author: DORSEY, District Judge.

text:
    MASHANTUCKET PEQUOT TRIBE v. Austin J. McGUIGAN, Chief State’s Attorney, State of Connecticut.
    Civ. No. H-85-210(PCD).
    United States District Court, D. Connecticut.
    Jan. 9, 1986.
    Barry A. Margolin, Thomas N. Tureen, Tureen & Margolin, Portland, Me., Sharon S. Tisher, Day, Berry & Howard, Hartford, Conn., for plaintiff.
    Carl Schuman, Asst. State’s Atty., Wallingford, Conn., for defendant.
   RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

DORSEY, District Judge.

Plaintiff seeks a declaratory judgment and injunctive relief to preclude enforcement of state statutes pertaining to the conduct of bingo games on plaintiff’s reservation. The court has jurisdiction. 28 U.S.C. §§ 1343, 1362.

The matter is presented for final adjudication by the parties’ cross-motions for summary judgment. The parties have stipulated to the controlling facts and thus summary judgment is a proper means of resolving the matter. Rule 56(c), Fed.R. Civ.P. Defendant’s threat of prosecution satisfies the requirement that there be presented to the court a case or controversy. Barona Group of Capitan Grande Band of Mission Indians v. Duffy, 694 F.2d 1185, 1187 (9th Cir.1982), cert. denied, 461 U.S. 929,103 S.Ct. 2091, 77 L.Ed.2d 301 (1983). For the reasons discussed herein, the motion of plaintiff is granted, the motion of defendant is denied.

Facts

1. Plaintiff is an Indian tribe and thus a legally cognizable entity.

2. Plaintiff’s governing body, the Tribal Council, has been duly recognized by the Secretary of Interior. 25 U.S.C. § 1758(a).

3. Defendant was the Chief State’s Attorney charged with overall enforcement of its criminal statutes.

4. Land in Ledyard, Connecticut, has been designated as the Mashantucket Pequot Reservation (“Reservation”).

5. Plaintiff is empowered to exercise its authority within the Reservation.

6. Within the authority claimed by plaintiff is the power to administer law and order on the reservation.

7. On February 7, 1985, the Tribal Council duly enacted a Bingo Control Ordinance which authorized, established a procedure for and controlled bingo games on the Reservation.

8. The Bureau of Indian Affairs of the Department of the Interior has made a development grant to plaintiff, pursuant to 25 U.S.C. § 13 and 25 C.F.R. Part 278, to construct a Reservation facility in which bingo games will be conducted.

9. Revenue from bingo will service the debt to be incurred by the tribe to complete the facility, reimburse the Bureau grant and cover a significant portion of the tribe’s governmental budget.

10. The bingo games were commenced in February 1985.

11. No authority for the games was sought pursuant to the laws of the State of Connecticut, nor were its regulations and reporting requirements complied with. Plaintiff does not intend to conduct its bingo games either pursuant or subject to the requirements of Connecticut law.

12. Defendant has stated his intention to enforce the laws of the State of Connecticut, including criminal prosecutions, as they regulate and control bingo games. Discussion

Plaintiff relies on Articles I, § 8, and VI of the Constitution of the United States, 25 U.S.C. §§ 1321, et seq., and 1751, et seq. The latter sections constitute the Connecticut Indian Land Claims Settlement Act, Public Law 98-134. Plaintiff claims sovereignty over its Reservation. Defendant disputes plaintiff’s sovereignty and, under a general authority to enforce Connecticut’s criminal laws, claims the right to enforce, on the Reservation, Connecticut’s bingo laws, to wit: Connecticut General Statutes, §§ 7-169, 7-169a, 7-169b and 53-278b. In effect, plaintiff claims sole authority to adopt and enforce regulatory laws with respect to the Reservation and the activities thereon while defendant claims that the conduct of bingo on the Reservation is subject to the criminal laws of the State of Connecticut.

The parties agree that there are no genuine issues of material fact. Thus, the issue framed is whether the tribe’s conduct of bingo games remains solely within its sovereignty or is subject to the regulation and control of the State of Connecticut by reason of its bingo laws.

The tribe is the successor to the claims of the Western Pequot Tribe of Indians asserting right, title or interest in and to public and private lands allegedly originally the property of the tribe and wrongfully misappropriated from the tribe in violation of the Constitution and laws of the United States, including, without limitation, the Trade and Intercourse Act of 1790, Act of July 22, 1790 (Ch. 33, § 4, 1 Stat. 137, 138) and the Amendments thereto. These claims were the subject of a lawsuit in this court, Western Pequot Tribe of Indians v. Holdridge Enterprises, Inc., Civil H-76-193. To eliminate all Tribal claims to any lands, Congress by 25 U.S.C. §§ 1751-1760 and the State of Connecticut by the Act to Implement the Settlement of the Mashantucket Pequot Indian Land Claims approved June 9, 1982, Connecticut Special Acts 82-31, created the Reservation to constitute the Tribal lands in lieu of claims to any and all other lands allegedly transferred from the tribe contrary to law. See 25 U.S.C. §§ 1753,1754, 1759. The implementation of these laws completed the settlement of the noted lawsuit.

In 1953, Congress had placed specific “Indian country” within the criminal jurisdiction of given states. Public Law 83-280, § 2 as codified in 18 U.S.C. § 1162. The vesting language there used is repeated in Public Law 90-284 (which replaced Public Law 83-280) and Public Law 98-134, § 6, but it is significant to note that for all “Indian country” to be made subject to a state’s criminal jurisdiction, by virtue of the terms of Public Law 90-284, a state must assume jurisdiction and the consent of the tribe in a special election is required.

The unique status of Indian tribes has been recognized by Congress and has been deemed akin to a sovereign. United States v. Wheeler, 435 U.S. 313, 328, 98 S.Ct. 1079, 1088, 55 L.Ed.2d 303 (1978). “States are generally precluded from exercising jurisdiction over Indians in Indian country unless Congress has clearly expressed an intention to permit it____ This rule derives in part from respect for the plenary authority of Congress in the area of Indian affairs____ Accompanying the broad congressional power is the concomitant federal trust responsibility toward the Indian tribes____ That responsibility arose largely from the federal role as a guarantor of Indian rights against state encroachment.” Washington Dep’t of Ecology v. EPA, 752 F.2d 1465, 1469-70 (9th Cir.1985) (citations omitted). See McClanahan v. Arizona State Tax Comm’n, 411 U.S. 164, 172, 93 S.Ct. 1257, 1262, 36 L.Ed.2d 129 (1973). Accordingly, in Public Law 90-284, 82 Stat. 73, Congress:

(a) consented to a state’s assumption of jurisdiction;
(b) if not previously possessed;
(c) over criminal offenses by or against Indians;
(d) in Indian Country (the equivalent of reservations);
(e) if consented to by the tribe there residing;
(f) to the same extent as the state’s jurisdiction elsewhere within its boundaries.

After reciting the foregoing, as above paraphrased, § 401(a) of Public Law 90-284 goes on to read:

and the criminal laws of such state shall have the same force and effect within such Indian Country or part thereof as they have elsewhere within that state.

As thus incorporated in § 401(a), not in a separate sentence, and as unlikely to have been intended to have a separate effect, independent of the prior provisions of § 401(a), the quoted phrase is construed to describe the force and effect of state law upon fulfillment of the conditions in paragraphs (a) through (f) above. This would perhaps be clearer if the word “then” were inserted such that the quoted phrase read

and the criminal laws of such state shall then have____

The method of a state’s assumption of criminal jurisdiction is not specified by § 401, but is found in § 406, codified in 25 U.S.C. § 1326, wherein the election to effectuate consent is set forth and is mandatory. Kennerly v. District Court of the Ninth Judicial Dist., 400 U.S. 423, 428-29, 91 S.Ct. 480, 482-83, 27 L.Ed.2d 507 (1971).

Against this backdrop, Congress enacted, with Connecticut’s participation, the Connecticut Indian Claim Settlement Act, Public Law 98-134, 97 Stat. 851, 25 U.S.C. § 1751, et seq. There is no claim that Connecticut has formally acted to assume criminal jurisdiction over the land which now constitutes plaintiff’s Reservation, Indian lands for the purpose of federal statutes, nor that the tribe has consented to such assumption. With nothing more, plaintiff claims that the law cannot be construed to vest Connecticut with criminal jurisdiction to enforce its bingo laws because they are not “criminal laws” to which the Settlement Act, Public Law 83-280, 67 Stat. 588, refers. The phrase “and the criminal laws of such state or territory shall have the same effect within such Indian Country as they have elsewhere within the state or territory” appears in § 2 of Public Law 83-280, 18 U.S.C. § 1162(a), and granted criminal jurisdiction to several states. That grant, and § 4 as to civil jurisdiction, 28 U.S.C. § 1360, has been held not to vest states with jurisdiction to impose civil/regulatory laws within the reservations. Barona Group, 694 F.2d at 1188, citing Bryan v. Itasca County, 426 U.S. 373, 383-87, 96 S.Ct. 2102, 2108-10, 48 L.Ed.2d 710 (1976). California was specifically named as a grantee of general criminal jurisdiction over Indian lands within its borders in Public Law 83-280, 18 U.S.C. § 1162(a). Whether that grant included jurisdiction to enforce California’s bingo laws was held by the Ninth Circuit to be determined by whether those laws “are classified as civil/regulatory or criminal/prohibitory.” Barona Group at 1188. Finding the bingo laws to be regulatory, the Ninth Circuit held that Bryan precluded their enforcement by the state on Indian land. A general grant of criminal law jurisdiction was thus held not to be a grant of civil/regulatory jurisdiction. United States v. Marcyes, 557 F.2d 1361 (9th Cir. 1977). In response to this construction, defendant argues that Public Law 83-280 should not be so construed and, further, that the cases so holding, Barona Group; Seminole Tribe v. Butterworth, 658 F.2d 310, 313 (5th Cir.1981), cert denied, 455 U.S. 1020, 102 S.Ct. 1717, 72 L.Ed.2d 138 (1982); Oneida Tribe of Indians v. Wisconsin, 518 F.Supp. 712, 720 (W.D.Wis. 1981), are simply erroneously decided.

