author: WILLIAM C. CONNER, District Judge.

text:
    PIANO REMITTANCE CORPORATION, Plaintiff, v. RELIANCE FINANCIAL SERVICES CORPORATION, and Walt Disney Productions Corporation, Defendants.
    No. 84 Civ. 4248 (WCC).
    United States District Court, S.D. New York.
    Sept. 30, 1985.

      Mordecai Rosenfeld, and Milberg Weiss Bershad Specthrie & Lerach, New York City, for plaintiff; Richard M. Meyer, New York City, of counsel.
    Willkie Farr & Gallagher, New York City, and Blair C. Fensterstock, New York City, for defendant Reliance Financial Services Corp.; Anthony F. Phillips, Gerald Kerner, Lawrence 0. Kamin, Laurence H. Lenz, Jr., New York City, of counsel.
   OPINION AND ORDER

WILLIAM C. CONNER, District Judge.

Plaintiff Piano Remittance Corporation (“PMC”) brought this shareholder’s derivative suit on behalf of Walt Disney Productions Corporation (“Disney”) alleging that defendant Reliance Financial Services Corporation (“Reliance”) is liable to Disney under § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b) (1982), for profits it made on short-swing trading in Disney stock. Section 16(b) provides that a corporation can require certain inside traders, statutorily defined as the corporation’s directors and officers and beneficial owners of more than 10% of the corporation’s outstanding stock, to disgorge the profits they realize on any purchase and sale of the corporation’s securities within a six-month period. Plaintiff alleges that Reliance is liable to Disney for the profits it made when, as a beneficial owner of more than 10% of Disney’s outstanding stock, it purchased 748,000 Disney shares and sold them less than six months later.

Section 16(b) provides that in order for a beneficial owner to be subject to the statute’s proscriptions, he must have been a 10% shareholder “both at the time of the purchase and sale ... of the security involved.” Reliance has moved to dismiss plaintiff’s complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that it was not a 10% Disney shareholder at' the time of the purchase of the stock at issue here. For the reasons stated below, Reliance’s motion is denied. Background

For the purposes of this motion, the allegations of PMC’s complaint must be taken as true. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Joyce v. Joyce Beverages, Inc., 571 F.2d 703, 706 (2d Cir.), cert. denied, 437 U.S. 905, 98 S.Ct. 3092, 57 L.Ed.2d 1135 (1978). Accordingly, these are the relevant facts:

In April 1984, Reliance owned 3,198,233 Disney shares, or approximately 9.3% of Disney’s outstanding stock. Complaint If 5(b). Sometime thereafter, Reliance instructed its broker, Salomon Brothers, to purchase an additional 1,000,000 Disney shares for its account. Id. If 5(c). Salomon Brothers purchased those shares for Reliance from several sources over several days, and transferred formal title to Reliance on May 1, 1984 when the 1,000,000 shares crossed the tape of the New York Stock Exchange at $65.50 per share. Id. With this purchase, Reliance owned approximately 12.2% of Disney’s outstanding stock. Id. ¶ 6(a). On June 11, 1984, Reliance sold the 1,000,000 shares it had purchased to Disney itself for $70.83 per share, thereby making a profit of at least $5.20 per share. Id. 117.

Plaintiff alleges that Reliance reached the 10% shareholder threshold as soon as Salomon Brothers ■ purchased 252,000 shares for its account, and therefore that Reliance is subject to § 16(b) liability for the 748,000 shares it purchased after that point. Id. ¶1¶ 5(d), 8(a), 9. Reliance argues, however, that its block purchase was a single transaction, and that it cannot be subject to § 16(b) liability since it was only a 9.3% shareholder at the time it bought the entire 1,000,000 shares.

Discussion

Before turning to the merits of this motion, I take a moment to note that since this is a motion to dismiss, my task is a limited one. My role at this stage of the litigation is not to assess the strength or weakness of plaintiffs case, but only to determine whether plaintiff is entitled to offer evidence to support its claim. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). I may not dismiss the complaint unless it appears beyond doubt that plaintiff could prove no set of facts in support of its claim that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).

The parties agree that the resolution of this motion lies in an appropriate interpretation of the Supreme Court’s decision in Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 96 S.Ct. 508, 46 L.Ed.2d 464 (1976). Of course, they disagree as to what that interpretation should be.

Briefly stated, the facts of Foremost are as follows: Provident Securities Company (“Provident”) was a holding company that decided to dissolve and liquidate its assets. After extensive negotiations, ForemostMcKesson, Inc. (“Foremost”) agreed to buy Provident’s assets in part with cash and in part with its own securities. At the closing of their deal, Foremost delivered to Provident the cash and a debenture which was immediately convertible into more than 10% of Foremost’s outstanding common stock. Less than six months after the closing, Provident sold the debenture to a group of underwriters, distributed the proceeds to its shareholders, and dissolved. Realizing that Foremost might sue it to recover any profits realized on the sale of the debenture to the underwriters, Provident sued for a declaration that it was not liable to Foremost under § 16(b). The Court of Appeals for the Ninth Circuit held that Provident was not liable on the ground that it was not a beneficial owner of 10% of Foremost’s outstanding stock “at the time of the purchase.” Provident Sec. Co. v. Foremost-McKesson, Inc., 506 F.2d 601 (9th Cir.1974), aff'd, 423 U.S. 232, 96 S.Ct. 508, 46 L.Ed.2d 464 (1976). The court ruled that in a purchase-sale sequence the phrase “at the time of the purchase” “must be construed to mean prior to the time when the decision to purchase is made.” Id. at 614. Since Provident was not a 10% owner at the time it decided to acquire the Foremost securities, the court concluded that it was not subject to § 16(b).

The Supreme Court affirmed the court of appeals, holding that “in a purchase-sale sequence, a beneficial owner must account for profits only if he was a beneficial owner ‘before the purchase.’ ” 423 U.S. at 250, 96 S.Ct. at 519. In reaching this conclusion, the Court considered the purpose and legislative history of § 16(b). The Court explained that Congress was concerned that insiders sometimes have access to information that is not available to the rest of the investing public, and that by trading on this information, insiders can reap profits at the expense of less-knowledgeable investors. Id. at 243, 96 S.Ct. at 515-16. Congress believed that the potential for insider abuse was particularly great in the area of short-term speculative trading, and in enacting § 16(b), it attempted to curb this evil by removing all profitmaking incentive. Id. As the Court explained, Congress did this by (1) creating a conclusive presumption that all officers, directors, and beneficial owners of more than 10% of a corporation’s outstanding stock have access to inside information, and (2) enacting a “flat rule” that a corporation could recover the profits these insiders make on any purchase and sale of the corporation’s stock within a six-month period. Id. at 243-44, 96 S.Ct. at 515-16.

After examining the general purposes of the statute, the Court turned to an analysis of the phrase “at the time of the purchase.” It concluded, for two principal reasons, that this phrase should be construed to mean that a beneficial owner is subject to § 16(b) liability only if he was a 10% owner before the purchase in question. First, the Court noted that in previous drafts, the statute explicitly limited liability to beneficial owners who had achieved that status before the purchase at issue. Id. at 248, 96 S.Ct. at 518. Second, the Court explained that while Congress believed that all corporate officers and directors could be presumed to have access to inside information, it believed that the only shareholders who could be so presumed were those who owned more than 10% of the corporation’s stock. Since it was speculation on inside information that Congress sought to curb, and since Congress was unwilling to presume that a beneficial owner had inside information until he was a 10% owner, the Court concluded that the purchase that took an investor from less than 10% to more than 10% ownership could not properly be considered a purchase within the coverage of § 16(b). Id. at 253-54, 96 S.Ct. at 520-21.

In support of its conclusion, the Supreme Court emphasized that if a purchaser did not own more than 10% of the corporation’s outstanding stock before making a purchase, his decision to buy could not be presumed to have been based on inside information. The Court noted that “as a matter of practicalities the crucial point in the acquisition of securities is not the technical ‘purchase, but rather the decision to make an acquisition.” Id. at 254 n. 28, 96 S.Ct. at 521 n. 28 (emphasis added). The Court then stated, in terms Reliance contends are particularly relevant here, that

[i]n the case of an acquisition of a large block of a corporation’s stock, that decision may precede the “purchase” by a considerable period of time. A prudent investor will want to investigate all available information on the corporation. Such an investor also may need time to finance the purchase, and may wish to effectuate purchases without influencing the market price. These realities emphasize that the acquisition decision by a beneficial owner normally will occur well in advance of the event that is presumed to afford access to inside information.

Id. (emphasis added).

Reliance contends that with these statements, the Supreme Court made clear that a purchaser can be liable under § 16(b) only if he was a 10% shareholder at the time he decided to buy the stock in question. Reliance argues that the complaint in this case can be read to allege only one decision to purchase Disney stock — that is, when Reliance instructed its broker to purchase the 1,000,000 share block for its account. Reliance argues that since the complaint alleges that at the time it gave this instruction to Salomon Brothers it was only a 9.3% shareholder of Disney stock, it cannot be subject to § 16(b) liability.

Yet, while the Supreme Court noted in Foremost that the crucial point in the purchase of stock for § 16(b) purposes is the decision to buy and not the technical transfer of ownership, the Court did not indicate how to identify when a decision to purchase has been made. Reliance offers a commonsense answer; it contends that it made a decision to purchase when it instructed its broker to purchase the 1,000,000 share block of Disney stock for its account. Plaintiff, however, argues that this approach has the potential to frustrate the legislative aim of § 16(b); it argues that Reliance should not be considered to have made a “decision to buy” for § 16(b) purposes until it was “irrevocably committed” to the transaction — that is, until it “no longer ha[d] control over the transaction in any way that could be turned to [its] speculative advantage____” Prager v. Sylvestri, 449 F.Supp. 425, 432-33 (S.D.N.Y.1978).

