author: HEANEY, Circuit Judge.

text:
    Jack E. MILLER et al., Appellants, v. CENTRAL CHINCHILLA GROUP, INC., (a/k/a The Central Chinchilla Group, Inc., The Central Chinchilla Group of America, Inc., Central Chinchilla Groups of America, Inc., The Central Chinchilla Guild of America, Inc., Central Chinchilla Guild of America, Inc., and Central Chinchilla Group) (Hereinafter Referred to as Central Chinchilla Group, Inc.), et al., Appellees.
    No. 73-1731.
    United States Court of Appeals, Eighth Circuit.
    Submitted Jan. 18, 1974.
    Decided March 28, 1974.
    James E. Shipman, Cedar Rapids, Iowa, for appellants.
    Michael P. Donohue, Robert E. Ron-char, Mayer & Bergman, Cedar Rapids, Iowa, for appellees.
    Before MATTHES, Senior Circuit Judge, HEANEY, Circuit Judge, and SMITH, Senior District Judge.

       TALBOT SMITH, Senior District Judge, Eastern District of Michigan, sitting by designation.

   HEANEY, Circuit Judge.

The sole issue on this appeal is whether the District Court erred in holding that certain contracts for sale of chinchillas were not investment contracts subject to the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq.

The plaintiffs’ initiated a class action in the Southern District of Iowa against the chinchilla corporations and individual defendants in March of 1971. The plaintiffs complained that because of material misrepresentations and omissions, they were persuaded to enter into contracts with the chinchilla corporations under which those firms sold chinchillas to the plaintiffs at prices many times in excess of .their true market value. The plaintiffs agreed to raise and breed these chinchillas in accordance with the corporations’ directions. The chinchilla corporations agreed to repurchase the offspring for $100.00 per pair. The plaintiffs maintain, in part, that they were misinformed by the defendants that it was a simple task to raise chinchillas and that the venture would be highly profitable. They assert that in reality, chinchillas are difficult to raise and have a high mortality rate. More importantly, they contend that the market for chinchillas is such that the venture could return the promised profits only if the defendants repurchased the offspring at the $100.00 price and, in turn, resold them to other prospective chinchilla raisers at an inflated price. Thus, they assert, in essence, that the defendants were operating a pyramiding scheme under which profits could be made by the plaintiffs only if the defendants were successful in encouraging new victims to buy into the scheme.

The plaintiffs claimed that these contracts for the sale of chinchillas were investment contracts and as such were sold in violation of the registration and antifraud provisions of the Securities Act of 1933 and § 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 and common law.

In an amendment to the complaint filed in May of 1973, the plaintiffs added the Mills County State Bank as a defendant. The plaintiffs asserted that the Bank was acting in concert with the defendants to defraud them and that it aided and abetted in the violations of the securities laws.

The Bank filed a motion to dismiss asserting that the plaintiffs had failed to state a claim upon which relief could be granted because the contract for the sale of chinchilla animals and a promise to purchase their offspring is not a security under the provisions of either the 1933 or 1934 acts. Other motions not here relevant were also filed.

The District Court treated the Bank’s motion to dismiss as a motion for summary judgment. It held that the contracts in question were not investment contracts because they were “clearly not passive investment interests.” It concluded that summary judgment for the defendants was appropriate

* * * since the sole basis for the Court’s exercise of subject matter jurisdiction over these securities law violations are 15 U.S.C. §§ 77v, 78aa, both of which are premised upon the existence of securities and which are thus inapplicable since no security is herein involved.

The court reasoned that the plaintiffs’ efforts,in raising the chinchillas were so important to the success or failure of the venture that characterization of the contracts as investment contracts would be improper under the Supreme Court’s definition of that term in Securities & Exch. Com. v. Howey Co., 328 U.S. 293, 298-301, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946). The court declined to consider the common law claims as they were premised on pendent jurisdiction and the court had found it did not have subject matter jurisdiction over the federal claims.

We consider the fundamental question before us — whether the contracts were investment contracts and hence securities subject to the federal securities laws —in the context of a dismissal for lack of subject matter jurisdiction. See, 10 Wright & Miller, Federal Practice and Procedure § 2713, at 402-406 (1973).

The starting point in this determination is the Supreme Court’s definition in Howey:

* * * [A]n investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise. * * *

Id., 328 U.S. at 298-299, 66 S.Ct. at 1103.

The Ninth Circuit recently held that the word “solely” should not be read as a strict or literal limitation on the definition of an investment contract. Securities & Exchange Com’n v. Glenn W. Turner Ent., Inc., 474 F.2d 476 (9th Cir.), cert, denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973). It stated:

* * * [i]n light 0f the remedial nature of the legislation, the statutory policy of affording broad protection to the public, and the Supreme Court’s admonitions that the definition of Securities should be a flexible one, the word “solely” should not be read as a strict or literal limitation on the definition of an investment contract, but rather must be construed realistically, so as to include within the definition those schemes which involve. in substance, if not form, securities. * * *
* * * Thus the fact that the investors here were required to exert some efforts if a return were to be achieved should not automatically preclude a finding that the Plan or Adventure is an investment contract, -x- -x- -x- Rather we adopt a more realistic test, whether the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which af- feet the failure or success of the enterprise. (Emphasis supplied.)

Id. at 482.

We are convinced that the definition of investment contract in Turner is consistent with congressional intent and that it does not represent an impermissible departure from the Supreme Court’s holding in Howey.

The District Court recognized the teachings of Turner but was apparently convinced that the plaintiffs’ efforts were so substantial that even under the Turner test the chinchilla contracts were not investment contracts.

We have reviewed the record in the light of the principle that all doubts on jurisdictional points must be resolved in favor of a plenary trial rather than dismissal at the pretrial stage. See, Zunamon v. Brown, 418 F.2d 883, 886 (8th Cir. 1969). We are convinced from this review that it was inappropriate for the District Court to have concluded at the pretrial stage that the contracts were not investment contracts.

The record shows that the plaintiffs invested money in a common enterprise with the expectation that they would profit if the defendants secured additional investors. It also shows that the plaintiffs would not profit from the venture unless they exerted efforts in raising the chinchillas. But this fact does not preclude the conclusion that they had entered into investment contracts because the plaintiffs have alleged: (1) that the defendants persuaded them to invest by representing that the efforts required of them would be very minimal; and (2) that if they did diligently exert themselves, they still would not gain the promised profits because those profits could be achieved under the scheme only if the defendants secured additional investors at the inflated prices. If these allegations are true, and we must so assume here, the defendants by their own actions have admitted that the plaintiffs’ contributions to the scheme were nominal, and what the plaintiffs really purchased was the defendants’ skill at persuading others to become chinchilla raisers.

In determining whether the plaintiffs’ contributions were nominal or significant, the issue is not what efforts, in fact, were required of them. Rather, it is what efforts the plaintiffs were reasonably led to believe were required of them at the time they entered into the contracts. See, Securities & Exch. Comm. v. Joiner Leasing Corp., 320 U.S. 344, 353, 64 S.Ct. 120, 124, 88 L.Ed. 88 (1943), where the Court, in finding an investment contract subject to the Securities Act of 1933, stated:

In the enforcement of an act such as this it is not inappropriate that the promoters’ offering be judged ' as being what they were represented to be.

Viewed in this context, it becomes apparent that the plaintiffs’ efforts in raising the chinchillas are really of no more significance to the venture’s ultimate success than were the efforts of the investors in Turner. There, the investor to profit had to contribute three things: “his money, his effort to find prospects and bring them to the meetings, and whatever it costs him to create an illusion of his own affluence.” Securities & Exchange Com’n v. Glenn W. Turner Ent., Inc., supra, 474 F.2d at 482. Here, the investors had to contribute two things: his money and his efforts in raising the chinchillas. The latter contribution is alleged to have been represented as being minimal. In both cases, the investor’s profit was dependent upon the defendants’ efforts to persuade additional persons to invest in the enterprise.

