author: NESBITT, District Judge.

text:
    AMJEMS, INC., Plaintiff, v. F.R. ORR CONSTRUCTION COMPANY, INC., Defendant.
    No. 84-1433-Civ-Nesbitt.
    United States District Court, S.D. Florida, S.D.
    June 26, 1985.

      Wildredo A. Rodriguez, Broad & Cassel, Bay Harbor Island, Fla., for plaintiff.
    John McClure, Ann Rice, Denver, Colo., Robert C. Zundel, Jr., Bond, Schoeneck & King, Boca Raton, Fla., for defendant.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

NESBITT, District Judge.

THIS CASE involves a claim for breach of an option to purchase agreement which was entered into by the Defendant, F.R. ORR CONSTRUCTION COMPANY, INC. (Orr) and the prime lessee, FAIRWOODWELLS, INC. (Fairwood) and allegedly assigned to the Plaintiff AMJEMS, INC. (Amjems). The cause was tried to the Court. Upon review of the testimony and exhibits introduced in evidence, and having considered the parties’ memoranda of law, the Court does hereby enter its findings of fact and conclusions of law as follows:

FINDINGS OF FACT

On March 11, 1977, Orr as landlord and Fairwood as tenant, entered into a written Lease Agreement (Prime Lease) for a ten-year term on a commercial warehouse site located in Hialeah, Florida (the property). Simultaneously, Orr and Fairwood entered into an Option Agreement (Option) whereby Orr granted Fairwood the “right and option to acquire the premises for a period beginning on the date hereof [March 11, 1977] and expiring at 12:00 midnight on February 28, 1984.”

The relevant paragraphs of the Prime Lease provided:

(15) Lessee may not without prior written consent of the lessor assign this Lease Agreement or any interest hereunder or sublet the Premises or any part thereof, but Lessee shall have the right to mortgage the leasehold. Lessor’s consent, however, shall not be unreasonably withheld. Consent to an assignment or sublease shall not destroy or waive this provision and all subsequent assignments and subleases shall likewise be made only upon prior written consent of the Lessor ...
******
(23) This Lease Agreement and the Option Agreement attached hereto and forming a part hereof, contain the entire agreement of the parties, and no representations, inducements, promises or agreements, except in writing and signed by Lessor and Lessee on or after the date hereof shall be of any force or effect. The parties have, however, entered into a short form lease of even date herewith, consistent with this Lease Agreement, and it is agreed that said short form lease shall be recorded.

The Option Agreement, a separate document, but executed on the same day as the Prime Lease provides in pertinent part as follows:

WHEREAS, of even date herewith Lessor and Lessee have executed a Lease Agreement (hereinafter called “Lease Agreement”) wherein Lessor has leased to Lessee certain lands and buildings (the “Premises”) located in Dade County, Florida, for a term of ten (10) years from March 1, 1977, and
WHEREAS, in connection with said Lease Agreement, Lessor and Lessee have agreed that Lessee shall have an option to purchase the premises, and
WHEREAS, Lessor and Lessee desire to reduce to writing their agreement concerning the terms and conditions of the option to purchase the Premises.
NOW THEREFORE, in consideration of the execution of the Lease Agreement by each party and of the mutual covenants, promises and agreements of the parties hereinafter set forth, the parties agree as follows. (The conditions of the option agreement were thereafter recited).

Reference to the Prime Lease is also made in Paragraphs 3, 4, and 5 of the Option Agreement.

On April 30, 1981 Fairwood entered into a Sublease Agreement with Atlas Paper Corporation (Atlas Paper). Pursuant to this Agreement and with the consent of Orr, Fairwood subleased the premises and assigned the Option to Atlas Paper, who was in possession of the property from April 30,1981 to June 9,1982 at which time the sublease and assignment was terminated.

On June 9, 1982 Amjems pursuant to an agreement for the sale of Atlas Paper, purchased substantially all of the assets of Atlas Paper. Amjems was given the exclusive right to use any variation of the name “ATLAS PAPER” with the exception of the name “ATLAS PAPER CORPORATION”; Amjems chose to conduct business as “ATLAS PAPER MILLS”. Also on June 9,1982 Amjems and Fairwood entered into a sublease agreement and a “letter agreement” which assigned to Amjems all right, title, and interest in the Option Agreement at any time after January 1, 1984. The letter agreement states as follows:

Fairwood, for itself and on behalf of any assignee of Fairwood which succeeds to Fairwood’s position as landlord under the Lease, agrees that if Fairwood does not exercise the option to purchase the Leased Premises from Orr before January 1, 1984, then, as of such date, such option to purchase the Leased Premises from Orr shall be automatically assigned to Amjems as of January 1, 1984. Fair-wood, for itself and on behalf of any assignee of Fairwood which succeeds to Fairwood’s position as landlord under the Lease, agrees to execute any and all documents required by Amjems (which documents shall be in form and content reasonably satisfactory to Amjems) to confirm the assignment of the option to purchase the Leased Premises from Orr on or before January 10, 1984. If Fair-wood assigns the option to purchase the Leased Premises from Orr to an assignee which succeeds to Fairwood’s position as landlord under the Lease, then Fairwood agrees to notify Amjems of such assignment at least 5 days prior to the date of such assignment.

On June 5, 1982 Amjems’ counsel wrote Orr, requesting consent to the proposed Amjems sublease. Orr objected to the terms of the proposed sublease in part because the term, with options, was extended approximately twenty-six years beyond the term of the Prime Lease. Amjems took possession of the premises on June 9, 1982. Neither Amjems nor Fairwood ever informed Orr that a closing had taken place or that the sublease had been executed. On July 9,1982, Orr’s counsel forwarded to Amjems a proposed Consent and Agreement to Sublease which basically required the terms of the sublease to be consistent with those of the Prime Lease. Amjems objected to Orr’s proposed consent terms and declined to execute the Consent. At that time Orr’s consent was not pursued further.

After taking possession of the premises on June 9, 1982, Amjems remained in continuous possession until the present time. Since October 4, 1982 Amjems made the rental payments due under the Prime Lease and sublease directly to Orr. The rental checks bore the name Atlas Paper Mills.

At trial, evidence was presented that Fairwood had made a previous assignment of the option to Howard M. Ruskin (Ruskin) on November 21, 1983. On November 22, 1983, Ruskin exercised the option. On that date, Orr objected to Fairwood’s assignment of the option to Ruskin as the assignment had been completed without Orr’s consent. Despite Orr’s objection to the assignment, Orr and Ruskin executed a real estate contract pursuant to which the subject property was conveyed on February 8, 1984.

On January 3, 1984, pursuant to the assignment from Fairwood, Amjems exercised the Option Agreement. On February 8, 1984, when Orr and Ruskin closed the sale of the property Amjems reasserted its claim and presented the June 9,1982 Letter Agreement to Orr for the first time. Believing that Amjems’ claim was invalid, Orr consummated the closing with Ruskin.

CONCLUSIONS OF LAW

The threshold question presented by this case is whether Orr was required to consent to any transfer or assignment of the Option Agreement. Amjems asserts that because the Option Agreement contained no prohibitory or restrictive language, Orr’s consent was not needed in order to assign the option. It is Orr’s position that Paragraph 15 of the Prime Lease requiring consent applies to the Option Agreement as well.

Florida law provides that simultaneously executed contracts which are part of the same transaction and which refer to each other are considered together in determining their meaning and effect. Popwell v. Abel, 226 So.2d 418, 421 (Fla. 4th DCA 1969) (citing Taylor v. America National Bank of Pensacola, 63 Fla. 631, 57 So. 678 (1912)). Upon review of the relevant portions of the documents, it appears that Paragraph 23 of the Prime Lease incorporates the Option Agreement and Paragraph 15 requires Orr’s consent to any assignment of the “Lease Agreement or any interest hereunder.” The Option Agreement itself refers to the Prime Lease in the introductory paragraph, in Paragraphs 3, 4, and 5, and in the following clause:

WHEREAS, in connection with said Lease Agreement, Lessor and Lessee have agreed that Lessee shall have an option to purchase the Premises____

As both the Option Agreement and Lease Agreement refer to each other and because the parties executed both documents simultaneously, the Court finds that the two documents should be construed together. See Hughes v. Professional Insurance Corp., 140 So.2d 340 (Fla. 1st DCA 1962). The Court further finds that the parties intended to incorporate the Option Agreement into the Prime Lease for the purposes of making the provisions of one applicable to the other. It follows, therefore, that the consent provisions of Paragraph 15 apply to the Option Agreement, making Orr’s consent a requirement to the assignment of the Option Agreement.

The Plaintiff alternatively argues that even if Orr’s consent was required, it was impliedly if not expressly given. The Court finds that the Plaintiff failed to adduce sufficient evidence at trial to sustain a finding that Orr expressly consented to the assignment of the Option Agreement to Amjems. In order to prevail as to this theory, Amjems must have shown that Orr waived the covenant requiring written consent to the assignment of the option or in other words impliedly consented to the transfer.