Public Law 98-134, § 6 placed plaintiff’s Reservation on the same footing as Indian land then controlled by Title IV of Public Law 90-284, the successor to Public Law 83-280. This treatment is not distinguishable from Congress’ plan for determining the interrelationship of Indian lands and the tribes living thereon and the states in which they are located, except that plaintiff’s Reservation, by explicit reference in Public Law 98-134, is introduced into the general embrace of existing federal law. Defendant argues that, when Congress acted to create plaintiff’s Reservation and designated it as “Indian Land,” its grant of jurisdiction was to the maximum extent of Title IV of Public Law 90-284. See Public Law 98-134, § 6, 25 U.S.C. § 1755. That grant is claimed to be self-executing as exempt from the special election requirements of 25 U.S.C. § 1326, pursuant to which Tribal consent is given. While Public Law 98-134 eliminates the consent election provided in 25 U.S.C. § 1326, it may have created an anomaly by the fact that it does not eliminate the consent requirement of 25 U.S.C. § 1321. It is not necessary, however, to resolve that question if the holdings of Barona Group, Seminole and Oneida are sound and if Connecticut’s bingo laws are properly deemed civil/regulatory and not criminal/prohibitory.

What is meant by “criminal law” is a federal question. There is a difference between a criminal law which prohibits conduct and imposes penal sanctions if the prohibition is disobeyed, and a law which regulates, controls and/or limits conduct. Connecticut has a scheme for dealing with bingo which is not part of the criminal code, but rather is part of the delegation of authority to municipalities. Bingo may be conducted in a municipality which affirmatively votes to permit it, Conn.Gen.Stat. § 7 — 169(b), but then only under regulations adopted by the Commissioner of Public Safety to prevent fraud and protect the public. Conn.Gen.Stat. § 7-169(c). A sponsor of bingo (plaintiff is not qualified, according to defendant) is required to obtain a permit under a regulatory scheme provided by Conn.Gen.Stat. §§ 7-169(d), (e), (f), (g) and (j) and Conn.Gen.Stat. § 7-169a. Records and reports are required. Conn. Gen.Stat. §§ 7-169(h), 7-169b. Prizes are limited. Conn.Gen.Stat. § 7 — 169(i). A penalty is provided for promotion or operation of a bingo game contrary to the regulatory scheme. Conn.Gen.Stat. § 7-169(k). There is no blanket prohibition of bingo nor is it a part of an overall criminalization of gambling. Conn.Gen.Stat. § 53-278a(2). Bingo can hardly be deemed to contravene a public policy against gambling in view of the state’s daily encouragement and broad enticement of its citizens to participate in the state run gambling which generates substantial revenue for the state as would plaintiff’s bingo games for its governmental functions. To be sure, taken by itself, Conn.Gen.Stat. § 7-169(k), as any criminal law, provides penalties for disobedience of the regulatory scheme. Yet, it is found among related bingo statutes and is part of the overall regulatory scheme. Isolated consideration of § 7 — 169(k) ignores the general purpose of the scheme as a method of regulation of an activity. The purpose of regulation is to permit the conduct or activity with limits or restrictions. In contrast, the purpose of a criminal statute, which stands alone, is to prohibit conduct or activity. By its terms, § 7-169(k) relates to conduct restricted or regulated by the other laws which make up the bingo regulatory scheme. The penal sanction in § 7-169(k) is but a means by which the regulatory scheme is enforced. Thus, by looking at the entire block of bingo laws, the true essence of what the state has done becomes clear. It has regulated. United States v. Marcyes, 557 F.2d at 1364. Connecticut has adopted a policy of permitting bingo. It has imposed certain restrictions and limits in order to cope with problems which might otherwise be created.

Thus the grant to the states of jurisdiction over criminal laws is a grant of the authority to prohibit conduct. Such a grant is not the same as a grant of power to regulate conduct, otherwise permitted. The policy of nurturing the strength and dignity of Indian tribes and encouraging their exercise of a measure of self-government and fiscal autonomy dictates that a grant of power over the tribes be found only when it is expressed clearly. A grant of the power to regulate, albeit enforceable by penal sanctions for disobedience, may logically be divided from a grant of authority over criminal law. Bryan v. Itasca County, 426 U.S. at 390, 96 S.Ct. at 2111.

Thus, the dominant character of the nature and purpose of Connecticut’s bingo laws is regulatory and the single penal statute included therein is not to be considered in isolation. As Connecticut’s bingo laws are regulatory, the single penal statute included therein is not to be considered in isolation. As a regulatory action, Connecticut’s bingo laws, including Conn.Gen.Stat. § 7-169(k), the penal statute, are found not to be enforceable under a grant of jurisdiction over criminal law. Plaintiff’s motion for summary judgment is, therefore, granted. Defendant’s motion for summary judgment is denied.

Plaintiff’s request for attorney’s fees was not briefed by either party and thus might be considered abandoned. Yet rather than leaving the issue unaddressed, however, the request will be denied, As made under the terms of 42 U.S.C. § 1988, an award of attorney’s fees to the prevailing party is proper where the action is to enforce provisions of 42 U.S.C. § 1981, 1983, 1985, 1986, or Title IX of Public Law 92-318 or Title VI of the Civil Rights Act of 1964. Plaintiff's action does not fall within any of the aforementioned. Thus, § 1988 is not applicable.

Accordingly, judgment shall enter for plaintiff as follows:

1. Declaring Connecticut’s bingo laws, Conn.Gen.Stat. §§ 7-169, 7-169a and 7-169b not to be enforceable on plaintiff’s Reservation nor in relation to the conduct of bingo games conducted thereon.

2. Permanently enjoining defendant, his successors, his subordinates, agents and employees, or the subordinates, agents and employees of his successors, from enforcing or prosecuting under the authority of Conn.Gen.Stat. §§ 7-169, 7-169a and 7-169b, any person who operates, promotes or conducts or assists in the operation, conduct or promotion of bingo games on the Reservation of plaintiffs.

SO ORDERED.

      . While defendant has since been replaced as Chief State’s Attorney, the court will treat him in his representative capacity as the personification of Connecticut’s law enforcement orga- ■ nization.

      . Thus, purely criminal law jurisdiction was controlled by § 2 of the Public Law and civil jurisdiction was controlled by § 4. But neither was held to give states authority to exercise civil/regulatory power over Indian lands.


source: Caselaw Access Project

author: BRIEANT, District Judge.

license: Public Domain

text:
    TEXACO, INC., Plaintiff, v. PENNZOIL COMPANY, Defendant.
    No. 85 Civ. 9640-CLB.
    United States District Court, S.D. New York.
    Jan. 10, 1986.
    Paul J. Curran, Ira A. Sacks, Kaye Scholer, Fierman, Hays & Handler, David Boies, Max R. Shulman, Frank Barron, Cravath, Swaine & Moore, New York City, for plaintiff.
    Arthur Liman, Mark Belniek, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, John L. Jeffers, Jr., G. Irvin Terrell, Baker & Botts, Houston, Tex., for defendant.
   FINDINGS AND CONCLUSIONS

BRIEANT, District Judge.

By a motion, pursuant to an Order to Show Cause, issued by this Court on December 17, 1985 and heard on January 9, 1986, plaintiff (“Texaco”) seeks a provisional remedy in the nature of a preliminary injunction pending trial of the issues raised in its amended complaint, as follows: That defendant (“Pennzoil”), its employees, agents, attorneys and servants be jointly and severally enjoined and restrained from taking any action of any kind whatsoever to enforce or attempt to enforce the Judgment entered in an action in the District Court for the 151st Judicial District of Texas entitled Pennzoil Company v. Texaco Inc., (hereinafter “the Judgment”) including, without limitation, attempting to obtain or file any judgment, lien or abstract of judgment related to the Judgment (pursuant to Tex.Prop.Code Ann. ¶¶ 52.001, et seq., or otherwise), or initiating or commencing any steps to execute on the Judgment.

This Court issued a temporary restraining order to this effect on December 17, 1985 and extended it on consent of the parties by an order dated December 23, 1985. Following the hearing, that order remains in effect by oral direction of the Court.

Pennzoil, by a cross motion filed on December 20, 1985, also heard January 9, 1986, seeks to dissolve this Court’s temporary restraining order and to dismiss plaintiff’s amended complaint for failure to state a claim upon which relief can be granted and for want of subject matter jurisdiction.

Familiarity of the reader with the amended complaint filed December 13, 1985 must be assumed. In sum, Texaco’s complaint pleads the following claims:

1. That the Judgment and the legal principles underlying it impermissibly burden interstate commerce by deterring competitive tender offers and therefore violate the Commerce Clause and frustrate the purposes of the Williams Act. (Claims One and Two).

2. That the Judgment conflicts with, and therefore is preempted by, the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(d), 78n(e) and 78bb, which promotes and provides a framework for competing tender offers. (Claim Four).

3. That the Judgment fundamentally changes the New York law of tortious inducement of breach of contract, in derogation of fundamental New York policies and in violation of the Full Faith and Credit Clause. (Claim Five).

4. That application of the supersedeas bond and lien provisions of Texas law effectively precludes Texaco from exercising its right to appeal in the Texas courts and, if necessary, to petition for certiorari to the United States Supreme Court, all in violation of the Due Process and Equal Protection Clauses of the Fourteenth Amendment. (Claims Three and Six).

5. That the Judgment, as the result of a fundamentally unfair proceeding, violates the Due Process Clause of the Fourteenth Amendment. (Claim Seven).

The Court makes the following findings of fact and conclusions of law after a hearing, and pursuant to Rule 65, F.R.Civ.P. Jurisdiction

The amended complaint filed in this Court on December 13, 1985 alleges that the enforcement of the Texas state court judgment will infringe rights secured to Texaco by the Commerce, Supremacy and Full Faith and Credit Clauses of the United States Constitution, Articles I, section 8, Article VI, Clause 2, and Article IV, section 1, clause 1, and the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the Constitution and by the Civil Rights Act of 1871, 42 U.S.C. § 1983; and the Securities Exchange Act of 1934, 15 U.S.C. § 78a. As such, this complaint has plainly stated federal claims over which this court has subject matter jurisdiction under 28 U.S.C. §§ 1331(a) and 1343(a)(3). Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90 L.Ed. 939 (1946).

Venue is proper in this District under all three grounds of 28 U.S.C. § 1391. The plaintiff has its principal office at White Plains, New York, and defendant does business in the Southern District of New York. The claims arose in this District. Personal jurisdiction over the defendant is satisfied by its presence in this District.

Second Circuit Injunction Standard

On a motion for a preliminary injunction in this Court, it is usually held that “the moving party has the burden of establishing: (a) irreparable harm; and (b) either (1) probable success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary injunctive relief.” Kaplan v. Board of Education of the City School District of the City of New York, 759 F.2d 256, 259 (2d Cir.1985) citing Jackson Dairy, Inc. v. HP. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979) (per curiam).

