author: DECKER, Senior District Judge.

text:
    Mare PAYNE, Plaintiff, v. MARKETING SHOWCASE, INC., etc., et al., Defendants.
    No. 84 C 6645.
    United States District Court, N.D. Illinois, E.D.
    Feb. 25, 1985.

      Allen C. Engerman, Carlo E. Poli, Jeffrey D. Jacobs, Engerman, Erlich, Jacobs & Berman, Chicago, 111., for plaintiff.
    Eric A. Oesterle, Peter J. Valeta, Charlotte M. Stone, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

DECKER, Senior District Judge.

On August 2, 1984, Mare Payne (“Payne”) filed a ten-count complaint against Marketing Showcase, Inc. (“MSI”), Charles Offset Co. (“COC”), Charles Communications Co., Inc. (“CCC”), and four officers of these corporations. The first three counts allege violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(a), (c), and (d). The remaining counts allege pendent state law claims. The case is before the court on. defendants’ motion to dismiss the complaint for improper venue under Fed.R.Civ.P. 12(b)(3) or, in the alternative, to transfer this case pursuant to either 28 U.S.C. § 1406(a) or § 1404(a).

I. Factual Background

Payne was employed by MSI as a commissioned salesperson from March, 1982 to March, 1984. During this time, she lived in Chicago. MSI procures advertisers for nationwide coupon advertising and advertising inserts. COC prints these coupons and inserts and then distributes them to newspapers or other customers. CCC is purportedly the holding company of MSI and COC.

Payne was paid on a net commission basis. Under her employment contract, which was expressly governed by New York law, MSI deducted certain charges, such as printing costs, from her commissions. The gist of Payne’s complaint is that all of the defendants conspired to defraud and actually defrauded her of the true amount of her commissions by falsely inflating the deductible charges. The complaint alleges that defendants intentionally misrepresented to Payne the amount of these charges either in person, by mail, or by wire while she was in Chicago.

Payne was a resident of New York when she brought this action. MSI, COC, and CCC are New York corporations. It is undisputed that MSI is licensed to do business in Illinois and transacts business in this district. Three of the individual defendants reside in New York, and one resides in New Jersey. In addition, the individual defendants submitted affidavits to the effect that they have little, if any, contact with Illinois and that all relevant documents are located in New York. Many of the principal witnesses reside in New York also.

Plaintiff contends that venue is proper in the Northern District under 18 U.S.C. § 1965(a) and 28 U.S.C. § 1391(b). Defendants move to dismiss the complaint for improper venue under Fed.R.Civ.P. 12(b)(3) or, in the very least, to transfer this case to the Southern District of New York in the interest of justice under 28 U.S.C. § 1406(a). If venue is proper here, defendants move to transfer the case pursuant to 28 U.S.C. § 1404(a).

II. Discussion

The purpose of statutory venue provisions “is to protect the defendant against the risk that a plaintiff will select an unfair or inconvenient place of trial.” Leroy v. Great Western United Corp., 443 U.S. 173, 183-84, 99 S.Ct. 2710, 2716-17, 61 L.Ed.2d 464 (1979) (original emphasis). Venue must be properly laid as to each defendant. Eaby v. Richmond, 561 F.Supp. 131, 140 n. 2 (E.D.Pa.1988). In addition, where multiple causes of action are joined, venue must be proper as to each one. International Patent Development Corp. v. Wyomont Partners, 489 F.Supp. 226, 230 (D.Nev.1980). Although there is a split of authority on the question, this court follows the rule that where, as here, a defendant challenges venue under Fed.R.Civ.P. 12(b)(3), the plaintiff has the burden of proving that venue is proper in this district. Pfeiffer v. International Academy of Biomagnetic Medicine, 521 F.Supp. 1331, 1336 (W.D.Mo.1981); see Grantham v. Challenge-Cook Bros., Inc., 420 F.2d 1182, 1184 (7th Cir.1969).

A. Venue Under 18 U.S.C. § 1965(a)

Section 1965(a), the venue provision for civil RICO actions, provides that a suit may be instituted in any district where a defendant “resides, is found, has an agent, or transacts his affairs.” Id. Although this section was intended to liberalize existing venue provisions, plaintiff must show that there is venue over each defendant due to his own contacts with the district as opposed to those of a co-defendant. Farmers Bank v. Bell Mortgage Corp., 452 F.Supp. 1278, 1281 (D.Del.1978).

MSI is clearly “found” and “transacts [its] affairs” here for purposes of § 1965(a). The only basis for venue that Payne raises with respect to the other defendants is that they have an agent, namely MSI, in this district. Payne reasons that because defendants constituted an enterprise to defraud her, each of them became an agent of the other. This circular logic is flawed.

First, this court long ago rejected the co-conspiratorial theory of venue. Commonwealth Edison Co. v. Federal Pacific Electric Co., 208 F.Supp. 936, 941 (N.D.Ill.1962). Payne must prove that each defendant has engaged in some significant or substantial act pursuant to the RICO conspiracy in this district. Farmers Bank, 452 F.Supp. at 1281; Eaby, 561 F.Supp. at 140 n. 2. Second, the first court to construe the RICO venue provision held that the term “has an agent,” like its antitrust counterpart, does not apply to corporate defendants. King v. Vesco, 342 F.Supp. 120, 123 (N.D.Cal.1972). Thus, since Payne does not allege that any of the individual defendants has an agent in this district, the concept of agency is of no help to her in this case.

Even if the court discounts the sound reasoning of King, plaintiff still has not sufficiently shown that MSI is an agent of the other defendants. Payne’s assertion that MSI procures advertisers for inserts and coupons printed by COC does not establish an agency relationship among all defendants. See Westinghouse Electric Corp. v. Rio Algom Ltd., 448 F.Supp. 1284, 1301-03 (N.D.Ill.), aff'd in part and rev’d in part on other grounds sub nom. Westinghouse Electric Corp. v. Kerr-McGee Corp., 580 F.2d 1311 (7th Cir.), cert. denied, 439 U.S. 955, 99 S.Ct. 353, 58 L.Ed.2d 346 (1978). Similarly, while plaintiff alleges that all of the corporations are affiliated, she has not shown that COC and CCC control the daily business operations of MSI to such an extent that its actions may be imputed to them for venue purposes.

Although plaintiff did not rely on the other terms in § 1965(a), the court will briefly examine them to see if venue is proper. First, for a corporate defendant to be “found” in this district, it must be present here by its officers and agents carrying on the business of the corporation. Van Schaick v. Church of Scientology, Inc., 535 F.Supp. 1125, 1133 (D.Mass.1982). The court already concluded that Payne has failed to show that MSI is an agent of COC and CCC. Furthermore, construing the Clayton Act venue provision after which § 1965(a) was modeled, this court defined the word “found” as “presence and ‘continuous local activities’ within the [district.” E.g., C.C.P. Corp. v. Wynn Oil Co., 354 F.Supp. 1275, 1278 (N.D.Ill.1973). Because plaintiff has not shown that COC, CCC, and the individual defendants carry on their business in this district to any significant degree, none of them is “found” here for RICO venue purposes.

Finally, the term “transacts his affairs” is considered to be equivalent to the term “transacts business” in the anti-trust statute. E.g., Bulk Oil (USA) Inc. v. Sun Oil Trading Co., 584 F.Supp. 36, 39 (S.D.N.Y.1983). This court held that a corporation “transacts business” within a forum when “substantial business activity is done within the forum with continuity of character ....” C.C.P. Corp., 354 F.Supp. at 1278. Payne’s conclusory allegation that COC does business in this district falls short of the required standard. With respect to the individual defendants, “transacts his affairs” refers to their personal affairs, not the affairs they may have transacted on behalf of their employer. Bulk Oil, 584 F.Supp. at 39. Plaintiff’s information and belief notwithstanding, the affidavits of the individual defendants clearly show that they did not transact their own affairs in this district. Cf. King v. Vesco, 342 F.Supp. at 123-24.

In sum, plaintiff stretches § 1965(a) too far in her attempt to manufacture venue over COC, CCC, and the individual defendants solely through the connection that MSI has with this district. Plaintiff must provide substance to her claim of an agency relationship before she may use MSI as a magnet to pull all other defendants to this district. The court holds that venue is improper as to COC, CCC, and the four individual defendants under 18 U.S.C. § 1965(a).

