author: WINTER, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. John E. MITCHELL, Appellant.
    No. 73-1831.
    United States Court of Appeals, Fourth Circuit.
    Argued Feb. 6, 1974.
    Decided April 16, 1974.

      Laurence G. Roman, Arlington, Va., Court-appointed counsel, (Roman, Davenport & Davenport, Arlington, Va., on brief), for appellant.
    David H. Hopkins, Asst. U. S. Atty. (Brian P. Gettings, U. S. Atty., on brief), for appellee.
    Before WINTER, BUTZNER and WIDENER, Circuit Judges.
   WINTER, Circuit Judge:

Found guilty by a jury of having made and subscribed a false individual income tax return for the 1969 taxable year in violation of 26 U.S.C. § 7206(1), John E. Mitchell appeals. Of the several contentions raised on appeal, we conclude that the district court erroneously failed to instruct the jury in two respects and that at least one of the errors, constituted reversible error. We reverse the judgment entered on the conviction and grant a new trial.

I.

For the tax year in question, defendant was employed as a policeman for Arlington County, Virginia. In addition, he had part-time employment as a security guard or a security guard supervisor for the Pomponio Corporations (Pomponio), World Instruction and Translation, Inc., and R & R Ties, Inc., three private employers who wanted security guards at various locations where building operations were being conducted. The basis of the prosecution was that defendant had materially understated his income from Pomponio.

The government offered evidence that defendant was employed as an independent subcontractor to provide security at Pomponio’s various building operations, and that his duties were to hire and schedule security officers and, at times, to work as a security guard himself. Both parties agree that defendant received a sum equal to $3.00 per hour for all hours for which the time records, prepared by defendant and submitted to Pomponio, indicated that security had been provided. Prom this sum defendant paid the other guards $2.50 per hour for the time they had worked, retaining $.50 per hour for himself. He kept full compensation of $3.00 per hour for the time that he himself served as a guard.

The indictment alleged that defendant reported his gross income as $11,604.69, but that he should have reported it as $56,970.00. The government offered proof that defendant had been paid approximately $41,000 by Pomponio in 1969 as an independent subcontractor. Defendant claimed, however, that he was an employee or agent of Pomponio and not an independent contractor. He testified that he considered himself an employee of Pomponio, that he worked under the supervision of Pomponio’s head security officer, that he was simply timekeeper for the other guards, and that he was given orders by Pomponio’s head security officer and other Pompo-nio employees. His testimony was partially corroborated by that of another employee of Pomponio. In response to defendant’s argument that he was an employee rather than an independent subcontractor, the government offered two computations. One, based upon Pomponio’s records, showed that even as an employee of Pomponio, defendant should have reported the net amount of $14,246; and the other, based upon defendant’s records, showed that defendant should have reported the net amount of $11,489.50.

On the basis of the defense evidence that the defendant was an employee or agent of Pomponio, the district court was requested to instruct the jury, first, that if it found that Pomponio “had the right to prescribe not only what the results of John Mitchell’s work should be, but also to direct the means and methods by which John Mitchell should do the work, then John Mitchell was an agent of Pomponio,” and second, that if the jury found that the defendant was an agent, it “must find that the checks made payable to him were not to be included in his gross income except to the extent of 500 per hour worked by others and $3.00 per hour for the time worked by him.” The district court denied these requests and this denial constituted the first error.

Defendant also asserted a second defense. Its evidentiary basis was defendant’s testimony that he had his 1969 return prepared by Mr. Joseph A. Whitehead who operated a Montgomery Ward tax service. Defendant testified that he gave all of his tax information — including his records of his income and expenses from Pomponio — -to a young man in Mr. Whitehead’s office, that the young man told him to return later in the day, and that when he returned Mr. Whitehead was completing the return. According to defendant, after a brief conversation, Mr. Whitehead gave him the return, and then, without reviewing the return because he was tired from having worked for twenty-four consecutive hours, defendant signed the return and filed it. Based on this testimony, defendant asked that the jury be instructed that if it found that defendant provided full information regarding his taxable income and expenses for 1969 to a person holding himself out as qualified to prepare federal income tax returns for others, and that defendant adopted, signed and filed his return as prepared without having reason to believe that it was incorrect, then defendant should be found not guilty. The district court refused this instruction and its refusal was reversible error.

II.

The government does not dispute that defendant’s requested instructions were accurate as statements of law. We think that there was a foundation in the evidence for them and, as a consequence, they should have been granted. The district court’s charge to the jury should have at least included the substance of the requested instructions in language sufficiently precise to instruct the jury in the defendant’s theory of defense. See Bursten v. United States, 395 F.2d 976, 981-982 (5 Cir. 1968); Perez v. United States, 297 F.2d 12, 15-16 (5 Cir. 1961). Absent militating circumstances, the district court’s failure to give the requested instructions constituted reversible error.

A. With regard to the requested agency instructions, the government argues that if the district court erred in failing to give the instructions, the error was harmless because even if the defendant were found to have been an agent of Pomponio, the government’s case of underreporting would not be defeated. The only effect of such a finding would be to reduce the amount that the defendant should have reported as income from Pomponio. Instead of listing $41,000 in gross income from Pomponio (and presumably entering the other guards’ salaries as business expenses), if the defendant were an agent or employee of Pomponio, he should have shown — depending on which set of records is accepted as accurate — -gross income from Pomponio of $14,246 or $11,489, the part of the total $41,000 payment from Pomponio which represents his own $3.00 per hour salary for guard work and the $.50 per hour commission for the other guards’ work.

It is true that defendant’s agency defense was not a complete defense, because even if accepted defendant could have still been found guilty of the crime charged. It would be easier, however, for the trier of the fact to find bad faith or evil motive in an underreport-ing of $41,000 than of $14,000 or $11,000. We therefore think that the differences in the amounts of underre-porting, depending upon whether defendant was a subcontractor or an agent, were sufficiently great that defendant’s requested instructions should have been granted since the crime charged required proof of willfulness — - an element of fraud or bad faith.

On the other hand, most of the prejudice stemming from refusal of the agency instructions was neutralized when the district court told the jury that while “you are the sole judges of the facts, I don’t have the slightest doubt in my mind that Pomponio did not intend to pay him some seven or eight hundred dollars a week as a salary or anything else.” This was an express indication that the district judge did not accept the government’s theory that the defendant received $41,000 in gross income from Pomponio. Were refusal of the agency instruction the sole issue on appeal, we would be inclined to hold that the error was harmless. But since the case must be tried anew, we indicate our view that the requested agency instructions should have been given.

B. That the refusal of defendant’s requested instruction in regard to his alleged use and reliance on an expert tax preparer constituted reversible error stands on a surer foundation. Given defendant’s evidence on this point, the instruction should have been granted. Bursten v. United States, supra. Although the government argues that the instruction was given in substance, we read the record differently. It is true that the jury was told that defendant had testified that “he understood that Mr. Whitestone [sic] was going to figure it all out for him [prepare the return] ” and later that if defendant understated his gross income “in good faith, then you should acquit him.” But these oblique references to defendant’s defense of reliance on expert advice were separated by other comments; and both from the separation and their inherent ambiguity, we conclude that defendant did not receive the precise and specific charge to which he was entitled. Bursten v. United States, 395 F.2d at 981-982.

In light of these conclusions, we find it unnecessary to consider defendant’s other contentions.

Reversed; new trial granted.

      . 26 U.S.C. § 7206(1) :
      Any person who—
      Willfully makes and subscribes any return . . . verified by a written declaration that it is made under the penalty of perjury, and which he does not believe to be true and correct as to every material matter .. . shall be guilty of a felony

      . Defendant was- acquitted of the same offense alleged to have been committed with regard to the tax year 1968.

      . The government does not dispute that, if defendant was not an independent eontractor, lie was not required to report as gross income all sums paid by Pomponio.


source: Caselaw Access Project

author: DONALD RUSSELL, Circuit Judge:

license: Public Domain

text:
    C. G. BISHOP, Administrator of the Estate of Arthur Lee Baker, Jr., Deceased, Appellant, v. S. HENDRICKS, Jr., Appellee.
    No. 73-1725.
    United States Court of Appeals, Fourth Circuit.
    Submitted Feb. 6, 1974.
    Decided April 17, 1974.

      William T. Jones, Greenwood, S. C., on brief for appellant.
    James H. Watson and Carl G. Ferguson, Leatherwood, Walker, Todd & Mann, Greenville, S. C., on brief for appellee.
    Before CRAVEN, RUSSELL and FIELD, Circuit Judges.
   DONALD RUSSELL, Circuit Judge:

This is an action to recover under the wrongful death statute of South Carolina. It arose out of a motor collision occurring in Newberry County, South Carolina. The deceased was a life-long citizen of South Carolina. The statutory beneficiaries of the action are likewise life-long citizens of South Carolina. The beneficiaries retained counsel to prosecute the wrongful death action on their behalf. After consulting with their counsel, they applied to the local probate court for the appointment of the plaintiff-appellant, a citizen of Georgia and a relative by marriage of the beneficiaries, as administrator in whose name the action might be prosecuted. This action was thereupon commenced as a diversity action in the District Court against the lessee-operator of the other vehicle involved in the accident. The lessee of the other vehicle, who is the appellee on this appeal, was a citizen of South Carolina. He moved to dismiss the action for lack of diversity claiming in support of his motion that when a deceased leaves, as the deceased did in this case, no estate to be administered and the sole reason for the appointment of an administrator is to provide a nominal party plaintiff to institute the action, the benefits of which, if successful, pass directly to the statutory beneficiaries without any general administration, the citizenship of the administrator should be disregarded and the citizenship of the beneficiaries of the action should control in ascertaining federal diversity jurisdiction. The appellant-administrator countered with the contention that such a rule was applicable only when it could be found that the sole motive for the appointment of an out-of-state fiduciary was to create federal jurisdiction. The District Court, however, concluded, as did the Court in Nickell v. Westervelt (D.C.Va.1973) 354 F.Supp. 111, 112, and Johnson v. Worley (D.C.Va.1972) 353 F.Supp. 1381, 1382, that Miller v. Perry (4th Cir. 1972) 456 F.2d 63, “held that diversity of citizenship” in such a case as that here “is determined by the citizenship of the beneficiaries rather than by the citizenship of the administrator”, and it reached that conclusion despite its remark that in its opinion the “motive” for the appointment of the out-of-state administrator in this case was not the creation of federal jurisdiction. It accordingly dismissed the action for want of jurisdiction. The administrator appeals. We affirm.

