author: AGUILAR, District Judge.

text:
    In re ITEL SECURITIES LITIGATION. This Document Relates to All Actions.
    No. C-79-2168 RPA.
    United States District Court, N.D. California.
    Oct. 16, 1984.

      See also D.C., 89 F.R.D. 104.
    Arthur N. Abbey, Law Offices of Arthur N. Abbey, New York City, for Frank Herzlin and Dorothy F. Gray.
    Jeremiah F. Hallisey, O’Brien & Hallisey, San Francisco, Cal., for Ruby Peterson.
    Stephen D. Oestreich, Wolf, Popper, Ross, Wolf & Jones, New York City, David B. Flinn, Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, San Francisco, Cal., for Salvatore and Hilda Laurenzano.
    Theodore Russell, Pettit & Martin, San Francisco, Cal., for Itel Corp.
    Norman Roy Grutman, Vito C. Casoni, Grutman, Schafrann & Miller, New York City, Philip B. Bass, R. David Mishel, Titchell, Maltzman, Mark, Bass & Ohleyer, San Francisco, Cal., for Gary B. Friedman.
    M. Laurence Popofsky, Steven M. Block, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., for Gerald R. Alderson, John H. Chase, Robert C. Hood, Patrick B. McManus, R. Douglas Norby and Thomas S. Tan.
    Daniel W. Krasner, Wolf, Haldenstein, Adler, Freeman & Herz, New York City, for Joseph Levit.
    Robert Plotkin, Plotkin & Jacobs, Ltd., Chicago, 111., James Frank Fotenos, Law Offices of Fotenos & Thomas, San Francisco, Cal., for Gerhard K. Nonnenmacher.

      Melvyn I. Weiss, David J. Bershad, Mil-berg, Weiss, Bershad & Specthrie, New York City, for Mark Schulman.
    Richard Haas, Lasky, Haas, Cohler & Munter, San Francisco, Cal., for Peter S. Redfield.
    Melvin R. Goldman, David G. Robertson, Morrison & Foerster, San Francisco, Cal., for Richard H. Lussier.
    Paul F. Bennett, David B. Gold, A.P.C., San. Francisco, Cal., for Tilly Gailliard.
    Philip W. Moore, III, Law Offices of Philip W. Moore, Washington, D.C., for Susan Wilhelm.
    W. Robert Morgan, Morgan, Zazueta, Morgan, Towery, Morgan & Spector, San Jose, Cal., for Harold C. Hanke.
    Bartlett A. Jackson, Petty, Andrews, Tufts & Jackson, San Francisco, Cal., for John H. Anderson, Thomas A. Bartlett, Gilbert E. Cox, Roderick C.M. Hall, Daniel D. Jackson, C.R. Leslie, Franklin B. Lincoln, William B. McWhirter, Fred H. Merrill and James A. Vaughn.
    Richard J. Lucas, Tower C. Snow, Orrick, Herrington & Sutcliffe, San Francisco, Cal., Thomas A. Burton, Thomas W. Kelly, Breed, Abbott & Morgan, New York City, for underwriter defendants.
    Leonard Barrack, Barrack, Rodos & Ba-cine, Philadelphia, Pa., for Louis Agnes.
    Guido Saveri, Saveri & Saveri, San Francisco, Cal., for Alan Mailman.
    Michael N. Khourie, Broad, Schulz, Larson & Wineberg, San Francisco, Cal., for Robert C. Gloss.
    Alvin H. Goldstein, Jr., Goldstein & Phillips, San Francisco, Cal., for Arnold Goldschlager.
    Richard Jaeger, Feldman, Waldman & Kline, San Francisco, Cal., for Thomas F. Papsidero.
    Graham B. Moody, Jr., Philip R. Rotner, McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., Leonard P. Novello, Peat, Marwick, Mitchell & Co., New York City, for Peat, Marwick, Mitchell & Co.
    James R. Parrinello, Dobbs & Nielson, San Francisco, Cal., for John Clark.
   OPINION AND ORDER

AGUILAR, District Judge.

This case was a massive class action against the Itel Corporation. Class plaintiffs alleged that Itel had committed numerous violations of federal and state securities laws. In June 1983, the major parties agreed to a settlement of the securities litigation and on August 18, 1983, the Court approved the settlement and entered an order of dismissal.

The case is currently before the Court on class plaintiffs’ request for attorneys’ fees, costs, and sanctions against certain individuals. Class plaintiffs allege that these individuals abused this Court’s process and acted in bad faith by attempting to disrupt the settlement of the securities litigation.

The parties to this post-judgment proceeding have engaged in extensive discovery. Further, the Court has heard and resolved a number of motions with respect to this matter. Finally, on April 19, 1984, the Court conducted a hearing on the merits of class plaintiffs’ request for attorneys’ fees, costs, and sanctions. The Court received documentary evidence and heard the argument of the parties. Based on the written and oral argument of the parties, and on the voluminous evidence in the record, the Court enters the following Opinion and Order.

FACTS

The facts of the underlying securities case are extremely complex and are not relevant to the instant request for attorneys’ fees, costs, and sanctions. However, for purposes of this decision, a limited recitation of the facts will suffice.

The principal focus in these post-judgment proceedings is the conduct of an attorney named I. Walton Bader. Mr. Bad-er, a member of the New York bar, was involved on the periphery of Itel Securities Litigation for approximately two years. He was more integrally involved in other litigation involving the Itel Corporation. Others involved in the alleged wrongdoing include William F. Murphy, a Florida attorney, Seymour Licht, Chairman of the Ad Hoc Bondholders Committee, Alysia Kruger, Mr. Licht’s daughter, and Stanford Phelps, a client of Mr. Bader’s.

A dispute between holders of Itel Euro-bonds and the Itel Corporation forms the background for the current conflict about the actions of Mr. Bader and others. In the earlier dispute, the Eurobond holders were represented by Mr. Licht as Chairman of the Ad Hoe Bondholders Committee and by Mr. Phelps. Mr. Licht and Mr. Phelps retained Mr. Bader as attorney for the Ad Hoc Bondholders Committee. After retaining Mr. Bader, however, Mr. Licht and Mr. Phelps proceeded to resolve the Euro-bond dispute directly with the Itel Corporation. Mr. Bader was not involved in the final negotiations that resulted in the settlement of the Eurobond controversy. The agreement that Mr. Licht and Mr. Phelps made with Itel seriously jeopardized Mr. Bader’s application for attorneys’ fees. In fact, the agreement appeared to result in Mr. Bader receiving no compensation for his work on behalf of the Ad Hoc Bondholders Committee. Mr. Bader advised that Mr. Licht and Mr. Phelps should not enter into the agreement, but they did not heed this advice.

Because of their fear that Mr. Bader would receive no attorneys’ fees for his work on behalf of the bondholder, Mr. Bad-er and Mr. Licht then turned their attention to the Itel Securities Litigation. From the deposition testimony it is apparent that neither Mr. Bader nor Mr. Licht had any substantive interest in the Itel Securities Litigation. They did, however, see the securities case as a vehicle for obtaining the fees they were unable to get in the other litigation. Thus, in March 1983, Mr. Bader and Mr. Licht entered the securities litigation for the apparent purpose of obtaining fees for their work in the Eurobond dispute.

Mr. Bader was aware that class plaintiffs and the Itel Corporation had entered into serious settlement negotiations in early 1983. He was also aware that Itel’s Plan of Reorganization could not become effective until the securities litigation was settled. In this respect then, Mr. Bader believed that he could exert some leverage over Itel by threatening the negotiations for settlement of the securities litigation.

Mr. Bader made this threat to the negotiations by filing a motion in the securities litigation on March 29, 1983. The motion, brought on behalf of See More Light Investments, a partnership operated by Seymour Licht, sought to have the Court redefine the plaintiff class and to appoint a class representative for the Eurobond claims. As Mr. Bader was well aware, however, the class definition issue had been resolved three years earlier and litigation notices had long since been mailed to the class.

The motion never came to a hearing before the Court. Rather, Mr. Bader and Mr. Licht reached an agreement with the Itel Corporation. In a letter agreement dated April 28, 1983, Mr. Licht agreed that:

Neither the Eurobond Representatives nor any of them nor any agent, attorney or other representative of any thereof shall henceforth seek to appear, intervene or participate in the securities case, whether in the District Court or any other Court, in any manner ...

In return, Itel agreed that the Eurobond Representatives could seek fees in the Delaware state court action or in the reorganization case, but not in the securities litigation. After this agreement was signed, Mr. Licht ordered Mr. Bader to withdraw the motion filed on March 29, 1983.

Counsel for Itel also wrote to Mr. Bader concerning the agreement. The May 17, 1983 letter to Mr. Bader, apparently based on an earlier oral agreement, states that:

In connection with the Itel Securities Litigation, you [Bader] had withdrawn on behalf of both of your clients, all motions currently pending in the District Court. You [Bader] have further agreed, on behalf of your clients, that you will take no further action of any kind in the Itel Securities Litigation in any Court____ You should be aware that all parties to the securities litigation are relying on the agreements you have made in proceeding with the Stipulation of Settlement in the securities litigation.

This, however, did not end Mr. Bader’s activities in connection with the Itel Securities Litigation. In June 1983, the parties submitted the proposed settlement of the securities litigation to the Court, and the Court indicated its preliminary approval. A hearing on final approval of the settlement was set for August 18, 1983. However, before that hearing occurred, Mr. Licht and Mr. Bader made their presence felt again.

On August 4, 1983, a woman named Alysia Kruger filed an objection to the proposed settlement. Alysia Kruger is Seymour Licht’s daughter, who by all accounts knows little if anything about the Itel matter. The Kruger objection was filed by Mr. Bader, apparently at Mr. Licht’s direction. In his deposition and in testimony before Judge King of the Bankruptcy Court, Mr. Licht admitted that he asked Mr. Bader to file the Kruger objection because he believed that Itel had breached an agreement by objecting to Mr. Bader’s fee application in the Delaware case. In essence then, Mr. Licht has conceded that Mr. Bader filed the Kruger objection for a reason unconnected to the Itel Securities Litigation.

