author: EDGAR, District Judge.

text:
    Gayle BREWER, Plaintiff, v. EXXON CORPORATION, Defendant.
    No. Civ-1-85-190.
    United States District Court, E.D. Tennessee, S.D.
    Oct. 15, 1985.

      W. Neill Thomas, III, Thomas, Mann & Gossett, Chattanooga, Tenn., for plaintiff.
    Paul R. Leitner, James Golden, Leitner, Warner, Moffitt, Williams, Dooley, Carpenter & Napolitan, Chattanooga, Tenn., for defendant.
   MEMORANDUM

EDGAR, District Judge.

This matter is before the Court on defendant’s motion to dismiss or for partial summary judgment pursuant to Federal Rules of Civil Procedure 12(b)(6) and 56. Jurisdiction of the Court arises in part under 28 U.S.C. §§ 1332 and 1441. This case involves an alleged breach of contract and alleged violations of federal statutes, specifically the Petroleum Marketing Practices Act (hereinafter the “PMPA” or “Act”), 15 U.S.C. §§ 2801 et seq., and Title VII of the 1964 Civil Rights Act, 42 U.S.C. §§ 2000e et seq. The Court must currently decide whether the PMPA applies to the relationship between the plaintiff and defendant.

I. FACTS.

Plaintiff began working for the Exxon Corporation in 1974. Brewer apparently worked at Exxon Retail Store No. 496, located in Cleveland, Tennessee, in a management position from February of 1981 through January of 1985. Initially, plaintiff served as cashier/manager, an hourly paid position, but was promoted to retail store manager on February 10, 1984, a salaried position.

As a retail store manager, Brewer reported directly to an Exxon supervisor. Her duties included the completion of daily remittance reports, monthly settlement reports, and expense reports. Necessary forms, envelopes, and postage were provided by Exxon. Brewer had neither a supply agreement nor an agreement to lease the marketing premises from Exxon. The defendant determined the retail price per gallon at which the gasoline would be sold at the station.

Plaintiff was treated as an employee in that her federal income taxes were withheld by Exxon and the defendant paid the employer’s portion of her social security taxes. Unemployment taxes and workers compensation coverage was paid for by Exxon. Brewer received a Form W-2 at the end of each year. Brewer also participated in an Employee Stock Ownership Plan (“ESOP”).

Exxon retained responsibilities in connection with motor fuel delivered to Store No. 496. Exxon paid all relevant taxes, license fees, and related costs. Defendant also authorized credit and bore the risk associated with that credit. Title in the motor fuel never vested in the plaintiff. Exxon supplied all gasoline and equipment used at the location. Ordinary business expenses were reimbursed by Exxon and the plaintiff was not required to invest any money into the inventory, supplies, and facilities of the store.

In 1984, Exxon decided to convert the location from a company-owned and operated store to a franchise. Brewer was interested in purchasing the location and in operating the franchise. Exxon required, not necessarily of the plaintiff, that whoever purchased Retail Store No. 496 would also be required to purchase Retail Store No. 614, also located in Cleveland, Tennessee. Eventually the stores were sold to another individual.

Brewer’s working hours did increase when she became retail manager of Store No. 496 and she was complimented for her work associated with that location. Brewer claims she was given the position in anticipation of her eventual ownership of the franchise. Brewer left the employment of Exxon in January of 1985.

II. OVERVIEW OF PETROLEUM MARKETING PRACTICES ACT.

The Petroleum Marketing Practices Act, 15 U.S.C. §§ 2801 et seq., was enacted by Congress to cover the relationship between oil companies and retailers or distributors of motor fuel. A franchise is defined as any contract between a refiner and distributor, a refiner and a retailer, a distributor and another distributor, or a distributor and retailer under which a retailer or distributor uses the trademark of an oil company in connection with the sale of motor fuel. 15 U.S.C. § 2801(l)(A)(i)-(iv). The PMPA introduces the concept of a “franchise relationship” which covers the obligations and responsibilities between a franchisor and a franchisee which result from the marketing of motor fuel under a franchise. 15 U.S.C. § 2801(2). The PMPA only covers those relationships between a franchisor and a franchisee which is either a retailer or distributor. The PMPA requires the existence of a contract relating to the sale or distribution of motor fuel. Iannuzzi v. Exxon Co. USA, 572 F.Supp. 716, 722 (D.N.J.1983).

The PMPA also covers those relationships where the franchisee does not own the property but occupies the property under a “leased marketing premises” agreement. The PMPA restricts the ability of an oil company to terminate a statutorily defined franchise except pursuant to specific enumerated reasons and under detailed timetables enacted in the PMPA. 15 U.S.C. §§ 2802 and 2804.

III. ANALYSIS.

Brewer’s claim under the PMPA is not premised on the fact that she is a franchisee but, rather, on her claim that there existed an executory contract which would establish her as a franchisee and that, therefore, she is entitled to the benefits and protections of the Act. Brewer claims that a precondition for the franchise was her assumption of the management position at Retail Store No. 496 and the subsequent turnaround in the performance of that station. Furthermore, plaintiff claims that Exxon promised her the dealership.

Some discrepancy exists over the representations made by Exxon to the plaintiff but it is apparently clear that the assumption of the ownership of Retail Store No. 496 was conditioned on an individual also taking ownership in Retail Store No. 614. Plaintiff’s own pleadings recognize this fact in that they state that plaintiff sought rental information on both stations in order for her to effectively evaluate whether she would be able to become a franchisee.

Plaintiff would have the Court give a broad reading to the Act, covering not only existing franchise relationships but also governing franchise relationships which are only the subject of preliminary negotiation. The Act by its terms places limitations on the termination or non-renewal of franchises. Rogue Valley Stations, Inc. v. Birk Oil Company, Inc., 568 F.Supp. 337, 340-41 (D.Oregon 1983). The PMPA seeks to govern “franchise relationships” which require the existence of a franchise. Id. at 340, 343. The Eleventh Circuit recently summarized this proposition, stating: “Unless the parties meet the statutory definition of one of these terms [refiner, distributor, or retailer], there is no coverage under the PMPA and general contractual principles govern.” Farm Stores, Inc. v. Texaco, Inc., 763 F.2d 1335, 1340 (1985).

The Court must construe the language of the statute in accordance with the purposes behind the statute. Humboldt Oil Company, Inc. v. Exxon Company, USA, 695 F.2d 386, 388 (9th Cir.1982). The Act is directed at protecting the buildup of goodwill by those individuals who have invested time and money into the operation of a franchise, Rogue Valley, 568 F.Supp. at 340, and a court must look for the “indicia of entrepreneurial responsibility and risk” which indicate that an individual is an independent dealer and businessman. Johnson v. Mobil Oil Corporation, 553 F.Supp. 195, 198 (S.D.N.Y.1982). The Act is intended to prevent the “appropriation of hard-earned goodwill which occurs when a franchisor arbitrarily takes over a business that the franchisee has turned into a successful going concern.” Brach v. Amoco Oil Co., 677 F.2d 1213, 1220 (7th Cir.1982). Thus, the Act does not cover mere employees of an oil company but, rather, those individuals who are independent of the oil company and who, according to the statutory terms, are franchisees. Id. at 199.

In interpreting the statute, the Court is bound by the plain terms of the statute if they provide guidance to the resolutions of the issues before the Court. Lewis v. United States, 445 U.S. 55, 60,100 S.Ct. 915, 918, 63 L.Ed.2d 198 (1980); N. Singer, 2A Sutherland Statutory Construction § 46.01 (Sands 4th ed. 1984). The language of the statute is conclusive if the terms are clear and applicable. Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980). Furthermore, the statute here seeks the restriction of certain common law rights possessed by the oil companies, namely the right to freely enter and terminate business relationships. As the Second Circuit so aptly stated: “Strict construction is particularly appropriate where, as here, the statute in question is in derogation of common law rights.” Checkrite Petroleum, Inc. v. Amoco Oil Company, 678 F.2d 5, 8 (1982), cert. denied, 459 U.S. 833, 103 S.Ct. 74, 74 L.Ed.2d 73 (1982); see also C. Sands, 3 Sutherland Statutory Construction § 61.01 (4th ed. 1974).

In the present matter, the plaintiff did not take on any of the risks of an entrepreneurial activity. See Farm Stores, 763 F.2d at 1344-45. To begin with, all the facts clearly indicate that the plaintiff was an employee of the Exxon Corporation and that, at most, she might have had a promise for a dealership. Nevertheless, there are not sufficient indicia of “independence and business risk” which are necessary to indicate that she was a franchisee and thus entitled to the benefits of the PMPA. See Sanna v. Friendly Service Stations, 593 F.Supp. 493, 498 (D.Conn.1983).

The Court would be forced to give a broad reading to the statute to entitle an individual to the protection of the Act for a relationship that has not yet come into existence. Though the PMPA is remedial in nature, Humboldt Oil, 695 F.2d at 389, the Court cannot let stand a cause of action premised on the Act where the clear preconditions for the protections of the Act have not been met. The Court must try to follow the expressed intent of Congress. N. Singer, 2A Sutherland, supra, § 46.03.

The Court notes that there is a difference between the creation of a franchise and the termination of an existing franchise, the PMPA governing only the latter situation. See Wisser Co. v. Texaco, Inc., 529 F.Supp. 727, 733 (S.D.N.Y.1981). At least one court has already found that the failure of an oil company to abide by an “option to purchase” a franchise does not come under the Act. Iannuzzi, 572 F.Supp. at 723. As the Iannuzzi court stated: “In the absence of a written or oral agreement entitled to statutory protection as a ‘franchise’ under the PMPA, a party who contends that an agreement was formed by the parties’ conduct may be able to look to state law for protection. But even absent an available state remedy, this court declines to transform the PMPA into a panacea for all ills suffered by those dealing with motor fuel distributors.” Id. at 724-25. While the plaintiff may have been promised a franchise and thus may be entitled to some other common law or statutory remedy, the plaintiff has no cause of action under the PMPA.

An appropriate order will enter.