The effort to persuade others to invest was held to be the “undeniably significant” one in Turner, and we are convinced on the record before us that it was the significant one here. If it develops at a later stage in the litigation that the plaintiffs’ allegations are not supported by the evidence, the District Court can so find. But, we have no alternative now but to reverse and remand for further proceedings consistent with this opinion.

Reversed and remanded.

      . The contracts read as follows:
      CENTRAL CHINCHILLA GROUP, INC. AGREES:
      1. To buy all descendants of the chinchillas purchased from Central Chinchilla
      Group, Inc., on date of - (Said descendants shall be in pairs . a pair being one male and one female, or two females.)
      2. To pay the sum of One Hundred Dollars ($100.00) per pair for said offspring. PREFERRED PRODUCER AGREES:
      1. That all offspring sold to Central Chinchilla Group, Inc., shall be between six and eleven months of age.
      2. To sell 100% of his offspring, with the exception that he may choose, at his option, to keep his offspring or a certain percentage of the offspring, for his herd expansion, in which case selection shall be on the basis of one offspring selected by the Producer, then one offspring selected by The Group, etc.
      3. To give reasonable care, at all times, to The Central Chinchilla Group strain of breeding stock, and to abstain from introducing any outside stock.

        4. To maintain membership in The Central
      Chinchilla Group and to manage his herd aecording to recommendations made by The Group.
      5. That only clean animals in smooth condition and in normal good health will be involved under the terms of this agreement.
      6. That all chinchillas involved shall have been first registered at the home office of Central Chinchilla Group, Inc., through birth announcements, and tagged by an authorized representative of Central Chinchilla Group, Inc., as animals meeting the breeding standards established by Central Chinchilla Group, Inc.

      . The term “security” as defined under both the Securities Act of 1933 and the Securities Exchange Act of 1934 includes “investment contracts.” 15 U.S.C. §§ 77b (1) and 78c (a) (10). The definitions in these statutes are virtually identical. Tcherepnin v. Knight, 389 U.S. 332, 335-336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967).

      . 15 U.S.C. §§ 77e, 771(2), 77q.

      . 15 U.S.C. § 78j(b).

      . 17 C.F.R. § 240.10b-5.

      . See also, Lino v. City Investing Co., 487 F.2d 689, 692-693 (3rd Cir. 1973), where the Third Circuit stated :
      * * * [A]n investment contract can exist where the investor is required to perform some duties, as long as they are nominal or limited and would have “little direct effect upon receipt by the participant of the benefits promised by the promoters.” * * * As the Ninth Circuit realized, to adopt a position similar to City Investing’s would lead to easy evasion of the act “by adding a requirement that the buyer contribute a modicum of effort.” (Citations omitted.)

      . The record before the District Court consisted of pleading, interrogatories, answers to interrogatories, and the affidavit of an official of the Bank and his testimony at a pretrial hearing. Only the pleadings, the interrogatories and the answers to the interrogatories relate to the question before us.

      . See, 51 Texas L.Rev. 788 (1973) and 6 Creighton L.Rev. 450 (1973), where the elements of the Howey formula are summarized and investment contract cases are analyzed.


source: Caselaw Access Project

author: HILL, Circuit Judge.

license: Public Domain

text:
    Geneva BROWN, Individually and as Ad-ministratrix of the Estate of Thomas J. Brown, Deceased, Plaintiff-Appellant, v. FORD MOTOR COMPANY, a corporation, Defendant-Appellee.
    No. 73-1604.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Jan. 8, 1974.
    Decided March 12, 1974.
    Charles W. Stubbs, Oklahoma City, Okl., for plaintiff-appellant.
    Wm. G. Smith, Oklahoma City, Okl., for defendant-appellee.
    Before HILL, HOLLOWAY and BARRETT, Circuit Judges.
   HILL, Circuit Judge.

In this removed action, based on diversity, appellant Geneva Brown brought suit against appellee Ford Motor Company for the wrongful death of her husband. The complaint alleges the deceased was attempting to step up on the tailgate of a pickup truck manufactured by appellee, that the tailgate came unlatched, and that the deceased was thrown to the ground, sustaining head injuries causing his eventual death. It is claimed that the tailgate’s locking device was defectively manufactured and installed, constituting a breach of implied warranty of fitness.

Based upon the pleadings, depositions, affidavits and other discovery, the district court for the Western District of Oklahoma granted appellee’s motion for summary judgment. We have carefully examined the record in the light most favorable to the party opposing the motion, as we must, and find that no genuine issue exists as to any material fact. Accordingly, we affirm.

The record discloses the following relevant facts. Appellant, her husband, and a son, Tom, were on a fishing trip in Mexico in November, 1968. They were travelling in Tom’s vehicle, a 1968 Ford pickup truck, with a homemade camper shell mounted on the back. While in Mexico, and enroute to their destination, the Browns parked the vehicle on the shoulder of the highway for a moment’s rest. Upon attempting to reenter the highway, the vehicle became stuck in some sand. Appellant and Tom remained in the cab while the deceased climbed on the rear of the vehicle in an effort to obtain more traction. Upon freeing the vehicle Tom, who was driving, glanced in the rear view mirror and observed his father sprawled out on the highway. Approximately four months later, the deceased died as a result of a bilateral subdural hemotoma, caused by a blow or blows to the head.

Although appellant claims the accident was caused when the tailgate came unlatched as the vehicle was moving onto the highway, throwing the deceased to the ground, the record does not support this allegation. Appellant candidly admitted, in her deposition, that she did not observe the accident. She does not know what part of the vehicle the deceased was riding on, what he was holding on to, how the accident happened, or if the tailgate was open or closed immediately following the accident. The deposition of the Brown’s insurance agent sheds the only light on this question. Upon inquiring as to the cause of the accident in order to initiate a claim, he was informed the deceased was riding on the open tailgate and was knocked off when the vehicle hit a small bump.

Our search of the record also fails to reveal any evidence substantiating appellant’s contention that the tailgate was defective. Appellant had no knowledge, before the accident, that the tailgate would not close properly. In fact, she had never attempted to open or close it because she did not know how. She had, however, observed her husband and son opening and closing the tailgate on several occasions, and testified that it always fastened. She concluded the tailgate was defective because her son, Tom, told her so shortly after the accident, although he had never mentioned it before. The record discloses that service and repair work was performed on the vehicle by authorized Ford dealers both before the accident and while the deceased was in the hospital, but that Tom did not complain of any problems with the tailgate on either occasion.

Furthermore, a physicist with a background in metallurgy conducted experiments on the tailgate two years after the accident and concluded its latching device was not defective. His uncontro-verted testimony was that there was no bending or stretching of any of the material in the latch, and that the tailgate would fasten every time if properly closed.

Finally, the evidence does not support appellant’s claim that the injuries deceased suffered in this accident caused his demise. The deceased did not complain of any injuries sustained in this accident, but only of injuries in a subsequent accident on December 24, 1968. An optometrist conducted an eye examination on the deceased on November 29, 1968, after the accident in question. He observed no head injuries, and the deceased did not reveal receiving any. On December 18 the deceased saw a physician for arthritis. Again, no head injuries were observed and the deceased disclosed none. The deceased consulted the physician again on December 28, complaining of headaches. However, he informed the physician only of the December 24 injury. Moreover, this physician and the neurosurgeon who operated on the deceased both testified that this latter injury was the precipitating cause of death.