Plaintiff concedes that if Reliance was irrevocably committed to purchasing all 1,000,000 shares when it placed its instruction with its broker, it could not be liable under § 16(b) as a matter of law. Plaintiff acknowledges that this case would then be identical to Foremost —like Provident, Reliance would have gone from a less than 10% to more than 10% owner in an instant, and could not be held liable because it would not have been a 10% owner before the purchase in question. However, plaintiff argues that since Reliance’s block purchase was not executed in. an instant, but rather through many transactions over several days, this case presents an opportunity for speculation on inside information that was not present in Foremost. Plaintiff argues that if Reliance was not irrevocably committed to buying the entire block at the time it placed its order, it could have reached the 10% owner threshold before making a decision whether to purchase the balance of the block. Plaintiff argues that at that point, Reliance must be presumed to have had access to inside information, and the 748,000 shares it bought after it reached the 10% shareholder level should be subject to the disgorgement rules of § 16(b).

In view of the purposes of § 16(b), the Court finds plaintiff’s reasoning persuasive. Indeed, any other result would potentially frustrate Congress’s attempt to impose a complete ban on short-term insider trading. Courts have repeatedly stated that since § 16(b) is a remedial statute, “it must be strictly construed in favor of the corporation and against any person who makes profit dealing in the corporation stock.” Adler v. Klawans, 267 F.2d 840, 846-47 (2d Cir.1959); Lewis v. Realty Equities Corp., 373 F.Supp. 829, 831 (S.D.N.Y.1974) (quoting Adler). Of course, the Court cannot extend the statute beyond the limits set by Congress, but I think it is plain that the construction offered by plaintiff is the only one consistent with the legislative intent of § 16(b).

Moreover, the concept that a purchaser cannot be said to have “purchased” stock for § 16(b) purposes until he is irrevocably committed to the transaction is a familiar one, albeit in a slightly different context. In determining whether § 16(b) applies to particular cases, courts often have had to decide whether a purchase and sale were made within a six-month period. Courts in this circuit have consistently held that a purchaser becomes a beneficial owner at the moment at which he is “irrevocably committed” to the transaction in question. See, e.g., Stella v. Graham-Paige Motors Corp., 232 F.2d 299, 301 (2d Cir.), cert. denied, 352 U.S. 831, 77 S.Ct. 46, 1 L.Ed.2d 52 (1956); Blau v. Ogsbury, 210 F.2d 426, 427 (2d Cir.1954) (purchase occurred at time when the insider’s “rights and obligations became fixed”); Prager, 449 F.Supp. at 432-33. Like the Supreme Court in Foremost, these courts have found that the time at which stock ownership is technically transferred is irrelevant for § 16(b) purposes. Instead, they have focused on when the purchaser is irrevocably committed to buy because it is at that point that he loses the power to take advantage of any inside information he might later acquire. See Stella, 232 F.2d at 301; Blau, 210 F.2d at 427; Prager, 449 F.Supp. at 432-33. Since the same concern is at issue here, it seems appropriate to employ the same concept to address it.

Therefore, for all of these reasons, I conclude that Reliance cannot avoid liability simply by pointing to the fact that it owned less than 10% of Disney’s outstanding shares when it told its broker to buy the 1,000,000 additional shares for its account. In order to avoid liability, Reliance also must show that it had an irrevocable commitment to buy those shares once it placed its order. Reliance has suggested that under New York law, it was obligated to purchase the shares at the time it placed its order so long as its broker was able to assemble the block. However, it cites only one case for that proposition, Billings Assocs., Inc. v. Bashaw, 27 A.D.2d 124, 276 N.Y.S.2d 446 (4th Dep’t 1967), and even a cursory review of that case reveals that it does not stand for what Reliance says it does. Accordingly, I conclude that Reliance has failed to demonstrate that it was irrevocably committed to purchase the entire 1,000,000 share block of Disney stock when it placed its order with its broker.

For all of the reasons set forth above, I conclude that plaintiff might be able to prove a set of facts that would entitle it to relief; for that reason, Reliance’s motion to dismiss the complaint for failure to state a claim must be denied. The parties are directed to proceed with discovery and to appear for a pretrial conference on Friday, October 25, 1985 at 11:00 A.M. in Courtroom 618.

SO ORDERED.

      . Thus, the Court explained that under its holding, the facts of Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 92 S.Ct. 596, 30 L.Ed.2d 575 (1972), would not give rise to § 16(b) liability even though the Court had upheld liability in that case just a few years earlier. In that case, Emerson acquired 13.2% of the shares of Reliance's predecessor pursuant to a tender offer, and within a six-month period, disposed of its holdings in two sales of 3.24% and 9.96% respectively. The Court of Appeals for the Eighth Circuit held that the purchase made Emerson a 10% shareholder and subjected it to the insider trading rules of § 16(b). However, it ruled that Emerson was liable for the profits only on its first sale, because "at the time of ... sale” of the remaining 9.96% of the stock, it was no longer a 10% owner.
      The Supreme Court granted certiorari on Reliance’s petition to review the lower court’s construction of the “at the time of ... sale” provision, and affirmed. The construction of the "at the time of purchase” language was not before the Court, and accordingly the Court did not reach it. Thus, in Foremost the Court stated that "Emerson ... remained liable for the 3.24% sale, although it would have had no liability under our holding today." 423 U.S. at 250 n. 25, 96 S.Ct. at 519 n. 25.

      . In Bashaw, a securities broker sued a customer for damages it suffered when the customer failed to pay for securities the broker purchased for him. The Supreme Court, Appellate Division ruled that the broker was entitled to recover its damages, stating that “[djefendant, by his failure to repudiate his agent’s order for the stock in question, bound himself to the agreement with plaintiff that plaintiff would purchase the stock for defendant and defendant would pay for it.” 27 A.D.2d at 126, 276 N.Y.S.2d at 447. This holding makes clear that where a broker executes a purchase on behalf of a customer, the customer is obligated to pay for the stock if he fails to cancel his instruction to buy. However, the case does not address the question presented here — whether a customer such as Reliance is committed to pay its broker for an entire block purchase as soon as the customer places its order.


source: Caselaw Access Project

author: CAFFREY, Chief Judge.

license: Public Domain

text:
    REYNOLDS INDUSTRIES, INC., Plaintiff, v. MOBIL OIL CORPORATION, Defendant.
    Civ. A. No. 81-2095-C.
    United States District Court, D. Massachusetts.
    Oct. 1, 1985.

      Marc A. Reardon, Zachary R. Karol, Bingham, Dana & Gould, Boston, Mass., Collier, Shannon, Rill & Scott, Thomas J. Hamilton, Washington, D.C., for plaintiff.
    R. Robert Popeo, Robert M. Gault, Mintz, Levin, Cohn, Glovsky & Popeo, Boston, Mass., for defendant.
   MEMORANDUM

CAFFREY, Chief Judge.

This is a civil action brought by the plaintiff Reynolds Industries, Inc. (“Reynolds”) against the defendant Mobil Oil Corporation (“Mobil”). In Count I the plaintiff alleges that Mobil violated the Federal Emergency Petroleum Allocation Act of 1973 (EPAA), 15 U.S.C. § 751 et seq., and Mandatory Petroleum Allocation Regulations (MPAR), 10 C.F.R. Parts 210 and 211 promulgated thereunder by refusing to supply Reynolds the correct quantity of gasoline in retaliation for Reynolds’ institution of a lawsuit against Mobil. In Count II, the plaintiff alleges breach of the retail dealer contract between the parties. Jurisdiction in this action is based on 15 U.S.C. § 754(a)(1), which incorporates § 210 of the Economic Stabilization Act of 1970 (ESA), 12 U.S.C. § 1904 note. The case is now before the Court on cross motions for summary judgment.

During the period of time at issue, Reynolds operated a retail gasoline service station in Everett, Massachusetts (“Everett II”), as well as six other stations in Massachusetts. In February of 1978, Reynolds entered into five-year contracts with Mobil in which Reynolds agreed to purchase from Mobil gasoline for resale at Everett II and at its other stations. Under the terms of the Everett II contract, Reynolds had “a contract right to purchase an amount equal to the maximum quantity provided for pursuant to mandatory allocation laws, rules and regulations.” In addition, paragraph 8 of the contract’s standard form language provided that “[a]ny claim of any kind by Buyer based on or arising out of this contract or otherwise, shall be barred, unless asserted by the commencement of an action within 12 months after the event, action or inaction to which such claim relates.”

Reynolds began operating Everett II in August 1978. From August 1978 through February 1979, Mobil supplied gasoline to Everett II on the basis of an allocation entitlement calculated, as the regulations then required, with reference to the amount of gasoline purchased in 1972 by the station’s previous operator. The Department of Energy (DOE) amended the regulations in May of 1979, changing the base period for calculating allocations to the period, November 1977 through October 1978. Everett II had been closed for 9 of those 12 months and therefore had nine zero purchase months in the updated base period. Subsequently, Mobil informed Reynolds that Everett II’s new allocation was 88,711 gallons per month, and supplied gasoline to the Everett II station in accordance with this figure until October 1979. Meanwhile, in September 1979, Reynolds filed suit against Mobil alleging violations of the federal petroleum pricing regulations. Early in October 1979, Reynolds received revised allocation figures for each of its stations supplied by Mobil. Believing the allocation for Everett II was erroneous, Reynolds notified Mobil that it took exception to this allocation.

On December 5, 1979, Mobil sent a letter to Reynolds explaining that the figures had been calculated according to the temporary exigent circumstances rule for months which had zero purchases during the regulatory base period, and that the five-month averaging rule or unusual growth adjustment, did not apply to those months. Previously, Mobil had applied both rules to the zero purchase months, a practice it discovered was incorrect. On the advice of its attorney, in July of 1980 Reynolds petitioned the DOE for assignment of a base period volume of 88,711 gallons per month for the zero purchase months. Mobil opposed the assignment in a letter to the DOE dated August 25, 1980. On January 22, 1981, the DOE granted Reynolds’ assignment petition. Several days later, the gasoline allocation program was terminated. Reynolds filed this suit on August 14, 1981. The case was assigned to another judge of this Court, who recused himself in May, 1985, at which time it was then redrawn to the undersigned.

