text:
    UNITED STATES of America, Plaintiff, v. ALLSTATE INSURANCE CO., Defendant.
    No. C-84-0860.
    United States District Court, D. Hawaii.
    April 16, 1985.
    Asst. U.S. Atty. Peter Axelrod, Honolulu, Hawaii, for plaintiff.
    Richard Sutton, Jr., Honolulu, Hawaii, for defendant.
   ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

QUACKENBUSH, District Judge, Sitting by Designation.

AS SCHEDULED, the parties’ cross-motions for summary judgment came on for oral argument in Honolulu, Hawaii on February 19, 1985. Assistant United States Attorney Peter Axelrod appeared on behalf of the government; the defendant was represented by Richard Sutton.

Based upon the record and the oral presentations of counsel, and for the reasons discussed below, the court rules as follows: the government’s motion for summary judgment is DENIED; defendant Allstate Insurance Company’s motion for summary judgment is GRANTED.

FACTUAL BACKGROUND

On August 21, 1982 Thomas L. Stratham was injured when he lost control of his motorcycle while riding at Bellows Air Force Station, Hawaii. No other persons or vehicles were involved in the accident. Stratham, a member of the United States Navy, was initially treated at a nearby civilian hospital but was then transferred to Tripler Army Medical Center, Hawaii, where he was hospitalized for six days. As required by law, the United States paid for Stratham’s treatment at the civilian facility ($168.10) and did not charge him for the costs ($2,436.00) of the medical services provided at the military hospital.

In February 1983, the United States submitted a claim in the amount of $2,604.10 (civilian and military medical expenses) to defendant Allstate Insurance Company (Allstate), the insurer of Stratham’s motorcycle. Allstate responded by tendering a check in the amount of $168.10 as reimbursement for the civilian treatment only, and refused to pay for the services rendered at the army facility. The government declined the partial payment, and in August 1984 initiated this action to recover the total amount expended for Stratham’s treatment. Allstate denies that it is obligated to pay the military treatment portion of the claim.

DISCUSSION

While this case does involve an issue of first impression under Hawaii law, there is nothing novel about the United States’ claim for reimbursement for expenses incurred in the treatment of injured service personnel. Note, The Medical Care Recovery Act in No-Fault Automobile Insurance Jurisdiction: Extensions of the Federal Right of Reimbursement Against No-Fault Insurers, 21 B.C.L.Rev. 623, 631 n. 49 (1980) (thousands of claims submitted annually).

The principal tool utilized by the government to collect those claims is the Federal Medical Care Recovery Act (FMCRA). 42 U.S.C. §§ 2651-2653 (1976). Simply stated, that act creates an independent right in the United States to recoup any sums spent for the medical care of an injured serviceman from a third-party tortfeasor. As an alternative to its federal statutory right, the government also relies on a non-federal basis for recovery, asserting a right under a state statute or under contract law. Specifically, the United States claims rights as an “insured” or as an intended third-party beneficiary of the insurance contract between the servicemember and the insurance company. Inasmuch as the FMCRA is not applicable to the facts of this case, the plaintiff has focused entirely on the language of Hawaii’s no-fault law and Stratham’s insurance policy. Consequently, the government’s claim for reimbursement must turn on an interpretation of the no-fault statute and the Allstate policy.

The government offers two primary arguments in support of its claim to reimbursement. First, it argues that it is entitled to benefits from Stratham’s policy by the language of Hawaii’s no-fault insurance law. The plaintiff’s second argument is that the United States should be reimbursed as an intended third-party beneficiary of that insurance policy. Each of these contentions will be addressed separately.

1. Hawaii’s No-Fault Law:

In 1973 the Hawaii legislature enacted its first comprehensive no-fault insurance law. The stated purpose of that law is “to create a system of reparations for accidental harm and loss arising from motor vehicle accidents, to compensate these damages without regard to fault, and to limit tort liability for those accidents.” Hawaii Rev.Stat. § 294-1. The effect of that law is to create a two-tiered system for recovery of personal injury losses from vehicle accidents. For such losses less than or equal to $15,000, an injured person’s exclusive remedy is an insurance claim — tort liability is abolished. For losses in excess of $15,000 an injured person is free to seek damages in tort or payment under his insurance policy. Because the government’s claim here is $2,604.10, the provisions of the no-fault law control.

Hawaii’s no-fault law states that “every person, insured under this chapter ... suffering loss from accidental harm [from a motor vehicle] ... has a right to no-fault benefits.” Hawaii Rev.Stat. § 294-3(a). Those benefits include, inter alia, “[a]ll appropriate and reasonable expenses necessarily incurred for medical, hospital, surgical, professional nursing, dental, optometric, ambulance, prosthetic services, products and accommodations furnished____” Hawaii Rev.Stat. § 294-2(10)(A). The fact that Stratham “incurred” no expenses for the medical care furnished is not, as the defendant argues, determinative of whether the government is entitled to benefits. Clearly, the government “incurred” an expense in the form of services rendered. United, States v. California State Automobile Association, 530 F.2d 850, 851 n. 1 (9th Cir.1976). The critical question here is whether the United States is a “person, insured under this chapter ... suffering loss from accidental harm.” Hawaii Rev. Stat. § 294-3(a).

Allstate argues that the plaintiff is not a “person, insured” and has not suffered any “accidental harm.” This court agrees. Although there is no statutory definition of “persons, insured under this chapter,” a reading of the statute as a whole leads this court to conclude that only the following persons are “insured”: those persons identified by name in the policy; a spouse or other relative residing in the same household with the named insured; operators, occupants, or users of the insured vehicle; and pedestrians, bicyclists or moped operators injured by the insured vehicle. The United States does not fall within any of those categories.

Additional support for the court’s conclusion that the United States’ claim is not covered by the no-fault law is the statutory definition of “accidental harm.” Section 294-2(1) defines “accidental harm” as “bodily injury, death, sickness, or disease caused by a motor vehicle accident to a person.” Obviously, the United States cannot, and does not, argue that it has suffered such harm. Rather, the United States argues that it has suffered a “loss” (the cost of the medical services) as the result of the “accidental harm” suffered by Stratham. Hawaii Rev.Stat. § 294-3. While that argument is not without some appeal, it has, however, been rejected by the Supreme Court of Hawaii. In Wong v. Hawaiian Insurance Companies, 64 Haw. 189, 637 P.2d 1144 (1981) the court stated “ ‘loss from accidental harm’ referred to in HRS § 294-3(a) means a loss which is sustained by the person injured.” Stratham— not the United States — is the “person injured.” It is his “loss” (zero in this case) which is compensable under the statute— not the loss of the United States. Accordingly, the plaintiff is not entitled to reimbursement under the language of Hawaii’s no-fault law.

2. The Insurance Policy:

The next question to be resolved is whether the United States is entitled to benefits as a third party beneficiary of Stratham’s policy. The threshold question, not addressed by the parties, is whether Hawaii or federal law should be applied. Since the United States invoked this court’s jurisdiction under 28 U.S.C. § 1345, this suit is not controlled by Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) and application of Hawaii law is not mandated. United States v. State of California, 655 F.2d 914, 916-917 (9th Cir.1980). Nevertheless, as there are no appropriate federal rules governing the interpretation of insurance contracts, the court must look to the substantive law of Hawaii. United States v. Nationwide Mutual Insurance Co., 499 F.2d 1355, 1356-57 (9th Cir.1974).

Hawaii courts have adopted the law of third-party contract beneficiaries as set forth in Section 302 of the Restatement (Second) of Contracts (1981). See Harris v. Waikane Corp., 484 F.Supp. 372 (D.Hawaii 1980); Jones v. Don L. Gordon Corp., 60 Hawaii 12, 586 P.2d 1024 (1978). Section 302, applied to this action, states in pertinent part:

Unless otherwise agreed between promisor [Allstate] and promisee [Stratham], a beneficiary [United States] of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and ... the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

The issue then is whether Stratham intended to benefit the United States.

To demonstrate Stratham’s intent the government has relied solely on the language of the insurance policy. The government does not contend that the designation of the United States Navy as “employer” on Stratham’s application for insurance manifests his intent to benefit the United States. Rather, the plaintiff argues that Stratham’s intent is evidenced by the fact he signed a contract which obligates Allstate to provide no fault benefits “on account of accidental harm sustained by an eligible injured person” and that the United States falls within that category of beneficiaries. Essentially, that is the same argument the government makes in regard to the no-fault statute and for similar reasons it must be rejected as applied to the insurance contract.

The United States is not an “eligible injured person” as that term is defined in the policy. To be categorized as such the government would have to be a named insured, a relative who resides with the named insured, or “any other person who sustains accidental harm arising out of the operation, maintenance or use of the ... the insured motor vehicle.” Assuming without deciding that the government is “any other person”, it has not sustained “accidental harm”, i.e., it has not sustained any “bodily injury, death, sickness, or disease.” Thus, it is not an “eligible injured person.” Since Allstate only promised to pay no-fault benefits to “eligible injured persons”, the United States is not an intended beneficiary of the promised performance. Consequently, the plaintiff is not a third-party beneficiary of the no-fault coverage in Stratham’s insurance contract.

Accordingly, the court concludes that the United States is not entitled to reimbursement under the insurance policy. The plaintiffs motion for summary judgment is DENIED; the defendant’s summary judgment motion is GRANTED. Judgment shall be entered in favor of the defendant.

IT IS SO ORDERED. The Clerk is directed to enter this Order and forward copies to counsel.

      . The federal government is required to provide free medical care to injured members of the United States armed forces. 10 U.S.C. §§ 1071-1087 (1976).

      . As discussed infra, the United States’ entitlement to the claimed benefits turns on the interpretation of Hawaii law. The resolution of the novel issue presented here obviously has implications beyond the $2,604.10 involved in this case. For that reason, it would be appropriate to certify the question to the Hawaii Supreme Court to allow that court the opportunity to set the precedent. See United States v. Travelers Indemnity Co., 253 Ga. 328, 320 S.E.2d 164 (1984) (on certification from the United States Court of Appeals for the Eleventh Circuit, held that United States was not entitled to reimbursement); United States v. Criterion Insurance Co., 198 Colo. 132, 596 P.2d 1203 (1979) (on certification from the United States Court of Appeals for the Tenth Circuit, held that United States was third-party beneficiary of no-fault insurance policy). Unfortunately, the Hawaii Supreme Court accepts issues certified only from federal appellate courts. Haw.Rev.Stat. § 602-36; Haw. Rules of App.Pro. 13(a).

      . For a detailed discussion of FMCRA see Bernzweig, Public Law 87-693: An Analysis and Interpretation of the Federal Medical Care Recovery Act, 64 Colum.L.Rev. 1257 (1964).

