author: GESELL, District Judge.

text:
    MORRISON-KNUDSEN COMPANY, INC., Plaintiff, v. DEPARTMENT OF THE ARMY OF the UNITED STATES, et al., Defendants.
    Civ. A. No. 83-2835.
    United States District Court, District of Columbia.
    May 3, 1984.

      Loren Kieve, Robert D. Wallick, Jeffrey P. Moran, Washington, D.C., for plaintiff.
    John H.E. Bayly, Jr., Asst. U.S. Atty., Washington, D.C., for defendants.
   MEMORANDUM

GESELL, District Judge.

This Freedom of Information Act (FOIA) complaint involves the applicability of Exemption 5 to certain documents being withheld by the Army Command at Fort Benning, Georgia. Cross-motions for summary judgment were denied and an expedited evidentiary hearing to clarify disputed material facts was held on March 30, 1984. Several witnesses were heard, numerous exhibits received, and the issues have been thoroughly briefed. The exemption claimed is sustained by reason of the following findings of fact and conclusions of law.

After full administrative review, Morrison-Knudsen Company, Inc. (M-K) was denied the five disputed documents on May 12, 1983, and filed its complaint herein on September 26, 1983. At the time release of the documents was denied, M-K was advised that the government would soon solicit offers and conduct negotiations with private business pursuant to OMB Circular A-76 (Revised) (Plf Exs. 6, 7) for performance of the activities currently being conducted by the Army’s Directorate of Engineering and Housing at Fort Benning. See Plf. Exs. 3, 5. The Army is now expected to issue invitations within a month for competitive bids on a cost-plus-work-fee negotiated procurement for performance of the extensive and varied functions involved. M-K and the Army are prospective bidders to undertake the work.

Under the A-76 program private firms must compete in the bidding process with the Army’s own sealed “bid” of its estimate of the cost of continuing to perform the work involved in-house. Fort Benning is now in the process of preparing its bid, which will be based on its own historical costs with possible adjustments in some relatively minor respects to account for future anticipated cost savings. Much of this historical cost data can be determined from the documents M-K seeks, and the Army will rely on these documents to a significant degree in preparing its bid.

The Army intends to release the documents sought by M-K to all bidders after bids are opened and an award made. M-K wants the documents released now. The Army argues that release at this time would enable M-K to anticipate the Army’s bid fairly closely and would thus have an adverse effect upon the procurement and the benefits expected from the competitive process. Under such circumstances, the Army contends, Exemption 5 permits release of the documents to be delayed.

The application of Exemption 5 has most recently been discussed by the Supreme Court in United States v. Weber Aircraft Corp., — U.S. -, 104 S.Ct. 1488, 79 L.Ed.2d 814 (1984). The Court made clear that “Exemption 5 simply incorporates civil discovery privileges,” and “withholds from a member of the public documents which a private party could not discover in litigation with the agency.” — U.S. at-, 104 S.Ct. at 1492. “The test under Exemption 5 is whether the documents would be ‘routinely’ or ‘normally’ disclosed upon a showing of relevance.” Id. (quoting FTC v. Grolier, Inc., 462 U.S. 19, 103 S.Ct. 2209, 2214, 76 L.Ed.2d 387 (1983)).

Under F.R.Civ.P. 26(c)(7), “a trade secret or other confidential research, development, or commercial information” can be protected from discovery. In the context of a government procurement program, “[t]he theory behind a privilege for confidential commercial information generated in the process of awarding a [government] contract ... is ... that the Government will be placed at a competitive disadvantage or that consummation of the contract may be endangered.” Federal Open Market Committee v. Merrill, 443 U.S. 340, 360, 99 S.Ct. 2800, 2812, 61 L.Ed.2d 587 (1979). If the government documents sought in the FOIA request “contain sensitive information not otherwise available, and if immediate release of these [documents] would significantly harm the Government’s monetary functions or commercial interests, than a slight delay in [release] ... would be permitted under Exemption 5.” 443 U.S. at 363, 99 S.Ct. at 2813.

The Court must thus determine whether the documents sought “contain sensitive information not otherwise available” which would “significantly harm” the A-76 program if released prior to submission of bids.

The documents at issue are not classified. They have been regularly prepared as required by Army-wide regulations for many years, and have been distributed at the managerial level at Fort Benning on a “need to know” basis for official use. The practice at other bases has varied as far as release of the material to the public is concerned, and indeed different services within the military apparently have differing practices in this regard. Within the Army discretion to withhold or release this information is currently left to those at the base level. Some Army bases apparently have released some or all of this information; others have not. At Fort Benning the documents at issue have not been released to the general public.

Although the Army’s practice concerning release of these types of documents has not been consistent service-wide, the Court concludes that the particular information sought in this action has not been made “otherwise available.” Release of similar documents at other bases is of little relevance. The actual data contained varies from base to base. Moreover, since it is the pendency of an A-76 Program bid which creates the reason for temporarily withholding these documents, the fact that they have been released at bases where no such program is in immediate contemplation is neither surprising nor relevant.

Even with regard to only those bases where such a program might be in the offing, plaintiff has offered no explanation for why the Army must reach the same determination concerning disclosure in every instance. Indeed, consideration of the concerns enunciated in Merrill might lead to differing conclusions in different situations. In one instance the information might already be generally known through other means, or its disclosure might do little or nothing to compromise the government’s bid given the specific circumstances of the particular A-76 bid at issue. In other instances, however, release of the documents sought might place previously unavailable information in the hands of bidders who could use it to the competitive disadvantage of the government’s in-house bid, in which case the government would have a legitimate reason for withholding those documents. Release of similar documents at bases other than Fort Benning thus cannot serve to constitute “release” of documents relating to Fort Benning, and since the particular documents at Fort Benning have not themselves been made “otherwise available,” the withholding of those documents is proper if release would place the government at a competitive disadvantage or endanger the procurement process in some other manner.

While the papers being withheld will not reveal the precise bid to be made by the Army against M-K’s prospective bid, the evidence shows that they will enable an informed bidder such as M-K to make a closer approximation than would be possible on the basis of the information to be released with the bid invitation and other available data. See Timken Co. v. United States Customs Service, 491 F.Supp. 557, 559 (D.D.C.1980). The Court therefore accepts the Army’s view that in this instance release may not only chill competition and place the Army at a “competitive disadvantage” in “bidding” to continue doing the work in-house, but might also discourage commercial firms from taking the initiative to come forward with more innovative techniques for cutting costs in the hope of underbidding a more uncertain Army “bid.” The Army has thus met its burden in this particular instance of demonstrating sound reasons to protect the commercial information being sought by M-K.

Under the Rule 26(c)(7) standard approved by the Supreme Court a trial court has discretion to develop procedures that will protect confidential information as far as feasible consistent with the need to ensure fairness to all parties. Absolute protection of commercial data that will lead to relevant evidence is rare; usually the Court will control the manner or timing of the disclosure. If, on the eve of a competitive bidding, a party sought access to internal commercial papers of a competing bidder which would enable it to determine more closely how the competitor might be expected to bid, surely a Court in the exercise of its discretion would at the very least seek to delay discovery until potential harm to the competitive bidding process had passed.

The same considerations lead the Court to conclude that in this case a temporary delay in release of the documents is appropriate. Here the records sought by M-K will soon be made public once bids are filed under seal and an award made. Thus the ultimate purpose of public disclosure envisioned by FOIA can be achieved while the agency’s need to protect its commercial information for a short period is recognized. Temporary delay of disclosure is therefore the proper course.

The Court has heeded the Supreme Court’s admonition in Merrill that a claim of commercial privilege based on anything other than executive privilege or the attorney-client privilege must be viewed “with caution” when arising in the context of Exemption 5. Merrill, 443 U.S. at 355, 99 S.Ct. at 2809. However, given the long tradition of carefully maintained fairness in competitive government procurement programs, the use of FOIA to unsettle well-established procedures governed by a comprehensive regulatory scheme must also be viewed not only “with caution” but with concern. Premature disclosure could, in the long run, discourage documentation of internal cost-related data and thus impede “frank and open discussion and hence efficient governmental operations.” Weber Aircraft, — U.S. at -, 104 S.Ct. at 1494. More immediately, it will place the Army at a competitive disadvantage with respect to the Current A-76 if the information is released before bids are opened and an award made. If the Army does not proceed expeditiously with the competitive bid invitation, M-K may seek to reopen.

Nothing in the foregoing shall, of course, prevent the contracting officer from releasing any data in these papers to all prospective bidders should he determine such to be appropriate.

The Clerk of Court shall enter judgment for defendant.

      . Under 5 U.S.C. § 552(b)(5), the government is not required to release under FOIA "inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency."

      . At trial the Court reserved ruling on the admissibility of Plf. Exs. 24, 25, and 26. The Court now rules that this testimony is admissible under F.R.Civ.P. 32(a) and Fed.R.Evid. 801(d)(2)(D). Pursuant to F.R.Civ.P. 32(a)(4) and Fed.R.Evid. 106, defendant was offered an opportunity by post-trial submission to supplement the deposition excerpts and chose not to do so.

      . Examples of the type of documents sought were presented in defendants’ exhibits A through E. These documents included a "Schedule X” reflecting manpower distribution by staffing and workload; "Table of Distribution and Allowance (TDA)" reflecting staffing of functions and salary costs; "Unconstrained Requirements Reports (URR)" listing required maintenance and repairs with accompanying cost estimates; "Annual Work Plans (AWP)” giving employee and cost data; and “Backlog of Maintenance and Repair (BEMAR),” a table of maintenance requirements performed in-house, contracted out, and left undone.

      . The Army has recently initiated development of a regulation to govern withholding of this information, but no regulation presently prohibits or authorizes release.

      . Oral testimony presented at the hearing established that on occasion portions of older versions of the documents sought here were posted on office bulletin boards where they might be seen by those with access to the base. Such apparently unauthorized posting of now outdated material, however, does not equate to release of current information which the government has obviously kept confidential.

      . In this regard see Plf. Ex. 19 ("In this case, the Army has decided these factors [enunciated in Merrill ] do not justify withholding the information.” [emphasis added]).

      . M-K, like some other bidders, is aided by a former government marketing officer versed in Army policy, objectives and internal procedures.


source: Caselaw Access Project

author: LIMBAUGH, District Judge.

license: Public Domain

text:
    SCNO BARGE LINES, INC., Plaintiff, v. SUN TRANSPORTATION CO., INC. a corporation, and the United States of America, Defendants.
    No. 81-1555 A (5).
    United States District Court, E.D. Missouri, E.D.
    May 14, 1984.

