author: NESBITT, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. INTERCON LEASING, INC., a Florida corporation, Jerry L. Harvey, individually and as President of Intercon Leasing, Inc., Angel Dela Cuesta-Guzman, John Doe, Second in Command, Defendants in personam, and Douglas DC-6A Aircraft, Registration Number N45501, Manufacturer’s Serial Number 45551, Defendant in rem.
    No. 79-2605 CIV-NESBITT.
    United States District Court, S.D. Florida, S.D.
    June 28, 1985.

      Judy K. Hunt, Asst. U.S. Atty., Miami, Fla., for plaintiff.
    James McMaster, Richard Bernstein, Miami, Fla., for defendants.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW

NESBITT, District Judge.

THIS CAUSE was filed on June 14, 1979 and was subsequently assigned to the undersigned successor Judge. The cause was tried to the Court upon a complaint by the UNITED STATES OF AMERICA (United States) to recover civil penalties from the Defendants INTERCON LEASING, INC. (Intercon) and JERRY L. HARVEY (Harvey) under the Federal Aviation Act of 1958, ■§ 903, as amended, 49 U.S.C. § 1473 (the Act), to recover civil penalties under § 901 of the Act (49 U.S.C. § 1471) and for injunctive relief as provided in § 1007 of the Act (49 U.S.C. § 1487) and for other violations of the Act as now set forth in 49 U.S.C. §§ 1430(a)(l, 2, 4, 5), 1485(c). The complaint was filed against two other Defendants who are not before the Court. Upon the evidence presented, the Court does hereby enter its findings of fact and conclusions of law as follows:

FINDINGS OF FACT

The Court has jurisdiction of the cause and of the parties. Jurisdiction is specifically conferred upon this Court by §§ 903 and 1007 of the Act (49 U.S.C. §§ 1473, 1487), and 28 U.S.C. § 1345. Defendant Intercon, a Florida corporation, was the registered owner of the Defendant in rem Douglas DCA aircraft registration number N45501 (aircraft), and Defendant Harvey was the President of Intercon.

On August 23,1978, the Federal Aviation Administration (FAA) issued an emergency order of suspension which suspended the airworthiness certificate of the aircraft.

In September, 1978, a separate proceeding was instituted by the United States against Harvey and others for the assessment of civil penalties and injunctive relief arising out of an August 27, 1978 emergency order of suspension issued by the FAA. In February 1979, Harvey and the United States entered into a consent agreement for the entry of a permanent injunction enjoining Harvey, among other things, from “operating [the aircraft] contrary to and in violation of the August 23, 1978 order of suspension of (the) aircraft’s airworthiness certificate.” The aircraft was then in Santo Domingo. In early March 1979, the FAA issued a ferry permit allowing the aircraft to return to Miami.

Upon arriving in Miami, Harvey took the aircraft to Sekman Aviation Corporation (Sekman) on or about March 10, 1979, and placed a work order with the company for various items to be repaired. Thereafter, in March 1979, FAA inspectors, upon Harvey’s request, inspected the aircraft at Sekman. Upon completion of their inspection, an aircraft condition notice was issued on March 30, 1979 by the FAA inspectors listing numerous deficiencies in the condition of the aircraft, the effect of which was to continue the emergency order of suspension of the aircraft dated August 23, 1978.

On or about April 5, 1979, the aircraft made a flight to Love Field, Dallas, Texas. At that time, the emergency order of suspension had not been lifted or terminated. After being airborne for a short period of time the flight was aborted and returned to the origin of the flight from Miami International Airport.

After the April 5, 1979 flight, the FAA performed an inspection and issued another aircraft condition notice. On April 7, 1979 the FAA again inspected the aircraft and issued a third aircraft condition notice.

On April 7, 1979, the FAA entered an emergency order of revocation revoking the mechanics certificate number 1988768 issued to Harvey and ordered Harvey to surrender immediately the certificate to the FAA. Harvey surrendered the certificate on May 14, 1979. On April 24, 1979, the FAA ordered Intercon to present the maintenance records of the aircraft which as of the date of the trial had not been produced.

The complaint also alleges civil penalties against Defendant Jerry Harvey because on or about July 3,1977, Harvey leased and operated a DC-6 aircraft cargo plane on a flight to Venezuela with a load of meat when he had neither an air carrier nor commercial operator’s operating certificate or appropriate operations specifications contrary to 49 U.S.C. § 1430(a)(4)(5) and 14 C.F.R. § 121(e) and § 121(f), and in violation of numerous regulations of the FAA. The numerous regulations are as follows:

14 C.F.R. § 121.55
14 C.F.R. § 121.59
14 C.F.R. § 121.113
14 C.F.R. § 121.59
14 C.F.R. § 121.75
14 C.F.R. § 121.123
14 C.F.R. § 121.125
14 C.F.R. § 121.135
14 C.F.R. § 121.367
14 C.F.R. § 121.369
14 C.F.R. § 121.371
14 C.F.R. § 121.375
14 C.F.R. § 121.380
14 C.F.R. § 121.401
14 C.F.R. § 121.383

To the complaint the Defendant raised several “affirmative defenses” against the United States, such as estoppel, bad faith, selective enforcement of governmental regulations, improper investigations, violation of its agreement with the Defendants Harvey and Intercon, and lack of proof that the Defendants Harvey and Intercon were owners or operators of the Defendant aircraft after March 30, 1979.

CONCLUSIONS OF LAW

The broad powers of the FAA to promote safety by regulation of civil aircraft in air commerce is set forth in detail in F.A.A. v. Landy, 705 F.2d 624 (2d Cir.1983). Suffice it to say as was so aptly stated by Judge van Graafeiland in his concurrence and dissent to the majority opinion, “air safety ranks somewhere in pecking order between motherhood and the American flag____” Id. at 637. The primary part of the odyssey between Harvey, Intercon and the FAA began in this case on August 23, 1978, when the FAA issued an emergency order of suspension suspending the airworthiness certificate of the Defendant aircraft. 49 U.S.C. § 1430(a)(1) provides that it shall be unlawful:

For any person to operate in air commerce any civil aircraft for which there is not currently in effect an airworthiness certificate or in violation of the terms of any such certificate.

See also Federal Aviation Regulations, 14 C.F.R. § 91.27(a)(1). On August 23, 1978, the FAA listed in its emergency order of suspension some thirteen discrepancies and recited that the aircraft’s airworthiness certificate would remain suspended until it was demonstrated that the discrepancies were repaired and the airworthiness requirements of the aircraft were met. Thereafter a series of events occurred which gave rise to Harvey and Intercon being charged with multiple penalties for operating the aircraft without an airworthiness certificate and in violation of various aircraft condition notices.

Upon a request for an FAA inspection after the discrepancies had been purportedly repaired, the FAA inspected the aircraft and issued the aircraft condition notice of March 30, 1979 listing some forty-three (43) deficiencies still existing.

At the time of the April 5, 1979 flight to Dallas, Texas, the emergency order of suspension had not been revoked or lifted by the FAA.

Harvey’s legal “defenses” to the claimed violations of the FAA regulations can be categorized as follows:

(A) As to the 1977 flight to Venezuela, Harvey had entered into a lease with Lanica, the national airline of Venezuela for the lease of one of their aircraft. Immediately after leasing the aircraft to one Jorge Anzola, Anzola arranged for the cargo flight of July 3, 1977 to take place and Harvey merely acted as a broker, and did not operate the aircraft.
(B) As to the flight of April 5, 1979, Harvey contends on March 30, 1979 (the same day the [first] condition notice was issued) he had entered into a contract for sale for the transfer of this aircraft to Global Restaurant Supplies and had transferred all of his interest to the new purchaser, and had no authorization, interest or control over the aircraft, and accordingly, did not “operate” the aircraft in violation of the emergency order of suspension or “operate” an aircraft in an unairworthy condition.
(C) Harvey is not liable for civil penalties pursuant to 14 C.F.R. § 121(f) for failing to surrender his mechanics certificate for 33 days on May 15, 1979 after it had been revoked by an emergency order of revocation signed April 9, 1979 because the emergency order had been stayed as Harvey had appealed the order on April 30, 1979 and as he had 20 days in which to appeal he was not in violation for failing to surrender his mechanics certificate.

In considering the contentions of the parties as to the alleged violations, and the defenses thereto, the Court will consider them historically.

I. 1977 Flight to Venezuela by Harvey Without an Air Carrier Operating Certificate

Under the applicable regulations, 14 C.F.R. §§ 121.3(e)-(f) and 121.4, one may not operate an aircraft without complying with certain air safety requirements.

Harvey’s position is that he had leased an aircraft (AN-BFN) and thereafter subleased it to Jorge Anzola for a meat flight from Miami to Venezuela and that under the terms of the lease agreement, the AN-BFN aircraft was a foreign registered aircraft operating under foreign air carrier regulations. Accordingly, Harvey did not have “operational control over the aircraft” so as to be subject to FAA regulations as Lanica maintained control of the aircraft. The United States introduced a statement signed by Harvey that he had entered into a contract to receive $300.00 per flight for transporting cargo and that Harvey remained responsible for the maintenance and crew.

