source: Caselaw Access Project

author: BRIEANT, District Judge.

license: Public Domain

text:
    In the Matter of the EXTRADITION OF Francesco PAZIENZA.
    No. 85 Cr.Misc. # 1, p. 7.
    United States District Court, S.D. New York.
    Sept. 25, 1985.
    David Denton, Asst. U.S. Atty., New York City, for plaintiff.
    Stuart Baskin, Kramer, Levin, Nessen, Kamin & Frankel, New York City, for defendant.
   CORRECTED MEMORANDUM AND ORDER

BRIEANT, District Judge.

The United States of America, representing the Republic of Italy, has requested the extradition of Dr. Francesco Pazienza pursuant to the 1983 Extradition Treaty between the United States and Italy (entered into force September 24, 1984) (“the Treaty”), — U.S.T. — and 18 U.S.C. § 3184. Italy seeks Dr. Pazienza’s extradition on the basis of a warrant issued by a Milan court, charging him with conspiracy, and aiding and abetting the crime of “fraudulent bankruptcy.” For the reasons that follow, this Court finds and concludes that the Government’s evidence is sufficient to sustain the charges under the provisions of the Treaty, that no defense raised by Pa-zienza bars extradition, and that the requested person shall be certified to the United States Secretary of State for surrender to the government of Italy.

On March 4, 1985, while voluntarily attending the second of two scheduled meetings with United States Customs agents in New York City, Dr. Pazienza was detained and informed that a warrant for his arrest had been authorized by the Department of Justice. Apparently with the consent of his then counsel, Dr. Pazienza was detained briefly without the benefit of a formally issued arrest warrant in this district. (Transcript of June 14, 1985, p. 114). On March 5, 1985, the Assistant United States Attorney in charge of this case, Mr. David Denton, swore to a Complaint for Provisional Arrest, averring that an arrest warrant for Dr. Pazienza had been issued in Italy on April 18, 1983 by the Investigating Judge of the Criminal Court of Milan.

The United States also moved for the detention of Dr. Pazienza without bail, which motion was opposed by Dr. Pazienza and his attorneys. At the conclusion of a full adversarial hearing, this Court found that the Conditions for provisional arrest set forth in Article XII of the Treaty had been satisfied, and that Dr. Pazienza should not be released on bail. See Transcript dated March 7, 1985, Decision of the Court, pp. 104-120. The proof at that hearing showed that he had been a lammister of long standing, now holding a Seychelles passport and citizenship.

Within the appropriate period of time, the Italian government provided formal documentation to support its request (Declaration of Laura Pollard, Esq., United States Department of State, and Attachments, dated April 19, 1985), and Mr. Den-ton filed a formal complaint for extradition. Thereafter on June 14 and July 15, 1985, this Court conducted an evidentiary hearing pursuant to § 3184.

The Republic of Italy seeks Pazienza’s return in order that he stand trial on two counts of fraudulent bankruptcy. This crime in essence is the offense of knowing and wilfull misappropriation of the assets of a company later adjudicated bankrupt. According to the April 18, 1983 Milan warrant, Count “A” charges that Pazienza, together with Mazzotta, Annibaldi, Carbo-ni, Cassella and Pellicani collaborated to misapply or embezzle Six Billion Lire loaned by Banco Ambrosiano to an Italian company named Prato Verde. Roberto Calvi, the former president of Banco Am-brosiano, is also named in Count “A”. However, Mr. Calvi could not be charged with any offense because of his intervening death. Mr. Calvi was, in fact, found hanged under the Blackfriars Bridge in London, a manner of death fraught with symbolism.

Count “B” of the April 18, 1983 warrant charges that the same defendants conspired to defraud Banco Ambrosiano of the Six Billion Lire loaned to Prato Verde, with the deliberate intention of defaulting on the loan, and of using the funds for personal purposes and for the benefit of third parties. Essentially Count “A” is framed as a crime against Prato Verde, while Count “B” charges an offense causing detriment to Banco Ambrosiano.

On February 25, 1985 the Milan court issued a superseding warrant to reflect the fact that Prato Verde had been adjudicated bankrupt in 1984. Under Italian law, it is mandatory to prosecute under the Bankruptcy Act once the allegedly defrauded company is found to be insolvent. Therefore, the former Count “A” which had charged misappropriation of assets belonging to Prato Verde (Italian Penal Code §§ 646, 110) merged into and was amended to become an offense under the Italian Bankruptcy Act of 1942, §§ 216, 219, 223. Count “B”, relating to the bankrupt Banco Ambrosiano, had always been charged under the Bankruptcy Act, and remains unchanged by the superseding warrant of February 25, 1985.

According to the explanation provided by the Milan court, although Pazienza is now charged with fraudulent bankruptcy in both counts of the new warrant, “the elements of the offense against the company Prato Verde and the proof relating to the offense remain the same as they did with respect to the former charge of misapplication [embezzlement] (Articles 110 and 646 of the Penal Code).”

The provisions of the Bankruptcy Act under which Pazienza is charged state:

“Art. 216 (Fraudulent Bankruptcy)
Any entrepreneur adjudged bankrupt shall be subject to a term of imprisonment of 3 to 10 years when:
1. He diverted, concealed, disguised, destroyed or wasted, in whole or in part, his own properties, or, for the purpose of causing his creditors to suffer a damage, he stated or acknowledged non-existent liabilities;
2. He stole, destroyed or falsified, in whole or in part, for the purpose of deriving an unjust profit for himself or others or for the purpose of causing his creditors to suffer a damage, the books or other book-keeping entries or kept them in such a manner as to render it impossible to reconstruct his estate or business.
# * * # * *
Art. 219 — Aggravating and extenuating circumstances.
When the facts mentioned in Articles 216, 217 and 218 caused heavy financial damage, the punishments mentioned therein shall be increased by up to one half.
The punishments mentioned in the said articles shall be increased:
1. If the guilty person committed more than one of the facts mentioned in each of the said articles;
If the guilty person was not permitted by law to carry on business. 2.
* # * * *
Art. 223 — Facts of fraudulent bankruptcy.
The Directors, General Managers, Auditors and Liquidators of a firm adjudged bankrupt, who committed any of the facts mentioned in Art. 216, shall be subject to the punishments provided for in said article.
The aforementioned persons shall be liable to the punishment in the first paragraph of Art. 216, when:
1. They committed any of the facts mentioned in Articles 2621, 2622, 2623, 2628 and 2630, first paragraph, of the Civil Code;
2. They caused the occurrence of the bankruptcy of the Company fraudulently or by fraudulent transactions.
The provisions of the last paragraph of Art. 216 shall in any case apply.” (Appendix to Complaint for Extradition at pp. 171-73).

Since Dr. Pazienza was not an officer or director of the two bankrupts, he is charged under the general accomplice liability statute (Penal Law § 110). In addition he is charged under article 112 of the Penal Law (permitting increased punishment in case of “aggravating circumstances”) and article 118 of the Penal Law (“Consideration of Aggravating or Extenuating Circumstances”).

This Court has reviewed the authenticated documents submitted by the Republic of Italy in support of its request and finds that there is probable cause to believe that Pazienza committed the crimes with which he is charged.

The Investigating Judges of Milan have provided “summarpes] of the facts of the case, of the relevant evidence and of the conclusions reached,” as provided in Article X of the Treaty. They also have supplied deposition transcripts of witnesses, including statements by Pazienza’s co-defendants, Pellicani, Mazzotta, Carboni and Cas-sella, and statements made by Pazienza himself.

The evidence relied upon by the Milan court demonstrates that in the autumn of 1981, then bank president Roberto Calvi approved a loan by Banco Ambrosiano to Prato Verde, which was then engaged in the real estate investment business. According to the manager of the Rome subsidiary of the bank, Calvi instructed that manager to permit Prato Verde to draw against the loan proceeds before the loan had been approved officially and before any collateral had been posted. (Appendix at 88-90). The Milan court traced the loan installments, and concluded that most of the funds were never received by Prato Verde. Instead they flowed to Dr. Pazien-za individually, and to others of the co-defendants named in the Milan warrant of February 25, 1985. According to statements by Pellicani, “essentially all the money which Mazzotta and Pazienza put into their pockets come from or are related to the loan of 6 billion liras granted by Banco Ambrosiano to Prato Verde, ... Pazienza used 350 or 400 million liras which were part of that sum of 1,200,000,000 we are talking about to pay part of the purchase price of a boat ... named the Giulia Setti-ma.” (Id. at 65-66). Mazzotta stated to the Italian prosecutor that Pellicani would draw checks on the Prato Verde account, cash them, and hand the cash to Mazzotta. (Id. at 67). Mazzotta then kept much of this money in his own account, “at Pazien-za’s disposal.” (Id. at 69). We note in passing that these statements by Pazien-za’s co-defendants and other witnesses are not sworn testimony. For the most part they are recorded statements made to the Investigating Judges of the Milan court and to the Public Prosecutor after each authority delivered a warning to the declar-ant. Notwithstanding the evidentiary concerns expressed in Greet v. Birknes, 527 F.2d 956, 959-60 (1st Cir.1976), we believe that these statements or depositions are admissible, or competent evidence under Article X, 11113, 7 of the Treaty and 18 U.S.C. § 3190. They were certified by the Italian judicial authority and by the United States Ambassador to Italy.

