author: MacLAUGHLIN, District Judge.

text:
    Doris JACOBSON, Plaintiff, v. PITMAN-MOORE, INC., a corporation, and Johnson & Johnson, Inc., a corporation, Defendants.
    Civ. No. 4-82-1186.
    United States District Court, D. Minnesota, Fourth Division.
    Dec. 20, 1985.

      Karla R. Wahl, Minneapolis, Minn., for plaintiff.
    Marion C. Haney, Vedder, Price, Kaufman & Kammholz, Chicago, 111. and Rebecca Palmer and Howard B. Tarkow, Maslon, Edelman, Borman & Brand, Minneapolis, Minn., for defendants.
   MacLAUGHLIN, District Judge.

This matter is before the Court on an order of remand from the United States Court of Appeals for- the Eighth Circuit. This Memorandum incorporates the Court’s findings of fact and conclusions of law.

BACKGROUND

Plaintiff Doris Jacobson was formerly an employee of defendant Pitman-Moore, Inc. (PMI), which is a subsidiary of defendant Johnson & Johnson, Inc. Plaintiff worked for PMI from March 13,1972, until April of 1981 when PMI terminated her employment. Plaintiff was 49 years old at the time of the termination. The facts surrounding the termination are more fully set out in Jacobson v. Pitman-Moore, Inc., 573 F.Supp. 565, 566-67 (D.Minn.1983).

Plaintiff filed this action on September 2, 1982, the same day she filed discrimination charges with the Minnesota Human Rights Commission and the Equal Employment Opportunity Commission (EEOC). Plaintiff’s civil action contained eight counts, each setting forth a separate theory assailing the termination. In an order dated January 21,1983, the Court dismissed all of plaintiff’s counts except for her claims under the Equal Pay Act, 29 U.S.C. § 206, and the Age Discrimination in Employment Act (ADEA), 29 U.S.C. §§ 621-34. On October 24, 1983, the Court granted defendants’ motion for summary judgment on plaintiff’s Equal Pay Act claim, but denied defendants’ motion as it pertained to plaintiff’s ADEA claim. Jacobson, 573 F.Supp. at 570.

The case went to trial in November of 1983 on plaintiff’s ADEA claim, and the jury found in favor of plaintiff. The Court entered judgment on the jury verdict on January 17, 1984. Subsequently, defendants moved for judgment notwithstanding the verdict or, alternatively, a new trial. The Court denied this motion in an order dated March 12, 1984. Jacobson v. Pit-man-Moore, Inc., 582 F.Supp. 169, (D.Minn.1984). Defendants appealed the Court’s March 12, 1984 order and January 17, 1984 entry of judgment.

In an order dated March 28, 1985, the Eighth Circuit remanded for further factual findings regarding “the nature of the attorney-client relationship between” plaintiff and Bruce Johnson, the first attorney plaintiff consulted regarding the termination of her employment. The Eighth Circuit further directed the Court to make conclusions of law regarding the appropriateness of tolling the ADEA’s statute of limitations in light of the factual findings regarding the attorney-client relationship between plaintiff and Johnson. The parties proceeded to conduct additional discovery on this issue, and they submitted deposition transcripts and legal memorandum to the Court.

FACTS

Plaintiff first contemplated filing a lawsuit against PMI the day PMI called to inform her of her discharge. Jacobson 5, 26. In May of 1981, approximately one month after PMI terminated plaintiffs employment, plaintiff decided to contact an attorney regarding her discharge. Id. at 4. Plaintiff obtained the name of attorney Bruce Johnson from an acquaintance of hers. In June of 1981, plaintiff called Johnson to set up an appointment. During the phone conversation, plaintiff explained to Johnson how her discharge had come about, and Johnson told plaintiff to meet with him to discuss the situation. This telephone conversation lasted approximately four minutes. Id. at 7-8.

A day or two later, plaintiff met with Johnson in his office. Jacobson 7. This was the first time plaintiff had dealt with a lawyer, and she did not know what to expect. Id. at 11. At this meeting plaintiff informed Johnson in greater detail about the circumstances of her discharge. Plaintiff further told Johnson that she believed that PMI had discriminated against her on the basis of her age and sex. Id. at 9-10. Plaintiff also told Johnson about her PMI pension booklet (describing her pension rights). Johnson stated that he wanted to look at the booklet, id. at 16, and he also told plaintiff to try to get a copy of the complete pension plan and to find out more facts regarding her termination. Johnson 21-22. The meeting between plaintiff and Johnson lasted approximately 15 to 30 minutes. Id. at 18; Jacobson 9.

At the conclusion of the meeting, plaintiff’s understanding was that Johnson “would look into the matter and let [her] know what had to be done____” Jacobson (June 20, 1985) 14; see also Jacobson 15. Plaintiff took it for granted that Johnson would represent her, and she expected to be charged for the initial meeting. Id. at 33-34. Johnson did not inform plaintiff about the statute of limitations during this initial meeting. Jacobson (June 20, 1985) 14.

Plaintiff returned to Johnson’s office approximately one week after their initial meeting in order to let Johnson review plaintiff’s employee benefit booklet. When plaintiff gave Johnson the booklet, plaintiff and Johnson did not engage in a substantive conversation about plaintiff’s claims. See Jacobson 15-18.

From June of 1981 until July of 1982, the only contact plaintiff had with Johnson involved telephone calls which did not relate to plaintiff’s termination of employment. During this period, plaintiff was working at a roofing company, and her duties included answering the telephone. On two occasions, Johnson called plaintiffs superi- or at the company and plaintiff answered the phone. Plaintiff exchanged pleasantries with Johnson, but neither party discussed plaintiffs discharge. Plaintiff did not inquire as to the status of Johnson’s efforts on her behalf and Johnson made no reference to his progress or activity regarding plaintiff’s discharge claims. See Jacobson 18-20.

In July of 1982, plaintiff spoke with Robert Hanlin, who was plaintiffs supervisor at PMI. When PMI discharged plaintiff, PMI transferred Hanlin, and he subsequently contacted an attorney. The attorney informed Hanlin about the statute of limitations and Hanlin in turn told plaintiff about it. Plaintiff called Johnson on July 28, 1982 and stated that Hanlin’s attorney had informed Hanlin that a statute with a time limit existed. Plaintiff asked Johnson if the time limit applied to her case, but Johnson responded that the time limit had nothing to do with her case. The question concerning the statute of limitations was the extent of the conversation; plaintiff did not inquire as to the status of Johnson’s efforts regarding her claims, nor did Johnson offer any such information. Neither person arranged for future contacts. In total, the conversation lasted approximately five minutes. Id. at 20-21.

Plaintiff’s next contact with Johnson came on August 18, 1982 when he called her and told her to come to his office on August 20, 1982. Plaintiff went to Johnson’s office on that date, and there she met for the first time her present attorney, Karla Wahl. Johnson had not told plaintiff that she would be meeting with another attorney, thus plaintiff did not expect another attorney to be present. Id. at 21-23. During the meeting between plaintiff, Johnson, and Wahl, it was explained to plaintiff what had to be done in order to bring suit against PMI. Id. at 24-25. (Wahl must have done the majority, if not all, of the explaining because Johnson is not experienced in the field of employment discrimination law. See Wahl 12.) Wahl explained to plaintiff the need to file a complaint with the appropriate agencies within a certain time. This was the first time anyone had explained the EEOC statute of limitations to plaintiff. Johnson Aug. 29, 1983 aff. U 2. During the August 20 meeting, plaintiff agreed to have Wahl represent her, and plaintiff gave Wahl the go-ahead to commence a lawsuit. Jacobson 28-29.

Plaintiff testified that after this meeting, her understanding was that Johnson “was somebody who found an attorney for me.” Id. at 29. Plaintiff testified that after the August 20, 1982 meeting, she did not know whether she expected to see Johnson again or whether she expected Johnson to sign pleadings. Plaintiff further testified that after this meeting she did not contact Johnson further because Wahl was handling the matter. Id.

Six days later, on August 26, 1982, plaintiff did return to Johnson’s office to sign a statement of discrimination for filing with the EEOC. Id. at 30; Johnson exh. 10. Plaintiff’s only conversation with Johnson was an exchange of pleasantries. See Jacobson 30. Wahl was not present during the meeting. See Wahl 50. Plaintiff signed the statement of discrimination in Johnson’s office because it was easier for plaintiff to travel to Johnson’s office than to Wahl’s office. Jacobson 30-31.

