source: Caselaw Access Project

author: WEBSTER, Circuit Judge.

license: Public Domain

text:
    L. R. JACKSON and Mittie Jackson, Appellants, v. WHEATLEY SCHOOL DISTRICT NO. 28 OF ST. FRANCIS COUNTY, ARKANSAS, et al., Appellees.
    No. 73-1364.
    United States Court of Appeals, Eighth Circuit.
    Submitted Nov. 14, 1973.
    Decided Dec. 28, 1973.
    Rehearing Denied Jan. 30, 1974.

      Philip E. Kaplan, Little Rock, Ark., for appellants.
    E. J. Butler, Forrest City, Ark., for appellees.
    Before GIBSON, Circuit Judge, MOORE, Senior Circuit Judge, and WEBSTER, Circuit Judge.

       Honorable LEONARD P. MOORE, Senior Circuit Judge, Second Circuit, sitting by designation.

   WEBSTER, Circuit Judge.

This is the third appeal to this court in a controversy that began in 1968 when four black elementary school teachers and the Arkansas Teachers Association filed a complaint in the United States District Court for the Eastern District of Arkansas against the recently desegregated Wheatley School District, the district’s superintendent, and the members of the School Board. Two of the individual plaintiffs were L. R. Jackson and his wife, Mittie Jackson, who for 11 consecutive years had taught at the all-black Wheatley Central School until it was closed pursuant to a desegregation plan adopted by the district at the end of the 1967-68 school year, at which time their employment contracts were terminated. Plaintiffs alleged that the school district’s nonrenewal of their contracts was based solely on race, in violation -of their statutory civil rights and their constitutional right to equal protection of the law. They sought damages, injunctive relief to prevent future racial discrimination, and immediate reinstatement.

Following a full trial on the merits, the district court, Oren Harris, Chief Judge, dismissed the complaint. Plaintiffs appealed that dismissal, assigning error to Judge Harris’ failure to find that their discharge was racially motivated. On appeal, 430 F.2d 1359 (8th Cir. 1970), this court found that racial discrimination did in fact motivate the discharge of three of the teachers, including the Jacksons; vacated the district court’s decree to that extent; and remanded the case with the suggestion that Smith v. Morrilton School District No. 32, 365 F.2d 770 (8th Cir. 1966), serve as a guideline for fashioning ap-propirate relief.

Upon remand Judge Harris conducted a hearing and, where substantiating evidence had been introduced, awarded damages to each teacher for certain of the expenses incurred in seeking other employment and for earnings lost between the date of discharge and August 11, 1970, the date of the first Court of Appeals opinion (Jackson I). The teachers appealed the district court’s refusal to order reinstatement; its refusal to grant damages after August 11, 1970; its allegedly incorrect computation of expenses and salary loss for 1968-69 and 1969-70; and its failure to award additional damages to the Jacksons for the expenses they incurred in maintaining a second household during the 1969-70 school year, allegedly necessitated by the Jacksons’ inability to find suitable employment within a reasonable distance from their permanent residence in Brinkley, Arkansas. On appeal before this court in Jackson II, 464 F.2d 411 (8th Cir. 1972): (1) the trial court’s computation of expenses and salary loss and its refusal to award compensation for the Jacksons’ maintenance of a second residence were sustained as based on findings that were not clearly erroneous; (2) the school district was ordered to 'ascertain which teachers still desired reemployment therein and to offer them reinstatement on the basis of Smith v. Morrilton; (3) appropriate damages were held to include the period from June 11, 1970 to the effective date of reemployment for all those teachers desiring to return to work, subject to the general duty to mitigate damages; and (4) Mrs. Jackson’s duty to mitigate damages was held not to include an obligation to live apart from her spouse, and the burden was placed on the Board of Education to prove that Mrs. Jackson could have found a teaching position in or near the community where the family lived. The case was thus again remanded for determination by the district court whether Mrs. Jackson could have found employment within a reasonable distance from the family home and whether she had made a reasonable effort to do so, with the express instruction, however, that “[i]f the board fails to meet its burden [of proof on these issues], Mittie Jackson is entitled to be compensated for her loss of earnings for the 1970-71 and 1971-72 school years, and such other damages as she may be able to establish.” 464 F.2d at 414. Costs were assessed against Wheatley.

At a hearing on March 29, 1973, the district court heard evidence and argument on (1) the efforts of the Jacksons to obtain suitable employment and the salary losses and expenses they suffered incidental thereto; (2) the claimed willful refusal of the school district to offer the first suitable vacancy to the Jack-sons despite this court’s express order to that effect; and (3) the Jacksons’ prayer for attorneys’ fees. Judge Harris’ unpublished memorandum and order disposed of these issues in the following fashion: (1) Mrs. Jackson was awarded $8,060.24, Mr. Jackson $950.00 — both sums expressly excluded travel and other incidental costs incurred in attempting to secure employment; (2) the Jack-sons’ right to reemployment upon the first suitable vacancies was reiterated, but their request for immediate reinstatement regardless of vacancies was not granted; and (3) plaintiffs were awarded $28.80 costs and $500.00 attorneys’ fees but were denied their prayer for the balance of attorneys’ fees incurred.

Counsel for the plaintiffs moved for reconsideration of the district court’s order, and upon its refusal, perfected this appeal. Now before this court for the third time, plaintiffs-appellants raise three issues: their right to immediate reinstatement, their right to certain consequential damages, and their right to all attorneys’ fees incurred since the inception of this case.

I. RIGHT TO IMMEDIATE REINSTATEMENT

At the time of this appeal, the Jack-sons had been reinstated and were teaching in Wheatley. Nonetheless, appellants ask this court to reconsider the remedial provisions spelled out in Smith v. Mor-rilton, supra, and reiterated in Jackson II because of the Wheatley School District’s alleged bad faith, evidenced by the belated reemployment of the Jack-sons well after the first suitable vacancies had occurred and had been filled by less qualified white teachers. They urge that this court replace the “first vacancy” rule with an “immediate reinstatement” rule similar to that followed in the Fifth Circuit.

Finding this issue moot and the appellants therefore without standing, we decline to consider it on the merits. This lawsuit was not initiated as a class action; and appellants have offered no persuasive evidence that there are present beneficiaries of the rule they ask us to adopt.

We do, of course, recognize that in certain extraordinary circumstances the barrier of mootness can be overcome. See Roe v. Wade, 410 U.S. 113, 125, 93 S.Ct. 705, 35 L.Ed.2d 147 (1973); Moore v. Ogilvie, 394 U.S. 814, 816, 89 S.Ct. 1493, 23 L.Ed.2d 1 (1969); Carroll v. Princess Anne, 393 U.S. 175, 178-179, 89 S.Ct. 347, 21 L.Ed.2d 325 (1968); United States v. W. T. Grant Co., 345 U.S. 629, 632-633, 73 S.Ct. 894, 97 L.Ed. 1303 (1953); Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 55 L.Ed. 310 (1911). However, in such cases the mootness of a case has been overlooked in order to allow the court to adjudicate a question which otherwise might repeatedly evade its review. In contrast, this Court of Appeals has had numerous opportunities to enunciate the appropriate relief for teachers illegally discharged when their school district implemented a desegregation plan. In each such case, this court has reiterated its approval of the “first vacancy” rule. See, most recently, United States v. Cotton Plant School District No. 1, 479 F.2d 671 (8th Cir. 1973). As a result we find no compelling circumstances justifying our disregard of the mootness of appellants’ claim. Therefore, this is an inappropriate case for reconsideration of the remedial procedures outlined in Smith v. Morrilton, supra.

II. DAMAGES

Appellants seek compensation for travel expenses, living expenses, and other incidental expenses incurred in obtaining and keeping employment outside the Wheatley School District. We sustain the district court’s denial of all such damages because we find them based on factual determinations which are not clearly erroneous.

In so doing, we first note that in Judge Harris’ opinion of October 7, 1971, the Jacksons were awarded damages which included ten cents for each mile they traveled in their search for teaching positions outside the district. On appeal, we upheld that determination with respect to the period prior to August 11, 1970, but remanded the case both for a computation of additional damages covering the period after August 11, 1970 and for findings on Mrs. Jackson’s efforts to mitigate damages by attempting to secure “employment as a teacher in or near the community where the family lived.” 464 F.2d 413-414. On that second remand, Judge Harris issued an order which awarded the Jack-sons compensation for their post-August 11, 1970 salary losses but denied them, without explanation, all travel expenses incurred during that same period of time. We affirm that decision as one based on factual determinations which are not clearly erroneous; we are unable to find in the record before us any clear evidence of travel expenses actually incurred by Mrs. Jackson while seeking employment within a reasonable distance of the family home after August 11, 1970.

The Jacksons seek other consequential damages, e. g., living and commuting expenses incurred as a result of their work outside the vicinity of their permanent home in Brinkley, Arkansas. In Jackson II, we sustained the trial court’s refusal “to allow the Jacksons damages for expenses incurred by them in maintaining two households during the 1969-70 school year.” 464 F,2d at 412. We find the consequential damages incurred by the Jacksons in subsequent years sufficiently similar to those denied for 1969-70 that the same legal conclusion must control both periods. Therefore, on the basis of Jackson II, we affirm Judge Harris’ denial of such damages.

III. ATTORNEYS’ FEES

The Jacksons appeal from Judge Harris’ grant of $500.00 attorneys’ fees and seek attorneys’ fees for all legal work performed in connection with this lawsuit since its inception in 1968. Section 718 of the Emergency School Aid Act of 1972 authorizes the district court to allow a reasonable attorney’s fee to the prevailing party, “in its discretion”. 20 U.S.C. § 1617. In Jackson II, we approved the trial court’s computation of damages for the period prior to August 11, 1970. Attorneys’ fees should ordinarily be allowed to the successful plaintiff unless special circumstances would render such an award unjust, Northcross v. Memphis Board of Education, 412 U.S. 427, 93 S.Ct. 2201, 37 L.Ed.2d 48 (1973). We have reviewed the record of the' hearing and find no abuse of discretion in the amount awarded by Judge Harris for the post-August 11, 1970 period. See Kemp v. Beasley, 352 F.2d 14, 23 (8th Cir. 1965); Rogers v. Paul, 345 F.2d 117, 125-126 (8th Cir.), vacated and remanded on other grounds, 382 U.S. 198, 86 S.Ct. 358, 15 L.Ed.2d 265 (1965).

Affirmed.

      . Jurisdiction was established under 42 U.S. C. §§ 1981 and 1983 and under 28 U.S.C. § 1343(3) and (4).