ORDER

Upon motion of the defendant pursuant to Federal Rule of Civil Procedure 56, and in accordance with the reasons outlined in the accompanying memorandum, it is

ORDERED that summary judgment is granted to the defendant on the plaintiff’s claim under the Petroleum Marketing Pracices Act (the “PMPA”), 15 U.S.C. §§ 2801 et seq. The plaintiffs claim under the PMPA is dismissed.

IT IS SO ORDERED.

      . Distributor is defined as "any person including any affiliate of such person who purchases motor fuel for sale, consignment, distribution to another; or receives motor fuel on a consignment for consignment or distribution to his motor fuel accounts ...” 15 U.S.C. § 2801(6). Retailer is defined as "any person who purchases motor fuel for sale to the general public for ultimate consumption.” 15 U.S.C. § 2801(7).

      . Leased marketing premises is defined as a "marketing premises owned, leased or any way controlled by a franchisor and which the franchisee is authorized or permitted, under the franchise, to employ in connection with a sale, consignment or distribution of motor fuel.” 15 U.S.C. § 2801(9).


source: Caselaw Access Project

author: MYRON H. THOMPSON, District Judge.

license: Public Domain

text:
    John Edward PICKETT, Petitioner, v. Warden George BOWEN, et al., Respondents.
    Civ. A. No. 84-T-110-N.
    United States District Court, M.D. Alabama, N.D.
    Oct. 16, 1985.
    C. Winston Sheehan, Jr., Montgomery, Ala. (Appointed), for petitioner.
    Charles A. Graddick, Atty. Gen., Martha Gail Ingram, Asst. Atty. Gen., Montgomery, Ala., for respondents.
   MEMORANDUM OPINION

MYRON H. THOMPSON, District Judge.

This cause is before the court on (1) the recommendation of the magistrate that John Edward Pickett’s petition for a writ of habeas corpus should be granted and (2) the respondents’ objections to the recommendation. For the reasons that follow, this court concludes that the objections should be overruled and the recommendation adopted.

I.

Pickett was convicted in the Circuit Court of Montgomery County, Alabama for sexual abuse in the first degree. 1975 Alabama Code § 13A-6-66. He was sentenced to 16 years in prison. The alleged victim was a ten-year-old girl.

The witnesses called by the prosecution at trial were the ten-year-old girl, her mother, and the police officer who investigated the case. The evidence indicated that Pickett was an employer and social acquaintance of the girl’s mother. On the morning of August 24, 1981, Pickett offered to take the girl for something to eat. When, they arrived at Pickett’s apartment, he allegedly took the girl into his bedroom, asked her if she could keep a secret, and then put his finger inside her vagina. The girl testified that she began to cry, asked him to stop, and stated that she wanted to go home.

Once at home, the girl reported the incident to her mother, who called the police. An officer from the Youth Aid Division of the Montgomery Police Department investigated the complaint and took the girl to Jackson Hospital emergency room, where she was examined by a physician and released.

On cross-examination at trial the girl testified that she did not want her mother to marry Pickett. She also admitted that she had previously made a false accusation of sexual abuse against Pickett’s stepson.

At the close of its case, the prosecution introduced, over the strenuous objections of Pickett, a hospital emergency room report that had been prepared by the doctor who examined the girl. The report contained the following findings:

CAUSE OF ACCIDENT OR ILLNESS.
Sexual Abuse
XXX
HISTORY AND PHYSICAL. Hymen broken — smooth edges, no evidence of recent trauma to hymen. Erythema on lateral aspect of vaginal wall bilaterally. DIAGNOSIS. Recent vaginal trauma.

The prosecutor had informed Pickett before trial that he would not call the examining physician. Pickett attempted to subpoena the doctor listed on the report, but the subpoena was returned “not found” one day before trial. Pickett then discovered that the doctor was temporarily out of the state at a medical convention in Mexico. On the date of trial, he requested a continuance so that he could subpoena the examining physician. This request was denied by the trial court.

The state prosecutor argued that the report was admissible under a specialized business record exception to the hearsay rule, see 1975 Alabama Code §§ 12-21-5 to 12-21-7, 12-21-43, which allows the admission of certified copies of hospital records when they are kept in the regular course of the hospital’s business. The prosecutor made no effort to demonstrate that the doctor who examined the victim was unavailable to testify at trial.

Pickett objected to admission of the medical report on the grounds that it contained inadmissible hearsay and that it denied him his sixth amendment right under the U.S. Constitution to confront and cross-examine the witnesses against him. This objection was overruled, and the report was published to the jury. At that point, the prosecution rested.

Pickett’s defense consisted of an alibi witness, his sister, who testified that she was in her brother’s apartment when the ten-year-old girl was there and that nothing unusual happened. In addition, Pickett called two of the girl’s fourth grade teachers, who testified that she was sometimes untruthful and made up stories. They both added that, absent concrete medical evidence that the girl had been sexually abused, they would not be inclined to take action if she reported such an incident to them. Picket was convicted.

On appeal, the Alabama Court of Criminal Appeals held that the trial court did not abuse its discretion in denying Pickett’s request for a continuance and that admission of the medical report did not violate the rule against hearsay or deny Pickett his right to confront the witnesses against him. Pickett v. State, 456 So.2d 330 (Ala. Crim.App.), cert. denied, 456 So.2d 330 (Ala.1983). In considering Pickett’s confrontation claim, the court placed particular emphasis on the “high degree of reliability” of the medical report. Id. at 336.

Pickett then filed a petition for a writ of habeas corpus in this court pursuant to 28 U.S.C.A. § 2254, and the petition was referred to a magistrate. Pickett requested an evidentiary hearing, arguing that a fact material to his constitutional claim — the reliability of the medical report — was inadequately developed at the state court level. He supported this request with the claim that the medical report was contradictory on its face and that the doctor who actually wrote the report was not the doctor previously thought to have written it. The respondents countered that the state trial court’s finding that the report was not contradictory on its face was entitled to a “presumption of correctness” under Sumner v. Mata, 449 U.S. 539, 101 S.Ct. 764, 66 L.Ed.2d 722 (1981), and that Pickett’s claim to the extent it is based on newly discovered evidence that another physician had examined the girl should first be exhausted and addressed in state court pursuant to 28 U.S.C.A. § 2254(b).

The magistrate granted Pickett’s request for an evidentiary hearing. At the hearing the physician who actually examined the girl indicated that the trauma to the girl’s vagina might have occurred after she was with Pickett; that it was caused by three to five minutes of manipulation; that the mere insertion of an index finger was unlikely to have caused the redness that he had observed; and that it was possible that the child had caused the trauma by manipulating her vagina herself.

II.

Pickett claims before this court that the admission of the medical report violated his right under the sixth amendment to the U.S. Constitution to confront and cross-examine witnesses against him in a criminal proceeding. His claim has merit.

The confrontation clause of the sixth amendment provides that a defendant in a criminal case has the right “to be confronted with the witnesses against him.” This right is “a fundamental right ... made obligatory on the States by the Fourteenth Amendment.” Pointer v. Texas, 380 U.S. 400, 403, 85 S.Ct. 1065, 1068, 13 L.Ed.2d 923 (1965).

The Supreme Court last addressed the relationship between the confrontation clause and the admission of hearsay evidence in Ohio v. Roberts, 448 U.S. 56, 100 S.Ct. 2531, 65 L.Ed.2d 597 (1980). There, the Court noted that the clause reflects a preference for face-to-face confrontation and cross-examination at trial, the absence of which “ ‘calls into question the ultimate “integrity of the fact-finding process.” ’ Chambers v. Mississippi, 410 U.S. 284, 295, 93 S.Ct. 1038, 1046, 35 L.Ed.2d 297 (1973), quoting Berger v. California, 393 U.S. 314, 315, 89 S.Ct. 540, 541, 21 L.Ed.2d 508 (1969).” Roberts, 448 U.S. at 63-64, 100 S.Ct. at 2537-38. The Court observed that the confrontation clause envisions

“a personal examination and cross-examination of the witness, in which the accused has an opportunity, not only of testing the recollection and sifting the conscience of the witness, but of compelling him to stand face to face with the jury in order that they may look at him, and judge by his demeanor upon the stand and the manner in which he gives his testimony whether he is worthy of belief.” Mattox v. United States, 156 U.S. [237,] 242-243, 15 S.Ct. [337,] 339 [39 L.Ed. 409 (1895) ].

Roberts, 448 U.S. at 63-64, 100 S.Ct. at 2537-38.

The Court recognized, however, that competing state interests in effective law enforcement and the formulation of rules of evidence applicable in criminal proceedings, “if ‘closely examined,’ Chambers v. Mississippi, 410 U.S. at 295, 93 S.Ct. at 1045, may warrant dispensing with confrontation at trial.” Roberts, 448 U.S. at 64, 100 S.Ct. at 2538. The Court then articulated a general approach that, while not intended to “ ‘map out a theory of the Confrontation Clause that would determine the validity of all ... hearsay “exceptions,” ’ California v. Green, 399 U.S. [149,] 162, 90 S.Ct. [1930,] 1937 [26 L.Ed.2d 489 (1970)],” Roberts, 448 U.S. at 64-65, 100 S.Ct. at 2538, would nonetheless provide a framework for accommodating the competing interests implicated in such exceptions. Id.

The Supreme Court stressed in Roberts that the confrontation clause “operates in two separate ways to restrict the range of admissible hearsay.” Id. at 65, 100 S.Ct. at 2538. The first restriction is that in the “usual case” the prosecution bears the burden of either producing or establishing the unavailability of the declarant whose statement it wishes to use against the defendant. Id. Unavailability of a witness is not established unless the prosecution has made “good-faith efforts ... prior to trial to locate and present the witness.” Id. at 74, 100 S.Ct. at 2543. The second restriction is that, once a witness has been shown to be unavailable, the hearsay evidence may be admitted only if it is “marked with such trustworthiness that ‘there is no material departure from the reason of the general rule,’ ” id. at 65, 100 S.Ct. at 2539, quoting Snyder v. Massachusetts, 291 U.S. 97, 107, 54 S.Ct. 330, 333, 78 L.Ed. 674 (1934); or, in other words, the hearsay must bear adequate “indicia of reliability.” Roberts, 448 U.S. at 65, 100 S.Ct. at 2539, quoting Mancusi v. Stubbs, 408 U.S. 204, 213, 92 S.Ct. 2308, 2313, 33 L.Ed.2d 293 (1972). See also Williams v. Melton, 733 F.2d 1492, 1496 (11th Cir.1984), cert denied, — U.S. -, 105 S.Ct. 567, 83 L.Ed.2d 508 (1984).

