author: INCH, District Judge.

text:
    THE EMPRESS OF FRANCE. DUBLE v. CANADIAN PACIFIC S. S. CO., Limited.
    District Court, E. D. New York.
    Jan. 27, 1930.
    Harry D. Thirkield, of New York City, for libelant.
    Hardin, Hess, Eder & Freschi, of New York City (H. B. Elgar, of New York City, of counsel), for respondent.
   INCH, District Judge.

Libelant was a passenger on the steamship Empress of France owned and operated by the respondent, Canadian Pacific Railway Company. His trunk was placed in the trunk room of the steamship which room was forward, on F deck, and was entered through No. 3 hatch. This hatch had its top exit at C deck, forward of the main house.

When the ship left Southampton, west bound, January 26, 1926, the top of this hatch was covered by a hatch cover, with the usual strongbacks, and this in turn was covered by a canvas, held in place by bars and wedges.

After the ship had been out from port several days and in the early morning of Sunday, January 31, 1926, this baggage room, in which was libelant’s trunk, was flooded by sea water, which had come aboard and the trunk and its contents damaged.

There is no question here, it seems to me, but that libelant is entitled to recover for his loss unless it has been satisfactorily and dearly shown by respondent that this sea water damage was occasioned by a cause over which respondents and those in charge qf the ship had not the slightest control and against which no human foresight could have prevailed.

In other words, that what happened was unavoidable by skilled navigation.

Accordingly, respondents claim and have offered testimony to show that this sudden flooding of the trunk room was directly caused by an unexpected and extraordinarily large wave which boarded the ship doing great damage. That this was an “act of God” as understood in admiralty. I believe this is so.

“By ‘act of God’ is meant some inevitable accident which cannot be prevented by human care, skill, or foresight, but results from natural causes, such as lightning, tempests, floods, and inundations.” Words and Phrases, First Series, vol. 1, pages 118, 119 (and cases cited); Gans S. S. Line v. Wilhelmsen (C. C. A.) 275 F. 254-261.

It would thus be insufficient for respondent to rely on merely force of rough seas and high waves which were apparently to be encountered from almost the time the ship left port. The Rosalia (C. C. A.) 264 F. 285.

Nor would this defense avail if the negligence of those in charge of the ship contributed to bring about the damage. The Angelo Toso (D. C.) 278 F. 212.

Believing as I do that the respondents are not liable under the peculiar circumstances of this case, it is unnecessary to go into the question, of the passage ticket and its terms.

There is no proof here that those in charge of the ship were negligent, or that the place where the trunk was stored was unsafe or liable to become unsafe. Pearce v. Thomas Newton (D. C.) 41 F. 106; The Zealandia (D. C.) 48 F. 697; The Langfond (D. C.) 143 F. 150; The Del Norte (D. C.) 234 F. 667.

What occurred, as shown by the proof, is within the definition stated in the case of The Maumee (D. C.) 260 F. 862.

The libelant contented himself with offering in evidence the cross-examination of Brown, a witness examined de bene esse by respondent, and the testimony of Buskwood also so taken by the respondents. He thereupon rested.

The respondent then offered in evidence the direct and redirect examination of Brown, the direct examination of Buskwood, it being agreed that none of these witnesses was available for the trial, and then placed upon the witness stand one Dunfinger, supervisor of a shipyard at Hoboken, to which yard the steamship had been taken for repairs, immediately upon completion of her trip, to wit, February 4, 1926. The above completed the proof of both parties to this controversy.

It is unnecessary to state in detail this testimony. Brown was the baggage master of the steamship, at the time, and described the baggage room and what took place in connection with libelant’s trunk together with other baggage both before and after the flooding of the room. His testimony shows that “there was approximately 80 to 100 tons of water in the baggage room” after this wave hit the steamship, and the result, in injury to the baggage in that room, can be imagined.

On his cross-examination, which is relied on by libelant, I find nothing to contradict the fair inferences to be drawn from his other testimony as to the description of the locality and what he found. “He was asleep at the time, which was about 1:15 in the morning,” but immediately “got up and at 1:30 was in the baggage room. He remained up the rest of the night.”

Nor do the statements of Buskwood contradict a finding that the great damage done to the ship, and incidentally this flooding of the baggage room, was caused by a sudden gigantic wave of great force and power, which had descended upon the ship, carrying away rails, twisting steel plats, wrenching' cargo booms out of shape, carrying away 10 ventilators on C deck, breaking all the Lay-cock windows, which were on the promenade deck in steel frames, and actually “setting down” the C deck, an inch and one-half. This deck is approximately 25 or 30 feet from the water and was a wooden deck, consisting of a metal deck covered by 3%-inch planking, besides doing other damage.

This is confirmed by what Dunfinger found at the shipyard. It is a fair inference, in view of the short time that had then elapsed and the circumstances shown, that the result so found by him had been occasioned by such a wave, and that “both this wooden and steel deck and the beams of the ship were set down an inch and one-half.” “That the ship had a sag in that particular section.”

Buskwood, the chief officer of the ship, testifies that he was talking to another officer at the time and “I thought the ship had broken in two” when this wave hit the vessel. He hurried to the deck and saw that “No. 3 hatch is gone.” This left a clear entrance for the sea water to pour into the trunk room, which it did.

This huge and entirely unexpected wave had, thus tom off the exit coverings to the hatch, flooded the baggage room, and sufficiently and directly accounts for the presence in that room of the enormous amount of water and the damage found there as already has been indicated by the baggage master Brown.

I therefore conclude that the libel should be dismissed.


source: Caselaw Access Project

author: ATWELL, District Judge.

license: Public Domain

text:
    In re JOE H. MOORE MOTOR CO., Inc.
    No. 479.
    District Court, N. D. Texas, San Angelo Division.
    April 25, 1931.

      Wright & Yowell, of San Angelo, Tex., for the creditor.
    Lee Upton, of San Angelo, Tex., for the trustee.
   ATWELL, District Judge.

The First State Bank of Big Lake filed a claim for $10,000, asserting a lien upon certain furniture, fixtures, and shop equipment, by virtue of a chattel mortgage. The trustee contended that the description of the property in the mortgage was insufficient to permit the allowance of the claim as secured. The referee sustained the trustee’s contention.

The mortgage is written upon a blank, which was evidently intended for a cattle mortgage. The latter portion of the typewritten part reads as follows: “Furniture and fixtures. Also all shop equipment inventory, $2211.09. Also second hand cars; all real estate inventory, $4500.00, all buildings, inventory, $5546.20.”

The mortgagor is described as: “ * * * We, Joe H. Moore Motor Company, Ine., Joe H. Moore, manager, Big Lake, Texas, of the county of Reagan, in the state of Texas, party of the first part.”

In a paragraph near the bottom of the blank are the following words: “For the purpose of obtaining at this time a loan of the money represented by the note aforesaid, the first party represents that he is the absolute owner of all said above described chattels, that the description, age, marks, and brands, are as stated. That said property is free from any incumbrances, and that same is now in his possession at the place described in this mortgage.”

Immediately following the typewritten part of the mortgage are these words, the sentence beginning with a small letter, and evidently being printed in the blank to continue what was thought to be a description of cattle, “being all of the cattle owned by the first party bearing said marks and brands, whether in excess of the above numbers or not; together with all increase and offspring of said cattle. The marks and brands used above and describing the said property are the holding marks and brands and carry the title, although said property may have other marks and brands.”

These proceedings are at equity. The chancellor looks to the substance of things. Justice and such aids and construction as assist in affording such result are welcomed.

We may, therefore, ignore the last above-quoted immaterial and unassisting language which has no purpose in the contract between the parties. The paragraph taken from the same blank, which was evidently overlooked by the trustee and by the referee, is in complete harmony with the transaction between the mortgagor and mortgagee, and assists in carrying to a fruition what they evidently intended. Henee it may be considered a part of the contract.

The first part of the typewritten paragraph which contains a statement of the property given as security sets out a number of automobiles, giving the make and motor number, and satisfactory description. Then follows the above-quoted portion with reference to furniture, fixtures, shop equipment, secondhand cars, real estate, and buildings. The face of the mortgage informs the creditor or any other prospective dealer with the mortgagor that the mortgagor was the Joe H. Moore Motor Company, and that Joe H. Moore was the manager, and that' its' place of business was Big Lake, Reagan county, Tex., and that the mortgagor had granted, bargained, sold, assigned, and delivered, to the First State Bank, mortgagee, all of the articles of personal property described in the typewritten schedule which followed. The mortgage also informed such inquirer that the property was in the possession of the mortgagor, and that it was at the place described in the mortgage. These statements meant that the property was in the possession of Joe H. Moore Motor Company at Big Lake, Reagan county, Tex.

The text authorities, led by eleventh Corpus Juris, 465, agree that, “when neither the location, the ownership, nor the possession of the property is stated in the mortgage it is ordinarily fatal to the description. And in all eases the location' of the property mortgaged must be stated, where the property cannot otherwise be sufficiently identified, or it is not otherwise sufficiently described, and in such ease an erroneous statement of the location invalidates the mortgage as to third persons, without notice. Ordinarily, however, a statement of location is but one of several elements of the description, and where the property is otherwise sufficiently described it may be omitted, or if erroneously stated, may be rejected as surplusage. In any event, as between the parties, an erroneous statement of the location will not affect its validity. As a general rule, the location of the mortgaged property is sufficiently stated if the instrument suggests inquiries which, if pursued, would enable third persons to ascertain the situation thereof at the time of the execution of the mortgage. * * * The location of the property is sufficiently indicated by a recital that the mortgagor is the owner and has possession, and that he resides at a stated place, or where such facts may be reasonably inferred from the entire instrument.”

