author: BARNES, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Charles Steven ANTONICK, Appellant.
    No. 71-2574.
    United States Court of Appeals, Ninth Circuit.
    June 1, 1973.
    As Modified on Denial of Rehearing and Rehearing En Banc July 13, 1973.

      Clay G. Diamos (argued), of O’Dowd, Fahringer & Diamos, Tucson, Ariz., for appellant.
    Ann Bowen, Asst. U. S. Atty. (argued), Richard K. Burke, U. S. Atty., Tucson, Ariz., for appellee.
    Before BARNES and WALLACE, Circuit Judges, and BYRNE, District Judge.

       Honorable William M. Byrne, Senior United States District Judge, Central District of California, sitting by designation.

   OPINION

BARNES, Circuit Judge:

Appellant Antonick was convicted by a jury on Counts III and IV of a four count indictment; and found not guilty on Counts I and II. Count III was a substantive count, alleging that appellant and one Joyce Battaglia on June 24, 1970, used extortionate means (i. e., threats of violence) to collect, or attempt to collect, $5,000 from one Donald Lee Brost, loaned by the co-defendant Battaglia to Brost on May 1, 1969, in violation of 18 U.S.C. §§ 894 and 2.

Count IY was a substantive count alleging that appellant and co-defendant Battaglia on June 30, 1970, had caused the use of interstate facilities — (i. e., a Western Union Money Order telegram from Michigan to Arizona), to facilitate the carrying on of an unlawful activity (i. e., extortion from Donald Lee Brost) in violation of Arizona law ('Sec. 13-401 Arizona Revised Statutes) in violation of 18 U.S.C. §§ 1952 and 2.

Count II was a substantive count, but based on other acts; Count I was an alleged conspiracy covering all substantive acts of extortion alleged in Counts II, III, and IV.

Appellant raises three issues:

I

First: May the United States report and transcribe the Grand Jury testimony of some but not all of the witnesses testifying before it, and subsequently called to testify at trial? We answer that question affirmatively.

The appellant’s position is that while the government need not transcribe all the testimony given before a grand jury, if it transcribes some it must transcribe all; and that in this case failure to transcribe was prejudicial to appellant.

We have previously, and do again, reject appellant’s argument. United States v. Parker, 428 F.2d 488, 489-490 (9th Cir. 1970). Rule 6(d) Fed.R.Cr. Proe. provides that a stenographer or an operator of a recording device may” be present during grand jury proceedings, but no portion of that rule requires a stenographer or an operator of a recording device to be present. Rule 16(a)(3) permits discovery, not of grand jury testimony, but only of “recorded testimony of the defendant before a grand jury.” (Emphasis added.) No portion of the Rules “requires provision of a transcript” of the testimony of witnesses before a grand jury. “The Rules simply do not so provide.” Ingle v. United States, 399 F.2d 690 (9th Cir. 1968).

In Loux v. United States, 389 F.2d 911 (9th Cir. 1968), cert. denied, 393 U. S. 867, 89 S.Ct. 151, 21 L.Ed.2d 135 (1968), we held that the failure to record raised no constitutional problems.

We hold “[Tjhere is no requirement that grand jury proceedings he recorded or transcribed.” {Id. at 524). See also: United States v. Thoreson, 428 F.2d 654, 665-666 (9th Cir. 1970).

We decline the invitation to overrule our previous decisions.

Unlike appellant, we do not read United States v. Fishbein et al., 446 F.2d 1201 (9th Cir. 1971) to hold that even a deliberate failure to record grand jury minutes “might be” error. Nor can we agree:

(1) That the prosecution’s failure to record grand jury testimony, when the government already has an investigative report available, is analogous to a prosecution knowingly suppressing evidence. Here the government was required to produce, and did produce, all evidence available to defendant under the Jencks Act rule, “including grand jury testimony that may exist.” (R. T. at 11).
(2) That the majority United States Rule (that to entitle the defendant to relief the “destruction” of records must have been not in good faith) is an improper rule. Cf. Campbell v. United States, 373 U.S. 487, 83 S.Ct. 1356, 10 L.Ed.2d 501 (1963).
(3) That United States v. Romano, 330 F.2d 566 (2d Cir. 1964) aids appellant. “The claim that the defense, during trial, was improperly denied access to the entire written report of Agent Nadel is without any basis.” All statements were made available when “. . . witnesses were called to testify.” (Romano at 570).

II

Appellant’s second point is the insufficiency of the evidence as to Court IV.

This is based on the premise that 18 U.S.C. § 1952(a) defines as a criminal: “Whoever . . . uses any facility in interstate or foreign commerce” with intent to carry on “any unlawful activity” (such as extortion), and that this statute does not forbid one to “cause” another to “use” such facility. The trial court took the position that Section 1952(a) includes causing the use by another, as well as the use by the defendant himself. (4 R.T. at 768, lines 19-22). This ruling is based on the effect of 18 U.S.C. '§ 2(b), which provides that one who “wilfully causes an act to be done, which if directly performed by him or another would be an offense against the United States, is punishable as a principal.” (Emphasis added.)

The district court ruled the telegram was “caused by the fear that was stricken (by the defendant) into Brost, who was going to pay it (the debt) off, and he used interstate (sic — wires?—) for that purpose.” (R.T. at 769.)

Appellant was the principal, not Brost, as appellant contends. 18 U.S.C. § 2 eliminates the distinction between principals and accessories before the fact. United States v. Sannicandro, 434 F.2d 321, 323 (9th Cir. 1970).

“Criminal responsibility cannot be avoided by an actor who substitutes another instrumentality to perform some element of the criminal activity even though that instrument selected lacks the mens rea to commit the offense charged.”

United States v. Zirpolo, 288 F.Supp. 993, 1013 (D.N.J.1968); Feldstein v. United States, 429 F.2d 1092, 1095 (9th Cir. 1970); United States v. Roselli, 432 F.2d 879, 891 (9th Cir. 1970); Rewis v. United States, 401 U.S. 808, 91 S.Ct. 1056, 28 L.Ed.2d 493 (1971).

This rule is particularly apt where the defendant charged (appellant) suggested to the actor (Brost) that the money be sent from Michigan to Arizona by wire (1 R.T. at 195).

We find no insufficiency of the evidence as to Count III.

Ill

Appellant’s third alleged error was the court’s refusal to sever “the trial with the four counts ... so as to permit trial with respect to the count or portions thereof with respect to Donald Lee Brost and trial with respect to the counts or portions thereof with respect to Doris Lee Patty to be had separately.” (C.T. at 37). This obviously would require, if granted, a further superseding indictment.

Because appellant was found not guilty on the Count I conspiracy charge, the court is now charged with being previously in error in viewing the pleading as one involving “one conspiracy to do two things”, i. e., two extortion plots. (Motion to Sever, R.T. at 6, lines 20-24).

This motion was made just before the trial of a first superseding indictment. It is a matter controlled by the exercise of the sound discretion of the trial court. This occurred. We find no abuse of discretion or error. United States v. Martinez, 429 F.2d 971, 975 (9th Cir. 1970).

IV

Finally, the appellant raises, at least inferentially, that the evidence was insufficient to convict under Count III. We disagree. While not without some conflict, it was clearly sufficient for the jury’s verdict.

The Judgment of Conviction on Counts III and IV is affirmed as to each count.

ORDER MODIFYING OPINION

Appellant asks in his Petition for Rehearing that this Court extend its holding that motions made for the recordation of grand jury testimony or for disclosure of transcripts thereof post indictment must be granted if there has not been a government showing of its legitimate and compelling interest not to record portions of the record.

When the trial judge granted the defendant’s request as to grand jury minutes “to the extent the government will be required the day before any witness is to be called by the Government, to give the names of the witnesses for that day to counsel, and any Jencks Act statements, including grand jury testimony that may exist.” (Minute Entry, C.R. 129 and R.T. at 11), the Court thus granted defendant all that Dennis v. United States, (1966) 384 U.S. 855, 86 S.Ct. 1840, 16 L.Ed.2d 973 required. We must assume that the experienced trial judge, weighing the “particularized need” submitted by defendant and the prejudice demonstrated by defendant, or the lack of it, exercised a liberal attitude toward defendant’s needs, and found the circumstances insufficiently “exceptional” to deny the balance of defendant’s motion made after indictment.

Here there was no refusal by the government to record grand jury testimony after demand by defendant prior to the taking of the grand jury testimony. The defendant’s first request for such testimony was filed nine days after the Grand Jury had filed its indictments.

In the Price & Coffey case, the language 474 F.2d at 1226 is that “The Government has known at least since Thoresen that a failure to record grand jury proceedings after notice that a defendant wants recordation could jeopardize a prosecution.” Here there was no request made by defendants prior to the grand jury testimony and there was no action or inaction by the government after any request.

We see no reason to reverse our opinion on this subject, nor to ask the district court to reconsider and again weigh the nature and extent of the defendant’s claimed particularized need or prejudice. We do not consider that United States v. Price & Coffey, 474 F.2d 1223 (1973) requires it.

We find no merit in petitioner’s second point.

