source: Caselaw Access Project

author: EGINTON, District Judge.

license: Public Domain

text:
    Anna M. ASCHENBACH, Plaintiff, v. UNITED STATES of America, Defendant.
    Civ. No. N-84-140 (WWE).
    United States District Court, D. Connecticut.
    Nov. 13, 1984.

      Martha Stone, Connecticut Civil Liberties Union, Hartford, Conn., for plaintiff.
    Kurt F. Zimmermann, Asst. U.S. Atty., New Haven, Conn., Deborah S. Meland, Trial Atty., Dept, of Justice, Tax Div., Washington, D.C., for defendant.
   RULING ON DEFENDANT’S MOTION TO DISMISS OR FOR SUMMARY JUDGMENT

EGINTON, District Judge.

This is an action pursuant to 26 U.S.C. § 6703 for review of a $500 penalty summarily assessed against the plaintiff by the Internal Revenue Service (IRS) under 26 U.S.C. § 6702 for filing a frivolous income tax return for the year 1982. Plaintiff filed a standard IRS Form 1040, which was apparently properly filled out except for a military tax adjustment of $2,209.00.

Plaintiff alleges that 26 U.S.C. § 6702 is inapplicable and that her rights to freedom of expression, religion, conscience, petition, due process and equal protection have been violated. The defendant has moved for an order dismissing the complaint or granting summary judgment in favor of the defendant pursuant to Fed.R.Civ.P. 12 and 56, on the grounds that the complaint fails to state a claim upon which relief can be granted, there is no genuine issue as to any material fact, and the defendant is entitled to judgment as a matter of law. . Because this court finds that plaintiff has failed to state a claim upon which relief may be granted, the motion to dismiss is granted pursuant to Fed.R.Civ.P. 12(b)(6).

APPLICABILITY OF 26 U.S.C. § 6702

In the first cause of action of the complaint, plaintiff alleges that the defendant’s assessment and collection of a penalty against her was made illegally and without authority under 26 U.S.C. § 6702. The penalty is assessable only if two critera are met. First, the return must either not contain information on which the substantial correctness of the self-assessment may be judged, or contain information that on its face indicates that the self-assessment is substantially incorrect. Second, the conduct must be due to a frivolous position or a desire, which appears on the return, to delay or impede the administration of federal income tax laws. Franklet v. United States, 578 F.Supp. 1552, 1555 (N.D.Cal. 1984). The criteria have been met in this case. The return clearly shows that the self-assessment is substantially incorrect, because plaintiff took a patently unallowable deduction. The legislative history states that “the penalty could be imposed against any ■ individual filing a ‘return’ showing an incorrect tax due, or a reduced tax due, because of the individual’s claim of a clearly unallowable deduction.” S.Rep. No. 494, 97th Cong., 2d Sess. 278 (1982), reprinted in 1982 U.S.Code Cong. & Ad. News 781, 1024. In addition, the incorrectness of the plaintiffs return results from her adoption of a frivolous position. There is a long line of authority establishing the improper nature of war tax deductions. Lull v. Commissioner, 602 F.2d 1166 (4th Cir.1979), cert. denied 444 U.S. 1014, 100 S.Ct. 664, 62 L.Ed.2d 643 (1980); Autenrieth v. Cullen, 418 F.2d 586 (9th Cir.1969), cert. denied 397 U.S. 1036, 90 S.Ct. 1353, 25 L.Ed.2d 647 (1970); Franklet v. United States, 578 F.Supp. 1552 (N.D.Cal.1984). Furthermore, the legislative history specifically states that a penalty may be imposed against an individual filing a return that shows a reduced tax due because of a claimed war tax deduction. S.Rep. No. 494, 97th Cong., 2d Sess. 278 (1982), reprinted in 1982 U.S.Code Cong. & Ad. News at 1024. Hence, the penalty was properly assessed.

ADMINISTRATIVE PROCEDURE ACT

Plaintiffs second cause of action alleges that the assessment and collection of the penalty against her were based on guidelines which should have been published pursuant to the Administrative Procedure Act. 5 U.S.C. §§ 552 and 706. In Franklet v. United States, 578 F.Supp. 1552 (N.D.Cal.1984), a case remarkably similar to the case at bar, the court ruled that no administrative guidelines were necessary for § 6702, because the assessment of the penalty was merely “the direct application of the plain terms of the statute supported by unambiguous legislative history.” Id. at 1558. Other courts have ruled similarly. See Simpson v. United States, 84-1 U.S.T.C., ¶ 9257 (S.D.Ind.1984). Thus plaintiffs second cause of action is without merit.

FREEDOM OF SPEECH AND PETITION

The third cause of action claims that 26 U.S.C. § 6702 violates plaintiffs rights to freedom of speech and to petition the government for redress of grievances under the First Amendment. Section 6702 in no way hinders plaintiff from complaining to government officials. See Franklet, 578 F.Supp. at 1556. It does not penalize her expression of political or moral beliefs. It simply penalizes the filing of legally incorrect returns which are not due to mistake or inadvertence or which are not based on legally supportable positions. Welch v. United States, 53 AFTR 2d 84-706 (D.Mass.1984). Even if plaintiffs First Amendment rights were abridged, the necessities of maintaining a revenue system raise a sufficient governmental interest sufficient to overrule these fundamental rights. The penalty provides a modest and clearly focused deterrent to frivolous interferences with the effective functioning of a revenue system. Franklet, 578 F.Supp. at 1556-57.

FREE EXERCISE OF RELIGION AND FREEDOM OF CONSCIENCE

Plaintiffs fourth cause of action alleges that 26 U.S.C. § 6702 violates her right to the free exercise of her moral and religious beliefs and freedom of conscience as guaranteed by the First, Fifth and Ninth Amendments. The penalty imposed by § 6702 is neutral in nature. It does not penalize plaintiffs exercise of conscience. Moreover, the necessities of revenue collection raise governmental interests sufficiently compelling to outweigh the free exercise rights of those who find the federal income tax objectionable. Franklet, 578 F.Supp. at 1556. See also United States v. Lee, 455 U.S. 252, 102 S.Ct. 1051, 71 L.Ed.2d 127 (1982).

DUE PROCESS

The fifth cause of action claims that 26 U.S.C. §§ 6702 and 6703 violate plaintiffs right to due process under the Fifth Amendment because they are vague and overbroad. In addition, plaintiff alleges that the statutes fail to provide meaningful notice, a prior hearing, and meaningful administrative review. Plaintiff’s claims are without merit.

Due process requires thai! the definition of an infraction be in terms that the ordinary person exercising ordinary common sense can sufficiently understand. A taxpayer exercising the common sense of an ordinary person will know or have reason to know that a war tax deduction is unallowable. Franklet, 578 F.Supp. at 1557. This is especially true where the Senate Report, S.Rep. No. 97-494, 1982 U.S.Code Cong. & Ad.News at 1024, cites as an example of a frivolous return one which claims a war tax deduction. Thus the statute is not vague.

The overbreadth challenge must fail also because, as already demonstrated, § 6702 does not infringe constitutionally protected conduct.

The notice issued by the government did not deprive plaintiff of due process. The notice plaintiff received stated the assessment of the penalty, the taxable year for which it was assessed, and the statutory basis for the assessment. “Due process requires no more.” Franklet, 578 F.Supp. at 1559.

Plaintiff argues that the requirement in § 6703(c) that the taxpayer pay 15% of the penalty before having the opportunity to challenge it in a district court deprived her of due process. The Franklet court expressly addressed this issue and determined that the constitutionality of tax collection without a predeprivation hearing has long been established. 578 F.Supp. at 1560. Plaintiff claims that because liberty rights are involved postponement of judicial inquiry is a denial of due process. This claim is without merit, as no violation of First Amendment rights has been found.

EQUAL PROTECTION

In her sixth cause of action, plaintiff alleges that 26 U.S.C. §§ 6702 and 6703 violate her right to equal protection under the Fifth Amendment by imposing upon her a penalty which is not imposed upon others similarly situated. Plaintiff argues that the § 6703 penalty is imposed only on those who draw attention to a purportedly invalid entry on a return. Defendant claims that those individuals who improperly report their tax liability without explaining how or why they did so are not similarly situated. Furthermore, defendant contends that plaintiff is treated more favorably than such other taxpayers because she has not concealed the improper credit. Taxpayers who commit fraud are subject to a penalty equal to 50% of the underpayment. 26 U.S.C. § 6653(b).

