source: Caselaw Access Project

author: STANTON, District Judge.

license: Public Domain

text:
    NATIONAL BANK OF CANADA, Plaintiff, v. ARTEX INDUSTRIES, INC., Defendant. ARTEX INDUSTRIES, INC., Third-Party Plaintiff, v. SEAPORT MARKETPLACE, INC., Third-Party Defendant.
    No. 85 Civ. 1499 (LLS).
    United States District Court, S.D. New York.
    Jan. 29, 1986.

      Drinker, Biddle & Reath, New York City (J. Portis Hicks and Gregg J. Borri, of counsel), for plaintiff.
    Harold M. Cohen, Maplewood, N.J., for defendant and third-party plaintiff Artex Industries, Inc.
    Kelley, Drye & Warren, New York City (Jeffrey Amerman, of counsel), for third-party defendant Seaport Marketplace, Inc.
   OPINION AND ORDER

STANTON, District Judge.

Plaintiff National Bank of Canada (“NBC”) sues Artex Industries, Inc. (“Ar-tex”) for $79,600 which NBC paid on Ar-tex’s behalf to a supplier of granite, and then by mistake credited back to Artex. As appears below, there is no material factual dispute about this claim, and NBC is entitled to summary judgment in its favor.

Defendant Artex has impleaded Seaport Marketplace, Inc. (“Seaport”), for whom Artex obtained the granite and performed substantial other work for which Artex claims there is an unpaid outstanding balance of $420,000 plus restitution of the $79,600 worth of granite. Seaport has moved to dismiss this third-party claim as being substantially unrelated to the main claim by NBC and, as appears below, Seaport’s motion is granted.

NBC is a Canadian corporation; Artex is a New Jersey corporation. The court has diversity jurisdiction under 28 U.S.C. § 1332(a).

Facts

In 1982 Artex entered into a contract with Tishman Construction Corporation (“Tishman”) to deliver and install granite at the Seaport Market Place in New York City. In connection with that contract Ar-tex ordered granite from Granit Bussiere, Inc. (“Granit”), a Canadian company, for an agreed purchase price of $79,600. (Plaintiff's Rule 3(g) Statement, 111; Third-Party Complaint, 11118, 9.)

In June, 1983 Granit allegedly informed Artex that it would not ship any granite to Artex unless payment was guaranteed (Third-Party Complaint, ¶ 12), and on June 7, 1983 Tishman promised to make good to Artex the $79,600 for the granite, if Artex would pay Granit. (Third-Party Complaint ¶ 13.)

On June 8, 1983 Artex directed Chemical Bank of New York (“Chemical Bank”) to pay $79,600 to Granit. (Plaintiff’s Rule 3(g) Statement, 112; Third-Party Complaint, H 14.) Soon thereafter Morgan Guaranty Trust Company of New York (“Morgan Guaranty”), at the direction of Chemical Bank, transferred $79,600 to NBC with instructions to transfer the funds to Granit. (Plaintiff’s Rule 3(g) Statement, 113.) NBC proceeded to pay $79,600 to Granit’s account. (Plaintiff’s Rule 3(g) Statement, 116.) NBC’s New York branch, however, in the mistaken belief that NBC had been unable to transfer the funds to Granit, returned $79,600 to Morgan Guaranty for credit to Artex. (Plaintiff’s Rule 3(g) Statement, 117; Answer, 117.) NBC was therefore out of pocket $79,600. (ibid.) Artex alleges that on June 8, 1983, after Tishman allegedly failed to guarantee or reimburse Artex’s payment to Granit, it instructed Chemical Bank to reverse the transfer of funds to Granit (Third-Party Complaint, 1116), but apparently Granit understandably kept the funds.

The granite ordered by Artex from Gran-it was delivered and installed at the Seaport Market Place in July, 1983. (Plaintiff’s Rule 3(g) Statement, II9; Third-Party Complaint, 1121.) When NBC discovered that it had mistakenly returned the $79,600 to Artex it attempted unsuccessfully to obtain reimbursement from Morgan Guaranty and Chemical Bank, and on August 21, 1984 NBC wrote to Artex requesting repayment of the funds. (Plaintiff’s Rule 3(g) Statement, 111110-12.)

In its complaint NBC alleges that as a result of NBC’s mistaken payment and Ar-tex’s refusal to reimburse NBC, Artex converted $79,600 and was unjustly enriched in that amount. (Complaint, 11118-11, 14-16.) In its third-party complaint Artex claims that Seaport owes it $420,465 for work done pursuant to the contract, for work performed pursuant to change orders authorized by Tishman, and for other work not called for in the contract or change orders performed by Artex. (Third-Party Complaint, 111125-28.) In addition Artex claims that Seaport was unjustly enriched at least in the amount of $79,600, the value of the stone installed by Artex at the Seaport Market Place, plaint, ¶¶ 29-32.) (Third-Party Com-

Seaport’s Motion to Dismiss the Third-Party Complaint

Fed.R.Civ.P. 14 provides that “[a]t any time after commencement of the action a defending party ... may cause a summons and complaint to be served upon a person not a party to the action who is or may be liable to him for all or part of the plaintiff’s claim against him.” The rule was “designed to eliminate multiple and repetitive lawsuits and trials by allowing for a single presentation of evidence when multiple claims turn upon identical or similar proof.” Sirota v. Solitron Devices, Inc., 97 F.R.D. 732, 736 (S.D.N.Y.1983); see also Oliner v. McBride’s Industries, Inc., 106 F.R.D. 14, 20 (S.D.N.Y.1985). The interest in judicial economy which underlies the rule is advanced, of course, only when “the defendant’s right against the third party is merely the outgrowth of the same aggregate or core of facts which is determinative of the plaintiff’s claim.” Dery v. Wyer, 265 F.2d 804, 807 (2d Cir.1959).

Further, “[t]he mere fact that the alleged third-party claim arises from the same transaction or set of facts as the original claims is not enough.” Farmers Production Credit Ass’n of Oneonta v. Whiteman, 100 F.R.D. 310, 312 (N.D.N.Y.1983) (quoting 6 Wright & Miller, Federal Prac. & Pro. § 1446, at 257 (1971)). The essential purpose of Rule 14 requires that defendant’s third-party claim derive from the main claim, and that “the claim of liability to the defendant and third-party plaintiff accrue only upon a finding of defendant’s liability to the plaintiff on the main claim.” Index Fund, Inc. v. Hagopian, 417 F.Supp. 738, 744 (S.D.N.Y.1976).

The requirements for impleader under Rule 14 are not met here. As Artex sets forth in its third-party complaint, its claim is for “monies due and owing to [Artex] for work done pursuant to a contract with Tishman in which the stone sent by [Granit] ... was used and installed.” (Third-Party Complaint, ¶ 1.) It is true that the funds originally transferred by Artex through NBC to Granit were in payment for stone to be used on the Seaport Market Place project. However, that minimal overlap between the main claim and the otherwise unrelated disputes involved in the third-party claim is not enough to allow the latter to stand. Farmers Production, 100 F.R.D. at 312. The outcome of the third-party claim must be contingent on the outcome of the main claim, and here Seaport’s liability to Artex under their contract involves many issues unconnected with NBC’s claim for the return of a mistaken payment. Therefore Artex’s third-party complaint is dismissed, without prejudice.

NBC’s Motion for Summary Judgment

A party is entitled to summary judgment under Fed.R.Civ.P. 56 only upon a demonstration “(1) that there is no genuine issue of material fact to be tried in the case and (2) that the moving party is entitled to judgment as a matter of law.” Seymore v. Reader’s Digest Ass’n, Inc., 493 F.Supp. 257, 262 (S.D.N.Y.1980); see also Town of Orangetown v. Ruckelshaus, 740 F.2d 185, 190 (2d Cir.1984); Universal City Studios, Inc. v. Nintendo Co., Ltd., 746 F.2d 112, 115 (2d Cir.1984). The moving party bears the burden of showing the absence of any material issues of fact, and in reviewing a Rule 56 motion a district court “must resolve all ambiguities and draw all reasonable inferences in favor of the party defending against the motion.” Eastway Construction Corp. v. City of New York, 762 F.2d 243, 249 (2d Cir.1985).

Under these well-established standards NBC is entitled to summary judgment on its claim for money paid by mistake. Though Artex has not submitted a Rule 3(g) statement to controvert NBC’s statement of material facts, Artex has submitted two affidavits of Peter Fuller, president of Artex, and one affidavit of Aida Fuller, vice-president of Artex. Nothing in these affidavits disputes or is inconsistent with the statements of material fact in NBC’s Rule 3(g) statement. Thus no issue of material fact is raised.

NBC is entitled to judgment as a matter of law. Under New York law “a party who has made a mistaken payment to another based upon a unilateral mistake of fact may recover the payment unless the payee has changed his position to his detriment in reliance upon the mistaken payment.” Bank Saderat Iran v. Amin Beydoun, Inc., 555 F.Supp. 770, 773 (S.D.N.Y.1983); see also Bank Leumi Trust Co. of New York v. Bally’s Park Place, Inc., 528 F.Supp. 349, 354 (S.D.N.Y.1981); Liberty Mutual Ins. Co. v. Newman, 92 App.Div.2d 613, 459 N.Y.S.2d 806, 808 (1983); Manufacturers Trust Co. v. Diamond, 17 Misc.2d 909, 186 N.Y.S.2d 917, 919 (Sup.1959). Artex does not contest that NBC paid Artex by mistake. (Answer, ¶ 7.) On that fact alone, absent a valid affirmative defense, NBC is entitled to the return of the mistaken payment.

