text:
    GTE SERVICE CORPORATION and GTE Data Services Incorporated, Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, United States Independent Telephone Association (USITA) et al., Intervenors. UNITED TELEPHONE COMPANY OF MISSOURI and United Computing Systems, Inc., et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, Mankato Citizens Telephone Company et al., Intervenors. WESTERN UNION TELEGRAPH COMPANY, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. INTERNATIONAL TELEPHONE AND TELEGRAPH CORPORATION, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, CTSS of Association of Data Processing Service Organizations, Inc. (ADAPSO), and Business Equipment Manufacturers Association (BEMA), Intervenors. CONTINENTAL TELEPHONE CORPORATION, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents.
    Nos. 97, 185, 186, 187, 188, Dockets 71-1300, 71-1484, 72-1486, 72-1566, 72-1578.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 27, 1972.
    Decided Feb. 1, 1973.

      George E. Shertzer, New York City (William Malone, Washington, D. C., and James V. Carideo, Tampa, Fla., of counsel), for Petitioners, GTE Service Corp. and GTE' Data Services Inc.
    Warren E. Baker, Shawnee Mission, Kan. (Paul G. Pennoyer, Jr., and Chad-bourne, Parke, Whiteside & Wolff, New York City, Edmund E. Harvey and Lloyd D. Young, Washington, D. C., of counsel), for petitioners, United Telephone Co. of Mo.- and United Computing Systems, Inc., and others.
    Richard C. Hostetler, New York City (Jack Werner and Robert N. Green, Washington, D. C. of counsel), for inter-venor-petitioner, Western Union Telegraph Co.
    Robert E. McKee, New York City, for petitioner, International Telephone and Telegraph Corp.
    Raymond L. Falls, Jr., New York City (Don H. Wallach, Washington, D. C., Mathias E. Mone and Cahill, Gordon, Sonnett, Reindel & Ohl, New York City, of counsel), for petitioner, Continental Telephone Corp.
    Charles A. Zielinski, Counsel, F. C. C., Washington, D. C. (John W. Pettit, Gen. Counsel and Joseph A. Marino,-Associate Gen. Counsel, F. C. C., Washington, D. C., Thomas E. Kauper, Asst. Atty. Gen., and Harry First, Atty., Dept, of Justice, Washington, D. C., of counsel), for respondents, F. C. C. and United States.
    Joseph M. Kittner, Washington, D. C. (Edward P. Taptich and McKenna, Wilkinson & Kittner, Washington, D. C., John S. Voorhees and Howrey, Simon,' Baker & Murchison, Washington, D. C., of counsel), for intervenor, Business Equipment Manufacturers Assn. (BEMA).
    Herbert E. Marks, Washington, D. C. (Stephen R. Bell and Wilkinson, Cragun & Barker, Washington, D. C., of counsel), for intervenor, CTSS of Assn, of Data Processing Service Organizations, Inc. (ADAPSO).
    Thomas J. O’Reilly, Washington, D. C. (William C. Blethen and Blethen, Ogle, Gage & Krause, Mankato, Minn., of counsel), for intervenors, United States Independent Telephone Ass’n (USITA) and Mankato Citizens Telephone Co., and others.
    Before MOORE, HAYS and MULLIGAN, Circuit Judges.
   MULLIGAN, Circuit Judge:

In these consolidated cases, petitioners seek a review of a Final Decision and Order (28 F.C.C.2d 267 (1971)) of the Federal Communications Commission which promulgated certain rules (47 C.F.R. § 64.702 (Supp.1972)) relating to the rendition of computer data processing services by communications common carriers. The petitioners include several telephone companies participating in the data processing field. They challenge the regulations broadly urging that the Commission lacked authority, abused its discretion and failed to follow a proper procedure in establishing the rules. Jurisdiction of this court to review the order is provided by 47 U.S.C. § 402(a) (1970) and 28 U.S.C. §§ 2342(1), 2343, 2344 (1970).

The rules essentially prescribe the conditions under which common carriers, subject to the Communications Act, may engage in the offering of data processing services to others. Since this is the Commission’s initial venture into a broad field of new technology and services, some background discussion is appropriate.

I. FACTUAL BACKGROUND

The present day computer is created by the integration of mechanical devices and electronic circuits, and may be programmed to perform a wide variety of complex functions. Modern advancement in the industry built around this controversial machine has been so rapid, both in terms of technology and utilization, that the first commercially available general purpose computer, the UNIVAC, initially employed by the Census Bureau in 1951, has been reposing in the Smithsonian Institute since 1964 along with the Spirit of St. Louis. This advancement has been characterized not only by the continual development of computers having greater capability and efficiency of operation, but also by ever “larger” (higher capacity) computers. Economics of scale has been a major factor in spawning the trend towards the high capacity machine. Capacity of large computers varies with the square of their prices; thus, for double the price one obtains four times the power.

The availability and economics of these large computers have in turn contributed significantly to the development of the data processing service industry, as is illustrated by the emergence of several important types of computer service enterprises. A number of major computer manufacturers maintain computer service bureaus, which sell computer time. There are also hundreds of non-manufacturing firms which offer a wide range of data processing services. Moreover, many large institutions, who either own or lease “in-house” computers for their own use, have found it economically desirable to procure surplus computer capacity and to sell the excess to others.

Computer services available to the consumer, while taking many and varied forms, may be generally categorized as (1) message-switching; (2) data processing; or (3) a combination of both, i.e., a hybrid service. Message-switching essentially involves the sending of a message by a device, e. g., a teletypewriter, through common carrier lines to a computer where it is stored until an appropriate line is available for forwarding the message to the receiving station; the content of the message remains unaltered.

Data processing, the use of the computer for operations which include the storing, retrieving, sorting, merging, and calculating of data, may be offered either as a “local” or a “remote access” service. A local data processing service is one wherein communications facilities are not employed in serving the customer. Input and output of the computer must of course be transmitted between the computer installation and the customer but the customer is in no way “linked” to the computer by communications facilities. Remote access service, on the other hand, provides for direct access to a central computer by customers at distant locations. It is effected by a system including a customer terminal joined to the central computer by common carrier operated communications lines. Where' remote access data processing is combined with message-switching in such a way that a single integrated service is offered, it is known as a hybrid service.

Telephone companies, like many other organizations, have found important uses for the computer. It is employed directly in the provision of communications services, as well as for billing, accounting and other data processing. Because the nature of the telephone business necessitates the use of large communications computers to handle peak periods of traffic, the considerable excess capacity existing in off-peak hours can be utilized to perform data processing functions. Likewise, surplus computer time may be available on those “in-house” machines generally used to satisfy a telephone company’s data processing needs.

The marketability of this excess computer capacity, and the growing interaction of the computer and communications industries have attracted common carriers to the computer service field. This in turn has aroused the concern of the FCC. The Commission’s response, on November 10, 1966, was to issue a Notice of Inquiry (7 F.C.C.2d 11) and a Supplemental Notice of Inquiry (7 F.C.C.2d 19) on March 2, 1967 which initiated a general, investigation into the interdependence of computer and communication services. These inquiries prompted about 3000 pages of comments from sixty interested parties including trade associations, government agencies, professional organizations, communications common carriers, computer manufacturers, computer service organizations, and computer users.

The FCC, feeling constrained by its limited internal resources, contracted with the Stanford Research Institute to examine the responses and to make recommendations. After Stanford completed its analysis in a series of seven reports, the Commission released a Report and Further Notice of Inquiry (17 F.C.C.2d 587) on May 9, 1969, seeking comments on the Stanford study. Subsequently, on April 3, 1970, the Commission issued a Tentative Decision (28 F.C.C.2d 291). In addition to setting forth proposed rules, the decision indicated that two basic policy questions remained to be resolved:

(a) The nature and extent of the regulatory jurisdiction to be applied to data processing services; and
(b) Whether, under what circumstances, and subject to what conditions or safeguards, common carriers should be permitted to engage in data processing.

28 F.C.C.2d at 295.

Furthermore, the decision indicated that any regulatory safeguard should seek to assure:

(a) that [the sale by common carriers of data processing] services will not adversely affect the provision of efficient and economic common carrier services; (b) that the costs related to the furnishing of such services will not be passed on, directly or indirectly, to the users of common carrier services; (c) that revenues derived from common carrier services will not be used to subsidize any data processing services; and (d) that the furnishing of such services will not inhibit free and fair competition between communication common carriers and data processing companies or otherwise involve practices contrary to the policies and prohibitions of the antitrust laws.

28 F.C.C.2d at 302.

The Commission, after hearing argument on September 3, 1970, filed its Final Decision and Order (28 F.C.C.2d 267) on March 18, 1971. That decision adopted the Tentative Decision and the proposed rules with certain significant additions by a vote of 4 to 3; Chairman Burch and Commissioners Lee and Wells dissented in part. A Memorandum Opinion and Order, denying petitions for reconsideration and affirming (3-2) the Final Decision and Order (34 F.C.C.2d 557) was released on March 30, 1972.

II. THE RULES

The Commission found that there was a “close and intimate relationship” between data processing and communications services; data processing development increasingly depends upon the use of communications services, and communication systems rely upon increasingly greater use of data processing. 28 F.C.C.2d at 269. Having found the close and mutual relationship between common carriers and data processing, the Commission’s basic concern has been that the statutory obligation of the communication common carrier to provide adequate and reasonable services could be adversely affected by their also providing data processing services. “ ‘The dangers . . . relate primarily to the alleged ability of common carriers to favor their own data processing activities by discriminatory services, cross subsidization, improper pricing of common carrier services, and related anti-competitive practices and activities.’ ” 28 F.C.C.2d at 270 (quoting the Tentative Decision, 28 F.C.C.2d at 301-02).