In response to the Kruger objection, Itel made further fee-related concessions in order to keep the final settlement of the securities litigation on track. Itel agreed to provide Mr. Bader with a declaration from William P. Twombey that stated that the Ad Hoc Bondholders Committee had conferred a substantial benefit on the bondholders and that it was through the actions of the Committee that the Eurobond dispute was resolved. (This was important to Mr. Bader and Mr. Licht as it would provide support for Mr. Bader’s request for attorneys’ fees for his work on behalf of the Bondholders Committee.) Mr. Bader, in return, promised to withdraw with prejudice any and all objections made by him or his client as to any aspect of thfe settlement of the securities litigation. Bader also agreed that he would not

participate, directly or indirectly, in any proceeding relative to the Itel Securities Litigation, or file or cause to be filed any papers relative thereto in the United States District Court or any other court. Moreover, [Bader] will not assist counsel or others in connection with any objections to any aspect of the settlement of the Itel Securities Litigation.

Pursuant to this agreement, Mr. Bader withdrew the Kruger objection.

It was at this point that Mr. Murphy came into the securities litigation. To properly understand Mr. Murphy’s involvement, it is necessary to backtrack and review the record with respect to Mr. Bader’s relationship with Mr. Murphy.

In June 1983, Mr. Bader apparently contacted another client, John Haralambides, who operates a discount brokerage firm in Florida. Haralambides had access to clients who traded in Itel securities. Haralambides also had a relationship with William F. Murphy, a Florida attorney who did various legal and business tasks for Haralambides. Nevertheless, Mr. Bader, Mr. Haralambides and Mr. Murphy agreed that Mr. Murphy would represent domestic bondholders in the Itel Securities Litigation. Mr. Murphy testified that he had little if any experience in the securities field and was reluctant to become involved in this scheme at the outset. According to Mr. Murphy, Mr. Bader actively encouraged him to become involved in the action. Mr. Bader’s conduct here appears to be in direct violation of the agreement with Itel as expressed in the May 17 letter from Itel’s counsel.

In July 1983, Mr. Bader referred the President of W & F, Inc. to Mr. Murphy in connection with the President’s interest in becoming involved in the Itel matter. Mr. Murphy’s other clients were referred to him by Haralambides. Apparently, none of Mr. Murphy’s clients were responsible for any of the costs involved in this litigation. Rather, Haralambides agreed to finance the objections to the settlement and any other actions that might become necessary. Further, according to Mr. Murphy, Mr. Bader agreed to provide him with expertise and advice in the event Mr. Murphy ever had to become truly involved in the Itel matter. This promise too was a violation of the agreement Mr. Bader had reached with Itel back in May 1983.

After Mr. Bader had withdrawn the Kruger objection, and Mr. Bader had once again promised to stay out of the securities litigation, Mr. Murphy became involved in the Itel Securities Litigation. According to Mr. Murphy’s deposition, Mr. Bader contacted him immediately after withdrawing the Kruger objection. Mr. Bader urged Mr. Murphy to file an objection to the proposed settlement of the Itel Securities Litigation. Mr. Bader also told Mr. Murphy that he [Murphy] could use the Kruger objection as a model for his own objection.

On August 17, 1983, one day before the hearing on final Court approval of the settlement, Mr. Murphy filed basically the same objection that Mr. Bader had filed on behalf of Kruger. The deposition testimony strongly indicates that Mr. Murphy had little or no knowledge about the substance of the objection he filed. Further, his local counsel had spent extremely little time reviewing the relevant documents and was similarly uninformed about the substance of the objection.

On August 18, 1983, this Court conducted a final hearing on the proposed settlement. Although Mr. Murphy’s objection was not timely filed, the Court considered it on the merits. The Court rejected Mr. Murphy’s objection and approved the settlement as presented by counsel for the plaintiff class and counsel for the Itel Corporation. The documents the Court signed and filed on August 18, 1983 encompassed three separate agreements: the actual settlement between the corporation and the plaintiff class; the plan of allocation; and the award of fees and costs to counsel for the plaintiff class.

Mr. Murphy filed a Notice of Appeal with respect to each of the three orders entered by the Court on August 18. Mr. Murphy testified at his deposition that he had a number of telephone conversations with Mr. Bader in which Mr. Bader advised Mr. Murphy with respect to the appeals. In so doing, Mr. Bader once again violated his promise to stay out of the securities litigation completely.

Soon after Mr. Murphy filed his appeals, Mr. Licht told counsel for the plaintiff class that Mr. Bader was responsible for the appeals. Mr. Licht also suggested that he thought the appeals could be dismissed if class counsel consented to a redefinition of the class so that current bondholders would receive a portion of the settlement proceeds.

At this point, believing that Mr. Bader and Mr. Licht were again trying to essentially extort further fee-related concessions, counsel for the plaintiff class commenced these post-judgment proceedings. On September 26, 1983, class plaintiff sought and obtained a temporary restraining order enjoining the distribution of newly issued Itel securities to Mr. Bader, Mr. Licht, See More Light Investments, and others. Very soon after the Court issued this injunction, Mr. Murphy withdrew his appeals. According to Mr. Murphy, this action was taken at Mr. Bader’s direction, as passed through Mr. Haralambides.

Once Mr. Murphy dismissed the appeals, the settlement of the Itel Securities Litigation became absolutely final. However, it was at this point that counsel for the plaintiff class began the extensive efforts to expose the wrongdoing perpetrated by Mr. Bader and his cohorts. JURISDICTION:

Since the inception of these post-judgment proceedings, Mr. Bader has questioned the Court’s jurisdiction over class plaintiffs’ request for attorneys’ fees, costs, and sanctions. In his opposition to the request for attorneys’ fees, costs, and sanctions, Mr. Bader once again challenges this Court’s jurisdiction over the issues before the Court. The Court has rebuffed Mr. Bader’s jurisdictional attacks from the beginning and does so again in this Opinion and Order.

Fifty years ago the United States Supreme Court said:

That a federal court of equity has jurisdiction of a bill ancillary to an original ease or proceeding in the same court, whether at law or in equity, to secure or preserve the fruits and advantages of a judgment or decree rendered therein, is well settled. Root v. Woolworth, 150 U.S. 401, 410-12 [14 S.Ct. 136, 138-39, 37 L.Ed. 1123]; Julian v. Central Trust Co., 193 U.S. 93, 112-14 [24 S.Ct. 399, 407-08, 48 L.Ed. 629]; Riverdale Mills v. Manufacturing Co., 198 U.S. 188, 194 [25 S.Ct. 629, 631, 49 L.Ed. 1008] et seq.; Freeman v. Howe, 24 How. 450, 460 [16 L.Ed. 749]. And this, irrespective of whether the court would have jurisdiction if the proceeding were an original one. The proceeding being ancillary and dependent, the jurisdiction of the court follows that of the original cause, and may be maintained without regard to the citizenship of the parties or the amount involved ...

Local Loan Co. v. Hunt, 292 U.S. 234, 239, 54 S.Ct. 695, 696, 78 L.Ed. 1230 (1934).

The instant proceeding falls within the Local Loan rule. The post-judgment proceeding is to preserve the integrity of this Court’s judgments in general, and specifically to protect the Court’s final judgment in the Itel Securities Litigation. Accordingly, the Court finds that it has jurisdiction over the matters pending before the Court.

THE COURT’S AUTHORITY TO GRANT THE RELIEF REQUESTED:

In Roadway Express v. Piper, the Supreme Court held that a district court has the inherent power to assess attorneys’ fees against counsel. 447 U.S. 752, 765, 100 S.Ct. 2455, 2463, 65 L.Ed.2d 488 (1980). The Court cautioned that the district court’s inherent power should be narrowly defined and exercised with restraint and discretion. Id. 447 U.S. at 764-65, 100 S.Ct. at 2463. Thus, though the Court advised that the power should be used carefully and sparingly, the Court plainly recognized that district courts could exercise their inherent authority to impose an award of attorneys’ fees in the proper circumstances. Accord, U.S. v. Blodgett, 709 F.2d 608 (9th Cir.1983).

Similarly, in Alyeska Pipeline Co. v. Wilderness Society the Court acknowledged the federal court’s inherent power to assess attorneys’ fees as part of a fine levied on the defendant for willfully disobeying a court order or for acting in bad faith, vexatiously, wantonly, or for oppressive reasons. 421 U.S. 240, 258-59, 95 S.Ct. 1612, 1622, 44 L.Ed.2d 141 (1975) (citations omitted). Earlier, the Supreme Court held that “bad faith” is not limited to instances in which a complaint is filed in bad faith, but that conduct in the course of litigation may also constitute bad faith. Hall v. Cole, 412 U.S. 1, 15, 93 S.Ct. 1943, 1951, 36 L.Ed.2d 702 (1973).

Based on the Roadway Express and Alyeska Pipeline decisions, the Court concludes that it possesses the inherent power to award attorneys’ fees as a means of protecting the integrity of the judicial process and that this inherent authority extends to considering class plaintiffs’ re-' quest for attorneys’ fees, costs, and sanctions in this case.

Furthermore, the Court also possesses statutory authority to grant the relief requested by class plaintiffs. Section 1927 of Title 28 of the United States Code provides:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required' by the court to satisfy personally the excess costs, expenses and attorneys’ fees reasonably incurred because of such conduct.

Similarly, the new version of Rule 11 of the Federal Rules of Civil Procedure empowers the Court to impose appropriate sanctions against an attorney who signs and files a document that is interposed for an improper purpose.

THE MERITS OF CLASS PLAINTIFFS’ REQUEST:

Having determined that it has jurisdiction over class plaintiffs’ request, and that it has the authority to grant the relief requested, the Court turns now to consideration of the merits of the request for attorneys’ fees, costs, and sanctions.

First of all, the Court finds that Mr. Bader’s conduct in the Itel Securities Litigation is a proper subject for the imposition of attorneys’ fees, costs, and sanctions. The Court finds that Mr. Bader’s conduct falls far short of the standards to which this Court holds counsel. The Court finds that Mr. Bader’s conduct in this litigation constitutes bad faith as described in Hall and Alyeska Pipeline. Furthermore, the Court finds that Mr. Bader’s conduct runs afoul of the requirements of Federal Rule of Civil Procedure 11. For these reasons, the Court has decided to grant the request for attorneys’ fees, costs, and sanctions under 28 U.S.C. section 1927 and Rule 11 of the Federal Rules of Civil Procedure.

