SEC v Wilson; DOW CHEMICAL COMPANY, vs J. PEDRO REINHARD AND ROMEO KREINBERG; DOW CHEMICAL COMPANY vs J. PEDRO REINHARD, et al; Nickel Opinion Determing Standard of Review; Intermodal Opinion Granting NHTSA MSJ; Lone Tree Opinion Granting Defendant's MSJ; Kalahar Opinion Granting in Part and Denying

=== SEC v Wilson ===

1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 1 of 16 Pg ID 606 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CIVIL ACTION No. 12 cv 15062 JOEL I. WILSON, et al., HON. Thomas L. Ludington Defendants. ____________________________________/ ORDER TEMPORARILY APPOINTING SPECIAL MONITOR AND CORPORATE MANAGER WHEREAS the Securities and Exchange Commission (“SEC,” “Commission,” or “Plaintiff”) has conducted an investigation of Joel Wilson and entities with whom he is associated and has commenced this action alleging various violations of the securities laws, including fraud with respect to selling investments and in the operation of the related companies; WHEREAS in order to preserve the assets available for recovery by investors, the SEC filed a motion for the freeze of the assets of Defendant American Realty Fund Corporation (“American Realty” or the “Company”) and the appointment of a Receiver over the assets of American Realty; WHEREAS American Realty filed an opposition to the SEC’s motion for a receivership due to its belief that American Realty’s assets, value, and ability to meets its obligations will be adversely impacted by the imposition of a receivership; WHEREAS the SEC and American Realty agree that assets of American Realty should be preserved and options to maximize the value of American Realty’s operations and assets is in the best interest of creditors, investors, and shareholders of the Company; 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 2 of 16 Pg ID 607 WHEREAS the SEC and American Realty agree that it is in the interest of creditors, investors, and shareholders for an examination of American Realty’s finances and options and recommendations be made to the Court about alternatives to maximize the operations and asset value of American Realty; WHEREAS for the purpose of (a) performing an assessment of the viability of American Realty as a going business enterprise and options and alternatives for the future of the Company and (b) recommending to the Court the appropriate course of action for American Realty, the temporary appointment of a Special Monitor is desirable; WHEREAS for the purpose of (a) preserving assets of American Realty and (b) permitting American Realty to continue normal business operations, the temporary appointment of a Corporate Manager is desirable; and WHEREAS this Court has subject matter jurisdiction over this action and personal jurisdiction over American Realty, and venue properly lies in this district. NOW THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT: 1. The SEC’s motion for the appointment of a receiver is DENIED without prejudice. 2. The SEC’s motion for the freeze of assets is GRANTED in part and DENIED in part as set forth below. I. Appointment of Special Monitor and Corporate Manager 3. Until further order of this Court, Thomas McDonald is hereby approved to serve without bond as Special Monitor for American Realty. 4. Until further order of this Court, Michael Thomas is hereby approved to serve without bond as Corporate Manager for American Realty. Page 2 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 3 of 16 Pg ID 608 5. American Realty’s current Corporate Monitor, David Jarvis, will continue his position for a two-month period and assist the Special Monitor and Corporate Manager. 6. The current Board of Directors of American Realty will be available to assist and advise the Special Monitor and Corporate Manager, but will not exercise its traditional functions or assume its traditional duties during the interim period that the Special Monitor and Corporate Manager are appointed. American Realty may add additional Board members with the approval of the Court during this interim period. II. Asset Freeze 7. The Court hereby temporarily takes exclusive jurisdiction and possession of the assets, of whatever kind and wherever situated, of American Realty for the purpose of preserving the assets of the Company, including accounts held in the name of the Diversified Group LLC. Those accounts include, but are not limited to: FINANCIAL INSTITUTION ACCOUNT NUMBER ACCOUNT HOLDER Fifth Third Fifth Third Fifth Third Fifth Third Fifth Third Fifth Third 9290 8946 2411 7486 8278 0285 The Diversified Group LLC The Diversified Group LLC The Diversified Group LLC The Diversified Group LLC The Diversified Group LLC Diversified Group Management American Chartered Bank 1299 The Diversified Group LLC Frankenmuth Credit Union 4487 The Diversified Group Frankenmuth Credit Union 8620 The Diversified Group Frankenmuth Credit Union 9276 Diversified Group Bruno J Page 3 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 4 of 16 Pg ID 609 FINANCIAL INSTITUTION ACCOUNT NUMBER ACCOUNT HOLDER Sterne Agee Sterne Agee 9498 8834 Sterne Agee 3377 Sterne Agee 0275 Sterne Agee 8706 Sterne Agee 3537 Sterne Agee 3768 Sterne Agee 3190 Sterne Agee 5419 Sterne Agee 2920 Sterne Agee 8703 Page 4 of 16 Nolte LLC Diversified Group Part Mgt LLC Diversified Group Land Contract Limited Partnership 1 Diversified Group Land Contract Limited Partnership 2 Diversified Group Land Contract Limited Partnership 3 Diversified Group Land Contract Limited Partnership 4 Diversified Group Land Contract Limited Partnership 5 Diversified Group Land Contract Limited Partnership 6 Diversified Group Land Contract Limited Partnership 7 Diversified Group Land Contract Limited Partnership 8 Diversified Group Land Contract Limited Partnership 9 Diversified Group Land Contract Limited Partnership 10 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 5 of 16 Pg ID 610 FINANCIAL INSTITUTION ACCOUNT NUMBER ACCOUNT HOLDER Sterne Agee 6367 Sterne Agee 2081 Sterne Agee 8883 Sterne Agee 8254 Sterne Agee 2912 Sterne Agee 9245 Sterne Agee 4002 Frankenmuth Credit Union 4490 Fifth Third Fifth Third 9823 0301 Diversified Group Land Contract Limited Partnership 11 Diversified Group Land Contract Limited Partnership 12 Diversified Group Land Contract Limited Partnership 13 Diversified Group Land Contract Limited Partnership 14 Diversified Group Land Contract Limited Partnership 15 Diversified Group Land Contract Limited Partnership 16 Diversified Group Land Contract Limited Partnership 17 American Realty Funds Corporation American Realty Funds Corp American Realty Funds Corp 8. Except as otherwise specified herein, all assets of American Realty are frozen until further order of this Court. Accordingly, all persons and entities with direct or indirect control over any assets of American Realty, other than the Corporate Manager, are hereby restrained and enjoined from directly or indirectly transferring, setting off, receiving, changing, Page 5 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 6 of 16 Pg ID 611 selling, pledging, assigning, liquidating or otherwise disposing of or withdrawing such assets. This freeze shall include, but not be limited to, assets of American Realty that are on deposit with financial institutions such as banks, brokerage firms and mutual funds. III. General Powers and Duties 9. The Corporate Manager shall have all powers, authorities, rights and privileges heretofore possessed by the officers, directors, and managers of American Realty under applicable state and federal law, by the governing charters, by-laws, articles and/or agreements. 10. The powers of the trustees, directors, officers, managers, employees, investment advisors, accountants, and other agents of American Realty are hereby suspended. Such persons and entities shall have no authority with respect to American Realty’s operations or assets, except to the extent as may hereafter be expressly granted by the Corporate Manager. The Corporate Manager shall assume and control the operation of American Realty and shall pursue and preserve all of its claims. 11. No person holding or claiming any position of any sort with American Realty shall possess any authority to act by or on behalf of American Realty, unless so instructed by the Corporate Manager. 12. Subject to the specific provisions in Sections IV through XV, below, the Corporate Manager shall have the following general powers and duties: A. B. To use reasonable efforts to determine the nature, location and value of all property interests of American Realty, including, but not limited to, monies, funds, securities, credits, effects, goods, chattels, lands, premises, leases, claims, rights and other assets, together with all rents, profits, dividends, interest or other income attributable thereto, of whatever kind, which American Realty owns, possesses, has a beneficial interest in, or controls directly or indirectly; To take custody, control and possession of all American Realty’s property and records relevant thereto; to sue for and collect, recover, receive and take into possession from third parties all property of American Realty and records relevant thereto; Page 6 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 7 of 16 Pg ID 612 C. D. E. F. G. H. To manage, control, operate and maintain American Realty and hold in his possession, custody and control all property of American Realty, pending further Order of this Court; To use property of American Realty, making payments and disbursements and incurring expenses as may be necessary or advisable in the ordinary course of business in discharging his duties as Corporate Manager in maintaining the ordinary operations of the Company; To take any action which, prior to the entry of this Order, could have been taken by the officers, directors, partners, managers, trustees and agents of American Realty with respect to maintaining the ordinary operations of the Company; To engage and employ persons in his discretion to assist him in carrying out his duties and responsibilities hereunder and to continue the normal operations of the Company, including, but not limited to, accountants, attorneys, financial or business advisers, real estate agents, forensic experts, or brokers; To take such action as necessary and appropriate for the preservation of property of American Realty or to prevent the dissipation or concealment of property of American Realty; To pursue, resist and defend all suits, actions, claims and demands which may now be pending or which may be brought by or asserted against American Realty; and, I. To take such other action as may be approved by this Court. 13. Within 5 days of the entry of this Order, the Corporate Manager shall report to the SEC as to what actions he will undertake to fulfill his duties as the Corporate Manager. IV. Access to Information 14. American Realty and the past and/or present officers, directors, agents, managers, general and limited partners, trustees, attorneys, accountants and employees of American Realty, as well as those acting in their place, are hereby ordered and directed to preserve and turn over to the Special Monitor and Corporate Manager forthwith all paper and electronic information of, and/or relating to, American Realty and/or its property; such information shall include but not be Page 7 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 8 of 16 Pg ID 613 limited to books, records, documents, accounts and all other instruments and papers. 15. American Realty’s past and/or present officers, directors, agents, attorneys, managers, shareholders, employees, accountants, debtors, creditors, managers and general and limited partners, and other appropriate persons or entities shall answer under oath to the Special Monitor and Corporate Manager all questions which the Special Monitor and Corporate Manager may put to them and produce all documents as required by the Special Monitor and Corporate Manager regarding the business of American Realty, or any other matter relevant to the operation or administration of American Realty or the collection of funds due to American Realty. In the event that the Special Monitor or Corporate Manager deems it necessary to require the appearance of the aforementioned persons or entities, the Special Monitor or Corporate Manager shall make its discovery requests in accordance with the Federal Rules of Civil Procedure. V. Access to Books, Records and Accounts 16. The Special Monitor and Corporate Manager are authorized to take immediate possession of all bank accounts or other financial accounts, books and records and all other documents or instruments relating to American Realty. 17. Any persons receiving notice of this Order by personal service, facsimile transmission or otherwise, having possession of the property, business, books, records, accounts or assets of American Realty are hereby directed to deliver the same to the Special Monitor and Corporate Manager, their agents and/or employees. 18. All banks, brokerage firms, financial institutions, and other persons or entities which have possession, custody or control of any assets or funds held by, in the name of, or for the benefit of, directly or indirectly, and of American Realty that receive actual notice of this Order by personal service, facsimile transmission or otherwise shall: Page 8 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 9 of 16 Pg ID 614 A. B. C. Not liquidate, transfer, sell, convey or otherwise transfer any assets, securities, funds, or accounts in the name of or for the benefit of American Realty except upon instructions from the Corporate Manager; Not exercise any form of set-off, alleged set-off, lien, or any form of self- help whatsoever, or refuse to transfer any funds or assets to the Corporate Manager’s control without the permission of this Court; and Cooperate expeditiously in providing information and transferring funds, assets and accounts to the Corporate Manager or at the direction of the Corporate Manager. VI. Access to Personal Property 19. The Corporate Manager is authorized to take immediate possession of all personal property of American Realty, wherever located, including but not limited to electronically stored information, computers, laptops, hard drives, external storage drives, and any other such memory, media or electronic storage devices, books, papers, data processing records, evidence of indebtedness, bank records and accounts, savings records and accounts, brokerage records and accounts, certificates of deposit, stocks, bonds, debentures, and other securities and investments, contracts, mortgages, furniture, office supplies and equipment. The Corporate Manager shall make all records of American Realty available to the Special Monitor. 20. The Corporate Manager is authorized to open all mail directed to or received by or at the offices or post office boxes of American Realty, and to inspect all mail opened prior to the entry of this Order, to determine whether items or information therein fall within the mandates of this Order. 21. Upon the request of the Corporate Manager, the United States Marshal Service, in any judicial district, is hereby ordered to assist the Corporate Manager in carrying out his duties to take possession, custody and control of, or identify the location of, any assets, records or other materials belonging to American Realty. Page 9 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 10 of 16 Pg ID 615 VII. Notice to Third Parties 22. The Special Monitor and Corporate Manager shall promptly give notice of their appointments, as the Special Monitor and Corporate Manager deem necessary or advisable to effectuate the operation of their appointments. 23. All persons and entities owing any obligation or debt to American Realty shall, until further ordered by this Court, pay all such obligations in accordance with the terms thereof to the Corporate Manager and its receipt for such payments shall have the same force and effect as if American Realty had received such payment. 24. The Corporate Manager is authorized to instruct the United States Postmaster to hold and/or reroute mail which is related, directly or indirectly, to the business, operations or activities of American Realty (the “Corporate Manager’s Mail”), including all mail addressed to, or for the benefit of, American Realty. The Postmaster shall not comply with, and shall immediately report to the Corporate Manager, any change of address or other instruction given by anyone other than the Corporate Manager concerning the Corporate Manager’s Mail. American Realty shall not open any of the Corporate Manager’s Mail and shall immediately turn over such mail, regardless of when received, to the Corporate Manager. All personal mail of any individual, and/or any mail appearing to contain privileged information, and/or any mail not falling within the mandate of the Corporate Manager, shall be released to the named addressee by the Corporate Manager. The foregoing instructions shall apply to any proprietor, whether individual or entity, of any private mail box, depository, business or service, or mail courier or delivery service, hired, rented or used by American Realty. American Realty shall not open a new mailbox, or take any steps or make any arrangements to receive mail in contravention of this Order, whether through the U.S. mail, a private mail depository or courier service. 25. The Corporate Manager is authorized to assert, prosecute and/or negotiate any Page 10 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 11 of 16 Pg ID 616 claim under any insurance policy held by or issued on behalf of American Realty, or its officers, directors, agents, employees or trustees, and to take any and all appropriate steps in connection with such policies. VIII. Injunction Against Interference 26. The Defendants and all persons receiving notice of this Order by personal service, facsimile or otherwise, are hereby restrained and enjoined from directly or indirectly taking any action or causing any action to be taken, without the express written agreement of the Special Monitor and Corporate Manager, which would: A. B. C. Interfere with the Corporate Manager’s efforts to take control, possession, or management of any American Realty property; such prohibited actions include but are not limited to, using self-help or executing or issuing or causing the execution or issuance of any court attachment, subpoena, replevin, execution, or other process for the purpose of impounding or taking possession of or interfering with or creating or enforcing a lien upon any American Realty property; Hinder, obstruct or otherwise interfere with the Special Monitor and Corporate Manager in the performance of their duties; such prohibited actions include but are not limited to, concealing, destroying or altering records or information; Dissipate or otherwise diminish the value of any American Realty property; such prohibited actions include but are not limited to, releasing claims or disposing, transferring, exchanging, assigning or in any way conveying any American Realty property, enforcing judgments, assessments or claims against any American Realty or its property, attempting to modify, cancel, terminate, call, extinguish, revoke or accelerate (the due date), of any lease, loan, mortgage, indebtedness, security agreement or other agreement executed by American Realty or which otherwise affects any of its property; or, D. Interfere with or harass the Special Monitor and Corporate Manager, or interfere in any manner with the exclusive jurisdiction of this Court over American Realty. 27. The Defendants shall cooperate with and assist the Special Monitor and Corporate Manager in the performance of their duties. 28. The Special Monitor and Corporate Manager shall promptly notify the Court and Page 11 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 12 of 16 Pg ID 617 SEC counsel of any failure or apparent failure of any person or entity to comply in any way with the terms of this Order. IX. Stay of Litigation 29. As set forth in detail below, the following proceedings, excluding the instant proceeding and all police or regulatory actions and actions of the Commission related to the above-captioned enforcement action, are stayed until further Order of this Court: All civil legal proceedings of any nature, including, but not limited to, bankruptcy proceedings, arbitration proceedings, foreclosure actions, default proceedings, or other actions of any nature involving: (a) the Special Monitor and Corporate Manager, in their capacities as Special Monitor and Corporate Manager; (b) any American Realty property, wherever located; (c) American Realty, including subsidiaries, partnerships, and entities owned or controlled by American Realty; or, (d) any of American Realty’s past or present officers, directors, managers, agents, or general or limited partners sued for, or in connection with, any action taken by them while acting in such capacity of any nature, whether as plaintiff, defendant, third-party plaintiff, third-party defendant, or otherwise (such proceedings are hereinafter referred to as “Ancillary Proceedings”). 30. The parties to any and all Ancillary Proceedings are enjoined from commencing or continuing any such legal proceeding, or from taking any action, in connection with any such proceeding, including, but not limited to, the issuance or employment of process. 31. All Ancillary Proceedings are stayed in their entirety, and all Courts having any jurisdiction thereof are enjoined from taking or permitting any action until further Order of this Court. Further, as to a cause of action accrued or accruing in favor of American Realty against a third person or party, any applicable statute of limitation is tolled during the period in which this injunction against commencement of legal proceedings is in effect as to that cause of action. X. Managing Assets 32. The Corporate Manager may establish one or more custodial accounts at a federally insured bank to receive and hold all funds of American Realty. Such deposit accounts shall be entitled “Corporate Manager’s Account for American Realty.” Page 12 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 13 of 16 Pg ID 618 XI. Conflicts of Interest 33. The Special Monitor and Corporate Manager have a continuing duty to ensure that there are no conflicts of interest between the Special Monitor, Corporate Manager, their agents, and American Realty. XII. Limitations on Liability of Special Monitor, Corporate Manager and Directors 34. Until further Order of this Court, the Special Monitor and Corporate Manager shall not be required to post bond or give an undertaking of any type in connection with their fiduciary obligations in this matter. 35. During the interim period of this Order, the Special Monitor, Corporate Manager and their agents, or any member of the Board of Directors of the Company (“Director”) acting within scope of such agency are entitled to rely on all outstanding rules of law and Orders of this Court and shall not be liable to anyone for their own good faith compliance with any order, rule, law, judgment, or decree. In no event shall the Special Monitor, Corporate Manager or their agents or Director be liable to anyone for their good faith compliance with their duties and responsibilities as Special Monitor, Corporate Manager or their agents, or Director, nor shall the Special Monitor, Corporate Manager or their agents or Director be liable to anyone for any actions taken or omitted by them except upon a finding by this Court that they acted or failed to act as a result of malfeasance, bad faith, gross negligence, or in reckless disregard of their duties. This provision does not apply to any actions or failure to act as a result of malfeasance, bad faith, gross negligence, or in reckless disregard of the Director’s duties prior to the Commission’s lawsuit in this matter. 36. This Court shall retain jurisdiction over any action filed against the Special Monitor, Corporate Manager or their agents or a Director based upon acts or omissions committed in their representative capacities. Page 13 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 14 of 16 Pg ID 619 37. In the event the Special Monitor or Corporate Manager decides to resign, the Special Monitor or Corporate Manager shall first give written notice to the Commission’s counsel of record and the Court of its intention, and the resignation shall not be effective until the Court appoints a successor. The Special Monitor and Corporate Manager shall then follow such instructions as the Court may provide. Board members may resign with notice to or approval of the Court. XIII. Recommendations and Reports 38. Upon his appointment, the Special Monitor shall perform an assessment of the viability of American Realty as a going business enterprise and options and alternatives for the future of the Company. 39. Within 30 days of the entry date of this Order, the Special Monitor shall file with the Court and serve on the parties a report of his conclusions and recommendations. 40. In order to avoid the appearance of partiality, the Special Monitor will not serve as trustee or receiver if the Company should file for bankruptcy or the Court order a receivership. 41. The Court will hold a hearing on the recommendation of the Special Monitor after appropriate notice to interested parties who have standing to assert their support or objection to the recommendation of the Special Monitor. XIV. Fees, Expenses and Accountings 42. The Special Monitor and Corporate Manager need not obtain Court approval prior to the disbursement of American Realty’s funds for expenses in the ordinary course of the administration and management of American Realty. Further, prior Court approval is not required for payments of applicable federal, state or local taxes. 43. The Corporate Manager shall consult with the SEC in advance of any expenditure of $2,000 or more and/or the disposition or acquisition of any real or personal Page 14 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 15 of 16 Pg ID 620 property. 44. As the Court determines, the Special Monitor and Corporate Manager are entitled to compensation deemed to be reasonable and appropriate for their work and the work of their agents. The Special Monitor and Corporate Manager shall petition the Court for payment of such compensation. XV. Preservation of Rights and Privileges 45. Nothing in this Order shall be construed to require that Defendant Wilson abandon or waive any constitutional or legal privilege which he may have available to him. SO ORDERED: Dated: December 13, 2012 s/Thomas L. Ludington THOMAS L. LUDINGTON United States District Judge Stipulated and Approved as to Form and Substance: /s/John E. Birkenheier UNITED STATES SECURITIES AND EXCHANGE COMMISSION John E. Birkenheier 175 W. Jackson Blvd, Suite 900 Chicago, IL 60604 (312) 886-3947 [email protected] /s/ Raymond W. Henney HONIGMAN MILLER SCHWARTZ AND COHN LLP Raymond W. Henney (P35860) Attorneys for American Realty Funds Corporation 660 Woodward Avenue, Suite 2290 Detroit, MI 48226-3506 (313) 465-7410 [email protected] Page 15 of 16 1:12-cv-15062-TLL-CEB Doc # 21 Filed 12/13/12 Pg 16 of 16 Pg ID 621 PROOF OF SERVICE The undersigned certifies that a copy of the foregoing order was served upon each attorney or party of record herein by electronic means or first class U.S. mail on December 13, 2012. s/Tracy A. Jacobs TRACY A. JACOBS Page 16 of 16

=== DOW CHEMICAL COMPANY, vs J. PEDRO REINHARD AND ROMEO KREINBERG ===

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION DOW CHEMICAL COMPANY, Plaintiff, v. J. PEDRO REINHARD, ROMEO KREINBERG, Defendants. ___________________________________/ Case Number 07-12012-BC Honorable Thomas L. Ludington OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT KREINBERG’S MOTION TO DISMISS AND DISMISSING COUNTS III & V OF PLAINTIFF’S AMENDED COMPLAINT AS TO DEFENDANT KREINBERG On May 8, 2007, the plaintiff, Dow Chemical Company (Dow Chemical), filed suit against the defendants, J. Pedro Reinhard, who served as a member of its board of directors at the time of his termination, and Romeo Kreinberg, who served as one of its executive vice presidents at the time of his termination. In its amended complaint, Dow Chemical alleges claims of breach of fiduciary duty and breach of contract. Dow Chemical also requests declaratory judgment as to the parties’ respective obligations under certain equity awards contracts and as to Dow Chemical’s obligations under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001, et seq., including providing COBRA1 notice to the defendants. Now before the Court is Kreinberg’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). I. Kreinberg served most recently as an executive vice president at Dow Chemical, until the 1The Consolidated Omnibus Budget Reconciliation Act (COBRA), 29 U.S.C. § 1161 et seq., provides for notice of health care continuation coverage. company ended his employment on April 12, 2007. According to Dow Chemical’s amended complaint, Kreinberg joined Dow Chemical in 1977, holding a variety of leadership positions in Europe and, most recently, serving as an executive vice president and a member of Dow Chemical’s executive leadership committee. Dow Chemical alleges that Kreinberg’s roles made him intimately familiar with strategic corporate decisions and gave him access to sensitive, proprietary, and confidential information. Dow Chemical further claims that he also had a material role in formulating corporate policy and strategy. Dow Chemical maintains that these positions imposed on Kreinberg fiduciary duties, including those of candor and undivided loyalty. Indeed, Dow Chemical claims that it commenced a “new strategic initiative” in July 2006, and, according to Dow Chemical, Kreinberg had a key role in the execution of that plan. Dow Chemical alleges that, shortly thereafter, reports began to circulate that Dow Chemical would be involved in a major transaction. According to Dow Chemical, those “press reports clouded [its] future, distracted [it] from its business objectives, and roiled its management and employees. Accordingly, Dow [Chemical] began an effort to assuage these negative effects on Dow [Chemical]’s business, determine the source of these rumors, and assess their validity.” Am. Cplt., ¶ 21 [dkt #4]. Three newspaper articles, dated January 18, 2007, February 25, 2007, and March 12, 2007, reported the possibility of a break-up bid for and/or a leveraged buyout of Dow Chemical. Dow Chemical alleges that Kreinberg knew of these reports, but that he did not inform Dow Chemical of any information that he might have had about these rumors. Id. at ¶¶ 23, 24, 26, 28. Dow Chemical states that it sought to establish the possible basis for and source of these rumors by -2- inquiring within the investment banking and financial community. Although these rumors were allegedly discussed at two board meetings (on February 14, 2007 and March 16, 2007), Dow Chemical maintains that Kreinberg did not indicate that he had any knowledge of these potential transactions. Dow Chemical asserts that Kreinberg responded to an employee’s e-mail inquiry about one of these articles as follows, “E se non evero, e ben trovato. Which means in [I]talian, if its not true its well invented.” Id. at ¶ 30 (punctuation as in amended complaint). On April 8, 2007, another newspaper article reported that a buyout of Dow Chemical could be nearing completion. Dow Chemical asserts that within 48 hours of that story’s publication, a major financial institution shared information with Dow Chemical regarding these potential transactions. Dow Chemical claims that, on April 9, 2007, it issued a press release denying any discussions of a leveraged buyout. Dow Chemical alleges that Kreinberg did not volunteer any information at this point. Id. at ¶¶ 34, 36. Dow Chemical maintains that, on that same date, its chief executive officer (CEO), Andrew Liveris, met with the CEO of a financial institution. The financial institution’s CEO related that the London affiliate of his institution was working on behalf of Middle Eastern investors on a variety of potential transactions regarding Dow Chemical, including a purchase of the entire entity. He also conveyed that persons close to Dow Chemical were involved in the discussions. According to Dow Chemical, on April 10, 2007, the financial institution’s CEO contacted Liveris to identify Kreinberg as one of the Dow Chemical employees involved in discussions with third parties and with the financial institution about the possible buyout. Dow Chemical alleges that, on April 11, 2007, Liveris shared this information with Dow -3- Chemical’s presiding director and the chair of the audit committee. At a board meeting that day, board members unanimously agreed on the credibility of the information and to terminate the Kreinberg’s employment. Dow Chemical claims that, on April 12, 2007, Liveris, along with others, met separately with Reinhard and then with Kreinberg. Both allegedly denied the allegations and provided no explanation. Dow Chemical states that Kreinberg’s employment was terminated and that the executive committee of the board then voted to remove him as an officer. Dow Chemical recites that, under contracts made pursuant to an award and option plan from 1988,2 it provides awards of stock options, performance awards, deferred stock, and dividend units. According to Dow Chemical, the plan provides for its compensation committee to interpret and administer the plan. Dow Chemical further states that these equity awards contracts terminate at the end of employment and provide for terminating a benefit under the agreement, if the party engages in any activity harmful to the interests of Dow Chemical. Similar provisions apply to its dividend unit plan, according to Dow Chemical. Finally, Dow Chemical asserts that the equity awards contracts provide for prompt repayment of benefits received under them, if the compensation committee determines that a party has engaged in activity harmful to the interests of Dow Chemical. Dow Chemical states that its compensation committee did not conclude that Kreinberg had retired from Dow Chemical. It alleges that it authorized its employees to take steps to freeze, 2A plain reading of the amended complaint leaves some ambiguity as to the relationship between the 1988 plan and particular agreements that result in particular awards. At this stage of the proceedings, it suffices to say that Dow Chemical has alleged that common language and common decisions govern the propriety of these awards. Accordingly, the Court will here refer collectively to the “equity awards agreements,” although subsequent discovery and filings may clarify the relevance of and distinctions between, if any, the 1988 plan and related agreements. -4- terminate, or reclaim remuneration and benefits previously awarded to Kreinberg. According to Dow Chemical, at the time of his termination, Kreinberg had an estimated $15 million in outstanding equity awards and had realized an estimated $5 million in the three years prior to the end of his employment with the company. Dow Chemical further asserts that Kreinberg forfeited benefits under an ERISA plan, of which Dow Chemical is the plan administrator, and that he forfeited coverage under COBRA. To reiterate, Dow Chemical filed suit against its former employees,3 alleging claims of breach of fiduciary duty and breach of contract. Dow Chemical also seeks, for purposes of this motion, declaratory judgment regarding Kreinberg’s obligations under the equity awards contracts, Dow Chemical’s obligations under the equity awards contracts, and regarding the parties’ respective obligations as to an ERISA plan, including Dow Chemical’s obligations to provide COBRA notice. II. Motions to dismiss are governed by Rule 12(b) of the Federal Rules of Civil Procedure, which allows for dismissal for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). “The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true.” 3Two other cases, allegedly arising out of the same set of circumstances, were filed on the same day. Kreinberg filed suit in state court in New York, and Dow Chemical then removed the case to federal court. Reinhard filed suit in federal court in New York. Both of those cases have subsequently been transferred to the Northern Division of the United States District Court for the Eastern District of Michigan. See 07-13235-BC, Kreinberg v. Dow Chemical Co., Liveris; 07- 13581-BC, J. Pedro Reinhard v. Dow Chemical Co., Liveris. In 07-13235-BC, Kreinberg v. Dow Chemical Co., Liveris, Dow Chemical filed a counterclaim that mirrors its claims here. Kreinberg there brought a motion to dismiss on grounds similar to those he advances here. A separate opinion and order will address that motion on grounds similar to those discussed here. -5- Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993). When deciding a motion under that Rule, “[t]he court must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief.” Cline v. Rogers, 87 F.3d 176, 179 (6th Cir. 1996). “[A] plaintiff's obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombley, 127 S.Ct. 1955, 1965 (2007) (citations omitted); see also Columbia Natural Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995) (“[W]hile liberal, this standard of review does require more than the bare assertion of legal conclusions.”). In Twombley, 127 S.Ct. at 1965, the Supreme Court continued, “Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” (Citations omitted). “In practice, ‘a . . . complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.’” In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988 . Kreinberg argues that the Court should apply Federal Rule of Civil Procedure 9(b) for the heightened pleading requirement required in actions for fraud to the claim of a breach of fiduciary duty. He seeks to recharacterize Dow Chemical’s claim as one for fraud, citing to the amended complaint’s “deception and betrayal” language. Although a party might conceivably apply a label other than “fraud” to fraudulent conduct, as described in Rogers v. Baxter International, Inc., 417 F.Supp.2d 974, 984 (N.D. Ill. 2006), the -6- instant case does not require the heightened pleading requirement for a claim of fraud. Dow Chemical’s amended complaint alleges a generalized breach of fiduciary duty and specifically notes the duties of loyalty and candor. Also, the amended complaint maintains that Kreinberg, according to the financial institution’s CEO, engaged in unauthorized discussions regarding the sale of Dow Chemical with third parties. Consequently, a failure to disclose does not represent the sole theory of Dow Chemical’s breach of fiduciary duty claim. As such, Kreinberg may not recharacterize Dow Chemical’s claim for it, so as to insist on a higher pleading standard. See Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987) (describing the plaintiff as the master of the complaint). Thus, Plaintiff’s complaint need only meet the requirement, under Rule 8(a), of a short and plain statement showing entitlement to relief. III. A first principle of the law addressing corporate governance is that corporations exist to maximize value for their owners, the shareholders. See Principles of Corporate Governance: Analysis and Recommendations § 2.01 (American Law Institute 1994, updated 2007). Shareholders, however, do not directly manage the corporation. See Principles of Corporate Governance § 3.01; Del. Code tit. 8, § 141(a), (k). Shareholders elect a board of directors, and the board of directors then undertakes the responsibility to manage the corporation on behalf of the shareholders. See Model Business Corporation Act (MBCA) § 8.01(b). The board of directors, in turn, selects officers who implement the strategies the board best believes serve the interests of the company’s shareholders. See Principles of Corporate Governance §§ 3.01, 3.02; MBCA §§ 8.40, 8.41; Del. Code tit. 8, § 142(b). In this way, a corporation’s board of directors, officers, and employees, each in their respective capacities, act to advance the interests of the shareholders. See generally Lyman -7- P.Q. Johnson and David Millon, Recalling Why Corporate Officers Are Fiduciaries, 46 Wm. and Mary L. Rev. 1597, 1605-1609 (2005). A. Claim of Breach of Fiduciary Duty In order to advance the American legal model of corporate governance, the law presumes that directors and officers of a corporation have unique obligations to further the interests of the corporation generally and its owners specifically. In Guth v. Loft, 5 A.2d 503, 510 (Del. 1939),4 the Delaware Supreme Court described the fiduciary duties of directors and officers: Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its stockholders. A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest. The occasions for the determination of honesty, good faith and loyal conduct are many and varied, and no hard and fast rule can be formulated. The standard of loyalty is measured by no fixed scale. At present, Delaware law does not differentiate between the fiduciary duties of directors and officers. 1-14 Delaware Corporation Law and Practice § 14.02 (2006); but see In re the Walt Disney Co. Litigation, Unpublished Docket No. 15452; 2004 Del. Ch. Lexis 132, *14 (Del. Ch. 2004) (noting that no such distinction has been made to date). 4No party, at this juncture, disputes that Delaware law governs, given that the law of the state of incorporation generally governs issues pertinent to a corporation’s internal affairs. See First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 621 (1983) (citing Restatement 2d of Conflict of Laws § 302 (1971 ; Atherton v. Federal Deposit Insurance Corp., 519 U.S. 213, 223-224 (1997). -8- Delaware law treats the duties of directors and officers as a triad of duties of good faith, loyalty, and due care. See Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1164 (Del. 1995). Good faith is best shown by its absence, such as by an intentional act contrary to law or to the best interests of the corporation or by an intentional failure to act in the face of a known duty to act, which shows a disregard for a director’s duties. See Stone v. Ritter, 911 A.2d 362, 369 (Del. 2006) (citations omitted); but see Orman v. Cullman, 794 A.2d 5, 14 n.3 (Del. Ch. 2002) (treating good faith as a subsidiary requirement of loyalty) (citation omitted). “[T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.” Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993). Due care requires directors and officers to act on an informed basis. Id. at 367. In Hollinger International, Inc. v. Black, 844 A.2d 1022, 1060-1062 (Del. 2004), an investment institution contacted a director of a company to explore a potential purchase of an asset of the company. Instead of directing any such proposal through a board-approved consideration process, the director, inter alia, diverted the opportunity to himself, mislead his co-directors about his conduct, did not disclose his dealings with the investment institution, and used confidential corporate information to advance the director’s and not the company’s interests. Id. at 1061-1062. The court found this conduct incompatible with a duty of loyalty. Id. at 1062; see also HMG/Courtland Properties, Inc. v. Gray, 749 A.2d 94, 119 (Del. 1999) (stating that directors have “an ‘unremitting obligation’ to deal candidly with their fellow directors”) (citation omitted). This duty carries with it the obligation to disclose any interest a director may have in a transaction. Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150, 181 (Del. Ch. 2005) (citation omitted). -9- In his brief here, Kreinberg devotes substantial argument to the legal standards applicable to a duty to disclose. Kreinberg’s argument is misplaced, because he assumes that Dow Chemical only alleges a breach of fiduciary duty on that basis. That assumption does not accurately reflect the complaint, which also asserts that he participated in unauthorized discussions about the possible sale of the company. Additionally, Kreinberg’s argument incorrectly separates a duty to disclose into its own discrete breach, rather than treating it as one manner by which a breach of a duty of loyalty could occur. For instance, Kreinberg cites to Chiarella v. United States, 445 U.S. 222, 228 (1980), for the proposition that fraud based on a failure to disclose only occurs when a person is under a duty to disclose. Yet Kreinberg overlooks the Court’s next statement, which describes how a duty to disclose arises from the existence of a fiduciary relationship. Id. Kreinberg’s discussion of the materiality of the content of disclosure or whether the complainant already had knowledge of the information not disclosed, see Solomon v. Armstrong, 747 A.2d 1098, 1131 (Del. Ch. 1999),5 then ceases to be relevant at this stage of the proceedings. Here, the breadth of the obligation placed on directors and officers leaves room for the allegations against Kreinberg to support a claim of a breach of fiduciary duty to its management and its board of directors. Dow Chemical maintains that Kreinberg did not provide information of which he was aware about a potential offer for the company. More importantly, Dow Chemical alleges that 5For similar reasons, Kreinberg’s interest in cases such as O’Reilly v. Transworld Healthcare, Inc., 745 A.2d 902, 917 (Del. Ch. 1999), which required pleading causation and quantifiable damages in a shareholder action for nondisclosure, is not informative in a case that does not necessarily involve nondisclosure (and that certainly does not involve shareholders). To the extent that Dow Chemical must allege injury and causation, it has done so by stating that it devoted efforts to identifying the source and content of rumors about the buyout, that those rumors affected its corporate health, and that Kreinberg failed to reveal information he had about those rumors or his participation in the events that drove them. -10- he participated – without authorization – in discussions about a potential offer for the company. If true, it seems difficult to conclude that he did not breach his duty of loyalty to his management and the company’s board, similar to the defendant in Hollinger International, or to conclude that he met his “unremitting obligation” to deal candidly with the corporation’s directors, as in HMG/Courtland Properties or Benihana International. Here, if Dow Chemical succeeds in proving the truth of its allegations, then a corporate officer would not have advised the board of and participated in third parties’ efforts to set a new trajectory for the company, rather than permitting the board to set corporate policy in a fully informed manner. Instead of the board of directors assessing and determining how to maximize shareholder value, if Dow Chemical’s allegations prove true, Kreinberg explored an avenue toward that end without the input of the board of directors of the corporate entity to which he answered. Construing the amended complaint in favor of Dow Chemical and accepting its allegations as true, for purposes of this motion, Kreinberg has not shown that Dow Chemical is unable to prove a set of facts on which it would be entitled to relief. Also, Dow Chemical has provided more than conclusory labels and factual allegations as required by Twombley. For example, the allegation that Kreinberg participated in discussions about a possible buyout raises Dow Chemical’s assertions above mere speculation. Thus, the Court will deny Kreinberg’s motion to dismiss as to count I, the claim of a breach of fiduciary duty. B. Claim of Breach of Contract Under Delaware law, a claim of breach of contract requires a showing of the following elements: (1) the existence of the contract, either express or implied; (2) a breach of an obligation under that contract; and (3) damage to the plaintiff from that breach. VLIW Technology, L.L.C. v. -11- Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003) (citation omitted). Here, Dow Chemical alleges the existence of a variety of contracts governing equity awards. Although Dow Chemical does not provide the precise contract language from the several contracts that it alleges similarly govern these awards over time, it does maintain that its complaint includes representative samples of the language at issue. Dow Chemical further asserts that the contract requires prompt repayment of awards issued under those contracts, if the compensation committee determines that a party to the contract has taken an action contrary to the interests of Dow Chemical. Beyond that, Dow Chemical claims that its compensation committee determined that Kreinberg took action contrary to Dow Chemical’s interests, that the contracts reserved total discretion on that point to the compensation committee, and that Dow Chemical was injured by Kreinberg’s failure to promptly repay amounts allegedly due back to Dow Chemical. As with the claim of a breach of fiduciary duty, Dow Chemical’s amended complaint does “contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.’” In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (citations and internal quotations omitted). Because Kreinberg has not shown that no set of facts exists on which relief could be granted to Dow Chemical, the Court will deny Kreinberg’s motion to dismiss as to count II, the claim of a breach of contract. C. Requests for Declaratory Judgment The Declaratory Judgment Act (DJA), in 28 U.S.C. § 2201(a), provides: In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such. -12- “The general tests applied in determining whether to exercise jurisdiction in a declaratory judgment action are whether the judgment will serve a useful purpose in clarifying and settling the legal relationships in issue and whether it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” Aetna Cas. Surety Co. v. Sunshine Corp., 74 F.3d 685, 687 (6th Cir. 1996) (citations and internal quotations omitted). In Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000), the Sixth Circuit outlined the factors for assessing the propriety of a federal court’s exercise of discretion in such a situation: (1) whether the judgment would settle the controversy; (2) whether the declaratory judgment action would serve a useful purpose in clarifying the legal relations at issue; (3) whether the declaratory remedy is being used merely for the purpose of “procedural fencing” or “to provide an arena for a race for res judicata”; (4) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction; and (5) whether there is an alternative remedy that is better or more effective. (Citations omitted). Most importantly, a court’s discretion to issue a declaratory judgment under the DJA does not and, indeed, cannot permit a court to render an advisory opinion in the absence of an actual case or controversy under Article III of the Constitution. 12 Moore’s Federal Practice 3d § 57.22[1] (2006). Also, the DJA does not separately create jurisdiction; rather, a federal court must already have jurisdiction on some independent basis. Toledo v. Jackson, 485 F.3d 836, 839 (6th Cir. 2007). As to counts III and IV, Dow Chemical’s requests for declaratory judgment as to the parties’ respective obligations under the equity awards contracts, Kreinberg argues that this avenue of relief duplicates that in count II, a claim for breach of contract. As such, Kreinberg contends that -13- declaratory judgment is redundant, because the claim of breach of contract will dispose of the issues of the parties’ respective obligations. Dow Chemical counters that its count IV and its prayer for relief specifically request a decision concluding that Dow Chemical has no further obligation to Kreinberg under the equity awards contracts. The breach of contract claim, then, would not be duplicative because resolution of that issue could not address the matter of Dow Chemical’s obligations, if any. Dow Chemical’s argument overlooks the possibility that count III – declaratory judgment as to Reinhard and Kreinberg’s obligations under the equity awards plan – is duplicative of a claim for breach of contract. Count III can be separately dismissed, while still permitting Dow Chemical to seek declaratory judgment as to its own future obligations, if any, under the equity awards contracts. As Dow Chemical correctly contends, however, its prospective obligations under those contracts would go undetermined by a disposition of a claim for breach of contract. Although the claim of breach of contract would resolve one basis for dispute between Dow Chemical and Kreinberg, the precise terms of the contracts at issue have not yet been presented to the Court. The particular terms of the equity awards contracts might impose, for example, future obligations on Dow Chemical, independent of any breach. Alternatively, the equity awards contracts might include a provision regarding compensation earned prior to any purported breach which may result in a vested benefit. Without access to the terms of the equity awards contracts at this juncture in the proceedings, the Court cannot conclude that there is no set of facts exists in which Dow Chemical has a separate set of obligations to Kreinberg under the equity awards contracts, regardless of any breach of contract. Thus, unlike count III, the factors identified in Scottsdale, do not militate in -14- favor of dismissing count IV. Applying those factors, declaratory judgment regarding the parties’ obligations under the equity awards contracts would likely settle the controversy. Yet a determination of liability on the breach of contract claim would do the same, but it could not settle Dow Chemical’s prospective obligations, if the contract terms imposed separate such obligations. Next, to the extent that a declaratory judgment duplicated the result of another claim, such a judgment would not serve a useful purpose in clarifying the legal relations at issue. That is, a declaratory judgment regarding Kreinberg’s obligations under the contracts would not improve on a determination of Kreinberg’s liability for a purported breach of contract. In contrast, a declaratory judgment regarding Dow Chemical’s obligations under the contracts might, depending on the terms of the contracts, differ from the disposition of a breach of contract claim and, thus, could clarify the legal obligations of the parties further. Whether these declaratory judgment requests serve a disapproved procedural tactic or implicate any concern for respect for state courts is not apparent at this juncture. Yet neither seem likely in litigation that can proceed in federal court based on diversity jurisdiction under 28 U.S.C. § 1332. Further, as with the first two factors, it does seem likely that an alternative remedy, i.e., Dow Chemical’s claim for breach of contract, is a better and more effective mechanism for addressing the issues presented in count III. The possibility of some overlap between counts II and IV, however, does not require that Dow Chemical exclusively pursue either a claim of breach of contract or a request for declaratory judgment regarding Dow Chemical’s prospective obligations under the equity awards contracts. Although similar findings of fact and conclusions of law may largely -15- govern the outcome of both, the potential for different remedies prevents count II from being a true alternative to count IV. That is, without more information about the content and structure of the equity awards contracts, the Court cannot now conclude that any purported breach by Kreinberg will exactly correspond to a determination of the prospective obligations of Dow Chemical to him, if any. Consequently, the Court will grant Kreinberg’s motion to dismiss as to count III but deny his motion to dismiss as to count IV, which involves Dow Chemical’s prospective obligations under the equity awards contracts. Finally, the Court will consider count V, Dow Chemical’s request for declaratory judgment as to its obligation to Reinhard and Kreinberg under ERISA to, inter alia, provide notice of coverage under COBRA. Generally, COBRA benefits permit an employee to elect to continue health care coverage for, usually, 18 months after a qualifying event, such as the end of employment. See 29 U.S.C. § 1162(2). The employer may require the former employees to pay a premium for the continuation of coverage. 29 U.S.C. § 1162(3). The statute also sets out the requirements for providing notice of COBRA benefits after termination of employment and particularly provides for the timing of that notice. 29 U.S.C. § 1166. Exempted from the qualifying events that require notice of benefits, however, is the termination of employment for “reason of [an] employee’s gross misconduct.” 29 U.S.C. § 1163(2). In its amended complaint, Dow Chemical states that it did not provide COBRA notice to Kreinberg. Kreinberg argues that no actual controversy exists, because he has not challenged Dow Chemical’s election not to provide him notice of his COBRA benefits. Dow Chemical responds that these facts are not hypothetical but anticipate Kreinberg’s contention that he did not engage in gross misconduct, which is Dow Chemical’s basis for declining to provide him COBRA notice. -16- As previously noted, the DJA does not independently confer federal subject matter jurisdiction, and a court cannot issue an advisory opinion under the DJA, absent an actual case and controversy. As the Supreme Court reiterated in MedImmune, Inc. v. Genentech, Inc., ___ U.S. ___; 127 S.Ct. 764, 771 (2007), “[T]he dispute [must] be definite and concrete, touching the legal relations of parties having adverse legal interests; and [must] be real and substantial and admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” (Citations and internal quotations omitted). Dow Chemical has not here identified any basis on which it faces a coercive dilemma that requires it to choose between rights and the risk of prosecution, such as the cost and expense of a patent enforcement action anticipated by the plaintiff in MedImmune. Instead, Dow Chemical may yet face a claim from Kreinberg – if he chooses to challenge its election not to provide him notice of his COBRA rights. The events that would permit Kreinberg to advance such a claim have, seemingly, already transpired. In contrast, the central event that would transform that issue into a case or controversy – that Kreinberg disputes Dow Chemical’s election not to provide him notice of the opportunity to continue his health care coverage – has not. Accordingly, Dow Chemical’s count V presents the Court with a request for declaratory judgment over which the Court has no jurisdiction, because Dow Chemical seeks a determination of rights based on a hypothetical situation that has not yet occurred. The Court will consequently grant Kreinberg’s motion to dismiss as to count V as to Kreinberg, the request for declaratory judgment as to Dow Chemical’s COBRA notice obligations. IV. For the foregoing reasons, the Court will grant in part and deny in part Kreinberg’s motion -17- to dismiss, granting dismissal as to counts III and V but permitting counts I, II, and IV to remain. Regarding count I, Dow Chemical alleges that Kreinberg participated in discussions about a possible buyout of the company and failed to disclose information he had about those discussions. If true, as the Court must assume on a motion to dismiss, Kreinberg would have violated his fiduciary duties as described in Guth v. Loft, 5 A.2d 503 (Del. 1939). Regarding count II, Dow Chemical alleges that Kreinberg failed to promptly repay monies previously issued after its compensation committee determined that he had acted contrary to Dow Chemical’s interests. If true, as the Court must assume on a motion to dismiss, Kreinberg would have breached his contract with Dow Chemical. In counts III and IV, Dow Chemical seeks declaratory judgment regarding Kreinberg’s and Dow Chemical’s separate obligations under the equity awards contracts. Because declaratory judgment as to Kreinberg’s obligations would result in the duplication of any disposition of the claim of a breach of contract, declaratory judgment on that point would not further clarify the legal relationship between the parties, as required by 28 U.S.C. § 2201, in light of Scottsdale Ins. Co. v. Roumph, 211 F.3d 964 (6th Cir. 2000). Yet declaratory judgment as to Dow Chemical’s obligations under those same contracts, depending on the terms of those contracts, might involve prospective obligations on Dow Chemical that differ from any determination of liability (if any) for a breach of contract. Thus, declaratory judgment as to count IV could yet clarify the legal relationship between the parties, so count IV will remain while count III is dismissed. In count V, Dow Chemical seeks declaratory judgment regarding its obligations under ERISA to provide Kreinberg with notice regarding COBRA benefits. No case or controversy exists under Article III of the United States Constitution to support Dow Chemical’s request for -18- declaratory judgment on this point, because Kreinberg has not yet challenged for any purported failure of notice. Accordingly, it is ORDERED that Kreinberg’s motion to dismiss [dkt #15] is GRANTED IN PART and DENIED IN PART. Counts III and V of Dow Chemical’s amended complaint are DISMISSED as to Kreinberg. s/Thomas L. Ludington THOMAS L. LUDINGTON United States District Judge Dated: September 20, 2007 PROOF OF SERVICE The undersigned certifies that a copy of the foregoing order was served upon each attorney or party of record herein by electronic means or first class U.S. mail on September 20, 2007. s/Tracy A. Jacobs TRACY A. JACOBS -19-

=== DOW CHEMICAL COMPANY vs J. PEDRO REINHARD, et al ===

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION Case Number 07-12012-BC Honorable Thomas L. Ludington DOW CHEMICAL COMPANY, Plaintiff, v. J. PEDRO REINHARD, ROMEO KREINBERG, Defendants. -and- J. PEDRO REINHARD, ROMEO KREINBERG, Counterclaimants, v. DOW CHEMICAL COMPANY, ANDREW N. LIVERIS, Counterdefendants. -and- J. PEDRO KREINBERG, Third-Party Plaintiff, v. J.P. MORGAN CHASE AND COMPANY, Third-Party Defendant. ___________________________________/ ORDER GRANTING J.P. MORGAN CHASE AND COMPANY’S MOTION TO DISMISS KREINBERG’S THIRD PARTY COMPLAINT, DISMISSING WITH PREJUDICE KREINBERG’S THIRD PARTY COMPLAINT, DISMISSING JPMC AS A THIRD PARTY DEFENDANT, DENYING KREINBERG’S MOTION FOR LEAVE TO SUPPLEMENT HIS RESPONSE TO JPMC’S MOTION TO DISMISS, AND DENYING JPMC’S MOTION TO STAY DISCOVERY On February 11, 2008, the Court held a hearing to address three pending motions in this case, which involves the termination of the employment of the defendants, J. Pedro Reinhard and Romeo Kreinberg, by the plaintiff, Dow Chemical Company (Dow Chemical). Those motions include the following: (1) J.P. Morgan Chase and Company’s (JPMC) motion to dismiss Kreinberg’s third party complaint against JPMC, under Federal Rule of Civil Procedure 12(b)(2) & (6) [dkt #54]; (2) Kreinberg’s motion to supplement his response to JPMC’s motion to dismiss [dkt #94]; and (3) JPMC’s motion to stay discovery as to JPMC, pending the disposition of its motion to dismiss [dkt #113]. The Court will grant JPMC’s motion to dismiss Kreinberg’s third party complaint, although only on the basis of its challenge under Federal Rule of Civil Procedure 12(b)(6). As to JPMC’s challenge to the existence of personal jurisdiction, the Court will deny the motion. Additional discovery to investigate jurisdictional facts, given the demonstration of communications across JPMC’s corporate boundaries, is warranted to resolve whether JPMC had sufficient contacts with Michigan to establish personal jurisdiction over it. As to JPMC’s challenge that Kreinberg failed to state a claim on which relief can be granted, the Court will grant the motion. Michigan law bars Kreinberg’s claim of contribution against JPMC. Further, the Court will deny as moot the two associated motions, Kreinberg’s motion to supplement his response to JPMC’s motion to dismiss and JPMC’s motion to stay discovery as to JPMC, pending the disposition of the instant motion to dismiss. -2- I. Factual Allegations Dow Chemical filed an amended complaint against Reinhard and Kreinberg on May 16, 2007, alleging, inter alia, breach of fiduciary duty. Regarding Kreinberg, Dow Chemical alleged that, over the course of more than 30 years, he rose to the position of one of its most senior and trusted executives, serving most recently as an executive vice president and on Dow Chemical’s executive leadership committee. On October 12, 2007,1 Kreinberg filed his third party complaint against JPMC. There, he asserts a single claim of contribution against JPMC, predicated on Dow Chemical’s claim against him for breach of fiduciary duty. Generally, without broaching the discussion of conflict of laws addressed below, contribution means that a tortfeasor has a right to collect from others responsible for the same tort after the tortfeasor pays more than his or her proportionate share.2 Thus, Kreinberg seeks to require JPMC to contribute to any judgment against him, should a jury find him liable to Dow Chemical for a breach for fiduciary duty. Although a court’s review of a motion to dismiss is generally limited to a complaint’s pleadings, both JPMC and Kreinberg have filed extensive additional documentation with their briefs. For instance, JPMC provides its Securities and Exchange Commission Form 10-K for 2006 (SEC 10-K)3 and the affidavit of its assistant general counsel and assistant general secretary, which 1Kreinberg, pursuant to his interpretation of a stipulated protective order entered on August 14, 2007, filed his third party complaint under seal. In light of Kreinberg’s pending motion to unseal his third party complaint, filed on January 22, 2008, the Court will not here address whether the protective order required him to file his third party complaint under seal. The Court will discuss Kreinberg’s third party complaint, however, to the extent necessary to resolve JPMC’s motion to dismiss it. Additionally, on January 22, 2008, Kreinberg filed an unredacted version of his third party complaint, but not the exhibits referenced in his October 12, 2007 filing. 2Black’s Law Dictionary (8th ed. 2004). 3JPMC Mot. to Dismiss Kreinberg’s 3d Party Cplt., Ex. 2-C [dkt #54]. -3- describes JPMC’s corporate structure and contacts with Michigan. Kreinberg provided materials responsive to those jurisdictional allegations, as well as other materials. The Court will limit its inquiry, as well as the subsequent recitation of factual allegations, to the pleadings and to facts relevant to considering the existence of personal jurisdiction, as required by the standard of review on a motion under Federal Rule of Civil Procedure 12(b)(2) & (6). A. Kreinberg’s Third Party Complaint Kreinberg contends that JPMC began discussions with foreign investors regarding the acquisition of Dow Chemical in late 2006. He maintains that, although JPMC had a long-standing relationship as a financial adviser to Dow Chemical, JPMC did not disclose those efforts to Dow Chemical. According to JPMC’s SEC 10-K of 2006, JPMC is a financial holding company, with several subsidiaries. These subsidiaries include JPMorgan Chase Bank, N.A., a national banking association; Chase Bank USA, N.A., a national banking association; and J.P. Morgan Securities, Inc., a United States investment banking firm. These subsidiaries “operate nationally as well as through overseas branches and subsidiaries, representative offices and subsidiary foreign banks.” JPMC Mot. to Dismiss Kreinberg’s 3d Party Cplt., Ex. 2-C [dkt #54]. In materials used to pitch a possible business transaction, the following description appears: JPMorgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities, Inc., J.P. Morgan plc, J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in Asia-Pacific, and lending, derivatives and other commercial banking activities are performed by JP Morgan Chase Bank, N.A. JPMorgan deal team members may be employees of any of the foregoing entities. Kreinberg Rs., Decl., Ex. 4 [dkt #79]. An entity bearing the name “JPMorgan” operates an office -4- in Detroit, Michigan, and Kreinberg provided a declaration stating that JPMorgan Chase Bank, N.A. operates over 200 branches in Michigan. Id. at Decl. ¶ 11 and Ex. 11. Additionally, a division within JPMorgan Chase Bank, N.A. recently secured as a client the Department of Treasury of the State of Michigan. Id. at Ex. 10. In his third party complaint, Kreinberg states that, in January and February 2007, JPMC initiated the analysis of a transaction involving Dow Chemical. Indeed, JPMC’s efforts toward a transaction involving Dow Chemical may have pre-dated 2007, as suggested by information received in discovery and attached as exhibits to Kreinberg’s response. A banker at JPMorgan Cazenove, allegedly a joint venture of JPMC with a London firm, submitted a conflicts clearance form to JPMC’s conflicts office on December 11, 2006, regarding a prospective buyout of Dow Chemical. Id. at Ex. 16. In that conflicts form, which inquires whether conflicts exist “globally,” the banker advises that he has kept a member of JPMC’s executive and operating committees informed of the progress of this potential transaction. Id.; see also id. at Ex. 37. The following day, the JPMC conflicts office responded via e-mail, noting that “[a] conflict exists as [JPMC] is currently advising [Dow Chemical regarding another transaction].” Id. at Ex. 16. Kreinberg maintains that, notwithstanding the potential for a conflict of interest, JPMC did not reveal its work on a possible takeover to Dow Chemical. Kreinberg maintains that JPMC, instead, continued to work on the prospective transaction. Media reports circulated regarding a possible purchase of Dow Chemical, and Dow Chemical allegedly made inquiries to entities such as JPMC about the source and veracity of those rumors. For example, on February 21, 2007, an e- mail circulated to another member of the JPMC executive committee, reiterating the concern over a possible conflict of interest and also advising of the progress of the possible transaction. Id. at -5- Exs. 18, 37. That same day, the same member of the JPMC executive committee stated in a different e-mail: My understanding is that we were going to do some work but make no commitments here. I believe we have to have a very exhaustive discussion before we take on a more formal role here. I am incredibly uncomfortable with this as of this moment. Id. at Ex. 19. On February 22, 2007, an e-mail directed to at least two members of JPMC’s executive and operating committees provided an update on the project. Id. at Ex. 21. Also, a document or presentation slide to introduce the team working toward any deal, dated March 13, 2007, indicates that a co-CEO of “JPMorgan Investment Bank” would serve as a managing director on the transaction and that five individuals with e-mail addresses with the domain “jpmorgan.com” would serve in leadership roles. Id. at Ex. 17. Kreinberg claims that JPMC then sought to ascertain the viability of a bid for Dow Chemical by meeting with managers of Dow Chemical, such as Kreinberg. He represents that, on February 27, 2007 and without advance notice to him, representatives from JPMC joined a meeting and inquired about how Dow Chemical would respond to a bid overture. He asserts that he responded unequivocally that Dow Chemical would “circle the wagons” in opposition to such a bid. He claims that the JPMC representatives then advised their superiors that Dow Chemical management would not support the buyout under consideration. He further maintains that, although JPMC ceased its dealings with the foreign investor, JPMC continued to solicit participation by private equity groups. For instance, a letter from the banker at JPMorgan Cazenove on February 28, 2007 advised the prospective purchaser of developments in the project and indicated plans for a meeting with the co-CEO of the “global JPMorgan investment bank, as a sign of JPMorgan’s support for this project.” Id. at Ex. 24. -6- Kreinberg alleges that, in March 2007, another media rumor again suggested the possibility of a buyout of Dow Chemical. Kreinberg maintains that, despite JPMC’s awareness of these efforts, it did not then advise Dow Chemical of them, or of the solicitation of Kreinberg’s opinion on them. According to Kreinberg, Dow Chemical’s chief financial officer, Geoffrey Merszei, spoke to two bankers at JPMC, who related to him that they had worked with a client that was targeting Dow Chemical. Merszei allegedly registered his opinion that JPMC had engaged in a conflict of interest. He also purportedly expressed his sense of betrayal. He allegedly demanded that JPMC seek to win back Dow Chemical’s trust by ceasing such activities. Kreinberg asserts that, on April 9, 2007, the day after another media publication regarding a possible buyout of Dow Chemical, JPMC’s chief executive officer (CEO), Jamie Dimon, and another JPMC banker traveled to Midland, Michigan. JPMC’s CEO and that senior banker joined Dow Chemical’s CEO, Andrew Liveris,4 and Merszei for dinner. Kreinberg alleges that, during the course of the meal, Liveris made clear that JPMC “could curry favor by helping him implicate Kreinberg” and, so, salvage JPMC’s business relationship with Dow Chemical. Kreinberg 3d Party Cplt., ¶ 51. According to Kreinberg, on April 10, 2007, JPMC’s CEO spoke with Liveris via telephone. In that conversation, JPMC’s CEO allegedly advised Liveris that Kreinberg, among others, had been in communication with JPMC regarding a possible transaction involving Dow Chemical. Kreinberg states that Liveris reported this conversation to Dow Chemical’s board of directors on April 11, 2007 and that the board then voted to end Kreinberg’s employment. Kreinberg asserts 4Both Reinhard and Kreinberg have named Liveris as a counterdefendant in their respective counterclaims. -7- that Dow Chemical purposely avoided referring to JPMC in its announcement of Kreinberg’s termination. B. Dow Chemical’s Amended Complaint Because Kreinberg predicates his claim of contribution on Dow Chemical’s claim of a breach of fiduciary duty against him, review of Dow Chemical’s amended complaint is necessary to the Court’s analysis. Indeed, Kreinberg cites to Dow Chemical’s amended complaint in his third party complaint. There, Dow Chemical asserts that Kreinberg engaged in unauthorized discussions regarding a proposed buyout of the company and then failed to disclose those discussions to Dow Chemical’s more senior management or its board of directors. Over the span of its 26-page complaint, however, Dow Chemical does not elaborate on the precise nature of the injury that purportedly resulted from Kreinberg’s alleged breach. Dow Chemical does allege that Kreinberg’s conduct warranted the forfeiture of certain employee benefits. Dow Chemical Am. Cplt., ¶¶ 46-58 [dkt #4]. Indeed, Dow Chemical claims that Kreinberg was due or had previously received contractual benefits in the form of stock options, performance shares, deferred stock, and dividend units, valued at an estimated $20 million.5 Id. at ¶¶ 47-56. On April 12, 2007, however, a compensation committee, whose membership is unidentified, reached a final determination that he engaged in conduct harmful to the company’s interests and, so, authorized the “claw-back” of previously earned remuneration and benefits to Kreinberg. Id. at ¶ 55. The methodology for the “claw-back” of benefits is not included in Dow Chemical’s amended complaint, nor is there any explanation of who succeeds to Kreinberg’s former benefits. 5Pertinent to these allegations, Dow Chemical has also advanced a claim of breach of contract and a request for declaratory judgment as to Dow Chemical’s obligations under a series of contracts providing for equity awards. -8- In addition to its extended reference to those contractual terms, Dow Chemical’s otherwise open-ended pleadings allow for the inference that it suffered some other, more generalized injury than the allegedly unjustified payment of salary and benefits to Kreinberg. This generalized injury may be damages consequent to participation in, or even possible initiation of, a buyout transaction; this generalized injury may be the disclosure of such a potential transaction to the public or members of the media. The greatest detail about its injury, as stated in Dow Chemical’s amended complaint, appears in the following allegations: “These rumors [regarding a possible hostile takeover of Dow Chemical] were doing great damage to [Dow Chemical] and were highly disruptive. As a result of [Reinhard’s and Kreinberg’s] breaches of fiduciary duty, [Dow Chemical] has been damaged in an amount to be proven at trial.” Dow Chemical Am. Cplt., ¶¶ 62-63 [dkt #4]. Additionally, Dow Chemical stated, “These press reports clouded [Dow Chemical’s] future, distracted . . . from its business objectives, and roiled its management and employees, [requiring Dow Chemical to begin] an effort to assuage these negative effects on [its] business, determine the source of these rumors, and assess their validity.” Id. at ¶ 21; see also id. at ¶¶ 23, 26, 28, 34 (characterizing the press rumors as “disruptive,” “damaging,” and “a matter of great concern”). Because contribution generally means (without broaching the discussion of conflict of laws addressed below) a tortfeasor’s right to collect from others responsible for the same tort after the tortfeasor pays more than his or her proportionate share,6 Kreinberg’s claim of contribution 6Black’s Law Dictionary (8th ed. 2004). -9- necessarily turns on the extent of Dow Chemical’s claim against him.7 The lack of factual particularity in Dow Chemical’s allegations of the scope of Kreinberg’s responsibility for its injuries, where injury is a necessary element of any tort claim, leaves the Court similarly uncertain as to the extent of damages that Dow Chemical seeks from Kreinberg alone. Correspondingly, the extent of Kreinberg’s claim of contribution against JPMC – predicated on Dow Chemical’s indeterminate assertion of injury resulting from a purported breach of fiduciary duty – remains necessarily imprecise. II. Standard of Review Federal Rule of Civil Procedure 12(b)(2) provides for dismissal of a complaint for lack of personal jurisdiction over a party. The party asserting the existence of personal jurisdiction bears 7As outlined above, Dow Chemical’s amended complaint describes its purported injury in broad terms. Some additional detail on how Dow Chemical might articulate its alleged injury appears in its response to an interrogatory from Reinhard regarding monetary damages suffered by Reinhard’s alleged breach of fiduciary duty. Dow Chemical provided the following description of its alleged damages: [Dow Chemical] was forced to expend time and resources investigating the truth of the rumors regarding a potential hostile leveraged buyout of [Dow Chemical]; [Dow Chemical] incurred legal expenses preparing for a potential hostile bid for the company; [Dow Chemical] employees were distracted from their regular work duties by the rumors regarding a potential hostile leveraged buyout of [Dow Chemical]; [Dow Chemical’s] relationships with its partners and customers was impacted by the rumors regarding a potential hostile leveraged buyout of [Dow Chemical]; [Dow Chemical] incurred increased financing costs and the market perception of [Dow Chemical’s] creditworthiness was adversely affected; and [Dow Chemical’s] reputation and goodwill was harmed by Mr. Reinhard’s participation in the planning of a potential hostile leveraged buyout. Reinhard Mot. to Compel Discovery, Ex. 9, Rs. to Interrog. 8, filed on November 11, 2007 [dkt #14-10 of civil case 07-13851]. Although Reinhard filed this exhibit under seal, pursuant to his interpretation of the protective order, counsel for both Dow Chemical and Reinhard referred to this interrogatory response in open court. -10- the burden of showing its existence. See CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1261-1262 (6th Cir. 1996) (citation omitted). A court does not weigh the contrary assertions of the party seeking dismissal under Rule 12(b)(2), and “[d]ismissal . . . is proper only if all the specific facts which the plaintiff . . . alleges collectively fail to state a prima facie case for jurisdiction.” Id. at 1262 (citations omitted). If, however, a court holds no hearing regarding the jurisdictional facts, then the court must consider the pleadings and affidavits in a light most favorable to the plaintiff. Id. If necessary, a court may permit a plaintiff discovery to investigate jurisdictional facts pertinent to a motion to dismiss for lack of personal jurisdiction. Theunissen v. Matthews, 935 F.2d 1454, 1465 (6th Cir. 1991) (citation omitted). Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a claim upon which relief can be granted.” “The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true.” Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993). When deciding a motion under that rule, “[t]he court must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief.” Cline v. Rogers, 87 F.3d 176, 179 (6th Cir. 1996). “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombley, 127 S.Ct. 1955, 1965 (2007) (citations omitted); see also Columbia Natural Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995) (“[W]hile liberal, this standard of review does require more than the bare assertion of legal conclusions.”). In Twombley, -11- 127 S.Ct. at 1965, the Supreme Court continued, “Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” (Citations omitted). “In practice, ‘a . . . complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.’” In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993) (quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988 . III. Legal Analysis JPMC challenges Kreinberg’s complaint on two grounds. First, JPMC asserts that the Court lacks personal jurisdiction over JPMC. Second, JPMC argues that, because Michigan law applies to Kreinberg’s claim of contribution, he cannot state a claim for contribution based on Dow Chemical’s claim against him for breach of fiduciary duty. A. Personal Jurisdiction Pursuant to Federal Rule of Civil Procedure 12(b)(2), JPMC contests whether the Court has personal jurisdiction over it. “Personal jurisdiction over an out-of-state defendant arises from ‘certain minimum contacts with [the forum] such that maintenance of the suit does not offend traditional notions of fair play and substantial justice.’” Air Products & Controls, Inc. v. Safetech International, Inc., 503 F.3d 544, 549 (6th Cir. 2007) (quoting International Shoe v. Washington, 326 U.S. 310, 316 (1945 . Personal jurisdiction may be general, i.e., based on a defendant’s systematic and continuous contacts with a state, even if those contacts do not relate to the claims at issue, or specific, i.e., based on a suit arising out of a defendant’s contacts with the state. See Third Nat’l Bank v. WEDGE Group, Inc., 882 F.2d 1087, 1089 (6th Cir. 1989); Helicopteros Nacionales de Columbia, S.A. v. -12- Hall, 466 U.S. 408, 416-418 (1984). Because of the closeness of the question regarding whether specific jurisdiction exists over JPMC, the following analysis will concentrate only on the principles involved in assessing whether specific jurisdiction exists. A court sitting in diversity applies the law of the state in which it sits to determine whether it has personal jurisdiction over a non-resident defendant, although constitutional due process requirements still apply. Id. Thus, the Court must determine whether Michigan’s long-arm statute, Mich. Comp. Laws § 600.715, authorizes the exercise of specific jurisdiction over JPMC and whether such an exercise of jurisdiction comports with due process. Air Products, 503 F.3d at 550. Mich. Comp. Laws § 600.715 provides: The existence of any of the following relationships between a corporation or its agent and the state shall constitute a sufficient basis of jurisdiction to enable the courts of record of this state to exercise limited personal jurisdiction over such corporation and to enable such courts to render personal judgments against such corporation arising out of the act or acts which create any of the following relationships: (1) The transaction of any business within the state. (2) The doing or causing any act to be done, or consequences to occur, in the state resulting in an action for tort. (3) The ownership, use, or possession of any real or tangible personal property situated within the state. (4) Contracting to insure any person, property, or risk located within this state at the time of contracting. (5) Entering into a contract for services to be performed or for materials to be furnished in the state by the defendant. At a minimum, Kreinberg’s allegations support the conclusion that JPMC transacted business within Michigan and entered into a contract to perform services in Michigan. For instance, based on a 2006 summary, JPMC managed over $1.2 billion of Dow Chemical pension fund assets, processed 17% of Dow Chemical’s receivable collections in North America, and was ranked by Dow Chemical as “#3 among [Dow Chemical] bank relationships.” Kreinberg Rs. Decl., Ex. 34 [dkt #79]. A similar -13- summary follows for 2005, also reciting significant financial transactions performed by JPMC on behalf of Dow Chemical. Id. Thus, the exercise of personal jurisdiction comports with Michigan’s long-arm statute. The Sixth Circuit’s standard for determining whether the exercise of personal jurisdiction under a state’s long-arm statute meets the requirements of due process is as follows: First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant’s activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable. Southern Machine Co., Inc. v. Mohasco Industries, Inc., 401 F.2d 374, 381 (6th Cir. 1968). Under Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985), purposeful availment does not result from random, fortuitous, or attenuated contacts with the forum state. Rather, deliberately engaging in significant activities in the forum state, or creating continuing obligations there, shows how a party avails itself of the privileges of conducting business in a state and, thus, benefits from the protections of the forum state’s laws. Id. at 475-476 (citations omitted); see also Air Products, 503 F.3d at 552; CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1265-1267 (6th Cir. 1996). Here, JPMC’s CEO boarded a plane and flew to Michigan to address the events that culminated in Kreinberg’s termination. Also, JPMC’s CEO made phone calls regarding the same issues to executives at Dow Chemical. Yet these individual contacts may not, of themselves, suffice to show significant and ongoing obligations in Michigan. Kreinberg has offered documentation that members of JPMC’s executive and operating committees were kept appraised of the progress of the potential buyout transaction and that an executive at “JP Morgan Investment Bank” was involved in the project plans. A person employed at JPMorgan Cazenove submitted a conflicts clearance -14- form to a central office at JPMC, and a JPMC executive expressed concern about the possibility of a conflict of interest. The fluidity with which this information passed through entities associated, in some manner, with JPMC creates the likelihood that the participants in the proposed transaction were officers or employees of entities that conduct business in Michigan. JPMC’s SEC 10-K, which describes JPMC’s subsidiaries, leaves open the possibility that entities doing business in Michigan, such as JPMorgan Chase Bank, N.A. or the “JPMorgan” office in Detroit, Michigan, are the same entities (or at least closely integrated entities) whose officers or employees participated in preparing the buyout transaction. Given this possibility and the myriad evidence provided by Kreinberg, the Court is persuaded that he has made a sufficient showing to engage in discovery to investigate further the jurisdictional facts pertinent to the issue of personal jurisdiction. See Theunissen, 935 F.2d at 1465 (citation omitted). Regarding the second element of the due process test, whether the cause of action “arises from” activities in Michigan, the Sixth Circuit has characterized this as a “lenient standard.” Air Products, 503 F.3d at 553. “This factor does not require that the cause of action formally ‘arise from’ [the] defendant’s contacts with the forum; rather, this criterion requires only that the cause of action, of whatever type, have a substantial connection with the defendant’s in-state activities.” Bird v. Parsons, 289 F.3d 865, 875 (6th Cir. 2002) (citations and internal quotations omitted). Even with the “lenient” standard applicable here and the requirement for Kreinberg to establish only a prima facie showing of personal jurisdiction, a demonstration of whether Kreinberg’s claim for contribution arises from JPMC’s activities in Michigan would also be enhanced through additional discovery, much like the element of purposeful availment. Entities associated with JPMC do engage in activities in Michigan. Whether any of those entities engage -15- in investment banking, for instance, would inform on whether a substantial connection exists to Kreinberg’s claim of contribution from JPMC. The appearance that communications (if not influence and direction) extended across corporate boundaries, such as from investment banking entities to a central JPMC conflicts office, and even to JPMC officers, suggests that certain types of in-state activities might have linked Kreinberg’s claim to JPMC’s connections with Michigan. Given the vast and varied structure to JPMC’s affiliates, further discovery would clarify whether the jurisdictional facts exist to support an exercise of personal jurisdiction over JPMC by this Court. Finally, to comport with due process, the existence of personal jurisdiction over JPMC requires reasonableness, that is, “the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state.” Southern Machine, 401 F.2d at 381. A court must then assess such factors as the following: “(1) the burden on the defendant; (2) the interest of the forum state; (3) the plaintiff’s interest in obtaining relief; and (4) other states’ interest in securing the most efficient resolution of the policy.” Air Products, 503 F.3d at 554-555 (citation omitted). Here, JPMC has little ground to argue the unreasonableness of defending an action in this district. In April 2007, its CEO allegedly arranged for a plane to this location to discuss JPMC’s interests in the matter and its prospective relationship with Dow Chemical. Michigan has a substantial interest in torts that purportedly occurred within its borders and that involve corporations headquartered here. Kreinberg, too, has a substantial interest in obtaining relief for harm allegedly suffered from the dealings between JPMC and Dow Chemical. Finally, while other states may have an interest in protecting their citizens, those interests do not diminish the efficiency available by resolving this matter in Michigan. -16- Accordingly, the exercise of personal jurisdiction over JPMC is consistent with Mich. Comp. Laws § 600.715 and, as required by the due process inquiry, is reasonable in light of the connection of the consequences of JPMC’s purported actions to Michigan. As to the other elements of the due process inquiry for exercising personal jurisdiction, purposeful availment and a claim that “arises from” activities in the forum, the Court concludes that additional discovery regarding the jurisdictional facts would be warranted. But for JPMC’s argument based on Kreinberg’s failure to state a claim, the Court would set parameters for that further discovery and a subsequent determination regarding the existence of personal jurisdiction over JPMC would then follow. B. Conflict of Laws Under Erie R. v. Tompkins, 304 U.S. 64 (1938), a federal district court sitting in diversity applies the conflict of laws rules of the state in which it sits. