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https://www.courtlistener.com/api/rest/v3/opinions/1751018/ | 165 F. Supp. 418 (1958)
The MERRITT CORPORATION, Plaintiff,
v.
Marion B. FOLSOM, Secretary of U. S. Department of Health, Education, and Welfare, George P. Larrick, Commissioner, Food and Drug Administration, Department of Health, Education, and Welfare,
William P. Rogers, Attorney General of the United States, Defendants.
Civ. No. 338-58.
United States District Court District of Columbia.
May 21, 1958.
*419 *420 Oliver Gasch, U. S. Atty., Robert J. Asman, Asst. U. S. Atty., William W. Goodrich, Asst. Gen. Counsel, Dept. of Health, Education and Welfare, Washington, D. C., for U. S.
Harry M. Edelstein, Washington, D. C., Milton A. Bass, New York City, for plaintiff.
CURRAN, District Judge.
Findings of Fact
1. On February 11, 1958, the plaintiff, Merritt Corp., filed a complaint for injunction seeking to restrain the defendant government officials from instituting further seizure actions against plaintiff's drug product, "Clarimycin Anti-Biotic Acne Lotion."
2. Pursuant to Section 304 of the Federal Food, Drug, and Cosmetic Act [21 U.S.C.A. § 334] the defendants have caused to be instituted six seizure actions in various parts of the country against "Clarimycin." There was no Section 304 determination of probable cause.
3. Each of the seizure actions instituted allege that "Clarimycin" is a new drug which may not be introduced into interstate commerce under the provisions of Section 505(a) [21 U.S.C.A. § 355(a)], since an application filed pursuant to Section 505(b) [21 U.S.C.A. § 355(b)] is not effective with respect to the drug.
4. The active ingredient of "Clarimycin" is the antibiotic neomycin sulfate.
5. From 1949 to 1955 all neomycin sulfate preparations were deemed to be new drugs requiring the filing of an application pursuant to Section 505 [21 U.S.C.A. § 355] before the drug could be marketed in interstate commerce.
6. In 1955 certain types of neomycin sulfate preparations were declared by the United States Food and Drug Administration no longer to be new drugs when labeled for use only for the prevention of infections in the temporary self-limiting conditions of minor cuts, burns and abrasions.
7. Plaintiff markets its neomycin sulfate lotion preparation in interstate commerce for sale to the layman with labeling recommending use of the product for the treatment of acne.
8. Acne vulgaris is a chronic, recurring disease condition of the skin which may last for years and which therefore requires treatment for a prolonged period of time.
9. When viewed in the light most favorable to it, plaintiff's medical affidavits assert that topical neomycin sulfate is generally recognized by experts as safe in the treatment of acne, even when used over prolonged periods of time.
10. Defendant's medical affidavits assert that topical neomycin sulfate is not generally recognized as safe by experts in the treatment of acne, because it has been shown to produce sensitization and cross-sensitization to streptomycin, an antibiotic valuable in the treatment of serious disease conditions. In addition, that use of neomycin sulfate for the treatment of acne is a new use for neomycin sulfate both because it has not been generally used for such a disease before and also because prolonged administration, which is required in an acne treatment, is a new method of utilizing the drug.
*421 Conclusions of Law
The Federal Food, Drug, and Cosmetic Act, 21 U.S.C.A. § 334, imposes no limitations upon the number of seizure actions which may be instituted under a "New Drug" charge, i.e. that the drug is one which may not, under the provisions of Section 505 [21 U.S.C.A. § 355] be introduced into interstate commerce.
2. Multiple seizures based on a "New Drug" charge may be instituted without the making of any probable cause determination under Section 304 [21 U.S.C.A. § 334].
3. The newness of a drug, within the meaning of the Federal Food, Drug, and Cosmetic Act may arise by reason of, among others, a new or different recommended use for the drug, or a new or different duration of administration, even though the same drug may not be a new drug when used in another disease or other duration of administration.
4. From the affidavits submitted it appears that a difference of medical opinion exists among the experts on whether topical neomycin sulfate is generally recognized as safe for the treatment of acne.
5. Where there is a genuine difference of medical opinion among the experts on the question of whether a drug is generally recognized as safe for the treatment of a particular disease, it must be concluded that the drug is not generally recognized as safe for use in the treatment of that disease.
6. It cannot be said therefore, that the defendant government officials have acted unreasonably or arbitrarily. The medical affidavits submitted by the defendants leave no doubt as to the good faith of the officials.
7. The institution of lawsuits alleging violation of the Federal Food, Drug, and Cosmetic Act is a matter of discretion vested in the defendant officials.
8. Where discretion is vested in a government official and he acts in good faith in the light of the facts he ascertains and the judgment he forms, a Court cannot restrain him from acting, on the ground that he has exceeded his jurisdiction, even if his conclusion might have been induced by an error of fact or law.
9. The defendant officials here were properly exercising the powers of the sovereign and the Court may not enjoin that action.
10. The Court is without jurisdiction to enjoin the defendants.
11. Plaintiff's motion for a temporary injunction will be denied.
12. There exists no genuine issue as to any material fact and defendants are entitled to judgment as a matter of law on their motion to dismiss and for summary judgment.
13. Defendant's motion to dismiss and for summary judgment will be granted.
Let judgment be entered accordingly. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1734548/ | 601 F. Supp. 874 (1985)
David L. O'NEAL and Connie L. O'Neal, Petitioners,
v.
UNITED STATES of America, Steven Weida and Phillip Clelland, Agents, Internal Revenue Service, and Internal Revenue Service, Respondents.
Civ. No. F 84-191.
United States District Court, N.D. Indiana, Fort Wayne Division.
January 30, 1985.
*875 David L. O'Neal, petitioner, pro se.
Peter Sklarew, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., David H. Miller, Asst. U.S. Atty., Fort Wayne, Ind., for respondents.
ORDER
WILLIAM C. LEE, District Judge.
This matter is before the court on respondents' motion to dismiss the petition to quash an Internal Revenue Service ("IRS") summons issued to the General Telephone Company ("GTE"). For the following reasons, the motion to dismiss will be granted.
Petitioners are 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). The district court's role is to ensure that the claims of pro se litigants are given "fair and meaningful consideration." Matzker v. Herr, 748 F.2d 1142 at 1146 (7th Cir. 1984); Caruth v. Pinkney, 683 F.2d 1044, 1050 (7th Cir.1982). This court also recognizes that federal courts have historically exercised great tolerance to ensure that an impartial forum remains available to plaintiffs invoking the jurisdiction of the court without the guidance of trained counsel. Pro se motions and petitions such as the petitioners' are held to less stringent pleading requirements; rigor in the examination of such motions, petitions and pleadings is inappropriate.
The facts of this case appear to be as follows. On May 11, 1984, the IRS issued a summons to GTE requesting the production of
All books and records, which include information relative to the installation, subscriber credit reports, payment records, location and number of telephones and toll records for all telephone service at 506 North Posey Street, Windfall, Indiana 46076 (317) 945-7698.
The toll records are requested for the six month period prior to the service of this summons. It is also requested that the telephone numbers on the toll records be *876 identified as to the name and address of the subscriber.
The address and phone number listed in the summons belong to the petitioners ("O'Neals"). The O'Neals claim that they are members of the Constitutional Rights Protection Association ("CRPA") which is a group of "like-minded individuals [who] have been outspoken, but legal critics of the tyranny, abuse and infringement of the First Amendment Rights of Individuals commonly practiced by agents of [the] Internal Revenue Service." Complaint, ¶ 6.3 (emphasis in the original). The O'Neals believe that the summons was issued "for the sole and improper purpose of obtaining a list or partial list of `possible' members of the [CRPA], so that the I.R.S. can then selectively harass and intimidate individual members or people they suspect may be members of the [CRPA]," id. at ¶ 6.5, as the phone at the number listed in the summons has been used for CRPA purposes. Disclosure of the members' names would have a chilling effect on the first amendment rights of the CRPA members. The O'Neals therefore seek to quash the summons.
The respondents have moved to dismiss the petition to quash, contending that the O'Neals have failed to allege the necessary elements of a first amendment claim. It is this motion to dismiss which the court now addresses.
Although the respondents 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 and other pleadings 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 F.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 contention 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 Co. v. United Transportation Union, 734 F.2d 317 (7th Cir.1984); Korf v. Ball State University, 726 F.2d 1222 (7th Cir.1983). 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, *877 426 U.S. 341, 348, 348 n. 11, 96 S. Ct. 2074, 2079, 2079 n. 11, 48 L. Ed. 2d 684 (1976).
With these principles in mind, the court turns to the question of whether the O'Neals' assertion of a chilling of CRPA members' first amendment rights can withstand the motion for summary judgment in light of the facts presented.
The power to issue IRS summonses is governed by chapter 78 of the Internal Revenue Code of 1954, 26 U.S.C. §§ 7601-7609. In 26 U.S.C. § 7601, the Code imposes a duty on the Secretary of the Treasury to "inquire after and concerning all persons ... who may be liable to pay any internal revenue tax." Pursuant to that duty, § 7602 provides that
For the purpose of ascertaining the correctness of any return, making a return where none is made, determining the liability of any person for any internal revenue tax ... or collecting any such liability, the Secretary or his delegate is authorized
(1) To examine any books, papers, records, or other data which may be relevant to such inquiry;
(2) To summon ... any ... person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data ... as may be relevant or material to such inquiry....
According to the respondents' memoranda, GTE stands ready and willing to comply with the summons, pending this court's determination of the validity of the petition to quash. Thus, the court does not perceive the issue in this case to be whether the statutory provisions for issuance of an IRS summons have been followed.[1] The O'Neals do not seriously contest the ability of the IRS to subpoena telephone records in most cases. Rather, the issue here is whether a properly issued IRS summons may be quashed when it is alleged to chill the first amendment associational rights of CRPA members.
The first amendment right to freedom of association has been recognized in a long line of Supreme Court cases beginning with NAACP v. Alabama, 357 U.S. 449, 78 S. Ct. 1163, 2 L. Ed. 2d 1488 (1958). Since that seminal case, the Court has "repeatedly found that compelled disclosure [of membership lists], in itself, can seriously infringe on privacy of association and belief guaranteed by the First Amendment." Buckley v. Valeo, 424 U.S. 1, 64, 96 S. Ct. 612, 656, 46 L. Ed. 2d 659 (1976). Thus, in order to justify a compelled disclosure, the interests of the state in seeking such disclosure must bear a "relevant correlation," Bates v. City of Little Rock, 361 U.S. 516, 525, 80 S. Ct. 412, 417, 4 L. Ed. 2d 480 (1960), or a "substantial relation," Gibson v. Florida Legislative Comm., 372 U.S. 539, 546, 83 S. Ct. 889, 893, 9 L. Ed. 2d 929 (1963), to the information required to be disclosed. Despite this strict test, "we have acknowledged that there are governmental interests sufficiently important to outweigh the *878 possibility of infringement, particularly when the `free functioning of our national institutions' is involved." Buckley, 424 U.S. at 66, 96 S.Ct. at 657, quoting Communist Party v. Subversive Activities Control Board, 367 U.S. 1, 97, 81 S. Ct. 1357, 1411, 61 L. Ed. 2d 625 (1961).
However, this strict test is not to be applied in every case of alleged infringement of associational rights. Rather, a plaintiff must make a showing of a demonstrable injury. In NAACP v. Alabama, for example, the NAACP "made an uncontroverted showing that on past occasions revelation of the identity of its rank-and-file members [had] exposed these members to economic reprisals, loss of employment, threat of physical coercion, and other manifestations of public hostility." 357 U.S. at 462, 78 S.Ct. at 1172. In Bates v. City of Little Rock, 361 U.S. 516, 80 S. Ct. 412, 4 L. Ed. 2d 480 (1960), the Court cited to "substantial uncontroverted evidence that public identification of persons in the community as members of the organization had been followed by harassment and threats of bodily harm. There was also evidence that fear of community hostility and economic reprisals that would follow public disclosure of the membership lists had discouraged new members from joining the organizations and induced former members to withdraw." Id. at 524, 80 S.Ct. at 417. These uncontroverted findings of harassment and withdrawal or discouragement of membership supported freedom of association claims, while "highly speculative" claims of infringement would not. Buckley, 424 U.S. at 69-70, 96 S.Ct. at 659.
Thus, the elements of a first amendment freedom of association claim are twofold: plaintiff must show (1) a compelled disclosure of the association's membership list;[2] and (2) a factual showing of harassment, membership withdrawal or discouragement of new members, or other consequences which objectively suggest an impact (or "chilling") on the members' associational rights. This is often called "the prima facie case for an arguable first amendment claim." The government may then attempt to point out the substantial relationship between the government interest in seeking the information and the information sought. If such a relationship is proven, the court must then balance between the government's and plaintiff's interests.
Compelled Disclosure
The court finds that the O'Neals have failed to prove the element of a compelled disclosure. The summons at issue is not a request for a list of all CRPA members; it simply requests the names and addresses of the people called from the O'Neal residence. While the names of some CRPA members may be revealed incidentally, there is no suggestion that all of the members' names will be revealed. Further, the summons involved here seeks the names of people who are not members, as the O'Neals have never contended that their phone is used exclusively for CRPA business. The summons seeks to discover all persons who may have information pertaining to the O'Neals' tax liability. The indirect disclosure of members which such a neutral request may occasion is a far cry from the laws mandating the revelation of membership lists or names which were struck down in NAACP v. Alabama and Bates v. Little Rock.
A second distinction which mitigates against a finding of compelled disclosure is that the summons is directed to GTE in order to obtain records about two individuals the O'Neals and not about the CRPA. The summons does not contain a request for a membership list, nor can the neutral nature of the summons be construed *879 as such a request. This distinction is crucial, for the cases seem uniform in holding that, while an IRS summons of a tax reform organization's records might produce a "readily apparent" chilling effect, see United States v. Grayson County State Bank, 656 F.2d 1070, 1074 (5th Cir. 1981), cert. denied, 455 U.S. 920, 102 S. Ct. 1276, 71 L. Ed. 2d 460 (1982), a summons directed to records of individual taxpayers do not directly implicate the associational rights of the organization's members absent a factual showing of infringement. See Kroll v. United States, 573 F. Supp. 982, 987 (N.D.Ind.1983) (tax organization); Voss v. United States, 573 F. Supp. 957, 961-62 (D.Colo.1983) (tax organization); United States v. Meininger, 101 F.R.D. 700, 703, 703 n. 7 (D.Neb.1984) (tax organization). Cf. United States v. Manufacturers Bank of Southfield, 518 F. Supp. 495, 498 (E.D.Mich.1981), remanded, 709 F.2d 1511 (6th Cir.1983) (church).
The O'Neals argue that the investigation of their liability is merely an IRS guise for obtaining the names of other CRPA members so that the IRS can then begin harassing them. However, such an argument was specifically rejected in Voss. Nor does the admission by Special Agent Weida, in his declaration filed in David L. O'Neal v. United States of America, No. IP-83-1845 C (S.D.Ind.), prove this intent to harass. That case involves a similar petition to quash an IRS summons directed to the Union State Bank to produce records of a bank account maintained by David O'Neal in the name of CRPA. Agent Weida declared that the bank records "will disclose the names of various members or other persons affiliated with the CRPA who may be able to provide testimony and further information on the relationship between [O'Neal] and the CRPA ... and specifically whether [O'Neal] derived any income directly or indirectly from or through the CRPA during these periods." That declaration does not indicate an intent to harass the members as to their own tax liabilities, but simply to seek out sources of information concerning the O'Neals' income. The summons to GTE is similarly designed to discover information about the O'Neals, which is completely consistent with the purposes of 26 U.S.C. § 7602. The fact that some CRPA members' names may be revealed by such discovery does not constitute compelled disclosure of the CRPA's membership list.
Requisite Factual Showing
Even if the incidental revelation of some CRPA members could constitute a compelled disclosure of CRPA's membership list so as to satisfy the first element of a first amendment claim, petitioners completely fail to show the factual basis for a fear of a chilling of CRPA members' rights. As was noted earlier, the NAACP v. Alabama and Bates cases involved uncontroverted factual assertions of harassment, threats, withdrawal from the organization, and reductions in new membership or fund-raising activities. The case law involving first amendment claims against IRS summonses is unanimous in requiring factual assertions detailing the adverse effects of the summons in order to constitute a prima facie showing of arguable first amendment infringement. See In re First National Bank, Englewood, Colo., 701 F.2d 115 (10th Cir.1983); United States v. Citizens State Bank, 612 F.2d 1091, 1094 (8th Cir.1980); United States v. The Freedom Church, 613 F.2d 316, 320 (1st Cir. 1979); Voss v. United States, 573 F.Supp. at 961-62; United States v. Manufacturers Bank of Southfield, 518 F.Supp. at 498. The proof offered must be "objective" an allegation of "apprehension," Manufacturers Bank, 518 F.Supp. at 498, or subjective deterrence of membership or contribution, id.; see also Buckley v. Valeo, 424 U.S. at 71-72, 96 S.Ct. at 659-60, is not sufficient to meet this burden. Further, "the mere possibility of an IRS investigation or audit is not the sort of harm which would preclude disclosure of membership lists." Manufacturers Bank, 518 F.Supp. at 498. However, affidavits from members detailing adverse effects of the summons on the organization's activities may be enough. See In re First National *880 Bank, 701 F.2d at 118; Citizens State Bank, 612 F.2d at 1094.
Here, the O'Neals have failed to present sufficient objective facts to justify a finding that an infringement of CRPA member associational rights might arguably occur if the summoned information is provided to the IRS. The sum total of the allegations is an affidavit signed by the O'Neals stating that "the summons directed to General Telephone Company will destroy the free exchange of ideas by and between the members of the CRPA," and the various statements in the complaint and in the memorandum in opposition to the motion to dismiss.[3] These allegations are insufficient for at least two reasons. First, they are conclusory and do not detail in any way how the summons has actually impacted (or threatens to impact) on CRPA activities. These claims lack the specificity of the claims in Bates and NAACP v. Alabama. Second, the allegations were made exclusively by the O'Neals, who cannot possibly have personal knowledge of what other members of CRPA or potential members might feel or think in light of the summons. Thus, the O'Neals have failed to prove the requisite factual basis necessary for establishing a prima facie first amendment violation.
In summary, then, the O'Neals have failed to show either of the elements of a first amendment claim. They have failed to establish that the IRS summons constitutes a compelled disclosure of the CRPA membership list, and have failed to show that disclosure of the information requested will in fact result in a chilling of first amendment associational rights. Having failed to establish their prima facie burden of proof, the O'Neals cannot demand that the government establish a compelling need for the information requested.[4] The first amendment grounds for the petition to quash fail.