      . The government’s alternate theory of recovery has had mixed results. See e.g., United States v. Metropolitan Life Insurance, 683 F.2d 1250 (9th Cir.1982) (United States not entitled to recover as third-party beneficiary); United States v. Dairyland Insurance Company, 674 F.2d 750 (8th Cir.1982) (no recovery on third-party beneficiary theory); Heusle v. National Mutual Insurance Co., 628 F.2d 833 (3rd Cir.1980) (United States not third-party beneficiary of statute or insurance policy); United States v. Government Employees Insurance Co., 605 F.2d 669 (2nd Cir.1979) (United States entitled to reimbursement); United States v. Government Employees Insurance Co., 461 F.2d 58 (4th Cir.1972) (United States held entitled to recover as third-party beneficiary); United States v. State Farm Mutual Automobile Insurance Co., 455 F.2d 789 (10th Cir.1972) (United States’ expenses reimburseable as a third-party beneficiary).

      . FMCRA creates a right in the United States as against third-party tortfeasors. The elimination of tort liability in no-fault insurance jurisdictions has stirred a debate (and conflict among the courts) as to whether no-fault laws have abrogated that federal right. See Note, The Medical Care Recovery Act in No-Fault Automobile Insurance Jurisdictions: Extensions of the Federal Right of Reimbursement Against No-Fault Insurers, 21 B.C.L.Rev. 623 (1980). That troublesome issue,. however, is not before this court. Since Stratham’s accident involved no other vehicles or persons, the United States could not rely on FMCRA even in the absence of Hawaii’s no-fault law. In other words, the fact that Hawaii has eliminated tort liability for some accidents is immaterial to this case. The only reason the court must focus on the language of Hawaii's no-fault statute is simply because that statute governs accidents involving damages of $15,000 or less.

      . The court’s ruling applies only to the policy’s no-fault coverage. Had the government expended more than $15,000 for Stratham’s medical care other provisions of the policy would have been applicable and the result may have been different. See United States v. California State Automobile Association, 530 F.2d 850 (9th Cir.1976) (policy language almost identical to the “Liability Protection” provision of Stratham’s policy held to entitle United States to reimbursement for medical expenses of insured serviceman.)


source: Caselaw Access Project

author: JOSEPH H. YOUNG, District Judge.

license: Public Domain

text:
    PYRAMID CONDOMINIUM ASSOCIATION v. William MORGAN, et al.
    Civ. No. Y-84-1719.
    United States District Court, D. Maryland.
    April 16, 1985.

      John E. Fricker, Fairfax, Va., and Charles E. Rosolio, Towson, Md., for plaintiffs.
    Howard G. Goldberg and Ralph L. Arnsdorf, Baltimore, Md., for defendants William Morgan and William Morgan Architects, P.A.
    Jay I. Morstein and Deborah L. Robinson, Baltimore, Md., for defendant A.T.E.C. Associates.
    James R. Eyler, Baltimore, Md., for defendant Maryland Nat. Bank.
    Stephen J. Immelt and V. Charles Rinaudo, Baltimore, Md., for defendant Loyola Federal Sav. and Loan Ass’n.
    James A. Rothschild, Baltimore, Md., for defendants Robert E. Scherrer and Scherrer Engineering.
    Samuel K. McCune, Pittsburgh, Pa., for defendant AVM Corp. of Maryland, Inc.
    Mark P. Friedlander, Jr., Arlington, Va., and Patrick G. Cullen, Baltimore, Md., for defendant Atchison & Keller, Inc.
    George P. Adams, Baltimore, Md., for defendant Howard P. Foley Co.
   MEMORANDUM

JOSEPH H. YOUNG, District Judge.

I. PROCEDURAL BACKGROUND

This diversity action was brought by the Pyramid Condominium Association Council of Unit Owners (“Pyramid”) against William Morgan, William Morgan Architects, P.A. (hereafter referred to collectively as “Morgan”), and A.T.E.C. Associates, Inc. (“ATEC”). The plaintiff seeks money damages for alleged injuries to the common elements and to the air-conditioning system of the Pyramid Condominium located in Ocean City, Maryland. Pyramid also alleges that these injuries were occasioned by the negligence, breach of contract, breach of warranty, fraud, and other acts or omissions of the defendants. Plaintiff has also brought suit in the Circuit Court for Baltimore City, naming Morgan and ATEC as defendants along with six other parties including Loyola Federal Savings and Loan Association (“Loyola”), Maryland National Bank (“Maryland National”), the Farms-Worcester Joint Venture (“Farms”), Scherrer-Baumann Engineering (“Scherrer”), AVM Corporation of Maryland (“AVM”), and Atchison and Keller (“AK”). Pyramid v. William Morgan, et al, Action No. 84-121-028/L-19893. The allegations in the state action are similar to those in the federal complaint even though the federal case names only Morgan and ATEC as defendants.

Defendants Morgan and ATEC subsequently filed third-party complaints for indemnification and contribution against each of the parties sued by the plaintiff in state court, many of whom were not sued by the plaintiff in federal court because of the diversity jurisdictional requirement inherent in 28 U.S.C. § 1332. Morgan’s third-party complaint specifically incorporates by reference the allegations of the plaintiff’s state declaration. Similarly, defendant ATEC’s third-party complaint is accompanied by, and incorporates, the previous pleadings filed in this case.

Specifically, the plaintiff’s state complaint alleges that all eight defendants are liable for some negligence, breach of contract, breach of warranty, fraud, strict liability, and misrepresentation in the design, construction, and sale of the Pyramid Condominium complex. Defendants allege in their third-party complaints that the six third-party defendants are liable to them for full indemnification or contribution if the defendants are found to be liable to the plaintiff in this Court.

Two of the third-party defendants, Loyola and Maryland National, have filed motions to dismiss the third-party complaints of Morgan and ATEC. The thrust of these motions to dismiss is that the third-party complaints of the defendants fail to set forth sufficient facts from which a trier of fact could infer liability of the third-party defendants to the third-party plaintiffs, and that the third-party plaintiffs are not entitled to either indemnification or contribution from Loyola or Maryland National because of their “active and/or intentional misconduct,” and because their third-party claims are not derived from any cognizable claim that the plaintiff has against the third-party defendants in this forum.

II. FACTUAL BACKGROUND

In 1973, the City of Ocean City, Maryland, approved a building permit which allowed Farms-Worchester to begin construction of the Pyramid Condominium complex at 9500 Coastal Highway in Ocean City. Soon thereafter, construction on the complex began with Farms-Worcester as the developer and principal construction contractor. Morgan served as the architect on the project, and ATEC acted as the material and geophysical engineer. Typically, there was both construction financing and “gap” financing for the expected period of time between completion of the construction cycle and the eventual sale of all units in the building. Maryland National provided the construction financing and Loyola provided the “gap” financing.

On May 7, 1975, Loyola purchased the promissory note on the project held by Maryland National. (State Complaint ¶ 4). There is no dispute that the construction cycle for the Pyramid complex had been completed before Loyola purchased the note. The City of Ocean City had issued an occupancy permit on May 5, 1975 (Plaintiffs Exhibit 1) and the engineers retained by Maryland National to inspect the project had issued a report dated May 2, 1975 which certified that Pyramid had been substantially completed in accordance with the project’s plans and specifications. (Plaintiff’s Exhibit 2). Subsequently, Farms-Worcester, the construction contractor, defaulted on its construction loan; Loyola foreclosed on the note it had purchased from Maryland National and went into possession of the Pyramid Condominium complex. (State Complaint If 15).

Loyola then sold units of the Pyramid Condominium to individual purchasers and transferred ownership of the common elements of the condominium. Control and maintenance of the common elements of the Pyramid Condominium subsequently was assumed by the Pyramid Condominium Association, Council of Unit Owners, the plaintiff in this case. (State Complaint 1f 16). The plaintiff now alleges that there are numerous defects in the Pyramid building for which the defendants are responsible and about which they had knowledge. These alleged defects give rise to the instant complaint and include: flaking concrete, corrosion of reinforcing rods, roof leaks, settlement cracks, corrosion of windows and handrails, water damage due to excessive intrusion of water through exterior walls, and an air-conditioning system that was improperly designed and installed. (Federal Complaint ¶ 12). Plaintiff also alleges that none of the alleged defects was “open and obvious” upon inspection. (¶ 10).

III. THE THIRD-PARTY CLAIMS OF DEFENDANTS MORGAN AND ATEC AGAINST THIRD-PARTY DEFENDANTS LOYOLA AND MARYLAND NATIONAL

A. The Claims for Indemnification from Loyola

Both defendants Morgan and ATEC have filed claims for indemnity against Loyola and Maryland National in their third-party complaints. Maryland law recognizes a right to indemnity independent of any contract where the character of one tortfeasor’s conduct is significantly different from that of another who is also liable for the same damages. Blockston v. United States, 278 F.Supp. 576, 585 (D.Md.1968); Gardenvillage Realty v. Russo, 34 Md.App. 25, 366 A.2d 101 (Md.Ct.Spec.App. 1976). A party may be entitled to receive indemnification where his own conduct, although negligent, is considered to be passive or secondary. In Blockston, the district court determined that:

The area in which a party held liable for negligence may pass that liability on to another negligent party is closely circumscribed. It encompasses a group of special situations and relationships where it has seemed reasonable to impose an ultimate responsibility on a party seeming to have played the active role in the negligence situation in favor of one who is made answerable to the injured party, but whose part in the event is passive or arises from the effect of public policy, contract, or status.

278 F.Supp. at 585 (quoting Guarnieri v. Kewanee-Ross Corp., 263 F.2d 413 (2d Cir.1959)).

A right to indemnity may arise where one party is vicariously liable for the conduct of another person but did not participate in any way in the actions giving rise to the tort. See Prosser and Keeton, Law of Torts § 51, at 341-42 (5th ed. 1984). Also, the Fourth Circuit noted in Jennings v. United States, 374 F.2d 983, 987 n. 7 (4th Cir.1967) that:

A right to indemnity is commonly recognized where, although both parties are negligent, the negligence of the indemnitee is not considered as serious as that of the indemnitor; for example, where the indemnitee’s negligence is based upon a failure to inspect and thereby discover a defect in an article manufactured by the indemnitor.

Id. (citing 3 Moore, Federal Practice ¶ 14.11 (2d ed. 1964).