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496 (1941); Muncie Power Products, Inc. v. United Technologies Automotive, Inc., 328 F.3d 870, 873 (6th Cir. 2003). Thus, the controlling conflict of laws principles here are those employed by Michigan. Michigan’s conflict of laws rule states that Michigan law applies “unless a ‘rational reason’ to do otherwise exists.” Sutherland v. Kennington Truck Serv., Ltd., 562 N.W.2d 466, 471 (Mich. 1997). To determine whether to displace Michigan law, a court must consider whether a foreign state has an interest in the application of its law and, if so, whether Michigan’s interests mandate that Michigan’s law applies, despite the interests of the foreign state. Id. (citing Olmstead v. Anderson, 400 N.W.2d 292, 301 (Mich. 1987 . “If no state has . . . an interest [in the application of its law], the presumption that Michigan law will apply cannot be overcome.” Id. Factors to be considered in assessing whether Michigan’s interests have priority over the interests of a foreign state include -17- considerations of promoting certainty, predictability of results, ease of application, and preventing forum shopping. See Olmstead, 400 N.W.2d at 302. Here, JPMC contends that Michigan law governs, while Kreinberg contends that Delaware law governs. JPMC is incorporated in Delaware and has a place of business in New York.8 The factual allegations include contact with representatives of JPMC in New York. Thus, the jurisdictions, apart from Michigan, that might have an interest in the application of their laws are Delaware and New York.9 Kreinberg’s third party complaint, however, substantially narrows the geographic field pertinent to a conflict of laws analysis, based on his own allegations. There, he mentions very few geographic locations beyond Midland, Michigan. He references the possible involvement in the purported buyout plans of the government of a foreign nation, a few English citizens, and a meeting in England. He does state that representatives of JPMC, including its CEO, had telephone conversations with representatives of Dow Chemical, but he includes no factual allegation about the location of the JPMC officers and employees. Next considering the geographic allegations from Dow Chemical’s amended complaint, Dow Chemical there asserts that JPMC’s CEO flew from New York to meet Dow Chemical’s CEO in Midland, Michigan. Although any actions taken by JPMC representatives may well have occurred in New York, no pleading so indicates. Thus, nothing in the pleadings supports concluding that New York has any interest in these proceedings based on the 8In his third party complaint, Kreinberg does not state JPMC’s state of incorporation or principal place of business, or any means of assessing its citizenship. With its brief in its motion to dismiss, JPMC provides an affidavit that states that JPMC is incorporated in Delaware and has a place of business in New York. 9Kreinberg is a resident of Florida, but, as no allegation involves conduct in Florida, the Court will devote no further attention to Florida’s interests. -18- alleged conduct. Similarly, no allegations refer to events occurring in Delaware. Thus, Delaware’s only interest is that of corporations incorporated there. Here, neither JPMC or Dow Chemical,10 the two corporations incorporated in Delaware, seek to have the law of that state apply to Kreinberg’s contribution claim. Instead, Kreinberg defends the predictability of having Delaware law govern issues pertinent to a corporation’s internal affairs and suggests the irregularity of applying the law of different jurisdictions to an underlying claim and a derivative claim. See General Motor Corp. v. Nat’l Auto Radiator Manufacturing Co., Ltd., 694 F.2d 1050, 1054 (6th Cir. 1982). Notably, the Sixth Circuit reached its decision in General Motor Corp., without the benefit of the Michigan Supreme Court’s later decisions in Olmstead and Sutherland. Still, Delaware does have an interest in the application of its law, i.e., the interest of protecting corporations incorporated under its laws. Assuming that Delaware has that sole interest, Michigan’s interests may still mandate that Michigan law applies. See Sutherland, 562 N.W.2d at 471. Applying the law of the state of incorporation of a third party defendant would do little to promote certainty or predictability of results. Additionally, notwithstanding the well-developed nature of Delaware law as it applies to corporations, the ease of application of Michigan law in a court situated and well-versed in Michigan law is undoubtable. Also, the consideration of forum shopping has little bearing on this analysis, where neither JPMC or Kreinberg initiated litigation in this forum. Most importantly, many of the alleged events that form the basis of Kreinberg’s third party complaint occurred in Michigan, Dow Chemical’s principal place of business is Michigan, and Michigan has an interest in having its law apply to injuries allegedly sustained here. Thus, Kreinberg’s invocation of Delaware’s interest in 10Dow Chemical has not filed a response to this motion. -19- internal corporate governance does not overcome Michigan’s strong presumption in favor of the application of the law of the forum, particularly where Kreinberg’s claim for contribution turns on JPMC’s purported duty to Dow Chemical, rather than on the conduct of corporate officers. Kreinberg also relies on the Court’s previous order on September 20, 2007, in which the Court applied Delaware law when deciding his motion to dismiss Dow Chemical’s complaint against him. First, Michigan courts have not foreclosed the possibility of the doctrine of depecage, by which a court may apply the law of different states to different issues in the same case. See Olmstead, 400 N.W.2d at 294 n.3; Bonelli v. Volkswagen of America, Inc., 421 N.W.2d 213, 225 n.6 (Mich. Ct. App. 1988) (applying New York law to a contract issue and Michigan law to a tort issue). Next, JPMC’s motion to dismiss Kreinberg’s third party complaint repeats a posture encountered earlier in this litigation: not all parties have participated in the motion in which the choice of law arises. In the earlier motion, the court lacked the benefit of briefing by Reinhard, and in the instant motion, the Court lacks the benefit of briefing from Dow Chemical, Liveris, and Reinhard. Indeed, in the prior order, the Court observed in a footnote that all the parties to that motion assumed that Delaware law applied to those claims and did not argue to apply another state’s law. Noting that fact, the Court relied on the internal affairs doctrine to conclude that the law of the state of incorporation, Delaware, governed a claim arising out of the internal affairs of a corporation. See First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 621 (1983) (citing Restatement 2d of Conflict of Laws § 302 (1971 . In light of Delaware’s significant interest in the application of its law to the internal affairs of corporations incorporated there, see McDermott, Inc. v. Lewis, 531 A.2d 206, 214-218 (Del. 1987), Delaware’s interests required the displacement of Michigan law in favor of Delaware’s law, at least as to a corporation’s claim of a breach of -20- fiduciary duty against a former executive. See Sutherland, 562 N.W.2d at 471. For the reasons discussed above, however, Michigan’s law applies to Kreinberg’s separate claim of contribution against JPMC. C. Contribution As acknowledged by Kreinberg’s counsel at argument, applying Michigan law forecloses Kreinberg’s claim of contribution against JPMC. The Michigan contribution statute does not permit contribution claims based on a breach of fiduciary duty. Additionally, Michigan’s tort reforms of 1995 largely eliminated contribution claims, because joint and several liability was eliminated and replaced with a mechanism for allocating fault by percentage to each person, including non-parties to the litigation.11 At common law, Michigan courts have described contribution as follows: The general rule of contribution is that one who is compelled to pay or satisfy the whole or to bear more than his aliquot share of the common burden or obligation, upon which several persons are equally liable or which they are bound to discharge, is entitled to contribution against the others to obtain from them payment of their respective shares. Caldwell v. Fox, 231 N.W.2d 46, 54 (Mich. 1975). That common law definition has subsequently been supplanted by a statutory scheme for contribution. See Mich. Comp. Laws §§ 600.2925a - 600.2925d. Although a claim for contribution once existed at common law, “[t]he right to contribution is controlled entirely by statute.” Isabella County v. State of Michigan, Dep’t of State 11Both parties devoted significant argument to whether JPMC bears a fiduciary duty to Dow Chemical, but the conclusion that Kreinberg cannot pursue a contribution claim against JPMC under Michigan law obviates the need to attend to those arguments. -21- Police, 449 N.W.2d 111, 112 (Mich. Ct. App. 1989).12 1. Claim of Breach of Fiduciary Duty as Bar to Contribution The first basis for concluding that Kreinberg cannot seek contribution from JPMC derives from the express terms of Michigan’s contribution statute. Mich. Comp. Laws § 600.2925a(1) and (2) define contribution as follows: (1) Except as otherwise provided in this act, when 2 or more persons become jointly or severally liable in tort for the same injury to a person or property or for the same wrongful death, there is a right of contribution among them even though judgment has not been recovered against all or any of them. (2) The right of contribution exists only in favor of a tort-feasor who has paid more than his pro rata share of the common liability and his total recovery is limited to the amount paid by him in excess of his pro rata share. A tort-feasor against whom contribution is sought shall not be compelled to make contribution beyond his own pro rata share of the entire liability. Thus, a tortfeasor may seek contribution from a co-tortfeasor if the latter is severally liable for the same injury, even absent a judgment, when a tortfeasor has paid more than a pro rata share of common liability.13 A later subsection of the statute, however, bars claims of contribution for breaches of fiduciary duty. Specifically, Mich. Comp. Laws § 600.2925a(8) provides, “This section does not apply to breaches of trust or of other fiduciary obligations.” See Fidelity Deposit Co. of Maryland v. Newman, 311 N.W.2d 821, 824 (Mich. Ct. App. 1981) (“[Mich. Comp. Laws § 600.2925a 12Notwithstanding a reference to contribution at common law, the court in Rivet v. State Farm Mutual Automobile Ins. Co., 2006 WL 1738040 (E.D. Mich. 2006), concluded that the plaintiff there had no claim for contribution, relying in large part on the Michigan statutory scheme. 13Additionally, Michigan’s “contribution statute does not include any limitation or prohibition concerning intentional tortfeasors.” Donajkowski v. Alpena Power Co., 596 N.W.2d 574, 577 (Mich. 1999). -22- renders] the statute inapplicable to suits alleging a breach of a fiduciary duty.”); see also Donajkowski v. Alpena Power Co., 596 N.W.2d 574, 578 n.10 (Mich. 1999) (noting the inapplicability of the statute to breaches of fiduciary duty). Here, Kreinberg rests his claim for contribution exclusively on Dow Chemical’s claim for breach of fiduciary duty. Consequently, in light of Michigan’s express statutory bar, Kreinberg cannot maintain a claim against JPMC for contribution. 2. Statutory Bar Following 1995 Tort Reforms In addition to the bar based on the type of contribution claim that Kreinberg seeks to assert, major tort reform legislation in Michigan in 1995 modified statutory contribution. With some exceptions not applicable here, the state legislature eliminated joint and several liability, although several liability remains. See 1995 Mich. Pub. Acts 161 and 249; see generally 2 Torts: Michigan Law and Practice §§20.2-20.7 (Linda Miller Atkinson et al. eds., 2007). Because the statutory right to contribution applies if parties are jointly or severally liable, the statute does theoretically retain a possible avenue for seeking contribution. Compare Mich. Comp. Laws § 600.2925a(1) (providing that “when 2 or more persons become jointly or severally liable in tort for the same injury to a person or property . . . , there is a right of contribution among them”); see also Gerling Konzern v. Lawson, 693 N.W.2d 149, 156 (Mich. 2005) (emphasizing the statute’s disjunctive phrasing). The mechanism for allocating fault, under Michigan’s 1995 tort reforms, however, renders it almost impossible that a tortfeasor would pay more than its pro rata share of common liability. Instead, a tortfeasor can incur an obligation to pay only the amount of damages allocated to that tortfeasor, as provided by Mich. Comp. Laws § 600.2957(1): -23- In an action based on tort or another legal theory seeking damages for personal injury, property damage, or wrongful death, the liability of each person shall be allocated under this section by the trier of fact and, subject to section 6304, in direct proportion to the person’s percentage of fault. In assessing percentages of fault under this subsection, the trier of fact shall consider the fault of each person, regardless of whether the person is, or could have been, named as a party to the action. The specific methodology for allocating that fault are provided, in relevant part, by Mich. Comp. Laws § 600.6304: (1) In an action based on tort or another legal theory seeking damages for personal injury, property damage, or wrongful death involving fault of more than 1 person, including third-party defendants and nonparties, the court, unless otherwise agreed by all parties to the action, shall instruct the jury to answer special interrogatories or, if there is no jury, shall make findings indicating both of the following: (a) The total amount of each plaintiff’s damages. (b) The percentage of the total fault of all persons that contributed to the death or injury, including each plaintiff and each person released from liability . . . , regardless of whether the person was or could have been named as a party to the action. (2) In determining the percentages of fault under subsection (1)(b), the trier of fact shall consider both the nature of the conduct of each person at fault and the extent of the causal relation between the conduct and the damages claimed. (3) The court shall determine the award of damages to each plaintiff in accordance with the findings under subsection (1), . . . and shall enter judgment against each party, including a third-party defendant, except that judgment shall not be entered against a person who has been released from liability . . . . (4) Liability in an action to which this section applies is several only and not joint. . . . [A] person shall not be required to pay damages in an amount greater than his or her percentage of fault as found under subsection (1). . . . Thus, the finder of fact makes specific findings regarding the percentage of fault attributable to each party, including non-parties, third party defendants, and parties released from liability. Judgment then enters according to those findings. Because liability is only several and not joint, no person is obligated to pay more than the allocated percentage of fault. Further, because a determination of percentage of fault is made as to every potential -24- tortfeasor (whether a party or not), a potential tortfeasor will not have a claim for contribution against a co-tortfeasor. Mich. Comp. Laws § 600.6304(4) directs that “a person shall not be required to pay damages in an amount greater than his or her percentage of fault . . . .” Once the finder of fact makes a percentage of fault allocation to a tortfeasor, the obligation to pay in excess of that amount ceases to exist and, indeed, cannot exist. Any additional claim would be barred. Yet the existence of such an additional claim, i.e., the requirement “to pay or satisfy the whole or to bear more than his aliquot share of the common burden or obligation,” is a necessary predicate to a contribution claim. Moreover, this reasoning comports with the conclusion of the Michigan Court of Appeals in Kokx v. Bylenga, 617 N.W.2d 368, 373 (Mich. Ct. App. 2000):14 [T]o the extent that the statutes enacted as part of the Legislature’s 1995 tort reform do not allow a person to be held responsible for paying damages beyond the person’s pro-rata share of responsibility as determined under § 6304, claims for contribution are no longer viable. See also Gerling Konzern, 693 N.W.2d at 152 (“[I]in an action in which an injured party has sued only one of multiple tortfeasors and in which [the contribution statutes] apply, the tortfeasor would have no need to seek contribution from other tortfeasors, either in that same action (by bringing in third-party defendants) or in a separate action, because no ‘person shall . . . be required to pay damages in an amount greater than his or her percentage of [allocated] fault . . . .’”) (citing Mich. 14To provide additional detail, the court there reasoned as follows: Thus, under the plain and mandatory language of the revised statutes, a defendant cannot be held liable for damages beyond the defendant's pro-rata share, except under certain specified circumstances. Accordingly, in actions based on tort or another legal theory seeking damages for personal injury, property damage, or wrongful death, as identified by the revised statutes, there would be no basis for a claim of contribution. Id. at 372 (footnotes omitted). -25- Comp. Laws § 600.6304(4 . Analytically, apart from the limited exception of Gerling Konzern,15 the state legislature has largely eliminated claims for contribution based on several liability. Consequently, the 1995 tort reforms in Michigan eliminated the claim that Kreinberg seeks to assert. Absent a settlement agreement in which he pays more than his pro rata share, such as that in Gerling Konzern, no claim for contribution is available to him. The unavailability of such a claim to Kreinberg, however, does not foreclose the possibility that JPMC is not responsible for any of Dow Chemical’s alleged injuries. Under Mich. Comp. Laws §§ 600.2957 and 600.6304, a non-party to the litigation could be deemed “at fault,” if a jury so finds at trial. Independent of the provision under Michigan law to identify JPMC as a non-party at fault, a possibility on which the Court makes no determination at this juncture, Kreinberg cannot sustain a claim for contribution against JPMC, as a matter of law. Construing the factual allegations in the light most favorable to Kreinberg and accepting them as true, he cannot demonstrate a legal entitlement to the relief of contribution from a third party. Accordingly, the Court will grant JPMC’s motion to dismiss, to the extent based on Federal Rule of Civil Procedure 12(b)(6). Because this conclusion eliminates the benefit of additional investigation into the facts pertinent to personal jurisdiction and, thus, a basis sufficient to dispose 15In Gerling Konzern, 693 N.W.2d at 152-153, the Michigan Supreme Court stated, “[A]lthough the 1995 tort reform legislation may have ‘rendered unnecessary’ most contribution claims, this does not mean that it precludes every type of contribution claim, in particular that at issue in the instant case.” There, one defendant secured the dismissal of the case by paying a settlement agreement as to the entire complaint and then pursued a contribution claim against another defendant who did not participate in the settlement. The court allowed a claim for contribution to proceed in the limited instance of several liability where one party, allegedly, paid more than its pro rata share pursuant to a settlement agreement. See also M. Sean Fosmire, “Residual Contribution Claims after Tort Reform: The Gerling Konzern Case,” 24 Michigan Defense Quarterly 10, 14 (Jan. 2008). -26- of JPMC’s challenge on that ground, the Court will deny JPMC’s motion to dismiss, to the extent based on Federal Rule of Civil Procedure 12(b)(2). IV. Conclusion Accordingly, it is ORDERED that JPMC’s motion to dismiss Kreinberg’s third party complaint [dkt #54] is GRANTED. Kreinberg’s third party complaint against JPMC is DISMISSED WITH PREJUDICE. Without addressing its potential status as a non-party at fault, JPMC is DISMISSED WITH PREJUDICE as a third party defendant. It is further ORDERED that Kreinberg’s motion for leave to supplement his response to JPMC’s Motion to Dismiss [dkt #94] and JPMC’s motion to stay discovery pending disposition of its motion to dismiss Kreinberg’s third party complaint [dkt #113] are DENIED as moot. s/Thomas L. Ludington THOMAS L. LUDINGTON United States District Judge Dated: February 20, 2008 PROOF OF SERVICE The undersigned certifies that a copy of the foregoing order was served upon each attorney or party of record herein by electronic means or first class U.S. mail on February 20, 2008. s/Tracy A. Jacobs TRACY A. JACOBS -27-

=== Nickel Opinion Determing Standard of Review ===

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION KAREN ECKER NICKEL, Plaintiff, v. UNUM LIFE INSURANCE CO. OF AMERICA, ______________________________________ / Defendant. Case Number 06-10476-BC Honorable Thomas L. Ludington OPINION AND ORDER GRANTING DEFENDANT’S MOTION ON THE APPLICABLE STANDARD OF REVIEW, DENYING PLAINTIFF’S MOTION ON THE APPLICABLE STANDARD OF REVIEW, AND DETERMINING THAT THE ARBITRARY AND CAPRICIOUS STANDARD APPLIES IN THE INSTANT CASE The plaintiff began this case on February 3, 2006 alleging that the defendant, UNUM Life Insurance Company, wrongfully denied her application for long term disability benefits and her later appeal under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132. Thereafter, the defendant filed a motion to extend time in which to file a copy of the administrative record, which originally was to be served on the plaintiff on or before August 24, 2006. The defendant claimed that it was under no obligation to include an outdated summary plan description (SPD) in the plaintiff’s possession. The plaintiff maintained that the SPD was controlling with respect to the standard of review applicable in this case. That document apparently did not contain language granting discretion to the defendant to determine an applicant’s entitlement to benefits under the plan, and, as a result, the plaintiff argued that this Court should review the denial of benefits de novo. This Court’s predecessor heard oral argument on the matter on August 24, 2006. At the conclusion of the hearing, Judge David M. Lawson determined that the parties were asserting a procedural challenge to the administrator’s decision, see Wilkens v. Baptist Sys., Inc., 150 F.3d 609, 619 (6th Cir. 1998) (Gilman J., concurring) (reasoning that “[t]he district court may consider evidence outside the administrative record only if that evidence is offered in support of a procedural challenge to the administrator’s decision”), and permitted limited discovery to aid in the determination of which standard of review ought to apply. The parties were directed to complete discovery on or before October 6, 2006 and submit supplemental briefs on the standard of review by October 20, 2006. The parties subsequently stipulated to extend the date for filing supplemental briefs until December 22, 2007. The defendant filed a supplemental brief on December 20, 2007 and the plaintiff submitted supplemental authority on December 22, 2007. The parties have filed responses to the respective briefs. Taken together, the parties submissions are cross motions on the applicable standard of review. The Court heard oral argument on May 1, 2007. After reviewing the parties’ supplemental materials, the Court concludes that the arbitrary and capricious standard should govern review of the instant case. The Court therefore will grant the defendant’s motion. I. The plaintiff filed a claim for long term disability benefits on March 15, 2004 alleging that she was unable to work as a result of unusual fatigue and weakness, shortness of breath, chest pain, exhaustion, and an inability to move for extended periods of time. Ultimately, the plaintiff was diagnosed with Lyme disease. The plaintiff had been employed as a cytologist and ceased work on January 23, 2004. Sometime after commencing work with Mid-Michigan Medical Center (Mid-Michigan) in 1997, the plaintiff became eligible to enroll in her employer’s benefit programs, which among other -2- things, included long term disability coverage provided by the defendant. She opted for coverage, and claims she was provided with a 1998 summary plan description (SPD) written by the defendant summarizing her benefits. The SPD also contained provisions should an amendment to the plan occur. The 1998 SPD acted as the employee’s certificate of coverage and reads, in relevant part: Also, if the terms of your certificate of coverage and the policy differ, the policy will govern. Your coverage may be terminated or modified, in whole or in part, under the terms and provisions of the policy. Changes Effective Subject to the delayed effective date exceptions, changes in insurance take effect each January 1st. Can the policyholder act as our agent? For all purposes of the policy, the policyholder acts on its own or as your agent. Under no circumstances will the policyholder be deemed our agent. Amending Mid-Michigan Medical Center, Midland’s ERISA Plan Mid-Michigan Medical Center, Midland reserves the right to amend, modify this Plan in any manner, at any time, which may result in the termination or modification of your coverage. Amending Unum’s Policy The Policy may be changed in whole or in part. Mid-Michigan Medical Center, Midland, can request a Policy change. Def.’s Mot. Standard Review Ex. 1, 1998 Summary Plan Description. It is undisputed that the 1998 SPD was the only document explaining long term disability benefits with which the plaintiff was provided. Under Mid-Michigan’s plan, the plaintiff was considered a Class 2 participant. Former benefits manager with the Mid-Michigan, Valerie Rossman explained the structure of the plan and its relationship with the provision of SPD booklets: -3- MidMichigan maintained three separate SPDs for this benefit plan according to the classes of the coverage, the first, Class I, being four physicians, the second class being for all other eligible employees, except physicians, and union employees, and Class 3 being union employees. Each class of coverage had different benefit levels, and for that reason, the benefit booklets were different. . . . [W]e maintained separate booklets. A person in Class 2 would never get a Class 1 booklet and vice versa. Pl.’s Mot. Standard Rev. Ex. 4, Rossman dep. at 13-14. Thereafter, Mid-Michigan sought an amendment of the policy sometime prior to April 2001. Apparently, the purpose of the amendment was to add two to four part-time physician to the eligible Class 1 participants. Rossman testified at her deposition: As I understand [the purpose of the amendment] was to add Class 1, which was physicians, to a part-time eligibility stance. We had at that time I believe two or four – two, three or four physicians that worked 24 hours a week, and this amendment was to add them to eligibility only, any physician again Class 1. Id. at 10. As a result, or at least at the same time, the defendant prepared proposed “Amendment 20.” According to the defendant, it prepared a cover letter with a the proposed amendment, both of which apparently advised Mid-Michigan that the amendments would be considered accepted and part of the contract unless the amendment was signed and returned by approximately June 30, 2001. The cover letter states, in relevant part: Please find enclosed Amendment No. 20 to the above referenced policy. This amendment takes into consideration the following: Effective July 1, 2001: • The minimum requirement for active employment has changed to 24 hours per week. As stated on the amendment itself, all amendments will be considered accepted as part of the contract, unless the amendment is signed and returned within the time frame listed on the front page of the amendment. -4- Def.’s Supp. Br. Ex. 2, Amendment 20. Among other things, Amendment 20 also changed the defendant’s discretionary authority to review claims. It provides, in relevant part: If this amendment is unacceptable, please sign below and return this amendment to Unum Life Insurance Company of America at Portland, Maine within 90 days of March 29, 2001. YOUR FAILURE TO SIGN AND RETURN THIS AMENDMENT BY THAT DATE WILL CONSTITUTE ACCEPTANCE OF THIS AGREEMENT . . . 12. Discretionary Authority In making any benefits determination under this policy, the Company shall have the discretionary authority both to determine an employee’s eligibility for benefits and to construe the terms of this policy. Ibid. It is undisputed that no one at Mid-Michigan signed or returned the amendment. According to Rossman, “[s]ince this policy and this amendment, as I see it and understand it, was made for the doctors, it was not communicated that I know of beyond the two, three or four doctors affected in Class 1.” Rossman dep. at 14. In addition, she explained that it was up to her or her boss, Michael Hicks, vice president of human resources, to determine whether a change was significant enough to send to all plan participants. Id. at 27-28. Further, if Hicks were unsure about whether the change should be communicated to all participants, he had the discretion to bring the issue before Mid-Michigan’s Board of Directors. Id. at 28. Rossman also noted that Mid-Michigan retained an outside law firm with whom she could consult if need be. Id. at 29. As a general rule, however, employees were mailed an SPD on a one-time basis after becoming eligible for benefits unless they made a specific request. Rossman dep. at 6. Nonetheless, it is undisputed that the defendant sent 506 new SPDs to Mid-Michigan on May 2, 2002. The defendant also provided Mid-Michigan’s insurance agent, Jamie Costigan, with four -5- copies of the new SPD at her place of employment, Michigan Health and Hospital Association. On May 24, 2002, Rossman sent an email to Deb Roberts, an employee with the defendant, informing Roberts that the SPDs were on full size paper, not in booklet form, and therefore were “useless” to Mid-Michigan. Def.’s Mot. Standard Rev. Ex. 4, Email. It appears the new SPDs were never distributed and remained in Rossman’s office, presumably until they were discarded. Christina Burke, account manager with the defendant, testified that the defendant prepares summary plan descriptions, but ultimately the responsibility for their dissemination rests with the plan administrator, in this case Mid-Michigan. Def.’s Mot. Standard Rev. Transcripts, Burke dep. at 21-22. In fact, she explained, that the defendant provides SPDs not out of obligation, but as a “courtesy to our clients to distribute to their employees.” Id. at 53. She also emphasized that communication with plan participants is Mid-Michigan’s obligation as is the responsibility to request SPDs. Id. at 48-49. Finally, Burke stated that the defendant played no role in determining to whom SPDs should be given following a change in the policy. Id. at 50. II. It is black letter ERISA law that the arbitrary and capricious standard of review applies only if the ERISA-regulated plan at issue clearly grants discretion to the reviewing party and the decision being appealed was made in compliance with plan procedures. Sanford v. Harvard Indus., Inc., 262 F.3d 590, 595, 597 (6th Cir. 2001). Otherwise, the Court must apply a de novo standard of review. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 114 (1989) (reasoning that a court will review a claim for benefits de novo unless the plan clearly grants the administrator discretionary authority). The defendant has the burden of demonstrating the existence of discretionary authority. Ibid. -6- A. In this case, the parties do not dispute that the 1998 SPD does not contain discretionary language. They also agree that Amendment 20 does contain a grant of discretionary authority. The parties, however, dispute whether the plaintiff’s SPD should be given controlling weight in determining the standard of review applicable here. In Edwards v. State Farm Mut. Auto. Ins. Co., 851 F.2d 134, 136 (6th Cir. 1988), the Sixth Circuit reiterated the principle that “statements in a summary plan are binding and if such statements conflict with those in the plan itself, the summary shall govern.” The underlying rationale is practical: “[i]t is of no effect to publish and distribute a plan summary booklet designed to simplify and explain a voluminous and complex document and then proclaim that any inconsistencies will be governed by the plan. Unfairness will flow to the employee for reasonably relying on the summary booklet.” Ibid. (internal citation omitted). This doctrine, however, has not been extended to circumstances where an SPD is silent on a term. Sprague v. General Motors Corp., 133 F.3d 388, 401 (6th Cir. 1998) (en banc) (reasoning that the ‘principle announced in Edwards does not apply to silence. Edwards, 851 F.2d at 136 (“if such statements conflict with those in the plan itself, the summary shall govern”). An omission from the summary plan description does not, by negative implication, alter the terms of the plan itself. The reason is obvious: by definition, a summary will not include every detail of the thing it summarizes”’) (some citations and quotations omitted . Thus, a conflict can only exist if an express term in the SPD conflicts with an express term in the plan. The plaintiff does not challenge this proposition in any real sense. Rather she unconvincingly attempts to distinguish Sprague. In Sprague, the court of appeals drew heavily on -7- the fact that the employer possessed a reservation of rights in the SPD that provided at least some notice to plan participants that the employer might amend the terms from time to time. However, even the plaintiff’s SPD contained a reservation of rights. It reads, in pertinent part: Amending Mid-Michigan Medical Center, Midland’s ERISA Plan Mid-Michigan Medical Center, Midland reserves the right to amend, modify this Plan in any manner, at any time, which may result in the termination or modification of your coverage. Amending Unum’s Policy The Policy may be changed in whole or in part. Mid-Michigan Medical Center, Midland, can request a Policy change. Def.’s Mot. Standard Rev. Ex. 1, 1998 Summary Plan Description (emphasis added). The plaintiff does not quarrel with this language. Instead, she insists that Amendment 20 was intended only to affect two to four part-time physician in Class 1. See Rossman dep. at 10. Since she was not part of that class, she reasons, she could not have been affected by the amendment. Finally, she asserts that the discretionary language was “slipped in.” These contentions, in the Court’s view, belie the plain language of the amendment and the SPD. First, the SPD reserves the employer the right to change the plan. Second, the SPD states that the employer can request a proposal from the company for such change. Here, Mid-Michigan asked the defendant to propose a change in April 2001, to which the defendant responded by proposing Amendment 20. Third, the language of the amendment is clear. It notes that certain deletions and additions have been made. Importantly, nowhere does the amendment reference the fact that the intent of the parties was to have the additional terms apply only to Class 1 participants. Further, the discretionary language provision was featured prominently in the document. Finally, Amendment 20 provided that Mid-Michigan could reject the proposal in whole if Mid-Michigan was dissatisfied. -8- The document provides, in relevant part: If this amendment is unacceptable, please sign below and return this amendment to Unum Life Insurance Company of America at Portland, Maine within 90 days of March 29, 2001. YOUR FAILURE TO SIGN AND RETURN THIS AMENDMENT BY THAT DATE WILL CONSTITUTE ACCEPTANCE OF THIS AGREEMENT Amendment 20. Plainly, then, Mid-Michigan asked to alter the plan, as it has the right to do and as summarized in the SPD. The defendant proposed Amendment 20. The amendment did not state that the provisions granting defendant discretion to determine applicant eligibility would apply only to a certain class of employees. The defendant provided a time frame and a method for accepting the amendment. Nothing in the record suggests that Mid-Michigan did not accept Amendment 20 in full or otherwise object to the failure to include a limitation to Class 1 participants. In fact, it was Rossman’s understanding that Amendment 20 became effective on July 1, 2001. Simply because the discretionary language was proposed by the defendant along with the manner of acceptance does not make the amendment a unilateral change forced upon Mid-Michigan. Mid-Michigan could have rejected the amendment; it chose not to. The Court therefore believes that Amendment 20 comports with the method for changing the plan as described in the plaintiff’s SPD. Mid-Michigan requested the amendment and ultimately accepted. Consequently, there is no material difference between the SPD in this case and the SPD in Sprague. Both were simply silent on the issues relative to them and thus could not conflict with the express language of the respective plans. Amendment 20 appropriately governs in this case and requires the Court to apply the arbitrary and capricious standard of review. -9- B. The plaintiff urges the Court to disregard Amendment 20 because she was never provided with a copy of it. She claims that the defendant was on notice for several years that the new SPDs were defective – they were not in booklet form – and did nothing to remedy the situation. She insists that the defendant had the duty to ensure that accurate plan information was communicated to her. This argument is unsupported in both law and fact. Under ERISA, the duty to furnish accurate summary plan descriptions rests with the plan administrator, in this case Mid-Michigan. See 29 U.S.C. § 1022(a) (providing that “[a] summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries as provided in section 1024(b) of this title. The summary plan description . . . shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan”; 29 U.S.C. § 1021(a)(1) (providing that “[t]he administrator of each employee benefit plan shall cause to be furnished in accordance with section 1024(b) of this title to each participant covered under the plan and to each beneficiary who is receiving benefits under the plan - (1) a summary plan description”). The deposition testimony further supports the conclusion that Mid-Michigan was in charge of providing accurate SPD’s to plan participants. Christina Burke, account manager with the defendant, testified that the defendant prepares summary plan descriptions, but ultimately the responsibility for their dissemination rests with the plan administrator, in this case Mid-Michigan. Burke dep. at 21-22. In fact, she explained, that the defendant provides SPDs not out of obligation, but as a “courtesy to our clients to distribute to their employees.” Id. at 53. She also emphasized that -10- communication with plan participants is Mid-Michigan’s obligation as is the responsibility to request SPDs. Id. at 48-49. Finally, Burke stated that the defendant played no role in determining to whom SPDs should be given following a change in the policy. Id. at 50. In fact, Mid-Michigan made the decision as to what type of change was sufficient to require it to communicate that change to employees. Rossman explained that it was up to her or Michael Hicks, vice president of human resources, to determine whether a change was significant enough to send to all plan participants. Id. at 27-28. Further, if Hicks was unsure about whether the change should be communicated to all participants, he had the discretion to bring the issue before Mid- Michigan’s Board of Directors. Id. at 28. Rossman also noted that Mid-Michigan retained an outside law firm with whom she could consult if need be. The Court can only conclude that Mid-Michigan elected not to provide updated SPD’s to plan participants. Although the defendant provided what were in Mid-Michigan’s view defective updated SPDs, Mid-Michigan never sought and obtained a new version to provide to its employees. Indeed, it appears that the defective SPDs – defective because they were not in booklet form – languished in Rossman’s office until they were discarded. C. Finally, the plaintiff claims that the defendant is equitably estopped from enforcing the discretionary language provision contained in Amendment 20. However, notwithstanding the other elements of such a claim, the plaintiff must demonstrate justifiable reliance, in this case on the representations made in the 1998 SPD. See Crosby v. Rohm & Haas Co., 480 F.3d 423, 431 (6th Cir. 2007). The plaintiff cannot meet her burden. The SPD with which she was provided expressly states that “Mid-Michigan Medical Center, Midland reserves the right to amend, modify this Plan -11- in any manner, at any time, which may result in the termination or modification of your coverage.” 1998 SPD (emphasis added). Further, the SPD provides that “[t]he Policy may be changed in whole or in part. Mid-Michigan Medical Center, Midland, can request a Policy change.” Ibid. (emphasis added). Thus, the plaintiff knew of the possibility that the policy could be changed and there is no additional evidence that the defendant made any promises that the arbitrary and capricious standard would apply among other terms. The Court therefore concludes that the plaintiff’s equitable estoppel argument lacks merit. III. The Court concludes that the arbitrary and capricious standard of review governs this case. The plan was properly amended pursuant to the terms contained in the plaintiff’s SPD and because the 1998 SPD was silent on the standard of review, no provision contained in that document conflicted with the plan that would require the Court to enforce the SPD over Amendment 20's plain language. Finally, the plaintiff’s claim of equitable estoppel lacks merits. She is unable to demonstrate that she justifiably relied on any representation made by the defendant. Accordingly, it is ORDERED that the defendant’s supplemental brief in support of an arbitrary and capricious standard of review, construed as motion seeking application of that standard of review [dkt #22], is GRANTED and the plaintiff’s amended supplemental brief, construed as a motion seeking application of the de novo standard of review [dkt # 25] is DENIED. It is further ORDERED that the arbitrary and capricious standard of review shall apply in this case. It is further ORDERED that on or before September 7, 2007, the defendant shall serve a copy of the administrative record, that does not include the 1998 SPD, upon counsel for the plaintiff. -12- The administrative record shall contain the complete benefits plan and the summary plan description furnished to the plaintiff during her employment. When the defendant files its cross motion on the administrative record, it shall file the entire administrative record. The parties may present a proposed stipulated order to the Court, for its consideration, to file the administrative record under seal. It is further ORDERED on or before October 5, 2007, the parties shall each file their cross motion and brief to reverse or affirm the administrator’s decision. The briefs shall analyze the evidentiary materials contained in the plan documents and the administrative record. The time for filing a response brief is governed by Local Rule 7.1. No reply briefs may be filed. s/Thomas L. Ludington THOMAS L. LUDINGTON United States District Judge Dated: August 7, 2007 PROOF OF SERVICE The undersigned certifies that a copy of the foregoing order was served upon each attorney or party of record herein by electronic means or first class U.S. mail on August 7, 2007. s/Tracy A. Jacobs TRACY A. JACOBS -13-

=== Intermodal Opinion Granting NHTSA MSJ ===