The Petition for Rehearing is denied and the suggestion for rehearing en banc is rejected.

      . “§ 894. Collection of extensions of credit by extortionate means.
      “(a) Whoever knowingly participates in any way, or conspires to do so, in the use of any extortionate means
      “(1) to collect or attempt to collect any extension of credit, or
      “(2) to punish any person for the non-repayment thereof, shall be fined not more than $10,000 or imprisoned not more than 20 years, or both.
      “ (b) In any prosecution under this section, for the purpose of showing an implicit threat as a means of collection, evidence may be introduced tending to show that one or more extensions of credit by the creditor were, to the knowledge of the person against whom the implicit threat was alleged to have been made, collected or attempted to be collected by extortionate means or that the nonrepayment thereof was punished by extortionate means.
      “(c) In any prosecution under this section, if evidence has been introduced tending to show the existence, at the time extension of credit in question was made, of the circumstances described in section 892(b) (1) or the circumstances described in section 892(b) (2), and direct evidence of the actual belief of the debtor as to the creditor’s collection practices is not available, then for the purpose of showing that words or other means of communication, shown to have been employed as a means of collection, in fact carried an express or implicit threat, the court may in its discretion allow evidence to be introduced tending to show the reputation of the defendant in any community of which the person against whom the alleged threat was made was a member at the time of the collection or attempt at collection.”

      . “§ 2. Principals.
      “(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.
      “(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”

      . § 1952. Interstate and foreign travel or transportation in aid of racketeering enterprises.
      “(a) Whoever travels in interstate or foreign commerce or uses any facility in interstate or foreign commerce, including the mail, with intent to—
      (1) distribute the proceeds of any unlawful activity; or
      (2) commit any crime of violence to further any unlawful activity ; or
      (3) otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity,
      and thereafter performs or attempts to perform any of the acts specified in subparagraphs (1), (2), and (3), shall be fined not more than $10,000 or imprisoned for not more than five years, or both.
      “(b) As used in this section ‘unlawful activity’ means (1) any business enterprise involving gambling, liquor on which the Federal excise tax has not been paid, narcotics or controlled substances (as defined in section 102(6) of the Controlled Substances Act), or prostitution offenses in violation of the laws of the State in which they are committed or of the United States, or (2) extortion, bribery, or arson in violation of the laws of the State in which committed or of the United States.
      “(c) Investigations of violations under this section involving liquor shall be conducted under the supervision of the Secretary of the Treasury.”

      . United States v. Cramer, 447 F.2d 210, 213 (2nd Cir. 1971) states that United States v. Ayers, 426 F.2d 524 (2nd Cir. 1970), cert. denied 400 U.S. 842, 91 S.Ct. 85, 27 L.Ed.2d 78 (1970), “makes it equally plain that a defendant is not entitled to a reversal of his conviction simply because testimony before the grand jury which returned an indictment against him has not been recorded. This is the position taken by every court which has considered the problem. Citations.” (Emphasis added.)

      . This entirely apart from the fact the motion to sever was untimely filed. “Your motion to sever and any amended motion is months late.” (R.T. May 24, 1971, p. 10.)


source: Caselaw Access Project

author: BARLOW, District Judge.

license: Public Domain

text:
    Deborah A. ESHBACH, a minor, by her parent and natural guardian, Marlin Eshbach, Appellant, v. W. T. GRANT’S AND COMPANY v. E. T. RUGG, a division of Mid-Con, Inc., Third-Party Defendant.
    No. 71-2128.
    United States Court of Appeals, Third Circuit.
    Argued Jan. 18, 1973.
    Decided June 15, 1973.

      James E. Colleran, Philadelphia, Pa., for appellant.
    John W. Walter, Francis E. Marshall, Marshall, Dennehey & Warner, Philadelphia, Pa., for appellee.
    Before VAN DUSEN and ADAMS, Circuit Judges, and BARLOW, District Judge.
   OPINION OF THE COURT

BARLOW, District Judge.

The plaintiff, Deborah A. Eshbaeh, a minor, by her parent and natural guardian, Marlin Eshbaeh, appeals from a jury verdict in favor of the defendant, W. T. Grant’s and Company.

In April of 1967, Marlin Eshbaeh, the father of the infant plaintiff, Deborah A. Eshbaeh, bought a riding, or sit-on type, 24-inch lawnmower from the defendant, W. T. Grant’s and Company. Mr. Eshbaeh used the mower without incident between the date of its purchase and September 5th, 1968. On that day, however, Mr. Eshbach’s son, Marlin, Jr., age 9, removed the mower from its storage spot, started it and proceeded to mow the lawn. Young Marlin had been instructed in the use of the mower and had previously operated it three times, in the presence of his father. The infant plaintiff, Deborah, had, on two prior occasions, jumped on the back of the mower behind her father while the mower was in use. She was warned by her father not to do so. On this occasion, however, while her brother operated the mower, out of his father’s presence and without his knowledge, Deborah jumped on the mower behind her brother. While the mower was circling a tree, Deborah’s foot slipped into the unguarded chain and sprocket of the machine and became entangled. Marlin, Jr., hearing the cries of his sister, stopped the machine by taking his foot off the pedal. The machine had neither brakes nor an ignition switch.

As a result of the accident, Deborah suffered severe injuries to her left foot.

Plaintiff thereafter commenced a diversity action pursuant to 28 U.S.C. § 1332, solely upon the theory of strict liability, § 402A, Restatement of Torts (Second), alleging that the unguarded chain and sprocket, along with the absence of an ignition switch and key device, represented a defective design condition which caused the infant plaintiff’s injuries.

The case was tried before a jury, the plaintiff’s case included expert testimony as to the defective design of the machine. The defense offered no testimony.

Following the judge’s instructions and after deliberation, the jury returned a verdict for the defendant, and it is from the judgment entered thereon that the plaintiff appeals.

I.

Plaintiff-appellant’s initial contention is that the frequent use of the concept of foreseeability in the charge of the court, as well as those instructions of the court defining the limits of the responsibility of the seller in terms of a “reasonable man” or an “ordinarily intelligent man” introduced negligence terms which were peculiarly inappropriate to a strict liability claim. Defendant-appellee insists that the District Court’s charge in its totality represents a permissible expression of the applicable law.

We agree with the plaintiff that the charge, taken as a whole, improperly introduced concepts having their origin and primary applicability in negligence law. Cf. James v. Continental Insurance Co., 424 F.2d 1064 (3rd Cir. 1970); Friedman v. General Motors Corporation, 411 F.2d 533 (3rd Cir. 1969).

When the trial judge here stated that liability under § 402A was dependent upon “whether the injury could be foreseen by an ordinarily intelligent man as the natural and probable outcome of the act complained of.”, he improperly introduced due care as a standard upon which the liability of the seller might depend. This is clearly not so. Liability under § 402A is merely dependent upon the injury resulting from a condition of the product, that condition being unreasonably dangerous, and that condition being in existence at the time the product left the seller’s control* Accordingly, an instruction that the defendant is responsible only if an “ordinarily intelligent man” or a “reasonable man would infer that his acts create an appreciable danger of causing injury to another” substantially diminishes the extent of a seller’s liability and responsibility and is inconsistent with a strict liability theory which explicitly imposes a much higher degree of responsibility on sellers of goods. § 402A, Comment a.

Moreover, the term “foreseeability”, as it is used throughout the charge, is improper. Negligence is, of course, tested in terms of foreseeability. Speyer, Inc. v. Humble Oil and Refining Company, 403 F.2d 766 at 771 (3rd Cir. 1968), cert. den. 394 U.S. 1015, 89 S.Ct. 1634, 23 L.Ed.2d 41 (1969). The focus of § 402A, however, is not directed to the foreseeability of a given injury, but to whether “the product is, at the time it leaves the seller’s hands, in a condition not contemplated by the ultimate consumer, which will be unreasonably dangerous to him”. § 402A, Comment G. In actions brought pursuant to § 402A “[t]he duty of a manufacturer or supplier is limited to foreseeing the probable results of the normal use of the product or a use which can be reasonably anticipated.” Kaczmarek v. Mesta Machine Company, 463 F.2d 675 at 679 (3rd Cir. 1972). Thus, the proper limits of responsibility for the defendant-seller here is whether the “use” to which the product was put was intended or foreseeable (objectively reasonable) by the defendant. Van Dorpe v. Koyker Farm Implement Company, 427 F.2d 91 at 93 (7th Cir. 1970), cf. Oehler v. Davis, 223 Pa.Super. 333, 298 A.2d 895 (Pa.Super. 1972).

The use of foreseeability in the court’s instructions here does not reflect this limitation. When the court instructed the jury that Grant’s was to be liable only if it — in substance — anticipated or foresaw the individualistic behavior patterns of the Eshbach children when using the lawnmower for the pur-, pose for which it was designed — to cut grass — it subverted the intention of § 402A by permitting a vendor to avoid liability on the basis of being unable to anticipate the precise manner in which the injury occurred.