This court agrees with defendant’s argument. In addition, Section 6702 is rationally related to a legitimate governmental interest; namely, to deter the filing of legally incorrect tax returns. Welch v. United States, 53 AFTR 2d 84-706 (D.Mass.1984).

For the foregoing reasons, defendant’s Motion to Dismiss is GRANTED.

SO ORDERED.


author: WILLIAM T. HART, District Judge.

text:
    ATARI, INC., a Delaware corporation, Plaintiff, v. HARRIS TRUST AND SAVINGS BANK, an Illinois corporation, Defendant.
    No. 84 C 2924.
    United States District Court, N.D. Illinois, E.D.
    Nov. 14, 1984.

      William A. Streff, Jr., William H. Pratt, Mark E. Ferguson, Kirkland & Ellis, Chicago, 111., for plaintiff.
    James M. Breen, Chapman & Cutler, Chicago, III, for defendant.
   MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

On April 14, 1984, plaintiff Atari, Inc. (“Atari”) filed this diversity action against defendant Harris Trust & Savings Bank (“Harris”), advancing claims of negligence and of wrongful dishonor of a letter of credit issued by Harris. Harris subsequently moved to dismiss all claims and Atari responded with a cross-motion for summary judgment. On September 7, 1984, the Court granted Harris’ motion in part, dismissing Atari’s two negligence counts. However, since both parties had submitted evidentiary material, the Court informed the parties, pursuant to Fed.R. Civ.P. 12(b)(6), that it would treat the motions directed to the wrongful dishonor claims as cross-motions for summary judgment. On October 31, 1984, the Court requested supplemental briefs addressing issues raised by Atari’s claim that Harris repudiated the credit. These cross-motions are the matters currently before the Court.

FACTS

Atari is a Delaware corporation with its principal place of business in Sunnyvale, California, engaged in the business of designing, manufacturing and selling products such as home computers and video games. Atari distributes these consumer products through local distributors, such as Atari’s former Chicago-area distributor, S-W Distributors, Inc. (“S-W”). Since the bulk of Atari’s sales to S-W were on open account, Atari required S-W to obtain a letter of credit to secure portions of S-W’s credit.

At S-W’s request, Harris issued an irrevocable standby letter of credit in favor of Atari. The credit issued by Harris was expressly made subject to the Uniform Customs and Practices for Documentary Credits (the “UCPDC”). The credit was initially issued in the amount of $400,000 and was effective for the period March 9, 1982 through June 8, 1982. Also at S-W’s request, Harris amended the credit on several occasions to either increase the amount of the credit or extend its expiry date. On June 16, 1983, Harris amended the credit to provide an amount of $1,500,-000 and an expiry date of January 31,1984. The documentary requirements of the credit remained unchanged despite these amendments. As stated in the original March 9, 1982 credit, they were as follows:

(A) Beneficiary’s signed certificate stating that, ‘The amount drawn is due and unpaid by S-W Distributors, Inc., under the attached invoice copy(ies) in accordance with the terms therein specified and is in excess of our established open account terms of $500,000 and is net of any returns and allowances.’
(B) The invoice copy(ies) referenced in paragraph A above.
(C) Copy of truck bills of lading or air waybills indicating acceptance by the carrier of the merchandise described in the accompanying invoices for delivery to S-W Distributors, Inc.

On November 2, 1982, four days after S-W terminated its distributorship with Atari, Harris issued a further amendment to the credit, raising the “floor” amount of the credit (representing the unsecured portion of S-W’s open account) from $500,000 to $1,000,000. Although Harris has indicated that the November 2nd amendment was mailed in the normal course of business, Atari maintains that it has no record of ever receiving the November 2nd amendment.

On December 27, 1983, Harris notified Atari by letter that effective December 10, 1983 the credit “is at zero balance and should be considered null and void.” Atari. responded on December 27, 1983, stating that since the credit as issued was irrevocable, Atari would expect Harris to honor any proper demand for payment under the credit.

On January 31, 1984, Atari attempted to draw $395,391.68 on the credit, presenting its sight draft in that amount together with the following documentation:

(a) a signed certificate stating that ‘The amount drawn is due and unpaid by [S-W] under the attached invoice copies in accordance with the terms therein specified and is in excess of our established open account terms of $500,000.00 and is net of any returns and allowances.’
(b) eighteen Atari invoices to S-W in the total amount of $2,120,679.
(c) A series of truck bills of lading, together with Atari’s packing lists for each of the shipments.

On February 3, 1984, Harris notified Atari by letter that it refused to honor Atari’s draft as noncomplying, citing a series of twenty-one asserted nonconformities in the documents presented. Harris’ primary objection was that “the description of the merchandise and the quantity thereof specified in the bill[s] of lading attached to [certain invoices was] inconsistent with the description and amount of merchandise specified in [the invoices].” Consequently, Harris asserted that the bills of lading did not comply with paragraph (c) of the credit in that they did not “indicate acceptance by the carrier of the merchandise, and the quantity thereof, described in [the invoices].” Harris lodged this objection to fourteen of the eighteen invoices submitted, totalling $1,981,773.

Harris also objected to the lack of any signature by the carrier on bills of lading supporting three invoices. Harris further objected to Atari’s certificate, asserting that: (i) it did not conform to the November 2, 1983 amendment which raised the “floor” from $500,000 to $1,000,000 and (ii) was inconsistent with certain invoices stamped as “Void.” Harris also objected that the amount of the invoices presented exceeded the amount of the draft. Finally, Harris noted that it had received information from S-W to the effect that (i) one invoice presented by Atari in the amount of $3,420 had in fact been paid by S-W and (ii) six of the invoices presented by Atari had been cancelled through credit memos and lesser amounts were later rebilled on invoices not presented. Harris made no objection to two invoices totalling $119,448 (Nos. 705524 and 705902).

DISCUSSION

Wrongful Dishonor on January 31, 1984

Harris contends that it is entitled to judgment in its favor because it properly dishonored Atari’s attempted draw, based on any one of the several objections Harris initially advanced. Atari maintains that since it presented invoices supporting an amount vastly in excess of the amount of its draw, Harris was required to honor the draw if any complying group of invoices equalling the amount of its draft could be found among those presented. Because some of Harris’ objections were unfounded, Atari argues, it is entitled to summary judgment in its favor regardless of other valid objections. The parties agree that the issues in this diversity action must be decided under Illinois law. See Crocker Commercial Services v. Countryside Bank, 538 F.Supp. 1360, 1362 (N.D.Ill. 1981).

In light of Harris’ valid objections to two of the invoices presented by Atari (No. 70865 — invoiced merchandise description not consistent with bill of lading description, No. 708065 — no carrier signature on bill of lading indicating acceptance of goods), the issue of whether a single defect justifies dishonor becomes dispositive. However, before reaching this central issue, a number of preliminary matters must be addressed.

Harris contends that in order for the Court to grant judgment in favor of Atari, it must find that the November 2, 1983 amendment ineffective. Had the amendment been operative, Atari’s certificate would have been nonconforming, as it referred to the $500,000 “floor” previously in effect rather than the $1,000,000 “floor” contained in the November 2nd amendment.

The Court is compelled to make that finding. Illinois’ version of the Uniform Commercial Code (“UCC”), (Ill.Rev.Stat. 1981, ch. 26, § 5-106(2)) provides that once an irrevocable letter of credit, of the kind issued by Harris in favor of Atari, “is established as regards the beneficiary it can be modified or revoked only with his consent.” Aside from evidence relating to the underlying agreement between S-W and Atari, Harris has produced no evidence that Atari consented to the November 2nd amendment. Evidence as to the relation between Atari and S-W contained in Atari’s internal memoranda and conversations between S-W and Harris personnel has no bearing on Harris’ relation to Atari. Mount Prospect State Bank v. Marine Midland Bank, 121 Ill.App.3d 295, 76 Ill. Dec. 844, 987, 459 N.E.2d 979, 983 (1st Dist.1983). Rather, this evidence indicates only that . Atari and S-W may have been renegotiating the credit terms of the distributorship agreement. There is no evidence that Atari expressed to Harris its consent to a modification of the letter of credit terms.