After August 26, 1982, plaintiff did not have any telephone conversations with Johnson. Id. at 30; 36-37. Neither did plaintiff have any written correspondence with him after that date. (Plaintiff and Johnson did not have any written correspondence before that date either.) Id. at 36. During the course of the litigation, however, plaintiff did notice that Johnson’s signature appeared on the pleadings. (Wahl would send plaintiff copies of the pleadings.) Plaintiff testified that while she observed Johnson’s name on these documents, she “didn’t think a whole lot about it.” Id. at 29. Plaintiff further testified that she was surprised to see Johnson at a motion hearing before the Court because she hadn’t talked to him, presumably since August 26, 1982. Id. at 32. Although plaintiff did not specify the date of the hearing, it must have been the November 10, 1982 oral argument on defendants’ motion to dismiss. See Minutes of November 10, 1982 Proceedings (both Wahl and Johnson appeared as counsel for plaintiff).

Johnson testified that he was never plaintiff’s attorney in the federal court litigation (i.e. the present action). Prior to plaintiff’s commencing this action, Johnson considered himself plaintiff’s attorney for purposes of finding someone to take her case. Johnson (June 19, 1985) 62-63. Johnson acknowledges, however, that he did do work in connection with plaintiff’s federal lawsuit. Id. at 8, Johnson 44-46. Johnson states that even though he was working on the case, he was not representing plaintiff. Id. at 50-57. Johnson’s rationale is that he was an agent or law clerk for Wahl. See Id.; Johnson (June 19,1985) 61-62, 111-12.

Further indications of Johnson’s role in the federal court litigation are found in the pleadings and documents of the case. Johnson’s name and signature appear on plaintiff’s original complaint, and Johnson’s name appears on plaintiff’s amended and second amended complaints. The Clerk of Court’s docket sheet listed Johnson as a counsel of record in this case from its inception, September 2, 1982, until sometime prior to October 24, 1983. See October 24, 1983 Clerk’s Notice under Fed.R.Civ.P. 77(d) (only lists Wahl as counsel for plaintiff) but cf. October 24, 1983 Order (lists Wahl and Johnson as counsel for plaintiff). During this period, Johnson’s name appeared on a variety of pleadings and other documents. E.g., Johnson exh. 1A (July 7, 1983 letter from Court’s calendar clerk to all counsel of record); plaintiff’s June 13, 1983 motion to promulgate more than 50 interrogatories; and plaintiff’s December 22, 1982 demand for a jury trial. Wahl testified that she included Johnson’s name on the pleadings simply as a courtesy because he had referred the case to her. Wahl 36.

During the course of the litigation, Johnson made two court appearances as plaintiff’s counsel. He and Wahl both appeared as plaintiff’s counsel at the November 10, 1982 oral argument on defendant’s motion to dismiss. See Minutes of November 10, 1982 Proceedings. Johnson, moreover, was the only attorney who appeared on behalf of plaintiff at the December 21, 1982 pretrial conference before the United States Magistrate. See Minutes of Pretrial Conference; Pretrial Schedule, December 21, 1982 Order of U.S. Magistrate. Finally, an affidavit sworn to by Wahl herself referred to Johnson as “plaintiff’s counsel.” Wahl August 9, 1983 aff. ¶ 3.

DISCUSSION

In previously concluding that the EEOC statute of limitations should be equitably tolled, the Court essentially relied on three bases. See Jacobson, 573 F.Supp. at 569-70. One of the equitable factors supporting tolling was that plaintiff’s untimely filing did not prejudice the defendants. Jacobson, 573 F.Supp. at 570. Subsequent to the Court’s decision, though, the Eighth Circuit held that the lack of prejudice to the defendant from a late EEOC filing did not justify equitable tolling of the EEOC statute of limitations. Kriegesmann v. Barry-Wehmiller Co., 739 F.2d 357, 359 (8th Cir.) (per curiam), cert. denied, — U.S. -, 105 S.Ct. 512, 83 L.Ed.2d 402 (1984). The Court, therefore, can no longer rely on this factor.

Another equitable factor the Court originally pointed to was that plaintiff did not sleep on her rights since she sought out an attorney within two months of her discharge. Jacobson, 573 F.Supp. at 570. While plaintiff does deserve credit for quickly seeking out an attorney, plaintiff could have been more vigorous in protecting her rights. Obviously, Johnson should have taken the initiative in investigating plaintiffs claims or in contacting plaintiff to see what the delay was in her reporting back to him. (Another possibility would be that Johnson should have quickly told plaintiff that he declined to represent her.) Nevertheless, even a person inexperienced in dealing with lawyers, such as plaintiff, would have to wonder why an attorney looking into her case had not contacted her for more than one year. Plaintiff also had two fortuitous opportunities to ask Johnson about the status of her case when Johnson called the roofing company to speak with plaintiffs superior. When plaintiff answered these phone calls, she could have easily inquired into the status of Johnson’s efforts on her behalf, but she did not. Again, Johnson should have taken the initiative as far as pursuing the case (or clarifying that he would not be pursuing it), but plaintiff’s conduct indicates that she could have done much more to protect her rights.

The final basis for the Court’s original decision to equitably toll the statute of limitations was the Court’s view that the attorney-client relationship between plaintiff and Johnson was “fleeting and unproductive.” Jacobson, 573 F.Supp. at 570. Although the Court adheres to its characterization of this attorney-client relationship as unproductive, the Court, based on the additional discovery in this case, no longer views this relationship as fleeting.

After her initial meeting with Johnson, plaintiffs understanding was that he would look into the matter of her discharge. In addition, Johnson testified that he told plaintiff to find out more facts about her termination. The clear implication from this evidence is that both plaintiff and Johnson envisioned their attorney-client relationship to go beyond their initial meeting. This conclusion is also supported by plaintiff's returning to Johnson’s office one week after the first meeting in order to show Johnson her pension booklet. A further indication that plaintiff and Johnson believed they had an ongoing attorney-client relationship lies in plaintiff’s July 28, 1982 telephone call to Johnson. When plaintiff called to ask Johnson if she had to be concerned about a statute of limitations, Johnson responded that it had nothing to do with her case. If Johnson believed that he was not acting as plaintiff’s attorney, Johnson logically would not have given plaintiff legal advice and would have clarified the fact that he was not representing plaintiff. See Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686, 693 (Minn. 1980) (per curiam) (legal advice given in an initial consultation, for which no fee was charged, gave rise to malpractice liability).

Johnson states that prior to plaintiff’s filing her federal court action, he was her attorney “for the purpose of finding someone to take [her] case.” Johnson (June 19, 1985) 63. Even if the Court could accept this characterization, Johnson delayed terribly in locating other counsel. Furthermore, the Court finds that both plaintiff and Johnson understood that Johnson would further look into the circumstances of plaintiffs discharge. Thus, an attorney-client relationship, albeit an unproductive one, existed between plaintiff and Johnson from June of 1981 until at least August 20, 1982. Cf. Togstad, 291 N.W.2d at 693 (attorney advising plaintiff that no claim existed, but that he would call her back if he changed his opinion after he consulted with his partner, constituted attorney-client relationship). During this time period, the EEOC filing deadline passed. (February of 1982 is 300 days after April of 1981.)

Johnson also acknowledges working on plaintiff’s federal lawsuit after plaintiff filed it on September 2, 1982, but he nevertheless maintains that he did not represent plaintiff because he was merely working as an agent or law clerk for Wahl. This characterization, however, is clearly inaccurate. Johnson was a counsel of record in the federal litigation from its inception on September 2, 1982, until sometime shortly prior to October 24,1983. The Court cannot accept Wahl’s claim that she merely put Johnson’s name on pleadings as a courtesy. Not only does Johnson’s name appear on all three versions of plaintiff’s complaint and a variety of other court documents, Johnson signed plaintiff’s original complaint. By signing the complaint, Johnson certified that he was representing plaintiff (and that good grounds supported the complaint). See Fed.R.Civ.P. 11, 28 U.S.C. Appendix (1982). Johnson, moreover, made two court appearances as plaintiff’s counsel, and in one of these, he was the only attorney appearing on plaintiff’s behalf. Wahl herself even referred to Johnson as “plaintiff’s counsel” in an August 9, 1983 affidavit. Finally, plaintiff was aware that Johnson’s name appeared on pleadings and other documents. The Court, therefore, finds that Johnson, was acting as an attorney representing plaintiff up until October 24, 1983.

This conclusion directly impacts upon the decision to toll the EEOC statute of limitations. The Court previously observed that cases tend to use a plaintiff’s consultation with an attorney as a basis for imputing constructive knowledge of the EEOC filing deadlines only when the attorney-client relationship spanned over some significant period of time. Jacobson, 573 F.Supp. at 569. While the attorney-client relationship between plaintiff and Johnson from June of 1981 until August of 1982 was unproductive, it was an attorney-client relationship of a significant duration. Johnson, moreover, continued to represent plaintiff until sometime shortly prior to October 23, 1983. The length of this attorney-client relationship, therefore, causes this case to fall within the line of cases where an attorney-client relationship of some duration results in a plaintiff having constructive knowledge of the EEOC filing requirements. See, e.g., Keyse v. California Texas Oil Corp., 590 F.2d 45, 47 n. 2 (2d Cir.1978) (per curiam).