B. Venue Under § 1391(b)

Because 18 U.S.C. § 1965(a) is not intended to be exclusive, the court must next inquire whether this action can be maintained under the general venue statute, 28 U.S.C. § 1391(b). Van Schaick, 535 F.Supp. at 1133 n. 6. Since all of the defendants do not reside in this district, the sole issue is whether “the claim arose” here. 28 U.S.C. § 1391(b). Payne argues that, because the RICO injuries caused by the defendants occurred in this district, venue is proper here. On the other hand, defendants claim that the “weight of the contacts” overwhelmingly points to the Southern District of New York.

In Leroy v. Great Western United Corp., 443 U.S. 173, 99 S.Ct. 2710, 61 L.Ed.2d 464 (1979), the Supreme Court concluded that:

the broadest interpretation of the language of § 1391(b) that is even arguably acceptable is that in the unusual case in which it is not clear that the claim arose in only one specific district, a plaintiff may choose between those ... districts that with approximately equal plausibility — in terms of the availability of witnesses, the accessibility of other relevant evidence, and the convenience of the defendant (but not the plaintiff) — may be assigned as the locus of the claim.

Id. at 185, 99 S.Ct. at 2717 (original emphasis) (footnote omitted). As this court has stressed, “[wjhere ‘the claim arose’ should be ascertained by advertence to events having operative significance in the case, and a common sense appraisal of the implications of those events for accessibility to witnesses and records.” Robbins v. First American Bank, 514 F.Supp. 1183, 1192 (N.D.Ill.1981) (quoting Lamont v. Haig, 590 F.2d 1124, 1134 (D.C.Cir.1978)). In this case, convenience to all of the litigants, including plaintiff, and accessibility to the major witnesses and relevant evidence appear to favor venue in New York. Nevertheless, plaintiff insists that under the “weight of the contacts” test, venue is proper in this district since it is the place of injury.

In recent cases, this court has followed the cryptic analysis of the Supreme Court in Leroy rather than applying the “weight of the contacts” test. See Medical Emergency Service Associates v. Duplis, 558 F.Supp. 1312, 1314-16 (N.D.Ill.1983); Robbins, 514 F.Supp. at 1192-93. Though this shift in analysis may be an exercise in semantics, Leroy accorded greater weight to the convenience of the defendant and the witnesses than did the “weight of the contacts” test. A common sense appraisal of the considerations embodied in Leroy indicates that the locus of Payne’s claim is New York, not Illinois. This is not the unusual case referred to in Leroy that gives rise to multiple candidates for venue.

Contrary to plaintiff’s wishes, the place of the injury, while significant, is not determinative. Soper v. Simmons International, Ltd., 582 F.Supp. 987, 992 (N.D.N.Y.1983). This is especially true with respect to RICO and anti-trust claims, which are often not susceptible to such a simplistic rationale. See Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 291 F.Supp. 252, 260 (E.D.Pa.1968). In her RICO claims, Payne contends that all of the defendants combined to form an “association in fact” enterprise to defraud her through a pattern of racketeering activity under § 1962(c), invested the wrongfully diverted funds in the enterprise under § 1962(a), and conspired to defraud her under § 1962(d). It is clear from these allegations that the heart of plaintiff’s RICO claims is the association and conspiracy to defraud her. Cf. Ohio-Sealy Mattress Manufacturing Co. v. Kaplan, 429 F.Supp. 139, 141 (N.D.Ill.1977); ABC Great States, Inc. v. Globe Ticket Co., 310 F.Supp. 739, 743 (N.D.Ill.1970).

Any scheme to defraud Payne of her commissions must have taken place in New York. MSI, COC, and CCC are New York corporations with offices in New York City. The defendant officers work and live in New York, with the exception of one who lives in New Jersey, and have minimal contact with Illinois. All pertinent correspondence and wire communications with plaintiff originated in New York. Any alleged diversion of funds and subsequent investment occurred in New York. Most of the principal witnesses live in New York. The affidavits submitted by defendants make clear that all relevant documents are located in New York. Finally, plaintiff resided in New York when she filed this suit.

Thus, because no defendant except MSI has a significant connection with this district, the fact that plaintiff may have suffered her losses here does not make venue proper here. The convenience of both the litigants and the witnesses, access to the relevant proof, and the nature of the case convince the court that the locus of the claim is New York. Rather than dismiss this case, however, the court concludes that the interest of justice warrants transferring this action to the Southern District of New York where plaintiffs claim arose and where venue is proper as to all parties. 28 U.S.C. § 1406(a).

Payne requests the court to transfer venue on the condition that the decision in Haroco, Inc. v. American National Bank and Trust Co., 747 F.2d 384 (7th Cir.1984), cert. granted, _ U.S. _, 105 S.Ct. 902, 83 L.Ed.2d 917 (1985), declining to impose a “racketeering enterprise injury” requirement on civil RICO plaintiffs, be followed in the Southern District of New York. This unusual request may reveal plaintiffs motivation for bringing suit here, since the Second Circuit recognizes a “racketeering enterprise injury” requirement in RICO actions. See Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir.1984), cert. granted, _ U.S. _, 105 S. Ct. 901, 83 L.Ed.2d 917 (1985). Plaintiffs request is moot, however, because the Supreme Court has granted certiorari in both Haroco and Sedima and will soon resolve the current split between the circuits.

III. Conclusion

For the foregoing reasons, the court finds that venue is improper in this district. In the interest of justice, the court transfers this ease to the United States District Court for the Southern District of New York.

      . Section 1965(a) was patterned after the venue provisions of the antitrust laws. King v. Vesco, 342 F.Supp. 120, 122 (N.D.Cal.1972).

      . For the sake of argument, the court may assume that Payne sustained her RICO injuries in this district,

      . In addition, Payne’s employment contract was expressly governed by New York law. Although this factor is less important than the others, a number of Payne’s pendent claims require the interpretation of the contract. As the Supreme Court observed in Leroy, a federal judge sitting in New York is better qualified to construe New York law. 443 U.S. at 186, 99 S.Ct. at 2718. The court intimates no opinion as to any of the other choice of law questions.

      . Even if venue were proper here, the court would transfer the case ”[f]or the convenience of parties and witnesses, [and] in the interest of justice" to the Southern District of New York pursuant to 28 U.S.C. § 1404(a).


source: Caselaw Access Project

author: HUGH GIBSON, District Judge.

license: Public Domain

text:
    Francis E. LAUZON, III v. STRACHAN SHIPPING COMPANY, Texas Employers’ Insurance Association.
    Civ. A. No. G-84-44.
    United States District Court, S.D. Texas, Galveston Division.
    Feb. 5, 1985.

      Joel W. Ellis, II, Galveston, Tex., for plaintiff.
    Gray H. Miller, Fulbright & Jaworski, Houston, Tex., for defendants.
   MEMORANDUM AND ORDER

HUGH GIBSON, District Judge.

Plaintiff, a longshoreman, brought this action to enforce a supplemental order by the Deputy Commissioner of the Department of Labor. In his order, the Deputy Commissioner declared plaintiff’s employer in default of its obligation to pay a compensation award of $25,000.00. Pursuant to 33 U.S.C. § 914(f), the Commissioner ordered the employer and its insurance carrier to pay an additional twenty percent of the original award as penalty for default. Section 914(f) provides that if a compensation award is not paid within ten days after it becomes due, there shall be added to such unpaid compensation an amount equal to twenty percent thereof.

Before the Court is plaintiffs motion for summary judgment. The insurance carrier, Texas Employers Insurance Association (TEIA), had also moved for summary judgment. Defendant TEIA bases its motion on the following grounds:

1. The defendant has not defaulted, in its obligation to pay the Commissioner’s award because Rule 6(e) of the Federal Rules of Civil Procedure applies to extend the ten-day requirement of Section 914(f).

2. The Commissioner’s supplemental order did not comport with the notice and hearing requirement prescribed by 33 U.S.C. §§ 918(a), 919(c) and (d), and 5 U.S.C. § 554.

I.

A. The Court must first consider whether TEIA’s payment of the compensation award was timely. The ten-day requirement of Section 914(f) begins to run on the date compensation becomes due, which has been interpreted to mean the date the compensation award was filed and became effective. Arrow Stevedore Co. v. Pillsbury, 88 F.2d 446 (9th Cir.1937); Henry v. Gentry Plumbing & Heating Co., 704 F.2d 863 (5th Cir.1983). See also 20 C.F.R. § 702.-350; 33 U.S.C. § 921(a). Since the compensation award was filed on June 13, 1980, payment should have been made by June 23, 1980. TEIA conceded that the check was mailed to plaintiff on June 25, 1980 and was received at his residence on June 26, 1980.

