author: HAMILTON, District Judge.

text:
    NORTHWESTERN NATIONAL INSURANCE COMPANY, Plaintiff, v. R.S. ARMSTRONG & BROTHERS CO. and Becker Sand & Gravel Company, Defendants.
    Civ. A. No. 3:85-1343-15.
    United States District Court, D. South Carolina, Columbia Division.
    Oct. 24, 1985.
    Thomas C. Salane, Columbia, S.C., for plaintiff.
    James W. Orr, S.R. Anderson, Roddy Jordan, William Bost, Jr., Columbia, S.C., Charles H. Ivy, Kevin P. O’Mahony, Luke A. Kill, Atlanta, Ga., for defendants.
   ORDER

HAMILTON, District Judge.

This declaratory judgment action, 28 U.S.C. § 2201, seeks to determine the respective rights and responsibilities of the parties under a contract of insurance, containing, inter alia, a provision for comprehensive general liability coverage. Specifically, the plaintiff is seeking a declaration that it has no duty to provide defense and coverage for an underlying lawsuit which is presently pending before this court. The underlying civil action is one instituted by Becker Sand and Gravel Company against Deutz Corporation, d/b/a Humboldt-Wed-ag, USA, a Division of Deutz Corporation and R.S. Armstrong & Bro. Co., C.A. No. 3:84-1530-15 (hereinafter, the “Becker case”). Jurisdiction in the instant case is based upon diversity of citizenship. 28 U.S.C. § 1332.

The matter is presently before the court upon three motions by co-defendant R.S. Armstrong & Bro. Co. (hereinafter “Armstrong”). The first motion is for judgment on the pleadings pursuant to Rule 12(c), Federal Rules of Civil Procedure, or, in the alternative, summary judgment pursuant to Rule 56, Federal Rules of Civil Procedure, on Northwestern National Insurance Company’s (hereinafter “Northwestern”) complaint for declaratory judgment and Armstrong’s counterclaim for declaratory judgment. The second motion made by Armstrong is a motion to stay all discovery on all claims by any party until such time as the court renders a decision on the first motion. As such a decision is made herein, the second motion becomes moot, and, thus, is herein denied. Likewise, Armstrong’s third motion, a motion to strike the affidavit of Neil Helbling filed on behalf of Northwestern, also becomes moot at this point, as Armstrong agreed at oral argument, and is, thus, herein denied.

Directing attention to Armstrong’s motion for judgment on the pleadings, or, in the alternative, summary judgment, the court must apply the appropriate legal test. The test applicable for a judgment on the pleadings or a summary judgment is whether or not, when viewed in the light most favorable to the party against whom the motion is made, no genuine issues of material fact remain and the case can be decided as a matter of law. King v. Gemini Food Services, Inc., 438 F.Supp. 964, 966 (D.Va.1976), aff'd 562 F.2d 297 (4th Cir.1977).

The facts and circumstances of the instant case reveal that on July 24, 1984, Armstrong was served with the complaint in the Becker case. Armstrong promptly tendered the complaint, through its insurance agent, to Northwestern for its defense in the Becker case. The claims manager for Northwestern received the complaint in the Becker case on or about August 3, 1984. After discussing a reservation of rights by Northwestern, Northwestern and Armstrong executed a non-waiver agreement effective August 13, 1984, in which the parties agreed that Northwestern would reserve the coverage defense of “late notice” of the claim in the Becker case. At this point Northwestern had retained a law firm and had assumed Armstrong’s defense in the Becker case.

The complaint in the Becker case against Armstrong originally contained four causes of action: (1) breach of warranties, (2) fraud, (3) negligence, and (4) unfair trade practices. On September 13, 1984, the law firm retained by Northwestern filed an answer for Armstrong and moved to dismiss the negligence cause of action for failure to state a claim upon which relief can be granted, Rule 12(b)(6), Federal Rules of Civil Procedure. Following oral argument (November 21, 1984), on November 29, 1984, this court entered, an order granting the motion to dismiss the negligence cause of action. That order states that the complaint in the Becker case seeks recovery for alleged economic losses and the loss of investment arising from product ineffectiveness and that there is no allegation of any physical damage suffered to the plaintiff's property. The order goes on to state that, without an accident resulting from a dangerous defect, a party may not avail itself of a tort theory for product ineffectiveness or deterioration. Consequently, this court clearly indicated that it is the law of contracts and commercial transactions which should apply to the Becker case and, therefore, dismissed the negligence cause of action.

After this ruling Northwestern continued the orchestration of Armstrong’s defense in the Becker case without any additional attempt to reserve its rights until May of 1985. During this time a great amount of activity took place as the parties pursued their claims and defenses. The parties in the Becker case conducted numerous depositions and filed motions for summary judgment on all remaining claims. [See, affidavit of James W. Orr, Esquire, attorney for the plaintiff in the Becker case.] Various orders were entered throughout this time by the court.

On May 14, 1985, Northwestern advised Armstrong by telephone that it was re-evaluating coverage for the Becker case. Three days later, on May 17, 1985, Northwestern sent a general reservation of rights letter to Armstrong seeking to reserve all rights to disclaim coverage for the Becker case. On May 22, 1985, Northwestern filed the instant declaratory judgment action against Armstrong and the plaintiff in the Becker case. In its complaint, Northwestern seeks to disclaim coverage under the insurance policy with Armstrong in the Becker case on four bases: (1) the absence of an “occurrence”; (2) the absence of “property damage”; (3) exclusion “(m)” of the policy which excludes damages resulting from the loss of use attributable to delay or lack of performance of any contract or due to the failure of Armstrong’s products or work to meet the level of performance, quality, fitness or durability warranted or represented by Armstrong; and (4) exclusions “(n)” and “(o)” of the policy which exclude damages arising out of a defect in Armstrong’s product itself or damages to property being restored, repaired or replaced by reasons of faulty workmanship.

Because the claims for declaratory judgment raised in the instant case center on an insurance policy and a non-waiver agreement made and delivered in Georgia, the South Carolina choice of law principles, as governed by the lex loci contractus rule, requires that the law of the state of Georgia should be applied. Both parties agree that the application of Georgia substantive law to the issues raised by the instant motions is consistent with the choice of law rules of South Carolina, which the court must apply in this diversity action.

The central issue before the court in the instant case is estoppel. The basic thrust of Armstrong’s position is that, even if there was no coverage for the Becker case under the insurance policy, Northwestern is now estopped to deny liability coverage in the Becker case because Northwestern assumed and conducted the defense of Armstrong in the Becker case for more than nine (9) months without reserving its rights to contest coverage and with full knowledge of grounds to contest coverage.

The substantive law of Georgia regarding an estoppel to deny coverage, as applied to a liability insurance carrier assuming and conducting the defense of its insured, is found in the seminal case of Jones v. Ga. Casualty & Surety Co., 89 Ga.App. 181, 78 S.E.2d 861 (1953). The court in Jones succinctly states:

The general rule supported by the great weight of authority is that if a liability insurer, with knowledge of a ground of forfeiture or non-coverage under the policy, assumes and conducts the defense of an action brought against the insured, without disclaiming liability and giving notice of its reservation of rights, it is thereafter precluded in an action upon the policy from setting up such ground of forfeiture or non-coverage. The insurer’s conduct in this respect operates as an estoppel to later contest an action upon the policy, regardless of the fact that there has been no misrepresentation or concealment of material facts on its part, and notwithstanding the facts may have been within the knowledge of the insured equally as well as within the knowledge of the insurer.

Id. at 185-186, 78 S.E.2d at 864. See also, State Farm Mutual Automobile Insurance Co. v. Anderson, 104 Ga.App. 815, 123 S.E.2d 191 (1961); Gant v. State Farm Mutual Automobile Insurance Co., 109 Ga.App. 41, 134 S.E.2d 886 (1964); Hembree v. Cotton States Mutual Insurance Co., 132 Ga.App. 556, 208 S.E.2d 568 (1974).

A liability carrier may avoid the estoppel that arises from the carrier’s conduct in defending the insured only if it properly reserves its rights to later contest or deny coverage.

The general rule of estoppel is ... limited by the principle that a liability insurer may avoid the operation of the rule by giving the insured timely notice that, notwithstanding its defense of the action against him, it has not waived the defenses available to it against the insured. Such notice, to be effective, must fairly inform the insured of the insurer’s position, and must be timely, although delay in giving notice will be excused where it is traceable to the insurer’s lack of actual or constructive knowledge of the available defense. 38 A.L.R.2d 1148, 1151.

Anderson, 104 Ga.App. at 818, 123 S.E.2d at 193.