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION Case Number 06-12282-BC Honorable Thomas L. Ludington INTERMODAL TECHNOLOGIES, INC., Plaintiff, v. MARY E. PETERS, in her capacity as SECRETARY OF TRANSPORTATION, and NICOLE R. NASON, in her capacity as ADMINISTRATOR OF THE NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION, ______________________________________ / Defendants. OPINION AND ORDER GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT, DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND DISMISSING CASE I. A. Plaintiff Intermodal Technologies, Inc. (Intermodal) challenges the decision of the defendants, the Department of Transportation and the National Highway Safety Administration (NHTSA), denying Intermodal’s application for an exemption from certain Federal Motor Vehicle Safety Standards promulgated by NHTSA governing antilock brake systems for, among other things, large trucks with trailers. See 49 U.S.C. § 30113; 49 C.F.R. § 571.121. Intermodal would like to market truck trailers that are equipped with antilock brakes and certain warning features in conformity with the National Traffic Motor Vehicle Safety Act and implementing regulations See 49 C.F.R. § 571.121. Intermodal has chosen to outfit its trailers with a non-electronic, pneumatic airbrake system for trucks and trailers called the MSQR 5000 made by Air Brake Systems, Inc. (ABS, Inc.) and believes that the MSQR-5000 complies with Safety Standard 121. ABS, Inc. is owned by the same individual who owns Intermodal, William Washington. This opinion arises specifically from Intermodal’s unsuccessful efforts to obtain an exemption from the warning light features of Safety Standard 121 promulgated by NHTSA. Congress passed the National Highway Traffic Safety Act, 49 U.S.C. §30101 et seq.(the Act), in an effort “to reduce traffic accidents and deaths and injuries resulting from traffic accidents.” 49 U.S.C. § 30101. To that end, NHTSA was delegated authority to promulgate and enforce Federal Motor Vehicle Safety Standards, which set minimal safety requirements for new motor vehicles. 49 U.S.C. § 30101 et seq. The Act proscribes the manufacture and sale of vehicles that do not comply with the standards, 49 U.S.C. § 30112(a), and requires manufacturers to recall noncompliant vehicles, 49 U.S.C. 30118(c). For the most part, the statutory and regulatory framework relies on a manufacturer’s self certification of its product’s compliance with the Act. When the manufacturer of a new motor vehicle places the vehicle into interstate commerce, the manufacturer certifies that vehicle complies with applicable safety standards. 49 U.S.C. § 30115. If, after sale, it becomes apparent that the vehicle is noncompliant, NHTSA has the authority to direct the manufacturer to recall the vehicle after testing and notification. 49 U.S.C. § 30117. In order to avoid a recall, manufacturers may petition the agency for an exemption if the “noncompliance is inconsequential to motor vehicle safety.” 49 U.S.C. § 30118(d). If the manufacturer knows that the vehicle is noncompliant before sale, the manufacturer may petition NHTSA for a temporary exemption from a safety standard if “an exemption is consistent with the public interest” and “compliance with the standard would cause substantial economic hardship to a manufacturer that has tried to comply with the standard in good faith; the exemption would make -2- easier the development or field evaluation of a new motor vehicle safety feature providing a safety level at least equal to the safety level of the standard; the exemption would make the development or field evaluation of a low-emission motor vehicle and would not unreasonably lower the safety level of that vehicle; or compliance with the standard would prevent the manufacturer from selling a motor vehicle with an overall safety level at least equal to the overall safety level of nonexempt vehicles.” 49 U.S.C. § 30113(b)(A)(B)(i)-(iv) (internal numbering omitted). B. This is not Washington’s first confrontation with NHTSA or Safety Standard 121. In prior litigation culminating in an appeal to the Tenth Circuit, Washington challenged, as Intermodal does in a different context in the instant action, NHTSA’s promulgation of Safety Standard 121 on five grounds. See Washington v. Dep’t of Transp. 84 F.3d 1222 (10th Cir. 1996). He contended that the standard was NHTSA’s deliberate effort to exclude all antilock brake systems designs that were non-electronic by adopting design and not performance standards; the standard conflicted with operational standards for commercial motor carriers; the standard exceeded NHTSA’s delegated authority; NHTSA neither evaluated nor disclosed information regarding his alternative to an electronic antilock brake system; and NHTSA published false statistical data when it decided not to evaluate his technology. The court of appeals declined to address all but the second and third contention. In finding that Washington’s contentions lacked merit, the Tenth Circuit was careful to emphasize the difficulty for NHTSA in articulating a general performance standard that might present inconsistencies in practice or application. The court explained: NHTSA is generally charged with developing performance standards, not design -3- specifications. Petitioner contends NHTSA's mandate of ABS and associated malfunction indicators transgresses this boundary on its regulatory authority. Although we do not take issue with petitioner's premise, we reject his conclusion for several reasons. First of all, the performance-design distinction is much easier to state in the abstract than to apply definitively-so as to justify judicial interference with an agency's regulatory function-in concrete situations. This is particularly true when, due to contingent relationships between performance requirements and design options, specification of the former effectively entails, or severely constrains, the choice of the latter. Such a relationship has been recognized between braking performance criteria and ABS. We would, accordingly, be hesitant to invalidate this carefully developed safety standard solely on the basis of its indefinite place on the conceptual spectrum between performance and design. Id. at 1244 (citations omitted). The court of appeals also concluded that although design options might be limited – perhaps even exclude, in concrete situations, a non-electronic antilock brake device – the agency still was operating under the authority delegated by Congress. [T]he policy behind the legislative emphasis on performance standards, which is to ensure public safety without stifling design innovation is not compromised significantly by a safety-feature regulation like § 571.121. This provision mandates only a certain type of equipment still constraining specific design choices chiefly through the preferred means of performance criteria. . . . ABS is broadly defined-and in predominately functional, rather than structural, terms-as “a portion of a service brake system that automatically controls the degree of rotational wheel slip at one or more road wheels of the vehicle during braking.” 49 C.F.R. § 571.121 S4 (eff. until March 1, 1997); see also 49 C.F.R. § 571.121 S4 (eff. March 1, 1997)(adding further functional detail to definition). Id. at 1225, n.2. In fact, the Tenth Circuit noted, the potential for too strict a performance standard in practice was contemplated by Congress: We note our treatment of the performance-design distinction is impliedly buttressed by this affirmative accommodation of “new motor vehicle safety feature[s] providing a safety level at least equal to the safety level of the [existing] standard.” 49 C.F.R. -4- § 30113(b)(3)(B)(ii)(emphasis added). If, as petitioner contends, Congress intended its emphasis on performance criteria to preclude NHTSA's mandate of particular safety features, no special exemption would be necessary for a new device meeting existing (purely performative) standards; such an exemption becomes necessary when existing standards mandate a particular type of equipment (a mandate even a performative equivalent cannot meet). Id. at n.3. Thus, in the court’s view Washington was not without remedy. He could “(1) seek an exemption to facilitate development or evaluation and (2) petition for a new safety standard incorporating the new device.” Id. at 1225. Later, in this Court, ABS, Inc. challenged the authority of NHTSA’s acting chief counsel to issue opinion letters in response to an inquiry made by a potential customer as to whether the MSQR-5000 satisfied federal motor vehicle safety standards. See Air Brake Systems, Inc. v. Mineta, 202 F. Supp. 2d 705 (E.D. Mich. 2002). In the letters, the chief counsel opined that the MSQR-5000 did not satisfy the warning signal requirements of Federal Motor Vehicle Safety Standard 121 due to the fact that there are no warning signals installed on the exterior of the truck trailer. This Court found that the opinion letters, one of which was posted on NHTSA’s website, did not constitute final agency action and therefore could not be reviewed under the Administrative Procedures Act. See Air Brake Systems, Inc., 202 F. Supp. 2d at 712-14. The Sixth Circuit affirmed. Air Brake Systems, Inc. v. Mineta, 357 F.3d 632 (6th Cir. 2004). The gist of Air Brake System’s arguments both in this Court and on appeal was that NHTSA had effectively decided that its brakes do not meet federal standards and had announced that decision to potential buyers of the brakes, leaving it no opportunity to sell its brakes and no mechanism by which to challenge agency action. The result, the company stated, was a “Catch 22.” Air Brake Systems, Inc., 357 F.2d at 645. The court of appeals rejected that contention and noted that the Act -5- permitted the company to seek other forms of relief: In all events, Air Brake errs in suggesting it has no other options. The company remains free to show the market its confidence in the product by agreeing to indemnify a prospective manufacturer against the costs of defending any potential NHTSA action. And more importantly (and perhaps more realistically for smaller companies), the company remains free to petition NHTSA to alter Standard 121 under the agency's rulemaking powers. 49 C.F.R. § 552.3(a) (“Any interested party may file with the Administrator a petition requesting him . . . [t]o commence a proceeding respecting the issuance, amendment or revocation of a motor vehicle safety standard.”). The denial of such a petition, notably, would be a final reviewable order. Id. at 645-46. Intermodal did not petition NHTSA to alter Saftey Standard 121 under the agency’s rulemaking authority. It did, however, seek an exemption under the standard, an approach, Intermodal suggests, the court of appeals made at oral argument. See Intermodal Mot. Summ. J. at 2 n. 4. Intermodal’s application for an exemption from Safety Standard 121, filed on January 26, 2004, however, languished and further litigation ensued. Although the NHTSA published the required notice seeking comments on Intermodal’s application on July 19, 2004, the agency, despite repeated requests from Intermodal, took no action. On August 9, 2005, Intermodal filed a statutory mandamus action in this Court seeking to compel NHTSA to decide the application one way or the other. The agency maintained that it was not required to render any decision because, it reasoned, the statutory framework made consideration of exemptions permissive. This Court disagreed. In an opinion dated February 7, 2006, the Court concluded that although the National Transportation Safety Act was silent on the issue of whether the agency had to render a decision on an application for an exemption, the implementing regulations in fact required NHTSA to render a decision, although the substance of that decision was left to the -6- discretion of NHTSA. See Intermodal Technologies, Inc. v. Mineta, 413 F. Supp. 2d 834, 841-42 (E.D. Mich. 2006) (reasoning that the “regulation governing the processing of applications makes clear that the agency must either grant an application or deny it, publish its decision in the Federal Register, and notify the petitioner. There is no discretionary language contained in these subsections”). On February 8, 2006, NHTSA denied Intermodal’s petition for the exemption in a written opinion. Thereafter, Intermodal sought review of the agency’s decision on May 19, 2006 under the Administrative Procedures Act (APA), 5 U.S.C. § 704, claiming that agency acted arbitrarily and capriciously in determining that it was not entitled to an exemption from the warning light requirements set forth in the regulations. On February 7, 2007, Intermodal filed a motion for summary judgment on the administrative record. The defendants filed a cross motion and response to Intermodal’s motion on April 20, 2007. Intermodal has filed a response in opposition to the defendants’ motion along with other supplemental materials. Intermodal’s papers frame three primary issues for resolution: (1) whether NHTSA acted arbitrarily and capriciously by relying on factors not required by Federal Motor Vehicle Safety Standards; (2) whether NHTSA acted arbitrarily and capriciously in interpreting the technical information and rejecting the opinions of Intermodal’s experts; and (3) whether NHTSA acted arbitrarily and capriciously in not considering Intermodal’s petition for an exemption under 49 C.F.R. § 556.4. The Court heard oral argument on June 25, 2007 and now concludes that the decision by NHTSA denying the Intermodal’s petition for an exemption was neither arbitrary or capricious. Therefore, the Court will grant the defendants’ motion for summary judgment. -7- II. The important procedural facts have been set out in detail above and will not be repeated here. Of particular note in this case is Intermodal’s application for an exemption and NHTSA’s subsequent denial of that application. Because of the importance of the application and NHTSA’s response to the analysis of the issues before the Court, both are quoted at length below. As noted, on January 24, 2004, Intermodal applied for an exemption from the warning light requirements set forth in the regulations. In support of its application, Intermodal stated the following: In 1992, the U.S. Patent Office issued patent # 5,078,455 on a device termed as a Differential Pressure Regulator Quick Release Valve in a Pneumatic Braking System. In our opinion, this devise, when joined with the normal pneumatic braking system on vehicles equipped with air brake systems, operates as an antilock brake system (ABS) as that term is defined in 49 CFR 571.121 (S4). This opinion is based on laboratory test data and field test data in the after market and Original Equipment Manufacture market. Also, we determined that this device either met or exceed all of the requirements of the performance standards of 49 CFR 571.121. This device relieves the excess pressures internally and does not vent the pressure. This opinion is also supported by the attached affidavits of John Cepican, J.D. and BS Physics, and Dr John F. Foss, PhD, Mechanical Engineering and Fluid Dynamics, and Dr. Phillip A. Corn, PhD Experimental Nuclear Physics. Additional data relevant to safety features, research and development and testing are contained in the enclosures. Our request is first based on the information published in the Federal Register by the National Highway Traffic Safety Administration, which states “. . . As NHTSA explained in promulgating the final rule, the definition of ABS ‘does not require electronics for the sensing of wheel rotation or controlling signals’ and that although ‘it is likely that electronic systems will be used, given currently available technologies,’ these ‘functions could be performed using pneumatic, hydraulic, optic, or other mechanical means.’” 60 Fed. Reg. 13277. IMT will produce it trailer using “pneumatic means.” Air Brake Systems, Inc., the manufacturer of the MSQR-5000 pneumatic antilock brake system, reports that there are more than 7,000 units in operation on all types of vehicles with air brakes. It is our understanding that the Acting General Counsel of the National Highway -8- Traffic Safety Administration (NHTSA) has taken the position that the device does not comply with Standard 571.121. Based on our research and practical experience, we strongly disagree with this position, and find it necessary to request your office for an exemption to this standard. Our request is first based upon 49 U.S.C. 30133(b)(3)(B)(ii) which provides that an exemption will be granted upon finding that the exemption is consistent with the public interest and “the exemption would make easier the development of field evaluation of a new motor vehicle safety feature providing safety at least equal to the safety level of the standard.” It is our experience that the MSRQ-5000 operates easier, is less expensive and has a better safety record than the electronic ABS products now in use under the standard. This device is less expensive to install, does not cause as much wear on brake linings and tires as the electronic system, and has fewer parts that are susceptible to damage or wear. Our request is also based on 60 Fed. Reg. No. 229 at 63966, which provides that the “NHTSA’s definition” of antilock brakes “permits any ABS, provided that it is a closed-loop system.” The electronic antilock brake systems are not closed-loop. They vent air from the brake system during the braking cycle, extending the stopping distance. The MSQR 5000 is fully “closed-looped,” senses and modulates air internally, and does not vent air during braking. As published in 60 Federal Register 13259, the NHTSA further defines, “An ABS is a closed-looped feedback control system that, above a preset speed, automatically modulates brake pressure in response to measured wheel speed performance to control the degree of wheel slip during braking and provide improved utilization of the friction available between the tires and the road.” During rulemaking, the NHTSA denied a petition by the Jenflo Company to amend the definition of ABS so as to permit open-looped systems. As cited by 60 Federal Register 63996, it states, “In previous notices, the agency discussed in extensive detail the reasons for requiring a “closed-loop” antilock system . . . NHTSA’s definition permits any ABS, provided that it is a closed-loop antilock system that ensures feedback between what is actually happening at the tire-road interface and what the device is doing to respond to changes in wheel slip. As many brake and vehicle manufactures commented on the September 1993 NPRM, a device that satisfies these criteria is necessary to prevent wheel lockup under a variety of real world conditions, thereby significantly improving safety. In contrast, a definition that permitted open-looped systems would allow systems that would not necessarily prevent wheel lockup.” All electronic antilock brake systems vent air in a grip-release or vent action during the braking cycles, thus making them “open looped” and therefore are not compliant with Standard 121. They respond only after the wheels lock, rather than prevent wheel lockup. It is also our opinion that the MSRQ 5000 antilock brake system is the only ABS to fully meet the performance standards of 49 -9- CFR §571.121. Additional test data and evaluation data are contained in the enclosures. It is also our opinion that the use of electronic antilock brake systems in complying with Standard 121 will compromise the safety of the vehicle. Electronic air brake systems incorporate “modulators” the cycle open and closed to vent air from the brake system to the atmosphere. These devices are subject to wear and contaminants within the brake system. The wear and contamination may cause the modulators to fail by remaining open during the braking cycle. This will subject our vehicles to an unsafe situation and they will be unable to stop as required due to the continual exhausting of air. This may cause accident of the loss of life. In extreme braking situations with heavily trafficked roadways this may force the vehicle into a rear end collision with another motor vehicle. Additional analysis establishing that the level of safety protection exceeds the performance safety standards of 49 CFR 571.121 is contained in the enclosures. Our request for the exemption pursuant to §554.4 is also based on the in the antilock malfunction referenced indicator determination §S5.2.3.3(a)(b)(c)(d) is “inconsequential.” that a) Unlike electronic antilock brake systems, the MRQR-5000 antilock brake system has no electricity, and responds to pneumatic signals that are generated during the braking cycle. Therefore a pneumatic malfunction indication means is better for pneumatic malfunctions. b) The MSQR-5000 functions at pressures as low as 5 pounds per square inch (psi) and fails to function when there is a complete loss of air pressure. c) The pneumatic brake system stores approximately 120 pounds of air pressure to ensure that there is enough pressure to gaurantee multiple brake applications. d) When the pressure falls to 60 psi, a malfunction light located on the dashboard of the cab in full view of the driver comes on. (Most vehicles also have a buzzer to sound an alarm at the same time.) e) When the pressure drops to 30 psi, the emergency brake chamber releases to engage the emergency brake. This stops the vehicle and it must be repaired before it can be put back in service. This redundancy eliminates the need for additional wiring and gauges, thus keeping down the cost of the vehicle. It is our opinion that the malfunction indicator is not relevant to the operational safety of the vehicle and is inconsequential to the performance and safety of the vehicles we manufacture. The malfunction indicator is a diagnostic tool that is designed to detect electrical malfunction, i.e., electrical failure or disruption of the flow of electricity that actually powers the ECU. The pneumatic MSQR-5000 does not have electricity and therefore does not require an electrical malfunction light. Therefore, the trailers we manufacture will differ in the elimination of the external malfunction warning -10- light. Our request is also based on the fact that more that 300,000 electronic ABS systems had to be voluntarily recalled by the manufactures in September 2000. These systems experienced long brake activation delays when the brakes were applied. The activation delays are not detected by malfunction warning light that are mandated by Standard 121. Long brake application times are nto possible with the MSQR-5000 antilock brake system because it responds to the pneumatic signals generated in the air chambers. This enhances the safety of the vehicle. Our request is also based on the information provided in an article in the Commercial Carrier Journal / March 2000. Mr. Dick Radlinski, president of Radlinski & Associates, East Liberty, Ohio, and former chief of Crash Advoidance Research Branch of the NHTSA states “As long as antilock brake system (ABS) fault light isn’t lit, the system is functioning properly, right? Not necessarily. Despite extensive, onboard, ABS diagnostic capabilities, installation and repair problems can go undetected.” Our request is also based on DOT HS 808 568, April 1997, Interim Final Report, NHTSA’s Heavy Duty Vehicle Brake Research Program Report Number 11 – Evaluation of Shopping Performance of Trailer Antilock Brake Systems. Page 7, section 32. Test Results – Tandem Axle Trailer Tests, the test states: “In determining which stop was shortest, only stops for which directional control was maintained were included.” This test does not reveal all of the test data for the various electronic antilock brake systems tested by the NHTSA. The same test . . . states “The chamber pressure shows a change in the average pressure level and the frequency of the cycling just after the transition of as the system responds to the change in surface friction.” The pressure variations are graphically represented in Figure 6, Chamber Pressure (One Brake) on page 15. The Air Brake System Inc device, MSQR-5000, directly senses these pneumatic signals (pressure variations and frequency of cycling) and directly adjusts the brake actuating forces in the air chamber for better control during braking. We are not aware of any customer complaints concerning the braking performance, and have had absolutely no reports of safety incidents concerning the MSQR-5000. This reflects a better safety record than that experienced by the electronic ABS now in use. We therefore also request an exemption pursuant to 49 U.S.C. 30113(b)(3)(B)(iv) which provides that an exemption should be granted when “compliance with the standard would prevent the manufacturer from selling a motor vehicle with an overall safety level at least equal to the overall safety level of non- exempt vehicles.” -11- The use of the close-looped MSQR-5000 will also eliminate the additional expense of engineering a separate harness for powering the ECU of the electronic ABS. The additional connector between the towing tractor and the trailer is a drain on the electrical power capacity of the towing vehicle. The close-looped MSQR- 5000 is pneumatic and does not require additional electricity to function. This reduced expense will make trucks and trailers more competitive by lowering the cost of manufacturing. There are literally thousands of trucks, trailers and busses being operated on the highways today with the MSQR-5000 device installed and there have been no recorded safety complaints attributed to the device. As the use of this device would allow small businesses like ours to provide a superior product at a lower cost to the user, it would seem to be in the best interest of the public to grant the requested exemption. Finally, this exemption request by IMT, is supported by the following: a) Trailers produced by IMT differ in that they will be equipped with MSQR- 5000 pneumatic ABS. One unit will be installed down wind from the relay valve to receive pneumatic delivery pressure and centered between and connected via conduits to the respective service brake air chambers on a single axle. One will be installed per axle. Each unit will be fixed to the frame to eliminate being subjected to the vibration of associated with bouncing axles. b) Trailers produced by IMT will be standard equipped with the MSQR-5000 ABS safety equipment to provide balanced braking, even wear to the brake linings, maintenance of even and proper slack adjustments, shorter stopping distance, better braking deceleration and better tire wear. This will enhance the safety of the vehicle. c) The use of “open-looped” ABS is strictly forbidden by the NHTSA. IMT is aware that electronic ABS system open to vent air during the braking cycle. Compliance with the Standard 121 via “open-looped systems” means would be a misrepresentation and fraud. IMT cannot legally sell a vehicle that impairs safety. This would prevent the sale of any vehicle that is equipped with an electronic or any ABS that opens and vents air during braking. 7) This exemption is being requested within 30 days of date of noncompliance pursuant to §556.4(6). We have attached to this request applicable data on the patent, operational characteristics, testing and operation of the subject device. This information complies with the requirements of 49 U.S.C. 30113(c)(2) & (4). We certify that we -12- are eligible for an exemption pursuant to the guidelines in 49 U.S.C. 310113(d) and 49 CFR 556. AR at 1-5. NHTSA later wrote to Intermodal on July 2, 2004 informing the company that the agency would not construe the application for exemption under 49 C.F.R. § 556, the provision permitting exemption for “inconsequential defect[s] or noncompliance.” NHTSA explained: With respect to the first issue, under the National Highway Traffic and Motor Vehicle Safety Act . . . NHTSA may exempt a manufacturer from the duty to conduct a notification and remedy campaign (recall) to address safety related defect or noncompliance with an FMVSS if the agency decides that the defect or noncompliance is inconsequential to motor vehicle safety. See 49 U.S.C. §§ 30118(d), 30120(h). Under NHTSA’s implementing regulations, 49 CFR Part 556, the agency may only grant such an exemption on the basis of an application by a manufacturer that has determined that noncompliance (or defect) exists in its products and has submitted a non compliance (or defect) information report pursuant 49 CFR Part 573, “Defect and Noncompliance Responsibility and Reports.” See 49 CRF 556.4(a) and (b)(6). Since we have not received such a report from Intermodal, we cannot process your application under Part 556. Def.s’ Mot Judicial Notice, Ex. 3, Letter. 1 As earlier noted, NHTSA, in a written decision, denied Intermodal’s petition for an exemption on February 8, 2006. The agency cited two primary reasons for its decision. First, Intermodal “did not persuade the agency that the MSQR-5000 provides a safety level at least equal to that of the applicable Federal safety standard.” AR at 215. Second, “Intermodal . . . failed to articulate how granting the exemption would be in the public interest or how the exemption would facilitate development or field evaluation of the MSQR-5000.” Ibid. In other words, Intermodal “failed to meet the criteria specified in 49 CFR § 555.6(b).”AR at 217. 1 This document initially was not contained in the administrative record. However, at oral argument the parties stipulated to its admission. The document was also attached to Intermodal’s complaint in previous litigation before this Court. See Case No. 05-10204 -13- As a threshold, NHTSA considered whether the MSQR-5000 was actually an antilock brake system as contemplated under the regulations. In its view, that “determination is relevant to Intermodal’s petition because paragraph S5.2.3.1 of FMVSS No. 121 . . . requires trailers to be equipped with ABS as defined in the Standard. If the MSQR-5000 is not an ABS, an exemption from the warning light requirements of the Standard, as requested by Intermodal, would still not permit the petitioner to use the MSQR-5000 in lieu of an ABS system either complying with Standard 121 or, if Intermodal had requested an exemption from the ABS requirement, providing an equivalent level of performance to vehicles meeting that requirement.” AR at 218. The agency disagreed that the MSQR-5000 constituted an ABS. It reasoned: Intermodal submitted a series of affidavits stating that the MSQR-5000 is an ABS system within the meaning of S4 of FMVSS No. 121. As explained below, we disagree and note that the supporting affidavits, as well as the arguments contained in the petition do not address the entire definition as set forth in S4 of FMVSS No. 121. The MSQR-5000 is essentially a diaphragm, backed by a piston and dampened by a rubber spring, which is acted on by the air pressure in the brake lines to the brake cylinders. According to the materials submitted by the petitioner, the MSQR-5000 operates on the theory that wheel lockup occurs because of pressure spikes and pressure differentials inside the braking system. The MSQR-5000 purportedly prevents wheel lockup by reacting to, and negating the impact of, these pressure waves and pressure differentials. Intermodal also provided the agency with several affidavits from private individuals purporting to state that a vehicle equipped with MSQR-5000 would conform to the requirements of FMVSS No. 121, and that based on mathematical calculations, vehicles equipped with MSQR-5000 would exhibit shorter stopping distances compared to conventional ABS systems that comply with the requirements of FMVSS No. 121. Because these affidavits did not explain how the MSQR-5000 compensates for its apparent inability to detect and combat wheel slip, we find the affidavits irrelevant to vehicle performance on road conditions where ABS is needed. Similarly, comments submitted in support of the petition stating that the use of the MSQR-5000 shortened stopping distance, had not generated any product liability claims, or was cheap and simple to maintain, are irrelevant to whether it functions as -14- an ABS. Stopping performance alone is not indicator that a vehicle has ABS. While the petitioner provided some data, these data did not demonstrate performance which meets or exceeds the requirements of FMVSS No. 121, as required by §555.6(b)(2)(ii). In fact, one item provided by Intermodal, a Final Report on testing conducted by Southwest Research Institute (SWRI), indicates that the MSQR-5000 allowed wheel lockup resulting in a tractor trailer combination experiencing the equivalent of and FMVSS No. 121 test failure. Specifically, the vehicle did not, under full-treadle brake application, stop within a 12-foot wide land from 30 mph on wet surface negotiating a 500-foot radius curve. The conclusion of the final report reads as follows: “Based on the test results and discussions with the manufacturer, SwRI found that the MSQR system does not function in the same manner as an electronic anti-lock brake system (ABS). With full treadle application, it is possible to cause a wheel lockup that results in the vehicle not staying within the 12-foot lane.” The agency has considerable experience examining devices such as the MSQR-5000 and claims that this device and similar pressure dampening mechanisms function as an ABS. In 1992, NHTSA received a petition to require installation of devices like the MSQR-5000 on air braked vehicles. In response, the agency reviewed tests performed by the Southwest Research Institute, and the U.S. Army’s Aberdeen Proving Ground, which showed that the MSQR-5000 and a similar device called the BX-100, did not prevent wheel lockup. NHTSA also tested a similar device for hydraulic brake systems, called the Brake Guard, which showed that the Brake Guard did not, as claimed, prevent wheel lockup. The agency denied the petition on July 2, 1992 explaining: Independent tests of the petitioner’s device or products similar to his device indicate that it would not be in the interest of safety to adopt his requested amendment. For instance, tests at the Aberdeen Proving Ground indicated that a similar product, the BX-100 brake equalizer, was not approved on military vehicles . . .Similarly, tests at Southwest Research Institute indicated that vehicles equipped with the petitioner’s device needed an average of approximately 0.5 seconds longer to stop because additional time was needed to fill the expansion chamber. These vehicles exhibited a slower stopping time which ranged from .04 to 1.0 seconds at 40 miles per hour which would add from 24 to 59 feet to the stopping distance. . . Tests also indicate that the petitioner’s device does not smooth out the pressure spikes as claimed. In fact, it typically would only cause small changes in the pressure curves because of the added volume in the brake system pressure that must be filled with air. . . Historically, measurements at VRTC concerning pressure in air brake systems have not revealed peaks in brake pressure. In contrast, to the -15- in agency’s knowledge, axle combination units are the only type of air pressure differential that contributes to safety problems such as jackknifing and unbalanced braking. to axle pressure differentials In regard to the theory of the MSQR-5000, NHTSA also conducted two-year road tests of the antilock brake systems on 200 trucks, and 50 trailers, accumulating 44 million miles worth of data, which revealed no evidence of the pressure pulses that are the linchpin of the device’s operation. In the course of litigation in Air Brake Systems, Inc. v. Mineta, ABS Inc. offered no data purporting to demonstrate that these pressure pulses exist and Intermodal’s petition offers nothing further. As in the current Intermodal petition, in the case of Air Brake Systems, Inc. v. Mineta, ABS Inc. and its affiants asserted that the MSQR-5000 operates on the basis of differential pressure waves during braking by brake shoes contacting high and low spots and other irregularities in rotating brake drums. In response to these pressure differentials, the MSQR-5000 allegedly generates responsive waves that dampen pressure increases. NHTSA research and testing have never revealed the existence of the pressure waves described by the petitioner and, after conferring with agency experts and outside consultants having as much as 45 years experience in the field of developing, designing, and testing brake systems, the agency believes that such waves do not exist. However, even assuming the pressure differentials posited by the petitioner in fact exist, the MSQR-5000 depends on wheel rotation to generate the pressure pulses to which it allegedly reacts. As a locked wheel does not rotate, the MSQR-5000 cannot sense wheel lockup when it occurs and would cease completely to function under the very conditions of maximum braking instability when it most needs to act. Therefore, the agency concludes that the MSQR-5000 does not “automatically control . . . the degree of rotational wheel slip during braking” under all conditions, as FMVSS No. 121 requires. In addition to the inability to control wheel slip during braking, even if the claimed pressure pulses do exist, they are not signals from which “the rate of angular rotation of the wheels,” or therefore, wheel slip, can be determined as FMVSS No. 121 requires. Because the MSQR-5000 has no way of knowing how many irregularities there are in the shape of any given brake drum, it cannot measure the angular velocity of a wheel based soled on the propagation of the assume pressure pulses. For example, the device has no means of distinguishing between the pulses generated by a brake drum with six irregularities turning at 10 mile per hour, and a drum with a single irregularity turning at 60 miles per hour. Further, because it cannot determine the forward velocity of the vehicle, it would in any event lack critical information needed in order to determine wheel slip. The MSQR-5000 also lacks any means of processing information about the angular rotation of the wheels, and the forward velocity of the vehicle, in order to calculate the wheel slip. Finally, -16- the theoretical claims of the petitioner fail to account for the fact that the brake drums on new vehicles are round and have minimal irregularities, if any, from which a pressure pulse would spring. The petitioner argues that the MSQR-5000 controls wheel slip and prevents lockup by reducing pressure spikes that its expert assumes to be on the order of 2 psi. However, during a sudden stop, a vehicle operator may apply as much as 60-100 psi of brake pressure, thus requiring that the pressure be reduced by anywhere from 20 to 80 psi to prevent wheels from locking, or to free wheels that have been already locked. Under these conditions, modulating pressure pulses in the range of 2 psi will not prevent sustained wheel lookup. The MSQR-5000 does not vent air from the brake chambers in order to reduce brake pressure, a process that is basic to controlling slip and preventing lockup in air-braked vehicles. For this reason, NHTSA concludes that the MSQR-5000 does not “control wheel slip during braking” within the meaning of FMVSS No. 121. The petitioner’s analysis of fluid dynamics within an air brake system assumes a plane, one dimensional system and fails to account for the reflection and diffraction of the assumed pressure waves within the multi-dimensional geometry of a real brake line system. It also fails to account for the effects of incoming “data” waves and outgoing “control” waves on one another as they travel in opposite directions within the same brake lines. Instead it assumes, that the pressure waves generated by the rotation of the brake drums travel in “still air” within the brake line. AR at 218-20 (emphasis added). NHTSA then reviewed the merits of Intermodal’s petition for an exemption from the warning light requirements of safety standard S5.2.3.2 and S5.2.3.3. It noted that the MSQR-5000 had no electrical circuit that could signal an ABS malfunction and therefore Intermodal’s “trailers are not equipped with an external antilock malfunction indicator lamp.” AR at 220. In the agency’s view, this feature is critical “to alert operators that the ABS is not functioning and wheel lockup could occur.” Ibid.. Although Intermodal and a commenter contended that a warning system was unnecessary because the MSQR-5000 did not utilize electricity and a low pressure indicator was adequate, NHTSA disagreed, finding that Intermodal “fail[ed] to explain the potential consequences of mechanical failures of the MSQR-5000 system.” Ibid. -17- The agency conceded that a low air pressure indicator could signal to the driver a significant loss of pressure. However, it opined that other malfunctions in the system could be manifest that have little to do with air pressure. In other words, “the MSQR-5000 could fail without significant loss in system air pressure.” Ibid. By contrast,“ABS systems meeting the requirements of FMVSS No. 121 would warn the vehicle operator in the absence of any pressure loss.” Ibid. In concluding that the MSQR-5000's warning system was insufficient, the agency reasoned: NHTSA adopted the warning light requirement after concluding “that it is essential that the driver be notified about and ABS malfunction, so that the problem can be corrected. This conclusion applies equally to electronic and mechanical ABSs, and NHTSA explained that “mechanical ABSs will have to comply with the malfunction indicator requirements.” Any mechanical device, including the MSQR-5000, can wear out, brake, or otherwise malfunction. Indeed, we have previously concluded, and continue to believe, that the MSQR-5000 is susceptible to any number of possible malfunctions that would not be detected by the vehicle’s low-pressure warning system. Ibid. Finally, NHTSA determined that Intermodal did not “articulate how a temporary exemption would facilitate the development or field evaluation of vehicles equipped with MSQR-5000, as required by §555.6(b)(3).” Ibid. Lacking, in the agency’s view, was “a research plan or any other information that would explain how an exemption would be helpful in the further development of MSQR-5000 or trailers equipped with that device.” Ibid. Notably, Intermodal did not even suggest that “it intends to collect any data from the vehicles equipped with the MSQR-5000.” As a result, NHTSA further concluded that “Intermodal did not address how granting an exemption would serve the public interest.” Ibid. The agency then reiterated its key findings: In sum, the petitioner failed to meet the criteria of §555.6(b)(3) and §555.6(b)(2)(ii) because the petitioner did not persuade the agency that the safety device in question provides a safety level at least equal to that of the applicable Federal standard, and -18- because it failed to articulate how the exemption would make easier the development or field evaluation of the safety device for which the exemption is being sought. In addition, because the agency believes that MSQR-5000 cannot sense the rate of angular wheel rotation on a vehicle with new brake drums that do not have wear- related irregularities; is incapable of quantifying the actual rate of angular wheel slip; cannot control rotational wheel slip during full lockup; and cannot release excess pressure and therefore is incapable of preventing incipient lockup, we conclude that the grant of an exemption is not in the public interest. Ibid.(emphasis added). III. Summary judgment under Federal Rule of Civil Procedure 56 is a particularly useful method of reviewing federal agency decisions because “the sole question at issue [is] a question of law,” and the underlying material facts are contained in the administrative record. Sierra Club v. U.S. Fish and Wildlife Service, 189 F. Supp. 2d 684, 690 (W.D. Mich. 2002); United States v. Donovan, 348 F.3d 509, 511 (6th Cir. 2003); see also Wachovia Bank v. Watters, 431 F.3d 556, 559 (6th Cir. 2005); Progressive Corp. & Subsidiaries v. United States, 970 F.2d 188, 190-91 (6th Cir. 1992). The Court’s role is to determine whether judgment as a matter of law is appropriate for either party, in light of the standard of review prescribed for an agency’s denial of a petition for an exemption under the Administrative Procedures Act. A decision on an application for an exemption from a Federal Motor Vehicle Safety Standard constitutes informal agency action because neither the Safety Act or its implementing regulations require hearings to be held or factual findings to be made. See 49 C.F.R. § 557(b) (providing that applications for exemptions do not receive hearings); Kroger v. Regional Airport Authority, 286 F.3d 382, 386 (6th Cir. 2002). Consequently, under the APA, the Court may set aside NHTSA’s decision only if it “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with -19- law.” 5 U.S.C. § 706(2)(A); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 414 (1971). The arbitrary and capricious standard is considered to be the least demanding review of agency action. Kroger, 286 F.3d at 389. In other words, the Court is not permitted to substitute its judgement for that of the agency. Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42-43 (1983). Because of agency’s high degree of expertise in the area it regulates, the Court should largely defer to the agency with respect to technical and scientific determinations. Kentucky Resources Council, Inc. v. EPA, 467 F.3d 986, 991(6th Cir. 2006). In fact, this Court is to “uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned.” Motor Vehicles Mfrs. Ass’n, 463 U.S. at 43. Although narrow, this standard of review is not without meaning. Indeed, the Court is to make a careful and searching review in its assessment of the agency’s action. Overton Park, 401 U.S at 415. When the agency has “offered an explanation for its decision that runs counter to the evidence before [it],” the Court may properly set aside the agency’s decision as arbitrary and capricious. Wilson Air Center, LLC v. FAA, 372 F.3d 807, 813 (6th Cir. 2004). Nor must the Court accept the wholesale the expert opinions of agency experts. Northern Spotted Owl v . Hodel, 716 F. Supp. 479, 483 (W.D. Wash. 1988) (reasoning that the court may reject “conclusory assertions of agency ‘expertise’ where the agency spurns unrebutted expert opinions without itself offering a credible alternative explanation”). Finally, even if the agency’s decision is supported by substantial evidence, the Court may set aside a decision “where other evidence in the record detracts from that relied upon by the agency.” American Tunaboat Ass’n v. Baldrige, 738 F.2d 1013, 1016 (9th Cir. 1984). -20- A. Intermodal strenuously argues that NHTSA acted arbitrarily and capriciously in denying its petition because it relied on design factors not stated in Federal Motor Vehicle Safety Standard 121. This contention is reminiscent of Washington’s earlier arguments to the Tenth Circuit that the standard exceeds statutory authority because it forces manufactures to use certain design features, when the agency is only permitted to regulate performance standards. See Wood v. General Motors Corp., 865 F.2d 395, 416-17 (1st Cir. 1988) (reasoning that NHTSA is generally charged with developing performance standards, not design specifications). The twist in this case is that Intermodal now asserts NHTSA has interpreted its regulations to impermissibly add design requirements. The Court disagrees. Under the regulations, an antilock brake system is defined as: Antilock brake system or ABS means a portion of a service brake system that automatically controls the degree of rotational wheel slip during braking by: (1) Sensing the rate of angular rotation of the wheels; (2) Transmitting signals regarding the rate of wheel angular rotation to one or more controlling devices which interpret those signals and generate responsive controlling output signals; and (3) Transmitting those controlling signals to one or more modulators which adjust brake actuating forces in response to those signals. 49 C.F.R. §571.121(S4). The gravamen of Intermodal’s complaint is that NHTSA has interpreted this regulation so that only electronic antilock brakes could qualify. For example, Intermodal notes that an ABS “must sense the rate of angular rotation of the wheel.” In Intermodal’s view, the language does not require an ABS “to compute the velocity of the wheels, compute the speed of the vehicle, or compute the -21- acceleration or deceleration rates of the wheels.” Intermodal Mot. Summ. J. at 19. However, according to Intermodal, in its decision, NHTSA apparently for the first time read the provision to require the device “to obtain information about the rate of wheel rotation, relative to the forward motion of the wheel; to obtain information regarding the angular velocity of a wheel; and to determine velocity of the vehicle . . . .[and] has for the first time interpreted such language to possess a wheel speed sensor to monitor the rotational speed of the wheel.” Ibid. (internal quotations and citations omitted). Further, Intermodal continues, NHTSA, in its decision requires an antilock brake device to “process information about the angular rotation of the wheels, and the forward velocity of the vehicle, in order to calculate the wheel slip.” Id. at 20 (citations omitted) These functions, Intermodal insists, mandate computerization and directly contradicts the agency’s statement that Standard 121 “does require electronics for the sensing of the wheel rotation, or transmission of wheel rotation or controlling signals.” 60 Fed. Reg. at 13227. As noted, the second definitional element is that the antilock device is that it “transmits signals regarding the rate of wheel angular rotation to one or more controlling devices which interpret those signals and generate responsive controlling output signals.” 