Rule 6(e) of the Federal Rules of Civil Procedure adds three days to the prescribed time period during which a party is required to take action if notice of such required action is served by mail. The application of Rule 6(e) to the Longshoremen and Harbor Workers’ Act (LHWA) has not been addressed by the Fifth Circuit. As a general rule, the service-by-mail extension provided in Rule 6(e) applies only to civil actions, and not administrative decisions. See 4, WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE § 1171 (1969 and Supp.1984). The extension does not apply when according to statute, the time for taking action begins to run on the date of the filing of the order. Pizzichil v. Motors Insurance Corp., 90 F.R.D. 119, 121 (E.D.Pa.1981). Rule 6(e) has been held not applicable to the time period necessary for a compensation order under the LHWA to become final. Army & Air Force Exchange Service v. Hanson, 250 F.Supp. 857 (D.Haw., 1966). A reading of the entire act indicates that the remedies provided by the Act were meant to be prompt remedies. Hanson, Id. at 859. Accordingly, this Court will not apply Rule 6(e) to alter the ten-day requirement affixed by Congress. Defendants’ payment, received by the plaintiff on the 13th day, is therefore untimely.

B. The Court must next consider whether an employer’s tardiness can be excused through equitable consideration. TEIA contends in its statement of fact that plaintiff has in the past routinely picked up his compensation checks from its office. On the occasion in question, plaintiff again agreed to pick up his $25,000.00 final award in person. TEIA issued the check on the 8th day from the date of the Commissioner’s award, fruitlessly attempted to contact plaintiff, and finally reached plaintiff’s wife by phone. TEIA contends that the check was sent late because it was relying on plaintiff’s wife to relay the message to plaintiff. The Court notes that TEIA has not advanced any evidence to support its contentions.

The LHWA provides two types of penalty for failure to pay compensation on time. Section 914(e) assesses a ten percent penalty for overdue payments made without a Commissioner’s award. Section 914(f), applicable to the case at bar, assesses a twenty percent penalty for overdue payments made under the terms of an award. Section 914(e) provides that non-payments can be excused by a showing of conditions over which an employer had no control. This language is not contained in Section 914(f). Under Section 914(f), the penalty is mandatory unless the employer has appealed the compensation order, and has obtained a Board or court order staying payments.

This Court finds that unlike Section 914(e), Section 914(f) imposes a stricter standard, leaving no room for equitable consideration. Thus, the Commissioner was correct in finding default and assessing additional compensation in favor of the plaintiff.

II.

TEIA argues that the Deputy Commissioner erred in denying its request for an official hearing before an impartial administrative law judge. Title 33 U.S.C. 918(a) provides that the Deputy Commissioner shall enter a supplemental order declaring the amount of default after investigation notice, and hearing as provided in 33 U.S.C. § 919. Section 919(c) requires the Deputy Commissioner to conduct investigations as he considers necessary, and to order a hearing upon application of any interested party. Such hearing shall be conducted by an Administrative Law Judge in accordance with the provisions of the Administrative Procedures Act, 5 U.S.C. § 554. See 33 U.S.C. § 919(d). The 1972 amendment to § 919(d) withdrew the adjudicatory power to conduct hearing from the Deputy Commissioner and conferred it upon the Administrative Law Judge. Neal v. Strachan Shipping Co., 1 BRBS 279 (1974); Barthelemy v. J. Ray McDermott & Co., Inc., 537 F.2d 168 (5th Cir.1976).

In this case, the Deputy Commissioner held an informal conference with both parties because he found an official hearing unnecessary. Because of the mandatory nature of Section 914(d) and the undisputed fact that the plaintiff did not receive the payment within ten days, the Court cannot say the Commissioner’s judgment is erroneous. A hearing is necessary only when there exists a genuine issue of disputed fact. See 20 C.F.R. §§ 702.301 and 702.372; Lawson v. Atlantic & Gulf Stevedores, 9 BRBS 855 (1979). Assuming, arguendo, that a hearing was warranted, the Court finds that a procedural defect cannot be used to nullify an otherwise valid award unless it deprives the Deputy Commissioner of jurisdiction to enter the award, or results in prejudice to the parties. See Czaplicki v. The Hoegh Silvercloud, 351 U.S. 525, 529, 76 S.Ct. 946, 949, 100 L.Ed. 1387 (1956).

Accordingly, it is ORDERED, ADJUDGED and DECREED that:

1. plaintiff’s motion for summary judgment is GRANTED;

2. defendant’s motion for summary judgment is DENIED; and

3. the Deputy Commissioner’s supplemental order is AFFIRMED.


author: WARRINER, District Judge.

text:
    UNITED STATES of America v. Robert C. BOURBONNAIS a/k/a Robert C. Clermont.
    Crim. No. 79-00029-01-R.
    United States District Court, E.D. Virginia, Richmond Division.
    Feb. 5, 1985.

      Norval George Metcalf, Asst. U.S. Atty., Richmond, Va., for plaintiff.
    Marvin A. Rosman, Richmond, Va., for defendant.
   OPINION AND ORDER

WARRINER, District Judge.

Presently before the Court is defendant’s Fed.R.Crim.P. 35(a) motion for correction of sentence. The government has timely responded. The matter is ripe for adjudication.

On 5 June 1979 defendant was convicted of willfully failing to file an income tax return in violation of 26 U.S.C. § 7203. As part of his sentence defendant was ordered to pay costs of prosecution in the amount of $11,810.94. 26 U.S.C. § 7203. This amount specifically included the cost of investigation leading to indictment. There was no appeal.

Subsequent to imposition of sentence, the United States Court of Appeals for the Fourth Circuit in United States v. Vaughan, 636 F.2d 921 (4th Cir.1980), considered the statutes which empower a district judge to assess “costs of prosecution” against a defendant in an income tax criminal case and determined that the statutes did not authorize the inclusion of the cost of investigation leading to indictment. See 18 U.S.C. § 3651; 28 U.S.C. § 1920.

The United States does not contest the law as set forth in Vaughan that the cost of prosecution could not properly have been assessed against defendant; however, the prosecutor did question whether the Vaughan decision should be given retroactive application. The holding in Vaughan neither expanded nor changed the law in any way, rather, it explained the applicable statutes. See generally, Bouie v. Columbia, 378 U.S. 347, 84 S.Ct. 1697, 12 L.Ed.2d 894 (1964). To apply Vaughan in this case is not to retroactively apply a change in the law; it would be correcting my error in interpreting the statute. Therefore, pursuant to Fed.R.Civ.P. 35(a), the illegal portion of the sentence imposed against defendant on 5 June 1979 requiring him to pay the costs of prosecution in the amount of $11,810.94 is VACATED. The remainder of the sentence imposed against defendant on 5 June 1979 remains in full force and effect.

Under the now vacated provision defendant had paid $12,010.94 into court. That amount represents full payment of the imposition of costs plus an inadvertent overpayment of $200.00. On the basis of Vaughan, defendant has moved that the total amount of money paid into the court, plus interest, be returned to him.

The United States contends that the funds held by the District Court may not be returned to defendant and that this Court must remit the money to the Internal Revenue Service (IRS) in partial satisfaction of an IRS lien that was placed against defendant’s funds in the possession of the District Court on 10 July 1984. Defendant contends that he made a demand to the Clerk of the Court and to his probation officer on 9 July 1984 for a refund of the money and that, since this demand predated the IRS levy upon the funds, he is entitled to a return of the money.

Defendant was advised by me on 9 July 1984 in open court that he may be entitled to a refund of the money paid into court and he was urged to take action in his own interest. Defendant waited until 3 January 1985 to file this motion for a refund. Because this 3 January motion is the only demand that has any legally operative effect, the lien imposed by the IRS predates defendant’s demand by over five months.

Even if this Court accepted defendant’s contention that he made demands for the money prior to levy by the IRS, the Court would be compelled nevertheless to remit the money to the IRS.

26 U.S.C. § 6332(a) states:

Except as otherwise provided in subsection (b), any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary, surrender such property or rights (or discharge such obligation) to the Secretary, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process.

The exceptions listed in subsection (b) are inapplicable in this case and the property is not and has not been subject to an attachment or execution under any judicial process. Section 6332(a) unequivocally requires that defendant’s money in the control of the District Court and levied on by the IRS be handed over to the IRS in partial satisfaction of its lien.