The trustee stands in the shoes of a most favored creditor. But one who so stands is charged with the notice of such facts as would put him upon inquiry, which, if pursued, would disclose what the mortgage covers. Likewise, when the mortgagor, at the time of giving the mortgage, owns no other property, a description which would be insufficient if there were other property will be held sufficient.

A mortgage given by one upon property which is displayed in the market place of the giver must be inj substantial harmony with the foregoing rules, otherwise the innocent may suffer and the trader may be misled into believing that his customer is solvent by reason of the display of property, when, as a matter of fact, the customer may be insolvent or heavily burdened with debt.

It would seem, however, that all of these legal cautions and markings for safety in business are sufficiently recognized in the mortgage of the bank. The location of the property, its possessor, its character, and its value are disclosed. Cases that are interesting to one studying the point are: Johnson v. Brown (Tex. Civ. App.) 65 S. W. 485; Conley v. Bank (Tex. Civ. App.) 181 S. W. 271; Handley v. Gin Co., 87 Tenn. 109, 9 S. W. 372; Childress v. First State Bank of Barnhart (Tex. Civ. App.) 264 S. W. 350; Farmers’ & Merchants’ Bank v. Howell (Tex. Civ. App.) 268 S. W. 776; Radford v. Bacon Securities Co. (Tex. Civ. App.) 18 S.W.(2d) 848; Watson v. Paddleford & Son (Tex. Civ. App.) 220 S. W. 779; Solinsky v. O’Connor (Tex. Civ. App.) 54 S. W. 935; Maloney v. Greenwood (Tex. Civ. App.) 186 S. W. 228; Alferitz v. Ingalls (C. C.) 83 F. 964, 966.

It is unnecessary to suggest that language which seeks to fix a lien upon a part of a lot of property without showing which part of such lot is so incumbered would be insufficient. In re Schuller (D. C.) 108 F. 591. But no such criticism may be successfully urged in the present case. The lien covers furniture and fixtures, all of the same, doubtless. Also all shop equipment; all secondhand cars; all real estate; and all buildings.

It seems that the referee was in error, and an order will be drawn allowing the claim as a secured claim.


author: BYERS, District Judge.

text:
    CURTIS LIGHTING, Inc., et al. v. MUTUAL SUNSET LAMP MFG. CO.
    No. 5404.
    District Court, E. D. New York.
    April 21, 1931.
    Dodson & Roe, of New York City, for plaintiffs.
    C. P. Goepel, of New York City, for defendant.
   BYERS, District Judge.

The defendant has'appeared specially, filing a notice of motion “to test the jurisdiction of this court, upon the bill of complaint and exhibits,” because (a) the action is not one arising under the patent laws, and (b) the bill of complaint alleges no facts showing that more than $3,000 is involved in the controversy.

The bill alleges that the plaintiffs are Illinois corporations, and that the defendant is a New York corporation having a place of business in this district; that this is a suit in equity, under the patent laws of the United States, for infringement of United States letters patent No. 1,164,720, “and is also a suit to recover royalties, the jurisdiction of the Court resting upon the diversity of citizenship of the parties and the fact that there is more than $3,000.00 involved in the controversy.”

The title to the letters patent in the first-named plaintiff is set forth, and that it is now the sole and exclusive owner and entitled to exercise all the rights thereunder, except that it has granted to the second-named plaintiff a license and the right to grant licenses. That the plaintiffs are engaged in the manufacture of devices constructed in accordance with the disclosures and teachings of the said letters patent, namely, devices adapted to permit the quick and easy placement, adjustment or removal of a shade in connection with an indirect' lighting reflector. That a large business has been built up by the first-named plaintiff and its licensees, involving the investment of large sums of money, and reaping of profits and a resultant good-will. That the trade and public generally have recognized and acquiesced in the validity of the said letters patent, and that an essential fae.tor in the growth of the good-will has been the superior quality, both in material and workmanship, of the devices manufactured and distributed by the first-named plaintiff and its licensees. That the plaintiffs have always given due notice to the trade and to the public of the existence of the said letters patent, and have required all licensees to do likewise.

That the defendant is one of the said licensees, under an agreement of June 4, 1930, copy of which is attached to the bill; whereby it obtained the right to manufacture lamps under the said letters patent, and agreed to attach to all such lamps, so manufactured by it, a name plate or label indicating a license under the said letters patent, but, notwithstanding said agreement, the defendant has sold and is continuing to sell lamps which infringe the claims of the said letters patent but which do not bear the said license tag and for which no royalty has been paid, and the defendant has continued to and now is selling the infringing merchandise in question.

That the unmarked devices which the defendant is selling, threatening to sell, and exposing and offering for sale, so closely resemble the patented devices that they are direct infringements of the patent, and are of material and workmanship which are inferior to those pertaining to the devices manufactured by the first-named plaintiff and its licensees. -

That inferior -workmanship and material result in inefficient devices, which cause dissatisfaction with the users and among the trade; that, in order to insure the use of the proper material and workmanship, the plaintiff has granted only six licenses, as the result of which the license label under the patent is said to indicate workmanship and material of the highest character; that the defendant is now engaged in manufacturing and selling lamps in accordance with the teachings of the said patent but of very inferior workmanship and material; that this conduct is causing irreparable damage to the good-will of the plaintiff, and that the defendant, by offering to sell at low prices colorable imitations of the plaintiff’s said patented device but of inferior material and workmanship, is seriously injuring the plaintiff’s business, and will destroy the good-will of the business; that this conduct of the defendant has seriously injured the business of plaintiff’s other licensees, who are unable to meet such low prices, because they live up to the requirements of the license agreement; that the defendant has sold large numbers of such lamps of inferior construction, etc., without the said license tag, and, in violation of paragraph 7 of the license agreement, has refused the plaintiff an opportunity to inspect the defendant’s books.

That the plaintiff has spent large sums of money in advertising its business and the fact that there are only six licensees under the said patent, of which condition the defendant has taken advantage as recited.

The relief asked for is that the defendant be required to make answer to the several allegations of the bill; that the defendant be decreed to account for and pay over to the plaintiff the income and profits thus unlawfully derived, and to produce its records in order that the amount justly due to the plaintiff may be computed; and that triple damages be awarded by virtue of the willful, unjust and unfair infringement by the defendant; that an injunction be granted, preventing further infringement by making, using and selling, etc., devices which embody the invention covered by, or which infringe the claims of, the said patent, without the license tags, and enjoining the defendant from distributing catalogues, etc., advising the -buying trade and the purchasing public that the defendant intends to sell such devices without said tags; that a provisional injunction be issued to prevent the infringement by the defendant of said patent by selling said lamps without tags as provided in the license agreement, pending the determination of this cause; that the plaintiff recover costs and disbursements, and that the plaintiff be afforded such other and further relief, etc.

The license agreement annexed to the bill recites: The ownership of the patent in the first-named plaintiff, and the desire on the part of the defendant to manufacture, use and sell devices containing the patented improvements, and the consideration upon which the agreement is founded; that the licensor, the second-named plaintiff, licenses the defendant to manufacture, use and sell, or cause to be used and sold, devices or articles containing the improvements or the invention set forth in said letters patent; and relief to the defendant in case of the invalidity of the said letters patent thereafter declared by a competent court of last resort. The agreement of the licensor to form an Illinois corporation for taking and holding title in and to a license under the said letters patent, under the same and identical conditions under which license is now held and enjoyed by said licensor from the first-named plaintiff, etc. (This provision seems not to be important for present purposes.)

That the licensor shall forthwith prepare and adopt a set of specifications for the making or manufacture or production of devices constructed in accordance with said letters patent, of a standard of quality, and that the devices so made, etc., by the licensor and the licensee shall accord with the requirements of said specifications, and that said devices shall not fall below or become inferior thereto.

That all devices constructed by either the licensor or the licensee shall bear a name plate or label to be prescribed and furnished by the second-named plaintiff, upon which there shall be presented “Licensed Under U. S. Patent No. 1,164,720 and other Patents pending” and the name of the licensee, or matter equivalent thereto, and no device constructed in accordance with said patent shall be marked or merchandised -by either the licensor or the licensee without such notice of licensing attached or applied thereto.

That the licensee agrees to pay $1.50 as a license fee upon every device manufactured by it, containing the patented improvements in connection with which the said patent is issued, and to make full and complete returns, etc.

That the licensee will keep hooks showing the number of patented devices manufactured or caused to be manufactured under the said license agreement; that the license may be terminated as the result of fifteen days’ default in the matter of the payment of license fees.

That not more than six licenses have been granted under the said patent; that all advertising matter relating to the patented device shall be suitably marked with the notice heretofore specified; that the parties will render their mutual assistance in any suit involving the said patent; that the licensee will pay to the second-named plaintiff the amount due for past infringement; that additional licenses in the territory east of Cleveland are limited; that the licensor will prosecute infringements of said letters patent.

The remaining provisions are not of present importance.