The definition of a “foreign air carrier” as set forth in 14 C.F.R. § 1.1 is as follows:

Any person other than a citizen of the United States who undertakes directly by lease or other arrangement to engage in air transportation____

The Court finds the aircraft was operated by Harvey as a U.S. citizen and was not a foreign air carrier. Harvey is therefore liable for a civil penalty in the amount of $1,000.00 because on July 3, 1977 he operated aircraft AN-BFN in violation of 14 C.F.R. §§ 121.3(e)-(f).

The Court also finds that Harvey is liable for civil penalties in the amount of $14,000.00 for operating aircraft AN-BFN on July 3, 1977 for the purpose of carrying cargo in air commerce or transporter for hire without having complied with the appropriate federal regulations in that at the time of the flight:

(a) Harvey had failed to submit to the Administrator of the Federal Aviation Administration the commercial operator financial statements required semi-annually and annually contrary to and in violation of the Federal Aviation Regulations, 14 CFR § 121.55.

(b) Harvey had not shown the Administrator that he had enough qualified management personnel in the proper position to provide the highest degree of safety as required by the Federal Aviation Regulations, 14 C.F.R. § 121.59.

(c) Harvey had not obtained area and route approval for his operations contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.113.

(d) Harvey had not maintained a complete and separate set of his operations specifications contrary to and in violation of Federal Aviation Regulations, 14 C.F.R. § 121.75.

(e) Harvey had not shown that competent personnel and adequate facilities and equipment (including spare parts, supplies and materials) were available for the proper servicing, maintenance, and preventative maintenance of this aircraft and auxiliary equipment contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.123.

(f) Harvey had not shown that he maintained a flight following system, and the equipment and personnel to operate it, and Harvey did not have an approved system established in accordance with Subpart U, contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.125.

(g) Harvey did not keep a current commercial operator company manual for the use of and guidance of flight ground operation and management personnel in conducting its operation containing the information set forth in the Federal Aviation Regulations, 14 C.F.R. § 121.135, contrary to and in violation of 14 C.F.R. § 121.133.

(h) Harvey had not established and maintained an inspection program covering other maintenance, preventative maintenance and alterations that ensure that work is accomplished in compliance with the manual, that competent personnel, facilities and equipment are used, and that each aircraft released to service is airworthy and had been properly maintained for operation under the Federal Aviation Regulations, 14 C.F.R. § 121.367; and had failed adequately to identify those responsible for maintenance in the manual, contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.369.

(i) Harvey had failed to maintain a current list of properly trained, qualified and authorized inspection personnel, contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.371; and failed to establish and maintain a maintenance training program, contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.375.

(j) Harvey had failed to establish, and maintain a maintenance recording system contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.380.

(k) Harvey had failed to establish, obtain from the Administrator of the Federal Aviation Administration initial and final approval of, and provide for, a training program which meets the requirements of the Federal Aviation Regulations, 14 C.F.R. §§ 121.400-427, 121 app. E, F for each crew member, dispatcher, flight inspector and check airman, contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.401.

(l) Harvey utilized persons who served as airmen on the above-described operation when they were not qualified for the operation for which they were used by virtue of their failure to complete an approved training program as required by the Federal Aviation Regulations, 14 C.F.R. § 121.433, contrary to and in violation of the Federal Aviation Regulations, 14 C.F.R. § 121.-383(a)(3).

II. Violation of the 1979 Emergency Order of Revocation to Surrender Harvey’s Mechanic’s Certificate

It is undisputed that on April 7,. 1979 the FAA under an emergency order of revocation revoked Harvey’s mechanic’s certificate and ordered Harvey to “immediately surrender his certificate” to the regional counsel for the FAA.

The order of revocation advised Harvey of his right to appeal as follows:

You may appeal from this Order by filing a Notice of Appeal with the Office of Administrative Law Judges, National Transportation Safety Board, Washington, D.C. 20594, within twenty (20) days from the time of service of this Order. Part 821 of the Board’s Rules of Practice (49 CFR 821) applies to such an appeal. A letter is considered served as of the date of the postmark. Such an appeal stays the effectiveness of this Order. If you appeal, please send a copy to us. (Emphasis added.)

It is also undisputed that on April 17, 1979 an administrative appeal was duly and timely filed by Harvey, and received by the National Transportation Safety Board (NTSB). In preparation for a May 15,1979 hearing before the NTSB Harvey admitted he had been convicted of a felony which is grounds for an automatic suspension of his certificate. Thereafter, by an agreement with Harvey’s attorney and the FAA, Harvey’s certificate was voluntarily surrendered on May 14, 1979 and the FAA dismissed the pending proceedings unrelated to the felony conviction. Thereafter, the FAA proceeded with a new notice of revocation of certificate action which action was ultimately resolved between the parties.

The FAA seeks to impose some $33,000 in penalties for Harvey’s failure to surrender his mechanics certificate for thirty-three days after it had been “immediately” revoked by the Emergency Order of Revocation. (A civil penalty at the rate of $1,000.00 a day in violation of 14 C.F.R. § 61.19(f).) The Court finds that although under 49 U.S.C. §§ 1429 and 1485 the Secretary of Transportation has the authority to require the immediate surrender of an aircraft mechanic’s certificate “if he so orders”, and further only if he “advises the National Transportation Safety Board that an emergency exists and safety in air commerce or air transportation requires the immediate effectiveness of his order____” 49 U.S.C. 1429(a). There was no evidence that the Secretary did “so order”. The emergency order clearly provides that a timely appeal “stays effectiveness of the order.” Further, there was no evidence presented that the Secretary notified the NTSB as required by 49 U.S.C. 1429(a).

Accordingly, the Court finds that Harvey filed a timely appeal and should not be fined for failing to surrender his mechanic’s certificate pursuant to the FAA's request of April 24, 1979.

III. Failure to Deliver Aircraft Maintenance Records.

On April 24, 1979, the FAA requested Intercon and Harvey that pursuant to 14 C.F.R. § 91.173(c) the maintenance records of the aircraft be presented. Neither Intercon nor Harvey surrendered the maintenance records on demand. As a “defense” Harvey testified he believed the aircraft’s records were in the custody of an attorney, Matthew Gold, who represented both him and Intercon, and he did not know their whereabouts since April 1979. On the eve of trial Matthew Gold’s deposition was taken and he stated that the records were last seen when they were delivered to “new purchasers” of the aircraft on or about April 5, 1979.

The Court finds Harvey’s argument to be spurious. There was no evidence presented that Matthew Gold was served with any subpoena or official notice to produce the records until just prior to trial, although this case had been pending since 1979, nor that any attempt was made to secure documentation from the “new owners” about the records. In fact, other than Harvey’s testimony there is no evidence to support any “delivery” of the records to the “new owners.”

Accordingly, the Court finds Inter-con and Harvey are both liable for civil penalties in the amount of $1,950,000, computed at the rate of $1,000 per day from the date of demand of the maintenance records, April 24, 1979, to the date of the sale of the aircraft, July 30, 1984, because they failed to surrender maintenance records as required by the Federal Aviation Regulations, 14 C.F.R. § 91.173(c).

IV. The April 5,1979 Flight in Violation of the March 30, 1979 Emergency Order of Suspension

The United States contends that Intercon and Harvey are liable for civil penalties in that they operated the aircraft on April 5, 1979 contrary to the March 30, 1979 emergency order of suspension and in violation of 49 U.S.C. § 1430(a)(2) and 14 C.F.R. §§ 91.27(a)(1), 91.29(a), 91.169(e)-(f). In particular, the United States seeks penalties because Intercon and Harvey used, caused to be used, or authorized the use of the aircraft when the aircraft:

(a) did not have an appropriate and current airworthiness certificate;
(b) was not in an airworthiness condition;
(c) was in violation of the Emergency Order of Suspension; and
(d) did not have a large inspection program on file by the registered operator.

Harvey testified that at the time of the April 5, 1979 flight, the aircraft airworthiness certificate was no longer suspended; the aircraft was in an airworthiness condition; the flight was not in violation of the Emergency Order; and an inspection program was on file.

Finally, Harvey contends that even in the event there was a technical violation of a regulation, that the United States is estopped from holding Harvey and Inter-con liable due to the United States’s misrepresentations to Harvey and Intercon and Harvey’s and Intercon’s reliance thereon; the United States’s “bad faith” and selective enforcement of its regulations and the United States’s violations of its agreements with Intercon and Harvey.

In short, Harvey and Intercon by their estoppel argument now seek to go behind the March 30, 1979 Emergency Order of Suspension. The correct remedy if the Order of Suspension was invalid was for Harvey to appeal the order to the NTSB under 49 C.F.R. § 821.

Harvey also attempts to argue that he personally should not be held liable for these penalties because he did not operate the aircraft. The defendant, however, overlooks the broad definition of the term “operate” as found in 14 C.F.R. § 1.1:

“Operate,” with respect to aircraft, means use, cause to use or authorize to use aircraft, for the purpose ... of air navigation including the piloting of aircraft, with or without the right of legal control (as owner, lessee, or otherwise).