The O'Neals make two other allegations in their memorandum in opposition which need only brief discussion. The first involves a claim that this summons violates the fourth amendment's prohibitions against unreasonable searches and seizures because it is merely a "fishing expedition" into the papers of the O'Neals and CRPA. First, the court finds that the government has a legitimate interest in seeking the information requested, as it will help to determine the O'Neals' tax liability. Thus, it is not a "fishing expedition." Second, the case law cited by the O'Neals, involving four very old cases of the Supreme Court,[5]*881 is inapplicable and unpersuasive. Congress has specifically authorized the issuance of IRS summons in 26 U.S.C. § 7602, and the issuance of this summons was consistent with relevant statutory and constitutional provisions.[6]
The second claim is that this summons was not issued in accordance with administrative procedure required by the Code (the fourth part of the Powell test). The rationale behind this argument is that, because the real purpose behind the summons is to obtain the names of CRPA members, the IRS should have issued a "John Doe" summons pursuant to 26 U.S.C. § 7609(f). The court notes that this summons does not appear to fall under § 7609(f), as it specifically identifies David L. O'Neal as the person who is being investigated, and thus is not a summons which "does not identify the person with respect to whose liability the summons is issued." 26 U.S.C. § 7609(f). At least two courts agree that a summons in connection with the investigation of a named taxpayer does not need to follow the "John Doe" summons procedures of § 7609(f), even if the summons has the further effect of discovering information that would aid in identifying unnamed taxpayers and investigating their tax liabilities. See United States v. Tiffany Fine Arts, Inc., 718 F.2d 7, 12-14 (2d Cir.1983), affd., ___ U.S. ___, 105 S. Ct. 725, 83 L.Ed.3d 678 (1985); United States v. Barter Systems, Inc., 694 F.2d 163 (8th Cir.1982). A similar position was adopted by the Eleventh Circuit in United States v. Gottlieb, 712 F.2d 1363, 1369 (11th Cir.1983). In light of this precedent, the court is not persuaded by, and specifically rejects, the rationale of United States v. Thompson, 701 F.2d 1175 (6th Cir.1983), cited by the O'Neals.
Thus, the O'Neals have failed to present a petition to quash which has any merit. The motion to dismiss will be converted into a motion for summary judgment, and will be granted in its entirety.
Conclusion
For the reasons stated above, the converted motion to dismiss is hereby GRANTED.
NOTES
[1] The O'Neals, in their memorandum opposing the motion to dismiss, allege that the four-part test of United States v. Powell, 379 U.S. 48, 85 S. Ct. 248, 13 L. Ed. 2d 112 (1964), has not been met. However, Powell established the four-part standard (that the investigation will be conducted pursuant to a legitimate purpose; that the inquiry may be relevant to that purpose; that the information sought is not already in the Commissioner's possession; and that the administrative steps required by the Code have been followed) as the prima facie case the government must prove in a summons enforcement proceeding under 26 U.S.C. § 7604. As this case involves a challenge to the issuance of a summons under 26 U.S.C. § 7602, Powell is not directly applicable, although some courts have stated that the IRS must exhibit good faith throughout the summons process. See United States v. LaSalle Bank, 437 U.S. 298, 318, 98 S. Ct. 2357, 2368, 57 L. Ed. 2d 221 (1978); United States v. Grayson County State Bank, 656 F.2d 1070, 1073 (5th Cir.1981), cert. denied, 455 U.S. 920, 102 S. Ct. 1276, 71 L. Ed. 2d 460 (1982). However, the O'Neals' argument suggesting a lack of good faith is simply the first amendment claim; thus, the analysis of whether the summons was issued in good faith pursuant to Powell and LaSalle Bank centers on whether the summons was issued to obtain the CRPA membership list in violation of the first amendment. The court therefore implicitly answers the question of good faith under Powell by examining the merit of the first amendment claim.
[2] Although no court has specifically cited compelled disclosure as an element of a first amendment claim, as freedom of association may be violated in ways other than compelled disclosure of membership lists, the court nevertheless separates out this aspect of Bates and NAACP v. Alabama because of the peculiar nature of this case. The O'Neals contend that the IRS summons will expose the names of CRPA's members. It seems logical in this instance to require the O'Neals to show that in fact the CRPA membership list will be disclosed.
[3] Some of these statements are: "Compelled disclosure of the names and addresses of all toll records (which the summons seeks) will have a chilling effect on the rights of [CRPA] members," Complaint, ¶ 7.2; "exposing these telephone callers to IRS scrutiny will chill the members cherished First Amendment rights," Memorandum, p. 2; "compelled disclosure ... would expose [CRPA] members to harassment by government officials ... and similar reprisals from private persons who might disapprove of or actively oppose [CRPA] purposes," Memorandum, p. 6; "[CRPA] will not be able to attract new members, much less retain existing ones, if the price is unwanted, unwelcome, and unjustified exposure," Memorandum, p. 7.
[4] Because the O'Neals have failed to prove their prima facie case, this court need not require the government to point out the substantial relationship between its interest and the information sought. However, the compelling interest of the government is readily apparent. As the Supreme Court stated in Bull v. United States, 295 U.S. 247, 259, 55 S. Ct. 695, 699, 55 L. Ed. 2d 695 (1935), "taxes are the lifeblood of government." The collection of taxes is an essential part of the process of keeping that lifeblood flowing, and is thus a governmental interest "sufficiently important to outweigh the possibility of infringement [of first amendment rights], particularly when the `free function of our natural institution' is involved." Buckley, 424 U.S. at 66, 96 S.Ct. at 657, quoting Communist Party v. Subversive Activities Control Board, 367 U.S. 1, 97, 81 S. Ct. 1357, 1411, 61 L. Ed. 2d 625 (1961). Seeking information on the O'Neals' tax liability via a summons to GTE is substantially and directly related to the compelling government interest in collecting taxes. Weighed against the lack of any factual showing of a chilling effect, the government interest would clearly prevail.
[5] The O'Neals cite United States v. Louisville and Nashville R. Co., 236 U.S. 318, 35 S. Ct. 363, 59 L. Ed. 598 (1915); Harriman v. I.C.C., 211 U.S. 407, 29 S. Ct. 115, 53 L. Ed. 253 (1908); I.C.C. v. Brimson, 154 U.S. 447, 14 S. Ct. 1125, 38 L. Ed. 1047 (1894); United States v. Lee, 106 U.S. 196, 1 S. Ct. 240, 27 L. Ed. 171 (1882).
[6] The respondents cite to United States v. Miller, 425 U.S. 435, 96 S. Ct. 1619, 48 L. Ed. 2d 71 (1976), where the Court held that a bank depositor had no fourth amendment interest in bank records relating to his account. There the Court stated that "this Court has repeatedly held that the Fourth Amendment does not prohibit the obtaining of information revealed to a third party and conveyed by him to Government authorities," so that "the issuance of a subpoena to a third party does not violate the rights" of the subject to the records (in Miller, the bank depositor). Id. at 433-34, 96 S.Ct. at 1624. The court finds this authority persuasive and applicable here by analogy. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1735863/ | 14 F. Supp. 739 (1935)
In re McCRORY STORES CORPORATION.
No. 56239.
District Court, S. D. New York.
November 12, 1935.
PATTERSON, District Judge.
A prior plan of reorganization was rejected as discriminating unfairly in favor *740 of United Stores Corporation. It was held that the landlords' claims purchased by the United could not be valued for purposes of reorganization at more than the amount paid for them by the United, plus the reasonable cost of acquisition. Since the plan then under consideration gave to the United more than that figure, it was disapproved. The opinion on that plan contains an outline of the claims against the company and of its capital structure.
Two plans have since been submitted, each of them modified after submission. Both conform to the limitation already placed by the court on the allowable value of the claims acquired by the United.
The Harris plan. The Harris plan is backed by a committee acting for holders of about one-half the common stock. The debentures and the merchandise claims are to be paid off in cash, in full with interest. The claims of Green and Coppedge are to be paid in cash to the extent of $24,000, the balance in new common stock. The United is to be paid off in cash at its cost of acquisition, together with reasonable expenses not to exceed $150,000. All other landlords' claims are to be paid in cash, to the extent that such claims may be allowed or settled. The holders of preferred stock are to get new preferred, share for share, and cash to cover all accrued and unpaid dividends. The holders of common will receive new common, share for share (this requiring 443,000 shares), and the right to subscribe for 499,000 shares of new common at $10.75 a share.
The money necessary to carry out the plan is to be raised by the sale of new debentures in the amount of $4,552,000, and by the disposal of the new shares of common stock. The Harris committee estimates that by sale of such new securities enough cash will be forthcoming to pay off all claims and reorganization expenses and to leave working capital of $6,000,000 for the company. There is presented an underwriting agreement by F. S. Mosely & Co. and Lehman Bros. By this agreement the underwriters agree to purchase the debentures at 97½ and to underwrite the offer of new common to the stockholders at $10.75 a share. As compensation for the underwriting, the provision originally was that the underwriters would receive $.75 a share on the 499,000 shares offered to stockholders for subscription, and also a five-year option to purchase 99,000 shares of new common at $10.75 a share. This has since been modified to eliminate the five-year option and to provide that the underwriting fee will be $.75 a share on the 499,000 shares, together with the following additional sums: $.50 a share for each share actually taken up by the underwriters in excess of 50,000 up to 100,000; $.75 a share for each share taken up in excess of 100,000 up to 200,000; and $1 a share for each share taken up in excess of 200,000.
The underwriting is conditional. The underwriters' commitment is subject to the following conditions: (1) That on consummation of the plan the net current assets of the company will be at least $5,000,000; (2) that the leases, executory contracts, and employment agreements of the company shall be satisfactory to the underwriters, the right to withdraw for dissatisfaction on this ground to be exercised not later than twenty days after court approval of the plan; (3) that the plan be finally consummated before February 1, 1936; (4) that the operations and condition of the company shall be as favorable at the time the new securities are delivered as at present; (5) that at the time when the new securities shall be delivered a war or political or economic change shall not have occurred which in the underwriters' judgment will materially and adversely affect the marketability of the securities to be purchased or underwritten; (6) that the shares of new common underwritten shall not be offered to stockholders until after the plan has been finally confirmed by order of court from which no appeal can be taken or as to which the time to appeal has expired. Finally, it is provided that if the underwriters shall discover, at any time prior to the offering of the new stock to common stockholders, that any of the above conditions (except the second) have not been or will not be fulfilled or that any material assumption on which the plan is based does not or will not exist, they shall be under no obligation to proceed.
The Merrill plan. This plan is presented by a committee representing holders of about one-third of the common stock. Just as under the Harris plan, the debentures and merchandise claims are to be paid in cash, in full with interest; the Green and Coppedge claims are to be paid, partly in new common stock and *741 partly in cash; the landlords' claims not acquired by the United are to be paid in cash at the allowed or settled amounts; the holders of present preferred shares are to receive new preferred, share for share, with all back dividends paid in cash. From this point on, the Merrill plan differs in several respects from the Harris plan. The landlords' claims acquired by the United (taken at the aggregate figure paid by the United to the landlords, plus such interest as the court may allow, plus also $150,000 or such other figure as the court may allow for reasonable expenses of acquisition) are to be discharged by the issuance to the United of not more than 280,531 shares of new common stock at $10.75 a share and by payment of any balance in cash. The holders of common stock will get new common, share for share. They will also have the right to subscribe at $10.75 a share to such number of new shares as may be required to bring the net current assets of the company up to $6,000,000. The estimated total of new common shares is 942,000, the same figure as with the Harris plan. It is provided that in case the actual number shall fall below that figure, the price of $10.75 for the new shares will be increased in due proportion, the increased price to apply both to the shares to be issued to the United in satisfaction of its claims and to the shares to be offered for subscription to present stockholders and to be underwritten.
The new money under the Merrill plan is to come from the sale of $4,552,000 new debentures and from the offer of the new common shares to stockholders. The sale of the debentures is unconditionally underwritten by the United at 97½ without deduction of any commission; and the United agrees that if the debentures are sold by it at a price better than 101, it will turn over one-half the excess to the company. The offer of the new shares to common stockholders at $10.75 is unconditionally underwritten by the United for a commission of $.75 a share, no commission to be paid, however, on such shares as may be actually taken up by stockholders.
The Harris plan is backed by a group of common stockholders. The Merrill plan is backed by another group of common stockholders; it has also the support of the bulk of the creditors and preferred stockholders, as well as the support of the United.
The record made at the hearings on the prior plan shows the need of a prompt reorganization. The company has been under court control for nearly three years. Long-continued administration of the business by a trustee under court supervision does not promote the best interests of either creditors or stockholders. There is appreciable risk that unless the company is lifted out of reorganization valuable business sites and other advantages may be lost to competitors. These and other considerations move the court toward approving a fair and feasible plan presently proposed, as against the possibility that a better plan might be submitted at some indefinite time in the future. The statute under which this proceeding is brought contains provisions indicative of a purpose on the part of Congress that reorganizations be effected with reasonable celerity.
I am of opinion that the Merrill plan with its underwriting is preferable to the Harris plan with its underwriting, both on the score of feasibility and on the score of fairness to all parties interested in the company, and that the Merrill plan deserves approval by the court.
1. The debenture holders and general creditors have been held off for nearly three years. Their claims are liquidated and with accrued interest come to nearly $9,000,000. They want their money without further delay and are entitled to the best assurance possible that if a plan is approved and later confirmed, their claims will actually be paid. Under the Merrill plan, they have definite assurance. The plan is unconditionally underwritten by the United, and on confirmation the United will be held firmly bound to put up the necessary money. Its financial responsibility has not been questioned. Under the Harris plan the creditors get nothing like the same assurance. The underwriting accompanying that plan, while offered in good faith, is fettered with conditions, several of them sweeping and of a duration that cannot be forecast. The underwriters, months after approval and confirmation, may withdraw in case the outlook is not to their liking when the time comes to carry out the plan, and with their withdrawal the plan collapses. Even after confirmation, risks are left with *742 the creditors and stockholders rather than with the underwriters. Again, the underwriting calls for final consummation of the plan by February 1, 1936, but at the same time requires that consummation be suspended until after confirmation of the plan "by a court order from which no appeal can be taken or as to which the time to appeal has expired." As it is virtually certain that the United, if not others, would appeal from any order confirming the Harris plan, the time limit of February 1, 1936, for final consummation destroys the efficacy of the underwriting and will have the practical effect of making performance optional with the underwriters. From the viewpoint of creditors, therefore, the Merrill plan has advantages definitely outweighing anything offered by the Harris plan, and the creditors' vigorous support of the Merrill plan is no more than natural.
2. There is proof in the record that a concern doing the gross business now being done by the company ought to have working capital of at least $6,000,000. Under the Merrill plan, working capital at that figure is guaranteed by the United. Under the Harris plan, it is by no means certain that the company will start off with $6,000,000 in working capital; it may well be that working capital will be nearer $5,000,000. While the point is of no interest to creditors, it is matter of concern to preferred stockholders and common stockholders.
3. The cost of the new money required to carry out reorganization is also a matter of concern to common stockholders, since this expense is one ultimately to be borne by them. Under the Merrill plan, the underwriter's commission will be from zero up to $200,000, depending on how many shares offered for subscription to stockholders are taken up by them. Under the Harris plan, the underwriters' fee will be from a minimum of $374,000 up to a maximum of $800,000, depending again on how many shares are taken up by stockholders, and the company must also pay the underwriters' legal expenses. The saving in underwriting charges under the Merrill plan will range from $400,000 to $600,000.
4. An important advantage presented by the Merrill plan is that adoption of that plan will foreclose further litigation by the United relative to the amount allowable for landlords' claims acquired by it. It has already been held that those claims cannot be taken at more than the expenses of acquisition, which is something under $3,000,000. Approval and confirmation of the Harris plan, on the other hand, would leave the way open to the United to press its position that the claims held by it have an allowable value far in excess of its cost of acquisition. In this court it would be defeated, as indicated by the opinion on the prior plan; but the result in appellate courts could not be predicted with certainty. If the United were to succeed in such litigation and eventually establish a value of $6,000,000 or $7,000,000, the blow would be a heavy one to stockholders. The mere existence of such litigation would postpone reorganization for an indefinite time; its continuance beyond February 1, 1936, would of itself result in withdrawal of the Harris underwriting. It may further be noted that acceptance of the Harris plan would also dissolve the settlement made by the United with Goldberg and Chain Store Products Corporation, leaving the latter free to litigate their claims against the company. Those claims were filed for amounts far larger than their cost to the United, and one cannot say offhand what their allowable value might be. The Merrill plan is more advantageous in holding the United down to bare cost of acquisition and eliminating litigation with the United and these other claimants in respect of the value of their claims.
5. By the Merrill plan, the United's claims are taken at cost of acquisition, plus reasonable expenses, and are to be paid in common stock at $10.75 a share. By the Harris plan the amount of the claims is the same, but the payment is to be in cash. The objection of the Harris committee to payment in stock is twofold: First, that the price of $10.75 is too cheap; second, that payment in stock at any price violates the pre-emptive right of the present holders of common stock.
First, as to the price. There is every indication that the price of $10.75 a share for the new common stock is a fair and reasonable price. The current earnings of the company do not support a higher figure. Moreover, the stock is the same stock for which the underwriters produced by the Harris committee are willing (conditionally) to pay a net figure of only $9 or $10 a share. It is difficult to follow *743 the reasoning which maintains that $10, or even $9, is a fair price for the Harris underwriters to pay, but that $10.75 is too little for the United to pay.
Second, as to the pre-emptive right. It may be that if the company were a concern in ordinary course of business and not in default with its creditors, the matter of pre-emptive right of stockholders in any new issue of stock would be of prime importance. The ordinary rule is that the right of stockholders to subscribe proportionately to an issue of new shares is inherent in ownership of stock, and it is of no moment that a better cash price for the new shares might be paid by outsiders. But it is plain that where a company is unable to pay its obligations and is in course of reorganization under section 77B, Bankr.Act (11 U.S. C.A. § 207), the pre-emptive right of stockholders in an issue of new stock must be dispensed with where that course is necessary to do justice to creditors whose unpaid claims are paramount to the preemptive right or any other right of stockholders. The act is explicit enough on the point. It provides, in subsection (b), 11 U.S.C.A. § 207 (b), that a plan "may include provisions modifying or altering the rights of stockholders generally, or of any class of them, either through the issuance of new securities of any character or otherwise"; further, that it "shall provide adequate means for the execution of the plan, which may include * * * the issuance of securities of the * * * debtor * * * for cash, or in exchange for existing securities, or in satisfaction of claims or rights, or for other appropriate purposes."
A fair answer to the Harris argument respecting pre-emptive right is that the Harris plan itself is an infringement on the pre-emptive right of stockholders. It now calls for issuance of new shares of common stock in satisfaction of the claims of Green and Coppedge, without any prior offer of such stock for subscription to existing stockholders. And the Harris plan formerly provided that 99,000 shares of new stock be placed under option to the underwriters for five years, without prior offer of the stock to stockholders. On the oral argument that feature of the Harris plan was defended as fair and proper, although it is manifest that the pre-emptive right of stockholders would have been seriously impaired by the issuance of any such option. But these things aside, the insistence by a group of common stockholders on the unimpairment of their right to purchase all new shares cannot be countenanced in the face of demands by creditors that no plan be approved which does not assure them of prompt payment of their claims. If the stockholders insist on the right to subscribe to all new shares of stock, they are bound either themselves to deposit the money required to pay creditors or to tender a firm underwriting by others that on confirmation the money will be put up. As already pointed out, the Harris plan with underwriting does not meet these requirements.