The appellant would confine the scope of Miller to the peculiar facts of that case; and since the facts in this ease are different, he argues Miller is without application. Miller, however, was not phrased in the narrow terms of its own facts. The language of Miller was manifestly intended as a declaration of what one commentator has correctly denominated as “a substantial change in diversity jurisdiction”. The Court in that case was focusing generally on the broad, fundamental problem of determining the real party in interest, not in a procedural but in a jurisdictional sense, and in making clear what, in the light of the decision in Kramer v. Caribbean Mills (1969) 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9, was an “improper” or “collusive” joinder under Section 1359, 28 U.S.C. The emphasis “was on a fresh appraisal of an old problem.” By its decision, the Court was making a choice between the old, purely mechanical or “ritualistic” rule that an administrator, validly appointed, is always the real party in interest whose citizenship fixes diversity jurisdiction and what, on the other hand, has been aptly described as the more recent “substantive real party in interest test” as determined by the facts of the particular case. The Court recognized that “there was nothing sacred in the customary rule that an administrator’s citizenship governs, a principle which serves policies of judicial economy rather than federal-state comity” and concluded as a matter of principle that substance should prevail over mere procedure, that federal courts on jurisdictional issues should “assess the substantive relations between the parties to the controversy” and that they should make “a realistic determination with respect to the presence of diversity.” It found authority for such an approach in Kramer, which directed, as construed in Miller, “that the duties and responsibilities of administrators should be taken into account in federal determinations of the relevancy of the citizenship of such a personal representative to the presence of diversity jurisdiction.” It held specifically that when the responsibilities of the administrator are solely to institute the wrongful death action — when he is what one Court has described as “an administrator ad litem” and no more — the Court would “hinge the diversity determination to the citizenship of the wrongful death action beneficiaries, rather than to that of their representative.”

The result reached in Miller had long found advocates among legal scholars. It has received wide approval from The legal commentators. It is in conformity with the rule as stated by Professor Moore in his authoritative text:

“Where a party sues (or is sued) as a receiver, representative of a class, assignee, subrogee, executor or administrator it is normally his citizenship that is material when jurisdiction is dependent upon the character of the parties. This is true also of the general guardian of an infant, or the curator or committee of a lunatic, when under the law of the state where such fiduciary is appointed he has the status of a real' fiduciary. But if the law of the state gives the administrator, guardian, or other representative the status of only a nominal fiduciary then the beneficiary or the ward, not the administrator or guarddian, is the real party in interest, and it is the citizenship of the beneficiary or ward, as the case may be, that is determinative.” 3A, Moore’s Federal Practice, pp. 112-4 (footnotes omitted).
“Such a determination”, also, has the virtue that it “insures that federal jurisdiction will be invoked only when necessary to protect the party whose personal interest in the suit might be prejudiced by the presence of local bias”, which “has been the historical view for why diversity jurisdiction originated”. Note, Federal Jurisdiction — Citizenship of the Beneficiary Controls in Wrongful Death Actions Requiring a Resident Administrator, 51 N.C.L.Rev. 639, 646, and n. 44 (1973). To permit the appointment of a nominal non-resident fiduciary to create federal diversity jurisdiction would clearly “run counter to the general policy of viewing the federal courts as tribunals of limited jurisdiction whose subject matter jurisdiction principles should be applied with restraint,” and, through its artificial creation of diversity, would represent an “improper manufacture of jurisdiction” in obvious violation of the purposes of Section 1359.

Even if it be conceded that the rule in Miller is normally of general application, the appellant, however, would restrict it to situations where the reason or “motive” assigned for the appointment of the administrator was to create diversity jurisdiction. It may be assumed that if there is a valid reason for the appointment of an out-of-state administrator that gives to his representation greater substantiality than a mere administrator ad litem, the citizenship of the administrator may be determinative of diversity. This exception was implicit in Miller, which drew a clear distinction between the situation where the administrator was merely an agent to sue “without stake” in the litigation as it were and where he had some substantial interest or stake in the proceedings. It was, also, recognized by implication in Lester v. McFaddon. But it must be remembered that, in a situation where an out-of-state administrator files a wrongful death action on behalf of resident beneficiaries, involving the death of a resident decedent in an accident occurring within the state, want of diversity will be presumed unless the record provides sufficient support for the conclusion that the representation of the administrator is not nominal but was based on a valid and substantial reason. But for the reason or motive for the appointment to give the necessary substantiality to his representation that his citizenship will be regarded for diversity it must be more than an expression of sentiment or personal preference or mere kinship with either the beneficiaries or the decedent. Nor can it be established by some self-serving profession of good faith in the appointment. The reason or motive that will render the out-of-state administrator’s citizenship important for diversity purposes must be one that harmonizes with the thrust and purposes of Section 1359 itself. The history of Section 1359 makes clear its purpose. It was enacted as Section 5 of the Act of March 3, 1875, 18 Stat. 470, for the purpose of denying the use of federal courts in suits which did not “really and substantially involve a dispute or controversy properly within the jurisdiction” of the federal courts. This the statute stated in express terms. When this section and the assignee provision of the original Judiciary Act of 1789 were combined in the revision of 1948, this statement of express purpose was omitted but not because it was the intention of the revisers to alter in any way the purpose of the statute; the purpose of the revision and of the omission was to simplify the two provisions in order to eliminate “some of the abstruse distinctions that had grown up * * * ”. O’Brien v. Avco Corporation, supra (425 F.2d at p. 1033). That the purpose of the statute remained the same was emphasized by the Circuit Court opinion in Kramer, where “improper or collusive” joinder for jurisdiction was declared to result when it rested on “colorable assignment or other device without substance” (Italics added.) And this was the construction adopted and applied in Miller. Accordingly, any appointment of an out-of-state administrator, which is nominal and “without substance” and which, if given effect for jurisdictional purposes, has the effect of giving diversity to an action which does not “really and substantially involve a dispute or controversy” between citizens of different states, is violative of the purposes of, and falls under the interdict of, Section 1359. The courts should accordingly evaluate the reasons for the appointment and determine whether the reasons given logically or realistically establish that, as a result, the fiduciary sustains more than a nominal relationship to the litigation. The Courts have often done just that and, on the basis of their evaluation, have determined whether the citizenship of the administrator is to be given effect. As we have said, the fact that the beneficiaries are prostrated by grief, or are related to the out-of-state administrator, or are relying on the administrator for advice or that the out-of-state administrator is “a competent business man”, will not justify diversity based on the administrator’s citizenship. Confidence in the superior business judgment and ties of friendship, even intimate ones, are equally unavailing. On the other hand, O’Brien v. Stover (8th Cir. 1971) 443 F.2d 1013, 1015-1016, instances circumstances in which the appointment will control diversity. In that case, the out-of-state administratrix was the daughter of the deceased and “her sole heir”. Under these circumstances, the Court said, “The diversity here is bona fide and plaintiff’s appointment as administrator was natural and logical under the circumstances. She was the real party in interest. These facts are sufficient to establish diversity jurisdiction.” Again, when a general administrator, having assets other than the wrongful death suit to administer and who, incidental to his duties as general administrator, files a wrongful death suit, it has been held, though not uniformly, that his citizenship may be considered for diversity. In summary, only if the Court can conclude that the out-of-state administrator has something more than a nominal relationship to the litigation will the citizenship of an out-of-state administrator sustain diversity, and any reason or motive for the appointment which does not elevate his relationship to the litigation above the level of a nominal party is irrelevant to the issues of diversity.

“ * * * In combining these two provisions the reviser intended no alteration in the meaning of § 37 which empowered the district court to dismiss a suit ‘at any time * * * [when] such suit does not really and substantially involve a dispute or controversy properly within the jurisdiction of said district court * * *.’ ” Those words, the Court proceeded to add, “give content to its [the statute’s] otherwise indefinite and ambiguous words ‘improperly’ or ‘collusively’.”

In this case, the administrator has failed to establish any substantive facts or to assign any valid reasons for his appointment that would give “substance” to his representation or fix his status in the suit as different from nominal. Without any “real [or] substantial interest in the outcome of the litigation”, he possesses “no stake in the litigation”. He has nothing to gain by the suit save a fee for the use of his name if successful, and, if' the suit is lost, nothing to lose. In fact, it would seem that the beneficiaries of the action, if they chose to, could settle the action, with or without consulting him. Nor is the prosecution of the action incidental to any general fiduciary duties of an administrator. There are no assets in the estate other than this suit. The appellant has no knowledge of the accident out of which the litigation arose and can contribute nothing to its prosecution. He actually had no .part in the selection or employment of counsel. The employment of counsel occurred before his appointment and under the circumstances, he, like the representative in Lester v. McFaddon, supra (415 F.2d at p. 1103) “can hardly be expected to ride herd upon them (i. e., counsel) or exercise any effective supervision of their conduct of the litigation”. It is true, he is the nominal plaintiff but this is simply because the statute so commands. As the Court emphasized in Bennett v. Ry., Gas & Electric Co. (1914) 97 S.C. 27, 30, 81 S.E. 189, “ ‘That the act requires the personal representative (administrator or executor) to sue need not trouble us; the Legislature could as well impose that duty on the sheriff or the coroner. The proceeds recovered are not for creditors, or the family generally, or for the legatees, but is [are] strictly confined to certain members of the family of the deceased.’ ” (Italics added. Quoting from Reed v. Ry. Co., 37 S.C. 42, 53, 16 S.E. 289, 291).