To recover, appellant necessarily must present evidence that the tailgate was defective when manufactured, that such defect rendered the tailgate unsafe for its intended use, and that the defective tailgate proximately caused the deceased’s injuries. The record before us, however, discloses that no genuine issue exists on any of the material facts. We believe summary judgment is proper here.

The application of Rule 56(e), F.R.Civ.P., also renders this case ripe for summary judgment. Appellee’s motion for summary judgment was supported by depositions and affidavits. Under such circumstances the party opposing the motion may not rest upon the mere allegations of his pleading but must respond with specific facts showing the existence of a genuine issue for trial. Nevertheless, appellant failed to file any affidavits or other matter raising a factual dispute.

Because appellant neglected to comply with Rule 56(e), and because the record discloses no genuine issue exists as to any material fact, we affirm the district court’s order granting summary judgment.

Affirmed.

      . Appellant originally brought suit in the Creek County District Court, in Oklahoma, individually and as the administratrix of her husband’s estate. The action was dismissed for lack of jurisdiction and later refiled in the Oklahoma County District Court. On appellee’s motion the suit was removed to federal district court.

      . The record discloses that the deceased suffered a total of three head injuries. The first is the basis of this suit. The second injury occurred on November 25, 1968. The camper on the vehicle in question has a rear door that is hinged at the top. Apparently this door fell on the deceased’s head while he was unloading the camper. He sustained a third injury on December 24, 1968. A retired automobile mechanic, the deceased was examining the engine of a vehicle belonging to another son, Leroy. It is contended that Leroy struck the horn, causing the deceased to raise his head and strike it on the hood. This accident is the basis of a second wrongful death action, against Leroy.

      . Rule 56(e) provides in part:
      When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.


author: LEWIS, Chief Judge.

text:
    Lewgene HALL, Appellant, v. HERCULES, INCORPORATED, Appellee.
    No. 73-1421.
    United States Court of Appeals, Tenth Circuit.
    April 1, 1974.

      Robert C. Londerholm of Hackler, Londerholm, Speer, Vader & Austin, Olathe, Kan., for appellant.
    Leonard O. Thomas and David K. Fromme of Weeks, Thomas, Lysaught, Bingham & Mustain, Kansas City, Kan., for appellee.
    Before LEWIS, Chief Judge, and HOLLOWAY and MeWILLIAMS, Circuit Judges.
   LEWIS, Chief Judge.

This appeal follows an order of the District Court for the District of Kansas granting Hercules’ motion for judgment notwithstanding the verdict, preceded by a motion for a directed verdict taken under advisement by the court, setting aside a jury verdict of $20,000 awarded in Hall’s action for slander. Hall was discharged from employment in maintenance at the Sunflower Army Ordinance Plant, near Kansas City, as the aftermath of an anonymous telephonic bomb threat received at the Plant on February 4, 1970. The trial court determined as a matter of Kansas law that the evidence did not support the verdict.

On the indicated date, a trunk call was received by a telephone operator at the Plant, the male caller asking to be connected with Extension 5760 (the maintenance supervisor). There being no answer the caller than asked for Extension 5633 (the electrical department). Again, there was no answer and the operator asked if she could call the motor pool to try to locate the requested supervisors. The caller answered, “No, I have to get in touch with someone quickly, there is a bomb planted out there set to go off in thirty minutes.” The operator asked him to repeat the statement and after doing so, the caller hung up. The incident was immediately reported to the Commanding Officer, the disaster siren was sounded and the Plant was evacuated. No bomb exploded nor was any bomb found by search. After a work stoppage of an hour and ten minutes the all-clear signal was given. Employees were made aware of the cause of alarm.

Hercules then began a determined investigation. Reasoning that the caller showed some familiarity with the Plant because of his use of specific extension numbers and the fact that the call originated outside the Plant, Hercules directed its attention to employees who were not working on the February 4th shift. The maintenance shift supervisor, when asked whether he had such an employee whom he thought potentially capable of making such a call, named plaintiff. A review of Hall’s personal and medical records indicated plaintiff to be an unusual employee.

On February 5, an investigator, Atkinson, telephoned Hall at his home and engaged him in a conversation concerning “drug abuse” at the Plant. The telephone operator listened to the conversation on an extension and at its conclusion stated that Hall’s voice was very similar to that of the anonymous caller and contained the same tone and enunciation.

On February 6, Hall reported to the Plant medical office for a release to return to work. He was examined by the company doctor and then told to sit in the waiting room. Other employees were in the room. Soon thereafter Atkinson came to the waiting room and asked Hall to come with him to the main security office. The two discussed “drug usage” at the Plant with apparently no mention of the bomb threat being made. Hall was then asked to return to the medical waiting room. Soon thereafter Atkinson again asked Hall to come with him, this time to the administrative offices where he was directly interrogated by an F.B.I. agent concerning the bomb threat. Hall denied any knowledge of or participation in the incident and returned to the waiting room. Still later and in response to a telephonic request Hall returned to the administrative offices for a third interview. High-level plant authorities, after accusing Hall of having made the bomb threat, discharged him for that reason and other reasons pertaining to his work record. Hall’s first and principal appellate contention is that the defendant’s “reckless” conduct in thrice having him taken, in the view of casual employees, from the waiting room to other company offices constituted a nonprivileged publication of a grave slander.

There can be no dispute that the evidence is sufficient to present a jury question upon two of the basic requirements for a compensable action for slander, the accusation of the commission of a crime and the falsity of the accusation. Nor should there be any doubt that Hercules, suddenly faced with a situation so inherently dangerous as a bomb threat directed to the destruction of a factory manufacturing explosives and the safety of thousands of employees, had a legal right to immediately initiate and pursue a rigorous investigation of the occasion. And the extent of that right must be measured by the atmosphere of the situation, not created by Hercules, which necessarily included plant-wide notoriety, anxiety and concern at all levels of plant employment. Such right includes the privilege of interrogation of employees, even chosen at random, in an effort to develop investigative leads and it would be totally unrealistic to require the fact of such interrogation, to be kept secret. The privilege of interrogation, concomitant to the right, must be broad enough to be meaningful. We hold, therefore, that each interrogation of Hall was privileged and that the particular conduct of Hercules in calling Hall to the place of interrogation, although the fact of interrogation might thus be speculatively revealed to casual employees, was well within the privilege. It follows that Hercules did not actionably publish, by conduct, the claimed slander through its acts in this aspect of the case.

With some qualification not here pertinent, the defense of a privileged publication in a slander suit is abrogated if the publication is motivated by malice in law or fact. We here speak in generalities for under our view of this diversity case it is not necessary to define “malice” with particularity nor to elaborate on the quality or quantity of evidence necessary to prove malice, however it may be defined under widely divergent treatises in state law. The trial court in granting the motion for judgment notwithstanding the verdict, and with full recognition that the existence of malice was ordinarily a question for the jury, held:

[A] 11 the evidence indicates that Hercules treated Hall in a dignified and seemly manner on February 6th, and there was no evidence of any outrageous conduct toward Hall which was intended to injure or humiliate him in any manner. There simply was no evidence of “actual evil-mindedness”, or actual malice, in fact or law, on the part of the defendant Hercules.

After careful consideration of the total record we agree with the conclusion of the trial court. Hall in fact testified that he, subjectively, did not believe his ■predicament was occasioned by personal ill will or spite directed against him.

Two further complexities exist in the case which require our determination, each one involving an incident which we consider to be beyond the permissible scope of the defense of privileged communication and publication.

Hall testified that while he was seated in the medical waiting room, with other employees present, five supervisory employees passed through the room and that one such employee glanced at him and stated, “There he is.” The second incident occurred after Hall’s discharge. The defendant directed that Hall’s tools be gathered and delivered to him rather than allowing Hall to do this himself, a deviation from normal Plant procedure. Hall contends that these incidents pinpointed him within the sight, hearing, or presence of nonprivileged employees and thus tainted him with the inference of published guilt.