On September 28, 1982 Dr. Pazienza was interviewed in Italy by an investigating Judge, and was permitted to review the previous statements made by Pellicani and Mazzotta. After taking exception to a detail in the statement by Pellicani, Pazienza then stated “it is also true that I, through Ascofin [a company] whose president I was, took care of the loan from Banco Ambrosiano for the company Prato Verde.” (Id. at 94). Pazienza admitted that the fee received by his company, Ascofin, for arranging the loan to Prato Verde was 60 Million Lire, and that “with Calvi’s authorization, [Pazienza] used 350 million to pay the purchase price of the seacraft Giula Settima.” (Id. at 96). Both of these sums appear to have come out of the Six Billion Lire loan transaction which ultimately resulted in harm both to Prato Verde and Banco Ambrosiano. The judicial authorities in Italy concluded that these withdrawals were entirely unlawful, and that Pazien-za and his co-defendants “were perfectly aware” that these funds belonged to Prato Verde and could not lawfully be applied for personal uses.

On February 18, 1983, Flavio Carboni, the principal shareholder of Prato Verde, was interrogated by an Investigating Judge, Dr. Pizzi, while Carboni was in custody. Carboni stated that Pazienza had acted as “finder” for the loan from Banco Ambrosiano, but that part of the deal required that approximately Two Billion Lire from the loan proceeds be paid back temporarily to Pazienza on Calvi’s behalf. When Carboni questioned the agreement, seeking reassurance that Calvi would guarantee repayment of the Two Billion Lire to the borrower, Pazienza and others visited Car-boni at home and accompanied him to the home of Roberto Calvi. At that meeting Calvi assured Carboni that “he would answer for the reimbursement of the money that [Carboni] was to give to Pazienza.” (Id. at 60-61). Carboni accepted Calvi’s oral promise and thereafter the loan to Prato Verde arrived in installments. According to Carboni, who heard it from Pelli-cani, who was Prato Verde’s day-to-day administrator, Pazienza subsequently received 1 or 1.2 Billion Lire of the loan proceeds.

An alleged objective of this loan transaction was to supply Calvi with funds to aid in his own criminal defense and/or to accomplish illegal activities including “settling” with the Italian Magistrates who would hear an appeal of Calvi’s 1981 criminal conviction for violations of Italian currency laws. Mazzotta told the Italian prosecutor that at Calvi’s direction, Mazzotta delivered a briefcase containing 400 Million Lire to an attorney named Vitalone for the purpose of “settling] my [Calvi’s] penden-cies with the justice.” (Appendix at 69-70). This money was delivered to Mazzotta by Pellicani, the manager of Prato Verde. As is explained below, the criminal court of Rome acquitted Vitalone of charges stemming from these alleged facts.

The memorandum attached to the April 18, 1983 Milan warrant concludes that before the loan was ever proposed, Pazienza, Calvi and others devised a plan to extract money from Banco Ambrosiano to be used for exclusively personal purposes. To carry out the scheme, they found a company of good reputation, Prato Verde, and offered it a loan, in order that a vehicle be set up to transfer funds to the individuals behind the scheme. The Milan court relied on the report of the Fiscal Guard, an audit division of the Italian Government, which report found that the Prato Verde loan proceeds were paid as follows:

Lire 1,379,500,000 - to Mazzotta and Pazienza
326,700,000 - for Prato Verde company uses
987,906,091 - for Fiavio Carboni’s personal use
389,346,500 - for expenses of other Carboni companies
2,903,900,000 - to repay personal loans from Annibaldi to Carboni

{Id. at 147-48).

These and other examples found in the lengthy documentary evidence submitted by the Republic of Italy satisfy the probable cause standard and present issues for trial in Italy. The facts show that the Six Billion Lire loan was accomplished through irregular procedures involving a personal approval from Calvi for advances to Prato Verde. (See statement of Banco Ambrosi-ano employee, Appendix at 88-90). The loan was unsecured initially, and later secured by what appears to have been inadequate collateral. By his own admission, Dr. Pazienza and his company, Ascofin, received some of the loan proceeds. Pa-zienza also admits to using some of the loan proceeds to purchase a yacht, “with Calvi’s authorization.” There is evidence to support the charge that Pazienza, unlawfully and criminally, collaborated with two officers of Prato Verde, Pellicani and Cas-sella; there is evidence that Pazienza aided and abetted an officer of Banco Ambrosi-ano, Roberto Calvi, in diverting bank funds. Finally, both companies were adjudged bankrupt by the courts of Italy, a necessary element of the offense under Section 223 of the Italian Bankruptcy Law. Pazienza’s conduct, if committed in the United States, would constitute felonies under United States laws, including violation of 18 U.S.C. §§ 371, 656, 1014, 1341, 1343, 1344 and 2314.

Dr. Pazienza denies guilt; however, this Court is not faced with the task of determining Pazienza’s guilt or innocence; our inquiry is limited to the question of whether the Republic of Italy has demonstrated a reasonable basis to believe that Pazienza had committed an extraditable offense under the Treaty. Fernandez v. Phillips, 268 U.S. 311, 45 S.Ct. 541, 69 L.Ed. 970 (1925); Melia v. United States, 667 F.2d 300 (2d Cir.1981); In re Ryan, 360 F.Supp. 270 (S.D.N.Y.), aff'd, 478 F.2d 1397 (2d Cir.1973). It may well prove true at trial, for example, that the fee paid to Ascofin by Prato Verde was a legitimate consulting fee rather than an unlawful diversion of funds. However, such issues are properly for resolution at trial by the court in Italy, and not by this Court.

In opposing his extradition, Dr. Pazienza argues that (1) this Court lacks jurisdiction over Pazienza; (2) the United States Government made a binding agreement with Pazienza that he would not be arrested and would be free to leave following his interview on March 4, 1985 with United States Customs Agents; (3) the evidence of criminality is insufficient because it is based upon perjured statements by Pellica-ni and Mazzotta; and (4) Pazienza is charged with a political offense. We will consider these arguments in turn.

Personal Jurisdiction

Pazienza contends that this Court lacks personal jurisdiction over him because extradition proceedings are civil in nature and there has been no proper service of process. In short, Pazienza argues that he was induced by fraud to enter this District, and that the fraudulent misrepresentations of government agents divest this Court of its in personam jurisdiction.

Dr. Pazienza apparently entered the United States under another name. His use of that name, however, was lawful. He did so voluntarily and at his own expense to be debriefed by United States Customs agents concerning crimes of others committed in the United States in aid of the well known looting of Banco Ambrosi-ano and other related international financial criminality. Since the surreptitious transfer of money and assets into the United States may have been involved, these matters were within the jurisdiction of our Customs Service which is charged, among other things, with the enforcement of 19 U.S.C. §§ 1595a, 1202, 1592, and numerous Treasury Department regulations. While little support is found in the case law for the point urged here by the requested person, that a foreign national present in the country for such a purpose is immune from arrest, we would be concerned to seek a remedy of some sort if the facts supported the allegations. Our criminal enforcement system is unduly dependent on the snitch; complex financial crimes can seldom be prosecuted effectively without the testimony of accomplices and cooperating individuals, many of whom give information not solely from altruism but to serve their own hidden personal agendas. In its dealings with .informants the United States Government should turn square corners, to paraphrase Judge Learned Hand. However, the argument presented by Pazienza in this case, if it could succeed as a matter of law, is not supported by sufficient credible evidence to justify a finding that his appearance in this District was accomplished through fraud.

The rules governing service of process in a civil action are not binding, but at most analogous to this extradition proceeding, the sole object of which is the arrest and forcible return of the requested person in compliance with American Treaty obligations. Pazienza is a criminal defendant officially charged by judicial authorities in the requesting State. Pursuant to 18 U.S.C. § 3184, the requested person may be arrested and held in custody once he is found within the jurisdiction of the Court to which application is made by complaint under oath. The Treaty expressly provides for provisional arrest in cases of urgency (Article XII). Thus the Treaty and the implementing statute do not contemplate the situation where a requested criminal defendant, usually a fugitive from the requesting State, would be served with a summons and complaint noticing an appearance date in the future. We do not suggest that due process standards are inapplicable to extradition proceedings. However, the cases cited by Pazienza, under which civil in personam jurisdiction obtained by fraudulent means has been held invalid, e.g., Wyman v. Newhouse, 93 F.2d 313 (2d Cir.1937), cert. denied, 303 U.S. 664, 58 S.Ct. 831, 82 L.Ed. 1122 (1938), are inapplicable. In Wyman a defendant was enticed through lies and emotional appeals to enter the State of Florida, whereupon he was served with process in a suit claiming damages of $500,000 for seduction under promise of marriage.

In any event, as noted earlier, the evidence taken before me at the § 3184 hearing establishes that Pazienza voluntarily attended the March 4, 1985 meeting with two agents of the U.S. Customs Bureau. It may well be that Dr. Pazienza and his New York civil attorney, Mr. Morrison, formed the mistaken belief in their own minds, based upon inexact communications and an assumption that the March 1985 meeting would not differ from a similar one held in September 1984, that Dr. Pa-zienza would be free to leave the meeting at its conclusion.

It is clear from the agents’ testimony and from Government Exhibit 7 that the agents could not have bound the United States Government to an agreement that Dr. Pazienza would be free to leave the March 4, 1985 meeting. That Dr. Pazienza may have depended upon any statements made by the two Customs agents Galligan and Donelan, if he did, does nothing to change the fact that the agents lacked authority to make such an agreement, assuming one were made. Such lack of authority would be obvious to any lawyer, and probably obvious to a non-lawyer of Dr. Pazien-za’s education, sophistication and international experience. Both Pazienza and his attorney Morrison are deemed to know that immunity from process, of the sort claimed here, must be granted on a higher level and usually is done in writing to avoid surprise and misunderstandings.

