author: FREEDMAN, District Judge.

text:
    In the Matter of the Application of Michael J. KINGSLEY For the Return of Seized Property.
    M.B.D. No. 85-30-F.
    United States District Court, D. Massachusetts.
    July 12, 1985.

      John Thompson, Springfield, Mass., for petitioner.
    Henry Rigali, Asst. U.S. Atty., Springfield, Mass., for respondent.
   MEMORANDUM AND ORDER

FREEDMAN, District Judge.

INTRODUCTION

On May 3, 1985 agents of the United States Drug Enforcement Administration (“DEA”) seized petitioner Michael Kingsley's residence and its “contents” pursuant to the civil forfeiture provisions of the federal narcotics laws, 21 U.S.C. § 881. Relying on a subsequently-impounded affidavit, the government procured a warrant from a federal magistrate before seizing petitioner’s property. Petitioner has moved for a preliminary injunction that would allow petitioner to return to his home and make use of its contents. In support of his motion, petitioner makes two arguments: 1) that the seizure warrant violates the Fourth Amendment’s particularity requirement by authorizing seizure of the “contents” of petitioner’s house; and 2) that the particular civil forfeiture provision on which the government relies, 21 U.S.C. § 881(a)(6), should not apply here.

On June 21 the Court entertained oral argument on petitioner’s preliminary injunction motion. Now, having very carefully considered the matter, the Court has concluded that petitioner’s motion should be granted as to the contents of his residence, but not as to the residence itself. In so ruling, the Court relies on reasons different from those put forth by petitioner.

FACTS

Petitioner is under investigation by the DEA for violations of the federal narcotics laws. However, petitioner has not yet been indicted for any crime. On May 3 and 6 the DEA obtained eight warrants for the seizure of virtually all of petitioner’s property, including bank accounts, petitioner’s residence and the residence’s contents. The Magistrate issued the warrants on the strength of an affidavit of DEA Special Agent Edward O’Brien. The Court has perused this affidavit, which is impounded and shall remain so until further order of the Court.

Concisely stated, the government’s theory is that everything petitioner owns is forfeitable under § 881(a)(6), which allows forfeiture of all proceeds traceable to an exchange of money for drugs, because it appears that petitioner’s only source of income during the last ten years has been illegal narcotics activity.

DISCUSSION

I.

This case raises several important and disturbing issues which the Court must address before reaching the merits of petitioner’s preliminary injunction motion. Throughout this entire proceeding the government has maintained that it could have proceeded against petitioner’s property without a warrant. Because the unchecked scope of this seizure threatens to turn § 881 into a powerful weapon of oppression by the government, the Court feels compelled to respond to this contention.

Under the seizure provisions of the civil forfeiture statute, 21 U.S.C. § 881(b), the government may seize property in one of two ways. First, the government may seize property “upon process issued pursuant to the Supplemental Rules for Certain Admiralty and Maritime Claims____” Id. This process requires the government to file a verified complaint with the clerk of the court in the district in which the property may be found. The clerk then “shall forthwith issue a warrant for the arrest of the ... property.” Supplemental Rule C. Second, the government may seize property without this process if the situation falls within one of four exceptions, only two of which could possibly be relevant here: one, if the seizure is incident to a search, arrest or inspection under a search or administrative inspection warrant or two, if the Attorney General has probable cause to believe the property is subject to civil or criminal forfeiture under the drug laws.

Neither of these exceptions is applicable here. Seizure of petitioner’s property was not effected incident to the execution of any search or inspection warrant; indeed, the warrant the government used here could not be classified as either of the above.

Nor can the government claim the “probable cause” exception in this case. In United States v. Pappas, 613 F.2d 324 (1st Cir.1979), the Court of Appeals read into this exception the dual prerequisites of contemporaneous probable cause and exigent circumstances. The Court of Appeals first held that the warrant the clerk issues under § 881(b) requires a showing of Fourth Amendment probable cause. Given this, the Court of Appeals reasoned that a literal reading of the probable cause “exception” would render this warrant requirement meaningless. Id. at 328-29. In the case at bar, there is not even a hint of exigent circumstances that would excuse the government’s procuring a warrant. Thus, the Court concludes that the government in this case was bound to comply with § 881(b)’s admiralty process and warrant requirement because the case falls within none of the exceptions to the warrant requirement.

However, technically in this ease the government did not properly comply with § 881(b)’s admiralty process because it seized petitioner’s property on May 3 but did not file a verified complaint until June 26. Invalidating the entire seizure at this juncture and requiring the government to do things in their proper order would only delay until another day resolution of the important questions this ease raises and the Court will therefore not pursue such a course. However, the Court stresses that in the future when a warrant is necessary, the government should follow the statutory procedure. Failure to do so may well result in the Court’s invalidating the entire seizure.

This brings the Court to the following question: if the government had merely gone before the clerk of the court as Rule C of the Supplemental Rules provides and procured a warrant for the arrest of petitioner’s property upon the filing of a verified complaint, would that procedure— without more — be legal? The Court has concluded that it would not. The Court holds that it is necessary in § 881 cases for a magistrate or other detached judicial officer to review the clerk’s warrant prior to its issuance to insure it satisfies the Fourth Amendment’s requirements of probable cause and particularity.

In Pappas the First Circuit held that the Rule C clerk’s warrant can issue only on a showing of probable cause because to interpret the warrant requirement otherwise “would conflict with the Fourth Amendment’s proscription that ‘no Warrants shall issue, but upon probable cause.’ ” Pap-pas, 613 F.2d at 328 (emphasis in original). Even though in rem warrants such as those authorized by Rule C can issue without probable cause, the Court of Appeals reasoned, “Section 881 is a punitive, quasi-criminal statute ... and we suspect that Congress gave little consideration to the Fourth Amendment implications of applying the Supplemental Rules in this context.” Id. Thus, this Court concludes that the Fourth Amendment applies to the general warrant requirement of § 881(b). Furthermore, the Court has determined that both the probable cause and particularity requirements of the Fourth Amendment apply, given that the two are “closely interconnected.” United States v. Hershenow, 680 F.2d 847, 851 (1st Cir.1982). Finally, this Court holds that the only way to ensure that a clerk’s warrant issued under Rule C satisfies the Fourth Amendment is to require that a detached judicial officer review it before the clerk issues it. Cf. Techem Chemical Co., Ltd. v. M/T Choyo Maru, 416 F.Supp. 960 (D.Md.1976) (intimating no opinion as to whether independent judicial review of complaint and affidavit before clerk issues warrant would cure due process problems with Rule C).

The question remains, if a clerk’s warrant issues without the probable cause or the particularity the Fourth Amendment demands, then what is the remedy? It is possible the traditional remedy for Fourth Amendment violations would be available, namely, the exclusion from the forfeiture proceeding of any evidence obtained in vio-. lation of the Fourth Amendment. See One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693, 85 S.Ct. 1246, 14 L.Ed.2d 170. (1965); United States v. One 1977 Mercedes Benz, 450 SEL, 708 F.2d 444, 448 (9th Cir.1983), cert. denied sub nom. Webb v. United States, — U.S.-, 104 S.Ct. 981, 79 L.Ed.2d 217 (1984). But see United States v. Leon, — U.S.-, 105 S.Ct. 52, 82 L.Ed.2d 942 (1984) (adopting good faith exception to the exclusionary rule). It is also possible that a property owner might have a cause of action for damages against the federal agents effecting seizure. See Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971). But see Mitchell v. Forsyth, — U.S.-, 105 S.Ct. 2806, 86 L.Ed.2d 411 (1985) (qualified immunity available where law not clearly established at time of violation). However, whether a property owner would be entitled to the outright return of his property when that property had been seized under § 881(b) in violation of the Fourth Amendment is an unresolved and intriguing question. Fortunately, the Court need not answer this question, as the Court has concluded that petitioner is entitled to relief in the form of a preliminary injunction because petitioner has shown he is likely to prevail at the forfeiture proceeding on the grounds that the government will be unable to prove probable cause under the statute to forfeit petitioner’s property.

II.

In a preliminary injunction situation, of course, it is the movant’s burden to establish four elements: 1) movant must show he will suffer irreparable harm if the court does not grant the injunction; 2) movant must demonstrate that the harm to him of denying the injunction outweighs the harm to the opposing party of granting the injunction; 3) movant must prove he is likely to prevail at trial; and 4) movant must establish that the public interest will not be harmed by granting the injunction. Planned Parenthood League of Massachusetts v. Bellotti, 641 F.2d 1006, 1009 (1st Cir.1981). Here, to satisfy the third factor, petitioner must show that at the civil forfeiture trial the government will be unable to prove its case.

At the trial in a § 881(a)(6) proceeding, the government has the burden to show that there is “ ‘probable cause for belief that a substantial connection exists between the property to be forfeited and the criminal activity defined by the statute;’ i.e., the exchange of a controlled substance.” United States v. $364,960 in United States Currency, 661 F.2d 319, 323 (5th Cir.1981); see also United States v. Certain Real Property Situated at Route 3, 568 F.Supp. 434, 436 (W.D.Ark.1983) (government’s burden to show substantial connection between property and illegal activities, though heavy, may be satisfied by circumstantial evidence). The standard for probable cause the government must demonstrate in a § 881 forfeiture case is the same as that used in search and seizure cases. United States v. One 1974 Porsche 911-S, 682 F.2d 283, 285 (1st Cir.1982). Property which is “proceeds” may still be forfeitable even though it has been commingled with other assets, involved in intervening legitimate transactions or otherwise changed in form, “but only to the extent that it could be shown that a traceable connection to an illegal transaction in controlled substances existed.” Joint Explanatory Statement of Titles II and III, 124 Cong.Rec. S17647 (Oct. 7, 1978), reprinted in 1978 U.S.Code Cong. & Admin.News 9496, 9518, 9522. Thus, the Court rejects petitioner’s argument that because the government here seized proceeds or profits generated by investment, the government has gone beyond the authorization of § 881(a)(6). Rather, the Court is of the opinion that pursuant to § 881(a)(6), the government can seize any type of property, provided the government can trace that property to an illegal drug transaction.