A reading of the bill creates the impression that the plaintiffs claim that the defendant has infringed the patent in question by making and selling devices which infringe the patent, of inferior workmanship and material, and that the plaintiffs are entitled to the usual protection against such infringement. The prayer for relief seems to show that the plaintiffs are seeking to be protected from this form of infringement and incidentally to recover profits arising therefrom; while the second paragraph of the bill states that this is a suit to recover royalties, there is no such prayer for relief.

In the case of Luckett v. Delpark, Inc., 270 U. S. 496, 46 S. Ct. 397, 401, 70 L. Ed. 703, the District Court for the District of New Jersey had dismissed a bill for want of jurisdiction, where an accounting and damages were sought under license agreements, as was cancellation of the said agreements, and injunction against future infringement of patents. The decree was affirmed by the Supreme Court, and the opinion, in part, reads as follows:

“The result of these eases is, that a federal district court is held to have jurisdiction of a suit by a patentee for an injunction against infringement and for profits and damages, even though, in anticipation of a defense of a license or authority to use the patent, the complainant includes in his bill averments intended to defeat such a defense. If these averments do not defeat such defense, the patentee will lose his ease on the merits, but the court’s jurisdiction under the patent laws is not ousted. The error in Hartell v. Tilghman [99 U. S. 547, 25 L. Ed. 357], supra, was in denying jurisdiction under the patent laws when the patentee based his action broadly on his patent and averment of infringement seeking injunction and damages. His averments intended to constitute a reply to the anticipated defense that the defendant was a licensee did not change the nature of his declared choice of a suit under the patent laws. This, under the principle now established by the later cases, and especially The Fair v. Kohler Die & Specialty Company [228 U. S. 22, 33 S. Ct. 410, 57 L. Ed. 716] and Healy v. Sea Gull Specialty Company [237 U. S. 479, 35 S. Ct. 658, 59 L. Ed. 1056] is clear. But the present qualification of the Hartell Case does not affect the principle laid down in Wilson v. Sandford [10 How. 99, 13 L. Ed. 344], that where a patentee complainant makes his suit one for recovery of royalties under a contract of license or assignment, or for damages for a breach of its covenants, or for a specific performance thereof, or asks the aid of the Court in declaring a forfeiture of the license or in restoring an unclouded title to the patent, he does not give the federal district court jurisdiction of the cause as one arising under the patent laws. Nor may he confer it in such a case by adding to his bill an averment that after the forfeiture shall be declared, or the title to the patent shall be restored, he fears the defendant will infringe and therefore asks an injunction to prevent it. That was Wilson v. Sandford. If in that case the patentee complainant had based his action on his patent right and had sued for infringement, and by anticipation of a defense of the assignment had alleged a forfeiture by his own declaration without seeking aid of the court,, jurisdiction under the patent laws would have attached, and he would have had to meet the claim by the defendant that forfeiture of the license or assignment and restoration of title could not be had except by a decree of a court, which if sustained, would have defeated his prayer for an injunction on the merits. But when the patentee exercises his choice and bases his action on the contract and seeks remedies thereunder, he may not give the ease a double aspect, so to speak, and make it a patent ease conditioned on his securing equitable relief as to the contract. That is the principle settled by Wilson v. Sandford and is still the law.”

In this bill, the plaintiffs do not seek to recover royalties or to have the license forfeited, if the bill is rightly understood. The relief that they seek is the prevention of the manufacture and sale by the defendant of devices which actually infringe those described in-the letters patent.

If the defendant is making and selling devices which infringe the patent, it cannot be saved from the consequences of that conduct because' it also makes and sells other devices in accordance with the license agreement and pays royalties as therein provided. It is thought that it would be manifestly unfair to hold that the plaintiff has forfeited its right to prevent infringement of the patent, by granting the license in suit and thus enabling this defendant to make and sell noninfringing devices as part of its activities.

The bill, as so construed, does not seek to recover royalties, but to prevent the infringement of the plaintiff’s patent, and to secure an accounting for profits arising from what is said to be an infringement.

If it be argued that what is really charged is that this defendant is paying license fees on only a fraction of its output of the devices covered by the license, and therefore the plaintiff’s only remedy is for breach of that contract, the answer is that the bill is not so cast.

The infelicity of the quoted portion of paragraph 2 is not reflected in the remaining allegations; paragraph 8 clearly asserts that the defendant is infringing by selling unmarked devices of inferior material and workmanship, which closely resemble the device covered by the letters patent and therefore by the license. It is that alleged activity which the plaintiff is seeking to prevent.

If the matters discussed are correctly understood, so much of the bill as invokes the jurisdiction of this court, to prevent infringement of the plaintiffs’ patent, is legally sufficient, and the objection touching the amount in controversy does not require present consideration.

Motion denied. Settle order.


author: LINDLEY, District Judge.

text:
    MILWAUKEE AMERICAN ASS’N et al. v. LANDIS (BENNETT, Intervener).
    No. 9871.
    District Court, N. D. Illinois, E. D.
    April 21, 1931.
    Burry, Johnstone, Peters & Dixon, of Chicago, 111., and Swarts, Reyburn & Kawin, of St. Louis, Mo., for plaintiffs.
    David D. Stansbury, of Chicago, 111., for intervener Bennett.
    George W. Miller and Busby, Weber, Miller & Donovan, all of Chicago, 111., for defendant.
   LINDLEY, District Judge.

The original bill, filed by Milwaukee Association (herein termed the Milwaukee Club), sought to enjoin defendant, as commissioner of organized baseball, from disapproving an optional contract between the St. Louis American League (herein termed the St. Louis Club) and said plaintiff, assigning to Milwaukee a then existing agreement between the intervener, Bennett, as player, and the St. Louis Club, as owner, but reserving the right to recall Bennett to St. Louis. By stipulation of the parties, application for injunction was not pressed, and Bennett was allowed to play with Milwaukee until the end of its season. In September, 1930, he was returned to St. Louis, and the amended supplemental bill was filed with the St. Louis Club as additional plaintiff. In that bill plaintiffs seek to restrain the commissioner from interfering with the relation between Bennett and plaintiffs or either of them or with Bennett’s contract with St. Louis and any assignment thereof previously or subsequently made. The commissioner answered that his action and what he proposed to do, if not enjoined, are clearly within his authority and in accord with the contracts and rules governing organized baseball. Bennett intervened, insisting that the commissioner is justified in his position and asserting that, because of plaintiffs’ actions, he (Bennett) should be relieved of his contract relationships with them.

The code governing organized baseball is made up of: (1) The Major League agreement between the two Major Leagues and their sixteen constituent clubs; (2) Major League rules in code form, duly adopted, binding upon all of the Major League Clubs; (3) Major-Minor League agreement between the two Major Leagues on the one part and the National Association of Professional Baseball Leagues, otherwise known as the Minor Leagues, on the other part; (4) Major-Minor League rules; (5) National Association agreement, that is, the contract between all of the official Minor Leagues included within the National Association.

Plaintiff St. Louis Club is a member” of the American Major League!. All other clubs herein concerned belong to official Minor Leagues.

Under the Major League agreement the office of commissioner was created, and his functions were defined as follows:

“(a) To investigate, either upon complaint or upon his own initiative, any act, transaction or practice charged, alleged or suspected to be detrimental to the best interests of the national game of baseball; with authority to summon persons and to order the production of documents; and, in case of refusal to appear or produce, to impose such-penalties as are hereinafter provided.
“(b) To determine, after investigation, what preventive, remedial or punitive action is appropriate in the premises, and to take such action either against Major Leagues, Major League Clubs or individuals, as the ease may be.”

He was given jurisdiction to hear and determine finally any disputes between leagues and clubs or to which a player might be a party, certified to him, and authorized, in case’ of “conduct detrimental to baseball,” to im-' pose punishment and pursue appropriate le-' gal remedies; to determine finally a disagree-' ment over any proposed amendment to the rules; and “to take such other steps as he might deem necessary and proper in the interest and morale of the players and the hon-j or of the game.” Optional agreements with players were defined and assignments there-' of required to be filed with, and approved by, the commissioner. The parties agreed to’ abide by the decisions of the latter and the discipline imposed by him under the agreement and severally waived right of recourse to the courts. Similar covenants appear in' the Major-Minor agreement, the. National Association agreement and the uniform contracts with players.

The Major-Minor League agreement ree-. ognizes the office of commissioner and the ju-risdietion aforesaid and provides that, in ease of any dispute between any Major club, and any Minor club, the disputants may cer-, tify the dispute to the commissioner for de-. cisión, and that his determination shall be. final.

The various agreements and rules, con-, stituting a complete code for, or charter and, by-laws of, organized baseball in America,.-' disclose a clear intent upon the part of the parties to endow the commissioner with all, the attributes of a benevolent but absolute, despot and all the disciplinary powers of the proverbial pater familias.

Bennett, in July, 1926, being under contract to play for Little Eoek, was by it as-’ signed to the Tulsa Club (class “a” of the Minors), with whom he played the remainder" of 1926 and all of 1927. On April 5, 1928, Tulsa, with the approval of the commissioner, assigned its agreement with Bennett to St. Louis, and Bennett signed a contract with the latter for 1928. On May 10, 1928, St.! Louis assigned this contract to Tulsa under an optional agreement, approved by the commissioner, retaining the right to recall Bennett. On May 25, 1928, St. Louis, having previously requested waivers of all other Major clubs, as required by the rules, canceled the reserved right to claim Bennett. The commissioner thereupon notified the National Association that St. Louis had canceled its option. On May 11, 1928, Bennett signed a contract to play with Tulsa for the remainder of 1928. On September 10, 1928, Tulsa assigned this contract- to the Milwaukee Club (class “aa” of the Minors).