Before considering the merits of the allegations in this case, it is necessary to determine whether or not the plaintiff’s claim is time-barred. Neither section 210 of the ESA nor the EPAA contains a limitation provision. In such a case, the general rule is that the most analogous state statute of limitations applies. E.g., Gulf Oil Corp. v. Dyke, 734 F.2d 797, 808 (Temp.Emer.Ct.App.), cert. denied, — U.S. -, 105 S.Ct. 173, 83 L.Ed.2d 108 (1984). Massachusetts does not have a statute of limitations specifically applicable to liabilities or private causes of action created by a federal statute. Reynolds relies heavily on Hyland v. Dennison Manufacturing Co., 496 F.Supp. 939 (D.Mass.1980) to support its contention that the Massachusetts three-year tort statute of limitations applies to its claim. In Hyland, a suit for damages resulting from an alleged wrongful termination of employment in retaliation for the plaintiffs assertion of rights conferred by the ESA, the district court found the Massachusetts tort statute of limitations most analogous and appropriate. Id. at 940. In so doing, the court rejected the plaintiffs contention that the six-year statute of limitations for contract actions applied, stating that the provisions of the ESA relied upon by the plaintiff imposed duties of conduct based on social policies and not on any agreement of the parties. Id.

Although Hyland is instructive, it does not control in this case. The facts in this case differ from those in Hyland in at least one very significant respect: Reynolds and Mobil signed a contract containing an express limitations clause requiring Reynolds to commence action on any claim “based on or arising out of” the contract within 12 months of its accrual. Count II of the complaint, alleging breach of the contract between Reynolds and Mobil, is obviously based on the contract and thus subject to the limitations clause. Count I alleges that Mobil’s failure to live up to its contractual obligation to supply the maximum quantity of gasoline allowed by the DOE regulations constituted retaliatory and discriminatory action, and circumvention of the regulations in violation of the MPRA. This claim-directly relates to an express private agreement between the litigants. Without the contract, Reynolds would have no basis for its Count I claim. It is a consequence of the use of the mandatory petroleum allocation rules for the quantity term in the contract, and the resultant confusion in how to properly calculate the amount of gasoline due under the regulations, that gave rise to this action. The phrase “arise out of” should be given a broader meaning than “based upon” where both appear in the same paragraph. See Rosenberg v. Robbins, 289 Mass. 402, 411, 194 N.E. 291 (1935). Although in Count I Reynolds asserts a claim created by federal legislation, the claim itself arises from a dispute concerning the proper interpretation of the quantity term in the retail dealer contract, and therefore arises out of the contract. I rule that as a consequence both counts are subject to the limitations provision.

It is generally accepted that contracting parties may provide a limitations period within which actions on the contract must be commenced, so long as the time period is not unreasonably abbreviated. See generally, Order of United Commercial Travelers of America v. Wolfe, 331 U.S. 586, 608, 67 S.Ct. 1355, 1365, 91 L.Ed. 1687 (1947); “Developments in the Law — Statutes of Limitations,” 63 Harv.L.Rev. 1177, 1181 (1950). When two sophisticated parties freely enter into facially comprehensive written agreements, such documents cannot be “easily bypassed or given restrictive interpretations.” International Business Machines Corp. v. Catamore Enterprises Inc., 548 F.2d 1065, 1073 (1st Cir.1976). In IBM, the court found that a one-year limitations clause in a contract was valid under New York law and that the plaintiff was bound by his agreement to the provision. Id. at 1075-76. As the court in IBM noted, “when a supplier and its customer, neither of whom is helpless in the marketplace, agree on terms limiting the period of liability for future services to one year, those terms must be respected.” Id. at 1076.

The reasoning in IBM is applicable to the facts in this case. Both Mobil and Reynolds are sophisticated business entities accustomed to making deals in a competitive marketplace. Reynolds has been in business for over forty years. It owns and operates at least six retail service stations in the Massachusetts area. David Reynolds, who was the principal negotiator for Reynolds in the contract discussions with Mobil, has been negotiating such contracts since 1965. The negotiations themselves took place over a period of four to five months. Reynolds had previously held gasoline supply contracts with Mobil for two of its stations, and in 1978 Mobil actively solicited Reynolds for its business. This is not the case of a service station dealer who is a man of limited means overawed by a great corporation. Shell Oil Company v. F.T.C., 360 F.2d 470, 487 (5th Cir.1966), cert. denied, 385 U.S. 1002, 87 S.Ct. 705, 17 L.Ed.2d 541 (1967). Here, one successful corporation dealt with another. Where there is no evidence of coercion or undue pressure, and the retail dealer is not a novice in the business, and the dealer accepts the contract as proffered, it cannot claim lack of meaningful choice. Malone v. Crown Central Petroleum Corp., 474 F.Supp. 306, 308 (D.Md.1979). Simply because the provision was part of what could be called the “boilerplate” section of the contract does not in itself make it unfair. As the Massachusetts Appeals Court noted in Wang Laboratories, Inc. v. Docktor Pet Centers, Inc., 12 Mass.App. 213, 218, 422 N.E.2d 805 (1981), when discussing a standardized lease agreement form, the nature of the parties involved is entitled to weight. Therefore, I rule that the limitations provision in the contract between Reynolds and Mobil was not a contract of adhesion.

I also rule that the plaintiffs contention that the limitations provision is against public policy and should not be enforced is totally unpersuasive. Massachusetts law governs the substantive issues in this case. There is no evidence that a one-year limitations provision is contrary to Massachusetts public policy. In fact, the Uniform Commercial Code, as adopted in Massachusetts, expressly permits contracting parties to reduce the period of limitation for commencing action on a contract to one year. Mass.Gen.Laws c. 106, § 2-725. A contract between a supplier and distributor which includes a one-year limitation provision is not unreasonable or offensive to state law where the state Uniform Commercial Code permits such reduction. Cape Fear Oil Co. of Wilmington, Inc. v. Mobil Oil Corp., 22 U.C.C.Rep. 369, 370 (E.D.N.C.1977). Moreover, chapter 93E of the General Laws of Massachusetts, which regulates agreements between suppliers and retail gasoline dealers, expressly includes a one-year limitation on causes of action brought under that chapter. Mass. Gen.Laws c. 93E, § 8. A one-year limitation is not unreasonable where the cause of action does not involve a violation which is difficult to discover, such as a hidden defect in a product. Reynolds could readily have ascertained each month how much gasoline was being supplied to Everett II.

With regard to the national policy underlying the ESA, absent statutory indication to the contrary, parties to a contract may stipulate to an abbreviated limitations period. See, e.g., Order of United Commercial Travelers of America v. Wolfe, 331 U.S. at 608, 67 S.Ct. at 1365. The EPAA does not prohibit consensual contractual agreements including limitation provisions. See 15 U.S.C. § 751 et seq. The inclusion of a one-year limitation period in the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. §§ 2801 et seq., indicates that Congress is not per se adverse to a one-year limitation period for actions between gasoline dealers and suppliers.

At least one court has upheld a one-year state statute of limitations applicable to a claim brought under the EPAA. Ashland Oil Co. v. Union Oil Co., 567 F.2d 984, 990 (Temp.Emer.Ct.App.1977), cert. denied, 435 U.S. 994, 98 S.Ct. 1644, 56 L.Ed.2d 83 (1978). The court in Ashland addressed the issue of which California statute of limitations applied to an action for overcharges on sales of petroleum products. Id. at 986. The court, noting the strong national policy expressed in the EPAA, found “no suggestion whatever in the statutory structure undergirding the claims before [the court] that Congress intended no limitation provisions to apply or that state statutes of limitations should not be looked to____” Id. at 989. Not presented with a contractual limitation provision, the court in Ashland applied the California one-year limitation period to actions brought pursuant to a statute for a penalty or forfeiture and to the claim for treble damages under the EPAA. The court applied the three-year limitation to actions for liabilities created by statute which are not for penalty to the claim for actual damages. Id. at 987, 990-91. The court ruled that the one-year statute was inapplicable to a claim for actual damages where the complexity of the price regulations made it difficult to determine noncompliance, but did not find it per se contrary to the national policy underlying the EPAA. Id. at 991. Massachusetts, like California, has a one-year statute of limitations on actions for penalties or forfeiture under penal statutes, a limitation which would apply to Reynolds’ claim for treble damages. Mass. Gen.Laws c. 260, § 5. I therefore rule that the one-year limitations provision in the contract between Reynolds and Mobil was, and is not, void as against either Massachusetts or federal policy.

A cause of action accrues when a defendant commits an act that injures the plaintiff. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338, 91 S.Ct. 795, 806, 28 L.Ed.2d 77 (1971). On December 5, 1979, Mobil sent a letter to Reynolds confirming the lower allocation entitlement which Reynolds claims was unlawfully imposed on it. Reynolds’ cause of action therefore accrued on that date. As was established in Siegel Oil Co. v. Gulf Oil Corp., 701 F.2d 149, 153 (Temp.Emer.Ct.App.1983), an alleged violation of the MPAR is not a continuing violation.