More significant is the fact that the Customs Agents each deny having agreed to an unconditional “safe passage” for Pa-zienza. Galligan testified that his statement on the morning of March 4th to Morrison was limited to the fact that Galligan did not then have an arrest warrant in his possession. (Transcript of June 14, 1985, p. 101). This statement was true. According to Galligan, Morrison never inquired further. Therefore Galligan made no further representations on this subject.

Morrison’s testimony is in direct contradiction. According to Morrison, Galligan made assurances “in no uncertain terms that Mr. Pazienza would be in a position of giving testimony and leaving the office and leave the country____” (Id. at 48). The Court regards Mr. Morrison as a generally credible witness. However, it is understandable after the fact of the unexpected arrest of Pazienza that he sincerely believes that his client, a cooperating witness, would be protected by the government to which he had volunteered valuable information, and that the wish has become father to the thought. He made no contemporaneous written record of his conversation, as a practicing lawyer of his skill and experience would be expected to do. A recorded telephone conversation between Pazienza and agent Galligan on February 15, 1985 (Government Ex. 6) makes no mention of the alleged agreement.

In January 1985 Agent Galligan attended meetings with his superiors at the Customs Bureau, with officials of the U.S. Department of State, and with the Assistant Attorney General in charge of the Criminal Division of the Department of Justice, the government branch which must initiate an extradition request on behalf of the requesting State. These meetings were concerned specifically with the status of Dr. Pazienza, although Agent Galligan had theretofore considered Pazienza only in relation to information that Pazienza might contribute to an ongoing customs investigation into activities in this country concerning Banco Ambrosiano. During these high level meetings, Galligan was never authorized by his superiors to make any promises to or agreements with Pazienza. (Transcript of June 14th, p. 108). On the contrary, Galligan learned that an extradition request was probable, and that Pazien-za would then face arrest. (Id. at 104). Government Exhibit 7 clearly demonstrates that before the March 4, 1985 meeting took place, Galligan and Donelan each knew that Pazienza’s arrest had been authorized by the Department of Justice. An agent of the Customs Bureau could not contravene a Department of Justice order, as Galligan well knew.

Government Exhibit 7, a telex from INTERPOL dated February 15, 1985, to the attention of Mr. Weintraub, an assistant special agent in the New York Customs office, states:

“Re Pazienza FN Francesco .. By order of Stephen S. Trott, Asst. Atty. Gen., Crim. Div. U.S. D.O.J., as conveyed by Tel. from Philip T. White, Dr., Office of Int’l Affairs (OIA) an all out search for the subject is underway. The seeking of a provisional arrest warrant by the U.S. Atty in any district where Pazienza is located has been authorized by OIA, but no provisional arrest warrant under U.S. extradition law can be obtained until the subject is actually located, Regards, end.”

Galligan testified that he was familiar with this telex before he spoke to Morrison concerning the arrangements for the March 4, 1985 meeting with Pazienza. {Id. at 140). While Galligan candidly admitted a subjective intention to deceive Morrison had Morrison inquired beyond Galligan’s truthful answer that he then possessed no arrest warrant for Pazienza, he did not do so.

This Court accepts Galligan’s version of his conversation with Morrison and finds that no such agreement of immunity from arrest for Pazienza was formed as testified to by Morrison.

In any event, the legal significance of such an agreement, if it were made, is doubtful. An extradition proceeding is neither strictly criminal nor civil; it is a hybrid. To the extent that such a proceeding should be thought of an a criminal proceeding, “criminal jurisdiction is not impaired by the illegality of the method by which the court acquires in personam jurisdiction.” See United States v. Wilson, 565 F.Supp. 1416,1422 (S.D.N.Y.1983) (Weinfeld, J.), reiterating the longstanding Ker-Frisbie rule. To the extent that this proceeding should be thought of as civil in nature, the conduct of the United States Government or its agents, viewed most favorably to the requested person, has not reached the level of a due process violation. The cases cited in the Requested Party’s brief (docketed June 18, 1985) to support the contention that civil standards apply to the method by which jurisdiction over Pazienza was obtained are not in point. At most they hold that since extradition proceedings are not criminal prosecutions, the extradition court may apply procedural standards of a more lenient nature than required in criminal cases. See, e.g., Melia v. United States, 667 F.2d 300, 302 (2d Cir.1981) (“Hearsay and other excludable evidence, therefore, may be admissible”); United States v. Galanis, 429 F.Supp. 1215 (D.Conn.1977) (“the constitutional safeguards that accompany a criminal trial in this country do not shield an accused from extradition pursuant to a valid treaty”).

Depositions of Pellicani and Mazzotta

Dr. Pazienza contends that the evidence of criminality supplied by the statements of Pellicani and Mazzotta cannot sustain a finding of probable cause against the Requested Person. This argument is based upon the fact that on March 12, 1985 a court of Rome acquitted Vitalone of criminal charges which arose out of the same general conspiracy alleged against Pazienza. Vitalone was accused of accepting Two or Three Billion Lire as a bribe intended for the magistrates who were investigating Roberto Calvi. The bribe money allegedly came out of the Prato Verde loan. In acquitting Vitalone, the Criminal Court of Rome held that “the statements were made by Mazzotta and Pellicani are, moreover, completely self-serving and therefore unreliable.” (Translation of the Decision of the court, p. 46). Thus Pazienza claims that this holding “obliterates” the probable cause showing. See Shapiro v. Ferrandina, 478 F.2d 894, 905 (2d Cir.1973).

In order to rule on this question, this Court requested that counsel provide a copy of the Vitalone decision to us, and also obtain from appropriate judicial authorities in Italy an explanation of Italian law as to the admissibility at a future trial in Italy of Dr. Pazienza, of the same evidence as was used against Vitalone and found entitled to no weight. In a letter dated June 25, 1985, the Milan judges who have documented the extradition request responded to this inquiry. The judges replied:

“[Tjhis is to answer your oral request for a response to the question posed by the Court in New York concerning the effect, under Italian law, of the judgment of acquittal of Wilfredo Vitalone, as it relates to any other proceedings. Specifically, you have asked whether this judgment would preclude the use of any evidence or testimony from that case in the case of Francesco Pazienza.
Under Italian [law], the same evidence may be utilized in any other case, notwithstanding the acquittal of Vitalone. The credibility of the evidence must be adjudged anew in the overall context of each case.
In addition, we wish to point out that the acquittal of Vitalone depended only on whether Vitalone himself received a sum of cash in order to bribe judges. In concluding that the evidence was insufficient on this point, the Court nevertheless affirmatively and without qualification found that the loan from Banco Am-brosiano to Prato Verde was in fact fraudulent, and that the proceeds of the fraud went to Mazzotta and Pazienza for their personal profit.”

Thus, as is the law in this Court, Italian law holds that the acquittal of one defendant does not preclude a subsequent prosecution on the same evidence disbelieved in the first trial of a co-defendant, even one charged as an accomplice where the principal has been acquitted. See, e.g., Standefer v. United States, 447 U.S. 10, 100 S.Ct. 1999, 64 L.Ed.2d 689 (1980), and cases cited therein. The witnesses for the prosecution may turn out to be just as unreliable in the trial of Pazienza as they were found to be in Vitalone’s trial, but that is not an issue for this Court to decide. Ordinarily, the Requested Person is thought to have “no right to contradict the demanding country’s proof or to pose questions of credibility____ [Sjuch a contest should be resolved at trial.” Eain v. Wilkes, 641 F.2d 504, 511 (7th Cir.), cert. denied, 454 U.S. 894, 102 S.Ct. 390, 70 L.Ed.2d 208 (1981). A prior finding that two witnesses relied on here should be prosecuted for their perjury at Vitalone’s trial does not obliterate the probable cause showing against Pazienza.

Political Offense Exception

As is true of the majority of bilateral extradition treaties to which the United States is party, the Treaty with the Republic of Italy excepts political and military offenses from extradition. Article V of the Treaty states that “extradition shall not be granted when the offense for which extradition is requested is a political offense, or if the person whose surrender is sought proves that the request for surren- ' der has been made in order to try or punish him or her for a political offense.”

The task of defining what is a political offense is left to the judiciary. This has resulted in a lack of uniformity in United States court decisions, compare In re Mackin, 668 F.2d 122 (2d Cir.1981) and In re Doherty, 599 F.Supp. 270 (S.D.N.Y.1984) with Eain v. Wilkes, 641 F.2d 504 (7th Cir.), cert. denied, 454 U.S. 894, 102 S.Ct. 390, 70 L.Ed.2d 208 (1981), evidencing the difficulty in forming objective legal criteria applicable to a political offense claim. Although there has been some effort to solve this problem by revising 18 U.S.C. § 3184, Congress has had no more success than the courts. See generally, Note, Extradition Reform and the Statutory Definition of Political Offenses, 24 Va.J.Int’l L. 419 (1984).

Despite the near absence of objective legal standards on this issue, it is clear that Dr. Pazienza’s political offense claim must fail. To begin with, Pazienza’s arguments in support of this claim are not built upon evidence introduced at the § 3184 hearing. Indeed, he did not testify at the hearing. More importantly, Pazienza’s claim is essentially that the extradition request is motivated by political concerns, not that the crime charged is a political offense.