Here, the record reflects that the prosecution failed to shoulder its threshold burden of establishing unavailability. At worst, the prosecutor knew that the true examininig physician was actually available, and chose not to produce him at trial for tactical reasons. At best, he mistakenly thought that the examining physician was at a medical convention in Mexico. Under either reading of the facts, however, the prosecution failed to demonstrate that the witness was unavailable despite good-faith efforts undertaken prior to trial to locate and present the witness.

This conclusion does not end the analysis, however. Roberts recognized that a threshold showing of unavailability is not compelled in all instances by the confrontation clause. Roberts, 448 U.S. at 65 n. 7, 100 S.Ct. at 2538 n. 7. In some instances, the confrontation clause permits the admission of hearsay even when the witness is available. For example, a showing of unavailability of a' witness is not required where the hearsay evidence is “peripheral” and not “crucial” or “devastating” and, in addition, the record reflects that the evidence is adequately reliable and there is no evidence of prosecutorial misconduct or negligence. Dutton v. Evans, 400 U.S. 74, 87-89, 91 S.Ct. 210, 219-20, 27 L.Ed.2d 213 (1970) (Stewart, J., plurality opinion); 4 J.B. Weinstein and M.A. Berger, Weinstein’s Evidence, IT 800[04] at p. 800-30 (1985). Another example is where “the utility of trial confrontation [is] remote,” Roberts, 448 U.S. at 65 n. 7, 100 S.Ct. at 2538 n. 7, that is, where the witness’s “production would be unduly inconvenient and of small utility to a defendant.” Dutton, 400 U.S. at 96, 91 S.Ct. at 223 (Harlan, J., concurring). Depending on the circumstances, hearsay exceptions often fall in this category. Id.

Here, the hearsay medical report was far from “peripheral”, and the production of the doctor who examined the alleged victim and made the report was far from “of small utility” to the defendant. Indeed, the report was “crucial” to the prosecution, and the absence of the doctor at trial was “devastating” to Pickett. Failure to produce the physician denied Pickett the opportunity to inquire whether the doctor was specifically qualified to render the opinion he did, to have the doctor explain what he meant in the report by “recent” and “trauma,” and to have the doctor explain the significance of the “HISTORY AND PHYSICAL” notations in the report. The opinions and conclusions in the report were admitted “without a detailed explication of either the facts or reasoning processes on which they are based.” Phillips v. Neil, 452 F.2d 337, 347 (6th Cir.1971), cert. denied, 409 U.S. 884, 93 S.Ct. 96, 34 L.Ed.2d 141 (1972).

But most importantly, Pickett was denied an opportunity to compare for discrepancies the alleged victim’s testimony with the doctor’s understanding of the nature and extent of the alleged sexual contact as evidenced from what he observed. That opportunity was essential in view of the fact that the report was the only concrete medical evidence introduced that could be viewed as establishing a key element of the crime — sexual contact; that the only other evidence of sexual contact came from the alleged victim herself, who had fabricated a similar charge against Pickett’s stepson and who admitted that she did not want Pickett to marry her mother; and that two of the alleged victim’s teachers indicated they would not believe that she was in fact sexually abused unless there was solid medical evidence supporting her accusation. In addition, there is no evidence that it would have been unduly burdensome for the prosecution to locate and produce the attending physician. Indeed, the prosecution’s own argument in briefs before this court conceded this point since they argue that a “simple phone call” would have established the identity of the attending physician.

Accordingly, the failure of the prosecution either to produce the physician who examined the alleged victim and made the medical report or to demonstrate his unavailability violated Pickett’s constitutional right to confront his accuser. See, e.g., United States v. McClintock, 748 F.2d 1278, 1290-1292 (9th Cir.1984) (admission of evidence under business record exception without showing predicate of unavailability violated confrontation clause where report established essential element of offense charged, evidence admitted was both crucial to the prosecution and devastating to the defendant, and techniques used to arrive at expert’s conclusion in report could vary); United States v. Ordonez, 737 F.2d 793, 802 (9th Cir.1984) (admission of hearsay evidence under business record exception without showing predicate of unavailability violated confrontation clause where government made no effort to locate witness and in fact did not know his identity); United States v. Washington, 688 F.2d 953, 959 (5th Cir.1982) (admission of hearsay evidence under business record exception without predicate showings of unavailability violated confrontation clause where at least some of the information contained in the report was crucial to government’s case); Lowery v. State, 55 Ala.App. 514, 317 So.2d 365, 371, cert. denied, 294 Ala. 763, 317 So.2d 372 (1975) (admission of certified copy of death certificate under hospital records exception as sole evidence of cause of death in murder case violated confrontation clause where evidence related to key element of the offense and live witnesses were available to testify).

III.

The respondents’ additional arguments are also without merit.

The respondents contend that the discovery of the doctor who actually wrote the report and his testimony at the magistrate’s hearing constitutes new evidence that should be first addressed in state court. The decision reached today is not based in any way on any subsequently discovered evidence presented by Pickett. The critical fact relied on by this court is that the prosecution failed to make any effort to call the physician who wrote the report, regardless of his identity. Since today’s decision is unrelated to any additional evidence advanced by Pickett, the respondents’ contention is meritless.

The respondents also argue that the magistrate erred in granting an evidentiary hearing based on the medical report’s allegedly contradictory nature since the state court had already determined as a factual matter that the report was not contradictory. They argue that holding the hearing in such a situation violated the rule in Sumner v. Mata, 449 U.S. 539, 101 S.Ct. 764, 66 L.Ed.2d 722 (1981), that state court findings are entitled to a presumption of correctness in habeas corpus proceedings. Since any evidence adduced at that hearing relative to whether the report was or was not contradictory is not relied on by today’s decision, the state court’s factual finding remains unaffected.

An appropriate judgment will be entered.

JUDGMENT

MYRON H. THOMPSON, District Judge.

In accordance with the memorandum opinion entered this date, it is the ORDER, JUDGMENT, and DECREE of the court that:

(1) The respondents’ objections to the recommendation of the magistrate are overruled;

(2) The recommendation of the magistrate is adopted;

(3) Petitioner John Edward Pickett’s petition for a writ of habeas corpus is conditionally granted in that the respondents shall release petitioner Pickett unless they grant him a new trial within sixty days from the date of this order; and

(4) Costs are taxed against respondents for which execution may issue.

      . An entry that read "possible sexual abuse by friend” was deleted from the report as published to the jury.

      . For the reasons stated above, the prosecution's failure to produce the doctor who examined the girl and made the medical report was not harmless error.

      . The respondents argue that Pickett had ample time to locate the attending physician and that his failure to do so should not be charged against the prosecution. This argument misapprehends where the burden to produce the witness lay. It was the prosecutor’s responsibility to produce the examining physician, not Pickett’s. Roberts, 448 U.S. at 74-75, 100 S.Ct. at 2543; see also United States v. Massa, 740 F.2d 629, 640 n. 6 (8th Cir.1984), cert. denied, — U.S. -, 105 S.Ct. 2357, 86 L.Ed.2d 258 (1985) (even when out-of-court declarant is available to both sides, Roberts places burden on government to produce the witness whose out-of-court statements are to be used against the defendant).


author: SCOTT O. WRIGHT, Chief Judge.

text:
    Raymond DOUGLAS, Plaintiff, v. UNITED STATES of America, Defendant.
    No. 84-4237-CV-C-5.
    United States District Court, W.D. Missouri, C.D.
    Oct. 28, 1985.

      Roger Toppins, Bartlett, Venters & Pletz, Jefferson City, Mo., Virgil Moore, P.C., Des Moines, Iowa, for plaintiff.
    Edward Funston, Asst. U.S. Atty., Kansas City, Mo., for defendant.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

SCOTT O. WRIGHT, Chief Judge.

This action came on regularly for trial September 23, 1985, before the Court sitting without a jury. Virgil Moore appeared as counsel for plaintiff and Edward H. Funston appeared as counsel for defendant. The Court having heard the testimony, examined the evidence offered by the parties, heard argument of counsel, and this cause having been submitted for decision, the Court being fully advised herein now makes the following findings of fact and conclusions of law.

Findings of Fact

1. Plaintiff, Raymond Herman Douglas, is a 49-year-old, divorced, unremarried father of four. Prior to his paraplegia in 1983, he had worked at Toastmaster in the bending department.

2. Plaintiff is presently paralyzed from the fourth thoracic vertebra down. He has no control over bowel or bladder functions, is unable to engage in sexual functions and tires easily.

3. Plaintiff began experiencing acute pain in his right side, back and stomach the evening of February 20, 1983. He was admitted to Good Samaritan Hospital, Macon, Missouri, with acute abdominal and lower back pain, a cough and pneumonia.

4. Plaintiff was released March 3, with a diagnosis of acute duodenal ulcer, right kidney stone, and an upper respiratory tract infection. This diagnosis was consistent with plaintiff's pain and complaints.

5. On March 5, 1983, plaintiff returned to Good Samaritan due to the persistence of his pain. The diagnosis of renal colic and ulcer were repeated and plaintiff was transferred to Harry S. Truman Veterans Hospital (HST), Columbia, Missouri, on March 7.

6. Plaintiff’s complaints of abdominal pain continued. At HST an oral cholecystogram and endoscopy were negative. No evidence of an ulcer was found, and gall bladder tests returned normal. Plaintiff’s pain subsided somewhat at discharge March 10. Upon his discharge plaintiff was ambulatory, and told to return in three months.