      John S. Sandberg, Shepherd, Sandberg & Phoenix, St. Louis, Mo., for plaintiff.
    Gary T. Sacks, Goldstein & Price, Joseph B. Moore, Asst. U.S. Atty., St. Louis, Mo., Stephanie J. Grogan, Civ. Div., Torts Branch, U.S. Dept, of Justice, Washington, D.C., for defendants.
   MEMORANDUM OPINION

LIMBAUGH, District Judge.

This matter is before the Court for a decision on the merits after trial to the Court, sitting in admiralty. Plaintiff brought this action for damages to its barges against defendant Sun Transportation Company, alleging negligence in the towing of its barges on October 30, 1980, on the Missouri River, and against the United States under the Suits in Admiralty Act, 46 U.S.C. § 741 et seq. alleging negligence of the United States, acting through the Coast Guard and the Corps of Engineers, in the proper maintenance of the waterway. Both defendant Sun Transportation and the United States (hereinafter referred to as defendant Government) have filed cross-claims.

After consideration of the testimony and exhibits introduced at trial, and the parties’ stipulations and briefs, the Court makes the following findings of fact and conclusions of law in accordance with Rule 52 Federal Rules of Civil Procedure.

Plaintiff, SCNO Barge Lines, Inc. (SCNO) is a corporation duly organized and existing under law and is the owner or operator of Barges SCNO 1535, SCNO 1446, SCNO 1322, SCNO 1483, SCNO 1434, SCNO 1450 and FUJA 106. The barges are 195 feet long by 35 feet wide. At all relevant times, the barges were being towed pursuant to a charter contract between plaintiff and defendant Sun Transportation.

Defendant Sun Transportation Company, Inc. (Sun), is a corporation duly organized and- existing under law and is the owner and operator of the M/V DAN C. BURNETT, a river towboat which is 162 feet long and 45 feet wide and which is powered by four diesel engines which develop a total of 5600 horsepower. The M/V DAN C. BURNETT is equipped with radios, radar and fathometer (depth finder) as well as all other required navigational equipment. The M/V DAN C. BURNETT is in all respects seaworthy.

The United States of America is a sovereign nation which, through its agencies, the Corps of Engineers and Coast Guard, maintains and marks with buoys the navigable channels of the Missouri River.

At all relevant times, that portion of the Missouri River which was the scene of the accident is commonly referred to as Mile 246. It is located at Bushwacker Bend, just downstream from the confluence of the Grand and Missouri Rivers.

Mile 246 has, at times, what is known as a “moving bottom” (sediment carried in and out of river floor) and shoals (build-up of sediment) which rise and fall intermittently within a matter of a few hours.

Both the Coast Guard and the Corps of Engineers provide a variety of certain services to assist navigation on the Missouri River. Both agencies attempt to maintain and mark where necessary, without dredging, a navigable channel of approximately 9 feet in depth and 300 feet in width. Marking a navigable channel usually is done by placement of buoys and other marking devices called nuns. Black buoys mark the righthand extreme and red nuns mark the lefthand extreme of deep water as a vessel proceeds downbound on the Missouri River. Chief Parsons (Coast Guard Chief of Aids to Navigation) testified that the Coast Guard is aware of the heavy reliance placed by mariners upon the accuracy of the buoys and that buoys are re-checked more often in known problem areas.

Both agencies regularly patrol the river, “sounding” it so as to ascertain conditions relevant to navigation. The findings by these patrols are reported under certain standardized procedures.

With respect to the Coast Guard, the findings of its patrols are published weekly in its Local Notice to Mariners and broadcasted at regular intervals on the Coast Guard radio station. Captains Oberle and Herbst (pilots on the M/V DAN C. BURNETT) testified that they regularly tuned in to these broadcasts.

With respect to the Corps of Engineers, channel inspectors prepare reports in instances where, during the course of sounding, they find less than 9 feet of water depth in the navigation channel. These findings are relayed to the Corps office in Napoleon, Missouri. Commercial vessels regularly check in with the Corps office and receive information concerning river conditions. The Corps also prepares Boat Reports, a daily compilation of information regarding river conditions. The DAN C. BURNETT was in contact with the Corps office on a virtual daily basis prior to October 30, 1980.

The Corps of Engineers also prepares written steering directions which describe shallow areas of the river discovered during sounding. These steering directions are transmitted to vessels through “mail boxes” strategically placed along the river. Captains Oberle and Herbst testified of their knowledge and customary use of these mailboxes.

In addition to providing radio reports and steering directions, the Corps occasionally stations a boat at known trouble spots on the river. The deposition testimony of Channel Inspectors and Channel Boat Operators Vanderwerken, Nolte and Bower reveal the customary practice of the Corps to station a vessel to assist towboats in an area where at least six groundings in a one-month period had occurred. Captains Oberle and Herbst testified of knowledge of this practice.

At least six groundings occurred in the area of Mile 246 of the Missouri River, within a one month period, prior to the October 30, 1980 grounding of the DAN C. BURNETT.

The Corps of Engineers had a regular vessel assigned to an area of the Missouri River which included Mile 246 during the months of September, October and November, 1980. The vessel sounded the channel and issued information regarding same.

Mile 246 was within the assigned area of the Coast Guard Cutter OBION, a buoy tender, during the time period in question.

On October 26, 1980, the Coast Guard Cutter OBION sounded Mile 246 and set buoys marking a navigation channel.

On October 27, 1980, the DAN C. BURNETT, with barges in tow, grounded at the lower end of Mile 246. Captain Oberle reported the grounding to the Coast Guard and to the Corps of Engineers. The Coast Guard Cutter OBION sounded and re-buoyed the area on October 28, 1980. A Local Notice to Mariners was released and a broadcast dispatched (No. 3901-80) as follows:

Shoaling previously reported from Mile 246.0 to Mile 246.8 MOR (Missouri River) has been remarked and rebuoyed. Mariner transitting [sic] this area from Chariton DM [daymark] 246.8 L/B [left bank] down to a white flag approx. 300 ft. Then cross to a R/B temp DMK [right bank temporary daymark] approx. 200 yrds. above Bushwacker Lt. [light] 246.0 R/B with a channel width of 200 ft. wide, channel rebuoyed with 3 black cans 8 ft. and 2 red nuns 8V2 ft. Waverly gauge reading 11.3R. 28 October 80.

The Corps of Engineers issued a channel report and steering directions stating that the Corps had found a depth of 8V2 feet for a length of 300 feet at Mile 246 on October 28, 1980.

On October 30, 1980, the DAN C. BURNETT was downbound on the Missouri River with 9 loaded barges in tow. The deepest reported draft of the barges in tow was 8 feet 3 inches.

On the morning of October 30, 1980, the DAN C. BURNETT, with its tow, passed the Coast Guard Cutter OBION. Captain Oberle had radio contact with Captain Pierce of the OBION as the OBION was going upstream. Also that morning, the DAN C. BURNETT had radio communication with the M/V LESTA K, several hours after the LESTA K had passed through Mile 246 going upstream.

On October 30, 1980, at some point in time in the afternoon, the DAN C. BURNETT, piloted by Captain Herbst, grounded approximately in the middle of the marked navigation channel at Mile 246.

The following barges were damaged in the accident of October 30, 1980: SCNO 1434, SCNO 1535, SCNO 1483, SCNO 1446, FUJA 106, SCNO 1450 and SCNO 1322. Barges SCNO 1434, SCNO 1322 and FUJA 106 were repaired following the accident. SCNO 1535, SCNO 1483, SCNO 1446 and SCNO 1450 have not had permanent repairs made as a result of the damages sustained on October 30, 1980.

Shortly after the October 30, 1980 grounding, the Corps of Engineers sounded the area and discovered 5V2 feet to 6 feet of water within the navigation channel. The Coast Guard investigation revealed the proximate cause of the accident to be reduction of the water depth (to below 9 feet) due to shoaling.

The Court finds the stipulated damage summary in the amount of $60,918.93 to be fair and accurate. This includes damage to the following barges: SCNO 1434 — $7,280.28, SCNO 1535 — $2,430.42, SCNO 1483 —$11,873.00, SCNO 1446 — $250.00, SCNO 106 — $37,540.85, SCNO 1450 — $600.00 and SCNO 1322 — $944.38. The Court further finds only two repair bills to be in dispute: a cleaning charge of $1,525.00 and a billing for the repair costs on Barge SCNO 1322 in the amount of $37,656.44.

This is an admiralty and maritime claim within the meaning of Rule 9(h), Federal Rules of Civil Procedure, and this Court has jurisdiction thereof pursuant to 28 U.S.C. § 1333.

Plaintiff seeks to impose liability upon both defendants in this case on related theories. Firstly, plaintiff avers that the government should have advised the M/V DAN C. BURNETT that the buoys re-set at Mile 246 on October 28, 1980 were unreliable as of October 30, 1980 or that Mile 246 was experiencing rapid shoaling and a moving bottom. Secondly, plaintiff avers that defendant Sun Transportation should have been aware of the unreliability of the buoys at Mile 246 and that the channel was moving. The government denies any mandatory legal duty to have supplied such information to the M/V DAN C. BURNETT and that defendant Sun Transportation was solely negligent in its decision as to manner of navigation through Mile 246. Defendant Sun Transportation denies any liability because it avers that it navigated into a marked channel and hit an unknown obstruction. Defendant Sun Transportation further avers that its decision as to navigation of Mile 246 was based upon reliance on the Coast Guard and Corps of Engineer’s established practices pertaining to buoyage, dissemination of navigation information and placement of vessels at problem areas to assist commercial tows.

A tug also known as a motor vessel (M/V) or towboat, is not liable as an insurer or as a common carrier. Stevens v. The White City, 285 U.S. 195, 202, 52 S.Ct. 347, 350, 76 L.Ed. 699 (1932); Mid American Transportation v. National Marine Service, Inc., 497 F.2d 776, 779 (8th C 1974), cert. denied, 425 U.S. 937, 96 S.Ct. 1671, 48 L.Ed.2d 179 (1976). A tug owes its tow a duty to exercise the reasonable care and maritime skill that prudent navigators employ in performing similar services. Stevens, supra, Mid-American Transportation, supra, Consolidated Grain and Barge Co. v. Flowers Transportation, 538 F.Supp. 65, 71 (E.D.Mo.1982); Consolidated Grain and Barge Co. v. Wisconsin Barge Line, 522 F.Supp. 842, 847 (E.D.Mo. 1981); Mid-American Transportation Co. v. Gladders Towing Co., 492 F.Supp. 475, 477 (E.D.Mo.1980); Massman Construction Co. v. Sioux City and New Orleans Barge Lines, 462 F.Supp. 1362, 1365-1366 (W.D.Mo.1979); U.S. v. Federal Barge Lines, 433 F.Supp. 53, 56 (E.D.Mo.1977). The burden is on the plaintiff, as the party asserting negligence to prove it. Stevens, supra; Mid-American Transportation, supra; Consolidated Grain and Barge Co. v. Flowers Transportation, supra.