The Commission concluded that the best method of regulation was to avoid the extremes of an absolute prohibition of communication common carriers’ furnishing computer services, directly or indirectly, and the regulation of the data processing industry as such. The middle ground found by the Commission was based upon the concept of achieving “ ‘a maximum separation of activities which are subject to regulation from non-regulated activities involving data processing.’ ” 28 F.C.C.2d at 269 (quoting the Tentative Decision, 28 F.C.C.2d at 302).

a) Rules 47 C.F.R. §§ 64.702(b), (c) (1), (2), (3) & (d) (Supp.1972)

To achieve “maximum separation,” the Commission in its Tentative Draft and its present Final Draft promulgated rules 64.702(b), (c)(1), (2) & (3). In substance these regulations provide that no common carrier subject to the Communications Act, in whole or in part, shall furnish data processing services to others except through a separate corporate entity which must maintain its own books of account, have separate officers, employ separate operating personnel, and utilize separate computing equipment and facilities. All contracts, agreements and arrangements between the carrier and such separate corporation, must be filed with the Commission within thirty days. The carrier is further precluded from selling or promoting the data processing services of the separate corporation. Rule 64.702(d) (not in the Tentative Draft) prohibits a carrier from selling or leasing to any other entity any excess capacity or computer system component, which the carrier uses in any way for the provision of its common carrier communications services.

We treat these rules separately since their validity rests upon a common legal and factual basis not present in the case of the other rules to be later considered.

The initial question raised by certain petitioners is whether the Federal Communications Commission is authorized by Congress to promulgate rules regulating the entrance of communications common carriers into the nonregulated field of data processing services. We think that the answer here has to be in the affirmative. The Commission was created, inter alia, “[f]or the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient, Nation-wide, and world-wide wire and radio communication service with adequate facilities at reasonable charges . . . .”47 U.S.C. § 151 (1970).

Moreover, the Commission may “make such rules and regulations, and issue such orders ... as may be necessary in the execution of its functions.” 47 U.S.C. § 154(i) (1970). The rules we are now considering are generically based upon the primary charge of the Commission that its carriers provide efficient and economic service to the public. The burgeoning data processing activities of the common carriers pose, in the view of the Commission, a threat to efficient public communications services at reasonable prices and hence regulation is justified under its broad rule-making authority.

The fact that the Communications Act makes no reference to computers and data processing is not surprising. The Act was passed in 1934 and although there may have been academic concepts of the computer at that time, its commercial exploitation and impact on regulated communications carriers was certainly not evident. The courts, however, have uniformly and consistently interpreted the Act to give the Commission broad and comprehensive rule-making authority in the new and dynamic field of electronic communication.

Thus, although the Act did not provide explicitly that the Commission deal with network practices found inimical to the public interest, the Supreme Court in NBC v. United States, 319 U.S. 190, 219, 63 S.Ct. 997, 1010, 87 L.Ed. 1344 (1943), observed:

But Congress was acting in a field of regulation which was both new and dynamic. “Congress moved under the spur of a widespread fear that in the absence of governmental control the public interest might be subordinated to monopolistic domination in the broadcasting field.” ... In the context of the developing problems to which it was directed, the Act gave the Commission not niggardly but expansive powers, (citation omitted).

See also United States v. Storer Broadcasting Co., 351 U.S. 192, 76 S.Ct. 763, 100 L.Ed. 1081 (1956).

Similarly, although the Act makes no mention of Community Antenna Television (CATV), the broad power of the Commission to regulate communications was found to encompass the regulation of this technological development. United States v. Southwestern Cable Co., 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968). Our own court has upheld the authority of the .Commission to regulate prime time access in television communication despite the absence of any explicit authority in the Act. Mt. Mansfield Television, Inc. v. FCC, 442 F.2d 470, 480-481 (1971).

While these cases do not deal with the precise issue here under consideration, they nevertheless point the direction that must be followed in interpreting the Commission’s authority under the Communications Act. The plain implication of these precedents is that, even absent explicit reference in the statute, the expansive power of the Commission in the electronic communications field includes the jurisdictional authority to regulate carrier activities in an area as intimately related to the communications industry as that of computer services, where such activities may substantially affect the efficient provision of reasonably priced communications service. We so hold.

Another argument levelled by the petitioners is that the findings of the Commission only indicate potential abuse and that the proper role of the FCC should be to wait for actual abuses and then proceed on an adjudicatory basis rather than through the device of rule-making. This argument is not persuasive.

[T]he choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency. SEC v. Chenery Corp., 332 U.S. 194, 203, 67 S.Ct. 1575, 1580, 91 L.Ed. 1995 (1947).

This court has already pointed out:

It is irrelevant that the rule is aimed at potential rather than actual domination or restraints, or that the Commission is not certain that the developments forecast will occur if the rule is not enacted. Mt. Mansfield Television, Inc. v. FCC, 442 F.2d 470, 487 (1971).

It must be emphasized that here the Commission is moving into a new area of policy affecting large numbers of telephone carriers. The advantages of rule-making over adjudicatory proceedings in such circumstances are well understood. K. Davis, Administrative Law Treatise § 6.15 (1970 Supp.); H. Friendly, Benchmarks 143-48 (1967).

Finding that the Commission has authority and that rule-making is the appropriate procedure, we have no doubt but that these rules are supported by adequate rational considerations. The 'Commission has avoided here the extreme of totally barring the carrier from data processing directly or indirectly on the one hand, and the regulation of the data processing industry on the other. The media via approach of “maximum separation” of services is logically directed at eliminating the potential hazards to efficient and economical phone service which is clearly the Commission’s primary responsibility and interest here. Specifically, the Commission was concerned that data processing costs would be passed on directly or indirectly to the public consumer of telephone services and that revenues derived from common carrier services would be used to subsidize data processing services. This concern is met by rules 64.-702(b), (e)(1), (2) & (3) which mandate the establishment of a separate corporate affiliate, require the filing of in-tra-organizational agreements, and prohibit the carrier’s sale or promotion of its affiliate’s data processing services. These rules effectively reduce the possibility of shifting costs, hiding operating or advertising expenses or any juggling of accounts which might otherwise occur. The efficiency of carrier service presumably is maintained and secured by the corporate, physical and financial separation prescribed by the regulation.

Rule 64.702(d), although not in the tentative rules, is clearly within the “maximum separation” approach of the Commission. Its prohibition against the leasing or selling of extra capacity or computer system components is aimed at the protection of efficient telephone service to the public by eliminating the possibility of a diversion of facilities to other purposes. In sum, we find these rules fully within the authority of the Commission and amply supported by findings after appropriate rule-making procedure.

b) Rules 17 C.F.R. §§ 61.702(c)(1) & (5) (Supp.1972)

The principal attack of the petitioners is levelled against these two rules which in essence preclude the common carriers from purchasing, leasing or otherwise obtaining any data processing service or services from their separate corporations. Further the carrier is prohibited from permitting the separate corporation to employ in its name, any words or symbols contained in the name of the carrier or from using the carrier’s name in the separate corporation’s promotional enterprise. Although the regulations grammatically prohibit the regulated carrier from dealing with the affiliate or from permitting its name to be used and thus nominally are limited to common carriers, realistically the rules prohibit the data processing affiliate from dealing with the carrier or using its name or symbol. It is urged by the petitioners that these regulations are without statutory authority and constitute an abuse of discretion.

While the rules which we have already found valid in Part I-I(a) of this opinion are supported by the Commission’s concern that its regulated carriers continue to provide the public with efficient and economic telephone service, its major reliance here is avowedly upon anti-trust considerations. Since the telephone carrier admittedly has a monopolistic, albeit legal leverage, the Commission is concerned about the threat of an extension of this power into the data processing market. Its concern here therefore is not for the communications market which Congress has entrusted to its care, but for data processing which is beyond its charge and which the Commission itself has announced it declines to regulate. We find the intrusion to be without authority either in the Communications Act or in the cases construing it.

The Commission argues that since it has jurisdiction over the telephone carrier, it can bar the data processing affiliate from dealing with the carrier because corporate entities may be disregarded where “they are made the implement for avoiding a clear legislative purpose.” Schenley Distillers Corp. v. United States, 326 U.S. 432, 437, 66 S.Ct. 247, 90 L.Ed. 181 (1946). While this is dictum we have no doubt but that it represents a proper statement of the law. However, the proposition has no application at all to the situation at issue. The separate corporate entity is not a device utilized by the carrier to avoid regulation; it has been authorized by the Commission which in these very rules pronounces it as the only legitimate means by which a carrier may provide data processing services to others. While courts have long since engaged in the pursuit of piercing corporate veils where they have been utilized to evade or circumvent legislative enactments, the Commission itself has not only appointed and anointed the separate data processing affiliate but cut the umbilical cord to the parent by the “maximum separation” provisions we have previously discussed. The Commission has no basis at all to now pronounce that the carrier’s progeny is really illegitimate and a device to avoid regulation.

The Commission argues that it may properly make regulations which are based upon anti-trust considerations. Again we have no quarrel with the proposition of law. However, the unfair competition, restraint of trade or potential threat of monopoly, must be in a market in which the Commission has jurisdiction. The threat here is admittedly to the data processing industry over which the Commission has never asserted jurisdiction and which it has deliberately avoided regulating.

The Commission’s brief announces that the statutory monopoly power which the telephone company possesses provides a potential leverage into data processing and thus invites anti-trust scrutiny. The cases upon which it relies (see, e. g., United States v. Loew’s Inc., 371 U.S. 38, 83 S.Ct. 97, 9 L.Ed.2d 11 (1962); United States v. Griffith, 334 U.S. 100, 68 S.Ct. 941, 92 L.Ed. 1236 (1948); International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947)) in the main demonstrate that the scrutiny is normally that of the Department of Justice, Anti-Trust Division or the Federal Trade Commission which have responsibility for the enforcement of the Sherman and Clayton Acts.