Here, the government’s theory is that everything petitioner owns is traceable to a drug transaction because the affidavit shows that is exclusively how petitioner has supported himself for at least the last ten years. The Court agrees with the Magistrate that the affidavit provides probable cause to believe that narcotics activity is and has been for some time petitioner’s sole source of income and that it is with this money that petitioner purchased his home.

However, the Court has difficulty with tracing the alleged narcotics activity to the undifferentiated “contents” of petitioner’s residence. Specifically, the affidavit does not give a clue as to which, if any, of the seized items petitioner himself purchased or, if petitioner did purchase the items, whether he purchased them within the last ten years during the time of his alleged narcotics activity or earlier. Thus file Court is unable to say at this time that the government could meet its burden of proving at the forfeiture proceeding that there is probable cause to believe the “contents” of petitioner’s residence are traceable to drug transactions. The Court must therefore conclude that petitioner has demonstrated the requisite likelihood of success on the merits.

As for the irreparable harm element of petitioner’s preliminary injunction motion, the Court deems the irreparable harm of being indefinitely deprived of most of one’s personal possessions to be obvious.

Nor does the Court believe that any harm to the government of ordering the return of the contents of petitioner’s residence outweighs the harm to petitioner. The government’s interest lies in forfeiting traceable proceeds. If perchance at the forfeiture trial the government is able to trace petitioner’s possessions to illegal drug transactions, the government will then be able properly to forfeit the property, unless petitioner has disposed of it in the meantime. At oral argument, counsel for petitioner indicated that petitioner had no intention of disposing of his property and would agree to the entry of certain restraining orders. The Court shall adopt petitioner’s suggestion and shall also require petitioner to post $25,000 bond in order to comply with the requirements of Fed.R.Civ.P. 65(c) and to further insure petitioner’s compliance with the restraining order.

Finally, the Court believes the public interest will be harmed if this injunction is not granted. Although the Court recognizes the seriousness of the drug trafficking problem in our society, the Court is very disturbed by the seizure that has occurred here. Petitioner has not even been indicted, yet there is every indication that the seizure of petitioner’s property was a punitive gesture. At oral argument, the government kept referring to petitioner as “the defendant” and “a drug violator.” Furthermore, the government purports to indefinitely divest petitioner of everything he owns even though there is no question that the seized “contents” of petitioner’s residence include private papers, memorabilia and other personal possessions totally unrelated to narcotics activity. Such an intrusion borders on a substantive due process violation, cf Rochin v. California, 342 U.S. 165, 72 S.Ct. 205, 96 L.Ed. 183 (1952), and the public interest demands it be redressed.

CONCLUSION

The government was bound to procure a warrant here in accordance with Rule C of the Supplemental Rules because in this case none of the four exceptions to § 881(b)’s warrant requirement apply. Furthermore, it was entirely correct for the government to have a magistrate review the warrant, as the Fourth Amendment demands such neutral judicial oversight.

However, here petitioner has met the four requirements for issuance of a preliminary injunction. He has shown he is likely to prevail at the forfeiture proceeding as to his residence’s contents because the evidence currently before the Court — the impounded affidavit — shows that the government will be unable to sustain its statutory burden of proving there is probable cause to believe that the undifferentiated “contents” of petitioner’s residence are traceable to illegal narcotics exchanges. Petitioner has also shown that he will be irreparably harmed if all his personal possessions are indefinitely withheld from him. The government is accordingly directed to return to petitioner the “contents” of his residence; however, the government need not relinquish its seizure of the residence itself.

Petitioner shall post a $25,000 bond and shall not dispose of or encumber any of the returned property before termination of the forfeiture proceedings.

It is So Ordered.

      . Petitioner has also moved pursuant to Fed.R. Crim.P. 41(e) for return of seized property. However, the Court has concluded that R. 41 is not applicable in this context. The warrant required in this type of case, see infra at pp. 222-23, is not issued for any of the purposes listed in R. 41(b). This is not to say, however, that R. 41 would be inapplicable if the government, relying on a R. 41(b) search warrant, seized property incident to the search under the first exception to § 881(b)’s warrant requirement.

      . 21 U.S.C. § 881 reads in pertinent part,
      (a) Subject property. The following shall be subject to forfeiture to the United States and no property right shall exist in them:
      (6) All moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance in violation of this title, all proceeds traceable to such an exchange____

        Id. (emphasis added). The Court believes that § 881(a)(6) allows the forfeiture of real property if it was purchased with money derived from illegal drug transactions. United States v. Premises Known as 8584 Old Brownsville Road, Shelby County, Tennessee, 736 F.2d 1129 (6th Cir.1984).

      . Section 881(b) provides:
      (b) Seizure pursuant to Supplemental Rules for Certain Admiralty and Maritime Claims. Any property subject to civil or criminal forfeiture to the United States under this title may be seized by the Attorney General upon process issued pursuant to the Supplemental Rules for Certain Admiralty and Maritime Claims by any district court of the United States having jurisdiction over the property, except that seizure without such process may be made when—
      (1) the seizure is incident to an arrest or a search under a search warrant or an inspection under an administrative inspection warrant;
      (2) the property subject to seizure has been the subject of a prior judgment in favor of the United States in a criminal injunction or forfeiture proceeding under this title;
      (3) the Attorney General has probable cause to believe that the property is directly or indirectly dangerous to health or safety; or
      (4) the Attorney General has probable cause to believe that the property is subject to civil or criminal forfeiture under this title.

        Id. (emphasis added).

      . Actually, when the First Circuit decided Pap-pas, the fourth exception under § 881(b)(4) read, "(4) the Attorney General has probable cause to believe that the property has been used or is intended to be used in violation of this title.” This Court believes Pappas ’ rationale applies equally to the fourth exception’s new wording.

      . The Fourth Amendment provides in part that “no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

      . This procedure may not in fact be novel in this District, although today is the first opportunity this Court has had to say in so many words that it is required. For example, in connection with the recent O’Connor drug case, United States v. O’Connor, Crim. No. 83-0149-F, the government obtained a pre-indictment warrant and monition for the seizure of certain real property pursuant to § 881(a)(6). However, the clerk issued the warrant only upon specific Order of the Court. See United States v. Three Parcels of Land, Civ. No. 83-0100-F (D.Mass. Mar. 18, 1983).

      . Because the Court has only heard argument and has not taken any evidence on petitioner’s preliminary injunction motion, the only evidence of the forfeitability of petitioner’s property is contained in Special Agent O’Brien’s affidavit. It is on the basis of this affidavit that the Court has determined that petitioner is likely to prevail at the forfeiture trial on that part of the case relating to the "contents" of his residence.

      . The Court also recognizes that this is perhaps an unusual case. What makes it unusual is that the affidavit provides probable cause to believe that all of petitioner’s income in the last ten years is from drugs. In a case where a property owner also had some legitimate sources of income it would be more difficult for the government to show a substantial connection between the purchases and the drug money.

      . Section 881(i) provides, "The filing of an indictment or information alleging a violation of this title or title III which is also related to a civil forfeiture proceeding under this section shall, upon motion of the United States and for good cause shown, stay the civil forfeiture proceeding.” (Emphasis added). Assuming, as is likely, that petitioner is indicted before these forfeiture proceedings are complete, petitioner might well be without the contents of his house for many months.

      . Fed.R.Civ.P. 65(c) provides, "No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.”


source: Caselaw Access Project

author: GLASSER, District Judge:

license: Public Domain

text:
    UNITED STATES of America, Plaintiff, v. ARTICLES OF BANNED HAZARDOUS SUBSTANCES CONSISTING OF 1030 GROSS (MORE OR LESS) OF BABY RATTLES, Defendants.
    No. 83 Civ. 5011.
    United States District Court, E.D. New York.
    July 12, 1985.

      Winstanley Luke, Asst. U.S. Atty., E. Dist. of N.Y., Brooklyn, N.Y., for plaintiff.
    Daniel L. Jennings, Office of General Counsel, Washington, D.C., for U.S. Consumer Products Safety Commission.
    Locker, Greenberg & Brainin, New York City, for M. Pressner & Co.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

GLASSER, District Judge:

The United States seized defendant baby rattles on November 16, 1983, on the grounds that they violate standards established by the rattle regulations, 16 C.F.R. Pt. 1510 (1985), enacted under the Federal Hazardous Substances Act (FHSA), 15 U.S.C. § 1261 et seq., and are therefore banned hazardous substances. 15 U.S.C. § 1261(q)(l)(A). The government seeks destruction of the rattles. Claimant M. Pressner & Co., the importer and distributor of the defendant rattles, challenges the seizure, arguing that the rattle regulations do not cover these items. Alternatively, claimant argues that even if the rattles are banned hazardous substances, they may be exported under the FHSA. 15 U.S.C. §§ 1264(b), 1265(a). Claimant requests the return of the rattles so that it may export them.

For the reasons discussed below, I find that the defendants are “rattles” covered by the rattle regulations. Moreover, I find that defendants do not meet the standards set by the rattle regulations and are therefore banned hazardous substances under the FHSA. In addition, because the rattles will be no less hazardous abroad than they are in this country, and because there is no statutory authority mandating the export order sought by claimant, there is every reason to respect the express policy of the Consumer Products Safety Commission (CPSC) prohibiting export of products that violate FHSA standards or regulations if they have moved or been sold in domestic commerce. The rattles are therefore condemned and must be destroyed. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, I hereby make the following findings of fact and conclusions of law.