49 C.F.R. § 571.121(S4)(2). Intermodal complains that NHTSA now “use[s] the rate of wheel rotation and not a substitute or surrogate factor to control wheel slip and prevent lockup.” Id. at 21. In its view, “[s]uch a definition is nonsensical, and appears to be intended to preclude any ABS device other than a computerized device.” Ibid. Finally, the third definitional element requires the device to “[t]ransmit[] those controlling signals to one or more modulators which adjust brake actuating forces in response to those signals.” -22- 49 C.F.R § 571.121(S4)(3). However, according to Intermodal, in its decision, NHTSA now requires an antilock device to “modulate brake pressure in response to the rate of angular rotation of wheels relative to the vehicles forward motion,” which means that the “[antilock brake] device must vent from the brake chambers in order to reduce brake pressure, a process that is basic to controlling slip and preventing lockup in air-braked vehicles.” Ibid. Intermodal concludes that NHTSA requires a pressure release valve, which is a design, not a performance specification. Intermodal’s challenges to the agency’s opinion are unpersuasive. Intermodal relies in part on the notion that NHTSA has for the first time interpreted the regulation in a certain way. However, Intermodal has cited to no provision of law that would compel setting aside the decision here simply because the agency, in denying an application for an exemption, explained its views on the meaning of the applicable requirements. Intermodal’s burden is well established: it must show that NHTSA conclusion was arbitrary and capricious. Moreover, Intermodal’s contention that only electronic devices would satisfy NHTSA’s novel construction of Safety Standard 121 appears to rest largely on Intermodal’s own interpretation of the agency’s decision. For example, the term “electronic” is not contained within the agency’s interpretations, and NHTSA’s focus plainly is on “performance” as opposed to “design.” Indeed, NHTSA has not read Safety Standard 121 to require any type of specific device or design. It is only Intermodal’s contention that only a computerized antilock brake system would satisfy the agency. As a general rule, the Court must afford great deference to an agency when the agency interprets its own regulations. See Auer v. Robbins, 519 U.S. 452 457-58 (1998) (reasoning that agencies are entitled to deference in the interpretation of their own regulations). In this case, the Court sees no justification to ignore this well-established mandate. In fact, NHTSA offers a -23- persuasive rebuttal to Intermodal’s assertions noting that, at times, the agency was not interpreting a given term, the agency was simply employing a synonym, and Intermodal misread the agency’s decision. NHTSA reasons: [P]laintiff mistakenly asserts that NHTSA has not interpreted the ABS definitional element on “sensing the rate of angular rotation of the wheels” to require an ABS device to obtain “information about the rate of wheel rotation, relative to the forward motion of the wheel.” This misreads the decision, which in context did not interpret the definitional element of sensing the rate of angular rotation of the wheels. Instead, the decision explained how the information about the rate of wheel rotation is used by an ABS. AR 217. This explanation refers to the term “wheel slip,” which in the preamble to the 1995 rule adopting the ABS requirement, NHTSA referred to as “the proportional amount of wheel/tire skidding relative to vehicle forward motion.” AR 272 n 27; see also AR 145 AR 172, AR 218, AR 272, AR 307, AR 334, AR 336. In any event, as is evident from the preceding quotation, the references to wheel rotation and vehicle forward motion were not first articulated in the decision. Similarly, plaintiff quibbles about the phrase “angular velocity of a wheel” on the grounds that NHTSA interpreted it in a way for the first time. But plaintiff has not demonstrated that what NHTSA said was plainly erroneous or inconsistent with the regulation, as it can not, because phrases such as “rate of wheel rotation,” and in short hand “angular velocity of a wheel,” and“rotational speed of the wheel” are different ways of saying the ABS definitional element of rate of angular rotation of the wheel. Plaintiff argues that NHTSA interpreted the regulatory language to require computerization. . . . Plaintiff refers to a statement in the decision that the MSQR lacks any means of processing information about the angular rotation of the wheels and the forward velocity of the vehicle, in order to calculate the wheel slip. AR 220 . . . .In order for an ABS to control wheel slip as required by FMVSS No. 121, the ABS must be able to detect wheel slip. . . . [W]heel slip is derived from the rate of angular rotation of the wheel and the forward motion of the vehicle. An ABS uses both of these elements to determine and, thus control, wheel slip. [Another definitional element] is “transmitting signals regarding the rate of wheel angular rotation to one or more controlling devices which interpret those signals and generate responsive controlling output signals.” NHTSA stated the ABS must use the rate of wheel rotation, and not a substitute, to control wheel slip and prevent lock up. AR 218. Plaintiff asserts that this is nonsensical and, once again, Plaintiff complains that this requires computerization, a word that does not appear in NHTSA’s interpretation. Both the ABS definition and NHTSA’s decision refer to the rate of -24- wheel angular rotation. In the first numbered element, the definition requires sensing the rate of angular rotation of the wheels. Next, the transmission of signals regarding that rate to controlling device(s) which generate controlling output signals is required. Then, the transmission of those controlling signals to modulator(s) that adjust the brake forces in response to those controlling signals is required. Collectively, these actions must control the degree of rotational wheel slip. In short, an operating ABS starts with the rate of angular rotation of the wheels, goes through other steps, and ultimately controls wheel slip. NHTSA stated that the ABS must use the rate of wheel rotation, and not a substitute, to control wheel slip. This is not plainly erroneous or arbitrary and capricious; it is true that its coverage includes matters such as wheel slip that are not in the second numbered element. And, while Plaintiff offers its views that the definition “requires an ABS device to transmit signals ‘with respect to or concerning’ the rate of wheel angular rotation, Plaintiff has not argued or shown that its application demonstrated that the MSQR meets this test or that NHTSA’s decision at AR 219-20 was based on factors that are inconsistent with the ABS definition. The [final] element of the ABS definition is “transmitting those controlling signals to one or more modulators which adjust brake actuating forces in response to those signals.” (emphasis added). NHTSA interpreted this to mean in part that the ABS must modulate brake pressure in response to the rate of angular rotation of the wheels relative to the vehicle’s forward motion. AR 218. Plaintiff argues that “NHTSA has added a new requirement to ‘modulate brake pressure’” and a new phrase “relative to the vehicle’s forward motion.” “Adjust” is a synonym for “modulate.” In addition, the adjustment of brake force involves adjusting (increasing or decreasing) braking pressure. AR 147-49. Vehicle forward motion is part of wheel slip. AR 272. Thus, NHTSA’s interpretation, which requires modulation of brake pressure in response to wheel slip, was not plainly erroneous. . . . Plaintiff quotes NHTSA’s decision as suggesting that the “ABS device must ‘vent air from the brake chambers in order to reduce the brake pressure, a process that is basic to controlling slip and preventing lockup in air-braked vehicles.’” This suggestion is grounded on plaintiff’s rewriting of the decision. The decision analyzing the MSQR, states that “MSQR does not vent air from the air chambers in order to reduce brake pressure, a process that is basic to controlling slip and preventing lockup in airbraked vehicles.” . . . . The MSQR is not capable of modulating air pressure to release a locked wheel because it is not capable of venting air pressure on the brake to do so. AR 138-39, AR 188. . . An ABS must be able to modulate, that is, reduce, hold, and reapply, air pressure. AR 218; see also AR 138-40, AR 158-59, AR 175, AR 177, AR 189-94. -25- Def.s’ Mot. Summ. J. at 18-21. Ultimately, the kind of hyper-technical judicial scrutiny of agency interpretation that Intermodal urges is precisely what the Tenth Circuit warned against. To be sure, interpretation of the standard, although performance driven, may suggest a certain type of design. However, as the Tenth Circuit noted: [T]he performance-design distinction is much easier to state in the abstract than to apply definitively–so as to justify judicial interference with an agency's regulatory function–in concrete situations. This is particularly true when, due to contingent relationships between performance requirements and design options, specification of the former effectively entails, or severely constrains, the choice of the latter. Such a relationship has been recognized between braking performance criteria and ABS. We would, accordingly, be hesitant to invalidate this carefully developed safety standard solely on the basis of its indefinite place on the conceptual spectrum between performance and design. Washington, 84 F.3d at 1224. Because NHTSA may permissibly interpret regulations for the first time and Intermodal’s belief that the agency’s interpretations would permit only a computerized device is based largely on its own interpretation of NHTSA’s denial, NHTSA’s interpretations are entitled to deference. The Court finds no basis to set aside the decision as arbitrary and capricious. However, despite the Court’s conclusion, Intermodal, as has been emphasized before, is not with out remedy. As both the Tenth and Sixth Circuits have noted, Intermodal may seek to engage the rulemaking process to change the applicable standards. Air Brake Systems, 357 F.3d 645-46 (“reasoning that “the company remains free to petition NHTSA to alter Standard 121 under the agency's rulemaking powers. 49 C.F.R. § 552.3(a) (‘Any interested party may file with the Administrator a petition requesting him . . . [t]o commence a proceeding respecting the issuance, amendment or revocation of a motor vehicle safety standard.’)”); Washington, 84 F.3d at 1225 (noting that Washington could “petition -26- for a new safety standard incorporating the new device”). B. Perhaps the most critical finding in NHTSA’s decision that Intermodal contests is the agency’s conclusion that the MSQR-5000 is not an antilock brake system as contemplated by the regulations. Of course, in order to qualify for an exemption from a safety standard governing antilock brakes, the device must first be an antilock brake system. Thus, unless this threshold is met, the remaining portions of the petition become moot. Intermodal primary contends that NHTSA’s determination was arbitrary and capricious because NHTSA ignored the opinions of Intermodal’s experts and accorded controlling weight to the analytically less rigorous opinions of its own unreliable experts. The Court cannot agree. NHTSA thoroughly reviewed the mechanics of the MSQR-5000. It is not the Court’s role to weigh the competing contentions and qualifications of experts in this highly technical area. As previously noted, NHTSA has defined an antilock brake system as follows: Antilock brake system or ABS means a portion of a service brake system that automatically controls the degree of rotational wheel slip during braking by: (1) Sensing the rate of angular rotation of the wheels; (2) Transmitting signals regarding the rate of wheel angular rotation to one or more controlling devices which interpret those signals and generate responsive controlling output signals; and (3) Transmitting those controlling signals to one or more modulators which adjust brake actuating forces in response to those signals. 49 C.F.R. §571.121(S4). Intermodal cites to the Supreme Court’s seminal decision in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1973) as persuasive – albeit not binding – authority against -27- which NHTSA should have measured the reliability of expert testimony. The framework set forth in that decision, Intermodal maintains, would prevent NHTSA from passing off “junk science” as dispositive of its technical conclusions. Intermodal complains that none of NHTSA’s experts that opined that the MSQR-5000 did not comply with Safety Standard 121 have actually tested, examined, or seen the device. The affidavits of Duane A. Perrin, Afred G. Beier, Robert D. Ervin, Mancil W. Milligan, and Leonard C. Buckman simply attack the opinions of those experts that have worked with the MSQR-5000. In fact, Intermodal notes, Perin and Beier never even examined the promotional materials that were submitted with the petition. The other three based their review solely on the patent information. In Intermodal’s view, it is inconceivable that the agency relied on experts that lack personal knowledge, and concludes that “fundamental fairness requires an administrative agency to rely upon only those expert opinions which rest on reliable foundation and scientific fact.” Intermodal Mot. Summ. J. at 16. Intermodal’s arguments are again without merit. As it concedes, neither the Federal Rules of Evidence nor Daubert find direct application in this instance. The test is not of personal knowledge, which has never been required of experts even under evidentiary rules, nor of whether the agency actually tested and evaluated the device; the plaintiff bears the burden of showing that the agency’s determination is arbitrary and capricious. Intermodal has not met that burden. Even upon cursory reading, it is apparent that the experts NHTSA utilized are well-qualified. Perrin, an NHTSA engineer at the time he submitted his affidavit, assisted in the development and publication of braking standards. AR at 132. His area of focus was heavy vehicle research and air brake systems. Ibid. Beier is the former chief engineer of brakes and wheel equipment for a -28- company that manufacture vehicles with air brakes. AR at 153. He later became a consultant in the area of new products and brake problems. AR at 153. Ervin, presently a research engineer and University of Michigan professor, has authored approximately ninety journal articles and conference papers. AR at 169. In addition, he has taught a course on the mechanics of heavy duty trucks and truck combinations. Ibid. Milligan is the University of Tennessee’s department head of mechanical and aerospace engineering. AR at 169. He has researched fluid mechanics for thirty-five years. Ibid. Buckman is an engineer with forty-one years of experience. AR at 179. He is the author of Air Brakes, ABS, and Beyond, published by the Society of Automotive Engineers. Finally, NHTSA relied on the affidavit of Jeffrey Woods. His affidavit was filed as a supplement to the administrative records and reveals that he is presently a NHTSA safety standards engineer and formerly an agency research engineer in the heavy vehicle division. AR at 462. In terms of qualifications, the Court cannot say that the choice of these experts was arbitrary and capricious. Substantively, NHTSA’s primary finding centered on the apparent inability, in its view, of the MSQR-5000's “to detect and combat wheel slip.” AR at 218. Because of this inability, the agency reasoned, the device did not meet that requirement that it “automatically control[] the degree of rotational wheel slip during braking.” 49 C.F.R. 571.121(S4). NHTSA explained that the MSQR- 5000 is “essentially a diaphragm backed by a piston and dampened by a rubber spring, which is acted upon by the brake cylinders.” AR at 218. The device “operates on a theory that wheel lockup occurs because of pressure spikes and pressure differentials inside the braking system . . . . [The MSQR- 5000] purportedly prevents wheel lockup by reacting to, and negating the impact of, these pressure waves and pressure differentials.” AR at 218-19. The difficulty, however, is that NHTSA found that Intermodal did not provide support for -29- the existence of the pressure waves. The agency’s conclusion is supported in the decision and record. NHTSA noted that it had conducted two-year road tests with devices similar to the MSQR- 5000 on 200 trucks and fifty trailers. It accumulated over forty-four million miles worth of data, “which revealed no evidence of the pressure pulses that are the linchpin of the device’s operation.” AR at 219. Indeed, NHTSA affirmed that its “research and testing have never revealed the existence of the pressure waves described by [Intermodal].” Ibid. NHTSA concluded that “after conferring with agency experts and outside consultants having as much as 45 years experience in the field of developing, designing, and testing brake systems, the agency believes that such waves do not exist.” Ibid. The agency also based its conclusion that the device did not prevent wheel lockup on outside tests of two similar devices, the BX-100 and Brake Guard. Tests were performed by the Southwest Research Institute and at the Aberdeen Proving Ground by the United States Army and led the agency to the following conclusion: Independent tests of the petitioner’s device or products similar to his device indicate that it would not be in the interest of safety to adopt his requested amendment. For instance, tests at the Aberdeen Proving Ground indicated that a similar product, the BX-100 brake equalizer, was not approved on military vehicles . . .Similarly, tests at Southwest Research Institute indicated that vehicles equipped with the petitioner’s device needed an average of approximately 0.5 seconds longer to stop because additional time was needed to fill the expansion chamber. These vehicles exhibited a slower stopping time which ranged from .04 to 1.0 seconds at 40 miles per hour which would add from 24 to 59 feet to the stopping distance. . . Tests also indicate that the petitioner’s device does not smooth out the pressure spikes as claimed. In fact, it typically would only cause small changes in the pressure curves because of the added volume in the brake system pressure that must be filled with air. . . Historically, measurements at VRTC concerning pressure in air brake systems have not revealed peaks in brake pressure. In contrast, to the agency’s knowledge, axle to axle pressure differentials in combination units are the only type of air pressure differential that contributes to safety problems such as jackknifing and unbalanced braking. -30- Ibid. Intermodal claims that NHTSA’s own research supports the existence of the pressure waves. However, Intermodal does not cite to any record evidence for this proposition. Instead, it relies on an interim report entitled “NHTSA’s Heavy Duty Vehicle Brake Research Program Report Number 11 – Evaluation of Stopping Performance” that it attached to its motion for summary judgment. See Intermodal Mot. Summ. J. Ex 9, Report. Generally, the Court’s review is confined to the evidence contained in the administrative record. See Kroger, 286 F.3d at 389. Intermodal made no motion to supplement the record, and it is questionable whether the Court should review it. In any event, NHTSA has offered a reasoned explanation that the report did not focus on the type of waves Intermodal claims it does. For several reasons, the pressure variations cannot be the pressure pulses the MSQR-5000 allegedly relies upon to operate as an ABS. Plaintiff has completely misinterpreted the data displayed in the charts attached to plaintiff’s brief but not submitted in the application. The chart illustrates how an ABS system responds to a change in road surface conditions. The pressure variations referred to by plaintiff represent the efforts of the ABS system to avoid wheel lockup by applying and releasing brake pressure, not a pressure pulse in response to a defects in the brake drum or brake shoe as plaintiff contends. Def.s’ Mot. Summ. J. at 29-30. The affidavits submitted by Intermodal either assume the existence of the pressure waves or insist the NHTSA testing equipment is too slow to measure the differentials. See AR 12-55. At least one affidavit offers mathematical formulae demonstrating that such waves are theoretically possible, but there does not appear to be any documentation of their actual existence with respect to the MSQR-5000. At best, then, there is a difference of opinions between the parties’ experts and Intermodal’s belief that its experts deserve more weight. -31- However, it is not the function of the Court to afford more weight to a parties’ expert in dealing with technical matters that are within the regulatory province of an agency. In fact, the Supreme Court has emphasized that inherent in the deference afforded by the arbitrary and capricious standard of review, an agency “must have discretion to rely on the reasonable opinions of its own qualified experts even if, as an original matter, a court might find contrary views more persuasive.” Marsh v. Oregon Natural Resources Council, 490 U.S. 360, 378 (1989). Intermodal has not demonstrated that the opinions of NHTSA’s experts were unreasonable, and the Court believes that the agency’s determination that the MSQR-5000 was not an antilock brake system as contemplated under the regulations was neither arbitrary nor capricious. C. Intermodal makes a final challenge to NHTSA’s decision. It claims that the agency improperly reviewed its petition for an exemption only under 49 U.S.C. § 30113(b)(3)(B)(ii) and not under 49 C.F.R. § 556.4 as Intermodal requested. Intermodal insists that it never received actual notice that NHTSA would focus on section 30113, and the agency’s failure to provide that notice denied it due process of law. The Court disagrees. Not only did NHTSA provide actual notice to Intermodal, the agency’s conclusion that 49 C.F.R. § 556.4 was inapplicable was not arbitrary or capricious. The significance of the agency’s decision to construe the petition under section 30113 is not readily apparent. In its denial, NHTSA found that Intermodal would not be entitled to an exemption because, among other things, “Intermodal . . . failed to articulate how granting the exemption . . . would facilitate development or field evaluation of the MSQR-5000,” AR at 220, as required by 49 C.F.R. § 555.6(b) (regulation promulgated pursuant to section 30113). Specifically lacking, in the -32- agency’s view, was “a research plan or any other information that would explain how an exemption would be helpful in the further development of MSQR-5000 or trailers equipped with that device.” Ibid. Notably, Intermodal did not even suggest that “it intends to collect any data from the vehicles equipped with the MSQR-5000.” Ibid. Intermodal complains that 49 C.F.R. § 556.4, the provision not considered by the agency, does not require such a showing. Section 556.4 governs exemptions for “inconsequential defect or non compliance,” and provides: (a) A manufacturer who has determined the existence, in a motor vehicle or item of replacement equipment that he produces, of a defect related to motor vehicle safety or a noncompliance with an applicable Federal motor vehicle safety standard, or who has received notice of an initial determination by the NHTSA of the existence of a defect related to motor vehicle safety or a noncompliance, may petition for exemption from the Act's notification and remedy requirements on the grounds that the defect or noncompliance is inconsequential as it relates to motor vehicle safety. (b) Each petition submitted under this part shall– (1) Be written in the English language; (2) Be submitted in three copies to: Administrator, National Highway Traffic Safety Administration, Washington, D.C. 20590; (3) State the full name and address of the applicant, the nature of its organization (e.g., individual, partnership, or corporation) and the name of the State or country under the laws of which it is organized. (4) Describe the motor vehicle or item of replacement equipment, including the number involved and the period of production, and the defect or noncompliance concerning which an exemption is sought; and (5) Set forth all data, views, and arguments of the petitioner supporting his petition. (6) Be accompanied by three copies of the report the manufacturer has submitted, or is submitting, to NHTSA in accordance with part 573 of this chapter, relating to its determination of the existence of safety related defect or noncompliance with an applicable safety standard that is the subject of the petition. (c) In the case of defects related to motor vehicle safety or noncompliances determined to exist by a manufacturer, petitions under this part must be submitted not later than 30 days after such determination. In the case of defects related to motor vehicle safety or noncompliances initially determined to exist by the NHTSA, -33- petitions must be submitted not later than 30 days after notification of the determination has been received by the manufacturer. Such a petition will not constitute a concession by the manufacturer of, nor will it be considered relevant to, the existence of a defect related to motor vehicle safety or a nonconformity. 49 C.F.R. § 556.4. Intermodal explained in its petition that its noncompliance with the warning light requirements set forth Safety Standard 121 was “inconsequential” and sought an exemption on that basis as well. Intermodal contends that, although 49 C.F.R. § 555.6 requires an articulation of how an exemption would facilitate development or field evaluation of vehicles equipped with its device, no such requirement is contained in section 556.4. Thus, in its view, had NHTSA properly construed its petition under section 556.4, Intermodal would have been entitled to an exemption because any defect in its device was inconsequential. Intermodal’s due process argument is also without merit. In fact, supplemental materials included in the administrative record by stipulation of the parties at oral argument reveal that NHTSA provided Intermodal with actual notice that it would not apply section 556.4. In a letter dated July 2, 2004, the agency wrote: With respect to the first issue, under the National Highway Traffic and Motor Vehicle Safety Act . . . NHTSA may exempt a manufacturer from the duty to conduct a notification an remedy campaign (recall) to address safety related defect or noncompliance with an FMVSS if the agency decides that the defect or noncompliance is inconsequential to motor vehicle safety. See 49 U.S.C. §§ 30118(d), 30120(h). Under NHTSA’s implementing regulations, 49 CFR Part 556, the agency may only grant such an exemption on the basis of an application by a manufacturer that has determined that noncompliance (or defect) exists in its products and has submitted a non compliance (or defect) information report pursuant 49 CFR Part 573, “Defect and Noncompliance Responsibility and Reports.” See 49 CRF 556.4(a) and (b)(6). Since we have not received such a report from Intermodal, we cannot process your application under Part 556. Def.s’ Mot Judicial Notice, Ex. 3, Letter. -34- Whether NHTSA was arbitrary and capricious in so deciding, however, requires explication of the statutory and regulatory framework governing exemptions. The National Traffic and Motor Safety Act, 49 U.S.C. § 30110 et seq., delegates to NHTSA authority to promulgate and enforce Federal Motor Vehicle Safety Standards. Those standards are meant to set minimal safety criteria for new motor vehicles. Simms v. NHTSA, 45 F.3d 999, 1001 (6th Cir. 1995). The Safety Act proscribes the manufacture and sale of vehicles that are not in compliance with safety standards promulgated by NHTSA. 49 U.S.C. § 30112(a). The Act also requires manufacturers to recall noncompliant vehicles. 49 U.S.C. § 30118(c). Statutorily, there are two exceptions to the prohibition on sale of noncompliant vehicles and the mandate to recall vehicles not in compliance with safety standards. First, section 30113, Title 49 of the United States Code provides for temporary exemptions from compliance, in whole or in part, with a safety standard. Section 30113 provides, in relevant part: (b) Authority to exempt and procedures. – (1) The Secretary of Transportation may exempt, on a temporary basis, motor vehicles from a motor vehicle safety standard prescribed under this chapter or passenger motor vehicles from a bumper standard prescribed under chapter 325 of this title, on terms the Secretary considers appropriate. An exemption may be renewed. A renewal may be granted only on reapplication and must conform to the requirements of this subsection. (2) The Secretary may begin a proceeding under this subsection when a manufacturer applies for an exemption or a renewal of an exemption. The Secretary shall publish notice of the application and provide an opportunity to comment. An application for an exemption or for a renewal of an exemption shall be filed at a time and in the way, and contain information, this section and the Secretary require. (3) The Secretary may act under this subsection on finding that – (A) an exemption is consistent with the public interest and this chapter or chapter 325 of this title (as applicable); and (B)(i) compliance with the standard would cause substantial economic hardship to a manufacturer that has tried to comply with the standard in good faith; (ii) the exemption would make easier the development or field evaluation of a new -35- motor vehicle safety feature providing a safety level at least equal to the safety level of the standard; (iii) the exemption would make the development or field evaluation of a low-emission motor vehicle easier and would not unreasonably lower the safety level of that vehicle; or (iv) compliance with the standard would prevent the manufacturer from selling a motor vehicle with an overall safety level at least equal to the overall safety level of nonexempt vehicles. (c) Contents of applications.--A manufacturer applying for an exemption under subsection (b) of this section shall include the following information in the application: (1) if the application is made under subsection (b)(3)(B)(i) of this section, a complete financial statement describing the economic hardship and a complete description of the manufacturer's good faith effort to comply with each motor vehicle safety standard prescribed under this chapter, or a bumper standard prescribed under chapter 325 of this title, from which the manufacturer is requesting an exemption. (2) if the application is made under subsection (b)(3)(B)(ii) of this section, a record of the research, development, and testing establishing the innovative nature of the safety feature and a detailed analysis establishing that the safety level of the feature at least equals the safety level of the standard. (3) if the application is made under subsection (b)(3)(B)(iii) of this section, a record of the research, development, and testing establishing that the motor vehicle is a low-emission motor vehicle and that the safety level of the vehicle is not lowered unreasonably by exemption from the standard. (4) if the application is made under subsection (b)(3)(B)(iv) of this section, a detailed analysis showing how the vehicle provides an overall safety level at least equal to the overall safety level of nonexempt vehicles. (d) Eligibility. – A manufacturer is eligible for an exemption under subsection (b)(3)(B)(i) of this section (including an exemption under subsection (b)(3)(B)(i) relating to a bumper standard referred to in subsection (b)(1 only if the Secretary determines that the manufacturer's total motor vehicle production in the most recent year of production is not more than 10,000. A manufacturer is eligible for an exemption under subsection (b)(3)(B)(ii), (iii), or (iv) of this section only if the Secretary determines the exemption is for not more than 2,500 vehicles to be sold in the United States in any 12- month period. (e) Maximum period. – An exemption or renewal under subsection (b)(3)(B)(i) of this section may be granted for not more than 3 years. An exemption or renewal under subsection (b)(3)(B)(ii), (iii), or (iv) of this section may be granted for not more than 2 years. 49 U.S.C. § 30113(b)-(e). Second, section 30118 permits exemptions from the recall requirement -36- under certain circumstances. Section 30118 reads, in pertinent part: (d) Exemptions. – On application of a manufacturer, the Secretary shall exempt the manufacturer from this section if the Secretary decides a defect or noncompliance is inconsequential to motor vehicle safety. The Secretary may take action under this subsection only after notice in the Federal Register and an opportunity for any interested person to present information, views, and arguments. 49 U.S.C. § 30118(d). In this case, the parties agree on at least two propositions: that NHTSA’s implementing regulations 49 U.S.C. § 30113(b)(3)(B)(ii) are set forth in 49 C.F.R. § 555 and that Intermodal was not claiming an entitlement to an exemption from the Safety Act’s recall provisions. The dispute is whether 49 C.F.R. § 556.4, governing exemptions for inconsequential defects, is part of the regulations that implement 49 U.S.C. § 30113. Intermodal believes that section 30113 allows for temporary exemptions as a result of inconsequential defects, as set forth in 49 C.F.R. § 556.4. Consistent with its July 2, 2004 letter, NHTSA maintains that 49 C.F.R. § 556 governs only exemptions from 49 U.S.C. § 30118's duty to recall noncompliant vehicles. Intermodal’s contention stems, in the Court’s view, from a misreading of the legislative history of the various acts of Congress that implemented section 556.4. Intermodal insists that section 556.4 must implement 49 U.S.C. § 30113 because the original act of Congress that implemented section 556.4 has been repealed and section 30113 is the only provision in the Safety Act governing exemptions. Intermodal states: . . . § 556 itself states that it was implemented pursuant to 15 U.S.C. § 1417, which was repealed on July 5, 1994, pursuant to P.L. 103-272, §7(b), 108 Stat. 1379. (See Exhibit “A” attached hereto, which is a copy of the first page of § 556). The only statute which currently exists governing exemptions from Federal Motor Vehicle Safety Standards (“FMVSS”) is 49 U.S.C. § 30113. Therefore, for this Regulation to be valid, § 556 must be implementing § 30113. -37- Pl.’s Resp. Br. at 2. As NHTSA points out, the agency, in 1977, promulgated 49 C.F.R. § 556, see 42 Fed. Reg. 7145 (Feb. 7, 1977) under the authority set forth in 15 U.S.C. § 1417, the National Traffic and Motor Vehicle Safety Act. Section 556 was “to establish procedures that will implement the legislative mandate of section 157 of the National Traffic and Motor Vehicle Act.” 42 Fed. Reg. 7145. In 1994, a recodification occurred. Congress repealed Department of Transportation laws codified in Title 15 of the United States Code while at the same time adopting the very same laws without substantive change in Title 49 of the Code. See Pub. L. 103-272, §7(b), 108 Stat. 745, 941, 1379 (July 5, 1994). A House of Representatives report noted the change and contained a master disposition table revealing the former sections of Title 15 and their corresponding new section designations under Title 49. See H. Rep. 103-180, Table 1A, pp. 499 et seq. (1994). The table specifies that 15 U.S.C. § 1417, the provision that 49 C.F.R. § 556 implemented, was recodified, in relevant part, at 49 U.S.C. § 30118(d). Although the Code of Federal Regulations was not changed to reflect the recodification, the only conclusion the Court can draw is that section 556 implements 49 U.S.C. § 30118(d). Since section 30118(d) applies only under circumstances where a recall is contemplated, 49 C.F.R. § 556.4 implements that section, and Intermodal concedes it is not seeking an exemption from the recall provision, NHTSA could not have acted arbitrarily and capriciously in confining its review to 49 U.S.C. § 30113 and that section’s implementing regulations set forth at 49 C.F.R. § 555. -38- IV. The Court concludes after reviewing the administrative record in this case that NHTSA’s decision denying Intermodal’s application for an exemption from the warning light requirements of Safety Standard 121 was not arbitrary or capricious. The agency did not rely on factors not stated in the regulations in making its determination, it properly relied on the reasonable opinions of its experts, and appropriately construed Intermodal’s petition as seeking an exemption under 49 U.S.C. § 30113(b)(3)(B)(ii). Accordingly, it is ORDERED that the plaintiff’s motion for summary judgment [dkt # 13] is DENIED, the defendants’ motion for summary judgment [dkt # 16] is GRANTED, and the case is DISMISSED WITH PREJUDICE. It is further ORDERED that the defendants’ motion for leave to file documents [dkt # 26] is GRANTED based on the parties’ stipulation at oral argument. Dated: July 24, 2007 s/Thomas L. Ludington THOMAS L. LUDINGTON United States District Judge PROOF OF SERVICE The undersigned certifies that a copy of the foregoing order was served upon each attorney or party of record herein by electronic means or first class U.S. mail on July 24, 2007. s/Tracy A. Jacobs TRACY A. JACOBS -39-

=== Lone Tree Opinion Granting Defendant's MSJ ===

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION LONE TREE COUNCIL, and ENVIRONMENT MICHIGAN Plaintiffs, v. UNITED STATES ARMY CORPS OF ENGINEERS, and SAGINAW COUNTY, ______________________________________ / Defendants. Case Number 06-12042-BC Honorable Thomas L. Ludington OPINION AND ORDER GRANTING DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT, DENYING PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT, AND DISMISSING CASE The case arises out of the plans of the defendants, the Army Corps of Engineer (Corps) and Saginaw County, Michigan (County), to build a dredged material disposal facility (DMDF) for sediment dredged from the Upper Saginaw River. The Corps is responsible for constructing and maintaining the DMDF. The County, consistent with congressional requirements, procured the site and has shared the expenses of developing the facility. The plaintiffs, Lone Tree Council (LTC) and Environment Michigan, commenced this action on May 3, 2006 under the Administrative Procedure Act (APA), 5 U.S.C.A. § 706, and the National Environmental Protection Act (NEPA), 42 U.S.C. § 4321 et seq. The plaintiffs challenge the defendants’ preparation of an Environmental Assessment (EA) for the DMDF in May 2004 and the Corps later issuance of a Finding of No Significant Impact (FONSI) on March 25, 2005. The DMDF is located on 280 acres of farm land on the west side of the Upper Saginaw River. The plaintiffs initially moved for a preliminary injunction to require the preparation of an environmental impact statement (EIS). That motion was denied by Judge Bernard Friedman on May 12, 2006 acting on behalf of this Court’s predecessor. Thereafter, the Court established a November 9, 2006 deadline for filing cross motions for summary judgment based on the administrative record. However, prior to that deadline, the plaintiffs filed a motion to supplement the administrative record. After hearing oral argument on the matter on January 12, 2007, the Court issued an order granting in part and denying in part the plaintiffs’ motion. The defendant was instructed to compile the administrative record with the supplemental documents permitted by the Court. The supplemental materials include a document directed by the Court to be included with the administrative record marked “DRAFT – DO NOTE CITE” and entitled “EPA Reassessment of Dioxins”; a report to Congress by the Corps on confined disposal facilities (CDF) in the Great Lakes region; a summary compiled by the plaintiffs of various containment facilities constructed and maintained by the Corps and whether an environmental assessment or an environmental impact statement was prepared for each; a summary of the same information compiled by the defendants; and documents relating to the Dow Chemical Company’s potential use of the DMDH. The Court provisionally admitted the Dow documents. However, because the Court considers those materials below, they are admitted as part of administrative record. Other documents have since become part of the record by the parties’ stipulation. Those materials include a document entitled “DM1145-1-1,” along with two templates, which generally describe the process third parties would have to following in order to obtain a permit to place dredged materials in the DMDF. -2- Following compilation of the full record, the parties were directed to file cross motions for summary judgment. On February 16, 2007, the plaintiffs filed an amended motion for summary judgment. On March 5, 2007, the defendants filed separate motions for summary judgment. The parties filed responses in opposition, and the Court heard oral argument on April 26, 2007. NEPA requires agencies to prepare an EIS for “major [f]ederal actions significantly affecting the quality of the human environment.” 