author: CRABB, Chief Judge.

text:
    GOOD(E) BUSINESS SYSTEMS, INC., Plaintiff, v. RAYTHEON COMPANY and Raytheon Data Systems Company, a Division of Raytheon Company, Defendants.
    No. 85-C-125-C.
    United States District Court, W.D. Wisconsin.
    July 29, 1985.
    Thomas Pyper, Stafford, Rosenbaum, Rieser & Hansen, Madison, Wis., for plaintiff.
    Michael Bowen, Foley & Lardner, Milwaukee, Wis., for defendants.
   ORDER

CRABB, Chief Judge.

This case is before the court on defendants’ motion for a stay pending arbitration. Defendants have filed two motions, one of which is styled as a motion to compel arbitration and for a stay pending arbitration. However, the only action requested by defendants is an order staying proceedings pending arbitration pursuant to 9 U.S.C. § 3. Therefore, I will treat defendants’ motions as a single motion seeking a stay in proceedings pending arbitration.

Plaintiff, a Wisconsin corporation, is a distributor of computer, word processing and data processing equipment. Defendants are Delaware corporations with their principal place of business in Massachusetts. Plaintiff alleges that it has operated since 1981 as a distributor of products manufactured by defendants, under an agreement originally entered into with Lexitron Corporation and later assumed by defendants. Plaintiff alleges that defendants made numerous misrepresentations to plaintiff concerning the quality of office automation products manufactured by defendants and the degree of defendants’ commitment to the office automation industry. In May of 1984, defendants announced that they were discontinuing the manufacture and sale of office automation products. Plaintiff brought suit, alleging five causes of action: (1) violation of the Wisconsin Fair Dealership Law, Wis.Stats. Ch. 135; (2) intentional misrepresentation; (3) strict responsibility misrepresentation; (4) negligent misrepresentation; and (5) breach of contract. There is jurisdiction over plaintiff’s claims under 28 U.S.C. § 1332.

Defendants contend that all of plaintiff’s claims are subject to arbitration under section 11.10 of the Distributor Agreement between the parties, which provides that “[a]ll disputes arising in connection with this Agreement shall be settled by arbitration____” Therefore, defendants contend that further proceedings in this court must be stayed pursuant to 9 U.S.C. § 3, which provides as follows:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such application has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

Plaintiff concedes that its fifth cause of action is arbitrable and hence subject to stay under 9 U.S.C. § 3. However, plaintiff contends that the other causes of action are outside the scope of the arbitration agreement. Plaintiff also contends that even if the fair dealership claim is otherwise within the scope of the arbitration clause, it is not arbitrable because the arbitration clause does not comport with Wis. Stats. § 135.05. I will deal with these arguments in turn.

Plaintiff first contends that the language of the arbitration clause, which provides for arbitration of disputes “arising in connection with” the Agreement, must be narrowly construed. Plaintiff seeks to contrast this language with clauses calling for arbitration of disputes “arising out of or relating to this Agreement or the breach thereof,” which have been broadly construed, see Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), and to compare it to clauses calling for arbitration of disputes “arising under” or “arising out of” the contract, which have been narrowly construed. See Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir.1983). But see S.A. Mineracao da Trinidade-Samitri v. Utah International, Inc., 745 F.2d 190 (2d Cir.1984) (limiting use of narrow construction).

This argument must be rejected. First, the plain meaning of the phrase “arising in connection with” suggests a broader scope for the arbitration clause than a phrase such as “arising out of” or “arising under,” which seem to limit the clause to disputes concerning the contract itself. See Mediterranean Enterprises, Inc. v. Ssangyong Corp. at 1463-64. Second, The Supreme Court has repeatedly emphasized that the Federal Arbitration Act, 9 U.S.C. §§ 1-14, embodies a national policy favoring arbitration of commercial disputes, and that as a result arbitration clauses are to be liberally construed, and that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). See also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., — U.S. -,---, 105 S.Ct. 3346, 3353-54, 87 L.Ed.2d 444 (1985); Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984).

Giving the arbitration clause such a construction, it is clearly broad enough to cover claims that defendants misrepresented the manner in which they would perform their obligations under the contract. See Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39 (3d Cir.1978). The arbitration clause is also broad enough to cover the fair dealership claim, which is itself rooted in contract. Wis.Stats. § 135.02(2) (defining dealership); see Century Hardware Corp. v. Acme United Corp., 467 F.Supp. 350 (E.D.Wis.1979).

Two arguments concerning the fair dealership claim remain. The first concerns whether the fact that the fair dealership claim is statutory requires a stronger showing of arbitrability. In Mitsubishi, the Court emphatically rejected such an argument, holding that there is no presumption against arbitration of statutory claims, and that unless a statute itself precludes waiver of the right to a judicial forum the fact that a claim is statutory has no effect on its arbitrability. Mitsubushi Motors Corp. v. Soler Chrysler-Plymouth, Inc., — U.S. at---, 105 S.Ct. at 3353-54.

The second is that the Wisconsin Fair Dealership Law precludes arbitration of claims, unless certain conditions are met. Wis.Stats. § 135.06 provides for a judicial remedy for violations of the fair dealership law. Under Wis.Stats. § 135.025(3), any contract purporting to vary the effect of Ch. 135 is void. Wis.Stats. § 135.05 provides as follows:

This chapter shall not apply to provisions for the binding arbitration of disputes contained in a dealership agreement concerning the items covered in s. 135.03, if the criteria for determining whether good cause existed for a termination, cancellation, nonrenewal or substantial change of competitive circumstances, and the relief provided is no less than that provided for in this chapter.

Plaintiff contends that the effect of these provisions is to preclude arbitration of fair dealership claims, unless the agreement provides that the statutory criteria will govern the determination of good cause and equivalent relief will be available. Defendants do not dispute plaintiffs interpretation of the fair dealership law, or that it would otherwise preclude arbitration of plaintiffs fair dealership claim, but argue that federal law preempts the Wisconsin Fair Dealership Law.

Under 9 U.S.C. § 2, a “written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract ... shall be valid, enforceable, and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.” In Southland Corp. v. Keating, 104 S.Ct. 852, the Court held that § 2 establishes a substantive rule of law applicable in both federal and state courts, and precludes states from requiring “a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” Id. at 858. Accordingly, the Court held preempted a California statute which was interpreted as precluding arbitration of claims under the California Franchise Investment Law. Id. at 861.

Plaintiff argues that the instant case is distinguishable from Southland because the Wisconsin Fair Dealership Law does not prohibit arbitration of fair dealership claims, but simply requires that for fair dealership claims to be arbitrable the arbitration agreement must comply with Wis. Stats. § 135.05. This argument must fail for several reasons. First, in Southland the Court emphasized that § 2 permits limitations on enforceability of arbitration provisions only where the subject matter is not a “transaction involving commerce” or where there are grounds for the revocation of the contract. Id. at 858. Thus, , further limitations placed by a state on the enforceability of arbitration agreements necessarily conflict with § 2, even if those limitations do not amount to a complete preclusion of arbitrability. Second, the Court found that § 2 “withdrew the power of the states to require a judicial forum for the resolution of claims” which the parties had agreed to arbitrate. Id. Wis.Stats. Ch. 135 purports to require judicial resolution of some fair dealership claims despite the parties’ agreement to arbitrate. It thus purports to exercise a power that the state no longer has. Finally, the Court held that federal law governing arbitrability is applicable both in state and federal courts. Id. at 861; Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. at 24, 103 S.Ct. at 941. Thus, the Court has held in effect that federal law governing the arbitrability of commercial contracts entirely displaces state regulation of the field. States simply lack the power to enact limits on the arbitrability of commercial contracts that go beyond those contained in 9 U.S.C. § 2.

I conclude that the provisions of Wis. Stats. Ch. 135 that purport to limit the arbitrability of fair dealership claims involving agreements otherwise within the scope of 9 U.S.C. § 2 conflict with federal law and are therefore preempted under the Supremacy Clause, U.S. Const, art. VI. Accordingly, all of plaintiff’s claims will be stayed pending arbitration, pursuant to 9 U.S.C. § 3.

ORDER

IT IS ORDERED that further proceedings in this case are STAYED, pending arbitration in accordance with the terms of the agreement between the parties.


source: Caselaw Access Project

author: LEISURE, District Judge:

license: Public Domain

text:
    CILCO, INC., Plaintiff, v. COPELAND INTRALENSES, INC., Defendant.
    No. 84 Civ. 7872 (PKL).
    United States District Court, S.D. New York.
    July 29, 1985.

