author: SPRIZZO, District Judge.

text:
    Ira L. MENDELL, on behalf of himself and others similarly situated, Plaintiff, v. George E. GREENBERG, Frederick R. Adler, James R. Swartz, Anita Loehmann Stafford, Donald H. Balleisen, Allan S. Gordon, Christopher D. Illick, Cecily C. Selby, Kenneth J. Thornhill, John D. Mack, AEA Investors Inc., LHI Inc., LH Investors Inc., LH Holdings Inc., Loehmann’s Inc., and Drexel Burnham Lambert Incorporated, Defendants.
    No. 81 Civ. 3483 (JES).
    United States District Court, S.D. New York.
    July 11, 1985.

      Kaufman Malchman & Kirby, P.C., New York City, for plaintiff; Stanley L. Kaufman, Irving Malchman, New York City, of counsel.
    Kelley Drye & Warren, New York City, for defendants AEA Investors Inc., LH Investors Inc. and Loehmann’s, Inc.; Robert Ehrenbard, Arnold S. Klein, New York City, of counsel.
    Cahill Gordon & Reindel, New York City, for defendant Drexel Burnham Lambert, Inc.; Michael P. Tierney, Charles A. Gil-man, David S. Smith, New York City, of counsel.
    Reavis & McGrath, New York City, for defendants George J. Greenberg, Frederick R. Adler, James R. Swartz, Allan S. Gordon, Christopher D. Illick and Cecily C. Selby; David C. Birdollf, Judith B. Yaeger, New York City, of counsel.
    Sage Gray Todd & Sims, New York City, for defendants Anita Loehmann Stafford and John D. Mack; Robert W. Brundige, Jr., Stuart A. Krause, New York City, of counsel.
   OPINION & ORDER

SPRIZZO, District Judge.

Plaintiff Ira L. Mendell owned common stock of defendant Loehmann’s Inc. (“Loehmann’s”) in 1981 when Loehmann’s merged with a company organized and controlled by defendant AEA Investors Inc. (“AEA”). Pursuant to the merger, Loehmann’s common stockholders received $31.30 in cash for each share of common stock. Plaintiff alleges in his Amended and Supplemental Complaint (“Complaint”) that shareholder approval of the merger was obtained in violation of section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), Rule 14a-9, 17 C.F.R. § 240.14a-9, and common law.

Defendants have moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6). The parties submitted, and the Court has considered, matters outside the pleadings, and after oral argument the Court gave plaintiff an opportunity to submit any further information he had to support the allegations of his complaint. Therefore, the motion is treated as one for summary judgment. See Fed.R.Civ.P. 12(b).

Section 14(a) proscribes, inter alia, solicitation of proxies in contravention of the rules and regulations promulgated by the Securities and Exchange Commission. Rule 14a-9 provides, inter alia:

(a) No solicitation subject to this regulation shall be made by means of any proxy statement ... containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading____

17 C.F.R. § 240.14a-9(a). Plaintiff alleges that a proxy statement dated December 9, 1980 (the “proxy statement”) and issued with respect to the merger was false and misleading due to the omission of material facts which, if disclosed, would have indicated that Loehmann’s common stock was worth more than $31.30 per share.

Liability for nondisclosure under section 14(a) and Rule 14a-9 requires (1) omission of a material fact necessary in order to make the proxy statement not false or misleading; (2) omission as the result of knowing, reckless or negligent conduct; and (3) that the proxy solicitation was an essential link in effecting the proposed corporate action. See, e.g., Halpern v. Armstrong, 491 F.Supp. 365, 378 (S.D.N.Y.1980); Berkman v. Bust Craft Greeting Cards, Inc., 454 F.Supp. 787, 791 (S.D.N.Y.1978).

As a preliminary matter, the parties agree, and the Court will assume for purposes of this motion, that negligent conduct may be the predicate for liability. See, e.g., Grass v. Curtis Publishing Co., 534 F.2d 1396, 1403 (2d Cir.), cert. denied, 429 U.S. 887, 97 S.Ct. 240, 50 L.Ed.2d 168 (1976); Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281, 1300-01 (2d Cir.1973); Management Assistance Inc. v. Edelman, 584 F.Supp. 1021, 1028 (S.D.N.Y.1984); Richland v. Crandall, 262 F.Supp. 538, 553 n. 12 (S.D.N.Y.1967). The parties disagree, however, as to whether the defendants were required to disclose the omitted facts in order to make the proxy statement not false or misleading, and whether those facts were material.

The purpose of section 14(a) is to provide full and fair disclosure from which shareholders may draw their own inferences and make their decisions on how to vote. See, e.g., Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381, 90 S.Ct. 616, 620, 24 L.Ed.2d 593 (1970); J.I. Case Co. v. Borak, 377 U.S. 426, 431, 84 S.Ct. 1555, 1559, 12 L.Ed.2d 423 (1964); cf. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 448, 96 S.Ct. 2126, 2131, 48 L.Ed.2d 757 (1976). Therefore, proxy materials need not be perfect, but must simply convey a “sufficiently accurate picture so as not to mislead.” See Kennecott Copper Corp. v. CurtissWright Corp., 584 F.2d 1195, 1200 (2d Cir.1978) (citing Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 800 (2d Cir.1969), cert. denied, 400 U.S. 822, 91 S.Ct. 41, 27 L.Ed.2d 50 (1970)); see also Management Assistance, supra, 584 F.Supp. at 1027.

An omitted fact is material when there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote, see, e.g., TSC Industries, supra, 426 U.S. at 449, 96 S.Ct. at 2132, which requires a showing of “a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder ... [or] that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Id. (footnote omitted). Materiality is a mixed question of law and fact as to which summary judgment may be granted only where reasonable minds could not differ on the issue. Id. at 450, 96 S.Ct. at 2132; see also GAF Corp. v. Heyman, 724 F.2d 727, 737 (2d Cir.1983); Seibert v. Sperry Rand Corp., 586 F.2d 949, 951, 952 (2d Cir.1978).

Most of the allegations of the complaint are legally insufficient because they concern information which defendants were not legally required to disclose. With respect to a few claims, however, the Court cannot say as a matter of law either that the facts alleged were not required to be disclosed or that the omissions were not material.

1. Loehmann’s store leases

Plaintiff claims that store leases held by Loehmann’s, which were listed on the company’s balance sheets as liabilities in the aggregate amount of rent due, were actually valuable assets worth millions of dollars, and that since the “value” of these leases was not reflected in book value, defendants’ failure to list them as assets or to note that they were undervalued was a misleading and material omission.

Plaintiff’s argument that the proxy statement failed to disclose adequate information with respect to the value of the leases is incorrect. The proxy statement described the leases and disclosed all of the information which plaintiff claims made them valuable. Shareholders could decide from those facts whether or not the offered price adequately reflected the “value” of the leases, especially since Loehmann’s stock was traded on a reliable national market and the value of the company’s assets was adequately reflected in the market value. See, e.g., In re New York, New Haven and Hartford Railroad Co. v. Smith, 632 F.2d 955, 962-63 (2d Cir.), cert. denied, 449 U.S. 1062, 101 S.Ct. 786, 66 L.Ed.2d 605 (1980); Seaboard World Airlines, Inc. v. Tiger International, Inc., 600 F.2d 355, 361-62 (2d Cir.1979); Pavlidis v. New England Patriots Football Club, Inc., 737 F.2d 1227, 1234 (1st Cir.1984); South Coast Services Corp. v. Santa Ana Valley Irrigation Co., 669 F.2d 1265, 1271 (9th Cir.1982); Gerrity v. Chapin, [1979-80 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 97,241, at 96,717 (S.D.N.Y. Jan. 9, 1980); Jones v. National Distillers & Chemical Corp., 484 F.Supp. 679, 683 (S.D.N.Y.1979); see also Gerstle, supra, 478 F.2d 1281.

Plaintiff also has cited no authority for his argument that some type of assessment of the commercial value of the leases or a general statement that the leases were undervalued was required. The fact that defendants may have told AEA that Loehmann’s held “valuable” leases does not create a legal obligation to make the same statement to shareholders. See, e.g., Flynn v. Bass Brothers Enterprises, Inc., 744 F.2d 978, 986 n. 12 (3d Cir.1984); South Coast Services, supra, 669 F.2d at 1272 n. 4; In re Brown Company Securities Litigation, 355 F.Supp. 574, 584 (S.D.N.Y.1973); cf. Kohn v. American Metal Climax, Inc., 458 F.2d 255, 265 (3d Cir.), cert. denied, 409 U.S. 874, 93 S.Ct. 120, 34 L.Ed.2d 126 (1972). It follows that since the investors were not misled as to the general nature and terms of the leases, no further disclosure or opinion as to their value was necessary.

2. Loehmann’s future prospects and financial projections

Plaintiffs claim that it was a material and misleading omission to fail to disclose certain information regarding Loehmann’s projected sales figures and its position in the retail industry, is likewise legally insufficient.

Neither the SEC nor the Second Circuit have required that financial projections be included in proxy materials. See, e.g., Gerstle, supra, 478 F.2d at 1292; Flum Partners v. Child World Inc., 557 F.Supp. 492, 499 (S.D.N.Y.1983); Lewis v. Oppenheimer & Co., 481 F.Supp. 1199, 1208 (S.D.N.Y.1979); cf. Rodman v. Grant Foundation, 608 F.2d 64, 72 (2d Cir.1979); Billard v. Rockwell International Corp., 526 F.Supp. 218, 221 (S.D.N.Y.1981), aff'd, 683 F.2d 51 (2d Cir.1982); Straus v. Holiday Inns, Inc., 460 F.Supp. 729, 734 (S.D.N.Y.1978). Moreover, plaintiff must do more than simply state generally that SEC requirements establish a minimum standard for disclosure which is not necessarily exhaustive in every case, without indicating why future prospects or projections had to be contained in order to render this particular proxy statement not misleading. Similarly, as noted above with respect to the leases, it is also insufficient to merely allege that projections were given to AEA in connection with merger negotiations. Cf. Flynn, supra, 744 F.2d at 986 n. 12; South Coast Services, supra, 669 F.2d at 1272 n. 4; Kohn, supra, 458 F.2d at 265; In re Brown, supra, 355 F.Supp. at 584.

The Court also rejects plaintiff’s claim that defendants were required to point out, in addition to all the information contained in the proxy statement, that Loehmann’s was in an “attractive” or “rapid growth segment” of the industry. It is well settled that a proxy statement need not characterize disclosed information. See, e.g., Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F.2d 687, 697 (2d Cir.1973) (quoting SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848-49 (2d Cir.1968) (en banc), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969)); Koppel v. Wien, 575 F.Supp. 960, 968 (S.D.N.Y.1983), rev’d on other grounds, 743 F.2d 129 (2d Cir.1984); cf. Goldberg v. Meridor, 567 F.2d 209, 218 n. 8 (2d Cir.1977), cert. denied, 434 U.S. 1069, 98 S.Ct. 1249, 55 L.Ed.2d 771 (1978). Nor does the law require inclusion of statements which are implicit or self-evident, see, e.g., Management Assistance, supra, 584 F.Supp. at 1027; Klamberg v. Roth, 473 F.Supp. 544, 551 (S.D.N.Y.1979), or information as to which shareholders have access equal to that of defendants, or of which shareholders should already be aware. See, e.g., Rodman, supra, 608 F.2d at 70; Seibert, supra, 586 F.2d at 952; Klamberg, supra, 473 F.Supp. at 552.