Pazienza argues, but does not testify, that several authorities in Italy have political reasons for seeking Pazienza’s return. He argues that the Milan Magistrates prefer to blame the Prato Verde loan for the failure of Banco Ambrosiano rather than admit that the bank’s loans to the Italian Socialist and Communist parties are what caused the bank’s collapse. Next Pazienza turns to the Italian government, and argues that it too wants to use Pazienza as a scapegoat to protect the present Socialist President of Italy, Benito Craxi.

According to the Requested Party’s brief, two investigating Magistrates in Rome (but not the Milan Magistrates who issued the arrest warrant in this case) have fostered a “political scheme” against Pa-zienza. Magistrate Misiani is said to be aligned with Lybian terrorist factions investigated by Dr. Pazienza when he was a Secret Service agent for the Italian government (“SISMA”). Further, Magistrate Mi-siani is said to be motivated by revenge because the Christian Democratic Party, to which Pazienza claims allegiance, conducted a parliamentry interrogation into Misia-ni’s affairs in 1980. (Exhibit R to Requested Party’s brief).

Likewise, Magistrate Sica is said to be on the political left, and motivated by a desire to discredit the Christian Democrats through an attack on Pazienza.

If Pazienza’s version is true, the Magistrates ought to be investigating the loans made by Banco Ambrosiano to the Communist Party and the Socialist Party, loans alleged to exceed 50 Billion Lire, most of it unsecured. (Requested Party’s brief at 24, and Exhibit P).

In support of his claim of invidious “political” motivation on the part of the Italian Government, Pazienza urges that his cooperation with United States Customs agents is perceived as a threat to the security of the Italian Government. Pazienza claims that as part of a plan to paint him as an enemy of the Republic, the Italian Communist Party inspired news articles in 11 Mun-do and Humanite attacking Pazienza as the person responsible for an assassination attempt on Pope John Paul II. Pazienza claims that SISMI ordered one of its agents to plant heroin in Pazienza’s New York hotel room for the same reasons — to discredit any information offered by Pazienza to the United States. There was no proof that this happened. Finally Pazienza claims that on November 9, 1984, an attempt was made to kidnap and kill him. His brief states that Pazienza “will offer proof that the order to assassinate him came directly from the Italian Minister of Defense, Admiral Martini.” There was no proof of this either.

All such tales of intrigue, suspicion, undercover police work, and internecine political warfare appear sincerely expressed. However, even as offers of proof, Pazien-za’s claims boil down to the theory that the extradition request is made with a view to try to punish him for his political affiliations or his political views. The Treaty exempts only requests made in order to try to punish a person for a political offense. But, in our limited inquiry, this account amounts to no more than speculation. We should not infer idly, in the absence of hard evidence, that a prosecution based on the diversion of funds from a corporation for the alleged purposes, among others, to buy a private yacht and to bribe one or more judicial officers, is brought against anybody for an improper “political” purpose. Rather, we should proceed upon the rebut-table presumption of regularity on the part of the Government of Italy in the enforcement of its criminal laws, until proof appears to the contrary. In this regard, the good faith of that Government, and its ability to assure the Requested Party a fair trial is buttressed by the very acquittal of Vitalone relied on by Pazienza, and discussed above. We see no reason why he would be treated less favorably by the courts of Italy than his alleged accomplice. Furthermore, good faith on the part of the Executive Branch of our own Government is to be assumed in the absence of evidence to the contrary. Extradition is not automatic and there is no reason to believe that the State Department or the Department of Justice would participate in delivering a Christian Democrat to the Socialists or Communists in aid of a political prosecution, as contrasted with the ordinary fraud case which this appears on its face to be.

The crime of fraudulent bankruptcy is not on its face a political crime, and in this case, the alleged diversion of funds is not said to be associated with any goal which could be regarded as political. Although Pazienza argues that the “alleged crimes in Italy are really part and parcel of a ‘political’ struggle within the country of Italy between the Socialist and Communist faction within the Government and the Christian Democratic faction,” this Court concludes, as was decided in the case of Michele Sindona, who also claimed to be the victim of political persecution in Italy, that the crime of fraudulent bankruptcy is not a political offense within the meaning of the Treaty. Sindona v. Grant, 619 F.2d 167 (2d Cir.1980). Fraudulent bankruptcy is not a crime that comes anywhere near satisfying the so-called Castione test, first adopted in the United States by the court in In re Ezeta, 62 F. 972 (N.D.Cal.1894).

The case at bar is governed by the longstanding rule of “non-inquiry” under which United States courts generally defer to the State Department on questions of whether the requesting State’s motive is political, or whether the accused would be treated fairly upon surrender. Escobedo v. United States, 628 F.2d 1098, 1107 (5th Cir.), cert. denied, 449 U.S. 1036, 101 S.Ct. 612, 66 L.Ed.2d 497 (1980); Sindona v. Grant, 619 F.2d 167, 174-76 (2d Cir.1980); Gallina v. Fraser, 278 F.2d 77, 79 (2d Cir.), cert. denied, 364 U.S. 851, 81 S.Ct. 97, 5 L.Ed.2d 74 (1960). As stated long ago by Justice Holmes, “we are bound by the existence of an extradition treaty to assume that the trial will be fair.” Glucksman v. Henkel, 221 U.S. 508, 512, 31 S.Ct. 704, 705, 55 L.Ed. 830 (1911). The rule of non-inquiry recognizes that extradition is an international legal act between two sovereign States. Even after court certification to the State Department, the Executive Branch has final discretion to surrender the accused or refuse the extradition request. 18 U.S.C. § 3186. Indeed, the Executive Branch can decline the extradition request for a person claiming political offender status even though the court found the exemption inapplicable. Escobedo v. United States, supra at 1105.

The foregoing constitutes this Court’s findings of fact and conclusions of law after a hearing. The documentary evidence together with all transcripts of testimony and argument shall be certified to the Secretary of State, that a warrant may issue for the surrender of Dr. Pazienza in accordance with the 1983 Extradition Treaty between the United States of America and the Republic of Italy. The Requested Party may have a stay pending appeal, during which time he shall remain in custody of the United States Marshal.

So Ordered.

      . Ker v. Illinois, 119 U.S. 436, 7 S.Ct. 225, 30 L.Ed. 421 (1886); Frisbie v. Collins, 342 U.S. 519, 72 S.Ct. 509, 96 L.Ed. 541 (1952).

      . In re Castione, [1891] 1 Q.B. 149.


author: HUNGATE, District Judge.

text:
    RE/MAX OF AMERICA, INC., Plaintiff, v. William H. VIEHWEG, Defendant.
    No. 85-0349 C(3).
    United States District Court, E.D. Missouri, E.D.
    Sept. 25, 1985.

      Peter W. Herzog, Thomas Lay Burroughs, Paul J. Seele, Herzog & Bur- ’ roughs, St; Louis,; Mo., for plaintiff;-

      William H. Viehweg, Hazelwood, Mo., for defendant.
   MEMORANDUM

HUNGATE, District Judge.

This matter is before the Court for a decision on the merits of the claims of plaintiff, Re/Max of America, Inc., against defendant, William H. Viehweg. Plaintiff seeks a permanent injunction, monetary damages, and other relief. Defendant asserts various defenses.

The Court held a nonjury trial in this cause on June 3 and 4, 1985.

Having considered the pleadings, trial testimony, exhibits, stipulations, and mem-oranda of the parties, and being fully advised in the premises, the Court hereby makes and enters the following findings of fact and conclusions of law.

Findings of Fact

1. Plaintiff is a Colorado corporation doing business in the State of Missouri.

2. Defendant is a resident of the State of Missouri.

3. In March of 1984, the parties entered into an agreement whereby defendant was to work as a salesperson for the plaintiff to assist in the sale of Re/Max franchises in the St. Louis area.

4. In the years since 1974, plaintiff developed a network of affiliated real estate brokerage offices throughout the United States and Canada through the sale of franchises and subfranchises. Re/Max currently consists of some 740 franchises and 7704 sales associates.

5. Plaintiff has contracts with its sub-franchisors-Regional Directors, who in turn establish franchises under contract within their respective regions. Plaintiff also has franchisees under direct contract. All of the aforementioned contracts produce revenue and income for the plaintiff. Furthermore, plaintiff also is the beneficiary of all Re/Max franchisees’ contracts with their sales associates. Re/Max has expectancies of future revenues and income and contractual relationships of the same or similar nature.

6. After he was hired by plaintiff to sell franchises, defendant was sent to a management training course and a followup seminar in Englewood, Colorado, during the week of March 12-17, 1984. The purpose of the course and seminar was to prepare the defendant to represent the plaintiff in dealings with prospective and actual franchisees. During this period of time, defendant was furnished various business documents, including the Re/Max operations and training manuals, the Independent Contractor Agreement, sales and convention brochures, magazine articles, a sales kit, and a list of the top 100 agents for Re/Max.

7. Defendant claims that the materials furnished to him at the Colorado training program were a gift to him — his to do with as he saw fit. Plaintiff claims that the course instructor made it clear to all in attendance at the training sessions that the materials distributed were confidential and proprietary in nature. The Court finds the trainees, including defendant, were informed by Don Hackenberger that the various course materials were furnished solely to enable the trainees to represent plaintiff. Although some of the information furnished was not confidential in and of itself (e.g., information taken from multiple-listing services, magazine articles, etc.), the Court finds the representation of plaintiff made it clear this information was assembled by plaintiff for use on plaintiff’s behalf, and not given to defendant for any use he alone decided upon.