No witness was called by plaintiff who saw, heard, or was present at the occurrence of such incidents although admittedly other employees could have been, and in the waiting room were, exposed to the event. Plaintiff cites numerous cases from states other than Kansas to the effect that it is within the province of the jury to infer, without specific proof, that a person physically present within view or hearing of such an incident did see, hear, understand and draw a subjective conclusion on the subject. The law of Kansas would appear to be otherwise although that Court has not directly passed upon the question.

In Stidham v. State Bank, 126 Kan. 336, 268 P. 106, 108, by way of dictum the Kansas Supreme Court stated:

If the case were on trial, it would be necessary for the plaintiff to prove, not only that the statements were made, but that they were made to, or in the presence of, third persons; it would be necessary to produce a witness who had heard those statements made.

So, too, in Batten v. Cox, 118 Kan. 78, 233 P. 1040, the Kansas court in considering the sufficiency of a complaint alleging only that slanderous words were spoken in the presence of a young girl but not alleging that the girl heard or understood the words upheld the sufficiency of the complaint. The court indicated its reasoning:

Those parts of the petition which alleged that the words were published constituted an allegation that they were spoken in the hearing of the 14 year old daughter and that she understood them. As against a demurrer, each allegation that the words were published was sufficient to charge that the language was used in the hearing of the 14 year old daughter and that she understood it. 233 P. at 1042.

It would seem the court’s words were not meaningful unless, at trial, proof of hearing and understanding was required.

And finally we note that the federal district court in an unpublished memorandum decision in Stump v. S. H. Kress & Co., No. KC-2535 (D.Kan., Oct. 14, 1968) held that under Kansas law publication of a slander must be proven by direct evidence and not by circumstantial evidence.

The judgment is affirmed.

      . Operated by Hercules as a subsidiary making rocket fuel.

      . Wo do not think it necessary to detail all of Hall’s extra-curricular activities during his period of employment. He had been earlier helpful to the company in an employee theft matter, was currently aggressive in a drug matter and currently annoyed because his wife, also a Hercules’ employee, was working a shift different than his. He had an earlier record of personal emotional problems and had a history of making demanding and annoying telephone calls to plant officials. On February 4tli he was off work because of a skin infection.


author: BARRETT, Circuit Judge.

text:
    The UNITED STATES of America, Plaintiff-Appellee, v. Eloy BACA, Defendant-Appellant.
    No. 73-1698.
    United States Court of Appeals, Tenth Circuit.
    April 11, 1974.

      Harris L. Hartz, Asst. U. S. Atty., Albuquerque, N. M. (Victor R. Ortega, U. S. Atty.), for plaintiff-appellee,
    G. F. Linn, Denver, Colo., for defendant-appellant,
    Before BREITENSTEIN, BARRETT and DOYLE, Circuit Judges.
   BARRETT, Circuit Judge.

Eloy Baca appeals from the sentences imposed following jury verdicts of guilty to four counts of an indictment charging that he and two co-defendants did unlawfully, knowingly and intentionally possess with intent to distribute and did in fact distribute a quantity of heroin in violation of 21 U.S.C.A. § 841(a)(1) and 18 U.S.C.A. § 2.

Baca contends that the District Court erred in: (1) denying his Motion to Dismiss; (2) in refusing to order the Government to furnish him with a Bill of Particulars; (3) in refusing to order the Government to disclose the name of its informer prior to trial; and (4) in excusing a juror from further service, after trial had commenced.

I.

Baca contends in his brief on appeal that the Court erred in denying his Motion to Dismiss on the grounds that 21 U.S.C.A. § 841(a) is not a permissible exercise by Congress of its power under the Commerce Clause. His position was abandoned, however, during oral argument in light of our opinion in United States v. King, 485 F.2d 353 (10th Cir. 1973). We held in King that § 841(a) is a valid exercise by Congress of the power granted it under the Commerce Clause. We there favorably referred to two opinions from other circuits which have held likewise. United States v. Scales, 464 F.2d 371 (6th Cir. 1972); United States v. Lopez, 459 F.2d 949 (5th Cir. 1972), cert, denied 409 U.S. 878, 93 S.Ct. 130, 34 L.Ed.2d 131 (1972).

II.

Appellant argues that the Court erred in refusing to order the Government to furnish him with a Bill of Particulars as to the exact location at which the offenses alleged in the indictment were committed. The indictment alleged that Baca committed the offenses on specific dates “in the State and District of New Mexico.” In his pre-trial motion for a Bill of Particulars, Baca asked that the Government be required, inter alia, “to provide us with the exact street address or location at which the defendant Baca is alleged to have possessed the heroin” together with “the exact address or location at which the defendant allegedly distributed the heroin . . . .” Counsel for appellant argued that this information was required so that Baca could prepare for trial and avoid surprise at trial.

The appellant concedes that the grant or denial of a motion for a Bill of Particulars rests within the sound discretion of the trial court. We have held that granting or denying motions for Bills of Particulars is within the discretion of the Court, and that denial of such a motion will not be disturbed on appeal unless that discretion was abused. United States v. Cooper, 464 F.2d 648 (10th Cir. 1972), cert, denied 409 U.S. 1107, 93 S.Ct. 902, 34 L.Ed.2d 688 (1973); United States v. Gleeson, 411 F.2d 1091 (10th Cir. 1969).

At the request of the trial court, the Government responded that “the transactions took place at or near the homes of the persons charged in the indictment and enroute between the homes.” The home address of Baca was specifically designated by him in the Bail Reform Act Order as 2504 Camellia Court, S. W., Albuquerque. The Government’s chief witnesses, Mrs. Moya and Detective Prestwood, testified that the charged narcotics transactions occurred at or near Baca’s residence identified as 2504 Camellia Court, S.W., and at Johnny Valles’ residence identified as Mer-vosh Circle. Baca voluntarily testified. He acknowledged the same residence addresses.

Prior to trial Baca’s Motion for Severance of the parties defendants for purposes of trial was granted. The guilty verdicts returned against Baca were rendered on Counts I, II, III and IV wherein Baca and Johnny Valles were jointly charged. Each count contained specific allegations of the persons charged, the substantive offenses alleged to have been committed, the exact .dates of commission, and that the defendants unlawfully, knowingly and intentionally possessed the heroin with intent to distribute same in “the State and District of New Mexico.” Each charge further contained specific references to the provisions of the United States Code containing the substantive offenses charged.

Baca would, on appeal, urge reversal on the ground that the indictment did not specifically identify the times and places of the charged offenses. Both contentions are without merit. In Koko-tan v. United States, 408 F.2d 1134 (10th Cir. 1969), we held that the phrase “on or about” when used in an indictment in connection with a specific date which is intended to indicate the time that the offense was committed is adequately proved if the evidence establishes that the offense was committed within a few weeks of the date, where the specific time is not an ingredient of the offense. In the instant case the Government proved the commission of the offenses charged on the specific dates alleged to the satisfaction of the jury.

This court has held that allegations that the offenses had occurred “at Albuquerque” [United States v. Baca, 451 F.2d 1112 (10th Cir. 1971), cert, denied 405 U.S. 1072, 92 S.Ct. 1524, 31 L. Ed.2d 806 (1972)], or in “the City and County of Denver” [Sepulveda v. United States, 415 F.2d 321 (10th Cir. 1969)], or “within the jurisdiction of the trial court” [Flores v. United States, 338 F. 2d 966 (10th Cir. 1964)], or within the federal district, without specifying a county or division [Butler v. United States, 197 F.2d 561 (10th Cir. 1952)], were sufficiently definite. The Court did not err in denying Baca’s motion for a Bill of Particulars.

