at 587; see generally 14 Wright, Miller & Cooper, Federal Practice & Procedure, Jurisdiction, § 3662 at 392 (2d ed. 1985). Moreover,

[t]he statute is designed to provide a set of comprehensive regulations that will inform potential litigants as to when they can have recourse in the federal and state courts in this country for asserting claims against foreign states.

Wright, supra at 381. The primary purpose of the FSIA was to depoliticize sovereign immunity decisions by transferring them from the executive to the judicial branch of government, thereby assuring litigants that such decisions would be made on legal rather than political grounds. National Airmotive Corp. v. Iran, 499 F.Supp. 401 (D.D.C.1980); see also Annot., 25 A.L.R.3d 20 (Supp.1984).

In conclusion, the plaintiffs’ alternative argument is without merit, as jurisdiction over foreign states and their instrumentalities as defendants can be obtained only under the FSIA. 28 U.S.C.A. §§ 1330(a), 1332(a)(2); McKeel, 722 F.2d at 586. Iran enjoys sovereign immunity and that immunity has not been lifted for the acts involved here by the FSIA. Thus, for the reasons set forth above, this action must be dismissed for lack of jurisdiction.

An appropriate Order has been entered.

      . Section 1605(a)(5) is also referred to as "the tortious act exception.”

      . The "act of state” doctrine is not jurisdictional, rather it is a prudential doctrine designed to avoid judicial action in sensitive areas. International Association of Machinists and Aerospace Workers v. OPEC, 649 F.2d 1354, 1359 (9th Cir. 1981), cert. denied, 454 U.S. 1163, 102 S.Ct. 1036, 71 L.Ed.2d 319 (1982). The act of state doctrine declares that a United States court will not adjudicate a politically sensitive dispute which would require the court to adjudge the legality of the sovereign act of a foreign state. Id. at 1358. Under the doctrine, a United States court cannot entertain any action that calls into question the validity of conduct or policies of a foreign government acting within its sovereignity, and the degree of foreign government entanglement which must be present to invoke the doctrine varies with the circumstances of each individual case. Id.

      . Declaration of the Government of the Democratic and Popular Republic of Algeria, Principle B, January 19, 1981, 20 I.L.M. 224 (Algerian Declaration), enforced by Executive Order 12283, 46 Fed.Reg. 7927 (January 23, 1981).

      . Treaty of Amity, Economic Relations, and Consular Rights, August 15, 1955, United Statesman, 8 U.S.T. 899, T.I.A.S. 3853.

      . It should be noted that even if this action could be brought under the FSIA, it could well be barred by the "act of state” doctrine.


author: McLAUGHLIN, District Judge.

text:
    LESPORTSAC, INC., Plaintiff, v. K MART CORPORATION, Defendant.
    No. 84 CV 2720.
    United States District Court, E.D. New York.
    June 27, 1985.
    On Motion for Reconsideration Sept. 9, 1985.
    Kuhn, Muller & Bazerman, New York City (Steven H. Bazerman, Julius Rabinowitz, Frank D. Decolvenaere, New York City, of counsel), for plaintiff.
    Kirschstein, Kirschstein, Ottinger & Israel, P.C., New York City, Alexander, Unikel, Bloom, Zalewa & Tenenbaum, Ltd., Chicago, 111. (Marvin A. Tenenbaum, Richard E. Alexander, James D. Zalewa, Chicago, 111., Martin W. Sehiffmiller, New York City, of counsel), for defendant.
   MEMORANDUM AND ORDER

McLAUGHLIN, District Judge.

This is an action for trademark infringement under the Lanham Act, the New York General Business Law and the common law. Defendant moves to dismiss Count IV of the complaint, Fed.R.Civ.P. 12(b)(6), and for leave to file an amended answer. Fed.R.Civ.P. 15. For the reasons developed below, the motion to dismiss Count IV is denied; the motion to amend the answer is granted in part.