The cases where the Commission has been motivated by anti-trust considerations involve trade regulatory concerns in markets over which the FCC had jurisdiction. Thus in Mansfield Journal Co. v. FCC, 86 U.S.App.D.C. 102, 180 F.2d 28 (1950) the court affirmed the Commission’s denial of an application by the Mansfield Journal to construct F.M. and A.M. radio stations in Mansfield, Ohio. The Journal was the only newspaper in town. The FCC’s concern was that the monopoly the Journal enjoyed in the newspaper market would spill over into the radio broadcasting field, over which the agency had unquestioned jurisdiction. The concern of the Commission over anti-competitive abuse in communications is of course proper; its concern over data processing services is ultra vires.

The CATV cases provide no support for the Commission’s assertion of jurisdiction here. In United States v. Southwestern Cable Co., 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968), the authority of the FCC to regulate CATV was based on the need to control the growth of community antenna systems in order that the Commission might accomplish its broad responsibility of orderly development of an appropriate system of local television broadcasting. 392 U.S. at 177, 88 S.Ct. 1994. In short, there was substantial evidence that unregulated CATV would threaten an industry whose growth and development Congress had entrusted to the Commission. There is no claim here that unregulated data processing threatens telephone service to the public.

General Tel. Co. v. United States, 449 F.2d 846 (5th Cir. 1971), strongly relied upon by the Commission, is clearly distinguishable in our opinion. That ease involved FCC orders prohibiting telephone carriers from furnishing CATV service directly or through affiliates and disallowing the carrier's construction of cable facilities for independent CATV operators except under certain conditions. In view of the prior holding of the Supreme Court in Southwestern Cable, supra, which had emphasized the Commission’s plenary responsibility over electrical communication and the continuing and broadening regulation of CATV by the FCC, the decision of the court upholding the orders is hardly surprising. As we have pointed out, the FCC has not claimed jurisdiction to regulate data processing.

The General Telephone case, however, is instructive because of the emphasis which the court placed on the FCC’s anti-trust jurisdiction. The FCC had found that “[s]ince the telephone companies have a natural monopoly over the means required to conduct a CATV operation, i. e., the poles or conduits, they are in a position to pre-empt the market for this important service. [A]t present CATV is one important gateway to entering the broadband market and it is the Commission’s obligation to eliminate any arbitrary blockage of this gateway.” 449 F.2d at 856-857. In sharp contrast here, while the FCC found a dependence by the data processing industry upon communications facilities (28 F.C.C.2d at 269), it also found that the computer service industry is one characterized by “open competition” and “relatively free entry” (28 F.C.C.2d at 270). “These characteristics, in fact, provide[d] a major basis for [the Commission’s] conclusion that [it] should not, at this point, assert regulatory authority over data processing, as. such.” 28 F.C.C.2d at 270.

The only other consideration we can find in the Final Decision to support the questioned rules is that “[t]he specialized and variant nature of the data processing services, particularly with reference to costs and charges therefor, is conducive to improprieties which are difficult to detect.” 28 F.C.C.2d at 273. While the improprieties may be difficult to detect, they should not be difficult to enumerate. We are told only that their net effect “could translate into inflated charges to [communications] customers. . . .” 28 F.C.C.2d at 273. These same improprieties could “cause irreparable harm” to the data processing competitors of the affiliates because of the underpricing possibilities so created. 28 F.C.C.2d at 273. These concerns, in our view, support the “maximum separation” concept of the approved rules but do not sustain the Commission’s intrusion into the data processing activities of the separate affiliate. Despite the proclaimed healthy competitive state of the data processing industry, the Commission has indicated that if abuse occurs it will not hesitate to review industry practices. In this posture we see no point to now directing a remand for further study.

If we are correct in the view that the Commission has no express or implied authority to regulate the conduct of the data processing subsidiary by reason of anti-trust considerations, thus rendering rule 64.702(c)(5) void as ultra vires, it follows that rule 64.702(c) (4) barring the subsidiary from using the parent carrier’s name or symbol or using its name in promotional activities or enterprises, is perforce void. The Commission’s “purpose here was to prevent the impairment of effective competition.” Brief for FCC at 55. The competition sought to be protected is of course competition in the data processing field which we have repeatedly indicated is not properly within the Commission’s purview. Any Commission concern that advertising costs might be commingled and improperly charged to the parent are fully protected by rule 64.702(c)'(3) which prohibits a carrier’s sale or promotion of its affiliate’s data processing services. To characterize rule 64.-702(c)(4) as a “logical and necessary •extension” of rule 64.702(c)(3) overlooks, of coúrse, the separate legal entity of the data processing affiliate.

The Commission reminds us that we are not to be concerned with the wisdom of its regulations nor should we substitute our judgment for that of the Commission as to the prudence of its regulations. We agree. See, e. g., Mt. Mansfield Television, Inc. v. FCC, 442 F.2d 470, 481-482 (2d Cir. 1971). Chairman Burch has made clear in his dissent (28 F.C.C.2d at 289-90) that he believed the disputed rules constitute “a classical case of regulatory over-kill.” In his view the prohibition of dealing between parent and subsidiary will preclude the common carrier from revenues which an affiliate through economies of scale or efficiency might be able to offer the parent, even in a competitive bidding setting. He terms the prohibition of the affiliate’s use of the parent’s name as “naive.” These arguments have also been pressed upon us by the petitioners. However, these are considerations properly for the Commission to determine and the majority of its members have determined otherwise. It is no proper part of our judicial function to act as three additional members of that distinguished body. The basis for our decision here is not that we disagree with the prudence or wisdom of the Commission but simply that the Commission had no jurisdiction under its Act or in the cases construing it, to regulate a separate affiliate’s business in the data processing market. That is properly the concern of the Anti-Trust Division and the Federal Trade Commission under the Sherman and Clayton Acts if any abuse occurs or is threatened.

III. THE CONNECTING CARRIERS

Several telephone companies have argued that since they are “connecting carriers” within the Act (47 TJ. S.C. § 152(b)(2) (1970)), they should be exempt from the rules here under consideration. They urge that they are primarily engaged in local exchange telephone service, a communications service exclusively subject to state regulation and expressly exempt from federal supervision (see 47 U.S.C. §§ 152(b), 221(b) (1970)). The Act (47 U.S.C. § 152(b)(4) (1970)), however, specifically makes applicable to “connecting carriers,” i. e., carriers engaged in interstate or foreign communication solely through physical connection with licensed carriers, the provisions of sections 201 to 205. These sections generally give the Commission jurisdiction over the connecting carrier’s services, charges and practices which are a part of the uninterrupted and indivisible national system of telephone service. Cf. United States v. Southwestern Cable Co., 392 U.S. 157, 169, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968). In view of the Commission’s overall responsibility and broadly construed authority to insure adequate and efficient telephone service at reasonable rates, the same considerations which prompted the maximum separation regulations (47 C.F.R. §§ 64.-702(b), (c)'(l), (2), (3) & (d)) which we have found properly within the authority of the Commission with respect to its licensees should govern here. The connecting carriers are indisputably a necessary part of the national telephone network. See General Tel. Co. of Cal. v. FCC, 134 U.S.App.D.C. 116, 413 F.2d 390, 402, cert. denied, 396 U.S. 888, 90 S.Ct. 173, 24 L.Ed.2d 163 (1969). The de minimis argument of the connecting carriers is answered in part at least by the exemption of those connecting carriers whose annual revenues do not exceed $1,000,000 (see note 7 supra).

The argument made by the connecting carriers that their data processing subsidiaries are local and in any event do not constitute interstate communications so as to be within the jurisdiction of the FCC is persuasive but is now academic in view of our voiding 47 C.F.R. §§ 64.-702(c)(4) & (5). To the extent that such non-communication and intra-state service poses a threat to efficient interstate telephone service at reasonable' rates, the “maximum separation provisions” of the regulations already approved in Part II (a) of this opinion should a fortiori provide public protection. The fact that no actual abuse has been shown as we have already indicated does not oust the Commission of its rule-making role.

In summary, we hold that rules 64.-702(b), (c)(1), (2), (3) & (d) are valid, but that rules 64.702(c)(4) & (5) are beyond the jurisdictional authority of the Federal Communications Commission.

      . In Case No 71-1484 petitions for review were filed in the United States Court of Appeals for the Eighth Circuit by telephone companies known collectively ns the United Telephone System, and by United Computing Systems, Inc., subsidiaries of United Utilities, Inc. The case was transferred to this court and consolidated with Case No. 71-1300. Petitions to review were filed in Case No. 71-1300 by GTE Service Corp. and GTE Data Services, Inc., subsidiaries of General Telephone & Electronics Corp. Western Union Telegraph Co. filed the petition to review in Case No. 72-1486 which was also consolidated. Case No. 72-1578 was filed by Continental Telephone Co. in the Fourth Circuit, transferred to this Court and consolidated. International Telephone and Telegraph Corp. instituted Case No. 72-1566.
      A number of intervenors have also presented arguments in these proceedings. They include: Computer Time-Sharing Services Section (CTSS) of the Association of Data Processing Service Organizations (ADAPSO) ; Business Equipment Manufacturers Association (BEMA) ; United States Independent Telephone Association (USITA) ; and Mankato Citizens Telephone Co.

      . By order dated June 7, 1971, this Court stayed the effective date of the regulation pending judicial review.

      . The Final Decision also established rules regarding the offering of a “hybrid service” (47 C.F.R. §§ 64.702(e)-(f)) and the termination of a communication service (47 C.F.R. § 64.702(g)). For the definition of “hybrid service” see note 4 infra. These rules have not been challenged and therefore will not be discussed further.