III.

Baca contends that the Court erred in refusing to order the Government to disclose the name of its “informer,” a Mrs. Margaret Moya, prior to trial. We hold that the trial court did not err.

Prior to trial, Baca moved for an Order requiring the Government to disclose the name of its “informer” in order to permit him to adequately prepare for trial. The Government argued that in view of the fact that no search warrants were involved and no arrests were effected prior to indictment, that the United States was not obligated to reveal its “witnesses” at that time. The Court denied Baca’s motion.

The “informer,” Mrs. Margaret Moya, held a commission from the Sheriff’s office in Albuquerque during the period of the charged offenses. Her duties were to effect purchases of narcotics on an undercover basis. She used the fictitious first name of Juanita. She worked on the ease with another government “informant,” Mr. Cody Prestwood, a detective with the Bernalillo County Sheriff’s office.

Mrs. Moya testified that she participated in and witnessed the transactions from which Baca was found guilty. Her testimony directly and unqualifiedly tied Baca to the offenses charged, and was corroborated in material respects by the testimony of Detective Prestwood.

It is settled law in this circuit that, in the absence of a statutory or constitutional requirement, the government is not required to endorse the names of its witnesses on the information or indictment, nor is there a requirement that the government disclose its witnesses in any manner, except in a case where trial is for treason or other capital offense. 18 U.S.C.A. § 3432; United States v. Seasholtz, 435 F.2d 4 (10th Cir. 1970); United States v. Hughes, 429 F.2d 1293 (10th Cir. 1970); Nipp v. United States, 422 F.2d 509 (10th Cir. 1969), cert, denied 397 U.S. 1008, 90 S.Ct. 1235, 25 L.Ed.2d 420 (1970); Edmondson v. United States, 402 F.2d 809 (10th Cir. 1968); Thompson v. United States, 381 F.2d 664 (10th Cir. 1967). A narcotics violation indictment which fails to list the name of an informer does not deny the defendant of his right to be confronted by witnesses against him. Davidson v. United States, 349 F.2d 530 (10th Cir. 1965). Such charges do not involve treason or other capital offense.

IV.

Baca contends that the trial court erred when, after having been informed by a juror that she wished to be excused because she was frightened, the Court proceeded to excuse her without explanation thereof to the rest of the jury. He also alleged error in that he was not informed of the circumstances, and that he was not present in the Judge’s chambers when the matter of her excusal or selection of a substitute juror was discussed. He also contends that the Court erred in continuing the trial without investigating to determine whether the balance of the jury might not be able to render a fair and impartial verdict.

At the commencement of the second day of trial the Judge conferred with counsel in his chambers, advising them that Juror Virginia Garcia had sent word to him that she wished to be taken off of the jury because she knew some of the “womenfolk involved” and was frightened. The Judge stated that he had not talked with her personally about the matter, but that he had sent word to her not to talk to any of the other jurors about it. The Judge then suggested to counsel that perhaps she should be excused, and that one of the alternate jurors should replace her. Counsel for appellant agreed, subject to examination of Mrs. Garcia in the Judge’s chambers. Baca’s counsel did not at any time suggest to the Court that his client be present.

Juror Garcia stated during the in camera examination that she had not discussed her “problem” with any of the other jurors. She stated that she had seen some women out in the hall who caused her to feel that she could not sit as a fair and impartial juror. When Baca’s counsel requested that the Court inquire a “little more into her fear or what it is about,” the Judge refused to do so because of her statement that she could not render a fair and impartial verdict. She was thereupon excused and the first alternate juror was placed in her chair.

Prior to the in camera examination, counsel for Baca objected to the excusal of Mrs. Garcia even if the other jurors “are not infected,” and further that if she were excused “we would move for a mistrial.” After Juror Garcia was excused and the first alternate directed to take her place in the jury, box, counsel for Baca did not interpose further objection or raise any motions.

One of the basic rights guaranteed by the Sixth Amendment is the right of an accused to be present at every stage of his trial. Illinois v. Allen, 397 U.S. 337, 90 S.Ct. 1057, 25 L.Ed.2d 353 (1970). The issue, then, is whether, after the jury had been selected and sworn in the presence of Baca, and after evidence had been tendered at trial, the Confrontation Clause of the Sixth Amendment granted Baca an absolute right to have actual knowledge of and participate with his attorney in the in camera session concerning the excusal of Juror Garcia and her replacement by the first alternate juror.

In Jones v. United States, 299 F.2d 661 (10th Cir. 1962), cert, denied 371 U.S. 864, 83 S.Ct. 123, 9 L.Ed.2d 101 (1962), we stated:

. we can let stand no conviction where the defendant was not present at all stages of the proceedings unless the record completely negatives any reasonable possibility of prejudice arising from such error.

Baca argues that he was denied his right to a fair trial and impartial jury when the trial court did not declare a mistrial both because he was prejudiced by not being present during the in camera examination of Juror Garcia, and because of the presumption which arises from the mere possibility of prejudice to the accused from an extraneous influence upon the other jurors. Remmer v. United States, 347 U.S. 227, 74 S.Ct. 450, 98 L.Ed. 654 (1954); Ellis v. State of Oklahoma, 430 F.2d 1352 (10th Cir. 1970), cert, denied 401 U.S. 1010, 91 S. Ct. 1260, 28 L.Ed.2d 546 (1971).

In Ellis v. State of Oklahoma, supra, we held that a criminal defendant does not have an absolute constitutional right to be a participant in an in camera examination of a juror where his lawyer is present and that the question then narrows itself to whether the communication itself, as related in the in camera proceeding, was actually prejudicial. We further there held that the presumption of prejudice may be overcome by a showing that the communications were harmless and did not in fact prejudice the rights of the defendant.

Rule 43, Fed.R.Crim.P., 18 U.S.C.A, provides, inter alia, that the defendant shall be present at the arraignment and at every stage of the trial including the impaneling of the jury and at the imposition of the sentence. Deprivation of a defendant’s right to be present at every stage of trial is subject to the harmless error rule and exchanges between the judge and jurors will not constitute reversible error lacking showing of clear prejudice to the absent defendant. United States v. Freed, 460 F.2d 75 (10th Cir. 1972); United States v. Jorgenson, 451 F.2d 516 (10th Cir. 1971) , cert, denied 405 U.S. 922, 92 S.Ct. 959, 30 L.Ed.2d 793 (1972); Little v. United States, 73 F.2d 861 (10th Cir. 1934).

Our review of the record convinces us that there is no reasonable possibility of prejudice to appellant Baca by reason of his absence during the in camera examination of Juror Garcia. Further, while the trial court did not permit Baca’s counsel to make specific inquiry of Juror Garcia relative to her cause or reason for fright, we are convinced that when Mrs. Garcia unequivocally stated that she could no longer hear and decide the case fairly and impartially that the Court had no recourse but to excuse her from further jury service. The Trial Judge personally observed Mrs. Garcia and made his decision to excuse her based upon her demeanor and credibility.

The Trial Judge instructed the jurors on all appropriate occasions not to discuss the case with each other. We have held that we will not impute to jurors a disregard of their express duties. Aiuppa v. United States, 393 F.2d 597, 604 (10th Cir. 1968), vacated and remanded, 394 U.S. 310, 89 S.Ct. 1163, 22 L.Ed.2d 297 (1969), cert, denied 404 U. S. 871, 92 S.Ct. 60, 30 L.Ed.2d 114 (1971); Welch v. United States, 371 F.2d 287 (10th Cir. 1966), cert, denied, 385 U.S. 957, 87 S.Ct. 395, 17 L.Ed.2d 303 (1966). It is presumed that jurors will be true to their oath and will conscientiously observe the instructions and admonitions of the Court. Ellis v. State of Oklahoma, supra; Baker v. Hudspeth, 129 F.2d 779 (10th Cir. 1942).