This standard of care was distinctly described by the Supreme Court in 1875:

“But the pilot of a river steamer, like the harbor pilot, is selected for his personal knowledge of the topography through which he steers his vessel. In the long course of a thousand miles in one of these rivers, he must be familiar with the appearance of the shore on each side of the river as he goes along. Its banks, towns, its landings, its houses and trees, and its openings between trees, are all landmarks by which he steers his vessel. The compass is of little use to him. He must know where the navigable channel is, in its relation to all these external objects, especially in the night. He must also be familiar with all dangers that are permanently located in the course of the river, as sandbars, snags, sunken rocks or trees or abandoned vessels or barges. All this he must know and remember and avoid.”

Atlee v. N.W. Union Packet Co., 88 U.S. (21 Wall.) 389, 396, 22 L.Ed. 619 (1875).

The issue before the Court as to defendant Sun is whether, under the circumstances of this case, Sun exercised the standard of care required by the Supreme Court and the 8th Circuit. The Court concludes that plaintiff has shown by the preponderance of the evidence that the captain and pilot of the DAN C. BURNETT in navigating Mile 246 did not exercise the reasonable care that a prudent tugboat navigator should have exercised.

While it has been established within the 8th Circuit that if a vessel, while inside a channel, strikes an unknown navigational obstruction, the vessel is not negligent, this is not the case here. Mid-American Transportation v. National Marine, at 779; U.S. v. Federal Barge Lines, at 57; Dairyland Power Cooperative v. Federal Barge Lines, 414 F.Supp. 40, 42 (E.D.Mo. 1976). The credible evidence shows that the shoaling at Mile 246 was not unexpected and that defendant Sun Transportation should have been on notice of its occurrence and taken precautions.

Captains Herbst and Oberle testified they knew Mile 246 to be particularly hazardous during October, 1980. There had been at least 6 prior groundings at Mile 246 within a month’s time; in fact, the DAN C. BURNETT had grounded at Mile 246 on October 26, 1980, just four days before the accident from which this suit arises.

Although aware of Mile 246’s propensity for rapid shoaling, defendant Sun seeks to justify its decision to navigate Mile 246 because it relied upon the buoys set and the information purportedly received from the Coast Guard and Corps of Engineers. Both Captains Herbst and Oberle testified that their reliance on buoys is not absolute; they understood that buoys are simply navigational aids, not guarantees of a navigable channel. Captain Herbst admitted that several factors influence his navigation decisions such as river reports by the Coast Guard, Corps of Engineers, or other commercial vessels and the length of time passed since a buoy had been set. He testified that he knew shoaling could take place in as little as two hours. He further testified that the Channel Report issued by the Corps of Engineers on October 28 only referred to the status of Mile 246 as of October 28.

In Atlee, the Supreme Court detailed what a towboat pilot.needs to take into account when making navigational decisions. The navigators of the M/V DAN C. BURNETT knew that Mile 246 was not a portion of the Missouri River that was easily navigated during October, 1980. Information supplied to defendant Sun by the Coast Guard and Corps of Engineers through its navigational aids are to be utilized by mariners. Yet such information is not to be relied upon solely. See 33 C.F.R. § 62.15-1 which warns mariners that navigational aids are generally reliable but not infallible. Based upon the information available to Captains Herbst and Oberle, as well as their personal knowledge and experience navigating the area, they should have known that rapid shoaling and a moving bottom could probably cause grounding, which is precisely what occurred.

Even though the credible evidence establishes the liability of defendant Sun Transportation, the Court concludes that defendant Sun Transportation does not stand alone in responsibility for the grounding on October 30, 1980. The government also breached its duty of due care owed to mariners on the Missouri River.

The Suits In Admiralty Act (46 U.S.C. §§ 741 et seq.), under which this complaint was filed, equates the standard of duty owed by the tow to that of a private person in like circumstances, i.e. a standard of due care. Canadian Pacific Ltd. v. U.S., 534 F.2d 1165, 1168 (5th C 1976). This standard is applicable to government agencies such as the Coast Guard and Corps of Engineers. Transorient Navigators v. M/S Southwind, 714 F.2d 1358, 1364 (5th C 1983); Teich v. U.S., 500 F.Supp. 891 (D.Ill.1980).

Generally, the responsibility of the Coast Guard with respect to the establishment, maintenance, and operation of aids to maritime navigation is set out in 14 U.S.C. §§ 2 and 81(1). 14 U.S.C. § 81(1) reads as follows:

“In order to aid navigation and to prevent disasters, collisions, and wrecks of vessels and aircraft, the Coast Guard may establish, maintain and operate aids to maritime navigation required to serve the needs of the armed forces or of the commerce of the United States.”

Detailed regulations regarding the Coast Guard’s responsibilities in connection with aids to maritime navigation are set forth in 33 C.F.R. §§ 60.01-1 through 72.05-10.

The majority of the courts have found that 14 U.S.C. § 81(1) does not impose a mandatory duty upon the Coast Guard to establish navigational aids. This function is left to the Coast Guard’s discretion. Indian Towing Co. v. U.S., 350 U.S. 61, 76 S.Ct. 122, 100 L.Ed. 48 (1955); Afran Transport Co. v. U.S., 309 F.Supp. 650 (D.N.Y.1969), aff’d on other grounds 435 F.2d 213 (2nd C 1970) cert. denied 404 U.S. 872, 92 S.Ct. 72, 30 L.Ed.2d 116 (1971). Whether the function of establishing navigational aids is regarded as mandatory or discretionary, it is generally held that once the Coast Guard has exercised this function, it is obligated to use due care in maintaining the navigational aids established. Indian Towing, supra; Afran Transport, supra; Agri-Trans Corp. & Barry Rose v. M/V Clarence G. Frame, Ingram Barge, and U.S., (E.D.Mo. — unpublished decision, J. Wangelin, Dec. 30, 1983).

The Court finds that under the circumstances here, the Coast Guard did breach its duty of due care in the maintenance of a safe waterway. At least six groundings in one month’s time occurred at Mile 246 (prior to October 30, 1980 grounding) yet not one safety report stating the unreliability of the buoys due to rapid shoaling was issued. After the re-setting of the buoys on October 28, no notice in regards to rapid shoaling was broadcast, even though the channel had shifted in less than 24 hours and there was reason to believe it would continue to do so.

The testimony of the Coast Guard’s own officers clearly indicates that its own policies and established practices were not followed in this particular instance. Annex K of the 2nd Coast Guard District Operation Plan sets forth the policies and practices of the Coast Guard in order that it may “facilitate the safe and economic movement of marine transportation.” Appendix 2 (to Annex K) outlines the “minimum standards for frequency of service”, in regards to the scheduling and frequency of patrols. Aids on the Missouri River are patrolled (at a minimum) every twelve days. Appendix 4 deals with the setting and maintenance of buoys. The Coast Guard recognizes that “most buoys in this district are subject to an ever-changing adverse swift water environment” but because buoys are “of primary importance to the pilot on the Western Rivers”, a “constant effort” must be made to maintain a reliable floating aids system. Furthermore, because buoys are heavily relied upon by pilots despite their instability due to an adverse water environment, the Coast Guard has set forth certain discrepancy response guidelines. Appendix 5 prescribes the policy for responding to aids to navigation discrepancies in the 2nd district. Defendant Sun places great emphasis on this portion of Annex K (especially 2(a)(1)) as forming the basis for the government’s responsibility. The relevant part reads as follows:

2. PRIORITY DISCREPANCY RESPONSE CRITERIA
a. Discrepancies which fall under one or more of the following categories shall be corrected within 24 hours: All discrepancy reports shall be fully documented or verified before a Group Commander dispatches a servicing unit.
(1) When it is reported that buoys marking an entire crossing or section of a river are missing or off position, or that there is serious shoaling or that the channel has shifted to the extent that established aids do not mark the channel or that there are long delays or a backup of traffic and/or multiple groundings in the area.

The government claims that Appendix 4, Section 2(a)(1) requires notice that the conditions in the buoyed channel have changed since the last time the buoy was set. It is contended that since no one had actually reported serious shoaling between October 28 and October 30, Captain Pierce was not obligated to deviate from the routine 12-day patrol cycle. The Court cannot agree with such an interpretation of this section. Appendix 5’s primary purpose is to provide guidelines for response to a potentially dangerous situation. Captain Pierce was fully aware of the serious shoaling at Mile 246 and personally on notice that the shoaling was definitely affecting the reliability of the buoys set. There was every indication that since serious shoaling had been constant and the buoys set on October 26 were unreliable on the 28th, that the buoys re-set on the 28th would also be unreliable again forty-eight hours later. The Coast Guard Cutter OBION was within the vicinity, only 18 miles away at one point. Resetting the buoys, at least on October 29 would not have been a hardship on the Coast Guard and certainly within the mandate of Annex K.

The Corps of Engineers also breached its duty of due care owed to mariners. 33 C.F.R. § 209.325(g)(s) and (n) require the Corps of Engineers to disseminate detailed information regarding channel conditions, especially uncharted shoals. The Missouri River is regularly sounded and the results are transcribed into channel reports. Channel Inspectors Nolte, Vanderwerken, and Bower (deposition testimony) testified that Mile 246 was a particularly bad spot during October, 1980 and had to be sounded at least ten times (much more than usual). Captains Herbst, Oberle and Carroll testified that channel reports routinely include channel depth and information pertaining to shoaling and moving river bottoms. The evidence also indicates that these channel reports are heavily relied on by navigators on the Missouri River. There was also testimony about the Corps of Engineer’s customary practice of stationing a vessel at known trouble spots on the river.

The last channel report (prior to the October 30 grounding) was issued by the Corps of Engineers launch OSAGE III on October 28. That channel report only stated the depth of the channel — 8V2 feet deep. The report contained nothing about shoaling or the moving river bottom at Mile 246. The omission of such information rendered this channel report inaccurate and misleading.

Information regarding rapid or serious shoaling and a moving river bottom is vital to a pilot’s navigation decision. The failure to issue a channel report with this information constitutes a breach of the Corps of Engineer’s duty in advising pilots under its own regulations.

Although the parties stipulated plaintiff’s substantial damages in an amount of $60,918.93, two repair bills, both regarding SCNO Barge 1322, remain in dispute. Plaintiff has presented a cleaning bill in the amount of $1,525.00 and a repair bill in the amount of $37,656.44. Defendant Sun disputes the cleaning bill and will only acquiesce to a repair estimate of $13,312.00.