The mere fact that this case involves only private parties does not permit our inquiry with regard to irreparable harm to end with consideration only of the interests of Texaco and Pennzoil as parties before the Court. As our Court of Appeals, and the Supreme Court, have explained, “Courts of equity may, and frequently do, go much further both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.” Stamicarbon, N. V. v. American Cyanamid Co., 506 F.2d 532 (2d Cir.1974), quoting Virginian Railway Co. v. System Federation, 300 U.S. 515, 552, 57 S.Ct. 592, 601, 81 L.Ed. 789 (1937).

Irreparable Harm

Texaco is a very large corporation. It is said to be the fifth largest company in the United States and the third largest oil company. As such it has well established patterns of doing business, which have created a dependency upon it by not only a large number of employees throughout the nation, but also an even greater number of dealers and customers for its products and services, and suppliers. As the numerous letters from Congressmen and Senators docketed in this action and amicus curiae briefs from several states indicate, Texaco’s death or insolvency would have a severe impact upon many people and regions throughout the country. In California, for example, Texaco employs over 4000 people (with aggregate annual salaries and wages in excess of $140 million) and conducts business with 16,000 suppliers. See letter of Rep. Glenn Anderson, M.C., dated Dec. 18, 1985. In Florida, Texaco pays approximately $6.7 million annually in state royalties and taxes. Brief of State of Florida, amicus curiae, at 2. Texaco contracts with over 4000 vendors in Louisiana and, during 1985, it expended over $1.4 billion in that state. See Letter of Louisiana Congressional delegation, dated December 16, 1985. Texaco employs about 55,000 people worldwide with a total payroll of $1.6 billion. In 1985 Texaco paid over $730 million in dividends to 319,000 shareholders. Affidavit of R.G. Brinkman, H 3, (Dec. 17,1985).

The sudden death or dismemberment of a corporation, while it is not analogous to the sudden death of an individual, hurts the public interest. This corporation should not be squeezed through the bankruptcy court or stopped in its tracks through a levy of execution or sale of its various assets under judgment or have its normal access to credit cut off, at least until appellate finality has attached to the Judgment. Unless enforcement of the Judgment is stayed by this Court, Texaco will confront these evils. The consequent harm to Texaco will be shared by those members of the public whose welfare is dependent upon Texaco’s continued existence as a vital wealth-generating economic organism. As the multitude of affidavits submitted by Texaco make clear, Texaco has found it increasingly difficult to obtain the financing necessary to conduct its ordinary business operations. See, e.g., Affidavits of Mr. R.G. Brinkman, dated December 17, 1985, December 19, 1985, and January 8, 1986.

The judgment with its present interest and costs amounts to $11.12 Billion. As measured by the stock market, which is rarely far wrong in such matters, the entire going concern or net worth of Texaco before the Judgment, was valued at approximately $9.5 Billion. Various Pennzoil representatives have stated that this understates the true value of Texaco’s assets. They assert that the actual value lies in the $23 to $37 Billion range. See Affidavit of Francis P. Barron, Esq. Exhibits 1 and 2. Even if these estimates are correct, there is no way in the world that Texaco could pay the Judgment without reorganizing or liquidating. This could only be accomplished pursuant to a consent plan or under a bankruptcy court’s auspices because other creditors also have claims on Texaco’s assets. Such relief does not provide an adequate remedy for Texaco. As the Supreme Court has found, the threat of bankruptcy adumbrates the irreparable harm necessary for the granting of a preliminary injunction. Doran v. Salem Inn, Inc., 422 U.S. 922, 932, 95 S.Ct. 2561, 2568, 45 L.Ed.2d 648 (1975). Texaco would emerge as a fundamentally different company if it were obliged to reorganize pursuant to Chapter 11 of the Bankruptcy Code. This would be true even if the Pennzoil Judgment were later set aside.

Imposition of an injunction admittedly presents some risk of harm to Pennzoil’s position. The risk of such harm, however, is slight. Indeed, Pennzoil’s successful insistence upon the bond requirement might drive Texaco into Chapter 11 proceedings and leave Pennzoil with a Pyrrhic victory. A number of corporations, both large and small, have recently found that Congress has created a rather pleasant and profitable harbor of refuge in the bankruptcy court, where they may gain time and other special considerations in dealing with litigation. However, as we have explained, the availability of Chapter 11 is not an adequate remedy at law for Texaco in this case, so as to preclude injunctive relief, and bankruptcy of Texaco would have a most adverse effect on the public interest.

The imminent disruption to the national economy and to the interests of the public, supports a finding of irreparable harm, at least while the Texas judgment remains subject to appellate review. I include in the public Texaco’s customers, suppliers, employees and others who would suffer from the sudden disruption in Texaco’s day to day activities.

It should go without very much elaboration that Texaco itself would be irreparably damaged, and I so find. Immediate enforcement of the Judgment will further limit Texaco’s ability to compete in the marketplace and to maintain its current level of business. Accordingly, I find and conclude that irreparable harm to the Public and to Texaco will occur if the Judgment is enforced in any way and to any extent prior to achieving appellate finality.

Likelihood of Success

This Court finds and concludes that a direct appeal from the Judgment would certainly be non-frivolous. The Court also finds that Texaco as an appellant has a substantial likelihood of success on a number of its non-federal points for appellate review in Texas or on a petition for certio rari to the Supreme Court of the United States.

This Court should not be regarded as attempting to sit as a final or intermediate appellate state court as to the merits of the Texas action. Cf. Booker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923). Our only intention is to assure Texaco its constitutional right to raise claims that we view as having a good chance of success. The Court bases its analysis on New York law, which the parties concede is applicable to the claim in the Texas court and with which this court is very familiar.

The Court regards the Texas litigation as relatively simple. The only difficulty it presents is that it is posited in terms of such vast amounts of money that the ordinary principles and practices which affect the bonding of judgments or supersedeas arrangements for judgments are simply not practical.

Texaco has also raised here a number of federal statutory claims, over which the Federal Courts have exclusive jurisdiction. These claims raise serious questions going to the merits of the Judgment and present generally fair grounds for litigation. Liability

For our present purposes we withhold comment about the contract law issue or the factual issue of knowing and willful tortious interference. This Court assumes, solely for purposes of its analysis of the issues presented on this motion, that Pennzoil properly prevailed on those issues. The Court in Texas which let these liability issues go to the jury and denied Texaco’s motions for directed verdict and judgment notwithstanding the verdict is entitled to the benefit of the presumption of regularity and the presumption of correctness on its part. We should bear in mind that the damages in the case were fixed by a trial jury, not by the court itself in Texas. They do not represent the result of fact finding by the trial judge and in any event are still amenable to correction by direct appeal, and by a motion for a new trial, filed in Texas on January 9, 1986 and not yet resolved.

Punitive Damages

The trial jury awarded punitive damages in the amount of $3.0 Billion. The tort of interference with contractual relations is an intentional tort. In order to obtain punitive damages in this context, Pennzoil had to prove that Texaco’s conduct was not only intentional but also motivated by “actual malice or ill will.” Anthony v. George T. Bye, 243 App.Div. 390, 277 N.Y.S. 222 (1935).

While punitive damages have become quite fashionable lately, this case essentially involves a transaction in the commercial area where reasonable persons could differ as to whether Getty was bound to a contract when Texaco acted. If there was no contract, of course there could be no tortious interference.

The standard for imposition of punitive damages in New York requires that the defendant’s tortious activities be aimed at the public generally, as the New York State Court of Appeals explained in Walker v. Sheldon, 10 N.Y.2d 401, 405, 223 N.Y.S.2d 488, 179 N.E.2d 497 (1961). Punitive damage awards are also inapplicable where the availability of such an award is not essential to induce a potential plaintiff to go to court to right a wrong that might otherwise go unremedied if the injured party were limited to compensatory damages. Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1080 (2d Cir.1977); see also Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 386 N.Y.S.2d 831, 353 N.E.2d 793 (1976). These factors, either of which might justify the award of punitive damages, are not present in this case. Indeed, a substantial portion of the public at large, viz., the public shareholders of Getty, benefited from Texaco’s tortious activity, which greatly enhanced the proceeds realized for their investments.

No public policy of the State of New York is served by awarding punitive damages in this type of case, and this Court believes that a reviewing court in Texas will find that quite obvious. Furthermore, an award of punitive damages in this case is highly likely to have a negative impact on the federal policy which seeks to ensure that a company be sold via tender offer at a price that maximizes shareholder welfare. This federal policy is expressed in the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(d), 78n(e), and the rules and regulations promulgated thereunder, and is well pleaded in the amended complaint in this case.

Compensatory Damages

Compensatory damages in New York are generally regarded as requiring an award of money which would make an injured party whole, or, putting it differently, those damages which are based on the benefit of the bargain. Pennzoil does not dispute that its “agreement in principle” provided for its purchase of three-sevenths of the outstanding Getty shares. It had not arranged for the purchase of oil reserves, or any other specific Getty asset. It would have had as much control over Getty’s oil assets as it would have had over the cable television networks then partly owned by Getty. In arm's-length negotiations, which the Texas jury found ripened into a firm contract, and this Court assumes for its present purposes that it did in fact so ripen into a binding contract, Pennzoil agreed to pay $112.50 per share for three-sevenths of Getty’s outstanding shares, for a total price of $2.6 billion. At that price the market value of Getty’s shares was approximately $6.1 billion.

Within a few days, Texaco agreed to purchase all of Getty’s shares at $128 per share (an increase of $15.50 per share over the Pennzoil offer). At that price the market value of the outstanding Getty shares amounted to approximately $6.9 billion. The best indication of the value of anything, including the stock of an oil company, is usually an arm’s length sale between adequately informed parties, neither under any compulsion to buy or sell; indeed, that is the traditional definition of market value. In this instance, the market value of Getty’s outstanding shares was approximately $6.9 Billion.

If this verdict stands, the benefit of the bargain must be assumed by mathematics to be $7.53 billion, and the market value of Getty in excess of $10 billion. Expressed differently, if the verdict is valid, the Getty interests, in their transaction with Pennzoil, agreed to sell stock for $3 billion less than its true value. Expressed in percentage terms, the Getty interests sold the stock for 75 per cent of its value. This is absurd. If the jury’s determination is the true value of the transaction, the contract would have been amenable to accusations of unconscionability, or overreaching, or perhaps even fraud in the inducement, not to mention the run-of-the-mill accusations of breach of fiduciary duty so often levelled against directors and trustees.