Finally, it is clear that in order to not be misleading the proxy materials were not required to state that five unrelated retailers had been sold for premiums over the market price in unrelated transactions. See, e.g., Flum Partners, supra, 557 F.Supp. at 498-99; cf. Koppel, supra, 575 F.Supp. at 968-69. The fact that other transactions might have been negotiated on terms plaintiff may have found more favorable is irrelevant. See, e.g., Koppel, supra, 575 F.Supp. at 968-69; cf. South Coast Services, supra, 669 F.2d at 1273— 74; Halpern, supra, 491 F.Supp. at 380.

3. Fees paid to AEA

The proxy statement disclosed that after the merger it was anticipated that Loehmann’s would engage AEA to provide management services for an annual fee of $300,000. See Proxy Statement at 11. Plaintiff alleges that this statement was misleading because it omitted the material fact that these fees were in an amount never before expended and were for “unnecessary services” which Loehmann’s had never used in the past. See Complaint at ¶ 64.

As noted above, the law does not require that defendants characterize or state conclusions about disclosed facts. See, e.g., Gulf & Western, supra, 476 F.2d at 697; Koppel, supra, 575 F.Supp. at 968; Stein v. Aldrich, [1981-82 Transfer Binder] Fed. Sec.L.Rep. (CCH) 1198,473, at 92,778-79 (S.D.N.Y. July 18, 1980); cf. Goldberg, supra, 567 F.2d at 218 n. 8; Billard, supra, 526 F.Supp. at 221. Nor were defendants required to compare the proposal to past Loehmann’s practices. See, e.g., Rodman, supra, 608 F.2d at 72; cf. Goldberger v. Baker, 442 F.Supp. 659, 664-65 (S.D.N.Y.1977).

Plaintiff also alleges that it was a misleading omission not to state that AEA would obtain a substantial interest in Loehmann’s for little or no consideration, and that this fact, combined with the management fees, a finder’s fee to be paid to AEA, and fees paid to Drexel, “substantially reduced” the price paid to shareholders. See Complaint at ¶¶ 65-66. The underlying facts of the transaction including consideration, AEA’s interests, and all the anticipated fees, were fully disclosed. Each shareholder could come to his own conclusions regarding fairness and the effect on price. The securities laws require no more. See, e.g., Gulf & Western, supra, 476 F.2d at 697; Management Assistance, supra, 584 F.Supp. at 1027; Koppel, supra, 575 F.Supp. at 968; Klamberg, supra, 473 F.Supp. at 551-52; Nemo v. Allen, 466 F.Supp. 192, 195 (S.D.N.Y.1979).

4. Claims against Drexel

Plaintiff contends that (1) Drexel violated section 14(a) by permitting the use of its name to solicit proxies, and (2) Drexel’s opinion with respect to the fairness of the merger price from a financial point of view was materially false and misleading.

Plaintiff does not claim that Drexel actually solicited any proxies, but only that it permitted the use of its name to solicit proxies. To establish liability where there is no active participation in the solicitation effort, there must be a substantial connection between the use of Drexel’s name and the solicitation effort. See, e.g., SEC v. Falstaff Brewing Corp., 629 F.2d 62, 68 (D.C.Cir.), cert. denied, 449 U.S. 1012, 101 S.Ct. 569, 66 L.Ed.2d 471 (1980); Yamamoto v. Omiya, 564 F.2d 1319, 1323 (9th Cir.1977); Lewis v. Byrnes, 538 F.Supp. 1221, 1224 (S.D.N.Y.1982). The cases cited by plaintiff finding liability with respect to those who did not actively solicit but who permitted use of their name to solicit proxies all involved a party to the transaction who would directly benefit by the shareholders’ favorable vote, for example by taking control of the corporation or becoming a director. See, e.g., Falstaff, supra, 629 F.2d at 69; Lewis, supra, 538 F.Supp. at 1224. This is not the case with respect to Drexel.

Moreover, the fact that Drexel may have participated in drafting the proxy statement, as plaintiff alleges, is insufficient to constitute a solicitation. See, e.g., Browning Debenture Holders’ Committee v. Dasa Corp., 72 Civ. 1332, slip op. at 4 (S.D.N.Y. April 18, 1975), aff'd, 560 F.2d 1078 (2d Cir.1977); Gould v. American Hawaiian Steamship Co., 351 F.Supp. 853, 865 (D.Del.1972). Therefore, the Court sees no basis for finding Drexel liable under section 14(a) for permitting use of its name to solicit proxies. Since plaintiff does not allege that Drexel directly solicited any proxies or was a party to such solicitations, any claim of liability as a principal against Drexel is legally insufficient. See, e.g., Iroquois Industries, Inc. v. Syracuse China Corp., 417 F.2d 963, 970 (2d Cir.1969), cert. denied, 399 U.S. 909, 90 S.Ct. 2199, 26 L.Ed.2d 561 (1970); Robbins v. Banner Industries, Inc., 285 F.Supp. 758, 761-62 (S.D.N.Y.1966); Osofsky v. Zipf 78 Civ. 0071 (JMC), slip op. at 10 (S.D.N.Y. May 24, 1983).

Drexel also cannot be sued as an aider and abettor, because plaintiff has failed to allege the requisite scienter. 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, 922, 925-27 (2d Cir.1980); Gould v. American-Hawaiian Steamship Co., 535 F.2d 761, 779-80 (3d Cir.1976). In fact, plaintiff has expressly stated that he does not charge Drexel with fraudulent or intentional misconduct. See, e.g., Plaintiff’s Memorandum of Law in Opposition to Defendants’ Motion to Dismiss the Amended and Supplemental Complaint at 33-34; cf. Mendell Deposition at 325-31.

Finally, plaintiff contends that Drexel’s fairness opinion was false and misleading because, since Drexel knew all the information allegedly omitted from the proxy statement, it also knew the merger price was inadequate. The Court has already determined that Drexel can not be liable pursuant to section 14(a). Plaintiff has not sued under any other provision, such as section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), or Rule 10b-5, 17.C.F.R. § 240.10b-5. Indeed, as noted above, plaintiff has expressly stated that he does not charge Drexel with fraud or intentional misconduct, and therefore a claim pursuant to section 10(b) could not stand. See, e.g., Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976); Billard v. Rockwell International Corp., 683 F.2d 51, 56-57 (2d Cir.1982). It follows, therefore, that Drexel is entitled to dismissal of all claims against it.

5. Motivation of Loehmann family shareholders

Plaintiff alleges that at the time of the merger the Loehmann family shareholders had to make a prompt sale of their Loehmann’s stock, with price being relatively unimportant, because, inter alia, they urgently needed to raise money to pay estate taxes. See Complaint at ITU 46, 47, 49. Plaintiff contends that this placed the Loehmann family in conflict with the interests of other shareholders, and that the failure to disclose these personal motivations was a misleading and material omission.

A proxy statement need not set forth subjective motivations underlying the vote of a director or controlling shareholder as long as all the material facts regarding their personal interests are disclosed. See, e.g., Rodman, supra, 608 F.2d at 71; Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 803 (2d Cir.1969), cert. denied, 400 U.S. 822, 91 S.Ct. 41, 27 L.Ed.2d 50 (1970); Koppel, supra, 575 F.Supp. at 967; Gluck v. Agemian, 495 F.Supp. 1209, 1214-15 (S.D.N.Y.1980); Lewis, supra, 481 F.Supp. at 1204; cf. Data Probe Acquisition Corp. v. Datatab, Inc., 722 F.2d 1, 5 (2d Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 1326, 79 L.Ed.2d 722 (1984); SEC v. Parklane Hosiery Co., 558 F.2d 1083, 1086 (2d Cir.1977).

It seems clear from the information contained in the proxy statement that the Loehmann family had their own interests and reasons for voting in favor of the merger. The proxy statement disclosed, inter alia, that their decision to sell coincided with the deaths of Charles Loehmann, company founder, and his wife, and explained how the family’s efforts to find an opportunity to dispose of their stock led to the merger proposal. However, the Court cannot say as a matter of law that disclosure of the particular facts regarding estate tax liability was not necessary in order to make the proxy statement not misleading, or that there is no genuine issue as to whether those facts would have been material to a reasonable shareholder. Cf. SEC v. Parklane Hosiery, supra, 558 F.2d 1083. While a jury may well determine this information would not have significantly altered the total mix of information available, the issue must be left to a jury to decide.

It is SO ORDERED.

6. AEA’s alleged agreements with Greenberg and Adler

Plaintiff alleges that the proxy statement should have disclosed that AEA had an informal, “handshake” agreement with defendant Greenberg regarding an increase in his compensation after the merger, see Complaint at 1167, and an agreement with defendant Adler that his law firm would remain counsel to Loehmann’s after the merger. See id. at 1163. Defendants contend that, because the proxy statement disclosed that these agreements were expected to be made after the merger, omission of the fact that they were already made, if true, would not render the proxy statement false or misleading, and would not be material.

The law provides that shareholders are entitled to disclosure of all the material facts regarding the interests of and benefits to management and directors pursuant to a proposed transaction. See, e.g., Lewis, supra, 481 F.Supp. at 1203-04; cf. Data Probe Acquisition Corp., supra, 722 F.2d at 5. The Court agrees with plaintiff that the failure to reveal an actual agreement with Greenberg or Adler might be false and misleading, and that a jury might find this omission to be material.

However, as defendants correctly note, plaintiff has failed to set forth adequate facts that the agreements he alleges actually existed, and these allegations are thus properly subject to dismissal. They may also be subject to sanctions pursuant to Fed.R.Civ.P. II.

Were this the only issue remaining in the case, the Court would feel constrained to grant the defendants’ motion. However, given that discovery will proceed on the allegations regarding estate tax liability discussed above, the Court will permit these allegations to stand as well, so that the Court can determine with finality the merits of these claims.

CONCLUSION

All claims against defendant Drexel are dismissed. With respect to the other defendants, the complaint is dismissed as legally insufficient, with the exception of (1) the allegations regarding the Loehmann family’s estate tax obligations, and (2) the allegations concerning AEA’s agreements with defendants Greenberg and Adler. The motions are denied with respect to those allegations as they may present issues of fact that must be determined at trial.

The parties shall complete all discovery regarding the remaining claims on or before October 31, 1985. A Pre-Trial Order shall be prepared in accordance with the Court’s directions and shall be filed on or before November 30, 1985. All parties shall be ready for trial on January 1, 1986, and thereafter counsel for all parties shall be prepared to proceed to trial on twenty-fours hours’ notice by the Court. A PreTrial Conference shall be held on November 15, 1985 at 10:00 A.M.

      . In addition to Loehmann’s and AEA, defendants are George J. Greenberg, president, chief executive officer and director of Loehmann’s; Frederick R. Adler, secretary and director of the company; James R. Swartz, Anita Loehmann Stafford, Allan S. Gordon, Christopher D. Illick, Cecily C. Selby, and John D. Mack, directors of Loehmann's; LHI, Inc. and LH Holdings Inc., both formed and controlled by AEA for the purposes of effectuating the merger; LH Investors Inc., sole owner of LH Holdings Inc.; and Drexel Burnham Lambert, Inc. (“Drexel”), an investment bank.
      Donald H. Balleisen and Kenneth J. Thornhill, named as defendants in the complaint, were never served and therefore are not parties to the action.