I. Findings of Fact

Claimant M. Pressner & Co. is an importer and manufacturer of novelties and party goods. Tr. 47. During the late 1970s, it began importing and distributing in domestic commerce the two types of rattles that are defendants in this action. Id. One, claimant’s model no. 56896, is a plastic, 2lk inch ball and stem rattle of the traditional “lollipop” design. Tr. 49 (stipulation of parties). The other rattle, marketed by claimant as model no. 03456, is 2 inches long and has a heart-shaped head and a ring handle. During the years 1980-82, it was advertised in the “Toy” Section of claimant’s catalogs, which contain separate sections for toys and party goods. Tr. 50, 57. Both models make noise when shaken. They were sold to craft and party supply stores, Tr. 53, for use as favors or tie-on decorations in corsages, on gifts, and on cakes. Tr. 50-51, 56. The party goods retailers either sold the items directly to consumers or attached them to corsages, cakes, etc., before sale. Claimant’s Proposed Findings of Fact at 2.

In August and September 1982, the CPSC collected five rattle samples from claimant’s warehouse in Brooklyn and from a party goods store in Mt. Vernon that is one of claimant’s customers. The CPSC subsequently informed claimant, in a letter dated October 19, 1982, that of the four samples that fell within the scope of the regulations, all failed to meet the test criteria set forth in 16 C.F.R. § 1510.3. The CPSC requested that claimant recall the lollipop shaped model (no. 56896) because it was more likely to be given to children, Tr. 12-13, and that claimant cease distributing the other three models. .

In response, claimant asserted both that the rattle regulations did not apply to the samples and that the rattles did not pose the impaction or choking hazards that the regulations were designed to remedy. Letter of Aaron Locker to CPSC, November 8, 1982. On November 15, 1983, the government brought this action, seeking a decree of condemnation under 15 U.S.C. § 1265(a). Pursuant to an arrest warrant in rem, the United States Marshal seized defendant rattles at claimant’s warehouse on the following day. At the time of the seizure, defendants were not marked for export. See Claimant’s Proposed Findings of Fact, IT 11 (claimant intended to mark cartons for export).

Claimant continued to advertise one of the rattle models that are the subject of this suit, and to sell both models in interstate commerce, for approximately two months after it received the Commission’s November 1982 letter. Tr. 64; Plaintiff’s Exhibits 2(A)-2(K), 2(N)-2(S). Claimant agreed to stop distributing the rattles after it was informed that it would not have to recall the lollipop-shaped model. Tr. 63. Nevertheless, claimant made four shipments of the rattle models after that date — two to Puerto Rico on January 21 and August 24,1983; one to Aruba, outside the Continental United States, on April 22, 1983; and one to Massachusetts on October 4, 1983. Tr. 66. Claimant did not inform the CPSC of the export shipment to Aruba. Tr. 66-67.

There is ample evidence to support a finding that defendant rattles moved or were offered for sale in domestic commerce during 1983, prior to seizure. Claimant advertised the rattles in its catalogs for 1980-1982, thereby offering them for sale. The fact that the rattles may have been dropped from the 1983 catalog does not rebut the inference that the rattles moved and were offered for sale in commerce, in view of the number of actual shipments made during 1983, including one just a month before defendants were seized. See Plaintiffs Exhibit 2(T).

In a letter dated May 17, 1984, claimant’s President, Jerry Pressner, informed the Commission that the company intended to export the attached rattles to Venezuela, but said that it would not do so until this Court lifts the attachment order and permits the export. Claimant’s Exhibit E. At that time, claimant also marked the rattles for export, to the extent that it was able to do so under the attachment order. Id.

II. Conclusions of Law

The first question presented is whether the seized rattles fall within the scope of the FHSA and the rattle regulations promulgated under that statute. The Act includes in its definition of a hazardous substance, “[a]ny toy or other article intended for use by children which the Commission by regulation determines ... presents an electrical, mechanical, or thermal hazard.” 15 U.S.C. § 1261(f)(1)(D) (1985). Toys or other articles intended for use by children that are hazardous substances under the Act are automatically banned from interstate commerce. Id. §§ 1261(q)(l)(A), 1263(a).

The rattle regulations, promulgated under the authority of 15 U.S.C. § 1262(e), define a rattle as “an infant’s toy intended to be hand held, usually containing pellets or other small objects and which produces sounds when shaken.” 16 C.F.R. § 1510.2 (1985). The regulations were based on the results of investigations by the CPSC and the Canadian Consumer Commission into choking incidents among infants. Background Information to Proposed Rule, 42 Fed.Reg. 59,511 (1977). Some of these incidents were caused by “layette” and “tie-on” rattles used to decorate gifts. Tr. 6-7.

After concluding that rattles of certain sizes and designs could be sucked into and lodge in an infant’s throat, thus causing choking or suffocation, the CPSC established size limits for rattles sold in the marketplace. Under 16 C.F.R. § 1510.3, a rattlé that enters and penetrates the full depth of the oval cavity of a rattle test fixture fails to meet CPSC standards.

The CPSC found that the rattles most commonly associated with injuries were approximately four inches long and shaped like telephone receivers, barbells, clothespins, and safety pins, as well as the traditional lollipop design. Background Information to Proposed Rule, 42 Fed.Reg. 59,-511 (1977). In its final rule, however, the Commission did not limit the scope of the regulations to the previously identified sizes and shapes because it concluded that rattles of different shapes and sizes posed identical hazards. 43 Fed.Reg. 22,004 (1978). In August 1983, the CPSC issued a Consumer Product Safety Alert warning that rattles sold as novelty items posed choking hazards and that distributors had been advised that they were banned hazardous substances under the Act. Plaintiff’s Exhibit 13. The warning, which urged consumers to destroy all such rattles in their possession, illustrated three types of rattles ranging between 2V2 and 4V2 inches in length. One of the rattles depicted in the warning appears to be identical to defendant model no. 56896.

Claimant does not dispute that the two seized models penetrate the rattle test fixture and therefore do not comply with the regulations. It argues, instead, that the regulations are not applicable because they cover only infants’ toys and exclude items not “commonly understood” to be rattles. Claimant’s Proposed Conclusions of Law, 113. Claimant contends that defendant rattles are not toys intended to be used by children but party favors or decorations meant for use as package tie-ons or to decorate cakes, corsages, and petit-fours. Claimant’s Proposed Findings of Fact, ¶ 4. Claimant says that it has never sold the rattles directly to toy stores. Id. 11 5. Neither has it received any complaints alleging that what it has sold as party favors or decorations have been used as rattles or have caused injuries to infants. Id. U 7. Moreover, claimant notes, the CPSC cannot state that there have been any injuries associated with the particular rattles claimant distributes. Id. Stipulation of parties, 111; see also Tr. 17-18. Therefore, Pressner concludes, the rattles are not used as toys by children. Claimant’s Proposed Conclusions of Law, 11 5.

Finally, according to the claimant, the determination whether objects are “toys intended to be used by children” for purposes of the FHSA should be governed by the manufacturer’s intent. Id. 114. That is, objects are not toys or other articles intended for use by children if the person or entity who put them into commerce did not intend, based on his knowledge of the marketplace and the objects’ foreseeable use, that they would be used as toys or otherwise used by children. Claimant therefore argues that because it intended defendant rattles to be used only as party favors, etc., they do not fall within the scope of the regulations.

Assuming the validity of claimant’s contention, its catalog advertisement of one of the rattle models in the “Toy” section indicates that claimant intended at least in part to market defendants as toys. More damaging to claimant’s argument, however, is the language of the FHSA itself, which nowhere speaks specifically of the manufacturer’s subjective intent. Instead, the FHSA merely defines a hazardous substance as “[a]ny toy or other article intended for use by children” which are found by the Commission to present electrical, mechanical or thermal dangers that make them hazardous to children. 15 U.S.C. § 1261(f)(1)(D). The only rational interpretation of the word “intended” in the statute calls for an objective test of intent: whether a reasonable person would believe that the object is a toy or article intended for use by children. Under such a test, the defendant rattles must be considered toys or articles intended for use by children. The subjective interpretation of intent urged by claimant could seriously diminish the effectiveness of FHSA because it would enable a manufacturer to introduce dangerous articles into commerce on the unreasonable but good faith belief that the articles would not be used by children. Such a result could not possibly comport with the intent of Congress in enacting the FHSA.

This conclusion is confirmed by the CPSC regulations. In promulgating the regulations at 16 C.F.R. Pt. 1510, the CPSC has determined that objects like defendants here fall within the scope of the FHSA. Because these objects look and sound like rattles, they may be given to children to play with, and therefore pose the dangers of choking and suffocation which the regulations seek to avoid. Tr. 13 (testimony of Christine Nelson, CPSC compliance officer). Moreover, these hazards are beyond the ability of the manufacturer or distributor to control. In warning consumers about the dangers of party favor rattles, the CPSC considered the likely hazard to children irrespective of the intent of the entity that put the rattles into commerce. Any other construction of the authority granted to the Commission under the Act would violate its purpose of protecting the public from hazardous substances, whatever their source. Because the interpretation of a statute by the agency charged with its administration is generally accorded “great deference,” Udall v. Tollman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965), I see no reason to disturb the CPSC’s judgment that defendants are “toys or other articles intended for use by children,” 15 U.S.C. § 1261(f)(1)(D), and therefore subject to regulation under the FHSA.

Having concluded that defendants are “rattles” within the meaning of the FHSA and its regulations, I must next consider whether defendants violate the applicable standards. This issue is not contested. Tr. 43. Both plaintiff and claimant agree that because defendants penetrate the full depth of the rattle test fixture, 16 C.F.R. § 1510.4, they are not in compliance with the regulations. Accordingly, I conclude that defendants are “banned hazardous substances” under the FHSA. 15 U.S.C. § 1261(q)(l)(A).