The result of negating plaintiff’s ADEA claim because ,of the failings of an attorney is, no doubt, harsh. Still, defendant is not responsible for attorney Johnson’s conduct. See Edwards v. Kaiser Aluminum & Chemical Sales, Inc., 515 F.2d 1195, 1200 n. 8 (5th Cir.1975); Gutierrez v. Mofid, 39 Cal.3d 892, 218 Cal.Rptr. 313, 705 P.2d 886, 890-91 (1985) (en banc). Plaintiff’s recourse may well be a legal malpractice action against Johnson. See Togstad, 291 N.W.2d at 693; Gutierrez, 705 P.2d at 891. The Court reluctantly concludes that a tolling of the statute of limitations is inappropriate in the case at bar.

CONCLUSIONS OF LAW

Based on the new evidence submitted, the Court has determined that the EEOC filing requirement was not equitably tolled. The Court concludes that defendant’s motion for summary judgment should be granted.

      . A name followed by a page number denotes a page of a deposition transcript. Unless otherwise noted, reference to Jacobson's deposition are to her July 8, 1985 deposition.

      . Johnson could not recall if the telephone conversation involved anything more than setting up the meeting. Johnson 15. (Unless otherwise stated, references to a Johnson deposition are to his July 8, 1985 deposition.) Based on plaintiffs more detailed memory on this point, the Court finds that the conversation involved more than simply setting up the meeting.

      . Plaintiff testified that "maybe [she] took it for granted” that Johnson would represent her. Jacobson 34. Based on plaintiffs testimony as a whole, the Court finds that plaintiff did expect Johnson to represent her.

      . Johnson states that plaintiff had the booklet with her at their initial meeting and that he asked her to obtain a copy of the complete pension plan. Johnson 17-19. Plaintiff, however, thinks she did not have the booklet with her at the first meeting and she states that she might have brought it to Johnson for his review about a week after their initial meeting. Jacobson 15-17. The differences between plaintiffs and Johnson’s recollection is quite understandable considering the passage of time involved. Although she is not positive that she first gave Johnson the pension booklet one week after her initial meeting with Johnson, plaintiff does seem to recall returning to Johnson’s office a second time, just to show him a book. Id. at 17. Thus, the Court finds that plaintiff did not have the booklet on her initial visit and that she returned one week later to let Johnson look at it.

      . Johnson testified that he told plaintiff that he would try to obtain a lawyer for her. Johnson 31. Johnson thought this conversation occurred in early August, but the substance of the conversation relates to the conversation plaintiff initiated on July 28, 1982. See Id. at 29-30; Jacobson 20-21. Plaintiffs recollection of the July 28, 1982 conversation, however, did not include Johnson's statement about obtaining counsel. Id. Furthermore, plaintiffs not expecting to see another attorney at the August 30 meeting is another indication that Johnson did not tell her he was going to locate another lawyer, and the Court finds that Johnson did not make such a comment.

      . Johnson never filed with the Clerk of Court any document indicating that he was withdrawing as counsel for plaintiff.

      . The current version of Fed.R.Civ.P. 11 was not in effect when Johnson signed plaintiffs complaint, but the previous codification of the rule still supports the conclusion that Johnson’s signature denotes that he was representing plaintiff:
      Every pleading of a party represented by an attorney shall be signed by at least one attorney of record____ The signature of an attorney constitutes a certificate by him that he has read the pleading ... and belie[ves] there is good ground to support it; and that it is not interposed for delay.
      Fed.R.Civ.P. 11, 28 U.S.C. Appendix (1982).


source: Caselaw Access Project

author: MORAN, District Judge.

license: Public Domain

text:
    William A. CRAIG, individually and on behalf of those similarly situated, Plaintiff, v. REFCO, INC., an Illinois corporation, Merrill Lynch Futures, Inc., a foreign corporation, Clayton Brokerage Company of St. Louis, a foreign corporation, and the Futures Discount Group, Inc., an Illinois corporation, Defendants.
    Nos. 84 C 10900, 85 C 4335 and 85 C 0577.
    United States District Court, N.D. Illinois, E.D.
    Dec. 20, 1985.
    Robert A. Holstein, Holstein, Mack and Assoc., Chicago, 111., for plaintiff.
    Thomas P. Luning, Susan R. Lichtenstein, David M. Mason, Schiff, Hardin & Waite, Chicago, 111., for defendant Refco.
   MEMORANDUM AND ORDER

MORAN, District Judge.

As an investor in the commodities market, plaintiff challenges his futures contract brokers’ practice of retaining the interest made by investing plaintiff’s margin funds. Plaintiff claims that because section 4(d) of the Commodity Exchange Act (the Act), 7 U.S.C. § 6d, treats such money as belonging to the customer, any interest accrued on such money also belongs to the customer. Defendants argue that while plaintiff’s argument sounds logical, it is contrary to congressional intent. They have moved for dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the ground that their interpretation of the Act precludes plaintiff’s claims. Because the Act has been definitively interpreted as supporting defendants’ views, the court grants defendants’ motion as to plaintiff’s claims based on 7 U.S.C. § 6d.

I.

Because commodities futures contracts are executory contracts representing a promise to deliver or buy commodities in the future, there is always a risk that when the contract comes due the buyer or seller will default. To protect both parties, each must deposit with the futures contract broker (known as futures commission merchants or FCM) money which serves as a performance bond or earnest money and is called “a margin.” The margin serves to protect the broker, as well as the customer, because Exchange rules require the FCM to bear any trading losses not honored by its customers. P.M. Johnson, Commodities Regulation, § 1.10 at 32 (1982). 2Be-cause of the short-term nature of the risk of default the margin must be extremely liquid. It is usually in the form of cash.

The Act regulates brokers’ handling of margins. Section 4d(2) of the Act, 7 U.S.C. § 6d(2), mandates, inter alia, that FCMs treat and deal with all funds and property received by them to margin, guarantee or secure trades or contracts, or accruing as the result of trades or contracts, as the property of the customer. Customer funds and property within the meaning of § 4d(2) must be separately accounted for and may not be commingled with the FCM’s own funds or used to margin the trades of or extend credit to any other person. However, this same section allows but does not require FCMs to invest these funds in certain (highly liquid) obligations.

The regulations which correspond to § 4d(2) detail this basic framework. FCMs may invest in obligations specified in § 4d(2) (Regulation 1.25), they must segregate and separately account for such obligations (Regulation 1.26), and they must maintain detailed records concerning such investments (Regulation 1.27). Under Regulations 1.28 and 1.29, FCMs who invest customer funds in authorized obligations bear the risk of any decline in the value of such obligations and may retain any “increment” and “interest” received on such investments. Regulation 1.29 specifically states:

The investment of customer funds and obligations described in section 1.25 shall not prevent the futures commission merchant or clearing organization so investing such funds from receiving and retaining as its own any increment or interest resulting therefrom.

17 C.F.R. § 1.29 (1985). It is this regulation which plaintiff claims flatly contradicts, and is, therefore, an erroneous application of § 4d(2)’s mandate that brokers will handle margins “as belonging to [the] customer.”

II.

Before analyzing plaintiff’s arguments the court notes that it is unclear from his pleadings and briefs what exactly he thinks is illegal conduct. Craig’s complaint seems to say that FCMs act illegally when they retain interest made on any margin money of the customers (count I, ¶ 24). However, in his memorandum in opposition to Refco’s motion to dismiss the amended complaint, Craig claims a right only to the interest on the surplus margin which remains after the FCM has paid the margin required by the Exchange. Because no such distinction exists in the Act or its regulations, and plaintiff has given no reasonable basis for splitting up the margin into different categories and treating each sum differently, the court refuses to accept plaintiffs distinction. Plaintiffs arguments will be discussed in terms of all the funds received by an FCM from the customer, including the initial margin and any adjustments made to it due to profits or losses.

Plaintiffs basic argument is that by enacting Regulation 1.29 the Commodity Futures Trading Commission (CFTC) erroneously interpreted the Act, contradicting its mandate that FCMs treat margin as belonging to the customer. His argument is one of congressional intent. Only when such intent cannot be divined from legislative history or congressional actions (using traditional tools of statutory construction) is it necessary to construct Congress’ intent indirectly by analyzing administrative interpretations of the statute. Chevron, U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984).

For his argument, plaintiff Craig cites various supporting rules of statutory construction in his initial brief, including the “plain language rule,” the rule that “no clause, sentence or word should be rendered void or contradictory,” and the rule that “a statute is to be given reasonable construction.” Unfortunately, Craig does not address the legislative history of the Act, which clearly authorizes the practice described in Regulation 1.29 and which no amount of statutory construction can deny.