      . Defendants do not dispute that the particular statements or facts plaintiff claims should have been disclosed in the proxy statement were not, in fact, included. There is, therefore, no issue of fact as to whether or not these things were omitted. They also do not contest that the proxy statement was an essential link in effecting the merger.

      . Drexel argues that scienter is required to establish its liability under section 14(a) because it acted as an independent professional advisor, citing, inter alia, Adams v. Standard Knitting Mills, Inc., 623 F.2d 422, 428 (6th Cir.), cert. denied, 449 U.S. 1067, 101 S.Ct. 795, 66 L.Ed.2d 611 (1980). The Court need not resolve that issue, however, as it dismisses the claims against Drexel on other grounds.
      Defendants also moved to dismiss pursuant to Fed.R.Civ.P. 9(b) for failure to plead fraud with the requisite particularity. Counsel for plaintiff stated, both in his motion papers and in open court, that the complaint does not allege fraud, intentional misrepresentation, or violation of section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), but only negligence, and that for this reason Rule 9(b) does not apply. Therefore, defendants’ Rule 9(b) motion is denied. Any allegations in the complaint sounding in fraud or intentional conduct shall be treated as surplusage.

      . This included the number of leases, a general description of the sizes and types of locations of the rented properties, past annual total rent on the stores, aggregate minimum future rental commitments, the fact that the leases had varying expiration dates up to 2000, and that renewal options for five to twenty-five years were available on almost all the leases. See, e.g., Proxy Statement, Exhibit C to Affidavit of Robert Ehrenbard (June 17, 1983) ("Proxy Statement”) at 18 n. 1, 20, 25, 26, 44.

      . Plaintiff does not set forth any particular method of valuing the leases that he claims should have been disclosed. As defendants correctly note, where there is a reliable market value courts have not required disclosure of any valuation of assets. This includes liquidation value, which is only relevant where a transaction is for liquidation purposes. See, e.g., In re New York, 632 F.2d at 962-63; Seaboard, supra, 600 F.2d at 361-62; Pavlidis, supra, 737 F.2d at 1234; South Coast Services, supra, 669 F.2d at 1271; Gerrity, supra, [1979-80 Transfer Binder], at 96,717. This is clearly not the case here. Moreover, while the SEC has authorized voluntary disclosure of asset appraisals made in good faith and on a reasonable basis in proxy contests where liquidation or other disposition of assets is an issue, see SEC Release No. 34-16833 (May 23, 1980), reprinted in Fed.Sec.L.Rep. (CCH) ¶ 24,117, there is no rule requiring the making or inclusion of appraisals.

      . Plaintiff also notes that the SEC’s Comments regarding the preliminary proxy materials provided that “any material deviation from book value known by management should be disclosed.” See Affidavit of Stanley L. Kaufman, Exhibit E, at 2 (Feb. 1, 1984). Those same Comments, however, stated that the proxy statement should simply "indicate whether or not any fixed asset appraisals have been recently made." Id. at 1. The proxy statement disclosed that no recent appraisal of assets existed, see Proxy Statement at 2, 9, in compliance with the SEC Comments. Cf. General Time Corp. v. Talley Industries, Inc., 403 F.2d 159, 163 (2d Cir. 1968), cert. denied, 393 U.S. 1026, 89 S.Ct. 631, 21 L.Ed.2d 570 (1969).

      . Plaintiff contends that the proxy statement should have revealed that:
      (a) Loehmann’s was in an attractive and rapid growth segment of retailing.
      (b) Loehmann’s with sales of $160,000,000 "could well achieve a sales level of $450,000,-000 in the next five years” (1980 through 1985).
      (c) Loehmann’s would reach sales of $253,-000,000 [sic] by 1983. (Loehmann’s actually reached sales of $260,000,000 for the fiscal year ended January 24, 1983.)
      (d) Off-price retailers such as Loehmann's are in "one of the best growth segments of the retailing industry” (supported by sales growth figures), and "Loehmann’s is one of the best established companies in this industry”.
      (e) Five comparable retail chains had been sold for substantial premiums over the stock market price of their shares, whereas the public was being merged out of Loehamnns [sic] at approximately the stock market price of its shares.
      Complaint at ¶ 44.

      . While the SEC has formulated safe harber rules for certain voluntarily disclosed and well-founded projections, see, e.g., 17 C.F.R. § 230.-175; 17 C.F.R. § 240.3b-6, these do not require that projections be included in proxy materials. Cases cited by plaintiff requiring disclosure where tippees traded on unrevealed inside information regarding a company’s future prospects or where defendants were charged with deception and self-dealing are inapposite, as no such facts have been alleged in the complaint or argued on this motion. Plaintiff has cited no authority for the proposition that, absent such circumstances, projections must be disclosed.

        . Plaintiff has filed excerpts from proxy statements issued by other companies in totally unrelated transactions, where projections were made and the value of assets was discussed. These documents are clearly irrelevant to the action before the Court. See, e.g., Lewis, supra, 481 F.Supp. at 1205.

      . Plaintiff also alleges that Drexel was in an undisclosed conflict of interest because it purported to represent the best interests of the Loehmann family, AEA, and the Loehmann's shareholders. However, each fact which plaintiff argues as proof of the conflict of interest was included in the proxy materials.
      Furthermore, the facts regarding Drexel were not obscured, buried, scattered, or found under inappropriate headings, as plaintiff contends, but were,stated clearly, with the most extensive discussion being under headings of “Background of the Merger” and "Investment Bankers’ Opinion." See Proxy Statement at 8, 10. While plaintiff argues that the information about Drexel could have been more simply stated, defendants were not required to present facts in any particular way, as long as the proxy materials were not misleading. See, e.g., Kennecott Copper Corp., supra, 584 F.2d at 1200; Richland, supra, 262 F.Supp. at 553-54. As there was full and fair disclosure of Drexel’s involvement and interests, it follows that any claim based upon the failure to disclose Drexel’s alleged conflict of interest cannot stand. See also Browning Debenture Holders' Committee v. DASA Corp., 560 F.2d 1078, 1084 (2d Cir.1977); Dofflemyer v. W.F. Hall Printing Co., 558 F.Supp. 372, 385 (D.Del.1983); Rodman v. Grant Foundation, 460 F.Supp. 1028, 1038 (S.D.N.Y.1978), affirmed, 608 F.2d 64 (2d Cir.1979).

      . Because the Court is dismissing all federal claims as to Drexel, it declines to exercise pendent jurisdiction over the common law claims against Drexel. See, e.g., United Mine Workers of America v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966); McLearn v. Cowen & Co., 660 F.2d 845, 848 (2d Cir.1981).

      . At his deposition, plaintiff stated that he had no personal knowledge of the Loehmann family’s tax situation or other alleged motivations, but based his allegations on "businessman’s logic” or "inference." See, e.g., Mendell Deposition at 158-73, 195-97, 269-70, 277-78. Counsel for plaintiff stated at oral argument that at the time the complaint and amended complaint were filed he only assumed based on “common sense inference” that the Loehmann family had estate tax problems. After oral argument on this motion, plaintiff submitted state and federal tax documents regarding the estates of Charles and Anita Loehmann, which were obtained by plaintiff’s counsel after the filing of the amended complaint, and which indicate an aggregate estate tax liability of more than $9 million.
      Defendants have moved for sanctions pursuant to Fed.R.Civ.P. 11, claiming that plaintiff had no factual basis for the allegations in his complaint at the time it was filed, but rather sued on the basis of pure speculation. While defendants’ argument that the allegations were not properly substantiated when made has some merit, this is not the appropriate time to rule on that issue. Rule 11 is designed to deter attorneys from making nonmeritorious claims which cost their opponents time and money to resist. Even assuming a violation exists here, however, the Court is not convinced that the purposes of the Rule would be well served by affording defendants the benefits of Rule 11 where the facts alleged, although unsubstantiated when first made, turn out to be true. Therefore, the Court will await a determination as to the truth or falsity of these allegations before deciding on defendants’ Rule 11 application.

      . Plaintiff also alleges that defendant Stafford would pay no or little capital gains tax on the sale of her stock due to her tax situation, see Complaint at ¶ 48, and that the family had a strong interest in assuring the continuation of the business under the Loehmann name. See id. at ¶ 51.
      The proxy statement herein did note that the merger would be a taxable transaction, and advised each shareholder to consider the tax consequences given his particular situation. See Proxy Statement at 4-5, 15-16. However, the law does not require proxy materials to state that sale of stock pursuant to a merger will have differing tax consequences for each shareholder. See, e.g., Lewis v. Oppenheimer, supra, 481 F.Supp. at 1205-06; Lewis v. Dansker, 357 F.Supp. 636, 642-43 &.n. 8 (S.D.N.Y.1974), modified on other grounds, 68 F.R.D. 184 (S.D.N.Y. 1975). Proxy materials also need not disclose that certain individuals or groups have an obvious personal interest such as continuing a business under a family name. See, e.g., Rodman, supra, 608 F.2d at 71. Therefore, these allegations are insufficient as a matter of law.
      Plaintiff also alleges that defendants Stafford and Mack abstained from voting for directors in September 1980. See Complaint at ¶ 50. Defendants contend that even if true, there was no requirement to state this, as it is irrelevant to the December 1980 proxy solicitation regarding the AEA merger. Plaintiff does not even address this contention. The Court can see no reason why omission of this information would be either misleading or material with respect to the merger.

      . Plaintiff stated at his deposition that he simply inferred the existence of such agreements from the material disclosed in the proxy statement. See, e.g., Mendell Deposition at 128-30, 197-202. This cuts against plaintiffs argument that the proxy statement was misleading in this regard.


source: Caselaw Access Project

author: NAUMAN S. SCOTT, District Judge.

license: Public Domain

text:
    Vernon Gene BAUM and Pamela Baum v. TRANSWORLD DRILLING COMPANY.
    Civ. A. No. 82-2927.
    United States District Court, W.D. Louisiana, Alexandria Division.
    July 11, 1985.
    Broussard, Bolton & Halcomb, Roy S. Halcomb, Jr., Alexandria, La., for plaintiffs.
    Deutsch, Kerrigan & Stiles, Bert M. Cass, Jr., New Orleans, La., for defendant.
   OPINION

NAUMAN S. SCOTT, District Judge.

The Jones Act negligence and unseaworthiness claims were decided by jury on May 2, 1985. Although the jury awarded prejudgment interest at the rate of 1% to Vernon Gene Baum (Baum), the jury did not find that Rig No. 70, owned by Trans-world Drilling Company (Transworld), was unseaworthy. Therefore, prejudgment interest cannot be awarded in this case. The issue now before the Court is: What amounts for maintenance and cure is Baum entitled to?

FINDINGS OF FACT

The Interrogatories answered by the jury revealed that they found that Baum’s back injury was suffered while he was in the service of Transworld Rig No. 70. We defer to that finding of fact.

The undisputed testimony of Dr. Gamburg was that' the plaintiff reached maximum medical cure on August 23, 1982, 248 days after December 18, 1981, the date of injury.

The parties have stipulated to the rate of maintenance at $20 per day for the plaintiff’s back injury. We find that the total maintenance due for the back injury, absent any set off, is $4,960.