Thus, it is abundantly clear that a defendant may seek indemnification only when its liability is passive or secondary, which liability is rooted in the concept of imputed or constructive fault. Tesch v. United States, 546 F.Supp. 526, 529 (E.D.Pa.1982). The determination of whether a tortfeasor’s negligence is active or passive must be made by referring to the plaintiff’s complaint against the defendant seeking to implead the third party. See id. If the plaintiff’s complaint alleges conduct by the third-party plaintiff that would constitute active negligence, or if it is clear from the circumstances revealed by the plaintiff’s complaint that the defendant’s (third-party plaintiff) liability would only arise, if at all, from proof of active negligence, there is no basis for an indemnity claim and dismissal of the claim is appropriate. See id.; Principe v. United States, 207 F.Supp. 301, 303 (E.D.N.Y.1962).

The allegations in Pyramid’s state declaration as incorporated in Morgan’s third-party complaint as well as the allegations in Pyramid’s federal complaint preclude any legitimate indemnity claim by Morgan against Loyola. The plaintiff has not specifically alleged that Morgan is liable vicariously or that Morgan engaged in acts constituting passive negligence only; nor is defendant Morgan situated in the sequence of events in such a way as to allow a trier of fact to conclude that it is liable under any theory other than one of active negligence. Pyramid’s complaint alleges that Morgan participated in both the design and construction of the building and as a result had knowledge of the substandard and faulty construction. Thus, a judgment in favor of Pyramid against Morgan on the counts in its complaint involving unintentional acts or omissions would arise only upon proof of active negligence by Morgan.

Based on its third-party complaint, there are insufficient facts to support even a minimally legitimate indemnity claim by Morgan against Loyola. Moreover, the Court is unable to foresee the discovery of any evidence or the development of any facts at trial which would establish simultaneously Morgan’s liability on the basis of passive negligence and Loyola’s liability on the basis of active negligence. Morgan is alleged to have been an indispensable party to and direct participant in, the construction of the Pyramid complex during at least some critical stages of the building project. In contrast, Loyola had no cognizable interest in the Pyramid project while it was under construction. More significantly, even if Loyola were to be found to have engaged in active negligent conduct, Morgan still would not be entitled to indemnification from Loyola on the counts alleging such conduct because a finding of liability against Morgan would necessarily be based on its role as an active and actual tortfeasor for whom indemnity is not available. Tesch, 546 F.Supp. at 529. See also Baltimore and Ohio R.R. Company v. Howard County, 113 Md. 404, 77 A. 930 (1910); 12 MLE, Indemnity § 6, at 164 (1961). Also, it is widely held that indemnification is not available to intentional or grossly negligent tortfeasors. Prosser, Law of Torts, at 312 (4th ed. 1971). See 12 MLE, Indemnity § 6, at 164 (citations omitted). Consequently, indemnification is not available to defendant Morgan from Loyola concerning either the negligence or intentional tort claims made against it by Pyramid.

Defendant ATEC’s claim for indemnity is equally unavailing. The allegations made against ATEC in Pyramid’s federal complaint (which are adopted by ATEC in its third-party complaint) preclude the maintenance of a viable indemnity claim against Loyola by ATEC. In its complaint, Pyramid has not alleged specifically that ATEC engaged in acts constituting only passive negligence nor can such an inference reasonably be drawn from the allegations in the complaint. Pyramid’s complaint alleges that ATEC participated directly in the construction of the condominium building including the testing of subsurface conditions and concrete. (Plaintiff’s Complaint 113). If defendant ATEC is liable in any way, it is liable for active negligence or for having committed an intentional tort and therefore may not be indemnified. Tesch, 546 F.Supp. at 529; Prosser (4th ed.), at 312. See. Blockston, 278 F.Supp. at 585; 12 MLE, Indemnity § 6, at 164 (citing Baltimore and Ohio R.R. Company, 113 Md. at 404, 77 A. 930).

It is well recognized that pleadings should be construed in the light most favorable to the non-moving party and that all doubts should be resolved in favor of the sufficiency of the complaint when considering a motion to dismiss. See, e.g., Gardner v. Toilet Goods Association, 387 U.S. 167, 87 S.Ct. 1526, 18 L.Ed.2d 704 (1967). Nonetheless, defendants’ conclusory allegations that they are entitled to indemnity need not be admitted in resolving the outstanding motions to dismiss offered by the third-party defendants here. See Tamari v. Bache and Co. (Lebanon) S.A.L., 565 F.2d 1194, 1198-99 (7th Cir.1977). “Sweeping conclusions cast in the form of factual allegations” need not be accepted for the purpose of establishing the sufficiency of the defendant’s third-party claims for indemnification. See Pauling v. McElroy, 278 F.2d 252, 253-54 (D.C.Cir.1960). Instead, they must be evaluated in light of the factual allegations and claims that are made. Wilson v. Lincoln Redevelopment Corporation, 488 F.2d 339, 341 (8th Cir.1973).

In this case, the facts alleged in the plaintiff’s complaint indicate that defendants Morgan and ATEC are liable, if at all, as active and/or intentional tortfeasors for whom indemnification from Loyola is not available. See, e.g., Tesch, 546 F.Supp. at 529.

Accordingly, Count I of defendant Morgan’s third-party complaint and defendant ATEC’s third-party complaint for indemnification against Loyola will be dismissed.

B. Defendants’ Third-Party Claims for Indemnity Against Maryland National

Defendants’ third-party complaints for indemnification from Maryland National must also be dismissed even though this third-party defendant is not similarly situated to Loyola in some aspects of this litigation. Unlike Loyola, Maryland National is situated in the sequence of events such that it could be held to have been “actively” negligent in discharging its responsibilities as the primary construction lender during the construction phase of the Pyramid project. However, the degree and nature of Maryland National’s potential culpability is not dispositive in determining whether or not the defendants are entitled to be indemnified in the event they are found to be liable to Pyramid. The character of the third-party plaintiff’s own liability is an equally material issue. As noted earlier, the defendants’ liability to the plaintiff is necessarily based on proof of defendants’ active negligence or intentionally tortious conduct; thus, defendants are precluded from obtaining indemnification from the third-party defendants, regardless of the nature of the third-party defendants’ conduct. Maryland National’s potential liability for active negligence and intentional tort does not establish the defendants’ right to indemnity in the absence of passive

or secondary negligence on the part of the defendants, although Maryland National’s alleged active negligence may preclude it from effectively pursuing an indemnity claim of its own (in a forum where such a claim could properly be raised). Tesch, 546 F.Supp. at 529; Prosser (4th ed.), at 312; see Blockston, 278 F.Supp. at 585; 12 MLE, Indemnity § 6, at 164 (citing Baltimore and Ohio R.R. Company, 113 Md. at 404, 77 A. 930).

After evaluating and reviewing the defendants’ indemnity claims in the context of the factual allegations made in this case, Wilson, 488 F.2d at 341, it is clear that the Court need not, and indeed, should not accept these claims as sufficient to establish the defendants’ right to indemnity in light of the allegations of active negligence and intentional tort made against them by the plaintiff. Pauling, 278 F.2d at 253-54. Thus, defendants’ third-party claims for indemnification from Maryland National will be dismissed.

C. Defendants’ Third-Party Claims for Contribution Against Loyola and Maryland National

Defendants’ third-party claims for contribution against Loyola and Maryland National will be dismissed. In Maryland, a right of contribution exists among tort-feasors under the Uniform Contribution Among Tort-Feasors Act, Md.Ann.Code Art. 50, § 17(a) (1957). It is a derivative right and not an entirely new cause of action. 5A MLE Contribution § 4, at 437 (numerous citations omitted); accord Fischbach and Moore Intern v. Crane Barge R-U, 476 F.Supp. 282, 287 (D.Md.1979), aff'd, 632 F.2d 1123 (4th Cir.1980) (construing the right of contribution under maritime law). This Court has noted that “any entitlement to contribution which a concurrent wrongdoer may have from another culpable party arises from the duty each of the wrongdoers owes to the injured party, as opposed to the obligation running among themselves.” Id. at 287. When a plaintiff has no right of action against a third party, there can be no contribution entitling the defendant to join the third party as a defendant under the Uniform Act, notwithstanding the fact that liability under the Act may be joint or several. 5A MLE Contribution § 4, at 437.

This case stands in an unusual and peculiar procedural posture because Pyramid cannot assert any claims directly against Loyola and Maryland National because of the complete diversity jurisdictional requirement and the prohibition against the assertion of pendent party claims in federal diversity cases. See Owen Equipment and Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978). Consequently, the plaintiff does not have an effective right of action against the third-party defendants in this forum; therefore, the right to contribution which the defendants have asserted clearly is not derivative of any liability Loyola and Maryland National may have to the plaintiff arising from this case. The third-party defendants therefore may not be joined in this action by way of a claim for contribution. Impleader under Rule 14 of the Federal Rules of Civil Procedure is procedural and does not create in itself a substantive right of contribution. See 3 Moore, Federal Practice ¶ 14.03[1] (1984). Accordingly, defendants’ third-party claims for contribution against Loyola and Maryland National will be dismissed.

D. Third-Party Plaintiffs Claims With Respect to Punitive Damages

Additional grounds exist for dismissing the third-party claims of Morgan and ATEC to the extent that they seek contribution for punitive damages. Third-party plaintiffs Morgan and ATEC seek indemnification or contribution from Loyola with regard to any punitive damage judgment which may be entered against them in this case. Counts XV and XVI of the plaintiffs complaint request punitive damages for fraud in connection with the failure to disclose defects in the common elements of the Pyramid complex and in the air-conditioning system.

Maryland law holds that a defendant against whom punitive damages have been awarded may not seek contribution from other defendants. In Embrey v. Holly, 293 Md. 128, 442 A.2d 966 (1982), the Maryland Court of Appeals touched on this issue in its review of a jury verdict for a plaintiff in a defamation action brought against a radio celebrity and his corporate employer. Having found for the plaintiff, the jury awarded punitive damages against both the individual defendant and his corporate employer in differing amounts. On appeal, the corporate employer argued that the trial court had erred in permitting the jury to enter separate punitive damage awards against the defendants and that punitive damages should be subject to the traditional principle of joint and several liability which permits a joint tortfeasor to obtain contribution from co-defendants. The Court of Appeals rejected that argument, holding instead that a jury may apportion punitive damages among multiple defendants.

Many states, in recognition of these principles, have adopted the rule that punitive damages may be apportioned between wrongdoers either by providing varying amounts of such awards or by levying exemplary damages against some of the defendants but not others. In our view, this is the most sensible approach to the subject, for punitive damages, in order to be fair and effective, must relate to the degree of culpability exhibited by a particular defendant and that party’s ability to pay. Punitive damages, in essence, represent a civil fine, and as such, should be imposed on an individual basis.

293 Md. at 141-42, 442 A. 966 (citing Logan v. State, 289 Md. 460, 480-87, 425 A.2d 632 (1981). This holding implicitly precludes a claim for contribution in connection with the award of punitive damages.

