author: LEE R. WEST, District Judge.

text:
    FEDERAL HOME LOAN BANK BOARD, Washington, D.C., Plaintiff, v. R.Y. EMPIE, in his official capacity as Oklahoma State Banking Commissioner; and Michael C. Turpen in his official capacity as Attorney General of the State of Oklahoma, Defendants.
    No. Civ-83-500-W.
    United States District Court, W.D. Oklahoma.
    July 25, 1983.

      William S. Price, U.S. Atty., Richard Freeman, Asst. U.S. Atty., Oklahoma City, Okl., Harvey Simon, Associate Gen. Counsel, John E. Gunther, Deputy Director, Litigation Div., Denise Z. Field, Trial Atty., Office of Gen. Counsel, Federal Home Loan Bank Bd., Washington, D.C., for Federal Home Loan Bank Bd.
    Michael C. Turpén, Atty. Gen., George R. Barr, Jr., Asst. Atty. Gen., Oklahoma City, Okl., for Michael C. Turpén.
    Sandi Cone Silkey, Oklahoma City, Okl., for R.Y. Empie.
    Laura Nan Pringle, Vice President and Gen. Counsel, Oklahoma Bankers Ass’n, Ann Threlkeld, Don G. Holladay, Andrews, Davis, Legg, Bixler, Milsten & Murrah, Oklahoma City, Okl., for amicus curiae Oklahoma Bankers Assn.
   ORDER

LEE R. WEST, District Judge.

This matter comes before the Court upon the defendants’ Motion to Dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. Plaintiff responded in opposition to the motion. The Oklahoma Bankers Association filed an Amicus Curiae Brief in support of defendants’ Motion to Dismiss. Plaintiff responded in opposition to the Oklahoma Bankers Association’s Amicus Curiae Brief and defendants replied to plaintiff’s response.

The Federal Home Loan Bank Board (FHLBB) filed this action pursuant to the Home Owner’s Loan Act of 1933 (HOLA), 12 U.S.C. § 1461 et seq. (1980), and 28 U.S.C. §§ 1331, 1337 and 1345 (1980), to obtain a declaration that the. defendants lack the authority to interfere with, or to impede, the exclusive right under controlling federal law of the FHLBB to regulate all aspects of the operations of federally-chartered savings institutions, particularly in the area of advertising practices. The FHLBB also seeks an injunction to prevent the defendants from taking any action to compel compliance by any federally-chartered savings institution with any Oklahoma laws or regulations relating to advertising practices, specifically the use of the terms “bank”, “banks”, or “banking” in the advertising by such institutions.

The FHLBB initiated this action in response to a suit filed by the defendant, R. Y. Empie, Oklahoma State Banking Commissioner, and the Oklahoma Bankers Association in the District Court of Muskogee County, Oklahoma, against Victor Federal Savings and Loan Association of Muskogee, Oklahoma, seeking to enjoin the use of the term “banking” by Victor Federal’s advertisements as violative of Okla.Stat. Ann. tit. 6, § 1401 (West 1982).

Proposition I

In Proposition I, defendants contend that neither the HOLA nor any rules or regulations promulgated by the plaintiff has preempted 6 Okla.Stat.1981, § 1401. Defendants contend that the HOLA does not expressly provide for preemption nor is its regulatory scheme so pervasive as to imply an intent by Congress for the HOLA to “occupy the field.”

Plaintiff contends that federal law has preempted the application of Oklahoma law to the advertising practices of federally-chartered savings institutions. Plaintiff contends that Congress intended the HOLA to occupy the field of regulation of federally-chartered savings institutions. Plaintiff also contends that Okla.Stat.Ann., tit. 6, § 1401 directly conflicts with 12 C.F.R. § 563.27 and is therefore preempted.

In Fidelity Federal Savings and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664, the United States Supreme Court discussed Congress’ broad . delegation of authority to the FHLBB in the HOLA. With reference to the HOLA, the Court stated at page 4921 that

in § 5(a) of the Act, Congress gave the Board plenary authority to issue regulations governing federal savings and loans:
“In order to provide local mutual thrift institutions in which people may invest their funds and in order to provide for the financing of homes, the Board is authorized, under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as ‘Federal Savings and Loan Associations’, or ‘Federal mutual savings banks’ ..., and to issue charters therefor, giving primary consideration to the best practices of local mutual thrift and home-financing institutions in the United States.” 12 U.S.C. § 1464(a) (1976 ed., Supp. IV) (emphasis added).
The broad language of § 5(a) expresses no limits on the Board’s authority to regulate the lending practices of federal savings and loans. As one court put it, “[i]t would have been difficult for Congress to give the Bank Board a broader mandate.” Glendale Federal Sav. & Loan Assn. v. Fox, 459 F.Supp. 903, 910 (CD Cal.1978), final summary judgment granted, 481 F.Supp. 616 (1979), order reversing and remanding on other grounds reported at 636 F.2d 1078 (CA9 1981), cert. pending, No. 81-1192.
Congress invested the Board with broad authority to regulate federal savings and loans so as to effect the statute’s purposes, and plainly indicated that the Board need not feel bound by existing state law.

This discussion supports a finding that Congress intended the HOLA to preempt all state regulation over federally-chartered savings and loan institutions. Decided before de la Cuesta, supra, the Court in People, Etc. v. Coast Federal Sav. & Loan Ass’n, 98 F.Supp. 311, 317 (S.D.Cal.1951), stated that the FHLBB, which determines that advertising methods of savings and loan associations violate its rules, has plenary power to correct any improper or unlawful practices. The Court went on to state at page 319 that “as to federal savings and loan associations, Congress made plenary, preemptive delegation to the Board to organize, incorporate, supervise, and regulate, leaving no field for state supervision.” Likewise, the United States Court of Appeals, Ninth Circuit, held that “[t]he broad regulatory authority over the federal associations conferred upon the Bank Board by HOLA does wholly preempt the field of regulatory control over these associations.” Conference of Federal Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1260 (9th Cir.1979), aff'd 445 U.S. 921, 100 S.Ct. 1304, 63 L.Ed.2d 754. This Court finds that Congress intended the HOLA to preempt all state regulation over federally-chartered savings and loan institutions and, therefore, any state law which falls within this area exclusively occupied by the HOLA must give way by virtue of the supremacy clause of the United States Constitution. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 236, 67 S.Ct. 1146, 1155, 91 L.Ed. 1447 (1947). Because advertising by federal savings and loan associations is regulated by 12 C.F.R. § 563.27, pursuant to the HOLA, 6 O.S. § 1401 (1981) is preempted.

Proposition II

In Proposition II, defendants contend that plaintiff’s preemption argument is actually a defense that should be raised in the pending state action and that, therefore, this Court lacks jurisdiction in this case. Defendants also contend that this Court should abstain from this case under both the Pullman and Younger doctrines of abstention. The Oklahoma Bankers Association in its Amicus Curiae Brief also raises this contention. Defendants further contend that an injunction in this case is inappropriate because the plaintiff has an adequate remedy at law and is not going to suffer irreparable harm. The Oklahoma Bankers Association also contends that no case or controversy exists and therefore this action should be dismissed under the Ripeness Doctrine.

Plaintiff contends that this Court has jurisdiction over this action; that this Court has subject matter jurisdiction over the Bank Board’s Complaint under 28 U.S.C. §§ 1331, 1337, and 1345; that the Wycoff case and its progeny are totally inapplicable to the Bank Board’s Complaint; and that the Bank Board has clear authority to seek relief against state interference with its exclusive federal regulatory scheme. Plaintiff also contends that this case is not appropriate for the exercise of abstention and that Younger and Pullman are not applicable here. Plaintiff further contends that the Bank Board’s Complaint states a case or controversy that is ripe for adjudication.

This Court finds that it has original jurisdiction of this action under 28 U.S.C. § 1331 in that the matter in controversy arises under the Constitution of the United States, article VI, cl. 2, and the laws of the United States, the HOLA, as amended, 12 U.S.C. § 1461 et seq. Because the HOLA is an “Act of Congress” regulating commerce within the meaning of 28 U.S.C. § 1337, People of St. of Ill. ex rel. Bowman v. Home Fed. S. & L.A., 521 F.2d 704, 706 (7th Cir.1975), this Court has original jurisdiction under 28 U.S.C. § 1337. Because this action was brought by an agency of the United States, the FHLBB, this Court also has original jurisdiction of this action under 28 U.S.C. § 1345. Furthermore, this Court finds that the FHLBB has authority to bring this action under 12 U.S.C. § 1464(d)(1) which provides that

[t]he Board shall have power to enforce this section and rules and regulations made hereunder. In the enforcement of any provision of this section or rules and regulations made hereunder, or any other law or regulation, or in any other action, suit, or proceeding to which it is a party or in which it is interested, ..., the Board is authorized to act in its own name and through it own attorneys.

The United States Supreme Court stated in Public Serv. Comm’n v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1952) that

[wjhere the complaint in an action for declaratory judgment seeks in essence to assert a defense to an impending or threatened state court action, it is the character of the threatened action, and not of the defense, which will determine whether there is federal-question jurisdiction in the District Court. If the cause of action, which the declaratory defendant threatens to assert, does not itself involve a claim under federal law, it is doubtful if a federal court may entertain an action for a declaratory judgment establishing a defense to that claim. This is dubious even though the declaratory complaint sets forth a claim of federal right, if that right is in reality in the nature of a defense to a threatened cause of action. Federal courts will not seize litigations from state courts merely because one, normally a defendant, goes to federal court to begin his federal-law defense before the state court begins the case under state law. Tennessee v. Union & Planters' Bank, 152 U.S. 454 [14 S.Ct. 654, 38 L.Ed. 511]; The Fair v. Kohler Die & Specialty Co., 228 U.S. 22 [33 S.Ct. 410, 57 L.Ed. 716]; Taylor v. Anderson, 234 U.S. 74 [34 S.Ct. 724, 58 L.Ed. 1218],

Because the FHLBB is not a defendant in the state court action, this Court finds that Wycoff, supra, is not applicable and defendants’ contention that plaintiff’s preemption argument is actually a defense that should be raised in the pending state action is groundless.

