author: HAROLD H. GREENE, District Judge.

text:
    UNITED STATES of America v. John A. SHORTER, Jr.
    Crim. No. 84-0421.
    United States District Court, District of Columbia.
    Sept. 13, 1985.

      Carol E. Bruce, Darryl W. Jackson, Asst. U.S. Attys., Washington, D.C., for Government.
    Plato Cacheris, Larry S. Gondelman, Hundley & Cacheris, Washington, D.C., Marvin J. Garbis, Ronald B. Rubin, Garbis, Marvel & Junghans, Baltimore, Md., for defense.
   MEMORANDUM ORDER

HAROLD H. GREENE, District Judge.

Presently pending before the Court is the government’s motion to preclude the defendant from introducing expert testimony on defendant’s alleged compulsive gambling disorder. The issue has arisen in the following manner.

Defendant stands indicted for one count of tax evasion (26 U.S.C. § 7201) and six counts of willful failure to pay federal income taxes (26 U.S.C. § 7203). Pursuant to Fed.R.Crim.P. 12.2(b), he has filed a notice of his intention to place in issue his mental condition by presenting expert evidence that he suffers from a pathological gambling disorder. This expert testimony, it is claimed, will tend to negate willfulness — an essential element of both the tax evasion and failure to pay counts. United States v. Bishop, 412 U.S. 346, 361, 93 S.Ct. 2008, 2017, 36 L.Ed.2d 941 (1973). Defendant contends that expert testimony will show that he suffers from a disorder that compels him to expend nearly all of his available financial resources on gambling, leaving him no funds with which to meet his tax obligations. He further argues that it is this compulsion, rather than any intent to evade or fail to pay income taxes, which explains the conduct forming the basis of the indictment. It is defendant’s notice and the supporting arguments that prompted the government motion.

I

Expert testimony is admissible in a proper case under Fed.R.Evid. 702. However, to be admissible, such evidence must be relevant (Fed.R.Evid. 402), and the issue of relevance is a preliminary question of law to be decided by the court (United States v. Torniero, 735 F.2d 725, 730 (2d Cir.1984), cert. denied, — U.S. -, 105 S.Ct. 788, 83 L.Ed.2d 782 (1985); Fed.R. Evid. 104), which possesses broad discretion when ruling on that question. Salem v. United States Lines, 370 U.S. 31, 35, 82 S.Ct. 1119, 1122, 8 L.Ed.2d 313 (1962); United States v. Torniero, supra, at 730; 3 Weinstein’s Evidence 11702[02] at 702-12 (1982).

Because juries sometimes grant special deference to the testimony of an expert, courts seek to ensure that the subject matter of the expert testimony is reliable. United States v. Addison, 498 F.2d 741, 744 (D.C.Cir.1974). On this basis, most courts hold that expert testimony may not relate to a scientific theory that is speculative or accepted by only a few members of the particular learned profession. Hence, this and other Circuits, as well as many States, follow the decision in Frye v. United States, 293 F. 1013 (D.C.Cir.1923), which prohibits the admission of expert testimony unless the scientific subject matter of the testimony is generally accepted by the relevant community of experts. United States v. McDaniel, 538 F.2d 408, 412-13 (D.C.Cir.1976) (voice print spectrography); Frye v. United States, supra (polygraph); United States v. Lewellyn, 723 F.2d 615, 619 (8th Cir.1983) (compulsive gambling); United States v. Stifel, 433 F.2d 431, 438 (6th Cir.1970) (neutron activation analysis). See also, 3 Weinstein’s Evidence ¶ 702[03] at 702-15 (1982).

Frye mandates a three-part inquiry into the relevancy of expert testimony, in this case expert testimony of pathological gambling. Such testimony will be admitted if the defendant is able to establish (1) that a disorder known as “pathological gambling” is recognized by the relevant community of experts; (2) that experts generally accept a causal link between pathological gambling and the failure to pay taxes; and (3) that the facts are sufficient to create a jury question as to whether the particular defendant suffers from a pathological gambling disorder.

II

After considering the evidence, the Court has concluded that, insofar as the pathological gambling disorder is concerned, the relevant scientific community is the mental health community, that is psychiatrists and psychologists generally. United States v. Lewellyn, supra, at 619. With this predicate in mind, it is appropriate now to consider the three parts of the Frye test.

First. The experts presented by both the government and the defense appear to agree, with varying degrees of certainty, that pathological gambling is a recognized disorder. In this regard, the Court finds persuasive the inclusion of pathological gambling in the 1980 edition of the American Psychiatric Association Diagnostic and Statistical Manual of Mental Disorders (hereinafter DSM-III). The fact that pathological gambling was not included in the Manual prior to 1980 indicates that the disorder has only recently been recognized by the mental health community. United States v. Torniero, supra, 735 F.2d at 731. Nevertheless, despite its relatively recent appearance in DSM-III, the Court concludes that the disorder has achieved general acceptance by mental health professionals, and that accordingly it may be “recognized” as a disorder by the courts.

Second. To be relevant in a prosecution charging tax evasion and willful failure to pay taxes, the pathological gambling disorder must be relevant to one or more elements of the charged offenses (United States v. Peterson, 509 F.2d 408, 414 (D.C. Cir.1974)), that is, the preferred testimony must “tend[ ] to prove or disprove a matter ‘properly provable in the case.’ ” United States v. Torniero, supra, 735 F.2d at 730 (quoting Fed.R.Evid. 401 advisory committee note). The defense contends that testimony concerning a pathological gambling disorder is relevant in that a pathological gambler is compelled by the internal mental pressures inherent in his disease to expend substantially all of his available funds for gambling, rather than for paying tax liabilities, and that this compulsion negates the element of willfulness required to convict for tax evasion or willful failure to pay.

In deciding the relevance of pathological gambling to criminal intent, the Court does not write on a clean slate. Three Circuits have concluded that a link between pathological gambling and criminal intent is not sufficiently accepted by mental health professionals to sustain the relevance of the disorder with respect to an insanity defense. United States v. Gould, supra, at 52 (robbery); United States v. Torniero, supra, at 734 (interstate transportation of stolen goods); United States v. Lewellyn, supra, at 619 (embezzlement). To be sure, the issue in an insanity case — whether “as a result of mental disease or defect [a defendant] lacks substantial capacity either to appreciate the wrongfulness of his conduct or to conform his conduct to the requirements of law” — differs to some extent in theory from the issue of willfulness. Nevertheless, as Brawner v. United States, supra, and other decisions make clear, it is somewhat of a misnomer to consider the defense under the rubric of diminished responsibility (much less sanity), and the real issue is one of willfulness and specific intent.

Rather than to rely solely on these appellate precedents, this Court has heard substantial testimony on whether experts generally accept a hypothesis about compulsive gambling that would tend to prove or disprove willfulness.

The defense presented three experts. The testimony of these defense experts was essentially similar. Each testified that pathological gamblers often fail to pay their taxes. Their testimony was less certain as to the existence of a causal link between the disorder and the absence of a willful intent to commit tax offenses. Dr. Moravec, who appears to have had the greatest experience treating pathological gamblers, opined that the pathological gambler “chooses not to” pay taxes in the belief that his funds, if devoted to gambling, will generate a “big win” that allows him to meet all outstanding obligations. Dr. Moravec’s view of the disorder, even if accepted by the mental health community, would not tend to establish that compulsive gamblers are deprived of an ability to consciously choose between gambling and paying taxes. Furthermore, Dr. Moravec came even to this limited conclusion with respect to defendant notwithstanding the fact that defendant, according to the government, was able to make the choice of spending substantial amounts on an expensive automobile and on gifts to a girlfriend, and to make other significant non-gambling expenditures. Dr. Moravec was also unable adequately to explain why defendant, a prominent and successful attorney during these same years, was able to organize and manage his law practice but unable to engage in financial planning to meet his tax liabilities. In any event, the Court found Dr. Moravec’s testimony to be vague and contradictory, and it takes into account the possibility that Dr. Moravec, who belongs to a very small group of psychologists specializing in pathological gambling, has an incentive to make rather sweeping claims about the illness. See infra.