Medical bills, incurred as a result of Baum’s back injury, which have not been paid by Transworld, are due as cure, absent any set off, in the amount of $4,708.46.

It was stipulated by counsel for both parties that the groin injury did occur while the plaintiff was in the service of Trans-world Rig No. 59.

We find that the plaintiff has received full maintenance and cure for the groin injury.

Baum has received $9,360 in income protection insurance benefits. In purchasing this protection, 50% of the premiums were paid by Baum and 50% of the premiums were paid by Transworld. Baum also has received the benefit of $2,906.75 in medical payments under a group health protection plan. Baum paid 49% of the premiums on this health protection plan and Transworld paid 51% of the premiums on the same plan.

CONCLUSIONS OF LAW

Maintenance and cure is not based in tort. Adams v. Texaco, Inc., 640 F.2d 618, 620 (5th Cir.1981). Therefore, the collateral source rule in tort is not strictly applied to maintenance and cure claims. Gauthier v. Crosby Marine Service, Inc., 752 F.2d 1085, 1089 (5th Cir.1985).

Where a seaman has alone purchased medical insurance, there will not be a set off on the maintenance and cure obligation for the benefits received from the insurance. Gauthier, supra, at p. 1090. However, to the extent that the seaman incurs no expenses, the shipowner should be entitled to a set off for that portion of the insurance benefits which are furnished at no expense to the seaman. “The general rule is that the vessel owner has no obligation to provide maintenance and cure if it is furnished by others at no expense to the seaman. Vaughn v. Atkinson, 369 U.S. 527, 82 S.Ct. 997, 8 L.Ed.2d 88 (1962); Marine Drilling, Inc. v. Landry, 302 F.2d 127, 128 (5th Cir.1962); Field v. Waterman Steamship Corp., 104 F.2d 849 (5th Cir.1939).” Gauthier v. Crosby Marine Service, Inc., 536 F.Supp. 269 (E.D.La.1982); aff'd 752 F.2d 1085 (5th Cir.1985). (Emphasis ours).

We find that the portion of insurance purchased by Transworld reduced the amount of expenses that were incurred by Baum and to that extent Transworld is entitled to a set off on its maintenance and cure obligation.

Accordingly, we find that of the $9,360 received by Baum in income protection insurance, 50% of which was purchased by Transworld, Transworld is entitled to a set off of $4,680 towards satisfaction of its maintenance obligation on Baum’s back injury. The net sum due to Baum for maintenance is $280.

We also find that of the $2,906.75 in medical expenses paid by the group health insurance, 51% of which was purchased by Transworld, Transworld is entitled to a set off of $1,482.45 towards satisfaction of its cure obligation on Baum’s back injury. The net sum due to Baum for cure is $3,226.01.

A judgment shall be submitted to this Court in accordance with this Opinion and with the jury's findings within ten (10) days of the signed date.


author: BILLINGS, District Judge.

text:
    William E. BROCK, Secretary of Labor, United States Department of Labor, Plaintiff, v. Marilyn FORBES, Defendant.
    Civ. A. No. 84-238.
    United States District Court, D. Vermont.
    July 11, 1985.
    Albert H. Ross, Regional Sol., David A. Snyder, U.S. Dept, of Labor, Office of the Sol., Boston, Mass., for plaintiff.
    Chester S. Ketcham, P.C., Middlebury, Vt., for defendant.
   JUDGMENT

BILLINGS, District Judge.

Plaintiff has filed his complaint and the defendant appeared by counsel, filed answer to the complaint and, without admitting liability, agrees to the entry of this judgment without contest.

It is, therefore,

ORDERED, ADJUDGED and DECREED that defendant, her agents, servants, employees, and all persons acting or claiming to act in their behalf and interest be, and they hereby are, permanently enjoined and restrained from violating the provisions of the Fair Labor Standards Act, as amended (29 U.S.C. § 201 et seq.), hereinafter referred to as the Act, in any of the following manners;

The defendant shall not, contrary to sections 6 and 15(a)(2) of the Act pay any employees who, in any workweek, are employed in commerce, or in the production of goods for commerce, or in an enterprise engaged in commerce or in the production of goods for commerce, as defined by the Act, wages at rates less than the applicable minimum wage.

Defendant shall not fail to make, keep, and preserve records of employees and of the wages, hours, and other conditions and practices of employment maintained by them as prescribed by the regulations issued, and from time to time amended, pursuant to section 11(c) of the Act and found in 29 CFR 516.

Further, the Court finding as agreed to by the defendant, but without admitting liability therefor, that employees are due compensation in the amount of $60,000 as shown on attached Exhibit “A” which is incorporated in and made a part hereof, it is

ORDERED, ADJUDGED and DECREED that the defendant is restrained from withholding payment of said compensation.

The defendant represents that she has been in compliance with the Act since October, 1983. In resolving the amount of back wages in this judgment, the plaintiff has relied on this representation and, accordingly, the back wage provision of this judgment shall have no effect upon any back wages which may have accrued since that date.

Defendant shall not, under any circumstances, accept and keep any amount returned to her by a person owed compensation under this judgment. Any such amount shall be immediately paid to the plaintiff for deposit with the Treasurer of the United States.

The back-wage provisions of this judgment shall be deemed satisfied when the defendant delivers to the plaintiff the sum of $64,230 which includes the employer’s and employees’ shares of social security, pursuant to the following installment plan: $4,587.86 not later than June 1, 1986, and installments in the amount of $4,587.86 every six months thereafter until the back-wage provisions of this judgment are satisfied.

The plaintiff shall distribute the checks, or the proceeds thereof, to the persons listed in Exhibit “A” attached hereto, or to their estates if that be necessary, and any money not so paid within a period of three years from the date of receipt thereof, because of inability to locate the proper persons or because of their refusal to accept it, shall be deposited with the Clerk of this Court, who shall forthwith deposit such money with the Treasurer of the United States, pursuant to 28 U.S.C. § 2041.

It is further ORDERED, ADJUDGED and DECREED and each party hereby agrees to bear its own fees and other expenses incurred by such party in connection with any stage of this proceeding.

EXHIBIT A

Velma Adams $ 313.54
Madeline Adzima 635.67
Margaret Aher 42.95
Alice Allen 21.48
Frances Anderson 21.48
Marilyn Anderson 678.62
Brenda Ash 120.26
Marilyn Baldwin 25.77
Janet Barker 21.48
Barbara Barbour $ 485.34
Pat Barbour 317.84
Marilyn Barron 283.47
Linda Beaudry 43.81
Rita Belden 206.16
Laurie Bessette 127.78
Patty Berezny 34.36
Caroline Biraudi 21.48
Delores Bishop 436.38
Vicki Bishop 148.18
Martha Blumfield 38.66
Florence Booth 608.18
Kathleen Borneman 25.77
Pat Borneman 1,064.53
Marie S. Boyle 283.47
Beatrice Bowen 427.36
Caroline Bowen 1,364.97
Jeanette Bowen 127.56
Cynthia Brock 21.48
Ethel Brown 34.36
Pat Brown 373.67
Stephanie Brown 285.62
Rosemary Bruce 76.88
Doris Buckman 38.66
Midge Bueddeman 667.45
Shannon Buehler 5.48
Sandra Bugbee 252.26
Evette Buinicky 42.95
Alice Bull 21.48
Norma Burke 128.85
Joy Burrows 63.57
Eunice Cahill 552.78
Debbie Cammarata 44.84
Doris Carpenter 268.01
Marjorie Carpenter 322.13
Vera Carpenter 172.80
Florence Carver 22.12
Patricia Casey 112.67
Amanda Chase 21.48
Jean Chase 83.75
Alice Cheney 17.18
Loreen Clark 21.48
Anne Cole 52.54
Elaine Cole 35.60
Shirley Collins 244.82
Katherine Combs 17.18
Gayle Cook 12.88
Ermilia Copley 317.84
Dawn Cornell 47.25
Maude Corse 21.48
Pat Cote 21.48
Shirley Cottrell 25.77
Bernadette Cowdrey 1,779.02
Sylvia Crandall 25.77
Shirley Curtis 21.48
Mabel Davis 146.03
Rogene Davis 47.25
Teresa Davis 1,279.93
Teena Davis 188.98
Martha DeLorenzo 10.95
Alice Derosia 21.48
Kathleen Dickson 21.48
Charlotte Dole $ 17.18
Karen Dominque 193.28
Diane Deperah 52.54
Marie Driscoll 34.36
Millie Dufresne 625.79
Barbara Duncan 133.15
Alice Dutcher 563.51
Jan Easterly 128.85
Kathy Edgar 506.82
Cindy Faughnan 21.48
Pat Ferraro 64.43
C.C. Fifield 68.72
Lynn Fitzgerald 133.15
Cindy Fitzgibbons 386.56
Sandra Flint 18.90
Carol Fortune 42.95
Margorie Foster 85.90
Jenny Fraczek 1,412.65
Marjorie Fry 14.60
Tuulia Fuller 21.48
Joan Gardner 77.31
Marion Garneau 167.51
Alma Ghilardi 55.84
Ann Gifford 4.30
Marilyn Gilbert 3.87
Marie Giles 17.18
Phyllis Gillotti 48.80
Edith Gintoff 619.78
Jeanann Glassford 21.48
Florence Gottier 96.64
Janine Grange 55.84
Marilyn Gray 77.31
Meri Beth Green 42.95
Karen Griggs 52.54
Jangie Gunzinger 214.75
Florence Halloren 17.18
Lori Hampton 150.33
Ida Heller 279.18
Ella Hilder 21.47
Loreen Hitchcock 176.10
Helen Hoffman 21.47
Susan Holling 17.18
Linda Hooker 52.54
Bertha Horton 85.90
Barbara Hume 107.38
Lera Hunt 600.45
Gretchen Hurst 30.07
Brenda Johnson 104.05
Kristina Johnson 66.57
Mary Johnson 81.61
Paula Jones 214.75
Marjorie Jones 48.10
Helen Jordon 296.36
Sylvia Kallen 30.07
Beverly Kennett 1,023.95
Katheryn Kasek 232.93
Rene Kheinman 129.71
Pam Kilborne 42.95
Nancy Kingsburg 12.89
Jean La Bombard 128.85
Catherine LaBounty $ 21.47
Phyllis Laitineau 103.08
Janet Langdon 46.82
Bredda Langevin 124.56
Carol Lynn Little 54.76
Becky Langley 462.72
Beatrice Lannon 21.48
Bernice LaPorte 17.18
Evelyn Larson 85.90
Yvonne Lawrence 330.72
Jean Leonard 12.89
Wanda Leonardkrantz 154.62
Ann Lewis 21.48
Pam Lindberg 1,044.99
Nadia Loubon 3,822.57
Teresa Louis 103.08
Margaret Lucius 5.48
Elizabeth Maclver 27.92
Nancy Macey 21.90
Jean Maly 829.38
Marilyn Marlar 416.62
Brenda Jean Matthews 107.38
Beverly Maynard 677.33
Susan McCart 21.48
Judith McCullough 15.03
Lillian McCullough 874.48
Jean McCurdy 304.95
Veronica McFall 223.34
Edith McNair 42.95
Carolyn Milo 149.47
Claire Minard 425.22
Johann Mitchell 213.04
Gail Moffatt 343.62
Marjorie Monica 57.43
Estelle Monroe 528.30
Patricia Moore 312.68
Arveen Nash 869.75
Brenda Nelson 42.95
Barbara Nickerson 163.22
Martha O’Clair 66.14
Karen Orchitt 154.62
Marilyn Marjar 565.23
Lorraine Martine 143.88
Elizabeth Quellette 192.13
Susan Owens 122.41
Catherine Palmeater 85.90
Pauline Parker 21.48
Roberta Parker 292.07
Kay Orton 77.32
Bernadette Osmer 382.26
Anna Ostrowskin 1,142.49
Leonarda Ostrowski 223.34
Elsie Patella 107.38
Suzanne Pauquette 34.36
Dorina Pellegier 212.61
Edie Perkins 34.36
Dell Peterson 57.98
Cathey Pettinato 42.95
Barbara Phelps 124.56
Kathleen Pitman 25.77
Victoria Pomeroy 47.25
Mary Potter 317.84
Edith Priest $ 472.46
Gayle Pringle 21.48
Mary Jane Protus 131.00
Elsie Quiltmeyer 633.52
Evelyn Rabideau 146.03
Ann Rainville 219.05
Brenda Raleigh 42.95
Jane Raupack 524.00
Ellen Reyome 21.48
Rosalie Rhoades 150.33
Bea Rhodes 25.77
Nancy Richmond 66.57
Dorothy Riford 85.90
Catherine Rinn 377.97
Margaret Riter 919.15
Kathie Roby 258.20
Kathy Roehrs 21.48
Mary Roesing 405.45
Anna Rogers 343.61
Alice Roucoulet 579.83
Bernice Russ 42.95
Helen Ross 21.48
Patty Sager 128.85
Lorraine St. Aubin 105.23
Jeanne Saben 408.03
Julie Sablock 58.72
Judy Schnaderbeck 112.67
Tawna Seaver 313.54
Eileen Seymour 21.48
Carlene Shattlock 42.95
Susan Sheehan 182.54
Connie Sieman 1,356.09
Marie Smiley 59.49
Barbara Smith 133.15
Eleanor Smith 42.95
Deborah Snelling 5.48
Jenny Sousa 64.43
Alicia Spiak 255.13
Betty Squire 171.80
Lynne Stankjus 295.93
Helen Steele 103.08
Nada Steele 489.64
Janet Stewart 21.48
Beverly Stocker 64.43
Frances Summer 180.39
Betty Tatro 19.76
Andrea Taylor 180.39
Dorothy Taylor 8.59
Jocelyn Thomas 180.39
Barbara Trottier 446.69
Judith Tucker 64.43
Pat Tufts 1,340.92
Juanita Turco 42.95
Jeanette Twandowski 10.74
Karen Tyler 25.77
Trini Valdes 51.54
Eleanor Walker 1,823.69
Mildred Ward 21.48
Marie Westrey 841.83
Velma Wheeler 98.79
Debra Wilson $ 10.95
Ruth Wood 81.61
Janet Woodbridge 38.66
Kathy Woods 75.16
Sandra Wright 677.33
Marion Young 283.47
TOTAL $60,000.00