The second issue before the court is whether, as claimant urges, the rattles may be exported, even though they are banned from domestic interstate commerce. The FHSA makes the introduction of a banned hazardous substance into interstate commerce a “prohibited act,” 15 U.S.C. § 1263(a), punishable by a fine or imprisonment, id. § 1264(a), and subjects the substances to seizure and condemnation. 15 U.S.C. § 1265(a). However, the FHSA exempts these substances from seizure and condemnation if they are intended for export. Id. Under amendments passed in 1978, the FHSA further requires that the exporter notify the CPSC of its intention to export such substances not less than 30 days before export, so that the Commission may inform the foreign government why the items do not comply with the FHSA and hence are barred from sale in this country. 15 U.S.C. § 1273(d); 16 C.F.R. § 1019. The FHSA’s penalty provisions provide a similar exemption to persons who ship hazardous substances for export. 15 U.S.C. § 1264. However, that exemption does not apply “if such hazardous substance [was] sold or offered for sale in domestic commerce.” Id.

Claimant does not deny that it shipped rattles in interstate commerce after the Commission informed it that the rattles were banned hazardous substances. Tr. 59. It is fair to conclude, both from these sales and from the advertisement in claimant’s catalog, that defendant rattles were sold or offered for domestic sale. In addition, claimant concedes that it did not inform the Commission in advance of its shipment to Aruba in April 1983. Tr. 66-67. It acknowledges that it first notified the CPSC of its intention to export defendants in May 1984, after they had been seized and this action commenced. Stipulation of parties, If 2.

Nevertheless, claimant argues that the Act is silent on when the intention to export must arise and therefore does not preclude exportation of the banned rattles. Claimant asks this Court to adopt, for noncomplying products under the FHSA, the export policy recently established for products under the Flammable Fabrics Act (FFA), which is also administered by the CPSC. The FFA policy permits the export of noncomplying products even if they have been distributed, sold, or offered for sale in domestic commerce. In re Imperial Carpet Mills, Inc., CPSC No. 80-2 (July 7, 1983); 49 Fed.Reg. 39,669 (Oct. 10, 1984) (revoking 16 C.F.R. Pt. 1602).

Apart from the fact that claimant has committed two prohibited acts under the FHSA, the Commission’s recently affirmed policy statement on the export of products that do not comply with regulations under the FHSA squarely precludes the relief claimant seeks. In May 1984, the Commission voted to continue its ban against the exportation of noncomplying, misbranded, and banned products subject to regulation under the Consumer Products Safety Act (CPSA) and FHSA. 49 Fed. Reg. 39667 (Oct. 10, 1984) (codified at 16 C.F.R. Pt. 1010). The policy applies only to products that are the subject of consumer product safety standards or banning rules under the CPSA, and to “misbranded” and “banned” hazardous substances as defined in the FHSA. 16 C.F.R. § 1010.-1(b)(1), (3). Under the policy statement, if any of these banned substances are sold or offered for sale at any time in domestic commerce, they may not be exported. Id. § 1010.1(b)(2), (4).

The Commission’s policy statement is a reasoned interpretation of the language of the FHSA. It is consistent with the intent of Congress as expressed in § 1264(b). It supports the goals of encouraging domestic manufacturers and distributors to market only products that comply with the regulations under the FHSA and of preventing the re-introduction into domestic commerce of non-complying products. It is expressly limited to products that are regulated under the FHSA and designated as misbranded or banned hazardous substances. Because rattles are specifically regulated under the FHSA, and non-complying rattles are deemed to be banned hazardous substances, 15 U.S.C. § 1261(q)(l)(A); 16 C.F.R. Pt. 1510, the export policy clearly applies to defendants if they were sold or offered for sale in domestic commerce at any time. Claimant concedes that it did sell the rattles both within and outside the continental United States and I have found that these rattles were offered for sale in domestic commerce. Claimant is not, therefore, entitled to any of the exemptions under the Act for products intended for export. Accordingly, the rattles must be, and hereby are, condemned.

As noted above, the FHSA provides that after a decree of condemnation, the banned hazardous substances may be either destroyed or returned to the claimant for destruction or to bring them into compliance. 15 U.S.C. § 1265(c). Because claimant has not shown how it could make defendant rattles comply with the regulations, I order that the rattles be destroyed.

SO ORDERED.

      . The CPSC's letter said that one of the models was so small that it was not covered by the regulations.

      . In an affidavit, Jerry Pressner, President of claimant, said that the shipments were stopped in January 1983 "pending the outcome of this proceeding." J. Pressner Affidavit, at 2. At trial, however, he testified that claimant agreed to stop selling the rattles and did stop regular shipments of defendant rattles in December 1982. Tr. 63. The discrepancy would be significant only if it altered the number of shipments that were made even after the date when claimant agreed to stop selling the rattles. However, because the parties agree that there were four such shipments, I find it unnecessary to determine the exact date on which claimant originally agreed to cease distributing the rattles.

      . As will be discussed infra, claimant seeks relief from the seizure under 15 U.S.C. § 1265(c), which exempts hazardous substances intended for export. Under the CPSC’s "Statement of policy and interpretation” of the FHSA, claimant must show that defendants were not moved or offered for sale in domestic commerce in order to qualify for the exemption.

      . Mr. Pressner testified at trial that model no. 03456 was deleted from the “Toy” Section of either the 1983 or 1984 catalog of his firm. Tr. 64. His testimony is not clear on whether the rattle was dropped from the 1983 or 1984 catalogs, or both. He did not produce the catalogs for either year.

      . An exception is made, however, for hazardous substances shipped for export, so long as they are appropriately labeled, 15 U.S.C. § 1264(b), and so long as the shipper files a statement of intention to export with the CPSC no less than 30 days before the export. 15 U.S.C. § 1273(d). Failure to file such a statement is a "prohibited act" under 15 U.S.C. § 1263(i).

      . The regulations presuppose that the product category "'rattle' has a commonly understood definition," 43 Fed.Reg. 22,002, 22,003 (May 23, 1978), and therefore exclude from coverage other noise-making toys such as dolls, stuffed animals, plastic keys, and musical instruments such as tambourines, castanets, and maracas. 16 C.F.R. § 1510.2.

      . The rattle test fixture is described in 16 C.F.R. § 1510.3. The cavity’s dimensions are 50 mm X 35 mm x 30 mm. The testing procedure is set forth in 16 C.F.R. § 1510.4.

      . Claimant relies on United States v. An Article of Hazardous Substance Consisting of an Undetermined Quantity of Banned Dolls, No. 74-1184 DNW (C.D.Cal. Sept. 18, 1974) (transcript of oral decision issued from the bench), in which the district court denied the government’s request that certain dolls, which had been seized by the CPSC on the ground that they presented a "mechanical hazard” under 15 U.S.C. § 1261(f)(1)(D), be condemned.
      The court concluded that the dolls, which were advertised as "boudoir” or "bed” or "standing” dolls, and whose garments were held fast to their bodies with straight pins, were not intended for children within the meaning of the FHSA and the regulations interpreting the Act. The court based its conclusion on a finding that the dolls had no moving parts, did not bend or cry, and could not be dressed or undressed — could not, in other words, be handled as a child between the ages of 2 and 8 would expect to use a doll.
      Further, the court assumed that by "intention,” the regulations meant the intention of the manufacturer or distributor, based on his business experience and knowledge of the marketplace. Because there was no evidence that any of the seized dolls had been sold to toy stores, displayed in advertisements and catalogs next to children, nor was there any evidence that children had been injured while playing with the dolls, the court found that the claimant had no intention that the dolls would ultimately be used by children.
      Even if we were to accept the assumption, never explained by the Banned Dolls court, that the manufacturer's intention should govern, this case is distinguishable. Unlike the dolls, rattles are the subject of specific regulations under the FHSA. Whereas the Banned Dolls court was construing the statutory meaning of "mechanical hazard” and found that the Act was "inartfully drafted,” and therefore not readily applicable to the seized dolls, the CPSC has already determined that rattles of a certain size present a mechanical hazard within the meaning of the Act. Moreover, because the rattle regulations were promulgated under the Commission’s authority to determine what toys are hazardous to children, rattles are presumptively "toys intended for use by children.” Finally, nowhere do the rattle regulations mention the manufacturer’s or distributor’s subjective intent. Instead, they establish an objective test. Their criteria for compliance are unambiguous: penetration of the rattle test fixture constitutes a violation of the regulations.

      . Even if I were to accept the validity of a subjective definition of the phrase "intended for use by children,” I must disagree with the reasoning in Banned Dolls, supra, which inferred a lack of such intention on the claimant’s part from the fact that there were no reported injuries to children.
      Reports of injuries would only confirm what a reasonable manufacturer or distributor of party favors resembling rattles should have foreseen at the outset, namely, that they would be given to infants. Expert testimony established that parents would regard defendants as rattles, Tr. 31 (Dr. Nathan Fox), and that an infant of two months not only could hold a rattle of this size but also would be likely to put it in his or her mouth. Tr. 24-25 (infants learn about the world by "mouthing”). Claimant knew that the heart-shaped model was used on babies’ shoes, Tr. 50, and that both types of rattles were given as gifts at baby showers. Tr. 58. It also knew that some of its retail customers sold the rattles directly to consumers. Thus, claimant could not reasonably have ignored the possibility that children would use the rattles, regardless of whether he intended such use of the rattles and whether reasonably prudent parents would give such objects to their children. See Tr. 31. If all adults were "reasonably prudent,” there would be no need for these regulations. Permitting a manufacturer to claim its "intent" is that the product will not be used as a toy, despite evidence of its use as a toy and a common sense observation that children would be likely to use it as a toy, would thwart the purpose of the FHSA and regulations. For all these reasons, a subjective standard for "intent” is essentially unworkable.