8. Upon the completion of his training in Colorado, defendant returned to St. Louis and began his employment as a Re/Max franchise salesperson on Monday, March 19, 1984, where he reported to Robert Behrens. Defendant was given keys to the office and paid a commission of $1500.00 per month in the form of a draw on his monthly commission.

9. Over the next few weeks, defendant became disenchanted with plaintiff’s operations and voiced his concerns to Behrens. Defendant testified that he was concerned that information furnished him by the plaintiff was false and that by representing the plaintiff, defendant was participating in misrepresentation. Defendant claimed that prior franchises had not been terminated as he had been told. At trial, no evidence was introduced to show plaintiff was charged with any wrongdoing by any of the agencies defendant complained to.

10. On Saturday, April 7, 1984, defendant entered plaintiff's St. Louis offices and searched desks, closets, and credenzas in the office, including the desk belonging to Behrens. Defendant removed and read various documents and then took numerous documents, papers, and records home with him.

11. On Monday, April 9, 1984, Behrens discovered that the desks, closets, and credenzas had been searched and certain information and documents removed from the office. That same morning, Behrens confronted defendant upon his arrival at the office, and defendant admitted he had taken the materials in question. They argued about Re/Max’s alleged misrepresentations, defendant refused to return the materials he had taken, and Behrens terminated his employment with Re/Max.

12. Subsequent to April 9, 1984, Beh-rens, Re/Max’s Vice-President Don Ha-chenberger, and Re/Max’s attorney Scott Smith, all sought the return of all the Re/Max documents in defendant’s possession through a combination of telephone calls and correspondence.

13. At trial of this cause, defendant agreed to the return of the following materials, and all copies thereof: Defendant’s Exhibits AA, UU, 00, AV, G, GG, L, K, EE, F, DDD, BB, CC, FF, I, DD, J, H, NN, MM, and Plaintiff’s Exhibits 17, 15, 19, 16, 59, 25, 13, 14, 5, 6, 7, 8, 9, 10, 11, 12, 3, and 4; all of which this Court finds are the property of plaintiff. Defendant continues to retain documents furnished him by the plaintiff during his training period in Colorado.

14. Defendant is generally knowledgeable of these materials and their contents, including plaintiff’s business know-how. Defendant admitted at trial that he sought to launch a consulting business that would benefit Re/Max’s competitors based at least in part on knowledge extracted from these materials.

15. In late April of 1984, defendant contacted Gordon Gundaker, a St. Louis area realtor and Re/Max competitor, and offered to sell Gundaker information which would help him to keep Re/Max or its franchisees from hiring away his real estate agents.

16. In October of 1984, defendant sent mailings to thirty prominent St. Louis area realtors and Re/Max competitors to solicit their hiring of him as a consultant who would show them how to keep Re/Max or its franchisees from hiring away their real estate agents.

17. As a result of defendant’s October 1984 mailing, defendant met with representatives of Gundaker Realty, Ira E. Berry Realty, and Century 21 Realty, wherein defendant offered to sell to each of those real estate companies information designed to help them keep Re/Max or its franchisees from hiring their real estate agents.

18. In a series of telephone conversations with plaintiff’s officers on December 11, 14, and 18, 1984, defendant threatened to take his allegations of Re/Max’s wrongful misconduct to the Federal Trade Commission and the Illinois Attorney General unless Re/Max paid him $15,000.00 in a lump sum, plus $3,000.00 per month for twenty-four months, and assigned him plaintiff’s Florida region. Plaintiff rejected defendant’s proposal by a letter dated December 21, 1984.

19. On February 4, 1985, defendant sent a mailing to over 500 offices of Re/Max subfranchisors and franchisees in which he accused Re/Max of improper registration of its franchise salespersons, of unsound financial conditions, and of making fraudulent statistical disclosure and false earnings claims.

20. In the course of his contacts and mailings with plaintiff’s competitors and franchisees, defendant disclosed and relied upon the material Re/Max had given him as well as materials he took from the St. Louis office.

21. Re/Max requested and was granted a temporary restraining order by this Court on February 12, 1985, prohibiting defendant from disclosing any Re/Max trade secrets or proprietary information, and from communicating with anyone in any way about Re/Max, except in response to specific requests from the Federal Trade Commission or the Illinois Attorney General.

22. At trial, plaintiff introduced evidence that prior to the February 4, 1985, mailing, Re/Max was on the verge of selling the New York State subfranchise to Mr. Pierre Titley of Montreal, Quebec, Canada. The contemplated cash down-payment for that sale was $65,000.00. Mr. Titley, as the owner of another Re/Max franchise, received a copy of defendant’s February 4 mailing, however, and subsequently declined to complete the sale, citing his concern over defendant’s accusations as a major impediment to the sale. In addition, plaintiff introduced evidence that, because of the drain on the time and efforts of Re/Max’s officers, employees, and attorneys, plaintiff failed to complete its registration with the appropriate franchise regulatory bodies of North and South Dakota, and that this failure resulted in the delayed realization of approximately $8,000.00 for the sale of the Sioux Falls, South Dakota, franchise, and $12,500.00 for the Mandan, North Dakota, franchise. Plaintiff also offered some evidence in an attempt to show that it lost $126,888.00 in internal costs because of defendant’s activities.

Defendant did not rebut plaintiff’s evidence and continued to insist that his actions were proper.

Conclusions of Law

1. The Court has jurisdiction over this cause pursuant to 28 U.S.C. § 1332 because the parties are citizens of different states.

2. Plaintiff seeks the return of all remaining materials remaining in defendant’s possession that were supplied by Re/Max during defendant’s training, or that were taken from plaintiff’s St. Louis office by the defendant. Plaintiff contends that these materials constitute trade secrets and proprietary information. Defendant appears to argue that he enjoyed the status of an independent contractor and therefore plaintiff waived any claim to the documents in defendant’s possession because plaintiff had given him access to the same.

The Court finds, however, that the evidence of defendant’s employment interviews, subsequent hiring, training, and assignment to plaintiff’s St. Louis office support a determination that defendant was an employee of the plaintiff and not an independent contractor. See, e.g., Site Oil Co. of Missouri v. N.L.R.B., 319 F.2d 86 (8th Cir.1963); Cline v. Carthage Crushed Limestone Co., 504 S.W.2d 102 (Mo.1973).

3. It is well established that trade secrets include “any formula, process, pattern, device, or compilation of information which is used in one’s business, and which gives him an advantage over competitors who do not know it or use it.” Sandlin v. Johnson, 141 F.2d 660, 661 (8th Cir.1984) (8th Circuit construing Missouri law); see also Drew Chemical Corp. v. Star Chemical Co., 258 F.Supp. 827, 833 (W.D.Mo. 1966) (applying Sandlin definition). However, it is also held in Missouri that sales aids and materials entrusted by an employer to an employee do not rise to the level of trade secrets where they do not appear unique to a particular employer. Continental Research Corporation v. Schloz, 595 S.W.2d 396, 401 (Mo.App.1980). Minor adaptations of common business techniques to an employer’s own particular needs do not raise such to the level of a protectible “trade secret.” Id. The Court finds that the materials given to the defendant at plaintiff’s orientation and training seminar are not trade secrets within the meaning of Missouri law. The evidence supports a finding that the training materials were assembled and distributed in a fashion common to new employee orientation and much of the material itself was designed for presentation to the public and potential customers. The plaintiff’s "100 percent commission” concept, though arguably unique, is not a trade secret. The concept itself is a product the plaintiff is attempting to market and one’s publicly offered product can hardly be considered a trade secret.

4. The Court does find, however, that certain of the documents in defendant’s possession at one time or another do meet the definition of trade secrets. Materials containing two years of referral rosters of franchised Re/Max offices and regional director/subfranchisor rosters including private home telephone numbers were developed over a period of many years, exclusively for the use of Re/Max personnel. Similarly, confidential lists of names of potential franchisees and confidential reports showing the sales produced by top sales associates and their commissions were compiled by plaintiff over a period and reflect a substantial investment of time and money by plaintiff, and Re/Max would suffer great competitive injury if these lists were to fall into the hands of competing franchisors who could then take advantage of Re/Max leads in their own franchising effort. Accordingly, the defendant will be ordered to return same to plaintiff.

5. Plaintiff further argues that the documents which defendant removed from plaintiff's St. Louis office were wrongfully taken. The defendant virtually concedes as much in his testimony at trial and in memoranda filed with the Court, and merely asserts that he did not think he was doing wrong at the time he surreptitiously removed the materials. The Court agrees that said documents were misappropriated by defendant. Accordingly, defendant will be ordered to return all materials taken from Re/Max’s St. Louis office on April 7, 1984.

6. Plaintiff alleges that defendant’s mailings and contacts with plaintiff's competitors constitute a tortious interference with plaintiff’s business. The elements of the tort of intentional interference with business relations or business expectancies under Missouri law are as follows:

1. A contract or valid business relationship or expectancy (not necessarily a contract);
2. Defendant’s knowledge of the contract or relationship;
3. Intentional interference by the Defendant inducing or causing a breach of the contract or relationship;
4. The absence of justification; and
5. Damages resulting from Defendant’s conduct.