All the parties agree that Barge 1322 had old bottom and bildge knuckle damage, i.e. damage sustained prior to the grounding on October 30, 1980. The issue is the extent of the new damage and whether the cleaning and repair bills reflect work due solely to the grounding on October 30, 1980. A primary point of contention appears to be the damage sustained in the bowrake compartment of the barge. Plaintiff asserts that the repair bill is only for damages sustained in the grounding and this includes damage to the bowrake compartment. Defendant Sun asserts that the only damage sustained by Barge 1322 was on the port side of the stern and in the area of the major holing in the starboard No. 1 wing compartment.

Plaintiff supports its damages by the deposition testimony of Captain Clemmons Zane. Captain Zane is a marine surveyor of 10-12 year’s experience with over 40 years in various aspects of the marine industry. He has done barge surveys before, although not extensively. On January 19, 1981, he surveyed (along with defendant Sun’s expert, Stanhope Hopkins) Barge 1322 while it was drydocked. His report reflects his findings without any pri- or information regarding Barge 1322 from plaintiff. Essentially his findings are similar to Mr. Hopkins, findings, except as to the damage of the bowrake compartment. He believes that the barge did strike and slide along the dike, thereby damaging the bowrake compartment, as evidenced by the presence of water (found in barge by plaintiff SCNO when it received it from defendant Sun 12 days after the grounding). He determined that the damage, attributable solely to the grounding, amounted to $37,-000 or more. He further testified that he believed Mr. Hopkins’ contrary findings are premised on adoption of the findings made by defendant Sun’s other marine surveyor, Mr. Steven Lindsay.

Mr. Lindsay surveyed Barge 1322, on November 1, 1980, while it was still at Mile 246. Mr. Lindsay has been in the marine industry for approximately 10 years; 4 years as a marine surveyor and 6 years as a deckhand or mate. He has made several hundred barge surveys. He inspected the barge while it was still loaded and could not view the bottom plate. Although his report makes no mention of the presence of water, he testified both at deposition and later in court to water in the barge. He further testified that he was told by either the captain or the pilot of the towboat that there had been no water in Barge 1322 prior to the grounding.

Defendant Sun concedes that there was water present in the bowrake compartment but avers that the water entered the bow through an old crack in the bulkhead. The Court finds no credible evidence to support this explanation. After reviewing the reports and all the experts’ testimony, the only supported fact is that there was no water in the bow before the grounding but there was water in the bow after the grounding. The Court further finds that the origin of the damage repaired on Barge 1322 is the grounding on October 30, 1980 as testified to by Captain Zane. Mr. Lindsay never saw the barge below the river line and he testified to omissions in his report. Mr. Hopkins’ only disagreement with Captain Zane was as to the damage in the bowrake compartment but Mr. Hopkins was basing his findings on Mr. Lindsay’s inconclusive report. The evidence adduced supports plaintiff’s repair bill of $37,656.44.

On the other hand, the evidence presented does not support plaintiff’s cleaning bill of $1,525.00 for Barge 1322. Although Captain Zane testified to the necessity of cleaning before the repair work, there was evidence that the cleaning was required due to a cargo change from soybean to molasses. Plaintiff failed to carry its burden of showing by a preponderance of the evidence that the cleaning was a necessary pre-requisite to the repair work on Barge 1322. Therefore, the cleaning costs for Barge 1322, in the amount of $1,525.00 will be disallowed.

The next issue to be addressed is the award of prejudgment interest against both defendants. The general rule in admiralty cases is that prejudgment interest should be awarded absent exceptional circumstances. Consolidated Grain and Barge Co. v. Archway Fleeting and Harbor Service, 712 F.2d 1287, 1290 (8th C 1983); Federal Barge Lines, Inc., v. Republic Marine, Inc., 616 F.2d 372, 373 (8th C 1980); Mid-American Transportation Co. v. Rose Barge Lines, 477 F.2d 914, 916 (8th C 1973); Ohio River Co. v. Great Lakes Carbon Corp., 562 F.Supp. 61 (E.D. Mo.1982) 714 F.2d 63 (8th C 1983) (reversed in part on other grounds); Ohio River Co. v. Peavey Co., 556 F.Supp. 87 (E.D.Mo. 1982). Prejudgment interest is to be computed from the time expenditures for repairs were actually made, i.e. the time of payment. Federal Barge Lines v. Republic Marine, at 373; Mid-American Transportation Co. v. Cargo Carriers, Inc., 480 F.2d 1071, 1074 (8th C 1973); Mid-American Transportation v. Rose Barge, at 916.

Although the rationale behind an award of prejudgment interest is restitution and full compensation, the setting of the prejudgment interest rate is discretionary with the court. Federal Barge Lines v. Republic Marine, at 373; US. v. M/V GOPHER STATE, 614 F.2d 1190 (8th C 1980); Mid-American Transportation v. Rose Barge, at 916; Ohio River v. Peavey, at 93. This Court is not bound by the forum state statutory interest rates. Id. Plaintiff contends that the prevailing interest rate at the time repairs were made was 14.4%. Defendant Sun contends that the usual prejudgment interest rate in the Eastern District of Missouri is 10%. It has been held in this circuit that the prejudgment interest rate should be fixed at a rate in keeping with prevailing rates at the time repairs were made. General Facilities, Inc. v. National Marine Service, Inc., 664 F.2d 672, 674 (8th C 1981); Federal Barge Lines v. Republic Marine, at 373-374; US. v. M/V GOPHER STATE, at 1190; Ohio River v. Peavey, at 93. These cases held that prevailing rates were a guide to the Court and that the Court should consider the prevailing rates along with the evidence adduced, in setting the prejudgment interest rate. Id. If the evidence established the prevailing rate as fair and reasonable, then the prejudgment interest was so fixed, otherwise the Courts usually set 10% as being fair and keeping with prevailing rates. Id.

Plaintiff has not submitted any evidence to support its contention that the prevailing rate at the time repairs were made was 14.4% or whether this was the average prime rate or simply the lending rate available to it. In fact, defendant Sun asserts that plaintiff did not borrow money to make repairs and plaintiff has not denied this assertion. This Court is not convinced that 14.4%, as the prevailing interest rate at time repairs were made, is the proper standard at which to fix the prejudgment interest award. Prejudgment interest therefore will be awarded at a rate of ten percent (10%) per annum. This rate is sufficient to compensate the plaintiff fairly and shall be computed from the date repairs were made on each barge jn question.

Prejudgment interest shall only be recovered against defendant Sun. In an admiralty action against the United States brought under the Suits in Admiralty Act, 46 U.S.C. § 741 et seq., prejudgment interest may be awarded. Specifically, Section 743 allows for a maximum of 4% per annum to run as ordered by the Court. The language in Section 743 is not mandatory either to allowance of prejudgment interest or as to the period of computation, therefore this Court chooses not to award plaintiff prejudgment interest against the government. See, Richmond Marine Panama, S.A. v. U.S., 350 F.Supp. 1210 (D.N.Y.1972).

Based upon the stated law and the Court’s findings of fact, liability for the grounding of the DAN C. BURNETT on October 30, 1980, is to be apportioned between the defendants at a ratio of 40% against the government and 60% against the defendant Sun Transportation. In light of this determination, the Court will dismiss the crossclaims filed by each of the defendants. The following are plaintiff’s recoverable damages:

SCNO 1434 $7,280.28
SCNO 1535 2,430.42
SCNO 1483 11,873.00
SCNO 1446 250.00
SCNO 106 37,540.85
SCNO 1450 600.00
SCNO 1322 38,600.82
TOTAL DAMAGES $98,575.37

Of this sum, defendant Sun Transportation Co., Inc., shall be responsible for $59,145.23 with interest at the rate of 10% per annum from the time damages were paid by plaintiff and defendant United States of America shall be responsible for $39,430.14 with interest from the date of this opinion.


author: AUBREY E. ROBINSON, Jr., Chief Judge.

text:
    Thomas BENNETT, Plaintiff, v. Patricia A. BENNETT, Defendant.
    Civ. A. No. 80-2456.
    United States District Court, District of Columbia.
    May 29, 1984.
    Mark A. Bayer, Washington, D.C., for defendant.
    Melvin A. Marshall, Washington, D.C., for plaintiff.
   MEMORANDUM AND ORDER

AUBREY E. ROBINSON, Jr., Chief Judge.

Presently before the Court are cross motions for summary judgment as to liability in an action for tortious interference with child custody. Plaintiff Thomas Bennett, a resident of the District of Columbia, has brought this action against his ex-wife Patricia Bennett, a resident of Ohio, for interfering with his alleged lawful custody of the couple’s son Steven. Defendant Patricia Bennett counterclaims alleging the same tort for Plaintiff’s exercise of custody over their daughter, Monique. Plaintiff bases his claim on a District of Columbia decree awarding custody of Steven and Monique to him; Defendant claims under an Ohio decree rendering a judgment in her favor. Each parent requests compensatory and punitive damages in the amount of $525,000.

The determination of liability must, as always, turn upon the existence of a legal duty. In this case, the legal duty in question is that which flows from a valid state court custody decree. The Court finds no genuine issues of material fact to be in dispute and only one legal issue for the Court’s consideration. The legal question remaining before the Court is: which decree, Ohio or District of Columbia, is valid and effective before this Court, was violated and, therefore, gives rise to liability in tort?

The undisputed and material facts of this case began when Patricia and Thomas Bennett were divorced by the ex parte decree of the Court of Common Pleas, Trumbull County, Ohio in 1974. The divorce decree awarded custody of the couple’s three minor children to their mother Patricia and set $170.00 per month as child support from their father Thomas. That decree further ordered Thomas Bennett to pay $3,000.00 accumulated arrearage in temporary alimony and child support.

Mr. Bennett did not contest any portion of the Ohio decree. In fact, he acquiesced to the Ohio court’s judgment that Mrs. Bennett should have custody of their children until March 14, 1978 when he went to Ohio, took the two older children, Steven and Monique, and returned with them to the District of Columbia. Soon thereafter, he filed for legal custody of the two children in the Superior Court of the District of Columbia.

Mrs. Bennett moved to have the action dismissed, urging that the District of Columbia court lacked jurisdiction and that it was required to give full faith and credit to the Ohio judgment, thereby recognizing her right to custody. The Superior Court rejected these arguments, finding that it was not bound by law to give full faith and credit to the foreign custody decree and finding that it did have jurisdiction to determine the best interests of Steven and Monique because of their presence in the District of Columbia. Upon its consideration of the children’s best interests, the Superior Court awarded custody to Thomas Bennett.

