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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

In the Matter of the NEW YORK, NEW HAVEN AND HARTFORD RAILROAD COMPANY, Debtor. Nos. 690, 691, Dockets 71-2101, 72-1009. United States Court of Appeals, Second Circuit. Argued April 23, 1973. Decided May 10, 1973. Manny H. Smith, Atty., I. C. C., Washington, D. C. (Harlington Wood, Jr., Asst. Atty. Gen., Irwin Goldbloom, Sp. Litigation Counsel, James F. Dauseh, Atty., Dept, of Justice, Washington, D. C., Fritz R. Kahn, Gen. Counsel, Leonard S. Goodman, Associate Gen. Counsel, I. C. C., Washington, D. C., on the brief), for appellants United States and Interstate Commerce Comm. Joseph Auerbach, Boston, Mass. (James Wm. Moore, Joseph W. Bishop, Jr., New Haven, Conn., Sullivan & Worcester, Nancy F. Gans, Boston, Mass., on the brief), for appellee Richard Joyce Smith, Trustee of the Property of the New York, New Haven & Hartford Railroad Co., Debtor. Before BREITENSTEIN, KAUFMAN and MANSFIELD, Circuit Judges. United States Court of Appeals, Tenth Circuit, sitting by designation. IRVING R. KAUFMAN, Circuit Judge: This appeal involves a skirmish in the larger and seemingly endless battle of the bankrupt New York, New Haven and Hartford Railroad (“New Haven”) and the bankrupt Penn Central Transportation Co. (“Penn Central”) to achieve a workable long-term solution to their financial problems. We are asked to enter the fray and interpret § 77(c) (2) of the Bankruptcy Act, 11 U.S.C. § 205(c)(2), which provides, in pertinent part, that the “trustees [appointed by the district court under § 77(c)(1) to administer the railroad’s affairs] and their counsel shall receive only such compensation from the estate of the debtor as the judge may from time to time allow within such maximum limits as may be approved by the [Interstate Commerce] Commission.” Our intervention is sought in the context of an appeal from two orders of Judge Anderson, sitting in the District Court for the District of Connecticut, who was ably supervised the current New Haven reorganization proceedings since their inception in July, 1961. In Order No. 652, entered on August 30, 1971, Judge Anderson awarded to Foster Kent Sistare, Esq., $8,425.00 as compensation for services rendered and $3,144.40 for expenses. Sistare previously had been appointed by the court as “court’s counsel” to perfect an equitable lien and constructive trust declared by Judge Anderson upon New Haven- assets transferred to the Penn Central. The payment was ordered without prior submission of the claim to the Commission. Order No. 656, entered on November 9, 1971, concerned a claim, unrelated to the claim presented by Sistare, filed by Tate & Ervin, a Philadelphia law firm, in connection with services performed as a Special Counsel to the New Haven trustee. Although Judge Anderson referred to the Commission Tate & Ervin’s request for $4,646.00 compensation, he allowed, without referral, payment of $2,055.28 for disbursements. The Commission appealed from both orders. It argues here that under § 77(e)(2) of the Bankruptcy Act, any payments to these attorneys out of the debtor’s estate that have not been submitted to the Commission are invalid. The New Haven trustee asserts, however, that § 77(c)(2) cannot control payments to Sistare — for either compensation or disbursements — because he is neither one of the “trustees” nor “their counsel”. As for the expense claims of Tate & Ervin, it is the trustee’s position that the term “compensation” as used in § 77(c)(2) does not include disbursements and, accordingly, § 77(c)(2) does not govern the award of expenses to that firm. As to Sistare, we agree with the trustee that no -prior submission to the Commission was required because Sistare was not counsel to the trustee. Accordingly, Order No. 652 is affirmed. We were informed at oral argument, however, that all disbursement claims of Tate & Ervin, including the claim that is the subject of this appeal, have been submitted voluntarily to the Commission. In light of this development, we conclude that the appeal from Order No. 656 should be dismissed for mootness. I. A discussion of the New Haven reorganization proceedings, especially their relationship to the ill-starred merger of the Pennsylvania Railroad and the New York Central Railroad, will prove helpful in placing the orders under consideration in their proper context. Prior to its inclusion in the Penn Central system, the New Haven was the largest railroad in New England and the sixth largest in the Northeast region. New Haven Inclusion Cases, 399 U.S. 392, 401, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970). In addition to a crucial role as a commuter line, most particularly in the New York City area, “its freight service [was] considered to be of extreme importance to the industrial well-being of southern New England.” New York, N. H. & H. R. R. Trustees Discontinuance of Passenger Service, 327 I.C. C. 77, 80 (1965). Despite its importance, however, “[t]he financial history of the New Haven . . . for decades [has been] a history of extreme vicissitudes,” 399 U.S. at 402, 90 S.Ct. at 2063. To its dismay, the railroad is no stranger to the Bankruptcy Court. The New Haven first filed a petition for reorganization in 1935 and did not emerge from those proceedings until 1947. Although all but the most senior secured interests were eliminated during this reorganization, the New Haven was still unable to operate as a viable enterprise. By 1961, the railroad’s monthly cash deficit approached $1.5 million and on July 7, 1961, its management again filed a petition for reorganization under § 77 of the Bankruptcy Act. The Connecticut district court approved the petition and trustees were appointed to administer the failing railroad. During succeeding years, the court appointed trustees continued to operate the New Haven’s passenger and freight lines despite staggering losses. Since the previous decade had demonstrated convincingly that the New Haven’s traffic patterns could not generate sufficient revenues to meet its costs, no serious consideration was ever given to a reorganization plan that left the New Haven as an independent operating enterprise. Instead, the trustees concentrated their efforts on seeking a merger with a larger, financially healthy railroad. The eagerly hoped for panacea soon appeared when, in March, 1962, the Pennsylvania Railroad and the New York Central Railroad formally sought merger approval from the Commission. Within three months, the New Haven trustees filed a petition with the Commission seeking inclusion of the New Haven’s operations in the merged railroad system. On April 6, 1966, after more than four years of continued deficit operations by the New Haven, the Commission approved the proposed merger, subject to the condition that the “Pennsylvania New York Central Transportation Company ... be required to include in the transaction all the New York, New Haven and Hartford Railroad Company . . . upon such fair and equitable terms as the parties may agree subject to the approval of the Bankruptcy Court and the Commission.” Pennsylvania R. R.—Merger—New York Central R. R., 327 I.C.C. 475, 553 (1966), modified in other respects, 330 I.C.C. 328, aff’d sub nom., Erie-Lackawanna R. R. v. United States, 279 F. Supp. 316 (S.D.N.Y.1967), aff’d sub nom., Penn-Central Merger and N & W Inclusion Cases, 389 U.S. 486, 88 S.Ct. 602, 19 L.Ed.2d 723 (1968). After the Commission’s decision was filed, the New Haven trustees and the Pennsylvania and New York Central Railroads submitted to the Commission a Purchase Agreement which contemplated an exchange of all of the New Haven’s assets for cash and securities of the Penn Central. Upon receipt of the Purchase Agreement, the Commission conducted an independent review and concluded that $125 million was a “fair and equitable” price for New Haven’s assets. Pennsylvania R. R.—Merger—New York Central R. R., 331 I.C.C. 643 (1967). Almost immediately thereafter, different classes of New Haven bondholders challenged the Commission’s evaluation. Review was sought simultaneously in a three-judge district court in the Southern District of New York, pursuant to 28 U.S.C. § 2325, and in the Connecticut district court. Both courts independently concluded that $125 million was an inadequate price and remanded to the Commission for further proceedings. New York, N. H. & H. R. R. Co., First Mortgage 4% Bondholders’ Committee v. United States, 289 F.Supp. 418 (S.D.N.Y.1968); In the Matter of New York, N. H. & H. R. R. Co., 289 F.Supp. 451 (D.Conn.1968). The Commission then proceeded to hold further hearings. On December 2, 1968, it announced a reevaluation of New Haven’s assets at $140 million. New Haven bondholders again challenged the Commission’s evaluation in both district courts. By this time, however, New Haven’s financial condition had become so desperate that despite a compelling public need for its services, train operations could no longer be continued under these circumstances. Accordingly, on December 24, 1968, Judge Anderson authorized immediate transfer of all New Haven assets to Penn Central, “leaving the exact amount and form of consideration to be paid by Penn Central to be settled finally at a later date.” In the Matter of New York, N. H. & H. R. R. Co., 457 F. 2d 683, 685 (2d Cir. 1972). Thus, New Haven’s only remaining “asset” is its right to receive “fair and equitable” compensation from Penn Central. The second round of proceedings brought by objecting bondholders in the two district courts was concluded in mid-1969. In May of that year, the Connecticut district court again rejected the Commission’s evaluation as too low, finding that a more accurate asset value was approximately $175 million. In the Matter of New York, N. H. & H. R. R. Co., 304 F.Supp. 793 (D.Conn.1969). The three-judge district court, however, approved the Commission’s revised evaluation. New York, N. H. & H. R. R. Co., First Mortgage 4% Bondholders’ Committee v. United States, 305 F.Supp. 1049 (S.D.N.Y.1969). Since a direct appeal to the Supreme Court of the three-judge court’s decision was taken under 28 U.S.C. § 1253, the Supreme Court granted certiorari to the Court of Appeals for the Second Circuit in advance of its judgment on an appeal taken from the decision of the Connecticut district court so that both cases could be heard together. 28 U.S.C. §§ 1254(1), 2101(e). The Supreme Court’s decision, handed down on June 29, 1970, affirmed Judge Anderson’s evaluation of the New Haven assets. New Haven Inclusion Cases, supra. Unfortunately, the Court’s decision did not terminate the dispute. Only eight days prior to the Supreme Court’s decision, the mighty Penn Central filed its petition for reorganization under § 77 of the Bankruptcy Act in the District Court for the Eastern District of Pennsylvania. Since Penn Central securities, which overnight became virtually worthless, were to comprise a significant portion of the payment to the New Haven estate, the Supreme Court remanded the case for “[fjurther proceedings before the Commission and the appropriate federal courts ... to determine the form that Penn Central’s consideration to New Haven should properly take and the status of the New Haven estate as a shareholder or creditor of Penn Central.” 399 U.S. at 489, 90 S.Ct. at 2108. Upon remand, Judge Anderson determined that the Penn Central’s bankruptcy, and the attendant decline in value of its securities, rendered the earlier plan for compensation to the New Haven estate wholly inádequate. Moreover, the Penn Central’s hopeless financial condition indicated that its general creditors would emerge from the Penn Central reorganization proceedings empty-handed. Judge Anderson, therefore, sought to give the New Haven estate secured-creditor status by declaring “an equitable lien ... on all of the former assets transferred by the New Haven to Penn Central, exclusive of (a) rolling stock and (b) the New Haven’s one-half interest in -the excess income from the Grand Central [Terminal] properties” and, as to “the latter item of property [by declaring] a constructive trust in favor of the New Haven estate.” In the Matter of New York, N. H. & H. R. R. Co., 330 F.Supp. 131, 142 (D. Conn.1971). This order provoked immediate action by Judge Fullam of the Eastern District of Pennsylvania, who was overseeing reorganization of the Penn Central. Believing that Judge Anderson lacked jurisdiction to enter an order affecting Penn Central assets, Judge Fullam enjoined any person “from taking any action which would enforce, collect, or cause to be perfected or paid any claim against the [Penn Central] or its estate arising out of the inclusion of the New Haven into the [Penn Central], other than in these proceedings, or which would interfere with the primary jurisdiction of this Court to deal with properties in its possession or under its control . . . .” On June 22, 1971, Judge Anderson responded with the following order: For the purpose of implementing this court’s Order [imposing an equitable lien and a constructive trust on assets formerly owned by the New Haven], this court, on its own motion, appoints Foster Kent Sistare, Esquire, as the court’s counsel to take such steps . . . as he may deem necessary or appropriate to preserve the equitable lien and constructive trust declared by this court .... Sistare then made appropriate filings in Massachusetts, Rhode Island, Connecticut, and New York to record the equitable lien on assets formerly owned by New Haven and now held by the Penn Central. The Penn Central trustees, however, who had appeared before Judge Anderson to object to entry of the equitable lien order, appealed that order to this court. On March 17, 1972, we reversed Judge Anderson, holding that he lacked subject matter jurisdiction to issue the order. In the Matter of New York, N. H. & H. R. R. Co., 457 F.2d 683 (2d Cir. 1972). Recognizing that the Commission is a “common denominator” between the Connecticut and Pennsylvania district courts, the case was remanded to the Commission to “consolidate the Penn Central reorganization and New Haven inclusion proceedings so as to consider the terms of the New Haven inclusion as ‘a portion of the reorganization of Penn Central . . . .’” Id. at 691. Thus, at the present time, the New Haven estate is a shell, awaiting determination in the Penn Central reorganization of the amount and form of compensation it will receive as payment for the assets earlier transferred to the Penn Central. Having set forth this history, essential for a complete understanding of the context in which we decide this case, we now turn to consideration of the two orders before us. II. The claim for compensation and reimbursement filed by Sistare on August 26, 1971, detailed the expenditures in time and money made in an effort to perfect the equitable lien, described earlier, fixed by Judge Anderson. It sought compensation of $8425.00 for services performed by Sistare and his associates between June 23 and July 15, 1971. In addition, Sistare sought reimbursement of itemized expenses totalling $3,144.40. More than $1,200 of this sum represented actual recording fees and travel expenses incurred by Sistare; the balance consisted of payments by Sistare to other attorneys retained by him to assist in the recording procedures. The Commission contends that Judge Anderson erred in refusing to initially refer Sistare’s claim to it for determination of maximum limits. It seeks to rely on either § 77(c)(2), previously quoted, which gives the Commission authority to set a ceiling on compensation of trustees and their counsel, or, in the alternative, on § 77(c) (12), which provides, in part, that “ [w] ithin such maximum limits as are fixed by the Commission, the judge may make an allowance, to be paid out of the debtor’s estate, for the actual and reasonable expenses (including reasonable attorney’s fees) incurred in connection with the proceedings and plan by parties in interest and by reorganization managers and committees or other representatives of creditors and stockholders . . . . ” A consideration of the precise statutory language as it applies to the instant facts demonstrates -the error of the Commission’s argument. As Judge Anderson made abundantly clear during a hearing held on November 9, 1971, he appointed Sistare “in order to prevent a judgment of this Court from being turned into an utter futility .... It had nothing to do with the [New Haven] Trustee. The Trustee didn’t have a thing to do with it. This was entirely the Court’s action.” Indeed, the Commission concedes that in light of Judge Fullam’s order, “it would have been improper for the New Haven trustee to have himself attempted to record the lien or to have retained counsel to perform that task.” Since Sistare was not counsel to the trustee, the Commission cannot assert authority over his compensation under § 77(c)(2) merely because his appointment was triggered by the trustee’s inability to undertake this task or because perfecting the equitable lien may have benefitted the New Haven estate. Similarly, § 77(c) (12) does not provide the Commission with jurisdiction over payments to Sistare for compensation and disbursements. Since Sistare was appointed by Judge Anderson as “court’s counsel,” § 77(c) (12) would apply only if we reached the extraordinary conclusion that Judge Anderson is either a party in interest or a reorganization manager, a suggestion we reject as totally devoid of merit. The Commission urges us, however, to give an expansive reading to either § 77(c)(2) or § 77(c)(12) in order to maximize its powers to review payments made in connection with a reorganization proceeding. We recognize that Congress, in granting the Commission authority to establish payment ceilings, sought “to restrain the former practices common to equity receiverships by which exorbitant fees were obtained by the reorganizers.” 5 Collier, Bankruptcy ¶ 77.28 at 591. But we do not believe that this legislative purpose dictates a stretching of carefully constructed language in this concededly sui generis situation. Certainly the district court does not require the Commission’s assistance in passing upon Sistare’s modest claims. Indeed, if Congress intended to indicate a belief that courts lacked the competence of the Commission to pass on compensation in any circumstances, it hardly would have authorized, as it has, judicial allowance of compensation for a special master appointed under § 77(c) (13) without prior submission to the Commission for establishment of maximum limits. We conclude, therefore, that since Sistare does not fall within the confines of §§ 77(c)(2) or 77(c) (12), submission of his claim for compensation and disbursements to the Commission was not required. III. The Commission has appealed as well from Judge Anderson’s refusal to refer to it for approval Tate & Ervin’s claim for expenses in the amount of $2,055.28. Since the fortunes of the New Haven were so tightly linked to the Penn Central reorganization, Judge Anderson authorized the New Haven trustee to “intervene generally in the proceedings for reorganization of Penn Central” and “to employ local counsel in Pennsylvania that can represent [the trustee] before the United States District Court for the Eastern District of Pennsylvania .” Tate & Ervin were retained to perform these services. Since the firm was counsel to the New Haven trustee, its claim for hourly compensation has been submitted to the Commission. The dispute centers, therefore, on whether the reference in § 77(c)(2) to “compensation” includes out-of-pocket disbursements, such as travel expenses, telephone charges, and duplication costs, or is limited solely to payments for an attorney’s services. The Commission urges us to construe the term “compensation” to include disbursements in order to preclude the possibility that attorneys may be paid twice for the same item of expense. Such overlapping is theoretically possible because in setting maximum limits for hourly compensation, the Commission includes an allowance for general overhead expenses, such as rent and secretarial salaries, involved in operating a law office. If attorneys are allowed to present their expense claims to the district court without prior submission to the Commission, it is conceivable, the Commission argues, that the district court might allow payment of some expenses already approved by the Commission in computing hourly compensation. The trustee, in response, points to a provision in § 77(e) (12) which allows payment from the debtor’s estate, within limits set by the Commission, “for the actual and reasonable expenses incurred in connection with the proceedings and plan and reasonable compensation for services in connection therewith by trustees under indentures . . . .” It is urged that this clause demonstrates Congressional awareness of the distinction between hourly compensation and expenses; therefore, the limited reference in § 77(c)(2) to “compensation” compels the conclusion that disbursements are not included within the meaning of that term. In addition, the Commission concedes that in an earlier decision involving the law firm of Sullivan & Worcester, also counsel to the New Haven trustee, it did not require prior submission of disbursement claims. New York, N. H. & H. R. R., 312 I.C.C. 697, 700 (1962). Finally, we note that even after maximum limits have been approved by the Commission, claims are still subject to allowance by the district court, which then could eliminate any overlapping amounts in the payments. Although the Commission urges us to reach a determination on the merits of this part of the dispute, we are unable to do so, given the present posture of the appeal. As noted in our reference to the Sullivan & Worcester case, supra, the Commission’s current position represents a turnabout from its earlier approach. Indeed, the November 9, 1971, hearing before Judge Anderson appears to be the first occasion at which the trustee was apprised of the Commission’s view. In light of the Commission’s new policy on submission of disbursement claims, Tate & Ervin not only has submitted all subsequent disbursement claims to the Commission, but by letter dated February 8, 1972, the firm voluntarily submitted the disbursement claims which are the subject of the instant appeal to the Commission “for the fixing of maximum limits thereon.” Counsel’s obvious willingness to submit their claims to the Commission effectively eliminates any controversy between the parties as to the correct interpretation of the term “compensation” in § 77(c)(2), since the Commission may now exex’cise the reviewing authority it has sought to establish in this proceeding. Thus, the facts “demonstrate that ‘there is no reasonable expectation . ’ ”, United States v. W. T. Grant Co., 345 U.S. 629, 633, 73 S.Ct. 894, 897, 97 L.Ed. 1303 (1953), quoting from United States v. Aluminum Co. of America, 148 F.2d 416, 448 (2d Cir. 1945), that Tate & Ervin subsequently will refuse to submit its disbursement claims to the Commission. The appeal, therefore, has become moot. See Gray v. Board of Trustees of the University of Tennessee, 342 U.S. 517, 72 S.Ct. 432, 96 L.Ed. 540 (1952); Watkins v. Chicago Housing Authority, 406 F.2d 1234 (7th Cir. 1969); Greater Houston Chapter of the American Civil Liberties Union v. Houston Independent School District, 391 F.2d 599 (5th Cir. 1968); 6A Moore, Federal Practice ¶ 57.13. Moreover, we do not deem it appropriate to render an advisory opinion simply because a similar question may arise in the future. Accordingly, the appeal from Judge Anderson’s refusal to direct that Tate & Ervin’s disbursement claims be referred to the Commission is dismissed as moot. . This procedure is designed to take advantage of the Commission’s expertise in railroad reorganization matters by having it set a maximum amount of compensation which is fair and reasonable in light of the work involved. See 5 Collier, Bankruptcy ¶ 77.28. . The firm’s present name is Gratz, Tate, Spiegel, Ervin & Ruthrauff. We refer to it throughout this opinion as Tate & Ervin. . This statute provides that “[a]n . injunction restraining the enforcement, operation or execution ... of any order of [the Commission] shall not be granted unless the application therefor is heard and determined by a district court of three judges. . . . ” . Section 77 (a) of the Bankruptcy Act provides that the district court in which a petition for reorganization is filed “shall, during the pendency of the proceedings . . . have exclusive jurisdiction of the debtor and its property wherever located.” We held that this provision gave the Pennsylvania district court “ex-elusive jurisdiction ... to determine all rights and interests in all of Penn Central’s property, including the former property of the New Haven.” 457 F.2d at 687. The Commission does not argue that this reversal made Judge Anderson’s appointment of Sistare wholly invalid. . The claim stated that the attorneys had silent 168.5 hours performing this work, and sought compensation at the rate of $50.00 per hour. . After counsel for the Commission, Mr. Dausch, had concluded his argument, counsel for the trustee stated : Mr. Moore: Your Honor, I had wanted to clear up two things. But the last statement by Mr. Dausch may remove one of them. I did not realize that the Commission had ever contended that it had jurisdiction to approve the costs and expenses. Sullivan & Worcester have from the very beginning submitted the matter of compensation to the Commission. . . . But the costs and expenses have never been handled by the Commission. But is that the position you are now contending for, sir? Mr. Dausch : Yes, sir.

f2d_479/html/0015-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

UNITED STATES of America ex rel. Arnold CLEVELAND, Relator-Appellee, v. J. Leland CASSCLES, Superintendent of Great Meadow Correctional Facility, Comstock, New York, Respondent-Appellant. No. 713, Docket 73-1139. United States Court of Appeals, Second Circuit. Argued April 16, 1973. Decided May 25, 1973. Michael Colodner, Asst. Atty. Gen. (Louis J. Lefkowitz, Atty. Gen., State of New York, Samuel A. Hirshowitz, First Asst. Atty. Gen., on the brief), for respondent-appellant. Howard L. Ganz, New York City, for relator-appellee. Before CLARK, Associate Justice, and WATERMAN and FEINBERG,. Circuit Judges. Retired Associate Justice of the Supreme Court of the United States, sitting by designation. FEINBERG, Circuit Judge: In this habeas corpus proceeding, petitioner Arnold Cleveland sought the writ from the United States District Court for the Southern District of New York on the ground that, after a guilty plea in the Supreme Court, New York County, he had been denied due process of law because of the manner in which a ten-year state sentence had been imposed. After a hearing in the district court, Judge Marvin E. Frankel granted the writ unless the state resentenced petitioner. The state appeals, and we remand to allow the state court to consider new evidence adduced before Judge Frankel. I Petitioner and a co-defendant were indicted in 1969 on a number of charges, all growing out of the robbing and stabbing of a woman in a hallway in lower Manhattan. In October 1970, petitioner pleaded guilty to robbery in the first degree, a Class B felony, “to cover the indictment.” Four days earlier, petitioner’s co-defendant had pleaded guilty to a Class C felony, a lesser crime, and had received a five-year sentence. In December 1970, when petitioner appeared for sentence, it was agreed that the sentence would dispose of not only the indictment already referred to, but also an unrelated indictment charging felonious possession of heroin. Petitioner then received the ten-year sentence, which he claims was unconstitutionally imposed. Petitioner’s objection to the sentencing procedure challenges the basis for the sentencing judge’s belief that it was petitioner, rather than his co-defendant, who actually had stabbed the victim. At the time of the guilty plea, the state judge asked petitioner whether he admitted that he had stolen $18 from the victim and had stabbed her. Petitioner made no comment, but his counsel asked for and received an off-the-record bench conference with the judge. Thereafter, the judge rephrased his question so that petitioner admitted only that he and his co-defendant had stolen the money and that in the course of the theft a knife had been used which resulted in the stabbing of the woman. At the sentencing some seven weeks later, the question whether petitioner had done the stabbing arose again. In urging the court to impose a sentence of 5 to 15 years, the prosecutor said: After the pocketbook had been taken by Mr. Cleveland’s co-defendant and after this man fled with the pocketbook this defendant, and for no purpose whatever, stabbed this woman, requiring hospitalization for some period of time. This was information which I received from a witness who was standing within feet, in fact, had been in conversation with the defendant and his co-defendant prior to the robbery and saw everything quite clearly so she reports to me. It’s my feeling, Your Honor, that this defendant stabbed this woman and did it for no purpose whatever, and in light of the psychiatric report which indicates that this man is unethical, I suggest, Your Honor, that this man is a sociopath and is not fit to remain in our society .... In response to this, defense counsel first argued that the co-defendant had received five years and that he and petitioner “would be co-equals as far as guilt is concerned.” The prosecutor and the judge then stated that the prior criminal record of the two defendants differed considerably. When the prosecutor again emphasized that “the other defendant had not taken part in the stabbing,” the following ensued: Mr. Chance [defense counsel]: In drawing that distinction it is very discriminating and the position that he actually took was that because this man had used the knife. The Court: I certainly think the man who uses the knife is entitled to more. Mr. Chance: That’s not my point, Judge. The Court: He’s earned it. Mr. Chance: My point is that he would not be entitled to that vast distinction that he recommends. What you do I don’t know. If it goes to that depth there should be a hearing on the question of whether or not his statements the District Attorney has told you are hearsay or true, that he deliberately stabbed her or somebody told him who’s watched him stab her. I think that’s important. That’s ten years difference he’s recommending. The state judge then proceeded to impose sentence. He first commented that he would not follow the recommendation of either counsel. The judge next listed petitioner’s sizeable prior criminal record, after which the judge said: This October he has reached his pinnacle by actually not only robbing this lady but also stabbing her, and there doesn’t seem to be any mitigating circumstances for the stabbing. It was after the robbery was completed. The judge then sentenced petitioner to a ten-year term. Neither petitioner nor his counsel made any further reference in court to the question of who did the stabbing. The above relates the essential aspects of the state trial court record as it came to the federal district court. After petitioner brought his application for a writ of habeas corpus, Judge Frankel appointed counsel for him. Thereafter, both sides filed briefs; after reviewing them, the judge pointed out in a memorandum opinion that petitioner does not actually say now, under oath (and thus subject to possible federal penalties for perjury), that he was not the wielder of the knife. If his petition were to be granted, however, the purpose would be to afford him an opportunity to place such sworn testimony before the sentencing judge. Unless he plans to do that, the judge’s reliance upon the prosecutor’s statement (heresay or no) cannot approach constitutional error. In response, petitioner filed an affidavit in the district court in which he swore “to the fact of Not being the knife wielder.” A few weeks later, Judge Frankel held in a thorough opinion that the state court had denied petitioner due process when it allowed casual hearsay, accepted “over a protest,” to “establish” the brutal stabbing for which petitioner has been assessed some indeterminate part of 10 years in prison. The judge ordered the state to release petitioner unless it proceeded to have him resentenced within 60 days in a hearing that gave him an opportunity “to contest the assertion” that he had done the stabbing. The judge left open “the precise nature or extent” of the hearing on that issue. II There is no doubt, as the district judge recognized, that except for the claimed improper reliance on hearsay to establish the identity of the knife-wielder, there could be no valid constitutional objection to the state court sentence. Petitioner faced a maximum of 25 years in prison upon his guilty plea, and the sentence was well below that. The comparison to the five-year sentence his co-defendant received was not persuasive: Petitioner was sentenced not only on a more serious robbery charge but also on a narcotics charge. In addition, petitioner’s criminal record was apparently substantially more extensive than that of his co-defendant. The conclusion of the district court that petitioner had been denied due process had to be — and was — based solely on the state judge’s reliance upon the prosecutor’s hearsay statement. Citing Williams v. New York, 337 U.S. 241, 69 S.Ct. 1079, 93 L. Ed. 1337 (1949), and other cases, the state argues to us principally that the law is clear that a judge may rely upon hearsay information in imposing sentence. Petitioner responds with other decisions of the Supreme Court, e. g., Townsend v. Burke, 334 U.S. 736, 68 S. Ct. 1252, 92 L.Ed. 1690 (1948), and of the courts of appeals, including this one, which hold that a defendant cannot constitutionally be sentenced upon the basis of assumptions that are “materially untrue.” Id. at 740-741, 68 S.Ct. 1252. While the issues thus raised are interesting, we find ourselves most persuaded by another of the state’s arguments, to which we now turn. Judge Frankel held that unless petitioner submitted to him an affirmation under oath that he had not stabbed the victim, the state judge’s “reliance upon the prosecutor’s statement (hearsay or no) cannot approach constitutional error.” From this, the state questions how, if a federal judge “on collateral attack of a state conviction could not find constitutional error on the record before the state court judge,” he can nonetheless rule that the state court judge “committed constitutional error by not considering evidence that was never before him ?” While the syllogism is not impervious to attack, e. g., the federal habeas judge is not necessarily confined to the state court record, it has considerable force. It must be remembered that petitioner at no time asserted in the state court that he had not stabbed the victim. When, at the sentencing proceeding, the prosecutor renewed the accusation and revealed the source of the information as a nearby eye-witness, petitioner did not immediately deny the charge. At that juncture, his counsel merely pointed to the treatment accorded the co-defendant. Only after -the prosecutor had again emphasized the stabbing did petitioner’s counsel advert to the issue at all. Even then, there was no flat denial, only a vague claim that “If it goes to that depth, there should be a hearing on the question of whether . . . [the District Attorney’s statements] are hearsay or true.” It would be technical to point out that, of course, the prosecutor’s statements could be both. Putting such niceties aside and going to the heart of the matter, we feel that the flat denial finally made in the federal district court was an important new fact. As the state points out, a clear denial differs from what amounted to “a bare request to put the prosecution to its proof.” For purposes of sentencing, considering the hearsay in the latter situation, as the state judge did, is simply not the same as doing so in the former. This raises the question whether, after petitioner had filed the crucial affidavit below, Judge Frankel was justified in going ahead rather than remitting petitioner to a motion for re-sentence in the state courts, as the state suggested. The judge rejected this course because it “would trivialize what we enshrine as the Great Writ.” He also pointed out that any claim of failure to exhaust state remedies came in as “a last-minute suggestion,” and that, as a practical matter, an order requiring a state resentencing hearing was not that “much more” than allowing a “motion for” such a hearing. Against this, other considerations come to mind. The federal-state relationship is subject to considerable stress whenever a federal court is asked to review a state court conviction. Certainly, intrusions should be confined to those absolutely necessary. To this end, the habeas corpus statute itself, 28 U.S.C. § 2254(b), (c), commands a federal district court to stay its hand where adequate and available state remedies remain unexhausted. And the thought that the state’s claim of failure to exhaust was no more than a “last-minute suggestion” is not persuasive when it is remembered that the state so argued only after petitioner, for the first time, had unequivocally denied that he had stabbed the victim. Moreover, the law surrounding problems of sentencing involved in this case — even in nonconstitutional aspects of federal criminal procedure — is in flux and presents difficult problems, as our recent decisions in United States v. Needles, supra note 2, and United States v. Brown, 470 F.2d 285 (2d Cir. 1972), indicate. Indeed, a somewhat less tangible, but no less persuasive, consideration counselling against premature federal court intervention is reflected in Judge Frankel’s own question “how seemly is it for a federal nisi prius judge to hold invalid a state sentence for denial of an opportunity to contest adverse allegations when we still, as of now, claim discretion to withhold the contents of presentence reports? See Fed.R.Crim.P. 32(c)(2).” Viewed in this light, we think that the difference between ordering the state to grant a resentencing (on pain of releasing defendant from custody) and requiring petitioner to move for one is, practically, quite significant. Under these circumstances, and in light of a presently available state remedy, we believe that the district judge should not have decided the eonstitutional issue until the state sentencing court had a chance to deal with the new factual allegation. See Developments in the Law—Federal Habeas Corpus, 83 Harv.L.Rev. 1038, 1096 (1970) (“. . . evidence . . . clearly crucial to the claim . . . should first be presented to the state if the exhaustion rule is to be an effective one.”) We find persuasive the state’s suggestion that petitioner be required to use his remedy under N.Y. Crim.Proc. Law §§ 440.10, 440.20 to bring to the attention of the state sentencing judge petitioner’s explicit sworn denial, never made in the state court, so that the state court may consider the significance of this new fact and how to deal with it. See United States ex rel. Gentile v. Mancusi, 426 F.2d 238 (2d Cir. 1970); United States ex rel. Boodie v. Herold, 349 F.2d 372 (2d Cir. 1965); cf. United States ex rel. Figueroa v. MCMann, 411 F.2d 915 (2d Cir. 1966) (per curiam). Accordingly, we remand with instructions to dismiss petitioner’s application for a writ without prejudice to renewal after he has exhausted this available state remedy. We are grateful, as was Judge Frankel, to Howard L. Ganz for his admirable representation of petitioner as assigned counsel. Case remanded. . E. g., Williams v. Oklahoma, 358 U.S. 576, 584, 79 S.Ct. 421, 3 L.Ed.2d 516 (1959); Manley v. United States, 432 F.2d 1241, 1245 (2d Cir. 1970) (en banc); United States v. Doyle, 348 F.2d 715 (2d Cir.), cert. denied, 382 U.S. 843, 86 S.Ct. 89, 15 D.Ed.2d 84 (1965). . Petitioner also cites, among other authorities, United States v. Needles, 472 F.2d 652 (2d Cir. 1973); United States v. Weston, 448 F.2d 626 (9th Cir. 1971), cert. denied, 404 U.S. 1061, 92 S.Ct. 748, 30 L.Ed .2d 749 (1972); United States v. Malcolm, 432 F.2d 809, 816 (2d Cir. 1970). . Brief for Respondent-Appellant, at 18. . Id. at 19. . The judge also cited contrary authority. See Preliminary Draft of Proposed Amendments to Fed.R.Crim.P. 32(c), 52 F.R.D. 451 (1971). See also United States v. Picard, 464 F.2d 215 (1st Cir. 1972); United States v. Janiec, 464 F.2d 126 (3d Cir. 1972). . In a letter sent to this court following oral argument, the state represented that petitioner could raise his claim anew, in light of his now explicit and unequivocal denial, in a “motion to set aside sentence,” despite the fact that the claim of improper sentencing procedure was raised through the state’s appellate courts, and notwithstanding the language of N.Y. Crim.Proc. Law § 440.20(2). Under that section, a state court must deny such a motion “. . . when the ground or issue raised . . . was previously determined on the merits upon an appeal from the judgment or sentence. . . . ” As the Attorney General reads the statute, a new allegation of fact is not such a “ground or issue,” cf. id. §§ 440.10(2) (a), (b), (d), and we assume that he will make that position known to the sentencing court. Should the state court disagree with the Attorney General’s reading, petitioner may, of course, renew his request for relief in federal court. . We are also aware that in petitioner’s brief to the Appellate Division, his then counsel argued that petitioner had “expressly denied” the hearsay assertion. This claim was not borne out by the record, as we have already made clear, and we do not know whether the Appellate Division also so concluded, in affirming without opinion. People v. Cleveland, 38 A.D.2d 891, 330 N.Y.S.2d 288 (1st Dep’t 1972), In any event, the point is that on the record before the federal district court, the express denial had never been brought to the attention of the state sentencing judge.

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2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Clifford IRVING et al., Plaintiffs-Appellants, v. Elliot H. GRAY, District Director of Internal Revenue, District of Manhattan, and Clarence I. Fox, Director of International Operations of the Internal Revenue Service, Defendants-Appellees. No. 629, Docket 72-2153. United States Court of Appeals, Second Circuit. Argued April 4, 1973. Decided June 1, 1973. Geoffrey M. Kalmus, New York City (Maurice N. Nessen, and Harold P. Weinberger, New York City, of counsel), for plaintiffs-appellants. Scott P. Crampton, Asst. U. S. Atty. Gen., Washington, D. C. (Whitney North Seymour, Jr., U. S. Atty., for the S. D. New York; David P. Land, Milton Sherman, Asst. U. S. Attys., Meyer Roth-wacks, John J. McCarthy, Crombie J. P. Garrett, George F. Lynch, Attys., Tax Div., Dept, of Justice, Washington, D. C., of counsel), for defendants-appellees. Before KAUFMAN, Chief Judge, and ANDERSON and OAKES, Circuit Judges. OAKES, Circuit Judge: The appellants, Clifford and Edith Irving and Richard Suskind, maintain that the Internal Revenue Service, while seizing the appellants’ funds for taxes which were in jeopardy, failed to follow the procedures for such assessments mandated by the Internal Revenue Code and must therefore, return the seized funds to be distributed among appellants’ creditors. The district court’s opinion, favoring the IRS, is printed at 344 F.Supp. 567 (S.D.N.Y.1972) (Frankel, J.). The appellants were participants in the “Hughes hoax.” This, as everyone knows, was a scheme by Clifford Irving and Richard Suskind to write and sell an “authorized” version of the life of billionaire recluse Howard Hughes, when in fact there was no authorization therefor by Hughes. McGraw-Hill, Inc., the duped publishing house, contracted with Irving to purchase this book. During 1971 McGraw-Hill made payments to Irving totaling $765,000 — $100,000 as advance royalties, $15,000 for expenses, and $650,000 in cheeks made out to Howard Hughes for supposedly participating in and authorizing the work. Most of the $650,000 was placed in a Swiss bank account by Edith Irving who used assumed names and false papers to convince the bank that the checks to Hughes were made out to her. Before the book was published the hoax was discovered. All three received various federal and state sentences in June of 1972. Subsequently Mrs. Irving received a Swiss sentence also. While the hoax was being discovered and the Irvings and Suskind were maintaining their innocence, they were residents of Ibiza. The Internal Revenue Service, fearing that the appellants would take what money they had in the United States and flee without paying income taxes, took action to safeguard the United States tax interest in those assets consisting of moneys held by Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch). On February 4, 1972, while federal and state grand juries were investigating the hoax, the IRS sent letters addressed to appellants which declared the taxable period from January 1 to December 31, 1971, immediately terminated and their income tax for that period immediately due and payable. Pursuant to the provisions of § 6201(a) of the Code, the Internal Revenue Service immediately assessed the amounts declared to be due. The total taxes assessed were $512,111, of which $243,118 was assessed against Edith Irving, $246,993 against Clifford Irving and $22,000 against Richard Suskind. On the same date, the Service served notices of levy on Merrill Lynch, demanding payment of the amounts held in the taxpayers’ securities accounts. Pursuant to the levies, Merrill Lynch subsequently forwarded to IRS the total amount of $91,322.92; $86,458.18 from Edith Irving’s account; and $4,864.74 from Richard Suskind’s account. It is this money which the taxpayers claim was improperly taken and must be either deposited with the district court or redeposited with Merrill Lynch, to be available for all creditors, including McGraw-Hill and counsel. At the time that the taxpayers instituted this action, they had not yet filed income tax returns for the year 1971, although they could have done so at any time after February 4, 1972, when the Service declared their 1971 taxes immediately to be due. Instead, they waited until the last permissible day, June 15, 1972, to file their returns. In lieu of filing a tax return the taxpayers filed a request with IRS for an administrative revenue ruling. In their request, they sought to reduce their 1971 taxable income in respect to the $765,000 embezzled from McGraw-Hill, and the right to future income tax deductions for all amounts not exceeding $765,000 which they might repay to McGraw-Hill. There are two questions worthy of discussion. The first is whether the IRS had sufficient authority under § 6851 of the Internal Revenue Code of 1954 to bill the taxpayers and levy on their Merrill Lynch accounts or whether IRS had to act under the authority of § 6861. The second is whether the IRS could employ § 6851 to terminate a preceding taxable year and, if not, whether this technical error entitled the taxpayers to injunctive relief. The taxpayers maintain that the IRS’s action against them constituted the assessing of a deficiency under § 6861. Section 6861(b) requires that if a jeopardy assessment under § 6861(a) is made then the Secretary of the Treasury or his delegate must send the assessed taxpayer a notice of deficiency within 60 days of the assessment. Such a deficiency notice allows the assessed taxpayer to file a petition in the United States Tax Court seeking a redetermination of the deficiency. When the IRS determines a deficiency and fails to issue a deficiency notice, then pursuant to § 6213(a) tax collection may be enjoined. To support their position that they were entitled to deficiency notices pursuant to § 6861(b), the taxpayers rely upon Schreek v. United States, 301 F.Supp. 1265 (D.Md.1969), a case in which no appealable order has yet been entered but which has concededly been followed by three other district courts. Lisner v. McCanless, 356 F.Supp. 398 (D.Ariz 1973) (appeal pending); Rambo v United States, 353 F.Supp. 1021 (W.D. Ky.1972) (appeal pending); Clark v. Campbell, 341 F.Supp. 171 (N.D.Tex. 1972). In Schreck as in this case, the IRS, acting pursuant to § 6851(a), terminated the taxpayer’s taxable year prior to the end of the calendar year. The taxpayer filed a suit in the district court seeking injunctive relief because the IRS failed, as here, to issue a notice of deficiency. Schreck’s holding that IRS was required to issue a notice was based on two erroneous premises. First, it reasoned that since § 6851 contains no independent assessment authority, the assessment was necessarily made pursuant to § 6861(a). But § 6201(a) is an alternative authorization for IRS assessment which requires no deficiency letter. Section 6201(a), which along with § 6851 existed prior to § 6861, allows the IRS to make an assessment without waiting until the taxpayer has made a deficient payment of his income taxes. We agree with Williamson v. United States, 31 Am.Fed.Tax R.2d 73-800 (7th Cir. 1971), in which the Seventh Circuit stated: the deficiency notice requirement cannot be read into § 6851 because the assessment made under the section is not a deficiency as defined in § 6211. That section defines a deficiency as the amount by which the “tax imposed” exceeds the amount shown on the tax return. The assessment in this case was not an imposed tax, but merely an amount which the I.R.S. believed justified the termination of the taxable year. Since no return had been filed at the date of the assessment, no deficiency was determinable. See also Parrish v. Daly, 350 F.Supp. 735, 736 (S.D.Ind.1972). Williamson receives support from three tax court cases which ruled that taxes declared to be due and owing pursuant to the provisions of § 6851, and its predecessor provisions, do not constitute deficiencies within the meaning of the Internal Revenue Code. Puritan Church — The Church of America v. Commissioner, 10 CCH Tax Ct.Mem. 485 (1951), aff’d per curiam, 93 U.S.App.D.C. 129, 209 F.2d 306 (1953), cert. denied, 347 U.S. 975, 74 S.Ct. 787, 98 L.Ed. 1115 (1954); Ludwig Littauer & Co. v. Commissioner, 37 B.T.A. 840 (1938); DaBoul v. Commissioner, 429 F.2d 38 (9th Cir. 1970) (affirming the order of the Tax Court dismissing the taxpayer’s petition). We believe that the reasoning of Williamson and Parrish is correct and that the assessment made by IRS here was not a deficiency assessment governed by § 6861. Sections 6861 and 6213(a) do not apply in the case of a jeopardy assessment made in respect to a departing or concealing taxpayer assessed under § 6201(a) pursuant to § 6851(a). The second erroneous premise of Schreck was that no forum other than the Tax Court may be available to adjudicate partial tax determinations made by the IRS pursuant to § 6851(a). But this premise like the first was based on the incorrect belief that a tax deficiency had been determined and charged. Here, as explained above, no deficiency has yet been determined and the taxpayers therefore do not yet have the opportunity to petition the Tax Court. The taxpayers are not without remedy, however, for they could have had their complaint of an overpayment heard in the district court below if they had filed full-year returns reporting overpayments of tax; they could have commenced plenary refund actions six months after filing the returns. Treas. Reg. § 301.6402-3 (b) (1958); Int.Rev. Code of 1954 §§ 7422(a) & 6532(a). The taxpayers’ second argument is that the IRS cannot use § 6851 to terminate a taxable year which has, in a calendar sense, already ended. Here the IRS used § 6851 on February 4, 1972, to declare all taxes for 1971 immediately due, and its action was perfectly proper. Section 6851(a) on its face clearly permits such action when it says that the “Secretary or his delegate shall declare the taxable period . . . immediately terminated” on the “income tax for the current or the preceding taxable year” (emphasis added). Appellants argue that § 6851 requires that to make the 1971 tax immediately due IRS should have declared the taxable period from January 1, 1972, to February 4, 1972, “immediately terminated.” We do not read § 6851(a) so rigidly. The very case upon which the taxpayers rely, United States v. Johansson, 62-1 U.S. Tax Cas. ¶ 9130 at 83,197 (S.D.Fla. 1961), aff’d in part and remanded in part, 336 F.2d 809 (5th Cir. 1964), supports instead the Government’s position. There the IRS terminated the boxer Johansson's 1960 calendar tax year in February of 1961. Soon afterward, in March of 1961, following another heavyweight title fight, the IRS filed an amended complaint to terminate Johansson’s 1961 taxable year. Thus Johansson appears to be on all fours with this case. Nor does our interpretation of § 6851(a) mean, as appellants contend, that the IRS may terminate “any taxable period it chose” without using § 6861 procedures and thereby giving taxpayers “tickets to the Tax Court.” Section 6851(a) refers only to “the current or the preceding taxable year,” in this case short-period 1972 or 1971. The important point is that § 6851 was enacted to allow the IRS to prevent taxpayers from fleeing the country with taxable funds. Here the taxpayers do not maintain that the IRS did not have probable cause to believe that the taxpayers were likely to flee. Under such circumstances Congress has given IRS a little leeway to protect the revenues. The taxpayers may, of course, eventually prevail in their claim that the IRS has claimed more to be due than actually is due. But this is a question to be litigated in due course after the taxpayers have filed their tax returns. As stated by the court below in rejecting the taxpayers’ requests for equitable relief, “. . . it is bearable inequity that those whose ‘bold plans' are frustrated may suffer potentially costly inconveniences.” 344 F.Supp. at 573. In any event, because the taxpayers have an adequate legal remedy to recover any excessive taxes charged by the IRS, because there was no deficiency assessment made, and because they do not come before us with clean hands we would not be able to grant them injunctive relief even if we believed that they had been assessed too much by the IRS. Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). Judgment affirmed. . § 6861. Jeopardy assessments of income, estate, and gift taxes (a) Authority for making. — If the Secretary or his delegate believes that the assessment or collection of a deficiency, as defined in section 6211, will be jeopardized by delay, he shall, notwithstanding the provisions of section 6213(a), immediately assess such defi-eiency (together with all interest, additional amounts, and additions to the tax provided for by law), and notice and demand shall be made by the Secretary or his delegate for the payment thereof. (b) Deficiency letters.- — If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates lias been mailed under section 6212(a), then the Secretary or his delegate shall mail a notice under such subsection within 60 days after the making of the assessment. Int.Rev.Code of 1954, § 6861(a), (b). . § 6213. Restrictions applicable to deficiencies ; petition to Tax Court (a) Time for filing petition and restriction on assessment. — Within 90 days, or 150 days if the notice is addressed to a person outside the States of the Union and the District of Columbia, after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6861 no assessment of a deficiency in respect of any tax imposed by subtitle A or B or chapter 42 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice lias been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421 (a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. Int.Rev.Code of 1954, § 6213(a). . § 6851. Termination of taxable year (a) Income tax in jeopardy.— (1) In general. — If the Secretary or his delegate finds that a taxpayer designs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly ineffectual proceedings to collect the income tax for the current or the preceding taxable year unless such proceedings be brought without delay, the Secretary or his delegate shall declare the taxable period for such taxpayer immediately terminated, and shall cause notice of such finding and declaration to be given the taxpayer, together with a demand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of such tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the tax has expired; and such taxes shall thereupon become immediately due and payable. In any proceeding in court brought to enforce payment of taxes made due and payable by virtue of the provisions of this section, the finding of the Secretary or his delegate, made as herein provided, whether made after notice to the taxpayer or not, shall be for all purposes presumptive evidence of jeopardy. Int.Rev.Code of 1954, § 6851(a)(1). . § 6201. Assessment authority (a) Authority of Secretary or delegate. — The Secretary or his delegate is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law .... Int.Rev.Code of 1954, § 6201(a). . Section 250(g) of the Revenue Act of 1918, 40 Stat. 1084, is almost identical to § 6851; § 6861 was enacted into law as § 279 of the Revenue Act of 1926, 44 Stat. 59. . At any time after February 4, 1972, when the IRS made its assessments and collected taxes, the taxpayers could have filed income tax returns for the year 1971, reporting overpayments of taxes. As early as August 5, 1972, therefore, they could have commenced refund actions. Taxpayers argue that Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff’d on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960), requires that the full amount of an assessment be paid before a claim for refund suit under 28 U.S.C. § 1346(a)(1) may be filed. The Flora “full payment” rule is inapplicable here, however, since there a deficiency had teen determined and taxpayer had paid only a portion of it before seeking his refund claim in a federal district court. Here, as we have said, no deficiency has yet been determined. . In oral argument the taxpayers raised the additional contention that the wording of § 6658, dealing with a penalty tax for attempts to violate § 6851, demonstrates that assessments under § 6851 as well as under § 6861 are deficiency. assessments and therefore require a notice of deficiency. The taxpayers apparently have missed the significance of the fact that § 6658 states that a penalty tax shall be imposed on the “amount of the tax [due] or deficiency in the tax.” (Emphasis supplied.) The “or” in this language supports our reasoning that there has not been a deficiency asserted here and makes the taxpayers’ reliance upon § 6658 unavailing.

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Thos. F. BURNS, on behalf of himself and on behalf of all other persons similarly situated, Appellant, v. AMERICAN NATIONAL BANK AND TRUST COMPANY, a National Banking Association, Appellee. Fred FISHER, on behalf of himself and on behalf of all other persons similarly situated, Appellant, v. The FIRST NATIONAL BANK OF CHICAGO, CHICAGO, ILLINOIS, Appellee. Nos. 72-1135, 72-1507. United States Court of Appeals, Eighth Circuit. Submitted March 12, 1973. Decided April 20, 1973. Bright, Circuit Judge, with whom Mehaffy, Circuit Judge, joined, dissented and filed opinion. Everett Meeker, Washington, Iowa, for appellant Fisher. J. Bradley Littlefield, Portland, Or., for appellant Burns. Before MATTHES, Chief Judge, and MEHAFFY, GIBSON, LAY, HEANEY, BRIGHT, ROSS and STEPHENSON, Circuit Judges. ROSS, Circuit Judge. These cases present identical jurisdictional questions under provisions of the National Bank Act. Both Burns and Fisher brought an action in federal court against a national bank seeking to recover usury penalties for themselves and for other members of their class, under 12 U.S.C. §§ 85 and 86. In both cases the defendant bank filed a motion to dismiss on the ground that the court lacked subject matter jurisdiction. These motions were sustained and the cases were dismissed by the trial courts on the ground that under 28 U.S.C. § 1348 federal courts do not have jurisdiction over actions brought against national banks by individuals unless diversity or a federal question, as well as the jurisdictional amount, is pleaded under 28 U.S.C. § 1332 or § 1331. Both of these cases were originally heard by panels of this Court. In Burns, which was submitted October 19, 1972, and decided December 27, 1972, a divided panel affirmed the trial court’s determination that it lacked subject matter jurisdiction under 28 U.S.C. § 1348. On January 9, 1973, a different panel of this Court heard the Fisher case, and on January 15, 1973, orders were entered in both cases granting a combined en banc hearing. We hold that jurisdiction may be founded on 28 U.S.C. § 1337, and reverse and remand for further proceedings. Section 1348 provides as follows: “The district courts shall have original jurisdiction of any civil action commenced, by the United States, or by direction of any officer thereof, against any national banking association, any civil action to wind up the affairs of any such association, and any action by a banking association established in the district for which the court is held, under chapter 2 of Title 12, to enjoin the Comptroller of the Currency, or any receiver acting under his direction, as provided by such chapter. “All national banking associations shall, for the purposes of all other actions by or against them, be deemed citizens of the States in which they are respectively located.” The principal question here is the proper interpretation of the final sentence of this section. The banks claim that this shows an intention of Congress to eliminate federal jurisdiction over suits against national banks except under 28 U.S.C. §§ 1331 or 1332; and appellants claim that this section was intended only to eliminate the right of national banks to claim original or removal jurisdiction solely on the basis of being a nationally chartered corporation. We adopt the latter view. Originally Congress provided that national banks could only be sued in federal court. However, Congress later adopted § 4 of the Act of July 12, 1882, which provided: “ ‘[T]he jurisdiction for suits hereafter brought by or against any association . . . shall be the same as, and not other than, the jurisdiction for suits by or against banks not organized under any law of the United States .... And all laws and parts of laws of the United States inconsistent with this proviso be, and the same are hereby, repealed.’ ” Mercantile National Bank v. Langdeau, 371 U.S. 555, 565, 83 S.Ct. 520, 526, 9 L.Ed.2d 523 (1963). Section 1348 was derived from the Act of March 3, 1887, which reenacted § 4 of the 1882 Act in modified form. As the Supreme Court stated in Mercantile National Bank v. Langdeau, supra, 371 U.S. at 565-566, 83 S.Ct. at 526, “[§] 4 of the 1882 Act and the 1887 Act were designed to overcome the effect of §§ 563 and 629 Rev.Stat. which allowed national banks to sue and be sued in federal district and circuit courts solely because they were national banks, without- regard to diversity, amount in controversy or the existence of a federal question in the usual sense. Section 4 apparently sought to limit, with exceptions, the access of national banks to, and their suability in, the federal courts to the same extent to which non-national banks are so limited. “Decisions of this Court have recognized that § 4 purported to deal with no more than matters of federal jurisdiction. As we observed in Continental National Bank v. Buford, 191 U.S. 119, 123-124, 24 S.Ct. 54, 48 L.Ed. 119: ‘The necessary effect of this legislation was to make national banks citizens of the states in which they were respectively located, and to withdraw from them the right to invoke the jurisdiction of the circuit courts of the United States simply on the ground that they were created by, and exercised their powers under acts of Congress. No other purpose can be imputed to Congress than to effect that result.’ ” (Footnotes omitted.) In Herrmann v. Edwards, 238 U.S. 107, 35 S.Ct. 839, 59 L.Ed. 1224 (1915), the Supreme Court held that there was no federal jurisdiction in a' suit against directors of a national bank for wrongdoing and breach of trust. But the Court made clear that there was nothing alleged in the complaint upon which to base jurisdiction except the allegation that the defendant was a national bank. The Supreme Court analyzed the predecessor statute to § 1348 as follows: “Under the provisions of the Act of 1882 long prior to their reenactment in 1888, it had been conclusively established that because a corporation was a national bank, created under an act of Congress, gave it no greater right to remove a case than if it had been organized under a state law. Leather Manufacturers’ Bank v. Cooper, 120 U.S. 778, 7 S.Ct. 777, 30 L.Ed. 816.” Id. at 111, 35 S.Ct. at 839. At first glance Herrman, Buford, and Cooper do seem to stand for the proposition that absent jurisdiction under §§ 1331, 1332 or 1348, there can be no jurisdiction. However, it should be noted that in those cases jurisdiction was claimed simply on the basis of the fact that a national bank was involved. Moreover, jurisdiction under an act regulating commerce, 28 U.S.C. § 1337, was not even provided for until 1911, subsequent to all of these decisions except Herrmann. Therefore, the Supreme Court did not have the advantage of this additional jurisdictional provision when it decided those cases. In Cupo v. Community National Bank & Trust Co., 438 F.2d 108, 110 (2nd Cir. 1971), the Second Circuit disposed of the argument that 28 U.S.C. § 1348 precludes jurisdiction in actions under another section of the National Bank Act, 12 U.S.C. § 61, in these words: “Defendants urge this court to reject the holding in Murphy v. Colonial Federal Savings and Loan Association, 388 F.2d 609, contending that that holding is in direct conflict with the Congressional policy behind the enactment of 28 U.S.C. §§ 1348 and 1349. We reject this contention. It appears reasonably clear that section 1348 was designed to grant federal jurisdiction in certain limited situations involving winding up of the affairs of the national banks and to establish citizenship for diversity purposes in cases where federal court jurisdiction is based on diversity of citizenship. Cf. Austin v. Altman, 332 F.2d 273, 276 (2d Cir. 1964). The last sentence of the provision clearly indicates that Congress contemplated other common law actions involving national banks being brought in the federal courts only where diversity of citizenship exists, but in no way negates federal jurisdiction under grants such as section 1337. See also, 12 U.S.C. § 94, regulating venue. Thus section 1348 cannot be read as implying that only the actions enumerated in that section can be brought in federal court. Since the claim in this case establishes the existence of an independent federal question on the basis of the alleged violation of 12 U.S.C. § 61, section 1348 is no bar.” (Footnotes omitted.) In our opinion, § 1348, like its predecessor statutes, was intended to eliminate the right of national banks to claim original or removal jurisdiction solely on the basis of being a nationally chartered corporation, and was not intended to eliminate jurisdiction in all suits involving national banks except those actions specifically permitted in the first paragraph thereof. The district court in Burns held that jurisdiction in cases involving national banks may be founded in §§ 1331 and 1332 as well as § 1348 where the prerequisites of those sections are met. It is inconsistent, however, to recognize jurisdiction where there is a federal question, as contemplated in § 1331, yet deny it where there is a more specific federal question arising from the commerce clause. The sole question thus becomes whether or not the sections of the National Bank Act relating to usury, 12 U. S.C. §§85 and 86, properly come within the classification of an “Act of Congress regulating commerce.” 28 U.S.C. § 1337. Section 85 limits the amount of interest which can lawfully be charged by a national bank to the interest allowed by the state wherein the bank is located. To this extent, it places national banks upon the same competitive footing as state banks having their place of business within the same state. But § 86 provides that in cases where usurious interest is charged, recovery may be had against a national bank in double the amount of the interest paid, and it sets a two-year period within which the action for recovery must be commenced. Congress has thus imposed upon national banks a penalty provision that may be different from those imposed by the individual states on state banks in two significant ways. The enforcement of that penalty provision is the basis for the action in those eases. It seems almost elementary that Congress regulates national banks primarily under the commerce clause, and that the National Bank Act, including 12 U.S.C. §§ 85 and 86, is an Act regulating commerce for purposes of § 1337. “It is true that federal regulation of finance is not grounded in the commerce power alone. As Chief Justice Hughes explained in Norman v. B. & O. R.R., 294 U.S. 240, 303, 55 S.Ct. 407, 414, 79 L.Ed. 885 (1935): The broad and comprehensive national authority over the subjects of revenue, finance and currency is derived from the aggregate of the powers granted to the Congress, embracing the powers to lay and collect taxes, to borrow money, to regulate commerce with foreign nations and among the several states, to coin money, regulate the value thereof, and of foreign coin, and fix the standards of weights and measures, and the added express power ‘to make all laws which shall be necessary and proper for carrying into execution’ the other enumerated powers. See also McCulloch v. State of Maryland, 17 U.S. (4 Wheat.) 316, 406, 4 L.Ed. 579 (1819). But to found jurisdiction upon § 1337, it is not requisite that the commerce clause be the exclusive source of Federal power; it suffices that it be a significant one.” Murphy v. Colonial Federal Savings and Loan Association, 388 F.2d 609, 615 (2nd Cir. 1967). See also, Partain v. First National Bank of Montgomery, 467 F.2d 167, 172 (5th Cir. 1972); Cupo v. Community National Bank & Trust Co., supra, 438 F.2d at 110. The Fifth Circuit has joined the Second Circuit in holding that 28 U.S.C. § 1337 gives federal courts jurisdiction in suits brought under specific provisions of the National Bank Act. In Partain v. First National Bank of Montgomery, supra, 467 F.2d at 167, the plaintiff brought suit under 12 U.S.C. §§85 and 86 (as did both Burns and Fisher) and the Fifth Circuit held that jurisdiction was established under § 1337. We hold therefore that the district courts had jurisdiction in each of these cases under § 1337. In view of this holding, we do not reach the question of whether or not there is also jurisdiction under 28 U.S.C. § 1355 which gives the districts courts original jurisdiction of any action for recovery of a fine or penalty incurred under any Act of Congress. Neither do we reach the question of whether or not these suits were properly brought as class actions. Fisher originally failed to allege jurisdiction under 28 U.S.C. § 1337. After the trial court sustained defendant’s motion to dismiss, Fisher moved to amend his complaint to include such an allegation. The trial court declined to permit the amendment stating as follows: “This finding does not rest upon the court’s general discretion to disallow amendments, but upon the court’s conclusion that the amended complaint would be subject to dismissal as not stating a cause of action upon which relief could be granted. Authorities cited by defendant hold there is no need for the court to indulge in ‘futile gestures’ under such circumstances.” (In its original ruling the trial court considered and rejected the argument that jurisdiction was established under 28 U.S.C. § 1337.) Upon remand the trial court is directed to permit the filing of the “Second Amendment to Complaint” filed in the district court on May 19, 1972. Both cases are reversed and remanded for further proceedings consistent with the views expressed in this opinion. BRIGHT, Circuit Judge, with whom MEHAFFY, Circuit Judge, joins (dissenting). We dissent. The jurisdictional question is whether federal courts should entertain federal usury claims for less than $10,000 against national banks in nondiversity suits. In our view, 28 U. S.C. § 1348 precludes federal jurisdiction under 28 U.S.C. § 1337 in these suits. Section 1348 contains two parts; a first paragraph granting federal jurisdiction in certain specific controversies relating to national banks (winding up affairs and actions to enjoin Comptroller of the Currency), and a second paragraph restrictive of other actions. This second paragraph provides: All national banking associations shall for the purposes of all other actions by or against them, be deemed citizens of the States in which they are respectively located. The majority have agreed with appellants’ argument that the present actions may be brought in federal court pursuant to 28 U.S.C. § 1337 as suits arising under an Act of Congress regulating commerce since the National Bank Act constitutes a regulation of national banks under the commerce power. The majority conclude that the restrictive jurisdictional effect of § 1348 “[1] was intended to eliminate the right of national banks to claim original or removal jurisdiction solely on the basis of being a nationally chartered corporation, and [2] was not intended to eliminate jurisdiction in all suits involving national banks except those actions specifically permitted in the first paragraph [of § 1348].” Majority opinion, supra, at 27. While we agree with the second aspect of this conclusion, we do not believe that the jurisdictional impact of § 1348 was intended to be as limited as the majority suggest. As we understand the position of the appellee-banks, they would concede federal jurisdiction in suits in which national banks are parties where, under similar circumstances, an action in federal court might lie against a state chartered bank. These suits would include actions involving federal questions or diversity of citizenship and for an amount in excess of $10,000 under 28 U.S.C. §§ 1331 and 1332. Additionally, jurisdiction would certainly lie against either state or national banks pursuant to § 1337 where the gist of the action alleged monopolistic practices in violation of the Sherman Act or the Clayton Act, which are acts of Congress “ * * * protecting trade and commerce against restraints and monopolies.” Moreover, other federal statutes which apply equally to business operations of both state and federal banks afford litigants the right to sue these institutions in federal court. Examples include provisions of the Fair Labor Standards Act, 29 U.S.C. § 216(b), and of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-5(f). The Supreme Court, in Mercantile National Bank v. Langdeau, 371 U.S. 555, 559-560, 565, 83 S.Ct. 520, 9 L.Ed.2d 523 (1963), noted that initially national banks probably could be sued only in federal courts. But in 1864 Congress authorized concurrent jurisdiction in certain state courts. Concurrent jurisdiction existed until the enactment of § 4 of the Act of July 12, 1882, ch. 290, 22 Stat. 162, the predecessor to § 1348, which enactment restricted the federal jurisdiction over national banks. A proviso to § 4 of this Act read: “[T]he jurisdiction for suits hereafter brought by or against any association . . . shall be the same as, and not other than, the jurisdiction for suits by or against banks not organized under any law of the United States . . . And all laws and parts of laws of the United States inconsistent with this proviso be, and the same are hereby, repealed.” [Mercantile National Bank, supra, 371 U.S. at 565, 83 S.Ct. at 526 (footnote omitted).] The Court observed: Section 4 apparently sought to limit, with exceptions, the access of national banks to, and their suability in, the federal courts to the same extent to which non-national banks are so limited. [Id. at 566, 83 S.Ct. at 526 (footnote omitted).] Elaborating on the legislative intent underlying § 4, the Court stated: The proviso to § 4 of the 1882 Act first appeared as an amendment offered on the floor of the House by Representative Hammond, pursuant to the order of the House fixing the assignment of the bill H.R. 4167 as a special order. * * * Mr. Hammond succinctly stated the purpose of his amendment as follows: “My amendment, therefore, declares that the jurisdictional limits for and as to a national bank shall be the same as they would be in regard to a State bank actually doing or which might be doing business by its side; that they shall be one and the same.” * * * Mr. Robinson then asked, “As I understand the gentleman’s proposed amendment, it is simply to this effect, that a national bank doing business within a certain State shall be subject for all purposes of jurisdiction to precisely the same regulations to which a State bank, if organized there, would be subject.” Mr. Hammond replied, “That is all.” * * *. [Id. n.22 (citations omitted).] Since the passage of this 1882 Act, the Supreme Court has consistently denied access to federal courts in suits against national banks not coming within the jurisdictional requirements of 28 U.S.C. §§ 1331, 1332, or 1348, and their predecessor provisions. See, e. g., Leather Manufacturers’ Bank v. Cooper, 120 U.S. 778, 7 S.Ct. 777, 30 L.Ed. 816 (1887); Whittemore v. Amoskeag National Bank, 134 U.S. 527, 10 S.Ct. 592, 33 L.Ed. 1002 (1890); Herrmann v. Edwards, 238 U.S. 107, 35 S.Ct. 839, 59 L. Ed. 1224 (1915). Cf Continental National Bank v. Buford, 191 U.S. 119, 24 S.Ct. 54, 48 L.Ed. 119 (1903). In Leather Manufacturers’, the Supreme Court construed the effect of § 4 of the Act of July 12, 1882, as follows: [The Act] provided in clear and unmistakable terms that the courts of the United States should not have jurisdiction of such suits thereafter brought, save in a few classes of cases, unless they would have jurisdiction under like circumstances of suits by or against a state bank doing business in the same state with the national bank. The provision is not that no such suit shall be brought by or against such a national bank in a federal court, but that a federal court shall not have jurisdiction. This clearly implies that such a suit can neither be brought nor removed there; for jurisdiction of such suits has been taken away, unless a similar suit could be entertained by the same court by or against a state bank in like situation with the national bank. Consequently, so long as the act of 1882 was in force, nothing in the way of jurisdiction could be claimed by a national bank because of the source of its incorporation. A national bank was by that statute placed before the law in this respect the same as a bank not organized under the laws of the United States. [120 U.S. at 781, 7 S.Ct. at 778.] In Whittemore, plaintiff had sought to hinge federal jurisdiction on provisions of the National Bank Act which authorized criminal prosecution and a civil action by the Comptroller of the Currency for forfeiture of a banking franchise. The circuit court dismissed on nonjurisdictional grounds. The Supreme Court reversed and directed that the case be dismissed for lack of jurisdiction. In a subsequent comment on its Whittemore decision, the Court in Herrmann noted: * -x- -x- [T]his court concluding that the Act of 1882 excluded jurisdiction as a Federal court, the action of the court below in dismissing for want of compliance with the equity rule was reversed and the case remanded with directions to dismiss for want of jurisdiction as a Federal court. Of course this conclusion involved deciding that in the absence of a Federal controversy concerning the interpretation of some provision of the national bank act raising what might be considered by analogy a Federal question in the sense of § 709, Rev.Stat., a mere assertion of liability on the part of directors for wrongs for which they might be responsible at common law, afforded no basis for jurisdiction. Indeed, that this conception was the one upon which the decision was rested is shown by the fact that in the course of the opinion it was pointed out that neither the provisions of § 5209, Rev.Stat., providing for criminal punishment of directors of national banks in certain cases, nor § 5239, Rev.Stat., giving certain powers to the Comptroller of the Currency in certain instances, were involved in the cause of action so as to give rise to a Federal question upon which the jurisdiction could be based. [238 U.S. 112-113, 35 S.Ct. 840.] In short, the congressional history and the interpretation given this history by the Supreme Court furnish persuasive authority that Congress sought to restrict federal court jurisdiction in suits by or against national banks to the same extent that state banks or parties suing state banks are denied jurisdiction. Here, limitation of the allowable rate of interest which a bank many charge represents a basic regulation common to both state and federal banking laws. The federal usury law is grounded in state regulation, for § 85 of the National Bank Act permits a national bank to charge interest “at the rate allowed by the laws of the State * * Access to federal courts would be denied appellants if they had brought similar actions against state banks under state law. To permit appellants access to federal court in the instant cases violates the strong congressional policy underlying § 1348 that state and national banks be treated alike under similar circumstances for jurisdictional purposes. Thus, we would reject § 1337 as a jurisdictional basis for these actions. In so concluding, we note that the jurisdictional significance of § 1337 has been greatly expanded since its enactment in 1911, Murphy v. Colonial Federal Savings and Loan Ass’n, 388 F.2d 609, 614-615 (2d Cir. 1967). The juris-dictionally restrictive provisions culminating in § 1348, however, were enacted and subsequently interpreted by the Supreme Court against the backdrop of then existing provisions of the National Bank Act including the usury sections derived from the Act of June 3, 1864, ch. 106, § 30, 13 Stat. 108. Under these circumstances, we think it extremely doubtful that Congress in later enacting § 1337 intended a modification of the existing specific jurisdictional provisions governing national banks. Absent some direction from Congress or an additional pronouncement from the Supreme Court, and in light of the ever mounting caseloads of the federal courts, we are reluctant to extend our jurisdiction to controversies involving national banks, which appear to have been generally and satisfactorily handled by state courts for over 90 years. . Section 1337 provides as follows: “The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies.” . The majority holds only that § 1348 is no bar to these suits involving national banks being brought in federal court under 28 U.S.C. § 1337, a special jurisdictional statute extending the purview of the federal courts to cases arising under an act of Congress regulating commerce. We address our dissent to this limited holding. . In Continental National Bank v. Buford, 191 U.S. 119, 124, 24 S.Ct. 54, 56, 48 L.Ed. 119 (1903), the Supreme Court recognized the right to invoke jurisdiction under existing jurisdictional statutes of general application despite the enactment of predecessor provisions to § 1348. The Court said: Of course, notwithstanding the acts of 1882 and 1888, there remained to a national bank, independently of its Federal origin, and as a citizen of the State in which it was located, the right to invoke the original jurisdiction of the circuit courts in any suit involving the required amount, and which, by reason of its subject-matter, and not by reason simply of the Federal origin of the bank, was a suit arising under the Constitution or laws of the United States.

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Leonard L. EDSALL, Plaintiff-Appellant, v. PENN CENTRAL TRANSPORTATION COMPANY, Defendant-Appellee. No. 72-1995. United States Court of Appeals, Sixth Circuit. Argued April 20, 1973. Decided May 22, 1973. John Ruffalo, Youngstown, Ohio, for plaintiff-appellant. Thomas R. Skulina, Cleveland, Ohio, for defendant-appellee; John F. Dolan, Cleveland, Ohio, of counsel. Before PHILLIPS, Chief Judge, and McCREE, and LIVELY, Circuit Judges. PER CURIAM. We consider the appeal of a Federal Employers’ Liability Act claimant whose complaint was dismissed without prejudice on September 6, 1972, because neither he nor his counsel of record appeared in court to proceed with the trial of his case when it was called on September 5. The trial date had been set in an order filed by the District Judge on July 21, 1972, and the order further provided: No additional continuance will be granted, and it is FURTHER ORDERED that in the event John Ruf-falo, Sr. is unable to proceed on the date heretofore indicated, replacement counsel will be prepared to proceed as aforesaid. Although the order of dismissal purported to be without prejudice, the three-year statute of limitations (45 U.S.C. § 56) had run on one of plaintiff’s claims, and the statute ran on plaintiff’s other claim two weeks later. Appellant’s counsel argues that he did not appear to try the case because he had been ill and had so apprised the court in July. He claims that he endeavored to telephone the District Judge a few days before the trial date but that the Judge was unavailable. (This period included the Labor Day weekend.) We regard the attorney’s efforts as totally insufficient. He could have but did not write to the court to request a continuance. He could have but did not ask another lawyer to answer the call of the case to explain his absence and to request a continuance. He could have but did not arrange for his client to be present to explain the indisposition of his lawyer and to request a continuance. He could have but did not obtain replacement counsel to try the case in his stead (he did manage to secure replacement counsel by October 1). The failure to accord opposing counsel and the court this minimum consideration and courtesy in these days of crowded calendars would ordinarily have fully justified the drastic sanction of dismissal of the cause. However, there are special circumstances here. The record does not indicate that Mr. Edsall knew of the requirement in the July 21 order that he be prepared to proceed with replacement counsel if Mr. Ruffalo should have been unavailable, and in the absence of the affirmative showing of such knowledge we are reluctant to punish the client for the behavior of the lawyer. Further, plaintiff’s claims are now time-barred and the dismissal thus effectively prevents plaintiff from ever having his day in court. And, the relief he seeks is based on a remedial and humanitarian statute that was specially enacted by Congress to afford relief to employees from injury incurred in the railway industry. See Urie v. Thompson, 337 U.S. 163, 69 S.Ct. 1018, 93 L.Ed. 1282 (1949). Accordingly, as we said in Berardi v. Pure Oil Corporation, 456 F.2d 98, 99 (6th Cir. 1972), “we are hard-pressed to find an abuse of discretion in the court’s dismissal, and do so only because we believe that the interests of justice require that [appellant] be afforded one more opportunity to conform [his actions] to the court’s orders.” Any further delay occasioned by appellant or his counsel will not evoke the same special solicitude on our part, and we expressly reject counsel’s contention that the court was without power to enter the dismissal order. We reverse only because in balancing the equities, the interest of the employee who claims injury (not his counsel) outweighs, if only slightly so, the interest of the railroad and the concern of the court for its calendar, on these facts. We decline to consider the issues relating to discovery because as the ease now stands they are interlocutory in nature and review of them may never be required. Reversed and remanded for further proceedings consistent herewith. Costs will abide the outcome of the case on its merits. . The letter, dated July 20, 1972, read as follows: Dear Judge Krupansky: I am enclosing herewith a letter from Dr. John N. McCann of Youngstown, Ohio in respects to his medical advice relating to my present physical condition. Dr. McCann, as you will note, advises that I cease activities for a period of one month and will evaluate me again at that time as to the likelihood of my resuming my activities or whether to continue on the basis of his original medical advice or on a restricted activity basis. I regret that I am unable to fulfill my obligations at this time but matters concerning my health must be given first priority. As soon as my physician advises me that I can return to active duty, I will notify you. SS: John Ruffalo

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Elizabeth Elaine CRAIG, Administratrix of the Estate of Robert J. Craig, Deceased, Plaintiff-Appellant, v. UNITED STATES of America, Timkin Roller Bearing Company, et al., Defendant-Appellee, Litton Systems, Inc., Appellee. No. 72-2055. United States Court of Appeals, Ninth Circuit. May 17, 1973. Walter P. Christensen, San Diego, Cal., for plaintiff-appellant. Charles W. Rees, Jr., Lawrence L. Pillsbury, of Mclnnis, Fitzgerald, Rees & Sharkey, San Diego, Cal., for defendant-appellee. Before CHAMBERS, BROWNING and CHOY, Circuit Judges. OPINION PER CURIAM. Appellant appeals from an order of the district court entered in an admiralty action denying her motion to amend a libel for wrongful death to change the name of defendant McKiernan-Terry Corp. to Litton Systems, Inc. after the two-year statute of limitations had run. Previously in the same action, after the two-year statute of limitations had elapsed, appellant had moved to amend the libel to change the name of defendant DOE I to Litton Systems, Inc. Upon denial of that motion, appellant had appealed and this court affirmed the denial in Craig v. United States et al., 413 F.2d 854 (9th Cir. 1969), cert. denied 396 U. S. 987, 90 S.Ct. 483, 24 L.Ed.2d 451 (1969) (Craig I). Appellant contends that the amendment now sought merely corrects a “misnomer” and thus the second sentence of Rule 15(c), F.R.Civ.P. does not apply. The second sentence of Rule 15 (c) was added by 1966 amendment accompanied by the following Advisory Committee Note: “Rule 15(c) is amplified to state more clearly when an amendment of a pleading changing the party against whom claim is asserted (including an amendment to correct a misnomer or misde-scription of a defendant) shall ‘relate back’ to the date of the original pleading. [Emphasis added.] [3 Moore’s Federal Practice 15.01(9)]”. Rule 15 (c), therefore, is applicable to the proposed amendment. In Craig I, we applied the rule and held (1) that within the statutory period, Litton had not received notice, formal or informal, of the institution of the action, and (2) that due to its non-receipt of such notice, Litton would be prejudiced in maintaining its defense on the merits, should the amendment be allowed. Also in Craig I, appellant contended Litton had had notice because prior to the running of the statute it had investigated the incident resulting in her decedent’s death in which a seaman also had been injured and had filed suit. We held there that “It cannot be said that [Litton’s] notice of the incident, but not of the institution of this action, within the statutory period, did not prejudice Litton in maintaining its defense to the action.” The issues of notice and prejudice may not be relitigated as appellant now attempts. The order of the district court is affirmed. . In pertinent part Rule 15(c) reads: (c) Relation Back of Amendments. Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. An amendment changing the party against whom a claim is asserted relates back if the foregoing provision ls satisfied and, within the period provided by law for commencing the action against him, the party to be brought in by amendment (1) has received such notice of the institution of the action that he will not be prejudiced in maintaining his defense on the merits, and (2) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against him.

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Ollie CORNIST et al., Plaintiffs-Appellees, v. RICHLAND PARISH SCHOOL BOARD et al., Defendants-Appellants. Elvert CHISLEY et al., Plaintiffs-Appellees, v. RICHLAND PARISH SCHOOL BOARD et al., Defendants-Appellants. No. 72-3346. United States Court of Appeals, Fifth Circuit. May 14, 1973. John F. Ward, Jr., Baton Rouge, La., William R. Coenan, Asst. Dist. Atty., Rudolph McIntyre, Dist. Atty., Rayville, La., for defendants-appellants. Paul H. Kidd, Monroe, La., for plaintiffs-appellees. Before BELL, AINSWORTH and GODBOLD, Circuit Judges. AINSWORTH, Circuit Judge: Appellant Richland Parish School Board on August 10, 1972 filed a Notice of Appeal from a Judgment dated April 20, 1972, an Amended Judgment dated May 1, 1972, and an Order dated July 20, 1972 which denied Richland’s May 10, 1972 Motion for New Trial as “filed too late” and ordered that “the judgment of this Court of April 20, 1972 is the final judgment of this Court.” Appellees have filed a Motion to Dismiss the appeal as not having been timely filed. We deny the Motion to Dismiss for reasons which require that we also vacate the July 20 Order and remand for the District Judge to rule on the pending Motion for New Trial filed by Richland. The judgment dated April 20, 1972, “approved as to form” by counsel for both plaintiffs and defendants and signed by the District Judge, ordered reinstatement of two teachers, plaintiffs-ap-pellees Ollie Cornist and Elvert Chisley, and further provided: [T]he issues of punitive damages and attorney fees relating to the discharges of Elvert Chisley and Ollie Cornist, the reinstatement of Sidney Perkins as a high school band director, the establishment of racial ratios of faculty, staff, and administration, the contempt of the Board, attorneys fees, fines, and punitive damages for the contempt are taken under advisement. However, on April 27, 1972 counsel for defendant submitted a new judgment “approved as to form” by counsel for both plaintiffs and defendant, along with the following letter stating in part: Dear Judge Dawkins: On April 20, 1972 Mr. Paul Kidd brought me a judgment which I approved without really reading. My Superintendent objected to one paragraph concerning the re-instatement of Sidney Perkins, band director. Mr. Kidd readily agreed to submit a new judgment in lieu of the original. However you signed the first judgment and I would appreciate very much if you would substitute the second agreed judgment by simply writing “Amended” across the face of the first page or in whatever manner you see best. The District Judge on May 1, 1972 signed the new judgment and wrote in “Amended” as requested. The new judgment ordered reinstatement of plaintiffs as before, but omitted, among other things, the provision quoted above relating to Sidney Perkins and instead simply provided in place of the above quoted excerpt from the judgment the following: “[A] 11 other issues are taken under advisement.” Richland filed its Motion for New Trial on May 10, 1972. Whether it was timely and within the 10-day time limit specified by Rule 59(b), Federal Rules of Civil Procedure, depends upon the question whether the May 1 Amended Judgment was the judgment contemplated by that subsection. On July 20, 1972 the District Judge denied the Motion for New Trial “as having been filed too late” and determined that the April 20 judgment was the final judgment of the Court. The Supreme Court said in United States v. Indrelunas, 411 U.S. 216, 217, 93 S.Ct. 1562, 1563, 36 L.Ed.2d 202 (1973), a related case, that a “conflict on an issue such as this is of importance and concern to every litigant in a federal court, since, as this case makes clear, the timeliness of appeals, as well as the timeliness of post-trial motions, may turn on the question of when judgment is entered.” To decide when judgment was entered in this case insofar as Rule 59(b) purposes are concerned, we must refer to a general rule enunciated by a long line of judicial authority, that the second judgment prevails and begins the running of the 10-day limitation, if it is a superseding judgment making a change of substance which “disturbed or revised legal rights and obligations.” Federal Trade Comm’n v. Minneapolis-Honeywell Regulator Co., 344 U.S. 206, 211-212, 73 S.Ct. 245, 248-249, 97 L.Ed. 245 (1952). See Federal Power Comm’n v. Idaho Power Co., 344 U.S. 17, 19-22, 73 S.Ct. 85, 86-87, 97 L.Ed. 15 (1952); Zimmern v. United States, 298 U.S. 167, 56 S.Ct. 706, 80 L.Ed. 1118 (1936). However, if the Court does no more in the second judgment than make a clerical change, such as correct the names of parties or dates, the time for filing motions does not start to run from entry of the second judgment, but rather runs from date of the first judgment. See Department of Banking v. Pink, 317 U.S. 264, 63 S.Ct. 233, 87 L.Ed. 254 (1942); United States v. 1,431.80 Acres of Land, 8 Cir., 1972, 466 F.2d 820; Albers v. Gant, 5 Cir., 1970, 435 F.2d 146; Lieberman v. Gulf Oil Corp., 2 Cir., 1963, 315 F.2d 403. Here the request was for “a new judgment in lieu of the original,” and it is apparent that the second judgment was intended to supersede the first. The fact that the second judgment was termed an “Amended” Judgment is not decisive, because the Supreme Court has said that “the question of whether time . was to be enlarged cannot turn on the adjective which the court below chose to use in the caption of its second judgment.” Federal Trade Comm’n v. Minneapolis-Honeywell Regulator Co., 344 U.S. 206, 212-213, 73 S.Ct. 245, 249, 97 L.Ed. 245 (1952). The important circumstance here is that the second judgment omitted a paragraph of substance concerned with, inter alia, the legal rights and possible reinstatement of another teacher, Sidney Perkins. Accordingly, the time for filing motions began to run with the entry of the Amended Judgment on May 1, 1972, and the Motion for New Trial on May 10 was therefore timely and within the 10-day period. The District Judge must therefore consider and rule on the merits of the pending Motion for New Trial filed by appellant before the time to file a notice of appeal by an aggrieved party commences to run. See Rule 4(a), Federal Rules of Appellate Procedure. Motion to dismiss the appeal is denied; vacated and remanded for further proceedings.

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GARDINER MANUFACTURING CO., Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. No. 26657. United States Court of Appeals, Ninth Circuit. May 22, 1973. Rehearing Denied June 29, 1973. Richard Harrington (argued), Ath-earn, Chandler & Hoffman, San Francisco, Cal., for plaintiff-appellant. Walter H. Fleischer (argued), L. Patrick Gray, III, Asst. Atty. Gen., Dept, of Justice, Washington, D. C., James L. Browning, Jr., U. S. Atty., San Francisco, Cal., Daniel Joseph, Robert V. Zener, Morton Hollander, Dept, of Justice, Washington, D. C., for defendant-appel-lee. Before HAMLIN, DUNIWAY and GOODWIN, Circuit Judges. OPINION DUNIWAY, Circuit Judge. On January 7, 1965, Gardiner Manufacturing Company delivered 18 steel tackle blocks to the United States pursuant to Gardiner’s subcontract with Orbit Industries, Inc. Orbit, the prime contractor, paid for the blocks with a check which was dishonored on January 18. Orbit subsequently went bankrupt, and Gardiner instituted this action against the United States to recover the value of the blocks. The district court held for the United States, and Gardiner appeals. We affirm. First, Gardiner argues that it is entitled to recover the cost of the blocks under the Tucker Act, 28 U.S.C. § 1346(a) (2). We do not agree. A subcontractor derives no rights from the contract between the prime contractor and the United States. Nickel v. Pollia, 10 Cir., 1950, 179 F.2d 160, 163-164. Beaconwear Clothing Co. v. United States, 1966, 355 F.2d 583, 590, 174 Ct.Cl. 40. See also Bank of Arizona v. National Surety Corp., 9 Cir., 1956, 237 F.2d 90, 93. Thus, in order for Gardiner to state a claim under the Tucker Act, it must show the existence of an actual contract between it and the United States. Merritt v. United States, 1925, 267 U.S. 338, 340-341, 45 S.Ct. 278, 69 L.Ed. 643. See generally Baltimore & Ohio R. R. Co. v. United States, 1923, 261 U.S. 592, 597-598, 43 S.Ct. 425, 67 L.Ed. 816; 1A Corbin, Contracts §§ 18, 19 (1963). No such contract has been alleged. Gardiner’s second argument is that it is entitled to recover under the Federal Tort Claims Act, 28 U.S.C. § 1346(b) because Orbit acquired only voidable title to the blocks, and “[t]itle, like a stream, cannot rise higher than its source.” It concludes that the United States converted the blocks when it failed to return them after learning that Orbit’s check had been dishonored. However, even if we were to assume that conversion is a tort which is cognizable under the Tort Claims Act, Gardiner’s argument fails. The Uniform Commercial Code, to which federal courts look in developing federal “sales” law, United States v. Wegematic Corp., 2 Cir., 1966, 360 F.2d 674, 676, provides in relevant part: “Sec. 2-403. Power to Transfer; Good Faith Purchase of Goods; ‘Entrusting’. (1) . . . A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though (b) the delivery was in exchange for a check which is later dishonored, . . . Sec. 1-201. General Definitions. (44) ‘Value’. . . . a person gives ‘value’ for rights if he acquires them (c) by accepting delivery pursuant to a preexisting contract for purchase; . . .” Under these provisions, the United States gave value for the blocks when it accepted delivery on January 7, pursuant to its contract with Orbit. Its good faith at that time cannot be questioned, since it had no notice that Orbit’s check to Gardiner would be dishonored. Thus, the United States acquired good title to the blocks, and did not convert them. See Restatement 2d of Torts § 229 comment d (1965). Affirmed. . The quotation is from Barthlemess v. Cavalier, 1934, 2 Cal.App.2d 477, 38 P.2d 484 (per Yankwich, J.). However, sales law has changed considerably in the past 40 years. . Relying upon the fact that conversion is essentially a strict liability tort in California, Poggi v. Scott, 1914, 167 Cal. 372, 375, 139 P. 815, and that the Tort Claims Act permits the United States to be held liable only for negligent or wrongful acts of its agents, Dalehite v. United States, 1953, 346 U.S. 15, 73 S.Ct. 956, 97 L.Ed. 1427, the district court con-eluded that Congress did not consent to suits for conversion. The Third Circuit, although not confronting the question directly, has held that conversion actions are permitted under the Act. See Aleutco Corp. v. United States, 3 Cir., 1957, 244 F.2d 674, 678-679. However, since we conclude that Gardiner has no claim for conversion, we decline to decide this issue.

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UNITED STATES of America, Appellee, v. William F. MEESE, Appellant. No. 72-1709. United States Court of Appeals, Eighth Circuit. Submitted April 13, 1973. Decided May 31, 1973. Ronald L. Rothman, Clayton, Mo., for appellant. Ann T. Wallace, Atty., Dept, of Justice, Washington, D. C., for appellee. Before MEHAFFY, BRIGHT and ROSS, Circuit Judges. MEHAFFY, Circuit Judge. Defendant was convicted of operating an illegal gambling business in violation of 18 U.S.C. § 1955 which prohibits the operation of an illegal gambling business. It defines an illegal gambling business as a gambling business which (a) is a violation of state law; (b) involves five or more persons “who conduct, finance, manage, supervise, direct, or own all or part of such business. . . . ”; and (c) has been in substantially continuous operation in excess of thirty days. A jury was waived and the facts stipulated in the district court resulting in the conviction by The Honorable James H. Meredith, Chief Judge, United States District Court for the Eastern District of Missouri. On appeal defendant challenges the constitutionality of the statute on its face and as applied to him. He also challenges the sufficiency of the evidence to support the conviction. We affirm. As stipulated the evidence showed that defendant owned a partnership interest in and operated a gambling business for a period in excess of thirty days involving fifty-four slot machines. He maintained a warehouse used for storing and repairing the machines and employed from six to nine individuals to operate the business. One of the employees, defendant’s wife, was the bookkeeper. Five other employees collected the funds from the machines at their various locations in different clubs. These five employees and another person employed for a period in excess of five months also repaired the machines at the clubs where they were located and at defendant’s warehouse. These employees transported the machines between the clubs and the warehouse when necessary. For a period of about three months an additional two employees were employed to act as change-makers at one of the clubs. Half of the salary of these two employees was paid by defendant. Constitutionality of § 1955. Defendant argues that the statute is unconstitutional on its face since no relationship between intrastate conduct and interstate commerce is required to be shown and that the statute is unconstitutional as applied to him in that no showing that these particular gambling activities affected interstate commerce was made. This court has already held that “[c]onvictions under § 1955 do not require a showing in each individual case that the gambling activities of a particular defendant have affected commerce. . . . ” Schneider v. United States, 459 F.2d 540, 541 (8th Cir.), cert. denied, 409 U.S. 877, 93 S.Ct. 129, 34 L.Ed.2d 131 (1972). We further held in Schneider that there is a sufficient rational basis for Congress’ conclusion that illegal gambling-affects interstate commerce. 459 F.2d at 542. We adhere to our holding in Schneider which is in accord with United States v. Becker, 461 F.2d 230 (2d Cir. 1972), petition for cert. filed, 41 U.S.L.W. 3160 (U.S. July 28, 1972) (No. 72-158); United States v. Riehl, 460 F.2d 454 (3d Cir. 1972); United States v. Harris, 460 F.2d 1041 (5th Cir.), cert. denied, 409 U.S. 877, 93 S.Ct. 128, 34 L.Ed.2d 130 (1972); and United States v. Palmer, 465 F.2d 697 (6th Cir.), cert. denied, 409 U.S. 874, 93 S.Ct. 119, 34 L.Ed.2d 126 (1972). Thus, as we held in Schneider, the statute is a constitutional exercise of power under the commerce clause and is constitutional as applied to defendant. Defendant argues that his gambling business was a small one and located within a single county in Missouri; hence, he argues, his illegal activities are not within the intended scope of the statute. In view of our finding that § 1955 is constitutional and since defendant is within the prohibited class, we do not consider the magnitude of the particular activity charged since we are without power “ ‘to excise as trivial, individual instances’ of the class.” Perez v. United States, 402 U.S. 146, 154, 91 S.Ct. 1357, 1361, 28 L.Ed.2d 686 (1971). Sufficiency vf the Evidence. Defendant contends that he is the only person who conducted the business and that the other persons were mere employees; thus, he argues, the statutory requirement that five or more persons conduct the business was not met. We hold that all levels of personnel involved in operating an illegal gambling business and not merely the management level are to be included in determining whether five or more persons conduct such business within the meaning of § 1955. United States v. Becker, supra; United States v. Riehl, supra; United States v. Harris, supra; United States v. Palmer, supra. Finally, defendant contends that the evidence does not show he violated Missouri law, 41 V.A.M.S. §§ 563.370, 563.-374 and 563.380, as charged in the indictment. We find this contention to be without merit. We have considered other related contentions of defendant and find them to be without merit. Accordingly, the judgment is affirmed. . We also followed Schneider in United States v. Wolk, 466 F.2d 1143 (8th Cir. 1972).

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BAT RENTALS, INC., a Nevada corporation, Appellant, v. UNITED STATES of America and State of Nevada, Appellees, John Deere Industrial Equipment Co., Intervenor. No. 71-1627. United States Court of Appeals, Ninth Circuit. April 12, 1973. Ira Heeht (argued), Las Vegas, Nev., for appellant. Eloise E. Davies (argued), Civil Div., Dept, of Justice, Bart M. Schouweiler, U. S. Atty.; Robert R. List, Atty. Gen., L. Patrick Gray, III, Asst. Atty. Gen., Alan S. Rosenthal, Civil Div., Dept, of Justice, Washington, D. C., for appellees. Before ELY and HUFSTEDLER, Circuit Judges, and CRARY, District Judge. Honorable E. Avery Crary, United States District Judge, Los Angeles, California, sitting by designation. ELY, Circuit Judge: The Nevada Department of Highways invited bids for the furnishing of fourteen front end loaders with a minimum diesel engine horsepower. The loaders were to be used by the Nevada Department primarily for routine maintenance, but it was possible that they would also occasionally be rented and operated by the United States Bureau of Public Roads. The appellant, a Nevada corporation, submitted a bid, as did John Deere Industrial Equipment Co., a Colorado corporation. The contract was awarded to John Deere, whereupon the appellant filed an action for declaratory relief in the District Court. It alleged a violation of certain Nevada revised statutes, Nev.Rev.Stat. §§ 334.005, 334.007, and 334.009, which generally provide bidder preferences for resident dealers and contractors who offer locally manufactured materials and equipment on public contracts. The state statutes allow these preferences only insofar as to do so would not be antagonistic to federal law. The Federal Highway Act, 23 U.S.C. § 112(b), requires the states to solicit competitive bids and to accept low bids on federally aided highway projects, and 23 C.F.R. § 1.19 prohibits price differentials in favor of locally produced materials in respect to such bids. In this case John Deere was the low bidder, and also, according to the Government, the only qualified bidder. The appellant’s complaint against the United States was based upon its general allegation that authorities of the State of Nevada had been erroneously instructed by some representative of the United States that 23 C.F.R. § 1.19 prohibited the application of Nevada’s preference statute Í3U a situation wherein, as here, there existed the possibility that equipment 3night thereafter be rented from the state and used for federal aid highway projects. The appellant also sought an injunction restraining Nevada from performing its contract with John Deere, whereupon John Deere intervened. The District Court, after considering various affidavits, dismissed the appellant’s suit against the United States with prejudice and dismissed the suit against the State of Nevada, without prejudice. The District Court held that the United States had not given its consent to be sued in a case of this kind. The-appellant relies upon 5 U.S.C. § 702 and 5 U.S.C. § 701. Section 702 reads: “A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.” (emphasis added). Neither the appellant’s original complaint nor its amended complaint, nor its affidavits, specify any “agency” of the United States to which it attributes, in part, its aggrievement. It alleged only —and this upon mere information or belief — that some unspecified agency or official of the United States gave erroneous legal advice to the Nevada authorities. This was not enough. It is well established that when a sovereign surrenders its immunity from suit by statute, such a statute must be strictly construed against the surrender of such immunity. In Mann v. United States, 399 F.2d 672 (9th Cir. 1968), we wrote: “[W]e are not free to enlarge that consent to be sued which the Government, through Congress, has undertaken so carefully to limit.” Id. at 673. Accord, Claremont Aircraft, Inc. v. United States, 420 F.2d 896 (9th Cir. 1969); see United States v. Sherwood, 312 U.S. 594, 590, 61 S.Ct. 767, 85 L.Ed. 1058 (1941) (a statute “must be interpreted in the light of its function in giving consent of the Government to be sued, which consent, since it is a relinquishment of a sovereign immunity, must be strictly interpreted.”). Having reached the conclusion that the District Court properly applied the doctrine of sovereign immunity, we need not discuss the Government’s alternative contention that the appellant was an unqualified bidder and' thus had no standing to maintain the suit. Having dismissed the appellant’s action against the United States, the District Court was clearly correct in dismissing the complaint as to the State of Nevada. There remained no diversity of citizenship or substantial federal question; hence, the District Court then lacked the requisite jurisdiction. If the appellant is correct in its allegation that the Nevada authorities failed to comply with the requirements of Nevada law, its attempt to, vindicate its alleged rights must be made in the Nevada courts. Affirmed.

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In the Matter of DESERT PAINT & SUPPLY COMPANY, a co-partnership composed of Ray E. Primer and Betty Primer, Bankrupt. WESTERN BOARD OF ADJUSTERS, INC., a California corporation, Respondent-Appellant, v. Richard R. CLEMENTS, Trustee-Appellee. No. 71-1625. United States Court of Appeals, Ninth Circuit. April 27, 1973. Rehearing Denied June 1, 1973. Barnard F. Klein (argued), Beverly Hills, Cal., for respondent-appellant. Lawrence A. Diamant (argued), Herbert Wolas, Robinson & Wolas, Los An-geles, Cal., for trustee-appellee. Before ELY and HUFSTEDLER, Circuit Judges, and TURRENTINE, District Judge. Honorable Howard Turrentine, United States District Judge, San Diego, California, sitting by designation. PER CURIAM: The appellant (Western) appeals from the District Court’s affirmance of a bankruptcy Order declaring a security agreement and financing statement executed in favor of Western to be null and void, awarding damages to the trustee in the sum of $10,474.32 together with interest, and assessing exemplary damages in the sum of $15,000.00. The dispute arose over a debt owed by the bankrupt to a third person and assigned to Western for collection. Western took possession of certain property that had been delivered to the bankrupt for resale. The trustee, seeking damages, alleged that the security agreement existing between the bankrupt and Western was null and void and that, hence, Western committed a tortious conversion of the property. Western contends that the dispute was not properly within the summary jurisdiction of the Bankruptcy Court, that the President of Western was improperly denied representation of counsel during the section 21(a) examination, that the factual determinations of the referee were clearly erroneous, and that there was no basis in the record to support the award of exemplary damages. Treating Western’s jurisdictional claim first, we note that the summary jurisdiction of the referee in bankruptcy extends primarily to those assets in the actual or constructive possession of the bankrupt. See Suhl v. Bumb, 348 F.2d 869 (9th Cir. 1965). Beyond that, the referee is powerless to reach assets in the actual or constructive possession of a third person asserting a bona fide claim to the property unless the third person consents to the non-plenary proceedings. 11 U.S.C. § 11(a)(7). In the present case, it is undisputed that Western was a third person to the proceedings and that it had actual possession of the property under a bona fide claim of right based upon a security agreement executed by the bankrupt and filed with the Secretary of State. The secondary and controlling question, then, is whether Western consented to the jurisdiction of the Bankruptcy Court, .as urged by the appellee. In the response to the referee’s Show Cause Order, Western objected to the jurisdiction of the federal courts and argued that the claim properly belonged in state court because, inter alia, “the issues raised are complex, undecided and unresolved factual issues relying upon an interpretation of recent State legislation.” While this general objection did not expressly refer to the referee’s jurisdiction, it can hardly be read as an expression of consent to summary jurisdiction. Nor can it be read as implied consent by silence for although the objection was inartfully phrased, it adequately noted Western’s objection that it not be deprived of its right to a plenary proceeding. “The power of a bankruptcy court to resolve adverse claims concerning the assets of the bankrupt’s estate is indeed a power of imposing magnitude. Since it results in depriving adverse claimants of a plenary suit, we must ever be cautious lest we permit its extension-to a situation that should not permit summary disposition.” Suhl v. Bumb, supra at 871. Having concluded that this was not a proper case for the exercise of the referee’s summary jurisdiction, we need not reach Western’s other assignments of error. The property in question cannot be treated as part of the bankrupt estate until the issues are resolved in a plenary proceeding. Reversed. . Nothing in our opinion is intended to prejudice any future efforts by the trustee to seek to redress his alleged grievanees against appellant for its alleged misconduct,

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In the Matter of Nathaniel JOHNSON, Individually and doing business as Johnson’s Pharmacy, Bankrupt. John NEEDLES et al., Appellants, v. Nathaniel JOHNSON, Individually and doing business as Johnson’s Pharmacy, and Francis O. Drummond, Trustee, Appellees. No. 71-1309. United States Court of Appeals, Ninth Circuit May 23, 1973. Sandor T. Boxer (argued), Hal L. Coskey, G. Merle Bergman of Coskey & Coskey, Los Angeles, Cal., for appellants. Hubert F. Laugharn (argued), Robert A. Fisher of Craig, Weller & Laugharn, Weinstein, Saltz & Ruffner, Los Angeles, Cal., for appellees. Before ELY and HUFSTEDLER, Circuit Judges, and TURRENTINE, District Judge. Honorable Howard B. Turrentine, United States District Judge, San Diego, California, sitting by designation. OPINION PER CURIAM. This appeal raises the question of whether a claim for attorneys’ fees was properly disallowed. The attorneys represented a creditors’ committee. The proceedings originated under Chapter XI of the Bankruptcy Act, but when an Amended Plan of Arrangement presented by the debtor was eventually disapproved, the Chapter XI proceedings were dismissed and the debtor was adjudicated a bankrupt. The attorneys for the creditors’ committee then sought fees, for their services to the committee, in the amount of $2135. The claim was disallowed by the Referee, the Referee’s Order in that respect was upheld by the District Court, and this appeal followed. We affirm. Section 339(2) of the Bankruptcy Act, 11 U.S.C. § 739, provides for allowance of fees to attorneys for a creditors’ committee in chapter proceedings, but the statute contains the explicit provision that such fees are allowable if, and only if, “the arrangement is confirmed.” As we have hitherto recited, the proposed Chapter XI arrangement was not confirmed ; hence, the Referee had no choice, under section 339(2), save to reject the fee application. The appellants contend that the proviso of section 339(2) is unconstitutional, since, according to them, it provides for the taking of property without compensation and establishes an arbitrary classification. They also urge that the proviso penalizes the exercise of the free speech right established by the First Amendment. In our opinion, this second argument, while ingenious, has no merit whatsoever. We reject the first argument on our conclusion that the Congress adopted a perfectly reasonable and rational basis in providing that fees to the attorneys for creditors’ committees shall be allowed from the estate of a debtor in chapter proceedings only in cases wherein plans of arrangement are confirmed. The appellants also rely upon section 64(a) of the Bankruptcy Act, 11 U.S.C. § 104. Assuming arguendo as urged by the appellants, that the statute allows attorneys fees such as those here claimed when “the confirmation of an arrangement . . . has been refused . upon the objection and through the efforts and at the cost and expense of . . . .” a creditors’ committee, one of the Referee’s findings undercuts the validity of the appellant’s reliance upon the section. The Referee found, inter alia, that “[a]t no time did the creditor’s committee object to the arrangement . . . .” and “[t] his court therefore concluded that the creditors’ committee through its attorneys had performed no act which caused the confirmation of the arrangement to be refused.” The Referee’s quoted finding and conclusion are, essentially determinations of fact. They were upheld by the District Court, and since they are supported by substantial evidence, we are in no position to disturb them. Affirmed.

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Betty L. KINDREW, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. No. 73-1471 Summary Calendar. United States Court of Appeals, Fifth Circuit. June 5, 1973. Michael Maher, Orlando, Fla., Daniel C. McCormic, Wildwood, Fla., for plaintiff-appellant. John L. Briggs, U. S. Atty., Jacksonville, Fla., Oscar Blasingame, Asst. U. S. Atty., Tampa, Fla., David V. Hutchinson, Eloise E. Davies, Robert E. Kopp, Admiralty & Shipping Section, U. S. Dept, of Justice, Washington, D. C., for defendant-appellee. Before GEWIN, COLEMAN and MORGAN, Circuit Judges. Rule 18, 5 Cir., See Isbell Enterprises, Inc. v. Citizens Casualty Company of New York et al., 5 Cir., 1970, 431 F.2d 409, Part I. PER CURIAM: On February 9, 1970, Betty L. Kindrew, the plaintiff-appellant, was standing on the deck of the United States Coast Guard Cutter JUNIPER at Tampa, Florida. She was struck by a line which was being heaved from a United States Naval vessel as it came alongside the JUNIPER. The next day, she was notified by the United States Coast Guard legal officer that if it was her intention to file a claim it should be submitted on Standard Form 95, a set of which was enclosed in the communication. On March 4, 1970, through her attorneys, Mrs. Kindrew filed a claim for $10,000. On February 23, 1971, Chief Counsel for the Coast Guard notified claimant’s attorneys that the government would pay $750 in settlement of the case, noting that the guests on the JUNIPER were warned to stand clear when the other vessel came alongside; moreover, Mrs. Kindrew’s injuries had not required either hospitalization or that she be confined to bed at home. X-rays revealed no evidence of any fractures or dislocations. This settlement was not accepted. On May 3, 1972, twenty seven months after the accident and approximately fifteen months after notice of the rejection of the proposed settlement, this suit was filed. The government pleaded the two year statute of limitations, 46 U.S.C. § 782; 46 U.S.C., § 745. Although the government rejected the claim ten months before the statute of limitations attached, plaintiff contended below and contends here that the date on which she received notice of denial of the administrative claim, rather than the date of the injury, should be the date from which her cause of action must be deemed to have run. The Coast Guard letter of March 26, 1971, informed Mrs. Kindrew, “Therefore there remains only our duty to advise you that you have a right to institute suit in district court in accordance with the provisions of the Public Vessels Act, 46 U.S.C., 785-790”. The judgment of the District Court, 352 F.Supp. 277, dismissing plaintiff’s suit for having been filed more than two years after the date of the alleged injury must be affirmed under the authority of New Orleans Stevedoring Company v. United States, 5 Cir., 1971, 439 F.2d 89; McMahon v. United States, 1951, 342 U. S. 25, 72 S.Ct. 17, 96 L.Ed. 26 and Soriano v. United States, 1956, 352 U.S. 270, 77 S.Ct. 269, 1 L.Ed.2d 306. Affirmed.

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Lee LAMBERT, Jr., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. No. 72-3328. United States Court of Appeals,. Fifth Circuit. June 4, 1973. John L. Briggs, U. S. Atty., Jacksonville, Fla., Emmett B. Lewis, Adm. & Shipping Section, Morton Hollander, Chief Dept, of Justice, Kathryn H. Baldwin, Civil Div., Dept, of Justice, Washington, D. C., for defendant-appellant. Edward A. White, William R. Swain, Jacksonville, Fla„ for plaintiff-appellee. Before WISDOM, GEWIN and CLARK, Circuit Judges. PER CURIAM: The Government appeals from a judgment awarding damages to Appellee Lambert for injuries he suffered during the performance of his duties as a stevedore foreman while employed by the United States. The Government asserts that the district court erred in holding that: (a) the previous improper loading of cargo of the USNS MUSKINGHAM, the vessel on which Lambert was performing his duties resulted in the ship being unseaworthy; (b) the findings that the ship was unseaworthy and Lambert was contributorily negligent are irreconcilable; and, (c) the proximate cause of Lambert’s injuries was the un-seaworthy condition of the vessel instead of concluding that Lambert’s negligence was the sole proximate cause of the injury. Lambert was the stevedore foreman for the night loading crew which was stowing cargo on board the United States’ vessel, USNS MUSKINGHAM. The day crew had improperly loaded the Number 1 lower hold by initially stowing the cargo at the hatch opening and working outward to the skin of the ship instead of starting at the ship’s skin and working inboard towards the hatch opening as is customary and proper. The latter loading procedure permits the last of the cargo to be lowered directly into place in the hold through the hatch opening and is admittedly the safer and more practical way of completing a loading assignment. The day crew’s loading operation had resulted in an unfilled space with a width of three feet from the ship’s skin to the loaded cargo of large connex boxes and a length of approximately ten feet. After surveying this situation, Lambert determined that the most economical utilization of this space would be to place a large tire which was six feet high and three feet wide in this unused area. To accomplish this difficult task it was necessary for Lambert to,lower the tire through the hatch opening to the lower hold and then move outward with the tire over the connex boxes to the skin of the ship. With the aid of ropes it was his intention to tilt the tire over the edge of the connex boxes until it fell snugly into place in its assigned destination. After reaching the edge of the connex boxes with the tire, Lambert lowered himself into the unused space because he felt that he could give better directions from that vantage point for the tedious tilting operation. This cumbersome loading procedure was untimely aborted when the tire caught on the edge of the connex boxes and bounced to the floor of the opening, pinning Lambert against the skin of the ship. The falling tire caused Lambert severe physical injury. After a trial without a jury, the district court found that the day crew’s improper stowage of the connex boxes had made the vessel unseaworthy. The court concluded that the doctrine of unseaworthiness is applicable to the improper stowage of cargo. The court held that this hazardous condition was the proximate cause of Lambert’s injuries. However, the court did reduce Lambert’s recovery by 40%, basing its reduction on Lambert’s negligent presence in the unused space when the tire was lowered over the side of the connex boxes. After a careful review of the evidence presented at trial, we conclude that there was ample evidence to support the findings of the court below. The district court correctly discerned the controlling legal principles and applied them to the facts adduced from the evidence presented. The district court’s judgment is therefore, affirmed.

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Wayne WRIGHT, Plaintiff-Appellant, v. GENERAL MOTORS CORP. and T. A. Brouillette and Son, Inc., Defendants-Appellees. No. 71-1835. United States Court of Appeals, Seventh Circuit. Argued Nov. 28, 1972. Decided May 24, 1973. William D. Hanagan, Mt. Vernon, 111., for plaintiff-appellant. John E. Jacobsen, Mt. Vernon, 111., Vincent J. Hatch, Belleville, 111., for defendants-appellees. Before DUFFY, Senior Circuit Judge, STEVENS, Circuit Judge, and CAMPBELL, Senior District Judge. Senior District Judge William J. Campbell of the Northern District of Illinois is sitting by designation. WILLIAM J. CAMPBELL, Senior District Judge. In this diversity action in which Illinois law controls, the plaintiff appeals from an order of the district court which dismissed his products liability complaint for failure to state a claim upon which relief could be granted. We reverse and remand for further proceedings. In his amended complaint, the plaintiff named as defendants General Motors Corp. and T. A. Brouillette and Son, Inc., respectively the manufacturer and the seller of plaintiff’s truck, and alleged that he was operating the truck when, due to a defect in the transmission system, the truck went into two gears at once, stopped on a public highway and could not be moved. The amended complaint further alleged that the plaintiff then activated the emergency flasher lights on the vehicle, got out of the truck in order to make emergency repairs on the transmission system so that the vehicle might be moved off the road, and while so engaged was struck and injured by a vehicle coming from the opposite direction. The defendant General Motors Corp. moved to dismiss the amended complaint, and the district court held as a matter of law that the defendants’ conduct was not the proximate cause of the plaintiff’s injuries. The district judge stated: “The allegations of the complaint are sufficient to show that the product was defective and that the defect caused the truck to stop on the highway. The complaint does not show where with regard to the travel portion of the highway the truck came to rest. It does allege, however, that plaintiff was standing at the left front side of the truck. It does not allege whether the plaintiff was standing in the line of the oncoming traffic or whether the oncoming car crossed over into plaintiff’s lane and struck plaintiff. In either case it can hardly be said that the defective condition of the truck was the direct and proximate cause of plaintiff’s injury. The allegations of the complaint show that his injuries were caused by his own conduct in improperly placing himself in the lane of oncoming traffic or the wrongful conduct of the oncoming vehicle by its being in the improper lane. Neither of these conditions can be attributable to the defect in the product.” Under Illinois law, before an intervening force will relieve a defendant from liability for his wrongful conduct, the intervening force must itself be outside the range of reasonable anticipation as a consequence of the defendants’ wrongful conduct. Ney v. Yellow Cab Co., 2 Ill.2d 74, 80-83, 117 N.E.2d 74 (1954). Where the question of whether the intervening force or event was a reasonable foreseeable consequence of the defendants’ conduct is one over which reasonable men might differ, the issue of proximate causation should never be determined as a matter of law. Ney v. Yellow Cab Co., 2 Ill.2d 74, 84, 117 N.E.2d 74 (1954). In that circumstance, the issue of proximate cause is for the jury to decide under appropriate instructions. We note, too, that the Illinois approach comports with the view of the Restatement. Restatement of Torts, 2d edition, §§ 440-447 (1965). Examining the allegations in the plaintiff’s amended complaint, we are unable to conclude as a matter of law that the defendants’ conduct was not a proximate cause of the plaintiff’s injuries. Whether the plaintiff’s conduct in attempting to make emergency repairs on the disabled vehicle and his being struck by another oncoming vehicle while so engaged interrupted the chain of causation set in motion by the defendants’ wrongful conduct is a question over which, we think, reasonable minds might reach differing conclusions. When a vehicle suddenly comes to a halt on a public highway, we do not believe that an attempt to make emergency repairs on the vehicle or the vehicle’s being struck by another vehicle are outside the range of reasonable anticipation. In any event, since there is room for an honest difference of opinion, the issue of proximate causation presents a question of fact for the jury to resolve. For the reasons stated, the order of the district court is reversed and the cause is remanded for further proceedings consistent herewith.

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RETAIL CLERKS UNION, LOCAL 770, et al., Appellees, v. RETAIL CLERKS INTERNATIONAL ASSOCIATION et al., Appellants. No. 72-3119. United States Court of Appeals, Ninth Circuit. April 19, 1973. Stuart L. Kadison (argued), Thomas J. McDermott, Jr., Joseph A. Murray, Jr., Richard T. Williams, Kadison, Pfael-zer, Woodard & Quinn, Los Angeles, Cal., for appellants. Alan D. Croll (argued), Frank Roth-man, Stuart A. Benjamin, Gary G. Neustadter, Wyman, Bautzer, Rothman & Kuchel, Beverly Hills, Cal., Albert Brundage, Brundage, Neyhart, Miller, Ross & Reich, Los Angeles, Cal., for ap-pellees. Before CARTER, CHOY and GOODWIN, Circuit Judges. ALFRED T. GOODWIN, Circuit Judge: An international union appeals a district court injunction which delayed the imposition of a trusteeship upon a local union until after the completion of hearings within the framework of the International’s by-laws and the provisions of 29 U.S.C. §§ 462-464. On October 7, 1972, the local filed a complaint in the district court seeking damages and an injunction to remedy alleged harassment of local members in the course of an investigation by the International into alleged corruption at the local level. On October 28, 1972, the International’s president sent a letter to the local purporting to. impose a trusteeship, and on November 1 the International sought the aid of the court in enforcing the trusteeship. The district court ordered hearings and stayed the imposition of the trusteeship pending their completion. The International argues here that because the International’s president had in his own mind determined that an “emergency” existed within the meaning of the International’s constitution, the district court had no discretion to decide for itself the nonexistence of an emergency sufficient to warrant the imposition of a trusteeship pending a full hearing. In the Labor-Management Reporting and Disclosure Act of 1959, 73 Stat. 531, 29 U.S.C. §§ 462-464, Congress limited in various ways the purposes for which and the procedures by which a trusteeship may be imposed upon a local union. The trusteeship must be imposed in accordance with the constitution and bylaws of the international; it can only be imposed for certain defined purposes; it must be authorized or ratified by a fair hearing. Congress did not provide that the hearing must be held in all cases before trusteeship can be imposed. The Second Circuit, in the context of a threatened illegal strike against the Postal Service, has held that a trusteeship may be imposed provisionally before the hearing, subject to ratification thereafter, and that the district court should look only into the “good faith” of the international in imposing the trusteeship. National Ass’n of Letter Carriers v. Sombrotto, 449 F.2d 915 (2d Cir. 1971). The international urges that this “good faith” standhrd should be applied not only to the question of the necessity for the trusteeship but also to the determination that an emergency exists. The Fifth Circuit has held that the district court has discretion to decide whether the hearing should precede or follow the trusteeship. Bailey v. Dixon, 429 F.2d 1321 (5th Cir. 1970). During the pendency of this appeal the District of Columbia Circuit held invalid a trusteeship imposed without a prior hearing, holding, “[ajbsent a reasonable belief in the necessity for immediate action, all practical steps must be taken to afford a hearing before a trusteeship is imposed.” U.M.W. Local 13410 v. U.M.W., 475 F.2d 906 (D.C.Cir., 1973) (emphasis in original). We hold that the district court does have discretion to determine whether it could reasonably be said that an emergency exists, and that the district court acted within its discretion when it ordered the trusteeship stayed pending a hearing in this case. Congress recognized that the imposition of a trusteeship is an extraordinary intrusion into the affairs of a local union. Such a step should not be taken without a prior hearing, absent some necessity for immediate action. In the case before us, the claim of emergency was based on some allegedly nonconforming contracts which had been negotiated by the Local but whose implementation had been delayed by order of the International, and on a questionable financial transaction which had taken place six years previously. The district court was warranted in finding that the International produced no facts showing a necessity for immediate action, particularly in view of contemporaneous protective orders entered by the court to preserve assets and to prevent further contracts from being made. While maintenance of the status quo by injunction will not always be possible or desirable, and while initial deference should be given to the International’s finding that an emergency exists, the district court acted properly in this case. Affirmed.

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UNITED STATES of America, Plaintiff-Appellee, v. Wayne C. FLEMING, Defendant-Appellant. No. 73-1002. United States Court of Appeals, Tenth Circuit. Submitted April 16, 1973. Decided April 23, 1973. Thomas A. Williams, Enid, Okl., for defendant-appellant. William R. Burkett, U. S. Atty. and John E. Green, Asst. U. S. Atty., for plaintiff-appellee. Before HILL, BARRETT and DOYLE, Circuit Judges. PER CURIAM. Pursuant to 18 U.S.C. § 3401, Wayne C. Fleming, the appellant, waived his right to be tried before a judge of the district court and consented to a trial before a United States Magistrate for the Western District of Oklahoma. He was convicted on an indictment charging violation of 18 U.S.C. § 1701 (obstruction of mails). An appeal was taken to the district court where the conviction was affirmed, and Fleming now appeals to this Court. The sole issue presented for our review is the contention that the Government failed to establish the elements of the crime, specifically that there was no showing that the mail items were knowingly and willfully discarded with an intent to obstruct delivery. Fleming was officially employed as a mail carrier for the United States Postal Service in Norman, Oklahoma. He was charged with knowingly and willfully obstructing and retarding the passage of mail in that he did throw away and discard thirty-three (33) pieces of third class mail (circulars from Zales Jewelers) addressed to customers on his mail route in Norman, Oklahoma, on September 26, 1972. A summary of the evidence adduced before the Magistrate is attached as an appendix to this opinion. The elements of the offense are (1) obstructing or retarding (2) the passage of mail (3) willfully and knowingly. United States v. Takacs, 344 F. Supp. 947 (W.D.Okl.1972). See also United States v. Claypool, 14 F. 127 (W.D.Mo.1882). Passage of the mail means the transmission of mail matter from the time of placing in an official depository to the time of delivery to the addressee. United States v. Claypool, supra. This element is clearly established as are Fleming’s acts that obstructed or retarded the passage of the circulars, as he acknowledges. The basic argument is that Fleming did not know that discarding-the circulars was improper since he had never had any training sessions nor had he ever seen a copy of the “City Carrier’s Instruction Handbook”. This argument is somewhat inconsistent with his written statement to postal inspectors. The issue of criminal intent is a factual question seldom provable by direct evidence but may be inferred from all the facts and circumstances of a case which reasonably tend to show a ment.al attitude. See United States v. Tasher, 453 F.2d 244 (10th Cir. 1972); United States v. Ebey, 424 F.2d 376 (10th Cir. 1970); United States v. Mecham, 422 F.2d 838 (10th Cir. 1970). We are satisfied that Fleming willfully and knowingly obstructed or retarded the passage of mail. Affirmed. APPENDIX WITNESSES FOR THE UNITED STATES AND THEIR TESTIMONY JERRY CADE, FOREMAN OF DELIVERY, NORMAN POST OFFICE: He schedules employees and supervises them. On September 26, 1972, the defendant was scheduled to serve City Route #5 in Norman, Oklahoma. Around 9:00 a. m., Mr. Cade found in trash can near defendant’s working area mail for City Route #5, which he identified as Zales’ Circulars (Pl. Exs. 1 and 2). If mail is not deliverable, carrier is to endorse and place in throw-back case provided for carrier. Carrier is not authorized to throw any mail in trash basket. WALLACE E. PUGSLEY, JR., POSTAL INSPECTOR, OKLA. CITY: Mr. Pugsley identified statement of defendant (Pl. Ex. 3). He testified Pl. Ex. 1 contains 33 Zales’ Circulars with good addresses on Route 5, and that PI. Ex. 2 contains 50 Zales’ Circulars with addresses on Route 5 for persons who defendant claimed had moved. These were not properly endorsed by defendant. C. E. WELCH, POSTAL INSPECTOR: He had observed trash basket on September 25 and there were no Zales’ Circulars in it. Defendant told him he placed the Zales’ Circulars in trash basket on September 26. WITNESSES FOR THE DEFENSE AND THEIR TESTIMONY JAMES A. BRUEL, MAIL CARRIER, NORMAN, OKLAHOMA: Sometimes the throw-back case gets full and material spills on floor. Carrier is not authorized to throw away mail — only the supervisor. JAMES BRANN, MAIL CARRIER, NORMAN, OKLAHOMA: The procedures concerning throw-back mail have not been strictly enforced in the Norman Post Office. The throw-, back cases do get full and overflow onto the floor. On September 26, he put his Zales’ Circulars which were not deliverable in the throw-back case and not the trash basket. He had never seen any carrier • place mail in the trash basket without checking with supervisor. JOHN WOMACK, POSTAL CLERK AT NORMAN, OKLAHOMA: He testified he had observed the throwback cases overflowing but has never seen or heard of a carrier throwing mail into trash cans. He did not consider the Norman Post Office a good operation. WAYNE C. FLEMING, DEFENDANT: He put Zales’ Circulars which he considered undeliverable in the trash can. If some with good addresses were thrown away, it was unintentional. On September 26, he had coverage of Zales’ Circulars for everybody on route — approximately 500-600. Although he has been the carrier for three years, he has never had any training sessions. He does not have the Carrier’s Handbook (Pl. Ex. 4), and has never seen a copy. . “ . . . I realize that I was derelict in my duties that in failing to ascertain mail discarded was not closely examined to insure that mail containing good addresses was not discarded. I was also derelict in not lining out the addresses as required by normal postal procedures.” Government’s Exhibit No. 3.

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Tony RICE et al., Appellants, v. The UNITED STATES of America et al., Appellees. No. 72-1738. United States Court of Appeals, Eighth Circuit. Submitted March 15, 1973. Decided April 20, 1973. George T. Dynes, Dickinson, N. D., for appellants. Lawrence E. Shearer, Atty., Dept, of Justice, Washington, D. C., and Charles A. Feste, Fargo, N. D., for appellees. Before MATTHES, Chief Judge, and ROSS and STEPHENSON, Circuit Judges. PER CURIAM. This is an action brought by appellants to review a decision of the Board of Land Appeals approving the grant of an oil and gas lease on Burlington Northern, Inc. railroad right-of-way in Stark County, North Dakota. Judge VanSickle entered judgment affirming the decision of the Board of Land Appeals. We affirm. The predecessor to Burlington Northern, Inc., Northern Pacific Railway Co., was granted a 400-foot wide strip of land from Lake Superior to Puget Sound under an Act of Congress passed July 2, 1864. This 400-foot wide strip passed through Section 8, Township 139 North, Range 98 West of the 5th P.M. in Stark County, North Dakota. In 1904 and in 1910 patents were issued to Mr. O’Connell and Mr. Gillman for 160-acre tracts of land within said Section 8. Although the railroad right-of-way crossed those two tracts, no mention was made in the patents of the railroad right-of-way or of the mineral rights attendant thereto. The appellants are successors in title to Mr. Gillman and Mr. O’Connell. No question is raised as to the ownership of the right-of-way, as such, but appellants claim to own the oil and gas rights under the right-of-way. Their theory is that under United States v. Union Pacific R.R., 353 U.S. 112, 77 S. Ct. 685, 1 L.Ed.2d 693 (1957), title to oil and gas rights did not pass from the United States to Northern Pacific, and that since the descriptions in the patents given their predecessors in title included the entire 160-acre tracts without excluding the railroad right-of-way, they are the lawful owners of all of the interest that the United States retained in the railroad right-of-way, including oil and gas rights. The trial court held that under Northern Pacific Ry. v. Townsend, 190 U.S. 267, 23 S.Ct. 671, 47 L.Ed. 1044 (1903) the 400-foot strip of land conveyed to the railroad was taken out of the category of public land subject to preemption and sale and that the land department therefore could not have conveyed any interest in it to the appellants’ predecessors in title when the patents were issued. We have carefully considered the record and the briefs of the parties and conclude that the trial court correctly decided the factual and legal issues presented. We therefore affirm on the basis of Judge VanSickle’s well-reasoned memorandum opinion. Rice v. United States, 348 F.Supp. 254 (D.N.D. 1972).

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Edward Joseph VICKNAIR, Plaintiff-Appellee, v. ARCHIE TOWING COMPANY, INC., Defendant-Appellant. No. 72-3241. United States Court of Appeals, Fifth Circuit. June 4, 1973. Patrick L. Burke, Joy S. Miller, New Orleans, La., for defendant-appellant. Dan C. Garner, William L. Von Hoene, New Orleans, La., for plaintiff-appellee. Before TUTTLE, GODBOLD and MORGAN, Circuit Judges. PER CURIAM. We conclude that if errors occurred in the reception of evidence or in the wording of the special interrogatories they were in no way prejudicial to the defendant. The only remaining issue is the argument that the jury’s verdict of $65,000 for the permanent partial impairment of the plaintiff’s ankle was so excessive as to bring it within the power of this court to reverse the denial of the motion in the trial court to order a re-mittitur of a part of the verdict or grant a new trial. In our position of over-viewing the jury’s verdict for injury which caused loss of wages, future loss of wages, past pain and suffering, future pain and suffering and loss of function of ten to fifteen percent of one leg in the case of a twenty-seven year old worker with a substantial earning capacity we conclude that this court does not have the power to disturb the verdict. See Neese, Administrator, v. Southern Railway Company, 350 U.S. 77, 76 S.Ct. 131, 100 L.Ed. 60, in which the Supreme Court reversed the Court of Appeals for the Fourth Circuit, 216 F.2d 772, when that court had directed a remit-itur in an appeal from a verdict claimed not to have been mathematically sustainable. See also Grunenthal v. Long Island Railroad Company, 393 U.S. 156, 89 S. Ct. 331, 21 L.Ed.2d 309. The judgment is affirmed.

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CALIFORNIA MOLASSES CO. et al., Appellants, v. C. BREWER & CO. et al., Appellees. No. 72-1265. United States Court of Appeals, Ninth Circuit. April 18, 1973. Rehearing Denied May 23, 1973. Francis 0. Scarpulla, Linda L. Tedes-chi, Alvin H. Pelavin, Philip K. Jensen, John T. Weld, San Francisco, Cal., for appellants. William H. Orrick, James K. Haynes, W. Reece Bader, Orrick, Herington, Rowley, & Sutcliffe, David M. Balabani-an, Arthur R. Albrecht, McClutcheon, Doyle, Brown & Enersen, San Francisco, Cal., Robert B. Owen, George R. Poeh-ner, Covington & Burling, Washington, D. C., for appellees. Before BROWNING, WRIGHT and GOODWIN, Circuit Judges. PER CURIAM: Plaintiffs commenced an antitrust action on July 17, 1969. Two years later, because the file revealed little or no progress, the district judge to whom the case had been assigned ordered the plaintiff to show cause why the case should not be dismissed for failure to prosecute. Following a hearing, and a warning, the court gave plaintiffs ninety days to complete the preliminary phase of discovery. When the time expired without substantial progress, the court dismissed the action on December 13, 1971. This appeal asserts that the dismissal pursuant to Fed.R.Civ.P. 41(b) was an abuse of discretion. The scope of discretion in such cases is fully discussed in Von Poppenheim v. Portland Boxing & Wrestling Com’n, 442 F.2d 1047 (9th Cir. 1971), cert. denied 404 U.S. 1039 (1972). The record here reveals no abuse. After the court had called the plaintiff’s delinquencies to the attention of counsel and had given fair warning that the case would be dismissed, plaintiff used more than half of the ninety days seeking new counsel. The promised discovery was not accomplished. This court is aware of the serious consequences to a party of the dismissal of his case. But if the Rules of Civil Procedure are to be effective they must be enforced. The sanction imposed in this case was neither harsh nor unexpected under the circumstances. The dismissal was clearly within the discretionary power of the court to keep its calendar moving. Affirmed.

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KERR-McGEE CORPORATION, Appellee, v. William E. LAW, in personam, and as Owner and Claimant of the BARGE MICHAEL, In Rem, Appellant. No. 72-2406. United States Court of Appeals, Fourth Circuit. Argued April 3, 1973. Decided June 7, 1973. Morton H. Clark, Norfolk, Va. (Van-deventer, Black, Meredith & Martin, Norfolk, Va. on brief) for appellant. Walkley E. Johnson, Jr., Norfolk, Va. (Crenshaw, Ware & Johnson, Norfolk, Va., on brief) for appellee. Before HAYNSWORTH, Chief Judge, and BUTZNER and FIELD, Circuit Judges. BUTZNER, Circuit Judge: This appeal involves the in personam liability of the owner of a vessel that is subject to a demise or bareboat charter and the in rem liability of the vessel for damage to cargo. Loaded with super-phosphate, the Barge MICHAEL capsized and sank in high seas and heavy winds in the Chesapeake Bay while en route from Baltimore, Maryland to Wil-liamston, North Carolina. The barge, owned by William E. Law, had been demised to Allied Towing Corporation, an affiliate of Allied Container Service, 15 months before it sank. Law was the president and principal stockholder of Allied Towing. Although the transportation agreement for the cargo was made between Kerr-McGee Chemical Corporation and Allied Container, Allied Towing was performing the carriage with its own tug and the MICHAEL. Kerr-McGee was aware of the arrangement. The district judge found that the cargo loss was caused by the unseaworthiness of the Barge MICHAEL and the negligence of Allied Towing and William E. Law. He held that Allied Towing was exculpated by the terms of the transportation agreement, and this ruling has not been appealed. He further held that because Law was not a party to the agreement, neither he nor the MICHAEL could benefit from the exculpatory clause. Accordingly, the district court entered judgment against Law in personam and the MICHAEL in rem for the cargo loss. We reverse. I Expert testimony established that defective hatch covers allowed high seas to flood the cargo compartment and capsize the barge. Law admitted that the hatches had not been repaired since he purchased the barge three years earlier. He knew that eighteen days before the accident the barge had run aground and taken water through the hatch covers, and he had been advised that the hatch covers were damaged. On the basis of this evidence, the district court held that Law was negligent. Law does not contest the factual findings of the district court, but argues that because the barge was under a demise charter to Allied Towing Corporation, Allied became the owner pro hac vice for the term of the charter and Law owed no duty to the owner of the cargo concerning the condition of the barge. Kerr-McGee, agreeing that the barge was under a demise charter, disagrees about the effect of the charter on the liability of the owner. It argues that the question is not one of the warranty of seaworthiness, but rather the negligence of Law, which it says is separate and distinct from the transportation agreement or the charter. We think the authorities sustain Law’s position. There is no suggestion that the barge was unseaworthy or that Law had failed to exercise due care regarding its condition when he chartered it to Allied Towing. While there appear to be few cases dealing with the question, those in which the issue has been raised hold that the owner of a vessel under a demise charter is liable only for unseaworthiness or negligence that- pre-exists the charter. Ramos v. Beauregard, Inc., 423 F.2d 916 (1st Cir. 1970); Vitozi v. Balboa Shipping Co., 163 F.2d 286 (1st Cir. 1947); In re New York Dock Co., 61 F.2d 777 (2d Cir. 1932). See In re Marine Sulphur Queen, 460 F.2d 89, 100 (2d Cir. 1972) (dictum). This rule recognizes that when the owner of the vessel enters into a demise charter, he surrenders all possession and control of the vessel to the charterer. Since he no longer has the right to control the use of the vessel, he is no longer charged with the duties and liabilities that arise out of its ownership. Conversely, the demise charterer “becomes subject to the duties and responsibilities of ownership.” Leary v. United States, 81 U.S. (14 Wall.) 607, 610, 20 L.Ed. 756 (1872). Allocation of insurance is consistent with this rule. The owner typically carries hull insurance for his own account and the charterer arranges for indemnity coverage. Gilmore & Black, The Law of Admiralty § 4-22 (1957). The bare fact that Law was president and principal stockholder of Allied Towing does not, standing alone, alter our decision. The record does not disclose participation by Law in the operation and maintenance of the barge. It is reasonable to assume, however, that any duties of this nature that he performed related to his position in Allied Towing and not to his ownership of the barge. Therefore, since Law, as owner of a vessel under a demise charter, owed Kerr-McGee, the owner of the cargo, no duty to maintain the vessel after it was chartered, the judgment of the district court holding him liable for negligence must be reversed. II The issue of the MICHAEL’S in rem liability stands on a different footing. The district court found that the defective hatch covers rendered the barge un-seaworthy and that this condition was the cause of the accident. He accordingly held the barge liable for the loss. The existence of a demise charter does not prevent the attachment of tort liens or preclude the in rem liability of a vessel. Gilmore & Black, supra,, § 4-24. Where, as here, the vessel is found to be unseaworthy, it is liable for the loss of cargo caused by that condition. However, Law urges that clause 13 of the transportation agreement between Allied Container and Kerr-McGee exculpates the barge from liability. Clause 13 provided as follows: “All claims for loss, damage and/or expense of whatsoever nature or from whatsoever cause, including all right of subrogation against Allied and its affiliated companies, and its vessels employed herein, are hereby waived, except for General Average, Sue and Labor, and collision liability.” Law asserts that the clause insulates the MICHAEL from liability because the barge was demised to Allied Towing, one of Allied Container’s affiliated companies. Kerr-McGee resists application of the clause, arguing that a proper construction excludes the MICHAEL from the term “its vessels” and that the clause is invalid as opposed to public policy. Although the agreement was made between Allied Container and Kerr-McGee, Kerr-McGee was aware the carriage was being performed by Allied Towing. Kerr-McGee returned the executed copy of the transportation agreement to Allied Towing, and it was billed by Allied Towing. Further, the district court found that Allied Towing was an affiliated company of Allied Container. Nevertheless, the court held that the barge was not exculpated by clause 13 because its owner was not a party to the agreement. We believe clause 13 should not be given such a narrow construction. The clause specifically exculpates Allied Container and its vessels. It also clearly exculpates Allied Towing as an affiliated company. The record does not disclose that Kerr-McGee bargained for the use of any particular barge. It appears to have been content to load its cargo on any barge that Allied Towing tendered. Surely under these circumstances, it would be unduly technical and inconsistent to hold that while the parties agreed to exculpate a vessel actually owned by Allied Container, they intended not to exculpate a vessel furnished by an affiliated company under a demise charter. Nothing in the agreement or in the evidence suggests that the parties intended to make this fine distinction when they used the words, “its vessels,” instead of the words, “their vessels,” and no practical or economic justification for the distinction has been shown. We conclude, therefore, that clause 13 embraces the MICHAEL. Nor does the clause contravene public policy. Although section 1 of the Harter Act, 46 U.S.C. § 190, forbids stipulations against negligence by carriers, the Act applies only to contracts of common carriage unless it is specifically incorporated into the agreement for private affreightment. E. g., Commercial Transport Corp. v. Martin Oil Service, Inc., 374 F.2d 813, 818 (7th Cir. 1967); Brown & Root, Inc. v. American Home Assurance Co., 353 F.2d 113, 118 (5th Cir. 1965), cert. denied, 384 U.S. 943, 86 S.Ct. 1465, 16 L.Ed.2d 541 (1966); Koppers Conn. Coke Co. v. James McWilliams Blue Line, Inc., 89 F.2d 865, 866 (2d Cir.), cert. denied, 302 U.S. 706, 58 S.Ct. 25, 82 L.Ed. 545 (1937). The district court found, and the parties do not suggest otherwise, that the cargo was shipped under a contract of private carriage. Section 1 of the Harter Act was not incorporated into the transportation agreement. Allied and Kerr-McGee, therefore, were free to make whatever contractual allocation of risk they desired. See The Monarch of Nassau, 155 F.2d 48 (5th Cir. 1946); The Elizabeth Edwards, 27 F.2d 747 (2d Cir. 1928). Kerr-McGee’s reliance on Bisso v. Inland Waterways Corp., 349 U.S. 85, 75 S.Ct. 629, 99 L.Ed. 911 (1955), does not require a contrary result. Mr. Justice Black was careful to point out that the decision was based on the particular nature of the tug-tow relationship, and specifically stated that the considerations which invalidated exculpatory clauses in towage contracts did not necessarily command a similar result in other maritime contracts. 349 U.S. at 91, 93, 75 S.Ct. 629. Both before and after Bisso, it has been held that exculpatory clauses in private contracts of affreightment are not contrary to public policy. E. g., Texas Co. v. Lea River Lines, Inc., 206 F.2d 55 (3rd Cir. 1953); Allied Chem. Corp. v. Gulf Atlantic Towing Corp., 244 F. Supp. 2 (E.D.Va.1964). The judgment of the district court is reversed.

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UNITED STATES of America, Plaintiff-Appellee, v. Richard Daniel ALSOP, Defendant-Appellant. No. 72-1899. United States Court of Appeals, Ninth Circuit. May 14, 1973. L. Earl Hawley (argued), Las Vegas, Nev., for defendant-appellant. Raymond B. Little, Asst. U. S. Atty. (argued), Joseph L. Ward, U. S. Atty., Las Vegas, Nev., for plaintiff-appellee. Before ELY and WALLACE, Circuit Judges, and SOLOMON, District Judge. Honorable Gus J. Solomon, United States District Judge, Portland, Oregon, sitting by designation. WALLACE, Circuit Judge: A jury found Richard Daniel Alsop guilty of the crime of bank robbery in violation of 18 U.S.C. § 2113(a). He appeals claiming that the indictment was duplicitous, that certain jury instructions were erroneous and that the trial court erred in refusing his requested instructions. We affirm. On November 3, 1971, Alsop entered the Nevada National Bank in Las Yegas, Nevada. He approached the teller and asked for two rolls of pennies in exchange for a dollar. When the teller placed the pennies on the counter, Alsop told- her, “Give me the rest of the paper money.” The teller laughed, thinking it was a joke. Alsop produced a toy gun and a paper bag and told the teller that he was not kidding. Alsop took the bag, then filled with money, and left. He was captured a short distance from the bank with the money and toy gun. Alsop contends that the indictment was duplicitous because it placed into issue elements of 18 U.S.C. § 2113 (d), as well as those of § 2113(a). We disagree. The indictment is ordinarily sufficient when, as here, the wording of the indictment is taken directly from the statute. See United States v. Ansani, 240 F.2d 216, 223 (7th Cir.), cert. denied, 353 U.S. 936, 77 S.Ct. 813, 1 L.Ed.2d 759 (1957); Brown v. United States, 222 F.2d 293, 296 (9th Cir. 1955). That the statute and the indictment use the disjunctive phrase “by force and violence, or by intimidation” does not mean the indictment is duplicitous. See United States v. Ansani, supra, 240 F.2d at 223. Only one offense was charged and Alsop was well aware of it. Furthermore, the indictment specifically advises Alsop that he is accused of acting “in volation of Title 18, United States Code, Section 2113(a).” Alsop proposed five jury instructions which were refused by the trial court. “[W]e have carefully considered the instructions as a whole and find that they fully cover the applicable law. ... It was not error to refuse the specific instructions requested.” Himmelfarb v. United States, 175 F.2d 924, 951 (9th Cir.), cert. denied, 338 U. S. 860, 70 S.Ct. 103, 94 L.Ed. 527 (1949). Three of the proposed instructions defined other crimes, none of which were charged against Alsop. They were properly rejected. The fourth directs the jury that it can consider the lack of evidence on a particular issue. This instruction may be useful in a particular case at the judge’s discretion, but failing to give it was not error. United States v. Hephner, 410 F.2d 930, 934 (7th Cir. 1969). The final rejected instruction would advise the jury that any intimidation requires a demonstration of ability to carry out the threat. This is not a prerequisite for a conviction pursuant to 18 U.S.C. § 2113(a). See United States v. Brown, 412 F.2d 381, 383-384 (8th Cir. 1969). Alsop objected to and now challenges the language emphasized in the following instruction: Now, to take “by intimidation” means wilfully to take by putting in fear of bodily harm. Such fear must arise from the wilful conduct of the accused, rather than from some mere temperamental timidity of the victim; however, the fear of the victim need not be so great as to result in terror, panic, or hysteria. A taking “by intimidation” must be established by proof of one or more acts or statements of the accused which were done or made, in such a manner, and under such circumstances, as would produce in the ordinary person fear of bodily harm. However, actual fear need not be proved. Fear, like intent, may be inferred from statements made and acts done or omitted by the accused, and by the victim as well; and from all the surrounding circumstances shown by the evidence in the case. He asserts that fear must be proven and that the challenged language obviates this essential element. However, actual fear need not be proven. The instruction when read as a whole advises the jury to focus its attention on the conduct of the defendant and not on the reaction of the victim. The courageousness or timidity of the victim is irrelevant ; it is the acts of the accused which constitute an intimidation. Were it otherwise, a fearless banker could never be robbed by intimidation. We refuse to reach such an absurd result. He also contends that stating “actual fear need not be proved” is inconsistent with defining intimidation as “wilfully to take by putting in fear of bodily harm.” However, reading the instruction as a whole, rather than focusing on selected segments, leads us to believe the jury was not misled. Affirmed. . The arresting officer testified that, when Alsop was captured, “directly to the left of him, approximately one to two feet from his side, was a brown paper bag, which was torn on one side, revealing paper currency of an unknown amount, and a small chrome-colored cap pistol.” Evidently, the cap pistol looked authentic. A bank teller, when asked what she had been afraid of, replied: “That the gun could have been — what he could have done. It looked pretty real after you looked at it for a while.” . See 2 E. Devitt & C. Blackmar, Federal Jury Practice and Instructions § 48.05 (2d ed. 1970). . See United States v. Epps, 438 F.2d 1192, 1193 (4th Cir. 1971) ; United States v. Brown, supra, 412 F.2d at 383-384; United States v. Baker, 129 F.Supp. 684, 686-687 (S.D.Cal.1955). See also United States v. Johnson, 401 F.2d 746 (2d Cir. 1968). . The determination of whether there has been an intimidation should be guided by an objective test focusing on the accused’s actions. That test requires the application of the standard of the ordinary man. Therefore, to obviate any future alleged difficulty, we suggest the definition of intimidation should be modified. It could read, for example: To take, or attempt to take, “by intimidation” means wilfully to take, or attempt to take, in such a way that would put an ordinary, reasonable person in fear of bodily harm. See United States v. Roustio, 455 F.2d 366, 371-372 (7th Cir. 1972); United States v. Thomas, 455 F.2d 320, 322 (6th Cir. 1972); United States v. DePalma, 414 F.2d 394, 396 (9th Cir. 1969), cert. denied, 396 U.S. 1046, 90 S.Ct. 697, 24 L.Ed.2d 690 (1970). See also United States v. Epps, and cases cited, supra note 3.

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2024-08-24T03:29:51.129235

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In the Matter of REHKOPF MATTRESS SALES, INC. and Rehkopf Mattress Company, Inc., Bankrupt. Billy Joe REHKOFF, Appellant, v. William V. BROWN, Jr., Trustee, Appellee. No. 73-1134 Summary Calendar. United States Court of Appeals, Fifth Circuit. June 1, 1973. Donald Friedman, Jack Carter, Tex-arkana, Tex., for Rehkopf Mattress Sales, Inc. B. A. Britt, Jr., Texarkana, Tex., for appellee. Before GEWIN, COLEMAN and MORGAN, Circuit Judges. Rule 18, 5th Cir. See Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5th Cir. 1970, 431 F.2d 409, Part I. GEWIN, Circuit Judge: Billy Joe Rehkopf (Rehkopf) appeals from a judgment of the district court affirming a bankruptcy court order which restrains him from interfering with the bankruptcy trustee’s possession of a certain store located in Texarkana, Texas. The sole issue to be resolved on appeal is whether the store falls within the summary jurisdiction of the bankruptcy court. The bankruptcy court concluded that the property in question was in possession of the bankrupt at the time of the initial petition and adjudication in bankruptcy and therefore came within its summary jurisdiction. It issued an order protecting its jurisdiction which, upon petition for review by Rehkopf, was upheld by the district court. We agree with the district court that summary jurisdiction was appropriate and accordingly affirm its judgment. On June 5, 1972 Rehkopf Mattress Company, Ine. (RMC), along with Reh-kopf Mattress Sales, Inc. (RMS), voluntarily filed a petition in bankruptcy in the United States District Court for the Eastern District of Texas. RMC was engaged in the manufacture of furniture and mattresses. When the manufacturing process was complete the finished products were sold to RMS which in turn sold them to retailers. RMS’ sole function was to sell RMC products. RMC conducted its business at two locations, Store No. 1 in downtown Texarkana and Store No. 2 in the industrial sector of Texarkana. It had been insolvent for some four or five years prior to the filing of the petition in bankruptcy. The referee found that Rehkopf was well aware of the company’s insolvency. Both RMC and RMS were wholly owned by Nell Rehkopf. She also served as president of the two companies until she was declared incompetent in April of 1972; her appointed guardian then took her place. The transaction which gave rise to the present dispute occurred in November of 1971, approximately seven months before the petition in bankruptcy was filed. At that time Nell Rehkopf purportedly sold Store No. 1 to Billy Joe Rehkopf. A warranty deed reciting a consideration of $2,000 was executed purporting to convey to him title to the store’s real property, i. e. the land and building, and a bill of sale reciting a consideration of $1,000 was also executed purporting to vest in him title to the store’s personalty. Both the deed and the bill of sale were duly recorded. Although the consideration for the sale of the store and personalty was supposedly $3,000, Billy Joe Rehkopf was unable to furnish any proof that this amount was actually paid although he was given full opportunity to do so. After the sale RMC continued to operate Store No. 1 as before. There was no change in the management, and RMC’s books continued to reflect that it owned the store. Rehkopf made no effort to exercise any control over the property. He was paid no rent by RMC for its use of the store, and he did not ask for any rent until after RMC’s petition in bankruptcy was filed. Immediately after the voluntary petition in bankruptcy was filed, William V.' Brown, Jr. was appointed receiver and thereafter trustee in bankruptcy, and he took possession of all the bankrupt companies' assets. But on June 14, 1972 a suit against Brown in his capacity as receiver was instituted by Rehkopf in the 102nd Judicial District Court of Bowie County, Texas. Upon Rehkopf’s assertion that he was the rightful owner of Store No. 1, the state court issued a temporary injunction restraining Brown as receiver from interfering with Rehkopf’s possession and use of the property. Brown immediately petitioned the bankruptcy court to stay enforcement of the state court’s order. After a hearing the bankruptcy court determined that the store was in the possession of the bankrupt at the time of the petition in bankruptcy and therefore came within its summary jurisdiction. Rehkopf was ordered not to interfere with the trustee’s possession of the store and not to execute the state court order. The district court subsequently affirmed the bankruptcy court’s order, and Rehkopf appealed. The question we must decide is whether Store No. 1 became subject to the bankruptcy court’s summary jurisdiction when RMC filed its voluntary petition in bankruptcy in June and was adjudicated a bankrupt and a receiver appointed. It is undisputed that if the store passed into the bankruptcy court’s summary jurisdiction, then it was proper for that court to order Rehkopf not to interfere with its possession of the store and to stay enforcement of the state court order. The summary jurisdiction of a bankruptcy court is exclusive; once a bankruptcy court has acquired summary jurisdiction over property, that property is withdrawn from the jurisdiction of all other courts. Any subsequent action commenced as to that property is in effect an interference with the orderly procedure of the bankruptcy proceeding and is therefore enjoinable. This rule is but an application of the general rule that when a court of competent jurisdiction takes possession of property through its officers, that property is withdrawn from the jurisdiction of all other courts which, though of concurrent jurisdiction, may not disturb that possession. An exercise of summary jurisdiction is appropriate, however, only if the property in question was in the possession of the bankrupt on the date the petition was filed. It is settled that upon the filing of a petition in bankruptcy, all of the property in the alleged bankrupt’s actual or constructive possession passes at once into the custody of the bankruptcy court and becomes subject to its summary jurisdiction. On the other hand, if the property is within the actual or constructive possession of a third party who asserts a bona fide claim to the property, the bankruptcy court cannot summarily determine the merits of that claim without the consent of the third party. The test of summary jurisdiction then is possession, either actual or constructive, by the bankrupt on the date the petition is filed. This test was stated by the Supreme Court in the leading case of Thompson v. Magnolia Petroleum Company as follows: “Bankruptcy courts have summary jurisdiction to adjudicate controversies relating to property over which they have actual or constructive possession. And the test of this jurisdiction is not title in but possession by the bankrupt at the time of the filing of the petition in bankruptcy.” The issue in the instant case is in some respects similar to that presented in Jackson v. Sports Company of Texas, Inc. In that controversy prior to filing a petition in bankruptcy, the bankrupt corporation had conveyed title to the store it occupied to one of its officers. Although the corporation continued in possession . of the premises until the date of its voluntary bankruptcy, it did so only as a tenant. It paid rent to the transferee from the date of the conveyance. This court held that the store in question did not pass into the summary jurisdiction of the bankruptcy court and that a plenary proceeding was necessary in order to determine rightful title to it. But in the present case Rehkopf, the alleged titleholder, was never paid any rent by the bankrupt, and he asserted no claim to rent until after the petition in bankruptcy was filed. Furthermore RMC continued in possession of the premises just as before. No changes were made in the bankrupt’s books to reflect a.transfer of ownership, nor was the store operated in any different fashion. In short, in spite of the alleged purchase of the store Rehkopf never exercised any control over it. If he had a right to possession of the store, it was never manifested by any action on his or the bankrupt’s part. In these circumstances we conclude that RMC remained in actual possession of Store No. 1 until it filed its voluntary petition in bankruptcy. On that date the store passed into the summary jurisdiction of the bankruptcy court which properly enjoined Rehkopf from interfering with the trustee’s possession of the property. The judgment of the district court upholding that order is affirmed. Affirmed. . On appeal Rehkopf also protests the bankruptcy court’s refusal to have the testimony at this hearing transcribed. The testimony was recorded on tape. The bankruptcy court did summarize the testimony at the hearing, and Rehkopf makes no showing that the absence of a transcript has prejudiced him. We find the bankruptcy court’s summary of the evidence presented at the hearing entirely adequate. There is no merit in Rehkopf’s protest. . Issacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 737, 51 S.Ct. 270, 75 L.Ed. 645 (1931). Accord Carney v. Sanders, 381 F.2d 300, 302 (5th Cir. 1967). . Issacs v. Hobbs Tie & Timber Co., 282 U.S. 734, 51 S.Ct. 270, 75 L.Ed. 645 (1931). See generally 1 Collier on Bankruptcy § 2.62, 329 (14th ed. 1971). . 11 U.S.C. § 110(a)(5). See, e. g., In re American Southern Publishing Co., 426 F.2d 160, 163 (5th Cir. 1970). See generally, 2 Collier on Bankruptcy §§ 23.03 et seq. (14th ed. 1971). . Harrison v. Chamberlain, 271 U.S. 191, 193, 46 S.Ct. 467, 70 L.Ed. 897 (1926). Accord, In re American Southern Publishing Co., 426 F.2d 160, 163 (5th Cir. 1970) and Suhl v. Bumb, 348 F.2d 869, 870 (9th Cir. 1965). . 309 U.S. 478, 481, 60 S.Ct. 628, 630, 84 L.Ed. 876 (1940). . 278 F.2d 716 (5th Cir. 1960).

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

John L. SANDERS and Helen L. Sanders, Appellees, v. C. E. HISER and Louise Hiser, Appellants. No. 72-1522. United States Court of Appeals, Eighth Circuit. Submitted April 9, 1973. Decided May 2, 1973. William M. Stocks, Fort Smith, Ark., for appellants. Sam Sexton, Jr., Fort Smith, Ark., for appellees. Before GIBSON, BRIGHT and ROSS, Circuit Judges. ROSS, Circuit Judge. This is an appeal from a jury verdict entered in favor of Sanders and against the Hisers, awarding $3,600 damages for fraud and deceit in the sale of a one-acre plot of land. This judgment was originally affirmed, by a per curiam opinion of this Court on January 9, 1973. The Hisers submitted a petition for rehearing claiming that this Court erred in failing to decide whether certain evidence was admissible and whether the jurisdiction of the district court had been improperly invoked due to a bad faith allegation of the amount in controversy. After receipt of a response from the Sanders, this Court entered an order on February 28, 1973, granting the petition for rehearing. On rehearing we reverse with directions to dismiss the complaint for lack of subject matter jurisdiction due to a bad faith allegation of amount in controversy. The complaint alleged diversity of citizenship and that the amount in controversy exceeded $10,000. It further alleged that the Hisers had sold a one-acre tract of ground to the Sanders in February of 1969, and in connection therewith made certain fraudulent misrepresentations concerning platting that tract and a contiguous tract owned by the Hisers and concerning the construction of hard surface streets in the subdivision. The complaint stated that the Sanders constructed a home of a reasonable value of $15,000 on said tract in reliance on these false representations and that they were damaged thereby in the sum of $11,000.-00. The answer filed by the Hisers specifically denied that the amount in controversy was $10,000 or more and also denied the other substantive allegations of the complaint. Requests for admissions were served upon the Sanders by the Hisers, including no. 35 which stated as follows: “35. The real property described in the complaint including the value of the residence house has a present value in excess of $10,000.00.” The response thereto by the Sanders was: “Denied. This statement is untrue.” At trial, although the Sanders had denied that the real property described in the complaint, including the value of the home, had a present value in excess of $10,000, Mr. Sanders twice testified that the value of the property was $11,000. Sanders also testified that if the house and lot had been in a subdivision as contemplated by the Sanders it would be worth between $16,000 and $17,000. Mr. Sanders further testified that he paid $1,450 for the lot and $10,750 for construction of the home. He further testified that the cost of constructing a street was approximately $10 a running foot. The Sanders’ expert witness testified that the value of the house situated on the unimproved property was $11,500, but if situated on improved property, it would be $15,500. The defense expert witness testified he had appraised the house in 1971 at $13,000 and that if a seal coat was added on the street, the value of the house would be $13,100. Hisers’ counsel moved for a directed verdict, arguing in part: “[A]s I recall, Mr. Sanders testified he figured the lot was worth $11,000.-00; the real estate agent, I believe, said he thought it was worth Eleven five, and the highest price I can recall is somewhere in the neighborhood of $16,500.00. . . . The point I’m making is that the maximum damage which they have offered or even suggested is $5,500.00, or $5,000.00, which is below the $10,-000.00 jurisdiction of this Court. They have not even attempted to offer proof to justify the allegations of the complaint concerning the jurisdictional amount, and for that we move that the case be dismissed for lack of jurisdiction on the part of the court and for that further reason.” The trial court, while expressing some reservation about the issue, denied the motion. The motion was renewed at the close of all of the evidence and denied. The jury returned a verdict of $3,600. The rule applicable to our determination of whether or not the trial court should have dismissed for lack of jurisdiction is as follows: “[I]f, from the face of the pleadings it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed.” St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938). (Emphasis supplied.) The amount in controversy requirement of 28 U.S.C. § 1332 defines in part the subject matter jurisdiction of the United States District Courts in diversity cases and both the Congress and the Supreme Court have recognized the importance of the requirement. Congress has said that the purpose of the 1958 amendment raising the amount in controversy to $10,000 was to “make jurisdiction available in all substantial controversies where other elements of Federal jurisdiction are present. The jurisdictional amount should not be so high to convert the Federal courts into courts of big business nor so low as to fritter away their time in the trial of petty controversies.” U.S. Code Cong. & Admin.News, S.Rep. No. 1830, 85th Cong., 2d Sess., at p. 3101 (1958). (Emphasis supplied.) The Supreme Court has indicated that the increase in the amount in controversy limits was intended “to check, to some degree, the rising caseload of the federal courts, especially with regard to the federal courts’ diversity of citizenship jurisdiction.” Snyder v. Harris, 394 U.S. 332, 339-340, 89 S.Ct. 1053, 1058, 22 L.Ed.2d 319 (1968). Indeed, since 1789, when a jurisdictional amount of $500 was fixed by the first Judiciary Act, Congress has raised the amount to $2,000 in 1887, $3,000 in 1911, and finally in 1958, the present figure of $10,000. C. Wright, Law of Federal Courts § 32 at 107 (1971). »[2] As always, the problem with enforcing any legal doctrine comes in the application of the doctrine to the particular case in which it is raised. As the Supreme Court indicated, “[T]he sum claimed by the plaintiff controls if the claim is apparently made in good faith.” St. Paul Mercury Indemnity Co. v. Red Cab Co., supra, 303 U.S. at 288, 58 S.Ct. at 590. The question in this case is therefore whether the Sanders made the allegation of the amount in controversy in good faith. While the courts have taken different approaches to this problem, it is absolutely clear that the “inability of the plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction.” Id. at 289, 58 S. Ct. at 590. The classic cases where the issue of amount in controversy was resolved against the pleader generally involve those situations where it is possible to tell from the face of the complaint that there is a “legal certainty” that plaintiff cannot recover the jurisdictional amount. Thus, where a complaint prays for damages which are not legally recoverable, dismissal is justified. See e. g., Euge v. Trantina, 422 F.2d 1070, 1074 (8th Cir. 1970). Consequently, the idea that bad faith is the standard for determining the issue is modified by the quasi-objective standard that “[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount. . . . ” St. Paul Mercury Indemnity Co. v. Red Cab Co., supra, 303 U.S. at 289, 58 S.Ct. at 590. (Emphasis supplied.) In this case the face of the complaint is not dispositive of the question. Under Arkansas law the Sanders were entitled to the “benefit of their bargain.” See e. g., Cockrum v. Pattillo, 246 Ark. 594, 439 S.W.2d 632, 641 (1969). The complaint does not disclose any legal bar to recovery of more than $10,000. We must therefore proceed to judge this question on the basis of the second test set forth in St. Paul Mercury Indemnity Co. v. Red Cab Co., supra, 303 U.S. at 289, 58 S.Ct. 586, which is whether we are satisfied to a legal certainty after examination of the proofs that the plaintiffs never were entitled to recover the amount in controversy, and their claim was therefore colorable. Courts have looked to the “proofs” before trial, Nelson v. Keefer, 451 F.2d 289, 295-296 (3d Cir. 1971), and after trial, City of Boulder v. Snyder, 396 F.2d 853, 856 (10th Cir. 1968), cert. denied, 393 U.S. 1051, 89 S.Ct. 692, 21 L.Ed. 693 (1969). While the general rule counsels against deciding the issue when the merits of the case and the amount in controversy are intertwined, see e. g., Zunamon v. Brown, 418 F.2d 883, 887 (8th Cir. 1969), there are the “flagrant” cases which justify an exception. See e. g., C. Wright, Law of Federal Courts § 33 at 113 (1971). City of Boulder v. Snyder, supra, 396 F.2d 853, is similar to the instant case and an example of a “flagrant” case. In Snyder plaintiff alleged damages of $25,000 for the wrongful taking of certain water rights caused by a street paving project in front of her residence which resulted in the destruction of a ditch lateral abutting and serving her property. Federal jurisdiction was asserted under the fourteenth amendment. A motion to dismiss was made on the basis of a lack of amount in controversy. The motion was denied, and the case proceeded to trial. Six witnesses, including the plaintiff, testified. The plaintiff testified that her land was worth $15,500 before the taking and $13,500 after the taking. The other witnesses placed the damage at lower amounts. The district court imposed a partial sanction, after awarding damages of $1,500 to the plaintiff and $2,000 to similarly situated in-tervenors, as follows: “This action, or the proof in this action, although the allegation is sufficient to give this Court jurisdiction, the proof is so far below it I am not going to award costs to the plaintiff. Each party will stand its own cost.” Id. at 855. The Tenth Circuit Court of Appeals reversed and ordered the dismissal of the claim saying: “[W]hen, as here, a failure of proof of damage is so complete as to dicate the conclusion that resort to federal jurisdiction has been abused the proper disposition of the suit is dismissal. [A] plaintiff’s good faith in choosing the federal forum is vulnerable at any time during the trial as well as prior thereto, and if it appears that a plaintiff never was entitled to recover the jurisdictional amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit must be dismissed. . . . ” Id. at 856. This case has obvious similarities to Snyder, not the least of which was a “complete failure” of proof of damages in the jurisdictional amount. As the Hisers’ counsel indicated in his motion to dismiss, there was never even a “suggestion” of proof relating to damages approximating $10,000. The most expansive proof was the lay testimony of Mr. Sanders establishing a present value of some $11,000 and a value absent the purported fraud between $16,000 and $17,000. The Sanders’ expert witness testified to a range lower than Mr. Sanders. Therefore, this case does not present the typical factual situation where proof was offered which might conceivably, but doubtfully, establish damage approximating the required amount in controversy. Rather, this case demonstrates a total unconcern with offering any proof which might conceivably establish damage related to the required amount. An equally telling consideration is the Sanders’ changing posture throughout this case with regard to damages. In their complaint, the Sanders seemingly pleaded that their home should have reasonably been valued at $15,000, but due to the fraud, damage was sustained in the amount of $11,000. Thus it was fair their home and lot was less than $5,000. to assume that the Sanders would attempt to prove that the present value of Indeed before trial the Sanders specifically denied that their home and lot had a present value in excess of $10,000. But at trial, Mr. Sanders not only completely contradicted his denial and affirmatively stated that his home did have a present value in excess of $10,000, but also presented expert testimony to substantiate their claim that the home had a present value in excess of $10,000. The only possible reason for the pretrial denial that the home did have a value in excess of $10,000 would be to strengthen the claim that damages did exceed the required amount. Since Sanders proved themselves that their denial was not candid, such a contradiction argues strongly in favor of the proposition that there was a lack of good faith and that dismissal was required. The subject matter jurisdiction of the federal courts must be strictly guarded to insure that the direction which Congress has provided will be followed. While diversity plaintiffs should not have their complaints judged by whether a jury or a judge awards an amount equal to the amount in controversy requirements, the flagrant case, where “from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction,” St. Paul Mercury Indemnity Co. v. Red Cab Co., supra, 303 U.S. at 289, 58 S.Ct. at 590, requires dismissal. Reversed and remanded with directions to dismiss for lack of jurisdiction.