Fischer, et al. v. Forrest T. Jones and Co., 586 S.W.2d 310, 315 (Mo.1979); see also Downey v. United Weatherproofing, 253 S.W.2d 976, 980-81 (Mo.1953); Francisco v. Kansas City Star Co., 629 S.W.2d 524, 529 (Mo.App.1981).

7. The evidence at trial clearly established the existence of valid contractual and business relations between Re/Max • and its twenty-six subfranchisors and 740 franchisees, and in turn between the franchisees and their 7704 sales associates. Express written agreements bind all of these parties. Also, Re/Max has the legitimate expectation of entering into business' relationships with numerous potential franchisees, subfranchisees and sales associates.

8. Defendant’s testimony showed that he was aware of the contracts and business relationships and contracts between Re/Max and others. As a Re/Max franchise salesperson, defendant was well aware of Re/Max’s business expectancies.

9. The evidence showed that defendant’s active and affirmative steps included letters to 560 existing Re/Max franchisees and subfranchisees. It also showed that defendant’s actions included mailings to thirty of Re/Max’s competitors in the St. Louis area, through which defendant sought to establish himself in the “consulting business” of obstructing Re/Max’s potential business relationships with real estate agents.

The Court finds that said evidence is sufficient to support a finding that defendant “actively and affirmatively took steps to induce the breach” and that “the Defendant’s affirmative conduct caused the breach.” Tri-Continental Leasing Co. v. Neidhardt, 540 S.W.2d 210, 216 (Mo.App. 1976).

10. The Court also finds the plaintiff’s evidence sufficient to support a finding that plaintiff was damaged by the disruption of the New York agreements and the delayed sales of the Sioux Falls and Man-dan franchises.

11. The key element in this case is whether defendant’s actions were inherently wrongful or without justification. Francisco v. Kansas City Star Co., supra at 534. As discussed above, defendant’s actions in taking, retaining, and utilizing materials taken from plaintiff’s St. Louis office was wrongful. It is clear from the evidence that defendant attempted to justify his actions as an effort to compete for business with the plaintiff. His “consulting business” was in fact his effort to obstruct plaintiff’s business for a price, using information wrongfully in his possession and his actions were not justified. In his discussions with the plaintiff, defendant even threatened to interfere with plaintiff's relationship with its franchisees unless plaintiff gave defendant an already successful region in Florida then under the competent direction of someone else. The Court does not find defendant’s actions justified. Accordingly, plaintiff has established defendant’s liability for intentionally interfering with plaintiff’s business relations and expectancies.

12. The Court finds that as a direct result of defendant’s tortious conduct, plaintiff was damaged in the amount of $65,000.00 lost as a result of the failure to close on the sale of the New York State subfranchise; $8,000.00 for the inability to sell the Sioux Falls, South Dakota, franchise; and $12,500.00 for the inability to sell the Mandan, North Dakota, franchise. The Court does not find that plaintiff proved that it lost $126,888.00 in internal costs as plaintiff claims. There was insufficient evidence offered at trial to distinguish between plaintiff’s normal operating costs and those precise costs incurred directly as a result of defendant’s tortious conduct.

13. The Court does not find that defendant was enriched by his wrongful possession and revelation of plaintiff’s materials and trade secrets. However, Missouri courts have consistently held that injunctions lie for the tortious interference with business relationships and expectancies. See Engine Specialties, Inc. v. Bombardier Ltd., 454 F.2d 527 (1972); May Furnace Co. v. Conaway, 352 S.W.2d 40 (Mo.App.1961). Alternatively, there is precedent in Missouri for granting an injunction against the continued use of trade secrets or certain information retained by a former employee. See R.E. Harrington, Inc. v. Frick, 428 S.W.2d 945 (Mo.App. 1968); Opie Brush Co. v. Bland, 409 S.W.2d 752 (Mo.App.1966).

Accordingly, plaintiff’s request for a permanent injunction will be granted.


author: GLASSER, District Judge:

text:
    Adelina SOTO-VALENTIN, Plaintiff, v. Margaret M. HECKLER, Secretary of Health & Human Services, Defendant.
    No. 83 Civ. 3532.
    United States District Court, E.D. New York.
    Sept. 27, 1985.

      Adelina Soto-Valentin, Brooklyn, N.Y., pro se.
    Victor Fusco, Scheme, Fusco & Branden-stein, P.C., New York City for plaintiff.
    Asst. U.S. Atty. Michael P. DiRaimondo, E.D. of N.Y., for defendant.
   MEMORANDUM AND ORDER

GLASSER, District Judge:

In this case of first impression, this Court is squarely faced with the following question: in an action brought pursuant to the Social Security Act, in which the plaintiff successfully establishes entitlement to both Title II disability insurance benefits (“DIB”) and Title XVI Supplemental Security Income benefits (“SSI”), and the government’s position is not substantially justified, can the plaintiff obtain an award of attorney’s fees pursuant to the Equal Access to Justice Act, 28 U.S.C. § 2412 (“EAJA”) which exceeds 25% of the plaintiff’s back DIB benefits? I find that this question should be answered in the affirmative.

By Memorandum and Order dated Octo-. ber 19, 1984, I reversed the Secretary’s decision terminating plaintiffs Title II DIB and Title XVI SSI benefits. Defendant thereafter moved pursuant to Rule 60(b) of the Federal Rules of Civil Procedure for an order vacating the October 19 Order and remanding this action pursuant to Section 2(d)(2) of the Social Security Disability Benefits Reform Act of 1984 (“SSDBRA”). On December 7, 1984, I denied the Government’s motion from the bench. Since that time, the Secretary has awarded plaintiff past due DIB benefits of $3689.00, but has withheld 25% of that amount, or $922.25, pursuant to 42 U.S.C. § 406(b)(1). The Court has not been apprised of the amount of plaintiff’s past due SSI award.

Plaintiff’s counsel now seeks an award of attorneys’ fees pursuant to the EAJA, or, alternatively, pursuant to 42 U.S.C. § 406(b). For the reasons set forth below, plaintiff is awarded, pursuant to the EAJA, counsel fees in the amount of $1481.75 and $23.40 in costs, or a total of $1505.15. In addition, plaintiff’s counsel is awarded $922.25 pursuant to 42 U.S.C. § 406(b). Discussion

A. Plaintiffs Entitlement to an EAJA Award

Under the EAJA, a party who “prevails” in a civil action against the United States or any agency or official acting in his official capacity may be awarded costs and “reasonable fees and expenses of attorneys.” It is well settled that the EAJA applies to claims brought under the Social Security Act. See, e.g., Ocasio v. Schweiker, 540 F.Supp. 1320 (S.D.N.Y.1982).

It is also undisputed that the plaintiff here is a “prevailing party” within the meaning of the Act. However, the plaintiff may recover an award under the EAJA only if the government was not “substantially justified” in its position in this litigation. Substantial justification refers to the position taken by the government in the federal court litigation, and not to the underlying position of the administrative agency. Boudin v. Thomas, 732 F.2d 1107, 1116 (2d Cir.1984). Essentially, the Government’s position must be one of

Except as otherwise specifically provided by statute, a court shall award to a prevailing party ... fees and other expenses ... incurred by that party in any civil action (other than cases sounding in tort) brought by or against the United States ... unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

“reasonableness." Environmental Defense Fund v. Watt, 722 F.2d 1081, 1085 (2d Cir.1983). Furthermore, where the law is unclear at the time of the government’s memorandum, the government’s position is not unreasonable. Boudin v. Thomas, supra, 732 F.2d at 1116.

The merits of this case called into play at least two aspects of the law which changed significantly during the pendency of this action. Of more relevance to this motion is the change in the standard to be applied in cases involving the termination of benefits. At the administrative level, the Secretary terminated plaintiff’s benefits based on a “current disability” standard. On February 27, 1984, I issued a decision in another action, which held the “medical improvement” standard to be applicable in a benefits termination case. Lanzissero v. Heckler, supra note 6. The government filed a memorandum in support of its motion for judgment on the pleadings in this case on May 2, 1984. Shortly thereafter, the Second Circuit addressed this issue and also determined that the “medical improvement” standard should be applied in termination cases. DeLeon v. Secretary, supra note 7. The parties’ cross-motions for judgment on the pleadings were not argued before me until July 27, 1984. The medical improvement standard was codified in the SSDBRA in October 1984.

In view of the above, it is clear that the law in this Circuit as to the standard applicable in termination cases was settled by the time that oral argument on the merits of the action was heard. Thus, based on the termination issue alone, the government’s position in this litigation was not substantially justified at the time when that motion was argued. See Boudin v. Thomas, supra, 732 F.2d at 1116. Therefore, plaintiff is entitled to recover costs and attorneys’ fees from the government under the EAJA, which arise from the prosecution of the merits of her claim. A plaintiff who is entitled to receive an award under the EAJA is also entitled to be awarded fees for time spent in connection with a fee application. Tripodi v. Heckler, supra note 2, 100 F.R.D. at 740.

