author: MacLAUGHLIN, District Judge.

text:
    Sharon SLAUGHTER, Helen Stewart and Kathryn Jenkins, Plaintiffs, v. Leonard LEVINE, in his capacity as Commissioner of the Minnesota Department of Public Welfare, Defendant and Third Party Plaintiff, v. Margaret HECKLER, in her capacity as Secretary, United States Department of Health and Human Services, Third Party Defendant.
    No. Civ. 4-83-579.
    United States District Court, D. Minnesota, Fourth Division.
    Nov. 6, 1985.

      Mary Grau, Legal Aid Society of Minneapolis, Inc., Minneapolis, Minn., for plaintiffs.
    Hubert H. Humphrey, III, Atty. Gen., State of Minn., and Vicki Sleeper, Sp. Asst. Atty. Gen., St. Paul, Minn., for defendant and third party plaintiff.
    Francis X. Hermann, Acting U.S. Atty., and Mary L. Egan, Asst. U.S. Atty., Minneapolis, Minn., and Lewis K. Wise, Wendy Kloner, Civil Div., Dept. of Justice, Washington, D.C., for third party defendant.
   MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on plaintiffs’ motion for contempt, or in the alternative for supplemental relief. Plaintiffs’ motion for contempt will be denied. Plaintiffs’ motion for supplemental relief will be denied in part and granted in part.

FACTS

This case returns to the Court for the fourth time. Plaintiffs are a class of persons claiming deprivation of AFDC benefits due to defendant’s failure to adhere to federal regulations in administering the “lump sum rule,” 42 U.S.C. § 602(a)(17). The lump sum rule mandates that AFDC beneficiaries in receipt of lump sum income, defined as income from a non-recurring source, be removed from AFDC rolls for a period of months equal to the amount of the lump sum income divided by the standard of need applicable to the recipient. Id.

In Slaughter v. Levine, 598 F.Supp. 1035 (D.Minn.1984) {Slaughter I), the Court found that defendant had contravened federal regulations by failing to provide AFDC recipients with adequate notice of the lump sum rule and its effect on eligibility requirements. Specifically, the Court found that defendant had violated 45 C.F.R. § 206.10(a)(2)(i), which provides in relevant part that:

Applicants shall be informed about the eligibility requirements and their rights and obligations under the program. Under this requirement individuals are given information in written form, and orally as appropriate, about coverage, conditions of eligibility, scope of the program, and related services available, and the rights and responsibilities of applicants for and recipients of assistance. Specifically developed bulletins or pamphlets explaining the rules regarding eligibility and appeals in simple, understandable terms are publicized and available in quantity.

45 C.F.R. § 206.10(a)(2)(i). Accordingly, the Court enjoined defendant to mail notices (publicity notices) to current AFDC recipients explaining the lump sum rule. The Court further enjoined defendant to include publicity notices in the information which it provides to individuals who apply for AFDC benefits, and in the materials given to recipients at the time of their periodic six-month reevaluation for benefits. In addition, the Court enjoined defendant to prepare a notice {Quern notice) for mailing to all class members whose benefits had been terminated due to receipt of a lump sum for the purpose of informing them that they had the right to apply to defendant for corrective payments. Slaughter I, 598 F.Supp. at 1055.

Defendant subsequently brought a motion for reconsideration with respect to both the publicity notice and the Quern notice to class members. In Slaughter v. Levine, 605 F.Supp. 1242 (D.Minn.1985) {Slaughter II), the Court approved defendant’s draft publicity notice with certain minor modifications. The Court further ordered defendant to “prepare a notice to the members of the class regarding the opportunity to apply for corrective payments,” Slaughter II, 605 F.Supp. at 1249, and to provide a copy of such notice to plaintiffs’ counsel before distributing it to the class. Id.

Defendant then appealed to the United States Court of Appeals for the Eighth Circuit, at the same time moving for a stay of the judgment of this Court pending appeal. In an unpublished order dated June 13, 1985 {Slaughter III), the Court denied defendant’s stay motion. Defendant subsequently prepared and mailed to county welfare offices the publicity notice approved by the Court in Slaughter II. Defendant also prepared a draft Quern notice, submitting it to plaintiffs’ counsel on July 31, 1985.

Plaintiffs now move the Court for an order finding defendant in contempt. Plaintiffs raise objection to both the publicity notice and Quern notice prepared by defendant. Plaintiffs also seek a court order directing the defendant to eliminate the “overpayment” of class member Kathryn Jenkins on the ground that Jenkins was not adequately notified of the lump sum rule. Finally, plaintiffs seek a “declaration” of the Court that Slaughter I mandates that class members who spent their lump sum income prior to notification of the lump sum rule are entitled to corrective payments from the defendant.

DISCUSSION

Publicity Notice

In Slaughter II, 605 F.Supp. 1242, the Court approved a draft publicity notice prepared by defendant, with certain minor modifications. See Slaughter II Appendix A, 605 F.Supp. at 1251-53 (text of the approved notice). On July 5, 1985, defendant sent publicity notices to county welfare offices with instructions to distribute them to AFDC applicants and recipients at six-month intervals. The notices sent on that date, however, were not identical to the notice approved by the Court in Slaughter II. Modification of the approved notice was made necessary, defendant contends, by certain amendments to Minnesota’s AFDC program enacted by the Minnesota Legislature in the 1984-85 session.

Plaintiffs do not dispute that the 1985 statutory amendments make necessary the addition of certain language to the publicity notice approved by the Court in Slaughter II. Nor do plaintiffs raise material dispute to the language drafted by defendant. Rather, plaintiffs object to the placement of the amendatory language. Plaintiffs argue that the additional information should be inserted in the fifth paragraph of the second page of the notice, rather than the third paragraph of the second page, as drafted by defendant. Plaintiffs contend that as drafted by defendant, the amendatory language may cause confusion, in that paragraphs three and five both make reference to certain exceptions to the lump sum rule, without any indication whether the exceptions referenced are identical or distinct.

Paragraph 5 of plaintiffs’ proposed publicity notice provides (amendatory language underlined):

There are a few exceptions to the lump sum rule. *See below. That is why it is very important that you get in touch with your AFDC financial worker as soon as you think you may be receiving a lump sum. Your financial worker will be able to give you a more detailed explanation of how the lump sum rule applies to your individual case. If you don’t know in advance that you will be getting a lump sum, you should contact your financial worker as soon as you receive the money. You should not spend any of the money until you talk to your financial worker.
*INSERT — There are some types of lump sums that are not subject to the rule. And under certain circumstances the period of ineligibility may be shortened.

Paragraph 3 of the publicity notice prepared by defendant provides (amendatory language underlined):

Under the LUMP SUM RULE, you will be expected to save the money and live on it instead of receiving an AFDC grant for a period of months. This is called a PERIOD OF INELIGIBILITY. AFDC will use a formula to determine how long you will be expected to live on the lump sum money. The length of time you will be ineligible for AFDC will vary depending on the size of the lump sum. There are some types of lump sums that are not subject to the lump sum rule. Under certain circumstances the period of ineligibility may be shortened. Ask your financial worker for more information about this.

The Court has examined the changes made by defendant, and finds that they do not raise an undue likelihood of confusion. It is not the province of the federal courts to oversee the day-to-day operations of the Minnesota Department of Public Welfare. The actions taken by defendant are entitled to a fair amount of deference, Slaughter II, 605 F.Supp. at 1248, provided that they remain within the bounds set out by the Court’s prior orders. Defendant’s conduct here is of that character, and the modified notice drafted by defendant will be respected. Accordingly, the defendant may distribute those publicity notices already printed. Defendant is instructed to substitute plaintiffs’ proposed draft, paragraphs 3-5, wherein the modifying language is placed in paragraph 5, rather than paragraph 3, in place of its own draft paragraphs 3-5 in all future publicity notices which defendant may print and distribute. The Court finds that some gains in clarity will be realized by the substitution of plaintiffs’ proposed language in future notices. Defendant has indicated no objection to making this change.

Overpayment to Kathryn Jenkins

Kathryn Jenkins is a named plaintiff in this matter. Jenkins was found eligible for AFDC benefits in November, 1982, On October 31, 1983, plaintiff’s husband received a disability payment in the amount of $5,752. On that date plaintiff’s husband expended $3,863.75 of that amount to satisfy a mortgage arrearage, and $1,366 to satisfy an overdue car repair bill. The remaining $500-$600 was spent on other bills and on clothing for plaintiff’s children.