author: CHARLES R. RICHEY, District Judge.

text:
    IVANHOE CITRUS ASSOCIATION, et al., Plaintiffs, v. Honorable James C. HANDLEY, et al., Defendants, Capital Legal Foundation, Defendant-Intervenor.
    Civ. A. No. 85-2106.
    United States District Court, District of Columbia.
    July 12, 1985.

      Julian B. Heron, Jr., Edward M. Ruckert, and Christine Coffey Ryan of Heron, Burchette, Ruckert & Rothwell, Washington, D.C., for plaintiffs.
    Jonathon Young and Barbara L. Gordon, Attorneys, Dept, of Justice, Federal Programs Branch, Washington, D.C., also on brief: Richard K. Willard, Acting Asst. Atty. Gen., and Joseph E. diGenova, U.S. Atty., Washington, D.C., for defendants.
    Anthony S. Murry, of the Capital Legal Foundation, Washington, D.C., for defendant-intervenor.
   INTRODUCTION

CHARLES R. RICHEY, District Judge.

This is a “reverse” Freedom of Information Act (“FOIA”) case, in which plaintiff seeks to enjoin defendants’ release of certain documents to defendant-intervenor. The case is before the Court on plaintiffs’ motion for summary judgment, defendants’ motion to dismiss or, in the alternative, for summary judgment, and defendant-intervenor’s cross motion for summary judgment. The parties agree that there is no dispute over any material facts, and, for the reasons stated below, the Court grants defendants’ and defendant-intevenor’s motions for summary judgment.

The parties in this case are involved in the orange production business. There are three types of entities involved in the process of producing oranges and eventually tetting them to market. There are the growers, who produce the oranges; the handlers, who generally contract with the growers to pick the oranges, pack them, and sell and distribute them; and the marketing organizations, who buy the oranges from the handlers and sell them to wholesale and retail outlets.

Plaintiffs in this action are handlers, or groups containing members who are handlers, of California and Arizona navel and Valencia oranges. As handlers, they have contracts with certain growers for packing and distributing oranges. Pursuant to requests of defendants, the United States Department of Agriculture (“USDA”) and certain of its agents, plaintiffs have submitted to defendants information which includes the names and addresses of growers from whom they receive navel and Valencia oranges. Defendant-intervenor Capital Legal Foundation (“Capital”) is a non-profit law firm which has requested some of this information from defendants.

PROCEDURAL HISTORY

On August 14, 1984, pursuant to FOIA, 5 U.S.C. § 552, Capital requested from defendants a list of names and addresses of orange growers, which list was generated by defendants in connection with a grower referendum. This request was made on behalf of Carl Pescosolido, a grower and handler of navel and valencia oranges in California. On May 15, 1985, receiving an unsatisfactory response from defendants, Capital filed suit in this Court seeking to obtain, pursuant to FOIA, the lists. Capital Legal Foundation v. USDA, Civil Action No. 85-1557. On June 26, 1985, Capital and USDA settled their lawsuit, agreeing that USDA would turn over the requested document by Monday, July 1,1985. On June 27, 1985, some of the plaintiffs herein, not realizing that the case had been settled and dismissed, and believing that the requested documents contained confidential lists of growers under contracts with the handler plaintiffs, filed a motion to intervene in Civil Action No. 85-1557. Having filed to late to intervene, plaintiffs on Friday, June 28, 1985, filed this “reverse” FOIA action seeking to enjoin the release of the list of orange growers. Plaintiffs also moved for a temporary restraining order. That same day, the Court held a hearing on the motion, which the Court granted.

GOVERNMENTAL REGULATION OF THE PRODUCTION OF ORANGES

The Agricultural Marketing Agreement Act of 1937 (“AMAA”, or “Act”), 7 U.S.C. § 601 et seq., represents Congress’s intention to allow the Secretary of Agriculture to establish orderly marketing conditions for agricultural commodities. See id. § 602. The Secretary may establish marketing agreements with growers, handlers, and others in the trade, which agreements are exempt from the prohibitions of antitrust laws. Id. § 608b. Pursuant to the authority granted to the Secretary under the Act, the Secretary enacted Marketing Orders 907 and 908 to regulate the handling of navel and Valencia oranges, respectively, in the continental United States and Canada. 7 C.F.R. Parts 907 and 908. Essentially, the marketing orders regulate the flow of fresh oranges to market by permitting each handler to ship a certain percentage of the total amount of oranges to be handled. See 7 U.S.C. § 608c. Marketing orders 907 and 908 each established an Administrative Committee for navel and Valencia oranges, respectively. 7 C.F.R. §§ 907.20 and 908.20. The Administrative Committees are designed to generally administer the orders, to recommend amendments, and to act as intermediaries between the Secretary and growers and handlers. Id. §§ 907.28, 907.29, 908.28, 908.29.

Under the AMAA, the Secretary of Agriculture must conduct a referendum of growers or processors to determine whether a new marketing order is favored by the growers or processors. 7 U.S.C. § 608c(19). The Secretary may, but is not required to, conduct such referenda in the case of an amendatory order. Id. The AMAA does not require the Secretary to keep confidential any information obtained pursuant to 7 U.S.C. § 608c. These referenda are conducted by the Agricultural Marketing Service (“AMS”) of the USDA. Doyle Dec. ¶ l. To conduct these referenda, the AMS must develop a list of growers, such that sought by Capital in the case at bar. Id. ¶ 6.

During the period August 15 through August 31, 1984, AMS conducted referenda for the issuance of an amendatory order for marketing orders 907 and 908. Thus, AMS had to compile a list of grower names, addresses, and other information. Because the Administrative Committees maintained a computer data base with the pertinent information, AMS obtained the lists from the Committees. Id. T! 7. The source of the information contained in the Committees’ computer data base are forms provided to the Committees by. the handlers of navel and Valencia oranges. Id. It appears that the handlers, such as plaintiffs, provided this information on forms printed by Administrative Committees, known as Forms 1-A. These Forms 1-A state that the requested information “is required to determine and verify handler prorate bases”, and that false statements provided on the forms would subject the handler to fines and criminal penalties. It is these lists, compiled by the Administrative Committees on Forms 1-A to conduct the August, 1984, referendum, and containing only the names and addresses of growers, which USDA has agreed to turn over to Capital.

Other sections of the AMAA allow the Secretary of Agriculture to acquire certain information to enable him to perform certain functions under the Act:

All parties to any marketing agreement, and all handlers subject to an order, shall severally, from time to time, upon the request of the Secretary, furnish him with such information as he finds to be necessary to enable him to ascertain and determine the extent to which such agreement or order has been carried out or has effectuated the declared policy of this chapter .and with such information as he finds to be necessary to determine whether or not there has been any abuse of the privilege of exemptions from the antitrust laws.

7 U.S.C. § 608d(l).

This section goes on the state that “all information furnished to or acquired by the Secretary of Agriculture pursuant to this section shall be kept confidential by all officers and employees of the Department of Agriculture.” Id.- § 608d(2). The confidentiality, however, is not absolute:

Nothing in this section shall be deemed to prohibit (A) the issuance of general statements based upon the reports of a number of parties to a marketing agreement or of handlers subject to an order, which statements do not identify the information furnished by any person____

Id. The statute provides for a fine, criminal conviction, and removal from office for any person violating the confidentiality provisions. Id.

Plaintiffs contend that they provided this information to the Administrative Committees pursuant to this section of the AMAA, and that it is protected by the Act’s confidentiality provisions. Indeed, this is the position taken by AMS upon Capital’s August, 1984, administrative FOIA request. In a letter dated February 15,1985, defendants confirmed the denial of Capital’s administrative appeal, stating that the requested grower list was exempt from release under FOIA exemptions 3, 4, and 6, 5 U.S.C. § 552(b)(3), (b)(4), and (b)(6). As noted, defendants changed their position, and agreed to settle Capital’s lawsuit, Civil Action No. 85-1557, by releasing the lists. Plaintiffs, fearing that the release of this information would place the integrity of the marketing programs for navel and Valencia oranges in jeopardy, brought this suit to enjoin the release of the lists.

PLAINTIFFS HAVE STANDING TO MAINTAIN THIS ACTION

Defendants contend that plaintiffs do not even have standing to bring this action to enjoin USDA from disclosing information provided to it by plaintiffs. This contention fails.