Dr. Ciarrocchi also conceded that pathological gamblers “will prioritize their needs” and choose to make non-gambling expenditures that are important to them. In light of his limited experience as a practicing psychologist, Dr. Ciarrocchi’s testimony was principally relevant to the history and treatment of defendant himself. Defendant’s own experience is not, however, of central relevance to the question of whether a causal link between the disorder and criminal intent is generally accepted by the mental health community.

Dr. Resnik, the most credible and qualified defense expert, essentially confirmed the testimony of Drs. Moravec and Ciarrocchi. While maintaining, at one point, that a pathological gambler lacks the specific intent to commit tax offenses because he is irresistibly compelled to gamble with most of his funds, Dr. Resnik later testified that an individual, such as defendant, who embarks on a gambling spree (1) knows that he has failed to pay his taxes, and (2) makes a volitional choice to gamble rather than pay.

Finally, defendant’s experts — all directly involved with the diagnosis and treatment of pathological gamblers — did testify that the gambling compulsion undermines the ability to comply with such laws as those relating to the payment of income tax, but they also in the main conceded that they were at the cutting edge of this field, and that the bulk of the community of psychiatrists and psychologists remains to be convinced.

The impression gleaned from the testimony of defendant’s experts is that the impact of pathological gambling disorder on the volitional faculties is, at best, unclear even among those mental health professionals specializing in the treatment of the disorder. It is, however, the broader community of psychologists and psychiatrists to which the Court must turn in assessing the reliability of expert testimony under Frye (United States v. Lewellyn, supra, 723 F.2d at 619), and as to them clarity is not lacking.

Each of the government’s witnesses— three forensic psychiatrists and one forensic psychologist — categorically rejected the claim that pathological gamblers are unable to choose between gambling and paying taxes. Of greatest significance to the present case is Dr. Abraham L. Halpern’s testimony that the “vast majority” of psychiatrists reject the proposition that pathological gamblers are unable to choose between gambling and paying taxes. Dr. Halpern, whom the Court has found to be an exceptionally well-qualified and persuasive witness, testified that pathological gamblers retain the ability to make conscious decisions about their financial expenditures. The government’s other experts, Drs. Neil H. Blumberg, David L. Shapiro and Raymond F. Patterson each also offered the opinion that there exists no recognized link between pathological gambling and criminal tax offenses.

It should also be noted that it may not even be necessary for the Court definitively to resolve the disagreements between the experts. Under the Frye test, the issue is whether the existence “of a causal link between this disorder and commission of the type of offenses ... charged” (United States v. Gould, supra, 741 F.2d at 48, quoting United States v. Tomiero, supra, 735 F.2d at 731), commands “general acceptance” (Frye v. United States, supra, 293 F.2d at 1014), in the mental health community. The Court is firmly convinced, based on the evidence, that such general acceptance is lacking at the present time. • While there are, to be sure, “seriously contradicting views” {United States v. Torniero, supra, 735 F.2d at 731), it is quite clear that there is no general acceptance among the experts in the relevant scientific community that

there is a link between the pathological gambling and the failure to pay taxes.

Finally, one must not completely disregard the consequences of the theories offered in support of the admission of the expert testimony proffered by defendant. If these experts are correct, it would be difficult, if not impossible, to establish a principled dividing line between a lawyer who evades his income taxes on account of his compulsive gambling, and an individual who craves alcohol or drugs and commits robberies or other, similar offenses to obtain the funds to satisfy his needs. In both types of instances, there could be presumed to be compelling forces which cause the individual to violate the law, and under the theory of defendant here, both must be exonerated. That is not, and cannot be, the law. See United States v. Moore, 486 F.2d 1139, 1147 (D.C.Cir.), cert. denied, 414 U.S. 980, 94 S.Ct. 298, 38 L.Ed.2d 224 (1973) (concurring opinion of three judges) (narcotics addiction is not a defense to prosecution for possession of heroin); United States v. Lyons, 731 F.2d 243, 245 (5th Cir.), cert. denied, — U.S. -, 105 S.Ct. 323, 83 L.Ed.2d 260 (1984) (narcotics addiction, without more, raises no issue of mental disease that can be used as a defense to prosecution for narcotics offenses). See also, Powell v. Texas, 392 U.S. 514, 535, 88 S.Ct. 2145, 2155, 20 L.Ed.2d 1254 (1968) (defendant’s allegedly irresistable urge to drink did not preclude conviction for public intoxication).

It may be that an alcoholic or an addict is entitled to consideration in terms of the availability of a lack of willfulness defense while in a state of intoxication or under the direct influence of the illegal substance. But such substance abusers are not regarded as deprived of free will for offenses committed during “lucid” intervals. The claim made on behalf of this defendant is that never, during a twelve-year period, was he sufficiently free from the pathological gambling disorder to pay his taxes (even though, among other things, he managed during this period to operate a busy and highly-regarded litigation practice).

Third. In light of the Court’s conclusion that expert evidence on pathological gambling disorder is not relevant to the offenses charged and will not be admitted, it is unnecessary to decide whether defendant himself meets the profile of a pathological gambler, and the Court renders no decision thereon.

For the reasons stated, it is this 13th day of September, 1985

ORDERED that the expert testimony proferred by the defense will not be admitted at the trial.

      . In a criminal tax case, willfulness means "a voluntary, intentional violation of a known legal duty.” United States v. Pomponio, 429 U.S. 10, 12, 97 S.Ct. 22, 23, 50 L.Ed.2d 12 (1976).

      . The government's evidence will allegedly show that defendant engaged in a course of conduct spanning many years that was consciously and willfully designed to defeat the payment of income taxes. This conduct allegedly included, inter alia, (1) concealment of personal assets, (2) making of false statements to agents of the Internal Revenue Service, (3) failure to pay taxes despite a filing of tax returns declaring a liability, (4) failure to satisfy numerous notices of deficiency, levies, and judgments by the Internal Revenue Service, (5) failure to keep any financial records, (6) failure to pay despite possession of available funds, and (7) defendant’s poor history of non-payment of federal, state and local taxes.

      . While several courts have adopted a standard for admitting expert testimony that is less stringent, calling only for "substantial acceptance" of the scientific subject matter by the relevant expert community (see United States v. Gould, 741 F.2d 45, 49 n. 2 (4th Cir.1984); (“substantial acceptance”); United States v. Torniero, supra, 735 F.2d at 724, 731 n. 9 (same)), Frye is still the rule in this Circuit. See United States v. McDaniel, supra, at 412-13. In any event, defendant’s argument fails even under the less stringent standard.

      . Defendant appears to contend that the relevant scientific community is that of the limited number of psychologists and psychiatrists who specialize in pathological gambling disorders. That contention is clearly mistaken. It is, of course, always possible to locate a few experts in a field — such as the operation of polygraphs or the discovery of an exotic cure for cancer— who will be convinced of the efficacy of their particular methodology. But the Frye test demands an acceptance by a wider scientific community, precisely in order to eliminate those who are "experts” only in their own eyes and the eyes of a relatively small group of individuals with similar ideas.
      The Addison court, rejecting a trial court’s admission of spectrographic voice identification evidence, made plain that Frye requires that the subject matter of expert testimony be scientifically mature:
      Thus, while portions of the record suggest that spectrogram analysis may become a useful tool for the resolution of questions of criminal liability, it is equally clear that [the technique has] not attained the general acceptance of the scientific community to the degree required by Frye.

      498 F.2d at 741 (emphasis supplied and footnotes omitted).

      . DSM-III describes "pathological gambling” as a chronic and progressive failure to resist impulses to gamble and gambling behavior that compromises, disrupts, or damages personal, family, or vocational pursuits. The gambling preoccupation, urge, and activity increase during periods of stress. Problems that arise as a result of the gambling lead to an intensification of the gambling behavior. Characteristic problems include loss of work due to absences in order to gamble, defaulting on debts and other financial responsibilities, disrupted family relationships, borrowing money from illegal sources, forgery, fraud, embezzlement, and income tax evasion.
      American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders ¶ 312.31 (3d ed. 1980).