      Shea & Gould, New York City (Peter C. Neger, New York City, of counsel), for plaintiff.
    Engel & Mulholland, New York City, Meals & Parks, Atlanta, Ga. (Robert P. Knapp, III, New York City, Larry Chesin, Atlanta, Ga., of counsel), for proposed involuntary plaintiffs Jensen and Fetz.
    Kenyon & Kenyon, New York City (Kenneth E. Madsen, New York City, of counsel), for defendant.
   LEISURE, District Judge:

Plaintiff Cilco brought this patent infringement suit in October 1984, naming as defendants Copeland Intralenses, Inc., Ronald P. Jensen and James G. Fetz. Jensen and Fetz were served with the complaint, but were not subject to the in personam jurisdiction of this Court. In December 1984, Jensen and Fetz and Cilco entered into a stipulation by which Cilco dismissed the action against Jensen and Fetz without prejudice. Each party expressly reserved its rights to raise any appropriate claims and defenses in later proceedings.

This case concerns Copeland’s alleged infringement of two patents relating to intraocular lenses. Patent number 3,994,027 (the “ ’027 patent”), issued on November 30, 1976, covers a “prepupillary lens for implanting in the human eye,” a device invented by Jensen and Fetz. Jensen and Fetz had assigned their interest in the ’027 patent to Cilco prior to its issuance. The other patent in issue here, number 4,104,-339 (the “ ’339 patent”), was issued on August 1, 1978. It covers a “method for the manufacture of intraocular lenses,” also invented by Jensen and Fetz. Jensen later assigned his one-half interest in the ’339 patent to Cilco. Fetz remains record owner of the other one-half interest.

The '027 and ’339 patents have spawned an impressive amount of litigation. This action is one of a number of infringement suits brought by Cilco in various District Courts around the country against alleged infringers of the two patents. Infringement is not the only subject of litigation with respect to the ’027 and ’339 patents. Currently pending in the Central District of California is a dispute over ownership of the patents, pitting Jensen and Fetz against Cilco. In that litigation, Jensen and Fetz v. Cilco, Inc., Civil Action No. 81-3392-LTL (Mx) (C.D.Cal.), Jensen and Fetz claim that ownership of the patents reverted to them as a result of Cilco’s alleged failure to pay royalties due them under the agreements by which they originally assigned the patents to Cilco. Thus, they claim, Cilco’s manufacture, sale and use of lenses infringes their patents. They seek a declaration of infringement and damages. Cilco in that action asserts that the patents are invalid; and if they are not invalid, then Cilco is not infringing them.

Cilco has moved to join Jensen and Fetz as involuntary plaintiffs in this litigation. It reasons as follows. Jensen and Fetz are indispensable parties in this case since a patent infringement suit can be brought only by the full ownership of the patent. Here, Fetz is record owner of a half-interest in the ’339 patent, and between them, Jensen and Fetz have asserted the entire ownership of both patents. Cilco, for its part, claims ownership of the ’027 patent and half-ownership of the ’339 patent. So ownership of the patents is in dispute. Thus, to ensure that the full ownership of the patents is suing to redress the alleged infringement by Copeland, it is necessary to join Jensen and Fetz as plaintiffs.

Fed.R.Civ.P. 19(a) provides that in “a proper case,” an indispensable party who “should join as a party but refuses to do so” may be made an involuntary plaintiff. Assuming for the sake of argument, without so deciding, that Jensen and Fetz are indispensable to the maintenance of this action, the issue before me is whether this case is a “proper” one for joinder of involuntary plaintiffs.

The drafters of Rule 19(a) did not specify what would make a case “proper” for joinder of an involuntary plaintiff. The Advisory Committee Notes simply cite Independent Wireless Telegraph Co. v. Radio Corp. of Am., 269 U.S. 459, 46 S.Ct. 166, 70 L.Ed. 357 (1926), as an example of a proper case. Independent Wireless was an infringement suit brought by Radio Corporation (“RCA”), which held the exclusive license to manufacture, use and sell the patented device for commercial purposes. The defendant also held a license in the patent, but its license was solely for use for amateur and experimental purposes. When RCA filed suit, it asked the patent owner to join as plaintiff, but the owner refused. RCA thereupon named the owner an involuntary plaintiff. In sustaining the involuntary joinder, the Supreme Court emphasized “the obligation the owner is under to allow the use of his name and title to protect all lawful exclusive licensees and sub-licensees against infringers.” Id., 269 U.S., at 473, 46 S.Ct. at 171.

It is clear from the cases which followed Independent Wireless that a person may be joined as an involuntary plaintiff only where he has an obligation to participate in the suit. Caprio v. Wilson, 513 F.2d 837 (9th Cir.1975). See also Sheldon v. West Bend Equip. Corp., 718 F.2d 603, 606-07 (3d Cir.1983). That obligation has been found to arise in two types of cases. One way it may arise is by the owner granting an exclusive license to a licensee. When a patent owner grants such a license, he holds the patent in trust for the licensee and must permit the licensee to sue in his name. Independent Wireless at 469; Collins v. Hupp Motor Car Corp., 22 F.2d 27, 31 (6th Cir.1927). It is because of the trust relationship and the concomitant obligation of the owner to the licensee that involuntary joinder is permitted. See, e.g., Ferrara v. Rodale Press, Inc., 54 F.R.D. 3 (E.D.Pa.1972) (copyright).

The obligation may also arise by contract among co-owners. As a general rule, because each co-owner has an unfettered right to grant licenses without the others’ consent and without obligation to account for profits, 35 U.S.C. § 262 (1982), co-owners are considered to have opposing interests. Each is at the mercy of the other. See Willingham v. Star Cutter Co., 555 F.2d 1340, 1344 (6th Cir.1977); Gibbs v. Emerson Elec. Mfg. Co., 29 F.Supp. 810, 811-12 (W.D.Mo.1939). A holder of an undivided fractional interest may agree by contract, however, that his co-owners may sue infringers without him. In Willingham, supra, for example, Willingham conveyed to Star a one-third interest in a patent he owned. The agreement by which the interest was conveyed provided that either co-owner could, in its sole discretion if the other owner after notice of the suit refuses to join, prosecute suits against infringers. The Sixth Circuit held that, by that agreement, Star had waived its objections to involuntary joinder and thus had an obligation to permit Willing-ham to use its name in an infringement suit. Accord Valutron, N. V. v. NCR Corp., 99 F.R.D. 254 (S.D.Ohio 1982).

Clearly no such obligation exists in this case. If Jensen’s and Fetz’s claims to ownership of the patent are without merit, then Cilco owns all of the ’027 patent and a half-interest in the ’339 patent. Cilco then could not join Jensen because he would be a stranger to the litigation; Cilco would own the entire ’027 patent as well as Jensen’s former share of the ’339 patent. It could not join Fetz because Fetz as co-owner of the ’339 patent owes no obligation to Cilco, whether trust-based or contractual, which would justify an involuntary joinder. On the other hand, if their claims are valid, then they together would own the entire patents. Cilco then could not join them involuntarily because it would have no right to be suing for infringement in the first place. In fact, Cilco would itself be an infringer. So on any view of the facts involuntary joinder is not justified. Indeed, all that would be accomplished by an involuntary joinder is that the dispute between the two inventors and Cilco, which is pending in California, would be duplicated here. I decline to waste judicial resources in that manner.

Cilco’s motion is denied.

SO ORDERED.

      . Waterman v. MacKenzie, 138 U.S. 252, 11 S.Ct. 334, 31 L.Ed. 923 (1891); Willingham v. Star Cutter Co., 555 F.2d 1340, 1343 (6th Cir.1977); Agrashell, Inc. v. Hammons Prods. Co., 352 F.2d 443, 446 (8th Cir.1965); Switzer Bros., Inc. v. Byrne, 242 F.2d 909 (6th Cir.1957); Hurd v. Sheffield, 181 F.2d 269, 271 (8th Cir.1950); Valutron, N.V. v. NCR Corp., 99 F.R.D. 254 (S.D.Ohio 1982); Rainbow Rubber Co. v. Holtite Mfg. Co., 20 F.Supp. 913, 914 (D.Md.1937).