7. On March 11, plaintiff was readmitted to HST with recurrent abdominal and flank pain radiating to the back. Examinations for duodenal ulcer, kidney stones, pancreatitis, cirrhosis of the liver and pneumonia were all negative, however, none of the ailments were ruled out at that time as the cause of plaintiff’s pain. (See Lovingood deposition).

8. Plaintiff was discharged March 27, despite persistent abdominal pain and complaints of numbness and spasms in his right thigh. Although the discharge summary, dated March 27, states that plaintiff complained of an inability to walk and that he left the hospital in a wheelchair, plaintiff’s testimony established that he could walk, although with difficulty — i.e. by “dragging” one leg — until approximately April 11. Upon discharge, plaintiff was told to return in 30 days for further treatment.

9. On April 11, plaintiff was taken to Good Samaritan Hospital by his father, where he complained of an inability to move his legs since early in the morning.

10. Plaintiff was transferred to HST where he continued to experience pain and an inability to move his right leg. A weight loss of 30 pounds over the previous months was noted.

11. Sometime between April 11 and April 13 plaintiff began to experience urinary and bowel incontinence. Plaintiff actually manifested bladder incontinence in an examination room on April 13, whereupon an examining physician directed plaintiffs mother to clean him. Loss of bowel or bladder control is generally closely associated with spinal cord afflictions.

12. A neurological examination performed by Morteza Shamsnia, M.D., revealed that although plaintiffs neurological responses were normal with regard to his upper and lower left extremities, consistent with his complaints, his response in the lower right extremity was “abnormal.” Shamsnia noted that plaintiff was unable to move his right leg.

13. A neurological response of this nature indicates a spinal cord disease process and/or damage above the lumbo-sacral area, indicative of damage that can only be diagnosed through biopsy.

14. The progressive nature of plaintiffs pain, his difficulty standing and/or walking indicated the need for a more formal neurological examination, e.g. lumbar puncture, myelogram, and/or steroids.

15. A cystometric test was performed April 13 and indicated a residual of 455 cc. Insofar as any residual over 200 cc. is an “alarm signal” that indicates spinal cord injury, the cystogram results indicated the need for further and comprehensive neurological testing.

16. Given the results of the cystogram, a spinal fluid exam should have been performed. This procedure would have indicated a chronic inflammatory reaction in and/or around the spinal cord.

17. These results would have indicated the need for a myelogram which would have disclosed a widened spinal cord.

18. The results of the myelogram would have indicated the need to perform a CT Scan which would have disclosed any tumor, infection or infarction afflicting plaintiff.

19. The results of the CT Scan would have then indicated the need for biopsy or exploratory surgery.

20. Sarcoidosis is a systemic disorder that involves the nervous system in 5 to 10% of cases, regardless of the presenting complaint. The disease process involves the spinal cord much less often than the brain or peripheral nerves. Sarcoidosis can only be diagnosed through biopsy of the afflicted organ.

21. Sarcoidosis is more commonly found in blacks. It often afflicts the lungs, and often presents initially with a pulmonary lesion.

22. The formation and evolution of granulomas into fibrosis destroys and stimulates connective tissue synthesis in the affected organ. Once formed, fibrosis is irreversible. Intramedullary spinal sarcoidosis results in paraplegia due to inflammation and affliction of the spinal cord. The resulting condition is generally permanent.

23. Although somewhat rare, intramedullary sarcoidosis should be considered in the differential diagnosis of atraumatic myelopathy. As with any degenerative disease, it is important that diagnostic biopsy be performed early enough that an accurate diagnosis can be established and long term [steroid] therapy instituted.

24. Steroids are the only treatment for sarcoidosis when the central nervous system is affected, and proper administration can control swelling and thus avoid paraplegia. Steroid administration during infiltration yet prior to fibrosis cannot cure or reverse existing fibrosis, however, prevents further destruction. Continuation of therapy indefinitely results in continued control of the disease process and prevents further injury.

25. Despite negative lung, liver or spleen biopsy, histological confirmation of sarcoidosis is yet possible.

26. Spinal cord biopsy or exploratory laminectomy on April 13 would have indicated sarcoidosis.

27. Administration of steroids is proper, and indeed the only possible treatment— short of surgery — for incontinence and suspected widening of the spinal cord pre-diagnosis.

28. While steroids cannot cure sarcoidosis, they are prescribed to control it.' Administration of steroids to plaintiff on or about April 13 would have prevented paraplegia, stabilized sexual function, and preserved plaintiffs bowel control. Plaintiff would have been able to walk, although with some weakness.

29. Plaintiff was admitted to the Veteran’s Administration Medical Center in Iowa City on May 10, 1985, with a history of progressive paraparesis and fecal and urinary incontinence. A thorough myelogram revealed enlargement of the spinal cord and after a T-4-T-9 laminectomy was performed intramedullary sarcoidosis was diagnosed.

30. Raymond Douglas is paraplegic and will continue to suffer mental and physical pain, anguish and depression as a result. Although his life expectancy would normally be 71 (2273 years), his paraplegia will reduce that by approximately 7 to 12 years. He must continue to use catherization to urinate and stimulate his bowel function. He has no sexual function or sensation.

31. Plaintiff’s ability to interact socially with others, aid and supervise his children, and engage in recreational, sporting or outdoor activities is greatly diminished.

32. Plaintiff’s ability to work is greatly impaired. He has lost past and future wages. His ability to engage in gainful employment has been, in all likelihood, eliminated.

33. Plaintiff’s loss of earnings, reduced by the probability of unemployment, and discounted to present value, but not taking into account plaintiff's decreased life expectancy due to sarcoidosis, is $201,715.

34. Due to his condition, plaintiff is unable to totally care for himself and relies on his parents for shelter and care. Such custodial care would reasonably cost between $1200 — $2000 per month were plaintiff forced to seek it outside the home, however, it is not entirely clear how soon such care will be necessary.

Conclusions of Law

Jurisdiction of this matter attaches pursuant to 28 U.S.C. § 1346(b). All administrative remedies have apparently been exhausted.

The Federal Tort Claims Act holds the United States liable “in the same manner and to the same extent as a private individual under like circumstances,” 28 U.S.C. § 2674, on claims against the government “caused by the negligent or wrongful act or omission (of its employees) ... while acting within the scope of (their) employment, under the circumstance where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred,” 28 U.S.C. § 1346(b).

The liability of the United States herein is determined by Missouri law. 28 U.S.C. § 1346(b). Missouri law requires a doctor to exercise that degree of care, skill and proficiency which is commonly exercised by the ordinarily skillful, careful and prudent physician and surgeon engaged in similar practice under similar conditions. Steele v. Woods, 327 S.W.2d 187, 196 (MO.1959). Three prima facie elements must be established: (1) causal connection between the act or omission of the physician to the claimed injury or condition; (2) proof that the act or omission was performed negligently; and (3) proof that the act or omission failed to meet the requisite medical standard of care. Langton v. Brown, 591 S.W.2d 84 (Mo.App.1979).

It is clear that plaintiff’s afflictions are the result of intramedullary sarcoidosis. The failure of the HST doctors to follow up the cystometric test (the very administration of which indicated their suspicion of neurogenic disorder) with spinal tap, myelogram, CT Scan and ultimate biopsy was conduct below the standard exercised by the reasonably prudent physician under similar conditions, and was therefore negligent. Likewise, the failure to administer steroid treatment pre-op/prediagnosis, on April 13 was negligent in light of plaintiff’s complaints and the indication of spinal cord injury and/or disease. These conclusions are supported by the expert testimony of Dr. Stephen Levine, M.D. See Miller v. Scholl, 594 S.W.2d 324 (MO. App.1980) (medical malpractice must be proven by expert testimony unless matter is within lay knowledge). The Court concludes, and Dr. Levine agreed, that plaintiff’s course of treatment until April 11, 1985 was not, given the complaints and conditions, negligent.

There is no. exact measure of damages for pain and suffering in Missouri, thus the finder of fact is given broad discretion in fixing damages within reason. The factors this Court considers are that plaintiff’s injuries are severe in that he is now permanently paraplegic, unable to walk, function sexually, or normally control bodily functions. The Court recognizes, however, that even had proper medical treatment been begun April 13, 1983, to some extent plaintiff’s disease process had already advanced to the point where he had suffered irreversible injury. Moreover, in determining the amount recoverable for loss of future earnings, adjustment must be made for the reduced life expectancy resultant from paraplegia.

Accordingly, the Court concludes plaintiff Raymond Douglas is entitled to recover damages against the defendant United States of America in the amount of $1,050,-000.00.

Therefore, it is hereby

ORDERED that judgment be entered for plaintiff Raymond H. Douglas on his complaint in the amount of $1,050,000.00.


author: ELLIOTT, District Judge.

text:
    EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, and Larice Cooper, Plaintiff-Intervenor, v. The FIRESTONE TIRE AND RUBBER COMPANY, International Union of the United Rubber, Cork, Linoleum and Plastic Workers of America, Local Union No. 887, United Rubber, Cork, Linoleum and Plastic Workers of America, Defendants.
    Civ. A. No. 79-48-ALB.
    United States District Court, M.D. Georgia, Albany-Americus Division.
    Oct. 29, 1985.

      LaVerne S. Tisdale and William M. Outlaw, EEOC, Atlanta, Ga., for plaintiff.
    Mary M. Young, Albany, Ga., for plaintiff-intervenor.
    C. Daniel Karnes, Cleveland, Ohio, Glen D. Nager, Washington, D.C. and J. Lewis Sapp, Atlanta, Ga., for defendant Firestone.
    George E. Barrett, Nashville, Tenn., Charles R. Armstrong, John G. DiPersia, Akron, Ohio and Del Percilla, Jr., Albany, Ga., for defendant Union.
   OPINION AND ORDER ON MOTION OF DEFENDANT FIRESTONE FOR SUMMARY JUDGMENT

ELLIOTT, District Judge.