An order may be submitted approving of the Merrill plan. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1736312/ | 852 F. Supp. 659 (1994)
MCI TELECOMMUNICATIONS CORPORATION, Plaintiff,
v.
AMERI-TEL, INC., Defendant.
No. 91 C 4277.
United States District Court, N.D. Illinois, Eastern Division.
May 10, 1994.
*660 Eddie M. Pope, Dallas, TX, for plaintiff.
Lauren Tashma, John C. Benz, Brian W. Lewis, Wildman, Harrold, Allen & Dixon, Chicago, IL, for defendant.
MEMORANDUM OPINION AND ORDER
MAROVICH, District Judge.
Pursuant to Fed.R.Civ.P. 56, Plaintiff MCI Telecommunications Corporation ("MCI") moves this court for summary judgment against Defendant Ameri-Tel, Inc. ("Ameri-Tel") on its claim that Ameri-Tel owes $124,064.84 for certain long-distance telephone services provided by MCI. Pursuant to the primary jurisdiction doctrine, Ameri-Tel contends that the Federal Communications Commission ("FCC") should have the first opportunity to review the issues presented by this suit. Ameri-Tel also argues that *661 genuine issues of material fact exist that preclude summary judgment for MCI. For the following reasons, we will grant Plaintiff's motion for summary judgment.
BACKGROUND AND SUMMARY JUDGMENT STANDARD
Under the Federal Rules of Civil Procedure, summary judgment is appropriate if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In ruling on a motion for summary judgment, we must view the record and all inferences to be drawn in the light most favorable to the non-movant. Holland v. Jefferson Nat'l. Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir.1989); Beard v. Whitley County REMC, 840 F.2d 405, 409-410 (7th Cir.1988). The movant bears the initial burden of showing with the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any" the absence of a genuine issue of material fact. Fed.R.Civ.P. 56(c).
When faced with a motion for summary judgment, the non-movant may not rest upon the mere allegations or denials of its pleadings; instead, it must respond by setting forth specific facts showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986); McCarthy v. Kemper Life Ins. Cos., 924 F.2d 683, 687 (7th Cir.1991); Skagen v. Sears Roebuck & Co., 910 F.2d 1498, 1500 (7th Cir.1990); Schroeder v. Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir.1989). The non-movant can only satisfy its burden by "affirmatively demonstrat[ing] that there is a genuine issue of material fact which requires trial." Anderson v. Liberty Lobby, 477 U.S. 242, 247, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Beard, 840 F.2d at 410.
In this district, both the movant and non-movant are governed by strict rules concerning the setting forth of material facts. Local Rule 12(M) requires the movant to articulate precisely the "material facts as to which [it] contends there is no genuine issue ... including ... specific reference to the affidavits, parts of the record, and other supporting materials relied upon to support the facts set forth...." The non-movant must then file
a concise response to the movant's statement ... including in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon, and ... a statement ... of any additional facts which require the denial of summary judgment, including reference to the affidavits, parts of the record, and other supporting materials relied upon. All material facts set forth in the statement required of the moving party will be deemed admitted unless controverted by the statement of the opposing party.
Local Rule 12(N) (emphasis added). MCI has complied with Local Rule 12(M); however, Ameri-Tel has not submitted a response pursuant to Local Rule 12(N). The consequences of that failure are clear and we follow the long line of precedent that holds parties to the mandate of Local Rule 12.[1] As dictated by Local Rule 12(N), all of the properly supported facts set forth by MCI in its Rule 12(M) statement are deemed admitted by Ameri-Tel. The Court will not consider the additional facts offered by Ameri-Tel in its briefs or as exhibits to its briefs because it failed to file a Local Rule 12(N) statement.
MCI, a Delaware corporation, is a provider of interstate telecommunications services to individual and corporate users. One of its corporate users was Ameri-Tel, an Illinois corporation owning and operating coin-operated pay telephones. Between December 1989 and January 26, 1991, MCI provided long-distance telephone service to Ameri-Tel pursuant to MCI F.C.C. Tariff No. 1 ("Tariff"), which was filed with the FCC in accordance with the Communications Act of 1934, *662 47 U.S.C. § 151 et seq. (1982) (the "Act"). On January 26, 1991, MCI discontinued servicing Ameri-Tel when it refused to pay for international calls placed on Ameri-Tel-operated telephones using MCI long-distance service.
In August 1991, MCI filed an amended complaint, seeking collection under 47 U.S.C. § 203 (1982) of $38,622.71 for telecommunications services it provided for certain Ameri-Tel telephones, plus reasonable attorneys' fees and costs. On July 10, 1992, MCI filed a second amended complaint, demanding payment by Ameri-Tel of $128,923.84 for the long-distance services in question. In its Answer to MCI's second amended complaint, Ameri-Tel listed six accounts charged by MCI that it maintained were not operated under any agreement or contract with MCI. The charges attributable to those accounts totaled $4,859.00. For the purposes of this motion, MCI does not dispute these charges and has deleted the amount from its claim, leaving the total claim for unpaid services at $124,064.84 plus attorneys' fees and costs.
Ameri-Tel defends its refusal to pay by relying on an arrangement it allegedly reached with Illinois Bell, MCI's billing agent, to block certain international direct dialed calls after June 1, 1990. Ameri-Tel claims to have taken advantage of call-blocking provided through a revision of an Illinois Bell tariff. Mervyn Dukatt, President and sole Executive Officer of Ameri-Tel, admits that he never discussed any international call-blocking arrangements with any MCI representative. Dukatt further admitted he was unaware of any factual basis for Ameri-Tel's affirmative defense that MCI should have blocked the calls in question by virtue of "transmission agreements" with Illinois Bell.
DISCUSSION
Our analysis of MCI's motion for summary judgment is two-fold. Initially, the Court must determine whether there are issues which should first be decided by the FCC under the doctrine of primary jurisdiction. Only if this threshold inquiry suggests the inapplicability of primary jurisdiction to this case can this Court then decide MCI's motion on its merits.
Primary Jurisdiction
The Supreme Court cogently explained the doctrine of primary jurisdiction in U.S. v. Western Pac. R.R. Co., 352 U.S. 59, 63-64, 77 S. Ct. 161, 164-165, 1 L. Ed. 2d 126 (1956):
The doctrine of primary jurisdiction ... is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties.... Primary jurisdiction ... applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body; in such a case the judicial process is suspended pending referral of such issues to the administrative body for its views.
Because of the nature of the doctrine and the variety of situations in which it might apply, there is no fixed standard or formula for its application. Id. at 64, 77 S.Ct. at 165.
Instead, a court should consider whether application of the doctrine would promote uniformity in statutory or regulatory construction and involve the use of the agency's special expertise and procedural flexibility and whether complex policy determinations are at issue. Id. at 64-67, 77 S.Ct. at 165-167. As the Court explained, "in cases raising issues of fact not within the conventional experience of judges or cases requiring the exercise of administrative discretion, agencies created by Congress for regulating the subject matter should not be passed over." Id. at 64, 77 S.Ct. at 165; see also Ryan v. Chemlawn Corp., 935 F.2d 129, 131 (7th Cir.1991). Finally, we note that "primary jurisdiction serves judicial economy because the dispute may be decided within the agency, thus obviating the need for the courts to intervene." Id. (citing Christian v. New York State Dept. of Labor, 414 U.S. 614, 622, 94 S. Ct. 747, 751, 39 L. Ed. 2d 38 (1974)).
Several courts have gone a step further in distilling the primary jurisdiction doctrine. While continuing to recognize that no set *663 formula exists for applying it, they list four factors generally considered by the courts when determining if application of the doctrine is appropriate. These are:
1. Whether the question at issue is one within the conventional experience of the judges;
2. Whether the question at issue lies peculiarly within the agency's discretion or requires the exercise of agency expertise;
3. Whether there exists a danger of inconsistent rulings disruptive of a statutory scheme; and
4. Whether a prior application to the agency has been made.
See, e.g., Oasis Petroleum Corp. v. U.S. Dept. of Energy, 718 F.2d 1558, 1564 (Temp.Ct.Emer.App.1983) (citations omitted).
Courts have been reluctant to invoke primary jurisdiction "where the nature of the action deems application of the doctrine inappropriate." U.S. v. McDonnell Douglas Corp., 751 F.2d 220, 224 (8th Cir. 1984) (quoting Mississippi Power & Light Co. v. United Gas Pipeline Co., 532 F.2d 412, 419 (5th Cir.1976), cert. denied, 429 U.S. 1094, 97 S. Ct. 1109, 51 L. Ed. 2d 541 (1977)). The court in Mississippi Power & Light Co. was especially concerned with the potential for added expense and delay to the parties caused by a stay of district court proceedings pending administrative action. 532 F.2d at 419. In general, courts "must always balance the benefits of seeking the agency's aid with the need to resolve disputes fairly yet as expeditiously as possible." Local 189, Amalgamated Meat Cutters v. Jewel Tea Co., 381 U.S. 676, 686, 85 S. Ct. 1596, 1600, 14 L. Ed. 2d 640 (1965). With these considerations in mind, we now analyze whether application of the doctrine is appropriate in this case.
According to MCI, this is a simple collection case involving a common application of the filed rate doctrine. In contrast, Ameri-Tel views the case as one involving complicated issues of federal telecommunications policy, intricate details of telecommunications technology, and the growing problem of toll fraud. Ameri-Tel engages in an extensive discussion to support its view of the importance of FCC action in this case.
We begin our discussion with some observations. In its argument, Ameri-Tel neglects to consider the impact of its failure to raise any issues with respect to MCI's Tariff or its practices by way of counterclaim or affirmative defenses. Furthermore, Ameri-Tel has admitted, among other things, that MCI provided service to Ameri-Tel under the terms of MCI FCC Tariff No. 1. The combination of these defects in Ameri-Tel's argument severely limit the scope of the potential dispute.
First, Ameri-Tel contends that the FCC is currently reviewing information in connection with potential rulemaking on the complicated issue of the liability of pay telephone providers for toll fraud charges. See, e.g., Florida Public Service Commission Petition for Review of Tariff Provisions Relating to Liability for Toll Fraud Charges, 8 F.C.C.R. 2562 (April 5, 1993); Policies and Rules Concerning Operator Service Access and Pay Telephone Compensation, Order on Further Reconsideration and Further Notice of Proposed Rulemaking, 8 F.C.C.R. 2863 (April 9, 1993). Ameri-Tel argues that these proceedings indicate both the complexity of the issues present here and the need for referral to the FCC to take advantage of the agency's expertise and avoid conflicting decisions.
MCI, however, correctly notes that rulemaking can only apply prospectively. American Tel. & Tel. Co. v. FCC, 978 F.2d 727, 732 (D.C.Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 3020, 125 L. Ed. 2d 709 (1993); see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208, 109 S. Ct. 468, 471, 102 L. Ed. 2d 493 (1988). Thus, to the extent the FCC may eventually issue rules governing the allocation of liability for toll fraud on pay telephones, those rules cannot govern that allocation in this case. On the other hand, the pending proceedings before the FCC are allowing the agency to develop a greater familiarity with the nature and scope of toll fraud than any court.
Ameri-Tel cites numerous specific cases before the FCC, one of which it notes settled before a decision, others it fails to note have been decided, and others that involve factual *664 and procedural settings different from that present here. Having reviewed the cases, it is apparent that although some are similar, the FCC has expressed its view that each case is decided on its individual record in light of the language of the applicable statutes and tariff provisions. As detailed below, the FCC has expressly disclaimed any effort to make broad policy statements in these cases and instead has noted that the resolution of these cases need not await completion of its pending rulemaking efforts. We find little or no potential for real conflict with FCC policy if this Court decides the issues in this case.[2]
Ameri-Tel also suggests that Illinois Bell's alleged representations that it would take care of some of the charges and subsequent alteration of bills renders its unreasonable, unfair and unjust to allow MCI now to collect for those charges. At the very least, Ameri-Tel suggests the FCC should have the opportunity to decide whether MCI's conduct is unreasonable. Even assuming that Illinois Bell acted as MCI's agent, representations made by a carrier or its agent relating to charges in contravention of the filed tariff cannot stand as a valid defense.
The carrier must collect the filed rate and it is a basic application of the filed rate doctrine that misquotes by the carrier or agreements contrary to the filed tariff will not absolve the customer from paying the filed rate. See Maislin Industries, U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 127-28, 110 S. Ct. 2759, 2766, 111 L. Ed. 2d 94 (1990). As the Court recently reiterated, "[t]he filed rate doctrine embodies the principle that a [customer] cannot avoid payment of the tariff rate by invoking common-law claims and defenses such as ignorance, estoppel, or prior agreement to a different rate." Reiter v. Cooper, ___ U.S. ___, ___, 113 S. Ct. 1213, 1219, 122 L. Ed. 2d 604 (1993). Ameri-Tel is simply seeking to estop MCI from asserting the terms of its Tariff because of its reliance on Illinois Bell's representations. That kind of argument is foreclosed by the filed rate doctrine, despite Ameri-Tel's attempt to characterize it as an attack on the "reasonableness" of MCI's conduct.
Furthermore, the FCC has already indicated its view that a carrier's attempt to collect unauthorized charges in a PBX fraud case is not unreasonable if consistent with the terms of its tariff. In Chartways Technologies, Inc. v. AT & T Communications, the FCC held firmly that it was not unreasonable for AT & T to collect from its customers for unauthorized use under its tariff. FCC File No. E-88-72 (August 19, 1993). Ameri-Tel contends that, since Chartways did not allege negligence on the part of AT & T, the FCC's holding should not apply in this case, where the possibility of negligence on the part of MCI and Illinois Bell exists. See Ameri-Tel's Response at 17. However, Chartways explicitly alleged that AT & T had complete control over its systems and negligently failed to warn Chartways of the potential for toll fraud. See Chartways, 8 F.C.C.R. 5601, at ¶¶ 14-16. Furthermore, the FCC in its decision stated at the outset that AT & T's alleged negligence with regard to the disputed calls was one of three primary issues. Id. ¶ 16. The FCC affirmed the finding of the Common Carrier Board that Chartways had failed to provide any authority that supported imposition of a duty on carriers to warn about toll fraud and that no persuasive evidence supported a finding of negligence on AT & T's part. Thus, Ameri-Tel's attempt to distinguish Chartways falls on its face.
The FCC has also considered a case involving a carrier's attempt to collect charges from a payphone operator for unauthorized interstate and international calls placed from the company's payphones. In In the Matter of United Artists Payphone Corp. v. New York Telephone Co., 8 F.C.C.R. 5563 (August 18, 1993), the United Artists ("UA") contended that New York Telephone and AT & T *665 were acting unlawfully in attempting to collect for unauthorized usage on its phones. UA raised a threshold question as to whether it was AT & T's "customer" as the tariff imposed liability for charges only on the "customer" who ordered service.[3] Because the FCC found that UA was not AT & T's customer, the FCC found that UA was not liable for the charges that AT & T sought to collect. The FCC's implicit holding is that if UA qualified as the actual or constructive customer, then the language of the tariff controls and imposes liability on the customer in the absence of an exception in the tariff.
Though it has been careful to limit its decisions to the record made in specific cases, the FCC has not held that it is an unreasonable practice for a carrier to seek recovery of unauthorized charges from a customer. In fact, its current decisions appear to indicate the opposite is true, at least under current law and regulations. Under such circumstances, referral is unnecessary. "[W]here resort to the agency would plainly be unavailing in light of its manifest opposition or because it has already evinced its `special competence' in a manner hostile to [the party seeking referral], courts need not bow to the primary jurisdiction of the administrative body." Bd. of Educ. of City School Dist. of City of New York v. Harris, 622 F.2d 599, 606 (2d Cir.1979), cert. denied, 449 U.S. 1124, 101 S. Ct. 940, 67 L. Ed. 2d 110 (1981). While the FCC's decisions are not entirely hostile to Ameri-Tel's position, we do not believe the FCC has any greater expertise than this Court in reviewing and applying the terms of tariffs in light of the filed rate doctrine.
Another district court reached the same conclusion in MCI Telecommunications Corp. v. Gorman, Wells, Wilder & Assoc., 761 F. Supp. 124, 126 (S.D.Fla.1991). Ameri-Tel cites this case as support for its view that the filed-rate doctrine is not an absolute bar to all defenses that it has raised but suggests in a footnote that we ought not follow its holding that referral is unnecessary where a Defendant challenges the application of the filed rate doctrine in a particular case. Ameri-Tel then states that this case differs from Gorman because it "believes the only way in which the reasonable rate under that doctrine can be established is by reference to the FCC." Aside from Ameri-Tel's mingling of the terms "unreasonable rates" and "unreasonable practices," this Court does not consider an unsupported statement in a footnote suggesting that MCI's Tariff rates are unreasonable sufficient to warrant referral to the FCC. In accord with the Gorman court, we find that this case involves application of the filed rate doctrine and the terms of a tariff. Such tasks are well within the competence of this Court.
Were the case to turn on a determination of the reasonableness of MCI's Tariff rates or its practices, it is settled that referral would be appropriate since the administrative agency is best suited to make that determination. See, e.g., Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 305, 96 S. Ct. 1978, 1987, 48 L. Ed. 2d 643 (1976); Western Pac. R.R. Co., 352 U.S. at 63, 77 S.Ct. at 164; Texas & Pac. Ry. Co. v. Abilene Cotton Oil Co., 204 U.S. 426, 439-43, 27 S. Ct. 350, 354-56, 51 L. Ed. 553 (1907). The reasonableness of a regulated carrier's tariff is certainly an issue that could affect the entire industry; thus, the need for uniformity in the regulation of business dictates that an agency specifically empowered by Congress to undertake that regulation should make the expert determination of reasonableness. Reasonableness, however, is not the issue here.
The Court also concludes that there is no need for us to delve deep into the world of information indicators, automatic number identifiers, operator line screening, billed number screening, and all the other acronyms Ameri-Tel believes are at the heart of this case. The FCC is better suited than this Court to decide issues turning on the operation of these technical mechanisms. However, as we stated above, Ameri-Tel has overstated the nature of this case.
*666 After careful consideration of the relevant factors, we conclude that the facts and issues of this case do not suggest the need for referral to the FCC. At bottom, this case involves a suit to collect $124,064.84 allegedly owed MCI under its Tariff filed with the FCC. This case is not about technical or economic issues in the telecommunications industry, as Ameri-Tel argues. It is likewise not about the reasonableness of MCI's Tariff. Rather, it is a collection case requiring application of the filed-rate doctrine and construction of the terms of the MCI Tariff. Finally, there is no danger of this Court contradicting a prior application to the FCC in this case (since none was made) or issuing a ruling inconsistent with the FCC's overall regulatory scheme. For these reasons, we find that it would be inappropriate to refer any issues in this case to the FCC under the doctrine of primary jurisdiction.
MCI's Summary Judgment Motion[4]
As stated at the outset, we must grant summary judgment if the pleadings and supporting documents show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law. This Court will not deviate from the established practice in this district of upholding Local Rules 12(M) and 12(N). Ameri-Tel did not file a response to MCI's statement of undisputed facts as required by Local Rule 12(N). In neglecting to do so, it admitted the properly supported facts contained in MCI's 12(M) statement. The question remains whether those admitted facts entitle MCI to summary judgment in its favor.
