author: CARMAN, Judge:

text:
    MAPLE LEAF FISH COMPANY, Plaintiff, v. UNITED STATES, Defendant.
    Court No. 81-10-01412.
    United States Court of International Trade.
    Aug. 3, 1984.
    Barnes, Richardson & Colburn, New York City (David O. Elliott, New York City, on the cross-motion; John J. Galvin, New York City, of counsel on the memoranda) for plaintiff.
    Richard K. Willard, Acting Asst. Atty. Gen., Washington D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, Civil Div., New York City (Michael P. Maxwell, New York City, on the motion) for defendant.
   MEMORANDUM OPINION AND ORDER

CARMAN, Judge:

On March 14, 1980, the American Mushroom Institute, a trade association representing domestic canners and growers of mushrooms, filed a petition for import relief with the United States International Trade Commission (the Commission, ITC), under the provisions of section 201 of the Trade Act of 1974, 19 U.S.C. § 2251 (1982). The ITC, on March 24, 1980, commenced an investigation to determine whether mushrooms classifiable under Item 144.20 of the Tariff Schedules of the United States (TSUS) as “[m]ushrooms, ... [otherwise prepared or preserved” were “being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported article,” 19 U.S.C. § 2251(b)(1). Notice of the investigation was published in the Federal Register on April 2, 1980. See 45 Fed. Reg. 21,753 (1980). The Commission’s investigation, which included public hearings and consideration of briefs submitted by interested parties, resulted in an affirmative determination of injury to the domestic industry as a result of increased quantities of imports. The ITC, in a report issued in August of 1980, concluded:

On the basis of the information developed in the course of the investigation, the Commission has determined, (Commissioner Bedell not participating) that mushrooms, prepared or preserved, provided for in item 144.20 of the Tariff Schedules of the United States (TSUS), are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported article.

USITC, Report to the President on Investigation No. TA-201-1/.3 Under Section 201 of the Trade Act of 1974, at 1. (USITC Publication 1089 August, 1980)(hereinafter the ITC Report).

The ITC Report was transmitted to the President as required by 19 U.S.C. § 2251(d), and, on October 17, 1980, the President determined to provide import relief in the form of increased duties. On October 23, 1980, a Presidential Import Relief Determination was published in the Federal Register. See 45 Fed.Reg. 70,361 (1980). Presidential Proclamation 4801 was issued on October 29, 1980. See Proclamation No. 4801, 16 Weekly Comp. Pres. Doc. 2610 (Oct. 29, 1980). Pursuant to the determination and proclamation, item 922.55, providing for supplemental, or cumulative, duties on imported mushrooms classifiable under item 144.20 of the TSUS, was inserted into the tariff schedules. The supplemental duties were in the form of additional ad valorem assessments of 30, 25 and 20 percent, depending upon the date of importation.

The plaintiff, a Canadian importer of frozen battered and breaded mushrooms, filed this action on October 14,1981, challenging the assessment of supplemental duties insofar as frozen and battered mushrooms were concerned.

On June 21, 1983, the court issued a memorandum opinion and order denying defendant’s motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. See Maple Leaf Fish Co. v. United States, 5 C.I.T. —, 566 F.Supp. 899 (1983). In that opinion, the court held that subject matter jurisdiction existed under 28 U.S.C. § 1581(a) (1982), and that judicial review in this case extended to the issue of whether “the administrative action of the ITC and the President [had] been exercised in such [a] manner as to conform with the procedural requirements of statutory authority and had been performed according to law.” 5 C.I.T. at —, 566 F.Supp. at 903. The case presently is before the court on cross-motions for summary judgment.

As alluded to in the court’s earlier opinion, plaintiff’s claim fundamentally seeks to restrict the scope of Presidential Proclamation 4801 to include only canned mushrooms. As to the assessment of supplemental duties on frozen battered and breaded mushrooms; plaintiff contends that such action is ultra vires, illegal, and therefore void.

The plaintiff’s assertions principally are grounded upon the lack of information and input to the ITC regarding frozen mushrooms. In plaintiff’s view, the ITC, in its report to the President, made recommendations as to all mushrooms classifiable under item 144.20, TSUS, although the information before the agency when it made its report pertained only to canned, and not frozen, mushrooms. This shortcoming, according to plaintiff, tainted the President’s actions with an ultra vires quality since he was not entitled to act with respect to goods for which he had not received a report from the ITC. Plaintiff’s interpretation of the scope of the ITC findings is based in large measure on the language of the ITC Report, and separate views, which, in the main, discuss canned mushrooms exclusively.

Defendant, on the other hand, points out that all of the actions taken in this matter were performed properly according to strict statutory formulae. In the defendant’s view, once it is established that the ITC and the President properly adhered to the prescriptions of sections 201, 202 and 203 of the Trade Act of 1974, 19 U.S.C. §§ 2251-2253 (1982) (the escape clause provisions), judicial review should be at an end. Defendant therefore maintains that the court cannot independently evaluate the ITC’s Report and the actions that were taken on the basis of the report since these considerations have been delegated by Congress to the ITC and the President and require discretionary decisionmaking unshackled by judicial review. In short, defendant maintains that as long as the President received an affirmative injury report from the ITC, his action in prescribing supplemental duties for imported mushrooms was authorized by statute and could not be challenged.

In the court’s opinion, it is evident that in the escape clause provisions, Congress delegated to the ITC and the President its legislative authority in a tariffmaking matter. As such, the actions of the ITC and the President are reviewable only to ensure proper construction of the statutory language, compliance with procedural requisites, and whether the scope of delegated authority was exceeded. In the instant matter, the court finds that the ITC and the President acted well within these circumscriptions.

REVIEW OF ESSENTIALLY LEGISLATIVE ACTION

That the action of the President in imposing increased duties on the imported mushrooms represents but one step in the legislative process is established by the plain import of the language of the escape clause provisions as well as its legislative history.

The Constitution, of course, commits to the legislative branch the power to regulate imports. U.S. Const, art. I. § 8, els. 1, 3. For a period spanning virtually the life of the Republic, aspects of this power have been delegated to the Executive Branch. See Norwegian Nitrogen Products Co. v. United States, 288 U.S. 294, 308, 53 S.Ct. 350, 355, 77 L.Ed. 796 (1933). In most instances, the President is empowered to act upon his own finding of certain congressionally declared factual prerequisites. Id. at 309, 53 S.Ct. at 356; see Ellis K. Orlowitz Co. v. United States, 47 Cust. Ct. 583, 585, 200 F.Supp. 302, 305 (1961), aff'd, 50 CCPA 36 (1963). Under the escape clause provisions, the President is required to consider nine factors in determining whether and what method and amount of import relief to provide. 19 U.S.C. § 2252(c)(l)-(9). These considerations, however, expressly are “in addition to any other considerations ... he may deem relevant.” Id. In addition, section 202(b)(1), 19 U.S.C. § 2252(b)(1), reveals Congress’ intention that the President be granted expansive discretion in import relief decisions. Notably, this provision permits the President to decline to impose import relief if he determines “that the provision of such relief is not in the national economic interest of the United States.” Id. A more subjective delegation of the fact-finding function would be difficult to fathom.

The ITC has similar broad discretion. Under section 201(b)(2), 19 U.S.C. § 2251(b)(2), the ITC in making its import relief report “shall take into account all economic factors which it considers relevant. Id. (emphasis added).

Although the sections cited above contain mandatory contemplative guidelines, “these factors do not amount to a formula for the decisionmaking process which can be judicially reviewed. Although the President must consider these factors, he has discretion to ascertain their significance and is also at liberty to consider other, possibly countervailing, factors.” Florsheim Shoe Co. v. United States, 744 F.2d 787 at 795-96 (Fed.Cir.1984), affg 6 C.I.T. —, 570 F.Supp. 734 (1983).

Moreover, the legislative history of the Trade Act of 1974 pertaining to the escape clause provisions is replete with references to the “flexibility” to be accorded the President and ITC in making these import relief decisions. See S. Rep. No. 1298, 93d Cong., 2d Sess 121, 124, 125, 126, reprinted in 1974 U.S. Code Cong. & Ad. News, 7186, 7265, 7268, 7269, 7270.

From the above discussion, it is clear that in the operation of the escape clause provisions as they pertain to the granting or withholding of import relief, the ITC and the President act in essentially a legislative capacity. When such is the state of events, a long line of cases, most notably United States v. George S. Bush & Co., 310 U.S. 371, 60 S.Ct. 944, 84 L.Ed. 1259 (1940), indicates that judicial review of the actions taken involves a three-pronged inquiry: (1) whether proper statutory procedures were followed; (2) whether the statutory language was properly construed; and, (3) whether the action taken was within the scope of the delegated authority. This is the “Bush restriction.” It is firmly entrenched as it pertains to judicial review of Executive action in international trade matters. See Florsheim Shoe Co. v. United States, 744 F.2d 787 at 795-796 (Fed.Cir. 1984).

The court here considers the three-pronged review enunciated with favor most recently by the Florsheim appellate panel.

PROCEDURAL REQUIREMENTS OF STATUTORY AUTHORITY

There can be no doubt that in the conduct of the investigation and in the decision to take import relief action, the technical strictures of the Trade Act of 1974 were followed here by the Commission and the President. Sections 201, 202, and 203 are quite specific and demanding regarding time limits, publication and notice, forwarding of information and form of relief. All of these requirements were regularly followed here.

The ITC, upon receipt of the American Mushroom Institute’s trade petition, duly transmitted copies to the agencies directly concerned, including the United States Trade Representative. See 19 U.S.C. § 2251(a)(1), (2). The ITC promptly launched its investigation and published a notice in the Federal Register. Public hearings were held over a 2-day period and interested parties were given the opportunity to present evidence. See id. § 2251(b)(1), (c). A report containing the ITC’s findings was made to the President within 6 months of the receipt of the American Mushroom Institute’s trade petition.

The President, within 60 days of his receipt of the ITC report, determined the method and amount of import relief and published the determination in the Federal Register. See id. § 2252(b)(1). The President then duly issued a proclamation declaring a duty increase on the threatening article. A document was transmitted to Congress by the President that set forth the actions taken by the President. This included an explanation of why the President was taking action different from that which was recommended by the ITC. See id. § 2253(b)(1); supra note 1. It is clear, then, that the proper statutory steps were followed.