This lawsuit was filed by the Equal Employment Opportunity Commission (EEOC) more than six years ago in July, 1979. It arose out of an investigation by EEOC of two charges of employment discrimination which were filed more than eleven years ago in August, 1974. In one charge a female applicant for employment alleged that she was denied employment at the Albany, Georgia, manufacturing plant of Firestone Tire and Rubber Company (Firestone) because of her sex. In the other charge a black employee at the plant claimed that he was discriminatorily disciplined by the company because of his race. Neither charge contained any allegations of class discrimination. Nevertheless, EEOC’s complaint in this lawsuit alleged that Firestone and the Defendant Unions intentionally discriminated against females as a class and against black employees as a class. Subsequently, Larice Cooper, the black charging party, intervened as a Plaintiff in support of the discriminatory charge which he had made.

By motion for summary judgment Firestone asks that the Court dismiss this lawsuit as being barred by the doctrine of laches and/or by the failure of EEOC and the Plaintiff-Intervenor to prosecute the case diligently. There is no controversy concerning the basic material facts. Firestone has operated a tire manufacturing plant in Albany, Georgia, since 1968. Sometime prior to August 9, 1974, Janelle Collins applied for employment at the plant. She was not hired and she subsequently filed a charge of employment discrimination with EEOC on or about August 9, 1974, alleging that the company had refused to hire her because of her sex.

Also, about this same time the company disciplined black employee Lárice Cooper for stated reasons. He filed a charge of employment discrimination with the EEOC on or about August 12, 1974, alleging that the company had reprimanded him and suspended him because of his race.

Approximately thirty-three months after the charges had been filed EEOC finally served the company with copies of these two charges in May, 1977. Only then did EEOC request that Firestone provide it with information for evaluating the two charges. In July, 1977 EEOC issued a Letter of Determination finding “reasonable cause” to believe that the company had discriminated against Cooper. Over four months later, in December, 1977, EEOC issued a Letter of Determination finding “reasonable cause” to believe that the company had also discriminated against Collins. EEOC and the company then engaged in conciliation on the two charges. In February, 1978, EEOC notified the company that it would make no further efforts to conciliate either charge. Some eighteen months later, on July 9, 1979, EEOC filed this lawsuit against Firestone and the Defendant Unions.

The lawsuit filed by EEOC notified the company for the first time that EEOC intended to pursue class discrimination claims that extended beyond the individual cases of Collins and Cooper, EEOC claiming to represent a class of all females and blacks who had been employed or who had sought employment at any time since July, 1965, at the Albany facility. The company and the Defendant Unions answered the complaint denying the EEOC allegations and suggesting that the doctrine of laches barred the lawsuit.

During the next four years the parties carried on sporadic discovery, but by June, 1983, when the case had been pending for approximately four years, the Court noting that since no attempt had been made to bring the case on for trial directed the Clerk of the Court to close the file for statistical purposes, the Court stating, however, that the file could be reopened if it later appeared to be appropriate. The Court has had no occasion to concern itself with the case since the file was closed for statistical purposes more than two years ago. Now, however, Firestone apparently not being content that the case simply remain in limbo, has filed the motion for summary judgment above referred to.

Affidavits filed by Firestone in support of its motion show that if the company were now required to try this case after the passage of so much time it would encounter severe evidentiary problems. For example, the company’s labor relations manager who had reviewed and approved all disciplinary actions during the pertinent time period was dismissed from his employment with the company last year, and in consequence has become a hostile witness in contrast with what could have been anticipated by the company if this case had gone to trial within a reasonable period of time. Similarly, the company’s plant manager has also now been relieved of his duties and has become at least a problematic witness. It also appears that when representatives of the company recently attempted to contact three former employees who would have been key witnesses in the case it found that they would not be available as witnesses. Two of these former employees are now in a condition of poor health or advanced age and find it difficult to remember the events of eleven years ago and one of the employees simply cannot be located.

It is, of course, obvious that EEOC delayed unreasonably in filing its complaint in this case. Collins and Cooper filed their charges in August, 1974, and EEOC waited almost three years before even serving Firestone with copies of those charges and commencing its investigation of them. Furthermore, EEOC delayed several more months before issuing its reasonable cause determinations, then after conciliation failed EEOC took almost eighteen more months to file suit. Thus, five full years passed between the filing of the underlying charges and the filing of the lawsuit. The Court views such delays as inexcusable and unreasonable.

The Court of Appeals for the Eleventh Circuit found delays of almost identical length to be prima facie unreasonable in what is regarded as the leading laches case in this circuit. See EEOC v. Dresser Industries, Inc., 668 F.2d 1199 (11 Cir.1982). In many other cases too numerous to require citation the Federal Courts have uniformly found such delays by EEOC to be unreasonable.

The Court recognizes that the mere passage of time does not alone establish a laches defense because the Defendant must also show that the unreasonable delay has created substantial prejudice to the defense.

Here the company’s personnel have changed and its key witnesses are therefore unavailable. Some of them who could have been anticipated to be favorable witnesses if the case had been brought on for trial within a reasonable time have now become hostile to the company because of their intervening discharge by the company, and advancing age and poor health conditions have made it impossible for other witnesses to recall with clarity the events which would be the subject of investigation, and one witness cannot even be located. These facts clearly prejudice Firestone in defending this action. The unavailability of these witnesses would be especially damaging to the company’s defense in this particular case because Collins and Cooper, the original charging parties, allege that company officials were motivated by discriminatory intent, and obviously, the company needs the live and accurate testimony of the accused managers who made the decisions to combat these charges. No records or substitute testimony can offset the prejudice that the company suffers when these witnesses cannot effectively testify.

Further, because EEOC waited five years to initiate this action the company is without many relevant records which it might have substituted for at least portions of the unavailable testimony. This is true because until EEOC filed this case as a class action the company had no reason systematically to retain employment application's or information about applicants and employees other than Collins and Cooper. That places the company at a significant handicap and arranges its defenses to EEOC’s classwide hiring discrimination. Certainly such a handicap supports a laches defense. In this connection see EEOC v. Dresser Industries, Inc., 668 F.2d at 1203-04, and EEOC v. Alioto Fish Company, 623 F.2d 86 at 88 (9 Cir.1980).

Finally, if EEOC had litigated these matters in a timely fashion the company’s potential liability would have ceased accruing several years ago. Instead, the delay in this case has substantially and unfairly enlarged the company’s potential back pay liability and this increased monetary liability which is attributable solely to the EEOC delay constitutes an additional element of prejudice supporting dismissal of the suit. EEOC v. Dresser Industries, Inc., supra; EEOC v. Alioto Fish Company, supra. As a matter of fact, during the intervening years the company has been paying other individuals to perform the jobs for which EEOC is now asserting claims for back pay.

It is the Court’s view that this case is a perfect example of the delay which can undermine the policies and purposes of Title VII and that dismissal of the case on the ground of laches is appropriate. The Court does not discern any competing equities on the side of EEOC because the prejudicial delay is due entirely to EEOC’s handling of the Collins and' Cooper charges. The Court, therefore, concludes that laches bars this suit.

Even if EEOC’s 60 month delay in filing its complaint did not require dismissal, its over 73 month delay in prosecuting the action would dictate that such dismissal is proper. Rule 41(b) of the Federal Rules of Civil Procedure requires dismissal of an action where there is a clear record of delay and a finding that lesser sanctions will not suffice. It is the Court’s view that both conditions are clearly satisfied in the circumstances of this case and the Court of Appeals of this Circuit has instructed that the District Courts properly can dismiss with prejudice the lawsuits of plaintiffs who allow such lengthy periods of time to pass without affirmatively prosecuting their cases. See Jones v. Graham, 709 F.2d 1457 (11 Cir.1983).

The Court notes that in resisting the Defendants’ motion for summary judgment EEOC contends that settlement negotiations were going on between the parties which contributed to the delay. The pend-ency of settlement negotiations obviously is an acceptable excuse for some delay in a plaintiff’s prosecution of its case, but the pendency of negotiations is not an excuse where the delay is unreasonably long (a period of years in this case), or if it continues after it is apparent that the negotiations would not be fruitful. See Jones v. Graham, supra. It is clear in this case that some negotiations were going on but they had been dragged out over a period of four years and the negotiations were obviously “getting nowhere” because the last proposal made by EEOC to the Defendant company demanded a greater amount in settlement than the first proposal made years earlier, and the first proposal had long since been rejected by the company.

The Court recognizes that dismissal of an action for want of prosecution is a sanction which should be applied only in extreme circumstances and that it must appear that lesser sanctions would not suffice before an action can be dismissed with prejudice. Jones v. Graham, supra. In this case the Court makes the specific finding that we have here the requisite extreme circumstances which would justify dismissal of the Plaintiff’s complaint and that lesser sanctions would not suffice, because of EEOC’s inattention to the case and the concomitant prejudice to the company, all of which have been hereinabove outlined. In this case alternative sanctions such as giving a warning, or issuing a reprimand, or placing the case at the bottom of the calendar, would simply not suffice. Indeed, the Court determines that this is precisely the type of case in which Rule 41(b)’s harsh remedy of dismissal is distinctly appropriate.

For the same reasons heretofore discussed, the doctrines of laches and want of prosecution bar Plaintiff-Intervenor Cooper’s claims as well. Arguably, Cooper was entitled to await completion of EEOC’s administrative process before taking any action on his own, but that long delayed process ended in February, 1978, when EEOC abandoned its conciliation efforts. Cooper’s decision not to file suit during the next 28 months and to delay intervening for another 9 months after EEOC itself filed suit was unreasonable. See Boone v. Mechanical Specialties Co., 609 F.2d 956 (9 Cir.1979). Furthermore, Cooper has not taken any steps toward prosecution of his claims since being allowed to intervene more than five years ago. See Jones v. Graham, 709 F.2d at 1462. Since key witnesses and records are unavailable to the company prejudice has arisen and lesser sanctions will not suffice. Succinctly stated, the equities strongly favor dismissal of Plaintiff-Intervenor’s case on grounds of laches and want of prosecution.