MCI correctly points out that, on June 16, 1993, this Court denied Ameri-Tel leave to amend its Answer to MCI's Second Amended Complaint. Furthermore, the Federal Rules of Civil Procedure require Ameri-Tel to plead affirmative defenses such as estoppel[5] and illegality in a response to a preceding pleading. See Fed.R.Civ.P. 8(c). Thus, we need not consider the affirmative defenses raised for the first time in Ameri-Tel's Response. See, e.g., Computer Network Corp. v. Compmail Systems, Inc., No. 84 C 6813, slip op., 1985 WL 2218 (N.D.Ill. July 10, 1985) (failure to plead affirmative defense until responding to summary judgment motion constitutes waiver of that defense). The Seventh Circuit has treated the failure to raise affirmative defenses in a responsive pleading as a waiver of those defenses. See, e.g., Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 235 (7th Cir.1991); Pinto Trucking Serv., Inc. v. Motor Dispatch, Inc., 649 F.2d 530, 534 (7th Cir.1981). In addition, we find that Ameri-Tel has waived any counterclaims, such as willful misconduct, by failing to file any counterclaim. We will not consider claims and defenses raised for the first time in a brief in response to a summary judgment motion.
Call-Blocking Agreements
The record is devoid of any facts to support Ameri-Tel's claim that MCI had any agreements with Illinois Bell to block calls. It also is undisputed that Ameri-Tel never spoke to MCI about entering into any agreement to block any type of call from Ameri-Tel's payphones. Illinois Bell has admitted that Ameri-Tel subscribed to a blocking service for International Direct Distance Dialed ("IDDD") calls. That service, however, was offered by Illinois Bell as part of its tariff and no evidence indicates that MCI provided such a service or was responsible for blocking such calls. Though it is not entirely clear, it appears that the charges sought by MCI involve operator-assisted calls, not direct-dialed calls.
*667 Ameri-Tel alleges fraud in international operator-assisted calls made from its payphones. See Ameri-Tel's Response at 2. MCI also points out that the alleged fraud came from operator-assisted calls. Thus, even if Illinois Bell was supposed to block IDDD calls, this does not cover the calls for which MCI seeks payment from Ameri-Tel. If MCI does seek payment for IDDD calls, then Illinois Bell acknowledges those calls should have been blocked. Nonetheless, pursuant to its Tariff, MCI is entitled to recover since it is not bound by Illinois Bell's tariff. Illinois Bell's liability to Ameri-Tel is the subject of a claim filed by Ameri-Tel that is not the subject of this motion.
MCI's Tariff and the Filed Rate Doctrine
Ameri-Tel admits that MCI Tariff F.C.C. No. 1 governs the liabilities of the parties. As noted above, the filed rate doctrine governs MCI's right to collect from Ameri-Tel for the unpaid service under the Tariff. Recently, this same Tariff was deemed controlling in another case heard in this district where the non-movant failed to file a 12(N) statement in response to MCI's motion for summary judgment. MCI Telecommunications, Inc. v. Premium Mktg. Sys., No. 91 C 4048, 1992 WL 6693, at *1-2, 1992 U.S. Dist. LEXIS 304, at *4 (N.D.Ill. Jan. 15, 1992). We find no reason to consider this same critical failure by Ameri-Tel any differently.
The Supreme Court has upheld the filed rate doctrine[6] as a bar to all equitable defenses against liability for charges incurred under properly filed tariffs. Such defenses include the estoppel and illegality defenses raised by Ameri-Tel in this case. See, e.g., Reiter v. Cooper, ___ U.S. ___, ___, 113 S. Ct. 1213, 1219, 122 L. Ed. 2d 604 (1993); Maislin Indus., U.S., Inc. v. Primary Steel, Inc., 497 U.S. 116, 120-21, 110 S. Ct. 2759, 2762-63, 111 L. Ed. 2d 94 (1990); Southern Pac. Transp. Co. v. Commercial Metals, Inc., 456 U.S. 336, 352, 102 S. Ct. 1815, 1825, 72 L. Ed. 2d 114 (1982). The Seventh Circuit has also upheld the filed rate doctrine as a strict bar to equitable defenses. See, e.g., Western Transp. Co. v. Wilson & Co., 682 F.2d 1227, 1229 (7th Cir.1982). The filed rate doctrine is contained in the very language of the Act: "[n]o carrier shall ... collect, or receive ... less or different compensation ... than the charges specified in the schedule." 47 U.S.C. § 203(c).
We first will set out the relevant Tariff language and then will examine the language of the Tariff in light of the filed rate doctrine. MCI's Tariff, F.C.C. No. 1, specifies that:
The customer is responsible for payment of all charges for services furnished to the customer or its joint or authorized users. This responsibility is not changed by virtue of any use, misuse, or abuse of the customer's service, which use, misuse, or abuse may be occasioned by third parties, including without limitation, the customer's employees or other members of the public.
Tariff § B-7.01. The Tariff, § A, defines "customer," in pertinent part, as follows:
The person, firm, corporation or other entity which orders service ... and which is responsible for the payment of charges and for compliance with MCI tariff regulations.
The Tariff, § A, defines "authorized user" as "[a] person, firm, corporation, or other entity that either is authorized by the customer to receive or send communications or is placed in a position by the customer to send or receive communications."
As we noted above, the FCC's decision in In the Matter of United Artists Payphone Corp. v. New York Telephone Co., 8 F.C.C.R. 5563 (August 18, 1993), requires that we analyze whether Ameri-Tel qualifies as MCI's customer according to the language of the Tariff and the record in this case. In United Artists, the FCC found that a payphone operator cannot be held to be the customer for operator-assisted calls under ordinary circumstances. The FCC still reasoned, however, that "[i]f [a payphone operator] *668 had failed to take steps to control unauthorized operator-assisted and direct-dialed calling and had, instead, installed its phones in such a way as to allow callers to charge such calls to [its] payphone lines, [the payphone operator] could reasonably be held to have constructively `ordered' service from [the carrier], thus establishing an inadvertent carrier-customer relationship." Id. at ¶ 13. Thus, we will examine the steps taken by Ameri-Tel in this case to prevent unauthorized usage.
The similarities between this case and United Artists are few. Ameri-Tel did order IDDD blocking from Illinois Bell. Ameri-Tel did contact Illinois Bell about alleged fraud. Unlike UA, there is no evidence before the Court that Ameri-Tel declined to presubscribe its phones or purchased screening for operator-assisted calls, or purchased originating line or billed number screening. The only evidence indicates it had contracted with MCI for service on the accounts in question. In further contrast, UA had programmed its phones to block operator-assisted and direct-dialed calling outside of the local area. No evidence shows that Ameri-Tel took this precaution. Under these circumstances, we do not find any genuine dispute that Ameri-Tel constructively ordered service from MCI for the fraudulent or unauthorized charges at issue here. We find that Ameri-Tel was MCI's customer.
Our conclusion is fully consistent with the Tariff language which extends the liability of a customer to cover abuse or misuse by third parties. Moreover, the customer is also responsible for charges incurred by "authorized users" including those put in a position by the customer to send communications. When a payphone operator fails to take adequate available steps to prevent fraud, one can conclude that the operator/customer has placed even those intending to defraud the company in a position to send communications.
The pending FCC rulemaking proceedings may indeed alter the liabilities of carrier and customer for toll fraud, but until that time, the clear language of a filed tariff will control. MCI's Tariff places responsibility for the charges at issue on Ameri-Tel. This Court will not rewrite the Tariff to alter that result.
Amount Owed to MCI
Finally, there is no issue as to the amount of money owed MCI under the Tariff. MCI's 12(M) statement clearly sets forth the amount in controversy at $128,923.84. MCI's 12(M) Statement at para. 5. MCI subsequently agreed to drop its claim for the six accounts Ameri-Tel insists do not cover telephones with MCI long-distance service, leaving the final amount due MCI at $124,064.84, plus reasonable attorneys' fees and costs as provided for in the Tariff.[7]
Ameri-Tel failed to file a 12(N) statement disputing this or any amount owed MCI in this case. Its pleadings merely reflect a lack of knowledge as to how MCI arrived at its figures. We do not consider the arguments or affidavits tendered by Ameri-Tel in an attempt to create an issue as to the amounts owed to MCI. MCI is thus entitled to collect $124,064.84 under the terms of its Tariff.
CONCLUSION
For the foregoing reasons, we grant MCI's motion for summary judgment and award MCI $124,064.84, plus attorneys' fees and costs, as required by the Tariff.
NOTES
[1] "Judges in the Northern District of Illinois have strictly applied Local Rule 12(n) and its predecessors ... for a number of years." Schulz v. Serfilco, Ltd., 965 F.2d 516, 518 (7th Cir. 1992). The Seventh Circuit repeatedly has upheld the strict application of Rule 12(M) and 12(N). See, e.g., Appley v. West, 929 F.2d 1176, 1179-80 (7th Cir.1991); Bell, Boyd & Lloyd v. Tapy, 896 F.2d 1101 (7th Cir.1990); Skagen, 910 F.2d at 1500.
[2] We likewise dispose of Ameri-Tel's arguments regarding the long-running battle between AT & T and MCI regarding MCI's failure to file a tariff encompassing all its rates and practices. AT & T's successful challenge to MCI's practice of charging some rates outside its tariff is not a challenge to the lawfulness or the application of rates found within MCI's filed tariffs. American Tel. & Tel. Co. v. FCC, 978 F.2d 727, 732 (D.C.Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 3020, 125 L. Ed. 2d 709 (1993).
[3] Though not raised by either party, the United Artist decision points to an important issue that we must resolve if MCI is to obtain summary judgment. As more fully discussed below, we must determine on the evidence presented whether there is a genuine dispute that Ameri-Tel is MCI's customer and thus liable under the tariff.
[4] The Court finds no merit to Ameri-Tel's objections to the supporting material and affidavits offered by MCI.
[5] We also add that Ameri-Tel apparently sought relief from the unauthorized charges by phoning Illinois Bell who then allegedly assured Ameri-Tel that it would take care of the unauthorized charges that should have been blocked. According to the MCI tariff, however, written notice is required to dispute charges. Tariff § B-7.05. There is no evidence that Ameri-Tel provided any written notice to either MCI or Illinois Bell. In the absence of such a notice, the invoice is deemed to be correct and binding on the customer.
[6] The filed rate doctrine "forbids a regulated entity from charging rates for its services other those properly filed with the appropriate federal regulatory agency." Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577, 101 S. Ct. 2925, 2930, 69 L. Ed. 2d 856 (1981). The purpose of the filed rate doctrine is to: (1) preserve the regulating agency's authority to determine the reasonableness of rates; and (2) insure that the regulated entities charge only those rates that the agency has approved or been made aware of as the law may require. Id. at 577-78, 101 S.Ct. at 2930.
[7] Section B-7.09 of the Tariff provides that "In the event the Company incurs fees or expenses, including attorney's fees, in collecting, or attempting to collect, any charges owed the Company, the customer will be liable to the Company for the payment of all such fees and expenses reasonably incurred." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1737181/ | 535 F. Supp. 2d 1173 (2007)
WESTERN WATERSHEDS PROJECT, Plaintiff,
v.
FISH AND WILDLIFE SERVICE, Defendant.
No. CV-06-277-E-BLW.
United States District Court, D. Idaho.
December 4, 2007.
*1174 *1175 Laurence J. Lucas, Law Office of Laurence J. Lucas, Todd C. Tucci, Advocates for the West, Boise, ID, for Plaintiff.
Robert Pendleton Williams, U.S. Department of Justice, Washington, DC, Deborah A. Ferguson, U.S. Attorney's Office, Boise, ID, for Defendant.
MEMORANDUM DECISION
B. LYNN WINMILL, Chief Judge.
INTRODUCTION
The Court has before it cross-motions for summary judgment. The Court has heard oral argument and fully reviewed the extensive Administrative Record.[1] For the reasons expressed below, the Court Will grant the motion of plaintiff Western Watersheds Project and deny the other motions.
SUMMARY
Plaintiff WWP seeks review of a decision by the Fish and Wildlife Service (FWS) rejecting petitions to list the greater sage-grouse under the Endangered Species Act (ESA). Sage-grouse populations have been in significant decline for decades. While the rate of decline has recently slowed, the sage-grouse's habitat is being subjected to accelerating threats from invasive weeds, fires, energy development, and livestock grazing. About one-half of the original area occupied by the sage-grouse is no longer capable of supporting sage-grouse on a year-round basis. For these reasons, the Bureau of Land Management and the Forest Service have both listed the sage-grouse as a "sensitive *1176 species" across its entire range in the United States.
These circumstances prompted various groups to file petitions with the FWS seeking listing of the sage-grouse under the ESA. That law required the FWS to use the "best science" to determine whether the sage-grouse is an endangered or threatened species. The FWS determined that a listing was not warranted.
After reviewing the FWS's decision, the Court finds three flaws with the FWS decision-making process: (1) While the FWS consulted with experts, the agency excluded them from the listing decision; (2) The FWS created no detailed record of the experts' opinions; and (3) The FWS ignored that portion of the experts' opinions that were preserved on the record.
This process violates the statutory requirement that the "best science" be applied. By improperly insulating the decision-makers from scientific input, it creates opacity when transparency is required. The Court has serious reservations about whether such a process may be used again in any reevaluation of the sage-grouse or, for that matter, in any other listing decisions in the future.
Furthermore, the FWS decision lacked a coherent analysis of the deterioration of habitat and the regulatory mechanisms designed to protect the sage-grouse. Finally, the FWS decision was tainted by the inexcusable conduct of one of its own executives. Julie MacDonald, a Deputy Assistant Secretary who was neither a scientist nor a sage-grouse expert, had a well-documented history of intervening in the listing process to ensure that the "best science" supported a decision not to list the species. Her tactics included everything from editing scientific conclusions to intimidating FWS staffers. Her extensive involvement in the sage-grouse listing decision process taints the FWS's decision and requires a reconsideration without her involvement.
ANALYSIS
1. The ESA
Congress enacted the ESA in 1973 "to provide a means whereby the ecosystems upon which endangered species and threatened species depend may be conserved, [and] to provide a program for the conservation of such endangered species and threatened species." 16 U.S.C. § 1531(b). Section 4 of the ESA directs the Secretary to determine which species should be listed as endangered or threatened. Id. at § 1533(a)(1). The Secretary has delegated this duty to the FWS.
An endangered species is "any species which is in danger of extinction throughout all or a significant portion of its range" and a threatened species is one "which is likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range." Id. at §§ 1532(6), (20). In deciding whether or not a species qualifies as endangered or threatened, the FWS is required to consider the following five factors: (1) the present or threatened destruction, modification, or curtailment of its habitat or range; (2) overutilization for commercial, recreational, scientific, or educational purposes; (3) disease or predation; (4) the inadequacy of existing regulatory mechanisms; and (5) other natural or manmade factors affecting its continued existence. Id. at § 1533(a)(1).
The Director of the FWS must make listing determinations "solely on the basis of the best scientific and Commercial data available to him [or her] after conducting a review of the status of the species and after taking into account those efforts, if any, being made by any State or foreign nation . . . to protect such species." Id. at § 1533(b)(1)(a). A species may be "listed" as endangered or threatened under the ESA in one of two ways, either on the initiative of the Secretary through the *1177 "candidate process," or as a result of a petition submitted by an "interested parson." Id. at § 1533(b)(3)(A). In this case it was a series of petitions filed with the FWS that initiated the process.
Once it receives a petition to list a species, the FWS must, within 90 days, determine whether the petition presents "substantial scientific or commercial information indicating that the petitioned action may be warranted." Id. This is commonly referred to as the "90-day finding." The ESA's implementing regulations define "substantial information" as the "amount of information that would lead "a reasonable person to believe that the measure proposed in the petition may be warranted." 50 C.F.R. § 424.14(b)(1).
The 90-day finding is based solely on the petition; the FWS does not conduct independent research to confirm the petition's assertions. See 69 Fed.Reg. at 21485. If the FWS makes a "positive" 90-day finding, it begins a "review of the status of the species concerned" and, Within one year of the receipt of the petition, must make a second finding (commonly referred to as the "12-month finding") that either: (a) the petitioned action is not warranted; (b) the petitioned action is warranted; or (c) the petitioned action is warranted but precluded by higher priority pending proposals and expeditious progress is being made to list, delist, or reclassify. See 16 U.S.C. § 1533(b)(3)(B); 50 C.F.R. § 424.14.
2. Sage-Grouse 90-Day Finding
Between 2002 and 2003, the FWS received three petitions to list the greater sage-grouse (Centrocercus Urophasianus) as an endangered species under the Endangered Species Act (ESA). On April 21, 2004, the FWS filed its 90-day finding, concluded that the petitions present "substantial information indicating that listing the greater sage-grouse may be warranted." See 69 Fed.Reg. at 21484-94.
The FWS's analysis began with a description of sage-grouse, their habitat, and their current status. The greater sagegrouse is the largest species of grouse in North America. Id. at p. 21485. It was described in the journal entry of Meriwether Lewis for June 5, 1805, while he was in the territory that would become Montana. See Conservation Assessment at p. 3-1. At that time, there may have been 1.1 million of the birds ranging over an area now comprising 16 western states and 3 Canadian provinces. 69 Fed.Reg. at 21486. Today, population estimates range from 100,000 to 500,000, and the range has been reduced to 11 western states and 2 Canadian provinces. Id. Their population numbers "may have declined between 69 and 99 percent from historic to recent times." Id.
The "primary explanation" given by the FWS for this population decline was "[h]abitat alteration, through loss and degradation. . . ." Id. at p. 21490. Sagegrouse habitat is tied to several species of sagebrush. Throughout much of the year adult sage-grouse rely on sagebrush to provide roosting cover and food. During the winter they depend almost exclusively on sagebrush for food. 69 Fed.Reg. at p. 21486.
The habitat loss was "due in large part to human actions rather than natural events." Id. at 21492. The FWS identified a number of causes for this habitat loss, including (1) agriculture ("millions of hectares of native sagebrush habitat have been cultivated for [agricultural] production"), (2) herbicides ("[c]hemical control of sagebrush has resulted in major declines of sage-grouse breeding populations through the loss of sagebrush cover"), (3) grazing ("grazing by livestock could reduce breeding habitat"), (4) fire ("[w]ildfires *1178 have destroyed extensive areas of sagebrush habitat in recent years," and these fires allowed invasion of cheatgrass, "an exotic species that is unsuitable as sagegrouse habitat"), and (5) development ("sage-grouse habitats also are fragmented by fences, powerlines, roads and other facilities associated with grazing, energy development, urban/suburban development [etc.]. . . ."). Id. at 21488-90.
The FWS also expressed concern that federal and state agencies had no plans in place to protect habitat. For example, the FWS concluded that it "is not aware of any State regulations that conserve greater sage-grouse habitat or encourage habitat conservation efforts on private lands." Id. at 21492. The FWS also found that although a large portion of habitat occurs on BLM lands and the BLM has designated the sage-grouse as a special status species in 5 of 11 states there were no regulations requiring that BLM land use plans specifically address the conservation needs of special status species. Id. With regard to habitat on lands managed by other federal agencies, the FWS concluded that with the exception of one program, "we are unaware of any other agency efforts to protect and conserve sage-grouse on these Federal lands." Id.
