text:
    DENNY KLEPPER OIL COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY, Defendant.
    Civ. A. No. 84-0547.
    United States District Court, District of Columbia.
    Oct. 2, 1984.

      William H. Bode, John E. Varnum, Tobey B. Marzouk, Washington, D.C., for plaintiff.
    David A. Engels, Barry J. Sheingold, Dept, of Energy, Washington, D.C., for defendant.
   MEMORANDUM

GESELL, District Judge.

This is an action for judicial review of a decision by the Department of Energy to grant a partial refund to Denny Klepper Oil Company representing the amount it was overcharged by its gasoline supplier, Vickers Energy Corp. Klepper and the department disagree on how much money Klepper is owed. The parties have filed cross-motions for partial summary judgment, which have been fully briefed and argued.

I. The Refund Proceedings

The controversy begins with a consent order entered on May 11, 1979 between Vickers and the department’s Office of Enforcement. The order settled the department’s allegations that Vickers had overcharged its customers of refined petroleum products from August 19, 1973 through March 1979, in violation of price regulations promulgated under the Economic Stabilization Act of 1970, 12 U.S.C. § 1904 note, and the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. § 751 et seq. Without admitting any legal violation, Vickers agreed to roll back prices at its own service stations and to pay $2.85 million into an escrow fund to provide refunds to those who bought Vickers gasoline at other than Vickers’ own retail pumps, including companies like Klepper that bought gasoline wholesale from Vickers and resold it at their own service stations.

The consent order provided that the department’s Office of Hearings and Appeals (OHA) would administer distribution of the escrow fund, as provided under regulations for special refund procedures, 10 C.F.R. §§ 205.280-205.288. A subsequent petition filed by the Office of Enforcement with OHA included joint recommendations from Vickers and the Office of Enforcement as to how OHA should make the distribution. Among other things the petition recommended

that, to the maximum extent practicable and consistent with sound public policy, the total amount of the escrow fund, excluding the cost of administration, if any, shall be distributed among the purchasers which the Office of Hearings and Appeals finds to be eligible and which duly apply for a portion of such funds.

After soliciting and receiving comments from Klepper and others as to how the distribution should be made, OHA proposed and later finally adopted standards for its refund procedure. It decided to base a claimant’s refund on the claimant’s share of all the gasoline sold by Vickers (except through its own retail outlets) during the consent order period, rather than on the claimant’s share of all the claims made. That assured that unless claims were filed for all the non-retail gasoline Vickers sold during the 5V2-year period, money would be left over in the escrow fund after all claimants were paid. OHA proposed, but did not finally decide, to distribute such leftover money to public utilities in Vickers’ marketing region, which would then roll back their rates by a corresponding amount, so that Vickers’ ultimate consumers would be benefited. OHA reasoned that if it merely divided the money among actual claimants not accounting for all gasoline sold, each claimant’s share could be bigger than its actual injury. Moreover, it noted that the purpose of its special refund procedures for such cases, pursuant to 10 C.F.R., Part 205, Subpart V, was to provide restitution to as many injured customers as possible, thus making a two-step distribution, first to actual claimants and then to the utilities, more consistent than a distribution of all the money to the actual claimants.

OHA also decided that to get a refund, a claimant would have to show that (1) it bought Vickers gasoline from other than Vickers’ own service stations during the period covered by the consent order, and (2) if, like Klepper, it bought more than an average of 50,000 gallons a month, it “did not pass through the price increases to its own customers.”

In order for companies to show that they had not passed on the price increases, OHA required submission of “data showing the applicant’s unrecouped increased product costs (bank) for each calendar quarter for which the firm claims a refund.”

Klepper accordingly submitted data on its bank indicating that throughout the consent order period, the bank was increasing. That showed that Klepper was “banking” at least some of its increased product costs during that time. But it did not necessarily show that Klepper was absorbing Vickers’ illegal price increases, because other increased product costs during the same time could have accounted for some or all of the increased bank.

In May 1982, OHA sent letters asking for additional data from Klepper and other resellers of Vickers gasoline to “help us to decide the extent to which you absorbed the price increases____” The letter gave each claimant two options. Method A, which OHA said it preferred, required data on month-by-month prices by Vickers to the companies and corresponding data on the companies’ prices to their own customers, along with the number of gallons bought and sold at each price. Method B, which OHA said should be used only if Method A data was not available, required monthly or quarterly figures on gross profits on sales of Vickers gasoline during the period, along with volume sold.

Klepper elected Method B, as its counsel explained in a cover letter to OHA, “because of the limitations of the firm’s records and accounting system.” In June 1982, it provided monthly figures for gross profit, gallons sold, and margin (profit per gallon).

In November 1982, OHA made a telephone request for additional data on “purchase or selling prices.” Klepper complied by estimating its “weighted average cost of product” per gallon.

On June 16, 1983, OHA issued its decision. It found that Klepper had purchased 99,321,001 gallons of Vickers gasoline during the consent order period and that its banks of unrecovered increased product costs “were sufficient to cover the refund applied for in all quarters of the consent order period.” However, it found that Klepper had passed on to its customers 30 of the 34 Vickers price increases during the period. It therefore determined that Klepper was entitled to a refund on only 29,-711,120 gallons.

Although Klepper had elected Method B, providing gross profit data, OHA reached its passthrough determination using Method A, the pricing method. For Vickers’ prices, OHA used Klepper’s submitted figures on its monthly costs. OHA then came up with its own estimates of Klepper’s prices to its customers by adding together Klepper’s estimate of its weighted cost per gallon with Klepper’s estimate of its profit margin per gallon for the same month.

Having reached the 29 million gallon figure using Method A, OHA then employed Method B to determine if Klepper should receive extra refunds for months when it had low profit margins. OHA explained that

Generally, if a firm’s profit margin declined substantially during a given period relative to its historical level, we would consider that decline to be evidence of injury to the firm resulting from Vickers’ pricing practices. Decreases in profit margin were also considered in conjunction with changes in sales volume level, and an additional refund would be approved for months in which both profit margin and volume fell significantly below their historical levels.

OHA determined that Klepper’s historic profit margin was 8 cents a gallon. It determined that there were some months in which Klepper’s profit margin was consistently below that average but because there were no significant decreases in volume in the same months, it attributed the low profit margins in those months to “seasonal marketing trends,” not Vickers’ unlawful prices. It gave no extra refund for these months.

Finally, OHA determined the dollar amount of Klepper's refund by multiplying the eligible gallonage, 29,711,120, times a refund amount per gallon. That figure, $.001783, was determined by dividing the total escrow fund by the total number of gallons Vickers sold during the consent order period. It ordered a refund of $52,-975 plus Klepper’s share of interest in the escrow account.

II. Discussion

On this motion for partial summary judgment, Klepper raises three issues. First, it contends as a matter of law that it could not be required to show that it did not pass on the overcharges to qualify for a refund. Second, it asserts that its refund per gallon should be calculated not on how many gallons Vickers sold during the consent period but on the gallons for which refund applications were made. Third, it contends that it made the required showing of no pass-on by demonstrating that its banks of unrecovered increased costs were greater than Vickers’ overcharges during the period. The Department of Energy supports its position already taken contrary to each of these contentions.

A. The Requirement of Injury

The Department of Energy has broad, though not unfettered, discretion in fashioning remedies for overcharges. See, e.g., Sauder v. Dep’t of Energy, 648 F.2d 1341, 1348-49 (Temp.Emer.Ct.App.1981); S.O.S. Gasoline Enterprises, Inc. v. Dep’t of Energy, 4 Energy Mgmt. (CCH) 1126,321 at 28,459-28,460 (D.D.C.1981). Klepper correctly notes that the purpose of restitution is to refund overcharges to those hurt by them. But it does not follow that the Department is thereby limited to distributing all the escrow funds to direct purchasers of Vickers gasoline, without any showing that those purchasers were in fact injured. The two-part proceeding established by the Department in this case was an entirely proper way of trying to funnel refunds as much as possible to those actually injured by the overcharges, and it was well within the agency's authority. Klepper’s chief authority for its contrary position, Citronelle-Mobile Gathering, Inc. v. Edwards, 669 F.2d 717 (Temp.Emer.Ct. App.), cert. denied, 459 U.S. 877, 103 S.Ct. 172, 74 L.Ed.2d 141 (1982), provides Klepper no support. The case holds only that the Department has a duty to seek out and provide refunds to those actually injured. See id. at 723.

Klepper also contends that the consent order between Vickers and the Department binds the agency to distribute all the funds to Vickers’ direct purchasers, and thus the agency may not require those purchasers to show injury. This is not so. The consent order by its terms provided that Vickers and the Department’s Office of Enforcement would recommend to the Office of Hearings and Appeals that all the money be so distributed. This recommendation did not bind OHA. Accordingly, the Court cannot overturn the Department’s requirement of a demonstration of actual injury.