Reynolds also argues that Mobil should be equitably estopped from raising the one-year limitation provision. Under the doctrine of equitable estoppel, a defendant “is estopped from denying the consequences of his conduct where that conduct has been such as to induce another to change his position in good faith or such that a reasonable man would rely upon the representations made.” Precious Metals Associates, Inc. v. Commodity Futures Trading Comm’n, 620 F.2d 900, 908 (1st Cir.1980), quoting Bergeron v. Mansour, 152 F.2d 27, 30 (1st Cir.1945). Reynolds contends that although it was informed by Mobil that the December 5, 1979, letter expressed its interpretation of the correct method for calculating the amount of gasoline Everett II should receive, Reynolds did not view that letter as a violation of their contract because Mobil never specifically refused to supply the gasoline at the earlier, higher allocation level, and did not specifically state that the letter represented Mobil’s final position concerning its obligations under the regulations. Reynolds also states, however, that it contacted its attorney in December, 1979, regarding the Everett II situation, and in response to Mobil’s suggestion that it seek DOE advice. At that time, Reynolds certainly knew that it had instituted a lawsuit against Mobil, that Mobil had subsequently decreased its gasoline allocation, and that Mobil was not delivering the amount of gasoline to Everett II that Reynolds claimed was due. According to the record, Reynolds claims that Mobil, “after [the] December 5, 1979 letter ... simply made no further offers to supply gasoline to the Everett II location.” Plaintiff’s Response to Defendant’s First Set of Interrogatories, # 11. Mobil consistently delivered substantially less gasoline than the 88,711 gallons Reynolds claimed was due to it beginning in January 1980. From these facts it is impossible to find any evidence that Mobil’s conduct caused Reynolds to refrain from commencing a suit against it.

Quite distinguishable are the facts in Bergeron v. Mansour, 152 F.2d at 27. In Bergeron, an insurance adjuster told the plaintiff there was no need to contact a lawyer, that the company would settle her claim for injuries following an automobile accident. Id. at 29. There is no evidence in this record that Mobil in any way lulled Reynolds into a false sense of security. In fact, Reynolds did contact a lawyer about the problem.

Even assuming that Reynolds reasonably relied on the representations made by Mobil, the representations’ were only to the effect that Mobil would supply the amount of gasoline DOE stated was permissible when an interpretation was issued. Such an order did not issue until January 1981, after the period during which Reynolds claims Mobil was in violation of its duties.

Finally, I note that Reynolds’ claim that a dealer in its position would not bring suit against its supplier because of the unequal bargaining power between the parties so long as there was hope of resuming the supply is disingenuous. Reynolds was already in litigation with Mobil over a price discount, proving that Reynolds was not fearful of commencing a suit against Mobil under the contract. See Reynolds Industries, Inc. v. Mobil Oil Corp., 741 F.2d 1385 (Temp.Emer.Ct.App.1984). Consequently, I rule that the defendant is not equitably estopped from asserting the one-year limitations provision in the contract, and that both counts in the complaint are time-barred.

Order accordingly.

      . See Reynolds Industries, Inc. v. Mobil Oil Corp., 741 F.2d 1385 (Temp.Emer.Ct.App.1984). The Temporary Emergency Court of Appeals affirmed summary judgment granted by the United States District Court for the District of Massachusetts in favor of Mobil.

      . The "temporary exigent circumstances” rule (TEC) provided that for any base period month in which a customer had purchased at least 10% less gasoline than it had in the same month of the prior year due to a temporary exigency, the base period could be calculated based on the volume purchased the year before. See 10 C.F.R. § 211.105(e) (1979).

      . The “unusual growth adjustment” rule provided that if a customer purchased gasoline during at least three months of the October 1978 through February 1979 period, and the monthly average of those purchases from all suppliers in the months it purchased gasoline was at least ten percent greater than the aggregate amount of its actual motor gasoline purchases in a base period month from all suppliers, it could substitute as its base period use for the current month corresponding to that base period month its average monthly purchases in those months of the October 1978 through February 1979 period that it purchased motor gasoline. See 10 C.F.R. § 211.104 (1979).


text:
    John CARTER and Ray Alger, Plaintiffs, v. ROLLINS CABLEVISION OF MASSACHUSETTS, INC., Rollins, Inc., Richard G. Asoian, Charles H. Foster, Jr., Benjamin Farnum, Linda Farnum, Frank Serio, Jr., Richard J. Trepanier, Augustine W. Nickerson, Raymond A. Vivenzio, Walter S. Soule, and the Town of North Andover, Defendants.
    Civ. A. No. 84-3309-C.
    United States District Court, D. Massachusetts.
    Oct. 1, 1985.
    Barry B. Teicholz, Boston, Mass., for plaintiff.
    Benjamin G. and Linda A. Farnum, pro se.

      Warren F. Fitzgerald, Meehan, Boyle & Cohen, P.C., Boston, Mass., for defendants Rollins Cablevision of Mass., Rollins Inc., & R.G. Asoian.
    Ronald F. Kehoe, Christopher E. Nolin, Linda E. Meyer, Warner and Stackpole, Boston, Mass., for defendants Foster, Serio, Trepanier, Nickerson, Vivenzio, Soule and the Town of North Andover.
   MEMORANDUM

CAFFREY, Chief Judge.

This is a civil action brought by John Carter and Ray Agler, the owners of Mill’s Hill in North Andover, Massachusetts. The defendants are Rollins Cablevision of Massachusetts, Inc., a Massachusetts corporation, Rollins, Inc., a Delaware corporation which owns all of the stock in Rollins Cablevision, Richard G. Asoian, an attorney licensed to practice law in the Commonwealth of Massachusetts, Benjamin and Linda Farnum, owners of Boston Hill in North Andover, Massachusetts, Charles H. Foster, Jr., Building Inspector for the Town of North Andover Building Department, Frank Serio, Jr., Richard J. Trepanier, Augustine W. Nickerson, Raymond A. Vivenzio and Walter S. Soule, members of the North Andover Board of Appeals (hereinafter the “Board of Appeals”) and the Town of North Andover (hereinafter the “Town”). The complaint purports to state claims pursuant to 42 U.S.C. § 1983 and state law, claiming jurisdiction under 28 U.S.C. § 1331. The plaintiffs request this court to exercise jurisdiction over all their claims, including those based exclusively on state law, because all claims in the complaint are based on the same set of operative facts.

The matter is now before the Court on a motion for summary judgment filed by the Town, Building Inspector Foster and the members of the Board of Appeals (hereinafter the “Town defendants”). Fed.R.Civ.P. 56.

A court may not grant summary judgment unless the moving party has shown that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In considering the Town defendants’ motion for summary judgment, the Court has examined the record in detail, and has considered the facts in the light most favorable to the plaintiffs. Raskiewicz v. Town of Boston, 754 F.2d 38 (1st Cir.1985).

The crux of the § 1983 claim is that the Town defendants conspired with the other defendants in this action under color of state law to deny the plaintiffs’ application for a special zoning permit to construct radio towers on their property, and to grant a similar zoning permit to the defendants, Benjamin and Linda Farnum. The plaintiffs assert that this conspiracy operated to deprive them of their Fourteenth Amendment rights of due process of law and equal protection of the law in direct violation of 42 U.S.C. § 1983. The Town defendants move for summary judgment on two grounds: 1) that the plaintiffs have failed to allege sufficient facts concerning the existence of an actionable conspiracy among the defendants; and 2) that even if sufficient facts were alleged, the plaintiffs’ claim that they were denied a zoning permit amounts to no more than an allegation that the Town defendants improperly applied state law, and does not state a claim under 42 U.S.C. § 1983.

The plaintiffs’ complaint makes the following allegations: two hills located in the Town of North Andover are suitable for use as head-end sites for the reception of cable television signals. The plaintiffs, John Carter and Ray Alger, own one hill, commonly referred to as Mill’s Hill, and defendants Benjamin and Linda Farnum own the other, known as Boston Hill. The Town granted a special permit to the owners of Boston Hill in 1957 for the construction of radio towers for use by MIT. In 1958 the Town granted the owners of Mills Hill a variance for the construction of radio towers, also for the use of MIT. MIT had terminated its use of both properties by the time the events pertinent to this action transpired. In July, 1981 the defendant Rollins Cablevision of Massachusetts received initial approval to operate a cable television service in North Andover. A condition for obtaining final licensing was the acquisition of appropriate head-end sites. Thereafter, Rollins Cablevision began negotiating with both the plaintiffs, owners of Mill’s Hill, and the Farnums, owners of Boston Hill, concerning the lease of their hills as head-end sites.

During negotiations with the plaintiffs in April, 1982 Rollins Cablevision’s attorney, Richard G. Asoian, assured the plaintiffs that he would take care of maintaining and obtaining any permit or zoning requirements. On July 23, 1982 the Town’s Board of Appeals approved by a vote of 4-0, with Board member Nickerson abstaining, an application by the defendants, Benjamin and Linda Farnum, for a special permit to allow Rollins Cablevision to use Boston Hill as a head-end site for its cable television transmissions. Just a few days later, on July 29, 1982, Rollins Cablevision reopened negotiations, which had been discontinued in June, with the plaintiffs, John Carter and Ray Alger. Attorney Asoian represented Rollins Cablevision throughout the negotiations. Sometime prior to September 1, 1982, a lease of the plaintiffs’ Mill’s Hill site was drafted by attorneys for Rollins Cablevision. A “Letter Agreement” incorporating the lease was executed by the plaintiffs and Mr. Thomas Byrd, Vice President of Rollins Cablevision, on September 21, 1982. Subsequent to the date of the Letter Agreement, through and including March of 1983, Rollins Cablevision paid rent to the plaintiffs in accordance with the terms of the lease and began preliminary construction.

After the Letter Agreement was executed, on October 27, 1982, the Farnums wrote to the defendant Foster, in his capacity as Building Inspector for the Town, objecting to Rollins Cablevision’s use of the Mill’s Hill site and requesting that the Board of Appeals hold a hearing to determine whether or not that use was permitted under the 1958 variance.

On December 3, 1982, in response to the Farnums’ letter, Foster sent Attorney Asoian a letter stating that the proposed commercial use of the plaintiffs’ tower would be a non-conforming use, in violation of zoning by-laws. In his affidavit Foster avers that he made this determination based upon his interpretation of the requirements imposed by state and town zoning laws. Despite the fact that title to the property was held by the plaintiffs, Foster did not send a copy of this letter to the plaintiffs until their counsel requested that he do so on December 16, 1982. Foster’s affidavit states that he sent the letter to Attorney Asoian because Asoian had personally told Foster that he (Asoian) was representing the plaintiffs with respect to Rollins Cablevision’s use of that property. At all pertinent times, Attorney Asoian represented to the plaintiffs that he was acting in their interest, concurrently with that of Rollins Cablevision.