On December 5, 1928, Milwaukee, having previously obtained waivers from the seven other clubs of its league — the American Association — assigned its contract with Bennett to the Wichita Falls Club (class “a,” Minor League) for $4,500, and Bennett signed a contract with that club for 1929. On September 6, 1929, Pittsburgh offered Wichita Falls $10,000 for Bennett and was advised by the latter that it had already submitted a proposition to St. Louis upon the player and that, if St. Louis did not take him, it would take the matter up further with Pittsburgh. On September 10, 1929, Wichita Falls assigned Bennett’s contract to St. Louis for $5,000. In January, 1930, St. Louis requested from all other Major League clubs waivers upon their right to claim the services of Bennett. The New York American Club and the Pittsburgh Club each claimed him and offered St. Louis $7,500 for its contract. St. Louis did not accept the offer of either of the claiming clubs and on or about January 30, 1930, withdrew its request for waivers. On March 9, 1930, Bennett signed a contract with St. Louis for 1930. On April 7, 1930, St. Louis executed an optional agreement, assigning the player to Milwaukee, but reserving an option upon him. This contract was forwarded to the commissioner’s office for approval, and was received by him on April 9, 1930. On April 10, 1930, Bennett signed a ■contract with Milwaukee for 1930 and finished the season there under the stipulation of the parties hereinbefore mentioned.

Upon receipt of the copy of the optional assignment by St. Louis to Milwaukee, the commissioner instituted an investigation of the stock holdings of Ball, president and principal stockholder of the St. Louis Club, in various Minor League clubs and on June 19, 1930, notified St. Louis and Milwaukee that he disapproved the assignment of Bennett to Milwaukee; that Bennett should be returned to St. Louis, which must either retain him as a Major League player for the year or longer, transfer him outright to ■some club not controlled or owned by St. Louis or its owners or release him unconditionally. Milwaukee then filed its original bill herein, and after the completion of the season, Bennett returned to St. Louis upon its recall, and the latter and Milwaukee filed the amended supplemental bill.

On September 3, 1930, St. Louis asked for waivers on Bennett, and Pittsburgh claimed his services, whereupon St. Louis withdrew its request for waivers. The offer of the Pittsburgh Club at that time was $7,500.

The investigation of the commissioner disclosed that Mr. Ball, since February 16, 1928, by reason of stock ownership and otherwise, has completely controlled the clubs of St. Louis, Tulsa and Wichita Falls and that since July, 1927, he has owned 50 per cent, of the stock of the Milwaukee Club and since January 19, 1929, completely controlled that club.

The commissioner on June 19, 1930, after stating the facts, said that it was clear that, between the time of his “outright” transfer to St. Louis and his reacquisition by that club, the player had had two seasons of Minor League services with clubs controlled by Ball, during which time the St. Louis Club could at any time have reacquired him (because of such control) just as effectively as if it had retained an option upon him. Notwithstanding these facts, he observed, St. Louis proposed to transfer Bennett for the third successive season to a Minor club without securing Major League waivers. The commissioner concluded that Bennett, whose services had been at all times subject to the one club owner’s control, through control of the clubs holding ostensible title to his services, could not be regarded as a purchased player as of the date of the last purchase, within the- purpose and intent of the Major League rules; that the period within which Bennett could be optioned without waivers expired on April 5, 1930, the end of two years from the date of the original acquisition by St. Louis and that that period, expressed in the rules, could not be extended by the process of apparent outright transfer back and forth amongst clubs actually controlled by one individual.

The question for decision, therefore, is whether, under the code governing organized baseball, an individual controlling a Major League club may so manipulate his control of a number of Minor League clubs also as in the end to achieve a situation whereby a player originally acquired by purchase by the Major club thus controlled may be sold and transferred back and forth from the Major club to the Minor clubs and from the Minor clubs to the Major club for an indefinite period of time, in excess of two years, under apparent outright sales agreements, without disclosing to other Major clubs the secret control mentioned and without furnishing opportunity to them to claim the player’s services.

The parties endowed the commissioner with wide powers and discretion to hear controversies that might be submitted to him and of his own initiative to observe, investigate and take such action as necessary to secure observance of the provisions of the agreements and rules, promotion of the expressed ideals of, and prevention of conduct detrimental to, baseball. The code is expressly designed and intended to foster keen, clean competition in the sport of baseball, to preserve discipline and a high standard of morale, to produce an equality of conditions necessary to the promotion of keen competition and to protect players against clubs, clubs against players and clubs against clubs.

Under the rules, a Major League club may assign a player to a Minor League club, but each of the Major clubs must be given an opportunity to take an assignment; and it is only when no such club refuses to waive such opportunity that the player may be sent to .a Minor club. There is an exception to this, however, in the Major-Minor rules, which is as follows:

“The contract of a player signed as a free agent or acquired from a Minor League Club otherwise than by selection, may be assigned to a Minor League Club, under approved optional agreement, within two years (from date of signing contract, in the case of a free agent; and from date of original transfer agreement recorded with the Secretary-Treasurer of the Advisory Council, in the case of a player acquired from a Minor League Club without giving opportunity to the other fifteen Major League clubs to take such contract through the regular waiver channels; provided, that no such player may be assigned outright, or right of recall can-celled, unless waivers shall have been asked and granted; and provided, further, that such player shall not, in either ease, have been in active service in either or both Major Leagues an aggregate of two full championship seasons, or been transferred under optional assignment by a Major League Club two or more seasons.”

Bennett was acquired from a Minor ' League club otherwise than by selection in April, 1928. Section 13 (b) 1 provides that an optional agreement shall be permitted for not more than two successive seasons in the case of any one player. Under section 13 (g), the right of a Major League club to a player, except under an optional agreement, approved by the commissioner, ceases when the player becomes a member of the Minor League club, and no arrangement between clubs for the loan or return of a player other than by an approved optional agreement shall be binding by the parties to it or be recognized by other clubs. A club may assign to another club an existing contract with a player. Uniform contracts are required providing that the player will not play during said year with any club other than the one to whom he is assigned. The rules forbid tampering with ball players and enjoin negotiations respecting employment, unless the club with which a player is connected shall have expressly authorized such negotiations, recite that the supply of signed players is not equal to the demand and create definite limits of players for each club. It is agreed that no organization and no individual, player, or owner may by subterfuge or indirection evade the provisions of the code.

The code provides for a selection period of five days at the time of the "World’s series, during which a Major club may indicate or select one player in a Minor club subject to selection, the assignment of whose contract is desired. The player so acquired is known as a “selected player.” Under this method, preference is given to the weaker clubs; the purpose being to strengthen them over the stronger clubs by giving them first choice selection. No agreement is to be made between a Major club and a Minor club or between two Minor clubs for the purpose or with the effect of covering up a player from selection.

A Minor club is not compelled to accept the system of selection. Milwaukee and Tulsa were not, but Wichita Palls was, subject to selection. However, under the agreement of May 10, 1928, which St. Louis executed with Tulsa when it returned Bennett to Tulsa, Bennett was made subject to selection, notwithstanding that he might thus be acquired by some club exempt from selection. These and other provisions disclose an intention to preserve the right of selection and increase the number of players subject to offer from Major Leagues, and thus to enable them to advance in their profession.

A club may terminate its relationship with the player by release or assignment, but, before a Major club can release a player unconditionally, it must give every other Major club an option to waive or to refuse to waive on the player. Thus the opportunity of the player of remaining in Major baseball is enhanced.

It is apparent that Ball, by controlling the St. Louis, Wichita Falls, Tulsa, and Milwaukee Clubs and, in addition Springfield, Mo., is and has at all times since April 5, 1928, been able at his own discretion to direct the transfer of Bennett at any time from any one of these clubs to any other of them without asking for waivers from Major League clubs. Though there is nothing in the rules to prohibit an individual owning control of a Major League club from likewise owning control of Minor League clubs, the intent of the code is such that common ownership is not so to be made use of as to give one individual, controlling all of the clubs mentioned, the absolute right, independent of other clubs, to control indefinitely a player acquired and switched about by apparent outright purchases.

Prior to publication of the fact that St. Louis and the Minor clubs concerned are all under one man’s control, no one had knowledge thereof except Ball and his associates. Apparently Bennett did not know of this control, and the commissioner had no such knowledge until, after first having vainly endeavored to secure the information from Ball, he made a complete investigation. Therefore, when, on April 7, 1930, Bennett was assigned and contracted to go to Milwaukee, he .did not know that he was being sent to a club controlled by the same man who controlled the selling club. When we remember that this transfer to Milwaukee was in the face of an offer of $10,000 for Bennett by Pittsburgh, it is apparent that St. Louis was at work to keep* Bennett’out of the Major Leagues in the Minors; to keep control of Bennett’s services; and to prevent any Major club from securing his services. If the plaintiffs’ position were to prevail, this situation might continue indefinitely, and the commissioner would be powerless to prevent the same, even though such conduct is detrimental to the national game of baseball and violative of the intent of the provisions of the code.