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Mark B. ARONSON and Kenneth W. Behrend, on behalf of themselves and all others similarly situated, Appellants, v. Daniel W. AMBROSE, Chairman of the District Court of the Virgin Islands Committee of Bar Examiners, et al. No. 72-1472. United States Court of Appeals, Third Circuit. Argued Feb. 1, 1973. Decided May 22, 1973. Mark B. Aronson, Behrend & Aron-son, Pittsburgh, Pa., for appellants. Vincent A. Gamal, Gamal & Rosskopf, Christiansted, St. Croix, V. I., for ap-pellees. Before MARIS, ROSENN and HUNTER, Circuit Judges. OPINION OF THE COURT MARIS, Circuit Judge. This case involves the question of the constitutional validity of Rule 56(b)(5) of the Rules of the District Court of the Virgin Islands which requires an applicant for admission to the Virgin Islands bar to allege and prove that if admitted he intends to reside in and to practice law in the Virgin Islands. The validity of Rule 56(b) (4) which requires at least one year’s residence before admission to the Virgin Islands bar and of Rule 56(d) which requires applicants for admission of the Virgin Islands bar to take a written examination, are also attacked. The pertinent provisions of Rule 56 are set out in the margin. The controversy arises out of the following facts. The plaintiffs, both members of the Pennsylvania bar, filed applications for admission to the bar of the Virgin Islands. They each stated, inter alia, that they were Pennsylvania residents and intended to practice law in the Virgin Islands. The defendants, comprising the Virgin Islands Committee of Bar Examiners, informed each plaintiff by letter that the committee was unable to recommend his admission to the Virgin Islands bar for the reasons that he had not passed the Virgin Islands bar examination, that his application did not allege that he will have resided in the Virgin Islands for at least one year prior to admission to the Virgin Islands bar, and that his application did not state that, if admitted, he intended to continue to reside in the Virgin Islands, in accordance with the requirements of subdivisions (b)(4), (b)(5) and (d) of Rule 56. Thereupon, the plaintiffs, alleging violation of their constitutional rights under the Fourteenth Amendment, brought suit in the District Court of the Virgin Islands for an injunction to restrain the defendants from enforcing against them these provisions of the rules governing the admission of applicants to the Virgin Islands bar and sought an order from the court directing the committee to certify them for admission to practice law in the Virgin Islands. The case was tried by Chief Judge Christian, who rejected the plaintiffs’ contentions and dismissed the complaint, Aronson, et al. v. Ambrose, et al., 1972, 9 V.I. -. This appeal by the plaintiffs followed. The plaintiffs’ principal contention, and the only one we need consider, is that Rule 56(b) (5) is unconstitutional in requiring an applicant for admission to the Virgin Islands bar to allege and prove that if admitted he intends to reside, as well as practice, in the Virgin Islands. They say that although they intend to practice law in the territory they do not intend to give up their residence or practice in Pennsylvania and that the district court erred in holding that the residence requirement of Rule 56(b)(5) did not deny them equal protection of the laws or invade their constitutional right to engage in interstate travel. In his opinion in the district court Chief Judge Christian discusses this question at length. He there describes the problems of judicial administration which would arise in his court if nonresident attorneys were to be admitted to general practice therein, problems with which he obviously is far more familiar than we can be. We find ourselves completely in accord with the views expressed and conclusions reached in his opinion and need add but a few comments. The interest of a state or territory in promoting the speedy and efficient administration of justice in its courts by assuring the competence and discipline of its bar is great and the actions of its legislature and courts toward these ends ought not to be interfered with except with the greatest caution and only if the measure in question is clearly constitutionally impermissible. The requirement that lawyer must reside in the state in order to practice law there is widely recognized as an appropriate measure to promote the state concern for the proper administration of justice and is in force in most jurisdictions. As Chief Judge Christian pointed out in his opinion those reasons are applicable to the Virgin Islands. Indeed they are even more compelling in that territory because of its geographic isolation from the continental United States. For as a practical matter the Virgin Islands may be reached from the mainland only by travel on limited and, frequently, congested airlines. The case load of the district court is continually increasing and it would be intolerable if the court were to be compelled to depend, even in part, on lawyers living and practicing law on the mainland more than a thousand miles away to answer urgent motion calls, attend pretrial conferences, meet trial calendars and appear on short notice as court-appointed counsel for criminal defendants. In Martin v. Walton, 1961, 368 U.S. 25, 82 S.Ct. 1, 7 L.Ed.2d 5, the Supreme Court had before it an appeal from the Supreme Court of Kansas [Martin v. Davis, 1960, 187 Kan. 473, 357 P.2d 782] which had upheld a rule of the court requiring an attorney regularly practicing in another state to associate with himself a member of the Kansas bar when practicing in Kansas. The Court dismissed the appeal for want of a substantial federal question, saying: “Upon plenary consideration, we are satisfied that, both on their face and as applied to appellant, Kan.Gen.Stat., 1949, § 7-104, and amended Kan.Sup. Ct. Rules 41 and 54 promulgated by the Supreme Court of Kansas, acting within its competence upon state law, are not beyond the allowable range of state action under the Fourteenth Amendment. . . .We cannot disregard the reasons given by the Kansas Supreme Court for the Rules in question. . . . Nor does the fact that the Rules may result in ‘incidental individual inequality’ make them offensive to the Fourteenth Amendment. . . .” The appellant was licensed to practice in Missouri and Kansas and was actually a resident of Kansas. He was, nonetheless, required to associate with himself a locally practicing Kansas attorney when appearing in the Kansas courts, because he was regularly practicing law in Missouri, outside the State of Kansas. We think, as the Supreme Court of Virginia said in Application of Titus, 1972, 213 Va. 289, 191 S.E.2d 798, 801: “The importance of the Martin, case to the question before us is this: If a state may constitutionally deny an attorney who is resident and licensed in that state the right to appear in its courts without local counsel because he regularly practices elsewhere, it surely can deny, as many states do, nonresident attorneys the right to appear pro hac vice without local counsel. And, by the same token, a state also should be able validly to deny a nonresident attorney the right to practice generally unless he agrees to become a resident upon admission. There is no difference in principle between denying a nonresident attorney the right to appear on a case-to-case basis from denying another nonresident attorney the right to practice generally.” The Martin case thus furnishes ample support for the action of the district court in holding that the residence requirement with which we are concerned does not run afoul of constitutional limitations. In the Titus case, supra, the Supreme Court of Virginia held constitutionally valid a rule of court which requires a nonresident lawyer who desires to practice in Virginia to become a permanent resident of that state before he may be admitted to practice there. We are in full accord with the views on this question which the court expressed in that case and which are fully applicable to the case now before us. We are satisfied that Rule 56(b)(5) does not deny the plaintiffs the equal protection of the laws. We are equally satisfied, for the reasons adequately stated in Chief Judge Christian’s opinion, that it does not impair their right to engage in interstate travel. The plaintiffs also urge the invalidity of Rule 56(b)(4) which requires an applicant to reside in the Virgin Islands for at least one year preceding his proposed admission to the Virgin Islands bar and of Rule 56(d), as it existed in May 1971 when their applications were filed, which then required every applicant for admission to the bar to pass a written bar examination except those domiciliaries of the Virgin Islands who had passed such an examination in the place where they studied law. However, in view of the plaintiffs’ definite position that they intend to retain their residence in Pennsylvania after admission, which was a sufficient ground under Rule 56(b)(5) for refusing their applications, we need not consider these contentions. The judgment of the district court will be affirmed. . “Rule 56. Admission to the Bar (b) Each applicant for examination under the preceding section must file an application with the Committee of Bar Examiners at least sixty days prior to the date prescribed for annual examination as above, in which he must allege and prove to the satisfaction of the Committee that: (4) He shall have resided in the Virgin Islands for at least one year immediately preceding his proposed admission to the Virgin Islands Bar; and (5) If admitted to practice, he intends to continue to reside in and to practice law in the Virgin Islands ; (d) All applicants for admission to the Virgin Islands Bar shall take the written bar examination as prescribed in paragraph (a) of this rule, as amended, and shall be eligible for admission, being otherwise qualified, upon the successful completion of the said examination.” 5 V.I.O. App. V. . The suit was instituted under the Civil Rights Act, 42 U.S.C. § 1983, and the plaintiffs requested a hearing before a three-judge court pursuant to 28 U.S.C. § 2281. However, that section does not authorize the convening of a three-judge court in the District Court of the Virgin Islands, since it is a territorial court and not a United States district court as defined in 28 U.S.C. § 451. Stainback v. Mo Hock Ke Lok Po, 1949, 336 U.S. 368, 69 S.Ct. 606, 93 L.Ed. 741. Accordingly, the case was tried by one judge in the district court. The constitutional rights to due process of law and to equal protection of the laws have been extended to the Virgin Islands by Section 3 of the Revised Organic Act, 48 U.S.C.A. § 1561. . See Am.Jur.2d Desk Book, Document No. 93. . We merely note, with respect to Rule 56 (b) (4), that the courts are divided as to the constitutional validity of pre-admission residence requirements. Compare Keenan v. Board of Law Examiners of the State of North Carolina, D.C.N.C.1970, 317 F.Supp. 1350; Webster v. Wofford, D.C.Ga.1970, 321 F.Supp. 1259; Lipman v. Van Zant, D.C.Miss.1971, 329 F.Supp. 391; and Potts v. Honorable Justices of the Supreme Court of Hawaii, D.C. Hawaii 1971, 332 F.Supp. 1392; with Suffling v. Boudurant, D.C.N.M.1972, 339 F.Supp. 257.

f2d_479/html/0079-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

James E. PEPPERS, Appellee, v. The UNITED STATES ARMY and those who hold the offices of Secretary of the Army and The Adjutant General of the United States Army, Appellant. No. 72-1508. United States Court of Appeals, Fourth Circuit. Argued Dec. 8, 1972. Decided May 30, 1973. Robert E. Kopp, Atty., U. S. Dept, of Justice (Harlington Wood, Jr., Asst. Atty. Gen., John K. Grisso, U. S. Atty., Morton Hollander, Atty., U. S. Dept, of Justice, on brief), for appellant. Prank Sloan, Columbia, S. C., for ap-pellee. Before HAYNSWORTH, Chief Judge, BOREMAN, Senior Circuit Judge, and WINTER, Circuit Judge. BOREMAN, Senior Circuit Judge: James E. Peppers enlisted in the United States Army and served on active duty from September 7, 1942, until September 18, 1943. He was discharged on the latter date “under other than honorable conditions” because of “traits of character” which rendered his retention in the service “undesirable.” His was the well-known “Section VIII” or “blue” discharge under the then current Army Regulation 615-360. A Board of Officers conducted a hearing and had before it the opinion of Capt. Vincent L. Prankfurth of the Medical Corps, a neu-ropsychiatric consultant, that Peppers suffered from a “constitutional psychopathic state, inadequate personality with emotional instability.” The Board of Officers also considered the opinion of one Second Lieutenant Jack Buchwald that Peppers was a “gold brick,” that he had been involved in several fights with noncommissioned officers and was untrustworthy. The Board found that Peppers’ character was “poor” and that he was “unfit to associate with enlisted men,” and recommended a “blue” discharge, which recommendation was accepted and became the decision of the Army. At the time of his discharge Peppers’ Army disciplinary record included: (1) sentence by a special court-martial to forfeiture of $18.00 pay per month for four months plus confinement for four months at hard labor for being “disorderly in uniform in a public place,” with the execution of the sentence suspended insofar as it related to confinement; (2) sentence by a summary court-martial to forfeiture of $18.00 pay plus confinement for thirty days at hard labor for being absent without leave, with the execution of the sentence suspended insofar as it related to confinement; and (3) five periods of absence without leave totaling sixty-seven days for which he served seventy-three days in confinement in informal or “company” punishment without trial, or while awaiting review of trial. In the district court Peppers contended that his service record was not before the Board of Officers which recommended his discharge but there has been no finding as to this contention and the record before us does not conclusively demonstrate that the Board was unaware of his service record. In 1946, Peppers, acting pro se, applied to the War Department Discharge Review Board to have his discharge changed to “honorable.” In his submitted statement to the Review Board Peppers did not deny the various fights and absences without leave which had led to his disciplinary record in the Army but rather sought to justify these occurrences by giving his version of their factual background. In the final paragraph of his statement Peppers claimed: “At the discharge board I was told the blue discharge would not interfer [sic] with me getting a defense job and that was untrue, I feel injustice was done in that very much.” On May 29, 1947, the Review Board found that the action of the discharge board had been in accordance with AR 615-360, Section VIII, that the discharge board’s action was amply supported by the evidence, and that no additional evidence of sufficient weight and credibility to warrant reversal had been adduced. The Review Board accordingly denied the requested relief. Approximately twenty years later, on June 26, 1967, with the assistance of the American Legion, Peppers filed an application with the Army Board for Correction of Military Records for a change of his discharge to “honorable.” The Correction Board referred the matter to the Army Discharge Review Board for a “rehearing” of its decision of May 29, 1947. On December 5, 1967, the Discharge Review Board conducted a hearing at which Peppers appeared together with his representative as furnished by the American Legion. Peppers testified at length as to his version of the incidents which led to his discharge. He again claimed that at the time of the discharge proceedings in 1943 he was told that a “blue” discharge would not affect his employment opportunities, and contended that the discharge hearing was a mockery since “there was no counselling, no person to guide you at all whatsoever.” On December 12, 1967, the Discharge Review Board concluded that Peppers was properly discharged and that his application for relief should be denied. On February 20, 1968, Peppers reapplied to the Army Board for Correction of Military Records for correction of his discharge. This Correction Board, upon review of the records, declined to afford Peppers another hearing, 32 C.F.R. § 581.3(c)(5) (1968), and on October 3, 1968, denied relief, noting that insufficient evidence had been presented to indicate probable material error or injustice. On April 5, 1971, Peppers brought this action in the district court to have his “blue” discharge set aside and to compel the Army to correct his military records in order to change the character of his discharge to honorable. The court accepted jurisdiction under 28 U. S.C. § 1361. Peppers filed a motion for summary judgment and, in an affidavit in support thereof, asserted that his “disciplinary difficulties were the result of ignorance, very limited education, and inability to communicate with his superiors, complicated by his financial inability to care for his wife and children.” He again claimed that he was told at the discharge hearing that the “blue” discharge would not interfere with his obtaining civilian employment and claimed, additionally, that his superiors “further wrongfully connived and abetted in obtaining his wrongful discharge by failing to give him either mental or physical examination before discharge.” Peppers stated that he had never met Capt. Frankfurth, the “neuropsychiatric consultant,” and that Capt. Frankfurth was not present at the discharge hearing, at least to Peppers’ knowledge. ’ He asserted that statements in his service record to the effect that he had at the discharge hearing verified the purported testimony of Capt. Frankfurth and Lt. Buchwald were incorrect. Further, Peppers claimed: “As a result of these false and misleading statements and acts, deponent offered no defense or objection at the discharge hearing, and was deprived of his rights by fraud and de-eeipt [sic] in violation of due process of law.” After a hearing, the district court vacated the 1943 discharge and remanded the case to the Army for further proceedings with th^ direction that Peppers be given an honorable discharge if further proceedings were not instituted within 180 days. The Court stated, “After reviewing the entire record, the Court concludes that irrespective of the facts concerning plaintiff’s conduct, the procedure used by defendants, namely the discharge hearing and surrounding circumstances, was a blatant violation of due process.” The district judge found due process denial in the following respects: (1) Peppers was ignorant, uneducated and without counsel, and thus unable to conduct a proper cross-examination of the witnesses against him; (2) he did not understand the consequences of a “blue” discharge and it was “probable” that he was misled as to its effect on his ability to obtain civilian employment; (3) there was no evidence that the Army gave Peppers a physical or mental examination before discharge; (4) Peppers “stated that” Capt. Frankfurth was not present at the discharge hearing, and “he also denies that” he verified the testimony of Capt. Frankfurth and Lt. Buchwald; and (5) due to Peppers’ education and background the Army should have taken extra precautions on his behalf, i. e., he “should have received psychiatric evaluation and the benefit of counsel and a Chaplain.” All of these violations and inadequacies as found by the district court concerned the 1943 discharge hearing. This court has had occasion to consider a claim of violation of due process rights in connection with the discharge of a Navy enlisted man and to examine and apply pertinent statutory provisions and regulations. In Reed v. Franke, 297 F.2d 17 (4 Cir. 1961), a Navy enlisted man (Reed) sought to prevent his separation from naval service with a “general discharge under honorable conditions” which was unacceptable to him. The pertinent regulations under which he was to receive his discharge made no provisions for a hearing prior to discharge. Reed argued that the failure to provide such a hearing constituted a denial of due process. In holding against Reed, this court stated, 297 F.2d at 26-27: It is true that the regulations, pertinent here, make no provision for a hearing such as Reed contends he should be given prior to his general discharge from the Navy. But Congress has provided for a review of discharges and dismissals from military departments under 10 U.S.C. § 1553. This statute contemplates a mandatory hearing, upon request after discharge, before a board of five members, at which hearing the person requesting review is permitted to appear in person or by counsel. Such review shall be based upon all available records of the military department concerned and such other evidence as may be presented. Witnesses shall be permitted to testify either in person or by affidavit. Certainly at such a hearing Reed would be entitled to present rebutting testimony and to have the decision based upon the record of the matters considered at the hearing. The board is granted the authority (except in case of a discharge or dismissal resulting from the sentence of a general court martial) to change, correct or modify any discharge or dismissal, and to issue a new discharge in accord with the facts presented to the board. Thus the reviewing board is empowered to nullify the action taken if determined to be erroneous and, in lieu thereof, to order an honorable discharge. Under 10 U.S.C. § 1552, the Secretary of a military department is authorized to correct any military record when he considers it necessary to correct an error or remove an injustice. By this section there is no provision made for a formal hearing at which the serviceman or his counsel may be present and the procedure is not mandatory, yet a civilian board may be called to act in behalf of the Secretary in considering the matter. There is no constitutional right to a particular form of remedy. A fact-finding hearing prior to discharge is one way to protect plaintiff’s alleged rights, but it is not the only means of protection and Congress has provided other ways of preventing injustices and correcting errors in connection with military discharges. By statute, Reed is provided an opportunity to avoid the injury he claims he will suffer when the discharge becomes effective. The fact that the hearing provided by statute does not precede, but follows, Reed’s separation from the service does not make the hearing inadequate. The statutory review is a part of the protective procedure and due process requirements are satisfied if the individual is given a hearing at some point in the administrative proceedings. . . . Those fundamental requirements of fairness which are of the essence of due process in the proceedings pursuant' to the pertinent regulations are met by the provisions of the statutes above noted. The text of 10 U.S.C. § 1553 was changed in 1962, the year following the Reed decision, but the nature and extent of the hearing, provision for which is made in that section, were not substantially altered. If the procedures established by 10 U.S.C. §§ 1552 and 1553 are sufficient to satisfy the requirements of due process where there is no hearing whatsoever prior to discharge, as in Reed, supra,, a fortiori those procedures under those sections would satisfy the requirements of due process where, as in the instant case, a hearing prior to discharge is held but is found to be inadequate. We hold that the review of Peppers’ discharge by the Discharge Review Board in 1947 and the reconsideration thereof in 1967 after a full hearing, together with the review in 1968 by the Army Board for Correction of Military Records, effectively served to remedy any possible violation of due process which may have been inherent at the 1943 discharge proceedings. As to the postdischarge proceedings themselves, it is clear in view of Peppers’ Army disciplinary record that the rulings of the Army Discharge Review Board and the Army Board for Correction of Military Records cannot be considered arbitrary and capricious. Beyond that determination this court has no power to look. Haines v. United States, 453 F.2d 233 (3 Cir. 1971); Ragoni v. United States, 424 F.2d 261 (3 Cir. 1970). Reversed. . The Army Board for Correction of Military Records is established pursuant to 10 U.S.C. § 1552. See 32 C.F.R. § 581.3 (b)(1) (1967). Normally, application for relief to this Board must be made within three years after the asserted error or injustice is discovered, but a failure to file within the three-year period may be excused if the Board finds it to be “in the interest of justice.” 10 U.S.C. § 1552 (b); 32 C.F.R. § 581.3(c)(2) (1967). Peppers requested that such a finding be made in his case. . The Army Discharge Review Board is established pursuant to 10 U.S.C. § 1553. See 32 C.F.R. § 581.2(a)(1) (1967). Normally the Discharge Review Board is precluded from considering requests for changes made more than fifteen years after the date of discharge. Here, however, the Correction Board referred Peppers’ application to the Discharge Review Board for a “rehearing” of the latter’s 1947 determination. . Peppers’ affidavit contained a number of additional factual assertions which were intended to supplement the administrative record and to support his contention that he had been treated unfairly by the Army. Noted in this opinion are only those assertions which appear to have been relied upon by the district court in reaching the conclusion, as hereinafter set forth in the text, that Peppers had been denied administrative due process of law. . It was at this hearing that Peppers contended that his service record was not before the Board of Officers which recommended his discharge. . In reaching the conclusion that Peppers had been denied due process of law the district judge relied in part upon factual claims not presented by Peppers at the administrative level. Such reliance was improper and must be disapproved. “The [district] court’s function . . . was confined to a review of the evidence submitted to the Board for Corrections.” Sanford v. United States, 399 F.2d 693, 694 (9 Cir. 1968).

f2d_479/html/0084-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

James G. COCKRUM, Plaintiff-Appellant, v. Charles E. WHITNEY and Philip C. Loucks, Defendants-Appellees. No. 26609. United States Court of Appeals, Ninth Circuit. May 9, 1973. D. Patrick McKittrick (argued), Paul & Tucker, Hilley & McKittrick, Great Falls, Mont., for plaintiff-appellant. Chester L. Jones, County Atty. (argued), Virginia City, Mont., Ward A. Shanahan (argued), Gough, Booth, Shan-ahan & Johnson, Helena, Mont., Charles F. Angel (argued), Berg, O’Connell, Angel & Andriolo, Bozeman, Mont., Ronald F. Waterman, Missoula, Mont, (argued), for defendants-appellees. Before ELY, TRASK and WALLACE, Circuit Judges. WALLACE, Circuit Judge: James Cockrum brought this civil rights action under 42 U.S.C. § 1983, alleging that the defendants, Charles Whitney and Philip Loucks, violated his rights under color of law. He claimed that this violation resulted in serious personal injuries. After a three-day trial, the jury returned a verdict against both defendants for $169,500.00. Judgment was entered accordingly. Whitney and Loucks then moved for judgment notwithstanding the verdict or, in the alternative, for a new trial. The trial court granted the former motion, set aside the verdict and directed entry of judgment for both defendants. It failed to rule on the motion for a new trial. Compare Fed.R.Civ.P. 50(c). We affirm in part and reverse in part. During the early morning of September 2, 1966, Cockrum drove through Twin Bridges, Montana. Whitney, the town marshal, testified that he noticed a car travel erratically at high speed through the town. He gave chase and Cockrum was soon aware of his presence. When Cockrum reached Sheridan, Montana, he parked his car and awaited the appearance of the pursuing vehicle. Whitney soon arrived and pulled up in front of Cockrum’s car. Cockrum got out of his car and stood by the open door. Whitney emerged from his unmarked car, a 1954 Buick, wearing old clothes and an old hat. His badge and gun were covered by a coat. He approached Cock-rum, failed to identify himself and then told Cockrum to come with him. Cock-rum, unaware of Whitney’s identity, grabbed a wine bottle and hit Whitney on the head. He turned to get back in his car and Whitney shot him. Loucks was the sheriff of Madison County. Whitney, in addition to his Twin Bridges town marshal assignment, was a special deputy sheriff whose services were limited to special occasions and service of process. Loucks’s only connection with the events of this case was to relay an FBI notice to the bank in Twin Bridges on the previous afternoon. At the trial, Cockrum testified that he was frightened, that Whitney looked like a bum and that he grabbed the bottle and hit him. Whitney said that his mind went blank and that he did not remember the shooting. The parties agreed that Whitney was acting under color of law. In setting aside the verdict and granting the judgment n. o. v., the trial judge held that the shooting was not Whitney’s fault but was caused by Cockrum’s bottle blow." He found that the marshal reacted to an unjustifiable battery, that he was privileged to use force to resist the attack and that the force was not excessive under the circumstances. The standards for granting a judgment n. o. v. and for a directed verdict are the same. Standard Accident Ins. Co. v. Winget, 197 F.2d 97, 100 (9th Cir. 1952). Neither should be granted unless “the evidence is such that without weighing the credibility of the witnesses there can be but one reasonable conclusion as to the verdict . . .” Brady v. Southern Ry., 320 U.S. 476, 479, 64 S.Ct. 232, 234, 88 L.Ed. 239 (1943). See also Washington v. United States, 214 F.2d 33, 40-41 (9th Cir.), cert. denied, 348 U.S. 862, 75 S.Ct. 86, 99 L.Ed. 679 (1954). Upon appeal, we are “bound to view the evidence in the light most favorable to [Cockrum] and to give [him] the benefit of all inferences which the evidence fairly supports, even though contrary inferences might reasonably be drawn.” Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 696, 82 S.Ct. 1404, 1409, 8 L.Ed.2d 777 (1962). The trier of fact could draw one of two inferences from the evidence: Whitney unjustifiably shot Cockrum or that Whitney was justifiably provoked into shooting him. It is the jury, not the judge, which “weighs the contradictory evidence and inferences, judges the credibility of witnesses, receives expert instructions, and draws the ultimate conclusion as to the facts. . . . Courts are not free to reweigh the evidence and set aside the jury verdict merely because the jury could have drawn different inferences or conclusions or because judges feel that other results are more reasonable.” Tennant v. Peoria & P. U. Ry., 321 U.S. 29, 35, 64 S.Ct. 409, 412, 88 L. Ed. 520 (1944). See also Continental Ore, supra, 370 U.S. at 700-701, 82 S.Ct. 1404. Here the trial judge did reweigh the evidence, selecting one inference over the one chosen by the jury and essentially holding that Whitney acted in self-defense to an unjustifiable battery. As to Whitney, this constituted reversible error. The trial judge also ordered the verdict against defendant Loucks set aside. Since there was no evidence that Whitney was, at the time of the incident, acting as a special deputy sheriff, that ruling was correct. We affirm the judgment in favor of Loucks. We reverse the judgment in favor of Whitney and remand the case to allow the district judge to rule on Whitney’s motion for a new trial and such additional proceedings as may be necessary. See Gordon Mailloux Enterprises, Inc. v. Firemen’s Ins. Co., 366 F. 2d 740, 741-742 (9th Cir. 1966). Affirmed in part and reversed in part. . Cockrum also argued that Loucks was negligent in liis training and supervising of Whitney. See Carter v. Carlson, 144 U.S.App.D.C. 388, 447 F.2d 358, 365 (1971), rev’d on other grounds, 409 U.S. 418, 93 S.Ct. 602, 34 L.Ed.2d 613 (1973). We express no opinion on that theory of liability because there were no facts to support it.

f2d_479/html/0086-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Gale Hearold JOHNSON, Appellant, v. John A. DAILEY, Appellee. Nos. 72-1646, 72-1719. United States Court of Appeals, Eighth Circuit. Submitted April 11, 1973. Decided May 17, 1973. Bright, Circuit Judge, dissented and filed opinion. John W. Windhorst, and Phillip H. Martin, Minneapolis, Minn., filed appendix, appellants’ brief and appellants’ reply brief. Thomas F. Daley, Jr., Davenport, Iowa, and Gene R. Krekel, Burlington, Iowa, filed brief for appellee. Scott P. Crampton, Asst. Atty. Gen., and Meyer Rothwacks and Elmer J. Kelsey and Carolyn R. Just, Attys., Dept, of Justice, Tax Div., Washington, D. C., filed brief for appellee, Commissioner. Before GIBSON, BRIGHT and ROSS, Circuit Judges. PER CURIAM. Gale Hearold Johnson appeals from the dismissal of his civil rights complaint brought in the United States District Court for the Southern District of Iowa under 28 U.S.C. § 1343 and 42 U. S.C. § 1983 and § 1985. The principal issue on appeal is whether Johnson’s claim for relief is barred by a two-year state statute of limitation. We find that Johnson’s action was barred, and affirm. Johnson was found guilty of second degree murder in Des Moines County, Iowa, in 1934, and he was sentenced to life imprisonment. John A. Dailey, the appellee herein, was the prosecuting attorney. Subsequently Johnson brought a habeas corpus action claiming that the Iowa alibi instruction used at his trial was unconstitutional, that the State had suppressed evidence favorable to Johnson, and that the State had intentionally used false evidence in the prosecution. This Court affirmed the dismissal of Johnson’s habeas corpus action. Johnson v. Bennett, 386 F.2d 677 (8th Cir. 1967). The Supreme Court granted certiorari, Johnson v. Bennett, 390 U.S. 1002, 88 S.Ct. 1247, 20 L.Ed.2d 102 (1968). Thereafter this Court decided Stump v. Bennett, 398 F.2d 111 (8th Cir.), cert. denied, 393 U.S. 1001, 89 S.Ct. 483, 21 L.Ed.2d 466 (1968), in which we held that an alibi instruction similar to that challenged by Johnson was unconstitutional. The Supreme Court then remanded Johnson to this Court for reconsideration in light of Stump. Johnson v. Bennett, 393 U.S. 253, 89 S.Ct. 436, 21 L.Ed.2d 415 (1968). This Court in turn found the alibi instruction challenged by Johnson to be unconstitutional. Johnson v. Bennett, 414 F.2d 50 (8th Cir. 1969). Johnson was released from custody on August 23, 1969. Approximately three years later, on April 28, 1972, Johnson filed the complaint in this action, the essence of which may be summarized in Johnson’s own words: “That on November 13, 1934, Defendant Dailey did knowingly and wanton-nessly, maliciously prosecute Plaintiff for murder by use of fabricated facts and falsified evidence, and was unlawfully convicted, and sentenced December 10th, 1934, to life imprisonment. “Plaintiff has and will continue to suffer great mental anguish and physical pains for the rest of his life as a direct and indirect result of the said Defendant’s . . . illegal acts and unlawful conduct.” (Emphasis supplied.) The trial court, finding that the latest possible date the claim for relief could have accrued was August 23, 1969, held Johnson’s claim barred by a two-year state statute of limitations. On July 2, 1972, a second complaint was filed by Johnson which contained allegations similar to those in the first complaint. This complaint was dismissed as barred by the statute of limitations and precluded by the trial court’s earlier order. Johnson appealed and the cases were consolidated. First, since neither 42 U.S.C. § 1983 or 42 U.S.C. § 1985 define the time within which suits thereunder must be brought, we must look to the most applicable Iowa statute of limitations to determine whether this action is barred. See e. g., O’Sullivan v. Felix, 233 U.S. 318, 322-323, 34 S.Ct. 596, 58 L.Ed. 980 (1914); Savage v. United States, 450 F.2d 449, 450-452 (8th Cir. 1971), cert. denied, 405 U.S. 1043, 92 S.Ct. 1327, 31 L.Ed.2d 585 (1972); C. Antieau, Federal Civil Rights Act § 85 at 111 (1971); Annot., 98 A.L.R.2d 1160, 1161-1162 (1964). It is arguable that Iowa has two statutes of limitation which conceivably might apply: 2. Injuries to person or reputation —relative rights — statute penalty. Those founded on injuries to the person or reputation, including injuries to relative rights, whether based on contract or tort, or for a statute penalty, within two years. 4. Unwritten contracts — injuries to property — fraud—other actions. Those founded on unwritten contracts, those brought for injuries to property, or for relief on the ground of fraud in cases heretofore solely cognizable in a court of chancery, and all other actions not otherwise provided for in this respect, within five years . . . Iowa Code Ann. § 614 ¶ 2, 4 (Supp. 1973). (Emphasis supplied.) Second, it must be determined which of these two statutes apply by characterizing the basis of the claim for relief. The case of Savage v. United States, supra, 450 F.2d at 451-452, is instructive: “The deprivation of civil rights claims focus entirely on what was said and done by the various defendants in instigating and encouraging the return of the indictment charging Savage with mail fraud. It is alleged that this indictment was returned solely because the defendants conspired to put erroneous and defamatory material before the Grand Jury. In this factual setting it is the Minnesota statute governing the timeliness of defamation and malicious prosecution actions which, in our view, best speaks to the general type of wrong and conduct sought to be prevented and deterred by §§ 1983 and 1985(3).” But cf. Glasscoe v. Howell, 431 F.2d 863 (8th Cir. 1970). Actions for malicious prosecution in Iowa appear to be governed by the two-year statute of limitation quoted above. See Wolfe v. Murphy, 113 F.2d 775, 776 (8th Cir.), cert. denied, 311 U.S. 700, 61 S.Ct. 138, 85 L.Ed. 454 (1940); MA-KA-TA-WAH-QUA-TWA v. Rebok, 111 F. 12, 13 (C.C.N.D.Iowa 1901); Brooks v. Seevers, 112 Iowa 480, 84 N.W. 517 (1900); cf. Clark v. Figge, 181 N.W.2d 211, 215 (Iowa 1970). Since this action may be properly characterized as one in the nature of malicious prosecution it is therefore barred by the two-year statute of limitations. For the reasons hereinbefore expressed the orders dismissing Johnson’s action are affirmed. BRIGHT, Circuit Judge (dissenting). I dissent. I believe this case to be controlled by our decision in Glasscoe v. Howell, 431 F.2d 863 (8th Cir. 1970). There we held that the Arkansas one-year statute of limitations for false imprisonment or assault and battery did not apply to a civil rights action against state police who allegedly wrongfully arrested appellant and beat him into unconsciousness. We concluded that either the three-year limitation for actions “founded on any contract or liability, express or implied,” or the five-year general statute of limitations should apply. Ark.Stat.Ann. §§ 37-206, -213 (1962). Quoting from the Ninth Circuit case of Smith v. Cremins, 308 F.2d 187, 190 (1962), we adopted the following reasoning: “Section 1983 of the Civil Rights Act clearly creates rights and imposes obligations different from any which would exist at common law in the absence of statute. A given state of facts may of course give rise to a cause of action in common-law tort as well as to a cause of action under Section 1983, but the elements of the two are not the same. The elements of an action under Section 1983 are (1) the denial under color of state law (2) of a right secured by the Constitution and laws of the United States. Neither of these elements would be required to make out a cause of action in common-law tort; both might be present without creating common-law tort liability. As Mr. Justice Harlan recently suggested, ‘a deprivation of a constitutional right is significantly different from and more serious than a violation of a state right and therefore deserves a different remedy even thqugh the same act may constitute both a state tort and the deprivation of a constitutional right.’ ” [Glasscoe, supra, 431 F.2d at 865.] Following this same reasoning in this case, I would apply Iowa’s five-year general statute of limitations. Iowa Code Ann. § 614 ¶ 4 (Supp.1973). To apply Iowa’s two-year statute of limitations governing common law actions in contract or tort or actions for a statute penalty as opposed to statutorily created liability, seems to me too narrow a characterization of the breadth of the cause of action and remedy intended under the Civil Rights Act. To the extent that Savage v. United States, 450 F.2d 449, 451 (8th Cir. 1971), cert. denied, 405 U.S. 1043, 92 S.Ct. 1327, 31 L.Ed.2d 585 (1972), may be deemed inconsistent with Glasscoe, I would follow Glasscoe as the more persuasive authority. See Baker v. F & F Investment, 420 F.2d 1191, 1197-1198 (7th Cir.), cert. denied, 400 U.S. 821, 91 S.Ct. 42, 27 L.Ed.2d 49 (1970); Wakat v. Harlib, 253 F.2d 59, 62-64 (7th Cir. 1958); Lazard v. Boeing Co., 322 F. Supp. 343, 345-346 (E.D.La.1971).

f2d_479/html/0089-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

UNITED STATES of America, Plaintiff-Appellee, v. Judi Ann HOLTZ, Defendant-Appellant. No. 72-1965. United States Court of Appeals, Ninth Circuit. April 18, 1973. Ely, Circuit Judge, filed dissenting opinion. James E. Dálzell (argued), Tucson, Ariz., for defendant-appellant. Sarah Ann Bailey, Asst. U. S. Atty. (argued), William C. Smitherman, U. S. Atty., Tucson, Ariz., for plaintiff-appel-lee. Before ELY and WALLACE, Circuit Judges, and SOLOMON, District Judge. Honorable Gus J. Solomon, United States District Judge, Portland, Oregon, sitting by designation. WALLACE, Circuit Judge: Judi Ann Holtz appeals her conviction for smuggling merchandise in violation of 18 U.S.C. § 545. After her not-guilty plea and denial of her motion to suppress evidence, she waived a jury and, subsequent to trial, the court found her guilty. We affirm. On February 2, 1972, Holtz crossed the border at Nogales, Arizona, in an automobile with two male companions. At the port of entry, an inspector questioned the three, noticed they were unkempt, anxious and uneasy and directed them to the secondary area of inspection. At secondary, another inspector noticed that one of the men was very nervous and “strung out” and that he kept blinking his eyes. He observed that the driver was suspicious-looking and subdued and that Holtz also seemed nervous. He became more suspicious when he noted that the car had New Mexico license plates, yet the occupants had no luggage and had declared no purchases. He ordered all three out of the car and commenced to search it. Although he found nothing, he thought he could smell marijuana. He then searched Holtz’s purse and found a contraceptive. Concurrently, he noticed that one of the men was increasingly nervous. He next asked all three for identification. The men had none, but all three gave a name and address. He entered this information into a Bureau of Customs computer which identified one of the men as a known associate of a heroin dealer in New Mexico. At this point, the inspector called for assistance from another inspector. They examined the arms of both men and found fresh needle marks. A strip search of the two men was then conducted, but no contraband was found. /During the strip search, one of the men became so sick that he vomited. The officers then ordered a strip search of Holtz. The inspectress conducting the search required Holtz to take off her clothes. As part of the search, she asked Holtz to bend over and spread her buttocks; then she saw part of a rubber prophylactic hanging down from Holtz’s vaginal area. The inspec-tress stated that the prophylactic was readily viewable and that she finished removing it from Holtz’s vagina. Tests later determined that the prophylactic contained heroin. This heroin was the basis of the merchandise count. Holtz’s motion to suppress was denied and the heroin was introduced into evidence against her. In her appeal, Holtz raises two issues. First she asserts that there were no objective, articulable facts, derived from her actions and appearance which produced a real suspicion justifying a strip or skin search. Second, and alternatively, she argues that this was in fact a body cavity search and that, even if there were such a real suspicion, there was not the required clear indication that she was carrying contraband. Her first contention misconstrues the effect of our prior cases. Admittedly, objective articulable facts are required for a strip search. United States v. Guadalupe-Garza, 421 F.2d 876, 879 (9th Cir. 1970); Henderson v. United States, 390 F.2d 805, 808 (9th Cir. 1967). Further, the required real suspicion must be directed specifically at the person to be searched. Henderson, supra, at 808. However, we have not limited the perimeters from which the objective articulable facts may be taken. Indistinguishable from this case is our holding that those facts derived from “the companions of the subject of the strip search can be considered in determining when such a search may be justified.” United States v. Gil de Avila, 468 F.2d 184, 186 (9th Cir. 1972). See United States v. Shields, 453 F.2d 1235, 1236 (9th Cir.), cert. denied, 406 U.S. 910, 92 S.Ct. 1615, 31 L.Ed.2d 821 (1972). Here, the nervousness of Holtz and her companions, the fact that one was a known associate of a heroin dealer in New Mexico, the New Mexico car without luggage or purchases, and the fresh needle marks on the companions’ arms are objective facts to be considered by an experienced customs inspector. Suspicion further focused on Holtz when a strip search demonstrated that her companions were not carrying contraband. When coupled with the inspector’s personal knowledge that male users or addicts commonly use a female companion as a carrier, there existed the necessary real suspicion which permitted a strip search of Holtz. Consequently, we consider her alternative contention. Its resolution turns on the question of where a strip search ends and a- body cavity search begins. She argues that the search was in fact a vaginal or body cavity search, that a mere real suspicion will not support such a search and that the required clear indication was absent. See Henderson, supra, 390 F.2d at 808. The government asserts that the inspectress searched no more than the skin area near the vagina, that there was no body cavity search and that a real suspicion was sufficient. At first blush, the arguments of both parties appear to find support in our prior decisions. However, a close reading of those cases indicates that the search in this case was not a body cavity search and, therefore, this search must be upheld. One of the first important cases which touches upon the demarcation between the two types of searches was Rivas v. United States, 368 F.2d 703 (9th Cir. 1966), cert. denied, 386 U.S. 945, 87 S.Ct. 980, 17 L.Ed.2d 875 (1967). Customs officers conducted a strip search of Rivas, but he refused to spread the cheeks of his buttocks to permit an observation of his rectum. Later officers restrained Rivas while a doctor conducted a rectal examination with gentle probing. The doctor found and extracted from Rivas’s rectum a rubber-enclosed packet of Percodan tablets, a narcotic. This court upheld the search. In defining the test to be applied, we held that “a search involving an intrusion beyond the body’s surface” required a clear indication or plain suggestion. Id. at 710 (emphasis added). Our next significant case, and upon which Holtz primarily relies, was Henderson v. United States, supra. Mrs. Henderson was stopped at the border, taken to the customs office and then to a room, and required to take off her clothes. An inspectress “made a visual examination of her body and demanded that she bend over and, with her hands pull her buttocks apart and up to permit inspection of her vagina.” 390 F.2d at 809 (emphasis added). Mrs. Henderson refused to do so and the inspectress concluded she was hiding something. She was then taken to a doctor who forcefully extracted about three ounces of hei • oin from her vagina. This court overturned the search by the inspectress finding that it violated the Fourth Amendment. We held that “if in the course of the search of a woman there is to be a requirement that she manually open her vagina for visual inspection to see if she has something concealed there, we think that we should require more than a mere suspicion.” 390 F.2d at 808 (emphasis added). That the decision turned upon the requirement of a manual opening of the vagina is clear from its reliance upon Rivas, supra, and Schmerber v. California, 384 U.S. 757, 86 S.Ct. 1826, 16 L.Ed.2d 908 (1966). Each of those cases involved an intrusion into the body, and each required a clear indication as a justification. Furthermore, in Henderson we noted that the inspectress had not found “anything, such as vaseline, around her vagina.” 390 F.2d at 809. Thus Henderson did not rule invalid a visual inspection of the surface of the vaginal area. Only an examination by means of a manual or visual intrusion into the cavity itself was forbidden, absent a clear indication. The pattern of our subsequent eases has maintained the differentiation between the two types of searches developed in Rivas and Henderson. For example, cases involving anal searches have consistently allowed inspection of the area around the rectum as part of a strip search, yet have required satisfaction of the clear indication test for a probe of the cavity itself. See United States v. Sosa, 469 F.2d 271 (9th Cir. 1972); United States v. Velasquez, 469 F.2d 264 (9th Cir. 1972); United States v. Summerfield, 421 F.2d 684 (9th Cir. 1970); United States v. Castle, 409 F.2d 1347 (9th Cir.), cert. denied, 396 U.S. 975, 90 S.Ct. 443, 24 L.Ed.2d 443 (1969). In Sosa the strip search includ-b ed a request that the defendant spread his buttocks and there was a subsequent observation of grease on them. 469 F 2d at 272. We specifically held that “inspection of the surface of the body in the anal area is permissible in a skin search.” Id. at 273. In Velasquez we reached the same result. 469 F.2d at 266. In Summerfield we noted that certain evidence of narcotics usage “plus the sight of foreign material in appellant’s rectum during the skin search constituted the ‘clear indication’ necessary” for a later rectal probe. 421 F.2d at 685. Finally, in Castle, during the strip search, an agent “wiped the area of the defendant’s rectum” and detected “an oily substance which resembled vaseline.” 409 F.2d at 1348. This evidence, together with other reliable information, provided the necessary clear indication for a doctor’s rectal examination. In these cases, we have allowed, as part of the strip search, a spreading of the buttocks and a visual observation of the area of the rectum. Furthermore, we have allowed the evidence gained while viewing the rectal area during the strip search to assist in providing the clear indication required for a subsequent body cavity search or probe. These cases clearly indicate that requiring Holtz to bend over and spread her buttocks would be part of a strip search and that a subsequent observation of the area thus exposed would not be a body cavity inspection. With Holtz in this position, the inspectress saw an object protruding from her vagina. Obviously the inspectress need not have confined her gaze to the rectal area. Contraband could have been taped to Holtz’s thigh or crotch, which also are not body cavities. Therefore, it would be anomalous and inconsistent with our other Fourth Amendment cases if we were to uphold .an initial rectal area view yet overturn a ¡further observation and seizure of an / object in plain view. Our prior cases involving vaginal searches are not inconsistent with this holding. In Morales v. United States, 406 F.2d 1298 (9th Cir. 1969), we held the seized evidence inadmissible because a clear indication was lacking. The customs officials in that case required the defendant “to bend over and expose her vaginal area.” 406 F.2d at 1299. Relying upon Henderson, supra, we held “that when the cavity to be searched is a vagina,” a clear indication must exist. 406 F.2d at 1299-1300. Unfortunately, the Morales decision does not explain how the defendant exposed her vaginal area. This case differs from Morales in that there is no evidence that this inspectress was in the process of a vaginal cavity search. The facts of this case are closer to those of United States v. Shields, supra. There we upheld the seizure of a condom which was observed partly protruding from the suspect’s vagina. That case involved an inspection which “was confined to the surface of appellant’s body — excluding the vaginal area — until after the protruding condom was observed.” 453 F.2d at 1237. In the present case, Holtz was required to bend over and spread her buttocks. The inspectress then saw a prophylactic hanging down from her vaginal area. There was no evidence that Holtz was requested to or that her actions exposed the vaginal cavity itself to the invasion and intrusion regulated by Rivas and Schmerber, supra. There was no evidence that Holtz manually opened her vagina as in Henderson and Morales, supra. And finally, there is no basis in the present facts for distinguishing the anal search cases such as Sosa, Velasquez, Summerfield and Castle, supra. Therefore, we hold that the discovery of the prophylactic here occurred during a strip search and that only a real suspicion was necessary. That test was adequately met. Affirmed. ELY, Circuit Judge (dissenting): I respectfully dissent. Here, again, we confront a disgusting and saddening episode at the Mexican border involving the disrobing and search of a woman by United States border police. That the woman so degraded herself as to offend the sensibilities of any decent citizen is not questioned. Nevertheless, if we are to continue to safeguard the innocent and virtuous from the potential degradation and humiliation of “strip searches”, we cannot permit our revulsion at one woman’s acts to induce our Court to depart from its established principles. “It is a fair summary of history to say that the safeguards of liberty have frequently been forged in controversies involving not very nice people.” United States v. Rabinowitz, 339 U.S. 56, 69, 70 S.Ct. 430, 436, 94 L.Ed. 653 (1950) (Frankfurter, J., dissenting). In 1969,1 took note of “the disturbing, even appalling, information that ‘80 to 85 percent’, at least four fifths, of all border transients whose bodily cavities are invaded by the border police are innocent of the suspected wrongdoing. Morales v. United States, 406 F.2d 1298, 1300 n. 2 (9th Cir. 1969).” Thompson v. United States, 411 F.2d 946, 948 (9th Cir. 1969) (original emphasis). Now, four years later, we have updated information. Recent hearings conducted by California’s Representative Edward Roybal disclosed the following information drawn from an available sample: “[0]f the 1,800 women stripped and searched [during a certain period] only 285 [approximately 16 percent] were found carrying any contraband, and very few concealing it in body cavities. “[S]everal women testifed that they were subjected to humiliating body, cavity probes by nonmedical personnel under the most unsanitary conditions.” Metropolitan News, June 28, 1972, at 1, col. 3 (emphasis added). The distinguished Congressman reached this conclusion : “It became evident from the testimony presented not only by the accusers but by customs officials as well that the procedures used at the border have failed to protect a person’s right to privacy. .■ . .” Id. I remain firmly persuaded that rudimentary concepts of fundamental fairness, the right to be free from unreasonable searches and seizures, and the right of privacy emanating from various constitutional guarantees compel antecedent judicial authorization for a border cavity search. Authorization would not, of course, be conditioned upon a finding of probable cause but only upon a showing of a clear indication or plain suggestion that contraband may be located in a body cavity. Thompson v. United States, supra, at 947; Huguez v. United States, 406 F.2d 366, 383, 384 (9th Cir. 1968) (concurring opinion); Blefare v. United States, 362 F.2d 870, 880-888 (9th Cir. 1966) (dissenting opinion). While our Court has not yet adopted this view, it is encouraging to note the number of commentators who share my position. E. g., Comment, Intrusive. Border Searches—Is Judicial Control Desirable? 115 U.Pa.L.Rev. 276 (1966) ; Note, 21 Rutgers L.Rev. 513 (1967) ; 18 Case W.Res.L.Rev. 1007 (1967); 19 Fla.L.Rev. 374 (1966). See Note, Border Searches and the Fourth Amendment, 77 Yale L.J. 1007 (1968). While the Supreme Court has not yet chosen to address this problem, my position is, I believe, suggested by dicta in Schmerber v. California, 384 U.S. 757, 86 S.Ct. 1826, 16 L.Ed.2d 908 (1966): “[W]e are satisfied that the test chosen [extraction of blood samples] to measure petitioner’s blood-alcohol level was a reasonable one. [F]or most people the procedure involves virtually no risk, trauma, or pain. Petitioner is not one of the few who on grounds of fear, concern for health, or religious scruple might prefer some other means of testing. “Finally, the record shows that the test was performed in a reasonable manner. Petitioner’s blood was taken by physician in a hospital environment according to accepted medical practices. We are thus not presented with the serious questions which would arise if a search involving use of a medical technique, even of the most rudimentary sort, were made by other than medical personnel or in other than a medical environment— for example, if it were administered by police in the privacy of the station-house. To tolerate searches under these conditions might be to invite an unjustified element of personal risk of infection and pain. “ . The integrity of an individual’s person is a cherished value of our society. That we today hold that the Constitution does not forbid the States minor intrusions into an individual’s body under stringently limited conditions in no way indicates that it permits more substantial intrusions, or intrusions under other conditions." 384 U.S. at 771-772, 86 S.Ct. at 1836 (emphasis added) (footnotes omitted). I am well aware, of course, that the search challenged here was, at least at its inception, a strip search and not a cavity probe, and that, consequently, reasonableness must be measured against strip search standards. Compare, e. g., United States v. Guadalupe-Garza, 421 F.2d 876 (9th Cir. 1970) (strip search) with Henderson v. United States, 390 F.2d 805 (9th Cir. 1967) (cavity probe). But I am equally aware that a strip search presents similar potential for abuse. Moreover, it requires no exceptional imagination to recognize that the judicial demarcation between justification for strip searches and cavity probes may, to the average border policeman, likely become obscure. That strip searches sometimes, according to the police seem to “reveal” objects protruding from cavities, thereby obviating the stricter requirements for cavity probes, does not assuage my concern for the countless numbers of innocent travelers who may be subjected to abusive humiliation. In undertaking to protect innocent men and women, our Court has adopted stringent requirements for a strip search. In United States v. Guadalupe-Garza, 421 F.2d 876, 879 (9th Cir. 1970) (emphasis added), Judge Hufstedler, for our Court, wrote: “In Henderson v. United States (9th Cir. 1967) 390 F.2d 805, 808, we recognized that, even though probable cause is not required to initiate a border search, ‘mere suspicion’ would not justify initiating a strip search. The customs official must have ‘at least a real suspicion, directed specifically to that person,’ to sustain such a search. But neither Henderson nor our decisions following it have further defined the ‘real suspicion’ test stated there. We do so now. “ ‘Real suspicion’ justifying the initiation of a strip search is subjective suspicion supported by objective, ar-ticulable facts that would reasonably lead an experienced, prudent customs official to suspect that a particular person seeking to cross our border is concealing something on his body for the purpose of transporting it into the United States contrary to law. “The objective, articulable facts must bear some reasonable relationship to suspicion that something is concealed on,.the body of the person to be searched; otherwise, the scope of the search is not related to the justification for its initiation, as it must be to meet the reasonableness standard of the Fourth Amendment.” [Citing Terry v. Ohio, 392 U.S. 1, 29, 88 S.Ct. 1868, 20 L.Ed.2d 889 (1968); Warden v. Hayden, 387 U.S. 294, 310, 87 S.Ct. 1642, 18 L.Ed.2d 782 (1967) (Fortas, J., concurring)]. While the record before us may give rise to a reasonable suspicion that appellant was keeping company with undesirable characters, I cannot perceive sufficient “objective articulable facts [that bore] some reasonable relationship to suspicion that something was concealed on the body . . .’’of appellant. Surely her nervousness could not be such a fact, for I daresay even the most law-abiding travelers are often nervous in the presence of border guards. Many fear, if not denudation and the possible gouging and probing of their recta and vaginae, the possibility that they may have innocently forgotten to declare some small foreign article placed in their ransacked luggage. The majority also notes with significance that the automobile in which appellant was riding bore out-of-state license plates and that appellant made no purchases in Mexico. It frankly escapes me how these admittedly objective facts gave rise to a reasonable suspicion that the appellant was concealing contraband on her person. Finally, my Brothers appear to ascribe some importance to the discovery of a condom in the woman’s purse. To infer from this that another contraceptive containing contraband might have been concealed within one of her body cavities reflects either startling naiveté or an unwillingness to recognize the sexual mores of many of our citizens in these times. Moreover, even if the inference be possible, it is irrelevant to the reasonableness of a strip search, since such a limited search could never confirm or dissipate the suspicion arguably raised. Appellant was, in effect, stripped and searched becauge of her nervousness, her choice of companions, and her decision not to buy any souvenirs in Mexico. If these be objective, articulable facts sufficient to justify one of the most overwhelming personal incursions allowable under law, then the dignity and sanctity of the individual in our society stand gravely threatened. I would reverse. . This court upheld the strip search in Gil de Avila, supra, on quite similar facts. In analyzing whether the test of real suspicion was met, the dissent inadvertently failed to specify that Holtz’s companions were nervous and one was “strung out;” the absence of luggage; the detection of an odor of marijuana; the lack of any identification; the information received from the computer; the fresh needle marks on Holtz’s companions; and the vomiting by one of them. Any one of the factual findings (as the appearance of a condom in Holtz’s purse) may not necessarily point towards the conclusion of attempted smuggling. But it is the totality of facts before an experienced inspector which leads to the real suspicion. The concern of the dissent that Holtz suffers from her choice of companions overlooks our holding in Gil de Avila. . The dissent in Henderson also described the body cavity search as one “involving intrusion beyond the body’s surface.” 390 F.2d at 811. . These later cases are consistent not only with Henderson and Rivas, supra, but also with older cases. See Denton v. United States, 310 F.2d 129 (9th Cir. 1962); Murgia v. United States, 285 F.2d 14 (9th Cir. 1960), cert. denied, 366 U.S. 977, 81 S.Ct. 1946, 6 L.Ed.2d 1265 (1961); Blackford v. United States, 247 F.2d 745 (9th Cir. 1957), cert. denied, 356 U.S. 914, 78 S.Ct. 672, 2 L.Ed.2d 586 (1958). . Henderson stated the rule that, where “there is to be a requirement that she manually open her vagina for visual inspection,” the body cavity test must be met. 390 F.2d at 808. . This court has noted before the ambiguity of the factual description in Morales. See Shields, supra, 453 F.2d at 1237. . These statistics reflect the experience of a physician, who according to the records of our court, frequently assists the border police in their searches of bodily cavities. I think it not unreasonable to believe that in situations wherein the police may not seek medical assistance, an even greater percentage of innocent persons are offended. . I think, moreover, that my Brothers may have overlooked the significant threat to our national fiscal interest. It is not unlikely that many victims of border abuse have legitimate claims for substantial damages against our Government. See District of Columbia v. Carter, 409 U.S. 418, 93 S.Ct. 602, 34 L.Ed.2d 613 (1973) (dictum) ; Bivens v. Six Unknown Agents of the Federal Bureau of Narcotics, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971); Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946). . The second paragraph in the majority’s first footnote, which was added after my dissent was originally circulated, serves —if no other purpose — to emphasize the substance of my greatest concern. If the addition is intended to bolster the majority’s legal posture by fleshing out our Circuit’s definition of “objective, articula-ble facts”, then the impetus is misdirected. I have little doubt that, as my Brother Wallace ably and carefully observes, prior decisions of this Court demonstrate that the combination of factors cited by the majority constitute “objective, articulable facts”, sufficient under our Court’s current approach, to legitimize the search of appellant. But the focus of my concern is that the flimsy cast some of our decisions, including the majority’s opinion here, have given to “objective, articulable facts” provides the innocent with but a fragile shield with which to fend off offensive, if not abusive, bodily invasions by the border police.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Nancy A. GILLIN, Plaintiff-Appellant, v. FEDERAL PAPER BOARD COMPANY, INC., Defendant-Appellee. No. 575, Docket 72-1907. United States Court of Appeals, Second Circuit. Argued March 16, 1973. Decided May 11, 1973. Lewis M. Steel, New York City (Gretchen White Oberman, New York City, of counsel), for plaintiff-appellant. Donald F. Keefe, New Haven, Conn. (Tyler, Cooper, Grant, Bowerman & Keefe, New Haven, Conn., of counsel), for defendant-appellee. Susan J. Johnson, Washington, D. C. (William A. Carey, General Counsel, Julia P. Cooper, Associate General Counsel, Beatrice Rosenberg and David W. Zug-schwerdt, Attys., Washington, D. C., of counsel), for United States Equal Employment Opportunity Commission, ami-cus curiae. Before HAYS, MULLIGAN and OAKES, Circuit Judges. MULLIGAN, Circuit Judge: This is an appeal from a judgment entered on May 30, 1972 in the United States District Court for the District of Connecticut, dismissing damage claims for sex discrimination in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (1970), after a nonjury trial on January 5, 1972 before the Hon. M. Joseph Blumenfeld, Chief Judge. On May 26, 1972, the court filed a memorandum decision containing its findings of fact and conclusions of law. Appellant Nancy Gillin (Gillin) contends that the district court erred in rejecting her claims that her former employer, Federal Paper Board Co., Inc. (Federal), denied her a promotion and a salary commensurate with her duties because of her sex and retaliated against her when she filed discrimination charges with the United States Equal Employment Opportunity Commission (EEOC). Affirmed in part, reversed in part and remanded. Federal operates paper mills and carton plants in Connecticut and elsewhere in the United States. In 1961 it established a New England Transportation Department which was a freight hauling operation for both raw materials and finished products. A number of trucks were leased and a terminal established in New Haven, Connecticut. During the same year, appellant, who had been an employee of Federal in New Haven since 1957, was appointed administrative assistant to the traffic manager, Mr. Aaron Denenberg. Her new duties included responsibility for the accounting functions of the Department, personnel and payroll records and the purchasing of office supplies. When Denenberg was away, Gillin was in charge of the daily office operation. In April, 1962, Denen-•berg resigned after having expanded the Department by leasing additional trucks which were operated from a terminal in Sprague, Connecticut. Thereafter, the New England transportation operation was placed under the jurisdiction of a vice-president, Mr. Hesser, who was general traffic manager for the mills in the Western Division. Eventually in 1965 Mr. Varsho was appointed traffic manager of the New England Division trucking and freight operations. On March 15, 1966 Varsho informed Gillin that he was being promoted to the position of general traffic manager. She indicated her interest in the job he was vacating but was advised by Varsho that it “was more suited to a man” and “wasn’t suitable for a woman.” Gillin countered by calling his attention to the Civil Rights Act of 1964 and on March 24, 1966, she filed her complaint with the EEOC alleging sex discrimination since she had not been considered for the traffic manager’s position. I As a result of her charges, the EEOC conducted investigations and compiled a 260 page investigative report. Prior to trial the parties requested the district court to rule on the admissibility of this report as a business record under 28 U. S.C. § 1732. On February 15, 1970, Hon. Robert C. Zampano filed his opinion: [The investigative report] is a mishmash of self-serving and hearsay statements and records which contain conflicting opinions, comments and inferences drawn by investigators, potential witnesses, and unidentified persons. This maze of material would thwart rather than ease the trier’s efforts. Credibility of the witnesses will play a major role in resolving the conflicting positions of the parties here; justice requires that the testimony of the witnesses be given in open court, under oath, and subject to cross-examination. On the record before this Court the tests of need, reliability, and trustworthiness have not been met and, therefore, [the report] as a unit is not admissible as a business record under 28 U.S.C. § 1732. 52 F.R.D. 383, 385. His decision, however, did not preclude the appellant from introducing any portion of the document which might be found admissible on other grounds. See 52 F.R.D. at 384. Judge Blumenfeld adhered to these guidelines at trial. On appeal it is urged that the failure to admit the EEOC investigative report constituted error. Appellant’s only authority for finding the document admissible is Smith v. Universal Serv., Inc., 454 F.2d 154 (5th Cir. 1972), which is clearly distinguishable. In that case the court held admissible as a business record under 28 U.S.C. § 1732, not the lengthy investigatory report sought to be introduced here, but rather the decision of the EEOC containing a summary of the investigation. The EEOC deision in that ease takes up little more than a page of the court’s opinion in which it is set forth. See 454 F.2d at 158-160. A comparable document was ruled admissible by Judge Zampano in this case (52 F.R.D. at 384-385) and was received into evidence as a plaintiff’s exhibit. Moreover, the investigator who compiled that portion of the investigative report favorable to the appellant, was permitted to testify from it on trial and there is no showing of any prejudice from the report’s exclusion. Under these circumstances we find no reason at all to disturb the district court’s judgment on this ground. See Cox v. Babcock & Wilcox Co., 471 F.2d 13, 15 (4th Cir. 1972); Heard v. Mueller Co., 464 F.2d 190, 194 (6th Cir. 1972). II Appellant claims that she was discriminated against because she was denied a salary commensurate with her duties. We believe that the finding of the trial court that this position is “wholly unsupported” is correct. There is no evidence of sex bias with respect to wages. Mr. Varsho, her supervisor, who refused to consider her for promotion (see III infra), in fact recommended in October, 1965 that she be given a $600 raise, praising her efficiency and pointing out that she was receiving less than some of her subordinates. While even after receiving the raise, she was earning slightly less than one male dispatcher she was supervising ($128.65 per week as compared with $136.90 per week), there is no proof that her occasional supervisory responsibility properly merited a higher salary than that of a subordinate whose skills might well command more in the job market. It is not at all unusual that those.who direct or supervise, are paid less than those whose particular job skills or experience may be worth more to the employer. It should also be noted that Gillin was entitled to overtime while dispatchers were not. Suffice it to say that the record here is barren of proof either that her salary was incommensurate with her duties or that if this was the case that the disparity was due to her sex. See Ammons v. Zia Co., 448 F.2d 117, 119-120 (10th Cir. 1971); cf. Arkansas Educ. Ass’n v. Board of Educ., 446 F.2d 763, 770 (8th Cir. 1971). Appellant’s claim that her employer retaliated against her for filing charges with the EEOC by demoting her and ultimately discharging her, was rejected by the district court and properly so in our view. The facts upon which appellant rests her claim of retaliatory demotion are that prior to 1966 she had neither punched a time clock nor been paid for overtime hours, and that in May of 1966, subsequent to the filing of her discrimination charges, she was directed to begin punching the clock and not to work overtime hours without permission. This resulted in a reduction of her hourly work week and a commensurate reduction was made in her work load, but her weekly salary remained unchanged. If this is to be characterized as a demotion, it is clear that the change was not precipitated by the EEOC complaint, but rather by a determination of the Wage and Hour Division of the United States Department of Labor in January-1966 that Gillin was a non-exempt employee and thus entitled to overtime wages. While it did take Federal several months to act on the Department’s findings, there was testimony that Gil-lin’s employment status was altered in accordance with usual company procedures and Gillen testified that the company’s only alternative to putting her on restricted hours was to give her a promotion. The evidence concerning Gillin’s termination of employment at Federal is in conflict. The only thing that is undisputed is that she was fired in July, 1966. Mr. George Sweezey, her supervisor at that time, testified regarding several instances where Gillin was uncooperative and was the source of continuing dissension in the office. He further stated that after a discussion with her in which he tried to straighten things out, she informed him that she had been advised by her lawyers and that it would be helpful to her discrimination case if she could get fired. He then made out a “blue slip” stating “uncooperative” as the reason for discharge. Gillin denied this, taking the largely unsupported position that her employment was terminated in retaliation for her claim of discrimination against Federal. It is clear from Judge Blumenfeld’s opinion that he chose to credit Sweezey’s recollection of events. He heard the testimony of both Gillin and Sweezey and had an opportunity to observe their demeanor and assess their credibility. We have no basis to say that his assessment was wrong. HI Appellant urges further that Federal’s refusal to consider her for promotion to the position of New England Traffic Manager constituted employment discrimination on the basis of sex. We are fully in accord with the finding below that Sweezey who ultimately was awarded the position, was clearly better qualified for the job than Gillin. We see no point in detailing his background which is set forth in the opinion below. In any event, appellant does not seriously dispute that Sweezey was the superior applicant. The suggestion that he was overqualified and that the job requirements ultimately enumerated were determined subsequent to Gil-lin’s EEOC complaint, does not at all justify the position that the qualifications were artificially augmented in order to eliminate Gillin. The position to be filled carried substantially greater responsibilities and demanded commensur-ably higher qualifications than those required of predecessor incumbents. The requirements were clearly job related and there is no proof at all of artificial inflation except for the post hoc ergo propter hoc thesis of appellant. We have no quarrel either with the finding below that Gillin was not qualified. While Gillin was in charge of the traffic operation when her superiors were absent, her experience was primarily administrative and clerical and not operational. Her intermittent supervisory responsibility did not preclude Federal from selecting an obviously superior applicant to assume the permanent and expanding job responsibility which the employer envisioned. But it does not follow that although the company violated no law in hiring Sweezey, it was not guilty of sex discrimination against Gil-lin. Federal does not now and did not at any time seek to avail itself of the statutory defense that sex was “a bona fide occupational qualification reasonably necessary to the normal operation of that particular business or enterprise . . . .” 42 U.S.C. § 2000e-2(e)(1) (1970). Therefore Gillin was entitled to be treated as any other applicant for the position without any regard whatever to sex. She was not given equal treatment and the record establishes that Federal’s refusal to consider her for the position was not due simply to her lack of qualification but her sex as well. While the evidence reveals that Mr. Kennedy, Federal’s Vice-President, Secretary and General Counsel, had the ultimate responsibility for filling the job in question, Varsho had the task of making recommendations. He did not recommend Gillin, and Kennedy only interviewed the one applicant, Sweezey, who was hired. In fact, Varsho testified that he “didn’t consider her for the job.” Varsho’s role here was crucial and his testimony indicates that although he did not believe Gillin to be qualified for the post, in deciding not to consider her, he was unquestionably also motivated by the fact that she was a female. See Robinson v. Lorillard Corp., 444 F.2d 791, 797 (4th Cir. 1971), petition for cert. dismissed, 404 U.S. 1006, 92 S.Ct. 573, 30 L.Ed.2d 655 (1971) and 404 U.S. 1007, 92 S.Ct. 651, 30 L.Ed.2d 655 (1972). He advised Gillin when she expressed her interest in the position that it was not suited to a woman and was more suitable to a man. He indicated to the EEOC investigator that he would have placed the job newspaper advertisement in a column specifically directed to males, had such been available. On trial while he conceded that a woman might handle the job under special circumstances, he adhered to the view that the traffic manager’s position was a “man’s” post. He stated that “ [i]t would be an extreme case that a woman could ever take on a truck fleet operation and do it properly.” He further testified: Q. So you are satisfied that Miss Gillin’s femininity hurt her and also her qualifications weren’t there, right ? A. Correct. Q. All right. And that had her qualifications been there her femininity still would have hurt her? A. Yes, it might have. Whether or not Varsho’s position be characterized as Victorian or male chauvinism is not germane. See Weeks v. Southern Bell Tel. & Tel. Co., 408 F.2d 228, 236 (5th Cir. 1969). The fact is that she was not treated on an equal footing with male applicants. In fact two of her male subordinates were given the interview by Varsho which was denied Gillin. Equality of footing is established only if employees otherwise entitled to the position, whether male or female, are excluded only upon a showing of individual incapacity. Rosenfeld v. Southern Pacific Co., 444 F.2d 1219, 1225 (9th Cir. 1971) (emphasis added). While the ultimate prize was won by the male who had superior qualifications, this in our view does not purge Federal of its prior discriminatory act of refusing to consider her at all not solely because of lack of qualification but because she was a woman. While Gillin did not have all of the qualifications for the position, she fell clearly within the group entitled to initial consideration especially in a company which purported to have a policy of promoting from within. Having had some familiarity with and experience in most if not all the facets of the position, the refusal of Varsho to consider her because she was a woman, is clearly a mischief which the statute was designed to prevent. We hold therefore that the court below was in error in not considering this point and in assuming that Sweezey’s superior qualifications presumably cured the previous act of discrimination. In sum we find no wrong in hiring Sweezey instead of Gillin but we hold that Federal did transgress by failing to consider Gillin not simply because she was not qualified but also because she was a woman. We find it necessary to remand to the district court because we have no basis at all on the record before us, to determine what damages, if any, should be awarded to the appellant. The complaint here makes no special request for equitable relief and in view of our discussion of the law there is no justification for any injunctive remedy. However the plaintiff has sought damages in the sum of $250,000 without any allocation among the various statutory violations alleged. The court below had no occasion to reach the damage question finding no liability. The issue was not argued or briefed in this court. While it is difficult to determine the basis for compensatory damages here (see King v. Laborers Local 818, 443 F.2d 273, 278-279 (6th Cir. 1971); Developments in the Law — Employment Discrimination and Title VII of the Civil Rights Act of 1964, 84 Harv.L.Rev. 1109, 1259-69 (1971)), we think that appellant should be afforded the opportunity to establish her theory of damages in the trial court. . Title VII of the Civil Rights Act of 1964 was recently amended by the Equal Employment Opportunity Act of 1972, Pub.L. No. 92-261, 86 Stat. 103. . The EEOC conducted two investigations into Gillin’s charges. The first did not disclose any impropriety in Federal’s actions. After the second, however, the EEOC rendered a decision that “[Reasonable cause exists to believe that [Federal] violated sec. 703(a)(1) and sec. 704(a) of the Civil Rights Act of 1964 as alleged.” EEOC conciliation efforts failed and this suit was commenced. . Gillin amended her complaint on May 23, 1966 and again on July 26, 1966 adding the further charges that Federal, in retaliation for the filing of the original complaint, demoted and ultimately fired her. . The report in question contains the material gathered in both EEOC investigations : (a) pages 8-15, the field report of investigator Ring who concluded that violations occurred, (b) pages 16-176, the underlying material accumulated by Mr. Ring to support his conclusion, (c) pages 177-188, the field report of in-investigator Ilolt who found that no violations existed, and (d) pages 189-260, the underlying material compiled by investigator Holt to support his determination. Gillin v. Federal Paper Board Co., 52 F.R.D. 383, 385 (D.Conn.1970). . 42 U.S.C. § 2000e-2(a) (1970) provides: It shall be an unlawful employment practice for an employer— (1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or (2) to limit, segregate, or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin. . 42 U.S.C. § 2000e-3(a) (1970) provides: It shall be an unlawful employment practice for an employer to discriminate against any of his employees or applicants for employment, for an employment agency to discriminate against any individual, or for a labor organization to discriminate against any member thereof or applicant for membership, because he has opposed any practice made an unlawful employment practice by this sub-chapter, or because he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this sub-chapter. . See note 5 supra.

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2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

In the Matter of The TRIMBLE COMPANY, a corporation. Appeal of William J. McMINN et al. No. 72-1055. United States Court of Appeals, Third Circuit. Argued Nov. 2, 1972. Decided March 30, 1973. R. J. Cleary, Pittsburgh, Pa., for appellants. Thomas J. Donnelly, Houston, Houston & Donnelly, Pittsburgh, Pa., for William J. McMinn, appellant. K. Sidney Neuman, Calvin R. Harvey, Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Pittsburgh, Pa., for appellee. Edmund K. Trent, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for Federal Ins. Co., amicus curiae. Before FORMAN, ADAMS and ROSENN, Circuit Judges. OPINION OF THE COURT FORMAN, Circuit Judge. This is the second time this case has been here. It originated in an involuntary petition filed by four petitioners in the United States District Court for the Western District of Pennsylvania against the Trimble Company (hereinafter called the Company), incorporated in Pennsylvania in 1942, having its principal office and place of business in Pittsburgh and engaged as a general contractor constructing buildings. The Company answered, pretrial proceedings followed, and after the filing of a stipulation of facts, the matter came to trial on June 3, 1963 before the District Court, a requested jury having been waived. An understanding of the case requires the recital, as sparingly as possible, of its extensive background. The following circumstances emerge: pursuant to an agreement dated March 12, 1958 and executed April 2, 1958, the Company purchased 8100 shares of its stock from four of its officers: William J. McMinn, Samuel A. Robinson, Joseph J. Warren, Jr., and R. J. Marshall, the petitioners, in consideration of a payment in cash and the issuance of promissory notes to the order of each petitioner. The stock was surrendered at the closing date, April 7, 1958, as of March 31, 1958. At the time of the transaction, the Company possessed assets of $1,674,971.78 and owed liabilities of $955,094.70. The income of the Company fell progressively from the time of the petitioners’ sale of their stock. By March 31, 1961, the date of default on the notes of petitioners, its assets had dwindled to $880,801.91 and its liabilities were $891,845.56. In July of 1960 Anthony H. Trimble and William F. Trimble advanced to the Company $40,000 and $45,000 respectively, and received therefor the Company’s demand judgment promissory notes. On or about August 1961 the Company ceased all operations except the conservation of its assets. In the pretrial proceedings the Company stated that the Trimbles, the petitioners and the Federal Insurance Company agreed that there should be no distribution to them until the dispute between the Trimbles and the petitioners was settled. After the first default, petitioners demanded payment of all notes, alleging that the default accelerated payment on the remaining notes. Failure of the Company to satisfy any of the petitioners’ indebtedness prompted them to file the involuntary petition, charging a vio-' lation of the second act of bankruptcy. Following the trial, an order was filed in which the District Court recited that the petitioners based their status, as such, on notes in default at a time when payment thereof would have rendered the corporation insolvent. The District Court went on to hold that it is against public policy under Pennsylvania law for a corporation to pay debts arising out of purchase of its own stock, impairing its capital which should be available for its bona fide creditors. It determined that the petitioners’ debts were unenforceable at the expense of such creditors, and contingent; whereby petitioners were left without standing to support their petition. The order dismissed the petition without prejudice to the rights of the petitioners to bring, in a court of competent jurisdiction, appropriate proceedings for the liquidation of the Company and a determination of their respective rights against it. A notice of appeal by the petitioners was filed timely. It was heard before this court and determined in a filed opinion. In it the court first gave consideration to the appellant-petitioners’ contention that the District Court erred in dismissing their petition because they are creditors within the meaning of section 59 of the Bankruptcy Act as amended October 7, 1952, 66 Stat. 425. It held that as of April 7, 1958, the Company had the right to purchase its stock, pay cash and issue its notes for the balance of the purchase price. It found that while neither the Pennsylvania statutes nor any authoritative Pennsylvania cases expressly prohibited a corporation from paying for shares of its own stock under circumstances as in the instant case, extended research of cases of other states is persuasive of the conclusion that a Pennsylvania court of statewide jurisdiction would hold that the payment of the notes in issue was unenforceable until such time as the assets of the Company were such that “payment would not violate the law.” Appellants argued alternatively that section 303 of the Pennsylvania Business Corporation Law, 15 P.S. section 2852-303, dealing with the defense of ultra vires would bar the Company from asserting the defense of unenforceability in a suit on the notes and that it should also be barred here. As to this the court found that the Pennsylvania courts would conclude that such payment would be against public policy and would hold that section 303 of the Pennsylvania Business Corporation Law, supra, would not bar the Company from raising the statutory prohibition in a suit on the notes. Nevertheless it was held that the appellants are creditors who have provable claims against the Company “liquidated as to amount and not contingent as to liability.” The court, however, found that the matter was not yet ended. The Company by way of defense in its answer denied that it had committed the second act of bankruptcy concerning preferences as charged in the petition. It contended that petitioners are in a class subordinate to the creditors who were named in the petition, and that at the time of filing of the petition the Company had sufficient assets to satisfy the claims of creditors of the same class as the allegedly preferred creditors. As to this contention of the Company, this court took the position: “To constitute a preference under § 60 of the Bankruptcy Act, 11 U.S.C.A. § 96, there must be (1) a transfer by a debtor of his property, (2) to or for the benefit of creditors, (3) for or on account of an antecedent debt, (4) made or suffered by such debtor while insolvent, (5) within four months of the filing of the petition, and (6) the effect of which will be to enable such creditor to obtain a greater percentage of his debt than he would be entitled to under the distributive provisions of the Act. 3 Colliers on Bankruptcy (14th ed.) § 60.34. The existence of elements 1, 2, 3 and 5 have been admitted. The trial court, although it gave no figures, found that payment of the notes would have rendered the Company insolvent if it were riot already such. We agree that petitioners are in a class subordinate to the general creditors of the Company. [Cases cited.] Yet it does not follow from the existence of these facts alone that a preference has not been committed by the Company. If one or more of the creditors have obtained a greater percentage of their debts than they would have been entitled to under the Bankruptcy Act, and the other elements are present, then a preference has been made and the trial court was in error in dismissing the petition. [Cases cited.] The district court made no findings regarding this element because under its view of the law there was no necessity for it to do so. On the record before us, we are unable to determine whether or not the second act of bankruptcy had been committed by the Company. Consequently the matter must be sent back to give the district court an opportunity to make that determination. [Footnote omitted.] “Accordingly, the judgment of the District Court will be vacated for further proceedings not inconsistent with this opinion.” In re Trimble Company, supra at pp. 844-845. On remand it appears that the Court and counsel conferred informally on August 11, 1965 and the parties agreed to file briefs and suggested findings of fact and conclusions of law embodying the directive of this court in its opinion to make findings regarding the element whether “one or more of the creditors have obtained a greater percentage of their debts than they would have been entitled to under the Bankruptcy Act.” The District Court adopted and filed on October 28, 1971 the findings of fact and conclusions of law proffered by the amicus curiae, Federal Insurance Company, a creditor of the Company. Briefly stated, they incorporated in detail fact findings concerning the relationship of the Company and its stockholders; the sale of its stock to appellants; the loans of the Trimble brothers; the indebtedness due to Federal Insurance Company for sums it paid as surety on account of the Company’s unperformed obligations; the amount of the assets and the liabilities of the Company as of February 4, 1962 and the filing of the involuntary petition four months thereafter on June 4, 1962. Specifically, concerning the notes petitioners received for the sale of the stock, the District Court found, among other things: “8. On March 31, 1961, when the notes securing the third installment of said purchase price were due, the Company had no unrestricted and unreserved earned surplus. “9. On March 31, 1962, when the notes securing the fourth installment of said purchase price were due, the Company had no unrestricted and unreserved earned surplus. “10. The Company did not pay the notes securing the third or any subsequent installment of said purchase price.” As to the Trimble notes, the Court found: “11. On July 28, 1960, Anthony H. Trimble and William F. Trimble III paid the Company a total of $85,000, for which the Company gave them its 5%% demand promissory notes. “12. Said payments were made as loans to the Company and not as capital contributions.” Among others, the Court came to the following conclusions of law: “3. The claims of Anthony H. Trimble and William F. Trimble III, in the total amount of $91,623.00 on June 4, 1962, are valid claims and must be taken into account on the same basis as the claims of the other creditors of the Company in determining the amount of the Company’s liabilities. “4. The claims of petitioners totaling $160,771.28 on June 4, 1962 are valid claims, but are not entitled to be paid until all the other creditors of the Company have been paid. “5. By reason of the subordination of petitioners’ claims, the assets of the Company on June 4, 1962 were sufficient to pay the claims of all the other creditors of the Company in full. “6. The effect of such of the payments made by the Company within four months, preceding the filing of the petition on June 4, 1962 as were in payment of antecedent debts of the Company was not to enable the creditors receiving such payments to obtain a greater percentage of their debts than any other creditor of the same class and did not enable such creditors to receive more than they were enti-tied to receive under the distributive provisions of the Bankruptcy Act of July 1, 1898 (30 Stat. 562) as amended (11 U.S.C. § 1 ff). “7. The Company has not committed the second or any other act of bankruptcy. “8. The petition must be dismissed, with prejudice.” On the same day the Court filed its order dismissing the petition. The case is again here by reason of appellants’ timely appeal from that order. They urge that the District Court erred in making findings of fact and conclusions of law which adjudicated claims and priorities among so-called creditors of the alleged bankrupt without a determination that the Company was bankrupt; in finding as a fact that the payments made by the Trimbles to the Company totaling $85,000, for which they received the Company’s 5%% demand judgment promissory notes, were loans and not contributions to the capital of the Company, and the claims of the Trimbles are valid claims and entitled to be taken into account on the same basis as the claims of other creditors of the Company. The appellants request that relief be granted to them by way of a review by this court of the merits of the Findings of Fact and Conclusions of Law allegedly unnecessary for determination of whether the second act of bankruptcy has been committed; specifically Finding of Fact No. 12 and Conclusions of Law Nos. 3 and 4; that this court should conclude that the Trimble payments were in substance, in fact and in law, contributions to the capital of the Company, and if they are held to be loans to the Company, they should be adjudged junior in priority to the indebtedness to appellants. Alternatively, they plead that in lieu of a determination of the merits of the Findings of Fact and Conclusions of Law this court should direct that they be deleted from the record in this case and order the dismissal of the petition without prejudice to the rights of the appellants to pursue other remedies available to them. The Company, on the other hand, contends that the District Court properly determined the total amount and classification of the claims against it in support of its findings that the assets of the Company were sufficient to pay the claims of all creditors other than appellants, whose claims were subordinated, and the alleged preferential payments did not enable creditors receiving such to obtain a greater percentage of their debts than any other creditor of the same class or to receive more than they were entitled to recover under the distributive provisions of the Bankruptcy Act; that the District Court properly found that the advances totaling $85,000 made on July 28, 1960 by the Trimbles, for which they received the Company’s 5%% demand promissory judgment notes, were made as loans to the Company and were entitled to payment on the same basis as other general creditors ahead of the appellants whose claims were allegedly subordinated. The Company urged that no act of bankruptcy having been committed, this court should affirm the findings and conclusions of the District Court and bring the litigation to a conclusion, since the proceedings are now in their tenth year, precluding the Company from paying the claims of its creditors lawfully entitled to be paid. The immediate problem with which we are confronted is the question, raised by the appellants, of whether the District Court erred in determining the' dispute on the merits of the indebtedness to the Trimbles on their demand promissory notes made by the Company as against the indebtedness to the appellants on their unpaid promissory notes. A seemingly anomalous situation results from the fact that in finding that the Trimble payments were loans rather than capital contributions resulting in the subordination of petitioners’ notes to them, the District Court has in effect ordered priority among the creditors while dismissing the petition because there was no violation of the second act of bankruptcy. Every court of general jurisdiction has power to determine whether the conditions essential to its exercise exist. Furthermore, even if the court erred in its assumption that it had jurisdiction to pass upon the claims, its judgment would not be void but only in error and therefore, if not challenged on appeal, it would become final and immune from collateral attack. Two leading cases which have so held are Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L. Ed. 104 (1938), and Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371, 60 S.Ct. 317, 84 L.Ed. 329 (1940). In their request for a review of the merits, both parties at least infer that the trial court had subject matter jurisdiction. For their part appellants urge: “It is the Petitioners’ position that this Court should review the merits and pass upon the prejudicial Findings of Fact and Conclusions of Law of the District Court. The record is as complete as it ever will be on these issues. After some ten years of litigation in this case, with the prospect of the same issues being returned to this Court on appeal if the petition is dismissed without prejudice, the ends of justice would best be served by this Court’s adjudicating the controversy at this point in time. . •x- * * * * * “Finally, it should be noted that such procedure is completely within the scope of Section 24(a) of the Bankruptcy Act, 11 U.S.C. 47(a), which gives the Courts of Appeal broad discretion, ‘ * * * to review, affirm, revise or reverse, both in matters of law and in matters of fact # ->:• »> In turn, appellees urge affirmance: “The breadth of the District Court’s findings are particularly appropriate since, as the petitioners state, the record before the District Court on the disputed claims is as complete as it ever will be on these issues. While this Court does have broad powers of review under § 24(a) of the Bankruptcy Act, the findings of the District Judge should be deemed presumptively correct and should be sustained by this court unless there is an obvious error of law or some clear mistake of fact. . . .We submit there has been neither and this Court should affirm the findings and conclusions of the District Court.” From these excerpts it is apparent that neither party contests the jurisdiction of the court to decide whether the Trimbles are entitled to priority over the claims of the appellants. Notwithstanding absence of attack by the parties on the jurisdiction of the District Court to dispose of the dispute between the Trimbles and the petitioners without an adjudication in bankruptcy raised by the involuntary petition, the responsibility is, as always, on this court itself, to test the presence of jurisdiction before proceeding to determine the merits of the controversy. Moreover, under the remand- of this court, the District Court was specifically required to determine the presence of elements four and six of the second act of bankruptcy. Thus the District Court was obliged to examine the Company’s books for a record of its assets and liabilities in order to determine element four (insolvency) and the classification of its debts in order to determine element six (preference). For the purpose of determining insolvency the notes of appellants had to be included, for these were subordinate but non-contingent debts, resulting in an excess of liabilities over assets. Thus the insolvency of the Company is conclusive and indeed was undisputed. For the purpose of determining preference, however, the notes of appellants did not have to be included, since they were subordinated to general creditors. The District Court found that on February 4, 1962, the Company had assets of $324,252.29 and liabilities (including the Trimble claims but not the appellants’) of $278,632.30; that on June 4, 1962, the assets were $291,856.73 and liabilities, $245,491.14 (App. 90a, 91a). In their involuntary petition filed June 4, 1962, appellants alleged that within four months of its filing, the Company had made preferential payments of $32,241.32. Obviously with a margin of assets over liabilities of $45,619.99 on February 4, 1962, and $46,365.59 on June 4, 1962, there was more than sufficient to pay general creditors and no preference was committed by the Company. Furthermore, the computation would lead to the same result in the determination of preference regardless of whether the Trimbles were considered as creditors or contributors to capital. The specific objection made by appellants is not that the District Court lacked power to make this finding, but rather that it failed to exercise judicial restraint in making “extraneous Findings of Fact and Conclusions of Law,” which would prejudice the appellants from exercising any further remedies they may have. The assets were sufficient to pay all the general creditors 100% even counting the Trimbles as such. Of course, it follows that they were sufficient to pay 100% if they were not counted as creditors. Yet the District Court arrived at the determination that the Trimble notes were actually loans and not contributions to capital, leaving only a small balance of assets, if any, to apply on the indebtedness of the appellants. This affects the issue of appellate review, for if the District Court had decided a question which was so collateral or incidental to the judgment that it would not be res judicata, there would be no need to review it here, as the question could be re-litigated. (See 1B J. Moore, Federal Practice ¶0.443[5], at 3919-3921 (2d ed. 1965). For a discussion of a broader application of res judicata, see id., at 3925-3928, discussing Florida Central R. Co. v. Schutte, 103 U.S. 118, 26 L.Ed. 327 (1881).) Or if the question which the court decided were immaterial but in practical effect prejudicial, as for example, when a determination is made which is adverse to the winning party, it might only be possible to delete this finding but not to review the merits. “In Wallace’s Estate, 316 Pa. 148, 174 A. 397 .. . (1934) it was said: ‘Broadly stated, the rule of res judicata is that when a court of competent jurisdiction has determined a litigated cause on its merits, the judgment entered, until reversed, is, forever and under all circumstances, final and conclusive as between the parties to the suit and their privies, in respect to every fact which might properly be considered in reaching a judicial determination of the controversy, and in respect to all points of law there adjudged, as those points relate directly to the cause of action in litigation and affect the fund or other subject-matter then before the court. . . . ’ ” at pp. 409, 410, 150 A.2d at p. 723. The policy which denies conclusive effect to determinations unfavorable to the winner, because judicial review is not available to him, does not operate with regard to the loser. Appellate review of all grounds supporting the judgment is available at the instance of the losing party. The question is whether the controverted fact is a ground supporting the judgment of dismissal — whether it is an “ultimate and controlling issue,” ■ — since the result, that is, the dismissal of the petition, would have been the same however this fact were decided in face of the absence of proof of a violation of the second act of bankruptcy. Restatement of Judgments § 68 Questions of Fact, states: “(1) Where a question of fact essential to the judgment is actually litigated and determined by a valid and final judgment, the determination is conclusive between the parties in a subsequent action on a different cause of action . . ” See also § 68 Comment (e): “Where a question of fact is put in issue by the pleadings and is submitted to the jury or other trier of facts for its determination, and it is determined, the question of fact is actually litigated, and the judgment is conclusive between the parties in a subsequent action on a different cause of action.” We think the resolution of the Trim-bles-appellants dispute was appropriate. In a case such as this, where litigation has dragged on so long and the record is complete, it would seem proper to make comprehensive findings of fact. This should aid in the prompt liquidation of the Company. Although the resolution of the issue of the Trimbles’ notes did not pivotally affect the outcome, it is nonetheless essential to the computation since the total due general creditors could not be computed without its determination. It is an essential part of a composite fact. It was also raised by the pleadings and fully litigated by both parties during a two-day trial before the District Court. Therefore it is the determination of an ultimate and controlling issue, and as such would be res ju-dicata, leaving the losing party with no option but to lodge an appeal. The District Court had jurisdiction over the parties and the subject matter, and its examination into the facts underlying the dispute between the Trimbles and the appellants as to the standing of their respective notes was justified in order to align assets and liabilities and classify indebtedness so that it could make the required determination whether elements four and six of the second act of bankruptcy were present in this case. The general rule with respect to Findings of Fact under F.R. Civ.P. 52(a) is that they will not be displaced by a reviewing court unless “clearly erroneous.” However, as stated in Stevenot v. Norberg, 210 F.2d 615, 619 (9th Cir. 1954): “When a finding is essentially one dealing with the effect of certain transactions or events, rather than a finding which resolves disputed facts, an appellate court is not bound by the rule [footnote omitted] that findings shall not be set aside, unless clearly erroneous, but is free to draw its own conclusions.” [Footnote omitted] This same concept is expressed in United States v. Anderson, 108 F.2d 475, 479 (7th Cir. 1939) as follows: “ . . . where the ultimate finding is a conclusion of law or at least a determination of a mixed question of law and fact, it is subject to judicial review, and on such review the appellate court may substitute its judgment for that of the trial court, Bogardus v. Commissioner, 302 U.S. 34, 39, 58 S.Ct. 61, 82 L.Ed. 32” (1937). See also Brown v. Commissioner, 180 F. 2d 926 (3d Cir. 1950); Walter v. Atha, 262 F. 75 (3d Cir. 1919). Actually the sole issue raised on appeal is the characterization of the transaction between the Trimble brothers and the Company. Appellants urge that the payment of $85,000 to the Company represents not a loan but a contribution to capital. They contend that this conclusion arises from a consideration of the circumstances surrounding the transaction, and that to regard this payment as a loan violates the Agreement of 1958 between the Company and the appellants for the purchase of their stock and the rules of fair play. At the time of the purchase of appellants’ stock by the Company, the written agreement, dated March 12, 1958, provided in part: “3. So long as any of the promissory notes issued pursuant to this agreement remains unpaid the Company will not incur any indebtedness or loans which shall have prior position over the indebtedness evidenced by such notes except for borrowings from banks in the normal conduct or course of the Company’s business, and except for borrowings which may be incurred to pay the indebtedness evidenced by such notes.” The agreement is signed “The Trimble Company, By Anthony H. Trimble, Jr., Vice President,” and by the four appellants herein, William J. McMinn, Samuel A. Robinson, Joseph A. Warren, Jr., and R. J. Mitchell. Furthermore, a paragraph follows which states that: “In consideration of the execution and delivery of the foregoing agreement, the undersigned persons who together are the registered owners of a majority of the outstanding shares of capital stock of The Trimble Company agree to vote their shares of stock in said Company to approve and carry out the terms of the said agreement. “[Signed] Lois T. Trimble, Mary Duncan Trimble, W. F. Trimble III, Anthony H. Trimble, Individually and as Guardian of the Estates of Mark D. Trimble and W. F. Trimble IV, Minors.” On July 28, 1960, after the purchase of appellants’ stock, the holdings of the stockholders of the Company were: Name of Shareholder Number of Shares Lois T. Trimble 1,100 Anthony H. Trimble 4,800 Anthony H. Trimble, guardian of 550 William F. Trimble IV Mark D. Trimble William F. Trimble III 2,575 Mary Duncan Trimble 525 William F. Trimble, custodian 100 for John Hoon Trimble William F. Trimble III, custodian 50 for Mark D. Trimble - TOTAL SHARES 9,700 In Gordon v. Hartford Sterling Co., 350 Pa. 277, 288, 38 A.2d 229, 234 (1944), the Pennsylvania Supreme Court held that where the owner, Avrach, furnished all the capital for the corporation, “The company was his instrumentality and when he put money into it, he put money into his own business as its sole owner, not in another’s enterprise by way of a loan. . . . The learned auditing judge correctly stated that ‘The other stockholders were but figureheads. Avrach’s control was absolute. The business was in reality his.’ Avrach was not a creditor dealing with a debtor corporation; he was lending money to himself. To permit him to share as creditor in the assets of a company, which is merely his creature, would encourage fraud and defeat the valid claims of other creditors.” Cf. Erie Drug Company Case, 416 Pa. 41, 44, 204 A.2d 256 (1964). Since the Trimble brothers and their immediate families owned the entire stock of the corporation after the stock purchase of 1958, their control over the business was as absolute as a sole owner, and for the purpose of this analysis they may be so regarded. The policy of Pennsylvania law is to raise the highest possible standard of morality for the conduct of a sole owner. Law v. Fuller, 217 Pa. 439, 440, 66 A. 754 (1907) embraces the principle that “The only just and practicable doctrine is that the director of a corporation may advance money to it, . but always subject to scrutiny and under the obligation of acting in the utmost good faith.” In the old but widely-cited case, Twin-Lick Oil Co. v. Marbury, 91 U.S. 587, 590, 23 L.Ed. 328 (1875), it was said: “So, when the lender is a director, charged, with others, with the control and management of the affairs of the corporation, representing in this regard the aggregated interest of all the stockholders, his obligation, if he becomes a party to a contract with the company, to candor and fair dealing, is increased in the precise degree that his representative character has given him power and control derived from the confidence reposed in him by the stockholders who appointed him their agent. If he should be a sole director, or one of a smaller number vested with certain powers, this obligation would be still stronger, and his acts subject to more severe scrutiny, and their validity determined by more rigid principles of morality, and freedom from motives of selfishness.” e. g. Manufacturers Tr. Co. v. Becker, 338 U.S. 304, 311, 70 S.Ct. 127, 94 L.Ed. 107 (1949); Pepper v. Litton, 308 U. S. 295, 306, 60 S.Ct. 238, 84 L.Ed. 281 (1939); DeMet v. Harralson, 399 F. 2d 35, 39 (5 Cir. 1968); Hopper v. American National Bank of Cheyenne, Wyoming, 309 F.2d 244, 247 (10th Cir. 1962). Applying such rigid standards to the present case, it becomes necessary to ascertain whether the note transactions between the Trimble brothers and the Company were accompanied by the fullest disclosure to, and assent of, all concerned. The minutes of the Company’s board of directors disclose the adoption of the following resolution. The minutes are dated July 29, 1960, and are signed by Anthony H. Trimble, Jr., W. F. Trimble, III, vice president, W. W. Lauer, president, and Glenn R. Reed, secretary. Mr. McMinn signed on August 4, 1960. “RESOLVED that until otherwise ordered by the Board of Directors any two officers of the Company be and they hereby are authorized to borrow money for the account of this Company from William F. Trimble III or Anthony H. Trimble, or both of them, and for that purpose and as evidence thereof to execute and deliver all necessary promissory notes or other obligations of this Company including, but without limitation, judgment notes, payable on demand or otherwise and at a rate of interest not exceeding 6% per annum, and as security for the payment thereof to pledge, assign, mortgage or grant a security interest in any property including, but not limited to, real estate, stocks, bonds or other securities, accounts receivable, chattels, or inventories of the Company, and to execute and deliver all agreements or instruments necessary therefor; PROVIDED, HOWEVER, that neither William F. Trimble III nor Anthony H. Trimble shall as an officer of the Company execute or deliver any instrument creating any indebtedness of the Company hereunder, or securing the payment thereof with respect to any particular borrowing wherein he is the lender. “FURTHER RESOLVED that any such borrowing or borrowings made, or any such indebtedness, incurred, on or about July 28, 1960, is hereby ratified, approved and confirmed.” At the hearing Mr. Anthony Trimble on cross-examination responded that he and his brother would have made these loans to the corporation even if Mr. McMinn had refused to sign the minutes. According to Mr. McMinn’s testimony, the president, Mr. Lauer, asked him to sign a resolution on August 4, 1960 as director of the Company. Mr. McMinn said the explanation Mr. Lauer gave him was, “We want to bid on larger work, to get bigger contracts. And, we want a better looking statement, and the boys are going to put some money in the company.” (App. 81a) There was no discussion respecting the fact that the notes were judgment notes or of the impact of the resolution on the Agreement of 1958 with the appellants. Mr. McMinn did not inform the other three appellants regarding the resolution. Mr. Mitchell testified that he had no knowledge of the resolution at the time. The fact that the Trimbles held judgment notes of the Company does not appear on any of its balance sheets in the record. Thus there was hardly a full disclosure to, and assent by, all concerned with the Trimble transactions. Appellees point out that the payments to the Company were needed to pay bona fide debts, including tax liabilities, payroll, and other bills. But the tax liabilities and perhaps other debts could have become the personal liabilities of the officers of the Company. In any event, the characterization of the advances as loans or as capital contributions does not turn on whether or not the money was used to pay genuine expenses of the Company. Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939) was a full-blown bankruptcy case. Yet much that was said in it illuminates the path to be followed in the circumstances of the instant case. There the Court stated: “And so-called loans or advances by the dominant or controlling stockholder will be subordinated to claims of other creditors and thus treated in effect as capital contributions by the stockholder not only in the foregoing types of situations but also where the paid-in capital is purely nominal, the capital necessary for the scope and magnitude of the operations of the company being furnished by the stockholder as a loan. “Though disallowance of such claims will be ordered where they are ficititious or a sham, these cases do not turn on the existence or non-existence of the debt. Rather they involve simply the question of order of payment. At times equity has ordered disallowance or subordination by disregarding the corporate entity. That is to say, it has treated the debt- or-corporation simply as a part of the stockholder’s own enterprise, consistently with the course of conduct of the stockholder. But in that situation as well as in the others to which we have referred, a sufficient consideration may be simply the violation of rules of fair play and good conscience by the claimant; a breach of the fiduciary standards of conduct which he owes the corporation, its stockholders and creditors. He who is in such a fiduciary position cannot serve himself first and his cestuis second. He cannot manipulate the affairs of his corporation to their detriment and in disregard of the standards of common decency and honesty. He cannot by the intervention of a corporate entity violate the ancient precept against serving two masters. He cannot by the use of the corporate device avail himself of privileges normally permitted outsiders in a race of creditors. He cannot utilize his inside information and his strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis.” [Footnotes omitted.] At pp. 309-311, 60 S.Ct. at p. 247. In the instant case, the corporation was adequately capitalized to begin with, but suffered overwhelming losses during the years 1958 through 1961. In such a situation, a test which may be used to decide whether a contribution by a proprietary interest is a loan or an additional injection of capital is whether the advance was made at a time when a bank or other ordinary commercial agency would be willing to lend it funds. It is patent from the testimony of Mr. A. H. Trimble that the banks were unwilling to extend any further credit at the critical juncture of the Company’s affairs. The Company’s losses were listed as follows: 1958, $91,191.15; 1959, $433,-398.17; 1960, $317,959.62; 1961, $140,-108.48. Whether these were the result of mismanagement or other factors, they occurred after the appellants’ stock had been purchased, following a dispute over a change in policy and administration of the Company, and particularly over the appointment of Mr. Lauer as president. During the many years that the four appellants served the Company it prospered, and they, at any rate, had nothing to do with its losses. Some of the funds owed to them have already been dissipated, however, and the Company contends that the balance should be paid to its alter ego, the Trimbles, rather than to satisfy appellants’ indebtedness, which the Trimbles had specifically agreed to protect. The motives of the Trimble brothers in continuing to operate their 100-year-old family business were strong personal ones and not necessarily in the best interest of all who were involved in its fortunes. Not to be lost is the significance of the Trimbles’ receipt of judgment demand notes as security for their advances. The same resolution approving them also authorized any two officers of the Company to assign any security interest in any property of the Company as collateral for the payment of the judgment notes. It also should be recalled that the four appellants did not have judgment notes, but only ordinary promissory notes, for their debt from the Company, and no other security. They had nothing to rely on except the promise contained in the Agreement, that no other obligation would be incurred which was prior to their indebtedness. The ease of collecting judgment notes, secured by any property available, made possible an automatic priority for the Trimble advances. Appellees concede that if such security had been granted it would have been contrary to the Agreement of 1958, but they point out that no security was, in fact, granted, and judgment on the notes was never entered against the Company. These facts in themselves do not show the innocence of their intentions. On the contrary, it is the very fact that they virtually held their security from July 28, 1960 in secrecy that implies their bad faith, as in Schooley v. Schooley and Co., Inc., 355 Pa. 507, 511, 50 A. 2d 213 (1947), and as in Pepper v. Litton, swpra. They were able to set the stage for granting themselves a preference, leaving their contribution in the business as long as possible, but being prepared to take it off if the ship began to sink. Schooley, supra, describes a situation in which a note-holding director of a closely-held corporation withheld entry of judgment on the debtor’s note for a year after the obligation had been created, waiting until the debtor’s insolvency had become apparent, and entering judgment just before a receiver was appointed. This was held to be an unlawful preference. Section 2 of the Pennsylvania Act of 1901, “Collusion of preferred creditor,” (39 P.S. § 152) provides that if a corporation suffers a judgment to be entered against it with a view to giving a preference to a creditor, at a time when it is insolvent or contemplating insolvency, and within four months of the commencement of insolvency proceedings, and that creditor knows of these facts, the judgment will inure to the benefit of all the creditors of the insolvent. As pointed out in Schooley, supra, such knowledge will be imputed by law to the creditor if he has withheld entry on the judgment and, so to speak, secreted it. Section 2 of the Act (39 P.S. § 153), under the heading “Presumption of knowledge and intent of creditor,” also provides : “A presumption of such knowledge and intention shall arise, by reason of the fact of such insolvency, . if such judgment . . . shall not have been entered . . . at or about the time of the creation of the debt, or if the transaction shall not have been made in the usual and ordinary course of the business of such insolvent.” In the instant case, the preparation by the Trimbles for protecting their advances to their corporate entity was laid, but the attempt was never carried out. It may be that the bankruptcy proceedings interrupted the attempt. It would be hard for the owner-lenders to argue that they never did intend to carry it out at any time when it would have injured these creditors, since their posture has been at least the equivalent of an attempt to enter judgment on their notes through these proceedings in the bankruptcy court. For the courts themselves to implement such inequity would be unwarranted. To quote Pepper v. Litton again, 308 U.S. at p. 312, 60 S.Ct. at p. 248. “No matter how technically legal each step in that scheme may have been, once its basic nature was uncovered it was the duty of the bankruptcy court in the exercise of its equity jurisdiction to undo it. Otherwise, the fiduciary duties of dominant or management stockholders would go for naught; exploitation would become a substitute for justice; and equity would be perverted as an instrument for approving what it was designed to thwart.” Finally, we turn to a further consideration of the place of the Agreement of March 13, 1958 in this controversy. Clause 3, which prohibits the corporation from incurring any debt which would have priority over the appellants’ notes makes explicit the duty of the directors of the corporation toward these former stockholders. Even without such an agreement, they were under a duty as fiduciaries not to serve their own advantage to the detriment of their cestuis, and in this context their former stockholders, now creditors, stood in such a relation toward the sole owners and directors. The former stockholders’ only-security was the trust they reposed in the owners, but the latter have so managed the affairs of the corporation that when all other creditors are paid there will only be enough to pay off, roughly speaking, their own advances represented by their judgment demand notes. Clause 5 of the Agreement of March 12, 1958 Is also worthy of note. It reads: “5. The Company hereby represents and warrants that it has and will continue to have corporate power and authority to make and carry out its undertakings and duties under this Agreement and to execute and deliver the notes hereinabove provided for; further, that none of the terms or conditions of this Agreement or of the notes, nor the execution, delivery or performance of its undertakings hereunder, shall or will be in violation of or in conflict with the provisions of any law regulating the Company, its business or affairs or the Company’s Articles of Incorporation, by-laws, stock or any agreement, indenture or other instrument, undertaking or obligation to which the Company is a party or in which it is bound; and, further, that all necessary and prerequisite corporate action to authorize the execution, delivery and performance of this Agreement and said notes, as well as the repayment of the indebtedness evidenced by such notes, has been or will forthwith after the closing hereunder be duly and effectively taken and that this Agreement and said notes when executed on behalf of the Company will constitute the valid, binding and continuing obligations of the Company.” In spite of this warranty of legality, the Company has consistently pleaded a defense of illegality. We are unable to find a basis for this defense of the Company against the appellants’ subsisting debt in the present context. For these reasons the Trimble advances of $40,000 and $45,000 to their hopelessly insolvent corporate structure, although clothed in the garments of judgment demand notes, must be held to be contributions to capital. Hence No. 12 of the Findings of Fact, filed by the District Court on October 28, 1971, will be reversed. Conclusion of Law No. 3, filed therewith, will be vacated. The District Court came to the correct result that no violation of the second act of bankruptcy had occurred, and that the involuntary petition should be dismissed, but its Conclusion of Law No. 8 will be modified by the deletion of the words “with prejudice” and the words “without prejudice” will be substituted therefor. The Order of the United States District Court for the Western District of Pennsylvania, filed October 28, 1971, is affirmed except insofar as it incorporates the language in its recital: “and in accordance with the foregoing findings of fact and conclusions of law.” The case is remanded to the District Court for further proceedings consistent with this opinion. . For a more adequate amplification of the genesis of the action, see the opinion of this court In the Matter of the Trimble Company, etc., 339 F.2d 838 (1964). . The record suggests the death of Mr. McMinn in 1965, and the substitution of his administratrix in his stead. . Appended hereto is a table listing' the vendors and the consideration for the sale of their stock in detail. See Supplementary Stipulation of Facts, App. pp. 18a-29a. . Company’s Statement of Facts filed August 6, 1962, U.S.D.C.W.D.Pa., No. 62-176. . Section 3 of the Bankruptcy Act, 11 U.S.C. § 21, provides: “a. Acts of bankruptcy by a person shall consist of his having ... (2) made or suffered a preferential transfer as defined in subdivision a of section 60 of this Act Subdivision a of section 60 of the Act, 11 U.S.C. § 96, reads : “§ 60. Preferred Creditors, a. (1) preference is a transfer, as defined in this Act, of any 'of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.” . Supra, n. 1. . Subsections B and F of section 701 of the Pennsylvania Business Corporation Law of 1933 as amended in 1957, P.L. 737-738. . See In the Matter of The Trimble Company, U.S.D.C.W.D.Pa., No. 62-176, Motion for Order Fixing Time to File Brief on Remand, filed September 3, 1965. . App. pp. 87a et seq. . The order reads : “AND NOW, this 28th day of October, 1971, upon consideration of briefs and proposed findings of fact and conclusions of law submitted by the parties and by Federal Insurance Company as amicus curiae, and in accordance with the foregoing findings of fact and conclusions of law, and the Court being of opinion that in accordance with the criteria set forth in the opinion of the Court of Appeals (339 F.2d at 845) no preference was committed, inasmuch as no creditor obtained a greater percentage of payment than such creditor would have been entitled to under the Bankruptcy Act, because the financial position of the company was such that all creditors would have been entitled to payment in full (except the petitioners, who are subordinate to the general creditors, see 339 F.2d at 845), so that the creditors who were paid 100% of their claims during the four months preceding the filing of the petition did not obtain a greater percentage of their debts than they were entitled to receive, for they were entitled to receive 100% ; and the Court therefore being of opinion that since there was no preference under 11 U.S.C. § 96 there was no ‘second act of bankruptcy’ committed under 11 U.S.C. § 21(a)(2), and the petition should be dismissed, “IT IS ORDERED, that said petition be and it hereby is, dismissed.” . Texas & Pacific Railway Company v. Gulf, C. & S. F. Ry. Co., 270 U.S. 266, 274, 46 S.Ct. 263, 70 L.Ed. 578 (1925). . “When an erroneous judgment, whether from the court of first instance or from the court of final resort, is pleaded in another court or another jurisdiction the question is whether the former judgment is res judicata. After a federal court has decided the question of the jurisdiction over the parties as a contested issue, the court in which the plea of res judicata is made has not the power to inquire again into that jurisdictional fact. [Footnote omitted.] We see no reason why a court, in the absence of an allegation of fraud in obtaining the judgment, should examine again the question whether the court [footnote omitted] making the earlier determination on an actual contest over jurisdiction between the parties, did have jurisdiction of the subject matter of the litigation. In this case the order upon the petition to vacate the confirmation settled the contest over jurisdiction.” Stoll v. Gottlieb, 305 U.S. 165, 172, 59 S.Ct. 134, 137, 83 L.Ed. 104 (1938). . “. . . On every writ of error or appeal, the first and fundamental question is that of jurisdiction, first, of this court, and then of the court from which the record comes. This question the court is bound to ask and answer for itself, even when not otherwise suggested, and without respect to the relation of the parties to it.” Mansfield, Coldwater & Lake Michigan Ry. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 511, 28 L. Ed. 462 (1884); Moore v. Sylvania Electric Products, Inc., 454 F.2d 81 (3d Cir. 1972); Kane v. Ford Motor Company, 450 F.2d 315 (3d Cir. 1971); Shahmoon Industries, Inc. v. Imperato, 338 F.2d 449 (3d Cir. 1964); Williams v. Rogers, 449 F.2d 513 (8th Cir. 1971). . See n. 5, supra. . Electrical Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 59 S.Ct. 860, 83 L.Ed. 1263 (1939). . Hochman v. Mortgage Finance Corp., 289 Pa. 260, 263, 137 A. 252 (1927). . Cited with approval in Girsh v. Girsh, 218 F.Supp. 888 (E.D.Pa., 1963). Girsh quotes at length from Downing v. Halle Bros. Co., 395 Pa. 402, 150 A.2d 719 (1959) for the following exposition of res judicata: . See Schedule 3 annexed to Findings of Fact and Conclusions of Law of the District Court. . The record is vague as to the relationships of Mrs. Lois T. Trimble and Mrs. Mary Duncan Trimble, one of whom is the mother of the Trimble brothers and the other the wife of William Trimble. . Mr. McMinn further testified: “Q. . . . Now, did Mr. Lauer explain to you why, if they were as you stated, if the Trimbles were going to put additional funds in the company, why they were taking- back judgment notes ? “A. No sir. “Q, And then, why did you sign these judgment notes? “A. Well, I figured this way. I figured it was the Trimble boy’s money and if they wanted to put the money in, let them go ahead. “Q. Did you at that time have any discussion with Mr. Lauer as respect- ing these judgment notes and the contract which you then had with the Trimble Company? “A. No, sir.” (App. p. 82a) . Partially under the authority of Pepper v. Litton, supra, undercapitalization has been used as a basis for subordinating claims of sole owners. In Re Regency, 96 F.Supp. 535 (U.S.D.C.N.J. 1951). . N. Lattin, R. Jennings, R, Buxbaum, Corporations, Cases and Materials, 165 (4 Ed. 1968). . A. H. Trimble gave the following testimony on direct examination: “Q. Would you describe briefly liow the banks treated you? “A. We started out with about $300,000.00 we borrowed from Union National Bank. And then I guess these notes were coming due and they got kind of squeamish and they had a man over there in the end and we pledged all our receivables to them. “Q. Had you and Bill incurred any personal liabilities? “A. Yes. And then before we pledged our receivables to them, Bill and I were on notes over there to the bank for money. “Q. By being on the notes, wliat do you mean? “A. We were responsible for the company paying the bank back. If the company didn’t pay it back, Bill and I were going to pay it. “Q. Do you recall whether this was before or after you had loaned the total of $85,000.00? “A. This was before. “Q. Before? “A. Yes. We couldn’t go to the bank with that $85,000.00. We were afraid to ask them.” Transcript p. 125. . A. II. Trimble, on cross-examination, testified: “Q. So that, then the need as y.ou stated for the $85,000.00 being passed to the company at that time might have continued for a certain period of time, and there might have been a requirement on your part to put in further funds, is that correct? “A. If they were available. “Q. All based upon the fact that the banks would not loan you any further funds, is that correct? “A. Yes, sir. “Q. You were desirous of keeping the company going, were you not? “A. We had to.” (App. 58a). . Finding of Fact No. 12 reads: “Said payments [aggregating $85,000 paid by Anthony H. Trimble and William F. Trimble III to the Company for which they received the Company’s judgment demand promissory notes] were made as loans to the Company and not as capital contributions.” (App. p. 89a), . Conclusion of Law No. 3 reads: “The claims of Anthony H. Trimble and William F. Trimble III, in the total amount of $91,623.00 on June 4, 1962, are valid claims and must be taken into account on the same basis as the claims of the other creditors of the Company in determining the amount of the Company’s liabilities.” (App. p. 92a). . Conclusion of Law No. 8 reads: “The petition must be dismissed, with prejudice.” (App. p. 93a).

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UNITED STATES of America, Plaintiff-Appellee, v. A. Henry TAGER, Defendant-Appellant. No. 72-1832. United States Court of Appeals, Tenth Circuit. May 17, 1973. Rehearing Denied July 5, 1973. Richard B. Buhrman, Atty., Tax Div., Dept, of Justice (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks and Harlow M. Huckabee, Attys., Tax Div., Dept, of Justice and Robert J. Roth, U. S. Atty., of counsel, on the brief), for plaintiff-appellee. Joseph P. Jenkins, Estes Park, Colo. (Wash H. Brown, Kansas City, Kansas, on the brief), for defendant-appellant. Before PHILLIPS, SETH and DOYLE, Circuit Judges. WILLIAM E. DOYLE, Circuit Judge. Defendant-appellant seeks reversal of judgments of conviction on two counts of an indictment charging him with income tax violations. The original indictment contained three counts. In the first of these the defendant-appellant was charged with the filing of a false income tax return for the calendar year 1963, contrary to 26 U.S.C. § 7206(1). In Count II he was charged with filing a false income tax return for the calendar year 1964. However, in Count III the allegation was that contrary to 18 U.S.C. § 371, commencing on or about January 1, 1962, and continuing to June 16, 1971, a conspiracy existed between the defendant and one Robert C. Jones in that they unlawfully, knowingly and wilfully conspired with each other to defraud the United States by impeding, impairing, obstructing and defeating the lawful governmental functions of the Internal Revenue Service in the ascertainment, computation, assessment and collection of income taxes. This count also maintains that as part of the conspiracy the defendants agreed to file false tax returns for certain corporations including their law partnership, and they also agreed that they would fail to file tax returns for certain other corporations for 1963 and would fail to file returns for their law partnership for 1963 and 1964; that they would engage in the purchase and sale of securities in the names of these corporations in such a way as to make the transaction difficult to identify so that taxes could not be charged in respect to them. There were a number of overt acts alleged to have occurred from January 2, 1964 to April 18, 1966. Before trial, however, an amended indictment was filed setting forth later overt acts which were apparently designed to avoid the five-year statute of limitations which would be applicable rather than the six-year period provided in 26 U.S.C. § 6531. The later overt acts described conversations with Internal Revenue Service agents which were alleged to have occurred in 1966 and 1968. The government’s theory with respect to these was that there were omissions of fact in these meetings and that they were part of the conspiracy to conceal the facts as to appellant’s income and impede the government officials in obtaining information. Trial was held on May 23, 1972 and the jury found defendant not guilty on Count I. It returned verdicts of guilty on Counts II and III. Most of the defendant-appellant’s contentions revolve around Count III, the conspiracy, and we shall take up these arguments at least in a general way, but, as we view this case, the aspect which is important is the evidence having to do with Count II which alleges tax fraud in connection with the filing of the defendant’s return for the year 1964 because the sentences were ordered to run concurrently — hence if the judgment on Count II is upheld, the conspiracy issues are rendered moot. The allegation in Count II is that the return reported income from salary in the amount of $7,500.00, income from interest in the amount of $19.55, income from partnership in the amount of $23,590.87 and income from business in the amount of $12,536.80. Count II further alleges that the defendant well knew and believed that he received a substantial income in addition to that reported. On this subject little proof was needed because the defendant stipulated that during 1964 he received 18 checks totaling more than $34,000.00 from Policy Budget Plan, Inc. and that these were received on his own account and not for company purposes. The defendant, however, claimed that he borrowed these funds and that they constituted a loan from the company. In further support of this allegation a disbursement journal of a company called Policy Budget Plan, Inc. was introduced. This company had been engaged in the business of making loans to finance the premiums for insurance sold by the National Mutual Insurance Company. The defendant and a Mr. Ewing operated this company as equal owners. The disbursement journal was identified by Ewing, the former president of the company, as a book of original entry used to enter all checks used for expenses, salaries, etc. In it all of the checks were listed and were summarized once each month. Numerous checks were issued to the defendant-appellant. These totaled in excess of $27,000.00 for the month of January 1964 alone. Included was a check for $4,500.00 issued to a Buick company for an automobile, a 1963 Buick Riviera which was for the use of defendant-appellant. It was shown that he subsequently made a loan and pledged this car as security. Defendant-appellant maintained, as we have noted above, that these withdrawals were in fact loans. But the disbursement journal did not bear this out. One withdrawal in the amount of $6,500.00 showed that it was a loan, but none of the other withdrawals were so described. The final result was that numerous withdrawals found their way to the defendant-appellant either as cash payments or deposits in his account. There is no evidence whatever in corroboration of appellant’s contention that the payments were loans, and thus the jury was free to infer that appellant was siphoning off income. The evidence was adequate to justify the jury’s conclusion that appellant received substantial sums in excess of the income reported since none of these advances or withdrawals were reported by him. It follows that the evidence supports the elements alleged in Count II. We make this determination in a light favorable to the government giving it the benefit of all reasonable inferences sustaining the verdict. Glazerman v. United States, 421 F.2d 547 (10th Cir.), cert. denied, 398 U.S. 928, 90 S.Ct. 1817, 26 L.Ed.2d 90 (1970); Bailey v. United States, 410 F.2d 1209 (10th Cir. 1969); Thomas v. United States, 409 F.2d 730 (10th Cir. 1969). We recognize that under the statute, 26 U.S.C. § 7206(1), the evidence must establish that the defendant wilfully falsified his tax returns as to material matters, see United States v. Lodwick, 410 F.2d 1202, 1205-1206 (8th Cir.), cert. denied, 396 U.S. 841, 90 S.Ct. 105, 24 L.Ed.2d 92 (1969); Gaunt v. United States, 184 F.2d 284, 288 (1st Cir. 1950), and that the failure to file a correct return does not establish fraud since the omission or inaccuracy must relate to a knowingly material matter. Knowles v. United States, 224 F.2d 168, 170 (10th Cir. 1955). The section in question prohibits affirmative false statements and also knowing and wilful omission of material matter. See Conford v. United States, 336 F.2d 285 (10th Cir. 1964). See also United States v. Jernigan, 411 F.2d 471, 472-473 (5th Cir.), cert. denied, 396 U.S. 927, 90 S.Ct. 262, 24 L.Ed.2d 225 (1969); Siravo v. United States, 377 F. 2d 469, 472-473 (1st Cir. 1967); Edwards v. United States, 375 F.2d 862, 864-865 (9th Cir. 1967). Finally, knowing and wilful falsification may be inferred from repetitious omissions of items of income. The record in the case at bar establishes a pattern of conduct showing a flagrant disregard for the income tax laws. We perceive no error in the court’s receiving Exhibit 13-B, the general ledger of Policy Budget Plan, Inc. which is referred to above. It is argued that this is a double entry book of account and that it was only partially completed. However, the government utilized it only for the purpose of showing the checks drawn for the month of January amounting to $22,515.75 plus the check to the Buick company in the amount of $4,550.00. This book treated all of the checks drawn to appellant in the same manner, none of them having been posted as loans receivable and, therefore, the book was relevant as raising an inference that all of the checks were income and none were loans. In view of the close relationship which the appellant had with the Policy Budget Company, there is no merit in his argument that this journal is not admissible simply because every last entry was not put in it. The important thing is that it is competent under the shop-book statute, 28 U.S.C. § 1732, and that it constitutes an admission against appellant. The remaining issues pertain to Count III. Thus, it is maintained that the evidence was insufficient to support the guilty verdict.on the conspiracy count; that the prosecution was barred by the statute of limitations; that Fifth Amendment privilege against self-incrimination applied to certain of the overt acts. The final overt acts consisting of conversations with the Internal Revenue agents in 1966 and 1968 were, according to appellant, added in the amended indictment simply for the purpose of extending the statute of limitations, and it contends that these were merely attempts to conceal the conspiracy and thus it could not effectively toll the statute of limitations. Finally, it is maintained that the instruction relative to the statute of limitations was incomplete and improper and did not comply with the requisites of Grunewald v. United States, 353 U.S. 391, 77 S.Ct. 963, 1 L.Ed.2d 931 (1957). Much space and effort have been devoted to the alleged invalidity of the conviction on Count III, whereas the Count II conviction is not seriously disputed. We have concluded that the conviction on Count II was entirely valid and so it is unnecessary to consider the several points raised in connection with Count III of the indictment because in such circumstances it is not relevant to consider the validity of the judgment on Count III since the sentences imposed were ordered to run concurrently. Thus, in Lawn v. United States, 355 U. S. 339, 78 S.Ct. 311, 2 L.Ed.2d 321 (1958), the defendant was convicted on ten counts, but on appeal contested the sufficiency of the evidence on two of the counts, notwithstanding that the sentences were ordered to run concurrently. The Supreme Court said: Lawn also contests the sufficiency of the evidence to support the verdicts against him on Counts 7 and 9, but since the sentences upon those counts run concurrently with the sentence on Count 10, which we have found sustained by the evidence, it is unnecessary for us to consider those contentions. Sinclair v. United States, 279 U.S. 263, 299, 49 S.Ct. 268, 273, 73 L. Ed. 692; Hirabayashi v. United States, 320 U.S. 81, 63 S.Ct. 1375, 87 L.Ed. 1774; Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489. 355 U.S. at 359, 78 S.Ct. at 323. See also Page v. United States, 356 F.2d 337 (9th Cir. 1966), wherein the court said: It has been held time and again that where, on appeal, a conviction on one count is found to be valid, the appellate court will not look into the validity of convictions on other counts carrying sentences concurrent with that of the valid conviction. See Lawn v. United States, 355 U.S. 339, 359, 78 S.Ct. 311, 2 L.Ed.2d 321; Sinclair v. United States, 279 U.S. 263, 299, 49 S.Ct. 268, 73 L.Ed. 692; Mendez v. United States, 9 Cir., 349 F.2d 650, 652; Head v. United States, 9 Cir., 346 F.2d 194, 196; Brothers v. United States, 9 Cir., 328 F.2d 151, 157, and cases therein cited. 356 F.2d at 338. Our court has also applied this principle. This was in Baca v. United States, 383 F.2d 154 (10th Cir. 1967). We there said: Even if we were to hold that the eighteen year sentence imposed on Count IV was void because Baca was not arraigned on that count, he would not be entitled to relief under 28 U.S. C. § 2255 since we conclude that the remaining sentences are clearly valid. Where the conviction on one or more counts of a multi-count indictment is upheld, an appellate court need not determine the validity of convictions on other counts carrying sentences concurrent with that of the valid convictions. See Page v. United States, 356 F.2d 337, 338 (9 CA 1966) and cases cited therein. We find no error in the trial court’s denial of appellant’s motion. 383 F.2d at 157. There is no indication that the alleged errors with respect to Count III in any way affected the conviction on Count II. See Page v. United States, supra. Hence, review of the conviction on Count III is wholly unnecessary. The judgment is affirmed. . 26 U.S.C. § 7206(1) provides: Any person who— (1) Declaration under penalties of perjury. — Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; * * * :¡: * shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than 3 years, or both, together with the costs of prosecution.

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CYPRESS FARMS, INC., Appellant, v. EMPLOYER’S LIFE INSURANCE COMPANY OF AMERICA, Appellee. No. 72-1667. United States Court of Appeals, Eighth Circuit. Submitted April 11, 1973. Decided May 17, 1973. Rehearing Denied June 11, 1973. Jimason J. Daggett, Marianna, Ark., for appellant. Jeff Davis, Jr., Little Rock, Ark., for appellee. Before LAY and STEPHENSON, Circuit Judges, and TALBOT SMITH, District Judge. Eastern District of Michigan, sitting by designation. STEPHENSON, Circuit Judge. Plaintiff-appellant Cypress Farms, Inc., an Arkansas corporation, instituted this action as beneficiary of a $100,000 accident insurance policy on the life of decedent, Glenn U. Miller, against defendant-appellee, Employer’s Life Insurance Company of America, a Delaware Corporation. From judgment entered upon an adverse jury verdict, Cypress Farms appeals. Two issues are now before us: I. Whether the jury was properly instructed as to applicable Arkansas law, and II. Whether the trial court erred by allowing opinion testimony of an expert witness in connection with the location of decedent’s house shoes found upon the floor below decedent’s feet. By the terms of the policy, Employer’s Life would pay the principal sum of $100,000.00 to the beneficiary if the death of the insured were to result directly and independently of all other causes from accidental bodily injuries. Suicide was expressly excluded by the policy’s terms. We note parenthetically that the parties have stipulated that the policy was in full force and effect at the time of decedent’s death. On February 7, 1972, decedent was found dead in his garaged automobile, his body stretched across the full length of the back seat. The record discloses that decedent had been gashed above his right eye with such force as to penetrate to his skull. This is visually evident from photographs taken of decedent’s body when it was discovered. (Exhibits A through J, and T). An autopsy was subsequently performed showing that the cause of death was carbon monoxide poisoning. Cypress Farms based its case upon the theory that decedent was injured and was overcome by carbon monoxide in an attempt to seek help. Employer’s Life contends that decedent committed suicide. Our examination of the record before us discloses no prejudicial error. We therefore affirm the judgment of the trial court. I. Cypress Farms argues that the trial court’s instructions, particularly #’s 3 and 9, did not sufficiently emphasize the strong presumption against suicide as recognized by Arkansas law. Cypress Farms’ tendered instructions, #’s 1 and 2, as relevant read as follows: “If you find that the evidence is conflicting, and if it is nearly evenly balanced, and if there be a doubt in your mind as to whether the death was caused by suicide or accident, the law presumes that Glenn U. Miller’s death was an accident.” and, “Where the death is unexplained by the evidence, or where evidence tending to prove self destruction is contradicted, or impeached, or some other evidence adduced is consistent with a reasonable theory that the death was not intentionally caused, the presumption against suicide prevails.” The trial court’s instructions #’s 3 and 9 as relevant state: Instruction # 3. ****** “If, upon any issue in the case, the evidence appears to be equally balanced, or if you cannot say upon which side it weighs heavier, you must resolve that question against the party who has the burden of proving it.” (emphasis supplied) and, Instruction # 9. “There is a presumption against suicide, or death by any other unlawful act, and this presumption arises even where it is shown by proof that death was self-inflicted — the death is presumed to have been accidental until the contrary is made to appear. This rule is founded upon the natural human instinct or inclination of self-preservation, which renders self-destruction an improbability with a rational being.” (emphasis supplied) We are convinced that the trial court correctly and accurately instructed the jury as to the law of the case. See, Security Life & Trust Co. v. First National Bank, 249 Ark. 1155, 460 S.W.2d 94, 95, 98 (1970). This Circuit has long recognized that under Arkansas law, the burden of establishing the defense of suicide is upon the insurer. Aetna Life Ins. Co. v. Newbern, 127 F.2d 171, 173 (8th Cir. 1942) and the jury was so instructed. Taken as a whole, the trial court’s instructions make it abundantly clear that the onus was upon Employer’s Life to prove that the decedent’s death was the result of suicide, Aetna Life Ins. Co., supra at 173; Riverside Insurance Company of America v. McGlothin, 231 Ark. 764, 332 S.W.2d 486, 488 (1960); Lynch v. Travelers Indemnity Company, 452 F.2d 1065, 1068 (8th Cir. 1972); Eagle Star Insurance Co. v. Deal, 337 F. Supp. 1264, 1277 (W.D.Ark.1972), and that a strong presumption exists in favor of accident and against suicide. Metropolitan Life Ins. Co. v. Graves, 201 Ark. 189, 143 S.W.2d 1102 (1940); accord, Security Life & Trust Co. v. First Nat. Bank, 249 Ark. 1155, 460 S.W.2d 94 (1970); Provident Life & Accident Ins. Co. v. Butler, 206 Ark. 229, 174 S.W.2d 559 (1943). II. During the trial, Employer’s Life called Dr. W. Peyton Kolb, a practicing psychiatrist, to testify as an expert witness. Cypress Farms contends that the trial court erred when it allowed Dr. Kolb to testify that in his opinion decedent deliberately removed his shoes prior to his death. Dr. Kolb’s statement was based upon the photograph, marked Exhibit B, which showed decedent lying down in the back seat of his car with his feet extending out of an open rear door and his bedroom slippers lying immediately upon the ground below. During Dr. Kolb’s direct examination, counsel twice objected to Dr. Kolb’s remarks relative to decedent’s house shoes. The record discloses that Employer’s Life abandoned their reference to “house shoes” after Cypress Farms’ initial objection, and that Dr. Kolb’s second reference thereto was wholly unsolicited. The trial court, in turn, chose not to rule upon the objection before it in order to determine by Dr. Kolb’s subsequent explanation whether his statement had been rendered in accordance with his testimony as an expert witness on the subject matter. Dr. Kolb explained that according to his theory, although he could only “speculate,” a person who was “falling or trying ... to lie down, because he felt bad, would not take time to take off his shoes.” No further objection was made. During cross-examination, however, Dr. Kolb indicated that the house shoes could have easily fallen off decedent’s feet. Counsel for Cypress Farms, responding to this comment, stated that he would “submit that to the jury and just let them look at the shoes.” Although we do not address ourselves to the propriety of Dr. Kolb’s opinion, we are convinced that no prejudicial damage has occurred, particularly since no further objection was made following Dr. Kolb’s explanation, see, Fed.R.Civ.P. 46, and by reason of Cypress Farms’ cross-examination of this expert. See, B. Jones, The Law of Evidence § 14:30 at 667 (6th ed. 1972). Cf., Twin City Plaza Inc. v. Central Surety Insurance Corporation, 409 F.2d 1195, 1203 (8th Cir. 1969); accord, Moran v. Ford Motor Company, 476 F.2d 289 at 291 (8th Cir. 1973). We note finally that Cypress Farms did not request that the testimony be stricken from the record, nor did they ask for the jury to be instructed to disregard what they now claim to be reversible error. For the reasons hereinbefore stated, we affirm the decision of the trial court. . Additionally in instruction #7 “ ® * * the burden of proving suicide is upon the defendant of establishing this fact by a preponderance of the evidence;” in #8 “ ® * * the insurance company is required to prove by a preponderance of the evidence that [decedent] had the intention to and did kill himself.” . Bennett v. First National Bank of Humboldt, Iowa, 443 F.2d 518, 521 (CAS 1971). . See, Colonial Refrigerated Transportation, Inc. v. Mitchell, 403 F.2d 541, 552 (5th Cir. 1968) where the court noted “The purpose [of Rule 46] is to inform the trial judge of possible errors so that he may have an opportunity to reconsider his ruling and make any changes deemed advisable.” Accord, Chicago, Rock Island and Pacific Railroad Co. v. Speth, 404 F. 2d 291, 294 (8th Cir. 1968). . A standard instruction with respect to the weight to be given expert testimony being a matter for the jury was given without objection.

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George W. PRESTON et al., Plaintiffs-Appellants, v. John E. MANDEVILLE, etc., et al., Defendants-Appellees. No. 72-1881. United States Court of Appeals, Fifth Circuit. May 25, 1973. Morris Brown, Atlanta, Ga., A. J. Cooper, Jr., Mobile, Ala., Neil Bradley, Atlanta, Ga., Orzell Billingsley, Jr., Birmingham, Ala., Emily Carssow, Atlanta, Ga., James K. Baker, Birmingham, Ala., Charles Morgan, Jr., Atlanta, Ga., Melvin L. Wulf, New York City, George W. Dean, Jr., Destín, Fla., Howard A. Man-dell, Montgomery, Ala., Norman Siegel, Atlanta, Ga., for plaintiffs-appellants. William J. Baxley, Atty. Gen., Charles R. Butler, Jr., Dist. Atty., Mobile, Ala., Leslie Hall, Asst. Atty. Gen., Montgomery, Ala., for defendants-appel-lees. Before GODBOLD, DYER and CLARK, Circuit Judges. GODBOLD, Circuit Judge: The initial history of this case appears in the opinion on a prior appeal, Preston v. Mandeville, 428 F.2d 1392 (5th Cir. 1970). Negro plaintiffs had claimed racial discrimination in compiling and maintaining the Mobile County jury roll. The District Court had found that the overall population of persons of jury age was 70.7% whites — 29.3% blacks, while the .jury roll was 84% whites- — 16% blacks, and had considered this statistical disparity to be insufficient to prove the charge of racial discrimination. The Court of Appeals reversed, holding that the disparity, considered in the light of the process then in use in Mobile for selecting names for the jury roll, was sufficient to establish a prima facie case of discrimination, which required the jury commissioners to come forward with valid explanations for the disparity, and that they had failed to do so. Thus we reversed the judgment of the District Court and remanded the case for further proceedings, gave the commissioners an opportunity to come forward with clear and convincing evidence of the racial makeup of the jury roll, and directed the District Court to grant appropriate relief if there was racial discrimination in the composition or maintenance of the master roll. 428 F.2d at 1395. Additional hearings were conducted by the District Court. They revealed that the percentage of blacks on the roll had been increased to approximately 26% to 27% against a current percentage of blacks in the overall jury age population of 28%. The increase in percentage of blacks on the jury roll was not accidental. It had been purposefully achieved by the efforts of the jury commission, chiefly by the clerk. Blacks had been selected for addition to the jury roll in a manner which arbitrarily excluded from consideration identifiable groups of the Negro population of the county. Stating it simply, the commissioners selected substantially all blacks to be added to the roll from one concentrated area in the City of Mobile and arbitrarily excluded from consideration substantially all blacks residing elsewhere in the county. To obtain names of additional blacks in the quickest, most convenient and least costly way, the clerk secured substantially all of them from the Toulmonville area of the City of Mobile, a predominantly Negro section. The practical consequence was that substantially all Negro citizens residing in other heavily black areas of the county, such as Prichard and Whistler, were treated as ineligible for addition to the roll. Prichard is more than 50% black, and, with a population, according to the 1970 census, of 41,578, is the second largest municipality in Mobile County. This manner of securing the increase cannot stand. The issue before us is not whether a jury roll vel non must bear some acceptable statistical relationship to the varying demography of the entire geographical area from which it is drawn. Rather the issue is whether “appropriate relief” was granted on remand when it appeared that the jury commission, in remedying prior discrimination under an order of this court, excluded substantial geographical areas from consideration as sources of jurors for no valid reason. The effort of the commission to bring the jury roll up to constitutional míni-mums was largely conducted by the clerk. It is not claimed that her concentration upon Toulmonville was done with a bad heart. Rather it appears that there were insufficient funds, resources and personnel available to her. Most of the names of new jurors, black and white, were secured through the following procedure. From sources such as city directories, telephone books, tax records, automobile tag licenses, and voter registration lists, the clerk would obtain names by selecting, for example, a hundred a’s, or a hundred c’s. She would select at random from the names so obtained approximately 500 names and send to these a form. Each such block of 500 she referred to as a “mailing.” The jury commissioners went through the responses to each “mailing” and added to the jury roll the names of “qualified” persons who -had responded. Mailing to Toulmonville was easier than to other areas with high percentages of black residents. The clerk was more familiar with that area, the percentage of replies was higher, and it was easier to work with the applicable zip codes. There was neither time nor funds to mail to other areas, the clerk explained. No mailings were made to Prichard. The clerk stated she had only an old city directory for that city, had been unable to get a new one, and had not had time to use the old one. No effort was made to reach predominantly black rural areas. The clerk had not been able to visit the various precincts as required by Alabama laws, because no funds were provided for that purpose. The selection procedures [for the jury roll] are not validated by the fact * * * that funds are not provided for the commission to operate in the manner directed by the state statutes and required by constitutional standards. Bokulich v. Jury Commission of Greene Cty., Ala., 298 F.Supp. 181, 192 (N.D.Ala.1968) (3 judges), aff’d, 394 U.S. 97, 89 S.Ct. 767, 22 L.Ed.2d 109 (1969), and aff’d sub nom. Carter v. Greene County, 396 U.S. 320, 90 S.Ct. 518, 24 L.Ed.2d 549 (1970). In carrying out the order of this court calling for appropriate relief from prior discrimination, the jury commission could not, for reasons such as existed in this case, exclude all black areas other than Toulmonville any more than it could, for like reasons, require that all persons on the jury roll come from the City of Mobile, or a particular area of the city, or from Prichard, or some other specified geographical or demographic area within the county. While not a basis for our decision, since the issue before us concerns compliance with the mandate of this court and not compliance with provisions of state law, it is nevertheless appropriate to note that the methods used by the jury commissioners to prepare and maintain the Mobile County roll do not comply with the methods prescribed by the Alabama legislature. The purpose of the Alabama system is to insure that the jury roll is a cross-section of the community. Compliance with selection procedures set by a state legislature does not necessarily meet constitutional standards. But if a jury selection system as provided by the Alabama statutes is fairly and efficiently administered, without discrimination and in substantial compliance with the state statutes — which the state courts of Alabama already require — the odds are very high that it will produce a constitutional result of a jury fairly representative of the community. Failure to comply with state procedures does not necessarily produce an unconstitutional exclusion. But the fact of, and the extent of, the failure in this case to comply with the procedures and the results contemplated by the Alabama system is strong evidence of unconstitutionality. Bokulich v. Jury Commission of Greene Cty., Ala., supra, at 192. Alabama is among the most enlightened of the states in requiring that broadly inclusive community lists be consulted and that all eligible persons be shown on the [jury] rolls. Id. Each Alabama jury commission is charged by the Alabama legislature with the duty of preparing a jury roll containing the name of every citizen living in the county who possesses the prescribed qualifications and is not exempted by law from jury service. Tit. 30, §§ 20, 21 and 24, Code of Ala. (1958 and Supp. 1971). While recognizing that literal compliance with the word “every” is impossible, the Supreme Court of Alabama, along with the federal courts, has insisted that substantial compliance is necessary and has condemned the intentional omission from the jury roll of substantial numbers of qualified citizens. When it affirmatively appears that the names of a large number of citizens who possess the qualifications required by law of jurors, are intentionally omitted from the jury roll * * * that is a fraud in law that requires the quashing of a venire * * *. It is not the kind of a jury box contemplated by law. Our Statutes do not contemplate * * * any system or scheme of selecting other than the selection of names authorized by law * * *. State ex rel Gregg v. Maples, 286 Ala. 274, 239 So.2d 198, 203 (1970), quoting from Inter-Ocean Casualty Co. v. Banks, 32 Ala.App. 225, 23 So.2d 874 (Ala.App. 1945). [Substantial compliance with these legislative safeguards established to protect litigants and to insure a fair trial by an impartial jury is necessary in order to safeguard the administration of justice. Id. at 202, quoting from Bokulich, which in turn, on this point, had relied upon the decision of the Alabama Court of Appeals in Inter-Ocean, supra. The statutory system, while to some extent discretionary, is “a system of selection which the legislature has specifically provided and with which the jury commission must substantially comply.” Id. The legislatively-prescribed starting point for constituting a jury roll is a provision that the clerk, under the direction of the jury commission, shall “obtain the name of every citizen of the county over twenty-one and under sixty-five years of age and their occupation, place of residence and place of business.” Tit. 30, § 18 (Supp.1971). The qualifications for jurors provided by Tit. 30, § 21 (Supp. 1971), and the exemptions, are applied to the names on the overall ’ list, producing a jury list composed of every citizen qualified and not exempted. Mobile County does not purport to have the overall list of potentially eligible jurors described in § 18. Instead, its jury commission, like the Greene County Jury Commission in Bok-ulich, appears to take the existent roll and to add names to it and remove names from it. This approach is the reverse of that contemplated by the state statutes. Also, under the Alabama statutes the jury roll must be kept by precincts, Tit. 30, § 20 (Supp.1971), which would tend to lay bare the sort of geographical exclusion that occurred in this instance. The county of Mobile does not comply with that requirement. So that we not be misunderstood, we reiterate. The issue for this court is whether the District Court granted appropriate relief in approving an amended jury list which had been supplemented with names of additional blacks obtained in the manner which we have described. The issue is not whether there has been compliance with state statutory procedures. Nevertheless we have observed that, while state procedures will not necessarily produce a jury roll meeting constitutional standards, and failure to follow state procedures will not necessarily result in an unconstitutional jury roll, an enlightened state procedure, fairly and efficiently administered, will tend to bring about a constitutional result. The conclusion of the District Court that the jury roll is validly compiled must be reversed. In order that the case not be enmeshed in further procedural entanglements the District Court should fix a reasonable time limit within which appropriate relief, as directed by our prior mandate, is brought about. It should issue such orders as may be necessary to implement the work of the jury commission if it lacks the funds, personnel and resources to comply. The commission must serve upon plaintiffs copies of reports, lists of names and other information filed by the commission with the District Court. Reversed and remanded with directions. . According to defendants’ non-expert witness, based on a non-expert sampling of the roll, 25.84%. According to plaintiffs’ expert witness, based on a more scientific sampling method, 26.9%. . See generally Ford v. White, 430 F.2d 951, 955 (5th Cir. 1970), discussion of female representation. See also Ballard v. United States, 329 U.S. 187, 193-195, 67 S.Ct. 261, 91 L.Ed. 181, 185-186 (1946). . Alabama law requires use of such sources. Tit. 30, § 24, Code of Ala. (1958). . Id.

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Elizabeth J. RUSSELL, individually and as representative of all Capital Investment Service customers, Plaintiff-Appellant, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a National Banking Association, Defendant-Appellee. No. 72-1185. United States Court of Appeals, Seventh Circuit. Argued Feb. 23, 1973. Decided June 7, 1973. Maurice James Moriarty, Chicago, 111., for plaintiff-appellant. Miles G. Seeley, Bryson P. Burnham, Chicago, 111., for defendant-appellee. Before SWYGERT, Chief Judge, and PELL and STEVENS, Circuit Judges. . In Investment Co. Institute v. Camp, 401 U.S. 617, 91 S.Ct. 1091, 28 L.Ed.2d 367, the Supreme Court held that the sale of interests in the type of fund established by First National City Bank was a sale of “securities” condemned by §§16 and 21. We do not decide whether plaintiff’s investment of $20,000 with the defendant Bank was a comparable purchase of a “security,” or whether, as the Bank argues, our decision in Milnarik v. M-S Commodities, Inc., 457 F.2d 274 (7th Cir. 1972), is relevant to this issue. STEVENS, Circuit Judge. Plaintiff’s complaint alleges that, in response to the Bank’s solicitations, she and other members of the public each invested at least $20,000 in an “open-end mutual fund” established by the Bank; that the aggregate amount of approximately $7,500,000 invested by similarly situated participants “placed the defendant in the business of operating a mutual investment fund contrary to and in violation of §§ 16 and 21 of the Glass-Stea-gall Act;” and that a large purchase of the common stock of Penn Central Company, which was both an obligor and depositor of the Bank, resulted in a substantial loss to the fund. Suing on behalf of all participants in the fund, she prays for a judgment of $7,500,000 plus interest and costs. The question presented by her appeal is whether the district court properly dismissed the complaint on the ground that she does not have standing to maintain an action for damages for violation of §§ 16 and 21 of that Act. We affirm. We first put to one side certain questions which we do not decide. There are references in the record to the fact that plaintiff is a depositor in the Bank as well as a participant in the fund. Quite clearly the attempt by a fund participant to surcharge the Bank in the amount of any decrease in the net assets of the fund presents an issue with respect to which the interests of Bank depositors are in square conflict with those of fund participants. Whether that conflict would disqualify plaintiff as an adequate representative of the class described in the complaint is one question we need not decide because the complaint itself refers only to plaintiff’s status as a participant. For the same reason our ruling on the sufficiency of her pleading does not determine the standing of a bank’s depositors to litigate questions arising out of alleged violations of the Glass-Steagall Act. Nor do we comment on the validity of the Bank’s arguments that the dismissal should be sustained on the alternate grounds (1) that the required jurisdictional amount has not been alleged, since plaintiff does not claim an individual loss of over $10,000, or (2) that in any event the facts do not disclose a violation of Glass-Steagall. Finally, we note that plaintiff has expressly disavowed any theory of recovery except her claim that §§ 16 and 21 of the Glass-Steagall Act have been violated. The violation, if it occurred, is a consequence of the relationship between the Bank and the participants in the fund. If their interests are “securities” within the meaning of the Act, the violation exists no matter how prudently or profitably the fund assets may have been managed; conversely, if their interests are not themselves securities, the mere fact that the Bank may have acted negligently or even improperly in its use of the plaintiff’s funds to invest in Penn Central stock is completely irrevelant. This is not a mismanagement case. The narrow issue, therefore, is whether participants in an open-end mutual investment fund are entitled to recover their losses if they can prove that operation of the fund violates §§ 16 and 21 of the Glass-Steagall Act. There is no express statutory authorization for private action to redress a violation of Glass-Steagall. Of course, the absence of an express private remedy does not necessarily resolve the issue. For in certain situations the Supreme Court has found or created an implied remedy in favor of private parties within the class, or classes, of persons intended to be protected by a statute. Thus, in Texas & Pacific Ry. v. Rigsby, 241 U.S. 33, 36 S.Ct. 482, 60 L.Ed. 874, the Court found an implied damage remedy because the plaintiff employee was a member of the class “for whose especial benefit” the Federal Safety Appliance Act had been passed. It stated: “A disregard of the command of the statute is a wrongful act, and where it results in damage to one of the class for whose especial benefit the statute was enacted, the right to recover the damages from the party in default is implied, according to a doctrine of the common law expressed in 1 Comyn’s Dig., title ‘Action upon Statute’ (F), in these words: ‘So, in every case, where a statute enacts, or prohibits a thing for the benefit of a person, he shall have a remedy upon the same statute for the thing enacted for his advantage, or for the recompense of a wrong done to him contrary to the said law.’ ” 241 U.S. at 39, 36 S.Ct. at 484. In J. I. Case v. Borak, the Court held that unless relief were implied for “victims of deceptive proxy statements . . the whole purpose of [§ 14(a) of the Securities Exchange Act of 1934] might be frustrated.” 377 U.S. 426, 434-435, 84 S.Ct. 1555, 1561, 12 L.Ed.2d 423. See also Tunstall v. Brotherhood, 323 U.S. 210, 65 S.Ct. 235, 89 L.Ed. 187; Allen v. State Board of Elections, 393 U.S. 544, 554-557, 89 S.Ct. 817, 22 L.Ed. 2d 1. Cf. Reitmeister v. Reitmeister, 162 F.2d 691, 694 (2d Cir. 1947). In Investment Co. Institute v. Camp, 401 U.S. 617, 91 S.Ct. 1091, 28 L.Ed.2d 367, following its holding in Data Processing v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184, the Court held that companies engaged in the business of operating mutual investment funds had standing to attack portions of a regulation issued by the Comptroller of Currency which permitted national banks to become competitors of the plaintiffs. Although the Bank argues vigorously to the contrary, we may assume also that the interests of depositors or stockholders of the Bank may be sufficient to support a similar action. In light of the analysis of the legislation and its history in the Camp opinion, however, our understanding of the interests at stake leads to the conclusion that the position of a fund participant seeking to recover damages from the Bank is quite different. Because of its expertise in the money market, a bank may desire to enter allied lines of activity which involve greater profit potential and greater risk than traditional commercial banking. Federal banking laws, although permitting some such allied activities, severely limit and regulate the kinds of risks a national bank may take. The basic reason for the legislation does not reflect a concern that the bank will be less capable of performing the activity efficiently than other entrepreneurs; rather, it reflects a desire to minimize the risks of loss or insolvency to the bank itself. In short, the prohibition of an activity such as operation of a common trust fund is not based on any assumption that participants in such funds need protection from bank entry into this market; rather, it rests on the belief that the higher entrepreneurial risks associated with this activity might jeopardize the overriding interests of depositors and the public in maintaining the solvency of banks and confidence in the banking system. If we assume as a general proposition that banks are at least as competent as other firms to operate mutual investment funds, it is manifest that participants in such funds would not be injured and, indeed, should benefit from a rule that would permit banks to enter that area of economic activity. Participants, therefore are not members of “the class for whose especial benefit the statute was enacted.” Indeed, to allow them to recover damages resulting from nothing more than a decline in value of a prudently managed fund simply because the fund itself was created or operated in violation of §§ 16 and 21 of the Glass-Steagall Act would impair the precise interests that the statute was enacted to protect. In our opinion, a fair evaluation of “the congressional policy underpinning the substantive provisions of the statute” requires rejection of the implied damage remedy plaintiff seeks to assert in this case. The judgment is Affirmed. . The quotations are from plaintiff’s complaint. . The prayer of the complaint reads: “Wherefore, plaintiff, Elizabeth J. Russell, individually and on behalf of all those who have made capital contributions to the Capital Investment Service at the Continental Bank, prays judgment against the defendant in the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) plus interest from the date of investment and costs of this suit.” . The relevant portions of those sections of the Glass-Steagall Act provide: “Seventh. The business of dealing in securities and stock [by a national bank] shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case for its own account . ;■!: * * * :¡: “ . . . Except ns hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by [a national bank] for its own account of any shares of stock of any corporation.” 12 TJ.S.C. § 24. “[I]t shall be unlawful [f]or any person, firm, corporation, association, business trust, or other similar organization, engaged in the business of issuing, underwriting, selling, or distributing, at wholesale or retail, or through syndicate participation, stocks, bonds, debentures, notes, or other securities, to engage at the same time to any extent whatever, in the business of [deposit banking].” 12 U.S.C. § 378. . Before the district court dismissed the complaint, the parties engaged in discovery. Although facts developed by that discovery are in the record before us, we do not consider them in connection with our ruling on the sufficiency of the complaint. . Brief for plaintiff-appellant, page 11. In her memorandum opposing the motion to dismiss, plaintiff conceded that “the Complaint was not intended to assert any claim except one based on violation of Sections 16 and 21 of the Glass-Steagall Act.” . “No provision of the banking law suggests that it is improper for a national bank to pool trust assets, or to act as a managing agent for individual customers, or to purchase stock for the account of its customers. But the union of these powers gives birth to an investment fund whose activities are of a different character.’’ Investment Co. Institute v. Camp, 401 U.S. 617, 624-625, 91 S.Ct. 1091, 1096, 28 L.Ed.2d 367. . “The Glass-Steagall Act reflected a determination that policies of competition, convenience, or expertise which might otherwise support the entry of commercial banks into the investment banking business were outweighed by the ‘hazards’ and ‘financial dangers’ that arise when commercial banks engage in the activities proscribed by the Act.” Id. at 630, 91 S.Ct. at 1098. . “It is not the slightest reflection on the integrity of the mutual fund industry to say that the traditions of that industry are not necessarily the conservative traditions of commercial banking. The needs and interests of a mutual fund enterprise more nearly approximate those of securities underwriting, the activity in which bank security affiliates were primarily engaged. When a bank puts itself in competition with mutual funds, the bank must make an accommodation to the kind of ground rules that Congress firmly concluded could not be prudently mixed with the business of commercial banking.” Id. at 637, 91 S.Ct. at 1102. Earlier in its opinion the Court noted: “Senator Glass made it plain that it was ‘the fixed purpose of Congress’ not to see the facilities of commercial banking diverted into speculative operations by the aggressive and promotional character of the investment banking business.” Id. at 632, 91 S.Ct. at 1099. . The Glass-Steagall Act was enacted “[t]o provide for the safer and more effective use of the assets of banks, [and] to prevent the undue diversion of funds into speculative operations;....” 48 Stat. 162. “There is no dispute that one of the objectives of the Glass-Steagall Act was to prohibit commercial banks, banks that receive deposits subject to repayment, lend money, discount and negotiate promissory notes and the like, from going into the investment banking business.” 401 U.S. at 629, 91 S.Ct. at 1098. . “From the perspective of competition, convenience, and expertise, there are arguments to be made in support of allowing commercial banks to enter the investment banking business. But Congress determined that the hazards outlined above made it necessary to prohibit this activity to commercial banks. Those same hazards are clearly present when a bank undertakes to operate an investment fund.” Id. at 636, 91 S.Ct. at 1101. . The Supreme Court’s holding in Thompson v. St. Nicholas National Bank, 146 U.S. 240, 248, 13 S.Ct. 66, 68, 36 L.Ed, 956, apparently rested in part on its agreement with the New York Court of Appeals ’.“that it would defeat the very policy of an act intended to promote the security and strength of the national banking system, if its provisions should be so construed as to inflict a loss upon the banks, and a consequent impairment of their financial responsibility.” . See Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 402, 91 S.Ct. 1999, 2008, 29 L.Ed.2d 619 (Mr. Justice Harlan concurring).