      . These terms, among others, have been defined in 47 C.F.R. § 64.702(a) (Supp. 1972) :
      (1) “Data processing” is the use oí a computer for the processing of information as distinguished from circuit or message-switching. “Processing” involves the use of the computer for operations which include, inter alia, the functions of storing, retrieving, sorting, merging and calculating data, according to programmed instructions.
      (2) “Message-switching” is the computer-controlled transmission of messages, between two or more points, via communications facilities, wherein the content of the message remains unaltered.
      (3) “Local Data Processing Service” is an offering of data processing wherein communications facilities are not involved in serving the customer.
      (4) “Remote Access Data Processing Service” is an offering of data processing wherein communications facilities, linking a central computer to remote customer terminals, provide a vehicle for the transmission of data between such computer and customer terminals.
      (5) “Hybrid Service” is an offering of service which combines Remote Access data processing and message-switching to form a single integrated service.
      (i) Hybrid Data Processing Service is a hybrid service offering wherein the message-switching capability is incidental to the data processing function or purpose.
      (ii) Hybrid Communication Service is a hybrid service offering wherein the data processing capability is incidental to the message-switching function or purpose.
      None of the parties to this proceeding . have raised any question relating to these definitions.

      . Commissioner Bartley concurred in the Final Decision but would have gone further and required “a complete separation of companies making public offerings of regulated common carrier communication services and non-regulated data processing services.” 28 F.C.C.2d at 290.

      . Buies 47 C.F.B. §§ 64.702(b), (c)(1), (2) & (3) (Supp.1972) provide:
      (b) Except as provided herein, no common carrier subject, in whole or in part, to the Communications Act shall engage directly or indirectly in furnishing data processing service to others except as expressly provided in paragraph (c) of this section. This prohibition shall apply to all communications common carriers, including Section 2(b) (2) carriers, where any carrier itself has annual operating revenues exceeding $1,000,000 or any such carrier is directly or indirectly controlled by, or is under common control with, another carrier or carriers, and the combined annual revenues of all such carriers . exceed $1,000,000.
      (c) Except for Companies of the Bell System, common carriers may, subject to ' other provisions of law, have a controlling or lesser interest in, or be under common control with, a separate corporate entity that furnishes data processing service to others provided the following conditions are met:
      (1) Each such separate corporation must maintain its own books of account, have separate officers, utilize separate operating personnel, and utilize computing equipment and facilities separate from those of the carrier for its data processing service offerings.
      (2) Each such common carrier shall file with the Commission a complete statement of the terms and conditions of every written or oral contract, agreement or other arrangement entered into between such carrier and any such separate corporation within thirty days after the contract, agreement or other arrangement is made.
      (3) No such common carrier subject to the prohibition of paragraph (b) of this section shall engage in the sale or promotion of data processing services on behalf of any such separate corporation.

      . A carrier whose annual operating revenue does nbt exceed $1,000,000 is exempt from the provisions of 47 C.F.R. §§ 04.702(b) & (c), unless it is, directly or indirectly, controlled by or under common control with another carrier or carriers and their combined annual revenues exceed $1,000,000. See 47 C.F.R. § C4.702 (b).
      American Telephone and Telegraph Company and its affiliated companies (the Bell System) are subject to a consent judgment (United States v. Western Elec. Co., 1956 Trade Cas. ¶ 71,134 (D.N.J.1956)), which, with exceptions not applicable here, prohibit AT&T and its affiliates from engaging in any business other than the furnishing of regulated common carrier services. Thus, in view of the FCC’s disclaimer of the regulation of the sale of data processing services (see note 10 infra), the companies of the Bell System are precluded from offering data processing services to others (see 47 C.F.R. §§ 64.702(b)-(c)).

      . Regulation 47 C.F.R. § 64.702(d) (Supp. 1972) provides:
      (d) No common carrier subject in whole or in part to the Communications Act of 1934, as amended, shall sell, lease or otherwise make available to any other entity any capacity or computer system component on its computer system or systems which that carrier uses in any way for the provision of its common carrier communications services.

      . Several of the petitioners have urged that rule-making here is implicitly foreclosed by 47 U.S.C. § 215 (1970) which directs the Commission to examine into carrier activities and transactions likely to adversely affect the ability of a carrier to render adequate service to the public and to report any findings to Congress along with recommended corrective legislation. We do not agree. In view of the Commission’s broad responsibilities, we cannot believe that Congress intended by this section to preclude rule-making in the area of the Commission’s prime concern — • adequate public communications service. Had Congress wished to impose such a limitation on its expansive grant of power to the Commission, we think it would have done so explicitly. We refuse to impose the limitation. See General Tel. Co. v. United States, 449 F.2d 846, 858 (5th Cir. 1971).

      . The Commission stated in its Final Decision: “Since we are not proposing, at this time, to regulate data processing, as such, a discussion of the extent of our jurisdiction with respect thereto is neither relevant nor necessary . . . . ” 28 F.C.C.2d at 268. It further indicated that “ ‘ [i] f there should develop significant changes in the structure of the data processing industry, or, if abuses emerge which require the exercise of corrective action by the Commission, we shall not hesitate to re-examine the policies set forth herein.’ ” Id. (reiterating position set forth in the Tentative Decision, 28 F.C.C.2d at 298).

      . The petitioners have raised some question as to how broadly 47 C.F.R,. § 64.702(d) is to be interpreted. Is it to be construed to prohibit the use of all computer systems employed by the carrier no matter whether used for internal .purposes or for communications or is it to be interpreted more narrowly? See Brief for GTE Service Corp. at 4 n. 3; Brief for Continental Telephone Corp. at 13 n. 5; Brief for United Telephone System at 13 n. 16; Brief for FCC at 54 n. 35. We believe that it is not necessary for us to pass on this question. Properly the interpretation of the regulation is for the Commission in the first instance. In our view the Commission has in any event the plenary power to bar the use of all carrier computer systems.

      . Rules 47 C.F.R. §§ 64.702(c)(4) & (5) (Supp.1972) provide:
      (4) No such common carrier, or a holding company owning or jointly owning a common carrier and any such separate corporation, shall permit the separate corporation to employ in its name any words or symbols contained in the name of the carrier, nor shall such carrier or holding company permit any such separate corporation to use the name of the carrier in the separate corporation’s promotional activities or enterprises.
      (5) No sucli common carrier shall purchase, lease or otherwise obtain any data processing service or services from any such separate corporation.

      . See note 10 supra.

      . The actual holding of the Court was a refusal to treat the corporate parent and affiliate as a single entity. In the antitrust field, since section 1 of the Sherman Act (15 U.S.C. § 1 (1970)) requires a contract, combination or conspiracy in restraint of trade, courts have carefully respected the separate corporate identity of parent and subsidiary in order to come within the multiparty requirement of the statute. See Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199 (1951); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951). Curiously antitrust violators are more apt to be snared by the judicial recognition of a separate corporate affiliate than by ignoring it.

      . The statutory authority relied upon by the Commission to justify its anti-trust concerns confirm the position that the anti-competitive threats must be to a market in which the Commission has jurisdiction. Thus, 47 U.S.C. § 201(b) (1970) provides: “All charges, practices, classifications, and regulations for and in connection with . . . communication service, shall be just and reasonable . ” (emphasis added). Section 202(a) provides: “It shall be unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with lite communication service, directly or indirectly ....’’ (emphasis added). Section 205(a) again simply authorizes the Commission to prescribe just, fair and reasonable charges, regulations and practices for a carrier.

      . This factual situation contrasts with that in the CATV cases where the FCC repeatedly urged regulation over an ancillary communications industry which threatened to interfere with television broadcasting. See United States v. Southwestern Cable Co., 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968).

      . “‘For a relatively small capital investment, a service firm can be formed, computer equipment can be leased, and programmers can be hired. The factors which mark the difference between service bureau success or failure are imaginative innovation, quality programming, and useful service features, rather than the size of the staff or the computing installation.’ ” 28 F.C.C.2d at 272 (quoting the Tentative Decision, 28 F.C.C.2d at 297-98).

      . See generally SEC v. Chenery Corp., 318 U.S. 80, 95, 63 S.Ct. 454, 87 L.Ed. 626 (1943); Friendly, Chenery Revisited : Reflections on Reversal and Remand of Administrative Orders, 1969 Duke L.J. 199, 209-17.


source: Caselaw Access Project

author: DUNIWAY, Circuit Judge:

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Charles Earl STROUD, Defendant-Appellant.
    No. 72-2808.
    United States Court of Appeals, Ninth Circuit.
    March 2, 1973.
    Certiorari Denied June 4,1973.
    See 93 S.Ct. 2759.
    J. Frank McCabe, Asst. Federal Public Defender (argued), San Francisco, Cal., for defendant-appellant.
    Paul J. Fitzpatrick, Asst. U. S. Atty. (argued), F. Steele Langford, Asst. U.
    S. Atty., James L. Browning, Jr., U. S. Atty., San Francisco, Cal., for plaintiff-appellee.

      Before BROWNING and DUNIWAY, Circuit Judges, and KELLEHER, District Judge.

       Honorable Robert J. Kelleher, United States District Judge, Central District of California, sitting by designation.

   DUNIWAY, Circuit Judge:

Stroud appeals from his conviction of bank robbery, 18 U.S.C. § 2113(a), and of assault by use of a dangerous weapon while committing bank robbery, 18 U.S. C. § 2113(d). We affirm the conviction but remand with directions.

On May 8, 1972, a federally insured bank in San Francisco was robbed by two men, one of them armed, who fled the scene in a tan Volkswagen driven by a third person. Shortly thereafter, the parked car was spotted by a police officer, with Stroud working under the hood. One of the robbers and the stolen money were found in the back seat; the second robber was apprehended in some bushes a short distance away. Stroud’s defense was that he did know that his companions intended to rob the bank and that, upon discovery of their misdeed, he had stopped and disabled the car.

The trial began at 2:00 P.M. on July 31, 1972. On the morning of August 1 the government rested and Stroud took the stand. At the noon recess, after he had testified on direct examination, and been cross-examined on behalf of his co-defendant but not by the government, the jury having retired, the judge summarily ordered Stroud’s bail exonerated and remanded him to custody. The judge stated only that he had “reasons for requiring the defendant to be in custody during the balance of the deliberations of this jury.” Stroud’s objection to this order and his motion for a continuance pending a direct appeal to this court were denied. Stroud’s cross-examination was completed after the recess, as was the taking of all testimony, and the case was submitted to the jury the next morning. The jury found Stroud guilty on both counts. He was sentenced to six years imprisonment on count two, and the court reserved judgment on count one.