“The fact that the actor could not foresee the particular manner in which the harm has occurred is immaterial. See Diakolios v. Sears, Roebuck & Co., 387 Pa. 184, 127 A.2d 603 (1956); Vereb v. Markowitz, 379 Pa. 344, 108 A.2d 774 (1954); Restatement, Torts, 2d § 435(i). Dyson v. General Motors Corporation, 298 F.Supp. 1064 (E.D.Pa.1969).” Dorsey v. Yoder Company, 331 F.Supp. 753 at 768 (E.D.Pa.1971).

Similarly, the use of foreseeability by the trial court with reference to the “foreseeability” of injury or harm is improper, for it is foreseeability as to the use of the product which establishes the limits of the seller’s responsibility.

Furthermore, even if the trial judge was attempting to discuss causation, by way of the intervening negligence of other parties — in this case, Mr. Eshbach — the proper thrust is not to the foreseeability of the intervenor's conduct but whether the movements of the lawnmower which did, in fact, occur were foreseeable in thát they were within the range of movements normally expected of the machine. Frankel v. Lull Engineering Company, 334 F.Supp. 913 at 925 (E.D.Pa.1971), aff’d, 470 F.2d 995 (3rd Cir. 1973).

Thus, the manufacturer or seller is not required to foresee, for example, that a lawnmower — which is designed to cut grass — will be used to cut logs or to cut pipe. Yet, he is required to foresee an injury resulting from a defect, which injury occurs during the use of the mower for a purpose for which it was intended, even if the injury did not occur in the particular manner one might expect. It is to this extent, then, and to this extent only, that foreseeability enters into the strict liability equation. The use of the word foreseeability without the limits imposed by strict liability concepts improperly distorts the balance between the manufacturer and consumer embodied in § 402A.

While it is true that the trial judge, after misstating the standards by which the seller’s liability was to be tested, as indicated above, also correctly explained the seller’s responsibility in a strict liability sense, we believe that the juxtaposition, as well as the fundamental differences between the two explanations, constituted error, for it only could have produced confusion amongst the jury.

II.

Of equal concern are the questions presented by the plaintiff’s assertion that the trial judge erred by his refusal to instruct the jury that Mr. Eshbach’s negligence was not to be considered— that his negligence was not in the case. During the cross-examination of Mr. Eshbach, defense counsel established that he recognized that the lawnmower was a dangerous machine and that for that reason he had instructed his children not to operate it. Further, in response to questions put to him by defense counsel, Mr. Eshbach admitted that he had never removed the spark-plugs from the mower to render it inoperable and to prevent his children from either starting or using the mower. All of these questions, and many others of like import, were obviously designed to suggest the negligence of Mr. Eshbach.

During the course of the cross-examination, plaintiff’s counsel objected to certain of these questions, contending that negligence was not an issue in the case. The trial judge overruled the objections, stating, equivocally, that whether or not negligence was in issue “remains to be seen.”

Again, during the Fed.R.Civ.P. 51 application, plaintiff’s written points for charge requested that the trial judge instruct the jury that, in substance, Mr. Eshbach’s negligence was not an issue in the case. The trial judge declined to do so. Accordingly, much of the thrust of defense counsel’s summation was directed to the negligence — or lack of due care — on the part of Mr. Eshbach. Following the charge of the court, the plaintiff once again objected to the trial judge’s failure to remove the question of Mr. Eshbach’s negligence from the case. The judge again refused to do so, stating, in effect, that it was unnecessary so to do because negligence was not in the case!

The trial court here, then, permitted the issue of Mr. Eshbach’s negligence to enter the case — indirectly, through cross-examination — and permitted, as well, defendant’s counsel, during summation, to allude at length to Mr. Eshbach’s conduct. In such circumstances, the trial judge was required, we think, to either instruct the jury as to the application which such negligence would have in terms of providing a defense to the infant plaintiff’s products liability claim, or to instruct the jury specifically that Mr. Eshbach’s negligence was not to be considered by them.

Preliminarily, it is clear that Mr. Eshbach’s negligence, if any, could not be imputed to his infant daughter and thereby defeat her claim against the defendant.

However, since causation remains an element in 402A actions — because that Section requires that the plaintiff, in addition to establishing that the defect in the defendant’s product was unreasonably dangerous, also establish that the defect caused the ultimate harm— Mr. Eshbach’s negligence is significant only if it constitutes an intervening cause. Nonetheless, even in that restricted causation sense, its application is questionable here, for:

“. . . under the principles relating to causation set forth in the Restatement (Second) of Torts (§§ 430-462) which have been or would likely be adopted as law in Pennsylvania, Whitner v. Lojeski, 437 Pa. 448, 458, 461, 263 A.2d 889 (1970), it appears that where the actor’s conduct increases the risk of some particular harm the fact that the harm is ultimately brought about only by the intervention of another force does not relieve the actor from liability. Restatement (Second) of Torts, § 442B (1969).” Frankel v. Lull Engineering Company, supra, 334 F.Supp. at 925.

Further, a negligent intervening act, to relieve defendant of accountability, must be:

“. . .so extraordinary as not to have been reasonably foreseeable, and . whether the act was reasonably foreseeable [is] to be determined by following retrospectively the sequence of events and looking back from the harm to the negligent act rather than by considering whether the defendant should prospectively have envisaged the events which unfolded and caused the accident. Wilson v. American Chain and Cable Co., 364 F.2d 558, 562 (3rd Cir. 1966). See also Shimer v. Bangor Gas Co., 410 Pa. 92, 97, 188 A.2d 734 (1963).” Dorsey v. Yoder Company, supra, 331 F.Supp. at 764.

In any event, the failure of the trial judge to either remove the question of Mr. Eshbach’s negligence from the case entirely or, if it was to be considered, to instruct the jury as to the limits of its application, had the obvious capacity of suggesting to the jury either that Mr. Eshbach was alone responsible for his daughter’s injuries — notwithstanding any accountability of the defendant on the plaintiff’s products liability claim —or, in some fashion, permitting the jury to conclude that Mr. Eshbach’s negligence could be imputed to his daughter. Either conclusion was clearly prejudicial to the infant plaintiff’s claim against the defendant and was error.

The judgment of the trial court is reversed, and the ease is remanded for a new trial.

      . Comment F to § 402A; MacDougall v. Ford Motor Co., 214 Pa.Super. 384 at 391, 257 A.2d 676 at 680 (1969).

      . In order for liability to be established under § 402A and Pennsylvania law, the plaintiff must demonstrate only that:
      “(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if
      (a) the seller is engaged in the business of selling such a product, and
      (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
      (2) The rule stated in Subsection (1) applies although
      (a) the seller has exercised all possible care in the preparation and sale of his product, and
      (b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.” Webb v. Zern, 422 Pa. 424, 220 A.2d 853 (1966).

      . The court’s instructions included tlie following language:
      “Liability depends on antecedent probability, not tlie mere possibility of harmful results therefrom. The general test of liability is whether the injury could be foreseen by an ordinarily intelligent man as the natural and probable outcome of the act complained of An actor should recognize that his conduct involves a risk of causing an invasion of another’s interest if he possesses such knowledge of pertinent matters and surrounding circumstances that a reasonable man acting on such knowledge would infer that his acts create an appreciable danger of causing injury to another. A normal human being is held to foresee those injuries which are the consequences of his bet or omission or commission which he as a reasonable human being should have foreseen.”
      “You can consider . . . whether this defendant should have anticipated —we are back to foreseeability again— that a nine-year-old boy would operate the machine and that a five-year-old child would jump on it while it was being operated. . .

      . Foreseeable use does not mean unintended use. Dyson v. General Motors Corporation, supra, 298 F.Supp. at p. 1068; LaGorga v. Kroger Company, 275 F.Supp, 373 (W.D.Pa.1967).

      . The colloquy was as follows:
      “MR. COLLERAN: [defense counsel] All right, Your Honor, I except to the fact that Your Honor did not tell the jury that the negligence or lack of it on the part of Mr. Eshbach is not an issue in this case.
      THE COURT: You may have an exception. 1 purposely did not charge on negligence except there was no contributory negligence. I don’t know why you would expect me to tell the jury something that is not in the case,

      . To recover, plaintiff is required to show “not only that the ‘defective’ condition was dangerous but also that such condition was a proximate cause of the mishap.” Colosimo v. May Department Store Company, 466 F.2d 1234, at 1235 (3rd Cir. 1972). Also see Speyer v. Humble Oil & Refining Company, supra, n. 16, 403 F.2d at 772.

      . Since there is to be a new trial, we call the District Court’s attention to our previously state! view that it is unfortunate to indicate that the jury need be convinced of the certainty of the facts they find in describing the burden of proof in a civil personal injury action. See Burch v. Reading Co., 240 F.2d 574, 579 (3rd Cir. 1957). At 213a (N.T. 206), the judge charged the jury: “The plaintiff has the burden of proof to convince you that the position which he takes in this case is correct.” (Emphasis supplied.)


author: ELY, Circuit Judge:

text:
    Archie P. SHERAR, Appellant, v. Joseph M. CULLEN, District Director Internal Revenue Service, et al., Appellees.
    No. 71-1558.
    United States Court of Appeals, Ninth Circuit.
    July 3, 1973.
    Rehearing Denied Aug. 13, 1973.