The reason why the insurance carrier initially assumes the insured’s defense in spite of the availability of coverage defenses is not material to the estoppel issue; and, a mistake of law in assuming the defense does not prevent an estoppel. Jones, 89 Ga.App. at 186, 78 S.E.2d at 864.

In the instant case, because it is clear to the court that Northwestern assumed and conducted Armstrong’s defense in the Becker case from August 1984 onward, two basic issues remain for the resolution of this instant matter. The first involves the August 13, 1984, non-waiver agreement and the rights reserved thereunder by Northwestern. The second issue involves a legal analysis of whether Northwestern had actual or constructive knowledge of the grounds for denying or contesting coverage when it assumed and conducted Armstrong’s defense of the Becker case.

Turning first to the legal consequences of the August 13, 1984, non-waiver agreement, it is clear to the court from the four corners of the document that Northwestern only reserved the “late notice” defense to coverage at that time. Northwestern argues that the non-waiver agreement is ambiguous. Northwestern has submitted the affidavit of its claims manager, Neil Helbling, who executed the agreement. The affidavit includes the subjective intention of the claims manager in executing the non-waiver agreement and his reliance upon the advice of legal counsel as to the meaning of the agreement when it was executed. That intention, according to the affiant, was purportedly to reserve all of Northwestern’s rights to investigate the claim and subsequently disclaim coverage and/or raise additional coverage defenses.

Under Georgia law, however, the subjective intentions of Northwestern’s claims manager are not relevant insofar as they are not in reasonable accord with the language of the agreement. The case of Hartrampf v. Citizens & Southern Realty Investors, 157 Ga.App. 879, 278 S.E.2d 750 (1981) stands for the proposition that:

[I]t is a well-settled principle of law ... that all pertinent representations and negotiations prior to the preparation and execution of a written contract are merged therein; and where, as here, the terms of the written contract are clear and unambiguous, [the courts] will look to it and to it alone to find the intentions of the parties with respect thereto....

Id. at 882, 278 S.E.2d at 752 [citations omitted].

The court is of the opinion that the non-waiver agreement of August 13, 1984, is not ambiguous. It is well settled law that no construction is required or even permissible when the language employed by the parties in their contract is plain, unambiguous and capable of only one reasonable interpretation. In such an instance, the language used must be afforded its literal meaning and plain ordinary words given their usual significance, and this rule applies equally as well to insurance contracts as to any other contract. Wolverine Insurance Co. v. Jack Jordan, Inc., 213 Ga. 299, 302, 99 S.E.2d 95, 97-98 (1957). Accordingly, the court finds no merit in Northwestern’s argument that it did not intend for the non-waiver agreement to mean what it plainly says.

In the first paragraph of the non-waiver agreement, after the lead-in clause, it is stated: “Company [i.e., Northwestern] is reserving and not waiving its rights only as to the question of ‘notice’ ..., and the company [Northwestern] shall provide defense and coverage for this Civil Action [i.e., the Becker case], subject only to such ‘notice’ question.” In the second sentence of the second paragraph the non-waiver agreement states: “It is the intention of this agreement to provide for an investigation defense and coverage of the said Civil Action [the Becker case] and a determination of damages resulting therefrom without in any way waiving the company’s [Northwestern’s] rights as to the ‘notice’ question.”

In construing the non-waiver agreement, it is clear to the court that the agreement was a specific reservation of the rights relating to the notice question. It was not an affirmative waiver of any other rights that Northwestern had under the policy. It was no more, and no less, than a reservation of rights as to the notice question. There is no evidence in the record before the court of any other reservation of rights by Northwestern from August 1984 until the attempt to reserve its rights by letter to Armstrong dated May 17, 1985.

The issue of late notice has not been raised by Northwestern in the instant matter. Therefore, turning to the second issue, the court must consider whether Northwestern was estopped to reserve all its rights in May of 1985 and to deny or contest insurance coverage in this action on the policy. Armstrong contends that Northwestern had actual or constructive knowledge of the policy defenses it raises in the instant case when it received the complaint in the Becker case in August 1984. Armstrong avers that Northwestern’s bases to deny coverage were plainly apparent from the allegations stated in the complaint in the Becker case. Armstrong points to the similarity in the language of the allegations of non-coverage in Northwestern’s complaint in the instant case and the language of the complaint in the Becker case as demonstrating Northwestern’s “knowledge” in August of 1984. On the other hand, Northwestern argues that it had actual or constructive knowledge of the policy defenses it raises in this matter only after discovery was conducted in the Becker case. Northwestern argues, further, that it acted reasonably to reserve additional rights.

The case law by which this court is bound imposes the doctrine of estoppel upon an insurance carrier when it takes up a defense with knowledge of a ground of non-coverage. This knowledge by the carrier of a ground, basis or fact reasonably supporting non-coverage can be actual knowledge or constructive knowledge. Prescott’s Altama Datsun, Inc. v. Monarch Insurance Co. of Ohio, 253 Ga. 317, 318, 319 S.E.2d 445, 446 (1984); Anderson, 104 Ga.App. at 818, 123 S.E.2d at 193.

On the record before the court, it is clear that Northwestern undertook to provide Armstrong a defense in the Becker case. Northwestern admits this in paragraph seven (7) of its complaint in the instant matter. The first appearance in the Becker case by Northwestern’s retained attorneys was August 6,1984, and the non-waiver agreement is dated August 13, 1984. Moreover, the complaint in the Becker case has not been amended to date.

After careful examination of Northwestern’s grounds for contesting coverage raised in the instant matter and the complaint filed in the Becker case, this court is of the opinion that Northwestern, as a matter of law, had actual or constructive knowledge in August of 1984 of the grounds for non-coverage which it presently seeks to raise. The application of the exclusions that Northwestern claims to apply and the various other alleged grounds of non-coverage were readily apparent from the Becker complaint filed in July 1984. In addition, after the entry of this court’s order in November 1984 granting the motion to dismiss the negligence cause of action in the Becker case, Northwestern certainly had actual or constructive knowledge of grounds for policy defenses as well as a sufficient basis to understand the allegations and damages sought in the Becker case and to reserve additional rights to deny coverage. Instead, Northwestern continued to conduct Armstrong’s defense of the underlying case and remain silent as to coverage issues until May of 1985. The notice afforded Armstrong of this purported reservation of rights by Northwestern in May 1985 was, in view of the applicable law, neither “timely” nor “adequate.” See, Sargent v. Allstate Insurance Co., 165 Ga.App. 863, 303 S.E.2d 43 (1983); Gant v. State Farm Mutual Automobile Insurance Co., 109 Ga.App. 41, 134 S.E.2d 886 (1964) [the continued defense of the underlying case for five (5) months amounted to waiver or estoppel to deny coverage as a matter of law].

In addition, Northwestern’s contention that there can be no estoppel since Armstrong has not been prejudiced by Northwestern’s conduct of Armstrong’s defense in the Becker case is without support. Georgia authority indicates that prejudice to the insured is conclusively presumed when the insurance carrier assumes the defense of its insured. Jones, 89 Ga.App. at 186, 78 S.E.2d at 864; see also, Fidelity and Casualty Co. of N. Y. v. Riley, 380 F.2d 153 (5th Cir.1967). The reason for this presumption of prejudice is that the insured has surrendered innumerable rights associated with the control of the defense including choice of counsel, the ability to negotiate a settlement, along with determining the timing of such negotiations, and the ability to decide when and if certain defenses or claims will be asserted. Koehring Co. v. American Mutual Insurance Co., 564 F.Supp. 303, 313 (E.D.Wisc.1983).

Even in the absence of the presumption, it is clear from the circumstances in the instant case that the defense of the Becker case had progressed far enough to prejudice Armstrong. After the November 1984 order dismissing the negligence cause of action and prior to Northwestern’s attempt in May 1985 to reserve all rights to contest coverage, the court notes that twenty-one (21) depositions were formally noticed and/or taken. Further, seventeen (17) motions were filed by the parties and the court entered nine (9) orders. This activity is reflected in the docket entries of the Becker case and in the affidavit [filed in the instant case] of James W. Orr, Esquire, attorney for the plaintiff in the Becker case.

Since the issues in the instant case are matters of law wholly independent of any disputed fact, they are ripe for adjudication and should be decided on their merits. Although Northwestern contends that its grounds for denying coverage became evident only through discovery in the Becker case, the complaint in the Becker case and the order dismissing the negligence cause of action put Northwestern on sufficient notice to, at least, reserve additional rights. Having failed to do so, its attempted general reservation of rights (May 1985) comes too late.

For the foregoing reasons and based on the cited authorities, the court concludes that Northwestern’s attempted assertion of a general reservation of rights in May of 1985 is barred by the doctrine of estoppel.