The FWS observed that sage-grouse were susceptible to the West Nile Virus, which was spreading into the birds' range, and "warrants further investigation." Id. at p. 21491. In conclusion, the FWS found that although the petitions contained "minor errors," they did "contain accurate information, which we have confirmed through our review of the scientific, peer-reviewed literature and direct communications with species experts." Id. at p. 21494. The FWS found that there was substantial information in the petitions to indicate that listing of the greater sagegrouse may be warranted. That finding was based "primarily on the historic and current destruction, modification, or curtailment of greater sage-grouse habitat or range, and the inadequacy of existing regulatory mechanisms in protecting greater sage-grouse habitats throughout the species' range." Id.
3. Conservation Assessment
About two months after the FWS found that listing may be' warranted, and was seeking public comments, a report called the Conservation Assessment (CA) was issued by a group of State agency wildlife biologists who were experts on the sagegrouse. The CA was peer-reviewed by an independent group of scientists selected by the Ecological Society of America. See 70 Fed.Reg. at p. 2249.
The CA analyzed sage-grouse population trends from 1965 to 2003, first for states and then range-wide. The state-wide assessment showed that (1) 11 of 13 states and provinces showed "significant longterm declines in size of active leks"; (2) 8 of 10 states showed "population declines over the same time frame"; and (3) 2 of 10 states "appeared to be stable or slightly increasing.", Conservation Assessment at p. ES-4. Only California had an increase in both the population index and lek size. Id.
The range-wide assessment showed that "[s]age-grouse populations declined at an overall rate of 2.0% per year from 1965 to 2003." Id. at ES-5. The population drop was more pronounced from 1965 to 1985, a decline of 3.5%. Id. From 1986 to 2003, the population declined at a lower rate of .4%. Id. Despite the lower rate of decline, the CA concluded that "we are not optimistic about the, future of sage-grouse because of long-term population declines coupled with continued loss and degradation of habitat and other factors (including West Nile Virus)." Id.
The CA discussed in detail the continued loss of habitat. For example, it observed *1179 that a non-native annual grass known as cheatgrass was spreading rapidly and "replacing sagebrush." Id. at 7-14. With regard to the Great Basin, "[n]early 80% of the land area . . . is susceptible to displacement by cheatgrass." Id. at p. 7-17. The "increased flammability" of cheatgrass causes "increased fire intensity and frequency." Id. at 7-14. Both the number of fires and the total area burned have increased dramatically in the last decade when compared with the past 100 years. Id. at 7-70 (Fig.7.1). The CA warned that periods of drought and global climate change could further facilitate cheatgrass invasion or exacerbate the fire regime, and thus "accelerate the loss of sagebrush habitats." Id. at p. 7-18. The long-term result is that "the increased areas burned each year coupled with decreased total area of sagebrush habitats can further accelerate the trajectory of habitat loss for sage-grouse." Id. at p. 7-7.
Additional long-term problems were expected to be caused by increased oil and gas development. Existing development "influenced 28% of the sagebrush habitats within the [Assessment] study area," and caused a "direct loss of habitat." Id. at 7-40, 7-42. Increases in demand for oil and gas have led to increased demand for drilling permits. For example, in the Powder River Basin (extending through sagegrouse range in Montana and Wyoming), while 15,811 wells have been approved, an additional 65,635 "are being considered. . . ." Id. at 7-42; Fig. 7-30, This was no isolated instance: "[T]he [BLM] anticipates receiving large numbers of applications for permits to drill." Id. at 13-7. The CA noted that because 96% of all drilling permit applications are approved, "the, frequency and extent of oil and gas development on sagebrush ecosystems are likely to increase. . . ." Id.
In summary, "the western landscape has been subjected to a new suite of intense, frequent, or continuous disturbances." Id. at p. 13-6. It is the "cumulative impacts of the disturbances, rather than any single source, [that] may be the most significant influence on the trajectory of sagebrush ecosystems." Id. at p. 13-8. And that "trajectory," in the opinion of the experts who drafted the Assessment, is headed in a negative direction: "Me are not optimistic about the future of sage-grouse because of long-term' population declines coupled with continued loss and degradation of habitat and other factors (including West Nile Virus)." Id. at p. ES-5.
4. 12-Month Finding Process PECE
To begin the process of drafting its 12-month finding, the FWS began by evaluating information on individual planned conservation efforts. Their evaluation was conducted under the FWS's Policy for Evaluation of Conservation Efforts When Making Listing Decisions ("PECE"). See 68 Fed.Reg. 15100, 15115 (Mar. 28, 2003). Recognizing that conservation efforts might vary in effectiveness, PECE dictates that "conservation efforts that are not sufficiently certain to be implemented and effective cannot contribute to a determination that listing is unnecessary or a determination to list as threatened rather than endangered." Id. at 15115. Evaluating over 300 plans from state and federal agencies, among others, the FWS determined that 20 of them met PECE standards and should be included in the information used for the extinction risk evaluation. See 70 Fed.Reg. at 2251.
5. 12-Month Finding Process Expert Panel
The FWS then moved to the risk analysis stage, where the FWS considered "how great a danger the greater sage grouse faces of becoming extinct." See GSG Emails 13378. To identify this danger, the *1180 FWS convened a panel of seven outside scientists with expertise in sage-grouse biology and ecology, sagebrush community ecology, and range ecology and management. See 70 Fed.Reg. at 2249-51; AR at pp. 11072-11168 (setting forth qualifications of each of the expert panelists).
Over the course of two days, the panel of experts discussed the threats to sagegrouse across its range. Id. at 2279. The FWS purposefully did not ask the expert panel to consider or discuss WWP's petition or whether, as a matter of regulatory policy, the sage-grouse should be listed as endangered or threatened. Id. Instead, the panel was asked when the sage-grouse would become extinct. Id. at 10930.
The expert panel did not issue any written report. Instead, they discussed extinction risks in the presence of a management team that would make the ultimate listing decision. In addition, each expert panelist (1) ranked the threats to the sage-grouse, and (2) voted on "how far in the future you anticipate that greater sage-grouse will become extinct." The votes and rankings are part of the Administrative Record, but there is no written analysis from any member of the expert panel explaining either the votes or rankings.
With regard to the threat rankings, the expert panelists found that the top rangewide threats to the sage-grouse were, in order, (1) invasive species, (2) infrastructure, (3) wildfire, (4) agriculture, (5) grazing, (6) energy development, (7) urbanization, (8) strip/coal mining, (9) weather, and (10) pinyon-juniper expansion (followed by eight other threats). Id. at 2280; AR at p. 10921. In the eastern portion of the sage grouse's range, the top two threats were energy development and infrastructure, while in the west, the top two threats were invasive species and wildfire. See AR at pp. 10922-10923.
Each expert panelist was then given 100 points, and asked to assign them over seven time intervals representing the likelihood that the greater sage-grouse would become extinct in that time-frame (1-20 years, 21-40, 41-60, 61-80, 81-100, 101-200 and 200+ years). See AR at pp. 10930-10950. The experts were asked to conduct three scorings for each geographical region.
The first scoring was done after the FWS's presentations on the life history, intrinsic and extrinsic factors, and population trends of sage-grouse. See GSG Emails 13378-13385. The second scoring was conducted after the expert panel had reviewed the individual first scores (anonymously) and engaged in a facilitated discussion of the results. See GSG Emails 13380-13381. The purpose of having a second scoring was to provide each of the experts the opportunity to change his/her answer following the discussion of the first risk projection amongst his/her peers and to make sure that each expert had "understood the question and scored correctly." See AR 10930-10950; GSG Emails 13380-13381.
In the second vote, panelists cast 250 votes for extinction within 100 years, and 450 votes for extinction at various intervals after 100 years. Thus, 36% of the votes cast were for extinction within 100 years. Three of the seven panelists cast the majority of their votes for extinction within 100 years.
Following the second scoring, the expert panel heard a FWS presentation on PECE projects. See AR at p. 13381. After the presentation, the experts were asked if they wished to revise their extinction risk estimates. See AR at pp. XXXX-XXXXX. Only one panelist opted to change his/her assessment in the third scoring. See AR at pp. 10957-10963. Thus, after the third round of voting, and the PECE presentation, only two of the seven panelists voted the majority of their votes for extinction *1181 within 100 years. Of the 700 votes Cast in this third round, 28% were cast in favor of extinction within 100 years.
6. 12-Month Finding Process Decision Support Team
The FWS did not ask the expert panel to discuss, or express an opinion on, whether the sage-grouse met the definition of "endangered" or "threatened" under the ESA. That decision would ultimately be made by the FWS's Director, after reviewing a recommendation from a team of FWS managers who observed the discussions of the expert panel. This team known as the Decision Support Team consisted of seven senior FWS biologists and managers. Their specific task was to evaluate whether the threats to the sage-grouse met the ESA's definition of a threatened or endangered species. Id. In determining whether the sage-grouse met the definition of "threatened" that is, was likely to become extinct within the foreseeable future the Team chose 100 years as the outer boundary of the "foreseeable future" because it represented ten generations of sage-grouse or two generations of sagebrush.
The Team used a point system similar to that used by the expert panel. Each member of the Team was given 100 points to be allocated among three possible regulatory actions on WWP's petition: not warranted, threatened, or endangered. As with the expert panel, the Team was given the opportunity to, conduct a second assessment following discussion of the initial assessment. The Team's point allocations were based on consideration of the background materials compiled, the two-day discussions of the expert panelists, and the Team's own discussions about the application of the ESA's definitions of the threatened and endangered categories. 70 Fed. Reg. at 2280.
In the second scoring, 520 points were cast for a "not Warranted" finding while 180 points were cast for a "threatened" finding. No, points were cast for a "endangered" finding. Five of the seven Team members "believed that the sage-grouse would not face extinction for at least 100 years." Id.
According to the Director's 12-Month Finding, the Team recommended a "not warranted" finding. There is no recommendation from the Team as a whole in the Administrative Record. Apparently, however, the Director met with the Team on November 9, 2004, and received their verbal "recommendation." GSG E-Mail 4657. Pat Deibert, a FWS biologist who prepared the 12-Month Finding, states in an e-mail that "[t]he Director seemed impressed with the work done, and accepted the recommendation of the [Team]." Id.
Each member of the Team also provided hand-written comments explaining their votes. For example, one Team member Who cast 80 votes for "Not Warranted" and 20 votes for "Threatened," wrote that "[s]pecies is not at threat of imminent extinction due to wide distribution, relative stability of core population areas, and rate of impact of the threats." AR at 11039 (emphasis in original). After making other comments, this member concluded that "species doesn't meet statutory definition of [Threatened] or [Endangered] at this time." Id. at 11040.
The Director apparently used these hand-written comments and his in-person meeting with the Team to discern their analysis and conclusions. According to the Director, the Team concluded that while there are real threats to sage-grouse, two factors counseled against finding that a listing is warranted: (1) the population is now stable; and (2) there is great uncertainty about the habitat threats.
*1182 With regard to population numbers, the Director summarized the Team consensus as follows:
It is clear that the number of greater sage-grouse range-wide has declined from historically high levels, with well documented declines between 1960 and 1985. However, the most recent data reflect that overall declines have slowed, stabilized or populations have increased. These data and the fact that 92% of the known active leks occur in 10 core populations across 8 western states, and that 5 of these populations were so large and expansive that they were subdivided into 24 sub-populations . . . was cited by managers on the [Team] as part of the reason for their not warranted recommendation.
Id. at 2281. With regard to the uncertainty over the effects of various threats, the Director summarized the Team consensus as follows:
The higher ranking threats, while rangewide and regional in scale, are to a large degree prospective in nature (e.g., invasive species, infrastructure, wildfire, oil and gas development and conifer invasion). Neither the [Team] nor the expert panelists could predict how these threats will develop over time or interact with each other or with different less important threats to accelerate habitat loss or other impacts to the grouse. This uncertainty was explicitly noted by several of the [Team] biologists and managers as part of the reason for a not-warranted recommendation.
Id. The final recommendation of the Team was forwarded to the Director and summarized by him as follows:
[B]ecause of the relatively long projected risk of extinction, in many cases greater than 200 years . . . combined with considering the variety of sources of information generated for and during the risk analysis phase, including the expert panel deliberations and the Conservation Assessment . . . the [Team] found that the levels of these existing threats, although very real, when considered against the status, trends, and distribution of the current population, were not sufficient to result in the greater sage-grouse becoming an endangered species in the next 40 to 100 years.
7. 12-Month Finding
On January 6, 2005, the then Director of the FWS, Steven Williams, adopting the Team's recommendations set forth above, decided that a listing was not warranted, "after considering the compiled information, the risk assessment [by the expert panel], the applicable conservation actions, and the assessment of the [Team]." Id. at 2282.
ANALYSIS
1. Standard of Review
Because the ESA has no specific provision for judicial review of final agency actions, the scope of review is governed by the APA, 5 U.S.C. § 701 et. seq. Under the APA, an agency action must be upheld unless it is found to be arbitrary or capricious. 5 U.S.C. § 706(2)(A). To decide if an agency action is arbitrary and capricious, the court must determine whether the agency considered the relevant factors and articulated a rational connection between the facts found and the choices made. Pacific Coast Federation of Fishermen's Ass'ns, Inc. v. NMFS, 265 F.3d 1028, 1034 (9th Cir.2001). The agency's decision need not be a model of clarity so long as "the agency's path may reasonably be discerned." National Ass'n of Home Builders v. Defenders of Wildlife, ___ U.S. ___, 127 S. Ct. 2518, 168 L. Ed. 2d 467 (2007)
*1183 "Deference to an agency's technical expertise and experience is particularly warranted with, respect to questions involving . . . scientific matters." United States v. Alpine Land and Reservoir Co., 887 F.2d 207, 213 (9th Cir.1989). Nevertheless, the "presumption of agency expertise may be rebutted if the decisions, even though based on scientific expertise, are not reasoned." Greenpeace NMFS, 80 F. Supp. 2d 1137, 1147 (W.D.Wash.2000),
Judicial review under this standard is to be "searching and careful," but remains "narrow," and a court should not substitute its judgment, for that of the agency. Mt. Graham Red Squirrel v. Espy, 986 F.2d 1568, 1571 (9th Cir.1993).
2. Jurisdiction
The FWS alleges that WWP failed to give the 60-day notice required by the ESA before bringing suit. See 16 U.S.C. § 1540(g)(2)(c). This requirement is. jurisdictional, Save the Yaak Comm. v. Block, 840 F.2d 714, 721 (9th Cir.1988).
WWP does not need to comply with the ESA notice provisions for an APA claim challenging the FWS's failure to perform a discretionary duty under the ESA. See Bennett v. Spear, 520 U.S. 164, 176-178, 117 S. Ct. 1154, 137 L. Ed. 2d 281 (1997). The FWS describes its listing decision as discretionary. See FWS Brief at p. 24 (stating that "the [FWS] exercised its expert discretion and determined that listing greater sage-grouse was not warranted"). That decision like all ESA listing decisions will be reviewed under the APA's arbitrary and capricious standard. See Center for Biological Diversity v. Badgley, 335 F.3d 1097, 1100 (9th Cir. 2003). Because this suit is brought under the APA, to review a discretionary decision of the FWS, Bennett dictates that the ESA notice requirement does not apply.[2]
The FWS also challenges WWP's standing. However, WWP was one of the petitioning parties, before the FWS, and also submitted numerous public comments. This is sufficient to confer standing. See Idaho Farm Bureau Fed'n v. Babbitt, 58 F.3d 1392 (9th Cir.1995).
3. Best Science
The FWS is required to base its listing decision "solely on the basis of the best scientific and commercial data available. . . ." 16, U.S.C. § 1533(b)(1)(a). Of the three entities that played a role in the FWS's listing process expert panel, Decision Support. Team, and Director it was the expert panel that had the extensive knowledge of the sage grouse and its habitat. Accordingly, the "best science" was represented by the expert panel.
What does the record reveal about the "best science" coming out of the expert panel? The panel prepared no written report, and the FWS made no transcript of their two days of verbal discussions. We do have their vote totals, specifically the results of the second round of voting. If you count heads, three of the seven experts concluded that the sage grouse would be extinct within 100 years. If you count votes, the probability that the sage grouse will be extinct in 100 years is, after the second round of voting, (1) 36% rangewide; (2) 52% in the eastern portion of their range; and (3) 40% in the western portion of their range.
None of this voting analysis was discussed in the 12-Month Finding. "The Director completely ignored the secondround percentage figures, and counted *1184 heads inaccurately: He concluded that only two of the seven experts voted for extinction. See 70 Fed.Reg. at p. 2280. To get that result, the Director had to rely on the third round of voting, where one expert changed his/her vote after hearing a presentation on conservation efforts that met the PECE criteria. However, earlier in his decision, the Director stated that he had not "evaluate[d] whether the planned conservation efforts that met PECE reduced the threats to the species." Id. at 2245. If the Director failed to evaluate those conservation efforts, he cannot rely on a vote tally that appears so clearly to depend on those efforts. See generally, Federation of Fly Fishers v. Daley, 131 F. Supp. 2d 1158 (N.D.Cal.2000)(holding that in making listing decision, agency cannot rely on unproven conservation measures).
With regard to the percentage figures, they were not evaluated either by the Director in his 12-Month. Finding, see 70 Fed.Reg. 2244 et. seq., or by the Decision Support Team, see AR at 11031 to 11043. Was that failure arbitrary and capricious? To be a "threatened" species under the ESA, the sage-grouse must be "likely" to "be in danger of extinction" within 100 years. Here, the FWS defined "likely" as meaning "more likely than not," which is a probability of 50% or greater. See AR at 9059.[3] The phrase "in danger of was defined to "imply a risk sufficiently high to warrant immediate action." Id. at 9058.
Putting all these terms together, the sage grouse is threatened if there is at least a 50% probability that it will be "in danger of' extinction within 100 years. The experts here found that range-wide, there is a 36% chance that the sage grouse will be extinct in 100 years, not merely that it will be in danger of extinction. Is that akin to a 50% chance that it will be in danger of extinction? It certainly is close enough"to warrant a full discussion.
The need for a full discussion becomes even more compelling when considering the east/west figures of 52% and 40% respectively. Once again, those are risk assessments that the sage grouse will be extinct, not merely that it will be in danger of extinction, within 100 years. These figures clearly put the extinction danger close enough to the FWS definitions quoted earlier to merit a full evaluation.
Because the FWS did not preserve for the record any explanation by the experts of these percentages, the Court is forced to look elsewhere for their significance. In considering whether to list the Queen Charlotte goshawk, the FWS modified criteria set by the International Union for the Conservation of Nature (IUCN) to determine that the goshawk would be "threatened" "if at any point in the next 100 years there is a 20 percent chance that the species would become extinct." Southwest Center for Biological Diversity v. Norton, 2002 WL 1733618 (D.D.C.2002). The same 20% risk was used by the FWS in deciding whether to list the Alexander Archipelago wolf. AR at 11750. While the FWS is not bound in this case by either the IUCN criteria or the 20% figure used in other cases, these guidelines signal that the even-higher risk assessments here are significant enough to at least warrant discussion.