Stroud argues that his conviction should be reversed because of the revocation of his bail during trial. He relies upon Bitter v. United States, 1967, 389 U.S. 15, 88 S.Ct. 6, 19 L.Ed.2d 15, in which the Supreme Court held that it was error for a trial judge to order a defendant into custody without warning, hearing, or explanation when his only apparent default was returning late from a recess.

We think that, under Bitter, the revocation of Stroud’s bail was improper. The trial judge gave no reasons for his action; Stroud was given no hearing at which he might have been able to rebut or explain any evidence apparently justifying revocation; it does not appear that the judge considered less drastic alternatives. At the least, the judge should have stated his reasons and given Stroud’s counsel a chance to rebut them.

However, United States v. Allison, 9 Cir., 1969, 414 F.2d 407, 413-415, holds that, in a particular case, the error may be harmless. Stroud asserts that his composure on cross-examination might have been affected. We find nothing in the record to support this argument. Stroud also asserts that on the final day of the trial three jurors entered the courtroom early and did not see Stroud seated with his counsel. He argues that these jurors might have inferred that he was in custody, despite the fact that they were removed before the marshal brought him in. Again, there is no foundation in the record for this argument; it is pure speculation. In short, despite the substantial potential for prejudice in remanding a defendant to custody during trial, we are convinced that there was none in this case.

This is not to suggest that we approve of the judge’s action; we do not. The error was harmless only with respect to the process by which Stroud was convicted of bank robbery; he was obviously deprived of a substantial right. We also recognize that the judge’s denial of a continuance effectively insulated his order from direct appellate review. Nevertheless, the harmless error rule serves the valid purpose of avoiding a second trial which could only lead to the same result, and we apply it here. The evidence against Stroud was overwhelming.

Stroud’s second argument is that the court erred in permitting the prosecution to use a seven-year-old rape conviction to impeach him. He relies upon Luck v. United States, 1965, 121 U.S.App.D.C. 151, 348 F.2d 763, which held that a trial judge has discretion to preclude the use of prior felony convictions, and that he must weigh certain factors to determine whether the prejudice resulting from their use would outweigh their probative value.

It is not clear whether the Luck rationale has been adopted in this Circuit. Compare United States v. Haili, 9 Cir., 1971, 443 F.2d 1295, 1299, with United States v. Harper, 9 Cir., 1971, 443 F.2d 911; United States v. Allison, supra, 414 F.2d at 412. However, even assuming that it has, Stroud would not prevail. The judge held a hearing on Stroud’s motion to preclude the use of his conviction, and was initially inclined to grant it because of the age of the conviction, the inflammatory nature of the crime of rape, and its tenuous relationship to credibility. He determined to admit evidence of the conviction only upon learning that Stroud’s defense depended entirely upon his credibility. In view of the district judge’s careful weighing of various relevant factors, for us to hold that he abused his discretion would in effect bar the use of rape convictions to impeach. Such a result is not supported by authority. See, e. g., Rule 609, Proposed Rules of Evidence for United States Courts and Magistrates, 12 Cr.L.Rep. 3018 (1972), permitting use of any felony conviction less than ten years old.

Finally, Stroud argues that the court’s order reserving judgment on his conviction under 18 U.S.C. § 2113(a) should be vacated, because that offense merged into the more aggravated offense under section 2113(d). The government concedes that this argument is correct under the law of this Circuit. Clermont v. United States, 9 Cir., 1970, 432 F.2d 1215, 1216-1217; Bayless v. United States, 9 Cir., 1965, 347 F.2d 354, 356.

The judgment of conviction is affirmed. The case is remanded with directions to vacate the order reserving judgment on count one of the indictment.

Stroud’s motion for bail is denied.

      . Such orders are appealable despite the fact that they do not dispose of the merits. United States v. Carbo, 9 Cir., 1961, 288 F.2d 282, 283. Cf. United States v. Allison, 9 Cir., 1969, 414 F.2d 407, 413.


author: CHOY, Circuit Judge:

text:
    LAI HAW WONG et al., Petitioner, v. IMMIGRATION AND NATURALIZATION SERVICE, Respondent.
    No. 72-1469.
    United States Court of Appeals, Ninth Circuit.
    Feb. 28, 1973.

      Michael W. Roberts (argued), Albert C. Lum, of Simmons & Ritchie, Los An-geles, Cal., for petitioner.
    Carolyn M. Reynolds, Asst. U. S. Atty. (argued), Frederick M. Brosio, Jr., Asst. U. S. Atty., William D. Keller, U. S. Atty., Los Angeles, Cal., Henry E. Peterson, Asst. Atty. Gen., Dept, of Justice, Washington, D. C., Stephen Suffin, Atty., I&NS, San Francisco, Cal., Joseph Surreck, Regional Counsel, I&NS, San Pedro, Cal., George K. Rosenberg, Dist. Director, I&NS, Los Angeles, Cal., for respondent.

      Before CHAMBERS and CHOY, Circuit Judges, and ENRIGHT, District Judge.

       The Honorable William B. Enright, United States District Judge for the Southern District of California, sitting by designation.

   CHOY, Circuit Judge:

Lai Haw Wong (Mrs. Wong) and her two minor sons, Foo and Fat, appeal a decision of the Board of Immigration Appeals (the Board) holding them de-portable under Section 241(a)(1) of the Immigration and Nationality Act, 8 U.S. C. § 1251(a)(1). Another son, Lip, appeals from the Board’s denial of a petition to admit him as the son of a lawfully admitted permanent resident, Mrs. Wong. We affirm.

Mrs. Wong, Foo and Fat were admitted into the United States in March, 1969 under a derivative fourth preference visa through Wong Kam Chow, their husband and father, to whom a fourth preference visa had been issued in 1968. Mr. Wong was never admitted into this country as he was convicted on a narcotics charge before he could leave Hong Kong. The third son, Lip, was paroled into the United States, also in March 1969 on a status dependent upon the status of Mrs. Wong.

A special inquiry officer heard the deportation proceedings which were instituted against Mrs. Wong alone in October, 1969. He ruled that she was not deportable under 8 U.S.C. § 1251(f) (hereinafter section 241(f)) because she was the parent of two children who had been admitted for permanent residence albeit under the mistaken belief that they were accompanying or joining their father here. He certified his decision to the Board because of the novelty of the issue involved.

While the certified question was pending before the Board, the Immigration and Naturalization Service (the INS) brought deportation proceedings against Foo and Fat, and moved to reopen Mrs. Wong’s deportation case and to consolidate the three deportation matters. The Board granted the reopening and the consolidation pointing out that the special inquiry officer’s decision as to Mrs. Wong having been certified was not a final action but only a suggested solution.

The special inquiry officer, on reopening, ruled that Mrs. Wong, Foo and Fat (appellants) held invalid preference immigrant visas since they did not accompany or join their husband and father and so were deportable. Appellants contend that they were entitled to section 241(f) relief since at one time, no matter how briefly, there was a person who was a lawful permanent resident alien with whom they had the necessary relationship; i. e., Mrs. Wong’s status was supported by the admission of Foo and Fat; and the status of Foo and Fat was supported by Mrs. Wong’s admission, plus the special inquiry officer’s October 1969 ruling that she was not de-portable.

The Board rejected appellants’ contentions ruling that their admission on visas to which they were not entitled conferred no lawful status upon appellants and that they could not rely on each other’s admission to gain section 241(f) status. We agree.

The fundamental purpose of Congress in enacting § 241(f) was a humanitarian desire to keep family units together by precluding deportation of aliens who had gained admission into the country by fraud or misrepresentation if the effect of such deportation would be to separate families composed in part of American citizens or lawful permanent residents. Immigration Service v. Errico, 385 U.S. 214, 87 S.Ct. 473, 17 L.Ed. 2d 318 (1966); Lee Fook Chuey v. Immigration & Naturalization Service, 439 F.2d 244, 247 (9th Cir. 1971).

Here, the family unit comprises a non-citizen father in Hong Kong who was never admitted into this country, a mother, and three sons. Under such circumstances, permitting Mrs. Wong and two sons to remain here and admitting the third son into the United States while Mr. Wong resides in another country, would promote familial disunity rather than union, contrary to the purpose of § 241(f). Chung Wook Myung v. Immigration & Naturalization Service, 468 F.2d 627 (9th Cir. 1972); United States v. Palmer, 458 F.2d 663 (9th Cir. 1972).

The basis for admission of Mrs. Wong and two sons was the misconception that Mr. Wong had already entered this country under his fourth preference visa.

Such mistaken admission conferred no status, permanent resident or otherwise, on Mrs. Wong, Foo, or Fat. None was lawfully admitted. It follows that the special inquiry officer’s tentative ruling that Mrs. Wong was not deportable since she was the parent of two children who had been admitted for permanent residence was erroneous.

Appellants contend that, since the special inquiry officer knew or should have known when he made his original ruling that the two children were ex-cludable at the time of entry, the reopening of Mrs. Wong’s case by the Board was a violation of due process— that the INS was estopped from introducing evidence as to the children since 8 C.F.R. § 242.22 prohibits reopening a deportation hearing for the taking of further evidence “unless the special inquiry officer is satisfied the evidence sought to be offered is material and was not available and could not have been discovered or presented at the hearing.”

No final decision was reached by the special inquiry officer. He certified the matter to the Board for a final decision because of the novel situation presented. “The order of the special inquiry officer shall be final except when the case is certified to the Board . . . or an appeal is taken to the Board by the respondent or the trial attorney.” 8 C.F.R. § 242.20. Thus, technically speaking, no reopening was involved of Mrs. Wong’s case, there having been no finality in the ruling of the special inquiry officer.