IT IS THEREFORE ORDERED that Armstrong’s motion for summary judgment as to the claim and counterclaim for declaratory relief be, and the same herein is, granted. Rule 56, Federal Rules of Civil Procedure. The court declares that, pursuant to this ruling, insurance coverage is afforded under the policy to Armstrong. The court hereby directs the entry of a final judgment as to the claims adjudicated herein and determines that there is no just reason for delay. Rule 54(b), Federal Rules of Civil Procedure.

Upon entry of this order, Armstrong will be redesignated as the plaintiff herein and Northwestern will become the defendant for purposes of Armstrong’s remaining claims against Northwestern. Becker Sand and Gravel Company is granted leave to petition the court for a dismissal of this action as to it. At the appropriate time, the court will enter a revised scheduling order under which the parties may pursue discovery and their respective remaining claims and defenses.

The court hereby grants Armstrong leave to file an appropriate motion for the award of attorneys’ fees after the entry of a revised scheduling order. Such a motion shall set forth the specific authorities under which the request is made.

      . The court notes only in passing that settlement negotiations and offers were ongoing between the parties in both the instant case and the Becker case on the eve of this court's scheduled hearing on pending motions in the Becker case on July 31, 1985, and prior to the withdrawal on August 26, 1985, of Northwestern's motion in the instant case for an order permitting it to participate in settlement without prejudice to its rights to seek a declaration of rights. Such negotiations as were or may be ongoing are of no bearing in the instant motions before the court.

      . Armstrong has alleged various additional counterclaims against Northwestern in which it seeks other and further relief such as punitive and exemplary damages as well as damages from alleged bad faith dealings. These additional counterclaims are not considered by the court at this time.


source: Caselaw Access Project

author: ANN C. WILLIAMS, District Judge.

license: Public Domain

text:
    PREMIER ELECTRICAL CONSTRUCTION CO., Plaintiff, v. INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS, et al., Defendants.
    No. 80C4976.
    United States District Court, N.D. Illinois, E.D.
    Nov. 1, 1985.

      Jonathan G. Bunge, Steven H. Adelman, Michael R. Flaher, Carol L. McCully, Keck Mahin & Cate, Chicago, Ill., Peter H. Gunst, Frank, Bernstein, Conaway & Goldman, Baltimore, Md., for plaintiff.
    J. Robert Murphy, Aurora, Ill., for defendants Local Union No. 461.

      Theophil C. Kammhol, Vedder, Price, Kauf & Kammholz, Arthur B. Smith, Jr., Marian C. Haney, Chicago, III., for defendants.
    Edwin H. Benn, Asher, Goodstein, Paval-on, Gittler, Greenfield & Segall, Chicago, Ill., for Local No. 176.
   MEMORANDUM OPINION AND ORDER

ANN C. WILLIAMS, District Judge.

This private antitrust action for damages and declaratory and injunctive relief is brought under Section 1 of the Sherman Antitrust Act, 15 U.S.C. Section 1. Presently before the court are various motions by plaintiff and defendants. An understanding of the contentions of the parties requires a review of the factual background of the case.

FACTUAL BACKGROUND

Plaintiff, Premier Electrical Construction Co. (“Premier”), performs electrical construction work and otherwise transacts business in the electrical construction industry. Premier employs electrical construction workers who are members of, and represented by, defendant International Brotherhood of Electrical Workers (“IBEW”) and its affiliated local unions.

Defendant IBEW is an unincorporated labor organization whose local unions represent electrical workers throughout the United States. Defendant Charles H. Dillard was International President of IBEW at all times relevant to Premier’s complaint.

Defendant National Electrical Contractors Association, Incorporated (“NECA”) is a national employers’ trade association whose members perform electrical construction work. NECA has numerous affiliated local chapters that have been assigned specific territories throughout the United States. NECA and its local chapters provide various services to its member employers and represent them in collective bargaining with IBEW and its local unions. Premier is not a member of NECA. Defendant Robert L. Higgins was, at all relevant times, Executive Vice President of NECA.

Defendants Local Union #461 (“Local 461”), Local Union #176 (“Local 176”), and Local Union #701 (“Local 701”) are all local unions, subordinate to IBEW, with their principal places of business in Illinois. The remaining defendants are the trustees of the National Electrical Industry Fund (“NEIF”), which is more fully described below.

Plaintiff's complaint is directed at Article Six of the 1976 National Agreement between NECA and IBEW. Article Six established the National Electrical Industry Fund, or NEIF, which is at the heart of Premier’s antitrust allegations. The NEIF is an industry fund created primarily to cover NECA’s cost of administering labor agreements with IBEW and its costs of rendering other services to the electrical contracting industry. Article Six requires that all construction agreements between IBEW unions and electrical contractors contain a clause by which the employer agrees to contribute 1% of the employer’s gross payroll to the NEIF. This clause must be included in each agreement with an electrical contractor employer, even if the employer is not a member of NECA. Premier alleges that, in order to pay for NECA’s services, prior to October 1976 NECA members paid dues to the association. Since these dues increased NECA members’ cost of doing business, non-NECA members could offer lower bids on construction contracts. Premier claims that NECA sought to eliminate this competitive advantage, enjoyed by non-NECA employers, by creating the NEIF. Premier further contends that, by requiring a uniform 1% contribution to a fund to support NECA services, defendants entered into a combination and conspiracy in unreasonable restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. Section 1.

Plaintiffs present motion seeks to take advantage of the ruling of Judge Murray in National Construction Association, et al., v. National Electrical Contractors Association, et al., 498 F.Supp. 510 (D.Md.1980) (the “Maryland litigation”). The pertinent details of that litigation are as follows. On August 8, 1977, IBEW, NECA, and various officials and members of NECA were sued in the United States District Court for the District of Maryland in a nationwide class-action antitrust suit. At issue was the legality of Article Six of the National Agreement. The named plaintiffs were various electrical contractors as well as the National Contractors Association, an association similar in function to NECA. By definition, Premier was a member of the class.

On September 8, 1980, Judge Murray awarded summary judgment to the plaintiffs in the Maryland litigation. In his ruling, Judge Murray declared that Article Six was a price-fixing agreement that constituted a per se violation of Section 1 of the Sherman Act. He also certified a plaintiff class and enjoined the defendants from enforcing the NEIF provision of Article Six. The Fourth Circuit Court of Appeals upheld the district court’s ruling. National Electrical Contractors Association v. National Contractors Association, 678 F.2d 492 (4th Cir.1982). Petitions for certiorari were filed with the Supreme Court in early 1983, but were later withdrawn subsequent to a settlement agreement among the parties. The settlement agreement was approved by Judge Murray on July 25, 1983, after notice to class members and a hearing.

On September 16, 1980, eight days after the entry of summary judgment in the Maryland litigation, Premier filed the present action in this court. Its complaint is virtually identical to that in the Maryland litigation, with the only substantive difference being that the local union defendants are not the same as in the Maryland case.

On October 2, 1980, Premier appeared, through counsel, in the Maryland litigation to announce its intention to consolidate its action with the Maryland action. However, no further steps toward consolidation were taken by Premier until February 3, 1982, when Judge Getzendanner of this court ordered the parties to show cause why the ease should not be transferred to Maryland pursuant to 28 U.S.C. § 1407. Premier then petitioned the Panel on Multidistrict Litigation for pretrial consolidation of its case with the Maryland litigation, but transfer was denied.

Premier did not further participate in the Maryland litigation until March 31, 1983. At that time, Premier asked Judge Murray to suspend notification of the settlement to class members. Premier wanted the suspension so that a subclass could be carved out. This subclass would consist of electrical contractors who had been sued, threatened with suit, or subject to any other collection efforts by the defendants, and who thereby had incurred costs and expenses in connection with those collection efforts. Judge Murray, however, denied Premier’s motion. Sometime after this, Premier opted out of the Maryland class and continued its individual litigation in this court.

PREMIER’S MOTION FOR PARTIAL SUMMARY JUDGMENT

Premier now seeks an order awarding it summary judgment on the issue of whether the Maryland defendants violated Section 1 of the Sherman Act. Premier contends that the Maryland defendants should be collaterally estopped from relitigating the legal conclusions reached in the Maryland case.

The propriety of applying collateral estoppel to preclude a defendant from relitigating issues determined against it in prior litigation was first examined by the Supreme Court in Parkland Hosiery Co., Inc. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979). There the Court held that courts have discretion to apply collateral estoppel offensively, so long as it would be fair to the defendant and promote judicial economy. Id. 439 U.S. at 331, 99 S.Ct. at 652. In determining the question of fairness, a court should consider: (1) whether the “plaintiff could easily have joined the earlier action”; (2) whether the defendant could have foreseen a later use of offensive collateral estoppel and therefore had “every incentive to litigate [the original action] fully and vigorously”; (3) whether “the judgment relied upon as a basis for estoppel is itself inconsistent with one or more previous judgments in favor of the defendant”; and (4) whether “the second action affords the defendant procedural opportunities unavailable in the first action that could readily cause a different result.” Parkland Hosiery, 439 U.S. at 330-332, 99 S.Ct. at 651-652.