As mentioned, the record contains no transcript or detailed account of the experts' two days of discussion in the presence of members of the Decision Support Team. In other words, the FWS failed to adequately preserve for the record the "best science." This makes it impossible *1185 for the Court to review whether the Team and the Director accurately applied the "best science" represented by the expert panel. The Court is forced to rely on their recollections of the experts' discussions with no way to verify whether those recollections are accurate.
The consequences of this failure were compounded when the FWS excluded the experts from the listing determination. It was the Team who would make the recommendation to the Director, but they were not sage grouse experts. In the absence of the experts, it was imperative that the Team recall accurately what the experts had said.
What an odd process. Right at the moment where the "best science" was most needed, it was locked out of the room The FWS argues that it cannot be compelled to cede control of a listing decision to experts. But the argument misses the mark. By excluding the experts from making even a recommendation, and then failing to document the experts' discussions (beyond their votes), the FWS cannot demonstrate that is applied the "best science."
The FWS points out that the Director specifically found that "it was decided by consensus that there was not a significant portion of the range in which threats to sage-grouse are greater than range-wide threats." See 70 Fed.Reg. at 2281. It is not clear whether the "consensus" was that of the experts, the Team, or both. Whatever the grouping, the "consensus" does not square with the experts' voting results. While the experts found a 35% range-wide risk of extinction, the risk jumped to 52% in the eastern region. The only way to explain the Director's conclusion that 52% is not greater than 36% is to assume that the eastern region is not a "significant portion of the range." But that assumption is nowhere explained. The FWS cannot demonstrate that the Director's account of the "consensus" is accurate.
The FWS used this same flawed process in deciding not to list the slickspot peppergrass. See WWP v. Foss, 2005 WL 2002473 (D.Idaho 2005). There, a court in this District reversed the FWS's decision, expressing concern that the FWS was asking the court to assume "that FWS's managers had a special insight into slickspot peppergrass, which its panel of experts did not possess," and that there was no "means of reviewing its decision." Id. at *17. While Foss is not directly on point, its deep concerns about the FWS's decision-making process are shared by this Court.
For all these reasons, the Court cannot find that FWS used the "best science" as required by 16 U.S.C. § 1533(b)(1)(a). Accordingly, the Court finds that the FWS 12-Month Finding is arbitrary and capricious under § 706 of the APA.
4. Habitat
The Director's 12-Month Finding concluded that "[s]ervice biologists determined that the principal habitat-related threats are not proceeding at a rate that will threaten the continued existence of the species within the foreseeable future." See 70 Fed.Reg. at 2267. By "service biologists" the Director is referring to the Decision Support Team. The Administrative Record contains no findings by the Team as a whole on habitat. There are the notes of individual team members and the results of their voting. It appears the Director cobbled these together along with his off-the-record in-person meeting to reach his conclusion about the Team's "determination."
This process is flawed for a number of reasons. First, the Team was not comprised of experts on sage-grouse habitat that was the province of the expert panelists *1186 and the experts who prepared the Conservation Assessment (CA). What did the expert panelists say specifically about sage-grouse habitat and its "rate" of decline? We don't know because their discussions were off-the-record.
The Director says that "the majority of the expert panel did not believe that these threats were occurring at such a rate to cause the extinction of the greater sagegrouse within the next 60 to 100 years." Id. at 2267. Yet we know that three of the experts did so believe, judging from their voting. Why were their views not even discussed?
The experts who compiled the CA certainly had a gloomy outlook for sagegrouse habitat. As discussed' above, the CA concluded that habitat threats like invasive weeds, fire, and energy development were all on the increase.
The Director acknowledged these threats by citing to various examples that confirmed the CA's analysis: (1) "[w]ildfires have removed extensive areas of sagebrush habitat in recent years," Id. at 2265; (2) "the rapidity of [energy] development and the persistent demand for petroleum products," is the primary threat in the east region, and the current Administration has taken action to "expedite projects that will increase the production, transmission, or conservation of energy," id. at 2273; and (3) "cheatgrass has invaded extensive areas in western parts of greater sage-grouse range, supplanting sagebrush plants upon which sage-grouse depend," id.
Nowhere is sage-grouse habitat described as stable. By all accounts, it is deteriorating, and that deterioration is caused by factors that are on the increase. However, the Director concludes that the "rate" of this deterioration is not fast enough to cause alarm. While that finding has no support in the CA, the Director states that he is relying on determinations made by both the Team and the expert panelists. Id. at 2267. Once again, however, the Team is not comprised of habitat experts; the "best science" comes from the expert panelists who made no specific "determinations" on the record concerning habitat.
Another example of the Director's failure to make a rational connection between the "best science" and his decision is his discussion of the destruction of habitat by conversion to agricultural use. He acknowledges that this conversion has destroyed "many square miles of sagebrush habitat" over time, but concludes that "this conversion occurs at such relatively low levels today that we do not consider it a threat to the greater sage-grouse on a range-wide basis." Id. at 2255. That conclusion comes out-of-the-blue with no support in the discussion that precedes it. Moreover, it is directly contradicted by the CA, which concludes that "[l]ands continue to be converted to agriculture because technological advances in irrigation methods now permit expansion into steeper terrains further from river flood plains." See CA at p. 13-6.
The Director himself recognized that the CA was authoritative and objective, see 70 Fed.Reg. at 2249, yet failed to explain why he departed from its conclusions on habitat. The ESA requires the Director to consider the "present or threatened" destruction of habitat. 16 U.S.C. § 1533(a)(1). The FWS must make a rational connection between the facts found and the choices made. Pacific Coast Federation of Fishermen's Ass'ns, Inc. v. NMFS, 265 F.3d 1028, 1034 (9th Cir.2001). That rational connection cannot be discerned here. Thus, the Court finds that the Director's 12-Month Finding is arbitrary and capricious.
*1187 5. Existing Regulatory Mechanisms
The FWS is required to determine whether the "inadequacy of existing regulatory mechanisms" warrants listing the sage-grouse. See 16 U.S.C. § 1533(a)(1)(D). Accordingly, the FWS reviewed the regulatory mechanisms on state and private lands that accounted for about 32% of sage-grouse habitat. The FWS concluded that it "does not have complete information" about state endowment lands, and was "not aware of any county or city ordinances that provide protection specifically for the greater sagegrouse or its habitats, on private land," See 70 Fed.Reg. at 2271, 2272.
With regard to federal regulations, about 46% of sage-grouse habitat is on BLM administered land. Id. at 2272. The principal threat in the eastern region was energy development, and so the FWS, reviewed how the BLM was protecting sagegrouse from energy development The FWS concluded that it had no information on (1) how many "older" oil and gas leases had stipulations that addressed sagegrouse protections; (2) how many morerecent leases were granted exceptions, modifications, or waivers of stipulations pertaining to sage-grouse protections; and (3) the results of Best Management Practices that were designed by the BLM to improve sage-grouse habitat.
Despite these gaps of information for 78%[4] of the sage-grouse's habitat, the Director was "encouraged that sage-grouse and sagebrush conservation efforts will moderate the rate and extent of habitat loss for the species in the future." Id. at 2279. He never explained why the information gap, did not matter. And he never explained what had changed since his 90-day finding, which concluded that habitat degradation and population declines indicated that existing regulatory mechanisms, particularly at the federal level, "may be inadequate with regard to addressing threats to the species." See 69 Fed.Reg. At 21492. And finally, he never explained how he could be "encouraged" by conservation efforts while at the same time finding that "it was not necessary to rely on the contributions of any of the local, State, or other planned conservation efforts that met the standard in PECE." See 70 Fed. Reg. At 2244.
While an agency may reach different conclusions than those signaled in the. 90-day finding, it must explain why. See Northwest Ecosystem Alliance v. USFWS, 475 F.3d 1136 (9th Cir.2007). Lacking data on existing programs, and deciding not to review the PECE conservation programs, the Director must have been relying on his assumptions about future conservation efforts; assumptions that "cannot, be relied upon in an agency's decision not to list." See Trout Unlimited v. Lohn, 2007 WL 2973568 at *25 (D.Or. July 13, 2007).
The FWS's failure to coherently consider the adequacy of existing regulatory mechanisms renders its decision arbitrary and capricious.
6. Julie MacDonald
Julie MacDonald was a Deputy Assistant Secretary with responsibility for overseeing FWS operations, including its ESA reviews. She participated in the sagegrouse review at issue here.
In 2006, the Office of Inspector General (OIG) received an anonymous complaint that MacDonald had "persistently harassed, bullied, and insulted FWS employees to change documents and ignore good *1188 science related to the Endangered Species Program." See OIG Report at p. 4. The former Director of the FWS Endangered Species Program told OIG investigators "that many of the scientific reports his office has issued have been edited extensively by MacDonald, who has no background in biology, and cited the Sage Grouse Risk Analysis as an example." Id. He explained that MacDonald "bypassed managers to speak directly with field staff, often intimidating and bullying them into producing documents that had the desired effect she and the former Assistant Secretary wanted." Id. MacDonald's goal, this source stated, was that she "did not want to accept petitions to list species as endangered." Id.
The OIG Report is filled with instances of MacDonald's attempts to improperly alter the "best science" findings. Specifically with regard to the sage-grouse review at issue here, the Portland Assistant Regional Solicitor for the FWS said that MacDonald's conduct in the sage-grouse review was "`the most brazen case of political meddling' he had seen." Id. at p. 12.
The Administrative Record in this case contains e-mails that confirm the OIG Report accounts. One example deals with the evaluation of existing regulatory mechanisms to protect the sage-grouse. The Court noted above that there was a singular lack of data on measures taken by the BLM to protect the sage grouse from energy development, the single largest risk in the eastern region. The e-mails show that the FWS staff was repeatedly frustrated in their attempts to obtain the data from the BLM. See GSG Emails 4385. Accordingly, an early draft of the staff's analysis designed to be presented to the expert panel and Decision Support Team stated as follows: "While the BLM has regulatory mechanisms to manage conserve [sic] greater sage-grouse habitat on the lands they manage, we have no specific data regarding specific implementation of the above regulations for this species, or the monitored results. Therefore we are unable to evaluate the effectiveness of these regulations for the protection of sage-grouse and their habitats on BLM lands." Id.
MacDonald responded to this e-mail two days later, stating that she and others would "help you [the staff] do the assessment of existing regulatory protections for the sage-grouse." See GSG Email 13074. The revised version deleted the language quoted above.
This is just one of many examples in the record. MacDonald had extensive involvement in the sage-grouse listing decision, used her intimidation tactics in this case, and altered the "best science" to fit a notwarranted decision.
This Court is not the first court to notice MacDonald's tactics. In Center for Biological Diversity v. FWS, 2005 WL 2000928 (N.D.Cal.2005), the court set aside a FWS decision under the ESA due to an "irregularity" in the FWS process. Specifically, the court cited pressure from MacDonald to reach an "ordained outcome" regardless of the best science. Id. at *15.
MacDonald's principal tactic is to steer the "best science" to a pre-ordained outcome. That may explain why so much of the "best science" in this case was verbally communicated and never reduced to writing in any analytical or rigorous manner. This process allows the ultimate decisionmakers to subjectively bend the "best science" to their own ends, while obscuring any inconsistencies. In other words, MacDonald's principal tactic dovetails precisely with the principal weakness in this case. For that reason, MacDonald's extensive involvement in the sage-grouse listing decision is an independent reason for the Court's finding that the Director's 12-Month *1189 Finding is arbitrary and capricious under the APA.
7. Conclusion
For the reasons expressed above, the Court finds that the 12-Month Finding contained in 70 Fed.Reg. 2244 et. seq. is arbitrary and capricious under the APA. Accordingly, the Court will grant WWP's motion for summary judgment, reverse "the FWS's decision, and remand the case to the agency for, further consideration. The Court will deny the other motions, and will issue a separate Judgment as required by Rule 58(a)(1).
JUDGMENT
In accordance with the Memorandum Decision accompanying this Judgment,
NOW THEREFORE IT SI HEREBY ORDERED, ADJUDGED, AND DECREED, that the motion for summary judgment filed by plaintiffs (docket no. 80) is GRANTED, and the decision of the Fish and Wildlife Service set forth at 70 Federal Register 2244 et seq. is REVERSED, and the matter REMANDED to the Fish and Wildlife Service for further consideration.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED, that the motions for summary judgment (docket nos. 95, 97 & 100) are DENIED.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED, that the Clerk of the Court shall close this case.
NOTES
[1] The Administrative Record in this case was contained in 8 CDs (including the e-mails). The information on the CDs was not set forth in an easy-to-find format. Consequently, the Court had a very difficult time locating documents. In the future, Government counsel should work together with the agency to ensure that the Administrative Record can be easily accessed.
[2] WWP's counsel stipulated at oral argument that he would not seek attorney fees under the ESA.
[3] One court in this Circuit has approved this definition of "likely." Trout Unlimited v. Lohn, 2007 WL 2973568 (D.Or. July 13, 2007). This definition has not been challenged here, and thus the Court expresses no opinion on that definition.
[4] The 78% is computed by adding the BLM land (46%) with the state and private land (32%). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1738273/ | 335 F. Supp. 146 (1971)
COMMITTEE FOR NEW MANAGEMENT OF BUTLER AVIATION, Plaintiffs,
v.
G. Norman WIDMARK et al., Defendants.
Civ. A. No. 71 C 1528.
United States District Court, E. D. New York.
December 13, 1971.
*147 *148 Arnold I. Roth and Joel W. Sternman, Rosenman, Colin, Kaye, Petschek, French & Emil, New York City, for plaintiffs.
Louis Nizer and Myron Saland, Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for defendants.
NEAHER, District Judge.
This civil action for injunctive relief arises out of an ongoing proxy contest for the election of directors of defendant Butler Aviation International, Inc. ("Butler") at the annual meeting of stockholders presently set for December 14, 1971.[1] Plaintiffs commenced the action by filing their complaint on the afternoon of November 24, 1971, and simultaneously presenting ex parte an order to show cause application to bring on an accelerated motion for a preliminary injunction. The complaint alleged that defendants were soliciting proxies for the stockholders' meeting by the use of false and misleading proxy solicitation material, and also obtaining post-dated proxies, in violation of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), and the Security and Exchange Commission's Proxy Rules 14a-9 and 10, 17 C.F.R. 240.14a-9, 14c-10. Voluminous affidavit and exhibit material was presented in support of the motion.
The imminence of the stockholders' meeting and assurances of plaintiffs' counsel that the defendants would be served as speedily as possible over the Thanksgiving holiday prompted the court to direct a preliminary response by defendants on November 29, 1971. On that date defendants appeared specially to contest jurisdiction over them on the ground of claimed defective service. They withdrew that motion, however, on plaintiffs' agreement that the motion for a preliminary injunction and cross-motions to be made by defendants be heard on answering and replying affidavits and documentary exhibits liberally supplied by both sides. Following submission of these papers a lengthy oral argument was held December 6th, supplemented by submission of additional papers and memoranda, the last arriving December 9th.
As a result the court must determine under great pressure of time (1) plaintiffs' motion for a preliminary injunction for the claimed Section 14(a) violations *149 by defendants and post-dated proxies; (2) defendants' cross-motion for the same relief for claimed similar violations by plaintiffs; and (3) defendants' cross-motion challenging the legality of plaintiffs' committee and the validity of proxies obtained by it as a result of plaintiff Dopp's admitted non-compliance with Section 13(d) of the Act, 15 U.S.C. § 78m (d). The court has been aided in this task by the parties' agreement that the documents described in the Appendix hereto, marked Court's Exhibits 1 to 11, inclusive, comprise, broadly speaking, all the respective proxy solicitation material which did or could have come to the attention of Butler's stockholders or some of them. By far the larger bulk of the voluminous documentation submitted consists of papers in other litigation involving one or more of the parties, excerpts from depositions, corporate memoranda and copies of correspondence all offered to support the contending claims that the other side's proxy solicitation material (Court Exhs. 1-11) requires immediate injunctive correction and rejection of proxies already obtained thereby.
Some background facts require mention at the outset for purposes of perspective. Butler is a Delaware corporation having its principal office in Englewood Cliffs, New Jersey. Its principal business is aviation sales and service operations at major airports throughout the United States and motor carrier transportation. Butler has 1,068,022 voting shares outstanding, of which 898,022 are shares of common stock. The shares are traded on the American Stock Exchange. Butler's two principal stockholders are plaintiff Paul S. Dopp (see n. 1, supra) and American Electronic Laboratories, Inc. (AEL), one of whose two controlling stockholders is defendant Leon Riebman, who became a director of Butler in 1971. Dopp claims to own beneficially 196,100 shares (18% of outstanding voting securities) and AEL owns beneficially 143,900 shares (14% of outstanding voting securities). Aside from AEL's ownership, the individual defendants (excluding C. Robert Schaeffer), as a management group, own beneficially an aggregate of 18,600 shares, less than 2% of outstanding voting securities.
The election of a board of six directors is the only question before Butler's stockholders at the December 14th meeting. It is also clear that plaintiff Dopp is the spearhead and muscle of the plaintiff "Committee for New Management of Butler Aviation" ("Committee"), composed of Dopp and the other named plaintiffs, which is seeking to unseat the defendant directors. Dopp was the moving party in bringing about the December 14th meeting (Exh. 8, Appendix). The Committee's proxy statement also acknowledges "It is presently contemplated that Mr. Dopp will pay all of the expenses of the Committee's solicitation" estimated to amount to approximately $70,000 for which reimbursement from Butler will be sought if the Committee elects its candidates. (Id.) It is not surprising, therefore, that management's proxy solicitation material describes in considerable detail and comments strongly about a series of corporate transactions management asserts Dopp initated without authorization when he was board chairman, president and chief executive officer of Butler, and for which he is being sued by Butler in the New Jersey Superior Court to recover some $600,000 of corporate funds claimed to have been wasted or misused for his own personal purposes. (Exh. 6, Appendix.) Plaintiff Committee's proxy statement also describes extensively various lawsuits brought by or against Mr. Dopp relating to Butler, including the aforementioned New Jersey Superior Court action, from which it is clear that Mr. Dopp has entered denials of liability against Butler's claims (Exh. 8, Appendix).
If, as both sides contend, material omissions of fact or false or misleading statements have been made in the proxy solicitation material of either side in violation *150 of S.E.C. Proxy Rule 14a-9(a),[2] there is standing to maintain a private action for curative injunctive relief upon a proper showing. General Time Corporation v. Talley Industries, Inc., 403 F.2d 159, 161 (2 Cir. 1968).
The focus of inquiry in a case such as this is on the materiality of the claimed omission or false or misleading statements. Although, as pointed out in General Time, supra, "[t]he standard of materiality is somewhat more elusive in relation to statements issued in a contested election . . . . issuers of such statements should be held to fair accuracy even in the hurly-burly of election contests." 403 F.2d at 162. The same authority defines the test in these terms:
The test [of materiality], we suppose, is whether, taking a properly realistic view, there is a substantial likelihood that the misstatement or omission may have led a stockholder to grant a proxy to the solicitor or to withhold one from the other side, whereas in the absence of this he would have taken a contrary course. Id.
With these principles in mind we turn to the respective motions of the parties.