      . The government argues that defendant’s proffer of expert testimony is an impermissible attempt to raise the defense of diminished capacity in a criminal tax case, contending that a diminished capacity defense is not recognized in this jurisdiction for any offense other than first degree murder. See United States v. Brawner, 471 F.2d 969 (1972) (en banc); United States v. Peterson, 509 F.2d 408 (1974); Bishop v. United States, 107 F.2d 297, 301 (D.C.Cir.1939). However, because the Court finds that there is no generally accepted link between pathological gambling disorder and a defendant’s intent to commit tax offenses, it is not necessary to decide that issue. Moreover, as noted below, defendant claims that his experts would testify to the question of willfulness, not to that of diminished capacity.

      . Alternatively, defendant offers the testimony on the closely related issue of an explanation for his so-called “cash lifestyle," failure to keep financial records ánd failure to maintain bank accounts in his own name — conduct which the prosecution seeks to portray as indicative of a knowing and voluntary violation of the tax laws.

      . No Circuit has held to the contrary.

      . The Brawner court wrote that its doctrine of diminished responsibility “has nothing to do with ‘diminishing’ responsibility of a defendant because of his impaired mental condition, but rather with determining whether the defendant had the mental state that must be proved as to all defendants.” Brawner v. United States, supra, 471 F.2d at 998.

      . Dr. Joseph W. Ciarrocchi, a clinical psychologist, is Director of Addiction Services at Taylor Manor Hospital in Ellicott City, Maryland, where he supervises residential and out-patient programs for compulsive gamblers. He has treated the defendant since February 1985. Dr. Jule D. Moravec, a clinical psychologist of fourteen years experience, is Associate Director of the Veterans Administration Medical Center in San Diego, California and specializes in the research and treatment of pathological gambling. Dr. Harvey L.P. Resnik is a psychiatrist in private practice with over twenty-five years experience in psychiatry, and is a Clinical Professor at the George Washington School of Medicine. He has personally treated approximately twenty pathological gamblers.

      . The witness acknowledged that not all pathological gamblers are not also tax evaders, and he simply answered “I don’t know” when questioned why this was so.

      . Dr. Halpern is the Director of the Department of Psychiatry at United Hospital in Portchester, New York; a Clinical Professor of Psychiatry at New York Medical College; certified by the American Board of Forensic Psychiatry and the American Board of Psychiatry and Neurology; and co-author of an article on compulsive gambling that has been accepted by the American Journal of Forensic Sciences. His medical career spans more than thirty years.

      . Dr. Blumberg is a psychiatrist in private practice with eight years of psychiatric experience, a diplómate of the American Board of Psychiatry and a Clinical Instructor at the University of Maryland School of Medicine. Dr. Shapiro is a forensic psychologist in private practice with sixteen years of experience and an Associate Clinical Professor at the George Washington University School of Medicine and Health Services. Dr. Patterson, a psychiatrist, is the Acting Associate Superintendent of General Clinical Programs at Saint Elizabeths Hospital, board certified by the American Board of Psychiatry and Neurology, and an Assistant Professor of Psychiatry at Howard University.

      . As indicated in note 7, supra, defendant contends that the experts’ familiarity with the personal habits of compulsive gamblers would help the trier of fact to assess the government’s argument that defendant’s lifestyle is evidence of an intent to willfully evade and willfully fail to pay taxes. However, the Court has been given no compelling indication suggesting that defendant’s gambling activities and their impact on his financial habits require the testimony of experts, as opposed to lay witnesses familiar with the defendant’s activities. When the specialized knowledge of an expert is unnecessary to a jury’s assessment of the salient factual issues, expert testimony will normally be excluded. See, e.g., United States v. Navarro-Varelas, 541 F.2d 1331, 1334 (9th Cir.1976) (expert defense testimony that would be cumulative of lay testimony and of no appreciable help to jury was properly excluded), cert. denied, 429 U.S. 1045, 97 S.Ct. 751, 50 L.Ed.2d 759 (1977).

      . The Moore court approved the exclusion of expert testimony that would have portrayed defendant as “helpless to control his compulsion to obtain and use heroin." 486 F.2d at 1143. The defendant’s proffer in Moore was remarkably similar to the evidence proffered by defendant here.

      . This ruling should not be interpreted as precluding the defendant, through lay testimony, including his own, to seek to persuade the jury regarding his gambling propensities related to his inability to pay his taxes when they were due.


source: Caselaw Access Project

author: SHABAZ, District Judge.

license: Public Domain

text:
    Marilyn J. ANDERSON, Plaintiff, v. FIRST COMMODITY CORPORATION OF BOSTON, Defendant.
    No. 85-C-101-S.
    United States District Court, W.D. Wisconsin.
    Sept. 13, 1985.

      Theodore C. Beckett, Beckett & Steinkamp, Kansas City, Mo., for plaintiff.
    Peper, Martin, Jensen, Maichel & Hetlage, Washington, D.C., for defendant.
   MEMORANDUM AND ORDER

SHABAZ, District Judge.

At the time of the final pre-trial conference the Court was faced with several motions. Having shortly ruled upon them by order dated September 10, 1985, the Court issues the following reasons for its decisions.

FACTS

Plaintiff Marilyn Anderson, a resident of Wisconsin, invested in excess of $10,000 in the commodity futures market with the defendant First Commodity Corporation of Boston (FCCB), a corporation organized under the laws of Massachusetts and located in Boston. She is a high school librarian, and the investment capital originally came from a life insurance policy on her late husband.

Plaintiff entered into the contract in February, 1983, at the behest of Stephen Breinling, apparently a resident of Chicago, Illinois, who worked as an account executive for FCCB at its Chicago office. Breinling had solicited plaintiffs account for some time. It is alleged that plaintiff was induced to enter into the contract by several explicit misrepresentations, including the statement that plaintiff was sure to make a profit, that FCCB was the oldest and largest commodities firm in the country and that it maintained the largest research staff of specialists, that a $3,900 management fee assessed upon the opening of the account was usual and customary in the field, and many others concerning the safety of commodity trading and the suggestion that plaintiff need not read the contract or the risk disclosures since they were just government-required formalities. There were allegedly several other misrepresentations.

On November 11, 1976, FCCB, by its officers, executed its consent to the entry of a permanent injunction whereby it was not to engage in fraudulent tactics or commit fraud in the sale of commodity services to the public.

On October 15, 1980, FCCB was ordered to pay (including assessments against its principals) $900,000 in penalties by the Commodity Futures Trading Commission for violating several sections of the Commodity Exchange Act and regulations promulgated thereunder. And on October 16, 1980, FCCB entered into another consent decree in which FCCB and its principals consented to the entry of another permanent injunction.

Two civil judgments for fraud and breach of fiduciary duty had, at the time of filing this lawsuit, been entered against FCCB. These cases, Kerr v. FCCB and Wegerer v. FCCB (appellate decisions in these cases reported at 735 F.2d 281 (8th Cir.1984) and 744 F.2d 719 (10th Cir.1984) respectively) concern allegations similar to the ones in this case in that misrepresentation and breach of fiduciary duty by an FCCB account executive were alleged. Jury verdicts in favor of the plaintiffs in those suits were affirmed on appeal.

The contract signed by the plaintiff contained the following provision:

All actions or proceedings arising directly or indirectly in connection with, out of, related to or from this Customer Agreement, or in connection with my account or accounts with FCCB shall be governed by the Law of the State of Massachusetts and shall unless waived, at the discretion and election of FCCB, be litigated in courts whose situs is within the State of Massachusetts. Me and my administrators, successors, and assigns hereby submit to the exclusive jurisdiction of such courts and expressly waive the right to the adjudication or the enforcement of such controversies by any court or any tribunal sitting in any other jurisdiction.