The United States Supreme Court discussed the doctrine of abstention in Colorado River Water Cons. Dist. v. U.S., 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483. At page 813, 96 S.Ct. at page 1244 the Court stated that

[abstention from the exercise of federal jurisdiction is the exception, not the rule. “The doctrine of abstention, under which a District Court may decline to exercise or postpone the exercise of its jurisdiction, is an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it. Abdication of the obligation to decide cases can be justified under this doctrine only in the exceptional circumstances where the order to the parties to repair to the State court would clearly serve an important countervailing interest.” County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 188-89 [79 S.Ct. 1060, 1062-63, 3 L.Ed.2d 1163] (1959). [I]t was never a doctrine of equity that a federal court should exercise its judicial discretion to dismiss a suit merely because a State court could entertain it.” Alabama Pub. Serv. Comm’n v. Southern R. Co., 341 U.S. 341, 361 [71 S.Ct. 762, 774, 95 L.Ed. 1002 (1951) (Frankfurter, J., concurring in result).

In Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 23-26, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 the United States Supreme Court stated:

... we emphasize that our task in cases such as this is not to find some substantial reason for the exercise of federal jurisdiction by the district court; rather, the task is to ascertain whether there exist “exceptional” circumstances, the “clearest of justifications,” that can suffice under Colorado River to justify the surrender of that jurisdiction. Although in some rare circumstances the presence of state-law issues may weigh in favor of that surrender, see n. 29, supra, the presence of federal-law issues must always be a major consideration weighing against surrender.

Defendants rely on Middlesex County Ethics Committee v. Garden State Bar Association, 457 U.S. 423, 431-34, 102 S.Ct. 2515, 2521-22, 73 L.Ed.2d 116 in which the United States Supreme Court stated that

Younger v. Harris, 401 U.S. 37 [91 S.Ct. 746, 27 L.Ed.2d 669] (1971), and its progeny espouse a strong federal policy against federal court interference with pending state judicial proceedings absent extraordinary circumstances.
Minimal respect for the state processes, of course, precludes any presumption that the state courts «will not safeguard federal constitutional rights.
The policies underlying Younger are fully applicable to noncriminal judicial proceedings when important state interests are involved. Moore v. Sims, 442 U.S. 415, 423 [99 S.Ct. 2371, 2377, 60 L.Ed.2d 994] (1979); Huffman v. Pursue, Ltd., 420 U.S. 592, 604-05 [95 S.Ct. 1200, 1208-09, 43 L.Ed.2d 482] (1975). The importance of the state interest may be demonstrated by the fact that the noncriminal proceedings bear a close relationship to proceedings criminal in nature, as in Huffman supra. Proceedings necessary for the vindication of important state policies or for the functioning of the state judicial system also evidence the state’s substantial interest in the litigation. Trainor v. Hernandez, 431 U.S. 434 [97 S.Ct. 1911, 52 L.Ed.2d 486] (1977); Juidice v. Vail, 430 U.S. 327 [97 S.Ct. 1211, 51 L.Ed.2d 376] (1977). Where vital state interests are involved, a federal court should abstain “unless state law clearly bars the interposition of the constitutional claims.” Moore, supra, [442 U.S.] at 426 [99 S.Ct. at 2379]. “[T]he ... pertinent inquiry is whether the state proceedings afford an adequate opportunity to raise the constitutional claims ...” Id., at 430 [99 S.Ct. at 2381]. See also Gibson v. Berryhill, 411 U.S. 564 [93 S.Ct. 1689, 36 L.Ed.2d 488],

This Court, however, will follow the reasoning and holding of the United States Court of Appeals, Fifth Circuit, in U.S. v. Composite State Bd. of Med. Examiners, 656 F.2d 131 (5th Cir.1981). That court held that “abstention is inappropriate where the United States is seeking to assert a federal interest against a state interest.” The Court stated at page 136 that

[f]or the Federal Government and its agencies, the federal courts are the forum of choice. For them, ... access to the federal courts is ‘preferable in the context of healthy federal-state relations.’ ” NLRB v. Nash-Finch Co., supra, 404 U.S. [138] at 147, 92 S.Ct. [373] at 379 [30 L.Ed.2d 328 (1971)] (quoting Leiter Minerals, Inc. v. United States, supra, 352 U.S. [220] at 226, 77 S.Ct. [287] at 291 [1 L.Ed.2d 267 (1957)])....

This Court does not find that “compelling circumstances” exist “indicating that the state court is much more qualified to hear the case.” Composite State Bd. of Med. Examiners, supra, at page 136. Neither does it find that “the interests of the state defendant and the federal plaintiff are so ‘intertwined’ as to be considered identical.” Composite State Bd. of Med. Examiners, supra, at page 137. This Court does find, however, that it has jurisdiction of this action, that FHLBB has authority to bring this action, that constitutional and federal-law issues are present, and that the FHLBB must have access to a federal court to seek relief against state interference with its exclusive federal regulatory scheme. Therefore, abstention by this Court is inappropriate.

This Court also finds that abstention is inappropriate under Railroad Comm’n v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941). Where, as in this case, “a state ruling on local law cannot settle the federal constitutional questions involved in the case,” this doctrine is “inapplicable”. Federal Pr. Com’n v. Corporation Com’n of State of Okla., 362 F.Supp. 522, 546 (W.D.Okla.1973), aff'd, 415 U.S. 961, 94 S.Ct. 1548, 39 L.Ed.2d 863.

This Court finds that defendants’ contention that an injunction in this case is inappropriate is incorrect. Defendants contend that plaintiff has an adequate remedy at law in that it may intervene in the pending state court action and then raise the defense of preemption. They also contend that plaintiff will not suffer irreparable harm if defendants are not enjoined. This Court finds that the plaintiff must have access to this Court to seek relief against state interference with its exclusive federal regulatory scheme; otherwise, plaintiff does not have an adequate remedy at law and will suffer irreparable harm.

In Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57 S.Ct. 461, 463-64, 81 L.Ed. 617 (1937) the United States Supreme Court stated that

[a] “controversy” ... [is] one that is appropriate for judicial determination. Osborn v. United States Bank, 9 Wheat. 738, 819 [22 U.S. 738, 819, 6 L.Ed. 204]. A justiciable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot. United States v. Alaska S.S. Co., 253 U.S. 113, 116 [40 S.Ct. 448, 449, 64 L.Ed. 808], The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests. South Spring Gold Co. v. Amador Gold Co., 145 U.S. 300, 301 [12 S.Ct. 921, 36 L.Ed. 712]; Fairchild v. Hughes, 258 U.S. 126, 129 [42 S.Ct. 274, 275, 66 L.Ed. 499]; Massachusetts v. Mellon, 262 U.S. 447, 487, 488 [43 S.Ct. 597, 601, 67 L.Ed. 1078]. It must be a real substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts. See Muskrat v. United States, supra.

The defendant, R.Y. Empie, Oklahoma State Banking Commissioner, in this action, has, by filing suit in state court, taken concrete action to compel a federally-chartered savings and loan association to comply with state law. Because the FHLBB believes that no state agency has the power to assert regulatory authority over a federally-chartered savings and loan association and that the FHLBB’s regulations preempt the specific state law that defendant R.Y. Empie seeks to enforce, this Court finds that a case or controversy exists.

Within the context of a motion to dismiss under Rule 12(b), F.R.Civ.P., all well-pleaded factual allegations are taken as true and all reasonable inferences from them are indulged in favor of the pleader. Olpin v. Ideal National Insurance Co., 419 F.2d 1250 (10th Cir.1969), cert. denied, 397 U.S. 1074, 90 S.Ct. 1522, 25 L.Ed.2d 809 (1970).

Accordingly, this Court finds that defendants’ Motion to Dismiss should be and is hereby DENIED.

ON MOTION FOR SUMMARY JUDGMENT

This matter comes before the Court upon the plaintiff's Motion for Summary Judgment. Defendants responded in opposition to the motion. The Oklahoma Bankers Association filed an Amicus Curiae Brief in support of defendants’ response to plaintiff’s motion, and Plaintiff responded in opposition to the Amicus Curiae Brief.

Plaintiff contends that there exists no genuine issue of material fact. Plaintiff also contends that federal law exclusively governs the policies and practices of federally-chartered savings institutions, including the validity of their advertising practices, to the exclusion of state law; that Oklahoma law concerning the use of the terms “bank” and “banking” in advertisements of federally-chartered savings institutions directly conflicts with controlling federal law and cannot be given effect; and that the ability of a federally-chartered savings bank to use the name “bank” is expressly granted by federal law and cannot be challenged under state law. Plaintiff requests this Court to rule that federal law exclusively governs the advertising practices of federally-chartered savings institutions and that defendants have no authority to interfere with the exclusive regulation and supervision of the Board over the operations of federally-chartered savings institutions in Oklahoma. Plaintiff also requests this Court to restrain the defendants and all persons acting in concert with them from seeking to compel compliance by the federally-chartered savings associations or savings banks with any Oklahoma laws relating to their advertising practices.

Defendants contend that the following genuine issues of material fact exist: that the Federal Home Loan Bank Board (FHLBB) is not “exclusively” responsible for the organization, examination, supervision, and regulation of federal savings and loan associations as plaintiff contends but that state law is applicable in areas such as real property and mortgage statutes, zoning, criminal statutes, etc.; that an advisory opinion issued by the FHLBB’s Office of the General Counsel on February 12, 1980, concerning use of the terms “bank” and “banking” in advertisements by a Missouri federal savings and loan association does not constitute a rule or regulation of the FHLBB and has no binding legal effect; that an action referred to by plaintiff initiated by the Oklahoma Bankers Association against Family Federal Savings Bank in the District Court of Creek County, Oklahoma, does not have as an issue use of banking terminology by savings banks; thus, all discussion of and argument concerning use of the words “bank” or “banking” by federal savings banks is inappropriate in the present action and should be disregarded.

Defendants also contend that federal preemption of state law should not be found to exist in the absence of persuasive reasons; that neither Congress nor the FHLBB has preempted all state law which may apply to federal savings and loan associations; and that the FHLBB has not preempted state advertising statutes. The Oklahoma Bankers Association in its Amicus Curiae Brief makes similar arguments.

On a motion for summary judgment, this Court must construe the facts in a way most favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). Upon consideration of the Motion for Summary Judgment filed herein, this Court finds that no genuine issues of material fact are present in this case. Summary judgment is, therefore, appropriate.

The specific laws at issue dealing with advertising are 12 C.F.R. § 563.27, promulgated by the FHLBB, and 6 O.S. § 1401. Title 12, Code of Federal Regulations, section 563.27 states:

No insured institution shall use advertising (whether printed, radio, display, or of any other nature) or make any representation which is inaccurate in any particular or which in any way misrepresents its services, contracts, investments, or financial condition.