This reading of the levy statute is bolstered by a decision of the Fourth Circuit. In Simpson v. Thomas, 271 F.2d 450 (4th Cir.1959) defendants were arrested for violation of Internal Revenue laws. At the time of their lawful arrest money that was in their possession was seized and held by a marshal for safekeeping. The money was subsequently levied on by the Internal Revenue Service and the Marshal delivered the money to the IRS. The Fourth Circuit found that the Marshal’s actions were appropriate. The Court held:

When a tax lien attaches to property, the United States becomes in a sense a co-owner with the taxpayer of the property to the extent of the lien. The taxpayer then ceases to have an unconditional right to obtain or retain possession of the property. The substantive rights of the United States and of the taxpayer are in no sense dependent upon the nature of the immediate custody of the property or the identity of the custodian. If it appeared that money in the possession of a marshal had been stolen, no good reason appears why the law should require its return to the thief upon his discharge from custody. Nor do we see any reason why the United States Marshal may not recognize the United States as the owner of an interest in the property in his custody.
So far as we can find, it has been uniformly held that property held by a marshal, or other custodian, for safekeeping is subject to an otherwise valid tax lien for taxes claimed to be due from a prisoner from whom the property was obtained. This conclusion has been reached though the seizure of the property was, itself, illegal, so that its suppression for use as evidence was required. Id. at 452 (citations omitted).

The holding in Simpson is applicable by analogy to the case at bar. When the Internal Revenue Service, on 10 July 1984, levied upon the defendant’s money held by the District Court, the IRS gained an interest in the property. Although, admittedly, the imposition of the particular costs was subsequently found to be not permitted by statute, defendant has not shown any reason why the money obtained from the illegal sentence should be treated any different from property illegally seized.

Further, defendant suffers no direct loss from this Court’s determination that the money must be paid to the IRS. A debt of defendant’s, which defendant does not contest is legally due, is being reduced by the full amount of money defendant paid into the court. If the money were refunded directly to defendant it would be immediately subject to levy and seizure by the IRS. Thus, the fund is to be applied in part payment of an obligation of defendant’s.

Accordingly, W. Farley Powers, Jr., Clerk of the United States District Court for the Eastern District of Virginia, is ORDERED to issue a check payable to the Internal Revenue Service in the amount of $12,010.94, collected under the illegal portion of the sentence imposed on 5 June 1979. The check is to be mailed to Denis Martin, Revenue Officer, Internal Revenue Service, P.O. Box 10085, Richmond, Virginia, 23240.

And it is so ORDERED.

      . The statute provides that a fine and a jail term may be imposed, “together with the costs of prosecution.”

      . No issue was raised by the United States that, there having been no appeal, the question is foreclosed.


author: KINNEARY, District Judge.

text:
    George W. BOWLING, et al., Plaintiffs, v. John R. BLOCK, et al., Defendants.
    No. C-2-84-135.
    United States District Court, S.D. Ohio, E.D.
    Feb. 6, 1985.

      Gary R. Dumm, Stephen E. Carter, Circleville, Ohio, for plaintiffs.
    Gary L. Norton, Farm Credit Admin., Washington, D.C., Thomas E. Palmer, Squire, Sanders & Dempsey, Columbus, Ohio, for defendants.
   OPINION AND ORDER

KINNEARY, District Judge.

Plaintiffs, various entities engaged in the farming industry, have filed this action against numerous defendants alleging violations of the Farm Credit Act, 12 U.S.C. § 2001 et seq., and the regulations promulgated under it, and the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. Plaintiffs have also attached, pursuant to this Court’s pendant jurisdiction, several state causes of action. The defendants in this action are John R. Block, Secretary of the United States Department of Agriculture, Donald E. Wilkinson, Governor of the Farm Credit Administration, the Farm Credit Administration, individual members of the Federal Farm Credit Board, the Fourth Farm Credit District, The Federal Intermediate Credit Bank of Louisville, The Federal Land Bank of Louisville, individual board members of the Fourth Farm Credit District, and the Columbus Production Credit Association. This matter is currently before the Court on the defendants’ motions to dismiss.

STATEMENT OF THE CASE

Plaintiffs, in this action, are essentially seeking a full-scale review of the present conditions under which the Farm Credit System is operated. Specifically, plaintiffs charge that the defendants, who constitute the Farm Credit System, have failed to act in accordance with the purposes for which the Farm Credit Act was promulgated. In fact, plaintiffs go so far as to assert that the defendants, in failing to act in a manner consistent with the intent of the Farm Credit Act,

... have unlawfully, wrongfully, and intentionally usurped powers not granted by the Farm Credit Act and abused and misused powers granted by the Farm Credit Act.

The Farm Credit Act, 12 U.S.C. § 2001 et seq., created the Farm Credit System.

The Farm Credit System was created for the specific purpose of improving the “income and well-being” of American farmers and ranchers. To achieve this objective, the System was intended to supply “sound, adequate, and constructive credit and closely related services” specifically tailored to the peculiar needs of the farming community. Further, the debtor-participants were encouraged, through stock ownership in the creditor-institutions, to participate in the management, ownership and control of the System. Daley v. Farm Credit Administration, 454 F.Supp. 953 (D.Minn.1978). In objecting to the manner in which it is operated, plaintiffs argue that the current Farm Credit System

... does not operate to provide all [of the] benefits intended by the legislation and is not responsive to the credit needs of Plaintiffs and Plaintiffs have suffered corresponding substantial injury and damages.

In addition to their allegations that the defendants have violated their duties created by the Farm Credit Act, plaintiffs also allege that the defendants have violated their duties created by the federal Truth-in-Lending Act, 15 U.S.C. §§ 1601 et seq. Plaintiffs broadly allege that the defendants failed to make certain disclosures required by Regulation Z, 12 C.F.R. §§ 226.1 et seq. Specifically, plaintiffs assert that the defendants’ conduct surrounding their loan transactions with plaintiffs amounted to a failure

... to provide Disclosure Statements setting forth with particularity the terms and conditions of the subject notes and mortgages.

Further, plaintiffs charge that the defendants failed to disclose the interest rates which they actually were charging plaintiffs.

Finally, plaintiffs assert numerous state law causes of action which they attach to this action pursuant to this Court’s pendant jurisdiction. First, plaintiffs allege that the defendants breached their contractual obligations to improve the income and well-being of the farming community. Plaintiffs assert that such obligations are implicit in the “Congressional declaration of policy and objectives” section of the Farm Credit Act, 12 U.S.C. § 2001. Second, plaintiffs allege that the defendants breached a contract with plaintiffs because the stock which plaintiffs were required to purchase as a prerequisite for obtaining credit through the Farm Credit System did not pay dividends, appreciate in value or provide plaintiffs with an effective vote, and caused plaintiffs borrowing costs to exceed those costs for which the loan contracts provided. Third, plaintiffs allege that the defendants breached “substantial” fiduciary duties which were implicitly created under the Farm Credit Act and which are evidenced by the unique relationship existing between plaintiffs and defendants. Finally, plaintiffs allege that, as shareholders in defendants’ organizations, they are entitled to share in the profits derived by such organizations through their functions as lending institutions. With respect to plaintiffs’ final state law claim, it is charged that the defendants have failed to fulfill their duty “to provide credit to shareholder/borrowers at the ‘lowest reasonable cost.’ ”

DISCUSSION

The defendants in this action may be, and should be for the purpose of addressing the subject motions to dismiss, separated into two groups. The first group of defendants is the Federal defendants. This group consists of Secretary Block of the Department of Agriculture, Donald Wilkinson, Governor of the Farm Credit Administration, the Farm Credit Administration, the Federal Farm Credit Board and its individual members. The second group of defendants consists of the remaining defendants. The Court will address both groups of defendants separately. The Court will begin by addressing the nonfederal defendants’ motion to dismiss.

I.

Plaintiffs’ first claim against the nonfederal defendants is that they have violated numerous specific sections of the Farm Credit Act. The nonfederal defendants respond to plaintiffs’ allegations by arguing that plaintiffs cannot maintain their claims because the Farm Credit Act does not create a private right of action. It is clear that the Farm Credit Act does not contain an express provision granting such a right. Plaintiffs maintain, however, that, notwithstanding this lack of an express provision, such a right is implicit within the Act.

In Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1978), the Supreme Court addressed the issue of whether an implied private right of action exists with respect to a federal statute.

In determining whether a private remedy is implicit in a statute not expressly providing one, several factors are relevant. First, is the plaintiff “one of the class for whose especial benefit the statute was enacted,” ... that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? ... Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? ... And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?