      . The involuntary plaintiff procedure as set forth in Rule 19 and Independent Wireless comes into play only if the party to be joined is not subject to the Court’s jurisdiction. If proper service is possible, the party should be served as a defendant, and the Court will later realign the parties as necessary. Independent Wireless, 269 U.S., at 468, 46 S.Ct. at 169. If he is not amenable to service, the plaintiff must request that he voluntarily join the suit. Only if he is asked and refuses and the case is a proper one (as discussed in the text of this order), may he be involuntarily joined as a plaintiff pursuant to Rule 19(a). See Sheldon v. West Bend Equip. Corp., 718 F.2d 603, 606 (3d Cir.1983).


author: EDWARD WEINFELD, District Judge.

text:
    UNITED STATES of America, v. Nima LAMA, Lalit Dewan, Narayan Gurung and Argin Kumar, Defendants.
    No. S 85 Crim. 568.
    United States District Court, S.D. New York.
    July 29, 1985.

      Rudolph W. Giuliani, U.S. Atty. for S.D. of N.Y., New York City, for U.S. of America; Robert L. Folks, Asst. U.S. Atty., of counsel.
    Howard Mulholland, New York City, for defendant Nima Lama.
    Robert P. Leighton, New York City, for defendant Lalit Dewan.
    Roland Thau, New York City, for defendant Narayan Gurung.
    Leonard J. Levenson, New York City, for defendant Argin Kumar.
   OPINION

EDWARD WEINFELD, District Judge.

Nima Lama, Lalit Dewan, Narayan Gurung, and Argin Kumar are charged in a one-count indictment with conspiracy to possess with intent to distribute and to distribute heroin illegally imported into the United States from Nepal. Lama and Dewan move to suppress property seized and statements made following their arrests on June 3, 1985. Lama moves to suppress property seized in the search of his hotel room pursuant to a consent signed by him on the evening of June 3; Dewan moves to suppress property taken from him in the search of his person subsequent to arrest, and for the suppression of the statements he made to agents of the Drug Enforcement Administration on June 3. Both defendants claim that the agents lacked probable cause to effect their arrests.

Co-defendant Kumar was arrested by a DEA agent on May 29, 1985 after 4.8 pounds of heroin were discovered in Kumar’s luggage upon his arrival at the San Francisco International Airport from Tokyo, Japan. Kumar admitted to the illegal importation of the heroin for purposes of distribution in the United States and agreed to cooperate with government agents in making a controlled delivery of the heroin as instructed by his source of supply. He said that he had received the heroin, along with $3,000 in cash, from Mr. Horn Gurung, in Katmandu, Nepal; that Mr. Gurung instructed him to go to New York and stay at either the Milford Plaza Hotel or the Ramada Inn, where he would be contacted by someone named “Narayan,” to whom he was to deliver the heroin upon payment to him of another $3,000.

On June 1,1985, under the supervision of DEA agents, Kumar checked into room 1835 of the Milford Plaza Hotel; the agents established a monitoring post in the adjacent room, 1836. In the afternoon of June 3, not having heard from “Narayan,” Kumar placed a telephone call to Horn Gurung in Katmandu and informed him that he was staying at the Milford Plaza Hotel; Horn Gurung advised him to remain there and await a call. At approximately 7 p.m., Kumar received a telephone call from defendant Dewan, who arranged to meet Kumar at the Milford Plaza and arrived about a half hour later. When he entered Kumar’s room, Dewan spoke to Kumar in Nepalese; DEA agents testified that Kumar later told them Dewan had asked if Mr. Lama had arrived yet. After this brief conversation, DEA agents stepped in and arrested Dewan.

About half an hour after Dewan was arrested, at 8:15 p.m., defendant Narayan Gurung telephoned Kumar in room 1835 and asked him to come down to the lobby. Kumar did so, and met Gurung and defendant Lama. DEA agents posted in the lobby then arrested Lama and Gurung. All defendants were taken to room 1835 for questioning; agents testified that at this time they were informed of their constitutional rights under Miranda v. Arizona. (Dewan, who had been in custody for thirty minutes or so before that time, was not questioned in the interval). In the questioning which followed, defendant Dewan made verbal statements to the arresting agents which he now seeks to suppress. He and Lama were also presented with printed forms consenting to a search of their hotel rooms. DEA agents testified that each defendant was read the statement of his right to refuse consent to search, that each indicated that he understood his rights, and that both signed the forms. Later in the evening the defendants were taken to DEA offices where they were presented with pen and paper and asked to make written statements. Both men wrote and signed statements in English; defendant Dewan testified at the hearing that he was not instructed or directed in any way as to the content of his statement.

PROBABLE CAUSE

Both defendants challenge the sufficiency of the evidence as to probable cause; the court finds that the arresting .agents had probable cause for both arrests.

Dewan

Dewan offers a complex narrative explaining his presence at the Milford Plaza; he contends that an unknown individual in Katmandu, whom Dewan called to leave a message for Dewan’s brother, asked Dewan to go to the Milford Plaza to meet the unknown party’s own brother, who might be in some sort of trouble. On this mission of good-fellowship, Dewan claims, he called Kumar and arranged to meet with him at room 1835. Nonetheless, the information supplied by Kumar as to his importation of the heroin and the plans for its subsequent delivery in New York City to a person named Narayan unknown to him, from whom he was to receive $3,000, along with the call to his source of supply in Katmandu, who instructed him to remain at the hotel and await a call, followed soon thereafter by Dewan’s call and appearance at the Milford Plaza established probable cause to believe that Dewan was a participant in the ongoing conspiracy. Indeed, there was an abundance of facts providing probable cause for his arrest.

Lama

Defendant Lama objects to his arrest as having been predicated on his mere presence in the lobby of the Milford Plaza Hotel; when arrested, he claims, he was walking behind defendants Gurung and Kumar, having spoken to no one and committed no suspicious acts.

In the context of the controlled delivery of heroin, the DEA agents had a more substantial basis for Lama’s arrest. Kumar had been told he would deliver his heroin to “Narayan”; after the arrest of Dewan, defendant Narayan Gurung called from the lobby, announced himself as Narayan and asked Kumar to meet him. Defendant Lama was in the company of Gurung when the telephone call was made; Dewan, on arriving at Kumar’s room, asked if Lama had arrived. The combination of events commencing with Dewan’s telephone call to Kumar in room 1835, followed soon thereafter by Dewan’s appearanee there and their discussion, including Dewan’s inquiry if Lama had yet arrived, along with the telephone call from Gurung asking Kumar to come to the lobby and Lama’s presence there in evident association with Gurung was sufficient to establish that Lama also was a participant in the conspiracy. As our Court of Appeals has stated, “[t]he essence of probable cause is a reasonable, objective basis for belief in a suspect’s guilt, although not necessarily proof of guilt beyond a reasonable doubt____ As such, probable cause to arrest is not limited to those instances where the arresting officer has acquired evidence which would be sufficient to convict the suspect at trial.” Facts sufficient to establish probable cause are not negated simply because they may also be consistent with innocence; the arresting officer is not required to exclude all exculpatory possibilities before making the arrest. Upon the totality of the evidence presented, the court finds that the arresting agents had probable cause to believe that there was an ongoing conspiracy to possess, with intent to distribute, heroin that had been illegally imported into the United States, and that each defendant, by his acts and conduct in all the surrounding circumstances preceding and attendant to arrest, showed himself a willing and intentional participant in the furtherance of the conspiracy.

MOTIONS TO SUPPRESS PROPERTY AND STATEMENTS

Both defendants have made motions to suppress: Dewan moves to suppress property taken from him at the time of arrest, and verbal and written statements made subsequent to arrest; Lama moves to suppress property taken in the search of his hotel room.

Dewan

Dewan objects to the search of his person incident to arrest on the ground that the arrest was effected without probable cause. Since the court has found that the agents had probable cause for his arrest, the search of Dewan’s person was justified.

Defendant Dewan further claims that he was subjected to physical abuse and psychological coercion by the arresting agents, and that his oral and written statements reflect not the truth, but rather his concern with “saving his life.” The DEA agents denied that force or coercion was brought to bear upon either movant, and further testified that their statements were made freely and voluntarily. Dewan’s specific assertions of mistreatment are not only denied by the officers; they are also contradicted by physical evidence. Dewan testified at the hearing that agents threw him against the wall, opening a cut in his forehead from which he bled “a little bit.” He also testified that agents questioning him at the Milford Plaza alternately asked him questions and banged his head against the wall. The result of this process, he testified, was “a slight swelling.” Photographs of Dewan taken at DEA offices after his arrest and the alleged incidents of mistreatment show no marks of any kind, whether of wounds, bleeding, or swelling on the forehead and face of the defendant. Based upon the totality of the evidence and the demeanor of the witnesses, the court accepts the testimony of the agents; Dewan has failed to present credible evidence of any physical or psychological coercion requiring the suppression of statements made to the arresting officers.