Title 6, Oklahoma Statutes, section 1401 states in part:

It shall be unlawful for any individual, firm, association or corporation to receive money upon deposit or transact a banking business except as authorized by the laws of this state or of the United States, or to use or advertise, in connection with any business other than the banking business, conducted under the banking laws of this state, the words: Banker,'Bankers, Investment Banker, or any other word or term calculated to deceive the public into belief that such person, firm, association or corporation is engaged in the banking business____

In Fidelity Federal Savings and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664, the United States Supreme Court discussed Congress’ broad delegation of authority to the FHLBB in the Home Owners’ Loan Act (HOLA). With reference to the HOLA, the Court stated at page 4921 that

in § 5(a) of the Act, Congress gave the Board plenary authority to issue regulations governing federal savings and loans:
“In order to provide local mutual thrift institutions in which people may invest their funds and in order to provide for the financing of homes, the Board is authorized, under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as ‘Federal Savings and Loan Associations’, or ‘Federal mutual savings banks’ ..., and to issue charters therefor, giving primary consideration to the best practices of local mutual thrift and home-financing institutions in the United States.” 12 U.S.C. § 1464(a) (1976 ed., Supp. IV) (emphasis added).
The broad language of § 5(a) expresses no limits on the Board’s authority to regulate the lending practices of federal savings and loans. As one court put it, “[i]t would have been difficult for Congress to give the Bank Board a broader mandate.” Glendale Federal Sav. & Loan Assn. v. Fox, 459 F.Supp. 903, 910 (CD Cal.1978), final summary judgment granted, 481 F.Supp. 616 (1979), order reversing and remanding on other grounds reported at 636 F.2d 1078 (CA9 1981), cert. pending, No. 81-1192.
Congress invested the Board with broad authority to regulate federal savings and loans so as to effect the statute’s purposes, and plainly indicated that the Board need not feel bound by existing state law.

This discussion supports a finding that Congress intended the HOLA to preempt all state regulation over federally-chartered savings and loan institutions. Decided before de la Cuesta, supra, the Court in People, Etc. v. Coast Federal Sav. & Loan Ass’n, 98 F.Supp. 311, 317 (S.D.Cal.1951), stated that the FHLBB, which determines that advertising methods of savings and loan associations violate its rules, has plenary power to correct any improper or unlawful practices. The Court went on to state at page 319 that “as to federal savings and loan associations, Congress made plenary, preemptive delegation to the Board to organize, incorporate, supervise, and regulate, leaving no field for state supervision.” Likewise, the United States Court of Appeals, Ninth Circuit, held that “[t]he broad regulatory authority over the federal associations conferred upon the Bank Board by HOLA does wholly preempt the field of regulatory control over these associations.” Conference of Federal Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1260 (9th Cir.1979), aff'd 445 U.S. 921, 100 S.Ct. 1304, 63 L.Ed.2d 754.

In Joseph E. Seagram & Sons, Inc. and Jes Holdings, Inc. v. Frank E. Marley, Jr. and Conoco, Inc., No. CIV-81-869-W (W.D.Okla. July 17, 1981), this Court found that “the Oklahoma Multinational Corporation Take-Over Bid Act is inconsistent with the Williams Act and ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives’ of the Williams Act and is therefore invalid under the Supremacy Clause of the United States Constitution.” So also does this Court find that Congress intended the HOLA to preempt all state regulation over federally-chartered savings and loan institutions and, therefore, any state law which falls within this area exclusively occupied by the HOLA must give way by virtue of the supremacy clause of the United States Constitution. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 236, 67 S.Ct. 1146, 1155, 91 L.Ed. 1447 (1947). Because advertising by federal savings and loan associations is regulated by 12 C.F.R. § 563.27, pursuant to the HOLA, 6 O.S. § 1401 (1981) is preempted.

Title 12, United States Code, section 1464(i)(2) states:

Subject to the rules and regulations of the Board, any Federal association may convert itself from the mutual form to the stock form of organization, or from the stock form to the mutual form, and any Federal association may change its designation from a Federal savings and loan association to a Federal savings bank, or the reverse.

Use of the term “Federal savings bank”, therefore, is expressly permitted by federal law, and any state law which purports to prohibit this designation is preempted.

Accordingly, this Court finds that plaintiff’s Motion for Summary Judgment should be and is hereby GRANTED.


source: Caselaw Access Project

author: DONALD J. PORTER, Chief Judge.

license: Public Domain

text:
    A.L. MARTSCHINSKE, and Dakota Recreational Vehicles, Inc., Plaintiff, v. OLYMPIC STYLES, INC., and Frank S. Kovach, and Attila Kovach, Defendants.
    Civ. No. 81-1020.
    United States District Court, D. South Dakota, N.D.
    Dec. 26, 1984.

      Harvey Oliver, Bantz, Gosch, Cremer & Peterson, Aberdeen, S.D., for plaintiff.
    Ronald G. Schmidt, Schmidt, Schroyer, Colwill & Zinter, Pierre, S.D., for defendants.
   MEMORANDUM OPINION

DONALD J. PORTER, Chief Judge.

CASE SUMMARY

Plaintiff was involved in a franchise agreement with defendants. Defendants terminated the agreement, and plaintiff sued for rescission. The court finds, after a bench trial, that plaintiff is not entitled to rescission, but that judgment must be entered against plaintiff on defendants’ counterclaim for fees owing under the agreement.

FACTUAL SUMMARY

The facts underlying this diversity action span most of the 1970’s. Plaintiff, who at most times pertinent here was a trooper with the South Dakota Highway Patrol, began a part-time retail dealership in Aberdeen, South Dakota in 1971 in the sale of tent campers. In 1972 or 1973, he also started to sell pickup caps or toppers, eventually selling 100 to 150 of these during the course of his dealership. In 1975, plaintiff began selling toppers made by defendants in their manufacturing plant in Elkhart, Indiana.

After initially buying defendants’ caps from defendants’ dealer-distributor in Fargo, North Dakota, plaintiff, in September, 1975, drove directly to Elkhart for a load of the caps. While in Elkhart, plaintiff met with defendant, Frank Kovach, the vice president of defendant Olympic Styles, Inc., and the originator of defendants’ line of products. It is a matter of dispute as to which of the parties was the initiating force, but during that meeting and for several succeeding months, plaintiff and defendants discussed a proposal that plaintiff establish a plant in South Dakota for the manufacture and sale of defendants’ caps in a franchise area encompassing most of the Western United States and Canada. The parties also discussed possible sources of financing for plaintiff’s plant. By January 5, 1976, the basic outlines of the agreement had already taken shape, as embodied in a letter Frank Kovach sent that day to plaintiff. Attached to this letter were three pages of projected costs and profits of a cap manufacturing operation, which indicated a yearly profit of $122,993 on sales of 2880 caps at $884,160. The only reference in the letter itself to these projections was the sentence, “Based on our data enclosed with this letter, have your CPA fill out the SBA form: ‘Estimated projection and forecast of two year’s earnings.’ ”

Frank Kovach sent plaintiff a second letter on January 8, 1976, enclosing several pages of inquiries about defendants’ caps from dealers in the proposed franchise area that were stated to have come “in as a result of our national advertising, and direct mailings. We have already sent them literature and price lists. All they need is to see our product to buy it.” Defendants sent plaintiff a draft franchise agreement in March, 1976, and plaintiff retained an attorney to examine it, who suggested a number of changes.

Plaintiff experienced difficulties in locating a building for his plant and in obtaining financing, so the franchise proposal essentially lay dormant for many months. Frank Kovach sent plaintiff a letter on November 28, 1977, noting the plaintiff complained he did not have enough dealers to start a business. Kovach observed that he had had no dealers when defendants’ business opened, but that they had managed $864,784 sales in the first year, $1,640,604 sales in 1975, $2,699,947 sales in 1976, and an expectation of slightly higher sales in 1977. Kovach stated that:

In our designated area we have not made an effort to establish dealers. It is not a prime delivery area for us, and for this reason we would rather franchise the area or open a plant ourselves. We honestly expect you to sell over a million dollars in the first year. Don’t forget— you are sharing in our experience, dealers, dealer and retailing inquiries, advertising, and established name.

An attachment to this letter stated that, “We have a total of 34 dealers in that area, at the present time. Sales in that area for 1976 were 934 for $294,461.02.”

In March, 1978, plaintiff went to Elkhart for further discussions with defendants about the franchise. Among other things, plaintiff asked for, and received, the addition of Canada to the franchise area. At about this point in time, plaintiff had finally found a manufacturing site, in Ipswich, South Dakota, had received financing, and resigned from the Highway Patrol.

On April 20, 1978, the parties signed an agreement. The agreement provided that defendants allowed plaintiff to use the defendants’ cap designs, production techniques, and the names “Olympic” and “Olympic Style”. Plaintiff had exclusive rights to manufacture and sell the caps within the franchise area. Defendants agreed to instruct three of plaintiff’s employees for one week in manufacturing, management and marketing, to provide lists of “all existing and future dealers, sales representatives and inquirers” in the franchise area, and to assist plaintiff in the initial setup of plaintiff’s Ipswich operations for one week, with plaintiff paying “all expenses, including air fare to and from Elkhart, Indiana to Ipswich, South Dakota, lodging, food and incidentals."

Plaintiff, who paid $18,500 as a fee for the agreement, undertook to purchase all manufacturing supplies either from defendants or sources approved by defendants; to employ a Certified Public Accountant, to furnish defendants with weekly labor costs and gross sales reports, quarterly profit and loss statements, balance sheets, to pay defendants a two percent fee on gross sales in the United States, and a three percent fee on Canadian sales. Plaintiff also agreed to take out public liability and product liability insurance, and to give defendants a copy of the insurance policies.

Paragraph 16 of the agreement provided that, in the event of a breach of the agreement, “unless some condition or conditions are remedied to the satisfaction of [defendants] within ninety (90) days after written notice thereof has been given ... [defendants] may terminate this agreement and all rights of the [plaintiff] hereunder shall cease.”