Pursuant to both 28 U.S.C. section 1927 and Rule 11, the extent of recovery is limited to the attorneys’ fees and costs incurred because of the improper action. Section 1927 says that the attorney who commits the misconduct “may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” Further, the title of the section is “Counsel’s liability for excessive costs.” Similarly, Rule 11 speaks in terms of “an appropriate sanction which may include an order to pay the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including reasonable attorneys’ fees.” Thus, both section 1927 and Rule 11 contemplate reimbursement for the expenses necessarily incurred because of the misconduct. They do not contemplate an award of punitive sanctions. In other words, in making an award pursuant to section 1927 and Rule 11, the Court can only award fees and sanctions for expenses incurred in responsive or defensive actions. See also U.S. v. Blodgett, 709 F.2d 608 (9th Cir.1983).

In the instant case, class plaintiffs and others were forced to expend considerable efforts to defend against Bader’s wrongful actions. For these efforts, class plaintiffs and others may be awarded attorneys’ fees and costs pursuant to section 1927 and Rule 11.

Class plaintiffs also engaged in very considerable offensive actions in this post-judgment proceeding. In fact, this post-judgment proceeding is largely a creature of class plaintiffs’ offensive actions against Mr. Bader and others. In saying this, the Court in no way condemns class plaintiffs’ actions. On the contrary, the Court is most appreciative of class plaintiffs’ efforts in bringing serious misconduct to the Court’s attention. However, under section 1927 and Rule 11, the Court does not have authority to grant class plaintiffs’ request for attorneys’ fees and costs for these offensive actions.

Because of the Court’s determination that it can only award fees and costs for defensive actions, the Court requested that class counsel submit a revised schedule of fees and costs. The settlement of the Itel Securities Litigation became absolutely final on October 18,1983. The Court finds that actions that class plaintiffs took before October 18, 1983 can be reasonably interpreted to be actions in defense of the settlement. As such, the Court has the authority to award fees and costs related to these actions. Under section 1927 and Rule 11, the Court cannot and will not award attorneys’ fees and costs for any actions taken after October 18, 1983. The court also requested that counsel for the Itel Corporation submit a schedule of fees and costs incurred in defending against Mr. Bader’s actions.

Both class counsel and counsel for Itel have submitted detailed declarations in response to the Court’s request. After carefully reviewing the declarations, the Court has concluded that the amount requested, even just for defensive actions, is far out of proportion to the size of the wrong perpetrated by Mr. Bader. If the Court granted all attorneys’ fees and costs incurred before October 18, 1983, the total sanction imposed on Mr. Bader would be approximately $95,000. The Court finds that this amount far exceeds the proper amount of sanctions for Mr. Bader’s misconduct.

The Court finds that sanctions of $10,000 payable to class counsel and $5,000 payable to counsel for the Itel Corporation are commensurate with the extent of Mr. Bader’s wrongful conduct in this litigation. The Court will not impose any sanctions against Mr. Murphy. Though Mr. Murphy’s conduct was far from exemplary, the Court finds that his conduct does not warrant the imposition of sanctions.

In making this Order, the Court wishes to make two observations. First, the Court recognizes that this award is much less than class plaintiffs had requested. By making this Order, the Court does not wish to denigrate the effort made by class counsel. Counsel for the plaintiff class has alerted the Court to a very serious instance of attorney misconduct. However, the Court will not impose excessive sanctions to reimburse counsel for expenditures they chose to make. Class counsel cannot very well create this entire post-judgment proceeding and then say that Mr. Bader has to pay for it.

Second, the Court wants to be very clear in its total condemnation of Mr. Bader’s conduct. As noted earlier, it is conduct such as Mr. Bader’s that section 1927 and Rule 11 are designed to prohibit and punish. The Court believes that Mr. Bader acted in a vexatious manner and has proceeded in bad faith on an number of occasions in the Itel Securities Litigation. Specifically the Court finds that Mr. Bader repeatedly took actions in the Itel Securities Litigation for the sole purpose of obtaining fee-related concessions in connection with other litigation. Because of the seriousness of this finding, the Court has considered referring this case to the New York Bar Association for disciplinary action. In light of Mr. Bader’s history in this type of litigation, the Court thinks that the Bar Association might well act unfavorably toward Mr. Bader. But, although the Court finds Mr. Bader’s conduct most improper, the Court will not refer the matter to the Bar Association. Rather, the Court hopes that the heavy sanctions the Court imposes in this case put Mr. Bader on notice that the courts will not tolerate his misconduct any longer.

The Court anticipates that Mr. Bader will pursue an appeal of this Order. To avoid unnecessary motions, and further unnecessary expense, the Court grants a stay of this Order to allow Mr. Bader to file an appeal in the Court of Appeals for the Ninth Circuit.

For the reasons stated in the body of this Opinion and Order, and for good cause appearing, the Court hereby directs I. Walton Bader to pay sanctions in the amount of $10,000 to class counsel and $5,000 to counsel for the Itel Corporation. Further, the Court stays this Order until the Court of Appeals rules on this matter.

IT IS SO ORDERED.

      . Throughout the course of this Opinion and Order, the Court will refer to "Mr. Bader’s actions.” The Court recognizes that other individuals were involved. However, from its review of the record, the Court has found that Mr. Bader was the prime mover in the actions that are the focus of this Opinion and Order.

      . Mr. Murphy is the only other individual from whom class plaintiffs seek to recover attorneys’ fees, costs, and sanctions.

      . Class plaintiffs originally sought attorneys’ fees, costs, and sanctions against Seymour Licht. However, in December 1983, class plaintiffs settled their claims against Mr. Licht. The Court mentions Mr. Licht for the purpose of reciting the allegations that form the basis of class plaintiffs' claims against Mr. Bader and Mr. Murphy. The inclusion of Mr. Licht is not meant as a judgment about Mr. Licht’s behavior.

      . Mr. Bader was Mr. Licht’s attorney and counsel for the Ad Hoc Bondholders Committee. However, Mr. Bader and Mr. Licht severed their relationship during the course of these post-judgment proceedings.

      . Although Mr. Licht and Mr. Phelps ultimately resolved their dispute with Itel in Mr. Bader’s absence, Mr. Bader did, in fact, do considerable legal work on behalf of the Bondholders Committee. Mr. Bader filed an insolvency proceeding in Curacao against an Itel subsidiary located in Curacao. Mr. Bader also filed an action in Delaware state court asserting that Itel subsidiaries should not be permitted to upstream their assets to the parent corporation because the subsidiaries were not in bankruptcy. It is generally agreed that these legal actions provided the impetus to the negotiations that eventually led to the settlement between the bondholders and Itel.

      . Mr. Bader’s fee arrangement with Mr. Licht, Mr. Phelps and the Bondholders Committee was wholly contingent. The agreement that Mr. Bader entered into states that “The amount of attorneys’ fees will either be determined by agreement between the parties or by an order of an appropriate court based upon the benefits obtained by said bondholders by reason of said representation.”
      Mr. Bader had amassed a considerable amount of attorneys’ fees and faced the prospect of getting them from his clients, perhaps by way of another lawsuit, unless he could find a way to get them from the Itel Corporation or from a court. Thus, the fee arrangement meant that both Mr. Bader and Mr. Licht had a very strong interest in getting the fees through an agreement with the Itel Corporation or from a court.

      . Throughout the course of this post-judgment proceeding, Mr. Bader has maintained that he is entitled to a jury trial on the charges leveled against him by class plaintiffs. Mr. Bader argues that if he is being charged with breach of contract and/or abuse of process, then he is entitled to a jury under the Seventh Amendment of the United States Constitution.
      The Court has studied the Ninth Circuit's decisions on the granting of attorneys’ fees, costs, and sanctions. The Court has found no indication that there is an entitlement to a jury trial on such matters. Of course, such proceedings do entail some factual determinations. In Roadway Express v. Piper, 447 U.S. 752, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980), the Supreme Court required that the court conduct a hearing and that the accused have the right to address the court with respect to the allegations. Accord, Barnd v. City of Tacoma, 664 F.2d 1339 (9th Cir.1980); U.S. v. Blodgett, 709 F.2d 608 (9th Cir.1982). The Court has afforded Mr. Bader the opportunity for a hearing and to address the Court. Nothing more, including a jury trial, is required.

      . Class plaintiffs’ original request included all the attorneys’ fees incurred in connection with this post-judgment proceeding.

      . The Court recognizes that this is not a perfect division into “defensive" and "offensive” actions. However, the Court is not in a position to make a more exacting division, and the Court believes that using the October 18, 1983 date produces a reasonably accurate representation of the division of counsels' time.

      . For reasons unknown to the Court, counsel for the Itel Corporation did not seek an award of attorneys' fees and costs by way of a request for sanctions. Nevertheless, the Court knows and finds that the Itel Corporation was forced to incur legal expenses as a result of Mr. Bader's wrongful conduct. Further, the Court finds that counsel for the Itel Corporation has done an admirable job throughout this difficult litigation, and the Court therefore believes that counsel for Itel is just as entitled to reimbursement as class plaintiffs’ counsel. For this reason, the Court requested a statement of the legal costs Itel incurred, and the Court will include Itel’s counsel in the award of fees and costs against Bader.

      . The Court notes that Mr. Bader has filed an appeal of virtually every Order this Court has issued in the course of this litigation,


source: Caselaw Access Project

author: HENRY WOODS, District Judge.

license: Public Domain

text:
    Stanley GREENWOOD, a resident of the State of Arkansas, Plaintiff, v. Thomas H. DITTMER, a resident of the State of Illinois; and Refco, Inc. f/k/a Ray E. Friedman & Company, an Illinois Corporation, Defendants.
    No. 82-5105.
    United States District Court, W.D. Arkansas, Fayetteville Division.
    Oct. 17, 1984.

