author: VAN DUSEN, Circuit Judge.

text:
    The PLUM TREE, INC., Petitioner, v. John STOCKMENT and Juanita Stockment, husband and wife, Respondents, and The Honorable Clarence C. Newcomer, Judge, United States District Court for the Eastern District of Pennsylvania, Nominal Respondent.
    No. 73-1665.
    United States Court of Appeals, Third Circuit.
    Argued Oct. 10, 1973.
    Decided Nov. 30, 1973.

      Martin Howard Katz, Harris N. Walters, Mark B. Dischell, Bridgeport, Pa., for petitioner.
    R. C. Stiles, Wyckoff, Eikenburg, Russell & Dunn, Houston, Tex., for respondents.
    Robert E. J. Curran, U. S. Atty., Philadelphia, Pa., for nominal respondent.
   OPINION OF THE COURT

VAN DUSEN, Circuit Judge.

Petitioner Plum Tree, plaintiff in the district court, seeks a writ of mandamus or prohibition directing that the district court vacate its order dated June 28, 1973, transferring the action, pursuant to 28 U.S.C. § 1404(a), to the United States District Court for the Southern District of Texas, Houston Division. Answers to the petition have been filed by defendants and on behalf of the district judge (nominal respondent) entering the June 28,1973, order.

Petitioner filed a complaint against respondents in the District Court for the Eastern District of Pennsylvania on January 2, 1973, seeking declaratory and monetary relief for an alleged breach of a franchise agreement. On February 16, 1973, defendants filed their answer, along with a motion for transfer to the Southern District of Texas, Houston Division. In their motion, defendants stated that their business operation was in Houston, that plaintiff’s claims do not arise out of or have any connection with business activities in the Eastern District of Pennsylvania, and that any breach of any agreement alleged in plaintiff’s complaint would have occurred in the Southern District of Texas. However, defendants did not file affidavits, depositions, a brief in support of these contentions, or any other document containing information showing that a transfer would be appropriate for the convenience of the parties or witnesses or in the interest of justice. See Solomon v. American Continental Life Insurance Company, 472 F.2d 1043 (3d Cir. 1972). Plaintiff, on the other hand, filed a lengthy memorandum in opposition to the motion to transfer in which it argued that the forum-selection clause in the franchise agreement was entitled to respect.

On June 28, 1973, without having heard oral argument, the district court granted the motion for transfer on the ground that the franchise agreement was a contract of adhesion and the forum-selection clause was, therefore, void as against public policy. On July 11, 1973, plaintiff filed a motion to amend the order of June 28, 1973, to state that “such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation . . . .” 28 U.S.C. § 1292(b). On July 19, 1973, the district court denied this motion. This resulted in plaintiff’s filing a petition for writ of mandamus in this court, seeking to compel the district court to amend its June 28 order so that an appeal from that order might be perfected pursuant to 28 U.S.C. § 1292(b). However, we shall adopt the procedure suggested at oral argument and accepted by counsel of abandoning any claim for relief under 28 U.S.C. § 1292(b) and treating the petition for writ of mandamus as one seeking this court to order the district court to vacate its transfer order, which is the more usual way to proceed in this circumstance. See, e. g., Solomon v. Continental American Life Insurance Company, supra; Swindell-Dressler Corporation v. Dumbauld, 308 F.2d 267 (3d Cir. 1962).

I.

Under 28 U.S.C. § 1404(a) a transfer may be ordered “[f]or the convenience of parties and witnesses, in the interest of justice . . . .” In making a determination as to the presence of these factors, the district court is vested with a wide discretion, which is rarely disturbed on a petition for mandamus. See Solomon v. Continental American Life Insurance Company, supra; All States Freight v. Modarelli, 196 F.2d 1010 (3d Cir. 1952). However, in Swindell-Dressler Corporation v. Dumbauld, supra, we held that the failure to provide notice and an opportunity to be heard to the party opposing transfer was a violation of due process and would be remedied by granting a writ of mandamus to secure vacation of a transfer order. The process of establishing the appropriate procedural steps to be followed in determining a transfer motion is a continuing one in this Circuit. While our opinion in Wood v. Zapata Corporation, 482 F.2d 350 (3d Cir. 1973), rejected the contention that any and all informal conferences and arguments relative to a change of venue motion must be reported and transcribed by a court stenographer, a majority of the panel agreed to the proposition that such proceedings should be transcribed. Id. at pp. 357-359 (Adams, J., concurring and Biggs, J., dissenting). Similarly, while we have not imposed a requirement that district courts make findings of fact and conclusions of law with respect to the three factors stated in 28 U.S.C. § 1404(a) on each transfer motion, we have suggested “that it would be helpful to us if each transfer order set forth the factors upon which the court relied in deciding the motion.” Solomon v. Continental American Life Insurance Company, supra, at 1048 of 472 F.2d. In the case before us, there was no hearing or conference of any sort and, while the transfer. order did contain a conclusory finding that the franchise agreement was a contract of adhesion and invalid, it made no reference to supporting evidence and did not relate that conclusory finding to the three factors stated in 28 U.S.C. § 1404(a). We do not hold that a hearing is necessarily required on every transfer motion, but where, as here, the evidence and arguments supporting a transfer were in doubt, a hearing or conference would have been desirable before the district court decided the motion. Furthermore, in making findings of fact on a transfer order, it would be helpful if the district court specifically related the evidence upon which it relies to the factors stated in 28 U.S.C. § 1404(a).

The more significant difficulty here, however, is that there was no evidence before the district court upon which it could base a finding that a transfer order was justified. Defendants, having the burden of proof, did not support their motion to transfer with any affidavits, depositions, stipulations, or other documents containing facts that would tend to establish the necessary elements for a transfer under 28 U.S.C. § 1404(a). Nor did they submit any briefs or make any oral argument demonstrating that facts existed which were sufficient to justify a transfer. Thus, the transfer order was based entirely on the facts and conclusions asserted in defendants’ motion. The finding that the franchise agreement was a contract of adhesion and that the forum-selection clause was, therefore, invalid as against public policy seems to have resulted solely from añ examination of the face of the contract itself, since there was no evidence submitted on the relative bargaining power of the parties or the circumstances of the making of the contract, and no argument was made by defendants as to its invalidity.

For the foregoing reasons, we hold that the June 28, 1973, district court order should be vacated, without prejudice to the right of defendants on remand to renew in the district court their motion for transfer, with appropriate supporting documents. See AAMCO Automatic Transmissions, Inc. v. Hagenbarth, 296 F.Supp. 1142 (E.D.Pa.1972).

II.

Since a substantial part of the discussion on both the motion for transfer in the district court and the petition for mandamus in this court focused on the issue of the effect to be given to the forum-selection clause in deciding a motion for transfer under 28 U.S.C. § 1404(a), and since this case is being remanded to the district court for further proceedings, we note that the existence of a valid, forum-selection clause whose enforcement is not unreasonable does not necessarily prevent the selected forum from ordering a transfer of the case under § 1404(a). Congress set down in § 1404(a) the factors it thought should be decisive on a motion for transfer. Only one of these — the convenience of the parties — is properly within the power of the parties themselves to affect by a forum-selection clause. The other factors — the convenience of witnesses and the interest of justice — are third party or public interests that must be weighed by the district court; they cannot be automatically outweighed by the existence of a purely private agreement between the parties. Such an agreement does not obviate the need for an analysis of the factors set forth in § 1404(a) and does not necessarily preclude the granting of the motion to transfer.

III.

In the event that the district court does not vacate its June 28 transfer order within 20 days, as described at page 757 plaintiff may apply for the entry of an order providing that a writ of mandamus shall issue, directing the nominal respondent judge to vacate and set aside the order of June 28, 1973, without prejudice to the right of defendants on remand to renew their motion for transfer supported by appropriate documents in accordance with the foregoing opinion.

      . We note that the use of mandamus as a means of forcing the district court to make a certification under 28 U.S.C. § 1292(b) does not seem appropriate, for there are authorities holding that the district court’s decision on this question is not reviewable. See United States v. 687.30 Acres of Land, 451 F.2d 667, 670 (8th Cir.), cert. denied, 405 U.S. 1026, 92 S.Ct. 1291, 31 L.Ed.2d 486 (1971) ; Hirsch v. Bruchhausen, 284 F.2d 783, 786 (2d Cir. 1960). In addition, we note that an appeal by permission does not appear to be an appropriate mode of challenging a transfer order. See Garner v. Wolfinbarger, 433 F.2d 117 (5th Cir. 1970) ; A. Olinick & Sons v. Dempster Bros., Inc., 365 F.2d 439 (2d Cir. 1966) ; Standard v. Stoll Packing Co., 315 F.2d 626 (3d Cir. 1963) ; Bufalino v. Kennedy, 273 F.2d 71 (6th Cir. 1959).