In June, 1978, plaintiff and two of his employees went to Indiana for two weeks of the training described in the agreement. Plaintiff testified at trial that he was allowed access to all phases of defendants’ operations, and that he received about 150 hours of instruction. Plaintiff also testified that he sometimes telephoned defendants’ plant for help, and while he might have been unable to contact either of the Kovachs, he would get help from defendants’ employees. Defendants also sent one of their employees to help plaintiff set up his plant in Ipswich, although plaintiff was obliged to pay — as provided by the contract — this person’s expenses. Plaintiff complained that the individual sent was qualified only to make wood-panel caps, but plaintiff also, admitted that there was little difficulty in making aluminum caps. Defendants did add plaintiff’s name to some of their advertising.

Plaintiff, once his plant began operating, began making sales in January, 1979, and testified that during the franchise period, he established about fifty dealerships. Plaintiff’s 1978 income tax return, which was on a taxable year from April 1, 1978 through March 31, 1979, shows that between January and March, 1979, plaintiff had $74,157 in gross sales. Plaintiff, however, never paid defendants any of the weekly fees required on these sales. Plaintiff testified that he did telephone sales reports to defendants as to the sales, although this is disputed by defendants. Plaintiff admits that he made no reports as to labor costs, profit and loss statements, or quarterly balance sheets.

During plaintiff’s production, he also appárently used a “skin” for the caps he manufactured that plaintiff purchased from a supplier named Elixer in New Ulm, Minnesota. It is disputed whether defendants approved the use of this supplier, or whether this “skin” was in fact defective. It is also disputed whether plaintiff changed the design and specifications of caps for imported pickups without defendants’ authorization. At trial, defendant Attila “Tony” Kovach indicated that he was unsure what different design plaintiff had made. Plaintiff did have liability insurance in force, but never himself provided defendants with a copy of the policy. Plaintiff did indicate that he had instructed his insurance agent to send a copy of the policy to defendants, but did not know if such was ever done.

On May 25, 1979, after some telephone communications, defendants sent plaintiff a document entitled, ‘Notice of Termination of License Agreement.” This invoked Paragraph 16 of the contract, and stated that it was:

your written ninety (90) day notice to you that you failed to perform and observe the following covenants with respect to your obligations to Olympic Style, Inc., Licensor, in the following respects, among others.
1. You used metal skin from a supplier who was not approved by us, thus causing quality problems in design and specifications.
2. Under Item 3, Products, the design and specifications of the foreign caps were changed without our approval.
3. Under Accounting, (a) and (b) we were not furnished with quarterly balance sheets, and under (c) we were not furnished with gross sales or prices.
4. No percentage of gross sales was ever sent to us.
5. No public liability or product liability insurance was ever provided for us.

Plaintiff did discontinue the use of defendants’ name at some point after this letter. Plaintiff did, however, continue to manufacture at least some of the same models for an indefinite period of time.

Defendants at no time made any attempt to comply with the requirements of the South Dakota Franchise Act, SDCL 37-5A-1, et seq. Plaintiff, through his attorney, complained to the relevant state authorities of these violations in July, 1979.

DISCUSSION

Plaintiffs Rescission Claims

Plaintiff’s Amended Complaint, while less than artfully drawn, seems to make claims for the torts of fraud and deceit, for, apparently, both damages and rescission for violations of the South Dakota Franchise Act (hereafter “Franchise Act”), and for tortious breach of an implied obligation of good faith. While this could present an initial difficulty as to whether plaintiff must now elect to pursue one of these claims to the exclusion of others, it is clear from the many pleadings filed by plaintiff that plaintiff himself has chosen to pursue the rescission remedy to the exclusion of all other claims he may have had. See, e.g., the concluding paragraph of Plaintiffs Post-Trial Brief at 17, in which it is requested that this court enter judgment “granting judicial recognition of the rescission of the franchise agreement and awarding to plaintiff restitution”; Paragraph 46 of Plaintiffs Proposed Findings of Fact requests recovery in terms of the “amount necessary to put [plaintiff] in the position that he occupied prior to the franchise agreement;” a “Reply Brief” filed by plaintiff on August 8, 1983 states that the “only remedy available to plaintiff is rescission and damages by way of restitution.” (Emphasis in original). Plaintiff is obviously entitled to choose the legal theory he would pursue, and he has just as obviously chosen rescission here.

Franchise Act Violations

It seems moderately clear that defendants may have violated several provisions of the Franchise Act, including SDCL 37-5A-6 (registration statement) and SDCL 37-5A-16 (application for registration). It is also true that SDCL 37-5A-83 provides that a person violating these provisions “shall be liable to the franchisee ... who may sue for damages caused thereby, for rescission, or other relief as the court may deem appropriate.” The issue of whether a violation of these formal requirements automatically renders a person liable under SDCL 37-5A-83 has apparently not been addressed in this state, but the court finds persuasive the interpretations made of the very similar North Dakota Franchise Act.

In Country Kitchen of Mount Vernon, Inc. v. Country Kitchen of Western America, Inc., 293 N.W.2d 118, 120 (N.D.1980), the court held that “the Legislature [did not intend] franchise agreements to be void in their inception because the franchisor failed to register the offer.” See also Clapp v. Peterson, 327 N.W.2d 585 (Minn.1982); Peck of Chehalis, Inc. v. C.K. of Western America, Inc., 304 N.W.2d 91 (N.D.1981). More significantly, this court is also persuaded that “the rescission remedy provided by the franchise investment law is the ordinary remedy of rescission.” Fargo Biltmore Motor Hotel Corp. v. Best Western International, Inc., 563 F.Supp. 1022, 1028, (D.N.D.1983), aff'd. 742 F.2d 459 (8th Cir.1984). This court finds that if the question was ever presented to the South Dakota Supreme Court, that court would adhere to the rule set forth in Fargo Biltmore, and find that a franchisee seeking rescission must comply with the established rules of rescission under South Dakota law.

Under SDCL 53-11-4, a “party rescinding a contract must rescind promptly, upon discovering the facts which entitle him to rescind, if he is free from duress, undue influence, or disability, and is aware of his right to rescind.” SDCL 53-11-5 also provides that the “party rescinding a contract must restore to the other party everything of value which he has received from him under the contract, or must offer to restore the same, upon condition that such party shall do likewise, unless the latter is unable or positively refuses to do so.”

Plaintiff seems to make no claim that he was suffering from duress, undue influence, or disability in July, 1979 when he discovered the Franchise Act violations. Nor can plaintiff argue that he was not aware of his right of rescission, since this court must infer that plaintiffs attorney informed plaintiff of his rescission rights under the Franchise Act at the same time the Franchise Act violations were discovered. Yet, plaintiff took no legal action against defendants until 1981, and did not advance a rescission theory against them until motion to file the Amended Complaint was filed on June 8, 1983. During most of this time period and, indeed, up to the time of trial, plaintiff indicated that he continued to manufacture at least some of the models he had been trained to produce by defendants, though plaintiff did stop using defendants’ name. Plaintiffs at no time either during the time the contract was in force or afterward, attempted or offered to pay defendants the license fees due them for the sale of these models.

As the case of Saunders v. Farmers & Merchants Nat. Bank of Milbank, 61 S.D. 261, 248 N.W. 250, 252 (1933) stated, no “fixed rule can be laid down as to time in which one must rescind. What may be a prompt action in one case would not be so in another case.” The facts of the Saunders case are, however, particularly instructive here. In Saunders, the plaintiff alleged misrepresentations as to the value of stocks received from defendants. Only a few days after receiving this stock, plaintiff had been advised it was worthless, yet for almost eighteen months plaintiff continued to accept and retain dividends from a portion of stock. On these facts, the court held that plaintiff had failed to act promptly within the meaning of the rescission statute. As Saunders stated, the “statute provides that after discovering the [facts upon which rescission is based] one must then rescind promptly. Failing to do so will deprive one of the right to rescind, although no prejudice or injury be shown as a result of the delay. Under the statute, promptness is made an imperative condition, without regarding the consequences on the other party.” 248 N.W. at 252. As noted above, plaintiff delayed for nearly four years before moving to rescind the contract. Further, plaintiff continued to utilize the methods he had learned from defendants without paying defendants any fee for the use of these methods. Under these circumstances, the court must hold that plaintiff has failed to satisfy both the requirement of prompt rescission under SDCL 53-11-4, and the requirement under SDCL 53-11-5 that plaintiff must restore or offer to restore to defendants everything of value received under the contract. No rescission remedy is therefore available to plaintiff for any Franchise Act violations.

The court also finds that were the question presented to the South Dakota Supreme Court, that court would also follow the lead of the North Dakota court and hold that “before a franchisee may rescind a franchise agreement ... he must overcome any equitable defenses raised by the franchiser.” Peck of Chehalis, Inc., supra, 304 N.W.2d at 100, including the defenses of estoppel and waiver. Under South Dakota law, a waiver exists where one in possession of any right, whether conferred by law or contract, and with full knowledge of the material facts, does or forbears the doing of something inconsistent with the existence of the right. Western Casualty and Surety Co. v. American Nat.-Fire Insurance Co., 318 N.W.2d 126, 128 (S.D.1982). The facts marshalled above in the discussion of SDCL 53-11-4 and 53-11-5, dealing with plaintiffs continued production of defendants’ models after the termination of the contract are inconsistent with rescission of the contract, and constitute a waiver of any right to rescind the contract plaintiff may have had. Fargo Biltmore, supra, 563 F.Supp. at 1027.

Although the foregoing would bar any rescission based on the other grounds advanced by plaintiff, and not just the claimed violations of the Franchise Act, the court will, for the sake of argument, briefly discuss each of these other claims, as they reached their final form in plaintiff's Post-Trial brief.

Rescission by Consent

Plaintiff argues, pursuant to SDCL 53-11-2(5), that the contract was rescinded by consent of the parties under the termination letter of May 25, 1979. The evidence does not support this contention. The termination letter hardly rescinded the agreement between the parties; it affirmed the continued existence of the contract in its utilization of Paragraph 16, which imposed certain continuing obligations on plaintiff, including the cessation of the production of defendants’ models. Further, plaintiff’s continuing production of these models after the termination letter also does not suggest a mutual rescission. See Ford v. Hofer, 79 S.D. 257, 111 N.W.2d 214, 216 (1961): if recission is evidenced “by acts alone they must be such as leave no doubt as to such intention.”