      . In Smith v. Morrilton, having found that the dismissal of several black teachers was racially motivated, this court ordered the recently desegregated Morrilton School District to ascertain which black faculty members were interested in reemployment and to offer to each teacher so interested the first position for which he or she was qualified in which a vacancy occurred; but the court carefully limited that preference only to the first such vacancy so offered to any particular teacher. The ease was remanded with instructions to the trial court that it might grant injunctive relief where necessary to prevent future discrimination and to award damages to each teacher, subject to the duty to mitigate, for the interval between the termination of his employment and the date of the opinion or, where an interest in reemployment was manifested, the effective date of reemployment offered.

      . The opinion does not explain the significance of the June 11 date. Other portions of the opinion suggest that the important date is August 11, the date of the first Court of Appeals opinion.

      . Noting that Mrs. Jackson had quit one job which she had found outside the Wheatley district in order to be with her husband who had obtained employment in still another locale, this court held in Jackson II that such a move did not constitute a failure by Mrs. Jackson to mitigate damages: “We think that it is unreasonable to expect a married couple, such as the Jacksons, to maintain separate residences for the sole purpose of reducing damages caused by the unlawful actions of the school board.” 464 F.2d at 413.

      . Counsel for the Jacksons attempted to incorporate into the record of the instant case portions of the record of a related case before Judge Harris involving the Wheatley School District, McKissick v. Lee, et al., Civ. No. H-72-C-32. Part of this record (included in the appendix submitted on this appeal), together with certain testimony from the March 29, 1973 hearing in the instant case, suggests that the school district hired several white teachers, some of dubious qualification, after the Court of Appeals had rendered its opinion, in Jackson II and with full knowledge of the import of that opinion.

      . The $500 award was attributed to the fees incurred in connection with the March 29, 1973 hearing. The district court, reasoned that while plaintiffs were not entitled to attorneys’ fees in the initiation of this litigation, the March 29 bearing and the pre-trial conference were conducted solely for the purpose of allowing the school district to prove that Mrs. Jackson could have obtained suitable employment within a reasonable distance of the family residence and that she failed to make a reasonable effort to do so; when the school board made no attempt to meet this burden of proof at the March 29 hearing, Judge Harris ordered that the school district bear the legal expenses incurred in connection therewith.

      . Only L. R. Jackson and Mittie Jackson bring this appeal; the case of Mrs. Malissa Meeks, a plaintiff in the original action, was fully disposed of by the court in Jackson II, although Judge Harris subsequently did order the school district to pay her interest od damages previously awarded.

      . See Lee v. Macon County Board of Education, 453 F.2d 1104 (5th Cir. 1971) and 456 F.2d 1371 (5th Cir. 1972).

      . The court awarded Mrs. Jackson $436.40 because she had traveled 4,364 miles in seeking employment during the summer of 1968. She was not awarded any subsequent travel expenses because of the trial court’s view, reversed on appeal, that she should have retained a job which would have required her to live apart from her spouse. See note 4 supra.

      Judge Harris found that Mr. Jackson had failed to substantiate satisfactorily the exact number of miles he traveled in order to obtain his employment for the 1968-69 school year and for the two subsequent school years. As a result, although he had sought a greater amount, he was awarded only $250 for the travel expenses he incurred during the summer of 1968 in his efforts to find a teaching position.

      . The only evidence in the record of the March 29, 1973 hearing relevant to this point is the following testimony by Mrs. Jackson on direct examination by counsel for the school district:
      Q. Did you make any other trips in regard to these applications in 1970-71 except for those two?
      A. Oh, yes, sir, many. ijt s»e jfs # #
      Q. But how many miles did you travel?
      A. I believe in this particular case I trav-elled 597 miles altogether, one-way, you know.
      Q. Five hundred-some-odd miles?
      A. Yes, sir.
      We cannot conclude from this testimony alone that Judge Harris’ disallowance of damages was clearly erroneous because the record before us contains no evidence to persuade us either that these expenses were incurred after August 11, 1970 or that Mrs. Jackson’s job applications were confined to a geographic area “in or near the community where the family lived.” In the latter context, we note Judge Harris’ comments during the March 29, 1973 hearing that “[T]he Circuit Court of Appeals made it very strong in its statement that [Mrs. Jackson] was not required to go out to these far-reachings to seek employment under the circumstances because they used the term ‘within a reasonable distance’ . . . . ”

      . See note 6 supra.

      . Emergency School Aid Act § 718, enacted June 23, 1972:
      Upon the entry of a final order by a court of the United States against a local educational agency, a State (or any agency thereof), or the United States (or any agency thereof), for failure to comply with' any provision of this chapter or for discrimination on the basis of race, color, or national origin in violation of the fourteenth amendment to the Constitution of the United States as they pertain to elementary and secondary education, the court, in its discretion, upon a finding that the proceedings were necessary to bring about compliance, may allow the prevailing party, other than the United States, a reasonable attorney’s fee as part of the costs.
      (emphasis added)


author: WISDOM, Circuit Judge:

text:
    Dusan SPACIL, Ambassador of the Czechoslovak Socialist Republic, Petitioner, v. The Honorable Guthrie F. CROWE, United States District Court Judge for the District of the Canal Zone, et al., Respondents.
    No. 73-3599.
    United States Court of Appeals, Fifth Circuit.
    Feb. 13, 1974.
    Leonard B. Boudin, Michael Krinsky, New York City, Bruno Ristau, Atty., Dept, of Justice, Civil Div., Washington, D. C., for petitioner.
    Guthrie F. Crowe, Judge, Balboa Heights, Canal Zone, Robert E. Herz-stein, Washington, D. C., Betty Olchin, Balboa, Canal Zone, Donald W. Doyle, Howard J. Smith, Donald W. Doyle, Jr., New Orleans, La., for respondents.
    Before WISDOM, AINSWORTH and CLARK, Circuit Judges.
   WISDOM, Circuit Judge:

This case concerns executive preemption of the decision to grant a foreign sovereign immunity from suit in our courts.

On November 13, 1973, we granted a petition for a writ of mandamus in this action, directing the district court for the district of the Canal Zone “to order the release of the vessel ‘M/V Imias’ and to refrain from exercising any jurisdiction over that ship and over the action entitled Industria Azucerera Na-cional, S.A., et al v. Empresa Navega-ción Mambisa”. Because of the urgency of the matter, we granted the petition without then stating our reasons in an opinion. We now state the reasons for our order granting the writ.

I.

The controversy grew out of the recent military coup in Chile. On September 11, 1973, a military junta overthrew the government of President Salvador Allende Gossens. That same day the M/V Playa Larga, a vessel owned by the Cuban corporation Empresa Navegación Mambisa (Mambisa), abruptly left Chilean waters. 11The Playa Larga had transported raw sugar from Cuba and had only partially unloaded its cargo at a pier 'in Valparaiso. The vessel left port so precipitately that it still had on board four unloading cranes owned by the Chilean corporation, Compañía de Refinería de Azúcar de Vina del Mar (Refinería). After leaving Chilean territory on September 11, the Playa Larga was damaged by strafing from Chilean Air Force planes and shelling" from a Chilean destroyer. A second Mambisa vessel, the M/V Marble Island, also transporting sugar from Cuba, abandoned its course for Chile on September 12, 1973.

The sugar carried by both the Playa Larga and the Marble Island was consigned to Industria Azucarera Nacional, S.A. (Azucarera), a Chilean corporation. Azucarera instituted a breach of contract action against Mambisa in the Canal Zone district court, contending that it had fully paid for the sugar. Re-finería joined as plaintiff, asserting a claim for the conversion of the four cranes carried off by the Playa Larga. The claims totaled more than $4 million. On October 2, 1973, the District Court for the Canal Zone issued a writ attaching the M/V Imias.

The Czechoslovak Ambassador, Dusan Spacil, representing the interests of Cuba in the United States, promptly requested the State Department to file a suggestion of immunity in the district court urging the release of the Imias and the dismissal of the action. In conformity with established procedures, members of the Legal Adviser’s Office of the State Department heard arguments on behalf of the parties. On October 25 the Legal Adviser apprised the Attorney General of the United States of the State Department’s decision:

“The Department has been informed by the Embassy of the Czechoslovak Socialist Republic, as representative of the interests of the Government of the Republic of Cuba in the United States of America, that the M.N. Imias is a vessel belonging to the Government of Cuba and that the Government of Cuba requests that the said vessel be granted immunity from the jurisdiction of United States courts.
The Department recognizes and allows immunity of the M.N. Imias from the jurisdiction of United States courts for the purpose of arrest, attachment, suit, or any other legal process in the above captioned action.
The Department would be grateful to you if you would cause an appropriate suggestion of immunity to be filed with the United States District Court for the Canal Zone.” (Emphasis added.)

In compliance with this' request, the United States Attorney for the Canal Zone, at the direction of the Attorney General, certified a suggestion of immunity to the court, stating:

“[The issue of immunity] arises in connection with a determination reached by the Executive Branch of the Government of the United States in the implementation of its foreign policy and in the conduct of its international relations, which determination should be given effect by this Court.”

Counsel for the plaintiffs requested an opportunity to appeal to the Secretary of State the Legal Adviser’s decision to recognize and allow the claim of immunity. Counsel also requested a statement of the reasons for the Legal Adviser’s decision. The Legal Adviser responded:

“The Department’s decision to recognize and allow immunity in this case was made on the basis of the most careful consideration of all the circumstances and after appropriate consultation by the Office of the Legal Adviser with the other interested bureaus and officials in the Department. The Department’s practice in sovereign immunity cases does not provide for an appeal, or any presentation by counsel, to the Secretary of State. The Department’s decision has been taken, and, it. is the Department’s view that the public interest and United States foreign relations are best served by the prompt release of the vessel.”

On November 1, 1973, the district court granted the defendant’s motion to dismiss the suit and to release the Imias on grounds of sovereign immunity. The district judge stated orally in open court, however, that he would defer the entry of the order until November 5 and that if the plaintiffs posted a $25,000 bond the court would stay the effectiveness of the order pending appeal. The defendant petitioned for .writs of mandamus and prohibition, seeking air order of this Court to require the district court to dismiss the action and order the immediate release of the vessel. The defendant and plaintiffs filed briefs in this Court. In addition, the United States filed a brief in support of the petition. Meanwhile the plaintiffs posted the bond, and the district court stayed the effectiveness of the order. This Court permitted counsel for the plaintiffs and the defendant and a representative of the United States to argue the case on November 12. The following day we granted the writ.

II.