Id. at 78, 95 S.Ct. at 2088. Fortunately, with respect to the Farm Credit Act, at least one other Federal Court has thoroughly analyzed the four-factor Cort v. Ash test to determine whether a private right of action may be implied. In Hartman v. Farmers Production Credit Association of Scottsburg, No. 81-163-C (S.D.Ind. Mar. 18, 1983), it was determined that an implied private right of action did not exist under the Farm Credit Act. In making its determination, the court concluded:

The Farm Credit Act does not expressly provide a private cause of action for violation of its provisions, nor can one be implied---- Even assuming the Hart-mans fall within the class for whose especial benefit the Farm Credit Act was enacted, the other three criteria are not met. Congress did not .intent [sic] to provide a federal remedy, a private cause of action is not necessary to attain the underlying purpose of the Act, and the plaintiff's cause of action is one traditionally relegated to state law. The Court certainly would not condone the conduct alleged here, but the Hartmans have an adequate remedy in the state court.

Id. at 12.

Despite the somewhat differing contexts, this Court must concur with the Hartman Court’s conclusion. It is readily apparent that the Farm Credit Act merely established the machinery by which its purpose, to augment the amount of credit available to the farming community, would be effected. It does not create specific enforceable rights which would necessitate the existence of a private right of action. Id. at 10. Further, the Act intimates that the specific entities it creates for the purpose of providing the needed credit — the production credit associations, the federal land bank associations and the banks for cooperatives — are to be operated much like any other private lending institution. Therefore, whatever disputes arise between plaintiffs and the nonfederal defendants must be resolved in the same manner that such a dispute would be resolved if the defendants were common banks or savings and loans.

The typical case in which the issue of whether a federal statute contains an implied private right of action involves a statute which “... prohibits ... some conduct, or which at least ostensibly protects the rights of a certain class of persons....” Marx v. Centran Corp., 747 F.2d 1536, 1544 (6th Cir.1984). With respect to the Farm Credit Act, it is apparent that the class of persons targeted as the immediate beneficiary consists of farmers and ranchers. However, the Act certainly does not prohibit specific behavior. Nor does it protect any specific right conferred by it or any other federal statutory or constitutional provision on plaintiffs. As noted above, the Farm Credit Act merely establishes the mechanism by which alternative forms of credit may be made available to farmers and ranchers.

The second federal cause of action which plaintiffs allege in their amended complaint against the nonfederal defendants is that such defendants have violated the federal Truth-in-Lending Act (“TILA”). Specifically, plaintiffs claim that the nonfederal defendants violated Regulation Z which was promulgated pursuant to the TILA. 12 C.F.R. § 226.1. Regulation Z is designed to “... promote the informed use of consumer credit by requiring disclosure about its terms and cost.” 12 C.F.R. § 226.1(b). Plaintiffs assert that the nonfederal defendants failed to make the required disclosures.

In response to plaintiffs’ allegations, the nonfederal defendants assert that plaintiffs have failed “... to allege facts which, if taken as true, indicate a transaction within the ambit of TILA and acts by the defendants which violate TILA.” The TILA is primarily concerned with consumer credit transactions. 12 C.F.R. § 226.1(b). Such transactions are defined by the statute as “primarily for personal, family or household purposes.” 15 U.S.C. § 1602(h). Thorns v. Sundance Properties, 726 F.2d 1417 (9th Cir.1984). Specifically exempted from the TILA’s coverage are:

Credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to government or governmental agencies or instrumentalities, or to organizations.

15 U.S.C. § 1603(1). The nonfederal defendants charge that neither the types of transactions involved herein nor the entities which were parties to those transactions meet these fundamental requirements for TILA coverage.

It is clear to the Court that many of the parties to this action may not be subject to, or benefit from, the strictures of the TILA and that many of the credit transactions of which plaintiffs complain expressly fall outside of the purview of the Act. Plaintiffs GeoDot, Inc. and George Bowling Quality Meats, Inc. are excluded under 15 U.S.C. § 1603(1). The individual board members of the FICB of Louisville and the FLB of Louisville are excluded under § 1602(f). Further, any credit transaction pursued for an agricultural or business purpose is excluded, as noted above, by § 1603(1). It is apparent that the overwhelming majority of the transactions being challenged by plaintiffs were pursued for agricultural or business related purposes.

The Court is cognizant of the fact that the Farm Credit System does not only provide credit to farmers and ranchers for solely agricultural and business purposes. Pursuant to 12 U.S.C. § 2018, the System provides for loans to rural residents for rural housing financing. Further, the TILA itself intimates that certain Farm Credit System credit transactions will fall within its coverage. See 15 U.S.C. § 1607(a)(6). In paragraph 10 of their amended complaint, plaintiffs state, in relevant part:

Further, Plaintiff, Dale Bower, has entered a consumer credit transaction with Defendant, Federal Land Bank. Further, Plaintiff, Richard Dailey, has entered credit transactions for agricultural purposes as well as certain consumer credit transactions with Defendant, Production Credit Association.

Plaintiffs rely upon this allegation in an attempt to rebut the defendants’ argument that they do not state a claim for relief under the TILA.

Initially, the Court observes that the allegation, upon which plaintiffs base their argument that the TILA is applicable, is extremely specific with respect to the parties included within its scope. First, it makes reference to only two of the five plaintiffs, Dale Bower and Richard Dailey. In fact, with respect to the other three plaintiffs, it is admitted that the credit transactions from which they seek relief were entered into for solely agricultural purposes. As noted above, the TILA expressly excludes from its coverage transactions entered into primarily for agricultural purposes. Further, the subject allegation includes references only to defendants “Federal Land Bank” and “Production Credit Association.” The remaining nonfederal defendants do not appear to be involved in plaintiffs’ allegations of violations of the TILA. It is clear to this Court, therefore, that those remaining nonfederal defendants, as well as plaintiffs George Bowling, GeoDot, Inc. and George Bowling Quality Meats, Inc., may not, in this instance, be subjected to, or benefit from, the prescriptions of the TILA.

Paragraph 10 of the amended complaint is a feeble attempt to demonstrate a cause of action under the TILA. With respect to the four plaintiffs and defendants to which it does allude, it merely alleges that they were involved in “consumer credit transaction.” The TILA excludes many types of credit transactions from its coverage, including certain “consumer credit transaction.” See 15 U.S.C. § 1603(3). Plaintiffs have failed to allege facts from which this Court could conclude that the types of transactions from which they seek relief fall within the purview of the TILA. See Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). To indicate that they are entitled to relief under the TILA, plaintiffs must be somewhat more specific with respect to the actual purpose for which they entered into the subject transaction. Plaintiffs, therefore, have failed to state a cause of action under the TILA.

The Court is aware that, instead of pursuing the harsh course of dismissal, it may allow plaintiffs to amend their complaint to allege additional facts which may indicate TILA violations. Given the circumstances of this case, however, particularly the lack of involvement of most of the parties in plaintiffs’ allegations of violations of the TILA, the Court does not believe that an opportunity to amend is warranted. The Court does note, however, that, if plaintiffs Bower and Dailey believe that they do have a cause of action under the TILA, although one is not alleged here, they may wish to file a separate action specifically delineating such violation.

II.

As noted above, the federal defendants consist of the Secretary of the Department of Agriculture, the Farm Credit Administration and its Governor and the Federal Farm Credit Board and its current and certain past members (hereinafter collectively referred to as the “Administration.”). The Administration is an independent agency in the executive branch of the Government. It is composed of the Federal Farm Credit Board and its Governor and certain other personnel necessary to perform the Administration’s functions. 12 U.S.C. § 2241. Such functions, carried out by the Federal Farm Credit Board, include the supervision of lending institutions, including the nonfederal defendants in this case, which are members of the Farm Credit System and which are specifically created by the Farm Credit Act. The Administration is also charged with the task of establishing a general policy designed to effect the purposes of the Farm Credit Act. 12 U.S.C. §§ 2243, 2252. In their amended complaint, plaintiffs sweepingly allege that the Administration has failed in its duties to implement the “avowed intent and purposes of the Farm Credit Act.”

In support of their motion to dismiss, the federal defendants principally rely upon their belief that plaintiffs lack standing to pursue their claims against them. The federal defendants assert that plaintiffs have failed to allege a “case or controversy” with respect to any action by the federal defendants which would satisfy the requirements of Article III of the United States Constitution. Specifically, the federal defendants argue that plaintiffs have “... alleged no wrongdoing which could have been committed by the Federal Defendants, nor is the type of relief they seek ávailable from the Federal Defendants.”