At trial, Morgan and ATEC may attempt to reduce their own exposure to punitive damages, if punitive damages are assessed, by attempting to show that other defendants are more culpable. If such damages are awarded, they will be awarded on an individual basis relating specifically to each defendant’s own conduct. Contribution will not be available from any other defendant. For this reason, the third-party plaintiffs’ complaint must be dismissed insofar as they seek contribution from the third-party defendants for punitive damages pursuant to Counts XV and XVI of Pyramid’s incorporated federal complaint.

E. Indemnity and Contribution For Breach of Contract

The third-party plaintiffs have also been charged with breach of contract in Counts III and IV of the plaintiff’s corn-plaint and now seek indemnification or contribution with regard to these claims from the third-party defendants. The Court is unaware of any common law right of indemnity or statutory right of contribution under Maryland law that may be exercised by a defendant found liable for breach of contract in the absence of a material breach of contract by a third party which causes or otherwise occasions the defendant’s breach of it’s contract with the plaintiff. Accordingly, the third-party complaints concerning claims for breach of contract will be dismissed.

      . In its Memorandum in Response to the Third-Party Defendants' Motions to Dismiss, defendant Morgan expresses the concern that it may be collaterally estopped from filing a cross-claim against Loyola and Maryland National in the state action if the third-party defendants’ motions to dismiss are granted and Pyramid is able to pursue its state action. Morgan Response Memorandum, p. 5. The Court’s narrow holding here should not bar defendants from pursuing any contribution claims brought in state court on the defendants' own initiative or in the context of a state action reinstigated by the plaintiff. This holding, as it concerns the third-party claims for contribution, is specifically predicated on the fact that the defendants’ purported rights to contribution from the third-party defendants are not derived from any right of action which Pyramid could maintain against Loyola and Maryland National in this forum because of the procedural and jurisdictional obstacles which prevent it from asserting any non-federal claims against non-diverse parties.
      In addition to its Response to the Third-Party Defendants’ Motions to Dismiss, defendant Morgan has moved in the alternative for partial summary judgment to the effect that Loyola and Maryland National are not liable to the plaintiff in this case or in the state case "as a result of any alleged error or omission on their part or on Morgan’s part.” Morgan’s Motion for Partial Summary Judgment, p. 2, ¶ 2. As this opinion has made clear, summary judgment is unnecessary with regard to any liability Loyola and Maryland National may have to Pyramid because neither Pyramid or the defendants may maintain claims against the third-party defendants in this forum. Additionally, summary judgment is inappropriate with regard to any issue of ultimate liability raised in the state proceeding which is not properly before this Court for adjudication.

      . Any indications contrary to this apportionment rule perceived in the addendum to Nance v. Gall, 187 Md. 656, 674-77, 50 A.2d 120 (1946), were expressly disapproved by the Embrey court. 293 Md. at 143 n. 17, 442 A.2d 966.


author: SPRIZZO, District Judge.

text:
    In re AM INTERNATIONAL, INC. SECURITIES LITIGATION. E.D. DUBOWSKI, et al., Plaintiffs, v. Roy L. ASH, et al., Defendants. MADISON FUND, INC., Plaintiff, v. NEW COURT SECURITIES CORPORATION, et al., Defendants. Price WATERHOUSE, Third-Party Plaintiff, v. Richard B. BLACK, Third-Party Defendant. Richard B. BLACK, Plaintiff, v. Roy L. ASH, et al., Defendants.
    Nos. MDL 494(JES), 81 Civ. 7024(JES), 82 Civ. 2168(JES) and 82 Civ. 2532(JES).
    United States District Court, S.D. New York.
    April 16, 1985.

      Pomerantz, Levy, Haudek, Block & Grossman, New York City, for plaintiff Herman Kahan; Stanley M. Grossman, Bruce G. Stumpf, New York City, of counsel.
    Milberg, Weiss, Bershad & Specthrie, New York City, for plaintiff Marcus Weisman; Jared Specthrie, New York City, of counsel.
    Greenfield & Chimicles, P.C., Bala Cynwyd, Pa., for plaintiff E.D. Dubowski.
    Berger & Montague, P.C., and Saul, Ewing, Remick & Saul, Philadelphia, Pa., for plaintiffs Robert Blakeney as Custodian for Lori Blakeney, David Francis, Marie Mitchell, James Pettit and George Wike; Stanley R. Wolfe, Philadelphia, Pa., of counsel.
    Bader & Bader, White Plains, N.Y., for plaintiffs Robert G. Morris and Mari Kay Morris, as Trustees for Robert G. Morris D.D.S. Inc. Pension Plan and Trust.
    Harvey Greenfield and Kaufman, Malchman & Kirby, P.C., New York City, for plaintiff Herbert Silverberg.
    Wolf, Popper, Ross, Wolf & Jones, and Abbey & Ellis, New York City, for plaintiff Robert Hyman; Arthur N. Abbey, New York City, of counsel.
    Kass, Goodkind, Wechsler & Labaton, New York City, for plaintiffs William A. Kass and Daniel Kass as Trustees F/B/O Sarah Kass.
    Bizar & D’Alessandro, New York City, for plaintiff Frederick Rand.

      Abraham J. Brill, New York City, for plaintiff Meta Morrison.
    Bar & Bello, New York City, for plaintiffs Robert Pollock and Carol Pollock.
    Wachtell, Lipton, Rosen & Katz, New York City, for plaintiff Madison Fund, Inc.; Herbert M. Wachtell, Douglas S. Liebhafsky, Peter C. Hein, Marc Wolinsky, New York City, of counsel.
    Chapman & Cutler, Chicago, 111., for plaintiff/defendant Richard B. Black; Harry P. Lamberson, Frederick V. Lochbihler, Chicago, 111., of counsel.
    Finley, Kumble, Wagner, Heine, Under-berg & Casey, Beverly Hills, Cal., and Finley, Kumble, Wagner, Heine, Underberg & Casey, New York City, for defendant Robert H. Lander; Michael D. Dempsey, Stuart K. Lesansky, J. Lawrence Blades, New York City, of counsel.
    Cahill, Gordon & Reindel, New • York City, for defendants John P. Birkelund, Richard Paget, Arthur F. Kelly and Hugh Knowlton, Jr.; Thomas F. Curnin, Thomas R. Jones, Joel E. Davidson, Kevin J. Burke, Michael Evan Avidon, New York City, of counsel.
    Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant Roy L. Ash; David Klingsberg, Milton Sherman, Michael Braff, New York City, of counsel.
    Fried, Frank, Harris, Shriver & Jacobson, New York City, for defendant Paul E. Gray; Leon Silverman, Gregory P. Joseph, Carol Miller, Lisa Klein, New York City, of counsel.
    Freedman, Levy, Kroll & Simonds, Washington, D.C., and Bernstein, Litowitz, Berger & Grossmann, New York City, for defendant James R. Mellor; Michael I. Smith, Marc Dorfman, Washington, D.C., and Max W. Berger, New York City, of counsel.
    Paul, Hastings, Jonofsky & Walker, Los Angeles, Cal., and Burns, Summit, Rovins & Feldesman, New York City, for defendant James R. Combes; William B. Campbell, Todd E. Gordinier, Los Angeles, Cal., Stuart A. Summit, Bernice K. Leber, William A. Alper, New York City, of counsel.
    Hughes, Hubbard & Reed, New York City, for defendant New Court Securities Corp.; John S. Allee, Frederika Y. Miller, Michael E. Salzman, New York City, of counsel.
    Donovan, Leisure, Newton & Irvine, New York City, for defendant/third party plaintiff Price Waterhouse; Louis C. Lustenberger, Jr., David R. Jewell, Robin Kaufman, Eldon Olson, Gen. Counsel, Allen I. Young, Associate Gen. Counsel, New York City, of counsel.
    Olwine, Connolly, Chase, O’Donnell & Weyher, New York City, for defendants Price Waterhouse Foreign Firms; James E. Tolan, Christopher Brady, Erica B. Baird, New York City, of counsel.
   OPINION AND ORDER

SPRIZZO, District Judge.

This case involves a series of actions brought by purchasers of stock in AM International, Inc. (“AMI”), which actions were consolidated for discovery in this district pursuant to 28 U.S.C. § 1407. Defendants named in five complaints filed motions to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), and for failure to plead fraud with the requisite particularity pursuant to Fed.R.Civ.P. 9(b).

The Court heard oral argument on the motions on July 18 and 19, 1983. At that time the Court orally granted defendant Richard B. Black’s motion to dismiss Price Waterhouse’s third-party complaint against Black in Madison Fund, Inc. v. New Court Securities Corp., 81 Civ. 7024, for failure to comply with Rule 9(b), without prejudice to the filing of an amended complaint. See Transcript of Argument (“Tr.”) at 222 (July 18, 1983). Decision on all other motions was stayed at the request of the parties pending possible settlement. In July of 1984 the parties informed the Court that they no longer wished the Court to defer a decision on the motions.

On October 9, 1984 the Court ruled on the motions in open court. The Court granted defendants’ motions to dismiss the complaint in Roncarati v. Ash, 82 Civ. 2494, see Opinion and Order MDL No. 409 (JES), 597 F.Supp. 1117 (1984). The Court also granted defendants’ motions to dismiss the first amended complaint in Black v. Ash, 82 Civ. 1028, for failure to plead fraud with particularity, with leave to file a second amended complaint. The Court denied in part and granted in part the motions addressed to the second amended consolidated complaint in Dubowski v. Ash, 82 Civ. 1732 (“Dubowski complaint”), and the second amended complaint in the Madison Fund action (“Madison Fund complaint”). This Opinion and Order will address the motions in those latter two actions.

I. Background

The moving defendants in both actions are (1) officers and directors of AMI, some of whom were members of AMI’s Audit Committee, (2) Price Waterhouse, AMI’s independent auditor, and (3) various foreign Price Waterhouse firms (“the foreign Price Waterhouse defendants.”)

The Dubowski action covers a proposed class of plaintiffs who purchased AMI stock from September 17, 1979, when AMI disclosed to the public its fiscal 1979 year-end financials, until September 23, 1981, when AMI disclosed its expected losses for fiscal 1981. Plaintiffs sue pursuant to sections 10(b) and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t, and Rule 10b-5, 17 C.F.R. § 240.10b-5, alleging misrepresentations and omissions in AMI’s fiscal 1979 and 1980 Annual Reports and Form 10-Ks, as to which Price Waterhouse gave its opinion, and in interim financial statements and Form 10-Qs for the first quarter of fiscal 1979 through the third quarter of fiscal 1981. See Dubowski Complaint 1148.