The standing doctrine is a constitutional requirement which derives from the “case or controversy” limitation found in Article III. Plaintiffs must demonstrate that they will suffer an “injury-in-fact” from the actual or threatened conduct of defendants. Eg., Valley Forge Christian College v. Americans United for Separation of Church and State, 454 U.S. 464, 472, 102 S.Ct. 752, 759, 70 L.Ed.2d 700 (1982). In addition to this constitutional requirement, plaintiffs must also satisfy certain prudential limitations, including the following: (1) that the alleged injury can be traced to the actions of defendants, and (2) that the alleged injury is likely to be redressed by a favorable decision. Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976); Harrington v. Bush, 553 F.2d 190, 205 n. 68 (D.C.Cir.1977). Plaintiffs here meet these requirements, and thus they have standing to challenge the release of the grower list.

Plaintiffs contend that the release of this list will harm the integrity of the orange production market. While this alleged injury is somewhat speculative, it is sufficient in the case at bar. Plaintiffs allege a violation of the AMAA, a statute designed to maintain an orderly market for the distribution of produce. See 7 U.S.C. § 601 et seq. As handlers, plaintiffs are members of one of the few types of entities involved in that market. Plaintiffs also provided the information to defendants, allegedly pursuant to an understanding of confidentiality. Although the envisioned dangers to the marketplace may never materialize, and the charge of confidentiality may be legally deficient, plaintiffs have alleged a sufficient stake in the outcome of this litigation to confer standing. Sierra Club v. Morton, 405 U.S. 727, 732-33, 92 S.Ct. 1361, 1364-65, 31 L.Ed.2d 636 (1972). Because there will be no control over the dissemination of this information once it is released, plaintiffs have standing to present their claims of confidentiality. The Court cannot dismiss this case for lack of standing.

PLAINTIFFS HAVE NO RIGHT OF ACTION UNDER FOIA

In the seminal “reverse” FOIA case of Chrysler Corp. v. Brown, 441 U.S. 281, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979), the plaintiff had furnished certain reports to the Defense Logistics Agency, as was required by law. Some third parties had requested the information from the Agency, and the plaintiff, Chrysler, sued to enjoin the release of the documents. The Supreme Court held that FOIA merely compels agency disclosure of certain nonexempt documents. 441 U.S. at 292, 99 S.Ct. at 1712. Merely because certain materials are exempt under FOIA does not impose on the agency an affirmative duty to withhold the information. Id. at 291, 99 S.Ct. at 1712. The agency still has discretion to disclose exempt information. Id. at 294, 99 S.Ct. at 1713. Thus, FOIA provides no right of action to enjoin agency disclosure. Id.

Just as Chrysler could not rely on FOIA to enjoin the release of exempt documents by the Defense Logistics Agency, plaintiffs here have no cause of action under FOIA to enjoin USDA from releasing the grower list. Even if the list falls under one of the asserted exemptions, 5 U.S.C. § 552(b)(3), (b)(4), and (b)(6), USDA has discretion under FOIA to disclose the lists, assuming there exists no other bar to disclosure. Plaintiffs’ only right of action must be found in the Administrative Procedure Act (“APA”), 5 U.S.C. § 702. Chrysler, 441 U.S. at 318, 99 S.Ct. at 1726.

THE PROJECTED RELEASE OF THE GROWER LIST WILL NOT VIOLATE THE APA

Section 10(a) of the APA provides for judicial review of agency action to persons “adversely affected or aggrieved” thereby. Under this section, the Court must:

(2) hold unlawful and set aside agency action, findings, and conclusions found to be—
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; ... (3) specifically exempted from disclosure by statute ... provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld;

5 U.S.C. § 706(2). Plaintiffs contend that the release of the list violates the confidentiality provisions of the AMAA, and is thus “not in accordance with law”. Id. Plaintiffs also contend that the grower list is exempt under FOIA, and that defendants’ release thereof is “arbitrary, capricious, [and] an abuse of discretion”. Id. Both of these contentions must fail.

A. The Release of the List is not Prohibited by the AMAA.

Plaintiffs argue that the release of the list is prohibited by the AMAA, 7 U.S.C. § 608d. If so, plaintiffs continue, such release would be “not in accordance with law”, and would thus violate the APA, 5 U.S.C. § 706(2). As shown below, however, the list was compiled pursuant to 7 U.S.C. § 608c rather than § 608d, so it is not protected by the confidentiality provisions of the latter section. Moreover, even if § 608 applies, its confidentiality provisions do not prohibit the release of the list.

Section 608d refers to and encompasses only information furnished by handlers and others to “enable [the Secretary] to ascertain and determine the extent to which such [marketing] agreement or order has been carried out____” 7 U.S.C. § 608d(l). The instant grower list, however, was not prepared to determine if the handlers were in compliance with the marketing orders, but was compiled “for referenda purposes only.” Doyle Dec. ¶ 8. Because the names and addresses were obtained only to enable USDA to conduct a referendum on an amendment to a marketing order, id. MI 7-9, the requested information does not fall within the confidentiality provisions of § 608d. This information was obtained pursuant to the Secretary’s authority under 7 U.S.C. § 608c, which does not provide for any confidentiality. Thus, the AMAA does not prohibit its disclosure.

Moreover, even if the list was compiled pursuant to § 608d, as plaintiffs contend, the release is permissible under § 608d(2). That statute provides that “[n]othing in this section shall be deemed to prohibit (A) the issuance of general statements based upon the reports of a number of parties to a marketing agreement or of handlers subject to an order, which statements do not identify the information furnished by any one person.” 7 U.S.C. § 608d(2). In this case, USDA intends to release a list containing only the names and mailing addresses of orange growers. Doyle Dec. 117. The list does not identify the particular information furnished by any one handler. Id. II9. This list, therefore, qualifies as a “general statement” which does not identify the information furnished by any particular person, and its release is not prohibited by the AMAA. Thus, the release is “in accordance with law”, within the meaning of the APA, 5 U.S.C. § 706(2).

B. Because the List is not Exempt Under FOIA, It Must be Disclosed by Defendants, and Therefore Its Disclosure is Not Arbitrary, Capricious, or an Abuse of Discretion.

Plaintiffs contend that the list is exempt from the FOIA disclosure requirements pursuant to 5 U.S.C. §§ 552(b)(3), (b)(4), and (b)(6). If the list falls within any of these exemptions, defendants have discretion to release it. Chrysler, 441 U.S. at 294, 99 S.Ct. at 1713. Plaintiffs argue that, in deciding to release the list, defendants have acted arbitrarily and capriciously, and have abused their discretion, in violation of the APA, 5 U.S.C. § 706(2). An analysis of the relevant exemptions, however, compels the conclusion that the list is not exempt under FOIA, and that defendants have no discretion to refuse to release it. See 5 U.S.C. § 552(c); Getman v. N.L.R.B., 450 F.2d 670, 677-80 (D.C.Cir.1971).

1. FOIA Exemption 3

FOIA exemption 3 permits agency withholding of documents that are:

5 U.S.C. § 552(b)(3). If the withholding statute satisfies either prong (A) or prong (B) of the section, it falls within the coverage of exemption 3. Irons & Sears v. Dann, 606 F.2d 1215, 1220 (D.C.Cir.1979), cert, denied sub nom., Irons & Sears v. Commissioner of Patents & Trademarks, 444 U.S. 1075, 100 S.Ct. 1021, 62 L.Ed.2d 757 (1980).

In the present case, plaintiffs contend that the information contained in the grower list was compiled pursuant to 7 U.S.C. § 608d, and that it is exempt from the disclosure requirements because that statute satisfies prong (B) of exemption 3. As previously explained, supra part A, the list was not compiled pursuant to § 608d; rather, the information was obtained to conduct a grower referendum pursuant to § 608c. Because the AMAA does not require USDA to keep confidential any information so obtained, exemption 3 does not apply. Even if the information had been obtained pursuant to § 608d, the confidentiality provisions of that section do not prohibit its release. See 7 U.S.C. § 608d(2)(A). Therefore, it is clear that the grower list is not shielded from the FOIA disclosure requirements by virtue of exemption 3.

2. FOIA Exemption 4

FOIA exemption 4 makes disclosure discretionary when the request seeks “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” 5 U.S.C. § 552(b)(4). In order for the list to qualify as exempt under this section, it must constitute (1) commercial or financial information, (2) obtained from a person, and (3) which is privileged or confidential. Washington Post Co. v. United States Dept. of Health and Human Services, 690 F.2d 252, 266 (D.C.Cir.1982). Even assuming plaintiffs can prove that the list satisfies requirements (1) and (2), it is clear that it is neither privileged nor confidential. Plaintiffs do not contend that the list is privileged, and the case law demonstrates that it is not confidential.

Matter is confidential under exemption 4: if disclosure of the information is likely to have either of the following effects: (1) to impair the government’s ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained.

National Parks & Conservation Association v. Morton, 498 F.2d 765, 770 (D.C.Cir.1974). Such a two prong test is necessary because this exemption protects the interests of (1) the government and (2) the individual who supplied the information to the government. Id. at 767. Because here the government does not object to the release of the list, and because the government can continue to obtain this information from several sources, Doyle Dec. ¶ 6, the Court focuses only on prong (2) of the test enunciated in National Parks, supra.

Plaintiffs have made no showing that the release of the list will cause substantial harm to the competitive positions of the plaintiff handlers. Plaintiffs’ allegations of harm caused by Mr. Pecosolido’s solicitation is at best speculative. Moreover, anyone can discover the names and addresses of growers, (the only information on the list), by visiting orange groves, and by other obvious means. Wilson Dec. Tiff 7-9; Weisman Dec. ¶¶ 4-8. Plainly, the release of the list cannot cause substantial harm to plaintiffs. The list, therefore, is not covered by FOIA exemption 4.

3. FOIA Exemption 6

USDA has discretion to disclose “personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.” 5 U.S.C. § 552(b)(6). Assuming the grower list is a “similar file” within the meaning of this section, United States Department of State v. Washington Post Co., 456 U.S. 595, 596, 602,102 S.Ct. 1957, 1959, 1961, 72 L.Ed.2d 358 (1982), the Court must consider whether the release of the list would constitute a clearly unwarranted invasion of privacy. 5 U.S.C. § 552(b)(6).

In this case, plaintiffs assert that the release of the grower list will infringe their privacy by divulging their “private” customer lists. It is well-established, however, that neither corporations nor business associations possess protectible privacy interests. E.g. Sims v. Central Intelligence Agency, 642 F.2d 562, 572 n. 47 (D.C.Cir.1980); National Parks & Conservation Association v. Kleppe, 547 F.2d 673, 685 n. 44 (D.C.Cir.1976). Thus plaintiffs, all of whom are either corporations or business associations involved in the handling of oranges, have no protectible privacy interests. Accordingly, this material does not fall within exemption 6 of FOIA, 5 U.S.C. § 552(b)(6).

C. Even Assuming the List is Exempt Under FOIA, Defendants Have Not Abused Their Discretion by Deciding to Release It.

As demonstrated above, the list of growers’ names and addresses compiled by USDA is not exempt from the disclosure requirements of FOIA. Defendants are therefore obligated to release it. 5 U.S.C. § 552(c); Getman v. N.L.R.B., 450 F.2d 670, 677-80 (D.C.Cir.1971). Under these circumstances, where disclosure is obligated, the release of the list cannot violate the APA. However, even assuming the list satisfies any of the FOIA exemptions, the defendants clearly acted within their discretion in deciding to release it. See 5 U.S.C. § 706(2).