In 1936 Congress was concerned with FCMs’ practice of using customer margin funds to satisfy their own debts or to extend credit to other customers. As Senator Pope said:

[Margin deposits] have been intermingled with the funds of these [futures commission] merchants, and have been used by them in the conduct of their own business. They have not been held intact for the benefit of the traders. It further appears that certain favored dealers have not been required actually to put up the money for margins and have been extended credit in that respect. This gives these favored dealers an advantage. In some instances large commission firms have become bankrupt and the funds placed with them by a large number of dealers were lost.

80 Cong.Rec. 6162 (1936).

The House solution was to prevent FCMs from using margin money at all for any purpose. 79 Cong.Rec. 8587 (1935). The Senate felt that this was too harsh:

A third question has been raised as to the proviso in subsection 2 of section 4(d) ... which refers to moneys deposited with commission merchants for margins. It is provided in the bill that these moneys must be deposited by the commission merchant with a bank or trust company or clearing house organization. It is pointed out that such commission merchants ought to have the right to invest this money in good securities. This seems a valid criticism of the bill.
The grain futures administration believes that such investments may properly be made but should be limited to investment securities of national banks, as defined in and under authority of section 5136 of the revised statutes of the United States, as amended____ It would rule out questionable paper in which many State banks are now permitted to invest their capital____

80 Cong.Rec. 6612-13 (1936) (remarks of Senator Pope). The Senate adopted the agency’s suggestions and § 4d(2) was amended. The amendment was to “provide some limitation under which the commission men may use [customer funds] to invest” while rectifying “the evils which have heretofore existed in relation to the investment of money coming from clients____” 80 Cong.Rec. 7911 (1936) (remarks of Senator Norris).

The senators’ language and purpose directly supports Regulation 1.29, when read with Regulations 1.25 through 1.28. Congress wanted to ensure that customers’ margin funds did not disappear. Regulations 1.25 ensures this by requiring FCMs to maintain at all times funds equivalent to the present market value of the margin deposited by the customer. Because of this requirement the FCM must compensate for any decline in the value of an obligation purchased with customer funds by adding his own funds to the segregated account. Hence the FCM, not the customer, bears the risk of any decline in the value of investments purchased with customer funds. Conversely, Regulation 1.29 recognizes that FCMs may retain the profits received on such investments. Plaintiff argues that this scheme fails because

if the FCM purchases Treasury bills with the customer’s margin deposits the FCM receives interest earned, but if the customer, instead of depositing cash, purchases T-bills himself (and uses those as his margin deposit), he receives the interest earned.

(Plaintiff’s answering memorandum in opposition to defendants’ and amici memorandum in support of a motion to dismiss, p. 2).

' Plaintiff misses a key point in his argument: the customer who gives an FCM a T-bill as margin, instead of cash, may gain from the T-bill, but he or she is also bearing the risk of a decrease in the instrument’s value. The Act’s scheme, framed in its regulations, is simply a codification of the basic proposition that he or she who bears the risk should also receive the benefit from such risk. By its language Congress clearly intended to incorporate this proposition into § 4d of the Act. The Act restricts investment to “safe” securities, but even those are subject to fluctuation in value due to changes in interest rates. If the FCM bore the risk of loss but had no opportunity to gain there would be no reason to invest at all and the authority to invest would, as a practical matter, be meaningless. Congress permitted investment for a limited gain if the FCM accepted the possibility of a limited loss.

Further support of Regulation 1.29 can be found in Congress’ actions since the Act was passed. Since then Congress has comprehensively reviewed the federal regulatory framework governing commodities futures trading on at least four occasions. See Pub.L. 90-258, 82 Stat. 26 (1968); Commodities Futures Trading Commission Act of 1974, Pub.L. 93-463, 88 Stat. 1389 (1974); Futures Trading Act of 1978, Pub.L. 95-405, 92 Stat. 865 (1978); Futures Trading Act of 1982, Pub.L. 97-444, 96 Stat. 2294 (1983). Not once did Congress disturb Regulation 1.29, even though the 1968 and the 1974 legislation included amendments to § 4d(2). Although the section was scrutinized, Regulation 1.29 was left intact. From these actions the court can infer congressional approval of the regulation and the statutory construction it codifies. North Haven Board of Education v. Bell, 456 U.S. 512, 535, 102 S.Ct. 1912, 1925, 72 L.Ed.2d 299 (1982). See also Merrill Lynch, Pierce, Fenner & Smith v. Curran, 456 U.S. 353, 382, 102 S.Ct. 1825, 1841, 72 L.Ed.2d 182 (1982); NLRB v. Bell Aerospace Co., 416 U.S. 267, 274-75, 94 S.Ct. 1757, 1761-62, 40 L.Ed.2d 134 (1973). The inference is particularly appropriate here because in enacting the 1974 amendments Congress expressly mandated that

[a]ll rules, regulations and orders heretofore issued by the ... [CFTC] under the [Commodity Exchange Act] to the extent not inconsistent, with provisions of this Act, shall continue in force and effect unless and until terminated, modified or suspended by the [CFTC].

Pub.L. 93-463, 93d Cong.2d Sess. § 411, 88 Stat. 1389 (1974).

This court holds that Congress intended to allow FCMs to keep interest or other profit made from investing margin monies in obligations specified by the Act.

Even if congressional intent was not as clear as we think it is, Regulation 1.29 is legal as a reasonable administrative interpretation of congressional intent. Chevron, 104 S.Ct. at 2782 (reasonable interpretation is correct standard); see also Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); Itel Corp. v. U.S. R.R. Retirement Bd., 710 F.2d 1243, 1244-45 (7th Cir.1983). Further where, as here, Congress expressly delegates rule-making authority to the agency, the agency’s regulations are given “controlling weight.” Chevron, 104 S.Ct. at 2782; see also Production Tool v. Employment and Training Administration, 688 F.2d 1161, 1165 (7th Cir.1982). As a final blow to plaintiff’s attack, Regulation 1.29 — written only one year after passage of the original Act — has

peculiar weight as a contemporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion; making the parts work efficiently and smoothly while they are yet untried and new.

Norwegian Nitrogen Products Co. v. U.S., 288 U.S. 294, 315, 53 S.Ct. 350, 358, 77 L.Ed. 796 (1927). See also Miller v. Youakim, 440 U.S. 125, 144, 99 S.Ct. 957, 968, 59 L.Ed.2d 194 (1979) (administrative interpretations are especially persuasive where, as here, the agency participated in developing the provision). Thus, legal standards for the review of administrative interpretation all point to the legality of Regulation 1.29.

Because we find that defendants are entitled to interest and profit from investing plaintiff’s margin funds, we find plaintiff’s claim that he is entitled to such funds under § 4d(2) of the Act insufficient to state a claim upon which relief can be granted. Marchese v. Shearson, Hayden, Stone, Inc., C.V. 78-4298-WMB, (C.D.Calif., June 27, 1985). See also Crabtree Investments, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 577 F.Supp. 1466 (M.D.La.1984).

III.

Plaintiff’s other claim is based upon the Racketeer Influenced and Corrupt Organizations Act (RICO). But that claim is dependent upon illegal conduct under § 4d(2) of the Act, and there is none. Accordingly, we dismiss the RICO count as well.

Conclusion

Plaintiff’s claims under the Commodity Exchange Act and the RICO Act are dismissed for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

      . "Typically, the deposit made by each party when the futures contract is first entered is called the ‘initial’ margin, implying — correctly— that additional deposits may become necessary. The need for additional margin is usually triggered by changes in the market price of the contract. Thus, for example, if the market price of the futures contract declines so that the buyer ... sustains a paper loss, that loss is deemed to erode the deposit that he originally made and a margin call for additional funds will be issued by his carrying broker (who acts as custodian of the deposit). Conversely, however, if the market price of the futures contract rises, so that the buyer has a paper profit, he may usually withdraw a equivalent amount of the deposit originally made since the unrealized profit will act is protection in its place. The seller ... is likewise subject to margin calls if a market price movement creates paper losses and he too may make withdrawals from his original deposit if unrealized profits accrue.” P.M. Johnson, Commodities Regulation § 1.21 at 31-32 (1982).

      . Section 4d(2) of the Act provides:
      (2) Such person (FCM) shall, whether a member or non-member of a contract market, treat and deal with all money, securities, and property received by such person to margin, guarantee, or secure the trades or contracts of any customer of such person, or accruing to such customer as a result of such trades or contracts, as belonging to such customer. Such money, securities, and property shall be separately accounted for and shall not be commingled with the funds of such commission merchant or be used to margin or guarantee the trades or contracts, or to secure or exchange the credit, of any customer or person other than the one for whom the same are held: provided further ... That such money may be invested in obligations of the United States, in general obligations of any State or of any political subdivision thereof, and in obligations fully guaranteed as to principal and interest by the United States, such investments may be in accordance with such rules and regulations and subject to such conditions as the Commission may prescribe.

      . Prior to the CFTC, established in 1975, the Act was administered by the Commodity Exchange Authority of the United States Department of Agriculture. Both agencies promulgate regulations under the Act.