Plaintiff reported receipt of the disability settlement to Hennepin County welfare officials on November 2, 1983. On that date defendant was informed for the first time of the lump sum rule. On November 3, 1983, Hennepin County advised plaintiff that her AFDC benefits would be terminated as of December 1, 1983 through May, 1984, that she would remain ineligible until May, 1984, and that her October and November, 1983 grants would be considered an overpayment.

From this decision of the Hennepin County welfare office plaintiff appealed. Plaintiff continued to receive AFDC payments during the pendency of the appeal. Defendant rejected plaintiff’s appeal on August 9, 1984, notifying plaintiff on September 5, 1984 that she would be charged an overpayment of $5,464, representing AFDC benefits received by plaintiff in October and November, 1983 and during the pend-ency of her appeal. Slaughter I, 598 F.Supp. at 1040.

Plaintiffs now move the Court for an order requiring defendant to eliminate the $5,464 overpayment charged to Kathryn Jenkins. Plaintiffs argue that Slaughter I-III necessarily require such an outcome, inasmuch as Jenkins was a named plaintiff who expended lump sum income prior to receiving adequate notice of the lump sum rule.

Slaughter I-III did not in express terms require defendant to eliminate the Jenkins overpayment. In the Slaughter orders the Court left the decision whether to grant corrective payments entirely with the state. Slaughter II, 605 F.Supp. at 1248. Further, an order requiring the state to eliminate overpayments goes beyond the “notice relief” sanctioned by the Supreme Court in Quern v. Jordan, 440 U.S. 332, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979). In that case the Supreme Court noted that a suit in federal court by private parties seeking to impose a liability which must be paid from public funds in the state treasury is barred by the eleventh amendment. Quern, 440 U.S. at 337, 99 S.Ct. at 1143, citing Edelman v. Jordan, 415 U.S. [651] at 663, 94 S.Ct. 1347 at 1355, 39 L.Ed.2d 662 (1974). Should the Court order elimination of the Jenkins overpayment, the resulting “liability” would be paid from public funds, albeit indirectly. “Overpayments” are defined by the federal regulations as AFDC benefits to which the recipient is not entitled. In order to recoup overpayments, defendant reduces the monthly AFDC grant (once reinstituted) until the full amount has been recovered. 45 C.F.R. § 233.20(a)(13). Under Minnesota law, recoupments are made at the rate of one percent of the grantee’s monthly benefits if the overpayment is owing to agency error, and at a five percent rate if owing to grantee error. Minn.Stat. § 256.73, subd. 6. Defendant has agreed to treat the Jenkins’ overpayment as one owing to agency error. Thus, were the Court to grant the requested relief, the public fisc of the State of Minnesota would be reduced in the amount of one percent of plaintiffs monthly benefit. This, the Supreme Court has made clear, the Court may not do. See Edelman, 415 U.S. at 663, 94 S.Ct. at 1355 (“suit by private parties seeking to impose a liability which must be paid from public funds in the state treasury is barred by the Eleventh Amendment.”); Miener v. Missouri, 673 F.2d 969, 982 (8th Cir.), cert. denied, 459 U.S. 909, 916, 103 S.Ct. 215, 230, 74 L.Ed.2d 171 (1982) (award of monetary damages against the state for past breach of legal duty barred by eleventh amendment). See also Municipal Authority of Town of Bloomsburg v. Commonwealth of Pennsylvania, Dep’t. of Environmental Resources, 496 F.Supp. 686 (M.D.Pa.1980) (eleventh amendment bars relief in form of an order directing state to pay money, not as a consequence of future compliance with federal law, but as a form of monetary compensation for past breach of legal duty).

Accordingly, plaintiffs’ motion for an order eliminating the Jenkins overpayment will be denied.

Quern Notice

Plaintiffs also raise objection to the draft Quern notice prepared by defendant. Specifically, plaintiffs object to paragraph 2 on page 1 of defendant’s draft, as set forth below:

The federal court ordered the state to notify families affected by the lack of publicity that they may try to obtain corrective payments by using state appeal procedures. The court did not decide whether any families affected by the lack of publicity are actually eligible for corrective payments under applicable federal and state law. The state took the position in the case that corrective payments are not available in this situation. No further relief is possible from the federal court.

Plaintiffs propose that the following language be substituted for defendant’s paragraph 2:

The federal court has ordered the state to notify families affected by the lack of publicity that they have the right to apply for a corrective payment from their local welfare agency.

The essence of plaintiffs’ objection is that paragraph 2 as drafted by defendant informs class members of their right to apply for corrective payments, while in the same instant informing class members that all applications for corrective payments will be denied. Plaintiffs contend that the defendant’s failure to draft a “neutral” Quern notice constitutes contempt of the Court’s order in Slaughter I.

In Slaughter I the Court ordered defendant to “prepare a notice which it will send to all those members of the class who have had their benefits terminated due to receipt of a lump sum since the adoption of defendant’s policy.” Slaughter I, 598 F.Supp. at 1055. In Slaughter III the Court stated that defendant was to “draft a neutral notice which will be consistent with the demands of the eleventh amendment----” Slaughter III slip op. at 3. Defendant’s draft is anything but neutral. As framed by defendant, the draft will inevitably discourage class members from applying for corrective payments. Defendant argues that because it does not intend to award corrective payments to any class members under any circumstances, the language of paragraph 2 of its draft is immaterial in any event. Defendant has missed the point. At issue here is not whether defendant will make corrective payments, but whether defendant has complied with the Court’s order. Defendant was ordered to draft a neutral notice. The notice as drafted is not neutral.

Accordingly, defendant is ordered to modify its proposed Quern notice in the following manner. The last two sentences of paragraph 2, page 1 of defendant’s draft, which state that:

The state took the position in the case that corrective payments are not available in this situation. No further relief is possible from the federal court,

shall be stricken. Paragraph 2 of page 1 of defendant’s draft shall read as follows:

The federal court ordered the state to notify families affected by the lack of publicity that they may try to obtain corrective payments by using state appeal procedures. The court did not decide whether any families affected by the lack of publicity are actually eligible for corrective payments under applicable federal and state law.

As modified by this Order, defendant’s draft Quern notice is approved for mailing to class members.

Class Members’ Entitlement to Corrective Payments

Finally, plaintiffs seek an order of the Court declaring that Slaughter I created a substantive right to corrective payments in all class members who received and expended lump sum benefits prior to receiving adequate notice of the lump sum rule. Plaintiffs contend that defendant has predetermined that corrective payments will not be paid to class members. Plaintiffs seek the above-referenced order, not for the purpose of determining the eligibility for corrective payments of any particular class members, concededly impermissible under the eleventh amendment, but rather to guarantee that class members who do respond to the Quern notice will have their cases addressed by defendant on a case-by-case basis, and not via summary denial procedures.

The Court has twice declared that Slaughter I did not create a substantive right to corrective payments in any class members. Under the eleventh amendment, that decision rests entirely with the state. The purpose of the Court’s order was simply to notify class members that there are existing state administrative procedures which they may wish to pursue. See, e.g,, Quern v. Jordan, 440 U.S. 332, 349, 99 S.Ct. 1139, 1149, 59 L.Ed.2d 358 (1979). Thus, in Slaughter II the Court declared that “[Slaughter I] did not order the defendant to pay retroactive AFDC benefits to any class members,” 605 F.Supp. at 1248, and in Slaughter III it was stated that the “Court did not intend ... to bind the defendant to make corrective payments----” Slip op. at 3. To the extent that plaintiffs seek an order declaring that class members are entitled to corrective payments, plaintiffs’ motion will be denied. That decision rests with the state. Slaughter II, 605 F.Supp. at 1248. In rendering those decisions, however, the state is obligated to consider each class member’s application for corrective payments on the merits. Defendant has stated in open court that it will afford class members a case-by-case treatment of their claims. Accordingly, defendant is ordered to assess each class member’s claim for corrective payments on the factual merits. The precise form which this review will take is best left to the state. It is to be hoped that future treatment of class members will be marked by some modicum of understanding and compassion, as befits a department dedicated to addressing the most basic human needs. At the very least, defendant can be expected to assure that all questions which class members may have are fully addressed.

CONCLUSION

Based on the foregoing, IT IS ORDERED that:

1. plaintiffs’ motion for an order holding defendant in contempt is denied;

2. defendant is directed to modify the publicity notice as set forth in this Order at such time as the current supply of printed notices is exhausted;

8. plaintiffs’ motion for an order requiring defendant to eliminate the overpayment to Kathryn Jenkins is denied;

4. defendant is directed to treat the Jenkins overpayment as one owing to agency error if and when recoupment is made;

5. defendant’s proposed Quern notice as modified by this Order is approved for distribution to class members in the manner set forth in the Court’s Order of December 10, 1984; and

6. defendant is directed to consider class members applications for corrective payments on a case-by-case basis.