Harris next maintains that by including in the documents presented to Harris invoices stamped “VOID,” Atari created an inconsistency among the documents justifying the dishonor. Harris argues that since voided invoices could not be “Due and unpaid,” the voided invoices were not consistent with Atari’s certification that the amount of its draw was “Due and unpaid ... under the attached invoices (copies).” In each instance where Atari included a voided invoice, Atari also presented the correcting debit and credit memos together with the final corrected invoice to S-W. It is the final corrected invoice which Atari submitted to support its draw. The voided invoice, credit and debit memos were presented solely for purposes of explication. That such was their purpose is clear from the documents themselves. These documents do not create- an inconsistency between the invoices and Atari’s certification that the amount of the draw was due and unpaid under the invoices presented.

Next Harris contends that it properly dishonored the draw due to Atari’s presentation of excess invoices and bills of lading, which rendered the invoices inconsistent with the amount of the draw. In support of its position, Harris cites Oriental Pacific, Inc. v. Toronto Dominion Bank, 78 Misc.2d 819, 357 N.Y.S.2d 957 (N.Y.Sup. 1974).

In Oriental Pacific, the New York Court found that the issuing bank properly dishonored a draft for $37,919.41 presented with a single invoice of $39,-206.26. However, the court rested its finding in Oriental Pacific on the fact that the invoice exceeded the total amount available under the credit. As noted in Oriental Pacific, Article 32(b) of the UCPDC permits (but does not require) an issuing bank to dishonor a draft supported by “commercial invoices issued for amounts in excess of the amount permitted by the credit.” Here, Harris did not initially justify its dishonor by reference to the amount of the credit, noting instead the variance between the amount of the draft and the invoices presented. Hence, the former ground for dishonor is waived. See Northern Trust Co. v. Oxford Speaker Co., 109 Ill.App.3d 433, 65 Ill.Dec. 113, 440 N.E.2d 968 (1st Dist.1982). See also American Employers Insurance Co. v. Pioneer Bank & Trust Co., 538 F.Supp. 1354, 1357 (N.D.Ill.1981). And unlike the case where the beneficiary presents invoices exceeding the amount of the credit available, the UCPDC contains no bar to submitting an amount of invoices in excess of the amount of the draft presented for payment. To the contrary, Illinois law permits partial draw on the credit amount. (Ill.Rev.Stat.1981, ch. 26, § 5-110(1)). Such a partial draw could under many circumstances be supported by an invoice exceeding the amount of the draw.

Moreover, Article 32(b) of the UCPDC is directed to the needs of a sales credit, where the credit is designed to secure payment in a single transaction. Where a single sales transaction is involved and the sales credit secures the full amount of the transaction, the issuing bank could justifiably infer from the receipt of an invoice whose amount exceeds that of the credit that something was amiss. However, where a standby credit, such as the one issued here by Harris, secures a series of transactions, no correlation is required between the amount of any single invoice and the total credit amount. Consequently, Atari’s overinclusive submission did not itself justify the dishonor.

Nonetheless, a beneficiary of a standby letter of credit cannot with impunity simply empty its receivables file on the issuing bank’s counters. As Harris points out, the issuing bank’s decision to dishonor a draw cannot be viewed in a vacuum. Where the excess documents create some inconsistency or nonconformity which affects other documents, the bank may dishonor the draw even if, absent the excess documents, no nonconformity would have existed.

Harris argues that when faced with a $395,391.68 draw on a standby credit with a $500,000 “floor,” together with $2,120,677 worth of invoices, it would assume only one of two sets of facts. Either: “(i) the amount actually owing from S-W under the attached invoices was $395,-391.68, the amount of the draw; or (ii) the amount owing from S-W under the attached invoices was $895,391.68, the amount of the draw plus the $500,000 open credit referenced in the [credit].” Consequently, reasons Harris, some of the invoices must have been paid or subject to returns and allowances, so that all the submitted documents had to conform to the credit terms to support the amount of the draw. The beneficiary’s ability to present partial draws under a letter of credit undercuts Harris’ argument. In light of the possibility that Atari’s draw may have been only a partial draw, a third assumption was equally plausible; that $2,120,677 was actually owing from S-W but that Atari had chosen to draw less than the full amount it could demand under the credit. That Atari presented its apparently partial draw on the last day on which the credit remained in effect and therefore could not draw down the credit any further does not render that assumption implausible. The issuer can no more speculate as to what motivates a beneficiary to draw less than the full amount of the credit than can a beneficiary speculate as to the issuer’s motivation for dishonoring its draw. In either case, whether the party’s act was proper depends solely on the documents.

Therefore, the Court turns to the documents presented by Atari. The chief objection lodged by Harris is that Atari’s invoices are inconsistent with the bills of lading presented as to the descriptions of the merchandise and their quantities; contrary to paragraph (c) of the credit. Paragraph (c) of the credit requires presentation of “bills of lading indicating acceptance by the carrier of the merchandise described in the accompanying invoices for delivery to S-W Distributors, Inc.” Any ambiguity in this language must be construed against Harris. Since the issuer (or its customer) has the opportunity to draft any desired protections into the credit, the Court will not infer added protections, not clearly conveyed to the beneficiary. American Employers Insurance Co., 538 F.Supp. at 1358. “The corollary to the rule of strict compliance is [the rule] that the requirements in letters of credit be explicit and that all ambiguities are to be construed against the [issuing] bank. Since the beneficiary must comply strictly with the requirements of the letter, it must know precisely and unequivocally what those requirements are.” Marino Industries Corp. v. Chase Manhattan Bank, N.A., 686 F.2d 112, 115 (2d Cir.1982).

Measured by these standards, Harris’ reading of paragraph (c) to require bills of lading that described the merchandise in terms identical to those used in the invoices and listed quantities in the same units of measure as did the invoices, is unreasonable. Had Harris (and S-W) desired that Atari present identical invoices and bills of lading, it was obligated to set forth this exacting requirement “precisely and unequivocally” in the credit, so that Atari could take at the time of shipment any steps necessary to insure its ability to meet such a requirement.

Atari’s interpretation of paragraph (c) of the credit is more reasonable; that the bills of lading presented evidence shipment to S-W of all invoiced items with quantities and descriptions not inconsistent with those invoiced. See H. Harfield, Letters of Credit, pp. 45, 51-55. Article 32(c) of UCPDC requires invoices to describe goods with greater particularity than that required of bills of lading.

‘The description of goods in the commercial invoice must correspond with the description in the credit. In all other documents, the goods may be described in general terms not inconsistent with the description in the credit.’

Turning to the invoices, bills of lading and packing slips presented, these documents, taken together, satisfy the requirements of paragraph (c). Atari’s invoices describe the merchandise by reference to specific video games and accessories (e.g., Pac-Man, Space Invaders, Defender, Centipede, etc.; trackball control, A/C adaptor, joystick control) and list quantities in terms of units. The bills of lading refer to the merchandise as either “Games or Toys,” “Semi conductor Devices” or “Controller Parts” and list quantities in terms of the number of cartons and skids or pallets accepted by the carrier. Atari’s packing lists describe the merchandise in the same terms and quantities as do the invoices. In addition, certain of the bills of lading contain a handwritten reconciliation of the number of boxes or cartons to the number of units shipped (see, e.g., bills of lading supporting invoice 896240, packing lists for invoices 896241, 896747, 893811, 893901, 892286).

On the face of the invoices and bills of lading, the documents are consistent. The “shipping date” listed on each invoice corresponds to the date on which the carrier indicates acceptance of the merchandise (or in the case of partial shipments, of the last shipment). The descriptions on the bills of lading are more generalized, but not inconsistent with the invoice descriptions. Nor are the quantities, measured in different units of measure, inconsistent. The bill of lading quantities admittedly do not correlate in any meaningful way with the invoiced quantities (save for invoice 896240). However, this is where the packing list reconciliations play a role. These reconciliations tie the invoices and bills of lading together, so that the three documents together satisfy even the higher standard of equivalent quantities claimed by Harris. Therefore, Harris’ objections based on inconsistent descriptions and quantities are unfounded.

Since Harris’ only objections to six invoices totalling $1,290,097 were the quantity/description and voided/reinvoiced objections rejected above, the Court need not address Harris’ claim that certain invoices (six invoices totalling $587,105) were either paid or cancelled, and so fraudulently presented as due and unpaid. The Court also need not address the parties’ dispute as to whether the credit required Atari to present invoices covering only the amount of its draw or also covering the $500,000 “floor.” Because the nonconformities raised by Harris as to the other invoices do not in any way affect the group of invoices as to which either no objection or only unfounded objections were raised and this latter group adequately supports the amount of Atari’s draw under either interpretation of the amount of invoices Atari was required to present, Atari’s motion for summary judgment of liability as to Count II is granted.