1. Motion to Dismiss Count IV

Count IV of the complaint alleges trademark dilution and injury to business reputation under § 368-d of the New York General Business Law. Defendant reads the complaint to allege that K Mart is selling competitive and similar bags, an act which, according to defendant, is not within the scope of the anti-dilution statute. Thus, argues defendant, Count IV fails to state a claim upon which relief may be granted. Fed.R.Civ.P. 12(b)(6).

Section 368-d of the New York General Business Law provides as follows:

Likelihood of injury to business reputation or of dilution of the distinctive quality of a mark or trade name shall be a ground for injunctive relief in cases of infringement of a mark registered or not registered or in cases of unfair competition, notwithstanding the absence of competition between the parties or the absence of confusion as to the source of goods or services.

New York Gen.Bus.Law § 368-d (McKinney 1984) (emphasis added).

Defendant construes this statute to mean that absence of competition or confusion is a prerequisite to relief under § 368-d. Because plaintiff alleges the infringing bags are competitive and confusingly similar, contends defendant, § 368-d is inapplicable.

Defendant’s tortured statutory construction entirely misses its mark. The statute affords relief to plaintiff notwithstanding the absence of competition or confusion. That is not the same as saying — as defendant would — that such absence is a prerequisite to relief. Accordingly, the motion to dismiss Count IV is denied.

2. Motion to Amend the Answer

Defendant seeks to amend its answer to add three affirmative defenses and a counterclaim. Plaintiff opposes only proposed affirmative defenses seven and eight. Accordingly, the motion to add affirmative defense nine and the counterclaim is granted.

Defendant’s proposed seventh affirmative defense asserts that any federal, state, or common law which provides for damages or injunctive relief for defendant’s alleged infringement of an unregistered trademark violates Due Process, absent notice to defendant of claimed trademark rights. The eighth affirmative defense asserts that to the extent plaintiff seeks damages or injunctive relief under any state law which allows for such relief for the intentional or unintentional copying of the unregistered designs or look of a product, such state law is unconstitutional and is preempted by Article I, § 8, cl. 8 of the United States Constitution, and by the provisions of the Lanham Act, 15 U.S.C. § 1051 et seq.

Plaintiff opposes those amendments because they would “delay and needlessly complicate the case,” and because they have no merit. Because these affirmative defenses raise constitutional attacks on state and federal laws, Rule 33 of the Local Rules of this district, and 28 U.S.C. § 2403, require that New York State and the United States be given notice so they may intervene. The delay caused by such intervention would make it exceedingly difficult, if not impossible, for this case to proceed to trial as scheduled. This factor weighs heavily against granting the motion to amend.

The dispositive reason for denying the motion, however, is that both proposed affirmative defenses are meritless. Contrary to defendant’s position with respect to the seventh affirmative defense, plaintiff is not required to give advance notice of its rights to defendant prior to seeking damages or injunctive relief for infringement. See Saratoga Vichy Spring Co. v. Lehman, 625 F.2d 1037, 1041 (2d Cir.1980) (“[I]t is normally not necessary for any trademark owner to put potential infringers on notice in order to protect its rights.”). To the extent defendant claims this lack of notice is unconstitutional, its claim is frivolous. See Brault v. Town of Milton, 527 F.2d 730, 738 (2d Cir.1975) (en banc) (absent claim of malice, “a plaintiffs use of judicial process for enforcement of an alleged right is the very antithesis of denial of due process”).

The eighth proposed affirmative defense is equally groundless. The Constitution does not prevent plaintiff from seeking relief under state law when it seeks only to protect a mark indicating the origin and sponsorship of goods, and not the exclusive right to sell a product. See Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 204 (2d Cir. 1979). Additionally, the Lanham Act does not preempt any state law upon which plaintiff might rely in seeking relief. See Keebler Co. v. Rovira Biscuit Corp., 624 F.2d 366, 373 (1st Cir.1980).

