author: CARL B. RUBIN, Chief Judge.

text:
    Irving ROGER, Plaintiff, v. LEHMAN BROTHERS KUHN LOEB, INC., Defendant.
    No. C-1-83-2012.
    United States District Court, S.D. Ohio, W.D.
    Nov. 27, 1984.

      Timothy L. Bouscaren, James B. Helmer, Jr., Cincinnati, Ohio, for plaintiff.
    Michael P. Graney, Columbus, Ohio, Simpson Thacher Bartlett, Nancy McKenna, New York City, for defendant.
   MEMORANDUM AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND CONDITIONALLY GRANTING THE MOTION TO DISMISS

CARL B. RUBIN, Chief Judge.

This matter is before the Court pursuant to defendant’s Motion for Dismissal and Partial Summary Judgment (doc. no. 7), which is opposed by plaintiff (doc. no. 11). For the reasons that follow, the Motion for Summary Judgment is denied and the Motion to Dismiss Count II of the Complaint is conditionally granted.

Plaintiff brings this action under § 12(2) of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. § 77/(2) (1982), and § 10(b) of the Securities Exchange Act of 1934 (“1934 Act”), 15 U.S.C; § 78j(b) (1982). Plaintiff opened a securities account with Lehman representative, Mr. Winters, and now asserts he was defrauded in his dealings with Mr. Winters.

Defendant Lehman moves for summary judgment on a number of issues presented in the Complaint. In ruling on a .motion for summary judgment, the narrow question that must be decided is whether there is “no genuine issue as to any material fact and [whether] the moving party is entitled to judgment as a matter of law.” Rule 56(c) Fed.R.Civ.P. The Court cannot try issues of fact on a summary judgment motion, but is empowered to determine only whether there are issues to be tried. In Re: Atlas Concrete Pipe, Inc., 668 F.2d 905, 908 (6th Cir.1982). The moving party “has the burden of showing conclusively that there exists no genuine issue as to a material fact and the evidence together with all inferences to be drawn therefrom must be read in the light most favorable to the party opposing the motion.” Smith v. Hudson, 600 F.2d 60, 63 (6th Cir.1979), cert. denied, 444 U.S. 986, 100 S.Ct. 495, 62 L.Ed.2d 415 (1979). Further, the movant’s papers are to be closely scrutinized while those of the opponent are to be viewed indulgently. Adams v. Union Carbide Corp., 737 F.2d 1453, 1455-1456 (6th Cir.1984).

In Pari Delecto Defense

Defendant’s initial contention is that plaintiff is barred by the doctrine of in pari delecto from recovery under the 1933 and 1934 Acts. It is argued that plaintiff’s conduct in participating in the purchase of securities based on what he believes to be non-public information, acquired from Winters, precludes recovery under the federal securities laws.

The Complaint states that Winters represented to plaintiff that Lehman had nonpublic information because of the number of employees that served on boards of directors of various companies. (Doc. No. 1 at U 13). The defendant, however, “flatly denies that it ever gave plaintiff any material, non-public information.” (Doc. No. 7 at 6). In addition to this disputed fact, courts that apply the in pari delecto defense to securities fraud do so after a factual foundation has béen established. See e.g., Silverberg v. Paine, Webber, Jackson & Curtis, Inc., 710 F.2d 678, 691 (11th Cir.1983); Chemetron Corp. v. Business Funds, Inc., 682 F.2d 1149 (5th Cir.1982), cert. denied, 460 U.S. 1013, 103 S.Ct. 1254, 75 L.Ed.2d 483 (1983), vacated on other grounds, 460 U.S. 1007, 103 S.Ct. 1245, 75 L.Ed.2d 476 (1983). The in pari delecto defense is applied “[o]nly in those cases where it can be fairly said that the plaintiff[’s] fault is substantially equal to that of the defendant[’s]” and where the objections of the federal securities laws are consistent with the application of the defense. Tarasi v. Pittsburgh National Bank, 555 F.2d 1152, 1157 (3d Cir.1977), cert. denied, 434 U.S. 965, 98 S.Ct. 504, 54 L.Ed.2d 451 (1977). Furthermore, the application of the in pari delecto doctrine rests in the discretion of the district court. Chemetron, 682 F.2d at 1182; Wolf v. Frank, 477 F.2d 467, 474 (5th Cir.1973), cert. denied, 414 U.S. 975, 94 S.Ct. 287, 38 L.Ed.2d 218 (1973). Defendant has not conclusively established that it is entitled to summary judgment on this issue.

Birnbaum Rule

The defendant has requested dismissal of Counts I and IV of the Complaint because plaintiff alleges that he retained his stock, thereby failing to establish a “purchase” or “sale” of securities, as required under the statutory language of § 10(b) and § 12(2). Plaintiff contends that the payments to meet margin calls were sufficiently related to the purchase or sale of securities to establish standing.

A review of the Complaint provides a summary of several transactions. In December, 1979, and January, 1980, plaintiff alleges he purchased 20,000 shares of an insolvent corporation. (Doc. No. 1 at Till 15, 17). In early 1980, Winters advised plaintiff to invest in ERG and Cintola (id. at U1Í 20, 21) which plaintiff did. (Id. at It 22). Later, in the autumn of 1981 when margin calls were made for the ERG and Cintola stock, it is alleged that plaintiff did not sell his ERG or Cintola stock to cover the margin but paid cash, in reliance on Winters’ representations. (Id. at U 28). In December, 1981, in reliance on Winters' false representations, plaintiff purchased additional ERG stock and paid cash for margin calls. (Id. at U 34). Plaintiff continued to hold his ERG stock in reliance on Winters’ representations while selling other securities. (Id. at 1136). From April through July, 1982, plaintiff met the margin calls by selling his ERG/Cintola securities in his account. (Id. at U 38).

It is well established that only purchasers of securities have standing to sue for violations of § 12 of the 1933 Act, Kellman v. ICS, Inc., 447 F.2d 1305, 1308 (6th Cir.1971), and only purchasers or sellers of securities have standing to litigate a violation of Rule 10(b) of the 1934 Act. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 749, 95 S.Ct. 1917, 1931, 44 L.Ed.2d 539 (1975); Simmons v. Wolfsen, 428 F.2d 455, 456 (6th Cir.1970), cert. denied, 400 U.S. 999, 91 S.Ct. 459, 27 L.Ed.2d 450 (1971).

Defendant argues that plaintiff's decision not to sell but to retain the stock when the margin calls were made was not a “purchase.” In essence, the Birnbaum rule requires that plaintiff have actually dealt in a security, either as a purchaser or seller, to have standing to bring a federal cause of action. Norris v. Wirtz, 719 F.2d 256, 259 (7th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 1713, 80 L.Ed.2d 185 (1984). The Birnbaum rule, approved by the Supreme Court in Blue Chip, states that “a plaintiff in a Rule 10(b)-5 case has standing to sue only if a fraudulent activity caused him to buy or sell stock. A person who claims that a fraudulent activity caused him not to buy stock which he otherwise would have bought or not to sell stock which he otherwise would have sold, has no standing to sue under Rule 10(b)-5.” Marsh v. Armada Corp., 533 F.2d 978, 981 (6th Cir.1976), cert. denied, 430 U.S. 954, 97 S.Ct. 1598, 51 L.Ed.2d 803 (1977).