ANTICIPATORY REPUDIATION OF DECEMBER 22, 1983

Harris does not dispute that one of its commercial banking officers sent a letter to Atari, dated December 22, 1983, informing Atari that the S-W letter of credit, “is at zero balance and should be considered null and void.” Nor does Harris dispute that its “promise to pay under the credit is irrevocable.” Philadelphia Gear Corp. v. Central Bank, 717 F.2d 230, 235 (5th Cir.1983). Harris does contest the application of the UCC (Ill.Rev.Stat.1981, ch. 26, § 5-115(2)), which provides:

(2) When an issuer wrongfully cancels or otherwise repudiates a credit before presentment of a draft or demand for payment drawn under it the beneficiary has the rights of a seller after anticipatory repudiation by the buyer under Section 2-610 if he learns of the repudiation in time reasonably to avoid procurement of the required documents. Otherwise the beneficiary has an immediate right of action for wrongful dishonor.

Further, Harris argues that: (i) an anticipatory repudiation does not excuse strict compliance, should the beneficiary subsequently choose to draw on the credit and (ii) that a subsequent draw waives the prior repudiation. See Ufitec, S.A. v. Trade Bank & Trust Co., 21 A.D.2d 187, 249 N.Y.S.2d 557 (1964), aff'd 16 N.Y.2d 698, 261 N.Y.S.2d 893, 209 N.E.2d 551 (N.Y.Ct.App.1965). Harris also maintains that Atari has not shown (or alleged) that at the time of the repudiation it was ready, willing and able to perform under the credit by presenting a proper demand for payment. See Nikkei International, Inc. v. Federal Republic of Nigeria, 497 F.Supp. 893, 907 (S.D.N.Y. 1980), aff'd, 647 F.2d 300 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982) (applying pre-UCC contract law principles to a letter of credit governed solely by the UCPDC).

Harris has failed to cite any Illinois authority for its position that the UCPDC completely supercedes Article Five of the UCC where a credit is made subject to the UCPDC by the parties. Illinois courts have applied the UCC to letters of credit that were subject to the UCPDC. See, e.g., Mount Prospect Bank, 76 IlLDec. at 846-48, 459 N.E.2d at 981-83. The authority cited by Harris involves the application of New York law, which expressly provides that the UCPDC, where applicable, super-cedes the UCC. N.Y.U.C.C. § 5-102(4). See Nikkei International, Inc., 497 F.Supp. at 907. The Illinois version of the UCC does not contain this unique provision. See Hawkland, Uniform Commercial Code Series, §§ 5-102:07, 5-102:08 (particularly at n. 1, which indicates that only Alabama, Arizona and Missouri follow New York in this matter). Therefore, the Court concludes that § 5-115(2) applies to the credit here at issue.

Without accepting Harris’ position that to recover on the repudiation, Atari must allege and prove its readiness, willingness and ability to perform under the terms of the credit, the Court notes that Atari has made a sufficient showing. By presenting a conforming draw before the credit expired, Atari has demonstrated that it was ready, willing and able to perform as required by the credit terms. There is no countervailing evidence offered by Harris to indicate that Atari was not ready, willing and able to perform.

Moreover, under Article Five of the UCC, it is not clear that Atari is required to show that it was ready, willing and able to perform. Section 5-115(2) expressly contemplates a situation where the beneficiary may sue the issuer for repudiation and still “avoid procurement of the required documents.” In other words, there is no requirement that the beneficiary demonstrate that it could present a conforming draw. But see Reprosystem, B.V. v. SCM Corp., 522 F.Supp. 1257, 1278 (S.D.N.Y.1981), rev’d on other grounds, 727 F.2d 257 (2d Cir.1983); Nikkei International, 497 F.Supp. 893, 908-9 (as to a plaintiff then not ready to perform and also incapable of ever becoming ready to perform).

That is not to say that the beneficiary’s ability to present a conforming draw or obtain the requisite documents has no bearing on the action for repudiation. Where, as here, a beneficiary to a standby credit sues for repudiation, the amount of damages recoverable depends on the beneficiary’s ability to present a conforming draw and the amount of that draw. Since Atari extended only $395,391.68 of credit that was secured by the letter of credit, that amount is all that can be recovered. The “windfall” to which Harris points would result only if Atari could recover more than the $395,391.68 it could legitimately have drawn on the credit, absent Harris’ repudiation. Accordingly, Atari has established a valid claim for repudiation, based on Harris’ letter of December 22, 1982.

However, it remains to be seen whether Atari gave up its claim by presenting its draw to Harris on January 31, 1984. Harris contends that Atari’s presentment brings into play the second sentence of § 5-115(2). Since Atari would, therefore, have “an immediate right of action for wrongful dishonor” which essentially duplicates Count III, Harris argues, Atari has waived its repudiation claim. This argument is not without force. But reducing Atari’s repudiation claim to a wrongful dishonor claim would again engraft the issue of Atari’s ability to perform unto Atari’s repudiation claim. Rather, Atari’s presentment is no more than a further urging that Harris retract its repudiation and perform under the credit.

If proper, Harris’ dishonor of Atari’s attempted draw, citing nonconformities with the terms of the credit, would amount to such a retraction of its prior repudiation. Ill.Rev.Stat.1981, ch. 26, § 2-611. Had Harris responded to Atari’s attempt to draw on the credit with a flat denial that the credit remained effective, Atari would still have its repudiation claim. By dishonoring Atari’s draw without reliance upon the credit terms, Harris clearly would be persisting in its prior repudiation. Instead, Harris can be viewed as accepting Atari’s second invitation to retract its December 22nd repudiation by performing its obligations under the credit. This would “clearly indicate to the aggrieved party that the repudiating party intends to perform.” Section 2-611(2).

But Atari maintains that Harris’ reliance upon the credit terms was merely a pretext. Atari contends that Harris’ dishonor was actually based on Harris’ position that the credit was no longer effective. Accepting Atari’s argument necessarily leads to the conclusion that whenever an issuer has repudiated a letter of credit and its subsequent dishonor is ultimately determined to be wrongful by a court, the issuer is subject to liability under a theory of anticipatory breach as well as for the wrongful dishonor. Although this result provides a disappointed beneficiary with duplicate causes of action, this is exactly the result contemplated by the Official Comments to the UCC. “Note that wrongful dishonor of a draft for a portion of the credit is dishonor of the credit under Section 5-112(1), and makes applicable subsection (2) of this section as well as subsection (1).” UCC Comment to § 5-115, ¶ 2. Nor does this result do violence to those decisions requiring a beneficiary to meet the requirements of the credit should it attempt to draw on the credit after a repudiation. See, e.g., Nikkei International, supra; Ufitec, supra. Only a wrongful dishonor, which necessarily includes a conforming draw, should be viewed as a continued repudiation. Should the issuer properly dishonor an attempted draw made subsequent to its repudiation, it has performed under the credit and retracted its repudiation. In light of the foregoing, Atari’s motion for summary judgment as to liability on Count III must also be granted.

IT IS THEREFORE ORDERED that summary judgment of liability will enter in favor of Atari, Inc. and against Harris Trust & Savings Bank on Counts II and III, as a result of which a money judgment will be entered in the amount of $395,391.68 in favor of plaintiff Atari, Inc. and against the defendant Harris Trust and Savings Bank.

      . However, the Court notes that invoice 896240 alone, in the amount of $436,674, adequately covers the amount of Atari's draw and satisfies even Harris' interpretation of paragraph (c), without reference to its accompanying packing list. Hence, a finding that Harris properly dishonored Atari’s draw would require a conclusion that Harris’ proposed higher standard was correct and that Atari was required to submit complying invoices covering both the amount of its draw and the $500,000 floor.

      . Harris maintains that this letter did not amount to a repudiation of its obligations. Illinois courts regard a clear statement by a promisor to its promisee that it will not perform, as a repudiation. See, e.g., B & C Electric, Inc. v. Pullman Bank & Trust Co., 96 Ill.App.3d 321, 51 Ill.Dec. 698, 673, 421 N.E.2d 206, 211 (1st Dist. 1981) (but a parties’ actions may negate its words); Schilling v. Book, 84 Ill.App.3d 972, 39 Ill.Dec. 845, 849, 405 N.E.2d 824, 828 (3d Dist. 1980). Harris’ letter fits squarely within the category of statements constituting a repudiation.