Plaintiff contends that as a result of the actions of the defendant she has suffered stress, anxiety, loss of ability to concentrate and loss of sleep; and that her relationship with her children has deteriorated. Plaintiff has seen a therapist since before the actions of defendant allegedly caused these problems, and her therapist describes plaintiff as suffering a “dysthemic disorder.”

Further facts will be discussed within the body of the opinion which follows:

MEMORANDUM

I. Summary Judgment Motion

Defendant’s summary judgment motion presented a number of questions concerning the common law of Wisconsin with respect to fraud and misrepresentation, infliction of emotional distress and a choice of law question relative to punitive damages.

A. Misrepresentation: Failure to disclose prior consent decrees and civil judgments.

To a certain extent, plaintiff’s first three claims are based on an alleged misrepresentation that consists of defendants’ failure to disclose certain facts relating to prior litigation involving the business dealings of FCCB. Although a failure to disclose a material fact can be considered equivalent to an explicit misrepresentation, Ollerman v. O’Rourke, 94 Wis.2d 17, 288 N.W.2d 95, 100 (1980), there must be a duty to disclose the fact. The question of whether there is a duty in a given case is one of law and requires a policy determination. Id.

The Wisconsin Supreme Court in Ollerman discussed the considerations which should govern this determination:

Over the years society’s attitudes toward good faith and fair dealing in business transactions have undergone significant change, and this change has been reflected in the law. Courts have departed from or relaxed the “no duty to disclose” rule when it works an injustice. Thus courts have held that the rule does not apply where the seller actively conceals a defect or where he prevents an investigation; where the seller has told a half-truth or has made an ambiguous statement if the seller’s intent is to create a false impression and he does so; where there is a fiduciary relationship between the parties; or where the facts are peculiarly within the knowledge of one party to the transaction and the other party is not in a position to discover the facts for himself.
... Dean Prosser has found a rather amorphous tendency on the part of most courts toward finding a duty of disclosure in cases where the defendant has special knowledge or means of knowledge not open to the plaintiff and is aware that the plaintiff is acting under a misapprehension as to facts which could be of importance to him, and would probably affect his decision.

288 N.W.2d at 102 (footnotes omitted). The Court also cited the Restatement, of Torts (Second) (1977) to further illucidate this question. Section 551(2)(e) imposes a duty to disclose “facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.” (As cited at 288 N.W.2d at 105). And the Court cited comment “j” to this section as follows:

A basic fact is a fact that is assumed by the parties as a basis for the transaction itself. It is a fact that goes to the basis or essence of the transaction, and is an important part of the substance of what is bargained for or dealt with. Other facts may serve as important and persuasive inducements to enter into the transaction, but not go to its essence. These facts may be material, but they are not basic.

Id.

In light of these instructions from the Wisconsin Supreme Court, this Court must conclude that defendant was under no duty to disclose its prior litigation and regulatory history. None of the examples cited in the above excerpts or footnote from Ollerman resemble the situation' here. The fact which was basic to the transaction in Ollerman was a hidden defect in real estate (a capped well under the surface). The prior litigation history of FCCB is in no way basic to the opening of plaintiffs account. And, of course, there was no fiduciary relationship until after the account was opened.

Accordingly, defendant’s motion for summary judgment must be granted to the extent that plaintiff seeks the imposition of liability for failure to disclose FCCB’s prior litigation history. The history is not only not basic to the transaction, the imposition of such a duty would have significant consequences in this and other industries entirely out of proportion to the minimal benefit gained by consumers.

B. Negligent Infliction of Emotional Distress

Plaintiff has attempted to state a claim for negligent infliction of emotional distress. Although Wisconsin recognizes such a claim, an element of the claim is that any emotional harm must be accompanied by a physical injury. This requirement was recently reaffirmed in Garrett v. City of New Berlin, 122 Wis.2d 223, 362 N.W.2d 137, 144 (1985). The reason for such a rule is to “avoid flooding the courts with fraudulent or trivial claims.” Id.

There is no evidence in the record substantiating plaintiff’s claim of a physical manifestation of her emotional distress. The best plaintiff has been able to do is offer the deposition testimony of her therapist in order to create an issue of fact. However, the therapist described plaintiff’s injury as a “dysthemic disorder,” which is, according to the Random House Dictionary of the English Language (Unabridged Edition, 1981), simply synonymous with despondency. And, in 1 J. Schmidt, Attorneys’ Dictionary of Medicine and Word Finder, 1985, dysthemia is “any mental disorder” or “mental depression; despondency.” In other words, plaintiff has offered nothing in the way of a physical manifestation of her emotional problems except perhaps an allegation of some temporary insomnia which, under Wisconsin law, is clearly not enough. Hawes v. Germantown Mutual Ins. Co., 103 Wis.2d 524, 309 N.W.2d 356 (1981).

Accordingly, defendants’ motion for summary judgment on plaintiff’s claim for negligent infliction of emotional distress must be granted.

C. Intentional Infliction of Emotional Distress

The rule requiring physical manifestation of emotional distress does not apply when the infliction of such harm is intentional. Alsteen v. Gehl, 21 Wis.2d 349, 124 N.W.2d 312 (1963). However, whether the emotional harm is caused by negligent or intentional action, there is clearly a threshold of seriousness under which there will be no liability. In the Alsteen case, the severity requirement was expressed as follows:

The plaintiff must demonstrate that he suffered an extreme disabling emotional response to the defendant’s conduct. The severity of the injury is not only relevant to the amount of recovery, but is a necessary element to any recovery. The plaintiff must demonstrate that he was unable to function in his other relationships because of the emotional distress caused by defendant's conduct. Temporary discomfort cannot be the basis of recovery.

Id. at 318 (emphasis in original). More recently, the standard has been expressed as follows:

Severe emotional distress is anxiety of such substantial quantity or enduring quality that no reasonable person could be expected to endure it.

Evrard v. Jacobson, 117 Wis.2d 69, 342 N.W.2d 788, 791 (1983).

Although it might be argued that a determination of whether a party has established such a level of harm is a jury question, it appears to the Court that plaintiff will be unable to produce evidence sufficient for a reasonable jury to infer such severity of harm. Plaintiff’s therapist, who is neither a psychiatrist nor psychologist, but rather a social worker, described her condition as dysthemia, that is, as previously discussed, a rather generalized despondency or depression of undetermined seriousness. There is no evidence that plaintiff took medication for the condition, nor does it appear that she was hospitalized. There is no allegation that she lost any time at work or suffered any disruption of her interpersonal relationships. Her visits to her therapist were primarily concerned with problems with her children — problems which predate the defendants’ actions.

It must be concluded that plaintiff cannot overcome the significant seriousness threshold to emotional distress claims imposed by Wisconsin law. The evidence produced in response to defendants’ motion for summary judgment on this claim is insufficient to allow an inference of harm of sufficient degree. The motion will be granted.

D. Punitive Damages

Plaintiff asks for punitive damages in her complaint. The parties agree that Massachusetts law does not allow punitive damages under the facts of this case, but Wisconsin law does. The contract between the parties of course specifies that Massachusetts law shall apply to disputes arising out of contract. Thus, the question is whether that contractual choice of law provision is effective, and, if not, whether Wisconsin or Massachusetts law applies. The parties agree that the forum’s — Wisconsin’s — choice of law rules apply. Klaxon v. Stentor Electric, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Wisconsin has adopted the Restatement, Conflict of Laws (Second) (1971) § 187 with respect to the first part of the question posed above, First Wisconsin v. Nicolaou, 85 Wis.2d 393, 270 N.W.2d 582 (1978); and Professor Leflar’s choice influencing considerations with respect to the second part of the question. Hunker v. Royal Indemnity Co., 57 Wis.2d 588, 204 N.W.2d 897 (1973).