For all of the reasons hereinabove discussed, the Court concludes that the doctrine of laches and the want of prosecution by EEOC and the Plaintiff-Intervenor requires that this action be dismissed with prejudice in its entirety. The Defendant’s motion for summary judgment is granted and judgment will be entered accordingly.


author: ROBERT H. HALL, District Judge.

text:
    GOLD KIST INC., Plaintiff, v. UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Defendants.
    Civ. A. No. C82-1378A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Nov. 1, 1985.
    Franklin R. Nix, Alston, Miller & Gaines, Atlanta, Ga., for plaintiff.
    James E. Baker, U.S. Atty., Myles E. Eastwood, Asst. U.S. Atty., for defendants.
   ORDER

ROBERT H. HALL, District Judge.

On May 13, 1983, this court upheld the U.S. Department of Agriculture’s (the USDA’s) imposition of civil money penalties against plaintiff, Gold Kist, Inc., relating to marketing and handling of peanuts. Among other things, the court determined that even though the marketing penalties assessed by the USDA were not specifically authorized by statute, the agency had the power to impose such penalties as a necessary concomitant of its power to regulate the conditions under which “additional” peanuts are handled. (See Order, pp. 5-11).

This determination was reversed on appeal, the Eleventh Circuit ruling that the USDA lacked the authority to impose the civil monetary penalties which it imposed against plaintiff because the statutory sections which plaintiff violated, 7 U.S.C. §§ 1359(h), (i), do not plainly impose a marketing penalty on parties who violate those sections. Gold Kist, Inc. v. U.S. Department of Agriculture, 741 F.2d 344 (11th Cir. Sept. 6, 1984).

The action was then remanded to this court for consideration of plaintiff’s motion for attorney’s fees under the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(A) (Supp.V.1981), if plaintiff submitted an application of such fees within 30 days of this court’s order making the judgment of the Eleventh Circuit the order of this court. Id. at 349-50 (construing 28 U.S.C. § 2412(d)(1)(B)).

Plaintiff submitted a timely application for attorney’s fees on April 10, 1985, within 30 days of this court’s order of March 12, 1985, making the Eleventh Circuit’s judgment the order of this court. Plaintiff alleges that the USDA’s position in defending the imposition of monetary penalties against plaintiff was not substantially justified and that plaintiff, as the prevailing party, is entitled to $17,077.50 for attorney’s fees in bringing this action. It is this application which is presently pending before the court.

The Equal Access to Justice Act controls the awarding of attorney’s fees in this action, providing, in pertinent part, that:

Except as otherwise specifically provided by statute, a court shall award to a prevailing party other than the United States fees and other expenses, in addition to any costs awarded pursuant to subsection (a), incurred by that party in any civil action (other than cases sounding in tort) brought by or against the United States in any court having jurisdiction of that action, unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

28 U.S.C. § 2412(d)(1)(A).

The USDA opposes plaintiff’s application for attorney’s fees on the following grounds: (1) plaintiff has not proven that it is a “party” as that term is used in the EAJA; (2) plaintiff’s fee request includes hours spent on issues on which it did not prevail; (3) the USDA’s position was substantially justified; (4) there are “special circumstances” which would make a fee award unjust; and (5) the number of hours billed is unreasonable.

Without reaching the first, second, fourth or fifth arguments advanced by the government, the court DENIES plaintiff’s fee application for the third reason asserted by the government. That is, the court finds that plaintiff is not entitled to attorney’s fees because the government’s position was substantially justified. As the Eleventh Circuit noted, there were two “conflicting lines of cases” relevant to the issue of the USDA’s power to impose the penalties it did, 741 F.2d at 347, and the Eleventh Circuit’s decision was intended “to resolve these conflicting lines of precedent____” Id. at 348. That the government chose to follow one line of cases was reasonable given the lack of clear authority-

This order terminates this action.

So ORDERED, this 1 day of November, 1985.


author: DAVID S. PORTER, Senior District Judge:

text:
    Joseph T. SMALL, et al., Plaintiffs, v. INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, et al., Defendants.
    Civ. A. No. C-l-85-914.
    United States District Court, S.D. Ohio, W.D.
    Nov. 6, 1985.

      Paul H. Tobias, Tobias & Kraus, Cincinnati, Ohio, for plaintiffs.
    Thomas F. Phalen Jr., Cincinnati, Ohio, Gary A. Snyder, Dayton, Ohio, for defendants.
   MEMORANDUM AND ORDER

DAVID S. PORTER, Senior District Judge:

Plaintiff brought this action against defendants Local 212 (hereinafter Local), and International Brotherhood of Electrical Workers (hereinafter International) alleging violation of the unions’ duty of fair representation, and violation of Sections 101(a)(1), 401(h) and (i), and 404 of the Labor Management Reporting and Disclosure Act of 1959 (hereinafter LMRDA). The case is before the Court on defendant Local’s partial motion to dismiss Count IV of the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure (doe. 6), and defendant International’s 12(b)(1) and (6) motion to dismiss the complaint against them (doc. 7). Plaintiff has filed memoranda in opposition to both motions (docs. 10 and 12).

Both plaintiffs and the International have filed exhibits extraneous to the pleadings for us to consider in conjunction with the 12(b)(6) motion. As we are permitted to do under the rule, we will consider the motion on the pleadings and supporting memoranda alone and exclude the extraneous material.

We are aware that 12(b)(6) motions are granted sparingly, Pessin v. Keeneland Assoc., 45 F.R.D. 10 (E.D.Ky.1968). Moreover, the complaint must be liberally construed, Davis H. Elliott Co., Inc. v. Caribbean Utilities Co., Ltd., 513 F.2d 1176 (6th Cir.1975), and viewed in a light most favorable to the nonmoving party. Finally, the standard for dismissal must be scrupulously applied. It must appear beyond a doubt from the complaint that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), quoting, Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957).

Keeping these considerations foremost in mind, the facts, construed in a light most favorable to the plaintiffs, are the following: The plaintiffs in this case are all electricians and members of Local 212. Local 212 is affiliated with the International. The plaintiffs are challenging two aspects of the Local’s activities. First, the Local administers a hiring hall pursuant to a collective bargaining agreement signed by area contractors. Complaint ¶ 5. The agreement contains clear procedures for the nondiscriminatory referral of members for work according to the chronological order of the names that appear on the referral list. Id. Plaintiffs allege that the Local has violated the collective bargaining agreement by failing to call members in chronological order, and by other acts of favoritism. Id. ¶ 6. Plaintiff further alleges that the Local has been acting arbitrarily, in bad faith, and grossly negligent in the operation of the referral system. Id. ¶ 7. Plaintiffs also challenge the Local’s implementation of a program entitled, “Market Recovery Agreement” (hereinafter Program). Id., 1110. The Program was established in 1983 to refer Local members to jobs paying $9.10 per hour, less than one-half the union wage set forth in the collective bargaining agreement. Id. Plaintiffs allege that the Local implemented the Program without a vote of the membership, nor the approval of the executive board or the International president. Id. ¶ 11. Additionally, all appeals to the International that have challenged the Program have been handled perfunctorily. Id. 1111 9 and 12.

Finally, plaintiffs allege that the two activities, operating a referral service and implementing the Program, have been handled under the guidance of William Rothert, the Local’s business manager. Id. § 14. Rothert has allegedly harassed and threatened the plaintiffs for their repeated challenges to the Local’s activities. Id. ¶ 17. Appeals to the International regarding Rothert have been unsuccessful, and moreover, plaintiffs allege, the International’s constitution does not contain adequate procedures to remove Rothert. Id. H1115 and 16.

We find that based on these facts, the International cannot be held liable in this case, and grant its motion to dismiss. We therefore deal with its 12(b)(6) motion first. We also grant the Local’s 12(b)(1) motion and hold that we do not possess subject matter jurisdiction over Count IV of the plaintiffs’ complaint.

It has long been held that an international union is not per se responsible for the actions of its local. Kazor v. General Motors Corp., 585 F.Supp. 621, 118 L.R. R.M. 2622 (E.D.Mich.1984). See United Mine Workers of America v. Coronado Coal Co., 259 U.S. 344, 42 S.Ct. 570, 66 L.Ed. 975 (1922); Shimman v. Frank, 625 F.2d 80 (6th Cir.1980). An important policy militates strongly against imposing absolute vicarious liability on international labor organizations. Every year, many cases involve breach of the union’s duty to represent fairly members of the bargaining unit. A rule of absolute vicarious liability would expose international unions to a multiplicity of damage awards and have an unpredictably destructive effect on organized labor. Mauget v. Kaiser Engineer, Inc., 105 L.R. R.M. 3374 (S.D.Ohio 1980). In a long line of cases, this Circuit has refused to hold international unions vicariously liable to employers without a showing of authorization or ratification, United Steelworkers v. Lorain, A Division of Roehring Co., 616 F.2d 919 (6th Cir.1980), cert. denied sub nom. Lorain v. United Steelworkers, 451 U.S. 983, 101 S.Ct. 2313, 68 L.Ed.2d 839 (1981); Buckeye Power, Inc. v. Utility Workers Union, 607 F.2d 759 (6th Cir. 1979); Walters v. International Ass’n of Plumbers and Steamfitters, 323 F.2d 578 (6th Cir.1963). Recently, this same rule was applied in a member-union relationship, Shimman v. Frank, 625 F.2d 80 (6th Cir.1980).