Dewan’s further claim that he was unable to comprehend his rights under Miranda because he does not understand English is dealt with below.

Lama

Defendants Lama and Dewan claim that they do not speak English; an interpreter was provided for them at the suppression hearing. Indeed, they claim that their asserted ignorance of English prevented them from comprehending their rights or giving meaningful consent to the searches carried out subsequent to their arrests. The arresting agents, on the other hand, testified that throughout the evening of June 3 the defendants conversed with the agents in English and gave verbal indications of their comprehension of their rights and of the meaning of the documents they were asked to sign. DEA agents testified that neither defendant ever asked for an interpreter; defendant Lama, when offered an interpreter, declined. Moreover, the statements written by defendants at the offices of the DEA on the evening of June 3 are in English; they demonstrate defendants’ substantial if imperfect grasp of the language. Dewan is a second-year student at a Nepalese law school and acknowledged that he had studied English in high school preparatory to his admission to the law school. The court is satisfied that defendants Dewan and Lama were fully aware of the circumstances of their detention, had been informed of their rights both with respect to their detention and to the requested consent to search, and freely gave their knowing and informed consent to the search of their hotel rooms.

Accordingly, both motions are denied.

So ordered.

      . 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966).

      . United States v. Webb, 623 F.2d 758 (2d Cir.1980) (emphasis in original); cf. Illinois v. Gates, 462 U.S. 213, 235, 103 S.Ct. 2317, 2330, 76 L.Ed.2d 527 (1983) (probable cause "means less than evidence which would justify condemnation”).

      . United States v. Webb, 623 F.2d at 761; United States v. Rodriguez, 532 F.2d 834, 838 (2d Cir.1976).


author: G. ERNEST TIDWELL, District Judge.

text:
    Donna Lynn MORGAN v. MAR-BEL, INC., John Foster, Ted Parrish, Creativity, Inc. and Design Drafting, Inc.
    Civ. A. No. C84-222A.
    United States District Court, N.D. Georgia, Atlanta Division.
    July 29, 1985.

      Thomas Henry Nickerson, Atlanta, Ga., Kenyon & Lusk, Anderson, S.C., for plaintiff.
    Alan F. Herman, Atlanta, Ga., for defendants.
   ORDER

G. ERNEST TIDWELL, District Judge.

The above-styled matter is before the court on defendant Mar-Bel, Inc.’s motion for partial summary judgment. This is a products liability action for damages by the plaintiff for alleged injuries sustained while operating a formica slitting machine while employed at the Piedmont Moulding Co. During the operation of the cutting machine, plaintiff’s left hand was allegedly caught in the machine, resulting in personal injuries. The Piedmont Moulding Co. acquired the machine from Mar-Bel, Inc. Plaintiff claims that the machine lacked adequate safety controls and warnings and brings this action against this defendant, Mar-Bel, Inc., on theories of negligence, strict liability, breach of express warranty, and breach of implied warranty of merchantability. The plaintiff has withdrawn her claim for breach of express warranty. Defendant Mar-Bel, Inc.’s motion requests partial summary judgment on the claims of strict liability and breach of implied warranty.

STRICT LIABILITY

In Georgia, the strict liability cause of action in tort is governed by statutory law. Georgia’s O.C.G.A. § 51 — 1—11(b)(1) provides that a manufacturer of an item of personal property is strictly liable to any person who is injured by that item. Both parties agree that this statute, by its explicit terms, applies only to those persons or entities who manufacture and sell personal property. See Ellis v. Rich’s, Inc., 233 Ga. 573, 577-78, 212 S.E.2d 373 (1975). The basis for Mar-Bel, Inc.'s motion for summary judgment on this issue is its contention that it is not a manufacturer within the purview of this statute.

An analysis of Georgia case law reveals three situations in which an entity is deemed a manufacturer for the purposes of strict liability:

(a) an actual manufacturer or designer of the product; or
(b) a manufacturer of a component part which failed and caused the plaintiff injury; or
(c) an assembler of component parts who then sells the item as a single product under its own trade name.

Rhodes v. Interstate Battery System of America, Inc., 722 F.2d 1517, 1520 (11th Cir.1984); Giordano v. Ford Motor Co., 165 Ga.App. 644, 299 S.E.2d 897 (1983); Pierce v. Liberty Furniture Co., Inc., 141 Ga.App. 175, 179, 233 S.E.2d 33 (1977).

Under the uncontroverted facts, Mar-Bel, Inc. does not fit within any of these categories. Mar-Bel, Inc. engaged Creativity, Inc. to construct a prototype of the laminate slitter for Mar-Bel, Inc. John Foster, Creativity, Inc. and/or Design Drafting Services designed the machine. The prototype was built by Creativity, Inc. from hand sketches supplied by John Foster and Design Drafting Services. MarBel, Inc. supplied a component part to the machine but it is not contended that this component part malfunctioned so as to injure the plaintiff. Mar-Bel, Inc. inspected and tested the slitter while it was being assembled and offered suggestions for improvements. Mar-Bel, Inc. did not assemble any component parts into a single product nor did it sell or represent the slitter as its own product.

The slitter was kept in Mar-Bel, Inc.’s plant in Pinellas Park, Florida, where it was shown to the President of Piedmont Moulding Co., Jack Hubert, plaintiff’s employer. The purpose of Mr. Hubert’s visit to Mar-Bel, Inc.’s plant was to have MarBel, Inc. manufacture a multiple cut formica slitter. Mr. Hubert noticed the machine involved in this lawsuit and inquired of Mr. Mouzakis, President of Mar-Bel, Inc., whether Piedmont Moulding Co. could use the machine during the time in which it was waiting for the machine it had ordered. Mr. Mouzakis’ uncontroverted affidavit states that he informed Mr. Hubert that Mar-Bel, Inc. had not manufactured the machine and that the machine was not in production or available for sale. Mr. Mouzakis did, though, allow Mr. Hubert to use the machine. The machine was shipped to Georgia where it was installed and operated by Piedmont Moulding Co.

Categories (b) and (c) of the types of manufacturers under § 51 — 1—11(b)(1) are clearly inapplicable. There is no suggestion that any component part made by MarBel, Inc. was defective. Neither do the facts indicate that Mar-Bel, Inc. ever held itself out to be the manufacturer of the slitter. Indeed, Mr. Hubert states in his affidavit that he was informed that the machine in question had been made for Mar-Bel, Inc. The court also concludes that category (a) is inapplicable. The designing and manufacturing of the slitter machine were either done by John Foster, Design Drafting Services or Creativity, Inc. Any supervision or suggestions by MarBel, Inc. were not substantial enough to equate them with the manufacturers or designers of the product. Cf Vandall, Architects’ Liability in Georgia: A Special Statute of Limitations, 14 Ga.B.J. 164,165 (1978) (architects, engineers and designing supervisors not strictly liable).

The plaintiff, citing a Pennsylvania district court opinion, urges that “when a firm prescribes and controls the specifications and quality standards of an item constructed by another it is a manufacturer.” See Carter v. Joseph Bancroft & Sons Co., 360 F.Supp. 1103, 1107 (E.D.Pa.1973). To the court’s knowledge, however, this principle has never been adopted by the Georgia courts. The plaintiff has not referred the court to any binding authority that would suggest Georgia has or would adopt this precept. Absent some indication that the Georgia courts would accept such an expansive reading of the term “manufacturer” this court will not do so, especially since § 51-1-11 is to be strictly construed. Daniel v. American Optical Corp., 251 Ga. 166, 304 S.E.2d 383 (1983). The defendant Mar-Bel, Inc. is granted summary judgment on this issue.