In response to the federal defendants’ well-reasoned and persuasive argument that plaintiffs lack standing, plaintiffs argue, and allege in their amended complaint, that they are merely seeking judicial review of the Administration’s actions pursuant to the Administrative Procedures Act (“APA”), 5 U.S.C. § 701 et seq. The APA provides, in relevant part:

A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof____

5 U.S.C. § 702. In order to state a cause of action under the APA, and specifically § 702, for review of some agency action, a complainant must allege the existence of three factors: 1) agency action; 2) by which they are aggrieved; and 3) within the meaning of a relevant federal statute. Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 153-54, 90 S.Ct. 827, 829-30, 25 L.Ed.2d 184 (1970). The federal defendants, notwithstanding plaintiffs’ reliance upon the APA, still assert that plaintiffs lack standing to maintain their claim with respect to the federal defendants’ performance of their duties and responsibilities under the Farm Credit Act.

Because plaintiffs’ amended complaint is so general, the Court’s analysis of the standing issue is, to say the least, difficult. In the amended complaint, as noted earlier, plaintiffs essentially allege that the entire Farm Credit System, as operated by the defendants, has failed, and is failing, to function in a manner contemplated by the Farm Credit Act. Plaintiffs, however, fail to allege in what manner the System is malfunctioning. Plaintiffs make sweeping generalizations that the intent and purposes of the Farm Credit Act are being ignored, that the defendants have “abused and misused” certain statutory powers and that the defendants have passed rules and regulations which “are not consistent with the Farm Credit Act.” Under these circumstances, the Court can only conclude that plaintiffs have failed to allege facts which show that they have been aggrieved by any action of the Administration within the meaning of a relevant federal statute.

In Kuhl v. Hampton, 451 F.2d 340 (8th Cir.1971), the Eighth Circuit stated:

The federal courts are courts of limited jurisdiction created to adjudicate legal causes within their jurisdiction and were not established to mediate any and all types of complaints and alleged wrongs; and they certainly were not established to operate the administrative agencies of government.

Id. at 342. It is apparent to this Court that plaintiffs seek to substitute the Court for the Administration as the supervisory body under the Farm Credit Act. The Court does not believe that it is the appropriate entity to operate the Farm Credit System.

In their September 21, 1984 reply memorandum, the federal defendants state:

The [plaintiffs] are seeking to have this Court perform the function of a congressional oversight committee. The Plaintiffs have failed to satisfy the constitutional, jurisdictional and procedural requirements that are prerequisite to seeking judicial redress. If there is a proper forum for the Plaintiffs grievances, it is before the Congress and not before the courts.

The Court finds the federal defendants’ observation to be a reasonable summary of how this action should be viewed. An all-out assault on the operation of the Farm Credit System should not be waged in the courts, but at the congressional level. Many of the complaints plaintiffs have against the defendants involve duties and responsibilities for which the Farm Credit Act, and, therefore, Congress, have specifically provided. This is particularly true with respect to plaintiffs’ grievances against the requirement that they purchase stock in the institutions from which they secure credit. See 12 U.S.C. §§ 2013, 2034, 2073, 2094. Further, many of the acts of the Administration of which plaintiffs apparently complain were authorized by the broad discretionary powers granted by the Farm Credit Act. This Court may not review such acts even if it believed review were justified. In Ponca City Production Credit Association v. United States, 275 F.Supp. 502 (W.D.Ok.1967), the Court observed:

This Court is without authority under a declaration of policy announced by Congress to exercise a discretionary power vested thereunder in the Governor of the Farm Credit Administration____ To do so would in effect, place the Court in the position of legislating or administering—

Id. at 506. This is especially true with respect to plaintiffs’ claims under 12 U.S.C. §§ 2243 and 2252.

A final matter which the Court must address is plaintiffs’ allegation that the federal defendants have failed to exercise their remedial powers granted under the TILA. Section 1607(a)(6) does provide that the Administration shall enforce the provisions of the TILA as they apply to the lending institutions governed by the Farm Credit Act. However, this Court is without power to require the Administration to act under § 1607(a)(6). Pendleton v. Trans Union Systems Corp., 430 F.Supp. 95 (E.D.Pa.1977).

CONCLUSION

As noted throughout this Opinion, plaintiffs seek, through this action, a full-scale review of the manner in which the Farm Credit System is being operated. They appear to find fault with the very essence of the System as it currently functions. Such a broad review of a statutory scheme developed by Congress, and in large part, operated according to the prescriptions of Congress, is not appropriately undertaken by the Courts. Therefore, this Court must dismiss this action in its entirety. The Court has specifically found that plaintiffs have failed to state a cause of action under the Farm Credit Act against the nonfederal defendants because the Act does not provide a private right of action, either express or implied. Further, the Court determined that plaintiffs failed to allege sufficient facts involving the nonfederal defendants in order for the Court to decide that a cause of action under the TILA was stated. The Court also determined that plaintiffs lacked standing to have their complaints against the federal defendants, specifically, and the Farm Credit System, generally, adjudicated by this Court under the APA. Finally, because there remain no federal causes of action to be heard, the Court determines that it will not exercise its pendent jurisdiction in order to hear plaintiffs’ state claims. United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

WHEREUPON, upon consideration and being duly advised, the Court determines the motions to dismiss of the nonfederal defendants and the federal defendants to be meritorious and they are, therefore, GRANTED. This action is hereby DISMISSED in its entirety.

IT IS SO ORDERED.

      . The Louisville Bank for Cooperatives was originally named as a defendant in this action. In its May 18, 1984 memorandum, plaintiffs state that they have no cause of action against the Louisville Bank for Cooperatives. Further, the Louisville Bank for Cooperatives has not been named as a defendant in plaintiffs’ amended complaint. Therefore, the Louisville Bank for Cooperatives is dismissed as a party to this action.

      . Plaintiffs have dropped their claim that the defendants, in some manner, violated the Ohio usury laws.

      . Plaintiffs do make a third claim which they believe constitutes a federal cause of action. Plaintiffs argue, in Count V of their amended complaint, that the nonfederal defendants breached certain fiduciary duties. Plaintiffs assert that the defendants’ duties are governed by federal common law. Plaintiffs' assertion is, however, incorrect. Boyster v. Roden, 628 F.2d 1121 (8th Cir.1980).


author: McMILLAN, District Judge.

text:
    Lisa A. MILLER, Administratrix of the Estate of Raymond Miller, Plaintiff, v. MECKLENBURG COUNTY; Former Sheriff of Mecklenburg County, John Kelly Wall, personally and in his official capacity as former Sheriff of Mecklenburg County; Amos Charles Pellerin, personally and in his official capacity as Sheriffs Deputy for Mecklenburg County; Eric D. Moore, personally and in his official capacity as Mecklenburg County Pre-Trial Release Counselor; and Richard Lee Blanks, personally and in his official capacity as Charlotte Police Officer, Defendants.
    No. C-C-83-754-M.
    United States District Court, W.D. North Carolina, Charlotte Division.
    Feb. 6, 1985.

      Lawrence U. Davidson, III, Davidson & Harvey, Charlotte, N.C., for plaintiff.
    Jonathan E. Buchan, Charlotte, N.C., for Tex O’Neill.
    James O. Cobb, Edward Hinson, Jr., Grant Smithson and Frank B. Aycock, III, Charlotte, N.C., for defendants.
   ORDER

McMILLAN, District Judge.

This case is now before the court on motions of the parties on both sides of the case to compel Tex O’Neill, reporter for the Charlotte Observer, to disclose the name of a confidential source of information relating to the death of Raymond Miller, and unpublished information on the same subject received from that source.

I

FACTS

This suit was brought by Lisa A. Miller, daughter and administratrix of the estate of Raymond Miller, deceased. The complaint alleges that on September 13, 1981, defendants, acting under color of state law, caused Raymond Miller’s death, in violation of his constitutional rights and in violation of 42 U.S.C. § 1983.

The defendants are Mecklenburg County, North Carolina; C.W. Kidd, now Sheriff of Mecklenburg County, and several employees of the county as of September 13, 1981: John Kelly Wall, Sheriff in 1981 of Mecklenburg County; Charles Pellerin, Sheriff’s deputy; Eric D. Moore, employee of the Mecklenburg County Pre-Trial Release Program; and Richard Lee Blanks, a police officer.

Raymond Miller was arrested on September 13,1981, and was taken to the Mecklenburg County Jail. The complaint alleges that he was then beaten by defendants Pellerin, Moore, and Blanks. After the beating, defendant Pellerin allegedly applied a “carotid suppression hold” (a form of “choke hold” or strangulation hold) on Mr. Miller. Mr. Miller was found dead in the “drunk tank” shortly after being left there by police officers.

Plaintiff seeks damages from defendants for their participation, either through direct actions or failure to supervise others properly, in the alleged killing of Mr. Miller.