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

BENTON-VOLVO-METAIRIE, INC., and Benton Auto Works International, Inc., d/b/a Benton-Volvo-New Orleans, Plaintiffs-Appellants, v. VOLVO SOUTHWEST, INC., et al., Defendants-Appellees. No. 72-2508. United States Court of Appeals, Fifth Circuit. June 7, 1973. Maumus F. Claverie, Jr., New Orleans, La., for plaintiffs-appellants. Gene W. Lafitte, New Orleans, La., for defendants-appellees. Before COLEMAN, MORGAN and RONEY, Circuit Judges. LEWIS R. MORGAN, Circuit Judge: This is an appeal from an order of the district court granting the motion of the appellee, Volvo Southwest, Inc., for a summary judgment. The appellant Benton-Volvo-Metairie, Inc., brought an action against Volvo Southwest to recover damages for an alleged breach of a dealership franchise agreement. After the complaint and answer were filed, the ap-pellee (defendant below) moved for summary judgment alleging no genuine issue as to any material fact. The motion was granted by the district court without opinion. We remand for further proceedings. On March 11, 1968, plaintiff Benton-Volvo and defendant Volvo Southwest entered into a contract granting Benton-Volvo a dealer franchise for Metair-ie, Louisiana. Plaintiff appeared to have given up a Volvo dealership in New Orleans in order that it might obtain this dealership. In addition, plaintiff purchased land, building, machinery, materials, facilities, equipment, a leasehold interest, and borrowed money in reliance upon the acquisition and continued possession by the plaintiff of this franchise. On July 24, 1969, Lars Samuelson, a vice president of defendant Volvo Southwest, sent a letter to Benton-Volvo-Me-tairie informing it that Volvo Southwest had elected to terminate its franchise agreement with Benton-Volvo-Metairie pursuant to the written contract. The letter of July 24th gave no reason for this termination and none was required by the franchise agreement. Benton-Volvo-Metairie replied by letter on September 19, 1969, informing Volvo Southwest that under Louisiana law such termination was illegal and that Benton-Volvo-Metairie considered this termination notice null and void. In the same letter Benton-Volvo-Metairie did offer to discuss sale to Volvo Southwest of the good will and physical plant of the dealership, such physical plant having been erected on behalf of and upon demand of Volvo Southwest. Benton-Volvo-Metair-ie went on to state that if Volvo Southwest proceeded as if the termination were valid, Benton-Volvo-Metairie would have no choice but to file a court action in order to protect its interest. Proceedings Below Volvo Southwest did proceed as if the termination were valid and on September 21, 1970, Benton-Volvo-Metairie filed a complaint in the United States District Court for the Eastern District of Louisiana. The complaint below alleged that Volvo Southwest cancelled its dealership agreement without due regard to the equities of Benton-Volvo-Metairie and without just provocation. The complaint further asserted that such termination was illegal under the laws of the State of Louisiana and contrary to public policy. As a result of this termination the plaintiff maintains it was no longer able to sell and perform warranty or non-warranty repair work on Volvo automobiles or stock and sell parts for Volvos. Consequently, plaintiff insists that its investment in this dealership was rendered valueless and damages should be awarded in the amount of $851,493.34. Defendant Volvo Southwest answered defending its action by asserting that the Louisiana statute in question was in violation of the equal protection and due process clauses of the Fourteenth Amendment and therefore could not be applied to defendant Volvo Southwest. Defendant also insists that it had just cause and provocation to terminate and listed in its answer eight reasons for doing so. However, none of these reasons were substantiated or even mentioned in the affidavits submitted during the proceedings below. Defendant then moved for summary judgment in accordance with Rule 56 of the Federal Rules of Civil Procedure, alleging that no cause of action was stated by the plaintiff upon which relief could be granted. Defendant submitted affidavits in compliance with Rule 4(e) of the Federal Rules of Civil Procedure. These affidavits, however, in no way substantiated any of defendant’s claims as to the appropriateness or justification for their termination of Benton-Volvo-Metairie’s dealership. The trial court granted the defendant’s motion for summary judgment. The plaintiff below then appealed to this court asserting that the Louisiana statute concerning termination of automobile franchise dealerships, supra, is constitutional. The defendant disputes this contention. The lower court’s order granting the motion for summary judgment was not accompanied by findings of fact or conclusions of law, and nothing appears in the record to indicate the grounds upon which the district court based its ruling. Issues It appears to this court that there are several possible arguments for a summary judgment ruling. The lower court could have decided that the Louisiana statute in question was unconstitutional and, therefore could not be applied in this case, or the district court could have found that public policy in Louisiana does not permit a contract of this type. Furthermore, the trial court possibly found that considering all the evidence in the light most favorable for the plaintiff there was no factual basis for relief. This court is cognizant of the rule that a question of constitutionality should be avoided when there are other possible grounds upon which a decision can be based. Because all these possible avenues of approach were open to the court below, this court is in doubt as to which avenue that court took to reach its decision for summary judgment. I. Under our present system of notice pleadings, both the complaint and the answer below allege grounds upon which the granting or denying of summary judgment could be based. The constitutionality of the Louisiana statute was not the sole issue with which the trial court was faced. The immediate problem that confronts us then is whether the district court founded its granting of summary judgment upon the theory of the unconstitutionality of the Louisiana statute or whether the district court based its decision upon other available grounds. Furthermore, it seems to this court that both parties are also uncertain as to why the district court granted summary judgment. It appears to be the invariable practice of our courts not to consider the constitutionality of state legislation unless it is imperatively required. Bush v. Texas, 372 U.S. 586, 83 S.Ct. 922, 9 L.Ed.2d 958 (1968); Rosenberg v. Fleuti, 374 U.S. 449, 83 S.Ct. 1804, 10 L.Ed. 2d 1000 (1963). Furthermore, as a general principle, courts will not pass on the constitutionality of an act of the legislature if the merits of the case in hand may be fairly determined otherwise. If the case may be decided on either of two grounds and one of these does not involve the constitutionality of a statute, the court will decide it on that ground. Flint v. Stone Tracy Co., 220 U.S. 107, 31 S.Ct. 342, 55 L.Ed. 389 (1911). Therefore, this court is restrained from inferring constitutional rationale as regards the lower court decision in this case. There is very little before this court then to be properly examined which can be used for the purpose of review. Because these non-constitutional grounds cannot be adequately examined at this time, this court must abstain from ruling as to the constitutionality of the Louisiana statute in question. II. This court is called on to decide whether the granting of summary judgment was correct based on the evidence presented. This is a very complex and difficult task, especially when there are no findings of fact and conclusions of law to guide this court in dealing with the various factors involved in a case concerning the termination of a franchise agreement. On appeal from summary judgment the record must be viewed in the light most favorable to the party opposing the motion. The moving party bears the burden of showing both that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Summary judgment procedure “is not a catch penny contrivance to take unwary litigants into its toils and deprive them of a trial, it is a liberal measure, liberally designed for arriving at the truth. Its purpose is not to cut litigants off from their right of trial by jury if they really have evidence which they will offer on a trial, it is to carefully test this out, in advance of trial by inquiring and determining whether such evidence exists”. Whitaker v. Coleman, 5 Cir. 1940, 115 F.2d 305 at 307; 3 Barron & Holtzoff (Wright Ed.), § 1231. The party opposing the motion should be given the benefit of all reasonable doubts in determining whether a genuine issue exists. Heyward v. Public Housing Administration, 5 Cir. 1956, 238 F.2d 689 at 696. Rule 56 does not permit trial by affidavits although affidavits may be used on a motion for summary judgment, but the court may not resolve disputed fact issues by reference to these affidavits. 3 Barron & Holtzoff (Wright Ed.) § 1234, n. 56. This court takes note of the fact that it is always true, whether or not the non-moving party has submitted affidavits or similar material, that the burden is on the moving party to establish the absence of a genuine issue as to any material fact, and that he is entitled to judgment as a matter of law. 3 Barron & Holtzoff (Wright Ed.) § 1235, nn. 89.-2, 90. From the record before us wé do not find the defendant to have sufficiently demonstrated that it was entitled to summary judgment. III. It is possible that there was a procedural misunderstanding concerning Rule 56(e) of the Federal Rules of Civil Procedure. That rule states: “When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.” (Emphasis added). Therefore, another problem presented in this appeal appears to be whether a respondent to a motion for summary judgment may not file affidavits and still be entitled to a denial of the motion. Benton-Volvo-Metairie did not file affidavits or respond to the motion for summary-judgment by Volvo Southwest. However, this court feels that in certain cases the filing of counter affidavits would be only a perfunctory task. Dawkins v. Green, 412 F.2d 644 (5 Cir. 1969) at 646. It is well established that on a motion for summary judgment, the moving party carries the burden of proof, and he must show that no genuine issue of material fact exists even though at trial his opponent had the burden of proving the facts alleged. Dawkins v. Green, supra; Doff v. Brunswick Corporation, 372 F.2d 801 (9 Cir. 1967). In the case before us now defendants moved for summary judgment and submitted affidavits to support such a motion; plaintiff filed no affidavits. If this was then an appropriate case for summary judgment the action could have been properly ended at that point. However, the affidavits filed by the defendant are simply a restatement of the denials and counter charges contained in their answer and they contained no new information. Moreover, they set forth only ultimate facts or conclusions in that their contents are statements made by Lars Samuelson and copies of correspondence between the parties which in no way proved or disproved any of the allegations set out in the complaint and answer. It does not appear that any facts are present so that the trial court could actually arrive at its own conclusions. It should be remembered that in summary judgment proceedings affidavits containing mere conclusions have no probative value. Conclusion After careful review of the record below, this court finds that there were other possible grounds aside from the question of constitutionality of the Louisiana statute that the lower court could have used as rationale for granting or refusing to grant summary judgment. This court, not having before it adequate evidence upon which to rule, therefore remands this case for further proceedings not inconsistent with this opinion. Vacated and remanded. . Section 32:1254(4) (c) of the Louisiana Code reads as follows : To unfairly, without due regard to the equities of said dealer and without just provocation, cancel the franchise of any motor vehicle dealer. The nonrenewal of a franchise or selling agreement without just provocation or cause shall be deemed an evasion of this paragraph and shall constitute an unfair cancellation, regardless of the terms or provisions of such franchise or selling agreement. See also Section 32:1254(4) (a). . When counsel were asked at oral argument how they arrived at their conclusion that the constitutionality of the statute was critical to the decision below, their only reply was that the district judge’s law clerk had indicated to them that this was what the law clerk thought the judge had considered in granting summary judgment. . Often courts will even refuse to decide constitutional questions when the record discloses other grounds for decision, whether or not such other grounds have been properly raised before the court by the parties. Neese v. Southern R. Co., 350 U.S. 77, 76 S.Ct. 131, 100 L.Ed. 60 (1955). Furthermore, the Supreme Court, upon determining that a Federal Court of Appeals had before it not only a constitutional question which was decided, but also a non-constitutional question which might properly alone have served as adequate ground upon which to dispose of the case but which was not considered or decided, will vacate the judgment of the Court of Appeals and remand the case to it for decision on the non-constitutional issue, and it will not consider the constitutional issue. Alma Motor Company v. Timken-Detroit Axle Company, 329 U.S. 129, 67 S.Ct. 231, 91 L. Ed. 128 (1946). . Poller v. Columbia Broadcasting System, 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962), at 473; Pogue v. Great A & P Tea Company, 242 F.2d 575 at 576 (5 Cir. 1957) ; 3 Barron & Holtzoff (Wright Rules Edition), Section 1242, page 198, note 46. . Rule 56(c), Federal Rules of Civil Procedure; Palmer v. Chamberlin, 191 F.2d 532 at 540 (5 Cir. 1951). . In Woods v. Allied Concord Financial , Corporation (Delaware), 5 Cir. 1967, 373 F.2d 733, it is made clear that affidavits containing mere conclusions do not have probative value during summary judgment proceedings. That rule has previously been set down in Bsharah v. Eltra Corporation, 6 Cir. 1968, 394 F.2d 502; Creel v. Lone Star Defense Corporation, 5 Cir. 1949, 171 F.2d 964. . On remand, we feel the district court should address the following issues: First, was the original summary judgment based on a finding that the statute is unconstitutionally vague? Irrespective of the validity of the statute itself, has the plaintiff sufficiently presented a claim that this contract clause is against the clearly established public policy of the state so that an action under general contract law can be maintained? Finally, if these grounds were not the basis for the decision below, was other evidence submitted in support of the affidavits and affirmative defenses of the complainant?

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

NATIONAL ASSOCIATION OF WOMEN’S AND CHILDREN’S APPAREL SALESMEN, INC., a/k/a NAWCAS Guild, etc., et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent. No. 71-1880. United States Court of Appeals, Fifth Circuit. May 21, 1973. Simpson, Circuit Judge, filed dissenting opinion. Raymond R. Dickey, Robert D. Road-man, Washington, D. C., Sherwyn E. Syna, Atlanta, Ga., for petitioners. Joseph Martin, Jr., Gen. Counsel, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, Miles J. Brown, Atty., Federal Trade Commission, Washington, D. C., for respondent. Before JOHN R. BROWN, Chief Judge, and BELL and SIMPSON, Circuit Judges. JOHN R. BROWN, Chief Judge: We enter the workroom to review the propriety of an FTC cease and desist order which compels the Petitioners, National Association of Women’s & Children’s Apparel Salesmen (NAWCAS) to refrain from committing certain unfair trade practices within the context of their regional trade shows. Our role is chiefly that of a tailor: we must dart the seam of two interrelated public policies — the antitrust proscription and its labor exemption. The thread which fastens this seam is composed of three independently woven fibers: (i) is NAWCAS a “labor organization” under the cloak of the Norris LaGuardia Act, 29 U.S.C.A. § 104, and Clayton Act §§ 6, 20, 15 U.S.C.A. § 17, 29 U.S.C.A. § 52, special dispensation for labor? (ii) do the challenged activities arise in the context of a bona fide “labor dispute” as that term is used in these statutory provisions? and (iii) has NAWCAS acted only in its labor self-interest — eschewing any combination with non-labor groups? Unless all three questions can be answered affirmatively, NAWCAS is not entitled to don the protective cloak. The FTC, relying heavily on an NLRB holding in a collateral proceeding, answered the first two questions negatively and issued its order. National Association of Women’s and Children’s Apparel Salesmen, 1971, - F.T.C. - [docket no. 8691]. Because we are in agreement on these points, we enforce the order without addressing ourselves to the third question. The Wrinkled Cloak When the National Association of Women’s and Children’s Apparel Salesmen was formed in 1945, its avowed purpose was to provide a forum for the free exchange of trade information and a force to represent the best interests of ready to wear clothing salesmen. At that time, NAWCAS stitched together 21 local affiliate groups of salesmen. One of the primary activities of these affiliates was the sponsoring of regional trade shows to minimize traveling. There are approximately ten thousand manufacturers of women’s and children’s apparel in the United States, mostly centered in and around the New York City area. Although there are several industry giants, their share of the market is relatively miniscule — 90 per cent of the business going to the smaller manufacturers. Their wares are normally marketed through the efforts of the hired salesmen. Most of these men work on commissions, although the trend among the larger firms is toward compensation by a fixed salary. They also tend to work exclusively for one manufacturer — purportedly to preserve design integrity and prevent “line piracy” — unless their territory is so threadbare that they must represent two or more noncompeting lines to make an adequate living. The most effective method of marketing apparel has been found to be that of the regional, periodic trade show. Sponsoring these shows is the role of the local affiliate. They are usually held in hotels, auditoriums, or merchandise marts. Long-term advance planning is necessary. The affiliate who sponsors the show rents the necessary facilities, solicits registration from members qualified to exhibit, and provides general logistical support for the registrants. Each show is governed by the rules and regulations of the sponsoring affiliate and violations of the rules may result in a fine or suspension. As noted by the NLRB and FTC, a number of the rules are designed to prevent members from participating in competing shows. Because of the tremendous prestige and economic impact of these shows, participation in them is almost a business necessity. Many of NAWCAS’s tangible goals were union-like. But for the first 11 years its approach was strictly velveteen. Then, at its 1956 convention, NAWCAS adopted the “California Resolution”. Under this Resolution NAWCAS decided to exert economic leverage by blacklisting “uncooperative manufacturers” from the affiliates’ trade shows. At first the blacklists were confined to those manufacturers who did not put forth a cooperative' effort towards resolving disputes with their association-member salesmen. In 1960, however, the economic tool of excluding uncooperative manufacturers from the trade shows was extended to those manufacturers who failed to hire their salesmen under the terms of NAWCAS’s standard contract. It is this refusal to deal which the FTC seeks to collar with its order. The Ironing Board The FTC skirted the necessity of ruling directly on the extent of protection afforded to NAWCAS’s activities by labor’s cloak of antitrust immunity by relying on the opinion of the NLRB in a collateral proceeding, Bambury Fashions, Inc., 1969,-NLRB- [Appendix at 146-156], to iron out the wrinkles. The Board held that because of the commercial nature of NAWCAS’s trade shows it was disqualified from functioning as a labor organization. The rationale behind this deference to the determination of the Board, is that labor’s cloak of immunity must be lined with the fact that the putative labor organization is- — or could be —the bargaining representative for the employees in question. This is so because the antitrust laws yield only insofar as the union pursues legitimate subjects of collective bargaining. Meat Cutter’s Union v. Jewel Tea Co., 1965, 381 U.S. 676, 689 and 710, 85 S.Ct. 1596, 1601 and 1614, 14 L.Ed.2d 640, 649 and 661; American Federation of Musicians v. Carroll, 1968, 391 U.S. 99, 88 S. Ct. 1562, 20 L.Ed.2d 460; Hunt v. Crumboch, 1945, 325 U.S. 821, 65 S.Ct. 1545, 89 L.Ed. 1954. If an organization cannot, under any set of circumstances, function as the collective bargaining agent of the employees of a particular employer, that organization may not transgress the employer’s rights to unrestrained competition with impunity under the cloth of a labor label. Allen Bradley Co. v. Local Union No. 3, 1945, 325 U.S. 797, 65 S.Ct. 1533, 89 L.Ed. 1939. The authority to determine representational matters under the National Labor Relations Act is vested exclusively with the NLRB. See NLRB v. Cabot Carbon Co., 1959, 360 U.S. 203, 79 S.Ct. 1015, 3 L.Ed.2d 1175. Because of the immediacy usually attending such determinations, there is no means of securing direct judicial review of the Board’s determination — -it must be attacked collaterally in the context of aunfair labor practice charge. Boire v. Greyhound Corporation, 1964, 376 U.S. 473, 84 S.Ct. 894, 11 L.Ed.2d 849; Magnesium Casting Co. v. NLRB, 1971, 401 U.S. 137, 91 S.Ct. 599, 27 L.Ed.2d 735; Templeton v. Dixie Color Printing Co., 5 Cir., 1971, 444 F.2d 1064. Given this commitment, under our national labor policy, to the Board’s particular expertise of the task of defining what organizations- are labor organizations, we hold that it was proper for the FTC to accord dispositive weight to the Board’s holding. What the Board actually held in Bambury Fashions was that NAWCAS, because of its financial stake in the trade shows themselves, was precluded from acting as a labor organization. Thus, according to the Board, the disqualifying factor “is the latent danger that it may bargain, not for the benefit of unit employees, but for the protection and enhancement of its business interests which are in direct competition with those of the employer at the other side of the bargaining table.” Bambury Fashions, supra at -. In essence it washes out to this. An organization purporting to represent the interests of a group of employees may disregard the potential impact of the antitrust laws on their chosen means if the ends to be accomplished are appropriate bargaining subjects for a labor union. But where the organization has a proprietary interest in the means, in and for themselves, it is disqualified from functioning as a labor organization under the protective cloak. “The labor exemption is inapplicable where the union acts not as a union but as an entrepreneur.” Jewel Tea, supra, 381 U.S. at 733, 85 S.Ct. at 1626, 14 L.Ed.2d at 675 (Goldberg, J.); Cf. Los Angeles Meat & Provision Drivers Union, Local 626 v. United States, 1962, 371 U.S. 94, 83 S.Ct. 162, 9 L.Ed.2d 150; Columbia River Packers Association v. Hinton, 1942, 315 U.S. 143, 62 S.Ct. 520, 86 L.Ed. 750; Gulf Coast Shrimpers & Oystermans Association v. United States, 5 Cir., 1956, 236 F.2d 658. Given this disqualification by the Board, the FTC was correct in buttonholing NAWCAS’s anticompetitive activities. Enforced. SIMPSON, Circuit Judge (dissenting) : I respectfully dissent. The majority today holds that the Federal Trade Commission properly relied upon the decision of the National Labor Relations Board in a collateral proceeding, Bambury Fashions, 1969, 179 NLRB 447, which also involved NAWCAS. In Bambury Fashions the Board concluded that NAWCAS was not qualified under the National Labor Relations Act to act as the statutory bargaining representative for certain traveling salesmen who potentially competed with employers by conducting trade shows. The majority concludes that the Commission could rely on this Board decision to hold that because NAWCAS may not act as a bargaining representative, it is not a “labor organization” entitled to the protection of the labor exemption to the federal antitrust laws. The basic holding of the majority is: “The rationale behind this [the Commission’s] deference to the determination of the Board, is that labor’s cloak of immunity must be lined with the fact that the putative labor organization is — or could be — the bargaining representative for the employees in question. This is so because the antitrust laws yield only insofar as the union pursues legitimate subjects of collective bargaining. [citations omitted] If an organization cannot, under any set of circumstances, function as the collective bargaining agent of the employees of a particular employer, that organization may not transgress the employer’s right to unrestrained competition with impunity under the cloth of a labor label.” [citations omitted] Majority opinion at 144. The Commission’s syllogism, which the majority here endorses, is improper because the Board decided only that NAWCAS could not be a bargaining representative. It did not hold that NAWCAS was not a labor organization. The core of the Board’s opinion in Bambury Fashions was: “Finally, notwithstanding the fact that NAWCAS, as found by the Regional Director, satisfies the two part test of the statutory definition of a labor organization, we find that it is disqualified from acting as such because its interest in representing employee salesmen in the industry conflicts substantially with its primary interest in coordinating and strengthening the trade show activities of its affiliates. We agree with the Employers that NAWCAS in its trade show activities in behalf of independent contractor traveling salesmen members is engaged in the business of selling apparel in direct competition with apparel manufacturers.” 179 NLRB at 450. In Bambury Fashions the Board applied its rule in Bausch & Lomb Optical Co., 1954, 108 NLRB 1555, that “ . . . the Union cannot perform its statutory function as bargaining representative if simultaneously it is an immediate business competitor of the particular employer whose employees it purports to represent.” Ibid, at 1562. Clearly then the Board’s holding in Bambury Fashions was no more than that NAWCAS was disqualified from acting as a bargaining representative, not that NAWCAS was not a labor organization. The Commission’s extension of the Board’s position is unwarranted for another reason. While it is true, as the majority states, that a union is exempt from the antitrust laws only insofar as it unilaterally pursues mandatory subjects of collective bargaining — wages, hours and working conditions, American Federation of Musicians v. Carroll, 1968, 391 U.S. 99, 88 S.Ct. 1562, 20 L.Ed.2d 460 — it does not follow that a union must be the National Labor Relations Act bargaining representative in order to pursue these goals, and hence enjoy the protection of the labor exemption to the antitrust laws. This is true because the umbrella of the antitrust exemption protects labor organizations. A group may be a “labor organization” within the statutory framework of the National Labor Relations Act without being a “bargaining representative” under that Act, as the language of the statute makes clear: “The term ‘labor organization’ means any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.” National Labor Relations Act, Section 2(5); Title 29, U.S.C., Section 152(5). NLRB v. Cabot Carbon Co., 1959, 360 U.S. 203, 79 S.Ct. 1015, 3 L.Ed.2d 1175, demonstrates that the National Labor Relations Act concepts of “labor organization” and “bargaining representative” are not coequal. In Cabot Carbon the NLRB had ordered the employer to cease and desist from unlawfully dominating certain employee committees, which coexisted with Board certified bargaining representatives at certain of the employer’s plants. This Court refused to enforce the Board’s order on the grounds that by the 1947 amendments to the Act Congress had not intended to include such committees within the statutory definition of labor organization, and that the term “dealing with employers” in the statutory definition of a labor organization meant in reality “bargaining with employers”, and that the committees were not statutory bargaining representatives. The Supreme Court reversed, stating that the statutory term “dealing with employers” was not to be read as synonymous with the more limited term “bargaining with employers”. 360 U.S. at 211, 79 S.Ct. at 1020, 3 L.Ed.2d at 1180. Further the Court noted that Congress had rejected an amendment which would have substituted the term “bargaining collectively” for “dealing with employers” in the statutory definition of a labor organization. 360 U.S. at 211, 79 S.Ct. at 1021, 3 L.Ed.2d at 1181. Upon this analysis it seems to me apparent that a group of persons may be a “labor organization” under the terms of the National Labor Relations Act without being a statutory bargaining representative under that Act. Furthermore, the “ . . . grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work”, National Labor Relations Act, Section 2(5); Title 29, U.S.C., Section 152(5), about which a “labor organization” deals with an employer are essentially equivalent to the “wages, hours, and working conditions” which constitute mandatory bargaining subjects. Unilateral labor organization activity concerning these mandatory bargaining subjects is immune from the federal antitrust laws. I conclude that a group which deals with an employer concerning such subjects is immune from the antitrust laws where such dealings are involved, even though that labor organization is not and cannot be the statutory bargaining representative. In short, an organization may pursue legitimate objectives of collective bargaining even though it is not a bargaining representative. Both the Federal Trade Commission and the majority in this ease have fallen into the trap of equating qualification to act as a bargaining representative under the National Labor Relations Act with status as a labor organization. Thus, I think the Commission based its decision below upon improper legal reasoning. A fundamental principle of judicial review of administrative action requires that in order for a reviewing court to sustain agency action the legal grounds upon which the agency acted must be correct. FTC v. Sperry & Hutchinson Co., 1972, 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170; SEC v. Chenery Corp., 1943, 318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 686. Because the Commission improperly relied upon the Board’s decision in Bambury Fashions, supra, this case should be remanded to the Commission so that the Commission will have an opportunity to base its decision upon legally correct principles, including the extent to which certain components of NAWCAS might constitute non-labor groups not protected by the labor exemption to the antitrust laws. See generally, United States v. Hutcheson, 1941, 312 U.S. 219, 61 S.Ct. 463, 85 L.Ed. 788; American Federation of Musicians v. Carroll, supra; Cedar Crest Hats, Inc. v. United Hatters, 5 Cir. 1966, 362 F.2d 322. This latter question, which is crucial to the issue before the Commission, the majority here finds it unnecessary to consider. See majority opinion, footnote 2 at page 141. For this reason I dissent from the majority opinion. . Counsel for NAWCAS conceded before the Commission that if his client’s activities were not protected by the labor exemption to the antitrust laws, that theiconduct was violative of the Federal Trade Commission Act. Thus, there is no basis from which to attack the Commission’s order on its intrinsic merits if the labor exemption will not stand up. . Basing our holding upon the determination that NAWCAS may not act as a labor organization, we need not determine the extent to which certain component members of NAWCAS might constitute non-labor groups. See generally, United States v. Hutcheson, 1941, 312 U.S. 219, 61 S.Ct. 463, 85 L.Ed. 788; American Federation of Musicians v. Carroll, 1968, 391 U.S. 99, 88 S.Ct. 1562, 20 L.Ed.2d 460; Cedar Crest Hats, Inc. v. United Hatters, 5 Cir., 1966, 362 F.2d 322. . The objective, aims, and purposes of NAWCAS were set forth in Article III, Section 1 of its constitution. The objectives, aims and purposes of this association shall be educational and for the promotion of the best interests of its members; to provide a national association of all organizations or groups composed of salesmen engaged in the wholesale selling of women’s or children’s wearing apparel or accessories . to promote, stimulate and protect the interests and welfare of salesmen in the women’s and children’s fields and the industry with which they are concerned ... to cooperate with organizations composed of salesmen in kindred fields whenever practicable and feasible to the end that a strongly organized national voice of salesmen may be achieved ... to institute and maintain an educational program concerning itself with the welfare and future security of salesmen ... to create a clearing house for the interchange and dissemination of pertinent information, ideas, plans and facts helpful to members of affiliated organizations ... to establish and maintain an active employment clearing house ... to give wholehearted support to measures that are fair, reasonable and equitable to the interests and welfare of salesmen ... to provide information and guidance, and promote a policy of helpful services to independent retailers, and generally, foster a cordial relationship between manufacturers, retailers and salesmen and to represent the members as their bargaining agents and where appropriate to negotiate collective agreements in their behalf. . One of these affiliates, Style Exhibitors, Inc. of Chicago is also a named party in the FTC’s order and a petitioner herein. The FTC Examiner determined that the advocacy of Style Exhibitors was adequate to represent the other members of its class of affiliates, all of whom had some notice of the pending proceedings before the FTC. There is no challenge to this ruling on appeal. . Other methods of marketing include direct mail sales, home office showroom sales, regional sales offices in key cities, sales to jobbers, and direct sales to a common buyer/agent for several retailers. . The two chief objectives which they sought to obtain via the unfair trade practices under attack were establishment of a binding system of grievance arbitration and industry-wide use of NAWCAS’s standard contract of employment for salesmen. Both are certainly legitimate goals of a bargaining representative. They have also established some rather successful programs of insurance, retirement and death benefits. . The Commission’s order, which is not challenged on its merits in this appeal, requires the Petitioners to cease and desist from the following: (1) Refusing or threatening to refuse to promote, display, offer to sell, distribute, or sell at any trade show women’s and children’s apparel or accessories supplied by any manufacturer who is represented by a member of NAAVCAS, a member of any affiliate, or person who is otherwise eligible for trade show participation. (2) Entering into, continuing, cooperating in or carrying out any planned common course of action, understanding, or agreement with any other party for the purpose or with the effect of preventing, hindering, or interferring with a manufacturer from having bis merchandise displayed, exhibited, offered for sale or sold in or from any location not actually contracted for and used as space by respondent NAWCAS or by a representative who is a member of NAWCAS, a member of any affiliate, or any person as a part of a NAWCAS trade show participation for the conduct of a trade show sponsored by NAWCAS, its members or affiliates. (3) Entering into, continuing, cooperating in, or carrying out any planned common course of action, understanding, or agreement with any other party for the purpose or with the effect of preventing, hindering, or interferring with a manufacturer’s efforts to have his' merchandise displayed, exhibited, sold or offered for sale in any space not actually contracted for and used by a representative who is a member of NAWCAS, trade show participation. (4) Restricting, regulating, or limiting any member of NAWCAS, any member of any affiliate or any person who is otherwise eligible for trade show participation, in the selection of any merchandise that he may wish to display, offer for sale or sell at any trade show or exhibition. (5) Requiring, whether directly or indirectly any manufacturer of women’s and children’s apparel or accessories to comply with any demand, term or condition made by NAWCAS or any of its affiliated members as a condition of having the manufacturer’s goods exhibited in a NAWCAS affiliated trade show. (G) Preparing, printing, publishing or otherwise communicating by any method or means any “uncooperative manufacturers list” or similar-device with the purpose or effect of discouraging or preventing the merchandise of any particular manufacturer from being exhibited at any affiliate trade show. .(7) Prohibiting or forbidding any member of NAAVCAS or of any of its affiliates, from soliciting the representation of any line of merchandise produced by any manufacturer. (8) Prohibiting or forbidding any member of NAWCAS or of any of its affiliates, from representing any line of merchandise produced by any manufacturer because said member replaced another member as a representative of said manufacturer. (9) Prohibiting or forbidding the merchandise of any manufacturer from being promoted or displayed, or offered for sale, distribution or sale by any member of NAWCAS or of any of its affiliates, because said member replaced another member as a representative of said manufacturer. (10) Conditioning the showing by any member of NAWCAS of any merchandise of any manufacturer at any trade show organized by any affiliate or other NAWCAS group on the execution by said member of a contract with the manufacturer he represents containing terms or conditions established by and acceptable to respondents. (11) Restricting or limiting any affiliate or NAWCAS group from accepting as a member any person who transfers from another affiliate or otherwise is eligible or qualified to sell merchandise of any manufacturer. (12) Requiring any affiliate or other NAWCAS group to agree with any other affiliate on dates when or places where merchandise may be displayed or exhibited, offered for sale, or sold, except that nothing shall prevent any affiliate from continuing to utilize the dates at which such affiliate customarily held its shows, or voluntarily agree to show dates. (13) Denying or granting courtesy or provisional showing of merchandise to any manufacturer unless said manufacturer is first approved by NAWCAS or a NAWCAS affiliate other than the one to which application is being made. (14) Prohibiting or forbidding any merchandise of any manufacturer represented by a member of NAWCAS or any of its affiliates from being promoted, displayed, exhibited, offered for sale, or sold at any place or any time by said manufacturer, representative, or other-representative designated by said manufacturer. (15) Prohibiting, restricting, or limiting any person or firm engaged in the offering for sale, distribution or sale of women’s and children’s apparel or accessories from obtaining any room, rooms, or office space at any time in any facility. (16) Refusing to accept for membership in NAWCAS any individual who is otherwise eligible for membership and is actively and regularly engaged as a salesman or manufacturer who does not have salesmen and who travels a territory or territories himself, of women’s and children’s wholesale apparel and accessories irrespective of whether such individual was previously denied or excluded from membership. (17) Refusing to accept as an exhibitor at any trade show any salesman who may also be a manufacturer, importer, wholesaler, or jobber, or officers or employees thereof, whose line or lines of women’s and children’s apparel are not exhibited at that trade show by a member of NAWCAS or a member of any of its affiliates. (18) Continuing to retain any provision in its constitution, by-laws, code of ethics, or rules and regulations which contravenes or conflicts in any way with any of the above prohibitions. . Notwithstanding this canon of labor law, NAWCAS attempted to collaterally challenge the Board’s order. Its futile efforts culminated in National Association of Women’s & Children’s Apparel Salesmen, Inc. v. NLRB, D.C.Cir., 1972, 465 F.2d 662. . The FTC phrased its deference in terms of “primary jurisdiction”. Actually it is more than that. Although the Board’s election procedures may occasionally be overturned by a court reviewing an unfair labor practice proceeding, until that time the Board action is unassailable. Of. Coca Cola v. FTC, 5 Cir., 1973, 475 F.2d 299; Alabama Gas Corp. v. FTC, 5 Cir., 1973, 476 F.2d 142 [1973]. There is no concurrent jurisdiction in another tribunal which stands in abeyance pending reference to the Board, as in most eases of primary jurisdiction. Cf. J. M. Huber Corp. v. Denman, 5 Cir., 1966, 367 F.2d 104; Weymouth v. Colorado Interstate Gas Co., 5 Cir., 1966, 367 F.2d 84; Carter v. American Telephone & Telegraph Co., 5 Cir., 1966, 365 F.2d 486. We are not unaware of Mr. Justice White’s opinion in Jewel Tea declining to stay the proceeding there until a primary jurisdiction reference to the Board could be made. But lie surely did not mean that a Board determination was inconsequential, for lie also stated on that same day: “Unquestionably the Board’s demarcation of the bounds of the duty to bargain has great relevance to any consideration of the sweep of labor’s antitrust immunity,” United Mine Workers v. Pennington, 1965, 381 U.S. 657, 665, 85 S.Ct. 1585, 1590, 14 L.Ed.2d 626, 633. See also, Jewel Tea, supra, 381 U.S. at 710, 85 S.Ct. at 1614, 14 L.Ed.2d at 661 (Opinion of Goldberg, J.). . The Board’s finding here is bolstered by an independent finding of the PTC Examiner to substantially the same effect. Of course we are powerless to disturb this finding if “the evidence in the record reasonably supports the administrative conclusion.” Colonial Stores, Inc. v. FTC, 5 Cir., 1971, 450 F.2d 733, 739.

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UNITED STATES of America et al., Petitioners-Appellees, v. Edward H. PETER, Jr., Individually, and as President of Pine Meadows, Inc. and as President of Pecon, Inc., Respondent-Appellant. No. 72-2015. United States Court of Appeals, Sixth Circuit. May 24, 1973. Earl S. Wilson, Jr., Lexington, Ky., for respondent-appellant; J. Montjoy Trim-ble, Lexington, Ky., on brief; Kincaid, Wilson, Schaeffer, Trimble & Hembree, Lexington, Ky., of counsel. John P. Burke, Tax Division, Dept, of Justice, for petitioners-appellees; Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwaeks, Mary J. McGinn, Tax Division, Dept, of Justice, Washington, D. C., on brief; Eugene E. Siler, U. S. Atty., Robert E. Rawlings, Asst. U. S. Atty., of counsel. Before PECK and LIVELY, Circuit Judges, and O’SULLIVAN, Senior Circuit Judge. PER CURIAM. Appellant was found in contempt of Court for his refusal to produce records specified in two summonses issued by the Internal Revenue Service. Appellant was president of two corporations, of which he was also the sole shareholder, and the summonses had been issued to him in this capacity. Sometime in 1966 the separate bank accounts of the two corporations had been closed and thereafter their affairs were transacted through appellant’s personal bank account. In the course of an income tax investigation an agent discovered that substantial amounts of money had been received by appellant which he had not identified and which he was unable to explain. The two summonses directed appellant to appear and give testimony and to produce for examination “[A] 11 bank statements, cancelled checks, deposit tickets or duplicate original deposit tickets for the calendar years 1965, 1966, 1967 and 1968” of each of the corporations. The summonses were supported by certificates of service and the affidavit of the investigating special agent. Appellant appeared but refused to testify or produce the records referred to in the summonses. Thereupon appellee filed a petition to enforce the summonses and the district court, after a lengthy hearing, entered an order that appellant, as president of the two corporations, appear before the designated agent and produce all the corporate records specified in the two summonses. The appellant did not seek a stay of the order, nor was an appeal taken from it. Only a few of the records were turned over to the agent and, upon petition, the district court entered an order to show cause why the appellant and his attorney should not be held in contempt of court. The court found that appellant’s refusal to produce the records as previously ordered constituted a contempt, but that his attorney was free of contempt. At the hearing on the show cause order appellant suggested that all the records be delivered to the district judge for inspection by him in camera. Judge Swinford declined to do this, pointing out that he would have no basis upon which to divide the personal records from the corporate ones in view of appellant’s method of handling his affairs. At this point the attorney for the Internal Revenue Service reiterated that the I.R.S. was only interested in those checks on appellant’s personal account which related to the two corporations. The reason given by appellant .for refusing to honor the I.R.S. summonses was that he was under investigation for possible criminal tax fraud and that forced production of the specified records would violate his Fifth Amendment privilege against self-incrimination. The records to which the summonses were directed were corporate records. A corporation may not claim a privilege against self-incrimination, nor may a corporate officer refuse to produce records of the corporation on Fifth Amendment grounds. United States v. White, 322 U.S. 694, 64 S.Ct. 1248, 88 L.Ed. 1542 (1944); United States v. Held, 435 F.2d 1361 (6th Cir. 1970), cert. denied 401 U.S. 1010, 91 S.Ct. 1255, 28 L.Ed. 2d 545 (1971). Appellant could not clothe the records of his two corporations with immunity by mingling them with his personal records. Appellant attempted to put the burden of unscrambling his affairs on the Internal Revenue Service by refusing to produce the records. The summonses were valid and should have been obeyed. There was no material variance between the summonses and the order directing compliance. The fact that evidence of criminal conduct by appellant could possibly be discovered by examination of the corporate records did not render the summonses defective. United States v. Held, supra. Although the Intelligence Division had entered the case for the purpose of seeking evidence of fraud, there were no pending criminal charges, nor had the investigation been initiated solely for criminal purposes. Under these circumstances an I.R.S. summons cannot be challenged on the ground that its purpose is to establish a criminal tax fraud case. Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971). As noted earlier, appellant did not appeal from the order enforcing the summonses, though he challenged them on the same Fifth Amendment grounds in the hearing on the petition for enforcement. This was an adversary hearing and the order of enforcement was appealable. Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). Having failed to appeal the final adjudication of his Fifth Amendment defense, appellant cannot now relitigate the issue in these contempt proceedings. Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948). When appellant failed to appeal from the order of enforcement, the issues before the court in that proceeding became res judicata. United States v. Secor, 476 F.2d 766 (2d Cir. 1973). When he refused to comply with the unappealed order of enforcement appellant’s act of contempt was complete. Developments subsequent to the act of contempt which indicate a possible intention on the part of the Internal Revenue Service to discontinue the investigation are not relevant to this Court’s determination of the issues presented by this appeal. Therefore, appellant’s motion to vacate or modify is denied. The judgment of the district court is affirmed. Appellant will pay the costs herein.

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In the Matter of Jack Borgenicht, Debtor. Jack BORGENICHT, Appellant, v. CREDITORS’ COMMITTEE, Appellee. No. 820, Docket 73-1027. United States Court of Appeals, Second Circuit. Argued May 29, 1973. Decided May 31, 1973. Elliot L. Krause, New York City (Le-inwand, Marón, Hendler & Krause, New York City), for appellant. Julius J. Abeson, New York City (Hahn, Hessen, Margolis & Ryan, New York City), for appellee. Before MOORE, FRIENDLY and FEINBERG, Circuit Judges. PER CURIAM: This appeal from an order of the District Court for the Southern District of New York denying a petition to review an order of Referee Babitt raises the question whether a debtor who has been party to a confirmed arrangement under Chapter XI of the Bankruptcy Act may apply for leave to file an application for an extension of time to make payments under § 363 although the court did not retain jurisdiction pursuant to § 368. Although expressing sympathy with the debtor, the referee thought that the statute clearly precluded the relief sought. We agree and can add nothing useful to his excellent opinion. For the convenience of the bench and bar, we annex a copy of the relevant portions of this as an appendix. Affirmed. APPENDIX Roy Babitt, Referee: This debtor filed his voluntary petition for an arrangement under the statutory scheme of Chapter XI of the Bankruptcy Act, Section 302 et seq., 11 U.S.C. § 702 et seq., and in particular under Section 322, 11 U.S.C. § 722. That petition was filed on May 7, 1969 and was referred to Referee Loewenthal. It has since been re-referred to me. On October 9, 1969 the debtor filed his proposed arrangement (or as it has come to be called — -his plan) with his creditors. For purposes of the instant controversy, paragraph 4a of the proposed arrangement provided that the claims of all general unsecured creditors were to be paid in full without interest with 12% in cash to be paid on confirmation and the balance of 88% to be paid over sixteen “quarter annual installments of 5y2% each commencing from the date of confirmation.” Paragraph 5 of the proposed arrangement secured the creditors by execution by the debtor of mortgages on certain parcels of real property he owned. That paragraph also provided that in the event of default by the debtor or in the event of the debtor’s failure to perform any other conditions of the proposal the creditors, in their sole discretion, were to realize upon the security in such manner as they deemed advisable. That proposed arrangement was ultimately accepted by the debtor’s creditors in accordance with the statutory scheme and after the debtor had satisfied the statutory conditions precedent to confirmation, Referee Loewenthal entered an order on July 27, 1970 confirming the debtor’s arrangement. Between the entry of Referee Loewenthal’s order and now the debtor has paid the 12% in cash and seven of the 5%% installments called for by paragraph 4a of the arrangement. For purposes of the instant dispute it is important to note here that the debtor’s arrangement did not contain the provision contemplated by Section 357(7) of the Act, 11 U.S.C. § 757(7), whereby this court would have retained jurisdiction “until provisions of the arrangement, after its confirmation, have been performed . . .” While it might well have been desirable from the debtor’s standpoint for this court to have been given the retained jurisdiction of Section 357(7), the fact is that the creditors did not require it of the debtor in his proposal. Indeed in light of the motion which is the subject of this opinion, it is altogether likely that the creditors chose to block efforts by the debtor to include such a provision, for it seems to the court that the creditors are of a mind to pursue whatever remedy they might have without inter-ferenee by this court. In any event, for want of the specific conferral of continued jurisdiction in the arrangement, it is plain that Section 368 of the Act, 11 U.S.C. § 768, is of no moment in this controversy. That section states clearly and unequivocally that the court shall retain jurisdiction “if so provided in the arrangement.” The debtor brought this motion for an order granting the debtor leave to file a modification of his arrangement to provide for an extension of the time within which he might make the balance of the deferred payments. Simply stated, the debtor asked the opportunity to propose a deferral of the July, 1972 5y2% installment until October, 1972 and the balance of such payments to be paid semi-annually thereafter until the remaining balance of some 30% called for by the original proposal shall have been paid. As a legal basis for the motion, the debtor apparently invokes Section 387 of the Act, 11 U.S.C. § 787, and claims support for such invocation by the retention of jurisdiction which Congress did give to this court but limitedly by Section 369 of the Act, 11 U.S.C. § 769. The creditors’ committee answered and raised two defenses alleging that this court is bereft of power to grant the motion and that accordingly the motion fails to state a claim upon which any relief can be granted. It is with the utmost reluctance that I must conclude that the creditors’ committee’s defenses to the motion must be sustained and the motion denied. Section 387 of the Act, the linchpin of the debtor’s motion, speaks to the point. It does confer post-confirmation power in this court to authorize a debtor to alter or modify the confirmed arrangement by asking his creditors for more time to pay what he has promised them. The difficulty facing the debtor is that when Congress gave the court this power it did not do so unqualifiedly. The power was given only if the court had already had the retained jurisdiction contemplated by Section 368. And Section 368 swiftly and surely states that this court is to retain jurisdiction if it is provided for in the arrangement as authorized by Section 357(7) of the Act. Sections 368 and 387 must be read together. Their plain unambiguous language defies their being construed in such way as to give the debtor the opportunity he seeks of asking his creditors to accept his new offer deferring the payments of the 30% or so still due them and to stay their hand from foreclosing the mortgages he gave them to secure compliance with his original proposal. A problem in statutory construction seriously bothers a court only where there is a contest between probabilities of the meaning of the words of a statute. See Reflections on Reading Statutes, Felix Frankfurter, The Benjamin N. Cardozo Lecture before the Association of the Bar of the City of New York (March 18, 1947). Section 387 is a relatively recent enactment, it was enacted by Public Law 85-732 at the Second Session of the 85th Congress in 1958. While the legislative history, Senate Report 2094, 85th Cong., 2d Sess. (1958), U.S.Code Cong. & Admin.News 1958, p. 3804, does not indicate that Congress was specifically aware of the precise problem raised by this debtor who has faithfully discharged more than % of his original commitment, there is enough in the testimony before the committee to indicate that Congress knowingly pitched the jurisdiction to permit post-confirmation modification only to the instance where the court was specifically given jurisdiction by the original arrangement. After all, Congress might have supposed, the creditors, once having accepted a debtor’s offer, should be free to fashion their own recourse after a debtor has left the court. Be that as it may, the legislative history discloses that the main impulse for the legislation was to provide a judicial alternative to bankruptcy liquidation in the event a debtor has not squarely complied with the terms of his offer. But that alternative is available only where the power was specifically reserved to the court in the plan. By specifically referring to the retained jurisdiction of Section 368, Congress expressed the limits to which it was willing to sanction further judicial control over the continuing dialogue between a debtor and his creditors. Had Congress wished to confer this post-confirmation power on this court in any event it could easily have done so. Congress could easily have conferred the power whether it was the kind specifically granted by Section 368 or generally granted by Section 369. Congress did not see fit to do so and this court cannot rewrite the statute by extending it beyond the thought conveyed by the unambiguous words. The short of it is that the sharply limiting language of Section 387 does not admit of any reading other than that which the words spontaneously yield. It cannot be denied that this debtor has faithfully complied with the terms of this arrangement in the period since it was confirmed by Referee Loewenthal. The argument on the motion discloses that a piece of the debtor’s property in New York City has lately yielded less income than the debtor thought two years ago it would have yielded in order for him to make the necessary installment payments to his creditors. It seems to the court that the creditors could eschew foreclosing on the property to realize the 30% of their payments still due. To foreclose now would be to deny to the debtor the future enhancement of that property where it could serve to continue the rehabilitation process begun when the debtor first invoked the provisions of Chapter XI. But such equitable restraint must come from the debtor’s creditors, for, while we have been reminded again and again that this court applies equitable principles in the exercise of its bankruptcy jurisdiction, Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966), Pepper v. Litton, 308 U.S. 295, 305, 60 S.Ct. 238, 84 L.Ed. 281 (1939), there is simply no play in the case at bar for the exercise of such judicial equity power. This serves to emphasize that in this contest I have been called upon, not to determine equities, but to construe a Congressional enactment, processes which unfortunately do not necessarily lead to the same result. Haller v. Esperdy, 397 F.2d 211 (2d Cir. 1968). In short, this court’s equitable jurisdiction is not robust enough to amplify a jurisdiction severely limited by the plain language of recent enactment. . Section 322 contemplates an original petition while Section 321, 11 U.S.C. § 721, contemplates a Chapter XI petition (luring an already viable bankruptcy proeeeding. . Non-conferral of Section 357 (7) jurisdiction in no way suggests that this court lacks other powers after confirmation of an arrangement. See In re Pathe News, Inc., 270 F.Supp. 670 (S.D.N.Y. 1967) ; 9 Collier on Bankruptcy, (14th Ed.) ¶¶ 9.29, 9.30, 1108. For an early decision before Congress conferred any power to allow a debtor to modify his plan, see Seedman v. Friedman, 132 F.2d 290 (2d Cir. 1942), where the Court of Appeals characterized this court’s role as one of watchful waiting absent conferral of the limited retained jurisdiction the statute then carried.

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Morris A. PALMER et al., Plaintiff-Appellee, and Alice Taylor et al., Intervening Plaintiff-Appellee, v. COLUMBIA GAS OF OHIO, INC., Defendant-Appellant. No. 72-1772. United States Court of Appeals, Sixth Circuit. Argued Feb. 13, 1973. Decided May 22, 1973. Cary Rodman Cooper and Richard S. Walinski, Toledo, Ohio, for defendant-appellant; Franklin F. Hayward, Hayward, Cooper, Straub, Walinski, Cramer & Co., Toledo, Ohio, R. N. Mahaffey, Columbus, Ohio, on brief. Russell A. Kelm and Joseph F. Var-gyas, Toledo, Ohio, for plaintiff-appel-lee; R. Michael Frank, Frank S. Merritt, ABLE, INC., Toledo, Ohio, on brief. Edward J. Dailey, National Consumer Law Center, Inc., Chestnut Hill, Mass., on brief for amicus curiae. Franklin Arthur Martens, Ohio State Legal Services Assn., Columbus, Ohio, on brief for amici curiae. Before EDWARDS, PECK and Mc-CREE, Circuit Judges. JOHN W. PECK, Circuit Judge. I The plaintiffs, residential customers of natural gas supplied by the defendant Columbia Gas Company, brought this class action for injunctive and declaratory relief and for damages, alleging that their gas service had been terminated under color of state law in violation of their constitutional right to due process. The Columbia Gas Company is a large, privately owned, pervasively regulated public utility company. It serves over 140,000 customers in the Toledo, Ohio, area, and all of its billing is handled by computer in Columbus, Ohio. A reading is normally taken from each customer’s meter every other month, although on occasion no reading may be taken for a period of many months. When no reading is taken to reflect actual usage, the company's computer estimates usage and calculates an amount which is then billed to the customer. For some reason which is not made clear in the record, the computer usually underestimates in these situations; consequently, when an actual reading is eventually made after a series of several computer estimates, the resulting bill for actual gas consumed can be surprisingly high. In these cases, the customer, expeeially if poor, often has been unable to pay a bill several times larger than normal. Whenever a monthly bill is not paid by the customer, the amount is carried forward and added to the customer’s next bill. Whenever the second month’s bill is not paid by five days after the due date and the amount in arrears is $20 or more, a notice of termination (a “shut-off notice”) is sent to the customer: If payment is not made within five days of the issuance of the shut-off notice, an employee of the company called “a collector” goes to the residence and terminates the service. Although this employee is authorized to grant temporary extensions of time in which payment may be made, he is under no obligation to inform the occupants of the premises that he is about to terminate gas service, and he usually will make no contact at all with the occupants, even to verify the correctness of the address. The evidence established that however imperfect the company’s procedure was in theory, in practice it was more so. Significant and tragic mistakes were often made; for example, one witness testified that his gas service was terminated even though he had paid his bill in full upon receipt of a final notice. One of the intervening plaintiffs testified that his gas service was unexpectedly terminated on January 4, even though he had paid his bill, by mail, on December 30. When he contacted the company by telephone and informed them that he had paid the bill, an employee of the company replied: “Tough. Pay the bill again.” This customer had seven children, and the temperature in his house dropped to 45 degrees before service was eventually restored through the intervention of the Board of Community Relations. Additional confusion is introduced into the company’s procedures by the fact that when a customer did make special arrangements for deferred payments of a larger than usual bill, a shut-off notice would be sent with each monthly bill, which the customer would be instructed to disregard. For example, one plaintiff testified that after having been billed about $12.00 a month for a series of about 5 estimated bills, she received a bill for actual usage for over $197.00. She made special arrangements to pay this large amount over a period of months, during which time she received a shut-off notice each month and an additional notice requesting that she disregard the shut-off notice. Although she paid the stipulated amount monthly, her service was terminated in mid-December, until, through the eventual intervention of her church pastor, the company acknowledged its mistake, apologized and restored service. Administrative and clerical errors also resulted in unpleasant surprises for the company’s customers. One witness testified that he received on December 30 a notice that his service would be terminated if his bill were not paid by January 4. He mailed his personal check to the company on December 30, which was endorsed by the company and cashed on January 3. Nevertheless, on January 4, his service was terminated. The first that he, his three children and his pregnant wife learned of the termination was when it started to get cold in the house. The company showed that a clerical employee had misplaced the record of the customer’s payment, thereby causing this unwarranted termination. After two days of hearing what one court has aptly described as a bizarre “Orwellian nightmare,” the District Court concluded: “The evidence as a whole revealed a rather shockingly callous and impersonal attitude upon the part of the defendant, which relied uncritically upon its computer, located in a distant city, and the far from infallible clerks who served it, and paid no attention to the notorious uncertainties of the postal service.” Palmer v. Columbia Gas of Ohio, 342 F.Supp. 241, 243 (N.D.Ohio 1972). The Court found that termination procedures of the company constitute action taken under color of state law because an Ohio statute, § 4933.12, O.R.C., authorizes the company to enter the premises of a customer who has not paid his bill for the purposes of disconnecting and removing its equipment. The Court also found that the termination procedures of the company “are clearly offensive to even the most elementary notion of what constitutes due process.” 342 F.Supp. at 244. Accordingly, the Court ordered that the company not terminate, interrupt, cut-off or interfere with gas service to any residential customer of the company in its Northwestern District (the Toledo area) except in conformity with the following conditions: Any individual employee of the company charged with the mechanical process of terminating the gas service of any customer must first speak personally with that customer or some responsible adult member of his household and inform him of his intention to terminate gas service to that residence. Should the customer indicate that his account with the company has been paid or that he disputes the amount of the bill, the employee shall not terminate the gas service for at least 24 hours. If the customer fails to contact the company in that time, his service may be terminated without further notice. If the customer is unavailable, the company shall send a notice to the customer via certified mail, return receipt requested, advising him of its intention to terminate service for nonpayment of bills unless, within 24 hours after the company receives the return receipt, the company receives payment or the customer notifies the company that the bill has been paid or that he is engaged in a dispute concerning the account. If the customer communicates, by telephone or otherwise, with the company’s office within 24 hours, the company may take no further action toward termination of service until some officer or employee of the company, no lower in position than Office Manager, Local Manager, or person who performs a comparable function, shall have addressed himself to the customer’s communication, made inquiry into any factual disputes presented by the customer and made a direct individual response to the customer, explaining in detail the company’s position. If the response of the officer does not resolve the dispute as to the amount claimed to be due from the customer, the termination of service shall be stayed upon the giving of bond with good and sufficient surety not to exceed the amount in dispute. Further resolution of the dispute may be made either by the action of a higher ranking officer or employee of the company which meets with the satisfaction of the customer or by litigation commenced by the company to collect the amount in dispute. If the dispute concerns a deficiency which is a result of a series of underestimated bills, service may not be terminated for non-payment of the amount due, but the deficiency must be prorated and billed to the customer in monthly installments not greater than the average monthly amount for that residence for the previous twelve months. These prorated amounts may then be billed to the customer in addition to his regular current charges. Finally, the Court’s order provides that service may be terminated without notice of any kind in an emergency situation where the inhabitants or the public health or safety are threatened; following the correction of the cause of the emergency, service must be restored and terminated only in accordance with the provisions of the Court’s order. The District Court reserved judgment on the pending questions of the proper limitation of the class action aspect of the case and upon the question of damages. The Court certified that its decision involved a controlling question of law as to which there is substantial grounds for a difference of opinion such that an immediate appeal from the Court’s order would materially advance the ultimate termination of the litigation. This Court granted leave for an interlocutory appeal pursuant to 28 U.S. C. § 1292(b) upon the two controlling questions involved in the decision of the District Court. With the consent of all parties, amicus briefs were filed with this Court in support of the plaintiffs’ position by the Ohio State Legal Services Association and by the National Consumer Law Center, Inc. The two principal issues to be determined by this Court are whether the company’s actions in terminating service for nonpayment of bills constitute state action or action taken under color of state law, and if so, whether the existing procedures of the company constitute due process; we deal first with the question of state action. II STATE ACTION This suit was brought pursuant to both the Due Process Clause, of the Fourteenth Amendment and 42 U.S. C. § 1983, the Civil Rights Act. The Fourteenth Amendment provides in relevant part: “Nor shall any State deprive any person of life, liberty, or property, without due process of law.” It is clear that this clause does not prohibit action by a private individual unless the State, in any of its manifestations, has in some way involved itself in the actions of an individual to some significant extent. Burton v. Wilmington Parking Authority, 365 U.S. 715, 722, 81 S.Ct. 856, 6 L. Ed.2d 45 (1961). While the principal focus of the constitutional amendment is upon action taken by the state, the principal focus of the statute is upon private conduct taken “under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory,” 42 U. S.C. § 1983. This section of the Civil Rights Act not only prohibits action taken pursuant to state law, but also the misuse of power possessed by virtue, of state law when the actor is clothed with the authority of state law. Monroe v. Pape, 365 U.S. 167, 81 S.Ct. 473, 5 L. Ed.2d 492 (1961); Screws v. United States, 325 U.S. 91, 65 S.Ct. 1031, 89 L. Ed. 1495 (1945); United States v. Classic, 313 U.S. 299, 61 S.Ct. 1031, 85 L.Ed. 1368 (1941). Further distinction between the two would appear unnecessary since the concepts are apparently treated as synonymous, United States v. Price, 383 U.S. 787, 794 n. 7, 86 S.Ct. 1152, 16 L.Ed.2d 267 (1966), and for the purposes of this case we need not distinguish between action taken under color of state law and state action in violation of the Fourteenth Amendment. The thrust of the state action cases taken as a whole indicates that conduct apparently private may be essentially public when inexorably entwined with governmental regulation or policies. Evans v. Newton, 382 U.S. 296, 299, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966). In a variety of situations, private actors have been endowed by the state with governmental powers or functions to such an extent that they were considered in essence agencies or instrumentalities of the state and consequently subject to constitutional limitations. See, for example: Railway Employes’ Department v. Hanson, 351 U.S. 225, 76 S.Ct. 714, 100 L.Ed. 1112 (1956) (federal authorization of union shop agreements); Terry v. Adams, 345 U.S. 461, 73 S.Ct. 809, 97 L.Ed. 1152 (1953) (state elective process delegated to private group); Shelley v. Kraemer, 334 U.S. 1, 68 S.Ct. 836, 92 L.Ed. 1161 (1948) (restrictive covenants enforced through judicial action); Simkins v. Moses H. Cone Memorial Hospital, 323 F.2d 959 (4th Cir. 1963), cert. denied, 376 U.S. 938, 84 S. Ct. 793, 11 L.Ed.2d 659 (1964) (hospital receiving federal aid); Eaton v. Grubbs, 329 F.2d 710 (4th Cir. 1964) (hospital receiving no federal aid but regulated by the state). The courts which have considered the question of whether a utility company is acting under color of state law when it terminates service to an individual customer for alleged nonpayment of bills have not been unanimous in their conclusions. Although most courts have found state action because the utility company was subject to pervasive state regulation and because the private activity in question was essentially a governmental function, Bronson v. Consolidated Edison of New York, 350 F.Supp. 443 (S.D.N.Y.1972); Ihrke v. Northern States Power Co., 459 F.2d 566 (8th Cir.) vacated as moot, 409 U.S. 815, 93 S.Ct. 66, 34 L.Ed.2d 72 (1972); Stanford v. Gas Service Co., 346 F.Supp. 717 (D.Kan.1972); Hattell v. Public Service Co., 350 F.Supp. 240 (D.Colo.1972), other courts have declined to find state action even in the presence of pervasive regulation because the state was not involved. in the particular activity complained of, Lucas v. Wisconsin Electric Power Co., 466 F.2d 638 (7th Cir. 1972); Jackson v. Metropolitan Edison Co., 348 F.Supp. 954 (M.D.Pa.1972). However, reliance upon these precedents cannot be dispositive of the issue before us since the significance of the involvement of the state in the actions of any kind of private conduct can only be determined by an examination of the facts of each particular case, which is seldom an easy task. Burton, supra, 365 U.S. at 722, 81 S.Ct. 856. Accordingly, we must examine carefully the particular circumstances under which the Columbia Gas Company operates in general, paying particular attention to the source and extent of the power invoked by the company when it terminates or threatens to terminate utility service for nonpayment of bills. Because the District Court based its finding of state action upon the fact that the termination procedure of the company was taken pursuant to a state ■statute which specifically authorizes natural gas utility companies to enter the premises of a customer following 24 hours notice, we will first consider whether the state' has sufficiently involved itself in the particular activity complained of to justify this finding. This statute provides: “If any person supplied with gas neglects or refuses to pay the amount due for such gas or for rent of articles hired by him from the gas company, the company may stop the gas from entering the premises of such person. In such cases, after twenty-four hours’ notice, the officers, servants, or workmen of the gas company may enter the premises of such parties, between eight a. m. and four p. m., take away such property of the company, and disconnect any meter from the mains or pipes of the company. The company shall not refuse to furnish gas on account of arrearages due if for gas furnished to former occupants of the premises.” O.R.C. § 4933.12. The statute does not authorize a breach of the peace. Should the resident object or prevent the employees of the company from entering the premises to terminate gas under this section, the company has at its disposal § 4933.10 O.R.C., which provides that in the event that a person prevents or hinders an employee of the company from entering the premises of a utility customer to remove equipment, the company may secure from a judge of a county or municipal court a warrant directing any constable of the municipality to accompany the employee to the premises to aid him in gaining entry for the removal or inspection of the company’s equipment. No provision is made for informing the resident that this procedure is beng invoked, nor is any provision made for hearing the resident’s arguments. The company need only state to the judge the facts of the case based upon the knowledge of a company officer or employee; it need not assert that the bill is just or that it has been accurately computed. The availability of this ex parte procedure endows the com-\ pany with a forceful police power for J entry into a private home not generally' possessed by creditors. The company’s basic contention on this appeal is that its actions in terminating service for nonpayment of bills are the normal actions taken by a common law creditor and therefore cannot ?.be considered state action. Although ' the company acknowledges that its termination practice has been codified by 'statute and by regulation, it contends that its actions in this regard are not taken under color of law because the codification has not enlarged the utility’s common law right. Even assuming for the moment that the statutes and regulations in questions are essentially codifications of pre-existing common law rights, a fact which is not conceded by the plaintiffs, the company’s argument remains unpersuasive for several reasons. First of all, this rationale has been rejected by the Supreme Court. In Reitman v. Mulkey, 387 U.S. 369, 87 S. Ct. 1627, 18 L.Ed.2d 830 (1967), the “open housing” case, the Court considered an argument that an amendment to the California Constitution which prohibited government restriction of the right to convey real property merely codified the rights of private citizens long recognized by common law. The Court held that regardless of the source of the rights or privileges embodied in the amendment, state action would be present during any enforcement of the amendment because the amendment authorized, encouraged and enforced actions which violated the Constitution of the United States. 387 U.S. at 376, 87 S.Ct. 1627. See also Burton, supra, 365 U.S. at 722, 81 S.Ct. 856. The source of the power is irrelevant when the consequence of the grant enables private citizens to act in derogation of the Constitution. If a direct grant of power from the people to the government, a constitutional amendment, can be held to constitute state action, it would follow that less direct, legislative embodiments of the public will in the form of statutes can be similarly considered actions of the state. Statutes, ordinances and regulations which codify the common law are no less actions of the state than are laws which create new offenses, restrictions or regulations, or which otherwise alter the common law. Secondly, the common law pertaining to the relations between a creditor and his debtor is premised upon an open market where economic competition and freedom of contract serve to equalize the bargaining power of the parties; its application to a closed market where the customer cannot turn elsewhere to purchase the services or products offered is at best questionable. In no sense of the phrase can the appellant company be considered a free market competitor. First of all, it has no competitors, and we cannot disregard the effect which the company’s monopolistic character has upon its relationship with its customers. The company enjoys a monopoly in the city of Toledo, and elsewhere, and the service provided is a necessity of life to most, if not all, of its customers. When-) a privately owned company enjoying a ! monopoly is in the business of providing a necessity of life it cannot, for purposes of evaluating its relationship to its customers and to the state in which and under whose control it operates, be considered as an independent, free market, r common law competitor. Circumstances may vary, but the principal remains constant. In 1895, the Supreme Court of Maine considered the question of whether a water company could terminate service for the nonpayment of an old, overdue, disputed bill after having accepted payment for a subsequent installment. In holding that the company could not terminate service under these circumstances, the Court made observations on the necessity of the service and the relative strengths of the parties: “The parties are not upon equal ground. The city, as a water company, cannot do as it will with its water. It owes a duty to each consumer. The consumer, once taken on to the system, becomes dependent on that system for a prime necessity of business, comfort, health, and even life. He must have the pure water daily and hourly. To suddenly deprive him of this water, in order to force him to pay an old bill claimed to be unjust, puts him at an enormous disadvantage. He cannot wait for the water. He must surrender, and swallow his choking sense of injustice. Such a power in a water company or municipality places the consumer at its mercy. It can always claim that some old bill is unpaid. The receipt may have been lost, the collector may have em.bezzled the money; yet the consumer must pay it again, and perhaps still again. He cannot resist, lest he lose the water.” Wood v. City of Auburn, 87 Me. 287, 292-293, 32 A. 906, 907-908 (1895). Virtually every aspect of this company’s operations are subject to the dictates of state statute or to the regulation of the Public Utilities Commission of Ohio (P.U.C.O.). In addition, the city of Toledo also regulates the activities of the company through the provisions of the Toledo City Charter which controls the power to fix rates and to grant franchises to privately owned public utilities for the provision of services to residents of the city. The important factor is not the number of statutes and regulations which pertain to the operation of a utility company, but the extent to which the state has reserved power to control the operations of a public utility, and the amount of power given to the utility \which is usually reserved to the state. The P.U.C.O. has general supervision over all public utilities in Ohio, and has the power to examine the general condition of utilities and to keep informed of their franchises, and their manner of leasing, operating, managing and conducting their properties with respect to the adequacy of service and safety to the public, as well as compliance with all laws, P.U.C.O. orders, franchises and charter requirements. O. R.C. § 4905.06. The P.U.C.O. may change the rules, regulations and practices of any utility after a hearing upon a complaint or upon its own initiative, and it may order modifications to be made. O.R.C. § 4905.37. An examination of the other statutes in Title 49 and in Chapter 743 of the Ohio Revised Code, as well as Sections 8, 157, 165, 221 and Chapter 12 of the Toledo City Charter reveals a total regulatory system controlling virtually every function of utility companies. These controls notwithstanding, the state has granted to utilities powers not usually possessed by private corporations. For example, the utility company may exercise the power of eminent do“main (O.R.C. § 743.39) with certain limitations (O.R.C. §§ 743.40-41) an important power which historically is reserved to the sovereign. Green Street Ass’n. v. Daley, 373 F.2d 1, 6 (7th Cir.), cert. denied, 387 U.S. 932, 87 S.Ct. 2054, 18 L.Ed.2d 995 (1967); Garrow v. United States, 131 F.2d 724 (5th Cir.), cert. denied, 318 U.S. 765, 63 S.Ct. 664, 87 L. Ed. 1137 (1942); United States v. Federal Land Bank of St. Paul, 127 F.2d 505, 508 (8th Cir. 1942). In addition, we must consider the fact that the furnishing of natural gas to the citizens of Ohio is a legitimate public function which itself has been held to satisfy the state action requirement; when a public function is performed by a private firm whose freedom of decision making has been restricted by governmental regulation and whose freedom of action has been severely circumscribed, the actions of the otherwise private firm become subject to the constitutional limitations placed upon state action. Food Employees Local 590 v. Logan Valley Plaza, 391 U.S. 308, 88 S.Ct. 1601, 20 L.Ed.2d 603 (1968); Evans v. Newton, 382 U.S. 296, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966); Marsh v. Alabama, 326 U.S. 501, 66 S.Ct. 276, 90 L.Ed. 265 (1946); McQueen v. Druker, 438 F.2d 781 (1st Cir. 1971); Meredith v. Allen County War Memorial Hospital Commission, 397 F.2d 33 (6th Cir. 1968); Smith v. Holiday Inns of America, 336 F.2d 630 (6th Cir. 1964); Stanford v. Gas Service Company, 346 F. Supp. 717 (D.Kan.1972). When private individuals or groups are endowed by the state with functions or powers which are of a governmental nature, they become instrumentalities of the state and thus are subject to its constitutional limitations. Evans v. Newton, 382 U.S. 296, 299, 86 S.Ct. 486, 15 L.Ed.2d 373 (1966). In summary, inasmuch as the operations of the appellant company are fully circumscribed by an all-encompassing system of state statutes, city ordinances and the supervision of the state regulatory authority, and inasmuch as the state of Ohio is significantly involved in virtually every one of the company’s activities, including the specific activity complained of, the conclusion that the regulatory activities of the state have insinuated it into a position of interdependence with the company so that it must be recognized as a joint partiei-pant with the company is inescapable, Burton, supra, 365 U.S. at 725, 81 S.Ct. 856. III DUE PROCESS We now turn to the company’s contention that its present practices satisfy the requirements of due process. Like the state action issue, the question of what constitutes due process of law can only be answered in relation to the circumstances of each particular case; due process varies with the subject matter and the requirements of each situation. Fuentes v. Shevin, 407 U.S. 67, 82, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972). “[T]here is no table of weights and measures for ascertaining what constitutes due process.” Burns v. Wilson, 346 U.S. 137, 149, 73 S.Ct. 1045, 1052, 97 L.Ed. 1508 (1953). In considering the kinds of due process protection that might be afforded in any given case, the nature of the affected interest, the manner in which it has been adversely affected, the reasons for which it was affected and the viable alternatives to the challenged procedure must be considered, and the injury complained of must be balanced against the good to be accomplished. Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123, 163, 71 S.Ct. 624, 95 L.Ed. 817 (1951). “‘Due process’ is, perhaps, the least frozen concept of our law — the least confined to history and the most absorptive of powerful social standards of a progressive society.” Griffin v. Illinois, 351 U.S. 12, 20-21, 76 S.Ct. 585, 591, 100 L.Ed. 891 (1956) (concurring opinion of Mr. Justice Frankfurter). The due process clause requires, as a minimum, that parties whose rights are to be affected are entitled to be notified of the proposed action, and they are entitled to be heard. Baldwin v. Hale, 68 U.S. 223, 233, 1 Wall. 223, 17 L.Ed. 531 (1863). It is equally fundamental that the right to notice and to the opportunity to be heard must be granted at a meaningful time and in a meaningful manner. Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 14 L.Ed.2d 62 (1965). We will first discuss the adequacy of the company’s notice procedure. IV NOTICE The company contends that its existing procedures of notifying customers of a proposed termination of service satisfy the requirements of the due process clause of the Fourteenth Amendment. The computer-issued shut-off notice, aside from dates, dollar amounts, account numbers and addresses, informs the customer that his account is past due, and that unless the past due amount is paid, or unless “satisfactory arrangements” are made with the company, the customer’s service will be terminated without further notice. He is instructed to pay the past due amount at the local office, and is alerted to the fact that the company’s servicemen and collection agencies are not authorized to accept such payments. The company serves 140,000 customers in the Toledo area, and although the company’s computer issues between 120,000 and 140,000 of these notices per year, only about 4% of them are followed by actual terminations. In addition, the company instructs customers to disregard these notices whenever special arrangements for installment payments have been made. Notice must be one which is designed to actually inform the consumer of the proposed termination of service, and the reason for the proposed termination; it must be given sufficiently in advance to permit him adequate opportunity to prepare for and to be present at the hearing. Cf. Mullane v. Central Hanover Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950); Roller v. Holly, 176 U.S. 398, 20 S.Ct. 410, 44 L.Ed. 520 (1900). The company’s shut-off notice does not provide the customer with the information he needs to quickly and intelligently take available steps to prevent the threatened termination of service. No mention is made in the notice of the fact that a dispute concerning the amount due might be resolved through discussion with representatives of the company, nor is notice given to a customer that special payment programs are available for a customer whose unexpectedly large bill is the result of, among other things, a series of computer underestimates. The single reference to making “satisfactory arrangements” cannot be construed as informing a customer of his right to continued service pending a hearing if he disputes the accuracy of the bill or the propriety of the shut-off notice. In fact, the company’s district office manager conceded on cross-examination that the notice does not inform the customer of any rights whatever. In short, the company’s termination notice is, in the context of constitutional law, virtually no notice at all. “But when notice is a person’s due, process which is a mere gesture is not due process.” Mullane, supra, 339 U.S. at 315, 70 S.Ct. at 657. The company argues that the personal notice requirement required by the order of the District Court is an unreasonable imposition upon the gas company. We disagree for several reasons. First, it is clear that the flood of final notices sent out by the company was, as the District Court expressed it, “a wolf kind of notice” which does not conform to the constitutional requirements that notice be truly informative and be given at a meaningful time. In addition, the fact that several witnesses testified that they were told by the company to disregard the notices is an additional persuasive factor which supports the District Court’s requirement that the company personally contact a resident of the premises prior to actual termination. The notification required by the District Court’s order does not preclude an attempt by the company to contact the customer to ascertain the reason for nonpayment and to determine whether in fact a dispute exists. If there is a dispute, the hearing procedure can come into play and obviate the need for personal notification, which is only required when the company has proceeded to the stage of actual termination of service. The reasonableness of any notice procedure must be considered in the light of the circumstances of each particular case. Boddie v. Connecticut, 401 U.S. 371, 380, 91 S.Ct. 780, 28 L.Ed.2d 113 (1971); Mullane, supra; Covey v. Town of Somers, 351 U.S. 141, 76 S.Ct. 724, 100 L.Ed. 1021 (1956). Balancing the potential harm to the customer against the inconvenience to the gas company, we cannot say that the notice requirement as established by the order of the District Court is unreasonable or an abuse of discretion. V HEARING “[W]hen a person has an opportunity to speak up in his own defense, and when the State must listen to what he has to say, substantively unfair and simply mistaken deprivations of property interests can be prevented.” Fuentes, supra, 407 U.S. at 81, 92 S.Ct. at 1994. The highly computerized collection and termination practices of the company are governed by a singular corporate concern for efficiency and protection of assets. However, the Due Process clause was designed to protect the rights of the citizens from procedures which often serve more to insulate the state from individuals than to serve their needs. The Constitution recognizes higher values than speed and efficiency. Stanley v. Illinois, 405 U.S. 645, 656, 92 S.Ct. 1208, 31 L.Ed.2d 551 (1972). Several factors militate against acceptance of the company’s argument that its informal hearing procedures, essentially through the office of its “Urban Affairs Coordinator,” satisfy the requirements of due process. Foremost is the fact that the company has no established procedure for resolution of disputes arising from collection and termination activities, nor is there any established procedure for negotiation of partial payment of delinquent accounts in lieu of termination. Appeal to the Urban Affairs Coordinator is an informal procedure of which the customer is not informed, either before or after a dispute arises. The Company’s notice contains no indication that somewhere within the company’s internal framework there lies a procedure which permits a customer to be heard on his complaint. The services of the Urban Affairs Coordinator are available only to those customers who happen to know about them because no advertising of any kind has been utilized by the company to inform its customers of his services, and because the company’s employees are not instructed to inform customers of this service. More importantly, in no case does the customer have the right to appeal through the Urban Affairs Coordinator, nor does he have the right to continued service pending the disposition of his grievance. The company’s argument that its existing procedures satisfy minimal due process requirements is in essence an attempt to substitute an unsupported assumption of corporate good faith for the guarantees of the due process clause of the Constitution. The mere theoretical possibility of informal resolution cannot serve as a substitute for a mandatory procedural mechanism designed to prevent unjust deprivations of important property interests. “The right to a fair and open hearing is one of the rudiments of fair play assured to every litigant by the Federal Constitution as a minimal requirement.” Railroad Com. v. Pacific Gas Co., 302 U.S. 388, 393, 58 S.Ct. 334, 338, 82 L.Ed. 319 (1938). On the other hand, we conclude that the hearing procedures imposed by the order of the District Court are not unreasonable under the circumstances. The fact that gas service, at least in the context of this case, is a necessity in the ultimate sense that one’s life may depend on it goes not toward the question of whether due process attaches but to what type of procedure should be constructed to ensure that one is not wrongfully deprived of its use. Joint Anti-Fascist Refugee Committee v. Mc-Grath, supra. Since uneontradicted evidence was introduced from which the District Court concluded that the company’s clerical employees were “hostile, arrogant, and unyielding in dealing with consumers,” 342 F.Supp. at 243, the District Court ordered that a personal hearing be conducted by an employee in a management position, in order to remove the collection-oriented and clerical employees from the decision making procedure. The protection of the individual from the sudden, unexpected and catastrophic consequences of the company’s termination procedures is an interest which outweighs any possible loss the company might suffer in complying. If the past due amount is rightly owed, the company has an adequate remedy at law. Any gas consumed pending a pre-termi-nation hearing will be minimal, and must be paid for by the customer. The company contends that legal remedies are available to the recipient whose service is unjustly terminated. This argument is unpersuasive for several reasons. First, as noted above, during the pendency of such litigation, the customer would be deprived of the use of the gas service. Secondly, placing such a burden upon the customer to justify or to explain nonpayment of a bill would be violative of the principle that the one asserting something to be due him shall have the burden of legal action and proof. Wood v. City of Auburn, 87 Me. 287, 293, 32 A. 906, 908 (1895). Thirdly, moderate and low income families, whose service is most likely to be terminated for nonpayment are those who will be least likely to be familiar with or to be able to afford the costs of civil litigation. It is simply not realistic to assume that anyone who disputes the gas company has the full arsenal of legal remedies available to him; as a practical matter, disputes concerning such relatively small sums are seldom brought to litigation. Lucas, supra, 466 F.2d at 650; 340 O.St.L.J. 222, 228 (1973); see generally: Shelton, The Shutoff of Utility Services for Nonpayment: A Plight of the Poor, 46 Wash. L.Rev. 745, 748-52 (1971). In Fuentes v. Shevin, supra, the Supreme Court held that the sworn affidavit of a creditor stating that he is entitled to certain goods, accompanied by a bond to indemnify the debtor for wrongful seizure, could not substitute for the due process requirement of a prior hearing because the bare assertion of entitlement tested only the applicant’s own belief in his rights. 407 U.S. at 83, 92 S. Ct. 1983. In Fuentes, the debtor was permitted to regain possession after seizure by posting a bond, and yet the Supreme Court found that this procedure did not comport with the requirements of due process because “[i]f the right to notice and a hearing is to serve its full purpose, then, it is clear that it must be granted at a time when the deprivation can still be prevented.” 407 U.S. at 81, 92 S.Ct. at 1994. This minimal protection of the rights of the customer is lacking from the procedures presently employed by the company; the customer does not have the right to post a bond to receive continued service pending a final determination of his dispute. To correct this deficiency, the District Court’s order permits the customer to post a bond so that he may receive gas service pending the outcome of litigation commenced by the company should the initial hearing by the company fail to resolve the dispute to the satisfaction of the parties. Similarly, the unsupported conclusory allegation of the company that the bill is past due, based upon the tacit assumption that the party was properly billed, cannot substitute for a procedure allowing the customer to be heard by someone who is in a position to mediate the dispute, and who is at least sufficiently removed from the internal corporate business and affairs which might prejudice a fair decision. In summary, the District Court’s order, more than anything else, merely formalizes and makes available to every customer of the company informal procedures that the company asserts have always been available. We find no abuse of discretion in this determination. VI Several arguments remain to be considered. First, the company contends that the District Court should have abstained from the exercise of jurisdiction in this case because a remedy was available to the plaintiffs by way of appeal to the Public Utilities Commission of Ohio. Exercise of the abstention doctrine is purely discretionary, Holmes v. New York City Housing Authority, 398 F.2d 262, 266 (2d Cir. 1968), and cases involving vital questions of civil rights are the least likely candidates for abstention, Zwickler v. Koota, 389 U.S. 241, 247-248, 88 S.Ct. 391, 19 L.Ed.2d 444 (1967); Wright v. McMann, 387 F. 2d 519, 525 (2d Cir. 1967); Note, Federal-Question Abstention: Justice Frankfurter’s Doctrine in an Activist Era, 80 Harv.L.Rev. 604, 607-08 (1967). In addition, review by the P.U.C.O. is discretionary since the Commission must first judge whether reasonable grounds exist to warrant a hearing. O.R.C. § 4905.26. We do not find that it was an abuse of the Court’s discretion to refuse to abstain from taking jurisdiction of this important civil rights case on the grounds that the P.U.C.O. might, at some time in the future, decide to review a similar grievance. The company also contends that the District Court’s order was unreasonable in requiring the use of certified mail as a means of notifying customers of a proposed termination of service. The Court ordered that in the event the collector cannot make personal contact with a responsible adult member of the household, the service must be continued until at least 24 hours after the company’s receipt of the return signifying that the customer has been notified in writing by certified mail of the company’s intention to terminate service. As concluded above, the evidence showed that the company’s practice of giving notice of its intention to terminate service was virtually no notice at all. The evidence also showed that terminations were made without any effort to contact the individuals residing in the residence to be affected. A method of notification must be employed which will actually inform the customer of the company’s intention. Mullane, supra, 339 U.S. at 315, 70 S.Ct. 652. In addition, the company must be assured that the customer has actually been notified so that, should the customer not notify the company during the 24 hour period, the company may fairly assume that the customer acknowledges nonpayment and has no dispute concerning the propriety of the billing. In determining the constitutional adequacy of what purports to be notice in any given context, courts look to the practical realities of the circumstances of each particular case. Mullane, supra, 339 U.S. at 314, 70 S.Ct. 652. Since the certified mail requirement is not per se unreasonable, and since the District Court’s order provides that it may be modified upon good cause shown by the company, we find that this part of the District Court’s order does not constitute an abuse of discretion. Finally, the company contends that this suit should not be permitted to be prosecuted as a class action because the requirements of Federal Rule of Civil Procedure 23 have not been met. Inasmuch as the class has not .yet been specifically defined by the District Court, and inasmuch as the District Court continued this case for further hearing upon the scope of the class of plaintiffs, and inasmuch as interlocutory appeals pursuant to 28 U.S.C. § 1292 are limited to those questions certified by the District Judge, the issue of the propriety of maintaining this suit as a class action is not properly before this Court. Ex parte National Enameling & Stamping Co., 201 U.S. 156, 26 S.Ct. 404, 50 L.Ed. 707 (1906). The judgment of the District Court is affirmed. . The Company serves an area larger than Toledo, but by stipulation the scope of the Court’s preliminary injunction was limited to the company’s Northwestern District, the Toledo area. . For example, one of the plaintiffs received a series of estimated bills ranging in amount from $10 to $15; after an actual reading was taken, the bill for actual gas consumed was almost $200. . The reason for the designation of this employee as such is not clear, since lie is not authorized to accept payment or partial payment of a bill. . One plaintiff testified that when her gas service was suddenly terminated without notice, the gas company apologized for the mistake and informed her that they had intended to terminate the gas service for another apartment in the same building. . Bronson v. Consolidated Edison of New York, 350 F.Supp. 443 (S.D.N.Y.1972). In that case, the plaintiff, upset at a sudden and drastic increase in the amount of her monthly electric bill, caused an investigation to be made which resulted in the discovery by the utility company that her landlord bad been diverting current through her meter. Nevertheless, the higher bills continued, and when she refused to pay, the company terminated service. After three weeks without electricity, she paid the bill, and the amount was credited to her account. However, her check was lost by the bank; the bank notified the company that they had not received the check, and the company then re-entered the deficit in the customer’s account. At this point, the customer instigated litigation. . No factual issue is presented concerning the fact that employees of the company entered private property for the purposes of terminating gas service; the testimony of several witnesses supports this circumstance, which alone is enough to distinguish this case from Lucas v. Wisconsin Electric Power Co., 466 E.2d 638 (7th Cir. 1972), which declined to find state action. In that case, no allegation was made that employees of the company entered private property. The Court observed that the state has authorized entry onto private property under certain circumstances, and noted : “If that authority were invoked by the defendants in this case, an entirely different issue would be presented.” 466 F.2d at 656. . The District Court has ordered the company to make “residence service” of the notice to terminate service for nonpayment. This should be distinguished from “personal service” which would require the company to notify the customer or person who has opened the account. The procedure required by the order of the District Court is similar in operation to the service of process requirements of Federal Rule of Civil Procedure 4(d) (1). See generally, 2 Moore’s Federal Practice, ¶ 4.11 [3] and 4.12 (1970). . The order provides that the employee shall orally advise the customer or adult member of his household that if he does not, within 24 hours communicate witli the company’s office, he will thereafter return and terminate the gas service without further notice. . If the company makes an oral response to the customer, the company must reduce the response to writing and send a copy to the customer by certified mail, return receipt requested, prior to any termination of service. The Court’s order provides that it shall not be interpreted to prohibit the investigation officer from assigning the detailed investigation to one or more of the company’s supervisors who report directly to such officer. . The condition of the bond shall be that if the customer shall promptly pay any sum agreed upon or awarded by the Court, the bond shall be null and void, otherwise to be in full force and effect. In lieu of sufficient surety, the customer may post a cash bond. Bond must be made within three days of giving a response to the company. . This association has filed a single brief on behalf of its members, The Consumers League of Ohio, The Consumer Protection Association of Cleveland, The Allen County Legal Aid Association, The Butler County Legal Assistance Program, The Legal Aid Society of Cincinnati, The Legal Aid Society of Cleveland, The Legal Aid and Defender Society of Columbus, The Legal Aid Society of Dayton, The Licking County Legal Aid Society, The Legal Aid Society of Lorain County, Inc., The Mahoning County Legal Assistance Association, The Scioto County Legal Aid Association, The Stark County Legal Aid Society, The Summit County Legal Aid Society, The Toledo Legal Aid Society and The Tuscarawas Valley Legal Services Association. . The usual preliminary issue of whether the deprivation complained of is of the type which may be afforded due process protection is not presented by the appellant. In not raising this issue, the company apparently concedes that its service is a specialized type of property which presents distinct problems in our economic system, the taking of which may impose tremendous hardship upon its customers. In this regard, see Lynch v. Household Finance Corp., 405 U.S. 538, 92 S.Ct. 1113, 31 L.Ed.2d 424 (1972); Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970); Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969). See generally: Van Alstyne, The Demise of the Right-Privilege Distinction in Constitutional Law, 81 Harv.L.Rev. 1439 (1968); Reich, The New Property, 73 Yale L.J. 733 (1964); Shelton, The Shutoff of Utility Service for Nonpayment: A Plight of the Poor, 46 Wash.L.Rev. 745 (1971); Note: The Duty of a Public Utility to Render Adequate Service, 62 Colum.L.Rev. 312 (1962). . Statutory authority under U.C.C. § 9-503 to repossess property without a breach of the peace has been found to constitute state action, even though no officer was involved in the repossession process. Adams v. Egley, 338 F.Supp. 614, 618 (S.D.Cal.1972). . State action may be premised upon-rulings and regulations of administrative or regulatory agencies, as well as upon legislative or judicial action. Moose Lodge No. 307 v. Irvis, 407 U.S. 163, 179, 92 S.Ct. 1965, 32 L.Ed.2d 627 (1972). It is noted, however, that the points of difference in that equal protection ease dealing with a private flub exceed in significance and in number the points of similarity to this due process case dealing with a public utility company. . Some of the more important chapters and sections of the Ohio Revised Code which pertain to the operation of a public utility company in Ohio include: Chapter 4901, Public Utilities Commission — Organization ; Chapter 4903, Public Utilities Commission — Hearings (only the Supreme Court of Ohio has jurisdiction to review any action of the P.U.C.O., § 4903.12) ; Chapter 4905, Public Utilities Commission —General Powers ; Chapter 4909, Public Utilities Commission — Fixation of Rates (including the ascertainment of the value of the utility’s property, § 4909.04, and the power of P.U.C.O. to fix rates based on that valuation, § 4909.15) ; Chapter 4933, Companies — Gas; Electric; Water (giving the gas companies the power to manufacture, sell and furnish the gas required in a municipal corporation and to lay pipes through the streets with the consent of the municipal authorities, § 4933.01; mains may be extended beyond the city limits if a right of way is obtained from those controlling such property, § 4933.05) ; Chapter 743, Utilities—Electricity; Gas; Water (detailing the powers which a municipal corporation has over, and may grant to, a gas company). . Municipal ordinances adopted by state authority may constitute state action and are within the prohibition of the Fourteenth Amendment. Lovell v. Griffin, 303 U.S. 444, 450, 58 S.Ct. 666, 82 L.Ed. 949 (1938). . During December 1971, about 9,000 final notices were issued and about 400 actual terminations were made. . One plaintiff testified that, after special arrangements had been made for the payment of her bill, she received a shut-off notice every month accompanied by another notice requesting her to disregard all other notices. Her gas service was suddenly terminated, apparently in accordance with one of the notices she had been instructed to disregard. . In rendering his decision from the bench, the District Judge explained his reasoning: “Several thousand years ago, I believe there was a writer who told the story about a boy who thought he would cause excitement by crying that the wolf was attacking his flock of sheep. It did cause excitement, but since no wolf was attacking, after he had stirred up excitement a couple of times, when the wolf really did attack nobody paid any attention to him. So that what we have here is a wolf kind of notice that is very convenient for the computer to issue, but is not, I think, what the statute [O.R.C. § 4933.12] contemplates, which, in my interpretation, is a meaningful notice that applies to the person who is going to be affected by it and will be followed by some action.” . The District Court found that gas utility service is a necessity of life, the deprivation of which can cause serious emotional and physical damages, especially in Northwestern Ohio in the dead of winter. “A person can freeze to death or die of pneumonia much more quickly than he can starve to death.” 342 F.Supp. at 244. . For example, one witness testified that her gas service was terminated on the day before the due date on the bill; when she inquired of the company representative why she had received no shut-off notice, “she said it was tough.” Gas service was not restored to this witness even though the bill was paid in full on the due date, January 13. The entire home was “completely iced over,” several windows were broken from the cold and water pipes froze and cracked. The witness, her husband, and her children of eleven months and seven years were unable to live in the house during this time. When she called the company she was informed that they did not know when her service would be reconnected because they did not make preferences. When she informed the company representative that she had with her an eleven month old baby, the representative told her to run around to keep warm. . See City of Mansfield v. Humphreys Manufacturing Co., 82 Ohio St. 216, 92 N.E. 233 (1910), which held that a suit for damages by a consumer whose water service is wrongfully terminated is an inadequate remedy in the absence of an injunction prohibiting termination until the amount due is ascertained and assessed against the party at fault. . At least four of the plaintiffs and witnesses who testified at trial were receiving all or some of their support from a welfare system. Similarly, the plaintiff in Bronson, supra, was receiving welfare assistance from the Department of Social Services. 350 P.Supp. at 444-445. . Amicus Ohio State Legal Services Association asserts that Ohio’s legal services programs, which serve only the destitute, operate in only 18 of 88 counties in Ohio. . Since no issue is raised concerning the connection of the hearing officers with the company, we may assume, at least for the moment, that the District Court’s order satisfies the plaintiffs in this respect; since the plaintiffs have not moved for an amendment of the Court’s order and have not appealed from it, we need not consider this question at this time, suggestions in the Amicus briefs notwithstanding. . Sometimes it actually gave no notice at all. The original plaintiffs, Mr. and Mrs. Morris Palmer, testified that they received no shut-off notice whatsoever from the company and yet their service was terminated for a period of two days. . This period is counted from when the collector notifies an adult resident of the premises or from the time of the receipt by the company of the certification.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

TRI-STATE MOTOR TRANSIT CO., a corporation, et al., Appellees, v. INTERNATIONAL TRANSPORT, INC., a corporation, Appellant. TRI-STATE MOTOR TRANSIT CO., a corporation, et al., Appellees, v. C & H TRANSPORTATION CO., INC., Appellant. Nos. 72-1337, 72-1391. United States Court of Appeals, Eighth Circuit. Submitted Feb. 13, 1973. Decided April 20, 1973. Gibson, Circuit Judge, dissented in part and filed opinion. Phillip Robinson, Austin, Tex., and William K. Johnson, Chicago, 111., for International Transport, Inc: and C & H Transportation Co., Inc. Lawrence R. Brown, Kansas City, Mo., and Harry Horak, Fort Worth, Tex., for Tri-State Motor Transit Co. and others. Before GIBSON and ROSS, Circuit Judges, and BENSON, Chief District Judge. ROSS, Circuit Judge. Tri-State Motor Transit Co. (TriState) brought these actions against International Transport, Inc. (International) and C & H Transportation Co., Inc. (C & H), in United States District Court under 49 U.S.C. § 322(b)(2) requesting injunctive relief from continued “clear and patent” violations of the Interstate Commerce Commission Act. C & H . and International had “heavy hauling” certificates and had started to haul 500 and 750 pound bombs and palle-tized ammunition. Tri-State had operating rights as a munitions carrier and claimed that bombs and palletized ammunition could not legally be hauled by C & H and International under their “heavy hauling” certificates. The trial court granted the injunctions and awarded attorneys fees. We reverse and remand with directions. International International filed a tender or rate quotation to haul ammunition and bombs on April 13, 1967, effective April 15, 1967. Commencing May 17, 1967, and continuing to June 1Í, 1971, International transported 500 and 750 pound bombs. On June 14, 1967, Tri-State filed the complaint seeking to enjoin the transportation of 500 and 750 pound bombs and cannon ammunition. Subsequent to the filing of the complaint International began to haul cannon ammunition which, when not boxed or palletized, weighed less than 150 pounds. On June 30, 1967, the district court issued a preliminary injunction enjoining International from further transportation of cannon ammunition of an individual weight of less than 150 pounds. The court held that such cartage was a “clear and patent” violation of International’s certificate. 49 U.S.C. § 322(b)(2). With regard to the bombs, the court said, “The decision as to the bombs is obviously of the type Congress intended to be decided in the first instance by the Interstate Commerce Commission in the exercise of its expertise.” In effect, the court referred the issue to the Interstate Commerce Commission (Commission). On December 31, 1968, the Commission ruled that such cartage was not within International’s certificate of authority. On March 18, 1970, a three-judge court reviewing the Commission’s decision remanded the case. International Transport, Inc. v. United States, 318 F.Supp. 763 (W.D.Mo.1970). The United States, a statutory defendant, admitted .that the Commission’s order was invalid. The three-judge court suggested that the Commission take further evidence and consider the following regulation: “Care in loading, unloading, or other handling of explosives. No bale hooks or other metal tools shall be used for the loading, unloading, or other handling of explosives, nor shall any package or other container of explosives, except barrels or kegs, be rolled . . . .”49 C.F.R. § 177.-835(b). The Commission held further hearings and affirmed its previous order. International and others filed another complaint to set aside the two Commission orders. Once again the United States answered and admitted the invalidity of the two Commission orders. The three-judge court reviewed the Commission decision and affirmed it. International Transport, Inc. v. United States, 337 F. Supp. 985 (W.D.Mo.1972). The United States appealed the decision to the Supreme Court and the decision was affirmed without opinion. United States v. Interstate Commerce Commission, 409 U.S. 904, 93 S.Ct. 235, 34 L.Ed.2d 168 (1972). The government’s opposition to the Commission rulings was apparently predicated upon the argument that the Commission had failed to take into account the National Transportation Policy’s provision relating to economical and efficient service. See 49 U.S.C. §§ 1 et seq., 301 et seq., and 1001 et seq. During the interim between the three-judge decision and the appeal to the Supreme Court, the district court held a hearing and decided this case holding that cartage of 500 and 750 pound bombs and cannon ammunition weighing 150 pounds or less was clearly and patently in violation of International’s certificate. An injunction was issued and attorneys fees of $10,894.37 were awarded. C & H Tri-State filed its complaint for injunction against C & H on January 21, 1969. The action was stayed and the Commission asserted primary jurisdiction. C & H participated in the above-mentioned Commission proceedings, and in the subsequent three-judge court proceedings. On appeal the three-judge court decision adverse to C & H was affirmed without opinion by the Supreme Court. See C & H Transportation Co. v. Interstate Commerce Commission, 409 U.S. 904, 93 S.Ct. 235 (1972). C & H had stopped hauling the bombs in March of 1970. The single judge district court enjoined C & H from further hauling bombs, and allowed $4,557.00 in attorneys fees. The court did not enjoin C & H’s alleged transportation of cannon ammunition in view of the uncertainty of the evidence and the small quantity involved. Clear and Patent A. The Bombs Both International and C & H argue that transportation of the 500 and 750 pound bombs was apparently justified since the bombs, while not “inherently” requiring the use of special equipment to handle them, certainly as a practical matter were handled in a more expeditious manner when palletized and loaded and unloaded by special equipment. Both truckers contend that, until the Supreme Court rendered its decision affirming the three-judge court, there was a real question about the validity of the Commission’s decisions. International and C & H point to the government’s admission in the three-judge court and before the Supreme Court that the Commission’s decisions were in error. From this fact the truckers assert that it is erroneous to now claim that the truckers “clearly and patently” operated without their authority, since the question of the lawfulness per se of the activity was certainly debatable. We agree with this reasoning. 49 U.S.C. § 322(b)(2) provides in pertinent part: “(2) If any person operates in clear and patent violation of any provisions of section 303(c), 306, 309, or 311 of this title, or any rule, regulation, requirement, or order thereunder, any person injured thereby may apply to the district court of the United States for any district where such person so violating operates, for the enforcement of such section, or of such rule, regulation, requirement, or order. The court shall have jurisdiction to enforce obedience thereto by a writ of injunction or by other process, mandatory or otherwise, restraining such person, his or its officers, agents, employees, and representatives from further violation of such section or of such rule, regulation, requirement, or order; and enjoining upon it or them obedience thereto.” As this Court has said: “The foregoing section was a 1965 amendment, the purpose of which was to ‘afford injured parties a measure of self-protection against operations which are openly and obviously unlawful’. 1965 U.S.Code Cong. & Adm. News, Vol. 2, at p. 2931. Prior thereto only the Commission could go into District Court and obtain an enforcement order. Obviously, the Congress desired to expedite the remedy where ‘clear and patent’ violations were established.” Baggett Transportation Co. v. Hughes Transportation, Inc., 393 F.2d 710, 714 (8th Cir.), cert. denied, 393 U.S. 936, 89 S.Ct. 297, 21 L. Ed.2d 272 (1968). (Emphasis supplied.) And it is important to note that Congress “wish[ed] to emphasize . that the district courts of the United States should entertain only those actions under these sections, as amended, which involved clear and patent attempts to circumvent regulations in the areas involved.” Conference Report 810, 89th Congress 1st Sess. (1965); U.S.Code, Cong. & Admin.News at 2943 (1965). (Emphasis supplied.) Further legislative history indicates: “These new provisions are intended to afford injured parties a measure of self-protection against operations which are openly and obviously unlawful. In each new paragraph the words ‘clear and patent’ are used and are intended as a standard of jurisdiction rather than as a measure of the required burden of proof. As was stated in the Senate report on S. 2560, 87th Congress (S.Rept. 1588, 87th Cong., dated June 13, 1962), in explanation of an amendment to section 222(b) of the act which is identical to that proposed in this legislation: No district court is to entertain any action except where the act complained of its openly and obviously for-hire motor carriage without authority under the sections enumerated above * * *. The language of the section is designed to make it clear that the courts would entertain only those suits which involve obvious attempts to circumvent operating regulation.” (Emphasis supplied.) House Report No. 253, 89th Congress 1st Sess. (1965); U.S.Code, Cong. & Admin.News at 2931 (1965). The principal question in this case thus becomes whether C & H and International were engaged in an open and obvious attempt to circumvent operating regulations by hauling the 500 and 750 pound bombs. In 1959 the Commission decided W. J. Dillner Transfer Co-Investigation of Operations, 79 M.C.C. 335 (1959). See also W. J. Dillner Transfer Co. v. I.C.C., 193 F.Supp. 823 (W.D.Penn.), aff’d Dillner Transfer Co. v. Ünited States, 368 U.S. 6, 82 S.Ct. 16, 7 L.Ed.2d 16 (1961). The Dillner decision clearly indicated that a heavy hauler could not successfully base his right to transport on the size and weight of the item palletized unless the items themselves were such that palletization was inherently required. However, in 1966 the Commission decided Moss Trucking Co., Inc., Investigation of Operations, 103 M.C.C. 91 (1966). Acknowledging the Dillner decision, the Commission said: “As we discussed above, the term ‘require’ in its context is susceptible to varying interpretations, as may be seen from the language of our cases and certain court decisions. At one extreme it may be argued that to say that the transportation of a certain commodity ‘requires’ the use of special equipment means that it must be a physical impossibility to handle the commodity in any other manner, or, to state the proposition in the converse, a bare physical possibility that the commodity can be transported without the use of special equipment is sufficient to establish that the movement is beyond the scope of heavy-hauling authority. This has not been the view of the Commission, as it evidenced by the Black exception approved in the Dillner criteria, but it was the tendency toward this type of interpretation that the court in Aero condemned. “On the other hand, it has been contended from time to time in heavy-hauler cases that any time special equipment is utilized in loading and unloading, or for over-the-road movement, the transportation falls within the permissible range of heavy-hauling operations, regardless of whether the use of such equipment can be said in any sense to be ‘required.’ Such a construction goes too far in that direction .... “It seems to us that what the court in Aero is saying is that more latitude must be exercised in determining whether the use of special equipment is required. Industry practice, while not to be the determinative factor, must be taken into account. Not whether manual handling is possible, but whether it is ‘reasonably practical’ must assume a larger role in our determination.” Id. at 107-108. In a dissent, Commissioner Murphy said: “The report sets forth a new test for determining whether aggregated items may be transported by a heavy hauler. In lieu of the test based upon the inherent nature of the commodity to be transported, as set forth in Dill-ner, it proposes that economy, efficiency and practical necessity be the controlling consideration. “As a result of this decision, if the Dillner principle still exists, and evidently the majority believes it does, I fear that it here has been so masticated that it is incapable of application, leaving a void in our regulation of motor carriers.” Id. at 115. It is pertinent to note that Moss approved the heavy hauler’s cartage of an aluminum tank, 20 feet long, with an uncrated weight of 273 pounds. After the institution of the 1967 self-help suit against International it did not become certain for five years that the heavy haulers were violating their certificated authority. The trial judge in the International case indicated that the decision with regard to the bombs should in the first instance be decided by the Commission. Although this holding cannot properly be construed as an adjudication that no “clear and patent” violation had taken place, it may be correctly construed as an indication of the trial judge’s opinion that Commission expertise was needed. In 1968, the initial Commission decision, although nominally concluding that such cartage was “beyond question” outside the scope of heavy hauler authority, recognized that Moss, supra, phrased the issue not as whether manual handling is “physically possible,” but whether it is reasonably practical taking into account several factors including industry practice. International Transport, Inc. — Investigation and Revocation of Certificates, 108 M.C.C. 275, 276 (1968). In somewhat contradictory language, in light of its “beyond question” suggestion, the Commission said: “Looking, first of all, at the bombs as individual units, respondent argues that they are of such weight as to render them incapable as a practical matter of loading and unloading other than by mechanical devices, and we agree that the hand lifting of any 500- or 750-pound object would be a formidable task even for the sturdiest of men. In the same vein, it undoubtedly is true that in light of modern technology the use of forklift trucks or similar devices is more efficient and economical than manual handling of any description. Be that as it may, the record contains uncontradicted evidence that when suitably protected 500- or 750-pound bombs have, to some extent, been loaded and unloaded by rolling them on and off the trailers by hand, and we find nothing to persuade us that this procedure when employed was unsatisfactory. It is true that 500-pound bombs are now being produced without the hooks which formerly necessitated the use of protective bands. But aside from this there is no proof which would indicate that, in their basic characteristics, the newer models differ to any material degree from those which apparently were rolled without complaint. By the same token, no plausible technical explanation has been presented, as to why the involved bombs, with or without hooks, could not, should the military and the shippers so desire, again be coated or wrapped in the manner necessary to guard them against the normal hazards such as scratching which are encountered during the rolling process.” Id. at 293. Furthermore, in 1970 when this first Commission decision was being reviewed by the three-judge court, the United States, a statutory defendant, admitted the Commission’s decision was unreasonable and in conflict with National Transportation Policy in finding that International’s size and weight certificate did not authorize transportation of 500 and 750 pound bombs. The three-judge court remanded the case to the Commission to consider the applicability of a Department of Transportation regulation seemingly indicating that the bombs could not be rolled, and suggested that the Commission take further evidence on the manual handling of bombs and the handling of bombs by rolling, in addition to other evidentiary matters. International Transport, Inc. v. United States, supra, 318 F.Supp. at 765. By 1971 the second Commission decision was handed down, and the Commission recognized that: “Such objects, we admit, clearly fall within the weight range (i. e., substantially more than 200 pounds) which has been historically recognized as indicating a lack of sueeptibility to manual lifting. Thus, the dimensions of the involved bombs must be said to operate in favor of the heavy-hauler’s right to handle them.” See MC-C-5766 (October 29, 1971) as quoted in International Transport, Inc. v. United States, supra, 337 F. Supp. at 993. The Commission further recognized: “In this connection, there is evidence pointing toward the use of hand rolling to load and unload the 500- and 750-pound bombs which were manufactured prior to 1966. Like such formerly made articles, the bombs transported by International are round objects and thus lend themselves, in theory at least, to handling by similar means. The currently produced 500- and 750-pound bombs differ, however, from the previously shipped models in that the former are slimmer and have smooth skins. Moreover the 500-pound bombs are now shipped without the suspension lugs which had been used to affix the shipping bands necessary to protect the bombs from such physical damage as might otherwise result in the rolling process.” Id. at 993-994. Finally, in 1972, after five years had elapsed since it had first been alleged that the appellants clearly and patently operated outside their certificated authority, a three-judge court affirmed the Commission’s decision in the face of the admission by the United States that both prior Commission orders were invalid. International Transport, Inc. v. United States, supra, 337 F.Supp. at 985. The United States perfected a direct appeal to the Supreme Court in which the Solicitor General indicated once again that the Commission’s decisions were invalid. In view of the foregoing, we cannot say that the carriers were engaged in a “clear and patent” attempt to operate outside their authority. B. Cannon Ammunition It appears that International transported two truck loads of cannon ammunition subsequent to the filing of the complaint (June 14, 1967), but before the issuance of the preliminary injunction (June 30, 1967). International claims that this cartage was not a clear and patent violation, and further claims that activities taking place solely after the complaint cannot be considered by the district court. The first contention by International is plainly without merit. Cannon ammunition weighing less than 150 pounds unpalletized is not within heavy hauler authority. It appears, almost universally, that items weighing less than 200 pounds unpalletized have been considered susceptible to manual handling and, therefore, outside heavy hauler authority. See e. g., Ace Doran Hauling & Rigging Co.—Investigation, 108 M.C.C. 717, 723 (1969). See also Pittsburgh & New England Trucking Co. v. United States, 345 F.Supp. 743 (W.D.Pa.1972), aff’d sub nom. Ace Doran Hauling & Rigging Co. v. Interstate Commerce Commission, 409 U.S. 1070, 93 S.Ct. 686, 34 L.Ed.2d 660 (1972). The second contention relates to International’s assertion that Congress did not intend that the district courts should exercise jurisdiction over carriers’ activities which occur solely after the filing of the complaint. No persuasive authority is cited for this proposition, and F.R.Civ.P. 15(d) allows for the filing of a supplemental complaint setting forth allegations occurring after the filing of the complaint. This is apparently what transpired below: “The parties and the Court have treated the issues as continuing to the date of trial and have allowed discovery as to what was being transported in the last six months of 1971. The Court considers the pleadings to be amended accordingly to conform to the proof. Also, for the same reason the Supplemental Complaint of plaintiffs is deemed filed as of February 17, 1972, to conform to the proof. See Rule 15 F.R.Civ.P.” Tri-State Motor Transit Co. v. International Transport Co., supra, 343 F.Supp. at 593-594 n. 9. Conclusion For the reasons hereinbefore set forth, we hold that no clear and patent violation was shown with respect to either carrier’s cartage of the bombs, but that a clear and patent violation was proven as to the cartage of the palletized cannon ammunition by International. As a consequence the decision enjoining C & H from the cartage of bombs and the award of attorneys fees will be reversed. The decision finding International in violation with respect to the cartage of the bombs will be reversed and the injunction dissolved. The decision finding International in violation with respect to the cartage of the cannon ammunition and enjoining further cartage of cannon ammunition will be affirmed. The attorneys fees awarded in the International ease will be adjusted by the trial court to reflect this partial reversal. All costs will be taxed to Tri-State in the C & H case except the costs of the intervenor, Interstate Commerce Commission. Each party, including the intervenor, will pay its own costs of printing briefs in the International ease, and the other costs, including the printing of the appendix and supplementary appendix, will be assessed equally to Tri-State and International. GIBSON, Circuit Judge (dissenting in part): I agree with the majority decision on the palletized cannon munitions but also think C & H and International were engaged in a clear and patent attempt to circumvent operating regulations by hauling the 500 and 750 pound bombs. The regulation of the commercial trucking industry is entrusted to the Interstate Commerce Commission by Congress. The ICC has been specifically granted the authority to establish classifications of carriers. 49 U.S.C. § 304(b). In the exercise of this authority the ICC has created some 17 classifications of carriers; among these are the heavy haulers and the munitions haulers. The test for inclusion in the authority of the heavy haulers’ certificates is generally whether the commodity, by virtue of its size or weight, necessitates the use of special equipment, primarily in loading and unloading. The so-called munitions haulers carry explosives and other dangerous articles. The classification of carriers is generally oriented toward the type of commodity carried, however with the heavy haulers, the classification' has become descriptive of the type of service that they offer. The heavy haulers have tried to take advantage of this change in their status to expand the type of commodities which they carry. The ICC however has remained consistent in its refusal to allow the heavy haulers to enter into the carriage of classes of commodities which have been the subject of specialized certification, i. e. household goods and bulk fungibles The heavy haulers had not engaged in this type of hauling before and they should have, in the interest of orderly procedure, applied to the ICC for a permit or a change in regulations before invading a field heretofore reserved to the special permit carriers of explosives. Palletization is undoubtedly a beneficial technological advance in the cargo field and the public should reap the benefit from such a technological advance. However, in the interest of the regulatory scheme and to prevent chaos in the transportation field, the ICC should have control of any changes sought to be imposed by those taking advantage of palletization techniques in other classified fields. This is in accord with the Congressional scheme of entrusting the ICC with the overall supervision of public carriers and their classifications. Judge Hunter correctly set forth the criteria for classifying cargo and recognized the historical evolution of the use of palletization in the transportation field. The Commission has consistently refused to recognize the size and weight standard as the sole standard in determining heavy haulers’ certificated rights and has emphasized the nature of the commodity to determine if the defendants’ carriage of a commodity is a “clear and patent” violation of their eertificat-ed authority. The fact that the commodity carried is one which has historically been the subject of a specialized certificate, coupled with the ICC’s refusal to allow expansion of the heavy haulers’ certificates into existing commodity classifications, should give a reasonable person notice to proceed cautiously before invading another specialized field and the violation would appear to be clear and patent. Earlier the Commission in W. J. Dillner Transfer Co., Investigation of Operations, 79 M.C.C. 335, decided April 10, 1959, dealt with the problem of aggregating or palletizing as follows: “(3) In bundling, aggregating, or palletizing, it should be the general rule of construction (1) that the individual ‘commodity, itself’ is the controlling consideration as respects a carrier’s authority; (2) that the limited exception which the Black case, 64 M.C.C. 443, represents, where commodities are bundled for protection or as otherwise required by their ‘inherent nature’ must be maintained within its strictest limits; (3) that the minimum bundle which is required by the ‘inherent nature’ of the commodity is the size or type of bundle which must be considered in any determination whether necessity exists for the use of special equipment; and (4) that in order reasonably to maintain these limits it shall be presumed, in the absence of a sound basis for concluding to the contrary, that commodities tendered to the carrier, in bundles or aggregations, are within the general rule and not within the limited exception thereto . . . .”79 M.C.C. at page 358. “Thus, only under unusual circumstances may aggregation or bundling result in a situation where such commodities may thereby be recognized as requiring special equipment. This is a special exception to the long-recognized general rule which looks at ‘the commodity itself,’ it is no sense applicable where bundling is done on the basis of economy and efficiency; * * * and we wish to emphasize the obvious necessity for maintaining such exception within its strictest limits.” 79 M.C.C. 352. While the effect of Dillner was somewhat obscured by the Moss Trucking Co., Inc., Investigation of Operations, 103 M.C.C. 91 (1966), allowing the heavy haulers to carry aluminum tanks, 20 feet in length and weighing 273 pounds, the Commission made clear in Moss that size and weight were not to be the determining factors by stating: “On the other hand, it has been contended from time to time in heavy-hauler cases that any time special equipment is utilized in loading and unloading, or for over-the-road movement, the transportation falls within the permissible range of heavy-hauling operations, regardless of whether the use of such equipment can be said in any sense to be ‘required.’ Such a construction goes too far in that direction, of course, not only because it would render the word ‘require’ virtually meaningless, but also because it would enable the shippers, solely at their discretion, to open up, through palletization or otherwise, a field of service to the heavy haulers which has never been a part of heavy-hauling service and which would constitute an unwarranted invasion of traffic traditionally handled by general-commodity carriers.” 103 M.C.C. at 107. (Emphasis added). The heavy haulers’ attempt to justify new ventures into exotic fields by over-reading Moss or as construing that decision as superseding Dillner, is not justified. The Commission’s response to this overreading of Moss was set forth in Hughes Transportation Company, Inc., Extension, 107 M.C.C. 207 (1969); “Moreover, the Moss decision clearly does not authorize the incursions by heavy haulers into numerous specialized fields as chemical and explosives transportation.” Notwithstanding this history and the Commission’s consistent decisions in the heavy haulers’ field, International continued the hauling of the bombs in issue. The Interstate Commerce Commission had already ruled on December 31, 1968, that International did not possess authority to transport the bombs. Yet it appears only fair and reasonable that since the ICC’s decision had been made, International would continue to operate in violation of that decision only at its own risk. This it did and continued the transporting of the bombs until June 11, 1971. Having done so, it should bear the consequences. While the outcome of the referred ICC case and the subsequent affirmances on appeal are not determinative of the issue of clear and patent violation in this case, which must be resolved on the facts as they existed at the time the suit was filed, the results of these cases strongly indicate that defendants’ claim of right to haul these bombs has little merit. Of further significance is the fact that no other heavy haulers have ever asserted any right to haul explosives, apparently applying a reasonable construction to the language of their certificates. The one exception to this is the carriage of jet thrust units, a class A or B explosive, by heavy haulers, but even this was done, not under the size and weight authority, but under the generic authority as a missile part. See, Baggett Transportation Co., Extension—Redstone Arsenal, 88 M.C.C. 3 (1965). From this record, it was most unlikely that the ICC would permit the heavy haulers to carry the bombs on the authority of their heavy haulers’ certificate. While the palletization of the bombs might have put the question into a gray area of the law with regard to size and weight authority alone, the fact that the commodities were explosives becomes the overriding consideration in determining the authority to carry them. Also, historically the hauling of explosives has been treated as a separate and unique type of cargo. The ICC issues certificates to haul explosives only for a period of five years in order to allow a periodic review of the safety record of the carrier, on application for renewal. The fact that the heavy haulers’ certificate contains no such limitations on duration indicates that the ICC did not intend that explosives be carried under the general authority of the heavy haulers’ certificate. The majority attaches considerable significance to the fact that the Government in its position as a statutory defendant and presumably representing the Department of Defense and not the Interstate Commerce Commission had taken issue with the Commission’s ruling on not allowing the large palletized bombs to be transported under the heavy haulers’ certificate. I would not view this of major significance because the Department of Defense was not invested with the authority to classify carriers and the Government in this posture was merely taking an adversary position in presenting what it considered to be a policy issue under the National Transportation Policy, 49 U.S.C. § 301, preface. In any event, this would call merely for a court challenge of the ICC’s expertise and should not supply the basis for violating existing regulations. Moreover, the Government’s position in the ICC proceedings and the appeal from the decision therein is more than offset by the intervention of the ICC in the instant suit on the behalf of plaintiffs. Where the ICC, as the independent agency charged by Congress with the responsibility of regulating the transportation industry, argues that a violation of operating rights is a clear and patent violation, its actions should be accorded great weight and certainly more weight than the Department of Justice which is urging a position based on the self-interest of a government agency, the Department of Defense. If the contention of the heavy haulers is sound, they would be in a position to virtually monopolize the hauling of all commodities which lend themselves to aggregation or palletization. Recognizing this obvious danger the Commission has stated: “[W]e must be alert to keep [the heavy haulers] reasonably within their recognized sphere unless and until they have established the right to depart therefrom on the basis of authority acquired therefor on a showing of a public need as required by part II of the act.” W. J. Dillner Transfer Co., supra at 357. Invariably some plausible argument can be advanced for hauling any type of commodity under any type of permit and if we are to give credence to any attempted invasion of another carrier’s field by the mere fact that an issue is raised, the self-help statute § 322(b)(2) would be rendered meaningless as it could always be contended, despite prior Commission’s' rulings, that the violation was not clear and patent. I do not think this result is in accord with the obvious intent of § 322(b). I would, therefore, affirm the decision of the District Court on the basis of Judge Hunter’s opinion. . A “heavy hauler” measures its certificate in terms of whether the commodity hauled, by virtue of its size or weight, necessitates the use of special equipment. As in this case, questions arise as to whether the commodity can be loaded and unloaded manually or whether the commodity must be aggregated and loaded and unloaded with special equipment such as forklift trucks. . Tri-State Motor Transit Co. v. International Transport, Inc., 343 F.Supp. 588 (W.D.Mo.1972) and Tri-State Motor Co. v. C & H Transportation Co., Inc., 347 F.Supp. 879 (W.D.Mo.1972). . In its jurisdictional statement, the government said: [T]he Commission found that beginning in 1966 the Department of Defense had required all shipments of the involved bombs to be palletized. These shipments weighed from 1700 to more than 3000 pounds; they were loaded into standard closed van haulers by means of fork-lift trucks furnished by the Department of Defense. The decision to ship the bombs palletized, the Commission determined, was not made for reasons of safety, but because “it is the most rapid and efficient method of handling the involved traffic.” The Commission then proceeded to review its past decisions interpreting the scope of heavy hauler authority. The Commission pointed out that commodities requiring “special equipment” (e. g., fork-lift trucks) for loading and unloading are within heavy hauler authority. Problems have arisen, however, when commodities not “incapable of manual handling” on an individual basis are aggregated into heavy bundles which must then be loaded by mechanical means. The Commission has taken the view that the mere aggregation of a commodity into a heavy shipment should not be sufficient to bring it within the heavy hauler’s sphere, and has ruled instead that aggregated commodities will be held to “require” special equipment only if their “inherent nature” demands that they be aggregated. Commodities shipped in bundles merely for reasons of economy and efficiency do not “inherently require” aggregation, in the Commission’s opinion, and are accordingly outside heavy hauler authority. Only by adopting this “inherent nature” test, the Commission believed, could it stop the heavy hauler’s “ ‘unwarranted invasion of traffic traditionally handled by’ ” other carriers. As for explosives haulers, the Commission stated that “due significance” must be accorded the “traditions and precedents which have established explosives transportation as one of the most distinctive and unique spheres of motor carriage.” This tradition plus the “inherent nature” test, the Commission concluded, result in a “presumption” that explosives are not within heavy hauler authority. This presumption is not overcome, in the Commission’s view, by showing that the aggregation of the explosives into heavy loads represents industry practice or constitutes the most economical and efficient means of handling the explosives, or even that tech- nology lias rendered manual loading obsolete. Applying these tests to the bombs in question, the Commission held them to be outside heavy hauler authority. Although it would be a “formidable task” to lift manually these 500 and 750 pound bombs, the Commission noted that such bombs had formerly been loaded manually by rolling. Admitting that the bombs are no longer designed with the protective bands which permitted such rolling, the Commission stated that nevertheless “no plausible technical explanation” was presented to show that they could not again be so designed. Further, the Commission found that palletization “is of recent institution, is employed almost entirely for reasons of economy and efficiency, and is in no way required by considerations such as safety.” Accordingly, the Commission held that the bombs do not “inherently require” palletization, despite Defense Department insistence on it, and that the heavy hauler had not overcome the presumption against its authority. . See the Doran report supra, 108 M.C.C. 717, at 723; Telisehak Trucking, Inc., Extension—Concrete Commodities, 82 M.C.C. 109 (1959). . Neptune Storage, Inc., Extension—X Ray Machines, 88 M.C.C. 3 (1961). . Ashworth Transfer Co., Extension—Cement, 64 M.C.C. 99 (1955). In Ashworth the heavy hauler alleged that it was authorized to carry dry bulk cement because it required special equipment and because of its weight. The ICC held that its certificated authority did not include the carriage of this commodity. Part of the language used by the ICC is of interest here. “We have tended to the use of general terms in the interest of reasonable rather than burdensome regulation, and such terms have been, for the most part, fairly construed by motor carriers according to their obvious intent. However, we appear to have here a complete and deliberate misconstruction of a commodity description. . . . ” 64 M.C.C. at 100. . Judge Hunter in his opinion refers to the prior Three-Judge Court decision International Transport, Inc. v. United States, 337 F.Supp. 985, 999 (W.D.Mo.), aff’d, 409 U.S. 904, 93 S.Ct. 235, 34 L.Ed.2d 168 (1972), in summarizing the criteria or guidelines as follows: “The said guidelines, all of which by way of emphasis, have been developed in prior cases, may be described as follows: (1) the basic characteristics, if any, of the commodity which occasion the use of special equipment; (2) prevailing industry practice with regard to its handling; (3) the manner in which it or analogous commodities have historically been shipped, and (4) its traditional sphere of carriage.”

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

NATIONAL CABLE TELEVISION ASSOCIATION, INC., Appellant, v. FEDERAL COMMUNICATIONS COMMISSION. No. 24786. United States Court of Appeals, District of Columbia Circuit. Argued June 13, 1972. Decided April 17, 1973. Charles S. Walsh, Washington, D. C., with whom Gary L. Christensen, Washington, D. C., was on the brief, for appellant. Leonard Schaitman, Atty., Dept, of Justice, with whom L. Patrick Gray, III, Asst. Atty. Gen., at the time the brief was filed, Thomas A. Flannery, U. S. Atty., at the time the brief was filed, and Walter H. Fleischer, Atty., Dept, of Justice, were on the brief, for appellee. Richard E. Wiley, Gen. Counsel, F. C. C. at the time the record was filed, John H. Conlin, Associate Gen. Counsel, F. C. C., and Robert V. Zener, Atty., Dept, of Justice, also entered an appearance for appellee. Before BAZELON, Chief Judge, ROBINSON, Circuit Judge, and WILLIAM J. JAMESON, Senior U. S. District Judge for the District of Montana. Sitting by designation pursuant to Title 28, U.S.C. § 294(d). BAZELON, Chief Judge: This appeal involves the meaning of the requirement under the Freedom of Information Act that documents be “identifiable” before disclosure is required. On March 2, 1970, the National Cable Television Association (NCTA) requested that the Federal Communications Commission allow inspection of several classes of documents that related to a proposed Commission rulemaking. When the Commission refused, the NCTA brought this suit in the District Court for a stay of the rulemaking and for an order to produce the documents. Immediately before the hearing for preliminary relief in the District Court, but after the period allowed by the Commission for comments on the rules, the Commission filed a motion and memorandum alleging that “circumstances” had changed, proffering a number of the documents theretofore denied, and requesting dismissal or summary judgment. The District Court denied the motion for preliminary relief and no appeal was noted. It held two hearings, received testimony from Commission staff members, and granted summary-judgment for the Commission on the following oral statement: To me, what you are seeking are the work papers and internal memo-randa of this agency to which I do not believe you are entitled. What you want are the tapes, the yellow work sheets and possibly to pick somebody’s brain. I do not think you have made out a case. We reverse. Summary judgment may be granted only if the moving party proves that no substantial and material facts are in dispute and that he is entitled to judgment as a matter of law. To prevail, the defending agency must prove that each document that falls within the class requested either has been produced, is unidentifiable, or is wholly exempt from the Act’s inspection requirements. Measured against this requirement, summary judgment was improper. Some of the facts necessary to the Commission’s defenses find no support in the evidence and others of those facts are directly contradicted by evidence elicited by the NCTA. I. The Rulemaking Proceeding On February 19, 1970, ■ the Federal Communications Commission released a Notice of Proposed Rule Making which set forth an alteration — and substantial increase — in its license “fee schedule.” The February Notice proposed extension of fees beyond applicants for licenses to also include operators of community antenna television (CATV) systems and users of the Commission’s radio frequency equipment testing services. It also proposed that the fees, which had previously been designed to reimburse the government for twenty-five percent of the Commission’s budget, be raised approximately three hundred percent, thus making the Commission self-supporting. The result was a predictable storm of protest. At first directed at the Commission’s power to impose the fees, the attack eventually shifted to the way in which the proposed scheme would allocate the costs of regulation among the regulated industries and their constituent members. In response to the latter, the Commission issued a Supplemental Notice in March of 1970. The March Notice purported to provide a breakdown of the costs of operating the Commission into the cost of operating each of its six major offices and bureaus. Taken together, the February and March notices asserted that the proposed schedule would assess each Commission-regulated industry in accordance with a formula that may be briefly described. The cost of operating each office with direct responsibility for regulating an industry was computed. Next, that part of the cost of each office without a direct regulatory responsibility that could be directly traced to a particular industry was charged to that industry. Then all remaining costs were lumped together and each was assigned a share of that cost equal to its percentage share of the directly assigned costs. Finally, the sum of these items, called the “cost factor,” was adjusted to reflect certain intangibles, such as the “value to the recipient” of the privileges granted it by the Commission. After setting forth this generalized explanation of its approach, however, the Commission failed to supply specifics, either as to the facts from which it had reasoned or as to the mechanical steps it had taken in deriving the final schedule. Without data concerning the Commission’s costs, it is not possible to determine the basis upon which the Commission allocated its direct and indirect costs among the regulated industries. Without disclosure of the final amount the Commission intended to recover from each industry, it is not possible to determine what, if any, noncost adjustments were made and whether the final schedule had any relation to the cost allocation. And without a definition and quantification of “value to the recipient” it is not possible to determine why and how the Commission might be deviating from a pure system of cost allocation. Thus, the Commission insulated itelf from external criticism of its method and rationale, leaving nothing open to challenge except the legality of its result. The NCTA, as the chief trade association of the CATV industry, wished to file comments concerning the proposed fee schedule. Faced with the opaque notices just described, it requested an opportunity to inspect several categories of documents that the NCTA believed the Commission would have in its files. One category was “the documents, listings and records used to determine the ‘ “value to the recipient” of the privileges granted’ as referred to in the [February] Notice.” The other catego-ríes all related to the facts and reasons that supported the “cost factor.” II. The Documents Sought by the NCTA As a consequence of the Commission’s midnight production of most of the requested materials, after the close of the rulemaking but prior to the first hearing in the District Court, only three of the categories remained to be considered by the Court. Since the District Court’s ruling does not indicate the grounds on which it based its grant of summary judgment, we must examine the record on each of these categories. A. The Two “Cost Factor” Categories The February Notice stated that the total cost of regulation was that stated in the Commission’s budget for the relevant year. Thus, the NCTA’s request to inspect documents was phrased in terms of classes of documents that supported the budget and the allocation of budgeted costs among the regulated industries. The first two categories requested were: 1. The supportive documents used to arrive at the Commission’s budget for fiscal year 1971 ; 2. The documents, listings and records used to determine the “direct and indirect cost to the Government” of the privileges granted the CATV industry for fiscal year 1971. Access to the first group of documents would permit the NCTA to check the accuracy of the Commission’s breakdown of its costs. Access to the second would enable it to determine which parts of the budget had been assigned to the cost of CATV regulation, and compare them with the budget breakdown to determine whether all of the costs assigned to CATV were consistent with the budget. By adding together the costs listed under the second category, the NCTA would be able to challenge both the fairness of the charge and the accuracy of the Commission’s addition. In response to the first item, the Commission provided the NCTA with a copy of its budget “request,” a document prepared for the Bureau of the Budget. The “request” itemized the Commission’s proposed expenditures for fiscal year 1971, but requested fifty percent more money than the Bureau finally cleared for submission to Congress as the “budget.” The Commission produced nothing in response to the second item. At the hearing in the District Court, the Commission produced the head of its budget office for examination by the NCTA. Asked for an explanation of the Commission’s procedures, he testified that he had prepared the budget “request” from a variety of documents submitted by the Commission’s various organizational units, in accordance with a memorandum of instruction from the Commission itself. He further testified that these documents were still in the possession of the Commission, but he argued that these were not “supporting” documents to the final budget, apparently on the theory that the budget “request” had intervened. The latter, he said, “is really the supportive document” for the Congressional budget. The second request was for the documents that supported the assignment of part of the Commission’s budgeted costs to CATV. The Commission’s witness testified that there were no such documents. He said that he had compiled the relevant data from the budget by using yellow sheets of paper and adding machine tapes, and had preserved only the final totals. These, he testified, were the figures included in the March Notice. The NCTA avowed that it could not duplicate the Commission’s figures by this means. While we can sympathize with this statement, for the reason that there appear to be contradictions in this account of the Commission’s procedures, we think that the Commission has adequately shown that there exist no documents in the category specified in the second request. B. The “Value to the Recipient” Category The Commission produced the official who had originally refused the NCTA’s request for inspection to testify on the request for “documents, listings and records used to determine the ‘value to the recipient’ of the privileges granted” by the Commission. Adhering generally to the affidavit he had filed in support of the motion for summary judgment, this witness testified that the Commission itself, after receiving from its budget office a figure for the total “cost factor” for each industry, worked from this to obtain the fee schedule by taking account of statutority designated factors, including “value to the recipient.” He stated that, as set forth in his letter to the NCTA on behalf of the Commission, the Commission had relied upon “the knowledge and financial aspects of the communications industry acquired over the years from vast numbers of confidential financial statements, confidential staff memoranda, and various trade publications.” While asserting that the Commission had only relied on them “in part” for its noncost adjustments, he did testify that the Commission still had these documents. He added that the NCTA had been denied them because the request “was so indefinite that it was difficult to identify and assemble without totally unreasonable expenditure of Commission manpower.” Also, he said, some of the documents were confidential. Elaborating with respect to the internal memoranda, he said: [Q. W]ith respect to the approach taken, the degree used, is there a conclusion reached [in the memoranda] as to the approach as to the degree of value with respect to the CATV industry, all of them mentioned in the Commission’s rule making proposal ? Were any factual conclusions reached that were put on paper? A. It’s very difficult to distinguish between actual conclusions and an opinion of the writer, an advocacy of a certain point of view. This is a very sensitive program and there were some very strongly held views amongst the staff and amongst the Commissioners; and these internal staff memoranda contain these views and these advocacies. Insofar as the NCTA’s request went to the trade publications and the “confidential financial statements,” no further testimony was taken. Since the witness had testified that no “financial statements” had been received from the CATV industry, it is possible that the NCTA does not want to inspect them. Indeed, the Commission’s affidavit broadly asserted that CATV is “NCTA’s sole concern” — although this could either be a representation of NCTA’s position or a claim, contrary to the Act, that NCTA needed a more direct interest to support a right to inspection. But, since the NCTA could hardly comment on the adjustments for “value to the recipient” without knowing the comparative status of other assessed industries, the NCTA’s request seems more likely to encompass all of the Commission’s supporting documents. And, since the actual wording of the request included all of the documents, the question whether they must be produced remains. III. Disposition by Summary Judgment In response to the Commission’s motion for summary judgment, the District Court ordered the Commission to produce witnesses who could testify concerning the Commission’s procedures and whether documents existed within the categories requested by the NCTA. It then required the NCTA to examine those witnesses, identify the documents it sought, and show that they were not exempt. We think this procedure was based on an erroneous construction of the Act’s requirements. The Commission could not rest on the blanket allegations of compliance, unidentifiability, and exemption that it made in its motion for summary judgment and supporting affidavit. Nor did the testimony elicited by the NCTA supply the missing evidence. Rather, it further undercut the Commission’s position. The motion for summary judgment should have been denied, and the Commission should have been required to go on and prove the missing elements of its defenses as set forth below. On remand this can be done either in support' of a renewed motion or at a trial. A. Identifiable Records Apparently ignorant of the Commission’s internal operations and filing system, the NCTA identified the requested documents in terms of the functions they had served in the Commission’s development of the proposed fee schedule. Thus, before the Commission could comply with the request, it would have to identify the documents more specifically, as, for example, by name and file number. To do this the Commission would have to retrace the steps taken in the development of the rulemaking notice. The Commission has steadfastly refused to undertake this task, and the ruling of the District Court upheld this refusal. The Freedom of Information Act does not require that a person identify records by providing the agency with a complete description down to the last detail of title and file number. It states: [E]ach agency, on request for identifiable records made in accordance with published rules stating the time, place, fees to the extent authorized by statute, and procedure to be followed, shall make the records promptly available to any person. This language places part of the responsibility for identifying the records on the agency itself. The responsibility of the person requesting the records is that he provide sufficient information to permit the agency to accomplish this duty. Problems of construction arise when we attempt to determine how much effort the requesting party must make, and how much he may leave to the agency, realizing always that he may be required to reimburse the agency for its efforts. The legislative history provides us little added guidance, suggesting only that we look to our decisions construing the discovery rules applicable in civil cases and advising that, while requests must be “reasonably identifiable,” the requirement should not be used as a device to withhold records. Our earlier cases have taken a pragmatic approach to this problem, attempting to draw lines that comport with the overall purposes of the Act. Wfe think our opinion in Bristol-Myers v. F. T. C. is controlling in this case. Additionally, it provides guidance in any attempt to articulate more generally the balance to be struck in cases involving attempts to inspect agency documents used to formulate proposed or final rules. In Bristol-Myers the District Court refused to enter an order compelling the Federal Trade Commission to produce documents described and identified by the Company in terms of the function that they served in the development of proposed rules regulating the advertisement of certain drugs. The basis for that ruling was a narrow interpretation of the identifiability requirement in the Act: An identifiable record necessarily means a record that is described with sufficient precision in order that by ministerial action of some subordinate the document can be identified and selected out of the files. It does not mean that the head of an agency or his immediate assistant must use judgment in seeking through the file to determine whether a particular document is within the classification asked for. That would be an unreasonable request. We reversed, and pointed out: The F.T.C. can hardly claim that it was unable to ascertain which documents were sought by Bristol-Myers. The Commission relied on certain materials in promulgating its proposed rule, and referred to them in announcing the rulemaking proceeding. These materials are adequately identified in The Federal Communications. Commission now argues, as it did in its motion for summary judgment, that this language is inapplicable in the case before us for the reason that it did not “rely on” or “refer to” any documents in its February and March notices, but to its “knowledge” acquired from documents. We think that the Commission misreads both our opinion in Bristol-Myers and the underlying purpose of our holding there. We did not impose a requirement that the notice directly refer to or rely on the documents to be disclosed. In fact, the request in Bristol-Myers did not differ from the request involved here: The petition filed by Bristol-Myers with the F.T.C. sought the identification and disclosure of “each item of material, whatever its form or nature, which . . . has contributed to or constitutes” the “extensive staff investigation,” “accumulated experience,” “available studies and reports” and “other things” referred to in the [Federal Trade] Commission’s Notice [of proposed rulemaking.] The scope of the agency’s responsibility to identify its own documents may be further delineated by examining a second request by Bristol-Myers, one which we said might present a plausible claim of unidentifiability by the Federal Trade Commission: The petition also sought each item which has contributed to or constitutes information concerning the effect of any analgesic and information concerning the accuracy of appellant’s assertions concerning the effects of various ingredients of its own analgesic products. This request undoubtedly extended beyond the documents that the F.T.C. itself possessed. Moreover, it was not apparent that the Commission had at any time either indexed its files in a way that would enable it to locate what it did have, or that it had ever brought the materials together for a common purpose or otherwise acted on them as a group. Thus, the requested documents could not be identified by retracing a path already trodden. It would have required a wholly new enterprise, potentially requiring a search of every file in the possession of the agency. Once the request has been made as specific as the agency’s public statements permit, Bristol-Myers teaches: (1) If the agency has previously identified a class or category of documents in the normal course of its affairs, it must produce them in response to a request phrased in terms of the class or category. (2) If the agency has never segregated that class or category, production may be required where the agency may be able to identify that material with reasonable effort. Even where an agency has previously identified a class of materials, the passage of time may work such changes in the agency’s personnel and records that production requires that identification begin anew. In such circumstances, production may be required only if the task imposed on the agency is not unreasonable. Where rulemaking proceedings have taken place, the agency has, by definition, already identified its supporting documents. Indeed, it would be a most reasonable practice for the agency to retain the documents as a group or index them for future retrieval. It would be most difficult to rebut the presumption that the agency would be able to produce the documents at least until the validity of its rule has been finally adjudicated in the courts. Finally, Bristol-Myers establishes that the specificity with which the agency has identified documents in its public statements is relevant only to the requirement that the request be as specific as reasonably possible. It is not relevant to the question whether the agency can be required to identify and allow inspection of the requested records under section 552(a) (3). In the present case the Commission has refused either to state that it did not make use of a mass of financial documents or to identify them. In fact, the District Court openly invited the former response' from the Commission witnesses, but they repeatedly asserted that there was a documentary basis for the Commission’s action, although it had not been identified in the notices of rulemaking. The NCTA phrased its request as specifically as the Commission’s public notices reasonably permitted. Accordingly, the Commission should have been required to identify, at least by relevant classes and subclasses, all the documents that it had used to support its proposed rule. Then it should have been required to establish which of those documents were exempt from disclosure under the applicable provisions of the Act. Much of this has now been done, albeit by the NGTA through its examination of Commission staff members. But there remains a substantial factual issue as to whether the Commission relied on trade publications and confidential reports, rather than vague concepts of the profitability of its regulated industries, in preparing its fee schedule. On remand, the Commission should be required to specify, by relevant category and subcategory, which — if any — of these materials it used. For the future we think that these matters should be settled through the discovery process as much as possible. The civil rules governing pretrial discovery provide ample tools for use in compelling the agency to identify and disclose the documents it has that fall within the class or category requested. In addition to facilitating the disposition of these cases by summary judgment, this approach will enable the requesting person to narrow his request if he discovers that he wants only a part of the supporting documents that the agency identifies in response to his discovery requests. B. The Commission’s Exemption Claims Because of the confusion involved in identifying the documents that existed within the scope of the NCTA’s request in this case, the District Court was entirely diverted from the necessary inquiry into the exemptions now claimed by the Commission. Indeed, the oral ruling of the District Court denied the NCTA’s entire request on the ground that the “yellow work sheets” and adding machine tapes used to prepare the “cost factor” from the budget were exempt. Yet, so far as we can determine, these were the only “documents” that the hearing showed not to exist. On the record before us, we perceive two possible exemptions that might justify withholding part of the material that the Commission admits it possesses. Under the applicable case law, however, neither would justify nondisclosure on this record, and the Commission must be required to establish the exemptions on the remand. 1. Intra-agency Memoranda The Commission asserted below that inspection of the memoranda used in the preparation of the budget “request” and the memoranda used to determine the “value to the recipient of the privileges granted” could not be ordered. It pointed to section 552(b) (5) of the Act, which exempts “inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency.” The District Court made no further inquiry into the matter, and the Commission produced nothing except a flat assertion that the documents “contained” policy arguments and were “confidential.” Both our own cases and the Supreme Court’s recent holding in Environmental Protection Agency v. Mink make it clear that this is insufficient. In Mink the Supreme Court said: Congress sensibly discarded a wooden exemption that could have meant disclosure of manifestly private and confidential policy recommendations simply because the document containing them also happened to contain factual data. That decision should not be taken, however, to embrace an equally wooden exemption permitting the withholding of factual material otherwise available on discovery merely because it was placed in a memorandum with matters of law, policy or opinion. This distinction is particularly important here, where the memoranda at issue relate to the development of a fee schedule said to have been derived from cost data and collections of financial reports. The Commission must show that any factual matter in the memoranda is so “intertwined with policymaking processes” that it would violate the purpose of the exemption to disclose it. Mink went on to point out that the District Court may use a variety of tools in making this determination, including, but not limited to, in camera inspection of some or all of the documents. Additionally, we note that the District Court in the Southern District of New York has recently resolved such a Freedom of Information Act case by appointing a Master and delegating the task of in camera inspection to him. 2. Confidential Financial Statements It is equally unclear whether the “confidential financial statements” that the Commission allegedly used in determining “value to the recipient of the privileges granted” fall within the scope of the Act’s exemption for “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” The exemption does not protect all data contained in such filings, but only that information which cannot be rendered sufficiently anonymous by deletion of the filing party’s name and other identifying information. In those cases in which the party that filed the statement is so large or unique that disclosure of the data itself would destroy the confidentiality of that party, it is conceivable that total nondisclosure would be justified. But the Commission’s witnesses testified that there are many thousands of such statements filed over a long period of time, and it seems highly improbable that the Commission will be able to establish that they must all be withheld. This, too, will be an appropriate subject for the District Court on the remand, armed with the flexible tools cited by Mink. In particular, the Court should take note of the Supreme Court’s suggestion that representative samples of the statements be examined, rather than the thousands that apparently exist. But, before this examination is undertaken, the Commission should be required to state which, if any, of these documents were used in the preparation of its rules. As we have pointed out, the scope of the NCTA’s request was coextensive with the scope of the Commission’s documentary basis for its rules. Reversed and remanded. . The Freedom of Information Act, 5 U.S.C. § 552 (1970), requires that each agency publish or make available certain classes of information. Id. § 552(a) (1) (2). All other information covered by the Act must be available for inspection in accordance with § 552(a)(3), which states: [E] ach agency, on request for identifiable records made in accordance with published rules stating the time, place, fees to the extent authorized by statute, and procedure to be followed, shall make the records promptly available to any person. . To justify a stay of an agency proceeding pending the litigation of a Freedom of Information Act request, a probability of irreparable injury must be shown. See Bannercraft Clothing Co. v. Renegotiation Board, 151 U.S.App.D.C. 174, 466 F.2d 345 (1972); Sears, Roebuck & Co. v. NLRB, 153 U.S.App.D.C. 380, 473 F. 2d 91 (1972). The District Court found that the NCTA had presented “no probative evidence” of such a probability. The rules were subsequently adopted on July 1, 1970, 35 Fed.Reg. 10,988, and were upheld on review, Clay Broadcasting Corp. v. FCC, 464 F.2d 1313 (5th Cir. 1972). That, of course, does not affect the NCTA’s claim, for the Act requires that the materials be made available to “any person.” . Joint Appendix 233. . See Semaan v. Mumford, 118 U.S.App. D.C. 282, 335 F.2d 704 (1964). . Notice of Proposed Rule Making, No. 18,802, 35 Fed.Reg. 3815 (February 18, 1970). . Supplemental Notice, No. 18,802, 23 F.C.C.2d 183 (March 4, 1970). . The Commission relied on title V, Independent Offices Appropriations Act of 1952, 31 U.S.C. § 483a (1970), as its authority for applying this formula. That statute states the sense of Congress that any tiling of value granted by any federal agency should be self-sustaining, and authorizes agency heads to promulgate regulations to that end. The regulations are “to bo fair and equitable, taking into consideration direct and indirect cost to the Government, value to the recipient, public policy or interest served, and other pertinent facts.” Id. . The notices did provide a sketch of the general approach that the Commission followed with respect to each industry and the mechanics of fee collection. Notice of Proposed Rule Making, No. 18,802, 35 Fed.Reg. 3815, ¶¶ 9-14 (February 18, 1970). . This factor could mean a variety of things. The Commission, in its February Notice, stated: We have therefore selected different bases for considering “value to the recipient,” both for different types of actions within each service and similar types of action among different services, which we believe are fair and equitable. We fully recognize that the factors we have used may not wholly or precisely reflect “value to the recipient.” But such precision or accuracy is not required since our proposed fee schedule need only reflect some consideration of “value to the recipient,” and our proposed fees, in total, fall far short of the total value of Commission licenses, grants and authorizations computed by any standard. Tlie Commission made no attempt to set out its interpretation of this term, or to specify what monetary adjustments resulted from its use. . The original letter requested “the annual and inventory reports of all user charges of the Commission submitted to the Bureau of the Budget on Standard Form No. 4 on or about September 30, 1969,” the documents “used to prepare the Standard Form No. 4, report,” the “Commission’s budgetary request for fiscal year 1970, beginning July 1, 1970, whieli was submitted to the current sessions of Congress,” including supportive documents,” and “the Commission’s budgetary requests for fiscal years 1970, . . ., and 1969.” The italicized language manifests the NGTA’s ignorance of internal Commission proceedings discussed below. See text following note 13 infra. Finally, the letter stated generally: NCTA also requests the right to inspect documents used by the Commission in determining the proposed fee schedules set forth in the Notice of Proposed Rule Making .... In particular, NCTA requests the right to inspect the documents and the listings or records used to determine the “ ‘value to the recipient’ of the privileges granted” and “the direct and indirect cost to the Government” of granting and administering those privileges as referred to in paragraph 5 of the Notice of Proposed Rule Making . . . .” Joint Appendix 49-51. . The Commission’s administrative processing of the NCTA’s request deserves some comment. Although the right to inspect documents is not dependent on need, the speed of the agency’s response may drastically affect the requesting party’s ability to participate in a pending agency proceeding. In the context of a 30-day comment period related to a rulemaking proceeding, the Act’s requirement that production be “prompt,” becomes critical. The Commission, however, took approximately 23 days to issue a total refusal. Moreover, it relied in part on a claim that some of the documents were the property of the Bureau of the Budget, yet it violated its own regulations mandating that in such a case the request be forwarded to the appropriate agency. See 47 C.F.R. § 0.451(b) (3) (1972). We find all of this particularly troublesome in view of the fact that the Commission pi-oduced the documents requested in a majority of the NCTA’s categories before moving for summary judgment. . Notice of Proposed Rule Making, No. 18,802, 35 Fed.Reg. 3815, ¶ 3 (February IS, 1970). . See Letter of March 2, 1970, from Gary L. Christensen to Max D. Paglin, Executive Director, F.C.C., at Joint Appendix 49. . One Commission witness testified that the direct costs of CATV regulation were $678,000, and that CATV had been assessed no indirect costs. The March Notice, however, stated that the costs directly and indirectly attributable to CATV regulation amounted to $1,145,400. The witness explained that the latter-figure also included CATV’s share of unassigned costs. This explanation seems inadequate because the March Notice included separate amounts for the operation of offices not directly responsible for regulating any particular industry. This seems to indicate that the $1,145,400 excluded unassigned costs. . Joint Appendix 217 (emphasis added). . 5 U.S.C. § 552(a)(3) (1970). . The Commission relies heavily on a phrase in the Senate Report that states that the records “must be identifiable by the person requesting them." S.Rep. No. 813, 89th Cong., 1st Sess. 8 (1965). (emphasis added). The context in which the phrase appears destroys any support these words appear to provide for the Commission’s argument that it has no independent responsibility to identify the documents. Tiie full statement is: “The records must be identifiable by the person requesting them, í. e., a reasonable description enabling the Government employee to locate the requested records. This requirement of identification is not to be used as a method of withholding records.” Id. (emphasis added). . See 5 U.S.C. § 552(a) (3) (1970). The NCTA stated that it was prepared to pay such costs in its initial letter of March 2, 1970. See Joint Appendix 51. . See S.Rep. No. 813, 89th Cong., Sess. 8 (1965). The legislative history indicates that the standards to be applied should correspond generally to the discovery rules applicable to civil suits in the District Courts. See id. The 1970 amendments to Rule 33, Fed.R.Civil Proc., are instructive in this regard. They establish an alternate procedure for answering interrogatories that require the responding party to examine its own records. The responding party now may make the records available for inspection instead of searching out the information himself. But this rule does not exempt the responding party from all responsibility for identifying documents in his own files. Only if the requesting party can perform that task with equal facility can he be required to cull the responding party’s files. In all other cases, even when identification requires the creation of new classes, the responding party must do it. See Budget Rent-A-Car of Missouri, Inc. v. Hertz Corp., 55 F.R.D. 354 (1972) ; 4A Moore, Federal Practice & Procedure, Advisory Committee Note, Amended Rule 33, ¶ 33.01 [6], at 33-13 (1971). . See, e. g., Soucie v. David, 145 U.S. App.D.C. 144, 448 F.2d 1067 (1971). Aside from its general purpose of maximizing disclosure, however, the statute adds little help in determining the meaning of “identifiable.” . 138 U.S.App.D.C. 22, 424 F.2d 935 (1970). . 284 F.Supp. 745, 747 (D.D.C. 1968). the request for disclosure of the items mentioned in the Commission’s Notice. . 138 U.S.App.D.C. 22, 424 F.2d 935, 938 (1970). . See Joint Appendix 200-222. . Id. at 938 n. 7. The Notice of Proposed Rulemaking, 32 Fed.Reg. 9843 (July 6, 1967), stated: In taking this action the [Federal Trade] Commission has considered, among other things, . . . ; and on the basis of its accumulated experience and available studies and reports, is of the opinion that the public interest in a Trade Regulation Rulemaking proceeding is specific and substantial [sic]. . 138 U.S.App.D.C. 22, 424 F.2d 935, 938 n. 8 (1970). . Rules reviewable under the Administrative Procedure Act see 5 U.S.C. § 704 (1970), are to be “held unlawful and set aside” if they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance witli law,” among other things. Id. § 706. This limited scope of review does not exclude review of the underlying facts and assumptions upon which the agency acted. The agency has a responsibility to maintain its ability to produce this information at least until final adjudication of the rule. . The question whether documents must be made available under 5 U.S.C. § 552 (a)(2), or the due process clause, is not in issue here. See Sterling Drug Inc. v. Federal Trade Comm’n, 146 U.S.App.D.C. 237, 450 F.2d 698 (1971). . See Joint Appendix 200-01. . See, e. g., Rules 33, 34, Fed.R.Civil Proe. . See Note, 15 Tenn.L.Rev. 737 (1972) (Preliminary discovery by oral examination or written interrogatories is available when desired in order to ascertain the existence, description, nature, custody, condition and location of documents or tangible things.”) This approach was taken in Grumman Aircraft Engineering Corp. v. Renegotiation Board, C.A., 325 F.Supp. 1146 (D.D. C. 1971), on remand from this court’s decision, 138 U.S.App.D.C. 147, 425 F.2d 578 (1970). . 5 U.S.C. § 552(b)(5) (1970). . See text at note 15 supra. . See, e. g., Ackerly v. Ley, 137 U.S.App. D.C. 133, 420 F.2d 1336 (1969). . 410 U.S. 73, 93 S.Ct. 827, 35 L.Ed.2d 119 (1973). . Id. at 91, 93 S.Ct. at 838. . Id. See Mink v. Environmental Protection Agency, 150 U.S.App.D.C. 233, 464 F.2d 742, 746 (1972). . 410 U.S. at 93, 93 S.Ct. at 839. . Frankel v. Securities & Exchange Comm’n, 336 F.Supp. 675 (S.D.N.Y. 1971), reversed on other grounds, 460 F. 2d 813 (2d Cir.), cert. denied, 409 U.S. 889, 93 S.Ct. 125, 34 L.Ed.2d 146 (1972). . 5 U.S.C. § 552(b) (4) (1970). . See, e. g. Fisher v. Renegotiation Board, 153 U.S.App.D.C. 398, 473 F.2d 109 (1972); Grumman Aircraft Engineering Corp. v. Renegotiation Board, 138 U.S. App.D.C. 147, 425 F.2d 578 (1970). . 410 U.S. at 93, 93 S.Ct. at 839.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Robert C. FIELDING, Appellant, v. John Henry BREBBIA and George D. Webster. No. 71-1899. United States Court of Appeals, District of Columbia Circuit. Argued Nov. 17, 1972. Decided April 17, 1973. Rehearing Denied June 11, 1973. David Brady, New York City, of the bar of the Supreme Court of the United States, pro hac vice, by special leave of court, for appellant. William W. Scott, Washington, D. C., was on the brief for appellant. E. David Doane, Washington, D. C., also entered an appearance for appellant. Jacob A. Stein, Washington, D. C., with whom Carl W. Berueffy, Washington, D. C., and Arthur V. Butler, Whea-ton, Md., were on the brief, for appel-lees. Before WILBUR K. MILLER and DANAHER, Senior Circuit Judges, and WRIGHT, Circuit Judge. DANAHER, Senior Circuit Judge: In a non-jury trial before Judge Ge-sell, appellant’s counsel submitted as issues framed at pre-trial: “One, is there an attorney-client relationship between these defendants and Mr. Fielding; and, if so, did they come to sue him in subject matter which is substantially related to the prior representation.” Judge Gesell concluded after trial that Fielding “on the case as a whole failed to sustain a cause of action on the merits and that, of course, is the end of the litigation.” Alternatively, he found that a question as to the effect to be given to the New York “release” had been properly raised at pre-trial, and then held that New York law required the conclusion that “the document released not only the individual named [Heymann] but the other two Defendants [Brebbia and Webster].” This appellant now on brief “challenges the conclusions of the trial court, not its findings of fact,” and explains that, accordingly, “no attempt was made to challenge the trial court’s findings as being ‘clearly erroneous.’ ” Appellant thus argues that the factual findings do not support, first, “the conclusion that an attorney-client relationship was not established between Brebbia and Fielding,” and, next, the conclusion that “the actions of Webster (and Brebbia) could not be construed as a breach of fiduciary duty to Fielding which would justify a judgment for damages.” I As we thus define our present involvement, it is trite to say it is only the summit of the iceberg. Even so, for background purposes, it is possible to discern enough to glean a reasonable measure of understanding as to what circumstances gave rise to the dispute now in litigation. Among the partners in the Davies law firm were Alfons Landa and Delmar Holloman when in 1958-1959 Holloman was asked by Fielding to meet with one Albert G. Neumeyer of Las Vegas. The latter sought business advice and financial assistance with particular reference to a Nevada corporation known as First Western Savings and Loan (herein Savings & Loan). Landa and Fielding were already eoventurers in certain enterprises. They were not averse to consideration of the possibilities presented by the Neumeyer project. Holloman was later to testify in this case that Landa and Fielding had in mind a participation amounting to a million and a half dollars, ostensibly as a loan, but “at the same time,” certain options and contingencies were involved. If all materialized as planned, he said, “they” would wind up owning some 60 per cent or more of a Delaware corporation to be formed, First Western Financial Corporation (herein “Financial”), of which Savings & Loan would become a wholly owned subsidiary. The Davies firm as of April, 1961, became counsel in working out a public underwriting of stock for Financial, and so continued as counsel over the next several years. George D. Webster became a partner in the Davies firm in 1960. From 1960 to 1966, Fielding was president and director of Financial. Webster became assistant secretary. By 1965, pursuant to a Nevada statute, the state organized Savings & Loan was required to qualify for federal insurance backed by the Federal Savings and Loan Insurance Corporation. Meanwhile, as of January, 1965, Breb-bia became an associate in the Davies firm, and with Financial’s interests at stake, Brebbia, Fielding and Webster attended meetings with representatives of the Federal Home Loan Bank Board. It had developed that Savings & Loan was in trouble and an “assistance agreement” was to be negotiated. An official audit, commenced in 1966, disclosed a shrinkage of assets of some $20,000,000. As noted in our earlier opinion, Fielding alleged he had been advised in 1966 to sever relationship with Financial. Webster, with the Federal Savings and Loan Insurance Corporation having authority to approve, and with the affirmative support of Fielding, became a director of Financial, and Brebbia in December, 1966 became a director, vice-president and general counsel of Financial. He also became a director of Savings & Loan. Brebbia thereupon began an investigation of the conduct of the affairs and of the management of Savings & Loan. The successor Board of Directors of Savings & Loan voted that a lawsuit be filed against Fielding and others; indeed, Judge Gesell found: “ . . . it is certainly clear that the suit which was generated by, in effect, the demand of the Federal Savings and Loan Insurance Corporation, in its letter of March 10, 1967, was not based on any information that Mr. Webster and Mr. Brebbia, or either of them, obtained in a confidential way through any contact with Mr. Fielding other than as counsel for First Western in the normal course of that representation which Mr. Fielding had approved.” In May, 1967 the suit brought in the Nevada state court charged waste and mismanagement of Savings & Loan on the part of the former management, naming among the defendants, Neumeyer and Fielding. Over-valuation of properties on which loans had been made ran into the millions, it was alleged. That state court suit was finally dismissed as to Neumeyer and Fielding, but their motion that the dismissal be “with prejudice” was denied. The Savings & Loan claim was assigned to the governmental agency, Federal Savings and Loan Insurance Corporation, which thereupon commenced action in the United States District Court in Nevada against Fielding and others. The District Court rejected the defense argument that the claim against the former management could not validly be assigned. When Neumeyer died, his executrix, his widow, over objection was substituted as a party. In the latest (May 10, 1972) of the series of opinions in the United States District Court in Nevada, Judge Thompson with infinite pains has drawn together threads and skeins of circumstances developed over the years. The final fabric delineates a picture as clear as earlier isolated aspects of the relationship might have seemed devious. Judge Thompson concluded that executives of the involved corporate entities and former partners in and the associate of the law firm which had been counsel to the corporations were not disqualified from participation officially in an action against the former management. The officers and directors of a company, he concluded, were bound to exercise a duty reflecting utmost confidence and trust to the corporation and its stockholders. The corporation is the client, he pointed out. He saw what, in essence, is our situation here, concluding that business confidences of business partners lack the protection of professional privilege. See generally, Federal Savings and Loan Insurance Corp. v. Fielding, 343 F.Supp. 537 (D.Nev.1972), and particularly, 546. We think Judge Gesell here in July, 1971, had sensed precisely what had been happening and what underlay the controversy before him, much as did Judge Thompson in May, 1972. While the various corporate matters had been running their course, Fielding had personally received certain services from members or associates of the Davies firm. They drew wills for Fielding and his wife, set up various corporations not connected with Financial, gave advice to Fielding as to taxes and that sort of thing. No charge was made for such services, indeed even when Holloman prepared the papers attendant upon acquisition of Financial, Fielding was not billed. Appellant’s counsel has pointed to Canons 6 and 37 of the ABA Canons of Professional Ethics and has contended that the mere fact that Webster and Brebbia had given legal advice to or performed some services for Fielding in such unrelated respects established a breach of fiduciary duty to him. The transcript shows that the trial judge repeatedly sought to ascertain what professional secrets had been revealed by Webster and Brebbia. “I’m not interested in legal services in general — but whether there were any involving confidential disclosure.” Again, to paraphrase, what confidential disclosures did Mr. Fielding make to the Davies firm which have any bearing on the subsequent litigation? “That is what I want to know,” said the judge. Appellant’s counsel replied: “We don’t have any secrets which we are going to identify in this trial that we told to this law firm and which were later used against Mr. Fielding.” In culmination of all that had gone before, by March 10, 1967, the Director of the Federal Savings and Loan Insurance Corporation addressed a letter to the Board of Directors of Savings & Loan. He made it clear that “as directors you have the duty and opportunity of making appropriate investigations and judgments as to whether the facts and circumstances justify the assertion of claims against bonding companies, former officers, directors . . . and the institution of appropriate legal actions to compensate the association for the damages it has suffered.” There was more, but we have said enough to demonstrate why Judge Gesell could surmise that the letter “generated” action. Webster and Brebbia about March, 1967, terminated their connection with the Davies firm after an agreement had been reached as to finances and the firm turned over to them the files dealing with the business of Financial. Some of Fielding’s papers dealing with his personal business were deemed by the judge to have been “inadvertently” included, but no injury to Fielding was shown to have occurred on that account. Besides, the judge observed, there was no indication that Fielding’s personal papers had any real bearing on the litigation. Moreover, a trial judge in Nevada could determine their pertinency, if any, and exclude them if necessary. Meanwhile, all files had been impounded, Fielding could have access to them, and “full and complete remedies were available in the Nevada litigation.” We see no error in Judge Gesell’s appraisal of the problem. The state court action came to naught. Webster’s involvement had ceased. While he and Fielding were dealing with the affairs of Financial, both were serving its corporate business. Both were paid by Financial. Webster was where he was with Fielding’s support. There simply was no privilege involved. Indeed, the judge commented: “ . . . There is no manner in which an attorney can represent a corporation without dealing with the individuals, particularly the officers and directors who are responsible for its policies and responsible for the conduct of its affairs.” We think that conclusion inevitable on the record before us. II The Transcript shows that the District Judge in colloquy with Fielding’s counsel remarked: I indicated at the beginning of this trial that I was prepared to take testimony bearing on [the issue of release and discharge]. I am asking you now, do you want me to decide it on the formal papers ? [Counsel]: May I confer with my client for a moment? A recess was then taken after which the judge was informed that the appellant would “rest on the documents.” The foregoing discussion related to Fielding’s New York suit against Webster, Brebbia and Henry M. Hey-mann, all of whom as attorneys were alleged to have represented Financial and Savings & Loan and to have become three of the four directors of both corporations. All were charged as in this action. The trial judge in his oral opinion stated: A study of the complaint which the Court has carefully made satisfies the Court that the complaint is framed in a manner that alleges that the three attorneys were joint tort feasors and, therefore, with these clear allegations and the explicit nature of the New York statute, an alternative ground for granting judgment at this time to each defendant will be based on the fact that there was a . decisive release of the issues raised in this complaint. In the New York courts Fielding and Heymann had jockeyed for priority in proceeding with pre-trial examination of each other until Mr. Justice Nunez took charge. He ordered Heymann’s examination of Fielding to proceed on a fixed date. Our record shows that Fielding and Heymann thereafter entered into an agreement mutually terminating their respective claims, reciting that they “are desirous of ending all disputes between them without further litigation.” They described that document as a “covenant not to sue” and as “not intended and shall not be construed as a release.” But their recitation went one step further: “This agreement shall be construed in accordance with the laws of the State of New York and may not be changed orally.” (Italics ours.) There was no reservation of claims against others. Fielding is an attorney admitted to practice in New York. He had shared offices with Heymann. He was a principal in many ventures including his holdings in Colt Industries which controls various subsidiaries, for example, Colts Patent Firearms Company. It is clear enough that the trial judge could readily perceive he was no novice. It is the “settled law” of New York “that the release of one of several joint tort-feasors, without reserving any claim against the others, releases all,” wrote the court in Rushford v. United States, 204 F.2d 831, 832 (2d Cir. 1953), citing Milks v. McIver, 264 N.Y. 267, 190 N.E. 487 (1934). The New York ruling explaining the effect of its distinction between a release and a covenant not to sue may further be discerned in Gilbert v. Finch, 173 N.Y. 455, 66 N.E. 133 (1903). There, at 466, 66 N.E. at 135, the court pointed out that an agreement which expressly reserves the right to sue others is a covenant not to sue and those others will not be discharged; but such an instrument releasing one, without a reservation of rights against others, operates to discharge all joint tort feasors. That the basic New York rule is more rigid than our own is obvious, but we cannot ignore the fact that these New York attorneys, in New York, agreed that the law of New York was to govern their agreement. There was no reservation by Fielding of a claim against Webster and Brebbia, and Judge Gesell correctly decided that “as a matter of New York law the document released not only the individual named [Heymann] but the other two Defendants.” Appellant would have us say that the judge erred in light of Plath v. Justus, 28 N.Y.2d 16, 319 N.Y.S.2d 433, 268 N. E.2d 117 (1971). There the court, at 28 N.Y.2d at 22, 319 N.Y.S.2d at 437, 268 N.E.2d at 120, restated its general rule: Where a release has been given but the releasor reserves the right to proceed against other wrongdoers, we believe effect should be given to the intention of the parties as expressed by these reservations and allow the suit against any defendant not a party to the release. (Emphasis supplied). The court then went on to give effect to the intention of the parties, for the reservation of rights over was clearly to be discerned, and the instrument was not to be treated as a release. The opinion offers no aid to the appellant in the situation before us. Moreover, the appellant spurned the opportunity to try to bring himself within the rule as stated in Plath. Without further discussion which would unduly extend our treatment perhaps already too diffuse, we have carefully considered appellant’s every claim and find ourselves constrained to order that the judgment of the District Court be Affirmed. . The original complaint against Brebbia and Webster filed in the District of Columbia as of July 25, 1967 had been dismissed by order entered November 2, 1967. An essentially similar complaint, signed by Fielding and verified August 23, 1967, was filed by Fielding against Brebbia, Webster and one Henry H. Heymann, a New York attorney, in the Supreme Court for the County of New York. In due course Fielding and Heymann entered into an instrument variously herein designated as a release or covenant not to sue. . Fielding v. Brebbia, 130 U.S.App.D.C. 270, 399 F.2d 1003 (1968). . For a discussion of the duties of a director of a corporation, see Pepper v. Litton, 308 U.S. 295, 311-312, 60 S.Ct. 238, 84 L.Ed. 281 (1939). . Federal Savings and Loan Insurance Corp. v. Fielding, 309 F.Supp. 1146 (D. Nev.1969). . Federal Savings and Loan Insurance Corp. v. Fielding, 316 F.Supp. 82 (D.Nev. 1970). . See note 1, supra, and related text. . We can readily concur in the trial court’s assessment of the effect to be accorded to the respective complaints. . As noted, supra, Judge Gesell gave Fielding an opportunity to testify respecting his position as to the agreement, but he declined to do so. . Judges L. Hand, A. Hand and Jerome Frank, reviewing Rushford v. United States, 92 F.Supp. 874 (N.D.N.Y.1950). . And see Sagan v. State, 205 Misc. 435, 128 N.Y.S.2d 924, 926 (Ct.Clms. 1954). Cf. Western Newspaper Union v. Woodward, 133 F.Supp. 17, 25 (W.D. Mo.1955), where Judge Whittaker (later Mr. Justice) has commented upon New York law. . Mere nomenclature does not control; the facts and the intentions of the parties will. McKenna v. Austin, 77 U.S.App. D.C. 228, 134 F.2d 659 (1943). . Other cases cited by the appellant have been considered but are clearly distinguishable. Compare, e. g., Doe v. A Corp., 330 F.Supp. 1352 (S.D.N.Y.1971), aff’d sub nom. Hall v. A. Corporation, 453 F.2d 1375 (2d Cir. 1972), where the facts are not even remotely comparable to the situation here. See also Richardson v. Hamilton International Corporation, 469 F.2d 1382 (3 Cir. 1972), cert. denied, 41 L.W. 3608 (May 15, 1973).