      . See Minrfesota Department of Public Welfare Instructional Bulletin, 82-3, Attachment 13. Included in defendant’s definition of lump sums are gifts, inheritances, contributions, some insurance settlements, back pay, and profit sharing. Excluded from the definition are settlements from the sale of a homestead, divorce settlements, retroactive AFDC payments, and insurance settlements to pay medical bills or replace property loss. Id.

      . In general, the 1985 statutory amendments removed certain kinds of lump sum income from the operation of the lump sum rule, such as income from personal injury insurance settlements, 1985 Minn.Sess.Law.Serv. ch. 252, § 15 (West), and income spent on certain medical expenses. Id. The amendments also provide for recalculation of the length of the lump sum ineligibility period if the lump sum becomes unavailable or if the AFDC standard of need increases. Id.

      . The Court notes in this regard that in a recent state administrative appeal decision a DHS referee found that the failure of Washington County welfare officials to adequately notify an AFDC recipient of the lump sum rule was grounds for reinstatement of the petitioner’s AFDC benefits. See Washington Co. Appeals, Docket No. 11926 (7-31-85).

      . Recoupment may be made only to the extent that the reduced assistance payment, together with the grantee’s liquid assets and total income after deducting actual work expenses equals at least 95 percent of the grantee's standard of need, 99 percent if the overpayment is due solely to agency error. Minn.Stat. § 256.73, subd. 6.

      . Plaintiffs contend that the Court may enjoin defendant to comply with federal law in the future, even if that compliance entails some ancillary expenditures, citing Edelman, 415 U.S. at 668, 94 S.Ct. at 1358. With this general proposition of law the Court wholeheartedly concurs. The difficulty with plaintiffs’ argument, however, is that it would require the Court to make a threshold determination that plaintiff Jenkins was entitled to corrective payments. The Court has made clear that this decision lies with the State. Put differently, an order requiring defendant to comply with federal law in the future would not aid plaintiff Jenkins, whose overpayment is the product of past allegedly illegal conduct of the defendant.


source: Caselaw Access Project

author: MORAN, District Judge.

license: Public Domain

text:
    REINSURANCE COMPANY OF AMERICA, Plaintiff, v. AMERICAN CENTENNIAL INSURANCE COMPANY and Transco Insurance Services, Defendants.
    No. 84 C 8658.
    United States District Court, N.D. Illinois, E.D.
    Nov. 6, 1985.
    Edward F. Ruberry, Connelly, Ruberry & Mustes, and Richard Seligman, Schiff, Hardin & Waite, Chicago, Ill., for plaintiff.
    Nicholas H. Diacou, Epton, Mullin & Druth, and Donald Egan, Katten, Muchin, Zavis, Pearl & Galler, Chicago, Ill., for defendants.
   MEMORANDUM AND ORDER

MORAN, District Judge.

Reinsurance Company of America (RCA) and American Centennial Insurance Company (American Centennial) are, at least on paper, parties to two contracts of reinsurance known as “facultative certificates.” One insures certain risks for the State of Alaska (RPC Policy No. 21003), and the other covers a private manufacturing company, PACCAR, Inc. (RPC Policy No. 21002). Transco Insurance Services (Transco) acted as plaintiffs underwriter for these contracts. The underlying suit deals with the validity of the contracts. Each contract contains an arbitration clause. Based on the clause and Sections 2, 3 and 4 of the United States Arbitration Act (the Act), 9 U.S.C. § 1 et seq., American Centennial has moved to stay the federal action and compel arbitration. The limited issue to be decided at this point is whether the parties entered into a binding agreement for purposes of the Act.

I.

In October 1978, RCA and Transco orally agreed to have Transco act as RCA’s agent. The parties seem to have argued over the extent of the agency relationship for almost a year after the contract was made. RCA was very concerned that Transco not underwrite risks without prior approval from the RCA offices, as evidenced by the following comments in letters from RCA’s president of Transco’s president:

... you [Transco] have no binding authority to use RCA as an issuing source and therefore your statement “Transco Insurance Services are currently underwriting managers for [RCA] ...” is without basis of fact as far as RCA is concerned.

(July 30, 1979), and

With the agreement that you will not use RCA’s name, in any way indicating that you have its pen or have managing general agency status, our primary concern is taken care of.

(October 15, 1979). On the other hand, RCA states in count 84(k) of its amended complaint that Transco acted as its “managing general agent,” which in the business implies “authority coextensive with that of the principal.” Appleman, Insurance Law and Practice, section 8693 at 257 (1981).

On September 11, 1978, Transco, acting as RCA’s agent, issued the RCA facultative certificates RPC No. 21002 and RPC No. 21003 reinsuring 100 per cent of American Centennial’s liability on its policies covering PACCAR, Inc. and Alaska, respectively. RPC No. 21002 was backdated to July 28, 1978 and RPC No. 21003 was backdated to July 1, 1978. Both policies extended one year. All the negotiations regarding the certificates were conducted between Transco and American Centennial.

RCA accepted premiums and paid losses on the certificates until November 1982, when it received a claim (the Frazier claim) on RPC No. 21002 for $1,000,000 (the certificate’s limit). While investigating this claim RCA learned that the claim was for a personal injury award arising out of an injury sustained by one of PACCAR’s employees on August 1, 1978. RCA has refused to pay the Frazier claim, alleging that both the certificate which purports to cover this liability and RPC No. 21003 were fraudulently induced (count I of the amended complaint). However, RCA did pay a claim on RPC No. 21003 for $270,000 on December 29, 1982, and there is no evidence in the documents and affidavits filed thus far to indicate that outstanding obligations exist on RPC No. 21003.

On July 26, 1984, American Centennial served RCA with a demand to arbitrate disputes between them originating from the two facultative certificates. RCA refused to arbitrate and filed this action. Now, American Centennial seeks to stay this proceeding and force arbitration.

Both certificates contain the following clause:

L. Any difference of opinion between the Reinsurer and the Company with respect to the interpretation of this certification or the performance of the obligations under the certificate shall be submitted to arbitration____ The decision of the majority of arbitrators shall be final and binding on the parties.

American Centennial argues that this clause constitutes a written agreement to arbitrate governed by Section 4 of the Arbitration Act. This section states, in relevant part:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement____ If the making of the arbitration agreement or the failure, neglect or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.

Defendant argues that the actual making of the reinsurance contracts is not at issue because Transco had the real or apparent authority to bind plaintiff and because, even if such authority did not exist, plaintiff ratified the certificates by accepting premiums and paying claims on them. Plaintiff denies both that Transco had authority, apparent or actual, and that it ratified the certificates. It argues that because there was never a “meeting of the minds” between RCA and American Centennial the certificates are invalid contracts.

American Centennial first premised its motion to compel on the supposition that RCA’s claim was that it was fraudulently induced to enter into contracts providing certain coverage, rather than a claim that it never agreed to arbitration. Accordingly, arbitration was mandated by the doctrine of Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Plaintiff rejoined by arguing, at least implicitly, that the doctrine is inapplicable because RCA never entered into any agreement with American Centennial, inasmuch as Transco lacked either apparent or actual authority to make any agreement binding upon RCA and, further, RCA never ratified any such agreement.

The contention that Transco lacked apparent or actual authority to enter into an agreement providing 100 per cent reinsurance or backdated coverage or coverage of an already known claim is, however, a variation of a fraudulent inducement contention if, in fact, Transco had at least apparent authority to bind RCA upon a facultative certificate of one sort or another which contained an arbitration clause. Likewise, the contention that RCA never conclusively ratified an agreement covering the Frazier claim because that was a material and undisclosed fact which precluded knowing ratification is also a variation of a fraudulent inducement contention if, in fact, RCA accepted the benefits and obligations of a facultative certificate which it reasonably understood contained an arbitration clause. While the reach of Prima Paint is far from self-defining, as the Court of Appeals discussed in Matterhorn, Inc. v. NCR Corporation, 763 F.2d 866 (7th Cir.1985), we believe the doctrine of that case requires that the analysis focus upon whether or not RCA became legally bound to arbitrate and not whether it became legally bound upon the agreements as a whole. Based upon that analysis, this court concludes that it is beyond reasonable dispute that Transco had apparent authority to bind RCA to arbitrate any reinsurance dispute and that RCA ratified the agreements to arbitrate.