      . Examples of such documents would be a list of the names and addresses of witnesses whom the moving party plans to call and affidavits showing the materiality of the matter to which these witnesses will testify, statements by the moving parties of the business difficulties or personal hardships that might result from their having to defend against the suit in the district court where it was originally brought, affidavits concerning the relative ease of access to sources of documentary evidence, and other materials where appropriate.

      . The mere fact that the alleged breach would have occurred in the Southern District of Texas does not by itself justify a transfer of venue. Although it would undoubtedly be inconvenient for defendants to have their business in Houston and travel to the Eastern District of Pennsylvania, there is nothing in the transfer motion to indicate that defendants would suffer a greater inconvenience than would plaintiff if the case is transferred to the Southern District of Texas.

      . Furthermore, a finding that the forum-selection clause is invalid cannot by itself support a decision to transfer. Such a finding has no necessary relevance to the convenience of the parties or witnesses, and while it does counter-balance the weight that might otherwise be given to the forum-selection clause, it does not swing the scales so far in the other direction to establish conclusively that the interest of justice requires ■ a transfer. See Part II of this opinion, infra. We note that defendants, by filing an answer here, waived any objection to service of process.

      . If, on the basis of appropriate evidence and after opportunity for argument in either briefs or at a hearing, the district court finds that a forum-selection agreement is affected by fraud, undue influence, or overweening bargaining power and is, therefore, invalid or that its enforcement would be “unreasonable,” the eases indicate that it should refuse to enforce its provisions. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972) ; Central Contracting Co. v. Maryland Casualty Co., 367 F.2d 341, 344 (3d Cir. 1966).

      . The cases cited by plaintiff in its memorandum in opposition to defendants’ motion to transfer for the proposition that forum-selection agreements should be respected either do not involve a motion to transfer under § 1404(a) or do not rely on the forum-selection agreement in reaching their decision on the transfer motion. Thus, none of them considered the significance of the fact that Congress had specified what factors are to be considered by a district court in deciding such a motion. See M/S Bremen v. Zapata Off-Shore Co., supra; National Rental v. Szukhent, 375 U.S. 311, 84 S.Ct. 411, 11 L.Ed.2d 354 (1964) ; Central Contracting Co. v. Maryland Casualty Co., supra; Wm. H. Muller & Co. v. Swedish American Line, Ltd., 224 F.2d 806 (2d Cir. 1955) ; AAMCO Automatic Transmissions, Inc. v. Hagenbarth, supra; AAMCO Automatic Transmissions, Inc. v. Coleman, C.A. No. 70-1837 (E.D.Pa., Aug. 11, 1970) ; AAMCO Automatic Transmissions, Inc. v. Sanders, C.A. No. 70-1396 (E.D.Pa., Jan. 21, 1971). See also Spatz v. Nascone, 364 F.Supp. 967 (W. D.Pa., 1973).

      . A valid forum-selection agreement may be treated as a waiver by the moving party of its right to assert its own convenience as a factor favoring a transfer from the agreed upon forum or as one element to be considered in weighing the interest of justice. Whether the forum-selection agreement should be treated in either or both of these ways will often depend on its specific terms. In some agreements, one court is assigned exclusive jurisdiction of cases arising under the contract, while in others the parties merely consent to the jurisdiction and venue of a court that might otherwise lack them. The forum-selection clause in the agreement between the parties in this case seems ambiguous on the question of transfer. The licensee consents therein to the jurisdiction and venue of certain specified courts and agrees not to bring any legal proceedings arising out of the agreement except in those courts. It is unclear whether the intent was to give those courts exclusive jurisdiction so as to prevent any transfer.


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    Michael T. ONLEY, Appellant, v. SOUTH CAROLINA ELECTRIC & GAS COMPANY, a corporation, Appellee.
    No. 73-1354.
    United States Court of Appeals, Fourth Circuit.
    Submitted Nov. 2, 1973.
    Decided Dec. 7, 1973.

      A. Arthur Rosenblum, Charleston, S. C„ Kermit S. King, and Donald W. Tyler, Columbia, S. C., on brief, for appellant.
    Harold W. Jacobs, E. G. Menzie, Columbia, S. C., and J. C. Hare, Charleston, S. C., on brief, for appellee.
    Before RUSSELL, FIELD and WIDENER, Circuit Judges.
   PER CURIAM:

This is an appeal from an order of the district court dismissing appellant’s libel for lack of admiralty jurisdiction. Appellant was injured when he struck a submerged boat ramp after diving from a dock in Lake Murray, South Carolina. The district court found Lake Murray to be navigable waters. The water level of the lake, which covered the extension of the boat ramp, was controlled by appel-lee in connection with the generation of electricity. Appellant contends that his injuries were caused by appellee’s failure to properly regulate the water level and to warn and protect against the dangerous condition presented by the submerged boat ramp. The district court held that appellant did not allege a claim cognizable under federal admiralty jurisdiction. We affirm.

This court has previously considered the question of whether admiralty jurisdiction exists where injury is sustained by striking the underwater portion of a boat ramp. In Hastings v. Mann, 340 F.2d 910 (4th Cir. 1965), we found no admiralty jurisdiction present where the libelant, after entering the water, had slipped on the boat ramp in an attempt to launch his boat. The basis of our holding in Hastings v. Mann, supra, was that the boat ramp was an extension of the land and therefore, under the locality test, was beyond the jurisdiction of admiralty.

The locality test of admiralty jurisdiction, however, was strongly criticized by the Supreme Court in Executive Jet Aviation, Inc. v. City of Cleveland, 409 U.S. 249, 93 S.Ct. 493, 34 L.Ed.2d 454 (1972). In the context of an airplane crash in navigable waters, the Supreme Court held that as a necessary condition to admiralty jurisdiction the tort must “bear a significant relationship to traditional maritime activity.” Id. at 268, 93 S.Ct. at 504.

Whatever the role of the locality test in determining admiralty jurisdiction after Executive Jet Aviation, the Supreme Court clearly restricted such jurisdiction by adding the requirement of a nexus to traditional maritime activity. The appellant in the instant case fails to satisfy this requirement. The case of a swimmer striking a submerged object was cited as an example of how the strict locality test would lead to the “absurd” result of requiring admiralty jurisdiction. Id. at 255, 93 S.Ct. 493. The court in Executive Jet Aviation also cited with apparent approval Chapman v. City of Grosse Pointe Farms, 385 F.2d 962 (6th Cir. 1967), which denied admiralty jurisdiction specifically on the grounds that there was no maritime nexus in a diving accident. In the Chapman case, like the present one, the diver was injured after jumping off a pier into the shallow waters of a lake.

Appellant seeks to distinguish Chapman and assert a maritime nexus by alleging that appellee’s negligence lay in its failure to properly control the water level of the lake. Appellant cites McCall v. Susquehanna Electric Co., 278 F.Supp. 209 (D.C.Md.1968), where the district court sustained admiralty jurisdiction where injury was caused by changing water levels. In McCall the Electric Company had opened the gates of a dam, releasing large amounts of water and resulting in the drowning of the occupant of a small boat downstream.

McCall, however, was decided prior to Executive Jet Aviation and applied only the locality test in determining jurisdiction. On a nearly identical fact situation the district court of Montana in Adams v. Montana Power Co., 354 F. Supp. 1111 (D.C.Mont.1973), held that there was no maritime nexus as required by Executive Jet Aviation, and dismissed for want of jurisdiction. In Rubin v. Power Authority, 356 F.Supp. 1169 (W.D.N.Y. 1973), two skin divers were drowned when a hydroelectric generating plant diverted the normal flow of the river by drawing in large quantities of water. The court found no maritime nexus and did not sustain admiralty jurisdiction.

We hold that appellee’s control of the water level of a lake for the purpose of generating electricity, which results in a diving accident, does not bear a sufficiently significant relationship to traditional maritime activity to create federal admiralty jurisdiction. While the control of the water level of a navigable waterway may, in some cases, have an intimate relationship with maritime activities, there is no such maritime connection where a diving accident is the only consequence. The uniform body of rules and the expertise of admiralty are irrelevant to the issues in a diving accident. Conversely, the state tort law is most directly concerned with such accidents, and is quite capable of resolving the present controversy without any effect on the federal interest in maritime activities.

Motion for summary affirmance is granted.

      . While the Supreme Court has applied the maritime nexus test only in the case of an airplane crash it is clearly not limited to that situation. The Supreme Court’s rationale with respect to the inadequacy of the locality test, the history and function of admiralty jurisdiction and federal-state comity, applies even more strongly to swimming and diving accidents than to airplane crashes.
      The court in Executive Jet Aviation illustrated the absurdity of the locality test by using the example of a swimmer injured by a submerged object. Id. at 255, 93 S.Ct. 493. The court also cited with apparent approval two cases which applied a maritime nexus test to diving and swimming accidents, Chapman v. City of Grosse Pointe Farms, 385 F.2d 962 (6th Cir. 1967) ; McGuire v. City of New York, 192 F.Supp. 866 (S.D.N. Y.1961).
      The cases decided since Executive Jet Aviation also suggest that the maritime nexus test is not limited to airline crashes. See Kelly v. Smith, 485 F.2d 520 (5th Cir., 1973) ; Rubin v. Power Authority of New York, 356 F.Supp. 1169 (W.D.N.Y.1973) ; Adams v. Montana Power Co., 354 F.Supp. 1111 (D.C.Mont.1973). See generally Crosson v. Vance, 484 F.2d 840 (4th Cir., 1973.)