An accepted rule of law is that courts should recognize the immunity of a foreign sovereign. “Historically, the rule may be traced to a time when most states were ruled by a personal soverign who, in a very real sense, personnified the State — ‘L’Etat C’est moi’ ”. Draft Convention of the Competence of Courts in Regard to Foreign States, 26 Am.J.Int’l L. 451, 527, no. 1. The doctrine of foreign sovereign immunity cuts across the rights of individuals when governments engage in commercial or industrial activities reserved in many countries for private enterprise. In applying the doctrine in any particular case the judiciary must be sensitive to the overriding necessity that courts not interfere with the executive’s proper handling of foreign affairs.

From the early days of the Republic to the present, the United States judiciary has bowed to suggestions by the executive that certain suits against foreign sovereigns should not be entertained in United States courts. In the famous case of The Schooner Exchange v. McFaddon, 1812, 11 U.S. (7 Cranch) 116, 3 L.Ed. 287, where the Supreme Court first enunciated the doctrine of immunity for foreign sovereigns, Chief Justice Marshall said: “[T]here seems to be a necessity for admitting that the fact [of immunity] might be disclosed to the court by the suggestion of the attorney for the United States.” 11 U.S. at 147.

The Supreme Court has stated the principle forcefully ' in later decisions. Writing for the Court in Compania Espanola De Navegacion Maritima v. The Navemar, 1938, 303 U.S. 68, 74, 58 S.Ct. 432, 82 L.Ed. 667, Justice Stone stated unequivocally that the courts would be bound by a claim of sovereign immunity “recognized and allowed” by the executive branch: “[I]t is then the duty of the courts to release the vessel upon appropriate suggestion by the Attorney General of the United States, or other officer acting under his direction.” This characterization of the function of the judiciary when faced with an executive suggestion of immunity was echoed in Ex parte Peru, 1943, 318 U.S. 578, 588, 63 S.Ct. 793, 87 L.Ed. 1014:

“[Cjourts may not so exercise their jurisdiction, by the seizure and detention of the property of a friendly sovereign, as to embarrass the executive arm of the government in conducting foreign relations. . . . [T]he judicial seizure of the vessel of a friendly foreign state is so serious a challenge to its dignity, and may so affect our friendly relations with it, that courts are required to accept and follow the executive determination that the vessel is immune. . . . Upon recognition and allowance of the claim by the State Department and certification of its action presented to the court by the Attorney General, it is the court’s duty to surrender the vessel and remit the libelant to the relief obtainable through diplomatic negotiations.”

More recently, the Second and Fourth Circuits have reiterated that once the State Department has determined that immunity is warranted, and has submitted that ruling to the court through a suggestion, the matter is for diplomatic rather than judicial resolution. The suit must be dismissed, and any proper- ’ ty attached must be released. Isbrandtsen Tankers, Inc. v. President of India, 2 Cir. 1971, 446 F.2d 1198, cert. denied, 404 U.S. 985, 92 S.Ct. 452, 30 L.Ed.2d 369; Rich v. Naviera Vacuba, S.A., 4 Cir. 1961, 295 F.2d 24.

The precedents are overwhelming. For more than 160 years American courts have consistently applied the doctrine of sovereign immunity when requested to do so by the executive branch. Moreover, they have done so with no further review of the executive’s determination. The Supreme Court in Ex parte Peru declared that the State Department’s suggestion must be accepted by the judiciary as “a conclusive determination” that continued retention of jurisdiction would jeopardize foreign relations. 318 U.S. at 589. The Fourth Circuit was even more pointed in Rich v. Naviera Vacuba, S.A., placing the unquestioning acceptance of the State Department’s decision that immunity should be granted on a constitutional footing. The Court said:

“[W]e conclude that the certificate and grant of immunity issued by the Department of State should be accepted by the court without further inquiry. . . . We think that the doctrine of the separation of powers under our Constitution requires us to assume that all pertinent considerations have been taken into account by the Secretary of State in reaching his conclusion.”

295 F.2d at 26. In the face of these authorities, the plaintiffs ask us to depart from the historic practice of granting unquestioned discretion to the executive. We decline to do so.

The plaintiffs’ primary contention concerns the applicability of the Administrative Procedure Act, 5 U.S.C. §§ 551-559, 701-706. Their argument runs as follows. The APA provides for judicial review of “final agency action for which there is no other adequate remedy in a court”, 5 U.S.C. § 704, and “[e]xemptions from the . . . Administrative Procedure Act are not lightly to be presumed”, Marcello v. Bonds, 1955, 349 U.S. 302, 310, 75 S.Ct. 757, 99 L.Ed. 1107. With several exceptions that are not material here, “agency” is defined as any “authority of the Government of the United States”, 5 U. S.C. § 701. This is clearly broad enough to cover the State Department. See Rusk v. Cort, 1962, 369 U.S. 367, 375, 82 S.Ct. 787, 7 L.Ed.2d 809. “Agency action”, similarly broadly defined, “includes the whole or a part of an agency rule, order, license, sanction, relief, or the equivalent or denial thereof, or failure to act”. 5 U.S.C. § 551. As “agency action” and as “final” for purposes of review, cf. Brownell v. We Shung, 1956, 352 U.S. 180, 185, 77 S.Ct. 252, 1 L.Ed.2d 225, the plaintiffs maintain, a suggestion of immunity is subject to judicial review under Title 5, section 706, of the United States Code. The plaintiffs cite holdings that judicial review of final agency action will not be cut off unless there are persuasive reasons to believe that such was the intent of Congress. Abbott Laboratories v. Gardner, 1967, 387 U.S. 136, 140, 87 S.Ct. 1507, 18 L.Ed.2d 681; Barefield v. Byrd, 5 Cir. 1963, 320 F.2d 455, 458; cert. denied, 376 U.S. 928, 84 S.Ct. 675, 11 L. Ed.2d 624.

Although the life of the Administrative Procedure Act, promulgated in 1946, spans decisions of both the Supreme Court and Circuit Courts holding executive determinations dealing directly with foreign relations beyond judicial competence, we do not view this fact as disposing automatically of the plaintiffs’ argument that the review provisions of the Act apply. The applicability of the APA has apparently never been considered in this context. The issue is sufficiently important to require analysis here. Congress has not specifically provided, in the Administrative Procedure Act or elsewhere, for review of State Department decisions to recognize and allow a claim of sovereign immunity. The question, then, is whether the presumption of review accorded most agency action obtains. For the reasons set out below, we conclude that it does not.

We pause for two caveats. First, we are analyzing here the proper allocation of functions of the branches of government in the constitutional scheme of the United States. We are not analyzing the proper scope of sovereign immunity under international law. Second, although the Constitution gives the responsibility for the conduct of the nation’s foreign affairs entirely to the executive and Congress, this well-recognized fact does not itself foreclose judicial determination of cases which may have some foreign relations impact. See Baker v. Carr, 1962, 369 U.S. 186, 211, 82 S.Ct. 691, 7 L.Ed.2d 663. We do not doubt the propriety of courts deciding questions of sovereign immunity, absent executive recognition and allowance of a claim. This has been the traditional and accepted practice of the courts. See, e. g., Mexico v. Hoffman, 1945, 324 U.S. 30, 35, 65 S.Ct. 530, 89 L.Ed. 729; Ex parte Peru, supra, 318 U.S. at 587-588; Compania Española De Navegación Mar-ítima v. The Navemar, supra, 303 U.S. at 75. See also Scharpf, Judicial Review and the Political Question: A Functional Analysis, 75 Yale L.J. 517, 541-48 (1966). But different considerations come into play when the executive has made its determination clear.

When the executive branch has determined that the interests of the nation are best served by granting a foreign sovereign immunity from suit in our courts, there are compelling reasons to defer to that judgment without question. Separation-of-powers principles impel a reluctance in the judiciary to interfere with or embarrass the executive in its constitutional role as the nation’s primary organ of international policy. United States v. Lee, 1882, 106 U.S. 196, 209, 1 S.Ct. 240, 27 L.Ed. 171. And the degree to which granting or denying a claim of immunity may be important to foreign policy is a question on which the judiciary is particularly ill-equipped to second-guess the executive. The executive’s institutional resources and expertise in foreign affairs far outstrip those of the judiciary. See Chicago & S. Air Lines, Inc. v. Waterman S.S. Corp., 1948, 333 U.S. 103, 111, 68 S.Ct. 431, 92 L.Ed. 568; United States v. Curtiss-Wright Export Corp., 1936, 299 U.S. 304, 320, 57 S.Ct. 216, 81 L.Ed. 255. Perhaps more importantly, in the chess game that is diplomacy only the executive has a view of the entire board and an understanding of the relationship between isolated moves. Will granting immunity serve as a bargaining counter in complex diplomatic negotiations? See Falk, The Role of Domestic Courts in the International Legal Order, 39 Indiana L.J. 429, 440 (1964). Will it preclude a significant diplomatic advance; perhaps a detente between this country and one with whom we are not on the best speaking terms? These are questions for the executive, not the judiciary.

Even if the decision to recognize and allow a claim of immunity is within the executive’s discretion, the plaintiffs argue, the State Department must explicate the reasons behind its decision; only then can the judiciary properly be confident that the executive has exercised its discretion within the bounds of reasonableness. Here, the State Department has provided neither the plaintiffs nor this Court with the basis for its decision. We know only that in the Sta”te Department’s view “the public interest and United States foreign relations are best served by the prompt release of the vessel”.

The plaintiffs attempt to bring in an established principle of administrative law. In typical review of government action the court ensures that the agency has not acted arbitrarily or capriciously, see, e. g., Citizens to Preserve Overton Park, Inc. v. Volpe, 1971, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136; that the agency has followed its own rules, see, e. g., Service v. Dulles, 1957, 354 U.S. 363, 77 S.Ct. 1152, 1 L.Ed.2d 1403; United States ex. rel. Accardi v. Shaughnessy, 1954, 347 U.S. 260, 74 S.Ct. 499, 98 L.Ed. 681; and that the agency has taken a “ ‘hard look’ at the salient problems”, Greater Boston Television Corp. v. FCC, 1971, 143 U.S.App.D.C. 383, 444 F.2d 841, 851, cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701. To permit this review, of course, it is necessary that agencies disclose the bases of their decisions. FPC v. United Gas Pipe Line Co., 1968, 393 U.S. 71, 73, 89 S.Ct. 55, 21 L.Ed.2d 55. We have no quarrel with this line of cases. But it does not require review here. In the narrow band of government action where foreign policy interests are direct and substantial we must eschew even limited “reasonableness” review. To require the executive to enlighten us with the foundation of its decision to recognize and allow a claim of sovereign immunity might itself create a serious risk of interference with foreign relations.