A lessor may waive his right to assert a covenant requiring consent before assignment if it accepts rent from the assignee and permits the assignee to remain in possession with knowledge or full notice of the assignment. Philpot v. Bouchelle, 411 So.2d 1341 (Fla. 1st DCA 1982); see also Farmers Bank & Trust Co. v. Palms Publishing Co., 86 Fla. 371, 98 So. 143 (1923); Moskos v. Hand, 247 So.2d 795 (Fla. 4th DCA 1971). There is no question that Amjems has been in possession of the premises from June 9, 1982 until the present time; nor is there a question that Orr accepted rent payments from Amjems for this same time period. The question then becomes whether or not Orr permitted Amjems to remain in possession of the premises and accepted rental payments from Amjems with knowledge and/or full notice of the assignment of the sublease and/or option from Fairwood to Amjems.

One entitled to notice of assignment of a leasehold may be presumed to have had knowledge of the assignment by actual, implied, or constructive notice. McCausland v. Davis, 204 So.2d 334 (Fla. 2d DCA 1967). Actual notice stems from direct information or actual knowledge of the assignment. Dunn v. Stack, 418 So.2d 345 (Fla. 1st DCA 1982); 204 So.2d at 335. Other than conversations with Amjems’ attorney that assignment negotiations were being conducted, Amjems did not produce any evidence at trial which shows Orr had actual knowledge of the assignment. The uncontroverted facts show that in June of 1982 Fairwood and Amjems requested Orr’s consent to the assignment of the sublease. At that time Orr refused to consent to the assignment. Orr had no actual knowledge of the subsequent assignment of the sublease. Therefore, Orr waived its right to consent only if it had implied or constructive notice of the assignment.

Constructive notice is an inference of knowledge by operation of law, as under a recording statute. McCausland, 204 So.2d at 335. “It is a fiction that is imputed by the law primarily for the promotion of sound policy.” Joseph Burcheck Construction Corp. v. W.E. Music, 420 So.2d 410, 412-13 (Fla. 1st DCA 1982). Amjems asserts that Orr had constructive notice of Fairwood’s assignment of the sublease and option as the assignment was recorded. However, constructive notice is only implied to creditors and subsequent purchasers. Dunn, 418 So.2d at 349. As the owner of the property, Orr may not be said to have had constructive notice of the assignment merely because it was recorded.

Implied notice is inferred from the fact that a person had the means of knowledge, which was his duty to use and which he did not use. Id.; McDonald v. McGowan, 402 So.2d 1197 (Fla. 5th DCA 1981). The duty to use the means of knowledge to acquire the information has been referred to as a duty of inquiry. Industrial Supply Corp. v. Bricker, 306 So.2d 133 (Fla. 2d DCA 1975).

The principle applied in cases of alleged implied actual notice is that a person has no right to shut his eyes or ears to avoid information, and then say that he has no notice; that it will suffice the law to remain willfully ignorant of a thing readily ascertainable by whatever party puts him on inquiry when the means of knowledge is at hand.

Sapp v. Warner, 105 Fla. 245, 141 So. 124 at 127 (1932); see also McDonald, 402 So.2d at 1200. This duty is imposed when such information is known which would prompt a person exercising reasonable care to acquire knowledge of the fact in question. Garner v. Pearson, 545 F.Supp. 549 (M.D.Fla.1982).

Amjems relies on the fact that since it had been in open and continuous possession of the premises since June 9, 1982 to show that Orr had implied notice of the Fairwood/Amjems assignment. However, Amjems failed to present any evidence showing that its possession constituted the means of knowledge which would cause Orr to become aware of the assignment; nor did Amjems’ present any evidence showing that Orr “closed its eyes” to information, which after proper inquiry would have given Orr notice of the assignment. The Court finds that the evidence presented fails to show that Orr had implied notice of the assignment, nor was Orr aware of any information which imposed a duty to inquire.

Finding no express or implied waiver of the “consent” requirement, the Court must then determine whether the consent was unreasonably withheld. The lease specifically provides in paragraph 15 that:

Lessee may not without prior written consent of the Lessor assign this Lease Agreement or any interest hereunder or sublet the Premises or any part thereof, but Lessee shall have the right to mortgage the leasehold. Lessor’s consent, however shall not be unreasonably withheld ...

The burden of proof is on a plaintiff to establish that consent to assignment was unreasonably withheld. Fernandez v. Vazquez, 397 So.2d 1171 (Fla. 3d DCA 1981). The lessor’s decision to withhold consent shall be examined in light of the standards of good faith and commercial reasonableness. Id.

Whether a landlord breached the lease by acting unreasonably in withholding consent of a commercial tenant is to be determined ... according to the facts of that case. The following factors are among those which a jury may properly consider in applying the standards of good faith and commercial reasonableness: (a) financial responsibility of the proposed subtenant, (b) the “identity” or “business character” of the subtenant, i.e., suitability for the particular building, (e) the need for alteration of the premises, (d) the legality of the proposed use, and (e) the nature of the occupancy, i.e., office, factory, clinic, etc. Denying consent solely on the basis of personal taste, convenience or sensibility or in order that the landlord may charge a higher rent than originally contracted for have been held arbitrary reasons failing the tests of good faith and reasonableness under commercial leases.

Id. at 1174 (citations omitted); see also Catalina Inc. v. Biscayne Northeast Corp., 296 So.2d 580 (Fla. 3d DCA 1974); Chanslor-Western Oil & Development Co. v. Metropolitan Sanitary District, 131 Ill.App.2d 527, 266 N.E.2d 405 (1970).

To support its theory that Orr knew of the sublease and unreasonably withheld its consent, Amjems relies on a letter of June 5,1982 in which Orr requested consent to the proposed Amjems sublease. Not only did Amjems fail to demonstrate that this request was also a request for consent to the assignment of the option, but Amjems did not present evidence of any other request for consent. The question then is whether Orr unreasonably withheld its request to the sublease submitted on June 5, 1982 in light of the tests of good faith and commercial reasonableness. The facts indicate that Orr refused to give its consent largely because the term of the sublease was extended approximately twenty-six years beyond the date of the Prime Lease. Amjems did not produce any evidence whatsoever to show that the Defendant withheld consent for any reason other than the one stated above. Furthermore, Amjems failed to show that the motivation to withhold consent was based on personal taste, convenience, or a desire to charge a higher rent. The Court finds that Orr’s decision to withhold consent was based on commercial reasonableness and was made in good faith. Accordingly, the Court further finds that Orr did not unreasonably withhold its consent to the sublease submitted by Amjems on June 5, 1982.

Based upon the above Findings of Fact and Conclusions of Law, it is hereby

ORDERED AND ADJUDGED that judgment shall be entered in favor of the Defendant, F.R. ORR CONSTRUCTION COMPANY, INC., and against the Plaintiff, AMJEMS, INC.


source: Caselaw Access Project

license: Public Domain

text:
    BURNSIDE-OTT AVIATION TRAINING CENTER, INC., Plaintiff, v. UNITED STATES of America, et al., Defendants.
    No. 82-0105-Civ.
    United States District Court, S.D. Florida, S.D.
    June 26, 1985.

      Bradford Swing, Arky, Freed, Stearns, Watson, Greer, Weaver & Harris, P.A., Miami, Fla., for plaintiff.
    Susan Riley, U.S. Dept, of Justice — Civ. Div., Washington, D.C., for defendants.
   MEMORANDUM OPINION

NESBITT, District Judge.

This is a suit brought by Burnside-Ott Aviation Training Center, Inc., (BurnsideOtt) seeking an injunction to prevent the Department of the Navy from releasing to the public a technical proposal submitted by Burnside-Ott in response to a Request for Proposal to supply the Naval Air Training Command with helicopter maintenance services.

The Defendants are the United States of America, the Department of the Navy, John F. Lehman, Jr., sued in his official capacity as Secretary of the Navy, and Naval Commander Gary A. Mastrandrea, sued in his official capacity as Contracting Officer for the Naval Supply Center at Charleston, South Carolina.

In January of 1981 the Navy solicited bids for helicopter maintenance services at the Naval Air Station at Whitney Field, Milton, Florida. On July 30, 1981 Burnside-Ott’s bid was revised to include its best and final offer. The solicitation for bids included a statement that the data furnished in response thereto “shall not be disclosed outside the government.” Burnside-Ott submitted the successful bid and was awarded the contract on September 29, 1981.

Shortly after the contract was awarded, Burnside-Ott was notified by the Navy that the information in Bumside-Ott’s technical proposal and best and final offer would be released to certain of Burnside-Ott’s competitors in the bidding process, pursuant to requests by such competitors under the Freedom of Information Act.

This action was brought pursuant to 28 U.S.C. § 1331, federal question jurisdiction, 5 U.S.C. § 702, the right of judicial review provided by the Administrative Procedures Act (APA), 28 U.S.C. §§ 2201-2202, the Declaratory Judgment Act, and 28 U.S.C. § 1651, the All Writs Act.