Artex asserts five affirmative defenses in its answer. The first two affirmative defenses claim that NBC’s negligence in making and failing to cancel the payment precludes its recovery. (Answer, 111117, 18.) It is well-settled, however, “that money paid under a mistake of fact may be recovered back however negligent that party paying may have been in making the mistake....” Valley Bank of Nevada v. Bank of Commerce, 74 Misc.2d 195, 343 N.Y.S.2d 191, 194 (Civ.Ct.1973) (quoting National Bank of Commerce of New York v. National Mechanics Banking Ass’n of New York, 55 N.Y. 211 (1873)); see also Citibank, N.A. v. Warner, 113 Misc.2d 748, 449 N.Y.S.2d 822, 823 (Sup.Ct.1981); Manufacturers Trust, 186 N.Y.S.2d at 919; Bank Leumi, 528 F.Supp. at 354.

Artex’s Third Affirmative Defense alleges that NBC’s claim is barred by the doctrines of laches and estoppel because “[pjrior to the institution of this suit, plaintiff never made any demand upon defendant whatsoever.” (Answer, ¶ 19.) NBC asserts that it did make a demand for repayment to Artex by a letter dated August 21, 1984, and submits a copy of that letter. (Plaintiff’s Rule 3(g) Statement, II12; Affidavit of Clive Skelton, ¶ 8 and Exhibit 1 thereto.) When the movant in a summary judgment motion provides factual support for its allegations in the form of an affidavit, the adverse party may not defeat the motion by resting on mere conclusory allegations with no supporting legal arguments or factual submissions. SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978); R.G. Group, Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir.1984). Artex’s Third Affirmative Defense fails, in the context of this summary judgment motion, for lack of factual or legal support.

Artex’s Fourth Affirmative Defense states that NBC failed to join Granit as an indispensable party to the action. (Answer, ¶ 20.) This defense fails because Ar-tex has made no showing that Granit has an unprotected interest in the case. R.G. Group, 751 F.2d at 77; cf. Ilan-Gat Engineers, Ltd. v. Antigua International Bank, 659 F.2d 234, 241 (D.C.Cir.1981) (burden of showing prejudice to absent party is on movant seeking dismissal for failure to join indispensable party); In re Caesar’s Palace Securities Litigation, 360 F.Supp. 366, 395 (S.D.N.Y.1973) (allegations of indispensability without documentation are insufficient).

Artex’s Fifth Affirmative Defense states: “This Court lacks jurisdiction based upon the fact that the plaintiff is in Canada, the defendant is in New Jersey, and that the acts complained of took place in New Jersey and Canada.” (Answer, ¶ 21.) Despite the use of the term “jurisdiction,” this appears to be a defense based upon improper venue. Proper venue is determined by 28 U.S.C. § 1891, which provides that diversity cases may be brought only in the judicial district where all plaintiffs or all defendants reside, or where the claim arose. For venue purposes a corporation resides in a district where it is “doing business.” 28 U.S.C. § 1391(c). A foreign corporation is doing business in a judicial district if it “is ‘engaging in any substantial business operations’ within [the] jurisdiction.” Pocahontas Supreme Coal Co., Inc. v. National Mines Corp., 90 F.R.D. 67, 69 (S.D.N.Y.1981) (quoting United States v. Scophony, 333 U.S. 795, 68 S.Ct. 855, 92 L.Ed. 1091 (1948)); see also Arbitron Co. v. E.W. Scripps, Inc., 559 F.Supp. 400, 401 (S.D.N.Y.1983). Here Ar-tex entered into a contract to perform work within the Southern District and was engaged in that work at least between March, 1983 and July, 1983. (Third-Party Complaint, MI 8, 21; Affidavit of Peter Fuller, Sept. 10, 1985, M! 3, 12.) Thus Artex was engaged in “substantial business operations” within this district on or about June 10, 1983 when NBC’s cause of action accrued, see Complaint, 117, and therefore venue is proper in this court under 28 U.S.C. § 1391. See First Pullen Services, Inc. v. A.G. Becker-Kipnis & Co., 507 F.Supp. 770, 774 n. 2 (S.D.Fla.1981) (“doing business” standard must be satisfied when cause of action accrued).

NBC apprehends that Artex, through the Fuller affidavits, may be raising a new defense: that Artex detrimentally relied on NBC’s mistaken payment and therefore should not be obliged to repay. (Plaintiff’s Reply Memorandum of Law at 2.) NBC correctly points out that Artex did not plead the reliance defense in its answer, and that the “[f]ailure to plead an affirmative defense in the answer results in ‘the waiver of that defense and its exclusion from the case.’ ” Satchell v. Dilworth, 745 F.2d 781, 784 (2d Cir.1984) (quoting 5 Wright & Miller, Federal Prac. and Pro. § 1278 at 339 (1969)). The reliance apparently asserted by Artex is an affirmative defense, the burden of proof of which is on the defendant. See Bank Saderat, 555 F.Supp. at 774; Citibank, 449 N.Y.S.2d at 824.

In any case, even if the reliance defense were not waived, nothing in the Fuller affidavits indicates that Artex changed its position to its detriment in reliance upon NBC’s payment. The detriment asserted by Artex is that it worked on the Seaport Market Place project for “30 to 40 days, in effect without payment” from Seaport. (Affidavit of Peter Fuller, Oct. 8,1985,115.) Artex may bring an action against Seaport, as it has sought to do here by impleader, for the alleged arrears. Further, all of the averments in Peter Fuller’s affidavits indicate that Artex remained on the project and built up a large account receivable with Seaport in reliance on Tishman’s assertion that it had paid Granit for the stone, or that Tishman would reimburse Artex for its payment. (Affidavit of Peter Fuller, Sept. 19, 1985,111110, 12, 15, 16, 18; Affidavit of Peter Fuller, Oct. 8, 1985, Ml 4, 5, 8, 11.) Nothing supports an inference that it was NBC’s mistaken payment which kept Artex on the job.

There is no issue of material fact, no valid defense, and NBC is entitled to judgment as a matter of law. Accordingly, its motion for summary judgment is granted.

Interest

NBC seeks interest on the $79,600, computed from August 21, 1984 when NBC demanded repayment.

Whether interest should be included in NBC’s recovery is controlled by New York law. In re Sabre Corp., 299 F.Supp. 97, 101 (S.D.N.Y.1969). The cause of action for recovery of money paid by mistake is based upon the principle of unjust enrichment, and as such is undoubtedly equitable in nature. Blue Cross of Central New York, Inc. v. Wheeler, 93 App.Div.2d 995, 461 N.Y.S.2d 624, 626 (1983); Paramount Film Distributing Corp. v. State of New York, 30 N.Y.2d 415, 334 N.Y.S.2d 388, 393, 285 N.E.2d 695, 698 (1972), modified on other grounds, 31 N.Y.2d 678, 336 N.Y.S.2d 911, 288 N.E.2d 811 (1972), cert. denied, 414 U.S. 829, 94 S.Ct. 57, 38 L.Ed.2d 64 (1973). Therefore NBC’s claim to prejudgment interest on its recovery is governed by New York C.P.L.R. § 5001(a), which provides that “in an action of an equitable nature, interest and the rate and date from which it shall be computed shall be in the court’s discretion.” See Valle v. Joint Plumbing Industry Board, 623 F.2d 196, 206-207 (2d Cir.1980) (interest award is discretionary in district court under New York law).

The court declines to award prejudgment interest to NBC. It was NBC’s error which created the dispute, and the court will follow the New York courts, which do not award interest in similar cases involving the recovery of mistaken payments since the “error which necessitated this litigation was the plaintiff’s and it would be unfair to charge the defendant” for the lost interest. Allcity Ins. v. Bankers Trust Company of Albany, 80 Misc.2d 899, 364 N.Y.S.2d 791, 794; see also Liberty Mutual, 459 N.Y.S.2d at 809.

Conclusion

Third-party defendant Seaport’s motion to dismiss the third-party complaint brought by Artex is granted without prejudice. NBC’s motion for summary judgment is granted, and judgment shall be entered in its favor in the amount of $79,-600 plus costs.

So ordered.

      . Artex originally impleaded Tishman Construction Company of New York and The Rouse Company. By a stipulation dated September 17, 1985 Seaport was substituted as the third-party defendant.

      . Artex has not filed a "statement of material facts as to which it is contended that there exists a genuine issue to be tried” as required of the non-movant in a summary judgment motion by Rule 3(g) of the Civil Rules for the Southern and Eastern Districts of New York. Rule 3(g) provides that "[a]ll material facts set forth in the statement [of material facts] required to be served by the moving party will be deemed to be admitted unless controverted by the statement required to be served by the opposing party.” See Woods v. State of New York, 469 F.Supp. 1127, 1129 n. 2 (S.D.N.Y.1979), aff'd mem., 614 F.2d 1293 (2d Cir.1979) (accepting movant’s un-controverted Rule 9(g) [predecessor of present Rule 3(g) ] statements of fact as admitted); Caparlo Music v. Myers Music, Inc., 605 F.Supp. 692, 697 (S.D.N.Y.1985) (same).

      . NBC also alleged that Artex acted maliciously, recklessly, and in wilful disregard of NBC’s rights and sought $50,000 in punitive damages. (Complaint, ¶¶ 12, 13, 16.) NBC appears to have abandoned its claim for exemplary relief in its motion for summary judgment. See Plaintiff’s Memorandum of Law in Support of Motion for Summary Judgment at 1, 14.

      . FecLR.Civ.P. 19(a) requires a party to be joined:
      if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.

      . If Artex's Fifth Affirmative Defense is intended to challenge personal jurisdiction, Artex waived the defense by asserting a third-party claim. Merz v. Hemmerle, 90 F.R.D. 566, 569 (E.D.N.Y.1981). If the defense challenges subject matter jurisdiction, the assertion in paragraph 21 of Artex’s answer appears to confirm the existence of diversity of citizenship between the parties, and the action is for over $10,000, thus meeting the requirements of 28 U.S.C. § 1332(a).