      . A banned hazardous substance intended for export to any foreign country qualifies for this exemption under the FHSA if it
      (1) is in a package branded in accordance with the specifications of the foreign purchaser, (2) is labeled in accordance with the laws of the foreign country, and (3) is labeled on the outside of the shipping package to show that it is intended for export, and (4) is so exported.
      15 U.S.C. § 1265(a).

      . Section 1264(b) provides:
      No person shall be subject to the penalties of subsection (a) of this section ... for having violated subsection (a) or (c) of section 1263 of this title with respect to any hazardous substances shipped or delivered for shipment for export to any foreign country, in a package marked for export on the outside of the shipping container and labeled in accordance with the specifications of the foreign purchaser and in accordance with the laws of the foreign country, but if such hazardous substance is sold or offered for sale in domestic commerce or if the Consumer Product Safety Commission determines that exportation of such substance presents an unreasonable risk of injury to persons residing within the United States, this clause shall not apply.

      . Claimant offers no statutory support for this view. The only provision of the Act that might arguably permit claimant’s reading is § 1265(c), which gives a court, after entering a decree of condemnation, discretion to "direct that such hazardous substance be delivered to the owner thereof to be destroyed or brought into compliance with the provisions of this chapter____’’ 15 U.S.C. § 1265(c). This section could be read as allowing return of a banned hazardous substance to the distributor in order to bring it into compliance with the Act’s export rules. However, such an order would lead to the anomalous result of extending relief to claimants who have sold or offered hazardous substances in domestic commerce, when § 1264(b)(3) expressly denies them that relief under the export exemptions to the penalty provisions. Because the language of § 1265(c) is discretionary, and because construing it in the way that claimant appears to suggest would clearly conflict with the penalty provisions of section 1264(b), I do not interpret "compliance" in § 1265(c) to mean compliance with the FHSA’s export rules.

      . Under 15 U.S.C. § 1263(a), the introduction into interstate commerce of a banned hazardous substance is a prohibited act. Failure to notify the CPSC of intention to export pursuant to 15 U.S.C. § 1273(d) is also a prohibited act. 15 U.S.C. § 1263(i). The FHSA specifies penalties for such acts:
      Any person who violates any of the provisions of section 1263 of this title shall be guilty of a misdemeanor and shall on conviction thereof be subject to a fine of not more than $500 or to imprisonment for not more than ninety days, or both____
      15 U.S.C. § 1264(a).

      . The policy statement reads in pertinent part:
      (b) In its enforcement of the Federal Hazardous Substances Act, the Commission interprets the provisions of the Act .to prohibit the export of products which are misbranded hazardous substances or banned hazardous substances as those items are used in the Act if those products have at any time been sold or offered for sale in domestic commerce.
      16 C.F.R. § 1010(b).


author: SPELLMAN, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. William SCHARRER, Defendant.
    No. 82-352-Cr.
    United States District Court, S.D. Florida, Miami Division.
    July 15, 1985.

      K. Chris Todd, Neil Cartusciello, Asst. U.S. Attys., So. Dist. of New York, New York City, for plaintiff.
    Atlee Wampler, Miami, Fla., for defendant.
   MEMORANDUM OPINION AND ORDER DENYING DEFENDANT SCHARRER’S POST-TRIAL MOTIONS

SPELLMAN, District Judge.

The Defendant, William Scharrer, was convicted after a jury trial of conspiring to defraud the United States, aiding and abetting Victor Posner in tax evasion, and aiding the preparation of false income tax returns in violation of Title 18, United States Code, Section 371 and 2, and Title 26, United States Code, Sections 7201 and 7206(2). Shortly after the trial, Scharrer retained new counsel and filed a series of post-trial motions alleging numerous errors. For the reasons detailed below, the Court finds that all of Scharrer’s post-trial motions must be denied.

Background

“On June 14, 1983, an indictment was returned in the Southern District of Florida charging Victor Posner and Scharrer with conspiring to overvalue two parcels of real estate totaling 22 acres given by Posner to Miami Christian College. The indictment alleged that artificially high appraisals were made in order that Posner could evade income taxes by taking grossly inflated charitable deductions on his income tax returns. Scharrer’s role in the scheme included supplying inflated real estate appraisals.

“The jury trial of Posner and Scharrer commenced on July 26, 1984. On August 1, 1984, the fourth day of the trial, the Government offered the Scharrer letter into evidence. The district court ruled the letter admissible against Scharrer but inadmissible against Posner. Finding that there was no way to protect Posner from the trial jury’s consideration of the letter as evidence against him, the district court then granted Posner’s motion for severance. The proceedings against Scharrer continued, and the jury eventually returned a verdict of guilty as to all four counts charged against him.”

The Evidence at Trial

A. The Government’s Case

The Government contended that William Scharrer provided two real estate appraisals to Victor Posner in a scheme to evade $1.2 million of Posner’s income taxes. Scharrer’s appraisals falsely inflated the value of a 16-acre tract and a 6-acre tract of land that Posner donated to the Miami Christian College (“MCC” or “the College”), and deducted as charitable contributions on his income tax returns. In Scharrer’s first appraisal in December 1975, he inflated the true per acre value of the 16-acre tract from $33,000 to $125,000. And in December 1978 he falsely increased the true value of the 6-acre tract from $44,000 an acre to $175,000 an acre.

The Government demonstrated Scharrer’s knowledge of the true value of the property by showing that he and his real estate company, Oscar E. Dooly, had been long familiar with the subject property and its true fair market value prior to December 1975. Moreover, in 1976 and 1977 Scharrer became increasingly more aware of the per acre value through the attempts by the Miami Christian College to sell the 16 acres. Scharrer also became aware of the lower value of the 16 acres from Leonard Bisz, another real estate appraiser, who refused to complete a formal appraisal at $93,000 per acre because he did not believe that the land was worth that much.

The evidence at trial further showed that in a July 29, 1976, letter, Scharrer admitted that the $125,000 per acre value was “unrealistic” and conceded that at best the land was worth $50,000 an acre. As the months passed, however, Scharrer learned that the depressed real estate market in Dade County would not support even the $50,000 an acre amount. Indeed, as of September 1977, Scharrer’s company, Oscar E. Dooly, was offering the property for sale at $35,000 an acre. Finally, a willing buyer agreed to pay $32,000 an acre.

The evidence also showed that Scharrer warned Posner of the sale. Posner first threatened to sue the College if the sale was completed. When the College was undeterred, Posner sued and immediately tied up any future sales effort by filing a lis ■pendens on the land. At about this same time, Posner told the president of Miami Christian College, Dr. Kenneth Gangel, that even if he lost the lawsuit, he would tie up any future sales for years by litigating the matter to the highest courts.

Thereafter, in the spring of 1978, Scharrer recommended that the College settle Posner’s lawsuit, and in September 1978 a settlement agreement was reached that prevented any sale of the land for five years. On April 16, 1979, Scharrer provided Posner with the second appraisal, this time on 6 acres of the subject property. The per acre value was inflated from $44,-000 to $175,000.

This evidence was augmented by the testimony of two expert witnesses, Eugene Gracer and Michael Cannon. Gracer testified that as of December 1975, the 16 acres was worth $33,000 per acre and that as of December 1978, the 6 acres had a value of $44,000 an acre. Gracer’s appraisals were based upon the theory of highest and best use. Cannon testified that Scharrer’s appraisal of the 16 acres was “misleading.” Mr. Cannon also testified that between 1978 and 1981 real estate prices in Dade County had “escalated dramatically.” For example, sales of new homes had increased by 100 percent and the per acre cost of land had doubled.

Finally, the evidence showed that five years after Scharrer had valued the 16 acres at $125,000 per acre and three years after he had valued the 6 acres at $175,000 per acre — and after a three-year period of dramatic improvement in the real estate market — the subject property was sold for $125,000 per acre.

In addition to the proof that Scharrer knew that his appraisals were grossly inflated, the evidence further showed the history of the relationship between Scharrer and Posner, including Scharrer’s attendance at parties on Posner’s yacht and numerous correspondence sent to Posner by Scharrer. The evidence also established that Scharrer attempted to curry favor with Posner in a number of ways, including the fact that Scharrer permitted Posner’s “close personal” friend, Brenda Nestor, to sell real estate under the brokerage license of Scharrer’s real estate company.

B. The Defense Case

Scharrer testified at length and attempted to explain the discrepancy between the values in his appraisals and the values proved in the Government’s case-in-chief. His principal explanation was that it was reasonable for him to believe, and he did honestly believe, that the highest and best use of the subject property was for commercial purposes, and his appraisals were thus fair and accurate.

Scharrer also called three expert witnesses, an urban land planner, a real estate appraiser, and a lawyer. The urban land planner, Paul Stutsman, testified that the 37-acre tract of land at the corner of 104th Street and 117th Avenue (which contained the 16 and 6-acre subject property) was suitable for commercial development, and that as of December 1975, it was his opinion that obtaining a zoning change to accommodate such commercial use was feasible. The real estate appraiser, A.H. Blake, complemented Stutsman’s testimony by agreeing that it was reasonable to assume as of December 1975 that the 37-acre tract could be rezoned for commercial use. Blake thus valued the 37-acre tract at $106,000 per acre as of December 1975.

On cross-examination, however, both Stutsman and Blake admitted that their assignments were to provide opinions about the 37-acre tract as a whole, not the 16 acres and 6-acre parcel. Indeed, upon further cross-examination, Stutsman concluded that because of the isolated location of the 6-acre tract, it was less valuable and a plan for just the 6 acres was not reasonable. The lawyer, Leon Black, testified that Leonard Bisz was an extremely conservative real estate appraiser, and that it is common for real estate appraisers honestly to hold widely different valuation opinions concerning the same property.