42 U.S.C. § 4332(2)(c). The crux of the instant dispute is the plaintiffs’ assertion that the defendants acted arbitrarily and capriciously by determining that an EIS was not necessary and instead by issuing a FONSI as a result of conclusions reached in the EA. The parties’ materials present a number of issues for this Court’s review, the most material of which include: (1) whether the Corps improperly segmented environmental review of the DMDF from its planned dredging activities assessed in a 1975 EIS; (2) whether construction and operation of the DMDF is a major federal action requiring an EIS under NEPA or the Corps’ own regulations; (3) whether the Corps has properly evaluated the significant environmental impacts of the DMDF, and more particularly, the concentration of dioxin levels in sediments that will be accepted for disposal; and (4) whether the Corps should have assessed the environmental impacts resulting from potential use of the DMDF by third-party permittees, such as the Dow Chemical Company. The Court has considered the parties’ submissions and reviewed the administrative record. The Court concludes that defendants’ decision that an environmental impact statement was not warranted was neither arbitrary nor capricious. The Court therefore will grant the -3- defendants’ motions for summary judgment and deny the plaintiffs’ motion for summary judgment. I. A. According to the parties, the Saginaw River is a important Michigan commercial waterway. It is formed on the south side of the City of Saginaw by the confluence of the Tittabawassee and Shiawassee Rivers. The Saginaw River flows north through Bay City and ultimately empties into Lake Huron in the Saginaw Bay. Some thirty-one commercial docks line the river in order to support a wide range of trade in products such as coal, petroleum, chemicals, fertilizers, salt, grain, and stone. Approximately five million tons of products navigate the Saginaw River on an annual basis. Regular dredging of the river is mandated by Congress. See 33 U.S.C. § 401 et seq. The process of dredging, however, leads to the generation of spoils, which must be stored. In 2004, the Corps proposed the construction of the DMDF to be located on the west side of the Upper Saginaw River on land most recently used for agriculture and located adjacent to the Frankenlust and Zilwaukee townships. The Corps plans to place dredged sediments from navigational dredging in the DMDF. The DMDF has or will have a 3.1 million cubic yard capacity. AR 3561. The plaintiffs characterize the DMDF as “a 281-acre, open, unlined slurry pit in a flood plain” in which to dispose, over the next twenty years, “3.1 million cubic yards of dioxin-contaminated sediments.” Pl.s’ Mot. Summ. J. at 8. The defendants characterize the DMDF as an environmentally sound facility essential to enabling commerce and necessary for safely removing and storing contaminated sediments from the river. -4- The Corps explains that the DMDF is located on the west side of the Saginaw River, on diked former farm land. The DMDF is constructed of compacted clay perimeter dikes to a height of approximately eleven feet, a cross dike to facilitate settling of dredged material, an intake pipe, and a weir, or a canal designed to divert water back into the river after sediment is permitted to settle in the DMDF. In preparation for construction, soil borings of the site were obtained. The results indicated the presence of a thin layer of top soil with native clay soils underneath. The soil borings reflect that the clay extends to depths of fifty feet or more beneath the site. The clay will also be used to construct the dikes, and the depth of the clay underneath the site, the Corps maintains, will prevent leaching in its subterranean aquifers. Further, the facility will contain an inspection trench, approximately five feet wide and six feet below the surface. The trench’s function is to cut off any existing drain tiles or water crossings. Ultimately, the trench will be backfilled with compacted clay impeding shallow lateral migration of water. Dredged material coming from the upper reach of the Saginaw River federal navigation project, from river mile 4.7 to 16.5 as designated by that project, with a possible limited amount of dredged materials from non-federal entities that obtain required permits and authorizations, will be placed in the DMDF. The Corps estimates that dredging activities would produce 150,000 cubic yards of matter per year. A pipeline will place hydraulically dredged material into the facility. According to the Corps, the large size of the disposal area and use of cross/spur dikes will permit effective management of the site to provide the greatest length of flow within the confinement area and subsequently the greatest amount of settling time, which will permit -5- dioxins in the water to naturally adhere to sediment. The result would be minimal discharge back into the river. Further, a stop-log type weir is included in the site design at the south east end to divert water into the river if necessary. When the facility becomes filled, the material will be capped with clean material and then transferred for oversight to the County, the local sponsor. The Corps believes that the material in the facility will vegetate quickly. A permanent deed restriction requested by the Michigan Department of Environment Quality will restrict removal of material from the site. The plaintiffs in this action, LTC and Environment Michigan, are non profit organizations who seek to protect the environment through research, advocacy, and education. They also include individuals who advocate, research, and educate in a specific effort to reduce dioxin contamination in the Saginaw River and adjacent areas. Both plaintiffs believe that the DMDF project requires the Corps to conduct an EIS under NEPA because the project will have a substantial impact on the quality of the human environment. The plaintiffs contend that the Corps and the County acted arbitrarily and capriciously by preparing a less rigorous environmental assessment (EA) that failed to consider crucial environmental factors and subsequently issuing a finding of no significant impact, a FONSI, on the human environment. Both defendants disagree with this conclusion. B. Dredging activities in the Saginaw River date back to 1910. In fact, the Saginaw River Navigation Channel is a federal navigation project authorized by the Rivers and Harbors Act, 33 U.S.C. § 401 et seq. (RHA), which mandates Congressional oversight over construction in -6- navigable waterways. The entire channel is approximately thirty-six miles long and runs generally from north to south. The channel includes the entire distance of the Saginaw River: upstream at the confluence of the Titabawassee and Shiawase Rivers to the twenty foot deep contour at the Saginaw Bay. For management purposes, the Saginaw River comprises two segments, the Lower Saginaw River, which the parties do not designate by river mile in their papers, and the Upper Saginaw River, river mile 4.7 to 16.5. The Corps is responsible for dredging the channel for maritime commerce. Until 1969, the Corps disposed of dredged sediment into open water. In fact, prior to the development of the DMDF, there was no long-term dredge material disposal plan for the Upper Saginaw River. The Corps’ past practice was to place dredged materials from the Upper and Lower Saginaw River in several locations whose viability waned after continued use. Questions regarding the long term vitality of the Corps’ practices prompted Congress to pass 42 U.S.C. § 1962D-5B (1969), which required the Corps to utilize confined diposal facilities (CDF) for disposing of contaminated sediment from the Great Lakes Region. According to the plaintiffs, throughout the 1970s and 80s, the Corps built dozens of CDFs in the region. The plaintiffs claim that for each CDF, the Corps prepared an EIS. In 1975, the Corps issued an EIS for its construction of the Saginaw Bay CDF, and a separate EIS for its dredging of the Saginaw River. According to the plaintiffs, this EIS addressed chemical oxygen demand (COD), a generic mixture of oxygenation, that does not separately assess dioxins and polychlorinated biphenyls (PCBs). The Corps maintains that in preparing the EA it evaluated the environmental impact of dredging in the Saginaw River. In addition, the Corps maintains that it continuously performs -7- sediment testing and coordinates with state and federal agencies regarding the dredging of all federal navigation channels, including the Saginaw River. In approximately 1985, the Corps stopped regular dredging of the Upper Saginaw River because the upriver disposal facilities were reaching capacity. The Corps has only conducted emergency dredging and has disposed of sediments solely in the Saginaw Bay CDF. In 1995, the Corps apparently stopped dredging the upper portion of the Saginaw River altogether because, according to the plaintiffs, the Saginaw Bay CDF was not cost effective. Between 1979 and 1992, the Corps prepared two draft EISs and a supplemental EIS addressing three CDF sites for the placement of contaminated sediments for the Upper Saginaw River. Ultimately, the Corps rejected all three of the proposed plans because of the high cost associated with building and maintaining them, e.g., a cost of approximately nine to twelve million dollars and a host of unresolved environmental issues. In 1999, the Corps communicated to the Michigan Department of Environmental Quality (DEQ) its belief that the levels of PCBs in Saginaw River sediments had declined to the point that “confinement was no longer necessary” and the Corps no longer had authority to build a CDF pursuant to congressional mandate. See 42 U.S.C. § 1962D-5B (1969). The Corps also stated that it was unable to pay the continued costs for full dredging of the Upper Saginaw River. On June 21, 2000, the State of Michigan, Bay County, and Saginaw County requested that the Corps prepare a Dredged Material Management Plan (DMMP) to assist in determining the feasibility of constructing a CDF for maintenance of the Upper Saginaw River. Lower water levels in the Saginaw Bay and the Saginaw River had reduced the ability of freighters to deliver -8- products in the Upper Saginaw River area and were having a significant economic impact on Bay and Saginaw communities. In July 2000, the Corps began the process of preparing a DMMP for the Upper Saginaw River and sought the DEQ’s help in identifying suitable sites for a new disposal facility. The Corps explains that the purpose of the study was to determine if additional suitable dredged material sites or options existed within the Upper Saginaw River that would satisfy dredging requirements over approximately twenty years and conform to requirements for dredging and disposal set forth in the 1975 EIS. The Corps also notes that it coordinated with various agencies, including the EPA, United States Fish and Wildlife Service, and the DEQ, a requirement as the parties explained at oral argument. According to the plaintiffs, the Corps stated that it would need to dispose of 2.7 million cubic yards of sediments from its own navigational dredging. It also sought to dispose of 400,000 cubic yards of sediments from third party dredging in the DMDF that would be regulated by permits and further environmental review, if necessary. The Corps also maintained that the facility should not be placed in a flood plain or wetland. According to the Corps, the draft DMMP identified the location where dredged materials from the Upper and Lower Saginaw River had been stored in the past. That document also projected future conditions in the absence of any management plan; explained problems and opportunities; and identified and evaluated alternative plans. The Corps resolved, after consideration of a tradeoff analysis, to select the current DMDF location. The DMMP described the selected management plan, discussed environmental considerations, explained cost sharing -9- and financing, provided a conclusion and recommendation, and also provided for coordination with local, state, and federal agencies. In May 2004, the Corps issued an EA, the subject of the instant dispute, along with the management plan. The documents identified the Zilwaukee-Frankenlust site and a preferred alternative. The plaintiffs point out, however, that this site is in the Saginaw Valley River flood plain and is a wetland, apparently in contravention of earlier statements by made by the Corps that such a facility would not be located in such areas. The plaintiffs also note that the proposed site completely flooded in 1986. The DMDF is situated just west of a residential neighborhood on Melbourne Avenue. The nearest home is approximately 225 feet from the facility. The plaintiffs characterize the area as “very windy”; the “prevailing winds com[e] from the west and caus[e] substantial dust storms.” Pl.s’ Mot. Summ. J. at 10. Moreover, they contend, the DMDF is located proximately to the Crow Island State Game Reserve, which is managed by the Michigan Department of Natural Resources (DNR). Crow Island attracts wildlife and is within a mile of a bald eagle nesting site and protected under the Endangered Species Act, 16 U.S.C. § 1531 et seq. Although soil borings indicate that the DMDF site is buttressed by clay extending in parts to fifty feet in depth, the plaintiffs allege that there are several breaks in the clay layer at the same location as ground water. The plaintiffs believe that the breaks were of little concern to the Corps because the site was adjacent to the Saginaw River, allowing effluent to easily return to the river, and appeared to be the least expensive alternative when compared to alternative sites and disposal methods. -10- The Corps maintained that it considered several alternatives to the present site in preparing the EA. In fact, the EA cited six alternatives for handling the future management of dredging in the Upper Saginaw River. Those alternatives included the no action alternative; a type III landfill operation, presently operated by General Motors – a landfill in which hazardous waste is stored; a beach nourishment alternative; recycling dredged material; and two up-land disposal locations. According to the Corps, the no action alternative was not feasible because failure to dredge would eventually inhibit navigation of the river entirely because of shoal build up. Further, the disposal of contaminated material into landfill, the Corps concluded, would be too costly, and at any rate, General Motors declined to let the site be used. Beach nourishment and recycling material were determined to be too costly because of the size of grain of the material, the level of contamination, and higher costs. The Corps further maintains that it considered a site east of the Saginaw River. The DEQ, however, found that the site was located upon farmed wetland that required mitigation, ultimately leaving the site with only 131 acres available for the proposed DMDF. The reduced acreage apparently would not meet the twenty-year capacity requirement without constructing much larger perimeter dikes that would increase the facility’s height, all with a significantly increased price. The plaintiffs stress that the EA suffers from several analytic flaws. For example, they maintain, the Corps failed to address the environmental impacts of dredging more than 3 million cubic yards of dioxin-contaminated sediments from the Saginaw River, although the Environmental Protection Agency (EPA) had so requested. In addition, the EA does not convincingly assess the risks posed by storing dioxin-contaminated sediments at this site, or compare these risks to those of other alternatives. The plaintiffs concede that the Corps listed -11- alternatives of no action, use of an existing hazardous waste facility, and use of the Buena Vista site, an upland storage facility, “in detail,” AR at 3560-3575, but contends that it did not analyze the relative environmental impacts of these other options. Further, although the Corps states that the average level of dioxins in the material is not significantly above the levels acceptable for residential use direct contract criterion – referring to the DEQ’s 90 parts per trillion toxicity equivalents (ppt TEQ) – the figure was based on an inadequate number of samples, and does not address the much higher concentrations found in samples taken after the EA was released, but before the Corps issued its FONSI. In fact, the plaintiffs claim, the Corps inadequately addresses dioxin toxicity and has specifically declined to address the new finding of EPA’s “draft” comprehensive, peer-reviewed “dioxin reassessment.” The plaintiffs also complain that the Corps has not addressed managing the 600,000 cubic yards of water that it plans to pump into the DMDF on an annual basis should it not be permitted to discharge this water back into the river. The plaintiffs acknowledge that any discharge water back into the Saginaw River will be monitored for compliance with a water quality certificate issued by the DEQ, that requires, as a threshold, that water discharged does not cause a net increase of dioxins found in the river. It is the plaintiffs’ view, however, that the Corps does not plan to treat the water for dioxins; it will simply allow the sediments to settle. In addition, the plaintiffs maintain that the Corps failed to analyze the impacts of eliminating 281 acres of demonstrated flood plain storage or analyze where the diverted flood waters likely would go in the event of unusual, significant flooding. Moreover, the plaintiffs criticize the Corps’ failure to evaluate the long term impact of operating the DMDF on the -12- wildlife on Crow Island; it simply noted that there would be limited impacts on wildlife and only during the construction of the facility. In response to issuance of the EA, the Corps received numerous comments criticizing the agency for its brevity and lack of environmental review. The plaintiffs say that the EPA expressed serious concerns about the impacts of dredging and the risks associated with the DMDF. EPA urged the Corps not to issue a FONSI without fully investigating these concerns. The Unites State Fish and Wildlife Service asked the Corps to consider a site farther from the bald eagle nests, Crow Island, and the Saginaw River. The plaintiffs contend that the Corps has answered these letters, but has not actually resolved any of the issues presented by these agencies. The EA was based on results from a limited 1999 sediment sampling of the navigation channel, which found an average dioxin contamination of 109 ppt TEQ (parts per trillion toxicity equivalents). However, after completing the EA, the Corps undertook additional sampling in 2004 that found an average of 321 ppt TEQ. The Corps reports that the increase was because of one highly contaminated shoal that it proposes to dredge first because of the high volume of maritime activity. Instead of proceeding to an EIS, the FONSI, which issued in May 2005, stated that “[i]n the future, if testing in the Federal channel indicates a much higher dioxin levels, disposal, burial, and handling would be considered and further environmental documentation may be required.” In fact, the plaintiffs assert, the EPA has stated that the DMDF is not suitable for storing high levels of dioxins, yet the Corps has never established an upper limit on dioxin levels that appropriately could be treated at the DMDF. -13- The plaintiffs note that the Corps, as regulated by law, provides for capacity that may be used by third-party permittees. Indeed, the plaintiffs believe, it is foreseeable that the Dow Chemical Company will become a permittee of the DMDF and that it might seek to deposit sediment with higher levels of dioxin contamination. The Dow Chemical Company is slated to commence remediation of dioxins in the Tittabawassee Rivers under the Resource Conservation and Recovery Act. See 42 U.S.C. § 6901 et seq. Dioxins contained in the sediments in that waterway are likely to be higher. In fact, the Corps estimated that navigational sediments are 50 times less contaminated from those in the Tittabawasee River, where Dow will remediate. The EPA has found dioxin levels to contain a high of 24,000 ppt TEQ in the Tittabawasee River, and that future sampling would likely reveal “significantly higher concentrations.” The plaintiffs finally insist that the Corps has done little to mitigate the environmental impacts of the project, such as potentially severe flooding of the DMDF site, release of dioxins from the DMDF into the air, and the potential for dioxins to contaminate the ground water. With respect to flooding, the plaintiffs concede that the Corps has secured restrictions on 656 acres to address flood impacts from the DEQ, but does not appear to offer new flood storage in the form of evacuation at these sites. In terms of mitigating the effects of the airborne release of dioxins, the plaintiffs recite that the Corps is unwilling to use a hard cover over the DMDF. Instead, the Corps proposes to places less contaminated sediment on top of dredged materials. The Corps asserts that the unaided growth of vegetation will prevent more contaminated sediments from becoming airborne. Finally, the plaintiffs criticize the Corps’ decision not to employ a liner under the site. They challenge the Corps’ assertion that the clay foundation will be suitable to prevent dioxins from reaching the ground water. -14- For its part, the Corps emphasizes that it has more than adequately sampled and evaluated the material in Upper Saginaw River navigation channel for the past thirty years and will continue to do so. Studies by the Corps and the MDEQ have examined the physical characteristics of the sediments in the channel. Indeed in 1999, the Corps tested samples of sediment form the channel that were characteristic of the dredged material that would be stored in the DMDF. According to the Corps, the material sampled had only non-detectable levels of PCBs and low levels of metals. At the time, the average level of dioxins was 109 ppt TEQ. The Corps concedes that sampling of river sediments between mile 4.7 to 16.5 in 2004 revealed an average of 332 ppt TEQ. The increased level, it explains, is the result of a single shoal with an elevated dioxin level. The Corps states that this shoal will be dredged first and dredged materials will be covered by the remaining dredged material, which has an average of only 166 ppt TEQ. It also asserts that if future sampling reveals higher dioxin levels, different disposal, burial, and handling would be implemented and further environmental documentation might be required. In fact, the area with the highest concentration of dioxins – mile 16.5 and 17.75 – will be reevaluated, once again, prior to removal. Once further testing was completed, a suitable disposal option is determined, and funding is available to dredge, only then would dredging begin. The Corps also explains that the DMDP is expected to have limited impact on water quality because work activities will be confined within existing dikes. As noted, dredged material will be hydraulically pumped into the facility. At times the pumping of material and the associated water may require discharge of excess water back into the river. To that end, the Corps will employ a monitored weir structure. The Corps, however, envisions little need to -15- discharge water for some time because of the size of the disposal area and the utilization of cross/spur dikes to permit the greatest length of flow inside the facility allowing maximum settling time. To ensure that any discharge from the DMDF does not significantly effect the water quality, the Corps obtained a Section 401 Clean Water Act Certification, see 33 U.S.C. § 1341, from the MDEQ following a public hearing. That certification permits not more than 1.29 million gallons per day of sediment water to be discharge to the Saginaw River. And discharging is limited by the permit to fourteen days: between April 1 and May 31, or November 1 and December 31, of any calendar year. Further, the Corps must receive authorization from the MDEQ before starting the discharge period, and at the end of each discharge period, the Corps must submit a summary report of the monitoring it conducted, the guidelines and parameters of which are set forth by the MDEQ. The certification also prescribes how the Corps is to monitor and report discharged dioxins, mercury, acute toxicity and water. In addition, the certification required the Corps in conjunction with the MDEQ to prepare a DMDF management plan. The plan is designed to preserve the long-term integrity of the facility for sediment containment, including closure requirements to meet solid waste needs, water quality discharge requirements, specifying actions to address waterfowl botulism and bald eagle nesting issues and action to minimize exposure of wildlife to stored sediments. The Corps says that the DMDF is complementary to the Wetland Mitigation Area and State Game Area. In fact, the Corps emphasizes, the United States Department of Agriculture, Natural Resource Conservation Service, evaluated the project and determined the facility is located on -16- “prior converted farm land” and therefore is not a designated “wetland.” Pursuant to state regulations, however, the MDEQ determined that because the DMDF was “a change in the use of the site,” wetland mitigation was required. The County, at the behest of the MDEQ, provided 336 acres of wetland mitigation – essentially adjacent farm land that will be converted to a wetland as part of the permit the County received. The Corps maintains that it carefully considered the comments it received from public agencies and individuals on the management plan and EA. The Corps states that it responded to each of them, and in a number of instances, modified its approach to the project in response. It claims that overall agencies and local governments supported the project. As an example of the Corps’ responsiveness, the United States Fish and Wildlife Service expressed several concerns about the impacts on bald eagles during sensitive times of the year, and the Corps agreed to a “no work window” between January 15 and May 10 each year. The Corps claims that it further worked with the agency until all other concerns were satisfied. Above all, the Corps emphasizes its close cooperation with the DEQ first in selecting the site and ensuring that there was adequate flood plain storage. Saginaw County was able to obtain restrictive deed covenants to preserve 658 acres of land adjacent to the DMDF, so the facility itself would comprise only thirty percent of the total flood plain area. The DEQ also commented that sediments in the Saginaw River and at the DMDF are contaminated with PCBs and dioxins, among other chemical contaminants. The DEQ recommended additional characterization and delineation to ensure sound decision making with respect to site design, construction, operation, and management of the DMDF. The Corps claims it agreed that a baseline collection of samples of the site should be collected. In fact, in 2004, it -17- conducted additional sampling of the Upper Saginaw River, the proposed DMDF location, and adjacent wetland among others, for dioxin and PCBs. The EPA also voiced concerns to the Corps. The EPA commented that the DMDF was not an appropriate location for the disposal of sediments with “heavy dioxin” contamination. The EPA urged that an upper level of dioxin contamination be set to restrict the level of contaminated sediments that would be disposed in the DMDF. Working with the MDEQ, the Corps explained that the nature of site, including the clay foundation, the dikes to isolate contaminants, the specific dioxin levels in the sediment, the plan for initial disposal of the sediment with higher dioxin levels, and the intention of further environmental monitoring resolved the EPA’s concerns. The Corps concluded that setting an arbitrary upper level threshold for dioxin was unnecessary at this juncture based on its management plan. Other EPA concerns included the plan for the discharge of effluents, the height of the dike with respect to potential flooding, and the integrity of the dike during flooding events. In responding to effluents, the Corps relied on its Section 401 Certification that includes stringent monitoring and discharge requirements. In terms of the height of the dikes, the Corps noted that they were .7 to .19 feet above the height required by FEMA. Further, the Corps provided copies of floodway data charts that contained the base flood elevation (100 year flood plain elevation) at the project site. Apparently, base flood elevations upstream of the project site to downstream vary between 587.3 feet with floodway to 586.1 with floodway. The top of the proposed levee is 591 feet, providing between 3.7 to 4.9 feet protection above the encroached floodway base flood elevation. -18- The Corps states that since the perimeter dikes for the DMDF are in a flood plain, it utilized levee guidance in addition to DMDF design guidance to fashion the dikes. The dikes were designed to provide protection from the base flood event to meet requirement of 44 C.F.R. § 65.10. Based on soil boring investigation data and guidance used to design levees and disposal areas, the Corps determined that the new dikes would be constructed from onsite clay material and be a minimum height of eleven feet including three feet of freeboard. Compaction and moisture content was to be monitored during construction to insure dike integrity and low permeability. The Corps also performed a slope stability analysis to ascertain the proposed dikes integrity under differing hydraulic conditions. Data was obtained from soil borings within the placement area. The borings indicated that the site is covered by a thin layer of top soil with low permeability silty clay underneath. The clay is composed of amounts of silt, sand, and fine gravel and generally extends to the termination of the soil borings at a depth of 25 to 40 feet. Three conditions were tested during the slope stability analysis: end of construction condition; steady state seepage at flood level and sudden draw down after flood level. The Corps concluded that the designed levee dike cross section met all of the safety requirements for these three conditions. In terms of individual commentary, the Corps received only sixteen letters. The Corps asserts that it considered each of these comments and provided thorough responses. The Corps’ response touched on issues raised in the letters ranging from the need for an EIS, migration of contaminants, and potential effects to residences’ wells to impacts the project might have on wildlife and wetlands. -19- Apparently in response to these concerns and to further demonstrate there will be minimal impact of the project on ground water, the Corps promised to undertake a hydrological study and monitoring plan in conjunction with the MDEQ. If the monitoring reveals adverse impact to ground water, the Corps will modify the design or operation of the DMDF. The Corps concludes that based on the process described above including the environmental assessment and Section 404(b) evaluation, the proposed project did not significantly affect the quality of human environment and accordingly issued a FONSI. II. A. Summary judgment under Federal Rule of Civil Procedure 56 is a particularly useful method of reviewing federal agency decisions because “the sole question at issue [is] a question of law,” and the underlying material facts are contained in the administrative record. Sierra Club v. U.S. Fish and Wildlife Service, 189 F. Supp. 2d 684, 690 (W.D. Mich. 2002); United States v. Donovan, 348 F.3d 509, 511 (6th Cir. 2003); see also Wachovia Bank v. Watters, 431 F.3d 556, 559 (6th Cir. 2005); Progressive Corp. & Subsidiaries v. United States, 970 F.2d 188, 190-91 (6th Cir. 1992). The Court’s role is to determine whether judgment as a matter of law is appropriate for either party, in light of the standard of review prescribed by the National Environmental Policy Act and interpretive case law of an agency’s decision not to prepare an EIS. B. The National Environmental Policy Act requires agencies to prepare an Environmental Impact Statement (EIS) for “major Federal actions significantly affecting the quality of the -20- human environment.” 42 U.S.C. § 4332(2)(c); Kentucky v. Alexander, 655 F.2d 714, 718 (6th Cir. 1981). To determine whether this threshold is met, agencies prepare an Environmental Assessment (EA). 40 C.F.R. § 1508.9(a) (providing an EA “(a) Means a concise public document for which a Federal agency is responsible that serves to: (1) Briefly provide sufficient evidence and analysis for determining whether to prepare an environmental impact statement or a finding of no significant impact”); Citizens Against Pellissippi Parkway Extension, Inc. v. Mineta, 375 F.3d 412, 414 (6th Cir. 2004). Based on the EA, the agency either issues a “finding of no significant impact” (FONSI) or orders the preparation of an EIS. 40 C.F.R. § 1508.13. Mineta, 375 F.3d at 414. A FONSI “briefly presents the reasons why an agency action will not create a significant environmental impact and why an EIS will not be issued. 40 C.F.R. § 1508.13.” Mineta, 375 F.3d at 414. A FONSI constitutes the agency’s decision that no EIS is required and is subject to judicial review as a final agency action. Ibid. The Court reviews the adequacy of an EIS including an alleged failure to complete an EIS to determine whether the agency’s actions were “arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A); Marsh v. Oregon Natural Resources Council, 490 U.S. 360, 377 (1989). The thrust of the inquiry is “whether the agency has taken a ‘hard look’ at the consequences of its actions, ‘based [its decision] on a consideration of the relevant factors,’ and provided a ‘convincing statement of reasons to explain why a project’s impacts are insignificant.’” Native Ecosystems Council v. U.S. Forest Service, 428 F.3d 1233, 1239 (9th Cir. 2005). Stated otherwise, “[a]n agency’s decision not to prepare an -21- EIS must be reasonable under the circumstances in the light of the mandatory requirements and standards set by [NEPA].” Kelly v. Selin, 42 F.3d 1501, 1519 (6th Cir. 1995). The Ninth Circuit has described when an EIS generally is required: We have held that an EIS must be prepared if “substantial questions are raised as to whether a project . . . may cause significant degradation of some human environmental factor.” Greenpeace Action v. Franklin, 14 F.3d 1324, 1332 (9th Cir.1992) (citation omitted); Sierra Club v. United States Forest Serv., 843 F.2d 1190, 1193 (9th Cir.1988). To trigger this requirement a “plaintiff need not show that significant effects will in fact occur,” raising “substantial questions whether a project may have a significant effect” is sufficient. Greenpeace, 14 F.3d at 1332 (emphasis added). Idaho Sporting Congress v. Thomas, 137 F.3d 1146, 1149-50 (9th Cir. 1998). NEPA’s implementing regulations frame “significant effect” in terms of both intensity and context: “Significantly” as used in NEPA requires considerations of both context and intensity: (a) Context. This means that the significance of an action must be analyzed in several contexts such as society as a whole (human, national), the affected region, the affected interests, and the locality. Significance varies with the setting of the proposed action. For instance, in the case of a site-specific action, significance would usually depend upon the effects in the locale rather than in the world as a whole. Both short- and long-term effects are relevant. (b) Intensity. This refers to the severity of impact. Responsible officials must bear in mind that more than one agency may make decisions about partial aspects of a major action. The following should be considered in evaluating intensity: (1) Impacts that may be both beneficial and adverse. A significant effect may exist even if the Federal agency believes that on balance the effect will be beneficial. (2) The degree to which the proposed action affects public health or safety. (3) Unique characteristics of the geographic area such as proximity to historic or cultural resources, park lands, prime farmlands, wetlands, wild and scenic rivers, or ecologically critical areas. (4) The degree to which the effects on the quality of the human environment are likely to be highly controversial. -22- (5) The degree to which the possible effects on the human environment are highly uncertain or involve unique or unknown risks. (6) The degree to which the action may establish a precedent for future actions with significant effects or represents a decision in principle about a future consideration. (7) Whether the action is related to other actions with individually insignificant but cumulatively significant impacts. Significance exists if it is reasonable to anticipate a cumulatively significant impact on the environment. Significance cannot be avoided by terming an action temporary or by breaking it down into small component parts. (8) The degree to which the action may adversely affect districts, sites, highways, structures, or objects listed in or eligible for listing in the National Register of Historic Places or may cause loss or destruction of significant scientific, cultural, or historical resources. (9) The degree to which the action may adversely affect an endangered or threatened species or its habitat that has been determined to be critical under the Endangered Species Act of 1973. (10) Whether the action threatens a violation of Federal, State, or local law or requirements imposed for the protection of the environment. 40 C.F.R. § 1508.27(a)-(b). 1. The plaintiffs first argue that the Corps improperly segmented its environmental review of the DMDF from its prior assessment of dredging activities in its earlier EIS. That is, the plaintiffs believe, “that because the construction and operation of the DMDF and the dredging of the Saginaw River are connected actions with cumulative impacts, NEPA requires that they be assessed together.” Pl.’s Mot. Summ. J. at 16. The Corps maintains that an EIS was prepared specifically for dredging, and the EA therefore properly focuses only on the construction and maintenance of the DMDF. Courts have developed an impermissible segmentation rule in NEPA jurisprudence. That rule provides: Impermissible segmentation involves a “major federal action” where a small part of that action has been “segmented” in order to escape application of the NEPA -23- process. The hallmark of improper segmentation is the existence of two proposed actions where the proposed component action has little or no independent utility and its completion may force the larger or related project to go forward notwithstanding the environmental consequences. Maryland Conservation Council v. Gilchrist, 808 F.2d 1039 (4th Cir. 1986); Bragg v. Robertson, 54 F. Supp.2 d 635, 649 (S.D.W.Va. 1999). Courts have also required that environmental effects of multiple projects be analyzed together when those projects will have a cumulative effect on a given region. Kleppe, 427 U.S. at 410; Andrus, 825 F. Supp. at 1501. Finally, multiple stages of a development must be analyzed together when “the dependency is such that it would be irrational, or at least unwise, to undertake the first phase if subsequent phases were not also undertaken.” Thomas v. Peterson, 753 F.2d 754, 759 (9th Cir. 1985). Hirt v. Richardson, 127 F. Supp. 2d 833, 841-42 (W.D. Mich. 1999). The plaintiffs state that the Corps’ insistence that construction of the DMDF and the placement of sediment therein is simply a continuation of the original 1975 EIS concerning dredging the Saginaw River defies logic. They point to the fact that there has been no regular dredging since 1984, and no dredging at all of the Upper Saginaw River has occurred since 1995. Consequently, the plaintiffs believe that plans to undertake at least twenty years of dredging under “changed conditions” cannot plausibly be considered independently from the construction and maintenance of the DMDF. At a minimum, the plaintiffs insist that the Corps must complete a supplemental EIS. See 40 C.F.R. § 1502.9(c)(1) (requiring agencies to “prepare supplements to either draft or final environmental impact statements if: (i) The agency makes substantial changes in the proposed action that are relevant to environmental concerns; or (ii) There are significant new circumstances or information relevant to environmental concerns and bearing on the proposed action or its impacts”). Additional review beyond that undertaken in 1975 is required for three reasons, the plaintiffs say. First, they characterize the DMDF as a “massive alteration” to the scope of the project analyzed in 1975. Second, they argue that the earlier EIS did not consider -24- the impacts of dredging and disposing of sediment contaminated by dioxin, new environmental information. Third, the original EIS did not contemplate the Dow Chemical Company’s planned use of the DMDF for remediation, which would result in substantially increased dioxin levels. The Court remains unpersuaded. The plaintiffs have not furnished a sound rationale for reexamining dredging of the Saginaw River because of the location of an environmentally superior method for disposing of sediment in storage facilities. In 1930, Congress enacted the Rivers and Harbors Act, 33 U.S.C. § 401 et seq., that, among other things, mandated dredging of thirty-six miles of the Saginaw River, its entire length. An EIS was prepared in 1975 specifically to address the environmental impacts associated with dredging the Saginaw River. Historically, dredged sediment was not stored at all, and as the need for storage arose, environmental impacts relating to the CDFs were reviewed separately. In fact, the record reflects that at the time the 1975 EIS was prepared, a separate EIS was prepared for the disposal of sediments in the Saginaw Bay CDF. Thus, it appears that dredging of the Saginaw River, as a “major federal project” has been treated as analytically independent from review of the environmental concerns relating to containment and storage of dredged materials. If a facility is unavailable, the Corps’ obligation to dredge in accordance with the EIS still continues. In the end, as the Corps notes, “[t]hese disposal areas are only an evolving feature of the authorized federal navigation. The purpose of the environmental assessment for this DMDF was to assess the environmental impacts of constructing and operating a new disposal area for a portion of the federal navigation channel, namely the Upper Saginaw River.” Corps’ Mot. Summ. J. at 28. Based on the historical practice of treating dredging of the entire Saginaw River distinct from the local disposal of sediment, the independent obligation under the Rivers and -25- Harbors Act, and the limited scope of the DMDF to approximately four miles of the Upper Saginaw River, the Court believes that the Corps has not made “substantial changes in the proposed action that are relevant to environmental concerns.” 40 C.F.R. § 1502.9(c)(1)(I). The plaintiffs additionally contend, however, that new environmental information has come to light that requires at a minimum a supplemental EIS – dioxin toxicity. At the time of the 1975 EIS was prepared, only conventional pollutants then of concern, were considered. In fact, the plaintiffs claim that the EA for the DMDF hardly mentions dioxin, although the dredging of sediment contaminated by dioxin is the sole purpose of the DMDF. The plaintiffs requested and the Court approved supplementation of the administrative record with an EPA Information Sheet entitled “Dioxin: Summary of the Dioxin Reassessment Science” (Reassessment) dated October 15, 2004 and specifically limited by the EPA as a “DRAFT – DO NOT QUOTE OR CITE.” The document explains that the term “dioxin” refers to a group of thirty compounds with similar biological characteristics including a “common mechanism of toxicity,” the fact that dioxins enter the food chain from the atmosphere, are bioaccumulative, and are highly persistent. According to the Reassessment, “dioxin emissions in the United States decreased by about 75% between 1987 and 1995, primarily due to reductions in air emissions from municipal and medical waste incinerators.” AR at S2. The draft report concludes that existing scientific studies do not establish a causal connection between dioxin and particular adverse health risks, although it is also true that existing science does not rule out that possibility. The draft report provides as follows: EPA estimates that the amount of dioxin found in the tissues of the general human population (which is known as the body burden) closely approaches (within a factor of 10) the levels at which adverse effects might be expected to occur, based on studies of animals and highly exposed human populations. Despite the -26- potential risks, currently there is no clear indication of increased disease in the general population attributable to dioxin-like compounds. This may be due to limitations of current data and scientific tools rather than indicating that dioxin exposure is not causing adverse effects. For cancer, EPA estimates that the risks for the general population based on dioxin exposure may exceed 1 in 1,000 increased chance of experiencing cancer related to dioxin exposure. Actually risks are unlikely to exceed this value and may be substantially less. This range for cancer indicates about a 10-fold higher chance than estimated in EPA’s earlier (1994) draft of this reassessment. Ibid. The plaintiffs’ argument is flawed for a number of reasons. First, the plaintiffs do not explain how the presence of dioxins alters the analysis conducted in the EIS of ongoing dredging in the Saginaw River. The dredging operations have not changed since the EIS was issued. In fact, when the Corps dredges, it follows the same procedure with respect to width and depth as covered in the 1975 EIS. In addition, the Corps dredges the same class of contaminants as was covered in the 1975 EIS using the same hydraulic dredging methods as covered and analyzed in that document. In fact, dioxins were analyzed, albeit in a different way under the EIS. The Corps explains: At the time of the EIS, AR 30, dioxin was not a separately-identified contaminant. Rather, characterization of materials was determined through a combination of tests including a chemical oxygen demand (COD) test which determines the amount of organic compounds/matter in the sediment. AR 136-146. All organic compounds, including PCBs, dioxins, and pesticides, contribute to an increased COD. The COD test was used by EPA to determine that material in the Saginaw River and Bay cannot be disposed of in open water. The EIS was not specific as to what kind of organic compound was present in the material, just the fact that it was not suitable for open water disposal. AR 41. Thus, data used in the EIS was monitoring the same class of contaminants that are of concern today. Corps’ Resp. Br. at 4 n. 2. The plaintiffs, however, suggest that a supplemental EIS is required in order to determine how to minimize resuspension of contaminated sediments. Again, the EIS assessed that -27- environmental concern. The EIS recognized the contaminated nature of the sediments, the possibility that dredging would cause resuspension, the impacts of resuspension of contaminated sediments should it occur, and circumstances under which hoppers could be filled without overflow to minimize the potential for resuspension. AR at 67, 73, 78. To be sure, the EIS clarified that the release of pollutants was “unavoidable,” those releases “will be countered by the benefits derived from the removal of greater amounts from the aquatic system in the dredged materials.” AR at 73. Indeed, this overarching point was conceded by the plaintiffs at oral argument when they agreed that the disposal of contaminated sediment in the DMDF is a superior choice to leaving it in the Upper Saginaw River, so long as it was accomplished, in their view, in an appropriate and safe manner. Second, the plaintiffs’ argument is based in part on the mere passage of time; that is, the fact that thirty some years that have elapsed since the preparation of the EIS. Passage of time, however, does not compel the preparation of a supplemental EIS. See Sierra Club v. United States Army Corps of Engineers, 701 F.2d 1011, 1036 (2d Cir. 1983) (noting that the “mere passage of time rarely warrants an order to update or supplement”); Becker v. Federal RR Admin., 999 F. Supp 240, 249 (D. Conn. 1996) (reasoning that the “mere age of an EIS is not grounds for its invalidation”) As noted, NEPA mandates supplementation only when there are “substantial changes in the proposed action” or where there “are significant new circumstances or information relevant to environmental concerns bearing on the proposed action and its impacts.” 40 C.F.R. § 1502.9(c). The plaintiffs have not demonstrated that factors other than time require the Corps to supplement the 1975 EIS. -28- Moreover, the merits of supplementing the 1975 EIS notwithstanding, the notion that impermissible segmentation is at issue in this case likely fails as a matter of law. The proposed actions with “connected actions with cumulative impacts” apply only to proposed actions “pending concurrently” before an agency. Kleppe v. Sierra Club, 427 U.S. 390, 410 (1976). In this case, only the disposal of materials into the DMDF was pending at the time the EA was prepared. The activity of dredging the Saginaw River is the subject of a finished EIS that is no longer pending before the Corps. The plaintiffs’ argument that the improper segmentation occurred likely fails for that reason alone. Finally, the plaintiffs complain that construction and maintenance of the DMDF is improperly segmented for purposes of NEPA review because the EA fails to discuss potential use of the DMDF by the Dow Chemical Company (Dow). The company plans to remediate portions of the Titabawasse River, which may be fifty times more contaminated than the Upper Saginaw River. To be sure, the record contains a supplemental document entitled “Draft Framework Agreement” dated January 5, 2005 that the Court provisionally admitted. The agreement appears to be between Dow, DEQ, and EPA, and includes a proposal for Dow to meet its remediation obligations. It provides, in relevant part: C. Management and Disposal of Dredged Materials, The parties understand and agree that Dow may propose dredged material disposal options other than in a Type II landfill, such as an engineered disposal facility similar to confined disposal facilities used by the U.S. Army Corps of Engineers to contain dredged material. AR at P38-51. Citation to this document is unavailing. Dow appears only to express its intention to potentially use a facility similar to the DMDF. It does not state or reflect the possibility that it -29- will use the DMDF at issue here. Dow simply is explaining that it may seek to dispose of contaminated materials in multiple ways, and will not foreclose consideration of a CDF to that end. Which specific CDF will be used or whether disposal will be in one of its own construction or permitted by other statute is left unanswered. Speculation that Dow might use the DMDF provides no basis for heightening NEPA review, or support an argument of impermissible segmentation. City of Riverview v. Surface Transp. Bd., 398 F.3d 434 (6th Cir. 2005) (reasoning that NEPA “speaks solely in terms of [p]roposed actions; it does not require an agency to consider the possible environmental impacts of less imminent actions”). Certain additional materials were admitted to the record, see AR at P29-37, that also suggest that Dow might seek to use the DMDF to store dioxin contaminated sediment. Some post-FONSI, internal EPA documents appear to reflect that the Corps addressed questions about storage of material with Dow representatives. However, as the Corps explained, upon learning of the contents of the internal documents, it issued a press release explaining that no negotiations had taken place. Further, the Corps’ Chief of the Engineering Technical Service Office sent a letter the EPA to correct the erroneous information. The letter explained that the Corps had only answered general questions from Dow and others about potential use of the facility and was not, nor did it plan to, enter into negotiations with third parties in the near future. At oral argument, the Corps explained that its regulations required it to provide some capacity for third parties subject to its regulations. However, it explained, that contingency was assessed in the EA. In fact, the plaintiffs do not suggest that the DMDF, as assessed in the EA, was never intended to have any third-party use. The plaintiffs’ position rests on the unsupported assumption that the third-party use of DMDF was imminent. -30- Further, the Corps maintained that any consideration of third-party use of the DMDF necessarily would begin with an appropriate application under applicable Corps’ regulations that would require its own environmental review. That review would involve environmental review of the proposal and an EIS if the circumstances so required, including the possibility that third- party permittees would deposit materials into the DMDF that exceed the minimal capacity allocated for that purpose as assessed by the EA and if significant environmental impacts to the human environment resulted. The Corps described the process as follows: If the Corps were to receive a request from a third party to use the DMDF, the District would review the request by following the procedures outlined in Detroit District regulation, DM 1145-1-1. Corps Headquarters and ASA(CW) would also review and approve or disapprove the request as explained above. that will An area limit Detroit’s Technical Services Branch’s (TSB) recommendation to allow a third party to use a Corps facility is whether that party’s material will reduce the availability of the facility for project purposes. Although 33 U.S.C. 1341(c)12 and 33 U.S.C. § 2726(b)(1)(A)13 allow the Corps to permit third parties to use Corps facilities, such use is limited by the capacity available at the Corps facility. Thus, if the third party’s request impacted the availability of the DMDF for placement of dredged material from Federal maintenance dredging of the Upper Saginaw River, TSB would recommend denying the request. Another limitation on the Corps ability to allow a third party to use a Corps facility is that the use must meet all environmental requirements. These include the third party obtaining a Section 10 Rivers & Harbor Act permit and its use of the facility to be consistent with the environmental impacts which were considered for the Corps facility. Although TSB would receive a request by a third party to use a Corps facility and provides an independent recommendation to Corps Headquarters and ASA(CW) regarding allowing such use, as explained above, the District’s Regulatory Office (RO) would also independently review the proposed disposal area as part of the Section 10 permit application. See DM 1145-1-1. The RO would only grant a Section 10 permit to a third party, if the proposed work in navigable waters not be contrary to the public interest, complied with NEPA, as well as many other requirements specified in Corps regulations. See 33 CFR Part 320-330. Any permit application to dredge navigable waters must include a description of the type, composition and quantity -31- of material to be dredged; method of dredging and site/plans for disposal of dredged material. 