II.

As the Seventh Circuit has noted:

The [Arbitration] Act was intended to make arbitration agreements specifically enforceable, upon the terms established by the parties. Accordingly, if the agreement provides for arbitration, the only issues open for the consideration of a federal court concern the “making of the agreement to arbitrate” itself.

Dickinson v. Heinold Securities, Inc., 661 F.2d 638, 645 (7th Cir.1981) (citations omitted). The court is required to grant a hearing to determine if a valid contract exists if one party denies any agreement was made and produces some evidence to substantiate the denial. Interocean Shipping Company v. National Shipping and Trading Corp., 462 F.2d 673, 676 (2d Cir. 1972); see also A/S Custodia v. Lessin International, Inc., 503 F.2d 318 (2d Cir. 1974) (issues to be decided were whether there was a meeting of the minds of the parties and the authority of the agents to bind their respective principals). The court in Par-Knit Mills, Inc. v. Stockbridge Fabrics Company, 636 F.2d 51 (3d Cir.1980), stated the standard for determining if a trial is needed:

Before a party to a lawsuit can be ordered to arbitrate and thus be deprived of a day in court, there should be an express, unequivocal agreement to that effect. If there is doubt as to whether such an agreement exists, the matter, upon a proper and timely demand, should be submitted to a jury. Only when there is no genuine issue of fact concerning the formation of the agreement should the court decide as a matter of law that the parties did or did not enter into such an agreement. The district court, when considering a motion to compel arbitration which is opposed on the ground that no agreement to arbitrate had been made between the parties, should give to the opposing party the benefit of all reasonable doubts and inferences that may arise.

636 F.2d at 54. At this stage the court must decide if there are disputed issues of material fact as to either Transco’s apparent authority to issue or RCA’s ratification of the certificates and, if there are not, which party should prevail as a matter of law.

The first issue to be decided is whether Transco had the apparent authority to bind RCA in a reinsurance contract providing for arbitration with American Centennial. In general, “authority of an agent may only come from the principal and it is therefore necessary to trace the source of an agent’s authority to some word or act of the alleged principal.” Schoenberger v. Chicago Transit Authority, 84 Ill.App.3d 1132, 1136, 39 Ill.Dec. 941, 405 N.E.2d 1076 (1st Dist.1980). When a party claims apparent authority it must show that the agent’s words or acts would lead a reasonably prudent person to assume authority existed. Schoenberger, supra; Old Security Life Insurance Co. v. Continental Illinois National Bank and Trust Co. of Chicago, 740 F.2d 1384, 1391 (7th Cir.1984). These general principles of agency apply to insurance companies and their agents. Appleman, Insurance Law and Practice, section 8672 at 185 (1981); see e.g., Jenco v. Jefferson Insurance Co. of New York, 575 F.Supp. 980 (N.D.Ill.1983); Miller v. Botts, 77 Ill.App.2d 386, 222 N.E.2d 581 (2d Dist. 1966); Aetna Life & Casualty Company v. Little, 384 So.2d 213 (Fla.App.1980).

American Centennial claims that it reasonably believed Transco was RCA’s general agent at the time of the contracts. Its strongest evidence is the contract forms themselves. RCA’s name appears on the top left-hand side of the form, and on the top right-hand side is printed, “Transco Insurance Service, Underwriting Managers.” At the bottom of the form appears a line for a signature, underneath which is printed, “Authorized Representative.”

The contract also states that “this certificate of reinsurance shall not be valid unless signed by a duly authorized representative of the insurer.” Of the numerous copies of the contracts submitted as exhibits, only one is signed. The court assumes signed copies exist, however, because the plaintiff makes no mention of this otherwise blatant execution problem. “The forms furnished an agent for his use in transacting business with the public are cogent evidence as to what he is employed to do, and are representations to the public that he had authority to do things thereby indicated.” Apple-man, Insurance Law and Practice, section 8672 n. 13 at 207-208 (1981) and cases cited therein.

RCA disputes the validity of the forms. RCA claims that the forms Transco used were not authorized and, in fact, around the end of October 1978 RCA instructed Transco to “hold up issuing any further policies using these [the disputed] forms pending receipt of copies of our [RCA’s] property and casualty forms.” (Plaintiff’s Exhibit E.) However, there is no evidence that RCA required Transco to renegotiate any contracts using the new forms for the old, or in any way to communicate the limitations of Transco’s authority to these insureds. RCA has not produced a copy of the new forms it sent to Transco (perhaps those contained arbitration clauses as well, as that appears to be the almost invariable practice), so the court has no way of knowing whether Transco’s agency limitations were ever spelled out or whether, for that matter, there ever were any limitations upon the authority to provide for arbitration. Indeed, the exhibit upon which RCA relies indicates that RCA was aware that Transco had been using those forms, and there is nothing to suggest that RCA thereafter sought to determine what third parties, such as American Centennial, had relied upon them, and to disavow any arbitration obligations based upon their use. In this sense the ratification issue is intertwined with the apparent authority issue. RCA then had a relationship with Transco, although the nature of that relationship is in dispute, and it was aware that Transco had those forms for use. It did not investigate nor question the obligations arising from their use until years later.

Under Illinois law a third party dealing with an agent has a duty to verify the fact and extent of an agent’s authority. Malcak v. Westchester Park District, 754 F.2d 239, 245 (7th Cir.1985), Schoenberger, supra, 39 Ill.Dec., at 946, 405 N.E.2d at 1081. However, the burden to investigate is not heavy, and the courts seem to find the duty satisfied if there were no factors or circumstances that would have put a reasonably prudent person on notice of the agent’s lack of authority. This rule of agency conforms with insurance cases which hold that an insured is not bound by limitations imposed by the insurer on its agents if the insured had no notice thereof. See Appleman, Insurance Law and Practice, sections 8673 and 8674 (1981). Any other rule would severely impair insurance business, much of which is done through agents, and would place an undue burden on unsophisticated as well as sophisticated consumers of insurance. American Centennial had no reason to believe that RCA had not furnished Transco with these forms and that, therefore, RCA was naming Transco its “underwriting manager” or “general agent.” American Centennial also had no notice of any limitations on Transco’s authority. Without such notice American Centennial was entitled to rely on the form’s language designating Transco as RCA’s “underwriting manager” and providing for arbitration. Given this reliance, the court finds that, as a matter of law, Transco had the apparent authority to bind RCA to arbitrate disputes arising under facultative reinsurance certificates, RPC Nos. 21002 and 21003, and therefore that RCA entered into an agreement to arbitrate with American Centennial as a matter of law.

III.

Further, “[Ratification occurs when the principal, with knowledge of an unauthorized transaction, takes a position inconsistent with the nonaffirmation of the transaction, or retains the benefits of the unauthorized transaction.” Old Security Life Insurance Co. v. Continental Illinois National Bank and Trust Co. of Chicago, 740 F.2d 1384, 1392 (7th Cir.1984) (citations omitted); Jenco v. Jefferson Insurance Co. of New York, 575 F.Supp. 980, 984 (N.D.Ill. 1983); Schoenberger, 84 Ill.App.3d at 1138-9, 39 Ill.Dec. 941, 405 N.E.2d 1076. American Centennial claims that RCA ratified the certificates by accepting premiums on them for almost six years. RCA claims that it did not because it did not know of Transco’s (and American Centennial’s) alleged fraud in saddling it with a known claim by backdating. American Centennial correctly points out that the critical knowledge here is not of the alleged fraud but of the terms of the certificate. It claims that RCA received a copy of the certificate covering Alaska (RPC No. 21003) and yet retained the premiums paid on this certificate, and also paid claims based on the certificate. RCA does not dispute this fact. While the record is silent on whether RCA ever saw a copy of the certificate covering PACCAR (RPC No. 21002) during the time it was accepting premiums, it is the same form containing the same arbitration clause. RCA is free to arbitrate its real dispute, that it was fraudulently induced to extend coverage over the Frazier claim, but it cannot reasonably dispute that it ratified a reinsurance relationship which provided for arbitration.

For the reasons stated, this court stays this lawsuit and orders arbitration.

      . There is no evidence in the record that any claims were made on PACCAR’s policy until November 1982, but this information is not needed because no disputes arose until that date. The court will assume, therefore, that if any claims were made, they were paid by RCA.

      . Defendant’s expert, Henry T. Kramer, in his affidavit testified that the term "underwriting manager” is synonymous with "managing general agent” (Kramer affidavit, par. 5).