B. The Volumetric Distribution

Klepper uses the same language from the consent order, recommending distribution of all the escrow funds to eligible applicants, to support the contention that OHA erred in determining the share each applicant was to receive from the funds. Klepper contends that its refund should be based on the share of its total purchases to the total purchases of all actual applicants. OHA based the refund on an applicant’s share of the total volume of gasoline that Vickers sold with overcharges. Under OHA’s method, it is apparent that 100 percent of the funds would be distributed to actual applicants only if everyone who bought gasoline from Vickers during the consent order period applied. OHA eventually received applications covering only about two-thirds of the total volume.

The consent order’s joint recommendation was conditioned on OHA’s agreeing that distribution of the entire funds to actual applicants was “consistent with sound public policy.” While OHA did not formally reach a final determination that such distribution was inconsistent with public policy, in its proposed and final decisions on the refund procedure it clearly indicated that it believed such a distribution might provide inappropriate windfalls to the applicants at the expense of injured parties who did not apply. This was a reasonable conclusion, and OHA’s failure to formalize its public policy determination in so many weeks is at worst a minor defect too trivial to disturb. The volumetric method chosen by OHA is fair to all purchasers and has been used in other cases. See, e.g., Amtel, Inc., 6 Energy Mgmt. (CCH) ¶ 90,055 at 90,094 (proposed order) (1984). Since there is an obvious rational basis for the decision, it will not be overturned.

C. The Demonstration of Injury

As found above, OHA has clear authority to require a demonstration that Klepper and other applicants did not pass on the price increases to their customers. While the consent order suggested no particular way for claimants to make this showing, leaving OHA free to establish its own procedures, a troublesome question remains of whether OHA acted arbitrarily in determining that Klepper did pass on approximately 70 percent of the overcharges. The Court believes OHA did act arbitrarily, though for somewhat different reasons than those advanced by Klepper.

Klepper contends that its showing that it had unrecovered increased product costs, or banks, during the consent order period is sufficient to show that it did not pass on the overcharges. While it is true that OHA initially required only such data, it is clear that the existence of banks is necessary but not sufficient to a showing that there was no pass-through. The absence of banks would indicate that a company passed on all of its increased costs to its customers. But the presence of banks indicates only that a company absorbed some, but not necessarily all, of the cost increases it experienced. Moreover, because cost increases could be mixtures of legal and illegal price hikes, a company could show steadily increasing banks from its absorption of the legal cost increases while at the same time the illegal increases where being passed on to customers.

While it was thus proper for OHA to seek additional data from Klepper to show its injury, OHA subsequently followed a less than rational procedure that unfairly prejudiced Klepper’s application.

OHA’s written request for additional data in the form of pricing (Method A) or of profit data (Method B) expressly allowed companies like Klepper to make their showing solely on profit data if pricing data was unavailable. Klepper so elected. OHA then, by oral request, sought and obtained other data from Klepper that it then pieced together into its own estimates of pricing data. Thus OHA in effect conducted a Method A analysis and used Klepper’s Method B data only as a supplement to determine whether additional refunds should be granted after those determined by Method A. Once the Department had decided that either Method A or Method B would be sufficient by itself, it was unfair and arbitrary for it to change its mind with no notice. An elementary requirement of administrative law is that an agency is bound by its own rules, see, e.g., Pfizer, Inc. v. Heckler, 735 F.2d 1502, 1507 (D.C.Cir.1984); Teleprompter Cable Communications Corp. v. F.C.C., 565 F.2d 736, 742 (D.C.Cir.1977); Service v. Dulles, 354 U.S. 363, 372, 77 S.Ct. 1152, 1157, 1 L.Ed.2d 1403 (1957). Even though an agency has broad discretion in fashioning rules, see Vermont Yankee Nuclear Power Corp. v. N.R.D.C., 435 U.S. 519, 543, 98 S.Ct. 1197, 1211, 55 L.Ed.2d 460 (1978), and in interpreting rules once fashioned, see Dana Corp v. I.C.C., 703 F.2d 1297, 1300 (D.C.Cir.1983), once it has announced procedures, even informally as here, it must abide by them.

It is also apparent that OHA used the Method B analysis for a different purpose than it had announced. Its written request said the data would be used to determine the extent to which the applicant absorbed Vickers’ price increases. A lower profit per gallon margin, in the absence of a much greater volume of sales indicating the company is making up in volume what it is losing in unit price, is evidence that a company absorbed the price increases. Instead of using this data as a primary indication of price pass-on, OHA used it only for the narrow purpose of determining whether there were months with a combination of low volume sales and low profit margins indicating additional injury to Klepper above and beyond the injury from absorbing price increases.

This departure from procedures described in Method B which Klepper accepted and relied on to support its refund claim requires that the partial refund must be set aside. Confusion remains as to how the historical profit margin is determined pursuant to Method B. This must be resolved when a proper refund in accordance with that method is calculated.

The motion of defendant requesting remand for a limited purpose relating to the historical profit aspect of the case is clearly moot inasmuch as defendant’s failure to base the refund to plaintiff solely in accordance with Method B necessitates reversal of its order and a further computation in any event.

      . The summary judgment motions reserve one issue requiring factual development, concerning the agency's calculation of Klepper's historic profit margin. The agency has moved for a remand to the Office of Hearings and Appeals on this issue, and Klepper has not opposed.

      . After a period for notice and comment, the order was adopted as a final consent order on Aug. 20, 1979. See 44 Fed.Reg. 48,751.

      . OHA’s proposed Decision and Order with regard to the Vickers refund was issued on February 27, 1981. See 46 Fed.Reg. 15,320 (March 5, 1981). The final Decision and Order, incorporating the proposals made in the proposed order, was issued on July 17, 1981. See Office of Enforcement (Vickers), 8 DOE (CCH) ¶[ 82,597 (1981).

      . It reached no final decision on this distribution of leftover funds pending completion of the initial distribution to claimants, reasoning that the amount left over would determine whether a distribution to utilities or a return of the money to the U.S. Treasury would be more efficient.

      . These “banks” are an accounting device whereby oil companies kept track of increases they were lawfully entitled to make on prices to their customers due to increase in their own costs, but which they did not in fact make. These foregone price increases accumulated in a company’s bank until such time as the company decided to draw down on the bank by actually increasing prices.

      . Klepper also submitted required data on its monthly gallon totals of purchases from Vickers. That data showed Klepper had bought approximately 100 million gallons of gasoline from Vickers during the relevant period.

      . This estimate was derived by dividing the total cost of Klepper’s purchases for a month by the volume of its sales that month. Klepper did not have available figures on its volume of purchases each month. Klepper also provided the price Vickers charged it for each grade of gasoline each month, known as the "rack price,” but those prices did not include tax or transportation costs.

       In the case of price reductions by Vickers, Klepper was found to have reduced its selling price by more than Vickers' reduction in 11 of 31 occurrences.

      . OHA disregarded the "rack price” data submitted by Klepper.

      . It did not explain how it derived this figure.

      . Klepper argued that windfalls would not result from its method because the total amount placed in escrow by Vickers was a compromise settlement well below the actual overcharges suffered by the purchasers. OHA itself acknowledged this. See Vickers Energy Corp./Unruh's, Inc., 10 DOE ¶ 85,006 at 88,020 (1982). Klepper's point is largely irrelevant. The purpose of the escrow distribution is to distribute funds equitably among those deserving. Even if an applicant did not receive a windfall — and the settlement of course precluded any accurate determination of the actual overcharges — its refund under Klepper’s method still would be at the expense of injured non-applicants.

      . The consent order, and the subsequent petition filed with OHA containing the joint recommendations of Vickers and the Office of Enforcement, recommended only that "to the maximum extent practicable and consistent with sound public policy, the total amount of the escrow fund ... shall be distributed among the purchasers which the OHA finds to be eligible and which duly apply____”

      . There is no indication in the record that OHA gave Klepper any indication in its oral request for the additional data why it sought the data. Klepper had no reason to know that OHA would use its separate submissions of estimated cost and profit data to estimate pricing data.