This Court therefore believes that the compensatory damages which flow from this breach of contract, tortiously induced by Texaco, should in no event exceed $800 Million, the approximate difference between the price per share offered by Pennzoil and the price offered by Texaco for all Getty’s outstanding shares. That figure assumes that Pennzoil’s bargain included the ultimate opportunity to purchase or otherwise control all the Getty shares.

Pennzoil also had a duty under New York law to mitigate its damages. In the interests of brevity, and for lack of information, we do not touch on this issue, which could only serve to reduce Pennzoil’s damages. The foregoing computations are presented only to demonstrate that the compensatory damages determined by the jury are too large by several orders of magnitude.

This Court accordingly finds that Texaco has a worthwhile appeal in the Texas courts, and that it is highly likely to succeed in reducing the damages to a considerable extent.

Constitutional Claims

The State of Texas is not required by the United States Constitution to give a right of appeal at all. The Texas State Courts, however, have interpreted that state’s Constitution, particularly Article I, §§ 13, 19, as recognizing such a right. Stroud v. Ward, 36 S.W.2d 590, 591 (Tex.Civ.App. 1931) (“A dissatisfied litigant has the constitutional right to have his case reviewed by the Court of Civil Appeals”).

Having once determined to grant such a valuable right, the now well-established Fourteenth Amendment jurisprudence prevents the State from conditioning the effective exercise of that right on excessively restrictive conditions. The Supreme Court has reiterated on several occasions that, “[t]he fundamental requisite of due process is the opportunity to be heard.” Grannis v. Ordean, 234 U.S. 385, 394, 34 S.Ct. 779, 783, 58 L.Ed. 1363 (1914). See Mullane v. Central Hanover Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950); see also Boddie v. Connecticut, 401 U.S. 371, 379-80, 91 S.Ct. 780, 786-87, 28 L.Ed.2d 113 (1971). Although the states are not required to establish avenues of appellate review, “it is now fundamental that, once established, these avenues must be kept free of unreasoned distinctions that can only impede open and equal access to the courts-.” Williams v. Oklahoma City, 395 U.S. 458, 459, 89 S.Ct. 1818, 1819, 23 L.Ed.2d 440 (1969) (per curiam), quoting Griffin v. Illinois, 351 U.S. 12, 76 S.Ct. 585, 100 L.Ed. 891 (1956).

Pennzoil has cited dicta in Lindsey v. Normet, 405 U.S. 56, 77-79, 92 S.Ct. 862, 876-77, 31 L.Ed.2d 36 (1972), to support its claim that the Texas supersedeas bond provision is constitutional as applied to Texaco in this instance. In Lindsey, the Court considered a challenge to Oregon’s double bond requirement for appeal in forcible entry and detainer actions. Although the Court agreed with the petitioners’ claim that the double bond requirement violated the equal protection clause of the Fourteenth Amendment, it added in passing that other “reasonable procedural provisions to safeguard litigated property or to discourage patently insubstantial appeals” would not necessarily violate the equal protection clause of the Fourteenth Amendment. Id. at 78, 92 S.Ct. at 876 (Citations omitted). As described above, however, the challenged Texas supersedeas bond provision combined with the immediate enforcement of the Judgment would effectively bar Texaco’s meritorious appeal.

While Texaco’s appeal can be heard on the merits, this Court finds that there is no discretion in the Texas court to grant a stay of execution pending a meritorious appeal without posting a bond (or equivalent security) in the full amount, plus two years’ interest at ten per cent, plus the anticipated costs of appeal, unless Pennzoil consents. Tex.R.Civ.P. Rule 364(a), (b). In this instance, the supersedeas bond would amount to more than $12 Billion Dollars, and in addition the Judgment will be a lien on Texaco’s assets wherever filed, even if bonded.

The concept of posting a bond of more than $12 Billion is just so absurd, so impractical and so expensive that it hardly bears discussion. Texaco’s right to appeal the Judgment to the Texas Court of Civil Appeals and, ultimately, to the United States Supreme Court, (provided by 28 U.S.C. § 1257) without a stay of its enforcement, would be meaningless. An $11 Billion Dollar lien on Texaco’s assets would paralyze that company long before the Texas litigation reaches the point where the United States Supreme Court may decide whether to grant a Texaco petition for certiorari, should such relief prove necessary.

The Supreme Court directed us in Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976) to assess the adequacy of state procedures that restrict an individual’s property rights according to the following three factors: First, the nature of the private and state interests involved; second, the risk associated with erroneous deprivation of the right; and third, the extent of the administrative burden imposed upon the state by the required procedural safeguards.

In this case each of these three considerations cuts in favor of Texaco’s right to a stay in order to appeal the state court verdict. The private interest and the state interests converge in this instance. Texaco’s obvious interest lies in its desire to remain in business while challenging the trial outcome. The state’s interest in respect for its judgments and its legal process is furthered by ensuring Texaco’s right to appeal.

As explained earlier, the risk of erroneous deprivation is quite severe in this instance. We have already outlined the irreparable nature of the injuries that Texaco would suffer if it is not granted relief from the challenged Texas state procedures. See pages 252-53 supra.

The administrative burden on the State of Texas will be slight. In order to assure Texaco of its right to enjoy a non-illusory appeal of the jury verdict, it need only provide access to its Court of Civil Appeals, as it would do normally. The only difference lies in the fact that Texaco may appeal the Judgment without posting the full $12 Billion bond and without fear that Pennzoil will immediately enforce the Judgment.

Obviously recognizing the force of this argument, Pennzoil, on December 20, 1985, submitted a “stipulation” to the Texas court, a copy of which was filed as document No. 14 in this action on the same date. This document, on its face simplicity itself, is not a stipulation in the sense commonly referred to; that is to say Texaco has not agreed to it, nor has the Texas court indicated its approval. It is a unilateral paper which reads in relevant part as follows:

“Pennzoil Company, plaintiff in this action, hereby presents the Court the following stipulation concerning the judgment the Court entered in this action on December 10, 1985:
‘Pennzoil stipulates and agrees that, if Texaco seeks to supersede or stay the enforcement of this judgment and it makes provisions to secure the judgment which the Texas courts determine would meet the standards of Fed.R.Civ.P. 62, Pennzoil will be bound by any stay that the Texas courts enter based on a finding that Texaco has provided security which meets the standards of Fed.R.Civ.P. 62.’ WHEREFORE, Pennzoil requests that the Court accept this stipulation.”

The filing of this so-called “stipulation” is not available to Pennzoil to defeat the Sixth Claim pleaded in Texaco’s amended complaint. The Court finds no basis in our jurisprudence by which Texaco is required to accept this belated concession, nor is it established here that the Texas court must accept such a unilateral grant of power. It is abundantly clear on the record before me that the Texas court recognizes it has no power to give a stay pending appeal, except upon full compliance with Rule 364. This Court doubts very much that such a unilateral stipulation can give a court power to hear and decide an issue which it would not ordinarily have the power to hear and decide. I find, accordingly, that without injunctive relief from this Court Texaco will not be able to obtain a stay pending appeal without delay unless it provides security in the full amount.

Vivid evidence of this fact was demonstrated at our hearing, where it appeared that the trial judge in Texas, in order to obtain Pennzoil’s “consent” to an extremely limited “standstill agreement,” (see Judgment, ¶ 7, Ex. 1 to Amended Complaint) found it necessary to inform Pennzoil’s counsel directly that if Pennzoil did not “consent” thereto, the court would exercise its so-called “broad discretion” to grant a new trial. It seems unlikely that a judge would find necessary such a forceful approach if, as Pennzoil now argues to this Court, there is ample basis for Texaco to get a stay equivalent to the injunctive relief it seeks from this Court by direct application to the trial judge in Texas. We need not infer that experienced participants would behave in such a bizarre fashion, as they apparently did in connection with the standstill agreement, if the judge believed he had the discretion to act pursuant to the standards of Rule 62, F.R.Civ.P., or believed that such authority could be granted to him by unilateral stipulation.

Accordingly, the Court believes that on the sixth claim pleaded in Texaco’s amended complaint here, which is based on the Due Process Clause and the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution, plaintiff has a very clear probability of success. Federal Statutory Claims

Insofar as the other claims pleaded are concerned, extended discussion at this time seems unnecessary. At the very least the Court finds that each one presents fair ground for litigation. As we noted earlier, if this judgment were enforced suddenly against Texaco, prior to having attained appellate finality, Texaco would be irreparably damaged, resulting in dismemberment and death of this economic enterprise. Accordingly, the balance of hardships on this point tips decidedly in favor of Texaco.

In litigating these federal issues in this Court, we note that Texaco would not be bound by any principles of res judicata or issue or claim preclusion as a result of the judgment in Texas. In a recent series of decisions in this area, the Supreme Court has clarified the application of res judicata principles in federal courts. In Migra v. Warren City School District Board of Education, 465 U.S. 75, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984), the Court explained that a prior state court judgment should have the same claim preclusive effect in any federal court as it would in another court of that state. The Court based its decision on its interpretation of the Full Faith and Credit Clause of the Constitution as implemented by 28 U.S.C. § 1738. This general rule, however, is limited by the Court’s later decision in Marrese v. American Academy of Orthopaedic Surgeons, — U.S. -, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985). In that case, the Court held that, although the Full Faith and Credit Statute requires the federal courts to examine the preclusive effect of state judgments according to that state’s claim preclusion principles, that determination was only a first step of the analysis. By way of fairly clear dictum, the Court stated that in some instances, a grant of exclusive jurisdiction to the federal courts for the protection of a particular statutory scheme may represent Congressional intent to repeal § 1738 for the purposes of that statutory scheme. The federal security law claims raised in this amended complaint may very well present an appropriate situation for an exception to § 1738 contemplated in Marrese.

The Judgment in Texas came out of a state tort action, arising under New York common law. It should not have any preclusive effect in litigating the federal security law claims pleaded here which are set forth in Claim Numbers Two and Four, in this complaint, because those claims arise under statutes as to which this Court has exclusive subject matter jurisdiction. 15 U.S.C. § 78aa.

Therefore, even with the assumption that the State of Texas applies the same claim preclusion principles that New York applies (which are about as broad as can be imagined because they include everything that was pleaded or could have been pleaded), this Court finds and concludes that federal claim preclusion as most recently outlined by the Supreme Court in Marrese would not extend to bar the federal question claims pleaded in Claims Two and Four of the Amended Complaint.