In addition to the witnesses called by Scharrer, he was able, through cross-examination of the Government’s witnesses, to establish his good character. He elicited that he had an impeccable reputation in the community. He was even able to elicit specific good deeds that he had performed, including “his dedication and service at the Riverside Baptist Church” and the fact that he had “done more work for charities than any other man [the witness had] ... ever known.” Scharrer supplemented these specific good deeds by testifying that he “was a Sunday School teacher for ten years, and became a deacon about fifteen years ago and served as chairman of the Board of Deacons for two years.”

The Sufficiency of the Evidence

Scharrer contends that the evidence was insufficient to prove his criminal intent and that this Court should therefore enter a judgment of acquittal on all counts. This Court cannot agree.

It is well established that on a motion for judgment of acquittal:

[T]he test is whether, taking the view most favorable to the Government, a reasonably-minded jury could accept the relevant evidence as adequate and sufficient to support the conclusion of the defendant’s guilt beyond a reasonable doubt.

The same test ... should apply whether the evidence is direct or circumstantial. United States v. Warner, 441 F.2d 821, 825 (5th Cir.), cert. denied, 404 U.S. 829, 92 S.Ct. 65, 30 L.Ed.2d 58 (1971); accord Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942); United States v. Johnson, 730 F.2d 683, 688 (11th Cir.1984); United States v. Bell, 678 F.2d 547, 549 (5th Cir. Unit B) (en banc), aff'd on other grounds, 462 U.S. 356, 103 S.Ct. 2398, 76 L.Ed.2d 638 (1983).

All credibility choices and reasonable inferences must be drawn in favor of the Government. United States v. Johnson, 730 F.2d at 688; United States v. Gonzalez, 719 F.2d 1516, 1521-22 (11th Cir.1983); United States v. Miller, 693 F.2d 1051, 1053 (11th Cir.1983). In sum, the standard is whether “a reasonable trier of fact could find that the evidence establishes guilt beyond a reasonable doubt.” United States v. Bell, 678 F.2d at 549. In this Court’s opinion, the evidence detailed above was certainly sufficient to show that Scharrer intended to commit the crimes charged in the indictment.

However, the sufficiency of the evidence on Count IV, aiding and abetting Victor Posner in tax evasion, presents a somewhat more serious issue. For in order to convict Scharrer of aiding and abetting, sufficient evidence had to be presented for a reasonable jury to find beyond a reasonable doubt that Victor Posner knew that the charitable deduction he took on his 1978 income tax return was based upon a falsely inflated appraisal of the 6-acre tract, and that he took this deduction with the intent to evade taxes.

The Evidence of Posner’s Guilt

But again, a careful analysis of the evidence demonstrates that it was sufficient to establish such knowledge and intent. The evidence, when viewed in the light most favorable to the Government, revealed the following:

In 1967 Posner bought approximately 600 acres of land in Southwest Dade County for $2500 per acre. Five years later, Posner signed a contract to sell 37 of these acres (which included the 16 and 6-acre parcels at issue in this case) to a real estate developer, Alex Courtelis, for $38,000 per acre. Courtelis subsequently determined that he could not develop the land commercially because he could not obtain rezoning. When he was not able to sell the property, Courtelis deeded it back to Posner in February 1975 in lieu of foreclosure, thus sacrificing his $100,000 initial payment and an interest payment of $50,000. (Since he would have had to pay $35,324 per acre to complete the purchase, it is reasonable to infer that he did not think that the property was worth even that much.) Thus, in 1975, Posner had his property back. The Government presented evidence that the real estate market was depressed in 1975 and that the 16-acre parcel was valued as of December 1975 at $33,000 per acre.

Posner agreed to donate 16 of these acres to the Greater Miami Jewish Federation on the condition that the Federation provide an appraisal. Posner told the Federation that the land was extremely valuable and in his opinion was worth $100,000 per acre. When the Federation refused to accept the donation on these conditions, Posner turned to Scharrer who produced an appraisal at $125,000 per acre. The land was donated to the Miami Christian College at the end of December 1975.

In September 1977, Scharrer informed Posner that the College was attempting to sell the 16 acres he had previously donated. Initially, the College had offered to sell the land for $50,000 per acre. Since that offer generated no prospective buyers, the College lowered the asking price to $35,000 per acre.

Posner took quick action when he learned that the College was negotiating to sell the property. On September 22, 1977, Posner himself telephoned the president of MCC and threatened to sue the College if it went forward with its efforts. Posner told the president that he would “go all the way to the Florida Supreme Court.” He emphasized that it would make no difference whether he won or lost because, at the very least, he could “tie up the sale of the land for at least five years.”

Posner sued MCC and filed a lis pendens on the 16 acres. This prevented a sale of the property and concealed its fair market value — the price upon which a willing buyer and seller had settled after negotiations. The lawsuit was based on the claim that he had donated the 16 acres subject to it being used as a college campus. The Government presented evidence that this claim was false — there were no restrictions placed on the donation.

On April 22, 1978, Scharrer presented a motion to the MCC Board of Trustees to negotiate the settlement of Posner’s lawsuit and on November 12, 1978, a settlement was signed. Under the terms of the settlement, the College would not sell the land for five years.

Approximately seven weeks after the settlement agreement, Posner donated another 6 acres to MCC. The 6 acres were contiguous to the 16 acres Posner had given to MCC in 1975, and were expressly made subject to the restriction that it not be sold until November 1, 1982.

In his donation letter to the College, Posner set the value of the 6 acres at over $1 million ($175,000 per acre). Several weeks later, Posner’s attorney wrote to Scharrer, reminding him that Posner had set this $1 million figure. Scharrer provided an appraisal letter dated April 16, 1979, that supported the $175,000 per acre amount. Posner claimed a value of $175,000 per acre on his 1978 tax returns and reduced by $147,830 the amount he had to pay the IRS for that year. For the next year, 1979, Posner used the $175,000 per acre figure to reduce his taxes by $275,055.

Finally, Posner’s income tax returns, which were admitted into evidence, show that Posner had quite a healthy income during the years in question, and it therefore would be reasonable to assume that he would be in need of deductions.

From this evidence, a jury could infer that Posner was well aware of the fair market value of the property and that his conduct in bringing the lawsuit and his stated goal of preventing a sale for five years was an attempt to conceal the true value of the property. When the evidence is viewed in the light most favorable to the Government, a jury could certainly find beyond a reasonable doubt that Posner knew the $175,000 per acre figure was grossly inflated and that he used this figure in an attempt to evade taxes.

Ineffective Assistance of Counsel

Scharrer also attacks his conviction on sixth amendment grounds, claiming ineffective assistance of counsel. Alleging that he had agreed “against his better judgment” to accept payment of his attorney’s fees by his co-defendant, Scharrer now claims that this fee arrangement deprived him of conflict-free and adequate representation. According to Scharrer, his attorney’s preparation and decision making were impaired because of “subtle influences of [his attorney] relying on the stature, preparation, and abilities of [Posner’s attorney] Edward Bennett Williams ... and the subtle influences of the fee arrangement.” Scharrer expressly states, however, that he “does not allege conscious disloyalty of his former counsel and does not allege fraud or deceit on the part of his former counsel or counsel for his co-defendant.”

The standards for assessing a post-trial claim that a conflict of interest rendered counsel’s assistance ineffective are well defined. A defendant who raised no conflict of interest objection at trial must satisfy two requirements. He must show, first, that his attorney was “actively representing” interests other than his own, and second, that such other interests were “actually conflicting.”

Once a [defendant] shows that his trial counsel (1) actively represented (2) (actually) conflicting interests, he has established the constitutional predicate for an ineffective assistance of counsel claim.

Westbrook v. Zant, 743 F.2d 764, 769 (11th Cir.l984)(parentheses in original) (hereinafter “Westbrook II”) (quoting Westbrook v. Zant, 704 F.2d 1487, 1499 (11th Cir.1983) {“Westbrook I”))', accord, Cuyler v. Sullivan, 446 U.S. 335, 350, 100 S.Ct. 1708, 1719, 64 L.Ed.2d 333 (1980); United States v. Ard, 731 F.2d 718, 726 (11th Cir.1984); United States v. Panasuk, 693 F.2d 1078, 1080 (11th Cir.1982). In this case, Scharrer has failed to make either showing.

As to the first requirement, Scharrer has not shown that his attorney, Hugh Culverhouse, Jr., was actively representing any other interests. Although Victor Posner may have agreed to underwrite Mr. Culverhouse’s fees, there is no evidence that Mr. Culverhouse ever viewed his allegiance as owing less than totally to Scharrer. Payment of a criminal defense attorney’s fees by a third party does not imply that the attorney will ignore his duty of loyalty to the defendant. See, e.g., Kelley v. Alabama, 636 F.2d 1082, 1084 (5th Cir. Unit B 1981); United States v. Hoffer, 423 F.Supp. 811, 818 (S.D.N.Y.1976), aff'd, 556 F.2d 561 (1977).

Moreover, Scharrer went into this arrangement with his eyes open. He testified that he had fully agreed to having Posner pay his legal fees. He also testified that he had consulted with several attorneys and friends about the propriety of the arrangement before agreeing to it. The fact is that when Scharrer agreed to the arrangement, Culverhouse had been ostensibly discharged because of the defendant’s inability to personally pay his fee.

Scharrer also has failed to satisfy the second requirement for establishing an unconstitutional conflict of his trial counsel’s interests, since he has shown no “actual conflict” between his interests and Posner’s. The joint representation of co-defendants, by itself, raises only the “possibility of conflict,” which “is insufficient to impugn a criminal conviction.” Cuyler, 446 U.S. at 350, 100 S.Ct. at 1719. A greater showing is required to establish an “actual conflict.”