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Henry S. BLOOMGARDEN, Appellant, v. Charles B. COYER et al. No. 71-1765. United States Court of Appeals, District of Columbia Circuit. Argued Oct. 19, 1972. Decided May 9, 1973. Edward Greensfelder, Jr., Washington, D. C., for appellant. Max 0. Truitt, Jr., Washington, D. C., for appellee, Georgetown-Inland Corp., et al.; Michael Valder, Washington, D. C., and Christopher Sanger, Gaithersburg, Md., entered appearances for appellees, Coyer and Guy. Before SOBELOFF, Senior Circuit Judge for the Fourth Circuit, and WRIGHT and ROBINSON, Circuit Judges. Sitting by designation pursuant to 28 U.S. C. § 294(d). SPOTTSWOOD W. ROBINSON, III, Circuit Judge: This appeal follows appellant Bloom-garden’s unsuccessful effort in the District Court to recover a $1 million finder’s fee. The fee was sought for services leading to the inauguration of an enterprise to extensively develop certain property on the Georgetown waterfront in Washington. The principals in the enterprise are appellees Coyer and Guy, individual real estate developers, and ap-pellee Georgetown-Inland Corporation (Georgetown-Inland), one of five companies organized, with Coyer and Guy as two of the stockholders in each, to effectuate the project. At the center of the controversy is Bloomgarden’s assertion that it was he who brought the organizers together in this mutually beneficial venture and who, by the same token, should be rewarded for that contribution. It is fully conceded that Bloomgarden introduced Coyer and Guy to those with whom they were later to join forces. There was, however, no express agreement, written or oral, pertaining to the part Bloomgarden played or calling for compensation therefor from any of the appellees. Bloomgarden’s quest for a finder’s fee proceeded on the theory that he was entitled to remuneration by virtue of a contract which should either be factually implied from prevalent custom and usage or recognized as a legal consequence of the transaction when viewed in light of the surrounding circumstances. After the close of the pleadings and some amount of discovery, Bloomgarden moved for partial summary judgment on the issue of liability and appellees for summary judgment on the entire case. The District Court denied Bloomgar-den’s motion and granted appellees’, in each instance on two separate grounds. The court held that because Bloomgar-den did not hold the license required of real estate and business-chance brokers in the District of Columbia he was precluded from charging for what he did. The court further held that Bloomgar-den had no enforceable claim for recompense because it appeared without dispute that at the time he introduced the parties he did not expect to be personally compensated for so doing. Without reaching the first ground relied on by the District Court, we affirm for reasons underlying the second. I Bloomgarden’s suit traces its origin to a series of events commencing in the fall of 1969 and extending into the spring of 1970. Throughout this period he was serving as president of Socio-Dynamics Industries, Inc. (SDI), a consulting and research firm in the field of urban and environmental affairs. Nearly half of SDI’s capital stock was owned by David Carley, president of Public Facilities Associates, Inc. (PFA), which was engaged in the development of public and private housing and the redevelopment of urban areas. Carley had requested Bloomgarden to remain alert to any potentially fruitful investment opportunities for PFA in the Washington area. At the time, Coyer and Guy held contracts or options on several parcels of real estate on the Georgetown waterfront. Bloomgarden met Coyer in the summer of 1969 while arranging to lease office space in a building in which Coyer had an interest. At one of their meetings, Coyer revealed to Bloomgar-den the details of a plan for the assembly and development of a sizeable segment of the waterfront into a multipurpose business complex. Coyer explained that he and Guy lacked the financial resources needed to carry the project through, and Bloomgarden offered to put him in touch with Carley. Bloomgarden promptly apprised Car-ley of Coyer’s project and set up a meeting between them and others for January 26, 1970. Ideas were then exchanged but no suggestion was made by Bloomgarden to Carley or Coyer that he expected to be paid for bringing them together. By Bloomgarden’s arrangement the group attended another meeting, on February 19 in Chicago, with representatives of subsidiaries of Inland Steel Company (Inland Steel). Again the plan was discussed and again Bloom-garden gave no indication that he anticipated a fee for introducing Coyer and Guy to Carley and his Inland associates. On the contrary, during a ride to the airport on the day after the Chicago meeting, Guy inquired of Bloomgarden as to what he hoped to get out of the project, and Bloomgarden responded merely that possibly SDI, his company, might garner some work in implementing the plan. Aside from furnishing three of the principals — Coyer, Guy and Carley — with information about the others, Bloomgarden had no further role in the transaction. An agreement in principle was reached between Coyer, Guy and the Inland Steel group in early April, 1970. This was formalized by a contract in June and a shareholders’ agreement executed in August. Five corporations, among them Georgetown-Inland, were organized to handle the project. It was not until the end of March, 1970, however, that Bloomgarden asserted any monetary claim on behalf of SDI for bringing about the initial contact, and it was not until May that he asked for compensation for himself. After each of these demands was rejected, Bloomgarden, on September 14, wrote to Coyer, again claiming-a fee for sparking the business opportunity culminating in the Georgetown project. That likewise failing, Bloomgarden commenced his suit on October 1. II The District Court’s judgment rested, as we have said, on two bases. The court ruled that since Bloomgarden was not licensed as a real estate or business-chance broker by the District of Columbia, he could not recover pay for his contribution, to the Georgetown venture. The court also held that, as a matter of law, Bloomgarden was not entitled to relief because at the time he assisted appellees he had no expectation of personal reward for his efforts. Since our analysis leads us to a conclusion similar to the District Court’s second reason, it is unnecessary here to consider the applicability of the licensing statute to Bloomgarden’s activities. Bloomgarden, we reiterate, sought a finder’s fee on a twofold basis. He said that an agreement to pay such a fee, though not express, might be implied from the circumstances in which he brought the parties together, particularly in view of an alleged custom to reward those who discover advantageous business opportunities for others. Bloomgarden also said that in the context in which he introduced the parties, they came under a legal obligation — a quasi-contract — to compensate him for his services whether or not the elements of an enforceable contract were present. On this appeal Bloomgarden adds the contention that the District Court’s disposition of his action by summary judgment was improper because there were important issues of fact, and because ap-pellees had not demonstrated the validity of the legal position which the court accepted. In reviewing the propriety of a summary judgment, it is our responsibility to determine whether there was any issue of fact pertinent to the ruling and, if not, whether the substantive law was correctly applied. The summary judgment procedure is properly and wholesomely invoked when it eliminates a useless trial but, of course, not when it would cut a litigant off from his right to have a jury resolve a factual issue bearing significantly on the outcome of the litigation. The party moving for summary judgment bears the burden of demonstrating the absence of a genuine issue as to any material fact, and even where his opponent comes forth with nothing, summary judgment must be denied if the facts supporting the motion do not establish the nonexistence of such an issue. Likewise, summary judgment must be denied where the movant fails to show his entitlement to a favorable determination as a matter of law. Thus, to be upheld, the summary judgment under review must withstand scrutiny on both its factual and legal foundations. In the case at bar, the District Court, relying on Bloomgarden’s own deposition, as was its prerogative in evaluating the summary-judgment motions made by the parties, concluded that Bloomgarden did not contemplate personal remuneration for his services, and that in consequence he lacked an indispensable prerequisite to recovery on either an implied-in-fact contract or a quasi-contract. Like the District Court, we are unable to perceive any factual basis upon which it could be asserted that, at the time he introduced the parties, Bloomgarden looked forward to any finder’s fee for himself, as distinguished from a fee and future business for his company. His silence on the matter at the January meeting in Washington and again at the February meeting in Chicago, followed by his statements on the day after the Chicago meeting and later in his deposition, indicated unequivocally that at most the gain he then anticipated was work and compensation for SDI, of which he-was president. Bloomgarden summed it up when in his deposition he said: It was always my intention that [SDI] should benefit, not myself personally, from putting Inland and Coyer together. [SDI] should have the credit; that [SDI] should get work assignments and that a finder’s fee should be paid to [SDI], It wasn’t until I was told that I could not bring suit in the name of [SDI] and was urged to see if I wanted to sue Coyer as an individual that I began to recognize that I was in a very, very difficult spot. In addition, the pleadings and depositions reveal that it was not until after Bloomgarden had done his service for the parties that they were put on notice that he had in mind a finder’s fee, either for his company or for himself. Both Coyer and Guy avowed in their depositions that they thought Bloomgarden was acting either for SDI or Carley when in January he made the introductions. Their understanding in that regard was buttressed in February by Bloomgarden during the ride to the Chicago airport when, asked pointedly as to his expectations, he omitted reference to individual recompense and replied simply that he had in view the possibility that his company would receive work assignments flowing from the Georgetown project if it materialized. Moreover, Bloomgarden admitted in his deposition that not until the end of March — long after completion of the services for which remuneration was demanded — did he suggest compensation for SDI, his company, and not until May did he indicate that he anticipated personal compensation. Against these damaging incidents and admissions — the underpinnings of appellees’ motion for summary judgment — Bloomgarden advanced nothing more than the bare conclusory allegations of his complaint. We are mindful that on a motion for summary judgment the inferences to be drawn from the factual material before the court must be viewed in the light most favorable to the party opposing the motion. But we also recognize that in order to raise a material issue of fact precluding the grant of a properly supported motion for summary judgment, more is necessary that mere assertions in the pleadings. Our careful examination of the record leads us to concur with the District Court that appellees bore their burden as to the nonexistence of any genuine factual issue, and that Bloom-garden offered nothing substantial to bar their request for summary judgment. It remains for us to determine whether the principles of substantive law governing recovery on contracts implied in fact and quasi-contracts were correctly applied. III Despite the marked dissimilarity of contracts implied in fact to quasi-contracts, their separate characteristics have been blurred by courts and commentators over the years. For any satisfactory understanding of Bloomgarden’s twofold legal approach, it is important to keep the two concepts clear and distinct. An implied-in-fact contract is a true contract, containing all necessary elements of a binding agreement; it differs from other contracts only in that it has not been committed to writing or stated orally in express terms, but rather is inferred from the conduct of the parties in the milieu in which they dealt. A quasi-contract, on the other hand, is not a contract at all, but a duty thrust' under certain conditions upon one party to requite another in order to avoid the former’s unjust enrichment. The principles governing the two remedies differ, though in particular cases they may dictate the same result. It is well settled that, in order to establish an implied-in-fact contract to pay for services, the party seeking payment must show (1) that the services were carried out under such circumstances as to give the recipient reason to understand (a) that they were performed for him and not for some other person, and (b) that they were not rendered gratuitously, but with the expectation of compensation from the recipient; and (2) that the services were beneficial to the recipient. Particularly where commission-type fees are sought in business-opportunity transactions, such a contract will not be implied unless the recipient knows or has reasonable grounds to believe that the beneficial acts were performed in anticipation of remuneration therefor. The reasons underlying these requirements are evident. Activities beneficial to a party frequently proceed on behalf of another. Often they are engaged in without thought of remuneration. Not uncommonly, and irrespective of motivation, they are not really helpful to the recipient. An agreement to pay for services defies implication where the recipient not unreasonably fails to realize that the services were rendered for him in contemplation of quid pro quo for value conferred. And the point in time at which the elements essential to implication must concur is the time at which the services are rendered. We may assume on the record before us that Bloomgarden’s introductions were valuable to appellees, or that at least there was a genuine issue as to whether they were. Yet, for Bloomgar-den to recover on the basis of a contract implied in fact, he would have to show additionally that he looked forward to personal payment for his services, and that the circumstances under which he introduced Coyer and Guy to Carley were such as would reasonably have put them on notice that he had that in mind. From aught that appears from the record, Bloomgarden could not have met these standards at a trial. Bloomgarden’s claim of an implied-in-fact contract is not unlike that rejected by the Eighth Circuit in Maple Island Farm v. Bitterling. Bitterling was an American citizen who for a number of years had lived in Latin America, and who had utilized his knowledge of the language and the countries to represent foreign companies doing business there. In 1945, he called at the offices of Maple Island Farm, a Minnesota milk producer, with a view to negotiating an agreement with Maple Island whereby he and a Venezuelan corporation of which he was president would be named the exclusive agent for importing and marketing Maple Island’s products in Venezuela. Maple Island initially rejected Bitterling’s offer but accepted several of his suggestions regarding name and label changes on products for sale in Spanish-speaking countries, and the negotiations for the Venezuelan distributorship continued. In the meantime, Bitterling accompanied a Maple Island representative on a trip to Mexico in search of a distributor for milk in that country, and thereafter Bitterling asked Maple Island for a commission on all future sales made there. Maple Island refused him the commission and instead gave him a check to cover his expenses. Bitterling then sued for the commission on an implied-in-fact contract theory, and was successful in the District Court. On appeal, however, his recovery was reversed. The Court of Appeals found on the basis of the record that Bitterling did not expect cash compensation for the advice he had rendered in connection with Maple Island’s Mexican sales, but that his volunteered services were wholly incidental to the continuing negotiations respecting his possible selection as the dairy farm’s agent in the much larger market of Venezuela, and that his assistance was offered in the hope of obtaining a gainful connection with Maple Island in that market. The court held that a contract to pay for services will not be implied where the actions are performed for business reasons without thought of direct cash compensation, and that no recovery can be had for preliminary services rendered simply with the idea of obtaining business through a hoped-for contract. In no significant degree is the case before us distinguishable from Maple Island. The record establishes without controversy that Bloomgarden introduced appellees on the chance that a coalition to develop the Georgetown waterfront would eventually produce business for SDI, his company, and that appellees reasonably understood that his activities were directed solely to that end. The record further establishes that even if Bloomgarden then entertained the notion of charging a finder’s fee, appellees were not alerted to that possibility until long after his activities had ended On these uncontradicted bases we find ample legal support for the District Court’s conclusion that Bloomgarden failed to show an implied-in-fact contract supporting his claim. IV We turn finally to examine the sufficiency of Bloomgarden’s quasi-contract theory as a basis for recovery of the finder’s fee which he sought. At the outset, we again call attention to the need for conceptual clarity. The quasi-contract, as we have said, is not really a contract, but a legal obligation closely akin to a duty to make restitution. There is, of course, no need to resort to it when the evidence sustains the existence of a true contract, either express or implied in fact. For the purpose of preventing unjust enrichment, however, a quasi-contract — an obligation to pay money to another — will be recognized in appropriate circumstances, even though no intention of the parties to bind themselves contractually can be discerned. And where, as here, the essential facts are not in dispute, the question whether a quasi-contract should be erected is one of law, and as such is a proper subject for summary disposition. Generally, in order to recover on a quasi-contractual claim, the plaintiff must show that the defendant was unjustly enriched at the plaintiff’s expense, and that the circumstances were such that in good conscience the defendant should make restitution. Because quasi-contractual obligations rest upon equitable considerations, they do not arise when it would not be unfair for the recipient to keep the benefit without having to pay for it. Thus, to make out his case, it is not enough for the plaintiff to prove merely that he has conferred an advantage upon the defendant, but he must demonstrate that retention of the benefit without compensating the one who conferred it is unjustified. What must be resolved here is whether Bloomgarden made such a showing or evinced his capability of possibly doing so at trial. By their very nature, the equitable principles of quasi-contracts are more difficult to apply where the court must determine whether services rendered by one person to another are to go unrewarded than where it must make that determination with respect to money or property unjustly retained. But since there is no general responsibility in quasi-contract law to pay for services irrespective of the circumstances in which they are carried out, a number of factual criteria have been utilized by courts to ascertain whether in a given case the defendant has undeservedly profited by the plaintiff’s efforts. Thus, in situations involving personal services, it has been variously stated that a duty to pay will not be recognized where it is clear that the benefit was conferred gratuitously or officiously, or that the question of payment was left to the unfettered discretion of the recipient. Nor is compensation mandated where the services were rendered simply in order to gain a business advantage. And the courts have reached the same conclusion where the plaintiff did not contemplate a personal fee, or the defendant could not reasonably have supposed that he did As one court has pointed out: chagrin, disappointment, vexation, or supposed ingratitude cannot be used as a subsequent basis for a claim for compensation where none was originally intended or expected. Nor, we add, can an uncommunicated expectation of remuneration serve the plaintiff’s purpose where the defendant had no cause to believe that such was the fact. Thus we come full circle to the identical considerations which were dis-positive of Bloomgarden’s claim for recovery on an implied-in-fact contract. There simply was no basis on which a jury could rationally find that when he brought the parties together he entertained any thought of a finder’s fee for himself, or that those with whom he dealt held the payment of such a fee in prospect These circumstances defeat Bloomgarden’s quasi-contract claim as well. On what emerges clearly and un-disputably from the record, we find that the District Court was fully warranted in holding that, as a matter of law, Bloomgarden was not entitled to recover on either a contract implied-in-fact or a quasi-contract, and its action in so doing is accordingly Affirmed. . See Fed.R.Civ.P. 56. . See id. . See D.C.Code § 45-1401 ot seq. (1967). . SDI was organized in 1969 by David Car-ley and a business associate, each owning 45% of its capital stock. Bloomgarden was made president at a fixed annual salary coupled with a 10% stock interest and an option to acquire another 10%. . Sec note 4, supra. . In February, 1970, PFA became a subsidiary of Inland Steel Company (Inland Steel), and in April its name was changed to Inland Steel Development Corporation (ISDC). . As will appear, Inland Steel subsidiaries were later to assume a prominent role in the project contemplating development of the Georgetown waterfront. See notes 9-10, infra, and accompanying text. . The conversation, as portrayed by Bloom-garden on deposition, was: Q. You had discussed the [SDI] role in this project in February with Mr. Coyer, had you not? A. Yes, I had in the cab coming from the Palmer House to the airport . . . . Bill Guy said to me at some point and not in any context — I don’t even know what we were discussing— he surprised me with the question, “Hank, if this project goes through, what do you expect out of it?” And I really wasn’t prepared for the question because I had not thought it through in detail and I really didn’t know in detail what I expected out of it. I expected something out of it and something substantial. I said, “Well, for one tiling we have some capability in the environmental field and Chuck Coyer mentioned a possibility of a closed energy system here,” and I said “We might be involved in that kind of thing.” That was about the whole conversation. We did not at that point discuss a finder’s fee or anything else. . By this time PFA, Carley’s firm, had become ISDC, a wholly-owned subsidiary of Inland Steel. See note 6, supra. The April agreement provided that if after further study ISDO decided to proceed with the Georgetown waterfront project, a new organizational structure for developmental purposes would be erected. The agreement further provided that ISDO would have the principal financing responsibility, Coyer and Guy the principal responsibility for assembling and acquiring the land, and that ISDO would share profits and losses with Coyer and Guy on an 80-20 basis. . The stock of each of the corporations was allocated 80% to ISDC and 10% to Coyer and Guy each. ISDC became obligated to finance the costs of land purchase and development. Only one of the five new corporations—Georgetown-Inland — was made a party to Bloomgarden’s lawsuit, and his motion to add the other four apparently was never ruled on by the District Court. In the view we take of the case, that is without consequence. . The change from a company to a personal claim resulted from SDI’s ultimate decision not to participate in the Georgetown waterfront project. On October 30, 1969, Carley had entered into a five-year employment contract with Inland Steel, effective January 22, 1970, by which Car-ley bound himself to full-time service for one of Inland Steel’s divisions and agreed that he would not become financially interested in any business which was competitive with his new employer. After the Georgetown project was agreed upon, Bloomgarden requested SDI to take part, but Carley, because of his employment relationship, felt that SDI should avoid any business undertaking involving Inland Steel or ISDC. SDI’s board of directors sustained Carley’s decision. . D.C.Code § 45-1401 (1967). . D.C.Code § 45-1407 (1967). . Fed.R.Civ.P. 56; Vickery v. Fisher Governor Co., 417 F.2d 466, 468 (9th Cir. 1969); 6 J. Moore, Federal Practice ¶ 56.27 [1] at 2973 (2d ed. 1972). . See Nyhus v. Travel Management Corp., 151 U.S.App.D.C. 269, 271, 466 F.2d 440, 442 (1972); Semaan v. Mumford, 118 U.S.App.D.C. 282, 283, 335 F.2d 704, 705 (1964); 6 J. Moore, Federal Practice ¶ 56.04 [1] (2d ed. 1972). . Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 627, 64 S.Ct. 724, 88 L.Ed. 967 (1944); National Life Ins. Co. v. Silverman, 147 U.S.App.D.C. 56, 71, 454 F.2d 899, 914 (1971). . Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970); Underwater Storage, Inc. v. United States Rubber Co., 125 U.S.App. D.C. 297, 300, 371 F.2d 950, 953 (1966) ; Wittlin v. Giacalone, 81 U.S.App.D.C. 20, 21, 154 F.2d 20, 21 (1946). . Adickes v. S. H. Kress & Co., supra note 17, 398 U.S. at 160, 90 S.Ct. 1598. . Evers v. Buxbaum, 102 U.S.App.D.C. 334, 335, 253 F.2d 356, 357 (1958); Dean Constr. Co. v. Simonetta Concrete Constr. Corp., 37 F.R.D. 242, 245 (S.D.N.Y.1965); PAC Constr. Co. v. New York Factors, 191 F.Supp. 643, 646 (W.D.Pa.1961). . Fed.R.Civ.P. 56(e) ; 6 J. Moore, Federal Practice ¶ 56.11 [1-3] (2d ed. 1972). . See notes 35, 66, infra. . See note 8, supra. . See text infra at note 24. . The events referred to in the last sentence of the quoted material occurred when SDI decided not to take part in the Georgetown project, and that decision was not made until long after the parties had been brought together. See note 11, supra. Thus, by Bloomgarden’s own statement — which harmonizes with all else in the record — his expectation was at most a benefit for his company, rather than for himself, at the time he introduced the parties. . See note 8, supra. . Adickes v. S. H. Kress & Co., supra note 17, 398 U.S. at 157, 90 S.Ct. 1598; United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962); Nyhus v. Travel Management Corp., supra note 15, 466 E.2d at 442; Semaan v. Mumford, supra note 15, 118 U.S.App.D.C. at 283, 335 F.2d at 705. . Fed.R.Civ.P. 56(e); Richardson v. Rivers, 118 U.S.App.D.C. 333, 336, 335 F.2d 996, 999 (1964); Dewey v. Clark, 86 U.S. App.D.C. 137, 141, 180 F.2d 766, 770 (1950). . See text supra at note 14., . Compare Koepke v. Fontecchio, 177 F. 2d 125, 127 (9th Cir. 1949). . For a discussion of the distinction between quasi-contracts and contracts implied in fact, see 1 Williston, Contracts § 3A (3d ed. 1957). . Roebling v. Anderson, 103 U.S.App.D.C. 237, 241, 257 F.2d 615, 619 (1958); Crosby v. Paul Hardeman, Inc., 414 F.2d 1, 7 (8th Cir. 1969); Woodruff v. New State Ice Co., 197 F.2d 36, 38 (10th Cir. 1952). . See text infra at notes 43-51. . Maple Island Farm v. Bitterling, 209 F.2d 867, 871-872 (8th Cir. 1954); Thompson v. United States, 308 F.2d 628, 633 (9th Cir. 1962); Woodruff v. New State Ice Co., supra note 31, 197 F.2d at 38; Batts v. Snook, 268 Ky. 682, 105 S.W.2d 843, 846 (1937); Kimbrough v. Smith, 201 Miss. 202, 28 So.2d 850, 853 (1947); Ford v. Gibson, 191 Va. 96, 59 S.E.2d 867, 870 (1950); Segnitz v. A. Grossenbach Co., 158 Wis. 511, 149 N.W. 159, 160 (1914). . City Builders’ Finance Co. v. Stahl, 90 Fla. 357, 106 So. 77, 78 (1925); Western Oil Ref. Co. v. Underwood, 83 Ind. App. 488, 149 N.E. 85, 86 (1925); In re Coho’s Trust, 421 Pa. 448, 219 A.2d 657, 658-659 (1966). . That is because an implied-in-fact contract to compensate for services arises, if at all, at the time the services are rendered, and only if the then-existing circumstances enable implication of a contract does it come into being. These precepts are elemental, and so much is implicit in the decisions holding that services performed without expectation of remuneration or simply in expectation of a non-monetary business advantage do not warrant implication of a contract to pay. In all of these cases there was at some point a change of heart, and an effort in the suit to recover cash compensation not contemplated when the acts were performed. See cases cited supra note 33. . Supra note 33. . Id. at 869. . Id. 209 F.2d at 870. . Id. . Id. at 870-871. . Id. at 873. . Id. at 872. . Id. . Id. at 871-872. . Id. . See text supra at note 25. . See text supra at note 24. . See text supra following note 25. . See text supra at note 30. . See Roebling v. Anderson, supra note 31, 103 U.S.App.D.C. at 241, 257 F.2d at 619; Schenley Distillers Corp. v. Kinsey Distilling Corp., 136 F.2d 350, 352 (3d Cir. 1943); Miller v. Schloss, 218 N.Y. 400, 113 N.E. 337, 339 (1916). . Roberge v. Cambridge Cooperative Creamery, 248 Minn. 184, 79 N.W.2d 142, 150 (1956). . Roebling v. Anderson, supra note 31, 103 U.S.App.D.C. at 241, 257 F.2d at 619; Schenley Distillers Corp. v. Kinsey Distilling Corp., supra note 50, 136 F.2d at 352; Fayette Tobacco Warehouse Co. v. Lexington Tobacco Bd. of Trade, 299 S.W.2d 640, 643 (Ky.), cert. denied, 355 U.S. 824, 78 S.Ct. 32, 2 L.Ed.2d 39 (1957); 1 Williston, Contracts § 3 (3d ed. 1957). Relief by quasi-contract is really an equitable remedy which the common law labeled a contract in order to fit it into the procedural mold of assumpsit long before equitable doctrines became fully developed. Fayette Tobacco Warehouse Co. v. Lexington Tobacco Bd. of Trade, supra, 299 S.W.2d at 644. . United States v. O. Frank Heinz Constr. Co., 300 F.Supp. 396, 399 (S.D.Ill.1969); Cottingham v. National Mut. Church Ins. Co., 290 Ill. 26, 124 N.E. 822, 825 (1919); Hartford Fire Ins. Co. v. Wade, 208 Okl. 573, 257 P.2d 1064, 1067 (1953); Mead Bros. v. State Indus. Comm’n, 144 Okl. 279, 291 P. 571, 572 (1930). . See text supra at notes 26-29, . Chase Manhattan Bank v. Banque Intra, S.A., 274 F.Supp. 496, 499 (S.D.N.Y. 1967). See also cases cited infra notes. 56-62. . Roebling v. Dillon, 109 U.S.App.D.C. 402, 403, 288 F.2d 386, 387, cert. denied, 366 U.S. 918, 81 S.Ct. 1095, 6 L.Ed.2d 241 (1961); Osborn v. Boeing Airplane Co., 309 F.2d 99, 102 (9th Cir. 1962); Templeton Patents Ltd. v. J. R. Simplot Co., 220 F.Supp. 48, 60 (D. Idaho 1963). . Roebling v. Dillon, supra note 56, 109 U.S.App.D.C. at 403, 288 F.2d at 387; Chandler v. Washington Toll Bridge Authority, 17 Wash.2d 591, 137 P.2d 97, 102 (1943); Kerr v. King County, 42 Wash.2d 845, 259 P.2d 398, 403 (1953); Restatement of Restitution § 1, comment c (1937). . Dunn v. Phoenix Village, Inc., 213 F. Supp. 936, 952 (W.D.Ark.1963). . Osborn v. Boeing Airplane Co., supra note 56, 309 F.2d at 102; Restatement of Restitution §§ 2, 112 (1937). . Dunn v. Phoenix Village, Inc., supra note 58, 213 F.Supp. at 956; Gould v. American Waterworks Serv. Co., 52 N.J. 226, 245 A.2d 14, 16-17 (1968), cert. denied, 394 U.S. 943, 89 S.Ct. 1274, 22 L.Ed.2d 477 (1969); Anderson v. Distler, 173 Misc. 261, 17 N.Y.S.2d 674, 679 (Sup. Ct.1940). Each of these cases involved an attempt to recover compensation for activities which the plaintiff engaged in for the purpose of securing future business with the defendant or others. Together the cases indicate a parallel line of authority in quasi-contract to the same principle applied to contracts implied in fact in Maple Island Farm v. Bitterling, supra note 33, discussed in text supra at notes 37—45. See Restatement of Restitution §§ 40-41 (1937). . Osborn v. Boeing Airplane Co., supra note 56, 309 F.2d at 102; Dunn v. Phoenix Village, Inc., supra note 58, 213 F.Supp. at 956; William A. Meier Glass Co. v. Anchor Hocking Glass Corp., 95 F.Supp. 264, 269 (W.D.Pa.1951) ; Bellanca Corp. v. Bellanca, 53 Del. 378, 169 A.2d 620, 623 (1961) ; Anderson v. Distler, supra note 60, 17 N.Y.S.2d at 679 ; Kerr v. King County, supra note 57, 259 P.2d at 403. . Bellanca Corp. v. Bellanca,” supra note 61, 169 A.2d at 623. Recovery for the value of services which have inured to another’s benefit is not generally allowed unless they were received with reason to know that compensation was expected for them. 13 S. Williston, Contracts § 1575 (3d ed. 1970). . Anderson v. Distler, supra note 60, 17 N.Y.S.2d at 679. . See note 62, supra. . See Part III, supra. . As in the instance of an implied-in-fact contract, the circumstances allegedly creating a quasi-contractual obligation to pay for services must have existed when the services were performed. No unfairness results from a denial of compensation to the claimant who had no expectation of personal remuneration at the time of performance. On the contrary, it would be unjust to impose a liability for payment on the party who accepts the services without any warning, from the surrounding circumstances or otherwise, that they were rendered for a price. . See text supra at notes 20-24. . See text supra at note 25. . Appellant relies on Bradkin v. Leverton, 26 N.Y.2d 192, 309 N.Y.S.2d 192, 257 N.E.2d 643 (1970) and Miller v. Stevens, 224 Mich. 626, 195 N.W. 481 (1923), but these cases are distinguishable. In Bradkin, the plaintiff had an enforceable written contract with his employer, a finance company, to receive a finder’s fee for every corporation in need of financing which he found. On one occasion, the plaintiff found a company interested in borrowing money, but the defendant, an officer of plaintiff’s employer, made the loan personally to the company, thereby depriving the plaintiff of his fee. The court upheld the plaintiff’s quasi-contractual recovery against the officer, 309 N.Y.S.2d 192, 257 N.E.2d at 647. In the instant case, there was no written contract, nor was there any action by appellees'which deprived Bloom-garden of that which was rightfully his. In Miller, there was a suit for compensation by a plaintiff who had found a purchaser for a dye plant which the defendant wished to sell. The court affirmed a verdict for the plaintiff, holding that the facts raised a jury question on the issue of the plaintiff’s intent to be compensated. 195 N.W. at 483. In contrast, Bloomgarden, by his own admission, had no intention of receiving payment personally from appellees when he introduced them.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

UNITED STATES of America, Appellee, v. John DOWDY, Appellant. No. 72-1614. United States Court of Appeals, Fourth Circuit. Argued Oct. 31, 1972. Decided March 12, 1973. As Modified on Denial of Rehearing April 27, 1973. Thornton H. Brooks and C. Allen Foster, Greensboro, N. C. (McLendon, Brim, Brooks, Pierce & Daniels, Greensboro, N. C., on brief), for appellant. Barnet D. Skolnik, Attorney, Department of Justice (George Beall, U. S. Atty., Stephen H. Sachs, Sp. Asst. U. S. Atty., John G. Sakellaris, Asst. U. S. Atty., on brief), for appellee. Before WINTER, RUSSELL, and WIDENER, Circuit Judges. WINTER, Circuit Judge: Former Congressman John Dowdy, of Texas, was found guilty by a jury of each of the charges contained in an eight-count indictment. In counts one and two, defendant was charged, together with Myrvin C. Clark who pleaded guilty, with conspiracy (18 U.S.C.A. § 371 (1969)) to violate the conflict of interest statute (18 U.S.C.A. § 203), and conspiracy to violate the obstruction of justice statute (18 U.S.C.A. § 1505), respectively. In the third count, defendant was accused of interstate travel (18 U.S.C.A. § 1952) to facilitate federal bribery (18 U.S.C.A. § 201). In counts four through eight, defendant was charged with five acts of perjury (18 U.S.C.A. § 1621 (1969)) before a federal grand jury in the District of Maryland. Defendant was sentenced to imprisonment and to pay a fine on each count. The sentences were consecutive in part and concurrent in part, so that the aggregate sentence was imprisonment for eighteen months and a fine of $25,000. Defendant appeals. Defendant attacks his convictions on two principal grounds: first, that the indictment and the government’s proof thereunder impugned his legislative acts as a member of the House of Representatives; and second, that certain tapes resulting from electronic surveillance and transcriptions of conversations should not have been admitted into evidence, principally with respect to the perjury counts. Specifically, with regard to the first ground of attack, defendant contends that substantial portions of the allegations of the indictment and of the proof at trial revolved around his actions as Chairman of the Subcommittee on Investigations of the House of Representatives Committee on the District of Columbia in investigating whether a complaint, made to all of the members of the committee, warranted subcommittee hearings; and that his actions and motivations in this regard were immune from judicial scrutiny under the “speech or debate” clause of the constitution. In regard to the admission into evidence of the tapes and transcriptions, defendant makes numerous objections. He claims violation of his fourth amendment rights, entrapment of him by the United States Attorney, duress upon the party to the taped conversations who purportedly consented to the taping, and violation of the constitutional concept of separation of powers. We agree that defendant’s convictions on the two conspiracy counts (counts one and two), the interstate travel count (count three), and the first two of the five perjury counts (counts four and five) were obtained by the use of evidence which infringed the speech or debate clause, but we conclude that the trial of the remaining perjury counts (counts six-eight) was not tainted by the evidence improperly admitted to prove the other counts. Moreover, we see no valid objection to the admission of the tapes and transcriptions with respect to the remaining perjury counts (counts six-eight) of the indictment. We also conclude that violations of counts one-five might have been proved without improper inquiry into legislative acts. We therefore reverse as to counts one, two, three, four and five, affording the government the right to try them anew if it be so advised, and affirm as to counts six through eight. I. To establish the context in which defendant’s various contentions arise, we state first what the government’s proof, if believed, and certain uncontroverted proof, offered by the defendant, showed. Other facts will be stated elsewhere in the opinion. Congressman Dowdy, at the time of trial, was a member of the House of Representatives, representing the Second Congressional District of Texas. He had been a member of Congress since 1952. At all times pertinent to the trial of the case, he was a member of (1) the House Judiciary Committee, and (2) the Committee on the District of Columbia, and Chairman of that committee’s Subcommittee on Investigations. By House Resolution 44, adopted February 16, 1965, the Committee on the District of Columbia, acting as a whole or by subcommittee, was authorized to conduct a full and complete investigation and study of the operation and administration of any department of the Government of the District of Columbia, and the operation and administration of any independent agency or instrumentality operating solely in the District. In 1963-1964, defendant’s subcommittee had held extensive hearings and investigations of urban renewal within the District of Columbia. Defendant wrote an article on the subject, published in a magazine of national circulation, and made a number of speeches throughout the United States in opposition to governmental urban renewal. A certain Nathan H. Cohen was an owner and President of Monarch Construction Corporation (Monarch). Monarch employed Myrvin C. Clark as its Sales Manager and Cohen’s “right-hand man.” Monarch was engaged in the home improvement business in Maryland and in the District of Columbia. In the early part of 1965, it was under investigation by various agencies of the federal and District of Columbia governments for its sales and financing practices. Apparently there was little question that Monarch and some of its principals had engaged in wholesale violations of the law. Defendant made a speech to Monarch employees about urban renewal on June 1, 1965. Cohen first met the defendant at this time. Several months later, Cohen approached Clark with the idea that defendant could arrange immunity for Cohen from possible criminal proceedings by allowing Cohen to testify before the subcommittee about Monarch’s operations. Clark communicated with defendant and mentioned that Cohen had information of national importance, wanted to testify before the committee, but wanted immunity because he feared self-incrimination. Clark told defendant that the Cohen family was wealthy and that Clark would “hit” the Cohens for a “political contribution” for defendant. Defendant agreed to talk with Cohen. On or about September 16, 1965, Cohen met with defendant at defendant’s office. Hayden Garber, Esquire, counsel to the committee, was present during part of the meeting. While Cohen and defendant were alone, Cohen informed defendant that his purpose in wishing to testify was to gain immunity and thereby avoid criminal prosecution. Defendant assured Cohen that he could handle the matter and a “fee” of $25,000 was agreed upon. Earlier that same month, Clark counseled Cohen to use what Cohen termed “the front door-back door approach,” that is, “of using a legitimate reason and legitimate excuse proffered at the same time that you tried to pay somebody or bribe somebody or get them on your side behind the scenes.” To that end, Clark and Cohen prepared a series of documents asking for an investigation and hearing by the District of Columbia Committee and sent them to every member of the committee, along with a covering letter from Cohen’s private attorney. Clark knew and informed Cohen that defendant would be in charge of any “investigation” which might result from this submission. Clark also informed Cohen that Clark had sought and obtained defendant’s prior approval of the submission to all members of the committee. Shortly after this submission, the Cohen complaint was assigned to defendant’s subcommittee for investigation by the Chairman of the House Committee on the District of Columbia, Hon. John L. McMillan of South Carolina. On September 22, 1965, Cohen and his associates packed $25,000 in cash in an attache case, which Clark handed to defendant later that day at the Atlanta Airport, Atlanta, Georgia. Shortly after September 22, 1965, defendant advised Clark that Cohen could not receive immunity by appearing as a witness before the committee, but that there was more than one way to handle the situation. On September 30, 1965, Cohen and defendant met in a Washington hotel and discussed the fact that the immunity plan would not work. The defendant advised Cohen that there was “more than one way to skin a cat” and if Cohen was not satisfied with results, defendant would return Cohen’s money to him. Meanwhile, Garber studied the material which Cohen and Clark had submitted to the committee and arranged a meeting with Cohen, which was held prior to October 5, to discuss the details of his complaints. Garber decided that he should find out what the License and Inspection Division of the District of Columbia had in its files. He prepared a subpoena, took it to defendant on October 13, and defendant signed it upon Garber’s advice. Garber obtained the documents and took them back to his office for study. Next, Garber communicated with the Department of Justice, seeking information concerning Monarch’s affairs. He was directed to the attorney who was familiar with them, and Garber arranged for that attorney to meet with defendant and Garber at defendant’s office. The meeting was held in October, 1965. They discussed the Justice Department’s case against Monarch and apparently the production of certain of the government’s written reports of investigations of Monarch’s affairs. The jury was told fully of the matters which were discussed. During October, 1965, defendant made certain documents available to Clark. Clark had them copied, giving the copies to Cohen and returning the originals to defendant. These documents were internal investigative files of the Housing and Home Finance Agency (HHFA) and records of the District of Columbia Department of Licenses and Inspections. The custodian of these records testified that they had been turned over to Gar-ber on October 13, 1965, presumably in response to the subpoena. Garber also arranged a meeting between defendant, Garber, and two officials of the Federal Housing Administration, parent agency to HHFA, in defendant’s office on October 22, 1965. The findings and status of the Monarch investigation were discussed and certain internal investigative reports were left with defendant. Following these meetings, defendant told Clark that he had “explained [his] personal interest in the situation, a private interest” to the Department of Justice, i. e., the first Assistant United States Attorney for the District of Columbia who was in charge of the Monarch investigation in that office, and that defendant did not think that the assistant would “push this thing any further.” Clark testified, “I asked him [defendant] if that meant there would not be a prosecution, and he winked at me and sort of pushed me a little, and said he thought it was all taken care of and that I wouldn’t have any more problems with Monarch Construction Corporation.” Cohen and defendant had no further communication until 1967, when Cohen became aware that a federal grand jury in the District of Columbia was investigating Monarch for possible postal violations. Defendant assured Cohen that he would not be indicted, since “the last thing the Government did before it dropped the case was to give it to the Post Office Department.” In 1968, a special federal grand jury was impaneled in Washington to investigate certain home improvement frauds. Cohen, in May 1969, learned that Monarch was a prime target and he and Clark again sought defendant’s help. At first, defendant said that he could not help due to the change in administrations. But when Clark offered defendant $5,000 if no criminal prosecution resulted, defendant agreed to help. Defendant referred Cohen to a Washington attorney who was a good friend of the prosecutor and who, it was represented, could “take care of the problem.” They consulted the attorney, who said that he could fix the case for a fee of $30,000. At Cohen’s request, defendant met with the attorney and the prosecutor, and then reported that “he was confident that it could be handled this way, that he was sure there would be no prosecution.” Cohen made a partial payment of the agreed amount and six months passed without incident. Then, Cohen became the subject of an unrelated federal investigation in Maryland. Cohen reached an understanding with the United States Attorney for the District of Maryland pursuant to which Cohen disclosed the nature and details of his relationship with defendant in exchange for immunity. On January 20, 1970, Cohen had a conversation with defendant in defendant’s office in Washington, which Cohen recorded without defendant’s knowledge. Defendant was a party to a number of statements, some of which were made by him and some of which were made to him. When defendant appeared voluntarily before the federal grand jury in Baltimore on March 4, 1970, he flatly denied under oath either making or being a party to them. These statements served as the basis for perjury counts six, seven and eight of the indictment: defendant’s representation to Cohen that he had told Clark in 1965 that Cohen’s problems would have to be “handled” in some way other than Congressional immunity and that had it not been for defendant’s efforts Cohen would probably have already been prosecuted ; Cohen’s representation to defendant that Cohen had paid defendant $25,000 in 1965 and that this payment had “done its job;” and defendant’s representation to Cohen that defendant would try to learn the status of the Monarch investigation and defendant’s expressed hope that he could “do something” for Cohen about it. Perjury counts four and five were based upon defendant’s denial under oath before the federal grand jury that he had met Clark in the airport in Atlanta, Georgia, and that he had received any monies for or on behalf of Cohen or Monarch other than an honorarium of $500 for making the June 1, 1965 speech. II. The speech or debate clause on which defendant’s first principal contention is grounded, was adopted by the Constitutional Convention without debate or opposition. Its roots lie in the conflict between Parliament and the Crown, and that experience has taught that: In order to enable and encourage a representative of the public to discharge his public trust with firmness and success, it is indispensably necessary, that he should enjoy the fullest liberty of speech, and that he should be protected from the resentment of everyone, however powerful, to whom the exercise of that liberty may occasion offence. To effect this protection, the speech or debate clause not only provides a defense on the merits, but spares the legislator from having to devote his time and efforts to defending himself in court. The law governing Congressional immunity under the speech or debate clause has been most recently discussed in three cases: United States v. Johnson, 383 U.S. 169, 86 S.Ct. 749, 15 L.Ed.2d 681 (1966) (Johnson II), aff’g 337 F.2d 180 (4 Cir. 1964) (Johnson I), on remand 419 F.2d 56 (4 Cir. 1969) (Johnson III), cert. denied 397 U.S. 1010, 90 S.Ct. 1235, 25 L.Ed.2d 423 (1970); United States v. Brewster, 408 U.S. 501, 92 S.Ct. 2531, 33 L.Ed.2d 507 (1972); and Gravel v. United States, 408 U.S. 606, 92 S.Ct. 2614, 33 L.Ed.2d 583 (1972). We shall consider these cases and undertake to apply their holdings to the instant ease. In Johnson II, the Supreme Court held that the speech or debate clause provided immunity to a Congressman from indictment and trial under a general conspiracy statute for conspiracy to defraud the government where proof of the charge involved inquiry into his motivations for a speech given in the Congress. “The- essence of such a charge in this context is that the Congressman’s conduct was improperly motivated, and . . . that is precisely what the Speech or Debate Clause generally forecloses from executive and judicial inquiry.” 383 U.S. at 180, 86 S.Ct. at 755. The Court ruled that the concept of “legislative act” should be broadly construed to effectuate the purpose of ensuring the independence of the legislature. 383 U.S. at 182, 86 S.Ct. 749, 15 L.Ed.2d 681. But with regard to other counts charging that Johnson improperly interceded with the executive, the Court stated: “No argument is made, nor do we think that it could be successfully contended, that the Speech or Debate Clause reaches conduct, such as was involved in the attempt to influence the Department of Justice, that is in no wise related to the due functioning of the legislative process.” 383 U.S. at 172, 86 S.Ct. at 751. The Court did not pass on our holding in Johnson I that the evidence of legislative acts improperly admitted with regard to the speech count fatally contaminated Johnson’s conviction on the improper attempt to influence the executive counts. On remand, the district court dismissed the substantive count based upon delivery of the speech, but convicted Johnson on the improper influence counts; and we affirmed in Johnson III. In short, under Johnson II, the speech or debate clause does not bar a prosecution founded on a general criminal statute which “does not draw in question the legislative acts of the defendant member of Congress- or his motives for performing them.” 383 U.S. at 185, 86 S.Ct. at 758. The Court expressly reserved whether the speech or debate clause barred a prosecution “entailing inquiry into legislative acts or motivations . . . founded upon a narrowly drawn statute passed by Congress in the exercise of its legislative power to regulate the conduct of its members.” 383 U.S. at 185, 86 S.Ct. at 758. Brewster held that the speech or debate clause did not compel dismissal of an indictment for bribery, even though the quid pro quo for the bribe was a patently legislative act, since it would not be necessary for the government to inquire into legislative acts or their motivations — “to inquire into how [Brewster] spoke, how he debated, how he voted, or anything he did in the chamber or in committee” — in order to prove a violation of the bribery statute. 408 U.S. at 526, 92 S.Ct. at 2544. Thus, Brewster invoked and applied the first exception articulated in Johnson II: prosecution under a general statute which does not draw into question the Congressman’s legislative acts or motivations. In reaching this conclusion, the Court seemingly contracted the broader interpretation of legislative act apparently advanced in Johnson II. Brewster defined protected legislative acts as “an act generally done in Congress in relation to the business before it.” 408 U.S. at 512, 92 S.Ct. at 2537. The Court ruled that acceptance of a bribe does not fall within this definition and therefore judicial inquiry into such receipt would not be an impermissible inquiry into a Congressman’s motivation for a legislative act. The Court again expressly reserved the “narrowly drawn statute” exception. 408 U.S. at 529 n. 18, 92 S.Ct. 2531, 33 L.Ed.2d 507. Gravel further elaborated the definition of legislative act as any act constituting “an integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings . . . with respect to matters within the jurisdiction of either House.” 408 U.S. at 625, 92 S.Ct. at 2627. Particularly pertinent here is its holding that the speech or debate clause protects a Congressman from inquiry “except as it proves relevant to investigating possible third party crime, concerning any act, in itself not criminal, performed by [him] ... in the course of [his] employment, in preparation for the subcommittee hearing.” 408 U.S. at 629, 92 S.Ct. at 2629 (emphasis added). III. Defendant contends that under these cases, the various counts of the indictment and a substantial part of the government’s proof offered thereunder offended the speech or debate clause and transgressed defendant’s immunity in that regard. A. The Indictment. If the indictment is read standing alone, we think its various counts are unobjectionable, with the sole exception of overt act 19 of the first two counts of the indictment. Overt act 19 charges that defendant caused to be issued a subpoena to the District of Columbia Department of Licenses and Inspections commanding the production of certain documents before defendant’s subcommittee. Although counts one and two do allege (overt act 5) that Monarch made a complaint to the full committee, the other overt acts do not spell out that its chairman designated defendant’s subcommittee to investigate it. The only fair inference that can be drawn from the statement of overt act 19 is that defendant was alleged to have performed a legislative act, because, absent an allegation that procurement of a subpoena was fraudulently obtained, we can infer that the subpoena was issued for some purpose of the subcommittee. Gravel teaches that inquiry concerning the business of a subcommittee, irrespective of the motives and purposes of a member thereof, is forbidden by the speech or debate clause because it is as much a legislative act as a speech on the floor of the House or a vote on pending legislation. See also Brewster, 408 U. S. at 525, 92 S.Ct. at 2544 (“acts which occur in the regular course of the legislative process”); Dombrowski v. Eastland, 387 U.S. 82, 84-85, 87 S.Ct. 1425, 18 L.Ed.2d 577 (1967) (Per Curiam); Tenney v. Brandhove, 341 U.S. 367, 376-378, 71 S.Ct. 783, 95 L.Ed. 1019 (1951); Doe v. McMillan, 459 F.2d 1304, 1311-1314 (D.C.Cir.), cert. granted 408 U.S. 922, 92 S.Ct. 2505, 33 L.Ed. 2d 332 (1972). However, if the speech or debate clause, as interpreted by Johnson II, Brewster and Gravel, is to be given meaning, the validity of an indictment must be determined in the context of the proof which is offered to sustain it, or in the context of facts adduced on a motion to dismiss it. Otherwise, the validity of an indictment would depend solely on what the prosecutor elected to allege, and he would be limited only by his sense of self-restraint in alleging all facts, including those unfavorable to his case. Since the cases make clear that the clause protects against the burden of defending, as well as creates a substantive defense, we think that the speech or debate clause constitutes a limitation on what may be alleged as well as what may be proved, although it may be necessary to go beyond the indictment to obtain the full meaning of what appear facially to be perfectly proper allegations. Specifically, overt acts 20-23 fall into this category. Overt act 20 alleged that the defendant requested that an Assistant United States Attorney meet with him; overt act 21 alleged the fact of the meeting; overt act 22 alleged defendant’s meeting with officials of FHA and HHFA; and overt act 23 alleged the receipt and acceptance of documents from officials of FHA and HHFA. The indictment nowhere alleged that defendant was chairman of a subcommittee which was assigned the investigation of Monarch’s complaint to determine if formal hearings should be held, or that defendant conferred with various officials and obtained various government documents in regard to other investigations of Monarch’s affairs, or that these conferences and the obtention of these documents were, at least arguably, the performance of defendant’s legislative functions. Absent such allegations or proof of them, overt acts 20-23 are plainly proper under Johnson II, for they can be read as charging that the defendant improperly attempted to influence the executive branch. But when these overt acts are read in the light of the facts adduced at trial, then it is evident that these same overt acts might be interpreted as preparation for a subcommittee hearing on Monarch and, as such, would be protected legislative acts under Gravel. When we read overt acts 20-23 in the light of the proof at trial, we con-elude that they transgress the speech or debate clause, as we shall discuss further. However, it does not follow that counts one and two should be dismissed because of the inclusion of this improper matter. Rather, the offending overt acts could have been stricken and the counts would still be legally sufficient since 18 U.S.C.A. § 371 requires, in addition to an agreement to commit any offense against the United States, only that “one or more of such persons do any act to effect the object of the conspiracy . . . ” (emphasis added). Otherwise, the various counts of the indictment are not barred by the speech or debate clause. Under Johnson II and Brewster, the speech or debate clause does not bar an indictment under a general statute where the government can make a prima facie case without inquiring into legislative acts. It follows that the speech or debate clause did not bar count one, as modified, since the government can show that defendant conspired to receive compensation in relation to a legislative proceeding without proving defendant’s efforts to influence the outcome of the proceeding. Similarly, it did not bar count three, since the government could show that defendant traveled across state lines to accept money for an act to be performed without proving that he later performed the act. Likewise, the perjury counts are not barred, because the government could prove perjury without reference to any legislative acts. Since count two (obstruction of justice), as modified, count four (perjury regarding the meeting at the Atlanta Airport), and count five (perjury regarding the acceptance of money at the Atlanta Airport) would not require inquiry into legislative acts and motivations to show guilt thereunder, these counts do not transgress the speech or debate clause. B. The Proof. While we conclude that none of the various counts were barred in their entirety by the speech or debate clause, we view the evidence offered at trial differently. The proof fell into three general categories: (1) defendant’s conversations and arrangements with Clark and Cohen, (2) his grand jury testimony, and (3) his conversations and arrangements with the United States Attorney, FHA and HHFA concerning Monarch. In connection with the last category, a considerable amount of documentary evidence of reports of investigations which defendant and Garber obtained was admitted into evidence. We have no doubt that evidence falling into the first two categories was not barred by the speech or debate clause. With respect to the first category, Brewster ruled that the government may allege and prove that a Congressman “solicited, received, or agreed to receive, money with knowledge that the donor was paying him compensation for an official act.” 408 U.S. at 527, 92 S.Ct. at 2545. With regard to the second category, since voluntary testimony before a federal grand jury is not “an act generally done in Congress in relation to the business before it,” it follows that the government may allege and prove facts concerning such testimony. 408 U.S. at 512, 92 S.Ct. at 2537. But, we are equally firm in our conclusion that evidence falling into the third category was barred. This evidence was an examination of defendant’s actions as a Congressman, who was chairman of a subcommittee investigating a complaint, in gathering information in preparation for a possible subcommittee investigatory hearing. As such, it was an examination of legislative acts, as defined by Gravel, and is condemned by Johnson II and Brewster when the prosecution proceeds under a statute of general application. It was a complete disclosure of all that transpired including proof of documents that were obtained and, hence, was a general inquiry into the legislative acts of a Congressman and his motives for performing them. We conclude that the proof was not received in a prosecution under a narrowly drawn statute, a possible exception suggested by Johnson II, 383 U. S. at 185, 86 S.Ct. 749, 15 L.Ed.2d 681, and Brewster, 408 U.S. at 529 n. 18, 92 S.Ct. 2531, 33 L.Ed.2d 507. Of course, what is a “narrowly drawn statute passed by Congress in the exercise of its legislative power to regulate the conduct of its members,” Johnson II, 383 U.S. at 185, 86 S.Ct. at 758, is defined in neither Johnson II nor in Brewster. In the instant case, the government concedes, with respect to count two, that neither the underlying obstruction statute nor the conspiracy statute qualify as narrowly drawn statutes. It argues, however, with respect to count one, that the object of the conspiracy was to violate a narrowly drawn conflict of interest statute, that, with respect to count three, the object of the interstate travel was to violate a narrowly drawn bribery statute, and that in both counts the narrowly drawn underlying statutes determine the nature of the prosecution notwithstanding that the conspiracy and the interstate travel statutes are general in nature. We cannot agree that the statutes underlying counts one and three are “narrowly drawn.” The language of the Chief Justice writing for the Court in Brewster, in which the suggestion in Johnson II was given continued life, was: “we express no views on the question left open in Johnson as to the constitutionality of an inquiry that probes into legislative acts or the motivation for legislative acts if Congress specifically authorizes such in a narrowly drawn statute.” 408 U.S. at 529, 92 S. Ct. at 2546. (Emphasis added.) We read the Court to be saying that if Congress, in recognition that either House is ill-equipped to conduct a trial, or that a trial interferes unduly with other legislative business, or for any other reason, concludes to permit judicial inquiry into legislative acts or motivations to relieve itself of that burden, it will do so in clear and unmistakable language. In short, there must be a specific and express delegation of authority to inquire into legislative acts or motivations. Both the conflict of interest statute and the bribery statute, although they are applicable to Congressmen and others, are lacking in an express delegation of this nature. Although Congress explicitly authorized the executive and judicial branches to prosecute Congressmen under these statutes, there is no specific expression of intent on the part of Congress that these prosecutions be allowed to proceed beyond the bounds of Johnson II and Brewster by probing into legislative acts and the motivations therefore. Since the speech or debate clause so clearly vests the authority to make such an inquiry exclusively in Congress, delegation of that power is not to be implied. And there is no need, as we show elsewhere in this opinion, to imply the power in order to give meaning and make effective the statutes underlying counts one and three. We therefore conclude that the speech or debate clause as interpreted in Johnson II, Brewster, and Gravel prohibited this proof. Of course, defendant’s actual motives in communicating with various government officials and in obtaining certain government documents could have been, as the government contends, for improper non-legislative purposes. But we reject the government’s argument that it was proper for the jury to receive all of the evidence and to pass upon the issue of what activities were legislative, protected from examination by the speech or debate clause, and what were not. In the first place, the government’s argument is nothing more than a post hoc justification of what was done; the case was not tried on the theory which is now urged. Other than to be told to disregard proof of overt act 19 in arriving at a verdict on counts one and two of the indictment, the jury was not told how to weigh and consider the evidence before it. It was not instructed to consider first admissibility and, only if it concluded that the evidence was admissible under standards stated by the court, to consider the evidence on the issue of guilt or innocence. Rather, it was free to consider the evidence in arriving at its verdict irrespective of whether it concluded that defendant was performing a legislative act. Secondly, the question of admissibility of evidence is generally a question solely for the court. IX Wig-more, Evidence § 2550 (3d ed. 1940); McCormick, Evidence § 53 (2d ed. Cleary 1972). See Rule 26, F.R.Cr.P. This salutary rule undoubtedly stems, in part, from general recognition of the difficulty that a juror, untrained in the law, may have in divorcing from his mind the probative value of the evidence even if, under proper instruction, he concludes that it was inadmissible. See Johnson I, 337 F.2d at 204. Cf. Jackson v. Denno, 378 U.S. 368, 84 S.Ct. 1774, 12 L.Ed.2d 908 (1964). But, an even more basic flaw in the government’s argument is its implied assertion concerning the scope of protection afforded by the speech or debate clause; namely, that it is applicable only when a pure legislative motive is present. The clause does not simply protect against inquiry into acts which are manifestly legislative. In our view, it also forbids inquiry into acts which are purportedly or apparently legislative, even to determine if they are legislative in fact. Once it was determined, as here, that the legislative function (here, full investigation of the Monarch complaint to determine if formal subcommittee hearings should be held) was apparently being performed, the propriety and the motivation for the action taken, as well as the detail of the acts performed, are immune from judicial inquiry. In Tenney v. Brandhove, 341 U. S. 367, 377-378, 71 S.Ct. 783, 788 (1951), it was pointed out: The claim of an unworthy purpose does not destroy the privilege . . The privilege would be of little value if they [legislators] could be subjected to the cost and inconvenience and distractions of a trial upon a conclusion of the pleader, or to the hazard of a judgment against them based upon a jury’s speculation as to motives . . . . The courts should not go beyond the narrow confines of determining that a committee’s inquiry may fairly be deemed within its province. See Coffin v. Coffin, 4 Mass, at 27; Doe v. McMillan, 459 F.2d at 1312-1313. We are not impressed by the government’s argument that a consequence of our holding will be that dishonest Congressmen will evade prosecution by creating a smokescreen of arguably legislative activity to camouflage illegal non-legislative acts. Constitutionally permissible sanctions are available: Under Johnson II and Brewster, the government can go far in indicting and proving a case of criminal conspiracy and other substantive offenses without alleging or proving that the illegal objectives of the conspiracy were fully realized by the Congressman. Congress may have the right to enact a narrowly drawn statute proscribing the illegal conduct. Johnson II; Brewster. In any event, the House or Senate clearly has jurisdiction to try any member who is a wrongdoer and punish him for his derelictions. IV. Having concluded that evidence was adduced at trial and considered by the jury in violation of the speech or debate clause, we turn to a consideration of the effect on each of defendant’s convictions. The most pertinent authority to be considered is Johnson I. There, where Johnson was indicted for conspiracy and for substantive offenses which were the objects of. the conspiracy, we held that evidence violative of the speech or debate clause fatally infected the jury’s consideration of Johnson’s guilt or innocence of the substantive offenses with which he was charged. 337 F.2d at 204. Our conclusion was based upon our notions of fairness and prejudice to Johnson, and it did not stem from considerations of constitutional law. It is manifest that defendant’s convictions under the conspiracy counts one and two must be reversed, since the proof to support them included, in our view, clear violations of the speech or debate clause. But as to them, since the essence of the offenses charged was an illegal agreement to accomplish illegal objectives, guilt could be established by proof of the agreement, accompanied by proof of one or more non-legislative overt acts to carry it out, without proof of legislative acts immunized from inquiry by the speech or debate clause. It follows that the government should be afforded the right of retrial. See Brewster. The same is true with regard to the count charging interstate travel to commit bribery (count three). The erroneously admitted evidence of legislative acts was arguably relevant to proof of bribery, and we cannot confidently say that the jury did not consider it in finding guilt. Moreover, the travel count arose from an alleged conspiracy to accomplish certain illegal legislative acts, and was tried in the context of prohibited disclosure of those legislative acts. We can only conclude, on the authority of Johnson I, that the violation of the speech or debate clause so tainted the trial of this substantive count that defendant’s conviction on it should be set aside. Since count three could be proved without reference to legislative acts, a new trial will be awarded. With respect to counts four and five, alleging perjury in defendant’s denial of the meeting in the Atlanta Airport and his receipt of $25,000, we conclude once again that the erroneously admitted evidence of legislative acts fatally infected the convictions. The evidence on these counts was sharply conflicting. Unrestricted by any limiting instruction, the jury, in passing upon the credibility of the government’s witnesses, was permitted to rely upon evidence of legislative acts to conclude that the meeting and delivery of the money had occurred and, hence, that the denials were willful material untruths. Since we cannot say that the jury did not, defendant’s convictions on counts four and five should be set aside; but since these counts could have been proved without reference to legislative acts, a new trial will be awarded. The remaining perjury convictions (counts six-eight) stand on a different footing. These counts allege perjured denials of statements made in recorded or transcribed conversations with Cohen. Defendant’s guilt or innocence of them depended in no part upon the accuracy of the statements he made to Cohen in defendant’s office in Washington, or upon the accuracy of what Cohen said to him at that time in that place. Rather, his guilt or innocence depended solely upon whether, when he denied what he and Cohen had said before the Maryland federal grand jury, his denial was a willful untruth. Because the earlier conversations had been taped and the grand jury testimony steno-graphically reported, the evidence to show guilt on these counts was overwhelming. Unlike counts four and five, the falsity of the denials before the Maryland federal grand jury was beyond dispute. The sharp juxtaposition of defendant’s baldly conflicting statements after he had been given every opportunity before the grand jury to tell the truth not only proved willfulness, but made slight the possibility that the jury had resort to the erroneously admitted evidence of legislative acts. The instant case is quite unlike United States v. Beach, 296 F.2d 153 (4 Cir. 1961), because Beach did not prescribe an inflexible rule and the rule of Beach should not be applied where the types of perjury are clearly different, where the proof as to some is overwhelming, and where the likelihood that a defendant was prejudiced because a jury was permitted improperly to conclude guilt on some was highly remote. Thus, while we conclude that it might have been preferable for defendant to have been tried on perjury counts six-eight under laboratory conditions which excluded any disclosure of legislative acts, we cannot say that there was sufficient prejudice to defendant by their disclosure to warrant overturning these convictions. V. Because we deem the perjury convictions on counts six-eight otherwise valid, we are brought to the question of whether certain tapes and transcriptions of defendant’s conversations with Cohen, including the one which occurred in defendant’s office in Washington on January 20, 1970, were illegally obtained so as to render them inadmissible in evidence and whether there was any other ground of illegality in the use of this evidence in obtaining these convictions. First, it is necessary to state additional facts: Cohen made his arrangement with the United States Attorney for the District of Maryland to make a full, truthful disclosure of his dealings with defendant in exchange for immunity on December 30, 1969. Thereafter, he embarked upon a program of active cooperation with the United States Attorney and the FBI. On January 12, 1970, he placed a long distance call from Baltimore to defendant’s office in the District of Columbia. With Cohen’s consent, the call was monitored by an agent of the FBI, but it was not recorded. Cohen was unable to reach defendant, but he obtained several telephone numbers where defendant could be reached. The following day, attorneys for the government sought and obtained an order from the United States District Court for the District of Maryland authorizing the FBI to intercept “by means of electronic devices to be placed, with the consent of Nathan Cohen, on his person and on telephones utilized by him, conversations, telephonic or in person . . .” between Cohen and defendant. The order was limited to a ten-day period. As soon as the order was obtained, Cohen placed a call to defendant in Texas from the offices of the FBI in Baltimore and, with Cohen’s consent, their conversation was electronically recorded by the FBI on a cassette recorder. This recording was subsequently admitted into evidence. On January 19, 1970, Cohen placed a telephone call to defendant’s office in the District of Columbia. The call originated in Baltimore and, again with Cohen’s consent, the conversation was electronically recorded. This recording was also admitted into evidence. During the conversation between the two, Cohen made an appointment to see defendant in the latter’s office in Washington on the next day, January 20. At the January 20, 1970 meeting, Cohen had permitted the placement on his person of a recording device and the entire conversation between the two was recorded. Subsequently, the recording was transcribed and both the recording and the transcription were admitted into evidence. On January 22, 1970, the government sought and obtained another order from the district court, again authorizing the use of electronic devices to be placed, with the consent of Cohen, on his person and on telephones utilized by him to record conversations between him and defendant. On January 28, after the entry of the second order, Cohen placed a final call from Baltimore to defendant in the latter’s office in the District of Columbia, and with Cohen’s consent this conversation was electronically recorded. This recording and a transcript of the conversation were also admitted into evidence. Defendant’s first claim with respect to the recordings and the transcriptions is that his rights under the fourth amendment were violated. We think the complete answer to this contention is United States v. White, 401 U. S. 745, 91 S.Ct. 1122, 28 L.Ed.2d 453 (1971) (plurality opinion), which held that the fourth amendment requires no prior judicial authorization for governmental electronic recording of a private conversation where one of the parties to the conversation has consented to the surveillance. Since Cohen consented to each recording, it follows that each recording and the transcriptions made from some did not violate defendant’s fourth amendment rights and were therefore admissible into evidence. It also follows that we need not consider the validity of the court orders authorizing the recordings. They were sought and obtained prior to the decision in White, undoubtedly as a precautionary measure on the part of the government. Since White makes clear that no warrant or order is needed, any discussion of whether the district court in Maryland may authorize the recording of a conversation with a party in the District of Columbia or in Texas would be academic. We reject defendant’s argument that Cohen’s consent was not freely and voluntarily given since it was extended under the pressure of a potential indictment and in return for a promise of immunity. Three circuits have rejected this argument, United States v. Silva, 449 F.2d 145, 146 (1 Cir. 1971), cert. denied 405 U.S. 918, 92 S.Ct. 942, 30 L. Ed.2d 787 (1972); United States v. Jones, 433 F.2d 1176 (D.C. Cir. 1970), cert. denied 402 U.S. 950, 91 S.Ct. 1613, 29 L.Ed.2d 120 (1951); Good v. United States, 378 F.2d 934, (9 Cir. 1967), and we agree. United States v. Laughlin, 226 F.Supp. 112 (D.D.C.1964) cited by defendant, which holds to the contrary, has been superseded by United States v. Jones, supra. Defendant cites no authority, and we are aware of none, indicating that the recording and transcription of a Congressman’s conversations violate the constitutional principle of the separation of powers. We also reject defendant’s suggestion that in the exercise of our supervisory power over district courts we should suppress consensual electronic surveillance as “dirty business.” Cf. McNabb v. United States, 318 U.S. 332, 63 S.Ct. 608, 87 L.Ed. 819 (1943). The Supreme Court has considered and rejected this very argument on at least two occasions. Lopez v. United States, 373 U.S. 427, 440, 83 S.Ct. 1381, 10 L. Ed.2d 462 (1963); OnLee v. United States, 343 U.S. 747, 754-758, 72 S.Ct. 967, 96 L.Ed. 1270 (1952). See also Osborn v. United States, 385 U.S. 323, 87 S.Ct. 429, 17 L.Ed.2d 394 (1966). Finally, we have examined the record in detail and we can find no support for defendant’s argument that he was entrapped by the United States Attorney in testifying before the grand jury, where he denied the conversations which had been recorded. The essence of the crime of perjury is a willful untruth, under oath, in a material statement. While the United States Attorney, by inviting defendant to testify before the grand jury, may have provided defendant with the opportunity to commit perjury, the record is absolutely devoid of any evidence that the United States Attorney suggested what defendant should say when he testified. Legally, as well as factually, there was no entrapment. Certainly there was no obligation on the part of the United States Attorney to advise the defendant of evidence which the former had in his possession or of which he was aware. See United States v. Winter, 348 F.2d 204 (2 Cir.), cert. denied 382 U.S. 955, 86 S.Ct. 429, 15 L.Ed.2d 360 (1965); LaRocca v. United States, 337 F.2d 39 (8 Cir. 1964). Reversed as to counts One through Five and new trial granted; affirmed as to Counts Six through Eight. APPENDIX COUNT ONE The first count of the indictment and the new matter alleged in the second count read as follows: The Grand Jury for the District of Maryland charges: 1. At all times hereinafter mentioned, JOHN DOWDY was a Member of the House of Representatives of the United States of America. He represented the Seventh Congressional District of Texas in the Eighty-Second through the Eighty-Ninth Congresses and represented the Second Congressional District of Texas in the Ninetieth and Ninety-First Congresses. 2. At all times hereinafter mentioned, the Department of Justice was a Department of the United States, created, organized and existing by virtue of Chapter 150 of 16 Stat. 162, entitled “An Act to establish the Department of Justice,” enacted by the Congress of the United States on June 22, 1870, and charged with the responsibility of enforcing the laws of the United States. 3. Monarch Construction Corporation was a Maryland corporation with offices at 10111 Colesville Road, Silver Spring, Maryland from on or about May 1, 1963 to on or about October 5, 1965. 4. MYRVIN C. CLARK was Sales Manager of Monarch Construction Corporation from on or about May 1, 1963 to on or about October 5, 1965. 5. Nathan H. Cohen was President of Monarch Construction Corporation from on or about May 1, 1963 to on or about October 5, 1965. 6. From on or about August 1, 1965 to on or about December 10, 1969, JOHN DOWDY and MYRVIN C. CLARK herein named as defendants, together with Nathan H. Cohen, herein named as a co-conspirator but not indicted, and with other persons, did unlawfully, willfully and knowingly combine, conspire, confederate and agree together and with each other within the State and District of Maryland and elsewhere to commit offenses against the United States, to wit, that otherwise than as provided by law for the proper discharge of official duties, JOHN DOWDY would, directly and indirectly, receive from Nathan H. Cohen and MYRVIN C. CLARK, and Nathan H. Cohen and MYRVIN C. CLARK would knowingly, directly and indirectly, give to JOHN DOWDY, compensation for services rendered by JOHN DOWDY and others in relation to a proceeding, request for a determination, controversy, charge, accusation and other particular matter in which the United States was a party and had a direct and substantial interest, before a department, agency and officer; said proceeding was an investigation then pending before the Department of Justice, and in the office of the United States Attorney for the District of Columbia, concerning possible violations of criminal statutes of the United States and the District of Columbia by Monarch Construction Corporation, Nathan H. Cohen, MYRVIN C. CLARK and others associated with the business and affairs of Monarch Construction Corporation; all in violation of Sections 203(a) and (b) of Title 18 of the United States Code. OVERT ACTS In pursuance of and in order to effect the objects of the aforesaid conspiracy, the defendants and co-conspirators did do and perform numerous overt acts, including the following, to wit: (1) Between-on or about August 1, 1965 and on or about September 22, 1965, in the District of Maryland, the defendant MYRVIN C. CLARK and Nathan H. Cohen met and agreed that the defendant MYRVIN C. CLARK would approach the defendant JOHN DOWDY with the suggestion that the defendant JOHN DOWDY arrange for Nathan H. Cohen to appear before a Congressional committee, testify concerning his relationship to the business and affairs of Monarch Construction Corporation and thereby gain immunity from prosecution. (2) Between on or about August 1, 1965 and on or about September 22, 1965, in the District of Columbia, the defendant MYRVIN C. CLARK and the defendant JOHN DOWDY met and discussed the possibility of the defendant JOHN DOWDY, in return for a payment to the defendant JOHN DOWDY of $25,000, assisting Nathan H. Cohen in securing immunity from prosecution by testifying before a Congressional committee. (3) Between on or about August 1, 1965 and on or about September 22, 1965, in the District of Maryland, the defendant MYRVIN C. CLARK met with Nathan H. Cohen and reported to him concerning the meeting and discussion between the defendant MYRVIN C. CLARK and the defendant JOHN DOWDY described in Overt Act (2) above. (4) Between on or about August 1, 1965 and on or about September 22, 1965, in the District of Columbia, the defendant JOHN DOWDY and Nathan H. Cohen met and agreed that the defendant JOHN DOWDY, in return for a payment to the defendant JOHN DOWDY of $25,000, would arrange for Nathan H. Cohen to appear before a Congressional committee and testify concerning Nathan H. Cohen’s relationship to the business and affairs of Monarch Construction Corporation. (5) On or about September 16, 1965, in the District of Columbia, Nathan H. Cohen caused a letter, with enclosures, to be sent to the defendant JOHN DOWDY and other members of the Committee on the District of Columbia of the House of Representatives, charging “persecution”, “duress and coercion” and “abuse of authority” allegedly directed against Monarch Construction Corporation, Nathan H. Cohen and others by government officials. (6) Between on or about August 1, 1965 and on or about September 22, 1965, in the District of Maryland, the defendant MYRVIN C. CLARK had a telephone conversation with the defendant JOHN DOWDY during which arrangements were made to make a payment of $25,000 to the defendant JOHN DOWDY at Atlanta Airport, Atlanta, Georgia. (7) Between on or about August 1, 1965 and on or about September 22, 1965, in the District of Maryland, the defendant MYRVIN C. CLARK and Nathan H. Cohen met and discussed the transportation of $25,000 in cash to Atlanta Airport, Atlanta, Georgia. (8) On or about September 21, 1965, in the District of Maryland, Nathan H. Cohen caused $5,000 to be withdrawn from the Savings Bank of Baltimore in Baltimore. (9) On or about September 21, 1965, in the District of Maryland, Nathan H. Cohen caused $9,200 to be withdrawn from the Montgomery Savings Association of Kensington, Maryland. (10) On or about September 22, 1965, in the District of Maryland, Nathan H. Cohen caused $7,000 to be borrowed from the Uptown Federal Savings and Loan Association in Baltimore. (11) On or about September 22, 1965, in the District of Maryland, Nathan H. Cohen caused $4,200 to be borrowed from the Central National Bank of Maryland. (12) On or about September 22, 1965, in the District of Maryland, Nathan H. Cohen and others packed $25,000 in cash in a briefcase. (13) On or about September 22, 1965, in the District of Maryland, Nathan H. Cohen and others prepared a list of serial numbers of paper currency then being packed in the briefcase as described in Overt Act (12) above. (14) On or about September 22, 1965, in the District of Maryland, the defendant MYRVIN C. CLARK departed for Atlanta, Georgia. (15) On or about September 22, 1965, in the District of Maryland, Nathan H. Cohen caused the briefcase containing $25,000 in cash, as described in Overt Act (12) above, to be transported from Maryland to Atlanta Airport, Atlanta, Georgia. (16) On or about September 22, 1965, the defendant JOHN DOWDY travelled from the District of Columbia to Atlanta Airport, Atlanta, Georgia. (17) On or about September 22, 1965, at Atlanta Airport, Atlanta, Georgia, the defendant MYRVIN C. CLARK transferred possession of the briefcase containing $25,000 in cash, as described in Overt Act (12) above, to the defendant JOHN DOWDY. (18) Between on or about September 23, 1965 and on or about November 1, 1965, in the District of Columbia, the defendant JOHN DOWDY and Nathan H. Cohen discussed the possibility of the defendant JOHN DOWDY taking steps, other than arranging for the appearance of Nathan H. Cohen as a witness before a Congressional committee as described in Overt Act (4) above, designed to prevent, or to reduce the likelihood of, the prosecution of Nathan H. Cohen. (19) On or about October 13, 1965, in the District of Columbia, the defendant JOHN DOWDY caused to be issued a subpoena directed to an official of the District of Columbia Department of Licenses and Inspections commanding the production of certain documents before Subcommittee Number 4 of the Committee on the District of Columbia of the United States House of Representatives. (20) Between on or about October 1, 1965 and on or about October 25, 1965, in the District of Columbia, the defendant JOHN DOWDY caused a request to be made to an Assistant United States Attorney for the District of Columbia to meet with the defendant JOHN DOWDY in his congressional office. (21) Between on or about October 1, 1965 and on or about October 25, 1965, in the District of Columbia, the defendant JOHN DOWDY met with an Assistant United States Attorney for the District of Columbia in the defendant JOHN DOWDY’s congressional office and inquired of him about an investigation then pending before the Department of Justice, and in the office of the United States Attorney for the District of Columbia, concerning possible violations of criminal statutes by Nathan H. Cohen, Monarch Construction Corporation and others. (22) On or about October 22, 1965, in the District of Columbia, the defendant JOHN DOWDY met in his congressional office with officials of the Federal Housing Administration (FHA) and discussed with them an investigation which had been conducted by the Housing and Home Finance Agency (HHFA) concerning the Monarch Construction Corporation, Nathan H. Cohen and others. (23) On or about October 22, 1965, in the District of Columbia, the defendant JOHN DOWDY received and accepted from officials of the FHA, HHFA files reflecting an investigation which had been conducted by HHFA concerning Monarch Construction Corporation, Nathan H. Cohen and others. (24) Between on or about October 22, 1965 and on or about December 31, 1965, in the District of Columbia, the defendant JOHN DOWDY made available to the defendant MYRVIN C. CLARK the HHFA files referred to in Overt Act (23) above. (25) Between on or about October 22, 1965 and on or about December 31, 1965, in the District of Maryland, the defendant MYRVIN C. CLARK photocopied the HHFA files referred to in Overt Act (23) above. (26) Between on or about October 22, 1965 and on or about December 31, 1965, in the District of Maryland, the defendant MYRVIN C. CLARK gave to Nathan H. Cohen photocopies of the HHFA files referred to in Overt Act (23) above. (27) Between on or about October 13, 1965 and on or about December 31, 1965, in the District of Columbia, the defendant JOHN DOWDY furnished and caused to be furnished to Nathan H. Cohen photocopies of the documents referred to in Overt Act (19) above. (28) On or about October 25, 1965, in the District of Columbia, the defendant JOHN DOWDY sent a letter addressed to the United States Attorney’s office for the District of Columbia. (29) On or about October 25, 1965, in the District of Columbia, the defendant JOHN DOWDY sent a letter addressed to an official of the FHA. (30) Between on or about May 1, 1967 and on or about September 1, 1967, in the District of Columbia, the defendant JOHN DOWDY and Nathan H. Cohen met and discussed the status of the investigation then pending in the Department of Justice, and in the office of the United States Attorney for the District of Columbia, concerning possible violations of criminal statutes by Nathan H. Cohen, Monarch Construction Corporation and others. (31) Between on or about May 1, 1969 and on or about June 5, 1969, in the District of Columbia, the defendant MYRVIN C. CLARK made a telephone call to the defendant JOHN DOWDY. (32) Between on or about May 1, 1969 and on or about June 5, 1969, in the District of Columbia, the defendants JOHN DOWDY and MYRVIN C. CLARK met with Nathan H. Cohen. (33) Between on or about May 1, 1969 and on or about June 5, 1969, in the District of Columbia, the defendant MYRVIN C. CLARK discussed with Nathan H. Cohen the payment of $5,000 by and on behalf of Nathan H. Cohen to the defendant JOHN DOWDY. (34) Between on or about May 1, 1969 and on or about June 6, 1969, in the District of Maryland, Nathan H. Cohen had a telephone conversation with the defendant JOHN DOWDY during which the defendant JOHN DOWDY suggested that Nathan H. Cohen consult with Hugh J. McGee, a Washington attorney. (35) Between on or about May 1, 1969 and on or about June 6, 1969, in the District of Columbia, Nathan H. Cohen had a telephone conversation with Hugh J. McGee. (36) Between on or about May 1, 1969 and on or about June 6, 1969, in the District of Columbia, the defendant MYRVIN C. CLARK, Nathan H. Cohen and Hugh J. McGee met in the office of Hugh J. McGee. (37) Between on or about May 1, 1969 and on or about June 30, 1969, in the District of Columbia, the defendant JOHN DOWDY and Nathan H. Cohen met and discussed the payment of $5,000 by and on behalf of Nathan H. Cohen to the defendant JOHN DOWDY. (38) Between on or about May 1, 1969 and on or about June 30, 1969, in the District of Columbia, Nathan H. Cohen met with Hugh J. McGee at the office of Hugh J. McGee. (39) Between on or about May 1, 1969 and on or about June 30, 1969, in the District of Columbia, Nathan H. Cohen, with the permission of Hugh J. McGee, overheard a telephone conversation between Hugh J. McGee and Oliver O. Dibble, a Department of Justice attorney assigned to the office of the United States Attorney for the District of Columbia. (40) On or about June 6, 1969, in the District of Columbia, Nathan H. Cohen gave to Hugh J. McGee check No. 1044, dated June 6, 1969, drawn on the Equitable Trust Company, Baltimore, Maryland, payable to Hugh J. McGee in the amount of $2,500. (41) On or about June 10, 1969, in the District of Maryland, Nathan H. Cohen caused the check described in Overt Act (40) above to be paid by the Equitable Trust Company, Baltimore, Maryland. (42) Between on or about May 1, 1969 and on or about July 30, 1969, in the District of Columbia, the defendant JOHN DOWDY met with Nathan H. Cohen. (43) On or about June 20, 1969, in the State of New Jersey, Nathan H. Cohen sent to Hugh J. McGee check No. 1050, dated June 20, 1969, drawn on the Equitable Trust Company, Baltimore, Maryland, payable to Hugh J. McGee in the amount of $500. (44) On or about July 1, 1969, in the District of Maryland, Nathan H. Cohen caused the check described in Overt Act (43) above to be paid by the Equitable Trust Company, Baltimore, Maryland. (45) Between on or about May 1, 1969 and on or about July 30, 1969, in the District of Columbia, the defendant JOHN DOWDY met with Hugh J. McGee and Oliver O. Dibble. COUNT TWO And the Grand Jury for the District of Maryland further charges: 1. The Grand Jury realleges paragraphs (1) through (5), inclusive, of Count One of this indictment and incorporates them herein by reference. 2. Prom on or about August 1, 1965 to on or about December 10,1969, JOHN DOWDY and MYRVIN C. CLARK herein named as defendants, together with Nathan H. Cohen, herein named as a co-conspirator but not indicted, and with other persons, did unlawfully, willfully and knowingly combine, conspire, confederate and agree together and with each other within the State and District of Maryland and elsewhere to commit an offense against the United States, to wit, that JOHN DOWDY would corruptly influence, obstruct, and impede and would corruptly endeavor to influence, obstruct, and impede the due and proper administration of the law under which a proceeding was then being had before a department of the United States; said proceeding was an investigation then pending before the Department of Justice, and in the office of the United States Attorney for the District of Columbia, concerning possible violations of criminal statutes of the United States and the District of Columbia by Monarch Construction Corporation, Nathan H. Cohen, MYRVIN C. CLARK and others associated with the business and affairs of Monarch Construction Corporation; all in violation of Section 1505 of Title 18 of the United States Code. The overt acts then alleged in the second count are identical to those alleged in the first count. In the third count, defendant, together with Myrvin C. Clark, was charged with traveling in interstate commerce from Maryland to Georgia, and causing to move in interstate commerce between those places the sum of $25,000 in cash, with intent to accomplish the bribery of defendant. Counts Four through Eight all charged perjury before a Grand Jury for the District of Maryland on March 4, 1970; each count being based upon a separate allegedly material false statement. In Count Four, the actionable statement of defendant was his denial that he met Clark in an airport in Atlanta, Georgia on or about September 22, 1965. Count Five assigned as perjury defendant’s denial that he received $25,000 in cash at this meeting with Clark. Counts Six through Eight assigned as perjury defendant’s Grand Jury testimony concerning conversations with Cohen which occurred in January, 1970. Count Six was the denial that defendant had told Clark that Cohen’s prospective prosecution would have to be “handled” in a way other than obtaining Congressional immunity for Cohen and that if it had not been for defendant’s efforts, Cohen would have already been prosecuted. Count Seven alleged as willfully untrue defendant’s denial that Cohen had said to him that defendant had been paid $25,000 by Cohen and that the payment had “done its job.” Count Eight alleged as criminally actionable defendant’s denial that he had sought to assist Cohen by determining the status of an investigation of Monarch pending before the Department of Justice and in the office of the United States Attorney for the District of Columbia and that he had expressed the hope that he could “do something” for Cohen in regard to the investigation. A summary of the indictment is attached as an appendix to this opinion. . In pertinent part, 18 U.S.C.A. § 203(a) (1969) subjects to criminal sanctions: Whoever . . . directly or indirectly receives or agrees to receive any compensation for any services rendered or to be rendered . . . at a time when he is a Member of Congress . in relation to any proceeding controversy, charge, [or] accusation ... in which the United States is a party or has a direct and substantial interest, before any department . . 18 U.S.C.A. § 1505 (1969) makes criminally liable: Whoever corruptly . . . endeavors to influence, obstruct, or impede . the due and proper administration of the law . . . before such department or agency of the United States, or the due and proper exercise of the power of inquiry under which such inquiry or investigation is being had by either House, or any committee of either House . ... . 18 U.S.C.A. § 1952(a) (1969) renders criminal travel in interstate commerce or the use of the facilities of interstate commerce, inter alia, to promote any unlawful activity. “Unlawful activity” is defined in § 1952(b) (2) to include bribery in violation of the laws of the United States. 18 U.S.C.A. § 201 (1969) creates the crime of bribery of a “public official” which is defined in § 201(a) to include a Member of Congress. . See Appendix, and particularly Overt Acts, numbers 19 through 23 of Counts One and Two. . U.S.Const. Art. I, § 6, cl. 1: The Senators and Bepresentatives shall ... be privileged from Arrest during their Attendance at the Session of their respective Houses . ; and for any Speech or De-hate in either House, they shall not he questioned in any other Place. (Emphasis added.) . Although proof of this event was adduced at trial, the court instructed the jury that this was a legislative act which the jury might not consider in deliberating on the question of defendant’s guilt. . Tlie representative of the Department of Justice testified that defendant made no “improper” requests to him in connection with the meeting. In view of our concept of the scope of the “speech or debate” clause, and the protection that defendant was entitled to claim thereunder, this testimony is not significant. . These officials also testified that defendant asked nothing “illegal or improper” of them. But, as will be later shown, proof of the substance of the discussion transgressed the “speech or debate” clause even if it was exculpatory. . See 5 Debates on the Federal Constitution 406 (J. Elliot ed. 1876); 2 Records of the Federal Convention of 1787, p. 246 (M. Farrand rev. ed. 1966). . See Celia, The Doctrine of Legislative Privilege of Freedom of Speech and Debate : Its Past, Present and Future as a Bar to Criminal Prosecutions in the Courts, 2 Suffolk L.R. 1, 3-16 (1968); Comment, Brewster, Gravel, and Legislative Immunity, 73 Col.L.Rev. 125, 126-29 (1973). See generally C. Wittke, The History of English Parliamentary Privilege (Ohio State Univ. 1921). . 2 Works of James Wilson (Andrews ed. 1896) 38, as quoted in Tenney v. Brandhove, 341 U.S. 367, 373, 71 S.Ct. 783, 786, 95 L.Ed. 1019 (1951). . Powell v. McCormack, 395 U.S. 486, 502-503, 89 S.Ct. 1944, 23 L.Ed.2d 491 (1969); Dombrowski v. Eastland, 387 U. S. 82, 85, 87 S.Ct. 1425, 18 L.Ed.2d 577 (1967); Doe v. McMillan, 459 F.2d 1304 (D.C.Cir.), cert. granted 408 U.S. 922, 92 S.Ct. 2505, 33 L.Ed.2d 332 (1972). . See Comment, 73 Col.L.Rev. 125, supra, n. 10; Note, The Bribed Congressman’s Immunity from Prosecution, 75 Yale L.J. 335 (1965); Cella, 2 Suffolk L.R., supra, n. 10. See also Yankwich, The Immunity of Congressional Speech—Its Origin, Meaning and Scope, 99 U.Pa.L.Rev. 960 (1951). . The district court’s decision preceded the Supreme Court’s decisions in Brewster and Gravel. . See Kilbourn v. Thompson, 103 U.S. 168, 26 L.Ed. 377 (1881); Tenney v. Brandhove, 341 U.S. 367, 71 S.Ct. 783, 95 L.Ed. 1019 (1951); Coffin v. Coffin, 4 Mass. 1 (1808). . The government sought and obtained a writ of certiorari extending to this aspect of our decision as well as to the proper scope of the speech or debate clause. In its brief before the Supreme Court, the point was scarcely mentioned; in oral argument, it was abandoned. As a consequence, it was not reviewed by the Supreme Court. Johnson II, 383 U.S. at 185-186, 86 S.Ct. 749, 15 L.Ed.2d 681. See also the discussion and implied criticism of the government’s conduct in the dissenting opinion of Chief Justice Warren, Johnson, II, 383 U.S. at 186-189, 86 S.Ct. 749. The Chief Justice, joined by Mr. Justice Douglas and Mr. Justice Brennan, would have reversed us on this point and reinstated the convictions on the substantive improper attempt to influence counts. . See 73 Col.L.Rev., supra n. 10, at 146. . “The heart of the Clause is speech or debate in either House. Insofar as the Clause is construed to reach other matters, they must be an integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings with respect to the consideration and passage or rejection of proposed legislation or with respect to other matters which the Constitution places within the jurisdiction of either House. Gravel, 408 U,S. at 625, 92 S.Ct. at 2627.” . See n. 12, supra. . Much of our analysis with respect to the indictment and the proof is premised on the holding in Gravel that the speech or debate clause bars inquiry into a Congressman’s preparation for a subeom-mittee hearing. 408 U.S. at 628-629, 92 S.Ct. 2614, 33 L.Ed.2d 583. Gravel articulated two exceptions to this rule. Inquiry would be permissible: (a) “[if] it proves relevant to investigating possible third party crime,” and (b) if the Congressman’s act is itself criminal. 408 U.S. at 629, 92 S.Ct. at 2629. Although these exceptions, if read literally, might conceivably be applied in this case, we conclude that the context in Gravel— alleged theft and receipt of stolen classified papers — limits their application to cases where the inquiry focuses on the manner and methods of obtaining certain information, and not to cases where the inquiry focuses on the Congressman’s motivations for obtaining certain information. Otherwise, these exceptions would engulf the rule. . See n. 16 for the history of this holding. We would be less than candid if we did not state that we think its correctness has been severely shaken. . The jury was fully and correctly instructed as to the law of perjury. Although the district court instructed the jury to apply the rule requiring a witness and corroboration — the “two-man” rule — with respect to perjury, notwithstanding that there was a record of what defendant had said on each of two occasions (cf. United States v. Wood, 14 Pet. 430, 437, 441, 10 L.Ed. 527 (1840)), the jury’s attention was directed to the tapes and transcriptions of the conversations with Cohen and to the transcript of the grand jury testimony. The jury was told to convict only if they found beyond a reasonable doubt that the grand jury testimony was a willful material untruth. Additionally, the jury was told that each count of the indictment charged a separate offense and that “[e]ach charge and the evidence pertaining to it should be considered separately. The fact that you may find the accused guilty or not guilty as to one of the offenses charged should not control your verdict as to any other offense charged.” As stated in the text, we think that under the circumstances of this case the quoted language should be given greater effect than in United States v. Beach, supra.

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2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Peter J. BRENNAN, Secretary of Labor, United States Department of Labor, Plaintiff-Appellee, v. CITY STORES, INC., doing business as Loveman’s, Defendant-Appellant. No. 72-2382. United States Court of Appeals, Fifth Circuit. May 29, 1973. Rehearing and Rehearing En Banc Denied Aug. 16, 1973. Kenneth Perrine, Sirote, Permutt, Friend & Friedman, Birmingham, Ala., Harry Kelleher, Donald R. Mintz, New Orleans, La., for defendant-appellant. Beverley R. Worrell, Regional Sol., U. S. Dept, of Labor, Atlanta, Ga., Edwin G. Salyers, Atty., Carin Ann Clauss, Donald S. Shire, U. S. Dept, of Labor, Washington, D. C., for plaintiff-appellee. Before TUTTLE, THORNBERRY and DYER, Circuit Judges. TUTTLE, Circuit Judge: The Secretary of Labor filed suit against Loveman’s department store for violation of the Equal Pay Act provisions of the Fair Labor Standards Act. The Secretary demonstrated that Loveman’s compensated women selling clothing and related items at a lower rate than it paid salesmen in the men’s clothing department, and that the seamstress was paid less than the tailor. Finding the positions of the saleswomen and salesmen to be equal within the meaning of § 6(d)(1) and that the positions of seamstress and tailor were similarly equal, the court also held that Loveman’s pay differentials were not based on any factor other than sex. As a remedy against this discrimination, the court enjoined Loveman’s from continuing to make pay distinctions between the employees on the basis of sex. It also awarded back pay with interest to the diseriminatees in the amount of the differences in pay rates between certain saleswomen and salesmen and between the seamstress and tailor. Loveman’s appeals, contending that (1) the district court failed to make sufficient findings of fact as required by Rule 52, (2) the court applied an erroneous and inconsistent standard of equality in holding that the jobs compared require “equal skill, effort, and responsibility,” (3) the court’s factual observations were clearly erroneous, and (4) the remedies granted were overly broad, not justified by the Act, and based upon an arbitrary and confiscatory formula. We reject these contentions and affirm the judgment. The trial court’s memorandum opinion set forth extensive findings of fact and conclusions of law which comply fully with the requirements of Rule 52. Though isolated statements in this memorandum might be considered “argumentative and conclusory” rather than objective and primary, these statements when placed in context do not constitute reversible error. For example, the court found that all sales personnel in the departments covered by its order were responsible for marking and fitting clothes as well as selling items to customers. The court also carefully excluded from the scope of its order those sales persons selling only customer-selected items (e. g. ladies’ handbags) or dealing in merchandise of a different kind (e. g. household appliances). Thus, it clearly did not conclude that because the “primary duty” of all sales persons is “to sell merchandise,” all sales positions are equal for § 6(d)(1) purposes. In addition, the court carefully considered the effect of differences between marking cuffs, crotches, and waistbands of men’s suits and adjusting hemlines, shoulders, or waists of women’s dresses and concluded these differences to be wholly insubstantial. Finally, though the court did not compare in detail the marking and fitting duties of all personnel in each of the departments, it provided representative examples of how saleswomen in the foundations and millinery departments mark and fit items which convince us that the court thoroughly considered the marking and fitting duties as well as the sales responsibilities of sales persons within each department. Loveman’s claim that the trial court’s factual observations were clearly erroneous is equally lacking in merit. As an appellate tribunal, we do not, of course, sit to retry cases from the district courts. Smith v. United States, 287 F. 2d 299, 301 (5th Cir., 1961); Chaney v. City of Galveston, 368 F.2d 774, 776 (5th Cir., 1966). Nor is this a case in which we are convinced that, after reviewing the evidence as a whole, the trial court has committed a mistake. E. g. Hodgson v. American Bank of Commerce, 447 F.2d 416 (5th Cir., 1971). While appellant does point to portions of the testimony which might have supported findings contrary to those actually made by the court, it nowhere impugns the existence of the evidence which the trial court accepted in support of its judgment. As this court said in Chaney: “Where the evidence would support a conclusion either way, a choice by the trial judge between two permissible views of the weight of evidence is not clearly erroneous, and the fact that the judge totally rejected an opposed view impeaches neither his impartiality nor the propriety of his conclusions.” 368 F.2d at 776. The appellant also contends that the trial court applied an incorrect standard in determining that the jobs compared require “equal skill, effort, and responsibility.” Though the legislative history of this phrase in the Equal Pay Act was ably explored in Hodgson v. William & Mary Nursing Motel, 20 W.H. Cases 10 (Md.Fla., 1971), we feel constrained to articulate our position in some detail. When Congress enacted the Equal Pay Act, it substituted the word “equal” for “comparable” to show that “the jobs involved should be virtually identical, that is, they would be very much alike or closely related to each other.” The restrictions in the Act were meant “to apply only to jobs that are substantially identical or equal.” While the standard of equality is clearly higher than mere comparability yet lower than absolute identity, there remains an area of equality under the Act the metes and bounds of which are still indefinite. The trial court observed that, “apparently similar factual patterns brought under the Equal Pay Act occasionally generate contradictory results.” Compare Shultz v. Brookhaven General Hospital, 305 F.Supp. 424 (N.D.Texas, 1969) (male orderly’s position equal to that of female aide) and Hodgson v. Good Shepherd Hospital, 327 F.Supp. 143 (E.D.Texas, 1971) (male orderly position not equal to female aide). Though such contradictory results are unseemly, no talismanic words will resolve the ambiguities presented by the phrase “equal skill, effort, and responsibility.” Like many other legal concepts, that of equality under the Equal Pay Act is susceptible of definition only by contextual study. Semantic distinctions such as “substantially similar,” “substantially equal,” “essentially the same,” “sufficiently similar,” or “equivalent,” do not indicate that the court applied an incorrect standard of equality in comparing jobs at Loveman’s store. Only if the evidence and findings indicated the court (1) applied the Act’s prohibitions where there was an insufficient congruence of jobs, or, (2) failed to apply these prohibitions where job differences were insubstantial, would we question the court’s use of a particular phrase. Moreover, our contextual view of the standard to be applied under the Equal Pay Act draws sustenance from the regulations issued by the Secretary of Labor. Though not binding upon this court, these regulations, promulgated by the agency primarily responsible for enforcement of Congress’ enactments, are entitled to great deference. The presumption is that they are valid unless shown to be erroneously in conflict with the Act itself. See Griggs v. Duke Power Company, 401 U.S. 424, at 433-434, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). These regulations obviously contemplate careful weighing of the factors involved in performance of a given job. The general guideline calls for weighing “all relevant evidence,” a task precisely performed by the district court in this case. The court compared various aspects of both selling and non-selling duties of sales personnel before deciding that the jobs were equal in skill, effort, and responsibility despite immaterial differences between the tasks performed. Likewise, while noting the variety of clothes required to be altered by the seamstress and tailor, the court found an essential equality of skill, effort, and responsibility required for the performance of these tasks and considered carefully the appellant’s argument that the tailor’s job was more skilled than that of the seamstress. Therefore, despite the court’s use of the term “similar” in comparing jobs, we find no instance in which this term was used to mean “comparable” rather than “substantially equal” and there was no error in the court’s holding. Loveman’s final challenge is that the remedy was too sweeping because the trial court issued an injunction against it, because interest was awarded as an element of back pay, and because the formula used to compute back pay was “arbitrary and confiscatory.” We find no merit to any of these contentions. In determining whether an injunction should issue under the F.L.S.A., we have said that where “past violations have been established . . . it is only in the most compelling circumstances that the exercise of the trial court’s discretion in granting an injunction will be annulled.” Gulf King Shrimp Company v. Wirtz, 407 F.2d 508, 517 (5th Cir., 1968); see also Hodgson v. First Federal Savings & Loan Ass’n of Broward County, Fla., 455 F.2d 818, 825 (5th Cir., 1972). Though the defendant argues that it had no firm guideline by which to determine that it was in violation of the Act, it was aware of “the statements of the Administrator dated January 10, 1966” and the Labor Department’s Interpretative Bulletin issued September 9, 1965, both of which took the position that the job of selling men’s clothes was “equal” to that of selling ladies’ ready-to-wear. Where, as here, the employer was well aware its practices were in violation of administrative interpretations of the Act and yet continued those practices, “compelling circumstances” do not merit vacating the injunction. Finally, no hardship will be caused by this remedy, for it merely “requires the [employer] to do what the Act requires anyway — to comply with the law.” Mitchell v. Pidcock, 299 F.2d 281 at 287 (5th Cir.) Loveman’s contends that its “good faith” is a basis for reversing the trial court’s award of prejudgment interest on wrongfully withheld back wages. Though this point does not appear to have been discussed by this court, we follow the uniform holdings of the courts of other circuits which have considered this question in holding that the employee is entitled to full compensation for his injuries even if the employer withheld his wages in good faith. Hodgson v. Wheaton Glass Company, 446 F.2d 527, 534-535 (3rd Cir., 1971); Hodgson v. Falk (4th Cir., 1972); McClanahan v. Mathews, 440 F.2d 320, 324-326 (6th Cir., 1971); Hodgson v. Daisy Mfg. Co., 445 F.2d 823 (8th Cir., 1971). A decision to the contrary would in effect reward the employer for its discriminatory practices and punish the employees for any delay by the Secretary in prosecuting the suit. The defendant’s objections to the formula used to compute back pay are numerous. In essence, they question the adequacy of the comparison, the sales persons looked to as the basis for computing the disparity, the rationality of using eight years experience to divide experienced from inexperienced sales personnel, and the dates on which the differentials were computed. While the mechanics of computing back pay are difficult and alternative figures might have been used by the trial court in fashioning a remedy, whatever difficulty of ascertainment exists was due to the discriminatory wage structure maintained by the defendant. In such cases, it suffices for the trial court to determine the amount of back wages “as a matter of just and reasonable inference.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 687-688, 66 S.Ct. 1187, 1192, 90 L.Ed. 1515 (1946). “Difficulty of ascertainment is no longer confused with right of recovery.” Mitchell v. Mitchell Truck Line, Inc., 286 F.2d 721 at 725-726 (5th Cir., 1961) and Hodgson v. Ricky Fashions, Inc., 434 F.2d 1261 at 1262-1263 (5th Cir., 1970). Since no single wage scale could be ascertained for women or men at Loveman’s, and because the formula used by the trial court was reasonably calculated to compensate the discriminatees for their losses, we decline to require a more precise calculation in this case. The judgment of the district court is affirmed. . Loveman’s, located in Montgomery, Alabama, is a branch of City Stores, Inc. The volume anti character of its business brings Loveman’s within the jurisdictional reach of 29 U.S.C. § 203 (s) (1). . Section 6(d)(1), upon which this action is based, reads as follows: “Xo employer having employees subject to any provisions of this section shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system ; (ii) a merit system: (iii) a system which measures earnings by quantity, or quality of production, or (iv) a differential based on any other factor other than sex: Provided, That an employer who is paying a wage rate differential in violation of this subsection shall not, in order to comply with the jirovisions of this subsection, reduce the wage rate of any employee.” 29 U.S.C. § 206(d)(1). . Rule 52 states that “ [i]f an opinion or memorandum of decision is filed, it will bo sufficient if the findings of fact and conclusions of law appear therein.” Where such a memorandum is filed, moreover, we have held that there need be no formal separation of findings of fact from conclusions of law. McCrea v. Harris County Houston Ship Channel Nav. Dist., 423 F.2d 605 at 610 (5 Cir., 1970). . Two such statements brought to our attention were: “As is true of similar employees in any department store, the primary duty of each salesperson is to sell merchandise.” “Defendant’s argument that the fitting of a man’s suit differs in kind from the fitting of a woman’s pants or dress suit is wholly unpersuasive and contrary to common sense.” . Cong.Rec., Vol. 109, Part 7 (88th Congress, 1st Session). . Id. . Some examples given in the Guidelines imposed by Congress at 109 Cong.Rec. at page 9209 are: “Tenth. A difference in pay between male selectors and packers and female selectors and packers who work on the same assembly line and have the same duties and responsibilities would bo, invalid. “Twelfth. An installer’s job on an assembly line that, for example, requires soldering, could not be compared or equated with a welder’s job. “Thirteenth. A truck driver’s job and a tug operator’s job are dissimilar. “Fourteenth. The work of a machine operator and the work of a skilled machinist cannot be equated. “Fifteenth. Plant and office clerical assignments are normally distinguishable.” . In Hodgson v. American Bank of Commerce, 447 F.2d at 419, fn. 3, we said unequivocally: “The Bank continues to assert that there are substantial differences between the Bank’s various teller jobs. We recognize that ‘Congress in prescribing “equal” work did not require that the jobs bo identical, but only that they must be substantially equal.’ Shultz v. Wheaton Glass Co., 3d Cir., 1970, 421 F.2d 259, 265. By this standard, the district court’s determination that the various tellers performed substantially similar duties, which could be considered equal work, is supported by substantial evidence. Bee also Wirtz v. American Bank of Commerce, 64 CCH Lab.Cas. ¶32,400 (S.D.Tex., 1970, not officially reported); Shultz v. First Nat’l Bank of Orange, 61 CCH Lab.Cas. ¶32,269 (E.D.Tex., 1970, not officially reported) .” . Contrary to Loveman’s contention, the facts of Hodgson v. The Cain-Sloan Co., Civ.Action No. 6443 (M.D.Tenn., 1973) are readily distinguishable from those of the case at bar. Cain-Sloan sales personnel in the women’s dress departments did not mark and fit clothes at all, while salesmen in the men’s suits department were “required to jiossess or acquire expertise in the marking of men’s suits for alteration.” Because of clothes marking and fitting expertise, which all the affected sales personnel at Loveman’s were required to have, the court held that Cain-Sloan had a “rational basis” for paying the salesmen more than the saleswomen under § 6(d)(l)(iv). No such difference in expertise was present here. . All of these were employed by the trial court. . The relevant provisions of the Secretary’s guidelines are to be found at 29 C.F.R. § 800. 123-800.132. Those parts particularly pertinent to this litigation follow: “§ 800.123 Determining equality of job content in general. “In determining whether differences in job content are substantial in order to establish whether or not employees are performing equal work within the meaning of the Act, the amounts of time which employees spend in the performance of different duties are not the sole criteria. It is also necessary to consider the degree of difference in terms of skill, effort, and responsibility. These factors are related in such a manner that a general standard to determine equality of jobs cannot be set up solely on the basis of a percentage of time. Consequently, a finding that one job requires employees to expend greater effort for a certain percentage of their working time than employees performing another job, would not in itself establish that the two jobs do not constitute equal work. Similarly, the performance of jobs on different machines or equipment would not necessarily result in a determination that the work so performed is unequal within the meaning of the statute if the equal pay provisions otherwise apply. If the difference in skill or effort required for the operation of such equipment is inconsequential, payment of a higher wage rate to employees of one sex because of a difference in machines or equipment would constitute a prohibited wage rate differential. Likewise, the fact that jobs are performed in different departments or locations within the establishment would not necessarily be sufficient to demonstrate that unequal work is involved where the equal pay standard otherwise applies. This is particularly tme in the case of retail establishments, and unless a showing can be made by the employer that the sale of one article requires such a higher degree of shill or effort than the sale of another article as to render the equal pay standard inapplicable, it will be assumed that the salesmen and salestvomen, concerned are performing equal worJc. Although the equal pay provisions apply on an establishment basis and the jobs to be compared are those in the particular establishment, all relevant evidence that may demonstrate whether the skill, effort, and responsibility required in the jobs at the particular establishment are equal should be considered, whether this relates to the performance of like jobs in other establishments or not. (Emphasis added). “§ 800.125 Jobs requiring equal skill in performance. “The jobs to which the equal pay standard is applicable are jobs requiring equal skill in their performance. Where the amount or degree of skill required to perform one job is substantially greater than that required to perform another job, the equal pay standard cannot apply even though the jobs may be equal in all other respects. Skill includes consideration of such factors as experience, training, education, and ability. It must be measured in terms of the performance requirements of the job. If an employee must have essentially the same skill in order to perform either of two jobs, the jobs will qualify under the Act as jobs the performance of which requires equal skill, even though the employee in one of the jobs may not exercise the required skill as frequently or during as much of his working time as the employee in the other job. Possession of a skill not needed to meet requirements of the job cannot be considered in making a determination regarding equality of skill. The efficiency of the employee’s performance in the job is not in itself an appropriate factor to consider in evaluating skill. “§ 800.127 Jobs requiring equal effort in performance. “The jobs to which the equal pay standard is applicable are jobs that require equal effort to perform. Where substantial differences exist in the amount or degree of effort required to be expended in the performance of jobs, the equal pay standard cannot apply even though the jobs may be equal in all other respects. Effort is concerned with the measurement of the physical or mental exertion needed for the performance of a job. Where jobs are otherwise equal under the Act, and there is no substantial difference in the amount or degree of effort which must be expended in performing the jobs under comparison, the jobs may require equal effort in their performance even though the effort may be exerted in different ways on the two jobs. Differences only in the kind of effort required to be expended in such a situation will not justify wage differentials. “§ 800.129 Jobs requiring equal responsibility in performance. “The jobs to which the equal pay standard applies are jobs in the performance of which equal responsibility is required. Responsibility is concerned with the degree of accountability required in the performance of the job, with emphasis on the importance of the job obligation. Differences in the degree of responsibility required in the performance of otherwise equal jobs cover a wide variety of situations. The following illustrations in § 800.130, which are by no means exhaustive, may suggest the nature or degree of differences in responsibility which will constitute unequal work. “§ 800.130 Comparing responsibility requirements of jobs. “(b) Other differences in responsibilities of employees in generally similar jobs may require similar conclusions. Sales clerks, for example, who are engaged primarily in selling identical or similar merchandise may be given different responsibilities. Suppose that one employee of such a group (who may be either a man or a woman) is authorized and required to determine whether to accept payment for purchases by personal checks of customers. The person having this authority to accept personal checks may have a considerable additional degree of responsibility which may materially affect the business operations of the employer. In this situation, payment of a higher wage rate to this employee would be permissible.” . A related argument pressed by Love-man’s that the jobs compared were paid at differing rates because of factors other than sex, lias been fully dealt with above in all but two minor respects. Loveman’s contends that tire tighter market for salesmen and male tailors justifies its hiring of men with such skills at a rate higher than that paid to obtain women of similar skills. While factors other than sex (customer embarrassment primarily) justify the employer in seeking male personnel to work in conjunction with selling and fitting male clothing, this is no excuse for hiring saleswomen and seamstresses at lesser rates simply because the market will bear it. Just such disparities were what Congress intended to correct by this legislation. As we said in Hodgson v. Brookhaven, 436 F.2d 719 at 726 (5th Cir., 1970) : “Clearly the fact that the employer’s bargaining power is greater with respect to women than with respect to men is not the kind of factor Congress had in mind. Thus, it will not do for the hospital to press the point that it paid [male] orderlies more [than female aides] because it could not get them for less.” Nor has the company proven that its amorphous “apprenticeship” program is a “factor other than sex.” Schultz v. First Victoria National Bank, 420 F.2d 648, 654, fn. 8 (5th Cir., 1969). . The statements of the Administrator are summarized in the CCH Labor Law Reporter, Wages and Hours, ¶25,982.22. They also appear in the Feb., 1966 issue of “Stores — The Magazine for All Retail Executives” published by the National Retail Merchants’ Association. . The court discerned from the most recent hiring rates of experienced men and women (William Harvey, Edward Taylor, Bessie Poindexter, and Nina Rigsby) that the wage disparity between male and female sales persons was $.57/hour i>lus a 2% commission on net sales. For inexperienced sales persons (less than 8 years), it found the disparity between April, 1968 and the date the complaint was filed in October, 1969 to be $.15/hour. It held that back pay should bo awarded to October 12, 1967 except that experienced saleswomen should be paid a 1% commission up to and including March 1, 1968, the date on which the commission for salesmen was raised from 1% to 2%. The seamstress was ordered back pay to October 12, 1967 in the amount of the difference between her pay and the tailor’s pay.

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2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Marko DUROVIC, an Individual and also known as Marko Durovic, formerly d/b/a Duga Laboratories et al., Plaintiffs-Appellants, v. Elliot RICHARDSON, Secretary of Health, Education & Welfare, and Charles C. Edwards, Commissioner of Food & Drugs, Defendants-Appellees. No. 71-1658. United States Court of Appeals, Seventh Circuit. Argued June 20, 1972. Decided April 25, 1973. As amended May 18, 1973. Anna R. Lavin, Chicago, 111., Solomon H. Friend, New York City, for plaintiffs-appellants. James R. Thompson, U. S. Atty., William T. Huyck, James C. Murray, Asst. U. S. Attys., Chicago, 111., and Cheryl S. Earner, Atty., Consumer Division Dept, of Justice, Washington, D. C., for defendants-appellees. Before FAIRCHILD, CUMMINGS, and STEVENS, Circuit Judges. FAIRCHILD, Circuit Judge. Plaintiffs appeal from an unfavorable declaratory judgment entered on defendants’ motion for summary judgment in plaintiffs’ action for declaratory relief. Plaintiffs are interested in the manufacture and distribution of the “drug product called Erebiozen as an agent for use in the management of malignant tumors”. Defendants are charged with administration of the Federal Food, Drug and Cosmetic Act, as amended. 21 U.S. C. § 355(a) prohibits the introduction of a “new drug” into interstate commerce unless an approval of a new drug application under § 355(b) (an NDA) is effective. 21 U.S.C. § 335 calls for notice to a proposed defendant before a violation is reported to a United States attorney. Such notice was given to plaintiffs. Although § 335 also calls for an opportunity administratively for presentation of views, it does not contemplate a proceeding leading to a final administrative order, subject to statutory judicial review. As a result of the notice, and, apparently, defendants’ rejection of views that sale of Krebiozen in interstate commerce required no effective NDA, plaintiffs brought this action. They sought a declaration (1) that Kre-biozen is not a new drug by reason of the operation of a “grandfather” provision, enacted in 1962, in other words, that Krebiozen was commercially sold or used and not a “new drug” under the law just before the 1962 amendments, or, alternatively (2) that if Krebiozen was a new drug, one or more NDA’s became effective, one in 1954 and one in 1961. Each side moved for summary judgment. The district court entered judgment that “Krebiozen is now and has always been a new drug within the meaning of the statutory definition for which no approved New Drug Application is now or has ever been effective.” Findings and conclusions are reported at 327 F.Supp. 386. Plaintiffs appealed. We affirm. Since summary judgment was granted, the questions on appeal are whether there was no genuine issue as to any material fact and whether the propositions declared were correct as a matter of law. Plaintiffs’ alternative claims, that of grandfather clause exemption because Krebiozen was not a new drug under the 1938 law, and that of an effective NDA under the 1938 law are inconsistent. Although plaintiffs chose to press the grandfather clause claim first, chronology makes it more logical to take up their claims in the opposite order. I. The 1954. and 1961 NDA’s. Plaintiffs’ activity in the United States with Krebiozen, previously unknown, began in 1949-1951. Undeniably it was then a new drug as defined in sec. 201 (p) of the 1938 act, 52 Stat. 1040, then in force. Under sec. 505(a), unless an NDA was on file and effective, a new drug could not be introduced into interstate commerce except under regulations covering solely investigational use. On April 15, 1954, consistently with the new drug status of Krebiozen, plaintiff Marko Durovic tendered an NDA. On May 25, 1954, the Secretary replied by letter stating that the application was incomplete in two particulars and accordingly that it may not be filed. Plaintiffs contend that this NDA became effective by operation of law, 60, or at most 180, days after receipt. They rely on sec. 505(b) and (c). If this NDA were deemed an application filed when received, within the meaning of (b) , (c) would indeed cause it to become effective on the sixtieth day after the filing unless postponed by the Secretary to a time not more than 180 days after filing. Clearly there were no notice and hearing under (d) which would support an order refusing to permit the NDA to become effective, nor under (e) which would support an order suspending effectiveness. Defendants’ position is that a document purporting to be an NDA, received, but deemed incomplete, is not a filed application under (b), so as to become effective by lapse of time under (c) . Sec. 701(a) vested authority in the Secretary to promulgate regulations for the efficient enforcement of the act. In 1954, 21 C.F.R. § 1.110 provided that an application shall not be accepted for filing if incomplete on its face by omission of required material, and called for notice to the applicant. We consider the regulation a reasonable means of determining the fact and time of filing an application and preventing the triggering of the automatic operation of the statute where an intended application is incomplete under the statute. Notice of incompleteness, conforming to the regulation, was given. It does not appear either that Durovic amended the application so as to supply the omitted information, which would, under the regulation, have resulted in a filing date at the time of receipt of the amendment, if then complete, or that he challenged the refusal to accept for filing in any legal proceeding. On March 27, 1961, Dr. Stevan Durovic, another plaintiff, submitted another NDA. This act was consistent with continued new drug status of Krebiozen. The application was supplemented March 31 and April 13. On May 23, 1961, the Director of the Division of New Drugs replied by letter stating that the application as amended was regarded as received April 13, that a preliminary review showed the NDA was incomplete in specified areas, but that there would be a further letter. On June 9, the Director wrote án eight page letter listing areas in which the NDA was incomplete and inadequate, and stating that, accordingly, it may not be filed. The applicable regulation at this time was 21 C.F.R. 130.5. It was similar to the earlier one in all material respects, but also provided a procedure whereby the applicant, if he disputed the finding of incompleteness, could request filing over protest, and thus set the statutory machinery in motion. There is no claim that Dr. Durovic made such request. We consider the regulations valid and that the agency complied with them. Accordingly we conclude that neither the 1954 nor 1961 NDA was a filed application so as to cause it to become effective by operation of law with lapse of time. II. The “grandfather” claim. Until 1962 the controlling definition of a new drug depended upon the lack of general recognition among experts that it was “safe” for use according to its labeling. The Drug Amendments of 1962 enlarged the required general recognition to “safe and effective”. 21 U. S.C. § 321 (p), as amended in 1962, reads in material part: “(p) The term ‘new drug’ means— (1) Any drug . . . the composition of which is such that such drug is not generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof, or (2) Any drug . . . the composition of which is such that such drug, as a result of investigations to determine its safety and effectiveness for use under such conditions, has become so recognized, but which has not, otherwise than in such investigations, been used to a material extent or for a material time under such conditions.” (We have italicized the words added by the Drug Amendments of 1962. All the other material quoted appeared in the 1938 act.) The Drug Amendments of 1962 were approved October 10, 1962. Sec. 107(c)(4), 76 Stat. 789, a grandfather clause, provided: “In the ease of any drug which, on the day immediately preceding the enactment date, (A) was commercially used or sold in the United States, (B) was not a new drug as defined by section [321 (p) ] of the basic Act as then in force, and (C) was not covered by an effective [NDA] the amendments to section [321 (p)] made by this Act shall not apply to such drug when intended solely for use under conditions prescribed, recommended, or suggested in labeling with respect to such drug on that day.” The basic argument on behalf of plaintiffs is that on October 9, 1962, Krebiozen (A) was commercially used and sold in the United States, (B) was generally recognized as “safe” in the sense that it was non-toxic, and (C) was not, assuming their alternative argument be rejected, covered by an effective NDA. The basic argument of the government is (1) that, properly construed, the law before the 1962 amendments defined a drug which was to be used for treatment of a life-threatening disease as a new drug unless generally recognized as effective as well as otherwise safe; (2) that Krebiozen was not so recognized; (3) that its composition was not sufficiently known to enjoy general recognition as “safe” even in the narrow sense; i. e., non-toxic; and (4) that since Krebiozen was sold only for investigational use, it was not commercially used or sold within the meaning of the grandfather clause. Activities of plaintiffs have been inconsistent with their present claim that Krebiozen had become a “recognized” rather than a “new” drug by October 9, 1962. The presentation of an NDA in 1954 and in 1961 implied that Krebiozen was a new drug on those dates. In June, 1963, plaintiff Stevan Durovic submitted a “Notice of Claimed Investigation Exemption” (IND) which, although withdrawn after a month, carried the same implication. In April, 1966, plaintiff Marko Durovic, under power of attorney for Stevan Durovic, wrote a letter to the FDA, which he referred to in the text as an “investiga-tional drug application” and a “Notice of Claimed Investigation Exemption”. Although this purported claim for in-vestigational exemption noted that it was without prejudice to the status achieved by the earlier NDA’s, it was inconsistent with the present claim that Krebiozen had, by October 9, 1962, ceased to be a “new” drug. Conceding that plaintiffs may not be irrevocably bound by their acts implying that Krebiozen had not become a “recognized” rather than “new” drug by October 9, 1962, nor by the assumptions in later judicial decisions that it was still a “new” drug, we proceed to analysis of the showings made on motion for summary judgment in the instant case. Grandfather requirement (A): “commercially used or sold” October 9, 1962. Defendants assert that all Krebiozen sold at or recently before the critical date was sold under a restrictive label, pursuant to 21 C.F.R. 130.3, i. e., “An Agent for Investigational Use in the Management of Malignant Tumors . Caution — New drug limited by Federal Law to investigational use”. If so labeled and sold only to a qualified expert who promised to investigate the safety of the drug, the shipment was exempt from 21 U.S.C. § 355(a) prohibiting introduction into interstate commerce of a new drug without an effective NDA. There appears to be a dispute whether all sales of Krebiozen were expressly restricted by the seller to investigational use. There is room for question concerning the meaning of “commercially” in the grandfather clause. We assume, since Congress was endeavoring to avoid imposing new burdens on drugs which had already achieved “recognized” status, and usage thereunder to a material extent and for a material time, that a gloss of openly and readily available and broadly distributed in the ordinary course of business as well as lack of restriction to investigational use was intended. Nevertheless we find it impossible to say, on the record presented, that defendants conclusively established that Krebiozen was not “commercially used or sold” as of October 9, 1962. Grandfather requirement (B): “generally recognized as safe” as of October 9, 1962. Defendants presented affidavits which, at least prima facie, established (1) that as of the critical date Krebio-zen was not generally recognized among qualified experts as safe and effective for management of malignant tumors, and (2) that as of the critical date its composition was not sufficiently known to be recognized as safe in the sense of non-toxic, for use in such statement. One affiant was Jesse L. Steinfeld, M.D., Surgeon General, United States Public Health Service. He described his professional background and attainments, much of them in the field of cancer research, and stated that he is well acquainted with the opinions of experts in the field of cancer, especially chemotherapy, and with the relevant literature and that he is well acquainted with Krebiozen. Dr. Steinfeld stated: “I know of no medical school which teaches, or has taught, that Krebiozen is a treatment of cancer. I know of no hospital associated with a medical school where Krebiozen is used for treatment of cancer. I know of no expert in the field of cancer who believes now, or who has ever believed, that Krebiozen is safe for the treatment of cancer or that Krebiozen has any efficacy whatsoever in the treatment of cancer. ... In 1963, I was a member of a committee of twenty-four cancer experts, selected from throughout the United States by the Director of the National Cancer Institute, who evaluated data on 504 patients submitted by Kre-biozen’s sponsors. I personally reviewed thirty-nine of the cases and participated in the review of many of the others. The Committee unanimously concluded that there was no substantive evidence in the data to demonstrate that Krebio-zen was of any value whatsoever in treating cancer. . . . Based on my professional education, training, and experience, on my knowledge of published scientific literature, and in my contact with colleagues, it is my opinion that the composition of Krebiozen is such that I do not recognize it, nor is it generally recognized by experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe or effective when used for the treatment of cancer in the manner suggested in its labeling. The drug has never been so recognized.” Another affiant was Carl G. Baker, M.D., Director, National Cancer Institute, United States Public Health Service. He described his professional background and attainments, and substantial experience and expertise in the field of cancer, especially in the area of chemotherapy. He asserted similar opinions with respect to general recognition of Krebiozen. With respect to the lack of general knowledge of the composition of Kre-biozen as of October 9, 1962, Dr. Stein-feld and Dr. Baker each stated as follows: “The actual composition of Krebiozen was not known to any expert in the field of cancer until 1963, when the Department of Health, Education, and Welfare released information concerning assays of the drug’s composition. To my knowledge no meaningful scientific bioassay data on Krebiozen has ever been available to experts. Experts in the field of cancer, lacking information about a drug’s composition or about its biological activity, could not have made a determination prior to 1963 concerning the safety of this drug”. Plaintiffs submitted the affidavits of Andrew C. Ivy, M.D. and Marko Duro-vic. Although they presented material to support a claim that Krebiozen is thought by some physicians to be safe and effective in the treatment of cancer, they by no means asserted that it is generally so recognized among experts. Dr. Ivy described his very impressive qualifications and experience as a physician, teacher, and author. He asserted that he had studied Krebiozen in collaboration with plaintiff Stevan Durovic, had treated hundreds of patients with Krebiozen and “analyzed and reviewed the observations and experiences of more than 3000 licensed physicians who have treated about 4227 patients, most of whom were afflicted with advanced or hopeless cancer”. He asserted that Kre-biozen is non-toxic, that it “is a tissue hormone, which functions and an anticancer substance”. He asserted changes observed or reported. in large numbers of the patients referred to. He concluded: “In my opinion, as an acknowledged expert on cancer and on Krebiozen, and based upon my own personal experiences and the experience of some 3000 licensed physicians whose results have been studied by me, Krebiozen is safe and beneficial in the treatment of cancer, and possesses significant palliative, arresting and remissive action on human cancer”. Plaintiff Durovic asserted no medical nor scientific qualifications. His affidavit was divided into eight parts, as follows: 1. “Krebiozen is not creatine”. (HEW has at times, beginning in September 1963, announced that ampules of Krebiozen contain mineral oil and some but not all contain a readily available and inexpensive laboratory substance known as creatine.) Affiant stated that creatine monohydrate is an impurity, associated in the ampule with a yellowish material or oil, a complex structure the components of which would require 10 years of effort to identify. He asserted that in the criminal trial it had been proved that Krebiozen was not mere creatine monohydrate, and referred to the testimony of various witnesses on that issue. 2. “Krebiozen is effective in the treatment of cancer”. Affiant asserted what he considered inadequacies in the qualifications, procedure, and standards of the committee of 24 referred to by Dr. Steinfeld. 3. “Krebiozen is effective in the treatment of advanced, and hopeless cancer cases” Affiant stated that a hospital in Philadelphia and a number of physicians have treated patients with Krebio-zen. He summarized or related certain testimony of Dr. John Pick who had seen cancer patients experience favorable results after treatment with Krebiozen and who stated that “it is of great help in the management of cancer”. 4. “The Affidavit of Marion I. Fin-kel, M.D., Deputy Director Bureau of Drugs of FDA”. Affiant pointed out that this affidavit, asserting certain announcements by FDA, did not establish the announcements were true. 5. “The Affidavit of Joseph Levine”. Affiant asserted certain facts which he said renders Levine’s determination of the composition of Krebiozen inadequate. 6. “The Affidavits of Dr. Jesse L. Steinfeld and Dr. Carl G. Baker”. Af-fiant asserted various facts on the basis of which he said their affidavits lack probative value. 7. “The Affidavits of Levine, Finkel, Baker, and Steinfeld”. Affiant asserted Dr. Scott Anderson and Dr. Walter McCrone had established that Krebiozen was not creatine monohydrate, and that in the criminal trial defendants were acquitted because of the government’s failure to prove that Krebiozen is creatine monohydrate or that ampules labeled Krebiozen and containing mineral oil, lacked Krebiozen powder. 8. “Krebiozen is safe and not toxic”. Affiant stated that Krebiozen is not toxic, and that this was proved by statements of physicians who had administered thousands of injections, Dr. Ivy’s observations, Dr. Pick’s testimony that he had been injected with 100 ampules without ill effects, and the report to that effect of the Philadelphia hospital after treating 40 patients. It must be remembered that the issue presented under the applicable law is not whether Krebiozen is in fact nontoxic, nor in fact effective, nor whether some physicians or experts could be found who considered it so, but solely whether by October 9, 1962, it had achieved general recognition among the experts as safe for the management of malignant tumors, as the term “safe” was then properly interpreted. It is clear that neither Dr. Ivy’s affidavit nor the reports and opinions of others, reported by Durovic’s affidavit, purported to assert that Krebiozen had, as of October 9, 1962, achieved general recognition among experts as safe or safe and effective. Analytically, it is plausible to argue that.the addition by Congress of “effective” to the standard by which drugs were to be judged on and after October 10, 1962, meant that effectiveness was not part of the standard before that date, when only “safe” appeared. On the other hand, it is clear that those responsible for the change understood that “The Food and Drug Administration now requires, in determining whether a ‘new drug’ is safe, a showing as to the drug’s effectiveness where the drug is offered for use in the treatment of a life-threatening disease. ... In such eases, the determination of safety is, in the light of the purposes of the new drug provisions, considered by the Food and Drug Administration to be inseparable from consideration of the drug’s effectiveness. The provisions of the bill are in no way intended to affect any existing authority of the Department of Health, Education, and Welfare to consider and evaluate the effectiveness of a new drug in the context of passing upon its safety”. The thinking behind the position referred to is illustrated in the Steinfeld and Baker affidavits, as follows: “The use of an ineffective drug such as Kre-biozen for the treatment of a life-threatening disease such as cancer is not a safe medical practice. Any delay in the institution of effective therapy (e. g., radiation, surgery, effective chemotherapy) caused by the use of an ineffective drug allows the disease to progress beyond control. Delay means almost certain death”. Bearing in mind the weight properly accorded to administrative construction, and Congressional awareness of the administrative view that the concept of safety in the law before the 1962 amendments included the concept of effectiveness for its indicated use where the drug is offered for use in the treatment of life-threatening disease, we think the definition of new drug before the amendments should be construed accordingly. It would follow that a drug offered for use in the treatment of cancer is now, and was before the amendments, a new drug unless it has achieved general recognition among the experts as safe and effective for such use. Under that analysis, the status of a drug offered for such use would be subjected to the same test before and after the amendments, and the grandfather clause would have no effect on it. Applying the reasoning just stated, the declaratory judgment was clearly correct. The affidavits demonstrate, beyond any issue of fact, that Krebiozen has not, either before or after October 9, 1962, achieved general recognition among qualified experts as safe and effective for use in the management of malignant tumors. If, however, we are in error in such reasoning, an alternative path also leads us to affirm the judgment. Assuming arguendo that even for drugs intended for treatment of life-threatening disease, “safe”, before the 1962 amendments, meant only non-toxic, the affidavits have established that, as of October 9, 1962, the identity and composition of Krebiozen was so completely unknown that it could not, for that reason, have been generally recognized among qualified experts as safe, even in the narrow sense, for its indicated use. We have been made aware, in this record, of much of the emotionally charged controversy about Krebiozen. Some characterize Krebiozen as a hoax, yet there are many who believe with deep sincerity that a number of cancer sufferers have been aided, or even saved, by it. Its advocates contend that the medical “establishment” both in and out of government has unfairly denied Kre-biozen a reasonable test. So distinguished a person as the Honorable Paul Douglas, former Senator from Illinois, has taken its part. Some would argue that if a substance is found to be innocuous, a sufferer who hopes it will relieve him is entitled to have it. The issues suggested by the last paragraph, however, are not before us for decision. The law, as Congress enacted it, looks primarily to the administrative process for deciding which new drugs meet appropriate standards for introduction into interstate commerce. That process is to protect the public through granting, denying, and suspending the effectiveness of NDA’s. Administrative decisions are subject to judicial review within the appropriate limits. Realizing, however, that there were already on the market, or might come to be, drugs offered to the public which already were, or would be, so clearly recognized as safe (before the 1962 amendments) or as safe and effective (thereafter) that subjecting them to the administrative process would be unnecessary and wasteful, Congress allowed them to bypass the NDA procedure. We think the standard of general recognition by qualified experts was intended to be strictly construed so that unless a drug is clearly entitled to proceed through the direct channel, it must proceed through the NDA channel. Interpreting the law in the light of its purpose we are convinced that neither as of October 9, 1962, nor since, has Krebiozen achieved the extent and type of general recognition that entitles a drug to short-circuit the NDA procedure. The judgment appealed from is affirmed. . Such opportunity is not a prerequisite to prosecution. United States v. Dotter-weich, 320 U.S. 277, 279, 64 S.Ct. 134, 88 L.Ed. 48 (1943) rehearing den. 320 U.S. 815, 64 S.Ct. 367, 88 L.Ed. 492. . P.L. 87-781, 76 Stat. 780. . Krebiozen lias been involved in a number of judicial proceedings, (a) Durovic v. Palmer, 342 F.2d 634 (7th Cir. 1965). Plaintiff Stevan Durovic unsuccessfully sought to challenge certain federal investigations in June, 1963 of the preparation of Krebiozen. The opinion reflects at least an assumption that Krebiozen was then a “new” drug, “being distributed ostensibly for investigational use. . . .” (b) Ivy v. Katzenbach, 351 F.2d 32 (7th Cir. 1965), cert. den. 382 U.S. 958, 86 S.Ct. 437, 15 L.Ed.2d 732. Ivy unsuccessfully sought to enjoin prosecution under an indictment and requested a court supervised clinical test of the drug. The prosecution proceeded and resulted in acquittal, followed by conviction of a juror of criminal contempt for having brought extra-judicial information concerning Krebiozen to the attention of fellow jurors. See United States v. Bukowski, 435 F.2d 1094 (7th Cir. 1970). (c) Tutoki v. Celebrezze, 375 F.2d 105 (7th Cir. 1967). Although present plaintiffs do not appear to have been parties, this court said “The present posture of Krebiozen vis-á-vis the Food and Drug Administration (FDA) is that it is not approved under or exempted from section 505”. (d) Rutherford v. American Medical Association, 379 F.2d 641 (7th Cir. 1967), cert. den. 389 U.S. 1043, 88 S.Ct. 787, 19 L.Ed.2d 835. Again present plaintiffs were not parties. This court said, however, “Krebiozen is unavailable in interstate commerce. As a new drug, it has not received an approval, required by the Food, Drug and Cosmetic Act, 21 U.S.C.A., § 355, which would permit its introduction into interstate commerce”, p. 643. . United States v. Seven Cartons, More or Less, etc., 424 F.2d 1364 (7th Cir. 1970); Tyler Pharmacal Distrib. Inc. v. U. S. Dept. of Health, E. & W., 408 F.2d 95, 99 (7th Cir. 1969); AMP Incorporated v. Gardner, 389 F.2d 825, 831 (2d Cir. 1968). . Senate Report No. 1744, July 19, 1962, 1962 U.S.Code Congressional and Administrative News, p. 2891. . In any event a grandfather clause exception is to be construed strictly against one who invokes it. United States v. Allan Drug Corporation, 357 F.2d 713, 718 (10th Cir. 1966) cert. den. 385 U.S. 899, 87 S.Ct. 203, 17 L.Ed.2d 131. . United States v. Dotterweich, supra, fn. 1, p. 280.

f2d_479/html/0251-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

UNITED STATES of America, Plaintiff-Appellee, v. Kenneth Dale HUDSON, Defendant-Appellant. No. 72-1757. United States Court of Appeals, Ninth Circuit. Dec. 8, 1972. Rehearing and Rehearing En Banc Denied July 5, 1973. Lumbard, Circuit Judge, dissented in an opinion. Jerry E. Berg (argued), Palo Alto, Cal., for defendant-appellant. Joseph Reeves, Asst. U. S. Atty. (argued), John F. Cooney, Jr., Asst. U. S. Atty., James L. Browning, Jr., U. S. Atty., for plaintiffrappellee. Before LUMBARD, HAMLEY and WALLACE, Circuit Judges. Honorable J. Edward Lumbard, Senior United States Circuit Judge of the Second Circuit, sitting by designation. WALLACE, Circuit Judge: Appellant was convicted of violating 50 U.S.C.App. § 462(a) for failing to report for induction at the bus depot as ordered. The only evidence of the crime was appellant’s Selective Service file; he contends that part of the file was inadmissible and the whole file was insufficient to sustain the conviction. Nowhere does he contend that he did report. We affirm. Appellant was ordered to report on January 26, 1971. Page 11 of the file, entitled “Minutes of Actions by Local Board and Appeal Board and on Appeal to the President,” contains, next to a stamped date of “JAN 26 1971,” the typewritten entry “Failed to Report for Induction.” Page 56 is a letter dated March 2, 1971, from a “Field Supervis- or” of the state director to the local board. The letter indicates that appellant’s file was enclosed, states in part that “[i]t appears that the registrant is in violation of section 12 of the Military Selective Service Act of 1967,” and directs the local board to complete a “Report of Violation” form. Apparently in response, page 57 is a completed “Report of Violation” form dated March 3, 1971, which is addressed to the United States Attorney and signed by a representative of the local board. By checks in appropriate boxes, the form indicates that appellant was ordered to report for induction and failed to do so. While there is some question as to the nature of the objection made at trial, it can be fairly construed to be directed to the pages in question and to include the ground of lack of foundation. No attempt was made to qualify the file as a business record pursuant to 28 U.S.C. § 1732. Admissibility as an exception to the hearsay rule must therefore be based upon a showing that it qualified as an official document under 28 U.S.C. § 1733(a) which provides: Books or records of account or minutes of proceedings of any department or agency of the United States shall be admissible to prove the act, transaction or occurrence as a memorandum of which the same were made or kept. The first step towards admissibility requires the copy of appellant’s Selective Service file be authenticated. 28 U.S.C. § 1733(b). This is satisfied when an officer having legal custody of the record, or his deputy, certifies the nature of the record, that he has custody of the original and attaches the seal of his office. Fed.R.Crim.P. 27; Fed.R. Civ.P. 44; Yaich v. United States, 283 F.2d 613, 617 (9th Cir. 1960). In the instant case, a “certificate” was attached to the file which complied with these requirements. Once proven authentic, Selective Service files apparently have been deemed to comply with the statute and without any further showing admitted as official documents. United States v. Lloyd, 431 F.2d 160, 163-164 (9th Cir. 1970), cert. denied, 403 U.S. 911, 91 S.Ct. 2210, 29 L.Ed.2d 688 (1971); LaPorte v. United States, 300 F.2d 878 (9th Cir. 1962); Yaich v. United States, supra, 283 F.2d at 616; Kariakin v. United States, 261 F.2d 263, 265 (9th Cir. 1958). The point raised by appellant is that the record is silent as to who made the en-try on page 11 and pursuant to what duty. The alleged offense took place at a bus station. Yet, the entry of the failure to report is found in the “Minutes of Actions by Local Board and Appeal Board and on Appeal to the President.” Appellant claims there must be an affirmative showing that the person who made the entry actually witnessed the failure to appear, and he relies on United States v. Knudsen, 320 F.Supp. 878 (W.D.Wis. 1971). Because § 1733 states the record “shall be admissible,” it could be contended that nothing further than general compliance with the statute is necessary for admissibility of every part of the file. However, appellant is partially correct in his contention that'the author of the challenged entry must possess personal knowledge of the evidence stated therein. Yaich v. United States, supra, 283 F.2d at 616; Olender v. United States, 210 F.2d 795, 801 (9th Cir. 1954). (One exception to this rule will be discussed infra.) On its face, the entry on page 11 could well be taken by the trial judge as a recording of a firsthand impression and therefore the declarant, if called to testify, could make the same statement in court. The trial court, therefore, did not commit error in admitting the statement under § 1733. That there is no independent affirmative evidence that the recorder actually had first-hand knowledge does not militate against its admissibility and we, therefore, decline to follow the district court in United States v. Knudsen, supra. Such a restrictive rule would virtually emasculate the purpose behind § 1733 and require the proponent of the record to call witnesses for each entry where the entrant did not sign his name, state his title and make an additional statement to the effect that “I was there and saw it.” The main thrust of both §§ 1732 and 1733 is to obviate the need to call witnesses to each item in a writing which qualifies pursuant to either one of the sections. Olender v. United States, supra at 801. So long as the entry meets the basic requirements referred to above and appears trustworthy on its face, there is no error if the court admits it into evidence. This position is consistent with our earlier opinion in Kariakin v. United States, supra, where the defendant was convicted for failing to report for induction. We stated: As proof of his failure to report on October 4 as required by the notice of the Board, there is contained in the file a letter dated October 1 by appellant, saying he refused to report; a notation on the minutes of the local board on October 8, 1956, “Papers ret’d. from Ind. Sta. Failed to Report for Induction”; and a record of his appearance at the local board on October 11, 1956 (one week after he was supposed to report for induction), at which time appellant wrote out a copy of his letter of October 1 (refusing to report). We hold there was ample evidence to sustain the judgment of conviction. 261 F.2d at 265-266. We note that one of the three entries mentioned was a notation in the minutes of the local board (similar to the page 11 entry in this case) stating in essence that there was a failure to appear. That evidence was considered, along with the two other items in the file, in sustaining the judgment of conviction. The Kariakin entry had one additional sentence which could be interpreted as making it less likely that the entrant was present when the act occurred. If that entry was acceptable, a fortiori, the questioned entry on page 11 in this case should be admissible. That there is but one entry and it does not state all that could be recorded does not militate against admissibility. As we have held before, “the fullness and completeness of the official document would bear upon its weight and not upon its admissibility.” LaPorte v. United States, supra, 300 F.2d at 882. The entries on pages 56 and 57 involve a different problem. That these items found their way into appellant’s file does not necessarily mean they are admissible. Each document contains a report of failure to appear. From their nature and content, one could only conclude they report what has been told to or read by the writer and are, therefore, double hearsay. If the source of the report came from within the file, it could only come from the page 11 entry. If from outside the file, there remains the question of the foundation for the extra step of hearsay. While § 1733(a) obviates the first step of hearsay so that the writer need not be called as a witness, it does not ordinarily make double hearsay admissible. We said in Olender v. United States: Thus, this circuit and most of the other circuits which have passed on the question have held that the facts stated in the document must have been within the personal knowledge and observation of the recording official or Ms subordinates, and that reports based upon general investigations and upon information gleaned second hand from random sources must be excluded. (Emphasis supplied.) 210 F.2d at 801. We have, therefore, noted an exception to the rule requiring first-hand knowledge when a subordinate with such knowledge reports to the recording officer. However, it is unnecessary for us to determine whether pages 56 and 57 fit into this exception. They are, at the worst, only cumulative of the entry on page 11 which was properly before the trier of fact. In a case tried by the court without a jury, if there was admissible evidence sufficient to sustain a finding, the admission of improper evidence is not grounds for reversal. Bailey v. Sears, Roebuck & Co., 115 F.2d 904, 907 (9th Cir. 1940), cert. denied, 314 U.S. 616, 62 S.Ct. 82, 86 L.Ed. 495 (1941); Anglo California National Bank v. Lazard, 106 F.2d 693, 706 (9th Cir. 1939), cert. denied, 308 U.S. 624, 60 S.Ct. 379, 84 L.Ed. 521 (1940). The next contention is whether the entry on page 11 is sufficient to sustain a conviction. Of course, evidence before the trier of fact must be interpreted in a light most favorable to the government. Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942). The trial judge had before him the statement that appellant “failed to report for induction” which, under the law, must be considered as evidence that in fact the appellant did not appear. Such evidence was uncontradicted. The appellant chose not to take the stand nor offer any evidence in his own defense. Under the circumstances, we cannot say there was insufficient evidence for the court to find beyond a reasonable doubt that the appellant failed to appear as ordered. LUMBARD, Circuit Judge (dissenting) : This is a case in which a defendant has been convicted solely on the basis of an anonymous notation in a Government record. Appellant was ordered to report for induction into the armed forces on January 26, 1971. He was indicted for failure to report., The only evidence that the Government introduced at trial, and on which the majority rely to sustain the conviction, is an unsigned, typewritten entry in appellant’s selective service file stating that appellant “Failed to Report for Induction” and dated January 26, 1971. There is nothing in the record to indicate who made this entry and what if any means that person would have had to observe who reported and who did not report at the induction station on the day in question. I cannot agree that the use of such evidence, without any foundation, is sanctioned by 28 U.S.C. § 1733. Therefore, I dissent from the opinion of the panel and would reverse and remand this case to the district court for a new trial. Section 1733 is designed to eliminate the hearsay objection to the admission of statements appearing in Government records. Its purpose is to obviate the necessity and inconvenience of calling to the witness stand the Government officers who made and recorded the written hearsay statements. See Wong Wing Foo v. McGrath, 196 F.2d 120, 121 (9th Cir. 1952). Therefore, this provision eliminates any hearsay objection predicated on the fact that the statements sought to be admitted are third party statements in a Government record. However, § 1733 does not eliminate all evidentiary objections, other than the threshold hearsay argument, that might be raised to the admissibility of such statements, for this public-documents rule only serves to make the record a substitute for the appearance of the recording official in court. See Yaich v. United States, 283 F.2d 613, 616 (9th Cir. 1960). The essence of appellant’s objection here is that the Government has not shown that the recorded matter was within the personal knowledge of the entrant. Appellant’s point is fundamental in the law of evidence: any witness who testifies to a fact that can be perceived by the senses must have had an opportunity to observe and must actually have observed the fact. “The same requirement ... is imposed upon declarations coming in under exceptions to the hearsay rule, that is, the declarant must so far as appears have had an opportunity to observe the fact declared.” McCormick, Evidence, p. 19. As Dean Wigmore stated: Under the exceptions to the Hearsay rule the testimony of the witness deceased or absent must equally be based on personal observation. [T]he person making the statements must have the means of knowledge expected normally of every witness. 2 Wigmore § 670. “The burden of laying a foundation by showing that the witness had an adequate opportunity to observe is upon the party offering the testimony.” McCormick, supra. This requirement of first-hand knowledge has not been overlooked by the courts that have applied § 1733, and it appears to have been accepted as a prerequisite to the admission of statements that circumvent the hearsay objection by virtue of § 1733. Yung Jin Teung v. Dulles, 229 F.2d 244, 247 (2d Cir. 1956); Yaich v. United States, 283 F.2d 613, 616 (9th Cir. 1960). On the one hand, the majority appear to concede that some showing of first-hand knowledge is necessary; on the other.hand, they read all significance out of the requirement by holding that it is satisfied here merely because the statement on its face appears to be a record of first-hand knowledge. The majority justify this curious approach on the ground that the application of the first-hand knowledge requirement would serve to emasculate § 1733. However, I fail to perceive this as a serious hazard. Section 1733 serves to obviate the hearsay objection. In the face of an objection, the Government need only show who the declarant was and that he was in a position to observe personally the fact that he recorded. This would not always require the Government to call the recording official, as the majority fear; for the entrant’s presence in a position to observe the recorded facts could be shown in any number of ways other than his own testimony. Hence, because of the majority’s groundless fears of emasculating § 1733, they have unnecessarily undermined the requirement of first-hand knowledge, a fundamental of the law of evidence. They appear to have concluded, erroneously I believe, that § 1733 makes statements placed into Government records impervious to serious evi-dentiary objections. Applying the first-hand-knowledge requirement here would not overburden the Government in its prosecution of criminal cases, as the majority admit. Either it could introduce evidence of the identity of the entrant and of his opportunity to observe appellant’s failure to report, or it could introduce alternative evidence of this fact that would not be subject to the same objection. In either event, we would not be confronted with the alarming specter of a criminal defendant being convicted and sentenced solely on the statement of an anonymous person appearing in a Government record. . Knudsen, on its facts, would have been decided differently in this circuit. There, the failure to appear was apparently seen by two enlisted men who reported to a Captain who in turn, without affirmative proof of personal knowledge, stated the fact of non-appearance in a letter which was part of Knudsen’s Selective Service file. As the enlisted men can be considered subordinates reporting to the official who makes his report, the report would be admissible. See Olender v. United States, 210 F.2d 795, 801 (9th Cir. 1954). . The general thrust of admissibility for government records appears to be a type of presumptive cloak of validity because they are assumed ordinarily to be reliable. Wong Wing Foo v. McGrath, 196 F.2d 120, 123 (9th Cir. 1952) 5 Wigmore on Evidence § 1632 (3d ed. 1940). . If the entrant did not in fact observe the failure to appear, appellee could obviate this difficulty by producing and providing the necessary foundation for a Selective Service form No. 261 upon which the roll is taken at the place designated for induction. See 32 C.F.R. §§ 1632.15 and 1632.20. See also Kariakin v. United States, 261 F.2d 263, 265-66 (9th Cir. 1958). As an alternative theory, Professor Wigmore argues for the position that when the entrant has a duty to ascertain the facts about which the entry is made, his failure to observe the facts personally does not make the entry inadmissible. 5 Wigmore, supra, §§ 1635, 1638. . See also LaPorte v. United States, 300 F.2d 878, 882 (9th Cir. 1962). Some cases have apparently extended the rule further. See United States v. Harris, 446 F.2d 129 (7th Cir.), cert. denied, 404 U.S. 994, 92 S.Ct. 533, 30 L.Ed.2d 546 (1971), where a letter which asserted defendant did not report for alternative civilian work was held admissible as part of his Selective Service file; Holmes v. United States, 387 F.2d 781 (7th Cir.), cert. denied, 391 U.S. 936, 88 S.Ct. 1835, 20 L.Ed.2d 856 (1968), where a letter sent by the local board to a hospital requesting a statement that defendant refused alternative service and subsequently returned with an unsigned, undated notation that the hospital had no knowledge of defendant was held admissible as part of his file. . Similarly, under § 1732 there is an exception to the requirement that the writer observe the described act when the document sought to be introduced qualifies as a business record and a subordinate, who had first-hand knowledge, had made an oral or written report to the entrant in the regular course of business. LaPorte v. United States, supra, 300 F.2d at 881. . For example, the Government could identify the entrant, show that he was employed at the induction station with a duty to be present at the place where appellant would have reported, and show that he was on duty on the day in question. . In footnote 3 of the majority's opinion, it is noted that the Government could avoid any objection such as was raised here by producing, and providing the necessary foundation for a Selective Service form No. 261 upon which the roll is taken of those who report at the place designated for induction.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