      . Since Artex failed to submit an answering memorandum of law as required in Rule 3(b) of the Civil Rules for the Eastern and Southern Districts of New York, the particular legal theory thought to be sustained by the Fuller affidavits, which do not make that clear, is left to speculation.


author: ENSLEN, District Judge.

text:
    Linda SUNDBERG, for herself and as next friend of her children, Bryan Sundberg, Summer Sundberg, and Bradley Sundberg, Plaintiffs, v. Agnes Mary MANSOUR, Director of the Michigan Department of Social Services, Kevin Seitz, Director of the Medical Services Administration of the Department of Social Services and the Michigan Department of Social Services, Defendants. Barbara PHILLIPS, for herself and as next friend of Nicholas Lane Phillips, her son, and others similarly situated, Plaintiffs, v. Agnes Mary MANSOUR, Director of Michigan Department of Social Services, Paul Allen, Director of the Medical Services Administration of the Department of Social Services and the Michigan Department of Social Services, Defendants and Third-Party Plaintiffs, v. Otis R. BOWEN, M.D. Secretary of Health and Human Services, Third-Party Defendant.
    Nos. G85-826, K85-99.
    United States District Court, W.D. Michigan, S.D.
    Jan. 29, 1986.

      David Kirschenheiter, Berrien County Legal Services Bureau, Inc., St. Joseph, Mich., Kathleen Gmeiner, Michigan Legal Services, Detroit, Mich., for plaintiffs.
    Robert N. Rosenberg, Asst. State Atty. Gen., Lansing, Mich., Daniel M. LaVille, Asst. U.S. Atty. Gen., Grand Rapids, Mich., James R. Goeser, Asst. Regional Atty., Dept, of Health and Human Services, Chicago, Ill., for defendants.
   OPINION

ENSLEN, District Judge.

Presently before the Court in this consolidated class-action proceeding are the parties’ cross-motions for summary judgment. The Court heard oral argument on these motions on December 13, 1985. At that time, it granted plaintiffs’ motion for a preliminary injunction (as to the named plaintiffs) and took the parties’ motions for summary judgment under advisement. The Court agrees with the parties that there are no disputed factual issues to be resolved and that these cases can be decided on the parties’ cross-motions. For the reasons discussed below, the Court will grant plaintiffs’ motion for summary judgment and will deny the motions of defendants and the third-party defendant.

Standard for Decision

The standard in this circuit for granting summary judgment is well known and needs no discussion here. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Watkins v. Northwestern Ohio Tractor Pullers Association, 630 F.2d 1155, 1158 (6th Cir.1980); Province v. Cleveland Press Publishing Co., 605 F.Supp. 945, 955-56 (N.D.Ohio 1985); see Federal Rules of Civil Procedure (“FRCP”) 56(c).

Facts

The plaintiffs in this proceeding are a class comprised of the following persons:

All individuals in the State of Michigan who, by virtue of their eligibility for Aid to Families with Dependent Children, were previously eligible for medicaid and lost eligibility by operation of 42 U.S.C. 602(a)(38) and all individuals in the State of Michigan who would have been eligible for medicaid or would be eligible for medicaid but for the operation of 42 U.S.C. 602(a)(38) and who would otherwise be eligible for Aid to Families with Dependent Children.

Order of November 26, 1985. As this definition of the class indicates, these cases concern the relationship between two separate, yet closely related, public assistance programs under the Social Security Act of 1965: (1) Aid to Families with Dependent Children (“AFDC”), which is located in Subchapter IV of the Act, 42 U.S.C. §§ 601-76; and (2) Medicaid, which is located in Subchapter XIX of the Act, 42 U.S.C. §§ 1396-1396q. Both programs are examples of cooperative federalism, in which the federal government and the states share responsibility for the operation, maintenance, and financing of the programs. More specifically for the purposes of this decision, the federal government provides both financial assistance and, in the statutes establishing the programs and through regulations promulgated by the Secretary of Health and Human Services (the “Secretary”), guidelines the states must follow in establishing and operating such programs.

These guidelines concern in part who is eligible for assistance under the programs. At issue in this case is an AFDC eligibility guideline or requirement Congress enacted as Section 2640 of the Deficit Reduction Act of 1984 (“DRA” or “DEFRA”), Pub.L. 98-369 (codified in part at 42 U.S.C. § 602(a)(38)), and the Secretary’s application of that guideline to the Medicaid provisions of the Social Security Act. Section 602(a)(38) provides in pertinent part:

A State plan for aid and services to needy families with children must—

(38) provide that in making the determination under paragraph (7) [concerning income and resources] with respect to a dependent child and applying paragraph (8) [concerning certain disregards of income], the State agency shall ... include —(A) any parent of such child, and (B) any brother or sister of such child, ... and any income of or available for such parent, brother, or sister shall be included in making such determination and applying such paragraph with respect to the family....

42 U.S.C. § 602(a)(38). This section precludes the former practice of excluding certain siblings, and thus their income and resources, from the public assistance filing unit in order to qualify for AFDC. Plaintiffs in this action are families who have lost their AFDC eligibility due to the inclusion in the filing unit of previously excluded siblings. They do not challenge in this action their loss of AFDC eligibility.

The Secretary, however, has interpreted section 602(a)(38) as applying to eligibility for Medicaid as well as AFDC. See Chicago Regional State Letter No. 19-85 (August 1985). Plaintiffs thus, due to the inclusion of previously excluded sibling income and resources, have lost their eligibility for Medicaid as well as AFDC. Unlike their loss of AFDC, plaintiffs do challenge the Secretary and the State of Michigan’s right to eliminate them from the Medicaid program.

Analysis

Section 1902(a)(10)(A) of the Social Security Act, 42 U.S.C. § 1396a(a)(10)(A), provides in part that a state must make medical assistance available under Medicaid to all individuals who receive AFDC. Conversely, individuals who are financially ineligible for AFDC generally are also ineligible for automatic Medicaid assistance as “categorically needy” persons. See 42 C.F.R. § 435.700 (“The financial eligibility requirements of AFDC ... apply [under Medicaid] to individuals receiving” such assistance); id. at § 435.711 (“In determining eligibility for families and children, a Medicaid agency must apply the financial eligibility requirements of the State’s AFDC plan”). Plaintiffs recognize the general validity of this relationship between eligibility for AFDC and eligibility for Medicaid, but argue that they fall within an exception to such relationship.

Section 1902(a)(17)(D) of the Social Security Act, 42 U.S.C. § 1396a(a)(17)(D), provides that in determining eligibility for Medicaid, a state may “not take into account the financial responsibility of any individual for any applicant or recipient of assistance under the plan unless such applicant or recipient is such individual’s spouse or such individual’s child who is under age 21 or ... is blind or permanently and totally disabled....” 42 U.S.C. § 1396a(a)(17)(D). The regulation implementing this provision states: “(a) Except for a spouse of an individual or a parent for a child who is under age 21 or blind or disabled, the agency must not — (1) Consider income and resources of any relative available to an individual_” 42 C.F.R. § 435.602. Plaintiffs argue that section 1396a(a)(17)(D) precludes the Secretary and the State of Michigan from using section 602(a)(38) in determining their Medicaid eligibility, and thus from considering the income and resources of siblings who choose not to apply for Medicaid. They conclude that they accordingly are eligible for Medicaid assistance despite their ineligibility for AFDC assistance. See 42 C.F.R. § 435.113 (“the [State] agency must provide Medicaid to individuals who would be eligible for AFDC except for an eligibility requirement used in that program that is specifically prohibited under title XIX [Medicaid]”). They argue that section 602(a)(38) — the sibling filing unit provision — is a “deeming” provision that section 1396a(a)(17)(D) prohibits states from using in determining Medicaid eligibility.

The State of Michigan and the Secretary see things differently. They argue that section 602(a)(38) is not a “deeming” provision that would run afoul of section 1396a(a)(17)(D), but rather is a provision that merely identifies who the public assistance filing unit must include. Section 602(a)(38) evinces a congressional intent that the filing unit include all siblings. The Secretary notes further that under section 1396a(a)(17)(B), he has the authority to establish what income and resources a state must consider as being available to an applicant or recipient of assistance, and that the Supreme Court has stated that his determinations under this section are entitled to “ ‘legislative effect.’ ” Schweiker v. Gray Panthers, 453 U.S. 34, 44, 101 S.Ct. 2633, 2640, 69 L.Ed.2d 460 (1981), quoting Batterton v. Francis, 432 U.S. 416, 425, 97 S.Ct. 2399, 2405, 53 L.Ed.2d 448 (1977).

The Secretary concludes that his determination that section 602(a)(38) requires states to count sibling income and resources in determining Medicaid eligibility as well as AFDC eligibility is permissible under section 1396a(a)(17)(B). Section 602(a)(38), he argues, evinces Congress’ view that sibling income and resources are “available” to the public assistance filing unit and thus should be included, along with the needs of such siblings, in determining financial eligibility for Medicaid and AFDC. The Secretary states that DE-FRA’s legislative history indicates Congress was aware of the linkage between the eligibility requirements for AFDC and Medicaid, intended to tighten eligibility requirements so as to target scarce public resources toward the “most needy”, and assumed that its enactment of section 602(a)(38) would result in net costs to the Medicaid program: the net costs presumably would arise from the fact that while section 602(a)(38) would make some persons ineligible for Medicaid, it would make a greater number eligible.