Rule 14a-9(a) Violations Claimed by Plaintiffs
Plaintiffs' complaint, as supplemented, specifies 15 instances of failures to disclose or false or misleading statements in defendants' proxy solicitation material. On the oral argument, however, plaintiffs' counsel agreed, without conceding total abandonment of the other specifications, that the principal claimed violations were:
1. Defendants' failure to disclose in Butler's proxy statement (Exh. 6, Appendix) that Mr. Dopp, as defendant, had interposed an answer in the New Jersey Superior Court action containing denials and defenses.
2. Defendants' description in Butler's proxy statement (Exh. 6, Appendix) is misleading in making it appear that the series of corporate transactions involved in the New Jersey action are multiple actions rather than a single action.
3. Defendants misrepresented in a press release of November 10, 1971 (Exh. 1, Appendix) the reasons why settlement conferences between management and Mr. Dopp broke off and in fact violated an agreement to hold those discussions in confidence.
4. Defendants incorrectly overstated Butler's 1970 loss from continuing operations by over 100% in a letter to stockholders of November 13, 1971 (Exh. 3, Appendix) with resulting detrimental impact on stockholders regarding Mr. Dopp's management.
5. Defendants misstated in the addendum to Butler's 1970 annual report (Exh. 4, Appendix) that a payment of $100,000 was made to the Community Savings and Loan Association of Fredericksburg, Texas, on account of principal and interest on an overdue note of a Butler subsidiary, whereas in fact $25,000 of that $100,000 went to pay attorneys' fees of the creditor bank because of legal services in connection with the default.
Plaintiffs conceded on the argument that the other specifications of violation itemized in their complaint were of lesser importance than those listed above. In the court's opinion none of the principal objections demonstrates a statement in defendants' proxy material which is false or misleading with respect to a *151 material fact or the omission of a material fact as called for by the proxy rule. Considering these objections seriatim:
1. Defendants' proxy statement (Exh. 6, Appendix) states with reference to the New Jersey Superior Court action against Mr. Dopp that "This action is now pending." Nothing else is said or implied that Mr. Dopp is not contesting the action or has admitted the claims made. The very language quoted clearly implies that the action remains undetermined. While it is customary in disclosing litigation in a corporation's annual report to state that an action is being prosecuted or defended by management,[3] nothing has come to the court's attention to support plaintiffs' contention that omitting to state expressly that Mr. Dopp is defending Butler's action is a material non-disclosure in these circumstances. Indeed, if defendants had made any affirmative statement regarding Dopp's defense, they would have risked a charge that it was not accurate or complete and hence misleading. In view also of plaintiffs' counter-proxy statement (Exh. 8, Appendix), issued two days after Butler's, which does state that Dopp has denied lack of authorization and liability for the transactions sued on in New Jersey, the test of a "material" omission has not been met.[4]
2. Undeniably Butler's proxy statement (Exh. 6, Appendix) in the section entitled "Transactions With Management and Others" repeats five times that Butler has instituted a legal action against Mr. Dopp in the Superior Court of New Jersey, Chancery Division, Bergen County. The statement occurs a sixth time in connection with a claim against Dopp & Company. In each instance there follows the sentence "This action is now pending." Plaintiffs contend this is misleading because it makes it appear that Butler is suing Dopp not once but five or six times. Such a contention is captious. The repetition was dictated by the need for lengthy explanation of each of the six separate and unrelated corporate transactions for which Dopp and Dopp & Company are being sued. There is no claim of exaggeration of damages and no reason is apparent for believing that stockholders would reach a different conclusion regarding Mr. Dopp if they were expressly informed that all six claims were embraced in a single lawsuit. Indeed, plaintiffs' reference to these claims in their proxy statement (Exh. 8, Appendix) parallels that of defendants and concludes with repeated denials of liability on Dopp's part.
3. Plaintiffs' claim of unfairness and violation of confidence regarding the breaking off of settlement discussions relates not to formal proxy solicitation material but to a Butler press release of November 10, 1971 (Exh. 1, Appendix). Plaintiffs complain chiefly of the last two sentences in this paragraph of the release:
"Negotiations to recover company funds have taken place with Mr. Dopp ever since late 1970 when the Butler Aviation Board of Directors first learned of his unauthorized expenditures," a company spokesman said. "Mr. Dopp, however, has not returned any of the Company funds. Instead he has started a number of lawsuits involving the Company and has now threatened a proxy fight by filing a slate of nominees for directors, and negotiations have broken off."
Defendants deny that press releases as such reach the eyes of Butler stockholders (of which there are about 1600) but only as interested newspapers edit them. *152 On November 11, 1971, presumably as a result of defendants' release, the Wall Street Journal reported its version thereof. With respect to settlement negotiations, the article stated:
A Butler spokesman said the company had avoided announcing the suit until the present because it was trying to work out a settlement with Mr. Dopp. The spokesman said Butler decided to announce the suit because of Mr. Dopp's recent actions against the company. (Exh. 3, Appendix.)[5]
4. Admittedly defendants' November 13, 1971 letter to stockholders (Exh. 3, Appendix) accompanying their proxy statement states:
For the same period last year when Mr. Dopp was Chief Executive Officer, the Company suffered a loss of $1,605,000 of which $899,000 or 51 cents loss per share was from continuing operations and $1,157,000, net of taxes, or $1.31 loss per share was from discontinued operations for a total net loss of $1.82 per share. (Emphasis as in original.)
Plaintiffs correctly complain that the figure "$899,000" is erroneous and should read "$448,000", pointing to Butler's unaudited Consolidated Statement of Operations for the nine months ending September 30, 1971 (Exh. 4, Appendix). While admitting that the 51 cents loss per share in the above quotation is correct as based on a $448,000 rather than an $899,000 loss, plaintiffs nevertheless contend that stockholders are still being misled because Butler's correction is "buried" on the last page of defendants' latest hortatory letter to stockholders of November 26, 1971 (Exh. 11, Appendix).
The court is persuaded that defendants' original statement was inadvertently incorrect; that stockholders would be more inclined to note the loss per share, which was correct; that the correct dollar loss could be found in the nine-months statement forming part of Butler's proxy material; and that the correction made in defendants' later letter is adequate.
5. The court is likewise persuaded that plaintiffs' criticism of the mention given Butler's payment to the Texas bank lacks substance (Exh. 4, Appendix). It accepts the representation of defendants' counsel that under Texas law incorporated in the unpaid note obligation of Butler's subsidiary, counsel fees arising out of the default are included as part of principal indebtedness. Plaintiffs make no claim that the entire $100,000 was not in fact paid or that Butler did not avoid imminent foreclosure and gain time to negotiate a refinancing of the note. Certainly this objection is hardly in need of the strong medicine of injunctive relief.
After careful scrutiny of the voluminous affidavits and documents submitted by plaintiffs the court is not persuaded they have made a sufficient showing by clear and convincing facts that defendants' proxy solicitation material warrants the preliminary injunctive relief plaintiffs seek. The court cannot overlook the fact that virtually all proxy material of both sides had reached the stockholders and the election was imminent when the matter was heard. While the court believes its views regarding plaintiffs' objections are sound, it is also aware that injunctive relief now on the very eve of the election would undoubtedly come to the stockholders' attention and be viewed by them as a final determination of wrongdoing on the part of management. See Kauder v. United Board & Carton Corp., 199 F. Supp. 420 (S.D.N.Y.1969). In Judge Feinberg's words in Kauder, ". . . I find that the harm which is likely to result to defendant[s] if the injunction is issued and is ultimately proved unwarranted outweighs the possible harm to plaintiff[s] if the preliminary injunction is erroneously denied at this time." 199 F.Supp. at 424.
*153 Before turning to defendants' cross-claim that plaintiffs' proxy material is in violation of Rule 14a-9(a), consideration must be given to plaintiffs' further claim that defendants have been soliciting post-dated proxies in violation of Rule 14a-10.[6]
Plaintiffs produced an affidavit of Laverne Troutt, Fort Lauderdale, Florida, a Butler stockholder owning 500 common shares. Mr. Troutt states he was called from New Jersey by a Mr. Howard, who said he was working for incumbent management. In response to Howard's inquiry, Troutt stated he had received the white proxy being solicited by the plaintiffs' Committee but not the blue management proxy. Howard sent him one and at Howard's request he signed and dated it December 14, 1971, and returned it.
Defendant Widmark, Butler's board chairman, states in an affidavit that plaintiffs' charge had been submitted to the S.E.C., which had requested Butler's secretary to review all proxies received by management as of November 30, 1971. Six proxies dated December 14, 1971 were found. Four are proxies of Butler executives who are actively soliciting for management, the fifth is that of a Butler executive apparently not soliciting proxies, and the sixth is that of a stockholder not involved in management. Defendants state that none of these proxies will be voted unless properly substituted with currently dated proxies and instructions to all solicitors not to accept post-dated proxies have been reinforced. In view of this assurance no injunctive relief is required.
Rule 14a-9(a) Violations Claimed by Defendants
Just as strenuously as plaintiffs, defendants claim that the Committee's proxy material is riddled with omissions of fact and false or misleading statements which violate Rule 14a-9(a). In sum, defendants' principal objections assert essentially that plaintiff Dopp has not accurately set forth the true facts of the corporate transactions which are involved in the New Jersey lawsuit between Butler and Dopp.
The difficulty with defendants' contentions is that these very issues are already in litigation in the New Jersey Superior Court, the forum chosen by defendants for a plenary trial on the merits. It would be presumptuous for this court to attempt to unravel the complicated facts on largely conflicting affidavits after the New Jersey court has rendered a decision holding that "It is clear that the affidavits and depositions do raise sharp issues of fact which the Court conceives can be determined only on a plenary hearing."[7]
For this reason and the other considerations already noted, it would be inappropriate to grant defendants injunctive relief in these circumstances.
Defendants' Cross-Motion for Relief Based on Violation of Section 13(d) of the Act
Plaintiffs concede that between February 1970 and August 1971 plaintiff Dopp was subject to the filing requirements of Section 13(d) of the Act, 15 U.S.C. § 78m(d), and that he failed to comply with those requirements.[8]*154 That statute, commonly known as the Williams Act, provides in substance that a person acquiring beneficial ownership of more than 5% of a class of registered securities shall within ten days thereafter inform the S.E.C., the issuing corporation, and each stock exchange where the security is traded, of that fact by written statement containing such additional information as the S.E.C. regulations require.
Plaintiffs regard this violation as "technical" and contend that defendants can establish no irreparable harm justifying their request for a preliminary injunction. They argue that Butler cannot claim it was unaware of Dopp's stock acquisitions while he was part of its management, and that after his resignation in January 1971 they were known from various other sources available to Butler, including his Schedule 14B filings.
Defendants contend most persuasively that the very purpose of the Williams Act was to prevent the attempted takeover of publicly-owned corporations by means of surprise tactics such as the suddenly announced cash tender offer or other secret acquisitions of large blocks of voting stock.[9]
Plaintiffs' moving papers admit that after his resignation from management in January, plaintiff Paul S. Dopp acquired a total of 59,700 shares of Butler voting stock, as follows:
April 8, 1971 40,000 shares
June 22, " 200 "
June 29, " 15,000 "
August 12, " 2,000 "
August 16, " 2,500 "
Prior to any of the foregoing acquisitions, Dopp admittedly already owned well in excess of 10% of Butler's voting stock. As of June 29, 1971, he had acquired an additional 55,200 shares, in itself more than the 5% acquisition which triggers the prompt information filing required by Section 13(d). Had he complied with the filing requirement he would have had to disclose information generally similar to that required of one proposing to make a tender offer; e. g., the background and identity of the purchaser, the source of his funds, the number of shares acquired, any contracts or arrangements with respect to the securities of Butler, and any plans he had to make major changes in Butler's business or corporate structure.
Defendants point out with some force that prompt filing by Dopp would have obliged him to immediately disclose not only the purchase but the source of the funds utilized to make the purchase. It would have allowed management to appropriately comment to the corporation's stockholders in the manner the statute was designed to permit, as soon as the *155 purchase was made. Stockholders and management would have been alerted at once to Dopp's move to regain control, as mandated by Section 13(d). Such a disclosure would also have prevented Dopp from concealing his purchases through the use of nominees so that his ownership would not appear on Butler's stock transfer records. His Schedule 14B filing made on October 18, 1971, can hardly be considered a substantial compliance with or an adequate substitute for the information required by Section 13(d).
The court cannot accept plaintiffs' contention that taking Section 13(d) seriously in this case would hinder the ability of shareholders even to speak to each other with respect to corporate affairs or to criticize an inefficient management. Rather it agrees with the salutary and meaningful analysis of the Williams Act stated in Bath Industries, Inc. v. Blot, supra:
The purpose of the filing and notification provisions is to give investors and stockholders the opportunity to assess the insurgents' plans before selling or buying stock in the corporation. It additionally gives them the opportunity to hear from incumbent management on the merit or lack of merit of the insurgents' proposals. If the defendant-appellant's late filing is sufficient, then no insurgent group will ever file until news of their existence and plan leaks out and prompts a law suit. By that time it will be too late to avoid the evils which the Williams Act is designed to eliminate. (427 F.2d at 113). (Emphasis the Court's.)
Here we are not faced with subtle problems which have seemingly resulted in divergent views regarding application of Section 13(d) to group action. Here we are only concerned with admitted statutory violation by a large stockholder, once part of the management of a corporation, who determined on his own to launch a campaign to regain control. In doing so he has clearly plunged the corporation into a costly proxy contest it can ill afford one which might have been avoided had early disclosure of his plans been made.
If Section 13(d) means anything, plaintiff Dopp should not be permitted to gain advantage from a course of action pursued in clear violation of law. At the very least, considerations of equity demand that Dopp be disenfranchised from voting at the December 14th meeting those shares he acquired after January 4, 1971, in excess of the 2% exemption provided by the Williams Act. See Ozark Air Lines, Inc. v. Cox, 326 F. Supp. 1113 (E.D.Mo.1971).[10]
More sweeping relief, which defendants urge, would be punishment, not equity, since it would deprive Dopp of previously acquired voting rights on a retroactive basis without good reason. Moreover, it is reasonably clear that the plaintiff Committee was formed after Dopp acquired the additional 5% of Butler stock he failed to report under Section 13(d). Hence there is no reason to grant the relief sought by defendants, which would enjoin the much less than 2% of Butler shares acquired by plaintiffs Anstatt, Cohen and Hickey, on the theory that they are charged with the 5% previously acquired by Dopp. For this same reason there is also no need to consider further plaintiffs' contention that they should be entitled to relief against defendants as a management group because their stock and stock options aggregate more than 5%, and they have not complied with Section 13(d).
Accordingly, it is ordered that (1) plaintiffs' motion for a preliminary injunction be denied in all respects, and *156 (2) defendants' cross-motion for a preliminary injunction be granted only to the extent of enjoining plaintiff Paul S. Dopp from voting those shares of Butler's stock he acquired after January 4, 1971 in excess of 2% of the total of each class of security outstanding.
Settle order on notice.
APPENDIX
Court
Exhibit
No. Description
1 Butler press release dated November 10, 1971, captioned
"Butler Aviation Sues Former Chief Executive
for Misuse of Corporate Funds; Seeks $600,000 plus
Damages; Annual Stockholders Meeting Set for December
14"
2 Wall Street Journal article dated November 11, 1971
captioned "Butler Aviation Suing its Former Chairman,
Who's Challenging Firm"; and New York Times
article dated November 11, 1971 captioned "Butler
Aviation Charges Ex-Chief Misused Funds"
3 Butler letter to stockholders dated November 13,
1971
4 Butler Annual Report, 1970
5 Butler proxy
6 Butler Notice of Annual Meeting of Stockholders,
dated November 13, 1971, and Proxy Statement
7 Butler press release dated November 14, 1971, captioned
"Butler Aviation Notifies Shareholders that
`Monumental Conflict of Interest' is Involved in Proxy
Contest by Dissident Former President"
8 Proxy Statement of Committee for New Management
of Butler Aviation, dated November 15, 1971
9 New York Times article dated November 16, 1971 captioned
"Butler Aviation Sees Conflict of Interest in
Proxy Battle"
10 Committee for New Management of Butler Aviation
letter to Butler stockholders dated November 22, 1971
11 Butler letter to stockholders dated November 26, 1971
NOTES
[1] The meeting was set by order of the Delaware Chancery Court on application of plaintiff Paul S. Dopp, a large stockholder and former board chairman, president and chief executive officer of Butler, who resigned those posts on January 4, 1971, apparently at the request of defendants, Butler's present management. Butler, although a publicly-owned corporation, has not had a stockholders' meeting since May 1969.
[2] Rule 14a-9. False or Misleading Statements.
(a) No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting, or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading. (17 C.F.R. 240.14a-9.)
[3] As defendants have done here in Butler's annual report (Exh. 4, Appendix).
[4] The court reaches this conclusion mindful of the admonition that stockholder disputes should not be viewed as "political contests, with each side free to hurl charges with comparative unrestraint, the assumption being that the opposing side is then at liberty to refute and thus effectively deflate the `campaign oratory' of its adversary." Securities and Exchange Commission v. May, 229 F.2d 123, 124 (2 Cir. 1956).
[5] The New York Times, in a brief article the same day, did not mention settlement.
[6] Rule 14a-10. Prohibition of Certain Solicitations
No person making a solicitation which is subject to §§ 240.14a-1 to 240.14a-10 shall solicit:
(a) any undated or post-dated proxy, or
(b) any proxy which provides that it shall be deemed to be dated as of any date subsequent to the date on which it is signed by the security holder. (17 C.F.R. 240.14a-10.)
[7] Butler Aviation International Inc., et al. v. Paul S. Dopp, et al., Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-3356-70, Steno. Tr. of Decision of Hon. Eugene L. Lora, J.S.C., November 9, 1971, p. 61. (Order to Show Cause herein, Exh. 20, p. 61.)
[8] Section 78m(d) provides:
(1) Any person who, after acquiring directly or indirectly the beneficial ownership of any equity security of a class which is registered . . ., is directly or indirectly the beneficial owner of more than 5 per centum of such class shall, within ten days after such acquisition, send to the issuer of the security at its principal executive office, by registered or certified mail, send to each exchange where the security is traded, and file with the Commission, a statement containing such of the following information, and such additional information, as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors
. . . . .
The statute also provides that a group of two or more who act "for the purpose of acquiring, holding, or disposing of securities . . . shall be deemed a `person'" (15 U.S.C. § 78m(d) (3)), and that it does not apply to acquisitions not exceeding 2% of the security class during the preceding twelve months. (Subsection (6) (B).)
[9] Plaintiffs do not question defendants' standing to sue for a violation of Section 13(d). Defendants point out that standing has been sustained in a case involving counterparts of 13(d), namely, Section 14 (d), (e) and (f) of the Act, which were enacted at the same time. Electronic Specialty Co. v. International Controls Corp., 295 F. Supp. 1063 (S.D.N.Y.1968), aff'd in part, 409 F.2d 937 (2 Cir. 1969). See also Bath Industries, Inc. v. Blot, 427 F.2d 97 (7 Cir. 1970), aff'g 305 F. Supp. 526 (E.D.Wis.1969).