The parties here do not quarrel over the last three considerations, but vigorously debate the first. Since this is so, and the last three considerations do appear to weigh in favor of estoppel, the court will address only the question whether Premier “could have easily joined” the Maryland litigation.

Premier argues that it could not have easily joined the Maryland action because the Maryland plaintiffs were not adequately representing its interests in respect to damages. One element of the damages it seeks in the present action is the costs it incurred in defending lawsuits brought by defendants to enforce Article Six. Premier states that the Maryland plaintiffs made a tactical decision not to pursue this kind of damage claim. Premier further states that it moved to intervene to protect its interest, along with the interest of others, in pursuing the collection costs claims, but its motion to intervene was denied.

IBEW responds that, as evidenced by statements made in Premier’s motion to intervene in the Maryland action, Premier discovered as early as the Spring of 1982 that its interests were not being adequately represented. Premier does not deny that it made this discovery in the Spring of 1982. Nonetheless, Premier waited until March of 1983 before requesting leave to intervene to represent its interests. According to IBEW, Judge Murray denied this request because he deemed it unfair to allow intervention on the eve of settlement. Thus, IBEW contends, Premier’s intervention in the Maryland litigation was not precluded by a conflict between Premier’s interest and that of the Maryland plaintiffs, but rather was precluded by the untimeliness of Premier’s intervention attempts.

It appears that IBEW has the better of this argument. Premier gives no reasons why it waited until the eve of settlement, nearly a year after it allegedly learned that its interests were not being represented, before it moved to intervene. Moreover, Premier’s contention that its individual action was brought because Premier was denied intervention is undercut by the fact that Premier filed its action in September, 1980, only eight days after Judge Murray’s entry of summary judgment, rather than later, in the Spring of 1982, when it first learned that its interest was not being adequately represented. It seems to this court that Premier filed its suit prior to learning of the Maryland plaintiffs’ inadequate representation of Premier’s interest.

Premier further argues that it made two other attempts to participate in the Maryland action, but was unsuccessful because each time defendants resisted. Premier’s first attempt was to transfer its action to Maryland pursuant to § 1404(a); the transfer was unsuccessful Premier says because of venue objections made by the IBEW local defendants. Next it made a request to the Multi-District Panel for transfer under § 1407; but again defendants objected, and so the Panel denied the request. IBEW does not dispute that Premier made these transfer efforts, which failed, but states only that failure to transfer resulted from certain statutory requirements.

Regardless of the reasons for the failure of Premier’s transfer attempts, the fact remains that Premier was already a member of the Maryland class and could have sought to participate as a class member there before filing its duplicative lawsuit here. Premier makes no argument that it was unaware of the Maryland litigation. Indeed, such an argument would be difficult to believe given the nearly word-for-word similarity between Premier’s complaint and the Maryland complaint. The court is given no legitimate reason why Premier did not make timely attempts to participate in the Maryland action. Premier’s recitation of its thwarted attempts to consolidate its action with the Maryland litigation is not persuasive.

Thus, Premier has not established that it could not have joined easily in the Maryland action. This, of course, is not surprising. As one commentator has observed, when an individual action is brought by a class member who has opted out of a prior class action, the last three prongs of the Parkland test will usually be satisfied; however, the requirement that the party asserting estoppel show that he could not have joined easily rarely will be met. Furman, Offensive Assertion of Collateral Estoppel By Persons Opting Out of a Class Action, 31 Hastings L.J. 1189, 1199 (1980).

This dilemma suggests that the Parkland test looses some of its usefulness when the previous judgment was rendered in a class action suit from which the party asserting estoppel has opted out. In such circumstances, the Parkland test might well result in a more difficult barrier to the use of issue preclusion by opt-out class action plaintiffs than is presented for plaintiffs who were never members of a class. Yet always to deny issue preclusion to the ex-class plaintiff may thwart judicial economy, a principle which underlies both collateral estoppel and, in part, Rule 23(b). Moreover, such denial may decrease the binding effect of the prior class judgment and frustrate the goal of uniformity of treatment among class members. On the other hand, IBEW argues that to accord preclusive effect to the Maryland decision would encourage the initiation of multiple lawsuits in other class action cases and would frustrate settlements in class actions, both results being contrary to the interest of judicial economy.

These conflicting considerations have been dealt with before. In Re Transocean Tender Offer Securities Litigation, 455 F.Supp. 999 (N.D.Ill.1978), involved multiple litigation arising out of a tender offer for the minority shares of Transocean Oil. Minority shareholders filed federal actions against the offeror in three federal district courts. Former minority shareholders then brought a class action, in Delaware state court, against the offeror. Judgment in the Delaware action was entered for the class before the conclusion of the federal actions. After consolidation of the federal actions, those federal plaintiffs who had opted out of the Delaware state action moved for summary judgment on grounds that collateral estoppel should be applied to preclude re-litigation of the defendants’ liability. The court granted the plaintiffs’ motion and, in doing so, addressed an argument similar to IBEW’s:

It could be argued that permitting opt out plaintiffs to assert collateral estoppel offensively might encourage plaintiffs in future class actions to exclude themselves from the class. Such an argument, however, has several short comings. As a practical matter, an extremely small percentage of persons seek exclusion from a class.... Moreover, few people can afford to bear the cost and burden of opting out and filing their own lawsuits....

In Re Transocean Tender Offer Securities Litigation, 455 F.Supp. at 1008.

In addition to the considerations pointed out in In Re Transocean Tender Offer, the court notes that the cost and expenses of litigation insure, to a degree, that those who do opt-out have a strong interest in pursuing their own individual action. Moreover, it appears that the policies underlying the modern doctrine of collateral estoppel, as developed by the Supreme Court in Blonder-Tongue Laboratories, Inc. v. University of Indiana Foundation, 402 U.S. 313, 329, 91 S.Ct. 1434, 1443, 28 L.Ed.2d 788 (1971) and Parkland Hosiery, counsel in favor of applying collateral estoppel in the context of the opt-out class action plaintiff. The overriding considerations should be whether the defendants in the class action had a full and fair opportunity to litigate the issues in the prior action and “whether judicial economy will be served by an application of collateral estoppel.” In Re Transocean, 455 F.Supp. at 1008. These considerations outweigh the concern that failure to closely examine a plaintiffs motives for opting out of a class may result in a “free ride” for one who has merely “sat on the sidelines” awaiting the judgment in the first suit. In summary, the court finds that the defendants here are precluded from relitigating the issue of whether Article Six is a per se violation of Section 1 of the Sherman Act.

IBEW AND NECA DEFENDANTS’ MOTION TO STRIKE AND DISMISS

The IBEW and NECA defendants, joined by Local Union 701, have moved to strike or, alternatively, dismiss Premier’s complaint. They make three arguments in their motion. First, they contend that Premier’s first six requests for relief, which seek injunctive and declarative relief, are moot because the decision in the Maryland litigation, which granted such relief to the class there, also protects Premier. Second, defendants argue Premier’s damages can only be the amount Premier paid into the industry fund. Since they have made an offer of judgment, pursuant to Rule 68, for any amounts Premier has paid, defendants contend that this request for relief is also moot. Finally, defendants argue that Premier cannot state a claim for recovery of the costs of defending the collection actions because the Noerr-Pennington doctrine protected defendants’ rights to bring those actions. Each of defendants’ arguments will be addressed in turn below.

The first argument need not detain the court for long. Defendants contend that most of the relief which plaintiff requests has already been secured by the settlement agreement approved by Judge Murray on July 25, 1983, in the Maryland litigation. That agreement, defendants state, enjoins them from enforcing Article Six against anyone, including Premier. Thus, the request seeking injunctive relief is moot. The request for declarative relief is also moot, in defendants view, since that request seeks a declaration that Article Six is violative of the antitrust laws, a declaration made superfluous by the judgment and agreement in the Maryland action. In its response to defendants’ motion, plaintiff has agreed not to pursue its requests for injunctive and declarative relief. Therefore, the first six requests for relief in Section VII of plaintiff’s complaint will be stricken.

Defendants next address Premier’s request for damages. They contend that although Premier has not articulated its theory of damages, in defendants’ view, the only damages Premier can claim are the contributions it made to the industry fund. According to defendants’ records Premier never made any contributions. Nonetheless, simultaneous with the filing of their present motion, defendants have filed an offer of judgment for any amounts Premier can show it paid into the fund. Consequently, say defendants, the only remaining requested relief at issue is the costs and attorneys’ fees incurred in defense of the collection actions.