The Secretary also urges the Court to consider the deference due an agency’s interpretation a statute or regulation it is charged with administering. See Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965) (a court should show “great deference to the interpretation given [a] statute by the officers or agency charged with its administration”). A court should uphold the agency’s interpretation unless it is “ ‘plainly erroneous or inconsistent’ ” with the regulation or statute. Id. at 16-17, 85 S.Ct. at 801, quoting Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945); see Zuber v. Allen, 396 U.S. 168, 192-93, 90 S.Ct. 314, 327-28, 24 L.Ed.2d 345 (1969). The Secretary argues that judicial deference is particularly appropriate in this case as the Supreme Court has noted that “[t]he Social Security Act is among the most intricate ever drafted by Congress” and that its “byzantine construction ... makes [it] ‘almost unintelligible to the uninitiated.’ ” Schweiker, 453 U.S. at 43, 101 S.Ct. at 2640, quoting Friedman v. Berger, 547 F.2d 724, 727 n. 7 (2nd Cir.1976), cert. denied, 430 U.S. 984, 97 S.Ct. 1681, 52 L.Ed.2d 378 (1977); see also DeJesus v. Perales, 1985 Medicare and Medicaid Guide (CCH) 1134,846, at 9241 (Sept. 1985) (“courts must exhibit particular deference to the [Secretary of HHS’s] position with respect to legislation as intricate as Title XIX”). The Court’s task thus is not to determine whether the Secretary’s interpretation of section 602(a)(38) is the most reasonable interpretation, but rather whether it is a reasonable interpretation that is consistent with the statutory purpose. See Connecticut Department of Income Maintenance v. Heckler, — U.S. -,-, 105 S.Ct. 2210, 2214-15, 85 L.Ed2d 577, 583-84 (1985).

The Court has carefully considered the arguments of all three parties, as presented both in their briefs and at oral argument. It found their presentations extremely helpful in analyzing what is truly a complex statute. The Court concludes that even giving appropriate deference to the Secretary’s interpretation of section 602(a)(38), section 1396a(a)(17)(D) prohibits the Secretary from requiring states to consider sibling income and resources in making Medicaid eligibility determinations. See Gibson v. Puett, 630 F.Supp. 542 (M.D. Tenn. 1985); Vance v. Hegstrom, 629 F.Supp. 747 (D. Ore. 1985); Olson v. Reagen, No. 85-101-A (S.D. Iowa April 11, 1985).

The Court cannot agree with the third party defendant’s argument that section 602(a)(38) is not a “deeming” provision, as that term is used in public assistance law, but rather a provision that merely identifies who the public assistance filing unit must include, and thus whose income and resources a state must consider in determining financial eligibility for assistance. Congress’ intent as expressed in section 1396a(a)(17)(D) was that a state should not consider a person’s income and resources as being available to a Medicaid applicant or recipient, and thus include such in determining Medicaid eligibility, unless that person is the applicant or recipient’s spouse or parent. The Senate Committee on Finance included the following in its report to the full Senate on the 1965 Act:

The committee has heard of hardships on certain individuals by requiring them to provide support and to pay for the medical care needed by relatives. The committee believes that it is proper to expect spouses to support each other and parents to be held accountable for the support of their minor children and their blind or permanently or totally disabled children even though 21 years of age or older. Such requirements for support may reasonably include the payment by such relative, if able, for medical care. Beyond such degree of relationship, however, requirements imposed are often destructive and harmful to the relationships among members of the family group. Thus, States may not include in their plans provisions for requiring contributions from relatives other than a spouse or the parent of a minor child or children over 21 who are blind or permanently and totally disabled. Any contributions actually made by relatives or parents, or from other sources, will be taken into account by the State in determining whether the individual applying for medical assistance is, in fact, in need of such assistance.

S.Rep. No. 404, Pt. I, 89th Cong., 1st Ses. 78 (June 30, 1965), reprinted in 1965 U.S. Code Cong. & Ad.News 1943, 2018. As the Supreme Court has recognized, Congress thus decided to treat spouses (and parents) differently than other relatives in determining the financial eligibility of Medicaid applicants and recipients. See Schweiker, 453 U.S. at 47-48, 101 S.Ct. at 2642.

There is no indication, however, that Congress intended to include siblings in with spouses and parents. The Secretary and the states apparently did not count sibling income and resources prior to the enactment of section 602(a)(38) unless the Medicaid applicant or recipient desired to have it counted. Section 435.602 of 42 C.F.R., moreover, specifically provides that sibling income and resources cannot be counted in determining eligibility for Medicaid. The Court thus concludes that sibling income and resources is subject to section 1396a(a)(17)(D).

The Secretary argues, however, that by its enactment of section 602(a)(38), Congress intended to change this situation and to require states to include siblings in the filing unit in determining Medicaid eligibility. The Court has carefully reviewed the legislative history cited and submitted by the Secretary and the plaintiffs and has conducted its own research on the issue. I cannot agree with the Secretary that Congress intended the change in AFDC eligibility methodology mandated by section 602(a)(38) to apply as well to Medicaid eligibility methodology. The Court does not consider either general references to Congress’ intent to decrease public assistance expenditures or the Congressional Budget Office’s assumption that section 602(a)(38) would produce net Medicaid costs as sufficient indications of Congress’ intent to apply section 602(a)(38) to determinations of Medicaid as well as AFDC eligibility. I thus find that Congress did not intend to override the bar section 1396a(a)(17)(D) presents to the mandatory inclusion of sibling income and resources in determining Medicaid eligibility.

To the Court, the Secretary’s argument that section 602(a)(38) does not “deem” sibling income and resources to be available to the Medicaid applicant or recipient but merely requires that such siblings be included in the public assistance filing unit is a distinction without a difference: by requiring that siblings be included in the filing unit, the Secretary is in effect considering their income as available to the Medicaid applicant or recipient. I note, moreover, that the Secretary has not repealed or modified either 42 C.F.R. § 435.113 or 42 C.F.R. § 435.602, and that he has attempted to apply section 602(a)(38) to determinations of Medicaid eligibility by a Regional State policy letter rather than a properly promulgated regulation.

For the reasons discussed above, the Court finds that the Secretary and the State’s interpretation, and application to determinations of Medicaid eligibility, of section 602(a)(38) is unreasonable and inconsistent with the Medicaid statute and regulations. I thus will grant plaintiffs’ motion for summary judgment and will provide them relief as set forth in the accompanying order.

JUDGMENT

In accordance with the opinion dated January 29, 1986;

IT IS HEREBY ORDERED that plaintiffs’ motion for summary judgment is GRANTED and that the motions of the defendants and the third party defendant for summary judgment are DENIED;

IT IS FURTHER ORDERED that the defendants and the third party defendant are to continue or to restore, as the case may be, Medicaid benefits for members of the plaintiff class;

IT IS FURTHER ORDERED that defendants are to provide such notice as is required to members of the plaintiff class indicating that their Medicaid benefits may have been improperly terminated.

      . The Court notes that plaintiff Phillips in her complaint had raised three grounds for relief against the State in addition to the one that is the subject of this decision: (1) that the State failed to provide her a separate Medicaid eligibility determination prior to terminating her Medicaid benefits; (2) that it failed to notify her of the proposed grounds for its termination of such benefits; and (3) that its termination of her benefits violated her rights under the due process clause. The Court will not discuss these contentions as they appear either to be moot or to have been dropped by the plaintiff.


author: CARL O. BUE, Jr., District Judge.

text:
    PRUDENTIAL-BACHE SECURITIES, INC., Sheldon P. Barr, Irene Greenfield, v. M.D. MATTHEWS, Richard P. Conerly, Ed. A. Smith, J.A. Edwards, C. Thomas Clagett, Jr., John H. Duncan, Joe H. Foy, Paul R. Haas, John M. Harbert, III, Robert M. Jenny, Robert L. Knauss, Charles A. LeMaistre, M.D., Neil D. Naiden, James V. Walzel, Bryan H. Wimberly, and Houston Natural Gas Corp.
    No. H-84-1331.
    United States District Court, S.D. Texas, Houston Division.
    Jan. 29, 1986.
    Richard F. Czaja, Shea & Gould, New York City, for plaintiff Prudential-Bache Securities, Inc.
    Thomas T. Hutcheson, Hutcheson & Grundy, Houston, Tex., for Prudential-Bache Securities, Inc.
    Terrell Oxford, Susman, Godfrey & McGowan, Houston, Tex., for plaintiff Sheldon P. Barr.
    Harvey Greenfield, New York City, for plaintiff Irene Greenfield.
    Paul Stallings, Larry Veselka, Vinson & Elkins, Houston, Tex., for individual defendants.
    John L. McConn, Butler & Binion, Houston, Tex., for corporate defendant.
   MEMORANDUM AND ORDER

CARL O. BUE, Jr., District Judge.

Pending before the Court are (1) Plaintiff Prudential-Bache Securities’ Motion for Voluntary Dismissal and for an Award of Attorneys’ Fees, (2) Plaintiff Barr’s Application for an Award of Attorneys’ Fees and Reimbursement of Expenses, (3) Plaintiff Greenfield’s Application for an Award of Attorneys’ Fees and Reimbursement of Expenses, and (4) Defendants’ Motion to Dismiss With Prejudice.

I.

Background

Three shareholder’s derivative actions were brought in 1984 against Houston Natural Gas Corporation and the individuals serving on the corporation’s Board of Directors. The derivative actions were consolidated into one cause of action before this Court. The plaintiffs sued for damages on behalf of Houston Natural Gas Corporation for alleged breaches of the directors’ fiduciary duty in connection with their handling of a hostile, partial tender offer for control of Houston Natural Gas Corporation by The Coastal Corporation and for subsequent decisions of the Board regarding the restructuring of the corporation by sales of diverse businesses, repurchases of stock, and decisions made respecting whether and when to sell or merge the corporation.

On May 2, 1985, Houston Natural Gas Corporation entered into an Agreement and Plan of Merger with InterNorth, Inc. Pursuant to that agreement Houston Natural Gas Corporation was merged with Inter-North, Inc. and became a wholly-owned subsidiary of InterNorth. By virtue of the agreement InterNorth made a tender offer at $70/share for all outstanding shares of Houston Natural Gas corporation and then paid the same consideration for all remaining shares in a merger. The Agreement and Plan of Merger was approved on July 15, 1985 by holders of over 96% of the outstanding shares of common stock of Houston Natural Gas Corporation.

II.