It cannot be disputed that some legitimate diplomatic maneuvers demand total secrecy. As President Washington observed long ago:

“The nature of foreign negotiations requires caution, and their success ..must often depend on secrecy; and even when brought to a conclusion a full disclosure of all the measures, demands, or eventual concessions which may have been proposed or contemplated would be extremely impolitic; for this might have a pernicious influence on future negotiations, or produce immediate inconveniences, perhaps danger and mischief, in relation to other powers.”

1 Messages and Papers of the Presidents 194 (1897). We can visualize situations where the disclosure that negotiations are ongoing, or even contemplated, would wreak havoc with foreign relations. We simply dare not risk this sort of interference. The Supreme Court has noted that “ [i]t would be intolerable that courts, without the relevant information, should review and perhaps nullify actions of the Executive taken on information properly held secret”. Chicago & S. Air Lines, Inc. v. Waterman S. S. Corp., supra, 333 U.S. at 111. Only if we permit an executive suggestion of immunity to preempt completely judicial consideration of the question can we be certain that we are not encroaching upon the executive’s prerogative in foreign affairs.

It is the legitimate role of secrecy in foreign relations which, more than any other factor, distinguishes executive decisions directly concerning foreign policy from other agency action and makes judicial review peculiarly inappropriate in the former instance. Disclosure of the foundation of decision-making does not usually interfere with legitimate agency activities. But in foreign affairs, where the success of a legitimate policy may depend on secrecy, disclosure of the reasons for recognition and allowance of a claim may itself defeat that policy. We hold, therefore, that the executive’s decision to recognize and allow a claim of foreign sovereign immunity binds the judiciary, and that no further review of the executive’s action is dictated by the Administrative Procedure Act. It has been called a “sound principle that on occasion individual litigants may have to forego decision on the merits of their claims because the involvement of the courts in such a decision might frustrate the conduct of the Nation’s foreign policy”. First National City Bank v. Banco Nacional de Cuba, 1972, 406 U.S. 759, 769, 92 S.Ct. 1808, 32 L.Ed.2d 466. (Rehnquist, J., joined by Burger, C. J., and White, J.). This is one of those occasions. -

III.

The plaintiffs also contest the use of mandamus. They would have us deny the petition and force the case into the traditional appellate mold. In other words, the Imias would remain anchored in the Panama Canal, subject to the district court’s jurisdiction, at least until an appeal to this Court had been resolved. We fail to see how the interests of justice would be served by such a procedure in this case.

Mandamus generally does not lie where there is another remedy available. Ex parte Fahey, 1947, 332 U.S. 258, 260, 67 S.Ct. 1558, 91 L.Ed. 2041. But the rule is not inflexible. In Ex parte Peru, supra, 318 U.S. 578, the Supreme Court granted the petitioner’s motion for leave to file for a writ of mandamus to compel the district court to relinquish jurisdiction pursuant to a suggestion of immunity filed by the State Department. The State Department had recognized and allowed a claim of immunity for a Peruvian steamship, but the district court had refused to dismiss the action on the ground that Peru had waived its immunity by seeking extensions of time in which to answer and by taking a deposition of the master of the vessel. Peru petitioned directly to the Supreme Court. Rather than relegating the petitioner to the Court of Appeals, from where it might have been necessary to bring the case to the Supreme Court again by certiorari, the Court held that because the case was of “such public importance and exceptional character” issuance of the writ was called for. Id. at 586. The Court further explained:

“When the Secretary [of State] elects, as he may and as he appears to have done in this case, to settle claims against the vessel by diplomatic nego- ' tiations between the two countries rather than by continued litigation in the courts, it is of public importance that the action of the political arm of the Government taken within its appropriate sphere be promptly recognized, and that the delay and inconvenience of a prolonged litigation be avoided by prompt termination of the proceedings in the district court. If the Republic of Peru has not waived its immunity, we think that there are persuasive grounds for exercising our jurisdiction to issue the writ in this case and at this time without requiring petitioner to apply to the circuit court of appeals.”

Id. at 587. This use of the writ to avoid “unwarranted judicial action” which “threaten [s] to embarrass the executive arm of the government in conducting foreign relations” was reaffirmed in Will v. United States, 1967, 389 U.S. 90, 95, 88 S.Ct. 269, 19 L.Ed.2d 305.

Circumstances similar to those in Ex parte Peru call for our similar resolution of this suit.

We cannot ignore the possibility of a crisis in international relations stemming from any delay in implementing the State Department’s suggestion of immunity. Although we are aware of no “crisis” in this instance, we may not demand that international relations create a cause celebre before we require the district courts to follow the time-honored practice of releasing a vessel upon the State Department’s recognition and allowance of immunity and the filing of an appropriate suggestion with the court. The national interests that compel us to permit the executive unreviewable discretion to determine that sovereign immunity is necessary to foreign policy compel us to comply with that determination with great dispatch.

We can see little benefit to be derived from requiring the parties to reargue the merits on appeal. The positions of the parties on the merits were fully set out in lengthy written briefs and in extended oral argument. Furthermore, the case avoids the most pressing reasons for the traditional reluctance of appellate courts to issue mandamus. There is no danger of piecemeal litigation. See Parr v. United States, 1956, 351 U.S. 513, 76 S.Ct. 912, 100 L.Ed. 1377. Nor is there danger of upsetting any notions of comity between this Court and the district court by “making the judge a litigant”. Ex parte Fahey, supra, 332 U.S. at 260. Although the respondent in this action, the district judge regarded this case as just another appeal.

The real parties are as they would have been on appeal. The same issues have been considered. The defendant has shown that his right to the writ is “clear and indisputable”. Bankers Life & Casualty Co. v. Holland, 346 U.S. 379, 74 S.Ct. 145, 98 L.Ed. 106.

So ordered.

      . According to Mambisa, the Playa Larga was approached and threatened by Chilean naval vessels on the morning of September 11, and a member of the crew was arrested by a military patrol while ashore. In the early evening, the master of the vessel, fearing for the security of the vessel and its crew, took the ship out of Chilean territory.

      . State Department procedures provide for acceptance of memoranda from both parties and, at the request of either party, an informal hearing. Representatives of both parties may attend the hearing to present their views to a panel of members of the Office of the Legal Adviser. No presentation of evidence or testimony is permitted. No transcript is made of the proceedings. See 64 Am. J.Int’l L. 650 (1970).

      . There have been exceptions to this practice, but they have been extremely rare. See, e. g., Stephen v. Zivnostenska Banka Nationale Corp., 1962, 12 N.Y.2d 781, 235 N.Y.S.2d 1, 186 N.E.2d 676.

      . See, e. g., National City Bank v. China, 348 U.S. 356, 358, 75 S.Ct. 423, 99 L.Ed. 389; Isbrandtsen Tankers, Inc. v. President of India, supra, 446 E.2d at 1201; Rich v. Naviera Vacuba, S. A., supra, 295 F.2d at 26. See also Davis, Administrative Arbitrariness — A Postscript, 114 U.Pa.L.Rev. 823, 832 (1966).

      . See Chicago & S. Air Lines, Inc. v. Waterman S. S. Corp., 1948, 333 U.S. 103, 68 S.Ct. 431, 92 L.Ed. 568; Jaffe, The Right to Judicial Review, 71 Harv.L.Rev. 401, 769, 778 (1958). See also Davis, Administrative Arbitrariness Is Not Always Reviewable, 51 Minn.L.Rev. 643 (1967).

      . Chicago & S. Air Lines, Inc. v. Waterman S. S. Corp., supra, 333 U.S. at 111; United States v. Pink, 1942, 315 U.S. 203, 222, 62 S.Ct. 552, 86 L.Ed. 796; United States v. Belmont, 1937, 301 U.S. 324, 328, 57 S.Ct. 758, 81 L.Ed. 1134; Oetjen v. Central Leather Co., 1918, 246 U.S. 297, 302, 38 S.Ct. 309, 62 L.Ed. 726.

      . We do not mean to imply that any agency action touching foreign relations, however tenuously, is entitled to a presumption against review. We agree with the District of Columbia Circuit that a government agency “cannot wrap its decision[s] in some mystique of foreign policy or purported expertise in international negotiation to achieve a nonreviewable status for the facts underlying its most important and sensitive decisions”. Pillai v. CAB, D.C.Cir.1973, 485 F.2d 1018, 1023. On the other hand, even that Circuit apparently would agree with us that decisions bound up with substantial foreign policy questions are not reviewable. In Peoples v. United States Department of Agriculture, 1970, 138 U.S.App.D.C. 291, 427 F.2d 561, 567, the Court said: “The general rule, subject only to rare exceptions, [is] that the action of a government agency in the domestic sphere, as contrasted with actions in the spheres of foreign affairs or national security, is subject to judicial review for arbitrariness and abuse of discretion”. (Emphasis supplied.) Compare Pillai v. CAB, supra; National Air Carrier Ass’n v. CAB, 1971, 143 U.S.App.D.C. 140, 442 F.2d 862; National Air Carriers Ass’n v. CAB, 1970, 141 U.S.App.D.C. 31, 436 F.2d 185 (CAB decisions approving international air line rates are reviewable) and Rusk v. Cort, 1962, 369 U.S. 367, 82 S.Ct. 787, 7 L.Ed.2d 809 (decisions by the State Department denying passport renewal are reviewable) with Chicago & S. Air Lines, Inc. v. Waterman S. S. Corp., supra, 333 U.S. 103 (orders of the CAB, approved by the President, to grant or deny applications to engage in overseas and foreign air transportation are not reviewable) and United States v. Pink, supra, 315 U.S. 203 (decisions by the State Department to grant or deny diplomatic recognition to foreign nations are not reviewable).
      There is no question of the tight relationship between foreign policy and the State Department’s decision to certify a suggestion of immunity to the courts. See Ex parte Peru, supra, 318 U.S. at 587. Indeed, the political aspects of such a decision are inescapable. The State Department has found that it cannot deny a claim of immunity without risking adverse effects on foreign relations. Thus the Administration has sought legislation transferring to the courts the responsibility for determining whether a claim of immunity should be honored. See H.R. 3493, 93d Cong., 1 Sess. (1973). The bill would take the State Department out of the business of suggesting immunity to the courts. Hearing on H.R. 3493 Before the Subcomm. on Claims and Governmental Relations of the House Comm, on the Judiciary, 93d Cong., 1 Sess. 34 (1973).