      . Defendants also argue that plaintiff agreed to allow defendants to keep the money in question when he contracted with defendants for their services. Plaintiff argues that the contract terms are void as against public policy. Because we find that defendants can legally keep the money, we also find the contract provisions valid.


author: GADBOIS, District Judge.

text:
    MURDOCK-SC ASSOCIATES, a partnership, Plaintiff, v. BEVERLY HILLS FEDERAL SAVINGS AND LOAN ASSOCIATION, a corporation, et al., Defendants.
    No. CV 85-3908 RG(Bx).
    United States District Court, C.D. California.
    Dec. 20, 1985.

      A. James Roberts, III, C. Stephen Howard, Bonnie S. Klapper, of Tuttle & Taylor Inc., Los Angeles, Cal., for defendant Fed. Sav. and Loan Ins. Corp., as Receiver for Beverly Hills Sav. and Loan Ass’n; William K. Black, Paul W. Grace, Anne Buxton Sobol, Federal Home Loan Bank Bd., Office of Gen. Counsel, Washington, D.C., of counsel.
    Henry J. Silberberg, Marlene A. Pontrelli, Stroock & Stroock & Lavan, Los Angeles, Cal., for defendant Beverly Hills Sav., a Federal Sav. and Loan Ass’n.
    Richard B. Cutler, Robert A. Philipson, of Cutler and Cutler, a Professional Law Corp., Los Angeles, Cal., for plaintiff Murdock-SC Associates.
   ORDER

GADBOIS, District Judge.

In April, 1984 the plaintiff, Murdock-SC Associates (“Murdock”), a California partnership, sold an office building for approximately $36,000,000 to Beverly Hills Savings and Loan Association (“Old BHS”), a California-chartered, federally insured savings and loan association. As part of the purchase price for the building Old BHS delivered to Murdock an unsecured, subordinated promissory note (the “promissory note” or the “note”) for the sum of approximately $3,600,000, plus interest. The promissory note provided in part:

The payment of principal of interest on this Subordinated Note is hereby expressly subordinated in right of payment on liquidation to the extent and in the manner hereinafter set forth to the prior payment in full of all claims (including post-default interest) against [Old BHS] having the same priority as savings account holders or any higher priority including, without limitation, obligations to any Federal Home Loan Bank, indebtedness to commercial banks not expressed to be subordinated to any other obligations of [Old BHS], obligations in respect of loans in process and advance payments made by borrowers from the association for taxes and insurance and obligations in respect of . funds held in a trust relationship, whether outstanding on the date of the original issue of this Subordinated Note or incurred after such date. The indebtedness, obligations, claims and liabilities to which this Subordinated Note is subordinated are hereinafter sometimes referred to as the “Senior Liabilities.”

(The Note, at 1-2.) The note further provides that in the event of any receivership, insolvency, or bankruptcy proceedings of Old BHS the Senior Liabilities shall be preferred in payment over the note and such Senior Liabilities shall first be paid and satisfied in full before any payment of any kind shall be made on either the principal or interest on the note. Id. Finally, the note states that it is not secured by the assets of Old BHS and is not eligible as collateral for any loan of Old BHS. Id.

On April 23, 1985 the Federal Home Loan Bank Board (“FHLBB”) found that Old BHS was insolvent. Consequently, pursuant to its authority under 12 U.S.C. § 1729(c)(1)(B), the FHLBB appointed the Federal Savings and Loan Insurance Corporation (“FSLIC”) as receiver of Old BHS. Pursuant to 12 U.S.C. §§ 1729(c)(1)(B), (c)(3), and (d), the FHLBB accorded the FSLIC all powers, rights, and privileges of a receiver specified by statute and regulation, including but not limited to those set forth in 12 U.S.C. § 1464(d), 12 U.S.C. § 1729 and 12 C.F.R. §§ 547, 549. On that same date, April 23, 1985, the FHLBB, pursuant to 12 U.S.C. §§ 1729(a), (b)(l)(A)(iv) authorized the FSLIC as receiver to organize a new federal savings and loan association in order to facilitate the liquidation of Old BHS. On that date the FSLIC organized a new, federally-chartered savings and loan association under the name Beverly Hills Federal Savings and Loan Association (“New BHS”). The FSLIC as receiver sold almost all of the assets of Old BHS to New BHS pursuant to an acquisition agreement between the FSLIC as receiver and New BHS. The acquisition agreement provides, inter alia, that the liabilities of Old BHS assumed by New BHS “do ... not mean or refer to any obligation ... to a holder of subordinated debt issued by [Old BHS].”

Also on that date the FSLIC in its corporate capacity assumed from the FSLIC in its receiver capacity for Old BHS certain assets and liabilities of the receiver pursuant to a receiver’s agreement between the FSLIC as receiver and the FSLIC in its corporate capacity. The receiver’s agreement provides in part:

The CORPORATION [the FSLIC in its corporate capacity] hereby assumes and undertakes to pay and discharge those liabilities of the RECEIVER not assumed by the ACQUIRING ASSOCIATION [New BHS], except that the CORPORATION specifically does not assume or agree to discharge, and by virtue of this Agreement does not assume or agree to discharge ... any obligation of [Old BHS] to holders of subordinated debt issued by [Old BHS]____

The combined effect of the acquisition and receiver’s agreements is that Old BHS’s liabilities to subordinated debt holders passed neither to New BHS nor to the FSLIC in its corporate capacity but remained with the FSLIC in its receiver capacity.

Murdock originally brought this action in the Superior Court of the State of California for the County of Los Angeles against New BHS and Old BHS alleging that Old BHS defaulted under the terms of the note by, inter alia, failing to meet the net worth and federal insurance reserve requirements set forth in the note. The only cause of action alleged by Murdock in its original complaint filed in state court was one to foreclose a vendor’s lien against the real property in question — the office building — pursuant to California Civil Code section 3046. Murdock thereafter filed a notice of lis pendens with the Office of the Los Angeles County Recorder pursuant California Civil Procedure Code section 409(a).

On or about June 13, 1985 the FSLIC, as receiver for Old BHS, removed this action to federal court pursuant to 12 U.S.C. section 1730(k)(l), which provides that the FSLIC in its corporate capacity may remove any action to which it is a party from state court to the United States district court for the district embracing the locale where the state court action is pending. Murdock subsequently amended its complaint to include a claim for declaratory relief.

Presently before this court are the FSLIC’s motion to dismiss pursuant to Fed. R.Civ.P. 12(b)(6), and its motion pursuant to California Civil Procedure Code section 409.1, to expunge the notice of lis pendens on file with the Los Angeles County Recorder.

The first argument put forth by the FSLIC in support of its motion to dismiss is that Murdock’s only remedy is to file a claim with the receiver and, if dissatisfied, to appeal to the FHLBB. This argument is persuasive and supports dismissal of this action.

12 U.S.C. section 1729(c)(1)(B), provides that notwithstanding any provision of any state constitution or statute, if a state-chartered, federally insured savings and loan association goes bankrupt “the [FHLBB] shall have exclusive power and jurisdiction to appoint the Corporation [the FSLIC] as sole conservator or receiver of such institution.” Id. Congress has given the FSLIC as receiver complete authority — subject to review by the FHLBB — to adjudicate claims and to allocate the assets and liabilities of a failed association in connection with its liquidation. 12 U.S.C. section 1729(d), provides in pertinent part:

In connection with the liquidation of insured institutions, the Corporation [the FSLIC] shall have power to carry on the business of and to collect all obligations to the insured institutions, to settle, compromise, or release claims in favor of or against the insured institutions, and to do all other things that may be necessary in connection therewith, subject only to the regulation of the Federal Home Loan Bank Board____

.Id. More particularly, in 12 U.S.C. § 1729-(c)( 1)(B)(i)(II), (b)(l)(A)(iv)-(vi), (a), Congress has further authorized the FSLIC as receiver to organize a new federal association and to transfer to the new federal association any or all of the assets and liabilities of the old association.

Under FHLBB regulations governing liquidation of a failed association by a receiver, 12 C.F.R. § 549, a creditor of such an association in due course may present a claim to the receiver. Id. § 549.4(a). Under section 1729(d) and 12 C.F.R. § 549.-4(b), the creditor may appeal the receiver’s decision on its claim to the FHLBB. FSLIC argues simply that under these federal statutes and regulations Murdock’s only remedy is to file a claim with the receiver of Old BHS, i.e., the FSLIC in its receivership capacity and, if dissatisfied, to appeal the receiver’s decision to the FHLBB.

The second FSLIC argument in support of its motion to dismiss is that federal law prohibits any court from taking any action that affects the functions of a receiver, and that permitting Murdock to foreclose his vendor’s lien on the property in question would constitute such action. The argument is sound.