      . The court in Rubin v. Power Auth., supra, 356 F.Supp. at 1171, expressed doubt as to whether McCall v. Susquehanna Electric Co., supra, would meet the maritime nexus test of Executive Jet Aviation, and refused to consider the case as controlling precedent.
      Appellant’s assertion that the act of controlling the water level produces the necessary maritime nexus is weaker than the similar assertion in McCall, Adams or Rubin. The present case does not, as in McCall and Adams, involve the interference with boats on the river (a more traditional maritime concern than diving) nor was the act of changing the water level (and arguably its navigability) the instrumentality of the injury. In the present case a lowered water level merely created a condition dangerous to divers. The same dangerous condition would exist regardless of whether the waters were navigable.

      . Cf. Crosson v. Vance, supra, 484 F.2d at 841. See generally Executive Jet Aviation v. Cleveland, supra, 409 U.S. at 272-273, 93 S.Ct. 493.


author: MATTHES, Senior Circuit Judge. ROSS, Circuit Judge

text:
    UNITED STATES of America, Appellee, v. Isaac STATES, Appellant. UNITED STATES of America, Appellee, v. Michael McCOY, Appellant. UNITED STATES of America, Appellee, v. Robert MORGAN, Appellant.
    Nos. 73-1253, 73-1214, 73-1244.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 13, 1973.
    Decided Dec. 5, 1973.

      Murry L. Randall, St. Louis, Mo., for Isaac States.
    James A. Bell, St. Louis, Mo., for Michael McCoy and Robert Morgan.
    David W. Harlan, Asst. U. S. Atty., St. Louis, Mo., for appellee.
    Before MATTHES, Senior Circuit Judge, and LAY and ROSS, Circuit Judges.
   MATTHES, Senior Circuit Judge.

A multiple count indictment charged appellants with mail fraud in violation of 18 U.S.C. §§ 1341 and 1342, and with conspiracy to commit mail fraud in violation of 18 U.S.C. § 371. Their separate appeals have been consolidated for the purpose of argument and opinion.

Before trial appellants moved to dismiss the indictment asserting that it failed to allege that anyone had been defrauded of any money or property, and consequently failed to state an offense against the United States. The court denied the motions to dismiss and filed a memorandum opinion setting forth in detail the legal basis for sustaining the validity of the indictment. United States v. States, 362 F.Supp. 1293 (E. D.Mo.1973).

The appellants waived a jury and a bench trial resulted in their convictions. Their appeals challenge the court’s action in entertaining the charge.

The indictment is lengthy. In addition to the conspiracy charge and the overt acts alleged in connection therewith, which is the subject of count one, there are 136 counts alleging substantive violations of either § 1341 or § 1342. Each substantive count was based upon the use of the mails for the purpose of executing the fraudulent scheme concocted by the parties to the conspiracy.

Recognizing that the elements of the scheme or artifice to defraud are the heart of appellants’ case, we review briefly, the pertinent parts of the indictment and, in so doing, adopt the language of the district court set forth on page 1294 of 362 F.Supp.

The indictment charges that the defendants devised a scheme to defraud the voters and residents of the third and nineteenth wards of the City of St. Louis and the Board of Election Commissioners of the City of St. Louis by the use of fraudulent voter registrations and applications for absentee ballots. It is alleged that the purpose of the scheme to defraud was to influence the outcome of the election of the Republican Committeeman for the nineteenth ward and the Democratic Committeeman for the third ward “for the purpose of securing and controlling said political offices and the political influence and financial benefits of said offices * * It is further alleged that as part of the scheme to defraud, the defendants submitted false and fraudulent voter registration affidavits bearing the names of false and fictitious persons with false addresses and caused the St. Louis Board of Election Commissioners to place absentee ballots for the fictitious persons in an authorized depository for mail matter.

■ The evidence conclusively supported the fraudulent scheme as framed in the indictment. A summary of that evidence will serve to place the issue in controversy in proper perspective.

Appellant Isaac States was a candidate in 1972 for the office of Democratic Committeeman from the third ward in the City of St. Louis, and Robert Morgan was a candidate for Republican Committeeman from the nineteenth ward in the same city. Morgan entered into a scheme with his campaign manager to falsify voter registration affidavits in order to carry out an extensive write-in campaign for Morgan. Morgan obtained blank affidavits, and campaign workers began filling in the affidavits with fictitious names and addresses. A few days later, States was invited to join the operation in order to benefit his own campaign, and he agreed.

Appellants Morgan and States then devised a more elaborate aspect of the scheme, in which they applied for absentee ballots in the names of the phantom voters whose names appeared on the falsified voter registration affidavits. The absentee ballot operation eliminated the necessity of sending persons to the polls to vote under the fictitious names on the falsified registration affidavits, since the absentee ballots would be mailed by the Board of Election Commissioners to the nonexistent voters. A mailing address accessible to the appellants was listed on each absentee ballot application. The appellants planned to retrieve the ballots, mark them, and then return them to the election board for counting.

Appellant Michael McCoy was involved in filling out the applications for absentee ballots in the names of the nonexistent voters, as well as preparing the falsified voter registration affidavits. Each application stated that it was a violation of state law to improperly complete an application, and advised the applicant that the absentee ballot would be sent to him by registered mail.

The Board of Election Commissioners mailed numerous absentee ballots to nonexistent voters as a result of the appellants’ scheme: twenty-one were actually delivered by the Postal Service, and others were held by the Service because the route mail carrier knew that the person named on the envelope containing the ballot did not live at the address indicated. The action of the Postal Service foiled the operation, and the appellants were subsequently indicted.

At the outset of their claim for reversal the appellants submit that the very language of 18 U.S.C. § 1341 mandates a holding that there is an offense under the statute only if money or property is involved in the scheme to defraud. Appellants argue that the first phrase of § 1341, dealing with “any scheme or artifice to defraud,” must be read in conjunction with the second phrase, concerning “obtaining money or property by means of false or fraudulent pretenses, representations, or promises,” which was added to the statute by a subsequent amendment. Appellants suggest that the second phrase was added to the predecessor of § 1841 because Congress believed that the “scheme to defraud” language included only frauds perpetrated without misrepresentations. They argue that the explicit “money or property” limitation in the added passage reveals that Congress believed that the first phrase in the original legislation dealt only with schemes to defraud of money or property.

But no case or legislative history is cited by the appellants supporting such an interpretation of legislative intent, nor does there appear to be any authority justifying such a construction of the statute. Moreover, not only does the appellants’ conjunctive construction of the two phrases place a very strained and limited meaning on the broad wording of the first phrase, but a reading of the statute as a whole reveals that the two phrases in question are part of an uninterrupted listing of a series of obviously diverse schemes which result in criminal sanctions if the mails are used. The more natural construction of the wording in the statute is to view the two phrases independently, rather than complementary of one another. Indeed, numerous courts have construed the “scheme or artifice to defraud” language of § 1341 without reference to the “obtaining money or property” phrase. See United States v. Classic, 35 F.Supp. 457 (E.D.La.1940); cf. United States v. Regent Office Supply Co., 421 F.2d 1174 (2d Cir. 1970); Blachly v. United States, 380 F.2d 665 (5th Cir. 1967); Abbott v. United States, 239 F.2d 310 (5th Cir. 1956).

Consequently, we hold that the language of the statute on its face does not preclude a finding that a “scheme or artifice to defraud” need not concern money or property. Since the statutory wording itself does not conclusively resolve the issue presented by the appellants, and since the legislative history does not deal with the scope and meaning of the provision of the statute in issue, we examine judicial opinions construing § 1341 for assistance in definitely determining whether the statute should apply to the facts of this case.

Initially, it should be noted that the concept of fraud in § 1341 is to be construed very broadly. Durland v. United States, 161 U.S. 306, 16 S.Ct. 508, 40 L.Ed. 709 (1896); Shushan v. United States, 117 F.2d 110, 115 (5th Cir.), cert. denied, 313 U.S. 574, 61 S.Ct. 1085, 85 L.Ed. 1531 (1941); Gouled v. United States, 273 F. 506, 508 (2d Cir. 1921), where the court stated: “As it now stands, any kind or species of scheme or artifice to defraud is punishable in the national courts, if and whenever for the purpose of executing that scheme the postal establishment is used. * * * ”; United States v. Procter & Gamble Co., 47 F.Supp. 676, 678 (D. Mass.1942). In Blachly v. United States, supra, the court observed:

The crime of mail fraud is broad in scope. * * * The fraudulent aspect of the scheme to “defraud” is measured by a nontechnical standard. * * * Law puts its imprimatur on the accepted moral standards and condemns conduct which fails to match the “reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general and business life of the members of society.” This is indeed broad. For as Judge Holmes once observed, “[t]he law does not define fraud; it needs no definition. It is as old as falsehood and as versable as human ingenuity.”