Shortly after commencement of this action the Court ordered that the technical proposal and best and final offer not be released during a 30 day period in which the defendants were to reevaluate their decision concerning the disclosure. A second order extended the time period by 60 days. Since that time, by agreement among themselves, the parties have continued to abide by the non-disclosure order.

The parties further agreed to submit the case to the Court upon the administrative record, supplemented by briefs, affidavits and oral argument. Burnside-Ott submitted affidavits in support of its demand for declaratory judgment and permanent injunction. The Defendants, however, now oppose the use of affidavits and argue that they are entitled to summary judgment upon the basis of the administrative record alone. The first issue, therefore, is whether this Court may lawfully consider facts outside the administrative record.

The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1331, which provides jurisdiction over all civil actions arising under the Constitution, laws, or treaties of the United States. This section has been held to provide a jurisdictional basis for a reverse Freedom of Information suit such as this, in which a company having supplied information to the government seeks to prevent disclosure of that information to third parties. Chrysler Corp. v. Brown, 441 U.S. 281, 317 n. 47, 99 S.Ct. 1705, 1725 n. 47, 60 L.Ed.2d 208 (1977). The scope of judicial review in such cases is determined by the Administrative Procedure Act (APA) at 5 U.S.C. § 706. Id. at 317, 99 S.Ct. at 1725.

The Freedom of Information Act (FOIA) provides no procedures to be utilized by a party seeking to prevent disclosure of information. It is strictly a disclosure statute. Id. at 292, 99 S.Ct. at 1712. Since neither the FOIA nor the APA required the Department of the Navy to hold a hearing or make formal findings on the administrative record when passing on Burnside-Ott’s request for nondisclosure, the appropriate standard for judicial review is whether the Navy’s decision was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). The Court may not use the substantial evidence test applicable to a review of findings made upon a hearing record, 5 U.S.C. § 706(2)(E), or hold a de novo hearing to determine whether the administrative action was unwarranted by the facts, 5 U.S.C. § 706(2)(F). Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973).

Burnside-Ott argues that the Defendants have abused their discretion under the FOIA in that they have wrongly determined that the technical proposal and best and final offer in question do not constitute “trade secrets and commercial or financial information obtained from a person and privileged or confidential,” which are exempted from disclosure under the Act by 5 U.S.C. § 552(b)(4). More specifically, it argues that the proposed disclosure is in violation of the Trade Secrets Act, 18 U.S.C. § 1905, the contract between itself and the Navy, Department of Defense Regulations, and public policy, and that it would constitute an unlawful interference with a property interest of Burnside-Ott, in violation of the Fifth Amendment.

In support of these claims, Burnside-Ott has submitted the affidavits of its own President and the Director of its Division of Military Aviation. These affidavits provide a comprehensive view of BurnsideOtt’s version of the relevant facts and policy considerations. Burnside-Ott contends that refusal by the Court to consider these affidavits would deprive it of all semblance of due process, since it was allegedly afforded no opportunity to participate in the decision making process at the administrative level.

The final agency action from which review is sought in this Court is a letter dated January 26, 1982, from the Defendant Commander G.A. Mastrandrea to Donald L. Burnside. (The Department of the Navy is an “agency” within the meaning of the APA. 5 U.S.C. § 551(1).) The letter states that the Navy will reevaluate its position as required by a Court Order and asks that Burnside-Ott furnish the reasons, page by page and section by section, why it considers the information intended to be released by the Navy to be trade secrets or information the release of which would cause substantial competitive harm to Burnside-Ott. The letter reiterates the types of information from the technical proposal and best and final offer which the Navy does not intend to release, having previously furnished Burnside-Ott with a complete copy of those portions of the documents which it does intend to release.

Burnside-Ott responded to this letter by stating reasons why it believes that virtually the entire technical proposal and best and final offer should be held within the exemption of 5 U.S.C. § 552(b)(4).

The Defendants take the position that in view of Burnside-Ott’s position no further reevaluation by them is possible or required, thus making the January 26, 1982 letter the final agency action.

The lengthy correspondence between the parties belies the contention of the Plaintiff that it had no opportunity to participate in the decision making process at the administrative level. Although the opportunity to state detailed opposition to disclosure postdated the filing of this lawsuit, it preceded the final agency action from which judicial review is sought.

A threshold issue was a “stipulation” by the parties that the parties could submit affidavits. Burnside-Ott and the Defendants agree as to the standard of review but not as to the scope of review. BurnsideOtt urges the Court to conduct a limited de novo review by examining the affidavits of Burnside-Ott’s Chief Executive Officer and Director of the Division of Military Aviation. They recite in detail why the proposal is confidential, their unsuccessful attempts to obtain their competitor’s proposals and the “reasons” why the agency decided to release the proposals. Consideration by this Court of affidavits provided by the Plaintiff would constitute the de novo review of the agency decision foreclosed by Camp v. Pitts, 411 U.S. 138, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973) and Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). These cases contemplate review solely upon the basis of the administrative record. The only exception to this rule in a case to be determined under the arbitrary and capricious standard of 5 U.S.C. § 706(2)(A) is that if the agency has so completely failed to explain its action that effective judicial review cannot be had, then the agency may be required to submit affidavits or testimony providing “such additional explanation of the reasons for the agency decision as may prove necessary.” Camp v. Pitts, supra, 411 U.S. at 138, 93 S.Ct. at 1241; Citizens to Preserve Overton Park, Inc. v. Volpe, supra, 401 U.S. at 420-21, 91 S.Ct. at 825-26.

In this case, of course, it is Burnside-Ott rather than the agency which is seeking the admission of affidavits.

In a concurring opinion in NOW, Washington, D.C. Chapter v. Social Security Administration, 736 F.2d 727 (D.C. Cir.1984) (Spottswood, J., Robinson, III, J. concurring), Judges Spottswood and Robinson, III stated that an agency’s decision to release material pursuant to the FOIA is adjudicatory in nature and therefore, if the agency fails to afford adequate opportunity to be heard to a person opposing disclosure, then Camp v. Pitts, supra, and Citizens to Preserve Overton Park, Inc. v. Volpe, supra, permit the application of 5 U.S.C. § 706(2)(F); this section allows the reviewing court to consider whether the findings and conclusions of the agency are so unwarranted by the facts as to permit a trial de novo. In ordinary circumstances, and absent special consideration, where a stipulation is entered into, the Court should give it great weight. However, when a stipulation is contrary to law the Court is not bound thereby.

In instances where a stipulation is inadvertent, contrary to law, contrary to fact or made without proper authority this court may disregard the stipulation.

Kaminer Construction Corp. v. U.S., 488 F.2d 980, 203 Ct.Cl. 182 (1983). Just as with jurisdiction, the parties cannot by stipulation broaden or create the scope of review of agency action under 5 U.S.C. § 706.

In all cases challenging agency action under the APA, the “action must be set aside if the action was ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law’ or if the action failed to meet statutory, procedural, or constitutional requirements.” Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 414, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1971) (quoting 5 U.S.C. § 706(2)(A) and citing id. § 706(2)(B)-(D)). The “focal point for judicial review” in such cases “should be the administrative record already in existence, not some new record made initially in the reviewing court.” Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 1244, 36 L.Ed.2d 106 (1973) (per curiam).

NOW, Washington, D.C. Chapter v. Social Security Administration, 736 F.2d 727 (1984).

Even if this Court were to accept the position of that concurring opinion, however, in this case Burnside-Ott was fully advised by the agency of the proposed disclosure and reasons for such disclosure, and was afforded an opportunity to state its objections to that disclosure prior to final consideration and determination by the agency. Since the agency afforded a reasonable process through which a rational decision could be made concerning exemption from disclosure, de novo review in this Court is not proper under 5 U.S.C. § 706(2)(F) and the Court is limited to a determination- upon the administrative record of whether the decision was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, in violation of 5 U.S.C. § 706(2)(A).

It is Burnside-Ott’s position that the Defendants acted arbitrarily and unreasonably and abused their discretion under the Freedom of Information Act at 5 U.S.C. § 552(b)(4), not to disclose “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”

By its terms subsection (b) demarcates the agency’s obligation to disclose; it does not foreclose disclosure in the agency’s discretion. The intention of Congress in including the exemptions within the Act was to protect the need or preference of the agency for confidentiality, and the interest of a submitter of data in confidentiality is protected by the FOIA only to the extent that the submitter’s interest is voluntarily endorsed by the agency. Chrysler Corp. v. Brown, supra, 441 U.S. at 290-94, 99 S.Ct. at 1711-13.

Recognizing the broad discretion afforded the agency to disclose, Burnside-Ott has sought to invoke other provisions of law which, according to its view, mandate nondisclosure.

The Plaintiff first relies upon the Trade Secrets Act, 18 U.S.C. § 1905:

Whoever, being an officer or employee of the United States or of any department or agency thereof, or agent of the Department of Justice as defined in the Antitrust Civil Process Act (15 U.S.C. 1311-1314), publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by, or return, report or record made to or filed with, such department or agency or officer or employee thereof, which information concerns or relates to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income profits, losses or expenditures of any person, firm, partnership, corporation, or association; or permits any income return or copy thereof or any book containing any abstract or particulars thereof to be seen or examined by any person except as provided by law; shall be fined not more than $1,000, or imprisoned not more than one year, or both; and shall be removed from office of employment.