12 U.S.C. section 1464(d)(6)(C) provides: “Except as otherwise provided in this subsection, no court may ..., except at the instance of the [FHLBB], restrain or affect the exercise of powers or functions of a conservator or receiver [of a failed savings and loan association].” Id.

The FSLIC argues that section 1464(d)(6)(C) requires this court to dismiss this action because any attempt to foreclose its vendor’s lien against the property in question would necessarily restrain or affect the exercise of the powers or functions of the receiver of Old BHS, the FSLIC qua receiver. In support of this argument the FSLIC relies on the scant case law interpreting this statute. Neither the Supreme Court nor the Ninth Circuit has interpreted section 1464(d)(6)(C). The only Court of Appeals decision interpreting this statute is North Mississippi Savings & Loan Association v. Hudspeth, 756 F.2d 1096 (5th Cir.1985). The plaintiff in that case, Hudspeth, a former president of North Mississippi Savings & Loan Association (“Old North”), was removed as president of Old North but continued to receive monthly payments from Old North pursuant to a deferred compensation agreement. In 1982 Old North filed an action in Mississippi state court for a declaration that its agreement with Hudspeth either did not exist or was terminable. Hudspeth counterclaimed for specific performance or damages for breach of contract. In April, 1983 the state of Mississippi put Old North into state receivership and appointed the FSLIC as state receiver. On that same day the FHLBB determined that Old North was insolvent and “federalized” the receivership by naming the FSLIC as the sole receiver under 12 U.S.C. section 1729(c)(1)(B). The FSLIC then formed a new federally-chartered institution, New North Mississippi Federal Savings and Loan Association (“New North”), and appointed a federal conservator to run New North. Old North transferred to New North essentially all of its assets and all liabilities except Old North’s liabilities to its stockholders and any obligation owed by Old North under compensation agreements such as Hudspeth’s. The FSLIC, as receiver for Old North, then terminated all such agreements and stopped the payments to Hudspeth. The FSLIC, on behalf of Old North, unsuccessfully moved in state court to dismiss the counterclaim. Hudspeth then filed an amended counterclaim joining New North as a party, alleging that New North was a transferee in interest under Mississippi law, and seeking actual and punitive damages from Old North and New North. The FSLIC and New North removed the action to federal court and moved to dismiss Hudspeth’s counterclaim. Hudspeth moved to remand to state court. The district court denied the motion to remand and granted the motion to dismiss the counterclaim. On appeal the United States Court of Appeals for the Fifth Circuit affirmed.

The Fifth Circuit first held that the case had properly been removed to federal court pursuant to 12 U.S.C. section 1730(k)(l). The appellate panel then considered whether the district court properly had dismissed the case under 12 U.S.C. sections 1464(d)(6)(C) and 1729(d). In discussing Congress’ motives in enacting section 1464(d)(6)(C), the Fifth Circuit stated: “Congress wanted the FSLIC to be able to act quickly and decisively in reorganizing, operating, or dissolving a failed institution, and intended that the FSLIC’s ability to accomplish these goals not be interfered with by other judicial or regulatory authorities.” Hudspeth, 756 F.2d at 1101. The court went on to note that:

[E]ven the facial merits of claims outside of the statutory reorganization process would delay the receivership function of distribution of assets: the FSLIC would not be able to determine how much to pay other claimants until the termination of the parallel litigation. Given the overriding Congressional purpose of expediting and facilitating the FSLIC’s task as receiver, such a delay is a “restraint” within the scope of the statute.

Id. at 1102.

The FSLIC relies on Hudspeth in support of its argument that this action should be dismissed under section 1464(d)(6)(C). The FSLIC, however, does not discuss why Hudspeth is applicable to the case at hand but merely recites the facts of that case and concludes that the case at hand is similar and should be treated in the same manner.

The FSLIC also cites a number of district court cases in support of its argument that section 1464(d)(6)(C) requires dismissal of this action. The FSLIC does not discuss these cases but merely summarizes their holdings parenthetically. The most relevant of these cases are: Gibraltar Building and Loan Association, Inc. v. State Savings and Loan Association, 607 F.Supp. 722, 723 (N.D.Cal.1985) (holding that 12 U.S.C. §§ 1464(d)(6)(C) and 1730(k)(l) preclude a court from entering a protective order or from issuing a writ of attachment against the FSLIC in its capacity as a receiver of a failed savings and loan association on income derived from various holdings of the failed savings and loan association); and First Savings & Loan Association v. First Federal Savings & Loan Association, 531 F.Supp. 251, 253 (D.Hawaii 1981) (holding that section 1464(d)(6)(C) precludes a court from issuing an injunction ordering the purchaser of the assets of a failed savings and loan association to restore those assets to the receiver of the failed institution). These cases conclude the FSLIC’s argument on this point.

Murdock does not respond to the FSLIC’s two arguments separately but treats them as one argument. Murdock’s opposition to the FSLIC’s motion to dismiss concentrates on the FSLIC’s second argument, i.e., that section 1464(d)(6)(C) requires this court to dismiss this action because any attempt to foreclose the vendor’s lien on the property in question would necessarily interfere with the powers and functions of Old BHS’s receiver.

It argues that foreclosure of its vendor’s lien on the property would in no way restrain or affect the exercise of powers or functions of the receiver. Murdock argues that it is not asserting a claim against either Old BHS or New BHS on the contractual obligation represented by the note and does not challenge the receiver’s allocation of the assets and liabilities of Old BHS. In fact, Murdock concedes that it has no recourse against New BHS on the note because the FSLIC did not transfer Old BHS’s liability on the note to New BHS. Murdock contends that the crucial point is that its suit to foreclose its vendor’s lien against the property is not the equivalent of a suit against New BHS on the note, would not obligate New BHS to make the payments called for by the note, and thus would not affect the receiver’s allocation of Old BHS’s liabilities.

In support of its argument Murdock cites but does not discuss California Civil Code section 2890, which states: “The creation of a lien does not of itself imply that any person is bound to perform the act for which the lien is a security.” Id.

Murdock argues also that the situation in the case at hand is analogous to one in which property subject to a mortgage or deed of trust to secure a payment obligation is conveyed by the debtor to a third party. Relying on Snidow v. Hill, 87 Cal. App.2d 803, 807, 197 P.2d 801, 803 (1948) (“A mere grant of the property subject to a mortgage debt is not sufficient to impose any personal liability on the grantee to pay the debt or perform any of the obligations thereof.”), Murdock contends that in such a situation the creditor does not have a cause of action against the third party to enforce the debtor’s payment obligation because the third party is not a party to the contract.

Murdock argues, however, that the creditor — and by analogy, itself in the case at hand — does have a cause of action against the third party to foreclose his mortgage or deed of trust on the property in the hands of the third party, and this cause of action exists regardless of the fact that the third party has no contractual obligation whatsoever to the creditor. In support of this position Murdock cites Ward v. De Oca, 120 Cal. 102, 105, 52 P. 130, 131 (1898) (holding implicitly that a mortgagee may foreclose on property conveyed by the mortgagor to a third party grantee even though the third party grantee is not liable on the promissory note secured by the mortgage).

In addition, Murdock attempts to distinguish the Fifth Circuit’s decision in Hudspeth from the case at hand. It argues that the plaintiff in Hudspeth, Hudspeth himself, was attempting to proceed against New North on the claimed contractual agreement itself while in the case at hand Murdock is not suing New BHS on the note but is suing to foreclose its vendor’s lien on the property in question. Apparently Murdock argues that although section 1464(d)(6)(C) may bar the sort of claim asserted by the plaintiff in Hudspeth, it does not preclude its claim in the case at hand.

The foregoing arguments attack the FSLIC’s second argument, i.e., that section 1464(d)(6)(C) bars Murdock’s claim to foreclose its vendor’s lien against the property in question because such a lien would restrain or affect the powers or functions of Old BHS’s receiver, the FSLIC in its receivership capacity. Murdock does proffer one argument in opposition to the FSLIC’s first argument, i.e., that Murdock’s sole remedy is to file a claim with the FSLIC as Old BHS’s receiver and, if dissatisfied, to appeal to the FHLBB.

Murdock maintains that if the court dismisses this action and orders its notice of lis pendens expunged New BHS will sell the property in question to a third party. Murdock contends that since a party that purchases land in good faith and for value takes the property free of any liens of the type in issue here, Cal.Civ.Code § 3048 its rights will be extinguished upon the sale of the property without an adjudication on the merits of its claim either by this court or Old BHS's receiver and the FHLBB. Furthermore, Murdock argues that since the FHLBB cannot adjudicate its rights to a vendor’s lien it will be deprived of a forum in which to establish this lien. Thus, Murdock concludes that its administrative remedies before Old BHS’s receiver and the FHLBB are inadequate and thus need not be exhausted before it can pursue this action. NLRB v. Industrial Union of Marine & Shipbuilding Workers of America, 391 U.S. 418, 426 n. 8, 88 S.Ct. 1717, 1723 n. 8, 20 L.Ed.2d 706 (“The requirement of exhaustion [of administrative remedies] is a matter within the sound discretion of the courts____ Exhaustion is not required when the administrative remedies are inadequate.”); see Renegotiation Board v. Bannercraft Clothing Co., 415 U.S. 1, 94 S.Ct. 1028, 39 L.Ed.2d 123 (1974) (exhaustion of administrative remedies not required if irreparable injury will result unless immediate judicial review is permitted).