In October 1979, Mrs. Bennett removed the children from their father’s home in the District of Columbia and took them back to Ohio. She did so knowing that the District of Columbia court had rejected her arguments and awarded custody to Mr. Bennett. Thomas Bennett has regained possession of Monique; Steven remains with his mother in Ohio. Defendant does not dispute that her action was in violation of the Superior Court decree. Instead, she argues that, as a matter of law, full faith and credit should have been accorded to the Ohio decree and that, therefore, the District of Columbia judgment should never have been entered.

It is Defendant’s position that the District of Columbia decree has no force or effect. The Court must disagree. Under the law of the District of Columbia, the Superior Court did have authority to award custody of children within the jurisdiction. In a recent decision, the District of Columbia Court of Appeals stated the relevant law in this way: “At the time of the proceedings below the District of Columbia was among a handful of jurisdictions that had not adopted the UCCJA [Uniform Child Custody Jurisdiction Act] and where, therefore, a child’s physical presence was sufficient to warrant the exercise of jurisdiction by our courts.” Albergottie v. James, 470 A.2d 266, 269 (D.C.App.1983). An earlier case, In re West, 245 A.2d 636, 638 (D.C. 1968), held that “[w]hen an earlier decree has been issued without full inquiry or when the second court has more facts available than were before the first court, the second court must consider the additional information and determine anew the question of custody.”

Accordingly, before awarding custody to Mr. Bennett, the Superior Court stated that “the rule with respect to awarding custody of children within the jurisdiction requires the Court to re-examine the best interests of the minors under all of the relevant circumstances presented.” The Uniform Child Custody Jurisdiction Act abrogates this rule. However, the District of Columbia did not adopt the UCCJA until March 10, 1983. See, D.C.Code § 16-4501 et seq. At the time that the Superior Court entered its judgment in favor of Mr. Bennett, the above rule was a correct statement of the law.

The Superior Court also correctly found that full faith and credit “was not controlling.” The Supreme Court has more than once declined to require that the full faith and credit clause of the United States Constitution be applied to child custody decrees, which are by nature ever-modifiable. See, e.g., Ford v. Ford, 371 U.S. 187, 83 S.Ct. 273, 9 L.Ed.2d 240 (1967); Kovacs v. Brewer, 356 U.S. 604, 78 S.Ct. 963, 2 L.Ed.2d 1008 (1958); May v. Anderson, 345 U.S. 528, 73 S.Ct. 840, 97 L.Ed. 1221 (1953); New York ex rel. Halvey v. Halvey, 330 U.S. 610, 67 S.Ct. 903, 91 L.Ed. 1133 (1947). The UCCJA should prevent the jurisdictional competition which resulted from the fact that the full faith and credit clause was not necessarily applied to child custody decisions. However, the present state of the law does not alter the fact that in 1979, when the decree was issued and when the tort occurred, the District of Columbia Superior Court entered a valid judgment.

The Court’s finding that the Superior Court decree was validly issued makes an analysis of the validity of the Ohio decree unnecessary. This Court is bound by the doctrine of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and its progeny to follow the law of the District of Columbia. Moreover, while the Court of Appeals decision remanding this case found that the “domestic relations exception” to diversity jurisdiction does not prevent this tort suit, it also stated that a determination of “the best interests of the children” should be left to the state courts. Bennett v. Bennett, 682 F.2d 1039, 1042-1043 (D.C.Cir.1982). The “best interests” of Steven and Monique were validly determined by the District of Columbia court. The tort occurred within this jurisdiction and injured a District of Columbia resident. There should be no question that local law applies. Therefore, the decree in favor of Thomas Bennett is valid before this Court.

When Defendant Patricia Bennett removed Steven from the District of Columbia, she violated Plaintiff’s custody rights under the decree which must be recognized by this Court; under the law of this Circuit, she can be made to compensate Plaintiff for the harm done. Hinton v. Hinton, 436 F.2d 211 (D.C.Cir.1970). For these reasons, summary judgment as to liability will be entered in favor of Plaintiff Thomas Bennett. Defendant’s motion is denied. Finally, a hearing shall be set in order to determine what further action is required in this case.


author: CANNELLA, Senior District Judge.

text:
    MARATHON ENTERPRISES, INC., Plaintiff, v. Irving FEINBERG, Samuel Mittlemark, and John “Doe”, as Executor for the Estate of Louis Mittelmark, Defendants.
    No. 83 Civ. 8533.
    United States District Court, S.D. New York.
    July 3, 1984.

      Baer Marks & Upham, New York City (Eugene R. Scheiman and Allan Dinkoff, New York City, of counsel), for plaintiff.
   MEMORANDUM AND ORDER

CANNELLA, Senior District Judge.

Defendants’ motion for summary judgment is granted. Fed.R.Civ.P. 56(b).

FACTS

On August 20, 1970, defendants transferred to plaintiff all outstanding shares of their wholly-owned corporation, Concourse Provision Company [“Concourse Provision”], in return for plaintiffs limited shares. Thereafter, Concourse Provision became a division of plaintiff. Following the Agreement and Plan of Acquisition [“August 1970 Agreement”] between the parties, defendants made a series of representations concerning the accuracy of certain financial statements. Specifically, defendants represented that Concourse Provision had “good and marketable title to all its property and assets shown on Exhibit 7 [accompanying financial statements].” Although the financial statements do not list individual properties, there are general entries for “machinery, equipment and office furniture.” Plaintiff asserts that machinery and equipment at three plants in the Bronx are included on the balance sheets of the August 1970 Agreement and are covered under defendants’ marketable title representations.

Upon execution of the August 1970 Agreement, plaintiff assumed the obligations of a 1969 lease [“1969 Lease”] entered into between Concourse Provision and Concourse Management Corporation [“Concourse Management”]. Concourse Management had title to the Bronx plants and leased the property to Concourse Division for a term of eleven years commencing January 1, 1970. In 1954, Concourse Management had previously leased Bronx property to Concourse Provision. The 1969 Lease recites that all machinery and equipment, physically affixed to the premises, is the property of Concourse Management as lessor and not Concourse Provision as lessee.

On February 24, 1978, plaintiff’s attorney wrote to one of the defendants concerning a problem with the 1969 Lease. On November 6, 1978, plaintiff's attorney sent one of the defendants’ copies of the 1969 Lease, acknowledging that plaintiff assumed the lease. After termination of the lease in December 1980, plaintiff vacated the premises and removed machinery and equipment. On February 9, 1981, Concourse Management advised plaintiff that it had breached the 1969 Lease by “holding over” beyond the term of the lease and by removing certain machinery and equipment attached to the premises which belonged to Concourse Management as fixtures.

In March 1981, Concourse Management commenced suit against plaintiff in New York Supreme Court for damages resulting from the removal of machinery and equipment from the Bronx plants. In the answer, plaintiff admits that it acquired Concourse Provision on August 20, 1970 and assumed all its rights and obligations, including those set forth in the 1969 Lease.

Plaintiff filed the instant action on November 23, 1983, alleging securities fraud, breach of contract and common law fraud arising from the August 1970 Agreement. Plaintiff alleges that each defendant made material misrepresentations, that Concourse Provision had good and marketable title to certain machinery and equipment affixed to the Bronx plants and suffered $10,131.15 in actual damages. Defendants assert that the action is barred by statutes of limitations.

DISCUSSION

Fraud

When a federally created right of action has no accompanying statute of limitations, the state law of limitations applies. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210 n. 29, 96 S.Ct. 1375, 1389 n. 29, 47 L.Ed.2d 668 (1976); Klein v. Bower, 421 F.2d 338, 343 (2d Cir.1970). Plaintiffs claim of federal securities law fraud rests on section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 for which there are no limitation periods. In actions alleging violations of these provisions, the Second Circuit has consistently applied the New York common law fraud statute of limitations. See Stull v. Bayard, 561 F.2d 429, 431 (2d Cir.1977), cert. denied, 434 U.S. 1035, 98 S.Ct. 769, 54 L.Ed.2d 783 (1978); Klein v. Shields & Co., 470 F.2d 1344, 1346 (2d Cir.1972); Hoff Research & Development Laboratories, Inc. v. Philippine National Bank, 426 F.2d 1023, 1026 (2d Cir.1970). Under New York law, claims of fraud must be brought within two years from the time plaintiff discovered or could have discovered the fraud with the exercise of reasonable diligence, or within six years of the fraud itself — whichever is later. N.Y.Civ.Prac.Law §§ 203(f), 213(8) (McKinney Supp.1984); see IIT v. Cornfeld, 619 F.2d 909, 928-929 (2d Cir.1980); Rice v. Baron, 456 F.Supp. 1361, 1367 (S.D.N.Y. 1978); Smith v. Sarkisian, 63 A.D.2d 780, 782, 404 N.Y.S.2d 911, 912 (3d Dep’t 1978), aff'd, 47 N.Y.2d 878, 392 N.E.2d 1257, 419 N.Y.S.2d 74 (1979).

It is clear that any fraudulent acts of misrepresentation occurred not later than August 20, 1970. This action was not filed until November 28, 1983, more than six years later. Plaintiff, by its own admission, discovered the alleged fraud no later than February 9, 1981, the date defendants advised plaintiff that it had breached the 1969 Lease. Plaintiff also could have discovered the alleged fraud with reasonable diligence as early as 1970 when it assumed responsibility and possession of the 1969 Lease. In either event, the action was commenced more than two years after plaintiff’s “discovery” of the fraud. Thus, plaintiff has failed to bring its fraud claims within the requisite time periods, thereby making its claims time-barred. The only remaining question is whether plaintiff’s breach of contract claim can survive a statute of limitations defense.

Contract

Under New York law, an action based upon a contractual obligation or liability must be commenced within six years. N.Y.Civ.Prac.Law § 213(2). In contract cases, the statute of limitations begins to run when the breach accrues. See Schmidt v. McKay, 555 F.2d 30, 34 (2d Cir.1977); Kassner & Co. v. City of New York, 46 N.Y.2d 544, 550, 389 N.E.2d 99, 104, 415 N.Y.S.2d 785, 788 (1979). Plaintiff’s contract action is based solely on the alleged fraudulent misrepresentations in the August 1970 Agreement and accrued at the time of the execution of the contract in 1970 “ ‘when the claim first could have been sued upon.’ ” United States v. Skidmore, Owings & Merrill, 505 F.Supp. 1101, 1104 (S.D.N.Y.1981) (quoting United States v. Cardinal, 452 F.Supp. 542, 547 (D.Vt. 1978)); see also Santos v. District Council of New York, 619 F.2d 963, 968-69 (2d Cir.1980) (accrual when plaintiff could first successfully maintain suit); Ply*Gem of Laurel, Inc. v. Lee, 91 A.D.2d 513, 515, 456 N.Y.S.2d 382, 383 (1st Dep’t 1982) (fraud in the inducement of contract). Under plaintiff’s allegations, defendant allegedly breached the August 1970 Agreement at its execution on August 20, 1970.