      Carl Behner and John Arens, Arens, Alexander & Barnes, Fayetteville, Ark., for plaintiff.
    Elizabeth J. Robben, Friday, Eldredge & Clark, Little Rock, Ark., for defendants.
   ORDER

HENRY WOODS, District Judge.

This case comes before the Court on defendants’ motion for judgment n.o.v. or in the alternative for a new trial. Motions for directed verdict were made by defendants at the close of plaintiff’s case and again at the close of defendants’ case, and the instant motion was timely filed pursuant to Fed.R.Civ.P. 50. Plaintiff Greenwood sued defendants Dittmer and REF-CO, INC. for Commodity Exchange Act fraud, common law fraud, and breach of fiduciary relationship, allegedly arising out of a series of transactions between Greenwood and agents of Dittmer and REFCO, INC., at REFCO’s Springdale, Arkansas, office. The count for breach of fiduciary relationship was dismissed at trial when it was proven that Greenwood had a non-discretionary trading account with REFCO, rather than a discretionary account as alleged in the Complaint. The case was submitted to the jury on the two counts of fraud, and on REFCO’s counterclaim against Greenwood for a debit balance in Greenwood’s account with REFCO. The jury returned a verdict in favor of Greenwood on all counts. Defendants contend that the evidence at trial was insufficient to support the verdict on any of the three counts. This Court is in agreement with that contention insofar as it applied to the two fraud counts. An examination of the facts proven at trial and the law to be applied demonstrates that insufficiency.

The evidence at trial established that Greenwood traded a non-discretionary commodities futures account through Stephen Johns as agent of REFCO, INC., at REF-CO’s Springdale,- Arkansas, office. The commodity involved in this lawsuit was feeder cattle. The evidence further established that although Thomas Dittmer, President of REFCO, was taking a long position in feeder cattle during the summer of 1979, both Johns and Robert Bone, the broker in charge of the Springdale office, were going short in feeders and were advising their clients to do likewise. Based on this advice, Greenwood assumed a short position in feeder cattle during the summer of 1979.

Although Greenwood had a non-discretionary account, on one occasion 28 short feeder cattle contracts were placed into his account, without his knowledge, in an attempt by the Springdale brokers to apportion among themselves and their clients an overly-large order for short feeder cattle contracts placed by Robert Bone. Greenwood was informed of this action on the same day it was taken, and he elected to retain the additional 28 contracts. Had the contracts been liquidated at the time they were placed in Greenwood’s account, any losses sustained by him would have been minimal. Subsequent to placing the contracts, however, the price of feeder cattle rose, causing losses to speculators holding short feeder contracts. Eventually Greenwood’s losses on the short feeder contracts exceeded his margin, and he was placed on “margin call” by REFCO. This meant that Greenwood was contractually obligated to deposit sufficient money into his trading account to cover the paper losses sustained to that point in the account. He failed to do so, and REFCO, pursuant to its contract with Greenwood, liquidated his account at a substantial loss. Greenwood then filed suit against REFCO and Dittmer, alleging that the actions of their agents had defrauded him of the sums lost in his account during the summer of 1979. It is admitted that Johns was the agent of REFCO, Inc., but there was no evidence that Johns, Bone, or any other broker in the Springdale office was the agent of Dittmer.

Under the Commodity Exchange Act, it is unlawful for a member of a contract market or his agent, in connection with the making of a contract of sale of any commodity:

(A) to cheat or defraud or attempt to cheat or defraud [another] person;
(B) willfully to make or cause to be made to such other person any false report or statement thereof, or willfully to enter or cause to be entered for such person any false record thereof;
(C) willfully to deceive or attempt to deceive such other person by any means whatsoever in regard to any such order or contract or the disposition or execution of any such order or contract, or in regard to any act of agency performed with respect to such order or contract for such person;

7 U.S.C. § 6b.

Under the common law of fraud, it is unlawful to make a false representation of material fact, knowing or believing that representation to be false and intending another to rely upon that representation. Bishop v. Tice, 622 F.2d 349, appeal after rehearing, 704 F.2d 417 (8th Cir. 1980); Storthz v. Commercial National Bank, 276 Ark. 10, 631 S.W.2d 613 (1982). The gravamen of the complaint in either type of fraud is a knowingly deceitful action. A party is not necessarily guilty of fraud because he expresses an erroneous opinion or makes a prediction that fails to come true. Starling v. Valmac Industries, Inc., 589 F.2d 382 (8th Cir.1979). Rather, the person making the prediction or expressing the opinion is only guilty of fraud if he knows that opinion or prediction to be false when it is made. Vickers v. Gifford-Hill & Co., Inc., 534 F.2d 1311 (8th Cir.1976).

The evidence showed that Greenwood’s broker, Johns, and the broker in charge of the REFCO Springdale office, Robert Bone, were taking a short position in feeder cattle during the summer of 1979, and advising their clients to do the same. It is hardly open to dispute that had these brokers known or suspected their advice to be erroneous, they would not have been risking their personal accounts by going short in feeder cattle. Rather, they made an erroneous prediction as to the course that the feeder cattle market would take. The commodities market is a volatile arena in which speculators risk often high stakes on an uncertain outcome. Commodities speculation is a form of gambling condoned by our society because it stabilizes the farm markets, an important function in the economy. However, there is nothing stable about the commodities market itself. The law therefore does not require brokers to be right in their predictions about market behavior, but only to make those predictions in good faith. The evidence in this ease clearly shows that Johns acted in good faith when he advised Greenwood to take a short position in feeder cattle.

As for the placing of 28 unauthorized contracts for feeder cattle into his account, Greenwood admitted that he knew, by the afternoon of the same day, that the 28 contracts had been placed in his account. At that point he could have instructed his broker to remove the 28 contracts, but he did not so instruct Johns. Instead, he elected to retain these contracts in his non-discretionary trading account. By this action, Greenwood condoned, if he did not instigate, the actions of Johns and Bone, and cannot recover for any losses occasioned by the unauthorized contracts placed in his account by his broker. Lincoln Commodity Services v. Meade, 558 F.2d 469 (8th Cir.1977).

In deciding defendants’ motion for judgment notwithstanding the verdict, this Court must consider the evidence in the light most favorable to Greenwood as the prevailing party; must assume that all conflicts in the evidence were resolved by the jury in favor of Greenwood; must assume as proved all facts which Greenwood’s evidence tends to prove; must give Greenwood the benefit of all favorable inferences which may reasonably be drawn from the facts proved; and must deny the motion if reasonable people reviewing the evidence by this standard could differ as to the conclusions to be drawn from it. Russell v. United Parcel Service, Inc., 666 F.2d 1188 (8th Cir.1981). To put it more succinctly, “Unless the evidence, along with all inferences reasonably to be drawn therefrom, when viewed in the light most favorable to the plaintiff is such that reasonable jurors in fair and impartial exercise of their judgment could not reasonably disagree in finding for the defendant, the motion must be denied.” Vander Zee v. Karabatsos, 589 F.2d 723 (D.C.Cir., 1978), cert. denied, 441 U.S. 962, 99 S.Ct. 2407, 60 L.Ed.2d 1066. The evidence, viewed in this light, does not support the jury verdict.

Greenwood failed to prove the necessary elements of fraud to enable him to recover his losses on the short feeder cattle contracts he entered into through the agency of Johns and REFCO, INC. While the evidence did suggest that brokers in the Springdale office of REFCO, INC., were disregarding some of the regulations of the Chicago Mercantile Exchange, it did not show actionable fraud on the part of REF-CO, INC., or Thomas Dittmer. Even when the evidence is viewed in the light most favorable to Greenwood, and he is given the benefit of every legitimate inference, it cannot be concluded that Greenwood’s trading losses were fraudulently induced by REFCO or Dittmer. Therefore, the jury verdict returned at the trial of this case must be set aside, and judgment entered in favor of the defendants on the claims of the plaintiff.

In deciding defendants’ alternative motion for a new trial, this Court must find that prejudice or error has crept into the record, that the verdict is against the clear weight of the evidence, or that substantial justice has not been done. Ouachita Nat. Bank v. Tosco Corp., 686 F.2d 1291 (8th Cir.1982) on rehearing, 716 F.2d 485; Young v. Ethyl Corp., 444 F.Supp. 207 (E.D.Ark.1977). The Court is not required, in passing on the motion for new trial, to view the evidence in the light most favorable to Greenwood. It may weigh the evidence, disbelieve witnesses, and grant a new trial even where there is substantial evidence to sustain the verdict. Ouachita Nat. Bank v. Tosco Corp., supra. Because it is the finding of the Court that the evidence does not support a verdict in favor of Greenwood, it is necessarily also the finding of the Court that prejudice, error, or injustice is the foundation of the jury verdict in favor of Greenwood and that the verdict is against the clear weight of the evidence. Defendants are therefore granted a conditional new trial in the event that the judgment n.o.v. is not upheld on appeal.

Regarding the counterclaim of REFCO, INC. for an admitted debit balance in Greenwood’s account, this Court finds that when Greenwood is given the benefit of all legitimate inferences,.it might be concluded that the debit had been forgiven. The jury verdict on defendant REF-CO, INC.’s counterclaim is therefore not disturbed.


author: LEE, District Judge.

text:
    Phillip W. SNYDER, Plaintiff, v. INTERNAL REVENUE SERVICE and John A. Dietrich, Agent, Defendants.
    Civ. No. F 84-211.
    United States District Court, N.D. Indiana, Fort Wayne Division.
    Oct. 18, 1984.

      Phillip W. Snyder, pro se.
    Peter Sklarew, Civ. Trial Sec., Tax Div., Dept, of Justice, Washington, D.C., David H. Miller, Asst. U.S. Atty., Fort Wayne, Ind., for defendants.
   ORDER

LEE, District Judge.

This matter is before the court on defendants’ Motion to Dismiss and for an Award of Attorneys’ Fees and Costs filed August 28, 1984. For the following reasons, defendants’ motion will be granted in its entirety.