Misrepresentation

Plaintiff claims that defendants committed acts of “fraud, deceit and misrepresentation” entitling plaintiff to rescind under SDCL 53-11-2(1). By this blanket claim, plaintiff covers much diverse territory with little or no specificity as to what plaintiff does exactly claim. Deceit, a statutory tort under South Dakota law, is defined at SDCL 20-10-1, 20-10-2. Actual fraud, which “may be the basis of tort actions and contract actions”, Schmidt v. Wildcat Cave, Inc., 261 N.W.2d 114, 117 (S.D.1977), is defined at SDCL 53-4-5. Constructive fraud, which may be “the basis only for actions for the avoidance of contracts”, Schmidt, supra, is defined at SDCL 53-4-6. Negligent misrepresentation is a common law tort in South Dakota law, and has been given its fullest treatment in the case of Moore v. Kluthe & Lane Ins. Agency, Inc., 89 S.D. 419, 234 N.W.2d 260 (1975). While there are variations in the proof of each of these actions, there are certain common elements:

First, there must have been a misrepresentation____ Second, the misrepresentation must have been either fraudulent or material____ Third, the misrepresentation must have induced the recipient to make the contract____ Fourth, the recipient’s reliance on the misrepresentation must have been justified.

Restatement of Contracts Second, Chapter 7, Topic 1, Introductory Note.

Although the amended complaint sets forth a rather extensive list of alleged misrepresentations, the only alleged misrepresentation urged in plaintiff’s Post-trial brief is the variance between the projections attached to Frank Kovach’s letter to plaintiff of January 5, 1976, and the actual cost of business and profits set forth in defendants’ tax returns for the years 1974-1977, which show a lower profit margin. The court does not find plaintiff’s evidence on this issue persuasive. Initially, it is difficult to find that the information in the letter is meant as a representation of defendants’ own business costs and profits, since the only statement in the letter relating to the projections indicates that it is “data” to give to a CPA for an application for a SBA loan. Frank Kovach, at trial, indicated that the information was based on general experience in the industry, and not necessarily on his own experience. Even if it could be assumed that plaintiff understood the projections as a representation of defendants’ business and what plaintiff could expect, however, the record does not support a finding that plaintiff ever relied on the information.

Plaintiff admitted, for example, that he did not give the information to a CPA, and apparently did not use it in his SBA application. Plaintiff also admitted that he paid himself a higher salary than suggested in the projections, had two salesmen rather than the projected one, and paid workers at a different rate and on a different basis than projected (actually resulting in lower labor costs with more workers than the letter projected). In fact, plaintiff stated under cross-examination, in explaining why he did not follow the projections in his own business, that they “were in generalities anyway.” Given this evidence of plaintiff’s attitude toward the projections, the court is unable to find that he relied on the information to make the contract, and any claim of misrepresentation, under any of its forms, must accordingly fail.

Failure of Consideration

Under SDCL 53-11-2(2), (4), failure of consideration can be grounds for rescission. The evidence in support of this theory argued in plaintiff’s Post-Trial Brief is defendants’ sales in the franchise area after the signing of the contract. As noted supra, in the factual summary, these sales took place almost entirely before plaintiff even began production in November, 1978 and, of course, could make no sales himself. There were no sales of any significance by defendants in the franchise area in 1979, after plaintiff had begun his own sales. Plaintiff can point to no evidence in the record indicating any damage to him from the 1978 sales by defendants, beyond the bald claim that dealers had told plaintiff that defendants had “filled them up.” The court accordingly cannot find that the unauthorized sales constituted a failure of consideration.

Breach of Obligation of Good Faith and Fair Dealing and Fiduciary Responsibility

Plaintiff’s source for a duty of good faith and fair dealing is Restatement of Contracts Second, § 205. The comments to this section indicates “[g]ood faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving ‘bad faith.’ ” Bad faith is exemplified in the comments as “evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.”

Plaintiff’s primary authority for the existence of a fiduciary duty between plaintiff and defendants is Amott v. American Oil Co., 609 F.2d 873 (8th Cir.1979), cert. denied, 446 U.S. 918, 100 S.Ct. 1852, 64 L.Ed.2d 272 (1979). In Amott, the court construed the South Dakota Franchise Act in terms of the relationship between an oil company and a service station dealer. Arnott states that “South Dakota law ... indicates that the franchisor and franchisee of a service station operation are involved in a fiduciary franchise relationship whereby the parties should act with good faith toward each other.” 609 F.2d at 883. The Eighth Circuit has itself limited the apparent scope of Arnott, in Bain v. Champlin Petroleum Co., 692 F.2d 43, 48 (8th Cir.1982): “Inasmuch as the duty of ‘good faith and fair dealing’ is inherent in every business relationship, it was unnecessary to the [.Arnott ] decision to label that duty as ‘fiduciary’. In any event, Arnott does not stand for the proposition that the grant of a franchise of itself in all instances imposes on the franchisor all of the duties and responsibilities which traditionally pertain to a true fiduciary.” (Emphasis in original). The court is of the view that Arnott is limited to its facts, and has little or no applicability here. Again, for the sake of argument, however, the court will consider the facts presented under the fiduciary standard set forth in Arnott: “the law requires that neither party exert undue influence or pressure upon the other, take selfish advantage of his trust or deal with the subject matter of the trust in such a way as to benefit himself or prejudice the other except in the exercise of the utmost good faith and with the full knowledge and consent of the other person involved.” 609 F.2d at 881 n. 6.

Plaintiff, as evidence advanced for breaches of these standards in his Post-Trial Brief, points to defendants’ alleged misrepresentations, defendants’ unauthorized sales in the franchised area, defendants’ alleged attempt to obtain kickbacks, defendants’ alleged failure to provide assistance to plaintiff, and defendants’ alleged wrongful termination of the agreement. The misrepresentations and unauthorized sales claims have already been considered, and even under the different standards under the law of good faith and fiduciary relationship, the court must reach the conclusion that no valid claim for rescission has been advanced on these grounds.

The court must note, in relation to the kickback allegation, that plaintiff has produced nothing but an unsworn offer of proof that one of plaintiff’s suppliers would testify that a defendant approached the supplier and suggested a scheme in which the supplier would charge plaintiff higher prices in return for lower prices to defendants. No admissible evidence was ever introduced on this claim, although defendants did deny that the conversation took place. Even were this court to find that the attempt took place, which it does not, nothing came of it, and plaintiff was not damaged. A significantly different state of affairs would exist had such a scheme been carried out, but as the record stands, there is nothing in this allegation to justify rescission.

Plaintiff’s argument that defendants failed to adequately assist plaintiff is without merit. Though plaintiff contends, in his proposed finding of fact number 17, that the two weeks of training at defendants’ plant were insufficient, it must be noted that the contract provided for only one week of training. There is no indication that plaintiff could not have stayed for longer training had he so desired, and the plaintiff admitted that he returned to defendants’ plant several times and was able to discuss matters with and get help from defendants’ employees. Defendants also sent, pursuant to the contract, one of their employees to help set up plaintiff’s plant. Plaintiff complains that he was required to pay this person’s expenses and wages, but this requirement, which is not unreasonable, was clearly set forth in the contract. Although plaintiff testified that he never asked that Tony Kovach come to South Dakota, plaintiff seems to argue that the fact Tony Kovach volunteered to come in return for $1,000 a week somehow constitutes a failure to assist plaintiff. In view of the fact plaintiff never asked for the assistance and did not pay the requested fee, this claim is utterly without merit. Finally, plaintiff also seems to argue that defendants failed to give him assistance in making caps for import pickups and the El Camino. While there may have been some delay in supplying plaintiff with the import models, plaintiff admitted that he did receive the information for these caps from defendants’ employees. Plaintiff never stated precisely the length of the delay in receiving the information; he did commence production of import caps during the franchise period. Plaintiff also introduced no evidence to counter defendants’ assertion that research and development of the El Camino cap was not completed during the franchise period and that the defendants were therefore justified in not instructing plaintiff in its production. Plaintiff has therefore failed to prove his assertions that defendants did not provide the assistance due him, given their relationship under the franchise agreement.

The claim that the agreement was terminated wrongfully is absolutely without merit. The evidence is clear that plaintiff had violated the agreement in at least two of the respects specified in the May 25, 1979 termination notice: plaintiff admitted that he never, either orally or in writing, provided defendants his quarterly balance sheets, and plaintiff admitted that he never paid defendants their percentage of gross sales. Nothing in the contract gave plaintiff the option to forego these duties, and his failure to perform these duties was a significant breach of the contract, totally justifying its termination by defendants.

For all the reasons set forth above, therefore, the court must enter judgment against plaintiff on his claim for rescission.

Defendants’ Counterclaim

As the foregoing discussion makes clear, the court has found that the contract between the parties was valid. Accordingly, it is necessary to consider defendants’ counterclaim for damages caused by plaintiff’s breach of the contract. First, however, the court must consider plaintiff’s argument that there is no pending counterclaim.

Defendants timely filed an answer and counterclaim to the original complaint. No answer and counterclaim was filed to the amended complaint, which itself was filed just prior to trial. The only change in the amended complaint was to alter the prayer for relief to reflect that the action was now one for rescission rather than for breach of contract. Defendants’ failure to file a pleading in response to the amended complaint was in technical violation of Federal Rule of Civil Procedure 15(a), which states in pertinent part that a “party shall plead in response to an amended pleading ... within 10 days after service of the amended pleading ... unless the court otherwise orders.” During the trial, defendants did move to refile their original answer and counterclaim in response to the amended complaint. Plaintiff can show no prejudice to himself if this should be granted, as the counterclaim would obviously raise no new issues, and plaintiff has been on notice of the issues raised by the original counterclaim since it was first filed. The court accordingly exercises its power under Rule 15(a), and grants defendants’ motion to refile the original answer and counterclaim as defendants’ response to the amended complaint.

Defendants seek recovery of the license fees due under the contract for the sale of defendants’ models. From the time plaintiff began making sales of these models in January, 1979 to August 22,1979, the date the termination became effective, under the ninety day notice of the May 25, 1979 letter, defendants are clearly entitled to these fees, which under the evidence are in the amount of $6,507.15. An award of fees due after August 22, 1979, however, stands on a different footing.

Defendants testified at trial that once the contract was terminated, they never made any attempt to begin sales again in the franchise area. Defendants made a vague claim, which was unsupported by factual examples, that it would have been impossible to make any sales in the area because plaintiff had “ruined” the franchise area. Yet, there is evidence of at least one substantial sale by defendants in the franchise area in 1980, see Exhibit 26, and plaintiff, producing defendants’ models, continued to make sales.