Contentions of the Parties

Plaintiffs contend that disregarding the best interests of the shareholders of Houston Natural Gas Corporation and solely for the purpose of perpetuating their management positions and control, defendants wasted corporate assets in resisting and wrongfully discouraging attempts by other corporations to acquire Houston Natural Gas Corporation. The plaintiffs further contend that their claims have become moot because (1) Defendant M.D. Matthews, Houston Natural Gas Corporation’s Chairman of the Board and Chief Executive Officer was removed from office, (2) the standstill agreements which had allegedly not been publicly disclosed and which had not been ratified by the Board of Directors, were publicly disclosed and subsequently ratified by the Board after the commencement of the action at bar and (3) the Board of Directors endorsed a tender offer by InterNorth, Inc. a signatory to a standstill agreement, to acquire all outstanding shares of Houston Natural Gas Corporation at a price which represented a substantial premium over the market price of the stock, and which was overwhelmingly accepted by Houston Natural Gas Corporation shareholders.

Plaintiff Prudential-Bache urges that the Court enter an Order which would voluntarily dismiss the instant action without prejudice. All of the plaintiffs urge that the Court award attorneys’ fees consistent with the application, affidavits, and accompanying memoranda filed in support of the award of attorneys’ fees.

The defendants do not oppose the dismissal of the action at bar, as is evident from the defendants’ own Motion to Dismiss with Prejudice. However, the defendants oppose the plaintiff Prudential-Bache’s Motion to Voluntarily Dismiss without prejudice and the defendants vigorously oppose the request of each plaintiff for attorneys’ fees.

III.

Dismissal of the Instant Suit

A. Rule 23.1 Standing Requirements

The purpose of a derivative action is to afford a means by which a stockholder, powerless to bring a direct civil action at law against faithless directors and managers, may seek to vindicate corporate rights that the corporation itself has refused to enforce. Schilling v. Belcher, 582 F.2d 995, 1001 (5th Cir.1978). Standing to bring a derivative action arises from the proprietary interest created by the stockholder relationship and the possible indirect benefits the nominal plaintiff may acquire qua stockholder of the corporation which is the real party in interest. Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 735-36 (3rd Cir.1970), cert. denied, 401 U.S. 974, 91 S.Ct. 1190, 28 L.Ed.2d 323 (1971).

Rule 23.1 Federal Rules of Civil Procedure requires a derivative plaintiff to be a shareholder in the corporation on behalf of which he/she sues. The decisions of the Fifth Circuit require that plaintiffs suing in a derivative action maintain their status as shareholders throughout the pendency of the action. In Lewis v. Knutson, 699 F.2d 230, 238 (5th Cir.1983) the court ruled that in order to satisfy the requirements of Rule 23.1 the derivative plaintiff must demonstrate that he/she (1) owned stock in the corporation at the time of the transaction of which he/she complains, (2) continued to own stock at the time of the bringing of the suit, and (3) maintained status as a stockholder during the ensuing prosecution of the derivative suit. Lewis v. Kutson, id., at 238, citing Schilling v. Belcher, 582 F.2d at 999.

Texas law mandates that a derivative plaintiff maintain status as a shareholder. In Zauber v. Murray Savings Association, 591 S.W.2d 932, 937-38 (Tex.Civ.App.—Dallas 1980), writ ref’d n.r.e., 601 S.W.2d 940 (Tex.1980), the court held that plaintiffs voluntarily losing their shareholder status also lose standing as derivative plaintiffs. The defendants assert that both Prudential-Bache Securities, Inc. and Sheldon Barr voluntarily lost their shareholder status when they either tendered their stock or sold their stock in the open market. Although the defendants concede that plaintiff Greenfield may have had her shares involuntarily converted to a right to receive cash, they urge that Greenfield does not fall within the exception enunciated by the Zauber court for a plaintiff who loses his/her shareholder status as the result of a transfer having no valid business purpose. The Zauber holding allows such a shareholder to maintain standing as a shareholder for derivative action purposes. The defendants submit that since no plaintiff claims that the Houston/InterNorth merger is not supported by a valid business purpose Greenfield cannot now contend that she falls within the ambit of the Zau-ber exception. Therefore, the defendants urge the Court to dismiss the action at bar as to all three plaintiffs for their failure to maintain status as shareholders throughout the pendency of their derivative actions as required by Rule 23.1 and supporting case law.

B. Notice Requirements Under Rule 23.1

Rule 23.1 requires that shareholders be given notice of a proposed dismissal of the derivative action. Unless the shareholders are given notice, the dismissal must be without prejudice. Lewis v. Knutson, supra at 240. However, when shareholders are given notice and the opportunity to prosecute their interests, the dismissal with prejudice will not interfere with their rights. See 7A C. Wright & A. Miller, Federal Practice and Procedure § 1840 (1972). Settled law holds that the dismissal with prejudice protects the interests of the corporation by terminating the action, while notice protects the interests of the shareholders. Papilsky v. Berndt, 466 F.2d 251 (2d Cir.), cert. denied, 409 U.S. 1077, 93 S.Ct. 689, 34 L.Ed.2d 665 (1972).

The defendants in the action sub judice contend that if the Court dismisses the instant suit, no further notice to shareholders is required. Defendants further contend the only remaining shareholder is Houston Natural Gas Corporation/Inter-North, Inc., and that it has actual knowledge of the actions and the pending motions and supports a dismissal with prejudice. Defendants filed an Affidavit of Richard D. Kinder in support of their Motion to Dismiss With Prejudice, stating the notice requirements have been fulfilled. Moreover, at the motion conference held on November 18, 1985, before this Court, counsel for all plaintiffs and counsel for defendants requested that the instant suit be dismissed with prejudice.

For the reasons stated hereinabove, the Court orders that the Plaintiffs’ Motion for Voluntary Dismissal be granted and that the Defendants’ Motion to Dismiss With Prejudice be granted.

IV.

Award of Attorneys’ Fees

An important policy consideration justifies the well-established practice of awarding costs and attorneys’ fees to successful plaintiffs in shareholder derivative suits. The reimbursement of expenses by a court to a plaintiff in a shareholder derivative action encourages meritorious derivative suits by the shareholder. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970).

The Texas Business Corporation Act, Article 5.14 controls shareholders derivative actions. The Comment of Bar Committee Report of 1973 states: A winning plaintiff is entitled to attorney’s fees and expenses under common law and equitable principles which the Committee feels require no codification in the Act. In other words, although the Texas Business Corporation Act does not expressly authorize the grant of attorneys’ fees in a shareholder derivative action, Texas common law and equitable principles justify an award of attorneys’ fees in a case such as the case at bar.

A. Benefit To Shareholders Or The Corporation

Where a derivative suit has conferred substantial benefits to a corporation and its shareholders, plaintiff can recover attorney fees and expenses from the corporation. Mills v. Electric Auto-Lite Co., supra at 391-95, 90 S.Ct. at 625-27; Lewis v. Anderson, 692 F.2d 1267, 1270 (9th Cir.1982); Barton v. Drummond Co., 636 F.2d 978, 985 (5th Cir.1981); Adler v. Brooks, 375 S.W.2d 544, 547 (Tex.Civ.App.—Tyler, writ ref. n.r.e. 1964).

In cases analogous to the instant action, courts have awarded attorneys' fees to the derivative plaintiffs where defendants have taken steps to moot the plaintiffs’ claims. Lewis v. Anderson, supra at 1267. The Lewis court in awarding a grant of attorneys’ fees to the derivative plaintiff ruled that it was irrelevant that no determination on the merits had been made.

It is well settled that the “American Rule” prohibits the award of attorneys’ fees in the absence of a specific statutory or contractual provision; however, Fifth Circuit holdings recognize the “common benefit” or “common fund” equitable doctrine which allows for the assessment of attorneys’ fees against a common fund created by the attorney’s efforts. Barton v. Drummond, supra at 982, citing Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct. 745, 749, 62 L.Ed.2d 676 (1980). The Barton court approved of the “common benefit” exception in the grant of attorney fees where the defendants-appellees submitted that the trial court was correct in declining the award of attorney fees in the absence of a determination that a benefit had been conferred on the corporation or any of its shareholders. Barton v. Drummond, supra at 983.

The Barton ruling cited with approval the United States Supreme Court decision in Mills v. Electric Auto-Lite Company, supra, where the Court held that stockholders were entitled to attorneys’ fees for having established a violation of the securities laws by their corporation, it being unnecessary to show a pecuniary benefit to their corporation or fellow stockholders.

In several other cases, courts have awarded fees where the derivative plaintiff accomplished the goals of his litigation through mooting actions by defendants. Altman v. Central of Georgia Railway Co., 540 F.2d 1105 (D.C.1976) (defendant mooted plaintiffs’ claims by reversing its position of withholding dividends by declaring dividends); McDonnell Douglas Corp. v. Palley, 310 A.2d 635 (Del.1973) (plaintiff’s claim for rescission of the sale of preferred stock mooted due to the cancellation of the preferred stock).

B. Burden of Proof

Causation is the crucial link upon which any equitable award of attorneys' fees must be based. Barton v. Drummond, supra at 983. In the instant action, the plaintiffs' litigation must have in some way benefited the corporation and its shareholders.

The defendants assert that the plaintiffs in the action at bar have the burden of proof as to causation. The defendants further assert that the derivative plaintiffs in the action sub judice have wholly failed to meet their burden of proof. The Court cannot accept the defendants’ argument in view of the Fifth Circuit decision in Barton v. Drummond, supra at 984-985, wherein the court expressly approved of the mootness test as follows:

Where a stockholder’s derivative suit has been rendered moot by subsequent action of the defendant, the latter has the burden of showing no causal connection between the two in order to defeat the stockholder’s claim for legal fees and expenses.

The Barton court analyzed the burden of proof issue under the Delaware mootness test announced in McDonnell Douglas Corporation v. Palley, 310 A.2d 635 (Del.1973) and Rosenthal v. Burry Biscuit, 42 Del.Ch. 279, 209 A.2d 459 (1949).