      Archie P. Sherar pro se.
    Stephen F. Eilperin (argued), Dept, of Justice, Washington, D. C., L. Patrick Gray, III, Asst. Atty. Gen., Dept, of Justice, Washington, D. G., James L. Browning, Jr., U. S. Atty., San Francisco, Cal., Walter H. Fleischer, Thomas J. Press, Dept, of Justice, Washington, D. C., for appellees.

       Honorable Otto R. Skopil, United States District Judge, Portland, Oregon, sitting by designation.

   OPINION

Before ELY and KILKENNY, Circuit Judges, and SKOPIL, District Judge.

ELY, Circuit Judge:

Appellant Sherar was discharged from his position as an Internal Revenue Service field agent following his refusal to furnish records for a personal tax audit. After fully exhausting his administrative remedies, Sherar filed this action in the United States District Court seeking restoration of his government position together with the back pay and other benefits lost because of the discharge. The District Court granted the appellees’ motion for summary judgment, and this appeal followed.

Sherar contends that dismissal from government service, based solely upon a refusal to submit to an allegedly unwarranted and unreasonable audit request, constitutes a penalty wrongfully imposed upon the exercise of fourth amendment rights. He also argues that the Internal Revenue Service was particularly anxious to see him dismissed because he had allegedly given a Senate Subcommittee information that would later be used in public hearings to the embarrassment of the Service. The Government, to the contrary, argues that appellant’s dismissal followed substantial compliance with applicable procedures, that dismissal is a matter solely within executive discretion, that the termination was not arbitrary or capricious, and that Sherar’s claim that the requested audit was unreasonable under the Fourth Amendment is wholly without merit.

The District Court did not reach appellant’s fourth amendment contentions, ruling, instead, that:

“ . . . the scope of review in the District Court of this type of administrative proceeding is limited, probably limited as you can get, to the determination of the existence of past due process and a substantial basis for the results of the procedure which is employed in connection with the exercise of discretion.”

We disagree.

In See v. Seattle, 387 U.S. 541, 87 S. Ct. 1737, 18 L.Ed.2d 943 (1967), the Supreme Court reversed appellant’s conviction for refusing to permit a representative of the city fire department to enter and inspect his locked commercial warehouse without a warrant and without probable cause to believe that a violation of any municipal ordinance had occurred therein. The Court held that:

“(W)hile the demand to inspect may be issued by the agency, in the form of an administrative subpoena, it may not be made and enforced by the inspector in the field, and the subpoenaed party may obtain judicial review of the reasonableness of the demand prior to suffei’ing penalties for refusing to comply.”

Id. at 544, 545, 87 S.Ct. at 1740. Compare Wyman v. James, 400 U.S. 309, 91 S.Ct. 381, 27 L.Ed.2d 408 (1971) (holding that where welfare benefits were terminated because the recipient refused to be interviewed in her home, no search under the Fourth Amendment was involved, that even if it were a search it was not unreasonable, and that even if there were an unreasonable search, the welfare recipient had waived the right to object by accepting benefits).

More specifically, in Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964), the Court held that when a challenge to an administrative summons for a tax audit is “rejected by the hearing examiner and the witness still refuse(s) to testify or produce, the examiner is given no power to enforce compliance or to impose sanctions for noncompliance.” Id. at 445, 84 S.Ct. at 512. Instead, the Court ruled, if the Secretary of the Treasury insists on enforcing the summons, he must proceed under 26 U.S.C. § 7402(b), which grants jurisdiction to the District Courts of the United States “by appropriate process to compel such. attendance, testimony, or production of books, papers, or other data.” Id.

Thus, contrary to the administrative procedure followed in Sherar’s case, under § 7402(b) the taxpayer is afforded the complete protection of a judicial determination based upon adversary proceedings in which any of his challenges to the summons can be fully aired. “In such a proceeding only a refusal to comply with an order of the district judge subjects the witness to contempt proceedings.” 375 U.S. at 446, 84 S.Ct. at 512. Furthermore, the governmental interest in conducting a reasonable tax audit is also protected because the court, based upon its hearing, has full power to determine if the administrative summons should be enforced.

The See and Reisman decisions, and the statutory procedures of § 7402(b), reflect the obvious concern that there be no sanction or penalty imposed upon one because of his exercise of constitutional rights. In Spevack v. Klein, 385 U.S. 511, 87 S.Ct. 625, 17 L.Ed.2d 574 (1967), for example, the Supreme Court held that an attorney could not be disbarred solely because he claimed his privilege against self-incrimination in refusing to provide records and testimony for an investigation into his alleged professional misconduct. “In this context ‘penalty’ is not restricted to fine or imprisonment. It means, as we said in Griffin v. California, 380 U.S. 609, 85 S.Ct. 1229, 14 L.Ed.2d 106 (1965), the imposition of any sanction which makes assertion of the Fifth Amendment privlege ‘costly.’ ” Id. at 515, 87 S.Ct. at 628. In Garrity v. New Jersey, 385 U.S. 493, 87 S.Ct. 616, 17 L.Ed.2d 562 (1967), a companion case to Spevack, police officers were convicted in a state court of conspiring to obstruct justice. During their trial, the prosecution was allowed to introduce inculpatory statements taken by investigators after the officers had been advised that refusal to give answers would lead to discharge from their positions. The Supreme Court reversed the convictions, holding that “Thé choice given petitioners was either to forfeit their jobs or to incriminate themselves. The option to lose their means of livelihood or to pay the penalty of self-incrimination its the antithesis of free choice to speak out or to remain silent.” Id. at 497, 87 S.Ct. at 618. See Boyd v. United States, 116 U.S. 616, 6 S.Ct. 524, 29 L.Ed. 746 (1886) (a statute offering the owner of goods in a forfeiture action an election between producing a document or forfeiture of the goods at issue was held to be a form of compulsion in violation of both the Fourth and Fifth Amendments); Malloy v. Hogan, 378 U.S. 1, 84 S.Ct. 1489, 12 L.Ed.2d 653 (1964) (a person has the right “to remain silent unless he chooses to speak in the unfettered exercise of his own will, and to suffer no penalty . , . for such silence”); Sanitation Men v. Sanitation Comm’r., 392 U.S. 280, 88 S.Ct. 1917, 20 L.Ed.2d 1089 (1968) (public employees, like all other persons, are entitled to the benefit of the constitutional privilege against self-incrimination, and they may not be faced with proceedings which present them with a choice between surrendering their constitutional rights or their jobs); Gardner v. Broderick, 392 U.S. 273, 88 S.Ct. 1913, 20 L. Ed.2d 1082 (1968) (“the mandate of the great privilege against self-incrimination does not tolerate the attempt, regardless of its ultimate effectiveness, to coerce a waiver of the immunity it confers on penalty of the loss of employment”).

In the present case, the Internal Revenue Service placed Sherar in the untenable position of having to decide whether to submit to an allegedly unreasonable and unwarranted tax examination, o.r, should he refuse, to suffer the penalty of dismissal. This was clearly a penalty that infringed upon the constitutional right to be free from unreasonable searches because, as a practical matter, the only manner by which a taxpayer can prevent an unreasonable search is to withhold his records pending judicial determination in enforcement proceedings. Cf. Elliott v. American Mfg. Co., 138 F.2d 678 (5th Cir. 1943) (“The remedy against forced improper disclosure, and the opportunity for testing its propriety is simply to refuse to disclose and to have the District Court rule upon the matter in enforcement proceedings”). If the rule were otherwise, the right to be free from unreasonable searches would not exist except at the discretion of the tax collector.

In so holding, we do not reach the question of whether Sherar is correct in his contention that the audit was, as a matter of fact, an unreasonable and unwarranted demand. We hold only that in the absence of prior judicial determination of that question, his discharge was unwarranted. Reisman v. Caplin, supra.

Since Sherar submitted the requested tax records to the auditor following his discharge, the required enforcement proceedings under § 7402(b) would now be moot. Accordingly, the cause is remanded to the District Court, with directions to order Sherar reinstated to his former position within the Internal Revenue Service. The District Court will also determine the amount of back pay and benefits, if any, which are due to Sherar because of his illegal discharge.

Reversed and remanded, with directions.


author: WATERMAN, Circuit Judge:

text:
    GREAT AMERICAN INSURANCE COMPANY, Plaintiff-Appellee, v. FIREMAN’S FUND INSURANCE COMPANY, Defendant-Appellant, and Fairfield & Ellis, Inc., Defendant.
    No. 181, Docket 72-1419.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 28, 1972.
    Decided July 10, 1973.