The evidence at trial established that there were three individuals on board the subject aircraft on April 5,1979, and that a crew of three was required to operate the aircraft. Harvey was seen on board the aircraft. Harvey testified on March 30,1979 that the aircraft was sold and title transferred to a third party (Global Restaurant Supplies) and later, after April 5, 1979, Harvey and Intercon took back the title to the aircraft.

The Court finds that Harvey, as president of Intercon Leasing and as the on-site representative of the new owner, as well as a crewmember, operated this aircraft on April 5, 1979 within the meaning of that term as defined by 14 C.F.R. § 1.1.

By way of a broad based defense Intercon and Harvey rely on “estoppel” to prevent the imposition of any penalties by the United States. In substance Harvey and Intercon claim that the government, by its conduct, is selectively enforcing penalties against them and lulling them into believing that the emergency order of suspension was waived in March 1984. Harvey’s and Intercon’s argument in support of their estoppel defenses is without merit. As was aptly stated in Emery Mining Corp. v. Secretary of Labor, 744 F.2d 1411 (10th Cir.1984):

“courts invoke the doctrine of estoppel against the government with great reluctance.” United States v. Browning, 630 F.2d 694, 702 (10th Cir.1980), cert. denied, 451 U.S. 988, 101 S.Ct. 2324, 68 L.Ed.2d 846 (1981); see Heckler v. Community Health Services, [467] U.S. [51], 104 S.Ct. 2218, 2224, 81 L.Ed.2d 42 (1984) (government may not be es-topped on same terms as any other litigant). Application of the doctrine is justified only where “it does not interfere with underlying government policies or unduly undermine the correct enforcement of a particular law or regulation.” Browning, 630 F.2d at 702. Equitable estoppel “may not be used to contradict a clear Congressional mandate,” Worley v. Harris, 666 F.2d 417, 422 (9th Cir.1982), as undoubtedly would be the case were we to apply it here. See Enfield [v. Kleppe ] 566 F.2d [1139 (10th Cir.1977)] at 1142; cf. Molton, Allen & Williams, Inc. v. Harris, 613 F.2d 1176, 1178-79 (D.C.Cir.1980).

Id. at 1416. Furthermore, in the recent case of RTA Corp. v. Consolidated Rail Corp., 594 F.Supp. 205 (S.D.N.Y.1984), the court stated the following:

Throughout our analysis, we must be mindful that, “[e]stoppel, within the context of the mandatory, statutory and regulatory scheme, should not be lightly found.”

Id. at 210 (citing Bobst Division of Bobst Champlain Inc. v. IML Freight, Inc., 566 F.Supp. 665 (S.D.N.Y.1983); see also United States v. Goodman, 572 F.Supp. 1284 (Ct.Int’l Trade 1983).

CONCLUSION'

For the reasons herein set forth in the above findings of fact and conclusions of law it is

ORDERED AND ADJUDGED as follows:

1. A summons was issued as to Defendant ANGEL DELA CUESTA-GUZMAN on June 14, 1979 which summons was returned unexecuted on June 15, 1979. Accordingly, the Defendant ANGEL DELA CUESTA-GUZMAN is hereby DISMISSED pursuant to Local Rule 13.

2. A summons was never issued for the Defendant JOHN DOE, Second in Command. Accordingly, the Defendant JOHN DOE is hereby DISMISSED pursuant to Local Rule 13.

3. The UNITED STATES OF AMERICA shall have and recover from JERRY L. HARVEY the amount of One Million Nine Hundred Eighty-One Thousand Dollars and no Cents ($1,981,000.00) for which let execution issue.

4. The UNITED STATES OF AMERICA shall have and recover from INTER-CON LEASING, INC. the amount of One Million Nine Hundred Sixty-Six Thousand Dollars ($1,966,000.00) for which execution shall issue.


source: Caselaw Access Project

author: HAROLD H. GREENE, District Judge.

license: Public Domain

text:
    INFORMATICS GENERAL CORPORATION, Plaintiff, v. Caspar W. WEINBERGER, Defendant.
    Civ. A. No. 85-0993.
    United States District Court, District of Columbia.
    June 28, 1985.
    Alan I. Saltman, Saltman & Stevens, Washington, D.C., for plaintiff.
    John D. Bates, Asst. U.S. Atty., Linda Ruiz, Sp. Asst. U.S. Atty., Washington, D.C., for Federal defendant; Harry Dorsey, Cpt. JAGC, U.S. Army Litigation, of counsel.
    Robert E. Hebda, Steele, Simmons & Fornaciari, Washington, D.C., James D. Duffey, Jr., Deputy Gen. Counsel, Electronic Data Systems Federal Corp., Bethesda, Md., for defendant-intervenor Electronic Data Systems Federal Corp.
   MEMORANDUM ORDER

HAROLD H. GREENE, District Judge.

In this action plaintiff Informatics General Corporation (Informatics) challenges an award by the Department of Defense (DOD) of the Systems Engineering and Technical Assistance Contract (SETAC) to Electronic Data Systems, Inc. (EDS). The successful, top-ranked EDS proposal was technically superior to those submitted by other competitors, including plaintiff. However, plaintiff, the second-ranked bidder, challenges the award of the SETAC contract to EDS on the ground that EDS should have been disqualified because it was involved in a conflict of interest in contravention of government procurement regulations. Pending before the Court are plaintiff’s motion for a preliminary injunction and the government’s motion for summary judgment supported by intervenor EDS.

I

The material facts are not in dispute. The five-year, $11 million SETAC contract involves the provision of systems engineering and other technical assistance to DOD’s TRIMIS program, an ongoing effort to computerize and integrate DOD’s medical care facilities. Among other duties, the SETAC contractor is to provide DOD with technical assistance in developing a Request for Proposals (RFP) for bids on the $750 million Composite Health Care System (CHCS), which will automate DOD’s 166-fa-cility military hospital network, and it is also to provide assistance in evaluating CHCS bids for technical adequacy. DOD solicited bids for the SETAC contract last fall, and it awarded the SETAC contract to EDS on March 1, 1985. The CHCS RFP, which EDS reviewed under its SETAC contract, was issued on May 15, 1985, and CHCS bids are due in August, 1985.

Plaintiff contends that the award of the SETAC contract to EDS violates various conflict of interest provisions of the Federal Acquisitions Regulations (FAR), 48 C.F.R. § 9.500 et seq. In particular, plaintiff argues that the award of the SETAC contract to EDS violates FAR section 9.505-3, which directs that contracts generally shall not be awarded to contractors that will be responsible for evaluating their own or their competitors’ products, unless proper safeguards are included to ensure objectivity and to protect the government’s interest in obtaining fair and impartial evaluations. Plaintiff also relies on other regulations in FAR section 9.5, such as section 9.504(a)(2), which requires the contracting officer to “avoid, neutralize, or mitigate significant potential conflicts before contract award.” 48 C.F.R. § 9.504(A)(2). Plaintiff contends that, as a major provider of hospital automation systems, EDS has significant potential conflicts of interest, and that DOD’s efforts to resolve those conflicts have been belated and inadequate.

The first conflict of interest identified by plaintiff involves EDS’ participation in ongoing Veterans’ Administration (VA) hospital automation demonstration projects. The VA is using the demonstration projects to evaluate the merits of two competing automation systems, known as MUMPS and non-MUMPS, one of which it will adopt for the automation of its entire hospital system. Congress, recognizing the potential economies in having the VA and DOD use similar automation systems, has directed DOD and VA to develop compatible hospital automation systems. In particular, Congress has directed DOD to design the CHCS RFP and competition to select the outstanding MUMPS and non-MUMPS proposals and to conduct a “fly-off” between the MUMPS and non-MUMPS systems to select the CHCS contractor. Plaintiff argues that EDS, a supplier of non-MUMPS systems, will have a strong incentive to establish CHCS technical standards that discriminate against MUMPS systems, thereby ensuring that a non-MUMPS system will win the DOD CHCS contract and that the VA will therefore have an additional incentive to award its $300 million hospital automation contract to a non-MUMPS contractor such as EDS.

A second conflict of interest identified by plaintiffs involves EDS’ status as the incumbent contractor for the DOD Defense Enrollment Eligibility Reporting System (DEERS). The DEERS contract is scheduled to be recompeted this summer, and the draft CHCS RFP requires CHCS bidders to explain how their systems will function compatibly with the DEERS system. Plaintiff alleges that EDS’ interest in maintaining its DEERS contract may lead it improperly to take advantage of its access to proposed CHCS proposals. Indeed, plaintiff alleges generally that plaintiff’s access to technical information concerning competitors’ products creates a significant conflict of interest that will deter competition for the CHCS contract.

II

As the foregoing summary and common sense suggest, it is indisputable that the letting of the SETAC contract to a hospital automation systems vendor raised potential conflict of interest problems. That, however, is only the beginning of the analysis required under the FAR. The critical question is whether DOD identified those potential conflicts and took adequate measures to eliminate or minimize them prior to negotiating the SETAC contract. In considering the adequacy of DOD’s negotiation of the contract the Court must, of course, undertake its analysis cognizant of the great discretion accorded to procurement officials and the plaintiff’s heavy burden of demonstrating that the challenged action (1) lacked a rational basis or (2) clearly and prejudicially violated applicable statutes and regulations. After considering carefully the submissions of the parties, the Court concludes that plaintiff has failed to carry its burden.