The Madison Fund action is brought by Madison Fund, Inc., a Delaware closed-end mutual fund. See Madison Fund Complaint II1. Madison Fund purchased 1,475,-000 AMI shares directly from AMI by a purchase agreement dated February 20, 1981, and consummated March 5, 1981, id. at 111125-27, and purchased 161,000 shares on the open market between March 9, 1981 and April 6, 1981. Id. at ¶ 28. Madison Fund alleges material misrepresentations and omissions in AMI’s fiscal 1980 year-end financial statements, and in interim financial statements for the first and second quarters of fiscal 1981. Id. at 1135. Madison Fund sues pursuant to sections 12(2), 15, and 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77l (2), 77o, and 77q(a); sections 10(b), 18, and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78r, and 78t, Rule 10b-5, 17 C.F.R. § 240.-10b-5, and pursuant to state and common law.

II. The Fraud Claims

Most of defendants’ motions in the Dubowski and Madison Fund actions are addressed to plaintiffs’ allegations of fraud. Fed.R.Civ.P. 9(b) requires that the circumstances of fraud be stated with particularity. Conclusory allegations of fraud are insufficient. See, e.g., Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir.1982); Segal v. Gordon, 467 F.2d 602, 607 (2d Cir.1972); Crystal v. Foy, 562 F.Supp. 422, 424 (S.D.N.Y.1983). Thus, plaintiffs must plead acts from which an intent to deceive, manipulate, or defraud may reasonably be inferred with respect to each defendant. See, e.g., Decker, supra, 681 F.2d at 115; Crystal, supra, 562 F.Supp. at 424-25.

A. Dubowski v. Ash

1. Management defendants — Ash, Mellor, Lander, and Combes

It is clear that the fraud allegations regarding the 1980 financials and the 1981 interim reports are sufficient with respect to the AMI management defendants. Despite defendants’ claims to the contrary, the Du6ows/a' complaint clearly sets forth sufficient specific facts as to how and in what amount these financials were allegedly false or misleading, and the basis for those allegations, as well as facts regarding the knowledge and intent of these insider defendants which if accepted as true, permit a reasonable inference of fraud. No more is required by Rule 9(b). As the Second Circuit has recently recognized, inferences of fraud may be made as to inside directors based on their insider status, which would not be permissible absent that insider status. See Goldman v. Belden, 754 F.2d 1059, 1070-71 (2d Cir.1985).

The allegations with respect to the 1979 financials are somewhat less specific, and the defendants’ argument that these allegations, standing alone, do not meet the particularity requirement of Rule 9(b) is more persuasive. However, taking these factual allegations in connection with all of the other facts pleaded, and affording the plaintiffs the benefit of all reasonable inferences that may be drawn from those allegations the Court cannot say as a matter of law that they are insufficient. See, e.g., Dubowski Complaint ¶ 97-98, 102-103. Therefore, while the motions to dismiss the allegations of the complaint for the 1979 fiscal year present a much closer question, these motions to dismiss are denied.

2. Audit Committee defendants — Gray, Birkelund, Kelly, and Paget

The Audit Committee defendants, while not officers of AMI, allegedly had access to a substantial fund of information regarding the company and its financial condition, knew about many of the problems the company was having, and were responsible, inter alia, for reviewing the Price Waterhouse audits. E.g., Dubowski Complaint ¶ 64-69. The facts as to these directors are therefore clearly distinguishable from those in Lanza v. Drexel & Co., 479 F.2d 1277 (2d Cir.1973), relied on by defendants, where after trial, an outside director was found not liable under section 10(b). See id. at 1289. In that case, the district court found the director “was not aware or even suspicious that plaintiffs were being deceived____ [H]e had no knowledge or belief that any hard figures published by [the company] were false or misleading.” Id. at 1288, citing, [1970-71 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 92,826, at 90,105 (S.D.N.Y. October 9, 1970).

Assuming the allegations of the complaint to be true, as the Court must do on a motion to dismiss, this is clearly not the case here. On the facts pleaded, these defendants are much closer to the position occupied by an inside director, than they are to a typical outside director. Given that insider status, the Court finds the allegations of the complaint as to them to be legally sufficient for the reasons set forth above with respect to the management defendants. Cf. SEC v. Cayman Islands Reinsurance Corp., [1982 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 98,717, at 93,592-93 (S.D.N.Y. June 17, 1982).

3. Price Waterhouse

Price Waterhouse was AMI’s independent auditor, and issued its opinion as to both the 1979 and 1980 year-end reports. Plaintiffs therefore sue Price Waterhouse as a principal in connection with these reports. Since Price Waterhouse did not give any opinion with respect to the 1981 interim financials, plaintiffs sue Price Water-house as an aider and abettor with respect to those interim reports.

With respect to the 1980 report, the Court finds the complaint sufficient to state a claim against Price Waterhouse. The Dubowski complaint alleges with respect to 1980 that Price Waterhouse was aware of specific accounting and internal control problems at AMI, discussed those problems with management and the Audit Committee, and knew that the problems were not corrected. Plaintiffs also allege a pattern of compromise by Price Water-house on particular, necessary adjustments to the 1980 financials. E.g., Dubowski Complaint ¶¶ 99-101. There is, therefore, an adequate, specific factual basis from which fraud may arguably be inferred.

The Court is mindful of the fact that an independent auditor’s duty does not rise to the level of corporate insiders, and that one of the purposes of Rule 9(b) is to protect the reputation of professionals such as accountants from groundless allegations of fraud, see, e.g., Felton v. Walston and Co., 508 F.2d 577, 581 (2d Cir.1974); Billard v. Rockwell International Corp., 683 F.2d 51, 57 (2d Cir.1982). Nevertheless, the allegations regarding 1980 are sufficient.

However, a careful review of the claims against Price Waterhouse for the 1979 fiscal year demonstrates that those allegations fail to meet the requirements of Rule 9(b). For example, while plaintiffs allege specific compromises in required adjustments to the 1980 financials as noted above, no specific instance is pleaded regarding 1979. And as the Court noted in Decker, supra, it is not enough to merely allege “violation of generalized accounting principles requiring adequacy and fairness of disclosure, a conservative approach, [and] complete financial information____” 681 F.2d at 120. See also Weinberger v. Kendrick, 451 F.Supp. 79, 83-84 (S.D.N.Y.1978); Jacobson v. Peat, Marwick, Mitchell & Co., 445 F.Supp. 518, 523 (S.D.N.Y.1977); .Gross v. Diversified Mortgage Investors, 431 F.Supp. 1080, 1088-89 (S.D.N.Y.1977), aff'd mem., 636 F.2d 1201 (2d Cir.1980). Yet with respect to 1979, there are no facts which would even arguably permit an inference of fraud. Indeed as has been noted, these allegations are at best marginally sufficient even with respect to the corporate insiders for that year. It follows that given the difference in status of an independent auditor, the Court finds that these allegations cannot be a sufficient predicate for imposing liability on Price Waterhouse for that year.

Plaintiffs also allege that Price Waterhouse aided and abetted fraud with respect to the uncertified 1981 interim financial reports. However, Price Water-house cannot be held liable for misrepresentations or omissions in reports as to which they did not issue an opinion, see, ■e.g., Gold v. DCL, Inc., 399 F.Supp. 1123, 1127 (S.D.N.Y.1973), unless there is a conscious or reckless violation of an independent duty to act, see, e.g., Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir.1983); IIT, An International Investment Trust v. Cornfeld, 619 F.2d 909, 927 (2d Cir.1980); Fischer v. Kletz, 266 F.Supp. 180, 195-96 (S.D.N.Y.1967), or Price Waterhouse had a “conscious and specific motivation for not acting” and therefore “intended by its silence to forward completion of the fraudulent transactions in the expectation of benefiting from the success of the fraud.” IIT, supra, 619 F.2d at 927; see also Armstrong, supra, 699 F.2d at 91; Brennan v. Midwestern United Life Insurance Co., 417 F.2d 147, 152-55 (7th Cir.1969), cert. denied, 397 U.S. 989, 90 S.Ct. 1122, 25 L.Ed.2d 397 (1970). Cf Edwards & Hanly v. Wells Fargo Securities Clearance Corp., 602 F.2d 478, 484-85 (2d Cir.1979), cert. denied, 444 U.S. 1045, 100 S.Ct. 734, 62 L.Ed.2d 731 (1980). There is no allegation which even remotely supports any such inference in this case. Certainly the fact that Price Waterhouse may have seen or reviewed some of the 1981 interims and that a “main objective” of Price Water-house was to retain AMI as a client, is not sufficient to justify that inference. See, e.g., Dubowski Complaint ¶ 77-79. It follows that insofar as the complaint alleges aiding and abetting against Price Water-house in connection with the 1981 interim financial statements, these claims must be dismissed.

While the claims against Price Waterhouse based on the 1981 interims cannot stand, it is clear that Price Waterhouse did have a duty to take reasonable action to disclose errors in or correct financial statements for which it previously gave its opinion if facts came to Price Waterhouse’s attention demonstrating that those certified statements contained misstatements. E.g., IIT, supra, 619 F.2d at 927; Gold, supra, 399 F.Supp. at 1127; Fischer, supra, 266 F.Supp. at 188. Therefore, since plaintiffs may well have a claim against Price Waterhouse for an alleged violation of this duty, leave is granted to replead.

4. Foreign Price Waterhouse defendants

Plaintiffs have sued various foreign affiliates of Price Waterhouse on the theory that all the Price Waterhouse firms world-wide are in fact one entity, and acted as agents of one another. See, e.g., Dubowski Complaint ¶¶ 23, 26-27; Plaintiffs’ Memorandum in Opposition to Defendants’ Motions to Dismiss the Second Amended Consolidated Complaint at 11 n. *. The Court rejects this argument. The complaint alleges that the foreign firms acted as a source of information for the Price Waterhouse United States firm on certain foreign AMI operations. The essence of the alleged fraud, however, is that the United States firm, acting together with corporate insiders, distorted this information in the consolidated year-end reports issued by the United States firm. There are no facts alleged in the complaint which remotely suggest that the foreign firms ever participated in the decision as to how this information should be reported, and certainly none which would support an inference that they had knowledge of any such distortions and the requisite intent to assist the alleged fraud which aiding and abetting requires.

It follows that the claims of fraud against the foreign firms must be dismissed.

B. Madison Fund v. New Court Securities

1. Claims pursuant to sections 10(b), 18, and 20 of the 193) Act, sections 15 and 17(a) of the 1933 Act, state and common law.