33 CFR 325.1(3) . . . Thus, any third party’s use of the DMDF must be in accordance with the laws authorizing the Saginaw River as a Federal navigation project and regulations requiring NEPA compliance and Section 401 Certification. If the applicant plans to use a Corps facility to dispose its dredged material, the RO requests review from the District’s EAB and TSB regarding the applicant’s proposed dredging and use of a Corps disposal facility. The RO would include in the Section 10 permit the appropriate conditions authorizing and governing use of the disposal area provided by EAB and TSB and approved by ASA(CW). See DM 1145-1-1 paragraph 5.a.(2) and PGL No. 47. (Def’s Supp Ex. 1). the RO provides EAB a copy of the applicant’s permit Specifically, application/drawings, public notice and sediment sampling results. It requests EAB to review this information and determine (1) whether the material is suitable for disposal in a CDF; (2) impact of resuspension of sediments during the dredging operations on ambient water quality levels and on the biota; and (3) impact of exposure of the substrate lying beneath the proposed dredging area. If the applicant’s sampling results are not adequate to make these determinations, EAB is to advise the RO and forward a Sediment Analysis Plan for the applicant to submit so that EAB can make the requested determinations. (See template memo. from RO to EAB, Def’s Supp Ex. 1). EAB reviews the third party’s proposed use of the DMDF and determines if it would result in environmental impacts that are consistent with the environmental impacts evaluated in the EA or EIS for the Corps facility. See 33 CFR 230.7(d) (EA normally required for changes in environmental impacts which were not considered in the project EIS or EA). See also 33 CFR 336.1(b)(6) (If a proposed maintenance activity will result in a deviation in the operation and maintenance plan as described in the EA or EIS, the District Engineer will determine the need to prepare a new EA, EIS, or supplement). Corp’s Mot. Summ. J. at 31-33. Ultimately, a cursory review of the record materials does not support the plaintiffs’ contention that there were imminent plans that Dow, or any third party, would disposed material contaminated with dioxin in the DMDF. Because of the speculative nature of the plaintiffs’ allegations and the lack of support they find in the record, the Court concludes that the Corps -32- was under no obligation to consider the environmental impact arising from unspecified future third party use of the DMDF. The Corps therefore did not improperly segment review on this basis. 2. The County maintains that NEPA does not compel the preparation of an EIS under the facts of this case. It contends that the “DMDF, along with the dredging of the upper Saginaw, was authorized by the Rivers and Harbors Acts and under the previously prepared EIS.” County Mot. Summ. J. at 17. Indeed, “the original disposal area, Middle Ground Island, was considered in the original EIS for the Saginaw River dredging project but now is now no longer used.” Ibid. The County’s argument is unavailing. It is premised upon the assumption that ministerial acts are exempt from NEPA review. However, the question of whether NEPA requires assessing the maintenance dredging at issue here as mandated by the RHA depends on whether the agency retains discretion to alter the action as a result of its environmental review. Citizens Against Rails to Trials v. Surface Transp. Bd., 267 F.3d 1144, 1151 (D.C. Cir. 2001); Macht v. Skinner, 916 F.2d 13, 18 (D.C. Cir. 1990) (reasoning that “the touchstone of whether NEPA applies is discretion”). Indeed, NEPA itself directs federal agencies to comply with its procedures “to the fullest extent possible.” 42 U.S.C. § 4432. Further, NEPA’s implement regulations clarify that agencies must comply “unless existing law applicable to the agency’s operations expressly prohibits or makes compliance impossible.” 40 C.F.R. § 1500.6. A review of the record establishes that the Corps possesses sufficient discretion over dredging operations in the Saginaw River such that it is not exempt from NEPA review. For example, the RHA does not employ mandatory language – words such as “shall” or “must” – -33- that typically prohibit the exercise of discretion. Section 301 of the RHA (1965) provides, in relevant part: The following works of improvement and harbors and other waterways for navigation . . . are hereby adopted and authorized to be prosecuted under the direction of the Secretary of the Army and supervision of the Chief of Engineers, in accordance with the plans and subject to the conditions recommended by the Chief of Engineers . . . . Saginaw River, Michigan: House Document Numbered 240, Eighty-ninth Congress, at an estimated cost of $437,000. Thus, the Corps is given authority to direct navigational activities for the “improvement of harbors and other waterways” including the Saginaw River. Congress does not specify the manner in which the Corps must undertake the improvements. Rather, the Secretary of the Army is allowed to direct the manner in which the Corps approaches navigational activities subject only to the requirement that they do so “in accordance with the plans and subject to the conditions recommended by the Chief of Engineers.” The Court, therefore, concludes that NEPA review is not precluded by virtue of a ministerial act. As a result, the Corps is required to comply “to the fullest extent possible” with NEPA, 42 U.S.C. § 4332. Both the Corps and the County suggest that no EIS need be prepared because they have undertaken certain “betterments” since the issuance of the FONSI. However, the Court agrees with the plaintiffs that mitigation measures that were not evaluated prior to the issuance of the FONSI are not relevant at this stage of litigation. Indeed, the Court’s review is limited to the record as it existed at the time the final agency action occurred, here the preparation of the FONSI. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 420 (1971). The defendants therefore may not rely on mitigation measures discussed following issuance of the FONSI. -34- The plaintiffs, by contrast, assert that the Corps’ own regulations categorically require it to prepare an EIS for the DMDF. Generally, an agency must determine as a threshold whether the project normally requires an EIS or whether the project is categorically exempt from NEPA review. See Dep’t of Trans. v. Public Citizen, 541 U.S. 752 (2004). This principle is codified in the Code of Federal Regulations: In determining whether to prepare an environmental impact statement the Federal agency shall: (a) Determine under its procedures supplementing these regulations (described in § 1507.3) whether the proposal is one which: (1) Normally requires an environmental impact statement, or (2) Normally does not require either an environmental impact statement or an environmental assessment (categorical exclusion). (b) If the proposed action is not covered by paragraph (a) of this section, prepare an environmental assessment (§ 1508.9). The agency shall involve environmental agencies, applicants, and the public, to the extent practicable, in preparing assessments required by § 1508.9(a)(1). (c) Based on the environmental assessment make its determination whether to prepare an environmental impact statement. (d) Commence the scoping process (§ 1501.7), if the agency will prepare an environmental impact statement. (e) Prepare a finding of no significant impact (§ 1508.13), if the agency determines on the basis of the environmental assessment not to prepare a statement 40 C.F.R § 1501.4(a)-(e). The plaintiffs argue that the Corps ignored the first step – determining whether an EIS should be prepared under its own regulations. For example, 33 C.F.R. § 230.6, provides guidance to the Corps on when an EIS ought to be prepared: -35- Actions normally requiring an EIS are: (a) Feasibility reports for authorization and construction of major projects; (b) Proposed changes in projects which increase size substantially or add additional purposes; and (c) Proposed major changes in the operation and/or maintenance of completed projects. District commanders may consider the use of an environmental assessment (EA) on these types of actions if early studies and coordination show that a particular action is not likely to have a significant impact on the quality of the human environment. Section 230.6 plainly is inapplicable to the DMDF. The regulations relates to “[f]easability reports for authorization and construction of major projects.” 33 C.F.R. § 230.6. Although the plaintiffs believe that the DMMP is a feasability report for authorization and construction, the DMMP is not such a report as contemplated by the regulation. As the defendants point out, such a feasibility report is required only for new navigation projects or modifications of an existing project as a mechanism for recommending projects to Congress and obtaining authorization for such projects. The DMDF simply is not a navigation project. That fact is underscored by the preamble to the DMMP to which the plaintiffs cite. The purpose of the plan is discuss whether there are suitable sites for the disposal of dredged materials. Significantly, the DMMP’s purpose is not to obtain congressional approval for the construction of the DMDF, but rather appraise potential sites that might meet the needs of the Upper Saginaw River for the next twenty years. To be sure, dredging might be considered a navigational project. However, the environmental impacts associated with dredging by itself was the subject of a previous EIS and properly addressed under NEPA as distinct from the disposal of dredged materials. Even assuming that the dredging activities associated with the DMDF could be considered a navigation project, the plaintiffs have cited no evidence that the -36- approximately 4.5 miles of dredging, the length of the Upper Saginaw River, is a “major project” under the regulations. Ultimately, the Corps properly relied on its own regulation that requires a preparation of an EA under circumstances where a new disposal site is to be used. That regulation states, in relevant part: Actions normally requiring an EA, but not an EIS, are listed below: (d) Construction and Operations and Maintenance. Changes in environmental impact which were not considered in the project EIS or EA. Examples are changes in pool level operations, use of new disposal areas, location of bank protection works, etc. 33 C.F.R. § 230.7. The plaintiffs maintain that the Corps’ reliance on section 230.7 cannot be based on a fair reading of that regulation. The provision plainly applies to the “use” of a new disposal area. Here, the DMMP did not contemplate use of an already built, new facility. Instead the document sought to determine “the feasibility of citing and constructing a CDF for the Upper Saginaw River.” Corps Mot. Summ. J. at 1-2; AR at 2455-56. The Court disagrees. The EA in this case was prepared precisely to assess “changes in environmental impact” that were not previously “considered in the project EIS or EA.” The DMDF is a “new facility” that the Corps will “use” for depositing sediment from the Upper Saginaw River. Thus, it is action “normally requiring an EA, but not an EIS.” That the Corps is required to undertake an EA does not compel the outcome that no EIS ultimately should issue. Rather the purpose of an EA is to “[b]riefly provide sufficient evidence and analysis for determining whether to prepare an environmental impact statement or a finding of no significant impact.” In any event, the Court is required to defer the Corps’ interpretations of its own -37- regulations. See Auer v. Robbins, 519 U.S. 452 457-58 (1998) (reasoning that agencies are entitled to deference in the interpretation of their own regulations). Importantly, the Corps does not rely on the argument that the DMDF is “only a minor maintenance dredging using existing disposal site” that would exclude it from NEPA review. See 33 C.F.R. § 230.9. Instead, the Corps determined pursuant to its own regulation that it was required to prepare an EA and then determine based on the findings therein and consistent with NEPA whether an EIS was warranted. Nor does the fact that some CDFs that the Corps constructed and continues to operate required preparation of an EIS compel the same result in this case. The point is arguably moot because of the conclusion that the Corps’ properly relied on 33 C.F.R. § 230.9 that the DMDF normally requires and EA, but not an EIS. Nonetheless, each project is unique and must considered in light of the environmental impacts relative to it. Further, the plaintiffs overstate the number of EISs that have issued for CDFs in the Great Lakes region. Since 1985, the Corps has prepared nine NEPA documents for such facilities. For five CDFs an EA was prepared and for four CDFs an EIS issued: EA 1998 Grand Haven S Verplank Site #2 EA 1997 Michigan City Harbor EA 1996 Sebewaing Harbor – Marina Site EA 1995 Holland Harbor Township Site EIS 1994 Cleveland Harbor – Dike 10B Inland Route EIS 1990 Toledo Harbor S Site 3 Extension EIS 1989 EIS 1987 Keweenaw Waterway EA 1985 Green Bay Harbor S Bayport Corps. Mot. Summ. J. at 28 (summarizing AR at S40-148) -38- The Court therefore concludes that neither the Corps’ regulations nor past preparation of EISs for CDFs categorically require it to undertake an EIS and that it properly concluded that preparing an EA was the appropriate starting point for NEPA review under is regulations. 3. a. The plaintiffs contend that the DMDF will significantly affect water quality and therefore the human environment because water containing dioxin contaminated sediment ultimately will be returned to the Saginaw River. The plaintiffs contend that the EA does not adequately address how water in the DMDF will be managed and will simply rely on settling alone to remove dioxins. The Corps maintains that any concern over water quality has been fully addressed by coordination, a public hearing, and issuance of Section 401 of the Clean Water Act, 33 U.S.C. § 1341, Water Quality Certification by Michigan State authorities. In fact, the certification requires the Corps to control effluent discharged from the DMDF and ensure it meets state water quality standards. The Corps must monitor discharges including measuring contaminant levels of materials stored at the site, the quality of standing water, and the quality of the water discharged from the weir. The Corps must adhere to the legal requirements of the certification, which prohibit discharges that exceed background concentrations. The certification also specifies appropriate chemical parameters. Finally, the MDEQ is charged with ensuring that discharges comply with the Clean Water Act and Michigan Water Quality Standards. The certification provides ample safeguards to ensure there will be no adverse affect on water quality. -39- The Corps emphasizes that the EA does address how the discharge of water will be managed. The process is straightforward: retention of water and sediments will cause the sediments to which dioxins attach to settle to the bottom of the DMDF. After settling occurs, water will be discharged, and in accordance with the certification, the water may not release additional dioxins into the river. The certification also calls for additional treatment prior to discharging if the settling process and retention time fall short of compliance requirements. The County emphasizes that any effluent to be discharged must be tested and the results must be sent to local authorities ten business days prior to discharge. Further, the discharge will be periodically monitored as set forth in the certification. For example, testing for dioxins will be conducted twice each week during the discharge period to ensure that there “is no net increase,” or that concentrations are equivalent or below those existing in the Upper Saginaw River. Finally, if the effluent falls outside water-quality standards, the Corps will not be permitted to discharge. The water will be held in the facility to facilitate additional settling until such time as it conforms with the limitations contained in the certification. Based on the certification requirements for monitoring and its prohibition that additional dioxins not be released into the Upper Saginaw River along with additional safeguards that water be treated in the event the settling process is unsuccessful, the Court believes that the Corps took the requisite “hard look” and adequately assessed the potential impacts on water quality. Its conclusions therefore were soundly based on the record and therefore were not arbitrary and capricious. -40- b. The plaintiffs complain that the Corps has not adequately assessed the potential impact that the DMDF could have on ground water. They believe that the clay underlying the DMDF will not provide sufficient protection from dioxins leaching into ground water that will eventually spread into neighboring residences and wildlife habitats. The potential for dioxins contaminating the ground water significantly affects the quality of the human environment, and the Corps ought, they argue, to complete an EIS to fully explore effects on ground water. The Corps maintains that it reasonably evaluated potential effects on ground water. Geotechnical investigation revealed that the site has a minimum of forty to sixty feet of underlying low permeability clay. The clay will prevent leaching of retained waters to aquifers below. Logs identifying wells in the area depict the closest well at approximately 450 feet from the edge of the DMDF. Nearby wells draw water from an aquifer immediately above the bedrock, the Corps explains, which is some eighty to 100 feet below the ground. The soil between the DMDF and the aquifer is predominately low permeability silty clay, and water is estimated to move though the clay at the ration of .001 to 1 feet per year. Thus, the Corps concludes, even absent any mitigating factors, it would take four hundred and fifty years for water to reach a well. Further, the nature of dioxins make contamination unlikely. Dioxin attaches to sediment particles and likely would be quickly filtered out of any migrating water. Indeed, the Corps will monitor to ensure no leaching occurs. The plaintiffs also contend that the DMDF will release dioxins into the ground water through breaks in the clay underneath the facility. The plaintiffs’ argument again is unavailing. As the Corps notes, the plaintiffs rely on geotechnical data for a different site for the proposition -41- that there are breaks in the clay at the same level of ground water. That site was not chosen. Instead, the DMDF is located west of the Saginaw River. Further, the record supports the conclusion that dioxins would not move from the site because dioxins naturally tend to attach to sediment particles. Thus, dioxins in migrating water would be removed by their tendency to attach to particles at the DMDF. The argument that sand lenses would permit water to flow from the DMDF site is similarly unsupported by the record. Evidence suggest that the lenses do not appear to be continuous. Finally, there is forty to sixty feet of low permeability clay that will act as a natural barrier to impede leaching of dioxins into the ground water. In light of the amount of clay underlying the DMDF, the natural tendency of dioxins in migrating water to attach to sediment particles on site, and the fact that it would take a minimum of 450 years for any water to reach a well, the Court is convinced that the Corps took a hard look at the DMDF’s impact on ground water. The Corps’ conclusion that the DMDF presents no significant threat to the ground water, therefore, was not arbitrary and capricious. c. The plaintiffs next assert that the EA did not adequately address the environmental effects of the DMDF’s location in a flood plain. The DMDF is located in the flood plain on 281 acres, which means removal of thirty percent “of the flood carrying capacity from the flood- prone area.” Pl.’s Mot. Summ. J. at 26. In fact, the plaintiffs argue in 1986, the entire DMDF site flooded by fifty-one inches of water and the “Corps has never explained where flood waters will go during the next major flood event now that this capacity has been removed (assuming the flood does not cause the Corps’ dikes to fail, releasing highly contaminated waters and sediments from the facility). -42- The Corps contends that studies of the Saginaw River demonstrate that “filling” or removing thirty percent or less of a parcel situated in a flood plain will not adversely affect the viability of flood plain. In fact, the DEQ has expressly incorporated this finding into the standards it employs. In addition, the DMDF will actually impact less than thirty percent of the parcel because a restrictive covenant has been placed on an additional 658 acres, thereby expanding the flood path. With respect to the dikes, the Corps insists that their height exceeds the FEMA requirements. Moreover, the Corps performed several studies under various hydraulic conditions to assure the integrity of the dikes. The plaintiffs argue, however, that the Corps’ assertion that removal of the land will have no appreciable effect on flood plain storage rests on an outdated 1979 study that assessed a different landfill proposal. That study concluded that filling 30 percent of an area across the Saginaw River “would not increase downstream flood elevations greater than .10 feet.” AR at 703. The plaintiffs believe there are several problems with reliance on the 1979 study. First, the study addressed a different portion of the flood plain across the river and slightly downstream. There is no reason to believe, therefore, that the assumption that the DMDF will impact less than thirty percent of the site will hold. Second, the study addresses impacts on downstream elevations, and therefore not the homes that are located between the Saginaw River and the DMDF dikes. Third, history shows that flooding could bring as much as four or five feet of water to the area. With 281 acres devoted to the DMDF, water is likely to flood the adjacent residential neighborhood. Finally, they point out, the Corps has provided no plans for evacuation, explained how the deed restrictions would prevent residential flooding, and has failed to model the DMDF’s likely flood impacts. -43- The Corps references a 1979 study addressing flooding and has adequately considered additional information that suggests that the DMDF presents minimal impact on the flood plain. In a letter to the EPA, the Corps referenced FEMA Flood Insurance Maps and Floodway Data Charts for the Saginaw River in Saginaw and Bay Counties. The maps indicated that the top of the dikes are 3.7 to 4.9 feed above the 100-year flood elevation and 2.2 to 3.4 feet above the 500- year flood elevation. See AR at 4495, 4512-18, 4527-28. Thus, the DMDF would be able to withstand even a 500 year flood, and the Court concludes that the Corps properly concluded that the DMDF will not adversely impact the flood plain of which the DMDF consumes thirty percent. d. The plaintiffs contend that the EA does not adequately address the environmental impact the DMDF will have on the wetlands on which it is situated. The Corps clarifies that under federal law the project site is not actually a wetland. The Food Security Act, 16 U.S.C. § 3822, delegates to the Department of Agriculture the power to designate and delineate wetlands located on a farm. See also 7 C.F.R. §§ 2.61(a), 12.30. In this case, the Department of Agriculture inspected the DMDF and surrounding land and determined that water had been pumped from the property since the early 1950s. As a result, the Department classified the site as “prior converted crop land,” not a wetland. See AR at 2924, 3380, 3388, 3570. DEQ, in cooperating with the Corps, noted that ceasing pumping likely would cause the return of water above the surface and that state law would therefore treat the site as wetland. The County, however, agreed to mitigate for the loss of this state designated wetland by creating -44- an additional 336 acres of wetland. In fact, Michigan State authorities issued a section 303 Wetland Protection for the project. Because the DMDF is not situated on land designated by federal law as a wetland and the County has otherwise provided mitigation for the loss of wetland under state law, the Court cannot conclude that the Corps failed to adequately consider environmental impacts on alleged wetlands. e. The plaintiffs also allege that the EA did not fully consider, in their words, “the considerable toxicity of dioxins in the environment” and the substantial question posed by the disposal of dioxin contaminated sediment in the DMDF on public health and safety. Pl.’s Mot. Summ. J. at 20 The plaintiffs maintain that the Corps has treated dioxins as if they were not especially toxic. However, dioxins “are among the most toxic chemicals in our environment.” Id. at 21. Supplemental materials admitted to the record confirm this conclusion, the plaintiffs say. The “draft” version of the EPA reassessment of dioxins, previously referred to, states: • • • • • “Once they reach the environment, dioxins are highly persistent and can accumulate in the tissues of animals.” “Dioxins are potent animal toxicants with potential to produce a broad spectrum of adverse effects in humans,” including “adverse effects upon reproduction and development,” suppression of the immune system, and cancer. One common route of human exposure to dioxins is through inhalation of air that contains dioxin-contaminated particles and vapors. The EPA estimates that “[t]he amount of dioxin found in the tissues of the general human population (which is known as the ‘body burden’) closely approaches (within a factor of 10) the levels at which adverse effects might be expected to occur.” The EPA categorizes the mixture of dioxins to which people are exposed as “likely human carcinogens,” and the most toxic form as a “human carcinogen.” Based on extensive data, the EPA estimates that “the risks for the general population based on dioxin exposure may exceed 1 in 1,000 to dioxin increased chance of experiencing cancer related exposure.” 16 This represents a ten-fold increase from prior estimates. -45- AR at S1-2. The plaintiffs conclude that because dioxins are highly toxic and the “background level of dioxin exposure is already at a near critical point, any additional exposure, such as that which would come from the disposal of dioxin contaminated sediments in the DMDF, is particularly significant.” As noted and previously discussed, the plaintiffs believe that the DMDF will release dioxins in a number of ways which will adversely impact the human environment. First, they claim that strong westerly winds will blow generate airborne dust containing dioxin. Second, they feel that vegetation growth will not adequately prevent airborne particles from escaping from the DMDF. Third, the plaintiffs claim that despite the Corps’ conclusion that dioxins adhere to solids, there is evidence that dioxins are regularly transported from soil and water to air, and it is unclear how vegetation would provide an adequate buffer. Fourth, the plaintiffs take issue with the layering of cleaner sediment on top of more contaminated sediment. Since the Corps will undertake no testing to confirm dioxin toxicity as it dredges, it is unclear that the layering will serve as an adequate measure of protection. Fifth, the plaintiffs feel that there is not adequate assurance that water pumped back into the Upper Saginaw River from the DMDF will not increase dioxin toxicity. Sixth, the plaintiffs assert that the DMDF will leach toxins into the ground water. The Court has addressed these concerns in turn, and will not repeat the analysis here. The Corps has adequately considered the potential environmental impacts of each of the following and its conclusion that no EIS was necessary was not arbitrary and capricious. The real question appears to be the extent to which the Corps has assessed the level of toxicity of -46- dioxins that will be placed in the DMDF and whether the DMDF is able to appropriately handle the levels of toxicity. The plaintiffs argue that the Corps ought to have established a maximum dioxin limit for the sediments it accepts at the DMDF or off alternative management options for more contaminated sediments. Without establishing a limit, the Corps will have no way of assessing whether the DMDF is reaching a critical toxicity level. Further, the plaintiffs contend that the Corps misrepresented the dioxin levels in the FONSI. That document cites an average of 166 ppt TEQ, which the plaintiffs state the Corps derives by excluding the highest concentration found in its 2004 sampling. The plaintiffs believe there is no rationale for excluding this sample. In fact, the Corps has done limited sampling of dioxin concentrations and there is no evidence that other areas in which the Corps will dredge will depart from the known sampling information. Further, the plaintiffs contend that the Corps refused to acknowledge that its 2004 sediment sampling revealed an average of 808.9 ppt TEQ for the entire Saginaw River. The Corps, without explanation they contend, states that there is an average of 321 ppt TEQ up to river mile 16.5 including the most contaminated shoal. In the plaintiffs’ view, it is impossible to determine from the record how the Corps derived the averages cited in the FONSI. In fact, an average of the fifty samples taken in 2004 and the eighteen samples taken in 1999, was 623.7 ppt TEQ. In addition, the plaintiffs insist that the Corps misrepresents the baseline dioxin levels at the DMDF site. According to the plaintiffs, the Corps claims that the dredged material on the surface of the DMDF will, at worst, be similar to the dioxin levels already found at the Crow Island State Game Refuge and much of the surrounding flood plain and likely much better. The -47- plaintiffs believe that the assertion is contradicted by the record. In 2002, DEQ samples of Crow Island revealed dioxin level of 60.9 ppt TEQ, a level almost five times lower than the stated average of 321 ppt TEQ and ten times lower than the actual average of 623.7 ppt TEQ. The Corps actually conducted additional sampling. Although the Corps did not convert the levels into TEQs, its conclusion was that the raw concentration of dioxins in the river sediments were 16.7 times higher than the Crow Island soils. Thus, the plaintiffs conclude disposal of sediments at the DMDF will substantially increase the concentration of dioxins above those now found at Crow Island. Finally, the plaintiffs assert that the Corps has exaggerated its commitment to addressing dioxins. The Corps claims that in the future if testing reveals higher dioxin levels, different disposal, burial, and handling will be implemented. However, the most the Corps has promised in the record, and not in its brief, is that alternative disposal alternatives will be considered. In addition, the Corps repeatedly states in its brief that it will cap the DMDF with clean material, but the record shows only that the Corps promises to use cleaner materials which optimistically will contain dioxin concentrations of 166 ppt TEQ. However, as noted, the average levels from sampling were 623.7 ppt TEQ. As the Corps admits, MDEQ considers material clean only when it has concentrations of less than 13 ppt TEQ. Although the Corps promises in its brief that it has “monitoring programs and future sampling protocols” to address uncertainty about future impacts, the plaintiffs claim the record only suggests that the Corps will monitor surface water discharge in compliance with its Clean Water Act certificate and only may monitor groundwater. The plaintiffs concede that the record contains references that the Corps will periodically sample shoaled areas in the navigation -48- channel to assess the character of the material under existing conditions, the Corps actually told the EPA that it will not sample the sediments as it dredges and will only sample dioxin concentrations once ever five years. Thus, the plaintiffs conclude that the Corps will not know the actual dioxin levels of the materials it places in the DMDF. The Court is unpersuaded that the Corps has not adequately assessed the dioxin concentrations of material to be dredged and placed in the DMDF. The contention that sampling was limited is misplaced. Sampling conducted in 1999 covered thirty five areas and generated results spanning 251 pages. Sampling in 2004 covered an additional forty five areas, the results of which are set forth in 386 pages. Further, the record contains a commitment by the Corps to continue to sample sediment, AR at 4005-4391, which it has done since the issuance of the FONSI. The plaintiffs appear to overstate the dioxin concentration from 2004 sampling. Although the average found was 809 ppt TEQ for the entire Saginaw River, the average of the concentration of the portion of the river, river mile 4.7 to 16.5, is 321 ppt TEQ. Further, a single shoal artificially elevated the average, and according to the Corps’ sampling, after dealing with the shoal as the first objective of dredging and disposal, the actual average of dioxin concentration is 166 ppt TEQ. Thus, the Corps reasonably has explained how it arrived at the dioxin concentrations that will be placed in the DMDF. Dioxins are toxic to wildlife. However, toxicity alone does not require the Corps to complete an EIS. This point is underscored by the plaintiffs’ belief, expressed during oral argument that disposal and containment of contaminated sediment in the Upper Saginaw River is indeed a better option than leaving the material in the river. The plaintiffs’ argument is premised -49- on the belief that the storage of dioxin in the DMDF poses unacceptable risk to public health because concentrations of dioxins will range from 166 ppt TEQ to 321 ppt TEQ. However, there is little evidence that the unique design of the DMDF, its size and capacity, along with protective dikes that exceed FEMA requirements and some forty to fifty feet of low permeability clay that prevent sediment from leaching into the ground, cannot safely handle the proposed levels of toxicity. The Corps has more than adequately addressed management of the DMDF to minimize environmental impacts. As explained, the Corps will cap sediment with the cleanest dredge material each year, as determined by annual testing. Logically, over the twenty years of disposal and dredging, sediment will become increasingly cleaner. Further, the Corps will conduct annual testing to monitor dioxin levels and before each dredging event. The Court is persuaded that the Corps has adequately assessed the potential environmental impacts of dioxin toxicity in the DMDF and that its conclusion that an EIS was not necessary on that basis was not arbitrary or capricious. The Court is mindful that there is a lack of scientific unanimity. However, the lack of scientific unanimity in an area does not necessarily preclude an agency from issuing a FONSI. See Greenpeace Action v. Franklin, 14 F.3d 1324, 1336 (9th Cir. 1992) (reasoning that if a FONSI required scientific unanimity, “agencies could only act upon achieving a degree of certainty that is ultimately illusory”). The Corps has extensive expertise in dredging, constructing, and managing the disposal of sediments into DMDFs, and it is not inappropriate for this Court to give some deference to that technical expertise. See, e.g., Citizens Against Rails to Trails v. Surface Transp. Bd., 267 F.3d 1144, 1150-51 (D.C. Cir. 2001). -50- The Court is also mindful that the EPA voiced concerns that the DMDF should not be used for sediments with high levels of dioxin. In fact, the EPA urged that an upper level of dioxin contamination be set to restrict the level of contaminated sediments that would be disposed in the DMDF. However, the EPA also strongly agreed that the Upper Saginaw River needed to be dredged. Further, the EPA insisted that “maintaining navigational depths on the river will help to mitigate the migration of contaminated sediments downstream and into Saginaw Bay and will remove a continuing source of dioxin in the watershed.” Corps. Mot. Summ. J. at 11 (citing AR at 3999). In response to the EPA concerns, the Corps explained how the DMDF would handle the levels of dioxin the DMDF would accept for disposal. In the end, working with the DEQ, the Corps responded that the nature of site, including the clay foundation, the dikes to isolate contaminants, the specific dioxin levels in the sediment, the plan for initial disposal of the sediment with higher dioxin levels, and the intention of further environmental monitoring made setting an upper level threshold for dioxin unnecessary. The administrative record reflects that the EPA’s concerns were apparently resolved. Based on the evidence in the record, the Court concludes that the Corps adequately analyzed the environmental impacts associated with dioxin toxicity, and appropriately determined that an EIS was unnecessary. f. The plaintiffs assert that the EA did not appropriately consider the environmental impacts of airborne dust they feel will emanate from the DMDF because the Corps has decided against -51- using a hard cover for the facility. The plaintiffs draw on the EPA dioxin reassessment report for the proposition that the DMDF will release dioxins through airborne dust. The plaintiffs, however, misread the report. The statement in the report discusses atmospheric deposition of dioxins from the atmosphere, not the release of dioxins from the soil. As the Corps explains, chemical manufacturing and other industrial plants spread dioxins though the atmosphere. The concern at the DMDF, by contrast, is minimal because the volatilization of dioxins is low and they are “relatively immobile in soils and sediments.” AR at S3-14. The atmosphere is not likely to be a pathway for the release of dioxins. The plaintiffs’ concerns appear to be based on the previous use of the site as farmland. However, a nearby property owner expressed in a letter to the Corps that dust dissipated ever year after cultivation of that land. Logically, farming activity will cease on the site, and the amount of dust will decrease accordingly. Further, as the Corps notes, dredge material is extremely wet when removed from the river and takes a substantial amount of time to fully dry out. The Corps states that in its experience from constructing numerous DMDFs, vegetation rapidly covers the sediment because the materials are rich with nutrients and wet. The vegetation will prevent the airborne dust and each new layer of deposited sediment will become progressively cleaner. Moreover, the area surrounding the DMDF will vegetate because the land no longer will be cultivated. The plaintiffs have not raised a substantial question that the Corps’ proposed method of dealing with the potential release of dioxin into the air will significantly affect the quality of the human environment. In light of the nature of dioxin in soil and the vegetation that will rapidly -52- cover any deposited sediment, the Court is satisfied that the Corps properly concluded that airborne dust at the DMDF presents minimal environmental concern. g. The plaintiffs also allege that the EA failed to fully consider environmental impacts on wildlife in the state game refuge adjacent to the DMDF. The record does not bear out this contention. The Corps prepared a biological assessment as required by the Endangered Species Act for the DMDF and potential effects on the bald eagle. The only identifiable impact associated with the bald eagle was the period between January 5 to May 10, when the eagles nest. As a result, the Corps agreed to a “no work window” during that period. The plaintiffs further argue that the eagles will be exposed to dioxin by standing water at the DMDF. However, the nature of dioxins undermines that contention. Dioxins, as the Corps explains, are hydrophobic and adhere to solids. Thus, dioxins will be attached to solids that settle and not present in the water. The Court therefore agrees that in light of the no work window and the hydrophobic nature of dioxins, the Corps properly concluded that the DMDF would pose insignificant effects on neighboring wildlife. h. Finally, the plaintiffs claim that uncertainty about the level of dioxin contamination in the Upper Saginaw River and the disposal of contaminated sediment in the DMDF, controversy surrounding the DMDF, and the precedential effect of approving the DMDF will have on future actions in and of themselves require the Corps to prepare an EIS. The Court disagrees. Generally, the term controversy under NEPA and its implementing regulations, “refers to cases where a substantial dispute exists as to the size, nature, or effect of -53- the major federal action as opposed to opposition to a use.” Wetlands Action Network v. United States Army Corps of Engineers, 222 F.3d 1105, 1122 (9th Cir. 2000). The plaintiffs argue that there is a “difference of opinion,” “disagreement,” and “clear controversy” with respect to the scope of the project, the need for a maximum dioxin threshold, the potential for flood impacts, and the location of the DMDF near bald eagle nests. As the Court has concluded, the Corps properly considered the DMDF as distinct from congressionally mandated dredging activities. The project’s scope therefore is properly limited to DMDF and disposal of sediments into that facility. Further, the Corps has fully explained, as discussed earlier, that an upper level dioxin threshold for the DMDF is not needed because of how the DMDF will operate. In addition, the type of sediment and its corresponding dioxin concentration will be limited because the Corps is dredging and disposing sediment from a limited portion of the Saginaw River where it has conducted studies of dioxin concentrations. The Corps therefore has a clear idea of the concentrations of dioxins that will be deposited in the DMDF. The concerns over flood impacts voiced in public comments were addressed by the Corps as were concerns over the DMDF’s proximity to wildlife habitat. As previously discussed, the Corps had constructed dikes that will withstand a 500 year flood and the County has secured additional land for flood path. The DMDF will comprise only thirty percent of the total land dedicated to the project. Further, the Corps agreed with the United States Fish and Wildlife Service that it would not perform construction from January to May so as not to interrupt the nesting of the bald eagle. The plaintiffs’ disagreements with Corps analyses simply do not -54- suffice to establish a “controversy” or substantial dispute such that the regulations would require the preparation of an EIS. See 40 C.F.R. 1508.27(b). The plaintiffs also contend that the Corps has not addressed uncertainties surrounding the DMDF including that the facility could be used for sediment more contaminated that previously analyzed by the Corps because the navigation channel extends farther than the portion that the Corps sampled and because third parties might use the facility of disposal of contaminated sediment. These uncertainties, in the plaintiffs’ view, require the preparation of an EIS. See 40 C.F.R. § 1508.27(b)(5) (directing the preparation of an EIS when “[t]he degree to which the possible effects on the human environment are highly uncertain or involve unique or unknown risks”). The plaintiffs’ contention is unavailing. The Corps has in place a monitoring program and future sampling protocols to determine the need for further environmental review. Courts have routinely approved such a monitoring as a way of dealing with future matters. Friends of Payette v. Horshoe Bend & Hydroelectric Co., 988 F.2d 989, 993 (9th Cir. 1993); NRDC v. Hodel, 819 F.2d 927, 930 (9th Cir. 1987). Further, the EA and FONSI considered only a limited portion of the Saginaw River, river mile 4.7 to 16.5. Plainly, if the need arose to extend materially beyond those limits, the Corps would be required to undertake additional consideration to determine whether the change requires supplemental review under NEPA. Finally, as discussed earlier, it is speculative at best whether third parties will be allowed to use the DMDF and the Corps is not required to assess actions that are not immanent in its environmental review. The Court finds no basis to require the Corps to complete an EIS on the basis of minimal uncertainties. -55- The plaintiffs also argue that the Corps ought to prepare an EIS because of the precedential effect of this project on future decision making. See 40 C.F.R. § 1508.27(b)(6) (directing the preparation of an EIS when “[t]he degree to which the action may establish a precedent for future actions with significant effects or represents a decision in principle about a future consideration”). The record does not establish that the decision to construct and use the DMDF is of the type contemplated by the regulation. Several similar type projects have been undertaken by the Corps over the past thirty years, many of which required an EIS, others of which proceeded on the basis of and EA and FONSI. It appears then that an EA or an EIS for a given DMDF or CDF cannot be duplicated in place of a fact specific assessment unique to each site. The plaintiffs have not identified any evidence that would suggest the DMDF is going to shape future decision making of the Corps or other agencies, and the Court believes that an EIS need not be prepared on that basis. Finally, the plaintiffs assert that operation of the DMDF will somehow result in the violation of state, federal, or local law, and that such violation requires the preparation of an EIS. See 40 C.F.R. § 1508.27(b)(9) (requiring consideration of “[w]hether the action threatens a violation of Federal, State, or local law or requirements imposed for the protection of the environment”). The Court disagrees. The plaintiffs argue that the Corps will discharge dioxin contaminated water. However, the record does not indicate that the Corps will violate its Clear Water Act Certification. The use of river water to pump material into the site will be discharged, but nothing suggests that the water will be contaminated with dioxins other than the plaintiffs’ -56- speculation. The plaintiffs further claim that the state certification itself violates the Clean Water Act. Yet, as the Corps emphasizes, that contention has not been established and is the subject of appeal in a separate state court action and not an issue before this Court. Finally, the plaintiffs argue that the DMDF violates local zoning ordinances, but that issue is the subject of a separate proceeding between the County and Township. Therefore, it has not been established that operation of the DMDF violates any law. 4. Finally, the plaintiffs claim that the Corps failed to analyze the environmental impacts associated with contaminated sediments that third party might deposit into the DMDF. However, as previously noted, it is speculative at best whether third parties including the Dow Chemical Company will be able to obtain the necessary permits to use the DMDF in the future. The Court believes that the Corps did not act arbitrarily in declining to consider the environmental impact of speculative third-party permitees in the EA. III. After carefully reviewing the administrative record, considering the parties’ submissions, and hearing oral argument on the matter, the Court determines the defendants conducted a “hard look” and the relevant environmental impacts posed by the DMDF and their actions in preparing an EA and issuing a FONSI cannot be said to be arbitrary and capricious. Accordingly, it is ORDERED that the defendants’ motions for summary judgment [dkt #s 67, 68] are GRANTED and the plaintiffs’ amended motion for summary judgment [dkt # 65] is DENIED. -57- It is further ORDERED that defendant Army Corps of Engineer’s original motion for summary judgment that did not comply with Court’s requirements [dkt # 62] is STRICKEN. The Clerk is directed to remove the image from the electronic docket. It is further ORDERED that the complaint is DISMISSED WITH PREJUDICE. s/Thomas L. Ludington THOMAS L. LUDINGTON United States District Judge Dated: May 24, 2007 PROOF OF SERVICE The undersigned certifies that a copy of the foregoing order was served upon each attorney or party of record herein by electronic means or first class U.S. mail on May 24, 2007. s/Tracy A. Jacobs TRACY A. JACOBS -58-