Affirmed.


text:
    The CHEYENNE NEWSPAPERS, INC., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    No. 73-1585.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Jan. 8, 1974.
    Decided March 12, 1974.

      Gene W. Reardon, Denver, Colo., for petitioner-appellant.
    William S. Estabrook, III, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks and Richard W. Perkins, Tax Div., Dept, of Justice, Washington, D. C., on the brief), for respondent-appellee.
    Before HILL, HOLLOWAY and BARRETT, Circuit Judges.
   HILL, Circuit Judge.

This is an appeal by The Cheyenne Newspapers, Inc. (taxpayer) from a Tax Court decision sustaining the Commissioner’s determination of income tax deficiencies for 1965, 1966 and 1967 in the amounts of $32,109.68, $31,191.00 and $12,638.00, respectively.

The deficiencies resulted from the Commissioner’s imposition of an accumulated earnings tax, pursuant to § 531 of the Internal Revenue Code of 1954, for each of the years in issue. The tax court found taxpayer had permitted its earnings and profits to accumulate beyond the reasonable needs of its business and that it was availed of during the years in question for the purpose of avoiding the income tax with respect to its shareholders by permitting earnings to accumulate instead of being divided and distributed.

Taxpayer, a Wyoming corporation, is in the newspaper publishing business in Cheyenne, Wyoming. Since its inception in 1928 it has published a morning newspaper Tuesday through Saturday, and a daily evening newspaper. Sometime during 1963 taxpayer’s board of directors began to consider the need to remodel and expand the plant’s facilities. Beginning in 1965, and over a period of years thereafter, taxpayer’s facilities were indeed expanded and modernized, publication of a Sunday edition was started, and an offset press was purchased and installed. Accordingly, taxpayer accumulated earnings in 1965, 1966 and 1967 to finance the costs of the projects.

The Commissioner of Internal Revenue, however, determined that taxpayer had permitted its earnings and profits to accumulate unreasonably, and issued a statutory notice of deficiency and asserted an accumulated earnings tax for those years.

Contesting the determination to the tax court, taxpayer contended that the remodeling and expansion, Sunday edition and offset press all were part of a plan conceived in 1963 and carried out during the taxable years in issue. Because its earnings were accumulated for reasonable and reasonably anticipated business needs instead of for the purpose of avoiding income tax upon the stockholders, taxpayer argued, imposition of the accumulated earnings tax was improper.

The government took the position that taxpayer had not demonstrated a definite plan for the years in issue that would justify the accumulation of earnings for (1) six months working capital, (2) the offset press, (3) the Sunday edition, or (4) for remodeling and expansion other than changes actually made during the years in issue. By deleting these costs from taxpayer’s expenses, and by adding the value of the marketable securities held for investment purposes to taxpayer’s liquid assets, the government contended taxpayer’s earnings and profits from prior years were more than sufficient to cover taxpayer’s reasonable needs. Accordingly, the government contended the accumulated earnings tax imposed should be upheld.

Finding over a 5:1 ratio of assets to liabilities, the tax court affirmed the Commissioner’s determination that taxpayer’s accumulation of earnings and profits was beyond its reasonably anticipated business needs. Specifically, the tax court (1) allowed taxpayer operating working capital for a three month period ($313,433.00) rather than a six month period, and (2) rejected taxpayer’s contention that the offset press, plant remodeling and expansion (other than the $450,000.00 actually spent during the taxable years in issue) and development of a Sunday edition were reasonable . business needs during 1965-1967.

The determination made by the tax court is a finding of fact which must be sustained if supported by the record. Henry Van Hummell, Inc. v. Commissioner of Internal Revenue, 364 F.2d 746 (10th Cir. 1966), cert, denied, 386 U.S. 956, 87 S.Ct. 1019, 18 L.Ed.2d 102 (1967); Oklahoma Press Pub. Co. v. United States, 437 F.2d 1275 (10th Cir. 1971). Accordingly, we must view the evidence in a light most favorable to the narty prevailing below, the government.

OPERATING CAPITAL BUSINESS NEEDS

During the trial to the tax court, taxpayer claimed a need for six months operating working capital of $616,866.00. Based upon the evidence presented, however, the tax court rejected this claim and allowed taxpayer $313,433.00 for working capital over a three month period.

Taxpayer cites other court decisions which hold operating expenses based upon even greater lengths of time to be reasonable. However, the individuality of each business must be considered in light of its particular needs in order to ascertain what is reasonable for it. Henry Van Hummell, Inc. v. Commissioner of Internal Revenue, supra,; 7 Merten, L.Fed. Income Tax. § 39.39 (Zimet & Barton rev. 1967).

Taxpayer made no attempt to substantiate its claim by an analysis of its actual operating cycle needs, but by the testimony of an independent newspaper executive. A determination of what is a reasonable amount of working capital must be based on factual evidence as to experience and not on opinion testimony. Even so, her testimony left much to be desired. She acknowledged she had taken only “a very casual glance” at taxpayer’s operations for the years in issue, yet she proceeded to state a six month operating capital reserve was necessary because of the possibility taxpayer might suffer a mechanical failure, natural disaster or a labor problem.

Taxpayer’s comptroller also indicated a six month operating reserve was necessary for strikes, major breakdowns, paper shortages and the possibility taxpayer might lose its second class mailing permit if it was forced to stop printing for any reason.

We find no evidence in the record that these contingencies were either realistic or reasonable. The last time taxpayer suffered a natural disaster, which then only curtailed but did not stop operations, was in 1949. Nor has taxpayer suffered a mechanical breakdown which would prevent publication in the last thirty-three years. Furthermore, taxpayer has not had a labor strike in twenty years. During the years in issue, in fact, taxpayer was operating under a labor contract which was characterized by the board of directors as the best labor settlement in the company’s history. Finally, taxpayer’s asserted fear of losing its second class mailing permit in the event it was forced to cease publication is unfounded. Its secretary-treasurer testified that such an unlikely determination by the Post Office could be successfully appealed, and that taxpayer has never had to make such an application.

At best, taxpayer has established that a six month operating working capital might have been necessary in the event of a hypothetical disaster. In the absence of any evidence supporting the reasonableness of the hypothesis, however, we cannot allow taxpayer to retain earnings merely for the purpose of providing for some theoretical contingency that might never have transpired. Mere possibilities do not amount to reasonable or reasonably anticipated business needs. Hardin v. United States, 461 F.2d 865 (5th Cir. 1972); Oklahoma Press Pub. Co. v. United States, supra.

The record does show that taxpayer’s income is derived primarily from advertising and subscriptions. Apparently its only inventory consists of paper on which the newspapers are printed and comparable supply items. The cost of a year’s supply of such items is 15% of taxpayer’s yearly operating costs. The record also shows most of taxpayer’s advertising accounts were billed at the end of each month, most being paid within thirty days.

These facts do not establish a need to retain a six month working capital reserve. To the contrary, they show taxpayer needs operating capital for a relatively short period of time. Accordingly, we must affirm the tax court’s decision in this regard.

SUNDAY EDITION

Taxpayer next contends the tax court erred in denying it an accumulated' earnings credit of $143,000 for each of the years in issue, for the cost of establishing a Sunday edition. Although no minutes were kept thereof, taxpayer contends its executive committee held numerous meetings during the years in issue at which extensive discussions were had and decisions and plans made for a long-range expansion and modernization project, which included the anticipated publication of a Sunday edition. Therefore, taxpayer contends, commencement of a Sunday edition was probable during the years in issue and the retention of earnings for such a purpose was a reasonably anticipated business need. We cannot agree.