Any provisional remedy granted by this Court is granted for the day and conditions presently before the Court, and it is not required that this Court activate its crystal ball or predict in advance how long it will take to resolve the Texas appellate proceedings, or what the final outcome will be. However, even if the Judgment ripened into a final judgment in this vast amount of money, and assuming all decisions down the road go against Texaco, Texaco would still have the federal claims that are pleaded in this action, which it could litigate on the merits.

Federalism Concerns

In spite of the foregoing it has been suggested that this Court should abstain or forebear in the issuance of an injunction because to do otherwise will violate basic principles of Federalism. These principles were first codified in the Anti-Injunction Statute of 1793; its current amended version is found at 28 U.S.C. § 2283. The Supreme Court expanded these principles when it developed the doctrine of federal abstention in Railroad Commission v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941) and also in Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). There is also present for consideration the more recently developed concept of “Our Federalism,” first announced in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).

Section 2283 provides that “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” The Supreme Court, however, has not interpreted this prohibition as strictly as it reads. In Mitchum v. Foster, 407 U.S. 225, 92 S.Ct. 2151, 32 L.Ed.2d 705 (1972), the Supreme Court held that any federal statute that created “a specific and uniquely federal right or remedy, enforceable in a federal court of equity, that could be frustrated if the federal court were not empowered to enjoin a state court proceeding,” id. at 237, 92 S.Ct. at 2159, provided an express authorization from Congress for a suit injunction. The Court further held that because § 1983 was enacted to redress inadequate state court remedies it provided the necessary specific authorization. Each of plaintiff’s federal claims is properly brought pursuant to § 1983. See Maine v. Thiboutot, 448 U.S. 1, 7-8, 100 S.Ct. 2502, 2505-06, 65 L.Ed.2d 555 (1980) (plaintiff may enforce federal statutory rights in a § 1983 action); Gibson v. Berry-hill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973) (plaintiff may enforce due process claims in a § 1983 action); and Kennecott Corp. v. Smith, 637 F.2d 181, 186 (6th Cir.1982) (Williams Act). Henry v. First National Bank of Clarksdale, 595 F.2d 292, 299 (5th Cir.1979).

The Younger concerns, which we must consider apart from the § 2283 analysis, similarly are not implicated here. The Supreme Court first enunciated the Younger doctrine to bar federal interference in pending state criminal prosecutions. Since then the doctrine has been applied to civil proceedings only where the state has demonstrated a vital concern in the unimpaired operation of its laws. See Moore v. Sims, 442 U.S. 415, 425, 99 S.Ct. 2371, 2378, 60 L.Ed.2d 994 (1979). Thus the Court has limited the application of the Younger doctrine to those instances where a state was engaged in directly advancing important state interests in the state courts.

Indeed in each of the cases proposed by Pennzoil, the pending state actions were akin to criminal proceedings, or were necessary to insure the proper functioning of the state judicial system, e.g., in contempt citations or lawyers disciplinary proceedings. They concerned such contexts as the enforcement of an anti-obscenity statute, Huffman v. Pursue, Ltd.., 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975); the application of an emergency child protection statute, Moore v. Sims, supra; the recovery of public assistance benefits fraudulently obtained, Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct. 1911, 52 L.Ed.2d 486 (1977); the enforcement of a civil contempt citation, Juidice v. Vail, 430 U.S. 327, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977); and the conduct of a state bar disciplinary hearing, Middlesex County Ethics Committee v. Garden State Bar Association, 457 U.S. 423, 102 S.Ct. 2515, 73 L.Ed.2d 116 (1982).

Pennzoil also relies on Middlesex County Ethics Committee, supra to support its abstention argument. In that case, the Supreme Court ordered the federal district court to abstain from enjoining a state bar disciplinary proceeding on the ground that the federal plaintiff would have an adequate opportunity to interpose his federal constitutional defenses in that forum. Id. at 437, 102 S.Ct. at 2524. No such encroachment on state proceedings would result from granting the proposed equitable relief in this case. Far from impairing the operation of the state judicial system, this relief would now facilitate presentation to the Texas state courts of Texaco’s challenge to the Judgment prior to an inevitable dismemberment caused by the bond provision, which would otherwise attenuate both the appellant and the force of the appeal. The concerns of the federalism impelling the Middlesex decision are therefore not implicated here.

In each of the cases relied upon by Pennzoil, intervention by the federal court would have impaired seriously the pursuit of state interests. Such is not the case here. The preliminary injunction in this case will neither interfere with a state official’s pursuit of a fundamental state interest nor enjoin a state proceeding. The sole purpose of this equitable relief is simply to afford Texaco an effective opportunity to initiate and complete appellate proceedings in Texas, followed by petition for certiorari to review in the Supreme Court without immediate enforcement of the Judgment.

The significance of the State of Texas’ interest as defined by Pennzoil, viz., the “proper functioning of its judicial system” does not necessarily cut in Pennzoil’s favor. By its proposed “unilateral stipulation” Pennzoil purports to accord the Texas trial judge the discretion to impose security in a sum or form different from the total amount of the Judgment. Thus, Pennzoil is prepared not only to waive its right to a bond in the full amount of the Judgment plus interests and costs, but also to waive whatever important state interests underlie the procedures found in Rule 364(b). That these interests can be so easily waived by a private litigant, if they can, suggests that they are less than fundamental to the functioning of the Texas state judicial system.

Pennzoil’s report that the trial judge had stated that he would grant Texaco’s motion for a new trial unless Pennzoil’s attorneys consented to Paragraph 7 of the Judgment (the “standstill” provision), suggests that he evidently thought that the state interest dictated some sort of relief to Texaco from the bond requirements of Rule 364. I conclude that only the most attenuated state interest is reflected in a rule which can be so waived or circumvented by a private litigant.

The Pullman abstention doctrine is even more restricted than the other two limitations on Federal Courts. In sum, this doctrine requires the federal court to abstain from decision where resolution of an unclear state law can avoid a substantial constitutional question. Reetz v. Bozanich, 397 U.S. 82, 90 S.Ct. 788, 25 L.Ed.2d 68 (1970). Here, the state law is clear and the Texas state court judge has proved unable to circumvent the Draconian effect of the local law denying an unsecured stay pending appeal, without some sort of consent from Pennzoil.

Nor does the abstention doctrine embraced by the Court in Burford, supra, dictate that this Court stay its hand here. That case turned on the complexity of a state administrative scheme with which the state court had far greater expertise and knowledge.

Finally, we note that the imposition of this sort of injunction is hardly unique. In Henry v. First National Bank of Clarksdale, supra, the Court of Appeals upheld a district court order enjoining the enforcement of a final judgment against a state court defendant. In Henry, as in this case, the relatively large size of a damage award which was immediately enforceable against the state court defendants threatened irreparable harm to them if they attempted to post the required bond. Henry, 595 F.2d at 297.

Pennzoil has made an impressive effort to exsanguinate Henry as an available precedent for this case. See Pennzoil Memo at 30-33. Pennzoil argues, for example, that Texaco has not exhausted its state remedies, as the federal court plaintiffs did in Henry. It is well established, however, that exhaustion of state remedies is not a prerequisite to § 1983 relief in Federal Courts. Patsy v. Board of Regents, 457 U.S. 496, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982). In other instances the Supreme Court has not required that federal plaintiffs exhaust their state appeals before obtaining federal injunctive relief. See, e.g., Wooley v. Maynard, 430 U.S. 705, 97 S.Ct. 1428, 51 L.Ed.2d 752 (1976) (holding that such exhaustion is not required where the injunctive relief will not “annul the results of a state trial”).

Pennzoil has also suggested that Henry is unique because the state court judgment had imposed restraints upon a “clear federal interest,” viz. the federal plaintiffs free exercise of their First Amendment rights. The plaintiffs in Henry, however, did not succeed in vindicating this “clear federal interest” until three years later, when the United States Supreme Court reversed the Mississippi State Supreme Court in NAACP v. Claiborne Hardware Co., 458 U.S. 886, 102 S.Ct. 3409, 73 L.Ed.2d 1215 (1982). While federal courts often declare that First Amendment rights are “special” the Henry Court made no attempt to limit the scope of its relief to Constitutional claims in general, or First Amendment claims in particular.

Thus, we find Henry, in its essential facts, indistinguishable from the instant case and embrace its analysis.

Accordingly, this Court finds there is no legal bar, and no genuine issue of disputed relevant fact that prevents granting this injunction. There is absolutely no reason in the world why it should not be granted. Security

The next issue for consideration is what security should be required of Texaco pursuant to Rule 65(c), F.R.Civ.P. and as a condition for the provisional relief being granted. This Court is concerned lest other creditors of Texaco will come romping around the executive offices or run into the courts seeking to perfect security interests higher than that which would be available to Pennzoil. This would be unfair to Pennzoil, and it would also be contrary to the public interest and will have a deleterious effect on Texaco. Accordingly, the Court believes that this provisional remedy being granted here today must be secured by assets or obligations at least equal in value to what this Court regards as the maximum amount of compensatory damages which are likely to be awarded to Pennzoil on appeal or at a new trial limited to damages if such were to be granted.

This Court assumes that the price which Texaco paid for the Getty interests was an arm’s length price representing the fair market value of what was acquired at the time and place it was bought and sold. Assuming that Pennzoil’s claim that it had a valid contract will be upheld on appeal, since that contract price was $15.50 per share less than the price Texaco paid for the same assets, then the benefit of the bargain lost by Pennzoil is, as observed earlier, approximately $800 Million. To this must be added an element for interest and costs and attorneys fees. The Court accordingly believes that a proper security for the provisional remedy being granted here today would be $1 Billion.

The Court will grant to Texaco a twenty (20) day period following entry of the order hereon, during which to propose and submit additional security for a preliminary injunction, beyond the sum of $1,000,000 posted to secure the Temporary Restraining Order, which shall be satisfactory to the Court, after having heard counsel for Pennzoil on that subject. Without limiting the future resolution of this matter by the Court, a letter or letters of credit, a surety bond, a deed or deeds of trust covering physical assets which are clearly of a value of that magnitude, a judgment lien, or any combination of those items, or anything else upon which the parties may agree, providing security in the amount of $1 Billion Dollars would be considered by this Court to be satisfactory. If the parties find it necessary to have a hearing as to the appropriateness of any security tendered by Texaco, that hearing may be held on 24 hours notice by application to the Deputy Clerk for an hour or date on which the Court will be available.

For the reasons set forth herein, the cross motion of defendant Pennzoil is denied.