This argument fails for two reasons. First, Premier does not concede that its only measure of damages is the fees it paid into the industry fund. Second, Rule 68 does not require that Premier accept defendants’ offer of judgment. Rule 68 states that the offer may be accepted by written notice served within ten days of the date the offer is made. If the offer is not accepted, it is deemed withdrawn. Defendants filed the offer of judgment on March 7, 1984. To date plaintiff has not responded to defendants’ offer. Therefore, since the offer is deemed withdrawn, the question of this element of plaintiff’s damages remains an issue in the case.

Defendants next argue that Premier has failed to state a claim for which relief can be granted based on the costs and attorneys’ fees incurred in defending the collection actions. This is so, defendants contend, because plaintiff’s claim for such relief ignores defendants’ constitutional rights of assembly and petition recognized under the Noerr-Pennington doctrine. This court agrees.

The Noerr-Pennington doctrine is the result of the holdings in three Supreme Court cases, Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); and California Motor Transport v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972). In the last of these, California Motor Transport, the Supreme Court squarely held that the right of access to the courts is protected by the First Amendment. California Motor Transport, 404 U.S. at 510-511, 92 S.Ct. at 611-612. However, while recognizing a litigant’s first amendment right of access to the courts, the Supreme Court also recognized an exception to the Noerr-Penning-ton doctrine — litigation which is abusive of the adjudicative process is not protected. Id., 404 U.S. at 511-513, 92 S.Ct. at 612-613; see also Hydro-Tech Corp. v. Sundstrand Corp., 673 F.2d 1171, 1176 n. 6 (10th Cir.1982). This exception to Noerr-Pen-nington has become known as the “sham” litigation exception.

The Supreme Court left unclear the precise contours of the sham exception. Nor has the Seventh Circuit articulated a general definition of sham litigation. MCI Communications v. American Tel. & Tel. Co., 708 F.2d 1081, 1156 (7th Cir.1983). However, in a recent extensive discussion of the sham exception, the Seventh Circuit analogized sham litigation to the common law torts of malicious prosecution and abuse of process. Grip-Pak, Inc. v. Illinois Tool Works, Inc., 694 F.2d 466 (7th Cir.1982), cert. denied, 461 U.S. 958, 103 S.Ct. 2430, 77 L.Ed.2d 1317 (1983). While the Grip-Pak panel failed to define sham litigation, the opinion does hold that in order for litigation to be immunized from the antitrust laws under the Noerr-Pennington doctrine, the litigation must be undertaken with a good faith belief in its merit and for the purpose of obtaining a favorable judgment. Id. at 472.

Application of the Grip-Pak standard to this case reveals that Premier has failed to state a claim. In an attempt to establish a claim based on the collection actions Premier’s complaint states:

(1) NECA, its officers, local NECA chapter officers and Trustees of the NEIF have instituted actions of law against plaintiff to enforce Article Six of the National Agreement, including but limited to the following actions of law against plaintiff....

Complaint, 1115(1). The complaint then cites the three state court collection actions brought against Premier by some of the defendants. Nowhere does Premier allege that these state court actions were undertaken without a good faith belief in the merits of the claims or without a purpose to win a favorable judgment. In fact, it would be difficult for Premier to make such an allegation — the gravamen of Premier’s complaint is that, by implementing Article Six, the defendants attempted to get electrical contractors, who were not members of NECA, to pay into the industry fund. It would make little sense to contend on the one hand that defendants conspired to require non-members of NECA to pay into the fund, and on the other hand to argue that the defendants were unconcerned with the outcome of the collection actions that were the means by which defendants attempted to enforce Article Six.

However, Premier argues that Noerr-Pennington and its sham exception are relevant only to determining whether particular conduct is violative of the antitrust laws. Since it has already been determined, the argument goes, that Article Six violates Section 1 of the Sherman Act, the only issue is whether the costs and fees incurred in defending the collection actions constitute damages recoverable under the Clayton Act. Here it seems that Premier is not claiming that the collection actions violated the Sherman Act, but rather, that the costs of defending those actions are merely damages which resulted from defendants implementation of Article Six, which does violate the Act. This argument is without merit.

Premier attempts to circumvent Noerr-Pennington and the sham exception by labeling the collection actions antitrust damages rather than antitrust violations. Yet Premier presents no explanation of why this labeling makes any difference. In this court’s view, it does not matter whether the litigation is seen as itself violative of the antitrust laws or as an outgrowth of other acts which are violative of the antitrust laws. In either instance, defendants’ first amendment rights would be burdened by imposing treble damages as a penalty for undertaking litigation. Preservation of the first amendment interests which underlie the Noerr-Pennington doctrine must require a showing that the litigation falls within the sham exception, regardless of whether the plaintiff alleges that the litigation is itself an antitrust violation or that the costs of defending against litigation are damages recoverable under the antitrust laws.

To support its argument, Premier has cited a string of Seventh Circuit cases involving patent infringement suits. See, e.g., Locklin v. Day Glo Color Corp., 429 F.2d 873 (7th Cir.1970), cert. denied, 400 U.S. 1020, 91 S.Ct. 582, 27 L.Ed.2d 632 (1971); Hazeltine Research, Inc. v. Zenith Radio Corp., 388 F.2d 25 (7th Cir.1967) aff'd in part and rev’d in part, 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969); Dairy Foods, Inc. v. Dairy Maid Products Co-operative, 297 F.2d 805 (7th Cir.1961). These cases hold that the cost of defending a patent infringement claim can be recovered in a treble damage antitrust action brought against the patentee. However, all of these cases were decided before the California Motor Transport decision, which first applied Noerr-Pennington to litigation, and which decision finally explained that the Noerr-Pennington doctrine is specifically based on the first amendment. As one commentator has suggested, to the extent any of these patent cases can be seen as sanctioning damage awards for litigation without a showing of sham, their continued validity is doubtful after California Motor Transport. See, Fischel, Antitrust Liability for Attempts to Influence Government Action: The Basis and Limits of the Noerr-Pennington Doctrine, 45 U.Chi.L.Rev. 80, 111-114 (1977).

Accordingly, since Premier has made no allegations that the collection actions fall within the sham exception to the Noerr-Pennington doctrine, Premier’s attempt to recover for its costs and attorney’s fees in defending those actions fails to state a claim. Of course, the court recognizes that dismissal of a claim under Rule 12(b)(6) is proper only if “it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). However, this court agrees with that line of cases which holds that it is appropriate to dismiss a claim, such as Premiers, on a 12(b)(6) motion, if the complaint does not adequately allege the elements of the sham litigation exception. Preliminary dismissal is necessary because of the chilling effect which a treble damage claim can have on a defendants’ exercise of his or her first amendment rights. See e.g. Hydro-Tech Corp. v. Sundstrand Corp., 673 F.2d 1171, 1177, n. 8 (10th Cir.1982) (“when the discovery burdens of antitrust cases are combined with the threat of treble damages, the prospect of defending an antitrust action can become a most potent weapon to deter the exercise of First Amendment rights”); Franchise Realty Interstate Corp. v. San Francisco Local Joint Executive Bd. of Culinary Workers, 542 F.2d 1076, 1083 (9th Cir.1976), cert. denied, 430 U.S. 940, 97 S.Ct. 1571, 51 L.Ed.2d 787 (1977) (“the danger that the mere pendency of the action will chill the exercise of First Amendment rights requires more specific allegations than would otherwise be required”). In sum, Premier’s claim for its costs and attorney’s fees incurred in defending the three collection actions is dismissed pursuant to Rule 12(b)(6) Fed.R.Civ.P.

MOTIONS OF LOCAL UNION 461 AND LOCAL UNION 176

Defendant Local Union 461 has moved to dismiss the complaint, on the basis of failure to state a claim. In the alternative, Local 461 asks for summary judgment in its favor. In support of its motion this defendant has submitted the affidavit of John Marion, business manager and secretary of Local 461, as well as Local 461’s Answers to Interrogatories. Since the court has considered these submissions, which are outside the pleadings, the motion will be treated as one for summary judgment.

Briefly, John Marion’s affidavit states that Local 461 never engaged in the conduct of which it is accused in the sections of the complaint relevant to it. In response, Premier does not dispute the facts as stated in John Marion’s affidavit. Nor does Premier come forward with any arguments or evidence to suggest that a genuine issue of fact exists as to Local 461’s alleged involvement in the conspiracy to violate the antitrust laws. Rather, Premier merely states that without discovery, it cannot present by affidavit the facts necessary to oppose the facts as stated by John Marion. Consequently, Premier argues, the court should refuse to consider Local 461’s motion for summary judgment until other depositions have been taken and other discovery has been had on these issues. The court finds Premier’s argument unpersuasive.