      . In 1952 in a letter to Acting Attorney General Philip B. Perlman, Acting Legal Adviser Jack B. Tate announced that the State Department would generally adhere to the restrictive theory of sovereign immunity, recognizing immunity for public acts of a foreign sovereign (jure imperii) and denying immunity for commercial acts (jure qestionis). 26 Dep’t State Bull. 984 (1952). The Tate letter has 'never been officially abandoned, and in correspondence with the plaintiffs’ counsel, the State Department implied that the standards outlined in the Tate letter would be applied to the instant situation. The plaintiffs contend that it is impossible to tell whether the State Department applied the standards of the Tate letter, and that, in fact, it apj>ears that the Department used some other standard. The defendant argues that the Tate letter is a guide to State Department policy, not an unalterable rule. See the Solicitor General’s comments in the memorandum for the United States in opposition to the application to the Supreme Court for a stay in Bich v. Naviera Vacuba, S. A., supra. Because we hold that the executive’s decision to recognize and allow a claim of sovereign immunity is unreviewable, we need not enter this debate.

      . The district court concluded that the suit should be dismissed in accordance with Ex parte Peru, supra, 318 U.S. 57S, but stated its desire that the plaintiffs have “an opportunity to have a ruling from the Appellate Court”. In ordering the stay, the district court seemed to contemplate and invite the plaintiffs to obtain review of the case through the most expeditious means: “I guess what you would do would be to go to the Court of Appeals and get a writ of prohibition or something of that kind. I don’t know what your procedure is going to be to get to the Court of Appeals.”


text:
    BRAD’S MACHINE PRODUCTS, INC., Plaintiff-Appellee, v. PHOENIX ASSURANCE COMPANY OF NEW YORK, Defendant-Appellant.
    No. 73-1582.
    United States Court of Appeals, Fifth Circuit.
    Feb. 19, 1974.

      Charles A. Stewart, Jr., Thomas B. Huie, Birmingham, Ala., for defendant-appellant.
    Macbeth Wagnon, Jr., Lee C. Bradley, Jr., Birmingham, Ala., for plaintiff-ap-pellee.
    Before WISDOM, AINSWORTH and GEE, Circuit Judges.
   WISDOM, Circuit Judge:

The plaintiff-appellee, Brad’s Machine Products, Inc., brought this suit against the defendant-appellant, Phoenix Assurance Co., to recover on a fidelity bond for losses occasioned by the defalcations of one of Brad’s employees. The jury returned a verdict for the plaintiff in the amount of $138,000. On appeal, Phoenix argues that the evidence was insufficient to support a finding that Brad’s notified Phoenix within a reasonable time after the discovery of the loss, as required by the policy, and that Brad’s therefore forfeited any right to recover under the policy. We affirm.

Brad’s was an Alabama company engaged in the manufacture of M-125 fuses under government defense contracts. The losses involved here were occasioned when Maurice Dailey, vice president of the company, received cash payments for open market sales of brass scrap to Culp Iron & Metal Co., Brad’s major open market customer for brass scrap. Dail-ey made the sales over a fifteen-month period from October 1967 to January 1969.

The chronology of events leading to Brad’s discovery of Dailey’s defalcations was as follows. In January 1969, Giles Roy Compton, comptroller for Brad’s began to suspect that Dailey had been receiving cash for the sales of brass scrap to Culp. According to his own testimony, Compton’s suspicion at this time was not that Dailey was appropriating the cash for his own personal use, but only that Dailey was taking cash for the sales and violating the company’s established accounting procedures. At the time Compton asked Henry Culp, Jr., of Culp Iron & Metal, to give him a list of the cash payments made to Compton. Shortly thereafter, Compton went to Dailey and confronted him with the charge that Dailey had been violating company procedures by receiving cash for the brass scrap sales; Dailey admitted to having received over $100,000 in cash payments, and agreed that in the future he would abide by company procedures. Dailey resigned as vice president in mid-March 1969.

After receiving the list of payments from Culp, Compton checked Brad’s bank accounts and books to determine whether cash deposits corresponding to the payments on the list could be found. He testified that he had had difficulty identifying any corresponding deposits. In April 1969, Brad’s hired certified public accountants from Arthur Andersen & Co. to prepare corporate tax returns and financial statements and to do a general audit of the company. During this audit, the accountants too had difficulty locating cash deposits corresponding to the payments received by Dailey. In June 1969, the accountant in charge of the audit, with Compton’s help, procured from Culp the record of the payments made to Dailey, and was allowed to see Culp’s accounts payable ledger. The accountant then checked Brad’s records, and found that none of the transactions were recorded in Brad’s accounts; again he had difficulty locating deposits corresponding to the cash transactions. The accountant reported his difficulties to a meeting of Brad’s officers and directors on July 22, 1969. He told the meeting that he could not find entries in Brad’s books accounting for the amounts received by Dailey, and said that he needed to make a further investigation to determine what had become of the money.

At that time, John C. Bradford, Chairman of the Board and sole stockholder in Brad’s, instructed the Arthur Andersen accountants to proceed with the investigation. Shortly after the meeting, however, these instructions were countermanded by Brad’s attorneys in Los Angeles, who were representing Bradford and Brad’s in connection with an IRS audit of Bradford’s personal and Brad’s corporate income tax returns for 1968, and who wanted all relevant records sent to California. The papers were not returned to the Arthur Andersen accountants until April 1970. At that time, they resumed their investigation of the payments made to Dailey. By June 1970, the Arthur Andersen accountants had advanced with their analysis of Brad’s books to the point where it appeared clear that Dailey had misappropriated substantially all of the cash he had received from Culp, with the exception of amounts delivered on five different dates totalling $60,500. These amounts were deposited in Brad’s accounts and could be traced, by inference, to the payments from Culp. On June 9, 1970, Brad’s notified Phoenix of the loss from Dailey’s defalcations. On November 9, 1970, Brad’s filed proof of loss.

The fidelity bond between Brad’s and Phoenix provides:

This bond is executed and accepted subject to the agreements, limitations and conditions set forth herein, which conditions shall be conditions precedent to recovery under this bond

8. Notice of Loss and Filing of ’ Claim: Upon discovery by the insured of any dishonest act on the part of any employee the insured shall, within a reasonable time after such discovery, give written notice thereof addressed to the company ....

. Affirmative proof of loss . shall be filed with the company at its home office within three months after such discovery.

Phoenix's argument in this Court has two prongs. Phoenix argues first that the evidence at trial was not sufficient to support a jury finding that the notice given by Brad’s in June 1970 satisfied the contractual condition of notice to the insurer “within a reasonable time after . . . discovery [by the insured of any dishonest act on the part of any employee]”. Second, it argues that a failure to provide notice within a “reasonable time” defeats any rights Brad’s may have had under the bond.

Phoenix’s argument that the evidence was insufficient to support the judgment is premised on the assumption that Brad’s “discovered” Dailey’s “dishonest act”, within the meaning of the policy, either in February 1969, at the time of Compton’s confrontation with Dailey, or in July 1969, at the time of the accountant’s report to the officers. Phoenix thus assumes that the delay in giving notice was either 11 or 16 months, and argues that either constitutes an unreasonable delay. We cannot, however, accept the assumption that the jury was bound to conclude that Brad’s had “discovered” a “dishonest act” either in February or in July 1969. In February, the evidence establishes only that Compton knew that Dailey had been following an improper accounting procedure, not that he had been misappropriating funds or that he had been dishonest in any other way. In July, the evidence established that the accountants could not be sure even that the cash payments made by Culp had been lost, let alone that they had been lost through dishonesty on Dailey’s part. It is significant that only later did the accountants verify that $60,500 worth of cash payments in fact had not been diverted.

Phoenix makes several arguments in support of its view that discovery occurred in July 1969. ,We find all of them unpersuasive. Phoenix argues that the notice requirement attaches when the loss is discovered, and does not await ascertainment of the extent of the loss. In fact, what the terms of the policy require is discovery of a dishonest act; but in any event, the accountants were not prepared in July 1969 to assure Brad’s even that a loss had occurred. Phoenix urges that the notice given was untimely because Brad’s was not sufficiently diligent in pursuing its investigation into the possibility of its employee’s dishonesty. We are unable, however, to read the bond as creating a duty of diligence on the insured’s part in discovering an employee’s dishonesty; even were we prepared so to read the bond, moreover, it is not clear that we could hold that Brad’s had breached any such duty of diligence. See FDIC v. Aetna Cas. & Ins. Co., 5 Cir. 1970, 426 F.2d 729; National Surety Co. v. Alabama Farm Bureau Cotton Ass’n, 5 Cir. 1934, 68 F.2d 816. Phoenix also argues that Brad’s learned no specific new piece of information after July 1969, and suggests that this implies it had full knowledge of Dailey’s dishonesty in July 1969. The suggestion is without merit, since it was only after July 1969 that Brad’s learned for a fact that the money Daily had received had not in any form been turned over to Brad’s.

Since we conclude there was evidence to support a jury finding that Brad’s did not discover the dishonesty of Dailey until June 1970¡ there is no reason for us to inquire into the merits of the second prong of the appellant’s argument.

Affirmed.


author: BRIGHT, Circuit Judge.

text:
    AUTOMOBILE UNDERWRITERS CORPORATION, Attorney in Fact for State Automobile and Casualty Underwriters, Appellee, v. Stanley Bryan GRAVES, Appellant.
    No. 73-1154.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 14, 1973.
    Decided Nov. 20, 1973.

      David Collins, Collins & Grimm, Macon, Mo., for appellant.
    Terry M. Evans, Trenton, Mo., for ap-pellee.
    Before GIBSON and BRIGHT, Circuit Judges, and SMITH, Senior District Judge.

       Talbot Smith, Senior District Judge, Eastern District of Michigan, sitting by designation.

   BRIGHT, Circuit Judge.

State Automobile and Casualty Underwriters, through its attorney in fact, Automobile Underwriters Corp., seeks in this action a declaration of nonliability for an accident in which its insured, Albert Gardner, while driving his truck collided with another vehicle and caused injuries to a claimant-appellant, Stanley Graves. The accident occurred more than 75 miles from insured-Gardner’s residence at Pattonsburg, Missouri. The insurer relied upon a “Limitation of Use Endorsement” which recited that the insurance did not apply to any accident unless occurring within 75 miles of the insured’s residence, but the insurance would apply to an occasional trip if notice of that trip and a nominal premium were mailed to the insurer prior to the commencement of the trip.

In a non jury action, the district court sustained the insurer’s contention and entered a judgment declaring the policy inapplicable to the accident here in question. The injured claimant, Stanley Graves, a party defendant in the declaratory judgment action, brings this appeal, contending that the 75-mile limitation of use provision contained in the policy does not insulate the company from liability. Under the particular circumstances of this case, we agree and reverse the declaration of no liability.