Shimman involved the alleged beating of a union dissident upon the instructions of a local union official. The Sixth Circuit reversed the district court’s finding that the international union was vicariously liable. The court held that the international could not be held liable absent authorization, encouragement, or ratification of the offensive conduct. The Court adopted the rule enunciated in the Supreme Court case, United Mine Workers of America v. Coronado Coal Co., 259 U.S. 344, 42 S.Ct. 570, 66 L.Ed. 975 (1921) opinion after remand, 268 U.S. 295, 45 S.Ct. 551, 69 L.Ed. 963 (1923), in which the Supreme Court applied agency principles to find the international not liable for the unauthorized strike of the local. The Shimman court rejected the argument that the Coronado rule only applied in strike situations, Shimman, 625 F.2d at 95, and held that agency principles applied equally to employer-union disputes. Applying agency principles, the court found that the international was a separate body from the local. The acts of the agent could not be imputed automatically to the international. Under the union’s constitution, local unions governed themselves, called strikes on their own, elected their own officers, passed their own by-laws, transacted business and disciplined members. Id. at 97. The Court refused to impute agency merely on the basis of the international’s retention of substantial regulatory and supervisory powers, id., and held that to do so would ignore the local’s substantial autonomy in handling its own affairs. Id. at 98.

In Buckeye Power, Inc. v. Utility Workers Union, 607 F.2d 759 (6th Cir.1979), an illegal strike case, the court expressed the rule in a slightly different way, and stated that an international union could not be liable for the illegal conduct of one of its local unions where the plaintiff’s complaint centered on the inaction of the international. Id. at 763, citing Harnischfeger Corp. v. Sheet Metal Workers, Inc., 436 F.2d 351 (6th Cir.1970). See also Carbon Fuel Co. v. United Mine Workers, 444 U.S. 212, 100 S.Ct. 410, 62 L.Ed.2d 394 (1979).

In the case at bar, plaintiff alleges no facts from which we could find the International liable for the acts of the Union. The International did not authorize, encourage, or ratify the acts of the Local. The complaint merely alleges that the International failed to take action on two accounts: that the International arbitrarily failed to respond to “charges, complaints and appeals” regarding the Local’s defective referral system (Complaint ¶ 9), and that despite the fact that the Market Recovery Agreement was implemented without approval by the International President in direct violation of the International constitution, the International ignored charges and appeals concerning the Program filed by Union members (Id.). The International’s failure to act could in no way constitute encouragement or ratification.

The doctrine of ratification provides that a contract made by an agent without authority may, by words, conduct or silence, subsequently be approved by the principal, retroactively conferring authority on the agent. E.g., 2 Williston on Contracts § 278 (1959 & 1981 Supp.). The doctrine only applies if the transaction is originally entered into on behalf of a principal, who subsequently ratifies it, and the person making it represents himself as the principal’s agent. Id.

Bruffey Contracting Co. v. Burroughs Corp., 522 F.Supp. 769, 774-75 (D.Md. 1981), affd 681 F.2d 812 (4th Cir.1982).

In the instant ease the plaintiffs have made no allegations that the referral program or Market Recovery Agreement were initiated for the benefit of the International, nor that the International subsequently approved the Local’s activities. Rather, all that is alleged is that the International failed to respond to grievances and complaints filed with it. We decline to impose vicarious liability on the International merely because it failed to act. See Carbon Fuel Co. v. United Mine Workers, supra.

Plaintiff alleges that an agency relationship arose between the International and the Local as a result of the degree of control the International possessed over the Local’s activities. As support for this contention, plaintiff enumerates several provisions in the Union’s constitution which reserve to the International a broad range of control over the Local’s activities (Plaintiffs’ Memorandum in Opposition, Doc. 12 at 4-6). It is in this regard that we are most reluctant to grant the International’s motion to dismiss. The degree of control an International has over its locals has been held to be a basis upon which to hold the International liable for the acts of its locals. See International Union of Operating Engineers v. Metroyolitan Gill-Te-con, 400 F.2d 261, 263 (10th Cir.1968) (“The international is not entitled to the best of both worlds — on the one hand being able to swing its weight, and on the other being able to avoid responsibility therefor.”).

However wary we are of dismissing the International solely on the basis of the pleadings, we are persuaded that permitting additional evidence on the issue of control would not be fruitful in the present case. Plaintiff has made no allegation that the referral program or Market Recovery Agreement was anything but a program run by the Local in its independent capacity. No possible addition of proof could alter our view that these programs were not controlled by, nor were they run for the International. Our conclusion is reinforced by Wentz v. IBEW, 578 F.2d 1271 (8th Cir.), cert. denied, 439 U.S. 983, 99 S.Ct. 573, 58 L.Ed.2d 655 (1978). In Wentz the Eighth Circuit specifically examined this International’s constitution and affirmed the district court, which said, “While the power of the International over the affairs of the Local is considerable, it is no more pervasive than typically has been involved in eases in which it has been held that locals and national or international unions are separate entities.” Id. at 1272.

Since we can see no possible result other than the International’s dismissal from the case, there is no reason to delay our decision to a later stage in the proceedings. We therefore grant the International's motion and dismiss if from the complaint.

We now turn to the Local’s motion to dismiss Count IV of plaintiff’s complaint. Count IV alleges violations of Sections 401(h) and (i) and Section 404 of the Labor Management Reporting and Disclosure Act of 1959, 29 U.S.C. §§ 481(h) (1982).

Section 401(h) of the LMRDA states:
If the Secretary [of Labor], upon application of any member of a local labor organization, finds after hearing in accordance with the [Administrative Procedure Act] that the constitution and bylaws of such labor organization do not provide an adequate procedure for the removal of an elected officer guilty of serious misconduct, such officer may be removed, for cause shown and after notice and hearing, by the members in good standing voting in a secret ballot conducted by the officers of such labor organization in accordance with its constitution and bylaws insofar as they are not inconsistent with the provisions of this subchapter.

29 U.S.C. § 481(h) (1982). Section 401(i) authorizes the Secretary to “promulgate rules and regulations prescribing minimum standards and procedures for determining the adequacy of the removal procedures to which reference is made in subsection (h)....” Id. § 481(i).

Neither the plaintiff nor the defendant has offered cases interpreting § 401(h) and we have not found any exactly on point. However, § 402, dealing with enforcement procedures of § 401, by its terms applies equally to election complaints as well as to the removal of union officers. Section 402 states:

A member of a labor organization—
******
may file a complaint with the Secretary within one calendar month thereafter alleging the violation of any provision of section 481 of this title (including violation of the constitution and bylaws of the labor organization pertaining to the election and removal of officers).

29 U.S.C. § 482(a) (1982). (Emphasis added.) See Martire v. Laborers’ Local Union 1058, 410 F.2d 32, 36 n. 8 (3d Cir.) (Section 401(h) “by its terms, as does § 402 ... dealing with enforcement of § 401, directs aggrieved union members to seek relief from the Secretary of Labor rather than by a civil action under the LMRDA.”), cert. denied, 396 U.S. 903, 90 S.Ct. 216, 24 L.Ed.2d 179 (1969).

In fact, under authority of § 402 the Secretary has promulgated regulations dealing with the procedure for removal of officers, 29 C.F.R. §§ 417.1-.2 (1985), as well as election requirements, 29 C.F.R. §§ 452.1-.138 (1985).

The defendant has argued persuasively that since § 402 applies equally to election complaints and the removal of officers, the election cases interpreting § 402 are instructive in analyzing the case at bar. Plaintiff all but concedes this point arguing simply that “in the absence of authority to the contrary this Court may consider Count IV of Plaintiffs’ Complaint.” (Plaintiffs’ Memorandum in Opposition at 7).

It seems eminently reasonable that we should apply the election cases to the case at bar. The Supreme Court has interpreted § 402 on several occasions.

In Calhoon v. Harvey, 379 U.S. 134, 85 S.Ct. 292, 13 L.Ed.2d 190 (1964), the Supreme Court held that challenges to election proceedings under the LMRDA are governed exclusively by § 402. The Court noted that § 402 permits an individual union member to file a complaint with the Secretary of Labor challenging the validity of an election because of violations of LMRDA. If the Secretary finds probable cause to believe there has been a violation, he may file suit in the appropriate district court. Id. 140, 85 S.Ct. at 296. The Court stated:

It is apparent that Congress decided to utilize the special knowledge and discretion of the Secretary of Labor in order best to serve the public interest. Cf. San Diego Building Trades Council v. Garmon, 359 U.S. 236, 242 [79 S.Ct. 773, 778, 3 L.Ed.2d 775]. In so doing Congress ... decided not to permit individuals to block or delay union elections by filing federal-court suits for violations of Title IV [of the LMRDA]. Reliance on the discretion of the Secretary is in harmony with the general congressional policy to allow unions great latitude in resolving their own internal controversies, and, where that fails, to utilize the agencies of Government most familiar with union problems to aid in bringing about settlement through discussion before resort to the courts.

Id. The Court thus held that a private individual may not initiate a private suit to set aside an election. This view was subsequently reaffirmed in Wirtz v. Local 153, Bottle Blowing Ass’n, 389 U.S. 463, 475, 88 S.Ct. 643, 650, 19 L.Ed.2d 705 (1968) where the Court recognized that in giving exclusive authority to the Secretary to bring suit challenging union election proceedings, “Congress emphatically asserted a vital public interest in assuring free and democratic union elections that transcends the narrower interest of the complaining union member.” Even the standard for review of the Secretary’s decision not to bring a civil suit to set aside elections evidences the deferential approach the Court has taken in § 402 cases.

Except in what must be the rare case, the court’s review should be confined to examination of the “reasons” statement, and the determination whether the statement, without more, evinces that the Secretary’s decision is so irrational as to constitute the decision arbitrary and capricious. Thus, review may not extend to cognizance or trial of a complaining member’s challenges to the factual basis for the Secretary’s conclusion either that no violations occurred or that they did not affect the outcome of the election.

Dunlop v. Bachowski, 421 U.S. 560, 572-73, 95 S.Ct. 1851, 1860, 44 L.Ed.2d 377 (1975).

There is no reason whatsoever to conclude that the careful enforcement scheme established in § 402 should not apply equally to complaints arising under § 401(h) involving the removal of union officers guilty of serious misconduct. As noted earlier, the statute itself directs a § 401(h) complainant to seek relief from the Secretary of Labor. Since the Supreme Court has stated unequivocally that the enforcement scheme outlined in § 402 is an exclusive remedy in cases involving election complaints, we are convinced the same result in this case is required.