PROPER STATUTORY CONSTRUCTION AND SCOPE OF DELEGATED AUTHORITY

A. What Constitutes the ITC’s Finding?

Defendant urges that the court should only consider the first sentence of the ITC Report, denominated “Determination of Injury, ” and appearing on page one of the Report, to be the ITC’s finding of injury in this case. In part, the sentence reads “that mushrooms, prepared or preserved, provided for in item 144.20 of the Tariff Schedules of the United States (TSUS), are being imported into the United States in such increased quantities as to be a substantial cause of serious injury ... to the domestic industry.” ITC Report, at 1 (footnote omitted). If the court accepts defendant’s view, and deems this one sentence to constitute the ITC’s determination, then the President clearly was entitled to take import relief action as to frozen battered and breaded mushrooms, since this merchandise admittedly is classifiable under item 144.20. The President would have been, a fortiori, within his delegated authority, and, in addition, would have properly apprehended the statutory term “such industry,” as it is used in section 202(a), 19 U.S.C. § 2252(a), as including the frozen mushroom industry. The court, however, considers the determination and separate views to constitute the ITC Report.

1. The Administrative Procedure Act

The Administrative Procedure Act (APA), 5 U.S.C. § 557(c)(3)(A)(1982), requires an agency to state the findings and conclusions that underlie its decisions and rulings. Administrative agencies are held to this requirement because Congress, in general, does not delegate unfettered discretion to an agency. Administrative bodies, therefore, must justify their decisions with specific and supported findings. See Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 167, 83 S.Ct. 239, 245, 9 L.Ed.2d 207 (1962); City of Rochester v. United States Environmental Protection Agency, 496 F.Supp. 751, 765 (D.Minn. 1980).

Defendant correctly points out, though, that the APA cannot fairly be said to govern judicial review of the procedures followed by the ITC and the President under the escape clause provisions of the Trade Act of 1974. The ITC Report does not represent final agency action within APA contemplation. The Report serves merely to advise the President and carries no independent legal significance vis-a-vis individual rights.

Notwithstanding this, general principles of judicial review require that the ITC, in its section 201 Report to the President, articulate to some extent the findings that underlie its decision.

Effective judicial review would be paralyzed were an agency not required to state the reasons that prompted a particular ruling. See The Permian Basin Area Rate Cases, 390 U.S. 747, 792, 88 S.Ct. 1344, 1373, 20 L.Ed.2d 312 (1968); WAIT Radio v. FCC, 418 F.2d 1153, 1156 (D.C. Cir.1969). This standard obviously is necessary for a court to conduct meaningful review of an administrative record to determine whether substantial evidence supports the agency’s decision. Since the ITC Report in issue here is not subject to the substantial evidence test, it may be concluded that somewhat less articulation is required of the ITC. Nevertheless, the ITC Report must fairly apprise the President, interested parties, and the public of the reasoning underlying the recommendation. How much articulation is necessary to accomplish this will vary on a case-by-case basis conditioned by fairness under the circumstances. In Norwegian Nitrogen Products Co. v. United States, 288 U.S. 294, 53 S.Ct. 350, 77 L.Ed. 796 (1933), the court recognized that the ITC (then the United States Tariff Commission) historically has served as a nonpartisan advisory body to the President, and that, therefore, procedures before the ITC could not be measured according to general administrative law principles. The court, nevertheless, held the ITC to an implied fairness standard in the conduct of its administrative hearings. In the Court’s view, because the statute provided for hearings, the Commission was obligated to make those hearings fair. Id. at 321, 53 S.Ct. at 360. By the same token here, if the statute calls for an ITC Report, that Report must be fair in the sense that it be revelatory of the underlying reasoning. For these reasons, the ITC’s Report and Separate Views of the Commissioners constitute the “finding” of the Commission.

B. Did the ITC and the President Exceed Delegated Authority or Misconstrue the Statute?

The plaintiff points to language throughout the ITC Report’s Separate Views of the Commissioners that repeatedly mentions the canned mushroom industry as bearing the brunt of the injury caused by increased imports. For example:

We have determined that the appropriate industry against which the impact of the subject imported articles should be weighted consists of all domestic producers of canned mushrooms.

ITC Report, at 6 (emphasis added). In addition, the Commission stated:

In general, the Commission has data exclusively for U.S. canning operations which enable us to analyze all factors relevant to our determination of injury. Production, consumption, sales, employment, profitability, capacity utilization, and other factors can all be examined for canning operations alone.

Id. at 14 (emphasis added).

We have found the domestic canned mushroom industry to be in a period of great difficulty and on the threshold of serious injury.

Id. at 17 (emphasis added).

Taken alone and at face value, it would indeed appear that the Commission was considering only canned, and not frozen, mushrooms in its investigation. Appearing on the first page of the Separate Views of the Commissioners, however, is footnote 1, which the court finds highly probative regarding the scope of the ITC Report. The footnote reads:

The subject imports in this case are “mushrooms, otherwise prepared or preserved,” provided for at item 144.20 of the TSUS. While this item includes mushrooms in jars and frozen mushrooms, 97 percent of all these imports are in cans. Furthermore the vast majority of domestic production in these categories is canned as opposed to jars or frozen.

ITC Report, at 5 n.l (emphasis added). The defendant urges, and the court must agree, that the logical inference to be drawn from this initial footnote is that the ITC intended to include jarred and frozen mushrooms in its Report to the President. It would appear that the ITC referred to the subject imports as “canned” in the body of the Report because canned mushrooms composed 97 percent of the merchandise subject to the investigation. An additional indicator of the scope of the ITC investigation can be discerned from its Notice of Investigation published in the Federal Register. That notice specifically stated that all mushrooms classifiable under item 144.20, TSUS, were being investigated. See 45 Fed.Reg. 21,753 (1980). Thus, the President was within his delegated authority in imposing supplemental duties on frozen mushrooms since he had received a report from the ITC with respect to those goods. Further, the President was entitled to include the frozen mushroom industry within the scope of his import relief determination since the ITC report covered that industry.

CONCLUSION

For the above-stated reasons, this court finds that the ITC and the President followed proper statutory procedures in imposing import relief action in the form of supplemental, or cumulative, duties on mushrooms classifiable under item 144.20, TSUS, including plaintiffs imported merchandise consisting of frozen battered and breaded mushrooms. In addition, the court finds that such action neither exceeded the scope of the delegated authority nor misapplied the relevant statutes. Accordingly, defendant’s motion for summary judgment is granted.

A judgment will enter accordingly.

      . The ITC's Report to the President recommended that import relief action take the form of quantitative restrictions, or import quotas, for a 3-year period commencing July 1, 1980. The President, however, chose increased duties as the appropriate form of import relief action. Section 203(b)(1) of the Trade Act of 1974, 19 U.S.C. § 2253(b)(l)(1982), entitles the President to take action different from that recommended by the ITC but requires him to set forth in a document to the Congress his reasons for taking such different action. The President cited economic as well as administrative reasons for choosing tariff, rather than quota, relief.
      The court notes in this regard that section 203(c)(1) of the Trade Act of 1974, 19 U.S.C. § 2253(c)(1), contains a legislative veto provision applicable where the President takes action different from that recommended by the Commission. The section authorizes the Congress, by a two-House adoption of a concurrent resolution, to disapprove the President's action and require him to act in conformity with the ITC's recommendation. A similar one-House legislative veto provision, contained in section 242(c)(2) of the Immigration and Nationality Act, 8 U.S.C. § 1254(c)(2)(1982), was declared unconstitutional by the Supreme Court in INS v. Chadha, 462 U.S. 919, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983). The Court declared that because the legislative veto in the context of the Chadha case constituted an exercise of legislative power, the exercise of such power was subject to the standards of bicameralism and the presentment clause. Id. 103 S.Ct. at 2787; see U.S. Const, art. I, §§ 1, 7, cl. 2; id. art. I, § 7, els. 2, 3. Because the legislative veto provision in section 203(c)(1) is not directly implicated in this case, and because the case bears several factors distinguishing it from Chadha, the court will not at this point pass upon the validity of section 203(c)(1). The court does this bearing in mind that any eventual infirmity would in this instance be presumed severable. See Chadha, 103 S.Ct. at 2775.

      . Plaintiff concedes that its imported merchandise, frozen battered and breaded mushrooms, is classifiable under Item 144.20 of the Tariff Schedules of the United States.

      . In support of its view regarding the relationship among the International Trade Commission (before 1975, the United States Tariff Commission), the President, and the courts, defendant relies principally on Norwegian Nitrogen Prods. Co. v. United States, 288 U.S. 294, 53 S.Ct. 350, 77 L.Ed. 796 (1933) (Cardozo, J.), which interpreted section 315 of the Tariff Act of 1922, ch. 356, § 315, 42 Stat. 858, 941-43 (repealed 1930). Defendant also cites Chicago & S. Air Lines, Inc. v. Waterman S.S. Corp., 333 U.S. 103, 68 S.Ct. 431, 92 L.Ed. 568 (1948); United States v. George S. Bush & Co., 310 U.S. 371, 60 S.Ct. 944, 84 L.Ed. 1259 (1940); and United States Cane Sugar Refiners’ Ass’n v. Block, 69 CCPA 172, 683 F.2d 399 (1982), in support of its position.

      . See Michelin Tire Corp. v. United States, 82 Cust. Ct. 308, 332, 469 F.Supp. 270, 288-89, appeal dismissed, 66 CCPA 107, 603 F.2d 192 (1979); Berger, Administrative Arbitrariness and Judicial Review, 65 Colum. L.Rev. 55, 71 (1965).

      . See United States Cane Sugar Refiners’ Association v. Block, 69 CCPA 172, 177-78, 683 F.2d 399, 404 (1982); Montgomery Ward & Co. v. Zenith Radio Corp., 69 CCPA 96, 106-07, 673 F.2d 1254, 1261-62 (1982), cert. denied, 459 U.S. 943, 103 S.Ct. 256, 74 L.Ed.2d 200 (1982); City Lumber Co. v. United States, 59 CCPA 89, 92, 457 F.2d 991, 994 (1972); Amity Fabrics, Inc. v. United States, 58 CCPA 73, 78, 435 F.2d 569, 573 (1970), cert. denied, 402 U.S. 974, 91 S.Ct. 1667, 29 L.Ed.2d 139 (1971); George E. Bardwil & Sons, Inc. v. United States, 42 CCPA 118, 125 (1955); T.M. Duche & Sons v. United States, 39 CCPA 186, 191, cert. denied, 344 U.S. 830, 73 S.Ct. 35, 97 L.Ed. 646 (1952); Twin City Milk Producers Association v. McNutt, 122 F.2d 564, 566 (8th Cir.1941); National Silver Co. v. United States, 74 Cust.Ct. 18, 26 (1975).