      . Section 2-610 provides:
      When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may
      (a) for a commercially reasonable time await performance by the repudiating party; or
      (b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter’s performance and has urged retraction; and
      (c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods.
      Section 2-711 provides, in relevant part:
      (1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as had been paid
      (a) "cover” and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or

        (b) recover damages for non-delivery as provided in this Article (Section 2-713).
      (2) Where the seller fails to deliver or repudiates the buyer may also
      (a) if the goods have been identified recover them as provided in this Article (Section 2-502); or
      (b) in a proper case obtain specific performance or replevy the goods as provided in this Article (Section 2-716).

      . Harris also contends that because Atari replied to Harris’ December 22nd repudiation by stating that it regarded the credit as remaining in effect until its expiry date, Atari waived the repudiation. However, IIl.Rev.Stat.1981, ch. 26, § 2-610 allows a party in Atari’s position to notify the repudiating party that performance is still expected and yet not waive any remedy for breach. Thus, Atari’s letter to Harris did not waive any remedy for the breach.

      . Section 2-611. Retraction of Anticipatory Repudiation.
      (1) Until the repudiating party’s next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation cancelled or materially changes his position or otherwise indicated that he considers the repudiation final.
      (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this Article (Section 2-609).
      (3) Retraction reinstates the repudiating party’s rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.


author: SPELLMAN, District Judge.

text:
    Barry K. THOMAS, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    No. 84-555-CIV-EPS.
    United States District Court, S.D. Florida, Miami Division.
    Nov. 14, 1984.

      Carolina A. Lombardi, Legal Services of Greater Miami, Miami, Fla., for plaintiff.
    Robert Rosenberg, Asst. U.S. Atty., Miami, Fla., for defendant.
   MEMORANDUM OPINION AND ORDER REVERSING THE SECRETARY’S DECISION

SPELLMAN, District Judge.

THIS CAUSE is before the Court to review the final decision of the Secretary of Health and Human Services (HHS) determining that plaintiff is not entitled to supplemental security income benefits pursuant to 42 U.S.C. § 1381 et seq.

For the reasons stated below, the Court reverses the decision of the Secretary and remands this cause to the Secretary for further proceedings not inconsistent with this Opinion.

BACKGROUND

The claimant is 30 years of age. On February 2, 1978, plaintiff was arrested and charged with robbery, unlawful possession of a firearm and two counts of murder. He was ultimately tried on all charges and found not guilty by reason of insanity. He was committed to South Florida State Hospital on February 19, 1981. The plaintiff remained institutionalized until March 10, 1982 at which time he was released to the Forensic Unit of the Passageway House. Plaintiff may only leave Passageway House upon court order and in the company of an escort.

The plaintiff testified before the Administrative Law Judge. He said he could not work because job supervisors put too much stress on him, and his medication makes him drowsy. He stated he does not watch television because the television talks back to him. He does not socialize with the other residents because he becomes annoyed when they ask him for cigarettes. Plaintiff described auditory hallucinations where voices make suggestions to him, but said he has learned not to do what the voices tell him.

Plaintiff’s medical treatments consist of individual psychotherapy sessions, plus a Prolixin injection on a two week basis.

Edward Hanley, Direct Service Supervisor of Passageway House, testified he sees the plaintiff on a weekly basis. He described the claimant as being withdrawn, not only to fellow residents, but to true involvement in the program.

A psychiatric report, dated March 5, 1981, was prepared by an unnamed psychiatrist from South Florida State Hospital. The doctor reported plaintiff had admitted shooting the women because voices told him to. Plaintiff admitted seeing ghosts, and hearing a female voice and Jesus talking to him. The plaintiff believed people on the street wanted to kill him. The diagnoses of the March 5, 1981, report were: schizophrenic disorder, paranoid type, chronic; mixed substance abuse, in remission; mixed personality disorder; history of gun-shot wounds.

A psychological evaluation was performed on March 10, 1981, by Steven J. Kaplan, Ph.D., a clinical psychologist. The plaintiff revealed to Dr. Kaplan that his paranoid thoughts had begun in his teen years. He reported being shot by his brother when he tried to “stake” his sister-in-law, believing her to be a vampire. Dr. Kaplan believed the plaintiff had some in-. sight into the nature of his disorder, and with psychotherapy and psychotropic medication, his prognosis would be somewhere between guarded and fair. Dr. Kaplan’s diagnoses were: schizophrenia, paranoid type, chronic; mixed substance abuse, in remission.

On August 25, 1981, a Final Summary for Disposition was prepared by Dr. Alida Reinoso of the South Florida State Hospital. Dr. Reinoso reported the plaintiff’s stay at South Florida as difficult due to plaintiff’s refusal to take medication. He displayed no remorse for his murder of the two girls, and admitted to past auditory hallucinations. Dr. Reinoso reported that plaintiff thought people who committed murder would acquire the ability to fly. On the night of the crime, plaintiff was watching a KKK program on television and thought they were making references to him. Dr. Reinoso reported plaintiff was living in a highly structured environment with 24 hour psychiatric service, but cautioned that what might happen in the community under a stress situation was unpredictable. Dr. Reinoso concurred with the recommendation of the Forensic Disposition Board of September 1,1981, that plaintiff remained mentally ill. It was the Board’s opinion that plaintiff was manifestly dangerous to himself and others, and he continued to meet Florida Statute § 394.-467(l)’s enterias for involuntary hospitalization.

A Final Summary Report was prepared by Dr. Dennis F. Koson upon claimant’s discharge from South Florida State Hospital on March 10, 1982. Dr. Koson reported plaintiff being placed on Prolixin. He found no evidence of aggressiveness, hostility or seclusion; he found plaintiff to no longer be a danger to himself or others. His final diagnosis was schizophrenic disorder; paranoid type, in remission.

In June of 1982, the plaintiff was released to Passageway House, a residential treatment center.

While at Passageway, plaintiff was treated biweekly at the Miami Mental Health Center. The Center also prescribed Prolix-in. The Center’s diagnosis was schizophrenia, paranoid type, in remission with medication.

On September 20, 1982, the claimant underwent a psychiatric evaluation by Dr. George W. Metcalf, a consulting psychologist. He noted the claimant was neither depressed nor euphoric. Mood was appropriate and there was no marked degree of flatness. Plaintiff told Dr. Metcalf that he was afraid of ghosts and believed that the ghosts of the two girls he killed were often about.

The plaintiff was placed in a Work Adjustment Program administered by the Jewish Vocational Service in February of 1983. He was discharged after a short period because he became so drowsy after his Prolixin injections that he could not work and needed to lie down. Furthermore, claimant expressed a strong dislike for the program and a desire to be trained as a welder. He was unable to understand that his medication would make welding unsafe for him. It was the Service counselor’s opinion that plaintiff could not complete any kind of vocational training unless his performance under medication could be better controlled.

On March 23, 1983, the Miami Skill Center refused to accept plaintiff into its welding program because of his need for Prolix-in.

On June 29,1983, plaintiff was evaluated by Dr. Norman Reichenberg, a Clinical Psychologist. Dr. Reichenberg reported that patterns suggesting paranoid-schizophrenic functioning were still present, and were not likely to change significantly. Dr. Reichenberg believéd that if plaintiff could avoid intense stress or be under periodic supervision, he should be able to function as an out-patient. Dr. Reichenberg recommended plaintiff remain at Passageway House.

On July 5,1983, plaintiff was seen by Dr. Lloyd R. Miller, a Forensic Psychiatrist. Dr. Miller reported that plaintiff was “lacking in mental illness.” However, Miller noted that “... he may have a background of anti-social behavior which might cause him to act out in an anti-social manner in the future.” See Transcript p. 150. Dr. Miller recommended claimant remain under supervision to insure continued stability of his mental and emotional condition.

On July 6, 1983, the plaintiff was evaluated by Dr. Charles B. Mutter, a Board certified psychiatrist. Dr. Mutter’s opinion was that claimant met the criteria for competency. However, he recommended plaintiff’s release from Passageway be delayed until such time as plaintiff was able to seek employment. Dr. Mutter pointed out that employment is a stressful situation, and plaintiff is sensitive to stress. Dr. Mutter concluded that:

“Until it can be shown that he is able to tolerate greater levels of stress, he should not be left unsupervised under any circumstances whatsoever.” (emphasis supplied)

See, Transcript p. 153.