The original SETAC solicitation, promulgated last fall, explicitly included provisions designed to eliminate or minimize conflicts of interest that might arise if the SETAC contract were awarded to a contractor that was also a hospital automation systems provider. Clause H-5 of the SETAC solicitation barred the successful SETAC contractor from competing for, or serving as a subcontractor on, CHCS contracts for three years. Clause H-12 specifically prohibited the SETAC contractor from misusing proprietary information to which access was gained in performance of the SETAC contract, The inclusion of these clauses clearly gave notice to SETAC bidders, including plaintiff, that DOD anticipated the possibility that the SETAC contract might be awarded to a hospital automation systems provider. Yet none of the SETAC bidders, including plaintiff, complained that the draft SETAC contract inadequately mitigated potential conflicts of interest.

In addition to including specific preaward conflict limitation provisions in the SETAC contract, DOD has also exercised its contractual right to modify the terms of the contract to avoid potential conflicts identified after the contract was awarded. Specifically, DOD has taken advantage of a contract provision permitting it to consult the SETAC contractor on a “task oriented” basis to exclude EDS from the process of evaluating the technical adequacy of the CHCS proposals submitted by various bidders. In this way DOD has obviated any potential conflict — and any potential chilling of CHCS competition — that might arise from EDS having access to potential competitors’ proprietary information. To be sure, this modification of the SETAC contract took place after the contract was awarded to EDS. But DOD included the modification provision in the contract prior to the award, thereby providing needed flexibility in resolving potential conflicts as they might arise. It cannot seriously be argued that such an approach is inconsistent with the FAR conflict mitigation provisions, which require only that contracts include provisions designed to obviate or mitigate potential conflicts, not that agency contract officers be clairvoyant.

It is also clear that any remaining unresolved potential conflicts of interest are insubstantial or speculative. Both the VA and DEERS conflict allegations assume that EDS will have controlling authority both in drafting the CHCS RFP and in ultimately awarding the CHCS contract. However, both the SETAC contract and the affidavits submitted by DOD TRIMIS employees clearly indicate that the SETAC contractor is to serve as a consultant only, and that ultimate decisions are to be made by DOD personnel. Beyond that, the VA and DEERS compatibility requirements do not mandate the use in CHCS of systems identical to those presently used for those systems; .they require only that the CHCS system ultimately adopted be compatible with those systems, and vice versa. Thus, plaintiff’s intimations to the contrary notwithstanding, the CHCS award will by no means dictate the outcome of the VA and DEERS competitions, and these alleged conflicts must be considered speculative at best. Such speculative conflicts of interest do not amount to violations of the FAR, which requires only that agencies avoid or mitigate “significant potential conflicts,” 48 C.F.R. § 9.504(a)(2) (emphasis added), not that all conceivable conflicts be avoided.

The speculative character of the conflicts identified by plaintiff suggests the fatal underlying defect in its argument. In identifying conflicts implicitly created by EDS’ provision of other computer systems under other contracts to DOD or to other agencies (such as the VA), plaintiff is implicitly arguing that vendors can never serve as contract consultants to government agencies, even where they are prohibited from competing for the contract on which they consult and subjected to other appropriate restrictions. The attraction of such an argument for plaintiff, a consulting firm that is not a vendor of computer systems, is obvious: the rule eliminates much of the potential competition. It is equally obvious that the cost of such a rule to the government, and to the public, in terms of the decrease in competition and, in this case, the loss of superior technical expertise, would be substantial. Nothing in the FAR, which permits potential conflicts to be mitigated where they cannot be eliminated, and which directs procurement officers to avoid the adoption of cumbersome information and documentation requirements in evaluating and resolving conflicts, mandates the adoption of a principle that would achieve such perverse results.

Ill

The Court of Appeals has repeatedly indicated that principles of judicial restraint are particularly important in government contract cases, which typically involve complicated decisions best left to the expertise of the contracting agency. Plaintiff has failed to establish that the SETAC contracting procedure violated the FAR or any other applicable federal law. There is therefore no basis whatever for overturning the contract award; nor, obviously, given the lack of merit in plaintiffs case, is there any warrant for the issuance of an injunction suspending performance of the SETAC contract.

Accordingly, it is this 28th day of June, 1985

ORDERED that plaintiffs motion for a preliminary injunction be and it is hereby denied; and it is further

ORDERED that defendant’s motion for summary judgment be and it is hereby granted; and it is further

ORDERED that this action be and it is hereby dismissed with prejudice.

      . The SETAC contract requires the contractor to provide requested technical assistance in six "Task Areas," including: (1) technical evaluation of CHCS proposals; (2) CHCS quality control evaluations; (3) equipment testing and certification; (4) configuration management; (5) system deployment planning and site implementation; and (6) technical studies and analyses.

      . The regulation provides that: “Contracts involving (a) technical evaluations of other contractors’ offers or products or (b) consulting services ... shall not generally be awarded to a contractor that would evaluate, or advise the Government concerning, its own products or activities, or those of a competitor, without proper safeguards to ensure objectivity and protect the Government’s interests____” 48 C.F.R. § 9.505-3.

      . See Report of the Conference Committee on Appropriations, H.R.Rep. No. 1159, 98th Cong., 2d Sess. 316 (Oct. 10, 1984).

      . Indeed, the FAR regulations recognize that “organizational conflicts of interest are more likely to arise in contracts involving — (1) Management support services; (2) Consultant or other professional services; (3) Contractor performance of or assistance in technical evaluations; or (4) Systems engineering and technical direction work performed by a contractor that does not have overall contractual responsibility for development or production." 48 C.F.R. § 9.502(b).

      . Numerous FAR regulations require procurement personnel to identify and attempt to mitigate potential conflicts of interest before awarding contracts. See, e.g., 48 C.F.R. §§ 9.504(a)(2), (c); 9.507.

      . See Delta Data Systems Corp. v. Webster, 744 F.2d 197, 203-04 (D.C.Cir.1984); M. Steinthal & Co. v. Seamans, 455 F.2d 1289, 1301 (D.C.Cir. 1971).

      . This contract provision is consistent with the provisions of 48 C.F.R. §§ 9-505.1; 9.505-2(a)(2); and 9.508(1) and (2).

      . This contract restriction was consistent with the provisions of 48 C.F.R. § 9.505-4(a).

      . DOD has arranged for another contractor to perform Task 1 of the SETAC contract with respect to CHCS; however, EDS will perform Task 1 with respect to other aspects of the TRIMIS program.

      . See 48 C.F.R. §§ 9.504(a)(2) ("avoid, neutralize, or mitigate significant potential conflicts”) (emphasis added); 9.507(a) (same).

      . See 48 C.F.R. § 9.504(d).

      . To the contrary, it appears that the FAR explicitly contemplates the possibility that vendors will provide technical and developmental assistance to the government. See 48 C.F.R. § 9.505-2(a)(3), (b).

      . See Delta Data Systems, supra, note 6.

      . The complaint also alleges that the SETAC contract award violates 38 U.S.C. § 5011, which provides for the sharing of health care facilities by DOD and the VA, and the directions of the Conference Committee on Appropriations cited in note 3, supra. No provision of the cited statute prohibits, or even directly relates to, the challenged contract award. Nor can plaintiff state a claim under the Conference Committee Report, which does not have the force of law and which in any event in no way prohibits this contract award.


author: CHARLES SCHWARTZ, Jr., District Judge.

text:
    Thomas K. PINNER v. James J. SCHMIDT, et al.
    Civ. A. No. 84-2059.
    United States District Court, E.D. Louisiana.
    June 28, 1985.
   ORDER AND REASONS

CHARLES SCHWARTZ, Jr., District Judge.

This matter came before the Court upon motion of plaintiff to determine the quantum of attorney’s fees and costs to be awarded as against defendant Chilton [sometimes referred to as the “Credit Bureau”], plaintiff having prevailed on his claims against Chilton under the Fair Credit Reporting Act [“FCRA”], 15 U.S.C. §§ 1681n & 1681o, after trial by jury on May 6-8, 1985.

Section 1681n of the FCRA provides:

Any consumer reporting agency ... which willfully fails to comply with [the FCRA] with respect to any consumer is liable to that consumer in an amount equal to the sum of—
(1) [actual damages];
(2) [punitive damages]; and
(3) in the case of any action to enforce any liability under this section, the costs of the action together with reasonable attorney’s fees as determined by the court.

Section 1681o of the FCRA provides:

Any consumer reporting agency ... which is negligent in failing to comply with [the FCRA] with respect to any consumer is liable to that consumer in an amount equal to the sum of—
(1) [actual damages];
(2) in the case of any successful action to enforce any liability under this section, the costs of the action together with reasonable attorney’s fees as determined by the court.