The Court has previously found that a choice of forum provision in the contract would not be observed because of a prima facie showing of overreaching by the defendants who drafted the contract. The analysis here is somewhat similar. Unless the choice of law provision itself was the subject of misrepresentation or fraud, the provision will not be denied effect just because of the presence of fraud, misrepresentation or overreaching. Restatement, Conflict of Laws (Second) (1971), § 201, Comment “c.” Similarly, Comment “b” following § 187 of the Restatement provides that a choice of law provision will not be given effect if “the consent of one of the parties to its inclusion in the contract was obtained by improper means, such as by misrepresentation, duress, or undue influence, or by mistake.” This comment also contains the suggestion that the Court consider whether the choice of law provision is contained in an adhesion contract.

This is, of course, an adhesion contract to the extent that it was unilaterally drafted by FCCB. There is no evidence of bargaining between the parties on any issue, much less on the choice of law provision. While this may not dictate a refusal to enforce the provision, the Court is inclined to conclude that the parties’ choice of law is ineffective. This is not only an adhesion contract; it is one which apparently seeks to insulate FCCB from the consequences of wrongful behavior. The only issue in which the choice of law provision has an impact is in the availability of punitive damages. It is true that Massachusetts has a legitimate interest in such contracts — rules against punitive damages are animated by a desire to protect local business against excessive liability, according to most commentators. In re Air Crash Disaster Near Chicago, Ill. on May 25, 1979, 644 F.2d 594, 613 (7th Cir.1981). But that just means that there is a conflict. The plaintiff should not be forced to rely on the law of the defendants’ choosing, at least with respect to tort claims growing out of an adhesion contract.

Even if this were not true, § 187 of the Restatement also provides that a choice of law provision can be overcome if it “would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which ... would be the state of the applicable law in the absence of an effective choice of law by the parties.”

It is debatable how much greater the forum’s interest must be than that of the chosen state. In Wisconsin, “the law of the forum should presumptively apply unless it becomes clear that non-forum contacts are of the greater significance.” Wilcox v. Wilcox, 26 Wis.2d 617, 133 N.W.2d 408, 416 (1965). And the purpose of this presumption is “to trigger the responsibility of the court to carry out the forum state’s policy unless it appears that the forum state’s policies are unaffected by using a nonforum rule, or unless the facts show that the contacts with the tort are so minimal that the use of the forum law would be clearly the result of interloping chauvinism.” Conklin v. Horner, 38 Wis.2d 468, 157 N.W.2d 579, 582, n. 2 (1968). Accordingly, the requirement in § 187 that the interest of an opposing state’s law be materially greater than the chosen law is of questionable force under circumstances.

The Court, however, concludes that Wisconsin’s interest is materially greater, not just marginally so. As previously mentioned, Massachusetts has a legitimate interest in limiting the liability of its local business. Wisconsin’s interest is represented by the standard rationale for punitive damages: to deter and punish wrongdoers. Wangen v. Ford Motor Co., 97 Wis.2d 260, 294 N.W.2d 437 (1980); Wisconsin Jury Instructions, # 1717 (1983). And such damages are only available for malicious, wanton, reckless or willful activity. Id. Further, such damages may only be awarded after a plaintiff shows such a state of mind by a middle burden of proof, denominated in Wisconsin as clear, satisfactory, and convincing. Wangen, 294 N.W.2d at 458. In view of the importance with which Wisconsin courts view this matter, as evidenced by the kind of conduct against which punitive damages are directed and the evidentiary burden imposed before such damages are awarded, Wisconsin’s interest must be held to be materially greater than that of Massachusetts.

And it is clear that punitive damages reflect a fundamental policy determination. In deciding that punitive damages were available in a product liability action, the Wisconsin Supreme Court discussed the history of punitive damages in Wisconsin and described their availability as “a valuable and effective tool in the control of human conduct.” Wangen, supra, at 449. And the Court cited its opinion in Luther v. Shaw, 157 Wis. 234, 147 N.W. 18 (Wis.1914) as follows:

It [punitive damages] tends to elevate the jury as a responsible instrument of government, discourages private reprisals, restrains the strong, influential, and unscrupulous, vindicates the right of the weak, and encourages recourse to and confidence in the courts of law of those wronged or oppressed by acts or practices not cognizable in or not sufficiently punished by the criminal law.

147 N.W. at 20. This concept of punitive damages as serving to encourage private attorneys general was reiterated more recently in Kink v. Combs, 28 Wis.2d 65, 135 N.W.2d 789 (1965), where the Court compared punitive damages to statutorily allowed double or treble damage suits:

The multiple-damage suits countenanced by our statutes recognize the principle that certain types of violations will not be prosecuted unless the injured parties judgment is fattened by the equivalent of punitive damages.

135 N.W.2d at 798. According to the Restatement, a fundamental policy is a “substantial” one. It is one which “may be embodied in a statute which makes one or more kinds of contracts illegal or which is designed to protect a person against the oppressive use of superior bargaining power.” Comment “g” following § 187.

Having said all of this, it is clear that Wisconsin law will also be the choice after application of the factors enunciated by Professor Leflar. They are:

A. Predictability of results;
B. Maintenance of interstate and international order;
C. Simplification of the judicial task;
D. Advancement of the forum’s governmental interests;
E. Application of the better rule of law.

See Hunker v. Royal Indemnity Co., 57 Wis.2d 588, 204 N.W.2d 897, 902 (1973). To start with, there is the presumptive application of the law of the forum, a policy dictated by the fact that the Court is “an instrument of governmental policy of the State of Wisconsin.” Id. at 903. In fact, Wisconsin law is “the only appropriate law, in the absence of displacing factors.” Id.

Recourse to the choice-influencing factors above also support application of Wisconsin law.

It is, for instance, predictable that Wisconsin courts will apply its own law when one of its citizens sues for an intentional tort directed at that citizen in this state.

Maintenance of interstate order concerns a balancing of interests between or among the states with an interest in the subject matter. The Wisconsin Supreme Court has described this balance as follows:

This criterion requires that a state that is minimally concerned defer to the interests of a state that is substantially concerned.

Conklin, supra, 157 N.W.2d at 584. This Court has already determined that Wisconsin has a materially greater interest in this dispute than does Massachusetts.

The judicial task is in no way affected by the choice of law in this matter. ■ The application of Wisconsin law to the question of punitive damages will simply require an additional question or two in the special verdict for the damage phase of the bifurcated trial already scheduled in this matter.

Finally, it must be conceded that the forum’s governmental interests are advanced by application of its rule; and further, that, sitting as a Wisconsin court, this Court must conclude that the availability of punitive damages represents the better rule of law inasmuch as the rule is the result of court-made law.

Accordingly, FCCB’s motion for summary judgment with respect to plaintiff’s claims for punitive damages must be denied.

II. Motions in Limine

The defendant also seeks to withhold certain evidence: first, consent decrees, judgments, and the testimony of witnesses who have complaints similar to plaintiff; and second, the testimony of plaintiff’s expert witness, Leslie Jordan, on the ground that her testimony will violate the attorney-client privilege.

A. Other wrongs or acts.

Consent decrees, prior judgments, and testimony of similar conduct may be admissible to show intent, plan, and knowledge. Rule 404(b), Federal Rules of Evidence.

The Court agrees with the Tenth Circuit, which faced the identical issue in Wegerer v. First Commodity Corporation of Boston, 744 F.2d 719 (10th Cir.1984), that the consent decrees are probative of intent. They are, in fact, much more probative of intent than they are prejudicial.

The consent decrees also bear on another issue. They support the inference that the defendants misrepresented a material fact. Plaintiff has alleged that she was told that FCCB was the oldest and largest commodities brokerage firm in the United States, with the largest and oldest research department in the country. Whether these representations are true or not (and assuming they were made), they are designed to impress upon the potential customer that he or she is dealing with an old, reputable company which can be trusted.