Dr. William Corwin, a psychiatrist, examined plaintiff on July 13, 1983. Dr. Corwin reported improvement in schizophrenic illness. He expressed opinion that there existed residual symptoms, particularly in plaintiff’s emotional reactions. He recommended plaintiff remain at Passageway in order to determine the constancy of his improvement, and upon release, an aftercare program developed.

STANDARD OF REVIEW

Although this Court’s usual focus in reviewing Social Security Disability determinations is on the question of whether the claimant carried the burden of showing he could no longer perform his customary work, and if so, whether the secretary carried the rebuttal burden of showing there was indeed work available which claimant could perform, Wilkinson v. Schweiker, 640 F.2d 743, 744 (5th Cir.1981); Lofton v. Schweiker, 653 F.2d 215, 217 (5th Cir.1981), the social security regulations provide that in some instances a disability determination may be made on the basis of medical evidence alone. Id. In such cases the question on review is whether the Secretary’s determination that a claimant is not suffering from a severe impairment is supported by substantial medical evidence. 42 U.S.C. § 405(g); Walden v. Schweiker, 672 F.2d 835 (11th Cir.1982). Substantial evidence is:

“more than a scintilla, and must do more than create a suspicion of the existence of the fact to be established. ‘It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.’ ”

NLRB v. Columbian Enameling and Stamping Co., 306 U.S. 292, 300, 59 S.Ct. 501, 505, 83 L.Ed. 660, 665 (1939), quoting Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 217, 83 L.Ed. 126, 140 (1938); accord Anderson v. Schweiker, 651 F.2d 306, 308 (5th Cir.1981).

The Social Security Administration sets forth a specific sequential process of evaluation for the Secretary to employ in assessing disability claims. The regulations provide that “... current work activity, severity of the impairment[s], and vocational factors” be “assessed in that order.” 20 C.F.R. § 404.1503(a) (1980).

In making a determination of disability or no disability, the first inquiry is whether the individual is currently engaged in substantial gainful activity. If the claimant is not engaged in substantial gainful activity, the question is then whether the individual has any severe impairment. Brady v. Heckler, 724 F.2d 914, 917 (11th Cir.1984). A claimant is severely impaired if he has a condition “which significantly limits his or her physical or mental capacity to perform basic work related functions.” 20 C.F.R. § 404.1503(c) (1980). The regulations have defined basic work activities as:

“.. we mean the abilities and aptitudes necessary to do most jobs. Examples ... include—
(1) physical functions such as walking, standing, sitting, ... ;
(2) capacities for seeing, hearing, and speaking;
(3) understanding, carrying out, and remembering simple instructions;
(4) use of judgment;
(5) responding appropriately to supervision, co-workers, and usual work situations; and
(6) dealing with changes in a routine work setting.”

20 C.F.R. § 404.1521(b).

The regulations direct that if the Secretary finds that the claimant does not have a severe impairment, the claimant is considered not to be under a disability without consideration of the vocational factors, (emphasis in original) 20 C.F.R. § 404. 1503(c) (1980); Brady v. Heckler, 724 F.2d at 917.

The Eleventh Circuit has held that:

An impairment can be so considered as not severe only if it is a slight abnormality which has such a minimal effect on the individual that it would not be expected to interfere with the individual’s ability to work, irrespective of age, education, or work experience.

Brady v. Heckler, 724 F.2d at 920.

The Administrative Law Judge described the plaintiff’s illness as a “nervous condition,” and noted that although plaintiff might have “some restrictions” to overall attitude to others, “the existence of significant inability to otherwise perform usual functioning has not been persuasively demonstrated.” These conclusions, are simply not supported by the evidence.

The Plaintiff here is not a rational individual. Notwithstanding the clear demonstration of the medical evidence that plaintiff is still in need of 24 hour psychiatric help, and the fact that Plaintiff has before murdered as a result of his inability to separate fantasy from reality the Administrative Law Judge believes that Plaintiff was not disabled. This Court is at a loss for a plausible explanation of how an individual with this type of medical history can be considered by the Administrative Law Judge to just be suffering from a “nervous condition.”

The Administrative Law Judge makes reference to the basic work activities outlined in 20 C.F.R. § 404.1521(b). However, he failed to mention such necessary work related abilities as: (1) ability to understand, carry out and remember simple instructions; (2) use of judgment; (3) responding appropriately to supervision, coworkers, and usual work situations; and (4) dealing with changes in a routine work setting. This Court believes that the plaintiff is unable to meet these requirements.

First, if plaintiff is drugged to the point of having to lie down while on the job, it can hardly be said he has such use of his judgment as to be regarded as a capable employee. Further, all employment carries with it some amount of stress. Plaintiff obviously failed to cope with life’s normal stressful situations when he murdered the two girls, and still, while at Passageway would not socialize with the other patients because he could not deal with them asking him for cigarettes. It is obvious to this Court that plaintiff meets the social security’s description of being “severely impaired.”

For all of the above reasons, the decision of the Secretary is hereby reversed and this cause is remanded for further proceedings not inconsistent with this Order.


text:
    Walter SMITH and Virginia Smith, Plaintiff, v. UNITED STATES of America, Defendant.
    No. 81-1983-Civ EPS.
    United States District Court, S.D. Florida, Miami Division.
    Nov. 14, 1984.

      Robert F. Eimers, Miami, Fla., for plaintiff.
    Pamela Hornett, Asst. U.S. Atty., Miami, Fla., for defendant.
   MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

SPELLMAN, District Judge.

This is a civil action brought against the United States of America. The plaintiffs allege that the Department of Navy refused to perform a vasectomy upon plaintiff, Walter Smith, an enlisted active duty member of the Navy, which refusal violated plaintiffs’ constitutional right to privacy under the ninth amendment, and violated plaintiffs’ right to free speech under the first amendment to the United States Constitution. The plaintiffs further allege that the Navy’s “unofficial policy” of not performing vasectomies on active duty members entitled to medical care unless they have sired a child is a violation of the Equal Protection Clause as incorporated into the fifth- amendment of the United States Constitution.

STATEMENT OF FACTS

On or about January 29, 1981, plaintiff, Walter Smith, requested that a medical physician employed by the Department of the Navy perform a vasectomy upon him. Such request was refused on the ground that it was “unofficial Naval policy” not to perform vasectomies on Naval personnel eligible for medical care by the Navy unless that individual has sired a child. However, it was strongly encouraged that plaintiff’s spouse, Virginia Smith, undergo a tubal ligation.

On February 13, 1981, plaintiff, Walter Smith, sought the services of a physician not in the Department of the Navy, and such civilian physician performed a- vasectomy on plaintiff for which the plaintiff, Walter Smith, paid a fee of $200.00. Demand for reimbursement of such monies has been made by plaintiff to defendant, but the Department of the Navy has refused to reimburse plaintiff.

It is not disputed that the plaintiff, Walter Smith, as a member of the Navy is entitled to free and complete medical services from the United States Navy, and that a vasectomy is a medical procedure.

Before this Court is a Motion to Dismiss or in the Alternative For Summary Judgment filed by the defendant, and a Motion for Summary Judgment filed by the plaintiffs.

ANALYSIS

Summary judgment should be entered only 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(c), F.R.C.P.; Impossible Elec. Tech. v. Wackenhut Prot. Systems, 669 F.2d 1026, 1031 (5th Cir.1982). This Court finds after careful review that there is no material issue of fact and the Defendant is entitled to judgment as a matter of law.

The plaintiffs, a Navy enlisted man and his wife, have claimed a violation of their constitutional rights protected by the first, fifth and ninth amendments. (See Complaint, Count I). They bring this claim against the United States Navy under Title 28, Sec. 1346(b). This case involves the “relationship between the Government and members of its Armed Forces,” and thus the character of the suit is distinctly federal. Stencel Aero Engineering Corp. v. United States, 431 U.S. 666, 671, 97 S.Ct. 2054, 2058, 52 L.Ed.2d 665 (1977). However, state law often provides the rule of decision in FTCA claims involving just such a relationship. See Johnson v. United States, 576 F.2d 606 (5th Cir.1978), appeal on remand 631 F.2d 34, 36 (5th Cir.1980), rehearing denied 636 F.2d 314 (5th Cir. 1981), cert. denied 451 U.S. 1018, 101 S.Ct. 3007, 69 L.Ed.2d 389 (1981). This Court finds that, since plaintiffs rely on alleged representations by an agent of the defendant to substantiate their claim, 28 U.S.C.A. § 1346(c) mandates application of state law in this case. The Florida doctrine of respondeat superior therefore applies to determine liability under § 1346(b).