Under the law of South Dakota, “a person whose business is damaged must exercise ordinary care to minimize existing damage and to prevent further damage. If any loss results from a failure to exercise such care, damages cannot be recovered for such loss.” South Dakota Pattern Jury Instruction 33.02. This rule is of particular importance here. Defendants insist that plaintiff’s version of their models was substandard and provoked complaints. If this were true, defendants should have been easily able to compete in the franchise area with plaintiff, particularly since plaintiff was no longer using defendants’ name. Had defendants attempted to compete, defendants should clearly have been able to take many cap sales away from plaintiff, and thus receive the full amount of the sales price themselves rather than just two or three percent of the sales. Yet defendants did not do so; they made no attempt to reduce their losses in the franchise area. Instead, defendants seemingly chose to treat plaintiff as their de facto distributor, in spite of defendants’ termination of their relationship, and now attempt to collect their two or three percent of the sales made by plaintiff’s efforts. Defendants may not have it both ways. The court accordingly denies any recovery of fees after August 22, 1979.

Defendants also request an injunction to prevent plaintiff from producing any more of their models. The record shows that by the time of trial, defendants’ business was no longer operating. While plaintiff was still producing caps during the time of trial, the court has been given to understand that plaintiff has also ceased production permanently. Any need for an injunction has therefore been mooted.

Judgment will therefore be entered for defendants on their counterclaim against plaintiff in the amount of $6,507.15. Defendants also ask prejudgment interest, to which they are entitled under SDCL 54-3-5. Under the circumstances of the procedural history of this case, however, the court will deny a complete award of interest from August, 1979 to the date of judgment. This action was originally scheduled for trial on October 4,1982. Defendants’ counsel reported a conflict, and in July, 1982, the parties moved for a continuance. The trial was rescheduled for February 14, 1983, but immediately prior to that date, attorney for defendants indicated that settlement was near, and the court authorized a further continuance. Where, as here, there are repeated delays in the start of trial, caused at least in part by the party seeking the award of prejudgment interest, interest will be denied for the period of the delay. Safeco Insurance Co. v. City of Watertown, 538 F.Supp. 49, 52 (D.S.D.1982). Thus, no interest will be allowed between October 4, 1982, when the case was originally scheduled for trial, and September 13, 1983, when it actually was tried. Thus, the award of prejudgment interest shall be in the amount of $3,871.61.

The clerk shall enter judgment accordingly.

This opinion constitutes this court’s findings of fact and conclusions of law.

      . For the sake of clarity, “plaintiff’ throughout this opinion shall mean plaintiff A.L. Martschinske, although Martschinske’s corporation, Dakota Recreational Vehicles, is also joined as a plaintiff.

      . A tent camper is on wheels and towed behind a vehicle.

      . A cap or topper is mounted on the box of a pickup truck.

      . Any reference to a "franchise area” in this opinion shall be taken to mean the franchise area proposed to be under plaintiffs control.

      . It is at least clear that plaintiff may not bring a claim for both tortious deceit and a contract action for rescission. Aschoff v. Mobil Oil Corp., 261 N.W.2d 120, 123 (S.D.1978). The wording of the Franchise Act, SDCL 37-5A-83, suggests that a franchisee may sue for either damages or rescission. Martin Investors, Inc. v. Vander Boe, 269 N.W.2d 868, 875-76 (Minn.1978) tends to support this view. But see Runyan v. Pacific Air Industries, 2 Cal.3d 304, 85 Cal.Rptr. 138, 466 P.2d 682 (1970).

      . Plaintiff also claims that defendants violated SDCL 37-5A-43, prohibiting misrepresentation in the sale of franchises. The court, as demonstrated in the discussion of plaintiffs specific misrepresentation claims infra, finds no basis for this claim.

      . See Fargo Biltmore, supra, 563 F.Supp. at 1029: “It is true that neither Olness nor the Fargo Biltmore can return the services and benefits received while Olness was a Best Western member. However, this fact does not relieve plaintiffs from returning or offering to return the value of the services before any right to rescission might be had.”

        Fargo Biltmore also answers plaintiff’s claim that defendants' plans to produce the caps, and the models themselves, are so simple as to have no value. Plaintiff was an experienced cap dealer, and was familiar with defendants’ caps as well as caps produced by other manufacturers. Yet, plaintiff chose to learn defendants' production techniques, and to produce defendants' caps when he was obviously at liberty to set up a plant without any franchise. Plaintiffs "desire to [become defendants’ franchisee] is evidence that he recognized the benefits and services provided ... [were] indeed valuable.” Id.

      . Though it is ultimately of no help to plaintiff s position, the court must find defendants have no valid estoppel defense. To create an estoppel there must have been some act or conduct by the party estopped which has in some manner misled the party in whose favor estoppel is sought and has caused such party to do some act relying upon the conduct of the party to be estopped, thus creating a condition that would make it inequitable to allow the guilty party to claim what would otherwise be his legal rights. L.R. Foy Construction Company, Inc. v. Spearfish School District, 341 N.W.2d 383, 386 (S.D.1983). The court perceives no indication of reliance by defendants on any of plaintiffs acts after the contract termination.

      . Plaintiffs Proposed Findings of Fact also complains of the statement in Frank Kovach's letter of November 28, 1977 that “We honestly expect you to sell over a million dollars in the first year.” In the same letter, Kovach sets forth the sales made by defendants in their first years of operation, ranging from $860,000 to $2,700,000, sales figures which were reasonably accurate, and also tells plaintiff the actual sales in the franchise area in 1976. The court finds nothing in this letter that is not essentially in accord with the facts. Restatement of Contracts Second, § 159.

      . It might also be emphasized at this point that plaintiff, an experienced dealer in caps who was familiar with defendants’ products, was represented by counsel during the time the contract was negotiated, and in fact, obtained several changes in the contract before it was finally signed. Given these circumstances, it can hardly be said that plaintiff was on unequal footing with defendants or did not understand his legal rights and the relevant facts. See Restatement of Contracts Second, § 173, comments a and b. See also Kase v. French, 325 N.W.2d 678 (S.D.1982).

      . The final disposition of this case has been delayed by the extreme complexity of the facts and because no transcript was available until July, 1984.


author: LONGOBARDI, District Judge.

text:
    MIDWAY AIRLINES, INC., a Delaware corporation, and David R. Hinson, an individual, Plaintiffs, v. Kenneth T. CARLSON, et al, Defendants. Kenneth T. CARLSON, et al, Counterclaim Plaintiffs, v. MIDWAY AIRLINES, INC., a Delaware corporation, and David R. Hinson, an individual, Counterclaim Defendants.
    Civ. A. No. 85-319 LON.
    United States District Court, D. Delaware.
    June 14, 1985.
    Michael D. Goldman, James F. Burnett, David B. Brown, Donald J. Wolfe, Jr. (argued), and Richard L. Horwitz of Potter Anderson & Corroon, Wilmington, Del.; of counsel: Latham & Watkins, and Wachtell Lipton Rosen & Katz, New York City; for plaintiffs and counterclaim defendants.
    Stephen J. Rothschild (argued), Thomas J. Allingham II, and Randolph K. Herndon of Skadden, Arps, Slate, Meagher & Flom; Wilmington, Del., for defendants and counterclaim plaintiffs.
   LONGOBARDI, District Judge.

Plaintiffs, Midway Airlines, Inc. (“Midway”) and David R. Hinson, the president, chief executive officer and chairman of the board of Midway, brought this action alleging that the Defendants violated federal and state securities laws and seeking declaratory and injunctive relief. Defendants are the Stockholders Committee to Revitalize Midway Airlines (“the Committee”), an unincorporated association formed to seek control of Midway, the individual members of the Committee and Jet Express, Inc., a Delaware corporation which Plaintiffs allege is an undisclosed member of the Committee. The Committee is seeking to oust the current board of Midway and replace them with the Committee’s nominees by means of a stockholder’s consent procedure pursuant to 8 Del.C. § 228.

The Committee members have counterclaimed against Midway charging violations of the federal securities laws. They have also asked the Court, pursuant to 8 Del.C. § 220, to order Midway to allow them to inspect two types of documents: (1) all books and records of Midway relating to the Midway shareholders meeting held on May 16, 1985, and (2) a list of the shareholders of Midway and a list of the bondholders of Midway who have the right to convert into Midway stock. Currently before the Court is a dispute over the Committee members’ right to obtain the list of holders of convertible bonds. Although this counterclaim is based on rights allegedly conferred by a state statute, this Court has pendent jurisdiction to decide this dispute. In resolving the issues presented, the Court must apply Delaware law.

Section 220(b) allows any stockholder of a corporation “upon written demand under oath stating the purpose thereof, ... to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders and its other books and records.” A “proper purpose” is defined as a purpose reasonably related to his interest as stockholder. Section 220(c) allocates the burden of proving a proper purpose in those situations where the corporation refuses to allow inspection. It makes an important distinction between the corporation’s stock ledger and list of stockholders on the one hand and its other books and records on the other. Once a stockholder seeking to inspect the stock ledger and stockholder list demonstrates that he has made a demand in the proper form, the burden of proof is on the corporation to show that he has an improper purpose. However, a stockholder seeking other books and records has the burden of proving that he has a proper purpose as well as the burden of proving that he has made a proper demand.

In this case, the parties disagree about whether the list of holders of convertible bonds should be classified as a “list of stockholders” or as “other books and records” for the purpose of allocating the burden of proof of proper purpose. This dispute is in turn related to a more basic dispute over the record date for determining which shareholders are entitled to vote in the consent procedure initiated by the Committee. The Committee members contend that May 20, 1985, the date on which the first consent was expressed, is the record date for the consent proceedings. If this position is correct, any bondholders who converted after May 20th would not be entitled to vote in the consent procedure and, therefore, as the Committee members concede, they would have no need for the list of bondholders. However, Midway has refused to stipulate that the record date is May 20th and, at this point, refuses to take a position on whether the Midway board has the right to set a new record date. If the Midway board were to set a new record date and if the Court were to uphold their power to do so, any bondholders who converted between May 20th and the new record date would have the right to vote in the consent procedure. Because of the possibility that these bondholders will be able to vote, the Committee members contend that they are entitled to know their identity in order to solicit support for the Committee’s position. Otherwise, the Midway board, which already knows the identity of the bondholders, would have an unfair advantage in the battle for support.

Thus, it is apparent that the Committee members’ need for the list of bondholders depends on whether the Midway board has the power to change the record date. Whether the board in fact possesses this power is a question of fundamental importance which will likely have to be resolved at some point in this case and a resolution of this question may also resolve the dispute over the convertible bondholder list.