      . Transco’s president, Peter J. O’Shaughnessy, testified in his affidavit that “RCA approved the form of facultative reinsurance certificate describing Transco as RCA’s ‘Underwriting Managers’ used by Transco in issuing the RCA Certificates” (O’Shaughnessy's affidavit, par. 4). While this creates a dispute on this fact, the dispute is not material because, even if the forms were never approved, the lack of approval was not communicated to American Centennial.


author: COHILL, Chief Judge.

text:
    Earl J. BAILEY, Plaintiff, v. Margaret HECKLER, Secretary of Health and Human Services, Defendant.
    Civ. A. No. 83-2666.
    United States District Court, W.D. Pennsylvania.
    Nov. 6, 1985.

      Gilbert E. Caroff, David J. Kaltenbaugh, Johnstown, Pa., for plaintiff.
    Charlotte Hardnett, Asst. Regional Atty., Health and Human Services, Region III, Philadelphia, Pa., Anthony M. Mariani, Asst. U.S. Atty., Pittsburgh, Pa., for defendant.
   MEMORANDUM OPINION

COHILL, Chief Judge.

I.

Plaintiff, Earl J. Bailey, brought this action pursuant to 42 U.S.C. § 405(g), seeking judicial review of the Secretary’s final decision denying Plaintiff’s claim for disability benefits. Summary judgment subsequently was entered for Plaintiff and against Defendant.

Presently before the Court is a petition for attorney’s fees pursuant to 42 U.S.C. § 406(b)(1) filed by Plaintiff’s counsel, Gilbert E. Caroff, Esquire. For the reasons set forth below, the petition will be denied, without prejudice.

II.

42 U.S.C. § 406(b)(1) provides in pertinent part that:

Whenever a court renders a judgment favorable to a claimant under this sub-chapter who was represented before the Court by an attorney, the court may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the past-due benefits to which the claimant is entitled by reason of such judgment____

In general, those standards and procedures set forth in Lindy Bros. Builders, Inc. of Philadelphia v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir.1973) (Lindy I), Lindy Bros. Builders, Inc. of Philadelphia v. American Radiator & Standard Sanitary Corp., 540 F.2d 102 (3d Cir.1976) (en banc) Lindy II), and their progeny govern the award of attorney’s fees in social security disability cases in this circuit.

Under those standards, the Court first must determine how many hours were reasonably spent, by whom, and in what manner. Lindy I, 487 F.2d at 167. Next, the Court must determine the reasonable hourly value of those services. Such determinations must be made for each attorney and for every category of activity. Different categories of activity might require different hourly rates. Id.

The district court can approve counsel’s requests for fees only for services performed in the trial or appellate courts; it cannot award fees for services performed at the administrative level before the Secretary. Guido v. Schweiker, 775 F.2d 107 (3d Cir.1985). A separate application must be made to the Secretary for services performed in the administrative phase. Id. However, the aggregate of the fees awarded by the district court and by the Secretary may not exceed the statutory maximum of 25% of the claimant’s past-due benefits. Campbell v. Heckler, 603 F.Supp. 1388, 1390 (M.D.Pa.1985); Kemp v. Schweiker, 587 F.Supp. 778 (W.D. Pa.1984); Oroshnik v. Schweiker, 569 F.Supp. 399, 400 (D.N.J.1983).

The fee applicant has the burden of producing evidence supporting the hours worked and rates claimed, Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1983); M.S.R. Imports, Inc. v. R.E. Greenspan Co. Inc., 574 F.Supp. 31, 33 (1983), as well as the burden of persuasion, see In re Fine Paper Antitrust Litigation, 751 F.2d 562, 585 (3d Cir.1984).

The product of the number of hours reasonably expended and the reasonable hourly rate of compensation yields what is known as the “lodestar,” the presumed reasonable fee. Blum v. Stenson, 465 U.S. 886, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984).

Once it has determined the lodestar, the Court must take two other factors into consideration before making a final determination of the attorney’s fee award. It must determine the contingent nature of success — that is, the probability of success, viewed at the time of filing the suit, and the quality of the work performed by counsel and then, if necessary, adjust the lodestar accordingly by means of an appropriate multiplier. Lindy I, 487 F.2d at 168— 69; Lindy II, 540 F.2d at 116-18. The contingency factor involves an assessment of the legal and financial burdens assumed by Plaintiff and his counsel in pursuing the action. See, Lindy II, 540 F.2d at 117. Contingency of success can properly justify a lodestar increase but not a decrease. Delaware Valley Citizens’ Council for Clean Air v. Pennsylvania, 762 F.2d 272 (3d Cir.1985); Hall v. Borough of Roselle, 747 F.2d 838, 842-43 (3d Cir.1984). See, Hughes v. Repko, 578 F.2d 483, 488 (3d Cir.1978) (contingency factors may not be used to decrease the amount of the final fee award).

Unlike the contingency factor, the quality factor can be used to reduce the lodestar figure as well as increase it. Lindy II 540 F.2d at 118. The test for determining when a quality multiplier is appropriate is whether the lawyer discharged his professional burden with a degree of skill above or below that expected of lawyers of the caliber reflected in the hourly rate charged. Id. An upward adjustment is appropriate only in the rare ease where the fee applicant offers specific evidence to show that the quality of service rendered was superior to that which one reasonably should expect in light of the hourly rates charged and that the success was “exceptional.” Blum v. Stenson, 104 S.Ct. at 1549.

Fee awards granted pursuant to 42 U.S.C. § 406(b)(1) are deducted from those benefits awarded to the claimant. See, Watkins v. Harris, 566 F.Supp. 493, 495 (E.D.Pa.1983); see also Wolverton v. Heckler, 726 F.2d 580, 582 (9th Cir.1984); Spicer v. Califano, 461 F.Supp. 40, 48 (N.D.N.Y.1978). Such fee awards are closely analogous to fund-in-court cases. Because of the similar potential for conflicts of interest between the attorney and his client, it follows that the Court has an independent duty to scrutinize the fee petition in § 406(b)(1) cases, as well as in fund-in-court cases. See Cunningham v. City of McKeesport, 753 F.2d 262, 267 (3d Cir. 1985) (Court has independent duty to scrutinize fee applications in fund-in-court cases) Taylor v. Heckler, 608 F.Supp. 1255, 1257-58 (D.N.J.1985) (Because the interests of the attorney and his client are inherent in conflict in Social Security Act cases, the Court scrutinizes § 406(b)(1) fee applications.) Further, as in fund-in-court cases, the time spent in preparation of the fee petition does not benefit the claimant since the fee award operates to reduce the claimant’s recovery. Thus, it also follows that time spent» in the preparation of the fee petition cannot be included in the lodestar amount. See Lindy I, 487 F.2d at 161; Lindy II, 540 F.2d at 110-11. See also, In re Fine Paper Antitrust Litigation, 751 F.2d 562, 595 (3d Cir.1984).

III.

Petitioner Caroff seeks a total of $687.50 in attorney’s fees in this case. He claims that he spent 5.5 hours in representing Plaintiff to this point, that his customary and reasonable charge for representation in such matters is $125 per hour, and that the award he requests does not exceed 25% of the total past-due benefits to which Plaintiff is entitled by reason of the judgment.

However, Attorney Caroff has failed to provide any basis to enable the Court to determine if the time spent and if the requested rate are reasonable. He has not provided an itemization of time spent on this case, indicated the nature of the services provided, or indicated at which phase the work was performed. Nor does counsel indicate the total amount of the past-due benefits. The Court may conditionally authorize the request for attorney’s fees, even before certification of past-due benefits by the Secretary, with the proviso that the fee, when added to any fee which the Secretary deemed appropriate for administrative work, would not exceed 25% of the past-due benefits. See Donovan v. Secretary of Health and Human Services, 598 F.Supp. 120, 121-22 (D.Del.1984). However, it is unclear from Plaintiff’s counsel’s petition whether or not the Secretary has certified an award for past-due benefits in this case. Consequently, we are unable to determine what would be a reasonable award under 42 U.S.C. § 406(b)(1). The petition for an award of counsel fees therefore will be denied without prejudice, and counsel will be granted leave to file an amended petition which complies with the requirements set forth above.


author: EDWARD WEINFELD, District Judge.

text:
    Lamont PATTERSON, Petitioner, v. Charles SCULLY, Warden of Green Haven Correctional Facility and Robert Abrams, Attorney General, State of New York, Respondents.
    No. 84 Civ. 7603 (EW).
    United States District Court, S.D. New York.
    Nov. 7, 1985.