In re KAUFFMAN MUTUAL FUND ACTIONS. Joseph B. Kauffman, Plaintiff-Appellant. No. 72-1288. United States Court of Appeals, First Circuit. Argued Jan. 4, 1973. Decided May 14, 1973. Coffin, Chief Judge, concurred and filed opinion. William T. Coleman, Jr., Philadelphia, Pa., with whom Bruce W. Kauffman, David H. Pittinsky, Lawrence Berger, Aaron M. Fine, Philadelphia, Pa., Joseph B. Kauffman, Atlantic City, N. J., Dil-worth, Paxon, Kalish, Levy & Coleman, Harold E. Kohn, Philadelphia, Pa., were on brief, for appellant. Lawrence T. Perera, and Sumner H. Babcock, Boston, Mass., with whom the following attorneys were on briefs, for appellees: Boston Fund, Inc., William J. Speers, Jr., Samuel Adams, Warner & Stackpole, Boston, Mass.; Boston Management & Research Co., Inc., Vance, Sanders & Co., Inc., Gael Mahony, Reginald C. Lindsay, Hill & Barlow, Boston, Mass.; The Colonial Fund, Inc., Lewis H. Weinstein, John Paul Sullivan, Christian M. Hoffman, Foley, Hoag & Eliot, Boston, Mass.; Colonial Management Associates, Inc., James H. Orr, John R. Hally, Nutter, McClennen & Fish, Boston, Mass.; Eaton & Howard Stock Fund, Eaton & Howard Balanced Fund, Thomas D. Burns, Erik Lund, Burns & Levinson, Boston, Mass.; Eaton & Howard, Inc., Charles F. Eaton, Jr., John F. Groden, John M. Reed, Withington, Cross, Park & Groden, Boston, Mass.; Fidelity Fund, Inc., Fidelity Capital Fund, Inc., Puritan Fund, Inc., Salem Fund, Inc. (formerly Dow Theory Investment Fund, Inc.), John J. Curtin, Jr., Richard F. McCarthy, Bingham, Dana & Gould, Boston, Mass.; Fidelity Management & Research Co., Edward C. Johnson 2d, Edward B. Hanify, George T. Finnegan, Ropes & Gray, Joseph P. Rooney, Ansel B. Chaplin, Roreg M. Barzun, Gaston, Snow, Motley & Holt, Boston, Mass.; Fidelity Trend Fund, Inc., Patrick T. Ryan, Drinker, Biddle & Reath, Philadelphia, Pa.; Keystone Custodian Funds, Inc., Wilfred Godfrey, Franklin R. Johnson, Boston, Mass.; Marvin Schwartz, Richard E. Carlton, Sullivan & Cromwell, New York City; Loomis-Sayles Mutual Fund, Inc., Daniel B. Bickford, Ely, Bartlett, Brown & Proctor, Boston, Mass.; Loomis-Sayles & Co., Inc., Maurice T. Freeman, Samuel Hoar, Goodwin, Procter & Hoar, Boston, Mass.; Massachusetts Fund, Daniel F. Featherston, Jr., Featherston, Homans & Klubock, Boston, Mass.; The Massachusetts Co., Inc., Henry R. Guild, Richard F. Barrett, Douglas Danner, Powers & Hall, Boston, Mass.; Pioneer Fund, Inc., C. Thomas Swaim, Sher-burne, Powers & Needham, Boston, Mass.; Pioneer Management Corp., Philip L. Carret, Jerome P. Facher, Hale & Dorr, Boston, Mass.; The Putnam Growth Fund, The George Putnam Fund of Boston, Putnam Investors Fund, Inc., Jeffrey Swope, Palmer & Dodge, Boston, Mass.; Putnam Management Co., Inc., Charles M. Werly, Samuel E. Gates, Steven A. Sehatten, Debevoise, Plimpton, Lyons & Gates, New York City; Van Strum & Towne, Inc., Isaac Shapiro, Milbank, Tweed, Hadley & McCloy, New York City; Bullock Fund, Ltd., Dividend Shares, Inc., Stephen R. Steinberg, Reavis & McGrath, New York City; Chemical Fund, Inc., E. Roger Frisch, Walsh & Frisch, New York City; Calvin Bullock, Ltd., Hugh Bullock, F. Eber-stadt & Co., Francis S. Williams, Distributors Group, Inc., Herbert R. Anderson, Marvin Schwartz, Richard E. Carlton, Sullivan & Cromwell, New York City; Energy Fund, Inc., Ralph E. Samuel & Co., Donald C. Samuel, Larry M. Lavinsky, Proskauer, Rose, Goetz & Mendelsohn, New York City; Investment Co. Inst., Edgar H. Brenner, Jeffrey A. Burt, Arnold & Porter, Washington, D. C.; Manhattan Fund, Inc., Paul M. O’Connor, Jr., Whitman & Ransom, New York City; Tsai Management & Research Corp., W. Foster Wollen, Shearman & Sterling, New York City; State Street Investment Corp., Federal Street Fund, Inc., Haskell Cohn, Mintz, Levin, Cohn, Glovsky & Popeo, Boston, Mass.; State Street Research & Management Company, Paul C. Cabot, Harold M. Willcox, Norman A. Hubley, Herrick, Smith, Donald, Farley & Ketchum, Boston, Mass.; Wellington Fund, Inc., Windsor Fund, Inc., Wellington Management Co., Walter L. Morgan, Robert M. Buchanan, Charles C. Cabot, Jr., Sullivan & Worcester, Boston, Mass.; Affiliated Fund, Inc., Edward J. Ross, Breed, Abbott & Morgan, New York City; Lord, Abbett & Co., Robert S. Driscoll, Judson A. Parsons, Jr., Dewey, Ballan-tine, Bushby, Palmer & Wood, New York City; Axe-Houghton Fund B, Inc., Scudder, Stevens & Clark Common Stock Fund, Inc., Scudder, Stevens & Clark Balanced Fund, Inc., Channing Shares, Inc., Channing Growth Fund, Channing Balanced Fund, Michael 0. Finkelstein, Barrett, Smith, Schapiro & Simon, New York City; E. W. Axe & Co., Inc., Louis K. Hyde, Jr., Scudder, Stevens & Clark, Ronald T. Lyman, Jr., Samuel E. Gates, Steven A. Schatten, Debevoise, Plimp-ton, Lyons & Gates, New York City; Gerald Tsai, Jr., David Hartfield, Jr., White & Case, New York City; National Securities Series, National Securities Stock Series, National Securities Growth Series, Thomas B. Fenlon, Emmett, Marvin & Martin, New York City; National Securities & Research Corp., Philip C. Smith, Robert J. Sisk, Hughes, Hubbard & Reed, New York City; The Dreyfus Fund, Inc., The Dreyfus Corp., Howard M. Stein, Stuart A. Jackson, Royall, Koegel & Wells, New York City; The One William Street Fund, Inc., Robert S. Carlson, Roth, Carlson, Kwit, Spengler & Goodell, New York City; Lehman Brothers, Allan B. Hunter, James J. Hagan, Simpson, Thacher & Bartlett, New York City; The Value Line Special Situations Fund, Inc., Arnold Bernhard & Co., Inc., Arnold Bernhard, United Funds, Inc., United Accumulative Fund, United Income Fund, United Science Fund, Waddell & Reed, Inc., Joe Jack Merriman, Albert D. Jordan, Valicenti, Leighton, Reid & Pine, Boston, Mass.; Selected American Shares, Inc., Security Supervisors, Edward P. Rubin, Edward H. Hatton, Lynne E. McNown, Jenner & Block, Chicago, 111.; Stein, Roe & Farn-ham Balanced Fund, Inc., Stein, Roe & Farnham, Harry H. Hagey, Jr., Otis H. Halleen, Sonnenschein, Levinson, Carlin, Nath & Rosenthal, Chicago, 111.; Technology Fund, Inc., Supervised Investors Services, Inc., John Hawkinson, Francis E. Schlax, Meyers & Matthias, Chicago, 111.; Financial Industrial Fund, Inc., Financial Programs, Inc., Thomas J. Herbert, Leland E. Modesitt, Gorsuch, Kir-gis, Campbell, Walker & Grover, Denver, Colo.; Hamilton Funds, Inc., James A. Clark, Berge, Martin & Clark, Denver, Colo.; Hamilton Management Corp., Roberts B. Owen, Covington & Burling, Washington, D. C.; Washington Mutual Investors Fund, Inc., Johnston, Lemon & Co., James H. Lemon, John A. Beck, Frost, Towers, Hayes & Beck, Washington, D. C.; T. Rowe Price Growth Stock Fund, Inc., Rowe Price New Horizons Fund, Inc., Stanley J. Friedman, Sher-eff, Friedman, Hoffman & Goodman, New York City; T. Rowe Price & Associates, Inc., Charles W. Schaeffer, Rowe Price Management Company, Inc., T. Rowe Price, Daniel A. Pollack, Pollack & Singer, New York City; Investors Diversified Services, Inc., Stuart F. Sillo-way, A. Vernon Carnahan, Donovan, Leisure, Newton & Irvine, New York City; American Mutual Fund, Inc., William W. Vaughn, O’Melveny & Myers, Los Angeles, Cal.; The Investment Co. of America, Carl J. Schuck, Overton, Lyman & Prince, Los Angeles, Cal.; Capital Research and Management Co., Jonathan B. Lovelace, Philip F. Belleville, Latham & Watkins, Los Angeles, Cal.; American Express Investment Fund, Inc., Robert D. Raven, Morrison, Foers-ter, Holloway, Clinton & Clark, San Francisco, Cal.; American Express Investment Management Co., Fred H. Merrill, Richard Murray, McCutehen, Doyle, Brown & Enersen, San Francisco, Cal.; Anchor Growth Fund, Inc. (formerly Diversified Growth Stock Fund, Inc.), Anchor Income Fund, Inc. (formerly Diversified Investment Fund), Fundamental Investors, Inc., Cornelius J. Moynihan, Jr., Peabody, Brown, Rowley & Storey, Boston, Mass.; Anchor Corp., John R. Haire, Daniel A. Pollack, Pollack & Singer, New York City; Group Securities, Inc., Howard F. Ordman, Putney, Twombly, Hall & Hirson, New York City; Investors Mutual, Inc., Investors Stock Fund, Inc., Investors Variable Payment Fund, Inc., Ralph M. Carson, Richard E. Nolan, Frank S. Moseley, Davis, Polk & Wardell, New York City. Before COFFIN, Chief Judge, ALD-RICH and McENTEE, Circuit Judges. ALDRICH, Senior Circuit Judge. This appeal challenges two rulings of the district court that plaintiff’s derivative suit on behalf of certain mutual funds of which he is a shareholder is not maintainable because of failure to allege sufficient reason to excuse a prior demand on the directors, and, as to two funds, on the shareholder. F.R.Civ.P. Rule 23.1, post. We reach only the first issue. Plaintiff is a shareholder in four mutual funds, the Dreyfus Fund, Inc., Manhattan Fund, Inc., Fidelity Trend Fund, Inc., and the Putnam Growth Fund, the latter two being, respectively, a Massachusetts corporation and a Massachusetts business trust. In December, 1968 he filed this suit in the District of New Jersey in several capacities — not only as a shareholder of the above funds, but also, inter alia, as a representative of shareholders of other funds — alleging antitrust and Investment Company Act causes of action against many large mutual funds, their external investment advisers, directors affiliated with both funds and advisers, and the Investment Company Institute, the trade association for the mutual fund industry. The thrust of the antitrust claim, the only one relevant to this proceeding, is that defendant fund directors, who were also affiliated with investment advisers, conspired with funds, advisers, and others to set excessive noncompetitive management fee schedules based solely on the average net assets of the funds. In April, 1969 defense counsel submitted a list of fifteen preliminary motions, divided into three groups, the second group including a Rule 23.1 attack on plaintiff’s failure to make a demand on directors and shareholders. The district court dealt with the first group, challenging plaintiff’s capacity to sue, denied the motions, Kauffman v. Dreyfus Fund, Inc., D.N.J., 1969, 51 F.R.D. 18, but certified an interlocutory appeal. The Third Circuit held that plaintiff could only sue derivatively on behalf of the four funds in which he owned shares, [the “Kauffman funds”]. 434 F.2d 727, cert. denied, 401 U.S. 974, 91 S.Ct. 1190, 28 L.Ed.2d 323. Thereafter, when a second group of motions attacking jurisdiction, venue, and process, but not then including the Rule 23.1 motion, was pressed, the district court severed the antitrust claim (Count I) from the others, and divided it into ’ten separate actions to be tried in ten separate districts. In July, 1971 plaintiff applied for consolidation under 28 U.S.C. § 1407(a) and in January, 1972 the Judicial Panel on Multidistrict Litigation transferred some of the actions for consolidated pretrial proceedings to the District of Massachusetts. In re Kauffman Mutual Fund Actions, Jud.Pan.Mult.Lit.1972, 337 F.Supp. 1337. After an informal pretrial conference the district court issued a pretrial order to govern future proceedings, setting a time schedule for disposing of motions and looking toward the establishment of a timetable for completing “first-wave” and “second-wave” discovery. Defendants then brought forward, (1) a Rule 23.1 motion to dismiss for failure of plaintiff to make a demand on directors of the Kauffman funds, (2) a Rule 23.1 motion to dismiss, on behalf of the two Massachusetts Kauffman funds, for failure of plaintiff to make a demand on stockholders; (3) a Rule 23.1 motion to dismiss because of plaintiff’s inability to give fair representation, and (4) a motion by non-Kauffman funds to dismiss for failure to state or waiver of any claim upon which relief could be granted. The court, 56 F.R.D. 128, though denying the latter two motions, granted the first two and dismissed the complaint on July 7, 1972. This appeal followed; there being no cross-appeal. Relative to the reasons for not making demand upon the directors, the complaint, the pertinent parts of which are summarized in the margin, alleges the following: (1) a demand would have been futile; (2) the unlawful combination and conspiracy began at least as early as January 1, 1965; (3) the fund directors who were affiliated with the external advisers dominated and controlled the personnel, policies, and boards of directors of the funds; (4) the contracts between the advisers and the funds “have not been either the subject or the result of arm’s length bargaining”; (5) the fee for investment advisory and management services, being based solely on the average net assets of a fund, bore no relation to services performed or results and were grossly excessive; (6) the conspiracy involved the funds, their advisers, the “self-dealing” directors, the Investment Company Institute and others unknown, and was aimed at fixing and maintaining the grossly excessive management fees and refraining from competition; and (7) all of the defendants “acquiesced, encouraged, cooperated and assisted in the effectuation and maintenance” of the conspiracy. By uncontra-dicted affidavits submitted in the spring of 1972, it was established that a majority of the directors of each of the Kauffman funds were not “affiliated” directors within the meaning of section 2(a)(3) of the Investment Company Act of 1940, 15 U.S.C. § 80a-2(a)(3). On the basis of these allegations and affidavits, the district court held that plaintiff had “not sufficiently shown the merits of his allegations of futility,” noting the presumption in 15 U.S.C. § 80a-2(a)(9) that a natural person shall be presumed not to be controlled, and that it could not assume that the non-affiliated (majority) directors had been lax in their duties or that appeal to them would be futile. While the court’s reference at this stage to a presumption may have been erroneous, we agree with the court’s result. For lawyers and judges accustomed to the liberalized “notice” pleading of the Federal Rules, F.R.Civ.P. 8, a brief review of the background of Rule 23.1 is in order. Rule 23.1 is not an ordinary, but an exceptional rule of pleading, serving a special purpose, and requiring a different judicial approach. Socially desirable as minority stockholders’ actions may be thought to be, see Emerson and Latchman, Shareholder Democracy ch. VIII (1954); Pomerantz v. Clark, D.Mass., 1951, 101 F.Supp. 341, 346, it is normally the directors, not the stockholders, who conduct the affairs of the company. Hence, to be allowed, sua sponte, to place himself in charge without first affording the directors the opportunity to occupy their normal status, a stockholder must show that his case is exceptional. His initial burden is to demonstrate why the directors are incapable of doing their duty, or as the Court has put it, to show that “the antagonism between the directory and the corporate interest ... be unmistakable.” Delaware & Hudson Co. v. Albany & Susquehanna R. R., 1909, 213 U.S. 435, 447, 29 S.Ct. 540, 543, 53 L.Ed. 862. This has long meant, as the Court stated in Hawes v. Oakland, 1881, 104 U.S. 450, 26 L.Ed. 827, cited in Delaware, that the “cause of failure [to induce corporate action] . . . should be stated with particularity.” 104 U.S. at 461, 26 L.Ed. 827. See also Wathen v. Jackson Oil & Refining Co., 1915, 235 U.S. 635, 639-640, 35 S.Ct. 225, 59 L.Ed. 395. Rule 23.1 — “The complaint shall also allege with particularity . the reasons for . . . not making the [demand]” — is thus the embodiment of a long-standing principle, or, as the Massachusetts court said in a parallel case, Bartlett v. New York, N.H. & H. R.R., 1915, 221 Mass. 530, at 538, 109 N.E. 452 at 456, “It is not a technical rule of pleading, but one of substantive right.” Whether the word “substantive” is exact, it is clear that the “particularity” must appear in the pleading itself; the stockholder may not plead in general terms, hoping that, by discovery or otherwise, he can later establish a ease. Indeed, if the requirement could be met otherwise, it would be meaningless. Returning to our listing of plaintiff’s allegations, ante, we find that, (1) (demand would be futile) is merely a conclusion, not a reason; (2) (dates) does not purport to state a reason; (3) (domination and control) is, again, a statement of ultimate fact, not meeting the test of “particularity”; (4) and (5) are why, allegedly, the acts are wrongful; (6) advances nothing over (3), (4) and (5); (7) (all the named defendants conspired) insofar as it names individual director-defendants who are financially interested in the attacked transaction, fails to go far enough. We will group and discuss these allegations,' to the extent that they purport to be reasons for not making a demand, somewhat differently. 1. An allegation of domination and control, unsupported by underlying facts, does not satisfy the requirement of particularity. The complaint asserts that the directors affiliated with the management advisers “dominate and control” the directorates of the funds. It is conceded, however, that in each instance the self-interested, affiliated director-defendants constitute less than a majority of the membership of the board. Were there a majority, this is a particularity from which a conclusion of control might follow. Delaware, 213 U.S. at 443, 29 S.Ct. 540; Rogers v. American Can Co., 3 Cir., 1962, 305 F.2d 297, 299. Without it, or some other factual support, see, e. g., Cathedral Estates v. Taft Realty Corp., 2 Cir., 1955, 228 F.2d 85 (stock control of plaintiff’s corporation by interested defendants), conclusory pleading is not enough. See Lucking v. Delano, 6 Cir., 1941, 117 F.2d 159, 160; Robison v. Caster, 7 Cir., 1966, 356 F.2d 924, 926-927; Dunphy v. Traveller Newspaper Assoc., 1888, 146 Mass. 495, 498, 16 N.E. 426; Bartlett v. New York, N.H. & H. R.R., 221 Mass, at 534-535, 109 N.E. 452. Plaintiff must allege specific facts demonstrating the unmistakable link between the unaffiliated majority and the affiliated and allegedly wrongdoing minority. Cf. Baffino v. Bradford, 1972, D.Minn., 57 F.R.D. 79. In this circumstance plaintiff’s brief seeks to infer collective hostility to his claims by dwelling on the fact that his suit has met extended resistance. Whatever might be the effect if the resistance were on substantive grounds, cf. DePinto v. Provident Security Life Ins. Co., 9 Cir., 1963, 323 F.2d 826, cert. denied 376 U.S. 950, 84 S.Ct. 969, 11 L. Ed.2d 970, to attempt to capitalize on the circumstance that the corporations are seeking to dismiss because of plaintiff’s failure to make demand is classic bootstrap. Domination is not established by insistence on the right to have plaintiff plead a valid basis for suit. 2. The fact that the named defendants participated is not enough to excuse demand upon the directorate. Apart from “control,” only the affiliated directors — a minority of each board —are alleged to have “acquiesced, encouraged, cooperated and assisted in the effectuation and maintenance” of the conspiracy. The unaffiliated directors are not named as defendants, or even as the ones who approved the acts complained of. Bartlett v. New York, N.H. & H. R.R., 221 Mass., at 536-537, 109 N.E. 452. If we were to rely on plaintiff’s citation of Moses v. Burgin, n.l, for anything, it would be for the fact that unaffiliated directors do not necessarily know all that is going on, pointing up again Rule 23.1’s requirement of particularity of allegation. The complaint alleges that the “funds” participated in the conspiracy, but does not specify in what manner. What is basically important, the complaint does not allege that those who were unaffiliated directors at the time of suit participated; viz., that the unaffiliated directors who would have voted on plaintiff’s demand in 1968, had he made one, were the same ones (and hence, assertedly, impervious to a demand) that composed the boards when the contracts in question were approved. There is no burden on the court to make such assumptions. Were we, in disregard of the rule, to add to the complaint, we could only wonder whether we were not making interpolations that plaintiff could not in good faith sustain. Plaintiff’s explanation made in argument why he sued only the affiliated directors, whatever its value, cannot meet his burden of showing that as to the majority of the board at the time of suit demand would have been futile. Even were we mistaken with respect to our next point, on which, essentially, he grounds his claim of particularity, there are thus no sufficient allegations of futility relating to a majority of the board. 3. Approval by the directors of action alleged to be injurious to the corporation is not sufficient to excuse demand, except in circumstances not here alleged. There is a further reason that, in the light of the extensive argumentation that has been made to us, we feel we should deal with. Even if we could assume that there had never been a change in the complement of the boards of directors, and that those who were the directors at the time of the suit had approved of the transactions presently attacked, it would not follow that mere prior participation would excuse making the demand. Where mere approval of the corporate action, absent self-interest or other indication of bias, is the sole basis for establishing the directors’ “wrongdoing” and hence for excusing demand on them, plaintiff’s suit should ordinarily be dismissed. In fact, only a single court, see ¶ 2 of n.6, post, has held otherwise. In this respect, the nature of the alleged misconduct must be considered. Logic suggests a sharp distinction between a transaction completely undirected to a corporate purpose and one which, while perhaps vulnerable to criticism, is of a character that could be thought to serve the interests of the company. If the transaction attacked was one solely for the benefit of minority, interested directors — taking out a sham loan, trading in worthless real estate — the approval of the other, nominally disinterested, directors is prima facie inexplicable. If a director goes along with a colleague in an act on its face advantageous only to that colleague and not to the corporation, this in itself is a circumstance, or particularity, supporting the claim that he is under that colleague’s control. It may be assumed that he would remain so when the directorate votes on plaintiff’s demand. See Meltzer v. Atlantic Research Corp., 4 Cir., 1964, 330 F.2d 946, cert. denied sub nom. Sloan v. Meltzer, 379 U.S. 841, 85 S.Ct. 80, 13 L. Ed.2d 47. It does not follow, however, that a director who merely made an erroneous business judgment in connection with what was plainly a corporate act will “refuse to do [his] duty in behalf of the corporation if [he] were asked to do so.” Bartlett v. New York, N. H. & H. R. R., 221 Mass, at 536, 109 N.E. at 455. Indeed, to excuse demand in these circumstances — majority of the board approval of an allegedly injurious corporate act — would lead to serious dilution of Rule 23.1. A minority stockholder, unless his claim is worthless on its face, necessarily alleges some illegal transaction or conduct harmful to the corporation. If demand is to be excused merely because the directors participated, the same could be said with respect to those who had failed to oppose, or, indeed, who, as new directors, had merely neglected to take action against their predecessors. If by plaintiff’s merely alleging error, the directors are to be presumed incapable of exercising sound business judgment, Rule 23.1 would become virtually meaningless — a stockholder would be entitled to try the case on the merits, (viz., to establish that the fees were excessive, or improperly arrived at, or in violation of the antitrust laws) to show that he had a right to bring it. The conduct alleged in the present case was not, vis-a-vis the individual funds, undirected to a legitimate corporate purpose. The selection of an adviser, and a decision to compensate him, is obvious corporate business for a mutual fund. There is no facial impropriety in determining payment by a formula. A court sitting in Boston can take judicial notice that testamentary and indenture trustees are commonly compensated on a formula basis. Selection of a particular formula, of course, may be improper, and the underlying business judgment may be sufficiently unsound to call for correction. But it does not follow that it is to be conclusively presumed in such a case that an unaffiliated, or disinterested director, if demand were made upon him, would be unable to exercise an independent judgment in considering what new course to take. See Ash v. International Business Machines, Inc., 3 Cir., 1965, 353 F. 2d 491, cert. denied, 384 U.S. 927, 86 S. Ct. 1446, 16 L.Ed.2d 531. Nor do we think that an exception is to be made in the case of unaffiliated directors of a mutual fund on the ground that since they are expected to be sensitive to misconduct of this variety they are automatically incapacitated from performing their duties — their approval or acquiescence making them “wrongdoers” — once a stockholder alleges a corporate injury stemming from the adviser-fund relationship. Apart from the fact that this, again, would enable a plaintiff to try his case on the merits in order to determine whether he had a right to bring it, if would be a misconception of the nature of unaffiliated directors. Normally self-dealing by any corporate directors is suspect. Congress recognized, however, that a certain type of self-dealing is endemic in a mutual fund, and must be permitted. In order to make sure that the directorate not be top-heavy, it provided for a minimum number of directors who would not be so interested. We do not believe it should follow from this that, as directors required to be disinterested in a particular transaction, they differ in their fiduciary obligations from a disinterested directors in any other corporate venture. All disinterested directors must “act honestly and according to their best judgment for the interests of all.” Corbus v. Alaska Treadwell Gold Mining Co., 1903, 187 U.S. 455, 463, 23 S.Ct. 157, 160, 47 L.Ed. 256. When corporate action, or inaction, is subsequently challenged, their duty is not extinguished, but, rather, refocused. After a demand provides them with “full knowledge of the basis for the claim,” Halprin v. Babbitt, 1 Cir., 1962, 303 F.2d 138, 141, it is for the directors, who have “the advantage of familiarity with the enterprise, with those who have conducted it and with the record of success or failure” to decide on the appropriate corporate response. Pomerantz v. Clark, 101 F.Supp. at 344. To the extent that they are “watchdogs” they should be given the opportunity, not deprived of it. We recognize the social desirability of bona fide, well founded minority suits. We also recognize the tremendous waste involved in suits that are not well founded. We do not accept the dictum in deHaas v. Empire Petroleum Co., 10 Cir., 1970, 435 F.2d 1223, at 1228, that “[c]ourts have generally been lenient in excusing demand” if it is to be applied to allegations as substantively deficient as the present. Such easy remarks overlook the requirement that the directors’ “antagonism ... be unmistakable.” Delaware & Hudson Co. v. Albany R. R. If, as plaintiff suggests, this frustrates his ability to prosecute a worthwhile suit, the answer is that he was not entitled to bring it. No further question need be reached. In affirming we must, however, comment upon one phrase in the order of the district court granting the motion to dismiss, that it is “without prejudice.” This must mean without prejudice as to the substantive cause of action. The dismissal is with prejudice on the issue of the obligation to mate a demand on the directors with respect to that substantive complaint. The principle applies that “ [although, where a judgment for the defendant is not on the merits, the plaintiff is not precluded from maintaining a new action on the same cause of action, he is precluded from relitigating the very question which was litigated in the prior action.” Restatement of Judgments § 49, comment b, at 195 (1942). See Acree v. Air Line Pilots Assoc., 5 Cir., 1968, 390 F.2d 199, 203, cert. denied, 393 U.S. 852, 89 S.Ct. 88, 21 L.Ed.2d 122; Estevez v. Nabers, 5 Cir., 1955, 219 F.2d 321, 324; 1B Moore’s Federal Practice ¶ .405 [5]. Cf. Stoll v. Gottlieb, 1938, 305 U.S. 165, 171-172, 59 S.Ct. 134, 83 L.Ed. 104; Stuhl v. Tauro, 1 Cir. 1973, 476 F.2d 233. Affirmed. COFFIN, Chief Judge (concurring). I concur in the judgment of affirmance. While agreeing that unsupported allegations of domination of a majority by a minority are insufficient, I would, but for one defect, find such support in the allegations that the named defendants, which include the mutual funds (and necessarily their boards of directors), “acquiesced, encouraged, cooperated and assisted in the effectuation and maintenance” of the conspiracy to establish exorbitant basic fee agreements benefiting fund advisers (and thus affiliated directors) to the detriment of the funds and in violation of the antitrust laws. But I view as fatal the absence of an allegation or indication in the affidavits, to use the court’s phrasing, “that the unaffiliated directors who would have voted on plaintiff’s demand in 1968, had he made one, were the same ones (and hence, assertedly, impervious to a demand) that composed the boards when the contracts in question were approved.” We cannot assume that new unaffiliated directors would be unwilling to reconsider the wisdom or legality of their predecessors’ actions and, if appropriate, bring suit. I would, however, not go so far as the court does in delineating “the sharp distinction”, for purposes of excusing demand under Rule 23.1, between actions which “could be thought to serve the interests of the company” and those of a fraudulent or self-dealing nature. The distinction has not been so articulated in almost a century of derivative suit jurisprudence, although concededly most of the prominent cases have involved just such factual situations. Yet the language of a number of cases traces a wider compass. Moreover, these are times when corporations are exceeding in size and impact even the giantism of the past, when new layers and dimensions of corporate obligation are being recognized, and when the importance of directorate oversight of the management technocracy is greater than ever. A higher degree of professionalism, sensitivity, and scrutiny may fairly be expected on the part of directors today than in a simpler era. I am therefore reluctant, by resort to formula, to set boundaries to the action or inaction of directors, beyond which demand on them shall always be required. Even if, however, such boundaries can be justified for corporate directors in general, on the supposition that they can reverse gears on a course previously undertaken once attention is refocused by an allegation that it constitutes a wrong to the corporation, the broad extension of “first refusals” to unaffiliated or independent directors of mutual funds would seem singularly inappropriate. For I believe, unlike the court, that the unaffiliated directors of mutual funds have a higher obligation of inquiry than directors of ordinary corporations, at least as to the type of transaction under assault here. As we said in Moses v. Burgin, 445 F.2d 369, 376 (1st Cir. 1971), Congress intended that these board members act as “independent watchdog directors”. The primary object of their surveillance is, patently, transactions between the funds and the investment advisers in which the other directors are personally interested. Their raison d’etre is acute scrutiny of the very contracts here attacked. These contracts, additionally, are major corporate actions from any perspective. It thus seems reasonable to assume that the directors would be given advance notice of at least their final content and of the meeting at which they would be considered. Whatever the significance for excusing demand of mere knowing acquiescence in impending major corporate actions in other settings, see Liboff, supra, I believe that such, passive acceptance by unaffiliated directors of the very transactions which justify their place on the directorate would be sufficient involvement or subservience to find them unlikely to respond meaningfully to a demand. Here, there are no allegations regarding the meetings and the actual votes on the challenged fees or the relevant corporate quorum rules. But whether one assumes that action by a majority of the total membership or merely a majority of those actually present is required, clearly some unaffiliated directors either voted for the contracts or failed to vote, in person or by proxy, or appear at the appropriate meeting. Under my view, this would be enough to excuse demand, had it béen alleged that the unaffiliated membership was the same at both contract-making and demand time. I also note that the management fee contracts are not attacked as simply ultra vires or as the product of mere negligence or even of “unsound” or “eroneous business judgment”. They are alleged to be illegal under federal antitrust laws. If I were to calibrate a scale to measure the impact of varying improprieties, I would rate such an allegation fairly high. I find it hard to imagine that a director, however, unaffiliated, who had participated, or under these circumstances knowingly acquiesced, in a major transaction, albeit for a corporate purpose, would authorize a suit, effectively against himself, claiming that the transaction violated the federal antitrust laws. Even independent watchdogs cannot be thought ready to sign a confession of that magnitude. . While we decided the merits in Moses v. Burgin, 1 Cir., 1971, 445 F.2d 369, cert. denied sub nom., Johnson v. Moses, 404 U.S. 994, 92 S.Ct. 532, 30 L.Ed.2d 547, a suit involving a mutual fund, where no demand had been made, this issue was not there raised and we do not agree with plaintiff that our action was a sub silentio ruling on that issue. . 10. [Demand would have been futile.] 22. [At all times directors of each fund have been affiliated with their investment advisers.] 23. [At all times (a) the affiliated directors and their investment advisers] “have dominated and controlled their respective . . . funds and their personnel, policies and boards of directors.” (b) [the affiliated directors] “have dominated and controlled their respective investment advisers and their personnel, policies and boards of directors.” 24. [At all times the contracts and fee agreements between the investment advisers and the funds] “have not been either the subject or the result of arm’s-length bargaining between them.” 25. [The management fees are] “calculated solely on the basis of average net assets.” 27. [. . . and are improperly measured and grossly excessive.] 28. “The combination and conspiracy involved in this action consisted and consist of a continuing agreement, understanding and concert of action, inter alia, between and among: (a) each externally managed mutual fund and its respective investment adviser ; (b) each externally managed mutual fund and its self-dealing directors; (c) each self-dealing director and his respective investment adviser; (k) the members of the externally managed mutual funds, investment advisers, and self-dealing directors classes and Institute. 29. “The substantial terms of the aforesaid combination and conspiracy were and are to: (a) fix and adopt similar schedules of grossly excessive management fees unrelated to the services performed by investment advisers and the performance of the externally managed mutual funds; (b) maintain and stabilize prices for the services performed by investment advisers by adherence to said similar schedules of management fees; (c) refrain from competing for the business of externally managed mutual funds or the business of investment advisers. 30. “All of the defendants have acquiesced, encouraged co-operated and assisted in the effectuation and maintenance of the aforesaid combination and conspiracy.” . The affidavits spoke in terms of “affiliated” persons, since the Act at the time of suit required that at least 40% of a fund’s directors not be “affiliated” with the fund’s adviser. In 1970 the Act was amended to require that at least 40% of the directors not be “interested” persons, as defined in 15 U.S.C. § 80a-2(a) (19), a somewhat broader category. The affidavits showed that five of nine trustees of the Putnam Growth Fund, five of the seven directors of Dreyfus, five of the eight directors of Fidelity, and three of the five directors of Manhattan were unaffiliated within the meaning of the Act. They reveal nothing more, except brief vocational information. . Although certain facts were presented by affidavit, n. 3, ante, basically the motion to dismiss tested the sufficiency, vel non, of the complaint. The presumption supplied by 15 U.S.C. § 80a-2(a) (9) that “[a] natural person shall be presumed not to be a controlled person,” whatever may be its effect at a trial, could not be used to contradict the complaint, if plaintiff is correct that the court so employed it. . We do not accept as contrary the ease of Smith v. Sperling, 1957, 354 U.S. 91, 77 S.Ct. 1112, 1 L.Ed.2d 1205. The sole question there raised, commencing with a 30-page opinion of the district court, 117 E.Supp. 781, was whether the corporation, as an indispensable party, was to be realigned as party plaintiff for jurisdictional purposes when it was found by the district court, after taking testimony, not to be antagonistic to plaintiff’s claim. It is true that the Supreme Court, in discussing plaintiff’s failure to make a demand, relied on the allegation that all of the directors .had approved the contracts complained of. However, it made no reference to the nature of the contracts, nor to the interest vel non of the directors. In addition, it noted that other reasons were asserted for failure to make demand. . Plaintiff, following argument, has cited Jannes v. Microwave Communications, Inc., N.D.Ill., 1972, 57 F.R.D. 18, a Rule 10b-5 misrepresentatiqjn case (15 U.S.C. § 78j (b)). We do not find it helpful. In the first place the court, in finding the derivative complaint sufficient, said it applied “the usual standard of whether any set of facts can be shown which would prove futility,” 57 F.R.D. at 21, citing a Fiftli Circuit decision which, in turn, purported to rely, as does the present plaintiff elsewhere, on Conley v. Gibson, 1957, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80. Conley, which dealt only with F.R.Civ.P. 8 “notice pleading,” is no authority for sucli an interpretation for Rule 23.1. More important, the Jannes court said that even a strict standard showed “self interest” on the part of all of the directors. We cannot similarly distinguish the recent case of Papilsky v. Berndt, S.D.N.Y., 59 F.R.D. 95. We do, however, note that the authorities cited do not, in fact, support the decision. Thus in Cathedral Estates v. Taft Realty Corp., 2 Cir., 1955, 228 F.2d 85, the corporate conveyance was by a majority of the directors to a corporation completely controlled by them. In Dopp v. American Electronic Laboratories, Inc., S.D.N.Y., 1972, 55 F.R.D. 151, the complaint contained specific allegations beyond the conclusion that the directors had approved the transaction. And as to the case which the court regarded as most directly in point, Liboff v. Wolfson, 5 Cir., 1971, 437 F.2d 121, in addition to the fact that we believe the Fifth Circuit confuses Rule 23.1 with notice pleading, the court specifically noted, at p. 122, that the “defendantsappellees conceded on oral argument that . a majority of the board . [met the description of ‘ownership and control’] as to them.” Delaware & Hudson Co. v. Albany & Susquehanna R.R., 213 U.S. 435, 451, 29 S.Ct. 540, 545, 53 L.Ed. 862 (1909) (“good faith . . . need not be questioned”); United Copper Securities Co. v. Amalgamated Copper Co., 244 U.S. 261, 264, 37 S.Ct. 509, 510, 61 L.Ed. 1119 (1917) (“no allegation that directors . . . have been guilty of any misconduct whatsoever”); Smith v. Sperling, 354 U.S. 91, 95, 77 S.Ct. 1112, 1115, 1 L.Ed.2d 1205 (1957) (“There is antagonism whenever the management is aligned against the stockholder and defends a course of conduct which he attacks. The charge normally is cast in terms of fraud, breach of trust, or illegality”); Cathedral Estates v. Taft Realty Corp., 228 F.2d 85, 88 (2d Cir. 1955) (“where the directors . . . are . . . involved in the transaction attacked, a demand on them is presumptively futile and need not be made”) ; Ash v. International Business Machines, Inc., 353 F.2d 491, 493 (3d Cir. 1965) (“the stockholder shall allege that the directors of the corporation are personally involved ... in the alleged wrongdoing in a way calculated to impair their exercise of business judgment on behalf of the corporation”); Liboff v. Wolfson, 437 F.2d 121, 122 (5th Cir. 1971) (the complaint, held to “fully meet the requirements of the rule”, alleged “The majority of said directors, participated, approved of and acquiesced in said transaction”); Papilsky v. Berndt, 59 F.R.D. 95 (S.D.N.Y., 1973) (allegation that “the directors participated or acquiesced in the wrongs alleged” held sufficient).

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AGRASHELL, INC., Appellant, v. HAMMONS PRODUCTS COMPANY, Appellee. No. 71-1538. United States Court of Appeals, Eighth Circuit. Submitted June 15, 1972. Decided March 30, 1973. Rehearing Denied May 1,1973. Albert C. Johnston, New York City, for appellant. John C. Scott, Washington, D. C., for appellee. Before ROSS and STEPHENSON, Circuit Judges, and URBOM, Chief District Judge. ROSS, Circuit Judge. Agrashell, Inc. (Agrashell) appeals from a judgment entered on a jury verdict in favor of Hammons Products Company (Hammons), on a counterclaim filed by Hammons in a patent infringement suit alleging violations of sections 1 and 2 of the Sherman Act and requesting treble damages under the Clayton Act. For reasons hereinafter set forth, we reverse in-part and affirm in part the judgment of the trial court and order the dismissal of that portion of the counterclaim alleging violations of section 2 of the Sherman Act. Procedural History Agrashell instituted a patent infringement action against Hammons in 1963. The trial court granted Hammons a summary judgment because it found that Agrashell, as an exclusive licensee, did not have a right to sue for patent infringement in its own name without participation of the patent owner as party-plaintiff. Agrashell, Inc. v. Hammons Products Co., 248 F.Supp. 258, 260 (W.D.Mo.1965), aff’d, 352 F.2d 443 (8th Cir. 1965). Although the patent expired in 1964, Agrashell obtained an assignment of title to the patent and refiled the action in 1965 for past infringement. These proceedings were stayed pending the outcome of the appeal from the 1963 summary judgment. Thereafter, Ham-mons filed an answer and counterclaim charging violations of sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1-2) and for a declaratory judgment of patent invalidity, unenforceability and non-infringement. The case was then set for trial. A motion, made by Agrashell at the outset of the 1967 infringement trial, to sever the antitrust counterclaim issue from the patent issue was granted at the conclusion of the patent infringement portion of the case. On the patent claim the trial court entered judgment for Hammons, finding the patent invalid and not infringed either directly or con-tributorily. The court also found that even if the method claim were valid, it was not infringed by Hammons. Agrashell, Inc. v. Hammons Products Co., 279 F.Supp. 522 (W.D.Mo.1967), aff’d, 413 F.2d 89 (8th Cir. 1969). The court, however, denied Hammons’ request for attorneys’ fees pursuant to 35 U.S.C. § 285. Immediately following the trial of the patent issue, both parties conducted discovery relating to Hammons’ antitrust counterclaim, and Hammons requested a jury trial. Agrashell then requested leave of the court to file an amended reply and counter-counterclaims for breach of contract and antitrust violations. Agrashell alleged that Hammons had violated sections 1 and 2 of the Sherman Act, section 7 of the Clayton Act (15 U. S.C. § 18), and the Robinson-Patman Act (15 U.S.C. § 13). Both requests were granted and the ease proceeded to trial in 1970. At the outset of the 1970 trial Ham-mons moved for trial of its counterclaim separate from trial of Agrashell’s counter-counterclaim. The trial court decided that each case would be presented separately but to the same jury. However, five weeks later, at the close of all of the evidence on Hammons’ counterclaim, the motion for severance was granted over Agrashell’s objection, Agra-shell’s motions for a directed verdict were denied, and a verdict was returned by the jury in favor of Ham-mons. Thereafter, pursuant to a stipulation of the parties, Agrashell’s counter-counterclaims were dismissed without prejudice. Agrashell’s motions for judgment n. o. v. or for a new trial were denied, and this appeal was taken. Statement of Facts A. The Product This case involves the use of processed nutshells in two ways: First, as a soft grit abrasive (SGA) in cleaning operations, and secondly, as lost circulation material (LCM) used in oil well drilling. SGA is “soft” in relation to harder abrasives such as sand. For example, SGA is projected against deposits on engine parts by air blasting and other means so as to remove the deposits with a minimum of damage to the part itself. While SGA may be composed of nutshells, it may also be composed of fruit pits, sawdust, rice hulls, corn cobs and clover seeds. The type of nutshells used may also be differentiated as either soft or hard. Agrashell sells SGA which is composed of black walnut and apricot pit shell, and Hammons sells SGA which is composed solely of black walnut shell. Various companies processed or “manufactured” SGA in some form during the time periods in question. Agrashell of Los Angeles, California; Hammons of Stockton, Missouri; Gravette Shelling Company of Gravette, Arkansas (Gravette); Block Brothers, Inc. of Nashville, Tennessee; and Block Walnut Processing Corp., of Nashville, Tennessee (known together as Block); Continental Nut Company of Chico, California (Continental); Industrial Flour and Abrasives Company of Morristown, Tennessee (Industrial Flour); Lufkin Pecan Company of Lufkin, Texas (Lufkin); Star of Texas Company of Fort Worth, Texas (Star of Texas); Texas Feed and Grain Company of Fort Worth, Texas (Texas Feed); and Southeastern Reduction Company of Valdosta, Georgia (Southeastern) are, or were during the periods of time in question, processors of SGA. Various companies distributed SGA, but apparently did not manufacture it: Pangborn Corporation of Hagerstown, Maryland (Pangborn); American Wheelabrator & Equipment Corporation of Mishawaka, Indiana (Wheelabrator) [both Pangborn and Wheelabrator were large manufacturers of blast cleaning equipment]; Composition Materials Company (Composition) [Block’s jobber]; Bernard Sirotta Company of New York, New York (Sirotta) [which at one time sold Hammons’ SGA], and several others distributed Agrashell’s SGA. The Pan American Petroleum Corporation developed another use for processed nutshell and patented the idea, giving Cherokee Laboratories an exclusive license under the patent for part of the time relevant here. Pan American’s patent covered the use of processed nutshells in controlling the loss of circulation of drilling muds utilized in oil well drilling. Agrashell sells this “lost circulation material” (LCM) which is composed primarily of english walnut shell and thus different from its SGA. Ham-mons sells LCM which is almost identical to its SGA, except for somewhat different sizes of the particles. LCM may also be composed of nonnutshell products ranging from cotton seed hulls to golf balls. Other companies, including Grav-ette and Block, manufacture nutshell LCM. The geographic markets for LCM and SGA are different. SGA is sold nationwide, with emphasis in the industrial northeast, while LCM is concentrated in the Mid-Continent and Gulf States oil producing regions. B. The Patent Frank Perry, a civilian employee at an army air depot in California during World War II, learned that projecting ground black walnut shells of 10/15 or 10/30 mesh size against airplane engine parts constituted an ideal SGA. Perry applied’ for and was granted a patent, basically claiming “the method of cleaning metal by ‘projecting there against a stream of fluid under pressure carrying in suspension therein pelletized black walnut shells,’ and a product, ‘an abrasive material for use in air blasts for cleaning metal comprising pelletized black walnut shells.’ ” Agrashell, Inc. v. Hammons Products Co., supra, 279 F.Supp. at 522. It was later learned that apricot pits have very similar physical characteristics to the black walnut shell, and they are used interchangeably by Agrashell. Id. at 523. Perry assigned the patent to Turco Products Company, Inc., which granted an exclusive license to Agrashell. The patent was in turn assigned to Purex Corporation, when Turco merged with Purex, and finally was assigned by Purex to Agrashell. Throughout this entire period, dating from 1947, Agrashell had an exclusive license. The patent expired on June 10, 1964. C. The alleged Sherman Act violations Hammons’ claim was essentially that Agrashell had attempted to monopolize hard nutshells within the SGA markets in violation of section 2 of the Sherman Act by means of infringement suits and certain formal and informal contractual relationships so as to extend the Perry patent beyond its terms and life. Ham-mons also claimed that certain formal and informal contractual relationships unreasonably restrained trade in hard nutshells within the SGA markets in violation of section 1 of the Sherman Act because the arrangements extended the Perry patent beyond its terms and life. (1) The Sirotta suit In 1958 Sirotta had begun to purchase Hammons’ SGA for sale to Sirotta’s customers. In October of 1960 Sirotta received a notice of infringement from Agrashell; Agrashell had in 1954 written Sirotta about the possibility of infringement liability. Sirotta contacted patent counsel who investigated the situation and concluded that there was insufficient basis to challenge the patent at least insofar as “prior art” was concerned. Sirotta was selling nutshell SGA, including black walnut and apricot pit SGA, for use in blasting equipment, including air blasting equipment. Settlement negotiations broke down between Agrashell and Sirotta and the infringement suit was filed in February of 1963. During the course of taking a deposition Bernard Sirotta, the president of Sirotta, asked to speak to Ayers, the president of Agrashell, alone. Sirotta purportedly asked Ayers whether the suit could be settled as between two businessmen. Sirotta claims Ayers replied as follows: “There can be only one way to settle this matter and that is for you to get out of the business. You have no right to be in the walnut shell business. This is my domain. If you do not leave the business, I will cut prices so low that you will not be able to survive.” Ayers contradicted this statement at trial and indicated that he only asked Sirotta about his position in light of the Perry patent and told Sirotta that he thought he was infringing the Perry patent. Hammons was impleaded by Sirotta as a third party defendant on the basis of an indemnity agreement between Ham-mons and Sirotta established when Sir-otta bought Hammons’ SGA. Hammons resisted Sirotta’s attempt to obtain jurisdiction over it, see Agrashell, Inc. v. Bernard Sirotta Co., 344 F.2d 583 (2d Cir. 1965), but finally entered a personal appearance in the suit in 1966 and counterclaimed against Agrashell for antitrust violations. The Sirotta litigation was settled when Sirotta payed $2,500 to Agrashell in 1968. Hammons’ counterclaim in the Sirotta action was dismissed by stipulation without prejudice. (2) The Hammons suit In April of 1962 Hammons agreed to supply Agrashell with black walnut shell of a mesh size suitable for blast cleaning. Shortly after the consummation of that agreement, Ayers visited with the Hammons officers. Although the evidence is conflicting, Ayers apparently informed Hammons that he had a patent for cleaning metal utilizing black walnut shell. He indicated that his lawyers advised him to sue every shell grinder who was infringing the patent but that he did not intend to sue Hammons because Hammons had not been cutting prices. An official of Hammons testified that Ayers “made us aware of the Perry Patent, and then also that there was some discussion on lost circulation material and he told us that the main purpose of his visit was to get acquainted, check our material, and to see if we couldn’t work out a lost circulation price that would be profitable to everybody involved.” The official further testified: “Mr. Ayers advised me that his attorney had advised him to sue everyone who was in the [sic] selling soft grit abrasive materials. However, that they didn’t plan to sue everyone but they were going after those who were guilty of cutting prices.” The official was asked whether Ayers made any statements about Hammons’ LCM price and the official responded that Ayers stated “he didn’t think that we were cutting prices and from the prices that they gave me at that time, we were getting approximately the same prices, close, not exactly, but close.” In June of 1962 Hammons signed an LCM contract with a former customer of Agrashell. Shortly thereafter Ayers called Hammons wanting to know about the contract. Ayers was told only that there was a contract, but no specifics were given to him. About October of 1962 Agrashell began to complain about the SGA material supplied to Agrashell and its customers, indicating that Agrashell had received a number of complaints relating to objectionable dust in the Hammons product sold to Agrashell and to its customers. In November of 1962 Agrashell ordered Hammons to stop production for Agrashell’s account with regard to the prior contract. In December of 1962 Agrashell sent Ham-mons a notice of infringement of the Perry patent. Agrashell was willing to settle the matter based upon the payment of royalties on “pellets of black walnut shells, or other nutshells (including apricot pit shells) equivalent thereto for blast cleaning purposes” sold by Hammons for or used as SGA and requiring Hammons to accept a license. Negotiations broke down partly because Hammons did not consider apricot pit shell to come within the confines of the Perry patent but primarily because Hammons finally decided it would not pay the royalty after first evidencing an intent to settle on that basis. Agrashell’s suit against Hammons was filed on August 7, 1963. In its complaint filed in 1965 after acquiring title to the patent, Agrashell alleged, among other things, that: “Within the six (6) years last past, and within the term said reissued letters patent, defendant has manufactured, sold, used, and actively induced others to use within the Western District of Missouri and elsewhere pellet-ized nutshells having the hardness of black walnut shells, including pellet-ized black walnut shells and such pel-letized nut shells having screen sizes of 10-30 mesh and 10-15 mesh, for the cleaning of articles by use of the pelletized nut shells in blasts projected against the articles. Defendant thereby has infringed said reissued letters patent.” Hammons answered, asserting affirmative defenses and counterclaims. Ham-mons alleged, among other things, that Agrashell had misused the patent by attempting to extend it to materials not covered including “walnut shells and/or ground fruit pits.” Hammons counterclaimed asserting, among other things, that Agrashell had attempted to restrain and did restrain trade in commerce of ground black walnut shells in violation of the Sherman Act, 15 U.S.C. §§ 1-2. Hammons additionally claimed that the Perry Patent Reissue had been obtained by virtue of fraud in that Agrashell knew of a prior patent covering the same conception patented in the Perry-Patent Reissue. A meeting between Agrashell and Hammons was arranged on March 24, 1966, by an official of Gravette who apparently wanted to clarify the situation between Gravette and Agrashell. The relationship between Gravette and Agrashell was awkward because while Gravette and Agrashell had engaged in certain contractual relationships, Ham-nons, who was being sued by Agrashell, vas in the process of acquiring the majority of Gravette’s stock. During this meeting, an official of Agrashell, apparently in response to a question from an official of Hammons about Agrashell’s position in the lawsuit, indicated that if Hammons was interested in concentrating on the walnut meats alone, Agrashell would be interested in handling Ham-mons’ shell product or acquiring their shell grinding facilities. No agreement being reached and neither party having requested a jury, trial was commenced before the district court on March 20, 1967. On that day one of Agrashell’s counsel moved to sever the antitrust counterclaim. The motion was taken under advisement. The district court held that the patent was invalid due to obviousness and therefore not infringed, but that even if the method claim was valid it was not infringed either directly or indirectly. Agrashell, Inc. v. Hammons Products Co., supra,, 279 F.Supp. at 522-524. Prior to its judgment on the patent case, but after all evidence had been taken with regard to the infringement side of the suit, the district court ordered a continuance with regard to the antitrust counterclaim. The district court also declined to award attorneys’ fees to Hammons. See 35 U.S.C. § 285. (S) Contracts Two types of contractual-like arrangements are involved in this case. The first is known as a “Statement of Policy” which Agrashell sent to some of its sales agents. The policy had three essential parts which are especially relevant: Agrashell reserved the right to set selling prices to the ultimate consumer invoiced by the agent; the selling agent agreed to buy, sell and merchandise only Agrashell SGA as long as the agent distributed Agrashell SGA; and Agrashell averred that it was the exclusive licensee under the Perry patent and had the exclusive right to convey the right to use SGA materials. The Statement of Policy was first formulated some time in the late 1940’s. Agrashell contended at trial that the agents who sold its SGA were never bound by the provisions of the policy, and two of Agrashell’s agents testified that they were neither familiar with the Statement of Policy nor operated under it. However, there is Agrashell correspondence which tends to support the inference that the Statement of Policy was agreed to by some of the agents. While there was Agrashell correspondence which indicated the possibility of sale of SGA to agents for resale, there was direct evidence from two of Agra-shell’s agents who testified that they never took title to the goods, never insured against loss, never paid storage costs, never paid taxes on the goods, and were merely paid a commission for the sales they made of Agrashell’s products. The second type of contractual arrangement involved the negotiation of more formal contracts with Wheelabrator and Pangborn. The contract with Wheelabrator was negotiated in 1950, and it appointed Wheelabrator, a large manufacturer of blasting equipment, Agrashell’s del credere factor for the sale of SGA. The contract also established that Wheelabrator was to receive a commission on the sale of Agrashell’s SGA, that Wheelabrator did not need to maintain an inventory of SGA, that Agrashell would ship directly to the buyer, and that Agrashell would be able to set the selling price. If, for certain enumerated reasons, Agrashell could not fill Wheelabrator’s orders, Wheelabrator, after notification to Agrashell, was free temporarily to obtain similar materials for its requirements. This contract could be terminated by giving notice 60 days prior to any anniversary date thereof. The contract with Pangborn, another large blast cleaning equipment manufacturer, was negotiated in settlement of an infringement suit brought by Agrashell against Pangborn. Pangborn had been selling black walnut SGA obtained from Gravette. The Pangborn agreement bound Pang-born to handle only Agrashell SGA until the patent expired, and after that time, for a period of some three years, Pang-born agreed to buy from Agrashell all of the SGA it needed unless a competitor could quote a lower price on similar quality goods, in which case Pangborn remained bound to buy from Agrashell unless Agrashell elected not to meet the lower price. The Pangborn agreement did not allow Agrashell to set prices. An administrative assistant to the president of Pangborn testified that at no time under the contract did Pangborn own the Agrashell product or pay taxes or freight costs thereon. (4) Related activity On June 13, 1962, Ayers visited Jimmy Cox, president of the Block companies. Block had been active in the LCM and black walnut shell SGA markets. The substance of the conversation between Ayers and Cox purportedly involved Ayers’ dissatisfaction with the price structure in the LCM market in particular and the shell business in general. Ayers noted that he had a price stabilization plan for the LCM market, but Cox would not agree to any price stabilization plan. Ayers indicated that if Block would not agree, Agrashell would enforce its patent. About a month later Block received a notice of infringement from Agrashell. Suit based, in part, on the Perry patent was filed against Block in March of 1963. The suit was finally settled for $2,500, with Block paying half and Composition Materials, its jobber, paying half. Ayers contradicted Cox’s testimony concerning this incident at the trial and contended that the only purpose for his visit to Block was to speak about Block’s infringement of the Perry patent with regard to SGA and to speak about a joint promotional program for the sale of LCM. After Agrashell’s settlement with Pangborn, an official of Gravette approached Agrashell with the proposition that Gravette might become licensed under the Perry patent. Gravette had concluded that if Pangborn was satisfied that the Perry patent was valid it too would recognize the patent. During a meeting between the president of Agrashell and officials of Gravette, Ayers allegedly stated that there was “one of two ways this can be handled, either by lawsuit or by negotiating a contract.” A contract was negotiated by Agrashell and Gravette with Gravette agreeing to supply black walnut shell processed and suitable for use as LCM, although 10 percent of the material might be shell suitable for SGA use. The contract, which was negotiated prior to the expiration of the patent, extended some three years after the expiration of the patent. D. The Verdict and Damages The district court sent the counterclaim to the jury after five weeks of trial, but he refused to submit the issue of whether the patent had been fraudulently procured because he felt that no submissible case of patent fraud had been established. The jury returned a verdict in favor of Hammons and assessed damages in the sum of $204,124.-21. That sum was comprised of $162,374.21 for litigation expenses and, $41,750.00 for loss of profits. The jury assessed no damages for injury to going concern value. The gross amount of damages was trebled by the district court and that sum equaled $612,372.63. The district court awarded attorneys’ fees of $150,000.00 and costs of $13,361.-31. The total judgment was $775,733.-76. The litigation expense damage was predicated upon Hammons’ proof of the amount it had spent to defend the patent infringement suit brought against Sirot-ta, $20,455.20, and the amount it had spent to defend the infringement suit Agrashell brought against Hammons itself, $141,919.01. The jury award of $41,750.00 in damages was apparently based upon evidence adduced by Dr. Kuhlman, an economist. His testimony concerning the damages sustained by Hammons was the only theory of damages Hammons presented and is summarized later in this opinion. Issues Presented on Appeal In its appeal from the judgment of the trial court, Agrashell raises these issues: 1. Whether Hammons failed to establish that Agrashell had violated the Sherman Act and by so doing proximately injured Hammons. 2. Whether Hammons’ claims were barred by principals of res judica-ta, collateral estoppel, or compulsory counterclaim. 3. Whether certain instructions relating to “dangerous probability,” prosecution of the suit for patent infringement, “target area,” and agency arrangements, were preju-dicially erroneous. 4. Whether prejudicial error occurred in the conduct of trial relating to' the issues of waiver of jury trial, admission of deposition testimony, and exclusion of offers of compromise. Sufficiency of Proof of Sherman Act Violations and Damages Hammons alleged violations of both section 1 and section 2 of the Sherman Act. After a careful review of all of the pleadings, testimony and exhibits, we are convinced that Hammons did make a submissible ease under section 1 of the Sherman Act but did not make a submissible case under section 2 of the Act; and that the trial court should have granted the motion for a directed verdict made at the close of all of the evidence as to section 2. That motion stated, in part, that “Hammons has not established by sufficient competent evidence a violation of . section 2 of the Sherman Act by Agrashell.” A. Section 1 Section 1 of the Sherman Act proscribes contracts in restraint of trade or commerce. Hammons claims that the written contracts with Pangborn and Wheelabrator and the “Statement of Policy” used with Agrashell’s sales agents as heretofore described, and the alleged illegal use of the patent in those contracts, constituted restraint of trade, and that as a result of those alleged contracts in restraint of trade, it was damaged by loss of business. Agrashell claimed that the contract with Wheela-brator did not require Wheelabrator to deal exclusively in Agrashell’s SGA; that the requirement to that effect in the contract with Pangborn terminated upon the expiration of the patent; that the “Statement of Policy’’ was not a contract but a unilateral declaration by Agrashell which could not be and was not enforced; that in any event Pang-born, Wheelabrator and the other sales representatives were not purchasing for resale but merely selling as agents for the account of Agrashell with Agrashell retaining title to the goods until delivery to a buyer and therefore under United States v. General Electric Co., 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362 (1926), such sales agency agreements with price fixing provisions were legal, especially in view of the patent and the presumption of validity that attached thereto prior to its expiration; and that before recovery can be had under section 1 of the Sherman Act, Hammons must prove damages with a reasonable degree of certainty resulting from the alleged illegal contracts. While there is much merit in several of these allegations by Agrashell, we cannot say that the evidence was insufficient for the jury to find that the Pangborn and Wheelabrator contracts were violative of section 1 of the Sherman Act. First, we conclude that Hammons failed to prove that the Statement of Policy established either formal or informal contractual relationships with Agrashell and its agents in the market place. Hammons called no agents to testify as to their relationships with Agrashell, but relied solely on Agrashell’s correspondence which indicates that the Statement of Policy was sent to a number of agents. In contrast, there was only one letter which tends to prove that Agrashell would not deal with an agent unless he agreed to the Statement of Policy. Moreover, some of the correspondence clearly indicates that Agra-shell dealt with the agents whether or not they agreed to the Statement of Policy. More significant, in terms of the practical application of the Statement of Policy in the market place, is the testimony of two Agrashell agents allegedly subject to the Statement of Policy. William T. Hall, chairman of the board of the C. P. Hall companies, together one of the largest if not the largest Agra-shell agent, testified that he had never seen nor heard of the Statement of Policy. He further testified that he did not consider himself bound to deal only with Agrashell, and that he did deal in other types of SGA such as corn cob SGA and glass SGA. John C. Lorenzen, a partner in the Russ-Cattell company, likewise testified that he had never seen the Statement of Policy. Furthermore, Lorenzen testified that he handled other types of SGA. Second, Agrashell strenuously argues that the Wheelabrator contract with its price fixing provision was legal when viewed in light of the doctrine promulgated in United States v. General Electric Co., supra, 272 U.S. at 488, 47 S. Ct. 192. General Electric stands for the proposition that a patent holder does not violate the antitrust laws by seeking to dipose of his products directly to the consumer and fixing the price by which his agents transfer the title from him directly to the consumer. On the other hand, General Electric does not allow the patent holder to sell his product to a person and then control the resale price. Assuming that the Wheelabrator contract was a contract of agency, see Restatement (Second) of Agency § 14J (1958), we think that whatever protection General Electric afforded the Wheelabrator contract ended when the patent expired. See generally R. Nordhaus and E. Jurow, Patent-Antitrust Law at 147-166 (Nordhaus Ed. 1972). Cf. Simpson v. Union Oil Co., 377 U.S. 13, 21-24, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964). Since it was clear that the Wheelabrator contract was in effect continuously from 1950, we think the jury could have correctly concluded that the Wheelabrator contract extended the life of the patent beyond the expiration date and constituted a contract in restraint of trade. Third, the Pangborn contract, negotiated prior to the expiration of the patent, extended the power of the patent beyond the life of the patent. The contract provided: “If, after June 10, 1964, PANG-BORN furnishes written evidence of its ability to purchase blast cleaning aggregates made from nut shells of equal quality and at lower prices than AGRASHELL’S selling prices to PANGBORN, AGRASHELL shall have the privilege of either meeting such prices as quoted from a bona fide supplier or permitting PANG-BORN to purchase its requirements elsewhere after first tendering the order to AGRASHELL in writing.” Since the Pangborn contract was negotiated prior to the expiration of the patent, but extended past the expiration of the patent: “[A]ny attempted reservation or continuation in the patentee or those claiming under him of the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purposes of the patent laws. . . . ” Scott Paper Co. v. Marcalus Manufacturing Co., 326 U.S. 249, 256, 66 S.Ct. 101, 104, 90 L.Ed. 47 (1945). Accord, Brulotte v. Thys Co., 379 U.S. 29, 31, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964). The Supreme Court, when faced with a somewhat similar provision, has noted the antitrust implications: “The appellant had at all times a priority on the business at equal prices. A competitor would have to undercut appellant’s price to have any hope of capturing the market, while appellant could hold that market by merely meeting competition. We do not think this concession relieves the contract of being a restraint of trade, albeit a less harsh one than would result in the absence of such a provision. . . . ” International Salt Co., Inc. v. United States, 332 U.S. 392, 397, 68 S.Ct. 12, 15, 92 L.Ed. 20 (1947). As a consequence, we conclude that the jury was entitled to find that the Pang-born contract extended the life of the patent unlawfully and constituted a contract in restraint of trade. Turning now to Agrashell’s argument that Hammons failed to prove the fact of damage resulting from the use of the contracts and Statement of Policy, it should first be noted that its expert testimony concerning its damages and the computation thereof does not include any reference to any loss of business which it once had, but only business which Agrashell had during the entire period in question and which Hammons felt that it should have had. In this respect this ease is analogous to the case of Herman Schwabe, Inc. v. United Shoe Machinery Corp., 297 F.2d 906, 910 (2d Cir.), cert. denied, 369 U.S. 865, 82 S.Ct. 1031, 8 L.Ed. 85 (1962), in which Judge Friendly noted as follows: “Plaintiff’s theory here was not that acts by defendant had unlawfully deprived it of something it previously possessed. It could not well have been so, since there was nothing to indicate that defendant’s conduct had changed for the worse during the damage period or, indeed, since plaintiff was organized, and plaintiff’s original investment of $10,000 had produced an earned surplus of over $300,000 by 1961, after substantial salary payments to Mr. Schwabe, its sole stockholder, and dividends. Plaintiff’s evidence, therefore, was necessarily directed to attempting to show how defendant had unlawfully deprived it of business it might otherwise have secured. It was entirely competent for plaintiff to seek to show this Indeed, the evidence showed that both Agrashell and Hammons prospered during the period in question and made overall gains in the sale of their nutshell products. Hammons’ evidence of damages was adduced from the expert testimony of Dr. Kuhlman during which the charts summarizing the damages were submitted. Briefly stated, Dr. Kuhlman first gave his opinion that Agrashell had erected barriers around a portion of the hard nutshell SGA market. These barriers were the patent, the patent litigation, price fixing, and exclusive dealing arrangements. He then looked for a portion of the market where those barriers were not present or at least not a factor and chose the Columbus, Ohio SGA market. The sole customer in this market was Western Electric. Both Agrashell and Hammons sold to Western Electric, Hammons selling direct and Agrashell selling first by agents and later direct. Having thus found what he considered to be a market without barriers, he determined that over a period of years Hammons had 60 percent and Agrashell had 40 percent of the SGA business in that market. He then concluded that therefore Hammons should have 60 percent of all of Agrashell’s SGA business which it conducted through its principal agents. He figured Hammons’ damages by taking the average price at which Agrashell sold in the Columbus market, multiplied by 60 percent of Agrashell’s volume with its dealers and deducted therefrom the amount for which Hammons sold the same volume of material as LCM. His theory in this regard was that if the barriers had not existed Hammons would have been able to sell this substantial quantity of material as SGA at $109 per ton average rather than as LCM at $83 per ton average and that therefore Hammons’ damages were $26 per ton of 60 percent of the tons which Agrashell sold through its dealers, or a total of $160,924.55. This approach, although unique, has many practical defects. The first defect is in the use of the Columbus market as a fair example of what might have happened nationwide in the absence of the barriers. In the first place, there was only one customer in the market, and it bought in substantial quantities as distinguished from most of Agrashell’s customers who bought in smaller quantities from stocks shipped into warehouses for distribution by agents. Secondly, there is no evidence as to whether or not that customer bought only from Agrashell and Ham-mons or also from other suppliers. More importantly, the evidence is clear that Agrashell sought to sell to Western Electric, SGA composed of both black walnut shells and apricot pits while Hammons offered a product composed of only black walnut shells. The evidence also establishes that Western Electric was a sophisticated buyer and may not have always used the two products interchangeably. Dr. Kuhlman acknowledged that in making his estimate of damages he had not considered the impact of sales of SGA by companies other than Agrashell and Hammons. Even assuming that the alleged barriers kept Hammons from its fair share of the market, it is difficult to understand how anyone could reliably determine what share Hammons should have had without knowledge of the market shares other competitors might have captured. In addition, Dr. Kuhlman did not explain why Agrashell’s alleged anticom-petitive conduct, which was supposedly so effective in other places, was not effective in the Columbus market. Apparently one reason for selecting the Columbus market was the fact that both Agrashell and Hammons had been in some sort of competitive relationship for a number of years. The failure to explain why the Columbus market was isolated from Agrashell’s conduct is highly suspect considering some of the evidence adduced at the trial. For instance, in 1962 when Agrashell did use an agent in the Columbus market and when the patent was still viable Hammons sold 111 tons of SGA and Agrashell 47. In 1963 when Agrashell wrote to Western Electric using the words “patent protected soft grit abrasive,” a technique which Kuhlman specifically labeled as a “barrier,” Hammons sold 98 tons of SGA and Agrashell sold none. Still further in 1967 and 1968, long after the patent expired and long after Agrashell had ceased doing business with an agent in the Columbus market, Hammons’ sales fell dramatically with Hammons selling 29 tons in 1967 to Agrashell’s 114.325 tons, and 54 tons in 1968 to Agrashell’s 127.25 tons. In applying the percentages derived from the Columbus market, to the national market serviced by Agrashell’s agents, Hammons’ expert witness seemingly ignored critical differences between the two markets. In the Columbus market shipments were made direct in large quantities, thereby allowing Hammons to compete without agents or warehouse facilities. Most of Agra-shell’s ultimate customers, serviced by its agents, bought in smaller quantities after Agrashell had established regional warehousing permitting prompt delivery of various sizes and types of its products. Hammons sold direct, or to jobbers for resale from warehouses owned by the jobbers, or by manufacturers’ representatives with orders shipped direct from Hammons’ plant. Hammons did not maintain regional warehouse facilities in order to service these smaller orders. The evidence indicates that Hammons’ representatives visited Pangborn in 1958 and 1962- — both visits apparently coming before Pangborn was an Agrashell agent. There was also correspondence with Pangborn in 1961 — before Pang-born was an Agrashell agent. Hammons made no attempt to solicit the business of C. P. Hall of Ohio. Apparently the only attempt to acquire the business of C. P. Hall of Illinois was the sending of a sample to Hall after Hall called Ham-mons after receiving a form.letter solicitation. No further attempt was made to contact C. P. Hall of Illinois. It is noted that the C. P. Hall Companies combined composed well over one-third of the business Hammons claimed to have lost. Solicitation of the Wheelabrator business involved sending two letters in response to a form letter from Wheela-brator trying to sell a machine to Ham-mons. The evidence indicates that Wheelabrator actually bought SGA from Hammons; some four to five 50 pound bags. This evidence tends to indicate two things. First, Hammons’ sales efforts were rather ill-suited to acquiring the business of Agrashell agents. Second, when Hammons did try to solicit the business of the agents, at least C. P. Hall and Wheelabrator either bought or expressed an interest in the Hammons’ product, and apparently did not consider themselves bound to deal only with Agrashell. This conclusion is strengthened by the testimony of Hammons’ own vice president that he could not recall ever being told by an Agrashell agent that it could not deal in a Hammons’ product because of the Perry patent or the Statement of Policy. More importantly, there was no evidence tending to show why Hammons could not sell direct or through agents to the ultimate consumers who were purchasing from Agrashell through Agra-shell’s agents. It is clear that the so-called barriers did not stop Hammons from selling a similar product to Western Electric, or to the automobile manufacturers in the Detroit area where it had 100 percent of the SGA market. It is also clear that Agrashell’s ultimate consumers were paying higher prices than Hammons was receiving in its sales to Western Electric, which should have made it easier for Hammons to compete for this business. One conclusion that could be reached is that the only thing that kept Hammons from selling to the ultimate consumers serviced by Agra-shell’s agents from Agrashell’s warehouses is either the failure of Hammons to actively solicit the business or its failure to maintain regional warehouse facilities to permit prompt delivery of small quantities of a variety of sizes of SGA. The evidence discloses very little active solicitation of AgrashelPs ultimate consumers by Hammons, and the premise of Dr. Kuhlman that Hammons would have obtained 60 percent of their business except for the alleged barriers is highly questionable in light of these facts. We also note that Dr. Kuhlman based his damage estimate on the implicit assumption that the patent and the patent litigation constituted illegal barriers in addition to the exclusive dealing and price fixing provision of the contracts. The assumption that the patent was an illegal barrier prior to its expiration was conclusively negated when the trial judge ruled that the patent had not been fraudulently procured. Likewise the assumption that the patent litigation constituted a unilateral attempt to monopolize and thus an illegal barrier is negated by our finding later in this opinion that Hammons failed to make a submis-sible case of an attempt to monopolize. Thus two of the four structural supports of Kuhlman’s damage theory were highly questionable. We have described some of the serious failings of Dr. Kuhlman’s damage testimony to indicate our hesitancy to allow a jury to assess damages upon such a theory: “[P]roof of an isolated violation of substantive law will not entitle defendants to an affirmative recovery. Before a party is entitled to recover treble damages he must be able to plead and prove actual monetary injury to his business or property resulting from the illegal act. ... It has long been the law that damages which are purely speculative, remote, or based upon conjecture cannot serve as a base for antitrust recovery. . ” American Infra-Red Radiant Co., Inc. v. Lambert Industries, Inc., 360 F.2d 977, 995-996 (8th Cir. 1966). Our critique of this damage formulation must be tempered, however, by the Supreme Court’s statements relating to the proper function of an appellate court when reviewing damage evidence. As the Supreme Court has forcefully stated: “[An antitrust plaintiff’s] burden of proving the fact of damage under Section 4 of the Clayton Act is satisfied by his proof of some damage . inquiry beyond this minimum point goes only to the amount and not the fact of damage. It is enough that the illegality is shown to be a material cause of the injury; a plaintiff need not exhaust all possible alternative sources of injury in fulfilling his burden of proving compensable injury under Section 4.” Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114 n. 9, 89 S.Ct. 1562, 1571 n. 9, 23 L.Ed.2d 129 (1969). The Supreme Court has consistently reminded critics of damage formulations that an antitrust violator may not properly complain about damage proof vagaries when such ambiguity results from the illegal act itself. See e. g., Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 265, 66 S.Ct. 574, 90 L.Ed. 652 (1946); Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 379, 47 S.Ct. 400, 71 L.Ed. 684 (1927). With these principles in mind we cannot say that as a matter of law, Dr. Kuhlman’s theory failed to demonstrate the fact or quantum of damage with sufficient clarity. For these reasons the jury award of $41,750.00 must stand. Our inquiry does not end with this finding however. The award of litigation damages allegedly incurred by Hammons when Agrashell filed certain infringement suits must stand or fall on whether the jury could properly conclude that Agrashell “attempted to monopolize” under section 2 of the Sherman Act. It is clear that the act of filing the infringement suits is a unilateral act and section 2, in contrast with section 1, is the proper method to test unilateral activity such as that involved in this case: “The Congress which wrote the Sherman Act directed its main thrust against business conduct involving two or more parties. Section 1, proscribing every ‘contract, combination or conspiracy’ in restraint of trade, is strictly confined to joint action. Section 2 covers both individual and joint action . . . . ” Turner, The Definition of Agreement Under the Sherman Act: Conscious Parallelism and Refusals to Deal, 75 Harv.L.Rev. 655 (1962). B. Section 2 Section 2 of the Sherman Act makes it unlawful to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States * * *.” Hammons claimed that Agrashell attempted to monopolize the SGA and the LCM markets although its proof relating to attempted monopolization of the LCM market was quite limited, and during the course of the trial and in its instructions the district court indicated that evidence of Agrashell’s actions as to LCM was relevant only to the issue of intent. In addition to proving an overt act or acts, the essential elements which must be proved in a section 2 attempt to monopolize case are specific intent and dangerous probability. See Swift and Co. v. United States, 196 U.S. 375, 396, 402, 25 S.Ct. 276, 49 L.Ed. 518 (1905); Kansas City Star Co. v. United States, 240 F.2d 643, 663 (8th Cir.), cert. denied, 354 U.S. 923, 77 S.Ct. 1381, 1 L.Ed.2d 1438 (1957); Hibner, Attempts to Monopolize : A Concept in Search of Analysis, 33 A.B.A.J. 165, 171-177 (1967); Smith, Attempt to Monopolize: Its Elements and Their Definition, 27 Geo. Wash.L.Rev. 227, 229-231 (1957). Although we do not rest our decision relating to section 2 on this issue, we note that the evidence presented at trial with regard to “specific intent” bordered on being insufficient as a matter of law. The issue before the jury was whether Agrashell specifically intended to monopolize hard nutshells within the soft grit abrasive markets by seeking to extend the patent beyond its terms or by extending the life of the patent. At the outset, we emphasize that the trial court did not submit the issue of fraudulent procurement of the patent to the jury and no cross-appeal was taken on that issue. Thus the declaration of patent invalidity did not prohibit Agrashell from relying on the presumptive validity of the patent. It therefore had every right to bring each of the three lawsuits against Sirotta, Hammons, and Block .if its purpose in each case was merely to enforce its rights under the patent. The obvious and difficult problem in this case relates to differentiating between Agrashell’s intent to bring suits and enter into contracts under a presumptively valid patent, thereby enforcing and utilizing a lawful monopoly, and its alleged intent to bring suits and enter into contracts under a presumptively valid patent for the purpose of extending the scope of the patent beyond the grant allowed by law. The proof of that alleged illegal intent is thin indeed. The evidence in this ease indicates quite clearly that Hammons sold a product that, but for the declaration of invalidity, would have infringed Agrashell’s patent; that Sirotta sold the Hammons product, which, as the trial judge indicated, was an “admittedly infringing” one; that Gravette and Block also sold an SGA product which was composed of black walnut shell and that Pangborn at one time merchandised Gravette’s product; and that Sirotta’s patent counsel and Pangborn’s patent counsel could not find sufficient grounds for challenging the patent on the grounds the patent was subsequently declared invalid. Much of Hammons’ case rested on the deposition testimony of Sirotta relative to Ayers’ statement that Sirotta “had no right in the walnut shell business. This is my domain.” It is noted that when this statement was made Ayers had already filed his infringement suit and placed the infringement issue before a court. Moreover, it was Sirotta and not Ayers who precipitated the meeting at which the statement was allegedly made. Understandably we are hesitant to attach much significance to this statement. We are also hesitant to attach any significance to the evidence which indicates that Agrashell sued Hammons in retaliation for Hammons underbidding Agrashell on an LCM account or to evidence which tends to indicate that Agrashell sued Block because Block would not agree to maintain prices in the LCM market. We question this evidence because, although Hammons pleaded an attempt to monopolize the LCM market, the relevant markets which were the subject of the attempt to monopolize as defined by the trial judge were solely the SGA markets. Hammons does not question this instruction. Indeed by supplemental brief Hammons argued that it need not prove “dangerous probability” in the LCM markets precisely because of the judge’s limited instruction. Although Hammons contends that the LCM intent evidence somehow relates to the issue of intent in the SGA market, we attach little significance to conduct related to a totally distinct product being sold in a different geographic market. We turn next to an analysis of whether or not Hammons proved “dangerous probability” of monopolization. “The phrase ‘attempt to monopolize’ means the employment of methods, means and practices which would if successful, accomplish monopolization, and which, though falling short, nevertheless approach so close as to create a dangerous probability of it *. * American Tobacco Co. v. United States, 328 U.S. 781, 785, 66 S.Ct. 1125, 1127, 90 L.Ed. 1575 (1946); Central Savings and Loan Ass’n v. Federal Home Loan Bank Board, 422 F.2d 504, 509 (8th Cir. 1970); Hiland Dairy Inc. v. Kroger Co., 402 F.2d 968, 971 (8th Cir. 1968), cert. denied, 395 U.S. 961, 89 S.Ct. 2096, 23 L.Ed.2d 748 (1969); Kansas City Star Co. v. United States, supra. Thus in this case we must determine whether Hammons presented sufficient evidence from which the jury could properly conclude that Agrashell approached “so close [to monopolization] as to create a dangerous probability of it * * *>> American Tobacco Co. v. United States, supra, 328 U.S. at 785, 66 S.Ct. at 1127. In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965), the Supreme Court held that enforcement of a fraudulently procured patent may violate section 2 of the Sherman Act provided all other elements are established. This case relates to extending a patent beyond its lawful bounds, but we think the same considerations expressed in Walker Process are applicable here. Those considerations are essentially that, even though one possesses a fraudulently procured patent or a patent which is allegedly used in a way to enlarge its scope or life, an analysis of market factors is still necessary. Indeed, the Court specifically stated that the trial court had not “analyzed any economic data” when it reversed. Id. at 178, 86 S.Ct. 347. Thus it is not enough to argue that one has used a patent in a predatory manner thereby enlarging the scope or life of the patent; one must look to economic data to determine the impact of the purported illegal activity on the market which is the subject of the attempt to monopolize. “To establish monopolization or attempt to monopolize a part of trade or commerce under § 2 of the Sherman Act, it would then be necessary to appraise the exclusionary power of the illegal patent claim in terms of' the relevant market for the product involved. Without a definition of that market there is no way to measure Food Machinery’s ability to lessen or destroy competition.” Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., supra, 382 U.S. at 177, 86 S.Ct. at 350. See also Bernard Food Industries, Inc. v. Dietene Corp., 415 F.2d 1279, 1284 (7th Cir. 1969), cert. denied, 397 U.S. 912, 90 S.Ct. 911, 25 L.Ed.2d 92 (1970). The counterclaim filed by Hammons indicated the product to be “ground black walnut shell,” and in submitting the matter to the jury the trial court referred to “the soft grit abraisve industry” and “hard nutshells within the soft grit abrasive markets.” The patent refers to “an abrasive material comprising pelletized nut shells having the hardness of black walnut shells.” Our conclusion is that while the exact definition of the product is elusive, the proof primarily related to crushed black walnut and apricot pit nutshell used as SGA. Assuming that the product was thus defined, the definition of the geographic market is even less explicit. Since no attempt was made to narrow the geographic area, we assume the relevant market area is the entire United States. However, no market data was introduced showing the total volume of sales of hard nutshell SGA in the United States or any specified portion thereof; therefore, it is difficult, if not impossible, to know exactly what geographic market Hammons claims Agrashell attempted to monopolize. The two principal submar-kets identified by Hammons were Detroit, Michigan and Columbus, Ohio. In Detroit, Hammons apparently had the entire market, and in Columbus, it had a larger share than Agrashell. , Not only did Hammons fail to show jthe total sales or volume of SGA, it also failed to show what shares of that market were held by Agrashell, Hammons, iand several other major competitors. Continental was referred to as one of the five largest companies in the field but no evidence was introduced relating to its volume of sales. Only by associating widely disconnected and at times contradictory portions of the evidence is it possible to piece together the respective sales of Agrashell and Hammons. Hammons’ pleadings attempted to structure the relevant market to include LCM, but by supplemental brief Ham-mons agreed that LCM was not within the markets the jury was instructed to consider as being the target of the attempt. In conclusion, we view the evidence relating to “dangerous probability” in this case much as Judge Brown viewed the evidence in Becker v. Safelite Glass Corp., Inc., 244 F.Supp. 625, 638 (D. Kan.1965), in which he noted as follows: “In the case at bar, plaintiff is unaware of the total annual volume of commerce * * * in the relevant market area; the portion or percentage of that volume held by defendants; the portion or percentage of that volume held by the plaintiffs; and the portion or percentage of that volume affected by any activities of the defendants * * *. * # * “Without the facts and evidence which plaintiff admittedly does not have, a § 2 Sherman case simply cannot, in our opinion, be established.” See generally Central Saving and Loan Ass’n v. Federal Home Loan Bank Board, supra; Hiland Dairy, Inc. v. Kroger Co., supra; Kansas City Star Co. v. United States, supra; Cornwell Quality Tools Co. v. C. T. S. Co., 446 F. 2d 825, 832 (9th Cir. 1971), cert. denied, 404 U.S. 1049, 92 S.Ct. 715, 30 L.Ed.2d 740 (1972); Hibner, Attempts to Monopolize: A Concept in Search of Analysis, 33 A.B.A.J. 165, 171-177 (1967). We are aware that the case of Lessig v. Tidewater Oil Co., 327 F.2d 459 (9th Cir.), cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964), is not in accord with the result we have reached in this case, but we choose not to follow its rationale, especially in view of the fact that the case of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., supra, was decided by the Supreme Court subsequent to the Lessig case and in view of the decisions of this Court hereinbefore cited. Other Alleged Errors Agrashell claims that Hammons’ recovery of litigation expenses.was barred by principles of res judicata and compulsory counterclaim. Our resolution of the sufficiency of proof with regard to section 2 of the Sherman Act obviates the necessity of resolving this issue with regard to litigation expense damage. Likewise errors allegedly made in instructing the jury with regard to litigation damages need not be discussed. Agrashell further argues that Hammons’ section 1 claims should have been pleaded as a compulsory counterclaim in the first infringement suit filed by Agrashell against Hammons in the Western District of Missouri. However, tVe think that the instant case is controlled by Mercoid Corp. v. Mid-Continent Co., 320 U.S. 661, 671, 64 S.Ct. 268, 88 L.Ed. 376 (1944), which indicates that cases such as this one involve permissive, not compulsory, counterclaims. Furthermore, since the first suit was dismissed because of Agra-shell’s failure to join an indispensable party, since no judgment on the merits was had, and since Agrashell was explicitly allowed to file a new action, which it elected to do, no injustice has resulted from permitting the filing of the counterclaim in this action. Agrashell argues that the instructions were in error because of a failure to adequately define AgrashelPs agency arrangements. We do not think that if any error occurred that it was prejudicial, and our resolution of the section 1 claim assumes that valid agency relationships existed. Agrashell further argues that it was an abuse of discretion to relieve Hammons of its waiver of jury trial. Due to the complexity of this case and the fact that Hammons changed from patent counsel to antitrust counsel during the varying procedural phases of this ease we do not think that such a decision was an abuse of discretion. See generally, 9 C. Wright & A. Miller, Federal Practice and Procedure § 2334 at 123 (1971). Agrashell next argues that it was an abuse of discretion to allow Hammons to deviate from a pretrial narrative statement by introducing into evidence the deposition testimony of Cox and • Sirotta. Rule 16 of the Federal Rules of Civil Procedure allows for modification of a pretrial order to prevent manifest injustice. The trial judge explicitly indicated that he was acting in the interest of justice and fair play in allowing the deposition testimony, and indicated that the testimony might well have not been available earlier because the parties were in litigation in 1967 and could have been reluctant to speak. We do not think that the decision in this case was an abuse of discretion. See generally, 6 C. Wright & A. Miller, Federal Practice and Procedure § 1527 at 608 (1971); Cf. Labbee v. Roadway Express, Inc., 469 F.2d 169, 172 (8th Cir. 1972). Finally, Agrashell argues that it was error to exclude its evidence of settlement offers made to Hammons after the filing of the suit. The trial judge indicated quite clearly that he was afraid the probative value of this evidence was outweighed by the prejudicial impact the evidence might have had on the jury. We think the judge’s decision in this respect was carefully considered and not error. Other allegations of error raised in the briefs have been con-' sidered, but in our opinion are not valid and do not require comment. Conclusions We affirm that part of the judgment awarding Hammons $41,750.00 trebled in the amount of $125,250.00. The remaining judgment, consisting of litigation expense damages, is reversed with directions to dismiss that portion of the case. Attorneys’ fees and costs in the prosecution of this case should be redetermined by the district court and substantially reduced to an amount more in keeping with the revised judgment. . At the same time, however, the trial court noted that it refused to submit to the jury the issue of fraud in the procurement of the patent. See Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965). . Hammons acquired the controlling interest in Gravette in August of 1966. . The Perry Patent Reissue indicates that the shells to be used were those “having the hardness of black walnut shells,” as well as, black walnut shell alone. The patent “contemplates the use of pellets of other types of ground or cracked nutshells having equivalent characteristics” of black walnut shell. The testimony of both parties indicated that apricot pit shell and black walnut shell have similar hardness, resilence, and resistance to breakdown characteristics. . In the judgment the district court did not explicitly state whether the product claims would have been infringed by the Hammons product if the patent was valid. But in the trial of the antitrust counterclaim the same district judge referred to the Hammons product as an “admittedly infringing product.” . During the trial of the antitrust counterclaim the trial judge explained why he did not award attorneys’ fees to Hammons in the patent case: “I had read the few cases that are in the books under it [35 U.S.C. § 285] and to me, the determining factor was a question of good faith and I — whether I had the proper interpretation of good faith or not, I came to the conclusion there was no question that the plaintiffs [Agrashell] thought they had a valid patent, they were trying to uphold what they thought was a valid patent, and they brought the suit in good faith in that sense * * . Although the trial judge commented that the “Statement of Policy” pertained to the intent issue under section 2, Ham-mons’ proof also presented the “Statement of Policy” in terms of section 1. . Evidence that Western Electric did not consider the products interchangeable is the fact that during the three years that Agrashell made no sales in the Columbus market (1963-1965), Hammons’ sales did not increase as a result. . When Dr. Kuhlman was asked why Hammons failed to attempt to sell to Agrashell’s ultimate consumers, he was unable to explain other than by vaguely referring to restrictions wherever Agrashell sold through an agent. To the contrary, Dr. Poe, Agrashell’s expert, could find nothing in the agreements or Statement of Policy which would impose a barrier to the ultimate consumer. In fact, if Agra-shell held up its price, it should be expected that another seller could come in and sell at a lower price. . Of the three manufacturers sued or threatened with suit by Agrashell (Block, Gravette, and Hammons), Block continued to produce SGA throughout the periods relevant liere, Hammons sales nearly doubled, and Hammons acquired the controlling interest in Gravette in 1906. . The strength of the Lessig rationale in the Ninth Circuit is questionable. See Bushie v. Stenocord Corp., 460 F.2d 116, 121 (9th Cir. 1972); Cornwell Quality-Tools Co. v. C. T. S. Co., supra.

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George SLAN, Plaintiff-Appellant, v. A/S DET DANSKE—FRANSKE D/S, Defendant-Appellee. No. 73-1168 Summary Calendar. United States Court of Appeals, Fifth Circuit. June 1, 1973. William S. Vincent, Jr., New Orleans, La., for plaintiff-appellant. Bertrand M. Cass, Jr., New Orleans, La., for defendant-appellee. Before WISDOM, AINSWORTH and CLARK, Circuit Judges. Rule 18, 5th Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of N. Y., 431 F.2d 409, Part I (5th Cir. 1970). PER CURIAM: George Sian, an employee of Atlantic & Gulf Stevedores, Inc., was injured while discharging cargo from the M/V AFRIKA. Alleging that his injury was caused by the unseaworthiness of the vessel and the negligence of its crew, Sian brought this action against the vessel’s owners, A/S Det Danske-Franske D/S. The trial court granted the defendant’s motion for a directed verdict on the issue of negligence; subsequently the jury found that the vessel was not unseaworthy. Sian appeals; we affirm. I. Sian’s injury occurred when a cargo sling broke, causing a load of rubber bales to fall back into the hold where Sian was standing. The plaintiff’s claim of negligence on the part of the vessel is based on the assertion that the ship’s officers failed in their duty to discover that the rope sling, which was a part of the stevedore contractor’s equipment, was defective. The evidence was conflicting as to whether the sling collapsed under the weight of the cargo due to its defective condition or broke as a result of the negligence of the winch operator, a fellow employee of Atlantic & Gulf Stevedores, in causing the sling to smash against the hatch coaming as the load was being lifted from the hold. The plaintiff and the winch operator testified that the sling broke because it was rotten. The record, however, is devoid of any proof that this alleged condition was evident to the ship’s officers prior to the accident. Indeed, testimony showed that even the longshoremen who were handling the sling immediately before the accident and could observe it at close range did not notice any defect. Absent proof upon which the jury might find that the ship’s officers had knowledge of the defective condition or that the condition should have been discovered by a reasonably prudent mate, the directed verdict on the negligence claim was proper. II. Sian also appeals from the jury verdict on unseaworthiness. He asserts that the court refused to charge the jury that where a party fails to introduce important evidence which is within its control, the jury may infer that such evidence would disclose facts adverse to the non-producing party. The requested instruction embodies a well-recognized evidentiary rule which in the instant case was designed to call attention to the failure of the ship owner to produce the cargo sling which broke. However, this was not an appropriate case for the proposed instruction. Extensive discovery proceedings showed that the sling was neither in the possession' of the vessel owner nor of the stevedore contractor who had assumed defense of the case. Furthermore, the defending parties had no knowledge of its whereabouts. The trial record indicates that the broken sling had been routinely abandoned on dockside and simply disappeared shortly after the accident. Under these circumstances, no unfavorable inference could be drawn from the failure to produce the cargo sling at trial. See Savard v. Marine Contracting, Inc., 471 F.2d 536, 541-542 (2nd Cir. 1972), cert denied, - U.S. -, 93 S.Ct. 2778, 37 L.Ed.2d 404 (1973). Compare Waterman S. S. Corp. v. United States S. R. & M. Co., 155 F.2d 687, 691-692 (5th Cir.), cert. denied, 329 U.S. 761, 67 S.Ct. 115, 91 L. Ed. 656 (1946) and Carlsen v. A. Paladini, Inc., 5 F.2d 387, 388 (5th Cir. 1925) with Colvin v. Kokusai Kisen Kabushiki Kaisha, 72 F.2d 44, 46 (5th Cir. 1934) and The Vulcan, 60 F.Supp. 158, 162 (E.D.La.1945). The judgment of the district court is Affirmed. . The vessel could not be held liable either for negligence or for unseaworthiness on the basis of the isolated negligent act of the plaintiff’s fellow longshoreman. Usner v. Luckenbach Overseas Corp., 400 U.S. 494, 91 S.Ct. 514, 27 L.Ed.2d 562 (1971); Robinson v. The M/V Merc Trader, 477 F.2d 1331 (5th Cir. 1973).

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UNITED STATES of America, Appellee, v. Norbert Nisan KAHAN and Bertha Limo Newman, Appellants. Nos. 706, 707, Dockets 72-2333, 73-1012. United States Court of Appeals, Second Circuit. Argued March 22, 1973. Decided May 16, 1973. Rehearing Denied July 9, 1973. Mansfield, Circuit Judge, concurred in part and dissented in part and filed opinion. Lawrence Stern, New York City, for appellant Newman. Jesse Berman, New York City, for appellant Kahan. Robert Walton, Asst. U. S. Atty. (Whitney North Seymour, Jr., U. S. Atty. for the Southern District of New York, Rudolph W. Giuliani and John W. Nields, Jr., Asst. U. S. Attys., of counsel), for appellee. Before SMITH, FEINBERG and MANSFIELD, Circuit Judges. J. JOSEPH SMITH, Circuit Judge: Norbert Kahan and Bertha Newman were convicted on trial to the jury in the Southern District of New York (Constance Baker Motley, Judge), of conspiracy, bribery and falsifying visa extension applications. Kahan was also convicted of perjury before the grand jury. Both appeal. Kahan challenges his conviction on grounds of (1) improper striking of character evidence, (2) failure by the jury to consider each count separately, and (3) use in the government’s direct case of Kahan’s statements made while requesting appointed counsel as violative of his Fifth Amendment right against self-incrimination and Sixth Amendment right to counsel. Newman contends that the government failed to establish by clear and convincing evidence an independent source for an in-court identification made subsequent to an improper showup and that the court improperly limited her impeachment of the government’s witnesses. For the reasons set forth below, we revgrse-J?ahan’s_conviction and affirm Newmhn’s. The principal charge involved a scheme to use Kahan’s position as an Immigration inspector to obtain monies from non-resident aliens for improper extension of their visa permits. Aliens who in many cases could not speak English went to Newman who filled out their application papers, took $100 in excess of the normal application fee, and later returned an extended visa. Sixteen of those who had sought Newman’s services testified at trial to the falsity of Newman’s entries on the applications as set forth in the margin. The evidence against Kahan was also extensive, although circumstantial. Kahan’s third claim of error raises the most substantial question. At arraignment Kahan stated that he was without assets and in need of appointed counsel. These statements were used against him on trial in the government’s case in chief. Use of Kahan’s false claims of lack of assets was claimed to be violative of his right against self-incrimination and right to counsel. We agree. United States v. Branker, 418 F. 2d 378, 380 (2d Cir. 1969); see Mc-Gautha v. California, 402 U.S. 183, 239, 91 S.Ct. 1454, 28 L.Ed. 711 (1971) (Douglas, J., dissenting). The government’s claim that the privilege does not extend to false statements is not well taken. The ultimate truth of the matter asserted in the pre-trial request for appointed counsel is of no moment. See Simmons v. United States, 390 U.S. 377, 393, 88 S.Ct. 967, 19 L.Ed.2d 1247 (1968). A defendant should not be forced to gamble his right to remain silent against his need for counsel or his understanding of the requirements for appointment of counsel. Nor does the mere fact that Kahan’s statements were not made under oath take them without the protection of the Fifth Amendment. Addressed by the court as to his financial assets, defendant was required to speak in order to obtain appointed counsel. Cf. Couch v. United States, 409 U. S. 322, 93 S.Ct. 611, 615-616, 34 L.Ed.2d 548 (1973). The government urges us to hold any error there might be in admitting Kahan’s exculpatory statements harmless. We must decline. Here, as the government admits, the evidence against Kahan. was entirely circumstantial. Credibility was an essential factor, especially as two counts of the indictment charged the defendant with perjury. Not only did the prosecution introduce the statements in its direct case and argue them in summation, the court also focused on these statements in its instructions to the jury. As there is a reasonable possibility that the improperly admitted evidence contributed to the conviction, reversal is required. See Schneble v. Florida, 405 U.S. 427, 430-431, 92 S.Ct. 1056, 31 L.Ed.2d 340 (1972). Kahan’s two other claims of prejudicial error are without merit. Appellant offered the testimony of one of the directors of his synagogue as to his good character; the testimony was stricken on the grounds that it was not proper character evidence and that the witness was not shown to be sufficiently acquainted with the defendant. Under the prevailing view character evidence must be based solely on reputation in the community; it must be hearsay and cannot be based on the witness’ own personal assessment of the defendant or on specific acts reflecting certain qualities. Michelson v. United States, 335 U.S. 469, 477, 69 S.Ct. 213, 93 L.Ed. 168 (1948). Here the witness stated that he had never discussed nor heard discussion of defendant’s reputation as far as truth and veracity because “ . . . his actions show that he was a man.of truth, veracity, integrity, and I think he’s one of the best liked men in the synagogue.” Kahan also attempted to bring in through this witness evidence of refusal by him to help the witness through Ka-han’s position with the Immigration agency, evidence clearly precludable under Michelson. See United States v. Beno, 324 F.2d 582, 587 (2d Cir. 1963). Prior to introducing character testimony defendant must establish the witness’ acquaintance with defendant, the community and his circle of acquaintances. The court properly ruled that a witness who did not know enough about defendant to be aware of defendant’s occupation lacked sufficient knowledge of defendant. Appellant’s claim that the jury’s guilty finding on several counts of the indictment that had been stricken demonstrated that it had failed to consider each count separately and thus required a new trial is also without merit. The jury answered as to each count and was clearly instructed that it must determine guilt beyond a reasonable doubt on each count. It did in fact acquit Kahan on two counts. There is neither ambiguity in the verdict rendered, Glenn v. United States, 137 U.S.App.D.C. 120, 420 F.2d 1323 (D.C.Cir.1969), nor is the verdict an “inaccurate and insufficient hotchpotch. . . .” United States v. DiMatteo, 169 F.2d 798 (3d Cir. 1948). Where separate verdicts are given on each count pursuant to specif id instructions to find guilt separately on each count, conviction on all counts is not necessarily negatived by error affecting only one or several of numerous counts. Here, where 67 counts were before the jury the error was, in the words of defense counsel at trial, merely an “oversight,” properly corrected as to the stricken counts without affecting the validity of the remaining counts. Newman challenges the court’s finding that the government had proved by clear and convincing evidence that Inspector Piccirillo’s in-court identification was based on a source independent of a wrongful showup. United States v. Wade, 388 U.S. 218, 87 S.Ct. 1926, 18 L. Ed.2d 1149 (1967); see, e.g., United States ex rel. Rivera v. McKendrick, 474 F.2d 259 (2d Cir., 1973). Piccirillo, engaged in surveillance of Kahan, testified that while so occupied he had twice observed Newman meeting Kahan. On both occasions the meetings were in daylight, or bright night, and Piecirillo came within several feet of the defendants during the meetings. Each observation was approximately twenty minutes in duration. Notes taken at the time of the meetings indicate that Ka-han had met a woman who stood about shoulder high to Kahan, was fair, stocky and had long reddish dyed hair — more black than red. The description fits Newman. The unlawful showup occurred six months after the observation. Piccirillo looked in a room for several seconds where Newman was sitting and indicated that she was the woman he saw meet Kahan. While Piccirillo did not link Newman with a photograph of her given him prior to the meeting it appears that the photograph was old, black and white, that it showed only her face and that she had a different hairstyle. Apparently it is appellant’s physical stature that is distinctive, a factor not clearly shown in the picture. Piecirillo had observed another woman and specifically found her not to be the woman in the photograph; he did not make a similar finding as to Newman. The finding of an absence of a taint from the showup is fully supported by the record. The court’s limiting of impeachment by the defense of alien witnesses as to questions concerning prior convictions and a prior inconsistent statement was not error. As a general rule a witness’ acts of misconduct are not admissible to impeach his credibility unless the acts result in a conviction. United States v. Sposato, 446 F.2d 779, 780-781 (2 Cir. 1971). So far as the offer was of criminal activity as bearing on likelihood of lying solely because other criminal acts had been done, the limitation imposed was proper. See United States v. Kahn and Teleprompter, 472 F.2d 272, 279-280 (2d Cir. 1973). Here, the court’s limitation, such as it was, was imposed only after twelve of the sixteen witnesses had been questioned as to their deliberate falsifying of statements on visa applications. Witnesses who testified subsequent to the limitation testified that their presence in the United States was illegal. So far as the facts indicated a motive to lie to curry favor with the government by law violators they were quite fully developed before the jury. We find no error on Newman’s appeal and affirm her conviction. We reverse and remand for retrial as to Kahan. MANSFIELD, Circuit Judge (concurring in part and dissenting in part): I concur in Judge Smith’s thorough and thoughtful opinion except as to his conclusion that it was reversible error to have admitted into evidence Kahan’s pretrial statement, made in support of his application for appointment of counsel pursuant to the Criminal Justice Act, that he was without funds. Since I disagree with this conclusion, I would affirm the judgment as to both defendants. It is settled that an accused’s self-incriminatory testimony, given at a pretrial hearing in support of his application for enforcement of his Fourth or Sixth Amendment rights may not later be admitted against him at trial as part of the government’s case. Simmons v. United States, 390 U.S. 377, 389-394, 88 S.Ct. 967, 19 L.Ed.2d 1247 (1968); United States v. Branker, 418 F.2d 378, 380 (2d Cir. 1969). To hold otherwise would be to deter a defendant from the assertion of his lawful constitutional rights. In the words of Justice Harlan, speaking for a 6 to 2 majority in Simmons, supra, the accused would be “obliged either to give up what he believed, with advice of counsel, to be a valid Fourth Amendment claim or, in legal effect, to waive his Fifth Amendment privilege against self-incrimination.” Absent a rule barring the government’s use on its direct case of the accused’s self-incriminatory statements, he would be able to give essential testimony only at the risk that damaging admissions would then be used to convict him at trial. But when an accused decides to use perjury or false statements as a means of claiming a right (to which he might not be entitled if he told the truth) he faces no such dilemma or Hobson’s choice. The salutary rule of Simmons, as extended by Branker to the exercise of Sixth Amendment rights, was founded on the principle that an accused should not be deterred from telling the truth at a pretrial hearing even though it would involve admissions of an incriminating nature. No legitimate interest is protected by extending the rule to outright perjury or falsification. The latter should carry all of their normal sanctions, including the admission at trial of the accused’s demonstrably false statements wherever they would otherwise be relevant. It is unnecessary to grant him a license to falsify in order to protect his exercise of his pretrial constitutional rights. Applying these principles here, Kahan’s volunteered representation to the court, upon his application for appointed, counsel, that he was indigent and had “no current funds” when he had in fact accumulated approximately $27,000 in four bank accounts over which he had exclusive control not only deceived the court but amounted to a false exculpatory statement. United States v. McConney, 329 F.2d 467, 470 (2d Cir. 1964). The proof showed that, assuming he had spent nothing during the years 1970 and 1971, he had deposited more money in these accounts ($27,000) than his entire legitimate income ($25,000) as reported by him on his tax returns. Evidence to that effect was properly received as the basis for an inference that he received some of the money paid by non-resident aliens to Mrs. Newman to obtain Kahan’s approval of their falsified applications for extension of the length of their stay in the United States. It furthermore appears that, aside from Kahan’s false statement to the court as to his finances, which covers but 2Yz pages out of a total trial transcript in excess of 2,000 pages, the other evidence against him was overwhelming. See majority opinion, supra n.2. There was eye-witness testimony of meetings between Kahan and Mrs. Newman, from one of which he was seen to exit, take an envelope out of his pocket, remove money from the envelope and place the money in his wallet. Of 178 copies of INS Form 1-539 (Alien’s Application to Extend Time of Temporary Stay) found in Mrs. Newman’s apartment, 155 had been approved by Kahan. With six full-time inspectors and fourteen part-time inspectors working on such matters at the INS New York office, the chances are infinitesimal that if these 178 applications had been processed in the usual course of business, 87% of them would have been handled by Kahan. Furthermore, one of the forms found in Mrs. Newman’s apartment bore Kahan’s initials, from which it could reasonably be inferred that after approving it he had in violation of INS procedures returned it to Mrs. Newman. In addition there were Kahan’s deposits during the period 1970-71 of approximately $27,000 in accounts controlled by him, which was more than his reported adjusted gross income during the period and could not be satisfactorily explained as coming from legitimate sources. Assuming that Kahan, upon retrial, decides to take the witness stand in his own defense, his false statement to the district court as to his lack of money will probably be admissible to impeach his testimony, see Harris v. New York, 401 U.S. 222, 91 S.Ct. 643, 28 L.Ed.2d 1 (1971); Walder v. United States, 347 U.S. 62, 74 S.Ct. 354, 98 L.Ed. 503 (1954), or as a false exculpatory statement, even though, according to the majority, it was error to have admitted the statement as part of the government’s direct case at the first trial. If, on the other hand, Kahan decides not to take the witness stand, the overwhelming case against him will stand virtually unrebutted. Under the circumstances, even assuming arguendo that the admission of his pretrial statement was error, it was harmless beyond a reasonable doubt. Harrington v. California, 395 U.S. 250, 89 S.Ct. 1726, 23 L.Ed.2d 284 (1967); Schneble v. Florida, 405 U.S. 427, 92 S.Ct. 1056, 31 L.Ed.2d 340 (1972). For the foregoing reasons I would affirm Kahan’s conviction. . They stated that Newman filled out the application, that she had not read to them, nor could they read for themselves, the answers she filled in. They further testified that certain answers as made known to them subsequently had no basis in truth nor in any information that they had given to Newman. There was evidence that Newman in fact knew that the answers were false and used answers that were required for an extension. . No alien testified to any dealings with Kahan. The sole direct testimony linking Kahan to Newman’s scheme was Inspector Piccirillo's testimony that he had seen Newman and Kahan meet twice while he was surveilling Kahan; once on April 13, 1971 and again on April 19, 1971. At the first meeting which took place about five o’clock, the officer saw appellants meet, go into a restaurant, and Kahan depart as he took money out of an envelope and put it into his wallet. At the second meeting Piccirillo observed the entire meeting of the two which lasted about twenty minutes. There was also evidence that Newman had attempted to visit Kahan at work. When questioned by Conely, Kahan’s supervisor, Newman lied to him about her purpose for visiting and slipped away. Newman told one of the alien applicants when he asked why the fee was a hundred dollars, that she had to pay part of it to a friend in Immigration. Newman told another applicant the fee would be $140 because “ . . .1 have to split it with somebody there (Immigration office) and this man don’t want anymore $50.” AVhile the usual procedure for filing an application took 30-45 minutes, Mrs. Newman on several occasions needed substantially less time to get the application approved by Kahan. Search of Newman’s apartment, after an interview with the FBI during which she denied having prepared any more than six applications or accepting money for'assistance in preparing the forms, turned up a box filled with Immigration forms and a looseleaf binder containing 178 carbon copies of 1-539 forms. One hundred fifty-five of these applications had been approved by Kalian, a far higher proportion than would be expected in view of the number of inspectors passing on such forms. Kahan’s supervisor had discovered that he had been adjudicating I-539’s not assigned to him. A year later after having been instructed not to handle any more walk-in I-539’s and not to speak to any alien, Kahan approved two more applications both prepared by Newman. Kahan’s bank statement and income tax returns indicated that Kahan had banked all but $500 of his reported income for the year 1970 and $2000 more than his reported adjusted gross income in 1971. Statements of his lack of funds made at arraignment in the context of request for appointed counsel were introduced as evidence of similar acts to the jierjury charged and as false exculpatory statements evincing consciousness of guilt. Kahan at the time he made this misrepresentation had access to several Tot-ten trusts totaling more than $25,000. . Here Kahan claims not to have understood that assets held in a Totten trust were his. If there has been willful misrepresentation by defendant of his assets, proper remedy lies in prosecution for perjury or false statement and the recovery from him ordered here by the court of counsel fees and expenses improperly paid on his behalf. . Kalian’s defense was his own testimony denying the government’s allegations and the testimony of a character witness. . “Now, the Government has tendered evidence which it claims shows acts by Mr. Kahan similar to the ones charged in the perjury count. Mr. Kahan is not on trial for events relating to these similar acts; that is, the statements which he made to the Court at the time of his arraignment regarding his ability to secure a lawyer of his own choosing with his own funds. You may, however, consider, in determining whether the defendant acted with guilty knowledge or unlawful attempt on the charges of perjury before you, the fact, if you find it to be true, that he engaged in other similar acts to those charged in those perjury indictments. You are to consider that evidence as to what he said on the arraignment regarding his finances on the question of knowledge and intent only when you are considering the perjury charges made against him in this indictment. Now, again with respect to that particular evidence, that is, the statements made by Mr. Kahan on his arraignment regarding his finances, there is another principle of law applicable here and that is that conduct of a defendant, including statements which are knowingly made by him upon being informed that a crime has been committed, or that he has been accused of a crime, may be considered by the jury in the light of all other evidence in the case.” . “Both propriety and abuse of hearsay reputation testimony, on both sides, depend on numerous and subtle considerations difficult to detect or appraise from a cold record, and therefore rarely and only on clear showing of prejudicial abuse of discretion will Courts of Appeals disturb rulings of trial courts on this subject.” Michelson v. United States, 335 U.S. 469, 480, 69 S.Ct. 213, 221 (1948). . Counts of the indictment were separated for each alien application. The counts stricken were those as applied to particular applicants. . “The Government’s failure to establish beyond a reasonable doubt any one of the three elements of the crime of receiving an unlawful gratuity as to any count must result in Mr. Kahan’s acquittal of that charge. On the other hand if you find that the Government has established beyond a reasonable doubt each essential element as to a particular count, then you may convict Mr. Kahan of that particular count.” . Cf. Neil v. Biggers, 409 U.S. 188, 93 S.Ct. 375, 34 L.Ed.2d 401 (1972); United States ex rel. Gonzalez v. Zelker, 477 F.2d 797 (2d Cir., 1973). . In Simmons the defendant, who was charged with armed robbery, moved to suppress the introduction at trial of a suitcase containing a gun holster and several items that had been taken from the bank at the time of the robbery as violative of his Fourth Amendment rights. Justice Harlan stated: “The only, or at least the most natura], way in which he could found standing to object to the admission of the suitcase was to testify that lie was its owner. Thus, his testimony is to be regarded as an integral part of his Fourth Amendment exclusion claim. Testimony of this kind, which links a defendant to evidence which the Government considers important enough to seize and to seek to have admitted at trial, must often be highly prejudicial to a defendant. This case again serves as an example, for Garrett’s admitted ownership of a suitcase which only a few hours after the robbery was found to contain money wrapjiers taken from the victimized bank was undoubtedly a strong- piece of evidence against him. Without his testimony, the Government might have found it hard to prove that he was the owner of the suitcase. * * “In such circumstances, a defendant with a substantial claim for the exclusion of evidence may conclude that the admission of the evidence, together with the Government’s proof of linking it to him, is preferable to risking the admission of his own testimony connecting himself with the seised evidence.” (Emphasis added) 390 U.S. at 391, 393, 88 S.Ct. at 975. In Branher the defendant was convicted after a retrial of knowingly participating in a scheme to defraud the government by obtaining false tax refunds. At an in-digency hearing held after the first trial in connection with his application to appeal in forma pauperis he admitted, after first denying that he had received for his personal use any of the refunds, that he had received small amounts out of refund checks cashed by him for others. . Normally the fact that a defendant may be prosecuted for perjury based on his willful giving of materially false testimony does not preclude the government from offering into evidence his prior false statements where they are relevant and probative with respect to issues, e. g., knowledge, intent, consciousness of guilt. As with all other prejudicial evidence offered by the government, the defendant is protected by obtaining from the court, out of the jury’s presence, a preliminary ruling as to the falsity of the earlier statement and its relevance to the issues on trial, which was the course followed by Judge Motley. Indeed she further found that the pi'ejudicial effect of Kahan’s statement did not outweigh its probative value. . Kahan’s pertinent statement to the court was as follows: “The Court: Your name, sir? “The Defendant: I am Norbert Ka-han, sir. “The Court: Have you an attorney? “The Defendant: No, sir. “The Court: Have you any money to hire an attorney? “The Defendant: I do, sir, but it’s blocked by my wife from whom I am divorced. “The Court: Do you want a week to try and straighten that out? “The Defendant: There is a suit coming up sometime early next year. “The Court: We can’t wait until next year. “The Defendant: Then if it pleases the Court I would like to have the Court assign me an attorney. “The Court: You have no current funds? “The Defendant: I beg your pardon? “The Court: You have no current funds at all? “The Defendant: No sir. “The Court: Are you working? “The Defendant: No, sir. “The Court: I’m going to assign Mr. Jesse Berman at this point.” Following a conference in the court room with his new client regarding his “financial status,” Mr. Berman reported to the court, on the basis of what Kahan had just told him, that Kahan “has no savings account in any bank in his own name. He had a joint account with his wife but since their divorce she has control of that account and he very strongly offers to reimburse the government should he be successful in his lawsuit against his ex-wife in the control of that account but at the present time he has no money.” Although Kahan contended at trial that he understood that the Totten savings accounts opened up by him belonged to his children:, with himself merely the custodian, Judge Motley properly ruled that there was sufficient proof of falsity to warrant admission of Kahan’s statement. It is beyond dispute that if Kahan, upon his arraignment, had disclosed the accounts rather than throw the court off the track by referring to the blocked account in dispute with his wife, denial of assignment of counsel under the Criminal Justice Act would have been mandated.

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Karriem THORNE, Appellee-Petitioner, v. WARDEN, BROOKLYN HOUSE OF DETENTION FOR MEN, Appellant-Respondent. No. 793, Docket 73-1299. United States Court of Appeals, Second Circuit. Argued March 22, 1973. Decided May 16, 1973. Morris Harary, Asst. Dist. Atty. (Eugene Gold, Dist. Atty., Kings County, N. Y., of counsel), for appellant-respondent. Phylis Skloot Bamberger, Atty. (Robert Kasanof, The Legal Aid Society, New York City, of counsel), for appellee-peti-tioner. Before SMITH, FEINBERG and MANSFIELD, Circuit Judges. MANSFIELD, Circuit Judge: This appeal raises serious questions as to the constitutionality of the lengthy pretrial incarceration of persons accused of crime in the Supreme Court of the State of New York, Kings County, who are unable to furnish bail, where the delay is due solely to the State’s failure to provide the necessary additional judge-ships, facilities and supporting personnel (e. g., prosecutors, stenographers, court and probation officers) required to try the increasing backlog of pending criminal cases in that county. Karriem Thorne was arrested on January 29, 1972, on charges of robbery, which led to the filing of three indictments against him, two in April, 1972 (Nos. 937 and 2865) and one in October, 1972 (No. 2090). Because of his inability to furnish bail in the amount fixed by the state court, even after the amount was somewhat reduced as a result of his repeated applications, he was held in the Brooklyn House of Detention awaiting trial. After he had been thus “detained” in jail for almost a year awaiting trial, on October 17, 1972, he filed a pro se petition with the United States District Court for the Eastern District of New York seeking removal of the three indictments against him to the federal court, which stated, among other things, that following his arrest he had “requested for an immediate disposition pursuant to Sec. 268, C.C.P., also the 5th and 14th Amendments U.S.C. Due Process and Equal Protection clauses. Motion for disposition was therein denied said case after eight months incarceration is still pending against petitioner in lieu of $15,000 dollars bail.” In a letter annexed to his petition he further stated “There has been an unreasonable and unjustifiable delay in The People’s Prosecution. (See sections 8, 188 and 668 of the Code of Criminal Procedure). I’ve been detained now awaiting pending fair and impartial trial procedures at the Brooklyn Supreme Court, for approximately nine months. Said unreasonable delay in prosecution is unjustifiable.” Judge Weinstein appropriately treated the application as a petition for habeas corpus, 28 U.S.C. § 2241. See Preiser v. Rodriguez, 411 U.S. 475, 93 S.Ct. 1827, 36 L.Ed.2d 439 (U.S.1973). On January 19, 1973, after two hearings, the district court found that further imprisonment of Thorne in default of bail without trial would violate his constitutional right to a prompt trial. He ordered that Thorne be released on his personal bond of $4,000 secured by $400 cash to cover all three indictments unless trial should be commenced within 40 days or unless, within 60 days, there had not been a conviction on one of the charges or a disposition of all three of them. The Warden of the Brooklyn House of Detention for Men, represented by the District Attorney for Kings County, appealed pursuant to 28 U.S.C. § 2253. We stayed the district court’s order pending disposition of the appeal. On argument of the appeal on March 22, 1973, the Assistant District Attorney advised us that the State would be ready on March 26 to proceed with trial of one of the three indictments against Thorne in the Kings County Supreme Court. Because Thorne’s counsel was actively engaged on trial elsewhere on the latter date, trial was not commenced until April 2, 1973, more than 14 months after Thorne had been arrested. On April 5, 1973, the trial terminated, with Thorne’s conviction of 2nd Degree Robbery and two counts of Petty Larceny. Since Thorne is now held as a convicted defendant rather than merely on a criminal charge not yet brought to trial, the issue as to the legality of his continued pretrial detention has been mooted, and it therefore becomes unnecessary to resolve the constitutional issues presented. See United States v. Baca, 444 F.2d 1292, 1296 (10th Cir. 1971). Cf. Clayton v. Stone, 123 U.S.App.D.C. 181, 358 F.2d 548 (D.C.Cir.1966). However, since the records of the Kings County Supreme Court indicate that Thorne’s incarceration is not atypical, we cannot let this occasion pass without expressing the hope that the serious conditions disclosed by the record in this case will be eliminated by the State’s provision of additional judges, facilities and personnel needed to enable the State judiciary to afford a speedy trial to each accused person who is incarcerated pending trial. The appeal is dismissed as moot. . On April 25, 1972 bail in the sum of $5,000 was set on each of the first two indictments (Nos. 937 and 2865). On June 7, 1972, a motion to reduce bail was denied. On October 13, 1972, additional bail in the sum of $5,000 was fixed on the third indictment (No. 2090). On January 9, 1973, bail was reduced to $3,500 on indictments Nos. 937 and 2865, and to a $3,500 bond or $2,000 cash on indictment No. 2090. . As of December 1, 1972, there were 2,696 defendants jailed in Kings County awaiting trial on felony charges, of whom 935 had been held more than 90 days and 644 for more than six months. Monthly Reports of Special Committee for The Purpose of Alleviating Overcrowded Conditions Prevailing in Local Houses of Detention and To Expedite Disposition of Criminal Cases, pursuant to Order of Hon. Samuel Rabin, Presiding Justice of the Appellate Division, Second Department, Kings County, New York. These figures represent a substantial increase over the number of persons jailed and awaiting trial in 1970 and 1971, when we expressed our concern in United States ex rel. Frizer v. McMann, 437 F.2d 1312 (2d Cir.) (en banc), cert. denied, 402 U.S. 1010, 91 S.Ct. 2196, 29 L.Ed.2d 433 (1971). The backlog of such cases in Kings County increased 60% during the year 1972 alone. People ex rel. Franklin v. Warden, Brooklyn House of Detention for Men, 31 N.Y.2d 491, 341 N.Y.S.2d 604, 294 N.E.2d 199 (N.Y.Ct. of Appeals, Feb. 16, 1973). Report to the New York State Bar Association by its Special Committee on the Administration of Criminal Justice, Jan. 23, 1973, at 6. The increase in the backlog of cases involving jailed detainees awaiting trial in Kings County is attributed to the increase in the number of arrests and the limited number of cases that can be disposed of by the existing 21 Trial Parts and supporting facilities. During the period from November 1, 1971, to December 1, 1972, for instance, the already overburdened Kings County Supreme Court, using its facilities to the maximum, was able to dispose of only 575 cases by trial. Report of the Management Planning Unit of the Judicial Conference of the State of New York, Statistical Summaries and Com-parsions for New York, Bronx, Kings and Queens Counties, Table II and Appendix 1C (Jan. 2, 1973). Since the State’s practice is to bring defendants to trial according to the sequence of presentment of their cases to the grand jury as reflected by the index numbers on their respective indictments, a defendant in Thorne’s position must wait for his trial until those detainees indicted before him are tried. The delay may be as long as 16 months. Although preferences have been granted to a few, see, e. g., People ex rel. Franklin v. Warden, supra, preferences are not assured as a matter of right, constitutional or otherwise. Indeed, with a limited number of Trial Parts available in Kings County, a preference granted to one defendant prejudices the rights of those scheduled to be tried ahead of him under the foregoing system, since they must wait that much longer until the “preferred” case is tried. It is also apparent that if more preferences were granted they would become less effectual in assuring early trials to those receiving them.

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UNITED STATES of America,. Plaintiff-Appellant, v. Stanley ROBINSON, Defendant-Appellee. No. 73-1445. United States Court of Appeals, Seventh Circuit. Argued May 25, 1973. Decided June 5, 1973. Rehearing Denied June 21, 1973. Swygert, Chief Judge, dissented and filed opinion. James R. Thompson, U. S. Atty., William T. Huyck, Asst. U. S. Atty., Chicago, 111., for plaintiff-appellant. Edward M. Genson, William J. Stevens, Chicago, 111., for defendant-appel-lee. Before SWYGERT, Chief Judge, and PELL and SPRECHER, Circuit Judges. SPRECHER, Circuit Judge. This is an appeal by the government under 18 U.S.C. § 3731 from the order entered May 15, 1973 granting defendant’s motion to suppress certain items named in a search warrant issued on July 27, 1972, namely: a clip for a .45 caliber automatic pistol, rounds of .45 caliber and other ammunition, and knives. We reverse. I. In the affidavit for search warrant the affiant, Special Agent Roy M.Mitchell of the FBI, stated that an informant who had provided reliable information over a period of years informed him on May 18, 1972 that in the evening of the preceding day Stanley Robinson, a Chicago Police Department Sergeant, had arrested one Jeff Beard on the street in Chicago for an alleged armed robbery, had handcuffed Beard, and then had driven him to a location in Gary, Indiana and there shot him with a .45 caliber automatic pistol and cut his throat with a knife, killing him. The affidavit also stated that Mitchell went with the informant to that place and found a body, which proved to be that of Jeff Beard. The throat was cut and a .45 caliber bullet was found in the body. The affidavit further recited that several days later Mitchell came into possession of the .45 caliber automatic pistol “reportedly used by Stanley Robinson in the kidnap-murder of Jeff Beard,” but it did not say how he got it or the source of the information that it was the murder weapon. The affidavit further recited that “on June 21, 1972, Kelly Fox, apartment # 14, 808 Lakeside Street, Chicago, informed affiant that . . . Robinson resides with her and their daughter on the average of two or three nights per week, and has done so over the past 7 years,” and that Robinson kept “his personal belongings in the closet.” It is recited that on July 18 and 19 affiant again talked with Kelly Fox at her apartment and that she stated that “items left by Robinson shortly before his disappearance on June 26, 1972 are contained in two suitcases and two cardboard boxes in the closet just off the living room in her apartment. She stated that affiant could look at these items since they were left in her care, but would not allow seizure of any items without a search warrant.” The affidavit then recited that affiant “observed a clip for a .45 caliber pistol and miscellaneous rounds of ammunition, including .45 caliber ammunition and other calibers, as well as miscellaneous knives, including a switchblade knife.” The affiant, the affidavit went on to recite, had no way of knowing whether the clip observed was the clip from the pistol reported to be the murder weapon, and an examination by the FBI laboratory in Washington was necessary. A search warrant was issued on July 27, 1972, authorizing the seizure of the clip, the ammunition, the knives, “and other evidence.” The warrant was executed by the seizure of the articles named therein and also miscellaneous papers and some photographs. II. After an evidentiary suppression hearing, the district judge found that the reliability of the informer’s information “was corroborated by the fact of the slaying, the identity of the victim, the location of the body, the infliction of the bullet wound, the infliction of the knife wound, and that Robinson had in his possession and stored in a closet in an apartment he shared with his paramour a clip for a .45 automatic, .45 caliber ammunition and knives capable of inflicting the knife wound.” He concluded that “[a] 11 this constituted sufficient probable cause for the issuance of the warrant authorizing seizure of the clip, the .45 caliber ammunition and the knives.” However, the district judge further concluded that the warrantless searches of the boxes on June 21 and July 18 were unlawful and that therefore the search warrant based in material part on information gained in those searches must be held invalid. We disagree with the latter conclusion. III. Evidence adduced at the suppression hearing supported in substantial detail the facts recited in the search warrant. The hearing further disclosed that Kelly Fox also had belongings in the apartment closet off the living room; that men’s and women’s clothing hung from a rack in the closet, about two-thirds of it being women’s clothing; that nothing was seized from the two suitcases; that the two cardboard boxes were about I1/2' xl^'x T, one being a little larger than the other; that “one didn’t have a top and the other one’s top wouldn’t close because it was too full;” that most of the contents of the boxes consisted of papers, including letters, bills, police reports, police bulletins, class notes and pieces of paper with license numbers written on them; and that also in the boxes but apparently not visible until papers were removed, were the .45 caliber clip, the ammunition and the knives. The hearing also revealed that Agent Mitchell had been accompanied by FBI Agent Roten and a Chicago police officer on June 21 and by Agent Roten on July 18, 1972 when the Fox apartment was searched; that on both occasions Kelly Fox served coffee to the men; and, as expressly found by the district judge, that “as the agents testified, she purported to authorize the search and made no protest as it was going on.” Between the June 21 and the July 18 searches, Robinson had disappeared and a warrant had been issued for his arrest. He had taken a metal box and some other items with him when he disappeared. IV. It is clear that “where two persons have equal rights to the use or occupation of premises, either may give consent to a search, and the evidence thus disclosed can be used against either.” United States v. Sferas, 210 F.2d 69, 74 (7th Cir.), cert. denied, Skally v. United States, 347 U.S. 935, 74 S.Ct. 630, 98 L.Ed. 1086 (1954); United States v. Stone, 471 F.2d 170, 173 (7th Cir. 1972), cert. denied, 411 U.S. 931, 93 S.Ct. 1898, 36 L.Ed.2d 391 (1973). A defendant’s paramour may give valid consent to the search of premises they jointly occupy. United States v. Airdo, 380 F.2d 103, 106-107 (7th Cir.), cert. denied, 389 U.S. 913, 88 S.Ct. 238, 19 L. Ed.2d 260 (1967). The rule is not based on principles of agency but rather on the “reasonableness, under all the circumstances, of a search consented to by a person having immediate control and authority over the premises or property searched. Cf. Roberts v. United States, [332 F.2d 892,] 896-897 (8th Cir. 1964)].” Id. The rule is not based upon the joint possessor’s right to waive the other’s constitutional rights but on her “own rights to authorize entry into the premises where she lives and of which she had control.” Roberts v. United States, supra, 332 F.2d at 897. The district court found that in this case “as in Airdo, the paramour ‘lived in the apartment and therefore had authority to consent to a search of it,’ including the foyer closet where the boxes were kept. She jointly used the unlocked closet.” The consent given by Fox was voluntary. The question is whether a search of the two cardboard boxes was permissible. At the outset it is obvious that this question is not solved by those cases where a defendant-tenant claims exclusive occupancy to a specified portion of larger premises occupied by a consenting landlord. United States v. Mattlock, 476 F.2d 1083 (7th Cir. 1973). Here no landlord-tenant relationship existed between Kelly Fox and the defendant, nor does the defendant claim exclusive dominion and control over a specific room or portion of a room or particular area of the apartment. Cf. United States v. Wixom, 441 F.2d 623, 625 (7th Cir. 1971), where Judge Kiley said: “Each had equal rights to the use and occupation of the premises at the time of the search, and either could give consent to the search, the fruit of which would be admissible against the other party.” The question must be approached in the light of several policy considerations : First, the Fourth Amendment protects against search areas “where, like a home ... a person has a constitutionally protected reasonable expectation of privacy.” Katz v. United States, 389 U.S. 347, 360, 88 S.Ct. 507, 516, 19 L.Ed.2d 576 (1967) (Harlan, J., concurring). If a spouse does not have complete expectation of privacy in his own home in view of the possibility of his mate’s consent, the casual lover who drops in at his convenience can hardly expect more when he turns his part-time home over to the full-time dominion of his paramour and then places his belongings in unlocked, uncovered cardboard boxes in a closet frequented by her. Here the defendant also impliedly disavowed any expectation of privacy in the cardboard boxes when he disappeared with a metal box and other belongings but ignored the cardboard boxes. A second policy consideration surfaces when the defendant is absent from his dwelling by reason of flight or hiding from law enforcement officers for fear of arrest, at which time a strong case for third party consent is presented. United States v. Stone, 471 F.2d 170, 177 (7th Cir. 1972) (Swygert, J., dissenting), cert. denied, 411 U.S. 931, 93 S.Ct. 1898, 36 L.Ed.2d 391 (1973); Wade v. Warden, Maryland Penitentiary, 278 F.Supp. 904 (D.Md.1968). In the present case, the defendant had fled prior to the July 18 search. Finally, there are the policy considerations posed by Frazier v. Cupp, 394 U.S. 731, 89 S.Ct. 1420, 22 L.Ed.2d 684 (1969), where Mr. Justice Marshall delivered the opinion for a unanimous Court. A duffel bag was being jointly used by defendant and his cousin Rawls and it had been left in Rawls’ home. Both Rawls and his mother consented to the search. Defendant argued that Rawls only had actual permission to use one compartment of the bag and that he had no authority to consent to a search of the other compartments, in one of which the officers found some of defendant’s belongings. The Court said at 394 U.S. 740, 89 S.Ct. 1425: “We will not, however, engage in such metaphysical subleties in judging the efficacy of Rawls’ consent. Petitioner [defendant], in allowing Rawls to use the bag and in leaving it in his house, must be taken to have assumed the risk that Rawls would allow someone else to look inside. We find no valid search and seizure claim in this ease.” The police might be deterred from employing consent searches altogether if they were required to ascertain the ownership or possession or custody of every article or space on the premises searched. The metaphysical subleties would be endless and consent searches would be lost from the law enforcement arsenal. This case is quite similar to White v. United States, 444 F.2d 724 (10th Cir. 1971), where a paramour gave permission to officers to search a motel unit occupied jointly by her and the defendant, leading to the search of a small, cloth zipper bag owned by the defendant. The court concluded that the paramour’s consent to the motel search extended to the defendant’s bag. The case relied upon by the defendant and the district court in this case, United States v. Poole, 307 F.Supp. 1185 (E.D. La.1969), is distinguishable. Poole was an overnight guest in Dickson’s apartment and had left his overnight bag in the hall closet. When the officers obtained Dickson’s consent to the search at 1:15 A.M. in the morning, Poole was present in the bedroom and his consent was neither given nor sought. Since evidence obtained in a search is inadmissible against a person having equal rights in the premises if he is present at the time of the search and does not consent, Lucero v. Donovan, 354 F.2d 16 (9th Cir. 1968), the Poole case does not detract from the interspousal consent doctrine of Sferas, Airdo and Stone. The portion of the order of May 15, 1973, granting defendant’s motion to suppress the clip for a .45 caliber automatic pistol, rounds of .45 caliber and other ammunition and knives is reversed. SWYGERT, Chief Judge (dissenting). I respectfully dissent. With all due deference to my colleagues, I believe that impermissible inferences are drawn from the record, certain findings made by the trial judge are overruled without holding them to be clearly erroneous, my dissent in United States v. Stone, 471 F.2d 170 (7th Cir. 1972), is misread, and Frazier v. Cupp, 394 U.S. 731, 89 S. Ct. 1420, 22 L.Ed.2d 684 (1969), is extended to the point of creating a grievous inroad on protections heretofore guaranteed by the fourth amendment. The majority characterizes Robinson as a “casual lover” who, having turned “his part-time home over to the full-time dominion of his paramour,” dropped in thereafter “at his convenience.” The findings of the trial judge do not support this view. The judge did not find that Robinson had given up possession of his home; he found merely that Robinson had disappeared from police view. Nor can Robinson be called a “casual” lover. The names “Fox-Robinson” were displayed on the doorbell-mailbox of the apartment in question, and the district judge credited the testimony of Fox that she had known Robinson for seven years and had had a daughter by him who lived with her in the apartment. There is another bothersome aspect of the view taken by the majority. If Robinson had turned over his “part-time” home to the “full-time dominion of his paramour,” why need the majority rely so heavily on cases which authorize consent by a joint possessor? A similar inquiry must be made with reference to the majority’s theory that Robinson had relinquished possession of the boxes by abandonment upon his disappearance. Neither question, I submit, has an answer. A more basic error of the majority is their failure to recognize that Robinson’s disappearance occurred after the Government agents had once gone through his boxed possessions and had discovered the items eventually listed in their request for a warrant. The FBI first came into contact with Fox on June 21, 1972, when they obtained and acted upon her consent to search the boxes on the closet floor. Robinson disappeared five days later. On July 18, the FBI reappeared at the request of Fox and again searched the boxes with her consent after inquiring whether the items were still on the premises. The trial judge held, on the authority of Sil-verthorne Lumber Co. v. United States, 251 U.S. 385, 40 S.Ct. 182, 64 L.Ed. 319 (1942), that if the warrantless search of June 21 was illegal, all subsequent activity by the agents, even if otherwise legal, was thereby tainted, requiring the suppression of the items seized by warrant on July 27. This holding could have been based only on the presupposition that the search of July 18 would probably not have occurred but for the search of June 21. This factual inference cannot be overruled unless clearly erroneous. The majority does not so characterize the finding, nor can I, particularly in light of the fact that the agents asked Fox, on July 21, “whether the boxes were still” in her apartment, (emphasis added). This same error inheres in the majority’s theory that Robinson abandoned the boxes, as well as in their “flight” rationale borrowed from my dissent in Stone. Both the flight and the supposed abandonment occurred after the agents had made their initial search on June 21. I take issue with the abandonment theory on the additional ground that it has, at best, sketchy support in the record. When a person is in flight from law enforcement officers, he does not relinquish his rights under the fourth amendment. To hold that that property which he has left behind ceases to enjoy the protection of that amendment simply because he has chosen to take a few other possessions with him is to deprive him of a legitimate right to privacy. I might add in passing that the Government has made no attempt to argue abandonment. As to the majority’s reliance on the fact that Robinson was in hiding from law enforcement officials, neither my dissent in Stone nor Wade v. Warden, Maryland Penitentiary, 278 F.Supp. 904 (D.Md.1968), support them. Stone dealt with a consent to search obtained from a suspect’s wife only minutes after he had been taken into custody. I took the view that search by consent of third parties is reasonable under the fourth amendment only where well defined exigent circumstances exist, one of which might be the absence of a suspect by reason of flight or hiding. This was not the case in Stone since Stone could have been asked for his consent at the time of search. Neither the majority nor I reached the issue of the proper scope of search given a valid consent; our sole focus was upon whether any search by consent would lie. Wade is similarly distinguishable. Having dissented in Stone, I accept the rule of this circuit that “where two persons have equal rights to the use or occupation of premises, either may give consent to a search,” United States v. Sferas, 210 F.2d 69, 74 (7th Cir.), cert, denied, 347 U.S. 935, 74 S.Ct. 630, 98 L. Ed. 1086 (1954). As the very statement of the rule suggests, however, a question in every case such as this must be whether the third party who consents is in fact or in appearance a joint possessor. In United States v. Mattlock, 476 F.2d 1083 (7th Cir. 1973), cert, granted, 412 U.S. 917, 93 S.Ct. 3006, 37 L.Ed.2d 1000, this circuit held that a defendant’s “constitutional rights could be waived only if it was proved [by the Government] that reasonable appearance of authority to consent existed and, also, that just prior to the search, facts existed showing actual authority to consent.” On this authority, the Government’s failure of proof is beyond dispute. And even if apparent authority were the sole criterion, the Government could not maintain its position. How can it be argued that Fox was the apparent joint possessor of Robinson’s boxes when she told the FBI on June 21 that the boxes belonged to Robinson? The argument becomes more unreasonable when note is taken of the trial judge’s finding that Fox, in referring to the boxes, told the agents on July 18 that “Robinson didn’t like for her to go through his things.” (emphasis added). Nevertheless, the majority upholds her consent, declining to engage in “endless . metaphysical subtleties.” The authority for their reticence is comprised of two cases, Frazier v. Cupp, 394 U.S. 731, 89 S.Ct. 1420, 22 L.Ed.2d 684 (1969), and White v. United States, 444 F.2d 724 (10th Cir. 1971), both of which are distinguishable. The Court in Frazier concluded that the defendant, “in allowing Rawls [consenting party] to use the bag and in leaving it in his house,” took the risk that Rawls would allow a search. 394 U.S. at 740, 89 S.Ct. at 1425. In this case the preponderance of evidence showed no joint use and the trial judge so found. Robinson cannot be said to have assumed the risk that Fox would permit others to search his personal belongings, having told her that he “didn’t like for her to go through his things.” The agents were apprised of Robinson’s statement before they made the second search, unlike the situation in Frazier, where Rawls made no mention of the fact that the bag belonged to someone else. Rawls thus had at least apparent authority to consent. The same may be said of White, where the paramour made no assertions that property searched and seized was not hers. The distinction is important. The Government argues in its brief: “The constitutional rights of a defendant should not depend on the accident of whether or not his spouse describes their property arrangements to searching officers.” I am in agreement, though not as the Government would have it. The requirement that apparent authority exist for a consent to search reflects the need to hold police officers to what they hear and observe. If a man tells police he is a janitor and admits them to the room of a tenant, they cannot thereafter claim that they thought him to be the lessee. But when the consenting party says nothing, as in White, a search is often upheld. No longer, however, may the Government rely on silence; Mattlock effectively places upon the police the burden of determining whether a person encountered at the door has the authority to consent. Another contention of the Government, set forth in its brief, is that the conclusions of the trial court are contrary to the purpose of the exclusionary rule and opposed to the interests of law enforcement: The drastic sanction of the exclusionary rule was designed to deter official misconduct in the perpetration of unreasonable searches and seizures. How are officers to be deterred by facts which they do not know? The “expectations of privacy” between joint occupants of an apartment would not be readily apparent. It is true that the trial court emphasizes the fact that Miss Fox told the officers the boxes belonged to Robinson. But this cannot be the basis of a rule, or else third party consent searches would disappear altogether. In every such situation, it is made clear that it is precisely the property of the absent defendant which the officers want to search. This argument assumes too much. The police may search for and seize property of a suspect so long as they limit their entry to areas in which the consenting party has rights of joint tenancy and so long as the items seized have at a minimum some ostensible relevance to their investigation. Here a murder investigation was underway. Had the police seen the weapons and ammunition lying on a kitchen table, I entertain no doubt that those items could properly have been seized. But the items were not in plain view; they were concealed in a box of Robinson’s personal belongings. To allow Robinson his privacy in that box would not, as the majority assumes, require the police “to ascertain the ownership or possession or custody of every article or space on the premises searched.” They need only be certain that their examination is confined to spaces jointly shared by the tenants or within the sole dominion of the consenting party. To require less is to say that no person sharing a home with another enjoys a right to privacy free of his co-tenant’s discretion. The Government cites numerous cases where courts have approved a third party consent search of containers exclusively used by defendants but found on shared premises. Yet few of these cases deal with the scope of search, and in none was there an express disavowal of joint possession. Cases which have dealt directly with the scope of a third party consent search are largely contrary to the Government’s position. A typical case is State v. Evans, 45 Haw. 622, 372 P.2d 365 (1972), where the Hawaii Supreme Court accepted the joint control rule but found the search unreasonable because the consenting wife had allowed the search to include not only common areas of the house, but her husband’s personal effects, namely, some jewelry hidden in a cuff link case located in a bedroom bureau drawer. The court held: Clearly, one in joint control of the premises, at least when no objection is made by the other occupant, may admit police officers to the house, and the question of coercion aside it also is clear that no illegal search is involved as to what is in plain sight when the police officers are so admitted. See People v. Howard, 166 Cal. App.2d 638, 334 P.2d 105. We are not prepared to say how much further the officers may proceed or whether we agree with the above-cited cases on their facts. None of them goes so far as to hold that a wife in joint occupancy of the home can permit a search of her husband’s personal effects to discover jewelry hidden in a cuff link case in a bedroom bureau drawer. The wife has no such right. 372 P.2d at 371-372. For other cases accepting this view, see Gurleski v. United States, 405 F.2d 253 (5th Cir. 1968), cert, denied, 395 U.S. 981, 89 S.Ct. 2140, 23 L.Ed.2d 769 (1969); Roberts v. United States, 332 F.2d 892, 897 (1964) (both of which note that the search did not extend to the “personal effects” of the appellant); United States v. Poole, 307 F.Supp. 1185 (1967); People v. Carter, 48 Cal.2d 737, 312 P.2d 665 (1957) ; State v. McCarthy, 20 Ohio App.2d 275, 253 N.E. 789 (1969); People v. Gonzalez, 50 Mise. 2d 508, 270 N.Y.S.2d 727 (1966); see Reeves v. Warden, 346 F.2d 915 (4th Cir. 1965); Holzhey v. United States, 223 F.2d 823 (5th Cir. 1955); Cass v. State, 124 Tex.Cr.R. 208, 61 S.W.2d 500, 504 (1933). I would affirm the suppression order of the district court. . The district judge further found: “I do not credit . . . [Kelly Fox’s] testimony to the effect that she asked them on . [both occasions] not to go through the boxes because they contained Robinson’s things, or that she did not give her consent to the search of the closet and the boxes.” . It is patent that Robinson did much more than drop in “at his convenience” before lie disappeared on June 26. The district judge found: They [FBI Agents] asked her [Fox] how often lie was at the apartment. She said he stayed there two nights a week, according to her testimony, or three or four, according to the agents. She said he worked 5 nights a week and was there during the daytime hours almost every clay on which he was on night duty. . The majority states: Here the defendant also impliedly disavowed any expectation of privacy in the cardboard boxes when he disappeared with a metal box and other belongings but ignored the cardboard boxes. . The findings of the trial judge included these: The contents of the boxes were, in the Fourth Amendment’s phrase, “papers and effects,” and principally papers. Apart from the snapshots, which are discussed below, the contents of the boxes were exclusively Robinson’s papers and effects and not Kelly Fox’s. It is true that the boxes were not sealed, and one had no top and the other was not completely closed because it was too full; but that circumstance, while it gives the government its strongest argument, relates only to whether Robinson had reasonable expectations of privacy in, exclusive control over, and the right to exclude others from, the boxes. The condition of the boxes perhaps shows carelessness on Robinson’s part but under all the circumstances hardly deprives them and their contents of their status as his personal papers and effects or negatives a reasonable expectation that others would not go through them without his permission. The only evidence that the boxes contained anything belonging to Kelly Fox is Agent Roten’s and Officer Tobin’s testimony that certain snapshots, at least one of which she said was hers, were found in one of the boxes. It turned out that the snapshot she referred to, showing, inter alia, an American Indian in native dress, was a copy of one which, with other snapshots, was in a dresser drawer she shared with Robinson in a bedroom in the apartment. She testified that the snapshots the agents said came from the boxes in fact came from the dresser drawer. The evidence that the snapshots were found in one of the boxes rather than in the dresser drawer is not convincing to me. The best that can be said for Officer Tobin’s testimony is that he did not appear to remember the pertinent facts. I am not convinced that Agent Roten remembered where the snapshots were found, although he thought he did. It must be recalled that he was not aware, even at the time he testified, that Officer Tobin had searched the dresser drawers in the bedroom, where many snapshots admittedly were kept. Since last summer, recollection and surmise may well have merged concerning a point apparently thought to be of little significance. But assuming the snapshots were in one of the boxes, this is scant evidence, absent any indication of how they came to be there. It appears unlikely, considering all the other facts and circumstances, that Kelly Fox ever used the boxes or looked into them. The government has the burden of proving facts which would justify the warrantless search. . Stone is just such a case. It is also distinguishable in that the green tackle box was itself an important piece of evidence, having been previously observed by numerous witnesses, and was lying in plain view of an area where the officers had a right to be under United States, v. Airdo, 380 E.2d 103 (7th Cir.), cert, denied, 389 U.S. 913, 88 S.Ct. 238, 19 L.Ed. 2d 260 (1967). . The boxes here had no evidentiary value; the important matter was concealed therein. . The majority distinguishes Poole in this fashion: Since evidence obtained in a search is inadmissible against a person having equal rights in the premises if he is present at the time of the search and does not consent, Lucero v. Donovan, 354 E.2d 16 (9th Oir. 1968), the Poole case does not detract from the inter-spousal consent doctrine of Sferas, Airdo and Stone. I cannot reconcile this distinction with our recent holding in Stone.

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ON-LINE SYSTEMS, INC., and Conversational Systems, Inc., Plaintiffs-Appellees, v. Robert B. STAIB et al., Defendants-Appellants. Nos. 78-1070, 73-1085. United States Court of Appeals, Eighth Circuit. Submitted April 13, 1973. Decided May 31, 1973. Rehearing Denied June 25, 1973. William E. Davis, Davenport, Iowa, for defendants-appellants. Ralph D. Sauer, Davenport, Iowa, for plaintiff s-appellees. Before MEHAFFY, BRIGHT, and ROSS, Circuit Judges. BRIGHT, Circuit Judge. Robert B. Staib, an electronics engineer, owned, controlled, and worked for Conversational Systems, Inc. (CSI). In 1970, he contracted to sell the capital stock of CSI to On-Line Systems, Inc., a Pennsylvania corporation engaged in the business of selling computer time to industry. A part of that agreement provided that Staib was not to be employed in any business competitive to the business of CSI for a period of three years. Within the three-year period, Staib left CSI to work for a competitor of On-Line and CSI, which resulted in OnLine and CSI bringing an action against Staib and others for breach of the non-competition clause of the agreement. During the course of the litigation, OnLine and CSI applied for a preliminary injunction enjoining Staib’s employment with firms competing with the plaintiffs. The district court granted this injunction on January 2, 1973, and Staib promptly brought this appeal. For reasons enunciated below, we find it neees-sary to vacate the injunction and remand the case for further proceedings. Paragraph 20 of the July 31, 1970, agreement between Staib and On-Line provided: The selling shareholder agrees that for a period of three (3) years after the closing date he will not, directly or indirectly, own, manage, operate, control or be employed or associated with any business competitive to the business of CSI except that he may own securities listed and traded on the New York or American Stock Exchanges. At oral argument the parties agreed that the law of Pennsylvania governs the construction of this clause of the agreement. Appellant-Staib appears not to have directly challenged the validity of the noncompetition clause under Pennsylvania law in opposing the motion for a temporary injunction, but he has raised the issue in his brief on appeal by arguing that the injunction was overly broad in affording more protection than necessary to protect OnLine’s competitive position. Oral argument and questioning from the bench raised a substantial question as to the validity of this clause under Pennsylvania law. The courts of Pennsylvania do enforce reasonable covenants not to compete, but reasonableness is measured by appropriate limitations on duration (a point not here questioned) and geographic area. The Pennsylvania law seems aptly summarized in Certified Laboratories of Texas, Inc. v. Rubinson, 303 F.Supp. 1014, 1022-1023 (E.D.Pa. 1969): In Pennsylvania the law of covenants not to compete ancillary to employment agreements has been reduced to cant. We learn that such covenants are restraints upon trade and as such are not viewed with favor; that they are subject to a more stringent test than those ancillary to the sale of a business; and that they are prima facie enforceable if “reasonably limited in duration of time and geographical extent.” Morgan’s Home Equipment Corp. v. Martucci, 390 Pa. 618, 628, 136 A.2d 838, 844 (1957). Accord, Jacobson & Company, Inc. v. International Environment Corp., 427 Pa. 439, 235 A.2d 612 (1967); Capital Bakers, Inc. v. Townsend, 426 Pa. 188, 231 A.2d 292 (1967); Barb-Lee Mobile Frame Co. v. Hoot, 416 Pa. 222, 206 A.2d 59 (1965). “General covenants are reasonably limited if they are ‘within such territory and during such time as may be reasonably necessary for the protection of the employer * * * without imposing undue hardship on the employee * * * ’. Restatement Contracts, § 516(f) (1932).” Morgan’s Home Equipment Corp. v. Martucci, supra, 390 Pa. at 628, 136 A.2d at 844. The burden of proving that a covenant is not reasonably necessary for the protection of legitimate business interests and an undue hardship upon the employee is upon the convenantor. Jacobson & Company, Inc. v. International Environment Corp., supra, 427 Pa. at 451, 235 A.2d 612. As indicated in Certified Laboratories, Pennsylvania courts are apparently more amenable to enforcing noncompetition covenants ancillary to the sale of a business than those ancillary to employment contracts. Appellant argues that the noncompetition agreement here was ancillary to an employment agreement and therefore should not be enforced due to its lack of geographic restrictions. While the agreement may have been ancillary to the sale of a business in form, the district court’s discussion in its rulings on the preliminary injunction seem to indicate that it regarded Staib as an employee of On-Line, despite the existence of the CSI corporate form. Thus at least arguably the noncompetition agreement was in effect made in connection with an employment agreement. However, we need not decide that issue here. Since the noncompetition clause contains no geographic limitation whatever, we have serious doubts as to whether the clause is sustainable under either theory. See Plunkett Chemical Co. v. Reeve, 373 Pa. 513, 95 A.2d 925 (1953). Although, as suggested by On-Line, the district court may properly reduce the geographic area of a too broad covenant, Jacobson & Company, Inc. v. International Environment Corp., 427 Pa. 439, 235 A. 2d 612 (1967), the district court has not so restricted its injunctive relief. Accordingly, we set aside the injunctive order. Reversed and remanded. No costs are awarded. . The preliminary injunction permitted Staib to continue his present employment with defendant, Applied Kinetics, Inc. (AKI), only “if AKI does not in any manner directly or indirectly, sell, compete or solicit sales of systems competitive to On-Line and does not do any work on computer programs or computer hardware for customers * *

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UNITED STATES of America, Appellee, v. Joseph POLLARD, Appellant. No. 73-1006. United States Court of Appeals, Eighth Circuit. Submitted May 17, 1973. Decided May 18, 1973. Leonard J. Frankel, Clayton, Mo., for appellant. Frederick J. Dana, Sp. Atty., Office for Drug Abuse Law Enforcement, St. Louis, Mo., for appellee. Before MATTHES, Chief Judge, and LAY and STEPHENSON, Circuit Judges. ORDER This cause, having been duly briefed and argued, was submitted to this court on May 17, 1973. A contention relied upon most heavily by the appellant is that since his convictions are for sales of heroin in transactions arranged by and participated in by a paid government informer, Richard Armstrong, whom the government apparently has used in this role in other eases, and since appellant's defense is entrapment, and since his two attempts to subpoena Armstrong as the sole witness to corroborate his allegations of entrapment were unavailing, the burden then rested upon the government “to expend every reasonable effort” to produce its employee so the defense could call him as a witness. Velarde-Villarreal v. United States, 354 F.2d 9 (9th Cir. 1965). The appellant moved the trial court to order the government to produce Armstrong, but this motion was denied. “[S]ince the government chooses to utilize such agents, with the attendant risk of entrapment, it is fair to require the government which uses this inherently dangerous procedure to take appropriate precautions to insure that no innocent man should be punished. If [the informer] is available for hire, he should be available to come and testify . . . [and] [w]e think whether there was a failure to expend every reasonable effort to obtain the witness is a question of fact for the trial judge.” 354 F.2d at 13. Therefore in accordance with the teachings of Velarde, we remand the cause “to the trial court for the [limited] purpose of holding a further hearing at which the Government shall be given the opportunity of proving if such be the case that it was genuinely unable through reasonable efforts to produce [Armstrong] and also, if such be the case, that the Government did not take steps to see to it that [Armstrong] would be or become unavailable as a witness. The burden of proving these things should be on the government.” Id. The court upon remand may hear such evidence as it deems necessary and proper, and then shall certify its findings to this court.

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Mrs. Geraldine STEWART et al., Plaintiffs, Mary K. McKague et al., Plaintiffs-Appellees-Cross Appellants, v. ATLANTIC PIPE LINE COMPANY et al., Defendants-Appellants-Cross Appellees, v. TEXAS GENERAL INDEMNITY COMPANY, Intervenor-Appellee. No. 72-1543. United States Court of Appeals, Fifth Circuit. May 11, 1973. Dale Dowell, Beaumont, Tex., for Atlantic Pipe Line Co. Walter Umphrey, Port Arthur, Tex., for Mary K. McKague. John G. Tucker, Beaumont, Tex., for Texas Gen. Indemnity Co. and others. H. P. Wright, Port Neches, Tex., for Geraldine Stewart. Before TUTTLE, WISDOM and GOD-BOLD, Circuit Judges. ON PETITION OF ATLANTIC PIPE LINE COMPANY, ET AL FOR REHEARING AND ON THE PETITION OF THE McKAGUE PLAINTIFFS FOR AN AMENDMENT TO THE MANDATE HERETOFORE ENTERED BY THE COURT PER CURIAM: As indicated in our opinion entered December 12, 1972, the trial court erred by entering a remittitur in the sum of $30,000 of the $50,000 awarded to each child, after a jury verdict for $50,000 in favor of each. The law of this circuit requires that in the event the trial court concludes that a jury verdict for damages so far departs from the evidence as to warrant his granting a new trial with respect to the amount of damages, it should simply grant a new trial on the damage issue or it should give the winning party an option of having a new trial or agreeing to a remittitur of a part of the amount found in the jury verdict. See Gorsalitz v. Olin-Mathieson Chemical Corporation, 5 Cir., 429 F.2d 1033 (1970). The appropriate action for this court to have taken, therefore, was to reverse the judgment of the trial court and to remand the case to that court for further proceedings not inconsistent with the opinion, instead of remanding the case to the trial court for the entry of a judgment in the full amount found by the jury to be due. Although the petition for rehearing did not expressly call our attention to this disposition by our mandate, the subsequent petition by the McKague heirs for a modification of the mandate has caused us to read it more carefully, and we conclude that the error must be corrected. The last paragraph of the opinion is, therefore, stricken and the following is substituted therefor: “The judgment is affirmed on the principal appeal, and it is reversed on the appeal of the minor children and remanded to the trial court for further proceedings not inconsistent with this opinion.” The mandate heretofore issued is recalled and this mandate is substituted therefor.

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UNITED STATES of America, Appellee, v. Patrick J. O’SHEA, Appellant. No. 73-1142. United States Court of Appeals, First Circuit. Submitted May 7, 1973. Decided May 21, 1973. Before COFFIN, Chief Judge, Mc-ENTEE and CAMPBELL, Circuit Judges. COFFIN, Chief Judge. Petitioner, Patrick J. O’Shea, was convicted in early 1967 of bank robbery and assault with a dangerous weapon, 18 U. S.C. § 2113(a) and (d), and sentenced that same year to twenty years in prison. Before imposing sentence, the court stated that “[i]n deciding upon the sentence, I consider as elements against you your previous records, which are serious, your having served time in state prison, the seriousness of the offense here, and all of the circumstances. The only factor which I consider to be in your favor is that this was not as aggravated an armed robbery as some are [and thus] not a case for imposition of the maximum sentence, which is recom-' mended by the government.” Petitioner’s conviction was affirmed by this court in an unpublished memorandum and order in March 1971. Apparently desirous of voiding his sentence, in late 1972 petitioner moved in forma pauperis in the district court for a copy of the pre-sentence report considered by the judge 'before pronouncing the twenty-year sentence and for a transcript of the sentencing proceedings, alleging conclusorily that the report contained “false and untrue information”. He seemingly relied upon our recent decision in United States v. Picard, 464 F. 2d 215 (1st Cir. 1972), in which we held that, subject to certain restrictions, the sentencing court must make known to a defendant the substance of a pre-sentence report, to the extent it is relied upon. In denying petitioner’s motions, the district court here distinguished Picard on the grounds that petitioner’s trial counsel never. requested a copy of the pre-sentence report and that “the court did not place general reliance upon the pre-sentence report as is more frequently the case when conviction is based upon a plea of guilty or a trial of short duration.” Treating the district court’s ruling as a denial of a § 2255 motion, we affirm its decision, but on the different ground that Picard does not apply to sentences imposed prior to the date of its decision. When procedural rights are sought to be applied retroactively, “the criteria guiding resolution of the question implicates (a) the purpose to be served by the new standards, (b) the extent of the reliance by law enforcement officials on the old standards, and (c) the effect on the administration of justice of a retroactive application of the new standards.” Stovall v. Denno, 388 U.S. 293, 297, 87 S.Ct. 1967,1970, 18 L.Ed.2d 1199 (1967). Cf. Robinson v. Neil, 409 U.S. 505, 93 S.Ct. 876, 35 L.Ed.2d 29 (1973). This test applies whether the rights be viewed as constitutional, see e. g., DeStefano v. Woods, 392 U.S. 631, 88 S.Ct. 2093, 20 L.Ed.2d 1308 (1968), or as emanating from other sources, see, e. g., Fuller v. Alaska, 393 U.S. 80, 89 S.Ct. 61, 21 L. Ed.2d 212 (1968). See also Desist v. United States, 394 U.S. 244, 256 n. 1, 89 S.Ct. 1030, 22 L.Ed.2d 248 (1969) (Harlan, J., dissenting). Measured by this yardstick, our holding in Picard must be said to be of no avail to petitioner. To be sure, the purpose to be served by requiring limited disclosure of the pre-sentence report is salutary and important. The opportunity for allocution may be meaningless in many cases if little is known of the information which might influence the court’s imposition of sentence. The role of the appellate courts in the sentencing process, presently consisting generally of review for abuse of discretion, consideration of improper factors or failure to consider appropriate ones, cf. United States v. Walker, 469 F.2d 1377 (1st Cir. 1972), depends, for its restricted but proper fulfillment, upon the identification of factors affecting the imposition of sentence. And perhaps most important, the deprivation of liberty inherent in any sentence should not be magnified as the result of any false data which may have infested the pre-sentence report. But the extent to which the soundness of the sentencing process and the right of allocution have been affected by clandestinely viewed, and perhaps somewhat erroneous, pre-sentence reports is a “question of probabilities”. Stovall, supra, 388 U.S. at 298, 87 S.Ct. 1967. Thus, while our holding in Picard is “justified by the need to assure the integrity and reliability of our system of justice, [it] undoubtedly [would] affect cases in which no unfairness [was] present” if it were to be retroactively applied. Id. at 299, 87 S.Ct. at 1971. Moreover, the extent of the reliance by our district courts on the old rule that pre-sentence reports may be withheld from a defendant was significant. Our holding in Picard was not foreshadowed, and it evidenced a departure from tradition, including what we viewed in Picard, supra 464 F.2d at 218-219 n. 4, as an overly broad reading of Williams v. New York, 337 U.S. 241, 69 S.Ct. 1079, 93 L.Ed. 1337 (1949) and Williams v. Oklahoma, 358 U.S. 576, 79 S.Ct. 421, 3 L.Ed.2d 516, reh’g denied, 359 U.S. 956, 79 S.Ct. 737, 3 L.Ed.2d 763 (1958). Perhaps most relevant here, however, is the fact that if Picard were to be applied to sentences imposed before the date of its decision, it “would have an impact upon the administration of [the] criminal law so devastating as to need no elaboration.” Tehan v. Shott, 382 U.S. 406, 419, 86 S.Ct. 459, 467, 15 L.Ed. 2d 453 (1966). It would mean, quite simply, the re-sentencing of virtually all those previously sentenced. In similar situations where the purpose of a ruling was to avoid a harm, the existence of which is merely problematical, where past reliance was extensive, and the anticipated consequences for the administration of our laws would be disastrous, the Supreme Court has recognized that we “may in the interest of justice make the rule prospective . . . ” Linkletter v. Walker, 381 U.S. 618, 628, 85 S.Ct. 1731, 1737, 14 L.Ed.2d 601 (1965). See also Johnson v. New Jersey, 384 U.S. 719, 726-727, 86 S.Ct. 1772, 16 L.Ed.2d 882 (1966); Tehan, supra, 382 U.S. at 410, 86 S.Ct. 459; Stovall, supra 388 U.S. at 297, 87 S.Ct. 1967; De Stefano, supra. In accordance with these principles, we refuse to apply Picard to instances in which sentencing occurred before the date of our decision. Affirmed. . While procedural rights relating to imposition of sentence do not affect the integrity of the fact-finding process which determines guilt or innocence, we feel that retroactive application of these rights is properly analyzed in accordance with principles concerning the trial process. Cf. Morrissey v. Brewer, 408 U.S. 471, 480, 490, 92 S.Ct. 2593, 33 L.Ed.2d 484 (1972). . This, of course, is not to say that a due process violation could not be made out by specific allegations and proof of sufficiently serious reliance on false information. . In Stovall, for example, the Court recognized that “a conviction which rests on a mistaken identification is a gross miscarriage of justice”, id. 388 U.S. at 297, 87 S.Ct. at 1970, yet refused to apply retroactively the exclusionary rules set forth in United States v. Wade, 388 U.S. 218, 87 S.Ct. 1926, 18 L.Ed.2d 1149 (1967) and Gilbert v. California, 388 U.S. 263, 87 S. Ct. 1951, 18 L.Ed.2d 1178 (1967). In DeStefano, the Court noted that contempt tried before a jury rather than before the judge who was the object of the contemptuous behavior “would be more fairly tried”, id. 392 U.S. at 634, 88 S.Ct. 2093, yet refused to apply retroactively Bloom v. Illinois, 391 U.S. 194, 88 S.Ct. 1477, 20 L.Ed.2d 522 (1968).

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UNITED STATES of America, Appellee, v. Frances Felicia STITH, Appellant. No. 72-1621. United States Court of Appeals, Eighth Circuit. Submitted April 10, 1973. Decided April 27, 1973. Ray H. Williams, St. Louis, Mo., for appellant. J. Patrick Glynn, Asst. U. S. Atty., St. Louis, Mo., for appellee. Before GIBSON, BRIGHT and ROSS, Circuit Judges. PER CURIAM. This is an appeal from the conviction of Frances Felicia Stith under a one count indictment charging her with embezzlement of funds from a federally insured bank in violation of 18 U.S.C. § 656. We affirm the judgment of conviction. Miss Stith was a teller at the Citizens Bank of University City in St. Louis County, Missouri. On June 16, 1972, the bank discovered a shortage in her drawer of $260.00. She was relieved of her job at the time but offered no explanation of the shortage. On June 21, 1972, she was interviewed by an agent of the FBI after being advised of her rights and after having signed the usual waiver of rights form. During this interview, conducted at the bank, Miss Stith confessed to taking the $260.00. The confession was later used at the trial. Miss Stith testified in her own behalf and denied taking the money, although she admitted signing the confession and the waiver of rights form. On this appeal counsel for Miss Stith has raised the following issues: 1. Defendant was denied a preliminary hearing before a magistrate and thus was denied the right to discover the case against her at an early time prior to trial. 2. The indictment upon which Miss Stith was tried was based “solely upon illegal and incompetent evidence.” 3. The indictment was “materially” changed by the Government without resubmitting it to the grand jury. 4. The confession was involuntary because of failure to give the proper Miranda warnings. 5. Failure of the trial court to grant the request of the defendant for transcripts of testimony of two witnesses who testified at the hearing on the motion to suppress was error and prejudicial to the defendant. 6. That the trial court erred in limiting defense counsel in the voir dire examination of the jury panel. 7. That the trial court erred in admitting into evidence the FDIC certificate issued to the bank several years prior to the embezzlement, together with checks to FDIC dated January 26, 1972, and July 26, 1972, to prove that the bank was a member of FDIC on June 15, 1972. We have carefully examined each of the alleged errors and find them to be completely without merit and we will limit our comments to points 1, 3, and 4. The preliminary hearing was scheduled for Miss Stith for July 3, 1972. At that time the hearing was continued until July 12, 1972, over the objection of counsel for defendant. On July 10, 1972, Miss Stith was indicted by a federal grand jury and the scheduled preliminary hearing was never held. This Court rejected the argument advanced by appellant relating to the preliminary hearing, in Spinelli v. United States, 382 F.2d 871, 887 (8th Cir. 1967), rev’d on other grounds, 393 U.S. 410, 89 S.Ct. 584, 21 L.Ed. 637 (1969), when the Court stated as follows: Though the preliminary hearing provided for in Rule 5(c) may be a practical tool for discovery by the accused, the only legal justification for its existence is to protect innocent accuseds from languishing in jail on totally baseless accusations. Therefore, before the accused may be held for grand jury presentment Rule 5(c) requires the government to justify its incarceration by proving in a preliminary hearing before a judicial officer that there is probable cause to believe the accused committed the charged offense, Barrett v. United States, 270 F.2d 772, 775 (8 Cir. 1959). If the grand jury returns a true bill prior to the time a preliminary hearing is held, the whole purpose and justification of the preliminary hearing has been satisfied. In the same light, we do not see anything inherently inequitable with continuing a preliminary hearing for a short period of time to allow intervening grand jury action. Though appellant might well have enjoyed the discovery benefits that flow from a preliminary hearing, he has no absolute right to these benefits if the underlying purpose of the preliminary hearing is supplanted. (Emphasis supplied.) The argument that the Government “materially changed’’ the indictment prior to trial is without substance, The only change made was one which showed the bank to be in St. Louis County rather than the City of St. Louis No possible prejudice could have resulted to the defendant by making this change since there was no doubt as to which bank was the victim of the embezzlement. This change was certainly a matter of form rather than substance and comes within the exception to the rule as set forth in Russell v. United States, 369 U. S. 749, 770, 82 S.Ct. 1038, 8 L,Ed.2d 240 (1962). Counsel for Stith claims that the Miranda warnings were insufficient because, according to Miss Stith, the FBI agent failed to advise her that she was entitled to have a lawyer present at the interrogation, even though she could not afford to retain one, but instead told her a lawyer would be appointed in the event of prosecution by a U. S. Magistrate. The FBI agent testified and the trial court found that Miss Stith read the form and signed it, and that it was read to her by the agent. The printed form signed by Miss Stith and read to her by the agent met the requirements of the Miranda decision. She was an intelligent person with three years of college, and the trial court properly found that she made an intelligent and knowing waiver of her right to counsel and of her right to remain silent at the interrogation. The judgment of conviction is affirm-e(j_

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John J. WILLIAMS and Elizabeth M. Williams, his wife, Appellants in No. 72-1600, v. INTERNAL REVENUE SERVICE. Joseph M. DONLON and Catherine Donlon, his wife, Appellants in No. 72-1601, v. INTERNAL REVENUE SERVICE. Nos. 72-1600 and 72-1601. United States Court of Appeals, Third Circuit. Argued April 30, 1973. Decided May 30, 1973. Robert E. Schlusser, Murdoch, Longo-bardi, Schwartz & Walsh, Wilmington, Del., for appellants. Richard S. Halberstein, Scott P. Crampton, Dept, of Justice, Tax Division, Washington, D.C., for appellee. Before HUNTER, and WEIS, Circuit Judges, and NEWCOMER, District Judge. OPINION OF THE COURT PER CURIAM: Appellants seek to overturn the granting of summary judgments by the District Court in favor of the Internal Revenue Service denying appellants’ requests for injunctive relief pursuant to the Freedom of Information Act, 5 U.S.C. § 552. Specifically, appellants sought to enjoin the Internal Revenue Service from withholding certain identified records related to the determination of appellants’ tax deficiencies presently under question in the United States Tax Court. The District Court granted summary judgment on the grounds that (1) the data compiled in connection with an audit of an individual’s income tax liability constitutes an “investigatory file compiled for law enforcement purposes” within the meaning of 5 U.S.C., § 552 (b) (7); (2) the exception clause found in § 552(b) (7) which provides for disclosure “to the extent available by law to a party other than an agency” does not include availability under the discovery provisions of the Federal Rules of Civil Procedure; and (3) even if the exception clause found in § 552(b) (7) was construed to allow discovery under the Federal Rules of Civil Procedure, those provisions would not apply in this ease because the parties are presently involved in litigation before the United States Tax Court and not the United States District Court. After carefully considering the briefs, oral argument and the District Court Opinion, we conclude that the District Court correctly granted summary judgment in favor of the appellee, the Internal Revenue Service, and we agree with the reasoning of the learned District Court Judge which is set forth in his Memorandum Opinion filed March 7, 1972. Accordingly, the judgment of the District Court will be affirmed.