For the foregoing reasons, defendant’s motion to dismiss Count IV of the complaint is denied; the motion to amend the answer is granted only with respect to the ninth affirmative defense and the counterclaim.

SO ORDERED.

On Motion For Reconsideration

On June 27, 1985, this Court signed an Order denying defendant’s motions to dismiss Count IV of the complaint and for leave to add affirmative defenses and a counterclaim, except to the extent the motions were unopposed. K Mart now seeks reconsideration of that Order. Plaintiff has cross-moved for sanctions against K Mart and its counsel.

1. K Mart’s Motion to Reconsider

K Mart moved to dismiss Count IV of the complaint, which alleges trademark dilution and injury to business reputation under § 368-d of the New York General Business Law. K Mart claimed that statute does not apply when, as here, the parties are selling competing products.

The language of § 368-d, which was quoted in the June 27 Order, bears repeating:

Likelihood of injury to business reputation or of dilution of the distinctive quality of a mark or trade name shall be a ground for injunctive relief in cases of infringement of a mark registered or not registered or in cases of unfair competition, notwithstanding the absence of competition between the parties or the absence of confusion as to the source of goods or services.

New York Gen.Bus.Law § 368-d (McKinney 1984) (emphasis added). K Mart cites several cases from courts in this circuit to support its contention that plaintiff is not entitled to relief under § 368-d. See Smithkline Beckman Corp. v. Procter & Gamble Co., 591 F.Supp. 1229, 1246-47 (N.D.N.Y.1984), aff'd mem., 755 F.2d 914 (2d Cir.1985); Playboy Enterprises, Inc. v. Chuckleberry Publishing, Inc., 486 F.Supp. 414, 418 (S.D.N.Y.1980); Ives Laboratories, Inc. v. Darby Drug Co., 455 F.Supp. 939, 951 (E.D.N.Y.1978), aff'd on other grounds, 601 F.2d 631 (2d Cir.1979).

In the most recent decision on this issue, however, Judge Nickerson of this Court held that § 368-d does reach “dilution involving products in direct competition.” Vitabiotics, Ltd. v. Krupka, 606 F.Supp. 779, 784-85 (E.D.N.Y.1984) (citing Bally-Midway Mfg. Co. v. American Postage Machine, Inc., No. 82 C 2700, at 9 (E.D.N.Y. Aug. 22, 1983)). Judge Nickerson’s reading of the statute conforms with that of this Court and with the plain language of the statute itself. Had the New York State Legislature intended to make the absence of competition a prerequisite to § 368-d relief, it could easily have done so. Upon reconsideration, K Mart’s motion to dismiss Count IV of the complaint is again denied.

K Mart also seeks reconsideration of that portion of the Court’s Order denying it leave to add two new affirmative defenses. The Court has reviewed its previous rulings as well as the memoranda submitted by the parties. The motion for leave to add proposed affirmative defenses is again denied.

2. LeSportsac’s Motion For Sanctions

Confronted with K Mart’s motion to reconsider, plaintiff promptly cross-moved for sanctions pursuant to Fed.R.Civ.P. 11. Plaintiff claims that K Mart’s motion is “wholly without merit to the point of being properly characterized as frivolous and abusive.” Plaintiff’s Memorandum of Law at 16.

In Eastway Construction Corp. v. City of New York, 762 F.2d 243 (2d Cir.1985), this Circuit’s Court of Appeals held that an objective test governs Rule 11 motions:

In light of the express intent of the drafters of the new Rule 11, and the clear policy concerns underlying its amendment, we hold that a showing of subjective bad faith is no longer required to trigger the sanctions imposed' by the rule. Rather, sanctions shall be imposed against an attorney and/or his client when it appears that a pleading has been interposed for any improper purpose, or where, after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law.