The remand to and further proceedings before the special inquiry officer, including the taking of further evidence as to the children, were proper.

As to the appeal of the son, Lip, who seeks this court’s review of the denial of his visa petition, we dismiss his appeal since it did not arise out of a deportation proceeding. While under 8 U.S. C. § 1105a(a) the court of appeals has exclusive jurisdiction to review final orders of deportation such as those affecting Mrs. Wong, Foo and Fat. Lip’s resort, however, should have been to the district court rather than to this court. Cheng Fan Kwok v. INS, 392 U.S. 206, 210, 88 S.Ct. 1970, 20 L.Ed.2d 1037 (1968); Andres v. INS, 460 F.2d 287, 288 (6th Cir. 1972).

Affirmed as to Mrs. Wong, Foo and Fat, dismissed for want of jurisdiction as to Lip.

      . The policy of the Immigration and Naturalization Service was to permit children of tender years' to leave the United States on a voluntary basis with their parent or parents where all of them were deportable instead of subjecting such children to deportation proceedings with their parent or parents.

      . “The provisions of this section relating to the deportation of aliens within the United States on the ground that they were excludable at the time of entry as aliens who have sought to procure, or have procured visas or other documentation, or entry into the United States by fraud or misrepresentation shall not apply to an alien otherwise admissible at the time of entry who is the spouse, parent, or a child of a United States citizen or of an alien lawfully admitted for permanent residence.”


author: FEINBERG, Circuit Judge:

text:
    FINANCIAL SERVICES, INC., Plaintiff-Appellant, v. Thomas E. FERRANDINA, Individually and as United States Marshal for the Southern District of New York, Defendant-Appellee, and CT/East, Inc., Intervenor-Defendant-Appellee.
    No. 72-2232.
    United States Court of Appeals, Second Circuit.
    Argued Feb. 1, 1973.
    Decided Feb. 27, 1973.
    William A. Fenwick, New York City (Cleary, Gottlieb, Steen & Hamilton, George Weisz, New York City, on the brief), for plaintiff-appellant.
    Michael E. Schoeman, New York City (Williamson & Schoeman, New York City, on the brief), for intervenor-de-fendant-appellee.
    Gerald A. Rosenberg, Asst. U. S. Atty., S. D. New York, for defendant-appellee.
    Before ANDERSON, FEINBERG and MULLIGAN, Circuit Judges.
   FEINBERG, Circuit Judge:

This “appeal” by Financial Services, Inc. (FSI) had its genesis in an action, brought against it by CT/East in New York Supreme Court, seeking damages for alleged breach of a service contract and for wrongful retention of equipment belonging to CT/East. In September 1971, FSI removed that action (“the first action”) to the United States District Court for the Southern District of New York. 28 U.S.C. § 1441. In its answer, FSI generally denied the allegations of the complaint and set up certain counterclaims. In April 1972, CT/East applied to the late Judge McLean for an order of attachment under Article 62 of the New York Civil Practice Law and Rules (“New York C.P.L.R.”), available to federal plaintiffs under Fed.R.Civ.P. 64. The order issued ex parte as autho- • rized by New York law and provided for attachment of FSI’s assets within New York (principally, we are informed, accounts receivable) up to $599,468.03. Under New York law attachment was appropriate, as FSI is a foreign corporation organized under the laws of New Jersey. On April 24, 1972, FSI moved to vacate the attachment and, pending decision on the motion, applied for a temporary restraining order enjoining CT/East from enforcing thé attachment order by delivering the writ to the United States Marshal for service. The application for the temporary restraining order came before Judge McLean. We are told by counsel that both parties argued the merits of the application before the judge, who then denied the temporary relief sought, apparently without opinion.

FSI’s motion to vacate the attachment was then heard on May 2 in the motion part of the district court by Judge Las-ker. The principal grounds for the motion were that the attachment had been fraudulently obtained and that it was unnecessary to CT/East’s security. In the course of a 21-page legal memorandum, FSI also devoted 12 lines to “the questionable constitutional nature” of an attachment order procured ex parte. During oral argument of the motion, Judge Lasker asked FSI whether it claimed that the attachment statute was unconstitutional; he pointed out that, if so, a three-judge court, with consequent delay, might be necessary. According to the record, counsel for FSI, mindful of the delay that consideration of the constitutional issue might cause and of two relevant cases pending before the Supreme Court, and later decided in Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972), then informed the court that he “would raise the constitutional question in the proper forum where the United States Marshal was a party.” Understandably, Judge Lasker’s memorandum decision of May 8, 1972 made no mention of the constitutional issue. The judge declined to vacate the attachment, but ordered that CT/East’s undertaking be increased from $60,000 to $250,000.

Five weeks later, the Supreme Court issued its opinion in Fuentes, holding invalid on due process grounds Florida and Pennsylvania replevin statutes which allowed chattels to be taken from the possessor without affording him a prior opportunity to be heard. Thereafter, FSI sought to reargue the motion to vacate before Judge Lasker on due process grounds. Counsel claims he was informally told that reargument would be improper; he therefore brought instead a new motion to vacate, which came on before Judge Frankel on July 25, 1972. On August 1, Judge Frankel denied the motion, without reaching the constitutional merits of the “unquestionably grim attachment procedure.” Judge Frankel observed that he was the third judge to consider the disputed order of attachment, that the constitutional issue had been noted by Judge Lasker with counsel for FSI expressing “a preference to postpone the due process contention for some other day,” that no new facts had been presented, and that “added arguments on the same facts ‘postponed’ or saved up for another day and another judge” were not enough to justify relitigation of the matter.

Undaunted, FSI took another tack. On September 11, 1972, it brought a separate action (“the second action”) in the district court against the United States Marshal as sole defendant, seeking an order requiring him to return to FSI all sums already collected under the attachment and enjoining him from serving a writ on any further customers of FSI or from collecting any more funds under the order. One of the bases of the second action was again a lack of due process; this was joined with a new constitutional claim that the attachment statute, by permitting seizure of property on the sole basis of foreign corporate citizenship, also violates the equal protection clause. The second action was assigned to Judge Tenney under the individual calendar system, which had gone into effect in the Southern District. Judge Tenney permitted CT/East to intervene in the second action as a real party in interest, and in an opinion dated October 6, 1972, 59 F.R.D. 1 the judge denied FSI’s motion for preliminary injunctive relief. Regarding the second action as “in effect a third motion to vacate” the attachment, Judge Tenney primarily reasoned that failure to raise the equal protection claim at an earlier date foreclosed present consideration and that attempted litigation of the due process claim for the third time was improper. From this order, FSI appeals.

The first, and ultimately dispositive, issue before us is whether we have jurisdiction over the appeal from Judge Tenney’s order. FSI argues that jurisdiction lies under 28 U.S.C. § 1292(a)(1), which allows appeals from interlocutory orders of the district court “refusing . . . injunctions. . . .” While the relief denied was injunctive in form, Judge Tenney believed, and CT/East argues to us, that the injunction sought in the second action was no more than a motion to vacate the attachment in the first action by another name. On these facts, there is little doubt that this is so. The second action seeks to prevent any further use of the order of attachment obtained in the first. Moreover, the relief sought includes repayment of any sums already collected under that order.

We have held that denials of motions to vacate attachments are not appealable under the collateral order gloss, see Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), on the “final decision” requirement of 28 U.S.C. § 1291. West v. Zurhorst, 425 F.2d 919 (2d Cir. 1970); see Flegenheimer v. General Mills, Inc., 191 F.2d 237 (2d Cir. 1951). Were we to. permit this appeal under section 1292(a)(1) on these facts, we would sanction wholesale circumvention of the salutary rule of nonappealability reaffirmed in West. So long as subject matter and personal jurisdiction are proper, any defendant whose assets had been attached and who had unsuccessfully moved in federal court to vacate the attachment could readily commence a second, nominally separate, action against the marshal seeking to enjoin collection of revenues under an outstanding writ of attachment; and from any denial of preliminary injunctive relief, such a defendant would always have an appeal. Rules of finality may not be so easily altered, cf. Fleischer v. Phillips, 264 F.2d 515, 516 (2d Cir.), cert. denied, 359 U.S. 1002, 79 S.Ct. 1139, 3 L.Ed.2d 1030 (1959); International Products Corp. v. Koons, 325 F.2d 403, 406-407 (2d Cir. 1963). In other words, so far as we are concerned, the first and second actions are identical in purpose and anticipated effect and on these unusual facts should be treated on the issue of appealability as though they were the same; no appeal under 28 U.S.C. § 1291 or § 1292 will lie in either from an order refusing to vacate the attachment.

We do not say that we would never be free to consider the validity of an attachment attacked on constitutional grounds, even though the underlying action was not yet final. Under unusual or compelling circumstances, mandamus may be an appropriate vehicle for interlocutory review. The constitutionality of New York’s attachment statute is important to present and future civil litigants not only in New York state courts but also in the four district courts in this circuit where New York’s attachment remedy may be utilized. The due process question takes on even more urgency and substance in the wake of growing Supreme Court concern with prejudgment seizures of property, manifested in recent cases. The constitutional claim sought to be raised is plainly substantial and merits full and careful consideration in the district court when raised in proper and timely fashion. It is true that we have recently denied two petitions for writs of mandamus seeking review of refusals to vacate an attachment where a similar constitutional claim was made. But the recurrence of the issue in mandamus petitions emphasizes rather than diminishes its importance. However, we are persuaded not to consider such extraordinary relief by the facts of this case, in which FSI, for reasons of its own, put off to another day its constitutional claims, whereupon two district judges permissibly held, in effect, that FSI’s time for pressing those claims had passed.

Appeal dismissed.

      . New York C.P.L.R. § 6201(1) (McKinney 1963).