The jury having found that Chilton failed to observe the requirements of the FCRA both negligently and willfully, this Court may assess attorney’s fees against Chilton under either section 1681n or 1681o.

Accordingly, a hearing was held on June 21, 1985 for the purpose of determining the quantum of attorney’s fees. Plaintiff requested attorney’s fees in the amount of $66,666, computed on a contingent basis of one third the total amount awarded to the plaintiff for both actual and punitive damages as against all defendants, or $200,000. As further support for the requested fee, plaintiff submitted an affidavit showing 259 hours of itemized time expended and unitemized time expended of 400 hours. Plaintiff also requests costs of $1,391.82, supported by an affidavit reflecting same.

Chilton challenges certain of the entries recited on the affidavit regarding attorney’s fees and further urges that recoverable fees be limited to time attributable to the successful aspects of plaintiff’s FCRA claim against Chilton. Thus, Chilton urges that recoverable fees be limited to $10,-500.00. It is further urged that recoverable costs be limited to $867.20.

In making its determinations, the Court relieves counsel of the obligation of filing contemporaneous time records, as required by Local Rule 21.16, added June 30, 1983. There is good cause to excuse plaintiff’s counsel from compliance with this rule in light of claims for time expended prior to the adoption of the rule. Moreover, the Court did not accept the face value of the hours claimed by plaintiff’s counsel, as will be explained more fully below, and made its own determinations as to the allowable time for the services rendered. See Appendix A attached.

Thus, the Court has determined that an award of $27,400 attorney’s fees is appropriate in this case and will state with particularity its reasons for this award in accordance with the twelve factors to be considered under Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). See also Copper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575 (5th Cir. 1980); In re First Colonial Corp., 544 F.2d 1291 (5th Cir.), cert. denied 431 U.S. 904, 97 S.Ct. 1696, 52 L.Ed.2d 388 (1977). In considering the twelve Johnson criteria, the Court is further cognizant of its duty to pay special heed to Johnson factors numbers (1) the time and labor involved; (5) the customary fee; (8) the amount involved and the results obtained; and (9) the experience, reputation and ability of counsel. See Copper Liquor, Inc. v. Adolph Coors Co., supra, 624 F.2d at 583.

The customary fee for a claim of this sort, computed on a contingent basis in the New Orleans area, would be 33%% of the amount recovered. The recovery against the Credit Bureau herein was $133,333.00. Thus, on a contingent basis, a fair and reasonable fee would be the sum of $44,-444.33.

The customary fee for an attorney in the New Orleans area having practiced 33 years, as plaintiffs counsel has, would range between $100 to $150 per hour. Moreover, as detailed in Appendix A attached to and made a part of these findings, the Court finds that plaintiffs counsel reasonably expended 142 hours in prosecution of the claim against Chilton. Thus, the Court computes an attorney’s fee of 142 hours at $100 per hour, amounting to $14,200.00.

In considering the novelty and difficulty of the questions presented in this case, the Court finds that the Credit Bureau made this a difficult, time consuming and arduous case to prosecute and made no concessions to plaintiff’s attorney’s having rarely prosecuted eases in federal court. Regardless of the defendant’s actions, however, case was nonetheless difficult to prove, and this factor would warrant awarding an additional sum of $5000.

Counsel’s preclusion from taking other work and the time limitations imposed by this particular case are set out in counsel’s affidavit. These representations are taken into consideration and form a part of the aforesaid additional allowance of $5000.

With regard to the skill requisite to perform the legal services properly, the Court has heretofore noted that counsel has been practicing for 33 years. The Court further notes counsel was a member of the Board of Editors of the Tulane Law Review and was a law clerk for the Louisiana Supreme Court. Counsel’s trial demeanor and argument before the jury were outstanding. As demonstrated by their award, the jury obviously agreed with the Court’s assessment of this factor. However, counsel was not well versed in practice before this Court, and this has caused the Court to fix the hourly rate at the lower end of the spectrum for customary hourly rates for one of his years of practice. Thus, by adopting a lower hourly rate of $100 per hour, the Court takes into consideration counsel’s relative lack of experience in federal court. However, the Court has liberally construed the time claimed to accomplish each entry on the attorney’s affidavit to counterbalance this conservatism. See Appendix A.

Moreover, counsel has computed his trial time as to all defendants at 28 hours, and this Court allowed 14 hours total time as to Chilton. Instead of applying the hourly rate to this time, plaintiff’s counsel is entitled to an additional $700 for his skill in trial work over and above the hours claimed to have been expended.

The hourly rates allowed by the Court account for the customary fee and whether the fee was taken on a contingent basis. However, because of his contingent fee arrangement, counsel risked no fee for all his efforts. Thus, in light of the amount involved and the results obtained, an additional award of $7,500 for these factors is appropriate.

The experience, reputation, and ability of plaintiff’s counsel has already been considered and compensated as set out above with regard to the customary fee and the skill displayed by counsel.

The Court further finds the case was certainly undesirable and unpleasant, particularly as to its involvement in the sexual relations of the various parties and witnesses. But, whereas an additional sum might be awarded for this factor, any such sum is negated by the nature of the professional relationship between plaintiff’s counsel and the plaintiff, namely that of father and son. Therefore, no award is added or subtracted for factors concerning the undesirability of the case and the nature and length of the professional relationship with the client.

The total allowance provided by the Court in this case for plaintiff’s attorney’s fees is justified by a comparison of statutory fees awarded in other cases of federal statutory violations, cited by the parties in their memoranda. See, e.g., Boca Mara Properties, Inc. v. Int’l Dairy Queen, Inc., 732 F.2d 1550 (11th Cir.1984) (plaintiffs recovering $33,000 for claim under Florida Franchise Act; defendant recovering $13,-649 on counterclaim; plaintiffs recovering $25,000 attorney’s fees); Bryant v. TRW, Inc., 689 F.2d 72 (6th Cir.1982) (FCRA violation; jury award of $8,000 actual damages; court allowing $13,705 attorney’s fees, in excess of award, so as not to discourage FCRA actions, rejecting defendant’s argument that court limited to award of contingency fee); Copper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575 (5th Cir.1980) (Sherman Act violations; treble damages of $45,000 awarded; court remanding $45,000 attorney’s fees award as insufficient — so low as to constitute abuse of discretion); Kane v. Martin Paint Stores, Inc., 439 F.Supp. 1054 (S.D.N.Y. 1977), aff'd 578 F.2d 1368 (2d Cir.1978) ($22,837 jury verdict for antitrust violations; court awarding $50,670 fees after 10% reduction in hours claimed for failure to keep precise records); Collins v. Retail Credit Co., 410 F.Supp. 924 (E.D.Mich. 1976) (FCRA and libel claims; jury awarding $21,750 actual damages and $300,000 punitive damages; court remitting punitive damages to $50,000 and awarding $21,000 in attorney’s fees).

In addition to the foregoing, the Court finds appropriate an award of costs in the amount of $867.20, the figure suggested by defendant. In so doing, the Court declines to award to plaintiff the costs of depositions. No depositions were read at trial in lieu of live testimony, and plaintiff has not provided this Court with an itemization regarding any other use of depositions, such as for impeachment purposes or in connection with any motions.

In sum, the foregoing factors require an award of $27,400 to plaintiff for attorney’s fees plus $867.20 for costs. However, the fees and costs awarded herein do not take into consideration nor contemplate time and costs anticipated on any unsuccessful post trial motions filed by defendant and expended in connection with any anticipated appeal.

Accordingly, it is ordered that judgment be entered in accordance with the jury verdict and order and reasons herein.

APPENDIX A

This appendix recites the Court’s line by line determinations of recoverable time in this matter, with each entry corresponding to the entries set forth in the affidavit of Edward K. Pinner, Sr., dated June 7, 1985, and submitted in support of plaintiff’s claim for attorney’s fees.