Albert Gardner, age 20, at times here material, owned a 1965 Chevrolet two-ton truck which he used in the hauling of hay .and grain. On June 30, 1970, he applied for insurance coverage on this vehicle from the Galpin Real Estate and Insurance Agency at Gallatin, Missouri. Jerry W. Frost, an employee of the agency and an authorized agent for State Automobile and Casualty Underwriters, assisted Gardner in preparing a formal application for insurance requesting coverage for bodily injury, property damage, comprehensive, collision, and uninsured motorist. At that time, Gardner gave Frost a check payable to the agency in the sum of $109, representing the first installment on the annual premium for one year’s insurance. Agent Frost then made the following pencil notation on the policy, “We have bound this coverage Eff: 9:00 A. M. 6-30-70.”

The insurer through the Galpin Agency thereafter delivered a standard type insurance contract to Gardner at Pat-tonsburg, Missouri, naming him and his spouse as insureds. The face of the policy listed coverages consistent with the application, including bodily injury limits of $10,000 for each person, $20,000 for each accident. The policy consisted of four pages of terms and conditions printed in small type and seven attachments including a “Limitation of Use Endorsement.” That endorsement recited the following:

The insurance does not apply to any accident or loss of or damage to the automobile unless such accident, loss or damage occurs in an area within [a] 75-mile radius of the city or town stated as the address of the named insured in the [policy] Declarations •x- * *

This endorsement also stipulated that the insurance would apply when the insured automobile was used occasionally on trips beyond the specified radius limitation if the company would not thereby become obligated to file the insurance with any public regulatory body and provided that the insured furnished the insurer advance notice regarding the nature of the trip and paid an additional “trip premium” to the company. The endorsement required mailing of the notice and premium prior to commencement of the trip. Additionally, it specified a trip premium charge of $2.50 for use of the truck not to exceed 500 miles beyond the radius limitation as listed in the endorsement. At the time the insured applied for the policy, the agent explained the radius endorsement as affording coverage for an occasional trip within the state but not for a trip beyond the borders of the state.

On January 25, 1971, the first occasion after obtaining the insurance policy that Gardner drove his truck beyond the 75-mile radius limit, he struck the rear end. of another truck driven by appellant-Stanley Graves. Graves sustained neck and back injuries from the accident and brought an action in state court against the insured-Gafdner to recover for these injuries. Gardner then demanded that the insurer defend this state court action. The insurer declined, asserting that the policy did not cover the accident since it had occurred outside the 75-mile radius limitation of the policy. On the same ground, the insurer brought this action for a declaration of nonliability under the policy against its insured, Gardner, claimant-Graves, the owner of the truck driven by Graves, and others. As we have already noted, the trial court agreed with the insurer’s contention that the policy did not provide Gardner protection against Graves’ claim for his bodily injuries.

In sustaining the insurer’s contention, the trial court dismissed the action as to all parties except the named insureds (Gardner and his spouse) and ruled the provisions of the endorsement valid, binding, and not waived by the insurer. Only the claimant, Stanley Graves, takes this appeal which the district court authorized to be brought in forma pauper-is. Graves urges that the policy applied to the accident for these reasons:

1. The limitation of use endorsement offends the public policy of Missouri.

2. Provisions of Missouri’s Motor Safety Responsibility Law require the company to afford coverage of the accident notwithstanding the endorsement.

3. The endorsement is repugnant to other provisions of the policy and should be disregarded.

4. The agent of the insurer made a valid oral contract with the insured which agreement required the company to cover an occasional trip beyond the 75-mile radius without specific advance notice or prepayment of a trip premium.

The insurer disputes these contentions and urges initially that Stanley Graves cannot bring an appeal since the district court dismissed him from the action. We reject this threshold argument. An injured person having a possible claim against an insurer who has been made a party defendant to an action for declaratory judgment possesses the requisite intérest to be heard on appeal notwithstanding that the court in entering a judgment on the merits dismisses the action against all parties other than the policyholder. Hawkeye-Se-curity Insurance Company v. Schulte, 302 F,2d 174 (7th Cir. 1962). The court in Hawkeye held:

Appellee [insurer] voluntarily brought appellant [claimant] into this litigation as a party defendant. Appellant, being a proper party to an actual controversy with appellee, should be heard to assert any proper defense raised by his answer to the complaint. The district court erred in dismissing appellant from this suit. [Id. at 177.]

We apply this approach here and hold that Graves possesses standing to seek reversal of the judgment as a whole, including the erroneous dismissal of the action against him.

On the merits, we turn first to the issue of whether the oral statements of the agent under the circumstances serve to obligate the company for coverage of the accident here in question. To resolve this issue, we examine closely the policy endorsement in light of the terms of the entire policy, the circumstances surrounding the representation and the applicable Missouri law.

Upon reviewing the whole policy, we are struck by the shifting and springing effect of its territorial coverage provisions. The body of the policy affords protection everywhere in the United States or Canada. The limitation of use endorsement takes that coverage away except within a 75-mile radius of Pat-tonsburg, Missouri, but the same endorsement reinstates coverage for occasional use beyond 75 miles upon conditions of notice and advance tender of premium, but even then the coverage will not apply if the insurer was “obligated or required to file insurance with any public regulatory body.” In relation to this type of insurance policy coverage, the South Dakota Supreme Court has aptly, but in a facetious vein, changed a biblical phrase to read: “The front page giveth but the back page taketh away.” Farmers Mutual Automobile Ins. Co. v. Bechard, 80 S.D. 237, 122 N.W.2d 86, 87 (1963). Here though, as to coverage beyond the 75-mile radius, we might note that the endorsement “giveth and then twice taketh away.”

The record indicates that Jerry Frost and the agency possessed general authority from the insurer to countersign policies and to act generally for the company. His power extended to binding the insurer to afford immediate coverage upon the insured making an application for insurance. The policy in this case, although issued July 14, 1970, became effective according to its terms from the date of the application on June 30, 1970.

At the time of his application for insurance, Gardner and Jerry Frost discussed the limitation of use endorsement. Gardner testified without dispute to the following:

Mr. Frost told me about a 75-mile radius and I asked him what happened if I went over it. He said if I went over it once in a while that I would be covered, but if I went out of state that I would have to come in and see him.

The unreported district court opinion relates that “[t]he insurance agent denied any such conversation.” This comment is not supported by the record. Agent Jerry Frost, although present in court, did not testify. Mr. Galpin, who operates the Galpin Insurance Agency, did testify at the trial but gave no evidence regarding Gardner’s application. Thus, the only testimony in the record on this point establishes that an authorized agent of the insurer represented to the insured that the policy provided insurance coverage for an occasional instate trip beyond 75 miles from the insured’s residence.

As we read the Missouri ease law, such a statement to an applicant for insurance by an agent who is shown to be generally authorized to represent an insurer serves to create an oral contract of insurance which binds the agent’s principal to provide insurance coverage consistent with the agent’s representation.

The Missouri Supreme Court addressed itself to the question of insurance established by oral agreement in Chailland v. M. F. A. Mutual Insurance Co., 375 S.W.2d 78 (Mo.1964). There an applicant requested that a local agent of an insurance company writing automobile liability policies provide him with liability insurance. The agent for the company orally agreed to provide liability insurance for the applicant through an insurance carrier which the agent represented. The insurance carrier did not receive the application nor did it issue any written policy. One week following the transaction with the agent, the applicant’s truck struck a horse on the highway, killing the horse and injuring the rider. The injured party sued the applicant and obtained a judgment. Thereafter, the injured party sought to collect his judgment by garnishing the insurance company. In holding the insurance company liable for the loss, the court said:

We have concluded that an agent authorized to execute a written binder of insurance must be held to have the apparent authority to make an oral contract of binder unless, of course, notice of any restriction against such power is brought home to a person dealing with such agent. It is a well-settled general rule that an agent who is authorized to issue or execute policies has the authority (at least apparent) to bind his company by an oral contract of insurance. * * * The rule is established in this state that a resident agent of a foreign insurance company may bind his principal upon an oral contract of insurance. This rule is held to apply, regardless of his actual authority, because of a statute which requires that the agent countersign all policies issued. . . . And the [other] cases indicate that the agent of a domestic company may so bind his company by an oral contract. [375 S.W.2d at 82-83 (citations omitted).]

Subsequently, in a case somewhat more analogous to the oral contract presented here, the Missouri Court of Appeals in Baker v. St. Paul Fire & Marine Ins. Co., 427 S.W.2d 281 (Mo.App. 1968), ruled that an insurance agent’s oral assurance given to an applicant for medical expense insurance that coverage would be “effective this minute” bound the company to pay medical expense claims incurred by the insured immediately following the application but prior to the actual issuance of the policy, notwithstanding the fact that the written policy afforded medical expense coverage commencing only after the issuance of the policy. The court stated:

It is the law that “In the absence of fraud on the part of insured and the agent, an insurance company is bound by all acts, contracts, or representations of its agent, whether general or special, which are within the scope of his real or apparent authority, notwithstanding they are in violation of private instructions or limitations on his authority, of which the person dealing with him, acting in good fath [sic], has neither actual nor constructive knowledge. 44 C.J.S. Insurance § 149, pp. 817-818. Mitchell v. Metropolitan Life Ins. Co., Mo.App., 116 S.W.2d 186.” [427 S.W.2d at 285-286.]

Accord, see Smith v. Hartford Fire Ins. Co., 272 S.W. 700 (Mo.App.1925); Woolfolk v. Home Ins. Co., 202 S.W.627 (Mo.App.1918); Fields v. German American Ins. Co., 140 Mo.App. 158, 120 S.W. 697 (1909).

We recognize, however, that some Missouri decisions do not recognize as binding on the insurer an- oral representation of an insurance agent of policy coverage broader than terms contained in the written policy. Legler v. Meriwether, 391 S.W.2d 599 (Mo.App.1965); Blew v. Conner, 310 S.W.2d 294 (Mo. App.1958); Graham v. Gardner, 233 S.W.2d 797 (Mo.App.1950). In these cases the courts have rejected the extension of coverage beyond the written terms of the policy on a waiver or estoppel theory noting, for example, “that while estoppel may prevent an insurer from asserting a defense to coverage otherwise provided by an insurance policy it cannot be used to create insurance coverage where it would not otherwise exist.” Legler, 391 S.W.2d at 602 (emphasis in original).

The application of such a rule, however, would still not justify affirmance in this case, since the agent’s representation did not serve to broaden the coverage contained in the policy itself. In substance, the agent correctly stated that the policy provided coverage for an occasional trip, but he failed to advise the insured of the need to give advance notice and prepay a premium for such trip.