IMPLIED WARRANTY OF MERCHANTABILITY

Defendant also seeks partial summary judgment on the plaintiff’s claim of implied warranty of merchantability asserting that the plaintiff does not have privity with Mar-Bel, Inc. to bring this claim against the defendant. Georgia law requires a showing of privity between the injured person and the seller of the product before a claim based upon an implied warranty may be brought. Stewart v. Gainesville Glass Co., Inc., 131 Ga.App. 747, 751-52, 206 S.E.2d 857 (1974), aff'd 233 Ga. 578, 212 S.E.2d 377 (1975). The Georgia courts have repeatedly held that privity does not extend to employees of the purchaser. Beam v. Omark Industries, Inc., 143 Ga. App. 142, 146, 237 S.E.2d 607 (1977); Weaver v. Ralston Motor Hotel, Inc., 135 Ga. App. 536, 539, 218 S.E.2d 260 (1975); Starling v. Seaboard Coast Line Railroad Co., 533 F.Supp. 183, 192 (S.D.Ga.1982). The plaintiff does not dispute that the plaintiff’s implied warranty claim is barred under Georgia law, but instead argues that Florida law controls the resolution of this issue. Florida does not require privity in actions similar to the present one. See, e.g., Barfield v. Atlantic Coast Line Railroad Co., 197 So.2d 545 (Fla.2d Dist.Ct.App.1967).

In a diversity action, a federal court must apply the conflicts-of-law rules of the forum state in which it sits; in this case, Georgia. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Klaxon Co. v. Stentor Electrical Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Nordson Corp. v. Plasschaert, 674 F.2d 1371, 1374 (11th Cir.1982). Georgia allows the parties by agreement to choose which state’s laws will govern a transaction, but as there is no indication that the parties have done so in this instance, the court must turn to Georgia’s general conflicts-of-law rules to find an answer. O.C.G.A. § 11-1-105; Crompton-Richmond Co., Inc., Factors v. Briggs, 560 F.2d 1195, 1199 (5th Cir.1977).

Georgia follows the traditional rules of conflicts-of-laws. See generally Rees, Jr., Choice of Law in Georgia: Time to Consider a Change?, 34 Mer.L.Rev. 787, 788-89 (1983). “Under this system tort actions are adjudicated according to the law of the place where the wrong occurred, and contract actions are regulated by the law of the state where the contract was made when matters of execution, interpretation, or validity are at issue, and by the law of the state where it is to be performed when the issue is one concerning performance.” Wallace v. Harrison, 166 Ga.App. 461, 462-63, 304 S.E.2d 487 (1983); Manley v. Engram, 755 F.2d 1463, 1466 (11th Cir.1985) (choice of law for torts); Residential Industrial Loan Co. v. Brown, 559 F.2d 438, 440 (5th Cir.1977) (choice of law for contracts). However, the Georgia courts have not clearly indicated how to resolve a conflicts-of-law problem involving an implied warranty of merchantability. Plaintiff characterizes this claim as one based on a contract such that lex loci contractus (Florida law) controls. Defendant argues that lex loci delicti (Georgia law) should be applied. Neither party has directed the court to any Georgia authority conclusively deciding the question.

The implied warranty of merchantability is raised by statute. Stewart, supra 131 Ga.App. at 752, 206 S.E.2d 857. See O.C. G.A. § 11-2-314. It is unclear exactly where it fits on the tort v. contract scale. Compare Chaffin v. Atlanta Coca-Cola Bottling Co., 127 Ga.App. 619, 194 S.E.2d 513 (1972) (contractual basis) with Bookholt v. General Motors Corp., 215 Ga. 391, 393-94, 110 S.E.2d 642 (1959) (liability not contractual). In Whitaker v. Harvell-Kilgore Corp., 418 F.2d 1010 (5th Cir.1969), reh’g denied, 424 F.2d 549 (1970), the Fifth Circuit confronted this question and applied old Georgia Code Annotated § 109A-1-105 [O.C.G.A. § 11-1-105] to hold that a federal court should not look to the place of the sale (lex loci contractus) but to the place of the injury (lex loci delicti). Id. at 1016. Although mentioning the contractual nature of a warranty claim, id. at 1015, the court nevertheless reasoned “that a breach of warranty involving an injury is analogous to a tort action” such that “the orthodox ‘place of injury’ rule should apply to warranties.” Id. at 1016 n. 9. Georgia law was therefore applied.

In a Memorandum Decision on the petition for rehearing, Judge Rives disagreed with the conflicts-of-law analysis of the original decision. He believed that Georgia’s general conflicts-of-laws rules rather than Code Section 109A-1-105 should have been used. Analyzing the question under the general rules, the judge nevertheless concluded that Georgia’s tort conflicts rule was appropriate. 424 F.2d at 550-51. Georgia law was again applied. Similarly, the Eleventh Circuit in dicta discussed only Georgia’s tort rules when it stated that Georgia’s choice of law principles would dictate the application of Georgia law to a breach of warranty theory. Best Canvas Products & Supplies, Inc. v. Ploof Truck Lines, Inc., 713 F.2d 618, 620-22 (11th Cir.1983). See also F. Eldridge, Products Liability The Law in Ga., § 4-2, at 81 (1976) (citing various federal cases for the same conclusion).

This court also concludes that Georgia law controls this claim. In the absence of any Georgia authority specifically holding that conflicts-of-law issues involving an implied warranty of merchantability should be resolved under lex loci contractus as opposed to lex loci delicti principles, this court is obligated to follow the Circuit’s interpretations. Further, under the facts of this case, it is appropriate to apply tort-based theories of analysis. There is a colorable argument that no contract exists as to this cutting machine as it is asserted to have been a gratuitous loan from Mar-Bel; Inc. to Piedmont Moulding Co. independent of any contract between the two companies. The presidents of both companies stated in affidavits that no warranties or representations were made by Mar-Bel, Inc. about the equipment. Labeling this claim as one based on personal injury not only more closely resembles the facts of the case, but also is in keeping with the deeply ingrained public policy in Georgia of maintaining the privity requirement before a party can bring a warranty claim.

Applying Georgia law, the court finds that the plaintiff fails to satisfy the privity requirement to maintain a breach of implied warranty of merchantability cause of action. Accordingly, defendant Mar-Bel, Inc.’s motion for summary judgment on this issue is also granted.


author: EARL E. O’CONNOR, Chief Judge.

text:
    Betty D. COMMONS, Plaintiff, v. MONTGOMERY WARD & COMPANY, Defendant.
    Civ. A. No. 83-4119.
    United States District Court, D. Kansas.
    July 30, 1985.

      Fred W. Phelps, Sr., Fred W. Phelps, Jr., Phelps-Chartered, Topeka, Kan., for plaintiff.
    Grant M. Glenn, Edward L. Bailey, Michael J. Grady, Cosgrove, Webb & Oman, Topeka, Kan., for defendant.
   MEMORANDUM AND ORDER

EARL E. O’CONNOR, Chief Judge.

This Title VII, 42 U.S.C. § 1981, and Age Discrimination in Employment Act (ADEA) action was tried to a jury and the court from November 26 through November 29, 1984. The jury returned a verdict for plaintiff on the section 1981 claim and for defendant on the ADEA claim. We have considered all the evidence, memoranda, and proposed findings and conclusions submitted by the parties, and are now prepared to rule on various post-trial motions and the Title VII claim. We turn first to the Title VII claim.

Plaintiff is a white, 58-year-old American female. She was employed at the Montgomery Ward & Company (Montgomery Ward) store in Topeka, Kansas, from 1967 to 1983. For the 15 years prior to her termination, she was manager of the customer accomodation center (formerly called the credit department). In that capacity plaintiff supervised six to eight employees, some of whom were part-time.

During the early 1980’s, Montgomery Ward was having financial difficulties. As a result, various merchandising techniques were changed, stores were closed, and several reorganizations took place, causing many employees to lose their jobs either through termination or attrition. Also, Montgomery Ward’s corporate headquarters determined that a reduction in management personnel was needed to streamline the organization. This brought about a reduction in the number of retail sales managers in the Topeka store from nine to six. The relevant changes with regard to the instant case were that the catalog department and customer accommodations center were merged, and the new department leader was given the title of customer service manager.

On April 1,1983, plaintiff was brought to the office of Jim Fleshman, the store manager, and advised that these departments would no longer exist independently. She was also advised that the customer service manager’s position would be given to Terri Lewis.

Lewis was a 29-year-old black female who had been with Wards for six years. She had graduated from Central Missouri State University and obtained a Bachelor’s Degree in Textiles and Clothing. Lewis was enrolled in Montgomery Wards’ Retail Store Sales Manager’s (RSSM) training program. She had little or no experience in either the credit or catalog areas and was familiar with them only slightly from her management training program four years earlier.

Plaintiff was told at the meeting that she had three options. She was offered the position of clerk in the customer services department, or the position of merchandise record clerk in a different department. Both of these positions would pay plaintiff approximately $3,000.00 less than what she was making at the time. If plaintiff took either position, she would also be required to stay in the customer accommodations department for a period of time in order to train Lewis. If she declined both of these offers, she was told the Company would have no choice but to terminate her. In fact, Grace Patterson, the store personnel manager, had already been requested by Fleshman to prepare plaintiff’s severance papers. Plaintiff was told her decision had to be made that day. Thereupon, she refused the offers and was terminated the same day.