With respect to the interests of co-defendants, the test of an actual conflict in this circuit is as follows:

An actual conflict exists when the respective defenses of multiple defendants are inconsistent, i.e., if “introduction of probative evidence or plausible arguments that would significantly benefit one defendant would damage the defense of another defendant____”

United States v. Mers, 701 F.2d 1321, 1328 (11th Cir.1983) (quoting Baty v. Balkcom, 661 F.2d 391, 395 (5th Cir. Unit B 1981), cert. denied, 456 U.S. 1011, 102 S.Ct. 2307, 73 L.Ed.2d 1308 (1982)); accord, Barham v. United, States 724 F.2d 1529, 1531 (11th Cir.1984); United States v. Carter, 721 F.2d 1514, 1536 (11th Cir.1984); Westbrook I, 704 F.2d at 1499.

Moreover, the defendant alleging an impermissible conflict of interest bears the burden of establishing from the record specific instances of actual conflict. He “must make a factual showing of inconsistent interests.” Mers, 701 F.2d at 1328. And he must show that his attorney “ ‘made a choice between possible alternative courses of action, such as eliciting (or failing to elicit) evidence helpful to one client but harmful to the other.’ ” Id. (quoting Comment, Conflict of Interests in Multiple Representation of Criminal Co-Defendants, 68 J.Crim.L. & Criminology 226 (1977)). Unless the attorney made such a choice, “ ‘the conflict remained hypothetical’ ” id., and there is no constitutional violation.

Scharrer’s main contention that there was an actual conflict concerns Culverhouse’s failure to adduce evidence about a revised appraisal he did on the 6-acre tract. But there is no evidence that this failure was motivated by any concern for Posner’s interests.

At trial, the Government introduced Scharrer’s April 16, 1979, letter to Posner in which he had appraised Posner’s December 29, 1978, gift to the MCC at $175,000 per acre. Neither the Government nor Culverhouse, however, chose to offer the October 16, 1980 appraisal report in which Scharrer had reduced his valuation of $125,000 per acre. Scharrer speculates that Culverhouse’s motive was to avoid a possible detriment to Posner, because Posner had “never amended his tax returns to correspond with” the reduction.

This argument, on its face, does not withstand scrutiny. Since Posner will be tried separately, it would make no difference to him that evidence of the October 16, 1980, appraisal report was left out of Scharrer’s trial. The Government could still choose to offer the report at a later trial against Posner.

There were also sound — indeed, compelling — reasons for Culverhouse to avoid any mention of Scharrer’s October 1980 reduction of his valuation to $125,000 per acre. To begin with, Scharrer wrote the revised appraisal after he was informed that a federal grand jury was investigating his appraisal of the 16-acre tract. Thus, the timing of the appraisal itself is suspicious and gives the appearance that Scharrer was merely attempting to forestall an investigation of his later appraisal.

Moreover, Scharrer’s explanation for the revised appraisal is problematic. According to Scharrer, when he did the $175,000 per acre opinion letter, he had not realized that the access to the land had been blocked by earthen buildup for construction of an overpass above the turnpike extension. Only when he visited the site months later did he realize that the value of the land would have to be reduced because it had no access.

This explanation is difficult to credit when viewed in conjunction with Scharrer’s other testimony at trial. Scharrer testified that he had been familiar with Posner’s entire 37-acre tract in 1975, because he “had been searching the area for ten years for sites for Ryder Systems, the Riverside Baptist Church, [and] Miami Christian College.” In fact, he had been so familiar with the 37 acres that he did not even need to look at a survey or map when Posner first proposed the donation in November or December of 1975 — so familiar that he took it upon himself to recommend which 16-acre portion of the 37-acre tract Posner should donate. Scharrer thus knew of the overpass above the turnpike extension, which, as shown by the January 1976 aerial photograph, had been completed before then.

Culverhouse testified that he made a tactical decision not to bring out any evidence of Scharrer’s revised appraisal report because he believed Scharrer’s explanation to be incredible. This Court finds that Culverhouse’s decision represented sound strategy and was not in any way motivated by any concern for Posner, or for his fees.

Indeed, the record fails to show any specific instance in which Scharrer’s attorney was forced to choose between divergent interests of Posner and Scharrer. To the contrary, the record shows that both Posner and Scharrer at the outset, and throughout this case, perceived that the benefits of a “united front” outweighed those of pursuing possibly divergent interests.

It is plain that Scharrer received important benefits from pursuing a common defense strategy. Posner could have simply pointed his finger and claimed that he had relied on Scharrer’s “expert” opinion. Instead, Posner supported Scharrer’s defense. In his opening statement, Posner’s counsel, Edward Bennett Williams, praised Scharrer and discussed his outstanding reputation in the community and as an expert in real estate. He also supported the appraisals and promised the jury that the defense would demonstrate that those appraisals were correct.

Thus, in agreeing to pursue a common defense, Scharrer got the freedom from an antagonistic co-defendant, as well as something even more valuable. He obtained, at no cost to himself, not one' but several talented attorneys.

Scharrer continued to benefit even after Posner was severed from the case, for even then, Posner had a strong incentive to aid Scharrer’s defense. An acquittal of Scharrer would have measurably strengthened Posner’s ability to negotiate with the Government. Additionally, after an acquittal, Scharrer would have made an excellent defense witness. Posner obviously recognized these incentives, in that he had three attorneys from his own defense team remain at the trial, after the severance, to assist Culverhouse.

Scharrer has thus wholly failed to establish any actual conflict between his and

Posner’s interests. There were no “antagonistic defenses.” Ard, 731 F.2d at 726. Nor has Scharrer argued that but for the fee arrangement, he would have adopted “a strategy of shifting blame” to Posner. Carter, 721 F.2d at 1537.

In sum, Scharrer has failed “to show that his counsel sacrificed” any of this interest for Posner’s. Id. His claim that his counsel had a conflict of interest rendering his representation unconstitutional, therefore, must be rejected.

Scharrer also points to other areas such as Culverhóuse’s failure to present character witnesses, additional testimony concerning land valuation and zoning, and the subsequent sales history of the property as further examples of Culverhouse’s alleged inadequate representation. Because Scharrer has not even attempted to show that Culverhouse failed to present this evidence because it conflicted with Posner’s interests, it must be evaluated under the standards recently articulated by the Supreme Court in Strickland v. Washington, 466 U.S. 668, 104 S.Ct. 2052, 2064, 80 L.Ed.2d 674 (1984). According to the Court:

A convicted defendant’s claim that counsel’s assistance was so defective as to require reversal of a conviction ... has two components. First, the defendant must show that counsel’s performance was deficient. This requires showing that counsel made errors so serious that counsel was not functioning as the “counsel” guaranteed the defendant by the Sixth Amendment. Second, the defendant must show that the deficient performance prejudiced the defense. This requires showing that counsel’s errors were so serious as to deprive the defendant of a fair trial, a trial whose result is reliable. Unless a defendant makes both showings, it cannot be said that the conviction ... resulted from a breakdown in the adversary process that renders the result unreliable.

The Court further explained that the proper standard for determining the first component, whether the attorney’s performance was deficient, is “an objective standard of reasonableness” to be measured in light of “prevailing professional norms.” Id. at 2065. The Court cautioned, however, that:

Judicial scrutiny of counsel’s performance must be highly deferential. It is all too tempting for a defendant to second-guess counsel’s assistance after conviction or adverse sentence, and it is all too easy for a court, examining counsel’s defense after it has proved unsuccessful, to conclude that a particular act or omission of counsel was unreasonable____ A
fair assessment of attorney performance requires that every effort be made to eliminate the distorting effects of hindsight, to reconstruct the circumstances of counsel’s challenged conduct, and to evaluate the conduct from counsel’s perspective at the time. Because of the difficulties inherent in making the evaluation, a court must indulge a strong presumption that counsel’s conduct falls within the wide range of reasonable professional assistance____

Id. at 2065-66 (citations omitted).

In this case, Culverhouse’s conduct criticized by Scharrer did not fall outside “the wide range of reasonable professional assistance.”

■ The fact that Scharrer’s new attorney can find fault with certain tactical decisions of Scharrer’s trial attorney does not establish ineffective assistance. The reasonableness of trial decisions must be judged as of the time they are made, not through the “distorting effects of hindsight.” But even more importantly, it must be remembered that:

There are countless ways to provide effective assistance of counsel in a given case. Even the best criminal defense attorneys would not defend a particular client in the same way.

Id. at 2066.

The defense Scharrer received was carefully executed and Seharrer’s trial attorney was a vigorous advocate. “The mere fact that his efforts were ultimately unavailing is not ... a sufficient basis upon which to condemn his performance.” Green v. Zant, 738 F.2d 1529, 1538 (11th Cir.1984).

The Remaining Issues

The other issues raised by Scharrer are also without merit. The Court finds that the conduct of the prosecution during the trial was entirely fair and proper, that this Court correctly instructed the jury, and that there was no impermissible variance between the indictment and the proof at trial. Moreover, this Court finds that there was no abuse of the grand jury process that would warrant dismissal of the indictment. Accordingly, Scharrer’s post-trial motions are denied in their entirety; and the defendant is set for sentencing at 9:00 a.m. on September 20, 1985.

      . Scharrer contends in his motions that this Court made numerous erroneous rulings on evidentiary matters; that this Court improperly instructed the jury; that the prosecutors engaged in various forms of misconduct; that he was denied effective assistance of counsel; that the evidence was insufficient to sustain his convictions; that there was an impermissible variance between the proof at trial and the indictment; and that the prosecutors abused the grand jury process.
      This Court held extensive evidentiary hearings on Scharrer’s claim that he was denied effective assistance of counsel and heard oral argument on that issue and on the sufficiency of the evidence. It reviewed the other claims on the basis of the pleadings and the record.