Id. at 253-54 (footnote omitted) (emphasis in original). Scrutinized under this standard, K Mart’s conduct falls far short of that required to support the imposition of Rule 11 sanctions. Plaintiff, having read the Court’s Order of June 27, 1985, hastily and unjustifiably concluded that because the Court found no merit in K Mart’s motions, sanctions were warranted. On the contrary, K Mart’s defense of this action, though indeed vigorous, has at all times been reasonable and conducted in good faith. Plaintiff’s motion for Rule 11 sanctions is in all respects denied.

SO ORDERED.

      . The Second Circuit affirmed the decision in Smithkline without a published opinion. Second Circuit Rule 0.23 provides that such a disposition of an appeal does not constitute a formal opinion of the Court, and is not to be cited or otherwise used in unrelated cases before any Court. Accordingly, there being no formal opinion from the Second Circuit on the issue raised by K Mart, there is no precedent binding on this Court that controls the question presented.

      . It is distressing to note from the papers that this litigation is degenerating in tone from spirited to acrimonious. The Court fervently hopes that the remainder of this action will be contested in a manner more befitting the counsel involved.


author: HAROLD H. GREENE, District Judge.

text:
    SDS BIOTECH CORPORATION, Plaintiff, v. ENVIRONMENTAL PROTECTION AGENCY, et al., Defendants.
    Civ. A. No. 84-0719.
    United States District Court, District of Columbia.
    June 27, 1985.

      Harold Himmelman, Cynthia A. Lewis, Robert Brager, Beveridge & Diamond, Washington, D.C., for plaintiff SDS Bio-tech Corp.; R. Craig Andrews, SDS Biotech Corp., Painesville, Ohio, of counsel.
    Julie A. Weisman, Environmental Defense Section, Land & Natural Resources Div., U.S. Dept, of Justice, William L. Jordan, Marcia E. Mulkey, Pesticides and Toxic Substances Div., Office of Gen. Counsel, U.S. E.P.A., Washington, D.C., for Federal defendants.
    David B. Weinberg, Jacqueline E. Zins, Susan D. Sawtelle, Wald, Harkrader & Ross, Washington, D.C., for defendant Griffin Corp.
   MEMORANDUM

HAROLD H. GREENE, District Judge.

At issue in this case are the pesticide registration requirements of the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), 7 U.S.C. §§ 136-136y (1980). Plaintiff, SDS Biotech Corporation, holds a number of pesticide registrations for chlorothalonil products. Defendant, Griffin Corporation, holds two conditional chlorothalonil registrations. The Environmental Protection Agency (EPA), also a defendant, is responsible for administering the registration program.

The history of this case is somewhat complicated. SDS Biotech obtained the first registrations for chlorothalonil in 1966. In 1972, Congress amended FIFRA establishing a new standard for review of pesticide registrations and requiring EPA to reregister pesticides under the new standards. 7 U.S.C. § 136a(g). During the reregistration process, EPA was not required to cancel existing registrations, even though those registrations had been issued utilizing fewer data than the amended Act would require for a new registration. This resulted in an anomolous situation whereby new applicants were denied registrations to market pesticides identical to products already on the market because they could not meet the Act’s more stringent data requirements. To remedy this anticompetitive effect, Congress amended FIFRA again in 1978 and created the conditional registration program whereby new applicants who wished to market products substantially similar to products already on the market were given conditional registrations. They were permitted to market pesticides even though certain data was missing “under such conditions as will require the submission of such data not later than the time such data are required to be submitted with respect to similar pesticides already registered under this [Act].” 7 U.S.C. § 136a(c)(7)(A).

In this case, EPA determined that additional data was required on the teratological risk related to chlorothalonil and it issued a data call-in notice on September 14, 1981. This notice required registrants of pesticide products containing chlorothalonil to provide teratogenicity studies 26 months after receipt of the notice. EPA did not send a notice of the data call-in to Griffin Corporation because in September 1981, Griffin was not a registrant. On November 19, 1981, and on January 1, 1983, EPA issued conditional registrations to Griffin for end-use and technical chlorothalonil products. Again, no mention was made by EPA that a data call-in notice had been issued and that Griffin was required to submit data at the same time that other registrants were required to submit data.