Finally, Murdock puts forth two other arguments in opposition to the FSLIC’s motion to dismiss and its motion to expunge the notice of lis pendens. First, it argues that there was a complex sale and lease-back arrangement between the parties with respect to the property in question before Murdock sold the property to Old BHS. Murdock contends rather conclusively that the complexity of this arrangement, as well as the fact that its administrative remedies are inadequate, requires this court to deny both of the FSLIG’s motions on the merits. Second, with respect to the FSLIC’s motion to dismiss only, Murdock argues that this motion is moot because it attacks the original complaint filed in this action and that complaint has been superseded by the first amended complaint.

Both of FSLIC’s arguments support dismissal. As discussed earlier, section 1464(d)(6)(C) precludes the court from restraining or affecting the exercise of powers or functions of a receiver of a failed savings and loan association. Thus, this statute prevents the court from taking any action that restrains or affects the FSLIC’s powers or functions as the receiver of Old BHS. This brings us to the heart of the controversy between the FSLIC and Murdock: whether foreclosure of Murdock’s vendor’s lien on the property in question would restrain or affect the FSLIC’s powers or functions as the receiver of Old BHS. This is an issue of first impression, and this court holds that a foreclosure would restrain or affect the FSLIC’s powers or functions in this capacity.

It should first be noted that section 1464(d)(6)(C) is a broadly worded statute. It prohibits courts from not only restraining but affecting not only the powers but also the mere functions of receivers of failed savings and loan associations. In employing such language Congress undoubtedly meant to prohibit any court from taking any action that might affect the functions of such receivers. As the Hudspeth court noted: “Congress wanted the FSLIC to be able to act quickly and decisively in reorganizing, operating, or dissolving a failed institution, and intended that the FSLIC’s ability to accomplish these goals not be interfered with by other judicial or regulatory authorities.” Hudspeth, 756 F.2d at 1101.

The foreclosure by Murdock of its vendor’s lien would affect the functions of the FSLIC in its capacity as the receiver of Old BHS. If it were allowed to foreclose its vendor’s lien on the property in question the approximately $3,600,000 debt evidenced by the promissory note would be extinguished. This would deprive the FSLIC of a bargaining chip in its attempt to allocate the assets and liabilities of Old BHS. For example, it would deprive the FSLIC of the possibility of exchanging its obligation under this note, which is due in April, 1991, for a smaller obligation due before that date.

More importantly, during the foreclosure proceedings, and until the property was executed upon, the purchase price ascertained, and the property actually sold, the FSLIC would not know whether or not to make the interest payments on the note to its holder, Murdock. This would disrupt and delay the receivership function and is unacceptable by reason of section 1464(d)(6)(C). As the Hudspeth court stated:

[Ejven the facial merits of claims outside the statutory reorganization process would delay the receivership function of distribution of assets: the FSLIC would not be able to determine how much to pay other claimants until the termination of the parallel litigation. Given the overriding Congressional purpose of expediting and facilitating the FSLIC’s task as receiver, such a delay is a “restraint” within the scope of the statute.

Hudspeth, 756 F.2d at 1102.

Murdock’s contentions in opposition are unpersuasive. The basis of Murdock’s argument is that this action to foreclose its vendor’s lien will not affect the functions of the FSLIC in its capacity as Old BHS’s receiver because it is not an action on the note and it will not require any party to make payments on the note. That, however, is not the issue. The question is whether the action will in any way affect the functions of the FSLIC in its capacity as receiver. As the discussion above makes clear, this question must be answered affirmatively.

For the same reason, Murdock’s reliance on California Civil Code section 2890 is misplaced. As noted, that statute provides that the creation of a lien does not of itself imply that any person is bound to perform the act for which the lien is a security. Merely because foreclosure will not obligate any party to make payments on the note does not mean that the lien does not affect the FSLIC’s receivership functions. Murdock’s argument that under California law it may foreclose its vendor’s lien on the property in question despite the fact that New BHS is not liable on the note is equally unpersuasive. Again, the existence of this cause of action does not change the fact of effect on the functions of the receiver.

FSLIC is correct in arguing that Murdock’s action to foreclose its vendor’s lien on the property in question is barred by section 1464(d)(6)(C) because it affects the functions of the FSLIC in its capacity as Old BHS’s receiver.

The FSLIC’s second argument in support of its motion to dismiss, that Murdock’s sole remedy is to file a claim with the FSLIC in its capacity as Old BHS’s receiver and, if dissatisfied, to appeal to the FHLBB, also justifies dismissal of this action. The federal statutes and regulations discussed above make clear that the FHLBB has the exclusive power to make the FSLIC the sole receiver of a failed savings and loan association. 12 U.S.C. § 1729(c)(1)(B). This is .exactly what happened in the case at hand. Furthermore, as noted earlier, these provisions make clear that Congress has given the FSLIC as receiver complete authority — subject only to review by the FHLBB — to adjudicate all claims against a failed association, to allocate the assets and liabilities of such an association, “and to do all other things that may be necessary in connection” with the liquidation of the association. 12 U.S.C. § 1729(d). FHLBB regulations provide that creditors of failed savings and loan associations may present their claims to the receiver of that association and if they are dissatisfied with his disposition of their claim they may appeal to the FHLBB. 12 C.F.R. § 549. These statutes and regulations — when viewed in conjunction with section 1464(d)(6)(C) — evidence Congress’ intention that they should serve as the sole remedy for creditors of failed savings and loans associations. As the Hudspeth noted:

This administrative process serves to hasten the resolution of the receivership proceedings, in keeping with the Congressional purpose. Furthermore, the regulations reflect the view of the FHLBB, the enforcing agency for the relevant banking statutes, that the FSLIC is empowered to decide claims as part of its receivership function. The FHLBB’s opinion is entitled to our deference. Mattox v. FTC, 752 F.2d 116, 123-24 (5th Cir.1985)....

Hudspeth, 756 F.2d at 1102-03.

Murdock’s argument that this action should go ahead because these administrative remedies are inadequate is unpersuasive. Murdock contends that it will suffer irreparable harm if this court both dismisses this action and expunges the notice of lis pendens because New BHS savings intends to sell the property in question to a good faith purchaser for value who will take the property free and clear of any vendor’s liens. Furthermore, Murdock argues that since the FHLBB cannot adjudicate its rights to the vendor’s lien it will be deprived of a forum in which to establish this lien. The solution is two-fold: first, the court will deny the motion to expunge the notice of lis pendens, and a third party purchaser will take title to the property with notice of and subject to the vendor’s lien; and second, it must be remembered that Murdock has an interest in the property only to the extent that it seeks to satisfy its unsecured debt for approximately $3,600,000 that is evidenced by the note. It will not suffer irreparable injury if the property is sold because it can pursue its claim through the administrative mechanism discussed above. In short, the same is adequate to protect Murdock’s interest.

Murdock’s final two arguments in opposition to the FSLIC’s motion to dismiss — also directed to the motion to expunge — are meritless. It suffices to say that the complexity of Murdock’s pre-sale financing and sale and lease-back arrangement with Old BHS is not grounds for denying the FSLIC’s motion to dismiss. Finally, the FSLIC’s motions are not moot because the grounds upon which these motions are made are applicable to the first amended complaint as well as the original complaint and Murdock had proper notice of the pend-ency of these motions.

The second motion made by the FSLIC is a motion to expunge the notice of lis pendens. For the reasons discussed below, this motion is denied.

FSLIC argues that the notice of lis pen-dens should be expunged for three different reasons. First, if this court grants the FSLIC’s motion to dismiss this action there will be no pending action concerning the property in question within the meaning of California’s lis pendens statute. This argument is rejected.

California’s primary lis pendens statute, California Civil Procedure Code section 409, states in pertinent part:

In an action concerning real property or affecting the title or the right of possession of real property, the plaintiff, at the time of filing the complaint, and the defendant, at the time of filing his answer, when affirmative relief is claimed in such answer, or at any time after-wards, may record in the office of the recorder of the countty in which the property is situated, a notice of the pend-ency of the action, containing the names of the parties, and the object of the action or defense, and a description of the property in that county affected thereby. This section authorizes a notice of an action concerning real property pending in any United States district court to be recorded and indexed in the same manner and in the same place as herein provided with respect to notices of action pending in courts of this State.

Id.