The foregoing, together with certain formal supplemental findings of fact, to the extent that they are not inadvertently inconsistent with anything herein contained, constitutes the findings of fact and conclusions of the law of this Court pursuant to Rule 65(d), F.R.Civ.P. The Court directs that a formal order granting a preliminary injunction as requested be settled on five (5) days notice. The temporary restraining order previously granted herein is continued until such date as the formal order is actually signed and docketed.

The Court also directs that the status conference required pursuant to Rule 16, F.R.Civ.P. will be held by this Court on April 7, 1986 in Courtroom 31 at the United States Courthouse, 101 East Post Road, White Plains, New York 10601.

So Ordered.

      . Both parties waived the taking of sworn oral testimony before the Court and the cross examination of affiants. See Transcript of January 9, 1986 at p. 3. No credibility issues are present which are relevant to the issues resolved by this decision.

      . The public interest in this proceeding is considerable. This Court has received a significant number of letters in the nature of amicus curiae. Among these eighteen letters, mostly from Senators and Congressmen, sixteen of them have directed this Court’s attention to the economic importance of Texaco in various regions of the country. Four states (Wyoming, Oklahoma, Kansas and Florida) submitted formal amicus curiae briefs.

      . In reaching this conclusion, the Court places no reliance on the allegations of judicial impropriety in Texas, except to observe that Texaco should have the right to seek review of these contentions, along with its other more persuasive appellate points, without first being dismembered. Most judges are honest and sincere, and all should be presumed to be such. Those few who are not, do not throw a case for campaign contributions publicly recorded and probably long since spent. Instead, they live in a C.O.D. world where clandestine payments are made to a bagman. United States v. Mantón, 107 F.2d 834, 840 (2d Cir.1939). That some judicial goodwill eventuated to the contributing lawyer we may assume. Goodwill means perhaps his brief will be accepted a day late, a golfing continuance may be granted, and his jokes may evoke more judicial laughter than they otherwise deserve. But it is impossible for a lawyer to rub his own goodwill off onto the client, or the merits of the client’s cause.

      . Pennzoil's agreement in principle as announced in January 4, 1986 press releases, provided that Pennzoil would purchase a total of three-sevenths of Getty's shares and that Mr. Gordon P. Getty, as Trustee of the Sarah C. Getty Trust, would acquire the Getty shares held by the J. Paul Getty Museum. The arrangement would have left Pennzoil and the Getty Trust as the sole owners of Getty shares. The agreement in principle also provided that Getty would grant to Pennzoil an option to purchase up to 8 million treasury shares of Getty at a price of $110 per share. Also, Mr. Getty and Pennzoil agreed to maintain their proportionate shares of the company. It is highly likely that if Texaco had not acted to purchase all of Getty’s shares, Pennzoil might have had to purchase, at some future time, the outstanding shares from the Getty Trust in order to effect total control over the company. Pennzoil was the logical purchaser if the Getty Trust determined to divest its shares at some future time. Accordingly, for our purposes we treat Pennzoil as having a strong likelihood of total ownership and control, although this may not be entirely accurate.

      . Texaco offered no proof of Pennzoil’s damages. We do not understand this to be a waiver of the rule of law by which such damages are to be determined, even if Pennzoil’s three experts testified to boxcar numbers.


author: STANTON, District Judge.

text:
    VIGILANT INSURANCE COMPANY, Plaintiff, v. EMPLOYERS INSURANCE OF WAUSAU, Defendant.
    No. 84 Civ. 2956 (LLS).
    United States District Court, S.D. New York.
    Jan. 10, 1986.

      Kissam & Halpin, New York City, for plaintiff; Leslie Trager, Gary R. Green-man, of counsel.
    Schiavetti, Begos & Nicholson, New York City, for defendant; Ralph Attanasio, Richard Nicholson, of counsel.
   OPINION

STANTON, District Judge.

This is a suit by one insurance company, Vigilant Insurance Company (“Vigilant”) against another, Employers Insurance Company of Wausau (“Employers”) to obtain contribution towards amounts paid by Vigilant to settle two lawsuits brought by former patients against Dr. Leonard (“Leonard”), whom each company insured at successive times for the same malpractice risks.

BACKGROUND

Leonard was a psychiatrist practicing in New York. In August through November 1977, Leonard was a defendant in separate suits for malpractice, brought by Patricia O’Rourke Osborne (“Osborne”) and Ellen Posmantier (“Posmantier”), each of whom complained, through the same counsel, that he had engaged in sexual activities with her while treating her professionally.

Employers was Leonard’s malpractice carrier from January 1, 1970 through June 30, 1973; Vigilant was his carrier from July 1, 1973 to May 1, 1978. Each policy, in relevant part, provided essentially identical coverage. Vigilant’s policy covered

“[ijnjury arising out of the rendering of or failure to render, professional services by the individual insured, ... performed in the practice of the individual insured’s profession ...”
Similarly, Employer’s policy covered “injury or death resulting from rendering or failing to render, ... professional services by the insured, ... performed in the practice of the insured’s profession

In keeping with the well-understood rule that the duty to defend is broader than the duty to indemnify, Vigilant and Employers equally shared the cost of defending the actions against Leonard and provided Leonard with the services of a seasoned trial lawyer, George Kehayas, Esq. (“Kehayas”). Regarding the duty to indemnify, however, Employers informed Vigilant and Leonard on February 6, 1978 that it would not indemnify Leonard for his sexual conduct with Osborne and Posmantier; Employers adhered to that position throughout.

After reviewing Osborne’s deposition and determining that it identified no sexual acts as occurring within its policy period, Vigilant informed Employers on April 30, 1982 that it would no longer defend or indemnify Leonard in the Osborne case. Despite this disclaimer, however, Vigilant did continue to share with Employers the cost for Leonard's defense of the action. On November 3, 1982, after being informed by Kehayas that Osborne’s trial testimony did implicate Vigilant’s policy period, Vigilant withdrew its disclaimer (see below).

The Osborne case came to trial first, with three significant developments described below: the evidence came in very badly for Leonard, Osborne testified to sexual contact with Leonard during the Vigilant policy period (thus bringing Vigilant back into the case) and Leonard proved to be of so little assistance to his own defense that Employers was ultimately provoked into disclaiming coverage because of his alleged noncooperation.

Because Leonard had taken the position (although he did not testify at her trial) that -he had no sexual contact with Osborne, the trial judge allowed evidence of his acts with other patients, since the jury might from that evidence conclude he had acted similarly with Osborne. Such material was damaging enough to the defense, but there was worse: one witness testified that Leonard had made sexual advances towards her when she was 14 years old. Kehayas concluded, with good reason, that the effect upon the jury was such that a punitively large verdict could be expected.

Osborne testified, for the first time, to an act of sexual intercourse between herself and Leonard occurring after July 1, 1973, during the Vigilant policy period. Apparently she was convincing about both the act and its date, relating it to the “primal therapy” during which it took place. When this testimony was reported to Vigilant, Vigilant revoked its previous disclaimer of coverage and advised Kehayas that Vigilant was rejoining the defense of the case.

Meanwhile, Leonard was proving a difficult client. He had strong and unrealistic views about how the cases should be defended or settled, he was demanding and arbitrary with respect to reimbursement of his travel expenses and he announced that he would no longer come to Kehayas’ office to discuss the cases, but was returning to Florida where he would be available by telephone and that Kehayas should “use the nonappearance approach” in defending the case. Although aware of the possibility of an “absent witness” charge, Kehayas believed Leonard would be a poor witness in any event and did not plan to call him to testify. However, Leonard’s return to Florida was the last straw for Employers. Through separate counsel, Employers announced to Kehayas and to the court that it was disclaiming all further responsibility towards Leonard, because of his noncooperation.

With matters in that posture, Kehayas and Vigilant, without informing or consulting Employers, settled both the Osborne and Posmantier cases. With considerable effort and under exigent circumstances, Kehayas effected the settlement of the Osborne case for $100,000 and the simultaneous settlement (when plaintiff’s counsel refused to negotiate them separately) of the Posmantier case for $150,000. Both parties hereto agree the settlements were reasonable in amount, and it is undisputed that the jury verdict in each ease might well have gone much higher.

In the present suit, Employers resists Vigilant’s demand that it contribute half of the total of $250,000 which Vigilant paid on Leonard’s behalf to settle the two cases.

THE ISSUES

There are essentially four issues presented. The first is whether the policy language, directed towards professional malpractice, covers Leonard’s sexual activities with his patients. The second is whether Employers validly disclaimed coverage, upon its assertion of Leonard’s noncooperation. The third is, assuming policy coverage and an ineffectual disclaimer by Employers, whether Employers must contribute to the settlement cost. The fourth is, if so, whether the amounts paid should be shared equally or upon some other basis.

These issues, and the subsidiary considerations affecting them, are discussed below.

DISCUSSION

1. Policy coverage

As set forth above, the language of Vigilant’s and Employers’ policies is essentially, and for relevant purposes, identical. To determine whether these policies cover Leonard’s sexual activities with his patients, there are two separate considerations. The first is whether the language of the policies can be read as covering sexual acts; the second is whether public policy in New York prohibits such coverage.

(a) Language of Policies:

Employers claims that Leonard’s sexual activity with Osborne and Posmantier is not included in the rendering of or failing to render professional services, thus falling outside their policy’s coverage.

A number of cases have construed similar, if not identical, language to cover such actions. See Zipkin v. Freeman, 436 S.W.2d 753 (Mo.1968); L.L. v. Medical Protective Co., 122 Wis.2d 455, 362 N.W.2d 174 (1984); see also Vigilant Ins. Co. v. Kambly, 114 Mich.App. 683, 319 N.W.2d .382 (1982). As these cases explain, such conduct falls under the language of these policies as long as the sexual conduct is related to therapy. While this view has not always been applied to physicians in general, see Smith v. St. Paul Fire and Marine Ins. Co., 353 N.W.2d 130 (Minn.1984) and Hirst v. St. Paul Fire and Marine Ins. Co., 106 Idaho 792, 683 P.2d 440 (1984), it is particularly appropriate with respect to psychiatrists, where the transference phenomenon renders the patient particularly vulnerable. See Zipkin, 436 S.W.2d at 761; L.L., 362 N.W.2d at 177. As the Court in L.L. explained,

a sexual relationship between therapist and patient cannot be viewed separately from the therapeutic relationship that has developed between them. The transference phenomenon makes it impossible that the patient will have the same emotional response to sexual contact with the therapist that he or she would have to sexual contact with other persons.