“ * * * Allowing this suit [by an out-of-state administrator ad litem] to be prosecuted here would not advance any of the functions that diversity jurisdiction was designed to serve.”

The only reason assigned for his appointment and sought to justify diversity on the basis of his citizenship was that he was more experienced in business affairs than the father or mother of the deceased, the beneficiaries of the action. This reason is not persuasive. The beneficiaries, either of whom would have been the natural fiduciary, chose the attorney to prepare the suit and to try it. That was substantially the only function the administrator in a case such as this would perform. The suggestion that the father and mother were without business experience was unimportant since there could be no occasion to use business experience in the very limited, nominal role to be played by the administrator.

In summary, the appellant is, so far as this suit is concerned, a “straw party”, appointed just as a guardian ad litem solely for the purposes of providing a nominal plaintiff for the maintenance of this action. His appointment is manifestly an artificial creation of federal diversity and as such cannot support jurisdiction. It is, for all practical purposes, similar to the situation in First Nat. Bank of Amherst, Mass. v. Fulcher (D.C.Va.1954) 119 F.Supp. 759, p. 763, where the Court, “looking at reality” and determining diversity in the citizenship of the beneficiaries of the Virginia wrongful death statute rather than that of the administrator, said:

“* * * The personal representative is nominally the plaintiff solely because the statute says that he must be. Should there be a recovery, no creditor could touch it. No administration is necessary. Any recovery would go to the sons as the jury might direct.”

We have not overlooked that the District Court stated that, if the issue were properly before him he would find that the “motive” in the appointment of the appellant as administrator was not improper. He gave no reason for such opinion. As we have indicated, however, the propriety of an administrator’s appointment in a case such as this is determined under Section 1359 by whether the administrator has something more than a nominal interest at stake in the litigation. The appellant-administrator manifestly did not have such an interest and the District Court properly dismissed the action on jurisdictional grounds.

Affirmed.

      . Sections 1951-1952, Title 10, Code of Laws of South Carolina (1962).

      . There was a second defendant, whose citizenship was different from that of its co-defendant and that of the administrator. It did not join in the motion to dismiss and is not concerned in the controversy, since unless there was diversity between the plaintiff and the lessee-operator of the tractor-trailer, there could be no basis for diversity jurisdiction.

      . Note, Miller v. Perry: Further Complication in Determining Diversity Jurisdiction, 30 Wash. & Lee L.Rev. 282, 295 (1973).

      . “Real party in interest” as determined for procedural purposes under Rule 17(a) is quite different from the meaning of the term in the jurisdictional sense. Lester v. McFaddon (4th Cir. 1969) 415 F.2d 1101, 1105, n. 10.

      . Note, Federal Courts — Diversity Jurisdiction — When State Law Requires Wrongful Death Action to be Prosecuted by Resident Ancillary Administrator; Citizenship of Beneficiaries is Controlling for Diversity Purposes — Miller v. Perry, 47 N.Y.U.L.Rev. 800, 812.

      . Note, Federal Courts — Appointment of Administrator to Defeat Diversity Jurisdiction, 21 Journal of Public Law 293 (1973).

      . 47 N.Y.U.L.Rev., at p. 814.
      , See, also, Cerri v. Akron-People’s Telephone Co. (D.C.Ohio 1914) 219 F. 285, 292, approved in Newman, Manufacturing Diversity Jurisdiction, 14 Vill.L.Rev. 727, 735.

      . 456 F.2d at p. 67.

      . 456 F.2d at p. 65.

        Cf., Note, Federal Jurisdiction — Citizenship of the Beneficiary Controls in Wrongful Death Actions Requiring a Resident Administrator, 51 N.C.L.Rev. 639, 644 (1973) :
      “ * * * the administrator is not per se the real party in interest; instead, the courts have examined his duties and responsibilities before making any determination as to whose citizenship should determine diversity.”

        See, also, Note, 47 N.Y.U.L.Rev. 800, at 804, where, in summarizing the result in Miller, the editor said:
      “In the view of the Fourth Circuit, Kramer mandated ‘consideration of [the] duties and responsibilities of a representative party rather than a ‘ritualistic’ application of the principle that an administrator is the real party in interest for diversity purposes.”

      . O’Brien v. Avco Corporation (2d Cir. 1969) 425 F.2d 1030, 1034.

      . 456 F.2d at p. 68.

      . See Note, Appointment of Non-Resident Administrators to Create Federal Diversity Jurisdiction, 73 Yale L.J. 873, 883 (1964) :
      “Thus, if pursuant to a state wrongful death statute or survivors act calling for appointment of an administrator ad prose-quendum, an administrator is appointed who is not a citizen of the state in which the state is being probated, federal courts should be reluctant to grant federal jurisdiction to that administrator. His duties are temporary and related solely to the suit, for without the cause of action there would be no administrator, and the appointment of a nonresident for such temporary and singularly directed activities gives rise to an inference that the appointment was primarily for purposes of obtaining federal jurisdiction.”

      . See, Case Note, 47 N.Y.U.L.Rev. 800; Case Note, 51 N.C.L.Rev. 639; Case Note, 21 Journal of Public Law, 293; contra, Case Note, 30 Wash. & Lee L.Rev. 282.

      . See, Miller v. Perry, supra, at p. 67:
      “ * * * Diversity jurisdiction exists for the protection of the noncitizen who is obliged to sue or to be sued in the state of his adversary. It is for that reason that the device of appointing an out-of-state representative has been condemned.”

        See, also, White v. Lee Marine Corporation (5th Cir. 1970) 434 F.2d 1096, 1100:
      “ * * * Allowing this suit [by a nonresident administrator] to be brought in federal court would not advance any of the functions diversity jurisdiction was designed to serve.”

        See, also, Note, Manufactured Diversity of Citizenship, 2 Texas Tech.L.Rev. 304, 308 (1971) where, commenting on Bass v. Texas Power & Light Company (5th Cir. 1970) 432 F.2d 763, the editor said:
      “In such situations, the non-resident administrator cannot plead that his case will be influenced adversely by local prejudice because the jury will know that he represents a local beneficiary. Therefore, the basic reason for diversity jurisdiction, local prejudice, will not be present.”
      To the same effect is Note, 1 St. Mary’s L.J. 125, 129 (1969), commenting on McSparran v. Weist (3d Cir. 1968) 402 F.2d 867, 876, cert, denied sub nom. Fritzinger v. Weist, 395 U.S. 903, 89 S.Ct. 1739, 23 L.Ed.2d 217.

      . 6 Wright & Miller, Federal Practice, p. 717.

      . Lester v. McFaddon, supra, 415 F.2d at p. 1104.

      . McSparran v. Weist, supra (402 F.2d at p. 875).

      . See Renner v. Vitcov (D.C.Pa.1972) 339 F.Supp. 1020, 1022, in which the parents-beneficiaries of the action, prostrated by the loss of two sons in one accident, had secured the appointment of a business acquaintance, “a competent businessman”, but one with “little experience or knowledge in the field of estate administration.” Such considerations were found not substantial enough to give the administrator the status to support diversity.

      . See Kane v. Cameron (D.C.Pa.1971) 329 F.Supp. 933, 934-935. Here, a sister of the widow-beneficiary and a woman “capable of sound judgment”, was appointed the out-of-state administratrix. The Court dismissed the action, saying:
      “ * * * Since all the interested parties, except administratrix, have been and are residents of Pennsylvania, and since the defendants reside and the accident occurred in Montgomery County, suit should have been instituted there.”

        See, also, Butler v. Colfelt (D.C.Pa.1970) 313 F.Supp. 527, aff. (3 Cir.) 439 F.2d 882; Richard v. Dervarics (D.C.Pa.1969) 302 F.Supp. 709.

      . See Pangaio v. Palmer Township (D.C.Pa. 1972) 343 F.Supp. 940. The beneficiaries, who spoke Portugese more fluently than they did English, consulted a close and intimate friend, in whom they had confidence and who assisted them in “a great many personal matters”. The friend made inquiries into the potentiality of a wrongful death suit and employed the counsel to file suit. Because of their confidence in her, the friend was named administratrix and filed suit in her name. Finding that such circumstances failed to give a reason that would support diversity based on the friend’s citizenship, the Court said:
      “ * * * Nor does the fact that the decedent’s family had confidence in plaintiff justify her appointment in the absence of any special competence in the administration of estates.” (p. 942)

      . See, McSparran v. Weist, supra (402 F.2d at pp. 872, 873):

      . Caribbean Mills, Inc. v. Kramer (5th Cir. 1968) 392 F.2d 387, 393, aff. 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9.

      . Contrary to the view of the appellant, this accords with what this Court held in Lester v. McFaddon, supra. There, we said (415 F.2d at p. 1106, n. 11):
      “It is the lack of a stake in the outcome coupled with the motive to bring into a federal court a local action normally triable only in a state court which is the common thread of the cases holding actions collu-sively or improperly brought.”

        Bee, White v. Lee Marine Corporation, supra (434 F.2d at p. 1098) where the Court said:
      “ * * * This requirement of substantive as well as formal validity of the representative’s appointment [to support diversity] lias been recognized often in subsequent decisions.”

        Cf., 6 Wright & Miller, Federal Practice and Procedure, p. 720:
      “Recent cases indicate that the permissive attitude toward allowing jurisdiction to be manufactured by assignment or appointment is undergoing a serious re-evaluation. Some federal courts have noted that the anti-collusion statute was enacted in order to preserve the limited character of diversity jurisdiction in the federal courts and have suggested that it should be applied when a party has attempted to create subject matter jurisdiction that would not otherwise exist.”