With respect to plaintiff’s application for fees incurred in connection with the Rule 60 motion, however, I find that an EAJA award is not appropriate, as the government’s position in that portion of this litigation was substantially justified. The SSDBRA’s enactment ten days prior to the issuance of the October 9 Order prompted counsel for the government to file that motion. Although this Court was convinced that plaintiff should prevail on that motion, the government’s position with respect thereto was certainly grounded on a good faith interpretation of the law which has, in fact, been followed by some courts. See, e.g., Momeau v. Secretary of Health and Human Services, No. 84-1205 (1st Cir. Dec. 10, 1984); Schwartz v. Secretary of Health and Human Services, No. 83-1015 (W.D.N.Y. Dec. 20, 1984). Thus, plaintiff should not receive an EAJA award for the time spent on that motion. This result is consistent with an analogous decision reached by the Supreme Court in Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983), where the Court held that “the extent of a plaintiff’s success is a crucial factor in determining the proper amount of an award of attorney’s fees under 42 U.S.C. § 1988.” Id. at 435, 103 S.Ct. at 1940. Although that case was concerned with an award of attorney’s fees under the Civil Rights Act, its reasoning applies with equal force here.

B. Limitations on Amount of an EAJA Award

The only remaining question presented is the amount of the award of fees and costs under the EAJA. Plaintiff’s counsel seeks to recover a total of $2268, or a fee of $83 per hour for 27 hours of work, plus $23.40 in court reporter costs and $3.60 for travel expenditures.

The government contends that if plaintiff is to be awarded an EAJA fee, such award may not exceed $922.50, which is the amount of 25% of plaintiff’s back due DIB benefits. In support of this argument, the government urges that because the EAJA permits only the award of a “reasonable” attorney’s fee, and a 25% fee is the maximum considered “reasonable” under § 406(b), the same cap should be fixed with respect to a fee awarded under the EAJA. The government also relies on Allen v. Heckler, supra note 1, 588 F.Supp. 1247, where the court stated in dictum that “under no circumstances did Congress intend that an attorney be granted a fee of twenty-five percent (25%) of the past due benefits and an additional allowance under the EAJA.” Id. at 1250 (emphasis in original). Accord, Prettyman v. Heckler, supra note 1, 577 F.Supp. 997 (counsel’s petition for both § 406 and EAJA fees was improper, as § 406 limited counsel’s recovery to 25% of back benefits and EAJA was intended to compensate plaintiff and not to be “a lawyer’s relief bill”).

There are few guideposts in either EAJA case law or the legislative history of that statute which come close to addressing the problem posed by this motion. If one were to attempt to follow principles of logic, the following rationale would seem to support the government’s argument: A plaintiff who recovers disability insurance benefits will not be liable to his attorney for fees in excess of 25% of the plaintiff’s back benefits. 42 U.S.C. § 406(b). It is the plaintiff, and not his attorney, who is entitled to recover fees under the EAJA, Oguachuba v. INS, supra; Tripodi v. Heckler, supra. Therefore, because the plaintiff may not incur a fee of more than 25% of his past due benefits, he should not be able to recover from the government an amount exceeding 25% of the back award under the EAJA. Otherwise, it can be argued, the plaintiff would be receiving a windfall. See, e.g., Allen v. Heckler, supra note 1. This solution cannot, in actuality, be so easily applied.

The legislative history of § 406(b) indicates that its purpose was “to regulate fee arrangements between claimants and their attorneys.” Ocasio v. Schweiker, supra, 540 F.Supp. at 1322. Congress’ intent in enacting that statute

was only to limit contingency fees, which had become inordinately large, to 25% of the award, and also to ensure that lawyers were paid their fees by providing for certification of the fees by the Secretary; awards had sometimes been made to claimants without their attorneys’ knowledge and claimants had on occasion failed to notify their attorneys and pay their fees.

Id. (footnote omitted). The EAJA was designed, on the other hand, to “insure that individuals would not be deterred in challenging unreasonable governmental action ‘because of the expense involved in securing vindication of their rights.’ ” Ceglia v. Schweiker, supra note 2, 566 F.Supp. 118, 123 n. 4 (quoting H.R.Rep. No. 96-1418). The legislative history of the EAJA further states:

[F]ees are to be based on the prevailing market rate for the kind and qualilty of services rendered.
* Sic * * * *
In general, consistent with the above limitations, the computation of attorney’s fees should be based on prevailing market rates without reference to the fee arrangement between the attorney and client. The fact that attorneys may be providing services at salaries or hourly rates below the standard commercial rates which attorneys might normally receive for services rendered is not relevant to the computation of compensation under the Act.
In short, the award of fees is to be determined according to general professional standards.

H.R.Rep. No. 96-1418, 96th Cong., 2d Sess. 15, reprinted in 1980 U.S.Code Cong. & Ad.News 4953, 4994 (hereinafter “H.R. 96-1418”) (emphasis added). Thus, although a plaintiff may have an agreement with his attorney for the payment of fees at less than the market rate or for no fee at all, courts have held that a plaintiff moving under the EAJA can recover fees at the prevailing market rate. See, e.g., Ceglia v. Schweiker, supra; Chee v. Schweiker, 563 F.Supp. 1362, 1364 (D.Ariz.1983); Hor-nal v. Schweiker, 551 F.Supp. 612, 616 (M.D.Tenn.1982). Commenting upon the portion of the EAJA’s legislative history quoted on the previous page, the Hornal court stated that “[t]he House and Senate Reports ... make abundantly clear Congress’ intent that ‘incurred’ not be limited to mean only the money actually owed to attorneys.” Hornal v. Schweiker, supra, 551 F.Supp. at 616. This result ensures that pro bono counsel and legal aid organizations receive “a strong incentive to represent indigent social security claimants.” Ceglia v. Schweiker, supra, 566 F.Supp. at 123.

The particular circumstances of this case highlight the unfair result which would occur should a cap of 25% of back DIB benefits be placed on EAJA awards. In cases such as this, where a plaintiff may potentially recover only a small amount of back benefits, the attorney’s potential fee award could be paltry and would not nearly compensate him or her for the time and effort expended and “kind and quality of services rendered” in securing those benefits for the plaintiff. Whether the plaintiff’s award is to be large or small does not and should not affect the amount of actual work performed by the attorney. If a cap based upon the amount of a plaintiff’s back DIB benefits were to be imposed upon an EAJA award, this would result in the defeat of Congress’ express intent to prevent claimants from being deterred from “seeking review of or defending against unreasonable governmental actions because of the expense involved in securing the vindication of their rights.” H.R.Rep. 96-1418, supra, at 18.

In addition, what of the cases in which an EAJA award is appropriate where the claimant recovers Title XVI SSI benefits? It is well settled that § 406(b) permits a fee award from the plaintiff's back benefits only in Title II DIB cases. The government argues here that because an attorney is limited to a 25% fee in DIB cases, that is also the cap on the plaintiff’s EAJA award. Applying that logic to cases where only SSI benefits are recovered, the government would argue that no EAJA award could be made. Such a result cannot be deemed to reflect Congress’ intent in enacting the EAJA. But see Reid v. Heckler, 735 F.2d 757 (3rd Cir.1984) (although § 406(b) is inapplicable to Title XVI benefits, the federal courts may properly direct the Secretary to pay 25% of past due SSI benefits directly to a plaintiff’s attorney). Numerous courts have awarded EAJA fees in cases where the plaintiff’s benefits are Title XVI benefits in whole or in part. Such considerations are certainly relevant here, where the plaintiff did obtain both DIB and SSI benefits. In any event, in any case involving an application for fees, it is the duty of the court to determine whether the hours spent and fees requested by a plaintiff’s counsel are “reasonable.”

For all of these reasons, I find that in an action where a plaintiff recovers DIB and SSI benefits, a court may award reasonable attorney’s fees in excess of 25% of a plaintiff’s back DIB benefits.

C. Amount of Plaintiffs EAJA Award

Plaintiff originally sought an EAJA award in the amount of $1481.75, representing a fee of $75 per hour for 19% hours of work, including IV2 hours spent in preparation of the EAJA motion. Plaintiff subsequently amended the application to request a total EAJA award of $2268, which represents attorney’s fees of $83.00 per hour (a cost-of-living increase) for 27 hours of work (now including 7% hours spent on the Rule 60 motion) plus costs of $27.00, as specified supra at 5. In reviewing plaintiff’s application for fees, I find that the 19% hours spent in connection with plaintiff’s claim on the merits and the EAJA motion are quite reasonable. However, I find that the originally requested hourly rate of $75 is adequate.

Plaintiff also seeks to recover the costs of a stenographic transcript of the December 7, 1984 hearing on the Government’s Rule 60 motion, and certain local transportation costs. The EAJA provides that a prevailing party may recover the costs enumerated in 28 U.S.C. § 1920. 28 U.S.C. § 2412(a). Section 1920(2) permits costs to be taxed against the United States for “[f]ees of the court reporter for all or any part of the stenographic transcript necessarily obtained for use in the case” (emphasis added). Although it is not clear that it was “necessary” for plaintiff to obtain this transcript, it was relied upon in plaintiff’s amended application for fees (at page 8), and the government has not objected to payment of this cost. Therefore, plaintiff is entitled to receive payment for the transcript cost of $23.40. See Ulrich v. Schweiker, 548 F.Supp. 63, 65 (D.Idaho 1982) (cost of transcript permitted where government did not object). Cf. Wax v. United States, 183 F.Supp. 163 (E.D.N.Y. 1960) (costs of transcript allowed where transcript was required by court). Finally, although the EAJA will permit this plaintiff to recover court reporter costs, it does not permit an award of the costs of local transportation. See, e.g., Photo Data, Inc. v. Sawyer, 533 F.Supp. 348, 353 (D.D.C. 1982), citing Norman v. United States, 74 F.R.D. 637, 639 (D.Del.1977).