As noted, the defendants have discretion to release materials which are exempt from FOIA. Chrysler, 441 U.S. at 294, 99 S.Ct. at 1713. The Court’s standard of review under the APA is very limited:

[T]he court must consider whether the decision was based on a consideration of relevant factors and whether there has been a clear error of judgment____ Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency.

Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971). USDA, therefore, must only demonstrate a rational basis for its decision to release the list. International Ladies’ Garment Union v. Donovan, 722 F.2d 795, 814 (D.C.Cir.1983).

In the present case, the analysis of the applicability of the FOIA exemptions to the list, see supra part B, demonstrates USDA’s basis for releasing it. Clearly the determination to release the list was not an arbitrary or capricious decision—it was the right decision. Moreover, even if exempt, the release of the list will effectuate the purposes of the AMAA. Mr. Pescosolido intends to use the list to increase the flow of information among growers. Pescosolido Dec. ¶ 7. The growers must vote on referenda, so such increased information can significantly contribute to this democratic purpose. Clearly there has been no abuse of discretion in making the list available to the public. Defendants’ decision to release the list, therefore, does not violate the APA, 5 U.S.C. § 706(2).

CONCLUSION

Although plaintiffs have standing to challenge USDA’s decision to release the grower list, their only right of action is under the Administrative Procedure Act, 5 U.S.C. § 706(2). Chrysler Corp. v. Brown, 441 U.S. 281, 318, 99 S.Ct. 1705, 1726, 60 L.Ed.2d 208 (1979). It is clear, however, that the APA was not violated in this case.

Under the APA, the Court must set aside any conclusions by defendants that are “not in accordance with law”-, or which constitute “an abuse of discretion”. 5 U.S.C. § 706(2). Because the release of the list is not prohibited by the AMAA, and because it is not exempt from FOIA, defendants are obligated to disclose it. Get-man v. N.L.R.B., 450 F.2d 670, 677-80 (D.C.Cir.1971). In fulfilling their obligations, defendants certainly acted “in accordance with law”. Even if the list is exempt under FOIA, defendants clearly did not abuse their discretion to release it. See Chrysler, 441 U.S. at 294, 99 S.Ct. at 1713. Thus, defendants’ decision does not violate the APA. The Court has issued an order of even date herewith granting defendants’ and defendant-intervenor’s motions for summary judgment, and terminating the temporary restraining order in this case.

ORDER

In accordance with the Court’s Opinion of even date herewith, it is, by the Court, this 11th day of July, 1985,

ORDERED that plaintiffs’ motion for summary judgment be, and the same is hereby denied; and it is ■*

FURTHER ORDERED that defendants’ motion to dismiss be, and the same is hereby denied; and it is

FURTHER ORDERED that defendants’ motion for summary judgment be, and the same is hereby granted; and it is

FURTHER ORDERED that defendantintervenor’s motion for summary judgment be, and the same is hereby granted; and it is

FURTHER ORDERED that the temporary restraining order which the Court entered in this case on June 28, 1985, be, and the same is hereby vacated; and it is

FURTHER ORDERED that this case shall stand dismissed from the dockets of this Court.

      . In support of their motion for summary judgment, defendants have submitted a declaration of William J. Doyle, Chief of the Fruit Branch of AMS's Fruit and Vegetable Division.

      . In their original complaint, plaintiffs did not ’cite the APA as a jurisdictional basis for this suit. On July 10, 1985, plaintiffs cured this deficiency by filing an Amended Complaint.

      . In addition, the regulations which require handlers to submit lists of growers on Form 1-A, 7 C.F.R. §§ 907.107(a), 907.108(a), were promulgated pursuant to the Secretary’s statutory authority under § 608c. See 19 Fed.Reg. 8130, 8140 (1954). And, despite plaintiffs’ suggestions to the contrary, nothing on Form 1-A indicates that the information submitted on that Form must remain in confidence.

      . In light of this result, the Court need not consider defendants’ additional argument that, because § 608d provides the Secretary with too much discretion, it is not even the type of statute contemplated by exemption 3. See American Jewish Congress v. Kreps, 574 F.2d 624 (D.C.Cir.1978).

      . Clearly the handler plaintiffs have no standing to assert the privacy interests of the growers.


author: WEXLER, District Judge.

text:
    Vincent R. DeSIMONE, Plaintiff, v. BOARD OF EDUCATION, SOUTH HUNTINGTON UNION FREE SCHOOL DISTRICT and Marie Connelly, Defendants.
    No. CV 83-5296.
    United States District Court, E.D. New York.
    July 12, 1985.

      Block & Hamburger by Frederic Block, Smithtown, N.Y., for plaintiff.
    Jaspan, Ginsberg, Ehrlich, Reich & Levine by Lawrence Reich, Garden City, N.Y., for defendant Bd. of Educ.
    Paul Derkash, Plainview, N.Y., for defendant Connelly.
   MEMORANDUM AND ORDER

WEXLER, District Judge.

This is an action under 42 U.S.C. § 1983. Our previous opinion in this case is reported at 604 F.Supp. 1180.

. I. FACTS

On May 11, 1983 defendant Board of Education abolished plaintiffs position of High School Dean, effective June 30, 1983. At the same time, the Board established a new position of High School Administrative Assistant. On May 12, 1983, the Superintendent of Schools for the district informed plaintiff of the abolition of his position, and also informed plaintiff that he would not be offered new employment for the term starting September 1983. Plaintiff is a tenured teacher under N.Y. Education Law § 3012(2). Under Education Law § 2510(2), “whenever a board of education abolishes a position ... the services of the teacher having the least seniority in the system within the tenure of the position abolished shall be discontinued.” Under § 2510(1), “if the board of education abolishes an office or position and creates another office or position for the performance of duties similar to those performed in the office or position abolished, the person filling such office or position at the time of its abolishment shall be appointed to the office or position thus created ...” Plaintiff contends that the new position of Administrative Assistant is essentially equivalent to plaintiffs old position of Dean, and that the discontinuance of plaintiffs services without a hearing on the issue of the similarity of the positions constituted a deprivation of property without due process in violation of the Fourteenth Amendment and 42 U.S.C. § 1983.

II. THE DUE PROCESS CLAUSE REQUIRED A PRE-TERMINATION HEARING

Without at this time determining whether the two positions were “similar” within the meaning of Education Law § 2510(1), we note that documents submitted to the Court indicate that the positions were similar in many respects. The new position of Administrative Assistant involved all of the disciplinary functions previously performed by plaintiff as Dean. The new position, like the old position, involved responsibility for one of the two wings of the school. The new position also involved some administrative functions not involved in the old position. Appended to this opinion are the “position guides” for the two positions. Given the similarity of the positions, we believe that it is clear that a reasonable person contemplating the abolition of the position of Dean and the creation of the position of Administrative Assistant would have been alerted to the substantial possibility that plaintiff would be legally entitled to occupy the new position of Administrative Assistant pursuant to Education Law § 2510(1). The question then arises of whether, under these circumstances, the Due Process Clause of the Fourteenth Amendment required the Board to provide plaintiff with some kind of hearing before discontinuing plaintiffs services.

The Supreme Court recently decided the case of Cleveland Bd. of Educ. v. Loudermill, — U.S. -, 105 S.Ct. 1487, 84 L.Ed.2d 494 (1985). There, a city Board of Education dismissed a guard for alleged dishonesty in filling out a job application. Although it was undisputed that the guard had incorrectly stated on the application that he had never been convicted of a felony, the Court held that the Board was constitutionally required to give the guard a pre-termination opportunity to respond, in order to enable the guard to demonstrate that the guard had mistakenly thought that he had been convicted of a misdemeanor, and to invoke the discretion of the Board.

The Court noted that “the significance of the private interest in retaining employment cannot be gainsaid. We have frequently recognized the severity of depriving a person of the means of livelihood ... While a fired worker may find employment elsewhere, doing so will take some time and is likely to be burdened by the questionable circumstances under which he left his previous job.” 105 S.Ct. at 1494.

Without annunciating a comprehensive theory regarding the circumstances in which the Due Process Clause of the Fourteenth Amendment would require a hearing prior to the discontinuance of a teacher’s services pursuant to Education Law § 2510(2), we hold that in the instant case the Due Process Clause required such a pre-termination hearing.

First, in the instant case, as in Louder-mill, plaintiff has been deprived of the means of his livelihood. Although the Board may ultimately appoint plaintiff to some other position, it is speculative when this will occur, if at all. Although the plaintiff (unlike the plaintiff in Louder-mill), has not been stigmatized, this fact is hardly a point in the Board’s favor. It would be paradoxical if an employee whose honesty had been put in doubt by a prima facie showing of dishonesty (such as the plaintiff in Loudermill) were entitled to more rights than an employee whose integrity and competence were unquestioned (such as the instant plaintiff). The fact that the instant plaintiff’s integrity and competence are unquestioned tends to weigh in favor of a finding that the Board had little reason to discontinue plaintiff’s services without a pre-termination hearing.

Second, as we have held, plaintiffs old position and the newly created position were sufficiently similar that the Board knew or should have known that there was substantial possibility that plaintiff might possess a substantive right under Education Law § 2510(1) to occupy the new position. Since the Board should have recognized this possibility, it is not unreasonable to hold that the Due Process Clause required the Board to provide plaintiff with a pre-termination hearing.

Third, the question of whether two positions which are arguably “similar” within the meaning of Education Law § 2510(1) are in reality “similar” within the meaning of § 2510(1) is a question which is not readily reducible to pure questions of law. While we have previously in the instant case expressed doubt that the Due Process Clause requires a hearing regarding pure questions of law, 604 F.Supp. at 1183; see Giglio v. Dunn, 732 F.2d 1133, 1135 (2d Cir.1984), the question involved in the instant case is of a type traditionally classified as a mixed question of law and fact. The Supreme Court appears to have adopted a liberal view of the circumstances requiring a hearing. See Loudermill, 105 S.Ct. at 1494 n. 8'. We are therefore inclined to believe that a hearing was constitutionally required in the instant case.

III. REMEDY

The question arises as to the remedy for the Board’s deprivation of plaintiff’s property without due process.

When official policy results in a person being deprived of property or liberty without procedural due process, and such deprivation would have taken place even if a proper hearing had been held, then the person is not entitled to compensatory damages for the deprivation itself. Carey v. Piphus, 435 U.S. 247, 260, 98 S.Ct. 1042, 1050, 55 L.Ed.2d 252 (1978). The person is entitled only to nominal damages for the denial of due process, id., 435 U.S. at 266-267, 98 S.Ct. at 1053-1054, unless the person demonstrates actual injury attributable to the denial of due process rather than to the deprivation, id., 435 U.S. at 263, 98 S.Ct. at 1052.