      . A partial list of the factors to be considered in such evaluation is set forth in Groh v. Brooks (3d Cir. 1970) 421 F.2d 589, 595. See, for instance, Rogers v. Bates (8th Cir. 1970) 431 F.2d 16, 21:
      “ * * * We hold the appointment of a representative of a living person, such as a guardian or conservator who undertakes no duties nor obligations to his ward or beneficiary save those incident to the institution of a lawsuit, falls within the proscription of § 1359 and is insufficient to invoke federal jurisdiction on the basis of diversity of citizenship. In such cases, we look to the citizenship of the ward or beneficiary.”

        Rogers, it is true, dealt with a conservator —but the same rule was applied to a trustee or administrator in Bartnick v. Reader Company, Inc. (8th Cir. 1973) 487 F.2d 1021.

      . See note 19 and 20.

      . Pangaio v. Palmer Township, supra (343 F.Supp. at p. 940).

      . To the same effect are Janzen v. Goos (8th Cir. 1962) 302 F.2d 421; County of Todd, Minn. v. Loegering (8th Cir. 1961) 297 F.2d 470, and Davis v. Carabo (D.C.S.C.1970) 50 F.R.D. 468, 469. In Janzen v. Goos, supra, 302 F.2d at p. 425, the Court said;
      “ * * * No question is here raised as to the plaintiff, in her capacity as admin-istratrix, being the real party in interest and the provisions of RRS Nebraska, 1943, § 25-304, confirm this. In any event, the citizenship of all the beneficiaries coincides with that of the plaintiff.”

      . Joyce v. Seigel (3d Cir. 1970) 429 F.2d 128; McCoy v. Blakely (8th Cir. 1954) 217 F.2d 227; Lawson v. Morgan (D.C.Pa.1973) 352 F.Supp. 282, but cf., Levenger v. Lehigh Valley Railroad Co. (3d Cir. 1970) 435 F.2d 822.

      . Cf., Kenebrew v. Columbia Land and Timber Co. (5th Cir. 1972) 454 F.2d 1146, 1147:

      . Dougherty v. Oberg (D.C.Minn.1969) 297 F.Supp. 635, 639.

      . Section 1955, Title 10, Code of Laws of South Carolina (1962) limits the liability for costs on the part of the administrator to assets in his hands and by implication absolves the fiduciary of any personal liability, should the action fail.

      . Aldridge, Admr. v. Watts Mill (1925) 131 S.C. 222, 127 S.E. 213.

      . Cf., 47 N.Y.U.L.Rev. 800, 811:
      “Usually, the prosecution of an action [by an administrator] is incidental to the general fiduciary duties of a personal representative; in Miller, however, it was the only responsibility of the ancillary administrator. Moreover, in enforcing the claim he did not act in the normal capacity of an administrator as the representative of the decedent estate, but rather as a statutory trustee for the benefit of potential recipients.”

      . Paraphrasing the language of the Court in Martineau v. City of St. Paul (8th Cir. 1949) 172 F.2d 777, 780, his position may accurately be analogized to a mere “agent of the Probate Court. * * * appointed for the purpose of enforcing a claim” of the statutory beneficiaries.

        See, also, O’Brien v. Avco Corporation, supra (425 F.2d at p. 1034):
      “ * * * The appointment of an administrator ad litem, whose sole function is to collect the proceeds of a lawsuit and turn them over to the beneficiary, is far more akin to the ‘collection’ than the ‘actual transfer’ line of cases, and it is difficult to justify Oorabi [Corabi v. Auto Racing, Inc., 3 Cir., 264 F.2d 784] even on the basis of Black & White Taxicab [Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co., 276 U.S. 518, 48 S.Ct. 404, 72 L.Ed. 681].”
      In McSparran v. Weist, supra (402 F.2d at p. 874), speaking to a situation where the citizenship of a guardian was involved, the Court said:
      “ * * * His (the guardian’s) appointment may have authorized him to bring suit but his nominal status does not make his citizenship determinative for purposes of diversity.”

      . This case was disapproved in Holt v. Mid-dlebrook (4th Cir. 1954) 214 F.2d 187, 189, but it is in accord with the modern rule as enunciated in the decisions already cited, including Lester and Miller from our own Circuit.

      . See, for a very similar case factually, Pistone v. Romano (D.C.Pa.1972) 349 F.Supp. 293, 295, aff. (3 Cir.) 481 F.2d 1399.


author: PER CURIAM.

text:
    SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. POWER RESOURCES CORPORATION et al., Defendants-Appellees.
    No. 73-1657.
    United States Court of Appeals, Tenth Circuit.
    April 16, 1974.

      David Ferber, Washington, D. C. (Lawrence E. Nerheim, Gen. Counsel, Richard E. Nathan, Asst. Gen. Counsel, and Joan B. Weiner, Securities and Exchange Commission, on the brief), Washington, D. C., for plaintiff-appellant.
    Paul N. Cotro-Manes, Salt Lake City, Utah, for defendant-appellee R. Blair Lund.
    Before CLARK, Justice, and HILL and SETH, Circuit Judges.

       Honorable Tom O. Clark, Associate Justice, Retired, United States Supreme Court, sitting by designation.

   PER CURIAM.

This is an appeal from an order of the United States District Court for the-District of Utah dismissing an action by the Securities and Exchange Commission (SEC) for failure to prosecute.

The SEC instituted the action on June 30, 1970, alleging that appellees had fraudulently offered and sold unregistered securities in violation of the Securities Acts of 1933 and 1934. Two days later it filed a motion for a preliminary injunction, stating that unless enjoined appellees would continue the same pattern of fraudulent conduct. This motion, however, was not heard- until May 29, 1973. At that time the trial court denied the motion, and pursuant to Rule 41(b), F.R.Civ.P., dismissed the action against all remaining defendants for failure to prosecute.

On appeal, the SEC contends the trial court abused its discretion, and requests that the action be reversed and the cause remanded to a different judge.

A trial court may, on motion of a defendant or on its own motion, dismiss an action for failure of the plaintiff to prosecute it with reasonable diligence. Rule 41(b), F.R.Civ.P. See also Link v. Wabash R. Co., 370 U.S. 626, 82 S.Ct. 1386, 8 L.Ed.2d 734 (1962). Such a dismissal is within the trial court’s sound discretion and should be sustained absent an abuse of that discretion. Food Basket, Inc. v. Albertsons, Inc., 416 F.2d 937 (10th Cir. 1969).

There is no precise rule as to what circumstances justify a dismissal for failure to prosecute. Instead, the procedural history of each case must be examined to make such a determination. Here, we are faced with a three year delay. The SEC attempts to excuse this period of inactivity on the grounds it was conducting discovery to obtain relevant information. The record discloses, however, that the SEC was substantially ready for trial as a result of discovery conducted prior to the institution of the action.

The record also discloses that the SEC made no effort whatsoever to have its motion heard. It seeks to place the blame for this upon the trial court, and argues that no local rules exist to inform counsel as to what action, beyond filing of the motion, is required. This does not excuse its failure to diligently prosecute the case. There is no evidence that the motion would not have been heard if requested.

Under such circumstances we believe the trial court properly exercised its discretion in dismissing the action for failure to prosecute.

Affirmed.

      . Specifically, the complaint alleged that appellees had violated 15 U.S.C. §§ 77e(a), 77e(c), 77q(a), 78j(b) and 17 C.F.R. § 240.-10b-5.

      . During the three year interim the SEO had obtained permanent injunctions, by consent, against ten of the defendants.


author: PER CURIAM:

text:
    In the Matter of Blair & Co., Inc., Debtor. BLAIR & CO., INC. and Patrick E. Scor-ese, as Liquidator appointed by the New York Stock Exchange, Inc. for Blair & Co., Inc., Appellants, v. John P. FOLEY, Jr., et al., Appellees.
    No. 144, Docket 72-1554.
    United States Court of Appeals, Second Circuit.
    Submitted March 13, 1974.
    Decided April 4, 1974.
    Mudge, Rose, Guthrie & Alexander, New York City, for debtor-appellant Blair & Co., Inc.
    Weil, Gotshal & Manges and Charles Seligson, New York City (Harvey R. Miller, Esq., and Michael L. Cook, New York City, of counsel), for liquidator-appellant.
    Raines & Pollack, New York City, for appellees.
    Before FRIENDLY, MANSFIELD and TIMBERS, Circuit Judges.
   PER CURIAM:

On December 11, 1972, we reversed, with Judge Timbers dissenting, an order of the District Court for the Southern District of New York which had affirmed an order of a referee in bankruptcy adjudicating Blair & Co., Inc. (Blair) as an involuntary bankrupt on the petition of the above-named appel-lees, 471 F.2d 178. The Supreme Court granted certiorari, 411 U.S. 930, 93 S.Ct. 1901, 36 L.Ed.2d 389 (1973), and heard oral argument on November 12, 1973. The appellants in this court, who had become appellees in the Supreme Court, contended, inter alia, that the appeal no longer presented “a live controversy,” since, subsequent to our decision, the District Court had confirmed an arrangement in a voluntary proceeding initiated by Blair under Chapter XI of the Bankruptcy Act, § 321 of which permits a debtor to file a petition thereunder “in a pending bankruptcy proceeding either before or after his adjudication.” The Court remanded the case for us to consider this argument, 414 U.S. 212, 94 S. Ct. 405, 38 L.Ed.2d 422 (1973). We afforded the parties an opportunity to file briefs on that issue.

On its face the argument seems wholly persuasive, since a proceeding under Chapter XI can be initiated by the debt- or in a pending bankruptcy under § 321 either before or after adjudication and under § 322 when there is no bankruptcy proceeding at all. And the statute clearly does not contemplate that after completion of a Chapter XI proceeding ordinary bankruptcy may ensue. Only three of appellees’ contrary contentions merit discussion.