The defendants deny the charge of using a. choke hold on Mr. Miller, causing his death. As yet, no identified person has admitted having seen the application of such a hold on Mr. Miller.

Tex O’Neill wrote several articles for the Charlotte Observer on the incident. In an article published on August 11, 1983, almost two years after the death, Mr. O’Neill revealed that while he was investigating the story, he met someone at the jail who provided him information on a confidential basis. The published article reports that the unidentified source told Mr. O’Neill that defendant Pellerin had applied a choke hold to Mr. Miller. The source said that he then saw Mr. Miller drop to the floor. The source is quoted in the article as telling Mr. O’Neill that:

[Pellerin] put a choke hold on him and released it. He dropped, striking his head on the floor____ Pellerin put a choke hold on him, the other [man] grabbed him by the feet, and they carried him to the jail cell. When he put that second choke hold on him, his eyes rolled. He was gone.

Tom Jackson, Miller’s cell mate the night of the incident, told Mr. O’Neill the day following Mr. Miller’s death that Mr. Miller had died a few minutes after being placed in the “drunk tank.”

Mr. O’Neill was deposed by plaintiff on May 2, 1984. At that time, he refused to identify his undisclosed source for the article and explained that he had promised the source confidentiality in return for the information. The reporter also admitted that his source had identified someone else who was present when Mr. Pellerin allegedly applied the choke hold to Mr. Miller. Only Mr. Pellerin was mentioned in the story by name. The reporter explained that he chose not to print the other name because he felt that there was less certainty about this other witness to the alleged choking. The reporter did not reveal the name because of his own editorial decision, not because of a promise made to the confidential source. At the deposition, Mr. O’Neill stated that the witness to the event was one of three or four people. Although he could not remember the name at that time, he felt that he had it written down somewhere. However, he refused to reveal the name of that witness, as well as the name of the source itself.

To date, no one has been able to discover the identity of the reporter’s confidential source, despite investigations of the incident by the City of Charlotte Police Department and by the F.B.I. in conjunction with the State Bureau of Investigation (S.B.I.).

Two autopsies have been performed on Mr. Miller’s body. The first one, made the day after his death, concluded that the cause of death was accidental, although it reported that “deep hemorrhages are observed in the right strap muscles and in the right carotid sheath____” After the controversy over Mr. Miller’s death began, the body was exhumed and another autopsy was performed on December 30,1983. The report concluded that the cause of death would remain classified as undetermined. The examining doctor found hemorrhaging of strap muscles on both the left and right sides. The report said that there were three possible causes of death. First, it is “certainly possible that the decedent could have been killed with a ‘stranglehold’ placed around his neck by another individual, and the hemorrhages in the neck would tend to substantiate such a cause of death.” Other possible causes noted are (1) a possible fall causing subdural hemorrhage and (2) fatty liver due to chronic alcoholism.

Plaintiff filed a motion to compel the reporter to answer questions about the confidential source. All of the defendants have joined in the motion. A hearing was held on September 19, 1984. Mr. O’Neill, the reporter, was represented by counsel at this and all other proceedings.

At the hearing plaintiff introduced into evidence nine depositions of people who were at the jail on the night of Mr. Miller’s death. None of the deponents admitted seeing a choke hold applied to Mr. Miller. Plaintiff also introduced reports of the investigations of the city police and the F.B.I. in conjunction with the S.B.I. These investigations had not discovered the identity of the reporter’s confidential source. Finally, plaintiff showed that she had investigated both the duty log kept for that night and the “sign-in” log kept for visitors. Plaintiff interviewed or deposed the people listed on the duty log, but she discovered that the sign-in logs have apparently been lost due to water damage during storage.

Questioning at the hearing revealed that plaintiff had not deposed Steve Moore, who was the first police officer to discover Mr. Miller dead in the cell.

On the day of the hearing, defendants Wall and Mecklenburg County moved to compel Mr. O’Neill to reveal the name of the witness to the alleged choking incident given to the reporter without a promise of confidentiality to the undisclosed source.

The court deferred a decision on plaintiff’s original motion so that plaintiff could depose Steve Moore and the parties could brief the issue of compelling the reporter to reveal the name of the witness given to him by the confidential source.

After Steve Moore was deposed and memoranda filed, another hearing was held on November 20, 1984. At that hearing, plaintiff introduced the deposition of Steve Moore, in which he denied having seen a choke hold applied to Mr. Miller. The defendants and plaintiff renewed their motions to compel the reporter to reveal both the confidential source and the name given to the reporter by the source of another witness to the incident. All parties joined in both motions.

II

REPORTER’S CLAIM OF A QUALIFIED PRIVILEGE

Tex O’Neill’s refusal to answer questions at the deposition is based on his claim of a qualified privilege under the First Amendment not to reveal confidential sources or information obtained from such a source.

The seminal case on the qualified privilege is Branzburg v. Hayes, 408 U.S. 665, 92 S.Ct. 2646, 33 L.Ed.2d 626 (1972), in which the Supreme Court held in a 4-1-4 decision that a court could require a reporter to testify in a criminal case about a crime that he had witnessed. Justice Powell cast the deciding fifth vote in a concurrence which stressed the limited holding of the Court. The concurrence says the “asserted claim to privilege should be judged on its facts by the striking of a proper balance between freedom of the press and the obligation of all citizens to give relevant testimony with respect to criminal conduct.” Branzburg, 408 U.S. at 710, 92 S.Ct. at 2671. Justice Powell' explained that the proper balance must be struck on a case-by-case basis by balancing the interests of society in a free press on one hand and in a fair and complete trial on the other. His concurrence ended,-“In short, the courts will be available to newsmen under circumstances where legitimate First Amendment interests require protection.” Id.

The Supreme Court has never ruled, in a civil case dealing with the question of a qualified privilege of reporters, that reporters could not be forced to reveal confidential sources or material derived from such sources. In the absence of such direct rulings from the Supreme Court, six circuit courts relying upon or extrapolating from Justice Powell’s language in Branzburg, have ruled or said that in a civil case, a party moving to compel a reporter’s testimony must meet strict tests showing a compelling need for the information sought and an inability to obtain the information elsewhere. Bruno & Stillman, Inc. v. Globe Newspaper Co., 633 F.2d 583 (1st Cir.1980); Baker v. F & F Investment, 470 F.2d 778 (2nd Cir.1972); Riley v. City of Chester, 612 F.2d 708 (3rd Cir.1979); Miller v. Transamerican Press, Inc., 621 F.2d 721, modified 628 F.2d 932 (5th Cir.1980), cert. denied, 450 U.S. 1041, 101 S.Ct. 1759, 68 L.Ed.2d 238 (1981); Silkwood v. Kerr-McGee Corp., 563 F.2d 433 (10th Cir.1977); Zerilli v. Smith, 656 F.2d 705 (D.C.Cir.1981).

No circuit which has squarely addressed the question of a qualified privilege has held that no such privilege exists. The Fourth Circuit has only faced the issue indirectly. In United States v. Steelhammer, 539 F.2d 373 (1976), rev’d. en banc, 561 F.2d 539 (4th Cir.1977), the Fourth Circuit, sitting en banc at a rehearing, upheld a finding of contempt against reporters who, although they were witnesses to the matter at trial, refused to testify. The court explicitly found that the newspaper reporters were witnesses to the event like other members of the public. The testimony sought from the reporters did not include any confidential information or material given to the reporters by another party. However, the court noted its approval of the dissent in the original panel decision, which had found the question moot, but had analyzed the case under the balancing approach suggested by Branzburg.

The case now before the court presents both the question whether this reporter should reveal a confidential source and the question whether he must reveal non-confidential, but unpublished, information supplied by that source.

Although there is not complete unanimity on the application of the qualified privilege to non-confidential information, the majority view clearly is that non-confidential material received by a reporter from an investigative source is protected by the qualified privilege. However, courts note that the lack of confidentiality will be a factor in the balancing of interests. See, e.g., United States v. Blanton, 534 F.Supp. 295 (S.D.Fla.1982); Altemose Const. v. Bldg, and Const. Trades Council, 443 F.Supp. 489 (E.D.Pa.1977); Loadholtz v. Fields, 389 F.Supp. 1299 (M.D.Fla.1975); United States v. Cuthbertson, 630 F.2d 139 (3rd Cir.1980), cert. denied, 449 U.S. 1126, 101 S.Ct. 945, 67 L.Ed.2d 113 (1981); Maughan v. N L Industries, 524 F.Supp. 93 (D.D.C.1981); Continental Cablevision v. Storer Broadcasting, 583 F.Supp. 427 (E.D.Mo.1984). But see Gilbert v. Allied Chemical Corp., 411 F.Supp. 505 (E.D.Va.1976).