In order to make out a prima facie case of employment discrimination based on race, a plaintiff has the initial burden of showing:

(1) that plaintiff belonged to the protected class;
(2) that plaintiff applied and was qualified for the position;
(3) that plaintiff was rejected; and
(4) that after plaintiff's rejection, the position remained open.

McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S.Ct. 1817, 1824, 36 L.Ed.2d 668 (1973). Although this standard was developed for Title VII actions, it is also applicable in section 1981 cases. See e.g. Elkassabany v. King Radio Corp., No. 79-4193 (D.Kan., unpublished, 8/17/83); Hall v. Bio-Medical Application, Inc., 671 F.2d 300 (8th Cir.1982). The McDonnell Douglas test is not an inflexible standard, as the facts necessarily will vary in each case. Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981).

Once a plaintiff meets this initial burden a rebuttable presumption of unlawful discrimination is created. The Supreme Court has stated: “The prima facie case serves an important function in the litigation: it eliminates the most common nondiscriminatory reasons for the plaintiff’s rejection.” Texas Dept. of Community Affairs v. Burdine, 450 U.S. at 254, 101 S.Ct. at 1094; see Carlile v. South Routt School Dist. RE-SJ, 739 F.2d 1496 (10th Cir.1984). To rebut the presumption of discrimination, the defendant must then come forward and show that the action taken was for a legitimate, nondiscriminatory reason. Board of Trustees of Keene State College v. Sweeney, 439 U.S. 24, 99 S.Ct. 295, 58 L.Ed.2d 216 (1978); Carino v. University of Oklahoma Board of Regents, 750 F.2d 815 (10th Cir.1984).

The legal standards to be applied when determining whether a plaintiff has made out a prima facie case of discrimination in a reverse discrimination context are unclear. Compare Parker v. Baltimore & Ohio Railroad Co., 652 F.2d 1012 (D.C.Cir.1981), with Setser v. Novack Investment Co., 657 F.2d 962 (8th Cir.1981) (en banc), and Johnson v. Transportation Agency, Santa Clara County, 748 F.2d 1308 (9th Cir.1984). Much of this confusion has resulted from two Supreme Court cases which seem to dictate opposite results. In McDonald v. Santa Fe Trail Transportation, 427 U.S. 273, 96 S.Ct. 2574, 49 L.Ed.2d 493 (1976), the Court held that section 1981 prohibits discrimination against white persons on the basis of race. Only three years later the Court decided United Steelworkers v. Weber, 443 U.S. 193, 99 S.Ct. 2721, 61 L.Ed.2d 480 (1979), a Title VII action. There, the Court upheld voluntary affirmative action plans designed to promote minority employment. Other courts have since held that Weber also applies to section 1981 actions. See Setser v. Novack Inv. Co., 657 F.2d at 966-67 (and cases cited therein). In light of these cases, several courts have sought to reconcile the decisions and develop a workable standard for application in reverse discrimination cases.

In Parker v. Baltimore & Ohio Railroad Co., 652 F.2d 1012 (D.C.Cir.1981), the District of Columbia Circuit analyzed the question, and held that a majority plaintiff must show, as a part of his prima facie case, some “background circumstances [which] support the suspicion that the defendant is that unusual employer who discriminates against the majority.” Parker, 652 F.2d at 1017. This would effectively eliminate the normal McDonnell Douglas presumption. The court further observed that “[a] prima facie case under McDonnell Douglas raises an inference of discrimination only because we presume these acts, if otherwise unexplained, are more likely than not to be based on the consideration of impermissible factors, [but] it defies common sense to suggest that the promotion of a black employee justifies an inference of prejudice against white coworkers in our present society.” Parker, 652 F.2d at 1017 (citations omitted).

The Eighth Circuit examined the problem in greater depth in Setser v. Novack Inv. Co., 657 F.2d 962 (8th Cir.1981) (en banc), and held that the McDonnell Douglas standard applied generally but that certain modifications were needed because “a race-conscious choice by reason of a remedial affirmative action plan is legitimate under Title VII or section 1981.” Id. at 968. The court went on to state that the employer bears the burden of producing some evidence that its plan was in response to a conspicuous racial imbalance and that the plan is reasonably related to the intended remedial purpose. In response, the employee must then present evidence that the plan was unreasonable or irremedial. If the plan is found to be bona fide, judgment must be entered for the employer because “any other alleged reason for [plaintiffs] rejection would not be based on a race conscious choice and therefore would defeat his claim of racial discrimination under section 1981.” Id. at 970 n. 9.

In Johnson v. Transportation Agency, Santa Clara County, 748 F.2d 1308 (9th Cir.1984), the Ninth Circuit followed the Eighth Circuit and held that the traditional McDonnell Douglas test applied. The Ninth Circuit made clear that the employer could produce evidence of its affirmative action plan as a nondiscriminatory reason for its employment decision. The court proceeded to analyze the employer’s affirmative action plan and reversed the district court’s finding that the employer had not met its burden of showing a bona fide plan.

We believe the view of the Eighth and Ninth Circuits is persuasive and should be followed in reverse discrimination cases. Majority plaintiffs should be able to rely on the McDonnell Douglas-Burdine presumption in order to test the validity of the defendant’s affirmative action plan by requiring the defendant to put on evidence concerning the plan, its reasonableness and purposes. See generally Winkes v. Brown University, 747 F.2d 792, 799-800 (1st Cir.1984) (Pettine, J., dissenting).

We now turn to the facts in the present case. Several incidents led plaintiff to believe that she was the victim of racial discrimination. Commons testified that she had attempted to enter the Company’s Management Trainee Program (RSSM), but was told by a store manager that she was too old to enter the program and that it wouldn’t hurt if she were black. Another witness was told by a store manager that plaintiff did not get the job because they had to make a place for Terri Lewis. The personnel department in the Topeka store was informed by the district that no white applicants would be interviewed because they were swamped with applications from whites. Employees were told the district office was only interested in black applicants. Further, both economic and personal pressures were exerted upon store managers to meet minority requirements. Supervisors were told to promote blacks over whites regardless of their qualifications. One assistant store manager was quoted as saying that the store managers had a quota to fill, and if they didn’t, it would affect the bosses’ bonus.

Other individuals were also treated in a manner that leads us to believe the defendant engaged in a pattern and practice of discrimination. Ina Johnston, a white female, was the cosmetics department manager for approximately 13 years. In 1981, she was demoted to sales clerk and replaced by Terri Lewis. Johnston, however, was instrumental in teaching Lewis about cosmetics and the cosmetics industry. One year later, Johnston was rated in her new position as sales clerk. Lewis, who was still her supervisor, gave her a good evaluation and recommended promotion. Flesh-man signed the evaluation and it was presented to Johnston. Sometime later, however, Fleshman added a notation indicating that Johnston was not promotable to RSSM. This effectively blocked her being promoted to assistant [RSSM]. Fleshman further indicated that she was to be left in her present position. Johnston was never informed about these notations on her records.

There is little doubt that plaintiff was qualified for the new position. Fleshman, the store manager, testified that he thought plaintiff could do the newly-created job, but was not qualified to do anything beyond that level. All of the testimony was that her past evaluations had been very favorable and that management held her out as an example to other supervisors.

From the incidents related above, as well as other testimony at trial, plaintiff presented sufficient evidence to make out a prima fade case on the issue of race discrimination.

Once plaintiff established her prima facie case, the burden of production shifted to defendant to articulate some legitimate nondiscriminatory reason for the employee’s rejection. McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973); Johnson v. Transportation Agency, Santa Clara County, California, 748 F.2d at 1310 n. 2 (9th Cir.1984). Defendant proffered its evidence that the plaintiff was not as qualified as Lewis to handle the job. Defendants’ contention throughout the case was that neither race nor age was a factor in choosing Lewis over plaintiff. Defendant introduced no evidence as to its affirmative action plan or that Lewis was promoted in accordance therewith. Although plaintiff pointed out that an affirmative action plan existed, that alone is not sufficient to justify the employment decision. See Johnson, 748 F.2d at 1317 (Wallace, J., dissenting). Defendant did not attempt to produce any evidence that the plan was a “response to a conspicuous ... imbalance in its work force” or that “its affirmative action plan is reasonably related to the plan’s remedial purpose.” Setser v. Novack Investment Co., 657 F.2d at 968. It is the bona fide nature of the plan that separates the legitimate race conscious choices from those which are illegal.