The terms “buy” and “purchase” each include any contract to buy, purchase or otherwise acquire. 15 U.S.C. § 78e(a)(13). An exchange of funds constitutes a purchase under both the 1933 and 1934 Acts. Baurer v. Planning Group, Inc., 669 F.2d 770, 779 (D.C.Cir.1981). The courts are generally inclined to give the terms “purchaser” and “seller” logical and flexible constructions in order to accommodate the purpose of § 10(b). Superintendent of Insurance v. Bankers Life and Casualty, 404 U.S. 6, 12, 92 S.Ct. 165, 168, 30 L.Ed.2d 128 (1971); James v. Gerber Products Co., 483 F.2d 944, 948 (6th Cir.1973).

This case is distinguishable from Blue Chip, where the complainants made no purchase or sale of stock at all. 421 U.S. at 725, 95 S.Ct. at 1920. In contrast, the plaintiff in the instant ease allegedly purchased the stock on margin in early 1980 and continued to meet the margin calls by paying cash. In December, 1981, plaintiff allegedly purchased additional stock and transferred further cash payments for the margin calls. This is not a case where the plaintiff has only alleged that he decided not to sell his shares because of a representation of the defendant. See Blue Stamp, 421 U.S. at 737-38, 95 S.Ct. at 1926-27. The plaintiff, alleging that he is an actual purchaser and seller of ERG/Cintola stock, has established standing to bring his private cause of action for damages. The issue of whether Winters made an “untrue statement of a material fact or [omitted] to stated a material fact necessary ... in connection with the purchase or sale of any security” involves genuine issues of material fact, thereby precluding summary judgment.

Rule 9(b)

Lehman next asserts that Count II of the Complaint should be dismissed because of plaintiffs failure to allege fraud with particularity. Specifically, defendant states that paragraph 50 of the Complaint is defective in not defining “certain securities” and “principle,” not identifying Lehman’s position as principle, and not providing dates and prices of the transactions.

Rule 9(b) Fed.R.Civ.P., provides that:

“In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity....”

Rule 9(b) must be read in conjunction with Rule 8(a), which requires only a short and plain statement of the claims showing that the pleader is entitled to relief.” Jordan v. Global Natural Resources, Inc., 564 F.Supp. 59, 68 (S.D.Ohio 1983). “Circumstances” rather than evidence are required to be plead under Rule 9(b). See Zaretsky v. E.F. Hutton & Co., Inc., 509 F.Supp. 68, 74 (S.D.N.Y.1981). “‘Circumstances’ includes such matters as time, place and content of false representations, as well as the identity of the person making the representation and what was obtained or given up thereby.” Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir.1982), cert. denied, — U.S. -, 104 S.Ct. 527, 78 L.Ed.2d 710 (1983).

The purpose of Rule 9(b) is to provide fair notice of what plaintiff’s claim is and the grounds upon which it rests. Ross v. A.H. Robins Co., Inc., 607 F.2d 545, 557 (2d Cir.1979), rehearing denied, 448 U.S. 911, 100 S.Ct. 3057, 65 L.Ed.2d 1140 (1980). “In the context of securities litigation, Rule 9(b) serves an additional purpose. It operates to diminish the possibility that ‘a plaintiff with a largely groundless claim [will be able] to simply take up the time of a number of other people [with extensive discovery]’ ” with the purpose of obtaining a substantial settlement or harming defendant’s reputation. Id.; Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 116 (2nd Cir.1982).

The Complaint incorporates the factual allegations included in the previous 48 paragraphs. (Doc. No. 1 at ¶ 49). The Court finds that, with one exception, plaintiff has complied with Rule 9(b) by alleging the circumstances constituting fraud with particularity. Defendant is entitled, however, to the dates of the transactions referred to in paragraph 50. The Complaint fails to allege when, over plaintiff’s four years of transacting business with Winters, Lehman took excessive mark-ups on the trades. Defendant’s Motion to Dismiss Count II is hereby granted unless plaintiff files an Amended Complaint, within 20 days from this date, in accordance with the Court’s direction. See Fed.R.Civ.P. 15(a).

Statute of Limitations Defense

The final argument for summary judgment of the defendant is that Count IV is barred by the statute of limitations. Count IV alleges violations of 15 U.S.C. § 111(2). The statutes of limitations period applicable to that section states in part:

No action shall be maintained to enforce any liability created under section ... Ill (2) ... unless brought within one year after discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, ____ In no event shall any such action be brought to enforce a liability created under section ... 111(2) ... more than three years after sale.

15 U.S.C. § 77m. Since the Complaint was filed on December 23,1983, the Court must focus on the circumstances prior to December 23, 1982.

The position of the defendant is that the plaintiff discovered or should have discovered Winters’ fraudulent conduct when the plaintiff questioned the president of ERG on March 18, 1982. It is also argued that plaintiff knew or should have known of the fraudulent misrepresentations regarding the margin requirements when the funds were not returned as promised.

Generally the question of when a party discovered fraudulent conduct or when he should have discovered it by exercising diligence is a factual inquiry. See Kramas v. Security Gas & Oil, Inc., 672 F.2d 766, 767, 770 (9th Cir.1982), cert. denied, 459 U.S. 1035, 103 S.Ct. 444, 75 L.Ed.2d 600 (1982); Aldrich v. McCulloch Properties, Inc., 627 F.2d 1036, 1042 (10th Cir.1980). In reviewing the Complaint together with all inferences to be drawn therefrom in the light most favorable to the plaintiff, the Court finds that the defendant has not shown conclusively that there exists no genuine issue as to a material fact and that it is entitled to summary judgment as a matter of law.

In conclusion, defendant’s Motion for Summary Judgment (doc. no. 7) is hereby DENIED and the Motion to Dismiss Count II is GRANTED if plaintiff fails, to amend his Complaint in accordance with this Memorandum.

IT IS SO ORDERED.

      . "Margin” is the amount the customer pays when he uses the broker’s credit to purchase a security. Drasner v. Thomas McKinnon Securities, Inc., 433 F.Supp. 485, 491 (S.D.N.Y.1977). In a margin sale, the buyer pays part of the sale price and becomes obligated for the balance of the sale price by agreement with the seller. Id.


source: Caselaw Access Project

author: EISELE, Chief Judge.

license: Public Domain

text:
    Charles W. CORY and Doris Stivers Cory, His Wife, Plaintiffs, v. MARK TWAIN LIFE INSURANCE COMPANY, Defendant.
    No. LR-C-84-751.
    United States District Court, E.D. Arkansas, W.D.
    Nov. 30, 1984.

      John Dewey Watson, Friday, Eldridge & Clark, Little Rock, Ark., for plaintiffs.
    Allan W. Horne, Davidson, Horne, Hollingsworth, Arnold & Grobmyer, Little Rock, Ark., for defendant.
   ORDER OF DISMISSAL

EISELE, Chief Judge.

Pending before the Court is defendant’s motion to dismiss. For the reasons stated below, the motion will be granted.