      . Whether a three-judge court was required would have raised difficult issues. E. g., was the relief sought injunctive, see Kennedy v. Mendoza-Martinez, 372 U.S. 144, 154-155, 83 S.Ct. 554, 9 L.Ed.2d 644 (1963) ? If so, would it restrain the action of any “officer” of a “State” in the enforcement or execution of a state statute, 28 U.S.C. § 2281, when the “officer” to be restrained was the United States Marshal?

      . New York C.P.L.R. § 6212(b).

      . The local rules provided that a motion for reargument be brought within ten days. Rules of the United States District Courts for the Southern and Eastern Districts of New York, General Rule 9(m).

      . We are told that the first action has also been assigned to Judge Tenney, and that it is scheduled to be tried in June.

      . The Assistant United States Attorney, representing the nominal defendant United States Marshal, informed the Attorney General of New York of the pending action. The state entered no appearance below. Should the issue of unconstitutionality of the attachment statute be raised again in the district court, it would be appropriate for the district court to invite the Attorney General to submit a brief, whether in a three-judge, see 28 U.S.C. § 2284, or single-judge, proceeding. Cf. by analogy 28 U.S.C. § 2403. We have no doubt that the Attorney General would respond.

      . See Schlagenhauf v. Holder, 379 U.S. 104, 110-111, 85 S.Ct. 234, 13 L.Ed.2d 152 (1964); La Buy v. Howes Leather Co., 352 U.S. 249, 256, 77 S.Ct. 309, 1 L.Ed.2d 290 (1957). Professors Moore and Ward believe that “[w]ith respect to the demands of justice made by individual cases, it seems clear that discretionary review by mandamus is to be preferred to enlarging by judicial interpretation the categories of interlocutory orders that are appealable of right.” 9 Moore’s Federal Practice ¶ 110.26, at 286 (2d ed. 1972).

      . Fuentes v. Shevin, supra; Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969).

      . See Schneider v. Margossian, 349 F.Supp. 741 (D.Mass.1972) (Massachusetts prejudgment attachment procedure invalidated by three-judge court). Cf. Lynch v. Household Finance Corp., Civil Action 13,737 (D.Conn. Jan. 12, 1973) (Connecticut garnishment procedure invalidated by three-judge court), on remand from 405 U.S. 538, 92 S.Ct. 1113, 31 L.Ed.2d 424 (1972), rev’g on other grounds 318 F.Supp. 1111 (D.Conn.1970)

      . Piano v. Brieant, 469 F.2d 1404 (1972); Republic of Chile v. United States District Court for the Southern District of New York, Dkt. No. 72-2119 (Oct. 17, 1972), petition for rehearing en banc denied (Jan. 8, 1973).

      . Cf. Lebowitz v. Forbes Leasing and Finance Corp., 456 F.2d 979 (3d Cir.), cert. denied, 409 U.S. 843, 93 S.Ct. 42, 34 L.Ed.2d 82 (1972) (jurisdiction under 28 U.S.C. § 1292(b) over appeal from order refusing to quash attachment).


author: JAMESON, District Judge:

text:
    Sarame Raynolds STRONG, Plaintiff-Appellant, v. William H. G. FRANCE and the National Association for Stock Car Auto Racing, Inc. (“NASCAR”), Defendants-Appellees.
    No. 71-1440.
    United States Court of Appeals, Ninth Circuit.
    Feb. 28, 1973.

      Jeffrey J. Parish (argued), Frederick P. Furth, San Francisco, Cal., for plaintiff-appellant.
    Bruce W. Belding (argued), of Din-kelspiel & Dinkelspiel, San Francisco, Cal., Nathan Lewin, of Miller, Cassidy, Larroca & Lewin, Washington, D. C., for defendants-appellees.
    Before CHAMBERS and CHOY, Circuit Judges, and JAMESON, District Judge.

       Honorable W. J. Jameson, United States Senior District Judge for the District of Montana, sitting by designation.

   JAMESON, District Judge:

This is an appeal from a final judgment, entered pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, dismissing the complaint of plaintiff-appellant, Sarame Raynolds Strong, as against the defendants-appellees, William H. G. France and the National Association for Stock Car Auto Racing, Inc. (NASCAR), following an order granting appellees’ motion for summary judgment pursuant to Rule 56(c).

The complaint alleges violations of federal securities laws stemming from an enterprise involving the creation of a corporation, Sportscaster, Incorporated, for the operation of a “closed circuit” radio broadcasting system at sporting events (golf matches, auto races, horse races) and the rental of small receivers to spectators to provide them with comments, interviews and additional information on the events. The chief promoter of the venture was the defendant Oscar Fraley.

Shortly after the complaint was filed, the deposition of Sally Strong, the plaintiff, was taken, followed by answers of France, both individually and as president of NASCAR, and the defendants Fraley and H. Earle Barber to interrogatories submitted by plaintiff, and affidavits of plaintiff and France, with numerous exhibits. On the basis of these documents, France and NASCAR moved for dismissal and summary judgment. This motion was denied, “expressly without prejudice”, following a hearing on January 13, 1969 at which the court stated that he denied the motion with “great reluctance” and “unless a very good showing was made” by the plaintiff on further discovery “the motion to dismiss ought to be granted.”

In March, 1969 the depositions of France, Fraley and Barber were taken. There was no further discovery, and after a lapse of ten months the motion for summary judgment was renewed. An order was entered July 3, 1970 granting the motion, the court finding that “the acts attributed to defendants France and NASCAR are so remote from the plaintiff that no genuine issue as to any material fact exists which would support liability as to them.”

In its order the trial court recognized that while, in ruling on motions for summary judgment, “all inferences of fact must be drawn in favor of the party opposing the motion (United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962) and * * * the moving party has the burden of showing that he is entitled to judgment as a matter of law, (3 Barron and Holtzoff, Rules Edition, 149), it is also true that ‘the opposing party . . . must show that evidence is available which would justify a trial . . . (ibid.). And ‘courts should not be unduly reluctant to grant summary judgment when a trial would serve no useful purpose and the movant is entitled to judgment as a matter of law.’ (6 Moore’s Federal Practice para. 56.02(1)).”

The motion here was supported by affidavits, answers to interrogatories, and depositions as provided in Rule 56(e) of the Federal Rules of Civil Procedure. Accordingly appellant “may not rest upon the mere allegations of * * * (her) pleading,” but her response, by affidavits or otherwise, “must set forth specific facts showing that there is a genuine issue for trial.”

Appellant contends on this appeal that:

“ * * * there are four separate but interrelated roles played by Mr. France and NASCAR on which their liability to Mrs. Strong is based. These are: (1) that Mr. France agreed to be a director of the Defendant corporation, Sportscaster, Inc., which issued stock to Mrs. Strong; (2) that France acted as a promoter of the venture and agreed to invest in the Défendant corporation; (3) that France and NASCAR were aiders and abettors of Defendants Fraley and Sportscaster, Inc.; and (4) that France and NASCAR were controlling persons of Defendants Fraley and Sportscaster, Inc. In addition, Appellant contends that Appellees’ motion was granted prematurely in that Appellant has not completed discovery.”

Factual Background

It is clear from appellant’s deposition that she has never met France and has never had any “direct communication either by letter or telephone” with him or anyone at NASCAR. Strong dep. 5, 24. She did not at any time give any money or check to France or NASCAR. Strong dep. 50.

Appellant first met Fraley in 1962. She became associated with him in “putting out programs for sporting events”, “put up money” for a closed circuit television broadcast of the Liston-Clay fight and “advanced money” for a golf tournament. She also “lent him money for himself when he was in between jobs”, mentioning one loan of $8,000.00 in early 1964 and another of $1,500.00 in 1963. Strong dep. 6-9.

Early in 1965 at a golf tournament in Miami, Florida, appellant and Fraley met Tom Burke, who was broadcasting at the tournament. According to appellant, she next met Fraley and Burke at a tournament in Pennsylvania where Fral-ey and Burke were “forming their own company”, and two weeks later in New York, where both discussed the business venture with appellant and solicited an investment from her. Strong dep. 9-12.

Appellant testified that in this conversation Fraley said “he would need anywhere between 50 (sic) and $100,000 for the whole thing to go.” Appellant agreed to “advance money if he needed it for the company.” She “didn’t put any limit on it because he said that he was going to get some of his wealthy friends to put up the money and that I would put up- — he was not going to put up any money himself. But that I would put up as if it was his money and I would have a share in the partnership.” Strong dep. 17.

At the same meeting Fraley told appellant that he had talked to France and “could get the contracts for racing.” She also testified that about three weeks later, when appellant was in Beirut, Lebanon, Fraley phoned her that France “thought this was wonderful and that it would go”, and he would use his connections with different people involved, with the Racing Association and “would put a great deal of money in the company.” Strong dep. 12-13. From time to time thereafter Fraley made a number of written and oral statements to appellant to the effect that France and NASCAR had agreed to support, promote and heavily invest in Sportscaster. There is no evidence that either France or NASCAR were aware of or authorized any of these statements. Other letters from Fraley to appellant cast some doubt on France’s participation in the venture.

On October 25, 1965 NASCAR and Fraley entered into a written contract whereby “NASCAR subject to the further approval by the respective promoters of NASCAR events, does hereby grant to Oscar Fraley and/or his Corporate Assignee, Racecaster; Inc., an exclusive contract for an on-course gallery communication system for a period of five years, provided only that Fraley shall in fact service such first event by not later than June 30, 1966.” It was understood that the agreement “may be terminated by NASCAR at any time.”

On March 18, 1966 France, as president of NASCAR, wrote a letter addressed “To Whom it May Concern” reading:

“This letter is to serve as confirmation that Mr. Oscar Fraley has a five year agreement with NASCAR for his sportscaster receiving system at the Association’s races, subject to his agreements with the track operators.
“This is to further confirm that, to my knowledge, Mr. Fraley is a man of unquestionable character and reliability. He has a vast reputation in the field of sports, having served as syndicated columnist for United Press International and Associated Press, the nation’s two largest wire services.”