In the instant action, an equitable award of attorneys’ fees and expenses must be analyzed under the principles enunciated by the Barton court. It is undisputed by any of the parties that the actions by the derivative plaintiffs were rendered moot as the result of the merger of the corporation. Therefore, the mootness test and the applicable burden of proof announced by the Fifth Circuit in Barton would determine the validity of a grant of attorneys’ fees and expenses to the derivative plaintiffs.

The Court finds that the defendants in the action at bar have failed to meet their burden of proving that there existed no causal connection between the institution of the litigation by the derivative plaintiffs and the benefits subsequently conferred on the corporation and the shareholders.

Accordingly, the Court directs that reasonable attorneys’ fees and expenses be awarded to the derivative plaintiffs. The Court further directs that counsel for all parties reach a mutual agreement as to the amount of attorney’s fees to be awarded. Absent agreement by counsel, the Court will order that an evidentiary hearing be held to determine the reasonableness of the grant of attorneys’ fees and expenses under the standard announced by the Fifth Circuit decision in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974).


author: MEREDITH, Senior District Judge.

text:
    Paul MacFARLANE, Plaintiff, v. TRI-STAR PICTURES, INC. and the Natural Movie Company, Defendants.
    No. 85-979-C-(C).
    United States District Court, E.D. Missouri, E.D.
    Jan. 29, 1986.

      John Schuelter, St. Louis, Mo., for plaintiff.
    Alan Pratzel, St. Louis, Mo., for defendants.
   MEMORANDUM

MEREDITH, Senior District Judge.

This matter is before the Court upon three motions. Defendant, The Natural Movie Company, has moved for dismissal for lack of personal jurisdiction pursuant to Rule 12(b) of the Federal Rules of Civil Procedure (F.R.C.P.); defendant Tri-Star Pictures, Inc. has moved for summary judgment pursuant to Rule 56 of the F.R. C.P.; plaintiff has moved for a preliminary hearing pursuant to Rule 12(d) of the F.R. C.P. This case was removed from state court and this court has jurisdiction pursuant to 28 U.S.C. § 1332.

The relevant facts are as follows. Plaintiff is employed by the Sporting News and is knowledgeable in the field of baseball history. He is a Missouri resident. Defendant, The Natural Movie Company (Movie Company), is organized under the laws of the State of California and has its principal place of business there. Defendant, Tri-Star Pictures Inc. (Tri-Star), is the successor in interest to Tri-Star Pictures, a New York partnership, none of whose members were Missouri residents. Movie Company made the motion picture “The Natural.” Tri-Star Pictures distributed the film throughout the United States, including Missouri; however, the two defendants were separate entities.

“The Natural” was a fictional film which revolved around major league baseball in 1989. Employees of the Movie Company spoke to several people about baseball in 1939; they called plaintiff by long distance telephone. Plaintiff spoke to employees of the Movie company several times by long distance telephone, some of the calls were initiated by plaintiff and some by the Movie Company. The Hand Prop Room is a corporation, separate from both defendants, which supplied the Movie Company with props for the film. The President of the Hand Prop Room, Alan Levine, met with plaintiff in St. Louis and paid plaintiff for his services. Plaintiff had no contact with any employees or representatives of TriStar Pictures. Plaintiff claims that he entered a contract with the Movie Company and Tri-Star Pictures, and that he is entitled to compensation for nineteen days worth of work. In addition to its personal jurisdiction claim, the Movie Company alleges that they spoke briefly with plaintiff, that no contract was entered into, and that plaintiff volunteered information which was never used in the movie.

I.

On a motion to dismiss for lack of jurisdiction, the facts must be viewed in the way most favorable to plaintiff. Aaron Ferer & Sons Co. v. Diversified Metals Corp., 564 F.2d 1211, 1215 (8th Cir.1977). However, once jurisdiction has been challenged or denied, plaintiff has the burden of proving that jurisdiction exists. Id.; Inst. Food Marketing v. Golden State Strawberries, 747 F.2d 448, 452 (8th Cir.1984).

There is a two-part test to determine whether a case should be dismissed for lack of personal jurisdiction: first, whether the facts of the case satisfy the requirements of the state long arm statute; and second, whether exercise of personal jurisdiction is consistent with due process. Scullin Steel v. National Ry. Utilization Corp., 676 F.2d 309, 312 (8th Cir.1982); Greycas, Inc. v. Anderson, 584 F.Supp. 894, 895 (E.D.Mo.1984).

The Missouri long arm statute authorizes jurisdiction over a nonresident that transacts any business within Missouri or makes any contract within the state [Note: There are other actions which invoke jurisdiction under the long arm statute, but they do not apply in this case]. R.S.Mo. § 506.500 (1986). In the present case, whether the Movie Company transacted business or entered a contract in Missouri is a fact question to be determined by the trier of facts.

To meet the due process standard, there must be sufficient “minimum contacts” between the nonresident defendant and the forum state so that jurisdiction is consistent with traditional notions of fair play and substantial justice. Mountaire Feeds, Inc. v. Agro Impex, S.A., 677 F.2d 651, 654 (8th Cir.1982); Inst. Food Marketing, supra at 455. The factors to consider in deciding whether a defendant has minimum contacts are: the nature and quality of the contacts with the forum state; quantity of contacts with the forum state; relation of the cause of action to the contacts; interest of the state in providing a forum for its residents; and the convenience of the parties. Inst. Food Marketing, supra at 455; M & D Enterprises, Inc. v. Fournie, 600 S.W.2d 64, 68 (Mo.Ct.App.1980). The first three of these factors are of primary importance and the last two are of secondary importance. Sun World Lines v. March Shipping Corp., 585 F.Supp. 580, 582-84 (E.D.Mo.1984). A nonresident’s contact with the forum state must be such that defendant should reasonably anticipate being haled into court in the forum state, Mountaire Feeds Inc., supra at 654-55; Greyas, Inc., supra at 895-96, or defendant’s actions should indicate that it has purposefully availed itself of the privilege of conducting activities within the forum state. Aaron Ferer & Sons Co., supra at 1215; Inst. Food Marketing, supra at 455-56. Finally, it is the defendant’s contacts with the forum state that are important in determining whether personal jurisdiction exists, not defendant’s contacts with a resident of the forum. Inst. Food Marketing, supra at 456.

In the present case, the Movie Company’s only contact with Missouri was several long distance phone calls from California. This contact alone is not sufficient minimum contacts to meet the due process requirement. Mountaire Feeds, Inc., supra at 656; Scullin Steel, supra at 314; Inst. Food Marketing, supra at 456. Therefore, defendant Movie Company’s motion to dismiss for lack of personal jurisdiction will be granted.

II.

A motion for summary judgment must be granted if there is no genuine issue as to any material fact, and the moving party is entitled to a judgment as a matter of law. Rule 56 of the F.R.C.P. The evidence must be viewed in the way most favorable to the nonmoving party. Butler v. MFA Life Ins. Co., 591 F.2d 448, 451 (8th Cir.1979); TRNKA v. Elanco Products Co., A Div. of Eli Lilly, 709 F.2d 1223, 1225 (8th Cir.1983). The party moving for summary judgment must overcome a heavy burden of proof. Butler, supra at 451.

In the present case, plaintiff had no contact with Tri-Star Pictures or its employees. The Movie Company and Tri-Star Pictures were separate corporations. Therefore, defendant Tri-Star Pictures, Inc.’s motion for summary judgment will be granted.

III.

The facts which form the basis for ruling on the motion to dismiss and motion for summary judgment are clear;- therefore, plaintiff’s motion for a preliminary hearing pursuant to Rule 12(d) of the F.R.C.P. will be denied.

      . For an analysis of Supreme Court cases interpreting the due process requirements, see Burger King Corp. v. Rudzewicz, — U.S.-, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985).


author: GOETTEL, District Judge:

text:
    Hadi BEDREDIN ([ AXX XXX XXX ]), Samira Bekit ([ AXX XXX XXX ]), and Lucia Kabakoulak ([ AXX XXX XXX ]), Petitioners, v. Charles C. SAVA, District Director, Immigration and Naturalization Service, New York, New York, Respondent.
    No. 85 Civ. 8627 (GLG).
    United States District Court, S.D. New York.
    Jan. 30, 1986.

      Omar Z. Ghobashy, New York City, for petitioners.
    Rudolph W. Giuliani, U.S. Atty. for the S.D.N.Y., New York City (Jorge Guttlein, Sp. Asst. U.S. Atty., of counsel), for respondent.
   GOETTEL, District Judge:

The petitioners are being held in detention by the respondent pursuant to section 235(b) of the Immigration and Nationality Act of 1952, as amended, 8 U.S.C. § 1225(b) (1982) (the “Act”). All have applied for parole pending exclusion proceedings and adjudication of their applications for political asylum. The respondent has denied their requests for parole and the petitioners now seek review of that decision by writ of habeas corpus pursuant to 28 U.S.C. §§ 2242 & 2243 (1982).

1. BACKGROUND

Although all three petitioners request the same relief, the facts underlying their situations differ.

A. Hadi Bedredin and Samira Bekit

Petitioners Hadi Bedredin and Samira Bekit are, respectively, husband and wife. They are natives of Ethiopia who were refugees in Sudan. On September 19, 1985, they attempted to enter the United States with fraudulent travel documents and without valid immigrant visas. They were detained by the Immigration and Naturalization Service (“INS”) pursuant to section 235(b) of the Act. On September 20, 1985, their attorney wrote to the INS requesting parole for Bedredin and Bekit, noting that they were applying for political asylum. By letter dated October 2, 1985, Benjamin Perlitsch, Deputy Assistant Director of INS in New York, denied parole stating,

The [petitioners] arrived in the United States on September 19, 1985 and presented altered travel documents. In view of the extraordinary means by which these aliens sought entry into this country and that there are no emergent reasons nor would it be in the public interest to parole them, your request is denied.

Respondent’s Return and Declaration, Exhibit E.