Under Missouri law Jerry Frost’s agreement to provide insurance for an occasional trip beyond the 75-mile radius limitation bound the insurer to afford coverage for such trip. Of course this oral agreement for insurance coverage will not bar the company from collecting the additional premium of $2.50 as specified by the policy for the trip in question.

Appellant urges that provisions of the policy reciting that by acceptance of the policy the insured agrees “that this policy embodies all agreements” and a condition of the policy reciting that notice or knowledge of an agent does not waive or change any provision of the policy serves as an effective bar to any claim by the appellant that the policy provisions could be changed, modified or altered by an agent’s oral agreement.

This assertion of appellant is without merit. Under Missouri law the agent’s apparent authority provides the basis for binding the insurer-principal to the agent’s contract. See Ross-Langford v. Mercantile Town Mut. Ins. Co., 97 Mo.App. 79, 71 S.W. 720 (1902). Thus limitations upon an agent’s actual authority in the absence of actual or constructive notice will not restrict the binding effect of a representation made within the agent’s apparent authority. Baker v. St. Paul Fire & Marine Ins. Co., supra, 427 S.W.2d at 285-286; Chailland v. M. F. A. Mutual Insurance Co., supra, 375 S.W.2d at 82-83.

. The defense of no coverage in this case rests upon a technicality at best. Such conduct does not conform with the high obligation an insurer owes to the insured as well as the public. See Carter v. Aetna Casualty and Surety Co., 473 F.2d 1071 (8th Cir. 1973). An insurer that has appointed an agent and authorized him to explain, in simple language, a complex rider which will be attached to the policy, should not be heard to deny coverage because the agent’s explanation, though substantially correct, did not incorporate certain technical requirements of notice contained in the policy rider.

For these reasons we reverse and remand this case for the entry of an appropriate judgment declaring the policy in full force and effect for the accident here in question.

APPENDIX

      . We reproduce the endorsement as an appendix to this opinion.

      . Missouri law governs the construction and interpretation of this Missouri automobile liability insurance contract. Hartford Aeei-dent & Indemnity Company v. Shaw, 273 F.2d 133, 137 (8th Cir. 1959).

      . The policy contains the following language: 26. Declarations. By acceptance of this policy, the insured named in Item 1 of the declarations agrees that the statements in the declarations are his agreements and representations, that this policy is issued in reliance upon the truth of such representations and that this policy embodies all agreements, other than the Subscriber’s Agreement contained in the application of the insured named in Item 1 of the declarations which Agreement is hereby made a part hereof, existing between himself and the company or any of its agents relating to this insurance.
      22. Changes. Notice to any agent or knowledge possessed by any agent or by any other person shall not effect a waiyer or a change in any part of this policy or estop the company from asserting any right under the terms of this policy; nor shall the terms of this policy be waived or changed, except by endorsement issued to form a part of this policy, signed by a duly authorised representative of the company.


text:
    Isaac HORACE, Administrator of Estate of Sadie Horace, Deceased, Appellant, v. ST. LOUIS SOUTHWESTERN RAILROAD COMPANY, Appellee.
    No. 73-1396.
    United States Court of Appeals, Eighth Circuit.
    Submitted Nov. 16, 1973.
    Decided Jan. 2, 1974.
    G. E. Snuggs, El Dorado, Ark., for appellant.
    John G. Lile, Pine Bluff, Ark., for ap-pellee.
    Before VAN OOSTERHOUT and MOORE , Senior Circuit Judges, and WEBSTER, Circuit Judge.

       Honorable LEONARD P. MOORE, Senior Circuit Judge, Second Circuit, sitting by designation.

   WEBSTER, Circuit Judge.

In this appeal, appellant challenges the order of the District Court denying his motion pursuant to Fed.R.Civ.P. 60(b) for relief from an adverse final judgment. Appellant’s wife, Sadie Horace, was fatally injured when the car she was driving was struck by a locomotive operated by appellee. As administrator of his wife’s estate, appellant brought a wrongful death action against the railroad company in the United States District Court for the Western District of Arkansas, in which the accident occurred, alleging that the railroad was negligent in not maintaining its crossing warning device and in operating a fast train when such device was not in operation. Diversity jurisdiction was based upon 28 U.S.C. § 1332(a)(1). The case was tried to a jury which returned a verdict in favor of appellee.

No appeal was taken from the judgment entered April 20, 1972. The final order denying appellant’s motion for a new trial was filed October 6, 1972. On March 5, 1973, appellant filed a motion for relief from judgment pursuant to Rule 60(b), Federal Rules of Civil Procedure, citing specifically subsections (1), (3) and’ (6). On May 7, 1973, Judge Harris denied the motion, and this appeal was timely taken from that order. We affirm.

Rule 60(b) is addressed to the sound discretion of the trial judge and is not available as a substitute for appeal. Hoffman v. Celebrezze, 405 F.2d 833 (8th Cir. 1969). It provides for extraordinary relief which may be granted only upon an adequate showing of exceptional circumstances. Id, at 835; Farmers Co-operative Elevator Association Non-stock of Big Springs, Neb. v. Strand, 382 F.2d 224, 232 (8th Cir.), cert. denied, 389 U.S. 1014, 88 S.Ct. 589, 19 L.Ed.2d 659 (1967). The claim for extraordinary relief in this case is based upon the assertion that the charge to the jury contained fundamental error. Under the circumstances of this case, Rule 60(b) cannot properly be invoked for the purpose of extending the time for appeal which had already expired. Hoffman v. Celebrezze, supra, 405 F.2d at 837.

At the trial, appellee presented undisputed testimony that the train was proceeding at a speed of 25 miles per hour when the engineer observed Mrs. Horace approaching the crossing in her automobile at approximately 10 miles per hour. The train was then about 150 feet from the crossing. The engine bell was ringing. Mrs. Horace was observed at approximately the same time by the fireman and the brakeman, both of whom were in the cab with the engineer. When Mrs. Horace failed to stop at the intersection warning signal device, the engineer sounded his whistle and placed his brakes in emergency stop. Mrs. Horace was fatally injured in the resulting collision.

Appellee asserted the negligence of Mrs. Horace in failing to exercise ordinary care as an affirmative defense. Under Arkansas law, contributory negligence does not act as a total bar to recovery providing such contributory negligence is of less degree than the negligence charged to the railroad. This requires an assessment of the comparative negligence of the actors. Ark.Stat.Ann. § 73-1004. Appellant assigns as error the manner in which this task was explained to the jury.

In his charge, Judge Harris instructed the jury on the duty of the railroad to sound the locomotive bell as it approached an intersection; to provide warning signals at intersections and use ordinary care in their maintenance and operation. He also advised the jury that the driver of a motor vehicle had a duty to stop within 50 feet but not less than 15 feet from the nearest train rail whenever a clearly visible signal device warned of the approach of a train or when the train was plainly visible and in hazardous proximity to the crossing; that such driver must use ordinary care to look and listen for trains, which may require stopping his vehicle; and that such driver must keep his vehicle under control.

These statements of the respective duties of ordinary care are not challenged by appellant. Rather, appellant contends that the court’s failure to give an unrequested instruction on the railroad’s statutory lookout duties constituted plain error in view of the court’s further instruction to compare the negligence of the actors in arriving at a verdict. Stated another way, appellant contends that the jury could not assess the relative negligence of the actors without being instructed on the full extent of their respective duties.

The record does not disclose that appellant either asked for or objected to the failure of the court to instruct the jury on the lookout duties of the railroad company. In this appeal, he invokes the plain error doctrine to avoid the reach of Rule 51, Federal Rules of Civil Procedure:

No party may assign as error the giving or failure to give an instruction unless he objects thereto before the jury retires to consider its verdict, stating distinctly the matter to which he objects and the grounds of his objection.

As we observed in Figge Auto Co. v. Taylor, 325 F.2d 899 (8th Cir. 1964), “If there is to be a plain error exception to Rule 51 at all, it should be confined to the exceptional case where the error has seriously affected the fairness, integrity, or public reputation of judicial proceedings.” Id. at 907, quoting 2B Barron and Holtzoff, Federal Practice and Procedure 475 (1961 ed.).

Under the law of Arkansas, which is applicable in this diversity case:

The operatives of trains have the right to assume that a traveler or a pedestrian approaching a railroad track will act in response to the dictates of ordinary prudence and the instinct of self-preservation and will, in fact, stop before placing himself in peril, and the duty of the railroad employees to take precautions begins only when it becomes apparent that the traveler at a crossing will not do so. (emphasis added)

Missouri Pac. R.R. Co. v. Doyle, 203 Ark. 1111, 160 S.W.2d 856, 858-859 (1942).

Given this legitimate assumption, the Arkansas Supreme Court has held that it is error to submit to the jury the issue of a railroad’s lookout duties where “under the undisputed evidence, the train could not have been stopped in time to avoid the collision after it became apparent that [the automobile driver] was not going to make a normal stop.” St. Louis S.W. Ry. Co. v. Evans, 254 Ark. 762, 497 S.W.2d 692, 695 (1973).

Appellant does not contend that there was a failure to keep a lookout but rather that the railroad employees should have stopped the trian when it became apparent to them that Mrs. Horace was not herself going to stop. Indeed, there was no issue of fact presented by the evidence which would require the submission of a lookout instruction. We find no plain error in the record affecting substantial rights, Fed.R.Civ.P. 61, and hence no abuse of the court’s discretion in refusing to grant post-judgment relief under Rule 60(b).

Affirmed.

      . (b) Mistakes; Inadvertence; Excusable Negleet; Newly Discovered Evidence; Fraud, etc. On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; ... (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; ... or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment or suspend its operation

      . Ark.Stat.Ann. § 75-637.

      . Ark.Stat.Ann. § 73-1002:

        Duty of trainmen to keep lookout — Contributory negligence no bar to recovery of damages.■ — -It shall be the duty of all persons running trains in this State upon any railroad, to keep a constant lookout for all persons, including licensees and trespassers, and property upon the track of any and all railroads, and if any such persons or property shall be killed or injured by the neglect of any employee of any railroad to keep such lookout, the company owning or operating any such railroad or its agents, servants, and employees, shall be liable and responsible to the person injured for all damages resulting from neglect to keep such lookout


text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. INTERNATIONAL LONGSHOREMEN’S ASSOCIATION, LOCAL NO. 1581, AFL-CIO, Respondent.
    No. 73-1245.
    United States Court of Appeals, Fifth Circuit.
    Feb. 19, 1974.
    Rehearing Denied April 16, 1974.
    Elliott Moore, Acting Asst. Gen. Counsel, N.L.R.B., Washington, D. C., Clifford W. Potter, Dir. Region 23, N. L.R.B., Houston, Tex., Joseph E. Mayer, Washington, D. C., for petitioner. .
    Warner F. Brock, Gerald J. Goodwin, Houston, Tex., for respondent.
    Before WISDOM, COLEMAN and SIMPSON, Circuit Judges.
   WISDOM, Circuit Judge:

The National Labor Relations Board petitions for enforcement of its order against the respondent International Longshoremen’s Association, Local No. 1581, AFL-CIO. The order directs the Union to desist from maintaining and enforcing a discriminatory agreement allowing preferences in job referrals to be based upon citizenship and residence of a prospective employee’s family and requires the Union to take affirmative action to make whole an employee, Elias Gonzalez Guerra, for loss of pay suffered by him as a result of the discrimination. We grant enforcement.