      . Prior to 1980, review of executive actions taken pursuant to sections 201-203 of the Trade Act of 1974, 19 U.S.C. §§ 2251-2253 (1982), would have been available in the appropriate United States District Court. Indeed, this was part of the holding in Sneaker Circus, Inc. v. Carter, 566 F.2d 396 (2d Cir.1977). See Sneaker Circus, Inc. v. Carter, 457 F.Supp. 771 (E.D.N.Y. 1978), aff’d mem., 614 F.2d 1290 (2d Cir.1979). The Customs Courts Act of 1980, Pub. L. No. 96-417, § 201, 94 Stat. 1727, 1728-29 (codified at 28 U.S.C. § 1581 (1982)), however, must be read to require that all such actions be brought in the Court of International Trade. See Maple Leaf Fish Co. v. United States, 5 Ct. Int’l Trade —, —, 566 F.Supp. 899, 902 (1983).

      . It should be noted that the ITC in its report took pains to define the scope of the affected domestic industry. The principal concern was whether the fresh mushroom industry should be included within the ambit of the investigation. Fully one-third of the Report analyzes this issue. To the court, this evinces the ITC’s awareness of and sensitivity to the scope issue. The court is not convinced that, after carefully considering the definition of the relevant domestic industry, the ITC blithely dismissed the frozen segment of that industry.


source: Caselaw Access Project

license: Public Domain

text:
    The TORRINGTON COMPANY, Plaintiff, v. UNITED STATES, Defendant.
    Court No. 81-3-00315.
    United States Court of International Trade.
    Aug. 24, 1984.
    Siegel, Mandell & Davidson, P.C., New York City (Steven Zelman and Michelle Benjamin, New York City, on brief) for plaintiff.
    Richard K. Willard, Acting Asst. Atty. Gen., Washington, D.C., Joseph I. Liebman, Atty. in Charge, Intern. Trade Field Office, Commercial Litigation Branch, New York City (Saul Davis, New York City, on brief), for defendant.
   MEMORANDUM OPINION AND ORDER

CARMAN, Judge:

The respective parties in this matter seek judgment upon a stipulation of agreed facts filed in lieu of a trial. Jurisdiction lies in this court pursuant to 28 U.S.C. § 1581(a) (1982), and the question before the court is one of law.

The subject of this action is industrial sewing machine needles manufactured in and exported from Portugal to the United States. At the time of exportation, Portugal was designated as a beneficiary developing country (BDC) pursuant to the Generalized System of Preferences (GSP), see Trade Act of 1974, § 502, 19 U.S.C. § 2462(a)(1) (1982), and the industrial sewing machine needles were entered under item A672.20 of the Tariff Schedules of the United States (TSUS) free of duty as eligible items under the GSP. Later, at the time of liquidation, the United States Customs Service (Customs) reclassified this merchandise under item 672.20 at the rate of 10 percent ad valorem plus 37 cents per thousand pieces. Customs denied the allowance of duty-free GSP treatment to the imported merchandise, based upon its determination that the merchandise did not incorporate any “materials produced” in Portugal and that the direct cost of processing operations performed in Portugal was less than 35 percent of the appraised value of the merchandise at the time of its entry into the United States. Plaintiff contends that the imported merchandise is composed of and incorporates “materials produced” in Portugal as that term is defined in the Customs Regulations. The parties have agreed that if the Court so finds, the statutory 35 percent minimum will have been satisfied. See Stipulation of Agreed Statement of Facts 118.

The production of the imported merchandise involves several manufacturing processes including swaging, striking, piercing, mill flash, mill groove, pointing and repointing. These processes are performed in Portugal by plaintiff. See Stipulation HIT 11, 17-29. The raw material in this case (wire), upon which the processes were performed, however, was not manufactured in Portugal but in another country that was not designated as a beneficiary developing country under the GSP. The wire imported into Portugal was specifically chosen for its alloy content and surface finish, both of which made the wire particularly suitable for use in the manufacture of sewing machine needles.

The question before the court is whether the non-BDC wire was a “material produced in the BDC,” the cost of which should have been included in the evaluation by Customs. For the cost of the non-BDC wire to be included, the wire must have been substantially transformed in the BDC into a new and different article of commerce. 19 C.F.R. § 10.177(a)(2) (1983). Whether or not the required substantial transformation took place is therefore the issue before this court.

Plaintiff argues that the cutting, beveling and drawing of wire to produce swaged needle blanks constitutes the required substantial transformation and that swaged needle blanks are articles of commerce new and different from the wire from which they are produced. Defendant, on the other hand, argues that the GSP statute and regulations require two substantial transformations into new and different articles of commerce and that these transformations did not take place in the case at hand.

The two-stage process advocated by the defendant is that the non-BDC material must be substantially transformed into a “material produced in the BDC,” and then the “material produced in the BDC” must be substantially transformed into the imported article. Since the imported merchandise was produced from non-BDC wire, defendant argues the processes which completed the imported items did not constitute the required two-stage substantial transformation. This court must first determine how many substantial transformations are required in this case and then decide whether the processes that occurred meet the substantial transformation requirements.

I

The statute relevant to this controversy is 19 U.S.C. § 2463(b) (1982), which was incorporated into the TSUS as General Headnote 3(c)(ii), and provides that an imported eligible article can only be accorded duty-free treatment if “the sum of (A) the cost or value of the materials produced in the beneficiary developing country ... plus (B) the direct costs of processing operations performed in such beneficiary developing country ... is not less than 35 percent of the appraised value of such article at the time of its entry into the customs territory of the United States.” 19 U.S.C. § 2463(b)(2) (emphasis added). The pertinent regulations promulgated by the Secretary of Treasury to carry out this subsection are set forth in part here.

19 C.F.R. § 10.176(a) provides in pertinent part:

(a) Merchandise produced in a beneficiary developing country or any two or more countries which are members of the same association of countries. Merchandise which is (1) the growth, product, manufacture, or assembly of (i) a beneficiary developing country ... and (2) imported directly from such beneficiary developing country ... may qualify for duty-free entry under the Generalized System of Preferences (“GSP”). However, duty-free entry under GSP may be accorded only if: (i) The sum of the cost or value of the materials produced in the beneficiary developing country ... plus (ii) the direct costs of processing operations performed in such beneficiary developing country ... is not less than 35 percent of the appraised value of the article at the time of its entry into the customs territory of the United States.

19 C.F.R. § 10.177(a) provides in pertinent part:

(a) “Produced in the beneficiary developing country” defined. For purposes of §§ 10.171 through 10.178, the words produced in the beneficiary developing “country” refer to the constituent materials of which the eligible article is composed which are either:
(1) Wholly the growth, product, or manufacture of the beneficiary developing country; or
(2) Substantially transformed in the beneficiary developing country into a new and different article of commerce.

It is clear that before a non-BDC material can be regarded as a “material produced” in the BDC, with its cost includable in the evaluation by Customs, the non-BDC material must be substantially transformed into a new and different article of commerce, that is, one having a distinctive name, character or use. The question raised by the defendant is whether a two-stage substantial transformation is required. This Court finds that such a two-stage process is required and finds that a substantial transformation of non-BDC material is necessary in order for the non-BDC wire to be regarded as “material produced” in the BDC and to be included in the 35 percent value-added evaluation. Although not explicit, the dual requirement can be gleaned from the statute. The administrative agencies have consistently supported and utilized the dual requirements, and such a requirement is not contrary to the GSP statute and its goals.

Regulations promulgated by Customs define the term “materials produced” to include materials from third countries that are substantially transformed in the BDC into a new and different article of commerce. 19 C.F.R. § 10.177(a)(2). It is not enough to transform substantially the non-BDC constituent materials into the final article, as the material utilized to produce the final article would remain non-BDC material. There must first be a substantial transformation of the non-BDC material into a new and different article of commerce which becomes “materials produced,” and these materials produced in the BDC must then be substantially transformed into a new and different article of commerce. It is noted that 19 C.F.R. § 10.176(a) distinguishes between “merchandise produced in a BDC” and the cost or value of the “materials produced in the BDC” which demonstrates the contemplation of a dual substantial transformation requirement. Furthermore, absent such a dual requirement, the GSP’s goal of industrialization, diversification, and economic progression for underdeveloped nations could be frustrated. For example, a BDC could import eligible items, merely decorate or assemble these items and thereby satisfy the 35 percent value-added requirement since these direct costs of processing operations would be includable in the calculation. In this manner, BDC’s could become mere conduits for the merchandise of developed countries. This is not the type of economic development envisioned by the GSP program. Indeed, the regulations implementing the GSP ought to be interpreted to further, not hinder, the program’s stated goals.

Having established that a dual substantial transformation is indicated, the Court will turn to the critical question of whether this two-stage substantial transformation was met in this case.

The term “substantial transformation” is used to depict a processing that results in a new article having a distinctive name, character, or use. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 156, 681 F.2d 778, 782 (1982). In the case at hand, the wire imported into Portugal goes through a variety of processes, the first of which is swaging. The swaging machine straightens the wire, cuts the straightened wire to particular lengths according to specifications desired, bevels one end of the wire and draws the straightened wire to alter its length and circumferences at various portions in accordance with the final specification desired. After the completion of this operation, the merchandise is referred to in the sewing machine trade as needle blanks, swages, swage blanks, and/or swaged needle blanks.

Based upon the explanation given by the parties, and this court's careful observation of Exhibit A (the imported wire) as well as Exhibit B (the swaged needle blank), it would be difficult for this court not to find that a substantial transformation of the imported wire had taken place. Not only does the name and use of the wire change, but also its character. The wire has been cut to a specific length, beveled to meet specifications, and its circumference has been altered. It is clear that a fundamental and significant change has taken place.