The first is based on Article IV of the arrangement, entitled “Holders of Subordinated Claims,” a description eonced-edly fitting appellees if they were creditors at all, see 471 F.2d at 180. This recites that Referee Herzog had found Blair to be hopelessly insolvent; that its assets were insufficient to pay general unsecured creditors who, in fact, were to receive only 25% of their claims; that the New York Stock Exchange would advance in excess of $15,000,000 to enable satisfaction of customer creditors and would be subrogated to their claims; and that accordingly there were no assets available for persons with claims subordinated by agreement or operation of law. Hence the arrangement was to be “without prejudice to the rights, if any, of the holders of claims against Blair which are or were subordinated by agreement or operation of law.” Appel-lees contend that since they did not benefit from the arrangement, their alleged right to have Blair adjudicated an involuntary bankrupt remains “live.” We cannot see why. Whether Blair’s adjudication was proper or improper, Blair was entitled to invoke Chapter XI. If appellees desired to object to the Chapter XI proceeding and have the case revert to ordinary bankruptcy, such a motion should have been made in the Chapter XI proceeding itself, § 376. In fact appellees did seek dismissal of the Chapter XI proceeding but did not pursue this beyond the district court and did not appeal the referee’s order of confirmation. Moreover, the confirmation of the arrangement does not deprive appellees of any rights since confirmation discharges a debtor from unsecured debts and liabilities only “except as provided in the arrangement or the order confirming the arrangement,” § 371, and, as previously indicated, the arrangement does except appellees’ claims. Since the order of confirmation has become final and its validity in no way depends on the propriety of the adjudication, the appeal from the order affirming the adjudication has lost vitality unless collateral consequences survive.

Appellees argue that one such consequence is their liability for costs on the appeal to this court in the sum of $4,833.42. But when we dismiss the appeal as having become moot, we shall also vacate the judgment for costs, see Brownlow v. Schwartz, 261 U.S. 216, 43 S.Ct. 263, 67 L.Ed. 620 (1923) — a course we find peculiarly attractive in light of appellants’ failure to press the issue of probable mootness on the appeal, see fn. 1.

The other collateral consequence is one to which the Supreme Court particularly asked us to address ourselves, 414 U.S. at 216-217, 94 S.Ct. 405, 407, 38 L.Ed.2d 422, namely, the effect of the appeal on appellees’ entitlement to a reasonable attorney’s fee as a priority claim in the Chapter XI proceeding, §§ 64a (1) and 302, for services rendered to them as petitioning creditors. We are unable to see how appellees’ entitlement to this can be affected by whether the adjudication was right or wrong. Since the statute allows such a fee for the mere act of petitioning, even though no adjudication has been made, appellees’ situation cannot be worse because an adjudication has been had. And even the amount of the fee should not be affected when ap-pellees were proceeding in good faith on a close issue of law, as evidenced by the decisions in their favor by the referee and the district court, the dissent of Judge Timbers in this court, and the grant of certiorari.

The judgment for costs is vacated and the appeal is dismissed as having become moot.

      . The Court considerately suggested, 414 U. S. at 216, 94 S.Ct. 405, 38 L.Ed.2d 222, that the reason we had not discussed mootness was “because the final confirmation order was not entered by the District Court until well after the appellate court had issued its judgment.” The true reason, however, was that, although the Chapter XI petition was filed on April 15, 1971, two days after the referee had issued his opinion holding that Blair should be adjudicated a bankrupt, and prosecution of the ordinary bankruptcy was stayed by order dated May 18, 1971, appellants referred to this only in a footnote, gave no indication of a serious intention to proceed under Chapter XI, and made no suggestion that developments in the Chapter XI proceeding might cause the case to become moot and that we should defer decision accordingly.


author: MARIS, Circuit Judge.

text:
    GREAT CRUZ BAY, INC., ST. JOHN, VIRGIN ISLANDS v. Reuben B. WHEATLEY, Commissioner of Finance, Government of the Virgin Islands, Appellant.
    No. 73-1452.
    United States Court of Appeals, Third Circuit.
    Argued Dec. 7, 1973.
    Decided March 28, 1974.
    Stefan F. Tucker, Arent, Fox, Kinter, Plotkin & Kahn, Washington, D. C., for appellant.
    Clarence A. McLaughlin, Bornn, McLaughlin & Finucan, Charlotte Amalie, St. Thomas, V. I., for appellee.
    Richard M. Roberts, Tax Div., Dept, of Justice, Washington, D. C., for ami-cus curiae (United States).
    Before MARIS, GIBBONS and WEIS, Circuit Judges.
   OPINION OF THE COURT

MARIS, Circuit Judge.

The question presented by this appeal is whether the taxpayer, Great Cruz Bay, Inc., a Virgin Islands corporation, is entitled to elect Virgin Islands income tax treatment as a small business corporation under subchapter S of the Internal Revenue Code, 26 U.S.C. § 1371 et seq. For the purposes of subchapter S, section 1371(a) of the Code defines a small business corporation to mean a domestic corporation which does not, inter alia, “(3) have a nonresident alien as a shareholder”. The answer turns on whether, under the income tax law as applied in the Virgin Islands, a United States citizen residing in the continental United States is to be deemed a “nonresident alien” within the meaning of the above quoted provision of section 1371(a)(3).

The taxpayer-corporation was organized under the laws of the Virgin Islands. It filed its election with the Tax Division of the Department of Finance of the Government of the Virgin Islands to be taxed for the fiscal years 1968, 1969 and 1970 as a small business corporation and it computed its Virgin Islands income tax liability accordingly. The Commissioner denied the taxpayer the status of a small business corporation because three of its shareholders were United States citizens not residing in the Virgin Islands and he determined a deficiency in tax on the ground that those stockholders were nonresident aliens for Virgin Islands income tax purposes within the meaning of section 1371(a)(3) of the Internal Revenue Code.

The taxpayer filed a petition in the District Court of the Virgin Islands for the redetermination of its income tax liability. The parties stipulated that the sole question was whether the three shareholders had been correctly classified by the Commissioner as nonresident aliens, thereby disqualifying the taxpayer as a small business corporation. The taxpayer moved for summary judgment on the pleadings which was granted by the district court. The court held that the term “nonresident alien” as used in section 1371(a)(3) of the Internal Revenue Code and defined in section 1.871-2 of the Income Tax Regulations, should be read, in applying the income tax law to the Virgin Islands, to mean “an individual whose residence is not in the Virgin Islands and who is not a citizen of the United States”. The court concluded that the Commissioner had erroneously redefined that term for Virgin Islands income tax purposes when he classified the three nonresident United States citizens as nonresident aliens of the Virgin Islands. The court stated that if the interpretation of the Commissioner were allowed to stand, the territory would be claiming a larger tax than the United States would have collected in the absence of the mirror system. Moreover, the court stated, it could not view as a non-substantive change in nomenclature the characterization of a United States citizen residing in any state or territory of the United States as a nonresident alien for this or any other taxing purposes. Accordingly, the determination of the Commissioner was reversed.

This appeal by the Commissioner followed. The Commissioner contends that his action in classifying as nonresident aliens the United States citizens residing in the United States was consistent with the separate territorial income tax structure provided by Congress for the Virgin Islands. The United States as amicus curiae supports the Commissioner’s determination and urges that the decision of the district court is erroneous and should be reversed.

This court had occasion in Dudley v. Commissioner of Internal Revenue, 1958, 3 Cir., 258 F.2d 182, and again in Chicago Bridge and Iron Company v. Wheat-ley, 1970, 3 Cir., 430 F.2d 973, to discuss the Virgin Islands income tax structure as established by the Naval Appropriation Act of 1922, approved July 12, 1921, 42 Stat. 123, 48 U.S.C.A. § 1397 The effect of this statute was to create a separate territorial income tax which was to be collected by the Government of the Virgin Islands, applying the provisions of the United States income tax laws mutatis mutandis under what has been called the “mirror” theory. By section 28(a) of the Revised Organic Act of 1954, the permanent residents of the Virgin Islands were required to pay their taxes on income from all sources, both within and outside the Virgin Islands, into the treasury of the Virgin Islands. 48 U.S.C.A. § 1642. United States citizens not residing permanently in the Virgin Islands were required to file two tax returns, one reporting and paying taxes to the Virgin Islands on Virgin Islands income and the other reporting and paying taxes to the United States on income from all sources, with a credit for taxes paid to the Virgin Islands.

In Dudley v. Commissioner of Internal Revenue we said:

“The tax thus imposed by the Naval Appropriation Act was explained in Congress as providing for local imposition upon the inhabitants of the Virgin Islands of a territorial income tax, payable directly into the Virgin Islands treasury, to assist the Islands in becoming self-supporting. The enactment was recommended as following the precedent of earlier legislation applying to Puerto Rico and the Philippines. That purpose has been consistently implemented by both the federal and territorial taxing authorities, who have recognized that Congress created a local, locally collectible income tax and that the United States and the Virgin Islands are distinct taxing jurisdictions although their income tax laws arise from an identical statute applicable to each. Internal Revenue rulings, the first of which was issued over twenty years ago, have taken this view. I.T. 2946, XIV — 2 C.B. 109 (1935); I.T. 3690, 1944 C.B. 164. The correctness of this official interpretation and practice appears never heretofore to have been questioned, and the income tax has been administered in the Virgin Islands in accordance with this construction for over a generation. Such a settled administrative construction applied in a multitude of cases over an extended period is entitled to great weight.” 258 F.2d at p. 185.