The facts were stipulated before the Board’s Administrative Law Judge. The Union represents employees in both the dock and commodity department and the cotton compress and cotton warehouse department of the Manchester Terminal Corporation, a company with its principal place of business in Houston, Texas. A single labor agreement covers employees in both departments. All rates of pay for the eleven job classifications in the dock and commodity department are higher than any of the rates of pay for the forty-odd classifications in the cotton compress and cotton warehouse departments.

During contract negotiations in 1965, the Union requested that union job referrals to the employer give preference to United States citizens. Manchester acceded to the request. Accordingly, the Union established a priority system for referrals by the Union for jobs in the preferred dock and commodity department. Under this system, highest priority went to United States citizens; second priority went to Mexican nationals with families residing in the United States; and lowest priority went to Mexican nationals whose families remained in Mexico. Only United States citizens or persons who had declared their intention to become United States citizens were eligible for membership in the Union.

Guerra was employed by Manchester in 1960, and worked in the dock and commodity department from 1968 until September 7, 1965. Guerra is a Mexican citizen and maintains his family in Mexico. After Manchester and the Union had agreed to establish a system of priorities for job referrals based on citizenship, Guerra was transferred, at the Union’s request, from the dock and commodity department to the cotton compress and warehouse department, on September 7, 1965. At the time Guerra was told he could not have permanent employment in the dock and commodity department unless he became a United States citizen or moved his family from Mexico. Guerra has worked regularly in the cotton compress and warehouse department since September 7,1965.

There were differences in the hospitalization plan effective for the workers in the two departments. Under the hospitalization plan effective for the dock and commodity department, both the employee and his family are eligible for hospitalization benefits. Under the plan in effect for workers in the cotton compress and cotton warehouse department, only the employee is eligible for hospitalization benefits.

Guerra brought unfair labor practice charges on October 7, 1965. The Board issued a complaint on May 28, 1971, alleging unfair labor practices under § 8(b)(1)(A), (b)(2) of the National Labor Relations Act, 29 U.S.C. § 158(b)(1)(A), (b)(2) (1970). The Board’s Administrative Law Judge issued his decision, recommending dismissal of the complaint, on October 27, 1971. On May 22, 1972, the Board reversed the Administrative Law Judge and issued the order it seeks here to have enforced.

Section 8(b)(2) of the National Labor Relations Act makes it an unfair labor practice “to cause or attempt to cause an -employer to discriminate against an employee in violation of subsection (a)(3) of this section”. Subsection (a) (3) makes it an unfair labor practice for an employer “by discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization”. Under the Supreme Court’s decision in Radio Officers’ Union v. NLRB, 1954, 347 U.S. 17, 42-43, 74 S.Ct. 323, 98 L.Ed. 455, a violation of § 8(b)(2) may be found if two elements are present: (1) an impermissible discrimination by the Union, which (2) causes or tends to result in the encouragement or discouragement of union membership.

In this case, there was substantial evidence to support a finding by the Board that the first of these elements was present. Section 8(b)(2) is not concerned solely with situations where the discrimination involved is between union members and nonmembers, or between “good” members and “bad, or indifferent” members (see Radia Officers, supra, 347 U.S. at 40). It applies where the union has induced the employer to discriminate on the basis of any invidious or arbitrary classification, such as the classification based upon alienage involved in this case. NLRB v. Miranda Fuel Co., 2 Cir. 1963, 326 F.2d 172, 180-186 (Friendly, J., dissenting); Sovern, The National Labor Relations Act and Racial Discrimination, 1962, 62 Colum.L.Rev. 563, 569-71; cf. Local Union No. 12, United Rubber, etc. Workers of America v. NLRB, 5 Cir. 1966, 368 F.2d 12.

The Supreme Court has made it clear that “classifications based on alien-age, like those based on nationality or race, are inherently suspect and subject to close judicial scrutiny.” Graham v. Richardson, 1971, 403 U.S. 365, 372, 91 S.Ct. 1848, 1852, 29 L.Ed.2d 534. “[Although] the Bill of Rights is a futile authority for the alien seeking admission for the first time to these shores once an alien lawfully enters and resides in this country he becomes invested with the rights guaranteed by the Constitution to all people within our borders.” Hellenic Line Limited v. Rhoditis, 1970, 398 U.S. 306, 309 n. 5, 90 S.Ct. 1731, 1734, 26 L.Ed.2d 252, quoting from Bridges v. Wixon, 1945, 326 U.S. 135, 161, 65 S.Ct. 1443, 89 L.Ed. 2103 (Murphy, J., concurring). The Supreme Court has struck down state classifications designed “to prevent lawfully admitted aliens within its borders from earning a living in the same way that other state inhabitants earn a living.” Takahashi v. Fish and Game Commission, 1948, 334 U.S. 410, 418-419, 68 S.Ct. 1138, 1142, 92 L.Ed. 1478; see Truax v. Raich, 1915, 239 U.S. 33, 38-42, 36 S.Ct. 7, 60 L.Ed. 131. Since classifications based on citizenship, like classifications based on race, are arbitrary and invidious, the Board properly determined that the Union engaged in impermissible discrimination under the Act when it caused Guerra’s transfer because he was an alien. See, NLRB v. Local 1367, ILA, C.A. 5, 1966, 368 F.2d 1010, cert. denied, 389 U.S. 837, 88 S.Ct. 58, 19 L.Ed.2d 99 (violation of Section 8(b)(2) and (1)(A) for union to cause employer to discriminate on basis of race.)

There was also substantial evidence to support the Board in finding the second element present. The Board has recognized that a union’s exercise of power to cause an employer to discriminate for arbitrary, irrelevant, or impermissible reasons may impermissibly encourage union membership or union activity. Miranda Fuel Co., 1962, 140 N. L.R.B. 181, enforcement denied, 2 Cir. 1963, 326 F.2d 172; Sovern, supra, at 569-71. This view reflects a recognition that the union’s ability to effect this kind of discrimination is likely to have an intimidating effect on workers who might otherwise prefer to refrain from union membership or upon members who might like to refrain from any extensive union activity. Judge Friendly expressed this view well a decade ago:

[The Board] could properly conclude that any such demonstration of union power to discriminate will lead nonmembers to become members in nonunion shops, in the belief that by doing so they will eliminate at least one basis for a union delegate or shop steward causing the employer to take arbitrary action against them
Even if the Board had been required to limit its consideration to ‘encouragement’ within the Miranda Fuel Company, it could fairly conclude that action like that of the union here might tend to cause union members to be ‘good’ members rather than ‘bad, or indifferent’ members.

NLRB v. Miranda Fuel Co., 2 Cir. 1963, 326 F.2d 172 (Friendly, J., dissenting), quoting Radio Officers, supra, 347 U.S. at 40.

In holding that the discrimination effected by the respondent was not invidious, the Administrative Law Judge noted that hospitalization benefits for an employee’s family were available only to workers in the dock and commodity department. He found that the union’s policy of assuring preferences to workers with their families in the United States was intended “to restrict employment in the Dock and Commodity Department to employees eligible for family pai'ticipation in the hospitalization program”. On that basis, the Administrative Law Judge concluded that the policy had a “salutary effect on employment relations both from the standpoint of fixing company costs and equalizing benefits among employees”.

There was substantial evidence, however, to support the Board’s contrary conclusion. The Board pointed out that the Union’s desire to maximize benefits from- its hospitalization plan does not justify its action in regard to Guerra; the “policy of maximizing hospital benefits . . . cannot but work to the detriment of noncitizens of the United States”. Besides, as the Board noted in its opinion, the Union’s letter in response to Guerra’s protest of his transfer made no mention of a desire to maximize benefits flowing to union members. Instead the Union asserted that “it was the feeling of the membership in general that we have no fellow workers who are not citizens of the country and have no desire to be a citizen or permanent resident of the country”. Moreover, the Union did not request the transfer of groups other than- aliens— such as single men — who -could not avail themselves of the benefits of the family hospitalization plan.

The respondent, in its argument here, relies heavily upon NLRB cases permitting union hiring halls to discriminate in favor of local residents in arguing here that the discrimination effected by the Union was not arbitrary or invidious. Local Union No. 337, Plumbers and Fitters, 1964, 147 N.L.R.B. 929, 56 LRRM 1350; Plaza Builders, 134 N.L. R.B. 751, 49 LRRM 1220. That reliance is misplaced. The discrimination here was based upon citizenship, and upon the national residence of the employee’s family, and not upon local residence.

Enforced.

      . 1. The Board’s order in pertinent part provided :
      Pursuant to Section 10(c) of the National Labor Relations Act, as amended, the National Labor Relations Board orders that Respondent, International Longshoremen’s Association, Local No. 1581, AFL-CIO, its officers, agents, and representatives, shall:
      1. Cease and desist from:
      (a) Executing, maintaining, performing, or enforcing any agreement, understanding, or practice with the Employer herein, or with any other employer, which allows preferences in job referrals based on citizenship or the residence of the prospective employee’s family.
      (b) Causing or attempting to cause the Employer herein, or any other employer, to discriminate against employees or prospective employees in violation of Section 8(a) (3) of the Act.

        te) In any other manner restraining or coercing employees or prospective employees of the Employer herein, or any other employer in the exercise of their rights guaranteed in Section 7 of the Act, except to the extent that such rights may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in Section 8(a)(3) of the Act.
      2. Take the following affirmative action which is designed to effect the policies of the Act:
      (a) Make whole Elias Gonzalez Guerra for any loss of pay suffered by him as a result of the discrimination against him, in the manner set forth above in the section entitled “The Remedy.”
      (b) Notify the Employer herein that it withdraws all objections to Guerra’s reinstatement as a permanent employee in the dock and commodity department retroactive to September 7, 1965, with a full restoration of seniority and all other rights and privileges accruing to him as a permanent employee from that date.