The facts relevant to the motion to dismiss appear to be undisputed. The plaintiffs claim that the defendant has refused to pay them, as beneficiaries, the proceeds of a certain $10,000 life insurance policy and have filed four identical lawsuits against the defendants over this claim. The plaintiffs filed their first suit on the matter in the Circuit Court of Pulaski County, Arkansas, on January 10, 1980 (case no. 80-223). On February 20, 1980, plaintiffs filed their second suit, this time in the Circuit Court of Saline County, Arkansas (case no. 80-94). On March 4, 1983, while that case was pending, plaintiffs filed their third suit, again in Pulaski County Circuit Court (case no. 83-1608). Defendant moved to dismiss the third suit, but the motion was denied and the case went to trial before a jury, which rendered a verdict for the plaintiffs. Defendant appealed and the Supreme Court of Arkansas reversed. Mark Twain Life Ins. Co. v. Cory, 283 Ark. 55, 670 S.W.2d 809 (1984), holding that the third suit should have been dismissed because of the pendency of the second suit. The Arkansas Supreme Court ordered the Pulaski County Circuit Court to dismiss case no. 83-1608, which it did. However, it did so with prejudice in accord with what it believed to be the law. Plaintiffs have appealed, arguing that the dismissal should have been without prejudice. The appeal is pending. In the meantime, on August 8, 1984, plaintiffs amended their complaint in the Circuit Court of Saline County, case no. 80-94, and requested a jury trial setting. No setting has yet been made. Finally, on August 21, 1984, plaintiffs filed their fourth suit on this same matter in this Court on the basis of diversity jurisdiction.

Defendant has advanced two reasons for dismissing the case at bar: first, because case no. 83-1608 was dismissed with prejudice after a trial on the merits, plaintiffs are barred by the doctrine of res judicata from relitigating it; and second, there have been two dismissals of this matter which, it urges, operate as a bar to further adjudication pursuant to Fed.R.Civ.P. 41(a) & (b). Plaintiffs, in their brief, address only the first reason offered by defendant and claim that because case no. 83-1608 was ordered dismissed for lack of jurisdiction, it could not be dismissed with prejudice. They argue that their position on this point will be borne out when they win their appeal to the Arkansas Supreme Court.

The Court is not persuaded by the defendant’s reasons for dismissing the case at bar. Without passing on the issue, the Court is reluctant to accept that the Circuit Court of Pulaski County was correct in dismissing the third lawsuit with prejudice since the basis for its dismissal was premised on a lack of jurisdiction and not premised on the merits of the matter. Also, under the “second dismissal” rule of Fed.R. Civ.P. 41(a), adjudication of the case on the merits is deemed to have occurred when a plaintiff files a second voluntary notice of dismissal on a claim. Here, the second dismissal was involuntary. Nevertheless, this Court does not have to resolve these two points because the plaintiffs’ case should be dismissed on another ground.

As between state and federal courts, the general rule is that the pendency of an action in state court is no bar to a suit concerning the same matter in a federal court having jurisdiction. Nevertheless, under certain conditions, dismissal or a stay of the federal claim is warranted. The case which best addresses this issue of concurrent state action is Colorado River Water Conservation District v. United States. 424 U.S. 800, 817-19, 96 S.Ct. 1236, 1246-47, 47 L.Ed.2d 483 (1976) (citations omitted), in which the U.S. Supreme Court stated:

Although this case falls within none of the abstention categories, there are principles unrelated to considerations of proper constitutional adjudication and regard for federal-state relations which govern in situations involving the contemporaneous exercise of concurrent jurisdictions, either by federal courts or by state and federal courts. These principles rest on considerations of “[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation.” As between federal district courts, however, though no precise rule has evolved, the general principle is to avoid duplicative litigation. Generally, as between state and federal courts, the rule is that “the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction____” This difference in general approach between state-federal concurrent jurisdiction and wholly federal concurrent jurisdiction stems from the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them. Given this obligation, and the absence of weightier considerations of constitutional adjudication and state-federal relations, the circumstances permitting the dismissal of a federal suit due to the presence of a concurrent state proceeding for reasons of wise judicial administration are considerably more limited than the circumstances appropriate for abstention. The former circumstances, though exceptional, do nevertheless exist.
It has been held, for example, that the court first assuming jurisdiction over property may exercise that jurisdiction to the exclusion of other courts. This has been true even where the Government was a claimant in existing state proceedings and then sought to invoke district-court jurisdiction under the jurisdictional provision antecedent to 28 U.S.C. § 1345. In assessing the appropriateness of dismissal in the event of an exercise of concurrent jurisdiction, a federal court may also consider such factors as the inconvenience of the federal forum; the desirability of avoiding piecemeal litigation; and the order in which jurisdiction was obtained by the concurrent forums. No one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counselling against that exercise is required. Only the clearest of justifications will warrant dismissal.

Applying the factors set forth in Colorado River, the Court first notes that plaintiffs, both residents of Arkansas, are in no way inconvenienced by being left with the Circuit Court of Saline County as the forum in which to litigate their dispute. It was they who chose that forum in the first instance when they filed their first suit. The defendant, a non-resident of Arkansas, has not sought removal to federal court and, in fact, seeks to have the case resolved in the state court. The need to avoid piecemeal litigation is also evident. Plaintiffs have an appeal from a determination on their third suit now pending before the Arkansas Supreme Court. This is the second time an aspect of this case is before that body. Obviously the outcome of that appeal will affect the case before this Court and plaintiffs’ case in state court. If defendant wins, then this federal court case would have to be dismissed on the basis of res judicata. If plaintiffs prevail, then what is the status of the federal case? It is also undisputed that the state court obtained jurisdiction over this dispute first, and did so in 1980, almost five years ago.

Although not mentioned by Colorado River, two other factors are also relevant in resolving the issue presented by this case. They are the similarity of the parties, Reiter v. Universal Marion Corp., 173 F.Supp. 13 (D.C.D.C.1959), and the similarity of the issues, Jewell v. Davies, 192 F.2d 670 (6th Cir.1951). In the case at bar it is undisputed that both the parties and the issues in the federal and state court cases are identical. The Court also notes that plaintiffs’ claim involves a dispute over an insurance policy, and apparently concerns specifically the interpretation of the “accidental death” provision. Thus, the entire suit turns on questions of state law. Moreover, the plaintiffs base their claim and prayer for relief solely on state statute and raise no independent questions of federal law.

Based on its analysis of the above factors and in accord with Colorado River, the Court concludes that the clearest justification for dismissal is presented in this case. Although the Court recognizes that the general rule is to stay federal proceedings rather than dismiss them, Mahaffey v. Bechtel Associates, 699 F.2d 545, 546 (D.C.Cir.1983), the cases adhering to that rule rationalize it on the grounds that a dismissal may present statute of limitation problems for the plaintiff, particularly where plaintiff decides to take a nonsuit in his state case. That problem, however, does not exist in the case at bar because plaintiffs apparently cannot nonsuit their state claim because to do so would constitute a second voluntary dismissal which would then operate as an adjudication on the merits of their claim and bar any suit in federal court under Rule 41(a) or any suit in state court under Arkansas Rule 41(a). Accordingly, the case will be dismissed without prejudice.

It is therefore Ordered that defendant’s motion to dismiss be, and it is hereby, granted. It is further Ordered that plaintiffs’ complaint be, and it is hereby, dismissed without prejudice.


author: WILLIAM C. LEE, District Judge.

text:
    Susan K. MOFFETT (formerly Susan K. Partin), Plaintiff, v. GENE B. GLICK COMPANY, INC.; Harry Hall; and Joseph Mickilini, Defendants.
    Civ. No. F 84-250.
    United States District Court, N.D. Indiana, Fort Wayne Division.
    Nov. 30, 1984.

      Ernest M. Beal, Jr., Parrish, Knight, Jackson & Beal, Fort Wayne, Ind., for plaintiff.
    James F. Beatty, James W. Beatty, Virginia Dill McCarty Landman & Beatty, Indianapolis, Ind., Richard J. Thonert, Fort Wayne, Ind., for defendants.
   ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on defendants’ Motion to Dismiss filed September 20, 1984. For the reasons set forth below, the motion will be granted in part and denied in part.