With respect to the section 10(b) and other fraud claims against the management, Audit Committee, and Price Water-house defendants, the Court finds that although the Madison Fund complaint lacks the specificity of the Dubowski complaint, it is nevertheless sufficient. Therefore, the Court sustains all allegations under sections 10(b), 18, and 20 of the 1934 Act, sections 15 and 17(a) of the 1933 Act, state law, and common law fraud, with the exception of the allegations against Price Waterhouse with respect to the 1981 interim financials and the claims against the foreign Price Waterhouse defendants, which are dismissed for the reasons stated in Sections 11(A)(3) & (4), supra.

2. Section 12(2) claims

Madison Fund also alleges that defendants New Court Securities, Birkelund, Ash, Mellor, and Lander are liable pursuant to section 12(2) of the 1933 Act, which proscribes any offer or sale by means of an oral statement or prospectus containing an untrue statement of material fact or omitting to state a material fact.

In paragraph 36 of the Madison Fund complaint, plaintiff alleges that Birkelund, Ash, Mellor, and New Court, “among others,” made specific false oral representations to Madison Fund to induce Madison Fund to purchase AMI securities. This is sufficient to state a claim under section 12(2) with respect to those defendants.

The complaint does not, however, allege that defendant Lander made any oral misrepresentation to plaintiff in connection with any offer or sale of AMI stock. The complaint also fails to allege that Lander supplied Madison Fund with a false or misleading prospectus. Finally, the complaint does not allege that Lander was a control person with respect to any section 12(2) violation. Nor does any allegation sufficiently state an aiding and abetting claim against Lander with respect to Section 12(2).

Therefore, the section 12(2) claim against Lander is dismissed, but plaintiff is granted leave to amend within twenty (20) days of the date of this Opinion and Order.

III. Non-Fraud Claims

All other motions by defendants to dismiss claims in the Madison Fund action are denied, with the exception of the motion by Price Waterhouse pursuant to Fed. R. Civ.P. 12(b)(6) to dismiss the negligence claim against it.

Plaintiff alleges that Price Waterhouse was negligent in its audit of the 1980 year-end financials and review of the second quarter 1981 interim financials. Plaintiff contends that it was “reasonably forseeable ... that investors such as Madison Fund would rely on the year-end 1980 financial statements and defendant Price Waterhouse’s report thereon,” and that investors such as Madison Fund would also find it material that Price Waterhouse could not “give AMI comfort” regarding the 1981 interims. See Madison Fund Complaint ¶¶ 127-29.

Plaintiff argues that California law governs the negligence claims, and allows plaintiff to sue Price Waterhouse despite the absence of privity. Defendant contends that New York law applies, and bars a negligence claim by Madison Fund.

In order to determine what law will govern the negligence claim, this Court must apply the choice of law rules of New York. See, e.g., Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 1021, 85 L.Ed. 1477 (1941). The parties contend that the courts of New York would apply the law of the jurisdiction which, “because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised____” Babcock v. Jackson, 12 N.Y.2d 473, 482, 191 N.E.2d 279, 293, 240 N.Y.S.2d 743, 749 (1963).

Cases after Babcock have focused on the state interests and policies involved, rather than on the place of most contacts or overall center of gravity. See, e.g., Neumeier v. Kuehner, 31 N.Y.2d 121, 127, 286 N.E.2d 454, 457, 335 N.Y.S.2d 64, 69 (1972); Tooker v. Lopez, 24 N.Y.2d 569, 576 & 579 n. 2, 249 N.E.2d 394, 398 & 400 n. 2, 301 N.Y. S.2d 519, 525 & 527 n. 2 (1969); Miller v. Miller, 22 N.Y.2d 12, 15-16, 237 N.E.2d 877, 879, 290 N.Y.S.2d 734, 737 (1968); Matter of Chrichton, 20 N.Y.2d 124, 133-35 & n. 8, 228 N.E.2d 799, 805-06 & n. 8, 281 N.Y.S.2d 811, 819-20 & n. 8 (1967); cf. O’Rourke v. Eastern Air Lines, 730 F.2d 842, 847-48 (2d Cir.1984). In fact, the Court of Appeals has specifically rejected the method of determining choice of law issues by simply counting the various contacts with each jurisdiction. See, e.g., Tooker, supra, 24 N.Y.2d at 576, 249 N.E.2d at 398, 301 N.Y.S.2d at 524-25; Miller, supra, 22 N.Y.2d at 17, 237 N.E.2d at 880, 290 N.Y.S.2d at 738. And in Cousins v. Instrument Flyers Inc., 44 N.Y.2d 698, 699, 376 N.E.2d 914, 915, 405 N.Y.S.2d 441, 442 (1978), a strict products liability case, the Court of Appeals stated in dictum that “Isolation and analysis of the factors connecting the accident and its causes with the various states does not resolve the choice of law problem. It is true that lex loci delicti remains the general rule in tort cases to be displaced only in extraordinary circumstances.” Id. See also O’Rourke, supra, 730 F.2d at 848-49.

While it is unclear after Cousins whether New York law mandates application of the government interest or the lex loci delicti rule in this case, the Court finds the law of New York to be the appropriate choice under either standard. The lex loci delicti is New York, as that is where the alleged injury to Madison Fund occurred. While plaintiff contends that much of defendant’s alleged wrongful conduct took place in California, where the jurisdiction of the alleged negligent conduct and that of the injury differ, the law of the place of injury generally governs. See, e.g., Bing v. Halstead, 495 F.Supp. 517, 520 (S.D.N.Y.1980); Korn, The Choice of Law Revolution: A Critique, 83 Colum. L.Rev. 772, 776, 803 (1983).

Under a government interests analysis, New York would also be the appropriate choice. New York has a greater interest than California in whether to compensate injuries occurring in New York to a New York based plaintiff which are caused by an accountant’s negligence. New York courts have held that the jurisdiction of injury will generally have the greatest interest in or most significant relationship with the issue, especially where the injured party has had no relevant contact with the jurisdiction of wrongful conduct. See, e.g., Reeves v. American Broadcasting Co., 719 F.2d 602, 605 (2d Cir.1983); Federated Capital Corp. v. Florida Capital Corp., 280 F.Supp. 301, 302-03 (S.D.N.Y.1968); cf. Bio/Basics International v. Ortho Pharmaceutical Corp., 545 F.Supp. 1106, 1114 (S.D.N.Y.1982).

Moreover, New York has no policy or interest in applying foreign law against a foreign defendant in order to allow recovery by plaintiff, where plaintiff could not recover were defendant a New York resident. See, e.g., Korn, supra, at 969; cf. Neumeier, supra, 31 N.Y.2d at 129, 286 N.E.2d at 458, 335 N.Y.S.2d at 70-71. It is true that California may have an interest in regulating conduct within its borders, but the alleged negligence did not occur solely in that state, and California would have no superior interest in having its law applied to allow recovery by a non-resident injured in its home forum, where recovery is not permitted by the law of that forum. See, e.g., Neumeier, supra, 31 N.Y.2d at 125-26, 286 N.E.2d at 456, 335 N.Y.S.2d at 67-68; cf. Matter of Chrichton, supra, 20 N.Y.2d at 134, 228 N.E.2d at 806, 281 N.Y. S.2d at 820.

Therefore, the Court finds New York law to be the appropriate choice in this case.

Under New York law, an accountant is not liable for negligence to the investing public-at-large. See, e.g., White v. Guarente, 43 N.Y.2d 356, 361, 372 N.E.2d 315, 318, 401 N.Y.S.2d 474, 477 (1977); Ultramares Corp. v. Touche, 255 N.Y. 170, 189, 174 N.E. 441, 448 (1931). An accountant may be liable, however, to members of a known, determinate group, possessed of vested rights, who both the auditor and the auditee specifically contemplate will rely on the results of the audit. In that situation, the furnishing of the audit information to that group was not merely a possibility should the auditee’s business so require, but one of the ends and aims of the audit. See, e.g., White, supra, 43 N.Y.2d at 361-62, 372 N.E.2d at 318-19, 401 N.Y.S.2d at 477-78; Ultramares, supra, 255 N.Y. at 182-83, 174 N.E. at 445-46, citing, Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922).

Plaintiff argues that at least by the date of Madison Fund’s purchase, which was after the challenged auditing work was done, Price Waterhouse knew Madison Fund was considering purchasing AMI stock, and would rely on the opinion of Price Waterhouse and the information contained in the financials. See Madison Fund Complaint at ¶¶ 94-95. This does not mean, however, that the audit was done with plaintiff in mind, or that plaintiff thereby became a member of a fixed and determinate group with vested rights to whom circulation of the audit results was contemplated as an end of performing the audit.

The facts of this case therefore go beyond what the New York Court of Appeals has permitted in relaxing the privity requirement of the Ultramares case. While it is true that the Appellate Division, First Department has suggested in recent cases that the privity requirement should be relaxed further than White v. Guarente permits, see European American Bank and Trust Co. v. Strauhs & Kaye, 102 A.D.2d 776, 777-78 & 778, 477 N.Y.S.2d 146, 148 & 148-49 (1st Dept.1984) (Memorandum Decision of the Court & Ross, J., concurring), leave to appeal granted, 104 A.D.2d 1064, 480 N.Y.S.2d 299 (1st Dept.1984); Credit Alliance Corp. v. Arthur Anderson & Co., 101 A.D.2d 231, 234-36, 237-39, 476 N.Y. S.2d 539, 541-42, 543-44 (1st Dept.1984), leave to appeal granted, 104 A.D.2d 740, 480 N.Y.S.2d 298 (1st Dept.1984); Chemical Bank v. Louis Stembach & Co., 91 A.D.2d 518, 518, 456 N.Y.S.2d 392, 392 (1st Dept.1982) (dictum), appeal dismissed, 58 N.Y.2d 1086, 449 N.E.2d 424, 462 N.Y.S.2d 644 (1983), no Court of Appeals decision has as yet gone so far. Indeed, the Court of Appeals’ most recent statement on the issue suggests that it may not be prepared to extend White v. Guarente any further.

Since this Court has been afforded no basis to conclude that the Court of Appeals is prepared to further relax the privity requirement beyond the rule set forth in Ultramares, White v. Guarente, and Dworman v. Lee, supra, the Court is constrained to apply the law as it presently stands, with the consequence that the negligence claim must be dismissed. Should the Court of Appeals rule otherwise in European American Bank or Credit Alliance, as to which leave to appeal has been granted, the Court will reinstate the negligence claim.