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Herbert CLAY, Petitioner-Appellant, v. Harold BLACK, Warden, Kentucky State Reformatory, Respondent-Appellee. No. 72-2055. United States Court of Appeals, Sixth Circuit. Argued April 4, 1973. Decided June 1, 1973. Melvin L. Wulf, Lawrence G. Sager, American Civil Liberties Union, New York City, Robert Allen Sedler, Lexington, Ky. (argued), for petitioner-appellant on behalf of the Kentucky Civil Liberties Union; Richard N. Rose, Lexington, Ky., on brief. Douglas E. Johnson, Sp. Asst. Atty. Gen., for respondent-appellee; Ed W. Hancock, Atty. Gen., Frankfort, Ky., on brief. Before PHILLIPS, Chief Judge, and EDWARDS and PECK, Circuit Judges. PER CURIAM. The habeas corpus petition of Herbert Clay is before this court for a second time. The facts are detailed in our prior opinion. 455 F.2d 667 (1972). After the evidentiary hearing ordered by this court, the District Court denied the application for the writ. This denial is appealed. We reverse. Petitioner was convicted in a State court of Kentucky of wilful murder and sentenced to life imprisonment. The alleged murder took place outside a Harlan County tavern. Soon after the shooting, the petitioner turned himself in to local authorities, stating that he had been involved in a shooting. He did not discuss the incident further with police. An eyewitness to the shooting claimed that the petitioner had taken the decedent out of the petitioner’s car, placed him up against the car and shot him. At trial, the petitioner claimed that the two had been struggling inside the car when the gun went off. The day after the shooting, the Kentucky State police removed red stained cotton fibers from the upholstery in the front seat of the car. An FBI report was received about three weeks later, identifying the stain as human blood of the same type and group as the decedent. This was approximately five months before petitioner’s trial. The appointed defense counsel was never made aware of the existence of the report and, therefore, did not request its production before trial. Defense counsel learned of the existence and contents of the report sometime during the trial. He then sought to introduce it. The trial court refused to admit it, apparently because there was no showing of the chain of possession of the car for the intervening fourteen hours between the shooting and the taking of the blood sample. The petitioner alleges that the failure of the prosecution to make the test results available to him before trial denied him his right to due process of law. The test results were part of the investigative file from which the prosecution prepared its case. They contradicted the testimony of the State’s only eyewitness to the alleged crime. As the District Court stated, “[t]he effect of the blood stain on the upholstery would have been to corroborate Clay’s version of the shooting. . . .” The introduction of the test results could have raised a serious doubt in the minds of the jury as to the guilt of the petitioner. Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), recognized a duty on the part of the prosecution to disclose evidence favorable to the defendant. In that case, defense counsel prior to trial had asked to examine the exculpatory statements made by the defendant’s companion. In Giles v. Maryland, 386 U.S. 66, 87 S.Ct. 793, 17 L.Ed.2d 737 (1967), while expressly reserving any further delineation of the extent of the prosecutorial duty to disclose, the Court remanded a case for further proceedings where no demand had been made by the defense for examination of specific evidence in the prosecutor’s possession. We hold, on the specific facts of this case, that the nondisclosure of this material FBI report deprived petitioner of his right to due process of law. If the report had been disclosed prior to trial, defense counsel would have had time to make it admissible by establishment of a chain of possession of the car.The absence of a pre-trial request is not determinative in this case, where the defense was not even aware of the taking of the sample and the testing of it. See Barbee v. Warden, 331 F.2d 842 (4th Cir. 1964); United States ex rel. Meers v. Wilkins, 326 F.2d 135 (2d Cir. 1964); Note, Brady v. Maryland and the Prosecutor’s Duty to Disclose, 40 U.Chi.L.Rev. 112, 115-117 (1972). This holding does not require, as the State claims, “a generalized sweeping duty on the part of the state to disclose its entire case to the defense prior to trial”. It merely requires the State, with its extensive fact-gathering apparatus, to operate fairly. It has a duty to disclose evidence in its possession which contradicts the testimony of the only eyewitness to the alleged crime. The case is remanded with directions that the writ be granted unless the State commences re-trial proceedings within a reasonable time.

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UNITED STATES of America, Plaintiff-Appellee, v. Steven Jeffrey GREENWALD, Defendant-Appellant. No. 72-2117. United States Court of Appeals, Sixth Circuit. June 1, 1973. Harry E. Youtt (Court Appointed), Cleveland, Ohio, James London of counsel, for defendant-appellant. Joseph T. McGinness, Asst. U. S. Atty., Frederick M. Coleman, U. S. Atty., Joseph T. McGinness, Asst. U. S. Atty., Cleveland, Ohio, on brief, for plaintiff-appellee. Before PHILLIPS, Chief Judge, McCREE, Circuit Judge, and PRATT , District Judge. Honorable Philip Pratt, United States District Judge for the Eastern District of Michigan, sitting by designation. PRATT, Judge. The defendant, Steven Jeffrey Green - wald, was convicted by a jury for a violation of Title 18, United States Code, Section 2314, transporting in interstate commerce “goods, wares, merchandise, securities or money, of the value of $5,-000 or more, knowing the same to have been stolen, converted or taken by fraud.” The crucial issue presented by this appeal is whether secret chemical formulae, or formulations, fall within the statutory language of “goods, wares or merchandise.” The facts are essentially undisputed. Researchers of Pearsall Corporation, defendant’s employer, discovered a substitute for antimony oxide, a rare and expensive chemical used in fire retardation processes. The uniqueness of Pearsall’s formulations provided an appreciable competitive advantage and it chose not to reveal its discovery but to utilize it in the manufacture of its own products. The number of documents containing the formulations, therefore, was highly restricted but one set was disseminated to the defendant, a chemical engineer employed in the sales department. The uncontradicted testimony of an officer of Pearsall Corporation and the President of Dover Chemical Company, both experienced and knowledgeable in the workings of the chemical industry, demonstrated that there is an established market, even among competitors, of chemical formulae and formulations. While there is, in addition, a commerce in finished products or components, it is not uncommon, according to that testimony, for chemical manufacturers to exchange formulae and formulations either by outright sale or through licensing agreements. Significantly, these formu-lae are treated as assets, in the same manner as machinery, equipment or accounts receivable. It is within this context, then, that the defendant contacted a Pearsall Chemical Corporation competitor in Ohio and negotiated for the transmittal of the formulation documents that had come into his possession. After several telephone calls and a personal meeting in New Jersey, it was agreed that the competitor would pay defendant $40,000 for the documents. On August 21, 1970, by pre-arrangement, defendant journeyed to Cleveland, Ohio, and he was there apprehended in the course of consummating the sale. While this definitional issue is one of first impression in this Court, we have no hesitancy in following the short but impressive interpretations adopted by the Third and Second Circuits in United States v. Seagraves, 265 F.2d 876 (3rd Cir. 1959); United States v. Lester, 282 F.2d 750 (3rd Cir. 1960), cert. denied 364 U.S. 937, 81 S.Ct. 385, 5 L.Ed.2d 368 (1961); American Cyanamid Company v. Sharff, 309 F.2d 790 (3rd Cir. 1962); United States v. Bottone, 365 F. 2d 389 (2d Cir. 1966), cert. denied, 385 U.S. 974, 87 S.Ct. 514, 17 L.Ed.2d 437; In Re Carol Vericker, 446 F.2d 244 (2d Cir. 1971). Seagraves, supra, was concerned with the theft and sale of geophysical maps relating to locations of potential oil deposits. In considering the application of 18 U.S.C. § 2314, the Court said: “The terms ‘goods, wares, merchandise’ is a general and comprehensive designation of such personal property or chattels as are ordinarily a subject of commerce. Black’s Law Dictionary, 4th ed. 823 (1951); 1 Bouv.Law Dict. Rawle’s Third Revision p. 1365 (1914). There was evidence that maps of the type here involved are frequently sold; there was also expert testimony (other than by Gulf people) which placed the value on some of the individual maps alone at well over $5,000. Since the maps were shown without doubt to be subjects of commerce, albeit of a specialized nature, they are goods or wares or merchandise within the terms of the Act.” In a case strikingly similar to the one at bar, the Second Circuit was concerned, in part, with the theft and sale under 18 U.S.C. § 2314 of secret processes used by a drug manufacturer. Judge Friendly, speaking for the Court, stated that there was no doubt that “. . . papers describing manufacturing procedures . . .” are within the ambit of the Act. So, here, given an established, viable, albeit limited, market in chemical formulations, and the wrongful appropriation of original documents containing such formations, the normal, ordinary and logical import of the statutory language dictates the conclusion that the documents here are “goods, wares or merchandise” within the meaning of the Act. Other issues raised by defendant are considered to be without merit. Affirmed. . The set appropriated by the defendant was in the handwriting of a co-discoverer. Security considerations had prompted Pearsall Chemical Corporation to refrain from typing, printing or otherwise duplicating the original documents.

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UNITED STATES of America, Plaintiff-Appellee, v. Homer Dias GARCIA, Defendant-Appellant. No. 73-1231 Summary Calendar. United States Court of Appeals, Fifth Circuit. May 31, 1973. Clyde W. Woody, Houston, Tex., for defendant-appellant. William S. Session, U. S. Atty., James E. Bock, Asst. U. S. Atty., San Antonio, Tex., for plaintiff-appellee. Before BELL, GODBOLD and IN-GRAHAM, Circuit Judges. Rule 18, 5 Cir.; See Isbell Enterprises, Inc. v. Citizens Casualty Company of New York, et al., 5 Cir. 1970, 431 F.2d 409, Part I. . Also appellant gave a “No” answer to question 8(a), which was false because he was then under indictment for possession of marijuana, but the giving- of this statement was not charged as an offense. His explanation for answer 8(a) was that he did not understand the question. PER CURIAM: Appellant was convicted of violation of 18 U.S.C. § 922(a) for making, in connection with the purchase of two rifles, a false statement that he had not been convicted of a crime punishable by a term exceeding one year. We affirm. Appellant contends that the government failed to prove that he knowingly made a false statement. Joseph McBride, the person with whom appellant dealt in the gun shop, testified that he read to appellant paragraph 8(b) of Form 4473, Firearms Transactions Record (Department of the Treasury, Revised June 1970). Paragraph 8 of the form appears in the margin. Appellant answered “No” to question 8(b). McBride then asked appellant to read the statement himself and sign it. Appellant signed the form. Appellant admitted signing the form and acknowledged that McBride read to him the questions under paragraph 8. But he testified that he thought 8(b) meant whether he “had been in prison in over a year.” He admitted to having been in prison but stated he did not know that this disqualified him from making the firearms purchases. Earlier cases recognized the difficulties of proving that a false statement had been “knowingly” made in the purchase of a firearm, where the purchaser had signed the original version of Form 4473. That version provided for the buyer’s signature in a space on the top half of a form, directly under a certification that the signatory was not prohibited from receiving a firearm, but the persons prohibited were only listed at the bottom of the form. The first revision of Form 4473 placed the space for signature directly under a list of persons prohibited from receiving firearms. The second revision included an additional requirement that the buyer give a “yes” or “no” answer for each separate inquiry concerning each class of prohibited persons. It was this second revised form which was read to appellant and which he signed. Later cases have recognized that the revised forms eliminate much of the difficulty. Proof of knowingly making a false statement is necessarily circumstantial in the great majority of cases. In this case the trier of fact, presented with the evidence we have described, could conclude beyond reasonable doubt that appellant’s statements were knowingly false although he testified that he only misunderstood. Appellants’ other claims — that the status of the gun shop as a licensed dealer was not properly proved, and that the record of his prior conviction was not properly authenticated — are wholly lacking in merit. Affirmed. . “§ 922. Unlawful acts. (a) It shall be unlawful— * * * * * (C) for any person in connection witli the acquisition or attemjrted acquisition of any firearm * * * from a licensed * * * dealer, knowingly to make any false or fictitious oral or written statement or to furnish or exhibit any false, fictitious, or misrepresented identification, intended or likely to deceive such * * * dealer, * ® * with respect to any fact material to the lawfulness of the sale or other disposition of such firearm * * * under the provisions of this chapter.” . “8. Certification of Transferee (Buyer) —an untruthful answer may subject you to criminal prosecution. Each question must be answered with a yes or no. a. Are you under indictment in any court for a crime punishable by imprisonment for a term exceeding one year?— b. Have you been convicted in any court of a crime punishable by imprisonment for a term exceeding one year? (Note: The actual sentence given by the judge does not matter — a yes answer is necessary if the judge could have given a sentence of more than one year).— c. Are you a fugitive from justice?— <1. Are you an unlawful user of, or addicted to, marihuana or a depressant, stimulant, or narcotic drug?' — ■ e. Have you been adjudicated mentally defective or have you ever been committed to a mental institution?— f. Have you been discharged from the Armed Forces under dishonorable conditions?— g. Are you an alien illegally in the United States ?— h. Are you a person who, having been a citizen of the United States, has renounced his citizenship?— “I hereby certify that the answers to the above are true and correct. I understand that a person who answers any of the above questions in the affirmative is prohibited by Federal law from purchasing and/or possessing a firearm. I also understand that the making of any false oral or written statement or the exhibiting of any false or misrepresented identification with respect to this transaction is a crime punishable as a felony.” . U. S. v. Squires, 440 F.2d 859 (CA2, 1971); U. S. v. Hedgecoe, 420 F.2d 458 (CA4, 1970). Hedgecoe held involuntary a plea of guilty for failure of the court to satisfy itself that there was a factual basis for the plea. Defendant had signed the original version of Form 4473, the government offered no evidence other than the form, defendant twice told the judge he did not know the purchase was prohibited by law, the government offered nothing to contradict defendant’s statements. As the court noted, defendant’s testimony, under the circumstances including the physical structure of the form, was not “inherently incredible.” . E. g., Cody v. U. S., 460 F.2d 34 (CA8, 1972). See also, U. S. v. Squires, 440 F. 2d 859 (CA2, 1971), at 865 and fn. 10 at 864. . See Cody v. U. S., supra.

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UNITED STATES of America, Plaintiff-Appellee, v. Anthony Coleman DUKES, a/k/a Hoppy, Defendant-Appellant. No. 73-1118 Summary Calendar. United States Court of Appeals, Fifth Circuit. May 30, 1973. Nicholas F. Maniscalco, Atlanta, Ga., for defendant-appellant. John W. Stokes, Jr., U. S. Atty., Eugene A. Medori, Jr., Ass’t U. S. Atty., Atlanta, Ga., for plaintiff-appellee. Before BROWN, Chief Judge, DYER and SIMPSON, Circuit Judges. Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Company of New York, et al., 5 Cir. 1970, 431 F.2d 409, Part I. DYER, Circuit Judge: Dukes appeals from his conviction of distributing a controlled substance in violation of 21 U.S.C.A. § 841(a)(1). He raises three points on appeal: (1) that he was entitled to an entrapment defense as a matter of law; (2) that the giving of a charge containing the words “unlawful entrapment” was reversible error; and (3) that the jury list was improper because it allegedly did not have on it, and made no - provision for, anyone between the ages of eighteen and twenty-one. We affirm. On September 14, 1972, two undercover narcotics agents and a confidential informer were seated in a parked car at the corner of Seventh and Peach-tree Street, Atlanta, Georgia. A conversation was initiated (apparently by the informer) with Dukes, who was standing nearby and who was asked if he knew where the informer could get some heroin. Dukes said to follow him to a parking lot; he then accepted $65.00 from one of the officers, left the parking lot briefly, and returned with a quantity of heroin. On two subsequent occasions Dukes was given money by this informer and by one of the two agents, but once returned with sugar lactose and once failed to return at all. After the Government had introduced evidence establishing the above facts and had rested, Dukes moved for a judgment of acquittal, claiming that he was entitled to an entrapment defense as a matter of law. This motion was denied and we think properly so. The agents here were perhaps aware of possible prior criminal activities of Dukes and probably initiated the request for heroin, but this solicitation without more does not constitute improper “creative activity” by the Government. Dukes offered no evidence on the question, nor did he cross examine any of the prosecution witnesses. As such, because his predisposition to commit the crime was amply shown and not rebutted, and because he failed to introduce “overwhelming evidence of entrapment,” he was not entitled to a judgment of acquittal. United States v. Groessel, 5 Cir. 1971, 440 F.2d 602, 606, cert. denied, 403 U.S. 933, 91 S.Ct. 2263, 29 L.Ed.2d 713. See United States v. Russell, 411 U.S. 423, 93 S.Ct. 1637, 36 L.Ed.2d 366 (1973). Although the district court did not grant a judgment of acquittal on the meager evidence relating to entrapment, it did submit the question to the jury. Dukes’ second point raised on appeal is that the charge on this issue amounted to reversible error because the words “unlawful entrapment” were used several times. His position is that the concept of “lawful entrapment,” while not specifically mentioned, was created in the jury’s minds by a form of “negative pregnant” and that it is error to conjure up such a concept. It is true that the practice of using the phrases “lawful entrapment” and “unlawful entrapment” has been questioned as being “confusing and, perhaps, erroneous.” Groessel, 440 F.2d at 607. We reiterate that concern, but conclude that the charge here, which contained only the phrase “unlawful entrapment,” when read as a whole was not so misleading or confusing as to prejudice the rights of the accused. See United States v. Virciglio, 5 Cir. 1971, 441 F.2d 1295. Dukes’ final argument is the rather vague charge that the jury list utilized in the district court denied him the right to a public trial and due process of law because it allegedly excluded all people eighteen to twenty-one years old. To the extent that this argument is of constitutional proportions, it has been presented to the court before in similar form and was rejected. United States v. McVean, 5 Cir. 1971, 436 F.2d 1120, cert. denied, 404 U.S. 822, 92 S.Ct. 45, 30 L.Ed.2d 50. Dukes has suggested no reason for retreating from that position, but has noted that since McVean, Congress passed Public Law 92-269 which provides that the minimum age for federal jurors is lowered from twenty-one to eighteen. We can perceive no way that this act would require a departure from the constitutional decision in McVean. The primary thrusts of Dukes’ argument on this point, however, is that the Northern District of Georgia has failed to comply with the act. Public Law 92-269 was passed on April 6, 1972, and Dukes’ trial was held December 13, 1972. Consequently, Dukes’ position must be that in the intervening eight months between the act’s passage and his trial, the district court should have supplemented its master jury wheel. Section 3 of the act makes no such requirement; instead it mandates the refilling of the master jury wheel no later than September 1, 1973, and of the qualified jury wheel no later than October 1, 1973. It then states: “Nothing in this Act shall affect the composition of any master jury wheel or qualified jury wheel prior to the date on which it is first refilled in compliance with the terms of section 3.” We therefore conclude that Dukes’ challenge to the composition of the jury is without merit. See generally United States v. Gooding, 5 Cir. 1973, 473 F.2d 425; United States v. Blair, 5 Cir. 1972, 470 F.2d 331; United States v. Pentado, 5 Cir. 1972, 463 F.2d 355; United States v. Kuhn, 5 Cir. 1971, 441 F.2d 179. Dukes has presented no argument that warrants reversal. The decision of the district court is in all respects Affirmed.

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UNITED STATES of America, Plaintiff-Appellee, v. Robert H. BLANTON, III, Defendant-Appellant. No. 72-3348. United States Court of Appeals, Fifth Circuit. May 30, 1973. Sidney D. Fazio, Baton Rouge, La., for defendant-appellant. Gerald J. Gallinghouse, U. S. Atty., Mary Williams Cazalas, Asst. U. S. Atty., New Orleans, La., for plaintiff-appellee. Before BELL, INGRAHAM and RONEY, Circuit Judges. BELL, Circuit Judge: Appellant was convicted of possessing and transporting a silencer for a firearm in interstate commerce in violation of 26 U.S.C.A. §§ 5845(a), (i) and (j), and 5861(d). He also was charged with carrying a semi-automatic pistol equipped so as to use the silencer and a telescopic site but this charge was dismissed along with another not relevant here. The single assignment of error is based on the denial of a motion to suppress the silencer as having been discovered by an illegal search and seizure. Appellant’s bag was found in the unsupervised public baggage area at the Baton Rouge Airport where it had been unclaimed for several hours. An airline attendant found it necessary to open the bag to determine ownership. Unable to determine ownership from the contents of the bag, the attendant opened an at-taché case found inside the bag and discovered what appeared to him to be the silencer as well as the pistol. He called in other airline employees and they concurred in his suspicion that one of the items was a silencer. The attendant then called an airport security guard who viewed the silencer but was not certain as to just what it was. The bag was then closed by the airline employees. The security guard called local police officers to report the event and they, in turn, upon being told that one of the items found in the bag could be a silencer, directed the guard to call federal officers in New Orleans. One of the federal officers, upon being called, advised that they would leave immediately for the airport and that the bag should be held and that defendant should be detained if he attempted to claim the bag. Meanwhile, appellant appeared at the airport to claim the bag. A security guard requested that he remain at the airport pending the arrival of the federal officer. Appellant called his lawyer and was told to cooperate. He stood by and a federal officer arrived from New Orleans shortly thereafter. The bag was turned over to the federal officer. He opened the bag, observed the silencer, and arrested appellant. The original search was clearly by a private person and outside Fourth Amendment protection. This much is conceded. The argument is that the federal officer made a new search under circumstances where a warrant could have been obtained. Leaving aside the question of probable cause and exigent circumstances in that the defendant, as was stipulated, was free to leave, we proceed to a different basis for decision. The government cites our case of Barnes v. United States, 5 Cir., 1967, 373 F.2d 517, in support of its position. It is controlling. Barnes left a bag in a motel. The motel owner opened the bag and found bank checks with identical numbers made out to Barnes, numerous blank checks, and a rubber stamp for affixing Barnes’ name to checks. He became suspicious and called the police. We quote: “ . . .By this appeal, appellant asserts that his conviction was the result of evidence gained through an illegal search in violation of the fourth amendment to the federal Constitution. The search of which appellant complains, however, was made by a private citizen — the owner of a motel in which appellant stayed overnight and in which he left behind a travel case containing the evidence complained of. The search was made on the motel owner’s own initiative. Because of it, he became suspicious, called the local police, informed them of the bag’s contents, and made it available to the authorities. “The fourth amendment and the case law applying it do not require exclu-clusion of evidence obtained through a search by a private citizen. Rather, the amendment only proscribes governmental action. . . . Clearly the search complained of here did not involve governmental action and was therefore not illegal within the meaning of the fourth amendment.” 373 F.2d at 518. This implicit basis for this holding in Barnes is that the initial search was made by a private person and the events which later transpired did not constitute a separate or additional search which could be equated with a search proscribed by the two-part test of the Fourth Amendment: (1) an unreasonable search (2) by a state or federal officer. It is not clear from our opinion in the Barnes case whether the bag was left open by the hotel owner or reopened by the police but this happenstance is insufficient to convert an otherwise private search into an unreasonable official search in the immediate circumstances which were present there and which are present here. The Barnes opinion states that the motel owner made “it”, meaning the bag, available to the officers. That is precisely what happened in the instant case. This reasoning is buttressed by two decisions of the Ninth Circuit Court of Appeals. See Clayton v. United States, 9 Cir., 1969, 413 F.2d 297 (heroin discovered in search of air express shipment by airline employee); Gold v. United States, 9 Cir., 1967, 378 F.2d 588 (obscene film discovered in search of package by airline employee). See also Wolf Low v. United States, 9 Cir., 1968, 391 F.2d 61. These cases as well as Barnes and the case before us are to be distinguished from eases where the officers participate in or are in league with the private person in making the initial search. Cf. Corngold v. United States, 9 Cir., 1966, 367 F.2d 1. Here the federal officer had nothing whatever to do with the initial search. The bag containing the attaché case and silencer was handed to him by the private person who made the initial search and who caused the federal officer to be called in. Affirmed.

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CAPITAL BROADCASTING CORP., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent. No. 72-1740. United States Court of Appeals, Sixth Circuit. Argued April 10, 1973. Decided May 31, 1973. Paul D. Cowden, Mt. Sterling, Ky., for petitioner; Clay, Marye & Cowden, Mt. Sterling, Ky., on brief. John C. Getreu, Director, Region 9, N. L. R. B., Cincinnati, Ohio, for respondent by Kenneth Hipp, N. L. R. B.; Marcel Mallet-Prevost, Asst. Gen. Counsel, Peter G. Nash, Patrick Hardin, Allison W. Brown, Jr., N. L. R. B., Washington, D. C., on brief. Before EDWARDS and CELE-BREZZE, Circuit Judges, and O’SULLIVAN, Senior Circuit Judge. PER CURIAM. This case is before us on a petition for review and cross-application for enforcement of an order of the National Labor Relations Board finding that two of Petitioner’s employees were discharged because of their union activity, in violation of 29 TJ.S.C. § 158(a)(3), and that Petitioner had engaged in unlawful interrogation, threatening discharge for union activity and creating the impression of surveillance of union activities, in violation of 29 U.S.C. § 158(a)(1). The Board found that the company’s general manager, Robert Doll, had stated to employee Richard Mix that a friend of Doll’s who owned a radio station had discharged the station’s staff because they had tried to form a union, that nothing had been done to his friend, and that Doll could do the same thing if he wanted to, but that he was not going to. The Board also found that Doll had stated that the station could not afford to pay its employees any more money, that he knew Mix was a leader in the organization activity, that he did not want the union in his radio station, and would do anything to keep it out. It was also found that Doll stated that the employees would be throwing money away on lawyers’ fees that could be used to grant raises to the employees. The Board further found that the discharges were based at least partly on the union activity of the two employees. The company contends that the employees were discharged for cause — Mix, an announcer, because of comments made by him while giving a news report about tornado warnings and John Bowles, an engineer and part-time announcer, because he walked off his job. The company has since offered Mix reinstatement and paid him back wages. The two employees, who had been involved in union organization activity, were fired on May 28, 1971, just two days following the election which the union lost, five votes to four. The reason given Bowles for his discharge was that he had been unavailable for duty as an announcer on the evening of May 26th and as the station’s chief engineer on the morning of May 27th. A malfunction on that morning had caused the station to be off the air for a three-hour period. Bowles stated that he had been sick on the evening of May 26th and was at his parents’ home on the 27th. The Board found that attempts to reach Bowles at the station’s transmitter, where he lived, had been unsuccessful, and that one attempt had been made to contact Bowles at the home of his parents, whose telephone number was posted at the location of the transmitter. After being discharged, Bowles returned to the transmitter to pick up his things and found that the locks had been changed. While the testimony in the record is conflicting, the Board chose to accept the testimony of employees Mix and Bowles. Although we may have arrived at a different conclusion, a reviewing court may not “displace the Board’s choice between two fairly conflicting views, even though the court would justifiably have made a different choice had the matter been before it de novo.” Universal Camera Corp. v. N. L. R. B., 340 U.S. 474, 488, 71 S.Ct. 456, 465, 95 L.Ed. 456 (1951). Having reviewed the evidence before the Board, including the evidence opposed to the Board’s finding, we are unable to say that the Board’s decision is not supported by substantial evidence. Universal Camera Corp. v. N. L. R. B., supra, 340 U.S. at 488, 71 S.Ct. 456; See N. L. R. B. v. Walton Mfg. Co., 369 U.S. 404, 405, 82 S.Ct. 853, 7 L.Ed. 2d 829 (1962); N. L. R. B. v. Stemun Mfg. Co., 423 F.2d 737, 740-741 (6th Cir. 1970). As we have previously stated, the presence of “employer intent ‘to encourage or discourage’ union membership ... in conjunction with discharges of employees engaged in union activities will be evidence of a violation of § 8(a)(3) of the [National Labor Relations] Act.” N. L. R. B. v. Stemun Mfg. Co., 423 F.2d 737, 740-741 (6th Cir. 1970). See United States Rubber Co. v. N. L. R. B., 384 F.2d 660, 662-663 (5th Cir. 1968). The company has contended that the statements of Doll were protected by § 8(c) of the Act. In considering this contention, we must be mindful of the language of the Supreme Court in N. L. R. B. v. Gissel Packing Co., 395 U.S. 575, 89 S.Ct. 1918, 23 L.Ed.2d 547 (1969): “Any assessment of the precise scope of employer expression, of course, must be made in the context of its labor relations setting. Thus, an employer’s rights cannot outweigh the equal rights of the employees .to associate freely, as those rights are embodied in § 7 and protected by § 8(a) (1) and the proviso to § 8(c). And any balancing of those rights must take into account the economic dependence of the employees on their employers, and the necessary tendency of the former, because of that relationship, to pick up intended implications of the latter that might be more readily dismissed by a more disinterested ear.” 395 U.S. at 617, 89 S.Ct. at 1942. See N. L. R. B. v. Mink-Dayton, Inc., 416 F.2d 327, 328-329 (6th Cir. 1969), cert. denied, 400 U.S. 829, 91 S.Ct. 58, 27 L.Ed. 2d 59 (1970). Having applied this standard to the statements made by Doll, we do not find them to have been protected statements. Accordingly the petition for enforcement of the Board’s order is granted.

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UNITED STATES of America, Appellee, v. Lawrence Eugene WEBER, Appellant. No. 73-1089. United States Court of Appeals, Eighth Circuit. Argued March 26, 1973. Submitted May 18, 1973. Decided May 21, 1973. Jack S. Nordby, St. Paul, Minn., filed appendix and briefs for appellant. Robert G. Renner, U. S. Atty., and John M. Lee, Asst. U. S. Atty., Minneapolis, Minn., filed printed brief for ap-pellee. Before MATTHES, Chief Judge, and LAY and STEPHENSON, Circuit Judges. PER CURIAM. Lawrence Eugene Weber has appealed from his conviction of possession and sale of a quantity of LSD. He presents a two-pronged issue: (1) denial of his Fifth Amendment due process right caused by the government’s alleged deliberate pre-indictment delay and (2) denial of his Sixth Amendment right to a speedy trial resulting from the alleged lengthy delay between the indictment and the arrest and trial. In chronological order we enumerate the pertinent events. 1. On April 1, 1970, defendant sold 514 LSD tablets to an agent of the Bureau of Narcotics and Dangerous Drugs. 2. On November 5, 1970, a four count indictment was returned. Counts I and II were directed against Weber and Jack J. Conrey. Counts III and IV involved Jack J. Conrey and Guy Coney, also known as Sebastian. 3. On November 23, 1970, the Assistant United States Attorney informed the court that appellant Weber and Jack J. Conrey were fugitives and that defendant Coney had been served with a warrant in California and had requested a continuance. 4. On November 10, 1971, upon the request of the United States Attorney, the indictment was dismissed as to Guy Coney. 5. In August, 1972, during an unrelated investigation in St. Paul, Minnesota, police officers observed appellant Weber. His arrest followed. 6. On August 22, 1972, appellant Weber filed six motions including a motion to dismiss the indictment in the United States District Court. The motion to dismiss did not raise the issue of the failure of the government to grant him a speedy trial and did not complain about the delay between the date of filing of the indictment and the arrest and trial. 7. Appellant was tried on October 2 and 3, 1972, and found guilty under both counts 1 and II. We find no merit in appellant’s contentions and affirm. RIGHT TO SPEEDY TRIAL —POST INDICTMENT The right to a speedy trial attaches where there is “either a formal indictment or information or else the actual restraints imposed by arrest and holding to answer a criminal charge. . ” United States v. Marion, 404 U.S. 307, 320, 92 S.Ct. 455, 463, 30 L.Ed. 2d 468 (1971). See also Foley v. United States, 290 F.2d 562 (8th Cir.), cert. denied, 368 U.S. 888, 82 S.Ct. 139, 7 L.Ed. 2d 88 (1961). Thus, in our view, the Sixth Amendment right to a speedy trial can only have application in this case to the period of time from indictment, November 5, 1970, to apprehension on August 2, 1972. Any suggestions that a delay occurred between the date of arrest in August, 1972, and date of trial in October, 1972, is patently frivolous. In Barker v. Wingo, 407 U.S. 514, 525, 92 S.Ct. 2182, 33 L.Ed.2d 101 (1971), the Supreme Court, in an exhaustive review of the speedy trial issue, adopted a balancing test which requires consideration of four factors: (1) the length of delay, (2) the reason for delay, (3) defendant’s assertion of his right to a speedy trial, (4) the prejudice to the defendant. Although there was a delay of 21 months from the time of the filing of the indictment to the date of Weber’s apprehension, we are fully satisfied that the delay was directly caused by appellant himself. He and Conrey had fled and were fugitives from justice. There is nothing in this record to warrant a holding, as suggested by appellant, that the government was dilatory in not making a diligent effort to locate and apprehend Weber. Certainly there is no evidence of a “diligent attempt to delay the trial in order to hamper the defense.” We observe that in Barker, supra, the failure of the defendant to assert the right makes it difficult for a defendant to prove he was denied a speedy trial. Id. at 532, 92 S.Ct. 2182. Thus, while Hot requiring an assertion of the right as an absolute rule, the court announced that a defendant has some responsibility to assert a speedy trial. Here it is significant that appellant’s attorney filed six pre-trial motions after appellant was apprehended, and in none of them did he complain of having been denied a speedy trial. Although appellant alleges he was prejudiced because of the lapse of time, the record fails to support this consideration. In any event we have difficulty in adopting the rationale that an accused may purposefully obstruct justice by becoming a fugitive and then complain because of the lapse of time between the filing of the indictment and the date of the arrest. Appellant .also complains because of the delay of approximately 7 months between the time he sold the LSD tablets, April 1, 1970, and the date the indictment was filed November 5, 1970. Applicable here is the pronouncement in Marion that “No actual prejudice to the conduct of the defense is alleged or proved, and there is no showing that the Government intentionally delayed to gain some tactical advantage over appellees or to harass them.” Id. at 325, 92 S.Ct. at 466. We dealt with this identical issue in Foley v. United States, supra. See also Mack v. United States, 326 F.2d 481 (8th Cir.), cert. denied, 377 U.S. 947, 84 S.Ct. 1355, 12 L.Ed.2d 309 (1964). Having carefully considered the record, appellant’s contentions and the applicable law, we are satisfied that appellant was not denied due process and was not denied a speedy trial. The judgment is affirmed.

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John L. MANNING, and Carlyn T. Manning, husband and wife, Petitioners-Appellees, v. Joaquin G. BLAZ, Director of Revenue and Taxation Government of Guam, Defendant-Appellant. GENERAL INSURERS, INC., Petitioner-Appellee, v. Joaquin G. BLAZ, Commissioner of Revenue and Taxation, Respondent-Appellant. Nos. 72-1204, 72-1206. United States Court of Appeals, Ninth Circuit. April 5, 1973. Rehearing and Rehearing En Banc Denied July 5, 1973. David Carmack (argued), Dept, of Justice, Washington, D. C., Vincent T. Ferez, Atty. Gen., Gerald E. Stinson, Asst. Atty. Gen., Agana, Guam, for defendant-appellant. W. S. Barrett (argued), Barrett, Fer-enz & Bramhall, Agana, Guam, for petitioners-appellees. David English Carmack, U. S. Atty. (argued), Scott P. Crampton, Asst. Atty. Gen., Tax Div., Dept, of Justice, Washington, D. C., for amicus curiae. David English Carmack, U. S. Atty. (argued), Dept of Justice, Washington, D. C., Gerald E. Stinson, Asst. Atty. Gen., Agana, Guam, for respondent-appellant. W. S. Barrett (argued) Barrett, Fer-enz & Bramhall, Agana, Guam; Thomas J. Nolan, Agana, Guam, for petitioner-appellee. Before CHAMBERS, ELY, and WALLACE, Circuit Judges. PER CURIAM: These appeals involve the applicability of certain sections of the Internal Revenue Code to transactions which have their taxable locus in Guam. By virtue of the Organic Act of Guam, Congress gave Guam a tax structure of its own, patterned closely after the tax system of the United States, but with collections made by and revenues going to the government of Guam. After amendments in 1958, the final effect is that the Internal Revenue Code is in virtual full force and effect in Guam. The Mannings are citizens of the United States and non-residents of Guam. General Insurers has among its shareholders at least three non-residents of Guam. The government of Guam denied the Mannings the right to file a joint return, and the right to a standard deduction. It denied General Insurers the right to a subchapter S election. The taxpayers filed these cases in the district court, seeking a redetermination of their deficiencies. That court granted a summary judgment in their favor, and the government appealed. We affirm. Non-resident aliens in the United States and Guam do not enjoy the tax advantages these taxpayers sought. Thus, the sole issue in this appeal is whether a non-Guamanian United States citizen, not a resident of Guam, is to be treated as a non-resident alien for Guamanian tax purposes. We previously considered the right of non-resident aliens of Guam to file a Guamanian joint return in Flores v. Government of Guam, 444 F.2d 284 (9th Cir. 1971). There we noted that the government’s ability to classify Flores as a non-resident alien depended upon the availability of I.R.C. § 932. However, we held that § 932 was inapplicable to Guam, and therefore Flores could not be denied the right to a joint return by virtue of that section. 444 F.2d at 288-89. The rule of Flores controls the Mannings’ right to file a joint return. Furthermore, we perceive no basis for distinction of the claims for a standard deduction and a Subchapter S election since the denial of these claims was also founded upon a finding of non-resident alien status. Affirmed. . Act of Aug. 1, 1950, ch. 512, § 31, 64 Stat. 392 (48 U.S.C. § 1421i). . Act of Aug. 20, 1958, Pub.L.No.85-688, § 1, 72 Stat. 681. . Int.Rev.Code of 1954, § 6013(a)(1). . Int.Rev.Code of 1954, § 142(b)(1). . Int.Rev.Code of 1954, § 1371(a)(3). . The recent passage of Pub.L.No.92-606, 86 Stat. 1494 (Oct. 31, 1972), adopted a special tax system for Guam and amended Code Section 932. These changes will eliminate the problems presented by these cases. Appellant principally relies upon Sayre & Co. v. Riddell, 395 F.2 407 (9th Cir. 1968) (en banc). That case upheld the classification of a Hawaii company as a foreign corporation for Guamanian tax purposes. Flores, however, concerned individuals and is controlling here.

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John PARKER, Plaintiff-Appellant, v. Ray GRAVES, Defendant-Appellee. No. 72-2265. United States Court of Appeals, Fifth Circuit. June 13, 1973. John Parker, pro se. W. C. O’Neal, Gainesville, Fla., for defendant-appellee. Before GOLDBERG, AINSWORTH and INGRAHAM, Circuit Judges. PER CURIAM: John Parker, a second-year law student, was employed by the University of Florida Athletic Association as a dormitory advisor, assistant track coach and meal checker at the athletic training table. He was discharged from his duties and sought relief by bringing a civil rights action against Ray Graves, the athletic director of the University. From an adverse decision in the trial court, D.C., 340 F.Supp. 586, Parker timely pursued the present appeal. At the outset we are confronted with the determination of whether or not a motion to dismiss the complaint for failure to state a claim for which relief could be granted and for a lack of subject matter jurisdiction should have been granted. The caption of the complaint names the defendant in his individual capacity without reference to his official capacity as an agent of the State University system. An action under 42 U. S.C. § 1983 does not lie as against a private person in his individual capacity. It is only where the person acts to deprive another of his federal rights under color of state law that § 1983 provides authority for a federal claim. An action against a state official is not authorized by § 1983 where the official has acted in a purely private individual capacity. A person’s capacity need not be pled except to the extent required to show the jurisdiction of the court. Fed.R.Civ.P. 9(a). Failure to allege the official capacity in the caption is merely a formal error and not a fatal defect. 5 Wright and Miller, Federal Practice and Procedure, § 1321 (1969). The allegations in the complaint must be examined in order to determine the nature of the plaintiff’s cause of action. In his pro se complaint, Parker alleged that his dismissal was premised on constitutionally impermissible reasons and was procured by the defendant acting under color of state law in his official capacity as the University’s athletic director. The allegations taken as a whole bring the case within the authorization of 42 U.S.C. § 1983, and therefore the motion to dismiss was properly denied. The district court entered findings to the effect that the plaintiff was discharged for being remiss in his assigned duties and ineffective as an employee. The findings are based on conflicting evidence and we have determined that they are not clearly erroneous. The judgment of the district court is affirmed. . The trial court did strike two allegations of causes of action.

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Marcia W. SEAMAN, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 26736. United States Court of Appeals, Ninth Circuit. April 20, 1973. Wareham Seaman, Jr., Sacramento, Cal. (argued), Marcia W. Seaman, Atty., for petitioner-appellant. Richard Farber (argued), Scott P. Crampton, Asst. Atty. Gen., Meyer Roth-wacks, Loring W. Post, Robert S. Watkins, Tax Div., Dept, of Justice, Washington, D. C., for respondent-appellee. Before ELY and WALLACE, Circuit Judges, and KELLEHER, District Judge. Honorable Robert J. Kelleher, United States District Judge, Los Angeles, California, sitting by designation. WALLACE, Circuit Judge: In the beginning of 1967, taxpayer, Marcia Seaman, was legally married. On March 22, 1967, she received an interlocutory decree of divorce according to then California law. The decree contained the following notice: This is not a judgment of divorce. The parties are still husband and wife, and will be such until a Final Judgment of Divorce is entered after one year from the date of service of copy of summons and complaint upon the defendant spouse. She obtained a final judgment of divorce in 1968. Taxpayer worked as a stenographer during 1967, the tax year in question. To facilitate her employment, she spent at least $900 for the daytime care of her two children. She filed an individual return for 1967 and took a $900 childcare deduction. The commissioner disallowed the deduction and the taxpayer filed a petition with the Tax Court for redetermination of the deficiency. After the court sustained the commissioner’s determination, she appealed. We affirm. In 1967, the applicable code section was 26 U.S.C. (Int.Rev.Code of 1954) § 214. That section generally allowed a deduction for the expenses of child care necessary to allow the earning of income. In the case of a working wife, the deduction was available only if the spouses filed a joint return. Marcia Seaman and her husband did not file a joint return. Thus she was not eligible for the deduction unless she could avail herself of one of the two exceptions contained in § 214(d)(5). One of these applied only if the woman had been deserted by her husband and she had not known his whereabouts at any time during the tax year. Marcia Seaman stipulated that she had known her husband’s whereabouts and thus this exception was unavailable to her. The other exception would have applied if Mrs. Seaman had been “legally separated from her spouse under a decree of divorce or of separate maintenance at the close of the taxable year . . . § 214(d)(5)(A). Since the taxpayer does not argue that she was legally separated under a decree of separate maintenance, she must have had a “decree of divorce” to entitle her to the deduction. In California, an interlocutory decree of divorce does not dissolve the marriage. Brown v. Brown, 170 Cal. 1, 147 P. 1168 (1915); Paulus v. Bauder, 106 Cal.App.2d 589, 235 P.2d 422 (1951). The dissolution only occurs upon entry of the final decree. Olson v. Superior Court, 175 Cal. 250, 165 P. 706 (1917). We have held that since a California interlocutory decree does not dissolve the marriage, the spouses are still married for federal tax purposes. Riddell v. Guggenheim, 281 F.2d 836, 842-843 (9th Cir. 1960); Commissioner v. Ostler, 237 F.2d 501 (9th Cir. 1956); United States v. Holcomb, 237 F.2d 502 (9th Cir. 1956). Although none of those cases construed section 214, the language in the various sections is virtually identical. In good conscience, we cannot distinguish them. As we see no compelling reason to depart from our prior decisions, we must hold that Marcia Seaman was not entitled to a child-care deduction for 1967. Taxpayer argues that the leading case in this area, Eccles v. Commissioner, 19 T.C. 1049, aff’d, 208 F.2d 796 (4th Cir. 1953), was wrongly decided and that our cases, which relied upon Eccles, should be overruled. Although her arguments are impressive, they are more properly addressed to the Congress. Tax deductions are a matter of legislative grace. We noted in Ostler that “[i]f the rules on the tax consequences of interlocutory divorces are to be changed, it should be done by legislative action.” 237 F.2d at 502. Our duty is to interpret the law, not to create it. Unfortunately, Congress did not modify the pertinent statute until after 1967, to the disadvantage of Marcia Seaman. Affirmed. . The section was amended in 1971. Act of Dec. 10, 1971, Pub.L. No. 92-178, § 210(a), 85 Stat. 518. As amended, the section would now allow the deduction this taxpayer claimed for 1967. The amendment effected this change by adopting the definition found in Int.Rev.Code of 1954, § 143(b) (1). . See n. 1, supra.

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Richard E. FOWLER, Appellant, v. Charles WOLFF, Jr., Warden, Nebraska Penal Complex, Appellee. No. 72-1740. United States Court of Appeals, Eighth Circuit. Submitted Feb. 16, 1973. Filed June 7, 1973. Richard E. Fowler, filed typewritten briefs pro se. Clarence A. H. Meyer, Atty. Gen., and Harold S. Salter, Deputy Atty. Gen., Claims Div., State of Nebraska, Lincoln, Neb., filed printed brief for appellee. Before HEANEY and ROSS, Circuit Judges, and BENSON, District Judge. District of North Dakota, sitting by designation. PER CURIAM. Richard E. Fowler appeals from a decision dismissing his civil rights action. Fowler brought this action for monetary damages against Charles Wolff, Warden of the Nebraska Penal Complex; John Greenholtz, Chairman of the Board of Parole; Harold Smith, a member of the Board of Parole; and James Lyon, Records Officer of the Nebraska Penal Complex. Fowler alleged that the defendants had violated his constitutional rights: first, by paroling, rather than releasing, him from prison on January 3, 1971; and second, by failing to give him a hearing when his parole was revoked on January 10, 1971. Fowler has presented essentially the same claims in several prior actions. His first action was dismissed on March 24, 1971, for failure to exhaust administrative remedies. His second action was dismissed on the merits on August 24, 1971. The defendants in the August 24th action were Maurice H. Sigler, Warden of the Nebraska Penal Complex, Greenholtz and Smith. The court, in its memorandum disposing of the second action, specifically discussed the question of whether Fowler was entitled to release, rather than parole, but it did not specifically discuss whether Fowler’s constitutional rights had been violated by the failure to accord him a hearing on his parole violation. No appeal was taken from the District Court’s order. Thereafter, Fowler brought four additional actions, making essentially the same allegations. These were dismissed by the District Court as being frivolous and repetitious on June 13, 1972, August 2, 1972, September 11, 1972, and November 14, 1972. The last of these is the subject of this appeal. Fowler argues that the trial court erred in dismissing his most recent action. We do not agree. As we have indicated, a review of the pleadings in each of the plaintiff’s actions shows that the two claims raised by the plaintiff in the present action have been raised by him in his five previous actions. Both claims were conclusively determined against the plaintiff by the District Court in its order of August 24, 1971, from which the plaintiff did not appeal. The plaintiff has had his day in court on these claims, and res judicata bars him from presenting them again. This is true even though the District Court’s memorandum of August 24, 1971, did not specifically discuss the failure of the parole board to accord the plaintiff a hearing ón his parole violation. Thomas v. Consolidation Coal Company, 380 F.2d 69, 80 (4th Cir.), cert. denied, 389 U.S. 1004, 88 S.Ct. 562, 19 L.Ed.2d 599 (1967); St. Lo Const. Co. v. Koenigsberger, 84 U.S.App.D.C. 319, 174 F. 2d 25, 27, cert. denied, 338 U.S. 821, 70 S.Ct. 66, 94 L.Ed. 498 (1949); Restatement of Judgments, § 68m. The plaintiff contends that res judicata does not bar this action because of the addition of certain defendants not included in prior actions. The pleadings show that James Lyon, Records Officer of the Nebraska Penal Complex, and Charles Wolff, the Complex’s current warden, are the only defendants in the present action who were not defendants in the action dismissed on August 24, 1971. The relationship of Lyon and Wolff to the parties sued in the August 24th action is so close that their addition cannot change the fact that this present action is repetitious and barred by res judicata. Gambocz v. Yelencsies, 468 F.2d 837 (3rd Cir. 1972). Affirmed.

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UNITED STATES of America, Plaintiff-Appellee, v. John Jeffery SALEM, Defendant-Appellant. No. 73-1184. United States Court of Appeals, Ninth Circuit. May 31, 1973. Ronald G. Borden, Menlo Park, Cal., for defendant-appellant. James L. Browning, Jr., U. S. Atty., Robert E. Carey, Jr., F. Steele Lang-ford, Asst. U. S. Attys., Chief, Crim. Div., San Francisco, Cal., for plaintiff-appellee. Before DUNIWAY and WRIGHT, Circuit Judges, and RUSSELL E. SMITH, District Judge. Honorable Russell E. Smith, United States District Judge, District of Montana, sitting by designation. OPINION DUNIWAY, Circuit Judge: Salem was convicted of refusing to submit to induction into the Armed Forces, 50 U.S.C. App. § 462(a), and he appeals. He argues that because he had made out a prima facie case for a conscientious objector classification the local board was required to reopen his classification, Mulloy v. United States, 1970, 398 U.S. 410, 90 S.Ct. 1766, 26 L. Ed.2d 362. We affirm. On November 5, 1969, Salem was classified 1-A. On February 3, 1970, he presented to his board a letter in which he requested a copy of Selective Service Form 150 for conscientious objectors. A copy of Form 150 was given to him. On the form was the notation that it was to be completed and returned within 30 days. On March 4, Salem requested additional time to complete and return the form, and was given ten more days. On March 16, the board, not having received the completed form from Salem, sent him an order to report for induction. On March 31, the board received the completed Form 150. On April 7, the board reviewed Salem’s file, and decided not to reopen his classification. On September 23, 1970, Salem refused to submit to induction. When a registrant, after his board has mailed an order to report for induction to him, submits a claim that he is a conscientious objector, the board is not required to reopen whether the claim states a prima facie case or not. If the claim shows that the registrant’s views matured before he was ordered to report, it is barred by 32 C.F.R. 1625.3. If the claim shows that his views matured after the order to report was mailed, it is barred by the same regulation as interpreted in Ehlert v. United States, 1971, 402 U.S. 99, 91 S.Ct. 1319, 28 L.Ed.2d 678. See United States v. Bloom, 9 Cir., 1971, 444 F.2d 1399. Salem is in just that situation. Salem argues, however, that because his letter was received before he was ordered to report, his case is governed by Mizrahi v. United States, 9 Cir., 1969, 409 F.2d 1219. Mizrahi, however, is an exceptional case. There, Mizrahi’s letter asking for Form 150 was mailed to the board on February 26, and received on February 28; the order to report for induction was mailed the same day. On March 2, the board sent him Form 150, telling him to return it by March 8, which he did. We held that Mizrahi’s letter was to be treated as having been received before the order to report was sent to him, and that the completed Form 150 was to be treated as supplemental to the letter. We said: “In these circumstances it must be deemed that appellant’s written request stated his claim as a conscientious objector and was received by the local board before it mailed to appellant its Order to Report for Induction.” Id. at 1224. Our holding in Mizrahi amounts, in substance, to this: that once a board receives a request for Form 150, at least when the request states that the registrant is a conscientious objector, the registrant must be allowed time to file Form 150 before an order to report for induction is sent to him. If that is not done, the request will be treated as a claim, and the regulation, 32 C.F.R. 1625.3, will not bar it. Salem’s case is different. After his letter was received, the board not only waited the full 30 days specified on the Form 150, but also extended the time, at Salem’s request, for another ten days. Only after that time expired did the board issue its order to report. The February 3 letter did not make out a prima facie case. United States v. Lawton, 9 Cir., 455 F.2d 328, cert. denied, 406 U.S. 960, 92 S.Ct. 2071, 32 L.Ed.2d 347 (1972); United States v. McKinley, 9 Cir., 1971, 447 F.2d 962; United States v. Lloyd, 9 Cir., 431 F.2d 160, cert. denied, 403 U.S. 911, 91 S.Ct. 2210, 29 L.Ed.2d 688 (1970). Assuming that the Form 150 did state a prima facie case, it came too late; the regulation applies. Affirmed. . The letter reads : “Dear Draft Board: On the basis of certain ideals and, more important, certain beliefs which I hold, I feel it is appropriate for me to request at this time, your form concerning classification ‘Conscientious Objector.’ Sincerely, /%/ J. Jeffery Salem”.

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LOCAL UNION NO. 52, PLUMBERS AND STEAMFITTERS UNION, Plaintiff-Appellee, v. DANIEL OF ALABAMA et al., Defendants-Appellants. No. 72-2548. United States Court of Appeals, Fifth Circuit. June 5, 1973. John L. Cole, Birmingham, Ala., Homer L. Deakins, Jr., Robert N. Willis, Atlanta, Ga., for defendants-appellants. James Harold Evans, Montgomery, Ala., for plaintiff-appellee. Before WISDOM, DYER and INGRA-HAM, Circuit Judges. PER CURIAM: Defendants, Daniel of Alabama (the general contractor) and Brown Mechanical Contractors, Inc. (the subcontractor), appeal from an order of the district court that required arbitration, but limited the arbitrable issues under the applicable collective bargaining agreements to whether Brown had acted arbitrarily or in bad faith, in the discharge of eleven union members. With the order thus limited, we affirm. The narrow question before us is whether an employer can be compelled to arbitrate any aspect of a discharge which is based on a clause in a collective bargaining agreement that provides: “The Employer shall be the sole judge of the employee’s capabilities to perform work in a workmanlike manner.” The bargaining agreements also contained a no-strike clause and a clause compelling arbitration of all disputes (unless this last clause was in conflict with some other portion of the agreement). Defendants recognize the national policy favoring the utilization of arbitration procedures to settle labor disputes (United Steelworkers v. Enterprise Wheel & Car Corp., 1960, 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424; United Steelworkers v. Warrior & Gulf Navigation Co., 1960, 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409; United Steelworkers v. American Manufacturing Co., 1960, 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403), but correctly note that it cannot be ordered when a party has not agreed to submit a particular issue to arbitration (John Wiley & Sons v. Livingston, 1964, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898). They contend that the clause making them the sole judge of an employee’s ability to perform satisfactory work completely insulates from review by an arbitrator any decision of theirs to discharge an employee when this clause is relied upon. We conclude that there is no such absolute insulation on the facts before us. The presence of a no-strike clause in a bargaining agreement requires at least a minimal quid pro quo from management. As the Supreme Court said in United Steelworkers v. Warrier & Gulf Navigation Co., supra, 363 U.S. at 583, 80 S.Ct. at 1353: When ... an absolute no-strike clause is included in the agreement, then in a very real sense everything that management does is subject to the agreement, for either management is prohibited or limited in the action it takes, or if not, it is protected from interference by strikes. Without some accountability under the bargaining agreements, Brown could discharge any employee and could avoid arbitration by merely phrasing the discharge in terms of the employee’s failure to perform properly. To avoid this interpretation of the otherwise clear language of the “sole discretion” clause before us, but, at the same time to protect a party’s right to withhold certain issues from the scope of arbitration, the accountability required on these facts must be limited to determining whether the employer acted in good faith, and not arbitrarily, in making the discharges. Cf. Palestine Telephone Co. v. Local 1506, Electrical Workers, 5 Cir. 1967, 379 F.2d 234; Fruit Packers, Local 760 v. Torvig Sealander Fruit Co., E.D.Wash.1958, 160 F.Supp. 623. This limited approach to the arbitra-ble issues was precisely the approach taken by the district court. Moreover, instead of immediately ordering arbitration to determine whether Brown had acted arbitrarily or in bad faith, the court below ordered arbitration on these two issues only after the plaintiffs had introduced affidavits that placed the motivation for the discharges in question. Without such a showing an arbitration order would have been improper; with the affidavits before the district court, however, arbitration of the two issues was fully warranted. Affirmed.

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Bobbie J. HAMILTON, Petitioner-Appellant, v. STATE OF NEW MEXICO et al., Respondents-Appellees. No. 72-1877. United States Court of Appeals, Tenth Circuit. May 31, 1973. George E. Pino, Sp. Asst. Atty. Gen., has filed a motion to affirm on behalf of respondents-appellees. Jack L. Love, Fed. Public Defender, has filed a memorandum in opposition to summary affirmance and a response to motion to affirm on behalf of petitioner-appellant. Before LEWIS, Chief Judge, and PICKETT and McWILLIAMS, Circuit Judges. PER CURIAM. This is an appeal from an order of the district court denying appellant’s application for a writ of habeas corpus pursuant to 28 U.S.C. § 2254. Upon conviction of assault, appellant Bobbie Hamilton applied for an appeal bond, which was denied by both the sentencing court and the state supreme court. Appellant then sought federal habeas corpus relief to assert that his constitutional right to bail had been denied. There is a direct appeal now pending in the state court. The real issue is whether appellant has a claim which is cognizable by federal habeas corpus. A state prisoner has no absolute federal constitutional right to bail pending appeal. Bloss v. Michigan, 421 F.2d 903 (6th Cir. 1970); United States ex rel. Fink v. Heyd, 408 F.2d 7 (5th Cir. 1969), cert. denied, 396 U.S. 895, 90 S.Ct. 192, 24 L.Ed.2d 172; United States ex rel. Klein v. Deegan, 290 F.Supp. 66 (S.D.N.Y.1968); United States ex rel. Siegal v. Follette, 290 F. Supp. 632 (S.D.N.Y.1968); Iles v. Ellis, 264 F.Supp. 185 (S.D.Ind.1967). Federal courts do not sit as appellate courts to review the use or abuse of discretion of state courts in granting or withholding bail pending final appeal. Bloss v. Michigan, supra, 421 F.2d at 906. And, generally, denial of bail is not an available basis for seeking post-conviction relief. Corbett v. Patterson, 272 F.Supp. 602 (D.C.Colo. 1967). See also Sheldon v. Nebraska, 401 F.2d 342 (8th Cir. 1968). We notified appellant that the court was considering summary affirmance and that appellee had filed a motion to affirm. We now have before us appellant’s memorandum in opposition to summary affirmance and his response to motion to affirm. Nonetheless, we have now carefully and thoroughly reviewed the files and records in this case, and are convinced that the district court’s denial of relief was proper. Accordingly, the motion to affirm is granted and the judgment is affirmed. Affirmed.

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MEDICAL DEVELOPMENT CORPORATION, Plaintiff-Appellee, v. INDUSTRIAL MOLDING CORPORATION, Defendant-Appellant. MEDICAL DEVELOPMENT CORPORATION, Plaintiff-Appellant, v. INDUSTRIAL MOLDING CORPORATION, Defendant-Appellee. Nos. 72-1504, 72-1505. United States Court of Appeals, Tenth Circuit. Argued and Submitted March 26, 1973. Decided May 24, 1973. Rehearing Denied June 15, 1973. I. Daniel Stewart, Jr., Salt Lake City, Utah (Jones, Waldo, Holbrook & Mc-Donough, Salt Lake City, Utah, on the brief), for Medical Development Corp. W. David Pantle, Denver, Colo. (Dawson, Nagel, Sherman & Howard, Denver, Colo., and Hitchcock, Bowman & Mal-lano, Torrance, Cal., on the brief), for Industrial Molding Corp. Before BREITEN STEIN, Circuit Judge, DURFEE, Judge, Court of Claims, and DOYLE, Circuit Judge. Sitting by designation. BREITENSTEIN, Circuit Judge. In this diversity action plaintiff Medical Development Corporation sued for damages and other relief claiming breach of contract and warranty, negligence, fraud, and other wrongs. Defendant Industrial Molding Corporation counterclaimed for unpaid balances of goods sold and other relief including a stay of the proceedings pending arbitration. Plaintiff’s motion for summary judgment was denied, and its appeal from this order is No. 72-1505. On plaintiff’s motion, the court permanently enjoined arbitration of certain disputes. No. 72-1504 is defendant’s appeal from the injunction. All of the three contracts involved were made in California and covered goods manufactured by the defendant, a California corporation, in that state and sold to the plaintiff, a Utah corporation, F.O.B. Los Angeles. The first contract, made in September, 1969, related to two protype molds and contained an arbitration clause. In April, 1970, plaintiff gave defendant a purchase order for four additional molds, and defendant responded with a quotation confirmation. In May, 1970, another transaction between the parties related to production of plastic parts from the molds. A prime issue is whether the contracts relating to the April and May transactions contain arbitration clauses. After this suit was filed, defendant demanded arbitration and moved to stay court proceedings pending arbitration. The court denied the stay. Plaintiff then moved for a stay of arbitration, and the court enjoined arbitration “pending resolution by this Court of whether the issues raised in this action should be referred to arbitration.” After much skirmishing by the parties, the court held a “partial trial on the issues of arbitration,” and ruled that the September transaction was subject to arbitration and that as to the April and May transactions there was no agreement to arbitrate. The court permanently enjoined arbitration of issues arising out of the April and May transactions. The appeal in No. 72-1504 attacks the permanent injunction. We are concerned with an interlocutory order, not a final decision on the merits. The Federal Arbitration Act, 9 U.S.C. § 1 et seq., is applicable because the contracts evidence transactions in interstate commerce. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401, 87 S.Ct. 1801, 18 L. Ed.2d 1270. The threshold question is the appealability of the order enjoining arbitration. We recognize that the circuits are in disagreement as to the appealability of an order granting or denying a stay of arbitration. Compare Greater Continental Corp. v. Schechter, 2 Cir., 422 F.2d 1100, 1102-1103, and Lummus Co. v. Commonwealth Refining Co., 2 Cir., 297 F.2d 80, 84-96, cert. denied 368 U.S. 986, 82 S.Ct. 601, 7 L.Ed.2d 524, with Power Replacements, Inc. v. Air Preheater Co., 9 Cir., 426 F.2d 980, 982-983, and A. & E. Plastik Pak Co. v. Monsanto Co., 9 Cir., 396 F.2d 710, 713. See also New England Power Co. v. Asiatic Petroleum Corp., 1 Cir., 456 F.2d 183, 185-187; and Buffler v. Electronic Computer Programming Institute, Inc., 6 Cir., 466 F.2d 694, 699. This court’s decision in Hart v. Orion Insurance Co., 10 Cir., 427 F.2d 528, 529, concerned an order staying the district court’s proceeding pending arbitration, not an order concerning a request for a stay of the arbitration proceedings. In the cited cases, the parties did not contest the existence of an arbitration clause in the agreements under consideration. Here, the issue is controlled by whether in fact there was an agreement to arbitrate. That matter was determined adversely to defendant and a permanent injunction issued. In these circumstances, we are not concerned with the concept that the Federal Arbitration Act fosters speedy arbitration or with the controversy over the applicability of 28 U.S.C. § 1292(a)(1) to an order granting or denying a stay of arbitration of an issue referable to arbitration under a written agreement. From a practical standpoint, our situation is that after a full-blown trial of the issue the court permanently enjoined arbitration of the disputes arising out of the April and May transactions because, in its opinion, there was no agreement to arbitrate. In Cohen v. Beneficial Industrial Loan Corp., 337 U. S. 541, 545, 69 S.Ct. 1221, 1225, 93 L.Ed. 1528, the Court said that § 1292 allows appeals from interlocutory orders “when they have a final and irreparable effect on the rights of the parties.” We realize the struggle which the courts have had with the Cohen decision, see 9 Moore’s Federal Practice, 2d ed., If 110.10, pp. 134-136, but we believe that the difficulty has been the reconciliation of Cohen with the final judgment requirement of 28 U.S.C. § 1291. We are concerned with § 1292(a)(1) and not with the final judgment rule. We believe that our situation falls squarely within § 1292(a)(1) because a permanent injunction was entered after a trial of the pertinent issues and that injunction had a final and irreparable effect on the rights of the parties. Accordingly, the order is appealable. We emphasize that our decision has no bearing on the finality of a judgment under § 1291 or on the appealability of an order granting or denying a stay of arbitration in a situation where the issue is referable to arbitration under an uncontested written agreement. With regard to the April transaction, the parties negotiated orally for the manufacture of four container molds and four lid molds. Defendant gave an oral quotation on prices and agreed to commence work upon receipt of one-half of the tooling cost. , Defendant told plaintiff that its oral quote would be confirmed in writing on its usual quotation form. Plaintiff sent defendant two purchase orders and its check for $20,600. Defendant responded with its written confirmation designated Q182-70. At the bottom of the front page is a statement that the terms and conditions on the reverse side are incorporated by reference. Among the terms found on the reverse side is an arbitration clause. At the bottom of the reverse side appear the words “APPROVED & ACCEPTED” with appropriate signature lines upon which no signatures appear. It is conceded that in the September transaction a similar form was used and the terms and conditions were specifically agreed to by plaintiff. Thus, we have oral negotiations followed first by plaintiff’s purchase orders and second by defendant’s quotation confirmation. The trial court found lack of awareness of the arbitration clause by the plaintiff. Defendant says that a decision based on a subjective test of a party’s actual knowledge is wrong in law because an objective test has long been recognized. Under the test which defendant advocates if a prudent man would have known that a provision was intended to be a part of a contract, each party is bound by that provision regardless of actual knowledge. See e. g. Hischemoeller v. National Ice & Cold Storage Co., 46 Cal.2d 318, 294 P.2d 433, 436-437, and 1 Restatement of Contracts § 230, p. 310. Plaintiff counters with provisions of the Uniform Commercial Code § 2-207 (California Commercial Code § 2207). Section 2-207(2) (b) makes a material alteration in a written confirmation of a previously concluded oral agreement ineffective. See Dorton v. Collins & Aikman Corp., 6 Cir., 453 F.2d 1161, 1169. The question of a material alteration rests upon the facts of each case. See Ibid, at 1169, n. 8. We attach no significance to the fact that the quotation confirmation was not signed by either party. We are aware of no decision under the California Arbitration Act, Cal.Civ.Code § 1281, determinative of the type of writing required. Decisions under the Federal Arbitration Act, 9 U.S.C. § 2, and under the similar New York statute have held it not necessary that there be a simple integrated writing or that a party sign the writing containing the arbitration clause. See Fisser v. International Bank, 2 Cir., 282 F.2d 231, 233; Ocean Industries, Inc., v. Soros Associates International, Inc., S.D.N.Y., 328 F.Supp. 944, 947; and Joseph Muller Corp. Zurich v. Commonwealth Petrochemicals, Inc., S.D.N.Y., 334 F.Supp. 1013, 1020-1021. All that is required is that the arbitration provision be in writing. Plaintiff relies on Commercial Factors Corp. v. Kurtzman Bros., 131 Cal.App.2d 133, 280 P.2d 146, which declined to give effect to a New York judgment confirming an arbitration award. The court held that there was no agreement to arbitrate and, hence, no New York jurisdiction. The decision says nothing about the prudent-man test recognized in Hischemoeller v. National Ice & Cold Storage Co., 46 Cal.2d 318, 294 P.2d 433, 436-437. The decision is not clear whether it is based on general contract law principles or whether it depends on rules applicable to arbitration agreements. We agree with the statement in Collins Radio Co. v. Ex-Cell-O Corp., 8 Cir., 467 F.2d 995, 998, that under § 2 of the Federal Arbitration Act, 9 U.S.C. § 2, federal courts do not apply state statutes and decisions which limit arbitration agreements with rules not applicable to other contracts. In the circumstances we cannot accept Commercial Factors Corp. as a controlling statement of California law. With relation to the April transaction, the court found that defendant told plaintiff that “its oral quote would be confirmed in writing on defendant’s usual quotation form.” This was the form apparently used in the September transaction which the court held was subject to arbitration. The court went on to find that plaintiff’s negotiator was not “made aware of the arbitration clause or understood that the same was intended to apply as a term of the agreement of the parties of April 13, 1970.” We have difficulty reconciling these findings. The court said nothing about the prudent-man test and made no finding that the inclusion of the arbitration clause was a material alteration within the purview of § 2-207 of the Uniform Commercial Code as is strongly urged by the plaintiff in this appeal. Findings must be sufficiently detailed and exact to permit an intelligent review. Commercial Standard Insurance Co. v. Liberty Plan Co., 10 Cir., 283 F. 2d 893, 895. The findings here fail to meet that standard, and the terse conclusions of law relating to the April transaction shed no light on the theory adopted by the trial court. With regard to the April transaction, the permanent injunction against arbitration must be reversed and the case remanded for further consideration in the light of this opinion. Plastic parts to be made from the molds were covered by the May transaction in which a final contract was signed on May 26. Previously, defendant sent to plaintiff a copy of the contract with the quantity terms left blank. The contract was written on defendant’s stationery which did not contain terms and conditions on the reverse side. The contract specified that for all other terms and conditions reference was made to Quotation Q182-70 “a copy of which is attached.” A photocopy of the front of Q182-70 was attached, but no copy of the terms and conditions on the reverse side was included. The arbitration clause was on the reverse side of Q182-70. During further negotiations the quantities were inserted and the contract retyped and signed. No copy of Q182-70 was attached, but a photocopy of the front of that document was available at the signing. The trial court held that the arbitration clause was not incorporated by reference in the May 26 contract and that the reference to the incorporation of the Q182-70 terms and conditions was ambiguous. We agree with the trial court. The contention of defendant that the issue with regard to the May transaction is not properly before us because it was not framed by the pre-trial order is not sustained by the record. Defendant’s argument that reference to the Q182-70 quotation confirmation would cause a prudent man to realize that the arbitration clause of that document was applicable to the May transaction is not persuasive. The fact is that the pertinent portion of document Q182-70 was not attached or exhibited. By supplying only part of document Q182-70, defendant at the very least created an ambiguity whether the balance of the document was incorporated. Defendant caused the ambiguity, and the effect thereof must be construed against it. McClintick v. Leonards, 103 Cal.App. 768, 285 P. 351, 354. Case No. 72-1505 is plaintiff’s cross-appeal from the court’s denial of its summary judgment motion. A denial of a summary judgment motion is not an appealable order. Jones v. United States, 10 Cir., 466 F.2d 131, 136 n. 3, cert. denied 409 U.S. 1125, 93 S.Ct. 938, 35 L.Ed.2d 257, and Goodyear Tire & Rubber Co. v. Jones, 10 Cir., 433 F.2d 629, 632. In No. 72-1505 the order denying summary judgment in favor of the plaintiff is affirmed, and costs are assessed against the plaintiff-appellant. In No. 72-1504 the order is reversed insofar as it enjoins arbitration of the disputes arising out of the April transaction, and the case is remanded for further consideration of that transaction in the light of this opinion. In all other respects the order of the trial court is affirmed. The costs in No. 72-1504 shall be divided equally.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Edwin R. KRAMER et al., Appellants, v. GOVERNMENT OF the VIRGIN ISLANDS and Board of Zoning Subdivision and Building Appeals of the Virgin Islands, St. Croix Drive-In-Theater, Intervenor. No. 72-1492. United States Court of Appeals, Third Circuit. Submitted Feb. 1, 1973. Decided May 18, 1973. Arnold M. Selke, Corneiro, Gibbs & Selke, Charlotte Amalie, St. Thomas, V. I., for appellants. Warren M. Pulner, Asst. Atty. Gen., Charlotte Amalie, St. Thomas, V. I., for appellee. Clarence A. McLaughlin, Bornn, McLaughlin & Finucan, Charlotte Amalie, St. Thomas, V. I., for intervenor. Before MARIS, ROSENN and HUNTER, Circuit Judges. OPINION OF THE COURT MARIS, Circuit Judge. The question presented on this appeal is whether the District Court of the Virgin Islands erred in affirming the decision of the Board of Zoning, Subdivision and Building Appeals of the Virgin Islands, hereinafter called the Board of Appeals, to grant a zoning exception for the construction of a drive-in theater in an area of St. Thomas zoned for residential and agricultural use, and in denying injunctive relief with respect thereto. It appears from the record that an application had been filed on behalf of the St. Croix Drive-in Theater, Inc., with the Virgin Islands Planning Board for a special exception, as a recreational use, for a drive-in theater proposed to be constructed on a parcel of land located at Estate Donoe in St. Thomas which is in an R 10 zoning district. The Planning Board held a public hearing at which the plaintiffs, owners and residents of land overlooking the area of the proposed drive-in theater, objected to the granting of the exception. The application was denied for “improper location” and “possibility of traffic congestion.” Pursuant to 29 V.I.C. §§ 270, 277, an appeal was taken from the Planning Board’s decision to the Board of Appeals by the St. Croix Drive-in Theater, Inc. The Board of Appeals held a meeting at which the testimony of various persons appearing in favor of the applicant was received. Thomas Blake, director of the Planning Board, also testified at the meeting, stating that his board had received several letters from people who live in the surrounding area voicing objections to the possible noise and congestion of traffic resulting from the theater located at Estate Donoe. After receiving the testimony the Board members inspected the site of the proposed theater. Thereafter the Board of Appeals reversed the decision of the Planning Board and granted a special exception authorizing the construction of a drive-in theater at the proposed location in Estate Donoe. The plaintiffs then filed a complaint in the District Court of the Virgin Islands against the Government of the Virgin Islands and the Board of Appeals to review the Board’s decision, alleging, inter alia, that it was arbitrary, capricious and in violation of the zoning law, 29 V.I.C., ch. 3, subchap. III. The St. Croix Drive-in Theater, Inc. intervened in the action, answered the complaint, and prayed for its dismissal. The Government of the Virgin Islands and the Board of Appeals also answered, asking for dismissal of the complaint. The district court entered a judgment dismissing the complaint on the ground that the plaintiffs, because they had not appeared before the Board of Appeals, did not come within the class of persons granted the right of review. On appeal from that judgment this court held that the plaintiffs were authorized under 29 V.I.C. § 270 to seek review by the district court of the Board of Appeals’ action and we remanded the cause to the district court for hearing on the merits. Kramer v. Government of the Virgin Islands, 3 Cir. 1971, 8 V.I. 449, 453 F.2d 1246. Upon remand plaintiffs filed in the district court a motion for an injunction alleging that the establishment of the drive-in theater would result in traffic congestion and noise to their injury, contrary to the purpose of the law in establishing the residential zone, and that, in any event, such a theater was not a recreational facility which was authorized by the zoning law as a special exception in an R 10 residential zone. The plaintiffs specifically alleged that the Board of Appeals’ decision was in violation of the zoning law, 29 V.I.C. § 260(3), in that it would increase congestion in the roads and streets, which it was one of the objects of the law to prevent. The district court, after hearing, found reasonable and well supported by the evidence the conclusion of the Board of Appeals, that, in the light of the understanding of the term in the community, an outdoor drive-in theater is a “recreational use” within the meaning of the statute. The court applied the rule enunciated in N. L. R. B. v. Hearst Publications, 1944, 322 U.S. 111, 131, 64 S.Ct. 851, 88 L.Ed. 1170, that where the question is one of specific application of a broad statutory term in a proceeding in which the agency administering the statute must determine it initially, the reviewing court’s function is limited to deciding whether that determination has warrant in the record and a reasonable basis in law. Concluding that the Board did not exceed its authority in granting a special exception for recreational use and that its decision to do so was based on relevant evidence acceptable to a “reasonable mind,” the district court denied the injunction and affirmed the decision of the Board of Appeals. Kramer et al. v. Government of the Virgin Islands et al., 1972, — V.I. -. This appeal by Edwin R. Kramer and Theodore A. Giattini, two of the plaintiffs followed. On this appeal, the appellants contend that the district court erred in denying the plaintiffs’ application for an injunction because the value of their property will be reduced by the traffic congestion, noise pollution, visual pollution, heat pollution, and creeping commercialism, which, as they allege, will result from the establishment of the theater. They argue further that, as a matter of law, it was improper for the Board of' Appeals to grant a special exception in an R 10 residential zone to construct an outdoor drive-in theater, because such a theater would constitute a business or commercial use of the land and not such a recreational use as is authorized by the statute to be granted as a special exception in such a zone. We turn first to consider the latter contention. The provisions of the zoning law which are involved are contained in sub-chapter III of Chapter 3 of Title 29, Virgin Islands Code (29 V.I.C. § 260 et seq.), and are, in pertinent part, as follows: “§ 260. Purpose the zoning requirements set forth in this subchapter shall be for the purpose of benefitting the Virgin Islands by: (1) promoting the public health, safety, morals and general welfare; (3) lessening congestion in the roads and streets; (4) protecting the established character and social and economic value of agricultural, residential, commercial, industrial, recreational and other areas; § 261. Definitions For the purpose of this subchapter, certain terms are defined as follows: (17) Recreational use: Public or private recreational facility, including, but not limited to, golf courses, boat harbors, and bathing beaches. Commercial uses, such as refreshment stands and equipment rentals, may be permitted if clearly accessory to the principal use. § 266. District requirements District requirements shall be as set forth in the schedule annéxed hereto, marked “Appendix I,” incorporated into and by this reference made a part of this subchapter. . Appendix I Schedule of Zone Requirements R 10 Zone One- or Two-Family Residential (Intent: To stabilize the agricultural and residential character of the Zone and to encourage a suitable environment for family life.) Permitted Principal Uses and Structures : 1. Agricultural use 2. One or two single-family dwellings 3. Two-family structure Permitted Accessory Uses and Structures: 1. Home occupations 2. Servants’ quarters 3. Roadside stand Special Exceptions: 1. Rooming or boarding house 2. Community service or facility 3. Resort hotel 4. Agricultural processing plant 5. Recreational use 6. Apartment house 7. Three- or four-family structure 8. Neighborhood commercial activities 9. Quarrying and associated activities § 269. Special exception and variance procedure (a) Special exceptions. The Planning Board may grant special exceptions for certain uses as specified in Appendix I . Such special exceptions shall be granted only when found to be in harmony with the purpose and intent of this subchapter and subject to such conditions and safeguards as may be appropriate. [29 V.I.C. § 260 et seq.] It will be seen that the statute authorizes the granting in an R 10 residential zone of a special exception for a “recreational use,” which the law defines as a “Public or private recreational facility, including, but not limited to, golf courses, boat harbors, and bathing beaches.” The appellants strongly urge that an outdoor drive-in theater is not such a facility and that its operation is not a recreational use. The word “recreation,” however, in its popular sense is of very comprehensive signification and includes in its general meaning games, sports and plays. 36A Words and Phrases, Perm, ed., pp. 121-122. Webster defines “recreation” as, inter alia, “refreshment of the strength and spirits after toil; diversion; play” and defines the word “diversion” as “that which turns or draws the mind from care or study, and thus relaxes and amuses Sny. . . . amusement, entertainment, recreation, game.” Webster’s New International Dictionary, 2d ed., pp. 2082, 759. The district court concluded that the Board was not unreasonable in deciding that a drive-in theater constituted “recreation” in the common community understanding of the term and was, therefore, authorized by the statute to be permitted as a special exception in the R 10 zone. We cannot say that this conclusion, thus affirmed by the district court, has no warrant in the record or any reasonable basis in the law. Under the rule laid down in N. L. R. B. v. Hearst Publications, 1944, 322 U.S. Ill, 131, 64 S.Ct. 851, 88 L.Ed. 1170, our authority to review this question extends no further. The fact that such a theater would be a commercial enterprise for private profit does not derogate from this conclusion since the statutory definition of recreational use specifically mentions golf courses, boat harbors and bathing beaches, all of which are frequently operated for profit and when so operated certainly constitute forms of commercial enterprise. We conclude that the statute, 29 V.I.C. §§ 261(17) and 269, fairly construed, authorizes the zoning authorities to grant, when it is found to be in harmony with the purpose and intent of the law, a special exception permitting a drive-in theater to be constructed and operated in an R 10 residential zone. This brings us to the remaining question, namely, whether under the facts of this ease the action of the Board of Appeals in granting such an exception was within the purpose and intent of the law or whether, as the appellants contend, it violated that purpose and intent. In support of their contention they urge that the Planning Board corréetly denied the application for a special exception for the reasons of “improper location” and “possibility of traffic congestion” and that the decision of the Board of Appeals which granted the exception and the judgment of the district court which affirmed that decision are not supported by the evidence. They urge that traffic congestion on the connecting roads, excessive noise, visual pollution, heat pollution and creeping commercialism will result from the establishment of the drive-in theater in their residential neighborhood. The St. Croix Drive-in Theater, Inc., on the other hand, argues that the decision of the Board of Appeals and the judgment of the district court have support in the evidence disclosed in the minutes of the Planning Board and the Board of Appeals to the effect that the proposed drive-in theater would be located in an old quarry with a recessed moving-picture screen practically invisible from the road; that photographs of the area showed only two houses on the Wintberg Bay side, one of which was about 3000 feet away from the picture screen; and that an architect-member of the Planning Board visited the site, took photographs, analyzed the traffic conditions, and reported that the theater traffic would come at off-peak hours. Our review of the record as a whole satisfies us that the district court did not err in concluding that the decision of the Board of Appeals was supported by the record. The appellants have cited in support of their contentions numerous cases from other jurisdictions, each of which we have considered. However, it is clear that each of them turns on its own special facts and none is controlling here. The district court also concluded that on the record before it the plaintiffs were not entitled to an injunction. We are satisfied that the court did not err in so doing. This is not to say, however, that the plaintiff might not become entitled to injunctive relief in the future. For while a drive-in theater is a lawful business and not a nuisance per se, King v. James, 1950, 88 Ohio App. 213, 97 N.E.2d 235; Bzovi v. City of Livonia, 1957, 350 Mich. 489, 87 N.W.2d 110, it may become a nuisance in fact if the place and manner of its operation result in such substantial injury to residents of the neighborhood as to amount to an invasion of their rights to repose and the enjoyment of their homes. Guarina v. Bogart, 1962, 407 Pa. 307, 180 A. 2d 557, 93 A.L.R.2d 1165, and annotation p. 1171 et seq.; 4 Am.Jur.2d, Amusements and Exhibitions § 37. And compare City of Somerset v. Sears, 1950, 313 Ky. 784, 233 S.W.2d 530. The judgment of the district court will be affirmed.

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Caselaw Access Project

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2024-08-24T03:29:51.129683

UNITED STATES of America, Plaintiff-Appellant, v. N. L. INDUSTRIES, INC., and Chemical Workers’ Basic Union, Local 1744, AFL-CIO, Defendants-Appellees. No. 72-1143. United States Court of Appeals, Eighth Circuit. Submitted Sept. 12, 1972. Decided March 28, 1973. Rehearing and Rehearings En Banc Denied May 21, 1973. Stuart P. Herman, Atty., Department of Justice, Washington, D. C., for plaintiff-appellant. Harry O. Moline, Jr., St. Louis, Mo., for .Chemical Workers, etc. Howard Elliott, St. Louis, Mo., for National Lead Co. Before BRIGHT and STEPHENSON, Circuit Judges, and TALBOT SMITH, Senior District Judge. Eastern District of Michigan, sitting by designation. BRIGHT, Circuit Judge. This appeal by the United States brings before us for the second time an action brought by the Attorney General under the Civil Rights Act of 1964, Title VII, 42 U.S.C. § 2000e et seq. to enjoin N. L. Industries (formerly National Lead Co., hereinafter the Company or National Lead) and Chemical Workers’ Basic Union Local 1744, AFL-CIO (Local 1744), from discriminating against blacks who seek employment or are employed at the Company’s St. Louis, Missouri, plant. The case came before us previously when the Government appealed the district court’s denial of a preliminary injunction. United States v. National Lead Co., 438 F.2d 935 (8th Cir. 1971), aff’g, 315 F.Supp. 912 (E.D.Mo. 1970). In affirming the district court’s denial of preliminary relief, we noted that evidence presented by the Government at that time raised an inference of discrimination, but we felt that a full scale trial on the merits would be beneficial in fashioning appropriate relief. The action has now been tried and the district court has completely rejected the Government’s requests for relief. After an exhaustive review of the complex and extensive trial records and exhibits, we reverse the district court and direct the entry of injunctive and other appropriate relief. The Company operates a plant in St. Louis known as the Titanium Pigment Division. This plant employs approximately 1100 production workers, including about 250 blacks. Local 1744 represents these production workers. In this suit the Government makes the following charges of discrimination against the Company: (1) The Company’s departmental seniority system perpetuates the effects of past assignment of black employees to a racially segregated department and thus blacks hired prior to 1963 are denied an equal opportunity to compete with their contemporaries for the most desirable production jobs. (2) The Company’s assignment policies relating to new employees discriminates against blacks by assigning them in disproportionate numbers to the Labor department for seniority purposes. (3) The Company ' discriminates against blacks in the selection of plant foremen. (4) The Company engages in racially-discriminatory policies in its hiring of office, clerical, and technical personnel. We turn to an examination of each of the Government’s allegations. I. THE SENIORITY SYSTEM Since the basic provisions of the Company’s seniority system, as described in our earlier opinion, remain unchanged, we will repeat them here, with some amplification as provided by the completed record. The collective bargaining agreement between the Company and Local 1744 creates a dual system of seniority, departmental and plantwide. Departmental seniority, based upon length of service in a particular department, governs bidding for vacant jobs within that department, choice of vacation schedule, order of layoff within a department and order of recall within that department after a layoff. Plantwide seniority, based upon length of service with the Company, determines such matters as success in interdepartmental bidding (where permitted), length of vacation, and insurance and annuity benefits. For the purposes of departmental seniority, the production workers within the Local 1744 bargaining unit are divided into six departments: Acid, Water and Power, Stores, Mechanical, Titanium, and Labor. When a vacancy occurs within any department, the job is first open only to intradepartmental bids. There are no lines of progression within a department, and the employee with the greatest seniority within that department will attain the position if he bids for it; thus “leapfrogging”, is permitted by this system. If no bid is received from within a department, or if departmental bids leave a vacancy, employees from other departments may bid on the job and, under the 1972 bargaining agreement, the job is then awarded to the bidder with the highest plantwide seniority. When an employee changes departments, he cannot transfer his accumulated departmental seniority to the new department. The transferred employee is therefore junior in departmental seniority to those employees already working within the department, although the transferee may have considerably greater plantwide seniority. Thus, should a work force reduction occur within a department, the transferred employee will lose his position in his new department before any other employee possessing greater departmental seniority. Plant-wide seniority, however, affords some protection to the employee who is thus “rolled-back” from his new department, because he is permitted to return to his former department where he takes whatever job is available until a desirable vacancy in that department occurs. He may then exercise his total departmental seniority, which includes that accrued in the new department prior to roll-back, to bid for that job. Prior to mid-1962, the Company practiced employment discrimination by assigning blacks exclusively to the Labor department seniority group. With few exceptions, whites did not work in the Labor department prior to the effective date of Title VII, July 1, 1965. Until March, 1963, employees in the Labor seniority group were prohibited from transferring from the Labor department into any other department. The bargaining agreement was modified at that time to permit Labor department employees to bid into the Mechanical department, and after working there for one year, to bid on job vacancies in the three operating departments after intra-departmental bidding was exhausted. Employees in the other five departments already possessed this privilege of interdepartmental bidding, i. e., into the mechanical department and from it to another department. In 1969, the collective bargaining agreement was again changed to permit an employee hired prior to March 14, 1963, to bid directly into one of the three operating departments (Acid, Water and Power, and Titanium), without first spending a year in the Mechanical department. However, under the 1969 contract and under the present contract, bids from outside a department are permitted only after intradepartmental bidding is completed. Employees assigned to the Labor seniority group frequently assist in operations carried on in other departments such as Acid, Water and Power, and Titanium, but regardless of where they perform their work, they continue to accrue seniority only in the Labor group. Numerous black employees with extensive Labor department seniority testified that the reason they had not bid into another department was because of the high risk involved since they are unable to carry Labor department seniority into the new department. This is especially true for the Labor department employee who has attained a desirable Labor department position because of seniority. If he bids into another department and then is bumped back into Labor, he does not return to his former job but instead becomes a “floater.” As such he performs the least desirable jobs in the Labor department until he has had the opportunity to bid into another Labor department position. Thus the undisputed facts show (1) that prior to about July, 1962, National Lead assigned blacks to the Labor department only, which for all practical purposes was a segregated department, and (2) that the departmental seniority system inhibits blacks hired prior to March 14, 1963, from competing for desirable positions in the previously all-white departments on an equal basis with white employees who have received a preference by being initially assigned to these departments. The statistics also reveal that many of the jobs in the Labor department carry a lower basic pay scale than many jobs in other departments. The Company does not maintain job descriptions for each job classification within the plant. However, the evidence is undisputed that although black and white riggers and riggers’ helpers use the same equipment, perform identical duties, and receive the same pay, the white riggers and their helpers accrue seniority in the Mechanical department while their black counterparts accrue seniority in the Labor department. Thus, under the present seniority system, a black rigger's helper desiring to bid on a rigger’s job now held by a white would be permitted to make such a bid only after the job had been turned down by every employee in the Mechanical department. In 1967, the plant manager indicated that there was no reason why the riggers in the Labor department should not be transferred to the Mechanical department seniority list. Under the collective bargaining agreement, an employee accepted for a new job shall have six days to qualify for the job, and if he fails to qualify, he may-return to his old job without loss of seniority. It is now beyond cavil that Title VII of the Civil Rights Act of 1964 proscribes employment practices and procedures which, although presently neutral and nondiscriminatory on their face, tend to preserve or continue the effects of past discriminatory practices. Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971); United States v. St. Louis-San Francisco Ry. Co., 464 F.2d 301 (8th Cir. 1972); Marquez v. Omaha District Sales Office, Ford Division, 440 F.2d 1157 (8th Cir. 1971); Robinson v. Lorillard Corp., 444 F.2d 791 (4th Cir. 1971); United States v. Bethlehem Steel Corp., 446 F.2d 652 (2d Cir. 1971); United States v. Jacksonville Terminal Co., 451 F.2d 418 (5th Cir. 1971), cert. denied, 406 U.S. 906, 92 S.Ct. 1607, 31 L.Ed.2d 815 (1972); United States v. I. B. E. W., Local 38, 428 F.2d 144 (6th Cir.), cert. denied, 400 U.S. 943, 91 S.Ct. 245, 27 L.Ed.2d 248 (1970); Parham v. Southwestern Bell Telephone Co., 433 F.2d 421 (8th Cir. 1970); United States v. Dillon Supply Co., 429 F.2d 800 (4th Cir. 1970); United States v. Sheet Metal Workers, Local 36, 416 F.2d 123 (8th Cir. 1969); Local 189, United Papermakers and Paperworkers v. United States, 416 F.2d 980 (5th Cir. 1969), cert. denied, 397 U.S. 919, 90 S.Ct. 926, 25 L.Ed.2d 100 (1970); Local 53, Heat & Frost Insulators & Asbestos Workers v. Vogler, 407 F.2d 1047 (5th Cir. 1969); Quarles v. Philip Morris, Inc., 279 F.Supp. 505 (E.D.Va.1968). In Griggs, supra, 401 U.S. at 429-430, 91 S.Ct. at 853, the Supreme Court said: The objective of Congress in the enactment of Title VII is plain from the language of the statute. It was to achieve equality of employment opportunities and remove barriers that have operated in the past "to favor an identifiable group of white employees over other employees. Under the Act, practices, procedures, or tests neutral on their face, and even neutral in terms of intent, cannot be maintained if they operate to “freeze” the status quo of prior discriminatory employment practices. The Court further pointed out that, “The Act proscribes not only overt discrimination but also practices that are fair in form, but discriminatory m operation.” Id. at 431, 91 S.Ct. at 853. In a case which preceded Griggs, Judge Wisdom, writing for the Fifth Circuit, agreed with the proposition initiated in Quarles, supra, 279 F.Supp. at 516, that “it is * * * apparent that Congress did not intend to freeze an entire generation of Negro employees into discriminatory patterns that existed before the act.” Local 189, supra, 416 F.2d at 987-988. Where an employment practice perpetuates the effects of past discriminatory procedures, the employer’s good faith or absence of discriminatory purpose is immaterial. Griggs, supra, 401 U.S. at 432, 91 S.Ct. 849; St. Louis-San Francisco Ry. Co., supra, 464 F.2d at 307; Rowe v. General Motors Corp., 457 F.2d 348, 355 (5th Cir. 1972); Marquez, supra, 440 F.2d at 1159-1160. “[G]ood intent or absence of discriminatory intent does not redeem employment procedures or testing mechanisms that operate as ‘built-in headwinds’ for minority groups and are unrelated to measuring job capability. * *' * Congress directed the thrust of the Act to the consequences of employment practices, not simply the motivation.” Griggs, supra, 401 U.S. at 432, 91 S.Ct. at 854 (emphasis in original). “[Wjhere an employer’s present advancement policy serves to perpetuate the effects of past discrimination, although neutral on its face, it rejuvenates the past discrimination in both fact and law regardless of present good faith.” Marquez, supra, 440 F.2d at 1159-1160. In the present ease the district court found that prior to 1962 all Negro employees were assigned to the Labor department seniority group at National Lead and that prior to 1963, black employees could not transfer from that department to accrue seniority elsewhere. The court further found that these black employees hired prior to 1963 will thus “always be junior to employees hired contemporaneously with them who have remained in the department in which they were hired if Labor department employees transfer to that department.” United States v. N. L. Industries, Inc., 338 F.Supp. 1167, 1169 (E.D.Mo.1972). These holdings are completely substantiated by the record. Contrary to National Lead’s contention, present contractual arrangements perpetuate the effects of past discriminatory practices and do not afford pre-1963 black employees an equal employment opportunity with white employees. Although a pre-1963 Labor department employee may bid into another department under certain circumstances, the conditions under which the right may be exercised are so onerous as to make the opportunity totally illusory. If a pre-1963 Labor department employee successfully bids on a job in another department, his Labor department seniority, accumulated in the only department where he was permitted to work, vanishes for all practical purposes within the new department. Thus, whether he has worked for the company for 20, 30, or more years, for the purposes of layoff or future bidding within his new department, he fares no better than the man right off the street contemporaneously hired into that department. In fact, if the man off the street were hired into the department one week or even one day before the pre-1963 employee who has 30 years of Labor department seniority, the new hire will be preferred over the pre-1963 employee in departmental bidding and layoff orders as well as in choice of vacation time. Thus, “The translation of racial status to job-seniority status cannot obscure the hard, cold fact that Negroes * * * will lose promotions which, but for their race they would surely have won. Every time a Negro worker hired under the old segregated system bids against a white worker in his job slot, the old racial classification reasserts itself, and the Negro suffers anew for his employer’s previous bias.” Local 189, supra, 416 F.2d at 988. The testimony of Gordon Lockhart, a Labor department employee since 1947, pointedly illustrates the restrictive and illusory aspects of the right to transfer out of the Labor department under the Company’s present plan: * * * I was afraid to take the risk. You see, if I bid from the Labor Department to another department, then I’m a new man in that department, and then if I’m laid off that departmental will go back not to my present job that I left, but as a floater in the Yard Labor Department, therefore losing [sic]» a cut in pay. I have six children. They are all in school, so you see, I have to watch those pennies. Although the district court found that jobs in the Labor department were not the least desirable in the plant, support for that finding rested almost solely on testimony as to the subjective reactions of management personnel who had observed working conditions in the plant. The men who actually performed the tasks in the Labor department expressed a contrary point of view as to desirability. Moreover, the silence of the record in showing whites bidding into the Labor department is significant support for the Government’s point of view as to desirability. Traditionally, the classification of “laborer,” whether rightfully or wrongfully, carries the connotation of being at the bottom of the job hierarchy. Moreover, given the realities of industrial life prior to the enactment of Title VII, we would be hard pressed to say that a company which assigned blacks only to the Labor department prior to 1962 was reserving its most desirable jobs for them. In any case, the question here is not which jobs are most desirable as determined by subjective opinions, but whether previously discriminated against employees should have the opportunity to bid into jobs denied them because of skin color. See United States v. Hayes Int’l Corp., 456 F.2d 112, 118 (5th Cir. 1972). The dual seniority system used at National Lead is very analogous to that described in Robinson, supra, 444 F.2d 791. There, as here, interdepartmental transfers were permitted if the employee were willing to forfeit seniority benefits accumulated in a former department and begin as a new employee in the department to which he had transferred. As here, the Lorillard employee who might be laid off in his new department because of low seniority also had the right to return to his old department and retain his original departmental seniority there. The court concluded that: The record amply supports the findings of the District Court that Loril-lard’s departmental seniority system has a continuing discriminatory impact on the class represented by the plaintiffs. * * * [I] f all barriers to transfer were removed, under a departmental seniority system the plaintiffs will always suffer a real economic handicap in the better paying departments. As transferees they are treated as new hires for departmental seniority purposes, while white coworkers hired at the same time have departmental seniority coextensive with their total employment seniority. [Id. at 795-796.] The seniority system involved in Bethlehem Steel, supra, 446 F.2d 652, permitted plant-wide transfer to lower level jobs remaining unfilled after intra-pool transfers but, as here, without carryover of seniority or former rate of pay. The court found that the seniority and transfer provisions continued the effects of past discrimination, first, because the transferee had to forfeit seniority and pay levels earned in the black department and, second, because the transferee to a white department would never be able to reach the level of a white employee already there. Seniority transfer privileges in effect at the Bethlehem Steel Corporation plant at Sparrows Point, Maryland, which appeared less discriminatory than those present here, have recently been struck down by the Secretary of Labor as a violation of Executive Order 11246 prohibiting racial discrimination in employment by government contractors. In the Matter of Bethlehem Steel Corp., OFCC Docket No. 102-68, January 15, 1973. The seniority system conferred benefits of unit seniority as well as plant seniority — unit seniority determined promotion and demotion in lines of progression; plant seniority determined layoff and recall in seniority departments which covered several similar units in an area pool, and, finally, in the plant itself. The Secretary’s determination reads in part: Specifically, the Panel found that this system constituted present discrimination for two reasons: (1) It discriminates against the blacks in [the] affected class who have previously transferred into formerly white units because they were required to relinquish employment seniority, and were placed at a disadvantage with respect to white employees hired into those units under the Company’s former discriminatory hiring policy. (2) It violates the Executive Order because blacks in the affected class, as a condition for a present exercise of a transfer right, are required to relinquish their existing unit seniority, take a pay cut, and compete with nondiserimi-nated employees in the new unit on the basis of unit rather than plant seniority. Based on these findings, the Panel concluded, and I agree, that the Company is now in non-compliance with the obligations imposed upon it pursuant to its Government contracts under the Executive Order. [Id., slip opinion at 18-19 (footnote omitted).] (3) The above cited authorities lead us to the inescapable conclusion that the employment program followed at National Lead, although neutral on its face, violates Title VII. Close scrutiny reveals that all employees do not compete on an equal basis due to the lingering effects of pre-1963 discrimination. The price that the existing seniority plan extracts from the pre-1963 employees for the opportunity to break out of a department to which they were racially assigned is too high, especially since it is to be paid by the same group that has already endured the hardships of past discriminatory practices. Thus we find that although the present seniority plan is neutral on its face, it perpetuates the effects of past discriminatory employment procedures and cannot stand unless it is justified by essential business necessity. The holding of the district court is somewhat ambiguous on this point. Although the court found that there was no evidence of discriminatory activity by National Lead since the enactment of Title VII, it apparently acknowledged the continuing effects of past discrimination, else it would not have found it necessary to rely on the business necessity doctrine to justify such effects. Similarly, the district court acknowledged substantial case law authority requiring some form of merger of seniority to overcome the continuing effects of past discrimination but sought to distinguish those cases on the basis that National Lead had a legitimate, nonracial business purpose for maintaining its present seniority system. It is therefore necessary to determine whether the business necessity doctrine supports the trial court’s conclusion. A seniority system that perpetuates the effects of past discrimination cannot be continued unless there is a showing of “compelling business necessity.” St. Louis-San Francisco Ry. Co., supra, 464 F.2d at 308; see Griggs, supra, 401 U.S. at 431, 91 S.Ct. 849; Rowe, supra, 457 F.2d at 354; Local 189, supra, 416 F.2d at 989. In St. Louis-San Francisco Ry. Co., supra, 464 F.2d 301, 308, this Circuit, sitting en banc, stated that: “[T]his doctrine of business necessity, which has arisen as an exception to the amenability of discriminatory practices, ‘connotes an irresistible demand.’ The system in question must not only foster safety and efficiency, but must be essential to that goal.” (Emphasis in original.) [T]he business purpose must be sufficiently compelling to override any racial impact; the challenged practice must effectively carry out the business purpose it is alleged to serve; and there must be available no acceptable alternative policies or practices which would better accomplish the business purpose advanced, or accomplish it equally well with a lesser differential racial impact. [Robinson, supra, 444 F.2d at 798 (footnotes omitted).] In Bethlehem Steel, supra, 446 F.2d at 662, the Second Circuit stated that “[T]he ‘business necessity’ doctrine must mean more than that transfer and seniority policies serve legitimate management functions. Otherwise, all but the most blatantly discriminatory plans would be excused even if they perpetuated the effects of past discrimination. Clearly such a result is not correct under Title VII.” We emphasize that many of the company’s arguments which were rejected in Bethlehem Steel are absent here because there are no lines of skill progression and there is not even a contention that changing the seniority system will increase the likelihood of injury. The Secretary of Labor has followed the lead of the Second Circuit in ordering relief for black employees who had been assigned to predominately black departments at the Sparrows Point, Maryland, Bethlehem Steel Corporation facility. In the Matter of Bethlehem Steel Corporation, supra, OFCC Docket 102-68. The Secretary, in rejecting the argument that safety and plant efficiency would suffer by permitting advancement within a unit on the basis of plant service (seniority) aptly noted: [T]o say that a man is most experienced by virtue of his work in a given unit is not always true. Indeed, one’s ability need never be examined only assumed under a system of promoting on the basis of unit seniority only. [Id., slip opinion at 34.] Here, the district court failed to apply the appropriate underlying principles in holding that the Company’s seniority program was justified by business necessity. First, we note the district court spoke in terms of “business purpose,” an incorrect test, rather than in terms of “compelling business necessity,” the test prescribed in St. Louis-San Francisco Ry., supra, 464 F.2d 301. Business purpose alone is not enough to justify an employment practice which preserves the effects of past discrimination. Robinson, supra,, 444 F.2d at 796-798. Second, we find no evidence indicating that the ends of safety are promoted by the present seniority system. Third, the question of efficiency was only tangentially raised by testimony of the plant manager who indicated that the failure of a Titanium operator to perform his duties properly could cause considerable waste. There was, however, no testimony that a person of ordinary intelligence, who was given the six-day training period prerequisite to becoming an operator, would be unable to perform that job satisfactorily. In regard to the alleged need for prior experience within a department, we again point out that National Lead maintains no lines of progression within departments or between departments. The sole determinant for job selection is seniority and only seniority — not ability. Thus, as in St. Louis-San Francisco Ry., supra, 464 F.2d at 309, “Length of service becomes synonymous with qualified.” The only further prerequisite for qualification rests on the transferee’s ability to perform the job after a six-day training period. Here, as in Robinson, supra, 444 F.2d at 799, “[T]he record is barren of any real evidence that the jobs in the formerly all-white departments are so complex and interrelated that progression through a series of jobs is necessary to efficient performance of the more difficult tasks,” and even if such a showing had been made, “[I]t is difficult to imagine how even the necessity for job progression could constitute the business necessity which would justify a departmental seniority system that perpetuated the effects of prior discriminatory practices.” In considering business necessity, the district court gave some weight to the alleged training costs which, according to the Company, flow from interdepartmental transfers due to an . average of three job moves attributable^ to filling a single departmental vacancy. In light of the 1972 collective bargaining agreement, which-freely permits interdepartmental transfers after intradepartmental bidding is completed, and in light of our proposed remedy, which does not alter interdepartmental bidding procedures, we do not believe that the alleged excessive costs in changing the seniority system can be substantiated. However, assuming arguendo that the proposed remedy will entail some additional costs, we adhere to the Fourth Circuit’s view that, “[Ajvoidance of the expense of changing employment practices is not a business purpose that will validate the racially differential effects of an otherwise unlawful employment practice.” Robinson, supra, 444 F.2d at 800. See Bing v. Roadway Express, Inc., 444 F.2d 687, 690 (5th Cir. 1971). Additionally, we note that in St. Louis-San Francisco Ry., supra, 464 F.2d at 310, we required the employer to create and implement an extensive retraining program by which train porters could become qualified as brakemen. No such retraining is necessary here. In fact we do not perceive the necessity for any change in National Lead’s current training program. We thus conclude that the present seniority system at National Lead does not meet the requirements of the compelling business necessity test. II. POST-ACT DISCRIMINATION We now turn to the contention that National Lead continues to practice racial discrimination by assigning a disproportionate percentage of blacks to the Labor department seniority group while whites appear to enjoy a preference in assignments to other departments in the plant. The evidence indicates that between the effective date of the Civil Rights Act, July 1, 1965, and August 11, 1970, National Lead assigned approximately 50 percent of its new black hires to the labor department seniority group. Approximately 31 percent of new white hires were assigned to the Labor department seniority group during this same period. As of November, 1969, the Labor department remained almost 90 percent black while the percentage of blacks in all other departments was less than five percent. The result has been that the work force remains largely segregated while these statistics are indicative of the lack of effectiveness of National Lead’s efforts to eliminate its segregated departments, we cannot say on this record that they are conclusive on the issue of continuing discrimination. They will, however, be considered in formulating an appropriate remedy. In regard to the Company’s practice of assigning black riggers to one seniority group while assigning white riggers to another despite the fact that they perform identical tasks, we hold that such a practice is not only the perpetuation of past discrimination, but is in itself a presently discriminatory practice, regardless of past procedures. III. SELECTION OF FOREMEN The record indicates that individuals are promoted to the position of foreman on the basis of recommendations by incumbent foremen. Final selection is made by the general superintendent. The education requirements are minimal, and some individuals with only eighth grade education have been promoted. Of the approximately 100 foremen in the plant who supervise the work of the employees in the Local 1744 bargaining unit, only three are black, and all three have been assigned to supervise Labor department employees exclusively. In the history of the Company, no other blacks have been appointed as foremen over this bargaining unit, and only one other black has ever been appointed to a foreman position in another bargaining unit. In January of 1967, National Lead prepared a list of 32 black employees whom it considered capable of qualify-in as foremen after a reasonable period of training. All of the employees on the list are experienced and have ten or more years of education, including three possessing at least two years of college. None of the blacks on the list have ever been promoted to the foreman position, although approximately 26 white employees, some with less education than the blacks on the list, have been promoted since the list was prepared. The record establishes, at least to the extent of the evidence before us, that these black men possess objective qualifications equal or superior to those possessed by some whites who have been promoted. The trial court rejected the claim of discrimination relating to foremen, finding the statistical data unpersuasive. The court made reference to an educational program funded by the Company as relevant to developing potential for job advancement, but there was no evidence that white employees were required to participate in the program before being promoted. The statistical data leaves the strong .inference that racial considerations have dictated the choice of foremen. This Circuit has repeatedly held that discrimination may be established by statistical data. See, e. g., St. Louis-San Francisco Ry., supra, 464 F. 2d at 307; Carter v. Gallagher, 452 F.2d 315, 323 (8th Cir. 1971), modified on rehearing en banc, 452 F.2d at 327, cert. denied, 406 U.S. 950, 92 S.Ct. 2045, 32 L.Ed. 338 (1972); Marquez, supra, 440 F.2d at 1160-1161; Parham, supra, 433 F.2d at 426. Other circuits are in accord. See, e. g., United States v. Wood Lathers, Local 46, 471 F.2d 408, 414 n. 11 (2d Cir. 1973); United States v. Chesapeake and Ohio Ry. Co., 471 F.2d 582, 586 (4th Cir. 1972); Rowe, supra, 457 F.2d at 357 (5th Cir.); Jones v. Lee Way Motor Freight, Inc., 431 F.2d 245 at 247 (10th Cir. 1970). In St. Louis-San Francisco Ry., supra, 464 F.2d at 307, we held that “Although the record does not contain specific evidence of the refusal of Frisco to hire blacks during this period * * * these statistics demonstrate just as effectively as the testimony of a witness that Frisco and the BRT systematically excluded blacks in hiring new brakemen.” The inference of discrimination provided by the statistics is reinforced by the Company’s method of selecting foremen. The Company’s promotional plan is very similar to that used by General Motors Corporation in Rowe, supra, 457 F.2d 348. In that plan the foreman’s recommendation was the indispensable, single most important element in the promotional process; there were no written instructions to foremen as to the qualifications desired; standards that were set were vague and subjective; hourly employees were not notified of promotional opportunities; and there were no safeguards in the procedure to prevent discrimination. In concluding that such procedures were violative of Title VII, the court commented: Blacks may very well have been hindered in obtaining recommendations from their foremen since there is no familial or social association between these two groups. All we do today is recognize that promotion/transfer procedures which depend almost entirely upon the subjective evaluation and favorable recommendation of the immediate foreman are a ready mechanism for discrimination against Blacks much of which can be covertly concealed and, for that matter, not really known to management. We and others have expressed a skepticism that Black persons dependent directly on decisive recommendations from Whites can expect non-discriminatory action. [Id. at 359 (footnote omitted).] The method by which the company acquired new employees in Parham, supra, 433 F.2d 421, is also similar to the Company’s method of acquiring new foremen here. In Parham employment depended primarily upon being referred to the company by an existing employee. We pointed out that “With an almost completely white work force, it is hardly surprising that such a system of recruitment produced few, if any, black applicants,” and we determined that such a system of recruiting new workers operated to discriminate against blacks. Id. at 427. We think evidence indicating that out of about 100 foremen only three are black, that these three black foremen are in charge of only Labor department employees, that a black foreman has never been in charge of white employees in this bargaining unit, that one of 36 employees promoted to foreman since 1965 was black, that a pool of qualified black employees exists, and that white employees with less qualifications have been promoted to foreman positions presents a prima facie case of racial discrimination that has not been rebutted by the Company. See Carter, supra, 452 F.2d at 323; Parham, supra, 433 F.2d at 426; Jones, supra, 431 F.2d at 247. In Marquez, supra, 440 F.2d at 1162, this court observed that, “Documentary evidence relating to an employee’s non-promotional status serves to corroborate a claim of racial discrimination. This evidence becomes particularly significant when no rational reason is offered to rebut the telling inference otherwise established.” Upon analysis, none of the Company’s contentions serve to explain its failure to promote qualified blacks to foreman positions, nor its failure to assign the few it has promoted to a department other than Labor. National Lead’s contention that the reason black employees were not promoted to supervisory positions was because they did not “ask” to be promoted is without merit. Nothing in the record indicates that white employees were required to make such a request. In any case, a black employee with knowledge of the nominal number of black foremen, the Company’s past discriminatory policies, and the current practice of promotion via the recommendation of an incumbent foreman could hardly be expected to make a meaningless request indicating his willingness to be promoted. Sheet Metal Workers, supra, 416 F.2d at 132; Carter, supra, 452 F.2d at 331; see Parham, supra, 433 F. 2d at 427. IV. OFFICE AND CLERICAL WORKERS AND LABORATORY PERSONNEL The Government attempts to prove discrimination in the Company’s hiring of clerical and technical employees in two ways: (1) by statistical evidence showing an allegedly unexplained and unjustifiable disparity in the ratio of black to white employees; and (2) by concrete evidence that the Company failed to hire certain allegedly qualified individuals because they were black. By way of statistical data, the evidence introduced by the Government indicated that in 1965 National Lead employed 59 office and clerical workers, one of whom was black. At the time of this suit, the Company had 48 office, clerical, and secretarial personnel, two of whom were black. Of the 31 new office and clerical personnel hired between January, 1965, and the time of this suit, only one was black. The Company employed 28 laboratory technicians and assistants in November, 1969, of whom one was black. A total of approximately 10 blacks have been employed in the lab at various times from 1963 to the present. At least two black applicants have unsuccessfully sought positions as laboratory technicians or assistants since 1965. One of these positions was filled by a black applicant. Initially, we note that although the Government contends that the statistical evidence, buttressed by testimony of individual applicants, makes out a prima facie case of racial discrimination, it also argues that it was denied complete discovery of National Lead’s clerical and technical application and employment records and that such a denial by the district court is inconsistent with its holding that the Government had failed to prove discrimination. The record reveals that the Government was limited in its discovery efforts and in its efforts to have certain evidence concerning clerical and technical employees admitted at trial. Apparently the district court’s reason for imposing limitations in this area was due to its belief that the union which represents the clerical employees was a necessary party under Rule 19, Fed.R.Civ.P. However, it is undisputed that National Lead has complete and absolute discretion in the initial hiring of clerical employees and the union has no discretion whatever in this area. Additionally, the Government asserts that there would be no change whatever in the union-company contract, even if the Government obtained the relief it seeks. Under these circumstances, until a showing is made that the requested relief in any way affects the union-company agreement, we do not perceive any necessity for joining the union. See Sheet Metal Workers, supra, 416 F.2d at 132 n.16; Norman v. Missouri Pacific Railroad, 414 F.2d 73, 84-85 (8th Cir. 1969). We believe the district court unduly restricted discovery here. Thus, if any limitation upon discovery or admission of evidence worked to the serious prejudice of the Government’s case, a remand for further hearings would be necessary. However, we think the evidence that was presented on this point is adequate to determine whether the Company’s hiring policies in regard to clerical and technical workers was discriminatory. The statistics themselves reflect evidence of discrimination, and “In racial discrimination cases, statistics often demonstrate more than the testimony of many witnesses, and they should be given proper effect by the courts.” Jones, supra, 431 F.2d at 247. In the present case, we think the district court gave inadequate weight to the statistical evidence. In Hayes, supra, 456 F.2d 112, the district court had found that there was no evidence in the record to support the inference of discrimination indicated by the high ratio of whites to blacks in the office and technical departments. The court stated: These lopsided ratios are not conclusive proof of past or present discriminatory hiring practices; however, they do present a prima facie case. The onus of going forward with the evidence and the burden of persuasion is thus on Hayes. * * * * * * The inference arises from the statistics themselves and no other evidence is required to support the inference. [Id. at 120.] Although the company in Hayes presented some evidence tending to rebut the inference of discrimination, the court held such evidence, similar to that presented by the Company here, inadequate : This burden is not met by Hayes’ attempts to parry specific allegations of alleged discrimination, e. g., the four negroes rejected after failing a typing test and the one turned away for being overweight, or by company officials stating in general terms that no one was refused employment solely because of their race. [Id. at 120.] See Bing, supra, 444 F.2d at 689; Jones, supra, 431 F.2d at 247. The evidence before us presents statistics reflecting great disparity in the employment of blacks as compared to whites as clerks, typists, and technicians. The Company apparently maintained a white-only policy in these departments prior to the effective date of the Civil Rights Act, and we note that, since the Act, the Company’s efforts to increase the number of blacks in these job classifications have been minimal or nonexistent, and in any ease unsuccessful. We think the statistics, when considered in the light of the Company’s past discriminatory policies and its failure to fully ameliorate those policies, establishes an inference of discrimination which the Company has failed to rebut by its assertion of nondiscriminatory hiring policies. Hayes, supra, 456 F.2d at 120; Jones, supra, 431 F.2d at 247. V. DISCRIMINATION AGAINST SPECIFIC INDIVIDUALS We next examine the Government’s contention that National Lead discriminated against specific individuals who applied for clerical or technical jobs but were not hired. In the present case, as of course in all employment discrimination cases, the employer contends that the individual black applicants were not hired because they were not qualified. In light of the extremely nominal percentage of black employees within the clerical and technical departments, such an allegation must be given close scrutiny. We, of course, do not require that an employer hire an applicant who does not possess the basic skills essential to the performance of a particular job, regardless of the color of his skin, but, discrimination, or conversely, fairness, in general hiring practices often indicates whether an employer is discriminating against individual applicants for employment. Parham, supra, 433 F.2d at 425. However, we also indicated in Parham that although a company’s general discriminatory practices furnished a strong inference that a particular applicant was rejected because of racial considerations, such a presumption is not conclusive. Id. at 428. The Government argues that at least three qualified black applicants for clerical positions and two for laboratory technician assistants were refused employment on the basis of race. The district court ruled that these applicants had failed to prove a racially-motivated basis for not being hired. In denying relief to the three clerical applicants, the court relied on its earlier opinion, 315 F.Supp. 912 (E.D.Mo.1970), in which it discussed the applicants individually. There the court found that Doris Cobb and Lillian Mitchell were justifiably denied positions because of their failure to prove that they had passed homemade tests given them by the Company and their failure to show that the tests were not job oriented, or that they were racially discriminatory. The test given to Cobb consisted of four or five mathematical problems which a Company employee jotted down on a sheet of yellow paper. She was denied the use of a comptometer in taking the test. The test given to Mitchell was improvised by the Company employment supervisor and consisted of approximately five minutes of dictation from a foreman’s manual which the supervisor “ordinarily” dictated at 80 words per minute. These tests do not constitute an acceptable employment test under Title VII of the Act. The Act specifically permits the use of a test under certain circumstances. It states that it is not an unlawful employment practice for an employer “to give and to act upon the results of any professionally developed ability test provided that such test, its administration or action upon the results is not designed, intended or used to discriminate because of race, color, religion, sex or national origin.” 42 U. S.C. § 2000e-2(h) (emphasis added). The Company has failed to offer any evidence that the above-mentioned homemade tests were “professionally developed ability test[s].” In Griggs, supra, 401 U.S. 424, 431-432, 91 S.Ct. 849, the Supreme Court indicated that when a test is shown to exclude Negroes, it is the duty of the employer to establish that the test has a demonstrable relationship to successful job performance, rather than the duty of the complainant to show that the test, does not have such a relationship. See Rowe, supra, 457 F. 2d at 355 n. 14. Under the circumstances of this case, the validity of these homemade tests is especially suspect. Miss Cobb, who was applying for a position as an accounting clerk, had four years of experience in that capacity at Standard Oil and six months with another company. She had taken several standardized accounting clerk examinations without failing any of them. She further testified that none of the standardized tests were similar to the one given by National Lead, nor had she ever been denied the use of an adding machine or comptometer in taking the exam. In any case, the Company failed to introduce evidence that Cobb had actually failed the test given her or that the person hired possessed superior qualifications. Mitchell, whose resume indicated exceptional qualifications, had four years experience as an executive secretary at Anheuser-Busch before applying at National Lead. She had two years of college and one year of business school, and at the time of her application to the Company, she was teaching clerical subjects at adult education night classes. She testified that she could type between 70 and 75 words a minute and take shorthand at 90 to 100 words per minute. The Company has established no basis for its failure to hire Cobb and relies only on Mitchell’s performance on a homemade dictation test from the foreman’s manual as the reason for rejecting her application. A test may provide a convenient and superficially neutral means by which employers can disguise their biases or their desire to conform to the biases of workers and customers and thus evade Title VII obligations. Developments— Title VII, supra, 84 Harv.L.Rev. at 1123. The homemade tests administered by the Company certainly permit vast fluctuation in both their content and administration. It hardly requires the expertise of a psychometrist to perceive that the difficulty of the problems given to Cobb or the speed of the dictation given to Mitchell are within the complete subjective control of the individual examiner. In addition, National Lead has not shown that the examiner possessed any expertise in testing, that the test was in any way standardized, nor even that the hired applicants performed more satisfactorily than these rejected black applicants. Our prior decisions make clear that, in eases presenting questions of discriminatory hiring practices, employment decisions based on subjective, rather than objective, criteria carry little weight in rebutting charges of discrimination. See Moore v. Board of Education of Chidester School District No. 59, Ark., 448 F.2d 709 (8th Cir. 1971). See also Carter v. Gallagher, 452 F.2d 315 (8th Cir. 1971). * * * In enacting Title VII, Congress has mandated the removal of racial barriers to employment. Judicial acceptance of subjectively based hiring decisions must be limited if Title VII is to be more than an illusory commitment to that end, for subjective criteria may mask aspects of prohibited prejudice. Employers seldom admit racial discrimination. [Green, supra, 463 F.2d at 343.] Through the testimony of the individual applicants supported by the foregoing statistical evidence, the Government has established a prima facie case of discrimination which the Company has failed to rebut, and Cobb and Mitchell are therefore entitled to limited relief under Title VII. Barbara Martin sought a job with National Lead as a keypunch operator in response to a job order placed with the Missouri State Employment Service (Missouri Employment) by the Company. The job order as originally placed specifically listed a one-year experience requirement. When Martin applied for the job, she informed the National Lead interviewer that she had four years and two months work experience as a keypunch operator. The Company official then informed her that the job required five years experience and denied her request to demonstrate her ability on the keypunch machine. Five days thereafter, National Lead changed the job order at Missouri Employment to specify a five-year experience requirement. The Company’s supervisor stated that he could not recall Miss Martin’s application, nor could he recall whether he had permitted her to try out for the job. Although he stated that the experience requirement for keypunch operators was five years, he offered no evidence that other keypunch operators employed at National Lead had five years experience, and he admitted that some employees who were promoted to keypunch operator from within the Company did not meet that requirement. We find the circumstances under which Miss Martin was denied a job unusual to say the least. The Company might easily have affirmatively established a definite and enforced five-year work-experience requirement for keypunch operators by documentary evidence such as employment records of other personnel hired for that position or by testimony from employees that they had met such a requirement before being hired to that position. National Lead has failed to do either. Under these circumstances, the Company has failed to rebut the Government’s evidence of discriminatory hiring in its denial of a position to Martin. We note that in its brief the Company attempts to rebut the Government’s contention that it discriminated in refusing Martin employment by asserting that the employee who was hired to fill the position, one Becton, was black. That contention is not supported by the record. The evidence indicates that Bec-ton was not employed until September of 1969, eight months after the keypunch position was filled, and she was apparently the only black hired as an office, clerical, or secretarial employee since 1963. Mrs. Ragland applied for a job as lab assistant at National Lead in 1966. At the Company’s request, she took a standardized test administered by Missouri Employment. Ragland testified that she did not know whether she had passed the test, but the Company did not offer her the position. She again applied for the position in 1967 when informed of an opening by one Harold Crumpton, a Chief Shift Chemist at National Lead. She was told at that time that there were no openings. We think that the record reveals Ragland’s testimony to be at best inconclusive and confusing and fails to establish that she possessed even minimal qualifications for the position. We, therefore, deny relief. Thelma Wiley applied for the job of lab assistant in 1968. She had completed high school and had taken courses in chemistry and physics. She also had courses in physics, chemistry, and quantitative analysis while in college. She was not hired, nor was she again contacted by the Company. To rebut this charge of discrimination in hiring, National Lead’s employee relationship manager testified that this particular position had been filled by another black applicant. The district court held that under these circumstances race was not a factor in the Company’s failure to select Wiley for the position. We agree. The district court also concluded that four black applicants for production work were not discriminated against by the Company’s failure to hire them since no openings were available at the time of their applications. We find nothing in the record to warrant a finding of discrimination and thus agree with the district court’s holding. YI. REMEDY PRODUCTION WORKERS As to production workers, the Government requests (1) that all employees with Labor department seniority, whenever hired, be merged into the departments where they perform their work and be permitted to retain plantwide seniority, and (2) that blacks assigned to the Labor department be permitted one successful interdepartmental transfer into traditionally-white departments without loss of rate of pay and with carryover of plantwide seniority. As to foremen, the Government requests that blacks listed by the Company in 1967 as possessing foreman qualifications be given preference in the selection of foremen until at least 15 of them have been selected. In its proposed decree, the Government also requests that one-half of all additional foreman vacancies be filled by black employees if there are qualified blacks available. As to clerical and technical personnel, the Government would require that the five black women who have testified in this case be offered preference for future vacancies in clerical and laboratory positions and be awarded backpay. The Government also asks that National Lead be required to produce an affirmative program leading to the employment of blacks to the extent of one of every three applicants in clerical, secretarial, and laboratory openings. We turn to the standards governing relief, first in regard to the black production workers hired prior to March 14, 1963, who clearly continue to suffer the effects of past, discrimination. Although in granting relief for Title VII violations, the courts possess wide discretion to model decrees which insure compliance with the Act, Parham, supra, 433 F.2d at 428; St. Louis-San Francisco Ry.; supra, 464 F.2d at 309, they face a continuing dilemma in determining how far the employer must go to undo the effects of past discrimination. Local 189, supra, 416 F.2d at 988. The three theories that have been advanced are appropriately summarized by Judge Wilson in Local 189: A complete purge of the “but-for” effects of previous bias would require that Negroes displace white incumbents who hold jobs that, but for discrimination, the Negroes’ greater mill seniority would entitle them to hold. Under this “freedom now” theory, allowing junior whites to continue in their jobs constitutes and [sic] act of discrimination. Crown and Local 189 advance a “status quo” theory: the employer may satisfy the requirements of the Act merely by ending explicit racial discrimination. Under that theory, whatever unfortunate effects there might be in future bidding by Negroes luckless enough to have been hired before desegregation would be considered merely as an incident of now extinguished discrimination. A “rightful place” theory stands between a complete purge of “but-for” effects [and] maintenance of the status quo. The Act should be construed to prohibit the future awarding of vacant jobs on the basis of a seniority system that “locks in” prior racial classification. White incumbent workers should not be bumped out of their present positions by Negroes with greater plant seniority; plant seniority should be asserted only with respect to new job openings. This solution accords with the purpose and history of the legislation. [Id. at 988 (footnotes omitted).] In fashioning a remedy whereby black employees locked into the Labor department may transfer into the formerly all-white departments to acquire their rightful place, we must observe from this record the aptness and relevance of the court’s holding in Bethlehem Steel, supra, 446 F.2d at 659: If discriminatorily assigned employees cannot keep in their new jobs their former rate of pay and seniority, few will transfer and those that do will suffer an economic penalty and be forever behind their white contemporaries. In Bethlehem Steel the district court had failed to grant seniority carryover and rate retention, largely because Bethlehem’s seniority system was not a complete deterrent to transfer. The court of appeals reasoned: [T]his puts it backwards. Even a discriminatory system that did not completely deter transfers but only discouraged them should be changed. The correct criterion in fashioning a remedy under Title VII is what would be necessary to insure sufficient incentive to transfer so that the effects of past discrimination would not be perpetuated. In addition, the test here must also look to advancement' after transfer, so that an employee can achieve his “rightful place.” That is, relief under the Act should give discriminated employees, as future vacancies arise, the opportunity to obtain the jobs that they would have earned had there been no discrimination. [Id. at 660.]. In Robinson, supra, 444 F.2d at 795, the court approved the following relief granted by the district court: (1) modification of the transfer restrictions to permit employees to transfer to a different department to fill vacancies which may occur and, after a residency period of thirty days in the new department, to exercise their full employment seniority for all purposes, (2) adoption of “red circling” to allow a transferring employee to continue his old wage rate in effect until rising in his new department to a position paying an equal or greater wage rate, and (3) payment of back pay to members of the affected class. On the record presented here, we think a remedy similar to the remedies granted in Robinson and in Bethlehem Steel is justified and appropriate. Accordingly, on remand we direct that the district court enter an injunctive decree which embraces the following specific guidelines for the affected class. The affected class shall be defined as all employees who were hired prior to March 14, 1963, and were initially assigned to the Labor department seniority group, including those on layoff status. A. Bidding Procedure (1) Any member of the affected class who successfully bids into another department from the Labor department shall be permitted to retain his plant-wide seniority for all purposes within that department. This carryover of plantwide seniority shall be permitted for only one interdepartmental transfer. (2) Members of the affected class who have already transferred out of the Labor department into another department shall be similarly entitled to add their previously earned Labor department seniority to their present departmental seniority. (3) If after a successful interdepartmental transfer, a member of the affected class is bumped back into Labor, carryover of plant seniority privileges will continue to apply if he reacquires a position in the department from which he was bumped. There will be no seniority carryover if he bids into a third department. (4) In intradepartmental bidding between members of the affected class and whites who, similarly to the affected class, were employed prior to March 14, 1963, plant seniority shall be applied to determine bidding preference between or among such competing black and white applicants. B. Rate Retention (1) A member of the affected class who successfully bids into a new department shall not be paid at a lower hourly rate than that which he received on the job from which he transferred (excluding shift and incentive bonuses except where appropriate), until he has had an opportunity to bid and qualify for a position which pays at least the rate of his former Labor department job. These wage rate retention provisions should apply, as appropriate, to those employees in the affected class who have already transferred from the Labor department but are paid a lower hourly rate than on their former Labor department jobs. (2) If an affected employee, after a reasonable period of time in which to become familiar with operations in his new department, (a) fails to bid upon a department vacancy entitling him to at least the equivalent pay rate as that earned in the Labor department, or (b) upon successfully bidding, fails to qualify for the new job after receiving a fair, proper, and effective course of training within the time period specified in the current labor contract, then such employee may retain his departmental position at the prescribed pay scale or retransfer to the Labor Department, carrying with him all seniority accrued in the Labor department and the seniority added while in the new department. Except as otherwise provided in the in-junctive order, the provisions of the collective bargaining agreement between appellees shall govern the rights of employees. We have declined the Government’s invitation to abolish departmental seniority by substituting plantwide bidding for intradepartmental bidding. Although National Lead does not require employees to enter a line of progression in a department or in units of a department as a basis for bidding on departmental vacancies, we are not convinced that the scheme of departmental bidding, which allows employees already working within a department to bid before permitting an interdepartmental bid, does not serve a useful familiarization function for the transferring employee. This arrangement, we proposed, represents a compromise between the obligation of the employer to assure a rightful place for those employees who continue to suffer from racial prejudice in their employment and the need for the disadvantaged employee to obtain useful familiarity within a department before he has the opportunity to bid a position previously denied him because of race. With one exception, we at this time decline the Government’s request to direct a merger of the seniority of the Labor department employees into the seniority of the departments where they perform a substantial portion of their work. The proposal presents commendable features, particularly that of integrating black workers into almost all-white departments, but we are not convinced on this record that functional similarity of jobs may be equated with proximity of work. However, in the case of the black and white riggers and riggers’ helpers who undisputedly perform identical tasks while assigned to different departments on a racial basis, we direct that the Labor department riggers and riggers’ helpers be merged into the Mechanical department with full seniority carryover. We believe that other merger considerations should be delayed until the Company and its employees adjust to changes in job positions brought about by pre-1963 employees carrying over Labor department seniority into other departments. Since the trial court will continue to exercise jurisdiction over this case, the merger remedy should be reconsidered in two years, or earlier, at the discretion of the district court. FOREMEN We turn to the Government’s request that in the selection of foremen first consideration be given to those blacks who were placed on the qualified list by National Lead in 1967 until at least 15 of them have been selected. In its proposed decree, the Government not only requests that the first 15 vacancies be filled from the list, but also that one-half of all additional foreman vacancies beyond those 15 be filled by black employees if there are qualified black employees available. — , In Carter, supra, 452 F.2d 315, this court, sitting en banc, extensively discussed appropriate remedies for discriminatory practices. We stated that, although we acknowledge the legitimacy of erasing the effects of past racially discriminatory practices, an absolute preference for qualified minority persons would operate as an infringement on those nonminority group persons who are equally or better qualified for the position in question. Id. at 330. We concluded that to accommodate these conflicting considerations, a reasonable hiring ratio between minority and non-minority persons, rather than an absolute hiring preference, would more appropriately assure minority persons fair representation in a particular position and presently eliminate the effects of past discriminatory practice. We adhere to that view here in denying an absolute hiring preference to members on the 1967 list. In addition, we will not confine the Company’s promotional choices to members of a list prepared six years ago. However, in determining an appropriate minority-nonminority hiring ratio, we think that the number of qualified blacks available is an important factor and the evidence indicates that a substantial number of blacks already working in the plant possess the necessary qualifications for promotion to supervisory positions. Thus, we conclude that a one-black-to-one-white ratio is appropriate here until 15 blacks have been promoted to front line foreman positions. We do not think that 15 black foremen out of 100 is an unreasonable initial goal in light of the fact that blacks represent approximately 25 percent of the Company’s production workers. As we stated in Carter, supra, 452 F.2d at 330-331, this procedure does not constitute a quota system, because upon complete implementation of this order, all future promotions will be on a nondiscriminatory basis^apd the racial composition of a job classification may contain a percentage of blacks which may be more or less than the percentage of blacks in the other areas of the plant or in the community at The strong deterrent to the selection of black foreman, in part, comes from the selection procedures used by the Company. Thus we further direct that the district court order a revision of the selection system for foremen which meets these requirements: (1) The Company shall promulgate in writing and publish throughout the plant reasonably objective standards for its selection of foremen. (2) The Company shall develop a roster of plant personnel eligible for promotion to foreman. (3) All plant personnel who deem themselves qualified shall be entitled to submit an application, for this roster. (4) The Company shall evaluate and rate candidates for the position of foreman without regard to race and upon reasonably objective standards. (5) Foremen shall be selected without regard to their race and without regard to whether predominantly black or predominantly white crews are to be supervised. (6) Those black employees previously listed as possessing potential as foremen shall be entitled to be placed upon the foreman’s roster if they meet the appropriate standards. (7) Foremen must be selected on the basis of merit as judged by reasonably objective written standards. CLERICAL, SECRETARIAL, AND LABORATORY PERSONNEL The Government requests specific relief for individual applicants, including backpay differentials, plus an advertising and recruiting campaign designed to produce a minimum of one-third black hires in the near future. We believe goals to be desirable, but as we have noted in Carter, supra, 452 F.2d 315, if goals in effect become fixed quotas, such method will not always serve to provide equality of employment for blacks and whites. Accordingly, the district court shall enter an order relating to clerical, secretarial, and laboratory personnel comformable to these standards: (1) The Company shall promulgate job descriptions and qualifications for clerical, secretarial, and laboratory personnel. (2) It shall list qualifications on job orders submitted to employment agencies for these vacancies. (3) When seeking to fill vacancies, the Company shall circularize job orders to appropriate employment services to ensure equal notice to potential black and white applicants. (4) Job vacancies shall be filled on the basis of qualifications as evaluated under reasonably objective criteria. (5) To ensure equal consideration of black applicants, the Company shall record the reasons for its choice in filling a vacancy and for rejecting any applicant and shall notify the referring agency of its reasons for rejection. (6) The following applicants — Barbara Martin, Doris Cobb, and Lillian Mitchell — shall be placed on a preferred list for jobs for which they have previously applied and given the right of first refusal for any vacancy for which their previous or a revised application may show them qualified. In order to assure proper compliance with the standards herein enunciated, which shall be incorporated into an injunction, we direct that the injunction contain provisions requiring National Lead to make data available to the Government to permit its effective monitoring of the Company's performance of its obligations under Title VII. We specifically require that the Company submit certain reports requested by the Government as indicated by the Appendix to this opinion. The district court shall retain jurisdiction of this cause for the purpose of issuing any and all additional orders as may become necessary to ensure that equal employment opportunities are provided for all employees and prospective employees without regard to race or col- or and that all effects of past discrimination based on race or color are eliminated. VII. BACKPAY The Seventh Circuit has stated that the provisions of § 2000e-5(g) which empowers the court to order such affirmative relief as may be appropriate “should be broadly read and applied so as to effectively terminate the practice and make its victims whole.” Bowe v. Colgate-Palmolive Co., 416 F.2d 711, 721 (7th Cir. 1969). In Hayes, supra, 456 F.2d at 121, Judge Dyer remanded the backpay issue to the district court although it had not been raised until the post-trial stage of the litigation. He reasoned, “We think that the broad aims of Title VII require that this issue be developed and determined. It should be fully considered on remand.” The Fourth Circuit approved the district court’s award of backpay in Robinson, supra, 444 F.2d 791. In answering the employer’s contentions that backpay should not have been awarded in the absence of specific intent to discriminate and in light of the unsettled state of the law, the court commented: The principal answer to both points is that back pay is not a penalty imposed as a sanction for moral turpitude; it is compensation for the tangible economic loss resulting from an unlawful employment practice. Under Title VII the plaintiff class is entitled to compensation for that loss, however benevolent the motives for its imposition. Nor, as defendants contend, are damages so speculative here as to be punitive. Presumably the awards will be based on fixed wage rates and ascertainable periods of work. Any specific challenge to the method of determining back pay may be raised on appeal after the District Court has assessed the amounts to be paid. [7d. at 804.] This court denied a backpay award in St. Louis-San Francisco Ry., supra, 464 F.2d 301, on the grounds that the employer had not acted in bad faith in refusing to implement the Government’s proposed remedy because the Government had asked for too much. There, we also indicated that it would be impossible to compute backpay since it could not be determined when certain members of the discriminated-against group would have no longer qualified for back-pay due to physical incapacitation. The role that backpay plays in employment discrimination cases is twofold. First, as noted in Robinson, supra, 444 F.2d 791, it provides compensation for the tangible economic loss suffered by those who are discriminated against. Secondly, and even more importantly, because backpay awards act as a deterrent to employers and unions, such awards play a crucial role in the remedial process. Developments — Title VII, supra, 84 Harv.L.Rev. at 1163. They provide the spur or catalyst which causes employers and unions to self-examine and to self-evaluate their employment practices and to endeavor to eliminate, so far as possible, the last vestiges of an unfortunate and ignominious page in this country’s history. If backpay is consistently awarded, companies and unions will certainly find it in their best interest to remedy their employment procedures without court intervention, whether that intervention is initiated by the Government or by individual employees. We think that the courts have at this point sufficiently delineated what constitutes acceptable and nonacceptable employment practices in the areas of seniority and hiring so that neither employer nor union can in good faith claim that they are unaware of what standards are expected of them under Title VII of the Act. There, of course, will be those exceptional situations where an employer may justifiably and in good faith maintain an apparently nondiscriminatory employment practice of a type which has not received prior judicial determination as to its validity. We need not here determine whether an award of backpay is appropriate under such circumstances. In the present case, analogous seniority systems and hiring practices have been found in violation of Title VII on numerous occasions. In addition, there is no merit to a contention that the employer in this case could not unilaterally change its seniority system or hiring practices. As pointed out in Robinson, supra, 444 F.2d at 799, “The rights assured by Title VII are not rights which can be bargained away — either by a union, by an employer, or by both acting in concert. Title VII requires that both union and employer represent and protect the best interests of minority employees. Despite the fact that a strike over a contract provision may impose economic costs, if a discriminatory contract provision is acceded to the bargainee as well as the bargain- or will be held liable.” (Footnote omitted.) See Hayes, supra, 456 F.2d at 118; Jacksonville Terminal Co., supra, 451 F.2d at 454; see also Vogler v. McCarty, Inc., 451 F.2d 1236, 1238 (5th Cir. 1971). An argument that there could be no unilateral change might have been valid prior to the first renegotiation of the union-company contract in 1966. However, prior to that renegotiation, the employer had been put on notice that its hiring practices were not acceptable to the United States Government. As stated in the appellee’s brief, the record showed “that since 1962 the plant had existed in the white heat of constant federal monitoring * * Yet, as evidenced by this lawsuit, neither Local 1744 nor the Company has demanded a significant modification of the contract despite renegotiations of the underlying agreement in 1969 and 1972. In any ease, both the Company and Local 1744 are party defendants in this suit and there is not the slightest evidence that any other party is responsible for maintenance of the discriminatory aspects of the present seniority system. Despite what we have said as to the appropriateness of backpay, we do not make such an award here. In this Circuit the law in regard to backpay has not been adequately defined to provide employers and unions with notice that they will be liable for a discriminatee’s economic losses due to 'continuation of past or present discriminatory policies. However, where an employer and union have had ample opportunity to remedy an unlawful employment practice, they should be put on notice that they will be held responsible for the economic losses accruing to the parties injured by such unlawful employment practices. VIII. SUMMARY We briefly summarize: (1) The record establishes that National Lead has violated Title VII in its employment practices relating to hiring and promotion of production workers, selection of foreman, and recruitment and hiring of clerical, secretarial, and laboratory (white-collar group) employees. (2) We grant specific relief to workers assigned to the Labor department prior to March 14, 1963, who continue to suffer from the Company’s segregated employment practice followed before that date. This relief includes carryover of Labor department seniority into other departments to which they may transfer and pay rate retention until better paying vacancies become available for bid by these new employees. We avoid reverse discrimination by authorizing plant seniority to govern job competition between blacks and whites, both hired before March 14, 1963, who compete in intradepartmental bidding on jobs. (3) We direct that foremen be selected by merit from a roster of eligible candidates. The roster shall be open equally to whites and blacks. Until 15 blacks hold foremen positions, we direct that a one-white-to-one-blaek hiring ratio be utilized. (4) We direct a change in recruitment and hiring procedures for white collar personnel to ensure that merit rather than skin color shall determine preference in hiring. (5) We direct that the Company promulgate objective standards in its procedures relating to recruitment, hiring, and promotion of employees, and that the Company keep adequate records of its employment activities and make periodic reports to the court and to the United States Government to ensure compliance with the court’s injunction. (6) We direct the court to retain jurisdiction of this action and to reconsider the appropriateness of merger of all or parts of the Labor department (Labor seniority group) into other departments of the plant at a later date. Reversed and remanded. APPENDIX I. RECORDS National Leád shall maintain appropriate records of all hiring, assignments, promotions, disqualifications and dismissals, and shall allow the plaintiff, upon reasonable notice, to inspect, copy, duplicate, photograph or examine such records during normal business hours. II. REPORTS In addition to the recording provisions in Section I above, National Lead shall file with the court and plaintiff within three months after the date of this order, and every six months thereafter, a report setting forth the following information : A. Current Hourly Production Employees The report shall include the name, clock number, race, department, and seniority date of all bidders; the title of the job, rate of pay, and date the bid was posted for all jobs whether or not a member of the affected class actually bids on the opening. In addition, the report shall clearly indicate the successful bidder(s) and his new rate of pay along with the standard five-year rate for the job. B. Salaried Foreman Positions The reports shall include in regard to each promotion or assignment of personnel to a supervisory or foreman position occurring during the reporting period: (a) The job title, department, seniority unit, rate of pay and date of the promotion or assignment; (b) The name, clock number, address, phone number, race, job title and date of initial employment of each employee considered or available for the promotion or assignment; (c) The name, clock number, address, phone number, race, job title and date of initial employment of the employee promoted or assigned; (d) If a black employee is available for the promotion or assignment, but a white is selected, the reasons therefor; (e) If any black employee promoted under the terms of this order is terminated, laid off, or disqualified, the specific reasons therefor in non-conclusional terms along with that individual’s identity. C. Hiring of Production Workers The report shall include in regard to each vacancy in an hourly production worker position which occurs during the reporting period: (a) The job title, department, seniority group, rate of pay, and date of vacancy; (b) The name, address, phone number, referring agency, race, and date of application of each applicant considered or available for the vacancy; (c) The name, address, phone number, race, and date of application of the applicant selected to fill the vacancy; (d) The date and method of placement of job orders with minority agencies; (e) If any black is rejected, the specific reasons therefor in nonconelu-sional terms; (f) If any black employee hired under the terms of this order is terminated, laid off, or disqualified, the specific reasons therefor in nonconclu-sional terms along with that individual’s identity. D. Office, Clerical, and Laboratory Personnel The report shall include in regard to each vacancy in an office, secretarial, clerical, or laboratory position which occurs during the reporting period: (a) The job title, rate of pay, and date of the vacancy; (b) The name, address, phone number, referring agency, race, and date of application of each applicant considered or available for the vacancy; (c) The name, address, phone number, race, and date of application of the applicant selected to fill the vacancy; (d) The date and method of placement of job orders with minority agencies; (e) If any black is rejected, the specific reasons therefor in nonconclu-sional terms; (f) If any black employee hired under the terms of this order is terminated, laid off, or disqualified, the specific reasons therefor in noneonclu-sional terms along with that individual’s identity; (g) The name, address, date, and nature of contact of all community agencies contacted pursuant to this order. ON MOTION FOR EN BANC HEARING As no judge has requested an en banc hearing, the motion for rehearing en banc is denied. The judges on the panel hearing this case deny the separate motions for rehearing made by appellees and appellants. We, however, add these comments. Appellee, N. L. Industries, Inc., claims that in setting a reasonable goal of 15 black foremen out of 100, this court overlooked a recent 50 percent reduction in the work force. Our ruling was predicated upon the record made before the district court showing a work force in the number expressed in the opinion. Thus, any request for modification of the order based on substantially changed circumstances should be addressed to the district court for its consideration under guidelines enunciated in our opinion. Moreover, contrary to the argument advanced by N. L. Industries, nothing in our opinion requires that unqualified persons be advanced to foremen positions or that the one-blaek-to-one-white ratio for selection of foremen requires exact alternation under circumstances where an applicant for foreman must possess specialty skills not common to those individuals carried on the foreman’s roster, e. g., electrician. In those circumstances, temporary change in the alternation scheme will be acceptable, so long, as the over-all one-to-one ratio is maintained. N. L. Industries claims rate retention may produce reverse discrimination by permitting, in some instances, a member of the affected class to carry a wage rate into a new department higher than the rate of the highest paid position in that department. Wage rate retention may be limited to the highest level job in the particular department. United States v. Bethlehem Steel Corp., 446 F.2d 652, 666 (2d Cir. 1971). Unusual problems which may arise under fact situations not encompassed by the present record should be presented to the district court for disposition under general guidelines as announced in our opinion. . The district court’s opinion is reported at 338 F.Supp. 1167 (E.D.Mo.1972). . The district court denied all requests for relief notwithstanding that in our consideration of the Government’s request for a preliminary injunction, we indicated that on the basis of the record before us, some form of relief was merited. National Lead Co., supra, 438 F.2d at 938. . The 1972 bargaining agreement, although not before the district court, has been presented to us on appeal. The essentials of the seniority provisions remain unchanged from the earlier agreement presented to the district court. . A dispute developed in testimony by witnesses called by the Company as to whether interdepartmental bidding under the 1969 contract was opened first to those occupying positions in the Mechanical department for one year or offered first on a plant seniority basis to personnel hired before March 14, 1963. The contract provisions gave preference to those in the Mechanical section. The practice, according to the plant manager, gave preference to employees hired before March 14, 1963. Apparently the 1972 contract provides for no preference for any department when a job opens for plantwide bidding. . For example, Benny Tatum, a black employee initially assigned to the Labor department on the basis of race in 1950, bid into the Mechanical department in 1964. Between 1964 and 1966, his lack of seniority in the Mechanical department caused him to be bumped back into Labor four different times, and on the fourth bump-back to Labor, he was unable to return to Mechanical until 1969. Mr. Smith Moore, Mr. Leroy Lampkin, and Mr. Napoleon Wise transferred to other departments but each was bumped back into Labor several times. . In Rowe, supra, 457 F.2d at 355, the court stated: [T]he problem is not whether the employer has willingly — yea, even enthusiastically — taken steps to eliminate what it recognizes to be traces or consequences of its prior pre-Act segregation practices. Rather, the question is whether on this record — and despite the efforts toward conscientious fulfillment —the employer still has practices which violate the Act. . Although the Company alleges that certain advantages accrue to some employees in the Labor department, the evidence indicates that no white employee has ever bid into that department. The fart that one black person earned more in 1969 than any other production worker and that some black laborers complete work quotas in less, than the full eight hour shift, does not establish, in the light of actual race discrimination in assignment of employees, that this department as a whole is the most desirable place to work. . Pool areas consisted of the lower paid jobs of one or more departments. An employee who was about to be laid off within a particular department could exercise plant-wide seniority and transfer into a pool job. Id. at 655. . The court observed: In order to transfer to a formerly “white” department these employees were required to suffer an economic penalty, forfeiture of seniority rights and pay levels earned in the “black” department. The former was due to the use of departmental seniority, the latter to the fact that the transferee’s new job was at a low paid entry level in the new department. Thus, to obtain an opportunity that had been denied them because of race, these employees had to be willing to give up what was already theirs because of service in the plant. Second, a transferee to a “white” department would never be able to reach the level of a white employee already there. For example, if a black and a white employee had been hired at the same time and the latter had been assigned to the more desirable “white” department, but the black had not been so assigned, the white started to accumulate department or unit seniority in that department but the black did not. Even if the black were given the chance years later to transfer into the “white” department, the earlier discriminatory job assignment had denied him the chance to earn seniority up to that time in the “white” department. Therefore, the use of departmental or unit seniority for purposes of promotion in the formerly “white” department continued the effect of the earlier discriminatory practice. [Id. at 658.] . In Bethlehem Steel, the court described a dual seniority system analogous to that in the instant case. Historically, blacks had been assigned to the least desirable jobs prior to the enactment of Title VII, without the opportunity of interdepartmental transfer. In 1965, employees could transfer to low level jobs which opened in other departments at the price of losing seniority for purposes of promotion. They were paid at the job rate for these new jobs and then entered the line of progression. In arguing against the remedy proposed by the Government, rate retention and seniority carryover, the company contended: that the irresistible advantage of rate retention and seniority carryover will lead to a wholesale depopulation of the 11 departments, that dangerous, skilled jobs will be filled by incompetents increasing the injury rates, that the preferential treatment of some employees will lead to labor unrest, and that the increased cost of production will render the plant uncompetitive. [Bethlehem Steel, supra, 446 F.2d at 662.] In unequivocally rejecting these arguments, the court stated: The seniority and transfer provisions at the plant have been found to perpetuate past discrimination, and the use of rate retention and seniority carryover will substantially eliminate these discriminatory effects. Therefore, the crucial question must be whether the basic goal of the seniority system will necessarily be frustrated by these remedies. It is perfectly clear that this will not be the case. An unqualified worker need not be promoted whether or not he is a transferee under the district court’s order. [Id.] . If courts keep clear the distinction between remedial measures and preferential measures, they should not hesitate to remedy discrimination by means such as remedial training programs, even when the remedy is costly. The purpose of the Act, to prevent employment discrimination, requires that the costs be borne by the discriminatory employer or union. [Developments—Title VII, 84 Harv.D.Rev. 1109, 1149-50 (1971).] . From our analysis of the record, it appears that the Company utilizes various categories of supervisory personnel. The Government alleges that blacks have been largely excluded from the group that it refers to as “front line foremen,” who are not union members and who are selected totally at the Company’s discretion. This group is to be distinguished from the “working foremen” category, which is a bidding position based on seniority. Blacks have eventually qualified as working foremen in the department where they were permitted to work. For the purposes of this discussion, all references are to “front line foremen” unless otherwise indicated. . The Government’s contention here is analogous to the apothegm attributed to ancient sources and quoted by Judge Day in his concurring opinion in Green v. McDonnell Douglas Corp., 463 F.2d 337, 344-345 (8th Cir. 1972), “They tie our hands and then reproach us that we do not use them.” . Note, Title VII, Seniority Discrimination, and the Encumbent Negro, 80 Harv.L.Rev. 1260, 1268 n. 2 (1967). . The court also discounted the company’s contention that morale would suffer if seniority carryover and rate retention were permitted. “Assuming arguendo that the expectations of some employees will not be met, their hopes arise from an illegal system. Moreover, their seniority advantages are not indefeasibly vested rights but mere expectations derived from a bargaining agreement subject to modification.” Bethlehem, Steel, supra, 446 F. 2d at 663. . As in Bethlehem Steel, the court gave little weight to employee expectations: * * * Title VII guarantees that all employees are entitled to the same expectations regardless of “race, color, religion, sex, or national origin.” Where some employees now have lower expectations than their co-workers because of the influence of one of these forbidden factors, they are entitled to have their expectations raised even if the expectations of others must be lowered in order to achieve the statutorily mandated equality of opportunity. [Robinson, supra, 444 F.2d at 800 (footnote omitted). . In Hayes, supra, 456 F.2d at 116, the company adopted a plan, prior to resolution of the suit, whereby discriminated-against employees were permitted to retain their plantwide seniority and former wage rate. . The collective bargaining agreement effective March 14, 1969, provides in Article IV, Section 7, relating to biddable jobs: When an employee bids on a new job and is the accepted bidder, he shall have six (6) days to qualify for said job. If he fails to qualify, said employee shall return to his old job without loss of seniority. The “biddable jobs” section of the current agreement, dated August 3, 1972, in-chicles the same language plus this sentence : The decision of whether or not and when the employee is qualified for and becomes responsible for the job shall be solely the decision of management. Management’s decision-making process here, under the injunctive order, must be based on reasonably objective standards of evaluation of workers. . The Government lists the following as appropriate agencies: the Urban League, the Human Development Corporation, the Missouri State Employment Service —minority group specialist, Work Opportunities, Inc., and any other community agency whose function is to place blacks.

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Franklin NIX, Plaintiff-Appellant, v. The GRAND LODGE OF the INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS, Defendant-Appellee. No. 72-3582. United States Court of Appeals, Fifth Circuit. June 5, 1973. William G. McRae, Atlanta, Ga., for plaintiff-appellant. J. R. Goldthwaite, Jr., Atlanta, Ga., for defendant-appellant. Before TUTTLE, GODBOLD and MORGAN, Circuit Judges. LEWIS R. MORGAN, Circuit Judge: Once again the dispute between Franklin Nix and the International Association of Machinists and Aerospace Workers has found its way to this court. This is the third appeal in this civil action. See Fulton Lodge No. 2 v. Nix, 5 Cir. 1969, 415 F.2d 212; Nix v. Fulton Lodge No. 2, 5 Cir. 1972, 452 F.2d 794. Furthermore, this court also considered one other action involving conflict between Nix and the IAM in Nix v. National Labor Relations Board, 5 Cir. 1969, 418 F.2d 1001. Hopefully our opinion today will lay to rest this spate of litigation. The basic dispute underlying all of these lawsuits originates with Nix’s unhappy period as an employee of the union. The case before the Labor Board related to a charge that Nix had been fired by the union solely because he was seeking to unionize the union’s employees. This court upheld the Board’s determination that the discharge was based on the theft by Nix of records and papers of IAM vice president Watkins, officer in charge of the southern territory for the union, and thus for good cause. This present action was filed under the Labor-Management Reporting and Disclosure Act of 1959, seeking to enjoin his expulsion from union membership. The district court held that Nix had been improperly disciplined for making statements protected by section 101(a)(2) of the LMRDA, which guarantees freedom of speech to union members. The court granted injunctive relief against the Local and International, but reserved the question of damages. On appeal, 415 F.2d 212, we affirmed the trial court in all respects save the issuance of an injunction against the Grand Lodge (the International), holding that the district court had never acquired jurisdiction over that defendant. We specifically held that Nix would be afforded an opportunity on remand to amend and seek relief against the Grand Lodge. Back in district court, Nix amended as suggested, but also added a separate claim relating to his dismissal from his job. Plaintiff then filed notice of dismissal of this amendment to the complaint. Approximately two months later plaintiff filed a second suit which alleged wrongful, malicious and wanton conduct in administering discipline which resulted in discharge from employment and expulsion from membership. In a second count of this new suit he sought declaratory and injunctive relief on behalf of all union members against the Grand Lodge, alleging that Article L, § 3 of the IAM Constitution which allowed discipline of union members for false or malicious statements against other union members or officers conflicted with the freedom of speech provisions of the LMRDA. In straightening out this tangled web, the district court found Nix foreclosed on count one of his new suit because of the earlier Board and court determination that the discharge had been proper. As to count two of the new suit, the court dismissed it with permission to add it in lieu of the dismissed amended complaint in the original action. The court also narrowed the class to only those members against whom the union’s constitutional prohibition was being applied. All of these maneuvers were considered and affirmed by this court, 452 F. 2d 794. We stated: The cause of action asserted can be included by amendment to [the original suit]. Plaintiff will not be harmed by such a course and the district court was well within its case management discretion in the action taken. This leaves the matter in the posture where the district court can determine, in the event of amendment, as its order contemplates, whether the matter should proceed as a class action at all, depending on whether the requisites of Rule 23, F.R.Civ.P., are met. Id. at 797. Amendment was made below, and we are now faced with an appeal from the final disposition of this case. At this point it becomes necessary to attempt to clearly delineate precisely what issues plaintiff is presenting to this court. The difficulty here is that the facts must be gleaned from a morass of pleadings and pre-trial conferences. The district court considered that the only claims by Nix were the questions of constitutionality of the provision to be determined as a class action and the awarding of any attorney’s fees. All damage claims for Nix himself were clearly dropped at pre-trial conference. The court then proceeded to hold the disciplinary section of the IAM Constitution void because of conflict with the LMRDA. The court also ruled that reasonable attorney’s fees would be allowed. For purposes of this appeal, plaintiff appears to challenge only the court’s conclusion that class damages had not been sought and that the attorney’s fees which counsel for plaintiff were ultimately awarded were inadequate. Damages for the Class It is extremely difficult to understand exactly what plaintiff is seeking as damages for the class. In brief and in motions before the trial court he alleges that the term “all appropriate relief” encompassed a claim for class damages. Furthermore, he maintains that the district court was obligated to publish notice to all possible class members and permit other class members to come into the suit and prove their own individual special damages. This would, of course, have, if there were as many possible claims as plaintiff alleges, resulted in a multiplicity of damage trials as each individual alleging injury would have to prove his right to be a member of the class by showing that the provision had been used against him and then prove the damages which followed from that application. As the union points out, actual discipline was imposed following hearing at the local level. It is not clear from the documents in this case whether plaintiff ever adequately alleged a damage claim on behalf of all members of the class against the International. One thing, however, is clear, and that is determinative of this issue. The trial court in its pre-trial order and in its opinion clearly stated that the class claim was “fully one of law” and indicated that it would be considered on the declaratory and injunctive grounds only. Under Rule 23 of the Federal Rules of Civil Procedure, the prerequisites for a class action are spelled out in detail. Class actions are of three basic types with the requirements for each varying to some degree. It appears to this court that the district court was proper in limiting the class aspects to the single issue of law. A reading of the district court’s earlier order of November 16, 1970, wherein it considered a union motion to dismiss the class nature of the actions shows that the court envisioned permitting this suit under Rule 23(b)(2). The court stated that the class count of the complaint was “simply a claim that those same rights (and the rights of persons similarly situated) are violated by the existence and threatened application of that provision of the Union constitution.” This is thus properly a class action within Rule 23(b)(2) which allows such actions when: (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunc-tive relief or corresponding declaratory relief with respect to the class as a whole . Since the district court made none of the findings required for maintenance under Rule 23(b)(3), it is obvious that the suit was being allowed to proceed as a class matter under Rule 23(b) (2). Originally, it was thought suits for money damages would not qualify under (b)(2). See Advisory Committee Note, 39 F.R.D. 98, 102. However, several courts have allowed class damage actions in appropriate cases. Robinson v. Lorillard Corp., 4 Cir. 1971, 444 F.2d 791; Almenares v. Wyman, D.C.N.Y.1971, 334 F.Supp. 512, and other cases cited in Wright & Miller, Federal Practice and Procedure: Civil § 1775, note 31. However, we are not faced with a case where the district court treated damage claims as part of the class action and wholly different considerations apply. A district court is given broad discretion in controlling class actions because of the managerial difficulties which may develop. Section (c)(4) of Rule 23 specifically states: “When appropriate (A) an action may be brought or maintained as a class action with respect to particular issues . . .”. This clearly means that the district court may take only those parts of a lawsuit which lend themselves to convenient use of the class action motif. Problems which may develop “after an initial finding of liability can be adequately handled since the rule gives a court the power to divide the class into appropriate subclasses or to require the members to bring individual suits for damages.” Eisen v. Carlisle & Jacquelin, 2 Cir. 1968, 391 F.2d 555. Very instructive on this issue are the views of those scholars generally regarded as currently the leading commentators on the Federal Rules: Disputes over whether the action is primarily for injunctive or declaratory relief rather than a monetary award neither promote the disposition of the case on the merits nor represent a useful expenditure of energy. Therefore, they should be avoided. If the Rule 23(a) prerequisites have been met and injunctive or declaratory relief has been requested, the action usually should be allowed to proceed under subdivision (b)(2). Those aspects of the case not falling within Rule 23(b) (2) should be treated as incidental. Indeed, quite commonly they will fall within Rule 23(b)(1) or Rule 23(b) (3) and may be heard on a class basis. Even when this is not the case, the action should not be dismissed. The court has the power under subdivision (c)(4)(A), which permits an action to be brought under Rule 23 “with respect to particular issues” to confine the class action aspects of a case to those issues pertaining to the injunction and to allow damages issues to be tried separately, (footnote omitted). Wright & Miller, Federal Practice and Procedure: Civil § 1775. Here there seems no doubt that the primary relief sought was injunctive and declaratory and that the concept of class damages (without any individual injury being shown) would be highly speculative. Nix had waived all questions of damages on his individual claim. Nix knew of no other parties who might have been injured, although he alleged several unnamed parties. It seems eminently clear that because of the differing nature of each individual possible claim, the problem involved in proving separate damages, and the fact that the only common question involved here was the legal question of the validity of the constitutional provision, the district court wisely used its discretion to limit the class aspects to the declaratory action. Therefore, we hold that it was within the trial judge’s discretion to limit the class aspects of this case to the question of the validity of the constitutional provision. Attorney’s Fees The only controversy presented in this appeal over the amount of attorney’s fees awarded counsel for plaintiff Nix is his claim that they were grossly inadequate. The union has not challenged their awardance nor the amount. The district court awarded fees in the amount of $3,000.00. We affirm this determination. The application by plaintiff’s counsel for attorney’s fees is somewhat unique. The amount claimed is $2,500,000.00. The supporting brief on this figure shows that it was computed by multiplying $2.50, the amount collected monthly by the Grand Lodge from each member, times the approximate total membership of the union, one million. The rest of the request reads very similar to a petition for punitive damages. Plaintiff’s attorney appears to be of the opinion that he should be personally enriched because the union has used sanctions against its membership which conflict with an act of Congress and because he feels it would be socially desirable to punish this union. This has never been the rule in this circuit and we are confident that it never will be. Were punitive damages to be allowed or available in an action such as this they certainly should go to injured parties, not directly to the attorney. As a legal matter, the arguments made by counsel supporting this figure are thoroughly unconvincing. Primary reliance is placed upon Ratner v. Bakery and Confectionery International Union, 1965, 122 U.S.App.D.C. 372, 354 F.2d 504. In Ratner the court clearly indicated that the award of attorney’s fees was based on quantum meruit. On an earlier appeal of the Ratner case, 335 F. 2d 691, the circuit court had indicated that the district court should not be restricted to figuring attorney’s fees on the basis of a fee schedule which had been originally entered with the plaintiffs and to which the International was not a party. At that time the court indicated that the award should be based on a quantum meruit theory and suggested that the district court take into account the value of the benefit to the International and its membership from the services. The ' amount actually awarded by the trial judge on remand in Batner was extremely close to the amount requested by the attorney based on the fee schedule. The Court of Appeals upheld this as within the court’s discretion. Any reasonable reading of the Batner opinions show that they are not applicable to the claims of this attorney. Here, despite repeated requests, plaintiff’s attorney failed to supply any information on time spent in the preparation and handling of the class aspects of this case. The trial court in this case therefore based its award on its own knowledge of the proceedings: In this case, the issue upon which counsel obtained relief arose long after the original trial of the private plaintiff’s case. There has been no trial time and, so far as1 the court knows, no time spent in discovery procedures on this issue. The question was presented by amendment to the pleadings and on brief plus the celebrated short conference with the court. Attorneys’ fees in such eases are deemed by the court to be compensatory and not punitive in nature. Our consideration of the record in this case leads us to the conclusion that the district court was well within its discretion in setting attorney’s fees at $3,000.-00. We note that counsel for the plaintiff has not presented this court or the district court at any time with a statement of work done on this ease. He has apparently been satisfied to rest his claim for attorney’s fees on his allegations of social desirability which we clearly reject above. Therefore, the opinion of the district court in this case is, in all respects Affirmed. . Since the class was limited to those against whom this provision was being enforced, determination of the members of the class would be difficult although the plaintiff alleges notice could be given in the union’s periodical.