Section 1905, of course, is a criminal provision, and affords no private right of action to prevent disclosure in violation of its provisions. Chrysler Corp. v. Brown, supra at 316, 99 S.Ct. at 1725. Nevertheless the Supreme Court held in Chrysler v. Brown, that “any disclosure that violates § 1905 is ‘not in accordance with law’ within the meaning of 5 U.S.C. § 706(2)(A).” Id. at 318, 99 S.Ct. at 1726. Thus, if the proposed disclosure is within the purview of the Trade Secrets Act, it should be enjoined by this Court in the exercise of the review function authorized by the Administrative Procedure Act, as not in accordance with law.

The technical proposal at issue consists of factors which are unrelated to price and which are considered by the Navy in awarding contracts. These factors include Burnside-Ott’s staffing, organization, experience in the field of aviation management, and personnel qualifications.

The Trade Secrets Act protects, in part, any information which “concerns or relates to the trade secrets, processes, operations, style of work, or apparatus, or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association.” Broadly read, this could include all information relating to corporate “operations” in any fashion. So read, however, it would also include all information relating to the activities of all persons and business associations. If this interpretation were applied in the context of the provisions of the Freedom of Information Act it would simply vitiate the Act. No government agency could disclose any data whatever despite the provisions of the FOIA, for fear of violating § 1905. See Public Citizen Health Research Group v. Food and Drug Administration, 704 F.2d 1280, 1286-1289 (D.C.Cir.1983).

This Court therefore concludes that in the context of this reverse FOIA case, it must rely not upon the bare, broad, language of § 1905, but upon those cases which have specifically interpreted the terms “trade secrets and commercial or financial information” as they are used in Exemption 4 of the FOIA. In the context of such cases only those kinds of data defined in Exemption 4 are precluded from release by § 1905. This holding is supported by the dicta of the Supreme Court in Chrysler Corp. v. Brown, supra, 441 U.S. at 319 n. 49, 99 S.Ct. at 1726 n. 49, to the effect that the language of Exemption 4 and the substantive provisions of § 1905 are similar. Moreover, if § 1905 were held to be broader in scope than Exemption 4, this Court believes that the FOIA itself would constitute the necessary “authorization by law” to overcome the bar of § 1905. See Worthington Compressors, Inc. v. Costle, 662 F.2d 45, 55 n. 59 (D.C.Cir.1981).

The definition of trade secrets adopted by the District of Columbia Circuit in Public Citizen Health Research Group v. Food and Drug Administration, supra at 1288, is hereby adopted by this Court:

[W]e define Trade secret, solely for the purpose of FOIA Exemption 4, as a secret, commercially valuable plan, formula, process, or device that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort.

Applying this definition to the data proposed to be disclosed in this case, it is clear that the agency has not abused its discretion in determining that such data does not constitute trade secrets.

Exemption 4 also provides discretionary protection for commercial or financial information obtained from a person and privileged or confidential. The District of Columbia Court of Appeals held that the words “commercial” and “financial” in the exemption should be defined as in everyday parlance. Id. at 1290.

The letter sent by Burnside-Ott to Commander Mastrandrea, dated February 2, 1982, with attachments, sets forth the most comprehensive statement in the administrative record of the Plaintiffs position supporting its contention that the data sought to be released is within Exemption 4. Burnside-Ott urges that its technical proposal and best and final offer “consists of plans, policies, modes of operations, perceptions of understanding, concepts and philosophies, all of which are unique to the Company.” Nowhere, however, did Burnside-Ott demonstrate that the proposal and final offer as redacted by the agency still revealed information essential to the Plaintiff's efforts to market its services.

The Court concludes that the data sought to be released is neither a “trade secret nor commercial or financial information.” Accordingly the Court finds that the agency did not abuse its discretion in determining that the data be released. The remaining two elements of Exemption 4 required for nondisclosure, that the supplier be a person, and that the information be privileged and confidential, are of little importance, but merit brief discussion. It is clear that Burnside-Ott is a person within the meaning of the Act. 5 U.S.C. § 551(2). Information is deemed confidential for purposes of Exemption 4 if: (1) disclosure would impair the ability of the government to obtain necessary information in the future, or (2) disclosure would cause substantial harm to the competitive position of the supplier of the information. Public Citizen Health Research Group v. Food and Drug Administration, supra at 1290-91; National Parks and Conservation Association v. Morton, 498 F.2d 765, 770 (D.C. Cir.1974); Hustead v. Norwood, 529 F.Supp. 323, 326 (S.D.Fla.1981). The government has determined that release of this information will not impair its ability to obtain necessary information in the future. Burnside-Ott argues that disclosure will cause substantial harm to its own competitive position. A review of the letter of the Plaintiff dated February 2, 1982, with attachments, however, reveals that the Plaintiff at no time indicated how the specific data to be released would harm its competitive position, but instead took the general view that release of any data concerning its operations would cause it substantial harm. This Court finds no abuse of discretion in the agency’s determination that the information to be disclosed is not privileged or confidential.

Although Burnside-Ott argues that the information to be released in this case is cloaked by the agency’s specific contractual promise of confidentiality, the FOIA does not permit agencies to alter its provisions by private promises. Public Citizen Health Research Group v. Food and Drug Administration, supra at 1287.

The regulations in pertinent part are as follows:

32 C.F.R. § 286.30(b)
Significant and legitimate Government purpose. An exempted record, other than those being withheld pursuant to Exemptions 1, 3 or 6, shall be made available upon the request of any individual when, in the judgment of the releasing DoD Component or higher authority, no significant and legitimate government purpose would be served by withholding it under an applicable exemption. If a DoD Component determines that a record requested under the FOIA meets the Exemption 4 withholding criteria set forth in this part, the DoD Component shall not ordinarily exercise its discretionary power to release, absent circumstances in which a compelling public interest will be served by release of that record, (emphasis added).
32 C.F.R. § 286.31(a)
FOIA Exemptions. The following types of records may be withheld in whole or in part from public disclosure unless otherwise prescribed by law.
8}5 J}! SjC $ ¡k sfc
Number 4. Those containing trade secrets or commercial or financial information that a DoD Component receives from a person or organization outside the government with the understanding that the information or record will be retained on a privileged or confidential basis in accordance with the customary handling of such records. Records within the exemption must contain trade secrets, or commercial or financial records the disclosure of which is likely to cause substantial harm to the competitive position of the source providing the information; impair the government’s ability to obtain necessary information in the future; or impair some other legitimate government interest. (Thereafter examples included within the exemptions are enumerated.)

This Court has previously determined herein that the agency did not abuse its discretion in determining that the data to be disclosed does not constitute trade secrets or commercial or financial records within the meaning of the language of these regulations, so that Burnside-Ott’s reliance upon the regulations must fail as well.

Burnside-Ott’s final argument is that release of the technical proposal and best and final offer to the public domain would constitute a taking of its property without due compensation in violation of the Fifth Amendment. The Plaintiffs cite a sole case in support of this proposition: St. Michael’s Convalescent Hospital v. California, 643 F.2d 1369 (9th Cir.1981). The case holds that a District Court erred in refusing to allow a plaintiff to amend a complaint to include a claim that disclosure of cost information would infringe upon a Constitutional property interest. The holding is based upon the premise that trade secret information may be property within the meaning of the Fifth Amendment. Id. at 1374. The Court having determined that the agency did not abuse its discretion in determining that no trade secrets are included in the data to be released, it follows that no “taking” of property without due compensation could exist.

In support of its request for injunction on the several grounds already discussed, Burnside-Ott pleads that it has unsuccessfully sought to obtain similar information from the technical proposals of its own competitors. It has cited no cases, however, demonstrating that it has obtained a judicial ruling pursuant to 5 U.S.C. § 552(a)(4)(B) concerning the validity of the Navy’s refusal to provide it with such information. The FOIA, at § 552(a)(4)(B), provides jurisdiction for a judicial determination whether an agency’s decision to withhold data is lawful under the Act. In such a case the burden is on the agency to sustain its action.

Even if this Court were to disagree with the Navy’s conclusions, the Court finds that the Navy’s action is not “arbitrary, capricious, or otherwise not in accordance with law.” The Court finds the agency decision was based on a consideration of relevant, rational factors and there has not been demonstrated a clear error of judgment. The Court may not substitute its judgment for that of the agency. Citizens to Preserve Overton Park, Inc. v. Volpe, supra, 401 U.S. at 416, 91 S.Ct. at 823.

Based upon a consideration of the record and applicable law, the request of the Plaintiff for declaratory judgment and permanent injunction is DENIED and judgment shall be entered for the Defendants.


author: NORMA HOLLOWAY JOHNSON, District Judge.

text:
    Irving KAS, Helen Sonenshine, Plaintiffs, v. FINANCIAL GENERAL BANKSHARES, INC., et al., Defendants.
    Civ. A. No. 82-1996.
    United States District Court, District of Columbia.
    June 26, 1985.