Conclusion

For the reasons stated above, the Court rules as follows:

1. (a) The motions of defendants Roy L. Ash, John P. Birkelund, James R. Mellor, Robert H. Lander, James H. Combes, Paul E. Gray, Arthur F. Kelly, and Richard M. Paget to dismiss the Second Amended Consolidated Complaint in Dubowski v. Ash, 82 Civ. 1372, are DENIED;

(b) The motions of defendants New Court Securities Corp., Roy L. Ash, John P. Birkelund, and Robert H. Lander to dismiss the Second Amended Complaint in Madison Fund v. New Court Securities Corp., 81 Civ. 7024, are DENIED, except to the extent that Robert H. Lander has moved to dismiss Madison Fund’s claims based on section 12(2) of the Securities Act of 1933. That portion of Robert H. Lander’s motion to dismiss is GRANTED, provided, however, that Madison Fund shall have 20 days from entry of this Opinion and Order to amend its complaint so as to state a section 12(2) claim against Robert H. Lander as set forth in section 11(B)(2) of this Opinion and Order.

2. (a) The motions of defendants Price Waterhouse (United Kingdom), Price Waterhouse (Australia), Price Waterhouse (Canada), Blanchard Chauveau et Associes SA, and Price Waterhouse World Firm (successor to Price Waterhouse International) pursuant to Fed.R.Civ.P. 9(b) to dismiss the Second Amended Consolidated Complaint in Dubowski v. Ash, 82 Civ. 1372, are GRANTED;

(b) Defendants Price Waterhouse (United Kingdom), Price Waterhouse (Australia), and Price Waterhouse (Canada) (Price Waterhouse (Europe) and Price Waterhouse (Brazil) previously having been dismissed) have stipulated with plaintiff in Madison Fund v. New Court Securities Corp., 81 Civ. 7024 and 82 Civ. 2168, that this Court’s ruling contained in paragraph 2(a) hereof shall apply with equal force to the similar claims made in the Madison Fund complaints. Accordingly, the Second Amended Complaint in Madison Fund v. New Court Securities Corp., 81 Civ. 7024, and the Complaint in Madison Fund v. New Court Securities Corp., 82 Civ. 2168, are hereby DISMISSED pursuant to Fed.R.Civ.P. 9(b) as to defendants Price Waterhouse (United Kingdom), Price Waterhouse (Australia), and Price Waterhouse (Canada).

3. The motions of defendant Price Waterhouse pursuant to Fed.R.Civ.P. 9(b) to dismiss the Second Amended Consolidated Complaint in Dubowski v. Ash, 82 Civ. 1372, and the Second Amended Complaint in Madison Fund v. New Court Securities Corp., 81 Civ. 7024, are disposed of as follows:

(a) The motions are DENIED with respect to claims based upon the financial statements for the year ended July 31, 1980;
(b) The motions are GRANTED with respect to claims based upon the financial statements for the year ended July 31, 1979;
(c) The motions are GRANTED to the extent that the foregoing complaints allege liability on the part of Price Water-house with respect to the unaudited interim financial statements issued during fiscal 1981, provided, however, that plaintiffs shall have 20 days from entry of this Opinion and Order to amend their complaints as set forth in Section 11(A)(3), supra.

4. The motion of Price Waterhouse pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the Fourteenth Claim for Relief asserted in the Second Amended Complaint in Madison Fund v. New Court Securities Corp., 81 Civ. 7024, is GRANTED.

5. The First Amended Complaint in Black v. Ash, 82 Civ. 2532, is DISMISSED pursuant to Fed.R.Civ.P. 9(b) without prejudice.

6. The Third Party Complaint of Price Waterhouse against Richard B. Black in Madison Fund v. New Court Securities Corp., 81 Civ. 7024, is DISMISSED pursuant to Fed.R.Civ.P. 9(b) without prejudice.

The Court has determined pursuant to Fed.R.Civ.P. 54(b) that there is no just reason to delay entry of a final judgment on the rulings in paragraphs 2, 3, and 4, above. Therefore, final judgment is entered as to those claims.

With respect to any repleaded complaints, defendants shall have 50 days from the entry of this Opinion and Order to move or file answers. The time in which to file third party claims and claims over in the repleaded actions is hereby extended until 20 days after the date upon which defendants must respond to the repleaded complaints. Third party defendants shall have 30 days to respond to these claims.

All parties to the Dubowski v. Ash action shall be ready for trial on November 4, 1985. The parties to the Dubowski action shall submit a Pre-Trial Order in accordance with the Court’s directions on September 4, 1985. The stay of discovery previously ordered by the Court is hereby lifted.

It is SO ORDERED.

      . The moving defendants in the Dubowski action are Roy L. Ash, who until April 1981 was AMI’s Chairman of the Board, Chief Executive Officer, and a director and member of the Executive Committee; James R. Mellor, AMI’s president, and also a director and member of the Executive Committee; Robert H. Lander, Vice President and Controller of AMI beginning on December 1, 1979; James H. Combes, Senior Vice President of AMI; Paul E. Gray, Arthur F. Kelly, Richard Paget, and John P. Birkelund, all directors of AMI and members of the Audit Committee; and the Price Waterhouse defendants.
      Moving defendants in the Madison Fund action are Ash, Lander, Birkelund, the Price Water-house defendants, and New Court Securities, AMI's investment banker.
      Defendant New Court Securities argues that the Madison Fund complaint fails to state any claim against New Court itself, rather than against defendant Birkelund. The complaint alleges that Birkelund was, at all relevant times, a director of AMI and a member of the Audit Committee, and until July 1981 was also Chairman, Chief Executive Officer, and a director of New Court. See Madison Fund Complaint If 4. The complaint also alleges that Birkelund engaged in negotiations with Madison Fund in his capacity as CEO/Chairman/director of New Court as well as director of AMI. See id. at if 23. To the extent that Birkelund was acting on behalf of New Court, and Birkelund’s knowledge was gained in his capacity as an officer and director of New Court, as opposed to as a director and member of the Audit Committee of AMI, the complaint states a claim against New Court.

      . Plaintiffs’ motion for class certification will be dealt with in a separate Opinion and Order.

      . Defendant Gray also moved pursuant to Fed. R.Civ.P. 11. In light of the Court’s denial of the 9(b) and 12(b)(6) motions, Gray’s Rule 11 motion is denied.

      . Indeed, in its motion papers Price Waterhouse focuses on the inadequacy of the 1979 and 1981 allegations, and indicates in its Reply Memorandum that it does not move to dismiss the 1980 allegations.

      . Because the Court has dismissed all allegations against the foreign Price Waterhouse defendants for failure to plead fraud with particularity, it is not necessary to address their motions to dismiss for lack of in personam jurisdiction.

      . The Court finds that plaintiffs allegations pursuant to sections 12(2) and 17(a) of the 1933 Act, section 18 of the 1934 Act, California and New York statutes, and common law fraud, do satisfy the requirements of Rule 9(b) to the same extent as do the section 10(b) allegations, with the exception of the section 12(2) claims against defendant Lander. See Section 11(B)(2), infra.

      Because the Court decides' that these claims do satisfy the particularity requirement, it is unnecessary to address the parties’ argument about whether these are all in fact fraud allegations subject to the pleading requirements of Rule 9(b).

      . At oral argument counsel for Madison Fund indicated that he did not read the complaint as making a claim against Price Waterhouse based on the 1981 interim financials. See Tr. at 73, 75-76. The complaint itself is not so clear. The Court rules that all claims, if any, against Price Waterhouse contained in the Madison Fund complaint which allege aiding and abetting fraud in connection with the 1981 interims are dismissed. As noted above, see Section I, supra, Madison Fund does not sue with respect to the 1979 year-end financials.

      . While the Court in part upholds the Madison Fund complaint, it would strongly suggest that that complaint be amended to include the more specific allegations of the Dubowski complaint.

      . Madison Fund does not contend that the second amended complaint alleges any oral misrepresentation by Lander, or that any prospectus was supplied by Lander. It is clear that the. financial statements allegedly supplied to Madison Fund, see Madison Fund Complaint ¶ 35, were not a prospectus.

      . In White v. Guarente, a limited partnership contracted with Arthur Anderson & Co. to do an annual audit and prepare the partnership tax return, as required by the partnership agreement. One of the limited partners sued for negligence in the audit. The Court of Appeals held that the partner could sue because the use of the audit by partners, a "fixed and determined” group, was "within the contemplation of the parties to the accounting retainer.” See 43 N.Y.2d at 361-62, 372 N.E.2d at 318-19, 401 N.Y.S.2d at 477-78. The Court found that, “In such circumstances, assumption of the task of auditing ... was the assumption of a duty to audit and prepare carefully for the benefit of those in the fixed, definable and contemplated group whose conduct was to be governed, since given the contract and the relation, the duty is imposed by law, and it is not necessary to state the duty in terms of contract or privity____" Id. at 361-62, 372 N.E.2d at 319, 401 N.Y.S.2d at 478 (citations omitted).

      . See Dworman v. Lee, 56 N.Y.2d 816, 438 N.E.2d 103, 452 N.Y.S.2d 570 (1982), aff’g for reasons stated in memorandum at Appellate Division, 83 A.D.2d 507, 441 N.Y.S.2d 90 (1st Dept.1981).
      In Dworman, plaintiffs sued Arthur Anderson & Co. for negligence, claiming that in reliance upon consolidated financial statements prepared by Arthur Anderson, they became sureties of the audited company. The Appellate Division, First Department found that plaintiffs were merely "members of the public relying on the financial statements certified by Anderson,” see id., 83 A.D.2d at 507, 441 N.Y.S.2d at 91, and pleaded nothing which would take the case outside the rule of Ultramares that accountants “may be liable in negligence only to persons with whom they are in privity.” Id. The court stated: "there can be no doubt that the rule in Ultramares remains authoritative, as it was reaffirmed in White v. Guarente____” Id. See also New Castle Siding Co. v. Wolfson, 63 N.Y.2d 782, 470 N.E.2d 868, 481 N.Y.S.2d 70 (1984); Credit Alliance, supra, 101 A.D.2d at 240-41, 476 N.Y.S.2d at 545 (Milonas, J., dissenting).

      . Since the Court has determined that New York law applies, it is not necessary to address defendant’s contention that even under California law, plaintiffs claim would have to be dismissed.


author: GONZALEZ, District Judge.

text:
    Bernard MOLTZ, Plaintiff, v. SENECA BALANCE, INC., Milford C. Scheeler, Jr., Albert D. Hawkins, Jr., and Joseph Jurkowski, Jr., Defendants.
    No. 85-8163-CIV-GONZALEZ.
    United States District Court, S.D. Florida, N.D.
    April 16, 1985.

      Lyman Reynolds, West Palm Beach, Fla., for plaintiff.
    Stephen Hall, West Palm Beach, Fla., for defendants.
   ORDER

GONZALEZ, District Judge.

THIS CAUSE has come before the court upon the defendants’ motion to dismiss plaintiff’s complaint for lack of in person-am jurisdiction.