[10] In the Ozark case, supra, where a group acquisition did not exceed the 2% limit for non-reporting, the court expressly stated:
Had there been no 13(d) filing before this litigation commenced, and had there been evidence of acquisitions in excess of the 2% exemption, this Court might have considered as an appropriate remedy disenfranchising all shares acquired by the Group in excess of the 2% exemption in violation of the Williams Act. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1739301/ | 420 F. Supp. 1 (1976)
Ralph S. ABERNATHY, Administrator of the Estate of Eural Frank Abernathy, Plaintiff,
v.
SCHENLEY INDUSTRIES, INC., et al., Defendants.
No. C-C-75-387.
United States District Court, W. D. North Carolina, Charlotte Division.
July 31, 1976 and September 27, 1976.
Ronald Williams, Charlotte, N.C., for plaintiff.
Hunter M. Jones, Jones, Hewson & Woolard, Charlotte, N.C., for Schenley defendants.
John G. Golding, Golding, Crews, Meekins, Gordon & Gray, Charlotte, N.C., for defendant Mecklenburg Board of ABC.
James Wallace, Jr., Associate Atty. Gen. of N.C., Raleigh, N.C., for defendant North Carolina Board of Alcoholic Beverage Control and State of North Carolina.
ORDER
McMILLAN, District Judge.
Plaintiff's decedent allegedly drank too much of defendants' good whiskey, too fast, and died of acute ethanol poisoning. Plaintiff's complaint, as it now stands, alleges violation of 15 U.S.C. § 2068 (Consumer Product Safety Act), 21 U.S.C. § 331 (Adulterated or Misbranded Food and Drugs), and 27 U.S.C. § 205(e) (Alcohol Labeling), as well as a products liability action under North Carolina law.
Plaintiff says that defendants breached these statutes, and sold a defective product, because they failed to place a label on the whiskey bottle plaintiff's decedent purchased, that warned him of the risk of acute ethanol poisoning.
All defendants have moved for dismissal. The grounds urged are failure to state a claim, lack of personal and subject matter jurisdiction, the Eleventh Amendment, and sovereign immunity. Plaintiff has made *2 more motions to amend, and a motion to reconsider the previous dismissal of the State of North Carolina.
The court held hearings on all then pending motions, ruled on several discovery motions, and took the dismissal motions under advisement.
The court has concluded that suit against defendant North Carolina Board of Alcohol Control is barred by the Eleventh Amendment because this, in effect, is a suit against the state. Edelman v. Jordan, 415 U.S. 651, 94 S. Ct. 1347, 39 L. Ed. 2d 662 (1974); North Carolina General Statutes § 18A-14.
Defendant Mecklenburg Board of Alcoholic Beverage Control is not entitled to the same immunity, however. Counties, and other political subdivisions, derive no protection from the Eleventh Amendment. Hopkins v. Clemson Agricultural College, 221 U.S. 636, 31 S. Ct. 654, 55 L. Ed. 890 (1911).
Moreover, the Board is not immune from the state cause of action. North Carolina General Statutes § 153A-435.
The complaint does state a claim under North Carolina law, and it apparently does state a claim under 15 U.S.C. § 2068, and 27 U.S.C. § 205(e), because of 27 C.F.R. § 5.42(a)(1). It does not state a claim under 21 U.S.C. § 331, because the whiskey was neither misbranded, within the meaning of § 343, nor adulterated, within the meaning of § 351.
I have made the decision about 15 U.S.C. § 2068, and 27 U.S.C. § 205(e), in the absence of legislative history, but under the guidelines announced in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed. 2d 26 (1975). If any defendant is able to supply any legislative history that tends to show Congress did not intend to allow a private right of action under the statutes, I will reconsider the motions. The defeated bills which would have required warnings are no help, however, because they supply no insight into whether Congress intended to allow private actions, and they were aimed at chronic poisoning, not acute poisoning.
Because I have concluded that the complaint states a federal claim, there is subject matter jurisdiction, and there is pendent jurisdiction over the state claims, as to the Board, and diversity jurisdiction as to the Schenley defendants.
Plaintiff has filed motions to amend on May 3, 1976 (two motions), May 28, 1976, June 4, 1976, June 11, 1976, and June 28, 1976. No defendant has objected to these motions, except the motions of May 28, June 11 and June 28, 1976, which seek to bring in additional defendants, on a new theory of liability. I want to have a hearing on the question of new parties and theories, before deciding that question.
IT IS THEREFORE ORDERED:
1. That defendant North Carolina Board of Alcohol Control's motion to dismiss is allowed.
2. That defendant Mecklenburg Board of Alcohol Beverage Control's motion to dismiss is denied.
3. That the motions of the Schenley defendants to dismiss are denied.
4. That plaintiff's motions to amend of May 3, and June 4, 1976, are allowed.
5. That plaintiff's motion to reconsider the dismissal of the State of North Carolina, is denied.
ORDER
On July 31, 1976, an order was entered denying motions of various defendants for dismissal. Defendants filed motions for reconsideration of the order; a hearing has been conducted; upon reconsideration the court is of the opinion that the original order was in error; the motions of the Schenley defendants and of the Mecklenburg County Board of Alcoholic Beverage Control to dismiss are allowed for reasons hereinafter stated; this leaves a state claim only as to which there is no diversity; the other questions addressed to discovery, class action and evidence are therefore moot; and the entire action as to all defendants is hereby dismissed.
A brief review may be in order.
*3 Plaintiff alleges that his intestate, Eural Frank Abernathy, died because of drinking too much good whiskey. The whiskey was alleged to be Ancient Age Bourbon, manufactured by the Schenley defendants and sold by the State ABC Board defendants. Plaintiff says that the decedent drank a substantial though not excessive amount (a pint or so) of Ancient Age Bourbon throughout one evening. He died as a result from "acute ethanol poisoning."
Plaintiff says that decedent did not know that drinking too much alcohol can be fatal; that people who sell whiskey should be required to label the bottles with a warning that whiskey can cause acute ethanol poisoning and death; that failure to label violates North Carolina statutes and federal statutes; that a civil right of action therefore arises and that defendants are responsible for the decedent's wrongful death.
The federal portion of the claims rests upon two grounds:
The first is the Consumer Products Safety Act, 15 U.S.C. §§ 2051 et seq. This act sets up a Consumer Products Safety Commission; authorizes issuance of regulations for the labeling of consumer products and for other safety standards; and authorizes suits in equity and suits for damages against manufacturers violating the contemplated regulations.
The trouble with reliance upon the Consumer Products Safety Act is that it does not apply to food; and beverage alcohol is a food within the meaning of the pertinent statutes. 15 U.S.C.A. § 2052 provides, in part:
"(a) For purposes of this chapter:
(1) The term `consumer product' means any article, or component part thereof, produced or distributed (i) for sale to a consumer . . ., or (ii) for the personal use, consumption or enjoyment of a consumer . . .; but such term does not include
(I) food. The term `food', as used in this subparagraph means all `food', as defined in section 321(f) of Title 21, including . . . [other products as defined in various sections of Title 21]."
21 U.S.C.A. § 321(f) defining "food" for the purposes of that act, provides:
"(f) The term `food' means (1) articles used for food or drink for man or other animals, (2) chewing gum, and (3) articles used for components of any such article."
Bourbon whiskey is obviously included among "articles used for food or drink for man" within the above definition; and I conclude that the Consumer Products Safety Act gives rise to no cause of action.
The second statute alleged to give rise to a federal claim is 27 U.S.C. § 205(e) and its accompanying regulation, 27 C.F.R. § 5.42(a)(1).
27 U.S.C. § 205(e) provides, in part, that it is unlawful to sell, ship, deliver, or to introduce in or to receive from interstate commerce, bottled alcoholic beverages unless they are labeled in conformity with such regulations prescribed by the Secretary of the Treasury as will prevent deception of the consumer as to the nature and quality of the products and as will provide the consumer with adequate information as to the identity and quality of the products.
The regulations with respect to labeling are contained in 27 C.F.R. §§ 5.1 through 5.56. § 5.55 requires that a bottler of distilled spirits secure a certificate of label approval from the Director, Alcohol, Tobacco and Firearm Division, Internal Revenue Service. The whiskey involved in this action was bottled and sold with a label previously approved by the Director, as shown below:
*4
The Board contends that the prior approval of the Ancient Age label by the Director would preclude a determination that the label contained any statement prohibited by § 5.42, and that in the clear absence of any violation of 27 U.S.C. § 205(e) and 27 C.F.R. § 5.42, an inquiry into the legislative intent with respect to private rights of action is unnecessary.
27 C.F.R. § 5.42(a)(1) provides, in part:
"(a) Bottles containing distilled spirits, or any labels on such bottles, . . . shall not contain:
(1) Any statement that is false or untrue in any particular or that, . . . tends to create a misleading impression." (Emphasis added.)
If the statute, 27 U.S.C. § 205(e), were a direct requirement as to labeling of merchandise, the plaintiff would have a reasonably strong case; and the absence of a legislative history showing a direct intent to confer private right of action upon injured persons would not be controlling. If the Secretary of the Treasury, pursuant to § 205(e), had issued a regulation requiring that packaged intoxicants bear a warning of the dangers of ethanol poisoning, it might fairly be inferred through such regulation pursuant to the statute that a private right of action naturally arose.
The trouble is that the labeling provisions of § 205(e) are not self-executing; they only come into effect when prescribed and only to the extent prescribed "by the Secretary of the Treasury with respect to packaging, marking, branding and labeling . . .."
*5 The Secretary of the Treasury has made no ruling which requires that the danger of drinking too much good whiskey be published on the bottles and packages; and in the absence of a statutory requirement or administrative regulation, it is this court's conclusion that Chapter 27 does not give rise to the private right of action asserted.
There is no evidence that the labeling was misleading except by the use of the word "mellowness" in the label's description of the contents. While it may be getting a little too deep into the facts, it appears fair to note that the plaintiff's intestate is not alleged to have been a neophyte in the drinking business, and that to anyone who has tasted bourbon whiskey of any stripe the word "mellowness" is a term totally meaningless except in the context of whiskies generally. I am unable to conclude that the use of this frequently used word in describing Kentucky bourbon is the type of representation which could amount to a violation of the pertinent statutes or regulations.
In short, it does not appear that a private right of action arises under 27 U.S.C. § 205(e).
All other pending questions and motions being hereby rendered moot, therefore, despite the fact that as a matter of public policy it could well be that legislatures should require more specific labeling concerning the dangers of beverage alcohol, I do not believe it is the business of this court to enact such legislation, and so IT IS ORDERED, ADJUDGED AND DECREED, that this action be and it is hereby dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1740397/ | 726 F. Supp. 156 (1989)
UNITED STATES of America, Plaintiff,
v.
Michael J. FISH, Defendant.
No. 89-CV-80439-DT.
United States District Court, E.D. Michigan, S.D.
November 27, 1989.
*157 Amy B. Hartmann, Asst. U.S. Atty., Detroit, Mich., for plaintiff.
Jill Leslie Price, Federal Defender, Federal Defender Office, Detroit, Mich., for defendant.
MEMORANDUM OPINION AND ORDER
ZATKOFF, District Judge.
This matter is before the Court on the government's motion for application of the enhanced sentencing provisions of the Armed Career Criminal Act, 18 U.S.C. § 924(e).
FACTS
The defendant, Michael J. Fish was convicted on September 20, 1989, following a jury trial, of unlawful possession of a firearm in violation of 18 U.S.C. § 922(g)(1). Prior to trial, the government filed its notice of intent to classify the defendant as an "Armed Career Criminal" within the meaning of 18 U.S.C. § 924(e). This section is entitled the Armed Career Criminal Act (hereafter ACCA).
On November 16, 1989, the Court conducted a hearing on the government's motion. After hearing argument and considering the briefs of the parties, the Court now makes its ruling.
LAW
The ACCA requires that a mandatory minimum 15-year term of imprisonment without the possibility of parole be imposed for a defendant who violates 18 U.S.C. § 922(g) and has been convicted three or more times of a violent felony or drug offense as defined in the ACCA.
The ACCA has defined a violent felony as:
... any crime punishable by imprisonment for a term exceeding one year or any act of juvenile delinquency involving the use or carrying of a firearm, knife, or destructive devise that would be punishable by imprisonment for such term if committed by an adult, that
(i) has as an element the use, attempted use, or threatened use of physical force against the person of another; or
(ii) is burglary, arson, or extortion, involves use of explosives, or otherwise involves conduct that presents a serious potential risk of physical injury to another.
18 U.S.C. § 924(e)(2)(B).
Before applying the enhanced sentencing provisions to defendant Fish, the Court must determine whether or not the defendant's prior criminal record contains at least three violent felonies in order to satisfy the requirements of the ACCA. United States v. Taylor, 882 F.2d 1018 (6th Cir. 1989). Defendant's prior felony convictions include: breaking and entering an occupied dwelling (1982), breaking and entering an unoccupied dwelling (1975), attempted breaking and entering a business place (1978), and attempted breaking and entering an occupied dwelling (1972).
The government submits that each of these prior convictions is a violent felony within the meaning of section 924(e). Therefore, the government contends that defendant's prior convictions satisfy the requirements of the ACCA, thus imposing the need for a 15-year mandatory minimum sentence.
In determining whether or not these prior convictions are violent felonies, the Court will first discuss the two burglary *158 convictions and then the two attempt convictions.
BURGLARY CONVICTIONS
Both the government and defendant Fish have acknowledged that burglary convictions are violent acts for purposes of the ACCA. However, defendant Fish claims that there is a split among the circuits as to whether or not common law burglary should be the only type of burglary considered violent under the ACCA. According to the defendant, the Fourth and Ninth Circuits have held that only common law burglary should be considered a violent felony for purposes of applying the ACCA. (Memorandum in Opposition to Specification of Defendant As An Armed Career Criminal, pg. 3).
This Court, however, is bound by the law of the Sixth Circuit. The Sixth Circuit has ruled that when determining whether an act is a violent act, for purposes of section 924(e), the ACCA does not limit burglary to its common law definition. Taylor, 882 F.2d at 1023. As a result, burglary entails more than the act of breaking and entering a dwelling during the nightime with the intent to commit a crime therein. Id. The Taylor court broadened the definition of what could be considered a violent act so as to include burglary convictions that would not necessarily have been common law burglaries. In doing so, the Taylor court ruled that breaking and entering an occupied dwelling and breaking and entering an unoccupied business place were crimes which constituted violent felonies under the ACCA. Taylor, 882 F.2d at 1018. Therefore, this Court may consider two of defendant's breaking and entering convictions as predicate acts or violent felonies for purposes of applying the sentencing enhancement guidelines. According to the defendant, this split among the circuits will inevitably need to be resolved by the Supreme Court. Therefore, defendant has only raised this issue to preserve it for appeal. (Memorandum in Opposition to Specification of Defendant As An Armed Career Criminal, pg. 3).
ATTEMPT CONVICTIONS
The defendant has challenged the use of two of his attempted breaking and entering convictions for purposes of sentence enhancement. According to defendant, the language of the statute does not specifically include the use of convictions for attempted burglary. The "catch all" language of § 924(e)(2)(B)(ii) indicates that actions which present a serious potential risk of physical injury to another are considered violent acts. Defendant claims that attempted burglary does not present this risk of injury to others. According to the defendant, an attempt is an uncompleted offense often resulting in a conviction even though the offender never arrived at the site of the attempted crime. (Memorandum In Opposition to Specification of Defendant As An Armed Career Criminal, pg. 3). The defendant submits that not all attempted burglaries present the same risk of harm to individuals as would be present had the offense been completed. Therefore, defendant has concluded that his attempt convictions do not pose the level of risk required by § 924(e)(2)(B)(ii) and should not be used for purposes of sentence enhancement.
The Court is not persuaded by defendant's argument. The Sixth Circuit has held that when determining whether or not a defendant's prior conviction was a violent felony, for purposes of § 924(e), reference is not made to the actual conduct involved, but rather to the statute under which [the conviction] was obtained. Taylor, 882 F.2d at 1023. Therefore, this Court need not concern itself with how close defendant may have been to actually completing the burglary offense. Likewise, the Court need not consider what risks or dangers the defendant actually created. Instead, this Court must consider whether or not defendant's attempt to commit burglary created a potential risk of injury to others.
In Michigan, an attempted burglary conviction requires the prosecution to prove beyond a reasonable doubt that the defendant intended to commit the crime of burglary. The prosecution must also prove that the defendant performed an act toward *159 committing the crime. This act must go beyond mere preparation such that the crime could have been completed without an interruption by independent and outside circumstances. (Michigan Criminal Jury Instructions, 9:1:01). Even though the defendant may not have completed the burglary offense, his attempt conviction represents an intention to commit the crime. In Michigan, any attempt to commit an offense is a specific intent crime. People v. Langworthy, 416 Mich. 630, 644, 331 N.W.2d 171 (1982).
In addition, courts have previously addressed the issue of attempted felonies as predicate acts for the purposes of the ACCA. In United States v. Sanders, 705 F. Supp. 396, 399 (N.D.Ill.1988), the court held that attempted burglaries constitute violent felonies under the ACCA. According to the Sanders court, an attempt involves substantially the same risk of injury as does the actual burglary. Id. Even though the burglary was not completed, the attempt involves the risk that the property owner may return, a neighbor may become involved, or a law enforcement officer may respond. Id.
This Court concludes that an attempted burglary conviction is a "violent felony" within the meaning of 18 U.S.C. § 924(e)(2)(B)(ii). An attempt to commit burglary is a specific intent crime requiring that the defendant intend to commit the crime and take a substantial step toward furthering the crime. Regardless of whether or not the burglary was accomplished, the defendant's mental state was the same. The defendant did intend to commit burglary. The fact that the defendant was unsuccessful does not lessen the potential danger of the crime. Section 924(e)(2)(B)(ii) does not require the defendant's action to have actually been dangerous when committed. Instead, the statute deals with actions which present a serious potential risk of injury to another. On any given occasion, an attempted burglary may in fact not be dangerous. However, an attempt does create a serious risk of harm to others. The attempt may be discovered while in progress. The property owner or a neighbor may intervene and confront the intruder. Police officers may investigate or pursue. In these instances, the persons involved will face a serious risk of physical injury. Congress clearly intended to include this type of potential risk when it drafted the ACCA. Therefore, this Court finds that attempted burglaries present substantially the same risks of injury as do burglaries. As a result, attempted burglary is a violent felony for purposes of the ACCA.
CONCLUSION
The Court, therefore, finds that the defendant's convictions for attempted burglary and burglary constitute the predicate violent felonies required for application of the enhanced sentencing provisions. The government's motion for application of enhanced sentencing provisions under the Armed Career Criminal Act is hereby GRANTED.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1752784/ | "587 F. Supp. 267 (1984)\nTUNIS BROTHERS COMPANY, INC., Richard N. de la Rigaudiere, and David C. Sm(...TRUNCATED) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1753005/ | "587 F. Supp. 893 (1984)\nPRUITT ELECTRIC COMPANY, Plaintiff,\nv.\nUNITED STATES DEPARTMENT OF LABOR(...TRUNCATED) | 01-03-2023 | 10-30-2013 |
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