      Lamont Patterson, pro se.
    Elizabeth Holtzman, Dist. Atty., Kings County, Brooklyn, N.Y., for respondents; Karen M. Wigle, Asst. Dist. Atty., Brooklyn, N.Y., of counsel.
   OPINION

EDWARD WEINFELD, District Judge.

Petitioner’s convictions in the Supreme Court of the State of New York, Kings County, entered upon his plea of guilty to murder in the second degree and robbery in the first degree were affirmed by the Appellate Division, Second Department. He was sentenced to concurrent terms of 15 years to life on the murder charge and 8V3 to 25 years on the robbery charge.

Following the filing of a notice of appeal, designated appellate counsel applied, pursuant to Anders v. California and People v. Paige, to be relieved of the assignment on the ground that no non-frivolous issues were presented by the record. The application was granted and the judgment of conviction was unanimously affirmed. Petitioner was notified of the affirmance of the conviction and was informed that if he believed there were issues that should be presented to the Court, these could be included in a motion for reargument. His motion for reargument was denied.

Thereafter, petitioner instituted the instant proceeding for a writ of habeas corpus, asserting deficiencies in the acceptance of his guilty plea and deprivation of his rights on appeal, allegedly in violation of his federal constitutional rights. These claims are (1) that he was denied the effective assistance of his trial counsel because the latter failed to inform him of the affirmative defense to the felony murder charge and the sentences he could have received if convicted after trial; (2) that his plea was not voluntarily and intelligently entered because he was unaware of the affirmative defense to a felony murder charge and the sentences he could have received after trial; and (3) that he was denied effective assistance of appellate counsel because the latter did not inform him of the precise date his appeal was to be submitted. These issues were presented to the Appellate Division in his pro se brief in support of his motion to reargue his appeal.

The petitioner’s application for a habeas corpus writ was referred to a magistrate of this Court, who in a detailed report recommended that the petition be dismissed without prejudice to refiling after petitioner exhausted his still available remedies— which were specified in the Report and Recommendation. The petitioner contends that he has exhausted available state remedies and urges that his application be determined on the merits. This Court, upon an independent de novo review of the entire record, adopts the recommendation of the magistrate, but goes beyond and finds that the petitioner’s claims upon which he seeks federal habeas relief are without merit.

As to his claim that his trial counsel failed to inform him of an available affirmative defense to the felony murder charge, to wit, that he “[h]ad no reasonable ground to believe that [his co-defendant] was armed with a [deadly] weapon,” petitioner’s application makes it clear that prior to the entry of his plea that defense was the subject of discussion with his attorney who told him “to get a statement from co-defendant that petitioner did not know he had a gun and petitioner would get around the case.” Thus, petitioner’s claim that his lawyer did not inform him, or that he was not aware of the affirmative defense to the felony murder charge is without factual support. Moreover, with respect to an affirmative defense, such as that here at issue, “due process does not require that a defendant be advised of every basis on which he might escape or receive a lesser punishment for an offense that he has committed.”

But even if it were accepted that petitioner was not informed in haec verba and was not aware of the affirmative defense, this does not establish his further contention based thereon that his plea was not voluntarily and intelligently entered or that he was deprived of the effective assistance of counsel. To sustain “an ineffective assistance claim, a defendant must show more than simply that counsel’s performance was not reasonable under prevailing professional norms; in most situations ... the defendant also must ‘affirmatively prove prejudice’ by showing that ‘there is a reasonable probability that, but for counsel’s unprofessional errors, the result of the proceeding would have been different’ in the sense of being more favorable to the defendant.”

A review of the record leaves no room to doubt that petitioner has failed to make the required showing. Upon his allocution, petitioner, in response to the Court’s inquiry, acknowledged that he had sufficient time to discuss the case with his attorney. The Court specifically asked “You know that Mr. Ramsey [the co-defendant] was armed with a gun?” Petitioner responded: “Yes.”

The Assistant District Attorney advised the Court that the plea had been the subject of extensive conferences with the defense and that members of the decedent’s family who were present had no objection to a sentence of 15 years to life. Finally, the Court informed the defendant: “I have discussed this case with your attorney and the Assistant District Attorney and I have said that whatever sentence I impose in this case I intend to run that sentence concurrently with the sentence of fifteen years to life, which I have promised you on the murder case, you understand that?”, to which petitioner responded “Yes.”

Thereafter, at sentencing, the petitioner, afforded the opportunity to make a statement on his own behalf, remained silent. The Court thereupon, as previously promised, sentenced the petitioner to concurrent terms of imprisonment of 15 years to life on the murder conviction and 8V3 to 25 years on the robbery conviction. The plea bargain was kept in every respect. As a result of the plea bargaining, defendant received the minimum sentence for the two crimes.

Under all the circumstances, there is no basis for a claim of infringement of federal constitutional rights. Counsel here was of effective assistance and there is no support for any claim that petitioner’s attorney did not provide reasonably effective assistance when judged by prevailing norms. The record also abundantly establishes that his guilty plea was voluntarily and intelligently entered. The advice he received from counsel was well “ ‘within the range of competence demanded of attorneys in criminal cases.’ ”

Indeed, the record not only demonstrates that petitioner had the benefit of effective representation by the entry of his plea, but had he proceeded to trial on the issue of his affirmative defense he “would most likely have come out far worse than he did.” In Mitchell v. Scully, where the claims of deprivation of effective assistance of trial counsel paralleled those here advanced by petitioner, Judge Friendly noted “there was exceedingly little likelihood that presentation of the affirmative ... defense [in the case] would have succeeded.”

Had petitioner proceeded to trial, as the state sets forth in its brief, given his admission of his preparation for the crime and his role, the only other witness who could have supported his defense was the co-defendant. Thus, in order to prove the defense, “defendant or his co-defendant Thurman Ramsey, would have had to take the stand and admit the underlying facts of the robbery and the murder [on] April 14, 1980. If Ramsey had taken the stand, Ramsey’s credibility could have been impeached not only by his participation in the crime but also by his lengthy criminal record.” And indeed not only did petitioner fail to carry his burden of persuasion that there is “no reasonable probability” that but for counsel’s failure to inform petitioner of the affirmative defense (assuming he was not so informed) the result would have been any different in the sense of being more favorable, but the record is to the contrary. He was competently represented by his trial counsel, who successfully plea-bargained so that although charged with two separate and independent crimes he received the substantial benefit of concurrent sentences. Had defendant gone to trial upon his questionable defense and been convicted, he was subject to the risk that he would receive the maximum sentence for felony murder, 25 years to life, instead of a term of 15 years to life to run consecutively and not concurrently, with the maximum sentence of 25 years for the first-degree robbery charge.

Petitioner’s final contention is that he was denied effective assistance of appellate counsel because the latter failed to inform him of the precise date his appeal was to be submitted. This claim as an alleged deprivation of federal constitutional rights is as lacking in substance as the other two claims. Appellate counsel, after informing petitioner that he concluded “no viable issues can be raised on your direct appeal” stated in a letter to petitioner, “as I told you in my previous letter, you have the right to file your own brief raising any points you wish the court to consider, and you have the right to request new counsel to assist you in presenting those points ... I cannot do anything else for you, and you must decide on the next step. If you decide-to ask the court to consider certain issues and request new counsel, you should write to the court as soon as. possible.” Counsel’s advice clearly was within the “range of reasonably effective assistance” and did not prejudice petitioner in any respect. The exact date the case was to be considered was of no consequence. The appeal was taken under submission. Upon affirmance of petitioner’s conviction as set forth above, he was advised of his right by the Clerk of the Appellate Division to present whatever matters he desired upon reargument. Petitioner did in fact do so and presented his claim in support of his motion to reargue his appeal.

Accordingly, the petition is dismissed.

So ordered.

      . 386 U.S. 738 (1967).

      . 54 A.D.2d 631, 387 N.Y.S.2d 399 (1st Dept. 1976).

      . New York Penal Law § 125.25(3) (McKinney 1975 & Supp.1975-1984).

      . Id. § 125.25(3).

      . Mitchell v. Scully, 746 F.2d 951, 956 (2d Cir. 1984), cert. denied, 105 S.Ct. 1765 (1985).

      . Id. at 954 (quoting Strickland v. Washington, 104 S.Ct. 2052, 2067-68 (1984)).

      . Plea minutes at 6, 9.

      . Plea minutes at 17.