The determination of the record date is governed by 8 Del.C. § 213 which provides that:

(a) In order that the corporation may determine the stockholders entitled to ... express consent to corporate action in writing without a meeting, ... the board of directors may fix, in advance, a record date, which shall not be ... more than 60 days prior to any ... action.
Jk 5ft sji * * *
(b) If no record date is fixed:
* H- * * * %
(2) The record date for determining stockholders entitled to express consent to corporate action, in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed;

Clearly, if the Midway board does not establish a record date, under section 213(b)(2), the record date in this case would be May 20th, the date of the first consent. It is also clear under section 213(a) that, prior to May 20th, the board had the power to establish a record date. The issue which the Court must resolve is whether the board retains this power even after the first written consent is expressed. Since there appear to be no cases directly on point, the Court will look to the statutory language and the underlying policy considerations in attempting to discern the statute’s meaning and how it would be interpreted by the Delaware courts.

First, examining the statutory language, section 213(b)(2) provides that “[i]f no record date is fixed [,t]he record date ... shall be the day on which the first written consent is expressed.” (emphasis added). If the board has the power to fix the record date even after the first consent is filed, then the phrase “[i]f no record date is fixed” must mean that no record date was fixed at the time the consent procedure was concluded since this is the only situation in which section 213(b)(2) applies. However, if the statute means that at the end of the procedure it can be retroactively determined that the date of the first consent was the record date, then the last clause of section 213(b)(2) should read “shall be the day on which the first written consent was expressed.” Since the statute uses the present tense (“is expressed”), it indicates that section 213(b)(2) applies whenever a record date has not been fixed by the time the first written consent is filed.

The Court must also consider the practical effect of allowing the board to set a new record date after some of the consents had already been filed. All shareholders who consented and then sold their stock before the record date would have their consents retroactively invalidated.' Mass confusion and uncertainty among the shareholders would result from such retroactive invalidation. In Pabst Brewing Co. v. Jacobs, 549 F.Supp. 1068 (D.Del.), aff'd, 707 F.2d 1394 (3d Cir.1982), the court held that a reasonable shareholder would consider it important to know how long the consents would remain effective. If the board could change the record date and retroactively invalidate consents, not only would the shareholders not know how long their consents were effective but they would not know if the consents counted at all until the consent procedure was completed.

Finally, and perhaps most importantly, to allow the board to modify the record date after a consent has been expressed would be grossly unfair because it would give the incumbent board tactical advantages over those trying to unseat them. A board faced with an adverse consent procedure could impose a delay of up to sixty days by the simple expedient of setting a new record date. Cf. Plaza Securities. Co. v. O’Kelley, Del.Ch., C.A. No. 7932, slip op. at 12-13 (Mar. 5, 1985), aff'd, Del.Supr., No. 79, 1985 (Mar. 8, 1985). This would allow time for defensive tactics and would also force the insurgents to resolicit the successors of those shareholders who had consented and then sold their shares. Conversely, if the board decided that it was to their advantage to end the consent procedure as quickly as possible, they could simply take no action. The insurgents would then be required to obtain a majority within sixty days of the date of the first consent. Pabst Brewing Co. v. Jacobs, 549 F.Supp. at 1072-73.

The Delaware courts have stressed the importance of fairness to both sides in a contest for corporate control. See, e.g., Schnell v. Chris-Craft Industries, Inc., Del.Supr., 285 A.2d 437 (1971); American Pacific Corp. v. Super Food Services, Del. Ch., C.A. No. 7020, slip op. (Dec. 2, 1982); Lerman v. Diagnostic Data, Inc., Del.Ch., 421 A.2d 906 (1980). Allowing the board to change the record date in the middle of a consent procedure would allow an unwarranted advantage to incumbent management.

Thus, the statutory language and the underlying policy considerations support the conclusion that the Midway board does not have the power to change the record date after the first consent has been filed. In this case, the record date is May 20, 1985, and any bondholders who convert to Midway stock after that date will not be entitled to vote in the consent procedure. Under this interpretation, the Committee members have conceded that they do not need the list of holders of convertible bonds. The Committee members’ request for an order compelling Midway to allow inspection is accordingly denied.

      . Plaintiffs subsequently amended their complaint to add Bader Express, a Connecticut limited partnership in which Jet Express, Inc. is the general partner. Docket Item 34.

      . Section 228 provides as follows:
      (a) Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
      ******
      (c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders or members who have not consented in writing.


author: JOSEPH H. YOUNG, District Judge.

text:
    Eileen P. WEIDE v. MASS TRANSIT ADMINISTRATION, et al.
    Civ. No. Y-84-4524.
    United States District Court, D. Maryland.
    June 28, 1985.

      C. Christopher Brown and Carmen D. Hernandez, Baltimore, Md., for plaintiff.
    Joseph S. Kaufman, Baltimore, Md., for defendant Mass Transit Admin.
    Ralph S. Tyler, Asst. Atty. Gen., Baltimore, Md., for defendant John von Briesen.
   MEMORANDUM

JOSEPH H. YOUNG, District Judge.

Eileen P. Weide sues her employer Mass Transit Administration (“MTA”) and defendant John von Briesen, also an employee of the MTA, for violating Title VII of the 1964 Civil Rights Act, as amended, 42 U.S.C. § 2000e et seq. Plaintiff also brings charges that defendants deprived her of Fourteenth Amendment rights, in violation of 42 U.S.C. § 1983, as well as charges of intentional infliction of emotional distress.

Plaintiff alleges that in December, 1981, von Briesen sexually harassed her by making an unwelcome verbal proposition that she refused. When in November, 1983, von Briesen temporarily became her direct supervisor, she claims she received her first and only below-average performance evaluation as an MTA employee. She alleges that on approximately seven other occasions, prior and subsequent to the November, 1983 evaluation (presumably when von Briesen was not her direct supervisor), her job performance had been evaluated as being significantly above average. Plaintiff claims that her rejection of von Bries-en’s sexual advances has resulted in numerous acts of discrimination against her, including but not limited to the November, 1983 evaluation, which have affected the terms, conditions, and privileges of her employment.

An internal complaint of discrimination was filed with the Maryland Department of Transportation on January 17, 1984, against the MTA and her supervisors, John von Briesen and Roberta Daiger. (The claim against Robert Daiger for religious discrimination was apparently dropped and Ms. Daiger is not a party to this proceeding.) Plaintiff filed a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”) against the MTA on February 23, 1984, and also alleges that the EEOC forwarded the charge to the Maryland Commission on Human Relations (“MCHR”) on that date. The MCHR notified plaintiff in a letter, dated March 16, 1984, that her case against the MTA had been received and a determination made by the MCHR that the EEOC could better handle her charge. The MCHR therefore terminated its proceeding so that the EEOC could process plaintiff’s complaint. The EEOC had notified the MTA of the charge by letter dated March 1, 1984. The MTA responded to the EEOC on March 19, 1984, claiming that because the charge was not made timely, EEOC had no jurisdiction to act upon it. The EEOC terminated its proceeding on September 14, 1984, and issued its Notice of Right to Sue. Plaintiff then filed her complaint against defendants on December 14, 1984.

Defendants filed motions to dismiss plaintiffs complaint, pursuant to the Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), contending this Court lacks subject matter jurisdiction over the Title VII claim; that the § 1988 claim fails to state a claim upon which relief may be granted; and that this Court lacks subject matter jurisdiction over the state law claim for intentional infliction of emotional distress. Defendant von Briesen also contends by affidavit that he was not made a party to any prior action by plaintiff, received no prior notice of the complaint, and had no opportunity to participate in conciliation attempts. Plaintiff requests a jury trial and in her complaint seeks compensatory damages against each defendant, punitive damages against von Briesen, attorneys’ fees, and such other relief as may be appropriate.

I. TITLE VII CLAIM (COUNT I)

Defendants contend that there is a lack of subject matter jurisdiction because plaintiff failed to file a claim with the Maryland Commission on Human Resources (“MCHR”) and did not file this complaint timely.

In fact, plaintiff’s charge was filed with the EEOC on January 23, 1984, and was forwarded to MCHR thus satisfying plaintiff’s obligations. Defendants contention that this Court has no subject matter jurisdiction over the Title VII claim has no merit.

As to the time of filing, it is clear that although plaintiff may not have perceived the alleged sexual harassment as an act that rose to the level of a cause of action, she states she did perceive discrimination resulting from the performance evaluation from a supervisor who allegedly had subjected her to harassment earlier. Further, under the reasoning in Elliott v. Sperry Rand, 79 F.R.D. 580, 585 (D.Minn.1978), plaintiff’s claim may not be dismissed, even assuming the November, 1983 evaluation was not a part of a continuing violation.

Defendants’ motion to dismiss for failure to comply with EEOC filing requirements must be denied.

Defendant von Briesen’s argument that the claim against the plaintiff must fail because he was not named in the EEOC charge is also without merit. The failure to name a defendant in an EEOC charge does not bar the maintenance of a subsequent court action if the purpose of the naming was substantially met. Vanguard v. Hughes, 471 F.Supp. 670, 687-89 (D.Md.1979). Defendant von Briesen’s other grounds are equally unpersuasive, and the motion must be denied.

II. SECTION 1983 CLAIM (COUNT II)

Plaintiff’s second count charges that defendants, while acting under color of state law, deprived her of rights guaranteed by the Fourteenth Amendment, in violation of 42 U.S.C. § 1983. Defendants seek to dismiss the count on the basis that it fails to state a claim upon which relief may be granted.

Section 1983 creates a remedy but does not itself confer any substantive rights. Chapman v. Houston Welfare Rights Org., 441 U.S. 600, 617-18, 99 S.Ct. 1905, 1916, 60 L.Ed.2d 508 (1979). Typically, this section has been invoked to remedy alleged violations of the Fourteenth Amendment. LeBoeuf v. Ramsey, 503 F.Supp. 747, 754 (D.Mass.1980). The Fourth Circuit Court of Appeals has indicated that a federal cause of action based on sex discrimination “emerges from recent enlightened approaches to what constitutes equal protection of the laws under the Fourteenth Amendment.” Eslinger v. Thomas, 476 F.2d 225 (4th Cir.1973).