Upon receipt of Foster’s letter, Attorney Asoian, acting on behalf of the plaintiffs and Rollins Cablevision, filed two applications with the Board of Appeals. First, the plaintiffs sought a review of Foster’s ruling that Rollins’ proposed use of Mill’s Hill was a violation. Second, in the event that this petition was denied, plaintiffs requested a special permit allowing Rollins to use their property. Both applications were denied. On their first petition, the plaintiffs lost by a 4 to 1 vote. Mr. Soule cast the only vote in their favor. Plaintiff Carter’s affidavit avers that immediately before the vote on the plaintiffs’ petition for a special permit was cast, Mr. Foulds replaced Mr. Soule for the vote. The plaintiffs’ petition was denied by a vote of 3-2. Mr. Serio and Mr. Trepanier voted in favor of the permit. Mr. Foulds cast one of the three votes against the permit. In an affidavit Carter further avers that Mr. Farnum is employed at AT & T Technology, along with Board of Appeals members, Mr. Serio, Mr. Foulds and Mr. Nickerson. The plaintiffs’ complaint states that the Mill’s Hill and Boston Hill sites are identical from the standpoint of town zoning law, state law and the impact that use of the sites for cablevision reception would have on surrounding property.

Subsequent to the Board of Appeals’ denial of the plaintiffs’ petitions, Rollins Cablevision, represented by Asoian, began negotiations to lease the Boston Hill site from the Farnums. The plaintiffs’ complaint alleges that “[ujpon information and belief, the Defendant, Foster, was aware of the arrangement [with Rollins Cablevision] ... and cooperated with Defendants, Farnum and Rollins ... in perpetrating the plan by his letter of December 3, 1982, and by his recommendation to the Board of Appeals.” On February 18, 1983, Rollins Cablevision terminated its lease for the Mill’s Hill site. On March 3,1983, Thomas Byrd, Vice President of Rollins Cablevision, executed a Notice of Lease evidencing a lease by Rollins Cablevision of the Farnums’ Boston Hill site.

The plaintiffs’ only federal claim in this action is that the Town defendants conspired with the other defendants under color of state law to deprive them of their Fourteenth Amendment rights to due process of law and equal protection of the law, in violation of 42 U.S.C. § 1983. After careful consideration of the plaintiffs’ complaint, the affidavits filed in this case, and applicable law, I rule that the plaintiffs have failed to state a case that their civil rights were abridged, in violation of 42 U.S.C. § 1983. Furthermore, I rule that the Town defendants are entitled to attorneys’ fees and costs because the plaintiffs’ federal claims in this case are frivolous.

In states where the state law offers a panoply of administrative and judicial remedies, the Court of Appeals for the First Circuit has ruled in a number of recent decisions that litigants may not obtain federal court review of local zoning and planning disputes by means of 42 U.S.C. § 1983. Creative Environments, Inc. v. Estabrook, 680 F.2d 822 (1st Cir.1982); Cloutier v. Town of Epping, 714 F.2d 1184 (1st Cir.1983); Chiplin Enterprises, Inc. v. City of Lebanon, 712 F.2d 1524 (1st Cir.1983); Quinn v. Bryson, 739 F.2d 8 (1st Cir.1984); Alton Land Trust v. Town of Alton, 745 F.2d 730 (1st Cir.1984); Raskiewicz v. Town of New Boston, 754 F.2d 38 (1st Cir.1985). The court in Creative Environments, Inc. v. Estabrook, 680 F.2d 822 (1st Cir.1982) ruled that conventional land use disputes between landowners or developers and local planning authorities are matters of concern to the state and do not implicate the constitution. The court explained further:

A federal court ... ‘should not ... sit as a zoning board of appeals.’ Village of Belle Terre v. Boraas, 416 U.S. 1, 12, 94 S.Ct. 1536, 1542, 39 L.Ed.2d 145 (1974) (Marshall, J., dissenting). Every appeal by a disappointed developer from an adverse ruling by a local Massachusetts planning board necessarily involves some claim that the board exceeded, abused or “distorted” its legal authority in some manner, often for some allegedly perverse (from the developer’s point of view) reason. It is not enough simply to give these state law claims constitutional labels such as “due process” or “equal protection” in order to raise a substantial question under section 1983.

Creative Environments, Inc., 680 F.2d at 833.

Chiplin Enterprises v. City of Lebanon, 712 F.2d 1524 (1st Cir.1983) involved a claim by a developer that the City of Lebanon, its building inspector and members of its planning board deprived him of his civil and constitutional rights by denying him a building permit. The court dismissed the complaint for failure to assert a federal question. In reaching this result, the court explained that a town’s engaging in even arbitrary or adversarial tactics in land use disputes does not create issues of constitutional dimensions. The court explained

that the only land use dispute situation in which a valid constitutional claim could arise is where fundamental constitutional rights are abridged. Chiplin Enterprises, 712 F.2d at 1527-28. For example, the court in Packish v. McMurtrie, 697 F.2d 23 (1st Cir.1983), said that a firefighter who alleged that he had been denied reimbursement for medical expenses in retaliation for his published criticism of town officials might have a valid federal claim. Similarly, the court in Manego v. Cape Cod Five Cents Savings Bank, 692 F.2d 174 (1st Cir.1982) said that the plaintiff, a black man, who alleged that he was denied an entertainment license because of his race, had at least stated a valid claim.

The complaint in this case does not allege that any of the plaintiffs’ fundamental constitutional rights were abridged. The essence of the complaint and the evidence in the record, when viewed in the light most favorable to the plaintiffs, is that the Board of Appeals, in the exercise of its discretion, simply saw fit in 1982 to approve Benjamin and Linda Farnum’s application for a special permit, but to deny the plaintiffs’ application for a special permit approximately six months later. The Court of Appeals for the First Circuit in a recent decision, has said that “the members of local boards have considerable leeway for the free exercise of their personal views before any possible due process claim might exist____” Raskiewicz v. Town of New Boston, 754 F.2d 38, 44 n. 5 (1st Cir.1985).

The plaintiffs rely principally upon Burt v. City of New York, 156 F.2d 791 (2d Cir.1946) and Cordeco Development Corp. v. Santiago Vasquez, 539 F.2d 256 (1st Cir.1976) in arguing that their complaint states a valid cause of action under 42 U.S.C. § 1983. In Burt, the Court of Appeals for the Second Circuit held that an architect, who allegedly was a victim of intentional and purposeful discrimination by officials of the City of New York, had a valid cause of action under the predecessor statute to § 1983. In Cordeco Development Corp., the Court of Appeals for the First Circuit upheld the district court’s finding that public officials had “acted maliciously and wantonly, and with illegitimate ‘political’ or, at least, personal motives, in holding up and seeking to defeat the granting of a [sand extracting] license” to the plaintiffs. Cordeco Development Corp., 539 F.2d at 260. The defendant in Cordeco Development Corp. did not challenge the applicability of § 1983 and the Fourteenth Amendment in that case. Therefore, the court did not rule that the complaint stated a valid federal claim. Moreover, in a footnote, Chief Judge Campbell expressed doubt whether a complaint involving “bribery and conflict of interest” and other such claims of purposeful, malicious discrimination by public officials against individuals were properly equated with valid equal protection claims. Cordeco Development Corp., 539 F.2d at 260 n. 5.

It is not necessary for this court to decide whether the court in Cordeco Development Corp., if the issue was raised, would have held that the allegations in that case raised a valid equal protection claim because, as discussed above, the Court of Appeals for the First Circuit, in a number of cases decided since Cordeco Development Corp., has made it clear that disappointed parties involved in land use disputes alleging violations of their rights of due process and equal protection may not invoke federal jurisdiction pursuant to 42 U.S.C. § 1983. Raskiewicz v. Town of New Boston, 754 F.2d 38 (1st Cir.1985), the most recent of this line of cases, involved facts and allegations very similar to those in the instant case. The plaintiff in Raskiewicz was denied a gravel removal permit from the Board of Selectmen of the Town of New Boston. The complaint alleged that the Board of Selectmen conspired with others to deny the permit because of personal bias and malice born of their desire to acquire for themselves or others the ownership of the plaintiff’s land for the purpose of obtaining economic profit from the use of the land. The court acknowledged that “[cjharges of bias, bad faith and other ‘opprobrious epithets of malice’ ... are commonplace in cases of this nature,” Raskiewicz, 754 F.2d at 44, but said that such charges do not make inoperable the general rule prohibiting ordinary land disputes from being litigated under § 1983. The court in Raskiewicz left open the possibility that claims of “actual corruption”, if serious enough and well supported, could make out a due process claim under § 1983. However, as in Raskiewicz, the record in the instant case falls far short of creating a genuine issue of material fact with respect to such a claim. There is no allegation or evidence in the record of corruption of the town officials involved in this case.