Plaintiff Moffett has filed a complaint under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-2(a) and § 2000e-3(a), under 42 U.S.C. § 1981, and under four Indiana common law tort theories for actions taken by the defendants with respect to Moffett’s employment with defendant Gene B. Glick Co., Inc. (“Glick”). The defendants have responded by filing a Motion to Dismiss as to the § 1981 and Indiana common law counts.

In deciding a motion to dismiss for failure to state a claim, this court must take the well-pleaded factual allegations of plaintiff’s complaint as true. Ashbrook v. Hoffman, 617 F.2d 474 (7th Cir.1980). A complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of the claim which would entitle plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Jafree v. Barker, 689 F.2d 640, 643 (7th Cir.1982); Park Electric Co. v. Local 701, 540 F.Supp. 779, 781 (N.D.Ill.1982). Further, this court must consider the complaint in the light most favorable to the plaintiff and must resolve every reasonable doubt in favor of the claimant. Henry C. Beck Co. v. Fort Wayne Structural Steel, 701 F.2d 1221 (7th Cir.1983).

Under these principles, the relevant facts of this case appear to be as follows. Plaintiff Moffett is a Caucasian female who was employed as a manager by defendant Glick at Glick’s Cambridge Square, Phase I, apartment complex from June, 1982 until August 15, 1983. In November, 1982, defendants Hall and Mickilini, who worked as maintenance managers at the Cambridge Square, Phase I, complex, learned of Moffett’s personal relationship with a black man, and began to make racially discriminatory comments, derogatory remarks, threats of physical or personal harm, and engaged in other forms of harassment. From December, 1982 until May, 1983, plaintiff reported this conduct to her superiors, but no meaningful action was taken by anyone at Glick to curtail the harassment. A letter from Jack Kline, an executive officer of Glick, to Moffett’s supervisor indicated that “I am not sure we can keep our staff from saying things. I am not sure that we could fire them on the basis of their remarks.”

Within the statutorily-prescribed time limits, Moffett filed employment discrimination charges with the Equal Employment Opportunity Commission (“EEOC”) and the Fort Wayne Metropolitan Human Relations Commission (“FWMHRC”). The FWMHRC determined there was “probable cause” to believe that Moffett’s charges were true, and the EEOC issued a Notice of Right to Sue. This action was timely filed after the completion of administrative proceedings.

The complaint alleges six counts: (1) a Title YII claim against Glick; (2) a claim under 42 U.S.C. § 1981 against all defendants; (3) invasion of privacy; (4) intentional or negligent infliction of emotional distress; (5) a claim of breach of contract and/or fraud against Glick for retaliatory discharge; and (6) a claim of intentional interference with contract or advantageous business relations against Hall and Mickilini. Moffett claims damages “in an amount and character to be proven at trial,” and seeks “all appropriate relief, including an award of costs and attorneys fees, that [the court] deems just and proper.”

The defendants have responded by filing their motion to dismiss. The motion does not challenge the Title VII claim against Glick in Count One. Rather, the motion attacks the sufficiency of the rest of the complaint by raising the following arguments: (1) pleading deficiencies mandate dismissal; (2) Hall and Mickilini cannot be liable under § 1981, and therefore should be dismissed from Count Two; (3) the allegations of Count Three do not fall within the parameters of the Indiana common law tort of invasion of privacy; (4) failure to allege an “impact” mandates dismissal of the intentional/negligent infliction of emotional distress claim of Count Four; (5) the at will nature of Moffett’s employment contract forecloses a breach of contract claim, and the failure to allege fraud particularly requires dismissal of Count Five; and (6) Hall and Mickilini did not perform any acts amounting to an interference for purposes of Count Six. The court will analyze these arguments in turn.

Pleading Deficiencies

Defendants allege three pleading deficiencies. First, they claim that the “tacking on” of state common law claims without alleging their essential elements makes Counts Three through Six “makeweight” claims that should be dismissed. Second, defendants challenge plaintiff’s use of the phrase “and/or” in several places of the complaint because it does not “fairly inform Defendants of the specific nature of the case.” Lastly, defendants challenge plaintiff’s damage claim and prayer for relief, claiming that the request for “all appropriate relief” fails to meet Federal Rule of Civil Procedure 8(a)(3)’s requirement of a “demand for judgment for the relief to which [the claimant] deems himself entitled.” The court finds none of these arguments persuasive.

Defendants’ assertion that the pendant state claims are “makeweight” misconstrues the pleading requirements under the Federal Rules. Rule 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” The statement need only be enough to give the defendant “fair notice of what the plaintiff’s claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 45, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957). Under this “notice pleading” framework, Moffett has clearly alleged sufficient facts and the theory under which she seeks relief in all six counts. The defendants certainly have “fair notice” —their brief examines each theory of recovery and how the facts alleged in the complaint relate to each theory.

Nor do the Federal Rules require that each state common law claim be pleaded according to state law rules. The adequacy of a pleading is governed by federal law, not state pleading rules. Colton v. Swain, 527 F.2d 296, 304 (7th Cir.1975); Kelly v. Stratton, 552 F.Supp. 641, 648-49 (N.D.Ill.1982); Wright and Miller, Federal Practice and Procedure § 1204 (1969). Thus, to the extent that defendants’ argument can be characterized as alleging that Moffett fails to allege all of the elements of the common law torts under Indiana law, it must be rejected. Plaintiff’s counts clearly give notice of the nature of the claims against the defendants. Perhaps the best evidence of this is defendants’ memorandum in support of the motion to dismiss; that brief analyzes the legal theory of each count, and presents extensive argument on the sufficiency of each theory.

For precisely the same reason, defendants’ arguments against the use of “and/or” in plaintiff’s pleadings does not violate Rule 8(a). The defendants have been clearly apprised of the nature of the claims and facts alleged, and have stated their legal positions on each issue. The court finds no damage to defendants’ position by this form of pleading.

Lastly, Moffett’s prayer for relief, although admittedly general, is sufficient to meet the pleading requirements of the federal rules. Rule 8(a)(3) requires that a complaint contain “a demand for judgment for the relief to which [the pleader] deems himself entitled.” Here, 11 23 of Moffett’s complaint alleges that she was damaged “in an amount and character to be proven at trial.” Given the nature of Moffett’s allegations, the court characterizes 1123 as asserting a claim for money damages, with the ultimate prayer for relief (“Plaintiff prays that this court grant her all appropriate relief”) being a request for a judgment awarding monetary relief. Viewed in this light, the complaint satisfies the mandate of Rule 8(a)(3).

Defendants cite two cases to support their argument that general requests for relief violated Rule 8(a)(3), but neither case supports the argument. In RKO-Stanley Warner Theatres, Inc. v. Mellon National Bank & Trust Co., 436 F.2d 1297 (3d Cir.1970), the court affirmed the dismissal of a claim against one defendant on grounds of Rule 8(a)(3), but the court’s discussion about the inability to Conceive how the defendant could be liable and what kind of relief against the defendant would help the plaintiff indicates that the complaint’s failure to suggest appropriate relief made the general prayer for relief ineffective. Here, the complaint clearly contemplates monetary damages as relief. In National Indian Youth Council v. Morton, 363 F.Supp. 475 (W.D.Okla.1973), the damage claim was defective not because of its generality per se, but rather because its generality forced the court to assume that each unnamed plaintiff suffered more than $10,000 in damages for being expelled from school. The court was understandably reluctant to make that assumption. However, Moffett’s complaint contains allegations of monetary damages (1123) which require no such sweeping assumptions. Thus, both cases are distinguishable, and do not contradict the conclusion that Moffett’s damage allegations and prayer for relief meet the requirements of the federal rules.