We have observed that, in addition to his jurisdiction over disputes certified to him, the commissioner is empowered to investigate upon his own initiative any act, transaction, or practice charged or alleged to be detrimental to the best interests of baseball, to determine what preventive, remedial, or punitive action is appropriate in the premises and to take such action against leagues or clubs as the case may require. Certain acts are specified as detrimental to baseball, but it is expressly provided that nothing contained in the code shall be construed as exclusively defining or otherwise limiting acts, practices or conduct detrimental to baseball. It is contended that this phrase should be so construed as to include only such conduct as is similar to that expressly mentioned. However, the provisions are so unlimited in character that we can conclude only that the parties did not intend so to limit the meaning of conduct detrimental to baseball, but intended to vest in the commissioner jurisdiction to prevent any conduct destructive of the aims of the code. Apparently it was the intent of the parties to make the commissioner an arbiter, whose decisions made in good faith, upon evidence, upon all questions relating to the purpose of the organization and all conduct detrimental thereto, should be absolutely binding. So great was the parties’ confidence in the man selected for the position and so great the trust placed in him that certain of the agreements were to continue only so long as he should remain commissioner.

Plaintiffs contend that the commissioner has no power to declare a player a free agent. In his answer, the commissioner states that it is his view that, by reason of the alleged breach of the code by plaintiffs and their denial of Bennett’s rights, plaintiffs have made it his duty to declare Bennett absolved from any contractual obligations which he may have had with either plaintiff and to declare him a free agent. Obviously declaring Bennett a free agent is a mere declaration of legal effect, that is, the result of finding that the St. Louis Club has forfeited its rights by violating the spirit and intent of the code. Whether there is given to the commissioner the power in so many words to declare Bennett a free agent is immaterial, since the agreements and rules grant to the commissioner jurisdiction to refuse to approve Bennett’s ássignment by St. Louis to Milwaukee, and to declare him absolved from the burdens of the same and of his contract with St. Louis.

Plaintiffs complain that the commissioner’s declaration will deprive St. Louis of the benefits of its contract with Bennett. ' Obviously this is true, but, if St. Louis’ conduct has been such as to entitle Bennett to be relieved therefrom, that club cannot complain, because it has created the situation resulting in the loss of his services. During three successive seasons St. Louis, apparently with an intent so to do, prevented Bennett from playing in any Major League, and that club, through its owner and controller, Ball, and through his control of Tulsa, Wichita Falls, and Milwaukee, has been able to accomplish that which the two-year rule hereinbefore referred to plainly forbids.

It is asserted that this wide grant of jurisdiction of the commissioner is an attempt to deprive the court of its jurisdiction and that such a provision as is contained in these agreements, rules, and uniform contract is contrary to publie policy. No doubt the decision of any arbiter, umpire, engineer, or similar person endowed with the power to decide may not be exercised in an illegal manner, that is fraudulently, arbitrarily, without legal basis for the same or without any evidence to justify action. The many eases cited upon the power and jurisdiction of such officials are not in serious conflict. An agreement to arbitrate a controverted question and to deprive all courts of jurisdiction, so long as in executory form, is quite commonly held void, but an actual submission to an arbiter or umpire in good faith is proper, and decision under same is binding, unless it is unsupported by evidence, or unless the decision is upon some basis without legal foundation or beyond legal recognition.

Plaintiffs submitted to the defondant as commissioner an optional contract, which under the code could not be effective unless approved by him. After ascertaining the facts, he refused to approve the same. This, if we look at it from the point of arbitration, was an executed agreement for arbitration, and called for more than ministerial action. As we have seen, the commissioner is given almost unlimited discretion in the determination of whether or not a certain state of facts creates a situation detrimental to the national game of baseball. The commissioner rightfully found that the common control of St. Louis and the named Minor Clubs by one person made it possible to create a situation whereby the clear intent of the adopted code that the players under the control of a Major club should not be kept with a Minor club more than two successive seasons without giving other Major clubs the right to claim him was clearly violated, and a result achieved highly detrimental to the national game of baseball. The facts negative any assertion that this decision was made arbitrarily or fraudulently. It was made in pursuance of jurisdiction granted to the commissioner with the expressed desire to achieve certain ends, that is, to keep the game of baseball clean, to promote clean competition, to prevent collusive or fraudulent contracts, to protect players’ rights, to furnish them full' opportunity to advance in accord with their abilities and to prevent their deprival of such opportunities by subterfuge, covering or other unfair conduct. Without control by St. Louis, Wichita Falls would not have accepted $5,000 from St. Louis for Bennett after Major clubs' had offered to pay $10,000. Without this control, it would have been impossible for St. Louis to buy Bennett from Wichita Falls for $5,000, when other Major clubs offered $10,-000 for him. No sanely managed corporation would have deliberately refused to sell for $10,000 when the highest competing offer was $5,000, unless bidden so to do by its master, inspired by a purpose other than the best-interests of the corporation.

The code does not forbid Mr. Ball controlling'any number of Minor clubs, but so to manipulate that control as to transfer and retransfer a player under the form of outright sales and purchases, but at all times to retain secret, absolute control and to have at all times the power to switch the player at the whim of one man, irrespective of the player’s rights, is to produce a situation where there is no opportunity for other Major clubs to bid for the player, a condition plainly detrimental to baseball. Such situation is inimieable to the best interests of players and competing clubs and direetly in the face of the clear intent of the code. Therefore it- cannot be said that this commissioner, when he refused to approve the option contract submitted to him and ruled that Bennett was freed from his obligations to St. Louis, endowed as he was, did anything other than enter an order clearly within his discretion, unaffected by any illegal, invalidating element. To have decided otherwise would have exhibited a lack of fidelity to the trust imposed upon him and to the obligations which he had accepted.

Anything that Bennett did when he was wholly unacquainted with the secret control of all of the various entities with whom he contracted can in no wise bind him. Plaintiffs will not be permitted to conceal from him material facts affecting his own rights, and then claim estoppel upon his part by his apparent acceptance induced by plaintiffs’ concealment. Familiar rules, unnecessary to be quoted here, are fully decisive of that proposition.

It is contended by plaintiffs that the two-year limitation upon assignments shall apply from the date of the last acquisition of the player; that all prior acquisition contracts must be ignored; that the word “original” in the phrase “two years from the date of the original transfer agreement” refers to the copy of the contract filed with the secretary-treasurer, being one of its counterparts. Avoiding prolonged discussion, the court is of the opinion that the clear intent of this rule is that the two-year limitation shall run from the date of the original contract of acquisition. But, irrespective of this construction, the attempt of St. Louis to transfer Bennett to a Minor club after two years from April 5, 1928, without waivers was, in view of the secret control of the1 St. Louis Club and the various Minor clubs, wholly void, because it violated the purpose and intent that no player under the control of a Major club should be kept in the Minors more than two seasons without opportunities to other Majors to select or to claim.

There are many other points ably argued by counsel, but the facts and questions necessary to a decision are included within what has been said. The court is of the opinion that the commissioner acted clearly within his authority; that Bennett should be freed from his obligations of any contract with either plaintiff; that the prayer for injunction should be denied, and the bill dismissed for want of equity at the costs of plaintiffs. Proper decree may be submitted.


author: HAZEL, District Judge.

text:
    LICHTENBERGER-FERGUSON CO. v. WELCH, Collector of Internal Revenue.
    No. 3568.
    District Court, S. D. California, Central Division.
    Nov. 28, 1930.
    J. Wisemen Macdonald, and W. W. Wallace, both of Los Angeles, Cal., and Chas. F. Hutchins, of Pasadena, Cal., for plaintiff.
    Samuel W. McNabb, U. S. Atty., of Los Angeles, Cal. (Ignatius F. Parker, Asst. TJ. 5. Atty., of Los Angeles, Cal., of counsel), C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Alva C. Baird, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., and Richard W. Wilson, Sp. Atty., Bureau of Internal Revenue, of Los Angeles, Cal., for defendant.
   HAZEL, District Judge.

In this case we are concerned with plaintiff’s asserted right to income tax deductions, as hereinafter stated. Coneededly, plaintiff’s books were kept on the accrual basis, one of two systems of keeping books relating to business transactions recognized by the Internal Revenue Department. In plaintiff’s income tax return filed for the year 1919, ’ it claimed a deduction of $38,559.17, arising out of the delivery of a series of promissory notes payable in monthly installments within the year 1920, and one note in January, 1921, given respectively to the La Fountain Bulletin Service and the Foster & Kleiser Company for billboard advertising. The promissory notes were given as future installments for such advertising (during a period of 12 months), and, though regarded as a necessary business expense, based upon the advertising companies agreeing to perform services and acceptance by them in full payment for the particular services for the year 1920, it is nevertheless questionable whether the plaintiff’s deductions from gross income were justified as a liability incurred for the year 1919. None, of the services apparently were to be performed at the end of the year when the notes were accepted. The contracts were canceled in February, 1921, neither remaining in force.