Under Florida law, a principal is liable if his actions or words operate to hold out the agent as possessing authority to act on behalf of the principal, thereby vesting apparent authority in the agent. See Taco Bell of California v. Zappone, 324 So.2d 121, 123-4 (Fla.App.1975); Owen Industries v. Taylor, 354 So.2d 1259, 1261 (Fla.App.1978). Florida law comports with the prevailing view in this Circuit, that only by express agreement or by statute can the United States assume liability for the acts of its employees. See United States v. Fulton Distillery, 571 F.2d 923, 927 (5th Cir.1978).

The plaintiffs have failed to show or even to allege that the actions of one man, namely Dr. Flynn, represented the unofficial or official policy of the United States Government. Rather, by the terms of applicable Navy regulations, Dr. Flynn was not required to perform the operation, and the Navy disclaimed any authority on his part to bind the Government by his acts. See SECNAV Instruction Manual § 6300.-2A (May 1, 1971). The Smiths did not attempt to ascertain whether Dr. Flynn’s refusal to perform the vasectomy did in fact reflect some Navy policy. The reasons for obtaining the vasectomy were not of such urgency that the Smiths can be excused for not investigating the Navy’s position regarding Dr. Flynn’s refusal. As a matter of law, the United States cannot be held liable to such a bare allegation as depriving the Smiths of their constitutional rights.

Count II of the Complaint alleges that the Government breached an implied-in-fact contract through the refusal of its agent, Dr. Flynn, to give Walter Smith medical assistance. Because the Navy instructions permit the physician to decline to perform such operation, and because the Smiths did not attempt to have another Navy doctor perform the vasectomy, this Court finds that, as a matter of law, the United States cannot be said to have breached a contract with the Smiths. See Jackson v. United States, 573 F.2d 1189, 216 Ct.Cl. 25 (1978).

For all of the above reasons, the defendant’s Motion to Dismiss or in the Alternative For Summary Judgment is hereby GRANTED, and the plaintiffs’ Motion for Summary Judgment is here DENIED.

Defendant is directed to submit to this Court within ten (10) days from the date of this order a Pinal Judgment in accordance with this Memorandum Opinion and Order.


text:
    Martha RODRIGUEZ, Plaintiff, v. Margaret M. HECKLER, Secretary of Health and Human Services, Defendant.
    No. 83-2175-CIV-EPS.
    United States District Court, S.D. Florida, Miami Division.
    Nov. 14, 1984.
    Rogelio R. Oliver, Miami, Fla., for plaintiff.
    Marilynn G. Koonce, Asst. U.S. Atty., Miami, Fla., for defendant.
   MEMORANDUM OPINION AND ORDER REVERSING SECRETARY

SPELLMAN, District Judge.

THIS CAUSE is before the Court to review the final decision of the Secretary of Health and Human Services (HHS) determining that Plaintiff is not entitled to a period of disability and to disability insurance benefits under § 216(1) and § 223 of the Social Security Act, Title II, as amended.

For the reasons stated below, this Court reverses the decision of the Secretary and remands this cause to the Secretary for further proceedings, not inconsistent with this Opinion.

BACKGROUND

Plaintiff is a married white Cuban female, born December 7, 1926, who came to the United States 19 years ago. She has a sixth grade education and has worked in the United States making sandwiches and in a sewing factory.

Plaintiff was hospitalized several times following a serious motor vehicle accident in 1978. In 1979, she underwent surgery on a cancerous leg. In January, 1981, she applied for disability insurance benefits and in December, 1981, an Administrative Law Judge found she was not disabled. Review of that Order was not pursued.

In April, 1982, Plaintiff filed a second application. A hearing was held in April, 1983, an adverse Decision being published therefrom.

At the hearing before the Administrative Law Judge, Plaintiff testified that she suffered from high blood pressure, depression, and from pain in her left arm, stomach, right leg, and head due to six abdominal operations.

STANDARD OF REVIEW

In reviewing the appeal of an initial disability benefits case, the scope of review is quite limited. If there exists substantial evidence in the record to support the Secretary’s findings, they must be upheld. 42 U.S.C. § 405(g) (1983); Boyd v. Heckler, 704 F.2d 1207, 1209 (11th Cir.1983); Walden v. Schweiker, 672 F.2d 835 (11th Cir. 1982). Even if this Court finds the evidence preponderates against the Secretary’s decision, this Court must affirm if the decision is supported by substantial evidence. Substantial evidence is that amount of evidence “a reasonable person would accept as adequate to support a conclusion.” Bloodsworth v. Heckler, 703 F.2d 1233, 1239 (11th Cir.1983).

THE LAW AS IT APPLIES TO PLAINTIFF

In determining whether a claimant is disabled within the meaning of the Social Security Act, the Administrative Law Judge is guided by four considerations:

(1) the objective medical facts or clinical findings;
(2) diagnoses of examining physicians;
(3) subjective evidence of pain and disability; and
(4) the claimant’s age, education, and work history.

Boyd v. Heckler, 704 F.2d 1207, 1210 (11th Cir.1983)

In the present case, the Administrative Law Judge had before it evidence supporting all of the above considerations. Nevertheless, the Administrative Law Judge disregarded Plaintiff’s subjective complaints of pain, noting such impairments were “not really substantiated by the medical record.” See ALJ Decision at 4.

1. Subjective Complaints of Pain

At the hearing before the Administrative Law Judge, testimony was taken from the Plaintiff’s son, as well as from the claimant. Plaintiff testified that she experiences pain in the abdomen area continuously, and spends part of her time lying down. She testified the pain prevents her from going back to work. Plaintiff’s son testified he speaks to his mother once or twice a day and she frequently complains of pain.

The Administrative Law Judge found that Plaintiff’s claims of impairment, such as “heart problems and abdominal pains” were “not really substantiated by the medical record.” See AU Decision at 4. This approach ignores this Circuit’s recent decisions. Both the Fifth and the Eleventh Circuits have emphatically rejected the notion that, in order to be disabling, subjective claims of pain must be supported by objective medical evidence or by clinical or laboratory findings. Wiggins v. Schweiker, 679 F.2d 1387, 1390 (11th Cir. 1982); Walden v. Schweiker, 672 F.2d 835, 840 (11th Cir.1982); Smith v. Schweiker, 646 F.2d 1075, 1082 (5th Cir.1981). Since pain alone may give rise to a disability, the Administrative Law Judge must consider subjective evidence of pain, and failure to do so is reversible error. Walden v. Schweiker, 672 F.2d at 840.

Since the Administrative Law Judge did not consider Plaintiff’s complaints of pain to the extent that they were not objectively supported by medical evidence, this case must be reversed and remanded.

II. Proper Weight to Accord Treating Physicians’ Opinions

The Secretary’s decision calls for reversal on a second ground. Although the Administrative Law Judge must accord “substantial weight” or “considerable weight” to the opinion, diagnoses and medical evidence of claimant’s treating physimans, Wiggins v. Schweiker, 679 F.2d 1387, 1389 (11th Cir.1982), this was not done.

One of Plaintiff’s treating physicians, Dr. Diego Gasso, reported he had advised Plaintiff to stop working due to her physical limitations. He diagnosed that her abdominal pain resulted from tremendous amounts of adhesions secondary to Plaintiff’s previous surgeries; and, the pulling of her abdominal muscles over the previous scars made it very difficult for Plaintiff to work. See AU Decision at 3.

Plaintiff was also treated by Dr. Ivan Barrios. Dr. Barrios rated claimant’s permanent functional impairment equal to five to seven percent of the body as a whole in June, 1979. Dr. Barrios’ final report stated that claimant’s residual functional disability will interfere with her normal activities at work, which require significant physical effort as a sewing machine operator.

At the request of the Administration, Plaintiff was examined by Dr. Jerimiah Ben-Zvi, a cardiologist, who reported virtually normal medical findings in all areas. Despite Plaintiff’s six abdominal surgeries, Dr. Ben-Zvi found Plaintiff’s complaints of abdominal pain to be “vague” and ascribed her discomfort to “typical features of neurotic anxiety.”