Bedredin and Bekit challenge this decision. They claim that the respondent’s denial of their request for parole will unlawfully subject them to an extended period of incarceration pending determination of their admissibility into the United States. They state that even if they are ordered excluded, they cannot be returned to the country from which they came and would thus be incarcerated indefinitely, in violation of their constitutional rights. Petitioner Bekit has recently added the claim that she is pregnant and that, under the applicable parole guidelines, she should be paroled.

B. Lucia Kabakoulak

Petitioner Kabakoulak is a native of Syria who lived most of her life in Lebanon. On September 13, 1985, she arrived in the United States with her mother and younger ' sister. All three were denied admission into the country because they were attempting to enter with invalid immigrant visas. Kabakoulak’s sister is a minor and was paroled pending exclusion hearings. See 8 C.F.R. § 212.5(a)(2)(H) (1985). There being no adult relative not in detention to supervise the paroled minor child, Kabak-oulak’s mother was paroled to accompany the young girl. See 8 C.F.R. § 212.-5(a)(2)(ii)(B) (1985). Kabakoulak, however, was held in detention.

Kabakoulak was afforded an exclusion hearing at which she was represented by counsel. At that time, she made no request for political asylum, and, on October 4, 1985, the immigration court issued a final order of exclusion and deportation. On October 25, 1985, Kabakoulak, represented by different counsel, moved to reopen her exclusion proceeding based upon her application for political asylum dated October 23, 1985. Counsel also asked that she be paroled. On November 1, 1985, Deputy Assistant Director Perlitsch, acting for the respondent, denied Kabakoulak’s parole request because she had attempted to enter the country using altered travel documents and because she was then under a final order of exclusion. Respondent’s Return and Declaration, Exhibit T. On November 14, 1985, Immigration Judge Francis J. Lyons granted Kabakoulak’s motion to reopen her exclusion proceedings in order to consider her belated application for political asylum.

Kabakoulak has renewed her request for parole but the respondent has declined to parole her at this time. Kabakoulak challenges that decision and claims entitlement to parole because of ill health and the fact that her father, an alien admitted to the United States on a visitor’s visa, has applied for permanent resident alien status and political asylum and has included his entire family in his petition. She also contends that, if excluded, she cannot be returned to her native country and will thus be subjected to incarceration for an indeterminate time in violation of her constitutional rights.

As discussed below, the broad discretion granted to the respondent and the limited scope of judicial review of parole decisions mandate the dismissal of the instant petition as to all three petitioners.

II. DISCUSSION

A. Detention and Parole Standards

Section 235(b) of the Act provides that every alien seeking entry into the United States who does not appear to be clearly and beyond a doubt entitled to be admitted shall be detained pending an exclusion hearing. 8 U.S.C. § 1225(b) (1982). Pursuant to 8 C.F.R. § 235.8(b) (1985), any alien who arrives with documentation that appears on its face to be false or altered shall be detained.

The Attorney General has broad discretion to temporarily parole aliens detained pursuant to section 235.3(b) of the regulations. 8 U.S.C. § 1182(d)(5) (1982). The Attorney General has delegated this authority to the local INS district directors. See 8 C.F.R. § 212.5 (1985). However, temporary parole is the exception to rule of detention. Ledesma-Valdes v. Sava, 604 F.Supp. 675, 680 (S.D.N.Y.1985) (Weinfeld, J.). An unadmitted alien has no constitutional right to parole. Id.; see Landon v. Plasencia, 459 U.S. 21, 32, 103 S.Ct. 321, 329, 74 L.Ed.2d 21 (1982) (an alien seeking admission into the United States has no constitutional rights regarding his application). The district director may grant temporary parole “for emergent reasons or for reasons deemed strictly in the public interest.” 8 U.S.C. § 1182(d)(5)(A) (1982).

The Code of Federal Regulations state that “[t]he parole of aliens who have serious medical conditions in which continued detention would not be appropriate would generally be justified by ‘emergent reasons.’ ” 8 C.F.R. § 212.5(a)(1) (1985). The regulations then define five groups that would “generally come within the category of aliens for whom the granting of the parole exception would be ‘strictly in the public interest’, provided that the aliens present neither a security risk nor a risk of absconding.” 8 C.F.R. § 212.5(a)(2) (1985). The first four groups are (1) pregnant women; (2) juveniles, including, in certain circumstances, an adult accompanying a juvenile; (3) certain aliens who have close relatives in the United States; and (4) aliens who will be witnesses in official proceedings in the United States. The fifth category simply allows parole of “aliens whose continued detention is not in the public interest as determined by the district director.” 8 C.F.R. § 212.5(a)(2)(v) (1985).

The petitioners argue that, pending exclusion proceedings and adjudication of their applications for political asylum, they are eligible for parole under the guidelines of 8 C.F.R. § 212.5. The respondent’s decision to deny them parole was, they assert, an abuse of discretion.

B. Judicial Review of Parole Decisions

The case of Bertrand v. Sava, 684 F.2d 204 (2d Cir.1982), provides the standard for judicial review of INS discretionary decisions in this circuit. In considering a challenge to the district director’s denial of parole, the Second Circuit held that federal courts have the power to review INS decisions to deny parole to unadmitted aliens through the mechanism of habeas corpus petitions. Id. at 210. However, this power is narrowly circumscribed because of the legislature’s plenary power over the admission of aliens. Id. at 211-12; see Klein-dienst v. Mandel, 408 U.S. 753, 769-70, 92 S.Ct. 2576, 2585, 33 L.Ed.2d 683 (1972). In considering an alien’s habeas corpus petition,

the Attorney General’s exercise of his broad discretionary power must be viewed at the outset as presumptively legitimate and bona fide in the absence of strong proof to the contrary. The burden of proving that discretion was not exercised or exercised irrationally or in bad faith is a heavy one and rests at all times on the unadmitted alien challenging denial of parole.

Bertrand v. Sava, supra, 684 F.2d at 212-13.

In the instant case, the stated reason for denying parole was that the petitioners attempted to enter the United States with improper (i.e., fraudulent) visas or travel documents. As Judge Leisure recently noted in Singh v. Nelson, 623 F.Supp. 545 (S.D.N.Y.1985), “By refusing to parole undocumented excludable aliens, the Service is attempting to discourage people from entering the United States without permission and serves notice that aliens will not be able to circumvent the procedures governing lawful immigration to this country.” Id. at 556. This goal provides a rational basis for denying parole to aliens such as the petitioners who attempt to side-step the procedures for legal admission to this country. The petitioners contend, however, that the district director abused his discretion by failing to find “emergent reasons” or “reasons strictly in the public interest” that warrant their parole.

C. The Petitioners’ Claims

1. Eligibility For Parole Under 8 C.F.R. § 212.5.

The petitioners assert that they qualify for parole under the guidelines of 8 C.F.R. § 212.5, which provide as follows:

(a) In determining whether or not aliens who have been or are detained in accordance with § 235.3(b) or (c) will be paroled out of detention, the district director should consider the following:
(1) The parole of aliens who have serious medical conditions in which continued detention would not be appropriate would generally be justified by “emergent reasons”;
(2) The parole of aliens within the following groups would generally come within the category of aliens for whom the granting of the parole exception would be “strictly in the public interest”, provided that the aliens present neither a security risk nor a risk of absconding:
(i) Women who have been medically certified as pregnant;
(ii) Aliens who are defined as juveniles.... When it is determined that such juvenile should be paroled from detention, the following guidelines should be followed:
(A) Juveniles may be released to a relative (brother, sister, aunt, uncle) not in Service detention who is willing to sponsor a minor and the minor may be released to that relative notwithstanding that he has a relative who is in detention.
(B) If a relative who is not in detention cannot be located to sponsor the minor, the minor may be released with an accompanying relative who is in detention.
(iii) Aliens who have close family relatives in the United States (parent, spouse, children, or siblings who are United States citizens or lawful permanent resident aliens) who are eligible to file, and have filed, a visa petition on, behalf of the detainee;
(iv) Aliens who will be witnesses in proceedings being, or to be, conducted by judicial, administrative, or legislative bodies in the United States;
(v) Aliens whose continued detention is not in the public interest as determined by the district director.

8 C.F.R. § 212.5 (1985). We must remind the petitioners that they are not guaranteed parole based on these criteria. Section 212.5 merely provides conditions under which the district director may exercise his discretion to grant parole.

Although not specifically alleged, we assume all three petitioners maintain that they should be paroled because their “continued detention is not in the public interest....” 8 C.F.R. § 212.5(a)(2)(v) (1985). However, the petitioners have not shown why it would be in the public interest to parole them. The heavy burden of proving that the district director abused his discretion in denying parole rests on the petitioners. Bertrand v. Sava, supra 684 F.2d at 213. This Court may upset his decision only if he acted “irrationally” or “in bad faith.” Id. We do not find that to be the case here.

a. Bedredin and Bekit

Neither Bedredin nor Bekit appear to come within any of the categories of aliens for whom parole would be “strictly in the public interest,” 8 C.F.R. § 212.5(a)(2), nor do they have any “serious medical conditions” that would justify parole for “emergent reasons” under section 212.5(a)(1). Petitioner Bekit claims to be pregnant which, if true, would probably result in parole pursuant to 8 C.F.R. § 212.5(a)(2)(i). However, recent medical tests show she is not pregnant.

b. Kabakoulak

Petitioner Kabakoulak attempts to bring herself within the provisions of 8 C.F.R. § 212.5(a)(2)(iii) because her father is currently residing in the United States. He apparently entered this country on a visitor’s visa and is living in Hartford, Connecticut. He has sought preferential treatment, pursuant to 8 U.S.C. § 1153(a)(6) (1982), in adjusting his status to that of a permanent resident alien, and has applied for political asylum for himself and his family. However, since he is not currently a lawful permanent resident alien, Kabak-oulak is not eligible for parole pursuant to 8 C.F.R. 212.5(a)(2)(iii).