362 N.W.2d at 178.

Employers argues that Leonard’s sexual activities with his patients were solely for his own personal enjoyment and unrelated to psychiatric treatment. Employers points out that Osborne testified that Leonard never discussed their sexual activities with her, either before or after they occurred, and that her deposition testimony indicated that Osborne herself initiated her sexual contacts with Leonard.

Similarly, Employers points to Leonard’s statement to Posmantier “ ‘That’s one thing and this is another’ pointing] to the bedroom and then to the office” as showing that none of the parties involved believed the sexual activity to be related to therapy. Def. Post Trial Memorandum, p. 8, quoting Def.Exh. 8, p. 125.

Nevertheless, in light of the transference phenomenon referred to above and other testimony of Osborne and Posmantier, the Court finds that the acts of which they complained were sufficiently related to the therapy to fall within the coverage of the insurance policies.

As explained above, the transference theory holds that it is the psychiatrist-patient relationship itself which renders the patient particularly vulnerable to the psychiatrist’s actions and behavior. ■ To benefit from therapy, the patient must place her trust in the psychiatrist, which results in her becoming emotionally dependent on the psychiatrist. See L.L. v. Medical Protective Company, 362 N.W.2d at 177. In this setting, the patient believes the doctor is always acting in her best interest, to make ' her well. What to the therapist may seem extraneous is, to the patient, part of the whole relationship. As Osborne said, the aftereffects of her experience with Leonard were depression, confusion, and “[ujpset,with, I guess, being betrayed." Def.Exh; 7, p. 15 (emphasis added).

The deposition testimony reveals that Leonard’s sexual contacts with both Os\borne and Posmantier were closely connected to his professional services. Osborne testified that she had “primal therapy” sessions with Leonard during which she and Leonard were nude and Osborne lay “on the floor, spread-eagle.” Def.Exh. 7, p. 71. The purpose of these sessions was to “derepress” Osborne’s repressed feelings, including those towards her father. Id. at 73. On one occasion Leonard engaged in intercourse with Osborne during the “primal therapy” session.

Moreover, Leonard and Osborne frequently engaged in sexual activities immediately after therapy sessions, in the bedroom of Leonard’s office-apartment.

With respect to Posmantier, Leonard “ordered” her, as her physician, to remain at his apartment after a videotape session. Def.Exh. 8, p. 102. He instructed her to lie down on his bed while he showered, and to take off her clothes to show him she trusted him. He then “strongly recommended” that she stay the night. Id. at 103. When Posmantier, at her next session, told Leonard that the incident had upset her, he told her that she would “understand what it was he was doing” when she “got healthy.” Id. at 125.

; Posmantier testified that various sexual activities including intercourse occurred “in therapy,” and during many sessions. Id. at 140.

Thus, Leonard’s activities with Osborne and Posmantier were sufficiently related to the rendering of his therapy to fall under the coverage of Vigilant’s and Employers’ insurance policies, under the cases cited above, and each carrier was obligated to defend and indemnify Leonard. (b) Public . Policy

Employers contends that because Leonard’s misbehavior with his patients constitutes intentional tortious conduct, New York’s public policy prohibits an insurer’s indemnifying his liability for it.

Public policy in New York holds that “[o]ne who intentionally injures another may not be indemnified for any civil liability thus incurred.” Public Service Mutual Insurance Co. v. Goldfarb, 53 N.Y.2d 392, 442 N.Y.S.2d 422, 426, 425 N.E.2d 810, 814 (N.Y.1981). To bar indemnity, however, the injury itself must have been intended; if one intended the act, but did not intend it to cause injury, indemnity is allowed. Ibid.

Employers states that Leonard “had to be aware that his sexual activities with these women would cause them injury” in that he abused the psychiatrist-patient relationship and “took such advantage of these women’s vulnerability that it is beyond reason to believe he wasn’t aware of the potential deleterious effects of his actions.” Def. Trial Memorandum, pp. 6-7.

Awareness of a potential harm, however, is not the same as intending that harm. In the setting of insurance coverage for a psychiatrist who engages in sexual relations with his patients, there may be “... no reason for distinguishing between this type of malpractice and others” such as improper administration of a drug. See Vigilant Ins. Co. v. Kamblu, 319 N.W.2d at 384-5.

Further, there is evidence that Leonard did not intend to injure his patients. When Posmantier told Leonard she was terminating therapy with him, Leonard expressed his concern “that what I have done with you has damaged you,” and twice stated his hope that “on balance my therapy was more beneficial than it was harmful” and that the damages had not outweighed the benefits. Def.Exh. 8, p. 80.

There is in this record no showing of such an intent to harm as would invoke New York’s public policy prohibition against coverage.

2. Employers’ Disclaimer

Employers disclaimed its obligation to defend or indemnify Leonard in the Osborne case on the additional grounds that Leonard failed to cooperate with defense counsel, George Kehayas, Esq., during the trial.

Employers’ policy provides in Conditions, section 3, in relevant part, that

“The insured shall cooperate with the company and, upon the company’s request, shall attend hearings and trials and shall assist in effecting settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of suits.”

An insurer asserting the defense of noncooperation by the insured has the burden of proving such noncooperation, and that burden “... is a heavy one indeed.” Thrasher v. U.S. Liability Ins. Co., 19 N.Y.2d 793, 278 N.Y.S.2d 793, 800, 225 N.E.2d 503, 508 (1967). The insurer must show that it acted diligently in seeking to obtain the insured’s cooperation, that its efforts were reasonably calculated to obtain that cooperation, and that the attitude of the insured, after his cooperation was sought, was one of “willful and avowed obstruction.” Ibid; Garcia v. Abrams, 98 A.D.2d 871, 101 A.D.2d 601, 471 N.Y.S.2d 161, 163 (1983). Further, the insurer must establish a substantial and material breach by the insured of his duty to cooperate. Ibid.

The proof here does not rise to that standard. While Leonard was a difficult and irritating client, once refusing to discuss the Osborne and Posmantier cases and demanding that the cases against him be settled at one time, such behavior could not be characterized as “willful and avowed obstruction”, nor did it represent a substantial or material breach by Leonard of his duty to cooperate. Nor does it appear that Leonard’s behavior impeded Kehayas’ ability to defend the action. Although Employers stresses Leonard’s return to Florida on the eve of trial in the Osborne case, that incident must be viewed in proper perspective: Kehayas had told Employers that he preferred not to use Leonard as a witness (although he left the option open), Kehayas thought Leonard would be “ineffective” as a witness, and there remained the prospect that Leonard would return to the trial if required, because he was acutely aware (as Kehayas testified) that the carriers would disclaim coverage if he refused to cooperate.

Under the circumstances, Employers’ disclaimer for noncooperation was without sufficient basis, and did not relieve Employers from providing its policy coverage.

Employers’ disclaimer, however, had the immediate practical effect of making futile any further communications with Employers during the remainder of the Osborne case. After Employers disclaimed, there seemed little point in Kehayas or Vigilant trying to discuss proposed settlements with Employers. Taken in this light, Employers cannot now complain that its views were not solicited during the settlement negotiations. See H.S. Equities, Inc. v. Hartford Accident and Indemnity Co., 609 F.2d 669 (2d Cir.1979).

As noted, Employers’ disclaimer based on noncooperation related only to the Osborne case. However, Employers cannot successfully claim that, because its noncooperation disclaimer did not include the Posmantier action, it should have been consulted about the Posmantier settlement negotiations. It is clear there simply was not time.

The Osborne trial was going badly for Leonard, Employers had disclaimed all responsibility for Leonard in it, and Kehayas had only one hour, during a recess at trial, in which to effect a settlement for his client. After obtaining agreement to compromise the Osborne ease for $100,000, Kehayas was informed by counsel for Osborne (who also represented Posmantier) that he would not settle Osborne separately and both cases had to be settled together, if at all. At that point, it was imperative for Kehayas (in Leonard’s interest) to obtain the additional authorization to pay $150,000 to Posmantier. He was talking to Vigilant from a telephone booth with a court officer knocking on the door to summon him back to trial; and Vigilant regarded Employers as having abandoned Leonard for an avowed reason (noncooperation) which appeared disingenuous, since Kehayas had told Vigilant he didn’t want Leonard in or near the courtroom. Under the circumstances there was no practical opportunity or purpose for seeking to reopen discussions with Employers, and no obligation on Kehayas that he run a risk of losing the settlements by attempting to do so.

Accordingly, Employers’ attempted disclaimer does not relieve it of liability under its policy, and it is obliged to contribute to the amounts paid in settlement of the cases by Vigilant.

3. Contribution

Employers attempts to cast Vigilant in the role of Leonard’s subrogee, since under Hartogs v. Employers Mutual Ins. Co., 89 Misc.2d 468, 391 N.Y.S.2d 962 (1977) Leonard (in contrast to Osborne and Posmantier) would have no rights against Employers. However, the point does not arise, for each carrier’s liability is primary and direct.

As shown above, Employers’ policy language covers the activities charged, and its disclaimers were ineffective. Employers’ liability under its policy is thus primary, as it would have been had the Osborne case gone to judgment. Where two insurance policies provide primary coverage for the same risk, “each company is obligated to share in the cost of the settlement and the expenses.” Federal Ins. Co. v. Atlantic National Ins. Co., 25 N.Y.2d 71, 302 N.Y. S.2d 769, 771, 250 N.E.2d 193, 194 (N.Y. 1969) ; see American Dredging Co. v. Federal Ins. Co., 309 F.Supp. 425 (S.D.N.Y. 1970) (where several insurers cover the same risk and payment for loss has been made by one, that carrier has a right to pro rata contribution from other insurers).

Employers further argues that Vigilant’s settlements were purely a business decision and were thus voluntary, and Employers cannot now be compelled to contribute to the settlements. This argument fails for two reasons.

First, Vigilant’s settlements were not made as a volunteer as regards Employers’ liability. The malpractice claims by Osborne and Posmantier each constituted one continuing cause of action against Leonard. See Zipkin v. Freeman, 436 S.W.2d 753. Although Leonard was insured for malpractice by two consecutive carriers, with both policies implicated by this one cause of action, the malpractice claims were against Leonard himself, not Vigilant or Employers, and neither Osborne nor Posmantier could be expected to split their claims between the two insurance carriers. Thus, in settling the case with plaintiffs, which Vigilant was entitled to do, Vigilant was compelled to settle the malpractice claims in total, not just those occurring in its policy period.