      Samuel P. Sporn, Schoengold & Sporn, New York City, Kevin R. McCarthy, Kornmeier, McCarthy, Lepon & Harris, Washington, D.C., for plaintiffs.
    Robert A. Altman, Paul C. Warnke, J. Griffin Lesher, Robert P. Reznick, Clifford & Warnke, Washington, D.C., for defendants.
   MEMORANDUM OPINION

NORMA HOLLOWAY JOHNSON, District Judge.

Plaintiffs, Irving Kas and Helen Sonenshine, bring this action for declaratory, injunctive, and monetary relief, alleging violations of the Securities and Exchange Act of 1934, common law fraud, and breach of fiduciary duty. The second amended complaint alleges four counts. The gravamen of plaintiffs’ complaint is that defendants issued a false and misleading proxy statement which contained material omissions and misstatements in violation of sections 10(b) and 14(a) of the Securities Exchange Act and Rules 10b-5 and 14a-9. Plaintiffs also allege common law fraud and breach of fiduciary duty. The case is presently before the Court on the defendants’ motion to dismiss or for summary judgment. For the reasons stated below, defendants’ motion to dismiss will be granted.

I.

The factual background in this matter has already been set forth in great detail in the Court’s two Opinions of October 19, 1984, and March 7, 1985. Therefore, it is not necessary to discuss the factual background out of which this case arose.

In support of the motion to dismiss, defendants contend that plaintiffs’ claims fail to state a claim under federal securities laws. Defendants allege rather that plaintiffs’ claim is one of undervaluation and breach of fiduciary duties which should be resolved in state court. Alternatively, defendants also contend that summary judgment should be entered for defendants on plaintiffs’ claims under sections 10(b) and 14(a) because plaintiff’s reliance on any alleged misstatement or omission can be neither proved nor assumed. And finally, defendants contend that plaintiffs’ causes of action under state law warrant dismissal for lack of pendent jurisdiction or alternatively on the merits.

On April 17, 1985, this Court granted defendants’ motion to dismiss the amended complaint filed in the related case, Berg v. First American Bankshares, Inc., Civil Action No. 83-3887 (D.D.C.) (April 17,1985, Memorandum Opinion). In so doing, the Court considered and rejected the same fundamental claims and legal theories presented by plaintiffs in this case. The Court will not address the issues decided in the Berg case, but will only address the issues which the Kas plaintiffs contend distinguish this case from Berg.

II.

In addition to claims made by plaintiffs in the Berg case, plaintiffs in the instant case contend that the July 9, 1982, proxy statement was misleading in that it failed to disclose an alleged illegal scheme and an alleged conflict of interest, as well as material omissions with respect to the role of Mr. Darwaish.

Plaintiffs first allege that the proxy statement was misleading because it failed to disclose the alleged “fact that the investors intended to buy up all of Financial General’s Class A Common Stock by coercive means for an inadequate, unfair and discriminatory price____” In particular, plaintiffs claim that defendants should have disclosed (1) that they had always intended to “freeze out” the Class A shareholders after the tender offer at an unfair price; (2) that Mr. Casey was so old and sick that he would vote for an unfair merger; and (3) that the Class A shareholders would be coerced into accepting the merger price because there would be no other market for their shares.

Plaintiffs allege that these omissions violate the federal securities laws. The Court is not persuaded by plaintiffs’ arguments. These contentions involve an alleged failure by defendants to disclose presumed intentions and schemes and do not involve information which would be material to the shareholders’ vote on the sale of their Class A shares for $28.00. The Court has previously dealt extensively in Berg with the issue of whether Mr. Casey’s personal interests were material. With respect to plaintiffs’ claim that defendants intended to freeze out the Class A shareholders at an unfair price, plaintiffs have presented no evidence to support this claim. Moreover, the conversion of the Class A shares into cash could not have taken place upon the unilateral action of the defendants without the vote of the Class A shareholders themselves. The Court determines that there were no undisclosed material facts with respect to any alleged illegal scheme which would constitute a violation of the federal securities laws.

Plaintiffs also contend that the July 1982 proxy statement failed to disclose an alleged conflict of interest in that it failed to disclose that Messrs. Clifford and Altman had been and were the continuing lawyers for the Arab investors while they served .on the Company’s board of directors. It is plaintiffs’ position that a conflict arose for Messrs. Clifford and Altman in representing the Investors and obtaining the lowest price they would have to pay for the Class A common shares, while at the same time, as directors of the company, obtaining the highest price possible for the holders of the Class A common shares.

Defendants take the position that there was no conflict of interest and that the duty of Clifford and Altman, as members of the board of directors, was to consider the interests of all the shareholders, including the interests of the Investors who held 95% of the voting power, in addition to the interests of the Class A shareholders. It was the duty and the goal of Clifford and Altman, in discussing the merger price, to act on behalf of all the company’s shareholders and to obtain a fair price for all shareholders concerned.

The Court determines that no conflict of interest existed. The price obtained for the Class A shares was considered fair by both Mr. Casey, who had the most to lose if the price were unfair, and by First Boston Corporation, the professional investment advis- or which rendered a fairness opinion on the price received for the Class A shares. Moreover, the proxy statement clearly disclosed the fact that Clifford and Altman were directors of the company and also directors of the companies which held 96% of the common shares and 95% of the company’s combined voting power prior to the merger. The Court, therefore, determines that the proxy statement was not false and misleading for failing to disclose a conflict of interest. No conflict existed and the positions held by Clifford and Altman were clearly disclosed to the shareholders who were then free to evaluate what, if any, effect these purportedly dual roles would have on the fairness of the merger price.

And finally, plaintiffs allege that the proxy statement misleadingly failed to disclose (1) that Mr. Darwaish, the former representative of one of the Investors, allegedly had been replaced prior to the August 11, 1982, Annual Meeting and was no longer a financial advisor to the ruler of Abu Dhabi; and (2) that Mr. Darwaish allegedly was replaced because he was accused of embezzling from the ruler of Abu Dhabi. Defendants contend that plaintiffs’ allegations regarding an embezzlement by Mr. Darwaish were apparently inspired by an August 10, 1982, Washington Post news article, the accuracy of which has not been confirmed. Moreover, it is the position of the defendants that the allegations against Mr. Darwaish were wholly unrelated to any issue relevant to the merger and to his role as agent for Sheik Mohammad, then a minor, in connection with transactions involving Financial General. The Court determines that plaintiffs have produced no evidence to link the reported embezzlement by and replacement of Mr. Darwaish with the matters proposed by the proxy statement. Therefore, the omission of these facts from the proxy statement does not render the proxy statement false or misleading, nor does it constitute a violation of federal securities laws.

In TSC Industries v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976), the Supreme Court set forth the general standard of materiality. An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. The misstatement or omission must have a significant propensity to affect the voting process. It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote, but contemplates a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the reasonable shareholder’s deliberations.

The overriding purpose of the materiality requirement is protection of the investor by providing him with otherwise unobtainable information without which an informed decision cannot be made. Boyertown Burial Casket Company v. Amedco, Inc., 407 F.Supp. 811 (E.D.Pa.1976). An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. Such a standard contemplates a showing of substantial likelihood that, under all circumstances, omitted facts would have significantly altered the total mix of information made available. Telvest, Inc. v. Wisconsin Real Estate Investment Trust, 489 F.Supp. 250 (D.C.Wisc. 1980).

In the instant case, the Court determines that the omitted facts do not meet the test of materiality as set forth above. The Court does not believe that there is a substantial likelihood that a reasonable investor would have viewed any omitted fact or any alleged misstatement as having significantly altered the total mix information made available. Rather, the proxy statement contained all relevant material information which a reasonable stockholder would need in order to make a reasoned decision whether to vote for the merger. There are no omitted facts or misstated facts that a reasonable shareholder would consider important in deciding how to vote. The Court does not believe that there is a substantial likelihood that any allegedly omitted fact or misstatement would have assumed actual significance in a reasonable shareholder’s deliberations. The alleged omissions and misstatements are not material, and the right of the shareholders to a fair and accurate disclosure has been fulfilled.

Having determined that plaintiffs’ claims have not met the materiality test, the gravamen of plaintiffs’ remaining claims concern the fairness of the price offered for the Class A shares and an alleged breach of fiduciary duty. In Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977), the Supreme Court held that breach of a fiduciary duty, without any deception, misrepresentation, or nondisclosure, does not state a cause of action under federal securities laws. The Court held that such conduct, consisting mainly of corporate mismanagement and involving no misrepresentation or failure to disclose, could not fairly be viewed as “manipulative or deceptive” within the meaning of the statute and thus fell outside the scope of the provision. Id. at 473-74, 97 S.Ct. at 1300-01. Therefore, because plaintiffs have failed to state a claim under the federal securities laws, the motion to dismiss must be granted.

III.

Even had plaintiffs’ claims met the test for materiality on the allegations of misrepresentation and omission, for the reasons set forth in the April 17, 1985, Memorandum Opinion in Berg v. First American Bankshares, Inc., Civil Action No. 83-3887 (D.D.C.), plaintiffs’ federal claims would fail because plaintiffs’ reliance can be neither proved nor presumed.