The taxing department, under section 212 of the Revenue Act of 1918 (40 Stat. 1064), had the right to make the computation upon a basis which would clearly reflect the income, and no implied right to deduct expenses for the ensuing year can be read into the provision or into the promulgated regulations. (See article 22 and regulations 45-62-65 and 69. Article 321, Reg. 74.) Keeping its books on an accrual basis does not, in my opinion, imply the right to reduce the income by incurred liability which is not to be met or paid until a subsequent year. There are numerous decisions to support the determination of the taxing department in the instant case, namely, that the books must be kept in such a manner as to clearly disclose the income. As said in Bull v. Commissioner, 7 B. T. A. 993: “It is necessary, when determining whether an item accrued, to determine iji essence whether its deduction during the period under consideration is consistent with the clear reflection of income or would bring about a distortion.” It was not enough to show a contractual obligation for which the promissory notes, payable in a succeeding year, were given in payment to create a proper deduction for the year 1919, since there was no incurrence of a present liability, and did not, in my opinion, constitute “an incurred and properly accrued” liability in the taxable year. It was a future liability and not one in esse, and one that was not enforceable until the notes became due and payable. The uniform holding in analogous cases, decided by the Board of Tax Appeals, is that reserves for contingent liability are deductible only when the liability is paid. See Appeal of Helvetia Milk Condensing Co., 5 B. T. A. 271; Amigo Coal Co. v. Com’r of Internal Revenue, 8 B. T. A. 598; and Harris-Emery Co. v. Com’r of Internal Revenue, 10 B. T. A. 297, where the board repeated its former ruling in Appeal of Uvalde Co., 1 B. T. A. 932: “That the taxing act has made no provision for the deduction of future expenses however accurately the same may be estimated.”

The theory advanced by plaintiff is not deemed tenable, since the agreement for pay-ment of the advertising in the year 1920 was simply an agreement yet to be performed. The benefit did not materialize during the taxable year. See volume 1, p. 721, Montgomery Income Tax Procedure, and Klein Federal Income Tax'ation, par. 6, 29 (a). These decisions are fully supported by the federal courts. See U. S. v. Anderson, 269 U. S. 422, 46 S. Ct. 131, 70 L. Ed. 347; Miller & Vidor Lumber Co. v. Com’r of Internal Revenue (C. C. A.) 39 F.(2d) 890. The adjudications relied on by plaintiff are not apposite, for on examination I find the facts to have been materially different from the facts in the instant ease. In the Kleeman Dry Goods Co. Case, 2 B. T. A. 369, for example, the asserted deduction was for advertising in the taxable year, and manifestly was a necessary expense from which a benefit was derived during that year; as to such expense, it was “an incurred and accrued liability.” The other citations are equally distinguishable on the facts, and the expenses pertained to the year for which the deduction was claimed.

The next question arises from the claimed deduction on its income tax return for the year 1919, wherein it set out the sum of $10,-011.63, which had been received by it from the government in January, 1920, as compensation on account of cancellation of a contract between plaintiff and the government for deliverance of material used by the War Department. On subsequent audit, the claimed deduction was rejected. There was much negotiating concerning this claim in controversy, as plainly indicated by the exhibits in evidence. On August 11, 1919, plaintiff agreed to accept the amount in adjustment of its claim, but further correspondence ensued relating to payment, apparently continued to February 5,1920, when plaintiff received payment and made entry on its books as income for the year 1920. In this connection it is important to note that, prior to the time the money was received, plaintiff, on January 29, 1920, was advised by the Department that the difficulty had been straightened out and allotment received under which to make payment.

The government attaches importance to Exhibit 8, recommending the adjustment by the Secretary of War, and Exhibit 13, awarding the amount in full payment, and plaintiff’s acceptance in August, 1919, and claims that, as the final payment was determined upon in the taxable year 1919, it was accrued income under 'plaintiff’s method of keeping its books; in other words, that plaintiff’s liability ran from the time of the agreed liquidation in 1919, or from the time the amount became due.

In view of the circumstances, however, I am disinclined to adopt this view. While the amount was. apparently agreed upon, in 1919, yet, under plaintiff’s accrual system of bookkeeping, it was not regarded, as the evidence shows, as a final adjustment, or as income, until the money was actually received by plaintiff. The adjusted amount was not' income until, as ruled in Naitove & Co. v. Commissioner, 59 App. D. C. 53, 32 F.(2d) 949, 951, “it is definitely received.”

The plaintiff, therefore, may have a decree for the return of the amount erroneously exacted on its income tax return for the year 1919 in accordance with the above conclusions. Findings of fact and conclusions of law in conformity with the foregoing may be submitted for signature, embodying proper computations. So ordered.


author: NIELDS, District Judge.

text:
    UNITED STATES v. DUBILIER CONDENSER CORPORATION (three cases).
    Nos. 788-790.
    District Court, D. Delaware.
    April 27, 1931.
    Leonard E. Wales, U. S. Atty., of Wilmington, Del., Charles B. Rugg, Asst. Atty. Gen., Alexander Holtzoff and A. Blaine York, Special Assts. to Atty. Gen., and Frank J. Keating, of Washington, D. C.
    James H. Hughes, Jr., and E. Ennalls Berl (of Ward & Gray), both of Wilmington, Del., and John B. Brady, of Washington, D. C., for defendant.
   NIELDS, District Judge.

Francis W. Dunmore and Pereival D. Lowell were employed by the United States in the Radio Section of the Bureau of Standards. While so employed, they conceived the idea of using ordinary house-lighting alternating current in the operation of radio apparatus and of means for eliminating hum caused by the alternations of such current; and they made certain inventions embodying the idea. Upon applications filed in the United States Patent Office, three patents issued: No. 1,455,141 to Pereival D. Lowell and Francis W. Dunmore for “Improvements in Radio Receiving Apparatus”; No. 1,606,212 to Francis W. Dunmore and Percival D. Lowell for a “Power Amplifier”; and No. 1,635,117 to Francis W. Dunmore for a “Signal-Receiving System.” The patentees granted an exclusive license under eaeh of the three patents to the defendant, Dubilier Condenser Corporation, but excepted from such license a nonexclusive personal nontransferable license to the United States for governmental purposes under eaeh patent. The United States is not content with such licenses and seeks in these three suits (tried together) to obtain a decree compelling the defendant to convey to the United States all defendants’ right, title; and interest in the patents.

Title to the patents in suit is the issue in these cases. Their validity has been adjudicatéd by this court. Dubilier Condenser Corp. v. Radio Corp. of America, 34 F.(2d) 450.’ The United States claims title apparently on the theory that the chief of the Radio Section of the Bureau of Standards assigned to the patentees, Dunmore or Lowell, or to both of them, as research workers in the laboratory of. the Radio Section of the Bureau, the problems of devising apparatus for operating a radio receiving set, a radio loud-speaker, and a radio relay by the use of ordinary house-lighting alternating current with the hum eliminated, and that the apparatus covered by the patents in suit was devised by Dunmore or Lowell, or both of them, at the laboratory of the Radio Section during the usual hours of work, and by the use of tools and facilities of the United States, pursuant to the instructions and directions of the chief of that section. In other words, the United States claims that the inventions covered by the three patents in suit, being the product and the result of the work of employees of the United States in solving radio research problems assigned to them by their superior in the course of their employment, became ipso facto and are the property of their employer, the United States. The defendant, on the other hand, asserts that there was no written or oral agreement on the part of the patentees to convey any patents devised in the course of their employment to their employer; that the character of their employment raised no implication of an agreement to convey pat•ents; that there was no assignment by any superior of Lowell and Dunmore, or of either of them, of a problem, or problems, involving the inventions covered by the patents in suit; and that no duty rested upon the patentees to convey their, patents to their employer, even though to perfect their inventions they used their employer’s property, received the assistance of others in their employer’s pay, and took time which should have been given to their employer’s business, their employer, the United States, being fully compensated in this regard by a nonexclusive license under the patents.

The Bureau of Standards is a subdivision of the Department of Commerce of the United States. Its functions consist in the custody of standards; the comparison of the standards used in scientific investigations, engineering, manufacturing, commerce, and educational institutions with the standards adopted or recognized by the government; the’ construction of standards, their multiples and subdivisions; the testing and calibration of standard measuring apparatus; the solution of problems which arise in connection with standards; and the determination of physical constants and the properties of materials. In addition, the Bureau of Standards, during the years hereinafter referred to, was charged by Congress with the duty of investigation and standardization of methods and instruments employed in radio communication, for which work Congress made special appropriations. Act of March 3, 1901, 31 Stat. 1449, U. S. Code, title 15, §§ 271-281 (15 USCA §§ 271-281); Act March 4, 1915, 38 Stat. 1044; Act May 29, 1920, 41 Stat. 682, 684; Act March 3, 1921, 41 Stat. 1301, 1303. In recent years the Bureau of Standards has been engaged in research and testing work of various kinds, for the benefit of private industries, other departments of the government, and the general public.

The Bureau of Standards is divided into divisions, each charged with a specified field of activity. One of such divisions is the Electrical Division. The various divisions are further subdivided into sections. One of the sections of the Electrical Division is the Radio Section. In 1921 and 1922 the employees in the laboratory of the Radio Section numbered approximately twenty technical men and a number of draftsmen and mechanics. The technical men were engaged in testing radio apparatus and methods and in radio research work. They were subdivided into ten groups, each group having a group chief. In outlines of radio work by the chief of the section, or alternate chief, the work of each group was defined.

_ In the years 1921 and 1922, Francis W. Dunmore and Pereival D. Lowell were employees of the Radio Section and were engaged in research and testing in the laboratory of the section. In the outlines of laboratory work the subject of “Airplane Radio” was assigned to the group of which Dunmore was chief and Lowell a member. The subject of “Radio Receiving Sets” was assigned to a group of which J. L. Preston was chief, but of which neither Lowell nor Dunmore was a member. * From January 14, 1918, to the date of filing the bills of complaint in this ease, Dunmore was employed in the Radio Section in the successive capacities of laboratory assistant, assistant physicist, and associate physicist, at annual salaries of $1,320, $1,500, $1,680, $1,980, $2,100, and $2,400. Between February 4, 1913, and July 15, 1922, Lowell was employed in the Radio Section in the successive capacities of laboratory apprentice, aid, laboratory assistant, and assistant physicist, at annual salaries of $480, $540, $600, $720, $900, $1,000, $1,200, $1,320, $1,500, $1,800, and $1,980.