Plaintiff is proceeding pro se. Pro se pleadings are to be liberally construed. Haines v. Kerner, 404 U.S. 519, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972). This court also recognizes that federal courts have historically exercised great tolerance to insure that an impartial forum remains available to plaintiffs invoking the jurisdiction of the court without the guidance of trained counsel. Pro se complaints, such as plaintiff’s, are held to less stringent pleading requirements; technical rigor in the examination of such pleadings is inappropriate.

Liberally construing plaintiff’s complaint and numerous other filings, as well as plaintiff’s comments made at the preliminary pre-trial conference held in Open Court on August 27, 1984, it appears that the plaintiff is contesting the withholding of his wages by his employer as part of the statutorily defined scheme for collecting income taxes. Plaintiff believes that he is not subject to the Internal Revenue Code of 1954 (“Code”), and that by the assessing of taxes against him, the assessing of fines for the filing of certain W-4 forms in which plaintiff claimed an “exempt status,” and the threat of a possible levy of his property should he fail to pay the taxes, plaintiff’s constitutional rights have been harmed. The list of the rights allegedly violated grows with each pleading plaintiff filed in this court. In Open Court, plaintiff delineated the following: (1) violation of the fourth amendment because his property was “seized” when money was withheld from his paycheck; (2) deprivation of due process because plaintiff asked for appeal and then was told it was denied; (3) violation of the fifth amendment right of self-incrimination because the Internal Revenue Service (“IRS”) asked for records and information but denied plaintiff’s request of being protected from being a witness against himself. In filings after the hearing, plaintiff has also claimed violations of the fourth amendment for the assessment of two separate $500.00 fines for attempting to fill out false W-4 forms, and that the Final Notice of Tax Deficiency sent to plaintiff constituted a Bill of Pains and Penalties. Plaintiff seeks an injunction and $900,000 in damages. The complaint was originally filed in state court, and removed to this court on motion of the defendants.

Defendants have responded by filing a motion to dismiss. The thrust of the motion is two-fold: (1) neither of the defendants can be sued because they are protected by immunity; and (2) all allegations in the complaint are without merit, and therefore subject to dismissal. Defendants have also moved for fees and costs for defending this action.

The court begins with the motion to dismiss.

I. MOTION TO DISMISS

Although the defendants have characterized their motion as a motion to dismiss, it is clear that the issues presented by this motion are best addressed after reference is made to the exhibits, pleadings, and statements made in Open Court in this case. When matters outside the pleadings are presented to and not excluded by the court, a motion to dismiss will be converted into a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 12(b).

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment may only be granted if “the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). Thus, summary judgment serves as a vehicle with which the court “can determine whether further exploration of the facts is necessary.” Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir.1975).

In making this determination, the court must keep in mind that the entry of summary judgment terminates the litigation, or an aspect thereof, and must draw all inferences from the established or asserted facts in favor of the non-moving party. Peoples Outfitting Co. v. General Electric Credit Corp., 549 F.2d 42 (7th Cir.1977). A party may not rest on the mere allegations of his pleadings or the bare contentions that an issue of fact exists. Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.), cert. denied, — U.S.-, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983). See Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). See also Atchison, Topeka & Santa Fe Railway v. United Transportation Union, 734 F.2d 317 (7th Cir.1984); Korf v. Ball State University, 726 F.2d 1222 (7th Cir.1984). See generally C. Wright, Law of Federal Courts, § 99 (4th ed. 1983); 6 Moore’s Federal Practice, § 56.15 (2d ed. 1984).

Thus, the moving party must demonstrate the absence of a genuine issue of material fact. The court views all evidence submitted in favor of the non-moving party. Even if there are some disputed facts, where the undisputed facts are the material facts involved and those facts show one party is entitled to judgment as a matter of law, summary judgment is appropriate. Egger v. Phillips, 710 F.2d 292, 296-97 (7th Cir.1983); Collins v. American Optometric Assn., 693 F.2d 636, 639 (7th Cir.1982). Further, if the court resolves all factual disputes in favor of the non-moving party and still finds summary judgment in favor of the moving party is correct as a matter of law, then the moving party is entitled to summary judgment in his favor. Egger, 710 F.2d at 297. See also Bishop v. Wood, 426 U.S. 341, 348, 348 n. 11, 96 S.Ct. 2074, 2079, 2079 n. 11, 48 L.Ed.2d 684 (1976).

Although not raised by the defendants directly in their motion to dismiss, the court turns first to the issue of whether a proper basis for jurisdiction exists for hearing this cause. Because of the limited nature of a district court’s jurisdiction, the court may inquire into its jurisdiction sua sponte. Rice v. Rice Foundation, 610 F.2d 471 (7th Cir.1979).

A. Jurisdiction

Plaintiffs original complaint asserted two bases for jurisdiction: the United States and Indiana constitutions. Under a section entitled “Venue,” plaintiff also cites to 42 U.S.C. §§ 1981, 1983, and 1986, the civil rights statutes, and 18 U.S.C. §§ 241, 242, criminal statutes. None of these provisions give this court adequate jurisdiction to hear this cause.

The civil rights statutes, 42 U.S.C. §§ 1981, 1983, and 1986 cannot provide jurisdiction in actions against the assessment or collection of taxes. Section 1981 is restricted by the import of its language to discrimination based on race or color. Virginia v. Rives, 100 U.S. (10 Otto) 313, 25 L.Ed. 667 (1880); Willingham v. Macon Telegraph Publishing Co., 482 F.2d 535, 537 n. 1 (5th Cir.1973). In fact, the language of § 1981 militates against plaintiffs case, because the section provides that “all persons” shall be subject to taxes. Section 1983 prohibits deprivation of rights under color of state law. However, actions of IRS officials, even if beyond the scope of their official duties, are acts done under color of federal law and not state law, thus making § 1983 inapplicable. Seibert v. Baptist, 594 F.2d 423 (5th Cir.1979), cert. denied, 446 U.S. 918, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980); Mack v. Alexander, 575 F.2d 488, 489 (5th Cir.1978). Section 1986 creates a cause of action for failure or neglect to prevent a § 1985 conspiracy. However, § 1985(1) deals with conspiring to prevent an official from discharging his duties, while § 1985(2) deals with obstructing justice, both of which are inapplicable here. Section 1985(3) requires that there be “some racial, or perhaps otherwise class-based, invidiously discriminating animus behind the conspirators’ action,” Griffin v. Breckenridge, 403 U.S. 88, 102, 91 S.Ct. 1790, 1798, 29 L.Ed.2d 338 (1971); Dunn v. State of Tennessee, 697 F.2d 121 (6th Cir.1982), cert. denied, 460 U.S. 1086, 103 S.Ct. 1778, 76 L.Ed.2d 349 (1983), none of which is present here. It is therefore obvious that none of these statutory provisions can provide plaintiff with a basis for suit.

A similar conclusion results after analyzing 18 U.S.C. §§ 241 and 242, which are also offered by the plaintiff as grounds for “venue.” Section 241 makes it a crime for two or more persons to conspire to injure the rights of a citizen, while § 242 makes it a crime to violate the civil rights of a person. In short, they are simply the criminal law versions of 42 U.S.C. §§ 1985 and 1983. As such, plaintiff’s civil action cannot be based on the criminal statute but must be based on the statutes granting a civil cause of action (§§ 1983 and 1985), which are not present here. Plaintiff seems to admit that §§ 241 and 242 do not give him a private cause of action when he states “Title 18 U.S.C. was quoted in original Complaint in case a grand Jury wished to bring additional Criminal charges. Also, if the United States of America wished to police the actions of the defendants.” Plaintiff’s Answer to the Court in re of Instruments Submitted by the Defendants, filed September 14, 1984, 1f D-2(d), p. 6. Thus, this court gains no jurisdiction over this action by virtue of 18 U.S.C. §§ 241 or 242.

The only other basis for jurisdiction is 28 U.S.C. § 1331, the federal question jurisdiction statute. Plaintiff claims that the tax laws do not apply to him because the laws are unconstitutional. He also claims that certain constitutional rights were violated by the actions of the defendants. This is sufficient to give rise to some kind of federal question jurisdiction based on the constitutional issues involved in such claims. However, not all aspects of the plaintiff’s claims are cognizable under this jurisdiction.

Plaintiff has made clear that he does not seek a tax refund. Rather, he wants injunctive relief and damages. As to injunctive relief, plaintiff’s claim is barred by 26 U.S.C. § 7421, which provides in pertinent part that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.” Nor does the judicially created exception to this anti-injunction provision, outlined in Enochs v. Williams Packing and Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), apply here because neither one of its elements (that government cannot prevail on the merits and plaintiff has no adequate remedy at law) is present in this ease. Thus, this court has no jurisdiction to grant injunctive relief.

As for damages, the plaintiff must show that he can recover damages for violations stemming from the defendants’ alleged unconstitutional activity. Plaintiff can obtain damages against the defendants under only one of two theories: a claim under the Federal Tort Claims Act, 28 U.S.C. §§ 2671-2680; or an implied cause of action under the principles of Bivens v. Six Unknown Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1977). As will be more fully discussed in section I.B. of this order, a claim under the Federal Tort Claims Act will fail on principles of sovereign immunity. Furthermore, in Seibert v. Baptist, 594 F.2d 423, 429-32 (5th Cir. 1979), cert. denied, 446 U.S. 918, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980), the court refused to recognize a Bivens -type cause of action against the IRS and IRS officials and agents. The actions of the present defendants in assessing the taxes and penalties against the plaintiff and in generally operating under the IRS regulatory framework were not of the outrageous nature of those found in Bivens. This court agrees with the Seibert court and refuses to recognize a Bivens -type cause of action against the IRS or IRS officials and agents for the collection and assessment of taxes.

Thus, while a federal question may exist, it provides no basis for plaintiff to recover injunctive relief or damages. At the very best, it would allow this court to declare the Internal Revenue Code unconstitutional (which the court does not do) as a prelude to a refund suit, which plaintiff explicitly states he is not now pursuing. In short, federal question jurisdiction does not support plaintiff’s suit.

On the issue of jurisdiction, then, this court finds that it has no jurisdiction over any of plaintiff’s claims with the exception of extremely limited federal question jurisdiction over the question of the constitutionality of the Internal Revenue Code. However, out of an abundance of caution and a desire to give plaintiff a full review of his case, the court continues by analyzing the other issues in the Motion to Dismiss.