Based upon the foregoing, and for the reasons discussed in the Opinion in Berg, defendants’ motion to dismiss must be granted. An Order consistent with this Memorandum Opinion will be issued this date.


author: COFFRIN, Chief Judge.

text:
    UNITED STATES of America v. Randy BUSHEY.
    Crim. No. 84-66-1.
    United States District Court, D. Vermont.
    June 27, 1985.
    George Terwilliger, Asst. U.S. Atty., Burlington, Vt., for plaintiff.
    Charles R. Tetzlaff, Latham, Eastman, Schweyer & Tetzlaff, Burlington, Vt., for defendant.
   OPINION AND ORDER

COFFRIN, Chief Judge.

Defendant Randy Bushey has been indicted in several counts. Count 13, at issue here, charges defendant with a violation of 18 U.S.C. § 924(c), as amended Oct. 12, 1984, for the use or carrying of a firearm during and in relation to a crime of violence. The underlying crime is possession with intent to distribute narcotics, for which defendant was separately indicted under 21 U.S.C. § 841(a). Defendant has moved to dismiss Count 13 on the ground that the underlying offense does not constitute a “crime of violence” as that term is defined statutorily. This motion is being decided in connection with a plea agreement between the defendant and the government. For the reasons set forth hereafter, we conclude that defendant’s motion to dismiss should be GRANTED.

Discussion

In the fall of 1984, Detective Roger Marcoux, an undercover agent for the Vermont Drug Task Force, engaged in several conversations with defendant concerning the distribution of cocaine. On at least three occasions prior to November 30, the day defendant was arrested, defendant actually distributed cocaine to Marcoux, and on each of those occasions, defendant was carrying a firearm.

On November 30, the defendant met Marcoux in a hotel in order to sell him four ounces of cocaine. Each was armed and knew the other was armed, and throughout the course of the sale the defendant often placed his hand inside his coat where his firearm, a .45 caliber pistol, was held in a shoulder holster. Defendant was arrested immediately after the transfer of the cocaine.

The amended version of 18 U.S.C. § 924(c) was passed by Congress as part of the Comprehensive Crime Control Act of 1984 (CCCA). It differs from the former version in that it imposes a mandatory sentence, with no chance for parole, probation or suspension, and provides that the term of imprisonment may not run concurrently with any other term of imprisonment. It also expands the scope of predicate offenses by including violent misdemeanors, and limits the scope of predicate offenses by excluding all nonviolent felonies. The underlying offense in this case, a felony, is possession with intent to distribute cocaine. The issue, then, is whether this would be considered a crime of violence within the meaning of section 924(c) as amended (hereafter, section 924(c)).

The term “crime of violence” is defined, for purposes of section 924(c), in 18 U.S.C. § 16, which was also added as part of the CCCA and did not come into effect until October 12, 1984. Section 16 defines a crime of violence as

(a) an offense that has as an element the use, attempted use, or threatened use of physical force against the person or property of another, or
(b) any other offense that is a felony and that, by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense.

18 U.S.C. § 16 (Supp.1985).

The parties agree that only subsection (b) could apply in the instant case. Because section 16(b) has been in effect for little over a half year, however, there is a paucity of law construing it. In light of this, we must rely heavily not only upon section 16(b)’s plain language and the few cases construing it, but also upon the statute’s legislative history and upon accepted rules of statutory construction. The following four sections address these various sources of guidance in order.

A. Statute’s Plain Language

The place to start in construing a statute is, of course, its plain language. Although section 16(b)’s language is far from clear, we feel that it does lend support to defendant’s view that possession with intent to distribute narcotics is not a crime of violence as that term is defined.

Section 16(b) defines a crime of violence as a felony that by its nature involves a substantial risk that physical force may be used against the person or property of another.

The government asserts essentially that the possession with intent to distribute narcotics is a dangerous business and, therefore, meets section 16(b)’s criteria. In support, the government cites a recent decision from within this circuit, United States v. Rivera, No. SS 85 Cr. 33 (JFK) (S.D.N.Y. May 6, 1985). Rivera’s reasoning is that because firearms are oftentimes associated with section 841(a) offenses, involving the possession with intent to distribute narcotics, such offenses involve a substantial risk that physical force will be used against the person or property of another. Id., slip op. at 3-4.

However, even assuming that firearms and narcotics distribution are a common combination, that does not mean that narcotics distribution by its nature involves such a risk. Certainly cocaine is distributed oftentimes outside of the presence of firearms. Indeed, it might be sold, or even given, from one friend to another. And yet under the view presented by Rivera, and advocated by the government, this court would have to consider any transfer of a narcotic from one friend to another to be a crime of violence. This view seems clearly beyond what Congress, in adding to the words of the statute the phrase “by its nature,” must have intended. Accordingly, we decline to adopt it as the view of this court.

B. Case Law

As mentioned above, because section 924(c), as amended, and section 16(b) are of such recent origin, there are few cases interpreting them. This court is aware of only two interpreting decisions: the Rivera decision, supra, and a recent Second Circuit decision, United States v. Chimurenga, 760 F.2d 400 (2d Cir.1985). Rivera, as mentioned above, held that section 841(a) violations do constitute crimes of violence. We appreciate the reasoning of Rivera, but decline to follow it for the reasons discussed above. Following Chimurenga, as we must, we are persuaded that section 841(a) offenses may not be held to constitute crimes of violence by their nature.

The defendant in Chimurenga was alleged to have violated section 924(c) by using or carrying a firearm during and in relation to the crime of conspiring to commit armed robbery. The issue in the case, therefore, was whether a conspiracy to commit armed robbery is a “crime of violence.” The court held that it was.

There was no dispute in Chimurenga that the commission of armed robbery is itself a crime of violence. It falls squarely within section 16(a)’s definition of offenses that have as an element the use or threatened use of physical force against the person of another. Chimurenga’s point is that a conspiracy to commit a crime of violence may itself be a crime of violence, the rationale being that the conspiracy increases the probability of the underlying crime being committed. Thus, the court reasoned, by its nature the conspiracy itself creates a substantial risk that physical force will be used against the person of another.

With this we do not disagree. In this case, however, the underlying offense is not a conspiracy to commit armed robbery, but the possession with intent to distribute narcotics, and the reasoning employed by Chimurenga in reaching its conclusion indicates to us that the latter offense is not a crime of violence.

Chimurenga notes that the legislative history defining a crime of violence uses burglary as an example of a felony that “by its nature ” involves the required substantial risk. Id. at 404, quoting S.Rep. No. 225, 98th Cong., 1st Sess. 307, reprinted in 1984 U.S.Code Cong. & Ad.News, 3182, 3486-87 (hereinafter, S.Rep. No. 225) (emphasis added by Second Circuit). In emphasizing the words, “by its nature,” the Second Circuit indicated the importance it attached to those words. The court provided two reasons why the crime of burglary involved such a risk by its very nature: first, that “[i]n the course of committing a burglary, there is, of course, the violence against the property;” and second, that there is “the additional risk that one who may surprise the burglar will be harmed.” Id., at 404.

Neither of those criteria are present in the instant case. The crime of possession with intent to distribute narcotics involves no threat of violence against property. Second, it does not involve any element of surprise. Unlike burglary or the commission of armed robbery, possession with intent to distribute narcotics generally involves no unwilling parties and, hence, no inherent risk of injury to the person or property of another which might occur through surprising a crime victim. Thus, if Chimurenga tells us anything, it is that the offense at issue in the instant case does not constitute a crime of violence.

Other legislative history relied upon by Chimurenga, discussed in the next section, further leads us to believe that this offense should not be considered a crime of violence.

C. Legislative History

Evidence in the legislative history that Congress did not intend section 841(a) offenses to be considered crimes of violence is found in S.Rep. No. 307, 97th Cong., 1st Sess., 888-89 & n. 43 (1981) (hereafter, S.Rep. No. 307). The significance of this portion of the history is the light it sheds on the way in which the drafters believed section 924(c) as amended would narrow the scope of its prior version.

The drafters, in stating that section 924(c) would no longer apply to non-violent felonies, maintained that this change would have little practical effect since the former version was “not frequently utilized in situations in which the associated offense is not a ‘crime of violence’ as defined herein.43” Footnote 43 then cites two exceptions to this rule, both of which, the Report points out, involved the possession of narcotics with intent to distribute as the associated offense, id. at 889 & n. 43, citing United States v. Bower, 575 F.2d 499 (5th Cir.), cert. denied, 439 U.S. 983, 99 S.Ct. 572, 58 L.Ed.2d 654 (1978), and United States v. Dixon, 558 F.2d 919 (9th Cir.), cert. denied, 434 U.S. 1063, 98 S.Ct. 1237, 55 L.Ed.2d 764 (1977). This is a further indication that the drafters were not considering such an offense a crime of violence. Otherwise, they would not have considered possession with intent to distribute controlled substances to be an exception to their statement that the former version of section 924(c) was rarely used where the associated offense was not a crime of violence.