DATE WORK PERFORMED TIME/HOURS ALLOWED

March 20, 1981 Interview with client and initial review of documents 0.0

March 20, 1981 Letter to United Compucred disputing account; copy to Sherwin-Williams 0.0

October 19, 1981 Meeting with client regarding his being refused credit by two stores 1.0

November 30, 1981 Meeting with client to review credit report and attached documents 0.50

January 11, 1982 Meeting with client and drafting letter to Credit Bureau; attachments 1.0

January 20, 1982 Returned phone calls to Ms. Camille Gautier at Credit Bureau — Left name and number 0.25

DATE WORK PERFORMED TIME/HOURS ALLOWED

March 5, 1982 Meeting with client regarding his being refused credit by three stores 1.0

April 6, 1982 Meeting with client to review second credit report and attached documents 1.0

May 5, 1982 Investigation of identity of parties defendant 0.0

July 1, 1982 Meeting with witness 1.0

July 16, 1982 Call to Secretary of State for registered agent of C.B.M. of La. Inc. 0.25

Sept. 21, 1982 Meeting with client concerning the filing of lawsuit 2.0

October 4, 1982 Review of documents and preparation of rough draft of petition 2.0

October 12, 1982 Work on rough draft of petition 0.0

October 15, 1982 Work on rough draft of petition 0.0

October 18, 1982 Work on rough draft of petition 0.0

November 10, 1982 Preparation of final draft of petition and computation of damages 2.0

November 17, 1982 Preparation of final draft of petition and computation of damages 1.0

January 20, 1983 Meeting with client 1.0

February 18, 1983 Meeting with client 1.0

March 15, 1983 Filing of lawsuit-arranging for service on all three defendants 2.0

July 12, 1983 Review of answer and third party demand filed by defts. Schmidt and Sherwin-Williams 0.0

July 19, 1983 Review of answer of defendant Credit Bureau 1.0

August 23, 1983 Initial research on Fair Credit Reporting Act and jurisprudence in connection therewith — Supreme Ct. Library 5.0

September 15, 1983 Research on Fair Credit Reporting Act and jurisprudence in connection therewith 4.0

October 24, 1983 Research on Fair Credit Billing Act at Supreme Court Library 12.0

November 18, 1983 Motion to fix for trial-preparation of and filing 1.0

December 12, 1983 Pretrial conference with Judge Ganucheau-Case fixed for May 16 and May 17, 1984 2.0

January 23, 1984 Review of file and law in connection with preparation of pretrial memorandum 1.0

February 15, 1984 Answer to subpoena duces tecum 1.5

February 21, 1984 Deposition of Thomas K. Pinner 1.5

DATE WORK PERFORMED TIME/HOURS ALLOWED

March 8, 1984 Prepared and noticed request for production of documents to Credit Bureau 3.0

March 27, 1984 Meeting with client to prepare answers to interrogatories from Credit Bureau 3.0

March 29, 1984 Meeting with client to respond to request for production of documents from Credit Bureau 3.0

April 9, 1984 Prepared and noticed written interrogatories to defendants Schmidt and Sherwin-Williams 1.0

April 13, 1984 Prepared and filed Amended and Supplemental petition 3.0

April 16, 1984 Request for Production of documents on Credit Bureau and Sherwin-Williams 2.0

April 27, 1984 Study of Petition to Remove 2.0

June 5, 1984 Study of Motion to Dismiss on Prescription 0.0

July 12, 1984 Answer to Motion to Dismiss on Prescription and memorandum in support thereof 0.0

July 25, 1984 Hearing on Motion to Dismiss 0.0

August 1, 1984 Preparation and filing of Amended Petition 3.0

August 7, 1984 Study of 2nd Motion to Dismiss 0.0

August 10, 1984 Answer to Motion to Dismiss and memorandum in support thereof 0.0

August 22, 1984 Hearing on 2nd Motion to Dismiss 0.0

October 9, 1984 Preparation for and participation in telephone conference with representative of Court 1.0

November 21, 1984 Study of Motion for Summary Judgment filed by Credit Bureau 3.0

November 27, 1984 Research in connection with response to Motion for Summary Judgment — Supreme Court Library 5.0

November 30, 1984 Opposition to Motion for Summary Judgment, including legal memorandum 5.0

January 11, 1985 Preparation of affidavit by Thomas K. Pinner in connection with Motion for Summary Judgment 2.0

January 16, 1985 Hearing on Motion for Summary Judgment 2.0

February 26, 1985 Deposition of James E. Schmidt, III and Alam Labbe 2.0

February 27, 1985 Study of documents furnished to plaintiff by Sherwin-Williams 2.0

February 28, 1985 Meeting with client and witness to go over documents furnished by SherwinWilliams 1.5

TIME/HOURS DATE WORK PERFORMED ALLOWED

March 7, 1985 Preparation of and filing of plaintiffs witness list 1.0

March 26, 1985 Study of 200 documents furnished to plaintiff by Sherwin-Williams 2.0

April 5, 1985 Preliminary work on preparation of Pretrial Order 2.0

April 9, 1985 Meeting with co-counsel for defendants to exchange documents and pretrial inserts 1.0

April 10, 1985 Preparation of Pretrial Order 5.0

April 11, 1985 Preparation of Pretrial Order 0.0

April 12, 1985 Completion of Pretrial Order, making and distributing copies thereof 2.5

April 15, 1985 Pretrial Conference 1.0

April 16, 1985 Meeting with witnesses to prepare for depositions 3.5

April 17, 1985 Confirming depositions of witnesses 0.5

April 18, 1985 Depositions of Witnesses )

April 19, 1985 Depositions of Witnesses 7.5 )

April 25, 1985 Deposition of Sue Jackson Greer )

April 25, 1985 Meeting with Attorneys to exchange exhibits 1.0

April 26, 1985 Rough draft of trial memorandum 2.5

April 27, 1985 Final draft of trial memorandum 2.0

April 29, 1985 Preparation of requested jury instructions 2.5

April 29, 1985 Preparation of three subpoenas 1.0 )

April 30, 1985 Preparation of six subpoenas )

May 3, 1985 Preparation for trial 2.5

May 6, 1985 Trial of case )

May 7, 1985 Trial of case 14.0 )

May 8, 1985 Trial of case )

May 15, 1985 Rough draft of motion for attorney’s fees and costs 5.0

May 16, 1985 Rough draft of affidavit regarding work performed in connection with motion for attorney’s fees and costs 3.0

May 17, 1985 Final draft of affidavit and statement of costs 3.0

_ TOTAL HOURS ALLOWED 142.00

       As with certain other entries for aspects of the case involving Schmidt and SherwinWilliams, the Court finds issues involving all defendants intertwined and has accordingly allowed partial time where such overlap occurs.

        See Cruz v. Hauck, 762 F.2d 1230 (5th Cir. 1985).


text:
    Thomas K. PINNER v. James J. SCHMIDT, the Sherwin-Williams Company, and C.B.M. of Louisiana, Inc. d/b/a Credit Bureau Services—New Orleans.
    Civ. A. No. 84-2059.
    United States District Court, E.D. Louisiana.
    Sept. 3, 1985.

      Edward K. Pinner, Sr., New Orleans, La., for plaintiff.
    Ralph Alexis, III, Wm. Porteous, New Orleans, La., for Schmidt and Sherwin-Williams.

      Harry A. Rosenberg, Taryn A. Southon, New Orleans, La., for Chilton Corp.
   ORDER AND REASONS IN CONNECTION WITH POST TRIAL MOTIONS AND JURY CHARGES

CHARLES SCHWARTZ, Jr., District Judge.

This matter is before the Court upon alternative motions of defendants for judgment notwithstanding verdict, new trial or remittitur. For the following reasons, the motions are denied. Plaintiffs motion to amend the judgment to award pre-judgment interest is also denied. However, the Court awards the plaintiff attorney’s fees incurred in defense of Chilton’s motion, and the previously entered judgment shall be amended accordingly. The judgment shall also be amended to correct the inadvertent omission of the jury’s verdict on the indemnity claim between defendants Chilton Corporation and Sherwin-Williams. Each motion shall be addressed in turn, and where pertinent, the Court will also provide reasons in support of certain of its charges to the jury.

At all relevant times, plaintiff was a salesman assigned to work at a Gentilly paint store owned by defendant SherwinWilliams and managed by defendant James E. Schmidt. The evidence showed that considerable tension developed between the plaintiff and Schmidt, attributable to, inter alia, social and business rivalry. This tension culminated in a dispute regarding plaintiff’s Sherwin-Williams store charge accounts; simply stated, plaintiff challenged the accuracy of certain charges reflected on his accounts. There was such ill-will existing between Schmidt and plaintiff as to cause plaintiff to suspect that certain charges were fictitious and that Schmidt caused those charges to be made. Ultimately, relations between plaintiff and Schmidt deteriorated to the point of Schmidt’s circulating malicious gossip about the plaintiff and engaging in other equally immature behavior.

Whatever precipitated the dispute pertaining to the plaintiff’s accounts, the evidence showed at a minimum various accounting errors in respect of the accounts, and Sherwin admitted to such errors at trial. However, Sherwin refused to document the accounts when they were challenged by the plaintiff and reported the accounts as delinquent to both a collection agency and to defendant Chilton d/b/a Credit Bureau Services, notwithstanding plaintiff’s objections to the amounts due and owing.

The presence of adverse information in plaintiff's credit history did not come to plaintiff’s attention until November 1981, when plaintiff requested and received copy of his credit history from Chilton, showing one of his Sherwin accounts as delinquent and placed for collection. Chilton was thereupon notified in writing by plaintiff’s attorney on January 11, 1982 that plaintiff disputed the accuracy of the Sherwin charges. This notice clearly and briefly set forth the dispute between the parties and requested amendment of the credit report. As this was Chilton’s first notice of the dispute between plaintiff and the Sherwin defendants, the Court directed a verdict in favor of Chilton and against plaintiff as to Chilton’s liability for actions taken by it prior to November 1981.