Plaintiff contends, however, that the contract was not breached until February 1981 and alleges that this action is a “rare case where the breach and the harm engendered by the breach are not simultaneous events.” Brooklyn Union Gas Co. v. Interioro Surface Co., 87 A.D.2d 833, 834, 449 N.Y.S.2d 274, 275 (2d Dep’t 1982); see Ryan Ready Mixed Concrete Corp. v. Coons, 25 A.D.2d 530, 535, 267 N.Y.S.2d 627, 630 (2d Dep’t 1966). The Court rejects this contention. The “rare cases” when breach and harm are separate generally occur in insurance indemnity contracts or when payment or performance are subject to conditions. See Kassner & Co. v. City of New York, supra, 46 N.Y.2d at 550, 389 N.E.2d at 104, 415 N.Y.S.2d at 784; Brooklyn Union Gas Co. v. Interboro Surface Co., supra, 87 A.D.2d at 834, 449 N.Y.S.2d at 275.

The August 1970 Agreement was not conditioned on future payment or performance and it is clear that any contract cause of action based upon representations in the August 1970 Agreement accrued in 1970. See Santos v. District Council of New York, supra, 619 F.2d at 968-69; US. Underwriters, Inc. v. Simcoe & Erie General Insurance Co., 532 F.Supp. 606, 611 (S.D.N.Y.), aff'd, 714 F.2d 119 (2d Cir.1982); Marth v. Industrial Incomes Inc., 290 F.Supp. 755, 757 (S.D.N.Y. 1968). Therefore, plaintiff’s contract claim is time-barred because it was not filed until 1983. Accordingly, all claims in the instant action are barred by the statute of limitations and the complaint must be dismissed.

CONCLUSION

Defendants’ motion for summary judgment is granted. Fed.R.Civ.P. 56(b).

The Clerk of the Court is directed to prepare and enter Judgment dismissing the Complaint.

SO ORDERED.

      . See Plaintiffs 3(g) Statement at 1 (filed Feb. 7, 1984) [hereinafter "Plaintiffs 3(g) Statement"].

      . See Affidavit of Gregory Papalexis at 1-3 (filed Feb. 7, 1984).

      . See Plaintiffs 3(g) Statement, Exh. A at 3(f) [“August 1970 Agreement”].

      . The copy of the August 1970 Agreement and Plan of Acquisition provided to the Court contains nine pages of financial statements which follow the beginning of the Report of Examination of Concourse Provision Company ["Concourse Provision”] by Sharlach Ress Goldrich & Co. — certified public accountants. This report is marked Exhibit 6. Because there is no indication of when Exhibit 7 commences, the Court considers all the financial statements after the start of Exhibit 6 to be within the ambit of the "good and marketable title” representation.

      . See Complaint, 83 Civ. 8533 (JMC), ¶¶ 20-21 (S.D.N.Y. Nov. 23, 1984) [hereinafter "Complaint"].

      . See Affidavit of Irving Feinberg, ¶ 4 (filed Jan. 11, 1984); Defendant’s Notice of Motion, Exh. B at ¶ 6 (filed Jan. 11, 1984) [hereinafter “Notice of Motion”].

      . See Notice of Motion, Exh. D.

      . Concourse Management Corporation leased a Bronx plant located at 1353-55 Boston Post Road to Concourse Provision for ten years commencing July 1, 1954 at the rent of $9,000 per year. See Reply Affidavit of Irving Feinberg, Exh. G (filed Feb. 16, 1984) [hereinafter ‘‘Feinberg Affidavit II"].

      . See Notice of Motion, Exh. D, ¶¶ 40, 46.

      . See id., Exh. E.

      . See id., Exh. F.

      . See Feinberg Affidavit II, Exh. H.

      . See Notice of Motion, Exh. B.

      . See id., Exh. C, ¶¶ 4-6.

      . See Complaint, f 55. The Court questions how plaintiff arrived at the $10,000.01 amount for an assertion of diversity jurisdiction. 28 U.S.C. § 1332(a). A review of the financial statements to the August 1970 Agreement, see supra n. 5, shows that the value accorded all the "machinery, equipment and office furniture” at the Bronx plants was $31,450 in the 1969 audit and $45,696 in the unaudited 1970 worksheets. See August 1970 Agreement, Exh. 6 at 2, 8. The yearly depreciation of these assets was listed at $9,132 in 1968 and $10,659 in 1969. See id. at 3-4. The rate of depreciation on the unaudited worksheet is approximately $6,600 for eight months or a yearly rate of $9,900. Assuming that all assets listed under the headings of “machinery, equipment and office furniture” are the specific machinery and equipment assets in controversy, and after according these assets the highest possible value and the lowest possible depreciation rate, the net value falls below $10,-000 as early as 1974. There is no other asset valuation presented to the Court and the $10,131.45 figure accorded by plaintiff appears contrived for jurisdictional purposes. Additionally, plaintiff obtained investment tax credits for the purchase of the equipment which it continued to depreciate. See Complaint, ¶ 32. Moreover, interest and costs are excluded when determining diversity jurisdictional amounts. 28 U.S.C. § 1332(a). Plaintiffs allegation of punitive damages are clearly excessive after close scrutiny and the Court, in its discretion, determines to exclude them. See Zahn v. International Paper Co., 469 F.2d 1033, 1033 n. 1 (2d Cir.), aff'd, 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973); Arnav Industries, Inc. v. Dreskin, 551 F.Supp. 461, 464 (S.D.N.Y. 1982); Fritz v. Warner-Lambert Pharmaceutical Co., 349 F.Supp. 1250, 1253 (S.D.N.Y.1972).

      . N.Y.Civ.Prac.Law § 213(8) (McKinney Supp. 1984) provides that a fraudulent claim must be commenced within six years: "[A]n action based upon fraud; the time within which the action must be commenced shall be computed from the time plaintiff or the person under whom he claims discovered the fraud, or could with reasonable diligence have discovered it."
      N.Y.Civ.Prac.Law § 203(f) (McKinney Supp. 1984) provides in relevant part that
      where the time within an action must be commenced is computed from the time when facts were discovered or from the time when facts could with reasonable diligence have been discovered, or from either of such times, the action must be commenced within two years after such actual or imputed discovery or within the period otherwise provided, computed from the time the cause of action accrued, whichever is longer.

      . N.Y.Civ.Prac.Law § 213(2) (McKinney Supp. 1984) provides in relevant part that "an action upon a contractual obligation or liability express or implied” must be commenced within six years.

      . See Complaint, ¶¶ 54-55.

      . Plaintiffs assertion that defendants' participation in its business after the sale of Concourse Provision might work a form of "tolling" of the contractual cause of action must be rejected. See Plaintiffs Memorandum of Law in Opposition to Defendants’ Motion for Summary Judgment at 3-4 (filed Feb. 7, 1984). The policy considerations underpinning the additional two year fraud limitations period after discovery is designed to protect plaintiffs for a limited period when underlying facts are concealed from them. Plaintiffs are protected for two additional years, but the underlying substantive actions are limited to the six year statute of limitations period as if all pertinent information was not concealed. See Ply*Gem of Laurel, Inc. v. Lee, 91 A.D.2d 513, 515, 456 N.Y.S.2d 382, 383 (1st Dep’t 1982); McLaughlin, Practice Commentaries, N.Y.Civ.Prac.Law, Vol. 7B McKinney’s Consolidated Laws of New York, at 125-26.

        Moreover, defendants’ actions or inactions do not constitute tolling of a contractual cause of action. See Valle v. Joint Plumbing Industry Board, 623 F.2d 196, 202 & n. 10 (2d Cir.1980); United Rubber, Cork, Linoleum & Plastic Workers of America v. Great American Industries, Inc., 479 F.Supp. 216, 226-27 (S.D.N.Y.1979); Garza v. United California Bank International, 88 A.D.2d 968, 970, 451 N.Y.S.2d 806, 809 (2d Dep’t 1982).

      . The contract cause of action is also dismissed by the Court’s alternative holding that there is no jurisdiction for the claim. Jurisdiction is based on: (1) the federal question presented by the alleged violation of the Securities Exchange Act of 1934, see 15 U.S.C. §§ 78u(f), 78aa; and (2) diversity of citizenship of the parties, 28 U.S.C. § 1332(a)(1). The first jurisdictional base fails by virtue of the Court’s dismissal of the § 10(b) claim. At this stage of the litigation, dismissal of the federal claim mandates dismissal of the pendent state law claim as well, unless an independent basis for jurisdiction is established. See United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966). The second jurisdictional base fails because the Court finds that plaintiff has not satisfied the requisite jurisdictional amount in controversy. See supra nn. 4 & 15.


author: VANARTSDALEN, District Judge.

text:
    CHAS. KURZ CO. v. Alfonso R. LOMBARDI, et al.
    Civ. A. No. 84-779.
    United States District Court, Eastern District of Pennsylvania.
    July 10, 1984.

      A. Robert Degen, Maurice J. Maley, Jr., Krusen, Evans & Byrne, Philadelphia, Pa., for plaintiff.
    James C. Schwartzman, Schwartzman & Hepps, Philadelphia, Pa., for defendant Alfonso R. Lombardi.
    Daniel B. Pierson and Samuel Lander, Philadelphia, Pa., for defendants Wm. L. and Ruth A. Hoskins and Kali Corp.
    William Goldstein, Greenstein, Gorelick, Price, Silverman & Laveson, Philadelphia, Pa., for defendants Ripley’s Enterprises, Ltd., Lombardi Investment Associates and Steven Starr.
    Joseph M. O’Neill, Deasey, Scanlon & Bender, Ltd., Philadelphia, Pa., for defendants Steven Lombardi and Janet Lombardi.
   OPINION AND ORDER

VANARTSDALEN, District Judge.

Plaintiff’s action has its genesis in defendant Alfonso R. Lombardi’s (A.R. Lombardi) alleged embezzlement of large sums of money from his former employer spanning a twenty year period. Plaintiff, Chas. Kurz Company (Kurz), filed the present action against a number of defendants, charging certain of them with a violation of the civil penalties’ provision of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968, and charging the remaining defendants with various state statutory and common-law violations. Jurisdiction is predicated upon the RICO statute itself for the federal claims and “the doctrines of pendent and ancillary jurisdiction” for the state law claims. Defendants Kali Corporation (Kali) and William L. and Ruth A. Hoskins (the Hoskins) are charged with having violated state law solely. Defendants Kali and the Hoskins have moved alternatively to dismiss the complaint or for summary judgment. The Rule 12(b)(1) motion to dismiss for lack of jurisdiction will be granted as to the moving defendants.