      . OHA used this two-step process of making a primary determination through pricing data and a supplemental one with profit data in other claims in the Vickers proceeding. The important distinction was that in those cases, it received actual data on the applicants' acquisition costs and selling prices and did not rely on its own estimates. See Vickers Energy Corp./Unruh’s, Inc., 10 DOE ¶ 85,006 at 88,019 (1982).


source: Caselaw Access Project

author: WISEMAN, Chief Judge.

license: Public Domain

text:
    James C. SANFORD, et ux., Plaintiffs, v. The CELOTEX CORP., et al., Defendants.
    No. 3-84-0698.
    United States District Court, M.D. Tennessee, Nashville Division.
    Oct. 3, 1984.
    H. Douglas Nichol, Gillenwater, Nichol & Ames, Knoxville, Tenn., for plaintiffs.
    Maclin P. Davis, Jr., William L. Brooks, George E. Copple, Jr., Waller, Lansden, Dortch & Davis, Nashville, Tenn., for National Gypsum.
    G.W. Morton, Jr., Morton, Lewis, King & Krieg, Knoxville, Tenn., for Combustion Engineering.
    William A. Young, Taylor & Groover, Knoxville, Tenn., for Fibreboard Corp.
    Carter J. Lynch, Witt, Gaither & Whitaker, Chattanooga, Tenn., for GAF Corp.
    Debra L. Fulton, Key, Lee & Layman, Knoxville, Tenn., for Flintkote Co.
    Darryl G. Lowe, Kennerly, Montgomery & Finley, Knoxville, Tenn., for U.S. Gypsum.
    James M. Doran, Jr., Mark J. Patterson, Manier, White, Herod, Hollabaugh & Smith, Nashville, Tenn., for Standard Asbestos.
    Trabue, Sturdivant & DeWitt, Gayle Malone, Jr., Charles C. Trabue, III, Nashville, Tenn., for Pittsburgh Corning.
    George B. McGugin, William P. Sutherland, Watkins, McGugin, McNeilly & Rowan, Nashville, Tenn., for Celotex.
    Louis C. Woolf, Robert G. McDowell, J. Randolph Bibb, Jr., Baker, Worthington, Crossley, Stansberry & Woolf, Nashville, Tenn., for Owen-Illinois.
    Douglas Fisher, Howell, Fisher, Bran-ham & North, Nashville, Tenn., for Owens-Corning Fiberglas Corp.
    Patti Jane Lay Fisher, Kennerly, Montgomery & Finley, Knoxville, Tenn., for Empire Ace.
    William F. Alley, Jr., Julia S. Howard, Robert R. Campbell, Hodges, Doughty & Carson, Knoxville, Tenn., for Forty-Eight Insulation, Eagle-Picher, Armstrong World and Keene.
    Donald F. Paine, Dwight E. Tarwater, Gwendolyn K. Rogers, Egerton, McAfee, Armistead & Davis, Knoxville, Tenn., for Raymark.

      Stephen C. Daves, O’Neil, Parker & Williamson, Knoxville, Tenn., for Atlas Asbestos.
    Martin L. Ellis, Butler, Vines, Babb & Threadgill, Knoxville, Tenn., for Rock Wool Manufacturing.
   MEMORANDUM

WISEMAN, Chief Judge.

This memorandum addresses defendants’ motion in limine seeking dismissal of plaintiffs’ claim for punitive damages set forth in the complaint. Defendants contend that punitive damages are inappropriate in strict products liability asbestos litigation such as the action before this Court. For the reasons stated below, this Court agrees with defendants’ contention, and their motion is granted.

Tennessee law governs the substance of this diversity action. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). The Tennessee courts have not addressed directly the specific question presented by defendants in this motion. They have, however, articulated the purposes of punitive damages and provided some guidance for determining when such damages may be appropriate.

In Inland Container Corp. v. March, 529 S.W.2d 43 (Tenn.1975), the Tennessee Supreme Court set forth the “essential ingredients” of a proper case for punitive damages:

Punitive damages ... are awarded in cases involving fraud, gross negligence or oppression, ... or where a wrongful act is done with a bad motive or so recklessly as to imply a disregard of social obligations, ... or where there is such willful misconduct or entire want of care as to raise a presumption of conscious indifference to consequences.

Id. at 44-45 (citations omitted). Accord Restatement (Second) of Torts § 908(2) & comment b (1979) (“conduct involving some element of outrage similar to that usually found in crime”). Punitive damages are not based so much upon the nature and extent of the injury as upon the oppression and punishment of the party who does the injury. Lazenby v. Universal Underwriters Ins. Co., 214 Tenn. 639, 383 S.W.2d 1, 4 (1964) .

Plaintiffs’ cause of action here is grounded solely in strict tort liability. The purpose of imposing strict liability in certain cases is to assess liability without fault; the focus is on the defendants’ product, not on the defendants’ conduct. See Ford Motor Co. v. Eads, 224 Tenn. 473, 457 S.W.2d 28, 30 (1970); Wyatt v. Winnebago Industries, Inc., 566 S.W.2d 276, 279 (Tenn.App.1977), cert. denied (Tenn.1978); Restatement (Second) of Torts § 402A (1965) .

Several of our Circuit Courts of Appeals have addressed the specific question whether punitive damages are proper in asbestos litigation and have reached different conclusions based on the state law applied. In Moran v. Johns-Mansville Sales Corp., 691 F.2d 811 (6th Cir.1982), the Sixth Circuit, applying Ohio law, held that punitive damages are permissible in a strict liability asbestos lawsuit upon sufficient evidence of “actual malice.” The court rejected defendant’s argument that awarding punitive damages would not serve the goals of punishment and deterrence. Under Ohio law, deterrence through punitive damages is intended to be general, not specific. Id. at 816. Under Tennessee law, however, punitive damages are based upon the oppression and punishment of the party who does the injury, or upon specific deterrence. See Lazenby v. Universal Underwriters Ins. Co., 214 Tenn. 639, 383 S.W.2d 1, 4 (1964). Defendants’ repeated exposure through each successive strict liability asbestos lawsuit not only to compensatory damages but to substantial punitive damages awards as well would not further the deterrent purpose of punitive damages under Tennessee law.

In Hansen v. Johns-Mansville Products Corp., 734 F.2d 1036 (5th Cir.1984), the Fifth Circuit, applying Texas law, rejected defendant’s contention that an award of punitive damages in a wrongful death asbestos lawsuit based on both strict liability and negligence grounds was improper. In that case, however, the court emphasized that a Texas court had indicated in dictum that the Texas Constitution may guarantee the availability of punitive damages in a strict products liability case. Id. at 1041- ■ 42. Absent other indications of how the Texas courts would decide the question, the Fifth Circuit was “AWe-bound” to allow punitive damages.

The Hansen panel thus was unable to follow Jackson v. Johns-Mansville, 727 F.2d 506 (5th Cir.1984), in which the Fifth Circuit, applying Mississippi law, held that the trial court erred in allowing punitive damages in a section 402A strict liability asbestos case. The court concluded that Mississippi law would disallow punitive damages in the “extraordinary circumstances” of strict products liability asbestos litigation.

At the point where awards of punitive damages destroy the viability of the enterprises necessary to accomplish loss distribution, the remedy of punitive damages becomes incompatible with the strict liability cause of action.
[I]n the virtually limitless damage milieu of asbestos litigation, punitive damages carry such a portent of overkill as to threaten future claimants rather than the enterprise with the burden of punishment awards to early victims. The general societal objectives of punishment— retribution and reformation — are adequately met in such a situation by the prospects of open-ended strict-liability compensation [and the] anticipation of multiple litigation for compensation damages ____

Id. at 526. See also Roginsky v. Richardson-Merrell, 378 F.2d 832, 838-41 (2d Cir. 1967) (opinion of Friendly, J.).

Punitive damages are not appropriate in the instant litigation. First, in Tennessee the purpose of punitive damages is primarily to deter a specific wrongdoer from future misconduct. Allowing punitive damages in a case pending as one of a vast number of similar actions in our courts would not further this objective, given the potential and actual exposure to millions of dollars in compensatory damages. Second, in Tennessee, as elsewhere, the focus of a section 402A strict products liability action is on the defendant’s product, not its conduct. Punitive damages, which may be awarded only where the defendant’s conduct is fraudulent, reckless, or otherwise outrageous, are inconsistent with a theory of liability without fault. Last, the unique nature of asbestos litigation necessitates care not to exhaust in a limited number of large punitive damage awards funds needed for possible compensatory awards in multiple asbestos lawsuits.

Accordingly, defendants’ motion in limine seeking dismissal of plaintiffs’ claim for punitive damages is granted.


author: ROGERS, District Judge.

text:
    Ted J. OTSUKI, Plaintiff, v. UNITED STATES PAROLE COMMISSION, Defendant.
    No. 84-3220.
    United States District Court, D. Kansas.
    Oct. 25, 1984.

      Ted J. Otsuki, pro se.
    Benjamin L. Burgess, U.S. Atty., Wichita, Kan., for defendant.
   ORDER

ROGERS, District Judge.

Ted Otsuki, an inmate of the United States Penitentiary, Leavenworth, Kansas, having been granted leave to proceed in forma pauperis, has filed with the Clerk of the Court this “petition for relief from agency action” under the Administrative Procedure Act, 5 U.S.C. § 701, et seq. This case presents the legal issue of whether or not the United States Parole Commission may grant a partial “Superior Achievement Award” (SPA) rather than the maximum allowable under its guidelines on the basis of the severity of the applicant’s offense. Accepting petitioner’s factual allegations as true, that he is eligible for a full SPA award but was granted only a partial award based on circumstances of his offense, the Court makes the following findings and Order.

The regulation governing SPA awards, 28 C.F.R. § 2.60, does not mandate the result asserted by petitioner. This regulation specifically sets maximum awards only and expressly permits partial awards. It does not delineate certain conditions as requiring either the partial or the maximum award. To the contrary, the matter of granting any award at all is left entirely to the discretion of the Commission. It follows that the regulation has not been violated and that petitioner has not been denied due process by the Commission’s decision to grant only a partial award. Furthermore, 28 C.F.R. § 2.24(b)(2) permits a Regional Commissioner to modify a recommendation of a hearing examiner panel by six months. The recommendation made to grant petitioner an SPA of fourteen months was modified by the Commissioner to eight months.