We cannot permit the defendant to come forward now and raise its affirmative action plan as a defense. To do so would grant defendant an opportunity to “present a moving target or, as in this case, conceal the target altogether.” Lanphear v. Prokop, 703 F.2d at 1316.

[T]he defendant must clearly set forth, through the introduction of admissible evidence, the reasons for the plaintiff’s rejection. The explanation provided must be legally sufficient to justify a judgment for the defendant. If the defendant carries this burden of production, the presumption raised by the prima facie case is rebutted, and the factual inquiry proceeds to a new level of specificity. Placing this burden of production on the defendant thus serves simultaneously to meet the plaintiff’s prima facie case by presenting a legitimate reason for the action and to frame the issue with sufficient clarity so that the plaintiff will have a full and fair opportunity to demonstrate pretext.

Lanphear v. Prokop, 703 F.2d at 1316-17 (citing Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 255-56, 101 S.Ct. 1089, 1094-95, 67 L.Ed.2d 207 (1981)). In this case, defendant has never attempted to justify its decision by the existing affirmative action plan. Were we to find that the affirmative action program was in fact the reason for the discrimination, we would be depriving plaintiff of the opportunity to show that the plan was over-broad or not related to its purpose. We believe that this is exactly the situation the Supreme Court in Burdine was trying to eliminate.

Plaintiff has proved by a preponderance of the evidence that defendant’s proffered reason was a pretext for discrimination. Plaintiff did this by demonstrating her qualifications, exemplary work record, the fact that in other Wards stores the CSM manager was promoted from plaintiff’s job or the catalog department and the treatment of other white and older individuals. See Rich v. Martin Marietta Corporation, 522 F.2d 333, 345 n. 8 (10th Cir.1975). We find that plaintiff suffered discrimination on the basis of her race when she was not given the new job and instead was demoted. She is thus entitled to judgment on her Title VII claim.

To analyze defendant’s motion for a judgment notwithstanding the verdict or, in the alternative, for a new trial, we must look at the same factors already discussed.

The legal standards to be applied to these motions are clear. A motion for judgment notwithstanding the verdict requires that the evidence be viewed in the light most favorable to the party against whom the motion is made, and all inferences reasonably drawn from the evidence must also be resolved in favor of the party against whom the motion is made. See Weeks v. Latter-Day Saints Hospital, 418 F.2d 1035 (10th Cir.1969); Gulf Ins. Co. v. Kolob Corp., 404 F.2d 115 (10th Cir.1968). This court is not permitted to weigh the evidence presented [Wilkin v. Sunbeam Corp., 377 F.2d 344 (10th Cir.1967) ], nor to pass on the credibility of witnesses [Bertot v. School District No. 1, Albany County, Wyoming, 522 F.2d 1171 (10th Cir.1975)], nor to substitute its judgment of the facts for that of the jury [Swearngin v. Sears Roebuck & Co., 376 F.2d 637, 639 (10th Cir.1967) ]. Only if no reasonable inferences sustain the position of the party against whom the motion is being made will the judgment notwithstanding the verdict be granted.

In ruling on a motion for new trial, the trial judge has broad discretion. Scholz Homes, Inc. v. Wallace, 590 F.2d 860 (10th Cir.1979). He has the obligation or duty to ensure that justice is done, and, when justice so requires, he has the authority to set aside the jury’s verdict. Seven Provinces Ins. Co., Ltd. v. Commerce & Industry Ins. Co., 65 F.R.D. 674 (W.D.Mo.1975). He may do so when he believes the verdict to be against the weight of the evidence or when prejudicial error has entered the record. Holmes v. Wack, 464 F.2d 86 (10th Cir.1972). In considering a motion for new trial, the court is permitted to weigh the evidence and it may order a new trial even if there is evidence to support the jury’s verdict. 11 Wright & Miller, Federal Practice and Procedure, § 2806.

Defendant contends the court erred in denying its request for an instruction that the jury could only find for the plaintiff if background circumstances supported the suspicion that the defendant is that unusual employer,who discriminates against the majority. See Parker v. Baltimore & Ohio Railroad Co., 652 F.2d at 1017. We believe the request was properly denied. Because the McDonnell Douglas test applies in a reverse discrimination action, defendant was required to propound any defenses based on its affirmative action plan at the time of trial. This the defendant did not do. Because the defendant made no effort to present a defense based on its affirmative action plan, the jury was left only with those defenses found in the typical discrimination action brought under section 1981. See Setser v. Novack Inv. Co., 657 F.2d at 970 n. 9.

We are convinced that the motion for new trial and for judgment notwithstanding the verdict must be overruled. As we have previously outlined, the evidence supports the verdict of the jury. We are also satisfied that the proper standards for deciding the issues as they were presented were adequately set forth in the court’s instruction's.

, We believe that the jury made an adequate award of damages to the plaintiff on her section 1981 claim. We decline, therefore, to award any back pay on plaintiff’s Title VII claim. Plaintiff is entitled, however, either to reinstatement or to an award of front pay. The parties are directed to negotiate toward a settlement of this issue. If such a settlement is impossible, a hearing will be held to determine the matter.

Plaintiff is a prevailing party pursuant to 42 U.S.C. § 1988, and is therefore entitled to attorney’s fees and costs. The attention of the parties is directed to Dickerson v. City Bank & Trust Co., 590 F.Supp. 714 (D.Kan.1984), and counsel are directed to follow the procedures outlined in that case in order to,facilitate the award of attorney’s fees.

In sum, defendant’s motion for judgment notwithstanding the verdict or, in the alternative, for a new trial, is denied. Plaintiff’s motion for judgment on the Title VII claim is granted. The clerk is directed to enter judgment in accordance with the jury verdict and this opinion.

IT IS SO ORDERED.

      . We note that a strong dissent (although the judge concurred in the result) indicated that an affirmative action plan should be viewed as an affirmative defense. The dissent points out that this would shift the burden of proving the bona fide nature of the plan to the employer who has all of the relevant information concerning the plan.

      . We could also find, from the facts of this case, that special circumstances existed which would justify the suspicion that Wards was that unusual employer who discriminates against the majority. See Lanphear v. Prokop, 703 F.2d 1311 (D.C.Cir.1983) (holding that pressure from an employer’s top management to increase the number of minorities and the fact that the employer was adopting an affirmative action plan are sufficient to show background circumstances). But see Parker v. Baltimore & Ohio Railroad Co., 652 F.2d at 1017 n. 9 ("[W]e [do not] suggest that a lawful affirmative action program would in itself constitute suspicious circumstances sufficient to justify an inference of discriminatory intent under McDonnell Douglas.").


author: LASKER, District Judge.

text:
    Ethel FISCHER and Herbert Bonime, Plaintiffs, v. CF & I STEEL CORPORATION, Thomas M. Evans, Southern Pacific Company and Southern Pacific Transportation Company, Defendants. Mary MAYER, Plaintiff, v. CF & I STEEL CORPORATION, Thomas M. Evans, Southern Pacific Company and Southern Pacific Transportation Company, Defendants.
    Nos. 82 Civ. 5424(MEL), 82 Civ. 6159(MEL).
    United States District Court, S.D. New York.
    July 30, 1985.

      Milberg, Weiss, Bershad, Specthrie & Lerach, and Lowey, Dannenburg & Knapp, and Wolf, Popper, Ross, Wolf & Jones, New York City, for plaintiffs; Richard M. Meyer, Henry T. Brachtl and Robert Skirnick, New York City, of counsel.
    Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendants CF & I Steel Corp. and Thomas Evans; Edward N. Costikyan, Steven E. Landers, Anne Louis Oates and Steven Gey, New York City, of counsel.
   LASKER, District Judge.

In an earlier opinion, plaintiffs were found to lack standing to pursue their shareholder derivative suit because the corporation on whose behalf they sued, Southern Pacific Company (hereinafter referred to as “Southern Pacific”) had been merged out of existence to form Santa Fe Southern Pacific Corporation (hereinafter referred to as “SFSP”). See Fischer v. CF & I Steel Corp., 599 F.Supp. 340 (S.D.N.Y.1984). Plaintiffs now move to amend their complaint to change the action from a shareholder derivative suit to a class action on behalf of individual SFSP shareholders who were originally Southern Pacific shareholders, and who allege personal injury as a result of the violation of Section 10 of the Clayton Act by defendants. For the reasons discussed below, plaintiffs’ motion is granted.