FACTS

The following factual background can be gleaned from plaintiff’s complaint. A.R. Lombardi commenced employment on or about January 31, 1955 with Kurz. He held various positions in the company, including Vice President and Chief Financial Officer, until his termination on November 15, 1982. During his employment A.R. Lombardi had access to and was responsible for the preparation, supervision and maintenance of the financial books, records and accounts of plaintiff and was responsible for conducting financial operations and bank transactions for and on behalf of plaintiff. During the course of his employment A.R. Lombardi allegedly converted large sums of the company’s funds for his own use, and used his position as a company financial officer to cover-up the scheme. Incredible as it may seem, the embezzlement was not uncovered until November 15, 1982 when he admitted to various Kurz officials that he had been converting company funds for a period in excess of twenty years.

According to the complaint, A.R. Lombardi was using the stolen monies to invest, together with his wife Constance M. Lombardi (C. Lombardi), his son Stephen Lombardi (S. Lombardi) and others, in certain business ventures. Several of these ventures involved cabaret-type establishments and music promotion companies. Most, if not all, of the ventures failed.

Following the confession and subsequent resignation of A.R. Lombardi in November, 1982, Kurz conducted an extensive audit to determine the magnitude of the fraud. As is usual in such situations, litigation also shortly followed. Besides the present action, there were two actions instituted in the Court of Common Pleas, Philadelphia County; one criminal and the other civil.

Plaintiffs complaint sets forth five separate “causes of action”; the most important of these being the third cause of action, which asserts the only basis of federal jurisdiction. The third cause of action is brought under RICO against defendants A.R. Lombardi, C. Lombardi, S. Lombardi, four corporations, a partnership and an alleged enterprise. The first, second, fourth and fifth causes of action allege claims for common law fraud, trover and conversion; the Pennsylvania RICO statute, 18 Pa. Cons.Stat.Ann. § 911 (Purdon 1973 & Supp. 1983); and the Uniform Fraudulent Conveyance Act (UFCA), Pa.Stat.Ann. tit. 39, §§ 351-363 (Purdon 1954), respectively. Jurisdiction for these purely state law counts is asserted under the doctrine of ancillary and pendent jurisdiction. Complaint, 111. Moving defendants Kali and the Hoskins are named in the fifth cause of action, under the UFCA, solely.

DISCUSSION

It is axiomatic that a court’s first order of business is to determine if it has jurisdiction to entertain an action. This principle is so fundamental that the court may consider jurisdiction at any time by suggestion of the parties or sua sponte. See Fed.R.Civ.P. 12(h)(3). The moving defendants have asserted that there is no basis for jurisdiction as to them. I agree.

For purposes of the present motion, I will assume, without deciding, that plaintiff has stated a valid RICO claim against the defendants named in Count III. That quickly brings us to the crux of the matter — must or should this court exercise pendent or pendent party jurisdiction over the moving defendants against whom there is no independent basis of federal jurisdiction?

The present motion raises a difficult issue occurring with increasing frequency in the federal courts, whether a plaintiff in federal court pursuant to a valid federal cause of action against one defendant, may append onto that federal cause of action a state law claim against a different defendant as to whom there is no independent basis of federal jurisdiction? As my colleague, Judge Giles, recently noted in a well-written opinion considering this issue, I must “decide whether the doctrine of pendent jurisdiction extends to a ‘pendent party.’ ”

In light of the extensive treatment this issue has received in the case law and commentary, I will focus upon the two seminal Supreme Court opinions.

In United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), the Court squarely addressed the issue of pendent jurisdiction for the first time since the enactment of the Federal Rules in 1938. In Gibbs, the court noted that:

Pendent jurisdiction, in the sense of judicial power, exists whenever there is a claim “arising under [the] Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their authority ...,” U.S. Const., Art. Ill § 2, and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional “case.”

Id. at 725, 86 S.Ct. at 1138.

The Court went on to state that in order for the federal court to have the power to hear the whole case:

(1) The federal claim has to be substantial;

(2) The state and federal claims have to derive from a common nucleus of operative fact; and

(3) The claims have to be such that plaintiff would ordinarily be expected to try them in one proceeding, if considered without regard to their federal or state character. Id.

The Court was careful to note that the power need not be exercised in every case and that pendent jurisdiction was “a doctrine of discretion, not of plaintiff’s right.” Id. at 726, 86 S.Ct. at 1139 (footnote omitted). Justification for the doctrine lies in the considerations of judicial economy, convenience and fairness to litigants.

In the other important case regarding pendent jurisdiction the Court held in Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976), that there was no “pendent party” jurisdiction with respect to a claim brought under sections 1343(3) and 1983. In Aldinger the plaintiff had attempted to bring the defendant county into her § 1983 action by arguing that plaintiff had a valid, pendent state claim against the county official against whom the § 1983 action was proper. Plaintiff further contended that because the county was properly a defendant in the pendent state claim, the federal court could and should maintain jurisdiction over the county-

The Court rejected plaintiff’s argument, but specifically limited its holding to the facts at hand. The Court’s reasoning involved analysis of whether “Congress has addressed itself to the party as to whom jurisdiction pendent to the principal claim is sought.” 427 U.S. at 16, 96 S.Ct. at 2421. The Court concluded Congress had done so and “by implication declined to extend federal jurisdiction” to the county. Id. at 19, 96 S.Ct. at 2422. The Court took care to avoid laying down a sweeping pronouncement, but stated:

Two observations suffice for the disposition of the type of case before us. If the new party sought to be joined is not otherwise subject to federal jurisdiction, there is a more serious obstacle to the exercise of pendent jurisdiction than if parties already before the court are required to litigate a state-law claim. Before it can be concluded that such jurisdiction exists, a federal court must satisfy itself not only that Art. Ill permits it, but that Congress in the statutes conferring jurisdiction has not expressly or by implication negated its existence.

Id. at 18, 96 S.Ct. at 2422.

A number of courts have, quite properly, attempted to use the Aldinger reasoning in cases involving a claim of pendent party jurisdiction under different jurisdiction-granting statutes than sections 1343 and 1983. See e.g., Cheltenham Supply, 541 F.Supp. at 1106. Because the specific factual background of Aldinger differs from the present case and the Court explicitly limited the holding to the statutes involved, I do not find Aldinger controlling.

The second of the Court’s two “observations” in Aldinger suggested that “a federal court must satisfy itself not only that Art. Ill permits it, but that Congress in the statutes conferring jurisdiction has not expressly or by implication negated its existence.” 427 U.S. at 18, 96 S.Ct. at 2422. Many courts have therefore analyzed jurisdiction-granting statutes in terms of express or implied negation. Because the Supreme Court found an implied negation in Aldinger the Court did not articulate what happens when no such express or implied negation by the Congress can be found. It is precisely this situation that the present case raises.

Neither the jurisdiction-granting sections of RICO nor the legislative history exhibit any manifestation of express or implied congressional intent to grant pendent party jurisdiction. The statute provides in relevant part:

The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders ____
Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefore in any appropriate United States district court____

18 U.S.C. § 1964(a)&(c).

Who can be sued under RICO is of course circumscribed by the substantive portions of the statute dealing with prohibited activity. Plaintiffs RICO cause of action is asserted under section 1962(a), which provides in relevant part:

It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce

18 U.S.C. § 1962(a). Plaintiff has not and could not allege that defendants Kali and the Hoskins come under the court’s jurisdiction by virtue of having violated any substantive RICO provision. Congress provided federal jurisdiction for treble damages actions and injunctive relief against persons who have violated the statute’s substantive provisions. The legislative history is devoid of any evidence of intent, express or implied, concerning jurisdiction over pendent parties.

The lack of an express or implied negation of pendent party jurisdiction places this court in a position not addressed in Aldinger. However, reading Aldinger as a whole and recognizing the elementary precept that federal courts are courts of limited jurisdiction leads me to conclude that, absent evidence of express or implied negation, the strong presumption must be against exercising pendent party jurisdiction.

It is elementary that federal courts only have jurisdiction when a case is within the judicial power of the United States, as defined by the Constitution, and Congress has properly exercised its authority in a jurisdictional grant. Victory Carriers, Inc. v. Law, 404 U.S. 202, 92 S.Ct. 418, 30 L.Ed.2d 383 (1971); see generally, 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure, § 3522 at 44 (1975). If a statute cannot be fairly read to grant jurisdiction to a party, the logical inference is that Congress did not intend that party tó be in federal court. Such a conclusion follows almost tautologically from the fundamental axiom that federal courts are courts of limited jurisdiction. Therefore, before the court may properly exercise jurisdiction over a pendent party it must first apply the Aldinger analysis to discover if Congress either expressly or by implication negated the existence of such jurisdiction. Absent any indication from Congress, given the basis of the state/federal court relationship, pendent party jurisdiction would be presumed to be “negated.”

This presumption against pendent party jurisdiction is consistent with the articulated grounds justifying pendent jurisdiction in Gibbs and would have exceptions. In Gibbs the Court spoke of pendent jurisdiction first in terms of power and then in terms of discretion. In terms of power to exercise jurisdiction over pendent parties there seems to be no logical distinction, in terms of Art. Ill, between a pendent claim and pendent parties to that claim. However, the discretionary aspect must also be taken into account. It necessarily follows that if pendent jurisdiction is discretionary, pendent party jurisdiction, which derives from the pendent claim, must also be discretionary. Once a court decides it has Art. Ill power, the question becomes whether as a matter of discretion the federal court should exercise pendent party jurisdiction.

It is my view that because of their very nature, pendent jurisdiction and pendent party jurisdiction must be considered together. Because pendent party jurisdiction by definition derives from a pendent claim, a major prudential consideration in deciding whether to exercise jurisdiction over a pendent claim involves a consideration that there are or may be pendent parties to that claim. The converse is also true, in deciding whether to exercise pendent party jurisdiction the court must carefully consider the nature and substance of the underlying pendent claim.

In Gibbs the Court ruled that the justification for the doctrine of pendent jurisdiction involved considerations of judicial economy, convenience and fairness to litigants. These concerns apply with equal force to justifying a discretionary exercise of pendent party jurisdiction.

When viewed from the plaintiffs point of view there would seem to be little or no reason why the court should not exercise jurisdiction over pendent parties and dispose of all claims against all parties at once. However, when viewed from the perspective of the proposed pendent party the question takes on a new light. The pendent party has been hailed into federal court simply because of the fortuitous happenstance that plaintiff has both a valid federal claim against another defendant and a pendent state claim against the same defendant which also involves the pendent party. The pendent party has a legitimate right to object considering the premise that federal courts are courts of limited jurisdiction.