D. Counsel’s Entitlement to an Award pursuant to § 406(b)

Section 406(b) of Title 42 of the United States Code, which governs the court’s ability to make a direct award of attorney’s fees to plaintiff’s counsel out of the plaintiff’s past due DIB benefits, provides in pertinent part:

(b)(1) Whenever a court renders a judgment favorable to a claimant under this subchapter who was represented before the court by an attorney, the court may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the past-due benefits to which the claimant is entitled by reason of such judgment, and the Secretary may, notwithstanding the provisions of section 405(i) of this title, certify the amount of such fee for payment to such attorney out of, and not in addition to, the amount of such past-due benefits. In case of any such judgment, no other fee may be payable or certified for payment for such representation except as provided in this paragraph.

A plaintiff and his or her counsel may simultaneously apply for awards under both EAJA and § 406(b):

The application- of both statutes in the same case does not lead to a duplication of attorney’s fee awards. Attorney’s fees under the Social Security Act come out of funds that would otherwise have gone to the clailmant and are awarded to the claimant’s attorney____ The attorney’s fees provision in the Equal Access to Justice Act, on the other hand, authorizes an award against the federal government and to the claimant, not the claimant’s attorney.

Eustache v. Secretary of the Department of Health & Human Services, 601 F.Supp. 176, 178 (E.D.N.Y.1985) (awarding plaintiff’s counsel $2850 under § 406(b) and awarding plaintiff $2137.50 under the EAJA). Without belaboring this opinion further with the details descriptive of the work performed by plaintiff’s counsel in connection with this case, suffice it to say that he has fulfilled the criteria which would entitle him to receive as a fee the full 25% of plaintiff’s back DIB award. See generally McKittrick v. Gardner, 378 F.2d 872 (4th Cir.1967); Ex Parte Duggan, 537 F.Supp. 1198 (D.S.C.1982).

Conclusion

For the reasons set forth above, I find that plaintiff is entitled to an award under the EAJA for attorney’s fees arising from the prosecution of the merits of this case, work performed on this fee application, and for the costs of a court reporter. Calculating the amount of attorney’s fees based on an hourly rate of $75 for 19 % hours of work, plaintiff is awarded $1481.75 plus $23.40 in costs, or a total of $1505.15. In addition, plaintiff’s counsel is awarded $922.25 pursuant to 42 U.S.C. § 406(b).

      . Allen v. Heckler, 588 F.Supp. 1247 (W.D.N.Y. 1984), and Prettyman v. Heckler, 577 F.Supp. 999 (D.Mont.1984), initially appear to address the issue presented in the introduction to this opinion (and to answer that question in the negative). However, those cases are distinguishable because in both Allen and Prettyman, the courts found that an award under EAJA was not appropriate, albeit for different reasons. In addition, although not clear from the texts of those decisions, it appears that both cases involved denials or terminations of DIB benefits only. In Allen, the court in fact found that counsel was not entitled to receive the full 25% of the plaintiffs back benefits.

      . Courts in this Circuit have held that under the EAJA, only a prevailing party, and not his or her attorney, may be awarded fees. See Oguachuba v. INS, 706 F.2d 93, 97-98 (2d Cir.1983); Tripodi v. Heckler, 100 F.R.D. 736, 738 (E.D.N.Y.1984).
      In a case decided shortly after Oguachuba, however, I found:
      Where, as here, the plaintiff is represented by a legal services organization, any fee obtained will go directly to the legal services organization which is in reality the real party in interest. It would therefore be exalting form over substance to deny this motion so that the ministerial function of substituting the plaintiff for the legal services organization could be accomplished. For this reason I find that the case is distinguishable from Oguachuba which involved private counsel and I therefore find that the motion is proper.

        Ceglia v. Schweiker, 566 F.Supp. 118, 120 n. 1 (E.D.N.Y.1983). In any event, it is appropriate to construe that portion of this motion which seek an EAJA award to be made on behalf of plaintiff, while that portion which seeks an award under § 406(b) may be made directly by plaintiff's counsel.

      . The relevant portion of the EAJA, 28 U.S.C. § 2412(d)(1)(A) provides:

      . A helpful discussion of this type of issue is set forth in Grand Boulevard Improvement Ass’n v. City of Chicago, 553 F.Supp. 1154, 1163 (N.D.Ill. 1982):
      Where the government's legal position hinges on a disputed interpretation of the governing law, the fact that the agency decision was set aside is not dispositive. It is certainly possible for the government to argue a reasonable, though erroneous interpretation of controlling laws or regulations. This is precisely the type of situation where the legislative history indicates the government’s position may be deemed “substantially justified." See H.Rep. No. 1418, supra at 14, U.S.Code Cong. & Admin.News at 4993.
      Where the dispute is essentially over the governing legal standard, one additional question need be considered before the government's position may be deemed substantially justified. Assuming the government’s "reasonable” though erroneous interpretation of law were correct, would the agency action have been sustained? This is but another way of saying that the government’s interpretation of law must be controlling on the underlying dispute. It will not do for the government to put forward a “reasonable” legal interpretation which, even if adopted, would not save the agency action. In such a case the arbitrariness of the underlying action exists independently of the purported dispute over legal standards.
      (footnote omitted). Applying this analysis to this case, the government’s position with respect to the merits of this action would still lack substantial justification based on the state of the law at the time that the cross-motions for judgment on the pleadings were argued. See the text of this opinion, infra at 631.

      . The other aspect of benefits law implicated by this case arose from the ALJ’s application of the so-called “severity regulations,” 20 C.F.R. §§ 404.1521 and 416.921, to plaintiff. These regulations were invalidated by Judge Lasker prior to my issuance of a decision on the parties’ Rule 12(c) cross-motions. Dixon v. Heckler, 589 F.Supp. 1494 (S.D.N.Y.1984).

      . This opinion assumes familiarity with the “current disability” and “medical improvement" standards, which are discussed in further detail in, e.g., DeLeon v. Secretary of Health & Human Services, 734 F.2d 930 (2d Cir.1984) and Lan-zissero v. Heckler, 580 F.Supp. 1408 (E.D.N.Y. 1984).

      . I also note in passing that although I remanded the action in Lanzissero based on the Secretary’s failure to apply the proper legal standard, the court in DeLeon found that reversal is the proper result under such circumstances. This is relevant because if the instant action had been remanded, the plaintiff would not be entitled to receive an award under the EAJA. McGill v. Secretary of Health & Human Services, 712 F.2d 28 (2d Cir.1983), cert. denied sub nom., McGill v. Heckler, 465 U.S. 1068, 104 S.Ct. 1420, 79 L.Ed.2d 745 (1984) (plaintiff whose action is remanded to the Secretary is not a prevailing party within meaning of the EAJA).

      . This result, in which plaintiff is awarded attorney’s fees pursuant to the EAJA and her attorney receives an award out of back benefits under § 406(b), is consistent with the recent decision of Taylor v. Heckler, 608 F.Supp. 1255 (D.N. J.1985). In that case Judge Sarokin directed plaintiffs' counsel, in social security cases wherein the plaintiff succeeds on the merits, to first seek attorney’s fees from the government under EAJA, where appropriate, before seeking an award under § 406(b). The court reasoned that this procedure would prevent the occurrence of the “automatic conflict of interest" between attorney and client which § 406(b) creates in a benefits case:
      [E]ven during the course of litigation, the interests of counsel and client diverge: while the latter understandably desires the quickest possible resolution of the matter in his or her favor, section 406(b) may encourage some counsel to prolong the matter in order to increase the size of the award from which the fee is drawn.

        Id., 608 F.Supp. at 1258. The court elaborated:
      The court believes that more frequent invocation of the EAJA will have an additional salutary effect: it will ameliorate the conflict of interest between attorney and client. If fees come from the government and are based upon the number of hours actually worked rather than upon some statutorily-mandated-contingency percentage, counsel will be much more likely to seek the expeditious processing of their clients’ claims, rather than to be tempted to allow the amount upon which their fee is based to multiply merely by the passage of time.

        Id. at 1259 (emphasis added). The Taylor court thus required future fee applicants to first seek an award under the EAJA, or, in a § 406(b) application, to give notice to the plaintiff (l) that the client may object to the fee requested either in person or by letter and (2) either that counsel has chosen to apply for fees under § 406(b) instead of the EAJA and why, or that a prior EAJA application was denied. Since the issuance of that opinion, the procedure set forth in Taylor has been adopted as a Local Rule of that court.
      In the instant case, plaintiffs counsel has, a posteriori, complied with the rule set forth in Taylor by applying for an EAJA award and a § 406(b) award simultaneously. Having found that the plaintiff is entitled to an EAJA award in excess of 25% of plaintiffs past due DIB benefits, the plaintiff here will actually suffer no economic loss when her counsel obtains the award due him under § 406(b).
      As discussed supra at n. 2, it is plaintiff and not plaintiffs counsel who is technically entitled to receive an EAJA award. For the reasons stated in section B of this opinion, it is the hope of this Court that the "excess” portion of the EAJA award, i.e., the amount by which the EAJA award exceeds the amount awarded to plaintiffs counsel pursuant to § 406(b), be used by plaintiff to compensate her attorney "for the kind and quality of services rendered” by him (originally quoted supra at 632), as intended by EAJA.
      It is also relevant to note that the highlighted portion of Taylor quoted earlier in this footnote impliedly supports the conclusion of this Court that there is no 25% cap on EAJA awards.