380 F.2d at 671.

Likewise, the definition of fraud in § 1341 is to be broadly and liberally construed to further the purpose of the statute; namely, to prohibit the misuse of the mails to further fraudulent enterprises. Cf. Durland v. United States, supra. Accordingly, many courts have construed the term “scheme or artifice to defraud” to include within its ambit widely diverse schemes. See United States v. Edwards, 458 F.2d 875 (5th Cir.), cert. denied, 409 U.S. 1029, 93 S. Ct. 459, 34 L.Ed.2d 323 (1972) (divorce mill granting decrees of questionable validity) ; Shushan v. United States, supra (bribery of public officials); Abbott v. United States, supra (bribery of oil company employee to gain company’s, geophysical maps); Horman v. United States, 116 F. 350, 53 C.C.A. 570, cert. denied, 187 U.S. 641, 23 S.Ct. 841, 47 L. . Ed. 845 (1902) (mailing of extortion note under predecessor to § 1341); United States v. Classic, supra (ballot tampering by election officials).

Here, we have a scheme by the appellants to deceive and defraud the public and the Board of Election Commissioners of certain intangible political and civil rights. Although few courts have considered whether vote fraud schemes . using the Postal Service are included within the mail fraud statute, United States v. Classic, supra, is one such case. decided on that issue. In Classic, the defendant election officials used the mails in the course of a scheme to change and alter ballots to read in favor of the eventually successful candidate. The district court overruled a demurrer to two mail fraud counts in the indictment against the officials, stating:

The mail fraud statute denounces the use of the mails, in the actual, or attempted, execution of any devised scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretences, rep--resentations or promises * * *.

35 F.Supp. at 458 (emphasis in original).

Another district court case, United States v. Randle, 39 F.Supp. 759 (W.D. La.1941), relied upon by appellants, held that the mail fraud statute could not be applied in an election fraud case because neither the voters nor the sovereign had been defrauded of money or property. The court’s opinion in Randle, however, appears to reflect a misunderstanding of the statutory basis for the indictment involved in that case, for two of the three cases cited by the Randle court dealt with a federal court’s lack of statutory authority to prosecute in voter bribery cases under a statute making it a substantive offense to oppress citizens in the exercise of rights granted by the Constitution or laws of the United States. See United States v. Bathgate, 246 U.S. 220, 38 S.Ct. 269, 62 L.Ed. 676 (1918); United States v. Gradwell, 243 U.S. 476, 37 S.Ct. 407, 61 L.Ed. 857 (1917). Gradwell also held that the conspiracy to bribe voters was not a “conspiracy to defraud the United States” under a predecessor to 18 U.S.C. § 371, a provision different from the mail fraud statute involved in Randle and in our case. The third opinion cited by Randle, United States v. Hammerschmidt, 265 U.S. 182, 44 S.Ct. 511, 68 L.Ed. 968 (1924), also was prosecuted under a predecessor to § 371. Although the Hammerschmidt decision mentioned the mail fraud statute in dictum, it stated that an earlier circuit court of appeals case had held that there need not be a finding of “trickery or cunning” for the conduct to be included within the language of the mail fraud statute, and that the holding in Horman should be limited to cases involving fraud of money or property. In the instánt case, it is obvious that “trickery or cunning” was involved in the scheme to falsify voter registration affidavits.

Thus we agree with the district court that neither United States v. Randle nor the decisions cited by that opinion serve as authority for the proposition that only schemes using the mails to defraud the victim of property or money can be brought within the ambit of 18 U.S.C. § 1341.

There are also cases concerning bribery schemes which support the view that money or tangible property need not be involved in the scheme to defraud in order for the mail fraud statute to be invoked. Beginning with Shushan v. United States, supra, the Fifth Circuit has included within the term “scheme or artifice to defraud” an operation to bribe and corrupt public officials in order to gain advantages and special treatment. See also Steiner v. United States, 134 F.2d 931 (5th Cir.), cert. denied, 319 U.S. 774, 63 S.Ct. 1439, 87 L.Ed. 1721 (1943); Bradford v. United States, 129 F.2d 274 (5th Cir.), cert. denied, 317 U.S. 683, 63 S.Ct. 205, 87 L.Ed. 547 (1942). In Shushan there is the implication that a scheme to gain personal favors from public officials is a scheme to defraud the public, although the interest lost by the public can be described no more concretely than as an intangible right to the proper and honest administration of government. “[T]here must be a purpose to do wrong which is inconsistent with moral uprightness.” See 117 F.2d at 15. This concept, that a scheme to defraud of certain intangible rights is grounds for prosecution under § 1341 if the mails are used, is more explicitly stated in United States v. Faser, 303 F.Supp. 380 (E.D. La.1969). In Faser, the defendants were indicted under the mail fraud statue after they accepted bribes to deposit public funds in a certain bank. There, as here, the defendants contended the indictment failed to state an offense because it did not allege that someone was actually defrauded out of something tangible that can be measured in terms of money or property. In rejecting that argument the court specifically discussed whether a fraudulent scheme must entail money or property in order for there to be an offense under § 1341. As an alternative ground for overruling the motion to dismiss, the court stated:

[I]t is further the opinion of this Court that the thing out of which it is charged that the State was defrauded need not necessarily be that which can be measured in terms of money or property. It is the opinion of this Court that it is a violation of the statute in question if a person defrauds the State out of the “loyal and faithful services of an employee.” * * *
Thus it seems quite clear that even if the thing out of which the State was allegedly defrauded was not susceptible of measurement in terms of money or physical property, a valid indictment may still result therefrom.

303 F.Supp. at 384-385.

See also United States v. George, 477 F.2d 508 (7th Cir. 1973); United States v. Procter & Gamble Co., 47 F. Supp. 676 (D.Mass.1942). In each of these cases, the court upheld the mail fraud indictment on the ground that the mails had been used in a scheme to defraud a corporation of the “honest and faithful services” of one or more employees. In addition, cf. Alexander v. United States, 95 F.2d 873 (8th Cir. 1938) (defendants convicted for using mails in scheme “to defraud the public” by issuing false medical diplomas and licenses to persons without medical education). These cases serve as persuasive authority for the proposition that in a prosecution for use of the mails to further and execute a vote fraud scheme the indictment states an offense even though it does not contain allegations that anyone was defrauded of any property or money.

Nevertheless, the appellants argue that the application of the mail fraud statute to the facts of this case will result in a “policing” of state election procedure, and that Congress has never explicitly authorized such widespread intervention into state affairs. The appellants’ argument misinterprets the purpose of the mail fraud legislation. The focus of the statute is upon the misuse of the Postal Service, not the, regulation of state affairs, and Congress clearly has the authority to regulate such misuse of the mails. See Badders v. United States, 240 U.S. 391, 393, 36 S.Ct. 367, 368, 60 L.Ed. 706 (1916): “The overt act of putting a letter into the post-' office of the United States is a matter that Congress may regulate. * * *. Whatever the limits to its power, it may forbid any such acts done in furtherance, of a scheme it regards as contrary to. public policy, whether it can forbid the scheme or not.” The purpose of 18 U. S.C. § 1341 is to prevent the Postal" Service from being used to carry out fraudulent schemes, regardless of what is the exact nature of the scheme and regardless of whether it happens to be forbidden by state law. See Parr v. United States, 363 U.S. 370, 389, 390, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960); cf. Brady v. United States, 24 F.2d 405, 407 (8th Cir. 1928). “Congress definitely intends that the misuse of the mails shall be controlled even though it be its policy to leave the control of elections to the several States.” United States v. Classic, supra, 35 F.Supp. at 458.

The appellants’ argument presents no justification for refusing to" apply the mail fraud statutes to the facts of this case. The prosecution of appellants in federal court for mail fraud does not interfere with the state’s enforcement of its election laws. There. ■ are no grounds for dismissing the indictment under the principles of comity or the abstention doctrine or under any other principle of federalism.

Finally, appellant Michael McCoy urges that there is insufficient evidence to support his conviction. We disagree. There was adequate evidence to support a finding beyond reasonable doubt that McCoy willingly and knowingly participated in the illegal absentee ballot operation. McCoy admitted that he falsely completed absentee ballot applications, and each application advised the applicant of the illegality of false statements and notified the applicant that the ballot would be sent by mail to him.

In sum, we hold the indictment alleged a federal offense and the evidence proved every element thereof.

Affirmed.

ROSS, Circuit Judge

(concurring).

I reluctantly concur. The law, as capably expressed by Judge Matthes, leaves us no other alternative.