      Ernest E. Rosenberg, Rein, Mound & Cotton, New York City, for plaintiff-appellee.
    Murray L. Lewis, Sheila L. Bimbaum, Howard Lester, Emile Z. Berman and A. Harold Frost, New York City, for defendant-appellant.
    Before WATERMAN, FRIENDLY and HAYS, Circuit Judges.
   WATERMAN, Circuit Judge:

Appellant, Fireman’s Fund Insurance Company (Fund) defendant below, seeks reversal of an order entered in the district court granting plaintiff’s motion for summary judgment. Plaintiff, Great American Insurance Company (Great American) originally commenced suit on a contract of reinsurance in the New York State Supreme Court for New York County, alleging that defendant Fund was liable to it on that contract in the sum of $139,710.33 plus interest and costs. The sum sued for represented 20% of the payments which Great American had paid to the City of Somerville, Massachusetts, under a policy of fire insurance for losses the policyholder had incurred in a fire which destroyed a city school building on November 6, 1968. The action was promptly removed to the United States District Court for the Southern District of New York on the ground of the diversity of citizenship of the parties. In its answer to the action Fund alleged that the contract of reinsurance, which was represented by a binder, had been effectively canceled as of July 22, 1968, more than three months prior to the November 6 fire, by a letter of cancellation dated July 11, 1968 and mailed to Fairfield & Ellis, Incorporated (Fairfield), Great American’s Massachusetts agent, and also by a telephone conversation between Mr. Martin Roach, Resident Secretary of Fireman’s Fund in Boston, and Mr. Rudolf Komenda, Underwriting Manager of the Fire Department of Fairfield, occurring on or about July 8, 1968. After partial discovery had been completed by the parties, Great American moved for summary judgment under Rule 56(e), Fed. R.Civ.P., on the ground that no genuine issue as to any material fact remained and that Great American was entitled to a judgment as a matter of law. It set forth that neither the July 11 letter nor the July 8 telephone conversation effectively canceled the reinsurance because neither the letter nor the telephone call conformed to the statutory requirements of the cancellation term contained in the Massachusetts Standard Form fire policy (175 MGL § 99) which we have set forth in the margin which provides that ten days’ written notice of cancellation had to be given “to the insured” and this notice had to contain a statement concerning the return of excess premiums. Great American also pointed out in its affidavit in support of its motion that the July 11 letter had been mailed to Fairfield rather than “to the insured” itself (Great American) and that the letter did not contain a statement that any excess premiums held by the insurer would be returned to the insured. Great American also argued that the letter was not a “notice” at all because it did not clearly inform the insured that the policy was being terminated. Finally, as to the telephone conversation, Great American pointed out that under the standard policy ten days’ written notice was required.

In reply to the motion for summary judgment Fireman’s Fund contended that under Massachusetts law (MGLA, ch. 175, § 2A) the cancellation requirements of the standard policy were not applicable to this contract of reinsurance. Moreover, it argued that, even if the court should find that the requirements of the standard policy were applicable, the July 11 letter, mailed to and received by Fairfield, conformed in every particular to the requirements of the standard policy. Finally, citing judicial authorities, it argued that written notice sent to and received by an agent of the insured clothed with the authority, actual or apparent, to receive the notice, was sufficient to bind the agent’s principal, the insured.

The judge below found that the cancellation requirements of the standard policy applied to the contract of reinsurance at issue, and that the July 11 letter did not conform to the cancellation requirements because it did not contain a statement concerning the return of excess premiums. He therefore held that Fund was liable on the uncanceled contract, and granted plaintiff’s motion for summary judgment. Fund appealed this decision, and on appeal contends that we should reverse the order below and remand the case to the lower court for further trial proceedings or, alternatively, should reverse and order a grant of summary judgment in defendant’s favor. For the reasons set forth herein we conclude that the order granting plaintiff’s motion for summary judgment must be reversed and that we must remand the case to the lower court to conduct further proceedings to permit of further exploration of factual issues we find could be material to decision and which have not yet been resolved.

The contract of reinsurance involved in this suit was evidenced by a binder of reinsurance issued by Fair-field on Fund. As a dual agent for both Great American and Fund, Fairfield, after placing the Somerville policy with Great American, immediately reinsured 20% of the liability under it with Fund. Similarly, Fairfield reinsured 60% of Great American’s liability in 20% allotments with three other reinsuring insurance companies. Because of various delays after the issuance of Fund’s binder, the binder was never followed by the issuance of a full policy. It is clear under Massachusetts law that the policy which would have issued to replace the binder did not have to be in the standard form (see n.5). However, if the parties contemplated that the standard policy would be issued, the applicable terms therein will be read into the binder. See Republic Insurance Company v. French, 180 F.2d 796 (10 Cir. 1950); Fisher v. Underwriters at Lloyd’s London, 115 F.2d 641 (7 Cir. 1940); 1 Couch on Insurance § 91; 29 Am.Jur. 2d § 143 at 158. The three other binders issued by Fairfield reinsuring 60% of Great American’s liability under the City of Somerville policy were all subsequently covered by policies written in the standard form. Also, a representative of Fairfield stated in his deposition that the standard policy would have been used. While it thus seems likely that a standard policy, with a reinsurance rider attached to it, was contemplated, this is a factual issue which would not have been disposed of by summary judgment if it were determinative.

However, we think it is not. Even if the notice of cancellation sent by Fireman’s Fund had to conform to the requirements of the standard form, these requirements must be here construed in accordance with common sense and reason. Inasmuch as it is undisputed that Great American paid no premiums to Fund prior to the time Fund allegedly canceled the binder per the July 11 letter, Fund was not required to include in a letter of cancellation a meaningless statement concerning the return of excess premiums. See Morton Furniture Co. v. Dubuque F & M Insurance Co., 287 Mass. 170, 191 N.E. 637 (1934); General Discount Corporation v. State Assurance Co., Limited, 129 F.2d 92, 94 (5 Cir. 1942); 45 C.J.S. Insurance § 451; 127 A.L.R. 1342. Accordingly, we hold that the court below erred in setting forth in its written opinion that Fund was required to include such a statement; and Great American now concedes this point on appeal.

Under the statutory provision dealing with the cancellation of insurance policies in Massachusetts (MGLA, ch. 175 § 187C) the company’s notice of cancellation must be delivered “in hand to the insured,” and under the standard policy it must be delivered “to the insured.” These requirements must be interpreted as meaning the same thing. It is undisputed that Fairfield actually received the July 11 letter. However, it is also undisputed that Fairfield did not send the letter or a copy of it to Great American, did not inform Great American that it had received the letter, did not send any other notice to Great American concerning the cancellation, and did not purchase new insurance in another company to replace the allegedly canceled policy. Citing MGLA, ch. 175, § 187C, Great American argues that the July 11 letter did not effect cancellation because it was not delivered “in hand to the insured.” Great American reads this section too literally. Although we are not familiar with any Massachusetts cases which construe this section, we would anticipate that the Massachusetts courts would hold that an actual delivery of the notice to an authorized agent of the insured would be a delivery “to the insured.” This would be the interpretation most consistent with general jurisprudence on the subject and would conform with the accepted practice in most jurisdictions. See Schwaback & Company v. Gulf Shipside Storage Corp., 173 F.Supp. 105 at 110 n. 10 (E.D.Louisiana, 1959), rev’d on other grounds 276 F.2d 209 (5 Cir. 1960), cert. denied, 364 U.S. 830, 81 S.Ct. 69, 5 L.Ed.2d 57 (1960); 29 Am.Jur.Insurance § 389.

Here the lower court, in granting the motion for summary judgment, made no findings relative to the scope of authority, actual or apparent, of Fairfield. As we examine the record before us, we do not find enough evidence, one way or the other, to enable us to conclude as a matter of law that Fair-field had the authority, or did not have the authority, to receive the notice of cancellation. The contract of agency between Great American and the insurance broker is silent on the matter. Moreover, even though Fairfield admittedly had the authority to procure reinsurance for Great American, it does not follow, as a matter of law, that Fairfield also had the authority to receive a notice of the cancellation of that reinsurance. See Grace v. American Central Insurance Co., 109 U.S. 278, 3 S.Ct. 207, 27 L.Ed. 932 (1883); White v. Insurance Company of New York, 93 F. 161 (1 Cir. 1899); White v. Connecticut Insurance Company, 120 Mass. 330 (1876). Great American would have us rule as a matter of law that an agent of the insured, such as Fairfield, does not have the authority to accept a notice of cancellation unless it immediately protects its insured by purchasing new insurance to replace the canceled policy, and it is admitted that Fairfield did not so protect Great American. Suffice it to say that Great American has not cited any authorities which support this position and we have found none. The correct rule would appear to be that if the agent has the authority to substitute policies, whether or not he exercises the authority, a notice given to the agent is a sufficient notice to the insured. See 45 C.J. S. Insurance § 450(2).

In short, the question of the nature and extent of Fairfield’s authority is a factual question which it would seem the trier of fact must decide after a full evidentiary hearing in the court below.

Great American also claims that even if it is assumed that Fairfield had authority from Great American to receive any notice of cancellation the July 11 letter was not a “notice of cancellation,” but a communication from Fund, as Fairfield’s principal, to Fund’s own agent. Pointing out that Fairfield was a dual agent for both Great American and Fund, Great American argues that the letter should be viewed as instruction from Fund to its agent, Fairfield, to cancel certain policies upon which Fund was committed, an instruction which Fairfield failed to carry out.