Furthermore, the swaged needle blank can be regarded as a new and different article of commerce from the wire of which it was produced. After the swaging process, the once-called “wire” becomes a swaged needle blank. This name is known and recognized throughout the industry. Stipulation ¶ 12. The fact that the swaged needle blank is referred to by Torrington personnel internally as material in process, rather than swaged needle blanks, does not alter or diminish the fact that this item is referred to industry-wide as swaged needle blanks, swages, or swaged blanks. The swaged needle blank is a new and different article of commerce. Plaintiff has related to the court two documented occasions where Torrington Portugesa sold over four million swaged needle blanks, described as such on the relevant invoices, to the plaintiff. Although the buying and selling was between related companies, this court finds these transfers evidence that swaged needle blanks are articles of commerce. Furthermore, there have been other importations of similar merchandise (“latch needle blanks”) by companies other than the plaintiff. See Pistorino & Co. v. United States, 69 Cust.Ct. 48, 350 F.Supp. 1392 (1972); Pistorino & Co. v. United States, 53 Cust.Ct. 174 (1964), modified, 61 Cust.Ct. 100, 287 F.Supp. 978 (1968).

The swaged needle blanks are new and different articles of commerce from both the wire from which they are made and the variety of industrial sewing machine needles into which they are manufactured. The swaged needle blanks are not needles themselves, but constituent materials of needles produced in the BDC within the meaning of 19 C.F.R. § 10.177(a)(2). Although these constituent materials must be further manufactured to become functional industrial sewing machine needles, this court does not find that the swaged needle blanks are merely an unfinished needle but rather a separate and distinct intermediate item with its own name and character. The transformation from wire to swaged needle blanks constitutes the first substantial transformation of a two-stage process.

The processes that occur to transform a swaged needle blank into an industrial sewing machine needle support the conclusion that a second substantial transformation took place. After the completion of the swaged needle blank, the first process that occurs is “striking.” In this process, the striking machine presses an eye into the swaged needle blank, forms a spot to provide clearance for the thread or hook which will function to hold the thread, and bevels the swaged blank at a particular location. Next, the blanks are “mill flashed.” The mill flash machine removes any excess material around the eye and forms a groove which serves to carry the thread when the finished sewing machine needle is in use. A point is then placed on the needle and the blade size and/or needle type and/or company logo is placed on the needle shank by another machine. These basic manufacturing processes substantially transforming the swaged needle blank are depicted in Plaintiff’s Exhibit D.

Thereafter, a finishing process occurs whereby the articles are hardened and tempered in furnaces and then aligned on a wooden bar and polished and buffed by hand. The articles are threaded through needle eyes with emery thread to remove burrs which may be present in the eyes. The articles are also mechanically straightened to remove any distortion and are re-pointed to give them their finished points and final sharpness. Thereafter, the articles are placed in a tumbling barrel to remove the dark coating and then cleaned with buffing wheels. The burrs are removed and the articles are chrome plated. Finally, the articles are again heat-treated and buffed. All articles below a particular size and any rejects are hand straightened as appropriate. The finished sewing machine needle is reflected in Plaintiff’s Exhibit E.

Finally, the GSP was enacted to promote “economic diversification, and export development” in less developed countries. S.Rep. No. 1298, 93d Cong., 2d Sess 4, reprinted in 1974 U.S.Code Cong. & Ad. News 7186, 7187. The Customs Regulations should be read in light of and to further the intent of Congress.

CONCLUSION

Having found that the required substantial transformation of the non-BDC wire into a new and different article of commerce occurred, the cost of the non-BDC wire should have been included in the value-added requirements of General Headnote 3(c)(ii), TSUS. With no issues having been raised as to the other GSP requirements, and the parties having stipulated that if the cost of the wire is included that the 35 percent statutory minimum is met, this court holds that the imported merchandise in this case is entitled to duty-free GSP treatment.

Plaintiffs claims, with the exception of Entry Nos. 211431 and 210816, therefore, must be, and hereby are, sustained.

The industrial sewing machine needles which are the subject of this action, imported under port of Hartford entry numbers 210815 and 212659, are properly classifiable under Item A672.20, TSUS, and are free of duties under the Generalized System of Preferences. The District Director of Customs at the port of Bridgeport shall reliquidate the entries accordingly and refund the duties assessed on the merchandise covered by said entries, together with interest accruing from March 24, 1981, the date of the filing of the summons.

      . General Headnote and Rule of Interpretation 3(c)(ii), TSUS, provides in pertinent part:
      Articles for which the designations "A” or "A*” appear in the column entitled "GSP” of the schedules are those designated by the President to be eligible articles for purposes of the GSP pursuant to Section 503 of the Trade Act of 1974. The designation “A” signifies that all beneficiary developing countries are eligible for preferential treatment with respect to all articles provided for in the designated TSUS item____ Whenever an eligible article is imported into the customs territory of the United States directly from a country or territory listed in subdivision (c)(i) of this headnote, it shall receive duty-free treatment, ... provided that, in accordance with regulations promulgated by the Secretary of the Treasury the sum of (A) the cost or value of the materials produced in the beneficiary developing country ... plus (B) the direct cost of processing operations performed in such beneficiary developing country ... is not less than 35 percent of the appraised value of such article at the time of its entry into the customs territory of the United States.

      . Item 672.20, TSUS, provides as follows:
      Sewing machines and parts thereof, including furniture specially designed for such machines:
      Parts:
      Needles...................37* per 1000,
      -I- 10% ad val.

      . With respect to entry numbers 211431 and 210816, Customs denied GSP treatment based upon the additional ground that no Certificates of Origin Form A were filed by plaintiff with the District Director of Customs. Plaintiff has conceded that the absence of the Form A, unless waived, is grounds for denial of duty-free entry under the GSP. Accordingly, the merchandise composing entry numbers 211431 and 210816 must be denied duty-free treatment.

      . See C.S.D. 79-312, 13 Cust.Bull. 1464 (1978); T.D. 78-400, 12 Cust.Bull. 875 (1977); T.D. 76-100, 10 Cust.Bull. 176 (1976).

      . See Cutler, The United States Generalized System of Preferences: The Problem of Substantial Transformation, 5 N.C.J. Int’l L. & Com.Reg. 393, 400-01 (1980).

      . These processes have been stipulated to by the parties. See Stipulation ¶¶ 11, 17-29.

      . The finished product of one manufacture may become the material of the next in rank. A.H. Ringk & Co. v. United States, 16 Ct.Cust.Appls. 132, 136 (1928) (cases cited).

      . The other GSP requirements have been met. Portugal is listed in General Headnote 3(c)(i) as a beneficiary developing country; the articles described by TSUS item A672.20 are GSP "eligible items” and the industrial sewing machine needles were imported from Portugal directly into the customs territory of the United States.

      . Since no Certificates of Origin were filed by plaintiff with the District Director of Customs in connection with Entry Nos. 211431 and 210816 and the production of these certificates were not waived by the district director, plaintiff cannot prevail with respect to these entries.


author: ARRAJ, Judge.

text:
    AMERICAN WEB PRESS, INC., Plaintiff, v. HARRIS CORPORATION, Defendant.
    Civ. A. No. 82-A-1684.
    United States District Court, D. Colorado.
    Nov. 3, 1983.
    Richard W. Breithaupt, Wegher & Fulton, P.C., Denver, Colo., for plaintiff.
    David Swinton, W. David Pantle, Sherman & Howard, Denver, Colo., for defendant.
   MEMORANDUM OPINION AND ORDER

ARRAJ, Judge.

American Web Press, Inc. brought this diversity action against Harris Corporation for breach of a purported contract to sell a used M-1000 printing press to plaintiff. 28 U.S.C. § 1332(a)(1). American Web now seeks damages for the alleged breach.

The issues of liability and damages were bifurcated and a non-jury trial on the question of liability was held October 12 and 13, 1983. The following will constitute my findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52(a).

I

American Web is a Colorado corporation engaged in the business of commercial and publication printing. During the summer of 1982, it was considering expanding its operation and was in the market for a second used printing press.

Defendant Harris, a Delaware corporation, manufactures and sells printing equipment to the graphic arts industry. It is a large, national business with several major regional divisions. Two divisions, the Texas office — Commercial Press and the Rhode Island office — Publication Press, are important in the case at bar because they were involved in an inter-division competition to sell the press in issue.

In August 1982 a salesman from the Commercial Press Division of Harris, Claude Chinn, contacted American Web about a used M-1000 press it had for sale. After some discussion, American Web agreed to see the press (at Harris’ expense) at Pisani Carlisle Graphics in San Francisco, California, where it was still located and operated. On September 10, 1982, representatives of American Web and Harris went to Pisani Carlisle Graphics and observed the press in operation. After this inspection, American Web’s chief representative, Gary Hansen, indicated that his company was very interested in the machine. But Hansen was neither prepared nor willing to commit American Web to a binding agreement that day. He had not pre-arranged financing for its purchase, and he had failed to consult in advance with his attorney. Consequently, when Harris representatives exhorted Hansen to sign a standard Harris order form, he refused.

Hansen, however, did ask Chinn on September 10, 1982, to prepare a list of proposed contract terms which Hansen could then take back to Denver and present to his attorney and banker. Chinn prepared this memorandum on a piece of roll-stock paper, and Hansen then added two provisions and several asterisks. Chinn signed the document, but Hansen refused even to initial it. At the close of the discussion, the parties agreed to meet early the following week to negotiate further the sale of the M-1000 press.

Because Hansen was unable to arrange immediately his press business affairs, Harris and American Web did not meet again until Wednesday, September 15, 1982. At the commencement of this meeting, convened in the Denver office of Robert Loeb of Weigher & Fulton, attorney for plaintiff, Harris representatives announced that the press had already been sold to Perry Printing Company. The Publication Press Division of Harris had given Perry a right of first refusal on this M-1000 in late August, 1982. After flying to San Francisco and examining the press, Perry signed the Harris sales agreement form on September 14, 1982. This purchase contract was accepted by defendant on September 15, and the formal order was then signed by Harris on September 21, 1982. As a result of this sequence of events, the Commercial Press Division was unable to sell the used press to American Web on September 15, 1982.