However, I cannot believe that it was the original intent of Congress that the Federal Government should take over the prosecution of every state crime involving fraud just because the mails have been used in furtherance of that crime. The facts in this ease show that this election fraud was purely a state matter. It should have been prosecuted in state court. The Assistant United States Attorney conceded in oral argument that the case was not the type of mail fraud case covered by written instructions contained in the United States Attorneys’ manual. In spite of this, the decision was made by the United States Attorney to prosecute the case without asking or receiving the approval of the Department of Justice. In so doing, he relieved the state of its duty to police the violation of its local election laws and helped create a precedent which will encourage the same sort of unwarranted federal preemption in the future.

      . In addition to appellants, six other persons were named as defendants and conspirators, and three unindicted persons were named as co-conspirators. Two of the other defendants pleaded guilty and four were acquitted.

      . 18 U.S.C. § 1341 prescribes certain punishments for whomever uses the Postal Service for the purpose of executing “any scheme or artifice to defraud.” 18 U.S.C. § 1342 proscribes the use of any fictitious name or address for the purpose of carrying out any scheme mentioned in § 1341. 18 U.S.C. § 371 makes unlawful any conspiracy to “commit any offense against the United States”; in this instance, mail fraud. Thus, if there is no offense under § 1341, the indictment is fatally defective.

      . 18 U.S.C. § 1341, as amended, now reads:
      § 1341. Frauds and swindles
      Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting to do so, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years, or both.

      . Horman v. United States, 116 F. 350, 53 C.C.A. 570, cert. denied, 187 U.S. 641, 23 S. Ct. 841, 47 L.Ed. 345 (1902).

      . Indeed, the suggestion in Hammerschmidt that the holding of Horman should be “confined” to those cases that deal with money or property fraud raises the implication that the Supreme Court recognized that the mail fraud statute covered a wider range of conduct than was at issue in Horman; namely, frauds not involving money or property as well as those that did. See 265 U.S. at 188-189, 44 S.Ct. 511, 68 L.Ed. 968.


author: LEWIS, Chief Judge.

text:
    Wilma L. KIRTLEY, Appellant, v. Clyde L. BICKERSTAFF, District Director of Internal Revenue, and the United States of America, Appellees. Josephine SCOTT, Appellant, v. William H. THOMPKINS, acting District Director of Internal Revenue, and the United States of America, Appellees.
    Nos. 73-1203 (71-781) and 73-1204 (71-596).
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Aug. 15, 1973.
    Decided Dec. 6, 1973.
    Rehearing Denied Feb. 1, 1974.
    John C. Moran, Oklahoma City, Okl. (Riley Brock, Oklahoma City, Okl., with him on the brief), for appellants.

      Bennet N. Hollander, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen.,' Ernest J. Brown and Daniel F. Ross, Attys., Dept, of Justice, and William R. Burkett, U. S. Atty., and Givens L. Ad- • ams, Asst. U. S. Atty., of counsel, with him on the brief), for appellees.
    Before LEWIS, Chief Judge, BARRETT, Circuit Judge, and TALBOT SMITH, District Judge.

      For the Eastern District of Michigan, sitting by designation.

   LEWIS, Chief Judge.

The dispositive issue in these consoli-' - dated appeals is whether original jurisdiction lies in the district courts to grant injunctive relief to claimants seeking to restrain the assessment or collection of taxes under allegation that they are “innocent spouses” within the scope of 26 U.S.C. § 6013(e). Each appellant alleges that she is an “innocent spouse, victimized by an embezzling husband, and entitled to relief by virtue of the cited statute. No specific administrative determination has been made of whether appellants are or are not “inno-. cent spouses” and each now seeks a judicial determination of that issue as a premise for the granting of injunctive-relief. The trial court in each case dismissed the actions for lack of jurisdiction, holding, in effect, that § 6013(e)" provides no specific grant of special jurisdiction to the courts and that appellants’ relief is limited to Tax Court procedure or to district court action for refund after payment.

We affirm. Jurisdiction to restrain the assessment or collection of taxes is denied to the courts under the mandate of § 7421 which provides in pertinent part:

(a) Tax. — Except as provided in sections 6212(a) and (c), 6213(a), and 7426(a) and (b)(1), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

The prohibition of § 7421 is broad, Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292, and judicial intervention is not allowable simply upon claim of potential hardship, “wrongfulness,” or difficulties encountered in procedures other than injunctive relief. We must, therefore, reject appellants’ arguments that it is the court’s duty to assume jurisdiction because of the claim that appellants are, in fact, “innocent spouses” and are not getting the relief that Congress intended for such persons. The court can grant injunctive relief if, and only if, a legislative or judicial exception to § 7421 exists.

None of the legislative exceptions to § 7421 establishes grounds for jurisdiction in these cases. The exceptions provided in § 6212(a) and (c)(1) and § 6213(a) . allow injunctions to prohibit assessment of deficiencies, levies, and collection suits unless and until the plaintiff lias been sent a notice of deficiency and allowed the statutory time to file a petition for redetermination with the Tax Court. Appellants neither claim nor allege any facts which would place them within these provisions.

The exceptions provided in § 7426(a) and (b)(1) do not allow jurisdiction to be exercised here since the section applies only to wrongful levies and does not allow litigation of the assessment itself. In fact, § 7426(c) expressly bars actions concerning the validity of an assessment. Appellants contend only that the levy is wrongful and not that it is defective itself as is required by the statute. Further, the section is available only to persons “other than the person against whom is assessed the tax out of which such levy arose.” Here appellants are the persons against whom the tax is assessed; accordingly, the exception does not exist. Nor'can appellants properly assert that they are not taxpayers by the expedient of boot strapping their yet unestablished claim to be “innocent spouses” as a jurisdictional basis for a judicial determination of fact perhaps leading to an adjudication that they should not be considered taxpayers. As this court has previously held:

The assessment of the tax is, of course, presumptively correct and in order to establish federal court jurisdiction for injunctive relief, more is required than bare allegations of illegality, even though such allegations may ultimately be sustained. Williams v. Wiseman, 10 Cir., 333 F.2d 810, 811.

Appellants’ contentions fall under the category of “bare allegations of illegality” and, therefore, do not come within the judicial exception to § 7421(a).

Nothing in § 6013(e) or its legislative history indicates any intent by Congress to create a new exception to § 7421 or a new procedure for litigating tax questions as the appellants contend. The subject section provides only for a new substantive tax relief element.

      . (e) Spouse Relieved of Liability in Certain Cases.—
      (1) In general. — Under regulations prescribed by the Secretary or his delegate, if— •
      (A) a joint return has been made under this section for a taxable year and on such return there was omitted from gross income an amount properly includable therein which is attributable to one spouse and which is in excess of 25 percent of the amount of gross income stated in the return,
      (B) the other spouse establishes that in signing the return he or she did not know of, and had no reason to know of, such omission, and
      (0) taking into account whether or not the other spouse significantly benefited directly or indirectly from the items omitted from gross income and taking into account all other facts and circumstances, it is in- . equitable to hold the other spouse liable for the deficiency in tax for such taxable year attributable to such omission,
      then the other spouse shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent that such liability is attributable to such omission from gross income.


author: SKOPIL, District Judge:

text:
    MICRO-MAGNETIC INDUSTRIES, INC., Appellee, v. ARDAC, INC., et al., Appellants.
    No. 72-2714.
    United States Court of Appeals, Ninth Circuit.
    Nov. 2, 1973.
    See also, 9 Cir., 488 F.2d 771.
    Carl Hoppe (argued), San Francisco, Cal., Edwin W. Oldham, Akron, Ohio, for appellants.
    Karl A. Limbach (argued), Limbach, Limbach & Sutton, Jesse Feldman, Feld-man, Waldman & Kline, San Francisco, Cal., for appellee.
    Before CHAMBERS and DUNIWAY, Circuit Judges, and SKOPIL, District Judge.

       Honorable Otto R. Skopil, Jr., United States District Judge, District of Oregon, sitting by-designation.

   SKOPIL, District Judge:

Appellee, Micro-Magnetic Industries, Inc., sued appellants, Ardac, Inc. and its subsidiaries, for infringement of United States Patent No. 2,964,641, referred to as the ‘Selgin II patent.

The suit upon the Selgin II invention was tried before the court which found that the Ardac machine infringed Claims 1, 4 and 5 of United States Patent No. 2,964,641. The court enjoined the defendants from infringing Claims 1, 4 and 5 without a license from Micro-Magnetic, and awarded damages for infringement based upon four percent of the price of Ardae’s machine. Ardac appeals from that judgment.

Having reviewed the record, we have concluded that the trial court’s findings of fact are clearly supported by the evidence. We agree with the trial judge’s opinion and affirm the case on the authority thereof. That opinion is reported at 372 F.Supp. 477 (D.C.1972).