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2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

ROYSTER COMPANY, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. No. 72-2067. United States Court of Appeals, Fourth Circuit. Argued Feb. 8, 1973. Decided June 4, 1973. Steven Shapiro, Atty., Tax Division, U. S. Dept, of Justice (Scott P. Cramp-ton, Asst. Atty. Gen., Meyer Rothwacks, William L. Goldman, Attys., Tax Division, U. S. Dept, of Justice, Brian P. Gettings, U. S. Atty., and J. Brian Don-nelly, Asst. U. S. Atty., on brief) for defendant-appellant. Richard B. Spindle, III, Norfolk, Va. (Allan G. Donn and Willcox, Savage, Lawrence, Dickson & Spindle, Norfolk, Va., on brief) for plaintiff-appellee. Before CRAVEN, FIELD, and WIDENER, Circuit Judges. WIDENER, Circuit Judge: This appeal involves a claim for the refund of federal employment taxes (withholding of income, Federal Insurance Contributions, and Federal Unemployment taxes), plus interest, for a total amount of $11,327.11. Plaintiff Royster is a manufacturer of commercial fertilizers which it distributes throughout 17 states, primarily through independent dealers. During 1965, plaintiff employed about 125 salesmen who were paid both salaries and commissions. Upon the salaries and commissions, Royster withheld Federal Insurance Contributions (FICA) and income withholding taxes, filed timely quarterly FICA returns and timely annual Federal Unemployment Tax (FUTA) returns, and remitted the taxes due. During 1965 and 1966, plaintiff also reimbursed its salesmen for the cost of meals purchased by them during the day on the road. Royster did not withhold FICA or income withholding taxes on the reimbursements for meals, nor did Royster include such amounts on the FICA or FUTA returns filed for 1965 and 1966 or remit any taxes with respect to such reimbursements. Upon audit of Royster’s 1965 and 1966 returns, the commissioner assessed additional FICA and income withholding, and FUTA taxes and interest. Royster paid the additional assessments and filed timely refund claims. S'ix months having lapsed without the refund claim being acted upon, Royster filed its complaint in the district court. Both Royster and the Government waived trial by jury or other evidentiary hearing and submitted the case for decision by the court based upon a stipulation, briefs, and oral argument. The stipulation entered into by the parties recited the following as the sole issue in the case: “. . . whether the amounts paid by plaintiff to its salesmen to reimburse them for the cost of certain meals eaten in the sales territory constitute wages subject to FICA, FUTA and income withholding taxes.” The district court resolved the issue in favor of Royster and the Government appeals. The government has expressly stated in its brief that it makes no contention that any of the district court’s findings of fact are clearly erroneous. Rather, it contends that the district court erred, as a matter of law, in its holding that the meal reimbursements were not wages within the meaning of the statutes involved. The district court noted that the government there, as here, abandoned its position that in all instances the code provisions relating to income tax liability of employees are in pari materia with FUTA and FICA and income tax provisions relating to the employer’s duty to withhold. That confession by the government was inescapable in light of the recent case law which has rejected such a theory. Acacia Mutual Life Insurance Co. v. United States, 272 F.Supp. 188 (D.Md.1967); Humble Oil & Refining Co. v. United States, 194 Ct.Cl. 920, 442 F.2d 1362 (1971); Humble Pipe Line Co. v. United States, 194 Ct.Cl. 944, 442 F.2d 1353 (1971); Peoples Life Ins. Co. v. United States, 179 Ct.Cl. 318, 373 F.2d 924 (1967); Stubbs, Overbeck & Assoc., Inc. v. United States, 445 F.2d 1142 (5th Cir. 1971). The government continues to contend, however, that the non-deductibility of such reimbursed expenses by the employee is at least support of its premise that the reimbursements are wages with respect to FUTA and FICA and income tax withholding. The nature of the payments to the Royster salesmen is described in the stipulation as follows: “During 1965 and 1966, plaintiff also customarily reimbursed its salesmen for the cost of meals purchased by them during the day on the road. “Each of plaintiff’s salesmen regularly maintains a daily expense account which is submitted to plaintiff on a weekly basis. These accounts are itemized in detail. The salesmen are allowed the cost of meals purchased by them while on the road even though the territory being covered on a day in question may not have required overnight lodging. * * # -* * * “The salesmen to whom the reimbursements in dispute were made for meals purchased on the road were not required to stay away from home overnight. Although the reimbursement to the salesmen . . . was based on actual expenditures by the salesmen, the amount of reimbursement for purposes of the tax assessments involved here was computed by extrapolating from an agreed upon eight week period. The sample selected excluded expenses reimbursed to salesmen away from home overnight. Thus, no part of the amount in dispute here is attributable to reimbursement of salesmen who were away from home overnight.” The amounts paid by Royster were further described by the district court (and the Government takes no exception to such description) as follows: “The reimbursements here paid to plaintiff’s, salesmen were the actual cost of meals, just that and nothing more. The reimbursement was not a regular payment in the sense that it would be made without a supporting individual claim for each meal; it was not made unless it was in fact an actual reimbursement, after the fact; it was not made if the meal was not purchased ; it was not dependent for reimbursement as to title or status of the salesman; it was not in any wise measured for reimbursement on any salary or commission level of the salesman; it did save the company the additional mileage expense if the salesman chose to remain in the sales territory and not return to his home' area for a meal.” It is against this factual background that we view the pertinent statutes. Concerning FICA. 26 U.S.C. §§ 3101 and 3102 impose a tax for old age, survivors, disability and hospital benefits and require the employer to collect such taxes from the wages of the employee. § 3121(a) defines “wages” within the meaning of §§ 3101 and 3102 as “all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash.” Concerning FUTA. 26 U.S.'C. § 3306(b) likewise defines “wages” as “all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash.” For the purposes of withholding income tax by the employer, 26 U.S.C. § 3401(a) defines wages: “For purposes of this chapter, the term ‘wages’ means all remuneration for services performed by an employee for his employer, including the cash value of all remuneration paid in any medium other than cash.” The district court was properly of opinion that the slight variations in the wording of the above statutes were inconsequential and that wages has the same essential meaning under all the statutes here in question. The government in its brief agrees with this determination. Thus, the case turns not upon any factual dispute but upon a reading of the pertinent statutes and the meaning to be given the term “wages.” The government contends that in determining whether the amounts at issue in this litigation are wages, the question is whether the amounts paid are “attributable to the employment relationship.” Such a sweeping theory is too broad. Carried to its logical conclusion, the government’s argument might require that every payment or other economic gain flowing from an employer to an employee constituted wages upon which withholding of income and FICA tax is required and FUTA tax payable. See Humble Oil & Refining Co. v. United States, 194 Ct.Cl. 920, 442 F.2d 1362 (1971). This, of course, is not the law. There are numerous instances in which the government has been of opinion that benefits flowing from the employer to the employee do not constitute wages within the purview of the statutes at issue herein. For example, in Revenue Ruling 59-227, 1959-2 C.B. 13, it was held that a lump sum payment to an employee for his relinquishment of a seniority right and the vacation of a particular position, while ordinary income to the employee, did not constitute compensation for services performed and hence withholding was not required. And, in Revenue Ruling 55-520, 1955-2 C.B. 393, payment to an employee in settlement of litigation over his employment contract, while held to be income to the employee, was held not to constitute a payment for services on which withholding was required. See also Humble Oil & Refining Co. v. United States, 194 Ct.Cl. 920, 442 F.2d 1362 (1971). We cannot agree that any payment made to the employee which is “attributable to the employment relationship” constitutes wages subject to FICA, withholding and FUTA. Such a position might have more validity if the question here concerned the income tax treatment of the reimbursements; however, that is not the issue before us. See Stubbs, Overbeck & Associates v. United States, 445 F.2d 1142 (5th Cir. 1971). We agree with those cases cited earlier in this opinion which reject the proposition that wages under the FUTA, FICA and income tax withholding provisions is synonomous with income under the income tax provisions of the Code. We are of opinion that the term wages is narrower than the term income as used in the income tax provisions relating to how an individual must treat payments to him. Wages are merely one form of income. The government’s position might well render nugatory any distinction between the two. We believe that the question here is whether the payments at issue were made to the employees of Royster as remuneration for services performed. Such is the literal wording of the statutes involved, and the government advances no reason to support the expanded construction contended for. All a salesman in this case had to do to get reimbursed was to eat on the road. If he did so, he was reimbursed regardless of his performance. Where he ate and what he did while he ate were of no concern to the employer. He performed no services while eating, directly or indirectly. Having the salesmen eat on the road did result in lower mileage traveled by the salesmen than if they returned home to eat, certainly a legitimate business choice of the employer. Stubbs, supra; Acacia, supra; Peoples Life Insurance Co., supra. The government relies on S. S. Kresge Co. v. United States, 218 F.Supp. 240 (E.D.Mich.1963) and S. S. Kresge Co. v. United States, 379 F.2d 309 (6th Cir. 1967). (The facts were the same in both cases. The 6th Circuit opinion essentially approved the previous opinion of the district court.) The Kresge eases are not inconsistent with this opinion, but actually support the plaintiff. Kresge involved a company which operated a large number of chain stores. The stores involved had lunch counters or snack bars and the company provided a free lunch for any person employed in the food department who would spend his one-half hour lunch break on the job. This enabled the store to keep lunch counter employees at work for the rush hour business in case they were needed. No employee was required to participate in this plan and any employee could take his one-half hour lunch break where he pleased. In both cases, the value of the free lunch was held to be subject to FICA and FUTA taxes. In both cases, however, the employees performed services for the employer during lunch hour when called upon, which they were from time to time. Also, the employees were forbidden to leave the counter and were required to be available for work during lunch time. Being present, available for work, and working if necessary, was held to furnish the consideration for the lunch, and the lunch was the consideration for the employee’s giving up his time and working if necessary. The holdings in the Kresge cases, thus, are in accord with the language of the statutes defining wages: “remuneration for employment” and “remuneration for services performed.” Each of the other cases, save one, which are relied upon by the government is consistent with this opinion. Most of them are concerned with the income tax treatment of the payment in question. Except Campbell, n. 3, those which relate to FUTA and FICA and income withholding tax statutes have found a service performed by the employee in return for the payment involved if the payment is held subject to the tax sought to be imposed. Here, unlike Kresge, the remuneration is not attributable to any service on the part of the employee. The Royster salesmen were not on call during their lunch break, and they got the free lunch whether they made any sales that day or not. They performed no services during lunch hour. We conclude, therefore, that the payments in question here were not wages as that term is used in the FUTA and FICA and income tax withholding statutes. The decision of the district court is Affirmed. . “It is possible, based upon the facts of a specific case, for an employer to make payments to its employees that are not paid as remuneration for employment.” Government brief, p. 10. Of course, we must “ . . . adjudge the rights of parties upon existing facts. . . . ” Bissell v. Spring Valley Township, 124 U.S. 225, 232, 8 S.Ct. 495, 499, 31 L.Ed. 411 (1888). Our duty is “ . . . limited to determining rights . . . which are actually controverted in the particular case. . . . ” United States v. Hamburg American Co., 239 U.S. 466, 475, 36 S.Ct. 212, 216, 60 L.Ed. 387 (1916). . On oral argument, the government contends the stipulated phrase “on the road” suggests home area rather than away from home area. We do not take seriously this departure from ordinary English usage. . United States v. Correll, 389 U.S. 299, 88 S.Ct. 445, 19 L.Ed.2d 537 (1967): Held cost of meals away from home but not overnight not deductible for income tax purposes. Amoroso v. Commissioner of Internal Revenue, 193 F.2d 583 (1st Cir. 1952): Deductions from income tax for meals not away from home and not overnight held not deductible for income tax purposes. Campbell Sash Works, Inc. v. United States, 217 F.Supp. 74 (N.D. Ohio, E.D.1963): Expense paid vacation for employees held subject to FICA, FUTA, and income tax withholding where employees performed no services during paid vacation. Commissioner of Internal Revenue v. Duberstein, et ux, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1959): Gift of a Cadillac automobile to a business associate held to be income to the recipient. Old Colony Tr. Co. v. Comm’r. Int. Rev., 279 U.S. 716, 49 S. Ct. 499, 73 L.Ed. 918 (1929): Payment by corporation of corporate executive’s income tax pursuant to agreement held to be income. Fred Marion Osteen, et al. v. Commissioner of Int. Rev., 14 T.C. 1261 (1950): Meals away from home but not overnight held not deductible for income tax purposes. United States v. Morelan, 356 F.2d 199 (8th Cir. 1966) : Reimbursement for meals by state policemen away from home but not overnight held to be on the business premises of the employer and not includable in taxable income and deductible if included. Contra, Wilson v. United States, 412 F.2d 694 (1st Cir. 1969). Winn v. Com. of Int. Rev., 32 T.C. 220 (1959) : Meals away from home but not overnight held not deductible for income tax purposes.

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Wilhelm J. BRUSS, Sr., Petitioner-Appellant, v. C. E. HARRIS, Warden, United States Penitentiary, Leavenworth, Kansas, Respondent-Appellee. No. 72-1589. United States Court of Appeals, Tenth Circuit. May 29, 1973. Durfee, Senior Judge, dissented and filed opinion. Carl Feldhamer, Denver, Colo., for petitioner-appellant. Bruce E. Miller, Asst. U. S. Atty. (Robert J. Roth, U. S. Atty., on the brief), for respondent-appellee. Before BREITENSTEIN and DOYLE, Circuit Judges, and DUR-FEE, Judge, Court, of Claims. Sitting by designation. BREITENSTEIN, Circuit Judge. In this habeas corpus proceeding a federal prisoner seeks a recomputation of the time which he must serve. The district court dismissed the petition, and the petitioner has appealed. Petitioner was arrested on federal charges on January 9, 1971, and, after an examination to determine his mental competency, was released on a personal recognizance bond on March 9, 1971. While free, petitioner was arrested and jailed on an unrelated state charge in Nebraska. He appeared in federal court under a writ of habeas corpus ad prose-quendum, pleaded guilty to a violation of 18 U.S.C. § 659, was sentenced on July 2, 1971, to three years imprisonment, and was immediately returned to state custody. He entered a guilty plea to the state charge and on October 28, 1971, was sentenced to two years imprisonment to run concurrently with the federal sentence and was released to federal authorities. The issue is whether the petitioner is entitled to credit on his federal sentence for the period from July 2 to October 28, 1971, when he was in state custody awaiting disposition of the state charges. Petitioner says that he is entitled to the credit because a federal de-tainer prevented him from making bond on the state charge. Credit for the time in state custody was given in the state sentence. Petitioner was arraigned on the state charge on June 9, 1971, and upon his plea of not guilty, bond was fixed at $3,500. After the federal sentence and the return of petitioner to state custody, a federal detainer against petitioner was filed with the state authorities. The date when the detainer was filed does not appear in the record. The petition for relief alleges: “Petitioner attempted to raise the bond set by the State of Nebraska and succeeded. Upon raising said bond Petitioner talked with two bondsmen in Lincoln and was informed by both bondsmen that since a federal detainer had been placed against him they would not consider accepting the amount of money needed for the State bond.” The district court held no evidentiary hearing and, on the basis of the petition and the response thereto, concluded that the petitioner was not entitled to have the time in question credited on the federal sentence. Petitioner relies on a line of Fifth Circuit decisions. See Davis v. Attorney General, 5 Cir., 425 F.2d 238, 240; Ballard v. Blackwell, 5 Cir., 449 F.2d 868, 870; Spence v. United States, 5 Cir., 452 F.2d 1198, 1199, and O’Connor v. Attorney General, 5 Cir., 470 F.2d 732, 734. The last, O’Connor, dealt with whether jail time on a New Jersey state charge should be credited against a federal sentence imposed in Georgia. The court pointed out the procedural difficulties and remanded the case with directions that the district court should require appellant to utilize an available administrative remedy before proceeding to the fact questions in issue. The record before us does not show any applicable administrative remedies. The Davis, Ballard, and Spence decisions remanded for further evidentiary hearing to determine whether the state detention was solely due to, the federal detainer. Only one of these eases, Spence, dealt with the question of double credit. It held that if the state sentence runs concurrently with a longer federal sentence and the prisoner was unable to post state bond solely because of the federal detainer, he is entitled, to credit on the federal sentence. We are unable to reconcile the Spence decision with Jackson v. Attorney General, 5 Cir., 447 F.2d 747, 748-749, which denies double credit and holds that where the prisoner declines state bail or cannot make it, federal credit does not begin until he is surrendered to federal authorities. Section 3568, 18 U.S.C., provides that a federal sentence begins to run on the date when the person is received at the institution for the service of the sentence and that the Attorney General shall credit toward service of the sentence “any days spent in custody in connection with the offense or acts for which the sentence was imposed.” The question is whether the July 2-October 28 state custody was jail time served in connection with the federal sentence. We believe that it was not. The controlling facts appear in the record and are not controverted. No evidentiary hearing was required. State bond was fixed prior to the federal sentence. At that time, and for several weeks thereafter, no federal action impinged on his right to release. Petitioner does not claim that he was unable to make the state bond because of indigency. Rather, he says that he “succeeded” in raising the bond and that two bondsmen would not act because of the federal detainer. Additionally, he received a credit for the time in question against the state sentence. We attach no significance to the fact that the state sentence ran concurrently with the previously imposed federal sentence. Petitioner owed a debt to two sovereigns, and each had a right to exact its debt independently of the other. The petitioner’s claim is that after having received credit from one sovereign he is entitled to credit from both. We do not agree. He is not entitled to double credit. Shields v. Daggett, 8 Cir., 460 F.2d 1060, 1061. In our opinion the jail time in question was not spent in connection with the offense or acts for which the federal sentence was imposed, and, consequently, he is not entitled to credit against the federal sentence. Affirmed. DURFEE, Senior Judge (dissenting). I respectfully dissent. The question, as stated by the majority is “whether the July 2-October 28 state custody was jail time served in connection with the Federal sentence.” The majority has concluded that the jail time was not spent in connection with the offense or acts for which the Federal sentence was imposed. I agree only insofar as to the period of jail time prior to July 2. On July 2, 1971, appellant was sentenced in the U. S. District Court for the District of Nebraska to three years imprisonment for violation of 18 U.S.C. § 659. Appellant alleged that on that day he was returned to state custody, placed in the Lincoln City-County Jail and placed under a Federal detainer. Petitioner-appellant argues that his failure to secure release from his state imprisonment was due to the Federal de-tainer. Appellant alleges that he was informed by two bondsmen “that since a Federal detainer had been placed against him, they would not consider accepting the amount of money needed for the State bond.” This allegation presents a situation identical to the situation testified to by the petitioner-appellant in Ballard v. Blackwell, 449 F.2d 868, 870 (5th Cir. 1971). If petitioner had been able to furnish the bail required by the state court, we may fairly assume that when he was released from the state jail on bail, he would immediately have been taken into Federal custody to serve his Federal sentence beginning on July 2, 1971, rather than on October 28, 1971, when he was sentenced on the state charge and released to the U. S. Marshal to begin serving his three-year Federal sentence. The District Court concluded that petitioner’s custody from July 2 to October 28, 1971, was attributable to the state rather than the Federal charge. It held no evidentiary hearing and made no determination either as to why petitioner was unable to furnish bond on the state charge, or whether there was a nexus, as claimed by petitioner, between this inability to furnish bond and the existence of the Federal detainer. Whether there is a nexus between the Federal detainer and continued state confinement is a fact question for the trial court as pointed out in O’Connor v. Attorney General, 470 F.2d 732, 734 (5th Cir. 1972). In Davis v. Attorney General, 425 F. 2d 238 (5th Cir. 1970) state bail was set on state charges; Davis represented that the Federal detainer was responsible for his confinement because the state officials relied on the detainer warrant to refuse to release him on bail. Upon these allegations by Davis, the 5th Circuit Court held: “If he was denied release on bail because the federal detainer was lodged against him, then that was time ‘spent in custody in connection with the (federal) offense’, since the detainer was issued upon authority of the appellant’s federal conviction and sentence. Thus, the judgment of the district court is reversed and the cause remanded for an evidentiary hearing on this issue.” 425 F.2d at 240. In both Davis and the instant case, the state court set the amount of bail to be required for release from state detention, and both Davis and petitioner Bruss alleged that they failed to secure bail because of the Federal detainer. In Jackson v. Attorney General, 447 F.2d 747, 748-749 (5th Cir. 1971), the Court of Appeals said: “Though it [bail] was offered to him and though he wanted it, he simply could not make it. The parole violation on warrant (Federal) had nothing to do with petitioner’s failure to be released from state custody.” This conclusion was reached because an evidentiary hearing by the District Court had established a fact. In the present case, no evidentiary hearing was held by the District Court to determine whether, as alleged by petitioner, he had been unable to be released on bail because his bondsmen had refused to post bond because of the Federal detainer, and whether, as a fact, there was a nexus between the Federal detainer and continued state confinement. The majority notes that: “State bond was fixed prior to the federal sentence. At that time, and for several weeks thereafter, no federal action impinged on his right to release.” All this is true but beside the point. Petitioner does not seek credit for this time from June 9, 1971, when bond was fixed, and before July 2, 1971, when petitioner alleges the detainer was placed upon him. See e. g., United States v. Eidum, 474 F.2d 579 (9th Cir. 1973). I agree that no significance attaches to the fact that the state sentence ran concurrently with the previously imposed Federal sentence. I also agree that petitioner owed a debt to two sovereigns and each had a right to exact its debt independently. But the fact of the matter is that if petitioner’s allegations are taken to be true, as of July 2, 1971, each sovereign did not seek to exact its debt independently of the other. In my opinion, the case should be remanded to determine, as stated in O’Connor, (1) whether bail was possible, and (2) whether the Federal detainer alone caused the continued state confinement, the burden to establish these two factors being upon appellant. In O’Connor, the 5th Circuit Court held that the District Court on remand before proceeding to the fact questions at issue, should require appellant to utilize the administrative remedy and procedure provided by the Office of Legal Counsel, Bureau of Prisons, Attorney General’s Office, Washington, D. C. The reason stated by the Court for this requirement was that “these cases arising under 18 U.S.C.A. § 3568, and Davis v. Attorney General, supra, present procedural difficulties in that witnesses having knowledge of the facts surrounding state detention, and the failure to make bail are usually far removed from the federal courts where claims of the type here are asserted.” I do not know whether these “procedural difficulties” also exist within the Tenth Circuit. If they do, then the District Court, had this case been remanded, should have been instructed to require appellant to utilize the administrative remedy provided before proceeding to the fact questions which in my opinion, are in issue. . In Boyd v. United States, 448 F.2d 477-478 (5th Cir. 1971) the Court of Appeals adopted the reasoning of the District Court which said: “The thrust of Davis is to the effect that denial of state bail must be caused by the federal detainer. If state bail is granted, petitioner is then free to seek federal bail and no credit for state custody is allowed. As a corollary, it seems useless for a prisoner to make state bail if immediate federal custody — not subject to bail — is to follow. Consequently, in those two instances the courts will grant credit towards a subsequent federal sentence for the ‘jail time’ in state custody.”

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NATIONAL LABOR RELATIONS BOARD, Petitioner, v. CAST-A-STONE PRODUCTS COMPANY, Respondent. No. 72-2228. United States Court of Appeals, Fourth, Circuit. Argued March 8, 1973. Decided May 30, 1973. Albert V. Bryan, Senior Circuit Judge, dissented and filed an opinion. John F. Depenbrock, Atty., N. L. R. B. (Peter G. Nash, Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, Marcel Mallet-Prevost, Asst. Gen. Counsel and Elliott Moore, Deputy Asst. Gen. Counsel, N. L. R. B., on brief) for petitioner. J. W. Alexander, Jr., Charlotte, N. C. (Alexander Copeland, III, Blakeney, Alexander & Machen, Charlotte, N. C., on brief), for respondent. Before BRYAN, WINTER and BUTZ-NER, Circuit Judges. PER CURIAM: The Board seeks enforcement of its order based upon its finding that the employer committed an unfair labor practice when it discharged Raymond Leasure. Before the trial examiner, the issues had been whether the employee was a supervisor and hence beyond the Act’s protection in the matter of discharge, and whether the discharge was illegal because it resulted from Leasure’s protected union activity. The trial examiner found that the employee was a supervisor, but that he had been discharged for protected union activity; accordingly, he recommended dismissal of the complaint. The government excepted to the finding that the employee was a supervisor. The employer, however, filed no exception to the finding that the employee was discharged for a proscribed reason. The Board, with one member dissenting, reversed the finding that the employee was a supervisor. Since the employer had not excepted to the trial examiner’s finding that the employee had been discharged for unacceptable reasons, it adopted this finding without independent scrutiny and ordered the employee’s reinstatement. 19 N.L.R.B. No. 66. We find no merit in the employer’s contention that the record as a whole is devoid of substantial evidence to support the Board’s finding that Lea-sure was an employee, rather than a supervisor. It follows that the employer violated § 8(a)(3) and (1) of the Act by discharging him because of his union activity, unless the Board’s finding with regard to the reason for his discharge is vulnerable. We conclude, however, that that issue is not before us. We turn to the specifics of what transpired. The trial examiner found that Leasure was a supervisor and recommended dismissal of the complaint charging an unfair labor practice in his discharge. But the trial examiner also found that the employer “discharged Leasure solely on the basis that he had been in contact with a labor organization and because of its concern that this might lead to an attempt to organize its employees.” When general counsel filed exceptions to the finding that Leasure was a supervisor, the employer had the right, which it failed to exercise, to file “cross-exceptions to any portion of the trial examiner’s decision, together with a supporting brief . . . ” 29 C.F.R. § 102.46(e). The right was exercisable “within 10 days, or such further period as the Board may allow, from the last date on which exceptions and any supporting brief” may have been filed by general counsel. Id. By the Board’s rules, a matter not excepted to was not before the Board and the employer’s omission constituted a waiver of the contention it elected not to assert. 29 C.F.R. §§ 102.46(b) and 102.48(a). When the Board reversed the trial examiner’s decision with respect to Leasure’s status, it did not consider the rest of the trial examiner’s decision, and the finding that Leasure was discharged for union activity became the law of the case. In United States v. Tucker Truck Lines, Inc., 344 U.S. 33, 37, 73 S.Ct. 67, 69, 97 L.Ed. 54 (1952), the general principle that administrative decisions should not be overturned “unless the administrative body not only erred but has erred against objection made at the time appropriate under its practice,” was stated. Section 10(e) of the Act, 29 U.S.C.A. § 160(e), specifically codifies that “[n]o objection that has not been urged before the Board . . . shall be considered by the court, unless the failure or neglect to urge such objection shall be excused because of extraordinary circumstances.” We find no extraordinary circumstances here, and we therefore conclude that the employer cannot obtain review of the portions of the trial examiner’s report unfavorable to it which was adopted by the Board and to which it failed to file cross-exceptions within the time permitted by the regulations. American Fire Apparatus Co. v. N. L. R. B. 380 F.2d 1005, 1006 (8 Cir. 1967) supports our view. See also N. L. R. B. v. Midwestern Manufacturing Co., 388 F.2d 251, 253 (10 Cir. 1968); N. L. R. B. v. Gold Spot Dairy, Inc., 417 F.2d 761, 762 (10 Cir. 1969); N. L. R. B. v. Douglas & Lomason Co., 443 F.2d 291, 293 (8 Cir. 1971). The cases relied on by the employer, except one, all arose before the Board’s regulations permitted the filing of cross-exceptions by a prevailing party and were decided on the basis of that lack. We deem them inapposite. N. L. R. B. v. Local 282, International Bro. of Teamsters, etc., 412 F.2d 334 (2 Cir. 1969), seemingly to the contrary, relies on authorities superseded by a change in the Board’s regulation without adverting to either the basis for the earlier decisions or the change in the Board’s rules. We cannot read it as a controlling authority. Enforcement granted. ALBERT V. BRYAN, Senior Circuit Judge (dissenting): With the dissenting member of the National Labor Relations Board and with the Trial Examiner, I think the dischargee, Raymond Leasure, was a supervisor within the meaning of Section 2(11) of the Act, and thus not within the employee protection of the Act’s Sections 8(a)(1) and (3). At all events, when the Examiner reached this conclusion — at the same time recommending that the complaint be dismissed — the employer had won the case. Nevertheless, the Board and the majority of the Court penalize the employer for not taking an exception to the Examiner’s report. For me this is wholly without justification. The penalty imposed is the refusal of the Board, and now the Court, to allow the employer even to be heard on the soundness of a hypothetical finding of the Examiner which the Board adopted as its finding. The finding second-guessed that if the Examiner was wrong about Leasure’s supervisor status, and if Leasure was only an employee, then as an employee, Leasure had been discharged for union activities. But the Examiner declined to decide that Lea-sure was an employee and explicitly concluded that “Respondent’s discharge of Raymond V. Leasure did not violate the Act”. Having prevailed in the case, the employer was not compelled to except. Truth is no exception could logically have been interposed by the employer to the Examiner’s report. Until the Board overruled the Examiner’s finding of Leasure’s supervisor capacity, there was no decision adverse to the employer. Obviously, too, the employer had no opportunity to except to the adjudication that Leasure had been unwarrantably discharged. Until the Board’s ruling, the employer had no reason or ground for exception. Until then the employer had won and could not at that time have disagreed with the Examiner’s report. I cannot conceive how any obligation to file an exception was put upon the employer by the General Counsel’s exception to the Examiner’s failure to make the Examiner’s speculative finding the Examiner’s decision. For this requirement, the Court cites a Board rule to the effect that, when General Counsel files exceptions to “any portion of the trial examiner’s decision”, the employer ■may (not must) file cross-exceptions. (Accent added). The employer’s omission to do so constitutes, it is said, a waiver of its right to contest the Board’s finding of the reasons for Lea-sure’s discharge. It is unbelievable that this rule embraces a hypothetical decision. Surely an exception runs only to a decision, not to the pondering or reflection of the judicial officer upon what should be his final decision. It is particularly noteworthy that the Examiner made no “decision” on the asserted employee-violation. That he made no such decision is conclusively demonstrated by his basing his recommendation of dismissal solely upon the supervisor issue. That was his decision; his meditation upon what it might have been was not a decision. Finally, at least, the circumstances were extraordinary, and, for that reason, the Board and the Court should not enforce any such rule as the Board now asserts, for the statute, 29 U.S.C.A. § 160(e) cited by the Court, excuses the failure of the employer in such circumstances to urge an objection “before the Board, its member, agent or agency”. With deference, I conclude that the Board’s order should not be enforced because of the Board’s refusal to hear the employer on the reason for Leasure’s discharge. Notwithstanding our dissenting brother’s strong characterizations to the contrary, we view the case no differently from many which come before us on appeal from a district court where the district court has decided all issues — a desirable practice to avoid unnecessary retrial — even though decision of the first may be dispositive of the litigation. A patent case, in which the district court has decided both that a patent is invalid, but if valid was infringed, is a good example. If plaintiff appeals the issue of validity of the patent but defendant fails to appeal the finding of infringement, and if we conclude that the patent is valid, ordinarily we would not consider the issue of infringement so that the district court’s decision on that issue would be final. So here, we think it good practice for the trial examiner to decide all issues, but we think it unnecessary for the Board to pass on any issue to which the parties do not except.

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Robert E. MATTHEWS, Appellee, v. FORD MOTOR COMPANY, a Delaware corporation, Appellant. Robert E. MATTHEWS, Appellee, v. KIMNACH FORD, INC., a Virginia corporation, Appellant. Nos. 72-2306, 72-2307. United States Court of Appeals, Fourth Circuit. Argued March 7, 1973. Decided May 21, 1973. Allan S. Reynolds, Norfolk, Va. (White, Reynolds, Smith & Winters, Norfolk, Va., on brief), for Ford Motor Co. William E. Baggs, Norfolk, Va. (James A. Howard and Breeden, Howard & McMillan, Norfolk, Va., on brief), for Kimnach Ford, Inc. Thomas J. Harlan, Jr., Norfolk, Va. (William L. Dudley, Jr., and Doumar, Pincus, Knight & Harlan, Norfolk, Va., on brief), for Robert E. Matthews. Before CRAVEN, BUTZNER and RUSSELL, Circuit Judges. BUTZNER, Circuit Judge: Alleging numerous errors, Ford Motor Company and Kimnach Ford, Inc. appeal from a judgment, entered on a jury verdict, for personal injuries suffered by Robert Matthews when his car went out of control as a result of a mechanical defect. Finding that no reversible error was committed during the trial and that Virginia law, which governs this diversity action, supports the liability of Ford and Kimnach, we affirm. The evidence, viewed in the light most favorable to Matthews, disclosed the following facts: Matthews purchased the car, a 1968 Ford XL Galaxie 500, from Kimnach, an authorized Ford dealer, in April 1968. In November 1968, the vehicle shifted into reverse gear while traveling forward on a rough road. Matthews returned the car to Kimnach for repairs. The defect was in the gear shift selector mechanism, which Kim-nach attempted to correct under the terms of the vehicle warranty. Less than two months later the car again inadvertently shifted into reverse, this time causing a collision that severely injured Matthews. Eyewitnesses described the car’s erratic movement. The testimony of experts supported Matthews’ claim that Ford’s defective design and assembly and Kimnach’s improper repairs allowed the transmission to reverse unexpectedly. The trial judge submitted the case to the jury on theories of negligence and breach of warranty, and the jury returned a general verdict in favor of Matthews against both Ford and Kim-nach. Many of the assignments of error pertain to familiar principles of law and to questions which were solely the province of the jury. On these issues, we find extended discussion unnecessary. Examination of the record and consideration of the briefs and oral argument disclose no reversible error in the empaneling and instruction of the jury, the admission and exclusion of evidence, or the denial of motions for judgment. Further, the evidence of negligence amply supports the jury’s verdict against both defendants in tort. Cf. Pierce v. Ford Motor Co., 190 F.2d 910 (4th Cir. 1951). However, because the jury returned a general verdict, Ford and Kim-nach argue that error in submitting Matthews’ claim of breach of warranty to the jury requires reversal. They rely on clauses in the contract of sale, which they assert are sufficient to disclaim liability. Since no Virginia case applying the sections of the Uniform Commercial Code that pertain to the contractual liability of a manufacturer and a dealer has been called to our attention, we will briefly state the reasons for our affirmance on this issue. The purchase order for Matthews’ new car contained an express warranty. In lieu of implied warranties, Ford warranted the car to be free from defects in material and workmanship for a period of twenty-four months or until it had been driven 24,000 miles, but the only remedy mentioned was replacement of defective parts free of charge. Matthews urges us to hold that Ford’s exclusion of the implied warranties of merchantability and fitness is either ineffective or unconscionable under §§ 2-316 or 2-302 of the Uniform Commercial Code. However, we need not consider this approach to the problem because it is clear that Ford is liable under its express warranty. The evidence was sufficient for the jury to find that Ford breached its express warranty by selling a car which inadvertently went into reverse gear when a wheel struck the type of slight obstruction that a manufacturer could reasonably expect a buyer to encounter in ordinary travel. Cf. Spruill v. Boyle-Midway, Inc., 308 F.2d 79, 83 (4th Cir. 1952). Therefore, the only remaining question is the effectiveness of Ford’s attempt to limit damages by restricting Matthew’s remedy to replacement of defective parts. This limitation fails for two reasons. First, Virginia’s version of the Uniform Commercial. Code strips Ford of the defense of lack of privity. Secondly, § 2-719(3) of the Code denounces as prima facie unconscionable the limitation of damages for personal injuries that are caused by consumer goods. Since Ford did not rebut this presumption, Matthews was entitled to recover damages for his injuries. Kimnach Ford’s contractual liability rests on a different theory. The district court ruled that Kimnach impliedly warranted the fitness of the car, as provided in § 2-315 of the Code. Evidence of the car’s defects was sufficient to establish breach of this warranty and, therefore, the jury’s verdict on this issue is unassailable. Kimnach, however, urges us to hold that although it gave no express warranties, it effectively disclaimed all implied warranties. We find no merit in this contention. Clause 10 of the terms and conditions of the purchase order was not an effective disclaimer. The Code requires that a writing excluding the implied warranty of fitness be “conspicuous.” Clause 10, buried in small type among 18 other numbered paragraphs on the back of the purchase order, fails to satisfy the Code’s definition of this essential adjective. Accordingly, the implied warranty of fitness was not excluded by Clause 10. The district court, over Kimnaeh’s objection, held that Kimnach could not rely on the disclaimer of implied warranties in Ford’s express warranty because this warranty by its terms ran directly from Ford to the customer. In the absence of an effective disclaimer, the court ruled, the implied warranty of fitness provided in § 2-315 applied. We find no error in this ruling. Generally, express warranties and disclaimers do not run with personal property. Therefore, the exclusions contained in a manufacturer’s express warranty do not absolve an independent dealer from liability imposed by an implied warranty. Jolly v. C. E. Blackwell & Co., 122 Wash. 620, 211 P. 748 (1922); cf. Fisher v. City Sales & Serv., 128 So.2d 790, 793 (La.App.1961) (civil law). Kimnach, however, argues that the general rule of non-assignability of disclaimers does not apply because Ford’s disclaimer expressly embraces the dealer. Even if the district court had accepted this argument, Kimnach would be liable. If the disclaimer in Ford’s warranty is deemed to exclude Kimnach’s implied warranty, the undertaking assumed by Kimnach to fulfill Ford’s warranty must also be considered. Its liability, therefore, is coextensive with Ford’s, and the attempt to limit its responsibility for damages to the repair or replacement of defective parts is also prima facie unconscionable under § 2-719(3) of the Code. Since Kimnach, too, failed to rebut the presumption, it, no less than Ford, would be liable to Matthews for his personal injuries under this alternative theory. Although the Virginia Supreme Court held in Marshall v. Murray Oldsmobile Co., 207 Va. 972, 154 S.E.2d 140 (1967), that a disclaimer of implied warranties was not contrary to public policy, Ford’s and Kimnach’s reliance on the case is unfounded. Murray was a suit for rescission of a contract, not for personal injuries. Moreover, since the transaction occurred before Virginia adopted the Uniform Commercial Code, the statutes which govern the case before us played no role in- that decision. The judgment is Affirmed. • . The uncertainty caused by the general verdict is illustrated by the disparate effect of contributory negligence, which in Virginia is a defense to tort liability but not to breach of warranty. Consideration of Matthews’ alternative claims probably would be unnecessary had the jury returned separate verdicts on the issues of negligence and breach of warranty, as allowed by Fed.R.Civ.P. 49(a). . The Supreme Court of Virginia has indicated that an action for personal injuries caused by breach of warranty should be based on the contract of sale and not on the doctrine of strict-liability in tort. Brockett v. Harrell Bros., Inc., 206 Va. 457, 143 S.E.2d 897, 902 (1965); see Speidel, The Virginia “Anti-Privity” Statute: Strict Products Liability under the Uniform Commercial Code, 51 Va.L. Rev. 804, 817 (1965). While the theories of tort and contractual liabilities differ, the result of this case would likely have been the same had the principles of Restatement (Second) of Torts § 402A (1965) been applied. See Chestnut v. Ford Motor Co., 445 F.2d 967, 968 (4th Cir. 1971); cf. Vandermark v. Ford Motor Co., 61 Cal.2d 256, 37 Cal.Rptr. 896, 391 P.2d 168 (1964). . The following warranty appeared on the back of the purchase order : “There is no warranty, express or implied, made by either the Ford Motor Company or the selling Dealer on new Ford vehicles except the following direct Company vehicle warranty: DIRECT COMPANY VEHICLE WARRANTY “Ford Motor Company warrants to the owner each part of this Ford vehicle to be free under normal use and service from defects in material and workmanship for a period of 24 months from the date of delivery to the original retail purchaser or until it has been driven for 24,000 miles, whichever comes first. This warranty shall be fulfilled by the dealer (or if the owner of the vehicle is traveling or has become a resident of a different locality, by any authorized Ford dealer) replacing or repairing at his place of business, free of charge including related labor, any such defective parts. “This warranty shall not apply to (i) tires or tubes (appropriate adjustment for them being provided by their manufacturers), or (ii) to normal maintenance services (such as engine tuneup, fuel system cleaning and wheel, brake and clutch adjustments), or (iii) to normal replacement of service items (such as filters, spark plugs, ignition points, wiper blades and brake or clutch linings), or (iv) to deterioration of soft trim and appearance items due to normal use or exposure. “This warranty is expressly IN LIEU OF any other express or implied warranty, including any implied WARRANTY of MERCHANTABILITY or FITNESS, and of any other obligation on the part of the Company or the selling Dealer.” Ford also furnished Matthews a full warranty statement which was essentially similar to the warranty in the purchase order. . Va.Code Ann. § 8.2-316 provides in part: “(1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this title on parol or extrinsic evidence (§ 8.2-202) negation or limitation is inoperative to the extent that such construction is unreasonable. “ . . . to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. . . . ” Va.Code Ann. § 8.2-302(1) provides: “If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.” See Ford Motor Co. v. Reid, 250 Ark. 176, 465 S.E.2d 80 (1971); Zabriskie Chevrolet, Inc. v. Smith, 99 N.J.Super. 441, 240 A.2d 195 (1968); Berg v. Stromme, 79 Wash.2d 184, 484 P.2d 380 (1971). See generally L. Frumer & M. Friedman, Products Liability § 19.07 [6] (1972); C. Bunn, H. Snead, and R. Speidel, An Introduction to the Uniform Commercial Code § 2.28(B) (1964) ; Ellinghaus, In Defense of Unconscionability, 78 Yale L.J. 757 (1969); Moyle, Exclusion and Modification of Warranty under the U.C.C., 46 Denver L.J. 579 (1969); Note, Unconscionable Contracts under the Uniform Commercial Code, 109 U.Pa.L.Rev. 401 (1961). . Va.Code Ann. § 8.2-318 provides in part: “Lack of privity between plaintiff and defendant shall be no defense in any action brought against the manufacturer or seller of goods to recover damages for breach of warranty, express or implied, or for negligence, although the plaintiff did not purchase the goods from the defendant, if the plaintiff was a person whom the manufacturer or seller might reasonably have expected to use, consume, or be affected by the goods " . Va.Code Ann. § 8.2-719(3) provides: “Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.” Va.Code Ann. § 8.2-715(2) defines consequential damages: “(2) Consequential damages resulting from the seller’s breach include “(b) injury to person or property proximately resulting from any breach of warranty.” . Va.Code Ann. § 8.2-315 provides: “Implied warranty: Fitness for particular purpose. — Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.” The district court did not instruct the jury on the implied warranty of merchantability created by Va.Code Ann. § 8.2-314. . Kimnach’s argument may be self-defeating. It has been suggested that total disclaimer of warranties would be unconscionable with respect to personal injuries. See L. Frummer & M. Friedman, Products Liability § 19.07 [6] (1972). . “10. It is expressly agreed that there are no warranties, express or implied, made either by the Dealer or the manufacturer on the motor vehicle, chassis, parts or accessories furnished hereunder, unless a separate written warranty is given by the Dealer to the Buyer at the time of sale. This applies to new motor vehicles as well' as used motor vehicles. The Buyer must have a written guarantee in his possession to secure an adjustment.” This clause was printed in type much smaller than the warranty set forth in note 3, supra. . Va.Code Ann. § 8.2-316(2) provides in part: “[T]o exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. . . ” . Va.Code Ann. § 8.1-201(10) provides: “A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals ... is conspicuous. Language in the body of a form is ‘conspicuous’ if it is in larger or other contrasting type or color .... Whether a term or clause is ‘conspicuous’ or not is for decision by the court.” See Moyle, supra note 4, at 607. . See note 7, supra. . At the instance of Ford and Kimnach, the district court ruled that Kimnach was not the agent of Ford. . See note 6, supra.

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UNITED STATES of America, Plaintiff, Appellee, v. 6.321 ACRES OF LAND MORE OR LESS Situated IN SUFFOLK COUNTY et al., Defendants, Appellees, City of Boston, Defendant, Appellant. No. 73-1033. United States Court of Appeals, First Circuit. Heard April 10, 1973. Decided May 30, 1973. Mack K. Greenberg, Asst. Corp. Counsel, Boston, Mass., with whom Herbert P. Gleason, Corp. Counsel, Boston, Mass., was on brief for appellant. Jacques B. Gelin, Atty., Dept, of Justice, with whom Kent Frizzell, Asst. Atty. Gen., James N. Gabriel, U. S. Atty., Edmund B. Clark, and Peter H. Ruvolo, Attys., Dept, of Justice, were on brief, for appellee. Before COFFIN, Chief Judge, McENTEE and CAMPBELL, Circuit Judges. McENTEE, Circuit Judge. This appeal arises from a suit by the United States to condemn certain property located in the City of Boston for use as an addition to an existing postal facility. In April 1966 the Post Office Department notified the City of Boston that it planned to expand the South Boston Postal Annex through the medium of a lease-construction arrangement. Under this plan the proposed addition was to be built and owned by private parties and then leased to the Department, thus remaining subject .to local taxation. In September of that year the Department filed an application for a building permit for this project which was denied when a number of potential zoning violations became apparent. This denial was appealed, however, and in March 1967, upon further assurances to the city that the proposed structure would remain on the tax rolls, the necessary variances to the zoning law were granted. Thereafter, the parcel in question was conveyed by the government to private developers, construction proceeded for four years, and, on December 7, 1971, the addition was leased to the Postal Service for a term of thirty years with certain options for renewal for substantial periods of time. Some two weeks later, however, in an abrupt change of policy, the Postal Service filed a “Declaration of Taking” with reference to this property and, on December 30, 1971, filed the instant condemnation suit in which the City of Boston and all other parties thought to have an interest in this property were joined as defendants. After the value of the interests of all the other claimants had been agreed upon, the United States moved to dismiss the city as a party. Upon hearing, the district court granted this mo-ton finding that the city had not demonstrated ownership of any compensable interest in the property and, to the extent that the city sought to recover for breach of an alleged agreement with the Postal Service, that it lacked jurisdiction to entertain this claim in this proceeding. This appeal followed. The initial issue which must be examined on appeal is the nature of appellant’s interest in the condemned property. In this regard the city first argues that the Postal Service’s promise, allegedly made in exchange for the approval of the building permit, that this facility would remain on the tax rolls for at least thirty years afforded it “a special and unique interest in the property” which is compensable within the meaning of the fifth amendment. In the alternative, the city contends that an agreement between itself and the Postal Service arose out of the circumstances detailed above and that it is entitled to compensation because this agreement was appropriated in this proceeding. We find neither of these contentions persuasive. Turning first to appellant’s contract-appropriation argument, while recognizing that compensation may be required where a contract is taken, Brooks-Scanlon Corp. v. United States, 265 U.S. 106, 44 S.Ct. 471, 68 L.Ed. 934 (1924); Omnia Commercial Co., Inc. v. United States, 261 U.S. 502, 508, 43 S.Ct. 437, 67 L.Ed. 773 (1928), we do not agree that this rule advances appellant’s claim since, in the instant case, if any agreement was taken, it was one between the Postal Service and the lessor of ,the condemned property. Under these circumstances, even assuming that a contract did exist between appellant and the government, the most that can be said is that its performance was frustrated by this taking, a contingency deemed non-compensable by the Court in Omnia,, supra. See Mullen Benevolent Corp. v. United States, 290 U.S. 89, 54 S.Ct. 38, 78 L.Ed. 192 (1933). The argument based upon appellant’s alleged “special” interest in the property fares no better since, in our view, regardless of how this interest is described, it amounts to nothing more than ah expectation of collecting future taxes on the parcel in question. That such an expectation is not a compensable interest in a condemned parcel is well settled since to permit a state or municipality to recover on such a claim would violate the long recognized immunity of the federal government from the taxing power of the states. See M’Culloch v. State of Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819); Adaman Mutual Water Company v. United States, 278 F.2d 842, 849 (9th Cir. 1960) and cases cited; United States v. City of Glen Cove, 322 F.Supp. 149, 155 (E.D.N.Y.), aff’d 450 F.2d 884 (2d Cir. 1971). As this court observed in People of Puerto Rico v. United States, 134 F.2d 267 (1st Cir.), cert. denied, 320 U.S. 753, 64 S.Ct. 59, 88 L.Ed. 448 (1943), a condemnation action in which an irrigation service sought additional compensation for the diminution of its tax base, “Appellant . . . [argues] that it has a legal right and duty to levy and collect special taxes and assessments on the land within the irrigation district for the purpose of repaying the money borrowed on the irrigation bonds, and that this legal right is a franchise, ... We find no merit in this contention. It is true that under the laws of Puerto Rico there existed the right to levy special assessments upon the lands for the payment of the bonds but it does not follow that the right to exact special assessments is a franchise. If this were so, it could equally be argued that the right to tax is a franchise for which upon condemnation the United States must pay just compensation. We know of no valid distinction for the purpose of the present discussion between the right to tax in general and the right to levy special assessments. [Citation omitted.] Any piece of property taken in condemnation by the United States is withdrawn from the scope of local taxation. But to say that the power to tax is a franchise or property right is to say that a state or municipality may in effect levy taxes upon property taken by the United States in condemnation proceedings. This obviously is not so.” Id. at 270-271. While the city had received a specific commitment of taxes for a fixed period, we do not see that this additional factor takes this case out of the general rule making non-compensable an expectation of taxes. The trial court was thus clearly correct in concluding that appellant failed to establish ownership of a com-pensable interest in the property taken. Appellant’s further contention that it should be entitled to assert a counterclaim for breach of its alleged agreement with the Postal Service in this proceeding is also without merit. This argument flies directly in the face of the fundamental precept of sovereign immunity that the United States may not be sued unless it has consented and, where this has occurred, that such consent is to be strictly construed. United States v. Sherwood, 312 U.S. 584, 590, 61 S.Ct. 767, 85 L.Ed. 1058 (1941). In light of this rule, since the counterclaim in question is based upon an alleged breach of contract and sums in excess of $10,000 are in issue, it is clear, under the Tucker Act, 28 U.S.C. §§ 1346(a)(2), 1491 (1970), that it may be heard only in the Court of Claims. See United States v. 83.70 Acres, Etc., State of Washington, 430 F.2d 1130, 1132 (9th Cir. 1970). The further suggestion that raising this counterclaim is permissible under rule 71A, Fed.R.Civ.P., the rule which governs procedure in federal condemnation actions, is also not convincing. While this rule has been construed to permit joint defendants to assert cross-claims against one another in these proceedings, see United States v. Merchants Matrix Cut Syndicate, Inc., 219 F.2d 90, 93-96 (7th Cir.), cert. denied, 349 U.S. 945, 75 S.Ct. 873, 99 L.Ed. 1271 (1955); United States v. Eight Tracts of Land, Brookhaven, N. Y., 270 F.Supp. 160 (E.D.N.Y.1967); but see United States v. 76.15 Acres of Land, 103 F.Supp. 478 (N.D.Cal.1952), its promulgation did not effect a waiver of the government’s immunity and counterclaims by defendants against the United States, like the one in issue, have not been permitted. See United States v. 3,317.39 Acres, Etc., Jefferson County, Arkansas, 443 F.2d 104, 106 (8th Cir. 1971), cert. denied, 404 U.S. 1025, 92 S.Ct. 674, 30 L.Ed.2d 675 (1972); United States v. 9 Acres, Etc., St. Mary Parish, Louisiana, 100 F.Supp. 378 (E.D.La.1951), aff’d sub nom., Oyster Shell Products Corp., Inc. v. United States, 197 F.2d 1022 (5th Cir.), cert. denied, 344 U.S. 885, 73 S.Ct. 184, 97 L.Ed. 685 (1952). We see no reason to depart from these decisions on the instant record. Finally, appellant’s challenge to the necessity of this taking merits little comment. The taking was for a legitimate public purpose; whether it is better for the government to own rather than lease is a matter of practical judgment beyond judicial scrutiny. See Berman v. Parker, 348 U.S. 26, 35-36, 75 S.Ct. 98, 99 L.Ed. 27 (1954). Affirmed. . The district court held that jurisdiction to hear such a claim would lie only in the Court of Claims under the Tucker Act, 28 U.S.C. §§ 1346(a)(2), 1491 (1970).

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

UNITED STATES of America, Plaintiff-Appellee, v. George C. WALKER and Marie H. Walker, Defendants-Appellants. No. 72-2667. United States Court of Appeals, Ninth Circuit. April 27, 1973. George Constable (argued), Seattle, Wash., for defendants-appellants. Robert S. Linnell, Asst. U. S. Atty. (argued); Dean Smith, U. S. Atty., Yakima, Wash., for plaintiff-appellee. Before TRASK, GOODWIN and WALLACE, Circuit Judges. WALLACE, Circuit Judge: A jury found Walker guilty of failure to file income tax returns for 1965 and 1966 in violation of 26 U.S.C. § 7203. No question is raised as to whether he should have filed — his defense was that the failure was not willful. He alleges that the trial court erred in failing to instruct the jury properly as to willfulness, refusing to admit evidence that no tax was due, and improperly admitting evidence pertaining to the net worth of certain of his assets. We concur with the last cohtention and reverse. Walker engaged in farming, land lev-elling and concrete irrigation ditch lining. His wife kept his books. Walker’s income tax returns for 1955 and 1956 had been prepared together and both were filed late. Likewise, his 1957, 1958 and 1959 tax returns were all prepared together and filed late. In both instances, Walker experienced “no trouble” from the Internal Revenue Service. Walker had his 1960 and 1961 tax returns prepared together but, due to a dispute with his accountant, these returns were never filed. In late 1967 or early 1968, Walker contacted another accounting firm and asked it to prepare his tax returns for 1960 through 1966. Subsequently, he was indicted, tried and convicted of failure to file tax returns for 1965 and 1966. Over objection, the trial court allowed proof of an increase of $248,241 in Walker’s net worth between 1958 and 1967. Because the facts indicated Walker’s gross income for both years exceeded the statutory minimum, the prosecution had already proved that he was required to file returns. Therefore, this evidence was unnecessary to show the duty to file. Moreover, unrealized increases in net worth resulting from a higher market value are not probative of gross income. Holland v. United States, 348 U.S. 121, 137-138, 75 S.Ct. 127, 99 L.Ed. 150 (1954); Eisner v. Macomber, 252 U.S. 189, 214-215, 40 S.Ct. 189, 64 L.Ed. 521 (1920). The admission of this evidence would have a definite tendency to prejudice a jury in a failure to file case where the defense is a lack of knowledge of the need to file. When there is no legitimate basis for admissibility and the prejudice is such that the defendant could not receive a fair trial, a reversal is required. Because the case must be retried, we will discuss the remaining issues raised. The trial court instructed the jury that: It is the gross income of $600.00 or more, according to the law, that requires one to file an income tax return. Whether the taxpayer’s return would show that he owed a tax is irrelevant, and should not be considered by you on the question of the taxpayer’s duty to file a return. Walker contends that this instruction is erroneous. We disagree. At most, it presents the possibility of slight confusion because the jury might believe that the instruction also referred to Walker’s defense, but it does not amount to reversible error. Walker also contends that the trial court erred by refusing to give his following proposed instruction: If a taxpayer honestly thinks he owes no income tax for a certain year and if he honestly believes that a lack of tax due affects his duty to file a return, such are factors to be considered in determining whether his failure to file a return for that year was willful. The government’s position is that the content of the proposed instruction was essentially covered by the general instruction on willfulness and that the trial court has considerable discretion in determining whether to give such an instruction. Suhl v. United States, 390 F.2d 547, 556 (9th Cir.), cert. denied, 391 U.S. 964, 88 S.Ct. 2035, 20 L.Ed.2d 879 (1968). We agree. The trial court rejected Walker’s offer of proof that in fact there was no federal income tax owing for any year during the period 1960 through 1966, with the exception of $2,720.87 owing for 1962. The purpose for offering this evidence, and the reason it was admissible, was to substantiate Walker’s testimony and sole defense: that he did not think he had to file his returns promptly because he honestly did not think he owed any taxes. Whether or not a jury will believe his story, even with this evidence, only a new trial will tell. But it is obvious that he has the right to introduce this corroborating evidence. If he had taxable income in these prior years, the government could have shown that fact to attempt to have the opposite inference drawn. Reversed and remanded for further proceedings consistent with this opinion. . For the sake of clarity, however, the instruction might read: Whether the taxpayer’s return would show that he owed a tax should not be considered by you on the question of the taxpayer’s duty to file a return. Compare 2 E. Devitt & C. Blackmar, Federal Jury Practice and Instructions § 52.30 (2d ed. 1970). . The court instructed the jury that: The word “willful” as used in this particular statute, that is, Section 7203 of Title 26, United States Code, means with a bad purpose or without grounds for believing one’s act is lawful, or without reasonable cause, capriciously, or with a careless disregard whether one has the right so to act. In other words, the prosecution must establish, beyond any reasonable doubt that the failure to file returns was intentional, as opposed to being by accident or other innocent cause. Compare Devitt & Blackmar, supra note 1, § 52.31.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

In the Matter of BECK INDUSTRIES, INC., in Proceedings for the Reorganization of a corporation, Debtor. Jack FELDMAN et al., Appellants, v. TRUSTEES OF BECK INDUSTRIES, INC., Appellees. No. 582, Docket 72-2277. United States Court of Appeals, Second Circuit. Argued March 20, 1973. Decided April 30, 1973. Donald N. Rothman, Baltimore, Md. (Robert E. Sharkey, Gordon, Feinblatt, Rothman, Hoffberger & Hollander, Ober, Grimes & Schriver, Baltimore, Md., Winer, Neuburger & Sive, New York City, of counsel), for appellants. Milton S. Gould, New York City (Martin I. Shelton, Herman A. Bursky, Shea Gould Climenko & Kramer, New York City, of counsel), for appellees. Before SMITH, FEINBERG and MANSFIELD, Circuit Judges. MANSFIELD, Circuit Judge: The issue on this appeal is whether the Bankruptcy Court had jurisdiction under 11 U.S.C. §§ 511 and 516(4) to restrain Maryland state court proceedings against a wholly-owned subsidiary of the debtor in Chapter X proceedings, Beck Industries, Inc. (hereinafter “Beck”). The subsidiary, Webster Clothes, Inc. (hereinafter “Subsidiary”), had been newly created by Beck for the purpose of entering into a corporate acquisition but subsequent to the acquisition the Subsidiary also was a self-sustaining, viable, autonomous entity engaged in the conduct of its own business, which was separate and distinct from that of Beck. Judge John M. Can-nella affirmed the order of Referee Asa Herzog who, by restraining the Maryland court proceedings, in effect found that the assets of Subsidiary constituted “property” of Beck within the meaning of the Bankruptcy Act and thus that the Bankruptcy Court had jurisdiction. The decision was based on the premise that Subsidiary was a mere adjunct or instrumentality of the debtor, permitting the court to disregard its separate corporate existence and pierce the corporate veil. For reasons stated below, we find that the Bankruptcy Court was without jurisdiction to restrain the Maryland court proceedings and we therefore reverse the restraining order. THE FACTS The record, which consists of various affidavits and documentary exhibits, reveals the following: In early 1969, negotiations were conducted between Beck, which was a conglomerate, Webster Clothes, Inc. (hereinafter “Webster-Md.”), which was a Maryland corporation, and the latter’s stockholders regarding the acquisition by Beck of Webster-Md., a long-established, closely-held, going corporate concern engaged in the manufacture and the sale of men’s clothing. The form of the transaction was to be a triangular three-party merger, which would conform to the requirements for a hybrid “Type A” form of tax-free reorganization as prescribed by the Internal Revenue Code, 26 U.S.C. §§ 368(a)(1)(A) and 368(a)(2)(D). The hybrid “Type A” merger permits a subsidiary to exchange its parent’s stock for shares of a third corporation being acquired in a statutory merger in which the third corporation is merged into the subsidiary. Such a transaction qualifies as a tax-free “A” reorganization if: (1) none of the subsidiary’s stock is used, and (2) the exchange would have been an “A” type reorganization if the acquired corporation had merged directly into the parent. Here Webster-Md. was to be merged into Subsidiary, which would be newly formed for the purpose. Subsidiary would acquire the property of Webster-Md., giving to the Webster-Md. stockholders shares of Beck stock in exchange for their Webster-Md. stock. The transaction was set forth in two documents, both dated May 6, 1969: (1) the Plan and Agreement of Reorganization (hereinafter “Plan & Agreement”) which was entered into by Webster-Md., its stockholders, Beck, and Subsidiary; and (2) the “Articles and Agreement of Merger” (hereinafter “Merger Agreement”) which was entered into between Subsidiary and Webster-Md. Under the terms of these documents, Webster-Md. was to be merged into Subsidiary, which would become the surviving corporation. The Webster-Md. stockholders would receive approximately $2.5 million worth of Beck stock, or 84,388 shares, in immediate payment for their Webster-Md. stock. In the event that on December 31, 1971, the market value of 84,388 shares of Beck stock should be less than 150% of its market value on May 6, 1969, then according to an “Adjustment of Consideration” (set forth in the Plan & Agreement), Subsidiary would make a deferred payment to Webster-Md.’s former stockholders by delivering to them sufficient additional shares of Beck stock to increase the total value of Beck shares held by them to 150% of the value of such shares on May 6, 1969. The Plan & Agreement sets forth a series of obligations and warranties that extend from both Beck and Subsidiary to Webster-Md. and to the latter’s stockholders. In Paragraph 3(f) Beck undertook, should the provisions of the “Adjustment of Consideration” be invoked, to apply to the American Stock Exchange (“AMEX”) for the listing of additional shares and covenanted to “take such steps as may be necessary to maintain the existence and solvency of Beck Subsidiary.” In Paragraph 6 of the Plan & Agreement Beck and Subsidiary make a series of parallel representations and warranties. For instance, Paragraph 11(e) provided: “BECK and BECK Subsidiary hereby agree to indemnify and hold harmless the stockholders against and in respect of any and all damage, deficiency, loss, claims, demands, actions, suits, proceedings, judgments and assessments resulting from any misrepresentations, breach of warranty or nonfulfillment of any agreement, obligation or covenant to be performed by Beck or Beck Subsidiary. . . . ” (emphasis added). Correspondingly, Beck and Subsidiary received in Paragraphs l(a-d) certain assurances and remedies from Webster-Md. and its stockholders. On July 10, 1970, the American Stock Exchange suspended trading in Beck Common Stock and thereafter its shares were traded only in the Over-the-Counter market. On May 27, 1971, Beck filed a petition for reorganization under Chapter X of the Bankruptcy Act, which was approved by order of the district court on that date. In addition to the appointment of the Trustees and the delineation of their powers and duties the order restrained all persons from interfering with the Bankruptcy Court’s exclusive jurisdiction over the debtor and its property. “enjoined and stayed from commencing or continuing any action at law or suit or proceeding in equity against said debtor or said trustees in any court, or from executing or issuing or causing the execution or issuance out of any Court of any writ, process, summons, attachment, subpoena, replevin, execution or other process for the purpose of impounding or taking possession of or interfering with or enforcing a lien upon any property owned by or in the possession of the said debtor or said Trustees, and from doing any act or thing whatsoever to interfere with the possession or management by said debtor or said Trustees of the property and assets of the within estate, or in any way interfere with said trustees in the discharge of their duties herein, or to interfere in any manner during the pendency of this proceeding with the exclusive jurisdiction of this Court over said debtor and said trustees and their respective properties. ...” Needless to say, on December 31, 1971, the 84,388 Beck shares received by Webster-Md.’s former stockholders were not worth 150% of their value on May 6, 1969, and because of the Chapter X proceeding Beck was unable to comply with the “Adjustment of Consideration” as set forth in the Plan & Agreement. On January 13, 1972, Jack Feldman, et al., the appellants (hereinafter “the Feldmans”), who, as the former owners of about 65% of the Webster-Md. shares, were participants in the merger, instituted an action in the Circuit Court of Baltimore City, Baltimore, Maryland, against Subsidiary by filing a Bill of Complaint which sought, among other things, to cancel and rescind the Merger Agreement. Neither Beck nor its Trustees were named as defendants. In Count I of the Bill, the Feldmans claimed that the inability of Subsidiary to deliver additional shares of Beck stock having the value required by the “Adjustment of Consideration” provisions of the Plan & Agreement “constitute [d] a total failure of the consideration promised to Plaintiffs [the Feldmans] by the Defendant in exchange for the delivery by the Plaintiffs of all their stock in Webster-Md. to the Defendant and in consideration for Plaintiffs’ actions which caused Webster-Md. to agree to the merger of Webster-Md. into the Defendant.” The prayer for relief sought the cancellation and rescission of the Merger Agreement, the return to the Feldmans of the shares necessary to restore them to their prior percentage of equity in Webster Clothes (65%) and an accounting. Under Paragraph 11(e) of the Plan & Agreement, Count II sought indemnification by Subsidiary for damages and losses “resulting from the breach or non-fulfillment of any agreements, obligations or covenant to be performed by Beck under the Plan & Agreement or Merger Agreement” including the pro-rata share of $2.7 million. In Count III, essentially the same relief was sought, this time based on Subsidiary’s breach of its own covenants under Paragraph 11(e). Count IV sought damages in the sum of $2,425,746.63. The Baltimore Circuit Court, upon the Feldmans’ ex parte motion, issued an order enjoining Subsidiary, “its officers, agents, servants, employees, and attorneys, and all other persons in active concert and participation with it from doing any of . . . ” an enumerated list of acts which might facilitate the depletion of Subsidiary’s assets by Beck. Neither the Bill of Complaint nor the ex parte petition for injunctive relief named Beck as a defendant. The instant action arose from the Trustees’ attempt to enjoin the Maryland proceedings. Although the Maryland proceedings failed to name Beck as a defendant and were directed against Subsidiary, the Trustees of Beck, on January 21, 1972, claiming a violation of the Chapter X protective order prayed for an order to show cause why the Feldmans “should not be enjoined from taking any further steps or actions in the Maryland proceedings and why they should not be restrained from in any other manner interfering with the possession or management by the Trustees of the estate. . . . ” On the same date Judge Cannella signed the order to show cause containing a provision staying until his hearing of the issue any further steps in the Maryland proceedings and ordering the respondents (the Feldmans) to vacate the ex parte Maryland order. By stipulation filed on January 25, 1972, the Feldmans agreed to vacate the Maryland ex parte order and the Trustees agreed to refrain from entering into any unusual transactions with Subsidiary. In a decision dated April 19, 1972, Referee Herzog granted the motion to restrain further proceedings in the Maryland action. Conceding the validity of the general rule “that Section 116(4) does not authorize the Chapter X court to enjoin prosecution of a suit against a wholly independent subsidiary . . .” the Referee found that the “equities demanded departure from the general rule” because Subsidiary is “an independent entity by virtue of the sheerest-fiction” and “was a mere adjunct or instrumentality” of Beck, and as such, the corporate veil which separated Beck and Subsidiary should be pierced, at least with regard to the instant transaction with the Feldmans. By so doing, the Bankruptcy Court, exercising its jurisdiction under §§ 511 and 516(4), was able to reach the Maryland action. On September 26, 1972, Judge Cannel-la, essentially approving Referee Her-zog’s reasoning, affirmed the order and pierced the corporate veil. The question before us is whether the Bankruptcy Court had jurisdiction to enter the injunction. THE LAW Under 11 U.S.C. § 511 the Bankruptcy Court in Chapter X proceedings has “exclusive jurisdiction of the debtor and its property, wherever located.” Section 516(4) provides in pertinent part that the court may “enjoin or stay until final decree the commencement or continuation of a suit against the debtor or its trustee or any act or proceeding to enforce a lien upon the property of the debtor” (emphasis added). In determining whether Subsidiary or its assets constitute “property” of the debtor within the meaning of the Act, we must note that Beck’s sole interest in Subsidiary is its ownership of Subsidiary’s outstanding stock. Ownership of all of the outstanding stock of a corporation, however, is not the equivalent of ownership of the subsidiary’s property or assets. See In Re Gobel, Inc., 80 F.2d 849, 851 (2d Cir. 1936); Klein v. Board of Tax Supervisors, 282 U.S. 19, 23-24, 51 S.Ct. 15, 75 L.Ed. 140 (1930); Liman v. Midland Bank Ltd., 309 F.Supp. 163, 167 (S.D.N.Y.1970). Even though the value of the subsidiary’s outstanding shares owned by the debtor may be directly affected by the subsidiary’s disputes with third parties, “Congress did not give the bankruptcy court exclusive jurisdiction over all controversies that in some way affect the debtor’s estate.” Callaway v. Benton, 336 U.S. 132, 142, 69 S.Ct. 435, 441, 93 L.Ed. 553 (1949); Consistent with this approach is the general rule — upon which the parties, the Referee and the District Judge agree — that § 516(4) of the Bankruptcy Act does not authorize the Chapter X court to enjoin a suit against a solvent independent subsidiary of the debtor merely because its stock is held by the debtor in reorganization. See In Re Gobel, Inc., supra; In Re South Jersey Land Corp., 361 F.2d 610 (3d Cir. 1966); 6 Collier on Bankruptcy, ¶ 3.11 at 501; cf. Greenbaum v. Lehrenkrauss Corp., 73 F.2d 285 (2d Cir. 1934) (equity receiver of parent could not enjoin a suit against the subsidiary). The foregoing general rule was established as the law of this Circuit in the leading case of In Re Gobel, Inc., supra, where we reversed a district court order which had enjoined certain state court proceedings directed at the debtor’s subsidiary. Gobel, Inc., the debtor in the bankruptcy proceedings, had voted the common stock of its subsidiary, Decker & Sons, in favor of a sale of Decker’s assets to Armour & Co. The appellant therein, which had leased certain equipment to Decker, sought to compel Decker to establish a fund to pay-off the lease (which Armour had refused to assume) and later sought damages for breach of the lease. We found that the Bankruptcy Court had no jurisdiction to restrain the action against Decker, stating “it is plain that the suit was not against this debtor nor was it a judicial proceeding to enforce any lien upon its estate. The assets of the Decker corporation were involved, not the Decker stock, which was part of the debtor’s estate. . But mere financial interest of a bankrupt estate in the outcome of the litigation pending in state courts does not authorize the issuance of an injunction against such prosecution.” 80 F.2d at 852. Gobel was followed as recently as 1966 in In Re South Jersey Land Corp., supra, and no basis is offered for rejecting its reasoning, which is not seriously questioned. In Re Federal Biscuit Co., 203 F. 37 (2d Cir. 1913), and In Re Collier, 4 F.Supp. 700 (S.D.N.Y.1933), which are relied upon by the debtor, are clearly distinguishable. There the third party’s enforcement of its rights would, unlike the situation here, result in seizure and sale of property owned by the debtor, which had been deposited by it to secure a surety bond. Absent a showing by the Trustees that Subsidiary was a mere sham or alter ego of Beck, the present case is governed by Gobel, since the Maryland suit herein is directed solely against Subsidiary and not against any property of the debtor (Beck). If rescission were granted in the Maryland action, Subsidiary would be ordered to return to Webster-Md. the assets which Subsidiary had obtained from Webster-Md. as a result of the merger and to return to the former Webster-Md. stockholders the Webster-Md. shares which Subsidiary had received from them in exchange for the 84,388 Beck shares transferred by it to them. In return Subsidiary would receive back the 84,388 shares of Beck stock, which concededly are worth very little. Beck would still own the stock of Subsidiary, but the assets of Subsidiary would be worth much less. If, rather than rescission, damages were granted, Beck would still own the stock of Subsidiary, but the value of Subsidiary would be reduced by a sum approximating the amount of the damages. In either event Beck would not be deprived of its property, i. e., Subsidiary’s outstanding shares. Admittedly there is no attempt by the Maryland plaintiffs to impress a lien upon the shares of Subsidiary owned by its parent-debtor (Beck) or to obtain relief against the debtor. The sole effect of a judgment against Subsidiary, therefore, would be to lower the value of Subsidiary’s outstanding shares. Thus, under traditional reasoning the dispute between appellants and Subsidiary is a controversy which might affect the worth of the debtor’s estate, see Callaway v. Benton, supra, but not title to its “property.” In short, absent proof that Subsidiary was a mere sham or conduit rather than a viable entity, the Maryland suit is not a “proceeding to enforce a lien upon the property of the debtor” as that phrase is used in § 516 of the Bankruptcy Act and the Bankruptcy Court therefore lacks jurisdiction. Apparently accepting the view that under the general rule the district court would not have the power to issue injunctive relief at the instance of the parent debtor with respect to its Subsidiary’s dealings with third persons, the Trustees of the debtor argue, and Referee Herzog and Judge Cannella agreed, that Subsidiary’s separate corporate existence should be treated as a sham or mere formal technicality permitting the court to pierce the corporate veil and treat Subsidiary’s property as that of the parent-debtor (Beck), at least for the purpose of restraining appellants’ Maryland suit. In their view Subsidiary is not a distinct and separate entity from Beck but merely its instrumentality, newly created solely as a means of consummating the merger in a way that would benefit the stockholders of Webster-Md. but not with a view to conferring any benefit on Beck. Upon this assumption the Bankruptcy Court swept aside the corporate veil in the interest of getting to what it believed to be the substance of the transaction and of the resulting relationship of the parties. Were we to accept the factual premises underlying the decisions of the Referee and of the district court, we would have no difficulty agreeing with their conclusion. It must be conceded that the general rule against enjoining a suit against a solvent subsidiary of the debtor is not inflexible, see 6 Collier on Bankruptcy ¶ 3.11 at 500 (14th ed. 1972) and that the meaning of the term “property” turns on the particular facts of each case, see In Re South Jersey Land Corp., supra, 361 F.2d at 613, which may in some instances permit piercing of the corporate veil. However, where a debtor seeks to pierce that veil on the ground that its subsidiary is a mere dummy or alter ego, the burden of proof is on the debtor. Upon the record before us the Trustees failed completely to sustain that burden. On the contrary, it is apparent that Subsidiary was formed for the mutual benefit of the parties and that thereafter, far from being a “mere instrumentality” of Beck, it operated as a viable, independent going commercial concern. While Subsidiary may have been a mere shell when, immediately prior to the merger, it was formed and the transaction was structured to conform to the hybrid “Type A” form of corporate reorganization, Internal Revenue Code, 26 U.S.C. §§ 368(a)(1)(A) and 368(a) (2) (D), the proof is clear and undisputed that ever since the merger it has functioned as a self-sustaining enterprise, which conducts the going business of Webster Clothes, Inc. Since the merger Subsidiary, furthermore, has operated that business in substantially the same manner as it had been operated prior to the merger. It has traded under its own name (Webster Clothes, Inc.), has had its own separate assets, creditors and obligations, and has consistently held itself out to the general public and trade creditors as a business separate and distinct from Beck. In Maryland it has assets customarily associated with active clothing concerns, including leasehold interests in retail stores, its clothing factory, fixtures, equipment, inventory and bank accounts. There has been no commingling of assets between Beck and Subsidiary. There is no evidence that Subsidiary has had grossly inadequate capital, that the debtor-parent pays its debts, or that its sources of business is dependent in any way upon that of its parent. Nor is there any indication that in the conduct of its affairs since the merger Subsidiary’s separate and independent corporate entity has been disregarded. Thus, at least subsequent to the merger, it is hardly open to dispute that Subsidiary has been a vital and viable independent entity. We cannot accept or agree with the Referee’s characterization of Subsidiary as a “devious . legal rigamarole,” and “independent entity by the sheerest fiction,” and an “adjunct or instrumentality of the parent, Beck.” These conclusions, being unsupported by the record, are clearly erroneous. On the contrary, the record reveals a carefully constructed commercial transaction in which parties of relatively equal bargaining strength, represented by able counsel, negotiated and bargained for a distinct operating subsidiary that was to conduct its own independent business. Both the Plan & Agreement and the Merger Agreement carefully delineated a transaction through which the business of Webster Clothes would continue to be carried on by Subsidiary as a separate bona fide operating entity. Moreover, Subsidiary and Webster-Md. bargained for and received from each other reciprocal rights and assurances, distinct from Beck’s rights and obligations. Paragraph 11(e), supra, of the Plan & Agreement provided that “Beck and Beck Subsidiary” (emphasis added) would each separately indemnify and hold harmless the Webster-Md. stockholders against losses, damage and the like. Correspondingly, the representations made by the stockholders were for the benefit of both Beck and the Beck Subsidiary. See, e. g., Paragraph 11(d) of Plan & Agreement. The background of the parties’ creation of separate and distinct obligations is clear. Beck did not want to pay immediately the full agreed-upon price, which would require transfer at once of Beck shares worth approximately $3.75 million for Webster-Md.’s outstanding shares. Instead it wanted to exchange Beck shares worth approximately two-thirds of the price at the time of the merger, i. e., $2.5 million, and defer payment of the balance until December 31, 1971, in the hope that by that time the value of the Beck shares might appreciate to $3.75 million, which would render unnecessary transfer of additional Beck shares. The Webster-Md. stockholders, on the other hand, wanted to be assured that if no such appreciation in value of the Beck shares should occur they would receive from Subsidiary, to which Webster-Md.’s assets would in the meantime have been transferred, the balance of the purchase price. It was part of this arrangement that Subsidiary, which would have acquired Webster-Md.’s assets, be maintained as a separate operating entity rather than have its assets exposed to Beck’s liabilities by having Beck acquire them directly. Nor are we persuaded that the equities, as between the debtor and the Webster-Md. stockholders, weigh in favor of disregarding Subsidiary’s separate corporate existence. It is true that one of the reasons for the organization of Subsidiary as a distinct entity was to shape the contours of the transaction to conform to Internal Revenue Code, §§ 368(a)(1)(A) and 368(a)(2)(D), so that the Webster-Md. stockholders could defer recognition for tax purposes of the gain, with the Beck shares received by them having the same tax basis as the Webster-Md. shares exchanged by them. See 26 U.S.C. §§ 354(a)(1) and 358(a)(1). At the same time the Webster-Md. stockholders minimized the risk of their not receiving any deferred payment to which they might become entitled on December 31, 1971, by obtaining Subsidiary’s independent covenant to exchange any additional Beck shares that might come due under the provisions for “adjustment of Consideration,” and by transferring the Webster-Md. assets to Subsidiary rather than permitting them to be commingled with Beck’s property. But Beck also stood to gain substantial benefits from the organization of Subsidiary and from the tripartite form of the transaction. A direct merger of Webster-Md. into Beck would have obligated Beck to assume all of the obligations and debts of the clothing firm. The interposition of Subsidiary, on the other hand, provided Beck with a measure of insulation from such liability. Where a parent corporation desires the legal benefits to be derived from organization of a subsidiary that will function separately and autonomously in the conduct of its own distinct business, the parent must accept the legal consequences, including its inability later to treat the subsidiary as its alter ego because of certain advantages that might thereby be gained. In short the parent cannot “have it both ways.” The words of the Supreme Court in Schenley Distillers Corp. v. United States, 326 U.S. 432, 437, 66 S.Ct. 247, 249, 90 L.Ed. 181 (1946), although stated in another context, are appropriate: “While corporate entities may be disregarded where they are made the implement for avoiding a clear legislative purpose, they will not be disregarded where those in control have deliberately adopted the corporate form in order to secure its advantages. Also, by employing this three-party transaction, Beck might have been able to treat the acquisition, for accounting purposes, as a “pooling of interests” rather than as a purchase. See ARB No. 48 (Jan. 1957) printed in 2 APB Accounting Principles 6081 (1969), amended by APB Opinion No. 16 (Aug. 1970). As such “some of the current costs of the assets, including goodwill” might not be reflected on the books of the acquiring corporation. See APB Opinion No. 16, ¶ 35 (Aug. 1970). Finally, the form of the transaction may well have obviated the necessity of Beck’s obtaining approval of the merger by its own shareholders, thereby avoiding the delay, cost and effort involved in preparing and distributing a proxy statement and of obtaining the percentage of stockholder approval required by Delaware law. Thus, although Subsidiary was a child of the merger, it was conceived and created by the two parties as a viable operating entity pursuant to a perfectly legitimate business arrangement from which each mutually derived benefits. Under the circumstances it was error to conclude that the equities justified piercing of the corporate veil. Indeed to deny the Webster-Md. stockholders the right to enforce the separate independent covenants for which they, like other creditors of Subsidiary, lawfully bargained would be inequitable. Finally, the Trustees contend that restraint of the Maryland suit will facilitate their administration of the debtor’s estate, already a complicated task, since they will otherwise be forced to divert their energies to defense of that suit in an inconvenient forum in order to preserve the value of the debtor’s stock interest in Subsidiary. In our view this argument puts the cart before t)ie horse. The corporate veil cannot be disregarded merely because it would make for “an efficient and economical administration” of the debtor’s estate, Greenbaum v. Lehrenkrauss, 73 F.2d 285, 287 (2d Cir. 1934). As we stated in In Re Gobel, supra: “Though facility in reorganization is desirable, it is not the sole consideration.” 80 F.2d at 853. We have found that piercing the corporate veil here is not warranted. If it is desirable for the Bankruptcy Court to have jurisdiction of all litigation involving subsidiaries, solvent or not, of the debtor, the answer lies with Congress. The order restraining the Maryland court action is reversed. . Title 11, § 511 of the Bankruptcy Act provides: “Where not inconsistent with the provisions of this chapter, the court in which a petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the debtor and its property, wherever located.” . Section 516(4) of Title 11 provides: “Upon the approval of a petition, the judge may, in addition to the jurisdiction, powers, and duties in this chapter conferred and imposed upon him and the court— * * * * * “(4) in addition to the relief provided by section 29 of this title, enjoin or stay until final decree the commencement or continuation of a suit against the debtor or its trustee or any act or proceeding to enforce a lien upon the property of the debtor.” . Since all of the evidence is documentary we are in as good a position as the district court to appraise and evaluate it. Orvis v. Higgins, 180 F.2d 537, 539 (2d Cir.), cert. denied, 340 U.S. 810, 71 S.Ct. 37, 95 L.Ed. 595 (1950); Norment v. Stilwell, 135 F.2d 132 (2d Cir.), cert. denied, 320 U.S. 763, 64 S.Ct. 68, 88 L.Ed. 455 (1943); 5A J. Moore, Federal Practice ¶ 52.04 (2d ed. 1971). . 26 U.S.C. § 368(a)(1)(A) provides: “ (a) Reorganization.— “(1) In general. — For purposes of parts I and II and this part, the term ‘reorganization’ means' — • “(A) a statutory merger or consolidation. . . . ” 26 U.S.C. § 368(a)(2)(D) provides: “(a) Reorganization.— “(2) Special rules relating to paragraph (1).— •!• ¡3 -h •?» “(D) Statutory merger using stock of controlling corporation. — The acquisition by one corporation, in exchange for stock of a corporation (referred to in this subparagraph as ‘controlling corporation’) which is in control of the acquiring corporation, of substantially all of the properties of another corporation which in the transaction is merged into the acquiring corporation shall not disqualify a transaction under paragraph (1) (A) if (i) such transaction would have qualified under paragraph (1) (A) if the merger had been into the controlling corporation, and (ii) no stock of the acquiring corporation is used in the transaction.” . During the negotiations Subsidiary was named “Beck-Webster Inc.” Upon consummation of the merger the name .was changed to “Webster-Clothes Inc.” In order to avoid confusion on the part of the reader we have labelled the Delaware subsidiary “Subsidiary” throughout rather than initially call it by one name, then denominate it by another. . The Order provided in pertinent part that all persons are: . “Jack Feldman; Nancy I. Feldman Gim-bel ; Abraham Feldman; Lena Feld-man ; Julius Feldman; Selma Feld-man ; Helen W. Feldman; Abraham Feldman and Edward E. Obstler, Personal Representatives for Louis S. Feld-man, deceased; Doris Feldman Hyatt; Leba Ann Feldman Rotker; Florence L. Kobernick; Linda D. Duritz; Rose Feldman; Norma Feldman Schrago; Bernice Elain Suser; Stephen Suser; Abraham Feldman, Trustee of Nancy llene Feldman. Gimbel; Jack Feld-man, Trustee under the Will of Edward Feldman; Mercantile Safe Deposit & Trust Co., Trustee of Suzanne Louise Feldman; Mercantile Safe Deposit & Trust Co., Trustee of Nancy llene Feldman Gimbel; and Mercantile Safe Deposit & Trust Co., Trustee under Will of Edward Feldman.” . See footnote 6 supra and accompanying text. , We express no view on the merits of the Maryland proceedings, which of course are not before us. . The cases relied on by Beck are all distinguishable and at most stand for the proposition that the general rule is flexible, and that the corporate form will be pierced when the equities so require. For example, in Hamilton Ridge Lumber Sales Corp. v. Wilson, 25 F.2d 592 (4th Cir. 1928), a lumber manufacturing company, which was in financial difficulty, and a bank to which it was indebted, organized a sham sales corporation for the sole purpose of securing the lumber company’s debt to the bank. The sales company “purchased” lumber in return for notes which were then discounted by the bank. The sales corporation never had actual possession of the lumber, had been organized solely for this one transaction, and never transacted any other business. The court, ignoring the separate corporate entities, properly found that there had been neither a valid sale nor pledge and that the transaction “was not bona fide to the extent that there was a real sale of the lumber in question. The Sales Corporation had no real business existence, had in' fact no organization by which it could transact business. . . . ” 25 F.2d at 594. The situation in the present case is entirely different. Subsidiary, unlike the sales corporation in Hamilton Ridge, is a bona fide going commercial concern. . The Trustees do not argue that other creditors of Subsidiary should be deprived of their right to enforce their claims separately against Subsidiary.

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Otis Ray FITZGERALD, Petitioner-Appellant, v. Dr. George J. BETO, Director, Texas Department of Corrections, Respondent. Appellee. No. 73-3459. United States Court of Appeals, Fifth Circuit. May 24, 1973. Rehearing Granted Sept. 11, 1973. Lewis R. Morgan, Circuit Judge, concurred specially and filed opinion. John L. Jeffers, Jr., Houston, Tex., court appointed, for petitioner-appellant. John L. Hill, Atty. Gen., W. Barton Boling, Austin, Tex., for respondent-ap-pellee. Before RIVES, GOLDBERG and MORGAN, Circuit Judges. RIVES, Circuit Judge: After exhausting all remedies available in the state courts, Fitzgerald, an inmate of the state prison at Huntsville, Texas, petitioned for habeas corpus in the federal district court. With interruptions by parole, Fitzgerald has served in the state prison since 1947. So far as the record reflects, he served continuously from March 22, 1954 until May 8, 1967, when he was paroled. His parole was revoked February 4, 1971, and he was returned to prison. His ha-beas petition concerns- a life sentence, under the Texas enhancement statutes, imposed by a state court in 1954 following conviction by a jury for the offense of robbery by assault. His primary ground asserted for habeas relief is incompetency of counsel; his secondary ground is that he was denied due process when his parole was revoked without a hearing. We do not reach the secondary ground because we reverse with directions on the primary ground. The district court denied habeas corpus on the state court record and without a further evidentiary hearing. The relevant facts and events are almost entirely undisputed. Fitzgerald has been convicted of two separate robberies by assault, the first conviction in McLennan County, Texas, in May, 1947, and the second in Anderson County, Texas, in March, 19^. For the first offense Fitzgerald received a five-year sentence. For the second offense he was sentenced to imprisonment for life, the sentence which he is now serving. His conviction for the second offense was affirmed on June 26, 1954, by the Court of Criminal Appeals of Texas in an opinion which recited the pertinent facts as follows: “The offense is robbery, with a prior conviction for the same offense alleged to enhance the punishment; the punishment, life imprisonment. “It was shown that the appellant and his wife presented themselves at the Anderson County jail for the purpose of making an accident report; that, unknown to the appellant, his parole had been revoked, and the ‘process’ for his arrest was in the hands of the officers; and that the appellant was placed temporarily in a cell on the ground floor. Prior to being so incarcerated, the appellant was not searched. When the officers attempted to move the appellant to an upstairs cell in the jail he drew a pistol on them and caused them to go into the cell which he had been occupying. Thereupon, the appellant forced the jailer, at pistol point, to deliver to him the keys to such cell, which he used to lock up the officers so as to prevent them from further interfering with his escape. Appellant did escape and carried the jail keys with him. It was further proven that the appellant had been convicted of robbery in Mc-Lennan County in 1947 and received a five-year sentence. “The appellant offered no defensive testimony. “It is upon these facts that this prosecution is based.” Fitzgerald v. State, 1954, 160 Tex.Cr.R. 414, 271 S.W.2d 428. Fitzgerald was paroled on May 8, 1967, but his parole was revoked without a hearing on February 4, 1971. Fitzgerald petitioned for habeas corpus in the Third District Court of Anderson County, Texas, on both of the asserted grounds — (a) incompetency of counsel, and (b) revocation of parole without a hearing. Following an evidentiary hearing the state judge presiding entered findings of fact and conclusions of law and denied habeas relief on both grounds. On September 23, 1971, the Texas Court of Criminal Appeals, without written order but simply on the trial court’s findings, denied Fitzgerald’s application for appeal. On March 3, 1972, the federal district court denied Fitzgerald’s habeas petition, saying in part: “The record in this case indicates that Petitioner was represented in his State Trial by two attorneys of his own choosing and therefore Petitioner’s claim in this regard is without merit because it does not appear that the State denied Petitioner any rights under the laws or Constitution of the United States, and Petitioner has failed to raise any substantial federal question with this allegation. McGriff v. Wainwright, 431 F.2d 897 (5th Cir. 1970). Further, this Court finds from the record in this case that the attorneys for Petitioner in the State Court represented him throughout the trial of the case and throughout the appellate process in the State Court, and finds that Petitioner’s attorneys did not fail to give effective assistance to Petitioner.” At the evidentiary hearing in state court on Fitzgerald’s petition for habeas corpus, his appointed attorney called as witnesses Fitzgerald himself and John B. McDonald, who had been the District Attorney of Anderson County, Texas, who prosecuted Fitzgerald in 1954. The State called no witnesses on its own. McDonald’s testimony was consistent with Fitzgerald’s and, indeed, gave detailed information on the subject at issue. Fitzgerald testified he had no consultation with his attorneys as to conduct of the trial prior to the day of trial and had no knowledge of their making any investigation. McDonald testified that on the morning of Fitzgerald’s trial for robbery by assault, March 22, 1954, he first met Fitzgerald’s two lawyers. He had not been acquainted with them previously. The facts of the robbery case which resulted in a life sentence were that Fitzgerald had escaped from the Anderson County jail by taking the sheriff’s key and locking the sheriff in a cell. McDonald was concerned that the law of robbery required an intention to convert stolen property permanently and that he would be unable to demonstrate such an intention on these facts. He testified that he offered Fitzgerald’s lawyers a ten-year sentence in return for a guilty plea. Defense counsel were “completely indifferent” to this proposal, even though a life sentence was at stake under the enhancement statutes, because they believed the facts would not support a robbery conviction as a matter of law. The evidence is undisputed that the district attorney’s offer of a ten-year sentence in return for a guilty plea was not communicated by defense counsel to Fitzgerald. McDonald further testified that both defense attorneys appeared in court to try the case in very “unkempt” condition and “smelled of strong drink”; and, moreover, that his subsequent investigation indicated that neither had ever received any formal legal training. McDonald’s most crucial testimony concerned his proof for purposes of enhancement of a prior conviction for robbery by assault. He testified that as of the day of trial he did not have a witness to identify the Otis Ray Fitzgerald being tried in Anderson County as the same man who had been convicted of robbery by assault in McLennan County in 1947. He said that without such testimony he would have been unable to establish the prior conviction for purposes of enhancing punishment and that, without testimony identifying Fitzgerald as the same man who had been convicted in McLennan County, he would not have introduced the prior conviction in evidence. However, Fitzgerald’s attorneys obligingly solved this problem for the district attorney by agreeing in advance of trial to put their client on the witness stand for the “limited” purpose of acknowledging to the jury that he was the same man who had been previously convicted in McLennan County of robbery by assault. McDonald’s exact testimony on this point bears repeating: “I would say as of the date of trial, I had not found anybody in McLennan County who was willing to come over here and testify that this man was the same and identical man that had been convicted in McLennan County. I did have, I had talked to an assistant district attorney, and I do not recall his name at this time, who was with the district attorney’s office in McLennan County, I had talked with him over the telephone and he was willing to come but he would give me no assurance that he could make the necessary identification, because he said he had no independent recollection of the fact of identification at that time. I was prepared to bring this witness from Waco but it was going to necessitate the trial going over one more day and I advised the Court and I advised Col. Shown and Judge Martin of that fact and to obviate the necessity of bringing a witness over here, they agreed they would put Mr. Fitzgerald on the witness stand and have him stipulate that he was the same and identical person that was convicted in McLennan County.” (App. p. 34.) McDonald went on to characterize as a “windfall” the agreement of defense counsel to put their client on the stand for the “limited” purpose of advising the jury of his criminal record, and he said that defense counsel seemed “anxious to try the case and get it over with and get out of town.” McDonald’s testimony on this matter is undisputed, and it is clear from the record before this Court that Fitzgerald was put on the witness stand by his own lawyers for the sole purpose of testifying to the jury that he had previously been convicted of robbery by assault in McLennan County. This jury was considering not only the question related to enhanced punishment but also Fitzgerald’s guilt or innocence as to the Anderson County robbery. Finally, McDonald testified that after the trial he was troubled by the quality of Fitzgerald’s representation and subsequently wrote letters to the Texas Board of Pardons and Paroles, one in 1950 and another in 1971, suggesting that the life sentence was excessive and recommending parole. The foregoing is substantially all of the evidence on the issue of incompetency of counsel. The legal principles which control the decision of this appeal have just been settled in the case of Limmie West, III v. State of Louisiana, 5th Cir., 478 F.2d 1026. What was said in that opinion need not be repeated here. The opinion in that case declared the law in this Circuit to be that the due process and equal protection clauses of the Fourteenth Amendment assure a state defendant effective representation by counsel whether the attorney is one of his choosing or court-appointed and, further, that the applicable standard should be that stated in McKenna v. Ellis, 5th Cir. 1960, 280 F.2d 592, 599. Applying that standard, it is clear from the undisputed facts that Fitzgerald was denied the effective assistance of counsel. The judgment denying habeas corpus is therefore reversed and the case is' remanded with directions to grant Fitzgerald’s petition for habeas corpus. Reversed with directions. LEWIS R. MORGAN, Circuit Judge (specially concurring): I agree with the majority that Fitzgerald’s petition for habeas corpus relief should be granted. Because the law in this circuit is far from clear on the constitutional right to challenge a conviction on the grounds of incompetence of retained counsel and because I find sufficient state action in this case without reaching that point, I would decline the temptation to rest this decision on such broad grounds. I am satisfied here that the conduct of Fitzgerald’s retained counsel was such that • it was, or should have been patently obvious to the prosecutors and trial court that he was being denied effective assistance of counsel. In fact, the testimony of the prosecuting district attorney is ample evidence that he knew Fitzgerald was not being given proper representation. Both the judge and the prosecutor have a duty to ensure that a defendant is afforded a fair trial. Glasser v. United States, 315 U.S. 60, 62, 62 S.Ct. 457, 86 L.Ed. 680 (1942); Mooney v. Holohan, 294 U.S. 103, 55 S.Ct. 340, 79 L.Ed. 791 (1935). When it becomes apparent to the trial judge or the prosecutor that the defendant’s attorney is so ineffective and incompetent that the proceedings have become a mockery or farce, these state court officials are obligated to take steps to protect the defendant’s constitutional rights. Failure to execute this duty may be charged to the state and may amount to a violation of due process. See Williams v. Beto, 5 Cir. 1965, 354 F.2d 698; Davis v. Bomar, 6 Cir. 1965, 344 F.2d 84, cert. den., 382 U.S. 883, 86 S.Ct. 177, 15 L.Ed.2d 124 (1965); United States ex rel. Darcy v. Handy, 3 Cir. 1953, 203 F.2d 407 (Maris, J.). Therefore, I feel it unnecessary in this case to reach the broad question which the majority finds controlling. ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC Before JOHN R. BROWN, Chief Judge, WISDOM, GEWIN, BELL, THORNBERRY, COLEMAN, GOLDBERG, AINSWORTH, GODBOLD, DYER, SIMPSON, MORGAN, CLARK, RONEY and GEE, Circuit Judges. BY THE COURT: A member of the Court in active service having requested a poll on the application for rehearing en banc and a majority of the judges in active service having voted in favor of granting a rehearing en banc, It is ordered that the cause shall be reheard by the Court en banc with oral argument on a date hereafter to be fixed. The Clerk will specify a briefing schedule for the filing of supplemental briefs. . Fitzgerald’s counsel contended that the recited facts did not constitute robbery and relied upon Bailey v. State, 139 Tex.Cr. R. 260, 139 S.W.2d 599. The Texas Court of Criminal Appeals affirmed, distinguishing Bailey as follows : “In the Bailey case the keys were not taken from the jail. Appellant testified that he obtained them during a fight with the jailer and intended to use them to lock the jailer in the cell, drop the keys out of his reach and escape from the jail. “But here the keys were actually taken from the jailer by means of an assault, were appropriated by appellant and taken away.” (271 S.W.2d 428.) . District Judge William Steger also denied Fitzgerald’s request for a certificate of probable cause, necessary under 28 U.S.C. § 2253, for the present appeal. Judge Morgan of this Court later entered an order granting Fitzgerald’s application for certificate of probable cause, and bis application for appointment of counsel.

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2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

In the Matter of The CENTRAL RAILROAD COMPANY OF NEW JERSEY, Debtor. Appeal of Frances A. DUGAN, Individually and as Administratrix ad Prosequendum of the Estate of Charles A. Dugan, Deceased, et al. Appeal of Lloyd HOAK et al. Nos. 72-1511 and 72-2092. United States Court of Appeals, Third Circuit. Submitted on briefs April 13, 1973. Decided May 30, 1973. Roger H. McGlynn, Newark, N. J., and Arnold B. Elkind, New York City, for appellants. Roger C. Ward, Pitney, Hardin & Kipp, and Stanley Weiss, Carpenter, Bennett & Morissey, Newark, N. J., for appellee. Before ADAMS, GIBBONS and WEIS, Circuit Judges. OPINION OF THE COURT WEIS, Circuit Judge. The perplexing problem of the priority applicable to personal injury claims of employees of a railroad in reorganization proceedings is presented to the Court by petitioners here. The appellants have been determined to be entitled to recover from the debtor under the Federal Employers Liability Act for death in one instance and injuries in other accidents which occurred while the railroad was being operated by the Receiver in the course of reorganization under § 77. In several instances judgments were obtained after jury trials and in other eases settlements were approved by the reorganization court. That Court refused to. allow interest on any of the judgments or settlements and ordered that the claims be satisfied by payments from a fund derived from operating expenses on an “as available” basis. The following table will illustrate the rather typical delay between date of liquidation of the claim by judgment or settlement and the date of final payment: Name of Creditor Amount of Claim Obtained by Judgment or Settlement Date Date of of Final Liquidation Settlement Dugan $57,150.24 J Apr. 6, 1971 Mar. 28, 1972 Koch 25,330.00 J Nov. 17, 1971 July 28, 1972 Hoak 30,000.00 J Motion for appeal withdrawn Aug. 4, 1972. No payment to date. Paletsky 94,000.00 May 12,1972 Partial payment $11,000. Mar. 27, 1973; Balance unpaid. Rydzewski 10,000.00 S May 26, 1972 Nov. 5, 1971 Horkan 15.000. 00 S Sept. 20, 1972 Jan. 7, 1972 Iveson 15.000. 00 s Aug. 2, 1972 Dec. 6, 1971 On October 13, 1967, in the early stages of the reorganization, the District Court signed Order No. 53 authorizing the trustees to settle and pay certain personal injury claims in amounts not exceeding $15,000.00 and to submit to the Court a list of pending cases every six months thereafter. The Receiver established a system for paying claims of this nature by allocating $35,000.00 monthly, from income to payment of claims of less than $15,000.00 and paying seriatim, as funds become available, those cases over $15,000.00 which required Court approval. On November 13, 1967 an order was entered permitting the trustees to pay all current freight and miscellaneous interline accounts. The District Court was sympathetic with the plight of the personal injury claimants but was much concerned about the precarious financial position of the debtor which has continued to lose money in substantial amounts. Since the public interest required the operation of the railroad to continue, the Court felt that it had to be careful so that the trustees did not use the funds in such a manner as to curtail the functioning of the bankrupt line. The general rule is that, unless it should develop that sufficient funds are available, no interest is payable thereafter on claims which have accrued on the date of bankruptcy. However, Congress has given special recognition to personal injury claims of employees of railroads in reorganization by enacting subsection (n) to § 77 of the Bankruptcy Act, 11 U.S.C. § 205(n), which reads in pertinent part: “(n) In proceedings under this section, and in equity receiverships of railroad corporations now or hereafter pending in any court of the United States, claims for personal injuries to employees of a railroad corporation, claims of personal representatives of deceased employees of a railroad corporation, arising under State or Federal laws * * * shall be preferred and paid out of the assets of such railroad corporation as operating expenses of such railroad.” As Collier points out, “The policy which underlies the preferred treatment of injured employees is understandable as an attempt to cause the business and those who have contributed to its financing to bear the personal risk assumed by those actually operating the enterprise. Such treatment is constitutional [citations] and must be classed as remedial legislation entitled to a liberal interpretation [citations].” As further justification, it has been said, too, that claims for personal injuries which accrue after the receivership has commenced obtain a preference not because of any virtue of their own but because they are committed by the receiver and the receiver being an officer of the Court, the Court will pay its own obligations first. See Underhay, Tort Claims In Receiverships and Reorganizations, (1936) 22 Iowa Law Review 60. Personal injury claims under the Federal Employers Liability Act when reduced to judgment accrue interest as a matter of right. There is no equitable rule which would require that the employees or their survivors be required to take less than the full amount of their claim in order to have funds available for other creditors whose transactions occurred in a purely commercial setting. If freight and interline claims are paid promptly and in full, there is no overriding consideration requiring injured employees to finance, even partially, the continued operation of the railroad to the benefit of investors, more particularly, the bondholders, however worthy their position. The Eighth Circuit Court of Appeals recognized this general proposition in Reconstruction Finance Corporation v. Missouri-Kansas-Texas R. Co., 122 F.2d 326 (8th Cir. 1941), when it gave priority to a personal injury claim over other operating expenses. In Powell v. Link, 114 F.2d 550 (4th Cir. 1940), interest was awarded on a prereceivership judgment for personal injuries. There the Court emphasized that § 205(n) was remedial and should be liberally interpreted. Similarly, in Bankers Trust Co. v. Florida East Coast Ry. Co., 31 F.Supp. 961 (S.D.Fla.1940), interest was awarded from the date of judgment on a personal injury claim which had arisen before the reorganization took place. In that ease, however, the Court pointed out that there were sufficient funds to pay interest on other claims in the same class. We recognize the difficult cash position of the debtor in this case and appreciate the concern of the reorganization court to serve the public interest by continuing the operation of the road. In order to do so it is of course necessary to meet payroll expenses as they accrue. Much of the claims in the category of the petitioners in this case do represent a loss of wages. Had they not been injured, the employees’ wages would have been paid as due and the men would have had the use of the funds. Since payment was postponed because of injury or terminated because of death in one instance, we see no equity in depriving the claimants of interest which merely represents a charge for the use of the money. We are concerned, moreover, with the delay between the dates of judgment and satisfaction of the claims. As the Court indicated at the hearing on April 10, 1972, there was some question whether the $35,000.00 monthly allocation should be increased, and that consideration should be given to that possibility. We agree and remand for the purpose of making findings on the practicality of increasing the funding from operating expenses to liquidate claims in this category at the earliest feasible dates. In this suit the petitioners also ask that the bond of the Receiver-Trustee be increased. We find that it was not erroneous for the District Court to deny this request and see no further need to consider that issue. The order of the District Court is reversed with instructions to award interest on personal injury claims of employees from the date of judgment or approval of settlement and the ease is remanded with directions to make appropriate determinations on what sum of money may realistically be allocated from operating funds on a monthly basis to expedite satisfaction of these claims. . 5 Collier on Bankruptcy, 14th Ed. § 77.21, f.n. 25.

f2d_479/html/0427-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

STANDARD DRY KILN COMPANY, a corporation, Appellant, v. BITUMINOUS FIRE AND MARINE INSURANCE COMPANY, a corporation, Appellee. No. 26403. United States Court of Appeals, Ninth Circuit. May 4, 1973. Rehearing Denied July 2, 1973. Walter J. Cosgrave (argued), Frank Lagesen, James H. Gidley, Maguire, Kester & Cosgrave, Portland, Or., for appellant. J. Anthony Giacomini (argued), Stanley C. Jones, Klamath Falls, Or., for appellee. Before BROWNING, MOORE and WRIGHT, Circuit Judges. The Honorable Leonard P. Moore, Senior United States Circuit Judge, United States Court of Appeals for the Second . Circuit, sitting by designation. MOORE, Circuit Judge: Plaintiff-appellant, Standard Dry Kiln Company (Standard), appeals from a judgment dismissing its complaint against defendant-appellee Bituminous Fire and Marine Insurance Co. (Bituminous). The case was tried without a jury (Gus J. Solomon, Judge) largely upon facts and exhibits stipulated in a comprehensive pre-trial order, interrogatories and answers thereto, requests for admissions and responses thereto, and résumés of the testimony of various witnesses. Out of all this material the trial court had, and this Court has, to try to piece together such agreement, if any, which may form the basis of such rights as may have been created thereby. Basic to the factual structure is an insurance policy PC-2-19552 issued under date of January 14, 1966, by Bituminous to Standard. The policy covered Standard’s employees with respect to workmen’s compensation (W.C.) (Coverage A) and employer’s liability (“bodily injury by accident”) (Coverage B). Item 3 of the policy limited the scope of Coverage A to Indiana and Tennessee; an All States Endorsement extended the policy’s coverage to areas outside Indiana and Tennessee. However, the All States Endorsement was not to apply to some twenty states, including Oregon. The two employees of Standard, Sullivan and Morrison, whose injuries gave rise to this controversy, were working on a Standard job in Oregon when, on October 11, 1966, they were injured. Under Oregon law they became entitled to and received workmen’s compensation awards totalling $15,703.23 collectively. At this point the rights of the parties would appear to be quite clear. The policy covered only Indiana and Tennessee for workmen’s compensation; the All States endorsement excluded Oregon; therefore, Bituminous was under no liability whatsoever. The relations, however, between Bituminous and Standard did not remain static. Instead of standing firmly on a no-liability position, Bituminous itself retreated- — possibly for business reasons — from any such position. The trial court and we, in an effort to discover the real intentions of the par-tie’s have to rely chiefly upon the many communications which thereafter passed between them. As stated, policy PC-2-19552 contained under its “Insuring Agreements” two coverages: Coverage A — Workmen’s Compensation: To pay promptly when due all compensation and other benefits required of the insured by the workmen’s compensation law. Coverage B — Employers’ Liability: To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease, including death at any time resulting therefrom, sustained in the United States of America, its territories or possessions, or Canada by any employee of the insured arising out of and in the course of his employment by the insured either in operations in a state designated in Item 3 of the declarations or in operations necessary or incidental thereto. Under an exclusion the policy was not to apply to: (f) under coverage B, to any obligation for which the insured or any carrier as his insurer may be held liable under the workmen’s compensation or occupational disease law of a state designated in Item 3 of the declarations, any other workmen’s compensation or occupational disease law, any unemployment compensation or disability benefits law, or under any similar law. On October 13, 1966, two days after the accident Standard wrote to its representative in Klamath Falls, Oregon, the scene of the accident enclosing reports to be filled out for each injury and referring to Bituminous Casualty Corporation as its “Workmen’s Compensation carrier” and its policy as number PC-2-19552. An inter-office memorandum dated November 23, 1966 from Bituminous’ Indianapolis office to its Home Office regarding the Morrison and Sullivan claims, posed the question, “ [A] re we legally obligated to furnish coverage, or would we want to concede and furnish coverage for the two claims?” (Exh. 59). From the Home Office then came a Bituminous inter-office memorandum regarding the two Oregon claims. It stated, in effect, that Bituminous’ previously asserted position that it was not licensed to issue W.C. insurance in Oregon “was in error”; that the All States Endorsement excluding Oregon was a 1960 form; and that “ordinarily the attachment on that endorsement to the policy effective January 1 would have eliminated Oregon by X-ing it out.” The memorandum (Exh. 7) ended with the somewhat critical paragraph, stressed by Standard: With all this and other factors we feel that it is for the best interest of the Company and the industry to accept coverage on these claims and endorse the policy with Oregon coverage effective January 1, 1966 and pick up the necessary premium. Now is injected into the situation an entirely different element. If the policy was to be endorsed with Oregon coverage effective January 1, 1966, and the necessary premium be paid, it would appear that the language of PC-2-19552 would establish Standard’s rights with respect to the Morrison-Sullivan claims. Bituminous made its position clear by its letter to the President of Standard dated December 22, 1966 (Exh. 8), wherein it stated “we will reimburse you for any payments made by the Oregon Industrial Accident Fund with reference to the [Morrison-Sullivan] cases.” This reimbursement was to be “[w]ithout waiving any provisions of our W.C. Policy, PC-2-19552 with your company, * * Since Bituminous understood that Standard was responsible to the State (Oregon), the reimbursement was to be made after Standard had paid the State the W.C. payments due. Within Bituminous’ office a “state of confusion” existed. First, there was a “little confusion” between bituminous’ agent (The McLane Company) about Oregon coverage. (Bituminous Inter-Office Memo, Feb. 3, 1967, Exh. 9). Then there was “confusion between the Home Office and the Indianapolis Branch as to whether or not it was permissible for us [Bituminous] to write Oregon workmen’s compensation.” Id. The doubt and confusion were “finally resolved through Harry Fay [Bituminous], that we [Bituminous] were going to pay these two workmen’s compensation claims in Oregon and, evidently, we’ll have to take this payroll and apply it to Indiana rates.” Id. To this memorandum [addressed to Home Office Premium Audit Dept.] was affixed (longhand) the words, “Bill all Oregon payroll as Indiana @ Ind. rates for W.C. & show as Ind. for Liab.” (Exh. 9). Under date of February 22, 1967, an invoice of The McLane Company with reference to “Premium Audit Adjustment of Workmen’s Compensation policy for the period 1-1-66 to 1-1-67” on which was endorsed “Workmen’s Comp.”, showed for PC-2-19552 a net additional premium of $1,218.11 with a statement that “auditor of Bituminous was here to check on Oregon figures.” (Exh. 10). There is, therefore, no doubt that Bituminous adjusted its premium for this policy to include Standard’s Oregon employees. Not until October 6, 1967, did Standard receive any notice from an attorney for Morrison and Sullivan that additional claims, the basis of this suit, were being made by them against Standard for their injuries. (Exhs. 27, 28). These letters were forwarded to Bituminous, Bituminous replied (October 16, 1967) that it had “agreed only to assume the responsibility for the provisions and benefits of the Workmen’s Compensation Law. The agreement did not extend to assume responsibility for the penalties provided in the Oregon Law, granting a right of action for damages in cases of employees injured while exployed [sic] by a non-complying employer.” (Exh. 62). On January 24, 1968, and April 2, 1968, summonses and complaints were received in actions, respectively, by Morrison and Sullivan demanding damages for pain, suffering, permanent injury, impairment of future earning capacity, medical expenses, and lost wages. As to each of these actions, Standard advised Bituminous that in view of Bituminous’ denial of coverage, it (Standard) was proceeding with the defense of the cases but would hold Bituminous responsible for any judgment together with attorneys’ fees and costs of defense (Exhs. 13, 14). Bituminous’ agent, The McLane Company, now re-enters the picture. Christie, who signed PC-2-19552, writing to the president of Dura Containers, Inc. (Standard’s parent company), recited the pre-January 1, 1966, situation, and said, “when the loss occurred, I took the position that our ‘All States’ endorsement should operate and coverage should be afforded. At first the company did not agree with this contention but I was advised later that they would entertain the question and, in all probability, would pay the claim.” (Exh. 55). The McLane Company by letter of May 1, 1968, asked Bituminous the question which Standard now seeks to have us resolve, namely, since it appeared that Bituminous had already “admitted liability under the Compensation Act of Oregon as evidenced by the payments which you have presently made”, “why [should not] the coverage “B”, Employers’ Liability section of coverage, * * * respond in the matter of the lawsuits presently filed.” Christie’s conclusion was that “perhaps coverage B should respond at this time.” (Exh. 17). This letter evoked a reply from the Bituminous Home Office (Fay) that Bituminous had merely reimbursed Standard for what Standard had reimbursed the Oregon Compensation Fund; that Bituminous had not admitted liability under the policy; and that the Morrison-Sullivan suits “fall within certain penalty provisions of the Oregon Law” and that “the penalty provisions of the Law would not be covered under the policy because of exclusion (d) in the Standard Dry Kiln Workmen’s Compensation policy which excluded coverage under coverage B(l) to punitive or exemplary damages. That is the essence of the two suits for damages.” (May 6, 1968, Exh. 18). Judgments in the Morrison-Sullivan suits were obtained against Standard for a total collectively of $41,059. After deducting the $15,703.23 paid by Standard to the Oregon Workmen’s Compensation Department, the judgments were satisfied by Standard’s paying $25,393.-95. To recover this sum, together with attorneys’ fees, costs, and expenses, this suit was brought for $35,556.17. Although the suit is said to arise “as a result of the mutual mistake of the parties, the employer’s policy did not designate Oregon under Item 3” and “For reformation of the employer’s policy to include Oregon under Item 3”, our task is to adjudicate the rights of the parties in the light of all the facts, the policy, PC-2-19552, and Bituminous’ actions after its issuance. Bituminous argues that its commitment of December 22, 1966, to reimburse for Standard’s W.C. payments to the Oregon Fund must be limited to that provision under the policy, namely, Coverage A, which covered W.C. payments. It must be remembered that as of this date, December 22nd, there had been no threat or institution of the personal injury suits which did not arise until the following October. Therefore, the letter of that date cannot be construed as an acceptance of only W.C. liability and a rejection of personal injury liability covered by Coverage B. Bituminous further argues that Coverage A and Coverage B are mutually exclusive and that Exclusion (f), supra, establishes this. However, Exclusion (f) says no more than that Coverage B does not apply to any obligation under Coverage A. In this case the policy covered the W.C. payments to the Oregon Fund (Coverage A) and the “damages because of bodily injury by accident” under Coverage B. Quite naturally Coverage B did not cover liabilities under Coverage A. Applying both coverages to this case, we have a W.C. liability of $15,703.23 under Coverage A and a personal injury liability of $25,393.95 under Coverage B, obtained by deducting the Coverage A. Liability from that under Coverage B. Thus, there is no double liability or any inconsistency between the two coverages. Bituminous states (Brief p. 9) that “Plaintiff’s contentions are based upon evidence of efforts by all parties to try to find some coverage for Standard where no coverage existed, all of which efforts were made after the loss occurred.” It is true that the efforts were made post-loss, but they were made by Bituminous after the claims had been submitted to them. It was Bituminous which agreed to the W.C. payments; Bituminous which considered Oregon not excluded from the All States exclusion; Bituminous which calculated the premiums under PC-2-19552 as if Oregon were included; and Bituminous which accepted the premiums under PC-2-19552 as if Oregon had been included. The evidence clearly establishes that Bituminous calculated the premium on the basis of the Oregon payroll and that it was to cover the policy PC-2-19552— not some separate W.C. coverage excluding personal injury liability. The trial court quite properly concluded that the Comprehensive Liability Policy, CL-2-805648, also issued to Standard by Bituminous, and which contained an exclusion for employee bodily injuries “arising out of and in the course of his employment * * * ”, did not apply to Standard’s claim. We, therefore, conclude that Bituminous by its post-loss position with respect to policy PC-2-19552 did, in fact decide “for the best interest of the Company and the industry to accept coverage on these claims and endorse the policy with Oregon coverage effective January 1, 1966 and pick up the necessary premium.” (Exh. 7). Having picked it up, Bituminous should respond to the obligation created thereby. The decision of the trial court is reversed with instructions to enter judgment in favor of Standard in the amount of $25,393.95 plus such interest, expenses, costs, and attorneys’ fees both on the trial and the appeal as to the court may seem just and proper. . Judge Solomon’s opinion below is unreported. Standard Dry Kiln Co. v. Bituminous Fire & Marine Ins. Co., Civil No. 69-13 (D.Or., filed July 10, 1970). . Bituminous Casualty Corp., the parent corporation of Bituminous Fire & Marine Ins. Co., was licensed by the State of Oregon to issue W. C. insurance. (Exh. 58). Bituminous Fire & Marine, the company which actually issued Standard its W. C. policy was licensed by the State of Oregon to write all forms of casualty insurance except W. C. (Exh. 59). Bituminous Casualty reinsured Bituminous Fire & Marine 100% with respect to policy No. PC-2-19552. . Under Oregon law an employee injured on the job is normally limited in the damages he can recover to the amount of his W. C. award. (ORS 656.018 (1967)) Where, however, the injured employee’s employer is not covered by W. O. insurance (a “non-complying employer”), Oregon law provides that the damages such an employee may recover are not limited to the amount of the W. O. award, but may also include a judgment at common law. (ORS 656.-020, 656.002(15) (1967)). . The claim that the “non-complying employer” provisions of Oregon’s W. C. law are “penalty” provisions providing “punitive or exemplary” damages has apparently been abandoned by Bituminous on this appeal. . Other jurisdictions have reached a similar conclusion with respect to the question: May both Coverage A and Coverage B apply to the same injury in the appropriate circumstances? Each lias concluded, as do we, that this question must be answered in the affirmative. See, Keys Eng’r Co. v. Boston Ins. Co., 192 F.Supp. 574 (S.D.Fla.1961); Brickley v. Offshore Shipyard, Inc., 270 F. Supp. 985 (E.D.La.1967); cf. Danek v. Hommer, 28 N.J.Super. 68, 100 A.2d 198 (1953) aff’d, 15 N.J. 573, 105 A.2d 677 (1954).

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Caselaw Access Project

2024-08-24T03:29:51.129235

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Preston JULIAN, Plaintiff-Appellee, v. MITSUI O. S. K. LINES, LTD., In Personam, and M/V MEIJYUSAN, In Rem, Defendant-Third-Party Plaintiff-Appellant, v. STRACHAN SHIPPING COMPANY, Third-Party Defendant-Appellee. No. 72-2259. United States Court of Appeals, Fifth Circuit. May 23, 1973. Rehearing and Rehearing En Banc Denied July 9, 1973. Thornberry, Circuit Judge, dissented and filed opinion and also dissented from denial of rehearing. Joseph D. Cheavens, Houston, Tex., for plaintiff-appellant. Theodore Goller, Houston, Tex., for Strachan Shipping Co. Ned Johnson, Beaumont, Tex., for Julian. Before BELL and THORNBERRY, Circuit Judges, and GROOMS, District Judge. BELL, Circuit Judge: This case arises out of the familiar Sieracki-Byan longshoreman-shipowner-stevedore admiralty dispute. The injured longshoreman sued the shipowner alleging both unseaworthiness of the ship and negligence of its officers, agents and crew. The district court found the ship unseaworthy, but reduced the -.longshoreman's damages by 95 per cent as a result of his contributory negligence. In the shipowner’s third party complaint against the stevedore to recover any damages paid to the longshoreman, the district court held that the shipowner was not entitled to indemnity from the stevedore. Two reasons were given in support of the judgment for the stevedore: (1) that the stevedore did not breach its warranty of workmanlike performance; and (2) that the shipowner, by furnishing an unseaworthy vessel, hindered the stevedore’s performance so as to preclude indemnity. This appeal involves only the indemnity claim by the shipowner against the stevedore. The question presented is whether the longshoreman’s contributory negligence is merely a factor to be weighed in determining whether the 'stevedore has breached its warranty of workmanlike performance, or whether any contributory negligence constitutes a breach of the stevedore’s warranty as a matter of law. The rule in this Circuit is that contributory negligence “. . . is a factor to be taken into consideration on the issue of breach of the contractor’s [stevedore’s] implied warranty.” Lusich v. Bloomfield Steamship Company, 5 Cir., 1966, 355 F.2d 770, 778. See also United States Lines Co. v. Williams, 5 Cir., 1966, 365 F.2d 332, 336; D/S Ove Skou v. Hebert, 5 Cir., 1966, 365 F.2d 341, 350. Cf. Diaz v. Western Ventures, Inc., 5 Cir., 1972, 467 F.2d 1361, 1362-1363. We are asked to reconsider our position in light of the rule prevailing in the Second, Fourth, and Ninth Circuits, that any contributory negligence on behalf of the longshoreman is imputed to the stevedore and constitutes a breach of the stevedore’s warranty as a matter of law. See e. g. McLaughlin v. Trelleborgs Angfartygs A/B, 2 Cir., 1969, 408 F.2d 1334; United States Lines v. Jarka Corp., 4 Cir., 1971, 444 F.2d 26; Arista Cia DeVapores, S. A. v. Howard Terminal 9 Cir., 1967, 372 F.2d 152. Under the 1972 amendments to the Longshoremen’s and Harbor Workers’ Compensation Act, 33 U.S.C.A. § 901 et seq., the longshoremen’s right to sue a shipowner is limited to claims based upon negligence of the shipowner alone. The doctrine of unseaworthiness is no longer available to injured longshoremen. The effect of limiting the shipowner’s liability to his own negligence is to obviate the need for indemnity from the stevedore. Consequently the amendments provide that the stevedore employer shall not be held liable to a shipowner for damages paid by the shipowner to longshoremen and any warranties to the contrary shall be void. 33 U.S.C.A. § 905(b). These amendments did not become effective until November 1972. The instant case was tried in 1971 and final judgment in the district court was entered on March 21, 1972. Without further consideration of the previous decisions of this Circuit or the conflict with those of the other circuits, we note that Congress has removed the underlying basis for the decisions. Moreover, we are not convinced that our prior decisions are unsound. We thus proceed to the merits on the “factor” approach. The district court found that the longshoreman’s conduct was “so grossly careless that a court might characterize the injury as wholly self-inflicted.” However, the court did find that the ship possessed a defectively designed step which rendered it unseaworthy. Therefore, the court actually reduced the longshoreman’s damages by 95 per cent rather than 100 per cent, stating that application of comparative negligence principles should seldom result in complete exoneration of unseaworthiness. In view of these findings, we hold that the longshoreman’s contributory negligence was so substantial as to require the conclusion that the stevedore breached its warranty of workmanlike performance. This result follows even though we apply the rule that contributory negligence is only a factor to be considered in deciding whether the warranty is breached. Finding a breach of the stevedore’s warranty, we proceed next to the question whether the shipowner’s conduct was as the district court held, sufficient to preclude indemnity. The district court found that the ship was “defectively designed and unseaworthy because the only available route by which a longshoreman might proceed from the No. 5 hold to the main deck involved a 26% inch drop for which no ladder or step had been provided”. The longshoreman in the instant case injured himself while trying to negotiate this 26% inch drop. The district court was presented with a situation of negligence imputed to the stevedore on the one hand and unseaworthiness on the part of the ship on the other. The court could not prorate damages but they were in fact prorated by the contributory negligence holding and the subsequent holding on indemnity. The court left a five per cent charge against the shipowner for unseaworthiness by denying indemnity. Under the “factor” rule we cannot say that this was error. Affirmed. THORNBERRY, Circuit Judge (dissenting) : Although, as the majority points out, the 1972 amendments to the Longshoremen’s and Harbor Workers’ Act greatly diminish the importance of this case as precedent, our duty to decide it correctly is not diminished. With deference, I must disagree with one important aspect of the majority’s reasoning and with the result it reaches. First, in considering the question of the stevedore’s breach of warranty of workmanlike performance, I believe we should follow the per se rule of the Second, Fourth, and Ninth Circuits that the longshoreman’s negligence constitutes a breach of warranty of workmanlike performance as a matter of law. This rule accords better with the precedents and with logic than the majority’s factor approach. If the longshoreman’s negligence is imputed to the stevedore — and it is imputed in this Circuit as in others, see United States Lines Company v. Williams, 5th Cir. 1966, 365 F.2d 332, 334 n. 4—then it is difficult to understand how the stevedore, having negligently contributed to the cause of an accident through the acts of the longshoreman, might nevertheless avoid breaching its warranty of workmanlike performance, the essence of which is to perform its work “properly and safely.” Ryan Stevedoring Company v. Pan-Atlantic S/S Corporation, 1955, 350 U.S. 124, 133, 76 S.Ct. 232, 237, 100 L.Ed. 133. Lusich v. Bloomfield Steamship Company, 5th Cir. 1966, 355 F.2d 770 and United States Lines Company v. Williams, supra, upon which the majority rely, do contain language supporting the factor approach, but I do not read them to establish that approach in this Circuit. Those cases reversed because the trier of fact had failed to consider the longshoreman’s negligence at all on the question of breach of warranty, but did not limit the scope of that consideration to that due a “factor” or otherwise preclude the per se approach. In this ease, of course, the per se approach yields the same results as the factor approach of the majority: the warranty of workmanlike performance was breached. On the question whether the district court clearly erred in finding the shipowner was guilty of such conduct as to preclude indemnity I disagree with the majority’s result. The only fault of the shipowner was furnishing a ship with a twenty-six and one-half inch step — a condition found to be unseaworthy. The district court concluded, “Although the step did constitute an unseaworthy condition, it was not particularly formidable to those who follow an active trade and its hazards might easily have been avoided by the use of ordinary care.” The defectiveness of the step contributed only five percent to the cause of the accident. In these circumstances, when the shipowner’s conduct is weighed against the stevedore’s breach of warranty of workmanlike performance, Waterman S/S Corporation v. David, 5th Cir. 1966, 353 F.2d 660, I do not believe the shipowner’s conduct could reasonably be found sufficient to preclude recovery to which it would otherwise be entitled. Its conduct did not “prevent or seriously handicap the stevedore in his ability to do a workmanlike job.” Albanese v. N. V. Nederl. Amerik Stoomv. Maats., 2nd Cir. 1965, 346 F.2d 481; see also Corbin on Contracts § 1264. Accordingly, I would, reverse the judgment below denying indemnity. ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC PER CURIAM: The Petition for Rehearing is denied and no member of this panel nor Judge in regular active service on the Court having requested that the Court be polled on rehearing en banc, (Rule 35 Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Banc is denied. THORNBERRY, Circuit Judge (dissenting) : I dissent as to the denial of the petition for rehearing. . Seas Shipping Co. v. Sieracki, 1946, 328 U.S. 85, 66 S.Ct. 872, 90 L.Ed. 1099; Ryan Stevedoring Co. v. Pan-Atlantic S/S Corp., 1956, 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133. . The Third Circuit has taken a position somewhat near the rule of this Circuit. See Shaw v. Lauritzen, 3 Cir., 1970, 428 F.2d 247, 250-251, where the court approved a jury instruction which provided: “If you find [the Stevedore’s negligence] was a substantial factor in causing the injury, the shipowner ... is entitled to recover . . . against the stevedore . . . ”.

f2d_479/html/0435-01.html

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2024-08-24T03:29:51.129235

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George Joseph ORITO, by Robert E. Sutton, his attorney, Petitioner-Appellee, v. Sanger POWERS, Administrator, State of Wisconsin, Department of Health and Social Services, Division of Corrections, Respondent-Appellant. No. 72-1931. United States Court of Appeals, Seventh Circuit. Argued April 17, 1973. Decided May 25, 1973. Robert W. Warren, Atty. Gen., Thomas J. Balistreri, Asst. Atty. Gen., Madison, Wis., for respondent-appellant. Robert E. Sutton, Milwaukee, Wis., for petitioner-appellee. Before HASTINGS, Senior Circuit Judge, and CUMMINGS and STEVENS, Circuit Judges. HASTINGS, Senior Circuit Judge. This appeal from an order of a federal district court granting the petition of George Joseph Orito for a writ of habeas corpus presents an important jurisdictional issue for review. The question is whether the United States District Court for the Eastern District of Wisconsin had jurisdiction pursuant to Title* 28, U.S.C.A. § 2241(a), to issue a writ of habeas corpus on behalf of a prisoner who, at the time he filed his petition, was confined in a federal penitentiary in Sandstone, Minnesota. A second and subsidiary question is whether a particular publication entitled Riviera Girls was obscene as a matter of law. Prior to September 17, 1971, petitioner was tried and convicted in the United States District Court for the Central District of California for violation of Title 18, U.S.C.A. § 1462 (importation or transportation of obscene matters) in Case No. 71-2506-FW. He was sentenced to serve a term of three years and was then committed to and incarcerated in the Federal Correctional Institution at Sandstone, Minnesota. While serving this term at Sandstone, petitioner was tried by a jury and convicted by the Circuit Court of Milwaukee County, Wisconsin, on September 17, 1971, of possessing obscene pictures with intent to sell the same, in violation of § 944.21 (1), Wis.Stats. He was sentenced to an indeterminate term of five years’ imprisonment in the Wisconsin State Penitentiary at Waupun, Wisconsin. The sentence was to be served in part concurrently with the remainder of the three-year federal commitment he was then serving at Sandstone. Petitioner was returned to Sandstone, serving time there on both the federal and state commitments. The Wisconsin trial court denied his motion for a new trial on November 3, 1971. His conviction was affirmed on June 6, 1972, on appeal to the Wisconsin Supreme Court. Orito v. State, 55 Wis.2d 161, 197 N.W.2d 763. This exhausted his state court remedies. On November 19, 1971, the Wisconsin Department of Corrections sent a letter to the warden of the Federal Correctional Institution at Sandstone requesting “that we be notified approximately 60 days prior to the subject’s [Orito’s] eventual release from your institution so we may determine if subject should be returned to this institution, or if a concurrent parole agreement can be arranged.” The letter went on to say that it “should not be considered as a Detain-er” but did request a set of fingerprints and three photographs of Orito. In that posture, while confined in a federal institution in Minnesota serving concurrent California federal and Wisconsin state terms of imprisonment, on July 10, 1972, petitioner filed his Wisconsin federal petition for habeas corpus relief directed to his Wisconsin state conviction, together with an emergency petition for bail pending the disposition of his habeas petition. Respondent Administrator of the Division of Corrections filed a response in opposition on August 2, 1972. On August 5, 1972, the Supreme Court of the United States, pursuant to an order by Associate Justice Blaekmun, ordered petitioner admitted to bail pending final disposition of his appeal from the California federal conviction. On August 11, 1972, the Wisconsin federal court denied petitioner’s emergency petition for bail in the federal habeas proceeding. On August 30, 1972, the Wisconsin federal district court, Judge Myron L. Gordon presiding, in a decision on the merits of the habeas petition, 347 F. Supp. 150, found: “Although the Wisconsin authorities have not filed a formal detainer with the federal correctional institution at Sandstone, it is clear that the federal authorities have been notified of the state conviction and consider that notice to constitute a ‘hold’ upon Mr. Orito. “In view of the admission to bail authorized by the United States Supreme Court, I conclude that the petitioner is in fact restrained of his liberty by reason of the conviction in the state court of Wisconsin. Thus, I find that this court has jurisdiction to issue a writ of habeas corpus under 28 U.S.C. § 2241(a).” We agree. Judge Gordon also countermanded his prior order of August 11, 1972, and admitted petitioner to bail pending final disposition of the habeas corpus petition. Actual issuance of the writ of habeas corpus was stayed pending the outcome of this appeal. JURISDICTION Relying upon the literal language of § 2241(a), supra,, that writs of habeas corpus may be granted by “the district courts * * * within their respective jurisdictions,” respondent contends that this phrase has been construed to limit the power of federal district courts to issue writs of habeas corpus to prisoners confined within the particular court’s territorial jurisdiction, citing Ahrens v. Clark, 335 U.S. 188, 68 S.Ct. 1443, 92 L.Ed. 1898 (1948); United States ex rel. Brown v. New York Board of Parole, E.D.N.Y., 301 F.Supp. 1232 (1969), and cases cited therein. Whatever vitality Ahrens v. Clark, supra, and cases following it may have had was severely undercut and to a large extent overruled by the recent decision of Braden v. 30th Judicial Circuit Court, 410 U.S. 484, 93 S.Ct. 1123, 35 L.Ed.2d 443 (1973). In Braden, a petitioner then serving a sentence in an Alabama prison applied to a Kentucky federal district court for a writ of habeas corpus. He alleged denial of his constitutional right to a speedy trial in a pending Kentucky state court indictment charging him with storehouse breaking and safe-breaking. He sought an order directing Kentucky to afford him an immediate trial on the three-year-old Kentucky indictment. The Supreme Court phrased the issue as follows: “We are to consider whether, as petitioner was not physically present within the territorial limits of the District Court for the Western District of Kentucky, the provision of 28 U.S.C. § 2241(a) that ‘[w]rits of habeas corpus may be granted by the . . . district courts within their respective jurisdictions’ (emphasis supplied), precluded the District Court from entertaining petitioner’s application.” 411 U.S. at 485, 93 S.Ct. at 1125. The Kentucky federal district court found it had jurisdiction. The Court of Appeals for the Sixth Circuit reversed. The Supreme Court, divided on the question of the vitality of Ahrens v. Clark, supra, reversed the court of appeals and held that “petitioner’s absence from the Western District of Kentucky did not deprive that court of jurisdiction, and * * * the court below erred in ordering the dismissal of the petition on jurisdictional grounds.” 411 U.S. at 500, 93 S.Ct. at 1132. We find that Braden is fully disposi-tive of the jurisdictional question in the case at bar and affirm the district court on that issue. OBSCENITY As earlier herein set out, Orito was convicted on a charge of violating a Wisconsin statute proscribing the possession of obscene material for sale. The material in question consisted of a so-called magazine, without textual matter, on each page of which was a still picture of a posturing nude female, which left nothing to the viewer’s imagination. It needs no further “free advertising” here. The Wisconsin state court jury and the Supreme Court of Wisconsin each found the material to be obscene as a matter of fact and law under prevailing local community standards. It is quite understandable that many would be filled with a sense of righteous indignation and disgust with the presentation of such photographs for sale. Indeed, as a matter of federal-state comity, we regret the necessity of disagreeing with an eminent state court of last resort. Nevertheless, as we read and understand the repeated decisions of the Supreme Court of the United States interpreting the First Amendment to the Federal Constitution, as applied to the states by the Fourteenth, Wisconsin may not constitutionally convict Orito for selling this magazine. The most thorough exposition of this question we have seen is the exhaustive treatment in Huffman v. United States, D.C.Cir., 470 F.2d 386, 399-401 (1971), on rehearing, id. at 404 (1972). On the authority of Huffman and the Supreme Court cases cited therein, we feel compelled to conclude that the district court did not err in holding this material protected. The judgment of the district court is in all respects affirmed. Affirmed. . “§ 2241. Power to grant writ “(a) Writs of habeas corpus may be granted by tlie Supreme Court, any justice thereof, the district courts and any circuit judge within their respective jurisdictions. * * * ” . We note a continued expansion of traditional notions of habeas corpus by the same division of the Supreme Court in Hensley v. Municipal Court, 411 U.S. 345, 93 S.Ct. 1571, 36 L.Ed.2d 294 (1973).

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Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

ADAMS MACHINE & TOOL COMPANY, INC., Plaintiff-Appellee, v. MFB MUTUAL INSURANCE COMPANY, Defendant-Appellant. No. 72-1322. United States Court of Appeals, Fifth Circuit. May 25, 1973. Rehearing and Rehearing En Banc Denied Aug. 13, 1973. Gewin, Circuit Judge, who would affirm, filed opinion concurring in part and dissenting in part. Sam F. Lowe, Jr., Atlanta, Ga., Oscar M. Smith, Rome, Ga., for defendant-appellant. John K. Morgan, Chattanooga, Tenn., Bobby Lee Cook, A. Cecil Palmour, Sum-merville, Ga., for plaintiff-appellee. Before GEWIN, BELL and GOD-BOLD, Circuit Judges. BELL, Circuit Judge: This appeal arises out of a fire loss. The defenses were arson, increase of hazard, and fraud in the examination under oath. The jury returned a verdict for the plaintiff-insured in the amount of $1,038,945.00. Thereafter, the defendant-insurer (MFB), produced a witness who claimed that he participated with the president of plaintiff corporation in the alleged arson. A motion for new trial was granted as to liability only, the new trial ensued, and the verdict was again for plaintiff. This appeal followed. We find no merit in the assignments of error having to do with damages. We reverse for a new trial on liability only. There was substantial evidence pointing to a fire which was incendiary in origin. The fire occurred in the early morning hours of May 27, 1969. Plaintiff corporation was engaged in the business of manufacturing metal parts of various types. The company had been successful but had run upon hard times by the time of the fire due principally to the cancellation of a large contract in contemplation of which expensive machinery had been purchased and installed. The assignments of error go to liability as well as to damages. We will first dispose of the assignments of error which are without merit and as to which no discussion is warranted. The first of these is that the damage occurred because of arson caused or procured by Adams, the president of plaintiff company who owned 50 per cent of the corporate stock. (His wife owned the other 50 per cent of the corporate stock.) The argument is that the insurer carried the “heavy burden” referred to in Hanover Fire Insurance Co. of New York v. Argo, 5 Cir., 1958, 251 F.2d 80, and was therefore entitled to a directed verdict of no liability. It is clear to us that the evidence was disputed both as to the fire having been caused by arson, and also as to it having been procured by Adams. The dispute in each instance was of such substance as to warrant the submission of the question presented to the jury. The district court did not err in submitting the questions to the jury. MFB also contends that plaintiff, through its officer Adams, committed fraud in the examinations under oath provision of the two fire insurance policies in question to the extent of voiding the policies. We have carefully examined this contention and its factual underpinnings. Our conclusion is that this issue was also due to be submitted to the jury. It was submitted and there was no error in doing so. From the standpoint of liability this leaves for discussion two contentions which arise under the defense that the hazard was increased by means within the control or knowledge of plaintiff. These contentions have their genesis in the fact that the automatic sprinkler system was inexplicably turned off at the time of the fire. It was possible to cut off the sprinkler system by closing a post indicator valve but it took 26 complete turns of a large metal handle to do so. The valve was on the outside of the building, adjacent to a street, and exposed to the public. On the Saturday before the fire on Tuesday, employees of plaintiff corporation found the valve in a closed position for the first time since the installation of the sprinkler system in 1965. Mr. Adams directed that the valve be opened, and he then put a padlock through a hasp so as to lock the handle in place. The padlock could be opened only by one key which Mr. Adams placed in a metal box located at a point about 60 feet from the valve, also on the outside of the building. He placed a paper tag on the key bearing the legend “Motorcycle Trailer.” He told only employees Andrews, Gordon, Smith, and Oliver of the location of the key. At the time of the fire, the fireman found the post indicator value in a closed position. The lock was in the hasp but unlocked. The key with tag attached was in the open lock. Employee Andrews saw the post indicator valve in an open position with the padlock in place on the Monday before the fire which occurred in the early hours of Tuesday. The two policies of insurance in question provide that they are suspended: “(a) while the hazard is increased by any means within the knowledge or control of the insured; . . . ”. One of these two assignments of error is based on the charge as it related to this provision. This error, as we perceive it, has two prongs. The focus of one lies in the instruction by the district court to the jury that the language of this increase in hazard clause, “by any means within the knowledge or control of the insured”, was to be construed as “means within the knowledge and control of the insured”. In so charging, the court apparently relied on the Georgia decision of Commercial Union Fire Insurance Co. v. Capouano, 55 Ga.App. 566, 190 S.E. 815 (1937), aff’d, 185 Ga. 303, 194 S.E. 521 (1937). In that case the Georgia Court of Appeals construed “or” as being synonymous with “and” in the context used on the reasoning that it could not be said that “a person had control of a thing of which he had no knowledge.” See also DiLeo v. United States Fidelity & Guaranty Co., 50 Ill. App.2d 183, 200 N.E.2d 405, 9 A.L.R.3d 1399, 1407 (1964). Assuming error in the conversion of “or” to “and” arguendo only, the short of the matter is that there was no objection to this charge as such. The other prong is the position of MFB that it was entitled to a charge that a presumption arose that plaintiff had knowledge that the sprinkler system was off and was required to rebut the presumption by showing that it was off by some means which was not within either the knowledge or control of plaintiff. We think this charge was correctly refused. The theory of MFB is that plaintiff had such control overlthe valve as to give rise to the presumption. The answer to this contention is that, given the evidence, the jury could have found that plaintiff’s control over the valve was not exclusive. This answer is aside from the point whether there is any validity in the first place to the theory of such a presumption, a proposition which is asserted but not supported by authority. The other assignment of error under the increase in hazard defense rests on the contention that the court submitted as an issue, over objection, whether the sprinkler system was in fact cut off at the time of the fire. The insurer’s argument is that this was an undisputed issue and that it was prejudicial to permit and direct the jury to decide an issue not in dispute. The vice of this error will be seen in the form of the interrogatory which was submitted to the jury: “At the time of the fire on May 27, 1969, was the automatic sprinkler system cut off by a means within the control or knowledge of the insured?” The jury was instructed to answer this question yes or no but it turned out that the question came in two parts. The court instructed the jury to first determine whether the sprinkler system was in fact cut off. Second, if off, the jury would go further and determine whether it was cut off by a means within the control or knowledge of the insured. The answer of the jury to the interrogatory was “no”, and this, in effect, was “no” to both questions. The problem is that the evidence demanded a finding that the sprinkler system was cut off. Counsel for plaintiff announced in his opening statement: “We expect to show you that the sprinkler system was in fact turned off, and we don’t make any dispute about it . . .”. The trial judge was at pains to avoid error with respect to submitting this issue to the jury if, in fact, it was not an issue. In this connection, at the close of the evidence, the court inquired of plaintiff’s counsel as to whether counsel conceded that the sprinkler system was turned off at the time of the fire. The court alluded to the fact that at the first trial, counsel for MFB objected to the court having submitted this question as an issue to the jury. Counsel agreed to discuss the matter with co-counsel and report back to the court. The court reopened the inquiry shortly before charging the jury. Counsel for plaintiff then stated in something of a non sequitur, that “. . . we admit it as a matter of fact but not as a matter of law.” The court dropped the matter with the statement that there was some testimony from Mr. Wilde (the admitted arsonist), that the sprinkler system was on. After the charge and at the point where objections to the charge were being made, and after an objection had been filed to the submission of this issue to the jury, the court reiterated that Mr. Wilde testified that the sprinkler was on when the fire was set. We have carefully considered the testimony of Mr. Wilde. His testimony at one point was that when he set the fire the sprinkler was on. He testified that he was assuming that the sprinkler system was on. He also testified that he, Adams and Newberry (Adams’ brother-in-law), did not turn the sprinkler system off. At another point he quoted Adams as saying that the fire would be so hot that there would be no need to turn the sprinkler off. However, he then testified that Adams told him, three days after the fire, that the first fire did not catch and that it was necessary for him (Adams) to return and start the fire over and that he (Adams) then turned the sprinkler system off. The sum of Wilde’s testimony does not rise to the level of evidence which creates a dispute as to the sprinkler system being on. There was no basis for submission of the issue to the jury and it was thus error to submit this issue to the jury. See Boeing Co. v. Shipman, 5 Cir., 1969, 411 F.2d 365, 374, for the applicable standard. We go further and consider whether the error was harmless. Absent the interrogatory, it is doubtful that the jury would have found under the evidence that the sprinkler system was turned on at the time of the fire. It can be argued that the jury simply was answering that the sprinkler system was not turned off by means within the knowledge and control of Adams rather than that it was not turned off at all. The answer to these arguments would seem to be that MFB would be entitled to a new trial had the jury found that the sprinkler system was not turned off. The result is the same under the form of the interrogatory and the answer thereto. Under the charge the jury was required to first determine whether the sprinkler was off. The import of the answer was that it was not cut off. Under these circumstances we cannot say that the error was harmless. The ease must be tried anew as to liability. On the question of damages, there are no assignments of error as to the sum of $337,886.00 which was awarded for building and fixtures, inventory, and business interruption. (One of the two insurance policies in suit covered business interruption damages). The claimed error goes to the award attributable to machinery damage. On this question, plaintiffs offered a witness, Mr. Tollefsrud of the American Appraisal Company, on the value of the machines which were damaged or destroyed in the fire. The measure of damages was the lesser of the actual cash value or the cost of repairing the machines. The witness had appraised the machines in January of 1968 as having an actual cash value of $314,466.96. For the purposes of the trial, he valued them as having an actual cash value of $812,455.00 at the time of the fire. It developed on cross-examination that the increased value came from two factors. The first was an actual increase in value due to an increase in the market price of used machinery of the types involved. He then added a second factor which appears to have been as high as forty per cent. He described this factor as being “fair market value for insurance settlement.” His idea was that the market price of machinery would be perforce increased because of plaintiff’s need for such an unusual number of used machines. This method of valuing the machinery seems to exceed the measure of damages which obtained under the insurance policy and the charge of the court to the jury. That definition of actual cash value is as follows: “. . . the fair or reasonable cash price for which the property could be bought or sold in the market in its condition at the time; . that is, the fair or reasonable cash price for which the property could be bought or sold in the market in the ordinary course of business, but not at a forced sale. . . . ” Once this method of evaluation surfaced during cross-examination, counsel for MFB made no motion to strike the testimony nor was the court requested to give a limiting or cautionary instruction with respect to the testimony. Counsel relied instead on a previously made and continuing objection as to any testimony that exceeded the actual cash value of the machines. Assuming a valid objection to this evidence, it was error not to exclude it. However, the question' remains whether this error was harmless. There was an abundance of testimony as to the value of the machines. Neither party to this appeal has favored us with a complete summation of the range of the testimony, but on motion for new trial as to damages, the district court concluded that the verdict with respect to the machines was well within the range of the evidence submitted. As an example, it was pointed out that the insurer’s witness valued the tools and dies located in the “tool crib” at substantially more than had plaintiff’s witnesses and that this was a part of the damages allowed for the machines. This difference was some $158,000.00. We note that there was evidence allowed as to the cost of new machines, the cost of rebuilding the old machines as new, and also the cost of repairs. Moreover, there was evidence showing the cost to Adams of the machine and this figure was quite low. In each instance the evidence was for such weight as the jury might wish to give it in arriving at actual cash value under the standard given in charge. Cf. D. H. Overmyer Warehouse Co. v. Kuniansky, 5 Cir., 1970, 419 F.2d 1280, on the propriety of the fact finder assessing damages within the range of the testimony. In our view the error in admitting the valuations of Tollefsrud was harmless. Reversed and remanded for further proceedings not inconsistent herewith. GEWIN, Circuit Judge (concurring in part and dissenting in part): In my view the majority has correctly decided that there is no merit in the specifications of error having to do with damages, and therefore, I concur in that portion of the opinion. With full respect for the views expressed by my Brothers of the majority I am in complete disagreement with the conclusion that there should be a new trial as to the issue of liability. In my considered judgment the majority has applied an incorrect standard of review and has abridged the seventh amendment right to trial by jury to which the plaintiff-appellee (Adams) is entitled under the facts of this case. Against the stubborn and aggressive contentions of MFB Mutual Insurance Company (MFB) two juries have decided that Mr. Adams was not guilty of arson and that he did nothing to increase the hazard or chance of loss by fire. The evidence was developed in a lengthy trial by skillful and effective trial counsel for both parties. There were numerous witnesses and a large volume of exhibits. The evidence was in total conflict and presents a typical situation which requires a factual resolution of claims based on conflicting evidence. The appropriate standard of review has recently been set forth clearly and unequivocally by this court in Griffin v. Matherne, 471 F.2d 911 (5th Cir. 1973) and reaffirmed in Colvin v. Dempsey-Tegeler & Co., 477 F.2d 1283 (5th Cir. 1973). We quote from the opinion in Griffin v. Matherne: The Seventh Amendment requires that if there is a view of the case which makes the jury’s answers consistent, the court must adopt that view and enter judgment accordingly. Atlantic & Gulf Stevedores v. Ellerman Lines, 369 U.S. 355, 364, 82 S.Ct. 780, 786, 7 L.Ed.2d 798, 806-807 (1962). This court has stated that the test to be applied in reconciling apparent conflicts between the jury’s answers is whether the answers may fairly be said to represent a logical and probable decision on the relevant issues as submitted, even though the form of the issue or alternative selective answers prescribed by the judge may have been the likely cause of the difficulty and largely produced the apparent conflict. R. B. Company v. Aetna Insurance Company, 299 F.2d 753, 760 (5th Cir. 1962). If on review of the district court’s judgment we find that there is no view of the case which makes the jury’s answers consistent and that the inconsistency is such that the special verdict will support neither the judgment entered below nor any other judgment, then the judgment must be reversed and the cause remanded for trial anew. Missouri Pacific Ry. Co. v. Salazar, 254 F.2d 847, 849 (5th Cir. 1958); Wright v. Kroeger Corporation, 422 F.2d 176, 178-179 (5th Cir. 1970). 471 F.2d at 915. The interrogatory quoted in the opinion was the first one submitted to the jury. The necessity for that interrogatory arose from the defense vigorously asserted by MFB that Mr. Adams had increased the hazard or chance of loss by fire. It was asserted that he did so by deliberately cutting off the automatic sprinkler system. That issue occupied much of the trial time and evidence relating to it extended over numerous pages of the record. Moreover, the trial judge, thoroughly understood the issue and fully explained it with remarkable clarity in his instructions to the jury. Indeed, in my view, his instructions were very favorable to the defense asserted by MFB. We quote from the court’s instructions with reference to the interrogatory in question: Now, the word ‘means,’ as used in this provision of the policy refers to a situation or a condition which increases the hazard or chance of loss by fire, here claimed to be the fact that the post indicator valve was closed or shut, preventing water from flowing into the sprinkler system. Now, if you should determine that the sprinkler system was cut off at the time of the fire, then the Court instructs you that such condition would be a means which would increase the hazard or chance of loss by fire. However, the question is not just whether the valve was on or off, but it must be shown whether if off, such means were within the control or knowledge of the insured. As used in this policy, the words ‘control or knowledge’ means the same thing as control ‘and’ knowledge. The idea of control assumes the existence of knowledge and the power to do something about it. Thus, a person cannot control a situation or condition if he has no knowledge of it, and as used here, the word ‘knowledge’ means actual knowledge brought directly to a person’s senses. Thus, it is not enough for it to be shown that the valve was located on the plaintiff's property and subject to the plaintiff’s regulation and closed at the time of the fire or even to show, in addition, that the plaintiff should have known whether it was closed or not. You must find by the evidence that the valve was closed and that the plaintiff actually knew it was closed. Now, knowledge may not ordinarily be proven directly, that is by direct evidence, because it is seldom possible to have direct evidence of the operation or what is in somebody’s mind. But, you may infer the presence or absence of knowledge from the circumstances surrounding a particular event or transaction. Thus, you may consider any acts done or omitted and any statement made or omitted and all other facts and circumstances which indicate a person’s state of mind at a certain time. Now, if you find from a consideration of all the evidence that you have heard in this case that Mr. Kenneth A. Adams or someone acting under the direction or with the knowledge of Mr. or Mrs. Kenneth Adams turned off the automatic sprinkler system so that it was off at the time of the fire, then you should answer number one, yes. Now, you should examine all the facts and circumstances as revealed to you by the evidence and if you believe by a preponderance of the evidence that the valve was closed at the time of the fire and that such condition was one within the control and knowledge of the plaintiffs as explained to you, then you should answer number one, yes. Otherwise, your answer should be no, and you should then proceed to the next question. Following the standard set forth in Griffin v. Matherne, it is obvious to me that “there is a view of the case which makes the jury’s answers consistent” and in obedience to that standard this court should “adopt that view and enter judgment accordingly.” Simply stated the jury has unequivocally found that at the time of the fire the automatic sprinkler system was not cut off by a means within the control or knowledge of the insured. The majority insists that the jury’s negative response to interrogatory number one is ambiguous. I would be inclined to agree if the interrogatory was to be analyzed in the abstract. But that is not the proper approach. A reviewing court must pass on questions such as this one in a far broader context and when that is done here the possibility of any ambiguity in the jury’s answer to this interrogatory is extremely remote. At the trial, neither side contested the fact that the sprinkler system was turned off by someone prior to the fire. The evidence presented was directed mainly toward establishing responsibility for that act. In charging the jury, the trial judge placed great emphasis upon this point. In light of these factors, I have no difficulty in assessing the jury’s answer to interrogatory number one. To suggest that it could mean that the sprinkler system was found to be inoperative at the time of the fire is simply to ignore what went on at the trial. There may be some logical consistency in the majority’s opinion but unfortunately there is too little common sense. In addition it is of some importance to mention the fact that much of the confusion on this issue was created by the testimony of Mr. Wilde, a defense witness presented by MFB. His testimony was confusing, contradictory and rather bizarre. Evidently the jury rejected it, and to my mind, the reasons are obvious. Again I must say, that the insured was not to blame according to the jury’s answer, even if the system was turned off. Adams’ recovery is not dependent upon that fact. Rather the right of recovery is dependent upon whether, if the system was cut off, it was cut off “by a means within the control or knowledge of the insured.” It is a serious matter to overturn a jury verdict after two different juries have decided a specific and vital issue in favor of a plaintiff and thereby deprive the plaintiff of a judgment in excess of one million dollars. I would affirm the judgment. . The policies in question do not contain so-called “sprinkler” or “due diligence in maintaining fire equipment” clauses.