Although the previously entered civil judgments (the above cited Wegerer case being one of them; Kerr v. FCCB, 735 F.2d 281 (8th Cir.1984) being the other) are arguably the same sort of evidence, the probative value of these decisions is not as certain. The Court does not allow these decisions into evidence. And, of course, the testimony of other litigants whose cases have not evolved into judgments is even less probative of plan or intent and more likely to prejudice.

Accordingly, the motion in limine will be granted with respect to judgments and decisions entered in the Wegerer and Kerr cases, and with respect to litigants allegedly in the same position as the plaintiff; and will be denied as to the three consent decrees.

B. Leslie Jordan.

Ms. Leslie Jordan is a commodity consultant and former investigator for the Commodity Futures Trading Commission. She has been named by the plaintiff as an expert witness. The defendant objects on the ground that her testimony violates its attorney-client privilege.

It appears that Ms. Jordan was employed at one time by Mr. Robert Boraks, an attorney who was employed by FCCB as an independent compliance counsel after the consent decree. FCCB agreed to employ such a person as part of that settlement. Boraks was to prepare a report covering FCCB’s compliance with the consent decree. According to the defendant, Ms. Jordan:

Prepared a report covering First Commodity’s back office and order taking procedures and she reviewed transactions in a number of randomly-selected accounts involving long-term forward positions held by First Commodity customers.

Defendant’s Memorandum, page 2.

It appears that the relationship between FCCB and Mr. Boraks was not that of attorney-client. The defendant would have the Court hold that Mr. Boraks was hired to provide legal advice in the traditional sense. Instead, FCCB was required by regulatory activity of a government agency to hire someone to insure that FCCB complied with the consent decree entered at that time. Mr. Boraks may have been an attorney and FCCB may have been his paymaster, but he was not hired to perform confidential legal services for a client. It is ludicrous to suggest, as does defendant, that a failure to disqualify Ms. Jordan will “result in reluctance ... to fully disclose information to the counsel hired to investigate such matters.” Defendant’s Reply Memorandum, page 5. The disclosures to Mr. Boraks were the result of a court order to remedy past wrongdoing. Reticence to divulge such information is not the issue. Disclosure was required and, in fact, became part of a public record.

Accordingly, the motion in limine to exclude the testimony of Leslie Jordan will be denied.

CONCLUSION

The Court concludes that FCCB’s failure to disclose prior consent decrees and civil judgments is not a cause of action. Further, as a matter of law, plaintiffs injuries are not sufficiently serious to justify a claim for injuries for infliction of emotional distress, whether intentional or negligent; and further, plaintiff does not have the physical injury necessary to substantiate a claim for negligent infliction of emotional distress.

Wisconsin’s interest in this litigation being more significant than that of Massachusetts, the Court concludes that Wisconsin law will govern plaintiff’s claim for punitive damages.

Finally, the Court concludes that the evidence of the prior consent decrees entered against the defendant should be admitted. On balance, such evidence is more probative of intent or plan than it is prejudicial. However, the evidence of other civil judgments and the testimony of similarly situated investors is less probative, potentially more prejudicial and will not be admitted.

      . These claims are also grounded on several alleged explicit misrepresentations. The summary judgment motion as to them has been withdrawn. The prior litigation, including private civil suits and actions by federal regulators, are also the subject of a motion in limine.


author: LEE R. WEST, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. Harold W. SAIN, Defendant.
    Nos. CR-85-120-W, CR-85-79-W.
    United States District Court, W.D. Oklahoma.
    Sept. 16, 1985.
    Michael J. Farr, Sp. Asst. U.S. Atty., William S. Price, U.S. Atty., David M. Paskach, Sp. Asst. U.S. Atty., Oklahoma City, Okl., for plaintiff.
    Hughes & Nelson, Oklahoma City, Okl., for defendant.
   ORDER

LEE R. WEST, District Judge.

In CR-85-120-W, defendant is charged, pursuant to 18 U.S.C. §§ 7 and 13, and Okla.Stat. tit. 21 § 1220 (1981), with one count of transporting an open container.

In CR-85-79-W, defendant is charged, pursuant to 18 U.S.C. §§ 7 and 13, and Okla.Stat. tit. 47 § 761 (1981), with one count of driving while impaired.

These cases were consolidated for trial and are consolidated for purposes of this opinion.

Transporting an Open Container
Okla.Stat. tit. 21 § 1220 (1981) provides:
It shall be unlawful for any person to knowingly transport in any moving vehicle upon a public highway, street or alley any nonintoxicating beverage containing more than one-half of one percent (V2 of 1%) alcohol by volume and not more than three and two-tenths percent (3.2%) alcohol by weight except in the original container which shall not have been opened and from which the original cap or seal shall not have been removed, unless the opened container be in the rear trunk or rear compartment, which shall include the spare tire compartment in a station wagon or panel truck, or any outside compartment which is not accessible to the driver or any other person in the vehicle while it is in motion. Any person violating the provisions of this act shall be deemed guilty of a misdemeanor, and upon conviction shall be punished by a fine of not more than Fifty Dollars ($50.00).

Much of the evidence in this case is in sharp conflict. The Court finds that the more credible evidence establishes the following facts:

(1) Defendant was the driver of a van that came to a stop at a guard post at Tinker Air Force Base near Oklahoma City, Oklahoma.
(2) A passenger, sitting in the front passenger seat, accompanied defendant.
(3) On the van’s console, located between the driver’s seat and front passenger’s seat, were two open glass bottles of a name brand beer.
(4) The beer bottles were each lk to V2 full of a pale yellow liquid that smelled of alcohol. The bottles were still cold.
(5) When one of the guards requested the passenger surrender the beer bottles, the passenger emptied the contents of the beer bottles, thereby effectively preventing testing of the contents of the beer bottles.

This circumstantial evidence is sufficient to support findings that the beer bottles contained beer. This evidence, in addition to the other evidence presented at trial, constitutes sufficient evidence that defendant was transporting open containers of beer in violation of Okla.Stat. tit. 21 § 1220 (1981).

Driving While Impaired

Okla.Stat. tit. 47 § 761(A) (1981) provides:

Any person who operates a motor vehicle while his ability to operate such motor vehicle is impaired by the consumption of alcohol shall be subject, for a first offense, to a fine of not less than One Hundred Dollars ($100.00) nor more than Three Hundred Dollars ($300.00).

Okla.Stat. tit. 47 § 756(b) (1984 Supp.) sets forth the evidence required to convict a person of driving while impaired:

[E]vidence that there was, at the time of the test, an alcohol concentration in excess of five-hundredths (0.05) but less than ten-hundredths (0.10) is relevant evidence that the person’s ability to operate a motor vehicle was impaired by alcohol. However, no person shall be convicted of the offense of operating or being in actual physical control of a motor vehicle while such person’s ability to operate such vehicle was impaired by alcohol solely because there was, at the time of the test, an alcohol concentration in excess of five-hundredths (0.05) but less than ten-hundredths (0.10) in the blood or breath of the person in the absence of additional evidence that such person’s ability to operate such vehicle was affected by alcohol to the extent that the public health and safety was threat ened or that said person had violated a state statute or local ordinance in the operation of a motor vehicle. [Emphasis added.]

Defendant contends that under § 756(b), the government must show that defendant’s actual operation of his vehicle was demonstrably impaired to the extent that the public health and safety were threatened. Since the arresting officer did not observe defendant’s van until after it had come to a complete stop, defendant contends the government has failed to present evidence that defendant’s actual operation of his vehicle was demonstrably impaired. Defendant therefore concludes that he cannot be found guilty of driving while impaired.

The government responds that § 756(b) does not restrict evidence of impairment solely to proof of defendant’s actual operation of his vehicle. The government contends the focus of evidence under § 756(b) is whether defendant’s ability to operate his vehicle has been impaired by alcohol to the extent as to constitute a threat to the public health and safety. The government further contends that public policy favors its interpretation of the statute. To restrict evidence of impairment solely to proof of defendant’s actual operation of his vehicle, the government argues, would endanger the public health and safety by exposing the public to unnecessary risks.