The statutes governing parole contain no provisions which would require a contrary result. Instead, the pertinent statutes expressly commit the decisions to grant or deny a parole application and to modify an order paroling any eligible prisoner to agency discretion for purposes of section 701(a)(2) of the Administrative Procedure Act, 18 U.S.C. § 4218(d). Petitioner asserts jurisdiction only under the Act. Chapter seven of the APA governs judicial review under the Act. Section 701(a)(2) provides that the Chapter does not apply to agency action which is committed to agency discretion by law. As we have noted, the agency action which petitioner seeks to have reviewed herein is committed to agency discretion by statute. It follows that petitioner has no right under the Act to judicial review of the agency’s discretionary parole decision.

Furthermore, the decision in petitioner’s case is not shown to be arbitrary or capricious or a violation of the equal protection clause. The basis on which petitioner was denied the maximum SPA award is not irrational and does not amount to a constitutionally suspect classification. The regulations governing parole decisions in general require the Commission to consider the circumstances of the offense in determining when parole release should be granted. There is no reason to hold that this factor cannot be considered during this particular facet of the parole determination process. Moreover, the United States Supreme Court has described the Commission’s decision to grant or deny parole as an essentially predictive judgment. Whether the Commission is setting a presumptive parole date or ruling on a recommendation for a SPA award, its ultimate responsibility remains to determine whether the applicant is a good candidate for parole. It cannot be held that the ground relied upon in this case was arbitrary or capricious for the Commission’s purpose.

The Court concludes that petitioner is entitled to no relief.

IT IS THEREFORE ORDERED that this action be dismissed and all relief denied.


author: EDWARD B. DAVIS, District Judge.

text:
    UNITED STATES of America, Plaintiff v. Juan GARCIA and Rene Cuesta-Acosta, Defendants.
    No. 84-329 CR EBD.
    United States District Court, S.D. Florida.
    Oct. 26, 1984.

      Steven Golembe, Miami, Fla., for Juan Garcia.
    Randolph Q. Ferguson, Miami, Fla., for Rene Cuesta-Acosta.
    David A. Doheny, Miami, Fla., for the United States.
   ORDER GRANTING MOTION TO SUPPRESS AS TO JUAN GARCIA AND DENYING IT AS TO RENE CUESTAACOSTA

EDWARD B. DAVIS, District Judge.

THIS MATTER is before the court upon motion of defendants, Juan Garcia and Rene Cuesta-Acosta, to suppress evidence seized by United States Customs Patrol Officers from a boat off the coast of Florida. The court GRANTS the motion to suppress as to the captain of the vessel, Juan Garcia, but finds no standing and DENIES the motion as to the crew member, Rene Cuesta-Acosta.

FACTS

The following facts are based upon what the court believes to be the credible testimony of the Government’s only witness, United States Customs Patrol Officer Dale Kestler.

On May 8, 1984, officers aboard an unmarked United States Customs Patrol boat spotted a small fishing or pleasure vessel coming northwest toward them from south of Cape Florida into Biscayne Bay. After the vessel passed, they decided to follow it. They noticed heavy salt spray on the vessel and they pulled alongside and asked the defendants where they were coming from and whether they had any weapons. Defendant Garcia replied that they were fishing and had no weapons.

Three officers boarded the vessel for a documentation and safety check. Defend-ant Garcia, who was operating the vessel, produced proper documentation from his wallet. In the meantime, two of the officers began a “preliminary search.” Their suspicions were aroused by the following factors. There were no rods, reels or bait on the boat — just a few hand fishing lines. A look in the ice chest revealed frozen, not fresh fish. There was enough food and clothing aboard for an outing of several days. They found small, infrared lights which might have been used to vector planes in. Defendant Garcia had heavy salt spray on his glasses, and defendant Cuesta-Acosta was shaking nervously.

The officers proceeded to search the vessel for half an hour. One further item aroused their suspicion. There was a three-inch diameter hole cut in the main cabin floor covered with a filler cap. Removal of the cap revealed sawdust, but the crevice was otherwise empty. Officer Kestler testified that he did not know what the hole was used for, but that its purpose might have been to fill fuel or water tanks.

Having found no contraband after a half-hour search, the officers still felt suspicious and decided to bring the vessel into a customs dock at Miami, two miles away. There they went over what they had searched before more carefully, still finding nothing. Before letting the boat go, they decided to check behind the refrigerator, a common place to hide contraband. New shiny screws came out easily and removal of the refrigerator revealed an opening in which marijuana was concealed. Further searching uncovered a total of 199 pounds of marijuana. Defendants were charged with conspiracy to violate and violation of 21 U.S.C. § 955a(a), possession with intent to distribute a controlled substance.

Before proceeding to discuss the legal implications of the foregoing event, it is necessary to take note of an additional aspect of Officer Kestler’s testimony. When first sighted, the suspect vessel was heading west toward land but was not outside United States coastal waters. Officer Kestler testified that when they first saw the vessel, they had no reason to believe that the vessel came from “outside”, and that it was “just a hunch” that caused them to follow it. He said that the heavy salt spray might have meant it came from the outside, but it might not have. The westward direction might have meant it came from outside, but it was entirely consistent with a trip up from Key Largo. Furthermore, the search revealed no evidence of any connection with outside of the United States. He said that while he was not positive that the vessel came from “outside”, he found that to be irrelevant. The officers stopped the boat for a documentation and safety check.

OPINION

I. The Search Was Not Valid as a Border Search

That this was a documentation and safety check and not a search incident to a border crossing is the first important step in the Court’s analysis. When the United States border is crossed, the power of customs officials to search is plenary. United, States v. Ramsey, 431 U.S. 606, 97 S.Ct. 1972, 52 L.Ed.2d 617 (1977). In the maritime context, this has been held to mean that any crossing from international waters into the contiguous zone (an imaginary line 12 miles from the United States shore) gives customs officials border search authority. United States v. Hidalgo-Gato, 703 F.2d 1267 (11th Cir.1983). To invoke this border search authority, there must be some degree of probability that a border crossing has been made. United States v. Whitmire, 595 F.2d 1303, 1307 (5th Cir.1979). While it has been established that customs officials need not actually observe the vessel as it crosses the imaginary line, the exact degree of probability required is not clearly established. Id. at 1307 n. 2 (discussion and citations). There must at least be some articulable facts from which it is reasonable to infer that there was a recent border crossing. Id.; see also United States v. Acosta, 489 F.Supp. 61, 63-4 (S.D.Fla.1980); United States v. Helms, 703 F.2d 759, 763-4 (4th Cir.1983); United States v. Laughman, 618 F.2d 1067, 1072 n. 2 (4th Cir.1980).

The court concludes that in the instant ease it was not reasonable to infer that there had been a recent border crossing. The only evidence of a border crossing was the heavy salt spray and westward direction of the vessel. Officer Kestler candidly testified that while this could indicate a border crossing, because the immediate area was calm, it was entirely possible that the vessel had come from a point south, within United States waters. He had no reason to believe that the vessel had come from “outside”. Indeed, Officer Kestler felt that was irrelevant, and asserted that they approached for a documentation check, just on a “hunch”. In addition, an extensive search revealed no additional evidence of a border crossing. The court finds that Officer Kestler did not believe, nor was it reasonable to infer, that a border crossing had been made. Thus, plenary border crossing authority to search is absent.

II. The Captain, Juan Garcia, Has Standing to Object to the Search; The Crew Member, Rene Cuesta-Acosta, Does Not.

In order to object to the introduction of evidence which is the product of an illegal search, a defendant must have some legitimate expectation of privacy in the area searched. Rakas v. Illinois, 439 U.S. 128, 99 S.Ct. 421, 58 L.Ed.2d 387 (1978). This legitimate expectation of privacy in the premises may be shown through ownership, leasing, or unrestricted right of occupancy or custody or control. United States v. Bachner, 706 F.2d 1121 (11th Cir.1983). The court finds that Juan Garcia was the captain of the vessel, because he was controlling the boat, he communicated with the officers, and he produced proper documentation. Though he was not the owner, he did have an unrestricted right of custody or control, and thus had a legitimate expectation of privacy. See also United States v. Hernandez, 668 F.2d 824 (5th Cir.1982) (“lawful possession”).

It is true that no legitimate expectation of privacy exists in public areas of the boat and those areas which customs officials may visit as part of a routine document and safety inspection. United States v. Williams, 617 F.2d 1063, 1086 (5th Cir.1980). However, the area behind a refrigerator which is screwed in to the wall is not within plain view, and thus is not to be summarily removed from the ambit of Fourth Amendment protection. See United States v. Whitaker, 592 F.2d 826, 830 (5th Cir.1979) (a legitimate expectation of privacy may attach to a locked compartment on the bridge). The court finds standing for the captain to assert the substantive Fourth Amendment claim. See infra.