Rule 56(f) Fed.R.Civ.P. states that a court may refuse to grant summary judgment if the party opposing the motion presents affidavits stating why he cannot present by affidavit facts essential to justify his opposition. If the court finds the stated reasons sufficient, the court may order a continuance of the motion to permit affidavits to be obtained, or depositions to be taken, or other discovery to be had. See 6 J. Moore & J. Wicker, Moore’s Federal Practice, 11 56.24 (2d ed. 1982). Apparently, Premier attempts to invoke the court’s discretion under Rule 56(f), even though plaintiff’s request is stated in its memorandum in opposition to the motion, rather than by affidavit as required by the Rule.

The court will not rest its decision of this motion on Premier’s technical failure to properly invoke Rule 56(f). Premier’s request would still be inadequate even if it were stated in the form of an affidavit. The court notes that Premier’s response to Local 461’s motion was filed May 15, 1984, more than three and a half years after Premier filed the first complaint in this action. Premier gives no reasons why it has been unable to conduct sufficient discovery in that three and a half years. Moreover, it has now been more than a year since the Local’s motion was fully briefed, yet Premier has made no attempt to file any affidavit to supplement its May 15, 1984, response to the Local’s motion. It should also be pointed out that in Premier’s status report filed on July 25, 1985, as a result of this court’s order, no mention is made of any additional discovery necessary to respond to Local 461’s motion. Premier seems content to rest its opposition to the motion on the mere recitation of the language of Rule 56(f) without setting forth any facts upon which the court can conclude that plaintiff has not had an adequate opportunity for discovery. This recitation is not enough to invoke the court’s discretion under Rule 56(f). Since Local 461’s submissions show that it has not been involved in any way in the alleged antitrust conspiracy against Premier, Local 461 is entitled to summary judgment in its favor and is dismissed as a defendant from this lawsuit.

Next, Local Union 176 argues that it too is entitled to summary judgment. In support of its motion, Local 176 contends that plaintiff’s only allegations of acts of Local 176 in furtherance of the alleged conspiracy are that the Local refused, and threatened to refuse, to refer electricians to plaintiff and threatened to engage in slow downs and other forms of harassment. See 1115(n) of Second Amended Complaint. Local 176 points to the affidavit of Michael Hughes, submitted by Premier in support of a motion for preliminary injunction brought by Premier on February 24, 1981. Attached to the Hughes affidavit is a copy of an opinion issued by the Appellate Court of Illinois, Third District (1980), Colgan v. Rae-Ann Electric Co., et al., 91 Ill.App.3d 386, 47 Ill.Dec. 227, 414 N.E.2d 1343 (1980) (consolidated). Local 176 further argues that, in the Colgan decision, the Illinois Appellate Court ruled that Local 176 had not engaged in any of the acts alleged in 1115(n) of the plaintiffs Complaint.

Premier responds that the allegations in Complaint H 15(n) are not the only acts of which Local 176 is accused. The court notes that II 15(h)(i) and (m) are also directed at the local union defendants, including Local 176. These paragraphs allege acts other than those in 1115(n). Unlike Local 461, Local 176 has not presented evidence to show that it has not engaged in the acts complained of in the other subparagraphs of the complaint. Therefore, even if Local 176 has not engaged in the conduct described in 1115(n), it has not addressed the other relevant allegations of Premier’s complaint and therefore cannot receive summary judgment in its favor.

CONCLUSION

In summary, for the reasons stated above the court’s ruling is as follows:

(1) Premier’s motion for summary judgment based on collateral estoppel is granted; defendants are barred from relitigating the issue of whether Article Six of the National Agreement is a per se violation of Section 1 of the Sherman Act;

(2) the motions of defendants’ IBEW, ÑECA and Local Union 701 to strike Premier’s request for injunctive and declarative relief is granted; these defendants’ motion to strike the general claim for damages, however, is denied;

(3) the motion to dismiss the claim for attorney’s fees and costs incurred in defense of the collection actions is granted;

(4) the motion of Local Union 461 for summary judgment is granted; Local 461 is dismissed from this action;

(5) Local Union 176’s motion for summary judgment is denied.

      . The Maryland defendants are identical to the defendants here with the exception of Local Unions 461, 176 and 701.

      . Furthermore, the possibilities of opt-outs reaping the fruits of a "wait and see” attitude are not as sure as defendants suggest, since there are time limits on when the decision to opt-out can be made. See, In Re Nissan Motor Corp. Antitrust Litigation, 552 F.2d 1088, 1104 (5th Cir.1977) (the absentee class member must take action at the "outset of the suit if he or she wishes to be excluded from the class"); see also Robinson v. Union Carbide Corp., 544 F.2d 1258, 1268 (5th Cir.1977) ("class members may not delay the decision to opt-out until the case reaches judgment”); Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (I), 81 Harvard L.Rev. 356, 397-98 (1967).

      . In its motion for partial summary judgment, plaintiff states that it seeks "summary judgment on the liability of all defendants in this action who were also defendants in the Maryland litigation.” The motion further states that these defendants should be estopped to relitigate the legal issues resolved in favor of the plaintiffs in the Maryland litigation. Yet the motion never makes clear what legal issues, in plaintiffs view, were resolved in the prior action. In its memorandum in support of its motion, plaintiff still does not make clear what these "legal issues” are upon which it seeks preclusive effects. In its reply memorandum, plaintiff finally identifies the issue as whether Article Six is a per se violation of Section 1 of the Sherman Act. Since both this court and defendants agree that was the only issue decided by the court in the Maryland litigation, it is unnecessary to discuss defendants’ arguments on whether the following issues were decided by Judge Murray: (1) whether the IBEW defendants abandoned the alleged conspiracy prior to causation of any damages; (2) whether the defendants were subject to various exemptions from liability; and (3) what, if anything, was the proper measure of damages. Plaintiff has not moved for summary judgment on any of these issues and nothing in this opinion is meant to suggest that defendants are precluded from litigating any of them. This court holds only that all defendants who were parties to the Maryland litigation are precluded from re-litigating the issue of whether Article Six is a per se violation of Section 1 of the Sherman Act.

      . California Motor Transport did give some content to the exception, however. The Court stated that the exception includes conduct such as perjury, misrepresentations to the court, conspiracy with judical officials, bribery, or a pattern of baseless litigation undertaken to bar competitors from meaningful access to legislative or judicial bodies. 404 U.S. at 513, 92 S.Ct. at 613.

      . Nor is the court persuaded by Premier's citation of cases decided after California Motor Transport. In all of those cases recovery of litigation costs was conditioned upon a showing that the litigation at issue was within the sham exception. See, e.g., Colorado Petroleum Marketing Assn'n. v. Southland Corp., 476 F.Supp. 373, 379 (D.Colo.1979) (allegations were sufficient to provide a "basis for invoking the ‘sham’ litigation exception”); Technicon Medical Information Systems Corp. v. Greenbay Packaging, Inc., 480 F.Supp. 124, 127-128 (E.D.Wis.1979) (bringing of lawsuit in “bad faith" and without "probable cause" stated a cause of action under the Sherman Act); B.A.M. Liquors, Inc. v. Satenstein, 176-2 Trade Cases ¶ 60, 997 at 69, 413 (S.D.N.E.1976) (bringing of ill-founded litigation is mere sham and not within the Noerr-Penning-ton doctrine).

      . Specifically, he states that: (1) the Local was never involved in the negotiation or implementation of Article Six; (2) that the Local never collected any funds from plaintiff or participated in any way in either the enforcement of Article Six or in the administration of any Article Six funds; (3) that since it was aware of Premier’s objections to Article Six, the Local never made any efforts to enforce the payment of Article Six contributions; (4) that this defendant never refused to negotiate with plaintiff, threatened it, refused to refer employees, engaged in intimidations, work slowdowns, boycotts, or any other forms of harassment against Premier; that the Local never approached Premier or any other non-NECA contractor to reopen existing labor agreements so as to amend them to include Article Six’s industry fund requirements; and finally (5) that this defendant has never instituted or participated in any court collection actions against plaintiff for payments due under Article Six, nor has the Local ever demanded that Premier comply with the challenged provision of Article Six. Therefore, the Local 461 defendant argues, there is no genuine issue of fact as to whether it is liable to Premier for any violation of the Sherman Act.


author: COBB, District Judge.

text:
    Robert JOHANSEN v. E.I. DUPONT DE NEMOURS AND CO.
    No. Civ. A. B-83-155-CA.
    United States District Court, E.D. Texas, Beaumont Division.
    Nov. 7, 1985.