Plaintiff originally brought this action in state court to enforce a Promissory Note against three individual guarantors and the primary obligor. Defendants properly removed the case to the federal forum pursuant to 28 U.S.C. § 1441(a) because it was an action over which the federal district court had original jurisdiction under 28 U.S.C. § 1332(a)(1).

Plaintiff Bernard Moltz is a Florida citizen and resident of Brevard County, Florida; defendant Seneca Balance, Inc. is a Nevada corporation with its principal place of business in the State of New York; defendants Milford S. Scheeler Jr., Albert D. Hawkins, Jr. and Joseph Jurkowski, Jr. are residents and presumably citizens of the State of New York.

On January 1, 1984, defendant Seneca Balance, Inc. executed a Promissory Note with plaintiff in Boca Raton, Florida as part of a stock purchase agreement. The Note provides for payment to plaintiff in Florida, and is governed by the laws of the State of New York.

On the same day, defendants Scheeler, Hawkins and Jurkowski individually executed a Guaranty on the Promissory Note in the State of New York. The Guaranty provides that the individual defendants would guarantee payment on the Note in the event that Seneca Balance, Inc. defaulted on its payments. The Guaranty is governed by the laws of the State of New York, but it does not state the place where payments are to be made.

When Seneca Balance, Inc. failed to timely pay an installment on October 15, 1984, plaintiff exercised its right under the Note to accelerate payments on the balance due. As of October 15th, that amount totalled $114,583.28 plus interest accrued at a rate of 10% per annum since September 15, 1984. On December 21, 1984, plaintiff notified the individual defendants that Seneca Balance, Inc. had defaulted on the Note they had individually guaranteed, and therefore demanded immediate payment of the unpaid principal and accrued interest.

Shortly thereafter, Seneca Balance, Inc. filed suit in federal district court in New York seeking damages from Bernard Moltz based on fraud, failure of consideration, breach of contract and unjust enrichment.

Plaintiff then filed his complaint in a Florida state court on January 30, 1985. Defendants removed the case to this court on March 13th, and subsequently filed the motion to dismiss that is the subject of this decision. In reviewing this motion, the court is cognizant that the plaintiff’s various claims should not be dismissed for lack of in personam jurisdiction unless it appears beyond doubt that the plaintiff can prove no set of facts that would establish personal jurisdiction over the defendants. McKinnis v. Mosley, 693 F.2d 1054, 1058 (11th Cir.1982) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957)).

Defendants object to this court’s exercise of personal jurisdiction over them because they contend first, their activities do not fall within the ambit of Florida long-arm statute 48.193(l)(g); and second, even if Section 48.193(l)(g) applies, defendants’ contacts in or with Florida are insufficient to satisfy constitutional due process concerns.

The issue of in personam jurisdiction in a federal diversity action is governed by the law of the state in which the federal court sits, Gordon v. John Deere Co., 466 F.2d 1200, 1200 (5th Cir.1972), and thus this court looks to Section 48.193(l)(g) for guidance. That Section provides in pertinent part:

Any person whether or not a citizen or resident of this state, who personally or through an agent does any of the acts enumerated in this subsection thereby submits that person and, if he is a natural person, his personal representative to the jurisdiction of the courts of this state for any cause of action arising from the doing of any of the following:
Breaches a contract in this state by failing to perform acts required by the contract to be performed in this state.

Defendants submit that they are not amenable to service under Section 48.-193(l)(g) because the plaintiff has not alleged facts sufficient to demonstrate that the subject contract required the defendants to perform any acts in Florida.

Florida courts require substantial proof before they are willing to authorize in personam jurisdiction over a non-resident defendant under Section 48.193(l)(g).

Before in personal jurisdiction may attach over a defendant, proper allegations must be pled to show that the defendant failed to perform an act or acts whose performance was to be in Florida and that such breach formed the basis for the cause of action for which relief is sought by the Plaintiff.

Cosmopolitan Health Spa, Inc. v. Health Industries, Inc., 362 So.2d 367, 368 (Fla. 4th DCA 1978). Once the plaintiff alleges these facts, the burden shifts to the defendant to make a prima facie showing of the inapplicability of the long-arm statute. If the defendant sustains this burden, then the plaintiff must “substantiate the jurisdictional allegations in the complaint by affidavits or other competent proof, and not merely reiterate the factual allegations in the complaint.” Bloom v. A.H. Pond Co., 519 F.Supp. 1162, 1168 (S.D.Fla.1981) (relying on Cosmopolitan).

Under the Cosmopolitan/Bloom test, the plaintiff must first allege facts which clearly justify the application of Section 48.193(l)(g) as a matter of law. Plaintiff’s complaint and other pleadings show that the Promissory Note, stock purchase agreement, Guaranty, pledge agreement and an employment agreement all were drafted in Florida; and that Mr. Moltz signed the stock purchase agreement in Florida, too. The court further notes that under Florida law, a debt is presumed to be paid at the creditor’s place of business— here Florida — absent a contractual provision to the contrary. See Madax International Corp. v. Belcher Intercontinental Moving Services, Inc., 342 So.2d 1082, 1084 (Fla. 2nd DCA 1977).

The court finds that these allegations and pleadings are sufficient to satisfy the initial pleading requirements of the Cosmopolitan/Bloom test in general, and Section 48.193(l)(g) in particular.

Under Cosmopolitan and Bloom, the burden of production now shifts to the defendants to make a prima facie showing of the inapplicability of the Florida long-arm statute. To satisfy this requirement, the defendants submit that the Guaranty does not specify where payment is to be made, and that all defendants have no contacts with Florida but for the subject agreements.

Defining what constitutes a prima facie showing is difficult because the evidentiary burden is in large part abstract. Black’s Law Dictionary defines a prima facie case as one “which has proceeded upon sufficient proof to that stage where it will support [a] finding if evidence to [the] contrary is disregarded.” Black’s Law Dictionary 1353 (rev. 4th ed. 1968). According to authors Wright and Miller, a prima facie case is one which entitles the complainant “to an affirmative judgment against the defendant” unless the latter adduces contradictory proof. 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, at 116 n. 71 (1969). The touchstone of both definitions is the existence of some pleadings, supported by fact and law, that entitles the pleader to some relief unless facts or law to the contrary is presented.

In this case, neither the facts nor the law support defendants’ position that Florida’s long-arm statute is inapplicable. The complaint clearly shows that at least one of the agreements in question — the Promissory Note — requires payment to plaintiff in Florida. This constitutes the performance of an act in Florida the failure of which falls within the ambit of Section 48.193(l)(g). The fact that the Guaranty does not specify the place of payment does not militate against the plaintiff. See Madax, supra.

Finding that Florida’s long-arm statute does apply in this case, the court must next decide whether defendants’ contacts with the forum state are legally sufficient to satisfy due process concerns. International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945).

Florida law recognizes that a person (or business) who (which) executes a contract requiring the performance of some acts in that state does have “minimum contacts” with the forum. For example, in Devlin & Devlin, Inc. v. Goracy, No. 83-6449-CIV-JAG slip op. at 3 n. 2, (S.D.Fla. 1984), this court held that a lease agreement requiring the payment to a Florida citizen of commissions on the sale or rental of certain apartments located in Florida satisfied federal due process requirements.

Likewise, in Madax International Corp. v. Delcher Intercontinental Moving Services, Inc., 342 So.2d 1082 (Fla. 2nd DCA 1977), the court held that it had personal jurisdiction over an Oregon corporation that refused to pay a Florida entity that had moved the furniture and automobiles of one of the Oregon corporation’s employees out of Florida. The court reasoned that the Oregon corporation had minimum contacts with Florida because it was a party to the contract sued on and the primary obligor under it.

The Second District Court of Appeal distinguished Madax in Lakewood Pipe of Texas, Inc. v. Rubaii, 379 So.2d 475 (Fla. 2nd DCA 1979). Lakewood Pipe was a Texas corporation and assignee of certain contract rights of a Florida corporation. Under the terms of the contract, Lakewood Pipe had to guarantee payment of brokerage commissions generated by the Florida corporation. When the Florida corporation filed bankruptcy proceedings, Rubaii — the person to whom the commissions were to be paid — asserted his claim for brokerage services in connection with the activities of the Florida corporation. Lakewood Pipe moved to quash service of process, and the appellate court complied, holding that a guarantee of a contractual obligation requiring payment to be made to a creditor in Florida does not constitute sufficient contact with Florida to permit that state to exercise jurisdiction over the guarantor under Section 48.193(l)(g).

Of significance to the Lakewood court, and the factor distinguishing that case from Madax, was the fact that Rubaii was not a party to the contract at issue. Rather, he had merely become a gratuitous beneficiary of a guarantee of an assignor. Furthermore, the assignment did not deprive Rubaii of his right to enforce his claim in Florida against the assignor under the contract of assignment.

Madax and Lakewood are instructive in this case. Seneca Balance, Inc. executed a contract with Barnard Moltz requiring the former to pay the latter in Florida. Madax makes clear that Seneca Balance’s failure to pay Mr. Moltz gives rise to the contacts necessary to pass constitutional muster. Seneca Balance, Inc. clearly is a party to the Promissory Note sued on and the primary obligor under it.

The other contract at issue is the Guaranty executed by defendants Scheeler, Hawkins and Jurkowski. That agreement provides that the named individuals would guarantee Seneca Balance’s payment under the Promissory Note. Like Rubaii in Lakewood, plaintiff here is the beneficiary of a guarantee. But unlike Rubaii, the guarantee here was the result of (allegedly) bargained for consideration. Moreover, Bernard Moltz is a party to the Guaranty and is not a gratuitous beneficiary of that agreement. The record indicates that the individual defendants had reason to believe that they were engaging in business in Florida: the underlying Promissory Note secured payments on a stock transfer with a Florida citizen and required payments to be made in that state; and the Guaranty was executed for consideration and presumably required payment to plaintiff in Florida, too. The fact that the individual defendants neither own property nor have business agents in this state is not dispositive because they executed a contract that expressly contemplated their doing business with a Florida citizen in Florida.

Accordingly, the defendants’ motion to dismiss be the same is hereby DENIED.

      . This distribution of evidentiary burdens comports with the law in this jurisdiction. See Bittar v. Air Canada, 512 F.2d 582, 583-84 (5th Cir.1975); Sabatino v. Curtis National Bank, 446 F.2d 1046, 1055 (5th Cir.1971) ("[W]hen the party having the burden of proof makes a prima facie case, the burden of proof does not shift to the opposite party, but [the opposite party] is only required to come forward with some evidence to rebut such a prima facie case.”); Willingham v. Secretary of Health, Education & Welfare, 377 F.Supp. 1254, 1257 (S.D.Fla.1974).