Notwithstanding the opinion of Dr. Gas-so, and the opinion of Dr. Barrios that Plaintiff’s condition and residual functional disability would interfere with her normal activities as a machine operator, the Administrative Law Judge noted that even claimant’s treating orthopedist (Dr. Barrios) had failed to confirm that plaintiff was unable to perform her former job as a sewing machine operator. See AU Decision at 3. Based solely on the Administration’s consulting physicians’s report, the Administrative Law Judge concluded that Plaintiff has no impairment of the left hand severe enough to prevent her from working as a sewing machine operator or a finisher, or a sandwich maker. This is clearly an incorrect application of the proper weight to be accorded a treating physician’s diagnosis and demands reversal.

For all the above reasons, the decision of the Administrative Law Judge that Plaintiff was not entitled to disability and disability insurance benefits under § 216(1) and § 223 of the Social Security Act, Title II, is hereby reversed. This cause is remanded to the Secretary for further proceedings not inconsistent with this Order.

      . The Secretary decided that Plaintiff had failed to sustain her initial burden of proving disability. The issues of possible alternative employment and Plaintiffs ability to perform such work were never passed upon. Magistrate Nimkoff recommended that an Order be entered in favor of Plaintiffs receipt of benefits from December 29, 1981. Such an Order, however, would usurp the Secretary's statutory authority. The correct procedure is to vacate the Secretary’s decision and remand the case for further consideration not inconsistent with this Order. See Boyd v. Heckler, 704 F.2d 1207, 1211 (11th Cir.1983).

      . Additionally, Plaintiff was also evaluated by a vocational expert, Mr. Eugene Greenspan. Mr. Greenspan is a Rehabilitation Councelor involved in evaluating, training, and job placement of handicapped people. Mr. Greenspan testified that claimant was unable to return to her factory work or any equivalent level of unskilled work.


author: JOHNSTONE, District Judge.

text:
    Carrell G. DUNN, Administrator of The Estate of James Carrell Dunn, Deceased, and Brandon James Fisher--Dunn, A Minor, by and through his Grandfather, Next Friend and Administrator, Carrell G. Dunn, Plaintiffs, v. PADUCAH INTERNATIONAL RACEWAY, A Corporation, Partnership, or Sole Proprietorship, Charles Harrison d/b/a Paducah International Raceway, National Dirt Racing Association (NDRA), John Doe (A person or business or businesses which provided water trucks and water supplies for dust control and safety at the Paducah Raceway), and John Doe (A person or business or businesses which provided fire extinguishers or fire prevention and control services to the Paducah Raceway), Defendants.
    Civ. A. No. 84-0166-P.
    United States District Court, W.D. Kentucky.
    Nov. 19, 1984.
    Clay P. Graham, Stephen R. McCann and James W. Robertson of Graham & McClelland, Zanesville, Ohio, and Bryce Franklin of Williams, Housman, Sparks & Franklin, Paducah, Ky., for plaintiffs.
    Michael P. Penick of Boehl, Stopher, Graves & Deindoerfer, Paducah, Ky., for defendants.
   MEMORANDUM OPINION

JOHNSTONE, District Judge.

This action arises out of an accident on May 8, 1983, at the Paducah International Raceway in Paducah, Kentucky. The accident involved an automobile collision during one of the races at the Raceway and resulted in the death of James Carrell Dunn, one of the participants in the racing event. Dunn’s administrator seeks to recover for Dunn’s injuries and death. Jurisdiction exists under 28 U.S.C. § 1382, based upon diversity of citizenship and an amount in controversy in excess of $10,000. The matter is presently before the court on a motion for summary judgment filed on behalf of the Paducah International Raceway, Charles Harrison d/b/a Paducah International Raceway, and the National Dirt Racing Association.

The defendant’s motion for summary judgment does not turn upon the factual circumstances surrounding Dunn’s death. Instead, the motion focuses on one narrow and crucial issue: Whether a recovery against the defendants is barred by a release executed by Dunn prior to his entry in the fateful race. By signing the agreement, Dunn promised to release the defendants

from all liability to [Dunn], his personal representatives, assigns, heirs, and next of kin for any and all loss or damage, and any claim or demands therefore on account of injury to the person or property or resulting in death of [Dunn], whether caused by the negligence of the [defendants] or otherwise while the undersigned is in or upon the restricted area,- and/or competing, officiating .in, observing, working for, or for any purpose participating in the event.

Dunn also promised to assume “full responsibility for and risk of bodily injury, death or property damage due to the negligence” of the defendants. The defendants contend that the release conclusively bars a recovery. The plaintiffs respond by arguing that the release is against public policy and, therefore, void.

As a general rule, agreements which attempt to release a person from the consequences of his own negligence are invalid. See Meiman v. Rehabilitation Center, Inc., 444 S.W.2d 78 (Ky.1969). The general rule has not been applied, however, in situations involving release agreements signed by participants in racing events. See, e.g., Gore v. Tri-County Raceway, Inc., 407 F.Supp. 489 (M.D.Ala.1974); Tope v. Waterford Hills Road Racing Corporation, 81 Mich.App. 591, 265 N.W.2d 761 (1978); Seymour v. New Bremen Speedway, Inc., 31 Ohio App.2d 141, 287 N.E.2d 111 (1971); Solodar v. Watkins Glen Grand Prix Corp., 36 A.D.2d 552, 317 N.Y. S.2d 228 (N.Y.Supp.Div.1971). There are several reasons for this exception. First, the release is truely voluntary, i.e., a racer is free to refuse to participate under the conditions imposed. Solodar, 317 N.Y.S.2d at 229. Thus, it is unlike the situation where a particular need or an unequal relationship between the parties to the agreement compels or encourages participation under unfavorable conditions. Cf. Meiman, 444 S.W.2d at 78 (involving a release agreement between a. medical center and a patient requiring treatment). Moreover, the racing situation involves purely private interests and does not involve special relationships in which the public as a whole is deemed to have an interest. See Morrow v. Auto Championship Racing Association, Inc., 8 Ill.App.3d 682, 291 N.E.2d 30 (1972); Frence v. Special Services, Inc., 107 Ohio App. 435, 159 N.E.2d 785, 788 (1958). Finally, excepting racing and similar sporting competitions from the general rule against exculpatory agreements promotes the public’s interest in observing and following sporting competitions, provided that the release is truely voluntary, since without a release it is doubtful that anyone would be willing to sponsor such events. Gore, 407 F.Supp. at 492; Tope, 265 N.W.2d at 764.

Although there are no Kentucky cases dealing with a release agreement in a racing event or similar situation, the cases cited above provide overwhelming authority for finding that such agreements do not violate public policy and, therefore, are valid and enforceable. Indeed, the court has not been provided with a single case which has reached a contrary conclusion. Based upon the reasoning contained in the cases which have discussed the matter, the court finds that if the Kentucky courts were faced with the issue they would hold that the release agreement signed by Dunn is valid and enforceable. This conclusion is not altered by Kentucky’s general rule against the validity of exculpatory agreements, since the situation involved in this case represents an exception to that rule. Accordingly, this court finds that the release agreement bars the plaintiffs from recovering against the Paducah International Raceway, Charles Harrison d/b/a Paducah International Raceway and the National Dirt Racing Association.

There being no genuine issues of material fact and the court having determined that the defendants named above are entitled to judgment as a matter of law, an order will be entered granting the defendants’ motion for summary judgment.

      . The court is aware of the inclusion of two John Doe defendants in the plaintiffs’ complaint; however, it concludes that the John Does do not destroy diversity jurisdiction. The plaintiffs have at least stated that the John Does are citizens of states other than that of the plaintiffs, and there is no indication that the John Does were intended as a means of artificially obtaining jurisdiction in this court. The plaintiffs apparently proceeded in this manner with the hope of later amending the complaint to substitute the names of real defendants once the proper identities had been discovered; however, the naming of the John Does does not provide the plaintiffs with any amendment rights that they did not already possess. See Fed.R.Civ.P. 15. Accordingly, until an amendment adding additional defendants has been permitted by the court, the John Doe allegations are merely "surplusage,” and do not affect diversity jurisdiction. See Hannah v. Majors, 35 F.R.D. 179, 180 (W.D.Mo.1964).