Nonetheless, two backup contract proposals were discussed at this meeting in case the Perry deal disintegrated. One contract was prepared by Chinn and Melvin. The other contract proposal, which was drafted by Mr. Loeb, incorporated some provisions from the list prepared by Chinn and included other significant changes; it was accompanied by an American Web check for $20,000. These contracts, however, were never accepted by Harris and Web, and the check was returned to Hansen on September 24, 1982.

American Web commenced this suit on September 23, 1982, in state court in Denver against Harris Corporation and Perry Printing. The defendants removed the action to federal court. Plaintiff agreed to withdraw its early request for a temporary restraining order against moving the press from Pisani Carlisle Graphics and to dismiss Perry as a defendant. The only matter remaining is American Web’s breach of contract claim against Harris.

II

The pivotal issue raised by the facts in the case at bar is whether there was an enforceable sales contract between Harris and American Web as of September 10, 1982. In the absence of such an agreement, I must conclude that there was no breach of contract and that plaintiff is not entitled to damages. Alternatively, if there was a binding agreement, then I must determine whether enforcement of the contract is barred by the Statute of Frauds. Finally, since this case involves the sale of goods, these issues are governed by the Uniform Commercial Code.

Plaintiff American Web asserts that it entered into a binding oral contract with Harris Corporation at the close of the inspection tour on September 10, 1982. It argues that both parties intended to be bound as of that date and characterizes all later meetings and discussions as merely efforts to work out fine details. Since this oral agreement predated the Perry Printing contract, American Web maintains that Harris’ sale to Perry constituted a breach of plaintiff’s contract.

Defendant contends that there was never an enforceable written or oral contract between American Web and Harris to purchase the used M-1000 press. The September 10, 1982, document was never meant to be an offer, as evidenced by its internally inconsistent terms. Nor was there ever an oral agreement based upon the parties’ conduct. Finally, Harris suggests that both parties understood that in the event of a sale, a contract would be prepared the following week on a standard Harris order form.

Under the Uniform Commercial Code, “a contract for the sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” U.C.C. § 2-204(1); See Luria Bros. & Co., Inc. v. Pielet Bros. Scrap Iron & Metal, Inc., 600 F.2d 103, 108 (7th Cir.1979). The Code defines “contract” as the “total legal obligation which results from the parties’ agreement as affected by the code and any other applicable rules of law.” U.C.C. § 1-201(11). And an “agreement” “means the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided by the Code.” U.C.C. § 1-201(3).

To be sure, Article Two of the U.C.C. expands the traditional concept of a contract and imposes new and wider ranges of obligations. See White and Summers, Handbook of the Law under the Uniform Commercial Code (1980), p. 23. In keeping with this liberal trend, the Official Comment to the Code explains that if the parties intend to enter into a binding agreement and an appropriate remedy may be fashioned, then a contract for sale does not fail for indefiniteness if terms are left open. Official Comment to 2-204; Kleinschmidt Division of SCM Corp. v. Futuronics Corp., 41 N.Y.2d 972, 395 N.Y. S.2d 151, 152, 363 N.E.2d 701, 702 (1977).

The Uniform Commercial Code, however, will not imply a basic agreement if the parties did not reach one. Kleinsch midt, supra at 152, 363 N.E.2d at 702. Section 2-204 still requires an agreement or a meeting of the minds between the negotiating parties. Euclid Engineering Corp. v. Illinois Power Co., 79 Ill.App.2d 145, 223 N.E.2d 409, 413 (1967). But in place of a subjective test of intent, the Code focuses exclusively on “mutuality of assent as manifested by the conduct of the parties.” Cargill, Inc. v. Stafford, 553 F.2d 1222, 1225 (10th Cir.1977); Bradford v. Plains Cotton Cooperative Ass’n, 539 F.2d 1249, 1253 (10th Cir.) cert. denied 429 U.S. 1042, 97 S.Ct. 743, 50 L.Ed.2d 754 (1976).

Turning now to the instant case, I find that there was no mutuality of assent between American Web and Harris on September 10, 1982. The evidence presented at trial, including the parties’ conduct, surrounding circumstances, later events, and the specific items in the memorandum, establishes that no agreement was reached on that date. Specifically, Gary Hansen’s refusal to sign the standard Harris form or the list of proposed contract terms is conduct which is inconsistent with plaintiff’s contract theory. In addition, the parties’ mutual decision to meet the following week to negotiate further the entire agreement reflects the preliminary character of the September 10 discussions. Finally, the inconsistent terms in the September 10 list lead me to find that this memorandum was only a proposal and not an offer. Whereas Chinn included the phrase “as is, where is” on the document, Hansen insisted on “press ready to print comparable to its condition in S.F.” See § 2-316 and Official Comment 7, U.C.C.; O’Neil v. International Harvester Co., 40 Colo.App. 369, 575 P.2d 862, 865 (1978). I recognize that disputes over material terms do not necessarily prevent the formation of a binding contract under § 2-204(3) of the U.C.C. Yet this is not the case when a dispute over a significant term manifests a lack of intention to contract. Kleinschmidt, supra at 152, 363 N.E.2d at 702. Here, the negotiating parties were merely assembling a list of potential provisions to be included in a final, written contract. I therefore hold that American Web and Harris did not enter into an enforceable sales contract on September 10, 1982.

In the alternative, I find that if any agreement was in fact reached on September 10, 1982, it was not binding on the parties. American Web and Harris did not intend to be bound by an oral agreement prior to drafting and executing a formal writing. Coulter v. Anderson, 144 Colo. 402, 357 P.2d 76 (1960); Mohler v. Park City School District RE-2, 32 Colo.App. 388, 515 P.2d 112, 114 (1973). Harris made clear to plaintiff that in accordance with its standard operating procedure, any formal offer by American Web had to be submitted on a printed Harris form. Such a writing, therefore, was not merely intended to memorialize a bargain already made. Luria, supra at 108; Lambert Corp. v. Evans, 575 F.2d 132, 135 (7th Cir.1978). Rather, it was a condition precedent to an enforceable contract. Further support for this conclusion can be found in the Restatement of Contracts (2nd), Section 27, where it states,

if either party knows or has reason to know that the other party regards the agreement as incomplete and intends that no obligation shall exist until other terms are asserted to or until the whole has been reduced to another written form, the preliminary negotiations and agreements do not constitute a contract. Comment b (1979 ed.).

Accordingly, I conclude that there was no binding contract between plaintiff and defendant on September 10, 1982.

Ill

Even if there was a valid September 10 agreement between Web and Harris, plaintiff is not entitled to relief because enforcement of such contract is barred by the Statute of Frauds.

The Statute of Frauds provides in relevant part that,

(1) [ejxcept as otherwise provided in this section, a contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon, but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing. U.C.C. § 2-201.

This section makes clear that the contract for the sale of goods need not be reduced to writing. Impossible Electronics Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026, 1083 (5th Cir. 1982). Moreover, the writing need not state with absolute precision all of the material terms. “What is required is that the writing afford a basis for believing that the offered oral evidence rests on a real transaction.” N. Dorman & Company, Inc. v. Noon Hour Food Products, Inc., 501 F.Supp. 294, 296 (E.D.N.Y.1980).

The Official Comment to § 2-201 delineates three invariable requirements which if satisfied, take the agreement out of the Statute of Frauds. First, it must specify quantity. Second, it must be “signed”; a word which includes any authentication which identifies the party to be charged. Finally, it must evidence a contract for the sale of goods. See Nations Enterprises, Inc. v. Process Equipment Co., 40 Colo. App. 390, 579 P.2d 655, 658 (1978); Impossible Electronics, supra at 1034; Dorman, supra at 297; and Cavalier Mobile Homes, Inc. v. Liberty Homes, Inc., 53 Md.App. 379, 454 A.2d 367, 376 (1983).

Here, the first two prongs are easily met. The September 10 memorandum on roll paper included a provision for the sale of one used M-1000 printing press. It was also signed by an agent of the party to be charged, Claude Chinn, Salesman, Commercial Press Division of Harris Corporation.

The third requirement, however, is not satisfied in the case at bar. According to the court in Dorman, supra, the dispositive inquiry is “whether the writings, considered as a whole, evidence by ‘reasonable construction and necessary implication a contract for the sale of goods.’ ” Id. at 297, quoting Morris Cohon & Co. v. Russell, 23 N.Y.2d 569, 297 N.Y.S.2d 947, 245 N.E.2d 712 (1969). In Dorman, a cheese importer and distributor sought damages against another dealer for breach of an alleged agreement relating to the use of two Canadian import licenses. The court reluctantly found that although a verbal agreement was reached on November 24, 1978, the writings did not evidence a contract for the sale of goods. It observed that “[a]t best, these writings may be regarded as evidence of preliminary negotiations ____” Id. at 298; See FMC Finance Corp. v. Reed, 592 F.2d 238, 243 (5th Cir. 1979); In re Flying W. Airways, Inc., 341 F.Supp. 26, 72 (E.D.Pa.1972).

The September 10 memorandum reflects that American Web and Harris were still negotiating and “so long as negotiations are still in progress, there cannot be an adequate written memorandum for purposes of the statute of frauds.” Bender’s Uniform Commercial Code Service, 3 Sales & Bulk Transfers, § 2-204(1), at 2-45; In re Flying Airways, supra at 72. The proposed terms of sale included a heading “on contract”, the phrase “$20,000 with contract,” and a statement that “contract to be backed up by a letter of credit for full amount.” The memo also contained two inconsistent terms, “as is, where is,” and “press ready to print comparable to its S.F. counterpart.” In summary, the September 10 document fails to evidence a contract and therefore to satisfy the Statute of Frauds; this, in turn, renders the purported agreement unenforceable.

IY

The final issue to consider is defendant’s request for attorneys’ fees pursuant to C.R.S. § 13-17-101 et seq. (1982 Supp.) Harris insists that plaintiff’s claims were maintained frivolously and without good faith and asks to be reimbursed for all legal fees incurred after October, 1982, in defending this case.

I do not agree with Harris’ characterization of this lawsuit. There were genuine issues of material fact and meritorious disputes regarding the legal consequences of the parties’ conduct. Moreover, there was conflicting testimony regarding important conversations during the contract negotiations. Thus, American Web will not be required to reimburse defendant for its legal fees.