=== Kalahar Opinion Granting in Part and Denying in Part Motion for Judgment of Acquittal ===

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN NORTHERN DIVISION UNITED STATES OF AMERICA, Plaintiff, v. PATRICK KALAHAR, ______________________________________ / Defendant. Case Number 06-20514-BC Honorable Thomas L. Ludington OPINION AND ORDER GRANTING DEFENDANT’S MOTION FOR JUDGMENT OF ACQUITTAL AS TO COUNTS II, III, IV, AND V OF FIRST SUPERSEDING INDICTMENT, DENYING DEFENDANT’S MOTION WITH RESPECT TO COUNT I, SETTING ASIDE JURY’S VERDICT WITH RESPECT TO COUNTS II, III, IV, AND V, AND ENTERING ACQUITTAL AS TO THOSE COUNTS On October 25, 2006, the defendant, Patrick B. Kalahar (Kalahar) was charged in a five- count first superceding indictment with bank fraud and bankruptcy fraud in violation of federal law. The matter proceeded to trial on April 10, 2007. At the conclusion of the government’s proofs, Kalahar made an oral motion for judgment of acquittal pursuant to Federal Rule of Criminal Procedure Rule 29. In the interest of judicial economy, the Court deferred ruling on Kalahar’s motion as permitted by Rule 29(b) until such time as the jury had reached a verdict. Following the testimony of the defendant, at the close of the evidence, Kalahar renewed his motion for judgment of acquittal. The Court deferred ruling on the matter again, for similar reasons. On April 13, 2007, the jury returned a guilty verdict on all counts of the superseding indictment. At the conclusion of the trial, the Court directed the parties to provide supplemental briefing on Kalahar’s motion, indicating that it would take the matter under advisement, and set the matter for hearing. The parties have complied with the Court’s directive. On April 30, 2007, Kalahar and the government submitted supplemental authority. The Court head oral argument on the motion on May 21, 2007. After considering the parties’ arguments and reviewing the trial exhibits, the Court concludes that there was sufficient evidence for the jury to consider Count 1 of the superseding indictment, but insufficient evidence for jury consideration of the remaining counts. The Court therefore will grant in part and deny in part Kalahar’s motion and vacate the jury’s verdict with respect to Counts 2 through 5 of the first superseding indictment. I As noted, Kalahar was charged in a five-count first superseding indictment on October 25, 2006. The first three counts alleged bank (credit union) fraud, see 18 U.S.C. § 1344, and the final two counts alleged that he made false representations in his personal bankruptcy schedules. See 18 U.S.C. § 152. Kalahar, approximately 47-years-old at the time of trial, began his working life following graduation from college, as an employee of a predecessor to the victim credit union in this matter, Credit Union Plus. Credit Union Plus’s primary place of business is located in Bay City, Michigan. Kalahar finished up his employment with Credit Union Plus as its chief executive officer. He acknowledged being familiar with its operations and with financial transactions generally. In approximately 1994, Kalahar left his position at Credit Union Plus to join a business that acquired vans and then adapted them for use by handicapped people. The business included Freedom Driving Aids of Illinois, Inc., Freedom Driving Aids, Inc., Freedom Driving Aids of Grand Rapids, LLC and Freedom Driving Aids of Brighton, LLC. (Freedom) but operated as a consolidated enterprise. Freedom maintained store locations in Bay City, Michigan, Grand Rapids, Michigan, Brighton, Michigan, Plainfield, Illinois and Des Plains, Illinois. However, by at least May of 2002, -2- according to Kalahar’s later bankruptcy filing, Freedom began experiencing significant cash flow problems that required, for example, Patrick Kalahar and his wife Janine to personally guarantee the businesses’ trade creditors including the business that furnished the vans to Freedom for adaptation and sale to customers. (See Workout Agreement dated May 2, 2002 attached to Complaint to Determine Dischargeability of Debt under 11 U.S.C. § 523 (providing for the personal guarantee of over $559,279 to Gettel Motors . Kalahar testified that he left Freedom when the business continued to have problems and his business partners were no longer willing to go forward. Kalahar thereafter formed a new business organization – Kalahar Mobility, LLC (Mobility), a wholly-owned domestic limited liability company. (See Gov’t Tr. Ex 113; Articles of Organization filed with the State of Michigan on January 15, 2004) . Kalahar’s interest in Mobility is reflected in his later bankruptcy schedule B, as well as his salary from both Freedom and Mobility in his Statement of Financial Affairs, as follows: Amount $70,350 Source Kalahar Mobility $127,000 Freedom Group Kalahar’s bankruptcy schedules also disclose: FY: 1/1/04 to 12/31/04 FY: 1/1/03 to 12/31/03 • • • • His personal checking and savings accounts at Credit Union Plus (415 Washington Avenue, Bay City) The remaining balance in his Oppenheimer IRA of some $2,714.15 Several personal loans or credit card debts owed to Credit Union Plus Over $377,085 owing to Litton Loan Servicing, $200,000 to Jim Gettel of Gettel Motors, $740,000 to Ford Motor Company, and over $1,000,000 to Oakridge Financial, LLC. Kalahar testified at trial that in order to convince a number of vendors to do business with Mobility -3- that were owed money by Freedom, he was asked and agreed to personally guarantee Freedom’s prior debt obligations. He also explained that he was often away from the Bay City office; the nature of his business required him to travel. The principal business office for Mobility was Bay City, Michigan. However, Mobility also continued to do business at two stores in Illinois. Mobility maintained business deposit accounts in Bay City at Credit Union Plus and in Illinois at Prairie Bank & Trust Company in Plainfield, Illinois. When sales were made at the Illinois business, the proceeds would be deposited with Prairie. When sales were made in Bay City, the proceeds would be deposited at Credit Union Plus. The business office in Bay City was primarily managed by Melissa Wood who testified at trial that she was responsible for accounts receivable, preparation of financial statements, payroll, and human resources. She explained that Mobility employed between 35 and 40 employees. Ms. Wood started working for Mobility in May of 2000 and her employment ended in November 2004. She supervised one employee, Ms. Sue Pike, who also testified at trial. Ms. Pike was hired on approximately July 13, 2004 and left when the business closed about two months later. Ms. Wood testified that she, in the ordinary course of business, would withdraw money deposited to the Prairie Bank account and deposit it to the business’s primary bank account at Credit Union Plus. Count 1 (bank fraud) of the indictment charged Kalahar with knowingly executing a scheme and artifice to defraud Credit Union Plus. Specifically, it was alleged that “on or about July 28, 2004 Patrick Kalahar deposited a [personal] IRA disbursement check in the approximate amount of $63,860.72 into [Mobility’s account] at Credit Union Plus, well knowing that a stop payment had been placed on the check . . . and then subsequently withdrew money from his account from the deposited funds.” The IRA account was maintained with Oppenheimer & Co., located in Detroit, -4- Michigan. Counts 2 and 3 also allege Kalahar “knowingly executed a scheme and artifice to defraud Credit Union Plus.” Count 2 alleges that “on or about July 29, 2004 Patrick Kalahar deposited . . . a check in the approximate amount of $80,500 drawn on Prairie, well knowing that it did not have sufficient funds and subsequently withdrew money from his account.” The check was drawn on Mobility’s account at Prairie and deposited to Mobility’s account at Credit Union Plus and designated “for deposit only.” See Gov’t Tr. Ex. 101A. The check was signed by employee Sue Pike. See Gov’t Tr. Ex. 102. Count 3 made very similar factual allegations about a $90,810 Mobility check drawn on July 30, 2004, a day later, in the amount of $90,810 and again signed by Sue Pike as the drawer. Ms. Wood testified that retrieving funds from the Prairie Bank to Credit Union Plus, the business’s primary bank, in the amount of eighty and ninety thousand dollars was not unusual and that she would routinely deposit funds on hand at Prairie Bank to its primary business account at Credit Union Plus using the ATM. She believed that the reason there were insufficient funds to cover the checks alleged in Counts 2 and 3 of the indictment was probably because the Illinois store expected funds for a vehicle sale that did not occur. When questioned, she explained that Kalahar did not blame her when he spoke with her about the problem; that they were all just concerned about why the overdraft occurred. She also testified that she had no recollection of speaking with Kalahar before authorizing the checks to be prepared and deposited to Credit Union Plus. She did testify that she left him an internal email to tell him about both the Oppenheimer check and the overdrafts resulting from the checks related to Counts 2 and 3. -5- It was also acknowledged at the time the checks subject to Counts II and III were signed by Ms. Pike and that Kalahar had never personally met Ms. Pike. In fact, Ms. Pike had been recently hired by Ms. Wood. Ms. Wood also acknowledged that Ms. Pike would only have prepared and signed the checks at her direction. The circumstances surrounding Count 1 and the Oppenheimer checks were a bit more involved. Kalahar testified that he sought to withdraw his savings from his IRA somewhat quickly as he needed the funds to payoff a former partner and because Mobility needed a cash contribution as a result of continuing cash flow problems. Kalahar contacted his account executive, Mark Denay, at Oppenheimer & Co. on or about March 9, 2004 and requested a pay-out from his Individual Retirement Account (IRA). The amount requested was $63,860.72. Oppenheimer & Co. issued a check in that amount on or about March 11, 2004, and mailed it to the defendant’s residence in Bay City from its Detroit office. On or about March 18, 2004, however, Kalahar contacted Mr. Denay and informed him that he needed the funds as quickly as possible. He explained that the March 11 check had not arrived. Mr. Denay, accordingly, took steps to issue a replacement check in the sum of $63,860.72 on or about March 19, 2004. Mr. Denay testified that he hand-delivered the check to Kalahar within a few days. He recalled asking Kalahar to destroy the original check. Kalahar deposited the reissued check on or about March 23, 2004. Oppenheimer, of course, stopped payment on the March 11 check. On or about July 28, 2004, some three months later, the March 11 Oppenheimer check was deposited to a Mobility account at Credit Union Plus. The check was endorsed by Kalahar. Kalahar testified that after requesting the replacement check, but before it arrived, the March 11 check came in the mail. Sometime before that, he had advised Ms. Wood that emergency funds would be -6- available in the form of the Oppenheimer check which he would leave endorsed in his desk if Mobility needed the additional contribution of funds for working capital. Kalahar testified that when he did receive the March 11 check he decided to deposit it and endorsed it on the way to the bank. During the course of his trip to the bank he phoned Mr. Denay who told him the March 11 check was now subject to a stop order and he would have to await receipt of the replacement check. Kalahar returned, he testified, to his office where he placed the endorsed check into his desk, pending the arrival of the replacement check. He acknowledged that he did not countermand his earlier instructions to Ms. Wood that she could use it in an emergency. Ms. Wood testified that on the day she decided she needed to use the check, she tried to contact the defendant in Chicago by phone and also left him an internal email. Unable to contact him, she deposited the check into Mobility’s account. Ms. Wood did testify that shortly thereafter she did tell him that she deposited the Oppenheimer check and that his reaction was nothing out of the ordinary. Credit Union Plus, at the time, let customers draw against the provisional credit for checks that had not cleared. Consequently and ultimately, it was left with a loss as a result of the activity in the Mobility accounts. The circumstance was summarized as follows by Kathy Dahlbeck, Credit Union Plus CEO, when she sought insurance reimbursement for Mobility’s overdraft from CUNA Mutual Group in her correspondence dated August 20, 2004: To Whom It May Concern: Our member and former CEO Patrick Kalahar, owner of Kalahar Mobility, LLC has three outstanding deposited items returned to us. Two of the three checks were drawn on Kalahar Mobility LLC business account at Prairie Bank and Trust Company in Plainfield, Illinois. The first ck#579 $80,500.00 deposited 7/29, the second ck#850 $90,810.00 deposited 7/30 were both returned NSF on 8/10 thru the Federal Reserve. Both checks were deposited at an ATM machine located at 900 W Midland Street in Bay City, Michigan. -7- The third check ck#2872375 drawn on Oppenheimer & Company was included in a commingled deposit on 7/28 at an ATM machine located at 900 W Midland Street in Bay City, Michigan. This was returned on 8/4 thru the Federal Reserve at Payment stopped. We called Oppenheimer to determine who placed the stop payment and when it was placed. Check #2872375 for $63,860.72 was issued on 3-11-2004. This was a withdrawal from Patrick Kalahar’s IRA. Per Oppenheimer Pat Kalahar called on 3/18 and said he never got the check. They placed a stop and reissued a new one on 3/19/04 ck#2872764 which was then cashed on 3/23/04. Funds on deposit to offset the total outstanding checks of $235.170.72 are $52,609.03 as of 8/20/04 leaving a shortfall of $182,561.69. Gov’t Tr. Ex 118. Shortly thereafter, Charles Barcia, Sr. wrote Mobility to the attention of Kalahar seeking payment of the account overdraft. Later, on September 2004, Kathy Dahlbeck wrote Mobility to the attention of Kalahar indicating that the Credit Union had “transferred funds available and closed all of the accounts” including a Mobility savings and checking account and the following personal accounts: 19700 00 $51.84 Patrick Kalahar – Savings 19700 10 $87.72 Patrick Kalahar – Checking 3956 00 $592.91 Patrick Kalahar – Savings Gov’t Tr. Ex. 117. Count 4 of the indictment related to the defendant’s Summary of Schedules and Statement of Financial Affairs filed with the United States Bankruptcy Court on June 15, 2005. The schedules are signed by both Patrick and Janine Kalahar declaring “under penalty of perjury that I have read the foregoing summary and schedules consisting of 20 sheets and that they are true and correct to the best of my knowledge, information and belief.” The defendant was represented by legal counsel in preparing both his bankruptcy petition and schedules. -8- Credit Union Plus is identified in Kalahar’s bankruptcy mailing matrix and, as previously indicated several loans or credit card debts of Credit Union Plus are also reflected in Kalahar’s bankruptcy schedules. The instructions for the schedules require disclosure of “all entities holding unsecured claims without priority against the debtor.” (Emphasis added). Mr. Marian J. Mack, United States Bankruptcy Trustee, testified that Kalahar should only have included “personal liabilities” in his personal bankruptcy schedules. Kalahar testified that he did not list Mobility’s liability to Credit Union Plus because he did not believe or understand himself to be personally responsible for the repayment of Mobility’s overdraft. He did testify that he know the net result of one check being drawn on a Mobility account with insufficient funds being used to fund another Mobility account could technically be characterized as “kiting.” The bankruptcy file admitted into evidence as Government’s exhibit 111 not only reflects Credit Union Plus in Kalahar’s mailing matrix, it also reflects a “Reaffirmation Agreement Between Debtor (Kalahar) and Credit Union Plus.” The document was prepared by Credit Union Plus’s legal counsel. The bankruptcy file does not reflect any assertion by Credit Union Plus – by proof of claim or initiation of an adversary proceeding – that Credit Union Plus believed that Kalahar was personally responsible for Mobility’s overdraft. Count 5 of the indictment also relates to the defendant’s Statement of Financial Affairs requiring a list of the financial accounts held in the name of the debtor or for the benefit of the debtor which were closed, sold or otherwise transferred within one year immediately preceding the commencement of this case. Kalahar was questioned during trial about several Mobility bank accounts, which he explained he did not include in the schedules because of their separate ownership by Mobility. The government’s questioning therefore ultimately focused on two bank accounts – -9- one with an approximate $51 balance and the other with an approximate $87 balance as earlier noted – that Credit Union Plus closed. Kalahar explained that there would have been no activity in either of the accounts for some four or five years, that he believed them to be accounts he maintained for a hunting club in which he participated, and that he did not remember the accounts when he prepared his bankruptcy schedules. II. The defendant brings his motion for judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29. That rule provides, in relevant part: (a) Before Submission to the Jury. After the government closes its evidence or after the close of all the evidence, the court on the defendant's motion must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction. The court may on its own consider whether the evidence is insufficient to sustain a conviction. If the court denies a motion for a judgment of acquittal at the close of the government's evidence, the defendant may offer evidence without having reserved the right to do so. (b) Reserving Decision. The court may reserve decision on the motion, proceed with the trial (where the motion is made before the close of all the evidence), submit the case to the jury, and decide the motion either before the jury returns a verdict or after it returns a verdict of guilty or is discharged without having returned a verdict. If the court reserves decision, it must decide the motion on the basis of the evidence at the time the ruling was reserved. (c) After Jury Verdict or Discharge. (1) Time for a Motion. A defendant may move for a judgment of acquittal, or renew such a motion, within 7 days after a guilty verdict or after the court discharges the jury, whichever is later. (2) Ruling on the Motion. If the jury has returned a guilty verdict, the court may set aside the verdict and enter an acquittal. If the jury has failed to return a verdict, the court may enter a judgment of acquittal. (3) No Prior Motion Required. A defendant is not required to move for a judgment of acquittal before the court submits the case to the jury as a prerequisite for making such a motion after jury discharge. (d) Conditional Ruling on a Motion for a New Trial. (1) Motion for a New Trial. If the court enters a judgment of acquittal after -10- a guilty verdict, the court must also conditionally determine whether any motion for a new trial should be granted if the judgment of acquittal is later vacated or reversed. The court must specify the reasons for that determination. (2) Finality. The court's order conditionally granting a motion for a new trial does not affect the finality of the judgment of acquittal. Fed. R. Cr. P. 29(a)-(d). The defendant’s motion was made at the conclusion of the government’s proofs, and the Court deferred ruling as permitted by subsection (b), following the jury’s return of guilty verdicts on all counts. The defendant also renewed his motion at the close of all proofs. Rule 29 suggests that if the defendant makes his motion at the close of the government’s case in chief and the Court defers ruling on the motion, “it must decide the motion on the basis of the evidence at the time the ruling was reserved.” Fed. R. Cr. P. 29(b). However, it is well-established if the defendant testifies, as he did in this case, the Court is to examine the evidence adduced throughout the entire trial. See United Stats v. Black, 525 F.2d 668, 669 (6th Cir. 1975) (providing that “the rule is settled that when a defendant introduces evidence, he waives any objection to the denial of his motion to acquit at the close of the government’s case. The defendant may renew his motion at the close of all the proof, as the defendant did here, but the court will then consider the sufficiency of the on the record as a whole and not the sufficiency of the government’s case in chief”). This Court, therefore, must consider the defendant’s motion in light of all evidence presented during the trial. As the rule states, the Court may grant a motion for acquittal only if “the evidence is insufficient to sustain a conviction” of one or more of the charges in the indictment. Logically, however, a “verdict in a criminal case is sustained only when there is relevant evidence from which the jury could properly find or infer, beyond a reasonable doubt, that the accused is guilty.” American Tobacco Co. v. United States, 328 U.S. 781, 787 n. 4 (1946) (internal quotations and -11- citations omitted). In adjudicating the defendant’s motion, the Court must take the evidence in the light most favorable to the government and determine if “any reasonable jury could find guilt beyond a reasonable doubt.” United States v. Kelley, 461 F.3d 817, 825 (6th Cir. 2006) (citing United States v. Talley, 164 F.3d 989, 996 (6th Cir. 1999 . Sufficiency of the evidence is assessed in reference to the elements of the crimes, and whether the jury could find beyond a reasonable doubt each element of the offenses charged. Ibid. A. The defendant first challenges the sufficiency of the evidence to support the material elements of bank fraud alleged in Count I of the superseding indictment. The bank fraud statute, 18 U.S.C. § 1344 provides as follows: Whoever knowingly executes, or attempts to execute, a scheme or artifice– (1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. As noted, the allegations in Count I relate to a deposit of a personal IRA disbursement check for approximately $63,860.72 in Mobility’s account at Credit Union Plus on or about July 28, 2004. At trial, Kalahar acknowledged that he was under time pressure when he sought to withdraw savings from his IRA held at Oppenheimer and Company in Detroit Michigan. He explained that Mobility required a cash contribution and the funds were otherwise needed to payoff a former partner. On approximately March 9, 2004, Kalahar requested the IRA pay-out in the amount of $63,860.72 from Mark Denay who worked for Oppenheimer. The company issued the check from -12- its Detroit office on March 11, 2004 and mailed it directly to Kalahar’s personal residence in Bay City, Michigan. The financial situation, however, became more serious. On March 18, 2004, Kalahar contacted Denay, informed him that the check had not arrived, and advised him that he needed the funds as soon as possible to close a business transaction with Former freedom partners. Denay then reissued the check and hand delivered it to Kalahar within a few days. Denay testified that he asked Kalahar to destroy the check. The check was not destroyed. In fact, the original March 11 check was deposited into a Mobility account at Credit Union Plus on July 28, 2004 endorsed by Kalahar. Kalahar recalled that the March 11 check had come a few days after the hand delivery of the replacement check. He also recalled advising Wood that emergency funds, should she need them, for the continued operation of Mobility would be available to her in form of an endorsed Oppenheimer check in his desk drawer. Kalahar testified that when he first received the March 11 check, he decided to immediately endorse it as he was driving to Credit Union Plus and deposit the funds. However, during the ride to the Credit Union, he thought to call Denay, who advised him that a stop payment had issued on the check and he would have to await delivery of the replacement check. Kalahar states that he returned to his office, placed the March 11 check in his desk, and forgot to tell Wood that the check was no longer valid and that she should not use it. Ultimately, Mobility’s financial situation became so severe that Wood resorted to the March 11 check, although she attempted to contact Kalahar to inform him of her decision. After she deposited the money, she did tell Kalahar, whose reaction was nothing out of the ordinary, Wood testified. -13- As a result of depositing the check, Kalahar was able to draw on a provisional credit for checks that had not yet cleared and the Credit Union ultimately suffered a loss because of the stop payment issued on the March 11 check. Thus, the defendant has offered a reasonable explanation for the circumstances surrounding the Oppenheimer checks. He simply and inadvertently failed to destroy the March 11 check after the replacement check arrived and he forgot to inform Ms. Wood that she no longer could use the funds because a stop payment had been issued for the check. However, it is equally plausible that the jury could discredit Kalahar’s explanation and disbelieve that his conduct was the result of simple inadvertence. The Court therefore believes that the was sufficient evidence from which a jury could find beyond a reasonable doubt that Kalahar knowingly executed a scheme or artifice to draw upon the provisional credit Credit Union Plus offered at the time knowing that a stop payment had issued for the March 11 check. B. Kalahar next contends that there was insufficient evidence to support a guilty veridct with respect to Counts 2 and 3 of the superseding indictment. These Counts focused on overdrafts in the amount of $80,500 (count 2) and $90,810 (count three). These checks were drawn on Mobility’s account at Prairie and deposited in Mobility’s account at Credit Union plus on July 29, 2004 and July 30, 2004, respectively. The indictment alleges that for each check Kalahar withdrew the money knowing that there was insufficient funds to support them. The government argues that sufficient evidence was presented to the jury, from which it could conclude beyond a reasonable doubt, that Kalahar committed bank fraud. It premises its argument on what it asserts is long-established case law in this circuit that “check kiting” is an -14- appropriate basis for a bank fraud conviction. Check kiting, as the Sixth Circuit has explained, occurs under the following circumstances. “Kiting” occurs when accounts are maintained in different banks and checks are drawn on one account and deposited in the other when neither account has any substantial funds in it to pay the checks drawn on it. Since it takes several days to collect a check, each of the accounts will show substantial credits of uncollected checks, and those credits will continue so long as checks continue to be drawn every day in each bank and deposited in the other bank. If some checks are drawn to cash or to legitimate third parties, the checks that flow between the two banks have to be increased to maintain the “kiting” equilibrium. United States v. Street, 529 F.2d 226, 229 (6th Cir. 1976) (quoting United States v. Giordano, 489 F.2d 327, 329 (2d Cir.1973 . The Court cannot entirely agree with the government. As the Court explained in its jury instructions in this case, to which the government did not object, kiting by itself may be a method of proving an element of bank fraud. The fact that kiting occurs in and of itself did does not support a conviction for bank fraud. The Court’s instruction read, in relevant part: By itself, the fact that kiting occurred in a given instance does not necessarily establish a “scheme or artifice” as described above. However, kiting may be one method that, when viewed in the totality of the evidence presented to you, the government may prove that there was a “scheme or artifice” to defraud a financial institution. Remember, the government must still prove that the defendant directed, executed, or attempted to execute that “scheme or artifice” and that the defendant had the specific intent to defraud a financial institution. Dkt # 31, Jury Instructions at 9. That instruction finds support in the case law. For example in United States v. Stone, 954 F.2d 1187 (6th Cir. 1992), the case upon which the government relies for the proposition that check kiting is a well established basis for conviction of bank fraud, did not answer the question of whether check kiting by itself supported a conviction for bank fraud, but merely suggested that check kiting could prove that a defendant “devised a scheme or artifice to defraud a financial institution.” Id. at -15- 1190. (further reasoning that “[t]his court has recently upheld a conviction for check kiting under the [scheme or artifice to] defraud provision of § 1344(1), see United States v. Seago, 930 F.2d 482, 486-87 (6th Cir.1991), thereby joining those circuits that have interpreted § 1344(1) to encompass check-kiting schemes within its strictures. See, e.g., United States v. Celesia, 945 F.2d 756, 758-59 (4th Cir.1991); United States v. Schwartz, 899 F.2d 243, 246 (3d Cir. 1990), United States v. Taggatz, 831 F.2d 1355, 1356-57 (7th Cir.1987)”). At any rate, even though a check-kiting could support a conviction by itself, the statute nonetheless requires, at a minimum, that the defendant be directing the check kiting. In Stone, the defendant himself wrote the NSF checks charged in the information. The present case, of course, is distinguishable. The jury instruction also is supported by the plain language of the statute, which requires that a defendant “knowingly execute[], or attempt[] to execute, a scheme or artifice” to defraud a financial institution. 18 U.S.C. § 1344. Although kiting may be relevant to proof of bank fraud, the occurrence of kiting does not obviate the need for proof beyond a reasonable doubt that the defendant knowing executed or attempted to execute a scheme or artifice and that the defendant did so with the intent to defraud a protected institution. In this case, the Court cannot discern support for the intent requirement or that it was Kalahar who knowingly directed any kiting to defraud the financial institutions at issue here. The government presents evidence that overdrafts occurred in the amounts of $80,500 and $90, 810. The record establishes that it was Sue Pike that endorsed the checks and did so at the direction of Wood. In fact, Wood testified that Pike would only have prepared the checks after receiving instructions from her. Wood also explained that the amounts of the checks for 80 and 90 thousand dollars were -16- not uncommon and that she routinely deposited funds on hand at Prairie Bank into Mobility’s primary account at Credit Union Plus using the ATM. Indeed, Wood believed that the reason for the insufficient funds alleged in Counts 2 and three were the result of vehicles sales that had not manifested as planned. Importantly, Kalahar had no knowledge of Wood’s actions. Nor had he ever personally met Pike. When Wood told Kalahar about the overdrafts, she explained that Kalahar did not blame her and that the primary focus of the conversation when Kalahar was apprised of the situation was why it had occurred. Pike, the person who actually endorsed the checks at the direction of Wood, had only recently been hired by Wood and Kalahar had not yet had the opportunity to meet her. In the end, the government can only point to the testimony of an office manager that prepared checks and had an employee sign them. The record supports little more than Wood’s belief that she and Pike would not have written the checks had they know there were insufficient funds because of a mistake. The proofs demonstrated no prior knowledge or direction by Kalahar. The Court therefore believes that there is insufficient evidence from which a jury reasonably could have found beyond a reasonable doubt that Kalahar executed or attempted to execute a check kiting scheme to defraud Credit Union Plus of funds. C. Finally, Kalahar maintains that there was insufficient evidence form which the jury could have convicted him on bankruptcy fraud, counts 4 and 5 of the superseding indictment. Count 4 faults Kalahar with failing to disclose in his bankruptcy schedules filed on June 15, 2005 with United States Bankruptcy Court for the Eastern District of Michigan “all entities holding unsecured claims without any priority against the debtor.” In other words, entities holding claims for which he -17- had “personal liability.” Count five alleges that Kalahar failed to fully disclose financial accounts held in the name or the debtor or for the benefit of the debtor in his Statement of Financial Affairs filed on the same day and in the same bankruptcy court. The bankruptcy fraud statute, 18 U.S.C. § 152, provides as follows: A person who– (1) knowingly and fraudulently conceals from a custodian, trustee, marshal, or other officer of the court charged with the control or custody of property, or, in connection with a case under title 11, from creditors or the United States Trustee, any property belonging to the estate of a debtor; (2) knowingly and fraudulently makes a false oath or account in or in relation to any case under title 11; (3) knowingly and fraudulently makes a false declaration, certificate, verification, or statement under penalty of perjury as permitted under section 1746 of title 28, in or in relation to any case under title 11; (4) knowingly and fraudulently presents any false claim for proof against the estate of a debtor, or uses any such claim in any case under title 11, in a personal capacity or as or through an agent, proxy, or attorney; (5) knowingly and fraudulently receives any material amount of property from a debtor after the filing of a case under title 11, with intent to defeat the provisions of title 11; (6) knowingly and fraudulently gives, offers, receives, or attempts to obtain any money or property, remuneration, compensation, reward, advantage, or promise thereof for acting or forbearing to act in any case under title 11; (7) in a personal capacity or as an agent or officer of any person or corporation, in contemplation of a case under title 11 by or against the person or any other person or corporation, or with intent to defeat the provisions of title 11, knowingly and fraudulently transfers or conceals any of his property or the property of such other person or corporation; (8) after the filing of a case under title 11 or in contemplation thereof, knowingly and fraudulently conceals, destroys, mutilates, falsifies, or makes a false entry in any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor; or (9) after the filing of a case under title 11, knowingly and fraudulently withholds from a custodian, trustee, marshal, or other officer of the court or a United States Trustee entitled to its possession, any recorded information (including books, documents, records, and papers) relating to the property or financial affairs of a debtor, shall be fined under this title, imprisoned not more than 5 years, or both. (Formatting altered). -18- With respect to Count 4, the government believes that Kalahar perpetrated a fraud on the bankruptcy court by failing to disclose the consolidated amount of the overdrafts from Credit Union Plus. The Court cannot agree. Kalahar entered into personal bankruptcy proceeding under Chapter 11 of the Bankruptcy Code. The personal nature of the bankruptcy required, as explained by the United States Bankruptcy Trustee, that Kalahar disclose debts for which he was personally liable. It was Kalahar’s understanding that liability for the overdrafts remained with Mobility, and he was not separately liable for those amounts because they were incurred by the corporate entity. As a result, he did not list the overdraft amounts in his bankruptcy schedules. The government contends that Kalahar did in fact list certain Mobility debts in his schedules and from that fact and inference can be drawn that he had an obligation to list the Credit Union plus overdrafts. Kalahar was represented by counsel when he filed his schedules. The government’s contention is unavailing. As required, Kalahar listed his interest in Mobility and Freedom in bankruptcy schedule B as well as the salary he received from both entities in his Statement of Financial Affairs – $70,350 from Mobility and $127,00 from Freedom. Kalahar’s schedules also reflected Mobility debts of over $377,085 owing to Litton Loan Servicing, $200,000 to Jim Gettel, $740,000, and over $1,000,000 to Oakridge Financial, LLC. However, Kalahar explained that these Mobility debts were listed on his schedules because he had personally guaranteed the amounts. He testified at trial that to convince certain vendors to do business with Mobility, he was asked to personally guarantee Freedom’s prior debt obligations. Since he personally guaranteed these amounts, Kalahar was required to list the debts in his bankruptcy schedules. -19- Significantly, Credit Union plus participated as a creditor in Kalahar’s personal bankruptcy. It was reflected in Kalahar’s bankruptcy mailing matrix. In addition, government trial exhibits reflect a “Reaffirmation Agreement Between Debtor (Kalahar) and Credit Union Plus.” See Gov’t Tr. Ex. 111. What the bankruptcy file does not contain is any assertion by Credit Union Plus – by proof of claim or initiation of an adversary proceeding – that Kalahar was personally responsible for Mobility’s overdraft. Thus, the victim in this case, Credit Union Plus, who fully participated in Kalahar’s bankruptcy proceedings, found no error in the manner in which Kalahar completed his bankruptcy schedules. The government nonetheless urges in its post-trial papers that Kalahar was an alter ego of Mobility and that he was therefore required to list the Mobility overdrafts. The only proof of this theory is that Kalahar wholly owned Mobility and was its sole shareholder. As a basic principle of law, an LLC is considered a separate individual for purposes of liability. See Dep’t of Consumer & Industry Services v. Shah, 236 Mich. App 381, 393, 600 NW2d 406, 412 (1999). That principle is not without exception, and at times the “corporate veil” may be pierced in order to find an officer liable. Ibid. However, the corporate form may only be disregarded under limited circumstances. The notion that Kalahar was personally responsible for Mobility’s overdraft as an alter ego or some other legal theory was first developed in the post-trial papers. Indeed, a debtor’s attempt to hide an asset is the usual case; the idea that a debtor would seek to “hide” a liability from a bankruptcy discharge is unusual. The Court concludes that Kalahar properly completed his bankruptcy schedules in light of the personal nature of the proceedings. The record contains no evidence that Kalahar was responsible for Mobility’s overdraft, and there was therefore insufficient evidence from which a jury -20- could find guilt beyond a reasonable doubt as to the conduct identified in Count 4 of the indictment. Finally, Count 5 focuses on Kalahar’s alleged failure to disclose closing two personal bank accounts in the year prior to filing bankruptcy proceedings. The first account reflected an approximate balance of $51 and the second an approximate balance of $87. Kalahar’s uncontradicted testimony was that there had been no activity in the accounts for four or five years and that he believed them to be accounts he maintained on behalf of a hunting club. He explained that he did not remember the accounts when he prepared his bankruptcy schedules. The Court is unpersuaded that sufficient evidence exists for a jury to convict Kalahar of bankruptcy fraud on the basis of these two accounts. An essential element of bankruptcy fraud is that the failure to disclose be material. As the jury instructions explained, “[a] matter is ‘material’ if it has a natural tendency to influence, or is capable of influencing, the outcome of the bankruptcy proceeding.” Jury Instructions at 11. In light of the entire bankruptcy case, including the fact that Kalahar’s liabilities exceeded his assets by well over $1,000,000, these two accounts cannot be said to be material. Simply stated, there was insufficient evidence from which a jury could find, beyond a reasonable doubt, the material elements of bankruptcy fraud as alleged in Count 5. III. Sufficient evidence was offered by the government to permit the jury to find beyond a reasonable doubt the material elements of bank fraud as alleged in Count 1 of the superseding indictment. There was, on the other hand, insufficient evidence to support the remaining charges, Counts 2 through 5 of the superseding indictment. The Court must, in its view, vacate the jury’s convictions with respect to those counts. -21- Accordingly, it is ORDERED that the defendant’s oral motion for judgment of acquittal is GRANTED IN PART AND DENIED IN PART. It is further ORDERED that the jury’s verdict with respect to Counts 2 through 5 of the first superseding indictment is SET ASIDE and an acquittal is ENTERED as to those counts. The jury’s verdict as to Count 1 remains in full force and effect. It is further ORDERED that the defendant appear for sentencing on Count 1 on August 13, 2007 at 2:30 p.m. Dated: May 23, 2007 s/Thomas L. Ludington THOMAS L. LUDINGTON United States District Judge PROOF OF SERVICE The undersigned certifies that a copy of the foregoing order was served upon each attorney or party of record herein by electronic means or first class U.S. mail on May 23, 2007. s/Tracy A. Jacobs TRACY A. JACOBS -22-