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Caselaw Access Project

2024-08-24T03:29:51.129235

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Linroy DAVIS, Petitioner-Appellant, v. Louis B. HEYD, Sheriff, Respondent-Appellee. No. 72-1512. United States Court of Appeals, Fifth Circuit. May 29, 1973. Coleman, Circuit Judge, dissented with opinion. Robert Glass, New Orleans, La., (Court-Appointed), for petitioner-appellant. Maurice R. Franks, Byron P. Legendre, Asst. Dist. Attys., Parish of Orleans, New Orleans, La., for respondent-appellee. Before COLEMAN, GOLDBERG and GODBOLD, Circuit Judges. GODBOLD, Circuit Judge: This appeal is by Davis, a state prisoner under a 15-year sentence for manslaughter, from the denial of federal ha-beas relief. The central legal issue is nondisclosure by the prosecution of evidence favorable to the petitioner and material to his guilt. The nondiselosed evidence consisted of written out-of-court statements by witnesses and photographs of petitioner, all taken shortly after the incident out of which the charge arose. We reverse. The death for which petitioner was convicted occurred in an affray between Davis on the one hand and Reverend Dyer and his sons Joseph, James, and John on the other. Following an earlier difficulty between Davis and members of the Dyer family, Reverend Dyer and his three sons sought out Davis at his mother’s home. After words between Reverend Dyer and Davis a scuffle between them ensued, the three sons joined in, and during the scuffle Davis’ pistol discharged, killing James Dyer. In this context the obvious possible defenses were self-defense and accident. Self-defense was not interposed, however, and no jury instructions on self-defense were requested. Louisiana law does not require pretrial discovery of statements taken from potential witnesses. According to his affidavit, defense counsel learned of the statements following the trial, and in the offices of the district attorney, when he noticed them in the hands of one of the district attorneys. He filed a motion. for a new trial, and the state then revealed the statements and photographs. 1. The affray The Dyers found Davis at his mother’s home, standing in the front doorway. Leaving his sons in the car and cautioning them to remain there, Dyer approached petitioner. Reverend Dyer’s trial testimony was that after some brief words on the porch, Davis drew a gun from his pocket and aimed it at Reverend Dyer, Reverend Dyer grabbed him, a tussle ensued, and they fell into the living room. There Davis tried to throw Reverend Dyer down, but Reverend Dyer slung him onto the sofa. At that time, Reverend Dyer said, his three sons came to his aid. The four Dyers struggled with petitioner, who was on the sofa. Reverend Dyer heard but did not see'the gun discharge. John Dyer took the gun from Davis. In addition to his testimony, Reverend Dyer gave a statement the evening of the shooting, but it did not differ materially from his trial testimony. Joseph Dyer testified at trial that he saw Davis pull the pistol on his father while the two men were on the porch, after which a struggle began, and the three sons left the car and ran to the house. .They found Reverend Dyer holding Davis on his back on the sofa, they tried to take the gun from Davis, but with one hand free and no one holding his arm, Davis aimed the gun at James and shot him. Joseph and his father gave statements a few hours after the shooting. In his statement Joseph said that his father and Davis were standing on the porch, he turned his head, and when he looked back they were tussling, and they fell into the front room. At this time, Joseph saw Davis “coming out of his pocket with a gun,” and “[w]hen he went to aim it . James grabbed his arm and at this time [Davis] pulled the trigger.” Joseph was the only witness to see the act of shooting. John Dyer was in Germany in the armed forces at the time of trial and did not testify. He also had given a signed statement after the shooting and in it he stated that while the two men were talking on the porch he saw Davis back up and “go in his pocket.” His brothers ran for the house while he was still in the car. All began tussling and all fell back in the house onto the sofa. When John reached the scene he saw Davis “come up with the gun,” with his finger on the trigger. “He was holding the gun with the barrell [sic] pointed up toward the ceiling. [Dams] started to bring the gun down and James grabbed him by the arm he had the gun in. I then heard the gun go off and I grabbed him by the arm and put his arm back and took the gun away from him.” Petitioner Davis testified that Reverend Dyer grabbed him and in the ensuing struggle they fell on the floor and Reverend Dyer was choking him. The brothers came in and began kicking him, hitting him in the head, and beating him. His pistol had been stuck in his belt. In the struggle it slipped from his belt and he got it in his hand, how he did not know. He had a finger on the trigger and was attempting to put the safety on with his thumb, they were trying to jerk the gun away from him, he was trying to hold it, and it discharged. On direct appeal the Supreme Court of Louisiana held that there was no substantial inconsistency between the pretrial statements and the testimony at trial, and thus no unconstitutional suppression of evidence. The federal ha-beas court, D.C., 350 F.Supp. 958, based its denial of habeas relief on alternative grounds: first, the evidence before the habeas court was insufficient to overcome the presumption of correctness to be given to the state court’s findings; second, if it was the duty of the habeas judge to review the record anew, he would have to conclude that there was not error of constitutional dimension, the prosecution, at the worst, having only failed to divulge material that might have assisted in cross-examination. 2. Standard of review Pursuant to 28 U.S.C. § 2254(d) factfindings by a state court are as a general rule presumptively valid in federal habeas proceedings brought by a state prisoner. The federal habeas court, however, is not bound by the state court’s interpretation of the relevant constitutional law. As Justice Frankfurter wrote in Brown v. Allen, 344 U.S. 443, 506-507, 73 S.Ct. 397, 446, 97 L.Ed. 469, 515 (1953): State adjudication of questions of law can not, under the habeas corpus statute, be accepted as binding. It is precisely these questions that the federal judge is commanded to decide. Where the ascertainment of the historical facts does not dispose of the claim but calls for interpretation of the legal significance of such facts . . . the District Judge must exercise his own judgment on this blend of facts and their legal values. ' Thus, so-called mixed questions or the application of constitutional principles to the facts as found leave the duty of adjudication with the federal judge. Accord, Townsend v. Sain, 372 U.S. 293, 318, 83 S.Ct. 745, 9 L.Ed.2d 770, 789 (1963); West v. Louisiana, 478 F.2d 1026 (CA5 1973). In this case the ultimate question is whether the prosecution failed to disclose evidence so material to the guilt or innocence of the accused that he was denied a fair trial under the teachings of Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963), and related cases. The habeas court reasoned that the out-of-court statements would satisfy the appropriate standard of materiality only if, as a threshold matter, they were inconsistent with the in-court testimony of the Dyers. Thus in explaining the state court’s analysis, the federal court stated, “Here the determination of the state court was twofold: first, the statement was not inconsistent with the trial testimony; second, if it was, the difference was not sufficient to make non-production prejudicial.” The threshold issue of consistency, the federal habeas court stated, was a question of fact: “What is ‘consistent’ or ‘inconsistent’ ... is a complex question, but it is basically one that involves ‘the merits of the factual dispute.’ ” The ha-beas court therefore accorded the state court’s “finding” of consistency a presumption of validity, then ruled that the presumption had not been overcome, and consequently never seriously considered the ultimate legal question of whether the suppressed statements were material to petitioner’s guilt or innocence. To determine whether the habeas court correctly perceived its standard of review, we must briefly review the distinction between law and fact. To assist in drawing the distinction Professor Morris has suggested as tests: “A question of fact usually calls for proof [whereas a] question of law usually calls for argument,” Morris, Law and Fact, 55 Harv.L.Rev. 1303, 1304 (1942), and “When there is but one account of what happened, and the application of law to that account is problematical, a question of law results,” id. at 1314-1315 (crediting Holmes for the rule). More to the point the Supreme Court in Townsend v. Sain, supra, the precursor of § 2254(d), defined the term “fact” in the following manner: By “issues of fact” we mean to refer to what are termed basic, primary, or historical facts: facts “in the sense of a recital of external events and the credibility of their narrators .” Brown v. Allen, 344 U.S. 443, 506, 73 S.Ct. 397, 446, 97 L.Ed. 469 . . . (opinion of Mr. Justice Frankfurter). So-called mixed questions of fact and law, which require the application of a legal standard to the historical-fact determinations, are not facts in this sense. 372 U.S. at 309 n. 6, 83 S.Ct. at 755 n. 6, 9 L.Ed.2d at 783-784 n. 6. In illustration of its distinction between fact and law the Supreme Court has stated that the question whether a confession is voluntary is ultimately a question of law. Thus the Court has explained that in the typical case in which a confession is attacked as involuntary, a trier of fact must initially re-create the external events preceding the confession, such as length of questioning, use of drugs, use of physical force, or use of coercive psychological tactics. Against the factual composite re-created a tribunal must apply the appropriate legal standard to determine if the confession is voluntary within the meaning of the Constitution. This process is discussed in depth in Culombe v. Connecticut, 367 U.S. 568, 603-606, 81 S.Ct. 1860, 6 L.Ed.2d 1037, 1058-1060 (1961). Accord, LaVelle v. Delle Rose, 410 U.S. 690, 93 S.Ct. 1203, 35 L.Ed.2d 637, 12 Cr.L. 4187 (March 19, 1973); Townsend v. Sain, supra; Brown v. Allen, supra, 344 U.S. at 507, 73 S.Ct. 397, 97 L.Ed. at 515. In an analogous context this court has recently held that the issue of effective assistance of counsel calls ultimately for a legal determination: The precise issue of whether a particular defendant enjoyed “effective” assistance of counsel, is, in the end a question of law . [Tjhere is a legal standard, by definition normative and prescriptive, which must be applied to a particular set of facts in order to determine whether an accused received effective assistance of counsel. Walker v. Caldwell, 476 F.2d 213 (CA5 1973) (emphasis original). Also the due process question of impermissible suggestiveness — sometimes implicated in criminal trials preceded by such identification procedures as showups, photo displays, or lineups — similarly requires application of a constitutional standard to elemental facts. Neil v. Biggers, 409 U.S. 188, 193 n. 3, 93 S.Ct. 375, 379 n. 3, 34 L.Ed.2d 401, 407 n. 3 (1972). The question of materiality present in eases in which the accused complains of prosecutorial suppression of material evidence is of the same category as the issues of voluntariness, effective assistance of counsel, and impermissible suggestiveness. They are all mixed questions of law and fact calling ultimately for a legal determination. In this case, as the habeas court correctly recognized, the legal question of materiality arises only if the nondisclosed evidence is determined to be inconsistent with the trial testimony, but we feel that the consistency issue is also one of law and therefore not entitled to a § 2254(d) presumption of validity. As a general observation it would seem artificial to treat it differently from the question of whether the prosecution failed to disclose material evidence, because both questions are inextricably intertwined with each other. More importantly, the facts vel non are not in dispute. We know what the statements said, and we know what the witnesses said at trial. The initial task is only to compare the transcribed content of the Dyers’ trial testimony with the transcribed content of their out-of-court statements and then to determine if they are inconsistent. The issue is not factual under any traditional definition of the term “fact”. Its resolution does not require proof instead of argument; it does not involve reconstruction of historical facts; it does not require a finding as to the intent of the witnesses who signed the statements; nor does it require credibility choices based on the demeanors of the witnesses. The policies underlying § 2254’s presumption of factual validity fully support the conclusion that the consistency issue is one of law. For example, the principle that federal habeas courts should defer to a state judge’s credibility choices is not violated by de novo review of the consistency issue in this ease —credibility choices are not required in measuring the transcribed out-of-court statements against the recorded trial testimony. Also, in many § 2254 proceedings the state court’s factfindings are likely to be more accurate than those of a federal court because they are made closer in time to the historical event. The danger of decreasing accuracy is not present in this case, however, because the testimony and statements have been transcribed, and it is only their relationship to each other that is in question. Nor is there a threat of needless expenditure of federal judicial resources in historical factfinding, since in this case consistency between the statements and testimony can be determined without an evidentiary hearing. See generally Developments—Federal Habeas Corpus, 83 Harv.L.Rev. 1038, 1113-54 (1970). The Louisiana Supreme Court itself seemed to treat the consistency issue as one of law. On an independent review of the evidence it ruled that the statements were consistent with the trial testimony without questioning the propriety of making such a finding at the appellate level. We therefore conclude that our review is not constricted by presumptions of validity and turn to the merits of Davis’ petition. 3. Material inconsistency With deference to both courts, we are compelled to say that their conclusions cannot stand under the scalpel of constitutional scrutiny. The Louisiana Supreme Court made these important rulings. (1) The statements were “essentially the same” as the trial testimony of Reverend Dyer and Joseph, which was that after Reverend Dyer remonstrated with Davis then Davis drew a gun, following which the four Dyers scuffled to disarm him. (2) The pretrial statements of Reverend Dyer and John were almost identical to the foregoing trial version. (3) Although in his testimony Joseph said the pistol was drawn on the porch, whereas in his statement he had said it was drawn inside the house after the fight was in progress, this was a “seeming inconsistency” which “might possibly be explained as a matter of imperfect articulation trying to describe the moment when Joseph observed the gun being aimed at his brother.” And, assuming the inconsistency was not mere “imperfect articulation” concerning when the gun was aimed, nevertheless Joseph’s pretrial statement, “in essential outline,” did not differ from the trial testimony which was that the accused drew his gun while arguing with Reverend Dyer and that the Dyers’ only object was to disarm him and turn him over to the police. (4) Failure to disclose John’s pretrial statement, which might have afforded grounds for a continuance, was not prejudicial because, as the Supreme Court construed his statement, it did not tend to support the theory of accidental discharge. As the court construed the statement, John was saying that Davis was bringing the gun down to shoot one of the Dyers when James grabbed his arm and the gun then fired. Ruling (3) relates to Joseph’s statement. At trial Joseph specifically testified that Davis pulled the gun from his pocket while Davis and Reverend Dyer were arguing on the porch, following which a struggle ensued that carried into the living room. This account corroborated the testimony of Reverend Dyer and tended to make Davis the aggressor. It contradicted the testimony of Davis, who contended that he did not draw the gun on the porch, but had somehow picked it up when it slipped from his belt during the struggle. In his statement, however, given only a few hours after the shooting, Joseph said-in direct opposition to his trial testimony — that the gun was drawn inside the house after the scuffle was in progress. The version in the statement corroborated the testimony of Davis, contradicted the testimony of Reverend Dyer, and tended to show Reverend Dyer as the aggressor. We confess our inability to understand how this inconsistency relating to when the gun was drawn, can be viewed as an “imperfect articulation” of when the gun was aimed at James. If drawn on the porch, the gun was drawn at a time when the three brothers were-seated in the car some distance away, and no one says it was then aimed at James. The alternative explanation by the Supreme Court — -that Joseph’s testimony did not differ from the trial version that Davis drew while arguing with Reverend Dyer and that the Dyers’ only objective was to disarm him — is no more tenable. This cannot be squared with Joseph’s statement that the gun was drawn inside the house and after the fight was in progress. In an additional respect not mentioned by the Louisiana Supreme Court Joseph’s statement contradicted the Dyers’ trial version of the struggle. At trial Joseph said that Davis, with his hand free and no one holding his arm, aimed at James and shot him. Q. Describe exactly what the defendant did with the gun. A. The defendant, after he told his mother to move back out of the way, he was laying on the sofa and then he aimed the gun [at] my brother and shot him. Q. At the time that he aimed the gun, was anybody holding his arm? A. No, he had one of his hands free. Q. He had one hand free ? A. Yes, he did. In contrast Joseph said in his statement, “When he went to aim it James grabbed his arm and at this time [Davis] pulled the trigger.” This statement corroborated Davis’ contention that the gun had accidentally discharged when the Dyers tried to jerk it from his hand, and contradicted the Dyers’ trial version that Davis had, with his arm free, intentionally shot James. Rulings (2) and (4) bear on John’s statement. The statement is not “almost identical” to the Dyers’ trial version. According to his statement John did not see the weapon drawn on the porch but only saw Davis “go in his pocket.” He fixed the position of the gun, when the struggle was occurring in the living room, as aimed at the ceiling and described the discharge as occurring when James grabbed Davis’ arm. This statement both contradicted the Dyers’ trial version that Davis, as the aggressor, drew the gun on the porch, and conflicted with Joseph’s testimony that Davis’ arm was free and that Davis aimed at James and shot him. Ruling (4) construes John’s statement to be that “Davis was bringing the gun down to shoot one of the Dyers when James grabbed his arm.” (emphasis added) The critical italicized phrase attributing to Davis an intent to shoot (and agreeing with Joseph’s trial version that petitioner aimed at and shot James) is an interpolation. The statement contains no reference to Davis’ intent. Ruling (1) is a summary of the overall content of all the statements versus the trial testimony, and what we have already said covers it. Under Supreme Court precedents the prosecution’s failure to disclose these statements denied Davis his fourteenth amendment right to a fair trial. As the Supreme Court explained in Giglio v. United States, 405 U.S. 150, 92 S.Ct. 763, 31 L.Ed.2d 104 (1972) : As long ago as Mooney v. Holohan, 294 U.S. 103 [, 55 S.Ct. 340, 79 L.Ed. 791, 98 ALR 406] (1935), this Court made clear that deliberate deception of a court and jurors by the presentation of known false evidence is incompatible with “rudimentary demands of justice.” This was reaffirmed in Pyle v. Kansas, 317 U.S. 213 [63 S.Ct. 177, 87 L.Ed. 214] (1942). In Napue v. Illinois, 360 U.S. 264, [79 S.Ct. 1173, 3 L.Ed.2d 1217] (1959), we said “the same result obtains when the State, although not soliciting false evidence, allows it to go uncorrected when it appears.” Id., at 269 [79 S.Ct. at 1177, 3 L.Ed.2d at 1221]. Thereafter Brady v. Maryland, 373 U.S. 83 [83 S.Ct. 1194, 10 L.Ed.2d 215] (1963), held that suppression of material evidence justifies a new trial “irrespective of the good faith or bad faith of the prosecution.” . . . When the “reliability of a given witness may well be determinative of guilt or innocence,” nondisclosure of evidence affecting credibility falls within the general rule. ... A new trial is required if “the false testimony could . in any reasonable likelihood have affected the judgment of the jury. ...” Id. at 153, 92 S.Ct. at 766, 31 L.Ed.2d at 108. See also Moore v. Illinois, 408 U.S. 786, 92 S.Ct. 2562, 33 L.Ed.2d 706 (1972). In this case the statements not disclosed were so material to guilt or innocence that they easily could have affected the verdict. They were, for example, material to the issue of whether Davis committed manslaughter, which is defined in Louisiana as “[a] homicide which would be murder . . . but the offense is committed in sudden passion or heat of blood immediately caused by provocation sufficient to deprive an average person of his self-control and cool reflection.” La.Rev.Stat.Ann. § 14:31. The statements specifically corroborated Davis’ defense of accidental discharge and specifically contradicted the Dyers’ trial version of intentional killing in the heat of a struggle. In indicating that Davis was not the aggressor the statements would have been material to a plea of self-defense. Davis did not raise self-defense or request jury instructions on that issue. Under Louisiana law an aggressor may not claim self-defense unless he withdraws from the conflict and his adversary knows or should know of the withdrawal. Id. § 14:21. At trial both Reverend Dyer and Joseph pictured Davis as the aggressor, while Davis described Reverend Dyer as the aggressor. Joseph’s statement strongly substantiates Davis’ version, and John’s does also though to a lesser degree. With the full information available, defendant might have elected to plead self-defense. John’s statement has an additional significance not possessed by the others. In Louisiana failure to produce a witness within a party’s control raises a presumption that his testimony would not have aided the party. Id. § 15:432. To negative the presumption the prosecutor introduced the subpoena unserved on John because he was in Germany. The defense, with knowledge of his statement, could have moved for a continuance which, if granted, would have caused the prosecution to prescribe. La. Code Crim.P.Ann. art. 578. Prior to motion for new trial Davis’ trial counsel did not request disclosure of the out-of-court statements. Compare Brady v. Maryland, supra 373 U.S. at 87-88, 83 S.Ct. 1194, 10 L.Ed.2d at 218-219. Case-by-case development since Brady has made clear that a demand by defense counsel is not a uniform prerequisite to federal habeas relief based on the state’s failure to disclose evidence material to guilt or punishment. See, e. g., Jackson v. Wainwright, 390 F.2d 288 (CA5 1968); Ingram v. Peyton, 367 F.2d 933, 936-937 (CA4 1966); Levin v. Katzenbach, 124 U.S.App.D.C. 158, 363 F.2d 287, 290 (CADC 1966); Barbee v. Warden, 331 F.2d 842, 845-846 (CA4 1964). See generally 8 Moore, Federal Practice ¶ 16.06 [1]; at 16-66 to 16-67 (Cipes ed. 1972); Annot., 34 A.L.R.3d 16, 32-38 (1970). In this case the state does not argue that absence of a demand vitiates the constitutional challenge based on nondisclosure of material evidence. Petitioner’s trial counsel did request disclosure, in part because, as he explained in a post-trial affidavit, he did not know the statements existed. The evidence in question was in the state’s possession and it was so material to guilt that it “could scarcely have failed to attract and sustain prosecutorial awareness.” United States v. Keogh, 391 F.2d 138, 147 (CA2 1968). Under these circumstances ritualistic imposition of a requirement to request unknown evidence would further no useful policies, but would instead undermine the constitutional guarantee to a fair trial. 4. Section 2254(d) (8) 28 U.S.C. § 2254(d)(8) provides that a state court finding of fact is not to be presumed correct if “the Federal court on a consideration of . . . the record as a whole concludes such factual determination is not fairly supported by the record.” Even if the rulings of the Louisiana Supreme Court are viewed as findings of fact, we would nevertheless hold, for reasons apparent from our preceding discussion, that the record as a whole does not support those rulings and that petitioner has established “by convincing evidence that the factual determination [s] by the State court [were] erroneous.” Id. § 2254(d). 5. Conclusion The judgment of the District Court is reversed and the cause remanded with instructions that the writ issue, subject to the State of Louisiana’s right to retry petitioner within a reasonable time. COLEMAN, Circuit Judge (dissenting) : I respectfully dissent. It is to be regretted, I think, that in this collateral attack on a Louisiana manslaughter conviction the majority opinion is likely to have far-reaching future consequences for the federal courts in this Circuit. The majority opinion quite correctly states that under 28 U.S.C. § 2254(d) factfindings by a state court are as a general rule presumptively valid. It then proceeds to knock a great hole in the statute by holding that an appraisal of asserted factual inconsistencies in the case now before us is a question of law not of fact. In my view this puts us right back where we were before § 2254(d) was enacted. It means that in the future the federal courts will have to “retry” similar inconsistencies as questions of law, thus adding to the hopeless mound of litigation under which we are presently smothered. I personally believe that a comparison of facts is just another question of fact and that under § 2254(d) the judgment of the District Court should have been affirmed per curiam. Moreover, there were no material or prejudicial inconsistencies in the statements, even if we are to weigh them legally rather than factually. By all means, there was not such inconsistency as would have required the State sua sponte to have tendered them to the defense. The opinion of the District Court [Judge Alvin B. Rubin] is reported, 350 F.Supp. 958-971. In an unusually thorough analysis of Davis’ claims Judge Rubin found no federal constitutional grounds for relief. I unhesitatingly agree. As to the background, I feel that I can do no better than to quote from Judge Rubin’s published opinion, 350 F. Supp., beginning at 960: “The applicant was convicted of manslaughter in Louisiana state court on September 20, 1968. A motion for a new trial was made by his court-appointed counsel, but was denied by the trial court. Evidentiary material was attached to the state’s response to the application for a new trial. Counsel for the defendant filed a motion for appeal, but failed to perfect the appeal, submit a brief, or appear for argument. Almost two years later, represented by new counsel, the applicant sought a writ of ha-beas corpus in state court, alleging denial of an effective appeal, and requested relief by way of an out-of-time appeal. The state court granted an out-of-time appeal. The evidentiary material attached to the state’s response to the application for a new trial was presented to the Louisiana Supreme Court on the appeal. The issues raised in the state courts, which are the same as those now urged as bases for a federal writ of ha-beas corpus, were that Mr. Davis had been convicted in violation of the due process and confrontation clauses of the United States Constitution because the state had withheld the pre-trial statements of witnesses and photographs that both supported his defense and contradicted the testimony of major State witnesses, and further because, by sustaining objections to two questions put by defense counsel to one of the state’s witnesses, the State trial judge had denied Mr. Davis the right of cross-examination. “On June 7, 1971, the Louisiana Supreme Court decided both issues adversely to the appellant and affirmed his conviction, State v. Davis, 1971, 259 La. 35, 249 So.2d 193. “In order to understand the issues, it is necessary to review the events before and during the trial in state court. “New Orleans police arrested the applicant, Linroy Davis, for the murder of James Dyer on July 26, 1966. The Grand Jury return was ‘Not a true bill’. Then the Orleans Parish District Attorney filed an information charging manslaughter. Almost two years later, and just three days before the prosecution would have prescribed, LSA-C.Cr.P. art. 578, the case was set for trial. After being continued, the trial commenced one day before the lapse of the time within which prosecution is permitted. The jury returned a verdict of guilty by a 10-2 vote. The events recounted at the trial were these: “On Sunday, July 24, 1966, Linroy Davis, who was in an automobile with another man, spoke from the car to Miss Brenda Mae Dyer, a sister of the deceased, in front of the deceased’s home. Mr. Davis and Miss Dyer were not acquainted. When James Dyer, the deceased, went to Davis’ car to protest Mr. Davis’ remarks to his sister, Mr. Davis got out of the auto and slapped Mr. Dyer on the side of his head with a pistol. Miss Dyer picked up a brick to throw at Mr. Davis, but Mr. Davis returned to his automobile and drove off, pointing the pistol at her. Mr. Davis circled the block and, seeing the decedent’s twin brother, pointed the gun at him and drove off. “Later that afternoon the Dyers’ father, the Reverend John Dyer, a minister, returned from church. His family told him of the events that had just occurred, and he drove in an automobile with his sons, James, Joseph, and John, looking for Mr. Davis. He saw a car that he recognized as Davis’ from the description, and, as he drove up, he saw Mr. Davis standing in the doorway of the house in front of which the car was parked. The Reverend Dyer left his sons in the car and walked up to Mr. Davis. “Much of the testimony of the Davis trial consisted of varying accounts of what happened thereafter. The Reverend Dyer testified his objective was to ‘reform the boy;’ after the conversation began, Mr. Davis pulled out a gun; he tussled with Mr. Davis; his sons came to his aid; the gun went off; and James Dyer was shot. Joseph Dyer’s testimony was substantially in accordance with his father’s. John Dyer was absent in the armed forces, stationed in Germany, and did not testify. “The defense called the defendant’s mother who testified that she came into the room before the shot was fired, and that, in effect, the Dyers were the aggressors in the fray then going on. Mr.; Davis testified that the Reverend Dyer grabbed him and, in the struggle they fell to the floor. The older man began to choke him. Then the other Dyers joined in the fray. He managed to grab the gun, the Dyers tried to take it away, and it went off. Other witnesses confirmed parts of these accounts. “The Dyers were subjected to vigorous cross-examination by appointed counsel who was then defending Mr. Davis. When the state answered the defense motion for a new trial in 1968, defense counsel learned for the first time that the District Attorney had taken written statements from the Dyers before the trial and also had three photographs of the accused taken shortly after the fray. The failure to produce these at the trial is the basis of the first claim by the applicant. “These statements and photographs were before the state Supreme Court when it heard Mr. Davis’ out-of-time appeal. Counsel for the applicant was offered an opportunity to file additional evidence in this court. However, no evidence has been offered that was not adduced at the time of the second state appeal, except an affidavit by applicant’s former counsel that he didn’t know of the existence of the written statements and photographs until after the trial; ‘the statements would have been extremely helpful if not crucial for the defense of Davis at the trial;’ they were ‘essential to a fair trial;’ and he believed that with them, he could have obtained a verdict of acquittal.” This ends the quotation from Judge Rubin’s reported opinion. MY DISSENTING VIEWS What kind of manslaughter case was this? The defense of self-defense was not interposed and there were no jury instructions on self-defense. Therefore, the only available defense was that the killing was accidental and this was the defense on which the case was tried. With this beginning, I would weigh this appeal in the light of the following: 1. Judge Rubin found that “The State did not use perjured testimony, did not suppress truth, it did not knowingly foist error on the jury”, 350 F. Supp. at 968; 2. In the State Court, trial counsel made no request for any pre-trial statements made by the Dyers. Reverend John Dyer and Joseph Dyer took the witness stand and were vigorously cross-examined but they were not asked, even then, if they had given any pretrial statements. If counsel had asked for such statements and if they had been furnished what could they have been used for? Obviously, for attempted impeachment only and there was not enough material inconsistency to support impeachment of any worthwhile vitality. The majority opinion concedes that there were no “inconsistencies” on the part of Reverend John Dyer, so as to his testimony his prior statement would have been wholly useless. That narrows the controversy, so far as the trial was concerned, to alleged inconsistencies of federal constitutional dimensions between Joseph Dyer’s pretrial statement and his testimony. The Supreme Court of Louisiana found that the statements were “essentially the same”. The majority applies its views to the facts and overturns the findings of the Louisiana Supreme Court, as well as those of the Federal District Court. In my view, the findings are not erroneous; indeed, I agree that they are right. In his pre-trial statement Joseph Dyer said that the shooting took place in the house. At the trial he said the same. In his pre-trial statement Joseph said that he saw Davis coming out of his pocket with a gun and when he went to aim it James Dyer (the deceased) grabbed his arm (without saying which arm) and at this time Davis pulled the trigger. At the trial, Joseph testified that the Dyers tried to take the gun from Davis while Reverend Dyer whs holding him on the sofa in the house. However, with one hand free and no one holding his arm (presumably his shooting arm) Davis aimed the gun at James Dyer and shot him. The question is: which arm was which? How much impeachment could this have provided? Very little, I daresay. So, for this minor evidentiary hang-up the Court of Appeals steps in once again to void a state conviction after the State Supreme Court and the United States District Court have held otherwise on the same, identical point. This is particularly regrettable when one recalls that defense counsel never attached enough importance to possible prior statements to ask for them. I doubt, too, that the state prosecutor is to be faulted for not furnishing them sua sponte, when two courts have agreed that there existed no material inconsistency. The majority opinion surmises that if Davis or his counsel had known of the allegedly inconsistent prior statements of Joseph Dyer and John Dyer, the younger, they might have pleaded self-defense. This flies in the face of facts which the majority opinion does not mention. Shortly before the fatal difficulty, at another place, at a time when he could have been in no real or apparent danger of death or great bodily harm, Davis, the defendant, had slapped James Dyer, whom he later killed, on the side of the head with a pistol. Then he pointed the weapon at Brenda Mae Dyer. Still later he pointed it at another Dyer brother. Furthermore, Davis admitted that from the beginning of the fatal encounter he had the pistol in his belt. At the time of the shooting the Dyers were unarmed. All this makes very poor food for thoughts of self-defense. It also negates the proposition that the same man who met the visitors with pistol in belt committed an accidental homicide, and that is true regardless of whether he pulled the pistol on the porch or after they got in the house. The whole truth is that the deadly encounter ended within two or three minutes of its inception and testimonial inconsistencies in such a situation are known by experience to be the rule rather than the exception. It is further said, however, that the defense might have asked for a continuance had it known of the prior statement of John Dyer, the younger, then in Germany. I think it is only reasonable to suspect that such a motion would have been denied. The statement could have been used only to impeach him, but he did not testify. Moreover, his testimony would have been purely cumulative. The record provides no basis for assuming that John would have testified as per his prior written statement, even if it were1 inconsistent. My educated guess is that the defense was glad that John, Jr. was “across the waters” and thus unable to assist the prosecution. For two reasons, I would affirm the judgment of the District Court: 1. Section 2254(d) has been satisfied, adversely to the appellant; 2. As a matter of fact, not as a matter of law, the allegedly inconsistent statements were not so materially inconsistent, if inconsistent at all, as to have required the state prosecutor to have tendered them sua sponte. Again with deference, I am of the opinion that the majority has in effect retried this sudden, swirling, quickly completed physical encounter, a function which belonged entirely to the Louisiana courts. I respectfully dissent. . Davis was arrested July 26, 1966, for an alleged murder. The grand jury considered the case and returned “Not a true bill.” Then the district attorney filed an information charging manslaughter. Almost two years later and just three days before the prosecution would have prescribed, La.Code Crim. P.Ann. art. 578, the case was set for trial. Trial commenced one day before the lapse of the time within which prosecution is permitted. The jury reached a verdict of guilty by a 10-2 vote. . Petitioner contended in the district court that the trial judge improperly limited the scope of defense counsel’s cross-examination. That contention has been dropped on appeal. Also the issue of suppression of the photographic evidence has not been seriously pressed on appeal. . E. g., State v. Cardinale, 251 La. 827, 206 So.2d 510, 511-512 (La.1968), cert. dismissed, 394 U.S. 437, 89 S.Ct. 1161, 22 L.Ed.2d 398 (1969). . Exceptions to the general rule are specified in 28 U.S.C. § 2254(d). For example, there is no presumption of validity if “the merits of the factual dispute were not resolved in the State court hearing,” or “the factfinding procedure employed by the State court was not adequate to afford a full and fair hearing,” or “the Federal court on a consideration of . the record as a whole concludes that [the] factual determination is not fairly supported by the record.” See generally Parmer v. Caldwell, 476 F.2d 22 (CA5, 1973). Section 2254(d) substantially codifies the standards of Townsend v. Sain, 372 U.S. 293, 83 S.Ct. 745, 9 L.Ed.2d 770 (1963), in which the Supreme Court held that federal redetermination of disputed facts was mandatory “unless the state-court trier of fact has after a full hearing reliably found the relevant facts.” Id. at 313, 83 S.Ct. at 757, 9 L.Ed.2d at 785. See LaVelle v. Delle Rose, 410 U.S. 690, 93. S.Ct. 1203, 35 L.Ed.2d 637, 12 Cr.L. 4187 (March 19, 1973); Procunier v. Atchley, 400 U.S. 446, 451 n. 6, 91 S.Ct. 485, 27 L.Ed.2d 524, 529 n. 6 (1971). . Wigmore draws the distinction in the following terms: “Given, certain facts or groups of facts, and the State predicates a jural relation between A and B, f. e., is ready to lend its force towards a more or less direct realization of that relation. The establishment of a given claim, then, involves the demonstration (1) that certain facts or groups of fact exist, (2) that to the contingency of their existence the State attaches the legal consequences now asserted by the claimant.” 1 Wigmore, Law of Evidence § 1, at 2 (3d ed. 1940). . We agree with the conclusion of Imbler v. California, 424 F.2d 631 (CA9 1970), that the draftsmen of the 1966 amendments to 28 U.S.C. § 2254 used the term “factual issue” in the same sense as it was used in Townsend v. Sain. . Our list of various so-called mixed questions of fact and law is, of course, not exhaustive. The distinction between fact and law has been the subject of extensive commentary, and many of the more classic writings are referenced in Professor Morris’ article cited in text. . The opinion of the Louisiana Supreme Court is reported at 259 La. 35, 249 So.2d 193. . This effect of the inconsistencies as making self-defense a strong or a weak defense was not touched on by the Supreme Court or the habeas court.

f2d_479/html/0458-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

In re Report of GRAND JURY PROCEEDINGS Filed on June 15, 1972. Appeal of Honorable Jerry WOODARD, et al. No. 72-3499. United States Court of Appeals, Fifth Circuit. June 4, 1973. Rehearing and Rehearing En Banc Denied July 3, 1973. Joseph A. Calamia, John L. Fashing, Jerry Woodard, Judge, 34th Judicial District Court, El Paso, Tex., for appellants. Ralph E. Harris, Asst. U. S. Atty., El Paso, Tex., for appellee. Before AINSWORTH, GODBOLD and CLARK, Circuit Judges. AINSWORTH, Circuit Judge. This is an appeal from the denial of the United States District Court of an application filed by Judge Jerry Woodard, presiding state judge in El Paso County, Texas, to expunge a federal grand jury report from the federal district court’s records at El Paso, Texas. The “Report of Grand Jury Proceedings” was presented by the jury to the federal district court on June 15, 1972. Pursuant to the request of the grand jury, the district judge directed the clerk to file the report as a public record. Judge Woodard then filed an application to expunge the entire report. Before this application was acted upon, Judge Woodard sought and obtained from this Court an order directing the lower court to rule on the application within ten days, without a hearing or the taking of evidence. The district court’s denial of the application followed. The various issues presented on appeal basically raise two questions: whether the federal grand jury had the power or the authority to make the report, and whether the report should be expunged. The facts underlying this controversy are as follows: Judge Woodard, as presiding judge in the District Court of El Paso County, Texas, Thirty-Fourth Judicial District, dismissed a state narcotics case on April 18, 1972, pursuant to a motion by the assistant district attorney representing the State of Texas. The motion to dismiss the prosecution in the state case was made after a federal agent testifying at the trial allegedly made inconsistent statements. Subsequently the El Paso federal grand jury investigated the circumstances of the dismissal to determine whether there had been any violations of federal statutes involved. Apparently the grand jury was concerned with possible effects on the credibility of the federal agent because of the inference that his testimony was critical to pending federal narcotics cases. This investigation led to the “Report of Grand Jury Proceedings.” Pertinent portions of the text of the report read: “After hearing numerous witnesses, it was apparent to us that the variances in testimony by the federal officer, who was not even the star witness, and on whose testimony the decision to call a mistrial was based, could have been reconciled without too much difficulty, and indeed, the mistrial could have been avoided altogether had the witness been properly prepared by the District Attorney’s office prior to the trial. It is unrealistic to expect a witness to recall exact dates from as far back as a year ago. Therefore, we strongly recommend that every law enforcement officer who serves as a witness in a trial should not only , be allowed to review the case history prior to the trial, but should be required to do so. “El Paso has a serious drug problem, and trials are very expensive. It is, therefore,the recommendation of this Grand Jury that in the future the District Attorney’s office take more precaution to prepare their witnesses prior to the trial, and during the actual trial, make a more determined effort to keep the main objectives of the case in mind, making certain any variances in testimony truly cannot be reconciled before calling a mistrial. “We feel officer DeHoyos has done an excellent job and that all charges and accusations made against him were completely unfounded. “We feel that the atmosphere surrounding the entire trial i. e. the defense attorney hurling accusations at witnesses, newspaper reporters appearing on cue, etc. was not in the best interests of justice or the people of the City of El Paso. “We further feel that the Judge and District Attorney by dismissing the charges before completion of the trial did a disservice to the people of El Paso at large and in particular to those persons who were empaneled and sitting as a jury in consideration of this case. “The Grand Jury recommends that this report be filed as a public record.” In denying the application, the district judge reasoned that the court had nothing to do with the investigation by the grand jury of the matter involved in the report; that the court could not scrutinize matters considered by the grand jury; and that the court had no power to direct, control, suppress, influence, or interfere with the investigations, deliberations, recommendations, and reports of the grand jury. The court felt that the grand jury lawfully exercised its inquisitorial powers in the investigation of possible federal offenses, and that it acted within its authority in wishing to “clearly reflect its conscientious conclusion as to the public perjury charges against the federal officer and the conduct of the state officials involved therein.” The court further stated: “Undoubtedly, the Federal Grand Jury, having concluded that the charges against this federal officer were unfounded, felt that it should report its findings to the Court. While, as stated above, it is the opinion of this Court that it has no discretion and no power to pass upon the propriety of a report by a Federal Grand Jury, if it did have such power, it would find that the conduct of the Grand Jury in this ease was proper.” Appellant contends that the grand jury can only lawfully indict or return a no true bill, and that it is powerless to speak publicly of any other matter; indeed, that it has no other public existence. Because we decide the instant case on other grounds, we pretermit the issue of whether a federal grand jury has the authority to make reports. We point out, however, that there is persuasive authority and considerable historical data to support a holding that federal grand juries have authority to issue reports which do not indict for crime, in addition to their authority to indict and to return a no true bill. We find that the substance of the report, however, bears little relevance to federal subject matter and is concerned mostly with a purely local affair. The report itself shows no adequate or sufficient reason to assume a federal concern where critical determinations are made about a local controversy involving the conduct of a state trial for violations of Texas state laws. There is no apparent federal purpose to be served by the reference to Judge Woodard and to the state district attorney, and the United States Attorney has not supplied this Court, in brief or in oral argument, any good and sufficient reason for the grand jury’s report. Accordingly, we have concluded to require that the district judge order expunction of the portions of the report which deal with purely local affairs, as follows: . [T]he mistrial could have been avoided altogether had the witness been properly prepared by the District Attorney’s office prior to the trial. It is unrealistic to expect a witness to recall exact dates from as far back as a year ago. Therefore, we strongly recommend that every law enforcement officer who serves as a witness in a trial should not only be allowed to review the case history prior to the trial, but should be required to do so. . It is, therefore, the recommendation of this Grand Jury that in the future the District Attorney’s office take more precaution to prepare their witnesses prior to the trial, and during the actual trial, make a more determined effort to keep the main objectives of the case in mind, making certain any variances in testimony truly cannot be reconciled before calling a mistrial. We further feel that the Judge and District Attorney by dismissing the charges before completion of the trial did a disservice to the people of El Paso at large and in particular to those persons who were empaneled and sitting as a jury in consideration of this case. Vacated and remanded with directions that the district court order that the Clerk of the United States District Court, Western District of Texas, El Paso Division, expunge those portions of the “Report of Grand Jury Proceedings” filed on June 15, 1972, which are described above. Vacated and remanded with directions. . The first paragraph of the grand jury’s report states that the testimony of the federal officers was discredited in the trial in question and that the grand jury conducted hearings to inquire into the circumstances involved. At oral argument, the Assistant United' States Attorney stated to this Court that he had referred the matter to the grand jury for their consideration. In his order denying the application for expunction, the district judge stated that the federal agent involved in the state mistrial “had made numerous narcotic cases which were pending in the State Court and some of which were connected with the case that was dismissed. Likewise he had made numerous federal narcotic cases on which a Federal Grand Jury had returned indictments. The United States Attorney had reason to believe that there was a possible conspiracy to discredit this officer in order to prevent the prosecution of these state and federal cases in which he was involved.” . Although* there are cases, most of which concern state grand jury reports, which allow expunction and cases which uphold grand jury reports, we have found no case with the same factual situation as the one presented on this appeal. Most decisions are made on the basis of the facts of the case. Among the factors considered are: whether the report describes general community conditions or whether it refers to identifiable individuals; whether the individuals are mentioned in public or private capacities; the public interest in the contents of the report balanced against the harm to the individuals named; the availability and efficacy of remedies; whether the conduct described is indictable. The historical development of the grand jury is traced in Morse, A Survey of the Grand Jury System, 10 Oregon L.Rev. 101-122 (1931); Hale v. Henkel, 201 U.S. 43, 26 S.Ct. 370, 50 L.Ed. 652 (1906); In re Charge to Grand Jury, 30 Fed.Cas.No.18,255, p. 992 (1872); dissenting opinion of Harlan, J., in Hurtado v. People of State of California, 110 U.S. 516, 538, 4 S.Ct. 111, 28 L.Ed. 232 (1884); Ex parte Bain, 121 U.S. 1, 11, 7 S.Ct. 781, 30 L.Ed. 849 (1887); concurring opinion of Wisdom, J., in United States v. Cox, 5 Cir., 1965, 342 F.2d 167, 186-188, cert. denied, 381 U.S. 935, 85 S.Ct. 1767, 14 L.Ed.2d 700 (1965). The history of the grand jury and the grand jury’s authority to make reports which do not indict are discussed in the following: concurring opinion of Wisdom, J., in United States v. Cox, supra, 342 F.2d at 185-190, Younger, The People’s Panel: The Grand Jury in the United States, 1634-1941 (1963) (extensive treatment) ; Kuh, The Grand Jury “Presentment” ; Foul Blow or Fair Play, 55 Col.L.Rev. 1103 (1955); Edgar, Jr., The Propriety of the Grand Jury Report, 34 Tex.L.Rev. 746 (1956); Orfield, The Federal Grand Jury, 22 F.R.D. 343, 394-402, 436-447 (1959). The latter three articles include analyses of state cases and citations to other authorities. The grand jury’s reporting function is also considered in 4 Stan.L.Rev. 68, 68-69 (1951); Dession and Cohen, The Inquisitorial Functions of Grand Juries, 41 Yale L.J. 687, 704-712 (1932); United States v. Smyth, 104 F.Supp. 283 (1952); In re Presentment by Camden County Grand Jury, 10 N.J. 23, 89 A.2d 416 (1952); concurring opinion of Wisdom, J., in United States v. Cox, supra, 342 F.2d at 189. In United States v. Cox, supra, in concurring opinions, Judges Wisdom and Brown suggest the return into open court of a “presentment” or “indictment” unsigned by the District Attorney, and therefore insufficient to institute criminal proceedings, which would be equivalent to a grand jury’s report. United States v. Cox, supra, at 184-185, 189. Orfield, supra, comments: “ . . . the full extent of inquisitorial power has never been settled by the precedents. [Application of Texas Co., 27 F.Supp. 847, 850 (1939)]. The powers of the grand jury are not defined in the federal statutes. The statutes authorize the court to call a grand jury, provide for the manner of such calling, define a quorum, and give the court the right to excuse or discharge. Thus the powers of the grand jury have been spelled out by the courts. State law does not determine the powers and functions of federal grand juries. [United States v. Warren, 26 F.Supp. 333 (1939)].” Orfield also cites United States v. Smyth, supra, as authority for the grand jury to make reports. For citations to law review articles on the reporting function, see Orfield, supra, 22 F.R.D. at 446 n. 751, and 447 n. 753-754. Some authorities explain that the federal grand jury is recognized by the Fifth Amendment to the United States Constitution’s reference to a right to indictment by a grand jury in enumerated instances, and that it has been held that the powers of the federal grand jury are those of its English prototype at Common Law. See Orfield, supra, citing Blair v. United States, 250 U.S. 273, 282, 39 S.Ct. 468, 63 L.Ed. 979; Carroll v. United States, 2 Cir., 1927, 16 F.2d 951, 953; O’Connell v. United States, 2 Cir., 1930, 40 F.2d 201, 205. United States v. Cox, supra, dissenting opinion, 342 F.2d at 178, citing Costello v. United States, 350 U.S. 359, 361, 76 S.Ct. 406, 100 L.Ed. 397 (1956); Ex parte Bain, supra, 121 U.S. at 10, 11, 7 S.Ct. 781; In re April 1956 Term Grand Jury, 7 Cir., 1956, 239 F.2d 263, 268, 269; United States v. Smyth, supra; concurring opinion of Wisdom, J., in United States v. Cox, supra, 342 F.2d at 186, citing Russell v. United States, 369 U.S. 749, 82 S.Ct. 1038, 8 L.Ed.2d 240 (1962). 4 Stan.L.Rev. 68 (1951); In re Charge to Grand Jury, supra. Congress has specifically authorized grand jury reports for special grand juries (18 U.S.C. § 3331 et seq.) in 18 U.S.C. § 3333. The legislative history of this section is found in 1970 U.S.Code Cong. and Adm.News, p. 4007.

f2d_479/html/0462-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Jules R. GREEN et al., Plaintiffs-Appellants, v. WEIS, VOISIN, CANNON, INC., et al., Defendants-Appellees. Henry A. MARKUS, Plaintiff-Appellant, v. WEIS, VOISIN, CANNON, INC., et al., Defendants-Appellees. Nos. 72-1441, 72-1647. United States Court of Appeals, Seventh Circuit. Argued April 19, 1973. Decided June 8, 1973. William J. Scott, Atty. Gen., William P. Rosenthal, Harvey J. Barnett, Arthur W. Friedman, Chicago, 111., for plaintiffs-appellants. Gerald M. Newman, David L. Fisher, Stephen C. Shamberg, Chicago, 111., for defendants-appellees. Before MURRAH, Senior Circuit Judge, and KILEY and SPRECHER, Circuit Judges. Senior Circuit Judge Alfred Murrah of the Tenth Circuit is sitting by designation. SPRECHER, Circuit Judge. This appeal is concerned primarily with the meaning of the words “sale” or “sell” in the Illinois Securities Act. Plaintiffs appealed from grants of summary judgments for defendants in a diversity action seeking rescission of stock purchases because of the failure of defendants to comply with the registration requirements of the Illinois Securities Act. Ill.Rev.Stat., ch. 12½, §§ 137.1 et seq. The state of Illinois, which filed a brief as amicus curiae, also urged reversal on the ground that the trial court’s construction of Illinois law would emasculate the protection accorded Illinois citizens by the Illinois Securities Act. Each of the plaintiffs in No. 72-1441 purchased five thousand shares of the common stock of London Ben, Inc., in March, 1969. The purchase price for the stock in each case was $11,000. Defendants are London Ben and Weis, Voisin, Cannon, Inc., the underwriter and agent for the sale of the London Ben stock. The facts surrounding these sales are not disputed. All of the plaintiffs are residents of Chicago, Illinois or its suburbs. Each of the plaintiffs, except Nathan Rosenstone, was solicited in Illinois by defendant Weis, Voisin in oral and written communications. Each of these plaintiffs received, in Chicago, an investment letter and selling circular of London Ben, offering to sell the stock of London Ben. The investment letter and selling circular were sent by Weis, Voisin from its Chicago offices. Each of the plaintiffs accepted the offer to purchase by signing the investment letter and sending it, with a check, to the Weis, Voisin offices in Chicago. Plaintiff Rosenstone, also an Illinois resident, was solicited for London Ben stock in Florida, where he was on vacation, by means of a.telephone call from Weis, Voisin in Chicago. Rosenstone stated at the time of the phone call that he was a resident of Chicago and this information was recorded by the Weis, Voisin representative. Rosenstone signed the investment letter while in Florida and mailed it to the Weis, Vois-in Chicago office. The confirmation of the sale and stock certificates were delivered to Rosenstone’s Chicago residence address. Confirmations on each of these sales were issued and mailed to the plaintiffs at their Chicago addresses on April 11, 1969. In August and September, 1970, all of the plaintiffs elected to rescind their purchases of London Ben. Notice was given to the defendants of the decision in each case. Rescission was based on the grounds that the securities had been sold in violation of the Illinois Securities Act because they were not registered, nor were they exempted from registration inasmuch as the defendants failed to file a 4G report. Section 137.12 of Ill.Rev.Stat., ch. 121½, states that it is a violation of Illinois law to “sell any security except in accordance with the provisions of this Act” or to “fail to file with the Secretary of State any application, report or document required to be filed under the provisions of this Act . . . . ” Section 137.13 provides that “every sale of a security made in violation of the provisions of this Act shall be voidable at the election of the purchaser.” Upon tender to the seller of the securities, “the issuer, . . . underwriter, dealer or other person by or on behalf of whom said sale was made, and each underwriter, dealer or salesman who shall have participated or aided in any way in making such sale, shall be jointly and severally liable to such purchaser for (1) the full amount paid, together with interest from the date of payment for the securities sold . . . less any income or other amounts received by such purchaser on such securities and (2) the reasonable fees of such purchaser’s attorney incurred in any action brought for recovery of the amounts recoverable hereunder.” Sale or sell is defined in § 137.2-5 to “include every disposition, or attempt to dispose, of a security for value.” Section 137.4(G) provides that the registration provisions of the Act (§§ 137.5-137.7) shall not apply to sales of securities to 25 persons or less if the issuer or dealer files a report of sale with the Secretary of State within 30 days of the sale including information as to the name and address of the issuer, whether the sale was for the direct or indirect benefit of that person, the total amount of securities sold under the section, the price at which they were sold, commissions, names and addresses of purchasers, and a statement that offers to sell such securities were not made to persons in excess of the number permitted under the section. It is undisputed that the defendants in this case filed no reports with the Secretary of State. The district court nevertheless held that plaintiffs were not entitled to rescission under the Illinois Securities Act provisions summarized above, basing its decision on two grounds: First, that the sales had taken place in New York and not in Illinois; and second, that even if the sales were in Illinois, there would be no remedy because the remedial provisions of the Illinois Securities Act were “limited to rescinding sales made in violation of the Act, not validly consummated sales which the seller thereafter failed to report.” The district court also held that if the statute were construed to cover the sales in question, constitutional difficulties would be presented. The second ground for the district judge’s decision, that the Illinois Securities Act would not provide a remedy for failure to file a 4G report even if the sale occurred in Illinois, was not argued by the defendants to that court and they expressly disclaimed any reliance on that ground at oral argument in this appeal, correctly noting that Mark v. McDonnell & Co., 447 F.2d 847 (7th Cir. 1971), holding that the failure to file a report enables a purchaser to rescind, precluded such a result. The district court’s decision finding that the sale of securities to these plaintiffs did not take place in Illinois is premised upon the fact that after plaintiffs’ checks and investment letters were received in Chicago by Weis, Voisin, the checks were forwarded by the defendant to its New York offices and deposited in its New York bank account. The confirmations and stock certificates were also issued to the plaintiffs from New York. The district court concluded from these facts that the actual sale of securities took place in New York and that the broad definition of sale in § 137.2-5 was irrelevant since' the “sale” plaintiffs were attempting to rescind was the completed sale which was only concluded when the defendants “accepted” plaintiffs’ offer to buy in New York. The term sale as defined in the Illinois Securities Act cannot be so limited. The language of the statute specifically encompasses the sale of London Ben stock to these plaintiffs. Section 137.-2-5 provides: “ ‘Sale’ or ‘sell’ shall have the full meaning of that term as applied by or accepted in courts of law or equity, and shall include every disposition, or attempt to dispose, of a security for value. ‘Sale’ or ‘sell’ shall also include a contract to sell, an exchange, an attempt or an offer to sell, an option of sale or a solicitation of an offer to buy, directly or indirectly; . . . ” The defendants in this case offered to sell the securities in question in solicitations made to persons all but one of whom were in the state at the time of the solicitation, by representatives in Illinois, received acceptances of their offer in Illinois from persons all but one of whom were in Illinois at the time of the mailing of the acceptance, and mailed confirmations and stock certificates to Illinois residents at their Illinois addresses. Whether or not a common law definition of sale would therefore place the consummation of the sale in New York is therefore irrelevant to the statutory definition. Defendants became subject to the statute at least when they successfully completed the sale of London Ben stock after soliciting offers to buy in Illinois. To construe the language of the statute otherwise would permit an issuer or dealer to solicit sales at will in Illinois without complying with the statute, so long as an act entirely within the seller’s control, such as placing the proceeds in a bank account or issuing stock certificates, was performed at or from some other place. Illinois residents should not be so helpless in obtaining protection through their own state legislature or dependent upon the possibility of aid from the laws of another state, particularly when they might be unable to even determine which state would be the state of sale at the time they accepted the offer to purchase. The purpose of the Illinois Securities Act, as stated by the Illinois appellate courts, also clearly contemplates the sale to these plaintiffs. The Illinois Appellate Court specifically considered the scope of the statutory definition under consideration here in Silverman v. Chicago Ramada Inn, Inc., 63 Ill.App.2d 96, 211 N.E.2d 596, 599 (1965), stating: “This definition of a sale is in itself liberal. Its obvious purpose is to exclude nothing that could possibly be regarded as a sale. Under this broad and unambiguous definition every step toward the completion of a sale would be a sale. The words ‘shall include every disposition * * * of a security for value’ are themselves all-encompassing. . . . •X- * * * * # “The solicitation by the defendants constituted a sale under the statute as did the payments made by the plaintiffs in March and May 1959. The plaintiffs, if they had known that the securities were illegally sold, could have instituted their rescission action after the agreement to purchase was reached; they could have sued to recover after the first payment or after any one of the interim payments. All were sales under the Act and all were voidable at the option of the purchasers.” This interpretation of the word sale appears to be in accord with the general statement of the paternalistic purpose of the Act stated in Meihsner v. Runyon, 23 Ill.App.2d 446, 163 N.E.2d 236 (1960), and Foreman v. Holsman, 10 Ill. 2d 551, 141 N.E.2d 31 (1957) (interpreting the predecessor to the Illinois Securities Act of 1953). The court in Meihsner, supra, 23 Ill.App.2d 446, 163 N.E.2d at 241, stated that the purpose of the Illinois Securities Act was “to protect innocent persons who may be induced to invest their money in speculative enterprises over which they have little or no control. The Act is paternalistic in character and should be liberally construed to better protect the public from deceit and prevent fraud in the sale of . . . securities within the state.” The defendants argue, however, that since it is not the preliminary-steps in the sale which plaintiffs seek to rescind, but the completed transaction, the above authorities are inapposite. The fallacy of this argument is that it attempts to impose a common law concept of sale upon the statutory definition. Neither the language nor the Illinois decisions permit such a construction. Cf., Kreis v. Mates Investment Fund, Inc., 473 F.2d 1308, 1312-1313 (8th Cif. 1973). The broad paternalistic purposes of the Act can only be achieved through a literal reading of the statute. Inasmuch as all preliminary steps were taken in Illinois, the confirmations and stock certificates were delivered in Illinois to Illinois residents, and a sale was transacted in each case, the defendants were subject to the Illinois Securities Act and were required to submit a 4G report upon the completion of the sale. There is no constitutional infirmity in this construction. The Supreme Court long ago upheld the constitutionality of state blue sky laws in Hall v. Geiger-Jones Co., 242 U.S. 539, 37 S.Ct. 217, 61 L.Ed. 480 (1917); Caldwell v. Sioux Falls Stock Yards Co., 242 U.S. 559, 37 S.Ct. 224, 61 L.Ed. 493 (1917); and Merrick v. N. W. Halsey & Co., 242 U.S. 568, 37 S.Ct. 227, 61 L.Ed. 498 (1917). The Supreme Court has also upheld specifically the right of a state to regulate solicitations of its citizens by a corporation outside the state. Bothwell v. Buckbee, Mears Co., 275 U.S. 274, 48 S. Ct. 124, 72 L.Ed. 277 (1927). The final question raised in this appeal relates to the imposition of liability on Weis, Voisin for the failure of London Ben to file the 4G report. Weis, Voisin points to the language in Ill.Rev. Stat., ch. 121½, § 137.4(G), providing that “the issuer, controlling person or dealer” shall file a report with the Secretary of State within 30 days of a sale. However, § 137.13 of the Act, giving a civil remedy of rescission for violations of the statute, states that “each underwriter, dealer or salesman who shall have participated or aided in any way in making such sale . . . shall be jointly and severally liable to such purchaser.” Weis, Voisin participated and aided in the sale to these plaintiffs and was in a position to insure that London Ben complied with the provisions of the Illinois - Securities Act. It is therefore jointly liable for the failure of London Ben to file the 4G report. We reverse and remand with instructions to enter judgment rescinding the sale of stock in No. 72-1441, wherein the plaintiffs moved for summary judgment. Interest and attorneys’ fees should also be awarded pursuant to Ill.Rev.Stat., ch. 121½, § 137.13. No. 72-1647 is reversed and remanded for proceedings consistent with this opinion. Reversed and remanded with directions. . Plaintiff Rosenstone received his solicitation while in Florida and accepted the offer to buy from that state. The fact that the defendants solicited him from Illinois, knew lie was an Illinois resident, mailed his confirmations to his Illinois address and received his acceptance letter and check in Illinois nevertheless bring this sale within the reach of the Illinois Securities Act. . The plaintiff in No. 72-1647 has not yet moved for summary judgment. That appeal is therefore before us only on the granting of summary judgment for defendants.

f2d_479/html/0467-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

UNITED STATES of America, Appellant, v. Eric Wesley VALEN. No. 72-2017. United States Court of Appeals, Third Circuit. Argued March 22,1973. Decided May 22, 1973. Adams, Circuit Judge, concurred and filed opinion. S. John Cottone, U. S. Atty., Laurence M. Kelly, Asst. U. S. Atty., Scranton, Pa., for appellant. David Rudovsky, Kairys & Rudovsky, Philadelphia, Pa., Frank G. Harrison, Rosenn, Jenkins & Greenwald, Wilkes-Barre, Pa., for appellee. Before SEITZ, Chief Judge, and ALDISERT and ADAMS, Circuit Judges. OPINION OF THE COURT ALDISERT, Circuit Judge. In this appeal by the government from a district court order suppressing the admission of two suitcases of marijuana in a prosecution under 21 U.S.C. § 841 (a)(1), we are called upon to decide whether a government agent, having probable cause to search the suitcases, nevertheless should have obtained a warrant before doing so. The district court held that the general principles of search and seizure applied and that the agent should have obtained the warrant. We are to determine whether “exigent circumstances” were present, United States v. Menke, 468 F.2d 20 (3d Cir. 1972), so as to obviate the necessity for the warrant. Two suitcases were left at the Tucson, Arizona, offices of Emery Air Freight Corporation on the morning of May 25, 1971, to be shipped by Emery to Eric Valen, the appellee, in Scranton, Pennsylvania. Emery scheduled shipment of the suitcases on a flight leaving Tucson at approximately 12:30 p. m. that same day. Sometime between 11:30 a. m. and 12 o’clock, noon, an Emery employee, Dennis Thompson, detected an odor of marijuana emanating from this baggage. He immediately opened the suitcases and discovered them to be chock-full of the contraband weed. Thompson notified the U. S. Customs office at Tucson International Airport, and thereafter delivered the suitcases to the airport and identified them to Special Agent Donald Clements. Thompson advised Agent Clements that he had smelled marijuana but did not tell him he had opened the suitcases and seen the contents. Special Agent Clements learned that the suitcases were scheduled to be shipped to Scranton, Pennsylvania, on a flight departing within the hour and, upon examining the suitcases, he too detected the smell of marijuana. He, too, opened them and saw the marijuana. The suitcases were thereafter turned over to the Bureau of Narcotics and Dangerous Drugs (BNDD) for further investigation. BNDD agents conducted a further search of the suitcases preliminary to arranging for a controlled delivery at Scranton, Pennsylvania. Twelve hours after their originally scheduled departure, the suitcases were shipped to Scranton via New York City by commercial airline under the surveillance of agents. On May 27, 1971, Valen appeared at the Scranton-Wilkes-Barre Airport office of Emery, claimed the suitcases, left the airport building, placed the suitcases in the trunk of his car and began to drive away. He was arrested leaving the airport by BNDD agents who opened the trunk of Valen’s car, seized the suitcases and immediately opened them, verifying the contents to be forty-four pounds of marijuana. Valen filed a motion to suppress, contending that the various openings of his suitcases were warrantless searches and, as such, offended the Fourth Amendment. The district court agreed, observing that the critical search was the examination by Agent Clements. The court specifically found that although Clements had probable cause to search, and “under the circumstances a search warrant could not have been obtained at the [Tucson] airport [, .. .he] could have notified government officials at either New York or Scranton and a warrant [could have been] obtained and the suitcases searched at either of these locations.” United States v. Valen, 348 F.Supp. 1163, 1167-1168 (M.D.Pa.1972). At the suppression hearing, Thompson testified that on a previous occasion he had supplied Customs agents with similar information for which assistance he had been paid $375.00, and that he was told by Agent Clements to notify Customs officials if he came across anything suspicious in the future. For the information supplied in this case, Thompson was paid $100.00 by the government. Valen would have us conclude that this association with a government law enforcement agency was sufficient to render Thompson himself a government agent. Such a conclusion is essential to justify suppression on the theory that Thompson’s search was tantamount to that of a government agent. Activities of government agents, as distinguished from those of private persons, come within the ambit of the exclusionary rule if the conduct is violative of the Fourth Amendment. Burdeau v. McDowell, 256 U.S. 465, 41 S. Ct. 574, 65 L.Ed. 1048 (1921); United States v. Goldberg, 330 F.2d 30, 35 (3d Cir.), cert. denied, 377 U.S. 953, 84 S. Ct. 1630, 12 L.Ed.2d 497 (1964). We are satisfied that the minimal contacts between Thompson and the government do not make out a prima facie case of government participation in Thompson’s search. Circumstances are not present here as existed in Corngold v. United States, 367 F.2d 1 (9th Cir. 1966) (en banc), in which a search by an airline employee was conducted at the request and under the supervision of government agents. Thompson was requested to do no more than report suspicious parcels; no attempt was made by the government to use him to do that which the agents themselves were forbidden to do. Thompson’s testimony fully supports the court’s conclusion that his search was conducted solely as a private party in order to protect himself and his employer, Emery. See Gold v. United States, 378 F.2d 588 (9th Cir. 1967). Moreover, the district court found that the status of Thompson as a private party or a government agent was immaterial because Thompson had not told Clements that he had previously opened the suitcases; he had told him only that he had detected the odor of marijuana. We agree with the district court's conclusion that no activity on the part of Thompson tainted the subsequent activity of Agent Clements. We therefore do not have the problem of the fruit of the poisonous tree doctrine, Wong Sun v. United States, 371 U.S. 471, 487-488, 83 S.Ct. 407, 9 L.Ed.2d 441 (1963). As we said in United States v. Barrow, 363 F.2d 62, 66 (3d Cir. 1966), cert. denied, 385 U.S. 1001, 87 S.Ct. 703, 17 L.Ed.2d 541 (1967): “The doctrine ‘excludes evidence obtained from or as a consequence of lawless official acts, not evidence obtained from an “independent source.” ’ Costello v. United States, 365 U.S. 265, 280, 81 S. Ct. 534, 542, 5 L.Ed.2d 551 (1961).” In this case, Clements’ personal detection of the smell of marijuana is the independent basis of Clements’ search. • This brings us to a consideration of what the district court properly characterized as the critical issue in the case, the Tucson Airport search by Agent Clements. In the district court the government placed great dependence upon the “border search” doctrine as justification for Clements’ warrantless search. This contention is not pressed on appeal. Rather the government relies on the “exigent circumstances” exception to the warrant requirement announced in Carroll v. United States, 267 U.S. 132, 45 S.Ct. 280, 69 L.Ed. 543 (1925) and refined in Chambers v. Maroney, 399 U.S. 42, 90 S.Ct. 1975, 26 L.Ed.2d 419 (1970), Coolidge v. New Hampshire, 403 U.S. 443, 91 S.Ct. 2022, 29 L.Ed.2d 564 (1971), and United States v. Menke, supra. This exception to the warrant requirement, authorized for certain automobile searches, is premised on the theory that the mobility of the automobile presents a danger that contraband will move or disappear. Justice White put it succinctly: “But when there are exigent circumstances, and probable cause, then the search may be made without a warrant, reasonably.” Chimel v. California, 395 U.S. 752, 773, 89 S. Ct. 2034, 2046, 23 L.Ed.2d 685 (1969) (dissenting). The “exigent circumstances” exception is not a per se rule to be applied indiscriminately to every automobile containing contraband, nor should it be applied to every object that has the capacity for movement. Rather, its application should depend upon an evaluation of attendant circumstances. At a very minimum there must be probable cause to make a search for contraband. In United States v. Menke, supra, 468 F.2d at 23, we noted that a critical “distinction [exists] between the holding in Coolidge with respect to non-contraband goods, and the holding in Carroll that ‘contraband goods concealed and transported in an automobile or other vehicle may be searched for without a warrant.’ 267 U.S. at 153, 45 S.Ct. at 285.” A further consideration is the reasonable possibility of the agent’s loss of dominion and control over the object to be searched and the consequential loss of the contraband contained therein. “Carroll, supra, holds a search warrant unnecessary where there is probable cause to search an automobile stopped on the highway; the car is movable, the occupants are alerted, and the car’s contents may never be found again if a warrant must be obtained.” Chambers v. Maroney, supra, 399 U.S. at 51, 90 S.Ct. at 1981. This consideration should be balanced with the time which would be required to obtain a search warrant after it has been determined there is probable cause to make the search. Turning to the instant case, the government contended there was probable cause for Clements to make the search. The district court agreed. Additionally, the government emphasizes the extremely high mobility factor of the suitcases confronting Agent Clements. They were due to leave Tucson by air within the hour. They were destined for Scranton, Pennsylvania, with at least one plane change at New York. The agent did not know then whether the freight company was committed to shipping these bags on this particular flight. On the basis of these circumstances, considered at the time of Clements’ action, without the benefit of hindsight or later developments, it was reasonable for the agent to recognize the very real possibility that the contraband could disappear: an air freight handler could have removed the contraband in Tucson, New York, or Scranton. Thus, it was reasonable for him to conclude that a very real possibility existed that the government could lose the contraband, important evidence of a possible violation of federal laws. There was testimony that a minimum of six hours was required to obtain a search warrant. Under the totality of these circumstances, we hold that there were “exigent circumstances” to make the search without the warrant. At oral argument, Valen contended that at best the government had the right to “seize” and detain for a reasonable time, United States v. Van Leeuwen, 397 U.S. 249, 90 S.Ct. 1029, 25 L.Ed.2d 282 (1970), but no right to “search.” However, as Chambers indicated with respect to temporary detention as an alternative to an immediate warrantless search, “[W]hich is the ‘greater’ and which the ‘lesser’ intrusion is itself a debatable question. . . .” 399 U.S. at 51, 90 S.Ct. at 1981. Applying the language of that case to the ease at bar: For constitutional purposes, we see no difference between on the one hand seizing and holding a [suitcase] before presenting the probable cause issue to a magistrate and on the other hand carrying out an immediate search without a warrant. [Where there is the danger of disappearance of contraband] there is little to choose in terms of practical consequences between an immediate search without a warrant and the [suitcases’] immobilization until a warrant is obtained. 399 U.S. at 52, 90 S.Ct. at 1981. Accordingly, we hold that Clements’ warrantless search of the suitcases was constitutionally permissible. As to the activities of the BNDD agents, it would exalt form over substance to have required them to have obtained a warrant to conduct a confirmatory search of the suitcases. Valen has not indicated any manner in which the BNDD search is distinguishable from that of Clements’; we view the two searches as constitutionally indistinguishable. We may consider the suitcases as seized and searched by Agent Clements. Without belaboring the point, the mere closing of the suitcases by Clements for transport to the BNDD does not make each reopening of the suitcases a new search. See Westover v. United States, 394 F.2d 164 (9th Cir. 1968). Chambers makes clear that the right to search which attaches at the time of seizure, continues to exist for a reasonable time after the seizure. See also, United States v. Dento, 382 F.2d 361 (3d Cir.), cert. denied, 389 U.S. 944, 88 S.Ct. 307, 19 L.Ed.2d 299 (1967). We conclude, therefore, the search in Arizona by BNDD agents was not prohibited. Unlike the BNDD search in Arizona, the Scranton search is distinguishable from Clements’ search. First, the suitcases must be viewed as no longer in the exclusive custody of the government at the time of the search. Although agents continued to observe the movement of the suitcases, Valen had asserted a possessory interest over them. Second, the suitcases were removed from the locked trunk of Valen’s automobile. The opening of the trunk, even though for the singular purpose of obtaining the suitcases, was a separate search; and we have concluded that this search is controlled by United States v. Menke, supra. Having concluded that none of the searches here involved violated Valen’s constitutional rights, we do not consider Valen’s “fruit of the poisonous tree” arguments. The order of the district court suppressing the marijuana evidence will be reversed. ADAMS, Circuit Judge (concurring). If the issue presented in this appeal were one of first impression; I would be inclined to distinguish “searches” from “seizures” for the purpose of determining to what extent, if any, the government may properly (1) detain a person’s suitcase (seizure), and (2) examine its contents (search), without first obtaining a warrant before either step (1) or step (2). The Court here holds that under the “exigent circumstances” doctrine both the warrantless seizure of appellant’s suitcase and the warrantless search of its contents squares with the requirements of the Fourth Amendment. My view, as applied to the present case, would be that while sufficient probable cause existed for the warrantless seizure of appellant’s luggage, the subsequent warrantless search of the suitcase’s contents by Agent Clements violated the Fourth Amendment. As the majority so well states, the basis for the “exigent circumstances” doctrine is: “This exception to the warrant requirement, authorized for certain automobile searches, is premised on the theory that the mobility of the automobile presents a danger that contraband will move or disappear.” Bearing in mind that where the logic of a rule stops so should the application of the rule itself, my view, that in cases such as the present one a distinction should be made between warrantless seizures and warrantless searches, is bottomed upon the notion that the government’s valid interest in preventing the movement or disappearance of contraband is adequately and satisfactorily served by allowing the seizure of the property in question (here, a suitcase). At the same time, no legitimate interest in effective law enforcement would seem to justify the greater and further intrusion of a warrantless search of the already immobilized property, be it an automobile or a suitcase. It appears, however, that the Supreme Court, in Chambers v. Maroney, 399 U. S. 42, 51-52, 90 S.Ct. 1975, 26 L.Ed.2d 419 (1970), has rejected any such proffered distinction between warrantless searches and warrantless seizures. And, since Chambers is not, in my judgment, sufficiently distinguishable from the present case to permit either a different analysis or result here, I am impelled to concur in the result reached by the majority opinion. . The Supreme Court not only rejected this distinction, but did so in the face of Justice Harlan’s dissenting opinion that suggested an analytical approach similar to the view advanced in this concurring opinion. See Chambers v. Maroney, 399 U.S. 42, 61-65, 90 S.Ct. 1975, 26 L.Ed.2d 419 (1970) (Harlan, J., dissenting).

f2d_479/html/0472-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

Chester KUBIK et al., Appellants, v. Morton GOLDFIELD and Albert Teller & Co., Inc., Appellees. No. 72-1039. United States Court of Appeals, Third Circuit. Argued Feb. 1, 1973. Decided May 30, 1973. Melvin Brookman, Joseph D. Shein, Shein, Mele & Brookman, Philadelphia, Pa., for appellants. Fred C. Aldridge, Jr., Andre L. Dennis, Stradley, Ronon, Stevens & Young, Philadelphia, Pa., for appellees. Before SEITZ, Chief Judge, ALDI-SERT, Circuit Judge, and FISHER, District Judge. OPINION OF THE COURT CLARKSON S. FISHER, District Judge. The issue presented by this appeal is whether a motion for summary judgment brought by appellees and granted by the district court was appropriate under Rule 56 of the Federal Rules of Civil Procedure which provides that summary judgment be granted only when there is “no genuine issue as to any material fact.” This is an action by purchasers of securities against a securities dealer and one of its registered representatives to recover the purchase price of the stock and other damages. On May 8, 1967 appellants Marquez purchased 500 shares of Interamerican Industries, Ltd., a Canadian company, from appellee Albert Teller Company, Inc. through its salesman-representative appellee Goldfield. On the same date, appellant Kubik bought 300 shares of Interamerican Industries, Ltd. from these same appellees. Interamerican Industries, Ltd. stock was first offered to the public in the United States by the issuer or by or through an underwriter in July, 1966. Lustgarten v. Albert Teller & Co., 304 F. Supp. 771, 772 (E.D.Pa.1969). On May 18, 1967 the Securities and Exchange Commission ordered the suspension of over-the-counter trading of this stock because no registration statement was effective as required by Section 5 of the Securities Act of 1933. Appellants’ suit consisted of two claims against the appellees: (1) the sale to appellants of unregistered securities (Interamerican Industries, Ltd. stock) by the appellees in violation of Section 5 of the Securities Act of 1933, and (2) failure of appellees to disclose that such securities were unregistered and other facts to the appellants in violation of the fraud provisions of the Securities Act of 1933 (Sections 12(2) and 17(a)) and of the Securities and Exchange Act of 1934 (Section 10(b)). The court below granted summary judgment on its finding that the sales by the appellees were within the dealer’s exemption provided by Section 4(3) of the Securities Act of 1933. However, as to the alleged violation of the fraud provisions, the court below did not discuss this claim in its opinion and order which granted summary judgment for the ap-pellees. VIOLATION OF SECTION 5 Appellees admitted that they sold shares of Interamerican Industries, Ltd. stock to the appellants and that this stock had no effective registration statement as required by Section 5. Although the stock was unregistered in violation of Section 5 requirements, the appellees raised the statutory defense of a dealer’s exemption provided by Section 4(3) of the Securities Act of 1933. Appellees claimed to be exempt from the registration requirements of Section 5 because they took the position that they were “dealers” as defined by Section 2 (12), and because the transactions complained of occurred subsequent to the expiration of forty days after the first date upon which the security was bona fide offered to the public by the issuer or by or through an underwriter. Lustgarten, supra. Appellants, however, argued that no “bona fide” offer to the public had occurred even though the Interamerican Industries stock had been quoted since July, 1966 in the National Daily Quotation Service, commonly known as the “pink sheets,” because the Interamerican Industries stock was “unlawfully” distributed (i.e., without effective registration statement and without satisfying a security exclusion or a transaction exemption). The court below properly held that the appellees were entitled to the dealer’s exemption under Section 4(3) of the Securities Act of 1933 because they were “dealers” as defined by that Act and because there had been a “bona fide” offering of the stock to the public for more than forty days prior to the disputed transaction since the stock had been quoted in the “pink sheets” since July, 1966. The district court correctly ruled that for the purposes of determining a dealer exemption under Section 4(3) of the Securities Act of 1933, a “bona fide” offer to the public may occur when a stock first appears in the “pink sheets,” even though the stock may be “illegally” unregistered. Securities and Exchange Commission v. North American Research & Development Corp., 280 F.Supp. 106, 125 (S.D.N.Y. 1968), aff’d in part, vacated in part, 424 F.2d 63, 81 n. 14 (2nd Cir. 1970); H.R. Rep. No. 1542, 83d Cong., 2d Sess. (1954), reported in U.S.Code Cong. & Admin.News, pp. 2973, 2995 (§ 6, ¶2) (1954). North American Research, supra, involved a scheme by several confederates to acquire the stock of a shell corporation and vest that corporate shell with the kind of “assets” that would entice investors in speculative securities, thereby creating a market for this stock. When the Securities and Exchange Commission sought to enjoin these fraudulent activities, several defendant broker-dealers claimed Section 4(3) dealer transaction exemptions. North American Research, supra, 280 F.Supp. at 124. These claims were denied. The stock was first quoted in the “pink sheets” on June 27, 1967. The collaborators had arranged for the quotations to appear and a block of 25,000 shares to be traded to one of their wives on that same day, June 27, 1967. However, prior to the expiration of forty days from that date, the S.E.C. suspended trading in the stock on July 20, 1967. Even though the opinion refers to a Section 4(3) “bona fide” offer occurring on the date that “trading commenced,” a close analysis of the facts reveals that, as the district court found, a “bona fide” offer occurs when the stock is first quoted in the “pink sheets.” Compare North American Research, supra, 424 F.2d at 81 n. 14 with North American Research, supra, 280 F.Supp. at 125. The court did not dispute the district court’s suggestion that had a defendant dealer waited until August 6, 1967, forty days after the first quotation of the North American Research stock in the “pink sheets,” the Section 4(3) exemption would have been available. Therefore, we find that here the court below correctly determined that appel-lees were entitled to the dealer’s exemption under Section 4(3) of the Securities Act of 1933, and thus, the appellees in their sales to the appellants were not in violation of Section 5 of the Securities Act of 1933. If the appellants’ only claim was the alleged violation of Section 5, we would be compelled to affirm the grant of summary judgment. VIOLATION OF FRAUD PROVISIONS The appellants’ second claim concerning violation of fraud provisions of the 1933 and 1934 Acts — as best can be discerned from their inartfully drawn complaint — consisted of two basic allegations. First, appellants contend that the appellees knew or should have known that Interamerican Industries stock was unregistered. Appellants argue that registration, or lack of it, is a material fact, the omission of which gives rise to statutory liability. Second, appellants claim that appellee Goldfield fraudulently concealed facts regarding the risk involved in purchasing the stock and that he made further misrepresentations which appellants relied upon to their detriment. Apparently the court below made no findings with reference to appellants’ allegations of fraud. There is no discussion of appellants’ claims of fraud in the district court’s opinion and order which granted summary judgment for the appellees. Therefore, summary judgment was inappropriate at this time. The case must be remanded for a determination concerning this fraud claim. We express no opinion as to whether summary judgment would be appropriate on the fraud claim once the district court considers the matter. We note, however, Section 4 creates exemptions only from the registration requirements of Section 5 and not from the anti-fraud provisions of Section 17(a). Lawrence v. Securities and Exchange Commission, 398 F.2d 276, 280 n. 6 (1st Cir. 1968). There is no justification for interpreting Section .4 to destroy the plain meaning and efficacy of the anti-fraud provisions of the securities statutes. Newman v. Weinstein, 229 F.Supp. 440, 442 (N.D.Ill. 1964). Even though the appellees are entitled to exemption from the registration requirements under Section 4(3), they are not thereby exonerated from liability for fraudulent activities. Accordingly, although we agree the district court correctly found the appel-lees within the dealer exemption as to the alleged Section 5 violation, we vacate the order granting summary judgment and remand the case for further proceedings with respect to the alleged violation of the fraud provisions. . 15 U.S.C. Sec. 77e (1971). . 15 U.S.C. Sec. 771(2) & 77q(a) (1971). . 15 U.S.C. Sec. 78j(b) (1971). . 15 U.S.C. Sec. 77d (1971) states: The provisions of section 77e of this title shall not apply to — . (3) transactions by a dealer (including an underwriter no longer acting as an underwriter in respect of the security involved in sucli transaction), except— (A) transactions taking place prior to the expiration of forty days after the first date upon which the security was bona fide offered to the public by the issuer or by or through 'an underwriter. . 15 U.S.C. Sec. 77b(12) (1971) states: The term “dealer” means any person who engages either for all or part of his time, directly or indirectly, as agent, broker, or principal, in the business of offering, buying, selling, or otherwise dealing or trading in securities issued by another person. . Under the securities statutes, fraud is not limited to the common law elements of deceit. S.E.C. v. Capital Gains Bureau, Inc., 375 U.S. 180, 192-195, 84 S.Ct. 275, 11 L.Ed.2tl 237 (1963); Hooper v. Mountain States Securities Corp., 282 F.2d 195, 201 (5th Cir. 1960); S.E.C. v. Gulf Intercontinental Finance Corp., 223 F.Supp. 987, 993 (S.D.Fla. 1963); Azalea Meats, Inc. v. Muscat, 246 F.Supp. 780, 782 (S.D.Fla.1965); Lerman v. Tenney, 295 F.Supp. 780, 783 (S.D.N.Y.1969) . The specific statutory basis for appellants’ claims of fraud are unclear from the complaint. Apparently the claims based upon failure to disclose the lack of registration are based upon Sections 12(2) and 17(a) of the Securities Act of 1933. Under Section 17 (a) the failure to state the whole truth with regard to a security is equally as unlawful as the statements of half-truths or deliberate falsehoods. It is the impression created by the statements which determines whether they are misleading. In re American Trailer Rentals Co., 325 F.2d 47, 53 (10th Cir. 1963). Those claims relating to the misrepresentations of the salesman are apparently based upon Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. Sec. 78j(b) (1971), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5. Under these provisions, activity which purveys false or deceptive information to a potential investor for the purpose of inducing investment is unlawful. See, e. g., Securities & Exchange Commission v. International Chemical Development Corp., 469 F.2d 20, 27 (10th Cir. 1972). It would be inappropriate at this stage of the proceedings for this court to discuss the merits of these claims, but it should be noted that each of these provisions contain different elements and are subject to different defenses. . A material fact is any information about which an average prudent investor ought reasonably to be informed before purchasing a security or if its existence or non-existence is a matter to which a reasonable man would attach importance in determining his choice of action in the transaction in question. Johns Hopkins University v. Hutton, 422 F.2d 1124, 1128-1129 (4th Cir. 1970); Gilbert v. Nixon, 429 F.2d 348, 355-356 (10th Cir. 1970). . Appellee Goldfield specifically denied these allegations in paragraphs three and four in his affidavit of May 1, 1970. . Professor Moore has suggested that summary judgment may be inappropriate if an action is based upon a complex scheme of fraud. In eases involving allegations of fraud, he has also stated: In ruling on the motion (for summary judgment), the court should remember that the movant has the burden of demonstrating clearly the absence of any genuine issue of material fact, that the court should not draw factual inferences in favor of the moving party, and should not resolve a genuine issue of credibility. 6 Moore’s Federal Practice (2d ed.) ¶ 56.17(27) at 2554. . Compare Tennessee Valley Authority v. 9.6 Acres of Land, 456 F.2d 1116, 1117 (6th Cir. 1972) where the district court failed in its order and memorandum of summary judgment to refer to certain claims raised in the affidavits and other documents filed with the motion. . Appellees raise the defense of the statute of limitations provided in Section 13 of the 1933 Act. 15 U.S.C. Sec. 77m (1971). The parties disputed the facts as to when the statute commenced to run. We express no opinion on this issue without sufficient factual findings on the record. Since Section 13 requires a standard of reasonable diligence by the plaintiff, it is the function of the trier of the facts to determine when the statute commenced to run, especially when a jury is involved. Johns Hopkins University v. Hutton, 422 F.2d 1124, 1131 (4th Cir. 1970). The record before us reveals this factual dispute which we consider only to determine the propriety of summary judgment under Rule 56. It should be noted that Section 13 applies only to Section 12(2) liability. Claims under Section 17 (a) and Section 10(b) are governed by analogous state statutes of limitations. Premier Industries v. Delaware Valley Financial, 185 F.Supp. 694, 696 (E.D.Pa.1960). . 15 U.S.C. Sec. 77q (1971).

f2d_479/html/0478-01.html

Caselaw Access Project

2024-08-24T03:29:51.129235

2024-08-24T03:29:51.129683

SOUTHERN OHIO BANK, Executor under the will of Virgil A. DiPerna, Deceased, Plaintiff-Appellant, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., et al., Defendants-Appellees. No. 72-1890. United States Court of Appeals, Sixth Circuit. Argued April 3, 1973. Decided June 7, 1973. Philip J. Schneider, Cincinnati, Ohio, on brief, for plaintiff-appellant; Waite, Schindel, Bayless & Schneider, Stanley M. Chesley, Cincinnati, Ohio, of counsel. William B. O’Neal, Robert T. Keeler, Richard J. Erickson, Cincinnati, Ohio, for appellees; Kilcoyne, O’Neal, Meier & Varnau, Cincinnati, Ohio, on brief. Before EDWARDS, CELEBREZZE and LIVELY, Circuit Judges. LIVELY, Circuit Judge. Plaintiff-appellant is successor executor under the will of Virgil DiPerna who died in 1966, a resident of Ohio. This action was originally filed in the Ohio Court of Common Pleas and was removed by the defendant-appellee, Merrill Lynch, Pierce, Fenner & Smith, Inc., a Delaware corporation. The complaint and amended complaint stated that three days before the death of Virgil DiPerna, his wife, Althea Lowe DiPerna, delivered to the defendant stock certificates in eleven different corporations bearing the forged signature of Virgil DiPerna, together with a document directing transfer of the securities to Mrs. DiPerna. It was alleged that the signature on this document was also forged. It was further alleged that “[D]efendant acted without authority of law, carelessly and negligently, by guaranteeing said forged signatures, although it knew or in the exercise of ordinary care should have known that Virgil A. DiPerna was completely incapable of signing anything; caused the estate to be deprived of its assets . . The plaintiff sought damages for the value of the stock represented by the certificates, with interest; and its expenses in establishing the forgeries and unsuccessful efforts to recover from Althea. The defendant filed an answer in the form of a general denial of the material allegations, and a motion for judgment on the pleadings. Before the district court acted upon the motion for judgment on the pleadings, the plaintiff added all the issurers of the stock and the transfer agents involved in transfer of the stocks to Althea as new parties defendant. This was followed by a second amended complaint in which breach of contract was alleged against the original defendant and the issuers, and breach of. express and implied warranties was charged to the transfer agents. One of the issuing corporations filed an answer admitting that it had transferred stock registered in the name of Virgil DiPerna to Althea DiPerna in reliance on the signature guarantee of Merrill Lynch. By a third party complaint it sought indemnification from Merrill Lynch. One of the transfer agents filed a motion to dismiss for improper venue. The district court granted the motion for judgment on the pleadings, and judgment was entered dismissing the action against Merrill Lynch with prejudice. Thereafter an order was entered dismissing the issuing corporations as “satellites” whose primary action no longer existed and who “had no business in the case in the first place.” The transfer agents were dismissed because of the court’s doubt that either jurisdiction or proper venue existed as to them. The judgment of dismissal as to the claims against Merrill Lynch was based on a holding that Chapter 1308 of the Ohio Revised Code (a portion of the Uniform Commercial Code) provides the exclusive remedy for one who claims to have been damaged by a signature guarantee. It was held that Sections 1308.22 and 1308.34 require that an aggrieved owner proceed against the issuing corporation which registers the transfer of a security on the basis of an unauthorized endorsement. In turn, the issuer may recover from the broker who guaranteed the owner’s signature if the signature is not genuine. Nowhere in the Code, the district court held, is there a provision for an action by the true owner against the guarantor of a forged signature. Section 1308.23 of the Ohio Revised Code defines the warranties of one who guarantees a signature for purposes of transfer, in part as follows: § 1808.28 (ÜCC 8-312) Effect of guaranteeing signature or indorsement. (A) Any person guaranteeing a signature of an indorser of a security warrants that at the time of signing: (1) the signature was genuine; and (2) the signer was an appropriate person to indorse, as provided in section 1308.19 of the Revised Code; and (3) the signer had legal capacity to sign. But the guarantor does not otherwise warrant the rightfullness of the particular transfer. -X- * * -X- * -X- (C) The foregoing warranties are made to any person taking or dealing with the security in reliance on the guarantee and the guarantor is liable to such person for any loss resulting from breach of the warranties. These warranties were held by the district court to flow from the guarantor to the issuer, not to the owner of the stock. This construction is based on a finding that the owner is not a “person taking or dealing with the security in reliance on the guarantee. . . .” We find this construction of Section 1308.23 to be correct. This section manifestly is concerned with relations between issuers and those whose guarantees are relied upon in making transfers and issuing stock certificates. The term “such person” used in subection (C) of § 1308.23 cannot be held to include the true owner, since he has neither taken nor dealt with the security in reliance on the guarantee. Love v. Pennsylvania Railroad Company, 200 F.Supp. 561 (E.D.Pa. 1961). On appeal it is the contention of appellant that its complaint as amended did state a valid cause of action against Merrill Lynch independent of the provisions of the Uniform Commercial Code. Allegations of negligence and breach of contract do appear in these pleadings. For purposes of a motion for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to judgment. 2A Moore, Federal Practice, para. 12.15 (1972). The pleadings charged Merrill Lynch with two separate acts. One was guaranteeing the forged signature of Virgil A. DiPerna on the stock certificates. The other was honoring forged instructions to have the certificates transferred to Althea Lowe DiPerna. From the pleadings it appears that the certificates were endorsed in blank and the instructions for transfer were on a separate sheet, also containing a forged signature, which was filed by the appellant as an exhibit with the complaint. In its answer one of the issuers, General Motors Corporation, stated that it caused shares of its stock to be transferred to Althea at the request of Merrill Lynch. Whereas § 1308.23 precludes appellant from proceeding on the warranty of the guarantor, §§ 1308.26 and 1308.34 give it the right to proceed against certain purchasers and the issuers for delivery of “a like security.” The question to be determined is whether this is an exclusive remedy. The remedy provided by § 1308.34 is equitable, being in the nature of specific performance. It is not difficult to conceive of a situation where a drastic reduction in the price of a security between the time of a wrongful transfer and its discovery would make delivery of a like security less than a complete remedy. In this case appellant chose to sue for damages rather than seek return of the stock. One of the general provisions of the Uniform Commercial Code makes it clear that traditional rights and remedies remain in force unless eliminated by particular provisions of the Code. The general rule is that a broker who receives securities from a customer for sale or exchange stands in a relationship to the customer of agent or bailee. 12 Am.Jur.2d, Brokers § 113. The securities in this case were purportedly delivered to appellee on behalf of Virgil A. DiPerna and were received as his property with instructions to transfer them. Ohio recognizes rights of action by a principal against his agent for negligence, Salem v. De Witt-Jenkins Realty Co., 113 N.E.2d 918 (Ohio Ct.App. 1952); Archer v. Huntington National Bank, 92 Ohio App. 299, 109 N.E.2d 677 (1952); and by a bailor against his bailee, for negligence or breach of contract, Riggs v. Taylor, 168 Ohio St. 276, 154 N.E.2d 145 (1958); Agricultural Insurance Co. v. Constantine, 144 Ohio St. 275, 58 N.E.2d 658 (1944). There are no provisions of the Code which specifically displace these rights and they continue to supplement its provisions. The existence of other remedies for the owner is borne out by Comment 2 to § 1308.26, Page’s Ohio Revised Code Annotated, Title 13, page 351, which reads as follows: 2. This section deals only with the owner’s right to reclaim possession of the security and is not intended to exclude any rights he may have for damages for conversion under the case law. But see RC § 1308.29 [UCC 8-318], which protects innocent brokers and other agents and bailees from liability for conversion. The traditional rights of action referred to herein are limited, as noted in the Comment, by § 1308.29 which provides a broker with a defense in an action for conversion or for participation in breach of a fiduciary duty, if he acts in good faith, which includes observance of reasonable commercial standards. The actions of Althea Lowe DiPerna, as set forth in the complaint, were clearly a conversion of the property of her husband. Viewed in light of Rule 8(f), Federal Rules of Civil Procedure, the complaint as amended charges Merrill Lynch with participating in this conversion by reason of its negligence and breach of contract. Whether appellant can prove its> allegations can only be determined by developing the facts. Also, whether the defense provided by § 1308.-29 will relieve appellee of liability depends upon its satisfaction of the requirements of the section — and this, too, is a question of fact. We conclude that it was error to grant judgment on the pleadings. Reversed and remanded for further proceedings consistent with the holdings herein. . § 1301.03 '(UCC 1-103) Supplementary general principles of law applicable. Unless displaced by the particular provisions of Chapters 1301., 1302., 1303., 1304., 1305., 1306., 1307., 1308., and 1309. of the Revised Code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions. . § 1308.29 (UCC 8-318) No conversion by good faith delivery. An agent or bailee wlio in good faith, including observance of reasonable commercial standards if lie is in the business of buying, selling, or otherwise dealing with securities, has received securities and sold, pledged, or delivered them according to the instructions of his principal is not liable for conversion or for participation in breach of fiduciary duty although the principal liad no right to dispose of them. . (f) Construction of Pleadings. All pleadings shall be so construed as to do substantial justice.

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Louise GENOSICK, Individually, and as Guardian ad litem for Roger Genosick, a minor, Individually and on behalf of all others similarly situated, Plaintiffs-Appellees, v. RICHMOND UNIFIED SCHOOL DISTRICT et al., Defendants-Appellants. No. 71-1456. United States Court of Appeals, Ninth Circuit. May 18, 1973. Silvano Marchesi, Deputy County Counsel (argued), John B. Clausen, County Counsel, Arthur W. Walenta, Jr., Deputy County Counsel, Martinez, Cal., for defendants-appellants. Peter E. Sherhan (argued), Paul Hal-vonik, Chas. C. Marson, San Francisco, Cal., Ramsey & Rosenthal, Point Richmond, Cal., for plaintiffs-appellees. Before GOODWIN and WALLACE, Circuit Judges, and CURTIS, District Judge. Honorable Jesse W. Curtis, United States District Judge, Central District of California, sitting by designation. CURTIS, District Judge: This is an appeal from two orders of the district court, one being an order denying appellants’ motion to dismiss upon the grounds that the complaint fails to state facts upon which relief can be granted, and a second order issuing a preliminary injunction. Jurisdiction is conferred on this court by Title 28 U.S.C. § 1292, which makes interlocutory orders issuing preliminary injunctions appealable. It is also established that an appeal from an order granting preliminary injunction supports a review of an order denying a motion to dismiss, even though standing alone the latter would not be appealable. 9 Moore Fed.Practice section 110.25 [1]; Gatliff Coal Company v. Cox, 142 F.2d 876 (6th Cir. 1944); Zwack v. Kraus Bros. & Co., 237 F.2d 255 (2nd Cir. 1956). The appellees, a minor child and his mother, brought this action against the appellants, Richmond Unified School District, its superintendent and an assistant superintendent, contending that the district in which the child was a pupil had instituted a policy which violated the students’ First Amendment rights. It appears from the record that the district assistant superintendent circulated a memorandum dealing with the wearing of pants suits by female staff and the displaying of ecology symbols. The memorandum read in part: “Both the cause of peace and that of improved ecology can be furthered in our schools without resort to the current symbols used by some in our society. “You are directed to see that both of these decisions are inforced [sic].” The appellees alleged that because of the issuance of this memorandum, they are in “immediate peril of intimidation, threat, harassment, discrimination, and interference with their First Amendment rights of free speech, and Fourteenth Amendment rights of equal protection.” Immediately after filing the complaint a second memorandum was issued to the elementary principals, reading as follows: “The intent is to counsel teachers from overemphasizing abstract symbols. There is no reference to the right of an individual to wear a symbol on his person.” Thereafter, the assistant superintendent filed herein an affidavit in opposition to the application for a preliminary injunction, which, among other things, included the following: “It is not and never has been the policy of the Richmond Unified School District to prohibit, discourage by intimidation, threats of punishment or discipline, or otherwise discriminate against students who wear, display, or create commonly used peace or ecology symbols.” After a hearing, the court issued an injunction prohibiting the defendants from “threatening, harassing, intimidating, discouraging, punishing, discriminating against or disciplining plaintiffs and the members of the class to which they belong for displaying, creating, or wearing of commonly used peace and ecology symbols until further order of this court.” The appellants contend that the issuance of the preliminary injunction and the denial of the motion to dismiss were an abuse of the court’s discretion. We agree. Although the federal courts stand ready to assure school students of full constitutional protection whenever the need arises, the record does not reveal that injunctive relief is necessary or proper in this case. While the first memorandum might conceivably be construed as a cryptic instruction to the principals to use the power of their office to inhibit a mode of expression, the subsequent memorandum eschewed such an interpretation. On the record before us, no policy of curtailing student expression has ever been implemented, and none is threatened. ■ Accordingly, the district court acted prematurely in granting an injunction. It is ordered that the injunction be dissolved and the action dismissed. Reversed.

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UNITED STATES of America, Plaintiff-Appellee, v. Roy A. BARTEE, Defendant-Appellant. No. 72-1759. United States Court of Appeals, Tenth Circuit. Argued and Submitted Feb. 21, 1973. Decided May 22, 1973. Rehearing Denied June 14, 1973. Paul D. Cooper, Asst. U. S. Atty. (James L. Treece, U. S. Atty., on the brief), for plaintiff-appellee. Hugh J. McClearn, Denver, Colo. (Gregory A. Thomas, Boulder, Colo., and Van Cise, Freeman, Tooley & MeClearn, Denver, Colo., on the brief), for defendant-appellant. Samuel P. Guyton and Eugene F. McGuire, Denver, Colo., and Holland & Hart, Denver, Colo., of counsel, for The Denver Medical Society, as amicus curiae.. Before SETH, McWILLIAMS and DOYLE, Circuit Judges. McWILLIAMS, Circuit Judge. Dr. Roy A. Bartee, a licensed doctor of medicine, was convicted on two counts of dispensing a controlled substance in violation of 21 U.S.C. § 841(a)(1). In one count, Dr. Bartee was convicted of knowingly and intentionally dispensing Percodan on February 29, 1972, to Ronald Baker, a special agent with the Federal Bureau of Narcotics and Dangerous Drugs, which agency will hereinafter be referred to as BNDD. In another count, Dr. Bartee was convicted of knowingly and intentionally dispensing Seconal on March 2, 1972, to William Coller, also a special agent for BNDD. Dr. Bartee was acquitted on a third count involving a Denver policewoman who visited him and for whom he had allegedly prescribed Percobarb and Dexamyl. Dr. Bartee now appeals his conviction and in our view his principal assignment of error relates to the sufficiency of the evidence. Accordingly, we will summarize the evidence in some detail, keeping in mind that, Dr. Bartee having been convicted, we must on appeal view the evidence, together with all the reasonable inferences that can be drawn therefrom, in a light most favorable to the Government. United States v. Frazier, 434 F.2d 238 (10th Cir. 1970). On February 14, 1972, agent Ronald Baker first visited Dr. Bartee in the latter’s office located at 811 South Pearl Street in Denver, Colorado. Baker, using a cover name of Tony Morris, complained to the doctor of a persistent backache. The doctor, without conducting any physical examination, as such, though he did take a short history, wrote out a prescription for Parafon-forte, which is not a controlled substance. On February 29, 1972, Baker returned to Dr. Bartee, advising him on that occasion that he needed something stronger than Parafon Forte. As concerns the Parafon Forte previously prescribed, Baker informed the doctor that he had traded some of it for some Tuinal, which is a controlled substance. Dr. Bartee then advised Baker that he would prescribe something stronger and began writing out a prescription for twenty-four tablets of Percodan, which is a controlled substance. Baker asked for a larger prescription and the doctor accordingly gave Baker three separate prescriptions, each calling for twenty-four Percodan tablets, with two of the prescriptions being postdated, one to March 4, 1972, and another to March 8, 1972. On March 7, 1972, Baker returned to Dr. Bartee’s office for a third time; On this occasion, Baker told the doctor that he had been selling the Percodan previously prescribed, whereupon Dr. Bar-tee stated that he would not do any further business with Baker and walked out of the office. The foregoing summarizes the contacts between Baker and Dr. Bartee. As stated above, one count was based on Dr. Bartee’s prescribing Perco-dan for Baker on February 29, 1972. Let us now turn to agent Coller’s visitations to Dr. Bartee’s office. On February 4, 1972, agent William Coller, using the cover name of Bill Conan, first visited Dr. Bartee, complaining of nervousness and inability to sleep. After taking a brief history and making no physical examination, the doctor prescribed Librium, which is said to be a noneontrolled substance. On February 28, 1972, Coller returned to Dr. Bartee and told him that he (Coll-er) had traded the Librium for Seconal, which he called “reds,” because the Librium hadn’t helped him any. On this occasion, Dr. Bartee gave Coller a quantity of the drug Triavil, as opposed to writing out a prescription. On March 2, 1972, Coller again visited Dr. Bartee and insisted on being given some “reds,” a slang term for Seconal. As concerns the Triavil, Coller told the doctor that he had used some, and sold the rest. Dr. Bartee on this occasion told Coller that Seconal was a powerful narcotic and wasn’t normally prescribed for simple nervousness. Coller insisted and the doctor wrote out a prescription for Seconal, with Coller paying for the office call with a radio. On March 9, 1972, Coller next visited Dr. Bartee, asking for more “reds.” Dr. Bartee indicated he had given Coller plenty of Seconal on the earlier visit and asked what Coller had done with the Seconal thus prescribed. Coller informed the doctor that he had used some, and gave the rest to his roommate. Dr. Bartee said he had to be “careful” since the BNDD from time to time checked the records of drugstores to determine which doctors were prescribing drugs. In response thereto, Coller stated that he would get the prescriptions filled out of Denver, if that would help, to which the doctor replied that such wasn’t necessary, with the further admonition that “if you’ll just take the prescriptions to different drugstores each time, that should be all right.” On this occasion, Dr. Bartee gave Coller one prescription for twenty-four Seconal tablets, and a second prescription, postdated, for twenty-four more Seconal tablets. On March 21, 1972, Coller made his final visit to Dr. Bartee and said he needed some more “reds.” Coller informed the doctor that he had traded some of the Seconal for other drugs. On this occasion, Coller got another prescription for twenty-four Seconal tablets. He also got a second prescription, bearing the same date as the first, for an additional twenty-four Seconal tablets, on the pretext that he was leaving town and needed a larger prescription. As concerns this second prescription given Coller by Dr. Bartee on March 21, 1972, there was a dispute between Coller and Dr. Bartee as to the reason for such. Dr. Bartee testified that Coller came back in the afternoon claiming that he had lost the prescription given him during the morning of that day and that this precipitated the giving of a second prescription on the same day. As indicated, Coller testified that he got both prescriptions at the same time. Coller’s version was pretty well corroborated by another agent of BNDD and by the druggist who filled both prescriptions, to the end that Dr. Bartee on surrebuttal testified that the “lost” prescription episode might well have not occurred on March 21, 1972, but possibly on March 9, 1972. The foregoing summarizes the extent of Coller’s contacts with Dr. Bartee. As indicated, one count was based on the prescription given Coller by Dr. Bartee on March 2, 1972, for Seconal. However, Coller’s testimony regarding his visits to Dr. Bartee of February 4, 28, and March 9 and 21 was admitted on the basis that evidence of such other transactions was admissible for the purpose of proving a common plan, scheme or design on the part of Dr. Bartee to commit the offense charged, or for the purpose of proving motive, opportunity, intent, knowledge, or absence of mistake. United States v. Burkhart, 458 F.2d 201 (10th Cir. 1972). For like reason, Baker’s testimony as to each of his several visits to Dr. Bartee was received into evidence. Before considering Dr. Bar-tee’s argument as to why his convictions should be reversed, reference will first be made to various statutes which bear on the controversy. Section 841(a)(1), 21 U.S.C. provides that it is unlawful for any person to knowingly and intentionally dispense a controlled substance, except as authorized by the subchapter. Section 802(10), 21 U.S.C. defines the word “dispense” as follows: “The term 'dispense’ means to deliver a controlled substance to an ultimate user or research subject by, or pursuant to the lawful order of, a practitioner, including the prescribing and administering of a controlled substance and the packaging, labeling, or compounding necessary to prepare the substance for such delivery. * * *” (Emphasis added.) The italicized portions of the foregoing will be discussed, infra. The word “administer” is defined in 21 U.S.C. § 802(2) as follows: “The term ‘administer’ refers to the direct application of a controlled substance to the body of a patient * * * by_- (A) a practitioner (or, in his presence, by his authorized agent), or (B) the patient * * * at the direction and in the presence of the practitioner, whether such application be by injection, inhalation, ingestion, or any other means.” The term “ultimate user” is defined in 21 U.S.C. § 802(25) as follows: “The term ‘ultimate user’ means a person who has lawfully obtained, and who possesses, a controlled substance for his own use or for the use of a member of his household or for an animal owned by him or by a member of his household.” Section 829(a) and (b), 21 U.S.C., and 21 C.F.R. § 306.04(a) exempt medical practitioners from the prohibitions of 21 U.S.C. § 841(a)(1) whenever such a practitioner issues a prescription for a legitimate medical purpose and in the usual course of his professional practice. Viewing the evidence then in the light of the foregoing statutes, it is agreed that Percodan and Seconal are controlled substances. It is undisputed that Dr. Bartee prescribed Percodan and Seconal for Baker and Coller respectively. It is further agreed that the prescriptions thus given Baker and Coller were filled by a druggist, but were never used by either Baker or Coller, and, on the contrary, were turned over to BNDD as evidence. Finally, it is agreed that Dr. Bartee only prescribed, and did not himself administer to either Baker or Coller. Dr. Bartee first contends that even though the evidence be viewed in a light most favorable to the Government, the facts and circumstances of the instant case do not measure up to the requirements of the statute in two particulars: (1) Baker and Coller were not “ultimate users” as that term is used in the statute; and (2) Dr. Bartee did not “prescribe” and “administer” as is said to be required by the statute. We do not agree. It is true that 21 U.S.C. § 802 requires that the controlled substance be dispensed to an “ultimate user,” as the statutory definition of “ultimate user” has been set forth above. Counsel argues that Baker and Coller were not ultimate users because neither used nor ever intended to use the controlled substance, but, on the contrary, merely turned over the prescription, and the controlled substance issued pursuant thereto, to the BNDD for evidence. In this connection it is further asserted that this requirement that the controlled substance be given to one for his own use is a built-in protection against the use of Government agents to “set-up” unsuspecting medical practitioners. In our view, if Congress desired to outlaw the use of Government agents in drug cases, it would have done so in clear and understandable language and not in this oblique way. We do not agree that in order for one to be deemed an ultimate user he must in fact ingest the drug, or that there must be an intent to use the drug when it is obtained. The statute only requires that he obtain the drug for his own use, and not that he must in fact use it. Nor do we agree with the argument that the statute requires that a medical practitioner, such as Dr. Bartee, not only “prescribe,” but also “administer,” if he is to be deemed in violation of the statute. As indicated above, 21 U.S.C. § 802(10), as it defines the word “dispense,” states that dispensing means to deliver a controlled substance, which includes “the prescribing and administering of a controlled substance.” Counsel argues that the omission of the article “the” before the word “administering” indicates that the phrase is not to be construed in the disjunctive and that a doctor who merely prescribes, and does not thereafter administer, does not violate the statute, even though the prescription given is filled by the druggist, as is true in the instant case. We do not agree with this reasoning. Any doubt as to legislative intent in this regard is cleared up, we believe, by 21 U. S.C. § 829(a) and (b) and 21 C.F.R. § 306.04. In the first place, 21 U.S.C. § 841(a)(1) makes it unlawful for anyone to dispense a controlled substance unless specifically authorized by other provisions in the subchapter. Both sides agree that the provisions exempting medical practitioners are found in 21 U. S.C. § 829(a) and (b) and 21 C.F.R. § 306.04. And counsel for Bartee concedes in his brief that under that particular statute and regulation medical practitioners are exempt from the prohibition against dispensing controlled substances, “whenever such a practitioner issues a prescription for a legitimate medical purpose and in the usual course of his professional practice.” We agree with this analysis. And the converse of that proposition is equally clear and inescapable, namely, that when a medical practitioner issues a prescription which is not for a legitimate medical purpose and is not in the usual course of his professional practice, then he does violate the statute. In the instant case, Dr. Bartee prescribed, the prescription was filled, and the fact that the doctor did not thereafter administer we deem to be of no moment. By prescribing, the doctor set in motion the chain of events which culminated in a controlled substance being actually dispensed by the druggist. In this regard, see the somewhat analogous cases where it was held that the fact that a physician merely wrote prescriptions for patients did not prevent conviction of the physician for illegal selling of narcotics. Jin Fuey Moy v. United States, 254 U.S. 189, 41 S.Ct. 98, 65 L. Ed. 214 (1920); United States v. Bloom, 164 F.2d 556 (2d Cir. 1947), cert. denied, 333 U.S. 857, 68 S.Ct. 726, 92 L. Ed. 1137 (1948); United States v. Brandenburg, 155 F.2d 110 (3d Cir. 1946), cert. denied, 332 U.S. 769, 68 S. Ct. 80, 92 L.Ed. 354 (1947); and United States v. Abdallah, 149 F.2d 219 (2d Cir. 1945), cert. denied, 326 U.S. 724, 66 S.Ct. 29, 90 L.Ed. 429 (1945). To us, the real issue in the case relates to the sufficiency of the evidence. The summary set forth above of course puts the Government’s evidence in its best light. Dr. Bartee’s version of his various encounters with Baker and Coll-er differed from their version in substantial particulars. Of course such only posed a factual dispute to be resolved by the jury, not us. Dr. Bartee called several fellow doctors who testified that in their expert opinion Dr. Bartee in prescribing Percodan for Baker and Seconal for Coller was, under the circumstances described, acting for a legitimate medical purpose and in the usual course of his professional practice. The Government in its case in chief also called a medical doctor who, though a bit reluctant, gave his opinion on this matter. In the course of his testimony this witness testified, for example, that he knew of no legitimate medical purpose for issuing two prescriptions, instead of one, and that doctors were not supposed in any event to recommend where their patients should get their prescriptions filled. Expert testimony from medical practitioners is of course admissible as bearing on the issue as to whether a doctor in prescribing a controlled substance is acting for a legitimate medical purpose, and the expert testimony in the instant case was to some degree, at least, in conflict. However, the jury is not bound by such expert testimony and may of course consider all of the facts and circumstances surrounding the prescribing as related by lay witnesses. In this connection, we regard certain of the utterances attributed to Dr. Bartee by Baker and Coller to be particularly damning and the overall facts and circumstances of the case are such as in our view permit the inference that Dr. Bartee in thus prescribing was not acting for a legitimate medical purpose and such was not within the usual course of his professional practice. In the first place, Dr. Bartee made no physical examination, as such, before prescribing a controlled substance. Additionally, Dr. Bartee knew that both Baker and Coller were prone to trade or otherwise dispose of the drugs prescribed for them by the doctor. In this setting, Dr. Bartee then prescribed inordinately large quantities of controlled substances, and tried to “spread” them out by writing two or three separate prescriptions in place of one, and by postdating the additional prescriptions. In this connection, there was evidence that within one twenty-day period up. to 120 days’ worth of Seconal was prescribed for agent Coller. The fact that agent Coller used a slang term for Seconal, namely “reds,” in his conversations with Dr. Bartee would tend to put him on notice that this was perhaps not the normal patient-physician relationship. Perhaps the most damning evidentiary matter was the testimony by agent Coller that Dr. Bartee said that he had to be careful since the BNDD cheeked the drugstores for prescriptions issued, to which Coller volunteered to get his prescriptions filled out of Denver; the doctor then responded that such wouldn’t be necessary if the prescriptions were taken to different drugstores, and not all filled at the same one. Without going into further detail, the totality of the evidence is such as to permit the jury’s determination that Dr. Bartee in prescribing Percodan for agent Baker and Seconal for agent Coll-er was not acting for a legitimate medical purpose and was not acting in the usual course of his professional practice. For cases where drug convictions of medical doctors have been upheld involving certain of the factors listed above, see United States v. Warren, 453 F.2d 738 (2d Cir. 1972), cert. denied, 406 U. S. 944, 92 S.Ct. 2040, 32 L.Ed.2d 331 (1972); White v. United States, 399 F. 2d 813 (8th Cir. 1968); and Brown v. United States, 250 F.2d 745 (5th Cir. 1958), cert. denied, 356 U.S. 938, 78 S. Ct. 779, 2 L.Ed.2d 812 (1958). Judgment affirmed.

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Petition of UNITED STATES STEEL CORPORATION, as Owner of the STEAMSHIP CEDARVILLE, and the Petition of Den Norske Amerikalinje A/S, as Owner of the M/V TOPDALSFJORD, for Exoneration From or Limitation of Liability. Barbara J. FUHRMAN, Administratrix of the Estate of Arthur J. Fuhrman, Deceased, et al., Claimants-Appellants, v. UNITED STATES STEEL CORPORATION and Den Norske Amerikalinje A/S, Petitioners-Appellees. UNITED STATES STEEL CORPORATION and Den Norske Amerikalinje A/S, Cross-Appellants, v. Billy R. HOLLEY et al., Cross-Appellees. Nos. 72-1667, 72-1668. United States Court of Appeals, Sixth Circuit. Argued Dec. 5, 1972. Decided May 1, 1973. Joseph Keig, Jr., Chicago, 111., Lucian Y. Ray, Cleveland, Ohio, for United States Steel Corp. & Den Norske Amer-ikalinje A/S; Roman T. Keenen, Lucian Y. Ray, Cleveland, Ohio, on brief for United States Steel Corp.; Ray, Robinson, Keenen & Hanninen, Cleveland, Ohio, of counsel; Thomas O. Murphy, Cleveland, Ohio, Edward S. Silber, Chicago, 111., on brief for Den Norske Amer-ikalinje A/S; Price, Cushman, Keck & Mahin, Chicago, 111., Johnson, Branand & Jaeger, Cleveland, Ohio, of counsel. Abraham E. Freedman, Philadelphia, Pa., for Barbara J. Fuhrman, Billy R. Holley and others; Martin J. Vigder-man, Freedman, Borowsky & Lorry, Philadelphia, Pa., J. Harold Traverse, Cleveland, Ohio, on brief. Before PHILLIPS, Chief Judge, and WEICK and PECK, Circuit Judges. JOHN W. PECK, Circuit Judge. This admiralty case is making its third appearance before this Court. It arose out of a ship collision in the Straits of Mackinac in May 1965 between ships owned by United States Steel and Den Norske. Claimants are the seven seamen who were allegedly injured and the widows and administratrices of the estates of the three seamen who lost their lives when the bulk steamship Cedarville, owned by United States Steel, sunk following its collision with the Norwegian ship Topdalsfjord, owned by Den Norske. All the decedents and surviving claimants were crewmembers of the Cedarville. The parties shall be referred to as claimants or shipowners, or by their proper names. Both shipowners admitted liability to the seamen involved, leaving open the question of punitive damages against United States Steel and compensatory damages against both shipowners. The issues as to damages were then split. The District Court awarded punitive damages but we reversed on appeal. United States Steel v. Fuhrman, 407 F.2d 1143 (6th Cir. 1969). To resolve the issue of compensatory damages, the District Court appointed two Commissioners to receive evidence and make findings. Five of the wrongful death claims and seven of the personal injury claims were the subject of the District Court proceedings. The District Court confirmed the Commissioners’ report and entered judgments in favor of all the claimants in the amounts determined by the Commissioners. On appeal, it was concluded, inter alia, that principles of maritime law governed and loss of consortium and loss of companionship to children were therefore not compensable. Certain psychiatric testimony was found to have been incompetent and the causes were remanded for a reevaluation and further findings on the basis of the record and the principles enunciated in that opinion. United States Steel Corporation v. Lamp, 436 F.2d 1256 (6th Cir. 1970). On remand, the District Court ordered that no further evidence be adduced, but allowed the proffer of the evidence into the record. A recomputation based upon this Court’s opinion was prepared and all exceptions and objections thereto were overruled. This action followed and concerns three death claims (two were settled since the previous hearing by this Court) and the seven personal injury claims. The total award for the ten claimants upon this appeal is $763,317.70 as compared to the total award of $1,-793,543.00 which was before this Court in the last appeal. Both the shipowners and the claimants have appealed the decision of the District Court. The shipowners concede the propriety of the death awards but appeal the personal injury awards. The claimants appeal all the awards as being inadequate. Since the District Court’s implementation of our remand instructions is at issue on this appeal, we shall review at the outset some applicable principles. It is clear that when a case has been remanded, the trial court must upon the remand proceed in accordance with the mandate and law of the case as established by the appellate court. Ex parte Sibbald v. United States, 12 Pet. (37 U.S.) 488, 9 L.Ed. 1167 (1838); IB Moore’s Federal Practice § 0.404 [10] (2d ed. 1965). This is known as the “law of the case” doctrine and operates to preclude reconsideration of identical issues. The basis of the doctrine is that: “ . . . ‘there would be no end to a suit if every obstinate litigant could, by repeated appeals, compel a court to listen to criticisms on their opinions or speculate of chances from changes in its members. [sic]’ Roberts v. Cooper, 20 How. [61 U.S.] 467, 481, 15 L.Ed. 969; and it would be impossible for an appellate court to perform its duties satisfactorily and efficiently if a question once considered and decided by it were to be litigated anew in the same case upon any and every subsequent appeal. Great Western Telegraph, 162 U.S. 339, 344, 16 S.Ct. 850, 40 L.Ed. 991.” General American Life Insurance Co. v. Anderson, 156 F.2d 615, 618 (6th Cir. 1946). This doctrine is not, however, recognized as an inexorable command. Directed to a court's good sense so as to relieve a court of rigid adherence to its former decisions the doctrine includes consideration of the sound public policy that litigation be decided and then put to an end. Accordingly, we must find some cogent reason to show the prior ruling is no longer applicable. Lumbermen’s Mutual Casualty Co. v. Wright, 322 F.2d 759, 762 (5th Cir. 1963). Such reasons may include substantially different evidence raised on subsequent trial; a subsequent contrary view of the law by the controlling authority; or a clearly erroneous decision which would work a manifest injustice. White v. Murtha, 377 F.2d 428, 431-432 (5th Cir. 1968); cf. Trice v. Commercial Union Assurance Co., 397 F.2d 889, 890 (6th Cir. 1968). Appellants do not allege substantially different evidence nor do they claim our controlling authority has since issued contrary decisions. Thus, we consider as appropriate to our review only whether a clearly erroneous decision which would work a manifest injustice has been made. I. CLAIMANTS’ APPEAL (No, 72-1667) The thrust of the claimants’ appeal is that the District Court reduced the awards to “unconscionably inadequate” amounts. Each of the claimants’ three alleged errors will be treated separately. A. Loss of Earning Capacity First, claimants complain the District Court confused the loss of future earning capacity with the deprivation of past earnings. They argue that, in fixing the loss of earning capacity, the District Court erroneously averaged the past four years’ earnings and made this the basis for determining future earning capacity. They claim the District Court should have used the collective bargaining agreement, which covered the jobs held by the claimants, to ascertain the future earnings by projection. Their view is that past earnings should be considered only when there are no other factors to depict an economic horizon. We disagree. We find that the claimants’ arguments regarding future earning capacity were impliedly rejected by this Court earlier: “The claimant must first establish his normal annual earning capacity, which, in the absence of evidence of special circumstances indicating an ability to rise beyond his prior level of employment, would consist of a projection of claimant’s earnings history, taking into account all available data relevant to wage adjustment.” 436 F.2d at 1270 (re personal injury claims). “As we have hereinabove indicated in connection with the personal injury claims, however, the base should be the higher of the year immediately preceding the incident or the average of the four years preceding it.” 436 F.2d at 1275 (re death claims). In recomputing the personal injury and death claims, earnings history was selected as the base for determining lost earnings or earning capacity. This of course would be subject to change if the individuals had employment prospects other than their employment at the time of their death or injury. The record does not contain evidence of such prospects and claimants have not suggested otherwise. As for the claimants’ argument that the collective bargaining agreement should have been relied upon, this Court previously pointed out that “ . . . the documentary evidence in the record in the form of the collective bargaining agreements under which the decedents would have continued to have been employed had they lived” showed an annual wage increase of approximately 1 %% per annum. This rate was used by the District Court in their recompu-tation. Claimants have persistently argued the bargaining agreement reflects a 4-5% increase. This was rejected previously and we must reject it again as unsupported by the agreement. We can only conclude that the prior opinion clearly sets out the procedure to be followed by the District Court in determining the future earnings loss of both the death and the personal injury claims, and that these awards are not clearly erroneous. B. Psychiatric Testimony The claimants contend that the District Court erred in not granting a new trial in order for the claimants to introduce testimony upon the remand. In ordering the remand, this Court instructed the District Court “ . . .to make . . . [s]uch further findings and reevaluation ... on the basis only of the evidence herein held to have been properly received and in accordance with the principles herein enunciated.” 436 F.2d at 1272 (emphasis supplied). Claimants argue that the rule of Byrd v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1968), requires that they be permitted to introduce new psychiatric evidence on the issue of the claimants’ damages in the District Court. We find no merit to the claimants’ argument for several reasons. First, in Byrd v. Blue Ridge, supra, the petitioner sued in the District Court to recover for injuries allegedly caused by respondent’s negligence. Respondent asserted as an affirmative defense that petitioner was respondent’s employee for purposes of the State’s Workmen’s Compensation Act and that the Act provided the exclusive remedy. After hearing the respondent’s evidence on this issue, the trial judge struck the defense. In accordance with this ruling, the judge did not permit the petitioner to offer evidence on this issue. The Court of Appeals reversed as to the availability of the defense and, without a remand to receive evidence of the petitioner on the issue, made its own determination on the record and directed a judgment for the respondent. The Supreme Court vacated the directed verdict and remanded to the District Court in order that the petitioner could present evidence in his favor on the issue. The stated reason for the remand was that the petitioner’s evidence, although irrelevant under the view of the law taken by the District Court, became relevant and necessary under the corrected interpretation of the defense. In the instant case, instead of excluding testimony later found to be admissible, the District Court admitted evidence (the psychiatric testimony) which was later found inadmissible by this Court. Thus, it is clearly distinguishable from the situation where a decision was rendered without the aid of relevant and necessary evidence, as occurred in Byrd. Here, a decision was rendered with the aid of evidence which should not have been before the trial court. The Byrd decision is simply inapposite. Yet, despite Byrd’s inapplicability to the instant case, it might be said that the usual remand where inadmissible evidence has been introduced requires the District Court to retry the case. However, that principle does not apply here. This Court previously excluded the testimony of the claimants’ psychiatrist on the basis that he was consulted solely to gain qualification as a witness for the claimants; he was not consulted for the purposes of care or treatment. 436 F. 2d at 1263, citing Padgett v. Southern Railway Co., 396 F.2d 303, 308 (6th Cir. 1968). Of course, the testimony of this psychiatrist could not subsequently become legitimatized by a change of his function to “treating psychiatrist” five years after the sinking of the Cedarville Similarly, the testimony of another “treating psychiatrist” consulted at that late date could have been no more than a sham attempt at circumventing the holding that testimony of a non-treating psychiatrist is inadmissible. We conclude that there was no necessity for the reopening of proofs after the prior appeal and, a fortiori, no such necessity exists at this time. Nor do we find the presence of clear error. C. The Awards Lastly, the claimants contend “the awards were reduced to sums which deprive [them] of their lawful damages and are unconscionably inadequate.” We will discuss their claims regarding the death and personal injury cases separately. 1. Death Claims Following the remand as ordered by this Court, the Commissioners recomputed the death awards. For example, they eliminated compensation for the loss of consortium and counsel to the widows; they eliminated the compensation for the loss of guidance and counsel to the adult emancipated children; they reduced the earnings bases in determining earning capacity loss for both the future and the four year period from incident to judgment. As a result, the total awards were substantially reduced from the original awards. The shipowners do not challenge the recomputed awards and have set aside the funds for their payment. Claimants have cited the claim of the Fuhrman estate as being representative of their argument that the recomputed awards should be held invalid for being “unconscionably inadequate.” After the original trial, the District Court awarded $338,095 to the Fuhrman estate; on remand, the" figure was reduced to $137,-801. Claimants argue the award should be $776,400.39. The claimants contest almost every calculation made by the Commissioners. Once again they attack the averaging of historical earnings for the period of four years from the incident to the judgment. They attack the date of judgment as being the date the District Court issued its judgment upon the remand and not the date the District Court issued its original judgment. They attack the application of the 1% % annual growth factor and seek a 5 % factor. They complain that an award for the value of decedent’s services around the house and the widow’s loss of counsel and guidance was improperly deleted. Amounts allocated to personal consumption by the decedent are questioned and, allegedly, the District Court has failed to adequately assess and include a long list of economic appendages such as overtime, holiday pay, vacation pay, bonus pay, annual service awards, pension and welfare benefits. Claimants also argue that the earning capacity is the amount of money which a claimant could earn if he worked full time. Although we may agree with the claimants that the Commissioners’ efforts throughout this case were less than thorough and meticulous, we do not agree that all their calculations are susceptible to attack. An analysis of the elements of the figures advanced by the claimants demonstrates their vulnerability. Regarding the calculation of Fuhr-man’s earning capacity loss, the Commissioners first used as a base the 1964 earnings of $5,889. Shipowner United States Steel objected on the basis that Fuhrman’s highest earnings ($7,044) occurred not in the year immediately preceding the incident (1964) but rather in 1963. Apparently the shipowners’ point is that the year immediately preceding the incident can be used only if it reflected the highest annual earnings of the four year period. It would appear the District Court acceded because an addenda changes the basis of the earning capacity loss to the 1961-64 average earnings of $5,645. Our previous opinion required the District Court to use the higher of two earning periods as a base. The periods are: (1) the year immediately preceding the incident or (2) the average of the four years preceding the incident. 436 F.2d at 1275. A consideration of the year reflecting the highest annual earnings is simply not germane. Therefore, the original recomputation was improperly amended. Also, in the recomputation the Commissioners apparently increased by the annual growth factor the estimated earnings for 1968-69 to obtain a base for future earning capacity loss. The objection to this was sustained by the District Court. The addenda made the correction by using, as the base, the estimated 1968-69 earnings without any increase. Our previous opinion did not instruct on the point and we cannot say that the method used is clearly erroneous. However, we consider these two adjustments regarding selection of a base for computing earning capacity loss as minor. Regarding future losses, the claimants would have the Court compute a base rate of pay and fringe benefits as if they had worked on the ships twelve months per year every year. We reject this contention. The indisputable fact shown by the record is that the shipping business is seasonal; many months of the year there is not shipping at all. Thus, it is not appropriate to look at a monthly base rate of pay and fringe benefits and project the rates to a full working year as the claimants argue. Claimants also include alleged losses that were specifically excluded by this Court in the prior appeal. For example, at page 23 of their brief, the claimants state that even though this Court excluded recovery for loss of Fuhr-man’s counsel and guidance to his wife, “ . . . there is evidence in the record showing that the decedent did counsel and guide his wife as to money matters and other matters affecting their home and lives. ...” The claimants then urge the addition of $3,000 per year for this item. Previously we rejected this argument on the basis that “ . there was no evidence . . . [that these services] could ‘only be supplied by the service of another for compensation,’ much less any showing [the service had] pecuniary value.” 436 F.2d at 1277-1278. Claimants have not convinced us that the rejection of these and other alleged losses constitute clear error. We again reject the claims. Finally, the claimants use figures and percentages that they contend are more appropriate than those used by the Commissioners. It is, however, not the function of this Court to decide the more appropriate figure for the losses. Rather, the function is to determine whether the figures used by the District Court below are clearly erroneous. We do not find that level of error to be present. 2. Personal Injury In the main, claimants’ arguments are repetitive. They again complain that earning capacity should not be limited to past earnings, that the psychiatric evidence was improperly deleted, and that the original awards were improperly stricken or reduced upon the remand. For example, claimants argue that the amounts originally awarded for maintenance and cure were improperly stricken and cite Vaughan v. Atkinson, 369 U.S. 527, 82 S.Ct. 997, 8 L.Ed.2d 88 (1962), as authority. We are satisfied our previous opinion properly resolved this point. See, 436 F.2d 1270-1271. There we found “ . . . there is no objective evidence that any of the claimants resumed gainful employment for reasons other than their voluntary determination to do so, nor is there any evidence that any of the claimants made any request for medical attention which was wilfully ignored by United States Steel.” 437 F.2d at 1271. Claimants have presented nothing which has not been previously considered or which would warrant a reopening of our prior judgment. II. SHIPOWNERS’ APPEAL (No. 72-1668) As stated previously, the shipowners contest only the personal injury awards. The seven individual personal injury awards range in amounts from $14,000 to $92,733, with the aggregate accumulating $352,649.70. Originally, the District Court awarded a total of $997,332, with the individual awards ranging from $82,-160 to $251,976. See footnote 2, swpra. On this appeal, the shipowners contend the recomputed awards remain excessive and are not justified by the record. A. Pain and Suffering for the Incident The shipowners first complain that the awards for pain and suffering experienced during the sinking itself violate this Court’s mandate in that the amounts awarded three claimants are exactly the same as the original awards. The failure to alter the awards is inexplicable in view of our previous opinion that “ . . .we regard the awards for pain and suffering on the occasion of the sinking as excessive.” 436 F.2d at 1266. B. Pain and Suffering from Incident to Judgment Next, the shipowners complain that three claimants were improperly awarded damages for pain and suffering for the four year period from incident to judgment. With respect to these awards, we previously stated: “However, also as in the case of the ‘For the May 7th event’ awards, the fact remains that although there is some evidence in the record as to the claimants’ discomfort for a past period, we conclude the amount of the awards to be excessive. . . . ” 436 F.2d at 1266-1267. As in “A” above, these awards did not change upon the remand. There are no additional findings of fact and indeed the basis for the awards remain as elusive as we noted in our previous decision. The failure to follow the mandate of this Court constitutes a flagrant disregard of its specific directions. We have reviewed our previous opinion, 436 F.2d at 1265-1267, and we find the awards indicated in “A” and “B” above to be clearly erroneous. C. Future Pain and Suffering The shipowners also attack the award to two claimants for future pain and suffering. In our previous opinion we stated: “The awards for future pain and suffering . . . present a similar picture [to the other claims for pain and suffering].” 436 F.2d at 1267. “ . . . the awards to Mulka . based solely on the incompetent psychiatric testimony, must fail completely.” 436 F.2d at 1267. Earnings lost 0 Days lost from work for causally related complaints after-June 3, 1965 14 Days of hospitalization 4 Surgery for causally related complaints Number of claimants seeking medical treatment after June 1, 1965 (for claimed causally related complaints) 2 Number seeking psychiatric treatment 0 Total of medical and psychiatric expenses 0 Job advancements 5 Job demotions 0 “The awards to the other five claimants must fail in part also since it is clear that they were based in part on the incompetent psychiatric testimony.” 436 F.2d at 1267. On the remand the District Court awarded Mulka $525 and reinstated the original award of $17,500 to Przybyla. Again, this disregard of our specific directions violates our mandate. We find these awards to be clearly erroneous. D. Loss of Life’s Pleasures Two claimants were awarded amounts for the loss of life’s pleasures. Despite this Court’s statement that “ . the awards for loss of life’s pleasures are so grossly excessive as to be clearly erroneous,” 436 F.2d at 1268, three of the awards were exactly the same on recomputation. As stated previously, satisfactory findings of fact are absent. We find the awards clearly erroneous. E. Loss of Earning Capacity In addition, four claimants were awarded amounts for their loss of earning capacity. At the outset, we note that our previous opinion set forth specific guidelines for computing such loss. We stated that the first step is to establish the claimants’ “normal annual earning capacity.” Next, we stated that “ . . . the claimant must establish the reduction, if any, in his earning capacity proximately resulting from the injury by showing the existence of some condition which demonstrably limits his opportunities for gainful activity.” 436 F.2d at 1270. Again we find there are no findings by the Commissioners and further we find a lack of support in the Commissioners’ report for findings. In fact, the record provides evidence that the parties increased their earnings in the years following the incident. There is no evidence to support the contention that earnings would have increased to an even higher level but for the injuries. Yet there were awards of $72,000; $36,-000; $29,000; and $18,400. We vacate the awards for the reason that they are unsupported by the evidence in the record. Nowhere do we find evidence that any of these four claimants has had his earning capacity reduced as a proximate result of an injury arising out of the collision. The Commissioners’ report, as adopted by the District Court, does not provide any basis for the awards, nor can we. We find the awards to be clearly erroneous. III. MODIFICATION OF THE AWARDS Our prior opinion required the District Court, upon the remand, to reevaluate and recompute the awards “ . in accordance with the principles herein enunciated.” 436 F.2d at 1272 and 1280. As indicated above, the District Court has failed in several instances to follow those specific instructions. To specifically instruct the District Court for the second time would seem to be of little value and, accordingly we proceed to modify the awards entered on the remand. There is no question of this Court’s inherent ability to modify a district court judgment and enter a final order thereon. As provided in part by 28 U.S.C. § 2106: “The Supreme Court or any other court of appellate jurisdiction may . modify . . . any judgment, decree or order of a court lawfully brought before it for review. JJ However, a question arises relative to the appropriate scope or standard for the modification of the District Court’s findings with respect • to damages; i. e., whether this Court can independently determine the appropriate amount of damages or whether it is constrained under the “clearly erroneous” standard for review. McAllister v. United States, 348 U.S. 19, 75 S.Ct. 6, 99 L.Ed. 20 (1954), settled that question when it stated that “[n]o greater scope of review is exercised by the appellate tribunals in admiralty eases than they exercise under Rule 52(a) of the Federal Rules of Civil Procedure.” 348 U.S. at 20, 75 S.Ct. at 8. Clearly, then, this Court is restricted to the “clearly erroneous” rule. Therefore, in modifying an award entered by the District Court, this Court cannot merely exercise its independent judgment as to the proper damages, but can only modify to that maximum amount of damages which could have been awarded by the district court without constituting reversible error. See, Mitchell v. Evelyn C. Brown, Inc., 310 F.2d 420, 426 (1st Cir. 1962); cf., Traylor v. United States, 396 F.2d 837 (6th Cir. 1968). IV. THE AWARDS The compensatory damages to be discussed in this section include “loss of earning capacity,” “pain and suffering” and “loss of life’s pleasures.” By their nature, such items are inherently speculative. The Commissioners assigned a per an-num figure to each item of injury and, having made a determination of duration, then multiplied that figure by the individual claimant’s life expectancy in the case of those found to be permanently injured and by a determined period of disability as to the others. A lump sum award based on common sense and experience would seem preferable were we the original triers of fact, but particularly since we are modifying only a portion of the awards, we do not choose to change the approach. We have reviewed most if not all reported cases awarding pain and suffering damages resulting from maritime casualties. Among those cases is Moore-McCormack Lines, Inc. v. Richardson, 295 F.2d 583 (2d Cir. 1961), where a District Court awarded $300 per hour for pain and suffering to survivors of a sunken ship who were adrift in shark-infested waters for 46-50 hours with no food and water. The Court of Appeals found the $300 rate excessive and reduced the rate to $150 per hour. Additional sums were included for future pain and suffering. In the Petition of the United States, 418 F.2d 264 (1st Cir. 1969), a seaman was washed overboard into water so cold that his arms and legs became numb and paralyzed. The seaman was in the water for some thirty minutes before he was hauled aboard a' boat where he then lost consciousness. The Court found that the seaman sustained a severe chronic neurosis as a result of the accident and awarded $10,000 for past and future pain and suffering. In re Sincere Navigation Corp., 329 F.Supp. 652 (D.C.La.1971), concerned, in part, two seamen who were in inner compartments of their ships which began to flood and sink almost immediately after collision. Both men escaped and swam to a buoy where they were rescued some 45 minutes later. One man remained in the hospital for 4 or 5 days. His primary suffering was emotional; his physical injuries were relatively insignificant. The other spent 1% days in the hospital and was treated for minor cuts and a left shoulder injury. Each was awarded $10,000 for physical and mental pain and suffering. These cases, while obviously in no sense controlling, serve to provide information as to awards which have been made in other jurisdictions on the basis of damages generally similar to those with which we are here concerned. We turn from them to a consideration of the individual claims before us. A. Pain and Suffering MICHAEL J. IDALSKI— Claimant Idalski almost did not get off the ship. As the ship started to capsize to the starboard, Idalski ran to the port lifeboat and tried to get in but the boat was swinging out and, being off balance, he was thrown into the water. He apparently floated on a bumper block for 45 minutes before being pulled up onto a life raft. He found his hands and feet numb. At the hospital he was x-rayed and treated for cuts and abrasions and discharged the same day. Idalski saw a U. S. Public Health doctor three times subsequent to the accident for treatment of his knee and elbow. On June 3, 1965, he resumed sailing aboard a U. S. Steel ship. From the time of his return to work and until the trial, Idalski did not miss a day of work due to an accident related injury nor did he seek medical assistance for any such injury. Claimant’s orthopedic expert testified to progressively disabling and pain producing injuries resulting from the accident. The orthopedic expert presenting the shipowners’ analysis disputed the findings, although he conceded a shoulder problem and did not dispute claimant’s report of pain in the shoulder. During the period from incident to trial, Idalski admitted he saw doctors on at least three occasions for items bearing no relation to the accident and each time failed to mention any effects of the accident. We find the record indicates with reasonable certainty that Idalski incurred pain and suffering on the day of the accident and accordingly we affirm this award of damages to the extent of $8,000. For pain and suffering from the time of incident to date of judgment, we conclude that claimant was reasonably certain to experience pain and suffering from his injuries and accordingly we affirm the award to the extent of $6,000. In this award, as well as the other awards for pain and suffering and loss of life’s pleasures, the Commission-ms in their recomputation considered the expert opinion testimony of the shipowners’ psychiatrist as evidence of mental disabilities. That testimony was provided in rebuttal to the claimants’ expert psychiatric opinion testimony which was previously held inadmissible. 436 F.2d at 1262-1265. Consequently, we view that testimony as irrelevant for the remand proceedings. Further, the reasons that dictated the inadmissibility of claimants’ forensic medical expert also require exclusion of the shipowners’ similar evidence. WALTER TULGETSKE— Claimant Tulgetske jumped into a lifeboat, but as the ship began to capsize he jumped from it into the water. By his own estimate, he spent about thirty minutes in the water. Upon rescue, he was taken to the hospital, but he was discharged the same day. He complained of being numb and cold. His chest and arms were later noticeably black and blue. The medical testimony is fairly consistent in supporting the physical claims although the degree of disability is disputed. Examination revealed back limitations in the lumbar spine. Accordingly, we affirm the award to Tulgetske to the extent of $9,000 for pain and suffering incurred on the day of the accident. BILLY R. HOLLEY — Claimant Holley was a hero of this accident. From the time of the collision until rescue, he displayed leadership in saving lives and tending to his comrades. Upon rescue, he was seen to be visibly shaking. There is no testimony, even from himself, indicating that he spent any time in the water. At the hospital he was treated for abrasions and dismissed the same day. Black and blue spots on his back and shoulder were noted. Later that day he complained of pain, called a doctor and returned to the hospital where he remained until discharge the next morning. X-rays revealed no broken bones and tests yielded negative results. The medical testimony indicated that Holley suffered a degeneration of the lumbo-sacral intervertebral disc. We find that the award to claimant Holley should be affirmed to the extent of $15,000 as damages for his pain and suffering on the date of the accident. STANLEY P. MULKA — The Commissioners found a temporary partial mental disability for ten years from the date of the incident for claimant Mulka. The recomputation is apparently based on the testimony of the shipowners’ psychiatrist who offered that the incident aggravated pre-existing problems. As stated previously, this testimony will not support an award. RONALD G. PIECHAN — In the case of claimant Piechan, claimant’s orthopedic expert diagnosed injuries to his knee joints and right hand. The shipowners’ orthopedic expert found a progressive arthritic condition but attributed it to aging. He did not diagnose the alleged right hand or right knee joint injuries. Piechan returned to work on May 24, about two and one-half weeks after the accident. He subsequently complained of pain in the leg and hand areas, sought medical advice on several occasions and received medication. He has not lost any time off from work. We affirm the award to the extent of $3,500 for pain and suffering incurred during the period from incident to judgment. RAPHAEL A. PRZYBYLA— As to claimant Przybyla, the Commissioners found a permanent partial physical disability. The medical testimony indicated that this claimant’s injuries include back injuries and conceded that the injuries would result in pain. The medical authorities appeared consistent in their diagnosis of the injuries of this claimant, although they did disagree as to the degree of disability. Claimant had not missed any time from work between incident and judgment for medical reasons and had not sought medical treatment of any kind since the accident. A visit to the U. S. Public Health Service doctor two weeks after the incident was for examination purposes only. We find it reasonably certain that claimant did incur pain and suffering from his physical disabilities during the period from incident to judgment and we therefore affirm the award to him to the extent of $4,000 as damages. As to future pain and suffering, we likewise find it reasonably certain that such pain and suffering may continue to provide some degree of limitation in the future. We therefore affirm the award of damages to the extent of $8,750 on this account. B. Loss of Life’s Pleasures As stated in our previous opinion, awards for this item are provided “ . . .to claimants who, by reason of their injury, are deprived of the opportunity to participate in the normal activities, social, athletic or recreational, in which a person without such injury could engage.” 436 F.2d at 1267. With this in mind, we shall consider the individual claims before us. RONALD G. PIECHAN — Testimony has indicated that claimant Piechan suffered injury to his knees and his right hand. We find evidence in the record to support the finding that there was an impact on the normal activities in which claimant may have otherwise had opportunity to participate. We affirm the award to the extent of $3,600 for the period from incident to judgment. RAPHAEL A. PRZYBYLA— Claimant Przybyla was awarded $10,000 for the loss of life's pleasures for the period from incident to judgment and $17,500 for future loss. We conclude that the medical testimony as referenced in our discussion of the pain and suffering awards would support a finding that claimant would experience some reduced ability to participate in normal social, athletic or recreational activities. Accordingly, we affirm the award of damages in the amount of $5,000 for the period from the incident to judgment and of $8,750 for the future loss of life’s pleasures. C. Earning Capacity As to the awards for the loss of earning capacity, we find.that none of the vacated awards regarding personal injury claims may be reinstated in any amount (See Section II, SHIPOWNERS’ APPEAL, part E., pp. 16-17). As stated therein, there is simply no basis for awards to these four claimants (Przybyla, Piechan, Holley and Tulgetske), as there is no evidence supporting a reduced earning capacity proximately related to their experience in the collision. RAPHAEL A. PRZYBYLA — Claimant Przybyla had been sailing for only six months at the time of the accident. For the preceding 18 years, excluding a two-year tour of duty with the U. S. Army, he worked for his father. After the sinking, he returned to his father’s business at his father’s request and with an increase in salary. On January 1, 1968, claimant’s father entered semi-retirement and left actual control of the business to claimant. RONALD G. PIECHAN — Claimant Piechan has continued to work for U. S. Steel since the accident. He had maintained the same position that he held for 12 years prior to the sinking. This is as far as he can go in his profession as long as he remains unlicensed. BILLY R. HOLLEY — Claimant Holley has continued to work for U. S. Steel as a Stokerman, a position he held for the ten years prior to the accident. From August 1965 through 1967 (when this suit was originally filed), he had only one absence due to illness (a pre-existing hemorrhoid condition). He was elected a member of the union negotiating team by his shipmates and has served as the ship’s delegate since the accident. WALTER TULGETSKE — Claimant Tulgetske has been sailing with U. S. Steel since the accident. In 1966, he was promoted to Chief Engineer with appropriate increase in earnings. We have previously discussed certain corrections to the death awards for the loss of future earning capacity. The corrections refer to the calculation of an earning capacity base (See Section I, CLAIMANTS’ APPEAL, Part C, pp. 11-12). Applying those corrections, we modify the District Court’s award to Claimant Barbara Fuhrman so as to read “$139,276.” See pp. 27-28. V. REDUCTION OF FUTURE DAMAGES TO PRESENT VALUE The Commissioners discounted the awards of future damages at 4% compounded annually. Our application of their factors provides a significant variance from their reported results, and their meager explanation of the calculations gives us no clue as to the resolution of variance. We are simply unable to reconcile their calculations. We have therefore recalculated the present worth of each future damage award. Our present worth factor source is the Financial Compound Interest and Annuity Tables, Financial Publishing Co., Boston, 1st ed., 1947. As the most appropriate, we have chosen the table located therein at page 639 and entitled “Present Worth of 1 Per Period.” The rate is 4%, compounded annually. This table has been chosen since it is based on annual (or periodic) payments which is consistent with the per annum approach used by the Commissioners in determining damages. Our approach has been (1) to calculate the actual annual awards to each claimant and (2) to apply the present worth factor as selected from the table referenced above. Regarding the factors selected from the table, it should be understood that the factor for any given period reflects the value as though a payment were made at the end of that period. Since the theory here is that a payment would be made at the beginning of the period, we have followed the standard actuarial practice of taking the factor for the prior period and adding the whole number 1 to the factor. For example, in looking at the claimant Fuhrman’s award for a period of 32 years, we note that the factor would be 17.873551 (rounded to six places) for period 32. However, we have adopted the factor for 31, which is 17.-588494, and added the whole number 1 to get a factor of 18.588494. This method, of course, benefits the claimant in that the year in which the award is received is not included in the discounting. BARBARA J. FUHRMAN A. Earning Capacity Loss — Mr. Fuhrman had a remaining work-life expectancy of 32 years. An annual earning capacity of $6,158 is used and a 2% factor for personal productivity and general economic growth is applied. For the first 15 years, the family unit has four members and decedent’s personal consumption during this period is calculated at 30 %. For the next two years the family has three members and a personal consumption rate of 40% is applicable. For the final 15 years just two members remain as the two children reach majority. The personal consumption rate is set at 50%. 1. 15 years x $6,158 $92,370 Deduct 30%, personal consumption 27,711 64,659 Add 15%, fringe benefits 9,699 74,358 Add 2%, growth 1,487 Total amount, 15 years 75,845 Average annual amount for the period 5,056 2. 2 years x $6,158 12,316 Deduct 40%, personal consumption 4,926 7^390 Add 15%, fringe benefits 1,108 8,498 Add 2%, growth 170 Total amount, 2 years 8,668 Average annual amount for the period 4,334 3. 15 years x $6,158 92,370 Deduct 50%, personal consumption 46,185 ”46,185 Add 15%, fringe benefits 6,928 53,113 Add 2%, growth 1,062 Total amount, 15 years 54,175 Average annual amount for the period 3,611 4. Expressing the average amounts cumulatively: $3,611 for each of the 32 years $ 723 for each of the first 17 years $ 722 for each of the first 15 years 5. Applying the present worth factors. a. $3,611 for each of 32 years = $115,552 Present worth factor for 32 = 18.588494 (18.588494) ($3,611) = $67,123 b. $723 for each of 17 years = $ 12,291 Present worth factor for 17 = 12.652296 (12.652296) ($723) = $ 9,148 c. $722 for each of 15 years = $ 10,830 Present worth factor for 15 = 11.563123 (11.563123) ($722) = $ 8,349 d. Total future damages: $115,522 + $12,291 + $10,830 = $138,673 Present worth of $138,673 = $67,123 + $9,148 + $8,349 = $ 84,620 B. Decedent’s Counsel and Guidance to Minor Children: 1. James Arthur $600 for each of 15 years = $9,000 Present worth factor for 15 = 11.563123 (11.563123) ($600) = $6,938 2. June Ann $600 for each of 17 years = $10,200 Present worth factor for 17 = 12.652296 (12.652296) ($600) = $ 7,591 3. Total future damages- $9,000 + $10,200 = $19,200 Present worth of $19,200 = $6,938 + $7,591 = $14,529 C. Grand Total Future Damages: $138,673 + $19,200 = $157,873 Present worth of $157,873 1= $84,620 + $14,529 = $ 99,149 ELIZABETH HASKE A. Earning Capacity Loss — Mr. Haske had a remaining work-life expectancy of 25 years. We have used an annual earning capacity of $8,438 and have adjusted for personal productivity and general economic growth by using a 2% factor. For the first 3 years there are five children and a 10% personal consumption rate for decedent is used; for the next two years, there are four children and a 15% consumption rate is used; the next year, three children and a 22% rate; the next 6 years, there are two children and a 28% rate; the next 3 years, one child and a 40% rate; the last 10 years, no children and a 50% rate is applied. 1. 3 years x $8,438 $25,314 Deduct 10%, personal consumption 2,531 22,783 Add 15%, fringe benefits 3,417 26,200 Add 2%, growth 524 Total amount, 3 years 26,724 Average annual amount for the period 8,908 2. 2 years x $8,438 16,876 Deduct 15%, personal consumption 2,531 14,345 Add 15%, fringe benefits 2,152 ~16T497 Add 2%, growth 330 Total amount, 2 years 16,827 Average annual amount for the period 8,414 3. 1 year x $8,438 8,438 Deduct 22%, personal consumption 1,856 6,582 Add 15%, fringe benefits 987 7,569 Add 2%, growth 151 Total amount, 1 year 7,720 Average annual amount for the period 7,720 4. 6 years x $8,438 50,628 Deduct 28%, personal consumption 14,176 36,452 Add 15%, fringe benefits 5,468 41,920 Add 2%, growth 838 Total amount, 6 years 42,758 Average annual amount for the period 7,126 5. 3 years x $8,438 25,314 Deduct 40%, personal consumption 10,126 “Í5.188 Add 15%, fringe benefits 2,278 17,466 Add 2%, growth 349 Total amount, 3 years 17,815 Average annual amount for the period 5,938 6. 10 years x $8,438 $84,380 Deduct 50%, personal consumption 42,190 42,190 Add 15%, fringe benefits 6,328 ~T8~518' Add 2%, growth 970 Total amount, 10 years 49,488 Average annual amount for the period 4,949 7 Expressing the average amounts cumulatively: $4,949 for each of the 25 years $ 989 for each of the first 15 years $1,188 for each of the first 12 years $ 594 for each of the first 6 years $ 694 for each of the first 5 years $ 494 for each of the first 3 years 8. Applying the present worth factors: a. $4,949 for each of 25 years = $123,725 Present worth factor for 25 - 16.246963 (16.246963) ($4,949) ^ $ 80,406 b. $989 for each of 15 years ■= $ 14,835 Present worth factor for 15 11.563123 (11 563123) ($989) = $ 11,436 c. $1,188 for each of 12 years $ 14,256 Present worth factor for 12 - 9.760477 (9.760477) ($1,188) $ 11,595 d. $594 for each of 6 years = $ 3,564 Present worth factor for 6 5.451822 (5.451822) ($594) $ 3,238 e. $694 for each of 5 years $ 3,470 Present worth factor for 5 . 4.629895 (4.629895) ($694) $ 3,213 f. $494 for each of 3 years $ 1.482 Present worth factor for 3 2 886095 (2 886095)($494) $ 1,426 g. Total future damages. $123,725 -j- $14,835 4- $14,256 4 $3,564 -j- $3,470 + $1,482 ^ $161,332 Present worth of $161,332 -- $80,406 -4- $11,436 + $11,595 4- $3,238 + $3,213 + $1,426 111,314 B. Decedent’s Counsel and Guidance to Minor Children: 1. Gregory Stanley $600 for each of 3 years - $1,800 Present worth factor for 3 = 2.886095 (2.886095) ($600) = $1,732 2. Kenneth Raymond $600 for each of 5 years - $ 3,000 Present worth factor for 5 4.629895 (4.629895) ($600) - $ 2,778 3. Alan Mitchell $600 for each of 6 years — $ 3,600 Present worth factor for 6 5.451822 (5.451822)($600) ^ $3,271 4. Brian Keith $600 for each of 12 years = $ 7,200 Present worth factor for 12 9.760477 (9.760477) ($600) -= $ 5,856 5. Steven Paul $600 for each of 15 years — $ 9,000 Present worth factor for 15 = 11.563123 (11.563123) ($600) = $ 6,938 6. Total future damages: $1,800 + $3,000 + $3,600 + $7,200 + $9,000 = $24,600 Present worth of $24,600 = $1,732 + $2,778 + $3,271 + $5,856 + $6,938 = $20,575 C. Grand Total Future Damages: $161,332 + $24,600 = $185,932 Present worth of $185,932 = $111,314 + $20,575 = $131,889 MARION JONES A. Earning Capacity Loss — Mr. Jones had a remaining work-life expectancy of 4 years. An annual earning capacity of $8,232 is used and we have adjusted for personal productivity and general economic growth by applying a 3% factor. There are four family members throughout this period. A personal consumption rate of 25% is also applied. 1. 4 years x $8,232 $32,928 Deduct 25%, personal consumption 8,232 24,696 Add 40%, fringe benefits 9,878 35,574 Add 3%, growth i 037 Total amount, 4 years 35,611 Average annual amount for the period 8,903 2. Applying the present worth factor: $8,903 for each of 4 years — $ 35,612 Present worth factor for 4 = 3.775091 (3.775091) ($8,903) = $ 33,610 B. Decedent’s Counsel and Guidance to Minor Children: 1. Drew Allen $1,000 for each of 10 years = $10,000 Present worth factor for 10 = 8.435332 (8.435332) ($1,000) = $8,435 However, only $600 was awarded for first 4 years; therefore, $1,000 — $600 = $400: $400 for each of 4 years = $ 1,600 Present worth factor for 4 = 3.775091 (3.775091) ($400) = $ 1,510 Total Future Damages: $10,000 - $1,600 = $8,400 Present worth of $8,400 = $8,435 - $1,510 = $6,925 2. Rose Marie $1,000 for each of 13 years = $13,000 Present worth factor for 13 = 10.385074 (10.385074) ($1,000) = $10,385 However, only $600 was awarded for first 4 years; therefore, $1,000 — $600 = $400: $400 for each of 4 years = $ 1,600 Present worth factor for 4 = 3.775091 (3.775091) ($400) = $ 1,510 Total Future Damages: $13,000 - $1,600 = $11,400 Present worth of $11,400 = $10,385 - $1,510 = $ 8,875 3. Total Future Damages. $8,400 + $11,400 - $19,800 Present worth of $19,800 = $6,925 + $8,875 = $15,800 C. Grand Total Future Damages: $35,612 + $19,800 = $55,412 Present worth of $55,412 -- $33,612 + $15,800 = $49,412 BILLY R. HOLLEY (34 year life expectancy) A. Future Pain and Suffering: $500 for'each of 34 years = $17,000 Present worth factor for 34 = 19.147646 (19.147646)($500) = $ 9,574 B. Loss of Life’s Pleasures: $200 for each of 34 years $ 6,800 Present worth factor for 34 19.147646 (19.147646) ($200) $ 3,830 C. Grand Total Future Damages: $17,000 + $6,800 $23,800 Present worth of $23,800 — $9,574 + $3,830 $13,404 RAPHAEL PRZYBYLA (35 year life expectancy) A. Future Pain and Suffering: $250 for each of 35 years = $ 8,750 Present worth factor for 35 = 19.411198 (19.411198) ($250) = $4,853 B. Loss of Life’s Pleasures: $250 for each of 35 years = $ 8,750 Present worth factor for 35 = 19.411198 (19.411198) ($250) = $4,853 C. Grand Total Future Damages: $8,750 + $8,750 = $17,500 Present worth of $17,500 = $4,853 -j- $4,853 = $ 9,706 RONALD G. PIECHAN (34 year life expectancy) A. Future Pain and Suffering: $300 for each of 34 years = $10,200 Present worth factor for 34 = 19.147646 (19.147646) ($300) = $5,744 B. Loss of Life’s Pleasures: $100 for each of 34 years $ 3,400 Present worth factor for 34 19.147646 (19.147646)($100) $ 1,915 C. Grand Total Future Damages: $10,200 + $3,400 $13,600 Present worth of $13,600 = $5,744 + $1,915 $ 7,659 MICHAEL IDALSKI (19.2 year life expectancy) A. Future Pain and Suffering: $500 for each of 19.2 years = $ 9,600 Present worth factor for 19.2 = 13.754225 (13.754225) ($500) = $ 6,877 $500 for each of 10 years = $ 5,000 Present worth factor for 10 = 8.435332 (8.435332) ($500) = $ 4,218 B. Grand Total Future Damages: $9,600 + $5,000 = $14,600 Present worth of $14,600 = $6,877 + $4,218 = $11,095 WALTER TULGETSKE A. Future Pain and Suffering: $500 for each of 25.2 years ^ $12,600 Present worth factor for 25.2 = 16.321986 (16.321986) ($500) = $ 8,161 $500 for each of 15 years = $ 7,500 Present worth factor for 15 = 11.563123 (11.563123) ($500) = $ 5,782 $500 for each of 10 years — $ 5,000 Present worth factor for 10 — 8.435332 (8.435332) ($500) = $ 4,218 Total Future Damages: $12,600 + $7,500 + $5,000 = $25,100 Present worth of $25,100 = $8,161 + $5,782 + $4,218 = $18,161 B. Loss of Life's Pleasures: $500 for each of 15 years = $ 7,500 Present worth factor for 15 ^ 11.563123 (11.563123) ($500) = $ 5,782 $500 for each of 10 years = $ 5,000 Present worth factor for 10 = 8.435332 (8.435332) ($500) = $ 4,218 $500 for each of 5 >cars $ 2,500 Present worth factor for 5 4.629895 (4.629895) ($500) $ 2,315 Total Future Damages: $7,500 + $5,000 + $2,500 = $15,000 Present worth of $15,000 = $5,782 + $4,218 + $2,315 = $12,315 C. Grand Total Future Damages: $25,100 + $15,000 = $40,100 Present worth of $40,100 = $18,161 4- $12,315 = $30,476 VI. CONCLUSION The awards of the District Court are modified as set forth in this opinion and are summarized as follows: Damages Futuie Other Total Bathara Fuhiman, Administratrix of the Estate of Arthur Fulnman, Deceased $ 99,149 $40,127 $139,276 Elizabeth Ilaske, Administratrix of the Estate of Stanley Haske, Deceased 131,889 59,166 191,055 Marion Jones, Administratrix of the Estate of Eugene Jones, Deceased 49,410 46,710 96,120 Jerome Kierzek 14.000 14,000 Stanley Mulka 14.000 14,000 Raphael Pizybyln 9,706 19,000 28,706 Ronald Piechan 7,659 17,000 24,659 Billy Holley 13,404 29,000 42,404 Michael Idalski 11,095 14,000 25,095 Walter Tulgetske 30,476 37,000 67,476 CA750H Interest shall attach to the awards as of the date of the original District Court judgment, May 7, 1969. See Swartz-baugh Manufacturing Co. v. United States, 289 F.2d 81, 85 (6th Cir. 1961). . The facts are detailed in Petition of Den Norske Amerikalinje A/S, 276 F.Supp. 163 (N.D. Ohio, 1967). Original Award Recomputation 2. Barbara Fuhrman, Administratrix of the Estate of Arthur Fuhrman, deceased $338,095.00 $137,801.00 Elizabeth Haske, Administratrix of the Estate of Stanley Haske, deceased 308.702.00 182,129.00 Marion Jones, Administratrix of the Estate of Eugene Jones, deceased 149.414.00 90.738.00 Jerome Kierzek 88,860.00 14,000.00 Stanley Mulka 92.740.00 14.525.00 Raphael Przybyla 196.288.00 69.327.00 Ronald Piechan 82.160.00 37.065.00 Billy Holley 251.976.00 92.329.00 Michael Idalski 89,420.00 32,670.60 Walter Tulgetske 195.888.00 92,733.10 . See, generally, IB Moore’s Federal Practice §§ 0.404 [1], 0.404 [10] (2d ed. 1965). . White v. Higgins, 116 F.2d 312 (1st Cir. 1940). . See, generally, IB Moore’s Federal Practice § 0.404 [4] (2d ed. 1965). . United States of America and Interstate Commerce Commission v. United States Smelting, Refining and Mining Co., 339 U.S. 186, 70 S.Ct. 537, 94 L.Ed. 750 (1950). . 436 F.2d at 1275. . “The only apparent basis for such assumption on the part of the Commissioners was the testimony of expert actuaries and economists which tended generally to show that all wages tend to increase from 5% to 6% annually as the result of increased productivity and inflation. However, in making the assumption, the Commissioners apparently ignored the documentary evidence in the record in the form of the collective bargaining agreements under which the decedents would have continued to have been employed had they lived. Those agreements showed that the annual wage increase which the hourly employees would have been entitled to receive in the four years from date of death to the date of judgment approximated 114% per annum, not the 4% to 5% per annum increase found by the Commissioners.” 436 F.2d at 1275. . See also, 436 F.2d at 1266, 1267, 1268 and 1270. . In regard to the exclusion, the claimants state, “Although it is not stated in this Court’s opinion, it is assumed that the reason lay in the fact that the questions to the psychiatrist were not posed as hypothetical questions in accordance with the practice in the state courts of Ohio.” Claimants’ brief, p. 16. If this were the case, this Court would indeed have remanded with instructions to retry the case; this time with questions posed in the proper form. However, the basis for the exclusion is clearly elucidated in the opinion, 436 F.2d at 1262-1265. . On remand, the District Court followed this Court’s instructions with respect to the exclusion of the psychiatric testimony find refused to reopen the case for further proof. We note that the claimants’ proffer was virtually the same testimony of the psychiatrist presented in the original trial. On this narrow ground alone, this Court would be justified in rejecting the claimants’ argument that they should be able to retry their case. . The Cedarville sank on May 7, 1965. This Court’s opinion in the prior appeal was filed on December 23, 1970. Thus, there would be at least a 5% year period between the injury and the “treatment.” . It would seem that claimants had ample opportunity during the four year history of the trial to introduce all admissible testimony. . Welfare benefits include life insurance, sickness and accident insurance, and hospital and physician services. . One of the few items claimants accept is the figure approved for the decedents’ conscious pain and suffering. We previously stated: “The awards for pain and suffering in the death cases will not be disturbed.” 436 F.2d at 1276. . The lows: gross earnings of the decedents in the years prior to 1965 were as fol- FUHRMAN HASKE JONES 1961 $4,632 $8,156 1962 5,014 8,050 7,412 1963 7,044 8,213 8,650 1964 5,889 7,856 7,428 4-yr. avg.: 5,645 8,069 7,872 . As it turns out, only Fuhrman had an average earning less than the year immediately preceding the incident. See footnote 16, supra. . Alexandervieh v. Gallagher Bros. Sand & Gravel Corp., 298 F.2d 918 (2d Cir. 1961), cited by claimants, does not support their proposed method of calculating earnings. . Claimants intimate that the shipowners’ failure to voluntarily pay maintenance and cure caused the return to work by some claimants. This is unsupported by the record. . The shipowners support their argument in part with the following chart: . Our previous opinion expressly noted the failure of the Commissioners to satisfactorily set forth the basis of their awards. 436 E.2d at 1261-1262. We find, however, that the recomputation for this award and the others provides little more insight into the conclusary determinations as made by the Commissioners. Not only do we fail to find precise support for the present pain and suffering awards but we.fail to find any explanation for the divergence from our previous direction. . Since July 1, 1966, the Federal Rules of Civil Procedure have been expressly applicable to admiralty cases. . A partial collection of cases that have modified awards in admiralty and entered a final order thereon is as follows : Cates v. United States, 451 F.2d 411 (5th Cir. 1971) ; Alexandervich v. Gallagher Bros. Sand & Gravel Corp., 298 F.2d 918 (2d Cir. 1961) ; Moore-McCormack Lines, Inc. v. Richardson, 295 F.2d 583 (2d Cir. 1961) ; Texas Co. v. R. O’Brien & Co., 242 F.2d 526 (1st Cir. 1957) ; Imperial Oil Ltd. v. Drlik, 234 F.2d 4 (6th Cir. 1956) ; Menefee v. W. R. Chamberlin Co., 183 F.2d 720 (9th Cir. 1950). . Neither Idalski nor any of the other claimants were injured by the impact of the collision. . In calculating the annual earning capacity for the three death claimants, the Commissioners have applied the 1%% annual growth rate for each of the years 1965-1969 to the 1964 gross earnings of each decedent (see footnote 16, supra). The year 1969 marks the date of the original judgment and thus is the benchmark for calculating future earnings.