We therefore hold that this Court has no jurisdiction over plaintiffs’ § 401(h) claims, that these claims must initially be presented to' the Secretary, and that the Secretary must determine whether or not to bring a challenge to the defendants’ officer removal procedures in this Court.

ORDER

For the foregoing reasons, defendant International’s motion to dismiss the complaint against them is hereby granted, and defendant Local’s motion to dismiss Count IV of plaintiffs’ complaint is granted.

SO ORDERED.

      . We note as an aside that although we have found no cases exactly on point, 401(h) has been interpreted in a different context in at least one case. In Donovan v. Hotel, Motel & Restaurant Employees, 700 F.2d 539 (9th Cir. 1983), the court scrupulously reviewed the legislative history of the LMRDA to hold that the Secretary of Labor may not intervene in union removal proceedings absent a finding that the union’s constitution and bylaws provide inadequate removal procedures. Our reading of Donovan strongly suggests that the Court took for granted that the Secretary may intervene in a situation, as is alleged by the plaintiff to exist in the present case, in which union removal procedures are inadequate.


author: CLARKE, District Judge.

text:
    Alexander SMITH, Trustee, et al., Plaintiffs, v. UNITED STATES CREDIT CORP., Defendant.
    Civ. A. No. 85-317-N.
    United States District Court, E.D. Virginia, Norfolk Division.
    Nov. 6, 1985.
    Robin L. Tolerton, Smith & Tolerton, Norfolk, Va., for plaintiffs.
    Alex T. Mayo, Jr., Bruce H. Matson, Kaufman & Cañóles, Norfolk, Va., for defendant.
   MEMORANDUM ORDER

CLARKE, District Judge.

The defendant, United States Credit Corporation, seeks summary judgment against the plaintiffs, a trustee and two debtors, on all four counts of the plaintiffs’ complaint. Briefs have been submitted by the parties and a hearing on the motion was held on October 30, 1985. Accordingly, the matter is ripe for disposition.

The transaction involved concerns a promissory note under which the plaintiff debtors borrowed $18,350.00 and agreed to repay it at 14.5% interest over fifteen years. The promissory note was accompanied by a Truth in Lending Disclosure Statement, which set forth the note’s effective annual percentage rate, the finance charge, and other relevant information. The Court first considers defendant’s motion with respect to Counts II, III, and IV of the Complaint, which essentially allege violations of state and federal consumer credit disclosure regulations.

In Count II of the Complaint, plaintiffs allege that the defendant violated § 6.1-330.17 of the Virginia Code by failing to quote an effective annual percentage rate in the Note itself. Plaintiffs’ contention is that the Note must be able to stand up to the disclosure requirements on its own. The Court, however, considers the Truth-In-Lending Disclosure Statement to be an integral part of the transaction, and finds the disclosure of an annual percentage rate therein, together with the annual rates disclosed in the Note, to be sufficient to satisfy § 6.1-330.17 as a matter of law.

For similar reasons, Count IV is also deficient as a matter of law. In Count IV, plaintiff alleges that defendant violated five regulations under the Federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. Plaintiff essentially argues that the defendant failed to accurately disclose the amount financed, finance charge, annual percentage rate, and the itemized breakdown of amounts financed because the Truth in Lending Disclosures were negated by the disclosure of different interest rates in the Note. It would be more accurate, however, to say that the Note’s disclosures were supplemented by the Truth in Lending disclosures.

The disparity plaintiff complains of occurs whenever there are upfront charges in a loan transaction and is the basic reason why Truth in Lending Disclosure Statements are necessary in the first place. Moreover, the defendant used the specific language suggested by the regulations as a means of describing in layman’s language the amount financed, the finance charge, and the annual percentage rate. In short, the borrowers were more than adequately informed of the details surrounding their loan transaction.

Plaintiffs’ final regulatory contention in Count IV, that the required disclosures were not made before the transaction was consummated, is simply not supported by the dates on the respective documents nor even by the dates set forth in the Complaint. Accordingly, Count IV is deficient as a matter of law.

Count III of the Complaint, which alleges that the defendant’s actions and misrepresentations violated the Virginia Consumer Protection Act, Va.Code Ann. § 59.1-196, et seq, is also without substantial merit. According to the Virginia statutes, the Virginia Consumer Protection Act does not apply to any aspect of a transaction authorized by state or federal law or regulated by the Federal Consumer Credit Protection Act. Va.Code Ann. § 59.1-199. Since under § 15 U.S.C. § 1603 consumer real estate transactions are covered by the Federal Consumer Protection Act, the Virginia Act is inapplicable. Additionally, since the Court’s overall holding is that the transaction involved did not violate state lending and disclosure regulations, the Virginia Consumer Protection Act is inapplicable for that reason as well.

The Court now turns to defendant’s motion as it relates to Count I of the complaint. The essence of the allegations in Count I is that defendant collected service charges and referral fees in excess of the amounts allowed by statute. Section 6.1-330.16(E) of the Virginia Code, which specifically governs loans such as plaintiffs’ that are secured by a subordinate mortgage, reads in pertinent part:

E. Any loan secured by a subordinate mortgage ... may be lawfully enforced at the interest rate stated therein____ Notwithstanding the foregoing, a service charge not exceeding two percent of the amount of the loan may also be imposed. Disclosure of charges, not otherwise specified in the note, deed of trust, or mortgage, in an interest disclosure pursuant to the federal interest disclosures law, shall constitute compliance with this statute.

Va.Code Ann. § 6.1-330.16(E) (1985 Supp.). It bears noting that the statute does not limit the interest rate that can be charged on these type loans.

The issue before the Court is whether the $2,560 up front fee charged the plaintiff is “initial interest” as claimed by the defendant, or is a service charge as is claimed by the plaintiffs. Since this charge amounted to 13.95% of the loan amount, if held to be. a service charge it would be clearly excessive under § 6.1-330.16 (E). If held to be interest, it would not be excessive.

The term “service charge” is not defined anywhere in the statute, and counsel for the plaintiffs has not directed the Court to any authority supporting the proposition that an initial interest or prepaid interest charge of the type involved here is a service charge rather than interest.

The term “service charge” appears in at least ten different subsections of Chapter 7.2 of the Virginia Code, dealing with Money and Interest. See subsections 13, 14, 15, 16, 19, 20, 21, 23, 24 and 41 of § 6.1-330. The common meaning of the term “service charge” and the context in which it appears in these subsections makes it clear that service charges are charges imposed to cover the costs of processing or handling various financial transactions other than the cost of the money itself. E.g. Va.Code Ann. 6.1-330.20(A) (service charge of $1.50 per month authorized on open end credit plans). In banking parlance, the term service charges covers all fees charged customers other than interest. Perhaps the most common service charge is the one imposed on many checking accounts. This charge has absolutely nothing to do with the concept of interest.

Moreover, it is unlikely that a service charge would ever be considered in determining the true interest rate associated with a transaction. Here the $2,560 charge was used in computing the 19.42% annual percentage rate disclosed to the plaintiffs in the Truth In Lending Disclosure Statement. In this sense the initial the Truth In Lending Statement. In this sense, the initial interest charge is analogous to “points” or prepaid interest. In this regard, defendant refers the Court to a section of the Virginia Code where points are considered interest, and defendant argues quite persuasively that the “initial interest” charge involved here should be similarly treated.

The statute defendant refers to is the general usury statute and reads in pertinent part:

CONTRACTS FOR MORE THAN LEGAL RATE OF INTEREST. — Except as otherwise permitted by law, no contract shall be made, for the loan or forbearance of money at a greater rate of interest than eight per centum per annum, including points expressed as a percentage of the loan divided by the number of years of the loan contract. For the purpose of this section the term “points” is defined as the amount of money, or other consideration received by the lender, from whatever source, as a consideration for making the loan and not otherwise expressly permitted by statute.

Va.Code Ann. 6.1-330.11 (emphasis added). Points, as defined by the statute would seem to incorporate the “initial interest” charge collected here. Moreover, interest has long been defined within the Commonwealth for usury purposes as any “compensation taken for the loan or use of money.” Turner v. Turner, 80 Va. 379 (1885).

The Court simply cannot read the service charge language of § 6.1-330.16(E) as plaintiff would have this Court read it without some indication that that is what the legislature intended, especially since the legislature so clearly addressed the handling of “points” in an analogous section of the Code. In other words, if the legislative wanted to limit the “initial interest” or “points” that are charged on a second or third mortgage it likely would have done so using language similar to § 6.1-330.11. Accordingly, the Court finds as a matter of law that an initial interest charge of the type involved here is not a service charge for purposes of § 6.1-330.16 (E) of the Virginia Code.

Finally, the Court considers plaintiffs challenge to referral fees charged. As a part of the transaction the defendant paid a $1,000 referral fee to a third party, with this fee being paid out of the initial interest charge imposed on the plaintiff debtors. Plaintiffs’ claim is that it is the borrower and not the lender who, in substance, pays the referral fee and that therefore, the fee is excessive under § 6.1-330.-24 of the Virginia Code.

Section 6.1-330.24 reads in pertinent part:

Broker’s or finder’s fees may be paid by the lender from the service charge or interest permitted under § 6.1-330.16 or a broker’s fee, finder’s fee or commission may be paid by the borrower not to exceed two per centum of the amount of the loan if the total interest, service charge, broker’s fees, finder’s fees or commissions do not exceed the amount of service charges and interest permitted under § 6.1-330.16.

The language of the statute clearly undercuts plaintiffs’ position, as the statute distinguishes between referral fees paid directly by the borrower and those paid by the lender out service charges or interest charged the borrower.

Moreover, having held that the initial interest charge constituted an acceptable interest charge under § 6.1-330.16(E), plaintiffs’ challenge to the referral fees is deficient as a matter of law because § 6.1-330.24 allows a finder or referral fee to be paid out of interest permitted under § 6.1-330.16. The Court thus GRANTS the defendant’s Motion for Summary Judgment with respect to all four counts of plaintiffs’ Complaint.

IT IS SO ORDERED.