Rene Cuesta-Acosta, however, was merely a crew member. He had no right to custody or control. There are areas of a boat in which a crew member might have a legitimate expectation of privacy, such as a locked footlocker or private living quarters, Id; United States v. DeWeese, 632 F.2d 1267, 1271 (5th Cir.1980), but a mere crew member has no privacy interest in other areas of the boat. United States v. Williams, 617 F.2d 1063, 1084 (5th Cir.1980). The court denies Cuesta-Acosta standing to challenge the search.

III. The Officers Acted Properly in Boarding and Inspecting the Vessel; However, Once Aboard, Their Suspicions Failed to Ripen Into Probable Cause and an Extended Search was Therefore Unreasonable Under the Fourth Amendment.

Customs officers have authority to stop and board vessels under two separate doctrines. First, officers may perform a limited investigatory stop if they have a reasonable suspicion of customs violations. 19 U.S.C. § 1581(a); United States v. Herrera, 711 F.2d 1546 (11th Cir.1983). Second, customs officers may board for a documentation and safety check absent any suspicion at all. 19 U.S.C. § 1581(a); United States v. Villamonte-Marquez, 462 U.S. 579, 103 S.Ct. 2573, 77 L.Ed.2d 22 (1983). In addition, the Supreme Court refused to preclude the use of document and safety check authority simply because the officers may have suspected illegal activity. Id. 103 S.Ct. at 2577 n. 3; Herrera at 1554 n. 13. Thus, in the instant case the court finds the initial boarding by the officers to be entirely reasonable under the Fourth Amendment as interpreted by the courts.

However, the key element in approval of investigatory or document and safety check stops in the cases that have approved them is that they are limited. Justice Rehnquist, speaking for the Supreme Court in Villamonte-Marquez, pointed out that documentation and safety checks were reasonable within the meaning of the Fourth Amendment because they “involve only a brief detention where officials come on board, visit public areas of the vessel, and inspect documents. ‘Neither the [vessel] nor its occupants are searched, and visual inspection of the [vessel] is limited to what can be seen without a search.’ ” 103 S.Ct. at 2581 (citations omitted). The Eleventh Circuit pointed out in Herrera that the reasonable suspicion required for an investigatory stop “must not be confused” with the standard governing a full search. 711 F.2d at 1554.

Once properly aboard a vessel, officers are given a considerable opportunity to detect illegal activity. They may visit public areas of the boat and observe anything in plain view. They may enter the hold to check the main-beam identification number, and again may observe anything in plain view. United States v. Odom, 526 F.2d 339 (5th Cir.1976). If the door to the main hold is locked, they may properly break it open. United States v. Thompson, 710 F.2d 1500 (11th Cir.1983). Further, if a cabin is used for multiple purposes, the fact that one of its uses is private, i.e. it serves as living quarters, does not shield it from the legitimate scope of a safety inspection. Id. at 1506-7.

As can be seen from the foregoing discussion, the case law has evolved to give law enforcement officers a considerable degree of leeway in inspecting vessels at sea. The case law has, however, placed a distinct limit upon the scope of these inspections. Once properly aboard a vessel, officers cannot conduct an exhaustive search unless by the time their limited inspection is complete their suspicions have ripened into probable cause. United States v. Andreu, 715 F.2d 1497, 1500 (11th Cir.1983); United States v. Herrera, 711 F.2d 1546, 1556 (11th Cir.1983); United States v. Gollwitzer, 697 F.2d 1357, 1362 (11th Cir. 1983); United States v. Gray, 659 F.2d 1296, 1299 (5th Cir.1981); United States v. D’Antignac, 628 F.2d 428, 434 (5th Cir. 1980); United States v. Kleinschmidt, 596 F.2d 133, 136 (5th Cir.1979); United States v. Whitmire, 595 F.2d 1303, 1308 (5th Cir. 1979).

In Kleinschmidt, the court approved of the initial boarding as an investigatory stop, but said, “once on board, a further search could be constitutionally validated only by the existence of probable cause...” 596 F.2d at 136 (citations omitted). The odor of marijuana on board provided probable cause for a search. Id. See also United States v. Whitmire, 595 F.2d 1303, 1308 (5th Cir.1979).

United States v. Andreu, 715 F.2d 1497 (11th Cir.1983) is similar to the instant case. There was heavy salt spray on the windshield. There were facts inconsistent with a purported fishing trip, such as extra clothing. Factors not present in the instant case included the fact that the vessel was riding low in the water and appeared to have no access to storage space. All of this, the court held, added up to the reasonable suspicion necessary to board and conduct an initial search. However, in order to approve of the officers cutting a hole in the deck to search for contraband, the court found that probable cause arose because the officers smelled marijuana and found marijuana seeds on the deck. This justified a full search.

In the instant case, the officers observed heavy salt spray, sparse fishing equipment, frozen fish, and a nervous crew member. All of these were inconsistent with a fishing trip. The officers also observed more clothing and food than would be necessary for a fishing trip, although Officer Kestler did note that the trip from Bimini (a most likely launching point for a drug run) only takes a number of hours, so the extra food and clothing would be unnecessary. In any case, this court approves of the boarding and initial search either as justified by reasonable suspicion or as a document and safety check.

The crucial element, missing in this case, but present in the long list of cases cited above, is the lack of any direct evidence pointing toward contraband. After a full half hour of searching, the officers neither saw nor smelled marijuana or its accompanying seeds. A check in a suspicious hole in the floor of the cabin revealed nothing. Reasonable suspicion existed; probable cause did not. The court finds that removing a refrigerator which is screwed in to the wall is similar to cutting a hole in the deck, for which Andreu required probable cause.

Perhaps the real issue in this case is whether there is any limit upon the permissible scope of government policing activity at sea. The court is painfully aware of the difficulty of policing our shores given the relentless onslaught of drug trafficking. Because of the problems involved, police authority at sea has historically been construed broadly. See United States v. Williams, 617 F.2d 1063 (5th Cir.1980). But Fourth Amendment analysis has always balanced the government interest against the degree of intrusion on individual privacy. Considering that precedent has not completely removed the maritime setting from the purview of Fourth Amendment protection, the court finds that the instant situation, in which a half hour search which revealed nothing was followed by a trip to the customs dock and continued detention of the boat’s occupants, must be held to be unreasonable.

Accordingly, it is hereby

ORDERED and ADJUDGED that the Motion to Suppress is GRANTED as to Defendant Juan Garcia and DENIED as to Defendant Rene Cuesta-Acosta.

      . Officer Kestler testified on cross-examination that he did not discuss with his fellow officers any grounds for belief that the vessel came from “outside”. Because he was the only witness the Government presented, this court only has his version of the event to rely upon, and cannot hypothesize as to factors his fellow officers may have relied upon.


author: BRETT, District Judge.

text:
    SALES AND ADVERTISING PROMOTION, INC., an Oklahoma corporation, Plaintiff, v. DONREY, INC., a Nevada corporation, Defendant.
    No. 84-C-152-B.
    United States District Court, N.D. Oklahoma.
    Oct. 31, 1984.

      Joel Wohlgemuth, Terry M. Thomas, Norman, Wohlgemuth & Thompson, Tulsa, Okl., for plaintiff.
    Floyd L. Walker, James F. Bullock, Tulsa, Okl., for defendant.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

BRETT, District Judge.

This action was tried before the Court sitting without a jury on the dates of September 4, 5, 6, 7, 12 and 13, 1984. This action seeks monetary and injunctive relief for an alleged violation of § 2 of the Sherman Antitrust Act, 15 U.S.C. § 2. Having reviewed the evidence, the arguments of counsel and the applicable legal authority, the Court makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

1. Plaintiff, Sales and Advertising Promotion, Inc. (“S & A”), is an Oklahoma corporation with its principal place of business in Okmulgee, Oklahoma. Defendant, Donrey, Inc. (“Donrey”), is a Nevada corporation which transacts business in the Northern District of Oklahoma.

2. Plaintiff is a privately held corporation engaged in the business of publishing the Exposure News Shopper (the “Exposure”), a bi-weekly newspaper. Plaintiff’s stockholders are Michael Sills, and his wife, Sandra. The Sills operate plaintiff’s business from a building the corporation recently acquired at 816 East 5th Street, Okmulgee, Oklahoma. Plaintiff also maintained an office in Glenpool, Oklahoma until the week of August 6, 1984, when the office was closed.

3. The Exposure is a free-circulated publication with its principal source of income being the sale of display advertising space. The open rate advertised by plaintiff for display advertising in the Exposure is $3.00 per column inch. National and local advertisers utilize the Exposure’s advertising service. The publication is mailed free to all households within certain specified zip codes within the Okmulgee, Oklahoma area, including, without limitation, the municipalities of Mounds, Kiefer, Glen-pool and Beggs and their surrounding areas. Circulation for the newspaper averages 10,700 households presently. The Exposure was formerly a once-weekly Wednesday edition newspaper. The Exposure began a Saturday edition in September 1983.