The Supreme Court, however, has held that the Eleventh Amendment generally bars suit for money damages when the defendant is a state or a state agency. Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974). There is no doubt that the MTA is a state agency. Therefore, unless the state of Maryland has waived the MTA’s sovereign immunity, plaintiff’s § 1983 claim against MTA must fail. Alabama v. Pugh, 438 U.S. 781, 782, 98 S.Ct. 3057, 3058, 57 L.Ed.2d 1114 (1978); Quern v. Jordan, 440 U.S. 332, 340, 99 S.Ct. 1139, 1144, 59 L.Ed.2d 358 (1979).

Plaintiff contends that the state has consented to be sued, citing Md.Transp. Code Ann. § 7-702(a) and (b), dealing with the MTA’s liability for contracts and torts. Yet, the Supreme Court has stated “[i]n determining whether a state has waived its constitutional protection under the Eleventh Amendment, [the Court] will find waiver only when stated by the most express language or by such overwhelming implications from the text [as will] leave no room for any other reasonable construction.” Edelman, supra, 415 U.S. at 673, 94 S.Ct. at 1360-61. A general waiver of sovereign immunity for a state agency, such as the one found in Md.Transp.Code Ann. § 7-702, “does not constitute a waiver by the state of its constitutional immunity under the Eleventh Amendment from suit in federal court.” Florida Dept. of Health and Human Services v. Florida Nursing Home, 450 U.S. 147, 150, 101 S.Ct. 1032, 1034, 67 L.Ed.2d 132 (1981).

The Supreme Court also has been reluctant to infer a waiver of Eleventh Amendment immunity because the “state’s constitutional interest in immunity encompasses not merely whether it may be sued, but where it may be sued” (emphasis in original). Pennkurst State School and Hospital v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 907, 79 L.Ed.2d 67 (1984). This Court has refused to infer that the state has waived its Eleventh Amendment rights “merely from the fact that Maryland provides a state judicial remedy.” Friendship Villa-Clinton, Inc. v. Buck, 512 F.Supp. 720, 727 n. 11 (D.Md.1981). Consequently, plaintiff’s claim under § 1983 against the MTA must fail because the Eleventh Amendment precludes jurisdiction over this suit.

Plaintiff’s claim against the MTA in Count II must fail also because courts have implied that a state agency is not a “person” able to be sued under § 1983 “[T]he law is well settled that a state and its agencies are not ‘persons’ within the meaning of § 1983, and thus may not be sued for any relief under that section.” Yerrell v. Maryland Highway Administration, 13 F.E.P. Cases 1746, 1747 (D.Md.1976). See also Quern v. Jordan, 440 U.S. 332, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979) (dicta); Yarbrough v. Illinois Department of Mental Health, 538 F.Supp. 414, 416 (N.D.Ill.1982); Children’s Memorial Hospital v. Illinois Department of Public Aid, 562 F.Supp. 165, 167 n. 1 (N.D.Ill.1983).

Although the Eleventh Amendment bars suits directly against states and state agencies, it does not bar suits against state officials. Section 1983 covers acts by all those “who carry a badge of authority of a state and represent it in some capacity, whether they act in accordance with their authority or misuse it.” Monroe v. Pape, 365 U.S. 167, 172, 81 S.Ct. 473, 476, 5 L.Ed.2d 492 (1961), overruled on other grounds, Monell v. Dept. of Social Services, 436 U.S. 658, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978). Plaintiff does not contend that defendant von Briesen was following the MTA’s official policy or custom in his allegedly discriminatory acts toward her; yet, Mr. von Briesen was presumably acting in his official capacity as plaintiff’s supervisor when he issued her poor performance evaluation. However, the Supreme Court has suggested that a § 1983 action is not available “where the governing statute provides an exclusive remedy for violation of its terms.” Pennkurst State School and Hospital v. Halderman, 451 U.S. 1, 28, 101 S.Ct. 1531, 1545, 67 L.Ed.2d 694 (1981), quoting Maine v. Thiboutot, 448 U.S. 1, 22 n. 11, 100 S.Ct. 2502, 2514 n. 11, 65 L.Ed.2d 555 (1980) (Powell, J., dissenting); see also Middlesex County Sewerage Authority v. National Sea Clammers, 453 U.S. 1, 20-21, 101 S.Ct. 2615, 2626-27, 69 L.Ed.2d 435 (1981); Great American Federal Savings and Loan Association v. Novotny, 442 U.S. 366, 375-78, 99 S.Ct. 2345, 2350-52, 60 L.Ed.2d 957 (1979).

In Novotny, the Court specifically held that a Title VII violation could not be asserted by way of § 1985(3), the conspiracy counterpart to § 1983. To do so would disregard the detailed statutory scheme established by Congress in Title VII, including express time limitations, opportunity for conciliation, investigation by the EEOC, and specification of remedies. Id. 442 U.S. at 373-96, 99 S.Ct. at 2349-61.

In Middlesex County Sewerage Authority v. National Sea Clammers, supra, the logic of Novotny was applied to bar an action under § 1983. In that case, the Supreme Court held that a § 1983 action was foreclosed because Congress had created a detailed statutory enforcement scheme under the Water Pollution Control Act and the Marine Protection Research and Sanctuaries Act. The scheme under Title VII is no less detailed. See generally Novotny, 442 U.S. at 373-76, 99 S.Ct. at 2349-51.

Novotny was followed in H.R. v. Hornbeck, 524 F.Supp. 215, 222-23 (D.Md.1981), where the court interpreted Novotny as curtailing “the availability of a § 1983 action to redress rights which are subject to an express administrative remedial mechanism.” Id. at 222. Accord, Hall v. Board of County Commissioners, 509 F.Supp. 841, 848 (D.Md.1981) (under the Novotny reasoning, “it is arguable that rights secured by Title VII may not be used as the basis for a § 1983 suit.”)

Plaintiff nonetheless claims a right to sue under § 1983 because she asserts the violation of a constitutional, rather than a statutory right. The Supreme Court has expressly rejected this purported distinction.

In Prieser v. Rodriguez, 411 U.S. 475, 93 S.Ct. 1827, 36 L.Ed.2d 439 (1983), for example, the court rejected prisoners’ attempts to disregard the specific remedy of the habeas corpus statute in favor of an action under § 1983 asserting violations of their constitutional rights. Similarly, in Brown v. General Services Administration, 425 U.S. 820, 96 S.Ct. 1961, 48 L.Ed.2d 402 (1976), the court held that § 717 of the 1964 Civil Rights Act was the exclusive remedy for challenging racial discrimination in federal employment even though such discrimination “clearly violated ... the Constitution.” Id. at 825, 96 S.Ct. at 1964. Last term in Smith v. Robinson, 468 U.S. 992, 104 S.Ct. 3457, 82 L.Ed.2d 746 (1984), the court held that the Education of the Handicapped Act provided the exclusive remedy for petitioners who raised numerous constitutional claims.

Plaintiff is not relieved of the obligation to follow the detailed remedy provided by Congress in Title VII particularly when the exact same conduct which she claims violates Title VII is the conduct which she claims also violates the Fourteenth Amendment. Accordingly, defendant von Bries-en’s motion to dismiss plaintiff’s § 1983 claim against him is granted.

III. PENDENT JURISDICTION (COUNT III)

In this circuit a litigant is required to show only a loose factual connection between the federal and state claims to satisfy the requirements that they arise from a common nucleus of operative facts. Only when the state law claim is totally different from the federal claim is there no power to hear the state claim. Webb v. Bladen, 480 F.2d 306 (4th Cir.1973). In this case, the common nucleus is clearly present.

The Court does have the power to hear plaintiff’s state law claim, and because it serves the interest of convenience, judicial economy and fairness to exercise pendent jurisdiction, defendants’ motion to dismiss the Count III seeking damages for intentional infliction of emotional distress will be denied.

      . 42 U.S.C. § 1983 states in pertinent part:
      Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State ..., subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.

        . It has been held that Congress can limit Eleventh Amendment immunity under the Fourteenth Amendment. For example, the Supreme Court has determined that Title VII eliminates sovereign immunity with respect to suits under that provision. Fitzpatrick v. Bitzer, 427 U.S. 445, 96 S.Ct. 2666, 49 L.Ed.2d 614 (1976).

      . In determining whether the MTA is a state agency for Eleventh Amendment purposes, the six factors identified in Patterson v. Ramsay, 413 F.Supp. 523 (D.Md.1976), aff’d, 552 F.2d 117 (4th Cir.1977), are helpful:
      1. state statutes and court decisions governing the entity
      2. its source of revenue
      3. its autonomy from the state government
      4. whether it has the power to sue and be sued
      5. whether it has the power to contract
      6. whether the state would be responsible for a judgment against the entity

        Id. at 529, citing Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3524 at 88-91, and cases cited therein.
      Applying these criteria to the MTA, it becomes clear that the MTA is a state agency. First, state statutes and court decisions refer to the MTA as a state agency. See Md.Transp.Code Ann. § 7-101 et seq. (1984); Mass Transit Admin. v. Household Finance Corp., 292 Md. 313, 314, 439 A.2d 1104, 1105 (1982); Maryland Commission on Human Relations v. Mass Transit Admin., 294 Md. 225, 226, 449 A.2d 385, 386 n. 2 (1982); Harden v. Mass Transit Admin., 277 Md. 399, 354 A.2d 817 (1976). Second, the source of the MTA’s revenue is the state budget. See Laws of Maryland 1984, ch. 81 at 188, et seq. Third, MTA is not autonomous from the state government. Rather, the head of the MTA is appointed by the Secretary of Transportation with the approval of the Governor. Md.Transp.Code Ann. § 7-202. Moreover, the exercise of the MTA's powers and duties is subject to the authority of the Secretary and the Maryland Transportation Authority. Fourth, the MTA has the power to sue and be sued for its contracts and torts in its own name. Id. at § 7-204(b). Fifth, the MTA is empowered to contract for purposes of establishing, financing, and operating a regional transit system, id., at § 7-204(f), but this power to contract is subject to the final approval of the Board of Public Works. Md. Ann.Code, Art. 78A § 68. Sixth, the state legislature must authorize funds to pay any judgment against the MTA. Id. at Art. 78A § 16C.

      . Md.Transp.Code Ann. § 7-702(a) and (b) states:
      (a) Subject to subsection (b) of this section, the Administration is liable for its contracts and torts and for the torts of its officers, agents, and employees in connection with the performance of the duties and functions of the Administration under this title.
      (b) The exclusive remedy for a breach of contract or for a tort committed by the Administration, its officers, agents, or employees is a suit against the Administration. No execution may be levied on any property of this State or of the Administration.