California’s expungement provision, California Civil Procedure Code section 409.1, provides in pertinent part:

At any time after notice of pendency of an action has been recorded pursuant to Section 409 or other law, the court in which the action is pending shall, upon motion of a party to the action supported by affidavit, order that the notice be expunged, unless the party filing the notice shows to the satisfaction of the court, by a preponderance of the evidence, that:
(a) The action does affect title to or right of possession of the real property described in the notice; and
(b) Insofar as the action affects title to or right of possession of the real property described in the notice, the party recording the notice has commenced or prosecuted the action for a proper purpose and in good faith.

Id. California Civil Procedure Code section 409.2, provides that a court may order that a notice be expunged if the moving party posts an undertaking sufficient to satisfy any damages that the party who recorded the notice may incur if the notice is expunged and the moving party does not ultimately prevail in the action concerning the property.

Under California law a notice of lis pen-dens is not automatically extinguished upon the entry of final judgment of the action concerning the property but remains on the record while that action is being appealed, subject to expungement under section 409.1 and 409.2. As the California Supreme Court has stated: “[W]e hold that the lis pendens may remain on record while the appeal is pending, subject to the statutory right of the adversely affected party to seek expungement under sections 409.1 and 409.2.” Peery v. Superior Court of Santa Clara County, 29 Cal.3d 837, 842, 176 Cal.Rptr. 533, 536, 633 P.2d 198, 201 (1981); California-Hawaii Development, Inc. v. Superior Court, County of Santa Clara, 102 Cal.App.3d 293, 297, 162 Cal. Rptr. 365, 367 (1980).

None of the California cases holding that notices remain on the record during appeals have considered directly the question of whether they remain on record after final judgment at the trial court level but before an appeal actually has been filed. It is implicit in these decisions, however, that following final judgment at the trial court level notices of lis pendens remain on the record at least during the statutory time period within which to file an appeal. See, e.g., Howden-Goetzel v. Superior Court, County of Alameda, 7 Cal.App.3d 135, 138-39, 86 Cal.Rptr. 323, 326 (1970) (noting that notices of lis pendens remain on the record from the time of an action’s commencement until its final determination upon appeal). Retaining a notice on the record after final judgment but before the taking of an appeal also furthers the underlying purpose of lis pendens notices, i.e., to put all potential purchasers of the property in question on notice that the title and other rights relating to the property are the subject of litigation. Under California law a notice of lis pendens remains on the record following final judgment in the trial court for at least as long as the statutory time within which an appeal must be filed. Under Fed.R.App.P. 4(a)(1) a notice of appeal must be filed within thirty days after the date of entry of the judgment.

Therefore, even if this court dismisses Murdock’s action — as it should — this dismissal does not expunge the notice of lis pendens filed by Murdock. This notice should remain on the record for at least thirty days after the entry of this dismissal. If Murdock has not filed a notice of appeal within that time FSLIC should be allowed to renew its motion to expunge. If Murdock does file a notice of appeal within that time the notice of lis pendens naturally will stay on the record.

The second argument by FSLIC in support of its motion to expunge is that this action does not affect real property and thus cannot be the basis of a notice of lis pendens. This argument is meritless.

Section 409.1 makes clear that the party filing a notice of lis pendens must show to the satisfaction of the court, by a preponderance of the evidence, that the action affects title to or right of possession of the real property described in the notice.

In determining whether an action affects title to real property, the relevant question is whether title to the property would be affected if the plaintiff were to prevail on its claim. Malcolm v. Superior Court, Santa Clara County, 29 Cal.3d 518, 526-28, 174 Cal.Rptr. 694, 698-99, 629 P.2d 495, 499-500 (1981). The plaintiff must make a “prima facie” case of the merits of his claim, which means that he must make an evidentiary showing, by affidavit or such other evidence as the court may permit, that he would be entitled to relief if his evidence is credited. Id. at 528 & n. 6, 174 Cal.Rptr. at 699-700 & n. 6, 629 P.2d at 500-501 & n. 6. The California legislature, however, did not intend to transform the pre-trial expungement procedure into a type of minitrial on the merits of the case. Id. at 526, 174 Cal.Rptr. at 698, 629 P.2d at 499. Thus, the plaintiff need not demonstrate the likelihood of its success at trial in order to avoid expungement. Id.

It is clear that an action to foreclose an equitable lien, such as a vendor’s lien, on real property is “clearly one which affects title or the right to possession of real property.” Okuda v. Superior Court, 144 Cal. App.3d 135, 141, 192 Cal.Rptr. 388, 392 (1983). An established lien “is a direct charge or encumbrance upon the property” and the foreclosure of a lien can result in a forced sale of the property. Id.

In the case at hand Murdock clearly has satisfied its burden of showing by a preponderance of the evidence that if it ultimately prevails on appeal in its attempt to foreclose its vendor’s lien on the property in question such action will affect title to the real property in question. Murdock has produced a number of exhibits demonstrating that this action potentially affects the real property in question.

The third and final argument put forth by the FSLIC in support of its motion to expunge the notice of lis pendens is that Murdock has waived its vendor’s lien by taking a subordinated note. This argument is unpersuasive.

It is settled that if a vendor does any act manifesting an intention on his part not to rely on the lien thus given by law for the payment of the purchase money, such as taking security therefor, without an express agreement that he may still have his vendor’s lien, the lien will not exist. Finnell v. Finnell, 156 Cal. 589, 594-95, 105 P. 740, 742 (1909); McGreevy v. Constitution Life Insurance Company, 238 Cal.App.2d 364, 369, 47 Cal.Rptr. 711, 715 (1965) (quoting Finnell). But the lien is presumed to exist, and is an incident of the transaction of sale, in all cases unless the intention of the vendor that it shall not exist be clearly manifested by his acts or declarations, and the burden of proof is on the vendee or his successors to show this intention. Finnell, 156 Cal. at 594-95, 105 P. at 742; McGreevy, 238 Cal.App.2d at 369, 47 Cal. Rptr. at 715. The act manifesting such an intention must be one substantially inconsistent with the continued existence of the lien, and cannot be inferred from the mere fact that the parties may not have contemplated the assertion of the lien in the first place. Finnell, 156 Cal. at 594-95, 105 P. at 742; McGreevy, 238 Cal.App.2d at 369, 47 Cal.Rptr. at 715.

In the case of Royal Consolidated Mining Co. v. Royal Consolidated Mines Co., 157 Cal. 737, 110 P. 123 (1910), such a waiver was found to exist and to control the question of the precedence of the vendor’s lien. There the court found that the facts surrounding the sale were such as to establish an inferential waiver of the vendor’s lien. The essential situation created by the acts of the sellers was that the entire plan for the sale of the mining property necessitated the borrowing of money by the buyer from a third party as an essential part of the program, and that this total plan was such as to be vitally inconsistent with any thought that the sellers would retain the priority of the vendor’s lien.

In McGreevy the court held that the vendors had not waived their lien on oil and gas leases, despite the fact that a portion of the purchase price was secured, despite the fact that the vendors expressly consented in writing to the resale of the property by the vendee, and despite the fact that the subsequent vendee obtained a loan secured by a first deed of trust on the property in order to pay the purchase price. McGreevy, 238 Cal.App.2d at 365-71, 47 Cal.Rptr. at 712-15.

In the case at hand the FSLIC contends that Murdock waived its vendor’s lien by taking a subordinated note. In support of this argument the FSLIC points to language in the note providing that “The payment of principal and interest on this Subordinated Note is hereby expressly subordinated in right of payment on liquidation to the extent and in the manner hereinafter set forth____” FSLIC also relies upon and argues that this case is similar to the Royal Consolidated Mining case.

FSLIC has failed to carry its burden of establishing that Murdock intended to waive its vendor’s lien merely because it took a subordinated position on the note. Murdock’s actions and declarations do not “clearly manifest” its intention to waive its lien, nor are these actions and declarations “substantially inconsistent” with the continued existence of the lien. Finnell, 156 Cal. at 595, 105 P. at 742; McGreevy, 238 Cal.App.2d at 370, 47 Cal.Rptr. at 715. In fact, the note expressly provides that none of the “subordination provisions” contained therein “shall:”

prevent the Holder [Murdock] from exercising all remedies otherwise permitted by applicable law upon default under this Subordinated Note, subject only to the rights, if any, under these subordination provisions of the holders of Senior Liabilities in respect of cash, property or securities of the Association payable upon the exercise of any such remedy.

Thus, the note reflects Murdock’s intention to reserve remedies such as vendor’s liens. Finally, it should be noted that the FSLIC’s reliance on the Royal Consolidated Mining case is misplaced because there was a great deal more evidence in that case than in the present one evidencing the vendor’s intention to waive its vendor’s lien. This court rejects the FSLIC’s argument that' the notice of lis pendens should be expunged on the ground that Murdock has waived its lien on the property in question.

None of the arguments put forth by the FSLIC in support of its motion to expunge the notice of lis pendens is persuasive. Its motion to expunge is denied.