      Joe Blanks, Beaumont, Tex., for plaintiff.
    O.J. Weber, Tom Walston, Beaumont, Tex., for defendant.
   MEMORANDUM OPINION

COBB, District Judge.

In this action, the defendant E.I. du Pont de Nemours & Co., Inc. (DuPont) seeks a summary judgment as to the action brought against it by the plaintiff Robert Johansen (Johansen). The plaintiff desires leave to re-amend his complaint to state an additional claim for relief against the defendant. For the reasons explained herein, the defendant’s motion for summary judgment is granted and the plaintiff’s motion for leave to file amended second amended original complaint is denied.

Johnsen alleges that he was an English oilfield worker who was working in Libya for one of the Halliburton companies when he was injured within in the course and scope of his employment. He states that on March 30, 1980, as a part of his job, he was loading a casing gun. The gun, its charge and its components are alleged to have been designed, manufactured, supplied or sold by DuPont and other parties which have been dismissed from this action. The gun apparently discharged, causing injuries to the plaintiff.

This federal action was initially filed on February 23, 1983, alleging diversity jurisdiction as against DuPont and several other parties. All defendants other than DuPont were dismissed from this action on the basis of forum non conveniens. In the plaintiff’s original complaint, the claims for relief were negligence and products liability. On February 6, 1985, Johansen amended his complaint to assert breaches of the implied warranties of merchantability and fitness for a particular purpose as additional claims. DuPont moved for summary judgment on the basis that all of the plaintiff’s claims for relief were time barred under the relevant statutes of limitation. Johansen has sought the leave of the court to further amend his complaint to add breach of express warranty as a further claim for relief. The parties have each contested the other’s pending motion.

DuPont asserts that under the relevant Texas conflicts law, Texas procedural law prescribes the time in which the suit may be brought. The time allowed in a personal injury action is two years from the date of the injury. Since the actions for negligence and product liability were not brought within two years of the injury, DuPont contends that they are time barred. DuPont further states that the four-year statute of limitations provided in the Texas Uniform Commercial Code for breach of warranty actions does not save plaintiff’s claim because the breach of warranty actions were not brought within four years from the time of the accident and is therefore also time barred. Additionally, DuPont states that the Texas Uniform Commercial Code does not apply because plaintiff’s cause of action has no relationship to the State of Texas. Finally, the defendant claims there can be no claim for relief for breach of implied warranties since DuPont specifically disclaimed all warranties of merchantability and fitness for a particular purpose.

Johansen responds to the defendant’s motion by asserting that the laws of the United Kingdom control the time for filing suit, thereby extending the time for filing an action for negligence to three years from the date of the accident. He also claims that the Texas statute of limitations has not run because his original complaint contained language sufficient to give fair notice to the defendant of the nature and grounds of his action for breach of implied warranty. Johansen further contends that the amended complaint relates back to the date of the original complaint thereby bringing the filing of the action for breach of implied warranties within the four-year limitation period. Finally, the plaintiff states that the disclaimer of warranties made by DuPont presents genuine issues of fact which precludes summary judgment based upon the disclaimer.

This court after hearing the parties’ arguments and having carefully considered the law and evidence of this case concludes that DuPont’s motion for summary judgment should be granted and that Johan-sen’s motion to file second amended original complaint should be denied.

I. NEGLIGENCE AND PRODUCT LIABILITY

This court holds that the claims for relief in each of the plaintiff’s various complaints which are based upon negligence and product liability are time barred. As there can be no award granted on these claims under the Texas statutes, summary judgment is appropriate.

It is well settled that in a federal diversity action, the law of the forum state controls the substantive law involved in the action. This doctrine extends to include the forum state’s conflict of laws provisions. Since this action was commenced in Texas, that state’s conflict of laws provisions guide this court in its decision. The Texas personal injury conflicts provision requires that Texas procedural law and the appropriate substantive law are to be applied to an out-of-state injury tried before a Texas court. Statutes of limitation are generally recognized to be procedural in nature, and therefore will usually come from Texas statutes when the case is heard by a state or federal court in Texas.

VERNON’S ANNOTATED TEXAS CIVIL STATUTES, Article 5526 (Art. 5526), states:

There shall be commenced and prosecuted within two years after the cause of action shall have accrued, and not afterward, all actions or suits in court of the following description: ...
6. Action for injury done to the person of another.

Since there is no dispute that the injury which Johansen is suing upon occurred on March 30,1980, and that the action was not commenced until February 23, 1983, there can be no dispute that the product liability and negligence actions are time barred under Texas procedural law.

Johansen contends that the United Kingdom’s three-year statute of limitation controls. This argument is based upon the premise that since Judge Justice dismissed the original actions against all defendants except DuPont, he implicitly and necessarily chose United Kingdom law to control this case. This presumption is unlikely in that since the accident occurred in Libya, Libya appears to be the site with the most significant relationship to the accident. Libyan law would normally be the substantive law to apply in this case. If there were no cause of action under Libyan law, or if England had greater significant contacts with the accident, then the court might resort to the law of the United Kingdom. But regardless of the validity of plaintiffs assumption that Judge Justice chose to follow British substantive law the United Kingdom’s statutes of limitation do not apply. British substantive law could only be applicable because of the last sentence of Art. 4678. The plaintiff states that the three-year limitation for negligence actions is incorporated into the British statute permitting a cause of action for negligence and is therefore substantive and controlling. However, even if it is assumed that the substantive law of the United Kingdom is appropriate, there has been no adequate showing as to what that law actually provides. There has been no affidavit or testimony as to the provisions of the relevant British law. This court is not prepared to take judicial notice of what the law of the United Kingdom might be. Because there has been no adequate showing of what the relevant British limitation period is, much less that it is substantive in nature, the Texas two-year limitation controls and bars the actions for negligence and products liability.

II. IMPLIED WARRANTY

The Texas Uniform Commercial Code provides that a cause of action for breach of an implied warranty must be commenced within four years after the cause of action has accrued. In Garcia v. Texas Instruments, Inc., 610 S.W.2d 456 (Tex.1980), the Supreme Court of Texas held that a claim for a personal injury arising from a breach of an implied warranty could be brought within the four-year limitation period of this section rather than the two-year period normally set out for personal injuries. The issue presented is whether the four-year period in which to commence the suit saves the plaintiff’s claim for breach of implied warranties.

Because the plaintiff’s first amended original complaint was filed on February 6, 1985, the issue as to whether the two- or four-year limitation applies is moot. The breach of an implied warranty (and therefore the time of the accrual of the action) occurs at the time of the sale of the goods in question. At the latest, the time of the accrual of the action would be slightly before the time of the injury. Because the amended complaint was filed almost five years after the accident, the action for the implied warranty is time barred under any relevant statute of limitation.

However, Johansen asserts that the amended complaint relates back to the time of the filing of the original complaint, thereby saving his actions for breach of warranty if the four-year limitation controls. As this argument goes, the four-year limitation period of § 2.725 would be applied back from the date of the original complaint, thereby falling within the per-missable period for filing an action for breach of warranty. The applicable Texas relation back statute is VERNON’S ANNOTATED TEXAS CIVIL STATUTES, Article 5539b (Art. 5539), which in relevant part provides that as long as the original action is not subject to a plea in limitation, an amendment will not be subject to a plea in limitation. However, in the present case, the original action was subject to a plea of limitation, preventing the amended pleading from relating back. Under similar circumstances, the federal district court in Powell v. Brantley Helicopters Corporation, 396 F.Supp. 646 (E.D.Tex.1975), held that the amended complaint did not relate back to the time of the original complaint since the claims in the original complaint were time barred.

The plaintiff attempts to salvage his claim by asserting that Federal Rule of Civil Procedure 15(c), (Rule 15[c]) provides for relation back of the amendment to the date of the original pleading despite the fact that the Texas statutes do not permit it. There are several Fifth Circuit cases holding that Rule 15(c) controls in federal diversity cases despite more restrictive state doctrines. This line of decisions is supported by the Supreme Court’s ruling in Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), which stated that when a federal rule actually speaks to a particular point of practice or pleading, it governs federal diversity proceedings even if the state law would yield a different result. This ruling essentially ended the Erie R. Co. v. Tompkins, supra, test as to procedural/substantive classification for cases where the Federal Rules of Civil Procedure is directly applicable. The outcome determination test of Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945) was limited in the same type of cases.