To justify an accumulation of earnings and profits for reasonably anticipated business needs, a taxpayer must have specific, definite and feasible plans for the use of such accumulation. The purpose, in other words, must be expressed in some tangible way or by some clear action directed towards its fulfillment. Henry Van Hummell, Inc. v. Commissioner of Internal Revenue, supra.

Although a Sunday edition was commenced in 1968, the record gives us no evidence of a specific plan to do so during the taxable years in issue. The first indication taxpayer was considering a Sunday edition is found in the October 11, 1963, minutes of a board of directors meeting. Except for a memorandum, dated August 14, 1964, there is no evidence that taxpayer again considered a Sunday edition until a board of directors meeting late in 1967 where it was decided a greater in-depth study of the subject was needed.

Even though taxpayer may have been considering a Sunday edition for several years, it either did not make, or postponed the making of, any definite plans therefor during the taxable years in issue. An accumulation of earnings cannot be justified on the grounds of reasonably anticipated business needs where such needs are vague or uncertain. We affirm the tax court’s determination of this issue.

OFFSET PRESS

Taxpayer also claims the tax court erred in denying it accumulated earnings credits for reasonably anticipated business needs incident to the purchase and installation of an offset press.

The need for an offset press is not disputed, the only question being whether taxpayer formulated specific plans for obtaining one during the taxable years in issue. We have examined the record and once again find we must sustain the tax court’s determination. Indeed, there is a total absence of evidence in taxpayer’s favor.

At trial, an exhibit labeled “Anticipated Extraordinary Needs” for the years 1965-1967 was introduced into evidence. The document detailed estimated costs of an offset press and attendant equipment. At first glance this would seem to indicate a plan on taxpayer’s part for an offset press. The record discloses, however, that this document was not prepared for or during the taxable years in issue, but within several months preceding the trial.

Similarly, blueprints of the press (prepared 1-23-73), which were admitted into evidence lend support to the conclusion an offset press was not under consideration during the years in issue. Furthermore, taxpayer’s treasurer testified the need for an offset press was not even realized until after the completion of remodeling (only substantially completed as of October, 1966). Thus, the facts support the tax court’s finding that there was no corporate action directed toward the acquisition of an offset press during the taxable years in issue.

MARKETABLE SECURITIES

It was error, taxpayer argues, to add the value of marketable securities held by it for investment purposes to its liquid assets in determining whether there has been an unreasonable accumulation of earnings and profits.

Investments in marketable securities which bear some relationship to a corporation’s business usually are considered a proper business application of funds and may be accumulated with impunity. Marketable securities held for investment purposes, however, are not afforded the same status. Such a policy would allow a corporation to avoid an accumulated earnings tax merely by investing all excess cash in marketable securities, a result contrary to the accumulated earnings tax provisions. Instead, such securities must be considered part of a corporation’s liquid assets in arriving at the figure a corporation must justify retaining. See Young Motor Co., Inc. v. Commissioner of Internal Revenue, 339 F.2d 481 (1st Cir. 1964); Electric Regulator Corp. v. Commissioner of Internal Revenue, 336 F.2d 339 (2d Cir. 1964); Ziegler, The “New” Accumulated Earnings Tax: A Survey of Recent Developments, 22 Tax L.Rev. 77, 90 (1966).

Indeed, the treasury regulations [Treas.Reg. § 1.533-l(a) (2) (ii) and § 1.537-2(c) (4)] apparently regard the presence of marketable securities among a corporation’s assets as affirmative evidence of the avoidance purpose.

Taxpayer’s marketable securities held for investment purposes, then, must be considered a part of its liquid assets.

TAXES

Taxpayer paid federal income taxes for 1965, 1966 and 1967 in the amounts of $106,562.00, $102,383.00 and $38,196.00, respectively. It claims the tax court erred in its consideration of these taxes as they operate to reduce accumulated earnings.

The government does not contend, and the tax court did not hold, that appropriate federal income tax payments may not be used to reduce an asserted accumulated earnings surplus. Taxpayer’s surplus was, in fact, reduced by the above amounts which apparently were considered to be part of “current expenses”. Taxpayer, however, asserts that such sums should be considered “reasonably anticipated business expenses” as well as “current expenses”. The result would be a double income tax reduction from accumulated earnings, for each year in issue.

Taxpayer is attempting to gain an advantage it is not entitled to receive. A corporation may not take a double reduction for federal income taxes in justifying accumulated earnings.

The decision of the Tax Court is affirmed.

      . 26 U.S.C. § 531 provides :
      In addition to other taxes imposed by this chapter, there is hereby imposed for each taxable year on the accumulated taxable income (as defined in section 535) of every corporation described in section 532, an accumulated earnings tax equal to the sum of—
      (1) 27%% of the accumulated taxable income not in excess of $100,000, plus
      (2) 38%% of the accumulated taxable income in excess of $100,000.

      . 26 U.S.C. § 533(a) provides :
      (a) Unreasonable accumulation determinative of purpose. — For purposes of section 532, the fact that the earnings and profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with respect to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary.

      . 26 U.S.C. § 532(a) provides:
      (a) General Rule. — The accumulated earnings tax imposed by section 531 shall apply to every corporation (other than those described in subsection (b)) formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed.

      . Taxpayer concedes that had all of its earnings and profits for the years 1965-1967 been distributed to its shareholders, the ef-feet would have been to increase the individual income taxes of the four largest shareholders by $103,972.05.

      . Treas.Reg. § 1.537-1 (b) (1) provides:
      In order for a corporation to justify an accumulation of earnings and profits for reasonably anticipated future needs, there must be an indication that the future needs of the business require such accumulation, and the corporation must have specific, definite, and feasible plans for the use of such accumulation. Such an accumulation need not be used immediately, nor must the plans for its use be consummated within a short period after the close of the taxable year, provided that such accumulation will be used within a reasonable time depending upon all the facts and circumstances relating to the future needs of the business. Where the future needs of the business are uncertain or vague, where the plans for the future use of an accumulation are not specific, definite, and feasible, or . where the execution of such a plan is postponed indefinitely, an accumulation cannot be justified on the grounds of reasonably anticipated needs of the business.

      . The pertinent part of the minutes state “the executive committee would go into the matter of establishing a Sunday newspaper very thoroughly during the first quarter of 1964.”

      . Subsequent to trial taxpayer moved to reopen the case, and offered new corroborative evidence on this issue. It offered a letter of intent to purchase the press (dated 12-3-71), an executed sales agreement (dated 1— 12-72) and a newspaper article (dated 6-11-72) showing press construction progress. The tax court properly denied the motion. The determination of a reasonable business need must be based on facts and circumstances existing in the year in issue, and not by events transpiring in subsequent years that shed no new light upon the facts as they existed in the year in issue. See Sterling Distributors, Inc. v. United States, 313 F.2d 803 (5th Cir. 1963).


author: MOORE, Senior Circuit Judge.

text:
    FIRST NATIONAL BANK OF JACKSON, MISSISSIPPI, Appellee, v. N. W. BUNKER, Jr., Appellant.
    No. 73-1489.
    United States Court of Appeals, Eighth Circuit.
    Submitted Nov. 15, 1973.
    Decided April 3, 1974.

      Philip Mansour, Greenville, Miss., for appellant.
    William C. Bridgforth, Pine Bluff, Ark., for appellee.
    Before VAN OOSTERHOUT and MOORE, Senior Circuit Judges, and WEBSTER, Circuit Judge.

       LEONARD P. MOORE, Senior Circuit Judge of the United States Court of Appeals for the Second Circuit, sitting by designation.