Overall, defendants’ arguments for dismissal on the grounds of pleading defects fail.

Count Two 42 U.S.C. § 1981

Moffett has filed a claim of racial discrimination under 42 U.S.C. § 1981, alleging that Hall and Mickilini’s harassment via racial comments, and Glick’s tacit approval of the harassment, violated § 1981’s prohibition against racial discrimination in employment. Defendants have moved to have this count dismissed as against Hall and Mickilini because neither defendant “was at least a supervisor” of the plaintiff. The premise behind the argument is that a co-employee of a § 1981 plaintiff who is not a supervisor of the plaintiff, or an officer, director, or agent of the employer, cannot be individually liable under § 1981.

Section 1981 provides:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.

This section “relates primarily to racial discrimination in the making and enforcement of contracts,” and “affords a federal remedy against discrimination in private employment on the basis of race.” Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 459-60, 95 S.Ct. 1716, 1720, 44 L.Ed.2d 295 (1975).

As defendants readily concede, an individual can be liable for a violátion of a plaintiffs § 1981 rights. Tillman v. Wheaton-Haven Recreation Assoc., Inc., 517 F.2d 1141, 1146 (4th Cir.1975); Faraca v. Clements, 506 F.2d 956, 959 (5th Cir.), cert. denied, 422 U.S. 1006, 95 S.Ct. 2627, 45 L.Ed.2d 669 (1975); Gladden v. Berry, 558 F.Supp. 676, 678 (D.D.C.1983); Jeter v. Boswell, 554 F.Supp. 946, 951-53 (N.D.W.Va.1983). The descriptions of the necessary elements of individual liability vary, but all point to a personal involvement in the discrimination against the plaintiff. The Fourth Circuit, for example, held that corporate “directors become personally liable when they intentionally cause a corpo ration to infringe the rights secured by ... [§] 1981____” Tillman, 517 F.2d at 1146. The Gladden court held that allegations of “personally” violating a plaintiffs civil rights states a valid claim against an individual under § 1981. Gladden, 558 F.Supp. at 678. The Northern District of Illinois, in Manuel v. International Harvester Co., 502 F.Supp. 45 (N.D.Ill.1980), held that corporate directors or officers could be personally liable under § 1981 if they “authorize, direct, or participate in the alleged discriminatory conduct.” Id. at 50. And in Coley v. M & M Mars, Inc., 461 F.Supp. 1073 (M.D.Ga.1978), the court ruled that individual defendants could be liable under § 1981 for “discriminatory interference with plaintiffs contractual relationship” with the employer. Id. at 1076.

Defendants argue that only corporate superiors (officers, directors, or supervisors) can be individually liable under § 1981. The argument is based on the negative implication which arises from the fact that all of the reported cases of individual liability under § 1981 involved corporate superiors: because only superiors have been held liable in past cases, then corporate co-equal or inferior employees (like Hall and Mickilini) cannot be held individually liable now.

The court refuses to adopt this approach to individual liability. The cases cited above make it clear that individuals can be liable if they “intentionally cause a corporation to infringe” on § 1981 rights, Tillman, 507 F.2d at 1146, if they “authorize, direct, or participate in the alleged discriminatory-conduct,” Manuel, 502 F.Supp. at 50, or if they engage in “discriminatory interference with plaintiffs contractual relationship” with the employer. Coley, 461 F.Supp. at 1076. While corporate officers, directors and supervisors have more corporate responsibility and thus more potential to engage in prohibited discriminatory conduct, they are certainly not the only individuals who can “participate in discriminatory conduct” or “discriminatorily interfere with an employee’s contractual relationship.”

Taking the allegations of the complaint as true, Hall and Mickilini began making racial comments, derogatory remarks and threats of physical harm in November, 1982. Such harassment continued until Moffett’s termination in August, 1983. When Moffett reported the harassment to her superiors, a series of meetings with Glick officials commenced, and resulted in a written reprimand for non-professionalism, a threat of dismissal if Mr. Moffett (plaintiff’s husband) came to the rental' office, and increasingly critical reviews of Moffett’s work. See complaint, Exhibits A and B. While all of these actions were taken by Glick officials, it is fair to say that Hall’s and Mickilini’s continuing harassment instigated the internal administrative process which ultimately resulted in Moffett’s termination. This may, depending upon the evidence presented in the case, provide some basis for showing that Hall and Mickilini played some causative role in Moffett’s termination. For purposes of the motion to dismiss, defendants have failed to show that plaintiff can prove no set of facts entitling her to relief.

Under the “discriminatorily interfere with plaintiff’s employment contract” standard set out in the Coley case, Moffett may also be able to show some kind of entitlement to relief. The complaint alleges that the harassment was continuous. The exhibits to the complaint show that after the reprimand for non-professionalism in February, 1983, Moffett’s work environment became increasingly more difficult to tolerate, as audits were conducted of her work on a much more frequent basis, Moffett was blamed for mistakes of others, and she became alienated from the office staff. If plaintiff were to show that these office problems were a result of Hall’s and Mickilini’s harassment, then defendants’ actions may constitute the “discriminatory interference” prohibited in Coley.

On balance, then, defendants fail to establish the propriety of dismissing Count Two as to Hall and Mickilini. Therefore, the motion to dismiss Count Two will be denied.

Count Three — Invasion of Privacy

Defendants move to dismiss Count Three as against all three defendants by arguing that the Indiana common law tort of invasion of privacy is limited to cases involving the publication of information concerning the complainant’s private activities. Finding no allegation of “publication” in the complaint, the defendants argue that the complaint is therefore fatally defective.

Both plaintiff and defendants agree that the Indiana tort of invasion of privacy is defined as follows:

The unwarranted appropriation or exploitation of one’s personality, the publicizing of one’s private affairs with which the public has no legitimate concern, or the wrongful intrusion into one’s private activities, in such a manner as to outrage or cause mental suffering, shame, or humiliation to a person of ordinary sensibility.

Continental Optical Co. v. Reed, 119 Ind.App. 643, 86 N.E.2d 306, 308 (1949). As the plaintiff correctly points out, defendants’ characterization of the tort as involving publication is only partially correct because the “publicizing of one’s private affairs” is only one of the three forms of invasion recognized in the definition.

The aspect of the Continental Optical definition which plaintiff claims applies here is the “wrongful intrusion into one’s private activities.” No Indiana case law defines the parameters of this aspect of the tort. However, the Restatement of Torts, Second, in the comments to § 652B (which recognizes the tort of intrusion upon seclusion or privacy), recognizes that this type of tort “does not depend upon any publicity given to the person whose interest is invaded or to his affairs.” Comment a. The tort consists “solely of an intentional interference with his interest in solitude or seclusion, either as to his person or as to his private affairs or concerns, of a kind that would be highly offensive to a reasonable man.” Id.

The shouting of racial comments, threats of physical harm to the plaintiff and her husband, as well as threats of damage to Mr. Moffett’s automobile and other property could certainly constitute intentional interference with plaintiff’s personal and private affairs. Because the comments and harassment were based on Moffett’s race and her personal relationship with a man of a different race, these intrusions are even more serious and grievous, and as such can be viewed as highly offensive to a reasonable man. Therefore, the plaintiff has alleged sufficient facts in Count Three to withstand the motion to dismiss, and thus the motion will be denied as to Count Three.