I.

Plaintiffs allege that defendants violated Section 10 of the Clayton Act by failing to employ competitive bidding procedures when Southern Pacific purchased over $71.5 million dollars of defendant CF & I Steel Corporation’s (hereinafter referred to as “CF & I”) products. Section 10 of the Clayton Act, 15 U.S.C. § 20 (1982), provides that it is a violation of the antitrust laws for a common carrier, which has a director who holds a “substantial interest” in a vendor, to purchase over $50,000.00 of supplies from that vendor without competitive bidding. Defendant Thomas M. Evans was, at the time of the violation complained of, simultaneously a director of the parent company of CF & I and Southern Pacific and its wholly owned subsidiary Southern Pacific Transportation Company, a common carrier. Southern Pacific has since merged with Santa Fe Industries, Inc. to form SFSP, and all shareholders in the two companies have received stock in the new entity SFSP.

Plaintiffs now move for leave to amend the complaint to convert the suit into a class action on behalf of that class of SFSP shareholders who were originally shareholders in Southern Pacific. Plaintiffs contend that they were injured by the terms of the merger because their Southern Pacific stock was undervalued as a result of the depletion of Southern Pacific’s assets, caused by overpayment to CF & I. Plaintiffs argue that such overpayment would have been avoided had defendants complied with the competitive bidding procedures established in Section 10 of the Clayton Act.

II.

Federal Rule of Civil Procedure 15(a) provides that leave to amend a complaint “shall be freely given when justice so requires.” However, it is defendants’ contention that to allow amendment in this case would be futile, since the proposed amended complaint could not withstand a motion to dismiss, see Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962), and that the motion should therefore be denied.

Defendants assert that the proposed amended complaint fails to state a cause of action for two reasons. First, Southern Pacific’s successor corporation, SFSP, is now the proper party to bring this suit and plaintiffs have no individual right in the corporate injury of Southern Pacific. Second, defendants argue that plaintiffs lack standing to bring this action under the federal antitrust laws. Plaintiffs respond that when the corporation’s existence was terminated by virtue of the merger, the right of the corporation to seek a remedy for the alleged antitrust violations became theirs, as the only parties who could and would sue. It follows, plaintiffs contend, that the proposed amended complaint is sufficient and viable, entitles them to relief, and is not futile.

The general rule of corporate law in this Circuit is that “where an injury is suffered by a corporation and the shareholders suffer solely through depreciation in the value of their stock, only the corporation itself, ... or a stockholder suing derivatively in the name of the corporation may maintain an action against the wrongdoer.” Vincel v. White Motor Corp., 521 F.2d 1113, 1118 (2d Cir.1975). Giving preference to the corporate entity’s authority to recover on its own behalf, as opposed to the authority of its individual shareholders to recover for it, see, e.g., Gordon v. Fundamental Investors, Inc., 362 F.Supp. 41, 45-46 (S.D.N.Y.1973), would ordinarily make it appropriate for SFSP, as successor to Southern Pacific, to bring this action. If it failed to do so on demand of a shareholder, the preference discussed in Gordon, supra, would permit a derivative suit by the SFSP shareholders. See, e.g., Cohen v. Beneficial Loan Corp., 337 U.S. 541, 548, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528 (1949).

Applying this method of recovery to these shareholders, however, presents a unique problem. Because the claim belonged originally to Southern Pacific, and its shareholders constitute only a portion of the current SFSP shareholders, any recovery by SFSP, whether directly or on a derivative basis, would lead to a windfall recovery by those SFSP shareholders who were not originally Southern Pacific shareholders. As this analysis indicates, the injury was not suffered by SFSP and its shareholders, but by Southern Pacific and its shareholders whose stock was allegedly undervalued by the acts complained of. Although SFSP now includes those Southern Pacific shareholders, it consists of other shareholders as well.

This peculiar set of facts requires special consideration both in applying the rule of Vincel, supra, and the factors listed by the Supreme Court for determination of antitrust standing in Associated General Contractors v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983). One of these factors is the directness of the injury suffered by the plaintiff, another is whether there are more direct victims of the alleged violation who could appropriately sue. As discussed above, the former Southern Pacific shareholders are the most direct victims and there are none more directly injured. The depreciation in value of their stock was a direct result of the violation complained of. These factors, in conjunction with the discussion of the remaining factors listed in Associated General, supra, which is set out below, argue in favor of plaintiffs’ standing.

In recognition of the impropriety of allowing a windfall recovery, the court in Perlman v. Feldmann, 219 F.2d 173, 178 (2d Cir.1955), allowed the injured shareholders the right to recover “in their own right, instead of in right of the corporation.” Although it is true that in Perlman the court sought to prevent alleged malfactors rather than non-injured shareholders from recovering, the impropriety of granting windfall recoveries to non-injured shareholders of a post-merger corporation has also been recognized. See Ashton v. Commons, No. 813128 (Cal.Super.Ct. August 23, 1984).

Moreover, more than two years have passed since the Santa Fe Southern Pacific merger, during which SFSP has made no effort to prosecute the antitrust claim which originally belonged to Southern Pacific. As a result, precluding these plaintiffs from prosecuting would result in allowing the injury, if any, that Section 10 of the Clayton Act seeks to prevent, to remain unremedied. Vincel v. White Motor Corp., 521 F.2d at 1120 (“To deny [plaintiff] the right to sue would have had the effect of negating the protective features of the Act altogether.” citing Kavanaugh v. Ford Motor Co., 353 F.2d 710 (7th Cir.1965)).

In sum, to allow the individual plaintiffs to maintain this action in place of the post-merger corporation would avoid the problem of a windfall recovery to the non-injured shareholders while assuring that the purpose of Section 10 of the Clayton Act is fulfilled.

Defendants argue that, based on decisions which have applied the factors listed in Associated General, supra, (such as Meyer Goldberg, Inc. v. Goldberg, 717 F.2d 290 (6th Cir.1983); Continental Ill. National Bank & Trust Co. v. Stanley, 585 F.Supp. 1385 (N.D.Ill.1984)) plaintiffs fail to meet that test of standing because in these cases antitrust injury has not been held to confer standing to sue on individual shareholders. Relying on these cases for the proposition that individual shareholders do not have standing to sue in antitrust cases, defendants do not consider the application of each of the Associated General factors to the case at hand. They argue, rather, that the shareholder’s injury is indirect since only suffered through the corporation, and that there is a risk of duplicative recovery and complex damage apportionment if shareholders are allowed to sue.

Our analysis of the factors listed in Associated General leads us to conclude that plaintiffs do have standing to maintain this action. The first factor requires an intentional and causal connection between the violation and the harm to plaintiff. The proposed amended complaint alleges an intentional causal connection between the antitrust violations and the antitrust injury, because, as is argued, the normal result of asset depletion is to reduce the value of the corporation’s stock. The second factor, the nature of the plaintiff as consumer or competitor in the relevant market, applies only obliquely, if at all, to the special facts of this case. It is clear that the plaintiff shareholders do not sue either as consumers or competitors. On the other hand, the specific purpose of Section 10 of the Clayton Act is not to protect consumers or competitors, but rather to protect a carrier from financial injury due to possible misfeasance of common directors. See Minneapolis & St. Louis Railway Co. v. U.S., 361 U.S. 173, 190, 80 S.Ct. 229, 239, 4 L.Ed.2d 223 (1959). The remaining factors, whether damages are speculative, and whether damages might require a complex apportionment, also favor plaintiffs standing to sue. In this case damages are anything but speculative, since the discrepancy, if any, between the market price and CF & I’s price is a precise amount. There is no problem in apportioning damages pro rata among the former Southern Pacific shareholders. The other factors, relating to directness of injury and whether there was a more direct plaintiff, have already been discussed in connection with whether plaintiffs can assert the merged corporation’s claim.

While we recognize that a shareholder normally lacks standing to bring a corporate claim or to initiate an antitrust action for harm to the corporation, see, e.g., Kreager v. General Electric Co., 497 F.2d 468 (2d Cir.), cert. denied, 419 U.S. 861, 95 S.Ct. 111, 42 L.Ed.2d 95 (1974), the unique facts of this case render these shareholders the proper parties to sue for their corporation’s injury.

For the reasons discussed above, plaintiffs’ motion for leave to amend the complaint is granted.

It is so ordered.