In May, 1921, the Air Corps of the Army and the Bureau of Standards entered into an 'arrangement whereby the latter undertook the prosecution of forty-four research projects for the benefit of the Air Corps. To pay the cost of such work, the Air Corps transferred and allocated to the Bureau the sum of $267,500. Projects Nos. 37 to 42, inclusive, relating to the use of radio in connection with aircraft, were assigned to the Radio Section, and $25,000 of the total amount was allocated to pay the cost of the work. Project No. 38 was styled “Visual Indicator for Radio Signals,” and suggested the construction of a modification of what was known as an “Eekhardt Recorder.” Project No. 42 was styled “Airship Bomb Control and Marine Torpedo Control.” Both projects required the design of a radio relay; that is, of a mechanism, for use on an airplane to receive the output from a radio receiver and to relay it to a coil on the airplane, which would operate either a visual indicator or a "trigger, such trigger to release a bomb on a pilotless plane or a marine torpedo. The relay for the trigger was to operate at the rate of from 10 to 12 times per second upon a current of 500 microamperes.

In the spring of 1921, the Signal Corps of the Army allocated to the Bureau between $10,000 and $20,000 for radio research on several specific problems, including the design of a suitable relay for use of the Air-Corps, already comprised in aircraft projects Nos. 38 and 42. ..

In the summer of 1921, Dunmore, being chief of the group to whom “Airplane Radio” problems had been assigned, without further instructions from his superiors, picked out for himself the above-mentioned problem of operating a relay “at the rate of from 10 to 12 times per second upon a current of 500 microamperes * * * as one of particular interest and having perhaps a rather easy solution, and worked on it.” In September, Dunmore solved this problem by substituting two tubes for two coils in the recording apparatus devised by Dr. Eekhardt, and called the relay “Type A Relay.” This relay was supplied with power by direct current from a battery aboard ship. The above problem dealt with remote control of bomb on airship and torpedo in the sea.

In the midst of aircraft problems and numerous routine problems of the section, Dun-more was wrestling in his own mind, impelled thereto solely by his own scientific curiosity, with the problem of substituting house-lighting alternating current for - direct battery current in radio apparatus. He conceived the idea of obtaining a negative bias on the grid of an electron tube from alternating current, and tested his idea by substituting a power pack generating alternating current, together with his new apparatus, in a type A relay, in place of the. battery. This substitution gave him a relay for operating a telegraph instrument, but was in no way related to the remote control relay devised for aircraft use. The conception of applying alternating current related particularly to broadcast reception. Dunmore describes the conception in the following words: “After our work on elimination of batteries for broadcast reception was startr ed, I had available a power supply unit which [I] connected on to the Type A Relay, eliminating the use of batteries, with the Type A, and later when I put the Type A Relay and the powér unit in the same box, I gave it the name of a Type B Relay, but it was nothing more than a Type A Relay with a power pack in the box to operate the Type A Relay without batteries.” The idea of obtaining a negative grid bias for an electron tube from alternating current was conceived by Dun-more on August 3, 1921, and he reduced the invention to practice on December 16, 1921. In the early part of 1922, Dunmore advised his superior of his invention and spent additional time in perfecting the details. Later he constructed two type B relays for the Signal Corps of the Army. Detailed drawings for the finished form of type B relay were prepared during office hours by a draftsman employed at the Bureau, and the apparatus was constructed from government material by mechanics employed at the shop of the Bureau during office hours. Dun-more’s work on type B relay, was reflected in his official reports and notebook. He described both types A and B relays in an article, approved by the Bureau, and published in the Journal of the American Institute of Electrical Engineers. February 27, 1922, Dunmore filed an application for a patent for a signal receiving system, and on July 5, 1927, patent No. 1,635,117 was issued.

In 1919 or 1920 the Radio Section had developed a radio transmitting apparatus supplied with power by alternating current instead of batteries, which was described in a Bureau publication. A transmitting apparatus is unlike a receiving apparatus, and, in. particular, does not involve the question of the elimination, of hum produced by the use of alternating current. In the fall of 1921 both Dunmore and Lowell were considering the problem of applying alternating current to broadcast receiving sets. This project was not involved or even suggested by the problems with which the radio section was then dealing and was not assigned by Dr. Dellinger or by any other superior as a task to be solved by either of these employees. It was a project independent of their, work, and was voluntarily assumed.

While performing their regular tasks, Dunmore and Lowell experimented at the laboratory in devising apparatus, including a transformer, rectifier, resistors, and condenser, for the purpose of operating a radio receiving set by alternating current with the hum incident thereto eliminated. The invention of this radio receiving apparatus, covered by patent No. 1,455,141, was completed by Dunmore and Lowell on December 10, 1921, as appears in Dunmore’s notebook under that date. The claims of the patent can readily be read on the 'diagram appearing in his notebook under that date. The receiving set was heard in successful operation prior to Christmas, 1921, and during the Christmas holidays. Before the completion of this invention on December 10, 1921, no instructions were received and no conversations were held by these employees with Dr. Dellinger, the head of the Radio Section, or with any superior in the Bureau relative to the invention. On January 9, 1922, Dr. Dellinger came to the room of Dunmore and Lowell in the laboratory and asked Lowell what he had been doing. In answer, Lowell wrote a memorandum about his work on the high frequency bridge and the receiving set operated by alternating current. Thereupon Dr. Del-linger requested a detailed report of Mr. Lowell’s work on both the high frequency bridge and the receiving set. At no stage does it appear that Dr. Dellinger contributed any suggestions. ' Thereafter Lowell did engineering work in refining and perfecting the receiving set apparatus, but nothing new was added to the invention of December 10, 1921. Detailed drawings were prepared during office hours by a draftsman employed at the laboratory, following instructions of Lowell and Dunmore, and the apparatus was built out of government material. Lowell described the development of this radio receiving set in a technical paper published by the Bureau of Standards October 2,1922, entitled “An Electron Tube Amplifier Using 60-Cycle Alternating Current to Supply Power for the Filaments and Plates.” March 27, 1922, Lowell and Dunmore filed an application for a patent for “Radio Receiving Apparatus,” and on May 15, 1923 patent No. 1,455,141 was issued.

Dunmore and Lowell also conceived the invention of energizing a dynamic type of a loud-speaker from an alternating house-lighting circuit and reduced the invention to practice on January 25, 1922. In the technical paper mentioned above, Lowell described this invention. March 21,1922, Dun-more and Lowell filed an application for a “Power Amplifier,” and on November 9, 1926, patent No. 1,606,212 was issued. The invention embodied in this patent was devised by the patentees without suggestion, instruction, or assignment from any superior.

In June and July, 1922, Dr. Dellmger made demands on Dunmore and Lowell that they assign the applications for the above-recited patents to the United States. These demands were refused. Afterwards a representative of the Attorney General of the United States made a similar demand on Dunmore and Lowell, which was refused. Before making the applications for the patents, no one advised Dunmore or Lowell that they would be expected to assign exclusive rights in their inventions to the United States.

October 20, 1924, Lowell and Dunmore granted to the defendant, Dubilier Condenser Corporation, an exclusive license under letters patent No. 1,455,141, subject to a nonexclusive license in the United States to use the invention without royalty for the full term of the patent.

May 19, 1927, Dunmore and Lowell granted to defendant an exclusive license under letters patent No. 1,606,212, subject to a nonexclusive license in the United States.

July 15, 1927, Dunmore granted to the defendant an exclusive license under letters patent No. 1,635,117, subject to a nonexclusive license in the United States.

It is well settled that the government as an employer has no greater right to inventions made by its employees than other employers. It is conceded that there was no express contract between the two employees and the United States that patents covering inventions made by the employees during their employment should belong to the employer. It is difficult to gather from the briefs and argument whether the United States relies on the law of contracts or the law of master and servant, or on both, to support its contentions. Apparently the government is seeking to enlarge the scope of the duties which an employee owes to his employer respecting patents. The government claims to find support for its positions in the eases of Solomons v. United States, 137 U. S. 342, 11 S. Ct. 88, 89, 34 L. Ed. 667; Standard Parts Co. v. Peck, 264 U. S. 52, 44 S. Ct. 239, 68 L. Ed. 560, 32 A. L. R. 1033; and Houghton v. United States (C. C. A.) 23 F.(2d) 386, 388, affirming (D. C.) 20 F.(2d) 434.