4. Donrey is a corporation engaged in all aspects of the print and broadcast media fields. Donrey operates fifty (50) newspapers nationwide, thirteen (13) of which are in Oklahoma. The Okmulgee Daily Times (the “Times”) is published by Donrey in Okmulgee, Oklahoma and has been for forty (40) years. The Times publishes a supplement to its Wednesday daily newspaper known as the “Mainstream Edition.” Paid circulation of the Times is approximately 5,700 and circulation of the Mainstream Edition is approximately 14,000.

5. In February 1977 the plaintiff published the first issue of the Exposure News Shopper. From February 1977 to October 1983 when the Saturday edition was added, the Exposure was a weekly free distribution newspaper. The major percentage of the Exposure was display advertising and the balance consisted of national, state and local news. Publications like the Exposure are referred to as “shoppers.” With the more recent advent of computerized type setting and composing systems, and high speed presses, shoppers have become more prevalent in journalism advertising. The appeal of the shopper to the advertiser is its instant market penetration by mass distribution rather than to paid subscribers only. The parties herein are engaged in interstate commerce and the events involved herein occurred in part in the Northern District of Oklahoma.

6. Circulation revenue for the Times, as distinguished from advertising revenue, is approximately 15% of its total revenue. This percentage is consistent with paid circulation newspapers generally.

7. The daily newspaper industry, and other types of advertising media, are dependent upon advertising revenues for their economic viability. The advertising revenue, in turn, is directly related to the number of households reached.

8. Most paid circulation newspapers, including the Okmulgee Daily Times, have seen their paid circulation and “penetration” within their distribution area steadily decrease since about 1950. The loss has been due in major part to the changing habits of its former readers to depend more on television or radio and less on newspapers to satisfy their need for news and other leisure time attention. The result has been a steady decrease in the percentage of available advertising dollars received by newspapers and an increase in the percentage of available advertising dollars received by other media.

9. As revealed by a nationwide survey conducted in 1983, 75% of the daily newspapers in the United States have their own free distribution papers to compete with shoppers and provide market saturation, which is known as total market coverage (“TMC”).

10. Beginning in 1979 and through 1983, the Times on alternating Fridays published a separate section called “The Friday Mainstream.” That section contained advertising principally as well as business news and historical items.

11. In May 1982, the Times began a practice that it would print additional copies of its regular edition on every other Wednesday so that 4,500 copies could be delivered free to households in Okmulgee. On the alternating Wednesday the Times would print approximately 1,500 extra copies which would also be delivered to non-subscribers in Okmulgee.

12. In September, 1983, plaintiff added a Saturday edition and on April 4, 1984, plaintiff added a second free Wednesday distribution publication which it called the Tri-City News. The Tri-City is distributed each Wednesday in an area north of and adjacent to Okmulgee County, and encompasses parts of Creek County and Tulsa County. Previously the Wednesday Exposure had been distributed in the same area. The front section of the Tri-City is not identical to the Wednesday Exposure, however the remainder of the Tri-City, except for a single issue, has been identical to the Wednesday Exposure.

13. During the first half of 1982 the Times was aware of stiff competition from the Exposure and some loss of business. In early June 1983 Donrey employees Ralph Smith (“Smith”), regional manager, and David Renfro (“Renfro”), the Times manager, met in Okmulgee and discussed the Exposure, its management, and current circulation. Renfro made specific investigation of the background and financial condition of the plaintiffs president Mike Sills as well as Jimmie Stephenson, a vice-president of the plaintiff and formerly general manager of the Times. Renfro also checked into and made investigation of the financial condition of the plaintiff. The purpose of the Renfro investigation was to gather facts concerning the financial stability and strength of the plaintiff. Renfro and Smith discussed the possibility of establishing a new second class or third class mailing publication in Okmulgee. The third class publication would be used as a “nonsubscription product” with a coverage target including Okmulgee and those smaller towns “in the opposition area (Beggs, Mounds, Keifer-Glenpool-Preston-Beeline).” The third class publication was to be utilized as a “major marketing piece” to more effectively compete with the Exposure. (Plff. Ex. No. 5-19).

14. On June 8, 1983 Renfro mailed to Smith some “clippings of the front page article from my competition in Okmulgee.” Renfro further stated that “It looks as if the battle lines have been drawn.” (Plff. Ex. No. 5-28).

15. On June 13, 1983, Smith prepared a memorandum to Pendergraft, vice-president of the eastern newspaper division of Donrey, and a member of Donrey’s Board of Directors, regarding the “Okmulgee situation.” Smith noted the “week” [sic] financing of “our [opposition,” referring to the plaintiff. Smith then detailed the result's of his investigation of the plaintiff’s financial condition and problems. Smith further stated that: “Sills, incidentally, is capable and knows how to sell. I am still working on his background, etc. and will keep you informed of what I find out.” (Plff. Ex. No. 5-30).

16. Smith prepared a second memorandum to Pendergraft on June 13, 1984 entitled, “Okmulgee Oppositional Plan.” (Plff. Ex. 5-31) Smith outlines various proposals therein as a plan to “combat” the Exposure and notes that the plan could cost up to $50,000 to implement in the next fiscal year. Smith proceeds on the premise the plaintiff desires to convert to a newspaper and because of the plaintiff’s inadequate financing the proposed plan could cripple the plaintiff’s expansion. The previous manager of the Times had just gone to work for the plaintiff Exposure. It is interesting to note one of the plan recommendations of Smith to Pendergraft to promote the suggested publications is to “buy billboards, KVOO radio (Tulsa based) and house ad campaign.” In closing, Smith states:

“The above plan is practical, not too expensive and accomplishes some goals we need to in the market anyway and puts enormous pressure on all competitors in the market. The cost is reasonable under the circumstances and does provide possibilities for at least a break-even in cost recovery during development and an opportunity to produce good revenue in the future.
I have discussed this plan with Renfro, but not with the understanding that we would use it. I told him I would discuss it with you because of the potential costs involved.
I feel the plan, depending on how much of it you want to implement could cost extra, $91,000 per year less $40,000 in new revenue with a net cost of about $50,000 for the new fiscal year.
I feel if w.e can do this for a year or less, we could cripple Stephenson’s plan for operation and kill his expansion plan unless he gets significant financing.
I also would like to visit with you either in Okmulgee, at your office or somewhere with Renfro before we implement whatever plan that is decided upon.” (Plff. Ex. 5-31)

Pendergraft rejected the Smith “Okmulgee Oppositional Plan” in part because of its excessive costs.

17. Previously, on October 18, 1982 in a report from Smith to Pendergraft about the Okmulgee Daily Times (Plff. Ex. 6-3), Smith stated: “We hope to continue pressure on his competition in the same manner as Macon (referring to Donrey’s Macon, Missouri newspaper competing with a similar shopper). If we can get him thin enough, he will probably fold in March.” (This referred to Smith’s view that the plaintiff would overextend and ultimately go out of business).

18. During 1983 and 1984 Donrey conducted an investigation of the plaintiff’s cost of publishing and printing the Exposure. On June 22, 1983 Donrey prepared a document entitled “Estimated Revenues— Exposure June 22, 1983.” (Plff. Ex. 5-35). Therein the Exposure’s advertising accounts are listed along with information concerning column “inches” and “revenues.”

19. On June 24, 1983 a meeting was held at the business office of the Times in Okmulgee. Present at that meeting were Smith, Renfro and Pendergraft. The purpose of the meeting was to discuss the competitive situation in the Okmulgee market. At the conclusion of that meeting it was decided to have a market study conducted by “ONAB.” It was also decided to publish a free-circulation shopper with a total distribution of 20,000 to be mailed on Tuesday and delivered by carrier oh Wednesday, commencing mid-July 1983. The shopper, as envisioned by those present at the June 24 meeting, was never published. (Plff. Ex. 5-14).

20. On July 7, 1983 Renfro, in a memorandum to Pendergraft, enclosed a copy of that week’s Exposure and stated that he was still “putting together the pieces for our Market Package.” (Plff. Ex. 5-38). On July 16, 1983 Smith reported to Pendergraft that Renfro was proceeding on his new product the “Marketplace Plus” which should be on the market by July 27 or August 3, 1983. (Plff. Ex. 5-40). On July 27, 1983, Renfro mailed Pendergraft the weekly copy of the Exposure and stated that the “Total Market Program” was progressing slowly but positively and should be instituted within the month. (Plff. Ex. 5- 42).

21. On November 15, 1983, Renfro, in a report to Smith, stated that the Exposure was then a twice weekly publication with carrier delivery in Okmulgee, Morris and Beggs. The Exposure began its Saturday edition on September 1, 1983. He noted that the Exposure had opened a Henryetta office, and further stated that: “I feel his expansion efforts are costly and if I would be able to attract one or two of his major advertisers it would hurt his already unsure financial base.” On November 30, 1983, Renfro stated to Smith: “With the Exposure (the local shopper) now publishing Wednesday and Saturday I feel that an effort needs to be taken to try and retain as well as regain some of the business that they have. Looking forward to the promotion we talked about (written proposal to follow) to possibly lure some of his business our way.” (Plff. Ex. 6-7).