B. The “Suability” of the Defendants

A main thrust of defendants’ Motion to Dismiss is that none of the named defendants can be sued. Plaintiff has named two defendants: the IRS; and John Dietrich, an IRS agent. Because the defendants’ arguments revolve around the status of these defendants and whether such status allows the particular defendant to be sued, the court will analyze each defendant separately-

1. The Internal Revenue Service

The core of defendants’ argument about the inability of plaintiff to sue the IRS is the doctrine of sovereign immunity. It is well settled that the United States is a sovereign and, as such, is immune from suit without its prior consent. United States v. Shaw, 309 U.S. 495, 500-01, 60 S.Ct. 659, 661, 84 L.Ed. 888 (1940); Hutchinson v. United States, 677 F.2d 1322, 1327 (9th Cir.1982); Akers v. United States, 539 F.Supp. 831, 832 (D.Conn.1982), aff'd, 718 F.2d 1084 (2d Cir.1983). Absent consent to sue, dismissal of the action is required. Hutchinson, 677 F.2d at 1327. The United States has waived its immunity with respect to some causes of action in the Federal Tort Claims Act, 28 U.S.C. §§ 1346 and 2671-2680. However, the Act, in § 2680(c), specifically excluded “any claim arising in respect of the assessment or collection of any tax or customs duty____” It is thus clear that the United States has specifically reserved its immunity with respect to claims arising out of tax collection and assessment. Thus, to the extent that any part of plaintiff’s complaint can be construed as a claim against the United States, it is barred by the doctrine of sovereign immunity. See Hutchinson; Seibert v. Baptist, 594 F.2d 423 (5th Cir.1979), cert. denied, 446 U.S. 918, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980); White v. Commissioner, 537 F.Supp. 679, 684 (D.Colo.1982).

Plaintiff has attempted to make clear that his claim is not against the United States, but rather against the IRS. That is of little help to plaintiff because courts have found that the actions of the IRS or its agents fall under the Federal Tort Claims Act exception for collection and assessment of taxes. See Morris v. United States, 521 F.2d 872, 874 (9th Cir.1975); Spilman v. Crebo, 561 F.Supp. 652, 654-55 (D.Mont.1982). It is therefore clear that the IRS is immune from suit for tax collection or assessment activities.

Plaintiff apparently believes that this conclusion is avoided by his assertion that the IRS is a “private corporation,” and not a part of the United States. Plaintiff offers two arguments for this conclusion. The first is that the IRS was never created by “positive law” (i.e., a statute of Congress) but by fiat of the Secretary of the Treasury in 1952. It is clear, however, that the Internal Revenue Code of 1954, a statute of Congress, gave the Secretary of the Treasury full authority to administer and enforce the Code, 26 U.S.C. § 7801, and the power to create an agency to administer and enforce the tax laws. See 26 U.S.C. § 7803(a). Pursuant to that legislative grant of authority, the Secretary created the IRS, 26 C.F.R. § 601.101, so that the IRS is an agency of the Department of the Treasury, created pursuant to Congressional statute. As such, the IRS is a creature of “positive law,” and an agency of the federal government, not a private corporation.

The second argument for the IRS being a “private corporation” is that the IRS deposits the tax revenues in the federal reserve banks, and thus acts as a “collection agent” for those banks, who use the money to make loans, and conduct proprietary business, thus removing the cloak of governmental immunity. This argument is patently false from its first leap of logic. While the Secretary may authorize federal reserve banks (as well as other financial institutions) to receive tax payments, 26 U.S.C. § 6302(c), it is clear that those institutions receive the payments as agents for the United States. In short, the IRS is the Treasury’s collection agent, not the Federal Reserve Board’s. Tax dollars are used for governmental, not proprietary, purposes. It is thus clear that the IRS acts for the government as a governmental agency, and is entitled to the sovereign immunity of the United States. Plaintiff’s disingenuous attempts to deny the facts do not change this conclusion. See Cameron v. IRS, 593 F.Supp. 1540, at 1549 (N.D.Ind.1984); Young v. IRS, 596 F.Supp. 141, at 147 (N.D.Ind.1984).

2. Agent Dietrich

Plaintiff has also named IRS agent Dietrich as a defendant. None of the allegations of the complaint specifically describe his allegedly wrongful activities. However, the thrust of plaintiff’s complaint is against the withholding of taxes from his wages, and so to the extent that Agent Dietrich was involved, the court assumes that his actions were done within his official capacity as an IRS agent in enforcing the withholding provisions of the Code.

As was noted earlier, the United States has not waived its sovereign immunity with respect to claims arising out of tax assessment or collection. One cannot avoid this sovereign immunity by simply naming officials when the judgment would impact upon the public treasury. Vishnev sky v. United States, 581 F.2d 1249, 1255 (7th Cir.1978). At least one court has held that a suit against IRS officials in their official capacity is a suit against the United States, see Nelson v. Regan, 560 F.Supp. 1101 (D.Conn.1983), so that sovereign immunity would preclude the suit.

The United States Supreme Court, in Butz v. Economou, 438 U.S. 478, 98 S.Ct. 2894, 57 L.Ed.2d 895 (1978), discussed the extent of the immunity that a federal executive officer enjoys within the parameters of a federal agency position. The Court found that a federal official enjoyed only a qualified immunity, so that he could be liable individually if he knows or should have known that he is acting outside the law. Id. at 506-07, 98 S.Ct. at 2911. The Court recognized, however, that some officials need absolute immunity because it is “essential for the conduct of the public business.” Id. at 507, 98 S.Ct. at 2911. Some courts have read Butz as giving absolute immunity to IRS officials in actions for damages. Hutchinson v. United States, 677 F.2d 1322 (9th Cir.1982); Stankevitz v. IRS, 640 F.2d 205 (9th Cir.1981); Krzyske v. Commissioner, 548 F.Supp. 101 (E.D.Mich.1982); White v. Commissioner, 537 F.Supp. 679, 684 (D.Colo.1982). If the officials are alleged to have exceeded their authority and to have operated outside the scope of their official duties, then only the qualified immunity applies. Hutchinson, 677 F.2d at 1328; Nelson v. Regan, 560 F.Supp. 1101 (D.Conn.1983); Spilman v. Crebo, 561 F.Supp. 652, 655-56 (D.Mont. 1982). In order to present a situation where only the qualified immunity will apply, the complaint must contain specific allegations of the unconstitutional conduct by the official, White, 537 F.Supp. at 684, and must allege the specific statutory provisions under which the official exceeded his authority. Spilman, 561 F.Supp. at 655-56.

The tenor of plaintiffs complaint is that he seeks damages from Agent Dietrich for acts done in his official capacity as an IRS agent. The levy on a taxpayer’s wages is clearly within the statutory power of the IRS and its agents, and the withholding of taxes is sanctioned by the Code. Because such acts are done within Agent Dietrich’s official duties, the absolute immunity applies and the suit against him must fail. See Cameron v. IRS, 593 F.Supp. 1540, at 1550-1551 (N.D.Ind.1984); Young v. IRS, 596 F.Supp. 141, at 147-48 (N.D.Ind.1984).

Under the principles of summary judgment, the defendants have shown that there is no genuine issue of material fact in dispute between the parties, and the immunity of the IRS and Agent Dietrich entitles them to summary judgment as a matter of law. However, again out of an abundance of caution, this court now considers the merits of the various claims made by the plaintiff.

C. Merits of the Claim

Plaintiff’s case is built around two arguments which plaintiff believes entitle him to recover: (1) that the tax laws do not apply to him; and (2) that his fourth amendment, fifth amendment and due process rights were violated. The court will analyze each of these contentions in turn.

1. The Applicability of the Tax Laws

Plaintiff’s arguments for the inapplicability of the tax laws to him are somewhat convoluted. Liberally construed, the arguments rest upon the premise that plaintiff’s wages are not income within the meaning of the sixteenth amendment.

The plaintiff argues that only gain or profit can be income for taxation purposes. To support this claim, plaintiff cites to two Supreme Court cases, Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521 (1919), and Goodrich v. Edwards, 255 U.S. 527, 41 S.Ct. 390, 65 L.Ed. 758 (1921), which cites the “income as gain” language of Eisner. Plaintiff also cites several very old lower federal court decisions as well. However, none of these cases were intended to be definitive definitions of income; in fact, all involved questions of specific former tax laws. The Supreme Court rejected an argument, based on Eisner, that the Code’s definition of income is limited to gain in Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 75 S.Ct. 473, 99 L.Ed. 483 (1955). The Court specifically stated that the “income as gain” definition of Eisner “was not meant to provide a touchstone to all future gross income questions.” Id. at 431, 75 S.Ct. at 477. More recently the Court rejected the assumption that the current statutory definition of income (in 26 U.S.C. § 61) incorporated the income as gain definition of Eisner. See Commissioner v. Kowalski, 434 U.S. 77, 94, 98 S.Ct. 315, 325, 54 L.Ed.2d 252 (1977). Thus, the first assumption behind plaintiff’s argument is simply incorrect — income is not limited to gain or profit.

The second half of plaintiff’s argument is that wages are not profit or gain because they are given in equal exchange for the services he renders for Magnavox. Whether the economic view of wages as exchange for services is correct, the Supreme Court has, as noted above, rejected the notion that the income as gain concept is inherent in the § 61 definition of gross income. In Kowalski, the Court embraced the § 61 definition, id. at 83, 98 S.Ct. at 319, which defines the concept as follows: “... gross income means all income from whatever source derived, including ... (1) compensation for services____” This analysis has led the Seventh Circuit to declare in the clearest language possible that “WAGES ARE INCOME.” United States v. Koliboski, 732 F.2d 1328, 1328 n. 1 (7th Cir.1984). Many other courts have reached the same conclusion. See, e.g., Granzow v. Commissioner, 739 F.2d 265, at 267 (7th Cir.1984); Lively v. Commissioner, 705 F.2d 1017 (8th Cir.1983); Knighten v. Commissioner, 702 F.2d 59, 60 (5th Cir.), cert. denied, — U.S. -, 104 S.Ct. 249, 78 L.Ed.2d 237 (1983); United States v. Romero, 640 F.2d 1014, 1016 (9th Cir.1981). In Romero, the court rejected a “wages are not income” argument, and underscored its conclusion by noting: “Compensation for labor or services, paid in the form of wages or salary, has been universally held by the courts of this republic to be income, subject to the income tax laws currently applicable.” Id. at 1016. This court has also previously held that wages are income. See Cameron v. IRS, 1552; Young v. IRS, 149.