[2] Kabakoulak next contends that she should be paroled because two other members of her family were paroled. Counsel for Kabakoulak notes that whole families have been paroled once one member of the family is paroled. This argument is unavailing. Parole is discretionary and a grant of parole to one, two, or twenty members of a family in one situation does not guarantee parole in another case.

Kabakoulak also purports to have several illnesses for which she has received medical attention. Despite numerous medical examinations, no definitive diagnosis has yet been forthcoming; in the meantime, Deputy Assistant Director Perlitsch has declined to grant her parole. Respondent's Declaration, January 16, 1986, Exhibit B. It is for the district director, not this Court, to evaluate the seriousness of a detainee’s medical condition and determine if parole is warranted. The Court may not substitute its judgment for that of the district director. Bertrand v. Sava, supra, 684 F.2d at 217. However, the Court may intervene if the district director abuses or fails to exercise his discretion. Ledesma-Valdes v. Sava, supra, 604 F.Supp. at 680.

We are troubled by the fact that, while impliedly asserting that Kabakoulak has no serious medical condition, the respondent nevertheless continues to schedule further specialized medical examinations. By letter dated January 15, 1986, Deputy Assistant Perlitsch advised that Kabakoulak was “to be further examined” on January 22, 1986. Respondent’s Declaration, Exhibit B. On January 27, we were advised by respondent’s counsel that additional examinations have now been scheduled for February 19, and March 3, 1986. The respondent may not defer reconsidering this petitioner’s request for parole indefinitely. See Paulis v. Sava, 544 F.Supp. 819, 821 (S.D.N.Y.1982). His inaction may amount to a failure to exercise discretion, and raises a question of his good faith in denying parole in the interim. At present, we cannot say that the district director has abused his discretion in denying Kabakou-lak parole based on illness. However, this decision is without prejudice to the filing of a new writ if the respondent fails to issue an updated decision on Kabakoulak’s parole within thirty days after the March 3 medical examination.

2. Detention for Extended Time is Unlawful.

The petitioners next argue that the district director abused his discretion in denying them parole because they are likely to be detained indefinitely. They suggest that such “indefinite” detention could occur both prior to, and following, a final order of exclusion.

a. Parole pending asylum adjudication.

The petitioners have all applied for political asylum because they allegedly fear returning to their native countries. Those applications have not yet been processed, but there is no indication that they will be pending “indefinitely.” See Paulis v. Sava, supra, 544 F.Supp. at 821 (S.D.N.Y.1982) (“[T]he Constitution imposes some outer limit on the length of time that [an alien] can be detained while the government processes his case.”). The respondent detained the petitioners pending decision on their asylum requests because they had attempted to enter the country using fraudulent documents. This constitutes a “facially legitimate and bona fide reason” for denying parole, Kleindienst v. Mandel, supra, 408 U.S. at 770, 92 S.Ct. at 2585, and, therefore, was not an abuse of discretion. See Jean v. Nelson, 727 F.2d 957, 977 (11th Cir.1984) (en banc), aff'd, — U.S. -, 105 S.Ct. 2992, 86 L.Ed.2d 664 (1985).

b. Parole after final exclusion order.

The petitioners contend that, if asylum is denied and they are ordered excluded, they may be detained indefinitely, in violation of their constitutional rights, because no country will accept them. Although this argument may eventually raise a serious and controversial issue, it is not presently ripe for consideration. Asylum has not yet been denied. If the petitioners are ultimately ordered excluded and deported, the Act requires the Attorney General to effect their departure within six months. 8 U.S.C. § 1252(c) (1982). At that time, the Attorney General may, in his discretion, release an alien on posting of a bond or such other conditions as may be prescribed. Id.; see Singh v. Nelson, supra, at 551-52. If ordered deported, the petitioners may renew their petition for habeas corpus relief pursuant to 8 U.S.C. § 1105a(a)(9) (1982). Since the petitioners’ asylum applications are still pending, it is inappropriate for us to consider anything beyond the question of whether the district director abused his discretion in denying parole pending decision on the petitioners’ exclusion.

3. Discrimination Based on National Origin.

The petitioners claim their detention is in retaliation for seeking political asylum and that they are being discriminated against because of their national origin. The petitioners’ counsel supports this allegation with conclusory contentions about INS policy and by recounting his personal experiences in other immigration cases. The record in the instant case does not support the accusations of retaliation or discrimination.

III. CONCLUSION

For the reasons discussed above, we find that the district director did not abuse his discretion in refusing to parole the, petitioners. Consequently, we must dismiss the instant petition in its entirety- As to petitioner Kabakoulak, this dismissal is without prejudice to renewal should the respondent fail to issue a revised decision regarding her parole for medical reasons by April 2, 1986.

SO ORDERED.

      . According to the respondent, Bedredin and Bekit hold altered Sudanese refugee travel documents. Counsel for the petitioners claims that they hold United Nations refugee passports. We need not rule on this factual issue. Immigration officials may detain aliens whose travel documents appear questionable on their face. 8 C.F.R. § 235.3(b) (1985); see infra p. 632.

      . Section 235(b) of the Act states in pertinent part, "Every alien ... who may not appear to the examining immigration officer at the port of arrival to be clearly and beyond a doubt entitled to land shall be detained for further inquiry to be conducted by a special inquiry officer." 8 U.S.C. § 1225(b) (1982).

      . We note that some documents refer to this petitioner as "Lousia” Kabakoulak.

      . The record before us shows that the petitioner’s mother obtained these visas through a Lebanese travel agent in Nicosia, Cyprus, after being denied visas by the United States Embassy in Nicosia some months earlier.

      . The respondent does not explain why the minor child was not paroled into her father's care. He is apparently an alien not in detention, since he is alleged to be living in Connecticut and seeking permanent resident alien status. It is possible, however, that he could not be located to sponsor the minor. See 8 C.F.R. § 212.-5(a)(2)(ii)(B) (1985).

      .This renders moot that part of the respondent’s denial of parole based on Kabakoulak being under a final order of exclusion.

      . Petitioners’ counsel relies on the case of Abu Laban v. Sava, 564 F.Supp. 30 (S.D.N.Y.1982). That case provides no authority for paroling these petitioners. There, two Palestinian aliens arrived at JFK airport with their father, all without valid visas to enter the United States. After examining their documents, immigration officials ordered them returned to their port of embarkation on the next available flight. While awaiting departure, the father suffered an apparent heart attack and both sons were paroled for one week on humanitarian grounds to accompany their father to the hospital. After failing to appear voluntarily for exclusion hearings, the two sons were apprehended and placed in detention. They applied for political asylum and requested parole pending exclusion proceedings. Parole was denied. On petition for writ of habeas corpus challenging denial of parole, the district court refused to grant the writ, finding that the district director did not abuse his discretion in denying parole because of the likelihood that the Abu Labans would abscond. Counsel’s reliance on this case is misplaced. He has not presented any facts comparable to those in Abu Laban v. Sava, that warrant parole on humanitarian grounds. Furthermore, although the district director did not rely on the likelihood of these petitioners absconding in denying them parole, the respondent notes, with respect to Kabakoulak, that her mother and sister failed to appear for scheduled hearings and that she might do the same.
      The petitioners’ counsel contends that paroling entire families in some cases and not others "violates the parole policy.” Replevin at 3. We find, however, that these variances tend to confirm that the district director is exercising his discretion and giving individual consideration to each situation. See Jean v. Nelson, — U.S. -, 105 S.Ct. 2992, 2999, 86 L.Ed.2d 664 (1985).

      . Kabakoulak is a Christian Syrian who has lived most of her life in Lebanon. She claims she fears religious persecution if returned to Syria. Bedredin and Bekit claim to be refugees from Ethiopia and, therefore, stateless persons. The merits of the political asylum applications are not before us.

      . The petitioners initially expressed a fear that they would be deported while their asylum applications were pending. However, the government has represented that it will not deport the petitioners while their asylum applications are pending. See Respondent’s Memorandum of Law in Opposition at 3 n. *.

      . Counsel for the petitioners cites Rodriguez Fernandez v. Wilkinson, 505 F.Supp. 787 (D.Kan.1980), aff’d, 654 F.2d 1382 (10th Cir.1981), in support of this argument. Unfortunately, that case predates the amendments to the federal regulations abandoning a very lenient parole policy in favor of detaining aliens who cannot make a prima facie showing of entitlement to enter this country. See Jean v. Nelson, — U.S. -, 105 S.Ct. 2992, 2995, 86 L.Ed.2d 664 (1985). The case, therefore, is of no prece-dential value here.

        .See, e.g., Case Comment, The Indefinite Detention of Excludable Aliens: Palma v. Verdeyen, 16 N.Y.U.J.Int’l L. & Pol. 119 (1983) (criticizing a Fourth Circuit decision that approved indefinite detention of excluded aliens who could not be returned to their country of origin); Note, Statutory and Constitutional Limitations on the indefinite Detention of Excluded Aliens, 62 B.U. L.Rev. 553 (1982) (arguing that indefinite detention of excluded aliens is an improper permanent alternative to deportation without showing that the alien would pose a serious threat to the community); but see Note, The Indefinite Detention of Excluded Aliens: Statutory and Constitutional Justifications and Limitations, 82 Mich.L. Rev. 61 (1983) (concluding that indefinite detention of undeportable excluded aliens is constitutionally permissible under certain circumstances).

      . The Supreme Court recently declined to consider whether a denial of parole because of race or national origin violates the fifth amendment of the Constritution. The Court affirmed the Eleventh Circuit’s decision to remand the case to the district court for decision on statutory grounds, but held that the circuit court should not have reached the constitutional issue. Jean v. Nelson, — U.S. -, 105 S.Ct. 2992, 86 L.Ed.2d 664 (1985).

      . The petitioners’ claims of discrimination are somewhat obscured by their attorney’s overzealous and somewhat incomprehensible presentation. We have attempted to decifer and address each allegation. However, even if we have failed to perceive all intended arguments, we are nevertheless convinced that the record before us shows no abuse of the district director’s discretion in denying parole at this time.