22. On December 5, 1983, in a report to Pendergraft, Smith stated that Donrey needed to “get into his [referring to plaintiff] breadbasket in the north county area — which we will do shortly.” (Plff. Ex. 6- 9).

23. On January 5, 1984, Smith reported to Pendergraft that Renfro would “get our new Promo-marketing package in the market Jan. 11.” (Plff. Ex. No. 201).

24. On January 11, 1984, the distribution scheme presently used was implemented which is that each Wednesday the Times publishes a Mainstream section (in addition to the regular Wednesday edition), which goes to all subscribers and approximately 4,000 nonsubscribers free of charge. The purpose of distributing to nonsubscribers is to increase the number of households reached.

25. Defendant’s present plan required no new capital expenditure and no increase in staff but some increase in cost. For the most part, it utilized excess capacity that otherwise existed. The response of defendant in developing its own TMC (free non-subscriber shopper type publication) was a normal competitive response to plaintiff’s TMC shopper publication.

26. The effect of the January 11, 1984 change was to shift the “Friday Mainstream” (every other Friday) to each Wednesday, accompanied by. a name change to the “Mainstream Edition” and to increase the total amount of nonsubscriber distribution.

27. Concurrently with implementing the “Mainstream Edition,” the Daily Times discontinued giving away extra copies of its regular Wednesday paper. The free distribution has been limited to only the “Mainstream Edition” portion of the Wednesday Daily Times. (D. Renfro).

28. A “pick-up” rate, for the Mainstream Edition only, is offered to advertisers who purchase an ad in the Daily Times at the advertiser’s standard earned rate during the preceding six (6) days. That is, an initial ad published on Thursday through Tuesday may be “picked-up” and republished in the next Wednesday Mainstream, only, at a rate of $1.00 per column inch for the pick-up ad.

29. In addition to the lower pickup rate, lower rates were also adopted for reprinted or insert ad distribution in the Mainstream, from $60.42 per 1,000 insert (for eight page tabloids) to $44.00 per 1,000 for the Mainstream Edition only. Such advertising materials are referred to in the newspaper industry as “pre-prints” or “inserts”, which are folded and inserted into the main publication.

30. Initially the Mainstream Edition was mailed under a second class permit with U.S. postal approval. In May 1984, the United States Postal Service notified the Daily Times that the Mainstream did not qualify for second class mail privileges. Since May, the Mainstream Edition has been mailed as third class material. Mailing costs have been lower under the third class rate than under the second class rate formerly used.

31. The $1.00 pick-up rate was established in part by reference to rates offered by other Donrey publications such as the Guthrie Daily Leader and the Benton County Daily Democrat. Renfro stated he had conducted an informal study of Donrey’s costs of production prior to the implementation of the $1.00 pickup rate. He did not recall the result of that study, nor did he produce any writings or other documentation reflecting Donrey’s findings.

32. Previous to January 11, 1984 there was no distribution by the Times of the Mainstream to nonsubscribers. After January 11, 1984, the Times distributed up to approximately 8,000 copies of the Mainstream to nonsubscribers.

33. 'in the months of February through June of 1984 Smith reported to Pendergraft regarding the results of the pricing and marketing changes instituted by Donrey on January 11:

(a) “The biggest news we have with this operation is after six months of meticulous planning, we have gotten a TMC (Total Market Coverage) product on the market. The TMC is a solid product and should do very well against our competitor. The second stage of distribution is planned in late February.” Plff. Ex. 206, dated February 23, 1984).

(b) “David is still fighting his competitor and while costs have increased, our competition has slowed its growth. I feel this property will do better in March and so does David.” (Plff. Ex. No. 6-13, dated March 14, 1984).

(c) “David is doing much better. Expenses are still too high but he is now whipping his opposition which is beginning to slip in linage [sic]. David is continuing to work directly with Kleier on the lawsuit.” (Plff. Ex. No. 202, dated March 30, 1984).

(d) “The Okmulgee market is improving some and the increase this month can be attributed to our marketing change with our marketplace shopper to accommodate our market problems. Continuation of this effort will improve our position in the competition.” (Plff. Ex. No. 203, dated April 13, 1984).

(e) “This is the 2d month for local to be up. Of course expenses continued tb be too high. The TMC product is working fairly well in the market. The opposition continues to do fairly well, but is not getting gains. Their operation has apparently leveled off.” (Plff. Ex. No. 204, dated May 16, 1984).

(f) “Our opposition appears to be losing a little ground. Our tactics in this market are working consistently.” (Plff. Ex. No. 205, dated June 1, 1984).

34. At the directors’ meeting for Donrey on August 7-8, 1982 at Incline Village, Nevada, Pendergraft reported that: “Jimmie Stephenson busted the million dollar revenue mark for the first time in the history of the Daily Times. He grossed $1,014,936 which was 104% of budget and 108% of last year. Net after tax was $125,-040 for 109% of projections and 145% of last year. That’s not a bad year for Okmulgee.” (Plff. Ex. No. 100, p. 14).

At the directors’ meeting of October 25-26, 1982 in Fort Smith, Arkansas, Pendergraft reported that the Times produced revenue of $262,819 for 101% of budget and 110% of previous year [referencing the last quarter operations]. (Plff. Ex. No. 101, p. 13).

At the January 22-23, 1983 directors meeting in Kailua-Kona, Hawaii Pendergraft reported: “Revenue at the Times was $293,133 which represents 100% of budget and 108% of last year. Net after tax was $54,890, representing 115% of budget and 142% of last year.” (Plff. Ex. No. 102, p. 18).

At the directors meeting in Okmulgee on May 1-3, 1983, Pendergraft reported: “Revenue at the Times was $256,827 for 97% of budget and 106% of last year. Net after tax was $35,513 for 95% of budget and 121% of last year.” (Plff. Ex. No. 103, p. 18).

However, at the directors’ meeting at Glasgow, Kentucky on October 31-Novem-ber 1, 1983, Pendergraft reported that the Okmulgee Times showed up “on the problem list.” (Plff. Ex. No. 105, p. 15).

In the Eastern Division Operational Problem Properties Report, which was also given at the Glasgow directors’ meeting, it was noted that the Times’ revenue was under budget by $19,800 or 7%. (Plff. Ex. No. 104, p. 6).

At the directors’ meeting in Kailua-Kona, Hawaii on January 29-30, 1984 it is noted that the Okmulgee Times is “ * * * on Renfro’s problem properties list.” (Plff. Ex. No. 106, p. 17).

35. On February 13, 1984, plaintiff’s counsel wrote a letter to Donrey stating that the January 11 pricing and marketing changes were violative of the federal antitrust laws. Donrey was asked to discontinue those policies. (Plff. Ex. A). By letter of February 22, 1984, Donrey, through its general counsel, denied plaintiff’s allegations and declined to discontinue the practices in question. (Plff. Ex. B) This action was thereafter filed by plaintiff on February 22, 1984 seeking injunctive relief and damages under the antitrust laws. (Plff. Ex. C).

36. Advertising media employed by local and national advertisers takes many forms. To list but a few: newspapers and periodicals of all kinds, television, radio, billboards, direct mail, handouts, specialty or novelty items such as match covers, calendars, calling cards, key chains, emery boards, lapel pens, signs, containers, etc. Each of these types of advertising can be found in the area of Okmulgee County, Oklahoma.

37. To establish a § 2 violation, plaintiff must, as a threshold issue, establish the relevant product and geographical market in which such violation is claimed to have occurred. Plaintiff’s contention is that the relevant market in which defendant’s violations occurred is newspaper display advertising for local and national advertisers published in Okmulgee County; and that market share should be measured by comparing defendant’s revenues to the total revenues of plaintiff and defendant. Defendant’s position is that the relevant product market urged by plaintiff does not include reasonably interchangeable and substitutable alternative advertising media available to advertisers and thus does not constitute a relevant product market for Sherman Act § 2 purposes.

38. On a national scale the evidence established in 1983 advertisers spent approximately $75,000,000,000 to have advertising messages delivered to households or people throughout the United States. Such advertising dollars were expended for national or local advertising in various types of media or advertising mediums; newspapers received about 27%, television 21%, radio 7%, direct mail 16%, magazines 5%, and all others 24%. “All others” includes billboards, advertising specialties, and various other types of advertising medium.

39. National advertising is not restricted to a particular locality or region and is generally considered to have as its goal the creation of “name recognition” or “image enhancement.” Examples of national advertisers are cigarette manufacturers, breweries, auto manufacturers, national fast foods, etc. Local advertising is basically to increase the traffic in the advertiser’s place of business. Local advertising can be purely local or regional such as a multi-county area.

40. A relevant product (advertising) submarket may exist where there is real competition in the form of interchangeability or substitutability among selected advertising medium. (For example: it is improbable that regional television emanating from Tulsa covering most of eastern Oklahoma is interchangeable or substitutable with local newspaper display advertising in the general area of Okmulgee County. This is because the advertiser will pay an inflated rate to reach thousands of households outside its market area. On the other hand, local radio, local billboards, or zoned direct mail advertising is reasonably interchangeable or substitutable for local newspaper display advertising and may therefore be part of the relevant product submarket. Advertisers such as Walmart or Gibson discount stores may employ various advertising media locally and/or regionally.)