CONCLUSION

For the foregoing reasons, I hold that defendant, Harris Corporation, is not liable to plaintiff, American Web Press, Inc., for breach of contract. In accordance with this ruling, the complaint is dismissed and the trial on the issue of damages is vacated.

Each party shall bear its own costs.

Judgment shall be entered accordingly.

      . American Web's representatives included two owner-managers, Gary Hansen, then Vice President in charge of finance and administration, now President, and Terry Choate, Manager in charge of manufacturing, and an independent maintenance machinist, Charles Kennemer, who was flown up from Los Angeles, by plaintiff.

      . Harris’ representatives included Claude Chinn, salesman with Commercial Press; Kenneth Melvin, Used Equipment Manager, Commercial Press; and Ray Hartman, West Coast Representative, Commercial Press.

      . Whether California or Colorado law applies is of small consequence in interpreting the controlling U.C.C. provisions since they are the same. I therefore need not decide the conflicts question raised by these facts.


author: WISEMAN, Chief Judge.

text:
    TRUCKSTOPS CORPORATION OF AMERICA v. C-POULTRY COMPANY LIMITED.
    No. 82-3578.
    United States District Court, M.D. Tennessee, Nashville Division.
    Dec. 27, 1983.

      Russell F. Morris, Jr., Anthony J. McFarland, Bass, Berry & Sims, Nashville, Tenn., Walter D. Ames, F.M. deRosa, Watson, Cole, Grindle & Watson, Washington, D.C., Frederick V. Perry, Ryder System Inc., Miami, Fla., for plaintiff.
    Iran W. Vickery, Vickery & Jones, El Dorado, Ark., H. Frederick Humbracht, Jr., Dearborn & Ewing, Nashville, Tenn., Richard H. Compere, Hume, Clement, Brinks, William & Olds, Ltd., Chicago, 111., for defendant.
   MEMORANDUM

WISEMAN, Chief Judge.

This trademark infringement case is before the Court as a declaratory judgment action. The plaintiff, Truckstops Corporation of America [Truckstops], seeks a declaratory judgment that it has not infringed the defendant’s trademark “Country Pride.” (Nos. 1,026,305; 1,026,306, and 1,026,898). The defendant, C-Poultry Company Limited [C-Poultry], has brought a counterclaim for trademark infringement, common law infringement, dilution of its trademark, and injury to its business reputation. The Court conducted a full trial of the issues presented by this case, received post-trial briefs from the parties, and now makes the following findings of fact and conclusions of law.

C-Poultry obtained a federal registration for the mark “Country Pride” and the same mark with a barn between the words and over a hill of flowers in December of 1975. C-Poultry presently uses this full mark in marketing fresh and frozen poultry for sale in grocery stores. Truckstops uses the mark “Country Pride” for its restaurants and motels at truckstops. Truck-stops has used this mark since April 1982 and does not own a federal registration for the “Country Pride” mark. Both parties have acquired rights to the mark from previous users. C-Poultry obtained rights to the mark from Wenning Packing Company, which used the mark in Tennessee and five other states from 1959 until 1980 and registered it for prepared meat products in 1978. (Plaintiff’s Exhibit 92, Request No. 11; Defendant’s Exhibits 13). Truckstops obtained rights to the mark for its restaurants from Perlis Truck Terminal in Cordele, Georgia, on February 10, 1982. The Perlis Terminal has used the mark since the Spring of 1972. (Plaintiff’s Exhibits 1-4, 47, Perlis Testimony).

The Lanham Act proscribes use in commerce of any imitation of a registered mark without permission when such “use is likely to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. § 1114(l)(a). Courts have stressed that the “key element in any infringement action is the likelihood of confusion.” Hindu Incense v. Meadows, 692 F.2d 1048 (6th Cir. 1982) (citing Purolator, Inc. v. EFRA Distributors, Inc., 687 F.2d 554, 559 (1st Cir. 1982); Beer Nuts, Inc. v. King Nut Co., 477 F.2d 326, 329 (6th Cir.), cert. denied, 414 U.S. 858, 94 S.Ct. 66, 38 L.Ed.2d 108 (1973). Trademark protection is not limited to products specified in the registration that directly compete with those under trademark, but extends to “any goods which are ‘likely to cause confusion’ in the public’s mind.” Atlas Supply Co. v. Atlas Brake Shops, Inc., 360 F.2d 16, 18 (6th Cir.1966) (citations omitted).

A trademark that is merely descriptive will not be protected against an alleged infringer unless the senior user shows not only that the subsequent use of the mark is likely to cause confusion but that the descriptive mark has acquired a secondary meaning. See Hindu Incense v. Meadows, 692 F.2d 1048, 1050 (6th Cir.1982); Jewel Companies, Inc. v. Westhall Co., 413 F.Supp. 994, 1000 (N.D.Ohio 1976). A “secondary meaning” is “a showing that the public identifies the trademark with a particular source rather than the product” WLWC Centers, Inc. v. Winners Corp., 563 F.Supp. 717 (M.D.Tenn.1983) (Quoting 1 J. McCarthy, Trademarks and Unfair Competition § 11.5 (1973)).

A mark that is suggestive does not require a showing of secondary meaning to be protected. Hindu Incense v. Meadows, 692 F.2d 1048, 1050 (6th Cir. 1982); WLWC Centers, 563 F.Supp. at 719. Although the distinction between “suggestive” and “descriptive” is somewhat nebulous, WLWC Centers, 563 F.Supp. at 720, one useful rule is as follows:

A term is suggestive if it requires imagination, thought and perception to reach a conclusion as to the nature of goods. A term is descriptive if it forthwith conveys an immediate idea of the ingredients, qualities or characteristics of the goods.

Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 11 (2d Cir.1976) (quoting Stix Products, Inc. v. United Merchants & Manufacturers, Inc., 295 F.Supp. 479, 488 (S.D.N.Y.1968)). The registration of a mark by the Patent Office without a required showing of secondary meaning raises a rebuttable presumption that the mark is suggestive rather than merely descriptive. Money Store v. Harriscorp Finance, Inc., 689 F.2d 666, 673 (7th Cir.1982); WLWC Centers, 563 F.Supp. at 720.

The plaintiff has argued that C-Poultry’s advertising has converted its mark to one that is descriptive by using the common usage of the name “Country Pride” to emphasize qualities and characteristics of its poultry. The plaintiff has produced advertisements where the defendant uses such phrases as “Country fresh,” “welcome back to the country,” “freshness takes pride,” and “Country taste that you will serve with pride.” (Plaintiff’s Exhibit 91-K; Defendant’s Exhibits 19, 20). While this evidence bears heavily on the strength of the defendant’s mark, it is not sufficient to overcome the presumption that the mark is suggestive. The mark still requires imagination to reach a conclusion as to the nature of the goods, especially for purchasers who do not read the defendant’s advertising. Accordingly, the Court concludes that the defendant’s mark is suggestive and holds under these circumstances that the appropriate means of limiting the defendant’s mark is by affording it limited protection if it is weak rather than holding it descriptive and invalid. See WLWC Centers, 563 F.Supp. at 720.

In Frisch’s Restaurants, Inc. v. Elby’s Big Boy of Steubenville, Inc., 670 F.2d 642, 648 (6th Cir.1982), the Sixth Circuit adopted eight factors that it found useful in demonstrating whether there is a likelihood of confusion among consumers:

1. strength of the [registrant’s] mark;
2. relatedness of the goods;
3. similarity of the marks;
4. evidence of actual confusion;
5. marketing channels used;
6. likely degree of purchaser care;
7. [alleged infringer’s] intent in selecting the mark;
8. likelihood of expansion of the product lines.

Id. (citing Toho Co., Ltd. v. Sears, Roebuck & Co., 645 F.2d 788, 790 (9th Cir.1981)). Because the Court has held that C-Poultry has a valid trademark, it will proceed to determine whether a consideration of these factors leads to the conclusion that Truck-stops’ use of the mark “Country Pride” has led to a likelihood of confusion.

The Court finds that the mark “Country Pride” is very weak. The strength of a trademark depends on its distinctiveness or tendency to identify goods sold as produced by a particular source. McGregor-Doniger v. Drizzle, Inc., 599 F.2d 1126, 1131 (2d Cir.1979). “Country Pride” is not distinctive; it is a combination of words with common usage. C-Poultry's advertising has emphasized the common usages of the words, underscoring their lack of distinctiveness. See WLWC Centers, 563 F.Supp. at 722. The policy affording weak marks limited protection reflects the same goal as the policy that prevents registration of descriptive names: to prevent the monopolization or appropriation of common words. See Standard Paint Co. v. Trinidad Asphalt Manufacturing Co., 220 U.S. 446, 31 S.Ct. 456, 55 L.Ed. 536 (1911); Beer Nuts, Inc. v. King Nut Co., 477 F.2d 326, 329 (6th Cir.), cert. denied, 414 U.S. 858, 94 S.Ct. 66, 38 L.Ed.2d 108 (1973); Jewel Companies, Inc. v. Westhall Co., 413 F.Supp. 994, 1000 (N.D.Ohio 1976). To hold the mark in this case to be a strong one would not serve this policy.

Additionally, the large number of other users of the mark “Country Pride” demonstrates the weakness of the mark. See Atlas Supply Co. v. Atlas Brake Shops, Inc., 360 F.2d 16, 18 (6th Cir.1966); WLWC Centers, 563 F.Supp. at 722. The mark “Country Pride” was formerly used on many different products and services and is presently used for several products including fresh vegetables sold at wholesale, horsemeat, utensils, and bread, and is used by another restaurant in Amarillo, Texas. (See Plaintiff’s Exhibit 92, Requests for Admission numbers 13, 31, 41, 43, 65, 73). C-Poultry has succeeded in persuading others to discontinue use of the mark. This demonstrates widespread registration and use of the mark.

In In re Colonial Stores, Inc., 216 U.S. P.Q. 793 (T.T.A.B.1982), the Trademark Appeals Board affirmed the denial of a registration of the mark “Country Pride” for bread, finding that the mark was likely to cause confusion with the defendant’s products, which are also sold in retail stores. The Board did not disagree, however, with the conclusion that “Country Pride” was a weak mark. See id. at 793-94. This Court also credits expert testimony underscoring the weakness of the “Country Pride” mark.