      . U.S. v. Posner, 764 F.2d 1535 (11th Cir.1985) Opinion filed July 12, 1985, affirming the inadmissibility of letter as to Posner.

      . Posner's attorneys attempted to have the court file sealed but were unsuccessful.

      . Because the Internal Revenue Code limits the amount a taxpayer can deduct for charitable contributions in any one year, Posner could not use the entire donation in the 1978 tax year. He thus carried forward the remaining portion as a deduction in 1979.

      . The evidence presented at the hearing this Court conducted on Scharrer's motion established that Posner never actually agreed to pay Scharrer's legal fees. Rather, Posner’s attorney, Edward Bennett Williams, told Scharrer that he would recommend to Posner that he pay the fees.

      . Scharrer even wrote directly to Posner requesting that he be reimbursed for certain legal expenses.

      . In the Court’s opinion, the real tactical error was made by the Government in not cross-examining Scharrer about the change. When the Government announced "No further questions,” Culverhouse must have thought he had snatched victory out of the jaws of defeat. The defendant’s joy was short lived.


author: EARL E. O’CONNOR, Chief Judge.

text:
    INTEGRITY MANAGEMENT INTERNATIONAL, INC., Plaintiff, v. TOMBS & SONS, INC., and Leroy C. Tombs, Defendants.
    Civ. A. No. 83-4231.
    United States District Court, D. Kansas.
    July 15, 1985.

      Gary D. McCallister, Davis, Unrein, Hummer & McCallister, Topeka, Kan., for plaintiff.
    Eldon J. Shields, McDonald & Dykes, Steven D. Kort, Overland Park, Kan., for defendants.
   MEMORANDUM AND ORDER

EARL E. O’CONNOR, Chief Judge.

In this action, defendant Tombs & Sons, Inc., was the low bidder on a food service contract let by the federal government. Plaintiff Integrity Management International, Inc., was the second low bidder. To qualify for this contract, each bidder was required to self-certify that it met the Small Business Administration’s definition of a “small business.” Both parties did so certify, and defendant was awarded the contract. Alleging that defendant’s self-certification was erroneous, plaintiff brings this action to recover both actual and punitive damages. (Defendant Leroy C. Tombs is the president of, and major shareholder in, defendant Tombs & Sons, Inc. His liability in this action would appear to depend upon a finding that Tombs & Sons was his mere alter ego. Throughout this memorandum, then, the term “defendant” will refer only to his corporation.)

The matter was tried to the court on May 30 and 31, 1985. Invoking the court’s diversity jurisdiction, plaintiff offered evidence to support recovery on alternative theories of fraud, unjust enrichment, and intentional interference with prospective contractual relations. At the close of trial, we expressed some doubt as to the viability of such state law claims in the context of the federal government’s competitive bidding process. The parties were invited to submit supplemental briefs on that legal issue, and plaintiff chose to do so. We now conclude that the federal Small Business Act and its implementing size regulations do preempt the state law claims upon • which plaintiff relies.

The parties agree that the Small Business Act, 15 U.S.C. §§ 631 et seq., does not authorize a private cause of action by an unsuccessful bidder against a successful bidder on a government contract as to which only small businesses are allowed to bid. See Savini Construction Co. v. Crooks Brothers Construction Co., 540 F.2d 1355, 1359 (9th Cir.1974); Royal Services, Inc. v. Maintenance, Inc., 361 F.2d 86, 92 (5th Cir.1966); Northland Equities, Inc. v. Gateway Center Corp., 441 F.Supp. 259, 264 (E.D.Pa.1977). As plaintiff correctly notes, however, that is not the issue in this case. Plaintiff’s claims are based not on the federal Act, but on various state common law causes of action. We must thus determine whether the federal Act and its regulations preempt the state law claims asserted here.

In Iconco v. Jensen Construction Co., 622 F.2d 1291 (8th Cir.1980), the court acknowledged the cases cited above, but proceeded to hold that certain state law claims were not preempted by these federal statutes and regulations. For the reasons stated below, we respectfully disagree with the analysis of the Iconco court.

As the Eighth Circuit acknowledged, federal regulation of small business set asides in the federal procurement process is extensive. In enacting the Small Business Act, Congress

directed the awarding of contracts to small-business concerns as necessary to assure that they receive a fair proportion; the SBA and the government agency involved were authorized to make such determinations for individual contracts or for classes of contracts. 15 U.S.C. § 644. The making of any false statement for the purpose of obtaining anything of value under the Act was made a crime punishable by fine and imprisonment. 15 U.S.C. § 645. The Administrator was directed to promulgate regulations necessary to carry out the authority vested in the SBA under the Act. 15 U.S.C. § 634(b)(6).
... The implementing regulations, 13 C.F.R. § 121 et seq. (1974), allow any bidder or other interested person to challenge the small-business status of any other bidder. The challenge must be in writing, and delivered to the responsible contracting officer within five days after the bid opening; the contracting officer must then forward the protest to the SBA. The SBA, in turn, must advise the protested bidder and ask for a response to the challenge. The bidder whose status is protested must respond within three days after it receives the protest. If it does not, the SBA will rule that it is not a small business. 13 C.F.R. § 121.-3-5 (1974). Any determination of size may be appealed to the Size Appeal Board, which must, if the case is concerned with a pending procurement, act within five days. The Board receives evidence and then issues a written decision, which, absent reconsideration, is the final administrative decision. 13 C.F.R. § 121.3-6(g)(5) (1974).

Iconco, 622 F.2d at 1297.

“Pre-emption of state law by federal statute or regulation is not favored ‘in the absence of persuasive reasons — either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.’ ” Commonwealth Edison Co. v. Montana, 453 U.S. 609, 634, 101 S.Ct. 2946, 2962, 69 L.Ed.2d 884 (1981) (quoting Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963)). In this case, such “persuasive reasons” do exist for finding plaintiff’s state law claims preempted by the federal statutes and regulations cited above.

We agree with the Eighth Circuit that Congress had two primary goals in mind when it established this statutory and regulatory scheme. It wished both “to help small business” and “to assure that government contracts were performed in a timely and competent manner.” Iconco, 622 F.2d at 1298. The state law claims asserted by plaintiff are consistent with the first of these two goals. But, as other federal courts have persuasively reasoned, the second goal could easily be frustrated if unsuccessful bidders were allowed to sue a bidder to whom a government contract had been awarded.

For instance, the Ninth Circuit noted in Savini Construction that:

[tjhis Congressional purpose of aiding small business only insofar as the expeditious administration of government contracts is not jeopardized could be thwarted by permitting the private remedy requested here. In the present case, the federal contracting officer determined that the public interest would be better served by permitting Crooks Brothers to proceed with the emergency construction project. Had Crooks Brothers known that, depending on the post-award outcome of the size appeal, it would be subject to suit for its profits, it might well have declined to accept the award. Or, having accepted, it might have refused to continue work on the contract following the Size Appeals Board determination that it was originally ineligible to bid. Finally, although Crooks Brothers might have continued to execute the contract, serious problems of quality and speed of work could have arisen given the possible deprivation of profits at the conclusion of the project.
The likelihood that one such event would occur in the absence of a profit incentive is substantial. And the occurrence of any would undermine the Congressional intent to insure competency in the execution of government contracts and to eliminate delay when time is a crucial factor.

Savini Construction, 540 F.2d at 1359.

By pursuing the size appeals process noted above, an unsuccessful bidder obtains a resolution of the dispute before performance of the contract is begun. By contrast, plaintiff in this action seeks to recover, inter alia, profits the defendant either did earn or should have earned in the over three years it has performed under this contract. Such a possibility clearly troubled the Northland Equities court, and we agree with its analysis:

While this court by no means wishes to condone possible fraud, neither does it want to encourage possibly speculative plaintiffs to wait until a building is constructed and inhabited before attacking the propriety of the initial award. This would wreak havoc on procurement. In order to be compatible with statutory goals, a remedial scheme must guarantee that the bidder will act at a time when the proper bidder can still be selected. By telling the unsuccessful bidder that he may wait until after his competitor has performed and then sue to recover possible lost profits, the courts would provide an irresistible disincentive to his coming forth at an earlier time. Any award goes into the private pocket of the unsuccessful bidder, not into the public treasury, even though the government suffers by not having procured the most advantageous bid.

Northland Equities, 441 F.Supp. at 263 (emphasis added).

Admittedly, both the Savini Construction and Northland Equities courts were speaking in a slightly different legal context. The issue in those cases was whether the Small Business Act impliedly created a private cause of action. Here the issue is whether that Act and its implementing regulations effectively preempts certain state law causes of action. Yet even the Iconco court realized that, to some extent, “the language used in those cases supports the conclusion that any private suit by an unsuccessful bidder against a successful one is inconsistent with Congressional intent and would jeopardize the proper administration of the government’s contract procurement system.” 622 F.2d at 1299 (emphasis added).. In Iconco, the Eighth Circuit simply disagreed with that conclusion, dismissing the cited considerations as “speculative.” We find greater merit in the analysis of the Ninth Circuit and the Eastern District of Pennsylvania in Savini Construction and Northland Equities, and thus respectfully disagree with the Eighth Circuit’s holding in Iconco.

Because we are persuaded that regulation of the competitive bidding process on federal government contracts is a uniquely federal prerogative, we conclude that state law claims arising in this context are preempted by federal law. We thus need not address defendant’s other contentions, i.e., that it was a “small business,” or that plaintiff failed to prove all of the elements of its state law claims.

The clerk is directed to enter judgment in favor of defendants Tombs & Sons, Inc., and Leroy C. Tombs, and against plaintiff Integrity Management International, Inc.

IT IS SO ORDERED.