      . New York Penal Law §§ 70.00(2) and (3); 70.30(1)(a) and (b) (McKinney 1975 & Supp.1975-1984).

      . Mitchell, 746 F.2d at 957 (quoting Toilet v. Henderson, 411 U.S. 258, 266 (1973)).

      . Id. at 955.

      . Id. at 954.


author: COHEN, Senior District Judge:

text:
    UNITED STATES of America, Plaintiff, v. Robert SKALSKY, Defendant.
    Crim. No. 85-121.
    United States District Court, D. New Jersey.
    Nov. 7, 1985.
    U.S. Dept. of Justice by George E. Wilson, Sp. Atty., Camden, N.J., for plaintiff.
    Wolf, Block, Schorr & Solis-Cohen by Gregory T. Magarity, Nancy D’Mara Ezold, Philadelphia, Pa., for defendant.
   OPINION

COHEN, Senior District Judge:

In the course of conducting a criminal investigation, the Government may be prompted to offer prosecutorial immunity to a witness in order to ensure his cooperation or assistance. The extent of cooperation which can reasonably be required of such a witness is an issue of obvious importance. The critical issue confronting this Court in the present case is: What degree of cooperation is the Government entitled to expect of a witness who has received the Government’s conditional written promise that he will not be prosecuted, based on the information he supplies, if he answers truthfully, accurately, and completely all questions asked of him in connection with a government investigation of one of his business associates? Research by counsel and this Court has revealed no general standard defining the scope of an immunized witness’ duty to disclose specific information during questioning by the Government.

Giving rise to the instant motion was the return of an indictment for income tax evasion against the defendant, Robert Skalsky. Defendant seeks dismissal of that indictment on the grounds that prosecution is precluded by a non-prosecution agreement between himself and the Government.

Defendant’s motion originally came before this Court in August, 1985. At that time we reserved decision pending a limited evidentiary hearing which would “add some flesh to” the Government’s skeletal allegations that the defendant had breached the non-prosecution agreement at issue. See United States v. Skalsky, 616 F.Supp. 676, 681 (D.N.J.1985). Based upon all of the evidence adduced at that hearing and the applicable law, we now deny defendant’s motion to dismiss the indictment. This opinion is submitted in lieu of findings of fact and conclusions of law, pursuant to Federal Rule of Civil Procedure 52(a).

BACKGROUND

On April 10, 1985 the Grand Jury returned a three count indictment against the defendant, charging him with willfully and knowingly attempting to evade and defeat payment of income taxes for the calendar years 1978 (Count I), 1979 (Count II) and 1961 through 1964 (Count III). Thereafter, the defendant filed the present motion to dismiss the indictment, arguing that an agreement between himself and the Government dated April 15, 1980 prohibited the Government from pursuing the prosecution. The circumstances surrounding the execution of that agreement follow.

In early 1980, the defendant was notified that the Government sought information from him concerning the business affairs of one of his associates, Emmanuel Gambino, who, at that time, was under investigation for income tax evasion. A “letter of interview” (requesting his appearance on March 7, 1980) was sent to the defendant on February 28, 1980. He did not respond thereto, (Tr. at 19), and on March 11, 1980 a subpoena was issued requiring him to appear on March 25, 1980 before a federal grand jury. (Tr. at 20). On March 21, 1980, Michael K. Simon, Esquire, the defendant’s attorney at that time, who is also his son-in-law, placed a call to the Government’s counsel, Special Attorney George E. Wilson, which was returned by Mr. Wilson on March 24, 1980. During that conversation, an adjournment of the defendant’s grand jury appearance was arranged. It was agreed that the defendant would appear on April 15, 1980. On that date, prior to submitting himself to questioning, he entered into an agreement with the Government. (Attached hereto as “Exhibit A”). This agreement proferred immunity from future prosecution based upon information supplied by the defendant in exchange for the truthful disclosure of all information regarding his activities in connection with Emmanuel Gambino. Some changes in the original wording of the agreement were made by the defendant’s attorney, and the agreement was signed by the defendant, his attorney, and Mr. Wilson.

After the agreement was executed, the defendant was interviewed by two Internal Revenue Service (“I.R.S.”) Special Agents, Paul J. Gould and Donald J. Pisker. Defendant then appeared before the Grand Jury. Several months thereafter, the Government, through Mr. Wilson and Special Agent Charles Schmidheiser, determined that the defendant had omitted certain material information from his statements to the Special Agents and the Grand Jury. (Tr. at 91 & 100). As a result of these determinations, defendant’s counsel was notified by letter of July 10, 1981 that the earlier agreement would no longer be given any force and effect. (Attached hereto as “Exhibit B”).

In our previous opinion on this motion, we held that the April 15 agreement was a valid contract between the defendant and the Government which, if breached by the defendant, would expose him to prosecution. Id. at 680. We further found that the Government’s allegation of breach which related to the defendant’s real estate dealings with Mr. Gambino in Atlantic City, New Jersey, if proven, would be material, and would therefore warrant the Government’s voiding of the agreement. Id. at 681. Because the case was a criminal one, however, in which the defendant is entitled to a presumption of innocence, we declined to hold that the Government’s proof of defendant’s breach was adequate as of August 26, 1985. Id. at 680-81. Instead, we held that a limited evidentiary hearing was required on the issue of the defendant’s breach of the agreement, and we placed upon the Government the onus of proving, in that hearing, by clear and convincing evidence, that the defendant had breached the agreement. Id. at 681.

THE EVIDENTIARY HEARING

The evidentiary hearing was conducted to resolve two factual issues relating to the defendant’s testimony about his dealings with Mr. Gambino. The Government had the burden of establishing, by clear and convincing evidence, (1) that prior to the date the defendant testified before the Grand Jury, he and Mr. Gambino had received and divided one quarter of a million dollars in settlement of a lawsuit concerning real estate in Atlantic City, New Jersey, and (2) that on the day he testified before the Grand Jury pursuant to an agreement not to prosecute, the defendant breached this agreement by giving false, incomplete, or misleading testimony with respect to the Atlantic City real estate transactions.

At the hearing, the Government presented the testimony of four witnesses and, with the consent of the defendant, the affidavit (“Stipulation of Expected Testimony”) of a fifth witness. Ample opportunity was provided for the cross-examination of these witnesses. One witness for the defense was presented. Numerous exhibits were admitted, and, subsequent to the hearing, briefs and proposed findings of fact were submitted by each party.

The witnesses called by the Government were:

(1) Paul J. Gould, Special Agent with the Criminal Investigation Division of the I.R.S. throughout March and April of 1980, who conducted the April 15, 1980 interview with the defendant;

(2) Donald J. Pisker, the Internal Revenue Agent who assisted Special Agent Gould in the April 15, 1980 interview;

(3) Charles J. Schmidheiser, a Special Agent with the Criminal Investigation Division of the I.R.S., who was assigned to the Gambino investigation subsequent to Special Agent Gould’s retirement from federal service;

(4) George E. Wilson, the Special Attorney with the U.S. Department of Justice, Organized Crime and Racketeering Section, who conducted the questioning of the defendant before the Grand Jury on April 15, 1980; and

(5) Leonard Horn, Esquire, (by Stipulation of Expected Testimony) the attorney for Gary and Louis Malamut, the parties who paid Skalsky and Gambino $250,000 in settlement of the suit regarding the Atlantic City properties.

The witness called by the defense was Michael K. Simon, Esquire, the defendant’s son-in-law, who served as his counsel on April 15, 1980.

The exhibits introduced into evidence included: Agent Gould’s Chronological Worksheet, his outline of questions for the defendant, and his typewritten memorandum of April 16, 1980 to the I.R.S. files; Agent Pisker’s handwritten memorandum of April 16, 1980 to the I.R.S. files (summarizing the interview of April 15); and Mr. Simon’s handwritten notes of April 15, 1980 (chronicling the interview), and typewritten memorandum of June 20, 1985 prepared at the request of the defendant’s present counsel (summarizing the interview of April 15, 1980).

The testimony of the witnesses, the exhibits presented at the hearing, and the post-hearing submissions of both the Government and the defendant have been fully considered. This Court has had the opportunity to observe the manner and demeanor of the witnesses, and our assessments of their credibility are necessarily reflected in our ultimate findings.