This court adopts the holdings of these other courts and recognizes a qualified privilege under the First Amendment for the reporter both against revealing the identity of confidential sources and against revealing material that is supplied to the reporter by such confidential source. The case law is in agreement on the existence of qualified privilege when the identity of a confidential source is sought. This court follows the majority opinion in holding that the privilege applies also to information received from that source. As stated in Cuthbertson, 630 F.2d at 147:

We do not think that the privilege can be limited solely to protection of sources. The compelled production of a reporter’s resource materials can constitute a significant intrusion into the newsgathering and editorial processes.

Limiting the qualified privilege to only confidential information would have a chilling effect on the press’s ability to gather news and make editorial decisions. If no privilege covers the material received from confidential sources, litigants in a case of public notoriety could begin their discovery by subpoenaing and deposing reporters covering the story so long as no confidential information is involved. Without a qualified privilege covering such material, non-confidential material not published would be open to scrutiny by parties to a suit. Although the non-confidential nature of the material will be considered in the balancing of competing interests, the qualified privilege should still apply to such material.

Of course, the qualified privilege does not apply when the reporter is being questioned about an incident to which he or she may be a witness like any other member of the public. In such a case, there is no intrusion into newsgathering or the special functions of the press. See e.g. Alexander v. Chicago Park Dist., 548 F.Supp. 277 (N.D.Ill.1982).

No one test has developed for balancing the interests of society in applying the qualified privilege. However, the courts have generally looked at the same factors in the analysis of the privilege. The primary inquiry has been whether or not the material sought from a reporter goes to the heart of the case, i.e., whether there is a compelling need for the information. Carey v. Hume, 492 F.2d 631 (D.C.Cir.1974), cert. denied, 417 U.S. 938, 94 S.Ct. 2654, 41 L.Ed.2d 661 (1974). In order to overcome the qualified privilege, the moving party must show that the information is crucial to the case. It is not sufficient that the information is just relevant to the case.

Courts have also looked to see if the suit is of a frivolous nature. Id. If the suit itself is without merit, the fact that the material goes to the heart of that frivolous suit will not be enough to overcome the qualified privilege.

Another crucial factor scrutinized by the courts is whether the party moving for disclosure has exhausted other possible sources of the information before seeking to compel the material from the reporter. As stated in Zerilli, 656 F.2d at 713, the information “should be compelled ... [from a reporter] only after the litigant has shown that he has exhausted every reasonable alternative source of information.” Compelling the information from a reporter is to be the last resort of the litigants.

A final factor is the public’s interest in having the press free to investigate stories without being compelled to disclose the sources for the information. The public has a paramount interest in having a free flow of information, and this flow may be constricted when reporters are forced to disclose a confidential source or unpublished material received from that source. The First" Amendment protection against disclosure of the name of a confidential source is stronger than the protection against disclosure of non-confidential information revealed by that source. See, e.g., Bruno & Stillman, Inc., 633 F.2d at 597.

Ill

APPLICATION OF THE QUALIFIED PRIVILEGE TO THIS CASE

It is clear that plaintiff has exhausted every reasonable alternative source for the information sought. Even before appearing in court for the first hearing, plaintiff had deposed the known possible witnesses to the incident. Plaintiff had also reviewed the results of other investigations of the alleged choking and attempted to investigate the sign-in logs kept for the jail on September 13, 1981. At the first hearing, counsel for Mr. O’Neill suggested that plaintiff had not deposed Steve Moore, who just might have witnessed part of the incident. Plaintiff promptly deposed Mr. Moore without discovering any lead to the information sought. At the second hearing, there was no suggestion of other avenues of investigation that plaintiff could pursue. The court cannot see that plaintiff has any alternative to requesting the information from the reporter. Plaintiff has reached a dead end after commendable efforts to obtain the material elsewhere.

There is no suggestion that the suit is frivolous. The autopsy performed on the exhumed body shows that application of a choke hold is one of the possible causes of death. The depositions introduced by plaintiff reveal a struggle between police officers and Mr. Miller. Finally, the newspaper reports cite Mr. O’Neill’s undisclosed source as seeing a choke hold applied on Mr. Miller causing his unconsciousness, and possibly his death. Far from being a frivolous suit, this case presents a serious claim of deprivation of constitutional rights.

Another factor is the public’s interest in having the reporter free to prepare stories without being forced to disclose his confidential sources or unpublished material. In this case, we have two distinct pieces of information sought from the reporter. Disclosure of the first, the identity of the confidential source, may have a great impact on the public’s interest. Mr. O’Neill only obtained the source’s information by a promise of confidentiality. The qualified privilege protecting confidential sources is strong. The public has a deep interest in the publication of stories given by confidential sources, which may be more difficult to obtain after a reporter is forced to reveal a confidential source. The other piece of information — the name of the witness revealed by the confidential source — is not covered by any promise of confidentiality. It has been withhled from published stories solely by Mr. O’Neill’s decision not to print the name. Requiring the revelation of that name would implicate editorial decision making, but would not force the reporter to break a promise of confidentiality. The need for First Amendment protection against revealing this information is not as great as when a confidential source is to be identified. See, e.g., Continental Cablevision, supra.

Plaintiff has a compelling need for this material, which goes to the heart of the case. Plaintiff requests the name of the confidential source and the name of the witness revealed by that source. This information lies at the core of plaintiff’s theory of the case. No one has openly admitted seeing the incident as alleged by plaintiff. However, the confidential source has given Mr. O’Neill a narrative that is substantially the same as plaintiff’s allegations in the complaint. The confidential source, though unidentified, is the reported author of the only eyewitness account that supports plaintiff’s allegations of a choking of Mr. Miller. The same is true of the name of the witness revealed by the confidential source. This is another person who, according to the source, witnessed the incident alleged by plaintiff. This witness might give plaintiff another possible support for her allegations.

The court finds that plaintiff has a compelling need for the information sought. The names of the confidential source and witness not only go to the heart of plaintiffs case, they very well may be the heart of the case.

The defendants have also claimed their own compelling need for the information sought. Although it appears to the court that defendants have shown a compelling need, the court need not make a ruling as to that question. The court has found that plaintiff has a compelling need and will order that the reporter answer questions at a deposition about the identity of the witness to the alleged choking. Because of this disposition of the plaintiff’s motion to compel, the court does not need to make a ruling on the defendants’ own need for the information.

The court finds that with all due deference to the First Amendment, plaintiff has met her burden to overcome the qualified privilege of Mr. O’Neill as to the naming of the witness whom he chooses not to name. Plaintiff has shown that her suit is not frivolous, that the information goes to the heart of the case, and that she has exhausted alternative sources for the information. In balancing plaintiff's interests against the First Amendment interests, the court finds that plaintiff’s need for the information is greater than the public’s interest in not having material revealed that was not given under a promise of confidentiality, but that the reporter chose not to publish.

Ruling on the motion to compel Mr. O’Neill to reveal his confidential source is deferred until after he has given the name of the witness to the alleged choking and the parties have investigated this lead. Though it appears to the court that plaintiff has met her burden to show why the court should require the reporter to name the confidential source, it is possible that the parties’ needs may be satisfied by revealing only the name of the witness. This lead might provide the parties with enough information to remove the compelling need for the name of the confidential source. The First Amendment interests require that the less drastic demand on the reporter be made first because there is a possibility that compliance will remove the need for further, more invasive demands.

CONCLUSION

For the reasons given above, the court will order Tex O’Neill to review his records and answer questions at a deposition about the identity of the witness to the alleged choking incident provided to him by his confidential source. The parties may investigate this information and report to the court what they have found and whether there remains a need for the name of the confidential source. If such need still exists, the court will then rule on the motion to compel the name of the confidential source.

The court regrets the moderate expense and delay required by this two-step procedure. However, the First Amendment interests at stake are serious, and the reporter should be forced to reveal only what is necessary. The possibility that the parties can obtain the information needed without Mr. O’Neill’s revelation of the confidential source justifies the extra burdens imposed by this order.

IT IS THEREFORE ORDERED:

1. That Tex O’Neill’s objection at deposition to questions about the identity of the witness to the alleged choking is OVERRULED, and he shall answer questions about the witness at a deposition.

2. That the motion to compel the name of the confidential source is DEFERRED.

3. That the parties shall report to the court within thirty (30) days whether need still exists for the name of the confidential source.