Even if this Court properly could exercise jurisdiction over land use disputes such as this one, this action should be dismissed because the plaintiffs clearly have failed to support their claim of conspiracy under § 1983 with adequate references to material facts. Slotnick v. Staviskey, 560 F.2d 31 (1st Cir.1977) was a case in which the plaintiff alleged that certain state officials had conspired to deprive him of his civil rights. The Court of Appeals upheld the dismissal of the complaint, saying that “complaints cannot survive a motion to dismiss if they contain conclusory allegations of conspiracy but do not support their claims with references to material facts.” See also, Francis-Sobel v. University of Maine, 597 F.2d 15 (1st Cir.1979). The plaintiffs’ complaint in this case fails to meet that standard. The only facts alleged in the complaint to support a claim of conspiracy are: 1) that defendant Foster sent the December 3, 1982 letter, regarding his opinion that constructing a tower on plaintiffs’ property would create a nonconforming use, to Asoian rather than the plaintiffs, and 2) that the Board of Appeals denied the plaintiffs a special permit, but granted a special permit to the defendants, Benjamin and Linda Farnum. These alleged facts are not sufficient to survive a motion to dismiss. Moreover, assuming that the plaintiffs’ complaint alleged sufficient facts to survive a motion to dismiss, the plaintiffs clearly have not offered sufficient proof of such facts to avoid summary judgment against them. The plaintiffs have offered nothing to rebut Mr. Foster’s affidavit that he was simply doing the duty conferred on him by law when at the Farnums’ request he investigated the proposed use of the Mills Hill site, and then issued his opinion that the proposed use was a violation. The plaintiffs have similarly failed to offer proof that the members of the Board of Appeals conspired to deny them a special permit. The fact that Mr. Foulds replaced Mr. Soule for the vote on the special permit and the fact that Mr. Farnum and Board members, Mr. Serio, Mr. Foulds and Mr. Nickerson have the same employer, without more, is inadequate proof to avoid summary judgment. See Manego v. Cape Cod Five Cents Savings Bank, 692 F.2d 174 (1st Cir.1982).

42 U.S.C. § 1988 specifically provides for the award of costs and attorneys fees to prevailing parties in civil rights actions. This rule applies to prevailing defendants, as well as plaintiffs, where the court ruled that the action was frivolous, unreasonable, groundless or vexatiously brought. Olitsky v. O’Malley, 597 F.2d 303, 305 (1st Cir.1979).

The plaintiffs’ complaint under § 1983 was brought herein in the face of a recent line of decisions of the Court of Appeals for the First Circuit rejecting civil rights claims in land use cases. For that reason, I rule that the plaintiffs’ § 1983 claim in this case was frivolous. Accordingly, the Town defendants’ attorneys fees and costs are to be paid by the plaintiffs.

Because no federal claim remains before the Court, I rule that the plaintiffs’ pendent state claims should be dismissed as well. United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

Order accordingly.

ORDER

In accordance with the memorandum filed this date, it is ORDERED:

1. Town defendants’ (Town of North Andover, Charles H. Foster, Jr., Frank Serio, Jr., Richard J. Trepanier, Augustine W. Nickerson, Raymond A. Vivenzio and Walter S. Soule) motion to dismiss Count IV of the complaint is granted.

2. Counts I, II and III are dismissed as a matter of discretion.

3. Plaintiffs are ordered to pay the attorneys’ fees and costs of the Town defendants in this action.

      . 42 U.S.C. § 1983 states in pertinent part: "[E]very person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory ... subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress____”


author: HALL, District Judge.

text:
    Tom KEMP; Truman Nisbet, Leslie Boomgarten, Kevin Fitzmaurice, Plaintiffs, v. FROZEN FOOD EXPRESS, INC.; Frozen Food Transportation Services, Inc; Frozen Food Express Industries; and Conwell Corporation, Defendants.
    Nos. TX-85-27-CA, TX-85-28-CA, TX-85-29-CA and TX-85-70-CA.
    United States District Court, E.D. Texas, Texarkana Division.
    Oct. 1, 1985.
    Nicholas H. Patton of Young, Patton, & Folsom, Texarkana, Ark., for plaintiffs.
    Victor Hlavinka of Atchley, Russell, Waldrop, & Hlavinka, Texarkana, Tex., for defendants.
   MEMORANDUM OPINION

HALL, District Judge.

Jurisdiction to hear this ease is found in 28 U.S.C. § 1332, and was not disputed by ■the parties.

The sole issue in this trial is a question of law that is related to the municipal law of the State of Texas, viz, were or were not Tom Kemp, Truman Nisbet, Leslie Boomgarten, and Kevin Fitzmaurice employees of Frozen Food Express (hereinafter called FFE) for purposes of Texas Workman’s Compensation Law? Four causes of action were consolidated for this purpose. At the commencement of trial the parties’ counsel agreed that Plaintiff Tom Kemp was an employee of Conwell, Inc., a wholly owned subsidiary of the Defendant, FFE. The Court accepts their determination and finds Tom Kemp was an employee of the FFE corporate family.

The following facts are undisputed:

(1) That the claimants operated equipment for the benefit of FFE.

(2) That the vehicles displayed the FFE yellow and green decals, and operated under the FFE Interstate Commerce Commission permit. It was also shown that ICC permit number was displayed on the cab door of the tractors.

(3) That there was no relevant difference between the contracts signed by Plaintiffs Nisbet and Boomgarten. Plaintiff Fitzmaurice had not signed a contract with FFE. He was, rather, operating as a “subcontractor” driver for Boomgarten.

(4) That while the Plaintiffs were associated with FFE they were issued FFE corporate identification cards.

(5) That in the years prior to 1981, FFE had carried workman’s compensation insurance on its drivers. Further, that FFE carried this insurance regardless of whether or not the drivers were regular employees or categorized as “Independent Contractors”.

(6) That in 1981 FFE cancelled its workman’s compensation insurance for all persons associated with FFE, both regular employees and “independent contractors”.

(7) That there was no distinguishable difference in the duties or conditions of employment between the drivers that were employees of Conwell, Inc., and those who were classified as “independent contractors”.

(8) That during the pendency of the lease-term FFE had the exclusive right to use, possession and control of the vehicles. These facts are important as the question of law regarding the Plaintiffs’ status is highly fact specific.

Plaintiff Nisbet testified that while en-route drivers were required to apprise the FFE dispatcher of their location. Further, that they obtained their outgoing and return schedules from the FFE dispatcher. Nesbit went on to say that during the pendency of the delivery, the drivers were the sole corporate representatives to the various customers. He continued his testimony by saying that when new drivers were hired by an “Independent Contractor”, FFE had a right of refusal. This testimony was corroborated by a defense witness, John Prickett, an FFE corporate officer.

There was further testimony that if an “Independent Contractor” was unable to obtain, on his own, drivers who were acceptable to FFE (those who passed a corporate-directed physical, background investigation, and polygraph), then FFE would itself furnish suitable drivers. Again, defense witness Prickett substantiated this portion of Plaintiff Nesbit’s testimony.

Plaintiff Fitzmaurice testified that he filled out an FFE application form, took a physical examination administered by an FFE physician, and took and FFE administered polygraph examination. Fitzmaurice, a subcontractor for Plaintiff Boomgarten, testified that he received his instructions not from Boomgarten, but from FFE. He also testified that he received some partial repayment for medical expenses, and some other checks styled “compensation” from FFE after his injury. He went on to say that the payments later stopped without notification.

Drivers supervised the count of the merchandise at the loading and unloading of the trailer, and were personally liable for shortages, according to Plaintiff Nesbit.

Plaintiff Nesbit testified that he did not receive any direct notification from FFE that he, or other independent contractors, would have their workman’s compensation insurance dropped. Rather, he continued, it was “something I heard on the grapevine”. The defense offered no evidence to counter this testimony. Alvin Dryer, an FFE officer called by the Plaintiff as an adverse witness, testified that prior to 1981, FFE had represented drivers similarly situated as the Plaintiffs as employees.

Plaintiff’s Exhibit #2 was a file maintained by FFE regarding Plaintiff Nesbit’s injury. The style of the report was “Employer’s Report of Injury”. Mr. Dryer authenticated the report, and acknowledged that FFE had paid voluntary benefits to Nesbit, and that FFE had written on the checks the word “compensation”. A check, dated May 16, 1983, authenticated by Dryer, labeled Plaintiff Nesbit as an “employee”. Plaintiff’s Exhibit #7, also authenticated by Dryer, was a check to Plaintiff Fitzmaurice, dated May 6, 1983. That check labeled Fitzmaurice as an “employee” as well.

Both Plaintiff Nesbit and Plaintiff Boomgarten said that they were directed in what sequence to load and unload the merchandise carried in the trailers. Mr. W.D. Goodwin, a defense witness, testified on cross-examination that FFE required the independent contractors to have “relief” drivers on long hauls. He also testified that drivers were required to contact FFE before returning and that drivers were instructed as to what form of payment would be accepted.

Defense witness Prickett testified that FFE leases roughly 450 tractors from various owners. Some owners merely leased one truck, others like Plaintiff Boomgarten might lease multiple units to FFE. During a trip, defense witness Goodwin said that drivers were to call the FFE dispatcher. If a driver was, for instance, enroute to Albuquerque, New Mexico, the evidence produced at trial showed it was possible for him to be detailed to Denver, Colorado, instead; from the testimony of W.D. Goodwin. Goodwin went on to testify that if a driver did not comply with the Company directive, the lease was automatically terminated. Goodwin also testified that FFE had the right to refuse a driver permission to obtain a backhaul, even if no FFE load was available. The driver would then be forced to “deadhead” on the return trip.

The Court’s sole task is to determine if the Plaintiffs were employees of Frozen Food Express for purposes of Texas Workman’s Compensation Law. “Employee”, for the purposes of workman’s compensation law, is defined by statute in Article 8309, Section One, Tex.Rev.Civ.Stat.Ann. Article 8307, Section Six, defines an employee of a subcontractor and his relation to the general contractor. That provision is relevant in the case of Plaintiff Fitzmaurice. See Article 8307, Section 6, Tex.Rev.Civ.Stat.Ann. The law is clear that the test to determine a claimant’s status is who had the RIGHT (not necessarily exercised) of control over the activities of the worker.

It is the nature of a true independent contractor to hire and fire his own employees. See Continental Insurance v. Wolford, 515 S.W.2d 364 (Tex.Civ.App.-Houston, 1974) reversed on other grounds; and Texas Employers Insurance Association v. Bewley, 560 S.W.2d 147 (Tex.Civ.App.Houston, 1977). Sporadic control does not destroy the independent contractor status, and, of course, the general contractor has a right to insure compliance with the general specifications of the master plan. Bewley, supra, at 150; Newspapers, Inc. v. Love, 380 S.W.2d 582 (Tex.1964). But it is important to remember that the independent contractor remains in major part his own master, and the master of his employees.