Second, even if the settlements were considered “voluntary”, Vigilant is entitled to contribution from Employers. Although New York courts once held that an insurer who voluntarily pays more than his share of a loss could not then demand contribution from a second insurer, see New Amsterdam Casualty Co. v. Commercial Casualty Ins. Co., 129 Misc. 466, 222 N.Y.S. 701 (1931), “the majority of cases now recognize the undesirability of rewarding the insurer which refuses to honor its contractual obligations, and hold that payment by an insurer which properly undertakes a burden of settlement or defense does not render it a volunteer not entitled to recover.” Appleman, Insurance Law and Practice, § 4921 at 538 (1981).

4. Amount Of Contribution

As stated above, where two insurance policies cover the same risk, and one carrier makes payment on a loss, that carrier is entitled to a pro rata contribution from the other carrier. American Dredging Co. v. Federal Ins. Co., 309 F.Supp. 425.

There are two approaches for determining Employers’ pro rata contribution, both of which dictate the same result: Employers must contribute 50% of Vigilant’s settlement costs.

The first method looks to the “other insurance” clauses of both Vigilant’s and Employers’ policies, which are essentially identical in relevant part. Since the clauses are not repugnant, they can be considered for purposes of determining liability. Employers’ policy provides that if a loss or expense covered by its policy is also covered by another policy, Employers will not be liable for “a greater proportion of such loss or expense than the applicable limit of liability stated in the declarations bears to the total applicable limit of liability of all valid and collectible insurance against such loss or expense.” Since both Vigilant’s and Employers’ policy limits of liability are $500,000, Employers’ proportional share of liability for a loss which is also covered by Vigilant’s policy is 50% ($500,-000/$l,000,000 = It or 50%).

The second method is by simple division. There are two carriers involved. Since the acts of malpractice span both coverage periods, it is impractical to apportion the liability between periods. Thus, liability and settlement costs are to be divided equally between the two carriers. See Glacier General Assurance Co. v. Continental Casualty Co., 605 F.Supp. 126 (D.D.C. 1985).

Vigilant settled Osborne’s claims for $100,000 and Posmantier’s for $150,000, a total of $250,000. Employers must contribute $125,000, plus any unpaid portion of its 50% share of the costs of defense.

Plaintiff may settle an appropriate form of judgment on ten days notice.

      . An adverse judgment in a third suit by another former patient, Rhea Breitbard, was paid by Employers. It was the subject of a counterclaim by Employers for contribution by Vigilant, which was withdrawn at trial.

      . It should be noted that a medical insurance carrier, "in the exercise of reasonable care in the operation of its business should know, that transference pertains to psychiatry and is important in treatment.” Zipkin v. Freeman, 436 S.W.2d at 756. Companies, therefore, can exclude coverage of sexual activity between a psychiatrist and his patients from their policies, if that is what is desired; see Vigilant Ins. Co. v. Kambry, 319 N.W.2d at 384-85, but “[1]imitations in the policy must be clearly expressed.” Id., at 385; see also Sphere Ins. Co., Ltd. v. Rosen, et al., No. 85-2654, slip. op. at 4 (E.D.Penn. Nov. 6, 1985) (since professional liability policy covering psychiatrist excluded coverage of activities “involving undue familiarity, sexual intimacy or assault concomitant therewith”, insurance company under no duty under the policy to defend psychiatrist in action involving such claims).

      . In fact, in its trial brief Employers implies the disclaimer itself was somewhat of a tactical maneuver, saying Leonard was informed of it "... in an effort to secure Leonard’s return from Florida to participate in his defense in this case and the subsequent cases against him ...” Def. Trial Memorandum, p. 3.


author: NANGLE, Chief Judge.

text:
    EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, v. KENNETH BALK AND ASSOCIATES, INC., Defendant.
    No. 84-1959C(1).
    United States District Court, E.D. Missouri.
    Jan. 10, 1986.
    See also, 616 F.Supp. 637.
    James R. Neely, Jr., Gretchen D. Huston and Ferae P. Wolff, St. Louis, Mo., Johnny J. Butler and Michael A. Middleton, Washington, D.C., Morgan Stewart, St. Louis, Mo., for plaintiff.
    G. Carroll Stribling, Jr., Fordyce & Mayne, P.C., Clayton, Mo., for defendant.
   MEMORANDUM

NANGLE, Chief Judge.

This cause is before the Court on the motion of defendant Kenneth Balk and Associates, Inc. (KBA) for an award of attorney’s fees as part of costs under § 706(k) of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-5(k) (1982). That section provides as follows:

In any action or proceeding under this subchapter the court, in its discretion, may allow the prevailing party, other than the Commission or the United States, a reasonable attorney’s fee as part of the costs, and the Commission and the United States shall be liable for costs the same as a private person.

In Christiansburg Garment Company v. E.E.O.C., 434 U.S. 412, 98 S.Ct. 694, 54 L.Ed.2d 648 (1978), the Supreme Court set the standard for the award of attorney’s fees to prevailing defendants in a Title VII action. Under that standard, a court may award attorney’s fees only if at times plaintiff’s claim was frivolous, unreasonable, or without foundation when begun or that the plaintiff continued to litigate after it clearly became so. 434 U.S. at 421. The court must not engage in post hoc reasoning by concluding that, because a plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation. 434 U.S. at 421-22. As the standard implies, the court must view the available evidence and applicable law as they existed at the time the suit was filed and as they developed as the case proceeded. E.E.O.C. v. Pet, Inc., 719 F.2d 383, 384 (11th Cir. 1983). The reasonableness of litigation depends upon the facts of the case at the time it was brought. However, the requirement of reasonableness contemplates a duty to investigate the facts to a reasonable extent. Thus, the losing party may not plead ignorance of basic facts to defend its institution of litigation.

Here, the original litigation was an employment discrimination suit brought by the plaintiff Equal Employment Opportunity Commission (E.E.O.C.) alleging that defendant terminated Margo Mischeaux because of her race. Plaintiff established a prima facie ease, but defendant articulated a legitimate, non-discriminatory reason for the discharge.

In the opinion of this Court, the Commission’s action was so frivolous and without foundation that defendant is entitled to an award of attorney’s fees. In the memorandum opinion in this case filed August 26, 1985, this Court commented on the weakness of the case presented by the Commission. As the Commission asserts, its performance is justified, because it learned only a short time before trial that defendant would present a non-discriminatory reason for Mischeaux’s discharge. The Commission argues that it was unable to rebut this defense due to the imminence of trial.

This case presented no complex or difficult issues. The Commission had five months to prepare for trial and had held an investigative hearing over one year before trial. At some point prior to trial, the Commission could have learned the reasons for Mischeaux’s discharge and determined whether they were pretextual. Frequently, the gravamen of a Title VII suit is the non-discriminatory explanation set out by the employer and the evidence of pretext used to rebut this explanation. Therefore, the Commission has a duty to investigate this aspect of the case. As the Commission admits in this case, it did not investigate the reason for the discharge until two days before trial. Here, the Commission’s failure is especially pertinent, because a thorough investigation would have revealed the lack of foundation for maintaining a Title VII action.

In considering the reasonableness of the Commission’s litigation, this Court may consider the disparate resources of the Commission and the defendant. See 434 U.S. at 423, n. 20, 98 S.Ct. at 701, n. 20 (recognizing that many defendants in Title VII claims are small — and moderate — size employers for whom the expense of defending either a frivolous claim may become a strong disincentive to the exercise of their legal right). As Chief Judge Varner noted in E.E.O.C. v. Pet, Inc., 719 F.2d 383, 387 (11th Cir.1983),

It is of great concern to this court that the entire brute force of the United States Government can be brought to bear on an employer based on evidence of such superficial nature. While zeal in ferreting out invidious discrimination is absolutely necessary, the EEOC must learn that an objective evaluation of evidence is required before a suit of this nature can appear to be maintained in unquestioned good faith.

KBA holds assets of less than $2,000,-000.00. For a company of this size, defense of a Title VII action represents a significant burden. In granting attorney’s fees, it is not the intent of this Court to diminish the fervor with which the E.E.O.C. fulfills its statutory mission. However, given the consequences of litigation upon smaller companies, the E.E.O.C. must litigate only after an “objective evaluation of evidence”, and such evidence can be obtained only through good faith investigation of the facts. Under the above circumstances, this Court finds that this lawsuit was without foundation and, therefore, that defendants are entitled to an award of attorney’s fees against plaintiff.

The amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1983). This lodestar figure may be adjusted by a number of factors. Blum v. Stenson, 465 U.S. 886, 888, 104 S.Ct. 1541, 1543, 79 L.Ed.2d 891 (1984); Allen v. Amalgamated Transit Local 788, 554 F.2d 876, 884 (8th Cir.1977), cert denied, 434 U.S. 891, 98 S.Ct. 266, 54 L.Ed.2d 176 (1977). These factors include the following: 1) the novelty and difficulty of the questions presented; 2) the skill needed to perform the legal service properly; 3) the preclusion of other employment by the attorney due to acceptance of the ease; 4) whether the fee is fixed or contingent; 5) time limitations imposed; 6) the results obtained; 7) the experience, reputation, and ability of the attorneys; 8) the undesirability of the case; 9) the nature and length of the professional relationship with the client; and 10) fee awards in similar cases. Wilson v. Continental Manufacturing Company, 599 F.Supp. 284 (E.D.Mo.1984).

Attorney G. Carroll Stribling, Jr. spent 125.4 hours on this case. His customary rate is $75.00 per hour. Attorney James D. Eckhoff spent 2.1 hours on the case and also bills at a rate of $75.00 per hour. Other attorneys billing at a rate of $65.00 per hour spent a combined total of 8.1 hours. Thus, the total billable amount of the work performed by defendants’ counsel was $10,089.00.

This Court finds the number of hours spent by defendants’ counsel and their hourly rates to be reasonable. However, the relatively straightforward issues presented by this case warrant a downward adjustment in defendants’ fee award. In the opinion of this Court, a reduction of defendants’ award to $5,045.00 is justified by the lack of complex questions presented. This Court finds an award of $5,045.00 adequate to compensate counsel and to protect defendants with modest economic resources from frivolous lawsuits. Accordingly, defendants are awarded $5,045.00 in attorney’s fees against plaintiff.

Under Rule 24, Rules of the United States District Court for the Eastern Judicial District of Missouri, the party recovering costs is required to file a verified bill of costs on forms provided by the Clerk of the Court. Defendants are directed to follow the procedure outlined in the local rules for recovery of their costs.