In Solomons v. United States, Clark, while Chief of the Bureau of Engraving and' Printing, was assigned the task of devising a self-canceling revenue stamp. He devised a stamp which the Treasury adopted. Later he obtained a patent, and an infringement suit was brought against the United States. The only question involved in the ease was the right of the United States to use the stamp without paying royalty. Title to the patent was in no way involved. The court divided the master and servant situation into two classes: First, whether a license to the master may be inferred from the facts where there is only a general employment; and, second, where there is a specific hiring to devise an improvement, the master’s rights in any resulting invention arise as a matter of law. The extent of such rights, beyond a license, was not involved in the ease. Mr. Justice Brewer, speaking for the court, said: “An employee, performing all the duties assigned-to him in his department of service, may exercise his inventive faculties in any direction he chooses, with the assurance that whatever invention he may thus conceive and perfect is his individual property. There is no difference between the government and any other employer in this respect. But this general rule is subject to these limitations: If one is employed to devise or perfect an instrument, or a means for accomplishing a prescribed result, he cannot, after successfully accomplishing the work for which he was employed, plead title thereto as against his employer. That which he has been employed and paid to accomplish becomes, when ' accomplished, the property of his employer. Whatever rights as an individual he may have had in and to his inventive powers, and that which they are able to accomplish, he has sold.in advance to his employer. So, also, when one is in the employ of another in a certain line of work, and devises an improved method or instrument for doing that work, and uses the property of his employer and the services of other employees to develop and put in practicable form his invention, and explicitly assents to the use by his employer of such invention, a jury, or a court, trying the facts, is warranted in finding that he has so far recognized the obliga^ tions of service flowing from his employment and the benefits resulting from his use of the property, and the assistance of the co-employees, of his employer, as to have given to such employer an irrevocable license to use such invention.”

The only application of the above authority to the facts in this case is the recognition of the patentees’ title to their own inventions, subject to a nonexclusive license in the government.

The primary question in the case of Standard Parts Co. v. Peck was the legal effect of an express contract. Peek, a designer of machinery and a patent attorney, had expressly agreed to devote his time to the development of machinery for the production of an automobile spring. He proceeded under his contract and developed a machine satisfactory to his employer. Peek patented his invention and sued his employer for infringement. That this case has no bearing on the question under consideration is quite apparent from the statements of Judge Westenhaver ([D. C.] 295 F. 740, 745) sustaining the right of the employer to the Peck invention. He said: “In this case plaintiff was employed for a specific purpose. He had no general employment, and performed no services, except in that one capacity. The entire consideration received by him was paid in developing the process and machinery which has eventuated in a patentable invention. He was not employed generally in a certain line of work, and devised merely an-improved method or instrument for doing that work. He was employed and paid to develop a process or machinery or means of accomplishing a prescribed result. The patentable invention is the result solely of that which he was employed and paid to accomplish. The results thus accomplished, even if of a patentable nature, should accrue wholly to the employer; otherwise, the employer is deprived of a part of that for which he has paid. No invention ever would have been made, except for this contract of employment and expenditure of the employer. The employee, it seems to me, has sold in advance whatever rights as an individual he may have had in and to his inventive powers, so far as they relate to the work he was to do or the results which he accomplished.”

The Supreme Court, in affirming Judge Westenhaver, recognized that the interpre-. tation of an express contract was the vital point of the ease, and held that an invention of a specific thing may be made the subject of a bargain, and that such was the object and effect of Peek’s contract.

The remaining authority relied upon by the government is the case of Houghton v. United States, in the Circuit Court of Appeals for the Fourth Circuit. That case is quite different from the instant case. Houghton was a trained chemist employed by- the Bureau of Chemistry in the Department of Agriculture. The Public Health Service of the Treasury Department had him transferred and assigned to duties in the hygiene laboratory of that service to devise or discover a safe fumigant. Work on the project which resulted in the invention in suit had begun before Houghton was assigned to the Public Health Service. The laboratory had reported results which proved impracticable. Houghton was instructed to study the technical literature relating to the subject. The Surgeon General appointed a board of three under his own control to carry on the investigation. Of this board Houghton was a member. During the progress of the experiments, Houghton continually reported to his superior and received orders from him for further experiments and investigations. The United States brought suit against Houghton, alleging that it was the equitable owner of the patent and entitled to an assignment thereof. The court said: “It is clear, we think, upon these facts, that the case presented is not the ordinary case of an invention made by an employee, who, while discharging the duties assigned, to him in his department of service, conceives and perfects an invention. In such case the rule is that the invention is the property of the employee. * * * But the ease here presented is that of an employee who makes a discovery or invention while employed to conduct experiments for the purpose of making it. Houghton did not conceive the idea of combining an irritant gas with hydrocyanic acid gas, so as to produce a safe fumigant. That was the idea of Dr. Cumming, the Surgeon General, under whom he was working. He did not conceive the idea of using cyanogen chloride gas as the irritant with, the deadly gas. That idea had been advanced in a German periodical, and experiments and studies along that line had previously been conducted at the direction of the Health Service. All that he [Houghton] did was to take the idea of the Surgeon General, upon which the Health Service had been experimenting, and conduct experiments under its direction, for the purpose of determining how best to produce and combine the gases so as to achieve the result which the Surgeon General had in mind. * * * Under such circumstances, we think there can be no doubt that his invention is the property of his employer, the United States.”

Counsel for the government lay much stress upon the following language of Judge Soper in the District Court [20 F.(2d) 434], quoted with approval by the Court of Appeals for the Fourth Circuit: “The broad principle is now laid down by the Supreme Court, too clearly to be misunderstood, that, when an employee merely does what he is hired to do, his successes, as well as failures, belong to his employer. Nor can it be said that one who willingly carries out the orders of his employer is not engaged upon that which he is employed to do. An employee, who undertakes upon the direction of his employer to solve a specific problem within the scope of his general employment, is as truly employed and paid for the particular project as if it had been described at the outset in the contract of employment.”

No authority is cited in support of this statement, and I have been able to find none in the reported cases. But, even assuming that such statement is supported by authority, it has no application to this case because, as fully appears in the findings of fact, there was no assignment by Dr. Dellinger, or by any other superior to these two employees of the Radio Section of any research problem involving the inventions in controversy. The most that can be said is that Lowell and Dunmore were permitted by Dr. Dellinger, after the inventions had been brought to his attention, to pursue their work in the laboratory and perfect the inventions which had theretofore been made by them.

If the bill is to be sustained, resort must be had to the further position taken by the United States that, when an employee of the Radio Section, one of whose duties is to carry on research work, makes an invention within the field of his work, though without assignment from a superior, such an invention ipso facto becomes the property of the employer; or, stated differently, that all patents of research workers in the Radio Section of the Bureau of Standards belong to the United States. I am confident that no provision in the organic law creating the Bureau or in acts of Congress making appropriations to carry on its work, no well-considered authority or sound reason, can be found to support such a position.

The basis of the foregoing position, repeatedly emphasized both in argument and brief, seems to be the assumption that the research work of the Bureau of Standards is primarily concerned with invention. But there is nothing in the record to support this idea. While it is true that section 2 of the act (15 USCA § 272) creating the Bureau speaks of the “solution of problems which arise in connection with standards” and some of the appropriation acts refer to “investigation and standardization of methods and instruments employed in radio communication,” these statutory provisions fall far short of converting the work of the Bureau or any section thereof into “inventive” work, as that word is usually understood. Had Congress any such intention, it ought to be expressed in the clearest and plainest words, and should not be left to uncertain implications from duties and conduct. The Bureau was at times engaged in “research work.” “Research” has been defined as the “endeavor to discover, to develop, and to verify knowledge,” and “careful or critical inquiry or examination, in seeking facts or principles.” While invention may and usually does presuppose research, research certainly does not usually involve or result in invention. To «ay that a person engaged in “research” work is necessarily engaged in “inventive work” is putting an unwarranted construction upon the word “research,” not justified by common knowledge or experience.

Half the time of Dunmore and Lowell was occupied in testing work. The other half of their time was occupied in research work, normally invoking their skill, knowledge, and experience. By exercising those faculties within the field of work assigned to them these employees fully performed the duties owing to their employer. For an employee to go beyond such skill, invoke his inventive genius, and make a patentable invention, is the unusual and abnormal thing not incident to his general employment.

The Bureau of Standards has upon its staff a' large number of employees engaged in specific fields of activity and to a certain extent engaged in research work. To hold that every invention made by one of these research workers under the facts disclosed in this case automatically became the property of the United States would, I think, be not only contrary to the,law as laid down by the Supreme Court, but have a strong tendency to destroy the morale of the Bureau and take away a just incentive on the part of its employees to make inventions; that is, a personal reward for their efforts, bearing always in mind that the government is entitled to the full use of all such inventions.

In commenting upon the retirement of Dr. Samuel W. Stratton, formerly Director of the Bureau of Standards, President Hoover, then Secretary of Commerce, said:

“While the Massachusetts Institute of Technology is to be congratulated on securing Dr. Stratton, one cannot overlook the fact that the desperately poor pay which our government gives to great experts makes it impossible for us to retain men capable of performing the great responsibility which is placed upon them. The Institute of Technology, an educational institution, finds no difficulty in paying a man of Dr. Stratton’s calibre three times the salary the government is able to pay him.
“Dr. Stratton has repeatedly refused large offers before, but the inability of the scientific men in the government to properly support themselves and their families under the living conditions in Washington and to make any provision for old age makes it impossible for any responsible department head to secure such men for public service at government salaries.”

Under such conditions, should the normal reward of inventors be withheld from research workers in the Bureau of Standards? I think not. To do so would measurably crush the inventive genius, enthusiasm, and spirit of the employees. It would drive unusual men out of the public service and correspondingly lower the efficiency of the Bureau. If the rules of law heretofore prevailing are to be extended to bring about this result, resort should be had to the Congress and not to the courts.

The bills of complaint must be dismissed.