With the foregoing as a background I now come to the particular problem raised by defendants Kali and the Hoskins.

Plaintiff has alleged a federal RICO claim against nine defendants other than Kali and the Hoskins. Plaintiff, in one of his four state law claims, has named as defendants Kali, the Hoskins and seven of the nine defendants named in the RICO count. Plaintiff contends that this court should exercise jurisdiction over Kali, the Hoskins and the other non-RICO defendants under the doctrine of pendent (i.e., pendent party) jurisdiction. Consideration of the prudential concerns involved leads me to the contrary conclusion.

It is my view at page 379, supra, that in deciding whether to exercise pendent party jurisdiction this court must also consider the underlying pendent claim. The sole claim against the moving defendants is under state statute; UFCA, Pa.Stat.Ann. tit. 39, §§ 351-363 (Purdon 1954). I must first decide, under the Gibbs standard, whether this Court has the power to hear the pendent claim. Without the power to hear the pendent claim, there would be no reason to exercise jurisdiction over pendent parties to that claim.

I have already stated that I will assume, without deciding, that there is a valid RICO claim. Thus, the asserted federal claim has sufficient substance to confer subject matter jurisdiction. The second factor requires that the state and federal claims derive from a common nucleus of operative fact. Although strong argument can be made here that the pendent claim does not really derive from a common nucleus of operative fact, I have determined that for purposes of this decision, they do. The final factor necessary for the court to have the power to hear pendent claims also presents a close question. I have nevertheless determined that, considering plaintiffs claims without regard to their state or federal character, plaintiff would ordinarily be expected to litigate them in one proceeding. I have, therefore, decided that solely for the purposes of considering the pendent party issue, that as against those defendants named in both the RICO and UFCA counts, this court has the power to hear the pendent UFCA claim. The question to be decided is — should this court exercise its discretion and extend jurisdiction over the pendent parties? Viewed on the whole, the prudential considerations of judicial economy, convenience and fairness to litigants weigh against the exercise of jurisdiction. I have, therefore, declined to do so.

Once again the starting point is the premise that federal courts are courts of limited jurisdiction and “[njeedless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer-footed reading of applicable law.” Gibbs, 383 U.S. at 726, 86 S.Ct. at 1139 (footnote omitted). With this premise in mind, I must now consider whether the equities present justify overcoming the presumption against a discretionary exercise of pendent party jurisdiction. As was the case in Gibbs with pendent jurisdiction, the concerns are judicial economy, convenience and fairness to litigants.

I have decided that the concerns of judicial economy, convenience and fairness to litigants do not, in the present case, provide sufficient reason for requiring a party who would not otherwise be in federal court, to litigate in this forum. The circumstances do not warrant upsetting the normal balance of the state/federal court relationship. The exceptional cases where the presumption may be overcome will primarily involve those situations in which the proposed pendent party is necessary or indispensable to the resolution of a valid pendent claim. In those limited instances where, as a practical or factual matter, it would be impossible or create serious hardship to litigate the plaintiffs valid pendent claim against a defendant properly in federal court, without the proposed pendent party, then the court properly may agree to exercise pendent party jurisdiction.

Another limited exception might involve exclusive federal jurisdiction statutes where a valid pendent claim with proposed pendent parties has been asserted. If, as a practical matter, the court decides all of the claims should be tried together, the plaintiff may be allowed to litigate all of his claims against all parties in federal court. The difference between a plaintiff in the exclusive grant of jurisdiction situation and a plaintiff with a non-exclusive federal claim is that ordinarily a plaintiff who would like to have all his claims tried together can do so in state court, the court of general jurisdiction. Due to the exclusive grant of jurisdiction, the plaintiff would be precluded from litigating his entire case in state court.

Neither Kali nor the Hoskins appear to be indispensable or necessary parties to the plaintiff’s UFCA claim. There is no reason why plaintiff cannot proceed on the pendent UFCA claim, if he decides to pursue it in federal court, against only those defendants properly named in both the RICO and UFCA counts. If plaintiff believes it necessary to litigate in a single action its pendent claim against all of the defendants named in that count, it must do so in state court, where jurisdiction over all may be obtained.

In sum, although this court may have the power to exercise pendent party jurisdiction in the present action, I decline to do so. The present factual situation does not present one of the limited instances where the presumption against exercising pendent party jurisdiction is established. The motion to dismiss for lack of jurisdiction will be granted.

      . According to news reports, A.R. Lombardi pled guilty to a theft charge in the criminal action and was recently fined $10,000 and sentenced to one and one-half years in jail. Philadelphia Inquirer, May 22, 1984, at 5-B.

      . Plaintiff included the term "ancillary’ jurisdiction in his complaint. Although this term is not of precise definition, it is not involved in the case at present. See 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3523, at 68-69 (1975).

      . Cheltenham Supply Corp. v. Consolidated Rail Corp., 541 F.Supp. 1103, 1105 (E.D.Pa.1982). In that opinion Judge Giles set out an excellent definition of "pendent claim” and "pendent party”:
      “Pendent claim" refers to a case in which two parties are properly before the court by virtue of a substantial federal claim over which the court has jurisdiction and the same parties are permitted to litigate a state-law claim over which there is no independent basis of federal jurisdiction. On the other hand, the term "pendent party” refers to a case where a party, who has asserted a federal claim against one party over which there is jurisdiction, seeks to join an entirely different party on the basis of a state-law claim over which there is no independent basis of federal jurisdiction.

        Id. at 1105 n. 3.

      . For § 1983 purposes the county, at that time, was not considered a "person” against whom an action could be maintained.

      . The Court’s first observation that ”[i]f the new party sought to be joined is not otherwise subject to federal jurisdiction, there is a more serious obstacle to the exercise of pendent jurisdiction than if parties already before the court are required to litigate a state-law claim,” 427 U.S. at 18, 96 S.Ct. at 2422, certainly supports a narrow view of pendent party jurisdiction.
      The first part of the second "observation" that "Art. Ill permits it,” seems to have received short shrift by the courts with respect to pendent party jurisdiction. This Art. Ill concern supports the conclusion that pendent party jurisdiction is necessarily intertwined with the initial determination of pendent jurisdiction. This is so because it is this same Art. Ill concern that the Court addressed in Gibbs relative to pendent jurisdiction.

      . That is, other than the always present "logical negation by implication" concept that any person not covered in the jurisdictional grant was not intended to be so covered. See p. 378, infra.

      . If a court has the power, constitutionally speaking, to hear a pendent claim between two parties already in federal court as part of a "case,” there seems to be no reason why the court, as part of that same "case,” would not also have the constitutional power to exercise jurisdiction over other parties involved in the pendent claim. See Cheltenham Supply, 541 F.Supp. at 1106 n. 5.

      . It is an extremely close question whether the UFCA claim derives from a common nucleus of operative fact with the RICO claim. There is little doubt that both claims “derive” from the same set of facts as that term is used in its broadest sense. However, the UFCA claim involves a later stage in the factual sequence and a different focus from the RICO claim'. It is not a situation where the operative facts necessary to the RICO claim gave rise to a similar state law claim, as would be the case with the state RICO violation alleged in count four.

      . If needless decisions of state law between two parties already in federal court are to be avoided, the prohibition is even stronger when applied to a federal court deciding state law questions between two parties who would not otherwise be in federal court.

      . By "valid pendent claim” I mean one that the court has the power to decide and that the court, in the exercise of its discretion, has decided to hear.

      . The plaintiff has asserted that the RICO statute is an exclusive federal jurisdiction statute. However, it is settled that federal jurisdiction is not exclusive unless Congress chooses to make it exclusive. Charles Dowd Box Co. v. Courtney, 368 U.S. 502, 82 S.Ct. 519, 7 L.Ed.2d 483 (1962). In the RICO statute there is specific reference to "United States district court[s].” There is no indication, however, that Congress intended the grant of jurisdiction to be exclusive. When Congress wants jurisdiction to be exclusive it can so provide. See e.g., Federal Tort Claims Act (FTCA), 28 U.S.C. 1346(b). Plaintiff’s reference to Tarasewicz v. United States, 582 F.Supp. 90 (E.D.Pa.1984), is therefore inapposite as Tarasewicz involved the FTCA.


author: NEESE, Senior District Judge.

text:
    HEALTH GROUP MANAGEMENT COMPANY, etc., Plaintiff, v. WALKER COUNTY MEDICAL CENTER, INC., etc., Defendant.
    Civ. A. No. 3:84-0724.
    United States District Court, M.D. Tennessee, Nashville Division.
    July 13, 1984.

      Lin S. Howard, Harwell, Barr, Martin & Stegall, Nashville, Tenn., for plaintiff.
    Robert T. Wilson, Wilson & King, Jasper, Ala., for defendant.
   MEMORANDUM OPINION AND ORDER

NEESE, Senior District Judge.

The plaintiff undertook to invoke the jurisdiction of this Court as implicating the diverse citizenships of the parties and the matter in controversy. 28 U.S.C. §§ 1332(a)(1), (c). Its allegations are defective, in that it alleges that it has “a” principal place of business in a certain state and that the defendant has “its” principal place of business in another state. See 28 U.S.C. § 1332(c), supra.

A corporation has one, and only one, principal place of business. Woodbridge Plastics, Inc. v. Borden, Inc., 473 F.Supp. 218, 223[4] (D.C.N.Y.1979), aff'd. w/o op. 614 F.2d 1293 (table) (2d Cir.1979). Alleging the state where “a” place of business of a corporation is located is a fatally insufficient allegation of the state where “its principal place of business” is located. Holman v. Carpenter Technology Corp., 484 F.Supp. 406, 408[4] (D.C.Pa.1980), citing inter alia Wymard v. McCloskey & Co., 342 F.2d 495, 497[1-3] (3d Cir.1965), cert. den. 382 U.S. 823, 86 S.Ct. 52, 15 L.Ed.2d 68 (1965).

Defective allegations of jurisdiction may be amended on terms in this Court. 28 U.S.C. § 1653. Within 20 days here-from, the plaintiff may amend such defective allegation or suffer the dismissal of this action for lack of jurisdiction of the subjectmatter. See Rule 12(h)(3), F.R. Civ.P.

      . “For the purpose of this [§ 1332] section * *, a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business. * * * ” 28 U.S.C. § 1332(c), supra. [Emphases added here.]

      . It would be preferable also for the plaintiff to allege specifically that the matter-in-controversy herein exceeds, exclusive of interest and costs, the sum of $10,000, although such is apparent from the ad damnum prayer of the complaint. See 28 U.S.C. § 1332(a); Form 2(a), F.R.Civ.P., App. of Forms.