The certificate of incorporation of Sportscaster, Incorporated was filed on October 18, 1966 listing Oscar Fraley, H. Earle Barber, an attorney employed by Fraley, and Beatrice S. Smith, Bar-' ber’s secretary, as incorporators and directors. Fraley was named president, Smith, vice-president, and Barber, secretary-treasurer. Subsequently stock certificates were issued to appellant (for an investment of $9,000) and six other persons (for investments totaling $18,000). No stock was issued to France or NASCAR.

No license was obtained from the Federal Communications Commission for the radio transmission and the enterprise has never been in operation.

Appellant claims that she invested a total of $72,699.41 in Sportscaster. It appears from her deposition, however, that this includes approximately $25,000 advanced to Fraley prior to learning of the proposed Sportscaster venture. Strong dep. 8-9.

With this background we turn to a consideration of the four bases of alleged liability on the part of France and NASCAR.

France as Director

France admits that he told Fraley “when he got his corporation going, he could use my name, and I would serve as director on the company.” France dep. 87. Fraley, on March 17, 1966 wrote France to “acknowledge receipt from you of $1,000.00 for stock in Sportscaster, Inc., and permission to use y our (sic) name on the Board of Directors.” Plf. Ex. 4, France dep.

There is no evidence that France was ever appointed a director, or acted as one, or that Fraley ever “got his corporation going.” There can be no fiduciary liability where there is no duty, express or implied, to act as a fiduciary. Appellant’s reliance on Moerman v. Zipco, Inc., 302 F.Supp. 439, 447 (E.D.N.Y.1969) is misplaced. There the persons held liable had “insisted on being members of the board” of directors, had sold stock, and had signed board minutes and registration statements.

France and NASCAR as Promoters

Appellant argues that France promoted Sportscaster by offering to use his name as director; by signing a letter of personal recommendation for Fraley addressed “To Whom it May Concern”, attesting to the NASCAR-Sportscaster five year contract; and by providing personal assistance.

Appellant argues that NASCAR promoted Sportscaster by sending letters to racetrack operators recommending Sportscaster, “enclosing the NASCAR-Sportscaster contract, a summary of the venture, * * * and possibly portions of a brochure which promised a high return to the investor on a fixed schedule of events.”

Appellant concludes:

“The clear implications of these materials are that: (1) Sportscaster had an FCC-approved broadcast frequency; and (2) that Sportscaster was prepared to proceed with broadcasting NASCAR’s entire 1966 schedule, which would bring substantial profits to any investor. Both representations were false.”

Appellant has cited no case, and we find none, which predicates liability as a promoter on such limited activity so far removed from the person claiming damage. McCandless v. Furlaud, 296 U.S. 140, 56 S.Ct. 41, 80 L.Ed. 121 (1935) cited by appellant for the proposition that “a pre-incorporation promoter is a fiduciary”, involved an elaborate scheme to defraud, engineered by the “promoter”. There is no evidence of such a scheme here engineered by either France or NASCAR, or of any facts upon which France or NASCAR’s liability to Strong as a “promoter” of Sportscaster can be predicated.

France and NASCAR as Aiders and Abettors

Appellant relies upon the same facts to establish liability as an aider and abettor.

“An aider and abettor may be liable for damages even though his assistance of the scheme consists of mere silence or inaction.” Anderson v. Francis I. duPont and Co., 291 F.Supp. 705, 709 (D.Minn.1968). That liability arises, however, only when a duty to disclose has arisen. Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 848, (2 Cir. 1968) (en banc) cert. denied 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756. The duty to disclose may arise upon the possession of “inside information” as in Securities and Exchange Commission, supra; or upon “knowing assistance of or participation in a fraudulent scheme” as in Anderson, supra; or upon a consent and approval of fraudulent practices by a director, as in Sprayregen v. Livingston Oil Company, 295 F.Supp. 1376, 1378 (S.D.N.Y.1968).

There are no facts in this case which would impose any duty of disclosure on either France or NASCAR or any activity or inactivity on the part of either which can be made the basis of liability to the appellant as an aider and abettor of Fraley’s misrepresentations to Strong.

France and NASCAR as “Controlling Persons”

15 U.S.C. § 78t(a) provides:

“(a) Every person who, directly or indirectly controls any person liable under any provision of this title -x- * -x- or 0f any ruie or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.”

This section has been held to require “only some indirect means of discipline or influence short of actual direction to hold a ‘controlling person’ liable.” See Myzel v. Fields, 386 F.2d 718, 738 (8 Cir. 1967) cert. denied 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1143 (1968). This circuit has held that the test of liability is that “the controlling person ‘ * * * must have acted in bad faith and directly or indirectly induced the conduct constituting a violation or cause of action.’ ” Hecht v. Harris, Upham and Co., 430 F.2d 1202, 1210 (9 Cir. 1970) quoting Kamen v. Paul H. Aschkar and Company, 382 F.2d 689, 697 (9 Cir. 1967) cert. denied 393 U.S. 801, 89 S.Ct. 40, 21 L.Ed.2d 85.

Appellant relies upon the facts already recited to establish France’s and NASCAR’s liability as controlling persons. Those facts do not support appellant’s conclusion. There is no evidence that either France or NASCAR acted in bad faith or directly or indirectly induced Fraley’s conduct toward the appellant. Finally, it is clear that appellant made substantial payments to Fraley, some of which she seeks to recover in this action, prior to the Sportscaster venture and agreed to advance money “as needed” prior to Fraley’s representation that France and NASCAR would also invest heavily in the venture. There is no evidence that France or NASCAR authorized any of the misrepresentations made by Fraley to appellant or that in continuing to provide funds she relied upon any actual conduct of either France or NASCAR.

From a review of all of the affidavits, answers to interrogatories, depositions and exhibits we conclude that the trial judge was correct in finding that “the acts attributed” to appellees “are so remote from the (appellant) that no genuine issue as to any material fact exists which would support liability as to them.”

Affirmed.

      . The action was instituted against nine named defendants, including the two ap-pellees, and 43 unknown parties.

      . Specifically, Section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q(a)), Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)), and Securities Exchange Commission Rule 10b-5 (17 C.F.R. 240.10b-5).

      . There is some dispute, not material here, as to who first proposed the venture.

      . The action was commenced in the name of Sally Strong. Subsequent to her deposition and affidavit, the court on plaintiff’s motion ordered that the caption be changed to conform with her legal name, Sarame Raynolds Strong.

      . Plaintiff was not represented at the taking of Fraley’s deposition. See note 7, infra.

      . As this court said in Doff v. Brunswick Corporation, 9 Cir., 372 F.2d 801, 805 (9 Cir. 1967) cert. denied, 389 U.S. 820, 88 S.Ct. 39, 19 L.Ed.2d 71:
      “Where, on the basis of the materials presented by his affidavits, the moving party, if at trial, would be entitled to a directed verdict unless contradicted, it rests upon the opposing party at least to specify some evidence to show that such contradiction is possible. . The burden of coming forward with specific controverting facts shifts to the opponent. . . . It is his duty to expose the existence of a genuine issue which will prevent the trial from being a useless formality.” Citations omitted.
      See also Town House, Inc. v. Paulino, 381 F.2d 811, 814 (9 Cir. 1967); First Nat’l Bank v. Cities Service, 391 U.S. 253, 288, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968); Lundeen v. Cordner, 356 F.2d 169, 170 (8 Cir. 1966) cited in Town House, Inc. v. Paulino, supra, 381 F.2d at 814.

      . We find no merit in appellant’s contention that the motion was granted prematurely. Fraley’s deposition was taken in Miami, Florida on Friday afternoon, March 21, 1969. Appellant’s counsel was not present, presumably through some misunderstanding. The depositions of France and Barber were taken on Monday, March 24. Appellant’s counsel was advised that Fraley would be available for further deposition the following day and was given a transcript of Fraley’s testimony, which he used in examining Barber. He stated that he did not intend to take Fraley’s deposition because of Fraley’s “default”. Barber dep. 58-68. Sixteen months elapsed between the taking of these depositions and the entry of the order granting appellees’ motion.

      . France stated in his answer to interrogatories that he “never offered or induced or attempted to sell any interest in Sportscaster to any person”, and in his affidavit that neither he nor NASCAR ever received any money or other consideration directly or indirectly from appellant or any other person in connection with the purchase or sale of securities in Sportscaster, Incorporated.

      . Appellant testified in her deposition that the advance for the Liston-Clay fight and this personal loan to Fraley are included in her claim in this case.

      . For example, Fraley wrote appellant on January 3, 1966: “If the thing falls through with France and the vending guy, I’m going to see John Mac Arthur in Palm Springs Gardens. But this I promise you ■ — -I’m going to put it over and soon.” Defts. NASCAR and France Ex. 4.

      . On June 2, 1966, Fraley wrote France requesting a “six months extension in writing” beyond the June 30, 1966 deadline.
      France testified that he took no action in response to the request, hut “just discarded it.” France dep. 86-87.

      . France also admitted having agreed to invest $1,000, but denied ever having done so. France dep. 87. Fraley also testified that neither France nor NASCAR had ever invested any money in Sportscaster, Inc. Fraley dep. 49-50.

      . The personal assistance was alleged to consist of an airplane trip to Detroit, denied by both France and Fraley, France dep. 63, Fraley dep. 58-59; and a Detroit automobile “contact” to provide a free Dodge van for the broadcasting unit. A NASCAR employee did suggest the name of a Dodge employee to contact, which Fraley did and was given the use of a Dodge van. France dep. 56, 85-86; Fra-ley dep. 59-60.

      . Appellant argues that France and NASCAR, stood to make a potential profit of $32,000 on the Daytona contract. Using the figures in the “promotional material” and the NASCAR-Sportscaster contract for the Daytona race, the maximum profit potential from that race would have been $1,000 to France and NASCAR. Plf. Ex. No. 16 France dep.