Count Four — Infliction of Emotional Distress

In Count Four, Moffett claims that the defendants’ actions constitute either intentional or negligent infliction of emotional distress. Defendants respond by arguing that there was no physical impact to Moffett, and because her ease does not involve any of the exceptions to the “impact rule,” this count must fail.

All parties agree that Indiana adheres to the general rule that damages for emotional distress are recoverable only when accompanied by and resulting from physical injury. Little v. Williamson, 441 N.E.2d 974, 975 (Ind.App.1982); Baker v. American States Ins. Co., 428 N.E.2d 1342, 1349 (Ind.App.1981); Charlie Stuart Oldsmobile, Inc. v. Smith, 171 Ind.App. 315, 326, 357 N.E.2d 247, 253 (1976), modified on other grounds, 175 Ind.App. 1, 369 N.E.2d 947 (1977). This “impact rule” applies to both intentional and negligent infliction of emotional distress. Little, 441 N.E.2d at 975.

However, an exception to the impact rule exists, and both briefs here recognize it. This exception arises when there are

certain tort actions involving the invasion of a legal right which by its very nature is likely to provoke an emotional disturbance. False imprisonment and assault actions are examples of instances in which a disagreeable emotional experience would normally be expected to be inextricably intertwined with the nature of the deliberate wrong committed, thereby lending credence to a claim for mental disturbance. The conduct of the defendant in such circumstances is characterized as being willful, callous, or malicious, which may produce a variety of reactions such as fright, shock, humiliation, insult, vexation, inconvenience, worry, or apprehension.

Charlie Stuart Oldsmobile, 171 Ind.App. at 327, 357 N.E.2d at 254.

Here, Hall and Mickilini made threats of physical violence to Moffett. If those threats were accompanied by overt acts, they may constitute an assault on Moffett, which would then clearly fall into the Charlie Stuart Oldsmobile assault exception to the impact rule. Thus, even though no physical impact is alleged or inferred from the complaint, it is possible that Hall and Mickilini could be liable for intentional infliction of emotional distress.

As for Glick, the alleged toleration and tacit approval of Hall’s and Mickilini’s harassment may be sufficient to make Glick liable for the assault (and thus the infliction of emotional distress) under principles of respondeat superior. Generally, the doctrine of respondeat superior imposes liability upon a master for the torts of his servants committed while acting within the scope of the servants’ employment. Trinity Lutheran Church, Inc. v. Miller, 451 N.E.2d 1099, 1102 (Ind.App.1983); State v. Gibbs, 166 Ind.App. 387, 336 N.E.2d 703 (1975). Here, Hall and Mickilini may have committed an assault and intentional infliction of emotional distress within the scope of their employment by Glick, thus making Glick vicariously liable for both torts. Given this interpretation, the plaintiff has produced a set of facts which would entitle her to relief, and thus the motion to dismiss Count Four will be denied.

Count Five — Breach of Contract and Fraud

Count Five of Moffett’s complaint alleges that Glick breached its employment contract with Moffett and/or practiced a fraud upon her by discharging her for filing discrimination charges against Glick. Glick counters by arguing that, because the contract had no stated term of duration, it was an “at will” contract which Glick could terminate at any time for any reason.

Moffett does not allege any employment contract, nor any specific term of duration of her employment contract with Glick. In Indiana, if the tenure of service cannot be determined from the terms of the employment contract, then the contract is considered to be one at will, and may be terminated at any time at the election of either party. Pepsi-Cola General Bottlers, Inc. v. Woods, 440 N.E.2d 696, 697 (Ind.App.1982); Campbell v. Eli Lilly and Co., 413 N.E.2d 1054 (Ind.App.1980). Moffett argues that an exception to this general rule of the unenforceability of at will contracts exists for cases involving retaliatory discharge.

The Pepsi-Cola General Bottlers case, cited above and quoted extensively by defendants, recognizes that exceptions to the at will doctrine exist “where the employee is discharged solely for exercising a right conferred on him by a statute, constitution, or other positive law.” Id., 440 N.E.2d at 697. The court cites Frampton v. Central Indiana Gas Co., 260 Ind. 249, 297 N.E.2d 425 (1973), in support. Frampton involved an at will employee who alleged she was discharged for filing a workmen’s compensation claim against her former employer. The Frampton court examined the public policy concerns behind the Indiana workmen’s compensation statute and found that it bestows a right of compensation on the employee and a duty to compensate on the employer. The Frampton court concluded that “under ordinary circumstances, an employee at will may be discharged without cause. However, when an employee is discharged solely for exercising a statutorily conferred right an exception to the general rule must be recognized.” Id. at 253, 297 N.E.2d at 429.

Here, Moffett filed a discrimination charge with the Fort Wayne Metropolitan Human Relations Commission under the provisions of Title VII of the Civil Rights Act of 1964. As Glick’s employee, Moffett had a right to file a discrimination charge against Glick. 42 U.S.C. § 2000e-5(b). Following the Frampton rationale, Glick had a legal duty to avoid engaging in unlawful employment practices like discharging Moffett in retaliation for filing a discrimination charge. 42 U.S.C. § 2000e-3(a). Thus, Moffett had a statutorily conferred right and Glick had a concomitant duty under Title VII.

Defendant Glick argues that the Frampton exception does not apply here because § 2000e-3 and the Indiana Civil Rights laws already provide a remedy for a retaliatory discharge. However, although these statutory remedies may exist, they do not abrogate the power of the common law to fashion remedies for violations of a plaintiff’s rights. Nothing indicates that these statutes were intended to be exclusive remedies, and this court refuses to so read them. Further, the court is not convinced that a breach of contract action is very similar to either § 2000e-3 or the Indiana statutory provisions. While all three remedies may focus on the same act — the retaliatory discharge — they each involve their own elements and theories of liability. Moffett should be entitled to plead several theories of liability as part of her case.

Thus, Moffett has alleged sufficient facts of a retaliatory discharge to avoid the at will doctrine of employment contracts, and thus presents a plausible claim of breach of contract. As such, the breach of contract aspect of Count Five will withstand the motion to dismiss.

As to the allegation of Count Five that Glick worked a fraud upon the plaintiff (by telling her that she was discharged for poor work product when in fact it was in retaliation for filing charges against Glick), it appears that plaintiff has failed to plead the circumstances constituting the fraud with sufficient particularity. Fed.R. Civ.P. 9(b). In fact, plaintiff’s explanation of how Glick’s termination of Moffett constituted fraud was only stated in the memorandum in opposition to the motion to dismiss. Despite the liberal principles of notice pleading, the rule 9(b) requirements concerning allegations of fraud require more than what plaintiff has pleaded.

Further, as defendants correctly point out, one of the elements of Indiana common law fraud is a detrimental reliance upon the material misrepresentation of the defendant. Carrell v. Ellingwood, 423 N.E.2d 630, 635 (Ind.App.1981). Even taking all inferences from the facts in favor of the plaintiff, it is impossible for the court to perceive what detriment Moffett suffered. The alleged misrepresentation goes to the reason for Moffett’s termination. Yet no matter which reason was actually expressed to Moffett, the result was the same: she was fired. Apparently, the alleged statement that she was terminated for “poor work.” did not mislead her; within two days of her discharge, she filed charges with the FWMHRC alleging retaliatory discharge. Complaint, Exhibit B. Because the filing was certainly timely, her legal rights were not compromised in any way. Thus, there is no perceptible detriment caused by the alleged misrepresentation, and so a claim of fraud would fail.