The Sixth Circuit has held that “the strong mark enjoys greater protection while the weak mark is afforded little support.” Hindu Incense v. Meadows, 692 F.2d 1048, 1050 (6th Cir.1982). Where a mark is weak, courts are less inclined to extend trademark protection to unrelated products not specifically named in the registration. Atlas Supply Co. v. Atlas Brake Shops, Inc., 360 F.2d 16, 18 (6th Cir.1966) (citing Dwinell-Wright Co. v. National Fruit Products Co., 140 F.2d 618 (1st Cir.1944)). A weak mark will be entitled to more protection, however, if it has attained a secondary meaning in the minds of the consuming public. WLWC Centers, 563 F.Supp. at 723; Jewel Companies, Inc. v. Westhall Co., 413 F.Supp. 994.

To establish secondary meaning, C-Poultry has the burden of proving that the “primary significance of the term in the mind of the consuming public is not the product but the producer.” WLWC Centers, 563 F.Supp. at 723 (citations omitted). It has not met this burden. C-Poultry argues first that its extensive advertising has transformed its weak mark into a more distinctive one, and argues that its surveys have proved this. (Defendant’s Post-Trial Brief at 12). The defendant’s surveys are not entitled to great weight, however, because the form of the questions was misleading and because the questions were designed by counsel. See Boehringer Ingelheim G.m.b.H. v. Pharmadyne Laboratories, 532 F.Supp. 1040, 1058 (D.N.J. 1980). Moreover, the survey counted an association of the name “Country Pride” with the name of the store where the chicken was sold as a correct answer. The survey does not demonstrate public identification of the name with the producer. The plaintiff’s surveys, on the other hand, although they are used mainly to show no actual confusion, show a low rate of identification of the mark “Country Pride” with chicken. {See Plaintiff’s Exhibit 77).

The defendant’s outstanding sales record and advertising expenses do not prove secondary meaning. See WLWC Centers, 563 F.Supp. at 723; Ralston Purina Co. v. Thomas J. Lipton, Inc., 341 F.Supp. 129, 134 (S.D.N.Y.1972). Finally, the extensive third party use of the mark “Country Pride” is strong support for the finding that no secondary meaning has attached to the defendant’s mark. See Empire National Bank of Traverse City v. Empire of America FSA, 559 F.Supp. 650, 656 (W.D.Mich.1983). The defendant’s mark is therefore weak and is entitled only to limited protection.

The second element for consideration is the relatedness of the goods. In In re. Pick-N-Pay Supermarkets, Inc., 185 U.S.P.Q. 172, 173 (T.T.A.B.1974) the Trademark Trial and Appeal Board held that there is a “pertinent and intimate relationship between [foods and food services] so that the use of the same or similar mark is likely to cause confusion.” In this case, however, the products are not so related as to be confusingly similar. The plaintiff’s restaurants are not geared toward chicken. The defendant’s products require preparation, the plaintiff’s are food services and hotel accommodations to be consumed on the premises. The products are not in direct competition with one another.

In determining the similarity of the marks, one must decide on the basis of “the total effect of the designation, rather than on a comparison of individual features.” WLWC Centers, 563 F.Supp. at 725 (Citing Restatement of Torts § 729, comment B (1938)). The overall impression of the mark is what matters. Armstrong Cork Co. v. World Carpets, Inc., 597 F.2d 496, 502 (5th Cir.1979). Although the trade names in this case are identical, their presentation differs. C-Poultry’s mark is distinguished by the calico pattern under the words and by the barn drawing between the words. Truckstops’ mark is generally associated with a Truckstops of America sign close by, and has no decorative presentation. Thus, although the marks are similar they are not dramatically so, and in the context of the other factors the similarity is not likely to cause confusion.

The next factor to consider is evidence of actual confusion. The leading case in this Circuit, Frisch’s Restaurants, Inc. v. Elby’s Big Boy of Steubenville, Inc., 670 F.2d 642, 648 (6th Cir.1982), held that although “evidence of actual confusion is not necessary to a finding of likelihood of confusion, it is nevertheless the best evidence of likelihood of confusion.” Id. (quoting Amstar Corp. v. Domino’s Pizza, Inc., 615 F.2d 252, 263 (5th Cir.), cert. denied, 449 U.S. 899, 101 S.Ct. 268, 66 L.Ed.2d 129 (1980)). The defendant admitted in its responsive pleading that it had no evidence of actual confusion between its products and the services of the plaintiff’s predecessor in interest. (Plaintiff’s Exhibit 92, Request for Admission Number 2). Moreover, the plaintiff produced a survey showing that patrons of the plaintiff’s restaurants in Las Cruces, New Mexico and Atlanta, Georgia, do not confuse the restaurants with the defendant’s chicken products and thereby perceive a common source. (Plaintiff’s Exhibit 77 at 11 (maximum of 4 percent confusion at Las Cruces where the defendant’s products are well known). A similar survey at stores in Albuquerque and Marietta, Georgia, showed that those persons who identified “Country Pride” as a mark for chicken products and indicated an awareness of “other products or services” of the same name (8 percent), none could identify the plaintiff’s restaurants. (Plaintiff’s Exhibit 78 at 10-11). While these results may not be projectable to other areas, they are convincing proof of the insufficient evidence of actual confusion. The defendant produced no witness to testify to confusion. In light of the weakness of the mark and the lack of direct competition between the parties, the plaintiff has made a strong showing of no confusion.

The marketing channels used by the parties are markedly different. The great majority of the plaintiffs customers, 70 to 100 percent, are truck drivers. (Deposition of Anne McNeal p. 89). The defendant, on the other hand, markets toward shoppers at grocery stores who, according to C-Poultry’s marketing agent, are “housewives between the ages of twenty-five and forty-nine, with family income of eight thousand to fifteen thousand annually.” (Thomas Deposition at 17). The defendant has stressed that Truckstops has attempted to reach the same customers as C-Poultry by appealing to local families and automobile tourists, and that planned expansion by Truckstops will increase confusion. Nevertheless, marketing channels remain different. The products are not marketed side-by-side, nor are they marketed primarily to the same clientele.

In Frisch’s Restaurants, Inc. v. Elby’s Big Boy of Steubenville, Inc., 670 F.2d 642, 648 (6th Cir.1982), the court stressed the low degree of purchaser care in selecting “fast food” products, finding it unlikely that consumers of fast food would discover any mistake based on similarity of trademark prior to patronizing the offending restaurant. This is not a case of direct competition between fast food restaurants using the same mark, however, where a low degree of purchaser care would be more significant. Moreover, purchasers of packaged chicken may pay more careful attention to the contents of the packages than the “impulse buying” described in Frisch’s. The truckers who patronize the plaintiffs restaurants also are more selective than “fast food” customers because they often need to purchase large amounts of fuel and to use specialized credit card services. (See Plaintiffs Exhibits 44, 45). The public thus exercises more than casual care in purchases of these products, causing very little customer confusion.

The defendant does not contend that the plaintiff adopted its name in “an attempt to ride upon the good will created by defendant.” (Defendant’s Post-Trial Brief at 43). The Sixth Circuit has held that intent is a critical factor, one that may justify the inference of confusing similarity where a name is adopted to deprive another of the benefit of a mark. Frisch’s Restaurants, 670 F.2d at 648. The defendant asserts that Truckstops exercised bad faith in selecting the name “Country Pride” for its restaurants after it was notified by its attorney of the defendant’s use of the mark. The defendant argues that this “bad faith” is not relieved because the plaintiff adopted its name on the advice of an attorney. See Gioia Macaroni Co., Inc. v. Joseph Victori Wines, 205 U.S.P.Q. 986, 989 (E.D.N.Y.1979) (attorney’s advice no excuse for bad faith failure to investigate use of strong mark on closely related goods). The Court cannot conclude that the plaintiff exercised bad faith in adopting a weak mark for its name where its services are not closely related to the defendant’s products and where it secured the advice of two attorneys competent in trademark law prior to adopting its mark.

The last factor to consider is the likelihood of expansion along product lines. There was no proof presented in this case that the defendant has any plans to open restaurants. “Clearly the absence of any present intention or plan indicates that such expansion is less, rather than more, probable.” McGregor-Doniger, Inc. v. Drizzle, Inc., 599 F.2d 1126, 1135-36 (2d Cir.1979). C-Poultry argues that Truck-stops is in C-Poultry’s “area of natural expansion” and should be enjoined. See Koffler Stores, Ltd. v. Shoppers Drug Mart, Inc., 434 F.Supp. 697, 704 (E.D.Mich. 1976) , affd mem., 559 F.2d 1219 (6th Cir. 1977) (citations omitted). This argument, however, is basically a concession on C-Poultry’s part that it has not prevailed on this factor. Although the defendant stresses that some other companies that market food products have developed restaurant outlets, it has not demonstrated that this is a natural expansion, much less that C-Poultry is likely to take this step. It would be imprudent, in light of all the factors under consideration and the products themselves, to grant exclusive rights to a weak mark based on a very speculative showing of likelihood of expansion. See Sheller-Globe Corp. v. Scott Paper Co., 204 U.S.P.Q. 329, 334 (TTAB 1979) (courts should be reluctant to grant a “right in gross” to a mark).

A consideration of all the facts presented in this case leads to the conclusion that Truckstops has not infringed the “Country Pride” name. Given the finding that “Country Pride” is a weak mark, it is entitled to a narrow range of protection. The other elements for consideration of likelihood of confusion do not preponderate in favor of C-Poultry. Whatever inconvenience C-Poultry will suffer is simply the risk that it took when it took “Country Pride” as its mark. See Jewel Companies, Inc. v. Westhall Co., 413 F.Supp. 994, 1000 (N.D.Ohio 1976). Judgment will therefore be entered in favor of the plaintiff on all grounds.


author: ALDON J. ANDERSON, Chief Judge.

text:
    Robert B. VANCE, D.O., Plaintiff, v. Robert O. BOWEN, Department of Registration, Director of Department of Registration of the State of Utah; Catherine Greenwood; Keigo Hase; and Leland Shafer, Defendants.
    No. C-83-1212A.
    United States District Court, D. Utah, C.D.
    Feb. 13, 1984.