In April 1983, a portion of FIFRA relevant to these proceedings was declared unconstitutional by a District Court and its enforcement enjoined. Section 136a(c)(l)(D), the operation of which was enjoined by the District Court, established a system under which data supplied by one applicant could be used to support other applications, provided that an offer to compensate the original data supplier was made. This procedure was intended to reduce duplicative research and encourage cooperative ventures. It also provides a relatively simple procedure by which new applicants could receive a registration— they could cite data previously generated, offer to pay, and be credited with submission of that data. A compulsory arbitration system is also in place to deal with disputes over the amount of compensation.

On July 7, 1983, SDS submitted its information on teratology and on the basis of its compliance with the data call-in, its registration was continued in force. Griffin states that it first discovered the data call-in requirement in November 1983 and thereby found that it was in a situation where it was unable to generate the data by the deadline and was enjoined from using the normal statutory citation/offer to pay procedure. Griffin did make an offer to pay SDS for the citation of its data on December 12, 1983.

EPA did not take action to cancel Griffin’s registration, stating that it was deferring any decision on whether Griffin had failed to comply with its conditions of registration until after the Monsanto and Union Carbide litigation was resolved. On March 8, 1984, SDS filed this action to compel EPA to cancel Griffin’s registration and on June 8, 1984, this Court issued a stay of proceedings in this case pending the outcome of the Monsanto case.

The injunctions in the Monsanto and Union Carbide cases were finally resolved on October 9, 1984. EPA thereupon took steps to reinstitute the FIFRA procedures permitting citation to earlier submitted data. In December 1984, Griffin filed an application to amend its chlorothalonil registration, cited the SDS data on teratology, as well as other data in EPA files and offered to pay SDS compensation for the use of its data. On February 8, 1985, EPA issued the amended registrations to Griffin.

Presently before the Court are cross-motions for summary judgment and EPA’s motion to dismiss as moot. Oral argument was held on May 17, 1985, and this case is now ripe for decision.

The Court is of the view that this case is moot and must therefore be dismissed as there is no continuing case or controversy. The test for mootness was set out by the Supreme Court in County of Los Angeles v. Davis, 440 U.S. 625, 99 S.Ct. 1379, 59 L.Ed.2d 642 (1979). See also, Doe v. Harris, 696 F.2d 109 (D.C.Cir.1982). A case is moot if the court concludes with assurance that there is no reasonable expectation that the alleged violation will recur and if interim relief or events have completely and irrevocably eradicated the effects of the alleged violation.

The alleged. violation in this case was Griffin’s failure to submit or cite teratology data at the time such data was due under the data call-in. Under the statute, the remedy for this violation would be for Griffin to submit or cite such data by the due date or for EPA to cancel the Griffin registration. If Griffin cited data submitted by SDS, that company would also have the right under the statute to an irrevocable offer to pay compensation.

At the time the data was due, one of the statutory remedies had been declared unconstitutional and cancellation was the only available remedy. EPA therefore deferred action until the injunctions were vacated and then permitted Griffin to amend its registration, cite SDS teratology data and make an irrevocable offer to pay.

Analyzed under the Davis test, it is clear that there is no reasonable expectation that the alleged violation will recur. The situation was a highly unusual one in which a portion of the statute was declared unconstitutional and enjoined while the remainder of the statute remained in effect. Of the two procedures envisaged by Congress, only one, cancellation, remained as a viable option. EPA accordingly decided to defer any action until the conclusion of the Monsanto case and at that point permitted Griffin to amend. Such an unusual situation is unlikely to recur.