Therefore, to the extent that Count Five is viewed as a breach of contract claim, the motion to dismiss fails. However, to the extent that the count is a claim of fraud, the motion will be granted.

Count Six — Interference with Contract

The last count of the complaint alleges that Hall and Mickilini interfered with Moffett’s contractual and/or advantageous business relationship with Glick. The defendants argue, first, that interference with contract requires the existence of an enforceable contract, which is absent in this at will employment contract; and second, that interference with advantageous business relations requires the performance of an illegal act, which Hall and Mickilini did not perform.

The Indiana courts have made it clear that an action in tort for interference with a contractual relationship presupposes the existence of a valid and enforceable contract. Stanley v. Kelley, 422 N.E.2d 663, 667 (Ind.App.1981); Helvey v. O’Neill, 153 Ind.App. 635, 288 N.E.2d 553 (1972); Grimm v. Baumgart, 121 Ind.App. 626, 96 N.E.2d 915 (1951). The Stanley court specifically held that an at will employment contract is “unenforceable with respect to that which remains executory,” so that “such a contract, terminable at will, cannot form the basis of an action for interference with a contractual relationship.” Stanley, 422 N.E.2d at 667. As was discussed above in relation to Count Five, Moffett’s contract with Glick was an at will contract. Although an exception to the at will doctrine existed for retaliatory discharge, thus saving Count Five from dismissal, that exception does not save the interference with contract aspect of Count Six. Stanley makes it quite clear that Indiana does not recognize an interference with contract claim for an employee in Moffett’s position, and therefore the motion to dismiss will be granted as to this aspect of Count Six.

As to the second half of Count Six, defendants concede that Indiana recognizes a tort of interference with business relationships. See Fort Wayne Cleaners and Dyers Ass’n v. Price, 127 Ind.App. 13, 137 N.E.2d 738, 742 (1956). However, defendants claim that the defendant must act illegally in order to be liable, citing Spier v. Home Ins. Co., 404 F.2d 896, 898 (7th Cir.1968). Assuming that to be true, the motion to dismiss must fail because Moffett has pleaded several illegal acts by Hall and Mickilini: violation of 42 U.S.C. § 1981, invasion of privacy, and infliction of emotional distress. As shown earlier in this order, these claims have withstood the motion to dismiss, and therefore offer a plausible basis for asserting that Hall and Mickilini committed illegal acts constituting an interference with Moffett’s business relationship with Glick.

Thus, the motion to dismiss will be granted to the extent that Count Six states an interference with contract claim, but will be denied for the interference with business relationship aspect of Count Six.

For the above stated reasons, the motion to dismiss is hereby DENIED as to all counts of the complaint with the exception of the allegations of fraud in Count Five and of interference with contract in Count Six. The motion to dismiss is hereby GRANTED for the fraud claim of Count Five and the interference with contract claim of Count Six.


author: MOTLEY, Chief Judge.

text:
    In the Matter of the Arbitration between SHARP ELECTRONICS CORPORATION, Petitioner, and BRANDED PRODUCTS, INC., Respondent.
    No. 84 Civ. 6999 (CBM).
    United States District Court, S.D. New York.
    Dec. 5, 1984.

      Wender, Murase & White by Lance Gotthoffer, Peter A. Dankin, New York City, for petitioner.
    Law Offices of Stephen P. Cunningham by Geoffrey H. Lewis, New York City, Shaddox, Compere, Gorham & Good by Jo Chris Lopez, San Antonio, Tex., for respondent.
   OPINION

MOTLEY, Chief Judge.

Petitioner Sharp Electronics Corporation (“Sharp Electronics”) seeks an order to compel respondent Branded Products, Inc. (“Branded”) to arbitrate in New York City disputes arising from a distributorship agreement between the two parties. It also seeks to stay a Texas court proceeding between the two parties which was commenced by Branded. A third party, Charles B. Allen, Inc. (“Allen”), is also a defendant in the Texas proceeding. Sharp Electronics is a New York corporation with its principal place of business in New Jersey. Branded is a Delaware corporation with its principal place of business in Texas. Allen is a Texas corporation with its principal place of business in that state.

Respondent Branded has moved to dismiss the petition on grounds that this court lacks subject matter jurisdiction. It also seeks to stay arbitration on the grounds that an amended complaint in the Texas action eliminates all contract disputes and the contract requiring arbitration was a contract of adhesion. For the following reasons, respondent’s motions to dismiss the petition and to stay arbitration are denied and petitioner’s request for an order compelling arbitration is granted.

FACTS

Petitioner Sharp Electronics and respondent Branded entered into a distributorship agreement which gave Branded the right to sell Sharp Electronics’ products. Paragraph 20 of this agreement prepared by Sharp Electronics provides:

This Agreement and performance hereunder shall in all respects be governed by the laws of the State of New York. Any controversy or claim arising out of or relating to this Agreement or a breach hereof, shall be settled by arbitration in New York City, New York, in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

On September 4, 1984, respondent commenced an action in a Texas state district court against Sharp Electronics and Charles B. Allen, Inc., seeking to recover damages for breach of contract, breach of warranty, and violation of the Texas antitrust laws by petitioner. The complaint further alleged that Allen intentionally and willfully sought to induce Sharp Electronics to terminate its contract and business relationship with Branded. Petitioner then commenced this proceeding on October 2, 1984, seeking to compel arbitration. Respondent moved to dismiss the petition on October 10, 1984, and to stay arbitration on October 24, 1984. It then served an amended complaint in the Texas action, dropping the breach of contract claim, and filed a supplemental motion to stay arbitration in this proceeding.

MOTION TO DISMISS

Respondent moves to dismiss this action on the ground that there is no diversity jurisdiction between the parties. Respondent acknowledges that diversity does exist between Sharp Electronics and it. It argues, however, that since no diversity exists between Allen, the other defendant in the Texas action, and it, this court lacks subject matter jurisdiction. Respondent contends that Allen also should be a petitioner in this action. Respondent’s argument is érroneous. Allen need not be a party to this proceeding. The Supreme Court has stated:

if [petitioner] obtains an arbitration order for its dispute, the [respondent] will be forced to resolve these related disputes in different forums. That misfortune, however, ... occurs because the relevant federal law requires piecemeal resolution when necessary to give effect to the arbitration agreement. Under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not the arbitration agreement. If the dispute between [petitioner] and [respondent] is arbitrable under the Act, then the [respondent’s] two disputes will be resolved separately — one in arbitration, and the other (if at all) in state-court litigation.

Moses H. Cone Hospital v. Mercury Constr., 460 U.S. 1, 20, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983) (emphasis in original) (footnote omitted). See also Hamilton Life Insurance Co. v. Republic National Life Insurance Co., 408 F.2d 606, 609 (2d Cir.1969).