At the Court’s request, the parties have submitted briefs concerning the interpretation of § 756(b). Upon examination of the parties’ briefs and the cases cited therein, it appears that this narrow issue of Oklahoma law has not previously been decided. Therefore, the Court will interpret the statute in the manner it believes would be in accord with the state courts of Oklahoma.

A comparison of § 756(b) with the provisions of § 756(a) and (c) is helpful in determining the meaning of the phrase “ability to operate” a vehicle. At one extreme, § 756(a) provides that proof of 0.05 or less blood alcohol content is prima facie evidence that the driver is not under the influence of alcohol. Thus, Oklahoma recognizes that the average person can consume a relatively small amount of alcohol without impairing his or her ability to drive. Of course, some persons may find their driving faculties impaired by the least consumption of alcohol. Therefore, it is possible for the government to rebut the statutory prima facie evidence in favor of the driver.

At the other extreme, § 756(c) provides that proof of 0.10 or more blood alcohol content is prima facie evidence that the driver is under the influence of alcohol. Thus, Oklahoma recognizes that when the average person consumes a relatively large amount of alcohol, the alcohol will influence his or her ability to drive. Again, some persons may be able to tolerate alcohol better than others and may find their driving faculties unimpaired even with a blood alcohol content of 0.10 or more. Therefore, it is possible for the driver to rebut the statutory prima facie evidence in favor of the government.

As for the intermediate level of blood alcohol content, more than 0.05 but less than 0.10, § 756(b) requires the government to prove either:

(1) that the driver’s ability to operate his or her vehicle was affected by alcohol to the extent that the public health and safety were threatened, or
(2) that the driver has violated a state statute or local ordinance in operating his or her vehicle.

Defendant has failed to persuade the Court that the first provision of § 756(b) requires proof of defendant’s actual operation of his vehicle. Such an interpretation would make the last provision of § 756(b) largely or totally redundant because there are few, if any, instances where a driver’s actual operation- of his vehicle threatens the public health and safety that does not also violate a state statute or local ordinance. The plain language of § 756(b) repeatedly refers to a person’s ability to operate his or her vehicle. Section 761(A) also refers to a person’s ability to drive.

In the absence of guidance from the state courts of Oklahoma, the Court holds that the phrase in § 756(b) which reads: “... additional evidence that such person’s ability to operate such vehicle was affected by alcohol to the extent that the public health and safety was threatened ...” means additional evidence that such person’s physical or mental abilities which he or she is expected to possess in order to operate a vehicle as a reasonable and prudent driver were affected by alcohol to the extent that the public health and safety were threatened. Oklahoma law is violated when impairment threatens public health and safety. The government need not stand idly by until after an impaired driver has caused personal injury or death or destroyed property.

While the evidence at trial was in sharp conflict, the more credible evidence is that defendant’s physical and mental abilities which he is expected to possess in order to operate his vehicle as a reasonable and prudent driver were affected by alcohol to the extent that the public health and safety were threatened. The government presented evidence that defendant’s reaction time, coordination, and balance were impaired by alcohol. Defendant also failed to pass various field sobriety tests. This evidence, coupled with the evidence that defendant’s blood alcohol level was between 0.07 and 0.08, satisfies the evidentiary requirements of § 756(b) and proves a violation of § 761(A).

In addition, while neither party focused on the last provision of § 756(b), (violation of a state statute or local ordinance in the operation of a motor vehicle), the particular facts of this case show defendant violated this provision as well. The Court has already found defendant guilty of transporting an open container, a violation of Okla. Stat. tit. 21 § 1220 (1981). This violation of Oklahoma law, coupled with the evidence that defendant’s blood alcohol content was between 0.07 and 0.08,/also satisfies the evidentiary requirements of § 756(b) and also proves a violation of § 761(A).

It is therefore ORDERED, ADJUDGED, and DECREED that defendant is GUILTY of transporting an open container in violation of Okla.Stat. tit. 21 § 1220 (1981) and GUILTY of driving while impaired in violation of Okla.Stat. tit. 47 § 761(A) (1981). The Court waives its right to order a presentence investigation report and sets defendant’s sentencing date for 8:30 a.m., on September 24, 1985.


author: SWEET, District Judge.

text:
    METRO KANE IMPORTS, LTD., Plaintiff, v. ROWOCO, INC., Defendant.
    No. 84 Civ. 6099(RWS).
    United States District Court, S.D. New York.
    Sept. 16, 1985.

      Kane, Dalsimer, Kane, Sullivan & Kurucz, New York City (John Kurucz and Ronald R. Santucci, New York City, of counsel), for plaintiff.
    McAulay, Fields, Fisher, Goldstein & Nissen, New York City (Lloyd McAulay and Terry S. Zisowitz, New York City, of counsel), for defendant.
   OPINION

SWEET, District Judge.

Plaintiff Metro Kane Imports (“MKI”) has moved for an injunction against defendant Rowoco, Inc. (“Rowoco”) pursuant to section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), New York General Business Law § 368-d, New York Common Law, and the “Mold Statutes” of California, Michigan and Tennessee, to bar Rowoco’s continued importation and sale of a hand-operated orange juice squeezer allegedly identical to that imported and sold by MKI. The motion is granted upon the record and papers of the consolidated June 24, 1985 hearing held pursuant to Fed.R. Civ.P. 65(a)(2) and the following findings and conclusions.

Prior Proceedings

MKI’s earlier motion for a preliminary injunction was denied in an opinion of October 2, 1984, 595 F.Supp. 702, which found, relying on LA. Fratelli Saporiti v. Charles Craig, Ltd.., 725 F.2d 18 (2d Cir.1984), (“Charles Craig"), that the aesthetic form of the orange juice squeezer was a functional element not entitled to protection. The October 2, 1984 opinion was vacated, and the case remanded for reconsideration in light of LeSportsac, Inc. v. K. Mart Corp., 754 F.2d 71 (2d Cir.1985). MKI has again sought an injunction pursuant to Fed.R.Civ.P. 65(a)(2), and a bench trial was held on June 24, 1985.

The facts of this case have been fully set forth in the court’s previous opinion. After a one-day trial, no additional material facts were presented.

Discussion

In deciding whether a permanent injunction should be entered, a court must first determine whether the plaintiff has succeeded on the merits of the claim asserted. If so, the court must determine whether a balancing of the equities involved favors the grant of injunctive relief. Sierra Club v. Alexander, 484 F.Supp. 455 (N.D.N.Y.1980), aff'd mem., 633 F.2d 206 (2d Cir.1980).

I. The Trade Infringement Claims

1. Lanham Act

Section 43(a) of the Lanham Act establishes a federal law of unfair competition by protecting the “trade dress” of a product as an unregistered trademark in certain situations. To acquire protection, the “total image of a product,” which may consist of “features such as size, shape, [or] color ...” John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 980 (11th Cir.1983), must be nonfunctional and have acquired secondary meaning. The design of a product itself may be protectible as trade dress. LeSportsac, supra, at 75; Warner Bros., Inc. v. Gay Toys, Inc., 658 F.2d 76 (2d Cir.1981) (“Warner”).

LeSportsac made clear that functionality is a defense that the defendant must establish. Id. at 76. In LeSportsac, the court attempted to clarify the “obvious tension” between Warner’s and Charles Craig’s definitions of functionality. The Charles Craig case, which formed the foundation of this court’s October 2 opinion, was not explicitly overruled by LeSportsac, but the formulation of “functionality” was substantially altered. The Second Circuit’s redefinition of functionality as expressed in LeSportsac stresses that a feature is functional if it “is essential to the use or purpose of the article or affects the cost or quality of the article.” Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 2187 n. 10, 72 L.Ed.2d 606 (1982). A design feature is essential only if it “is dictated by the functions to be performed; a feature that merely accommodates a useful function is not enough.” Warner Bros., Inc. v. Gay Toys, Inc. (Warner II), 724 F.2d 327, 331, quoted in LeSportsac, supra at 76. And a design feature “affecting the cost or quality of the article” is “one which permits the article to be manufactured at a lower cost ... or which constitutes an improvement in the operation of the goods.” Id. Rowoco has not met the burden of establishing functionality.