In Chicago Bridge and Iron Company v. Wheatley the issue presented was whether a Delaware corporation was entitled to use the Western Hemisphere Trade Corporation deduction to reduce its income tax liability to the Virgin Islands. In that ease we stated:

“Both the federal tax administrators and the Congress have recognized that implementation of the Internal Revenue Code as a separate taxing statute in the Virgin Islands requires some substitution of language. In a ruling published in 1935, the Bureau of Internal Revenue noted that in construing the taxing statute applicable in the Virgin Islands, ‘it will, of course, be necessary in some sections of the law to substitute the words “Virgin Islands” for the words “United States,” in order to give the law proper effect in those islands.’ I.T. 2946, XIV-2 Cum.Bull. 109, 110 (1935).” 430 F.2d at p. 975.

An Office Decision by the Bureau of Internal Revenue of the United States Treasury Department published in 1935, I.T. 2946, XIV-2 C.B. 109, referred to in both the Dudley and Chicago Bridge cases, interpreted, under the Revenue Act of 1934, the status of a citizen of the United States in the Virgin Islands with respect to income taxation. So far as here pertinent, it was stated (at p. 110):

“In construing the Revenue Act of 1934, as in effect in the Virgin Islands, it will, of course, be necessary in some sections of the law to substitute the words ‘Virgin Islands' for the words ‘United States’ in order to give the law proper effect in those islands. From the viewpoint of the Virgin Islands citizens of the United States residing in the islands must be considered as resident aliens, and citizens of the United States not residing in the Virgin Islands must be treated as nonresident aliens.”

Although I.T. 2946 was in 1969 declared obsolete by Rev.Rul. 69-45, 1969-1 Cum.Bull, 313, its holding concerning the tax treatment of nonresident United States citizens with respect to Virgin Islands income tax was declared currently applicable and formally reinstated by Revenue Ruling 73-315, I.R.B.1973-31, which we quote in full as follows:

“The obsolescence of I.T. 2946, XIV-2 C.B. 109 (1935), published in Rev.Rul. 69-45, 1969-1 C.B. 313, is withdrawn inasmuch as reconsideration has been given to the position set forth in I.T. 2946. Although portions of I.T. 2946 have become obsoleted because of the revision in the applicable statutes, it has been determined that the portion of I.T. 2946 that is currently applicable should be updated and restated under the current statute and regulations.
“The question presented pertains to the taxable status of a citizen of the United States with respect to the application of the income tax laws of the Virgin Islands and the United States under the circumstances described below.
“The taxpayer, a citizen of the United States, derived income from sources within the Virgin Islands during the taxable year. The taxpayer was not a resident of the Virgin Islands.
“The Naval Appropriations Act (Public Law No. 35) approved July 12,” 1921 (42 Stat. 122) codified as section 1397, Title 48 of the United States Code, provides as follows:
The income-tax laws in force in the United States of America and those which may hereafter be enacted shall be held to be likewise in force in the Virgin Islands of the United States, except that the proceeds of such taxes shall be paid into the treasuries of the said islands. July 12, 1921, C. 44, § 1, 42 Stat. 123.
“Section 7701(a)(9) of the Internal Revenue Code of 1954 provides that the term ‘United States’ when used in a geographical sense includes only the States and the District of Columbia.
“Section 7701(a)(9) of the Code does not extend the territorial limits of the United States to include the Virgin Islands and there is nothing in the Naval Appropriations Act (48 U. S.C. 1397) that can be interpreted as including the Virgin Islands within the territorial limits of the United States for income tax purposes.
“Accordingly, the United States and Virgin Islands are separate and distinct taxing jurisdictions although their income tax laws arise from an identical statute applicable to- each.
“In construing the Internal Revenue Code of 1954, as in effect in the Virgin Islands, in addition to other modifications when necessary and appropriate, it will be necessary in some sections of the law to substitute the words ‘Virgin Islands’ for the words ‘United States’ in order to give the law proper effect in those islands. From the viewpoint of the Virgin Islands, citizens of the United States residing in the Virgin Islands must be considered as resident aliens, and citizens of the United States not residing in the Virgin Islands must be treated as nonresident aliens. With respect to the tax status of citizens of the United States who are residents of the Virgin Islands see Rev.Rul. 60-291, 1960-2 C.B. 407. With respect to the tax on nonresident alien individuals see section 871 of the Code.
“Accordingly, a citizen of the United States not residing in the Virgin Islands is a nonresident alien for Virgin Islands income tax purposes.
“The obsolescence of I.T. 2946 is withdrawn. I.T. 2946 is hereby superseded, since the applicable position therein is set forth under the current law in this Revenue Ruling.” Rev. Rui. 73-315, I.R.B. 1973-31.

It will thus be seen that it has been the administrative construction for nearly 40 years that citizens of the United States not residing in the Virgin Islands must be treated, for Virgin Islands tax purposes, as nonresident aliens.

In the Chicago Bridge case this court noted that Congress had provided by section 31 of the Organic Act of Guam a separate territorial income tax system for Guam comparable to that provided by the Naval Appropriation Act of 1922 for the Virgin Islands. The Court of Appeals for the Ninth Circuit sitting in banc in Sayre & Company v. Riddell, 1968, 395 F.2d 407, had occasion to consider the operation of the Guam income tax system set up by section 31 of its Organic Act and reached the conclusion that it paralleled that of the Virgin Islands. The court stated its conclusions as follows: (pp. 412-413)

“The general conclusion that we draw from the available evidence, then, is that Congress intended that Guam should apply the Internal Revenue Code (with those deletions prescribed by section 1421i(d)(l)) [of the Guam Organic Act] to persons and income within its territory just as the United States applies the Code to persons and income within its territory.
“The interpretative omissions and substitutions of language authorized by. section 1421i(d)(l) and (e) are those which are necessary to effectuate this intention. We may not adopt a construction inconsistent with it, as we did in Atkins-Kroll [Atkins-Kroll (Guam) Ltd. v. Government of Guam, 9 Cir., 367 F.2d 127], simply because we consider the result more equitable. Deviations from the intended dual structure by substantive revision of the basic scheme of the Code as applied to Guam must be left to Congress.”

In the light of the judicial decisions and long continued administrative construction to which we have referred it may be regarded as settled that in the application of the Internal Revenue Code to the Virgin Islands as the separate income tax law of the Islands a citizen of the United States who does not reside in the Virgin Islands is to be treated as a nonresident alien individual. This is surely so unless some compelling reason exists for treating him otherwise with respect to a particular provision of the Act. The plaintiff urges, and the district court held, that such a special situation is presented by subchapter S of the Internal Revenue Code under which the present controversy arises and to the consideration of that subchapter we now turn.

Subchapter S was added to the Internal Revenue Code of 1954 by the Technical Amendments Act of 1958, Pub.L. 85-866, September 2, 1958, 72 Stat. 1650. Its purpose was to permit “small business corporations” as defined by section 1371(a) to elect not to pay a corporate tax but instead to permit the corporate profits or losses to be reported by the stockholders in their individual returns. It is quite clear from clause (3) of section 1371(a) of the Code that Congress did not intend these benefits to extend to corporations with nonresident alien shareholders. It obviously was those small businesses which are operated by residents of the United States taxing jurisdiction, i. e., the States and the District of Columbia, with which it was concerned. Citizens of a possession of the United States, such as the Virgin Islands, who are not otherwise citizens or residents of the United States are to be treated for federal income tax purposes as nonresident alien individuals by the express terms of section 932 of the Code as amended.

For the reasons which have been stated, we think that the Commissioner rightly held that the shareholders of the taxpayer corporation who, although United States citizens, were nonresidents of the Virgin Islands, were to be treated as nonresident alien shareholders of the corporation within the meaning of section 1371(a)(3) of the Code as it is to be applied to the Virgin Islands under the mirror theory. Our holding in the Chicago Bridge case, which involved a wholly different provision of the Code, does not require a contrary result. The criterion, in the context of this case, is that the Territory of the Virgin Islands applies the Internal Revenue Code to persons and income within its own taxing jurisdiction just as the federal government applies the Code to persons and income within its own taxing jurisdiction, i. e., the States and the District of Columbia. In the case of the federal government where the individual is either a United States citizen or an alien residing in the taxing jurisdiction, the tax under section 1 of the Code is based upon jurisdiction over the person; where the individual is an alien not residing in the taxing jurisdiction, the tax under section 871 of the Code is based upon jurisdiction over the property or income of the nonresident individual located or earned in the taxing jurisdiction; and these principles are mirrored in applying the Code to the taxing jurisdiction of the Virgin Islands.

The taxpayer corporation contends that the decision in Manning v. Blaz, 9 Cir. 1973, 479 F.2d 333, involved the same issue as is presented in the present case, namely, the status of United States citizens residing in the United States who were shareholders in a Guam corporation electing subchapter S treatment, and that the court in that case did not deny the Guam corporation the right to a subehapter S election. We do not find that case persuasive. It appears that the Government of Guam’s Director of Revenue and Taxation appealed from a summary judgment in favor of the Man-nings who were denied the right to file a joint return and the right to a standard deduction, and General Insurers, which was denied the right to a sub-chapter S election under section 1371(a)(3), Int.Rev.Code of 1954. The Mannings were citizens of the United States and nonresidents of Guam; General Insurers had among its shareholders at least three nonresidents of Guam. The court of appeals affirmed the summary judgment per curiam. The decision of the court is unclear as to the grounds on which it sustained the judgment of the district court with respect to the subchapter S election of the Guamanian corporation and we do not have the benefit of the reasoning of the district court which might have discussed that issue. Moreover, shortly before the court of appeals considered the appeal in the Manning case, Congress enacted a statute which, inter alia, eliminated for Guam the problem with which we are here concerned. We do not regard the case as controlling here.