In Texas, the “distinguishing feature between employees and independent contractors ____ depends on whether or not the employer had the RIGHT to control the details of the work.” Newspapers, Inc. v. Love, supra, at 598 (emphasis added). There, the Court went on to say that sporadic acts of control will not destroy the independent contractor status. Ibid at 598. But the right of control is superior to any exercise, or non-exercise, of control. Dickerson v. I.N.A. of Texas, 640 S.W.2d 81 (Tex.App.1982). While the courts will look to any express contract, the Court need not merely be concerned with form over substance. Humphreys v. Texas Power and Light, 427 S.W.2d 324 (Tex.Civ.App.-Houston, 1968) Writ Ref’d NRE. If the evidence shows the true relationship between the parties was that of an employer/employee rather than an employer/independent contractor and that contract was designed to cloak that relationship, then the contract classification can be disregarded. Ibid. Further, the Court can determine the status of the claimant circumstantially. Texas Employers Insurance Association v. Bewley, supra, at 149.

It is important to remember that the record indicates that FFE had a right of refusal over which “subcontractors” the “independent contractors” selected to operate their equipment. The defense attempted to counter this point by saying that any general contractor can hire or fire any independent contractor he so chooses. While in and of itself correct, that argument misstates or misunderstands the question before the Court, confusing ownership of the tractors with claimant’s status.

The owners of the tractors leased the trucks to FFE. The act of leasing the truck to FFE DOES NOT make the owner of the truck an employee of FFE for any purpose. It is legal serendipity that the owner of the truck was, in most instances, also the driver of the truck. The lease is severable from the question of a claimant’s status.

By having the right of refusal over prospective subcontractors; by having the right to refuse permission for a backhaul; by having the right to detour a driver enroute; by having the right to control a driver’s activities; by directing the drivers to pick up payment for C.O.D. orders; by issuing ID cards; by placing the drivers in the position of being the sole corporate representative during the delivery; by assigning drivers to operate under its ICC permit, inter alia, Frozen Food Express had enough right of control to make the drivers employees under Texas law for worker’s compensation purposes. As a matter of law, the Court holds that Truman Nisbet and Leslie Boomgarten were employees of Frozen Food Express for workman’s compensation purposes. Under the authority and intent of Article 8307, Section Six, Tex.Rev.Civ.Stat.Ann., the Court holds that Kevin Fitzmaurice was an employee of Frozen Food Express, again for workman’s compensation purposes.


author: CEREZO, District Judge.

text:
    OCHOA REALTY CORPORATION, Plaintiff, v. Rafael A. FARIA, Luis E. Landrau, Luis F. Quinones, John Doe and Richard Roe, et al., Defendants. COMMONWEALTH OF PUERTO RICO, represented by its Honorable Secretary of Transportation and Public Works, Plaintiffs, v. ACQUISITION OF 8.8939 CUERDAS OF LAND LOCATED IN THE HATO REY WARD OF the MUNICIPALITY OF RIO PIEDRAS, PUERTO RICO and Ochoa Realty Corporation, Represented by its Resident Agent Eitel R. Gomez, John Doe and Richard Roe, Defendants.
    Civ. Nos. 84-2681CC, 85-0836CC.
    United States District Court, D. Puerto Rico.
    Oct. 1, 1985.

      Alvaro R. Calderón, Hato Rey, Puerto Rico, Doris D. Hernández-Díaz, Federal Litigation Div. Dept, of Justice, Commonwealth of Puerto Rico, San Juan, Puerto Rico, for Faria, et al.
    Jorge R. Jiménez, Juan E. RodriguezDíaz, Hato Rey, Puerto Rico, Robert E. Schneider, Jr., Santurce, Puerto Rico, for Ochoa Realty Corp., et al.
   REMAND ORDER

CEREZO, District Judge.

On March 27,1985 the Commonwealth of Puerto Rico, through its Secretary of Transportation and Public Works, filed a petition with the Superior Court of Puerto Rico, San Juan Part, seeking condemnation of portions of a larger parcel of land belonging to the plaintiff in Civil 84-268ICC, for purposes of carrying out Phase II of a mass transit project known as the Agua-Guagua Project, which entails the building of a terminal facility on plaintiff’s property. The sum of $1,023,151.00 was deposited with the court as fair compensation for the properties condemned. On April 19, 1985 plaintiff in Civil 84-2681CC removed the condemnation proceedings to this court stating that the claim arises under a federal law, namely the Urban Mass Transportation Act, 49 U.S.C. Section 1601, et seq., since the Agua-Guagua Project is to be financed thereunder, and requested consolidation of those proceedings with Civil 84-2681CC. On May 8, 1985, the condemnation proceedings filed as Civil 85-0836CC were consolidated with Civil. 84-2681CC. On May 7, 1985 the Commonwealth of Puerto Rico moved that Civil 85-0836CC be remanded to the Superior Court of Puerto Rico since the petition for removal does not set out facts necessary to aver federal jurisdiction. Plaintiff opposed remand contending that, given the federal claim pending in Civil 84-2681CC involving the same property, this Court should exercise jurisdiction over the condemnation proceedings as a pending matter. We disagree and hold that Civil 85-0836CC must be remanded for lack of jurisdiction.

It is settled that the Eleventh Amendment of the Constitution of the United States prohibits suits in federal courts filed by private parties against an unconsenting State. See Edelman v. Jordan, 415 U.S. 651, 662-663, 94 S.Ct. 1347, 1355-1356, 39 L.Ed.2d 662 (1974) (and cases cited therein). This principle extends to governmental instrumentalities which are an arm or alter ego of the State. See Mt. Healthy City School District v. Doyle, 429 U.S. 274, 280-281, 97 S.Ct. 568, 572-573, 50 L.Ed.2d 471 (1977); Alabama v. Pugh, 438 U.S. 781, 98 S.Ct. 3057, 57 L.Ed.2d 1114 (1978); Cancel v. San Juan Construction Co., 387 F.Supp. 916 (DPR 1974); Ursulich v. Puerto Rico National Guard, 384 F.Supp. 736 (DPR 1974). The Eleventh Amendment State immunity from suits in federal courts has been held to apply to the Commonwealth of Puerto Rico. See Ezratty v. Commonwealth of Puerto Rico, 648 F.2d 770, 776 n. 7 (1st Cir.1981).

The Commonwealth of Puerto Rico, through its Secretary of Transportation and Public Works, is the only named petitioner in the condemnation proceedings filed with the Superior Court of Puerto Rico. Said action is one in which the Commonwealth represented by the Secretary of Transportation and Public Works is the real and interested party. Furthermore, those proceedings are strictly local in nature and do not arise under any federal law or the Constitution. Indeed the power of eminent domain is one of the incidents of sovereignty and belongs to the state. See State of Georgia v. City of Chattanooga, 264 U.S. 472, 480, 44 S.Ct. 369, 370, 68 L.Ed. 796 (1924). There is nothing in the Urban Mass Transportation Act, cited by plaintiff as the source of funds for the planned project, which either authorizes the States to file condemnation proceedings under that statute in federal courts or permits removal of such proceedings to the federal district courts. Its only relation with condemnation proceedings is that it authorizes the United States’ Secretary of Transportation to make loans to States and local public agencies for the purpose of acquiring real property “reasonably expected to be required in connection with a mass transportation system.” 49 U.S.C. Section 1602 (supp.1985). Therefore, the condemnation proceedings were not a civil action of which this court had original jurisdiction and was not removable under 28 U.S.C. Section 1441(a).

Plaintiff proposes, however, that this Court retain jurisdiction over those proceedings under the doctrine of pendent jurisdiction. The Eleventh Amendment prohibition, equally applicable to pendent claims, dictates against such proposition. See Pennhurst State School and Hospital, 465 U.S. 89, 104 S.Ct. 900, 917-919, 79 L.Ed.2d 67 (1984). As stated above, the Commonwealth of Puerto Rico is the named petitioner in the condemnation proceedings and it cannot be brought into this court without its consent. The Commonwealth of Puerto Rico has not waived its immunity in the instant case. Thus, the Eleventh Amendment bars this Court’s exercise of jurisdiction, as a pending claim, over this strictly local matter in which the Commonwealth of Puerto Rico is the real party in interest.

For these reasons, Civil No. 85-0836CC shall be severed from Civil 84-2681CC and REMANDED to the Superior Court of Puerto Rico, San Juan Part.

SO ORDERED.

      . Civil 84-2681CC is a complaint filed under 42 U.S.C. Sections 1983-1985 alleging an illegal “taking” of plaintiffs property by the defendants therein.


author: WHITMAN KNAPP, District Judge.

text:
    Abraham SILVERSTEIN, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., J.B. Leonard, Mark Fisher and Donald J. Tabone, Defendants.
    No. 84 Civ. 7614 (WK).
    United States District Court, S.D. New York.
    Oct. 2, 1985.

      Law Offices of Bertram Zweibon by Lorraine K. Bracker, New York City, for plaintiff.
    Howard G. Meyers, Jr., New York City, for defendants.
   MEMORANDUM & ORDER

WHITMAN KNAPP, District Judge.

Defendant moves to dismiss a complaint alleging violations of the anti-fraud provisions of the federal securities laws, the rules of the National Association of Securities Dealers (“NASD”) and the New York Stock Exchange (“NYSE”), and various state law obligations of due care and fiduciary duty. For the reasons which follow we dismiss the causes of action asserting violation of the rules of the above-mentioned associations, and, treating defendants’ motion with respect to the securities claims as one for summary judgment, we grant that motion.