Hanna v. Plumer, supra, was clarified by the Supreme Court in Walker v. Armco Steel Corp., 446 U.S. 740, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980). In this decision, the Court held that Hanna requires an inquiry into whether the scope of the federal rule is so large that it actually conflicts with the state law. Only where there is a direct collision between the federal rule and the state law is a court required to determine whether the federal rule is within the scope of the Rules Enabling Act, 28 U.S.C. § 2072 (Enabling Act). The outcome-determination test of Erie and York are to be read with reference to the aims of Erie; discouragement of forum-shopping and avoidance of inequitable administration of laws.

Applying the analysis of Hanna as illuminated by Walker, this court is of the opinion that Rule 15(c) does not require the amended complaint to relate back to the filing of the original complaint. There is no conflict between Federal Rule 15(c) and Art. 5539b, at least in the circumstances of this case.

Rule 15(c) must be examined in context. The Federal Rules of Civil Procedure were created through Congress’ delegation of authority to the Supreme Court by means of the Federal Rules Enabling Act. The Enabling Act states that the federal rules “... shall not abridge, enlarge or modify any substantive right ...” In Walker v. Armco Steel Corp., supra, the Supreme Court required that a federal rule be tested against both the Rules Enabling Act and the Constitution. The authority of a federal rule cannot be greater than the authority which gave it being. A federal rule is not to be applied to the extent that it would defeat rights arising from state substantive law as distinguished from state procedure. With this established, it is clear that Rule 15(c) and Art. 5539b could only conflict over procedural matters, as Rule 15(c) cannot purport to control substantive matters.

Under relevant state and federal case law, the statute of limitations contained within § 2.725 of the Texas U.C.C. is substantive as opposed to procedural. “Where a statute incorporates a limitation upon the time within which the suit is to be brought, the limitation qualifies the right so that it becomes a part of the substantive law rather than procedural.” State of California v. Copus, 158 Tex. 196, 309 S.W.2d 227, 231 (1985); Weisz v. Spindletop Oil and Gas Co., 664 S.W.2d 423 (Tex.App.—13 Dist. 1983); and Cox v. McDonnell-Douglas Corp., 665 F.2d 566 (5th Cir.1982). Though statutes of limitation are generally classified as procedural, they are substantive when the limitation provision is itself an integral part of the statute creating the cause of action. Gaston v. B.F. Walker, Inc., supra at 673. There can be no doubt that the four-year limitation period is integral to the cause of action for breach of warranty, and this court so holds. Therefore, since Rule 15(c) does not apply because of limitations of the Enabling Act, Art. 5539b is the only relation back statute available to the plaintiff. Because Art. 5539b does not apply when the original claim is time barred, the implied warranty claim cannot relate back and is itself time barred.

To hold otherwise would give rise to absurd results. As stated in 51 Am.Jur.2d, Limitations of Actions § 15 (1970):

Although the general rule is that a true statute of limitations extinguishes only the right to enforce the remedy and not the substantive right itself, the limitation of time for commencing an action under a statute creating a new right enters into and becomes a part of the right of action itself and is a limitation not only of the remedy but of the right also; the right to recover depends upon the commencement of the action within the time limit set by the statute, and if that period of time is allowed to elapse without the institution of the action, the right of the action is gone forever. (Emphasis added).

See Jamerson v. Miles, 421 F.Supp. 107 (N.D.Tex.1976). A right of action cannot be gone forever and then be related back a few years later. To relate the warranty action back also serves to encourage an inequitable administration of laws and fails the outcome determination test to which Hanna still attached weight.

Regardless of the availability of Rule 15(c), the four-year limitation of § 2.725 is inapplicable in the case at bar. As previously noted, the Texas conflict of laws provisions govern this court’s application of law. Art. 4678 states that a Texas court will apply its own procedural law and the appropriate substantive law. Under the laws of the State of Texas, the statute of limitations in the Texas U.C.C. is substantive and therefore will not apply where the injury occurs in a foreign state or country. Because the § 2.725 statute of limitations is substantive in nature, it will not be applied as an Art. 4678 procedural matter, and the “time prescribed for commencement” of the action is not the four-year limitation of § 2.725 but the two-year period of Art. 5526. Therefore, even if the doctrine of relation back applied, plaintiff would be no better off.

Johansen falls back to the position that his original complaint was sufficient to charge DuPont with a breach of implied warranties. The pleadings of the case do not support this contention. According to the plaintiffs original complaint, the lawsuit was “brought to recover for injuries suffered by the plaintiff.” The proximate cause of the accident was stated to be the negligence of the defendants. Alternatively, the gun or its components were defective and/or unreasonably dangerous, which was stated to be a producing cause of the incident.

The plaintiff relies on Federal Rule 8 in his attempt to include a breach of implied warranties in his original complaint. There is no doubt that the original complaint set out claims for relief as to the negligence and products liability charges. The issue is whether Johansen set forth a claim for relief for the alleged breach of implied warranties. Even under the broad provision of Federal Rule 8, it cannot be held that the plaintiff met this burden. In Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957), the U.S. Supreme Court held that the Federal Rules require a short, plain statement of the claim that gives the defendant fair notice as to what the claim is and the grounds upon which it rests. In the present action the original complaint did not give the required notice. The entire complaint was worded in terms of negligence and product liability. Not only were these causes of action specifically named, but the necessary elements of each were set out. However, there was no mention of any warranty, implied or expressed. The only elements of an action for breach of implied warranties alleged were those which were necessary to prove one of the other specified causes of action. Allegations that the defendant manufactured and sold a dangerous or defective product and that the plaintiff was injured while using the product were not sufficent to alert the defendant that the plaintiff was asserting a claim for relief for a breach of implied warranties.

Substantial justice does not require that the court discover unstated claims for relief simply because the stated claims are barred. Further, it does not require that the defendant take notice of claims which the plaintiff does not assert. It does, however, require that pleadings give some meaningful notice as to the claims involved. Since the original complaint did not give the required minimal notice on the breach of implied warranties claim, substantial justice requires that this court hold that no such claim arose until the plaintiff filed his amended complaint.

The court having found that the four-year limitation of § 2.725 does not save the cause of action for breach of implied warranties, it is not necessary to examine the defendant’s contentions that the Texas U.C.C. does not apply because Texas had no relationship to the incident and that all warranties were effectively disclaimed. DuPont’s motion for summary judgment is granted as to this claim for relief on the basis that it is time barred.

III. EXPRESS WARRANTY

In his motion to file amended second amended original complaint, Johansen wishes to assert breach of express warranty as an additional claim for relief. For the same reasons that the actions for implied warranties were not timely acted upon, an action for express warranty would not be timely. Because all actions based upon breach of warranties are time barred, the plaintiff’s motion to re-amend his complaint is denied.

Accordingly, this court grants the defendant’s motion for summary judgment and denies the plaintiff’s motion to file amended second amended original complaint. Having so ruled, this case is dismissed as there are no causes of action before the court.

IT IS SO ORDERED.

      . Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

      . Klaxon Company v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

      . “Whenever the death or personal injury of a citizen of this State or of the United States, or of any foreign country having equal treaty rights with the United States on behalf of its citizens, has been or may be caused by the wrongful act, neglect or default of another in any foreign state or country for which a right to maintain an action and recover damages thereof is given by the statute or law or such foreign state or country or of this state, such right of action may be enforced in the courts of this state within the time prescribed for the commencement of such actions by the statutes of this state. All matters pertaining to procedure in the prosecution or maintenance of such action in the courts of this state shall be governed by the law of this state, and the court shall apply such rules of substantive law as are appropriate under the facts of the case.” VERNON’S TEX.REV.CIV.STAT. art. 4678 (Art. 4678).

        .Gaston v. B.F. Walker, Inc., 400 F.2d 671 (5th Cir.1968).

      . Gutierrez v. Collins, 583 S.W.2d 312 (Tex.1979).

      . VERNON’S TEXAS CODES ANNOTATED, BUSINESS AND COMMERCE § 2.725 (§ 2.725).

      . Timberlake v. A.H. Robins Co., Inc., 727 F.2d 1363 (5th Cir.1984).

      . See, Skidmore v. Syntex Laboratories, Inc., 529 F.2d 1244 (5th Cir.1976). Ca. Anderson v. Papillion, 445 F.2d 841 (5th Cir.1971).

      . Walker v. Armco, 446 U.S. at 749-50, 100 S.Ct. at 1984-85.

      . Ibid, at 748, 100 S.Ct. at 1984.

      . Ibid, at 747, 100 S.Ct. at 1983.

      . 28 U.S.C. § 2072.

      . Walker, at 748, 100 S.Ct. at 1984.

      . See, Wright, Miller & Cooper, Federal Practices and Procedure: Jurisdiction § 4509.

      . Marshall v. Mulrenin, 508 F.2d 39 (1st Cir.1974).

      . Hanna v. Plumer, supra, 380 U.S. at 473, 85 S.Ct. at 1145.

      . See note 5.