Affirmed.


author: DUNIWAY, Circuit Judge:

text:
    MICRO-MAGNETIC INDUSTRIES, INC., a corporation, Plaintiff Appellant, v. ADVANCE AUTOMATIC SALES CO., INC., et al., Defendants-Appellees.
    No. 72-2733.
    United States Court of Appeals, Ninth Circuit.
    Nov. 6, 1973.
    Carl Hoppe (argued), San Francisco, Cal., Edwin W. Oldham, Akron, Ohio, for plaintiff-appellant.
    Karl A. Limbach (argued), of Lim-bach, Limbach & Sutton, San Francisco; Feldman, Waldman & Kline, San Francisco, Cal., for defendants-appellees.
    Before CHAMBERS and DUNIWAY, Circuit Judges, and SKOPIL, District Judge.

       The Honorable Otto R. Skopil, United States District Judge for the District of Oregon, sitting by designation.

   OPINION

DUNIWAY, Circuit Judge:

This is a cross-appeal in a suit for patent infringement. See Micro-Magnetic Industries v. Advance Automatic Sales Co., 9 Cir., 1973, 488 F.2d 770. Micro-Magnetic Industries, the plaintiff below, appeals from a summary judgment holding that its U. S. Patent No. 3,256,968 (the Riddle patent) is invalid as a matter of law. We reverse.

The relevant facts are as follows: In 1960 Micro-Magnetic was formed as a sole proprietorship by John Riddle in order to develop and market currency recognition devices for use in vending machines. The original device produced by Micro-Magnetic was a magnetic validator, which distinguish genuine bills by means of magnetic properties of the ink used to print them. In October, 1961 Riddle and one of his engineers conceived of an optical validator, a device which could “visually recognize” bills. See generally Micro-Magnetic Industries v. Advance Automatic Sales Co., supra, 488 F.2d at 770. They immediately began working to develop the optical vali-dator, and a prototype of the device upon which the Riddle patent was eventually obtained was assembled in early 1962.

Also in early 1962 Riddle began to have financial difficulties. He thereupon entered into negotiations with Borg-Warner Corporation, and on March 9, 1962, a contract was signed which in essence gave Borg-Warner an option to purchase the assets of Micro-Magnetic. Under the contract, Riddle was to receive $10,000 immediately, and additional payments totalling nearly two million dollars if the sale were consummated. In return, Borg-Warner was to receive “inventions, patent applications, patent rights, trademark(s) (if any), copyrights (if any), drawings, prints, sketches, specifications, manuals, related written material, models, inventory, parts and equipment,” and any other “properties used in the business known as Micro-Magnetic Industries.” Pursuant to the contract, Riddle sent a number of items to Borg-Warner for its inspection, including the prototype optical validator. On April 5, 1962, Borg-Warner exercised its option to terminate the agreement, and all of Micro-Magnetic’s property, including the prototype, was returned to Riddle. He and his co-inventor eventually applied for a patent on the optical validator on August 13, 1963.

Based upon these facts, the district court concluded that the Riddle patent was invalid under the terms of 35 U.S.C. § 102(b), which provides in pertinent part:

“A person shall be entitled to a patent unless—
(b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States, . . . ”.

Micro-Magnetic advances two grounds for reversal. First, it argues that álthough the contract between Riddle and Borg-Warner would have transferred title to the optical validator, the transaction was in reality merely a means of reorganizing a business which was in financial distress. It argues that section 102(b) was not intended to apply to every such sale of a business. We agree.

The policy underlying the public use and on sale bars to patentability is to prevent an inventor “from extending the period of his monopoly by exploiting his invention before his application for a patent.” Pickering v. Holman, 9 Cir., 1972, 459 F.2d 403, 406 (citing cases). The considerations which dictate a decision to reorganize a business and the form that such reorganization may take are varied, and are not necessarily inconsistent with this goal. See generally H. Henn, Law of Corporations §§ 16, 17 (2d ed. 1970). The injection of new capital into an inventor’s business may facilitate the eventual commercial exploitation of any inventions upon which he is working, but this is no more true when the form of refinancing is a sale of assets or merger than when the inventor takes in a partner, issues or sells stock, or merely obtains a loan. Thus, we refuse to attach definitive significance to the fact that the optical validator, as one of Micro-Magnetic’s many assets, was to be sold under Riddle’s contract with Borg-Warner. Merely entering into that arrangement did not automatically trigger section 102(b).

On the other hand, in some cases a proposed sale of an inventor’s business may amount to little more than the sale of one or more specific inventions or machines of which they are a part. In such circumstances the inventions themselves would be on sale within the literal meaning of section 102(b). On the record before us, we are unable to deter mine whether Riddle and Borg-Warner intended that this be such a sale. When the contract was made, Micro-Magnetic was an ongoing business producing and marketing magnetic validators and it now asserts that the optical validator idea was a small part of its assets. However, it also claims that the optical validator was a major breakthrough in the field of currency recognition devices, and the prototype was demonstrated to Borg-Warner personnel after the contract was signed. Thus, far more needs to be known regarding the course of dealing between Riddle and Borg-Warner in order to determine the motivation-for the sale of Micro-Magnetic’s assets. The issue was therefore inappropriate for summary judgment.

Summary judgment was inappropriate for a second reason. Even; though an invention falls within the express terms of section 102(b) by being in public use or on sale more than one year prior to the filing of a patent application, such sale or use will not invalidate the patent if it was primarily for experimental purposes. See Smith & Griggs Mfg. Co. v. Sprague, 1887, 123 U.S. 249, 8 S.Ct. 122, 31 L.Ed. 141; Elizabeth v. Pavement Co., 1877, 97 U.S. 126, 24 L. Ed. 1000; Pickering v. Holman, supra. We have held that whether a particular use or sale is experimental is a question of fact. See Cataphote Corp. v. DeSoto Chemical Coatings, Inc., 9 Cir., 1966, 356 F.2d 24, 26, modified on other grounds 358 F.2d 732, cert. den. 385 U. S. 832, 87 S.Ct. 71, 17 L.Ed.2d 67; Willamette-Hyster Co. v. Pacific Car & Foundry Co., 9 Cir., 1941, 122 F.2d 492, 497.

We have recently articulated the fol-, lowing rule regarding the appropriateness of summary judgment when a claim of “experimental sale” is made;

“A sale or an offering for sale precludes any inquiry into the experimental nature of the sale unless the contract of sale or the offering for sale contains an express or clearly implied condition that the sale or offering is made primarily for experimental use.
Thus the sale or offering would not ipso facto invalidate the patent nor preclude further inquiry into the experimental nature of the use where the contract or the offer stated that the sale was for experimental purposes . . .; or showed that the device was still experimental and that no workable prototype had been made .; or required that the invention should be kept confidential or from public view, or that reports on the use of the invention should be supplied to the inventor . . .; or other similar statements appeared from which it could clearly be implied that the sale or offering was made for an experimental purpose.” The Robbins Co. v. Lawrence Mfg. Co., 9 Cir., 1973, 482 F.2d 426 at 433.

Even assuming that Riddle’s contract with Borg-Warner amounted to placing the optical validator itself on sale, there is a question of fact as to whether the offer was conditioned upon further experimentation. The contract expressly provided that, in the event that the sale was consummated, Borg-Warner was to budget $250,000 per year for research and development of Micro-Magnetic’s products, and it is undisputed that the deal was to include a five-year employment contract for Riddle. Moreover, although the prototype was assembled and demonstrated to Borg-Warner shortly after the contract was entered into, Riddle testified in his deposition that it varied significantly from the device which was eventually patented, and the extent of the demonstration was to distinguish genuine one dollar bills from play money. Nothing in the record enables us to evaluate the significance of such a test. Thus, even if it is determined that the optical validator was on sale, the rule in The Robbins Co. requires further hearings in this case to resolve the question of whether the purpose of the contract was experimental or “to exploit the invention and gain a competitive advantage over others.” Pickering v. Holman, supra, quoting Solo Cup Co. v. Paper Mach. Corp., E. D.Wis., 1965, 240 F.Supp. 126, 131.

Reversed and remanded.