41. Economic realities define the relevant geographic market and such relevant geographical market is not necessarily dictated by the decision of a competitor to restrict its efforts to a given area. In defining the relevant geographic market, one must give due regard to the competitive reach of each and every competitor who is actually vying for the advertising dollar and who will offer the advertiser reasonable economic alternative and thereby cross elasticity in the geographic area in which the advertising is disseminated.

42. On the facts and evidence in this case, the Court finds that the geographic relevant market is, at a minimum, the area of distribution of the plaintiffs two publications, the Exposure and the TriCity News, which is Okmulgee County, southwest Tulsa County, and part of eastern Creek County, Oklahoma.

43. The evidence has not established the relevant product market is limited to newspaper display advertising computed in column inches in the parties’ publications. The Court is not prepared to conclude the relevant product market herein is “all” advertising media as contended by defendant. From the evidence presented the more probable relevant product market is an ill-defined submarket consisting of local newspaper display advertising, local radio, billboards, zoned direct mail, etc. These specified media in the geographic area are reasonably interchangeable and cross-elastic with local newspaper display advertising. Therefore, the plaintiff has not sustained its burden of proof in establishing the relevant product market or sub-market.

44. The evidence did not provide any basis for a determination of the defendant’s market share. While the evidence has established comments and discussions by representatives of the defendant which appear predatory toward plaintiff, the failure of the plaintiff to establish the relevant product market renders these words or purported intentions not material.

45. The evidence has not established that during the period of time involved the defendant had monopoly power in the relevant product market nor has it been guilty of an attempt to maintain or acquire a monopoly; nor has the evidence demonstrated a dangerous probability of success in achieving monopoly power.

46. Due to the fact the plaintiff has not established the relevant product market, nor that defendant has monopoly power or has attempted to maintain monopoly power or a probability of achieving monopoly power, the Court need not pass on the predatory pricing issue. However, the Court makes the following observations concerning the defendant’s $1.00 pickup advertising rate:

(A) In order to qualify for the $1.00 pickup rate, defendant’s customers must have first purchased the same ad earlier at the customer’s earned rate ($2.88) during the preceding six days. Thereby the customer must have purchased a minimum of two ads for a total cost of $3.88. The lowest effective economic rate is $1.94 per column inch for each ad.
(B) The cost of publishing a pickup ad is in the truest sense of the word “incremental.” The pickup ad represents the last increment of previously published matter, the cost of republishing such an ad (together with its pro rata share of news and editorial material, is the actual increment of additional cost incurred). “Incremental” cost is the functional equivalent of “marginal cost” for these purposes. The only distinction is that incremental cost is the cost over an increment of production, while marginal cost refers to a single additional unit of production.
(C) The cost of publishing such pickup advertising does not exceed the revenue received for it.

47. The evidence did not establish any actionable or compensable damage as a result of the alleged conduct of the defendant.

CONCLUSIONS OF LAW

1. The Court has subject matter jurisdiction under the provisions of 15 U.S.C. §§ 2, 4, 15, 22 and 26; 28 U.S.C. § 1337. Venue is proper pursuant to § 12 of the Clayton Act, 15 U.S.C. § 22.

2. Monopolization under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market; (2) the willful acquisition or maintenance of that power by unlawful means as distinguished from growth or development as a consequence of a superior product, business acumen or historic accident. United States v. Grinnell Corporation, 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966).

3. The offense of “attempt to monopolize” is the employment of methods, means and practices which would, if successful, accomplish monopolization, and which, though falling short of the intended goal, nevertheless approach so close as to create a dangerous probability of success. Walker Process Equipment v. Food Machinery, 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965); American Tobacco v. United States, 328 U.S. 781, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946); Agrashell, Inc. v. Hammons Products, 479 F.2d 269 (8th Cir. 1973); Times-Picayune v. United States, 345 U.S. 594, 73 S.Ct. 872, 97 L.Ed. 1277 (1953).

4. A “relevant product market” is comprised of all of those products which the customer or user considers to be reasonably interchangeable. United States v. duPont, 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956); and Advance Business Systems and Supply Company v. S.C.M. Corp., 287 F.Supp. 143 (M.D.1968).

5. All products reasonably interchangeable must be included in the same relevant market. Telex Corp. v. IBM Corp., 510 F.2d 894 (10th Cir.1975).

6. This Court is not free to accept the market suggested by plaintiff but must examine commercial realities affecting all competition in the industry. JBL Enterprises, Inc. v. Jhirmack Enterprises, Inc., 698 F.2d 1011, 1016 (9th Cir.1983); and Hayden Publishing Company, Inc. v. Cox Broadcasting Corporation, 566 F.Supp. 503, 506 (E.D.N.Y.1983).

7. The burden of proving the relevant market is upon the plaintiff. Hayden Publishing Company, Inc. v. Cox Broadcasting Corporation, supra; Acme Precision Products, Inc. v. American Alloys Corporation, 484 F.2d 1237 (8th Cir.1973); Gough v. Rossmor Corp., 585 F.2d 381, 385 (9th Cir.1978); Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 177-178, 86 S.Ct. 347, 350-351, 15 L.Ed.2d 247 (1965), and United States v. duPont, 351 U.S. 377, 381, 76 S.Ct. 994, 999, 100 L.Ed. 1264 (1956).

8. Within a broad product market, well defined submarkets may exist which constitute product markets for purposes of a Section 2 case. The boundaries of a submarket is to be “determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.” Brown Shoe Company v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962).

9. Upon the basis of the findings herein set out, and the applicable case law, the Court concludes the plaintiff has not established by a preponderance of the evidence the relevant product market or submarket. Further, the Court concludes that the relevant submarket limited to newsprint display advertising computed on a column inch basis, as urged by plaintiff, is an inappropriate definition of the relevant product market under § 2 of the Sherman Act.

10. Monopoly power is the power to control prices or to unreasonably restrict competition. The existence of monopoly power may be inferred from a predominant share of the relevant product market. United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); American Tobacco Company v. United States, 328 U.S. 781, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946).

11. It is not the possession of monopoly power, but rather the use of that power which is unlawful. Telex Corp. v. IBM Corp., 510 F.2d 894, 926-927 (10th Cir.1975).

12. Upon the Court’s findings that defendant does not have monopoly power within a proven relevant product market, and that it has not been shown defendant has a “predominant share” of a relevant product market, the Court concludes that defendant does not have, nor has it attempted to unlawfully acquire monopoly power or is there probability of defendant achieving monopoly power.

13. The comment and discussions by representatives of the defendant which were predatory in nature toward the plaintiff do not in and of themselves establish a Sherman § 2 claim because plaintiff as a predicate must establish the relevant product market or submarket and monopolist conduct or attempted monopolist conduct on the part of the defendant. Pacific Engineering v. Kerr McGee, 551 F.2d 790 (10th Cir.1977); Telex v. IBM, 510 F.2d 894 (10th Cir.1975) and Hayes v. Solomon, 597 F.2d 958, 977 (5th Cir.1979).

14. To establish predatory pricing, it is not enough for plaintiff to show that defendant’s rate for a particular ad appearing in the Mainstream was below the cost of publishing that particular ad. What is required is a showing that defendant’s rates are below its marginal or incremental cost for publishing pick-up advertising. Pacific Engineering v. Kerr McGee, supra; and Telex v. IBM, supra.

15. Marginal or incremental cost is the cost at any production level of producing an extra unit or increment of the product. In this instance, incremental cost is the economic equivalent of marginal cost. An immaterial distinction is that “marginal” cost refers to one additional unit of production, while the “incremental” cost used by defendant’s witness refers to the entire increment — that is, Mainstream pick-up advertising and the associated news and editorial copy. The Court concludes that defendant has not priced Mainstream pick-up advertising below its incremental cost. Pacific Engineering v. Kerr McGee, supra; and Telex v. IBM, supra.

16. In order to demonstrate that it is entitled to an award of damages, plaintiff must not only establish that the defendant has been guilty of antitrust violations, but that plaintiff has, in fact, been injured or damaged as a result of such violations. Bigelow v. RKO Pictures, Inc., 327 U.S. 251, 66 S.Ct. 574, 90 L.Ed. 652 (1946). The burden is upon the plaintiff to prove the fact as well as the amount of its damages. Story Parchment Company v. Paterson Parchment Paper Co., 282 U.S. 555, 51 S.Ct. 248, 75 L.Ed. 544 (1931). The plaintiff’s evidence has failed in this regard.

17. The Court concludes that under the evidence presented and applicable law there has been no violation of § 2 of the Sherman Antitrust Act, 15 U.S.C. § 2.

18. A Judgment in keeping with the Findings and Conclusions herein should be entered this date.

      . Defendant possessed 68% or greater of the local newspaper display advertising computed on a column inch basis. This fact, however, is relevant only if newspaper display advertising is accepted as the relevant product market.