PETITION TO COMPEL ARBITRATION

The United States Arbitration Act, 9 U.S.C. sections 1-14, is applicable in this proceeding since the contract and the arbitration clause in issue evidence “a transaction involving [interstate] commerce.” 9 U.S.C. section 2. Accord, Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401, 87 S.Ct. 1801, 1804, 18 L.Ed.2d 1270 (1967). Federal law applies to issues involving the interpretation, validity and enforceability of the contract regardless of state law or policy to the contrary. Id. at 400, 87 S.Ct. at 1804; Coenen v. W.R. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir.), cert. denied, 406 U.S. 949, 92 S.Ct. 2045, 32 L.Ed.2d 337 (1972); Banque de Paris et des Pay-Bas v. Amoco Oil Company, 573 F.Supp. 1464, 1468 (S.D.N.Y.1983); Klein Sleep Products v. Hillside Bedding Co., 563 F.Supp. 904, 906 (S.D.N.Y.1982). See also Moses H. Cone Hospital v. Mercury Constr., 460 U.S. at 25 n. 32, 103 S.Ct. at 942 n. 32.

Section 4 of the Arbitration Act provides in pertinent part:

[U]pori being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.

9 U.S.C. section 4. “The permissible inquiry in considering a motion for a stay is narrow, involving only the determination whether the issues in this action are within the terms of the agreement to arbitrate.” Stodolink v. Yankee Barn Homes, Inc., 574 F.Supp. 557, 558 (D.Conn.1983), citing Klein Sleep Products v. Hillside Bedding Co., 563 F.Supp. at 905 and Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. at 404, 87 S.Ct. at 1806.

Respondent, in its motion to stay arbitration, argues that although the contract signed by the parties contained an arbitration clause, the agreement was a contract of adhesion. Respondent contends that it had no choice but to accept the terms of the contract and the arbitration clause if it wanted to sell the petitioner’s products. Courts, in defining the scope of judicial power under the Arbitration Act, have held allegations that the contract containing the arbitration clause was unconscionable or a contract of adhesion is an issue for the arbitrator to decide and not the court. See, e.g., Merrill, Lynch, Pierce, Fenner & Smith v. Haydu, 637 F.2d 391, 398 (5th Cir.1981); Janmort Leasing, Inc. v. Econo-Car International, Inc., 475 F.Supp. 1282, 1286, 1289-1292 (E.D.N.Y.1979). Cf. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. at 403-404, 87 S.Ct. at 1805-1806 (issue as to fraud in the inducement of contract generally for arbitrator to decide).

It has been held that the court may consider a challenge to the validity of the arbitration clause as opposed to the contract before ordering arbitration. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. at 403-404, 87 S.Ct. at 1805-1806 (claim that arbitration agreement result of fraud in the inducement may be considered by court); E.F. Hutton & Co. v. Schank, 456 F.Supp. 507 (D.Utah 1976) (where validity of both arbitration clause and agreement attacked, court to determine validity of arbitration agreement). But here, even if the validity of the arbitration clause alone were attacked in this action, the agreement to arbitrate in New York disputes concerning the distributorship agreement is not unconscionable. For as one court has noted concerning a similar agreement:

[A]n agreement to arbitrate in New York [does not pose] unconscionable difficulties. While the parties are thus to utilize a forum and rules of decision different from those they would have had if the matter had been litigated [in Texas], this is the sort of business arrangement that is fairly left to the contracting parties. Its burdens are not excessive.

Sewer v. Paragon Homes, Inc., 351 F.Supp. 596, 601-602 (D.V.I.1972). Provision for arbitration in a commercial agreement is not uncommon and reasonably could be anticipated. See Southland Corp. v. Keating, 465 U.S. 1, —, 104 S.Ct. 852, 855, 79 L.Ed.2d 1, 8 (1984) (standard franchise agreement containing arbitration clause); Klein Sleep Products, Inc. v. Hillside Bedding Co., 563 F.Supp. at 905 (arbitration clause in franchise agreement). The arbitration clause in this case is therefore not unconscionable.

Respondent also asserts that the issues raised in its amended complaint do not fall within the terms of the arbitration clause. The arbitration clause in the distributorship agreement is broad, covering “[a]ny controversy or claim arising out of or relating to this Agreement or a breach hereof____” (emphasis added). The portion of the complaint alleging a breach of warranty of fair dealing states:

In connection with the distributorship agreement and the sale of goods to [Branded], ... Sharp expressly and/or impliedly warranted that it would be fair in all of its dealings with [Branded], would not terminate the agreement without good cause, and would provide adequate support for the sale of said products.

Pursuant to the language of its own amended complaint, respondent’s breach of warranty claim relates to the alleged breach of the distributorship agreement. By merely dropping its breach of contract claim, respondent does not prevent the enforcement of the arbitration clause.

The state antitrust law violation alleged by the respondent in its amended complaint in the Texas action is based on the allegation that petitioner and Allen conspired “to restrain trade, reduce supply, increase the price, and otherwise monopolize and engage in horizontal market allocation, in the market of wholesale distribution of carousel microwave ovens in Texas.” It is clear that respondent’s alleged damages occurred when the distributorship agreement was allegedly breached. Since the state antitrust cause of action clearly related to the alleged breach of the agreement, the state antitrust claim is within the terms of the arbitration clause.

It is the further contention of the respondent that since the action in Texas alleges a violation of the Texas antitrust laws, public policy dictates that arbitration be stayed. Claims that certain provisions of a contract violated the Sherman Antitrust Act or the federal Securities Acts cannot be the subject of arbitration. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953); American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir.1968). But the Sherman Act was adopted by Congress who could adopt exceptions to the Arbitration Act. A different result follows when a state enactment is in issue. Southland Corp. v. Keating, 465 U.S. at — n. 11, 104 S.Ct. at 861 n. 11, 79 L.Ed.2d at 15 n. 11. The federal policy in favor of arbitration overrides any state policy proscribing arbitration of state law claims. Stodolink v. Yankee Barn Homes, Inc., 574 F.Supp. at 557-559; Marley v. Drexel Burnham Lambert, Inc., 566 F.Supp. 333 (N.D.Texas 1983); Bache Halsey Stuart Shields, Inc. v. Moebius, 531 F.Supp. 75 (E.D.Wis.1982).

In Southland v. Keating, the Supreme Court considered a similar issue, i.e., whether the California Franchise Investment Law could bar enforcement of arbitration agreements under the federal Arbitration Act. The California Supreme Court had found that the state’s policy of protecting judicial remedies for franchise investors was patterned after and was consistent with the federal policy underlying the federal Securities Acts. Because claims under the federal Securities Acts are not arbitrable, the California court found that the state statute’s invalidation of certain arbitration agreements covered by the federal Arbitration Act was permissible. Keating v. Superior Court of Alameda County, et al., 31 Cal.3d 584, 183 Cal.Rptr. 360, 645 P.2d 1192, 1202-1203 (1982). The Supreme Court stated, however, that Congress could create exceptions to the Arbitration act, but not the state legislatures. 465 U.S. at — n. 11, 104 S.Ct. at 861 n. 11, 79 L.Ed.2d at 15 n. 11. To allow state laws and policy to establish exceptions to the federal act would be contrary to Congress’ intent. “Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements.” Id. at -, 104 S.Ct. at 861, 79 L.Ed.2d at 15. Therefore, were this court to grant respondent’s motion for a stay, such a ruling would be contrary to the intent of Congress in passing the federal Arbitration Act. Pursuant to the Supremacy Clause of the United States Constitution, Art. VI, the federal statute preempts any state law or policy. If any exception for a state law claim exists, it is for Congress to provide and not the court.

Accordingly, respondent’s motion to stay arbitration is denied and petitioner’s request to compel arbitration is granted. Respondent is enjoined from proceeding with the Texas action until arbitration has been completed. See, e.g., Burger Chef Systems, Inc. v. Baldwin, Inc., 365 F.Supp. 1229, 1233 (S.D.N.Y.1973).