The letter reads as follows:

Marty Roach spoke to you recently about outstanding fire binders and indicated to you that we wished to have all of them marked off. We are enclosing a list of binders which are presently outstanding according to our records. We are considering all of these as terminated by no later than July 22, 1968.

Attached to the letter was a list of Fund’s outstanding binders placed through Fairfield, setting forth the name and address of each insured and the amount of coverage and the effective date of each binder. The Great American binder here in suit was the last entry on the list, a list containing 23 entries.

The express language of the letter seems somewhat ambiguous. In the first sentence Fund is stating that it “wished” to have all the outstanding binders “marked off” and therefore this would seem to suggest an instruction from Fund to Fairfield. However, the third sentence, stating that Fund was “considering” the binders “terminated by no later than July 22, 1968” could seem to suggest that Fund was giving Fairfield, as agent for all the insureds on the list, ten days’ notices of cancellation of all 23 binders. Although ordinarily we would be disposed to interpret the language of an ambiguous notice in favor of the insured and against the insurer, we consider that this general rule should not apply when both insured and insurer are “large insurance companies long engaged in far flung activities in that field of economic aetivity.” Boston Insurance Company v. Fawcett, 357 Mass. 535, 258 N.E.2d 771 (1970). Rather, as with the question of the scope of Fair-field’s authority, this, too, should be dealt with as a factual question to -be decided after an evidentiary hearing in the court below during which parol evidence as to the course of dealing Fairfield had with both insurers prior to the events in suit may be introduced on these issues.

We reverse the grant of summary judgment and remand to the court below for further proceedings there on the issues relevant to the scope of Fairfield’s authority as agent for both of the parties to this appeal and as to the intent of the July 11 letter and other relevant matters.

Reversed and remanded for further proceedings not inconsistent with this opinion.

      . “Reinsurance” is an agreement to indemnify the assured, partially or altogether, against a risk assumed by it in a policy issued to a third party. Friend Bros. v. Seaboard Surety Co., 316 Mass. 639, 56 N.E.2d 6 (1944).

      . In its original action in the New York State Supreme Court, Great American had also joined Fairfield, a Boston insurance broker, as a secondary defendant, alleging that if Fund was not held liable to Great American because its reinsurance binder had been canceled, Fairfield was liable to it for breach of contract, negligence, and tortious misconduct. Within two months of the suit’s commencement the three parties had joined issue. Somewhat later Fund moved to amend its answer so that it, too, might plead a contingent claim against Fairfield. It alleged that if it should be determined that the reinsurance contract had not been canceled Fairfield would be liable to Fund for the amount of Great American’s recovery against Fund. This motion was granted. Although there has been no adjudication of these contingent claims against Fairfield, the district court entered a determination under Fed.R.Civ. P. 54(b) that there was no just reason for delaying the entry of judgment in favor of Great American against Fund.

      . Inasmuch as the reinsurance contract which is the subject of the litigation was executed in Massachusetts and the primary loss to the City of Somerville occurred in Massachusetts we apply Massachusetts case law and statutory law wherever possible. See, e. g., John Hancock Mutual Life Insurance Co. v. Yates, 299 U.S. 178, 57 S.Ct. 129, 81 L.Ed. 106 (1936) ; New York Life Insurance Co. v. Federal National Bank of Shawnee, Oklahoma, 143 F.2d 69 (10th Cir. 1944) ; Standard Accident Insurance Co. v. Turgeon, 140 F.2d 94 (1 Cir. 1944).

      . The standard policy cancellation provision, in pertinent part, read as follows:
      This policy may be cancelled at any time by this company by giving to the insured and to any mortgagee to whom this policy is payable a ten days’ written notice of cancellation with or without tender of the excess of paid premium above the pro rata premium for the expired time, which excess, if not tendered, shall be refunded on demand. Notice of cancellation shall state that said excess premium (if not tendered) will be refunded on demand. 175 Massachusetts General Laws § 99.

      . MGLA, ch. 175, § 2A provides:
      Status of Reinsurance Contracts
      Contracts of reinsurance shall be deemed contracts of insurance as defined in Section 2, and authority to make contracts of insurance shall include authority to make contracts of reinsurance covering the same classes of risks, but the hazards under such contracts shall be deemed distinct in nature from the hazard originally insured. No provision of law relative to the form of insurance policies shall apply to contracts of reinsurance unless made specifically applicable thereto. (Emphasis added).

      . A “binder” of insurance or of reinsurance is a short method of issuing for the parties’ convenience a temporary policy covering a described risk in return for a “premium” payment to the insurer by the insured paid or to be paid.

      . Fund argues that since the cancellation provision speaks of notice to an insured rather than to a reinsured “the specific words of the standard form have no application . . . .” We disagree. Common sense and practical usage teach that Great American was an “insured” of Fund. We find equally unpersuasive another argument advanced by Fund that the Massachusetts Legislature which enacted the standard form never intended it to apply to reinsurance contracts between insurers. Although this may be so, if insurance companies dealing with one another also choose to incorporate into their contracts the requirements of the standard form, there is nothing to prevent them from doing so.

      . In pertinent part § 187C reads as follows :
      § 187C. Cancellation, How Effected.
      A company issuing any policy of insurance which is subject to cancellation by the company shall effect cancellation by serving the notice thereof provided by the policy and by paying or tendering, except as provided in this and the following section, the full return premium due thereunder in accordance with its terms without any deductions. Such notice and return premium, if any, shall be delivered in hand to the insured, or be left at his last address . . . or be forwarded to said address by registered mail ....
      This section speaks of policies of insurance and makes no mention of policies of reinsurance. Nevertheless, assuming arguendo that it does not apply to reinsurance policies, the standard policy requires that a notice of cancellation be delivered “to the insured.”

      . Although the written agency contract between Fireman’s Fund and Fairfield was canceled as of July 1, odds and ends associated with the termination of the agency needed to be “cleaned up.” Though it would seem Fairfield must have continued to act as Fund’s agent during this period, Fund does not admit this relationship.

      . In connection with the motion for summary judgment extensive affidavits with numerous exhibits attached thereto were filed in support of and in opposition to the motion. Written interrogatories had been propounded by each party to the other which were answered in due course. Depositions were taken, but appellant Fund alleged they had not been completed when the motion was granted. Thus appellant maintains as one ground of appeal that the grant of the motion was premature. We apprehend that upon remand the parties will continue to engage in pretrial activity, and so we find it unnecessary to decide whether the grant of summary judgment to Great American should be set aside on the additional ground that discovery had not been completed when the judgment order was filed.


author: McCREE, Circuit Judge.

text:
    CENTRAL TABLET MANUFACTURING COMPANY, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
    No. 72-1582.
    United States Court of Appeals, Sixth Circuit.
    Argued Dec. 5, 1972.
    Decided July 12, 1973.

      David English Carmack, Atty., Tax Div., Dept, of Justice, for defendant-appellant; Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, William A. Friedlander, Attys., Tax Div., Dept, of Justice, Washington, D. C., on brief; William W. Milligan, U. S. Atty., of counsel.
    Larry H. Snyder, Chamblin, Snyder & Casey, Columbus, Ohio, for plaintiff-appellee.
    Before McCREE and KENT Circuit Judges, and McALLISTER, Senior Circuit Judge.

       Judge Kent died on May 28, 1973 and did not participate in this decision.

   McCREE, Circuit Judge.

Section 337 of the Internal Revenue Code of 1954, as amended, has been judicially interpreted to provide for nonrecognition of, a capital gain realized by a corporate taxpayer upon receipt of fire insurance proceeds paid after the destruction of property, if both the fire and payment occur within a 12-month period after the adoption of a plan of complete liquidation. This appeal requires us to determine whether the involuntary conversion (which equates with a sale or exchange of the property for purposes of § 337) occurs when the property is destroyed or when the policy proceeds are received because this taxpayer adopted a plan of complete liquidation after a fire but before receipt of the insurance proceeds. In an action for refund of $81,732.39 in taxes paid under protest, the district court determined that the involuntary conversion did not occur until the insurance proceeds had been paid. We hold that the conversion took place at the time the property was destroyed and reverse the judgment of the district court.

Appellee Central Tablet Manufacturing Company was an Ohio corporation with offices and manufacturing facilities in Columbus, Ohio. Until 1965 it employed a sizable labor force and was a profitable manufacturer of writing tablets, school supplies, art materials, and related articles. On August 13 of that year, taxpayer’s production and maintenance employees went on strike. While the strike was in progress, an accidental fire on September 10, 1965, extensively damaged or destroyed the greater part of appellee’s equipment, inventory, and building. Taxpayer, at the time of the fire, carried both fire and business interruption insurance, and timely notified the insurance carrier of the loss.