However, Chilton thereafter consistently refused to clarify its reporting of the status of the dispute between the parties to reflect clearly that plaintiff challenged the Sherwin charges, a matter which could have easily been rectified by Chilton. See plaintiff exhibit 29 (Report of 3/30/82; Sherwin account “Placed for collection”); plaintiff exhibit 31 (Report of 3/31/84; Sherwin account showing “Dispute 5/83— Litigation pending”). In fact, neither the actual knowledge of the dispute afforded by plaintiff’s counsel’s letter, nor that afforded by Chilton’s being joined as a party to this litigation was sufficient to move Chilton to adequately amend the matters set forth in plaintiff’s credit report, and the evidence showed Chilton’s reporting of plaintiff’s credit history to have directly caused a denial of credit to the plaintiff.

As a result of this course of events, plaintiff sought recovery herein against Schmidt and Sherwin under article 2315 of the Louisiana Civil Code for damage to his creditworthiness and reputation and for humiliation and mental distress. Plaintiff also made claims against Sherwin for its noncompliance with the federal Fair Credit Billing Act, 15 U.S.C. § 1666, and against Chilton for both negligent and willful violations of the federal Fair Credit Reporting Act [hereinafter “FCRA”], 15 U.S.C. §§ 1681n & 1681o. For alleged willful violations of the FCRA, plaintiff alleged punitive damages were owing.

The matter came on for trial May 6-8, 1985, and in response to a special interrogatory form, agreed upon by the parties, the jury returned a verdict finding that (1) Schmidt was at fault in a way that caused damage to the plaintiff; (2) Sherwin was at fault in a way that caused damage to the plaintiff; (3) Credit Bureau Services (Chilton) negligently failed to observe the requirements of the FCRA; (4) Chilton willfully failed to observe the procedures of the FCRA; (5) fair and adequate compensation to be awarded to the plaintiff for his actual damages was $100,000; (6) punitive damages should be assessed in favor of plaintiff against the Credit Bureau in the amount of $100,000; and (7) Sherwin did not owe indemnity to Chilton for the amounts recovered by the plaintiff in this case, under the contract existing between Sherwin-Williams and Chilton.

In assessing the motions for judgment notwithstanding verdict, the Court is called upon to determine whether there is a complete absence of proof on issues material to plaintiffs causes of action or whether there are controverted issues of fact upon which reasonable minds could differ. The Court must view the evidence in the light most favorable to the party against whom the motions are made. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 696, 82 S.Ct. 1404, 1409, 8 L.Ed.2d 777 (1962); Comeaux v. T.L. James & Co., 666 F.2d 294, 298 (5th Cir.1982), supplemented, 702 F.2d 1023 (5th Cir.1983) (per curiam).

In assessing the motions for new trial or remittitur, the Court is called upon to determine whether the verdict is excessive or contrary to the weight of evidence or has resulted in a miscarriage of justice. See Bazile v. Bisso Marine Co., 606 F.2d 101, 105 (5th Cir.1979), reh. denied 613 F.2d 314 (5th Cir.), cert. denied, 449 U.S. 829, 101 S.Ct. 94, 66 L.Ed.2d 33 (1980). These motions are directed to the Court’s discretion. Id.

After evaluating the evidence under the above standards, the Court is satisfied that defendants’ motions must be denied.

The Court first stresses that if the matter had been tried without a jury, the Court would have found a willful and continuing violation of the FCRA based solely upon Chilton’s continuing failure to clarify the status of plaintiff’s Sherwin-Williams account to specify that the plaintiff was suing Sherwin-Williams. Any normal person could easily have construed Chilton’s reporting as an indication that the plaintiff was being sued by Sherwin-Williams, while the actual situation was the reverse. It would have been "a simple matter to prevent this ambiguity, particularly in light of Chilton’s actual knowledge of the plaintiff’s dispute against Sherwin-Williams. See Bryant v. TRW, Inc., 689 F.2d 72, 78-79 (6th Cir.1982) (citing Fifth Circuit standards); Stewart v. Credit Bureau, Inc., 734 F.2d 47, 51-52 (D.C.Cir.1984) (cited by Chilton).

In determining the standards applicable to claims made under the FCRA so as to charge the jury and evaluate the propriety of the jury verdict, the Court considered the specific claims here asserted under the FCRA against Chilton. Plaintiff’s claims were made expressly under sections 1681n and 1681o of the FCRA. No claims were furthered against Chilton under article 2315 of the Louisiana Civil Code for intentional tort. Accordingly, the qualified immunity granted by the Act as to defamation and other types of tort actions was not triggered in this case, and the evidence presented was more than sufficient to support findings of liability under sections 1681n and 1681o.

The Court also observes that Chilton’s duty to exercise reasonable care in the preparation of credit reports, arising under section 1681e(b) of the FCRA, extends to updating procedures, because the preparation of a consumer report should be viewed as a continuing process with the obligation to insure accuracy with every additional item of information. See Thompson v. San Antonio Retail Merchants Ass’n, 682 F.2d 509 (5th Cir.1982). There was ample evidence to show that Chilton did not satisfy its obligations in this regard, in light of its actual knowledge of plaintiff’s dispute with Sherwin-Williams.

Another of Chilton’s contentions, raised in the contexts of the motions for directed verdict and proposed jury charges, although not discussed in Chilton’s post trial motions, was that plaintiff should be required to prove that Chilton acted with malice before punitive damages could be assessed. The Court rejected this contention, after analyzing the claims asserted against Chilton in light of the rules set forth in Fischl v. GMAC, 708 F.2d 143 (5th Cir.1983), wherein the Court stated that as to violations of the FCRA giving rise to punitive damages under section 1681n of the Act, “Malice or evil motive need not be established for a punitive damages award, but the violation must have been willful.” Id. at 151 (citing Thornton v. Equifax, Inc., 619 F.2d 700 (8th Cir.), cert. denied, 449 U.S. 835, 101 S.Ct. 108, 66 L.Ed.2d 41 (1980)).

The Court also rejected Chilton’s contention that reinvestigation under section 1681i is not subject to a reasonableness standard, so long as the technical requirements of that section are met. In support of this argument, Chilton cited Stewart v. Credit Bureau, Inc., supra, 734 F.2d 47 (Court rejecting plaintiff’s claim under 1681i on motion for summary judgment where he failed to return form submitted to him by credit bureau). This Court finds Stewart distinguishable on several grounds and thus does not consider itself bound by Chilton’s reading of the case. See id. at 55, n. 13.

Among the distinguishing factors are that Stewart did not send any statement objecting to the report in question, which was an amended report reflecting the results of a reinvestigation. Id. at 50. Second, the jury here could have easily found Chilton’s conduct did not adhere to the technical requirements of section 1681i in light of Chilton’s apparent disregard of the letter from plaintiff’s attorney, reflected by the credit report of March 1982.

Lastly, this Court finds Chilton’s reliance upon Stewart misplaced inasmuch as the Stewart court did not in fact resolve the issue whether a reinvestigation must be reasonable once a duty to reinvestigate arises, because it found that a reasonable reinvestigation occurred under the facts of that case. See id. at 55 n. 13. Accordingly, this Court does not read Stewart as holding that reinvestigation need not be reasonable and deems it appropriate to observe that there was ample basis for the jury to have concluded that Chilton did not act reasonably in connection with its reinvestigation of plaintiff’s credit history, particularly where, as stated above, the matters at issue could have easily been remedied by amending plaintiff’s credit history. See also Koropoulos v. Credit Bureau, Inc., 734 F.2d 37, 40 (D.C.Cir.1984) (Court balancing ambiguity in report against availability of clarifying information).

Chilton had also objected to the Court’s charging the jury as to Chilton’s duty to reinvestigate, asserting that section 1681i(a) of the FCRA triggers a duty to reinvestigate only when a dispute is directly conveyed to the consumer reporting agency by the consumer himself, in person. Thus, Chilton contends, the letter here submitted to Chilton by plaintiff’s counsel falls short of a “direct” communication by the consumer and absolves Chilton of the duty to reinvestigate. The Court found these contentions wholly unacceptable and takes this opportunity to detail its reasons for rejection of Chilton’s position.

The Court did not find any authority expressly discussing an attorney’s authority to act for a client in this respect. However, in two cases which this Court finds persuasive, the failure of a consumer to act in person did not prevent consideration of his claims. See Koropoulos v. Credit Bureau, Inc., supra, 734 F.2d at 38 (Plaintiff’s attorney obtained disclosure of plaintiff’s credit file); Dynes v. TRW Credit Data, 652 F.2d 35 (9th Cir.1981) (Court interpreting duty to reinvestigate as a matter of first impression; court holding defendant failed to fulfill duty to reinvestigate after consumer telephoned objection to amended report).

Based upon these cases, common sense and an interpretation of the FCRA as a whole, this Court determines that the requirement of a direct communication is intended merely to distinguish reporting the dispute to the store or business whose account is in question from reporting it to the credit reporting agency governed by the FCRA provisions. It is inconceivable to the Court that an attorney could not represent a consumer in this regard, and the Court opines that requirements of direct communication elsewhere in the FCRA are intended only to protect the consumer by affording him a qualified confidentiality in the extensive information available from his credit files. See 15 U.S.C. §§ 1681b, 1681d.