      . Defendants urge that “the sale of the whole is always equivalent to the sale of the individual parts” for purposes of section 102(b). However, the cases which it cites for this proposition all involve situations in which the invention was a working part of a larger machine and it was merely fulfilling its intended use. E. g., Koehring Co. v. National Automatic Tool Co., 7 Cir., 1966, 362 F. 2d 100; Monroe Auto Equipment Co. v. Superior Industries, 9 Cir., 1964, 332 F.2d 473, 483-485. Such cases do not apply to the facts before us. Moreover, we observe that, even in such cases, section 102(b) does not automatically apply, even if the sale is not for experimental purposes. See, e. g., Watson v. Allen, 1958, 103 U.S.App.D.C. 5, 254 F. 2d 342.


author: KOELSCH, Circuit Judge:

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. Arthur H. KENNY, dba S & K Chevrolet, Respondent.
    No. 72-1826.
    United States Court of Appeals, Ninth Circuit.
    Nov. 29, 1973.
    Rehearing Denied Jan. 24, 1974.
    Marcel Mallet-Prevost, Asst. Gen. Counsel, Lawrence Levien, Atty. N.L.R. B., Washington, D. C., Roy O. Hoffman, Director, Region 20, N.L.R.B., San Francisco, Cal., for petitioner.
    Allen W. Teagle (argued), of Littler, Mendelson & Fastiff, San Francisco, Cal., for respondent.
    Before MERRILL, KOELSCH and SNEED, Circuit Judges.
   KOELSCH, Circuit Judge:

The National Labor Relations Board seeks enforcement of its order of March 22, 1972, finding that Arthur H. Kenny d/b/a S & K Chevrolet (“the Company”), by refusing to recognize and bargain with the certified Union, violated § 8(a)(5) and (1) of the National Labor Relations Act. We conclude that the order should be enforced.

Pursuant to a stipulation for certification upon consent election, a representation election was conducted among the employees constituting the unit of automobile salesmen at the Company’s Vallejo, California, facility. The tally of ballots revealed four votes in favor of Union representation, four against, and one pro-Union ballot challenged on the ground of ineligibility of the voter. Because the single challenged ballot was sufficient to affect the outcome of the election, the Company submitted evidence to the Regional Director supporting exclusion of that ballot from the tally. In accordance with the Board’s rules and regulations, the Regional Director conducted an investigation and thereafter issued a report recommending that the challenged ballot be included in the tally. The Company filed exceptions to the report, but the Board, noting that the exceptions raised no substantial and material issues of fact, affirmed the Regional Director’s recommendations without a hearing. The tally was thereafter revised to include the challenged ballot, and the Union was certified as duly elected representative of the affected employees.

When the Union thereafter requested that the Company meet with it for the purpose of collective bargaining, the Company refused to do so on the basis that it still contested the election. At the subsequent hearing on the Board’s complaint alleging unfair labor prac-r tices, the trial examiner rejected the Company’s offer of evidence as to the eligibility of the voter whose ballot had been challenged and declined to permit it to relitigate the merits of the certification; rather, the examiner found that the Company had engaged in unfair labor practices within the meaning of § 8(a)(5) and, derivatively, § 8(a)(1) of the Act. The Board affirmed the trial examiner’s decision and entered the order for which it now seeks enforcement.

The Company’s principal contention is that the Board erred in failing to direct a hearing on the exceptions to the Regional Director’s report. We disagree.

A party excepting to a Regional Director’s recommendations is not entitled to a hearing thereon unless “ . . . such exceptions raise substantial and material factual issues . .” N.L.R.B. v. J. R. Simplot Company, 322 F.2d 170, 172 (9th Cir. 1963). The exceptions must state the specific findings that are controverted, and they must be accompanied by offers of proof in support of findings to the contrary. Simplot, supra; N.L.R.B. v. Tennessee Packers, Inc., 379 F.2d 172 (6th Cir. 1967), cert. denied 389 U.S. 958, 88 S.Ct. 338, 19 L.Ed.2d 364 (1967); see Sonoco Products Company v. N.L.R.B., 399 F.2d 835 (9th Cir. 1968); N.L.R.B. v. Medical Ancillary Services, Inc., 478 F.2d 96 (6th Cir. 1973). As the court pointed out in Tennessee Packers, supra, 379 F.2d at 178:

“The exceptions must state the specific findings that are controverted and must show what evidence will be presented to support a contrary finding or conclusion. [Citations omitted.] Mere disagreement with the Regional Director’s reasoning and conclusions do not raise ‘substantial and material factual issues.’ This is not to say that a party cannot except to the inferences and conclusions drawn by the Regional Director, but that such disagreement, in itself, cannot be the basis for demanding a hearing. To request a hearing a party must, in its exceptions, define its disagreements and make an offer of proof to support findings contrary to those of the Regional Director. The Board is entitled to rely on the report of the Regional Director in the absence of specific assertions of error, substantiated by offers of proof.
“The purpose behind the rule which requires a hearing only when ‘substantial and material factual issues’ are raised is to avoid lengthy and protracted proceedings, and eliminate unnecessary delays in certifying the results of an election. If a hearing is required to be held on all exceptions to an election or report of a Regional Director, it would unduly lengthen and prolong labor unrest, contrary to the very purposes of the National Labor Relations Act.”

Here, the Company totally omitted to bolster its exceptions with either evidence or offers of proof in support of a contrary result. Accordingly, the Board was entitled to rely on the report of the Regional Director. Tennessee Packers and Medical Ancillary Services, supra. Moreover, the Board’s resolution of the challenge, based on that report, was well within its discretion under the applicable case law. Illinois State Journal Register, Inc. v. N.L.R.B., 412 F.2d 37, 40 (7th Cir. 1969) ; N.L.R.B. v. Hardy-Herpolsheimer Division of Allied Stores of Michigan, 453 F.2d 877, 878 (6th Cir. 1972).

Since no newly discovered or previously unavailable evidence was offered in the unfair labor practices proceeding, the Company’s request “to relitigate issues which were or could have been litigated in the representation proceeding” was properly denied. Sunshine Convalescent Hospital, Inc., 187 N.L.R. B. 688, 689 (1971), enforced, per cur-iam, 453 F.2d 748 (9th Cir. 1972); see Pittsburgh Plate Glass Company v. N.L. R.B., 313 U.S. 146, 61 S.Ct. 908, 85 L. Ed. 1251 (1941).

The Board’s order will be enforced.

      . Tlie Board’s decision and order may be found at 195 N.L.R.B. No. 177 (1973).

      . Teamsters, Chauffeurs, Warehousemen and Helpers Local No. 490, International Brotherhood of Teamsters, Chauffeurs, Ware-housemen and Helpers of America.

      . 29 C.F.R. § 102.69.

      . The Company cites our decisions in Sonoco, supra, N. L. R. B. v. Harrah’s Club, 403 F. 2d 865 (9th Cir. 1968), and N. L. R. B. v. W. R. Ames Co., 450 F.2d 1209 (9th Cir. 1971). True, in each of those cases we did remand for an evidentiary hearing; but as the opinions show in each of them, the employer had made an offer of proof raising a substantial and material issue of fact.


author: DYER, Circuit Judge:

text:
    In the Matter of GOODSON STEEL CORPORATION, Bankrupt. REPUBLIC NATIONAL BANK OF HOUSTON, Appellant, v. Myron M. SHEINFELD, Trustee for Goodson Steel Corporation, Bankrupt, Appellee.
    No. 73-1920.
    United States Court of Appeals, Fifth Circuit.
    Jan. 28, 1974.

      Daniel S. Trachtenberg, Clarence Mayer, Houston, Tex., for appellant.
    Rey Stroube, Houston, Tex., for ap-pellees.
    Before GODBOLD, DYER and GEE, Circuit Judges.
   DYER, Circuit Judge:

Republic National Bank of Houston appeals from an order of the district court, which, on a petition for review, affirmed an order of the Referee in bankruptcy directing the bank to turn over and deliver to the trustee in bankruptcy the sum of $5,160.19. This amount was on deposit with the bank in a Payroll Account of the bankrupt, Goodson Steel Corporation, and had been set off by the bank against Goodson’s past due note. We reverse and remand for further consideration of the unresolved factual dispute concerning the priority in time of the presentation to the bank of the bankrupt’s check for $1,935.00 vis-a-vis the bank’s set off. We reverse and render as to the other funds set off by the bank.

Prior to the adjudication of Goodson as a bankrupt it conducted its banking affairs with Republic. The corporation maintained two accounts, one undesig-nated and the other designated “Payroll Account.” On June 20, 1968, the Payroll Account showed a balance of $5,160.-19. Sometime on the same date Goodson mailed its check to the bank in the amount of $1,935.00, drawn on the Payroll Account naming the bank as payee. The check was accompanied by a federal tax deposit form and was to be deposited in a treasury tax and loan account for withheld income and FICA taxes for the two week period of June 1 to June 15, 1968. Republic’s records indicate that the check was processed on June 24, 1968, and stamped “Refer to maker” on the back. Republic retained possession of the check.

During this time Goodson was delinquent on a large promissory note due on June 5, 1968 and owed a substantial amount to the bank. After unsuccessful efforts to resolve this delinquency with Goodson, Republic, on June 22, 1968, exercised its right of set off against both the undesignated and the Payroll Accounts and applied the balances against the past due note. Consequently, Good-son’s check for $1,935.00, drawn on the Payroll Account and processed on June 24, 1968, was not honored.

The trustee subsequently made application for, and the Referee issued, an order requiring Republic to show cause why it should not turn over to the trustee the sum of $1,935.00. After a hearing the Referee entered an order requiring Republic to turn over $5,160.19, the entire amount on deposit in the Payroll Account. Republic seasonably filed a petition for review which was, in due course, denied by the district court and this appeal was taken.