      John A. Burgess, Berkeley, Cal., and M. Richard Walker, Walker, Hintze & Brown, Salt Lake City, Utah, for plaintiff.
    David L. Wilkinson, Atty. Gen., Stephen G. Schwendiman, Chief Asst. Atty. Gen., and John C. Baldwin, Asst. Atty. Gen., Salt Lake City, Utah, for defendants.
   MEMORANDUM DECISION

ALDON J. ANDERSON, Chief Judge.

Plaintiffs Motion for Preliminary Injunction came on for hearing on the 13th day of January, 1984, before the Honorable Aldon J. Anderson, District Judge. The court heard the evidence and argument of counsel and herewith enters its memorandum decision denying plaintiff’s request for injunctive relief.

Plaintiff Robert B. Vance is trained as an osteopathic physician and surgeon and has been licensed as such in Utah since approximately 1961. In the past, plaintiff has served in various professional societies and positions, including the Osteopathic Committee of the Utah Board of Examiners.

In September 1980, plaintiff was charged with 37 violations of UTAH CODE ANN. § 58-12-36, relating to unprofessional conduct in the practice of medicine. During January and February, 1981, plaintiff appeared before a duly noticed revocation hearing of the Osteopathic Committee of the State of Utah, Division of Registration (the “Committee”). Following the hearing, the Committee found eight of the 37 charges to be substantially supported by the evidence and recommended that plaintiff’s license to practice be revoked. The Director of the Utah Division of Registration adopted the findings and conclusions of the Committee and entered an order of revocation on February 6, 1981.

Plaintiff appealed the revocation to the state district court on the ground that the Committee acted “capriciously, arbitrarily, and that the Findings are wholly unsupported by the facts and the law.” Notice of Appeal dated February 9, 1981, Plaintiff’s Exhibit 1. On December 3, 1981, the district court upheld the revocation of plaintiff’s license.

Plaintiff appealed the district court decision to the Utah Supreme Court. On August 11, 1983, the Utah Supreme Court sustained the revocation in Vance v. Ford-ham, 671 P.2d 124 (Utah 1983). The court held that neither the failure of one of the Committee members to meet statutory qualifications nor the standard of professional conduct used by the Committee deprived plaintiff of due process of law. The court also found that the Committee’s findings were substantially supported by the evidence. The court rejected plaintiff’s motion for rehearing and granted a limited stay for the sole purpose of allowing a stay to be requested from the United States Supreme Court. On December 10, 1983, Justice White of the United States Supreme Court denied plaintiff’s application for a stay.

On October 26, 1983, plaintiff commenced an action under 42 U.S.C. § 1985(3) against the State of Utah, the Director of the Department of Registration and the members of the Committee. On November 1, 1983, plaintiff amended his complaint, dropping the State of Utah as a defendant and adding a claim under 42 U.S.C. § 1983. The gravamen of plaintiff’s § 1983 claim is that three errors occurred during the revocation proceedings the effect of which was to deny plaintiff equal protection and due process of law. First, plaintiff was charged with violating UTAH CODE ANN. § 58-12-36, governing unprofessional conduct in the practice of medicine. Plaintiff claims that osteopathic surgeons are governed by standards of “unprofessional conduct” contemplated in UTAH CODE ANN. § 58-12-18, and not section 58-12-36. Plaintiff claims that this disparity resulted in a denial of his appeal rights under section 58-12-18 without due process of law and in violation of § 1983. Second, plaintiff claims that the hearing was conducted by an improperly constituted Committee because one of the Committee members had not been a resident of Utah for three years and had not been licensed to practice in Utah for five years as required by UTAH CODE ANN. § 58-1-6. Plaintiff claims that the Committee thus lacked authority to conduct the revocation hearing and enter its findings and recommendations, and that the defendants intentionally withheld this fact from him. Third, plaintiff claims that defendants never clearly defined or promulgated standards of what constituted “unprofessional conduct” for osteopathic surgeons prior to the revocation hearing, thus denying plaintiff his due process rights to be informed of what the state commands or forbids.

The gravamen of plaintiff’s § 1985 claim is that defendants have entered into an agreement and conspiracy to cause physicians who practice preventative medicine to be deprived of equal protection because of a class based discriminatory animus. At the hearing on the preliminary injunction, plaintiff conceded that he had insufficient evidence to support a preliminary injunction under § 1985.

The court believes that the threatened irreparable harm to plaintiff’s reputation and ability to earn a livelihood, absent the benefit of a preliminary injunction, makes it appropriate to fully set forth the reasons underlying the court’s denial of injunctive relief.

Title 28 U.S.C. § 1738 (1976) provides that state judicial proceedings “shall have the samé full faith and credit in every court within the United States ... as they have by law or usage in the courts of such state ... from which they are taken.” Section 1738 fully applies to issues raised in § 1983 actions, Haring v. Prosise, 462 U.S. 306, 103 S.Ct. 2368, 76 L.Ed.2d 595 (1983), except where the party to be precluded “did not have a full and fair opportunity to litigate the claim or issue decided by the first court”, Allen v. McCurry, 449 U.S. 90, 101, 101 S.Ct. 411, 418, 66 L.Ed.2d 308 (1980), or where “special circumstances warrant an exception to the normal rules of preclusion.” Montana v. United States, 440 U.S. 147, 155, 99 S.Ct. 970, 59 L.Ed.2d 210 (1978). Courts must therefore engage in a twofold analysis to determine if an issue is barred by the principles of res judicata. The court must determine whether: (1) state law would preclude litigation of the issue in a subsequent action; and (2) there are any special circumstances which would justify departing from the usual rules of res judicata. Haring v. Prosise, 462 U.S. 306,-, 103 S.Ct. 2368, 2373, 76 L.Ed.2d 595 (1983); Slayton v. Willingham, 726 F.2d 631 (10th Cir.1984).

A. Preclusion under Utah Law

Utah law is clear that res judicata principles apply not only to “issues which were actually raised and decided in a prior action but also to those which could have been adjudicated.” Belliston v. Texaco, Inc., 521 P.2d 379, 380 (Utah 1974). See also Church v. Meadow Springs Ranch Corp., 659 P.2d 1045, 1048 (Utah 1983). In the present action, plaintiff raised or could have raised his § 1983 claims in the state court and therefore under Utah law those claims would be barred.

B. Federal Policy Underlying § 1983 and the Application of Res Judicata Principles

Having concluded that Utah law would bar plaintiff’s' action under § 1983, the court turns to the policies underlying § 1983 as developed by the Supreme Court to determine if federal law would justify a departure from Utah res judicata principles.

Plaintiff concedes, as indeed he must, that claims fully litigated to final judgment in a state forum cannot be relitigated in federal court under the guise of § 1983. See Allen v. McCurry, 449 U.S. 90, 94-95, 101 S.Ct. 411, 414-15, 66 L.Ed.2d 308 (1980). The court has carefully examined the complaint in this action, the Utah Supreme Court decision in Vance v. Fordham, 671 P.2d 124 (Utah 1983), and the exhibits submitted at the hearing on the preliminary injunction. That review amply demonstrates that the issues in this action, with the sole exception of plaintiffs § 1985 claim, were actually litigated in the state court proceedings. In essence, plaintiff is asking this court to redetermine the precise questions considered and determined by the Utah Supreme Court in Fordham. However, that is not the prerogative of this court.

It is of no consequence whether the district court agrees or disagrees with the determinations of the [state courts] on issues fully raised before and necessarily decided by them. Res judicata protects wrong decisions as fully as right ones. It is immaterial that the questions were constitutional in character, ... or that they are now asserted in an action under 42 U.S.C. § 1983.

Friarton Estates Corp. v. City of New York, 681 F.2d 150, 158 (2d Cir.1982). The record demonstrates that plaintiff was given every opportunity to present his claims to the state courts and that the state courts ruled on those claims. Plaintiff has not presented this court with any evidence that special circumstances exist justifying departure from the settled rules of preclusion.

Even if this court were to find that the plaintiffs § 1983 claims were not actually litigated in the state court proceedings, plaintiffs claims would still be barred because they could have been raised and litigated in the state forum. See Spence v. Lotting, 512 F.2d 93 (10th Cir.1975). Although Spence was decided before the Supreme Court’s decision in Allen v. McCurry, 449 U.S. 90, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980), Allen expressly left open the question of “whether a § 1983 plaintiff who seeks to litigate in a federal court a federal issue which he could have raised but did not raise in an earlier state court suit” is barred by res judicata. Id. at 97 n. 10, 101 S.Ct. 416.

Since Allen, courts have disagreed as to whether a § 1983 plaintiff is precluded from raising issues in the federal forum that were not actually raised and decided in the state proceedings. See 18 C. Wright, A. Miller & E. Cooper, Fed. Practice and Procedure § 4471, at 716 (1981); 6 Fed. Procedure § 11:148, at 170-71 (L. ed. 1982). However, this court believes that Spence and the public policy statements therein contained are controlling. To hold otherwise would lead to “endless or repetitive litigation” and seriously undermine the final judgment of the state courts. Spence v. Lotting, 512 F.2d at 98.

The application of res judicata invariably results in the shouldering of burdens by plaintiffs who have not asserted federal claims in state court proceedings. But that does not justify this court assuming jurisdiction where a plaintiff has had full opportunity to press his claims through the state court system. There is no support in the Constitution or in § 1983 for the “principle that every person asserting a federal right is entitled to one unencumbered opportunity to litigate that right in a federal district court, regardless of whether that claim has already been decided against him after a full and fair proceeding in state court.” Haring v. Prosise, 462 U.S. at-, 103 S.Ct. at 2373.

Accordingly, plaintiff has failed to show a likelihood of success on the merits because the § 1983 claims asserted in the present complaint were actually litigated, or could have been litigated, in the state court proceedings. Under Spence v. Latting, 512 F.2d 93 (10th Cir.1975), Allen v. McCurry, 449 U.S. 90, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980), and Haring v. Prosise, 462 U.S. 306, 103 S.Ct. 2368, 76 L.Ed.2d 595 (1983), plaintiff’s § 1983 action is barred under the doctrine of res judicata. The issuance of a preliminary injunction under such circumstances would be adverse to the public interest and seriously undermine the final judgment of the Utah Supreme Court in Vance v. Fordham, 671 P.2d 124 (Utah 1983).

IT IS THEREFORE ORDERED that plaintiff’s motion for preliminary injunction is denied.