The government argues that such an interpretation misses the mark. In support, it points out that Bower and Dixon involved the carrying, as opposed to the use, of a firearm during the underlying offense. The government readily admits that mere possession of a firearm would be excluded from the current section 924(c)’s coverage, but asserts that use cannot be.

Such an analysis, however, appears to be squarely at odds with the plain language of the new statute, which proscribes the use or carrying of a firearm during and in relation to a violent crime. As touched on above, and further discussed below, we believe that the court must consider the underlying offense of possession with intent to distribute narcotics itself, not the totality of the circumstances which might ineidently include the use or carrying of a firearm. Because of this, and because section 924(c) makes no distinction between using or carrying a firearm during the associated offense, we see no reason to distinguish between these two acts as the government would have us do.

In sum, we hold that footnote 43 of the Senate Report — in citing section 841(a) offenses as an exception to the rule that the former version of section 924(c) was rarely used in conjunction with non-violent offenses — demonstrates that the drafters did not believe that section 841(a) offenses were crimes of violence and did not intend for the carrying or use of a firearm during the commission of a section 841(a) violation to be prosecutable under the new version.

D. Statutory Construction

1. Subtitles

Although the title or subtitle of an act cannot enlarge or control the words of the act, it may be helpful in interpreting ambiguities within the act’s text. See Mohegan Tribe v. Connecticut, 638 F.2d 612, 620-21 (2d Cir.1980), cert. denied, 452 U.S. 968, 101 S.Ct. 3124, 69 L.Ed.2d 981 (1981). The CCCA, of which sections 924(c) and 16 are a part, is broken down into twenty-three chapters, with Chapter X labelled “Miscellaneous Violent Crime Amendments” and Title XI labelled “Serious Nonviolent Offenses.” Possession with intent to distribute narcotics is listed under neither title, but a comparison of those crimes listed as violent with those listed as non-violent reveals that section 841(a) offenses, if listed, would fall in the latter category.

Chapter X includes crimes such as murder for hire, use of armor-piercing bullets, kidnaping of federal officials, maiming, involuntary sodomy, destruction of motor vehicles or energy facilities, assault upon federal officials, arson, and pharmacy robbery and burglary. As pointed out by the defendant, the operative words in these violent crimes are “threaten,” “murder,” “kidnap,” “maim” and “assault.” Examples of crimes listed under Chapter XI, on the other hand, include warning the subject of a search, receipt or sale of stolen bank property, and the providing or possession of contraband in a federal penitentiary. The operative language in crimes listed under the subtitle of nonviolent crimes are “receipt,” “sale,” “possess” and “contraband.” Clearly the violation of section 841(a) would fall more readily into that category than in the former.

In support of this view, defendant points out that the nonviolent offense of providing or possession of contraband in prison, section 1109 of the CCCA, now codified at 18 U.S.C. § 1791, includes the providing or possession of firearms, narcotics or money. It is hard to imagine how Congress would consider a civilian’s possession with intent to distribute narcotics to be a crime of violence when it does not so consider the possession of firearms, narcotics or money by an inmate in a federal penitentiary.

2. Related Statutes Using the Term, “Crime of Violence. ”

The resolution of questions regarding the interpretation of a particular statute may be aided by construing that statute together with other statutes which share the same general purpose or deal with the same general subject as the statute under consideration. United States v. Becker, 461 F.2d 230, 232 (2d Cir.1972), cert. denied, 417 U.S. 903, 94 S.Ct. 2597, 41 L.Ed.2d 208 (1974); Ram v. Blum, 533 F.Supp. 933, 947 (S.D.N.Y.1982). This doctrine includes penal statutes, Becker, supra, and thus requires that this court examine other related statutes that use the term “crime of violence,” in order to understand better the term’s meaning within section 924(c).

At least three other provisions within the CCCA use the term “crime of violence” in a manner that clearly distinguishes such crimes from section 841(a) offenses.

The first is section 203(a), codified at 18 U.S.C. 3142(f), pertaining to the release or detention of a defendant pending trial. Subsection (f) provides that a detention hearing must be held in a case

(1) upon motion of the attorney for the Government, that involves—
(A) a crime of violence;
(C) an offense for which a maximum term of imprisonment of ten years or more is prescribed in the Controlled Substance Act (21 U.S.C. 801 et seq) ...;
(D) ...; or
(2) Upon motion of the attorney for the Government ... that involves
(A) a serious risk that the person will flee; ____

Id. (emphasis added).

The second provision is section 217(a), now codified at 28 U.S.C. 994(h), involving sentencing reforms, which states that

[t]he Commission shall assure that the guidelines will specify a sentence to a term of imprisonment at or near the maximum ... [where] the defendant * * * * * *
(1) has been convicted of a felony that is
(A) a crime of violence; or
(B) an offense described in section 401 of the Controlled Substances Act (21 U.S.C. 841)....

Id. (emphasis added).

Finally, section 1202 of the CCCA, codified at 18 U.S.C. § 5038(d), when describing use of juvenile records, states that

[w]henever a juvenile is found guilty of committing an act which if committed by an adult would be a felony that is a crime of violence or an offense described in section 841____

Id. (emphasis added).

In each of these sections, “crime of violence” and section 841(a) drug offenses are separated by the word “or,” strongly indicating that such drug offenses are not crimes of violence. As stated by the Supreme Court, “Canons of construction indicate that terms connected in the disjunctive in this manner [should] be given separate meanings.” Garcia v. United States, — U.S. -, -, 105 S.Ct. 479, 482, 63 L.Ed.2d 472 (1984) citing, FCC v. Pacifica Foundation, 438 U.S. 726, 739-40, 98 S.Ct. 3026, 3035, 57 L.Ed.2d 1073 (1978). Accordingly, we must presume that Congress did not intend that section 841(a) offenses be considered crimes of violence under the CCCA.

Further indication that section 841 violations are not crimes of violence is found at 28 U.S.C. § 2901(c), which defines the term “crime of violence” as it is used in Chapter 175 of Title 28, entitled “Civil Commitment and Rehabilitation of Narcotic Addicts.” Section 2901(b) provides that the term

“[c]rime of violence” includes voluntary manslaughter, murder, rape, mayhem, kidnaping, robbery, burglary or housebreaking in the nighttime, extortion accompanied by threats of violence, assault with a deadly weapon or assault with intent to commit any offense punishable by imprisonment for more than one year, arson punishable as a felony, or an attempt or conspiracy to commit any of the foregoing offenses.

Id.

The significance of this provision must be somewhat discounted due to the fact that it was not passed as part of the CCCA. Also, it clearly has a more stringent definition of a crime of violence than does section 16, as can be seen, for example, from its exclusion of the offense of daytime burglaries. Compare id. with S.Rep. No. 225, at 307 (citing burglary as example of section 16 violation). Nevertheless, the degree of violence involved in the crimes listed in section 2901(b), together with the absence of the crime of possession with intent to distribute narcotics — particularly significant in light of the fact that Chapter 175 pertains to the civil commitment and rehabilitation of narcotic addicts — does lend some additional support to the notion that section 841(a) violations do not constitute crimes of violence.

In sum, the CCCA’s use of the word “or” in three places to separate the term “crime of violence” from section 841(a) offenses, together with the severity of the crimes listed under 28 U.S.C. § 2901(b)’s definition of the term “crime of violence” — and the absence of section 841(a) offenses within that definition — indicate strongly that section 841(a) offenses do not constitute crimes of violence under section 16.

3. Strict Construction of Penal Statutes

Where there is ambiguity in a criminal statute, that ambiguity must be resolved in favor of the defendant. United States v. Margiotta, 688 F.2d 108, 120-21 (2d Cir.1982), cert. denied, 461 U.S. 913, 103 S.Ct. 1891, 77 L.Ed.2d 282 (1983). Of course, such a rule is to be used only when there is uncertainty about the statute’s meaning, and is not to be used in complete disregard of the legislature’s purpose. Perrin v. United States, 444 U.S. 37, 49 n. 13, 100 S.Ct. 311, 317 n. 13, 62 L.Ed.2d 199 (1979). Nevertheless, where there is ambiguity, the rule must be applied. This policy embodies “the instinctive distaste against men languishing in prison unless the lawmaker has clearly said they should.” H. Friendly, Mr. Justice Frankfurter and The Reading of Statutes, in Benchmarks 196, 209 (1967), quoted in United States v. Bass, 404 U.S. 336, 348, 92 S.Ct. 515, 522, 30 L.Ed.2d 488 (1971).

In light of the plain language of the statute, the case law construing it, the legislative history behind it and the rules of statutory construction which must be applied to it, we have little, if any, doubt that the crime of possession with intent to distribute narcotics is not, in itself, a crime of violence.