The thrust of Republic’s appeal is that the Payroll Account was not a trust deposit or special account that deprived the bank of its set off rights and that in any event the relief granted extended beyond the scope of the pleadings and the evidence. The trustee responds that the Referee’s finding of fact, that Republic knew that the Payroll Account was a special account because the only cheeks paid from it were payroll checks and checks drawn on it for payment of taxes, was not clearly erroneous. Further, the trustee contends that the Referee applied the proper legal standard in concluding that the Payroll Account was a trust deposit within the purview of 26 U.S.C.A. § 7501(a) because the funds in it were withheld from Republic’s employees to cover taxes.

The record supports the trustee’s assertion that: multiple accounts were set up by Goodson at Republic; one such account was designated a Payroll Account; funds from this account were used to meet the payroll of the employees; funds from this account were used to pay withholding and FICA taxes; and in connection with the check drawn for payment of taxes, federal deposit tax forms were received by Republic from Goodson.

On the other side of the coin there was no evidence of a specific agreement, express or implied, by which the bank assumed the position of trustee of the funds in the Payroll Account. Republic could not have dishonored a check drawn on this account merely because the check was for a purpose other than to pay an employee or to pay taxes. For aught that appears in the record, the total funds in the Payroll Account could have been withdrawn by Goodson at any time for any purpose. As long as this account had a credit balance Goodson could use the funds in its regular course of business exactly the same as it did with other checking accounts.

First we consider whether the designation Payroll Account and the circumstances under which it was used were sufficient to restrict its balance and thus prevent it from being used as a set off. In making this determination we start with the premise that “In the turnover proceedings the Trustee carries the burden of proof to prove his case by clear and convincing evidence. Maggio v. Zeitz, 333 U.S. 56, 64, 68 S.Ct. 401, 92 L.Ed. 476 (1948); Oriel v. Russell, 278 U.S. 358, 362, 49 S.Ct. 173, 73 L.Ed. 419 (1928); Barry v. Crancer, 192 F.2d 939 (8 Cir. 1952)”, First National Bank of Clinton v. Julian, 8 Cir. 1967, 383 F.2d 329, 333, and that the issue to be decided is a matter of federal law, “with an interested eye” toward the Texas decisions. See In re A. M. Townson & Co., 3 Cir. 1960, 283 F.2d 449, 452.

The law of Texas with respect to general and special deposits was clearly explicated in Hudnall v. Tyler Bank & Trust Co., 1970, 458 S.W.2d 183, in which the Supreme Court of Texas said:

Neither the Texas Banking Code of 1943, the Uniform Commercial Code, nor other Texas statute appears to treat the subject of general and special deposits in banks. Certain rules of law, however, have long been established :
When money or its equivalent is deposited in a bank without any special agreement, the law implies that it is to be mingled with the other funds of the bank, the relation of debtor and creditor is created between the bank and the depositor, and the deposit is general. In such a transaction the bank becomes the owner of the fund. When, on the other hand, money or its equivalent is so deposited with an accompanying agreement that the identical thing deposited shall be returned, or that the same shall be paid out for a specific purpose, the relation thus created is not that of debtor and creditor. Such a transaction is a special deposit, and the bank is liable only as bailee. In such a case the fund is a trust fund, the bank acquires no title thereto, and is a mere trustee for the safe-keeping, return, or disbursement of the fund, according to the special contract by which the deposit is made. McBride v. American Ry. & Lighting Co., 60 Tex.Civ.App. 226, 127 S.W. 229 (1910, no writ).
We also approve the principle stated in the court of civil appeals’ opinion that where a depositor gives the bank the right to commingle his deposit with other funds owned by the bank, he creates only a general deposit whose funds the bank is authorized to use and disburse as it sees fit. (footnotes omitted)

Id. at 186.

The federal courts have long been in agreement with this principle. “The presumption is that deposits of money in a bank give rise to the relation of debtor and creditor, and not to one of trustee and beneficiary * * * ” In re Kountze Brothers, 2 Cir. 1939, 104 F.2d 157. More recently Chief Judge Brown, on analogous facts, aptly put it this way:

The special payroll account was special in name only. It was not a trust or similar individualized account. Segregation under that label was for the Bankrupt’s convenience only and the funds were subject to its unlimited dominion.

Ribaudo v. Citizens National Bank of Orlando, 5 Cir. 1958, 261 F.2d 929.

As a matter of law on uncontested facts the account here under consideration was a general checking account with no restrictions placed upon it. There was no agreement that the account was to be kept separate and isolated from the other checking accounts in Republic.

That is, the Bank did not and was not under any obligation to hold the money separate and apart from its other funds and to refrain from using the funds in its business. This type of reserve [payroll] account constitutes a general deposit for a special purpose which creates a general deposit that the Bank may -use in its regular business operations, the Bank becoming a debtor in the amount of the deposit.

First National Bank of Clinton v. Julian, supra, 383 F.2d at 337.

The common law right of set off and its express recognition in the Bankruptcy Act is undisputed. New York County National Bank v. Massey, 1904, 192 U.S. 138, 24 S.Ct. 199, 48 L.Ed. 380. Equally, so is the bank’s right to exercise that right of set off within four months of the bankruptcy and it may do so even before the adjudication in bankruptcy. Continental and Commercial Trust and Savings Bank v. Chicago Title and Trust Co., 1913, 229 U.S. 435, 33 S.Ct. 829, 57 L.Ed. 1268, 11 U.S.C.A. § 108. The finding of the district court that Good-son’s Payroll Account was a special account was clearly erroneous.

The trustee alternatively argues that since one of the uses to which Goodson Steel put its Payroll Account was to deposit funds for taxes that it was required to collect and withhold in compliance with 26 U.S.C.A. § 7501, the Referee correctly held that a turnover of the full amount of $5,160.19 should be sustained because the deposits made by Goodson to its Payroll Account were trust funds to cover taxes withheld from the bankrupt’s employees. And this is so, argues the trustee, even though the funds for paying taxes were only a fractional part of the Payroll Account because “it would be impossible to identify each individual dollar deposited as a tax dollar collected and withheld.”

It is unnecessary to belabor the well established principle that once withholding and FICA taxes are collected they become a trust fund in the hands of the employer. But the record discloses that neither party suggested, contended nor introduced any evidence before the Referee to show that the funds deposited in the Payroll Account were withheld tax funds and thus not subject to set-off by the bank. This legal theory first appeared in the Referee’s Memorandum after the hearing in which he concluded, “In still another context the funds in the payroll account are trust funds. Once these funds in the payroll account were segregated from the bankrupt’s general funds, 26 U.S.C.A. § 7501(a) made them trust funds to the extent necessary to cover the taxes withheld from bankrupt’s employees.” In denying the petition for review the district court enlarged upon the Referee’s conclusion by saying, “Further, to the extent those deposits in the payroll account represented withholding from employees’ salaries, they are presumed to be a special fund in trust for the United States, 26 U.S.C.A. § 7501(a).” We are unwilling to indulge in such a presumption.

Even if funds deposited in a general account can be identified as trust funds, another critical inquiry is whether the bank became the transferee of such trust funds with notice of their ‘character. Chapter 9 of the Restatement, “Liabilities of Third Persons” § 324(i) succinctly states the rule as follows':

i Set-off of the trustee’s personal indebtedness to the bank. If a bank in which trust funds have been deposited has notice that funds deposited are trust funds it cannot set off against the liability on the deposit a debt owing to it from the trustee personally.

For the trustee to prevail on the trust fund concept he had the burden to show that the funds deposited by Good-son were withheld tax funds and that-Republic had notice that this was so. There is no proof of either requirement.

We conclude that Goodson’s Payroll Account was neither a special account nor impressed with a trust, and Republic was therefore entitled to set off the balance of $5,160.19 in it unless Goodson’s check for $1,935.00 was presented for payment before the set off took place. Unfortunately, the Referee, believing this issue to be immaterial, made no finding on this issue. We must therefore remand the case for a determination by the fact finder whether Republic’s set off of the total amount in the Payroll Account occurred before the-$1,935.19 check of Goodson was presented for payment.

Republic is clearly entitled to a set off of $3,225.19, the balance of the Payroll Account. The judgment of the district-court is reversed and judgment for this amount is rendered in favor of Republic. If Goodson’s check for $1,935.00 was' presented before Republic’s set off, the trustee is entitled to prevail for this amount. If the set off by Republic occurred prior to presentment of Good-son’s check, Republic must prevail as to the $1,935.00.

Reversed and remanded, in part, reversed and rendered in part.

      . Section 68a of the Bankruptcy Act, 11 U.S. C.A. § 108, provides :
      In all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid.

      . Section 7501 provides that “Whenever any person is required to collect or withhold any internal revenue tax from any other person and to pay over such tax to the United States the amount of tax as collected or withheld shall be held to be a special fund in trust for the United States.