Although the insurance carrier questioned neither the validity of the insurance contracts nor the fulfillment of the conditions for payment thereunder, it did dispute the amount to be paid under each policy. Negotiations between the taxpayer and the insurer began on November 1, 1965, to adjust the payments due under each policy. These efforts culminated in an agreement on the building claim on May 20, 1966 and on the personal property and other claims on August 25 of the same year. However, on May 14, 1966, six days before the first settlement and a full nine months after the fire, the shareholders of Central Tablet voted to dissolve the corporation and to liquidate its assets. Within the succeeding year, all corporate assets were collected, debts were paid, liquidating distributions were made to the shareholders, and, on May 3, 1967, a reserve was deposited in trust for the shareholders in the Ohio National Bank of Columbus, Ohio to await payment of final debts in completion of the liquidation.

As an accrual-basis taxpayer, appellee treated the gain realized from the fire insurance proceeds as nonrecognizable under IRC § 337. However, the Commissioner of Internal Revenue determined that the taxpayer had not qualified for this treatment because the shareholder liquidation vote came after the fire, which the Commissioner regarded as the time of conversion and thus of the “sale or exchange” to which § 337 refers. The taxpayer paid the deficiency assessed by the Commissioner and initiated a timely refund suit in the district court.

The district court, recognizing that this Circuit had not previously decided when an involuntary conversion occurs for purposes of § 337, followed the holding of the Eighth Circuit in United States v. Morton, 387 F.2d 441 (8th Cir. 1968), and entered judgment in favor of the taxpayer. The Government has appealed.

It is important at the outset to comment upon an uncontested issue. The Government does not now contest the treatment of a fire loss as a “sale or exchange” under § 337, although this is contrary to its position prior to 1964. Shortly after the passage of the Internal Revenue Act of 1954, the Commissioner of Internal Revenue, through Rev.Rul. 56-372, flatly stated that a casualty loss was not a sale within the meaning of § 337. This position was vigorously and consistently, although unsuccessfully, advocated before the court of claims and the Fourth Circuit. But in 1964, in Rev.Rul. 64-100, the Commissioner finally capitulated to the weight of mounting authority by revoking Rev.Rul. 56-372 and adopting the prevailing judicial view.

The sole issue before us is on what date, for purposes of § 337, does the involuntary conversion that equates with the “sale and exchange” occur when insured capital assets are destroyed by fire. For the reasons hereinafter stated, we hold that the date the fire occurs is the date on which the conversion takes place for purposes of determining the applicability of § 337. Accordingly, since the appellee failed to adopt a plan of liquidation before the fire occurred, it does not qualify for nonrecognition of the gain from insurance proceeds.

The taxpayer insists that in this case, the involuntary conversion by fire that equates with a sale or exchange did not occur until the insurance proceeds were finally paid. He relies on United States v. Morton, supra. The Government, on the other hand, contends that the date of the fire should be regarded as the date of “sale.”

We respectfully decline to follow Morton. In that case the Eighth Circuit analogized the involuntary conversion to a commercial sale where “the consideration is [normally] money which is readily and presently available for use by the holder or else comparable property which is of immediate benefit to the holder.” 387 F.2d at 447-48. It determined that the “sale” could only be concluded when the taxpayer could specifically quantify the consideration it would receive, either by judgment or agreement. Id. However, this view misapprehends the purpose of § 337.

The legislative history indicates that § 337 was enacted to establish an easy-to-follow and well-defined corporate procedure by which the capital gains realized in liquidation sales would not be taxed to the corporation, but only to the shareholders upon distribution to them of the proceeds as liquidating dividends. In the ten years preceding the adoption of the Internal Revenue Act of 1954, two Supreme Court cases created considerable confusion concerning the way in which a corporation could escape taxation of gains under IRC § 22(a) (1939), from the sale of all its assets after a decision to liquidate the business. In Commissioner of Internal Revenue v. Court Holding Co., 324 U.S. 331, 65 S.Ct. 707, 89 L.Ed. 981 (1945), the Supreme Court upheld the tax court’s determination that the corporation’s breaking off negotiations to sell its only asset, an apartment building, and its subsequent conveyance of the building as a liquidating dividend to its sole shareholders, a husband and wife, who later sold it to the same persons with whom the corporation had been negotiating and reduced the sale price by the $1,000 down payment given to the corporation, “showed a sale by the corporation rather than by the stockholders . . . .” 324 U.S. at 332, 65 S.Ct. at 708. Although the court of appeals had reversed the tax court because it drew different inferences from the undisputed facts, Justice Black, in reiterating that findings of the tax court are binding on appellate courts, reasoned that

[t]he incidence of taxation depends upon the substance of a transaction. The tax consequences which arise from gains from a sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the transaction must be viewed as a whole, and each step, from the commencement of negotiations to the consummation of the sale, is relevant. ... To permit the true nature of a transaction to be disguised by mere formalisms, which exist solely to alter tax liabilities, would seriously impair the effective administration of the tax policies of Congress. 324 U.S. at 334, 65 S.Ct. at 708.

Five years later in United States v. Cumberland Public Service Co., 338 U.S. 451, 70 S.Ct. 280, 94 L.Ed. 251 (1950), Justice Black, again speaking for the majority, this time upheld a court of claims determination that the corporation’s shareholders had properly negotiated the sale of corporate assets distributed to them in kind in a partial liquidation without incurring the corporate tax liability of IRC § 22(a).

Although different outcomes resulted, there are many similarities in the two eases. In both Court Holding and Cumberland, the objective was the same: avoidance of corporate taxation. There was an offer to buy made to each corporation before negotiations with the shareholders commenced. The corporate assets were distributed in kind to the shareholders in both instances. Both sets of shareholders intended to sell the assets immediately upon receipt. Both sets of shareholders received all the proceeds of the sale.

The only significant difference appears to be that in Court Holding, the two shareholders were also the managing officers of the corporation and merely changed hats in negotiating with the same purchaser after the apartment building was deeded to them. In Cumberland there were shareholders in addition to those who retained managerial positions, and this fact arguably implies that activities of the managing shareholders during the initial negotiations served broader interests than those of the corporation alone.

But this theoretical difference ignores the practical control that relatively small numbers of shareholders in closely held corporations exercise over corporate decision-making. Such a tenuous difference should not justify denying nonrecognition to one closely held corporation and granting it to another when the shareholders of both corporations have the same motives and exercise the same degree of effective control. These cases illustrate the difficulty of distinguishing between a sale by a corporation and a sale by its shareholders. Nevertheless, as Mr. Justice Black observed in Cumberland, the existing statutory scheme made such an inquiry necessary:

The oddities in tax consequences that emerge from the tax provisions here controlling appear to be inherent in the present tax pattern. For a corporation is taxed if it sells all its physical properties and distributes the cash proceeds as liquidating dividends, yet is not taxed if that property is distributed in kind and is then sold by the shareholders. In both instances the interest of the shareholders in the business has been transferred to the purchaser. .
Congress having determined that different tax consequences shall flow from different methods by which the shareholders of a closely held corporation may dispose of corporate property, we accept its mandate.

338 U.S. at 455-456, 70 S.Ct. at 282.

The Congress, four years later in the course of its revision of the entire tax code that resulted in the Internal Revenue Code of 1954, attempted to remedy this unsatisfactory situation. The House Committee resolved that, since “. . . under present law, the tax consequences arising from sales made in the course of liquidation depend primarily upon the formal manner in which transactions are arranged, [y]our committee intends ... to provide a definitive rule which will eliminate any uncertainty.” 3 U.S.Code Cong. & Admin.News 1954, at 4244. The remedial rule enacted, § 337(a), permitted only “. . . the imposition of a single tax at the shareholder level upon property sold during the course of a liquidation irrespective of whether the corporation or the shareholder in fact effected the sale .” Id. at 4245. Even prior negotiations have no effect: “Since subsection (a) refers to ‘a sale’ the fact that negotiations have been commenced prior to sale is immaterial . . . .” Id. However, the statute clearly requires, as taxpayer concedes, the adoption of a plan of complete liquidation before the sale or exchange of property occurs. See note 1 supra.

It is clear, then, that Congress decided to grant nonrecognition treatment only to a corporation that had already decided to cease operations and liquidate. It eliminated the necessity of determining whether a sale of all the corporate assets by shareholders to whom the assets had been distributed as a liquidating dividend was, for tax purposes, a sale by the corporation. The judicial extension of the section to provide for nonrecognition of a gain when the assets are involuntarily converted either by destruction or condemnation was intended to prevent an injustice to shareholders who had adopted a plan of liquidation but who thereafter lost their property by destruction or eminent domain before it could be sold. See Towanda Textiles, Inc. v. United States, 180 F.Supp. 373, 149 Ct.Cl. 123 (1960). To expand the statute further by construing it to permit nonrecognition when the property is destroyed before adoption of a plan of liquidation would, instead of preventing injustice to a taxpayer that had decided to liquidate, give it an advantage over other taxpayers by permitting it to decide after destruction of the property whether to rebuild with insurance proceeds or to liquidate. The Congress has provided relief for taxpayers who experience casualties and elect to use insurance proceeds to rebuild. Section 1033 provides for nonrecognition of gains from insurance proceeds if they are employed to replace the destroyed property within a stipulated time. We decline to read § 337 to give the same relief to taxpayers who decide to retain the insurance proceeds and go out of business. Section 337 is a statute designed to prevent double taxation when a corporation is committed to liquidation, and was not intended to serve as a relief measure for taxpayers who by fortuity suffered a destruction of corporate assets and still realized a gain. We have recently reaffirmed in a case involving another nonreeognition statute the “well settled principle that statutes granting tax exemptions or deferments must be strictly construed,” Elam v. Commissioner of Internal Revenue, 477 F.2d 1333 (1973), and in obedience to that principle we conclude that the sale or exchange experienced by appellee in this ease occurred on the date when its property was destroyed.