The taxpayer also argues that in the light of the unusual facts in this case and the confusion and inequity that result when the customary definition of “nonresident alien” is strictly applied in the relationship between the United States and the Virgin Islands for income tax purposes, it is unnecessary and contrary to Congressional intent to categorize the three United States citizen-shareholders as nonresident aliens within the meaning of section 1371(a)(3); that by disallowing the election of the taxpayer to be treated as a subchapter S corporation, the Virgin Islands Government will collect taxes at the corporate level and again will tax the shareholders on those same profits when they are distributed as dividends, which is double taxation, a result which Congress had intended to prevent in enacting subchap-ter S; and, finally, that the obvious purpose of section 1371(a) was to prevent nonresident aliens from escaping taxation under the Internal Revenue Code, which cannot happen under the circumstances of this case since the three shareholders will be required to file tax returns with the Virgin Islands Tax Division and to pay tax thereon, and that they will receive credit for that tax on their United States’ income tax return. These contentions, which the district court found persuasive, we cannot accept. We believe, as we have indicated, that the construction which the Commissioner placed on subchapter S as applied to the Virgin Islands was in accord with the Congressional intent. If it results in some inequity, of which we are not persuaded, the remedy, as the Court of Appeals for the Ninth "Circuit pointed out in the Sayre case, must be sought from Congress not from the courts.

We conclude that the district court erred in holding that the Commissioner of Finance of the Virgin Islands was wrong in denying the taxpayer, Great Cruz Bay, Inc., the right to be taxed under subchapter S of the Code.

The order of the district court will be reversed and the cause remanded with directions to dismiss the petition.

      . “The term ‘nonresident alien individual’ means an individual whose residence is not within the United States, and who is not a citizen of the United States.” Income Tax Regulations, § 1.871-2, 26 C.F.R.

      . “The income-tax laws in force in the United States of America and those which may hereafter be enacted shall be held to be likewise in force in the Virgin Islands of the United States, except that the proceeds of such taxes shall be paid into the treasuries of said islands.” Naval Appropriation Act of 1922, approved July 12, 1921, 42 Stat. 123, 48 U.S.C.A. § 1397.

      . Chicago Bridge and Iron Company v. Wheatley, 3 Cir. 1970, 430 F.2d 973, 974, fn. 1.

      . In passing we note that Congress, by section 307 of the Revenue Act of 1971, 85 Stat. 524, has repealed the Western Hemisphere Trade Corporation provisions of sections 921 and 922 of the Internal Revenue Code as these provisions apply to the Virgin Islands tax laws under the Naval Appropriation Act of 1922.

      . “(a) Small business corporation. — For purposes of this subchapter, the term ‘small business corporation’ means a domestic corporation which is not a member of an affiliated group (as defined in section 1504) and which does not—
      “ (1) have more than 10 shareholders;
      “(2) have as a shareholder a person (other than an estate) who is not an individual;
      “(3) have a nonresident alien as a share- . holder; and
      “(4) have more than one class of stock. . •. .” 26 U.S.C. § 1371(a).

      . In Fulk v. Needham, Inc. v. United States, 4 Cir. 1969, 411 F.2d 1403, 1406, the court said:
      “It is clear that in enacting subchapter S ‘[t]he intention of Congress was to permit small businesses to select the form of organization desired, without the necessity of taking into account major differences in tax consequences.’ A & N Furniture & Appliance Co. v. United States, 271 F. Supp. 40, 42 (S.D.Ohio 1967). Under this legislation, as above noted, the income of the corporation is not taxed to the corporation, but is treated as income to the shareholders. This benefit, however, was not granted without limitation. Congress explicitly set out a number of prerequisites to qualification, and these are contained in § 1371(a).”

      . The legal nature of citizenship in a possession, such as the Virgin Islands, referred to in section 932 of the Code, is far from clear. The attributes of such citizenship as distinguished from United States citizenship are not articulated. We note, however, that under 8 U.S.C. § 1406, in addition to those native Virgin Islanders who were declared by statute on February 25, 1927 to be citizens of the United States, all persons born in the Virgin Islands on or after that date are citizens of the United States at birth. Presumably these persons are also citizens of the Virgin Islands so long as they permanently reside there. We see no basis for thinking that other citizens of the United States who come to make their permanent residence in the Virgin Islands do not thereby also become citizens of the Virgin Islands. Certainly they acquire thereby all the civic rights of local citizens, including the right to vote in territorial elections, as well as all their civic duties, including the duty of jury service and compliance with the local laws. When, however, a Virgin Islands citizen, whether the individual acquired that citizenship by statute, by birth in the territory, by naturalization in the territory or by later residence therein, permanently removes his residence to a state, the District of Columbia, or another territory, it would appear that the Virgin Islands citizenship would terminate because of the automatic acquisition of citizenship in the state, district or territory to which the individual has removed. For under the Fourteenth Amendment to the Constitution a citizen of the United States must reside within a state in order to become a citizen of it and upon acquiring such residence citizenship in the state follows automatically. By the same token acquisition of citizenship in another state or territory by acquiring a permanent residence in it must necessarily terminate citizenship in the state or territory from which the individual has permanently removed. For state citizenship follows domicile. Williamson v. Osenton, 1914, 232 U.S. 619, 34 S.Ct. 442, 58 L.Ed. 758. The law does not contemplate that citizenship in two or more states or territories of the Union can be held by an individual at one and the same time. Krasnov v. Dinan, 3 Cir. 1972, 465 F.2d 1298.
      From these considerations it would seem to follow that in applying the Internal Revenue Code to the Virgin Islands, citizens of the United States residing in the Virgin Islands are, while they permanently reside there, citizens of the Virgin Islands as well, and are, therefore, to be regarded for income tax purposes as resident citizens of the Virgin Islands rather than as resident aliens, and that the concept of citizens of the Virgin Islands permanently residing elsewhere but retaining their territorial citizenship is legally inadmissible, even though this is legally possible for United States citizens. Slaughter House Oases, 1873, 16 Wall. (U.S.) 36, 74, 83 S.Ct. 36, 21 L.Ed. 394.


author: CUMMINGS, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Simon GORDEN, Defendant-Appellant.
    No. 73-1780.
    United States Court of Appeals, Seventh Circuit.
    Heard Feb. 11, 1974.
    Decided April 17, 1974.

      Julius Lucius Echeles, Chicago, Ill., for defendant-appellant.
    Donald B. Mackay, U. S. Atty., Max Goodwin, Asst. U. S. Atty., Springfield, Ill., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, KIL-EY, Senior Circuit Judge, and CUMMINGS, Circuit Judge.
   CUMMINGS, Circuit Judge.

Defendant pleaded guilty to a criminal information for failing, after notice, to deposit in a special bank account in trust for the Government certain taxes of his employees which he withheld from their pay. This was in violation of 26 U.S.C. § 7215. A one-year sentence was imposed. A motion to reduce the sentence was later denied.

On appeal defendant first contends that his guilty plea was without sufficient factual basis. Although the September 29, 1972, notice served upon him pursuant to 26 U.S.C. § 7512 plainly required him to deposit the withheld taxes within two banking days after the taxes were withheld (October 9), he claimed below that oral statements by the agent who served the notice gave him the impression that he was not expected to deposit the taxes until October 16th. Despite this assertion at the sentencing hearing, he told the trial court that he had committed the offense according to the notice and persisted in pleading guilty with the concurrence of his retained counsel. It has been held that defendant’s state of mind does not provide a defense to the Section 7215 misdemeanor charge (United States v. Plotkin, 233 F.Supp. 317, 318 (E.D.Wis. 1964)), so that his plea of guilty had an adequate factual basis as required by Rule 11 of the Federal Rules of Criminal Procedure.

It is immaterial that the statutory scheme does not require willfulness, for taxpayers are protected by the following safeguards: notice must be hand-delivered before a subsequent failure to comply renders one guilty of the misdemeanor. Section 7512(a)(2). Guilt does not attach if the taxpayer can show there was reasonable doubt whether the law required collection of the tax or who was required by law to collect the tax. Section 7215(b)(1). The statute also does not apply to a taxpayer showing failure to comply was due to circumstances beyond his control. Section 7215(b) (2). Willfulness is required under the related felony section of the Internal Revenue Code (§ 7202) and under the civil penalty section (§ 6672). See Monday v. United States, 421 F.2d 1210, 1215 (7th Cir. 1970), certiorari denied, 400 U.S. 821, 91 S.Ct. 38, 27 L.Ed. 2d 48.

Defendant next assails the district judge’s refusal to make his presentence report available. However, the district court disclosed the general nature of the matters in the presentence report on which he relied in fixing the sentence. These were the defendant’s long history of trust fund tax delinquencies and his marital infidelity. This was sufficient disclosure under United States v. Miller, 495 F.2d 362, at 364-365 (7th Cir. 1974). The matters relied on were permissible considerations. 18 U.S.C. § 3577; see also Williams v. New York, 337 U.S. 241, 247, 250, 69 S.Ct. 1079, 93 L.Ed. 1337; United States v. Onesti, 411 F.2d 783, 784 (7th Cir. 1969). Defendant was afforded adequate opportunity to rebut these factors that determined his sentence. Furthermore, the district judge subsequently granted defendant a day’s hearing to enable him to persuade the court that it was misinformed concerning his tax history and family life. Since the district judge explained at the hearing on the motion to reduce the sentence that it was based mainly on defendant’s chronic abuse of trust fund tax obligations and the necessity of deterring others from similar practices, the sentence was not improperly based.

Defendant also contends that his sentence of imprisonment is contrary to the Fifth Amendment because he was unable to pay the taxes and therefore is being imprisoned for debt. This argument was recently rejected in United States v. Patterson, 465 F.2d 360, 361 (9th Cir. 1972), certiorari denied, 409 U.S. 1038, 93 S.Ct. 516, 34 L.Ed.2d 487. The court there stated:

“The argument that he is being imprisoned for debt is specious. Patterson’s misdemeanor was using as his own the tax money he was required by law to withhold from his workmen’s wages and to pay over to the government. Congress had adequate power to punish such conduct.”

To avoid criminal penalties defendant had the choice of going out of business or borrowing the necessary funds to pay his employees’ wages and deposit the withholding taxes, or paying withholding taxes instead of paying other creditors.