In the instant case, we have held that the Board deprived plaintiff of property without procedural due process by discontinuing plaintiff’s services without a pre-termination hearing. However, we have not determined (and cannot determine from the papers submitted) whether plaintiff’s old position is “similar” to the newly created position within the meaning of Education Law § 2510(1). We therefore cannot determine whether plaintiffs services would have been discontinued had the Board provided a pre-termination hearing. We therefore cannot determine whether plaintiff is entitled to compensatory damages for the loss of his job. A trial will therefore be necessary. If it is determined at trial that plaintiffs old position and the newly created position were not “similar” within the meaning of Education Law § 2510, then plaintiff will be entitled only to nominal damages, unless plaintiff demonstrates injury (such as mental distress) attributable not to plaintiffs loss of his job but rather to the denial of a hearing.

IV. PULLMAN ABSTENTION

The Board has argued that we should abstain from hearing this case pursuant to Railroad Comm’n of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941), which holds that a federal district court should abstain from ruling upon federal constitutional issues which might be rendered moot or placed in a different posture by state court determination of pertinent law.

The Board argues that state law regarding the meaning of “similar” under Education Law § 2510(1) is unclear. As we have stated, the question of whether two positions which are arguably “similar” under § 2510(1) are in reality “similar” under § 2510(1) is a question of a type traditionally classified as a mixed question of law and fact. As we have previously suggested in the instant case, 604 F.Supp. at 1185, Pullman abstention is inappropriate for mixed questions of law and fact. See also Vinyard v. King, 655 F.2d 1016, 1019 (10th Cir.1981).

The Board also notes that this Court has previously questioned whether state law required a pre-termination hearing. 604 F.Supp. at 1184. The Board argues that plaintiffs federal claims would be rendered moot if a state court determined that state law required a pre-termination hearing. However, whether state law required a pre-termination hearing is irrelevant to plaintiffs federal claims under the Due Process Clause and 42 U.S.C. § 1983. The fact that state officials violated state law generally does not preclude a suit for damages under § 1983, as the federal remedy is supplementary to the state remedy, Monroe v. Pape, 365 U.S. 167, 81 S.Ct. 473, 5 L.Ed.2d 492 (1961). An exception to this rule is made where state officials committed random unauthorized deprivations of property, Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed.2d 420 (1981); Hudson v. Palmer, — U.S.-, 104 S.Ct. 3194, 82 L.Ed.2d 393 (1984), and perhaps also where state officials committed random unauthorized deprivations of liberty, but see Conway v. Village of Mount Kisco, 758 F.2d 46, 48 (2d Cir.1985); Farrell v. Miklas, 605 F.Supp. 202 (E.D.N.Y.1985) (Wexler, J.). In the instant case, the deprivation of property was committed by a Board of Education and was therefore not “random and unauthorized”, even if the deprivation may have violated state law, so that a § 1983 action is not barred. We have previously stated this. 604 F.Supp. at 1183. Consequently, state court determination of whether state law required a pretermination hearing could not render plaintiffs § 1983 claim moot. Pullman abstention is therefore inappropriate.

V. BURFORD ABSTENTION

The Board has not argued for abstention under Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424, which holds that abstention is appropriate where there have been presented difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar. If our resolution of the instant case were likely to result in frequent federal court litigation regarding the “similarity” of positions within the meaning of Education Law § 2510(1), we might well apply “Burford” abstention. However, we regard this as unlikely. We have held that the Due Process Clause of the Fourteenth Amendment requires that a Board of Education provide a tenured teacher with a hearing before discontinuing such teacher’s services under Education Law § 2510(2), at least in those situations in which the Board knows or should know that there is a substantial possibility that the teacher may have a substantial right under § 2510(1) to occupy a newly created position. In future, we expect that boards of education will provide such pre-termination hearings in such situations, thereby greatly reducing the likelihood of further federal court involvement in the interpretation of § 2510(1). Burford abstention is therefore inappropriate.

VI. SUPPLEMENTARY REMARKS

Before closing this opinion, we have a number of comments to make.

In McDonald v. City of West Branch, Mich., 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984) the Court held that an unappealed arbitration award cannot be given res judicata or collateral estoppel effect in a § 1983 action. In the instant case, it is quite possible that plaintiff had available to him the remedy of binding arbitration pursuant to state contract law. While we are bound by the Court’s holding and therefore recognize that the availability of arbitration does not bar a § 1983 action, we respectfully disagree with the Court. We believe that where government employees have bargained for the creation of an arbitration procedure, there is nothing unjust in requiring such employees to pursue arbitration rather than a § 1983 action. Arbitrators will have far greater expertise in employment disputes and state civil service law than federal judges or jurors. Further, we believe that the Congress which enacted § 1983 in its original form in 1871 had no intention that the statute be given a scope anywhere near as sweeping as that currently given it through judicial interpretation. The primary purpose of the statute was to protect blacks against discriminatory Southern laws and actions by officials.

The Supreme Court has held that where state law has created substantive property or liberty interests, the Due Process Clause of the Fourteenth Amendment sets certain requirements concerning the minimum amount of procedure necessary to destroy such interests, requirements not necessarily derived from the legislation creating the underlying substantive interests. Loudermill, 105 S.Ct. at 1492-1493; Vitek v. Jones, 445 U.S. 480, 490-491, 100 S.Ct. 1254, 1262-1263, 63 L.Ed.2d 552 (1980). The Court has rejected the contrary view of Justice Rehnquist (joined by Chief Justice Burger and Justice Stewart) in the plurality opinion in Arnett v. Kennedy, 416 U.S. 134, 94 S.Ct. 1633, 40 L.Ed.2d 15 (1974). Justice Rehnquist reasoned that where a government could legally choose not to confer a substantive right in the first place, it follows a fortiori that the government may choose (at the time of creating the substantive right) to establish the procedures by which the substantive right may be taken away. We have serious doubts as to whether Justice Rehnquist’s reasoning could properly be applied to such traditional forms of property as private ownership of land. We believe that there may be constitutional limitations upon the power of the states to radically alter the traditional substantive law concerning the acquisition of such traditional forms of property, and therefore doubt the existence of an unlimited “lesser included power” of radically altering the traditional procedures by which such property may be taken away. However, tenured public employment is a modern phenomenon which was virtually non-existent at the time the Fourteenth Amendment was ratified. The decision by a state of whether to create a system of tenure for its employees is wholly discretionary with the state. Consequently; we respectfully disagree with the Supreme Court and believe that a government which confers tenure upon its employees ought to have the right to set the procedures by which such employees may be discharged.

The instant case is a perfect illustration of the difficulties which arise from the view that state law controls substance while federal law controls procedure.

In order to determine whether a plaintiff has been deprived of a substantive property interest without due process, we must, of course, generally determine whether the plaintiff has been deprived of a substantive property interest. This in turn involves a determination of state substantive law regarding the acquisition and loss of property. In cases involving traditional forms of property, this is usually not too difficult. In cases such as the instant case, however, the distinction between substance and procedure and between law and fact inevitably becomes blurred due to the absence of guidance from history and tradition. This problem could be readily resolved by holding that the state provides all the process which is “due” when the state provides the process which was guaranteed in the legislation creating the alleged underlying substantive interest. This course has been barred to us by the Supreme Court. As a result, it is only with great difficulty that we have determined that the Board has deprived plaintiff of property without due process. Further difficulty will be involved in the determination by a jury instructed by this Court as to whether the plaintiff would have been discontinued had a proper hearing been held.

VII. CONCLUSION

Plaintiff is granted partial summary judgment on the issue of liability. The Clerk shall not enter judgment at this time, as a trial will be held to determine whether plaintiff is entitled to compensatory damages or only nominal damages, and to determine the amount of damages.

SO ORDERED.

EXHIBIT B

SOUTH HUNTINGTON UNION FREE SCHOOL DISTRICT
Huntington Station, New York
POSITION GUIDE
TITLE: High School Administrative Assistant

I. Basic Function

The high school administrative assistant provides assistance to the assistant principals in the operation of the building.

II. Principal Activities

1. The administrative assistant is responsible for overall student discipline within the assigned wing. The administrative assistant keeps the principal and the assistant principals apprised of the general disciplinary situation through anecdotal and oral reports, and recommends the disposition of student suspensions, parental conferences, delinquency referrals, and other disciplinary actions necessary for the maintenance of school efficiency and morale.
2. The administrative assistant is responsible for the routine administration of the building in the absence of the principal and the assistant principals.
3. The administrative assistant shares in the supervision of the staff in areas relating to student behavior and discipline.
4. The administrative assistant shares in the supervision of the physical plant.
5. The administrative assistant provides close liaison between the district transportation office and the school.
6. The administrative assistant shares the responsibility for emergency class coverage during the school day.
7. The administrative assistant shares in the securing of substitutes.
8. The administrative assistant shares in the organization and supervision of school assembly programs.
9. The administrative assistant shares in the orientation of instructional staff.
10. The administrative assistant is responsible for the supervision and publication of the daily absentee bulletin.
11. The administrative assistant is responsible for the coordination of staff assigned to cafeteria supervision and the development of cafeteria rules and regulations.
12. The administrative assistant is responsible for the registration of student vehicles.
13. The administrative assistant shares in the planning and execution of the extra-curricular program.
14. The administrative assistant attends administrative meetings and evening activities.
15. The administrative assistant shares in end-of-the-year and graduation plans.
16. The administrative assistant shares in the supervision of security personnel.
17. The administrative assistant maintains a close liaison with individual staff members and social agencies regarding truancy and other anti-social student behavior.

III. Guidelines

1. The administrative assistant, as a member of the building administrative team, is responsible to the principal and the assistant principals.
2. Specific additional responsibilities will be assigned as needed by the principal.
3. This is a ten-month position, from September 1 through June 30. The salary is based on the Administrative Salary Schedule as determined in the Memorandum of Understanding with the SHAA and the Superintendent of Schools.

EXHIBIT C

POSIITON GUIDE

TITLE: Dean—Walt Whitman High School

I. Basic Function: In all school situations and relationships affecting the behavior of students, the dean is expected to assume responsibility for enforcing and upholding the procedures, rules and regulations outlined in the teacher handbook, student handbook and administrative memoranda.

II. Principal Activities:

1. Publish the Daily Absentee Report for the use of teachers and attendance office.
2. He is charged with the responsibility of student discipline and in this capacity assumes supervisory authority in matters involving student behavior in the school.
3. Maintain an up-to-date cumulative record on each student referred.
4. Distribute formal reports of infractions to teachers and counselors involved and to the principal.
5. Assume responsibility for organizing the staff members assigned to cafeteria supervision. The dean is to develop procedures, rules and regulations for administering the cafeteria.
6. Supervise the system for apprehending students who are illegally absent from class.
7. Supervise the daily detention hall, Monday through Thursday, from 2:30 p.m. to 3:45 p.m.
8. Registration of all student vehicles is a responsibility of the dean’s office. Violation of traffic rules is treated as a discipline matter.
9. Notify and when necessary, meet with the parents of students who are referred for serious infractions.
10. Maintain a close liaison with counselors, psychologist, social worker, nurses, attendance office, administrators and teachers.
11. Cooperate with local police authorities.
12. In all situations involving the behavior of students, the dean is to assume those responsibilities which will in effect support the procedures, rules and regulations which have been developed by the professional staff.

III. Primary Relationship:

1. The dean is responsible directly to the South Administrator or to the North Administrator depending on his assignment.

IV. Employment Terms:

1. This position is a 10-month position with placement on the teachers’ salary schedule. Additional compensation will be commensurate with extra duties and responsibilities.

P.O. 4/2/73