It is thus unmistakably clear that plaintiff is wrong in concluding that his wages are not taxable income. The initial assumption behind the argument (that income is gain or profit) is incorrect because it is not exclusive. True, a gain or profit is income. That does not, however, mean that all income must be a gain or profit. Section 61 makes clear that wages are income for taxation purposes, so that plaintiff’s arguments are simply incorrect and without a basis in law. The tax laws therefore apply with full force to the plaintiff.

2. Fourth Amendment Claims

Plaintiff makes two claims under the fourth amendment. First, plaintiff argues that the withholding of monies from his wages constitutes an illegal “seizure.” However, plaintiff does not have a fourth amendment interest to protect here. The Supreme Court has stated that a tax assessment “is given the force of a judgment, and if the amount assessed is not paid when due, administrative officials may seize the debtor’s property to satisfy the debt.” Bull v. United States, 295 U.S. 247, 260, 55 S.Ct. 695, 699, 79 L.Ed. 1421 (1935). In Phillips v. Commissioner, 283 U.S. 589, 596-97, 51 S.Ct. 608, 611, 75 L.Ed. 1289 (1931), the Court rejected a due process challenge to the statutory system of collecting taxes without a pre-seizing hearing. The Phillips Court held that as long as the taxpayer had an opportunity to have his rights determined after the seizure, the requirements of due process were satisfied. More recently, the Court applied this analysis to fourth amendment concerns as well. G.M. Leasing Corp. v. United States, 429 U.S. 338, 352 n. 18, 97 S.Ct. 619, 628 n. 18, 50 L.Ed.2d 530 (1977). The Court there found that fourth amendment concerns arise only when there is an invasion of the plaintiff’s privacy. Here, no such invasion took place because the money was withheld when it was neither in plaintiff’s private possession nor subject to his private control. Of course, this same analysis applies to the levy on plaintiff’s wages described in the “Plaintiff’s Answer to the Court in re of Instruments Submitted by the Defendants and/or their Counsel” as well. With the ability to sue for a refund, plaintiff’s rights can be protected without the need for fourth amendment causes of action. This court refuses to recognize a cause of action for the normal withholding of wages on fourth amendment grounds.

3. Fifth Amendment Claims

Plaintiff alleges a violation of his fifth amendment right against self-incrimination in being forced to give information without the assurance that the information would not be used against him. The Seventh Circuit has specifically stated that “we have no hesitation in holding that the Fifth Amendment has no application to the statutory requirement that every citizen must report his entire income even if a taxpayer is thereby compelled to disclose an incriminating fact.” United States v. Oliver, 505 F.2d 301, 308 (7th Cir.1974). In short, plaintiff does not have a fifth amendment interest to protect when he turns information over to the IRS concerning his income. Therefore, his fifth amendment claim is without basis in the law.

4. Due Process Claims

Plaintiff alleges that his due process rights were violated because he requested an appeal and was denied. To the extent that plaintiff’s allegation means that the IRS considered plaintiff’s appeal and denied it because it was without merit, there was no violation of due process as plaintiff had an appeal. To the extent that plaintiff was not granted an appeal, he was not foreclosed from any reconsideration of his claim. Plaintiff still can sue for a refund, see 26 U.S.C. § 7422, after all the statutory prerequisites are met, and thus has not been foreclosed from receiving the process he is due. This court can perceive no harm done to plaintiff’s due process rights.

5. Other Claims

Although not alleged in the complaint, other claims can be gleaned from plaintiff’s numerous filings, and are addressed briefly here. Plaintiff asserts that a Final Notice sent to plaintiff (demanding that the plaintiff pay back taxes or have his wages levied) was a “Bill of Pains and Penalties,” a lesser form of a Bill of Attainder. This court has twice before rejected the Bill of Attainder/Pains and Penalties argument. Current interpretation of the Bill of Attainder clause defines a bill of attainder as a legislative act which determines guilt and punishes an identifiable individual or group of individuals. See Nixon v. Administrator of General Services, 433 U.S. 425, 468, 97 S.Ct. 2777, 2802, 53 L.Ed.2d 867 (1977). However, none of these elements are present in tax protestor cases such as this. See Cameron v. IRS, 1555-1556; Young v. IRS, 150. This argument has been and continues to be merit-less.

Plaintiff also briefly mentions the lack of an Office of Management and Budget (“OMB”) number on certain IRS documents. Plaintiff gives no reason why this fact should matter. However, this court notes that it has previously held that IRS documents do not need to carry OMB numbers to be valid under 44 U.S.C. § 3512. Cameron v. IRS, 593 F.Supp. 1540 (N.D.Ind.1984). That allegation is simply meritless.

An analysis of defendants’ converted motion to dismiss reveals that plaintiff has not asserted a competent basis for jurisdiction, cannot sue any of the defendants because they are immune, and even if he could overcome these two barriers to recovery, could not prevail because his complaint contains nothing other than meritless and baseless claims. It is abundantly clear that there are no genuine issues of material fact and that the defendants are entitled to judgment as a matter of law. This court will therefore grant the defendants summary judgment on the entire complaint.

II. MOTION FOR FEES AND COSTS

The American Rule is that absent specific statutory or other expressed authorization, attorney fees are not recoverable by the prevailing party in a lawsuit. International Union v. J. Pease Construction Co., 541 F.Supp. 1334, 1337 (N.D.Ill.1982). An exception to this rule has been recognized where a losing party has “acted in bad faith, vexatiously, wantonly, or for oppressive reasons____” Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 258-59, 95 S.Ct. 1612, 1622-23, 44 L.Ed.2d 141 (1975). See McCandless v. Great Atlantic and Pacific Tea Co., 697 F.2d 198 (7th Cir.1983).

The Seventh Circuit has made clear that bad faith can include the pursuit of merit-less suits. In Analytica, Inc. v. NPD Research, Inc., 708 F.2d 1263 (7th Cir.1983), the court held that insistence on litigating a question in the face of controlling precedents which removed every colorable basis in law for the litigant’s position amounted to bad faith justifying an award of fees. Id. at 1269-70. In Reid v. United States, 715 F.2d 1148 (7th Cir.1983), the Seventh Circuit stated that “the law may be so clear and well established that persistence in a course of litigation could be evidence of bad faith.” Id. at 1154. Thus, this court has sufficient equitable power to assess sanctions for fees and costs if it finds that plaintiff’s claim is meritless and in bad faith.

A second source of power to impose sanctions is found in the Federal Rules of Civil Procedure. Rule 11, which governs the signing of pleadings and motions, requires that each pleading or motion be signed by an attorney or the party (if the party is proceeding pro se). The rule then provides:

The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, other other paper; that to the best of his knowledge, information and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

If a pleading violates this rule the court “shall impose” an “appropriate sanction,” which may include the amount of reasonable expenses and attorney’s fees incurred by the other party because of the filing of the pleading or motion.

The Notes of the Advisory Committee on the Federal Rules makes it clear that Rule ll’s provisions are designed to “discourage dilatory or abusive tactics and [to] help streamline the litigation process by lessening frivolous claims or defenses.” The rule applies to anyone who signs a pleading, motion, or other paper, and the same standards apply to pro se litigants, although the concerns of Haines v. Kerner, 404 U.S. 519, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972), can be taken into account.

The core of Rule 11 is that the signature on the pleading certifies that “to the best of his knowledge, information and belief formed after reasonable inquiry it [the pleading, motion or paper] is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law ...” (emphasis added). What is important to note is that this language requires more than just a belief that the law is or should be a certain way; as the Advisory Committee states, “what constitutes a reasonable inquiry may depend on ... whether the pleading, motion, or other paper was based on a plausible view of the law,” and is thus a “more stringent” standard than good faith.

Despite the apparently objective nature of this standard, two recent Seventh Circuit opinions have emphasized that Rule 11 requires a finding of subjective bad faith on the part of the person against whom fees are to be assessed. Suslick v. Rothschild Securities Corp., 741 F.2d 1000, at 1007 (7th Cir.1984); Badillo v. Central Steel and Wire Co., 717 F.2d 1160, 1166-67 (7th Cir.1983). What constitutes subjective bad faith is not completely clear, although the Suslick court did reemphasize that a claim lacking even a colorable basis in law can justify the award of fees. At 1006. However, it is clear that the Seventh Circuit has recognized the propriety of assessing fees in cases involving parties who claim not to owe income taxes or who file frivolous tax appeals. See Granzow v. Commissioner, 739 F.2d 265, at 269-270 (7th Cir.1984). Other circuits have also awarded costs for groundless actions involving the tax laws. See Parker v. Commissioner, 724 F.2d 469 (5th Cir.1984); United States v. Hart, 701 F.2d 749, 750 (8th Cir.1983); McCoy v. Commissioner, 696 F.2d 1234, 1237 (9th Cir.1983).

Under both general equitable principles and the provisions of Rule 11, this case is clearly one which merits the imposition of sanctions. Here, the plaintiff has argued that the Internal Revenue Code does not apply to him; yet courts have consistently ruled that wages are taxable income. Such argument in light of these clear precedents constitutes insistence on litigating a question in the face of controlling precedents that remove any colorable basis in law for the claim. This is precisely the kind of evidence which justifies a finding of subjective bad faith under the Seventh Circuit standard. Plaintiffs other meritless arguments are further evidence of bad faith. Even under the principles of Haines v. Kerner, and the deference to be accorded a pro se litigant’s right to seek redress in court, this court finds that plaintiff’s entire suit was frivolous and brought in bad faith.