Finally, the Court in LeSportsac criticized one criterion of functionality relied upon in Charles Craig — that the feature be an “important ingredient in the commercial success of the product” or the “saleability of the goods” — as overinclusive and perverse in its effect of providing less protection to more attractive designs. While asserting that the specific result in Charles Craig was not inconsistent with the reasoning of Warner, because the feature protected in Charles Craig also constituted an “improvement in the operation of the goods,” the principle that an aesthetic design can be functional purely because of its aesthetic quality promotes sales was weakened, if not eliminated.

The Mighty OJ’s rack and pinion mechanism rests on aesthetic rather than functional considerations. The lever of the squeezer and the operating mechanism is common to many manual juicers which come in many shapes and forms, as demonstrated by the squeezers which were introduced in evidence. There was no evidence that the attractive high-tech design of the Mighty OJ was “dictated” by the function to be performed or that the MKI design permitted the juicer to be manufactured at a lower price or altered the performance of the product. Indeed, the fact that other models, not nearly as attractive, are labeled as “commercial” squeezers, designed for maximum output and durability, establish that the pragmatic concern of performance was not paramount in designing the Mighty OJ’s appearance. Indeed, MKI established that the placement of the Mighty OJ in the catalog of the Museum of Modern Art is a testament to its design quality.

Rowoco has attempted to break down the Mighty OJ design to prove that various elements, such as the shape of the handle or the distance between the legs, are functional. Yet this misconceives the nature of the injury, for MKI seeks protection for the combination and interaction of the various elements which might individually be functional. See LeSportsac at 76.

MKI is unable to succeed on its Lanham Act claim, however, because it has failed to demonstrate that secondary meaning exists. As explained in the court’s earlier opinion in this case, secondary meaning is established when the purchasing public associates a product’s trade dress with a single producer or source. Inwood Labs, supra, at 851 n. 11, 102 S.Ct. at 2187 n. 11. The only direct evidence of secondary meaning, and the most persuasive, would be a thorough consumer survey of the public’s response to MKI’s product design which indicated an association between the design and a particular producer. Such consumer surveys are entirely lacking in the evidence presented by MKI, thus depriving the trier of fact of this highly “desirable,” if not essential, evidentiary data. See LeSportsac, supra, at 78. In the absence of such direct evidence, it becomes necessary to infer secondary meaning from proof of sales efforts and success, amount and manner of advertising, length and manner of use of the design and recognition by third parties. See Saratoga Vichy Spring Co., Inc. v. Lehman, 491 F.Supp. 141, 150 (S.D.N.Y.1979), aff'd, 625 F.2d 1037 (2d Cir.1980). Such an inference is not to be easily established since as a general rule popularity, sales, and advertising expenditures demonstrate only an effort to establish secondary meaning, not success of that effort. Eli Lilly & Co. v. Revlon, Inc., 577 F.Supp. 477, 483 (S.D.N.Y.1983).

In LeSportsac, the Second Circuit found that a company’s proof of “phenomenal sales success, substantial advertising expenditures, unsolicited media coverage, requests for third parties to license the use of its design and [defendant’s] deliberate attempt to imitate its trade dress” was sufficient evidence to support a preliminary injunction without deciding whether such evidence would ultimately be persuasive. 754 F.2d at 78. MKI has presented far less convincing evidence of efforts to establish secondary meaning for its product. Indeed, under the prevailing standards for implying secondary meaning, it is difficult to imagine how any moderate-sized producer entering a market could expend the substantial resources necessary to uphold a finding of secondary meaning based on sales and advertising.

2. New York Law

In the court’s earlier opinion, MKI failed to prevail under New York law because the court concluded that MKI had not demonstrated a protectable interest in the design of the juicer. This conclusion was reached based on the court’s earlier interpretation of the functionality of the juicer’s esthetic design. In light of LeSportsac, the remand and the above discussion, it now appears that MKI does have a protectable property interest in the design. Therefore, it becomes necessary to examine the other elements of an unfair competition claim under New York law.

While the lack of secondary meaning defeats MKI’s Lanham Act claim, its unfair competition claim based on New York law does not require a showing of secondary meaning. Under New York law the focus of a trade dress infringement suit is “whether or not the public is likely to be confused, rather than with whether the first comers’ trade dress has acquired secondary meaning.” Perfect Fit Industries, Inc. v. Acme Quilting Co., 618 F.2d 950, 953 (2d Cir.1980).

Since secondary meaning is not a requirement under New York law, MKI need only establish a likelihood of confusion between the products. In this case, given the products’ identical appearance, confusion is almost a certain result. The testimony and affidavit of Riki Kane, president of MKI, recounting specific instances of confusion, although ancedotal, corroborates the conclusion that confusion has occurred and is likely to recur. Given the minimal efforts of Rowoco to label its product, Rowoco’s claim that its label eliminates the likelihood of confusion must be rejected. Moreover, Rowoeo’s admission of its intent to copy MKI’s product raises a presumption that Rowoco has created a confusingly similar product. Perfect Fit, supra, at 954. Since the orange juice squeezer is not a purchase for which consumers can be expected to exercise a great degree of care, all of the above factors clearly establish the likelihood of confusion.

II. Equitable Relief and Balance of Hardships

MKI’s survival depends upon sales of the Mighty OJ. Faced with a less expensive, infringing product, MKI’s sales have dropped radically, and MKI has lost important, high visibility markets. Mail catalogues and large department stores have opted to stock the Rowoco alternative, finding it both less expensive and part of an 1,800 product array of kitchenware (see Kane Affidavit). The impact of this market shift has been to eliminate MKI’s profits, and continued infringement is potentially devastating to MKI. Testimony corroborates that MKI will fail without injunctive relief. A remedy at law in this context is inadequate.

The effect of an injunction on Rowoco, however, will be much less severe. Rowoco sells 1,800 items, has annual sales of $8,000,000 and sells other, non-infringing juicers. The balance of hardships favors MKI, and granting an injunction is warranted.

III. Mold Statutes

MKI also brings an action based upon statutory provisions in California, Michigan, and Tennessee. These statutes, California Business and Professions Code § 17300 and 17301; Michigan Compiled Laws Annotated §§ 445.621-445.624; and Tennessee Code Annotated § 47-15-115, make it unlawful to duplicate through direct molding processes a manufactured item made by another without the permission of the initial producer. The Superior Court of California has granted an injunction based on its conclusion that the Rowoco juicer was made from a mold of the Mighty OJ. MKI has argued that the California decision precludes this court’s independent consideration of the merits of that claim. In keeping with the federal rule of res judicata, which is backed by the Full Faith and Credit Clause of the Constitution and 28 U.S.C. § 1738, the California decision necessarily binds the two parties in this action. See J. Moore, Moore’s Federal Practice, ¶ 10.406[1] (2d ed. 1984). With regard to the other two states, the evidence submitted, most importantly the September 12, 1984 deposition and the May 28, 1985 affidavit of Edward Arnao, provides ample support with respect to establishing violations of the mold statutes of Michigan and Tennessee.

Conclusion

MKI has proven the elements necessary to establish the claims brought pursuant to New York law and the Mold Statutes of California, Michigan, and Tennessee. The balance of equities and inadequacy of a remedy at law therefore entitle MKI to an injunction. The injunction will prohibit the continued importation of the Rowoco juicer, the filling of orders placed but not yet filled, and the continued advertising of the Rowoco Juicer in future printings of the Rowoco catalog. Rowoco may, however, fill any outstanding orders for the Rowoco juicer which derive either from existing catalogs or other advertising by purchasing MKI’s Mighty OJ.

IT IS SO ORDERED.