BACKGROUND

Early in 1983 plaintiff invested $50,000 in a commodity futures account at the defendant brokerage firm (“Merrill Lynch”). This account was managed by defendants Leonard and Fisher (the “brokers” or “investment managers”) who were in turn supervised by defendant Tabone. Plaintiff alleges that over the period of just a few months his account was so mishandled that he lost $16,541, for which he demands compensatory and punitive damages.

While defendants style their motion as one made pursuant to F.R.Civ.P. 12(b)(6), they have attached to their papers plaintiff’s account authorization and the affidavit of defendant Jay B. Leonard, plaintiff’s broker. At oral argument we inquired whether plaintiff disputed any of the allegations contained in that affidavit, indicating that if there was no dispute we would be inclined to dismiss the securities laws claims. Although counsel for plaintiff first indicated that she had no dispute with the contents of the affidavit, in the course of argument it became apparent that this was not so. We accordingly advised plaintiff to conduct whatever discovery was necessary to refute any of the allegations in the defendants’ submissions. Plaintiff has done so, and we thus treat the motion as to the securities claims as one for summary judgment.

The uncontradicted portion of defendant Leonard’s affidavit reveals that plaintiff’s account was a commodity futures account. Affidavit at 112. Pursuant to trading authorizations signed by plaintiff, the account was traded on a discretionary basis, or one which did not require plaintiff’s approval prior to each individual trade. Affidavit at 11 3. The account was an individual account and not a commodity pool account. Affidavit at 114. Defendant Leonard’s affidavit further states, at 117, that

[t]he only compensation which was derived from plaintiff’s account was commissions on a trade by trade basis. No income was derived based upon the profit or loss in the account and no bonus or other incentive compensation was derived from the account based upon the success or failure of the trading activity.

Pursuant to our directive at oral argument plaintiff took the deposition of defendant Tabone who, at the time of the events complained of, oversaw the work of the defendant brokers. Tabone testified that at the relevant time, Merrill Lynch sponsored “recognition clubs” for which individual brokers became eligible when they achieved a certain annual level of commissions on all of their accounts. Club members became entitled to reimbursement for monetary and merchandise expenditures. Each of the defendant brokers before us gained entry into the club based upon the total amount of commissions earned from all of their accounts. Deposition of Tabone at 21-22. Tabone also confirmed defendant Leonard’s explanation of the basis on which commissions were earned from plaintiff’s account, that is, based upon the amount of trading done, rather than on the profitability of the transactions. Id. at 11-12, 21.

Tabone further testified that brokers could, if they wished, personally invest money in commodity futures in which their customers invested, and could invest several customers’ funds in the same items. They were not required to advise their customers of such actions. Id. at 16-17.

DISCUSSION

Rules of the NASD and NYSE

We have previously held that there is no private right of action under the rules of the NASD or NYSE, Juster v. Rothschild, Unterberg, Towbin, et al. (S.D.N.Y.1983) 554 F.Supp. 331, 333, and plaintiff has not set forth any arguments which would change our view on the matter. We therefore dismiss those causes of action brought under such rules.

Securities Law Claims

Defendants contend that plaintiff’s claims under the federal securities laws must fall because his discretionary commodity futures account was not a security. There is no question that a commodity future is not included within the statutory definition of a security. 15 U.S.C. § 77b(l); 15 U.S.C. § 78c(a)(10); see Curran v. Merrill Lynch Pierce Fenner & Smith (6th Cir.1980) 622 F.2d 216, 221, aff'd on other grounds (1982) 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182; Berman v. Orimex Trading Co. (S.D.N.Y.1968) 291 F.Supp. 701, 702. However, the definition of a security does encompass an “investment contract,” 15 U.S.C. § 77b(l); 15 U.S.C. § 78c(a)(10), which has been defined by the Supreme Court as having three elements: (1) an investment of money (2) in a common enterprise with (3) the expectation of profits to come solely from the efforts of others. SEC v. Howey (1946) 328 U.S. 293, 298-99, 66 S.Ct. 1100, 1102-03, 90 L.Ed. 1244. Plaintiff maintains that his account constitutes such an investment contract and that his claim is therefore properly brought. There is little question, and defendants concede, that the first and third prongs of the Howey test are here met. We therefore focus our inquiry on the second, or “common enterprise” requirement, a definition of which has not yet been provided by our Court of Appeals.

It is generally agreed by all courts which have considered the question that the common enterprise requirement is met where there has been a showing of “horizontal commonality.” Horizontal commonality focusses on the relationship between an individual investor and a pool of other investors. Curran, supra, 622 F.2d at 221. It requires that these investors be “joint participants in the same investment enterprise,” Milnarik v. M.S. Commodities, Inc. (7th Cir.) 457 F.2d 274, 277, cert. denied (1972) 409 U.S. 887, 93 S.Ct. 113, 34 L.Ed.2d 144, and that the success or failure of the other investments have a direct impact on the profitability of the plaintiff investor’s account. Id. at 276. In such an arrangement, profits may be shared in proportion to one’s contribution to the pool. See Hirk v. Agri-Research Council, Inc. (7th Cir.1977) 561 F.2d 96, 100; Salcer v. MPLF& Smith, Inc. (3d Cir.1982) 682 F.2d 459, 460, Darrell v. Goodson (S.D.N.Y.1980) [1979-80] Fed.Sec.L.Rep. (CCH) 1197,-349 at 97,325. It is clear that the instant case does not meet that requirement.

A second approach toward finding a common enterprise focusses on the relationship between the investor and the broker. This perspective has been dubbed “vertical commonality” and has been interpreted both broadly and narrowly.

A variety of cases, including some from our own district, have applied a “broad” vertical commonality test to facts not too dissimilar from those before us and have concluded that a common enterprise could be found. See, e.g., S.E.C. v. Continental Commodities Corp. (5th Cir.1974) 497 F.2d 516; Troyer v. Karcagi (S.D.N.Y.1979) 476 F.Supp. 1142 (discretionary trading account is investment contract); Johnson v. Arthur Espey, Shearson, Hammill & Co. (S.D.N. Y.1972) 341 F.Supp. 764; Berman v. Orimex Trading, Inc. (S.D.N.Y.1968) 291 F.Supp. 701 (test satisfied by promoter’s statement that it would make all investment decisions and could earn profit for investor); Maheu v. Reynolds & Co. (S.D.N.Y.1967) 282 F.Supp. 423 (discretionary account is investment contract). Other courts, applying a “narrow” standard, have rejected a finding of common enterprise on facts similar to those before us. See, e.g., Mordaunt v. Incomco (9th Cir.1982) 686 F.2d 815, cert. denied (1985) — U.S. -, 105 S.Ct. 801, 83 L.Ed.2d 793; Kelsaw v. Union Pacific Railroad Co. (9th Cir.1982) 686 F.2d 819; Brodt v. Bache (9th Cir.1979) 595 F.2d 459; see also Savino v. E.F. Hutton (S.D.N.Y.1981) 507 F.Supp. 1225 (rejecting “broad” approach); Mechigian v. Art Capitol Corp. (S.D.N.Y.1985) 612 F.Supp. 1421 (rejecting “broad” approach).

Without attempting a detailed analysis of the opinions in those cases, it seems to us that no interpretation of the facts in the instant action would meet the Howey criterion that plaintiff be engaged in a “common enterprise.” An essential element of any common enterprise is that the fortunes of its members be to some degree related to each other. Here, however, it would be perfectly possible, on the one hand, for the defendants to have suggested a few lucky (or wise) investments which would have brought great profit to the plaintiff and practically no revenue to the defendants, and on the other hand — as plaintiff claims here to be the case — defendants to have so poorly managed the account that plaintiff suffered great losses while defendant earned huge commissions. See, e.g., Brodt v. Bache, supra (where defendant brokerage firm earned commissions based not on profitability of transactions, but simply by their frequency, no common enterprise existed).

We conclude that the Howey test has not been met and that no “investment contract” is before us. We accordingly grant summary judgment to defendants on his federal securities law claims. Having already dismissed plaintiffs actions under the rules of the NASD and the NYSE and there being no viable federal claim, we decline jurisdiction of the remaining pendant state law claims. The complaint is accordingly dismissed.

SO ORDERED.

      . Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b); § 15(c)(1) of the 1934 Act, 15 U.S.C. § 78o, § 17(a) of the 1933 Act, 15 U.S.C. § 77q, and Rule 10b-5, 17 C.F.R. 240.10b-5 (1985).

      . Plaintiff argues that we should infer from defendant Tabone’s testimony that the defendant brokers traded in the same commodity future on behalf of several customers at the same time, and that this circumstance suffices to show horizontal commonality. We disagree. Such coincidental investments would not transform plaintiffs account into an investment contract, for "the success or failure of those other contracts would have had no direct impact on the profitability of plaintiffs contract." Milnarik, supra, 457 F.2d at 276. Instead, all investors’ expectation of profits would derive "from their individual trading accounts independently of all others," Hirk, supra, 561 F.2d at 100.
      Plaintiff requests further discovery on the issue of whether there was horizontal commonality but has not suggested what facts might thus be uncovered which could support such a finding. Plaintiff appears not to dispute the allegation in defendant Leonard’s affidavit that his account was not pooled, and other than demonstrating that there were simultaneous transactions in a given future on behalf of several customers, a scenario we have indicated would not support a finding of horizontal commonality, he has failed to demonstrate the need for such discovery. His conclusory “speculation about what discovery might uncover” is insufficient to defeat defendants’ motion for summary judgment. Contemporary Mission, Inc. v. U.S. Postal Service (2d Cir.1981) 648 F.2d 97, 107. We accordingly deny his request.

      . Plaintiff’s argument that broker membership in the Merrill Lynch recognition clubs provides sufficient correlation between the success of the investor and broker is unhelpful. Since membership in the clubs was founded on the amount of commissions earned, and commissions were earned not based upon the profitability of the underlying trades but simply on their number, defendants could be assured membership even though they had depleted plaintiffs account through poor investment decisions.