In an analogous situation, the Seventh Circuit stated:

The doors of this courthouse are, of course, open to good faith appeals of what are honestly thought to be errors of the lower courts. But we can no longer tolerate abuse of the judicial review process by irresponsible taxpayers who press stale and frivolous arguments, without hope of success on the merits, in order to delay or harass the collection of public revenues or for other nonworthy purposes____ Abusers of the tax system have no license to make irresponsible demands on the courts of appeals to consider fanciful arguments put forward in bad faith. In the future we will deal harshly with frivolous tax appeals and will not hesitate to impose even greater sanctions under appropriate circumstances.

Granzow v. Commissioner of Internal Revenue, 739 F.2d 265, at 269-270 (7th Cir.1984). Similarly, the doors of this courthouse are open to good faith litigation, but abuse of the judicial process, as in this case, will not be tolerated. Accordingly, the defendants’ request for attorney fees, costs and expenses will be granted. This court finds the reasonable attorney fees to be $500.00. See Cameron v. IRS, 593 F.Supp. 1540 (N.D.Ind.1984); Young v. IRS, 596 F.Supp. 141 (N.D.Ind.1984).

This court is concerned not only with compensating the defendants for their needless expense, but also with discouraging these baseless suits. The greatest harm inflicted by frivolous tax protestor suits such as this one is the enormous waste of precious judicial resources they cause. The time needed to dispose of these suits forces needless delay upon litigants with meritorious claims. This court refuses to condone further irresponsible uses of the courts. Rule 11 grants this court full power to impose sanctions upon litigants who file meritless pleadings and arguments, and all future litigants were warned by this court in footnote 4 of Cameron v. IRS. Although plaintiff was not aware of the holding in Cameron, he was informed in Open Court of the possibility that sanctions would be imposed against him. Analysis of the case leads this court to conclude that plaintiff should be fined $500.00 under Rule 11 for bringing this meritless suit.

Conclusion

For the foregoing reasons, defendants’ Motion to Dismiss is converted into a motion for summary judgment, and this court hereby GRANTS the defendants summary judgment on the entire complaint. The court also GRANTS defendants’ motion for fees and costs, and hereby ORDERS plaintiff to pay defendants $500.00 for having to defend against this meritless action. The court also hereby ORDERS plaintiff to pay $500.00 to the Clerk of this court as a Rule 11 sanction for filing this action.

      . Additional support for this assumption is found in "Plaintiff’s Answer to the Court in re of Instruments Submitted by the Defendants and/or their Counsel,” in which the plaintiff describes a levy on his wages (¶ B-l(a) through (i)), and then states "it was John A. Dietrich who did willingly aid and abate [sic] the defendants) in their unlawful type of action/actions." This strongly indicates that defendant Dietrich was named because of the action taken in his official capacity as an IRS agent.


author: MAHON, District Judge.

text:
    Albert L. BAIN v. Margaret HECKLER, Secretary of Health and Human Services.
    Civ. No. 6-83-35.
    United States District Court, N.D. Texas, San Angelo Division.
    Oct. 18, 1984.

      Vernon Lewis, West Texas Legal Services, San Angelo, Tex., for plaintiff.
    Paulina M. Jacobo, Asst. U.S. Atty., Lubbock, Tex., for defendant.
   MEMORANDUM OPINION AND ORDER

MAHON, District Judge.

Plaintiff brings this action pursuant to section 205(g) of the Social Security Act, 42 U.S.C. § 405(g), for judicial review of a final decision of the Secretary denying her claim for disability benefits under Sections 216(i) and 223 of Title II of the Act, 42 U.S.C. § 416(i), 423. Both parties have moved for summary judgment. Local Rule 10.3(b). The Secretary contends that the administrative decision is supported by substantial evidence. After carefully reviewing the record, the briefs of the parties and the applicable law, the Court makes the following ruling:

I. ADMINISTRATIVE PROCEEDINGS

Plaintiff filed an application for disability benefits on February 20, 1976 alleging that he was disabled because of a fractured neck, a spinal fusion and a crushed shoulder blade. After a reconsideration decision, plaintiff was granted a period of disability commencing March 21, 1975. Thereafter, plaintiff’s claim was reviewed and the Secretary determined that plaintiff’s disability ceased as of June, 1982. A hearing was held before an administrative law judge (AU) in December, 1982 in which the AU found that plaintiff’s impairments, as of June, 1982, did not significantly limit his ability to perform basic work-related functions, and did not constitute a severe impairment. The Appeals Council denied plaintiff’s request for review, thus adopting the decision of the AU as the final decision of the Secretary.

On July 18, 1983, plaintiff filed this action, seeking judicial review of the Secretary’s determination. The Secretary failed to file a timely answer despite being given extensions of time and being ordered to do so. On April 28, 1984, this Court ordered the Secretary to pay interim benefits to the plaintiff as a result of the inequitable delay. The Secretary served her answer on May 14, 1984.

II. STATEMENT OF FACTS

The Court has reviewed the record filed in this case and adopts the summary of the administrative law judge (AU) as properly stating the facts except as hereinafter discussed below.

III. APPLICABLE LAW

Section 423(d)(2)(A) of Title 42 provides: an individual ... shall be determined to be under a disability only if his physical or mental impairment or impairments are of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy, regardless of whether such work exists in the immediate area in which he lives, or whether a specific job vacancy exists for him, or whether he would be hired if he applied for work____

In reviewing a denial of Social Security benefits, this Court is statutorily limited to determine, based on the record as a whole, whether substantial evidence exists to support the Secretary’s decision. 42 U.S.C. § 405(g); Richardson v. Perales, 402 U.S. 389, 401, 91 S.Ct. 1420, 1427, 28 L.Ed.2d 842 (1979); Jones v. Heckler, 702 F.2d 616, 620 (5th Cir.1983). Substantial evidence is “more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.” Richardson v. Perales, 402 U.S. at 401, 91 S.Ct. at 1427; Thomas v. Schweiker, 666 F.2d 999, 1002 (5th Cir. 1982). The Court must bear in mind that it is within the discretion of the Secretary whether a person is disabled under the Social Security Act. 42 U.S.C. § 405(a); Fortenberry v. Harris, 612 F.2d 947, 950 (5th Cir.1980); see Newborn v. Harris, 602 F.2d 105, 107 (5th Cir.1979), and the Court must neither reweigh the evidence nor substitute its judgment for that of the Secretary. Jones v. Heckler, 702 F.2d at 620; Anderson v. Schweiker, 651 F.2d 306, 308 (5th Cir.1981). While subjective assessments of disability based on physicians’ opinions, governmental and nongovernmental agencies’ evaluations, and the claimant’s own testimony concerning his pain and physical restrictions must be considered by the Secretary, they are not binding on him. 20 C.F.R. § 404.1504 (1984); Kirkland v. Weinberger, 480 F.2d 46, 49 (5th Cir.1973). It is within the discretion of the factfinder to determine the disabling nature of pain, Jones v. Heckler, 702 F.2d at 622, and a factual finding that the claimant is able to work despite some pain will be upheld if supported by substantial evidence. Fortenberry v. Harris, 612 F.2d at 950. Furthermore, if experts’ opinions conflict, the Court may not disagree with the Secretary’s judgment concerning which of the experts to believe. 20 C.F.R. §§ 404.-1526-1527 (1984); Oldham v. Schweiker, 660 F.2d 1078, 1084 (5th Cir.1981).

In termination of disability benefit cases, a prior determination of disability is binding on all the parties and has a res judicata effect as to that record. Buckley v. Heckler, 739 F.2d 1047, 1048 (5th Cir. 1984); see also, 20 C.F.R. 416.1455 (1984). The Secretary, in reviewing a claimant’s eligibility for benefits, may not overrule an earlier finding of disability without the submission of new evidence. Therefore, “once evidence has been presented which supports a finding that a given condition exists it is presumed in the absence of proof to the contrary that the condition has remained unchanged.” Buckley, 739 F.2d at 1049 (quoting Weinberger v. Rivas, 475 F.2d 255, 258 (5th Cir.1973). The Secretary is not required to prove by substantial evidence that the disability has ceased. Id. The Secretary need only offer evidence tending to rebut the presumption of continued disability. Id. The claimant will then be permitted to present additional evidence to show the existence of a continued disability. Id. A new determination of eligibility is then made by the AU. Id.

The Court is reminded again of its extremely limited scope of review in these cases. The Court is merely to determine if substantial evidence exists in the record to support the Secretary’s decision. Richardson v. Perales, 402 U.S. at 401, 91 S.Ct. at 1427; Jones v. Heckler, 702 F.2d at 620.

IV. ISSUE

Plaintiff asserts that the Secretary’s decision that Plaintiff is no longer disabled is not supported by substantial evidence. Specifically, Plaintiff presents three issues; (1) that the Secretary applied an improper legal standard in terminating plaintiff’s disability benefits without evidence of improvement; (2) that the Secretary applied an improper legal standard in evaluating plaintiff’s subjective complaints; and (3) that the Secretary misinterpreted the medical records. The Court finds it necessary to only address the first issue and saves for another day issues two and three.

V. DISCUSSION

Plaintiff is entitled to a presumption of continuing disability based upon the Secretary’s determination of disability in 1976. Therefore, the Secretary was required to present new evidence that either plaintiff’s condition improved or that it was not as serious as originally thought. See Buckley, 739 F.2d at 1049. The Secretary did come forward with new evidence regarding plaintiff’s condition upon which the AU based his decision of no disability. However, when the plaintiff pointed out that the evidence does not show improvement in plaintiffs condition, the AU expressly refused to consider whether plaintiffs condition had improved (Tr. 40-41). The AU stated that a showing of improvement is not required: “(T)he Administration’s view is that the person is not disabled at the time of cessation and that is all that is needed.” (Tr. 41). Furthermore, the AU’s decision made no mention of improvement nor of the evidence which formed the basis of the prior disability determination. The AU only considered the recent medical reports in finding that the plaintiff is not disabled as of June, 1982.

Accordingly, the Court remands the case to the Secretary for a hearing consistent with the standard of review for terminating disability benefits as enunciated in Buckley v. Heckler. The Secretary will consider evidence on the existence of plaintiff’s improved condition taking into account the binding effect of a prior determination of disability.