In finding that the evidence more than amply supports the quantum of damages awarded by the jury, the Court is guided by interpretations from the Fifth Circuit of the FCRA, stating, “Even where no pecuniary or out-of-pocket loss has been shown, the FCRA permits recovery for humiliation and mental distress, [citations omitted], as well as for injury to one’s reputation and creditworthiness.” Fischl v. GMAC, supra, 708 F.2d at 151; Thompson v. San Antonio Retail Merchants Assoc., 682 F.2d 509, 513 (5th Cir.1982).

The parties did not request the Court to submit to the jury any interrogatories apportioning liability between the Sherwin defendants, who presented a joint defense, and Chilton. It is difficult for this Court to speculate which party’s conduct the jury would have found more objectionable and distressful to the plaintiff. In any event, the amounts awarded as both actual and punitive damages are far from shocking to the Court’s conscience, particularly in light of the personal nature and implications of Schmidt’s conduct and the principled and unyielding attitude taken by Chilton.

In connection with the quantum of punitive damages, the Court observes that punitive damages are intended to punish. Hopefully, the damages here assessed against Chilton will have some effect on Chilton’s future conduct. A smaller amount might not so affect Chilton.

The post trial motions of Sherwin and Schmidt are likewise denied. The plaintiff’s claims against those defendants were made under article 2315 of the Civil Code. There was ample evidence to support innumerable types of intentional and negligent fault on the part of Sherwin and Schmidt. The Court is here constrained to add that it found totally baseless defendants’ objections that the jury should not have been allowed to decide the question of defendants' negligence because the complaint charged defendants with “tortious conduct” and did not specifically urge a “negligence” action. The plaintiff’s extensive pleadings and pre-trial memoranda exhaustively detailed the facts and issues to be decided at trial; and in the event of any deficiency, the pleadings would be deemed conformed to the evidence.

Nor did Sherwin-Williams’ admissions of certain accounting errors in respect of plaintiff’s accounts take any issues away from the jury. Defendants had not stipulated to liability and it was certainly appropriate for the jury to resolve the remaining issues of causation and damages as to any negligent acts. Moreover, allegations of negligence were certainly within the scope of plaintiffs express reliance upon article 2315 for relief and were certainly included within the more serious allegations that defendants inflicted intentional and malicious injury.

Plaintiffs motion for amendment of judgment to award pre-judgment interest under Louisiana law is denied. Plaintiff presents claims under both Louisiana and federal law, but plaintiff did not request the jury to apportion the judgment to specify what aspect of the award was attributable to the state law claims. Thus the Court is unable to determine the amount of the award upon which pre-judgment interest should run and is therefore prevented from entering such an award.

However, plaintiff is entitled to an additional award of attorney’s fees for the time expended to oppose Chilton’s motion, and the Court hereby finds that plaintiff’s counsel expended the time indicated in Appendix “B” attached hereto, for which compensation shall be allowed at the hourly rate of $100, for an additional award of $1440.00. See this Court’s prior Order and Reasons of June 28, 1985 and Appendix “A” in respect of attorney’s fees, which is incorporated herein as if set out in full. The Court also inadvertently omitted from the judgment the jury’s verdict on the indemnity claim, and the judgment shall be amended accordingly. The Clerk of Court is hereby directed to amend the judgment to reflect the additional award and the denial of the indemnity claim.

APPENDIX B

This appendix recites the Court’s line by line determinations of recoverable time incurred by plaintiff in connection with his opposition to post trial motions filed by defendants, with each entry corresponding to the entries set forth in the affidavit of Edward K. Pinner, Sr., dated August 6, 1985, and submitted in support of plaintiff’s supplemental claim for attorney’s fees.

DATE WORK PERFORMED TIME/HOURS ALLOWED

July 8, 1985 Reading and studying Motion for Judgment Notwithstanding the Verdict, for a New Trial, and for a Remittitur filed on behalf of Chilton Corporation, and supporting memorandum 2.0

July 11, 1985 Study of legal memorandum of Chilton Corporation 1.5

July 11, 1985 Phone call from counsel for the Chilton Corporation 0.2

July 11, 1985 Phone call from Court personnel regarding Chilton Corporation 0.1

July 11, 1985 Phone call from counsel for the Chilton Corporation 0.1

July 15, 1985 Study of Motion to Stay and Memorandum filed in connection therewith by Chilton Corporation 0.4

July 16, 1985 Reading letter and motion to substitute bond sent by Chilton Corporation 0.1

July 19, 1985 Work on rough draft of memorandum in opposition to motions of Chilton Corporation 2.0

July 26, 1985 Study of motion for post verdict relief by Chilton Corporation and work on rough draft of memorandum 1.5

July 27, 1985 Study of Record in connection with motions by Chilton Corporation for post verdict relief 0.75

July 29, 1985 Reading cases cited by Chilton Corporation in their memorandum 1.0

DATE WORK PERFORMED TIME/HOURS ALLOWED

July 31, 1985 Reading cases cited by Chilton Corporation in their memorandum 1.5

August 5, 1985 Composition of memorandum in opposition to Motions by Chilton Corporation for post verdict relief 1.75

August 6, 1985 Completion of composition of memorandum and preparation of this affidavit 1.5

Total 14.40

       The case was originally filed in Civil District Court for the Parish of Orleans on March 15, 1983 and was removed to federal court upon defendants' joint petition, in light of the federal claims.


author: HARDY, District Judge.

text:
    Ella S. KAFTON, individually, Plaintiff, and Magdalena H. Scheller, a representative of a class, Plaintiff/Intervenor, v. BAPTIST PARK NURSING CENTER, INC., et al., Defendants.
    Civ. No. 78-968 PHX CLH.
    United States District Court, D. Arizona.
    June 28, 1985.

      R. Alan Stotensburg, R. Alan Stotensburg, P.C., New York City, for plaintiff.
    Philip A. Robbins, Robbins & Green, P.A., Phoenix, Ariz., for plaintiffs/intervenors Scheller and Bondholder Class.
    Donald W. Bivens, Martori, Meyer, Hendricks & Victor, P.A., Phoenix, Ariz., for Baskin & Sears and H. Gorden Brown.
    George H. Mitchell, O’Connor, Cavanagh, Anderson, Killingsworth & Beshears, Phoenix, Ariz., for Baptist Park Nursing Center.
    Dale A. Danneman, Lewis & Roca, Phoenix, Ariz., for Detroit Bank & Trust Co.
   MEMORANDUM OPINION AND ORDER

HARDY, District Judge.

Bond counsel defendants request the Court’s findings of disputed fact and/or conclusions of law in support of its April 4, 1985, denial of bond counsel’s motion for partial summary judgment on the issue of the tax-exempt nature of the 1976 Nursing Center bonds. Bond counsel raised two arguments in their memorandum: judicial estoppel and failure to show loss causation. However, their request for findings and conclusions is directed only to bond counsel’s contention that plaintiff has not shown loss causation, that is, that plaintiff has failed to establish that her injury was caused by any misrepresentation regarding the tax-exempt nature of the bonds.

The findings of disputed fact are whether defendants fraudulently induced the plaintiff class to purchase the bonds and whether the misrepresentations or omissions were material.

When a Rule 10b-5 action is brought for material misrepresentations or omissions the plaintiff must prove two types of causations: (1) transaction causation, where the alleged misrepresentations or omissions caused or induced the plaintiff to purchase the security; and (2) loss causation, where the alleged misrepresentations or omissions caused the pecuniary injury suffered by the plaintiff. Hatrock v. Edward D. Jones & Co., 750 F.2d 767, 773 (9th Cir.1984).

Both types of causation are not required in every Rule 10b-5 case. A plaintiff “should not have to prove loss causation where the evil is not the price the investor paid for the security, but the broker’s fraudulent inducement of the investor to purchase the security.” Id. However, loss causation is relevant when a plaintiff complains that a defendant’s misrepresentations inflated the price paid for the security. See Marbury Management, Inc. v. Kohn, 629 F.2d 705, 718-19 (2d Cir.) (Mes-kill, J., dissenting), cert. denied, 449 U.S. 1011, 101 S.Ct. 566, 66 L.Ed.2d 469 (1980). In that case a defendant would not be liable if the decline in value was caused by an event occurring subsequent to any misrepresentation. Id.

Transaction causation requires a plaintiff in a misrepresentations or omissions case to show that he relied upon the misrepresentations or omissions and was thereby induced to engage in the transaction. Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir.1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975). However, in a so-called fraud-on-the market case, “proof of subjective reliance on particular misrepresentations” need not be shown. Blackie v. Barrack, 524 F.2d 891, 906 (9th Cir.1975), cert. denied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976). In such cases transaction causation will be “inferred from the materiality of the misrepresentation.” Id.; see also Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972).

In a Rule 10b-5 scheme to defraud case a plaintiff’s injury stems not solely from a particular misstatement or omission, but from all interacting elements of the scheme. See Schlick, 507 F.2d at 381. In that instance, the causal nexus is not between a particular misrepresentation and plaintiffs loss, but between the entire functioning scheme and the injury. See Id.

The Court concludes that in a Rule 10b-5 case where the plaintiff has alleged a scheme to defraud, loss causation need not be established between each misrepresentation or omission and the plaintiff’s injury.