DISCUSSION

Prior to April 15, 1980, the defendant had received and divided with Mr. Gambino $250,000.00 in settlement of a lawsuit filed to enforce an option to buy certain real estate in Atlantic City referred to as the “Shelburne Hotel.” The defendant does not dispute this fact. Clear and convincing evidence, in the form of stipulated testimony by Leonard C. Horn, counsel for the parties from whom the money was received, and copies of several cancelled checks — two dated June 30, 1978 (one payable to the defendant for $50,000.00 and the other payable to Mr. Gambino for $50,-000.00), and two dated July 2, 1979 (one endorsed and marked payable to both the defendant and Mr. Gambino for $35,000.00, and another similarly endorsed and marked payable for $115,000.00), has been adduced by the Government to prove that Messrs. Skalsky and Gambino received and divided $250,000.00 during June and July of 1979.

At the interview on April 15, 1980 and during his testimony before the Grand Jury that same day, the defendant failed to disclose that either he or Mr. Gambino had received any money in connection with their attempt to acquire the Shelburne property. The defendant does not dispute this fact. Indeed, upon cross-examination at the evidentiary hearing, Mr. Simon, defendant’s counsel during 1980, who was present at the April 15, 1980 questioning, admitted that the defendant did not reveal that the Shelburne matter had been settled. (Tr. at 195). Defendant’s failure to disclose the receipt of the settlement money has been established by clear and convincing evidence.

We hold that this failure to disclose the receipt of $250,000.00 was a breach of the agreement the defendant made with the Government on April 15, 1980. When he signed the April 15 agreement, the defendant obligated himself, in the words of the agreement, to “give complete, truthful and accurate information and testimony”. In return for his complete and truthful testimony, defendant was to receive immunity from prosecution for any potential charges based upon information he supplied. By the execution of the contract, defendant agreed to cooperate with the Government, and, as a quid pro quo, the Government agreed not to use the information he supplied against him. Now, when confronted with the Government’s assertion that he failed to live up to his promise to disclose truthful, accurate, and complete information, the defendant claims that he was not explicitly asked for the specific information concerning the receipt of the money from the Shelburne litigation, and that therefore he is not in breach. He also contends that he was excused from performance under the contract. He maintains that the Government had orally agreed to permit him to review the Agent’s notes of the interview, but that the Government failed to provide him with such an opportunity. See Defendant’s Brief at 23-24. He urges that this failure by the Government was a breach of a bilateral contract and that therefore he was discharged from all liability on the contract. This argument is unavailing for several reasons. Foremost among those reasons is our finding that such an alleged breach on the part of the Government would not constitute a material breach so as to relieve the witness of his primary obligation under the agreement, particularly when, as here, the witness does not allege that the notes are inaccurate.

Defendant’s position that he had no obligation to disclose the fact that money had been realized in the Shelburne transaction represents an unreasonably narrow reading of the agreement. A careful review of the contract itself reveals that the Government’s promise is expressly conditioned upon complete disclosure by the defendant. Furthermore, when the Government, in the exercise of its discretion, grants immunity or, as here, agrees not to prosecute, we hold that more is required of the recipient than just to respond narrowly or evasively to specific questions. The spirit of cooperation demands more. Defendant relies upon United States v. Sanderson, 498 F.Supp. 273 (M.D.Fla.1980), for the proposition that his responses were legally sufficient. Sanderson, however, is inapposite. In that case the court held that absent a contractual agreement to the contrary, a witness had no continuing duty to volunteer information acquired subsequent to government questioning. We do not here decide the extent of a witness’ continuing duty, if any, to volunteer information acquired subsequent to government inquiry.

In the case at bar, the defendant knew that the purpose of the Government’s investigation was to ascertain Mr. Gambino’s income. Defendant does not dispute that he was aware of the purpose of the Government’s investigation. He argues instead that the Government has not proven, by clear and convincing evidence, that the agents told him the nature of the investigation. See Defendant’s Brief at 15. This contention is not only refuted by Mr. Simon’s testimony at the evidentiary hearing — when he admitted on cross-examination that he probably did ask what the investigation was about during his March 24, 1980 telephone conversation with Mr. Wilson (Tr. at 178-79) — it also misses the mark. For the purpose of determining whether the defendant had an obligation to disclose the receipt of a large sum of money, it is his comprehension of the purpose of the Government’s investigation which is relevant. On the basis of the evidence presented in this case, particularly Mr. Simon’s own memorandum summarizing the April 15, 1980 interview, it would be incredible to assert — and we note again that defendant does not make such an assertion— that the defendant was unaware of the purpose of the Government’s investigation.

The defendant herein knew that Mr. Gambino had received $125,000.00 in settlement of the Shelburne Hotel litigation. It is this Court’s view that he should have been more forthright about this obviously relevant fact. He had, pursuant to the April 15 agreement and particularly in light of the quid pro quo offered by the Government, an obligation to disclose the receipt of such a large sum of money.

We emphasize that we have before us a case in which the relevant topic (here the Shelburne Hotel transaction) was, in fact, the subject of inquiry by the government agents. This is not a case in which the relevant topic was left untouched so that the witness might have inadvertently overlooked the entire topic. Indeed, the evidence that the defendant’s attention was specifically called to the Shelburne Hotel dealings is unquestionable. Nor do we have a situation where the questioners prohibited, by their conduct during the interview, the volunteering of information by the witness. It is clear even from Mr. Simon’s own notes of the April 15 interview that the defendant was given ample opportunity to reveal the receipt of the Shelburne settlement monies. A significant period of time was devoted to discussion of the Shelburne property and to Messrs. Gambino and Skalsky’s attempts to acquire the property.

Moreover, it has been established, through the testimony of the I.R.S. agents who were present at the April 15 interview, that the information which the defendant did give the agents on the Shelburne Hotel transaction led these agents to believe that no monies passed between any third party and Messrs. Gambino and Skalsky. (Tr. at 46, 62 & 68). According to Agent Pisker’s testimony, the statement contained in the Government’s typewritten summary of the April 15 interview that the options which Messrs. Gambino and Skalsky had to buy the Shelburne Hotel “never materialized” was an assertion made by the defendant. (Tr. at 67). In light of the established fact that the defendant and Mr. Gambino had, in actuality, received $250,000.00 in settlement of the lawsuit filed concerning the options to buy the Shelburne Hotel, this statement is affirmatively misleading. Defendant argues that the contemporaneous notes taken by Mr. Simon, as deciphered by Mr. Simon and summarized in the June 20, 1985 typewritten memorandum to defendant’s present counsel, show that defendant informed the agents that a lis pendens had been filed against the Shelburne property. It is clear, of course, that a lis pendens had not only been filed, but that Messrs. Skalsky and Gambino had released this claim in exchange for the $250,000.00. Assuming, arguendo, that the defendant did mention the filing of the Us pendens, this partial disclosure of the facts was also misleading. “In other words, half of the truth may obviously amount to a lie, if it is understood to be the whole.” W. Prosser & W. Keeton, The Law of Torts, § 106 at 738 (5th ed. 1984) (discussing liability for civil deceit actions based on incomplete disclosure).

Defendant, by his argument that the April 15 agreement did not obligate him to reveal the receipt of the settlement monies because he was not asked explicitly whether any money was made on the transaction, seeks to take advantage of the Government’s asserted lack of aggressiveness with respect to acquiring information concerning the Shelburne income. In the same vein, he cites and relies upon Bronston v. United States, 409 U.S. 352, 93 S.Ct. 595, 34 L.Ed.2d 568 (1973), and other cases dealing with the standard of conduct required to uphold a conviction for perjury. These cases are inapposite. We do not have a perjury charge here. Nor do we have a situation similar to that in Bronston, for example, where the questioner and the person to whom the questions were addressed were in an adversarial relationship. The defendant herein, who knew he was considered only a witness by the Government, and who was not the target of the investigation, had agreed to cooperate with the Government’s investigation. Particularly in light of the fact that the Government clearly did ask specifically whether Messrs. Skalsky or Gambino had received “any monies” in each of the several other business deals discussed during the interview, we disagree with defendant’s claim that he was under no obligation to reveal the receipt of the Shelburne settlement monies.

Accordingly, the defendant’s motion to dismiss the indictment shall be denied. The Court shall enter an appropriate order.

      . The change requested by Mr. Simon was the addition of the last sentence of the third paragraph of the letter/agreement. (Tr. at 136).

      . Mr. Simon testified that he remained the defendant's attorney until July 1981. (Tr. at 155).

      . At the hearing, in response to questioning by the Court, Mr. Simon, the attorney who served as defendant’s counsel in 1980, admitted that he also knew, before April 15, 1980, that the defendant and Mr. Gambino had received and divided the settlement money. (Tr. at 196-97).