Reversed and remanded for further proceedings consistent herewith.

      . The pertinent portion of § 337 is as follows :
      § S37. (lain or loss on sales or exchanges 'in connection with certain liquidations (a) General rule. — If—
      (1) a corporation adopts a plan of complete liquidation on or after June 22, 1954, and
      (2) within the 12-month period beginning on the date of the adoption of such plan, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then no gain or loss shall be recognized to such corporation from the sale or exchange by it of property within such 12-month period.

      . Mr. James A. Wroe, the insurance adjuster assigned to this case, testified that “it was obvious that there was a fire. It was in progress when I was first on the scene. Now, liability is not a factor there. I mean, the contract provides the coverage for fire, and what remains then, is to establish the extent of damage.” He then testified that neither he nor the insurer ever challenged or considered challenging the insurance coverage in this case because there was no sign of arson.

      . The insurer asserted the applicability of a coinsurance clause in the fire policy on the building, and challenged the company’s valuation of the building and machinery at the time of loss and the cost of repair of the few repairable pieces of machinery.

      . Payment for the building claim was made on June 15, 1966, in the amount of $174,-595.05 and for the personal property claim on November 17, 1966, in the amount of $104,609.27.

      . “Accordingly, it is held that the receipt of fire insurance proceeds from the compíete destruction of a building by fire, resulting in an involuntary conversion, does not constitute a ‘sale’ for the purpose of obtaining nonrecognition of gain or loss benefits where liquidation of corporate assets is made pursuant to section 337 (a) of tlie Internal Revenue Code of 1954.” Mertens, Law of Federal Income Taxation, 1954-57 Rulings 389 (1958).

      . Towanda Textiles, Inc. v. United States, 180 F.Supp. 373, 149 Ct.Cl. 123 (1960).

      . Kent Manufacturing Corp. v. Commissioner of Internal Revenue, 288 F.2d 812 (4th Cir. 1961).

      . “Consistent with the Towanda Textiles Ino. and Kent Manufacturing Corporation decisions, conversions of property of the type described in section 337 of the Code will be treated as sales or exchanges for purposes of that section, where such conversions result in loss as well as gain, regardless of whether such property is the type described in section 1231 of the Code and regardless of whether such property has been held for more than six months.” Mertens, Law of Federal Income Taxation, 1961-65 Rulings 636 (1966).


author: PER CURIAM:

text:
    UNITED STATES of America, Appellee, v. Andre MIELES, Appellant.
    No. 949, Docket 73-1263.
    United States Court of Appeals, Second Circuit.
    Argued June 1, 1973.
    Decided June 22, 1973.

      Michael A. Young, New York City (Robert Kasanof, and Federal Defender Services Unit/The Legal Aid Society, New York City, of counsel), for appellant.
    David A. DePetris, Asst. U. S. Atty. (Robert A. Morse, U. S. Atty., E. D. N. Y., and Raymond J. Dearie, Asst. U. S. Atty., of counsel), for appellee.
    Before MOORE, FRIENDLY and FEINBERG, Circuit Judges.
   PER CURIAM:

In this typical narcotics prosecution in the District Court for the Eastern District of New York, Andre Mieles was convicted, after trial before Judge Bartels and a jury, of illegal possession and distribution of 28.6 grams of cocaine in violation of 21 U.S.C. § 841(a)(1). The Government’s proof, presented through Patrolman William McGroarty, who had purchased the cocaine while acting in an undercover capacity, and corroborated in substantial part by a surveilling agent, William McGinn, was this: McGroarty drove with a codefendant, Nicholas Rodriguez, in McGroarty’s car to a rendezvous with appellant’s cousin, Jose Mieles, also a codefendant. Rodriguez got out of the car and began talking with Jose. Appellant Andre Mieles soon arrived in a 1966 red Oldsmobile and joined the conversation. After about five minutes, during which McGroarty had a clear view of Andre Mieles some 30 feet away, Andre and Jose drove off in the red Oldsmobile. Forty-five minutes later they returned. Andre got out of his car and walked directly toward McGroarty’s car, where the Patrolman was sitting, and placed on the floor a package of aluminum foil later found to contain cocaine. McGroarty asked “How much?” and, after Andre replied $800 handed this to him in cash. Andre then walked back to Jose, and they were joined by Rodriguez. Andre handed the money to Jose. Jose gave a part of it to Rodriguez, who rejoined Mc-Groarty, and the two then drove away. When McGinn and other agents went to Andre’s home to effect his arrest some six weeks later, Andre attempted to flee.

Andre denied any involvement in the transaction, although he admitted his wife’s ownership of the red Oldsmobile, his acquaintance with Rodriguez and his attempt to flee. He offered no alibi.

The first point raised on appeal relates to McGroarty’s courtroom identification of the defendant. On the evening of the cocaine transaction, another officer advised McGroarty of a possible identification and asked McGroarty to look through five or six photographs. McGroarty picked a photo of Andre Mieles, which was produced at a pretrial suppression hearing but was not offered at the trial. When at the suppression hearing, defense counsel asked for the other photographs, the Government was unable to furnish them since they had been returned to files or other officers. While we condemn such carelessness in the handling of material potentially useful to a defendant, the episode does not call for reversal. The utmost benefit to which appellant would be entitled would be an assumption that the other photographs were of individuals so different in appearance as to render the identification impermissibly suggestive, compare United States v. Fernandez (I), 456 F.2d 638, 641 (2 Cir. 1972). Even on that assumption, the judge would have been amply justified in finding that this did not taint the in-court identification by McGroarty, a trained observer who had viewed Andre at close range for some ten to twelve minutes during clear daylight. Compare United States ex rel. Gonzalez v. Zelker, 477 F.2d 797, (2 Cir. 1973). Although it would have been preferable if the judge had made a specific finding to this effect, this is fairly to be implied from his denial of the motion to preclude the anticipated in-eourt identification. Compare United States v. Abbate, 451 F.2d 990 (2 Cir. 1971). It is worth noting, also, of that McGroarty’s identification Mieles at trial was corroborated by Agent McGinn, who had not been shown the presumably suggestive photo display.

Appellant’s other points are that the judge unduly assisted the prosecution through his questioning of witnesses and improperly interfered with defense counsel’s summation. We find no merit in either. The only significant questioning by Judge Bartels followed a lengthy description by McGroarty of what transpired at the scene of the narcotics transaction after the return of the Mieles cousins, when the judge disassembled this so that he and the jury could get a clearer picture of just what happened. This is far removed from such repeated efforts by a judge to supply inadequacies of the prosecution as might lead the jury to believe he was part of the prosecution team, which we criticized in United States v. Fernandez (II), 480 F.2d 726, 737 (2 Cir. 1973). The judge’s major interruption of the defense summation not only was not im-' proper but was demanded. In an effort to minimize the inference from Andre’s attempted flight, defense counsel sought to argue that Jose, who had been arrested two days before "could have told” Andre, who would thus have fled earlier if he had been conscious of guilt. Not only was there no evidence of any such communication, but Andre had testified that he did not spend much time with Jose and did not even know where Jose lived. A second interruption was when defense counsel sought to make something of the absence of fingerprint testimony, although the undisputed evidence was that, because of technical difficulties, it was not the practice to attempt to lift prints from aluminum foil. While the judge might better have omitted two other interruptions and trusted the jury to disregard exaggerated rhetoric, his remarks were technically correct and the episodes utterly inconsequential.

The judgment is affirmed. The mandate shall issue forthwith.

      . Both Rodriguez and Jose Mieles pleaded guilty.

      . The following colloquy during the suppression hearing makes it clear that this is what the judge had in mind in denying the motion:
      The Court: Even that [demonstrating that the photographic display was impermissibly suggestive] wouldn’t be at all conclusive. It depends on all the circumstances of this case, . . . He has stated here that he had seen this man for between ten and—
      The Witness: And 12, 15 minutes.
      The Court: Ten or twelve or fifteen minutes, talked to him — did you?
      The Witness: That’s correct, your Honor.
      The Court: And you were next to him — how near were you to him?
      The Witness: I was seated in a vehicle and he was standing on the side of the vehicle by the window.
      The Court: Would you say you were a foot away from him?
      The Witness: About a foot, yes, your Honor.
      The Court: Not any more than a foot?
      The Witness: Not more.
      The Court: Zou saw his face clearly, you looked straight in his eyes, lie looked in your eyes?
      The Witness: That’s correct.
      The Court: Immediately thereafter, the second meeting, you went up and looked at some photos, is that right?
      The Witness: That’s right.
      The Court: I will deny the motion.