As to the second factor, it is clear that interim events have eradicated the effects of the alleged violation. In order to amend its registration, Griffin had to cite all relevant data, including the teratology studies in question. The standard of review for amended applications is the same standard which would apply to any new application for a conditional registration for chlorothalonil products. 7 U.S.C. § 136a(c)(7)(A). The agency’s interpretation that this section of the statute requires the same level of scrutiny for amended as for conditional registrations is reasonable and should not be disturbed unless there is some compelling reason that this interpretation is wrong. Lead Industries Ass’n, Inc. v. EPA, 647 F.2d 1130 (D.C.Cir.1980). Plaintiff has presented no compelling reason for disturbing the EPA interpretation of the statute. An EPA policy of giving the same scrutiny to amended applications and requiring citation of all necessary data is more protective of the environment and thus more in line with the purposes of the Act than the interpretation espoused by SDS Biotech.

Furthermore, Griffin did provide SDS with an irrevocable offer to pay for the citation of data in the amended application. Since EPA has stated that a review of an amended application requires citation of the relevant teratology data, and since Griffin has given an irrevocable offer to pay compensation for the use of the data required for amendment, SDS has received all of the relief it is entitled to under the Act.

SDS argues that EPA was under an obligation to cancel the registration in December 1983, and the only remedy which will make the plaintiff “whole” again would be for the Court to order EPA to cancel the registrations now. The doctrine of mootness does not enable a Court to rewrite the past. It does require that a court consider whether interim events have so changed the nature of the controversy, that there is no longer a live dispute. In this case, where Griffin has amended its registration, cited all the data required for amended applications, and given the plaintiff an irrevocable offer to pay compensation, plaintiff has received all the relief which it is entitled to under the Act and EPA is not now required to cancel the registration.

Accordingly, this case will be dismissed with prejudice on the ground that the Court lacks jurisdiction because of mootness.

      . The notice also required a recipient to inform the EPA within 90 days if it were subject to the terms of the notice and how the recipient planned to comply with the notice. One method of compliance was to make an irrevocable offer to compensate another entity which planned to submit data. Section V-E of September 14, 1981 Data Call-In Notice.

      . The District Court for the Eastern District of Missouri enjoined the FIFRA procedure permitting applicants to rely upon data generated and submitted by other applicants if an irrevocable offer to compensate the original data submitter was made. The court found that this procedure constituted an unconstitutional taking. Monsanto Co. v. Acting Administrator, EPA, 564 F.Supp. 552 (E.D.Mo.1983). In a similar case before the Southern District of New York, the court found that the requirement of FIFRA that applicants submit to binding arbitration violated the Constitution by restricting access to judicial review. Union Carbide Agricultural Products Co. v. Ruckleshaus, 571 F.Supp. 117 (S.D.N. Y.1983).
      These injunctions remained in effect until July 26, 1984, when the Supreme Court upheld the constitutionality of FIFRA in the Monsanto case, vacated that injunction, and remanded the case. Ruckelshaus v. Monsanto, — U.S.-, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984). The Supreme Court remanded the Union Carbide case for further proceedings, the Union Carbide court reinstated the injunction and that case was again appealed to the Supreme Court. In October 1984, the Supreme Court stayed the injunction in Union Carbide pending appeal of the matter. Ruckelshaus v. Union Carbide, — U.S.-, 104 S.Ct. 3566, 82 L.Ed.2d 866 (1984), judgment reinstated on remand, 79 Civ. 2913 (RO), injunction stayed pending appeal, — U.S. -, 105 S.Ct. 237, 83 L.Ed.2d 177 (1984).

      . This was the date when the Supreme Court stayed the second Union Carbide injunction. See note 2, supra.

      . At oral argument plaintiff argued that the EPA had recently issued a notice of rulemaking under which registrants could fail to comply with their registration requirements without facing cancellation proceedings as EPA would permit late amendments as a regular matter. This opinion expresses no view of the legitimacy of such a rulemaking or of an EPA procedure which would permit late amendments as a matter of course. The facts of this case make it clear that EPA was faced with an extraordinary situation which is unlikely to recur. This case also does not decide whether an applicant, like Griffin, can be excused from a data call-in requirement because it did not receive actual notice.