The government argues, however, that the court must consider whether this offense is a crime of violence when it is done in conjunction with the use or carrying of a firearm. In effect, the government is arguing that section 924(e) — in proscribing the use or carrying of a firearm “during and in relation to a crime of violence”— would include within its reach not only offenses such as murder, rape or burglary, which present a substantial risk of injury to the person or property of another regardless of whether a firearm is used or possessed in relation to the offense, but also those offenses which present such a risk only when they are done in conjunction with the use or possession of a firearm. Such an interpretation would be tantamount to dividing section 841(a) offenses into two separate types: those which are conducted in conjunction with the use or possession of a firearm — and for that reason alone become crimes of violence — and those which are not so conducted and which do not present a substantial risk of injury for any other reason. Although we do not find such reasoning to be completely void of logic, we decline to follow it for several reasons.

First, there is simply no indication that Congress intended associated offenses to be divided in this manner. Section 16(b), in defining crimes of violence, speaks of crimes that by their nature involve a substantial risk of harm, not crimes which involve such a risk when conducted in a particular manner. This indicates to us that associated offenses falling under a particular provision, such as section 841(a), must be considered as a group, and not individually. Because not all section 841(a) offenses involve a substantial risk of harm, we hold that no such offense may be considered a crime which, by its nature, involves such a risk.

The second reason for rejecting the government’s interpretation is that it would make section 924(c) extend to virtually every felony, despite a clear intent on Congress’ part that the statute not do so. We can think of no felony, nor has counsel pointed us to any, which would not present a substantial risk of injury when a firearm is used or carried during and in relation to that crime. When a firearm is carried or used in relation to a crime — either to use, threaten, provide protection or for whatever reason — that crime by its nature presents a substantial risk of injury. In other words, any crime when viewed in its entirety becomes a crime of violence when a firearm’s use or possession is related to that crime. Section 924(c)’s clear intent that it apply only to certain types of crimes would be meaningless under such an interpretation. See also S.Rep. No. 307, supra, at 888-89 (“[S]ome narrowing [of the former version of § 924(c) ] is caused by limiting the offenses with which the display, use or possession of a firearm must be associated to crimes of violence ..., and by the requirement that the display, use, or possession be ‘in relation to’ such underlying offense.”):

Third, the legislative history indicates that we should look only to the underlying crime itself. For example, the section quoted in the parenthetical above provides that the use of the firearm must be associated with a crime of violence and that the use or possession must be in relation to such underlying offense. Id. This indicates to us that the related offense must be analyzed on its own to determine whether it is a crime of violence.

Another indication from the legislative history is footnote 43 to the Report, discussed supra, which specifically mentions possession with intent to distribute narcotics as an example of a nonviolent crime to which the former version of section 924(c) had applied but to which the new version would not apply. We interpret this to mean that the possession with intent to distribute narcotics must be considered by itself — and that when that is done a conclusion that the offense is nonviolent is directed — or that such possession must be considered a nonviolent offense even when it is done in conjunction with the use or possession of a firearm. We believe that the former interpretation is more logical. Either way, however, the footnote and its accompanying text directly support a finding that section 924(c) is not applicable to offenses committed under 18 U.S.C. § 841(a).

In sum, we believe that Congress intended the courts to consider the underlying offense by itself in determining whether it is a crime of violence, not whether it becomes so when the offender uses or carries a firearm during and in relation to it. To the extent that any doubt could remain on this issue, we must follow the doctrine that ambiguity within a statute must be construed in favor of a defendant.

Conclusion

In this matter we much prefer the position espoused by the government with respect to the use or carrying of firearms in connection with narcotics transactions. If this is to become the governmental policy, however, then Congress, not this court, must be the body which creates it.

In light of the statute’s plain language, the case law construing it, the legislative history behind it and the rules of construction which must be applied to it, we have no alternative but to hold that the underlying offense with which the defendant is charged, possession with intent to distribute narcotics, does not constitute a crime of violence. Accordingly, defendant’s motion to dismiss Count 13 must be GRANTED.

At the hearing held on February 22, 1985, the court deferred acceptance of the plea agreement which had been reached by the parties to a date subsequent to the court’s review of the presentence report to be prepared by the probation officer assigned to the case. The probation officer is now instructed to proceed forthwith with a presentence investigation and the preparation of a presentence report pursuant to Rule 32(c) Fed.R.Crim.P. The defendant is directed to file a written consent with the court authorizing the court to inspect the presentence report prior to accepting the plea agreement. If the plea agreement is accepted, a date for sentencing of the defendant will be set by the court. If the plea agreement is not accepted, the court will permit the defendant to withdraw his plea of guilty to Count 1 of the indictment and the case will proceed as though no plea agreement had been reached by the parties and no guilty plea accepted by the court.

      . This brief recitation of the facts is taken from the parties’ Stipulation Regarding Evidence Concerning Count 13.

      . See S.Rep. No. 225, 98th Cong.,. 1st Sess. 313 n. 9 (1983), reprinted in, 1984 U.S.Code Cong. & Ad.News, 3491 n. 9 (summarizing effect of amended version of § 924(c)). The former version of § 924(c) read in pertinent part as follows:
      Whoever
      (1) uses a firearm to commit any felony for which he may be prosecuted in a court of the United States, or
      (2) carries a firearm unlawfully during the commission of any felony for which he may be prosecuted in a court of the United States, shall, in addition to the punishment provided for the commission of such felony, be sentenced to a term of imprisonment for not more than one year nor more than ten years.
      18 U.S.C.A. § 924(c) (1976) (emphasis added). The amended version, on the other hand, reads as follows:
      Whoever, during and in relation to any crime of violence, including a crime of violence which provides for an enhanced punishment if committed by the use of a deadly or dangerous weapon or device, for which he may be prosecuted in a court of the United States, uses or carries a firearm, shall, in addition to the punishment provided for such crime of violence, be sentenced to imprisonment for five years____ Notwithstanding any other provision of law, the court shall not place on probation or suspend the sentence of any person convicted of a violation of this subsection, nor shall the term of imprisonment imposed under this subsection run concurrently with any other term of imprisonment including that imposed for the crime of violence in which the firearm was used or carried. No person sentenced under this subsection shall be eligible for parole during the term of imprisonment imposed herein.
      18 U.S.C.A. § 924(c) (Supp.1985) (emphasis added).

      . Although it is unclear, it seems that Rivera and the government might be saying merely that the distribution of narcotics is a crime of violence when it is performed in conjunction with the use or possession of a firearm. While this might be true, viewing the issue in this manner seems at odds with the plain language of § 924(c), which limits its application to instances where a person uses or carries a firearm "during and in relation to any crime of violence,” 18 U.S.C. § 924(c) (emphasis added), implying that the "crime of violence” must be considered as an act separate and distinct from the use or carrying of the firearm.
      Although we note at this time that we reject such an interpretation of § 924(c), we postpone further elaboration on our rationale until Section D, infra, since part of that rationale is based on legislative history and rules of statutory construction, both of which will be discussed below.

      . A third decision, United States v. Hazzard, 598 F.Supp. 1442 (N.D.Ill.1984), has applied these statutes, but since the underlying offenses in that case — which included armed robbery and rape — were so clearly within § 16's definition of a crime of violence, there was no need for the' court to interpret the statutes.

      . Although the statute directly involved in Chimurenga was not § 924(c), but § 3142(f)(1)(A), since the issue at hand was the defendant’s detention pending trial, the operative definition of a crime of violence under § 3142, set forth in 18 U.S.C. § 3156(a)(4), is virtually identical to § 16, as was specifically pointed out by the Second Circuit. Chimurenga, at 404. Therefore, Chimurenga is sound authority for the interpretation of § 16.

      . It might be asserted that, since the ingestion of narcotics presents risks of injury to the human body, this meets § 16(b)’s criteria. Such a reading, while not completely void of rationale, is simply an insufficient basis — particularly when considered in light of the statute’s legislative history and after rules of statutory construction are applied — upon which to convict and sentence someone under § 924(c).

      . Footnote 42 to that Report sets out the definition of "crime of violence” with which the Senate was working at that time. The definition is identical to that of § 16, showing that comments contained in the Report are directly applicable to § 16.

      . See also 18 U.S.C. § 3142(g)(1), also part of the CCCA, which requires that judicial officers, in determining whether to detain a defendant pending trial, consider "the nature and circumstances of the offense charged, including whether the offense is a crime of violence or involves a narcotic drug." Id. (emphasis added).

      . It might be argued that, although § 841(a) violations are not considered crimes of violence, the fact that they are often mentioned in statutes alongside crimes of violence indicates that they are considered to be equally serious, and thus that the use of firearms in conjunction with them should be construed as within § 924(c)’s ambit. Such a holding, however, is precluded by Yates v. United States, 354 U.S. 298, 305, 77 S.Ct. 1064, 1069, 1 L.Ed.2d 1356 (1957), wherein the Court set forth the following doctrine:
      It would be dangerous, indeed, to carry the principle, that a case which is within the reason or mischief of a statute, is within its provisions, so far as to punish a crime not enumerated in the statute, because it is of equal atrocity, or of a kindred character, with those which are enumerated.

        Id., quoting United States v. Wiltberger, 18 U.S. (5 Wheat.) 76, 95-96, 5 L.Ed. 37 (1820).