We are not persuaded by defendant’s other arguments. Therefore, the judgment is affirmed..

      . Under Section 7501 of the Internal Revenue Code, the amount of the withheld income and social security taxes deducted from defendant’s employees’ wages is to be a special fund in trust for the United States. See In Re Halo Metal Products, Inc., 419 F.2d 1068 (7th Cir. 1969).

      . 26 U.S.C. § 7215 provides:
      “(a) Penalty. — Any person who fails to comply with any provision of section 7512 (b) shall, in addition to any other penalties provided by law, be guilty of a misdemean- or, and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than one year, or both, together with the costs of prosecution.
      “(b) Exceptions. — This section shall not apply—
      “(1) to any person, if such person shows that there was reasonable doubt as to (A) whether the law required collection of tax, or (B) who was required by law to collect tax, and
      “(2) to any person, if such person shows that the failure to comply with the provisions of section 7512(b) was due to circumstances beyond his control.
      For purposes of paragraph (2), a lack of funds existing immediately after the payment of wages (whether or not created by the payment of such wages) shall not be considered to be circumstances beyond the control of a person.”

      . Although it is a permissible consideration, we cannot attach much significance here to marital infidelity. The judge’s comments at the hearing on the motion to reduce the sentence suggests that this was a much less important consideration than defendant’s prior tax delinquencies.


author: FEINBERG, Circuit Judge:

text:
    INDEPENDENT INVESTOR PROTECTIVE LEAGUE, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION and Pan Australian Fund, Ltd., Respondents. INDEPENDENT INVESTOR PROTECTIVE LEAGUE, Petitioner, v. SECURITIES AND EXCHANGE COMMISSION, Respondent (two cases).
    Motion Nos. 5-10, Dockets 73-2607, 73-2662, 73-2549.
    United States Court of Appeals, Second Circuit.
    Argued March 19, 1974.
    Decided April 8, 1974.
    I. Walton Bader, New York City (Bader & Bader, New York City, on the brief), for petitioner.
    Thomas L. Taylor, III, and James H. Schropp, Attys., S. E. C., Washington, D. C. (David Ferber, Sol., Paul Gonson and Theodore Sonde, Asst. Gen. Counsel, Washington, D. C., on the brief), for respondent S. E. C.
    Cleary, Gottlieb, Steen & Hamilton, New York City, for respondent Pan Australian Fund, Ltd.

      Before LUMBARD, FEINBERG and MULLIGAN, Circuit Judges.
   FEINBERG, Circuit Judge:

The Securities and Exchange Commission (SEC) has moved to dismiss the petitions for review in these three related cases on the ground that petitioner Independent Investor Protective League (IIPL) is not “aggrieved” within the meaning of the relevant review provision. 15 U.S.C. § 80a-42.

The substantive issue in these proceedings is the propriety of the SEC’s grant of exemptions to various applicant companies under the Investment Company Act of 1940. To support its standing to raise this issue IIPL cites a number of decisions, but all are distinguishable. E. g., Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 93 S.Ct. 364, 34 L.Ed.2d 415 (1972) (broad definition of standing in Civil Rights Act of 1968); Aguayo v. Richardson, 473 F.2d 1090 (2d Cir. 1973), cert. denied, Aguayo v. Weinberger, 414 U.S. 1146, 94 S.Ct. 900, 39 L.Ed.2d 101 (U.S. Jan. 15, 1974) (at least one individual plaintiff required to participate in welfare program under attack, and plaintiff organizations had members on welfare threatened with such participation). However, a recent Fifth Circuit opinion — Herpich v. Wallace, 430 F.2d 792 (1970) — is squarely on point. This case held that plaintiffs did not have standing under the Investment Company Act when they failed to allege that either they or their corporation held any ownership interest in the investment company, but only claimed that the company was unregistered and dominated their corporation to its detriment. The court stated:

[W]e think it is clear in light of the circumstances under which the Act was passed that Congress intended to provide a comprehensive regulatory scheme to correct and prevent certain abusive practices in the management of investment companies for the protection of persons who put up money to be invested by such companies in their behalf.

430 F.2d at 816 (emphasis added). This interpretation is supported by the purpose of the Act to remedy certain abuses, such as mismanagement of portfolios and changes in the company’s character without stockholder consent, that could harm persons with ownership interests in the company. Herpich v. Wallace, supra, 430 F.2d at 815-816. See Loss, 1 Securities Regulation 149-52 (2d ed. 1961).

IIPL conceded at oral argument that none of its members owns any interest in the companies involved. Cf. Hennesey v. SEC, 285 F.2d 511, 514 (3d Cir. 1961). But we need not go so far as to hold that only investors have standing under the Act since petitioner did not even allege that its members have suffered, or will suffer, actual injury or discrimination. In the absence of any claim of direct injury, we believe that petitioner does not have standing. It is not enough to claim, as petitioner does, that “it is quite conceivable that, in the future,” IIPL members will be investors. “A plaintiff must allege that he has been or will in fact be perceptibly harmed by the challenged agency action, not that he can imagine circumstances in which he could be affected. . . United States v. SCRAP, 412 U.S. 669, 688-689, 93 S.Ct. 2405, 2417, 37 L.Ed.2d 254 (1973). See also Sierra Club v. Morton, 405 U.S. 727, 734-735, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972). Accordingly, we dismiss the petitions for review.

In so holding, we note the contention that in the Pan Australian case, Dkt. No. 73-2607, our decision arguably leaves no one with standing to attack the granting of the exemption since sale of securities in this country is forbidden until that time. 15 U.S.C. § 80a-7(d) (foreign investment company). Even if true, however, this fact is not especially troubling since — as we have already pointed out — the Act was primarily designed to protect existing investors in an investment company’s securities. Moreover, it appears that later holders of ownership interests in the United States can challenge subsequent violations of the Act and obtain redress in the courts. 15 U.S.C. § 80a-42.

Petitioner claims that the SEC cannot raise the issue of lack of standing now since it considered IIPL’s objections in making the challenged orders. This argument is incorrect in assuming that participation in the administrative proceeding before the SEC as an “interested person,” 15 U.S.C. §§ 80a-39(a), 80a-39(c), automatically makes one an “aggrieved person” for the purpose of judicial review. In any event, since the question of standing goes to our jurisdiction, see Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 151, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970), all defenses in the nature of waiver or es-toppel are precluded. Fed.R.Civ.P. 12(h)(3).

Finally, in view of our disposition of the motions, we dismiss the cross-motions of IIPL as moot.

      . Petitioner’s Memorandum in Opposition to Motion to Dismiss at 7.


author: SNEED, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Jose De Jesus LOMELI-GARNICA, Appellant.
    No. 73-3060.
    United States Court of Appeals, Ninth Circuit.
    April 17, 1974.
    Frank T. Vecchione (argued), Federal Defenders, Inc., of San Diego, Cal., for appellant.
    James W. Meyers, Asst. U. S. Atty. (argued), Harry D. Steward, U. S. Atty., Stephen G. Nelson, Stephen W. Peterson, Asst. U. S. Attys., San Diego, Cal., for appellee.
    Before HAMLEY, MERRILL and SNEED, Circuit Judges.
   SNEED, Circuit Judge:

The defendant-appellant, Jose De Jesus Lomeli-Garnica, appeals his convictions for importing from Mexico and possessing with intent to distribute 246 pounds of marijuana. His ground for reversal of his convictions is that his “Mendez-Rodriguez” motion to dismiss all counts of the indictment should have been granted. See United States v. Mendez-Rodriguez, 450 F.2d 1 (9th Cir. 1971).

In support of his contention, the appellant points out that when he was stopped at the Port of Entry at Calexi-co, California he was transporting five passengers consisting of Mr. and Mrs. Villapadua and their three small children, each of whom appeared to be under the age of eight. Following the discovery of the marijuana in the truck and consultations with an Assistant United States Attorney, prosecution of Mrs. Villapadua was declined and she and her children were permitted to return to Mexico. Mr. Villapadua, however, was arrested and detained as, of course, was the appellant. From the date of arrest, July 14,. 1973, until July 26, 1973, Mr. Villapadua was in the custody of law enforcement officials. An attorney for the appellant was appointed on July 20, 1973. On July 26, 1973, Mr. Villapadua was released and permitted to return to Mexico, the Government having decided to decline prosecution. Both Mr. and Mrs. Villapadua entered the United States with their 1-86 cards and neither was deported.

The appellant contends that the failure to detain Mr. Villapadua deprives him of his constitutional rights under the Fifth and Sixth Amendments to examine the witnesses who might be material to the presentation of his defense. We recognized this right in United States v. Mendez-Rodriguez, 450 F.2d 1 (1971), where an indictment was dismissed following the deportation by the Government of three of the six illegal aliens the defendant was attempting to smuggle into this country at the time of his arrest. The possibility of prejudice to the defendant under such circumstances was too great to permit the indictment to withstand a constitutional challenge.

In this case the possibility of such prejudice is remote. Mr. Villapadua was available to counsel of the appellant from July 20 to July 26, 1973. No effort was made by appellant’s counsel to utilize this opportunity. Moreover, Mr. Villapadua was not an illegal alien and as a consequence was not deported by the Government. When released, he merely did the natural thing, viz., he returned home to his wife and children. To detain him subsequent to the time the decision was made not to prosecute under the circumstances of this case would impose on him a substantial hardship for only a remote possibility of benefit to the appellant. Cf. United States v. Romero, 469 F.2d 1078 (9th Cir., 1972) cert. denied 410 U.S. 985, 93 S.Ct. 1512, 36 L.Ed.2d 182; United States v. Verduzco Macias, 463 F.2d 105 (9th Cir., 1972) cert. denied 409 U.S. 883, 93 S.Ct. 173, 34 L.Ed.2d 139.