   MOORE, Senior Circuit Judge.

Plaintiff-appellee, First National Bank of Jackson, Mississippi (the Bank), had purchased three retail installment contracts for $125,000. The contracts, on printed forms, evidenced the sale by Tri-State Distributors, Inc., of washing machine equipment to Norge Villages of Greenville, Inc., a corporation formed by N. W. Bunker, Jr. (Bunker), for use in the operation of public, self-service laundering facilities, commonly referred to as “washerettes,” “washeterias” or “laundromats.” On the reverse side of at least some of the printed forms was an additional personal guaranty contract. The Bank by suit asserts that defendant Bunker signed the guaranty forms, thereby personally committing himself to the obligations of the installment contracts and that upon Norge Villages’ default failed to make the payments required under the guaranties. Bunker in turn responded by setting forth six defenses: (1) denial of execution; (2) legal incapacity (mental incompetence) at the time of execution; (3) fraudulent misrepresentations; (4) signature obtained by fraud without consent; (5) usury; and (6) lack of consideration. Bunker demanded a jury trial on the issues thus raised.

At the close of the case, the trial judge decided that there had been no fraud and that, although there was a jury issue as to Bunker’s legal capacity, his subsequent acts (even assuming mental incapacity at the time of execution) amounted to a ratification of the guaranties. From the court’s direction of a verdict in favor of the Bank, Bunker appeals.

Although the circumstances under which Bunker became involved in the washerette venture are not without significance, the primary appellate issue centers around whether there is any evidence to be found in the rather voluminous record which should have been submitted to the jury on the issue of ratification.

In 1969 Kemp Whisenhunt successfully operated a Norge Village washerette in Blytheville, Arkansas. Hopeful that this success could be duplicated in Greenville, Mississippi, he interested a friend, Curtis Belford, in establishing three washerettes there. The laundry equipment was bought from Tri-State Distributors, Inc., which handled the Norge line, for $186,000 and three suitable buildings were constructed. For various reasons, the Greenville venture did not meet with the success experienced in Blytheville, equipment installments were not paid, leases were in default and utility bills had not been met. In early 1971 Whisenhunt and Belford decided to sell.

A Mrs. Virginia Foley, known to Bel-ford, interested Bunker in the purchase of the washerettes. In a contract dated March 30, 1971, Whisenhunt and Bel-ford, representing themselves as the Sellers, agreed to convey the enterprise to Bunker, the Purchaser. No reference to a personal guaranty by Bunker is found in that contract. The sale as consummated differed substantially from the terms of the March 30th document. The Seller was Tri-State Distributors, Inc.; the Purchaser, Norge Villages, Inc., a corporation organized by Bunker’s attorney, Russell. Mrs. Foley and Bunker were the stockholders. The three installment sales agreements were prepared by Houston Jones, owner of TriState, on printed forms, on the reverse sides of which, at least in some instances, were the guaranties.

In Greenville, Russell was drafting corporate organization papers, corporate minutes and resolutions and leases. On the evening of April 29, 1971, while Bunker was seriously ill in the hospital in Lake Village, Arkansas, Mrs. Foley took all the papers to him, including the installment contracts. Apparently only Mrs. Foley and Bunker were present in the hospital room. Bunker testified that he remembered nothing of the events of that evening. Mrs. Foley said that she handed the papers to Bunker who signed them while sitting on the side of the bed. On the copies of the installment agreements given to Mrs. Foley, she testified that there were no signed guaranties.

Nevertheless, reference to the Appendix discloses that on the reverse sides of the three installment contracts, presented in evidence by the Bank (Pltf’s Exhs. 1, 3, 5), there are six printed paragraphs of conditions. Below these conditions, in capital letters, are the words “GUARANTY OF PAYMENT.” Under the guaranty paragraph is the signature “N. W. Bunker Jr.” Underneath this paragraph is a printed form of “ASSIGNMENT” which transferred to “First National Bank” the interests of Tri-State therein under date of May 20, 1971. On the copies of these contracts introduced by Bunker (Deft’s Exh. 17) the same conditions appear but on these copies there is an absence of the guaranty and the assignment paragraphs. On the first page of the contracts under “NOTICE TO THE BUYER” are the words: “(2) You are entitled to a completely filled in copy of this contract when you sign it. Keep it to protect your legal rights.”

Both attending doctors testified as to Bunker’s mental and physical condition in the hospital at the time of signing. Although neither doctor claimed to have any special training in mental illness, they had observed Bunker regularly at least twice daily during his hospitalization. Their descriptions of his condition ranged from the observation that he appeared to be “confused most of the time” (Tr. 305) as well-as “not mentally competent” (Tr. 309 Dr. Burge) to testimony that on no occasion was Bunker able to “comprehend [or] conduct business” and his “mental capacity [was] impaired.” (Tr. 327, 334 Dr. Talbot). The Bank has conceded that “for the purpose of this appeal [incompetency] is accepted as proved since the trial court found this to be a jury issue” (Appel-lee’s Brief, at 23). Rather, appellee relies on Bunker’s conduct after he had regained competency to establish his ratification of the guaranties. Appellee argues, and the trial court agreed, that the fact of ratification is so conclusive that no reasonable man could have found to the contrary.

The facts relied on by appellee are as follows:

In September 1971 Bunker received a telephone call from an officer of the Bank who demanded payment of the delinquent installments payments. Bunker testified that he had understood the obligation to be that of the corporation and that he was not cognizant of any personal liability; that he retained an attorney, Warfield; that together they went to the office of attorney Russell in Greenville; that Russell denied knowledge of the circumstances but that he volunteered to go to Jackson to clarify the situation with the Bank.

By letter dated September 23, 1971, Russell advised Bunker of his trip to Jackson and that the Bank (through an officer and its attorney) was “very much disturbed over the delinquent status of the account of Norge Villages, Inc.” (Deft’s Exh. 19); that the Bank was sending to him [Russell] “a demand letter with the amount necessary to be paid within the ten day period to bring the account current”; that “the five years already carried by the paper was too long a period of time for financing laundry equipment”; and that “unless this account is brought current * * * direct action will be instituted against you and Tri-State to effect collection.” There was no mention of a guaranty. Except for the threat of an action “against you” the letter speaks in terms of Norge Villages’ corporate account.

Thereafter, Bunker applied to the First National Bank of Greenville, Mississippi, for a loan to pay the past due installments. On October 4th,. Bunker secured a personal loan of $8,649.98. A cashier’s check showing Norge Villages of Greenville, Inc., as the remitter was sent to the Bank.

Based upon these facts, the trial court decided that Bunker had ratified his personal guaranty commitments as a matter of law. But this was not a non-jury case in which the Court was the sole trier of the facts. The record is not devoid of facts from which reasonable men (the jury) could differ: (1) there was no mention of a personal guaranty in the original contract of March 30, 1971; (2) Mrs. Foley said that she was not aware of one, Bunker testified to the same effect; (3) Bunker had the installment contract obligations taken in the name of a corporation; (4) Bunker’s attorney had not drawn the installment contracts; (5) the printed installment contract forms used were supplied by Tri-State; (6) the copies of the contracts available to Bunker and Mrs. Foley did not contain executed guaranties even though they were entitled to “filled in” documents; (7) Bunker reacted with surprise when the Bank official informed him of his personal obligation and he retained an attorney to investigate; (8) Russell’s professed lack of knowledge of any guaranty; and (9) Bunker’s partial payment, not on any personal guaranty but on the corporate contract obligations. All of these facts should have been weighed in Bunker’s favor when the Bank moved for a directed verdict. Such weight as a jury might give to these facts is not for appellate speculation but from any point of view they are facts sufficient to present a jury question on the issue of ratification.

Reversed and remanded for a new trial.